No. 5114 of 1996
- Australian Paper Plantations Pty. Ltd. (APP), the plaintiff, seek indemnity from the defendants J. & E.M. Venturoni (Venturoni)
in respect of its liability under terms of settlement entered into by it with one Rudi Mikulich. APP was formerly Amcor Plantations
Pty Ltd and at an earlier time, APM Forests Pty Ltd. Mr Mikulich had sued APP seeking damages for injuries sustained by him on about
9 November 1984 while felling trees on land owned by APP. He alleged that his injuries were the result of the negligence of APP.
The action was settled on the basis that APP paid Mr Mikulich the sum of $25,000.00 damages, that he retained his workers' compensation
payments and that APP paid his costs, and bore its own costs, of the proceedings. The indemnity sought by APP in these proceedings
from Venturoni concerns the amount of $25,000.00 agreed to be paid to Mr. Mikulich by way of damages at common law and the liability
for costs.
- There are also two third party proceedings. The first against Commercial Union Assurance Company of Australia Ltd was settled on
the morning of the first day of the hearing. The remaining proceeding concerns American Home Assurance Company (AHAC). Under that
proceeding, Venturoni claims to be entitled to an indemnity from AHAC in relation to the proceeding brought by APP against it.
Claim for Indemnity by APP
- On about 16 July 1984, APP entered into an agreement with Venturoni under which Venturoni agreed to cut down and deliver pulp wood
to APP. Venturoni in turn entered into an agreement with a partnership comprising Rudi Mikulich and his wife, under which they agreed
to cut down the trees to be used by Venturoni for the purpose of delivery pursuant to the agreement between Venturoni and APP.
- APP relies upon an indemnity clause in the agreement between it and Venturoni which provided as follows:
"9. Indemnity. The Tenderer [Venturoni] hereby indemnifies and agrees to keep the Company [APP] indemnified against all costs,
damages, fines, expenses, claims, actions, and suits whatsoever arising out of or in respect of the carrying out of the agreement."
- APP submits that the action brought against it and the liability it accepted pursuant to the settlement agreement for damages and
costs come within the terms of clause 9 and that Venturoni must indemnify it with respect to those sums.
- It should be noted that it is common ground that the settlement was reasonable.
Construction of Indemnity Clause - Issues
- Venturoni submits that properly construed the indemnity clause does not cover the type of claim brought by Mr. Mikulich. It focuses
on the phrase "arising out of or in respect of the carrying out of the agreement."
- As to the phrase "arising out of" Venturoni submits that it has , a causal connotation and thus to succeed APP must demonstrate
a causal connection between the carrying out of the contract and the "... claims actions and suits whatsoever" in respect of which
APP seeks indemnity. Venturoni submits that the claim as formulated by Mr. Mikulich alleged negligence solely on the part of APP.
Insofar as the case pleaded against APP was concerned, the connection to the incident provided by Venturoni was, it submits, merely
temporal. The engagement by Venturoni of Mr. Mikulich in cutting trees, it is said, merely provided the occasion, and no more, on
which the injury occurred. Counsel for Venturoni submits that, properly construed, clause 9 does not, therefore, apply in that situation,
the claim not arising out of the contract.
- Venturoni submits that the phrase "in respect of the carrying out" refers to the manner of carrying out the contract and requires
a direct link between the way the contract was carried out by Venturoni and any loss to APP. For example, the defendant suggests
that it would cover losses suffered because Venturoni cut the wood badly or because Venturoni delayed in cutting the timber.
- APP does not seek to draw a distinction between the phrases "arising out of" and "in respect of" and argues that while a causal
connection is required by the indemnity clause between the "... claims actions and suits whatsoever" and the "carrying out of the
agreement", that causal connection was to be found in the case as pleaded by Mr. Mikulich against APP. APP submits that the claim
made involved, amongst other things, the allegation that Mr. Mikulich was cutting the trees during the period of the contract between
APP and Venturoni, was felling trees for the purpose of that contract and the injury was caused while he was engaged in that work.
APP submits that these facts satisfy the requirements of the clause. If a distinction is to be drawn, APP submits that "arising
out of" involves an indirect causal connection but cause in a practical sense and "in respect of" involves a direct causal connection.
- APP accepts that the clause would not apply where, for example, APP cut or pulped timber negligently and caused loss to its customer.
Such a claim would not arise out of or be in respect of the contract for the supply of timber to APP. Counsel for APP said that
in that situation, the contract with Venturoni would have been fulfilled without incident. If, however, Venturoni supplied the wrong
timber, or delayed delivery, and this gave rise to a third party claim against APP, APP submits that clause 9 would respond.
- APP submits that on the facts relating to the claim made by Mr. Mikulich, "the carrying out of the agreement" was in fact a direct
cause of the claim made by Mr. Mikulich. Counsel submits that it is not necessary for APP to establish that the claim arose out of
an act or omission of Venturoni in the performance of the contract. It did not attempt to do so. APP emphasises the use of the
word "whatsoever".
Construction of Indemnity Clause - The Law
- Both parties relied upon statements in Schenker & Co. (Aust.) Pty. Ltd. v. Maplas Equipment and Services Pty. Ltd. [1990] VicRp 74; (1990) V.R. 834. Counsel for APP drew attention first to passages (at page 840) which support a commercial and common-sense approach to the construction
of clauses in commercial contracts including indemnity clauses. In particular counsel cited the passage referred to in the judgment
from the judgment of Isaacs J. in Cohen & Co. v Ockerby & Co. Ltd [1917] HCA 58; (1917) 24 CLR 288 at page 300.
"Expressions and particularly any elliptical expressions, in a mercantile contract are to be read in no narrow spirit of construction,
but as the Court would suppose two honest men would understand the words they have actually used with reference to their subject
matter and the surrounding circumstances."
Counsel also drew attention to the comment of McGarvie J. in Schenker at 841 about the relationship of prices charged and liabilities. His Honour stated
"Clearly enough the price charged by a carrier would be influenced substantially by the liability to which the carrier was exposed
in performing the contract of carriage. This relationship, asserted in the opening words of clause 6 of Green's printed conditions,
is an obvious one. A carrier liable for breach of contractual or tortuous duty in performing a contract will naturally include a
component in the price to make provision for the risk of paying damages or for insurance premiums to carry that risk: ..."
His Honour went on
"For similar reasons the price charged by Schenker for performing its contract with Maplas to clear the machine through customs and
arrange for a carrier to deliver it, would ordinarily reflect any liabilities it might have to bear as a result of that performance.
The second sentence of clause 3 of Schenker's trading conditions showed that Schenker was aware of and concerned about at least
some claims which a carrier arranged by it to deliver goods might make against it. There was little evidence before the Judge as
to the composition of the price Schenker charged Maplas but there is nothing to indicate any departure from the ordinary situation
where the price would be expected to reflect liabilities which Schenker might incur in performing its contract."
- Counsel submits that in this case also, the terms upon which APP might accept a tender would be influenced by the distribution of
the risk between the contracting parties.
- Counsel for Venturoni accepts that the law does not countenance strained constructions as was once the case with indemnity clauses
in commercial contracts. In Schenker it was said by the Full Court (at 845):
"Strained constructions of that type are not open under Australian law in the construction of commercial contracts between business
people. The law now to be applied in Australia was stated in the judgment of five judges of the High Court in Darlington Futures Ltd. v. Delco Australia Pty. Ltd. [1986] HCA 82; (1986) 161 C.L.R. 500, at pp.510-11 ..."
The Court in Darlington Futures Ltd said:
"These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according
to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which
the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem
in case of ambiguity. Notwithstanding the comments of Lord Fraser in Ailsa Craig[1983] 1 W.L.R., at p.970, the same principle applies to the construction of limitation clauses. As King, C.J. noted in his judgment
in the Supreme Court, a limitation clause may be so severe in its operation as to make its effect virtually indistinguishable from
that of an exclusion clause. And the principle, in the form in which we have expressed it, does no more than express the general
approach of the interpretation of contracts and it is of sufficient generality to accommodate the different considerations that may
arise in the interpretation of a wide variety of exclusion and limitation clauses in formal commercial contracts between business
people where no question of the reasonableness or fairness of the clause arises".
- The Full Court also rejected the line of authorities which dealt with indemnity clauses and in particular the guidelines stated
in Canada Steamship Lines Ltd. v. R. [1952] A.C. 192 at p.208. The Full Court did state, however, (at 846)
"Of course, a court in construing a commercial contract does take into account the normal allocation of liabilities in such a contract.
Other things being equal the parties might be expected to be contracting on the basis that the normal allocation of liabilities
is adopted. Some apparent departures from the norm may be so dramatic as to lead a court to look carefully at the contract to make
sure that the departure is really intended."
Construction of Indemnity Clause - Analysis.
- Venturoni submits that a construction should not be accepted which entitled APP to claim indemnity against Venturoni in respect
of claims against APP based on APP's negligence. It is put that this is particularly so in the context that APP had rights of supervision
and direction over sub-contractors such as Venturoni and those persons engaged by them to fell trees. It also trained and certified
the tree fellers. While people engaged by Venturoni checked from time to time that the people felling trees wore the appropriate
safety gear (such as safety helmets, cut resistant trousers) and used felling benches and correct techniques, an APP safety officer
was also involved and would do safety checks and would write a report to Venturoni if they found any problems. It seems that APP
laid down certain safety regulations that had to be complied with and their safety officers would check for compliance from time
to time. Non-compliance was reported to Venturoni and would be dealt with either by Venturoni personnel on their own or by them
in conjunction with the APP safety officer. It is further submitted for Venturoni that the contract being one produced by APP for
signature by Venturoni is one that should be construed contra proferentem (Schenker at 845).
- On the face of it, it would be surprising to find Venturoni being required to indemnify APP in respect of claims made against APP
arising out of APP's negligence. That would not be the "normal allocation of liability". It would require Venturoni to indemnify
APP in respect of claims arising from circumstances over which it had no control. In the contract between the parties, the allocation
of liabilities would have an economic effect upon the prices charged by Venturoni and paid by APP. How Venturoni would have been
able to factor into their price calculations, the risks of claims associated solely with the negligence of APP or other default is
difficult to determine. Such an exercise would also have led to an increase in the price quoted by the tenderer. Counsel for APP
did not advance any reason that would explain or justify an indemnity clause of such width.
- I invited counsel to address submissions to any other clause that might shed light on the meaning of clause 9. APP has referred
to other clauses which may assist in interpretation. Clause 20 of the agreement provided as follows:-
"20. Workers Compensation Insurance. The Tenderer, upon acceptance of the tender and when required from time to time until completion
of the Contract, shall produce such evidence as the Superintending Officer may require that there is in force a policy insuring against
all risks in respect of the work to be done under the Contract for which the Tenderer is liable under the Workers' Compensation Act;
and so far as the law allows he shall indemnify the company against all claims under those Acts for which the Company may be liable."
- Counsel for APP submits that this clause, and in particular the final part of it containing the indemnity, confirms an intention
to give the widest possible indemnity to APP. It was put that the indemnity in clause 9 is in fact wider and overlaps with that
in clause 20. It is put that clause 20 was included out of an abundance of caution.
Clause 28 is referred to by APP. It provides:
"28. Repayment to the Company. If the company becomes liable to pay any freight or charges on pulp wood rejected by it, or to pay
any wages to an employee of the Tenderer, each such amount when paid by it shall be deemed to be money paid by the Company on behalf
of the Tenderer and shall be recoverable summarily unless the Company deducts the amount from moneys it has in hand for the Tenderer."
- Counsel for APP submits that having regard to the width of clause 9 this provision is probably not necessary and is contained out
of an abundance of caution. Counsel also refers to clause 34. It provides as follows:
"34. Variation of Contract. No variation of this Contract shall be binding on the parties hereto unless agreed in writing by the
Tenderer and by the General Manager on behalf of the Company provided that variations in the tendered weekly delivery rate may be
accepted on behalf of the Company by an Authorised Officer."
- Counsel for APP submits that this prevents the adding of any words to clause 9 except by adding them in writing.
- Finally counsel has referred to clause 37. It provides:
"37. Waiver. The Company shall not be deemed at any time to have waived any of the provisions of this Contract unless the waiver
is in writing signed by the General Manager of the Company. The waiver by the Company of any of the conditions of this Contract
shall not affect or prejudice the rights and liabilities of the Company in respect of any future or other breach of the same or any
other conditions on the part of the Tenderer in this Contract.
- Counsel for APP submits that this clause indicates that the parties intended the document to be the sole repository of the agreement
and it was not to be altered except in the manner prescribed. He submits that the parties meant what they said in the contract and
effect should be given to its plain meaning. He said that the case is not one the application of contra proferentem in interpreting
clause 9 because there was no ambiguity.
- Counsel for Venturoni submits that the additional clauses point to concern that clause 9 is limited in its operation that limit
being, as a minimum the requirement of a causal link.
- It would seem to me that on balance these clauses do not help to resolve the question of the meaning and scope of clause 9.
- I raised with counsel the possibility that clause 9 should be interpreted as being confined to "... claims actions and suits whatsoever
arising out of or in respect of the carrying out of this contract" by Venturoni and its servants and agents but counsel for Venturoni
saw difficulties with this interpretation and did not seek to rely upon it.
- The foregoing reveals common ground between the parties. There appear to me in the final analysis to be two points of departure
between them. Counsel for Venturoni emphasises the causal connection required by clause 9 between the carrying out of the contract
and the claim made. Counsel for APP appears to accept different meanings for the words "arising out of" and the words "in respect
of" and to accept the requirement of a casual connection. The parties appear to differ however, on the question of whether the clause
as properly construed extends to claims which are connected to the contract merely because the contract provided a temporal connection
or created the occasion and did no more. Counsel for Venturoni submits that in that situation clause 9 properly construed has no
application and counsel for APP submits that it does. In addition, however, counsel for APP submits that in any event, the claim
made against APP was one which involved allegations that Venturoni did more than simply create the occasion or create the temporal
connection. The allegation was that Mr Mikulich was injured while carrying out the contract.
Construction of Indemnity Clause - Conclusion
- As to the first point of difference, it seems to me that the construction of Venturoni should be preferred. Firstly, the clause
should be construed contra proferentem. Further, it would be a remarkable result in my view if the clause could be construed in
such a way as to enable APP to seek indemnity from Venturoni in circumstances where APP alone was negligent.- for example, if a vehicle
driven by an APP employee ran over a person cutting trees for the contract. The construction advocated for Venturoni avoids that
result. Thus a claim would not be covered by the indemnity clause where what was alleged involved no more than an allegation that
the performance of the contract provided the occasion from which the claim arose.
- The question then becomes one of whether a relevant causal connection has been established by the plaintiff between the carrying
out of the contract and the claim against APP.
- As I have noted above, counsel for Venturoni submits that the facts alleged in support of the claim established no more than that
the carrying out of the contract provided the occasion for the injury and therefore the claim. It was thus no more than a factor
securing the presence of Mr. Mikulich (see March v. Stramere (E & M.H) Pty Ltd [1991] HCA 12; [1990-91] 171 CLR 506, at 516, 533).I note that APP did not seek to establish a closer causal connection through any specific act or omission of Venturoni.
As stated above it submits that the circumstances giving rise to the claim did involve more than Venturoni providing the occasion
for the injury.
- It seems to me that while views may differ on the point, the analysis of Venturoni is correct. We are enjoined to take a common
sense approach to questions of causation (March v. Stramere 575,6 at 523,5). Plainly the claim would not have arisen if Venturoni had not been carrying out the contract and had not engaged
Mr. Mikulich to assist it in carrying out the contract and he had not been felling a tree. But what would be regarded from a common
sense point of view as the cause of the claim that was made against APP was the alleged negligence of APP. In those circumstances
it seems to me that the claim of APP fails because it does not come within the terms of clause 9.
- That conclusion renders unnecessary the consideration of the other issues raised. Arguments having been put, however, I will endeavour
to deal with them briefly.
Indemnity Claim - Other Issues
- Venturoni also submits that it and APP agreed that APP would arrange for employees of contractors and sub-contractors and working
contractors and sub-contractors who sustained injury while obtaining the promised produce destined for APP mills be covered under
a workers compensation policy arranged by APP with its workers compensation insurer. Venturoni further submits that it was to be
implied that the policy arranged would cover Venturoni for both statutory and common law liability in respect of employees and sub-contractors.
It is also said that Venturoni relied upon a conventional assumption that APP would and did arrange cover for employees, contractors
and sub-contractors and working contractors and sub-contractors. Venturoni should, therefore, have been covered under an insurance
policy with a workers compensation insurer, a policy that would cover liability to pay under workers compensation legislation and
liability for damages at common law. It is put that Venturoni relied upon that conventional assumption in engaging contractors and
sub-contractors, in not arranging separate insurance cover and in agreeing to carry out the works. An estoppel is said to arise.
- In the course of submissions, it emerged that as a result of an express variation of the agreement, APP was obliged to take out
insurance to cover Venturoni and its employees and sub-contractors and working contractors and did so. It was also common ground
that such policy was to comply with the provisions of the Workers Compensation Act 1958. The form of policy set out in the Compensation (Employers Indemnity) Regulations 1978, the form applicable at the time, provided
as follows:
"EMPLOYER'S INDEMNITY POLICY General WHEREAS the Employer (hereinafter called the "Insured") named in the Schedule attached hereto (hereinafter called the "Schedule")
of the address and carrying on the business described therein and no other for the purpose of this Indemnity, has made to .................................................
(hereinafter called the "Insurer") a written Proposal, Agreement and Declaration, dated as set out in the Schedule, which it is agreed
shall be the basis of this contract and incorporated herein: NOW THIS POLICY WITNESSETH that in consideration of the payment of
or the agreement to pay to the Insurer the Premium shown in the Schedule for the Initial Period of Indemnity stated therein IT IS
HEREBY AGREED that if during the said Initial Period or any Subsequent Period described in the Schedule (subject to the payment of
Premium as provided therein) any person employed in the business described in the Schedule who is a worker within the meaning of
the Workers Compensation Act 1958 of the State of Victoria or any amendments thereof in force at the commencement of this indemnity or any renewal thereof (hereinafter
called the "Act") shall sustain personal injury or disease for which the Insured shall become liable - Section (a) to pay compensation
under the Act; or
Section (b) to pay damages at Common Law or under any Act of the State of Victoria or any amendments thereof in force at the commencement
of this indemnity or any renewal thereof -
except as hereinafter provided the Insurer will indemnify the Insured against all sums for which the Insured may become so liable,
and will, in addition, be responsible for all costs and expenses incurred with the consent of the Insurer in connection with any
claim for such compensation or damages: PROVIDED THAT, in respect of each such injury or disease sustained by a worker, the Insured
shall bear the first $500 of his total liability to pay compensation pursuant to the Act to the worker by way of weekly payments
or in respect of medical, hospital, nursing or ambulance services: PROVIDED ALSO that the indemnity in respect of liability as defined
under section (b) hereof shall operate only in respect of persons in the direct service of the Insured and actually engaged in Victoria
in the performance of a duty incidental to the business described in the Schedule when the injury or disease was sustained, AND FURTHER
that such indemnity shall operate only to the extent that the Insured is not indemnified by any other Policy or Contract or Insurance:"
- The debate was thus considerably changed and shortened. None the less some issues remain.
Indemnity Claim - Implied Term
- Venturoni submits, firstly that clause 9 was subject to the limitation that it did not apply where the incident giving rise to indemnity
was such that it was covered under the workers compensation insurance (para.19A of the defence).
- Counsel for Venturoni submits that the intention of the parties in relation to insurance was that Venturoni would not be exposed
to the personal risk of suit in respect of a claim for the injuries of employees and contractors. It is put that it was not the
intention that clause 9 would re-allocate the ultimate risks between the parties when those risks had been the subject of specific
agreement between the parties.
- The limitation, as pleaded in para.19A of the defence, was that:
"If [clause 9] formed part of the agreement, ... then that term was subject to the implied limitation that it would not apply where
the incident gave [sic] rise to the alleged indemnity was such that it was covered under the provisions of the Workers Compensation
insurance arranged by the plaintiff and which enured for the benefit of the Defendants."
- Counsel for APP submits that the issue raised is whether a term should be implied limiting the operation of clause 9. He further
submits that the proposed implied limitation does not satisfy any of the five criteria enunciated in B.P. Refinery (Western Port) Pty. Ltd. v. Hastings Shire Council [1977] HCA 40; (1977) 52 A.L.J.R. 20 at 26 and since adopted by the High Court. He submits firstly that it is not "reasonable and equitable" having regard to the interests
of both parties. He argues further that it is not necessary to give business efficacy to the contract, it is not "so obvious" that
"it goes without saying", it is not capable of clear expression. He finally submits that it contradicts the express indemnity clause.
- Counsel for Venturoni submits that the term was reasonable and necessary to give business efficacy to the contract because without
it the scheme by which Venturoni was to have insurance cover would be subverted. He submits also that the other requirements for
implying terms are satisfied and in particular that there was no contradiction between the implied term in clause 9 but rather they
harmonised, ensuring that clause 9 and the implied term worked in tandem.
- There are difficulties with Venturoni's argument on this issue, difficulties which its counsel came close to conceding. The implied
term was to exclude the alleged clause 9 indemnity in respect of common law damages for which APP was sued, where APP was not covered
by the workers compensation insurance but the defendant was covered. It is difficult to understand how such a limitation could be
regarded as reasonable and equitable or necessary. If what was intended was a limitation confining claims for indemnity to those
which are covered by the provisions of the workers compensation insurance then while such an approach might seem reasonable, it is
not necessary to give business efficacy to the contract.
- The evidence establishes that there was an agreement between APP and Venturoni that APP would take out insurance complying with
the Workers Compensation Act 1958. That insurance did not provide cover to APP in respect of common law claims against APP by sub-contractors of Venturoni. Ultimately
it seems to me that a leap in reasoning is required to support any argument that the agreement to take out insurance imposed a limitation
on the indemnity clause, Clause 9, so that it did not relate to claims which were not covered by the policy.
- Counsel also argues on behalf of Venturoni that where there is an agreement to effect insurance between parties to the contract
relating to the performance of a contract, that agreement operates to exclude any liability which a party might otherwise be held
to have for or in respect of matters intended to be covered by such insurance. Counsel relied on the case of Brice & Sons. v. Christiani and Neilsen (1928) 44 T.L.R. 335 and Moons Motors Ltd. v. Kiuan Wou (1952) 2 L.L L.R. 80. In those cases, the issue arose because the party seeking to enforce the contractual liability had breached its obligation to obtain
insurance which would in fact have covered that liability. They do not support the principle advanced. Other points of distinction
were raised by counsel for APP but it is unnecessary to deal with them.
Indemnity Claim - Estoppel
- Counsel for Venturoni also submits that if clause 9 of the agreement otherwise entitled APP to indemnity in respect of Mikulich's
claim, APP was estopped from relying on that term where the incident which gave rise to that indemnity was such that it was, or would
have been, covered under the workers compensation policy to be arranged on behalf of Venturoni.
- The estoppel pleaded by Venturoni was in the following terms:
"19AA ... the plaintiff is estopped from relying on [clause 9] where the incident which gave rise to the alleged indemnity was such
that it was covered or would have been covered under the provision of the workers compensation policy preferred to in paragraph 17
C hereof ..."
- In support of that estoppel, the following had been pleaded in paragraph 17C:
"17C. ... at all material times the Plaintiff and the Defendants acted on a conventional assumption and the basis that the Plaintiff
would and did arrange for employees of contractors/sub-contractors and working contractors/sub-contractors of the Defendants who
sustained injury directly resulting from the obtaining of forest produce to be covered under a workers compensation policy arranged
by APM with its workers compensation insurer and that such policy would cover the Defendants for their liability to pay compensation
under workers compensation and their liability to pay damages at common law."
- A difficulty facing this argument at the outset is that Venturoni, on the evidence could not demonstrate that the agreement to take
out insurance extended to providing cover for Venturoni in circumstances like the present - a claim for indemnity by APP for a common
law claim against it. The insurance to be arranged while covering Venturoni for common law claims for damages did not provide indemnity
to APP in respect of its common law liability for damages to sub-contractors of Venturoni. The insurance arranged accorded with
the parties' assumption. Venturoni is, therefore, forced to look to its insurer and to test the question whether the policy did
not cover the present claim because of a particular construction sought to be put upon it by the insurer, the second third party,
American Home Insurance Company (AHAC).
- On the question of estoppel, I note some subsidiary arguments put on behalf of APP.
(a) It argues that the defendant Venturoni did not rely upon the alleged assumption. Instead it sought advice and assistance from
a broker at the time and took out public liability and employment cover itself. I am satisfied, however, that such insurance rather
than showing a lack of reliance in fact shows reliance in that it was intended to fill gaps not covered by the insurance which Venturoni
understood APP would be taking out.
(b) It is unnecessary to consider the argument as to whether the assumption involved a matter of general law and was therefore not
capable of founding an estoppel by convention (see Con-Stan Industries of Australia Pty. Ltd. v. Norwich Winterthur Insurance (Australia)
Ltd. [1986] HCA 14; (1986) 160 C.L.R. 226 at 244-5; Queensland Independent Wholesalers Ltd. v. Coutts Townsville Pty. Ltd. (1989) 2 Qd.R. 40 at 46 and Eslea Holdings Ltd. v. Butts (1986) 6 N.S.W.L.R. 175, 185-9).
(c) APP submits that Venturoni, in settling with Commercial Union in respect of the claims made under the employment and public liability
policies itself caused detriment that flowed from any departure from the common assumptions. I am satisfied, however, that the policies
taken out did not in fact cover the partnership involved in the present proceedings. Further, the employment policy was not intended
to cover more than one casual employee engaged in work other than tree felling. As to the public liability policy, exceptions (b)(ii)
and (f) applied to prevent any recovery under that policy in the circumstances of the present case.
Indemnity Claim - Counter Claim
- Venturoni has also pleaded a counter claim. It alleges that if APP failed to effect appropriate cover for Venturoni in respect
of the claim, Venturoni has suffered loss and damage which it claims by way of counterclaim.
- In light of the conclusions I have reached in relation to the alleged implied limitation on clause 9 and the estoppel arising from
the undertaking to obtain insurance, the counterclaim brought for a failure to effect appropriate cover must also fail. In particular,
APP did comply with the terms of the agreement in obtaining the cover that it did.
Third Party Claim Against AHAC
- While it is unnecessary to deal with the issues raised in the remaining third party proceeding, I will endeavour to deal with some
of the arguments that were put.
- Venturoni seeks to establish an entitlement to be indemnified against the APP claim by the third party, AHAC. It is put for Venturoni
that APP's claim against Venturoni is a claim for an indemnity in respect of APP's liability for Mikulich's damages at common law. Venturoni alleges that AHAC issued a policy of insurance in the statutory form, being policy No. 4151 to
APP covering persons deemed to be employees pursuant to s.3(4) of the Workers Compensation Act 1958 and covering, as insured persons, those who had entered into an agreement with APP to supply pulp wood to APP. It is put that Venturoni
was such an insured person. It was incorrectly alleged that APP deducted premiums from the income paid to Venturoni. In fact what
happened was that Venturoni tendered on the assumption that it would not be liable to pay workers compensation insurance premiums
and APP paid them. Thus, Venturoni was able to quote a lower price. Venturoni argues that the injury suffered by Mikulich on 9 November
1984 during his deemed employment with Venturoni was such that if he had commenced proceedings against Venturoni it would have been
entitled to an indemnity under the policy.
Third Party Claim - Issues Raised by AHAC
- Counsel for AHAC, raises several points. He submits that the indemnity provided concerning common law liability was limited to
liability to persons injured while in the "direct service" of the insured person. He submits that this required an employer/employee
relationship which did not exist in this case and that, therefore, there was no cover. It is further put that even if Mikulich was
to be regarded as a employee of Venturoni for the purpose of the policy, the policy would only cover Venturoni if the circumstances
of the injury were such as to give rise to common law liability on the part of Venturoni. It is put the circumstances here were
not such and no liability arose so far as Venturoni was concerned. Counsel further submits that Venturoni was insured by reason
of the endorsement for liability to a worker for compensation under the Act and common law liability but this was limited to liability
to employees and did not extend to a liability to indemnify a third party for such a claim.
- The AHAC relies upon the following clauses in particular from the statutory policy (above).
"It is hereby agreed that if during the [period that the policy is in force] any person employed in the business described in the
schedule who is a worker within the meaning of the Workers Compensation Act 1958 ... (...the "Act") shall sustain personal injury ... for which the insured shall become liable -
Section (a) to pay compensation under the Act; or
Section (b) to pay damages at common law or under any Act of the State of Victoria ...
except as hereinafter provided the [fourth party] will indemnify the insured against all sums for which the insured may become so
liable, and will, in addition, be responsible for all costs and expenses incurred with the consent of the [fourth party] in connection
with any claim for such compensation or damages... PROVIDED ... that the indemnity in respect of liability as defined under section
(b) [of sub-paragraph (vi)] hereof shall operate only in respect of persons in direct service of the insured and actually engaged
in Victoria in the performance of their duty incidental to the business described in the schedule when the injury was sustained."
Third Party Proceedings - Nature Of Cover
- A major issue in the third party proceedings is the argument raised on behalf of AHAC that the insuring clause does not cover Venturoni's
liability under clause 9 of its agreement with APP because the claim is not one for common law liability within the meaning of the
policy.
- The critical words of definition may be identified as follows:
"...if during the .. period .. any person employed in the business .. who is a worker ... shall sustain personal injury ... for which
the insured shall become liable -
Section (b) to pay damages at common law or under any Act of the State of Victoria [at the relevant time] ... -
...the insurer will indemnify the insured against all sums for which the insured may become so liable, and will, in addition, be
responsible for costs and expenses incurred with the consent of the insurer in connection with any claim for such compensation or
damages."
- Thus the critical facts may be said to be:
1. that a worker sustain personal injury; and
2. that the insured shall become liable to pay common law damages for such personal injury.
- In these circumstances the insurer will indemnify the insured against all sums for which the insured may become so liable .
- It is common ground that Venturoni was an "insured" under the policy. Counsel for Venturoni submits that Mr. Mikulich was a worker
under the Act and sustained injury. He submits that, assuming Venturoni is liable to APP because of the indemnity in clause 9, Venturoni
is liable for the common law damages payable to Mr. Mikulich. Counsel relies upon the fact that counsel for AHAC had to concede
that the damages referred to do not have to be paid to the injured worker - for example, in contribution proceedings. It is put
that, if Venturoni is liable to pay the damages payable by APP to Mikulich, those damages are damages at common law for which Venturoni
has become liable. Counsel further submits that AHAC's argument that the policy requires a finding of fault against Venturoni in
favour of Mikulich to found a liability to indemnify Venturoni for common law damages under the policy, is not warranted by the terms
of the policy. It is put that this involves a reading down of the policy.
- Both counsel referred to State Government Insurance Office (Queensland) v. Brisbane Stevedoring Pty. Ltd. [1969] HCA 59; (1969) 123 C.L.R. 228. In that case a wharf laborer was injured. He sued his employer, as the first defendant, Brisbane Stevedoring Pty. Ltd. He also
sued as the second defendant the owner of a mobile crane hired by the employer. The crane hire agreements contained a contractual
indemnity from the first defendant in favour of the second defendant. Both the employer and the crane owner were held to be at fault.
Judgment was entered and an order made that the first defendant employer indemnify the crane owner pursuant to the contract of indemnity.
The issue that then arose was whether a third party, the insurer of the employer, was liable to indemnify the employer notwithstanding
that the judgment, payable at least in part, was payable pursuant to the contract of indemnity and the order for indemnity. The
High Court held that the employer's payment to the crane owner by way of indemnity would be in satisfaction of a liability by way
of damages in respect of the employee's injury.
- There was some debate before me as to whether the foundation of the High Court decision was that some fault was found on the part
of the employer and thus the statutory insurance cover was invoked and whether the basis was that the statutory cover did respond
to a liability based on an indemnity regardless of fault. The provision in the relevant Queensland legislation (the Workers Compensation
Act 1916-1966) was contained in s.8(1) of that Act. It imposed a duty on every employer to insure himself with the State Government
Insurance Office (Queensland)
"...against all sums for which, in respect of injury to any worker employed by him, he may become legally liable by way of -
(a) compensation under this Act; and
(b) in the case of injury as aforesaid ... (except such an injury in respect whereof the employer is required by some other Act
to provide against such liability as prescribed by such other Act) damages arising under circumstances creating also, independently
of this Act, a legal liability on the employer to pay damages in respect of that injury..."
- In light of the requirements of the section it is not surprising that some at least of the judgments took the approach that it was
necessary to be demonstrated that the employer was liable in negligence to the worker before the policy would indemnify the employer
in respect of common law damages. Counsel for Venturoni sought to find support for his interpretation in the remarks of Barwick,
C.J. at 240 and Owen, J. at 250-251. These passages offer some encouragement to Venturoni in that they appear to support the proposition
that under the Queensland Act, a party liable at common law to the worker who is called upon to reimburse another person also found
liable at common law to the worker, pursuant to some indemnity arrangement, will be covered by the statutory policy. The difficulty
is, however, that the cover was given "against all sums" for which, "in respect of injury to any worker employed by "the employer,
the latter may become legally liable by way of compensation under the Act or common law damages. As to the latter, the section required
that a legal liability be imposed on the employer to pay damages "in respect of that injury" arising from the circumstances giving
rise to the damage. Thus, the language construed in that case was significantly different from that in the present case and the
case is therefore of no assistance in resolving the question that I have to determine.
- Ultimately it is necessary to construe the policy. In essence counsel for Venturoni submits that, if Venturoni is liable under
the indemnity clause, it may be said to be liable to pay common law damages because of the obligation entered into under the indemnity
to compensate APP in the event that it became liable for common law damages.
- The issue is whether it can be said that Venturoni, on being called upon to indemnify APP in respect of a damages claim against
APP at common law, can be said to have "become liable to pay damages at common law" for the relevant "personal injury". It seems
to me that it would be straining the language of the policy inordinately to construe it in that way. The policy in my view does
require that it be established that the insured in question, Venturoni, became liable to pay damages at common law for the injuries
in question. Thus if Venturoni and APP, as joint tortfeasors, caused the injuries to the worker, the policy would protect Venturoni.
Further, the limits on exposure crafted into the policy would be defeated if it could be said that the policy applied to cover the
common law liability of Venturoni where APP sought indemnity from Venturoni for injuries to a worker who is in the direct service
of Venturoni but not in the direct service of APP. To interpret the policy to cover such a situation would be, in my view, to defeat
the proviso which does not extend the cover to APP, the other insured, in those circumstances.
Third Party Claim - "direct service"
- On the question of the meaning of "direct service", counsel for Venturoni submits that if the proviso relating to common law damages
was intended to be confined to contracts of employment as argued by AHAC, words other than "direct service" would have been used.
It is put that the construction is contrary to the structure of the policy.
- I was referred by Counsel to some authorities: Eres v Deer Park Installations Pty Ltd (VSC unreported, 2.11.84 Gray, J. Opresnik v. J.C. Smale & Co & Ors (VSC unreported, 15.11.73, Crockett, J.) In light of the conclusion I have reached on the nature of the cover it is unnecessary for
me to explore the meaning of "direct service".
Conclusion
- In light of the above, the claim by APP against Venturoni must fail. Alternatively, if my construction of clause 9 is incorrect
and Venturoni is obliged to indemnify APP, the statutory policy provided by AHAC will not cover that liability.
- The result of the foregoing is that the claim by APP should be dismissed. The third party proceedings against AHAC brought by Venturoni
should also be dismissed. I will hear further submissions before making final orders.
---
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