Woolworths Group Ltd v Twentieth Super Pace Nominees Pty Ltd atf the Byrns Smith Unit Trust t/as Sct Logistics

Case •

[2021] NSWSC 344

•

08 April 2021

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Woolworths Group Ltd v Twentieth Super Pace Nominees Pty Ltd atf the Byrns Smith Unit Trust t/as SCT Logistics [2021] NSWSC 344
Hearing dates: 4 December 2020
Date of orders: 08 April 2021
Decision date: 08 April 2021
Jurisdiction:Equity - Commercial List
Before: Henry J
Decision:

1. The separate question is answered ‘yes’.

2. Unless either party makes an application for a different costs order within 14 days, the plaintiff’s costs of the separate question proceedings are to be paid by the first defendant as agreed or assessed.

3. Proceedings listed in the Commercial List for further directions at 9:45 am on 16 April 2021.

Catchwords:

CONTRACTS – construction – interpretation – whether force majeure clause relieved carrier from liability to indemnify consignor for damage to goods arising from train derailment – force majeure clause not engaged as liability to indemnify not owing to carrier’s delay or failure to fulfil obligations owing to the derailment

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited:

Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36

Bofinger & Anor v Kingsway Group Limited & Ors (2009) 239 CLR 269; [2009] HCA 44

Cambridge v Anastasopoulos [2012] NSWCA 405

Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd (2019) 101 NSWLR 679; [2019] NSWCA 185

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

Erect Safe Scaffolding (Australia) Pty Ltd v Sutton (2008) 72 NSWLR 1; [2008] NSWCA 114

Hyundai Merchant Marine Co Ltd v Dartbrook Coal (Sales) Pty Ltd (2006) 236 ALR 115; [2006] FCA 1324

Lebeaupin v Richard Crispin & Co [1920] 2 KB 714

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Rava v Logan Wines Pty Ltd [2007] NSWCA 62 Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52

Tozer Kemsley & Millbourn (A’Asia) Pty Ltd v Collier’s Interstate TransportService Ltd (1956) 94 CLR 384; [1956] HCA 6

Texts Cited:

Nil

Category:Principal judgment
Parties: Woolworths Group Ltd (Plaintiff)
Twentieth Super Pace Nominees Pty Ltd as trustee for the Byrns Smith Unit Trust t/as SCT Logistics (First Defendant)
Australian Rail Track Corporation Ltd (Second Defendant)
Representation: Counsel:
N J Owens SC (Plaintiff)
M G McHugh SC (First and Second Defendants)
Solicitors:
Mills Oakley (Plaintiff)
Colin Biggers & Paisley (First Defendant)
File Number(s): 2020/108021
Publication restriction: Nil

Judgment

  1. On 10 April 2014, a train carrying goods owned by the plaintiff, Woolworths Group Ltd (Woolworths), derailed in South Australia, causing loss and damage to the goods. The train was operated by the first defendant, Twentieth Super Pace Nominees Pty Ltd trading as SCT Logistics (SCT). The railway corridor upon which the train derailed was owned and operated by the second defendant, Australian Rail Track Corporation Ltd (ARTC).

  2. In these proceedings, Woolworths claims to be entitled to recover from SCT the losses incurred in relation to the damaged goods pursuant to an indemnity contained in the parties’ transport contract. Woolworths also makes a claim against ARTC in negligence.

  3. SCT denies liability for the damaged goods. It contends that the goods were damaged in the course of a force majeure event (extreme weather involving heavy rain and flash flooding that caused the train to derail) which engaged a contractual exception to its liability and obligation to indemnify Woolworths for loss and damage to the goods sustained during transit.

  4. The parties agreed that SCT’s defence to Woolworths’ claim raises a question of the proper construction of the transport contract and that a lengthy hearing involving factual disputes about the cause of the derailment and whether ARTC was negligent would be avoided if Woolworths’ construction that SCT is liable to indemnify it is correct.

  5. On 20 October 2020, at the request and with the consent of the parties, the Court made an order pursuant to UCPR r 28.2 that the following question be determined separately from and in advance of all other questions in the proceedings (separate question):

On the proper construction of the “Transport Terms and Conditions” dated 31 July 2012 and the “Transport Prescribed Procedures” dated 31 July 2020 is the Plaintiff entitled to be indemnified for the loss and damage pleaded in paragraph 21 of the Commercial List Statement, and admitted in paragraph 9 of the Commercial List Response, which arose in the circumstances pleaded in paragraphs 18 to 20 of the Commercial List Statement, and admitted in paragraphs 8 to 9 of the Commercial List Response, irrespective of whether that loss and damage was owing to or sustained during a “Force Majeure Event”?

  1. For the reasons that follow, I have concluded that the answer to the separate question is yes, as Woolworths contends.

Agreed Facts

  1. The parties agreed on the facts on which the separate question hearing proceeded (Agreed Facts). The following is taken from the Agreed Facts and the parts of the Commercial List Statement referred to in the separate question which are admitted by SCT.

  2. On 31 July 2012, Woolworths executed two documents setting out the terms of a contract for the carriage of Woolworths’ goods. SCT executed both documents on 16 November 2011. The first document is entitled “Transport Terms and Conditions” (Terms). The second of the documents is entitled “Prescribed Procedures” (Procedures). In these reasons, I refer to the Terms and the Procedures collectively as the Agreement. The Agreement was attached to the Agreed Facts.

  3. Pursuant to the Agreement, in early April 2014, SCT collected 258 pallets of goods from Woolworths for transport to Western Australia. The goods were loaded onto a train operated by SCT (Train 3MP9) which commenced the journey to Western Australia.

  4. At 12:11 am on 10 April 2014, Train 3MP9 derailed along the rail corridor between Tarcoola and Malbooma, South Australia. At the time of the derailment, Train 3MP9 was carrying the goods.

  5. By reason of the derailment, Woolworths suffered loss and damage to the goods to the value of $893,399.25.

  6. Woolworths has sought indemnity from SCT in the amount of $893,399.25 for the loss and damage to the goods but SCT has denied that it is obliged to indemnify Woolworths under the Agreement.

Relevant provisions of the Agreement

  1. Under the Agreement, SCT, as the Carrier, was appointed to perform the Services. The Services involved the transportation of “Goods” owned by Woolworths between nominated sites, referred to as Load Points and Delivery Points: cl 1 of the Terms, cl 1.2 of the Procedures.

  2. In providing the Services, SCT was required to comply with the Procedures and any reasonable directions form Woolworths. Failure to comply with the Procedures constituted a breach of the Terms: cl 3.1 of the Terms.

  3. What is in issue in this case turns, in part, on the proper construction of cl 7.2 of the Terms, headed “Force Majeure Events”. Clause 7.2 is part of cl 7 which provides:

7   DISRUPTIONS TO OPERATION

7.1   Duty to consult

If there is any disruption to the performance of the Services (including without limitation, a Force Majeure Event or Industrial Action), the Carrier must consult with Woolworths in relation to the disruption in accordance with the Procedures.

7.2   Force Majeure Events

If a Force Majeure Event occurs, neither party is liable to the other for any delay or failure to fulfil its obligations under these Terms or the Procedures that is owing to the Force Majeure Event.

7.3   Industrial Action

(a)   If Industrial Action occurs, in addition to the Carrier's consultation obligation:

(i)   Woolworths may, if it has the requisite standing, elect to participate in the Carrier’s resolution of the Industrial Action; and

(ii)   the Carrier must comply with any reasonable directions given by Woolworths in relation to the resolution of the Industrial Action.

(b)   The Carrier must reimburse Woolworths on demand for any Direct Losses incurred by Woolworths arising from the Industrial Action.

  1. Clause 12.1 of the Terms provides that title to the Goods remains with Woolworths (or Woolworths’ relevant Trading Partner) at all times. Clause 12.2 of the Terms is headed “Risk” and provides:

The Carrier is liable for Goods in its possession from collection at the Load Point until Acceptance occurs at the Delivery Point.

  1. Clause 13 contains the indemnity provision upon which Woolworths sues. It relevantly provides:

13   INDEMNITY

13.1   Indemnity

Subject to clauses 13.2, 13.3 and 13.4, the Carrier indemnifies Woolworths on demand against all Losses incurred by Woolworths arising from or in connection with:

(a)   the Carrier's breach of these Terms or the Procedures;

(b)   any loss, theft, destruction or damage to the Goods;

…

13.2   Direct Losses

The indemnity set out in clause 13.1 does not apply to Direct Losses incurred by Woolworths during a Force Majeure Event or Industrial Action.

13.3   Contribution

Any amount claimed by Woolworths pursuant to the indemnity in clause 13.1 will be reduced proportionally by any amount attributable to any Loss that is directly caused, or contributed to, by Woolworths’ negligence.

13.4   Consequential Losses

The Carrier’s liability for all Consequential Losses suffered by Woolworths arising as a result of the Carrier’s breach of these Terms of the Procedures or any negligent, wilful, reckless or unlawful act or omission of the Carrier in connection with Services to which these Terms or the Procedures apply will be limited in the aggregate for all Claims to $5,000,000 over the term of this Agreement. Nothing in this clause 13.4 limits the Carrier’s liability under the indemnities in clause 13.1 or a party’s liability which cannot by law be limited or excluded.

  1. Clause 14 of the Terms relates to insurance, and provides:

14   INSURANCE

(a)   While these Terms are operative, the Carrier must effect and maintain the following insurance cover on such terms as those commercially available in the marketplace:

(i)   insurance, for its full replacement value, of the Goods against damage, theft, destruction or loss in transit;

…

(b)   On request, the Carrier must provide to Woolworths satisfactorily evidence of the existence and terms of the insurances referred to in clause 14(a), including copies of any or all of the policies of insurance arranged in accordance with this clause 14, or documentation from the relevant insurer or insurers certifying the currency of such policies.

  1. Part 14 of the Procedures is the Glossary and contains the following definitions which also apply to the Terms:

Direct Loss Costs incurred:

•   as a result of obtaining the Services from a third party; and

•   in the normal course by Woolworths in operating its DCs that are connected to the Services, including equipment hire, wages and electricity charges, and

•   that are a direct consequence of Industrial Action or the Carrier's breach of the Terms or these Procedures.

Disruption Event Has the meaning set out in Part 9 of these Procedures.

Disruption to Services An event of the kind referred to in Part 9 of these Procedures.

Force Measure Event Has the meaning given to it in Part 9.1 of these Procedures.

Loss All losses, damages, liabilities, Claims and expenses (including but not limited to legal costs).

  1. Part 9 of the Procedures deals with Disruptions to Services and relevantly provides:

9   Disruptions to Services

A Disruption Event is:

•   a Force Majeure Event; or

•   any other occurrence that temporarily affects the ability of the Carrier to perform the Services in accordance with the Terms and these Procedures.

9.1   Managing disruption events

In accordance with the parties (sic) obligations to consult under Clause 7.1 of the Terms if there is a disruption to the Services, the parties acknowledge that if a Disruption Event occurs the parties require:

•   information as soon as possible;

•   regular updates on information;

•   prioritisation of some parts of the Services over others;

•   the ability to make decisions quickly; and

•   that a communication protocol should be ongoing until the interruption has been rectified and the disrupted Services completed.

  1. Pausing here, it is apparent that something has gone amiss with the drafting as Part 9.1 of the Procedures does not define or provide a meaning for the phrase “Force Majeure Event”, as stated in the Glossary.

  2. Part 2.12 of the Procedures which deals with the consequences of non-acceptance of Goods is also relevant. It provides:

2.12   Consequences of non-acceptance

Where Goods are not accepted at delivery in part or in full, the Carrier must:

•   immediately contact the Site Representative and/or the Customer Service Team, who will direct the Carrier to either return, dispose or otherwise deal with the Goods concerned;

•   if directed to, return all Damaged Goods and Return Goods to the Load Point at its own cost if the reason for non­acceptance is deemed to be the Carrier's fault; and

•   make arrangements as directed by the Site Representative and/or the Customer Service Team for all other refused Goods, including Goods damaged in transit as a result of occurrence of a Force Majeure Event, at a Rate agreed to by the parties in writing …

Applicable principles

  1. It was common ground that, as a commercial contract, the task of interpreting the Agreement is an objective one. The Court is to give it a business-like interpretation by considering the language used by the parties, the circumstances which it addresses and the commercial purpose or objects which it is intended to secure. The rights and liabilities of the parties are to be determined objectively by reference to the entire contractual text as well as any contract, document or statutory provision referred to in the text of the contract: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 (Mount Bruce Mining) at [46]–[47]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40].

  2. The Agreement is to be construed on the assumption that the parties intended to produce a commercial result, one which avoids making commercial nonsense or working commercial inconvenience: Mount Bruce Mining at [51]; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [17].

  3. If the language used in the Agreement is open to two constructions, a construction that avoids an unreasonable result is to be preferred to one that does not. However, if the words used are unambiguous, they cannot be ignored and the Court must give effect to them even if it regards the meaning as otherwise working a hardship on one of the parties or suspects that the parties intended something different: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36.

  4. An indemnity clause, such as cl 13.1(b) of the Terms, is to be construed by reference to the contract as a whole. Where there is ambiguity and doubt as to the proper construction either from the uncertain meaning of a particular expression or the apparent width of possible application, it might be appropriate to construe an indemnity provision contra proferentem in favour of the indemnifier, although that is a principle of last resort: Bofinger & Anor v Kingsway Group Limited & Ors (2009) 239 CLR 269; [2009] HCA 44 at [53]; Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28 at [17]–[23]; Rava v Logan Wines Pty Ltd [2007] NSWCA 62 (Rava) at [55]; Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 (Cherry v Steele-Park) at [112].

  5. Similarly, a force majeure clause falls to be construed by reference to the text of the clause having due regard to the nature and general terms of the Agreement: Lebeaupin v Richard Crispin & Co [1920] 2 KB 714 at 720, cited in Hyundai Merchant Marine Co Ltd v Dartbrook Coal (Sales) Pty Ltd (2006) 236 ALR 115; [2006] FCA 1324 (Hyundai Merchant Marine) at [62].

The parties’ submissions

  1. Before referring to the parties’ submissions, it is appropriate to say something about the pleadings and a concession made by SCT at the hearing.

  2. In these proceedings, Woolworths claims to be entitled to indemnification from SCT for the loss and damage to the Goods pursuant to cl 13.1(b) of the Terms: Further Amended Commercial List Statement at [17], [21]–[22].

  3. In its list response, SCT relies upon cl 13.2 of the Terms in defence to Woolworths’ claim for indemnification, as well as on cl 7.2 of the Terms: Amended Commercial List Response at [7], [10]–[11].

  4. As noted above, cl 13.2 provides that the indemnity in cl 13.1 does not apply to Direct Losses incurred by Woolworths during a Force Majeure Event. In other words, one aspect of SCT’s defence is an allegation that the losses for which Woolworths claims indemnity are Direct Losses incurred by Woolworths during a Force Majeure Event and, thus, are not indemnifiable by SCT under cl 13.1(b) due to the operation of the exception in cl 13.2.

  5. At the hearing, Senior Counsel for SCT indicated that they did not “fit within clause 13.2” or fall within “the exception” in that clause (T5.17 and T6.18–21). This concession was later referred to by Woolworths’ Senior Counsel as an abandonment by SCT of those aspects of its defence which rely on cl 13.2. SCT’s Senior Counsel confirmed this was correct (T14.3–7).

  6. Thus, SCT no longer contends that the exception in cl 13.2 operates to relieve it of liability to indemnify Woolworths under cl 13.1(b) and its defence to Woolworths’ indemnity claim is based on the operation of cl 7.2. In light of this, the debate at the hearing focussed on the interaction of cls 7.2 and 13.1(b) of the Terms.

  7. Woolworths submits that SCT’s obligation to indemnify under cl 13.1(b) for loss and damage sustained to the Goods arises irrespective of any Force Majeure Event or failure to perform. This is in the context where risk in relation to the Goods was agreed by the parties to be allocated to SCT by cl 12.2 of the Terms, there is a corresponding obligation to insure under cl 14(a) of the Terms, and cl 13.2 does not operate as an exception to its liability to indemnify.

  8. Woolworths submits that cl 7.2 of the Terms provides for a limited carve-out of liabilities relating to the performance of the Services owing to a Force Majeure Event. Woolworths focusses on the language of cl 7.2, which refers to liabilities for “any delay or failure to fulfill [SCT’s] obligations … that is owing to the Force Majeure Event”, and the location of the clause within a section of the Terms dealing with Disruption to Services.

  9. It is submitted that cl 7.2 was not designed to, and does not, effect any change to the allocation of risk in relation to the Goods as between the parties, but removes liability for a breach of obligations relating to the performance of the Services owing to a Force Majeure Event, such as liability for losses arising from the fact that the Goods were not delivered to a particular location on a particular date.

  10. Woolworths also submits that cl 7.2 does not operate to relieve SCT of liability in this case because the loss in respect of which Woolworths claims indemnity under cl 13.1(b) arose as a result of the derailment through no fault or failure by SCT to fulfill any obligation. Woolworths submits that, to the extent that SCT failed to perform any obligation in relation to the transportation of the Goods, the indemnity obligation under cl 13.1(b) is not a liability for such failure. It also submits that a failure by SCT to indemnify under cl 13.1(b) is not a failure to fulfill an obligation owing to a Force Majeure Event and thus cannot be caught or relieved by cl 7.2 of the Terms.

  1. As cl 7.2 has no operation in respect of the loss and damage to the Goods for which it claims indemnification under cl 13.1(b), Woolworths contends that SCT is bound to indemnify Woolworths whether or not the derailment and damage to the Goods was owing to or sustained during a Force Majeure Event and, consequently, the answer to the separate question is yes.

  2. SCT submits that the answer to the separate question is no because, on a proper construction of the Agreement, cl 7.2 operates to relieve SCT of any obligation to indemnify Woolworths under cl 13.1(b) in circumstances where the loss and damage to the Goods was caused by a Force Majeure Event.

  3. SCT submits that cl 7.2 is expressed in terms which are wide-reaching and that Woolworths’ construction rests on an unduly narrow interpretation of what is meant by failure on the part of SCT to ‘fulfill its obligations’. It is submitted that upon the occurrence of a Force Majeure Event which causes damage to the Goods, the commercial allocation of risk in relation to the Goods under the Agreement no longer operates. SCT contends that cl 7.2 puts into abeyance its liabilities and obligations under the Agreement, including its liability for the Goods under cl 12.2 and its obligation to indemnify under cl 13.1, as “the superior [force majeure] event has, by agreement, surpassed that agreed allocation [of risk]”.

  4. SCT submits that Woolworths’ construction of the Agreement, which would render SCT liable for the damaged Goods, is inconsistent with the commercial purpose and intent of cl 7.2 and force majeure clauses generally which recognise that neither party should be liable for damage caused by an event which is beyond both parties’ control with the result that either or both parties should be relieved from performing their contractual obligations. SCT also contends that Woolworths’ construction rests on an artificial distinction between a liability for SCT’s failure to fulfill its obligations under the Agreement and SCT’s obligation to indemnify for losses. SCT says that Woolworths’ construction would deprive cl 7.2 of much of its practical utility and ignores that SCT’s risk in respect of the Goods is described in cl 12.2 as a liability.

  5. SCT refers to Part 2.12 of the Procedures to argue that Woolworths’ construction is contradicted by other provisions of the Agreement, submitting that Part 2.12 demonstrates that the parties contemplated that liability would be allocated differently depending on whether the Goods were damaged as the result of a Force Majeure Event or fault on the part of SCT.

  6. SCT’s submissions emphasise that the Agreement, particularly cls 7.2 and 13.1, should be construed by what a reasonable person would have understood those terms to mean and to make commercial sense. It is also submitted that there is some ambiguity as to the meaning and breadth of the relevant provisions, that cl 7.2 should not be read too strictly as otherwise “it just loses its meaning” (T24.13) and, to the extent there is doubt about the indemnity , any ambiguity should be resolved in favour of SCT as the indemnifier.

Determination of separate question

  1. I am not persuaded by SCT’s submissions and have concluded that Woolworths’ construction of the Agreement is correct. In my view, SCT’s emphasis on the commercial purpose of force majeure clauses and the parties’ intent in construing cl 7.2 of the Terms is not supported by its text or the other provisions of the Agreement. Clause 7.2 must be considered in the context of the Agreement as a whole.

  2. Clause 12.2 of the Terms provides for SCT to be liable for the Goods for the period from collection until acceptance by Woolworths at the Delivery Point, including while the Goods are in transit. Woolworths submits, and I accept, that cl 12.2 operates to modify the general common law position that SCT, as a private carrier and bailee for reward, would be liable for damage to the Goods while in its possession unless SCT demonstrated that the damage occurred without any neglect or default on its part: Cambridge v Anastasopoulos [2012] NSWCA 405 at [13], citing Tozer Kemsley & Millbourn (A’Asia) Pty Ltd v Collier’s Interstate TransportService Ltd (1956) 94 CLR 384 at 397–398; [1956] HCA 6. It seems clear that cl 12.2 is intended to state the basic allocation of risk and liability in relation to the Goods as between SCT and Woolworths.

  3. SCT’s liability for the Goods under cl 12.2 is expressed without qualification. By its terms, cl 12.2 makes SCT liable for the Goods irrespective of how they might be damaged.

  4. Consistent with SCT’s general liability for the Goods under cl 12.2, by cl 13.1(b), the parties agreed that SCT would indemnify Woolworths directly for all Losses incurred by Woolworths arising from or in connection with any loss, theft, damage or destruction to the Goods. Like its liability in cl 12.2, SCT’s obligation to indemnify Woolworths under cl 13.1(b) does not depend on any fault, failure or breach by SCT. This is to be contrasted with cl 13.1(a), which obliges SCT to indemnify for Losses incurred by Woolworths arising from or in connection with SCT’s breach of the Terms or the Procedures.

  5. SCT’s obligation to indemnify Woolworths under cl 13.1(b) is expressed to be subject to cls 13.2, 13.3 and 13.4.

  6. Clause 13.2 deals expressly with the impact of a Force Majeure Event as it provides an exception to the indemnity obligation for Direct Losses incurred by Woolworths during such an event. As noted above, SCT accepted at the hearing, correctly in my view, that the exception provided by cl 13.2 does not apply in this case. Woolworths does not seek to be indemnified for “costs incurred” as a direct consequence of SCT’s breach of the Terms or Procedures, rather, it seeks indemnification for the value of the Goods that were damaged or destroyed through no fault, failure or breach on the part of SCT when Train 3MP9 derailed.

  7. Clauses 13.3 and 13.4 make clear that SCT’s indemnity obligation does not extend to any losses caused or contributed to by Woolworths’ negligence and the monetary limit on Claims for certain Consequential Losses does not limit SCT’s liability under the indemnities in cl 13.1.

  8. The parties’ agreement that SCT is to be on risk for loss and damage to the Goods is reinforced by the requirement for SCT to take out and maintain insurance cover for the full replacement value of the Goods against damage, theft, destruction or loss while in transit and provide evidence of the existence and terms of that insurance on request: cls 14(a) and 14(b) of the Terms. I do not accept SCT’s submission that the requirement to maintain insurance is of no import because it begs the question of whether the insurance needed to cover the specific eventuality of damage caused by a Force Majeure Event. In my view, the commensurate nature of the insurance and indemnity obligations reflect an intention that SCT is to be contractually bound to bear the risk of any damage to the Goods the subject of the insurance cover and SCT’s obligation to indemnify under cl 13.1(b) was to apply to that liability, subject only to cls 13.2, 13.3 and 13.4: see Erect Safe Scaffolding (Australia) Pty Ltd v Sutton (2008) 72 NSWLR 1; [2008] NSWCA 114 at [87]–[88].

  9. The indemnity in cl 13.1(b) is enlivened on the occurrence of “Losses” arising from or in connection with “loss, theft, destruction or damage to the Goods”. There was no dispute that Woolworths has incurred Losses arising from or in connection with loss and damage to the Goods caused by the derailment in accordance with the requirements of clause 13.1(b). As is apparent from the submissions, what is in issue is whether, on the proper construction of the Agreement, SCT’s obligation to indemnify Woolworths under cl 13.1(b) is impacted by cl 7.2 in circumstances where the parties are agreed that, by reason of the derailment, Woolworths has suffered loss and damage to the Goods while they were in transit to the value of $893,399.25.

  10. Clause 7.2 is headed Force Majeure Events. “Force Majeure Event” is included in the Glossary, but the phrase is not defined. Unlike most force majeure clauses, there is no list of specific categories of events which fall within the meaning of the term and cl 7.2.

  11. Clause 7.2 is to be construed by reference to its text and context having due regard to the nature of the Agreement as a transport contract. As a Force Majeure Event is a “Disruption Event” (Part 9 of the Procedures), cl 7.2 is included in that part of the Terms that deals with “Disruptions to Operation”, and cl 7.3 deals with Industrial Action, in my view, cl 7.2 is directed at events beyond the parties’ control (excluding Industrial Action) that affect the ability of, in this case, SCT to perform the Services in accordance with the Terms and Procedures.

  12. As it applies to SCT, cl 7.2 provides that if a Force Majeure Event occurs, SCT is not liable to Woolworths for any delay or failure to fulfil its obligations under the Terms and the Procedures that is owing to the Force Majeure Event. For cl 7.2 to be engaged, there must be an obligation under the Agreement in respect of which SCT is delayed in fulfilling or has failed to fulfill owing to a Force Majeure Event and in respect of which some corresponding liability could have arisen.

  13. In my view, the words “owing to” make clear that a causal link must be established between the alleged Force Majeure Event and SCT’s failure to perform the obligations for which it seeks to be relieved. Where force majeure relief is sought, a causal connection must usually be established between the circumstance relied on (the force majeure event) and the effect on performance: Hyundai Merchant Marine at [62].

  14. SCT submits that cl 7.2 should be interpreted as working to relieve SCT of its liability under cl 12.2 for the Goods in its possession and its obligation under cl 13.1(b) to indemnify Woolworths for Losses incurred in connection with the damage and destruction to the Goods. The difficulty with this submission is that those liabilities do not, in my view, correspond with any relevant failure on SCT’s part to fulfill an obligation under the Agreement. Nor can it be said that the alleged Force Majeure Event was causally connected with or led to SCT being unable to fulfill the obligations for which it seeks relief from being liable for.

  15. By its terms, cl 12.2 does not oblige SCT to fulfil any particular obligation in relation to the Goods. The clause does not require SCT to take steps, for example, to prevent the Goods from becoming damaged or give rise to a breach of contract if SCT fails to do so. The clause simply states that SCT rather than Woolworths is liable, in the sense of being on risk, for the Goods. In that context, there is no obligation under cl 12.2 for which SCT could be delayed or fail to fulfill owing to a Force Majeure Event and for which liability might be relieved.

  16. The indemnity under cl 13.1(b) obliges SCT to make good the Losses incurred by Woolworths in connection with the damaged Goods. In essence, that obligation requires SCT to pay money to Woolworths. Even if I were to accept that it caused Train 3MP9 to derail and damage the Goods, an extreme weather event does not render SCT unable to fulfill its obligation in the sense of making it difficult, impossible, illegal or impracticable for SCT to indemnify Woolworths for its Losses under cl 13.1(b). SCT may incur a cost in doing so, but its ability to perform that obligation is not hindered or prevented owing to the alleged Force Majeure Event.

  17. Nor does SCT’s liability to indemnify Woolworths under cl 13.1(b) arise from a failure on SCT’s part to fulfil an obligation in respect of the performance of the Services of transporting the Goods. It arises because Woolworths has suffered Losses in connection with loss and damage to the Goods due to the derailment for which SCT had agreed to indemnify Woolworths irrespective of any delay, failure or fault on SCT's part.

  18. The broad construction that SCT seeks to give cl 7.2, which would place Woolworths on risk for the damage to the Goods sustained during the alleged Force Majeure Event, is inconsistent with the commercial allocation of risk as reflected by cls 12.2, 13.1(b) and 14(a). It is also at odds with the exclusion of Direct Losses incurred during a Force Majeure Event from the indemnities in cl 13.1 as provided for by cl 13.2. As Woolworths submits, cl 13.2 would have no work to do if, as SCT contends, cl 7.2 effected a general carve-out of SCT’s obligation to indemnify Woolworths for Losses under cl 13.1 that were owing to or sustained during a Force Majeure Event.

  19. I am also unpersuaded by SCT’s submission that Part 2.12 of the Procedures contradicts Woolworths’ construction of cl 7.2 and 13.1(b). Part 2.12 contemplates that the parties will agree on how much Woolworths will pay SCT to transport or dispose of Goods which are damaged as a result of a Force Majeure Event (and which are not accepted by Woolworths). It says nothing about SCT’s risk and liability in respect of the Losses incurred by Woolworths in connection with the damaged Goods. To my mind, the allocation of transport costs to Woolworths under Part 2.12 is consistent with SCT being relieved of liability for any delay or failure in relation to the carriage of the Goods caused by a Force Majeure Event, as provided for under cl 7.2, but remaining on risk and obliged to indemnify Woolworths for the loss and damage to the Goods themselves.

  20. As to SCT’s contention that cl 7.2 must be read as conditioning its obligation to indemnify under cl 13.1 as otherwise cl 7.2 would have little practical utility, that submission relies on cl 13.1(a) which provides for an indemnity for Losses incurred by Woolworths arising from SCT’s breach of its obligations. As noted above, Woolworths’ claim for indemnity is made under cl 13.1(b) and is not based on any alleged breach of an obligation on the part of SCT. Further, if cl 7.2 operated to prevent a failure of performance owing to a Force Majeure Event from becoming a breach for which SCT is liable, then arguably the indemnity obligation under cl 13.1(a) does not arise at all given the obligation is premised on the occurrence of a breach.

  21. In my view, the construction of cl 7.2 advanced by Woolworths, which provides for a carve-out of liabilities relating to the performance of the Services owing to a Force Majeure Event and, in this case, does not operate to relieve SCT of its obligation to indemnify Woolworths under cl 13.1(b), is correct. I do not accept that this interpretation rests on an unduly narrow view of what is meant, in cl 7.2, by a liability for failure on the part of SCT to fulfill its obligations under the Terms and Procedures or some artificial distinction between such a liability and an obligation to indemnify for Losses to the Goods under cl 13.1(b). In my view, cl 7.2 is directed to relieving SCT of liability for delays or failures in fulfilling its obligations in performance of the Services to the extent that the delays or failures are due to a Force Majeure Event but it does not absolve SCT of the risk and liability in respect of the Goods. The primary obligation and liability of SCT as an indemnifier to Woolworths under cl 13.1(b) for damage to the Goods is distinct from SCT’s liabilities as a contracting party in the performance of its obligations to transport the Goods in respect of which a delay or failure may give rise to breach of the Agreement.

  22. This construction does not, in my view, cause cl 7.2 to “lose its meaning” or fail to recognise the purpose for which force majeure clauses are included in contracts. It recognises that cl 7.2, as a force majeure clause, operates as a mechanism to reallocate liability in respect of performance of an obligation that is delayed or prevented due to factors outside the control of the parties and avoids any such delay or failure from becoming a breach of the Agreement for which SCT is liable. The occurrence of the Force Majeure Event also has the consequence that SCT’s obligations become governed by cl 7.1 of the Terms and Part 9 of the Procedures, which oblige SCT to consult in relation to the disruption of the Services, maintain a communication protocol and seek to mitigate the effects of the disruption. Further, and as Woolworths accepted at the hearing, by reason of cl 7.2, Woolworths could not make a claim against SCT for losses arising from any delay or failure to deliver the Goods on time or not at all, such as a claim for loss of profits from not being able to sell them from a particular day, losses incurred due to a breach by Woolworths of an obligation to supply to a third party, or wasted warehouse and staff related costs (T19.26–40).

  23. Rather than working an injustice and making no commercial sense, the construction advanced by Woolworths reflects what I consider the Agreement to evidence, namely, that the commercial bargain struck by the parties was for SCT to be on risk for the Goods and liable to indemnify Woolworths for Losses incurred in connection with the loss and damage to the Goods caused by the derailment irrespective of whether the damage was owing to or sustained during a Force Majeure Event. Looking at the matter objectively, that outcome does not seem to me to be commercially absurd or irrational, particularly as the Agreement obliged SCT to maintain insurance for the full replacement of the Goods.

  24. As I have concluded that cl 7.2 operates in a more limited way than contended by SCT, I also do not consider there to be ambiguity in the meaning or breadth of the indemnity under cl 13.1(b) as SCT contends. Accordingly, the issue of construing the indemnity strictissimi juris in favour of SCT does not arise: Rava at [56]–[57]; Cherry v Steele-Park at [112].

  25. For these reasons, I have concluded that the answer to the separate question is yes.

Orders and Costs

  1. The usual order as to costs is that they follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1. In this case, that would be an order for costs to be agreed or assessed against SCT. I see no reason not to make such an order but, as the parties did not address the issue, I have deferred entry of a costs order against SCT for 14 days. If, after considering these reasons, a party considers that some other costs order should be made, they are to confer with the other party, notify my Associate before the order takes effect that a different costs order is sought and serve written submissions on that issue of no more than three pages. The other party will have a further seven days to serve submissions in response, also of no more than three pages. The written submissions are to be sent by email to my Associate and will be determined on the papers.

  2. The orders of the Court are:

  1. The separate question to be determined is answered as follows:

On the proper construction of the “Transport Terms and Conditions” dated 31 July 2012 and the “Transport Prescribed Procedures” dated 31 July 2020 is the Plaintiff entitled to be indemnified for the loss and damage pleaded in paragraph 21 of the Commercial List Statement, and admitted in paragraph 9 of the Commercial List Response, which arose in the circumstances pleaded in paragraphs 18 to 20 of the Commercial List Statement, and admitted in paragraphs 8 to 9 of the Commercial List Response, irrespective of whether that loss and damage was owing to or sustained during a “Force Majeure Event”?

Answer – Yes

  1. Unless either party makes an application for a different costs order within 14 days, the plaintiff’s costs of the separate question proceedings are to be paid by the first defendant as agreed or assessed.

  2. List the proceedings in the Commercial List for further directions at 9:45 am on 16 April 2021.

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Decision last updated: 08 April 2021

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Statutory Material Cited

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Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28
CDJ v VAJ [1998] HCA 67
Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28