SA Metropolitan Fire Service v ACN 008 275 296 Pty Ltd (in LQD)
[2020] SADC 45
•20 April 2020
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
SA METROPOLITAN FIRE SERVICE v ACN 008 275 296 PTY LTD (IN LQD) & ORS
[2020] SADC 45
Judgment of Her Honour Judge Schammer
20 April 2020
INSURANCE - PUBLIC LIABILITY INSURANCE
INSURANCE - THE POLICY - PRINCIPLES OF CONSTRUCTION
Between 13 and 16 March 2012, the South Australian Metropolitan Fire Service (SAMFS) responded to a fire burning at a waste processing facility at Wingfield operated by ACN 008 275 296 Pty Ltd (in liquidation) formerly known as Mulhern’s Waste Oil Removal Pty Limited (Mulhern).
Water used by the SAMFS to contain the fire combined with oil from products on the property, producing an oily run-off, which escaped from the property and contaminated adjacent property, including wetlands.
Pursuant to its powers under the Fire and Emergency Services Act 2005 (the Act), the SAMFS engaged contractors to contain, neutralise, dispose of and/or remove the oily run-off, at a cost of $600,811.37. The SAMFS seeks to recover those costs from Mulhern pursuant to s 42(5) of the Act (Claim).
At the relevant time, Mulhern held a Public and Products Liability Policy Number B8610 issued by Newline Australia Insurance Pty Limited and/or Newline Syndicate 1218 at Lloyds (Policy).
Under the Policy, the insurers agreed to indemnify Mulhern ‘against all sums that (Mulhern) shall become legally liable to pay for damages or compensation and claimants costs and expenses for accidental Bodily Injury or Property Damage or Other Contingencies arising out of an Occurrence within the Policy Territory during the Period of Insurance in connection with the Business.’
The SAMFS contends that the liability it seeks to recover from Mulhern pursuant to s 42(5) of the Act is a legal liability to pay ‘compensation’ such that it is covered by the Policy. Further, or in the alternative, the SAMFS contends that the Policy is ‘a policy of insurance against damage or loss of property caused by a specified emergency’, namely fire, such that s 141 of the Act extends the cover under the Policy to the Claim.
The insurers have declined indemnity for the Claim on the basis that the liability is one in debt such that it does not fall for cover within the insuring clause of the Policy. Further, the insurers deny that the Policy is ‘a policy of insurance against damage or loss of property caused by a specified emergency’, and therefore deny that s 141 of the Act is applicable.
A separate trial was heard to determine the following preliminary questions:
1. Is Mulhern’s liability to the SAMFS pursuant to s 42(5) of the Act a legal liability ‘to pay damages or compensation…for Property Damage or other Contingencies’ such that it falls within the insuring clause of the Policy?
2. Does s 141 of the Act extend the cover under the Policy to the costs recoverable by SAMFS under s 42(5) of the Act?
The answer to each preliminary question is ‘No’.
Fire and Emergency Services Act 2005 ss 26, 42, 97, 105, 141; Fire Brigades Act (No. 495 of 53 and 54 Vic, 1890) (SA) s 59; South Australian Metropolitan Fire Service Act s 71; Second Reading Speech: SAMFS Amendment Act (No 98 of 1984) ; Emergency Management Act 2004 s 36; Water Resources Act 1991 s 161; Riot (Damages) Act 1886 ; Dangerous Substances Act 1979 ss 11, 35; Forest and Rural Fires Act 1977 s 43; Corporations Act 2001 (Cwth) ss 419, 601, referred to.
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; Todd v Alterra at Lloyds Ltd (on behalf of the underwriting members of Syndicate 1400) [2016] FCAFC 15; MLC Nominees Pty Ltd v Daffy [2017] VSCA 110; Kyriackou v ACE Insurance Ltd [2013] VSCA 150; Smart v AAI Limited; JRK Realty Pty Ltd v AAI Limited [2015] NSWSC 392; Tesco Stores Ltd v Constable & Ors [2007] EWCH 2088; [2008] EWCA Civ 362; Kantfield Pty Ltd v Lockwood [2003] VSC 420; Myer Stores Ltd v State Fire Commission [2012] TASSC 54; Stanley v Western Insurance Co (1868) LR 3; Bedfordshire Police Authority v Constable & Ors [2009] EWCA Civ 64; Garnett v Tower Insurance Ltd & Ors [2011] NZCA 576; Hall Brothers Steamship Co Ltd v Young [1939] 1 KB 748; James Longley & Co v Forest Giles Limited [2001] EWCA 1242; Bartoline Limited v Royal & Sun Alliance Insurance plc [2006] EWHC 3598 (QB); Rylands v Fletcher (1868) LR 3 HL 330; Hamcor Pty Ltd & Anor v Marsh Pty Ltd & Ors [2013] QCA 262; Dixon v Calcraft (1892) 1 QB 458; Yorkshire Water Services Ltd v Sun Alliance and London Insurance Plc & Ors (1997) 2 Lloyd’s Law Reports (IR) 423 [2013] QSC 9; Kyriackou v ACE Insurance Ltd [2013] VSCA 150, considered.
SA METROPOLITAN FIRE SERVICE v ACN 008 275 296 PTY LTD (IN LQD) & ORS
[2020] SADC 45Introduction
Between 13 and 16 March 2012, the South Australian Metropolitan Fire Service (SAMFS/plaintiff) responded to a fire burning at a waste processing facility at Wingfield (property) operated by ACN 008 275 296 Pty Ltd (in liquidation) formerly known as Mulhern’s Waste Oil Removal Pty Limited (Mulhern).
Water used by SAMFS to contain the fire combined with oil from products on the property, producing an oily run-off, which escaped from the property and contaminated adjacent property, including wetlands.
In the exercise of its powers under the Fire and Emergency Services Act 2005 (the Act), the SAMFS engaged contractors to contain, neutralise, dispose of and/or remove the oily run-off, at a cost of $600,811.37. The SAMFS seeks to recover those costs from Mulhern pursuant to s 42(5) of the Act.
Mulhern is in liquidation. At the relevant time, Mulhern held a Public and Products Liability Policy Number B8610 issued by Newline Australia Insurance Pty Limited (Second Defendant) and/or Newline Syndicate 1218 at Lloyds (Fourth Defendant) (Policy) (collectively referred to as ‘defendants’).
A separate trial was heard to determine the following preliminary issues/questions:
1Is Mulhern’s liability to the SAMFS pursuant to s 42(5) of the Act a legal liability ‘to pay damages or compensation … for Property Damage or other Contingencies’.[1]
2Does s 141 of the Act extend the cover under the Policy to the costs recoverable by SAMFS under s 42(5) of the Act? [2]
[1] Order made by a Master on 10 September 2019 pursuant to DCR 211 and see discussion at [61]-[67] herein.
[2] Order made by me on 21 November 2019 pursuant to DCR 211 and with respect to FDN 22.
For the reasons which follow, the answer to each preliminary question is ‘No’.
Hearing
The separate trial was heard on 21 November 2019. In addition to hearing the submissions of counsel, I received and considered the following materials:
1Statement of Agreed Facts and Documents dated 23 October 2019.
2Plaintiff’s Outline of Argument (undated).
3Plaintiff’s List of Authorities (undated).
4Submissions of the Second and Fourth Defendants dated 20 November 2019.
5Second and Fourth Defendants’ List of Authorities (undated).
6Second and Fourth Defendants’ Further Submissions dated 2 December 2019.[3]
7Plaintiff’s Further Submissions on Preliminary Point dated 9 December 2019.[4]
[3] Pursuant to the orders made by me at the hearing on 21 November 2019.
[4] Pursuant to the orders made by me at the hearing on 21 November 2019.
Agreed Facts
It is agreed:
1The fire occurred within the period of cover under the Policy, namely between 20 September 2011 and 20 September 2012.
2On 12 July 2012, SAMFS issued a Certificate pursuant to s 42(6) of the Act, certifying the costs of engaging the contractors in the sum of $660,811.37.
3By letter to Mulhern dated 12 July 2012, SAMFS, by its solicitors, sought payment of the sum of $660,811.37 from Mulhern pursuant to s 42(5) of the Act (Claim).
4Mulhern made a claim for indemnity under the Policy for the Claim.
5The Defendants denied Mulhern’s claim for indemnity under the Policy with respect to the Claim.
6SAMFS has leave to commence these proceedings against Mulhern by order of the Supreme Court of South Australia dated 7 March 2018.
The Act
Powers and Functions
Pursuant to the Act, the SAMFS has certain functions, including, inter alia, to protect life, property and environmental assets from fire or other emergencies in any fire district.[5] In performing those functions, the SAMFS may exercise any powers that are necessary or expedient, for or incidental to, the performance of its functions, including entering into any form of contract or arrangement.[6]
[5] Section 26(1)(c) of the Act.
[6] Sections 26(2) and 26(3)(a) of the Act.
In the exercise of its powers at the scene of a fire, an officer of the SAMFS may take or cause to be taken, any action that appears necessary or desirable for the purpose of protecting property or the environment, or for any other purpose associated with dealing with a fire, despite the fact the action may result in damage to, or destruction of, property or any aspect of the environment or cause pecuniary loss to any person.[7] Those actions specifically include carrying out or causing to be carried out, excavation and other earthworks and constructing, or causing to be constructed, barriers, buildings or other structures.[8]
[7] Section 42(1) of the Act.
[8] Sections 42(2)(ca) and (cb) of the Act, noting the Act provides for the South Australian Country Fire Service (CFS) to have equivalent powers pursuant to ss 97(1) and (2).
The SAMFS retained David Little Earthmovers to undertake excavation and bunding works to contain the contaminated water generated by their attempt to control the fire, Transpacific Industrial Solutions Pty Ltd to contain and remove the contaminated water and Veolia Environmental Services to remove and dispose of the contaminated water.
Those contractors subsequently issued invoices to SAMFS for such works (and the cost to repair equipment secondary to such works) totalling $660,811.37 (inclusive of GST); namely:
·David Little Earthmovers $23,599.25
·Transpacific Industrial Solutions Pty Ltd $411,487.32
·Veolia Environmental Services $225,724.80
Cost Recovery
The Claim was made pursuant to s 42(5) of the Act, which provides:[9]
(5)If an officer of SAMFS in control at the scene of a fire or other emergency engages a contractor to demolish, contain, neutralise, dispose of or remove any dangerous or hazardous structure, object, substance or materials, the costs of engaging the contractor are recoverable by SAMFS as a debt from the owner of the dangerous structure, object, substance or materials in a court of competent jurisdiction.
(my emphasis)
[9] The Act provides for similar a provision with respect to the CFS at s 97(10).
There is no dispute that Mulhern was the owner of the dangerous substance in question. The issue that arises for my determination is whether a liability pursuant to s 42(5) of the Act is of such character that it falls within the insuring clause of the Policy.
Further, s 42(6) of the Act provides:[10]
(6)In any proceedings under subsection (5), a certificate apparently signed by the Chief Officer certifying the costs of engaging the contractor is, in the absence of proof to the contrary, to be accepted as proof of the costs so certified.
[10] The Act provides for similar a provision with respect to the CFS at s 97(11).
There is no proof to the contrary of the Certificate pursuant to s 42(6) of the Act signed by Acting Chief Officer Smith of the SAMFS on 12 July 2012. The Claim is properly made in the sum of $660,811.37.
Section 141 of the Act provides:
141—Insurance policies to cover damage
(1)A policy of insurance against damage or loss of property caused by a specified kind of emergency will be taken to extend to damage or loss arising from measures taken by a person acting in pursuance of an authority conferred by or under this Act at the scene of an emergency of the specified kind.
(2)A term of a policy of insurance that purports to vary or exclude the operation of subsection (1) is void.
‘Emergency’ is defined in s 3 of the Act as follows:
emergency means an event (whether occurring in the State, outside the State or in and outside the State) that causes, or threatens to cause—
(a) the death of, or injury or other damage to the health of, any person; or
(b) the destruction of, or damage to, any property; or
(c) a disruption to essential services or to services usually enjoyed by the community; or
(d) harm to the environment, or to flora or fauna …
The issue that arises for my determination is whether the Policy is a ‘policy of insurance against … loss of property caused by a specified kind of emergency’ within the meaning of s 141 of the Act.
The Insuring Clause
The Policy is a Public and Products liability policy.
The Insuring Clause provides:
The Underwriters in consideration of the payment of premium by the Insured and subject to all terms Definitions Limits of Indemnity Exceptions Conditions and any Memoranda endorsed hereon will indemnify the Insured against all sums that the Insured shall become legally liable to pay for damages or compensation and claimants costs and expenses for accidental Bodily Injury or Property Damage or Other Contingencies arising out of an Occurrence within the Policy Territory during the Period of Insurance in connection with the Business. The Underwriters will also pay Legal Costs in addition to the Limits of Indemnity.
The Policy includes the following relevant defined terms:
·Property Damage ‘shall mean accidental damage to or loss of or destruction of material property’.
·Other Contingencies ‘shall mean accidental nuisance, trespass or interference with any easement or right of air light water or way.’
·Occurrence ‘shall mean an accident or event including continuous or repeated injurious exposure to substantially the same general conditions which results during the Period of Insurance in Bodily Injury or Property Damage or Other Contingencies neither expected nor intended from the standpoint of the Insured.’
The terms ‘damages’ and ‘compensation’ are not defined.
Although the policy contains an exception such that Underwriters are not liable for ‘Occurrences arising out of Pollution or Contamination’,[11] that exception does not apply to Pollution or Contamination ‘caused by a sudden identifiable, unintended and unexpected incident which takes place in its entirety at a specific time and place during the Period of Insurance’.[12]
[11] As defined therein.
[12] Exception (12).
Pollution or Contamination are deemed to mean:[13]
(a)all Pollution or Contamination of buildings or other structures or of water or land or the atmosphere; and
(b)all loss or damage or injury directly or indirectly caused by such pollution or contamination.
[13] Ibid.
Policy Interpretation - Principles
The principles governing the interpretation of insurance policies are settled.
An insurance policy is a commercial contract and as such is to be given a businesslike interpretation, paying attention to the language used by the parties in its ordinary meaning, the commercial circumstances addressed by the policy and its intended objects[14] and where relevant, the social purpose and object of the contract. The contract is to be interpreted in the context of the surrounding circumstances, including the market or commercial context in which the parties are operating, and is to be assessed by how a reasonable person in the position of the parties would have understood the language used.[15]
[14] McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22]; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at [15].
[15] Todd v Alterra at Lloyds Ltd (on behalf of the underwriting members of Syndicate 1400) [2016] FCAFC 15 at [42].
In MLC Nominees Pty Ltd v Daffy, the Victorian Court of Appeal stated:[16]
As has been said before, a policy of insurance is a commercial contract and should be given a businesslike interpretation. Interpreting a policy of insurance (like any other commercial document) requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. That said, it has been recognised that, in cases of ambiguity, a ‘liberal approach’ will generally be adopted in the construction of insurance contracts. This does not mean, however, that a court can attribute a different meaning to the words of a policy simply because the court regards the meaning as otherwise working a hardship on one of the parties.
[16] [2017] VSCA 110 at [66].
The policy is to be interpreted having regard to the bargain sought to be struck by the parties.
In this instance, the Policy is a liability policy. The purpose of the policy is to cover Mulhern for indirect losses it suffers arising from it incurring a legal liability to a third party who has sustained loss, arising from an insured event.
This is to be distinguished from first party cover, wherein the insurer covers an Insured for primary losses it sustains arising from an insured event. Cover is triggered with respect to the latter by reference to an event that is caused by an insured peril, whereas cover with respect to liability policies ‘draws on traditional concepts of fault, proximate cause and duty’.[17]
[17] DK Derrington and RS Ashton, The Law of Liability Insurance (LexisNexus Butterworths, 3rd edition, 2013) at [1-10].
Although policy wordings differ, as a general rule, the authorities demonstrate that public liability insurance policies are intended to provide indemnity to an insured for their tortious liability to others, arising from a finding of fault or a breach of a duty or obligation, whether imposed by the common law or statute.[18] Similarly, generally speaking, such policies do not provide indemnity for debts due or amounts payable under contract, being contractual, rather than tortious liabilities.[19]
[18] Kyriackou v ACE Insurance Ltd [2013] VSCA 150; Smart v AAI Ltd; JRK Realty Pty Ltd v AAI Ltd [2015] NSWSC 392.
[19] Tesco Stores Ltd v Constable & Ors [2008] EWCA Civ 362; Kantfield Pty Ltd v Lockwood [2003] VSC 420.
Preliminary Question 2 – s 141 of the Act
It is appropriate to deal first with the second preliminary question.
The SAMFS contend that the effect of s 141 of the Act is to extend the cover under the insuring clause in the Policy to include Mulhern’s liability for the Claim. Specifically, it was contended that the fire was an ‘emergency’ within the meaning of the Act, and that s 141; ‘brings the emergency which occurred within the ambit of the insurance cover to include the claim made by the Plaintiff under s 42(5), by deeming the liability of the First Defendant to the Plaintiff to fall within the Insuring Clause’.[20]
[20] Plaintiff’s Outline of Argument at [15].
Conversely, the defendants submitted that the Policy was not ‘a policy of insurance against damage or loss of property caused by a specified kind of emergency’, such that s 141 of the Act did not apply.[21]
[21] There was no dispute that the contractor costs were not otherwise ‘damage or loss arising from measures taken by a person acting in pursuance of an authority conferred by or under (the) Act’.
Counsel for the plaintiff submitted that s 141 of the Act needed to be interpreted having regard to the legislative framework taken as a whole and to the history of that legislative framework.
It was submitted that the intention of s 42(5) of the Act is to shift the burden of paying for the contractor costs incurred in the exercise of the SAMFS’s powers pursuant to s 42(2), away from the taxpayer, and onto the party who owned the dangerous substance. Section 141 of the Act expands that public policy, by ensuring fire and emergency services are able to appropriately recover the costs they incur in the exercise of their powers and functions, from an insurer providing cover for damage or loss of property caused by fire.
I was referred to the decision of the Supreme Court of Tasmania in Myer Stores Ltd v State Fire Commission, wherein Blow J stated, with respect to similar Tasmanian legislation:[22]
At least in relation to property damage, legislation in this State since 1920 had reflected a policy that the financial burden of unfortunate operational decisions should be borne by insurers, or by the uninsured. That seems possibly to have been a quid pro quo for the State providing fire-fighting services which, in times long past, were provided by insurance companies, and not at the expense of the public.
[22] [2012] TASSC 54 at [41].
Counsel for the SAMFS provided a bundle of materials relating to the various iterations of s 141 of the Act, noting an equivalent provision first appeared in s 59 of the Fire Brigades Act (No. 495 of 53 and 54 Vic, 1890) (SA) in the following terms:
Any damage to property occasioned by any Fire Brigade, or by the superintendent, or any member of any brigade, shall be deemed to be damage by fire within the meaning of any policy of insurance against fire covering the property so damaged.
Through various amendments, the wording of the provision remained similar, using the terminology ‘damage to property’ and specifically referring to policies ‘covering the property so damaged’.
In 1984, what was then s 71 of the South Australian Metropolitan Fire Service Act 1936 (SA) was repealed and substituted with the following provision, which uses similar (but not identical) terminology to that in s 141 of the Act:
All policies of insurance against damage or loss of property caused by fire or occurring during the course of any other emergency shall be deemed to extend to damage or loss arising from measures taken by any person acting in pursuance of an authority conferred by or under this Act at the scene of the fire or other emergency.
It was submitted that in expanding the application of the deeming provision from ‘damage to property’ to ‘damage or loss of property’, this was indicative of an intention by Parliament to further empower the SAMFS to rely upon the provision.
The Second Reading Speech: SAMFS Amendment Act (No 98 of 1984) was provided in the bundle. As to the relevant amendment it simply states:
Clause 22 replaces section 71 of the principal Act. The new provision is designed to extend to all emergencies (including fire) at which the Fire Service attends.
The Act and the Emergency Management Act 2004 (SA) replaced the South Australian Metropolitan Fire Service Act 1936 (SA).
The Emergency Management Act 2004 contains an equivalent provision at s 36 which states:
All policies of insurance against damage or loss of property caused by, or occurring during the course of, an emergency will be taken to extend to damage or loss arising from measures taken by any person acting in pursuance of an authority conferred by or under this Act at the scene of the emergency.
It is apparent that the present wording of s 141 of the Act was amended during the passage of the relevant Bill through Parliament to improve its readability, rather than its effect.[23]
[23] Plaintiff’s Outline of Argument at [20.2].
It was submitted that having regarded to the public policy purpose of the legislation, s 141 Act should be interpreted liberally, and that the express inclusion of the terminology ‘policy of insurance against damage or loss of property’ told against an interpretation which confined the operation of s 141 to only ‘first party’ insurance policies.
Further, it was submitted that the word ‘damage’ should be interpreted broadly, and beyond physical damage, as if a narrower interpretation was intended, the section would have read ‘damage to or loss of property’.
Section 141 of the Act represents a codification of the common law rule stated in Stanley v Western Insurance Co, namely:[24]
Any loss resulting from the apparently necessary and bona fide effort to put out a fire, whether it be by spoiling the goods by water or throwing the articles of furniture out of the window, or even the destroying of a neighbouring house by an explosion for the purpose of checking the progress of the flames, in a word, every loss that clearly and proximately results, whether directly or indirectly, from the fire, is within the policy.
[24] (1868) LR 3 Exch 71 at 74, noting the plaintiff’s argument that it also represents an expansion of that principle.
It is important to note that the statement in Stanley was made in the context of considering the cover provided by a fire insurance policy, namely a first party insurance policy.
As outlined in The Law of Liability Insurance:[25]
Property insurance is typical first party cover, if the damage to the insured’s property is an immediate and direct loss of value of his asset. The indemnity payment is then made by the insurer to him to redress that loss. By comparison, liability insurance covers the insured’s loss through liability to the third party so that in this sense the insured’s loss is indirect …
[25] DK Derrington and RS Ashton, The Law of Liability Insurance (LexisNexus Butterworths, 3rd edition, 2013) at [1-16].
First party property insurance policies, typically speaking, provide indemnity to an insured for loss or damage to the insured’s property caused by a specified event or emergency happening during the policy period, such as fire. Conversely, third party policies, such as the Policy, indemnify the insured for those sums for which it incurs a legal liability to others, for damages or compensation for injury, damage or loss of property or nuisance/trespass. The commercial intention of the latter is to cover an insured for its legal lability to third parties, not for ‘damage or loss of property’.
The terminology ‘damage or loss of property’ is used to capture not only damage to property (‘damage’), but the complete destruction of, and total loss of property (‘loss of property’). The use of this terminology in s 141 of the Act does not, in my view, indicate an intention by Parliament to capture those insurance policies which indemnify an insured for ‘damages’ to third parties in respect of property damage.
The defendants produced to the Court a copy of an Industrial Special Risks (ISR) policy issued to Mulhern by another insurer, covering the policy period 30 October 2011 to 30 October 2012.
The ISR policy provided indemnity to Mulhern ‘against loss arising from any insured events’ (subject to the terms and conditions of the policy). Section 1 of the policy is entitled ‘Material Loss or Damage’ and stipulates:
In the event of physical loss, destruction or damage (hereinafter in Section 1 referred to as “damage” or “damaged” having a corresponding meaning) not otherwise excluded happening at the Situation to the Property Insured described in Section 1 … will indemnify the Insured …
I note that the policy schedule refers specifically to ‘Fire Extinguishment Costs’.
It was submitted that this was the type of policy intended to be captured by the wording of s 141 of the Act, being ‘a policy of insurance against damage or loss of property caused by a specified kind of emergency’ and that the Policy was not such a policy.
I agree with that submission. The possible availability of cover under another insurance policy is irrelevant to a determination of this preliminary question. However, when the wording of s 141 of the Act is considered carefully, paying regard to its legislative history and context, it is clear that it only applies to ‘a policy of insurance against damage or loss of property caused by a specified kind of emergency’. The Policy is not such a policy. Rather, the Policy covers Mulhern for its legal liability ‘to pay for damages or compensation … for property damage’ arising out of accidents or events happening in connection with Mulhern’s business.
I am not satisfied that s 141 of the Act extends the cover under the Policy to include Mulhern’s liability to the SAMFS pursuant to s 42(5) of the Act.
The answer to the second preliminary question is ‘No’.
Preliminary Question 1 – ‘for damages or compensation … for Property Damage or Other Contingencies’
The order made by the Master was in the following terms:
The Court orders that:
1.The question of whether the insurance policy issued by or on behalf of the Second Defendant and/or the Fourth Defendant to the First Defendant responds to the Plaintiff’s claim as set out in paragraphs 13 to 19 inclusive of the Second Statement of Claim (‘Preliminary Point’) be referred to a Judge of this Honourable Court for hearing of a separate trial pursuant to rule 211 of the District Court Civil Rules 2006 …
By reference to paragraph 18 of the Second Statement of Claim, it is apparent that Mulhern’s claim for indemnity with respect to the Claim under the Policy was denied on the basis that the defendants maintained that the Claim ‘was limited to a right to recover as a debt and therefore was not characterised as a claim giving rise on the First Defendant to pay damages or compensation ‘for Property Damage or Other Contingencies’ as defined by the Policy’.
In the Second Statement of Claim, an alternative claim is made by the SAMFS against Mulhern arising from an alleged breach of a duty of care owed to it by Mulhern.[26]
[26] Second Statement of Claim at [20].
It is clear from the terms of the Master’s order and what was submitted by both counsel, that in answering the preliminary question, the Court was to disregard any consideration of whether, in fact, Mulhern had a liability to the SAMFS pursuant to this alternative pleaded claim for breach of duty (and therefore, whether any such alternative claim was covered by the Policy).
Both parties’ submissions proceeded on the basis that my role was to determine whether Mulhern’s liability to the SAMFS pursuant to s 42(5) of the Act was properly characterised as ‘damages or compensation’.[27]
[27] Plaintiff’s Outline of Argument at [3] and [44]-[55]; Second and Fourth Defendants’ Outline of Argument at [4].
However, this question must be answered in the context of the Insuring Clause and, by reference to the Master’s order, to what was pleaded in paragraphs 13 to 19 (inclusive) of the Second Statement of Claim.
As such, I have proceeded on the basis that the issue to be determined is whether Mulhern’s liability to the SAMFS pursuant to s 42(5) of the Act is a legal liability ‘to pay for damages or compensation … for … Property Damage or Other Contingencies …’ as described in the insuring clause of the Policy.
There is no authority binding on this Court as to how to construe the terminology ‘damages or compensation’ in the circumstances of this case. As such, both parties referred me to authorities which provide guidance as to the interpretation of similar, but not identical, insuring clauses.
The plaintiff submitted that despite the terminology used in s 42(5) of the Act, the amount sought to be recovered by the SAMFS from Mulhern was not a ‘debt’ but a liquidated sum, sought to be recovered as compensation under statute. It submitted that the Court should consider the facts and circumstances giving rise to the liability, when determining its character. It was submitted that the Court should adopt the reasoning of the Supreme Court of Judicature Court of Appeal (Civil Division) in Bedfordshire Police Authority v Constable & Ors[28] and by the Court of Appeal in New Zealand in Garnett v Tower Insurance Ltd & Ors,[29] and as such, characterise that liability as a legal liability to pay compensation, such that it was covered by the Policy.
[28] [2009] EWCA Civ 64.
[29] [2011] NZCA 576.
Conversely, the defendants maintained the liability was not a ‘legal liability to pay for damages or compensation’, but rather a liability to pay a statutory debt, in circumstances where that debt was imposed irrespective of any breach of duty or fault by Mulhern, such that the Policy did not respond to the Claim.
Damages
Both parties referred to the seminal authority of Hall Brothers Steamship Co Ltd v Young.[30] In that case, a ship was insured under a marine insurance policy which imposed upon the Underwriters an obligation to indemnify the assured in the following terms:[31]
If the ship hereby insured shall come into collision with any other ship or vessel and the assured shall in consequence thereof become liable to pay and shall pay by way of damages to any other person or persons any sum or sums in respect of such collision …
[30] [1939] 1 KB 748.
[31] Ibid at 755.
The shipowner sought cover for a liability imposed upon it by French law to pay for damage sustained to a pilot boat. The ship was in no way to blame for such damage. Sir Wilfred Greene MR stated:[32]
Now, it is to be noticed that it is not a liability to make any payment to any other persons in respect of the collision, but a liability to pay ‘by way of damages’. Accordingly the clause does not extend to every pecuniary liability arising in respect of the collision but only to such liabilities as arise by way of damages. The word ‘damages’ is one which to an English lawyer conveys a sufficiently precise meaning …
Nevertheless, it is necessary in my opinion, in construing a document of this kind, to give to the word ‘damages’ its ordinary meaning in English law. ‘Damages’ to an English lawyer imports this idea, that the sums payable by way of damages are sums which fall to be paid by reason of some breach of duty or obligation, whether that duty or obligation is imposed by contract, by the general law, or legislation. Now, the measure of the duty, of course, will depend upon the particular law. A statute may impose an absolute obligation not to do certain things, and as the result of that the person injured by the doing of such a thing may have a right to damages. That is a question of the measure of the duty … Looking at it from another point of view, there are certain classes of liability to make pecuniary payments which clearly fall outside the word ‘damages’. For instance, compensation paid under the Land Clauses Act or a matter of that kind is certainly not damages. Workmen’s compensation payments are certainly not damages in the ordinary sense of the word ... The foundation of that class of liability is something entirely different from the foundation of the liability which gives rise to a claim for damages.
[32] Ibid at 755-757.
As such, the Court held that the insuring clause limited cover to those cases where the liability of the shipowner was due to some breach of duty and did not extend, in that case, to the statutory obligation imposed under French law for the shipowner to be responsible to pay for such damage.
I was referred to a line of authorities addressing the issue of claims made for indemnity under liability policies with respect to claims for pure economic loss arising under contract. Mulhern’s liability to the SAMFS does not arise under contract, such that those cases can be distinguished from the within matter. However, those cases do provide some guidance in terms of the interpretation of liability policies which extend to provide indemnity for legal liability ‘for damages’ for and/or in respect of property damage and/or nuisance.
In Tesco Stores Ltd v Constable & Ors,[33] Tesco sought indemnity under the public liability section of an insurance policy, for a liability incurred by it to pay compensation to a third party, Chiltern, pursuant to a Deed of Indemnity. The Deed required Tesco to pay to Chiltern ‘on demand such sums as shall from time to time fairly compensate them for all costs, losses or expenses arising out of or resulting (directly or indirectly) from … the carrying out of the Works … on its existing and/or future railway passenger business.’ The ‘Works’ involved the construction of concrete tunnels to enclose a railway track, and the building of a supermarket, owned by Tesco, on top of the site. Chiltern operated the railway. During the Works, a section of the tunnel collapsed onto the railway tracks, meaning Chiltern was unable to operate the railway for a certain period of time, incurring business losses.
[33] [2007] EWCH 2088 (Comm), upheld on appeal in [2008] EWCA Civ 362.
On appeal, Tuckey JA (with whom Thomas and Hughes LLJ agreed) stated:[34]
A public liability policy provides cover against liability to the public at large. By contrast private liability arises from contracts entered into between individuals. Public liability in this sense arises in tort; it does not and cannot arise only in contract. As a general rule a claim in tort cannot be founded upon pure economic loss. So the judge was right to say that the fact that this was public liability insurance was important and that such policies do not generally cover liability in contract for pure economic loss. It is a strong pointer to the meaning of the words used. Of course it is not conclusive: the wording may extend cover to third party claims in contract even for pure economic loss although one would expect it to say so clearly and for such insurance to be described as contract liability, financial or consequential loss cover.
[34] [2008] EWCA Civ 362 at [14].
The relevant policy wording in Tesco was a liability ‘to indemnify the Insured against all sums which [Tesco] shall be liable at law for damages in respect of a) death or bodily injury to or illness or disease of any person b) loss or damage to material property…c) obstruction, loss of amenities, trespass, nuisance or any like cause, happening or consequent upon a cause occurring during the Construction Period…’ (my emphasis). The policy also included a contractual liability extension.
The Court determined that the policy did not extend to cover Tesco’s contractual lability to Chiltern, as the damage suffered by Chiltern was not ‘in respect of’ (being analogous to the word ‘for’ and not the broader phrase ‘in connection with’) death or bodily injury, property damage or nuisance or the like, rather it was a claim for pure financial loss arising from damage to another’s property.
The trial Judge in Tesco referred to what was said in an earlier decision in James Longley & Co v Forest Giles Limited.[35] That case involved a claim for indemnity under the public liability section of a Combined Policy made by a contractor for losses arising from the insured being required to rectify defects in its laying of a floor and being liable, by way of judgment, to the builder for losses arising from the delay in the completion of the work.
[35] [2001] EWCA 1242.
The policy had a similar insuring clause to that under consideration in Tesco, namely, it indemnified the Insured for ‘all sums for which [it] shall be liable at law for damages in respect of a) bodily injury to any person b) Damage to property…c) Obstruction loss of amenities trespass or nuisance; occurring during the period of insurance and arising in connection with the Business …’ (my emphasis).
The Appeal Court, in upholding the decision of the trial Judge that the policy did not provide indemnity for such losses, stated:[36]
…it is not the usual intention, in a contractor’s public liability insurance, to give cover in respect of defective workmanship which requires rectification but does not cause physical damage to the personal property of a third party or interference with a third party’s proprietary rights, as opposed to their purely economic interests.
[36] Ibid, at [17].
The defendants relied upon the decision in Bartoline Limited v Royal & Sun Alliance Insurance plc,[37] wherein the Court dealt with a similar factual situation to that which arises in the within matter.
[37] [2006] EWHC 3598 (QB).
Bartoline was a manufacturer of adhesives and a filler and packer of hydrocarbons. It held a policy of insurance which included public liability insurance providing an indemnity to it in respect of ‘legal liability for damages in respect of … accidental loss or damage to property … nuisance trespass to land or trespass to goods or interference with any easement right of air, light, water or way’.
During the period of cover, a fire broke out at Bartoline’s business premises. Polluted matter entered a watercourse immediately adjacent to the premises and flowed into a neighbouring watercourse.
As a consequence, the environmental agency acting under s 161(1) of the Water Resources Act 1991 (WRA) carried out emergency work. It subsequently sought to recover the expenses incurred by it in carrying out those works from Bartoline pursuant to s 161(3) WRA. At the time, that section provided:
(3)Where the Agency carries out any such works operations or investigations as are mentioned in subsection (1) above, it shall, subject to subsection (4) below, be entitled to recover the expenses reasonably incurred in doing so from any person who, as the case may be –
(a) caused or knowingly permitted the matter in question to be present at the place from which it was likely, in the opinion of the Agency, to enter any controlled waters; or
(b) caused or knowingly permitted the matter in question to be present in any controlled waters …
The issue was whether on the true construction of the policy, Bartoline’s liability to the Agency, pursuant to s 161(3) WRA was capable of being a ‘legal liability for damages’ within the meaning of the policy.
Counsel for Bartoline contended that the expression ‘damages’ in the policy should be construed as being equivalent to ‘pecuniary compensation’ and that would therefore be apt to include any compensation payable under statutory compulsion by way of reimbursement of the Agency’s costs. He also submitted that the liability in question was so inextricably linked to tort, that any sum recoverable by the Agency must be regarded as sufficiently akin to damages to bring it within the scope of the indemnity granted by the policy.
In that respect, s 161(3)(a) and (b) WRA contain, as a pre-condition to recovery, an element of causation (or fault). There is no such requirement in s 42(5) of the Act, with the pre-condition for recovery simply being the person’s ‘ownership’ of the dangerous structure, object, substance or materials.
In rejecting Bartoline’s argument, Judge Hegarty QC said: [38]
… The core meaning of the term ‘damages’ in English law is perhaps most conveniently summed up in 12(1) Halsbury’s Laws (4th edn, 1998), para 802, which, it will be recalled, puts it in the following way ‘“Damages” are the pecuniary recompense given by process of law to a person for the actionable wrong that another has done him.
This core meaning is supported by the various cases which were cited to me and which I have examined in the previous section of my judgment. Furthermore, at least in the field of marine insurance, it seems to me to be quite clear that this is the meaning which will normally be attributed to the word. Indeed, in that particular context, an even narrower construction has been adopted, even in the absence of an express term to that effect, since it will normally exclude any damages payable by the insured pursuant to contract.
I can see no obvious reason why a different approach should be adopted in relation to other forms of public liability insurance. The essential purpose of such policies is to provide an indemnity in respect of certain types of tortious liability. That is reflected in the choice of the word ‘damages’ in the insuring clause of the policy in this case. As it seems to me, that is made even clearer by the particular context in which the word is used, since the indemnity is granted only in respect of ‘legal liability for damages in respect of … accidental loss of or damage to property … nuisance trespass to land or trespass to goods or interference with any easement, right of air light water or way.’ That is why, in the various cases cited, it was consistently held that moneys payable pursuant to statute, whether directly or indirectly, could not fall within the scope of the relevant indemnity.
[38] Ibid at [108]-[110].
Counsel for the plaintiff submitted that the decision in Bartoline was distinguishable on two bases, namely that the insuring clause therein referred only to a legal liability ‘for damages’ (rather than ‘for damages and compensation’) and that it did not involve an emergency service with the obligations and duties of the SAMFS, albeit the claim for recovery in Bartoline was being made by a publicly funded agency with certain obligations with respect to environmental works.
While counsel for the defendants acknowledged that the wording of the insuring clause in Bartoline did not mirror precisely that in the Policy, it was submitted that that case, by way of analogy, was the closest to the circumstances of the within case in terms of background. It was submitted that the same reasoning as applied therein should be applied by the Court when interpreting the breadth of the insuring clause in the Policy.
Compensation
Counsel for the SAMFS submitted that despite the terminology used in s 42(5) of the Act, the liability imposed upon Mulhern pursuant to that section was not a liability for a ‘debt’ as known to the common law, but rather a legal liability to pay ‘compensation’.
Counsel for the plaintiff placed emphasis on the legislative intent of s 42(5), namely to shift the burden of paying such costs away from the taxpayer, and onto the party who owned the dangerous substance, in circumstances whereby the costs were incurred as an adjunct of the SAMFS simply exercising its functions, powers and therefore obligations, to protect the environment from the effects of the fire.
It was submitted the terminology used in s 42(5) to describe the liability as a ‘debt’ was for two purposes; namely to ensure the amount sought by way of recovery for such costs was ‘liquidated’ and to prevent the payer from arguing whether the costs were incurred in the proper exercise of the powers of the SAMFS.
It was submitted that the Court should adopt the reasoning of the Court in Bedfordshire Police Authority v Constable,[39] to characterise the liability as a legal liability to pay compensation.
[39] [2009] EWCA Civ 64.
The issue in that case was whether a police authority’s obligation under the provisions of the Riot (Damages) Act 1886 (Riot Act), to compensate property owners for damage to their property caused by a riot, was covered by a public liability insurance policy. That policy promised to indemnify the police authority in respect of sums which the authority ‘may become legally liable to pay as damages … for accidental damage to property … arising out of the businesses of the authority.
The issue for determination was whether the police authority’s liability to pay ‘compensation’, as expressly described as such in the Riot Act, amounted to a ‘legal liability to pay as damages’.
Justice Longmore noted that the answer to that question depended on the true nature of the liability as a matter of law.
After referencing the decision in Hall Brothers, he stated:[40]
…If I am asked whether the liability under the 1886 Act is a liability which falls to be paid “by reason of some breach of duty or obligation” in Sir Wilfrid Greene’s words, I can only say that it is. It is a liability that arises from the fact that the police are responsible for the preservation of law and order in the area of their police authority…
It is this concept of responsibility which affords the distinction between sums for which an insured is liable in damages and sums for which he is not so liable. …
Once one appreciates that the reason for the 1886 Act placing the burden of paying compensation to the victims of riot damage on the police authority is that the police are responsible for law and order and that they are (notionally) in breach of that responsibility, it seems to me, as an English lawyer, that compensation payable is a sum which the police authority is “liable to pay as damages”.
[40] Ibid at [24]-[26].
Counsel for the plaintiff submitted that there was a clear analogy between the circumstances in Bedfordshire and those in the within matter.
It was submitted that both concerned a public authority with a public duty and obligation to act in a certain manner – in the case of the police authority, to preserve law and order and in the case of the SAMFS, to quell fires and prevent them from threatening life, property or the environment. It was submitted that in order to properly characterise the nature of the liability incurred by Mulhern pursuant to s 42(5) of the Act, it was necessary to look beyond the express wording of the provision and to the powers, functions and duties as imposed upon the SAMFS pursuant to the Act as a whole. It was submitted that in doing so, and applying the same reasoning as adopted in Bedfordshire, the Court should find that the costs were incurred arising from an obligation or duty of the SAMFS and that Mulhern’s liability pursuant to s 42(5) of the Act was therefore a liability to pay compensation arising from that public responsibility.
Counsel for the SAMFS referred also to what Justice Longmore said as to the liability imposed under the principles in Rylands v Fletcher[41] as being an example of a ‘liability for damages’ and noted that in this instance s 105 of the Act imposed positive obligations on landholders to take reasonable steps to avoid a fire. Similarly, it was submitted that s 11 of the Dangerous Substances Act 1979 (SA) (DSA) imposed general duties on persons who keep, handle or use dangerous substances (such as Mulhern) and to prevent the risk of environmental harm. Reference was made to s 35 DSA which states:
[41] (1868) LR 3 HL 330.
35—Action in emergency situations
(1)If an authorised officer considers on reasonable grounds that a dangerous situation exists and that immediate action is required, the authorised officer may, after giving such notice (if any) as may be reasonable in the circumstances, take action or cause action to be taken as necessary to avert, eliminate or minimise the danger or risk.
(2)In the exercise of powers under this section, an authorised officer has, in addition to any other powers of an authorised officer under this Act, power to—
(a) enter and take possession of any place (taking such action as is reasonably necessary for the purpose); and
(b) seize, retain, move or destroy or otherwise dispose of a dangerous substance.
(3)Action may be taken or caused to be taken under this section whether or not a notice has been given to a person in relation to the danger under a preceding section.
(4)The Crown may recover the costs and expenses reasonably incurred by an authorised officer or other person exercising powers under this section from the person who caused the dangerous situation, as a debt in a court of competent jurisdiction. (my emphasis)
Counsel for the plaintiff noted that although this provision did not impose strict liability, in the sense that it linked the right of recovery to an element of fault (namely, that the person from whom recovery was sought had ‘caused the dangerous situation’), the liability was characterised in the provision as a ‘debt’. It was submitted that nevertheless, such liability was a liability to pay compensation, and that similarly s 42(5) of the Act should be interpreted as such.
While I agree in principle with the submission that merely characterising a liability as a debt does not necessarily mean that its true character is not that of compensation, s 35 DSA can be distinguished from s 42(5) of the Act, because of the absence in the latter to an element of fault being a pre-condition to recovery.
Justice Longmore’s reasoning in Bedfordshire that the liability incurred by the police authority fell for cover under the relevant policy, had, as its basis, a finding that such liability derived from the police authority’s (and therefore the insured’s) responsibility for the preservation of law and order and that the notional breach of such duty, led to the right and thus the damage, which fell to be compensated.
The SAMFS is not the insured in the within matter. Mulhern is the insured. The liability imposed upon Mulhern pursuant to s 42(5) is imposed irrespective of any breach of obligation or duty by Mulhern. It is a liability which has, at its core, the only necessary pre-condition being Mulhern’s ownership of, in this case, the dangerous substance. This can be contrasted from the liability imposed upon a person pursuant to s 35 DSA, which involves, as a pre-condition to recovery, that the person has ‘caused’ the dangerous situation.
I was also referred to the decision of the New South Wales Supreme Court in Smart v AAI Limited; JRK Realty Pty Ltd v AAI Limited,[42] as being authority for the proposition, consistent with that set forth in Bedfordshire, that to properly characterise the liability, it was necessary to look beyond its description, in order to ascertain the true basis for the liability.
[42] [2015] NSWSC 392 at [179].
Counsel for the plaintiff submitted that the circumstances of the within matter were also akin to that as considered by the Court of Appeal of New Zealand in Garnett v Tower Insurance Limited & Ors.[43]
[43] [2011] NZCA 576.
The decision in Garnett dealt with an appeal against a decision of an Associate Judge awarding summary judgment in favour of the insurer, Tower.
The case concerned the construction of three discrete provisions of an insurance policy designed to indemnify farm owners against third party liability. Mr Garnett and his partner were the owners of a company which owned a lifestyle farming property at Glenhope in New Zealand. The company constructed two tourist cabins on the property and used the income to meet its mortgage commitments with respect to the farming property in general.
In November 2009, a tourist used a fireplace in one of the cabins. The following day Mr Garnett cleared the fire grate of debris and disposed of it in an adjacent paddock. Unfortunately, that set alight a small woodshed, causing adjacent scrub to ignite and the fire to spread, causing damage to neighbouring forests owned by NFL.
In addition to a claim for damages issued by NFL, a separate claim was pursued against Mr Garnett and the company by the New Zealand Fire Service Commission and the Waimea Rural Fire Committee, claiming a sum of $602,861.00 for the costs incurred by those authorities in extinguishing the fire. Those claims were based upon a liability arising under s 43 of the Forest and Rural Fires Act 1977 (NZ Act). That section provided:
43 Recovery from Person Responsible for Fire
(1) Where any property has wholly or partially been destroyed or damaged by or safeguarded from an outbreak or threat of outbreak of fire, and responsibility for the outbreak is acknowledged by, or established by action or otherwise as caused by, any person –
(a)The costs of control, restriction, suppression or extinction of the fire may be recovered from that person by the Fire Authority or the New Zealand Fire Service Commission or the eligible landowner or eligible landholders of the forest area affected, as the case may be, incurring those costs pursuant to fire control measures under this Act; and
(b)Any loss in, or diminution of, value of that property, and any consequential loss or damage not too remote in law, may be recovered from that person by the owner of the property.
…
(3) This section shall be deemed to be supplementary to and not in substitution for any other rights of recovery that may exist in law or by enactment or otherwise howsoever.
(my emphasis)
The Court stated:[44]
While by s 43(1) a person who is responsible for causing a fire in a forest or rural area is strictly liable for costs incurred both in fighting the fire and for damage done to property - that is, without proof of negligence or want of care, s 43(3) preserves a claimant’s common law right to sue for damages. (my emphasis)
[44] [2011] NZCA 576 at [38].
The Tower policy contained the following provision:[45]
What you are covered for
We will cover you for up to $2,000,000 for your legal liability (including your defence costs) for claims made on you for compensatory damages for injury or property damage as a result of accidents in connection with your business occurring within the geographical limits during the period of insurance unless excluded by this policy.
[45] Ibid at [16].
The Court of Appeal agreed with the decision of the Associate Judge that for the indemnity as outlined in that clause to be triggered, it was necessary for there to be a connection between the insured business, namely the insured’s lifestyle farming business, and the insured risk, namely the fire. As the risk in fact arose from the renting out of cabins, rather than the business of farming, that necessary causal link could not be established.
However, the policy also included a special benefit as follows:[46]
[46] Ibid at [30].
FOREST AND RURAL FIRES ACT LIABILITY
This section is extended to cover you up to $200,000 or up to the sum insured shown in the Certificate of Insurance, for your legal liability arising under the provisions of the Forest and Rural Fires Act 1977 or any amendments.
The Court of Appeal disagreed with the decision of the Associate Judge that the statutory liability extension was limited to liability for accidents in connection with the insured’s lifestyle farming business. They agreed with the Associate Judge that the liability under s 43, incurred by Mr Garnett, was of a different nature from a liability for negligence. However, unlike the Associate Judge, they were satisfied that the claim under s 43(1) was a claim for compensatory damages and therefore covered by the liability protection extension. They explained that the award of statutory damages ‘would be of a compensatory nature’.[47]
[47] Ibid at [39].
I note that Garnett is cited as the authority for the following proposition in the Law of Liability Insurance, namely ‘if an amount is payable under statutory liability, irrespective of fault, but if the insured’s common law liability is unaffected, any award made in respect of it, is also compensatory damages”. [48]
[48] DK Derrington and RS Ashton, The Law of Liability Insurance (LexusNexus Butterworths, 3rd edition, 2013) at p 1271.
Counsel for the plaintiff acknowledged that s 43 of the NZ Act, unlike s 42(5) of the Act, introduced a concept of causation (or fault), being a pre-condition that triggered the statutory right of recovery. However, counsel argued that the provision expressly preserved the right of common law recovery, such that the Court’s decision was not predicated on the existence of that pre-condition.
However, if the Court of Appeal’s reasoning is carefully considered, it is apparent that in their characterisation of the liability imposed by the provision, emphasis was placed on the fact that although the provision imposed a strict liability for costs on the person causing the fire, it expressly preserved a claimant’s common law right to sue that person for damages. When carefully read, I do not consider the decision in Garnett stands for the proposition that a liability to pay a statutory debt that arises irrespective of any fault, is a legal liability ‘to pay compensation’ within the meaning of the Policy.
Section 42(5) of the Act applies to the owner of the dangerous substance, irrespective of whether that owner caused the fire.
In my view, the decision in Garnett is distinguishable on that basis.
Counsel for the plaintiff referred me to the decision of the Queensland Court of Appeal in Hamcor Pty Ltd & Anor v Marsh Pty Ltd & Ors.[49]
[49] [2013] QCA 262.
That case concerned the interpretation of an Industrial Special Risks Policy which contained the following Operative Clause:[50]
The Insurers will indemnify the Insured against their liability to pay compensation for and/or arising out of Injury and/or Damage (including claimants’ costs, fees and expenses) occurring within the Territorial Limits …
[50] Ibid at [4].
The Insured in that case was served with a statutory notice requiring them to take certain remedial action with respect to their land and adjacent property that was contaminated with chemicals following a fire on the land. The Insured sought indemnity under the policy for the costs it incurred in complying with that notice.
The Insured argued that the effect of the statutory notice was to render them liable for the cost to ‘make good’ the pollution, thus equating to a liability to ‘pay compensation’.
Muir JA, with whom McMurdo P and Atkinson J agreed, stated:[51]
The appellants’ proposed construction fails to have due regard to the language of the operative clause. The “insured” are to be indemnified “against their liability to pay compensation”. The appellant’ argument accepts that “liability” means being under a legal obligation of some form or another. That obligation is of a particular kind. It is not a liability to comply with court orders or other statutory requirements regarding the land; it is a liability to “pay compensation”. Those words, necessarily, contemplate the recompensing of a third party in respect of the insured’s liability to that third party or otherwise by legal compulsion. The appellants sought to overcome this difficulty by asserting that, where remediation work was done, there was a liability to pay or recompense the contractors who performed the work. This, it was said, was a “liability to pay compensation”. Such a construction gives an unnecessarily contrived, not to say improbable, meaning to the word “compensation”. The words “liability to pay compensation” have their ordinary, everyday meaning.
[51] Ibid at [14].
It was submitted that this Court should adopt that reasoning, and have regard to the dictionary definition of ‘compensation’, when interpreting what that word meant in the context of its use in the insuring clause in the Policy. It was submitted that in doing so, the court could be satisfied that the liability in s 42(5) was a liability to pay ‘compensation’ as the amount paid was ‘an amount given or received as recompense for a loss suffered’ by a third party, namely the SAMFS.
Further, it was submitted that in Hamcor the Court of Appeal had agreed with the finding of the trial judge, Boddice J, that “compensation” ‘was broader than a legal liability to pay damages to another’.[52]
[52] Plaintiff’s Outline of Argument at [51].
However, it is important to put that submission in correct context. Boddice J referred to the composite nature of the policy under consideration and the definitions provided under the pollution liability cover, for both ‘pollution’ and ‘damage’. He said:[53]
Further, when read in the context of a policy providing indemnity in respect of three separate perils and having regard to the specific definitions of damage and pollution within that clause, the words ‘liability to pay compensation’ is broader than a legal liability to pay damages to another. A liability to pay compensation is conceptually distinct from ‘damages’. (my emphasis)
[53] [2013] QSC 9 at [45], citing the authority of Dixon v Calcraft (1892) 1 QB 458 at 463.
Counsel for the plaintiff noted that at first instance, Boddice J had distinguished the decision of Bartoline (and that of Yorkshire Water Services Ltd v Sun Alliance and London Insurance Plc & Ors)[54] on the basis that the policies under consideration in each of those cases provided indemnity ‘against legal liability for damages’. The policy in Hamcor provided indemnity to the insured ‘for (their) liability to pay compensation for and/or arising out of … damage’. Boddice J stated, of the policies under consideration in Bartoline and Yorkshire Water:[55]
The express inclusion of the word ‘legal’ in respect of liability, and of the words ‘for damages’, make clear that any liability on the part of the insured had to be at law for damages. Such express terms do not exist in the policies under consideration in the present proceedings ….
[54] (1997) 2 Lloyd’s Law Reports (IR) 423.
[55] [2013] QSC 9 at [40].
Counsel for the plaintiff submitted that the policy wording in Bartoline was also materially different from that in issue here, as the indemnity provision in Bartoline applied only to a legal liability for damages, and not ‘damages or compensation’.
However, similarly, the policy wording in Hamcor is materially different from that in the insuring clause of the Policy. The insuring clause in the Policy does not cover ‘liability to pay compensation for and/or arising out of … damage’, rather it covers Mulhern’s legal liability ‘to pay for damages or compensation for … Other Contingencies …’.
Debt
The defendants contended that the liability imposed upon Mulhern pursuant to s 42(5) of the Act was a statutory debt, and not a legal liability ‘to pay for damages or compensation for … Other Contingencies …’
The defendants relied on the decisions in Kantfield Pty Ltd v Lockwood[56] and Kyriackou v ACE Insurance Ltd,[57] as being apposite.
[56] [2003] VSC 420.
[57] [2013] VSCA 150.
In Kantfield, the receiver of a company incurred a liability pursuant to s 419 of the Corporations Act 2001 (Cth) to Kantfield, for supply debts incurred by the company to Kantfield during the receivership.
At the relevant time, section 419(1) of the Corporations Act provided:
419(1)[Liability for debts incurred] A receiver, or any other authorised person, who, whether as agent for the corporation concerned or not, enters into possession or assumes control of any property of a corporation for the purpose of enforcing any charge is, notwithstanding any agreement to the contrary, but without prejudice to the person’s rights against the corporation or any other person, liable for debts incurred by the person in the course of the receivership, possession or control for services rendered, goods purchased or property hired, leased, used or occupied.
The receiver made a claim for indemnity with respect to this liability under a professional indemnity insurance policy. The relevant insuring clause stated:[58]
We agree to indemnify you against all civil liability arising from any claim that is first made against you during the period of cover in respect of your conduct of the professional business.
[58] [2003] VSC 420 at [8].
The word ‘claim’ was defined in the policy to mean:[59]
(i)a written or verbal demand by a third party for compensation or damages; or
(ii)a civil proceeding brought by a third party for compensation or damages.
[59] Ibid at [9].
The receiver acknowledged that his liability under s 419 was neither contractual nor tortious but arose under statute. However, it was submitted that by s 419, Parliament had created an avenue for the supplier of goods upon credit, to a company in receivership, to recover by way of compensation, from the receiver, any losses they sustained arising from such supply. As such, it was submitted that a claim under s 419 was a claim for ‘compensation’, thus falling within the definition of ‘claim’ in the policy.
In rejecting that argument, Byrne J listed a number of matters and stated, relevantly:[60]
… the expression in the definition of claim, “compensation or damages”, shows that what is there intended is a claim for pecuniary redress for some actionable wrong. An obligation in contract or otherwise to pay a sum in a certain event is not properly to be seen as an obligation to compensate; it is an obligation to perform the contract. Finally, s 419 imposes upon the receiver personal liability for certain debts. A claim to enforce this liability for debt is not in normal parlance to be characterised as a claim for compensation or damages. (my emphasis)
[60] Ibid at [12].
I agree with submissions made by counsel for the plaintiff that the liability incurred by the receiver in Kantfield was genuinely in the nature of a ‘debt’, albeit codified by statute to be a liability incurred by the receiver, as the sum related to an unpaid sum pursuant to a contract for supply.
The facts and circumstances giving rise to the liability in Kantfield are distinguishable from the within matter. Nevertheless, Byrne J’s analysis of the intended meaning of the phrase ‘compensation or damages’ is consistent with the reasoning as applied by the courts in Hall Brothers and in Tesco, albeit those courts were considering policies which only covered ‘damages’, not ‘damages or compensation’.
In Kyriackou, the relevant insuring clause was in the following terms:[61]
Loss arising from any Claim in respect of civil liability for breach of a duty owed in a professional capacity first made against an Insured during the Period of Insurance.
[61] [2013] VSCA 150 at [2].
‘Loss’ was defined in the policy as:[62]
… the aggregate of all amounts payable by the Insured or ACE as civil compensation or civil damages in respect of a Claim, including judgments, settlements, legal costs and expenses awarded against an Insured and payments for Defence Costs.
[62] Ibid at [4].
The claim made by the insured under the policy was with respect to legal costs incurred by him in defending proceedings commenced against him by ASIC. In those proceedings, ASIC sought a declaration that Kyriackou (and other defendants) had engaged in conduct in contravention of s 601ED of the Corporations Act by operating a managed investment scheme which required registration, but was not so registered. ASIC also sought an order that Kyriackou be permanently restrained from further operating or promoting the scheme.
In considering the claim for indemnity under the policy, Harper JA (with whom Tate JA agreed) said:[63]
Kantfield is, however, authority for the proposition, with which I respectfully agree, that a claim for civil damages or civil compensation does not include a claim in debt. Like reasoning points equally strongly to the conclusion that nor does such a claim encompass a claim for restitution, or for a civil penalty. Still less does it include a claim for any of the relief sought by ASIC.
[63] Ibid at [51].
Harper JA went on to say: [64]
Aggrieved persons may have claims of various kinds – for example, in restitution, or debt, or damages – or some combination of these (the terms ‘damages’ and ‘compensation’ are synonymous). But a claim for damages requires a breach of a duty or obligation and would therefore exclude claims for restitution or debt … (my emphasis)
[64] Ibid at [52].
Again, the factual circumstances in Kyriackou are very different from those in the within matter and therefore the case can be distinguished. However, the defendants relied upon what was said by Harper JA as to the terms ‘damages’ and ‘compensation’ as being synonymous, as supporting their contention that the insuring clause in the Policy only extends to cover a liability for pecuniary recompense to a third party for the actionable wrong of the insured.
In this respect, the defendants argued that it was not appropriate for the Court to simply apply dictionary definitions to those words and rather, that consistent with the principles applicable to the interpretation of insurance contracts, their meaning should be determined by reference to the Policy as a whole, its commercial context, and what was intended by way of the parties in terms of the bargain struck, having regard also to what could be discerned from the relevant authorities. I agree with that submission.
Observations/Findings
As previously stated, the Policy covers Mulhern for its legal liability ‘to pay for damages or compensation … for Property Damage or Other Contingencies’ arising out of accidents or events happening in connection with Mulhern’s business.
The Policy is to be construed having regard to its intended objects and having regard to the bargain that was sought to be struck by the parties. It was not suggested that there was any ambiguity as such in the insuring clause, and insofar as there was any such suggestion, the Court must not, in any event, attribute a different meaning to the words used, simply to alleviate hardship to a party.
I have addressed the relevant authorities which provide guidance as to the interpretation of the word ‘damages’ when used in the context of public liability policies such as the Policy. Those authorities make it clear that the word ‘damages’ is to be interpreted to include such sums that fall to be paid by an insured because of a breach of duty, whether that duty is imposed by the common law, statute or contract.
Mulhern’s liability to the SAMFS pursuant to s 42(5) of the Act is not contingent upon any breach of duty or obligation by Mulhern.
Applying the relevant authorities, I am not satisfied that Mulhern’s liability for the Claim is a legal liability ‘for damages’.
The plaintiff did not contend that Mulhern’s liability for the Claim was a liability to pay ‘for damages’. Rather, counsel for the plaintiff submitted that the liability imposed upon Mulhern pursuant to s 42(5) of the Act was not a liability for a ‘debt’ as known to the common law, but rather a legal liability to pay ‘compensation’.
I have outlined the circumstances of Bedfordshire and Garnett in some detail, as they were relied upon by the plaintiff to support such an interpretation.
The decision in Bedfordshire can be distinguished on the basis that the insured in that instance was the police authority. The police authority’s liability to pay compensation to property owners for damage to their property caused by a riot, whilst legislated under the Riot Act, derived from its notional breach of duty to preserve law and order. The insured in this instance is Mulhern. While there are statutory obligations imposed upon Mulhern under both the Act and the DSA (and of course, other duties and obligations imposed by the common law), the Claim (as defined herein) is not pursued on that basis, rather it is made solely pursuant to s 42(5) of the Act.
As previously stated, in Garnett, the relevant statutory provision required, as a pre-condition to recovery, that the person was ‘responsible for causing [the] fire’, thus introducing the notion of fault.
Mulhern’s liability to the SAMFS pursuant to s 42(5) of the Act is not contingent on any fault on the part of Mulhern. It is derived simply from the fact of Mulhern’s ownership of the dangerous substance. In this respect, s 42(5) of the Act can be contrasted from both s 43 of the NZ Act (and s 35 DSA).
The decision in Bartoline is also not on all fours as the policy in question only extended to cover ‘damages’, not ‘damages or compensation’.
However, it is of note that the Court rejected Bartoline’s argument that as the true basis for the statutory liability was ‘inextricably linked to tort’, the sum sought by way of statutory recovery was akin to ‘damages’, despite the fact the relevant statutory recovery provision included an element of fault (or causation) as a pre-condition to that recovery.
I agree with the defendants’ submissions that the terminology ‘damages or compensation’ as used in the Policy, is intended to capture those payments which are not strictly ‘damages’, such as payments made by an insurer to a workers’ compensation authority by way of recovery of workers compensation benefits. While such payments are made pursuant to statute, a pre-condition for such payment is a breach of a duty (or some actionable wrong) on the part of the insured.
Counsel for the plaintiff submitted that the Policy contained an exclusion at exception 4 with respect to ‘legal liability arising under worker’s compensation’. However, the effect of that exclusion is not to exclude a statutory claim for recovery of compensation made by a WorkCover authority against an insured, which has as its basis the requirement that the insured’s fault caused the loss, but to exclude claims that relate to payments made directly by an insured to its workers under what is, in effect, a strict liability regime imposed by workers compensation laws.
I agree that it is possible to characterise Mulhern’s liability to the SAMFS under s 42(5) of the Act as being ‘compensation’ within the dictionary definition of that word. However, the relevant question to be answered is; is the liability a legal liability ‘to pay for damages or compensation … for … Property Damage or Other Contingencies ...’
The insuring clause in the Policy is in similar terms to that in Tesco and in James Longley, albeit those cases only extended cover to a legal liability ‘for damages’. As stated in both Kantfield and Kyriackou, the words ‘damages’ and ‘compensation’ when used in liability policies, are synonymous, and are intended to apply to claims for pecuniary redress, to address an actionable wrong.
Further, although the costs incurred by SAMFS were incurred ‘in connection with’ damage to property and/or accidental nuisance, the sum payable pursuant to s 42(5) of the Act is not payable ‘for … compensation’ for either ‘Property Damage’ or ‘Other Contingencies’ within the meaning of the Policy. As in Tesco, the Claim does not arise from damage to any of SAMFS’s proprietary interests as such, rather the Claim is for pure economic loss sustained by the SAMFS from the performance of its obligations and functions under the Act.
Having carefully considered all of the relevant authorities, the Act and its purpose, and the bargain intended to be struck by the parties to the Policy, I am not satisfied that Mulhern’s liability to the SAMFS pursuant to s 42(5) of the Act is a legal liability ‘to pay for damages or compensation … for … Property Damage or Other Contingencies …’ such that it falls within the insuring clause of the Policy.
The answer to the first preliminary question is ‘No’.
Orders
1Mulhern’s liability to the SAMFS pursuant to s 42(5) of the Act is not a legal liability ‘to pay for damages or compensation … for … Property Damage or Other Contingencies …’ such that it does not fall within the insuring clause of the Policy.
2Section 141 of the Act does not extend the cover under the Policy to the costs recoverable by SAMFS under s 42(5) of the Act.
3I will hear the parties as to costs and any consequential orders.
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