Azzopardi v Tasman UEB Industries

Court of Appeal (NSW)|2002-08-23|Before: Meagher JA, Santow JA, Curtis J

INTRODUCTION 3 By consent, appeals in these two proceedings were heard together, being appeals from a single judgment of Judge Curtis in the Dust Diseases Tribunal of New South Wales dated 21 November 2001. Such appeals are limited to questions of law or admission or rejection of evidence; s32 of the Dust Diseases Tribunal Act 1989 (NSW) ("the Act"). 4 These two appeals arise from a common substratum of fact, summarised as follows. 5 Originally Mrs Jane Edwards claimed damages from Harlander Pty Limited ("Harlander") and Wallaby Grip (BAE) Pty Limited ("Wallaby Grip") following her contraction of the disease of mesothelioma. She alleged that the disease was caused by the inhalation of asbestos fibres while employed by Harlander as clerical support. This was through exposure during the 1 ½ hours or so that she averaged in the factory premises used jointly by Harlander and a related company, Betta Industries Pty Limited ("Betta"). 6 There were two possible sources of the fibre. First, asbestos released from a boiler located within the warehouse occupied by Harlander. Second, asbestos fibre released from asbestos millboard manufactured by Betta for making asbestos mats for the New South Wales Department of Education. The manufacturing operations were on the premises jointly occupied by Harlander and Betta. Wallaby Grip was the supplier of the asbestos product. 7 Harlander and Wallaby Grip then settled those proceedings brought by Mrs Edwards out of court for $140,000. Harlander and Wallaby Grip cross-claimed, unsuccessfully, in the Dust Diseases Tribunal against Betta and the State of New South Wales, pursuant to s5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). Betta, in consequence, also sought contribution from the State. It also cross-claimed against Royal Sun Alliance Australia Limited ("Royal"). It alleged that Royal was the public risk insurer of Betta at the relevant time and had wrongfully declined to indemnify Betta including, relevantly, for its costs in defending the proceedings. 8 The Trial Judge held that the settlement was tacit acceptance that Mrs Edward's mesothelioma was caused in the relevant sense by accumulation of asbestos fibres from all sources and that the inhalation in the course of her employment with Harlander was itself sufficient cause to found liability for the whole of her damage. The Trial Judge had declined to find liability on the part of Betta. 9 The first appeal is brought by Royal. Royal contends that the Trial Judge erred in law in various respects leading him erroneously to conclude that Royal was obliged under a policy of insurance to indemnify Betta for its costs of defending the cross-claim against Betta for contribution brought by Harlander and Wallaby Grip; notice of appeal, Red, 123. 10 The second appeal is brought by Harlander. It challenges the finding that the State of New South Wales did not owe a duty of care to Mrs Edwards. Harlander essentially contends that the Trial Judge erred in law in so finding, and in failing to define the content of the duty of care which he was considering. Because no duty was found to be owed by the State to Mrs Edwards, Harlander was denied contribution from the state in respect of the settlement reached with Mrs Edwards; notice of appeal, Red, 128. 11 It is convenient to refer to the two appeals respectively as the "insurance appeal" and the "duty of care" appeal.

INSURANCE APPEAL 12 Betta asserts that in respect of the years 1975 to 1991 inclusive, it was insured by London Insurance Pty Limited under a public liability policy that responded to the claim. The now Appellant, Royal, has inherited liabilities under such policies. 13 Royal asserts that it is not liable under the relevant policies because the risk proposed and accepted was that of an importing business, not a manufacturing business. The other bases originally asserted for not being liable under such policies were abandoned on appeal. 14 Before turning to the documentation in respect of the policy, some further background is necessary. First, Harlander Pty Limited was a company incorporated in the early 1960's by a retired dentist, William Gray, as Silicone Formulations Pty Limited. Silicone Formulations Pty Limited operated from the same premises as Betta. Its business was the importation and supply of laboratory equipment, scientific medical supplies and chemicals, sourced predominantly from China. The major customer was the New South Wales State Contracts Control Board, the sole purchasing agent for the New South Wales Department of Education. Before 1967, the premises operated primarily as a warehouse with a limited manufacturing activity of firing graduated scales upon glass beakers in a small kiln. 15 Betta Industries Pty Limited is the present name of a company incorporated as Silicone Formulations (Mouldings) Pty Limited on 27 June 1967 by Mr Gray, his daughter and her husband. The business of Betta was the manufacture of scientific laboratory hardware, such as retort stands and clamps and bench protectors. Business was conducted from the same factory premises in which was located the kiln used by Harlander. 16 Before turning to the changes of name and the various associated companies in the context of the relevant insurance cover, I should turn to the material events which give rise to the claim against the policy. In or about 1972, the State Contracts Control Board, established pursuant to Regulation 199 of the Regulations made by the Public Service Board under the authority of the Public Service Act 1902, called for tenders for the supply of "asbestos mats" and "asbestos millboard squares" in accordance with certain specifications for use as bench protectors. After supplying three samples to members of the Scientific Advisory Committee of the Department of Education and submitting a price, Betta was awarded a contract for the supply of 4,000 asbestos mats. Between 1973 and 1975 the State Contracts Control Board awarded further contracts to Betta for the supply of additional asbestos mats. Although the specifications and contracts are now lost it is common ground that those documents included no warning to Betta as to the dangers of asbestos. 17 The asbestos used by Betta in the manufacture of the mats for the State were sold to it in pre-cut squares by Wallaby Grip, a supplier. The initial supply was 5 tonnes of millboard cut into one foot squares. Wallaby Grip was a well-known large corporation which traded profitably in asbestos goods. Wallaby Grip failed to warn Betta of the known dangers of asbestos. 18 At the relevant time, Mrs Edwards was employed by Harlander to perform clerical duties and this work was carried out in portions of the factory not occupied by Betta. She said in her affidavit that she was required to visit the area in which the asbestos mats were manufactured for perhaps one-half hour each evening and perhaps one hour each morning to load and unload the firing kiln with glass beakers for the process of graduation and also enter that area on occasions each day to speak to the storeman. She related to Dr Peter Gianoutsos (on 24 January 1997) that the kiln work would be done approximately three times a week with the unloading and loading of the kiln taking up to half an hour each time. 19 There is conflict between the evidence given by Mrs Edwards as to the state of the premises and the level of dust, as against the evidence given by Mr Hawkins, the Manager of Betta at the time. But it is not relevant to the present appeal to consider the way in which the Trial Judge resolved that conflict (by preferring the evidence of Mr Hawkins to the evidence of Mrs Edwards where their respective accounts differ). What is relevant is that the relevant exposure to asbestos dust would have been between 1972 and at least 1975. It was that exposure that gave rise to the contested claim against Royal, brought under the insurance policy. Indemnity was allowed under the Policy for the costs incurred by Betta, in defending the claim brought against it for contribution. 20 Turning now to the insurance question, as so described by the Trial Judge, his reasoning whereby he concludes that the insurance cover did relate to the relevant manufacturing activity conducted by Betta is to be found at paras [56] and following of the judgment; Red, 112. 21 It is necessary to be clear at the outset that the actual policy was not able to be found. But there was no dispute that a policy existed; what was disputed was the terms of its cover and in particular whether it extended beyond the activity of an "importer" to cover liability arising in relation to the relevant manufacturing activity. The Trial Judge concluded that it did, for reasons which are now challenged in this appeal. 22 The evidence principally relied upon by the Trial Judge is that contained in the affidavit of Ms Hall dated 14 February 2001; Blue, 29. 23 It is uncontested that Ms Hall was an insurance broker and employee of Warren Saunders Insurance Brokers (Australia) Pty Limited ("Saunders"). This was the firm of insurance brokers employed by Betta. It attended to the obtaining and administering of the insurance business requirements of the companies and operated by Mr Gray, carried on at the relevant premises. That broking firm provided both the workers' compensation and the public liability insurance for Silicone Formulations Pty Limited consequently re-named Harlander Pty Limited, together with its associated companies, Silform Pty Limited and Betta. The latter was described in Ms Hall's affidavit by its earlier name, Silform Manufacturing Pty Limited. 24 The Trial Judge noted that Ms Hall was able to confirm that between 1968 and 1980 the company Betta, but initially called Silicone Formulations (Mouldings) Pty Limited, was insured in respect of workers' compensation liability. This was by Policy WC125616LS4 and its business was recorded in the records of the insurance brokers as "importers and manufacturers". (It was conceded in argument that evidence of this worker's compensation policy could be taken into account on this appeal, though objection had been originally taken to its admissibility at trial. This difficulty was overcome by the fact that it was referred to by Counsel at trial in the closing submissions.) An endorsement to that policy was written by Sun Alliance in 1976; see Red, 112. 25 The company now known as Betta was originally formed as Silicone Formulations (Mouldings) Pty Limited. This is revealed by an undated memorandum (Blue, 37) forming part of the business records of Saunders, upon the letterhead of Silicone Formulations Pty Limited. The latter immediately precedes a letter dated 16 November 1971 on the letterhead of Silform Pty Limited (see Blue, 38). That letter also appears with the business records of the insurance broker, Saunders. 26 The undated memorandum shows an intermediate change of name for Betta, stating that the abovementioned "Silicone Formulations (Mouldings) Pty Limited will now be known as Silform Manufacturing Pty Ltd. This company will manufacture School Science Equipment and allied lines as well as producing Foamed Styrene Products". Thus Betta had two prior changes of name, with the second pre-dating the asbestos exposure and revealing its manufacturing role to the insurance broker, Saunders. 27 The memorandum went on to state that a new company, Silform Chemicals Pty Limited "has been formed to handle Medical Equipment, Pharmaceutical Drugs and allied lines. Silicone Formulations Pty Limited will remain as a general holding Company." 28 The letter earlier referred to (Blue, 38) contains an advice to the insurance broker that it should "please cancel the above policies which are no longer required as these expenses are being absorbed by Silform Pty Limited". The policies were two; "Policy No BG394803 - cash in transit, and workers' compensation $100,000". Those policies appear under the name Silform Chemicals Pty Limited. This apparent sequence in the Saunders' business records of memorandum, followed by letter of 16 November 1971 suggests they may be contemporaneous; they are annexures to Ms Hall's affidavit. 29 Also found as an annexure (G) to Ms Hall's affidavit is a further business record for the period 25 April 1971 to 2 June 1972 but annotated in handwriting to pick up the years 1973 to 1976 inclusive. It contains the closest description of the policy in terms of its apparent cover. It needs to be read with the actual pro forma of a public liability policy issued by the insurer (Blue, 152), but not the actual policy which was lost. 30 Annexure G (Blue, 40) contains at the top a date which inferentially can be taken to be the initial period of cover, from 25 April 1971 to 2 June 1972. In the left-hand column under the first year is the date 1971. Then follow years 1971 to 1976. 31 There is then a second document (Blue, 41) sequential from the first. It starts at 1976, and finishes at 1981. The two documents appear to note up a series of annual renewals of the public liability policy. 32 The "name of insured" is shown on each document as "Silicone Formulations Pty Ltd and, in handwriting, "associated Co.'s". Importantly, in the first document under "interest" appears "public liability" and then underneath, "importers". In the second document, which spans the later years 1976 to 1981, under "interest" appears "public liability" with, on the right-hand side, again only "importers". Significantly, nowhere in either document is there any mention of any manufacturing activity. 33 These two documents referred to at Blue, 40 and 41 are described in Ms Hall's affidavit as, respectively, "a true copy of a business record as held … for public liability policy No. PR394907 from 25 April 1971 to 1976" and respectively, "a true copy of a business record as held … for public liability policy No. PR394907 from 25 April 1976 to 30 June 1982." 34 The preceding business record immediately preceding these two documents is in respect of workers' compensation cover for "Silicone Manufacturers Pty Limited" (now Betta); Blue, 39. It refers to the "Dust Diseases" schedule overleaf. It thus clearly extends workers' compensation cover to Betta. It contains the endorsement in writing, "please cover to 30/6/77". It is described in para 11 of Ms Hall's affidavit as "a true copy of a business record is held by Warren Saunders Insurance Brokers (Australia) Pty Limited", being "a wages declaration for the period June 1975 to June 1976 … in respect of workers' compensation policy" and shows the relevant premium calculation. 35 Relevantly at para 14 of her affidavit Ms Hall says, "the policy referred to in paragraph 11 and paragraph 12 above [this being the policy referred to in the two sets of policy records in Blue, 40 and Blue 41] was to indemnify 'Silicone Formulations Pty Limited & associated companies'. With respect to the words 'associated companies' I am aware that this occurred in the insurance industry and it was a common practice to provide such insurance cover where an insured company carried on business at the same premises with other companies with which it was associated by either common Directors or Shareholders. All of these related companies would be referred to in policies of insurance by the title of the insured being identified as 'Associated Companies'." 36 In para 15 of her affidavit Ms Hall comments, "I recall that the insurance industry as a whole rejected this form of group insurance cover many years ago. However, for the policy referred to in paragraphs 11 and 12 above at the time it was current, it was an accepted and valid practice to provide insurance cover to 'associated companies' for liability insurance." 37 From this evidence, the Trial Judge reasoned as follows:

(1) That the Appellant had insured Betta against Public Liability Risk (from 1971 to 1981).

(2) The question, "What risk was accepted?", is answered by reference to "whether the insurer knew that a part of the business of the associated companies was manufacturing" (para 62).

(3) The undated memorandum (Blue, 37) made it clear that that "the brokers knew that one of the companies carried on the manufacturing business", this being one of the associated companies; see para 63 of the judgment (Red, 113).

(4) In particular the undated memorandum (Blue, 37) and the letter dated 16 November 1971 (Blue, 38) establish to the Trial Judge's satisfaction, that the broker "knew before 16 November [1971] at least that one of the business activities of a company associated was Silicone Formulations Pty Limited was manufacture".

(5) The Trial Judge then states "I believe that Saunders [the broker] told London and Royal and Sun Alliance". This is stated as a conclusion at para [66] (Red, 114) but could also be by way of inference. That inference could only be based on what the Trial Judge derives from the other policies issued by Sun Alliance, namely a policy for motor vehicle insurance and for workers' compensation. Thus he points to the fact that: "An endorsement certificate in respect of a policy of motor vehicle insurance was on 29 June 1971 issued by Sun Alliance " Sun Alliance and London Insurance Group " to " Silform Manufacturing Pty Limited " (Annexure K to Miss Hall's affidavit). This document, together with the issue of workers compensation policies in respect of Silicone Formulations (Mouldings) Pty Limited " Importers and manufacturers " persuade me that London Insurance agreed to indemnify Betta as an associated company of Silicone Formulations Pty Limited against public liability and knew that one of the business activities of Betta was manufacturing." (Red, 114-5, para 66)

(6) He then finds that because Silicone Formulations (Mouldings) Pty Limited (now Betta) and Silicone Formulations Pty Limited had in common the directorship and shareholdings of Mr Gray and because they operated from the same premises in a similar line of business (science aids for schools) they were "associated companies"; see Judgment at para [67] (Red, 115). 38 Upon that chain of reasoning, the Trial Judge concludes that the predecessor company to Sun Alliance, namely London Insurance Company, agreed to insure against public liability both companies not only in their business of importing but also in their business of manufacture, in respect of activities carried on at the relevant premises. 39 This chain of reasoning can be attacked at several points. First, there is no actual evidence that the insurance broker, who was the agent of the insured, actually did tell the insurer that one of the business activities of a company associated with Silicone Formulations Pty Limited was manufacture. That can be inference only. 40 Second, one may accept that Betta (under its former name Silicone Formulations (Mouldings) Pty Limited) and Silicone Formulations Pty Limited are and were associated companies at the relevant time. Further, that workers' compensation policies had been issued in respect of Betta under its former name, Silicone Formulations (Mouldings) Pty Limited. But neither fact justifies any inference that this public policy, which was recorded with its clearly endorsed description of "interest" as covering "importers", can inferentially be taken to include also manufacturing. So to reason, is to take the fallacious step of equating insurance cover with knowledge of the insured's actual business activities as they evolve. The Appellant rightly states what is trite law; namely that the question of what risk is covered and on what terms can only be answered by construing the policy with the contract documents. This is to ascertain in what events loss or damage to the relevant subject matter of the insurance, will entitle the insured to claims against the insurer; see, for example, that elementary statement of principle in Sutton "Insurance Law in Australia", 3rd ed (1999, LBC Information Services) at 702. In case of ambiguity it may be legitimate to look at the scope of actual activities of the insured; but there is no such ambiguity here to justify that. The Trial Judge on this reasoning simply directed himself to the wrong question. The fact that the actual insurance policy was not able to be produced does not, with respect, permit such an inference to be so based. This is moreover when the business records clearly reflect a narrower coverage, namely for activity as "importers" only. 41 There is, furthermore, evidence pointing against the inference that the Trial Judge drew. It is the concession by Ms Hall in cross-examination that, "the company that manufactured" … "would probably pay more" by way of insurance premiums; see Black, 84.10 to .13. There is no evidence of any increase in premium to take account of the supposed additional cover for a supposed extension to manufacturing activity with its greater attendant risk, as against covering importing only; see Black, 84.7 to .9. 42 The Appellant also pointed to the fact that Ms Hall in cross-examination conceded that "that business which would have been nominated for the purpose of the public liability insurance would have been that of importing", though she attempted to qualify that answer by the words, "when it was first issued"; Black, 89.17 to .21. 43 The Appellant then contends that the inference sought to be drawn, that there had been such an extension to encompass manufacturing was based on evidence which was not sufficient. It moreover failed to take account of evidence (the premium remaining unaltered and no change to the broker's insurance records) justifying the opposite inference, namely that there had been no such extension; compare Semrani v Manoun; Williams v Manoun ([2001] NSWCA 337, 4 October 2001, unreported) at [78] to [80] per Beazley JA. It is not sufficient if the circumstances do no more "than give rise to conflicting inferences of equal degree of probabilities so that the choice between them is a mere matter of conjecture; per Dixon CJ in Jones v Dunkel (1959) 101 CLR 298 at 304-5 quoting Bradshaw v McEwans Pty Limited (HC, 27 April 1951, unreported). Dixon CJ continued (at 305), "… the law … does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or others. The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied."

Here they did not. 44 The Appellant was therefore correct in so characterising the reasoning process which incorrectly led to the conclusion that the policy covered manufacturing. This was when the only business record in existence pointed unambiguously to it covering the activity of "importers" only. In circumstances where one would expect some emendation of the records and a higher premium if manufacturing were also covered, there is, with due respect to the detailed reasoning of the Trial Judge, simply insufficient basis in the evidence to draw the conclusion or inference that the Trial Judge drew. 45 The only remaining question is whether an error of law has been identified, being the relevant jurisdictional basis for an appeal under s32 of the Act (there is no appeal as to evidence). Here it is clear that the Trial Judge misdirected himself as to the legal principle to be applied, in asking whether this insurance policy covered the relevant risk; Azzopardi v Tasman UEB Industries (1985) 4 NSWLR 139 at 156 per Glass JA. What was mistakenly asked was whether the insurer knew of the fact that the Appellant carried on manufacturing business. This was instead of construing the policy itself, which unambiguously covered Betta's interest, as importer only.

ORDERS 46 I would propose orders as follows: (1) That the appeal be allowed. (2) That the relevant parts of the judgment and orders of Judge Curtis made on 21 November 2001 be set aside and that in lieu thereof the cross-claim be dismissed with costs. (3) That the Respondent pay the Appellant's costs of this appeal.

DUTY OF CARE APPEAL 47 The Trial Judge concluded that the State did not have a duty of care to Mrs Edwards. This appeal challenges that conclusion of law and is brought by Harlander. There could be no question but that such an appeal is brought by a party "who is dissatisfied with a decision of the Tribunal in point of law" so as to come within s32 of the Act. 48 The following summary of facts, taken from Harlander's submissions, is adopted by the State as Respondent. (1) The Appellant, Harlander, was originally incorporated as Silicone Formulations Pty Limited in the early 1960's. By June 1967, it was carrying on business at premises 36 Woodfield Boulevard, Caringbah. Its business was the importation and supply of laboratory equipment, scientific medical supplies and chemicals sourced predominantly from China. Its major customer was the New South Wales State Contracts Board, the sole purchasing agent for the New South Wales Department of Education. (2) Betta was originally incorporated as Silicone Formulations (Mouldings) Pty Limited. As of 27 June 1967, it was carrying on business from the same premises as Harlander - 36 Woodfield Boulevard, Caringbah. Its business was the manufacture of scientific laboratory hardware such as retort stands and clamps and bench protectors. (3) In or about 1972, the State Contracts Board called for tenders for the supply of "asbestos mats" and "asbestos millboard squares". After supplying three samples to members of the Scientific Advisory Committee of the Department of Education and then submitting a price, Betta was awarded the contract for the supply of 4,000 asbestos mats. Further contracts were awarded to Betta between 1973 and 1975 for the supply of additional asbestos mats. These documents included no warning to Betta as to the dangers of asbestos. (4) The asbestos used by Betta in the manufacture of mats from the State of NSW was sold to it in pre-cut squares by Wallaby Grip. Wallaby Grip was a well-known large corporation which traded profitably in asbestos goods. (5) Part of the manufacturing process of the bench protectors and mats involved abrading the asbestos millboard. Dust was generated by this process in that part of the Woodfield Boulevard factory premises occupied by Betta where that process was carried out. (6) Between 1973 and 1975, the plaintiff, Mrs Edwards, was employed by Harlander to perform clerical duties. This work was carried out in another portion of the factory premises at Woodfield Boulevard not occupied by Betta. For approximately 1 ½ hrs per day, the plaintiff would have been in that part of the factory occupied by Betta. (7) The plaintiff was exposed to some asbestos dust while present in that part of the factory occupied by Betta. The quantities of dust were not particularly great. The amount of dust to which the plaintiff was exposed was sufficient to cause her mesothelioma. (8) The plaintiff developed symptoms of mesothelioma in august 1996. She commenced proceedings in the Dust Diseases Tribunal against Harlander and Wallaby Grip in December 1996. Those proceedings were settled in March 1997 on the basis that Harlander and Wallaby Grip paid to the plaintiff $140,000 each. (9) The management of Betta did not have actual knowledge of the dangers associated with asbestos exposure between 1973 and 1975. Betta had no reasonable cause to foresee the possibility of harm to the plaintiff as a result of her presence in that part of the factory occupied by it from time to time between 1973 and 1975. The plaintiff was not an employee of Betta between 1973 and 1975. (10) The State of New South Wales, before calling for tenders for the supply of asbestos laboratory mats, possessed, through the person of Dr Longley, Acting Director of the Division of Occupational Health of the NSW Department of Health, sufficient knowledge of the dangers associated with asbestos to be aware that the possibility of persons contracting mesothelioma through exposure in the cause of handling asbestos to some manufacturing process liberating small quantities of asbestos fibre was not far-fetched or fanciful. (11) On 24 November 1972, Dr Longley wrote to the Secretary of the Boilermaker & Blacksmiths Association of Australia a letter (which I quote in full because of its importance) as follows: "Dear Dr Grant, In response to your request, for information concerning red and white lead, of the 16th November, 1967, I am enclosing six copies of Dr. Trainor's booklet on lead poisoning, which should give you all the information you want concerning lead hazards. Red lead and white lead should both be handled with caution although white lead is likely to cause more trouble. In regard to the use of asbestos, a number of cases of asbestosis, a condition in which fibrosis of the lungs is the main feature, have been recorded in Australia, and particularly in relation to the handling of asbestos in such processes as milling, crushing, manufacture of asbestos cement bricks, manufacture and application of insulation and lagging and the application of asbestos plaster slurries to ceilings and walls by spray gun. Generally speaking, the degree of disability due to asbestos will become noticeable after a lengthy period of exposure if the concentration of asbestos dust in the atmosphere exceeds the maximum allowable concentration. A rough "rule of thumb" estimation is that when the concentration of particles measured as the number of millions of particles per cubic foot is multiplied by the number of years exposure, the possibility of asbestosis is quite great if the result is over 25. That is, if a man works for five years in an atmosphere in which the concentration of asbestos dust is five million particles per cubic foot he is likely to develop a disabling degree of asbestosis. You will, no doubt, have heard that there is a possibility that workers with asbestosis may develop either carcinoma of the lung or mesothelioma of the pleura. A number of cases have been reported overseas in which affected people had a history of asbestos exposure at some time in their lives and it is not thought that there is any relationship between 'dust' and the degree of risk. So far, in New South Wales, no cases of either of these malignant conditions has been brought to my attention. I would advise, therefore, that your members should use the utmost care when handling asbestos materials, particularly in confined spaces, to ensure that there is both adequate ventilation and adequate respiratory protection. In any situations in which your members may be in doubt as to the possibility of a hazard due to the inhalation of asbestos, it would be advisable to seek advice from this Division before exposure to asbestos commences. You might, if you so desire, get in touch directly with Mr. A. T. Jones, Officer-in-Charge of the Industrial Hygiene Branch. Yours faithfully (signed) E. O. LONGLEY Acting Director, Division of Occupational Health." 49 The Appellant's argument based upon these facts is that there was a duty owed by the State to exercise reasonable care for the safety of those persons who are present on the premises where the manufacture of the asbestos bats took place. Included in that class was the plaintiff Mrs Edwards though not directly engaged in that manufacture. The discharge of the duty required, however, only that a warning concerning the use of asbestos be communicated to Betta by the State. 50 The Appellant contends that there is no issue that the State had the knowledge and the power to issue such a warning, as Dr Longley did to the Boilermakers and Blacksmiths Association. The Appellant submits that the Trial Judge found not only that the risk to the plaintiff was foreseeable, but that the State had actual knowledge of the risk. 51 The Appellant attacks the reasoning of the Trial Judge on the following bases: (a) the implicit assumption in the reasoning of the Trial Judge that unless the particular duty of care came within one of the recognised categories, a duty could not be found to exist; (b) the categories considered by the Trial Judge were unduly restrictive and that he should have also considered the category developed in relation to a stevedoring authority by Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1; (c) the Trial Judge was in error in restricting the duty owed by the State to persons engaged upon the relevant manufacturing works, being in this case those employed by Betta in the manufacture of the mats and in so doing rejected the close analogy with the duties in Voli v Englewood Shire Council (1962-63) 110 CLR 74 where it was held that the supervening negligence of others did not break the chain of causation; (d) the Trial Judge fell into error in restricting the duty to those working on the asbestos mats and should have extended that duty to other persons also working in the factory whether employed by Betta or Harland, such being a duty still owed to a defined and ascertainable class of vulnerable persons rather than an indeterminate liability to an undetermined class; Perre v Apand Pty Limited (1999) 198 CLR 180 at 195, 204, 221, 222 and 255. The Appellant cites McHugh J, "liability is indeterminate only when it cannot be realistic calculated" and Gaudron and Gummow JJ who did not regard indeterminacy as fatal to the existence of a duty of care (at 199 and 255); (e) the Trial Judge also fell into error in holding that any duty owed to those employed in the fabrication of the mats could not be co-extensive with any postulated duty to passers-by, since the Appellant did not propound the duty owed to passers-by but rather to workers present in the same premises as those employed in the fabrication of the mats but working on other jobs, the duty being the same and discharged by the same action, namely a warning; (f) the Trial Judge fell into error in rejecting the existence of a duty by reference too narrow a concept of "control", in concluding that "control" here meant control of the premises. This is as distinct from a more broader notion of "control" of the situation in which the danger arises where the State, because of its knowledge of the danger, coupled with the vulnerability of the Plaintiff, had control over the capacity to issue a suitable warning in connection with its purchasing of the relevant product; (g) likewise the Trial Judge fell into error in his analysis of analogy to other categories of duty considered by him, namely the duty of manufacturer or distributor of dangerous goods, and the duty of a person carrying out extra-hazardous operations. In the first case the Trial Judge treated the knowledge of the manufacturer Betta of significance rather than the knowledge of the State. In the second case the Trial Judge did not recognise that control, special dependence and vulnerability were features all present in the present case, providing the basis for a duty upon the person carrying out extra-hazardous operations to Mrs Edwards in the circumstances; Burnie Port Authority v General Jones (1993-94) 179 CLR 520. In particular, those features were present as between the State and the plaintiff by reason of the position of actual knowledge on the part of the State, contrasted with the position of total ignorance on the part of Betta and the plaintiff, bringing about a situation of special dependence by the plaintiff on the State. 52 The argument of the Appellant then proceeds on the basis that, the Trial Judge having correctly found that the danger was foreseeable (Red, 5-6) the State owed a duty of care to the plaintiff by reason of the following: (1) the dangerous situation to which the plaintiff had been exposed was brought about by the conduct of the State in specifying asbestos; (2) the State had actual and not merely constructive knowledge of the danger; (3) it was the only party which had such knowledge; (4) it had the capacity to lessen or eliminate the dangerous situation by the simple and expedient step of a warning; (5) it was the only entity in a position to provide such a warning by reason of it being the only party with the requisite knowledge; (6) the plaintiff was in a particularly vulnerable position because of her proximity to the asbestos manufacturing process and of her ignorance, together with that of her employer and Betta, that such a dangerous situation existed. 53 Thus it is said by the Appellant: "Without a warning from the State, there was nothing that she could do to protect herself. The possession of knowledge, coupled with the life-threatening nature of the danger, and the vulnerability of the Plaintiff, imposed a positive duty on the State to act, i.e. to warn." 54 It is then submitted that though the provision of a warning may only have minimised the danger rather than eliminate it entirely, this is not a disqualifying factor. Thus, "It was never suggested that, had a warning been given by the State, it would not have been acted upon by Betta. In any event, an inability to totally eradicate a problem does not provide an authorisation for inactivity, where the consequences of such inactivity are life-threatening. In Brodie v Singleton Shire Council/ Ghantous v Hawkesbury City Council (2001) 75 ALJR 992 at 1024 para 150, the duty owed by a road authority did not extend to the total elimination of risk, but was to act reasonably in reducing it for the benefit of road users. Minimisation of risk was considered a sufficient compliance with the duty ( Brodie p.1025 para 156)." 55 It is then contended that the duty postulated was not owed to the public at large but to an identifiable class, all those working in the factory premises at 36 Woodfield Boulevard, Caringbah, whether they were employed by Betta or not, being an ascertainable class of vulnerable persons. 56 I pause here to note that it must follow from such a description of the scope of the class, that it necessarily would have to include all other employees in every other manufacturing facility that manufactured asbestos products for supply to any arm of the State. This is so, whether or not engaged in their manufacture, or employed by the manufacturer. Indeed it might be questioned whether the duty could logically stop at that point or whether it would also logically extend to a duty simply to warn employers who did not supply the State with asbestos products, but who had employees in a factory that manufactured asbestos products. 57 Finally, the Appellant seeks to equate the duty in the present case to the duty found to exist in Crimmins (supra) by reason of the position of control of the stevedoring authority on the one hand and the vulnerability of the wharf labourers on the other, and on the basis that the six tests laid down by McHugh J in Crimmins (at 39) are here also satisfied so as to support the existence of a duty of care. The six factors as stated by McHugh J are as follows: [93] In my opinion, therefore, in a novel case where a plaintiff alleges that a statutory authority owed him or her a common law duty of care and breached that duty by failing to exercise a statutory power, the issue of duty should be determined by the following questions:

Was it reasonably foreseeable that an act or omission of the defendant, including a failure to exercise its statutory powers, would result in injury to the plaintiff or his or her interests? If no, then there is no duty.

By reason of the defendant's statutory or assumed obligations or control, did the defendant have the power to protect a specific class including the plaintiff (rather than the public at large) from a risk of harm? If no, then there is no duty.

Was the plaintiff or were the plaintiff's interests vulnerable in the sense that the plaintiff could not reasonably be expected to adequately safeguard himself or herself or those interests from harm? If no, then there is no duty.

Did the defendant know, or ought the defendant to have known, of the risk of harm to the specific class including the plaintiff if it did not exercise its powers? If no, then there is no duty.

Would such a duty impose liability with respect to the defendant's exercise of "core policy-making" or "quasi-legislative" functions? If yes, then there is no duty.

Are there any other supervening reasons in policy to deny the existence of a duty of care (for example, the imposition of a duty is inconsistent with the statutory scheme, or the case is concerned with pure economic loss and the application of principles in that field deny the existence of a duty) ? If yes, then there is no duty."

58 In dealing with these arguments and the error sought to be found in the Trial Judge's reasoning, an essential plank of the Appellant's case is that the State had knowledge of the danger to which the plaintiff was exposed. The centrality of such knowledge was recognised by McHugh J in Crimmins at [41], citing his earlier judgment in Perre v Apand Pty Limited (supra) at 230: "the cases have recognised that knowledge, actual or constructive, of the defendant that its act will harm the plaintiff is virtually a prerequisite of a duty of care in cases of pure economic loss." 59 McHugh J added an important qualification upon constructive knowledge: "it is unlikely that a plaintiff could succeed because of the authority's constructive knowledge of an area of risk, unless it can be said that the defendant authority had an obligation to seek out the requisite knowledge in all the circumstances, including cases where the defendant authority already possesses certain actual knowledge but fails to look further." 60 In a context where we are here dealing with an omission consisting of the failure to warn, the question to be answered is this; what warning would have been called for, given the State's knowledge at the time concerning who was likely to be exposed to the risk and in what circumstances? Would such a warning have been directed to the plaintiff's circumstances as a contiguous bystander in the factory where the asbestos manufacture was carried out? The starting point is therefore to identify the level of knowledge of the State. The quoted letter of Dr E O Longley, Acting Director, Division of Occupational Health, was said to have demonstrated the requisite knowledge. There are however a number of difficulties with that proposition, insofar as the plaintiff was concerned as a contiguous bystander. 61 First, the letter was written in response to a request for information, presumably covering the use of asbestos. It was not a warning proffered unprompted. But more importantly, it amounted to no wider warning to members of the union than to "use the utmost care when handling asbestos materials, particularly in confined spaces , to ensure that there is both adequate ventilation and adequate respiratory protection." [emphasis added] 62 One may put to one side the statement in the previous paragraph that incorrectly attributes the possibility of developing mesothelioma solely to those "workers with asbestosis". It may reasonably be said that there is no material difference from later knowledge that mesothelioma develops without any prior asbestosis. The risk of mesothelioma, whatever its etiology, is clearly assumed by Dr Longley ultimately to derive from exposure to asbestos dust. 63 But how would such a warning, if given, speak to the plaintiff's circumstances? Thus when one considers the position of the plaintiff, there is no suggestion that she was "handling asbestos materials". Nor that she was doing so "in confined spaces". Thus if one postulated a warning being given based upon the state of knowledge demonstrated by the letter of 24 November 1972 and in the terms of the warning actually given in the final paragraph of the letter, it would not have been directed at all to a bystander in the position of the plaintiff. Rather it would be directed at any person who handled asbestos materials, particularly in confined spaces, where there was not adequate ventilation and adequate respiratory protection. As the Appellant frankly acknowledged in exchange between Bench and Counsel, the plaintiff would have needed a further extension of that warning. It needed to encompass a person in the position of the plaintiff casually present on the premises; one who was not handling asbestos, albeit exposed to its dust, though the dust level was held by the Trial Judge to be less than that alleged by the plaintiff. There is no evidence that the state of knowledge of the State extended to any apprehension of danger to the contiguous bystander not so engaged. 64 Thus it could not be said that a warning in terms of that contained in the final paragraph of Dr Longley's letter would have spoken in any relevant sense to the circumstances of the plaintiff. But to this the Appellant responds by referring to evidence given by Mr Hawkins. He was at the time (1970-1975) an Executive Director of Betta, then called Silform Manufacturing Pty Ltd, and involved in its senior management. He was not involved at all as a director or in senior management of Harlander though the companies were related through the common ownership of Mr Gray. 65 His evidence was that in the period up until 1975 he was not personally aware of the harm which could be caused by the inhalation of asbestos; Black, 69.28-9. 66 He was then asked about asbestos supplies received from Wallaby Grip, then called Bells, where the following questions and answers ensued (Black, 72, T 70.21 to .30): "Q. Did Bells give you any warning whatsoever of the potential that the inhalation of asbestos could cause injury to a person. A. None whatsoever. Q. If Bells had given you a warning that the inhalation of asbestos could cause harm to one of your workers or for that matter to you, would you have paid attention to that warning. A. Most certainly, I obviously would have had to. Q. If such a warning had been given would you have taken measures to attempt to suppress the asbestos dust liberated by the manufacturing process. A. I believe I would have, yes. Q. If you had been warned that the inhalation of asbestos was potentially fatal would you have allowed Julie Edwards to work in an environment where she could inhale asbestos. A. Most certainly not, and I wouldn't have worked there myself either. "

67 Then at Black, 74, T, 72 he confirmed that no-one from the Education Department or from the Government Stores or from the New South Wales Government had given him such a warning with the following questions and answers ensuing at Black, 74, T, 72.42 to .48. "Q. Up to the period 1973 to 1975, had anyone warned you that inhaling asbestos was potentially harmful would you have acted on such a warning. A. I certainly would have. Q. Would you have allowed Julie Edwards to work in an environment where asbestos was liberated so that she could breathe it. A. No, I wouldn't and I wouldn't - I was working in the same environment myself. Q. Would you have taken measures to attempt to suppress the liberation of asbestos from the manufacturing process. A. I believe I would have, yes."

68 The fundamental problem with the reasoning of the Appellant is this. The Appellant in relying on this cross-examination hypothesises a warning, "that the inhalation of asbestos could cause harm to one of your [Betta's] workers, or for that matter to you [Mr Hawkins]". It is then said that the failure of the State to warn Betta meant that Betta in turn did not give such warning to its employees. That led to the consequence that the plaintiff, Mrs Edwards, employed by Harlander not Betta, was allowed to work in an environment where she could inhale asbestos. Whereas, it is said, a warning would have ensured that she did not work in that environment where she could inhale asbestos. 69 This whole chain of reasoning however is predicated upon a warning being given very different from the warning Dr Longley gave to the Boilmakers and Blacksmiths Society of Australia in the earlier quoted letter of 24 November 1972. That warning was clearly directed to members of the relevant union "handling asbestos materials, particularly in confined spaces," not workers who happened to be on the same premises but who were not handling asbestos materials. There is no suggestion in the letter of 24 November 1972 that there was any appreciation on Dr Longley's part, in the state of knowledge of the time, that a person in the category of the plaintiff, Mrs Edwards, could be within the scope of the then perceived danger or hazard of inhaling asbestos, as a mere contiguous bystander present on average 1 ½ hours per day. It is hardly to be expected that Betta would have ceased manufacture, or warned off the plaintiff. More likely those actually doing it would have had better ventilation and respirators, but the plaintiff would have been left with a false sense of security. 70 A warning which reflected the last paragraph of Dr Longely's letter of 24 November 1972 would therefore simply not speak to the circumstances or condition of the plaintiff Mrs Edwards. The Trial Judge drew no inference that the relevant work would have ceased had such a warning been given. Indeed it is difficult to see how that inference could be drawn. 71 Thus this whole argument erected on the premise of such a warning must fail. This is because the warning predicated in the passage of cross-examination went well beyond a warning framed in terms of Dr Longely's letter of 24 November 1972. The latter was based on an understandably limited appreciation of the dangers that it revealed. Indeed, given the state of knowledge at the time, the warning was particularly prescient. But it was limited. In particular it revealed no appreciation of danger for the person not working with asbestos but contiguous to those that were. To hypothesise a warning for the latter category is to exercise impermissible hindsight. 72 That must be fatal to the Appellant's argument, without the necessity to consider further whether the Trial Judge correctly delineated the relevant principles. However, insofar as the category of duty of an architectural designer was considered by the Trial Judge by way of analogy, I would agree that analogy is applicable only insofar as a duty is owed limited to persons engaged upon the relevant works. It did not extend to other third parties; Red, 107-8. 73 Likewise, one may accept that the position of control by the State, because of its knowledge of a danger, coupled with the vulnerability of the person exposed to it, is capable of supporting the existence of a duty of care. These were considerations considered by Gummow J as the "touchstone" of the Council's duty in Pyrenees Shire Council v Day (1998) 192 CLR 330 at 389. But the question here is the scope of that duty of care and in particular whether it extended to the plaintiff. Here the known danger is that described by Dr Longley. It is not a danger known to extend to a worker contiguous to those handling asbestos products, but not herself handling them. The knowledge of the State did not extend to any danger encountered by the person described by the Trial Judge as the "bystander". The position might have been otherwise in relation to a worker directly so engaged. But that is not the situation here. 74 The same can be said of the attempt to equate the duty of a person carrying out extra-hazardous operations to the duty of the State in the present circumstances, derived from the reasoning in Burnie Port Authority v General Jones (supra). To describe the operation of those working on asbestos for manufacturing purposes as "extra hazardous" is a perfectly accurate description insofar as it relates to persons engaged in the actual manufacture who are in contact with the asbestos. However, the hazard was not appreciated at the time as extending to bystanders in the position of the plaintiff. So that extending the relevant duty to embrace the contiguous bystander simply fails to take account of the State's limited knowledge of the hazard, insofar as the hazard is only now known to extend to such a bystander. 75 Sullivan v Moody (2001) 183 ALR 405 at 415 cites as an example of where a duty of care is denied cases which involve "the difficulty of confining the class of persons to whom a duty may be owed within reasonable limits"; compare Perre v Apand Pty Ltd. In the present case the duty, if found, would have at least to extend to every manufacturer supplying asbestos products to the State of New South Wales, whether the employee concerned was engaged in that manufacture or simply a bystander contiguous to those who were. Such an extension thus goes well beyond the limited class of persons engaged in asbestos manufacture on these premises. 76 Moreover, in reaching the conclusion I have, I make the assumption that the level of knowledge of Dr Longley and his office extended throughout the State Government. That is an assumption most favourable to the Appellant. But it does not necessarily follow that knowledge on the part of the Acting Director of the Division of Occupational Health should be attributed to every other arm of government including, relevantly here, the Education Department who are purchasing the relevant asbestos mats. But even if justified, that assumption does not, for the reasons stated, overcome the fundamental obstacle in the way of finding that the State owed any duty of care to the plaintiff. 77 For completeness, I should add that the six questions posed by McHugh J in Crimmins do not produce affirmative answers to the first four questions. In particular, I would not consider that it was reasonably foreseeable that the omission of the defendant, in failing to provide the actual warning which reflected the state of knowledge exhibited by Dr Longley at the time, would in any relevant causal sense have resulted in the tragic injury to the plaintiff, Mrs Edwards. 78 Insofar as knowledge is power (here to protect by appropriate warning a vulnerable group), the degree of knowledge exhibited at the time of the State did not extend far enough as to prompt a warning which would have covered the plaintiff's circumstances; see McHugh J's second and fourth questions in Crimmins.

ORDERS 79 I propose that orders be made as follows: (1) The appeal be dismissed. (2) The Appellant pay the Respondent's costs in the appeal. 80 DAVIES AJA: I agree with Santow JA

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : Royal & Sun Alliance Insurance Australia Limited -v- Betta Industries Pty Limited; Harlander Pty Limited (in liq) -v- State of New South Wales [2002] NSWCA 323 revised - 01/10/2002 FILE NUMBER(S) : CA 41027/01; 41039/01 HEARING DATE(S) : 23 August 2002 JUDGMENT DATE : 23 September 2002

Royal & Sun: Church & Grace SOLICITORS : Harlander: Dibbs Barker Gosling Betta Industries: Stafford & Associates State of NSW: Crown Solicitors Office CATCHWORDS : INSURANCE - public risk insurance - construction of policy - question of what risk covered by policy - NEGLIGENCE - duty of care - failure to warn - whether the defendant knew of the danger to which the plaintiff bystander was exposed Dust Diseases Tribunal Act 1989 (NSW) s32 LEGISLATION CITED : Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s5 Public Service Act 1902 Azzopardi v Tasman UEB Industries (1985) 4 NSWLR 139 Bradshaw v McEwans Pty Limited (HC, 27 April 1951, unreported) Burnie Port Authority v General Jones (1993-94) 179 CLR 520 Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 CASES CITED: Jones v Dunkel (1959) 101 CLR 298 Perre v Apand Pty Limited (1999) 198 CLR 180 Pyrenees Shire Council v Day (1998) 192 CLR 330 Semrani v Manoun; Williams v Manoun ([2001] NSWCA 337, 4 October 2001, unreported) Sullivan v Moody (2001) 183 ALR 405 Voli v Englewood Shire Council (1962-63) 110 CLR 74 DECISION : ORDERS; Insurance Appeal (Royal & Sun Alliance -v- Betta Industries); (1) That the appeal be allowed ; (2) That the relevant parts of the judgment and orders of Judge Curtis made on 21 November 2001 be set aside and that in lieu thereof the cross-claim be dismissed with costs; (3) That the Respondent pay the Appellant's costs of this appeal; Duty of Care Appeal (Harlander -v- State of New South Wales); (1) The appeal be dismissed; (2) The Appellant pay the Respondent's costs in the appeal

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (22 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (9)