Inconsistent authorities
69 It was partly on the basis that the High Court had subsequently departed from that approach in Andar Transport that this Court in F & D Normoyle Pty Ltd v Transfield Pty Ltd [2005] NSWCA 193; 63 NSWLR 502 ("Normoyle") sought to distinguish Leighton Contractors. As noted above, it is far from clear that Darlington Futures is no longer good law. However, prior to Normoyle, both this Court and the Victorian Court of Appeal had reached conclusions at variance with those which might have resulted from the application of Speno and Leighton Contractors. The earlier of the two decisions was Australian Paper Plantations Pty Ltd v J & EM Venturoni [2000] VSCA 71 ("Venturoni"). A worker was struck by a falling tree, whilst working for a sub-contractor in a forest on land owned by APP. The liability of APP was said to have depended upon the land being "unsafe" and APP failing to provide "a safe system for felling trees". The contract between APP and the sub-contractor included the following indemnity:
"The [sub-contractors] hereby indemnify and agrees [sic] to keep the Company indemnified against all costs, damages, fines, expenses, claims, actions and suits whatsoever arising out of or in respect of the carrying out of the agreement."
70 The argument against the operation of the indemnity was that the only connection between the claim and the performance of the contract was that the sub-contractors had brought the worker onto the land for the purpose of carrying out the tree felling. Buchanan JA (with whom Ormiston JA agreed) noted that the contract was almost entirely devoted to setting out the obligations of the sub-contractors and concluded that the words "costs, damages, fines and expenses" produced absurd results if the clause applied to the performance of the contract by both parties: at [11]. His Honour also noted that APP had agreed to obtain insurance at its own expense in favour of the sub-contractors. The prescribed form of insurance "provided indemnity against the liability of the insured to pay compensation under the Act and to pay damages at common law in respect of injuries sustained by a worker", leading his Honour to conclude at [13]:
"In my view it would be incongruous if the appellant agreed to provide insurance for the respondents against claims by their workers and at the same time was able to visit upon the respondents liability for injuries sustained by workers engaged by the respondents pursuant to [the indemnity clause]."
71 After referring to authorities requiring that the clause be given its natural and ordinary meaning, his Honour noted that the construction adopted by the trial judge, in favour of the sub-contractors, was not strained. His Honour held at [18]:
"Rather, the trial judge interpreted the clause in the manner conceded by the appellant to be appropriate, that is, by requiring that the carrying out of the contract be more than the occasion of the liability in question and held that that requirement was not met in the present case."
72 The reasoning also turned in part upon the proposition that the indemnity should not have been read to extend to carrying out the contractual obligations of APP, as opposed to those of the sub-contractor. However, it was the action of the sub-contractor in bringing the worker onto the land to engage in tree felling that was a step in the chain of events leading to the injury. That, it appears, was conceded to be insufficient to engage the indemnity. The submission of the appellant that there need only be a "discernable and rational link" between the liability or claim and the carrying out of the contract was not expressly rejected, but the possibility of absurd results, combined with the acceptance by APP that it would take out insurance for those working on its land, appear to have resulted in the adequacy of the connection being rejected as no more than temporal.
73 Venturoni was distinguished by Giles and Hodgson JJA in State of New South Wales v Tempo Services Ltd [2004] NSWCA 4 at [20] and disapproved by Meagher JA at [8]. It was referred to by Spigelman CJ in Roads and Traffic Authority of NSW v Palmer [2003] NSWCA 58, as an authority relied upon by the primary judge Wood CJ at CL, in Palmer at first instance, but without expressly applying it. In Palmer, the indemnity was identified by Giles JA at [237] in the following terms:
"The immediately relevant words are those in cl 18, '… against any claim or action brought by any person against the Principal … in respect of personal injury … of any person … arising out of the construction of the Works by the Contractor', although the indemnity also deals with damage to the Principal's property and claims against the Principal in respect of damage to property."
74 Spigelman CJ (with whom Handley JA agreed) held at [213], after expressions of doubt as to the correct result:
"The concluding words 'by the Contractor' perform a function in the nature of the limitation. If cl 18 had ended with the words 'arising out of the construction of the Works', it may very well be that the differences between this case and Venturoni would lead to the conclusion that one would not add any further words. In those circumstances, it may have been the case that the proper construction would be to extend the indemnity to acts performed by the Principal. The addition of the words 'by the Contractor' were intended to limit the scope of the 'claims or actions' for which [the sub-contractor] agreed to indemnify the Council."
75 Giles JA (with whom Handley JA also agreed) identified the alternative constructions in the following terms at [238]:
"Specifically, is 'by the Contractor' only descriptive of the activity of construction of the Works out of which the damage or claim must arise ('the first approach'), or do those closing words mean that the damage or claim must arise out of the Contractor's performance of that activity ('the second approach')?"
76 His Honour further stated at [241]:
"Clauses 18-21 deal with risk allocation and protection against risk. On the first approach, the risk allocation worked by cl 18 would be unbalanced. The Contractor is obliged to indemnify the Principal against damage to the Principal's property caused by the Principal or by third parties, over whom the Contractor has no control, and whether negligently or wilfully caused; and also against claims against the Principal for wrongs committed by the Principal over which the Contractor has no control, again whether negligently or wilfully committed. The only constraint is that the damage or claim arises out of the activity of construction of the Works."
77 His Honour then considered that such a risk allocation was "not unknown" (at [242]) and considered the operation of the insurance clauses in that context. His Honour indicated that although two constructions were open, the provision for insurance "can be seen as favouring the second approach, with the insurance intended to cover the Principal with respect to its own negligent acts and omissions": at [244]. Finally, his Honour held at [249]:
"Perhaps if the only basis for the Council's liability to the Plaintiff lay in the acts and omissions of Pioneer, without fault of the Council, cl 18 would apply. But that is not so. The Council has one liability only. That liability arises out of the construction of the Works, but it does not arise out of the construction of the Works by Pioneer because one of its bases is the acts and omissions of the Council, the so-called direct breach of the Council's duty of care. The 'dual breaches of duty' takes the Council's liability outside cl 18 construed according to the second approach."
78 The highly qualified first alternative, where the "only" basis for the Council's liability lay in the acts or omissions of the sub-contractor, is presumably expressed tentatively because, as noted in Speno, it is difficult to understand how such a liability could arise. The second alternative is inconsistent with an approach that seeks an element of causation which may be a material contributing factor. But not the sole factor. Why such an approach is inadequate or inappropriate was not explained.
79 On the facts the dangerous condition of the road was the consequence of Pioneer spreading gravel on the surface in the performance of its contract. The negligence of the Council was its failure to erect proper warning signs with appropriate speed restrictions. Because the act of Pioneer gave rise to the obligation of the Council, the case is authority for the conclusion that an essential contributory factor will not engage such an indemnity, where the liability of the party indemnified is attributable to breach of its own separate duty. This approach was not consistent with Leighton Contractors (to which the Court in Palmer was not referred) or Speno, even on the restricted reasoning of Wheeler J referred to above.
80 The next case in the series is Normoyle, decided by this Court in 2005. It concerned an injury to a worker involved in the construction of a railway station at Sydney Airport. The worker was employed by Chadwick Buildings Systems Pty Ltd ("Chadwick"), which was installing gyprock ceilings under sub-contract to the head contractors, referred to as "the Joint Venture". A second sub-contractor, Normoyle, had brought pipes onto the site and stored them on the ground level. In circumstances not revealed in the evidence, the pipes were removed to an upper level where they were a hazard. In the course of his work for Chadwick, the worker tripped on the pipes and suffered injury. The terms of the indemnity given by the sub-contractors, as set out in cl 12 of the contract, were noted by Ipp JA at [43]:
"The sub-contractor shall indemnify and keep indemnified [the Joint Venture] and their respective officers, employees and agents against all claims, demands, proceedings, liabilities, costs, charges and expenses arising as a result of any act, neglect or default of the sub-contractor, its employees or agents relating to its execution of the Works."
81 The majority (Ipp JA, McColl JA agreeing) distinguished Leighton Contractors, but the reasoning in Palmer was not adopted (nor was the case referred to the Court). Rather, the majority rejected the operation of the indemnity clause in relation to the two sub-contractors on the basis that neither had been in breach of its duty under the common law, under contract, nor its statutory duty: at [73]-[75] and [89]. The operation of the indemnity turned upon the meaning of the phrase "any act, neglect or default of the sub-contractor". The majority held that these words, read together, demonstrated the need for a breach of duty on the part of the sub-contractor. Thus the indemnity only operated if the worker's injuries "were caused by an act or omission by [the sub-contractor] that amounted to negligence or breach of contract or breach of statutory duty": at [68]. This was a point of distinction between the indemnity in Leighton Contractors and that in Normoyle: at [62] and [65].
82 Ipp JA relied upon two further factors in distinguishing Leighton Contractors. One was his Honour's view that by reason of the decision of the High Court in Andar Transport, the natural and ordinary meaning approach in Darlington Futures "can no longer be relied upon in regard to indemnity clauses": at [64]. For reasons already noted, it seems unlikely that the relevant High Court authorities, including Andar Transport, should be read as inconsistent with Darlington Futures, in a sense to which no reference was made in the later cases. As Bryson JA noted in Normoyle at [141]-[142], there is no necessary discordance between a rule that ambiguous provisions in an indemnity should be construed in favour of the surety and the rule that ambiguity may properly be detected if it is a reading to which the contractual language "is fairly susceptible without placing a strained construction on it, thereby giving it" its natural and ordinary meaning. The contra proferentem rule is designed to resolve ambiguities, not to create them.
83 Finally, in Normoyle Ipp JA noted as another point of distinction of that case from Leighton Contractors that "the argument in the present case is not that the indemnity applies to liabilities solely arising as a result of any act, neglect, or default of the sub-contractor". That statement suggested no departure from the usual approach to questions of causation, which will take account of material contributing factors. His Honour referred to this question at [90] in concluding his remarks on the operation of the indemnity provision.
"90 Further, in my view, while the phrase 'arising as a result of', in cl 12, is a particularly broad expression of the notion of causation, it is not open ended. The clause plainly does not connote 'proximate cause' or 'direct cause', but it could not be construed so as to import an unlimited concept of causation. The clause does involve some causal or consequential relationship (cf Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500 at 505). Remoteness must form an element of the meaning of 'arising as a result of'; more is required than the mere existence of connecting links between an act, neglect or default of the sub-contractor and the liability incurred by the Joint Venture.
91 In my opinion, the acts of Normoyle in bringing the pipes on to the ground level of the construction site and storing them in their proper place are so remote from the accident which caused [the worker's] injuries that the liability which the Joint Venture incurred in consequence of those injuries could not be said to arise as a result of those acts."
84 The last conclusion, at [91], appears to reflect no more than the absence of evidence that Normoyle was responsible for the presence of the pipes on the upper level.
85 Bryson JA in dissent, was satisfied that the injury to the worker, who was an employee of Chadwick, had a close and direct connection with an act of Chadwick, because his own act was an act of Chadwick and was thus an act attracting the operation of the indemnity. His Honour held that the other sub-contractor, Normoyle, was not required to indemnify the Joint Venture, because there was no evidence which established that Normoyle "had any part in getting the railings to the area where [the worker] tripped, still less that Normoyle had anything to do with their being strewn on the floor in [the worker's] path".
86 The other authorities which bear on the subject are a series of decisions of single judges in the ACT Supreme Court which can be traced to the judgment of Blackburn CJ in Canberra Formwork Pty Ltd v Civil & Civic Limited (1982) 67 FLR 66 at 85-87. As explained by Bryson JA in Normoyle at [144], if the appropriate Leighton Contractors is correct, those authorities adopted an inconsistent approach and should not be followed.