White Industries Qld Pty Ltd v Hennessey Glass and Aluminium Systems Pty Ltd

[1996] QCA 529

IN THE COURT OF APPEAL	[1996] QCA 529
SUPREME COURT OF QUEENSLAND

Appeal No. 77 of 1994

Brisbane

Before Fitzgerald P.
Pincus J.A.
Derrington J.

[Hennessey Glass & Aluminium Systems P/L v. Eagle Star Trustees Ltd & ors.]

BETWEEN:

HENNESSEY GLASS AND ALUMINIUM

SYSTEMS PTY LTD

(Second Defendant) Appellant

AND:

EAGLE STAR TRUSTEES LTD

(First Plaintiff) First Respondent

AND:

PERMANENT TRUSTEES LTD

(Second Plaintiff) Second Respondent

AND:

WHITE INDUSTRIES QLD PTY LTD

(First Defendant) Third Respondent

REASONS FOR JUDGMENT - FITZGERALD P.

Judgment delivered 20 December 1996

The circumstances giving rise to this appeal are substantially set out in the reasons for judgment of

Derrington J. The dispute between the appellant (sub-contractor) and respondent (contractor) changed materially when, in the course of the trial, the contractor compromised a claim made against it by the

building owners and, after institution of this appeal, the appellant also compromised with the owners.

The issue now is whether the respondent is entitled to be indemnified by the appellant against its loss,

which is measured by the amount which the respondent is required to pay (or has paid) to the building

owners under the compromise between them. The reasonableness of that compromise is not

challenged; it is difficult to see how reasonableness could be in issue in view of the trial judge’s findings

against the appellant, irrespective of whether they were correct or not. It follows, in my opinion, that

there is no longer any issue with respect to quantum between the present parties.

The respondent relied on two clauses of the sub-contract with the appellant, namely:

“SUB-CONTRACTORS LIABILITY UNDER THE INCORPORATED

PROVISIONS OF THE HEAD CONTRACT

3.B

The sub-contractor shall indemnify and save harmless the Company against and

from:

(i)	any breach non-observance or non-performance by the Sub- Contractor his servants or agents of the said provisions of the Head Contract or any of them; and
(ii)	any act or fault or omission of the Sub-Contractor his servants or agents which involves the Company in any liability to the principal under the Head Contract.”

“

19. INJURIES TO PROPERTY REAL AND PERSONAL

(a)

The Sub-Contractor shall be liable for and shall indemnify the Company against any expense liability loss claim or proceedings in respect of any injury or damage whatsoever to any property real or personal insofar as such injury or damage arises out of or in the course of or by reason of the carrying out of the Works unless due to any act or negligence of the Company or any person for whom the Company is responsible.”

It is not in dispute that a number of panes of glass installed by the appellant broke and fell because of

the presence of nickel sulphide “stones” in the glass and that more panes will probably break in the future for that reason, or that 24 panes of glass were scratched internally prior to installation or between

installation and inspection in the course of construction of the building. The appellant’s submission was

that the glass which it supplied and installed was required by its subcontract (and that the presence of

the nickel sulphide “stones” and resultant breakage of a proportion of the panes was an inherent

characteristic of such glass), and that it was not proven that the glass was scratched prior to or in the

course of installation, or by its employees after installation.

On the proper construction of the clauses relied on by the respondent which are set out above, it is not

apparent to me that it would assist the appellant if these contentions were correct: see, for example, sub-

cl. 3B(ii). However, it is unnecessary to decide that question.

It was not disputed that a document described as the “long specification” formed part of the appellant’s

subcontract. That document included the following clauses:

“003.09	GLASS GENERALLY - GLAZING
Glass shall comply generally with BS 952, be the kinds and grades specified or shown on the Drawings and shall be free from cracks, scratches, bubbles, blisters, and other defects which will interfere with the appearance or service.
...
Glazing shall be in safety-glass of thickness complying with the requirements of AS 1288 using the designed wind pressures set out in Appendix A.
...
04	GLAZING INCLUDING STRUCTURAL SILICONE

A further guarantee shall be given to the Proprietor which assures making good any glazing defects which result in air or water infiltration and replacement of glass which fractures due to workmanship or materials and including all associated glazing materials as may be required to make good for a period of not less than [10] years. Allow for all costs associated with making good any defects or breakages ...”.

Once again, it is difficult to see how cl. 04 leaves the appellant any room to manoeuvre, but its argument

by-passed that provision and centred on cl. 003.09.

Shortly stated, it was submitted that only “toughened glass” and “laminated glass” fit the description

“safety glass”, and that “toughened glass”, which always includes some panes with nickel sulphide

“stones”, must have been intended because the “Schedule of Glass” portion of the specification

contained a provision which, by implication, indicated that laminated glass would not satisfy cl. 003.09;

that provision in the “Schedule of Glass” portion of the specification provided:

“All tenderers must submit a conforming tender but are requested to submit an additional tender including for laminated glass of number colour and thermal properties.”

In my opinion, that provision cannot bear the weight of the appellant’s argument. It means no more than

that, irrespective of any other conforming tender, one based on laminated glass was requested.

Presumably, price differentials would, and did, affect the tender accepted, involving “toughened glass”,

not “laminated glass”. I can identify nothing in the provisions to which we were referred or which I have

set out which is sufficient for the appellant’s case in relation to the panes which have broken, and will

break, due to nickel sulphide “stones” in that “toughened glass”.
The trial judge found against the appellant in relation to the scratched glass because he found both that

the appellant was required to provide unscratchable glass as at the date of completion of the building,

regardless of how the scratching occurred, and that, in any event, the appellant was responsible for the

scratches. The latter inference was open on the evidence, which did not establish how or when the

scratches occurred, and the former opinion was supported by Section 010, cl. 003.02 “Storage and

Protection” of the subcontract, which required the appellant to “protect units after installation until final

handover”.

In my opinion, the appeal should be dismissed, with costs to be taxed.

REASONS FOR JUDGMENT - PINCUS J.A.

Judgment delivered 20 December 1996

I have read the reasons of Derrington J. As his Honour explains, the first submission for the

appellant was that the glass was "free from . . . defects which will interfere with . . . service"; in fact

some of the panels had nickel sulphide inclusions which caused them to disintegrate. The contention

was that only a small proportion of the panels failed, that the type of glass specified had a tendency to

fail in the way in which these failures occurred, that nothing could be done to make absolutely certain

that such failures would not happen and that compliance with the provision from which I have quoted

should be judged considering the glass supplied as a whole, rather than requiring that each individual

panel be sound. Assuming the factual content of these submissions to be correct - contrary to the

contentions of the respondent - still it seems to me plain that they must be rejected. In some contexts

a warranty that a product supplied should be "free from defects" might be read down so as to permit

of a considerable variation in the quality of what has been supplied; but a warranty that glass panels for windows shall be "free from defects which will interfere with service" cannot be satisfied by supplying

panels, some of which spontaneously fall to pieces after being installed. This conclusion makes it

unnecessary to consider other contractual provisions relevant to this aspect and relied on by the

respondent.

Scratched and chipped panels

As to these 24 panels, an issue arises which is, to my mind, more difficult. The judge found as

a fact that the damage was done by employees of the appellant; this finding is attacked on the ground

that it was unsupported by any evidence. The evidence relied on by the respondent consists wholly in

the absence of response to three letters written by the respondent to the appellant, each of which either

asserted or assumed that the appellant was responsible for the damage to the panels. A letter of 22

May 1987, written by the respondent’s project manager, is the one which makes the most specific

accusation, but it does not seem to be especially useful, as a foundation for the finding made. The body

of the letter reads as follows:

"We acknowledge receipt of your letter of 28th April 1987 regarding the scoring to the
internal coating.

Whilst it is quite apparent that there are a number of panels that have been scratched or broken for one reason or another, White Industries (Qld) Pty Ltd are not accepting responsibility for this damage other than where confirmation has been given in writing for liability.

Hennessey Glass also have a responsibility to protect all works under Appendix ‘A’, Special Conditions of Contract and also we are aware that a number of panels were scratched and broken in transit or during fabrication which had to be installed to maintain the erection sequence.

We request that a meeting be held at your earliest convenience to examine the best way
of settling this matter."
The writer, it will be noted, does not seem to assert that the appellant had caused all the relevant

damage; the letter implies that some panels had been scratched or broken by the respondent. Further,

there was evidence that at a meeting later that year (on 12 November 1987) attended by the writer of

the letter, liability for the relevant damage was denied on behalf of the appellant.

In these circumstances I can see no basis on which the Court could find that the damage

complained of was caused by the appellant. If the respondent had written identifying the particular

panels now in issue, and asserting that to its knowledge they had all been damaged by the appellant,

then a lack of response to that accusation would perhaps have been probative; but the critical letter,

being that quoted above, made no such assertion. Nor did it go unchallenged.

In my respectful opinion the trial judge was in error in finding that the panels were scratched by

employees of the appellant; the correspondence which is relied on does not in my view provide any

reasonable foundation for such a finding. Mr H Fraser Q.C., who led for the respondent, while not

formally abandoning reliance upon the correspondence, based his argument on this aspect of the appeal

primarily upon clauses of the contract which I shall discuss, and upon there being no evidence that the

scratches were caused by the respondent. As to the latter point, that cannot help unless the appellant

bore the onus of proving that any damage to the panels was caused by someone for whom the appellant

was not responsible.

One starts from the proposition that the panels were found at practical completion to be scratched; in my opinion the cause of this is simply unknown. The principal provision relied on by the respondent to support the judge’s conclusion that the appellant had to pay for replacing the scratched

panels is the rather obscure cl. 13 of the Special Conditions; as was pointed out by counsel for the

appellant, this provision does not appear to have played any part in the reasoning of the trial judge.

Clause 13 reads as follows:

"The sub-contractor shall protect all works, at all times including the finishes and works of other trades, be it adjacent, below or overhead. The subcontractor to make good finishes where damaged."

It is difficult to know what to make of the first sentence. If one reads it quite literally, the appellant has

perhaps undertaken to "protect" (whatever that means) everything done by any tradespeople on the

whole job; but that can hardly have been intended. Some implication is necessary to make commercial

sense of the provision; I think it should be read as obliging the appellant to protect the works mentioned

from damage occasioned during the course of the appellant’s work. I accept that this reads down

drastically the expression "at all times", but it seems to me that this cannot be taken literally; the parties

cannot have intended a perpetual obligation. The key to the intended effect of the sentence is to be

found in the expressions with which it concludes, "be it adjacent, below or overhead"; the clause is

directed to the appellant’s obligation to do its work in such a way that neither its own work nor that of

others nearby is damaged. So it is unnecessary to consider whether the word "protect" means

"absolutely ensure that there is no damage, whether or not due to any act or omission of the sub-

contractor". My conclusion is that this sentence does not assist the respondent.

Another question is whether the second sentence, "The subcontractor to make good finishes

where damaged", adds anything of relevance. Reading the first sentence as I have, as being directed

to damage caused in the course of the appellant’s work, the natural reading of the second sentence is

that it is intended to make clear that the appellant must itself cause to be rectified any damage to "finishes" falling within the first sentence. It was argued for the respondent that under cl. 13 the appellant

has to protect and make good finishes "whether or not it was the appellant who damaged the finishes".

The submission does not explain in what circumstances this obligation would arise. The clause clearly

covers damage to finishes adjacent to the windows, but surely not all damage; if a tradesman not

employed by the appellant damaged the finish of the wall adjacent to a window, or if an intruder did so,

it is hardly conceivable that the appellant should have to pay for such damage.

Another clause relied on by the respondent is cl. 19(a), which makes the appellant liable to

indemnify the respondent in certain circumstances; the difficulty of using that clause against the appellant

is that it applies only insofar as the injury or damage with which it deals "arises out of or in the course

of or by reason of the carrying out of the works". There is no evidence as to how the scratches came

about and so the clause is not shown to have any application.

I do not see any reason why the interpretation of these clauses should be stretched in favour of

the respondent; it would have been simple enough, had that been the parties’ intention, to include a

provision placing the works done by the subcontracting appellant entirely at its risk up to a certain point

of time (for example, practical completion or final completion), either absolutely or subject to, for

example, exceptions for damage proved by the appellant to have been caused by persons other than

its employees or agents. It must commonly happen that a subcontractor’s work is damaged by another

subcontractor, or the head contractor, or other persons. I have not been able to find authority to

support the proposition that, damage to the windows having been noticed after their installation, the

appellant bore the onus proving that the damage was not caused by its servants or agents. The

circumstances might, in particular cases, be such as to lead to the inference that the damage noticed after

installation was probably present at the time of installation; but no evidence to support such a line of
reasoning was referred to in the present case.

It follows, in my opinion, that the appellant’s challenge to the judge’s finding with respect to the

24 scratched panes of glass should be upheld.

Indemnity

The relevant contract contained provisions, set out in the reasons of Derrington J, whose effect

it was to require the appellant to indemnify the respondent in respect of the consequences of its breach

of contract, referred to above - i.e. supplying windows some of which spontaneously disintegrated and

fell out. Here, the respondent reached an agreement involving its acceptance of liability to the owner,

in a certain sum, as a consequence of the appellant’s breach.

There is a curious dearth of authority for the proposition that an undertaking to indemnify against

liability covers the amount of a compromise. Insurance cases are in my opinion not generally of direct

assistance in determining the scope of a simple obligation to indemnify, such as that in the present case,

because ordinarily insurance litigation has to do with special provisions of policies such as that

considered in Distillers Company Bio-Chemicals (Australia) Pty Limited v. Ajax Insurance Company

Limited (1974) 130 C.L.R. 1. Here, the contract between the parties says nothing about the possibility

that an indemnity might be claimed for a sum the respondent has agreed to pay, as opposed to a sum

for which it has been held liable. The primary judge relied on the decision of the English Court of

Appeal in Biggin & Co. Ld. v. Permanite Ld. [1951] 2 K.B. 314, which dealt with an action for

damages by purchasers of goods against the vendors, based on an allegation that the goods were

unsuitable for the purpose for which they were bought. The plaintiff had paid agreed damages and costs

to a subpurchaser, but it was held at first instance that they could not rely upon that settlement. On appeal the Court decided in effect that, if the evidence showed that the settlement was a reasonable one,

then its amount should have been allowed. Biggin’s case is relied on by Benjamin (4th Ed.) as authority

for the propositions that:

"If [the buyer] reasonably settled the sub-buyer’s claim out of court, he may recover as damages from the seller a reasonable amount paid under such settlement . . . The onus of proof is on the buyer to establish a prima facie case that the settlement was reasonable, but it was open to the seller to attempt to show that the buyer was not liable to pay anything to the sub-buyer or to produce new evidence or new factors to show that the sum paid was not reasonable." (895, 896)

The reasons in Biggin’s case wear the appearance of having been given ex tempore; it is not

clear to me to what extent the two judges who gave detailed reasons intended to qualify the basic

proposition that the amount of a reasonable settlement is recoverable. A settlement which is reasonable,

in the sense of being entered into in good faith after careful consideration and on proper advice, may

later be proved to have been quite unnecessary, for example because some evidence comes to light

which shows that the claim settled was in truth unsustainable. But such evidence would not displace the

presumption that the settlement was reasonable, which was held to apply in Wong v. Hutchison (1951)

68 W.N.(N.S.W.) 55 at 58, nor show that the party agreeing to pay under the settlement acted

unreasonably in doing so.

In this case the respondent settled with the owner after some days of trial and consented to

judgment in the sum of $938,561 plus costs. The amount of the settlement consisted in $798,561

damages and $140,000 interest. The trial went on and the owner got judgment against the appellant

in a sum of $897,531 plus solicitor and client costs. As entered, the judgment given in favour of the

respondent against the appellant was as follows: "The First Defendant [the respondent] recover against the Second Defendant [the appellant] the sum of $938,651 together with the judgment given in favour

of the plaintiff by consent of the first defendant, for costs to be taxed on a solicitor and client basis".

This seems to be wrongly expressed; reference to the reasons shows that judgment was intended to

be given for the respondent against the appellant in a sum of $938,561 plus certain costs. Further,

although the formal judgment does not say so, the respondent’s right to recover against the appellant

under the judgment is presumably intended to be subject to abatement if the owner’s judgment against

the appellant is satisfied.

Leaving these complexities aside, it appears that a result of the judgment is that the appellant

has been held liable to the owner in a sum which is about $40,000 less than the amount which it is

obliged to pay to the respondent. The difference consists partly in interest and partly in a sum of

$16,542.

Although the settlement which the respondent made with the owner was in a lump sum, it related

to two distinct matters, the major element being the tendency of the panels spontaneously to disintegrate,

and the lesser one, the rejection of some panels as having been scratched. As to the latter, it is not of

any consequence whether the settlement between the owner and the respondent was reasonable; the

claim made by the respondent against the appellant should in my view have failed because it was not

shown that the appellant had any liability, under the indemnity provisions of its contract or otherwise,

in relation to the scratching.

But that has no application to the settlement insofar as it dealt with the consequences of the disintegration of the panels; in my opinion the learned primary judge was right to hold the appellant liable in that respect. The judge held that the respondent acted reasonably in settling the owner’s claim

and that the amount it agreed to pay was "even if . . . towards the upper limit of what was reasonable

. . . nevertheless a reasonable sum". The conclusion the judge drew is a factual one; his Honour

concluded or inferred from the evidence that the settlement was reasonable. In this connection I note

the recent revival of a doctrine, not much relied on or indeed even referred to for many years, in the

observations of Barwick C.J., in Whiteley Muir & Zwanenberg Ltd v. Kerr (1966) 39 A.L.J.R. 505

at 506. I do not here quote the whole of the passage, but only that which is immediately material.

"Again, the trial judge, having found the primary facts, may decide that a particular inference should be drawn from them. Here no doubt the appellate court has more room for setting aside that conclusion. But, even in that case, the fact of the trial judge’s decision must be displaced. It is not enough that the appellate court would itself, if trying the matter initially, have drawn a different inference. It must be shown that the trial judge was wrong. This may be achieved by showing that material facts have been overlooked, or given undue or too little weight in deciding the inference to be drawn: or the available inference in the opposite sense to that chosen by the trial judge is so preponderant in the opinion of the appellate court that the trial judge’s decision is wrong."

Contrary to the understanding of the headnote writer of Warren v. Coombes (1979) 142 C.L.R. 531

at 532, the passage I have quoted was not disapproved but, we learn, followed in that case: see Zuvela

v. Cosmarnan Concrete Pty Ltd (High Court, unreported, 8 November 1996).

Keeping in mind, then, that the obstacle facing the appellant in seeking to attack an inference

from facts found is more substantial than it might, since Warren v. Coombes, have been thought to be,

it is necessary to consider the argument put against the reasonableness of the settlement. It was said

that its reasonableness was not specifically challenged and that may literally be true; but the appellant’s

arguments, if accepted in full, would necessarily lead to a reversal of the judge’s conclusion.

The amount of the settlement included a sum of $254,500 described as "estimate of

investigation to localise Ni S inclusions and replace affected panels". This was argued to be

unacceptable because the estimate put forward as to the likely number of failures was unreliable. The

judge’s assessment of the cost of investigation of the problem, by testing the panels to identify those at

risk, was $144,500 and the present cost of replacing 21 panels his Honour found to be $93,458. As

to the latter figure, the argument was that the two witnesses relied on, Bylett and Mackinnon, both gave

unreliable estimates, for differing reasons. A number of the criticisms advanced on behalf of the

appellant seem to me to have weight, but I see no sufficient reason to conclude that the judge was

obliged to ignore the evidence of these witnesses. To illustrate a weakness in Mackinnon’s evidence,

this witness put forward some material based upon experience of failures at Waterfront Place; it was

argued that there was "no evidence" about those failures. That is not true; Mackinnon gave evidence

about events at Waterfront Place, based on hearsay. The appellant’s difficulty is that it was not

objected to. Ultimately, it was contended for the appellant that Mackinnon’s evidence, being based in

part on hearsay, should have been given no weight. That appears to me an overstatement; there was

no particular reason to doubt the accuracy of what Mackinnon had been told about Waterfront Place.

If it was incorrect, presumably evidence in contradiction of it could have been called. In my opinion,

this and other points taken relating to this topic have not nearly such strength as to justify the conclusion

said to follow from them, that the judge should have ignored evidence of the relevant witnesses because

of deficiencies, admitted by them.

As to the investigation, to cost $144,500, it was argued in effect that there was no evidence that

it was likely to be of any use. Proof to the contrary depended upon the evidence of Mackinnon, which

suffered from the deficiency which I have mentioned - that it was partly based on hearsay - and from another, namely that Mackinnon did not have with him in Court enough material to answer some of the

questions he was asked. At the hearing, a special point of attack on Mackinnon’s evidence was the

assertion in Exhibit 108, written by one John Barry, that the proposed method of identification of the

windows likely to shatter had been 89% successful at Waterfront Place. Cross-examination showed

that Mackinnon was not able fully to substantiate this because some of the data on which the claimed

success rate was based were either unknown or not sufficiently known to him. This circumstance

certainly weakened Mackinnon’s evidence; but Mackinnon seems to have had confidence in the

method of investigation proposed and the judge was entitled to accept his opinion.

I have concluded that the attack on that item, comprising part of the agreed settlement, which

covered the Mackinnon investigation and replacement of the affected panels fails.

The last of the issues raised by the appeal relates to a sum of about $270,000 for construction

of a canopy around the building to protect people from falling glass. The judge found the claimed

expenditure to have been reasonable and this is not challenged; the only point taken is that, so the

appellant says, the canopy would have been built whether or not the appellant had broken its contract

by supplying glass with a tendency to fail in the way complained of. It was argued that there had been

breakages for reasons other than the nickel sulphide inclusions.

There was evidence supporting the conclusion that the owner would not have been willing to

accept even a small risk of injury, to people passing by the building, from falling glass. It is my opinion

that the passages in the evidence relied on by the appellant were not such as to compel the judge to find

that the canopy would have been erected even if the breach referred to above had not occurred. To

take one example, it was submitted that the witness Hickey, a civil engineer, said that certain scratches

depicted in photographs "led him to the real possibility that the glass would fail in future due to the

presence of those scratches". Hickey did not, as I read the relevant evidence, say so. The critical

question and answer are as follows:

"The scratches will lead to the failing of the panes of glass?-- Well, as I said, the scratches will weaken the glass, we are not talking about whether they will fail the glass. If the scratch is extremely severe and - the glass would have failed at the time it was scratched."

Conclusion

It follows, in my opinion, that the appeal should succeed with respect to the judge’s finding that

the appellant is legally responsible for the replacement of scratched panels amounting to $77,346.

Making the appropriate adjustment for interest, the judgment of $938,561 entered below in favour of

the respondent against the appellant should be reduced to $847,655.

As to costs, the reduction in the amount of the judgment is of the order of 10%. In view of the

limited success the appellant has had, I would order the respondent to pay one-third of the costs of the

appeal.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 77 of 1994

Brisbane
[Hennessey Glass v. Eagle Star Ors.]
BETWEEN:

HENNESSEY GLASS & ALUMINIUM SYSTEMS PTY LTD

(Second Defendant) Appellant

AND:

EAGLE STAR TRUSTEES LTD

(First Plaintiff) First Respondent

AND:

PERMANENT TRUSTEES LTD

(Second Plaintiff) Second Respondent

AND:

WHITE INDUSTRIES QLD PTY LTD

(First Defendant) Third Respondent

Fitzgerald P
Pincus JA

Derrington J

Judgment delivered 20 December 1996
Separate reasons for all members of the Court; Fitzgerald P and Derrington J concurring as to orders

made, Pincus JA dissenting.

APPEAL DISMISSED WITH COSTS

CATCHWORDS:	Building Contract - Construction of city building - Contractor sued glazing specialist - Glass sheeting failed - Glass contained nickel sulphide pebbles - Pebbles were hazard of manufacturing process - Whether glass was in conformity with the contract - Glass contained scratches prior to practical completion - Whether subcontractor responsible.
Quantum - Whether award is excessive - Whether subcontractor liable to indemnify the contractor for a greater sum than the contractor's actual liability
Counsel:	Mr S. Couper QC for the Appellant Mr H. Fraser QC, with him Mr P. Hastie for the Third Respondent
Solicitors:	McGans for the Appellant Minter Ellison for the Third Respondent

Hearing Date: 15 August 1996

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Brisbane	No. 77 of 1994
Before: Fitzgerald P

Pincus JA

Derrington J

[Hennessey Glass v. Eagle Star Ors.]

BETWEEN:

HENNESSEY GLASS & ALUMINIUM SYSTEMS PTY LTD

(Second Defendant) Appellant

AND:

EAGLE STAR TRUSTEES LTD

(First Plaintiff) First Respondent

AND:

PERMANENT TRUSTEES LTD

(Second Plaintiff) Second Respondent

AND:

WHITE INDUSTRIES QLD PTY LTD

(First Defendant) Third Respondent

REASONS FOR JUDGMENT - DERRINGTON J

Judgment delivered 20 December 1996

In this action the first respondent, and, through it, the second respondent as the principals in a

contract for the construction of a city building ("the owner") sued, among others, the third respondent

as the contractor ("the contractor"), and the appellant as a sub-contractor ("the sub-contractor")

engaged by the contractor as a glazing specialist. The action concerned the failure of glass sheeting of

the exterior of the building supplied and installed by the subcontractor, causing a number of panes to shatter and fall. Other claims related to the replacement of panes which were found to be scratched at

the time of completion of the contract building, the cost of future detection and replacement of other

defective panes, and the cost of erection of a canopy below to protect the passing public. In the same

action, the contractor claimed against the sub-contractor for indemnity in respect of any liability it had

to the owner as provided for in the sub-contract.

During the course of the trial the contractor entered into a compromise agreement with the

owner, the second respondent, for the payment by it of $938,561.06 in full settlement of the claims of

both, and continued with its own claim against the sub-contractor for indemnity of its loss as represented

by its obligations under the settlement. Although his own estimate of the owner's loss was about

$40,000 less than that figure, the learned trial judge found that the settlement was reasonable and

ordered indemnification in effect. The sub-contractor appeals against this on the grounds discussed

below.

Was the Product in Conformity with the Contract?

The cause of shattering of those panes that failed, and the threat of further failure in others was

the presence of nickel sulphide "pebbles" in them. This was a hazard of the manufacturing process. Not

only was it difficult to ensure that a batch would be totally free of defective panes, but it was also difficult

to detect the defect when it was present in a pane. There was a process that could detect most cases

but it was not perfect.

The primary question on the appeal was whether as a whole the special glass supplied and

installed by the sub-contractor failed to conform with the contractual specifications because of the

presence in it of some panes with that defect, the proportion of defective ones to the total number being

reasonably small having regard to the difficulties of production and detection.

The sub-contractor argues that, glass of this type having been specified, then because of the

inherent difficulty in supplying such a large quantity of it free from this defect, the specification should

be so construed that the product supplied containing only a reasonable number of such defects was in

conformity with it. It thus becomes a matter of construction of the terms of the sub-contract relevant

to this issue.

By paragraph 25 of the sub-contract proper the sub-contractor took upon itself "the whole risk

of executing the Works in strict accordance with the sub-contract". And in the "Short description of

Works" in its first schedule, this appears:

"Provide labour materials plant & equipment to design, document, supply, fabricate, errect (sic) and warrent (sic) the complete curtain walling, glazing and entry doors strictly in accordance with specification section 010 windows and curtain walling specification."

The sub-contract incorporated section 010 of the specification which included the following

terms:

(a)         001.01 The work of this section comprises the design, manufacture, installation, erection and function of aluminium-framed structurally glazed curtain walls, windows and glazed partitions including doors where scheduled and hardware, glass and glazing trims, beads, lugs, flashings, sealants, gaskets, accessories and related items necessary to complete the work indicated on the drawings and as further specified.

All of the above work will be contracted to a single firm, hereinafter referred to as the Curtain Wall Sub-Contractor, so as to establish undivided responsibility for the entire work as set out above. The Curtain Wall Sub-Contractor will enter into a sub- contract agreement with the main building contractor.

(b)        001.02 ". . . the interrelated curtain wall standards impose the performance requirements".

(c)         003.09 GLASS GENERALLY - GLAZING

Glass shall comply generally with BS 952, be the kinds and grades specified or shown
on the Drawings and shall be free from cracks, scratches, bubbles, blisters, and other
defects which will interfere with the appearance or service.
. . .
Glazing shall be in safety-glass of thickness complying with the requirements of AS
1288 using the designed wind pressures set out in Appendix A.

(d)        003.05 AIR INFILTRATION AND WATERTIGHTNESS

Prevent the ingress of air, water and condensation, under all climatic conditions and provide a guarantee against such ingress.

To understand fully the extent of the sub-contractor's relevant obligations, it is useful to note

other provisions of the sub-contract formulating its liability to the owner. In paragraph 002-01 under

the heading "Guarantees", it is provided that the sub-contractor shall:

"Provide in the name of the proprietor Guarantees effective from the date of Practical Completion of the Building Contract for the supply, manufacture and installation of the total works of the subcontract as set out below . . ."

And in sub-paragraph 04 the following also appears:

"04 GLAZING INCLUDING STRUCTURAL SILICONE

A further guarantee shall be given to the Proprietor which assures making good any glazing defects which result in air or water infiltration and replacement of glass which fractures due to workmanship or materials and including all associated glazing materials as may be required to make good for a period not less than (15) years. Allow for all costs associated with making good any defects or breakages . . ."

The period of fifteen years was reduced to ten by agreement.

Because of the clear force of these combined terms, the sub-contractor's argument that despite

its defective state the glass met the specifications, is untenable. The specifications were unqualified as

to the freedom of the glass from defects and as to the required results, which could not have been

attained by use of glass having the relevant defect. This reference to results fortifies the ordinary

interpretation of the specification in its unqualified exclusion of defective material.

As a specialist the sub-contractor knew or should have known of the danger of the incidence of the defect and of the difficulty in its detection. It was open to it to seek a variation or clarification of the proposed sub-contract that would have provided specific protection against its liability for the

defect, or it could have adjusted its quote to make allowance for the relevant contingencies. It may also

have been possible to make some suitable arrangement with the manufacturer of the glass for indemnity

or it could have obtained insurance cover for this insurable risk. Whatever its opportunities may have

been, it contracted to supply the specified material and to produce a result without these defects.

Because it failed to do this, it was in breach of its obligations under the sub-contract.

The contractor argues that the sub-contractor could have avoided the difficulty of detecting

flaws in the toughened glass by choosing laminated glass, and indeed an alternative tender was to be

provided in respect of it. However, there is a dispute as to whether in the end the required conformity

with the specifications limited the appellant to the provision of toughened glass. Because of the

conclusion that has been reached it is not necessary to resolve this or other similar subsidiary issues.

Scratches and Chipping

Prior to practical completion of the works it was found that a number of panes of glass had

unacceptable scratches and chipping which affected their appearance and safety, and it is not disputed

that it was necessary to replace them. However, the contractor's claim in respect of this is resisted by

the sub-contractor on the ground that there is no proof that the scratches were present when the panes

were installed, that they were caused by those for whom it was responsible, or that they were not

caused by those for whom the contractor was responsible.

Correspondence was tendered in which the contractor complained of alleged practices of the

sub-contractor's workmen, creating a danger of scratching or chipping. There was no written denial,

but at a time many months later when the parties were in conference, the sub-contractor made a verbal

denial which was never qualified or retracted. The contractor's further written complaints continued after that time without further response. It argues that the sub-contractor's failure to make a prompt denial

in the first place and to deny later allegations at all amount to an admission of the truth of the complaints,

but this would be a fairly tenuous inference if the whole issue depended on it alone.

The difficulty arises largely from the absence of any direct evidence as to how the damage

occurred and it is clear that the possible causes and perpetrators of the damage could have been many

and diverse. The only fact that is clearly established is that the damage existed as at the date of practical

completion. Consequently the argument largely turned on the onus of proof.

The sub-contractor's relevant obligations under sub-contract were as follows:

"Section 010:
003.02 STORAGE & PROTECTION
Immediately units are brought on to the site, carefully store in protected positions.
Until the units are installed, protect from staining with polyethylene, firmly secured.

Also protect units after installation until final handover."

In argument, the contractor also referred to:

"APPENDIX 'A'
SPECIAL CONDITIONS OF CONTRACT

13.        The sub-contractor shall protect all works, at all times including the finishes and works of other trades, be it adjacent, below or overhead. The sub-contractor to make good finishes where damaged."

The latter cannot reasonably be construed as requiring the sub-contractor to be responsible for

protecting the entire works of the contract, which of course go far beyond the terms of the sub-contract.

In its context, it should be read as requiring the sub-contractor to provide only protection against

damage caused in the course of its work, and particularly damage to the works of others surrounding

the site of its open work. In respect of the protection of the sub-contractor's own works, the specific

provisions of paragraph 003.02 fortify that construction. Paragraph 13 may therefore be disregarded.
It is not surprising that it was not relied on in the pleadings.

In summary, the final position was that the sub-contractor was required by paragraph 003.09

to supply glass that was free from scratches and other defects, it was required to protect it after

installation until final handover, and on final handover the relevant glass was scratched and chipped.

Even if it is assumed that the sub-contractor's obligation was not absolute but limited to its duty to

provide protection until handover, however the proof that damage was done prior to handover is

sufficient to shift the evidentiary onus to the sub-contractor. In the absence of evidence as to the

provision of sufficient or any protection or as to the fault of other parties in causing the damage despite

that protection, the sub-contractor failed to discharge its onus. Consequently the inference from the fact

of damage remains, that is that the material was either supplied in a damaged condition or that the sub-

contractor failed to protect it adequately. In either case it is liable.

In these circumstances, an adverse inference from its failure to respond adequately to the

contractor's complaints as discussed above may more safely be drawn.

Quantum

The sub-contractor argues that in any case the award is excessive because in a number of

specified components, the amounts allowed in the judgment exceeded the true value of the damage

sustained by the owner. The sub-contractor argues that it could not be liable to indemnify the contractor

for any greater sum than the amount of that party's actual liability to the owner; and that it bore the onus

of proving the extent of that liability by proving the amount of the owner's loss.

As it has been remarked, it is true that at the end of the trial the learned trial judge found that

the amount of the settlement was about $40,000 in excess of his own assessment of the owner's loss.

However, he acknowledged that there were a number of imprecise components in the assessment, including the anticipation of future events and the estimate of their consequences, and he found that the

settlement figure was reasonable in all the circumstances. The sub-contractor denies that the contractor

is entitled to more than is strictly proved and argues that even the assessed figure is not supported on

the evidence.

In his award, the trial judge acted on the principle that the sub-contractor was contractually

obliged to indemnify the contractor in respect of the subject matter of the settlement because it was the

consequence of the sub-contractor's breaches of the sub-contract; and because the settlement had

been reasonable, if not entirely justified, he found that the indemnity should cover the full amount of it.

The terms of the indemnity provision of the sub-contract were as follows:

" SUB-CONTRACTORS LIABILITY UNDER THE INCORPORATED

PROVISIONS OF THE HEAD CONTRACT

3.B

The sub-contractor shall indemnify and save harmless the Company against and
from:

(i)	any breach non-observance or non-performance by the Sub-Contractor his servants or agents of the said provisions of the Head Contract or any of them; and
(ii)	any act or fault or omission of the Sub-Contractor his servants or agents which involves the Company in any liability to the principal under the Head Contract."

The contractor also invoked the following provision:

" 19. INJURIES TO PROPERTY REAL AND PERSONAL

(a)         The Sub-Contractor shall be liable for and shall indemnify the Company against any expense liability loss claim or proceedings in respect of any injury or damage whatsoever to any property real or personal insofar as such injury or damage arises out of or in the course of or by reason of the carrying out of the Works unless due to any act or negligence of the Company or any person for whom the Company is responsible."

However, this is inapt for at least some parts of the claim, and there is no reason to look beyond

paragraph 3.B.

The courts will do nothing to discourage settlements that are fair and reasonable. When

a party who enjoys the benefit of an indemnity against liability to another enters into a settlement by way

of compromise of the claim against him or her and claims on the indemnity, certain consequences follow.

There is some dispute as to whether the indemnified's claim must be supported by proof of actual

liability to the other party to the settlement, or whether the indemnifier may show that there was no such

liability, or whether it is enough for the indemnified to show that the settlement was reasonable and in

good faith. This is not in issue here as the contractor's liability to the owner for the relevant defects is

not in dispute.

The indemnifier may certainly challenge whether the indemnified's liability for which the payment

is to be made under the settlement comes within the indemnity, but that has already been determined

in this case.

The issue in this part of the case, that is, whether the indemnified must prove afresh against the

indemnifier the amount of the original claimant's loss or whether it is enough to prove only that the

settlement was reasonable, is also well settled in principle. The controversy that appears in the

authorities concerning the proof of liability is absent from this topic and it is expressly stated or

understood in the authorities that it is sufficient to prove that the settlement was reasonable and bona

fide. Duffield v. Scott (1789) 3 TR 374; Smith v. Compton (1832) 3 V & Ad 406; 100 E.R. 628;

Parker v. Lewis (1873) L.R. 8 Ch 1035, 1059; Captain Boyton's World Water Show Syndicate Ltd

v. Employers' Liability Assurance Corporation Ltd (1895) 11 TLR 384; Chamberlain v. North

American Accident Insurance Co (1916) 28 DLR 298; General Omnibus Co v. London General Insurance Co (1926) IR 596; Edwards v. Insurance Office of Australia Ltd (1933) 34 SR(NSW) 88

(reviewing earlier authorities); Simon Haynes Barlas & Ireland v. Bear (1945) 78 Ll Rep 337;

Distillers Co Bio-Chemicals (Aust) Pty Ltd v. Ajax Insurance Co Ltd (1974) 130 CLR; Government

Insurance Office (NSW) v. Crowley (1975) 2 NSWLR 78; Keuhne & Nagel v. Baiden (1977) 1 Ll

Rep 90; Broadlands Properties Ltd v. Guardian Assurance Co Ltd (1984) 3 ANZ Insurance Cases,

60-552; 110 E.R. 146; GRE Insurance Ltd v. QBE Insurance Ltd (1985) VR 83; Royal Insurance

Fire & General (NZ) Ltd v. Mainfreight Transport Ltd (1993) 7 ANZ Insce Cas. 61.172; See also

Biggin & Co Ltd v. Permanite Ltd [1951] 2 KB 314, 321, 326-327, which was not a case of

contractual indemnity, but the principle, although narrowly stated, is the same. See also the discussion

in the article by Nigel G. Rein (1995) 6 Ins LJ 193.

Where these authorities have considered the indemnity provided by an insurance policy, the

question is more complex than in the present case because the policy usually contains a condition that

the insured not enter into any settlement without the insurer's consent; and so questions of repudiation

and acceptance releasing the insured from the condition may arise. This may be further complicated in

the American cases where the policy usually provides that the insurer has an obligation, as distinct from

an option, to defend the original claimant's action.

None of these distractions is relevant in this case, where there is a straightforward contract of

indemnity against the contractor's loss from liability arising from the sub-contractor's breaches of its

contractual duty, and there is no restraint on the contractor's settlement of any relevant claim. On

becoming liable under such settlement, it was entitled to indemnity against the loss thereby incurred, and

was able to prove that loss by proof of the settlement and its reasonableness.

The reasoning behind this principle is that the contractual promise is, in effect, to save the
contractor from any loss to it flowing from the prescribed factor, and the contractor's obligation under

the settlement to pay the agreed amount is a loss of that description and as such it attracts the indemnity.

As a controlling measure, by implication from the nature of the promise, and associated with the duty

of an indemnified party to take all reasonable steps to protect the interests of the indemnifying party in

respect of the transaction, there is a qualification that the settlement must be reasonable; but the

essential point is that the indemnity applies to the loss of the contractor, whether it be enforced through

the judgment of a court or award of an arbitrator, or through the assumption of a contractual obligation

under a settlement. Its amount is determined not by the loss suffered by the owner, but by the loss of

the contractor as the party bearing the burden of the settlement.

As the question before the trial judge was the sufficiency, not of the proof by the contractor of

the owner's loss, but of the proof of the reasonableness of the settlement on the material available to the

contractor, the arguments advanced by the sub-contractor as to the proof of loss and the strict

admissibility of evidence of it lose their force. On the correct view, the nature and relevance of the

proof was of a different order. The difference must affect substance, and thus the admissibility, of

relevant evidence. For example, it was enough to prove that there was expert evidence available to

prove a feature of the owner's loss, though the expert was not called.

The same reasoning applies to the resolution of the suggested internal conflict or qualification

of expert evidence as to loss. The issue was not the resolution of their final views as it affected the

question of the owner's loss but rather the effect of that evidence on the question of the reasonableness

of the settlement. Even if it be shown that the loss was actually less in certain respects than the amounts

allowed in the compromise of the claim, that will not necessarily mean that the settlement was not

reasonable. In any case, the findings of the trial judge favouring the contractor on these points had the advantage of his observation of the witnesses in the evaluation of their acceptance of conflicting

qualifying propositions.

On the material available it is not reasonably arguable that the learned trial judge's finding of the

reasonableness of the compromise was in error. Nothing has been validly advanced to show that his

relevant appraisal of the specific components of the settlement that he scrutinised was wrong; and

because of the proximity of its amount to his own assessment, the imprecision of the anticipation of

future events, and the usual factors influencing compromises, including the danger of a higher award and

the incurring of substantial additional costs, it is not surprising that he reached that conclusion.

The appellant has failed on all the grounds relied on and so the appeal should be dismissed with

costs.