Supreme Court of WA|2006-06-09|Before: Mr P, Murray J

Direct Engineering Services Pty Ltd v A Goninan & Co Ltd [2006] WASC 105 (9 June 2006)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : DIRECT ENGINEERING SERVICES PTY LTD -v- A GONINAN & CO LTD [2006] WASC 105

BETWEEN : DIRECT ENGINEERING SERVICES PTY LTD (ACN 008 700 178)

Contract - Replacement of air-conditioning system by plaintiff - Part of work subcontracted to defendant - Defendant caused fire - Principal's property damages - Cost of repair recovered under contractual indemnity from plaintiff - Whether plaintiff entitled to be indemnified by defendant - Whether breach of contract or negligence established - Whether breach caused loss - Availability of contributory negligence - Practice and procedure - Subrogation - Circuity of action - Counterclaim to setoff award of damages

Judgment for plaintiff in sum of $430,000 and interest

Arthur Young & Co v WA Chip & Pulp Co Pty Ltd [1989] WAR 100

Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337

Co-operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257

Craig v Troy (1997) 16 WAR 96

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1987] EWCA Civ 6; [1988] 2 WLR 615

Le Mans Grand Prix Circuits Pty Ltd v Iliadis [1998] 4 VR 661

March v E & MH Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506

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Preston Erections Pty Ltd v Rheem Australia Ltd (1978) 21 ALR 379

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

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107

Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380

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

AS James Pty Ltd v CB Duncan [1970] VicRp 90; [1970] VR 705

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

Australian Casualty Co Ltd v Frederico [1986] HCA 32; (1986) 160 CLR 513

Bartlett v Jones [2000] ANZ ConvR 232

C L Seward & Co Pty Ltd v Thompson (1992) 17 MVR 70

CE Heath Underwriting & Insurance (Australia) Pty Ltd v Edwards Dunlop & Co Ltd [1993] HCA 21; (1993) 176 CLR 535

Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500

Hacai Pty Ltd v Rigil Kent Pty Ltd, unreported; SCt of WA; Library No 960450; 19 December 1995

Harper v Ashton's Circus Pty Ltd (1972) 2 NSWLR 395

Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413

Martin v Clarke [2005] WASCA 66

McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579

Olley v Marlborough Court Ltd [1941] 1 KB 532

Petrofina (UK) Ltd v Magnaload Ltd [1983] 3 All ER 35

Podrebersek v Australian Iron & Steel Pty Ltd [1985] HCA 34; (1985) 59 ALR 529

Royal Botanic Gardens and Domain Trust v South Sydney Council [2002] HCA 5; (2002) 186 ALR 289

Thiess Contractors Pty Ltd v Norcon Pty Ltd (2001) 11 ANZ Ins Cases 61-509

Thompson v Johnson & Johnson Pty Ltd [1991] VicRp 84; (1991) 2 VR 449

Thornton v Shoe Lane Parking Ltd (1970) EWCA Civ 2; (1971) 2 QB 163

Townsend v BBC Hardware Ltd [2003] QCA 572-4

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Young & Marten v McManus Childs [1969] 1 AC 454

1 MURRAY J: The plaintiff is a company whose business is the design, manufacture and installation of air-conditioning systems. The defendant is a company whose business includes the fabrication and installation of heavy steel structures.

2 On 18 August 1998, the plaintiff entered into a contract with Hamersley Iron Pty Ltd ("HI") to carry out work which involved upgrading the air-conditioning and mechanical ventilation system to offices at HI's Seven Mile railway and rolling stock maintenance workshop near Dampier on the Burrup Peninsular. I shall refer to relevant terms of the contract in due course. It is sufficient for the moment to note that it comprised an agreement to carry out the work in accordance with general conditions for construction contracts used by Hamersley as modified by special conditions of the contract.

3 The offices in question are a building located within, and under the main roof of, the workshop, but it is apparent that it is a railway workshop, generally given over to the maintenance and repair of iron ore railway rolling stock. I accept that the general environment is dusty, contains diesel fumes from time to time which deposit oil and, being near the ocean, the air is generally salty. It is a corrosive environment in which to locate metal structures.

4 Relative to this action, the work involved the removal of air-conditioning ducts located on the roof of the office block, the installation of a new stairway to permit access to the roof, the replacement of the air-conditioning plant and ducts and the fitting of new handrails around the perimeter of the flat roof of the office building.

5 It was open to the plaintiff to enter into subcontracts for particular parts of the work. A Mr Rogers was relevantly an air-conditioning design engineer with long experience who, when he gave evidence before me, was working as a consultant, but he had been employed by the plaintiff for a period of about 17 years and in 1998 he worked for them. He was based in Perth but he was the plaintiff's project manager in relation to the contract the plaintiff had with HI to remove the existing air-conditioning system serving the offices at the Seven Mile workshop and replace it. He decided that the plaintiff should subcontract part of the work, that described as heavy steel work, beyond the plaintiff's particular expertise. A number of potential subcontractors were approached to tender for the work. In late September 1998, Mr Rogers and Mr Langman, for the plaintiff, and representatives of the potential subcontractors, including Messrs Norris and Clark for the defendant, visited the site and discussed the work.

6 On 2 October 1998, the defendant submitted its quotation in the sum of $8000 for work which involved the installation at one end of the office building of a set of access stairs with handrails to enable access to be obtained to the roof of the office block. The steps and handrails were to be supplied by the plaintiff. It was for the defendant to do the work of fitting the new means of access to the roof and its price for doing so included the use of cranes and scaffolding as required.

7 After the ducts on the roof of the office building, the purpose of which was to convey conditioned air into the office building, were removed (in fact by an organisation called Cape Modern), safety railing was to be fitted around the external perimeter of the roof of the office block. It will be recalled that the office building was situated internally in the workshop under the main roof. The roof of the office building was simply a flat concrete slab. As it turned out, to enable the fixing of the prefabricated metal staircase and its handrails to the side of the office building, a section of the air-conditioning duct on the roof had to be removed.

8 The defendant's tender was successful. Mr Rogers prepared a purchase order, the document used by the plaintiff to record the terms of the subcontract. The document is dated 5 October 1998 and the plaintiff pleads that the contract was formed on that date. The top white original purchase order described as the supplier's copy, has on the reverse of the form a set of standard terms and conditions. The document is A4 in size. The terms and conditions are extremely small and difficult to read. There is nothing on the face of the form to draw attention to their existence. I will need to refer briefly to their provisions in due course.

9 But at this stage it is important to realise that it is by this document that the plaintiff contends that its contract with the defendant was formed. The quotation is regarded as the offer, accepted by the purchase order, and so it is important to understand how that acceptance was communicated to the defendant.

10 It was done by facsimile. The transmission occurred on 5 October 1998, but what was sent, under cover of a memo from Mr Rogers to Mr Norris of the defendant, was the copy of the face of the purchase order and not the terms and conditions on the reverse. Other documents sent at that time were those required by HI, including a job hazard analysis form.

11 Mr Roger's evidence was that having made the facsimile transmission, the practice within the office of the plaintiff was to send the originals by post. The original facsimile coversheet which was in evidence, contains a stamp showing that the defendant received the bundle of documents sent by facsimile transmission, on 13 October 1998, three days after the incident which is the subject matter of this litigation. In my opinion it is perfectly clear that the subcontract between the plaintiff and the defendant was made on 5 October and it did not include the terms and conditions set out on the reverse of the original purchase order.

12 Mr Rogers gave evidence that Mr Langman, based in Dampier and Karratha, was the plaintiff's site representative or project supervisor. It was with Langman that the defendant's people and those acting for HI would be expected to deal. Mr Langman seemed to take the view that he had not formally been appointed as the project supervisor for the air-conditioning job the plaintiff had undertaken with HI in respect of the office building at the Seven Mile workshops. But I am satisfied that he was the liaison point between HI, the defendant and the plaintiff.

13 It was a requirement of HI that before work was undertaken, a contractor or subcontractor should perform a job hazard analysis in respect of the particular work and lodge a form explaining that analysis with HI. That was done for the work to be carried out by the defendant. The defendant's site supervisor, Mr Clark and his superior Mr Norris, performed the analysis. The forms were provided to the plaintiff and Mr Rogers faxed them to Ms Rose'Meyer, an engineer with HI on 8 October 1998. There were three forms describing different stages of the work.

14 In relation to the work of fitting the new stairway to give access to the office roof, it is clear that some of the fixing work was to be performed from scaffolding. The work involved welding and so it was anticipated there might be sparks and objects might fall from a height. The workers were to be provided with personal protective equipment for welding work and a fire extinguisher and fire blanket were to be on site.

15 After the stairway was put in place, to enable it to be bolted on to the side of the building, it was proposed to remove a section of the duct adjacent to the access point. Again it was anticipated that the relevant danger was objects falling from a height or workers falling to the ground. Again, personal protective equipment was to be issued to the workers, who were to use a safety belt where necessary. As I understand it, the step of removal of a section of the duct was required to enable a second flight of the stairway to be fixed in place to the side of the building and to the roof so as to complete the process of providing new access to the roof.

16 Ms Rose'Meyer explained that the submission of this analysis to HI was a requirement so that the company could be satisfied that the contractor had given appropriate attention to the risks which might be attendant upon performance of the work and had broadly acceptable procedures in place for dealing with them. HI did not take upon itself to approve the analysis performed and the proposals made. It simply sought the assurance that the contractor had turned its mind to the resolution of problems which might be encountered in the performance of the work.

17 It seems also that after the defendant had performed its work, further stages of the project would also involve work, not only by the plaintiff, but also by at least one other subcontractor, Cape Modern, who were involved in the removal in their entirety of the existing ducts from the roof, cleaning the roof and installation of new ducts on the roof as part of the process of providing a new air-conditioning system for the offices. A Mr Gildersleeve completed a job hazard analysis form for that work on 8 October 1998. The form shows that Mr Langman was nominated as the supervisor of the work. Part of the process of removing the old ducts was said to present a hazard described as "hot steel during cutting, grinding (fires, burnt hands)". The recommended procedure to deal with this potential hazard was described as, "correct hot work permits, fire watch, extinguisher and fire blankets, correct PP equip".

18 Again, that was forwarded to Ms Rose'Meyer by Mr Rogers on 9 October 1998. It was put to her that she accepted that analysis, although it clearly envisaged hot work and the danger of fires during cutting and grinding processes involved in the removal of the ducts. Her reply was that by that time with proper protection in place, such a process of removal would be acceptable because the air-conditioning system would by then have been "isolated", by which is meant, that it would not only be shut down, but locked to prevent any person again putting the system into operation. The result of course would be that there would be no movement of air under pressure through the ducts which would be likely to facilitate combustion and the spread of a fire.

19 There is nothing of course to specifically indicate that oxy cutting or grinding tools would be used, in the job hazard analysis form provided by the defendant in relation to the removal of a section of the duct. I accept that Mr Langman for the plaintiff had the same view as Ms Rose'Meyer. The danger of fire would be too great and he thought it inappropriate to use any grinding process or any form of oxy-acetylene cutting process in the removal of the section of the duct. Mr Langman considered the rooftop area to be hazardous from the point of view of the combustible material that was around. The substantial layer of dust on the roof, he thought, was perhaps 10 mm thick. It was substantially iron ore dust but Mr Langman's evidence, which on this point I accept, was that it appeared to contain diesel oil or the like as a result of fumes given off by locomotives within the workshop.

20 The sections of the ducts on the roof had a rectangular or square profile. They varied a little in size but none were very large. The best evidence appears to be that they were somewhere in the order of 500 mm high and perhaps about 700 mm wide. They were made of quite light 22 gauge galvanised sheet metal. The interior of the ducts was lined with polystyrene insulation fixed with pins to the metal. At each end of a section of the duct there was a right-angle steel flange about 50 mm x 50 mm. The flange was riveted to the duct on all sides. In the vertical section of the flange were holes which enable the flanges to be bolted together, thus connecting the various sections of the duct. The bolts were a mild steel, described as low tensile, and zinc plated. They were about an inch long by a quarter of an inch in diameter. An example was tendered in evidence.

21 The ducts on the roof rested on steel supports which provided a clearance from the roof of in the order of 150 mm. It is not clear to me whether the ducts were fixed to these steel supports, but they appear from the photographs simply to rest upon them. Nonetheless, the clearance from the surface of the roof was certainly not great.

22 The ducts had been in place, Mr Langman said, for at least 20 years. I have mentioned the corrosive nature of the atmosphere in this area and the best evidence is that the bolts were corroded and rusted. Mr Langman said that the way to remove a section of the duct was to unbolt it at each end. He said this could be done with a spanner which gave reasonable leverage, or you could chisel the head off the bolt with an implement like a large cold chisel which he called a podgee bar. You would place the sharp end where you wanted to sever the bolt and strike the other end with a large hammer. Whether a spanner or a podgee bar was used, Mr Langman said these bolts, particularly if corroded and weakened, if the nuts would not turn, would break off and could be removed.

23 Mr Clark confirmed that it was common practice to use such hand tools to remove bolts before turning to equipment such as a grinder or oxy-acetylene torch. Of course a grinder will produce sparks and an oxy-acetylene torch works by making the head of the bolt molten and melting it off. It applies heat of the order of hundreds of degrees centigrade. The evidence of the other boilermakers called by the defendant, Messrs Rooney and Meadows, was to the same effect.

24 As I have mentioned, it was apparent before work commenced, that a section of the duct would need to be removed to enable the top portion of the new staircase to be bolted onto the roof. Both Langman and Ms Rose'Meyer gave evidence that, before work was to commence on Saturday 10 October 1998, they had a discussion about the removal of the section of the duct. There are some differences in their evidence, but in the end I do not think they are material.

25 Langman said that he spoke with Ms Rose'Meyer about this on 9 October 1998. He asked that the air-conditioning unit be shut down and isolated while the duct was removed. He says that Ms Rose'Meyer refused this request, particularly because she was concerned that people would be working in the offices and the air-conditioning system could not be isolated until the Monday. They agreed that the section of the duct in question could be removed while the system was in operation and after that was done, each end of the remaining duct was to be blocked off, with the result that there would be a section of the air-conditioning system which would not operate.

26 Mr Langman says that there was no discussion about how the duct was to be removed. Ms Rose'Meyer said there was. She said that Langman said that the section of the duct was to be unbolted and there would be "no hot work". She did not give an instruction that there should be no hot work because she was told there would be none.

27 After the incident with which these proceedings are concerned, both the plaintiff and defendant were asked by HI to provide statements as to what had happened. Ms Rose'Meyer says she spoke to Langman on the telephone and asked him to include in his report their discussion that there would be not hot work. Her evidence was that Langman replied that was not necessary and certainly there is nothing in the statement that he made on 12 October 1998. Langman has a different version of that conversation in which he suggests that Ms Rose'Meyer asked him if he had instructed the defendant not to use a "gas axe" (a term which I understand refers to an oxy-acetylene cutting process) as she had instructed him. He says he responded that she had no such conversation with him and indeed that is not her evidence.

28 Of course memories may differ about such a conversation and I am unable to say precisely what occurred; nor does this debate cause me to have reservations about the veracity and credibility generally of either Langman or Rose'Meyer, or both, as witnesses. As a result of what occurred, Mr Langman was banned by HI from their sites and as a further result he lost his job with the plaintiff. It is clear that he thought he was harshly dealt with and that what happened to him was unjustified. It may be that he has good grounds for that belief, but again it does not seem to me that his attitude has adversely affected his credibility as a witness, and as can be seen, I have generally accepted his evidence as both truthful and accurate.

29 That really brings me to the morning of 10 October 1998. Langman said he called at the Seven Mile workshop because he knew that the defendant's people were to start work that morning. He was on his way home from another site, why does not matter, but he was not planning to stay as an on-site supervisor. It is clear that he thought that role would be performed by Clark and from Clark's evidence, that was his view also.

30 At that time the defendant's team led by Clark, were unloading gear and preparing the work site. They suggest that Langman would have seen that oxy-acetylene equipment was being unloaded. It is clear that he does not recall it, but it seems that he paid no particular attention to what was being unloaded and his impression was simply that it was the usual sort of equipment that he would have expected. As I have said, part of the work to be done that day did involve a welding process.

31 It is abundantly clear that Langman gave Clark no instruction as to the process which was to be used to remove the section of the duct which had to be taken out. It is clear that Langman thought that lay within the expertise of the defendant's personnel and, in that view, I think he was correct.

32 Langman and Clark had a discussion about the removal of the section of the duct. Clark asked if and when the air-conditioning system was to be shut down. Langman said that was not to happen until the Monday. Langman said he told Clark that the section of duct would have to be "unbolted" while the air-conditioning system was in operation. Clark agrees that Langman used that term but he did not understand that to be an instruction that any particular process was to be used. Langman then left.

33 The story is then taken up by the witnesses Clark and the other two members of his team who were actively involved in the work as boilermakers and welders, the men Rooney and Meadows.

34 As Mr Clark made clear, the entire job was not to be carried out on that Saturday morning. What was to be done he said, were the first five steps on the relevant job hazard analysis form. Having got themselves organised on site, they were to fix a metal parallel flanged channel to columns supporting the main roof of the workshop which were adjacent to, but some short distance away from, the side wall of the office block. The new staircase had been prefabricated off-site. It was to extend from a walkway which provided a platform along the side of the office block and was to be bolted to the column.

35 The next step was to remove the section of the duct at the point where a small second section of the staircase was to go up, from the landing where the staircase had been bolted to the column, the further short distance to roof level, where a further landing and the upper section would be bolted to the roof. As I have said, scaffolding was provided which was of sufficient height to enable the men to use welding equipment on the columns and the staircase. The necessary protective equipment was there, including a shield and gauntlets for the welder. Signs were placed warning people to keep clear of the area above which the men would be working and tape was put in place to cordon off that area.

36 Part of the process of preparation was to obtain what is described as a hazardous work permit from the HI officer on duty in charge of the workshop. Clark and Rooney went to the office to get that done. The form is filled out by the HI officer. As Clark explained, he responds to information as to the work to be done provided by the person seeking the permit. The permit would be valid for the day on which the work was being done.

37 A hot work permit was sought and obtained. It indicated that the workers would have fixed fire systems to call in aid in the workshop and would have a portable fire extinguisher on hand. They would remove combustible materials from around the area where the work was to be done. They would place signs warning that hot work was being performed overhead, but that effectively was all that was required. Mr Clark left Mr Rooney to sign the document on behalf of the defendant. According to the procedures which HI required, the permit had to be obtained because the work described was oxy-cutting, grinding and welding. But, as I understand it, that was not specifically directed to the removal of the section of the duct, but to welding the staircase to the columns.

38 Mr Clark is a qualified boiler maker/fitter and welder, a qualification which he has held for 20 years, or about 12 years at the time in 1998 with which this action is concerned. As I have said he was employed by the defendant as a supervisor and he accepted that it was his responsibility on site on Saturday, 10 October 1998 to be in charge of the job and direct the performance of the work by the two men under his control (there was a third man, but early in the day he appears to have become ill and he played no part in the events that follow). He was aware of course that a section of the duct had to be removed and he knew from his conversation with Langman that the air-conditioning system which was on would remain on and would not be turned off and isolated until the following Monday, 12 October.

39 As to removing the section of duct it was put to Mr Clark in cross-examination that to remove the section of duct it was necessary to "unbolt it". Mr Clark agreed. It was put to him that that was what Langman said was to be done. Mr Clark said he could not recall Langman saying that they were to unbolt it. He agreed that he did not expect when he went on site that anyone was going to use an oxy-acetylene torch to remove the section (T/216 - 7).

40 It seems that all three men went on the roof and Clark said he did not just leave the decision as to how to proceed to his two workers. He said that he instructed the men that the section of duct had to be removed and he told them to try to unbolt it (T/219). To my mind that provides some support for Langman's evidence that that is what he told them to do, or alternatively, as Clark concedes, he knew that was the ordinary process and so that was how the work proceeded initially.

41 Mr Clark said he observed that the men used adjustable spanners and they were successful in removing some bolts, but others were rusty and corroded and could not be shifted. Clark suggested they use the grinder and he observed that Rooney did so while Meadows acted as fire watch because of the danger of fire from sparks. Again, that was successful and some bolts were cut off. Mr Clark judged that there might be danger in using the grinder on the bolts on the side of the duct nearest to the edge of the roof because, despite the relatively small size of the duct, Mr Rooney would have to lean over from the other side. In any event, Mr Clark thought the grinder could not be inserted under the duct to grind off the bolts there. There was no room, so Clark changed the instruction and told the men to use the oxy-acetylene torch to melt off the heads of the bolts. He saw that part of the work commence, again with Rooney using the torch and Meadows being the fire watch, and I think that was when he left the roof and went to do other things.

42 He was perfectly honest about the processes involved. He agreed that he had Langman's mobile phone number. Langman had invited him to ring if there was any difficulty, but he did not do so. He agreed that he made the decisions as to how the work was to proceed because he was the supervisor at the site and had the job of instructing the men as to what was to be done. He gave no thought he said to whether the use of the grinder or the oxy-acetylene torch in the way proposed, while the air-conditioning system was still in operation, might have implications for the air-conditioning unit. Indeed, each of the men working there for the defendant on that job conceded that they gave no thought to that question.

43 On the other hand each of them said that they did not know that there was insulation inside the duct, that it was combustible and that the oxy-acetylene torch should not be used because of the danger of fire. Neither Langman nor anyone else had told them those things. Of course it will be appreciated that Langman agrees that he did not say those things to the men working for the defendant on the occasion in question, because he says he did not for a minute think that an oxy-acetylene torch would be used to melt off the heads of the bolts.

44 Rooney's evidence was generally to the same effect as that of Clark as to how the work proceeded. He also was a boiler maker and welder. He gained his qualifications in 1992 and so in 1998 he was an experienced man. He pointed out that he was doing the work and, certainly while the grinder and the oxy-acetylene torch were being used, Meadows maintained the fire watch, standing on the platform which marked the top of the staircase so far as it had been fixed in position at that time. Meadows agreed that was his position and he said he was only about a metre away from where Rooney was working on the duct.

45 Rooney conceded under cross-examination that he knew the air-conditioning system was operating. His statement of evidence says he did not know, but when it was put to him he conceded that it was wrong.

46 Rooney said that before commencing work to remove the bolts there was a discussion involving Clark, Meadows and himself. To the best of his recollection, they tried to remove the bolts with some sort of spanner, but they were too rusted and corroded. He said the use of a "hammer and chisel" was discussed. As he put it:

"... we spoke about hitting them off with a hammer and chisel. I would have had my tool bag up on the job with me and I would have had the equipment there with me, but it wasn't an option for the underside or the outside of the ducting, so basically it was rendered not a preferred option." (T/250)

47 Rooney's evidence was that although that method could be used on the side of the duct nearest to where he was working and on the top, it could not be used on the outside of the duct or underneath and so rather than use that method where it could be used and then consider some other method if it did not work, they discarded that option and proceeded to try something else.

48 His statement of evidence says firmly that he used the grinder to cut some of the bolts. When cross-examined he was much less certain, but he believed it had been used and he thought ultimately that he did recall using it. If that was done, of course, that is consistent with Clark's evidence and confirms that the order of preference was firstly the use of spanners, then chisel or podgee bar and hammer, then the angle grinder and finally the oxy-acetylene torch.

49 It seems to me that the concession involved in this evidence is that they knew that the ordinary way of proceeding was to remove the bolts or break them off with a spanner, or break them off with a hammer and chisel, and although Rooney said the hammer and chisel option was discarded because they did not want to use a method which could not be used on all the bolts, that is precisely what had happened with the spanners and what happened again with the grinder.

50 Rooney said that he used the oxy-acetylene torch on the side of the duct adjacent to the edge of the roof by leaning over it. He conceded that if the torch was applied directly to the metal of the duct itself it was likely to burn through it, but he said the object of the exercise was not to cut the duct, but to melt off the bolts. Rooney insisted that there was nothing difficult about using the torch on this side of the duct. He said that he had total control over the direction of the flame and he agreed that if a hole had been burned through the duct it was because he had made a mess of what he was doing (T/255).

51 Mr Meadows' evidence was generally consistent. Although there were differences between each of the witnesses called as to the facts by the defendant, they did not seem to me to be materially significant. Meadows was also an experienced boiler maker/welder. His trade qualifications had been obtained in 1984. While he was laying out their equipment before commencing work, he heard the conversation between Clark and Langman about the incapacity to turn off the air-conditioning system. He knew therefore that while they removed the duct it would still be in operation. He agreed that they commenced the work by trying to remove the bolts with spanners, but his evidence was that because they were rusted and corroded they would not move. He says it was he who suggested to Rooney that a grinder may be used. He asserted that was a common practice, as was the use of an oxy-acetylene torch. It matters not I think how the grinder came to be decided upon, but I am satisfied that it was used by Rooney while Meadows kept watch for fire.

52 Meadows agreed that the grinder could not be used in the space between the bottom of the duct and the top of the roof. He agreed that because Rooney would have to lean over the edge of the roof, the grinder should not be used on the outside of the duct. I was left unable to understand how the oxy-acetylene torch could be used on that flange without also requiring the operator to lean over the duct.

53 Meadows said that he and Rooney decided that the oxy-acetylene torch should be used. Again I think it matters little how the decision was taken. Meadows said that he brought the oxy-acetylene equipment onto the roof and gave it to Rooney, before resuming his fire watch duties from the platform at the top of the newly fitted staircase. Meadows said that as he watched Rooney at work a number of the heads of bolts were burnt off. Each bolt only took a few seconds to remove. Rooney was directing the flame to the heads of the bolts, not at any time against the flange or the duct, but as will appear I am sure he is wrong about that.

54 Meadows' statement says that as he watched he saw a spark from the oxy-acetylene torch disappear into a small hole in the duct. There appeared to be vortex at the hole and the spark was in effect sucked into the air-conditioning duct. The hole was about three millimetres in diameter, he said, and on the top of the duct about 20 centimetres from where Rooney was working. He marked its position as closely as he was able on the photograph exhibit A5. There is nothing visible at that point, nor any indication there of burn marks on the metal. Although Meadows was, as I have said, in the position where his face was about one metre further away from the hole than the point where Rooney was working on the outside wall of the duct, his evidence was that although he had not noticed the hole before he saw the spark disappear into it, he was able to observe it closely.

55 As I have said, he thought it was small, about three millimetres in diameter. He said it looked as if it had been drilled into the duct, although there would appear to be absolutely no reason why that should have been done. Further, Meadows' evidence would give the impression that the hole had been drilled quite some time ago because in his statement he said, "The edge of the hole was rusted and covered in dust".

56 In any event the work of cutting off the bolts with the oxy-acetylene torch was interrupted, when, after seeing the spark, Meadows said he told Rooney to turn off the torch and he said that he told Rooney about the spark being sucked into the hole, to which he pointed. Rooney says in his statement that he had not seen any hole "until Meadows pointed to it". However, he did not actually say in evidence or in his statement that he saw the hole at any time. Meadows, however, says that Rooney turned off the torch, bent over and put his eye to the hole. Immediately afterwards Meadows said he saw a heat haze coming from the air-conditioning duct, heard the roar of the fire and saw the duct begin to buckle and warp. Surely if Rooney had done that he would have recalled it and spoken of it in his statement of evidence.

57 As to how the fire actually started, the most reliable evidence in my opinion was that given by a Mr Fisher, a civil engineer by profession who carries on business as a loss adjuster. He was engaged to investigate the cause of the fire immediately after it had occurred and been extinguished. He attended at the site and took the photographs admitted into evidence as exhibit A and exhibit B on 13 October 1998, three days only after the fire for which HI held the plaintiff responsible. The plaintiff accepted that liability pursuant to the terms of the head contract. The claim was made pursuant to a public liability policy held by the holding company of which I understand the plaintiff is a wholly owned subsidiary, with an insurer known as AXA Colonia Versicherung AG (AXA).

58 Mr Fisher inspected the area where the work had been carried out on the duct. He said he saw no hole such as that described by Meadows, but he said that if there had been a small hole such as described, you could get what he described as a venturi effect caused by the air movement in the duct which might draw something into the hole from outside.

59 Mr Fisher observed that where there were holes in the flange on top of the duct the bolts appeared to have been burnt out and removed by an oxy-acetylene torch and the direction of the flame appeared to be from the inner side of the duct, in other words from the position where Rooney would have been standing, to the outside, in other words towards the edge of the roof. Mr Fisher gave no evidence about removal of bolts on the inside wall of the flange, but work then appears to have proceeded over the edge of the duct and down the vertical flange on its outer side. The photographs A8 and A9 are particularly good close ups of the first bolt hole in the flange as one moves down the side of the duct from the top. The bolt has been burnt out as appears to be the case lower down the side of the duct.

60 Mr Fisher explained how it could be seen that the operator of the oxy-acetylene torch, rather than direct the flame against the bolt parallel to the direction of the flange and the side of the duct, had used the torch so that the flame was applied directly against not only the bolt, but the side of the flange riveted to the duct and the side wall of the duct itself. The effect was to burn a hole through the flange and the duct into the interior of the duct. It was at that point, Mr Fisher said, that the polystyrene insulation had been set on fire and the fire had spread from there through the air-conditioning system before it could be turned off. I accept that evidence. It was convincing and clear and provides the explanation as to how the fire was started by the misapplication of the torch by Rooney in the way described.

61 As to Meadows' evidence to the contrary, I do not accept it. I think he is simply mistaken. He did not see what he thought he saw. I doubt that he could see such a hole as he described from where he was. I doubt that from that position he could observe it in such detail. There is no objective evidence to support his account and there is contrary evidence from Mr Fisher as a result of his inspection. Nor is Meadows' evidence supported by Rooney in the way that I would have expected if Rooney had behaved as Meadows said, by putting his eye to the hole immediately before it became apparent that a serious fire had been started inside the duct.

62 Against that background of my review of the evidence and findings of fact, I turn to consider the plaintiff's claim.

63 The general conditions incorporated into the contract made between the plaintiff and HI contain in cl 12 a requirement for the plaintiff to indemnify HI against all costs, losses or expenses caused wholly or in part, directly or indirectly, by the performance of the work undertaken by the plaintiff, including damage to or destruction of the property of HI, unless solely resulting from the negligence of HI.

64 After the fire that indemnity was enforced and the plaintiff sustained consequential losses, the quantum of which has been agreed in the sum of $430,000 together with interest until judgment at the rate of 6 per cent:

(a) upon the sum of $398,000 from 31 March 1999; and

65 As I have mentioned the claim upon the plaintiff has been met by its insurer, AXA and the claim now brought is a subrogated claim brought by AXA in the name of its insured, the plaintiff. There is an issue as to the right of subrogation to which I shall return in due course.

66 It is convenient first to deal with a claim by the plaintiff that it in its turn is entitled to be indemnified by the defendant against the loss and expense it has incurred. This is said to arise under cl 9 of the terms and conditions on the reverse of the purchase order, which accepted the defendant's quotation of $8000 for what has been described as the heavy steel work in the performance of the plaintiff's contract with HI (i.e. installing the new access staircase and installing the safety hand railing which was to be supplied by the plaintiff). It is evident of course that the defendant was not to supply any goods which were being purchased by the plaintiff. It seems that the basis upon which the parties proceeded was that the plaintiff was purchasing the defendant's labour and expertise to carry out the heavy metal work.

67 Clause 9 is in terms which are rather old fashioned in expression, but the plaintiff extracts from the blizzard of words which constitute the clause an undertaking by the defendant to indemnify the plaintiff against all losses, costs and expenses and against all liability for any and all damage to property of the plaintiff "or others" arising out of or resulting from the negligence of the defendant. The difficulty for the plaintiff is that it relies upon this express term of the contract made in writing on 5 October 1998, but as has been seen the plaintiff's acceptance conditioned upon the existence of this and the other terms and conditions on the reverse of the purchase order was not communicated to the defendant when the contract was made. In my view cl 9 was not part of the contract between the plaintiff and defendant and the plaintiff may not rely upon the indemnity contained in cl 9.

68 In case I should not be of that view and if I should consider that the terms and conditions on the reverse of the purchase order were part of the contract as made between plaintiff and defendant, the defendant submits that in the circumstances it is not bound by the terms and conditions because there was nothing on the face of the purchase order to alert the defendant to their existence and reasonable notice of them had not been provided. Again this is a submission that the defendant should not be bound by terms and conditions of which it was unaware, unless the defendant ought to have been aware of them because the plaintiff had made reasonable efforts to bring them to notice.

69 Alternatively, it is put that cl 9 was "an onerous or unusual indemnity clause" and because its existence had not been drawn to the attention of the defendant, when no more was done than to print the clause on the reverse of the purchase order, the clause cannot be enforced against the defendant.

70 There is an air of unreality in my dealing with these submissions in view of the conclusion to which I have come that cl 9 was not part of the contract as made, but had I been of the contrary view I would take the law to be as adumbrated by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165. There the condition or exclusion of liability clause with which the case was concerned was notified by the request on the face of the form that the party to be bound should read the conditions of contract overleaf before signing. The clause in question provided against the party to be bound that the other party, the carrier of goods, would in no circumstances be responsible to the customer for loss and damage in relation to the goods. Such a clause I would have thought might fairly be described as being of an onerous character. However, the High Court held that the customer was bound by the exclusion clause and in that case considerable reliance was placed upon the signature by that party of a document which was clearly intended to create a contractual relationship between the parties.

"If there is a claim of misrepresentation, or non est factum, or if there is an issue as to whether a document was intended to affect legal relations or whether, on the other hand, it was tendered as a mere memorandum of a pre-existing contract, or a receipt, or if there is a claim for equitable or statutory relief, then even in the case of a signed document it may be material to know whether a person who has signed it was given sufficient notice of its contents. The general rule, which applies in the present case, is that where there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document."

72 Although, as I say, Toll was a case where the formation of the contract was signified by a signature it seems to me that it would not matter if that were not so, but the contract was clearly formed in circumstances where there could be no claim to be relieved of the obligation to comply with its terms. The High Court discussed the view taken by the primary judge and the Court of Appeal of NSW that a party to the contract should only be regarded as bound by its terms if the other party has done what is reasonably sufficient to give notice of those terms. At 184[53] - [54] the High Court observed:

"If the proposition is limited to some terms and not others, it is not easy to see what the discrimen might be. It appears from the reasoning of the primary judge and the Court of Appeal that the proposition was given a narrower focus, and was limited to exclusion clauses, or, perhaps, exclusion clauses which are regarded by a court as unusual and onerous. The present happens to be a case about exclusion clauses, but there is no apparent reason why the principle, if it exists, should apply only to them. Nor is the criterion by which a court might declare a contractual provision to be unusual or onerous always easy to identify."

73 The Court was thereby doubting the existence of any special rule of the kind relied upon by the defendant in this case although at 187[63] the High Court said:

"There may be cases where the circumstances in which a document is presented for signature, or the presence in it of unusual terms, could involve a misrepresentation."

One of the cases relied upon by the defendant before me, Le Mans Grand Prix Circuits Pty Ltd v Iliadis [1998] 4 VR 661 was observed by the High Court to have been decided against the background of a concession that an onerous exemptive provision must be brought to the notice of the party against whom it is to be enforced before that would be possible. The case really was concerned with the question whether any contractual relationship had been formed between the parties at all.

74 I doubt therefore that there is any special rule of the kind relied upon by the defendant here. If cl 9 was part of the contract then it seems to me that nothing in the conduct of the plaintiff by which its acceptance of the quotation was confirmed, could be described as misleading the defendant or misrepresenting the nature of the contract made, nor, if there is such a rule as that upon which the plaintiff relies, citing earlier English authority, particularly Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1987] EWCA Civ 6; [1988] 2 WLR 615 would I be persuaded that an indemnity clause of the kind which cl 9 purported to be was of an unduly onerous or unusual character, considered as such a clause and finding it in a contract of this kind.

75 It seems to me that the true defence against a claim to enforce the indemnity clause is as I have found that in the circumstances cl 9 formed no part of the contract between these parties.

76 The defendant makes some submissions on the proper construction of the clause, which it asserts is ambiguous in its terms. I must say that that does not seem to me to be the case. I think the effect and operation of the clause, if it applied, would be clear.

77 For the defendant it is submitted that the terms and conditions should only be regarded as having application if the contract made was for the supply of goods alone or the performance of work in connection with goods supplied. It is said that the terms and conditions do not apply to contracts for the performance of work which is not in connection with the supply of goods, as is this case. But that is a submission which, if it has merit, would be apt to strike down the whole process by which this contract was sought to be made by an acceptance communicated in the form of a "purchase order" and yet, as has been seen, that was how the parties proceeded and the contract was never for more than the supply by the defendant of its labour and expertise in the performance of the work identified. In my opinion, it could not be said that such a contract having being made, the objective intention of the parties should be taken to be that the terms and conditions did not govern it.

78 Finally, it is put that on a proper construction the indemnity clause does not apply to liability incurred by the plaintiff pursuant to the enforcement of a contractual indemnity in the head contract by HI. I would not uphold that submission. In terms the clause expresses an agreement by the defendant to indemnify the plaintiff "from and against all losses, costs, and expenses, ... for any and all damages to property [of the plaintiff] or others of whatsoever nature ... ". To my mind those words are apt to cover expense incurred by the plaintiff because it was obliged to indemnify HI for or in respect of damage to the property of HI.

79 Of course it should not be overlooked that that damage must under the clause arise out of or result from the negligence of the defendant and so it would be necessary if the plaintiff was able to pursue its claim for an indemnity that it should establish negligence on the part of the defendant.

80 The next cause of action pursued by the plaintiff is a claim for damages for breach of the subcontract between the parties. It is pleaded and admitted that it was an implied term of that contact that the defendant would exercise reasonable skill, diligence and care in performing the work.

81 The plaintiff also alleges that it was an implied term of the subcontract that the defendant would ensure that its employees complied with all reasonable safety directions prescribed to the defendant by HI. The defendant denies that such a term was to be implied.

82 In Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, at 347, the High Court reiterated that the law was that a term would only be implied in a contract if it was reasonable and equitable, necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it, so obvious that it goes without saying, capable of clear expression, and not in contradiction of any express term of the contract.

83 For my part, I would have little difficulty in holding that such a term was to be implied, subject only to the question whether it was necessary to give business efficacy to the contract. In my view, the contract with the inclusion of the admitted implied term was effective without any additional implied term directed towards the safety of the property of HI. The particulars given in support of the pleading of the disputed term by the plaintiff are substantially assertions about the need to carry out the work safely so as to ensure that HI's property was not damaged.

84 When it comes to referring to safety directions said to have been prescribed to the defendant by HI, all that is said is that the personnel employed by the defendant knew or should have known from their induction into the permitted workforce of contractors to HI, that HI "prescribed, from time to time, certain safety directions that all persons carrying out work at the workshop were required to follow". There is no particularisation of any specific direction, nor is it asserted that the breach of contract involved the failure to follow any specific direction.

85 The closest that there may be to such a specific direction is the hot work permit which was taken out on 10 October 1998. As I have said, that was not specifically directed to the work of removing the duct, but to the fact that there would be welding work performed at height during the course of the day. The hot work permit required, relevantly, the presence of a fire extinguisher, that combustible materials were to be removed from around the workplace, that signs were to be placed warning that such work was going on overhead. There was to be isolation of the area and any specific instructions were to be read. There is no suggestion that the fire was caused by any failure to comply with the hot work permit in relation to welding work which was legitimately to be carried on.

86 In my view, if the disputed term was to be implied in the contract, there is no indication of relevant breach of any such direction having a causal relationship to the loss or expense suffered by the plaintiff. The allegation is that the contract was breached because the defendant failed to exercise reasonable skill, care and diligence by failing to identify the risk of fire, failing to ascertain whether the duct was comprised of any combustible material, failing to ensure that the work was performed while taking all reasonable precautions against the occurrence of fire, failing to secure the duct against the possibility of sparks entering it, and seeking to remove the flange bolts with the oxy-acetylene torch rather than by the use of "physical means", by which it is clear the plaintiff means a spanner, or hammer and chisel.

87 There is a further allegation of negligence. The particulars relied upon are those specified in respect of the alleged breach of contract. So from the point of view of the plaintiff, to plead the cause of action in tort adds nothing to the cause of action in contract which is relied upon, given the admission of the implied term to which I have referred above.

88 Again, the defendant admits the existence of a duty of care owed to the plaintiff in tort to exercise reasonable skill, diligence and care in the performance of the work. But it denies the allegations of breach of contract and negligence and it fleshes out those denials by submitted that it was the plaintiff who was the expert in air-conditioning systems, whereas the defendant was a steel fabricator and installer. None of its employees had previously worked on air-conditioning ducts.

89 It is asserted that the defendant, through its employees, acted with due care and skill because they were not told, and had no reason to suppose, that if the air-conditioning duct was breached by an oxy-acetylene flame, that might set alight the insulation in circumstances where, given that the air-conditioning system was in operation, there would be a considerable risk of the spread of fire and that loss and expense would be sustained, initially to the property of HI, but by reason of its indemnity obligations, ultimately to the plaintiff. It is asserted that it was not unreasonable for the defendant's employees to proceed as they did, given that they were not told not to do so by anyone acting for the plaintiff, or indeed HI.

90 In any event, it is said that they only used the grinder and oxy-acetylene torch when they were unable to make progress in removing the duct by the use of spanners. Before doing so, they looked around the area where the work was to be performed to ensure that there was no combustible material in the immediate vicinity. Meadows was posted as fire watch, with a fire extinguisher. In essence, negligence is denied because, it is said, the defendant's employees were using a procedure to remove the section of duct which was appropriate to the task, which they were not prohibited from using, in circumstances where they were given no particular requirement as to how to go about the task by Langman for the plaintiff, and the procedure they employed was undertaken with care.

91 However, to my mind the allegation of breach of contract or negligence is made out. In the first place, the defendant's supervisor, Clark, and the men working under him knew that the air-conditioning system was continuing to operate. Conditioned air would be being impelled through the duct while they were working on it. They might have expected that if not insulated it would be cold to the touch, but neither Rooney nor Meadows say anything of this. However that may be, it is abundantly clear that the defendant's employees did not in fact know what was in the duct.

92 I am satisfied that Langman told Clark that the section of duct was to be unbolted and that this meant what it said. That was Langman's intention and Clark's understanding. That was the ordinary process. That was why Clark instructed that the work should proceed in that way at the outset. It is also clear that those working for the defendant knew of the process of removing the bolts by hammer and chisel. I am satisfied that the bolts were relatively light and that they could be expected to break off if they would not turn when a spanner was used or when a podgee bar and hammer were used. I am satisfied that that procedure could be employed on the outside of the duct with just the same facility as the oxy-acetylene torch. Further, those systems could be employed, I am satisfied from Langman's evidence, underneath the duct, because there was sufficient clearance between the bottom of the duct and the floor which was the roof of the office building.

93 Because the defendant's employees did not know what was in the duct and whether it was flammable, it was, in my opinion, incumbent upon them to inquire whether the use of the oxy-acetylene torch was permissible. It is clear that had they asked Langman or Rose'Meyer they would have received an emphatic "no" to that question. Further, I think it is clear from Rooney's evidence that the torch was to be used in such a way as to minimise the very evident danger that the light construction of the duct would be penetrated if the blowtorch was applied directly to the flange or the duct, rather than to the bolt. Rooney conceded that if the fire had been caused because the oxy-acetylene torch melted, not only the bolt, but also the metal of the flange and through the duct into the interior of the system, then it was because he made a mess of the process of melting the bolt with the oxy-acetylene torch.

94 In short, the defendant's employees proceeded carelessly, without knowing or considering what impact the process they employed might have on the air-conditioning system. I note in this regard that the hot work permit, which was to cover the totality of their work on the day, imposed an onus, which I would hold to be a reasonable obligation, to search out and remove any combustible material within the immediate area where the work was being performed. The particulars of breach of contract and negligence are made out.

95 In my opinion, it is not inapt to describe the nature of the defendant's breach of contract or negligence in this case in the words of Gibbs ACJ in Preston Erections Pty Ltd v Rheem Australia Ltd (1978) 21 ALR 379, when, at 383, in commenting upon a case which, in my view, has factual similarities to this, his Honour said of the defendant's employees:

"It is immaterial that they might not have been able to see that materials of a kind likely to be inflammable were in fact close to the wall when they commenced their operations. If they knew that inflammable materials were within the range of flying molten metal, they should have taken reasonable steps to have them moved. If they did not know whether or not inflammable materials were within that range, they should have made inquiries, so that reasonable steps could have been taken to ensure the removal out of range of any inflammable materials found to be there. Indeed, even if the materials close to the wall had not been inflammable, reasonable care for their safety might have required that they be removed, as molten metal might have damaged them even if it did not ignite them. Preston Erections was not entitled to proceed blindly, without bothering to look or inquire whether there were materials so placed within the store as to increase the risk of fire, and to arrange the removal of any materials so placed. However, it took no precautions whatever in an endeavour to eliminate or reduce the risk of fire through the use of oxy-acetylene equipment."

96 The crux of the matter, in my view, is that the defendant, by its employees, appreciated that, at least once the oxy-acetylene torch was to be used, there was a heightened risk of fire. I am satisfied that Rooney and Meadows examined what they could see of the area where the torch was to be used and satisfied themselves that they had minimised the risk of combustion, so far as they could see. Meadows was posted as the fire watch. He had an extinguisher. But they should have given thought to what would happen if, by lack of care or skill in the use of the oxy-acetylene torch, the metal of the duct was penetrated.

97 They knew the air-conditioning system was operating, and so there would be movement of air in the duct to fan the flames, if there was anything combustible inside the duct. I think they ought to have appreciated that, given the climate of the area, metal ducts such as these would be likely to be insulated to aid the efficiency of the air-conditioning system. Indeed, Langman's evidence was that without insulation an air-conditioning system of this kind would be barely operable. Its efficiency would be gravely compromised.

98 The defendant's servants ought to have inquired what was inside the duct before proceeding. Had they asked Langman or Rose'Meyer, as I have observed, they would not have been permitted to proceed with the oxy-acetylene torch. If they were not going to make that inquiry, they were obliged at least to proceed in such a way as would ensure that the flame of the torch did not penetrate into the interior of the duct, not knowing what would be encountered there. I am satisfied that mechanical means, by the use of spanners and/or podgee bar or other chisel and hammer would have sufficed to remove the bolts, albeit with more difficulty than melting them off with the oxy-acetylene torch.

99 The defendant pleads that if it did breach the contract, or if, by the conduct of its servants, it was negligent, then that breach of duty in either form did not cause the loss or damage sustained by the plaintiff which, it is argued, was in truth caused by the failure of the plaintiff, through its servant Langman, to tell the defendant that there was flammable material inside the duct, and that because of the risk of fire, oxy-acetylene cutting equipment should not be used, and in failing to instruct the defendant's employees as to the procedure to be used to remove the bolts.

100 As the defendant's case was pleaded, but not as it was finally argued before me (see the defendant's closing submissions, pars 26-31 and 38), the causation point sought to draw strength from two contractual propositions. In the first place, reliance was placed upon cl 17 of the General Conditions of Contract incorporated into the head contract between HI and the plaintiff. The clause provides:

"Where Goods or services which form part of the Works are to be supplied to or by third parties, whether nominated by the Company, the Engineer or the Contractor, the Contractor shall cooperate with the Sub-contractors, suppliers and the Company's other contractors and give them any information or data reasonably necessary or expedient to ensure proper performance of their respective work."

101 For the defendant it was pleaded that it was entitled to take the benefit of that clause, which purported to confer a benefit directly on it as a subcontractor. Reliance was placed on the Property Law Act 1969 (WA), s 11(2), which is in the following terms:

"Except in the case of a conveyance or other instrument to which subsection (1) applies, where a contract expressly in its terms purports to confer a benefit directly on a person who is not named as a party to the contract, the contract is, subject to subsection (3), enforceable by that person in his own name but -

(a) all defences that would have been available to the defendant in an action or proceeding in a court of competent jurisdiction to enforce the contract had the plaintiff in the action or proceeding been named as a party to the contract, shall be so available;

(b) each person named as a party to the contract shall be joined as a party to the action or proceeding; and

(c) such defendant in the action or proceeding shall be entitled to enforce as against such plaintiff, all the obligations that in the terms of the contract are imposed on the plaintiff for the benefit of the defendant."

102 For present purposes, sub (3) is immaterial. I should note that pre-trial an application was made by the defendant to join HI as a party to the action, although no relief was sought against it. That application was opposed by HI, which simply did not wish to be joined and involved in the trial of the action between the plaintiff and the defendant. I took the view that, in those circumstances at least, HI should not be joined, and that would not impede the defendant's capacity to rely on s 11(2).

103 I took the view that the requirement of s 11(2)(b) was a procedural matter rather than a substantive exception to the application of the rights conferred by the subsection. It was designed to ensure that all persons interested in the contract should have the opportunity to put to the court evidence in respect of its terms and operation, and to have the opportunity to make submissions as to the proper interpretation of its terms. The plaintiff takes no point that the defendant is not entitled to the benefit of cl 17 purely on the ground that HI was not joined.

104 However, the benefit relied upon is the provision of the information which the defendant asserts the plaintiff failed to give it as to the particular risk of fire associated with penetration of the duct, particularly while the air-conditioning system was still operating, that oxy-acetylene cutting equipment must not be used, and what procedure was to be used. To my mind that is not the "information or data" to which cl 17 refers. To give the information which the defendant asserts the plaintiff failed to provide was not, in my opinion, to give information reasonably necessary or expedient to ensure that the defendant properly performed the work which it was engaged to do under the subcontract. Clause 17 is concerned with the provision of information or data which directly affects the capacity of the subcontractor to perform the work. In any event, to enable the causation argument to be presented it is not necessary that the defendant should be able to rely upon the terms of cl 17.

105 The same observation may be made about the further or alternative pleading of implied terms in the subcontract, that the plaintiff would give the defendant the information which, it is submitted, it failed to give, so that the defendant could perform its obligations under the subcontract and that the plaintiff would exercise due care to protect its own interests. In my opinion, as pleaded, these are not terms which should be implied in the subcontract according to the ordinary rules which govern that process of implication.

106 In short, it was not necessary from the defendant's point of view to give business efficacy to the subcontract that the plaintiff would exercise due care to protect its own interests. Nor, for that reason, was it necessary to impose a contractual obligation upon the plaintiff to provide information to the defendant. In any event, the information relied upon is not, in my opinion, necessary or expedient to enable the defendant to perform its contractual obligations, as I have observed in respect of the proposed application of cl 17 of the General Conditions of the head contract. These pleadings are really distractions from the causation point which was argued before me, and I return to that.

107 Whether conduct causes an event in the legal sense is, at common law, a question of fact to be decided by the application of a commonsense view of the facts as found. The question is the same whether the plaintiff is pursuing a cause of action for breach of contract or in tort. The question will be whether the conduct of the defendant, if found to be in breach of contract or in breach of a duty of care in tort, can properly be said to be a cause, not necessarily the sole cause, contributing to the harm or loss suffered by the plaintiff. If so, the plaintiff will succeed. There are a number of cases which are authority for those propositions. Perhaps the leading case is March v E & MH Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506.

108 There will be cases where the proper view is that the defendant is not liable because its conduct, which might be held to be causative of the plaintiff's loss or damage, has been overtaken by other acts or matters which can be seen to have broken the chain of causation and established themselves as being the effective cause of the plaintiff's loss or damage. Where a number of causes are considered to materially contribute to the harm suffered by the plaintiff they will be treated as concurrent causes and each defendant will be liable to compensate the plaintiff for the totality of the harm suffered, to which his conduct was a material contribution: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459.

109 In this case, the defendant asserts that the sole cause of the plaintiff's harm should be found to be its failure to warn the defendant not to act as it did to cause the fire. The circumstances in which, and the reasons why, a failure to warn of a risk which is encountered so as to cause the plaintiff harm, may be held to be a material cause of the harm, has recently been discussed by the High Court in Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434. In such cases the failure to warn or, as in this case, the failure to warn and instruct how the risk was to be avoided, will, if it is held to be a material cause of the harm which ensues, generally be a concurrent cause of the harm, together with the conduct, which itself may or may not give rise to a cause of action, which is the more immediate cause of the harm. That is because the failure to warn will be a cause because it makes a material contribution to the harm if, had the warning been given, the plaintiff would have behaved differently, in a way calculated to avoid the harm. That was the evidence of the defendant's employees in this case.

110 It may therefore be taken to be the case that a material cause of the loss and damage suffered by the plaintiff as a result of the occurrence of the fire was that the plaintiff's employee Langman, although he did tell the defendant's supervisor, Clark, to unbolt the duct, did not go on to say that mechanical means of removing bolts which would not unscrew should be employed, and under no circumstances was an oxy-acetylene torch to be used.

111 Whether that has a material bearing upon the plaintiff's capacity to pursue the causes of action for breach of contract and in negligence to any degree is, of course, another question. But what is clear, in my opinion, is that to find that the failure to warn and instruct of which the defendant complains was a material cause of the harm suffered by the plaintiff, does not remove, as a cause of the plaintiff's harm, the breach of contract and negligence of the defendant which I have found to be made out.

112 In Henville, at 504 [138], McHugh J referred to the old notion that contributory negligence negated the causal connection between the breach of duty and the damage suffered. But, his Honour said:

" ... it has long been established that 'contributory negligence is concerned with the failure of the plaintiff to protect his or her person or property against damage and not with whether the failure contributed to the accident'. There may, of course, be cases when the injured person's failure to take care is such that it can be characterised as the sole cause of the loss or damage suffered. In that event there will be no causal connection between the breach of the Act and the 'loss or damage' to which s 82 refers."

The quote within the above quote is taken from Astley v Austrust Ltd (1999) 197 CLR 1, at 11 [21], and the Act to which his Honour refers is the Trade Practices Act 1974 (Cth), with which statute Henville was concerned. It is sufficient that I say that there is no basis in this case for the conclusion that the failure to warn and instruct so overwhelmed the negligent performance of the work by the defendant in breach of its contract and in breach of its duty in tort as to cause me to hold that the conduct of the defendant by its employees should not be regarded as being causally related to the damage suffered by the plaintiff.

113 The defendant pleads that the plaintiff was guilty of contributory negligence. It does so in answer to the plaintiff's claim in tort. It is right that the plea should be so confined. In the important case of Astley, the High Court was concerned to clarify the law of contributory negligence, both at common law and under the provisions of s 27A(3) of the Wrongs Act 1936 (SA). The decision laid to rest the notion that a plea of contributory negligence was not available in a case where the defendant, in breach of its duty, had failed to protect the plaintiff from damage in respect of the very matters which were said to constitute contributory negligence.

114 The case was one where a trustee company sued solicitors in relation to transactions which ultimately caused the plaintiff loss. The trustee company had relied upon the advice of its solicitors, which omitted to refer to a material consideration relevant to the loss sustained. The trustee company sued for breach of the contract constituted by the solicitors' retainer, and in tort. The solicitors pleaded contributory negligence, said to lie in the fact that the trustee company was asserted to have made an improvident business decision. Like this case, therefore, the causes of action pursued by plaintiff against defendant were for breach of contract by breach of an implied term of reasonable care, and for the tort of negligence. The Court held that the implied term arose by operation of law because of the professional services which the lawyers had undertaken to provide. In this case, the implied term is admitted, and rightly so.

115 As to the availability of contributory negligence in respect of the causes of action pursued against the solicitors, the Court held that the damages awarded for breach of contract should not be reduced for contributory negligence, whether or not the plaintiff has or could also have sued in tort.

116 In so holding, the Court incidentally resolved a disagreement which had arisen in the decisions of this Court. The judgment of the High Court approved the decision of the majority of the Full Court, Wallace and Brinsden JJ, Burt CJ dissenting, in Arthur Young & Co v WA Chip & Pulp Co Pty Ltd [1989] WAR 100. The High Court overruled the later decision of the Full Court in Craig v Troy (1997) 16 WAR 96, in which Malcolm CJ, with whom on this point Franklyn and Wallwork JJ, agreed, declined to follow the earlier decision, preferring the reasoning of Burt CJ.

117 That, of course, is merely a matter of historical interest. But to complete the picture, I should note that the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA) was amended in 2003 by the enactment of s 3A to make it clear that contributory negligence is available under s 4 of the Act, so that a claim for contribution would be available to a defendant despite the fact that, as would be the case here, the plaintiff's action against him succeeded in respect of loss or damage resulting from a breach of a contractual duty of care that is concurrent with and co-extensive with a duty of care in tort. Reference to the transitional provision of the amending Act shows that the amendment can have no effect upon this action.

118 Strictly speaking, therefore, following Astley, there is no need for me to address the issue of contributory negligence, but in case I should be wrong about the breach of the contractual duty, and the claim should succeed in tort for negligence, I will shortly express my views on the question.

119 The defendant relies upon the fact that the plaintiff knew that the duct contained combustible insulation material, and yet, it is asserted, Langman failed to have the air-conditioning system turned off and allowed or permitted the use of oxy-acetylene cutting equipment to remove the flange bolts. By this, I take the defendant to mean that Langman did not expressly prohibit the use of oxy-acetylene cutting equipment, although he knew that such a process should not be used because of the heightened danger of fire. It is said that the fact that at least the majority of the bolts were rusted and corroded made it probable that the defendant's employees would use an oxy-acetylene torch. Langman should have anticipated this and he should have given express instructions as to the method to be used to remove the bolts. Langman should have remained on site and supervised the defendant's employees in the performance of the work.

120 However, in my view, the plaintiff, by its employee Langman, was not guilty of contributory negligence. It did not fail to take reasonable care to protect the property of HI, and therefore to protect its economic interest to preserve itself against the requirement to indemnify HI.

121 It was not necessary for Langman to remain on site to supervise the work. It was work well within the expertise of the defendant's employees, as I think in evidence they themselves accepted. None of them, as witnesses, considered that Langman should have remained to supervise them. Clark accepted that supervision of the work was his responsibility and well within his expertise. I find that he made the decisions, in consultation with the other workers, as to how the work should proceed.

122 As has been seen, Langman and Clark had, however, discussed whether the air-conditioning system would be turned off or not. It was HI, in the person of Rose'Meyer, who made the decision that the air-conditioning system should remain in operation. Even so, I have found that Langman told Clark that the duct was to be unbolted while the system continued in operation. I am satisfied that Clark understood that he was to unbolt the duct. He said he understood this was how the work was to proceed, and that was how it did proceed, initially, at least. By "unbolt", in this context, it is clear that both men understood that a mechanical process, the use of a spanner or hammer and chisel, was to be used to either undo the bolts or, if that could not be done, break them off.

123 Langman left Clark with his mobile phone number and the offer to ring him if anything arose in respect of which Langman could be of assistance. No more was required of Langman because, in the circumstances, it was not reasonably foreseeable to a person in his position that without inquiry, without seeking permission, the defendant's workers would radically increase the prospect of fire by melting the bolts off with an oxy-acetylene torch, particularly when the fire was caused by Rooney's negligence in employing that process in such a way as to apply the very high temperatures involved so that the tort melted not only the bolt, but the flange and the metal of the duct.

124 Finally, the defendant says that if the plaintiff might otherwise succeed against it, the action is not maintainable because, as is common ground between the parties, it is brought in the name of the plaintiff by its insurer, AXA, pursuant to a purported right of subrogation. But the defendant asserts, and the plaintiff denies, that under the relevant insurance policy it is an insured within the meaning of the policy taken out pursuant to an express obligation, by the plaintiff under the terms of the head contract with HI. The effect, the defendant asserts, is an impermissible circuity of action.

125 The purported right of subrogation, it is agreed, will not permit AXA to maintain, in the name of one insured, an action against another insured who would have a right to be indemnified under the same policy for the damage sustained by HI in respect of which, under the head contract, it claims to be indemnified by the plaintiff, in other words, where there was an identicality of interest. In Co-operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257, Franklyn J, with whom Rowland J and I agreed, put it that, "The insurer had no right of subrogation on the ordinary principle of circuity, if not of basic principle, that an insurer cannot sue one co-insured in the name of another."

126 In Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380, the judgment of the Full Court was given by Ipp J. An argument had been put in respect of circuity of action. His Honour had misgivings as to whether it was available, and expressed no concluded view, but it is instructive to observe the reasons for his Honour's concern. At 402 his Honour accepted that:

"The defence [of circuity of action] is available whenever the rights of the competing litigants are such that the defendant would be entitled to recover back from the plaintiff the same amount which the plaintiff seeks to recover from the defendant, whether those sums are categorised as debts, or damages."

"I have difficulty with the proposition that, where a wrongdoer is insured for physical damage to property and causes damage to that property without himself sustaining loss, he can rely on the principle of circuity of action. ...it is an essential ingredient of the defence of circuity of action that 'there must be a complete identity between the amounts recoverable by the respective parties.' I do not comprehend on what basis the respondents could make a claim against the underwriters under section I of the policy in circumstances where they have sustained no damage to property owned by them. It seems to me that, in the present case, there is, prima facie, no identity between the amounts recoverable by the respective parties."

The same comment might be made of the position of the defendant in this action.

128 The defendant's argument proceeds in this way. The relevant undertaking under the policy of insurance by AXA to the company of which the plaintiff is a wholly-owned subsidiary was:

"To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay, as damages to which this insurance applies, caused by Property Damage resulting from an Occurrence."

129 Clause V par A defines those who are to fall within the term "insured". In the first place, the term includes subsidiaries of the named insured and that is how the plaintiff came to be insured. Subparagraph (3) of par A provides that the term "Insured" includes:

"any person, organisation or entity to whom the Insured is in writing obliged to provide insurance such as is afforded by this policy and then only to the extent both as to coverage and limits (not to exceed the limits of liability of this policy) that the Insured is obliged to provide such insurance."

The question then is whether the plaintiff was, in writing, obliged to provide insurance to the defendant against the risk which led to the plaintiff being obliged to indemnify HI.

130 In debating whether the plaintiff was subject to such a written obligation, the parties naturally refer to the head contract. Clause 11 of the General Conditions incorporated into the contract deals with insurance. Originally, it obliged HI to arrange contract works and legal liability insurance in the names of HI, its contractor and any subcontractors. The subclauses dealing with that obligation were deleted in their entirety by Special Condition 2, effecting, in this contract, a modification or amendment of cl 11 of the General Conditions.

131 That left cl 11(d) and (e). Clause 11(d) obliged the contractor (the plaintiff) to effect and maintain throughout the term of the contract, at its own expense, nominated insurances with responsible insurers on terms and conditions acceptable to HI. So here is the extent of the written obligation to provide insurance imposed upon the plaintiff. Originally there were four subparagraphs dealing with workers compensation and other insurances, insurance covering loss and damage to the contractor's constructional plant, motor vehicle third party liability insurance, and insurance covering goods off site or in transit to the site.

132 Those obligations remain, with the addition of cl 11(d)(v) as follows:

"(v) Public Liability and Property Damage Insurance

Insurance covering all claims and liabilities in respect of any injury to or death of any person or any loss damage or destructions to any property (including the Works and the Company's property) howsoever caused. These insurances shall be unlimited as to the number of claims and shall provide cover in respect of each and every claim to an amount of not less than five million dollars ($5,000,000)."

For completeness, I note that under cl 11(e) it is required that generally, unless excused by law, the insurances required by sub-cl (d) are to be endorsed to include HI, and to contain a cross-liability clause whereby the insurers waive all rights of subrogation they may have against HI.

133 The question at issue will be resolved by the proper construction of cl 11(d)(v). The ordinary principles of construction therefore require a decision about what the words used may reasonably be taken to mean, not only in themselves, but in the context of the contract as a whole and the surrounding circumstances, including those which are the commercial object and purpose of the transaction: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 462 [22].

134 As to the commercial purpose of the provision, it seems to me to be self-evident that HI has abandoned the obligation which originally rested on it to provide the necessary insurances governing the position, not only of itself, but also of its contractors and subcontractors, in favour of the transference of an obligation to its contractors to provide specific types of insurance, in relation to property in respect of its loss, damage or destruction which may generate claims and liabilities of any kind. The cover was to be not only in respect of the property comprised in the work the subject of the contract, but any property of HI and howsoever the damage or destruction was caused.

135 Of course, it is clear that the head contract contemplated that part of the work, at least, may be performed by subcontractors. Clause 16(d) provides:

Direct Engineering Services Pty Ltd v A Goninan & Co Ltd [2006] WASC 105

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Judgment (211 paragraphs)

Direct Engineering Services Pty Ltd v A Goninan & Co Ltd [2006] WASC 105 (9 June 2006)

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Cases Cited (28)