Australian Paper Plantations Pty Ltd v Venturoni [2000] VSCA 71

Court of Appeal (Vic)|2000-05-05|Before: ORMISTON and BUCHANAN, JJ.A.

Contract - Indemnity - Construction - Whether liability arose out of or in respect of carrying out agreement - Indemnity limited to carrying out agreement by indemnitor - More than temporal connection required between liability and carrying out agreement.

Having had the benefit of reading in draft form the reasons for judgment of Buchanan, J.A., I agree both in his reasoning and in his conclusion that the appeal be dismissed.

On 9 November 1984 Rudi Mikulich was injured when he was struck by a falling tree. When the accident occurred Mr. Mikulich was felling trees in a forest near Stockdale owned by the appellant. The appellant engaged the respondents to cut down and deliver timber pursuant to a written agreement made on about 16 July 1984. The respondents in turn engaged Mr. Mikulich and his wife to fell trees to enable the respondents to fulfil their agreement with the appellant.

In March 1998 Mr. Mikulich brought proceedings against the appellant claiming damages in negligence and breach of statutory duty. It appears from the statement of claim endorsed on the writ that Mr. Mikulich's complaints were principally that the land on which he was felling trees was unsafe, that the appellant failed to provide a safe system for felling trees and failed to adequately to supervise the performance of the work. Mr. Mikulich did not allege who or what caused the tree to fall. No evidence was led at the trial of the proceedings brought by the appellant against the respondents of the circumstances in which the tree fell upon Mr. Mikulich or as to who caused the tree to fall.

Mr. Mikulich's action was settled. The appellant agreed to pay him $25,000 and his costs and permit him to retain workers' compensation payments he had received.

In these proceedings the appellant sought from the respondents indemnity in respect of the sums paid to Mr. Mikulich. The indemnity was sought pursuant to the provisions of clause 9 of the written agreement, which provided:

"9. Indemnity. The Tenderer [the respondents] hereby indemnify and agrees to keep the Company [the appellant] 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."

The trial judge held that clause 9 did not oblige the respondent to indemnify the appellant against its liability to Mr. Mikulich. His Honour held that the clause did not apply to liabilities which were "connected to the contract merely because the contract provided a temporal connection or created the occasion and did no more." His Honour then held that there was not a sufficient connection between the appellant's liability to Mr. Mikulich and the carrying out of the contract. He said:

"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."

The appellant accepted that clause 9 would not apply if the connection between a liability and the carrying out of the contract was merely temporal. It was not sufficient that a person to whom liability was owed was present and exposed to injury because he was performing work required by the contract between the appellant and the respondents. Although counsel for the appellant contended that the words "arising out of" required a less proximate relationship than that of cause and effect[1] and the words "in respect of" had a wide meaning, he accepted that both expressions required a "discernible and rational link" between the liability or claim and the carrying out of the contract[2].

The appellant contended that the requisite connection between its liability and the carrying out of the contract was twofold. In the first place the appellant said that the link in this case was one between its liability to Mr. Mikulich and an implied term of the agreement that the appellant would give the respondents access to land for the purpose of felling and removing timber. The term was to be implied pursuant to the principle that

"... where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect."

Per Lord Blackburn in Mackay v. Dick[3]. Thus, it was said, the appellant was carrying out the agreement in allowing the respondents' contractor to enter upon the land, the condition of which was claimed by Mr. Mikulich to have caused the injury creating liability in the appellant. Allowing Mr. Mikulich to enter the land in the condition alleged in Mr. Mikulich's statement of claim was both the performance of the agreement and the cause of the claim against which the appellant sought indemnity. Secondly, the appellant submitted that there was a sufficient connection between the appellant's liability to Mr. Mikulich and the performance of the contract by the respondents in bringing Mr. Mikulich on to the land on which he was injured.

The appellant's first submission relied upon a connection between the performance by the appellant of its obligations under the contract and the liability against which indemnity was sought. For their part the respondents submitted that clause 9 was limited to indemnity against the consequences of the carrying out of the agreement by the respondents. The clause was to be read as if it concluded with the words "by the Tenderer". Unless the clause was so confined, it was submitted, it would lead to absurd results, such as the appellant being entitled to indemnity against its accounting, bank and postal costs of mailing cheques to the respondents in payment for their work under the contract.

In my opinion the respondents' contention is correct. When read as a whole the main thrust of the contract is to impose obligations upon the respondents and regulate the conduct of the respondents. The principal obligations expressed in the contract, save that of payment, are imposed upon the respondents. The respondents are to carry out the contract expeditiously; the respondents alone are forbidden to disclose any details of the contract; the respondents are to lodge a security deposit; the respondents alone are forbidden to assign the benefit of the contract; the respondents are to cut only certain timber, which is to meet specified criteria; the respondents are to stack timber in a particular manner; the respondents are to deliver timber at specified places; the respondents alone are to observe Acts and regulations relating to forests; the respondents are to construct and maintain and camps for the tree-fellers; the respondents are to pay any royalties that might be payable.

In the light of the concentration of the contract upon the obligations of the respondents, the parties may well have intended clause 9 to be concerned only with the performance of the contract by the respondents and deemed it appropriate to describe a wide range of matters against which indemnity was to be provided. If it had been intended that the clause was to apply to the performance of the contract by both parties, I would have expected the indemnity to have been limited to claims, actions and suits. The addition of costs, damages, fines and expenses does produce absurd results if the clause applies to the performance of the contract by both parties. Because of the order in which the words in the phrase "costs, damages, fines, expenses, claims, actions and suits" appear, it is not possible to confine the costs and expenses to those associated with claims, actions and suits.

The appellant suggested that the costs and expenses referred to in clause 9 were costs and expenses arising from a breach of duty. In my view that is a strained construction in the light of the words "any" and "whatsoever". On the other hand, I consider that the language of the clause is not strained by limiting it to the carrying out of the contract by the respondents. Another suggestion made by the appellant to avoid the result that, if clause 9 applies to the appellant's performance of the contract, the respondents are obliged to indemnify the appellant against costs incurred in carrying out its obligations under the contract, was that the costs and expenses were not costs and expenses incurred in performing the contract, but rather costs and expenses arising from the performance of the contract. The appellant submitted that the clause assumed the performance of the contract. Thus, it was said, the clause did not oblige the respondents to pay the costs and expenses incurred by the appellant in paying the contract price. While I accept that a distinction may be drawn between costs "in carrying out" the contract and costs arising "from carrying out" the contract, I am unable to perceive any material difference between costs "in carrying out" the contract and costs "in respect of carrying out" the contract.

A matter which in my view lends support to the respondents' construction of clause 9 is that it was orally agreed between the appellant and the respondents that the appellant would obtain at its expense insurance in favour of the respondents in the form prescribed by the regulations made under the Workers Compensation Act 1958. That form provided indemnity against the liability of the insured to pay compensation under the Act and to pay damages at common law in respect of injuries sustained by a worker within the meaning of the Act. Workers within the meaning of the Act included certain contractors engaged by the employer. In my view it would be incongruous if the appellant agreed to provide insurance for the respondents against claims by their workers and at the same time was able to visit upon the respondents liability for injuries sustained by workers engaged by the respondents pursuant to clause 9 of the contract. The incongruity disappears if clause 9 is limited to liability arising from or in respect of the carrying out of the contract by the respondents. There was some dispute between the parties as to whether the liability to Mr. Mikulich was covered by the policy the appellant agreed to obtain. I do not think that the fact that a particular contractor may not have been deemed a worker for the purposes of the policy the subject matter of the agreement significantly dilutes the force of the argument based upon the existence of the term agreed to by the appellant.

The positions adopted by the parties in respect of the appellant's first submission, that the liability to Mr. Mikulich arose out of or in respect of the carrying out of the contract by the appellant, were somewhat different to those which they took at trial. At trial the case advanced by the appellant was that the necessary connection was one between the liability of the appellant and the performance of the contract by the respondents. For their part the respondents on appeal embraced a construction which they had disavowed at trial. The trial judge noted:

"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 appellant's alternative submission, that clause 9 provided an indemnity because the respondents were carrying out their obligations under the contract by procuring Mr. Mikulich to enter upon the land, in my view is met by its own concession that the clause requires more than a mere temporal connection between a claim or liability and the carrying out of the contract. In my opinion the contract between the appellant and the respondents provided no more than the occasion for the claim brought by Mr. Mikulich. Mr. Mikulich was beneath the falling tree because he had been engaged to perform work required to fulfil the respondents' contract, but that was not a sufficient connection, and no other connection was established by the appellant. It was not pleaded in Mr. Mikulich's statement of claim that the tree fell on him as a result of any act or omission on the part of the respondents, their servants or agents. It was no part of Mr. Mikulich's case, and it did not appear from the evidence led in the proceedings brought by the appellant against the respondents, that the tree which struck Mr. Mikulich was felled in the course of performing the respondents' obligations under their contract with the appellant. The only connection between the respondents and the injury sustained by Mr. Mikulich was that he was under a falling tree because he had been engaged to perform the work required of the respondents by their contract with the appellant. In my view that circumstance provided no more than a temporal connection between Mr. Mikulich's claim and the carrying out of the contract by the respondents.

The appellant submitted that the trial judge approached the construction of clause 9 in the manner of the Privy Council in Canada Steamship Lines Ltd. v. The King[4]. In that case the Privy Council construed an exclusion clause by applying three rules. The first was that effect must be given to a clause which expressly exempts the person in whose favour it is made from the consequences of negligence. The second rule was that if there is no express reference to negligence, the Court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence. If a doubt arises at this point, it must be resolved against the person in whose favour the clause has been drafted. The third rule applies where the words used, when given their ordinary meaning, are wide enough to apply to negligence. It requires a consideration of whether the head of damage against which protection is sought may be based on some ground other than that of negligence.

In Darlington Futures Ltd. v. Delco Australia Pty. Ltd.[5] the Court rejected the notion that a strained construction could be placed upon words in an exclusion clause and said, at p.510:

"[T]he 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."

In Schenker & Co. (Aust.) Pty. Ltd. v. Maplas Equipment & Services Pty. Ltd.[6], McGarvie, J., with whom the other members of the Full Court agreed, rejected the submission that what was said by the High Court in Darlington Futures Ltd. v. Delco Australia Pty. Ltd. was consistent with the application to an indemnity of the guidelines stated in Canada Steamship Lines Ltd. v. The King. McGarvie, J. equated the approach of the High Court with that of the House of Lords in Photo Production Ltd. v. Securicor Transport Ltd.[7], in which it was affirmed that in commercial contracts where the parties are not of unequal strength and the risks are normally borne by insurance, the Court should treat the parties as free to apportion the risks as they think fit. The same approach has been adopted in New South Wales and Victoria. See Pendal Nominees Pty. Ltd. v. Lednez Industries (Australia) Ltd.[8] and Valkonen & Valkonen v. Jennings Constructions Ltd.[9].

"[I]t 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 the 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."

In my view his Honour did not apply the Canada Steamship guidelines and embark upon a strained construction of the clause so as to avoid its application to the consequences of negligence on the part of the appellant. Rather, the trial judge interpreted the clause in the manner conceded by the appellant to be appropriate, that is, by requiring that the carrying out of the contract be more than the occasion of the liability in question and held that that requirement was not met in the present case. A consequence of such a construction may well have been that the clause would not normally apply to give indemnity against a liability created by the negligence of the appellant, for if the negligence was the cause of the liability, the respondents' performance of the contract was likely to be no more than the occasion for the liability.

In my opinion the trial judge correctly held that clause 9 did not oblige the respondents to indemnify the appellant against its liability to Mr. Mikulich. I would dismiss the appeal.

[1] G.I.O. of N.S.W. v. R.J. Green & Lloyd Pty. Ltd. [1966] HCA 6; (1966) 114 C.L.R. 437 at 443, per Barwick, C.J.

[2] Technical Products Pty. Ltd. v. State Government Insurance Office (Qld) [1989] HCA 24; (1989) 167 C.L.R. 45 at 47 per Brennan, Deane and Gaudron, JJ.

At a glance

Court

Decision date

Before

Source

Judgment (38 paragraphs)

Parties