WFI Insurance Ltd v Manitowoq Platinum Pty Ltd - [2018] WASCA 89

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT :   THE COURT OF APPEAL (WA)
CITATION:   WFI INSURANCE LTD -v- MANITOWOQ PLATINUM PTY LTD [2018] WASCA 89
CORAM:   MARTIN CJ
MURPHY JA
CHANEY J

HEARD:   4 DECEMBER 2017
DELIVERED          :   7 JUNE 2018
FILE NO/S:   CACV 38 of 2017
BETWEEN:   WFI INSURANCE LTD
Appellant
AND
MANITOWOQ PLATINUM PTY LTD
First Respondent
JDE ROMA PTY LTD
Second Respondent

ON APPEAL FROM:
Jurisdiction              :   DISTRICT COURT OF WESTERN AUSTRALIA
Coram:   DAVIS DCJ
File Number             :   CIV 118 of 2014

Catchwords:

Insurance - Construction of business liability policy - Condition requiring insured to comply with legislation and Australian Standards - Whether condition qualified by reference to implied obligation to take reasonable care - Whether condition only breached by reckless conduct - Whether breach of condition by insured entitled insurer to deny indemnity

Legislation:

Civil Liability Act 2002 (WA)
Corporations Act 2001 (Cth), s 601AG
Insurance Contracts Act 1984 (Cth), s 54
Occupational Health and Safety Act 1985 (Vic), s 21(1)
Occupational Safety and Health Act 1984 (WA), s 19(1)
Supreme Court (Court of Appeal) Rules 2005 (WA), s 33
Water Services Licensing (Plumbers Licensing and Plumbing Standards) Regulations 2000 (WA), reg 47

Result:

Appeal allowed

Category: B

Representation:

Counsel:

Appellant	:	Mr G J Pynt
First Respondent	:	Mr G R Hancy
Second Respondent	:	Mr G R Hancy

Solicitors:

Appellant	:	Greenland Legal
First Respondent	:	Lavan
Second Respondent	:	Lavan

Case(s) referred to in decision(s):

Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd [2016] NSWCA 67; (2016) 75 MVR 108
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Buckley v Metal Mart Pty Ltd [2008] ACTSC 79
Casino Show Society v Norris (1984) 3 ANZ Ins Cas 60‑580
Donoghue v Stevenson [1932] AC 562
Fraser v B N Furman (Productions) Ltd [1967] 3 All ER 57
Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162
Kim v Cole [2002] QCA 176; (2002) Aust Contract R 90-149; (2002) Aust Tort Reports 81-662
Manitowoq Platinum Pty Ltd v WFI Insurance Ltd [2017] WADC 32
Pioneer Concrete (UK) Ltd v National Employers' Mutual General Insurance Association Ltd [1985] 2 All ER 395
Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79; (2016) 50 WAR 226
Victorian WorkCover Authority v Concept Hire Ltd [2009] VSC 194; (2009) 24 VR 695

MARTIN CJ:

Summary

At all material times Manitowoq Platinum Pty Ltd (the first respondent) and JDE Roma Pty Ltd (the second respondent) carried on a restaurant business from premises situated at Hay Street, Perth. The restaurant business commenced trading in April 2008. Prior to the commencement of trade, the premises were fitted out by Boss Shop Fitting Pty Ltd (Boss) pursuant to a contract with the respondents.
Some time after trading had commenced, the respondents noticed water damage in part of the premises. Although limited rectification work was carried out, the precise extent of the problem was not then known. By the time the full extent of the water damage became known, a significant part of the restaurant had been damaged and major rectification works were required, which necessitated closure of the restaurant for a significant period.
It was established that the water damage occurred because various aspects of the plumbing work associated with the fit‑out of the premises were performed negligently and in breach of various Australian Standards relating to the performance of plumbing work. The plumbing work was carried out by Mr Todd O'Dea of Millstream Plumbing Pty Ltd, but no evidence was led at trial to establish the nature of the relationship between Mr O'Dea and Millstream Plumbing Pty Ltd, on the one hand, and Boss, on the other, and, if there was a contract between those parties, as to the terms of any such contract.
The respondents commenced proceedings against Boss claiming damages for breach of contract and breach of the common law duty of care. Boss had taken out a policy of insurance with the appellant, WFI Insurance Ltd (the insurer), covering, amongst other things, liabilities incurred in the performance of its business. Boss claimed indemnity from the insurer in respect of its liability to the respondents. Before the existence or extent of that liability was established, Boss went into liquidation and was deregistered as a company.
The respondents then commenced proceedings against the insurer pursuant to s 601AG of the Corporations Act 2001 (Cth) which provides, in effect, that if a company is deregistered at a time when it has a liability to a third party, that third party may recover from the company's insurer the amount of any liability to indemnify provided by the insurance policy at the time of deregistration.
In those proceedings, the liability of Boss to the respondents was not contested by the insurer. However, the insurer denied that it was required to indemnify Boss in respect of its liability to the respondents because Boss had breached a condition of the policy which required it to 'comply with legislation and Australian Standards', and that breach of condition was causally connected to the liability which Boss had incurred to the respondents.
The case turned upon the proper construction and effect of the insurance policy. The trial judge adopted a construction of the policy which led her to conclude that Boss had not breached the relevant condition of the policy. She construed the condition as being limited to an obligation to take reasonable care to comply with legislation and Australian Standards, and on the basis that the condition would only be breached if the failure to comply was the consequence of reckless conduct by the insured. She found that Boss had not been reckless. She also concluded that if, contrary to her view, the condition had been breached, the breach would not have entitled the insurer to refuse indemnity under the policy. She therefore found for the respondents, and awarded damages against the insurer.
The insurer appeals against that decision, challenging both aspects of the trial judge's conclusions. For the reasons which follow, it should be concluded that Boss was in breach of the relevant term of the policy, and that the insurer was entitled to refuse indemnity by reason of that breach. The appeal should be allowed, the decision at first instance set aside and, in lieu of that decision, the respondents' claim dismissed.

The facts

The facts relevant to the appeal are not in contention. They can be taken conveniently from the findings made by the trial judge.
By contract dated 19 November 2007, Boss agreed to carry out a total fit‑out of the respondents' premises for a price of $786,628. The contract required Boss to undertake plumbing work, amongst other items of work. The plumbing work was in fact carried out by Mr Todd O'Dea[1] of Millstream Plumbing Pty Ltd but, as I have noted, there is no evidence nor any finding by the judge with respect to the nature of the relationship between Boss, on the one hand, and Mr O'Dea and Millstream Plumbing Pty Ltd, on the other. If there was a contract between those parties, there is no evidence of its terms. Because of an argument which the respondents attempted to advance in response to the appeal, it will be necessary to return to this aspect of the case in due course.
[1] Mr O'Dea was a licensed plumber.
Boss completed the fit‑out by March 2008, and the respondents took possession of the premises on 1 April 2008.
In June 2008, a director of one of the respondents noticed water damage to the tiles of the kitchen floor. As the damage was identified during the defects liability period under the contract for the fit‑out, Boss agreed to undertake rectification work, which was performed in a small area of the kitchen.
However, after the rectification work had been carried out, further water damage was noticed. Investigations were carried out by Mr O'Dea who identified a slow water leak from a brass elbow joint in a pipe situated in a stud wall between the kitchen wash-down area and the restaurant. The joint was replaced and it was thought that this would solve the problem.
However, the water damage continued, and leaks from plumbing pipes in the carpark in the basement of the building, below the kitchen, were reported.
In December 2008, another plumber inspected the premises and found various defects in the plumbing work including:[2]
(a)incorrectly installed joints in the PVC pipes;
(b)that the fall of the pipes was incorrect;
(c)that there were no inspection openings on change of directions in the pipes; and
(d)that there were incorrect connections between fixtures to floor drains, a lack of vents, no fire collars, and a problem with the PVC drain off the dishwasher.
[2] Manitowoq Platinum Pty Ltd v WFI Insurance Ltd [2017] WADC 32 (reasons) [21].
The major leak appeared to be coming from under a raised timber floor above the concrete slab in the kitchen area, but the precise source of the problem was difficult to identify because of restrictions upon access to that area.[3]
[3] Reasons [24].
The issues were reported to the Plumbing Licensing Board. That board required Mr O'Dea to carry out rectification work, although Mr O'Dea failed to complete the work required.[4]
[4] Reasons [25].
Another inspection was carried out in February 2009, when further issues arising from water damage were identified. In April 2009 it was reported that the water leak to the basement carpark directly below the kitchen had become worse, and that mould growth had started to appear on the restaurant wall to the bar cold store and to the bar front itself at low levels.[5]
[5] Reasons [29].
In May 2009, a section of floor in the kitchen was removed and it was seen that the drains laid under the floor and on top of the slab were virtually flat, without an adequate gradient to allow the water to drain away. It was also noticed that a number of joints had not been properly glued and joined, with the result that water seeped from them.[6]
[6] Reasons [31].
Rectification work to the plumbing in the kitchen, bar and basement areas was carried out by another plumber and completed by July 2009. However, there were still problems in the bar area and in November 2009, a director of one of the respondents noticed water damage to the bar wall area and to the facing panels to the bar area of the premises.[7] Rectification work was carried out in that area of the premises.
[7] Reasons [36].
Notwithstanding the rectification works that had been carried out, the respondents continued to experience water damage in the kitchen area, and there were outstanding repairs to be carried out to the floors and to the bar area. Detailed investigations were carried out by a building inspection company which reported that there were still leaks in the plumbing, and that much of the material that had been used in the fit‑out had been damaged by those leaks and required replacement. In light of that report, the respondents decided that it would be most effective to close the premises and undertake a complete refit, rather than continue to perform portions of the rectification work required on a piecemeal basis. The restaurant was closed for the months of September and October 2013 in order that the rectification work could be performed. In the course of undertaking that rectification work, it was noticed that the extent of the damage caused by water was significantly greater than had been anticipated.[8]
[8] Reasons [46].
The cost of the repairs was significant and the respondents suffered loss of trade as a consequence of ceasing operations for the period during which rectification works were performed.
The trial judge found that the amount for which the insurer would have been obliged to indemnify Boss in respect of its liability to the respondents was $1,635,277.50, if the insurer was obliged to indemnify. Neither party has challenged that assessment of the quantum of indemnity provided by the policy, although the insurer denies any liability to indemnify at all, by reason of breach of a condition of the policy by Boss.
The trial judge made no express finding as to whether Boss was liable to the respondents by reason of breach of the common law duty of care, breach of contract, or both, and it does not appear that anything in these proceedings turns upon the basis of that liability.
The trial judge expressly found that the plumbing work performed as part of the performance of the fit‑out contract failed to comply with various Australian Standards relating to plumbing in a number of different respects. She noted that reg 47 of the Water Services Licensing (Plumbers Licensing and Plumbing Standards) Regulations 2000 (WA) (the WSL Regulations) imposed a general obligation to comply with those standards upon any person carrying out plumbing work or under whose general direction and control or supervision plumbing work was being carried out. It will be necessary to return later in these reasons to the question of whether the trial judge differentiated between Boss and Mr O'Dea/Millstream Plumbing Pty Ltd in this respect.
The trial judge appears to have accepted the expert evidence given by Mr Hanley, a licensed plumber, regarding the defects in the plumbing work performed at the restaurant. Her Honour included in her reasons, as a schedule, a table setting out various defects in respect of the performance of aspects of the plumbing work, and relating those defects to breaches of the Australian Standards to which the judge referred in the text of her reasons, as well as other Australian Standards, regulations contained within the WSL Regulations, and certain specific provisions of the Building Code of Australia. It is unnecessary to detail the particular breaches found by the trial judge, and is sufficient to note that the trial judge found that there were breaches of both legislation and applicable Australian Standards.

The insurance policy

The insurance policy taken out by Boss is described as a 'Commercial plan' policy consisting of up to 18 different policies. One of those 18, and that potentially applicable to the circumstances of this case, is a business liability policy. The policy documents are written using terminology commonly described as 'plain English', adapting a conversational style, as if the insurer were speaking to the insured.
On the first page of the text of the policy, under the heading 'How the commercial plan works' and the subheading 'Understanding the significant features, benefits and risks' it is stated:
To properly understand the significant features, benefits and risks of each of the policies, you need to:
·read each policy section - they tell you the cover offered, what you're insured against, what is not insured, any additional benefits and special conditions that apply and how we settle a claim …
·read the general conditions section (page 5) - this contains important information relevant to all policies and sets out matters such as:
…
conditions which you must meet whilst you have the policy (if you don't meet these conditions we may be able to refuse or reduce any claim or cancel your policy).
…
In a section of the policy documents headed 'General conditions applying to all policies', there are various provisions describing the nature of the agreement between the insurer and insured, the duty of utmost good faith and the duty of disclosure. In that section of the policy documents, under the heading 'What you must do when you have a policy', it is stated:
You must:
·keep all property insured in good condition
·comply with legislation and Australian Standards
Australian Standards means standards published by the Standards Association of Australia.
·comply promptly with requirements of public authorities
·take reasonable care to safeguard yourself and all property insured
·take reasonable care to avoid causing harm to others or to property belonging to others
·tell us immediately:
- if there is, or you know there will be, any material change in the property insured (including where it is kept) or in the nature of the risk. We may cancel or change the terms and conditions on which we are prepared to offer or continue cover if this occurs.
-if you no longer have an interest in the property insured
-if you take out any other insurance which covers any property insured or liability against similar risks
·make sure that any safety system or security device installed to protect your property is in working order and activated.
For convenience of expression, the trial judge applied the following taxonomy to that section of the policy documents:[9]
[9] Reasons [146].
For ease of reference, because none of these conditions is numbered, I will refer to these collectively as the General Conditions, and each of them individually as follows:
(a)keep all property insured in good condition - General Condition (a);
(b)comply with legislation and Australian Standards - General Condition (b);
(c)comply promptly with requirements of public authorities - General Condition (c);
(d)take reasonable care to safeguard yourself and all property insured - General Condition (d);
(e)take reasonable care to avoid causing harm to others or to property belonging to others - General Condition (e);
(f) tell us immediately - General Condition (f):
•if there is, or you know there will be, any material change in the property insured (including where it is kept) or in the nature of the risk. We may cancel or change the terms and conditions on which we are prepared to offer or continue cover if this occurs - General Condition (f)(i)
•if you no longer have an interest in the property insured - General Condition (f)(ii)
•if you take out any other insurance which covers any property insured or liability against similar risks - General Condition (f)(iii)
(g) make sure that any safety system or security device installed to protect your property is in working order and activated - General Condition (g).
In the same section of the policy documents, under the heading 'What can affect your entitlements', it is stated:
If you do not do what you are obliged to do under your policy, we may refuse to pay a claim or any part of it. For example, if you have a motor vehicle policy and do not keep your car's brakes in good condition and this causes an accident, we are entitled to refuse to pay all or part of any claim you make under the policy arising out of the accident.
The section of the policy documents headed 'Business liability policy' contains various provisions relating to the ambit of cover provided. In general terms, cover is provided in respect of legal liability to pay compensation for personal injury or damage to property caused by an occurrence during the period of insurance in connection with the business shown on the certificate of insurance. The expression 'occurrence' is defined to mean 'an event', including matters not relevant to these proceedings.
Under the heading 'What is not insured' in the business liability policy, it is stipulated that cover is not provided:
· for the cost of doing, redoing, completing, correcting or improving any work (including the supply of materials or parts) which you or anyone for you or on your behalf did not do correctly or did not do but should have done in the first place.
The same section of the policy excludes cover for liability arising from personal injury to employees.
It is common ground that, but for the alleged non-compliance by Boss with the general condition requiring Boss to 'comply with legislation and Australian Standards', the business liability component of the policy would have provided indemnity in respect of the respondents' claim against Boss in the amount found by the trial judge.

Relevant legislation

There are three legislative provisions of relevance to this appeal.

Section 601AG of the Corporations Act 2001 (Cth)

601AG Claims against insurers of a deregistered company

A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if:
(a)the company had a liability to the person; and
(b)the insurance contract covered that liability immediately before deregistration.

Section 54 of the Insurance Contracts Act 1984 (Cth)

Insurer may not refuse to pay claims in certain circumstances
(1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act.
(2)Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.
(3)Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act.
(4)Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act.
(5)Where:
(a)the act was necessary to protect the safety of a person or to preserve property; or
(b)it was not reasonably possible for the insured or other person not to do the act;

the insurer may not refuse to pay the claim by reason only of the act.
(6) A reference in this section to an act includes a reference to:
(a)an omission; and
(b)an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter.

Regulation 47 of the Water Services Licensing (Plumbers Licensing and Plumbing Standards) Regulations 2000 (WA)

47. Duty to comply with plumbing standards
(1)A person -
(a)who is carrying out plumbing work; or
(b)under whose general direction and control or supervision plumbing work is being carried out; or
(c)who is a licensed plumbing contractor or permit holder responsible for plumbing work that is being carried out,
must ensure that the plumbing that is the result of the plumbing work complies with the plumbing standards.

(2)In these regulations, the plumbing standards are -
(a)the provisions of AS/NZS 3500.1:2003, AS/NZS 3500.2:2003 and AS/NZS 3500.4:2003, which are applied for the purposes of this regulation as modified as set out in regulation 49; and
(b)the provisions of Division 2.

The pleadings

Because of an argument which the respondents seek to advance in opposition to the appeal, it is necessary to refer to some aspects of the pleadings, in order that the reasons given by the trial judge can be viewed in the context of the pleaded issues.

The statement of claim

The statement of claim pleaded the contract between the respondents and Boss for the fit‑out of the restaurant premises, and pleaded certain express and implied terms said to be contained within that contract. In par 6 of the statement of claim the respondents asserted that:
Between November 2007 and March 2008 Boss Shopfitting conducted the Fitout pursuant to the Contract at the Premises.
Particulars of work undertaken
6.1The supply and installation of plumbing and gas services to the Premises …
In par 9 of the statement of claim, the respondents asserted that:
9. On or about 3 September 2008 the plaintiffs discovered significant cupping in the timber floors at the Premises which were subsequently found to arise as a result of water damage due to the inadequate workmanship of the Fitout carried out by Boss Shopfitting.
Particulars of inadequate workmanship
9.1due to incorrect installation, a brass elbow fitting located in the cold water supply had leaked;
9.2the floor penetrations nearby to various waste pipes at the floor of the Premises had been left unsealed and due to the inadequate installation water was migrating under the wooden floorboards;
9.3there were incorrect connections between fixtures to the floor drains;
9.4due to incorrect installation, there were major water leaks occurring under the raised kitchen flooring;
…
In par 11 of the statement of claim, the respondents asserted:
11. On 6 July 2010 it was ascertained that the cause of damage in the bar area arose from inadequacies in the workmanship in the Fitout carried out by Boss Shopfitting at the Premises.
Particulars of inadequacies of the workmanship
11.1plumbing failures and ineffective waterproof membrane caused by defective installation.
…
In pars 12 and 13 of the statement of claim, the respondents asserted that the fit‑out works carried out by Boss in purported performance of the contract were unsatisfactory due to the inadequate workmanship particularised in pars 9 and 11, causing damage to the restaurant premises.
In pars 14 to 16 of the statement of claim, the respondents asserted that Boss owed a duty of care to the respondents to carry out the fit‑out in a proper and workmanlike manner, which duty was breached by reason of the matters asserted in pars 9 and 11 of the statement of claim.
Subsequent paragraphs of the statement of claim asserted that Boss, if not deregistered, would have been liable to the respondents in both contract and tort. The respondents asserted that this liability would have been covered by the policy of insurance, with the consequence that the insurer was liable to pay to the respondents the amount of the indemnity due under the policy pursuant to s 601AG of the Corporations Act 2001 (Cth).
The statement of claim incorporated two schedules. The first, Schedule A, was not referred to in the text of the pleading, but its purport is clear enough from its heading - 'Particulars of defective works'. Relevant particulars included the following:
ABar Area
(i)So inadequately gluing and joining the waste water plumbing under the raised floor, or so inadequately supervising the gluing and joining of the waste water plumbing under the raised floor, and so inadequately plumbing the air conditioner pipework, or so inadequately supervising the plumbing of the air conditioner pipework, that water leaked under the suspended floor.
…
BMain Restaurant Area
…
(iii)So constructing the kitchen area as to cause extensive damage by water leaks to the kitchen area timber flooring.
(iv)So constructing the kitchen area as to cause damage by water leaks to the bar booth seat walls.
CKitchen Area
(i)So installing under the suspended timber floor, or allowing to be installed under the suspended timber floor, plumbing water pipes that leaked.
(ii)So installing, or allowing to be installed, plumbing water and waste pipes under the suspended timber floor did not have sufficient fall to allow free flow of the waste water.
…
(vii)So constructing the kitchen as to facilitate the leakage of water from the kitchen into the carpark below the kitchen.
…
(xi)Failing to have the air conditioning drain waste pipes correctly plumbed directly to the sewer lines.
(xii)Failing to have the air conditioning drain waste pipes adequately clipped into place.
…
DBasement Area
(i)Having the bar area glass washer waste pipe installed when it exceeded 2.5 metres in length before it entered the main sewer line.
(ii)Having the main sewer pipes installed with insufficient fall (less than 1:60 fall) resulting in a buildup of sediment and continual blockages.
(iii)Failing to install a vent to the sewer line.
…
FPlumbing
(i)Incorrectly installing joints on PVC piping or allowing joints on PVC piping to be incorrectly installed.
(ii)Carrying out plumbing, or allowing plumbing to be carried out, that did not comply with Australian Plumbing Standard AS3500 in that there was:
(a) an incorrect sealing of joints;
(b) an incorrect PVC pipe used for dishwasher waste;
…
(then follow various particulars of the respects in which the plumbing work is said to have departed from AS3500).
There is no reference to Mr O'Dea or Millstream Plumbing Pty Ltd in the statement of claim. It is clear from the portions of the pleading which I have set out above that the respondents' claim was advanced on the basis that Boss alone was responsible for the defects alleged, including the breaches of the Australian Standards relating to plumbing which were said to have caused the damage to the premises. It is clear from the particulars of defective works set out in Schedule A to the pleading that the respondents mounted their case on the basis that Boss was either directly liable for the defective plumbing work, or was liable for inadequately supervising the plumbing work or for failing to ensure that the plumbing work complied with the relevant Australian Standards. That approach appears to correspond with the approach taken in reg 47 of the WSL Regulations, in which the duty to comply with plumbing standards is imposed both upon a person who is carrying out plumbing work, and upon a person under whose general direction and control or supervision plumbing work is being carried out. The obligation imposed is to ensure that the plumbing that is the result of the plumbing work complies with the plumbing standards.

The defence

In its defence, the insurer admitted the allegation in par 6 of the statement of claim to the effect that the fit‑out was carried out by Boss. In the context of its denial of any liability to indemnify Boss under the policy of insurance, the insurer pleaded:
7. Standards
7.1Further, it was a condition of the policy that Boss Shopfitting Pty Ltd comply with Australian Standards.
7.2 If, which is not admitted, the fitout suffered from inadequate workmanship as pleaded in paragraphs 9, 11, 12 and 16 of the statement of claim, the workmanship was inadequate in that Boss Shopfitting Pty Ltd or Millstream Plumbing Pty Ltd failed to comply with:
(a)the Building Code of Australia;
(b)Australian Standard 3500.2:2003 and Australian Standard 5601-2004;
(c)the Water Services Licensing (Plumbers Licensing and Plumbing Standards) Regulations 2000 ('Regulations'),
as described in:
(i)Schedule A to the Statement of claim …
In the paragraph which followed, the insurer pleaded that, by reason of the failure of Boss or Millstream Plumbing Pty Ltd pleaded in the previous paragraph, the insurer was not liable to indemnify Boss against any liability it might have to the respondents at the date of its deregistration.

The reply

In that part of their reply dealing with pars 7 and 8 of the defence, the respondents asserted:
9.Save to admit it was a condition of the Policy that Boss comply with Australian Standards being the Building Code of Australia, the National Plumbing and Drainage Code AS 3500 or the Regulations, the plaintiffs do not admit the allegation in paragraph 7 of the Defence and say further that:
9.1pursuant to s 54 of the Insurance Contracts Act 1984 (Cth) (IC Act) any act of failing to comply with Australian Standards (which is not admitted) does not entitle the defendant to deny liability under the Policy by reason of the fact this is not an act which could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the Policy;
9.2any failure to comply with any of the Building Code of Australia, the Australian Standards or the Regulations does not, of itself, disentitle Boss to [indemnity] under the Policy;
9.3the general condition does not constitute an exclusion under the Policy.
10.The plaintiffs deny paragraph 8 of the Defence.
Although the insurer had made reference to the possibility of breach of the relevant standards by Millstream Plumbing Pty Ltd in its defence, the respondents, by their reply, did not assert that Boss was not liable for breach of a term of the policy because any failure to comply with the Australian Standards, the WSL Regulations or other relevant regulations was the sole responsibility of Millstream Plumbing Pty Ltd. Rather, the respondents limited the issues raised to an issue under s 54 of the Insurance Contracts Act 1984 (Cth) (which was not pursued at trial) and an issue with respect to the consequences of failure to comply with the relevant standards and legislation.

The insurer's application to amend its defence

At the commencement of the trial the insurer applied to amend its pleaded defence to draw a distinction between Boss and Millstream Plumbing Pty Ltd in relation to liability for the performance of the defective work. Specifically, the insurer sought to introduce into its defence a plea to the effect that the relevant plumbing work was carried out by an independent contractor of Boss, for which Boss was not liable, with the result that the insurer had no obligation to indemnify Boss. The insurer also sought to include in its defence an assertion to the effect that Boss was entitled to limit its liability pursuant to the apportionment provisions of the Civil Liability Act 2002 (WA), on the basis that each of Boss and the independent contractor negligently caused the damage claimed by the respondents.
This application was made by the insurer shortly before the commencement of the trial, and was renewed before the trial judge on the first day of trial. The application was opposed by the respondents and disallowed by the trial judge.

The reasons of the trial judge

The trial judge commenced her reasons with her findings of fact relating to the defective work and the damage it caused. Those findings were set out in considerably greater detail than the summary I have provided above. Following that section of her reasons she concluded:[10]
There is no doubt on the evidence that I heard from each of Mr Goldfinch and Mr Hanley that the plumbing work carried out by the plumber Mr O'Dea did not comply in many respects with the Plumbing Standards.
The defendant has argued that accordingly, General Condition (b) was breached and the defendant was entitled to refuse indemnity for the whole of the plaintiffs' claim.
No issue of s 54 of the Insurance Contracts Act 1984 (Cth) has been raised and thus the defendant's liability is to be determined upon a construction of the terms of the policy.
[10] Reasons [91] - [93].
It seems clear that, in this context, the reference to 'the plumbing work carried out by the plumber Mr O'Dea'[11] is a statement of historical fact rather than a conclusion of any legal significance. That is because:
(a)as I have noted, the pleadings drew no distinction between the performance of defective work and breach of Australian Standards by Boss as compared to Mr O'Dea/Millstream Plumbing Pty Ltd;
(b)an attempt by the insurer to draw a legal distinction between the performance of defective work and breach of the Australian Standards by Boss, on the one hand, and by Mr O'Dea/Millstream Plumbing Pty Ltd, on the other, had been refused by the judge on the first day of the trial; and
(c)in the paragraph immediately following the reference to the performance of the plumbing work by Mr O'Dea, the trial judge referred to the insurer's contention that the terms of its policy with Boss were breached, without drawing any distinction between non‑compliance with applicable Australian Standards by Boss as compared to Mr O'Dea/Millstream Plumbing Pty Ltd.
[11] Reasons [91].
After making several observations regarding the general principles applicable to the construction of an insurance policy, the trial judge summarised the submissions of the parties relating to the proper construction and effect of the relevant policy. In that context she referred to a submission by counsel for the current respondents drawing attention to the evidence to the effect that the Australian Standards reflected what one would regard as the common law duty to perform the task with good workmanship and due skill and care.[12] It is of some significance that, in this portion of her reasons, the trial judge was merely summarising the submissions which had been put to her, rather than expressing any conclusions or findings. It is also of some significance to note that there is no reference in her summary of the submissions put on behalf of the current respondents to any suggestion that a distinction should be drawn between breach of applicable standards by Boss, on the one hand, and breach by Mr O'Dea/Millstream Plumbing Pty Ltd, on the other.
[12] Reasons [104].
Given the approach later taken by the trial judge, it is also significant to note that she summarised the submissions put on behalf of the current respondents as advancing the proposition that 'there should be some reasonableness implied into the clause'.[13]
[13] Reasons [105].
The trial judge then referred to a number of cases which establish the principle that a condition in an insurance policy should not be construed in a manner which would render the condition repugnant to the commercial purpose of the contract by substantially defeating the provision of any meaningful cover. She referred in particular to the decision in Fraser v B N Furman (Productions) Ltd[14] where a condition in an employer's liability insurance policy which required the insured to take reasonable precautions to prevent accidents and disease was read as only excluding cover in the event of reckless conduct by the employer, lest the commercial purpose of providing cover to the employer for liability for negligence be defeated. The trial judge cited a passage from the judgment of Diplock LJ[15] in Fraser to the effect that, in this context, recklessness involves acts or omissions taken by the insured 'with actual recognition by the insured himself that a danger exists, not caring whether or not it is averted'.[16]
[14] Fraser v B N Furman (Productions) Ltd [1967] 3 All ER 57.
[15] As he then was.
[16] Reasons [107].
The trial judge then referred to a number of subsequent Australian cases to similar effect, describing them as cases in which an obligation upon the insured to take 'reasonable precautions' or 'reasonable care' has been construed as requiring the insured to do no more than to avoid recklessness. In that context she observed:[17]
Usually the test of recklessness has been applied where there is an obligation of an insured to take 'reasonable care' to take precautions or measures as set out in the condition. There are few cases which have considered a condition where the insured must comply with legislation or Australian Standards.
In the following cases which have considered such a condition, the issue has been whether the repugnancy rule applies or whether the condition should be construed as impliedly subject to the qualification of reasonableness, so that the insured's default would need to be deliberate or reckless …
[17] Reasons [112] - [113].
In this portion of her reasons, the trial judge has elided the distinction between the submission put to her on behalf of the current respondents, which she ultimately upheld,[18] and the question which she addressed in accordance with the line of cases exemplified by Fraser.
[18] Reasons [159].

The submission advanced on behalf of the respondents took, as its starting point, the unqualified obligation to 'comply with legislation and Australian Standards' imposed by the relevant condition. Absent any qualification (either express, or implied as a matter of construction) the condition is breached if legislation and Australian Standards are breached, irrespective of the extent of the effort taken by the insured to prevent or avoid breach.[19] Given that other conditions within the same clause are qualified by the express obligation to 'take reasonable care' to avoid a specified consequence, it was submitted on behalf of the current respondents that the obligation to 'comply with legislation and Australian Standards' should be similarly construed - that is, as an obligation to 'take reasonable care to comply with legislation and Australian Standards'. If that proposition is accepted, compliance with the condition does not turn solely upon a question of whether 'legislation and Australian Standards' were breached, but also, in the event of their breach, upon the question of whether the insured took reasonable care to prevent such breach. Put more generally, the issue would be whether the relevant breach came about as a consequence of the negligence of the insured.
[19] Of course, a breach will only have an effect on the insurer's liability under the policy if it is causally related to the insured’s loss - s 54 of the Insurance Contracts Act 1984 (Cth).
However, the issue posed by the line of cases exemplified by the decision in Fraser is of a different character. In that line of cases it was held that, where the evident commercial purpose of the insurance contract is to provide cover in respect of liability arising from the negligence of the insured, construing a condition of the policy as requiring the insured not to be negligent would defeat the commercial purpose of the policy, with the consequence that such an intention should not be attributed, objectively, to the parties. In order to avert commercial futility in such cases, the courts have construed the relevant policies as only denying cover if the conduct of the insured has been reckless, in the sense that the insured has actually recognised the existence of the danger and has either responded in a way which the insured knew to be inadequate or taken no action at all when the insured understood that action was required.[20] In this line of cases, the question was not whether the obligation of compliance should be construed as an obligation to take reasonable care to comply. Rather, the question was whether an obligation to take reasonable care to comply should be construed as an obligation to not act recklessly in relation to compliance.
[20] See, for example, Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd [2016] NSWCA 67; (2016) 75 MVR 108 [51], [74], [80].
Following the portion of her reasons which I have set out above, the trial judge referred in detail to five previous cases. As the following analysis shows, those cases exemplify the distinction to which I have referred,[21] and which is somewhat obscured by the approach taken by the trial judge.
[21] See my reasons above at [57].

Casino Show Society v Norris

In Casino Show Society v Norris,[22] the relevant condition required the insured to 'take all reasonable precautions to … comply … with all statutory obligations … or regulations imposed by any Public Authority in respect thereof for the safety of persons or property'. The insured claimed indemnity for liability incurred when three children were injured when an entertainment ride, which had not been properly erected in accordance with relevant regulations, tipped over while in operation. The Court of Appeal of New South Wales[23] rejected the insured's assertion that the condition was repugnant to the commercial purpose of the insurance contract, and held that the insurer was entitled to deny liability because the insured had failed to take all reasonable precautions to comply with the relevant regulations.
[22] Casino Show Society v Norris (1984) 3 ANZ Ins Cas 60‑580.
[23] Priestley JA, with whom Glass and Mahoney JA agreed.
Casino Show Society v Norris was a case dealing with the question of whether a condition requiring the insured to take reasonable care should be construed as requiring only a lack of recklessness. It provides no support for the respondents' submissions, or for the position ultimately adopted by the trial judge.

Kim v Cole

In Kim v Cole,[24] the relevant insured was a plumber and gas fitter insured under a legal liability policy, a condition of which required him to 'comply … with all statutory obligations, By-laws and Regulations imposed by any Public Authority'. He failed to install a valve for an oven in a pizza shop as required by a regulation made under the legislation governing gas appliances. His omission led to an explosion which destroyed the building and badly damaged nearby structures.
[24] Kim v Cole [2002] QCA 176; (2002) Aust Contract R 90-149; (2002) Aust Tort Reports 81‑662.
The Queensland Court of Appeal concluded unanimously that the insurer was entitled to deny indemnity. It relied upon the fact that the relevant condition was not qualified by the obligation to 'take all reasonable precautions' or to 'take all reasonable measures', being qualifications expressly applied to other conditions within the relevant clause.[25] In that context, the Court of Appeal was not prepared to construe the obligation to comply 'with all statutory obligations …' as imposing only an obligation to take reasonable steps to comply with such obligations. Therefore, this was a case in which a submission corresponding to that put by the current respondents, namely, a construction which only required the taking of reasonable care to comply, was rejected.
[25] Kim v Cole [37].
Kim v Cole provides strong support for the insurer's contentions, given the obvious parallels between the relevant clause in that case and the relevant clause in this case.[26] However, the trial judge distinguished the decision on the basis that it could be 'explained by the particular facts of the case'.[27] In support of that proposition, her Honour cited the following passage from the judgment of McPherson JA:[28]
On this aspect of the appeal, reference was made to some remarks in the judgment of the Full Court in Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162, 173, to the effect that 'a simple breach of a regulation or by‑law' would not be enough to constitute breach of a policy provision requiring reasonable care to be taken to comply with all regulations and by‑laws. As already mentioned, no such qualification ('take reasonable care to comply') appears in subpara (c) of the relevant portion of Section 1 - General Conditions in the present case, and, in my opinion, it cannot be implied. Even if it could be, it would scarcely be correct to regard what happened as a simple breach of a regulation or by-law. It is a statutory provision that is plainly intended to serve the interests and ensure the safety both of consumers and members of the public whose persons and property would be placed at serious risk if it were to be omitted. As events showed here, it was not somewhere at the periphery but at the very centre of the Gas Regulation as a measure designed to guard against the very risk that eventuated.
(emphasis provided by the trial judge).
[26] The cases involve the same insurer.
[27] Reasons [126].
[28] Kim v Cole [41] (McMurdo P & Helman J agreeing).
With respect, this passage does not support the conclusion that the construction placed upon the policy by McPherson JA in Kim v Cole can be explained by the particular facts of the case. The issue of construction is addressed by McPherson JA without reference to the facts, and on the basis that the qualifying words 'take reasonable care to comply' cannot be implied into the construction of the relevant policy provision. It can be safely assumed that McPherson JA and the other members of the Court of Appeal who agreed with him would have been well aware of the basic legal principle to the effect that contractual construction is to be undertaken by reference to the words used in the contract construed in the context of the circumstances known to the parties at the time the contract was entered into, and not retrospectively by reference to the occurrence of events which are said to constitute breach.
Further, the portion of the passage italicised by the trial judge simply addresses the argument to the effect that the policy condition should not be construed as extending to every 'simple breach of a regulation'. McPherson JA observed that even if such a construction was open, the actions of the insured in that case could not be characterised as a 'simple breach of a regulation'. However, that observation, responding to a possible construction of the policy which McPherson JA did not accept, formed no part of the critical process of reasoning leading to the conclusion that the insurer was not obliged to indemnify, and to the allowance of the appeal. Rather, the case turned upon the court's view that the obligation of compliance should not be construed as an obligation to take reasonable care to comply.
In support of her assertion that Kim v Cole should be distinguished, the trial judge observed:[29]
I would add that there is no reference in the Court of Appeal decision in Kim v Cole to any argument on the repugnancy rule and there is certainly no reference to any of the authorities I have set out in [106] ‑ [108], nor any reference to Casino Show Society v Norris.
[29] Reasons [127].
However, Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd,[30] to which both McPherson JA in Kim v Cole and the trial judge referred, explicitly deals with the legal principle characterised by the trial judge as 'the repugnancy rule'.[31] Further, the proposition addressed by McPherson JA in the passage cited by the trial judge, to the effect that the relevant condition should be construed as not applying to every 'simple breach of a regulation', is an exposition of that principle. The fact that Casino Show Society v Norris does not appear to have been cited in Kim v Cole provides no basis for distinguishing the latter case, given that the two decisions are consistent with each other and are both directly contrary to the position adopted by the current respondents and accepted by the trial judge.
[30] Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162.
[31] Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd, 172 - 173.

Buckley v Metal Mart Pty Ltd

In Buckley v Metal Mart Pty Ltd[32] the relevant policy contained, under the heading 'Special Conditions' a clause headed 'Reasonable Care'. The clause contained five separate obligations, only one of which was qualified by the requirement that the insured 'take all reasonable precautions', the other four of which not being similarly qualified. One of those obligations not expressly qualified (other than by the heading to the clause) was the obligation to 'comply with … all laws, by-laws, regulations and recognised standards for the safety of persons or property'.
[32] Buckley v Metal Mart Pty Ltd [2008] ACTSC 79.
The insurer denied liability to indemnify its insured for liability to an employee for damages for personal injury on the basis that the injury was caused by the failure of the insured to ensure that its employees had the required certificate of competency to operate a forklift involved in the accident. The insurer asserted that the principle of repugnancy developed in the line of cases exemplified by the decision in Fraser did not apply because the obligation to comply with all relevant regulations was unqualified by the obligation to take reasonable precautions and was therefore absolute in nature.[33]
[33] Buckley v Metal Mart Pty Ltd [46].
Stone J rejected that assertion and distinguished the decisions in Casino Show Society v Norris and Kim v Cole on the ground that, in those cases, many of the obligations in the relevant clause were qualified by an expression like 'take reasonable care' whereas in Buckley, only one of the obligations in the clause was so qualified. Further, although not explicitly addressed in the reasons of the court, the fact that the clause was headed 'reasonable care' provided another significant point of distinction from those earlier cases. The wording of this heading provided a cogent basis for an argument to the effect that all the provisions in the clause should be construed as being qualified by the obligation to take reasonable care.
The proposition that was upheld in Buckley was analogous to the proposition advanced by the current respondents to the trial judge in this case - namely, that the obligation to comply with legislation and Australian Standards should be construed as limited to the obligation to take reasonable care to comply with such legislation and standards.
In Buckley, the insurer conceded that the part of the clause which was qualified by the obligation to 'take all reasonable precautions' should be construed consistently with the cases exemplified by the decision in Fraser - that is, as only being infringed by reckless conduct on the part of the insured. Stone J concluded that all the other obligations within the clause, including the obligation to 'comply with all laws, by-laws, regulations and recognised standards …', should also be construed as being qualified by an obligation to 'take all reasonable precautions'. She considered that it followed that the approach to construction exemplified by the decision in Fraser should also be applied to that clause, with the result that liability was only established in the event of recklessness. That conclusion should be viewed in the light of the insurer's concession.
This case illustrates that there are two distinct steps in the process of construction to be undertaken in relation to clauses of this kind. The first question is whether, if the clause is not expressly qualified by an obligation to take reasonable care, it should be construed as being so qualified. If the answer to the first question is in the affirmative, the second question is whether the principle of repugnancy exemplified by the decision in Fraser has the consequence that the obligation should be construed as limited to an obligation to not act recklessly. In Buckley, the answer to the first question turned upon the particular terminology used in the policy, as is evident from the reasons given by Stone J. What I have described as the second question does not appear to have been contested.

Victorian WorkCover Authority v Concept Hire Ltd

In Victorian WorkCover Authority v Concept Hire Ltd,[34] the Victorian WorkCover Authority denied that it was liable to indemnify an employer insured under an employer's liability insurance policy because of the employer's breach of a condition of that policy requiring it to comply at all times with the provisions of the Occupational Health and Safety Act 1985 (Vic). Section 21(1) of that Act imposes an obligation upon all employers to:
… provide and maintain so far as is practicable for employees a working environment that is safe and without risks to health.
[34]Victorian WorkCover Authority v Concept Hire Ltd [2009] VSC 194; (2009) 24 VR 695.
Beach J observed that it is almost inevitable that in any case in which an employee succeeds in a claim in negligence against his or her employer, s 21(1) of the Act will have been breached. It followed that construing the clause as requiring compliance with that provision would defeat the purpose of the policy. Accordingly, Beach J expressed the view that the condition should be construed as qualified by the obligation to take 'reasonable precautions'[35] and that the condition, so qualified, should be construed in the same manner as conditions qualified by such an obligation - as only applying to reckless conduct.[36] Because he considered that recklessness had not been established, he held that the insurer was liable to indemnify.
[35] What I have characterised above as the first step in the process.
[36] What I have characterised as the second step.
Like the decision in Buckley, this decision provides support for the current respondents' argument, and the approach taken by the trial judge. However, it is significant that the condition in Victorian WorkCover on its face imposed a strict obligation to comply with a legislative provision which would have had the effect of substantially defeating the utility of any cover, because of its breadth of operation.[37] That is because the duty of care imposed upon an employer at common law is almost, if not exactly, coincident with the statutory duty. An obligation to comply with the statutory duty as a condition of indemnity for breach of the common law duty would mean that the policy provided little or no cover.
[37] Occupational Health and Safety Act 1985 (Vic), s 21(1).
A question arises as to whether the breadth of the statutory obligation in Victorian WorkCover, and its virtual exclusion of all cover, is analogous to the obligations imposed by the regulations and Australian Standards upon which the insurer relies in the present case, viewed in light of the ambit of cover provided by the business liability policy. In that context it should be noted that because the policy in this case does not cover liability arising from personal injury to employees, the Western Australian provision corresponding to s 21(1) of the Occupational Health and Safety Act 1985 (Vic)[38] would not be encompassed within the 'legislation' relevant to the operation of the condition in this policy.
[38] Occupational Safety and Health Act 1984 (WA), s 19(1).

Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd

In Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd[39] a clause in a commercial motor vehicle policy headed 'reasonable care' required that:
You and any person acting on Your behalf must exercise reasonable care and precautions to prevent loss or damage to the Motor Vehicle, and to comply with all statutory obligations and by-laws or regulations imposed by any public authority for the safety of the Motor Vehicle …
[39] Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd [2016] NSWCA 67; (2016) 75 MVR 108.
The insurer contended that the qualification relating to the exercise of 'reasonable care and precautions' in this clause only applied to the obligation of preventing loss or damage to the motor vehicle and did not apply to the obligation to comply with all statutory obligations and by‑laws or regulations. The Court of Appeal of New South Wales[40] rejected that contention on the basis of the wording of the clause. Meagher JA observed that the heading formed part of the policy and should be taken into account as a general description of the provision which followed. As he observed, the subject matter of the condition would not correctly be described as 'reasonable care' if the second limb of the condition is not also qualified by the words 'reasonable care and precautions'.
[40] Meagher JA (Ward JA & Sackville AJA agreeing).
So, in that case the proper construction of the obligation was determined by reference to the wording of the provision, rather than by reference to any principle of repugnancy or commercial futility.
Once the clause had been construed in the manner for which the insured contended, the insurer accepted that it should be construed as operating in the manner enunciated in the Fraser line of cases, and as only excluding liability to indemnify on the basis of reckless conduct on the part of the insured.[41]
[41] Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd [84].

Summary of the cases reviewed by the trial judge

Of the five cases reviewed in detail by the trial judge, two (Kim v Cole and Casino Show Society v Norris) are contrary to the contentions advanced by the current respondents and the position ultimately adopted by the trial judge. Three of the cases (Buckley, Victorian WorkCover and Barrie Toepfer) provide some support for the position adopted by the current respondents, although the circumstances of each differ in a number of respects from the circumstances of the present case. The conclusion properly drawn from those differences in circumstances will be addressed in the context of my consideration of the grounds of appeal.

The reasoning of the trial judge - the consequences of breach

The trial judge first addressed the question of whether breach of the relevant clause - which she described as General Condition (b) - would entitle the insurer to refuse indemnity. In relation to that issue she held:[42]
Having regard to the natural and ordinary meaning of General Condition (b), read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the Business Liability Policy, namely to insure Boss for its legal liability to pay compensation for damage to property, I am not satisfied that any breach of General Condition (b) entitles the defendant to refuse indemnity for a claim. It is not clear that this was the common intention of the parties – in other words, on an objective reading it is not clear the insured (Boss) and the insurer (the defendant) agreed that there will be no liability on the defendant to indemnify for a claim unless General Condition (b) was complied with. My reasons for this follow.
If it was intended that compliance with General Condition (b) was an absolute obligation on the insured which overrode the terms of the insuring clause, and allocated to Boss the risk of any claims against it in the event of non‑compliance (as submitted by the defendant), this had to be made clear. In my view, it has not been made clear.
The policy does not expressly state that compliance with either the General Conditions as a whole or General Condition (b) in particular is a condition precedent to indemnity (compare the clear language in Fraser; see also Pioneer Concrete (UK) Ltd v National Employers' Mutual General Insurance Association Ltd [1985] 2 All ER 395, 397). It has not been expressly stated that no claim will be payable unless all of the General Conditions have been complied with, nor has it been expressly stated that compliance with General Condition (b) is a condition precedent to the defendant's liability to indemnify for a claim.
In the opening page under 'How the Commercial Plan Works' there is a statement that 'if you don't meet these conditions, we may be able to refuse or reduce any claim or cancel your policy', but in the section where the General Conditions are set out, it is not stated what the consequences of a breach of any condition is, except for General Condition (f)(i).
The matter is not, in my view, made any clearer by the clause on page 8 under the heading 'What can affect your entitlements'. That gives an example relating to General Condition (a), namely the condition to keep all property insured in good condition. The example given is also an example of a serious breach, relating to the safety of a motor vehicle (a car without brakes kept in good condition).
It is thus not clear from all of the terms of the policy that any failure of the insured to comply with legislation or Australian Standards would, in every case, lead to a refusal of indemnity for a claim. Having regard to what is stated in 'How the Commercial plan works', what is not stated in the General Conditions, and then what is set out in the clause headed 'What can affect your entitlements', there is more than one possible consequence of a breach of General Condition (b). A serious breach which involves an issue of safety may mean that the defendant will refuse the claim. A less serious breach may give the defendant the option to refuse the claim, or alternatively to reduce the claim. Another possible consequence, reading what is stated in 'How the Commercial plan works' (set out in [144] above) is that the defendant may choose to cancel the policy.
The result is that the effect of a breach of General Condition (b) is uncertain and unknown and there is ambiguity in the policy, in the sense that the language of the policy as to what happens to the insured's entitlement to indemnity if General Condition (b) is not complied with, is reasonably capable of having more than one meaning: Allianz Australia Insurance Ltd v Inglis [26].
[42] Reasons [148] - [154].
I will return to analyse the reasons given by the trial judge in relation to this issue in the context of the second ground of appeal.

The reasoning of the trial judge - construction of the condition

The trial judge then turned to the issue relating to the construction of the provision which she described as General Condition (b). On that issue she observed:[43]
[43] Reasons [155] - [163].
I consider that the decisions in Casino Show Society v Norris and Kim v Cole are distinguishable, both on their facts and the relevant policy terms.
As to the policy terms, there are the differences between the policy wording in this case, compared to Casino Show Society v Norris and Kim v Cole as I have already discussed. A further consideration, applying the reasoning in Buckley, is that General Condition (b) in this policy is not the only General Condition which is unqualified by reasonableness. General Conditions (a), (c), (g) are also unqualified. If the construction for which the defendant contends were to be accepted it would mean, for example, that General Condition (a) would effectively preclude any claim that stemmed from property which was not in good condition, and that General Condition (c) would preclude any claim arising from a situation where the insured had not 'promptly' complied with the requirement of a public authority.
I agree with Stone J's statement in Buckley that only the most explicit statement that strict compliance was a precondition to the insurer's liability would be sufficient to support such an interpretation. There is no such explicit statement in the defendant's policy.
Having regard to the terms of the policy in this case, it would in my view be inconsistent with its commercial purpose and the terms of the insuring clause, which is to cover Boss for acts of negligence, to construe General Condition (b) as the defendant contends.
I must construe the policy in a way which avoids any inconsistency and preference is given to a construction that provides a congruent operation to the various components of the policy as a whole: Wilkie v Gordian Runoff Ltd [16]; Barrie Toepfer [85]. Accordingly, I consider that General Condition (b) should be read down and construed to imply in its terms that the insured must 'take reasonable care to' comply with legislation and Australian Standards.
This qualification to General Condition (b) is, in my view, required to give the policy business efficacy. It is reasonable and equitable, consistent with the express terms of the policy (in particular the insuring clause), obvious so that it goes without saying, capable of clear expression and it does not, in my view, contradict any express term of the contract: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, 282 ‑ 283; Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79 [71] ‑ [72].
It is also proper to give it a meaning to avoid consequences that appear irrational and injust: Distillers Co (Bio‑Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1, 11 (Gibbs J); Carlingford Australia General Insurance Ltd v EZ Industries Ltd [1988] VR 349, 352 – 353.
With the implication that the insured must take reasonable care to comply with General Condition (b), the issue is whether Boss acted recklessly when it breached that condition, applying the test in Fraser. The facts are that the restaurant fitout involved more than plumbing work and the latter was carried out by Mr O'Dea. Boss' liability under the legislation (reg 47) and the Australian Standards could only be in relation to its general direction and control or supervision of the plumbing work which was being carried out. In the expert report of Mr Handley, exhibit 18, he was asked and answered:
7.Whether a reasonably competent builder would have been aware of the defects you have identified with or without an inspection of the works done
Answer:
•In my expert opinion, no
Reason:
•If a reasonably competent builder was relying on MP [Millstream Plumbing] telling him that all hydraulic services installations at Tony Roma's were code compliant, and the reasonably competent builder did not undertake an inspection of the works, then that reasonably competent builder would not have been aware of the defects identified in Answer No. 1.
In the circumstances, I am satisfied that Boss' conduct did not reach a level of recklessness (and it has not been submitted on behalf of the defendant that there was any recklessness on the part of Boss). It follows that the defendant is not entitled to refuse indemnity on the ground of the breach of Condition (b).
I will return to an analysis of this reasoning in the context of ground 1 of the appeal.
Before addressing the grounds of appeal, it is appropriate to deal with an argument advanced on behalf of the respondents and, in particular, the question of whether it is open to the respondents to advance that argument.

The respondents' argument that Boss was not responsible for any breach

In their written and oral submissions, the respondents contended that the insurer had not established that Boss was responsible for the fact that the plumbing work did not comply with relevant Australian Standards or the WSL Regulations, given that the work was carried out by Mr O'Dea of Millstream Plumbing Pty Ltd. This proposition, if accepted, would have the consequence that the decision of the trial judge would be upheld on a ground not relied upon by the trial judge. However, no notice to that effect was filed or served on behalf of the respondent.[44]
[44] A notice of contention is required by rule 33(4) of the Supreme Court (Court of Appeal) Rules 2005 (WA).
Counsel for the insurer objected to the argument on the basis that the issue was never raised at trial - to the contrary, the attempt by the insurer to raise an issue with respect to the distinction between Boss and Mr O'Dea/Millstream Plumbing was successfully opposed by the current respondents on the first day of trial, and on the further ground that no notice of contention was filed or served by the respondents.
Counsel for the respondents submitted that the trial judge did not find that Boss had breached the clause, and that the absence of such a finding was fatal to the insurer's claim. When asked why there was no notice of contention to the effect that the decision at first instance should be upheld on a ground not relied upon the trial judge, counsel referred to par 162 of the trial judge's reasons, in which she referred to the prospective liability of Boss 'in relation to its general direction and control or supervision of the plumbing work which was being carried out'. Significantly, counsel did not submit that this portion of the reasons should be construed as a finding that there was no breach of condition by Boss. Such a submission could not be put, given that the issue being addressed by the trial judge in pars 162 and 163 of her reasons was not the question of whether Boss was responsible for any breach of the WSL Regulations or the Australian Standards but, rather, the question of whether Boss had been reckless in relation to the breaches which she had found.
Later in the course of oral argument, counsel for the respondents clarified the position and asserted clearly and unequivocally, on at least three occasions, that although issue was joined on the question of whether Boss had breached the condition, the trial judge made no finding on that question.[45] Counsel then accepted the proposition which I put to him, to the effect that the argument being advanced was that even though the trial judge made no finding on the question of whether Boss was in breach of the condition, she should have made a finding that there was no breach by Boss, and entered judgment on that basis. Counsel confirmed that was the thrust of the argument.[46] When it was put to counsel that a notice of contention was required in order to advance such an argument and that, if an application was made to file a notice of contention at that point, there would need to be an inquiry into the manner in which the trial was conducted for the purpose of ascertaining whether the issue was live at trial, counsel indicated that he was not in a position to advance any further submissions. No application was made to file and serve a notice of contention as a consequence of the ventilation of these issues.
[45] Appeal ts 34 - 35.
[46] Appeal ts 36.
In the course of the argument, counsel for the respondents relied significantly upon the proposition that an insurer carries the onus of establishing a breach of condition which results in the denial of indemnity. While that proposition may be accepted, it does not overcome the fundamental obstacles in the path of the respondents' advancement of this argument.
The first fundamental obstacle in that path is the fact that the issue was clearly not raised at trial. The analysis of the pleadings which I have set out above shows that the current respondents conducted their case on the basis that the plumbing work was carried out by Boss, or that Boss was responsible for the plumbing work as a result of allowing it to take place or failing to adequately supervise it. When the insurer applied to amend its defence to introduce a distinction between the liability of Boss in respect of the plumbing work, on the one hand, and the liability of Mr O'Dea/Millstream Plumbing Pty Ltd, on the other, the application was successfully resisted by the current respondents. If that application had been allowed, it seems likely that greater evidence would have been led in relation to such matters as the relationship between Boss and Mr ODea/Millstream Plumbing Pty Ltd, the arrangements relating to the supervision of the plumbing work by Boss, the arrangements relating to the inspection of the plumbing work by Boss and so on. Given that it cannot be concluded that no evidence would have been led in relation to this issue had it been live at trial, it would be entirely unjust to now permit the respondents to take, on appeal, a completely different approach to that upon which they insisted at trial.
The second major obstacle in the path of the advancement of this argument is the lack of any notice of contention. As I have noted, counsel accepted that the respondents' argument was that notwithstanding the joinder of issue with respect to the liability of Boss for breach of the relevant condition, the trial judge made no finding on the question of whether Boss was liable. The proposition that the trial judge should have found that Boss was not liable for breach of the condition because the plumbing work was carried out by Mr O'Dea/Millstream Plumbing Pty Ltd is clearly a contention to the effect that the decision at first instance should be upheld on a ground not relied upon by the trial judge. A notice of contention was required pursuant to the Supreme Court (Court of Appeal) Rules 2005 (WA) and in order to meet the requirements of procedural fairness. No such notice has been filed or served.
For these reasons, the argument of the respondents to the effect that the appeal should be dismissed because the trial judge did not find that Boss was liable for breach of the condition as the plumbing work was performed by Mr O'Dea/Millstream Plumbing Pty Ltd should not be entertained.

The grounds of appeal

There are two grounds of appeal. The first ground challenges the trial judge's conclusion to the effect that the relevant condition should be construed as only imposing an obligation upon the insured to 'take reasonable care' to comply with legislation and Australian Standards. The second ground challenges the trial judge's conclusion that the insurer's obligation to indemnify was not conditional upon compliance by the insured with the relevant condition.

Ground 1

As formulated, the first ground of appeal only explicitly challenges the trial judge's conclusion that the obligation imposed upon the insured by the relevant condition should be construed as limited to an obligation to take reasonable care to comply with legislation and Australian Standards. As formulated, it does not explicitly address what I have described as the second step taken by the trial judge in the process of construction, namely, that of construing the obligation to take reasonable care to comply as being limited to an obligation to not be reckless in relation to compliance. That omission may be attributable to the approach taken by the trial judge in which, as I have observed, she elided the distinction between the two issues. However, nothing turns upon this as it is clear from the submissions presented to the court that both parties proceeded on the basis that ground 1 challenged both steps in the process of construction undertaken by the trial judge.

The reasoning of the trial judge

I have set out the reasons given by the trial judge in relation to this issue at [87] of these reasons. She commences by expressing the view that the decisions in Casino Show Society v Norris and Kim v Cole are distinguishable 'both on their facts and the relevant policy terms'. With respect to the trial judge, it is difficult to see how the particular facts giving rise to the claim in those cases can have any bearing upon the proper construction of the relevant conditions in the policies.
As regards the differences in the wording of the policies, in Casino Show Society v Norris, the relevant condition required the insured to 'take all reasonable precautions to … comply … '. Accordingly, unlike the policy wording in the present case, the relevant condition expressly qualified the obligation of the insured. That difference in the wording of the two policies has the consequence that the decision in that case provides significantly greater support for the insurer's proposition.
The policy wording in Kim v Cole was not identical to the wording of the relevant clause in the present case. However, of the various cases considered by the trial judge, the wording of the policy in Kim v Cole corresponds most closely to the wording of the policy in the present case, which is not surprising as the same insurer was involved in both cases. In each of the policies, two of the obligations imposed upon the insured are qualified by the obligation to 'take reasonable care'[47] whereas the obligation to comply with legislation and Australian Standards[48] is not similarly qualified.
[47] Or, in Kim v Cole, to 'take all reasonable measures' and 'take all reasonable precautions'.
[48] Or, in Kim v Cole, 'all statutory obligations, By-laws and Regulations …'.
For these reasons, the trial judge was, with respect, wrong to distinguish the decisions in Casino Show Society v Norris and Kim v Cole.
The trial judge next referred to the fact that the obligation to comply with legislation and Australian Standards was not the only unqualified obligation imposed upon the insured by the relevant clause. In that context she observed that an unqualified construction of the two other obligations which were not expressly qualified would have the consequence that indemnity would be precluded in relation to claims stemming from insured property which was not kept in good condition, or arising from a failure to comply promptly with requirements of public authorities. She expressed agreement with the observations made by Stone J in Buckley to the effect that only the most explicit statement that strict compliance was a precondition to the insurer's liability would be sufficient to support such a conclusion.

However, no process of reasoning to support those conclusions is elucidated in the reasons given. With respect to her Honour, it is not self-evident that excluding the obligation of the insurer to indemnify in cases in which failure to keep insured property in good condition or to comply promptly with requirements of public authorities was causally connected to the liability of the insured[49] would be repugnant to the commercial purpose of the policy. In relation to her Honour's reliance upon the observations of Stone J in Buckley, it is to be noted that the relevant clause in that case was headed 'reasonable care' - a heading which, consistently with the reasoning of the New South Wales Court of Appeal in Barrie Toepfer, provides considerable support for a qualified construction of the obligations imposed upon the insured.
[49] As required by s 54 of the Insurance Contracts Act 1984 (Cth).
The trial judge then expressed the conclusion that a construction of the relevant condition in accordance with its express terms would be inconsistent with the commercial purpose of the policy, which was to cover the insured for acts of negligence. However, apart from the matters to which I have referred, no process of reasoning supporting that conclusion is elucidated by the reasons given. In particular, the reasons do not reveal any analysis of the effect which a construction of the clause corresponding to the natural and ordinary meaning of the words used would have upon the ambit of cover provided under the policy. With respect to the trial judge, such an analysis is a necessary precondition to any conclusion that the commercial purpose of the policy would be defeated by construing its terms in accordance with their natural and ordinary meaning.
The trial judge then referred to general principles of contractual construction, including the need to avoid inconsistency, to provide a congruent operation to the various components of the policy as a whole, and to provide a meaning which avoids consequences which are irrational and unjust. However, with respect, the application of any of those principles depends critically upon an analysis of the kind to which I have just referred.
Finally, the trial judge applied the five criteria specified by the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council[50] which must be met before a term can be implied into a contract. However, as Buss JA pointed out in Servcorp WA Pty Ltd v Perron Investments Pty Ltd,[51] there are a number of different forms of implied term known to the law. They include a term deduced by implication or interpretation from the express terms of the contract.[52] That is the character of the issue raised in these proceedings - namely, an issue of construction. Another form of implied term is a term implied ad hoc in a particular contract in order to give business efficacy to that contract.[53] It is a term implied in fact and based upon the presumed intention of the parties. That is the type of term to which the Privy Council was referring in BP Refinery (Westernport) Pty Ltd. With respect to the trial judge, the criteria specified by the Privy Council in that case are not relevant to the issue of construction which arises in the present case.
[50] BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, 282 - 283.
[51] Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79; (2016) 50 WAR 226 - a case cited by the trial judge.
[52] Servcorp WA Pty Ltd v Perron Investments Pty Ltd [66].
[53] Servcorp WA Pty Ltd v Perron Investments Pty Ltd [66].

The cases relied upon by the trial judge

Returning briefly to the cases upon which the trial judge relied for the purpose of summarising the conclusions to be drawn from those cases, I repeat that Casino Show Society v Norris and Kim v Cole provide strong support for the insurer's case. In each of Buckley and Barrie Toepfer, the relevant clause was headed 'reasonable care' - a heading that was decisive in the Barrie Toepfer case, which was not decided by reference to the principle described by the trial judge as the 'repugnancy principle'. Although Buckley was decided by reference to that principle, clearly the heading to the relevant clause provided a sound basis for construing the specific obligations included within the clause as qualified.
Victorian WorkCover was a case in which a literal construction of the relevant clause would, in effect, have entitled the insurer to refuse indemnity under a policy providing cover for employers' liability for personal injury to employees if the employer breached the duty of care owed to such employees. The conclusion that the policy should not be construed in that way was not at all surprising. As I have already noted, no analogy can be drawn between that case and the present case, because the policy under consideration in the present case does not provide indemnity for liability arising from personal injury to employees, with the result that the statutory provision imposing a duty of care upon employers has no relevance to the operation of this policy.
In summary, to the extent that the previous cases are relevant to the issue which has to be determined in this case, they provide general support for the propositions advanced on behalf of the insurer. However, the proper construction of this policy must turn upon a consideration of its particular terms, viewed in light of the evident commercial purpose of the policy.

The terms of the policy

The terms of the policy relevant to the issue raised by ground 1 of the appeal are essentially the condition entitled 'what you must do when you have a policy', read in light of the ambit of the cover provided by the insuring clause and the specific exclusions from that cover.
Starting with the condition itself, the unqualified obligation to 'comply with legislation and Australian Standards' is contained in a clause in which two other obligations are expressly qualified by the requirement to 'take reasonable care'. As the primary guide to the intention to be attributed to the parties to a contract is the words which they have used, a clause constructed in this way provides strong support for the insurer's proposition that the relevant obligation should not be read as qualified by words which the parties have omitted in relation to that obligation, but included in relation to others. Similar considerations prevailed in each of Casino Show Society v Norris and Kim v Cole. Although the relevant clause in Buckley had a not dissimilar structure, as I have already noted, the clause in that case bore the heading 'reasonable care' which provides a sound basis for a qualified construction of the obligations contained within the clause - as is illustrated by the reasoning in Barrie Toepfer.
It follows that the critical question, and the question upon which this aspect of the appeal turns, is whether a construction of the clause which is strongly suggested by its terms would negate the evident commercial purpose of the policy. That purpose is to be inferred from the ambit of cover provided. The policy provides indemnity for legal liability to pay compensation for personal injury or damage to property. However, the cost of doing, redoing, completing, correcting or improving any work is expressly excluded from the ambit of cover provided.[54]
[54] See [33] of my reasons above.
As I have noted,[55] the trial judge noted a submission by counsel for the current respondents drawing attention to the evidence to the effect that the Australian Standards reflected what one would regard as the common law duty to perform a task with good workmanship and due skill and care. The respondents rely upon that evidence to support the proposition that the obligation to comply with the Australian Standards is coincident with the ambit of cover provided for negligence and would, if construed literally, defeat the purpose of the policy. That proposition should be rejected. The only Australian Standards to which reference has been made in this case are concerned with the quality and standard of work performed - in this case, plumbing work. The evident purpose of these standards is to ensure that plumbing work performed complied with the detailed prescriptions contained within their terms. So, exclusion of liability for the consequences of work which falls below those standards is consistent with the express exclusion of cover for the cost of rectifying defective work.
[55] At [53] above.
There would be considerable force in this aspect of the respondents' argument if non-compliance with the Australian Standards was the only or the predominant source of potential liability indemnified under the policy. However, the trial judge made no finding to that effect, nor is any such finding open on the very limited evidence on the topic. I describe the evidence as 'limited' because the clause requires compliance with all 'legislation and Australian Standards' and must be construed in the context of its general application, rather than its specific application to the circumstances of this case. However, the only materials which the court has available to it in order to assess whether the cover excluded by the operation of the condition would generally be coincident with the ambit of cover provided is limited to the specific regulations and standards which were said to have been infringed by the work performed in this case. Those materials fall short of sustaining the conclusion that the words of the policy should be construed in the manner for which the respondents contend. Nor can any inference be drawn from a general notion of the potential ambit of the operation of Australian Standards. To the contrary, the only inference open on the material available to the court is that, like the plumbing standards, they are directed to matters relating to the quality of workmanship and work product.
This is not to say that it would be impossible to establish that the obligation to comply with all 'legislation and Australian Standards' is either wholly or largely coincident with the obligations which might give rise to liabilities covered by the policy. However, no finding to that effect was made by the trial judge, nor do the limited materials available to this court provide the basis for such a finding. If such a finding were made, the proper construction of the relevant clause might well be as the respondents contend. However, I reiterate that the limited materials before the court do not establish the proposition which underpins the respondents' contentions.
It is easy to imagine a myriad of circumstances in which cover would be provided under the policy for liability arising other than as a consequence of failure to comply with standards specifying the quality of workmanship or work product, or regulatory requirements to the same effect. The insurer points to liability for negligently leaving equipment lying around where people might trip over it, or stacking equipment which unbalances and strikes someone to cause injury.[56] One can imagine many other such circumstances. In the course of argument I provided an example involving liability arising from the negligent use of oxy welding or oxy cutting equipment in the course of performing work - a matter likely to be covered by the general duty of care rather than a specific standard relating to the quality of workmanship or work product. These examples are not intended to be exhaustive, and many more of a similar character could be provided.
[56] Appellant's submissions [22].
This proposition can perhaps be illustrated another way. Counsel for the respondents drew a parallel between the obligations imposed by the Australian Standards and the common law obligation to perform work with due care and skill.[57] However, the common law duty to take care to avoid injury to one's neighbour, famously enunciated by Lord Atkin in Donoghue v Stevenson,[58] creates a potential for liability to be incurred by a business proprietor in a much broader range of circumstances than a failure to perform work with due care and skill. The policy in this case provides indemnity for all liability incurred within the entire range of circumstances giving rise to a duty of care, whereas the condition only excludes indemnity where there is a breach of the duty to perform work with care and skill, and only then if the breach corresponds to a breach of relevant legislation or Australian Standards, being a breach which was causative of loss.
[57] For the purpose of this proposition, it does not matter whether the common law obligation arises by implication of a term into a contract for the provision of work, or as a component of the duty of care in tort.
[58] Donoghue v Stevenson [1932] AC 562, 580.
For these reasons, a construction of the policy which obliges the insured to 'comply with legislation and Australian Standards' does not, on the information available to the court, deprive the policy of any meaningful ambit of cover. To the contrary, the policy still provides a significant ambit of cover notwithstanding such a construction.

The respondents' arguments

I have already referred to, and rejected, the respondents' primary argument in opposition to this ground of appeal. In addition, the respondents assert that the words of the condition are 'ambiguous', 'obscure' and that the meaning of the condition is uncertain.[59] The respondents support their proposition that the condition is ambiguous by reference to alternative formulations of the condition which would convey different meanings.[60] However, ambiguity must be inherent in the words used in the condition, and cannot be established by suggesting alternative wording that could have been utilised. I am unable to see any ambiguity in the words used in the relevant condition.
[59] Respondents' submissions [19].
[60] Respondents' submissions [29].
The propositions that the words of the condition are obscure and that their meaning is uncertain were not elaborated upon in written or oral submissions other than by an assertion that the clause cannot have been intended by the parties to oblige the insured to comply with every applicable legislative prescription or Australian Standard. That assertion is said to be justified on the basis that 'many will be irrelevant to the operation of the business of shopfitter or irrelevant to the risk of incurring liability in that business or at all.'[61]
[61] Respondents' submissions [23].
This submission overlooks the operation of s 54 of the Insurance Contracts Act 1984 (Cth). By reason of that section, unless non‑compliance with a relevant regulatory requirement or Australian Standard is causally connected to the liability incurred by the insured, the obligation to indemnify will not be affected by breach of the condition.
In summary, the words used in the relevant condition, viewed in the context of the clause in which they are located and in the context of the policy as a whole, strongly suggests that the obligation imposed upon the insured is not limited to either an obligation to take reasonable care, or an obligation to not act recklessly in relation to compliance. As it cannot be concluded that an unqualified construction of the obligation imposed would deprive the insured of all or most of the benefit of the cover provided by the policy, there is no reason why the words should not be given the meaning which they naturally bear. It follows that ground 1 of the appeal should be upheld.
As I have noted, the trial judge held that relevant Australian Standards and reg 47 of the WSL Regulations were breached. For the reasons I have given, the respondents' submission to the effect that a distinction should now be drawn between a breach by Boss and a breach by Mr O'Dea/Millstream Plumbing Pty Ltd should not be entertained. It follows that the appeal must be determined on the basis that Boss was in breach of the relevant condition. The consequence of that conclusion upon the insurer's obligation to indemnify Boss is the subject of ground 2 of the appeal.
However, before leaving the first ground of appeal, in case another view is taken elsewhere, I should express my reservations with respect to the reasoning of the trial judge to the effect that, on her view of the clause, it was not breached. My first reservation stems from the fact that, in assessing that question, the trial judge has drawn a distinction between the liability of Boss and the liability of Mr O'Dea/Millstream Plumbing Pty Ltd when, for the reasons I have given, that distinction was not open on the pleadings, nor does it appear to have been addressed in the evidence or submissions of the parties.
The second reservation which I hold in relation to that aspect of the trial judge's reasoning is that her conclusion that Boss was not reckless in relation to its general direction and control or supervision of the work carried out appears to be based entirely upon the expert evidence which she has cited in her reasons.[62] That expert evidence was to the effect that a builder relying upon advice from a subcontractor that the subcontract work was code-compliant, and who did not undertake an inspection of the subcontractor's work, would not be aware of the non-compliance. With respect to the trial judge, that proposition is a statement of logic, and lacks any character or quality of expertise.
[62] Reasons [162].

Appeal ground 2

The second ground of appeal challenges the trial judge's conclusion that breach of the relevant condition would not entitle the insurer to deny indemnity. I have set out above[63] her reasons for that conclusion.
[63] At [85].
Apart from the general assertion that the terms of the policy do not make the right of the insurer to refuse indemnity clear, the trial judge relies upon the failure to describe the condition as a 'condition precedent to indemnity'. However, with respect to the trial judge, legal terminology of that kind is not to be expected in a policy written in 'plain English' and in conversational form.
Next, the trial judge relies upon the proposition that there is no express statement that no claim will be payable unless all conditions have been complied with. However, with respect, this proposition overlooks the fact that any such assertion would be misleading, having regard to s 54 of the Insurance Contracts Act 1984 (Cth). The provision on the first page of the policy that:
[I]f you don't meet these conditions, we may be able to refuse or reduce any claim or cancel your policy.
allows for the fact that a breach of condition which is not causally related to the indemnified loss would not entitle the insurer to refuse indemnity. The proposition implicit in the reasoning of the trial judge to the effect that absolute and unqualified language should have been used to describe the rights of the insurer in the event of breach of condition would result in policy wording that would be misleading.
The trial judge next refers to the portion of the policy under the heading 'what can affect your entitlements'.[64] In that context the trial judge describes the example given in the policy relating to failure to keep a car's brakes in good condition which causes an accident as being an example of a 'serious breach'. The trial judge then proposes that the policy wording supports the conclusion that a serious breach which involves an issue of safety may entitle the insurer to refuse the claim but a less serious breach may give the insurer the option to refuse or, alternatively, reduce the claim.
[64] See [31] of these reasons.
That process of reasoning cannot, with respect, be derived from the terms of the policy. The example given in the policy relating to the brakes of the motor vehicle is a clear illustration of the operation of s 54 of the Insurance Contracts Act 1984 (Cth). The words used in the policy do not support any distinction between 'serious' or 'less serious' breaches. The terminology used in the policy is entirely consistent with a construction of the policy to the effect that, in the event of a breach of condition which is causally related to the indemnified loss, the insurer may decide to refuse indemnity.

The trial judge's conclusion, based on this process of reasoning, that the policy is ambiguous in relation to the consequences of breach of condition cannot be sustained by the wording of the policy. To the
contrary, the wording of the policy is consistent and unequivocal. The obligation of the insured to comply with conditions is described in imperative terms ('must'), and the consequences of non‑compliance are clearly set out in terms which are entirely consistent with the operation of s 54 of the Insurance Contracts Act 1984 (Cth)
The trial judge cited no authority in support of her conclusion that breach of the relevant condition did not entitle the insurer to refuse indemnity. Two of the cases to which she did refer - Casino Show Society v Norris and Kim v Cole - were directly contrary to her conclusion. Further, the other cases which she cited were generally decided on the basis of a common assumption that non-compliance with the relevant condition, properly construed, would entitle the insurer to refuse indemnity.
Submissions advanced on behalf of the respondents in relation to this ground of appeal essentially relied upon the reasoning adopted by the trial judge. As that reasoning cannot be sustained in the face of the clear terms of the policy, ground 2 must also be upheld.

Conclusion

For these reasons, each ground of appeal and the appeal generally should be upheld. The decision of the trial judge should be set aside and, instead of that decision, it should be ordered that the respondents' claim against the insurer is dismissed. The parties should be invited to provide the court with submissions in relation to the costs of the appeal and the costs of the proceedings at first instance.

MURPHY JA:

I agree with the Chief Justice.

CHANEY J:

I agree, for the reasons given by the Chief Justice, that the appeal should be allowed, the decision of the trial judge set aside and that there should be an order that the respondent's claim against the appellant be dismissed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EA
RESEARCH ASSOCIATE TO THE HONOURABLE CHIEF JUSTICE MARTIN
7 JUNE 2018