Toomey v Scolaro's Concrete Constructions Pty Ltd and Ors (No 5)
[2002] VSC 48
•7 March 2002
| SUPREME COURT OF VICTORIA AT MELBOURNE | |
| COMMON LAW DIVISION | Not Restricted |
MAJOR TORTS LIST
No. 4130 of 1997
| CAMERON JOHN TOOMEY | Plaintiff |
| v | |
| SCOLARO’S CONCRETE CONSTRUCTIONS PTY LTD (In Liquidation) and ORS | Defendants |
| HUDSON CONWAY MANAGEMENT LTD | Tenth Defendant |
| ROYAL & SUN ALLIANCE INSURANCE AUSTRALIA LTD | Fifth Third Party |
JUDGE: | Eames J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 February 2002 | |
DATE OF JUDGMENT: | 7 March 2002 | |
CASE MAY BE CITED AS: | Toomey v Scolaro’s Concrete Constructions Pty Ltd and Ors (No.5) | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 48 | |
Insurance – Public Liability Policy – construction of contract - claimant a subsidiary company and Project Manager for property development by Group – Companies in Group own property which is subject of development – whether cover “in connection with the Business” is confined to companies in Group owning and occupying properties – Exclusion clause – no cover for “breach of a duty owed in a professional capacity” – whether finding of vicarious liability included finding that Project Manager in breach of its own duty of care – whether Project Manager and/or employee acting in a “professional capacity”.
APPEARANCES: | Counsel | Solicitors |
| For the Tenth Defendant | Mr P. Riordan | Blake Dawson Waldron |
| For the Fifth Third Party | Mr G. McArthur SC and Ms S. Hinchey | Phillips Fox |
HIS HONOUR:
This is a claim for indemnity under a public liability insurance policy brought by the tenth defendant, Hudson Conway Management Ltd (“HCML”), against Royal & Sun Alliance Insurance Australia Ltd (hereinafter referred to as “the Insurer”), the fifth third party in the proceedings. The third party proceedings followed Judgment entered by me on 17 August 2001 whereby I found nine defendants liable to the plaintiff with respect to injuries, loss and damage suffered by him in a fall over a balustrade rail at premises known as Balmoral Apartments on 1 March 1996. At the time of the accident those premises were owned by Davidson Hughes Estate Pty Ltd (“Davidson Hughes”), a wholly owned subsidiary of Hudson Conway Limited. The tenth defendant, HCML, is also a wholly owned subsidiary of Hudson Conway Limited.
Hudson Conway Limited had a public liability policy of insurance issued by the Insurer. The Broadform Liability Policy specifies that the policy and endorsements and the schedule, are to be read together as one contract. It is agreed that relevant documents for the purposes of interpretation of the contract of insurance comprise a Broadform Liability Policy dated April 1993, closing instructions issued by Hudson Conway Limited’s broker, Chapman Insurance Brokers Pty Ltd, dated 5 July 1995, and replacement schedules dated 18 November 1995 and 16 January 1996.
In the “General Definitions” provision of the policy the words “Persons Insured” are given six cumulative meanings, the first of which, alone, is relevant to this action. The first definition of “persons insured” reads as follows:
“The policyholder named in the schedule and all subsidiary companies (now or hereafter constituted) whose place of incorporation is within Australia or its external territories. “
The words “The Business” are defined as follows, in paragraph 2:
“The Business shall mean that described in the schedule and shall also include:
1.The provision of its own canteen, sports, social and childcare facilities or welfare organisations, and its own fire, first aid, medical and ambulance services, by the Policyholder.
2Private work undertaken by any Employee for any director, partner or senior executive of the Policyholder.
3.The ownership or occupation of, the carrying out of repairs, maintenance, alterations or additions to, or the demolition of, the Policyholder’s premises to which this policy applies.
4.The deeming of Person Insured 1.1 to be a manufacturer of products by operation of a law of Australia of its external territories.
The “Section A - Public Liability” provision reads as follows, (emphasis added) under the heading “Compensation”:
“1.Subject to the Limit of Indemnity expressed in the Schedule under Section A the Company will indemnify the Persons Insured in respect of all sums which they shall become legally liable to pay as compensation for
(a)Personal Injury
(b)Damage to Property Other Than
(i)Property belonging to any of the Persons Insured
(ii)Property in the possession or control of any of the Persons Insured
happening during the Period of Insurance within the Territorial Limits as a result of an Occurrence and in connection with the Business less the amount of the Excess shown in the Schedule as applicable to Section A.
2. And in addition the Company will pay
(a)all costs and expenses incurred with the written consent of the Company
(b)legal costs for representation of any of the Persons Insured at any coroner’s inquest or in any court of summary jurisdiction.
(c)all charges expenses and law costs recoverable from any of the Persons Insured
(d)all expenses incurred by any of the Persons Insured for first aid to others at the time of Personal Injury (other than medical expenses payment of which by the Company is prohibited by law)
all of which must be incurred in connection with claims for compensation which if sustained would be indemnifiable under Section A.”
The policy provides for exclusions applicable to the public liability, only the sixth paragraph of which is relevant for present purposes. The policy provides (emphasis added) that the company shall not be liable for:
“Professional duty
6.claims arising out of any breach of duty owed in a professional capacity by any of the Persons Insured, but this Exclusion does not apply to services rendered by members of the Policyholder’s own first aid medical or ambulance services referred to in Definition 1.4.”
The document titled “Closing Instructions” from the broker of Hudson Conway Limited which were forwarded to the insurer and were dated 5 July 1995 confirmed that cover was required for a class of risk being public liability. The insured was specified to be Hudson Conway Limited and the public liability insurance was to cover legal liability for bodily injury or damaged property including cross-liabilities, property owners, tenants liability, car parks, and boiler explosions. The “Situation” which the closing instructions identified for the purposes of coverage was identified as follows (emphasis added):
“Situation:
At and from any property or situation anywhere in Australia excluding the Fawkner Park Centre, CUB site and Commonwealth Centre sites owned or occupied by the insured.”
The Schedule to the policy, signed on behalf of the insurer and noting a date of issue of 18 November 1995, provided that the policyholder was “Hudson Conway Ltd”, and the Schedule provided a blank space to be completed under the heading “The Business”. The insurer had not inserted any activity under that heading but left undisturbed the typed words appearing after the blank space “and no other for the purpose of this insurance”. The “Premises” were described as 11 Glenferrie Road, Malvern 3144, and were said to be “occupied as property owners – office buildings”. The policy was described, again, as being a public liability policy and an endorsement appeared, noting the words “including additional situation 350 St Kilda Road, Melbourne”.
The first question which I will later address relates to the scope of the business which was covered by the policy. On this question HCML carries the onus of establishing that its business was covered by the policy.
On behalf of the insurer it is submitted that there having been no description of “The Business” inserted in the Schedule the only business to which the policy applied was that defined in paragraph 3 of the General Definition relating to “The Business”. In other words, the only business covered by the policy was “the Ownership or occupation of . . . the policyholder’s premises to which this policy applies”.
The Proposal Form completed by the insured party and to which the Broadform Policy applied was first completed on 24 December 1991. The details given of the proposer was stated to be “Hudson Conway Ltd and related entities including Mardi Pty Ltd (refer list)”. In the category “Address of main premises” the address 311 Glenferrie Road, Malvern was given and in the section dealing with “Full description of business or occupation including all subsidiaries” the following words appeared: “Property investment, development, construction”.
In a section relating to contractual liability, the Proposal Form required Hudson Conway Ltd to respond to the question “Do you require the insurance to be extended to include liability arising out of any obligations you have assumed under any contracts or agreements including hold harmless or indemnification agreements”, to which Hudson Conway Limited said “yes”, and gave the following details “various future building contracts or other contracts entered into which may obligate the Group”. In answer to a question whether Hudson Conway Limited used machinery, it said “yes”, and gave the detail, as follows, “minor use of machinery and other equipment related to building work (as majority of work done by sub-contractors). Some minor involvement with asbestos”.
In answer to the question “Do you provide any professional, technical, consultancy, advisory or like services either for a fee or as an ancillary service to the business?”, the proposer answered “no”. In answer to the question whether work was carried on away from the premises the proposer answered “on various building sites, and in existing buildings”.
In answer to a question, “Do you require the insurance to be extended to include liability arising out of damaged property in your care, custody or control”, the proposer answered, “yes”, and gave the location for such coverage to be “any sites where future management is involved”.
In answer to a question “whether any other person, financier or lessor, for example, have any interest”, and to provide details, the proposer answered, ”From time to time financiers may have interest in properties where management is occurring”.
Those answers in the Proposal Form unmistakably asserted, and reflected an intention that coverage should be provided therefore, that Hudson Conway Limited (being the Group, including subsidiaries) engaged in the business of property development and construction, as well as property investment. That information and intention was conveyed to the Insurer by the provision of other material, also.
In addition to the Proposal Form, and annexed to it, Hudson Conway Limited provided a summary of buildings owned by the proposer. In a schedule of properties forwarded by the brokers on 11 February 1994 a list of properties to which the public liability insurance applied was provided, and that included the Balmoral Apartments property at Riversdale Road, Hawthorn. The substantial list of properties owned by the insured did not assert that the properties were owned by Hudson Conway Limited, itself, rather than by companies in the Group. Indeed, it is the case of the insurer that the policy covered both (and only) properties owned and occupied by the principal or its subsidiaries. A chart was provided setting out the Group structure, without expressly identifying the various subsidiary companies but noting that in the Group there were “various single purpose property unit trusts” which were 100% owned by the principal company, in addition to there being other 100% owned Australian subsidiaries.
Hudson Conway Limited also provided to the insurer a document titled “Information Memorandum” which gave an overview of Hudson Conway Limited which made a statement as to the background of the company as being a “Highly respected and successful participant in Australia’s property market”. The document stated that Hudson Conway Limited was regarded “as one of the top property development/investment groups in Australia. Most stockbroker research and newspaper comments focussed not simply on the property development strengths, but on the corporate skills and relationships of the three founding shareholders as principal assets of the company”. The document described the business strategy and objective of the company, and under the heading “Our Business” it stated “the day to day business of Hudson Conway Limited is acquiring and developing in Australia and overseas assets that will appreciate in value over time”.
An affidavit filed before me by Mr Danielle Agnoletto, a director of Hudson Conway Limited and of all the subsidiary companies, including HCML and Davidson Hughes Estates Pty Ltd, described the creation of the group and the relationship of the subsidiary companies to the principal company. He deposed that Hudson Conway Limited acted purely as a developer/investor. The investment side involved trading and investing in listed securities and holding investment property. The development side involved the development of buildings from the ground up or the refurbishment of existing structures. Since 1987 Hudson Conway Limited had primarily focussed on residential unit developments. He deposed that the method of residential development was to acquire properties and then to engage a builder.
Mr Agnoletto said that a subsidiary of Hudson Conway Limited was HCML which employed management, administrative staff and operational staff. By operational staff he included persons who were employed from the building industry whose job it was to supervise the developments for the Group. One such person employed was Mr Bob James. Mr Agnoletto said that Hudson Conway Limited was not a builder and did not build its own projects.
Mr Agnoletto said that the structure adopted by the Group in developing sites was that each site would be owned by an individual subsidiary company, usually created especially for that purpose. Occasionally, if a corporation had completed an earlier development, it would then be re-used, and that was the case adopted with respect to the Balmoral Apartments project. Davidson Hughes Estates Pty Ltd was assigned to become the owner of that property on behalf of the group. The investigation of sites and feasibility studies would be paid for by HCML and the work would be carried out by that company until the purchase of the site. Thereafter, the subsidiary corporation would become the registered proprietor. All operations of the subsidiary company, however, would be carried out by persons employed by HCML and the employees of HCML would arrange for the builders and other consultants to be engaged on behalf of the subsidiary company (Davidson Hughes Estates Pty Ltd). Once work commenced at the building site HCML would provide “a supervisory role on behalf of the subsidiary company, as and when required. All administration was undertaken by the administrative staff employed by HCML”.
Mr Agnoletto described the financial arrangements within the Group as being that HCML would receive what was called “inter-company book management fees”, which would be 25% of the profit of each Hudson Conway Limited subsidiary company for each financial year. That sum was not calculated by reference to the services provided to each subsidiary but was designed to reward HCML on a success fee basis for doing all preparatory work with respect to the projects and to meet operating expenses. The payment of the management fee was merely a journal entry in the books of HCML. Davidson Hughes Estates, itself, had no bank account and all payments and receipts were put through the accounts of HCML. For the financial year ended 1996 HCML charged book management fees of $7.7M. Those were shown as “management fees” in its accounts.
Mr Agnoletto said that to his knowledge HCML had never charged a fee for its building supervisory work to any outside company. There was only one exception, and that was the Crown project, for which HCML was engaged as project manager and paid under a contract, but in that case Hudson Conway Limited was a shareholder in the development.
In my judgment on the plaintiff’s claim for damages I found that Mr Bob James, as site representative on the Balmoral Apartments project, was made aware of the fact that the balustrade over which the plaintiff fell was not built to the height required by the Building Code and that notwithstanding that knowledge he told the builder to leave it at the height it was. I found that James did not act with a deliberate disregard for the code in making that decision and that his instruction could have had a more innocent interpretation, some possibilities being that he thought that he might obtain a dispensation from the Code by application to the Building Appeals Tribunal, or that he thought the interpretation of the Code provision was not clear cut, or that he had in any event complied with the code because the upright posts had themselves reached the required height although the horizontal bars had not. I concluded that he had taken his decision, to do nothing, on grounds of cost and delay and that in so acting he was in breach of a common law duty of care for which HCML was vicariously liable. I found that James was the most junior of the management team at HCML and had not acted with the knowledge or approval of those senior to him.
Was the business of HCML covered by the policy?
The first question is whether the business of HCML was covered by this policy. In my view it was not, and the claim for indemnity by HCML fails at the threshold.
Mr Riordan conceded that determination of this question must depend on the wording of the policy and that reference to material extraneous to the policy was not appropriate. He submitted, however, that the additional material reflected the fact (which he submitted, the policy confirmed) that it was the business of the Group which was to be covered and it confirmed too that the insurer well knew that the significant, if not primary, business of the Group was that of property development, not of property ownership and occupation.
In my view, the intention to cover only public liability arising with respect to property owned or occupied by members of the Group flows from the fact that in the absence of any words under the category of “The Business’ in the Schedule, it is only such business as is then defined by the policy itself “and no other” (to quote the words in the Schedule) to which coverage extends. The definition of “the Business” then leaves only one business to which the policy is applicable i.e “the ownership or occupation of . . . the Policyholder’s premises”. In this case HCML neither owned nor occupied Balmoral Apartments and its liability did not arise by virtue of such ownership or occupation.
As I have said, I am satisfied that it was intended that the Group be covered, as indeed it was, under this policy. All subsidiaries are defined as included under “Persons Insured”. The problem is that, in my opinion, the coverage by way of public liability for both the principal and all subsidiaries, including HCML, which the policy stipulated was only with respect to their ownership or occupation of property. It was not professional indemnity coverage which this policy provided, nor coverage for purposes of construction, save to the extent that liability arose out of an occurrence in connection with the ownership or occupation of the claimant policyholder’s premises. Thus the two additional occupations of “Development” and “Construction” which had been specified in the Proposal Form were not addressed by this policy, unless the policyholder seeking coverage was the owner or occupier of the property where the event occurred. Only “property investment” was therefore expressly recognised, by reference to the description of the business as “ownership or occupation” of premises.
Mr Riordan submitted that the only basis on which the insurer could maintain its construction of the policy, was that by virtue of its own failure to insert the words “property investment, development and construction” in the Schedule under the category “the Business”, it follows that the only possible business to be covered is that identified in paragraph 3 under the definition of “the Business”, i.e “ownership or occupation . . .of premises”. That omission should not be permitted to be relied on in defiance of the clear intention demonstrated by the Proposal Form to cover all aspects of the Group business, he submitted. In the absence of any words inserted in the Schedule it must be taken, he submitted, that all businesses of the Hudson Conway Group were intended to be, and were, covered. Although it is now contended that the policy was intended to cover a wider range of occupations, it is to be noted that the Closing Instructions from the broker for HCML expressly identified the “Situation” for which cover was required as being “only property …..owned or occupied by the insured.”
Mr Riordan contended that, absent the collection of rent, ownership or occupation of premises could not constitute a “business”, and that property development - i.e the primary activity of the Group, including HCML - was much more amenable to that description.
However, given that liability is provided with respect to an occurrence which occurs in connection with the business, and that the policy defines the business as including ownership or occupation of the policyholder’s premises, the policy itself does define ownership or occupation of premises as being a “business”. Thus, liability of Davidson Hughes as owner of Balmoral Apartments would be covered under this policy. Whether “property development” is also a business is beside the point; the question is whether that business is also covered by the policy, and, in my opinion, it is not.
Alternatively, Mr Riordan submitted, the policy was intended to cover the activities of the Hudson Conway Group, represented by Hudson Conway Limited and all of its subsidiary entities. Therefore, if “the business” was to be restricted to ownership or occupation of property, liability did arise out of the Group’s ownership of property, it being a mere matter of convenience that Davidson Hughes was chosen to be the vehicle in which ownership of Balmoral Apartments would vest. Any losses to the Group by reference to such premises, including those incurred by another subsidiary which performed management functions at the property, should also be covered, he submitted.
Although all of the subsidiary companies were intended to be covered it does not follow that the separate personality of those companies can be ignored so that ownership or occupation of property by one company can provide the basis for coverage by another in circumstances where coverage is dependent on ownership or occupation. There may, of course be circumstances of joint ownership or concurrent occupation, but that is not the case here.
I am reluctantly drawn to conclude this question against HCML. The omission of a description of “the Business” in the Schedule leads to the result that the only business which is covered is that stated in the definition provision and that is confined to ownership and occupation of premises. Mr Riordan contends that is seizing on a mere error of omission. Whether the omission of the words in the Schedule was intentional or accidental, it is submitted by the insurer that the clear terms of the policy do not extend coverage to HCML in these circumstances. The onus is on HCML to satisfy me that it is entitled to be indemnified under the policy and it has failed to so persuade me.
That conclusion means that the claim for indemnity must fail, but having regard to the thoroughness of the submissions presented to me, and the fact that my conclusion on this first issue may be challenged on appeal, I will address the alternative issues.
If I had first concluded that the plaintiff’s injury and HCML’s liability arose “in connection with the business” which was insured, then the second broad question (of which there are two subsidiary issues) which would have arisen was whether HCML’s liability to the plaintiff was excluded from coverage because Exclusion Clause 6 took effect, by virtue of the fact that HCML’s liability to the plaintiff was with respect to a claim arising from a breach of a duty owed in a professional capacity.
Breach of a duty owed in a professional capacity
Two distinct issues arise as to the exclusion clause. The Insurer carries the burden of proof in establishing its interpretation as to both matters. The first question is whether the claim arose out of any breach of a duty owed by the insured. The second question is whether, if the claim did arise out of a breach of duty, it was a duty owed in a “professional capacity”.
(a) Did liability arise from a breach of duty owed by HCML?
As to the first issue, Mr Riordan, counsel for HCML, submitted that I had not held that HCML was liable as a result of any breach of a duty owed by it, but solely by virtue of its vicarious liability for a breach of duty owed by its employee, James. This issue raised some difficult and subtle questions.
In considering the liability of HCML, in my judgment, I set out the various bases on which the plaintiff contended that liability might be established against it[1]. The first basis was that HCML had actual knowledge of the height of the balustrade and chose not to correct the deficiency. I found that James, as HCML site manager, had knowledge of the low balustrade height and decided not to correct it, on grounds of cost and delay, and I held that “when he did so he was acting with the implied authority of HCML”[2].
[1]Toomey v Scolaro’s Concrete Constructions and Ors [2001] VSC 279 at par [346].
[2]Ibid, par [214].
I held that: “The two bases of liability which I have held apply in this case against Davidson Hughes – actual knowledge (through its authorised agent) and breach of statutory duty - would render Davidson Hughes liable to the plaintiff, and the actual knowledge, and inaction, of HCML would make it liable to the plaintiff in its own right. The conclusion that liability for the plaintiff’s injury has been established as against both defendants, on those grounds, would be sufficient for me to resolve the plaintiff’s claim as against Davidson Hughes and HCML, without it being necessary to explore the additional and alternative bases of liability which were addressed by counsel during submissions . . .”[3]. I did however, go on to consider the alternative bases of the plaintiff’s claim.
[3]Ibid, par [354].
I later repeated the conclusion: “The liability of HCML arises, independently of its role as agent, by virtue of its own breach of a duty of care arising by virtue of James’ knowledge and inaction as to the balustrade”.[4]
[4]Ibid, par [417].
Mr Riordan contrasted those statements with statements contained in my reasons for decision on the questions of contribution and indemnity as between defendants, where I said that HCML “did not personally know of the fault and had no primary liability”[5] and my statement that “The liability of HCML was vicarious only, by virtue of the knowledge of its employee James”[6].
[5]Toomey v Scolaro’s Concrete Constructions Pty Ltd & Ors (No.3) [2001] VSC 477, at par [43].
[6]Ibid, par [44].
The apparent contradiction in those positions is explained by the fact that I was not addressing the same questions. In my primary judgment the question of liability of HCML was resolved beyond argument if James knew of the deficient balustrade and choose to do nothing. In that event, HCML was liable, on the basis that James’ inaction represented a breach of his own duty of care for which (subject to questions of acting within authority) HCML was vicariously liable. It was unnecessary in those circumstances to consider whether HCML may have been separately liable by virtue of the fact that it personally, through its servant and agent James, knew of the deficient balustrade and took no action, thereby breaching its own duty of care.
Although it was unnecessary to consider the alternative bases upon which liability of HCML was contended I did discuss the question whether HCML held a non-delegable duty of care, but the particular non-delegable duty of care then addressed was in the context of a duty to conduct inspections rather than rely on the inspections conducted by its contractors, and also to supervise the work of the contractors. I noted that various other bases for a non-delegable duty of care were also postulated[7]. I rejected each such basis that was argued, including the responsibility for defective premises, as considered in such cases as Jones v Bartlett[8]. All of these discussions about non-delegable duties were predicated on the assumption that I did not find that James had actual knowledge of the low balustrade. It was implicit that were I to so find then HCML must inevitably be vicariously liable, and it was unnecessary to consider whether in circumstances where James had actual knowledge and took no action not only did he breach a personal duty of care but, at the same time, his conduct constituted a breach of a separate duty of care owed by HCML itself.
[7]Toomey v Scolaro’s Concrete Constructions and Ors [2001] VSC 279 at par [392] ff.
[8]Jones v Bartlett (2000) 75 ALJR 1; see Judgment at par [396] ff.
In my later judgment, No.3, as to contribution, the question I was addressing was whether, for the purpose of the law relating to the assessment of contribution as between defendants, HCML was to be regarded as having a degree of culpability over and above the fact that it was vicariously liable for James’ knowledge and inaction. I was conducting what I said was “the assessment of the relative degrees of actual fault of the defendants”. In other words, I was considering whether HCML, through more senior officers, had done something or omitted something which added to or contributed further to the plaintiff’s damage over and above the conduct of James.
I said that “where a defendant has been held vicariously liable for the neglect of an employee, it is the degree of negligence of the employee which is to be assessed, and the question should not be approached as one might when primary liability was found to exist rather than merely vicarious liability.”[9] It was in the context of HCML itself doing nothing to contribute to the plaintiff’s injury - its conduct solely being represented by that which James did and did not do - that I said that HCML did not have a primary liability, only a vicarious liability. That still left open the question whether the action or inaction of James at the same time constituted both a breach of his own duty and also a duty owed by HCML.
[9]Ibid (No.3), par [43].
Mr Riordan submitted that I had considered and rejected the proposition that there had been any such duty on the part of HCML which had also been breached. If, however, he was wrong in his interpretation of my judgments, in that respect, and if the issue had been left open, it should remain that way, and I should not revisit the question now so as to determine whether HCML could have been held to be in breach of its own duty of care. If I had not made that finding, then, he submitted, it followed that HCML had only been held liable by me by virtue of vicarious liability for breach by James of his duty of care. If that was the case then the exclusion clause did not apply against HCML, because it only denied indemnity where liability arose out of breach of the insured’s own duty of care.
As I will discuss, I accept Mr Riordan’s submission that I should not now address questions of vicarious liability and separate duties of care which did not form the basis for my judgment. I do, however, consider it appropriate to examine those issues, briefly, in order to clarify the basis for my finding against HCML in the judgment.
The complex question whether vicarious liability represented a breach of a duty of care of the employer as well as a duty of the employee, in circumstances such as these, has been the subject of much academic[10] and judicial consideration, but is usually of no practical importance in a case before the court, and, as I have said, was not of relevance for purposes of the primary judgment in this case. As Kitto J held in Darling Island Stevedoring & Lighterage Co Ltd v Long[11], vicarious liability is a case of “transferred epithet”. His Honour held that:
“The master’s liability, when it exists, is not a liability substituted for that of the servant. It exists, I think, not because the servant is liable, but because of what the servant has done. It is a separate and independent liability, resulting from attributing to the master the conduct of the servant, with all its objective qualities, but not with the quality of wrongfulness which, in an action against the servant, it may be held to have because of considerations personal to the servant. The master is to answer for the act as if it were his own: Dansey v Richardson[12]. He is not to answer for the servant’s liability but for his act; and to say that one man must “answer” for another’s act implies that it was a wrongful act for the former to do.”
[10]See “Vicarious Liability: Tort of the Master or of the Servant?”, Professor Glanville Williams, (1956) 72 LQR 522. See too, “The Law of Torts” by J.G.Fleming, 9th Ed, (1998), at p.412.
[11]Darling Island Stevedoring & Lighterage Co Ltd v Long (1957) 97 CLR 36, at 60-61.
[12](1854) 3 El & Bl.144, at 162; 118 E.R. 1095.
In using the example of a stranger being injured by the driving of a servant acting in the course of employment[13] Kitto J held that “the principle requires that the driving of the servant be treated as the driving of the master; but the result is to hold the master liable, not for the servant’s breach of a duty of care which he, the servant owed to the stranger, but for a breach of a duty of care which the master himself owed to the stranger.” His Honour held that the duties were co-extensive.
[13]I recognise that the driving of a vehicle is the subject of express provision under the present policy, but that fact does not detract from the utility of the discussion of vicarious liability, by Kitto J, for present purposes.
When I was dealing with the question of contribution between defendants, the conclusion that HCML did not have primary blame in a personal sense was not inconsistent with a conclusion that HCML was itself under a duty of care owed to the plaintiff by virtue of its knowledge (though James) of the low height of the balustrade, and its failure to correct it[14]. Such a duty of care was not required to be discussed in my primary judgment but would be founded on traditional principles of negligence, based on reasonable foreseeability and proximity[15].
[14]My discussion of the allocation of blame for purposes of contribution appears at pars [43]-[45] of the contribution decision.
[15]See the cases cited in my primary judgment at FN 21, page 125.
In a passage cited earlier from my judgment I said that “The liability of HCML arises, independently of its role as agent, by virtue of its own breach of a duty of care arising by virtue of James’ knowledge and inaction as to the balustrade” (emphasis added). As Mr Riordan has pointed out, no debate was conducted before me in that case as to co-extensive duties of care, and my words quoted above from the judgement were delivered in the context of a finding of knowledge on the part of James, and upon a conclusion of vicarious liability, which was sufficient to establish liability in HCML.
It is probable that, had it been necessary to do so, I would have also concluded that HCML had been in breach of “its own duty of care”, but my judgment against HCML was not, in fact, based on that conclusion. In any event, had liability of HCML also been based on a personal breach of duty of care no additional degree of responsibility would have been attributed to HCML.
On a strict analysis of my judgment, Mr Riordan is correct. Notwithstanding my use of language suggesting otherwise, my judgment is not based on a finding that HCML was in breach of its own duty of care. The exclusion clause must be interpreted contra proferentem[16].
[16]See Halford v Price (1961) 105 CLR 23, at 30.
(b) Did liability arise out of a duty owed in a professional capacity?
The answer to issue (a), above, would have been sufficient to deny the application of the exclusion clause, but I will deal with the second issue which was argued before me concerning that clause.
Mr Riordan submitted that even if there had been a breach of a duty owed by HCML it was not a duty owed in a “professional capacity”. Mr McArthur submitted that on my findings, HCML had been taking the role of a Project Manager, and that was a “professional capacity” for the purpose of this policy. It has been recognised as being a profession, he submitted[17].
[17]Counsel cited an article in Tolly’s Professional Negligence, Vol 17, No. 4, (2001), ”The Duty of Care in Project Management”, by Dr C. Long, as reflecting that recognition.
In my primary judgment I discussed the role of HCML as a Project Manager, and concluded that it was in a position of some influence over the builder and sub-contractors although not having a contractual control over the day to day work. Some of its senior executives had formal qualifications in engineering (albeit, not used on this job). James, a carpenter by trade, was the lowest in the pecking order of HCML, working on this project as site manager. He said his duties were to ensure that the builder was doing what he had contracted to do for the owner, and was engaging appropriate numbers of sub-contractors. He denied that he supervised the builder. I concluded that HCML did not control the builder and sub-contractors, having only the extent of control in the project that an owner would possess[18].
[18]Judgment, par [391].
It is important to note, however, that the role taken by HCML in this project may not have been the same as that taken by companies designated as “Project Manager” on other projects. HCML did not hold itself out to perform project management roles other than for companies in the Group. Although it was paid a “management fee” by the subsidiary companies it received the same percentage fee from all, whatever, if anything, it did for them. In this case, it took the role of the interested and informed owner, checking to see that it was getting value under the contract. The role of Project Manager when performed by other companies in different circumstances might more closely reflect a “professional capacity” than was the case here.
There was disagreement between counsel as to whether the focus in determining whether liability arose from a duty owed in a “professional capacity” should be placed on the role of HCML as a Project Manager, or on the specific activities of James - both his actions and omissions - which made HCML vicariously liable. In my view, determination of this question will involve both the narrow and the broader focus, but primarily the specific actions which gave rise to the liability will require keenest attention. Actions of an entirely unprofessional kind by an employee, which take place in a professional organisation, might nonetheless be held to have arisen in a professional capacity, and likewise, in an organisation which would be regarded as engaged in industrial and not professional pursuits, the activities of an employee at any given moment might well be characterised as constituting a professional service sufficient to demonstrate that liability of the employer arose by breach of duty in a professional capacity.
In GIO General Ltd v Newcastle City Council[19], Kirby P (with whom Sheller and Powell JJA agreed as to this) held that services provided by Council employees in examining building proposals and granting approval did constitute “professional advice or service” by the insured Council so as to be indemnified under a professional liability policy clause. Kirby P focussed on “the relevant activities” of the council employees which were said to be negligent and to have caused the liability to arise. His Honour held that the relevant question was whether those activities were properly characterised as professional. In reaching that decision it was relevant, but not determinative, whether the officers had professional qualifications, such as engineering degrees. His Honour held that the term “professional” in the context of professional indemnity insurance was today “very broad”, and that in the context of a policy written for a local government authority the term involved “no more than advice and services of a skilful character according to an established discipline”.
[19]GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558, at 568-69.
Kirby P was examining a professional indemnity policy, the terms of which are not identical to the words in the exclusion clause before me, but counsel for the insurer submitted that the understanding of the word “professional” expressed by Kirby P. would be as applicable in the case of a public liability policy which expressly excludes liability arising in a professional capacity. I will consider that proposition later. I do not consider that the fact that the insured in that case was a municipal authority (as was also the case in a number of the other authorities to which I was referred) would necessarily mean that the principles discussed by Kirby P might not equally be applicable to the situation of a private company or Group.
A similar focus on the actions of the individual whose conduct created liability, but a more narrow identification of the concept of a “professional service” was given by the Queensland Court of Appeal in F.A.I General Insurance Co Ltd v Gold Coast City Council[20], a decision cited with apparent approval by Kirby P. In that case the conduct was the conveying of negligent advice, as to the location of a water main, by an employee who held no professional qualifications. The Court held that the focus was to be placed on the individual’s activities, it not being every activity in the affairs of a council which would involve a professional duty. The Court held that: “the meaning of “professional” will, of course vary with context. “Professional, however, connotes “pertaining or appropriate to a profession”, “engaged in one of the learned professions.” The Court held that the actual activity in that case was the mere conveying of factual information, on which it was the plaintiff who made a professional judgement, not the council employee, whose activity was deemed not to have been a professional one.
[20]F.A.I General Insurance Co Ltd v Gold Coast City Council (1995) 2 Qd. R 341, at 344.
Mr Riordan referred also to a decision of the British Columbia Court of Appeal in Chemetics International Ltd v Commercial Union Assurance Co of Canada[21], as another instance where, although it was accepted that the possession of professional qualifications was not determinative, it was held that use of the word “professional” in the exclusion clause of a public liability policy was intended to refer to services such as those provided by a professional engineer. That case was concerned with an insurer seeking to avoid liability by arguing that the services provided were professional services. The court held that the services could have been provided by a technician, rather than a professional engineer, and the issue was not resolved by the fact that the person providing the services happened to have such professional qualifications.
[21]Chemetics International Ltd v Commercial Union Assurance Co of Canada (1984) 11 D.L.R.(4th) 754
A similar focus on the activities actually conducted by the negligent individual officer is apparent in the decision of the Court of Appeal in New South Wales in GIO of NSW v City of Penrith[22]. In that case the negligent information was conveyed in a letter signed by the Town Clerk, who did have professional duties, but drafted by non professional officers. It was held that the particular activity was the mere conveying of information, which was not done in a professional capacity. The Court held that the fact that the person conveying the information had professional qualifications did not determine the outcome, as the focus was to be on the nature of the advice or service provided, and the court held that the qualification of the person was not always relevant, although in some cases it might be.
[22]GIO of NSW v City of Penrith [1999] NSWCA 42, at [9], per Mason P. and at [20] per Powell J.A.
Each of those decisions demonstrates that the question must be resolved by an examination of the totality of the circumstances, but with a focus on the actual conduct, by action or omission, of the negligent individual performing the services.
Mr McArthur submitted that “professional” must have the same meaning whether it appeared in the exclusion clause of a public liability policy or as the basis of liability in a professional indemnity policy. Where the insured holds both policies and the question is whether liability falls under one or other (as in the case of FAI v Gold Coast City Council) that would seem logical, but we must not lose sight of the fact that the context in which the word “professional” appears in the two policies is likely to be different. Furthermore, when the term appears in an exclusion clause, the overlaying principle of contra proferentem applies - with particular force (although the same principle also has application where the inclusive terms of a professional indemnity policy are under consideration). In other words, where the insurer is seeking to give a restrictive meaning to the words of its own policy so as to deny coverage under a professional indemnity policy, an attempt to confine liability to the practice of the learned professions might be resisted in favour of a more broad approach. The test adopted by Kirby P of “the provision of a service of a skilful character according to a discipline” – was postulated in addressing a policy provision which gave coverage for losses arising out of “the rendering or failure to render professional advice or service”, and his Honour’s statement would be consistent with such an approach being adopted.
Had a professional liability policy containing terms such as those addressed by Kirby P been before me in this case I might well have concluded that liability here arose out of the failure to render appropriate professional services. Given my conclusion that the policy did not cover HCML because the public liability coverage was limited to ownership and occupation of premises, and did not extend to acts and omissions which arose when it performed “management” or “project management” services to Davidson Hughes it would be unlikely that a conclusion would be open that the insurer intended that such functions were not to be covered by a professional indemnity policy either. As I have said, however, the considerations relevant to the application of the word “professional” in one policy are not necessarily the same as those for another.
Applying the principles, discussed above, to the present case, and considering the exclusion clause contra proferentem, I am not persuaded that liability arose from conduct which constituted a breach of duty owed “in a professional capacity”, and that is certainly not the case if the liability is regarded as deriving from breach of James’ duty of care, and not that of HCML. If one focussed attention exclusively on James, his conduct would not amount to action in a “professional capacity” for the purpose of the exclusion clause. James had trade skills and experience in the building industry but he was not a qualified surveyor or building inspector. In responding to the knowledge of the low balustrade I do not accept that he was performing professional functions, even employing the broad terms adopted by Kirby P.
Thus, in applying the terms of the exclusion clause in the public liability policy which is before me the insurer, confronted by the contra proferentem principle in its full force, has failed to persuade me that the exclusion clause would deny the claim by HCML by reference to the “professional” clause. I emphasise, again, that the context in which the term “professional” is used for purposes of the exclusion clause is not the same as the context in which the term appeared in the phrase addressed by Kirby P.
As I earlier noted, the role of Project Manager, although one of fairly recent origin, may well require the application of skills over a range of disciplines. Although not a traditional profession, it is one which, in my view, could very well be regarded as being professional for the purpose of a professional indemnity policy, and had there been such a policy in existence may well have provided coverage to HCML for the actions or inaction of James. The categories of “professions” should not be regarded as being closed, and confined to traditional learned professions[23]. Whether at any moment the actual conduct giving rise to liability would be covered by such a policy would be a matter to be considered on a case by case basis, having regard to the wording and nature of the policy which was under consideration.
[23]See Carr v I.R.C [1944] 2 All E.R 163, at 167.
Finally, and for completeness, I indicate that I do not agree with Mr Riordan’s contention that the exclusion clause is open to the interpretation that it is only concerned to identify, and exclude, professional liability cases in circumstances where the liability is to the person who is owed the professional duty of care, not to a third party, such as the plaintiff.
Conclusion
I conclude that the claim by HCML for indemnity is not excluded on account of the terms of the exclusion clause in the policy, but the claim nonetheless fails because HCML has not established that its liability to the plaintiff arose in circumstances where the business of HCML was covered by the policy
The claim for indemnity by HCML will be dismissed. I will hear counsel as to costs.
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