Liberty Mutual Insurance Company, Australia Branch v SunWater Ltd

The Service Level Agreement

1. Under the Service Level Agreement, SunWater agreed to provide Seqwater with "flood management services" for the Wivenhoe and Somerset Dams in accordance with, relevantly: 1. the provisions of the "Service Schedule" to the agreement; and 2. the Manual.
2. Clause 3.2 of the Service Level Agreement obliged SunWater to "provide the Service to Seqwater using appropriately qualified and experienced personnel" and to "act in accordance with reasonable directions from Seqwater in respect of SunWater's performance of the Service".
3. Clause 3.3 provided: "SunWater shall perform the Service in a diligent manner and to a standard which is, at a minimum, the higher of: (a) the standard to which the Service was performed over the 24 months prior to the Effective Date; (b) the standard of skill and care expected of a contractor experienced in the provision of the Service."
4. Clause 6.1 of the agreement provided: "During the Term Seqwater must pay the Fees contained in the Service Schedule to SunWater on the terms of this Agreement, provided that, Seqwater (acting reasonably) will not be obliged to pay that part of the Fees where the Service has not been provided or completed in accordance with this Agreement."
5. The Service Schedule to the agreement obliged SunWater to: 1. "provide flood management services" for the Wivenhoe and Somerset Dams in accordance with, relevantly, the Manual; 2. "perform flood operations during flood events in accordance with", relevantly, the Manual; and 3. in conjunction with Seqwater, "mobilise flood response teams" to attend the Wivenhoe Flood Control Centre and the Wivenhoe Dam when "indications are received of an imminent flood which may require flood releases" and the Somerset Dam when "indications are received of a significant inflow which may require flood releases".
6. The Service Schedule further provided that: "Unless otherwise approved by Seqwater, flood response teams per shift shall comprise a Senior Flood Operations Engineer and/or Flood Operation Engineer and sufficient hydrographers/modellers and data checkers to manage operational requirements. The flood response team shall be sufficiently qualified and trained as prescribed in … the Flood Operation Manuals."
7. As I have mentioned, SunWater's employee, Mr Ayre, was the Senior Flood Operations Engineer at the relevant time.
8. So far as concerns payment, the Services Schedule provided: "Payment for SunWater's personnel involved in flood operations at the dams, the Flood Control Centre or elsewhere shall be made at the applicable hourly rates contained in clause 7 of this Schedule for the actual hours involved in the flood event."
9. Clause 7 of the Schedule provided for a specified "annual cost" for the "Service … with flood events to be paid for on an hourly rate basis in accordance with" an identified schedule of rates.
10. In light of the provisions I have set out at [24], [28] and [29], there is no dispute that such services as SunWater provided under the Service Level Agreement was "for a fee" for the purposes of the Exclusion.

The Manual

1. The preface to the Manual stated: "Given their potential significant impact on downstream populations, it is imperative that Wivenhoe and Somerset Dams be operated during flood events in accordance with clearly defined procedures to minimise impacts to life and property."
2. Clause 1.3 provided: "The purpose of this Manual is to define procedures for the operation of Wivenhoe Dam and Somerset Dam to reduce, so far as practicable, the effects of flooding associated with the dams. This is achieved by the proper control and regulation in time of the flood release infrastructure at the dams, with due regard to the safety of the dam structures."
3. Clause 1.7 provided: "This Manual contains the operational procedures for Wivenhoe Dam and Somerset Dam for the purposes of flood mitigation and must be used for the operation of the dams during flood events."
4. The Manual recited that pursuant to the provisions of the Water Supply (Safety and Reliability) Act 2008 (Qld), Seqwater was "responsible for operating and maintaining the dams in accordance with this Manual". [3]
5. Under the Manual it was Seqwater's obligation to: 1. ensure that a "Senior Flood Operations Engineer is designated to be in charge of Flood Operations at all times during a Flood Event"; [4] and 2. "nominate one or more suitably qualified and experienced persons to undertake the role of Senior Flood Operations Engineer". [5]
6. Seqwater nominated SunWater's employee, Mr Ayre, for that role.
7. The Manual provided that "the responsibilities of the Senior Flood Engineer" [6] were to: "• Set the overall strategy for management of the Flood Event in accordance with the objectives of this Manual. • Provide instructions to site staff to make releases of water from the Dams during Flood Events that are in accordance with this Manual. • Apply reasonable discretion in managing a Flood Event …". [7]
8. Clause 2.5 of the Manual provided for the qualifications and experience required of engineers, including the Senior Flood Operations Engineer.
9. There is no dispute that Mr Ayre had these qualifications and experience.
10. An example of the circumstance where Mr Ayre would be obliged to exercise such professional judgment was provided in cl 2.8 of the Manual which provided: "If in the opinion of the Senior Flood Operations Engineer, it is necessary to depart from the procedures set out in this Manual to meet the flood mitigation objectives set out in Section 3, the Senior Flood Operations Engineer is authorised to adopt such other procedures as considered necessary subject to the following: � Before exercising discretion under this Section of the Manual with respect to flood mitigation operations, the Senior Flood Operations Engineer must make a reasonable attempt to consult with both the Chairperson and Chief Executive. � The Chief Executive would normally authorise any departures from the Manual. However if the Chief Executive cannot be contacted within a reasonable time, departures from the Manual can be authorised by the Chairperson. � If both the Chairperson and the Chief Executive cannot be contacted within a reasonable time, the Senior Flood Operations Engineer may proceed with the procedures considered necessary and report such action at the earliest opportunity to the Chairperson and Chief Executive."
11. The Manual set out a large number of "Flood Mitigation Objectives" including, as the first consideration, "the structural safety of the dams" and then "in descending order of importance" the provision of "optimum protection of urbanised areas from inundation" and other matters.
12. The Manual recorded that: "The prime purpose of incorporating flood mitigation measures into Wivenhoe Dam and Somerset Dam is to reduce flooding in the urban areas of the flood plains below Wivenhoe Dam."

Was SunWater rendering professional advice or services to Seqwater?

1. There is no dispute that SunWater was providing a "service" to Seqwater.
2. Nor is there any dispute that the service that SunWater's employee, Mr Ayre, provided in his role as Senior Flood Operations Engineer, was a "professional service".
3. Mr Sheahan QC, who appeared with Mr Kidd SC and Mr Dooley for SunWater, accepted in terms that "Mr Ayre's relevant activities were in the context of him rendering professional services" and that "[h]e had to exercise professional judgment".
4. However, Mr Sheahan submitted that SunWater was not itself rendering a professional service but was merely "providing people to provide services".
5. Mr Sheahan submitted that the Service Level Agreement is "properly characterised … as a labour hire arrangement rather than a professional services arrangement".
6. Mr Sheahan put it this way: "We have professionals who are our employees. You have a dam, and you have a manual, a flood operations manual, which defines what flood operations engineers will do. We will give you our flood engineers so that you can use them. You have all the control over them, we have none and you will pay us an hourly rate for having our flood engineers. That is not an arrangement under which SunWater is providing professional services."
7. I do not agree.
8. It is true that: 1. under the Manual, Seqwater, as the owner of the Wivenhoe and Somerset Dams, was "responsible for operating and maintaining the dams in accordance with" the Manual; 2. under the Manual, it was Seqwater's obligation to nominate a Senior Flood Operations Engineer (in this case Mr Ayre), and to ensure that the Senior Flood Operations Engineer be in charge of Flood Operations at all times during a flood event; 3. it was Mr Ayre's responsibility to "set the overall strategy for management of the Flood Event"; 4. SunWater had no such authority and could not direct Mr Ayre as to how he should exercise his responsibilities as Senior Flood Operations Engineer; and 5. such authority that Mr Ayre had to direct flood operations as Senior Flood Operations Engineer was derived from his approval in such a role by Seqwater under the Manual and was not derived from SunWater. [8]
9. But it was SunWater that was providing the Flood Management Services to Seqwater.
10. One of those services was to provide "appropriately qualified and experienced personnel". [9]
11. The standard of service that SunWater itself was to provide was that "expected of a contractor experienced in the provision of the Service". [10]
12. Thus, the reality was that SunWater was, by its employee, providing professional engineering services.
13. I do not see anything in Beech-Jones J's findings inconsistent with this conclusion.
14. Mr Sheahan drew attention to these passages from Beech-Jones J's judgment: [11] "[Rodriguez] further submitted that as SunWater was 'contracted to provide professional engineering services to Seqwater, the scope and content of that duty in this case is informed by the duty which all professionals performing professional services owe to third parties who might reasonably foreseeably suffer physical damage to person or property as a result of any failure to take reasonable [care] in the performance of those services'. [Rodriguez] cited the following passage from the judgment of McLure JA (with whom Le Miere and Kenneth Martin JJ relevantly agreed) in Drexel London (a firm) v Gove (Blackman). [12] 'An engineer owes a duty to exercise reasonable care and skill in the provision of professional services. The duty is owed not only to the client but to other classes of persons who might foreseeably suffer injury as a result of the failure to exercise reasonable care.' (emphasis added) [Rodriguez's] submissions elide the difference between 'provid[ing] professional engineering services' and acting as an engineer. SunWater is not an 'engineer' and it did not so much promise to act as an engineer as promised to provide professional engineers and other support to enable the performance of flood management services 'in accordance with the Manual'." (Emphasis in original.)
15. His Honour was here addressing the question of whether Seqwater owed Rodriguez and the other group members a duty of care. His Honour's point was that it did not follow from the fact that SunWater was "provid[ing] professional engineering services" that it owed a duty of care to Rodriguez and the group members.
16. Thus, his Honour held SunWater was "not an 'engineer'" and did not promise to act "as an engineer" but, rather, provided "professional engineers and other support to enable the performance of flood management services 'in accordance with the Manual'". It was for those reasons his Honour held SunWater did not have a duty of the kind referred to in Drexel London.
17. However, as I read his Honour's observations, although he rejected Rodriguez's submission that SunWater owed the group members a duty of care, he nonetheless accepted the premise of Rodriguez's submission; namely, that SunWater was "contracted to provide professional engineering services".
18. His Honour then concluded that: "It follows that the only form of liability in negligence that may be imposed on Seqwater, SunWater or the State is a 'true vicarious liability', that is 'the master is liable not for a breach of duty resting on [it] and broken by [it] but for a breach of duty resting on another and broken by another.'" [13]
19. I do not see that it follows from these conclusions that his Honour held, or that I should conclude, that SunWater was not providing professional engineering services under the Service Level Agreement.
20. In my opinion, it was.

Is the Exclusion confined to professional advice or service rendered to Seqwater?

1. On behalf of SunWater it was submitted that, on its proper construction, the Exclusion only applies to claims made by the recipient or intended recipient of the professional advice or service given for a fee by SunWater: that is, Seqwater.
2. There was no dispute as to the relevant principles to be applied when construing an insurance contract.
3. They are that: 1. an insurance policy "is a commercial contract and should be given a businesslike interpretation"; [14] 2. the meaning of a commercial contract requires "consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract"; [15] 3. a construction that "would defeat the commercial purpose of the contract of indemnity" is to be avoided; [16] 4. exclusion clauses are to be interpreted by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole and, where appropriate, construing the clause contra proferentum in case of ambiguity, [17] although this is a rule of last resort; [18] and 5. an exclusion clause should not be interpreted so as to circumscribe excessively the insuring clause. [19]
4. In oral submissions attention was focussed on the text of the Exclusion.
5. This was apt. As has been correctly stated: "[T]he only relevant meaning is that which the text conveys. This follows from the need to ascertain the intention expressed in the document. Although … context and purpose are relevant, ultimately the court must attribute meaning to the words actually used". [20] (Emphasis in original.)
6. My attention was directed to the manner in which exclusions have been construed in the decisions of the Western Australia Court of Appeal in Fitzpatrick v Job t/as Jobs Engineering, [21] the New South Wales Court of Appeal in Vero Insurance Ltd v Power Technologies Pty Ltd, [22] the later decision of the New South Wales Court of Appeal in Transfield Services (Australia) v Hall [23] and of Rein J in Limit (No 3) Ltd v ACE Insurance Ltd. [24]
7. In both Fitzpatrick and Vero the exclusion clause under consideration was one expressed in terms of professional duty.
8. Thus, in Fitzpatrick the exclusion clause was in respect of: "[C]laims … arising … out of a breach of duty owed in a professional capacity by you or persons for whose breaches of such duty you may be legally liable."
9. In Vero the exclusion clause was in respect of: "[C]laims arising out of a breach of the duty owed in a professional capacity by The Insured."
10. In both those cases, the Court held that the exclusion clause was not engaged in relation to a claim made by a third party against the insured for personal injury suffered by reason of an act or omission of the insured in breach of the insured's general law duty owed to the plaintiff because that claim did not arise out of a breach of professional duty by the insured.
11. In Fitzpatrick, Mr Fitzpatrick was injured when using a machine manufactured by the insured.
12. In Vero, Mr Barlow was injured when he inhaled asbestos released when the insured performed maintenance work on equipment that it manufactured at a power station.
13. In Vero, the Court of Appeal followed the decision in Fitzpatrick. Beazley JA (with whom Campbell JA and Harrison J agreed) said: [25] "Buss JA [26] stated that it was important, when construing the exclusion clause, that the intended cover under the indemnity provisions of the policy were not inappropriately circumscribed. His Honour concluded that the exclusion of professional indemnity cover, in the context of a product's liability policy, was limited to claims made against Jobs Engineering arising out of breaches of duty owed to persons who had retained it to perform work or services in the course of its business. His Honour said at [270]: The exclusion does not extend to breaches of duty owed to third parties who may suffer foreseeable loss or damage as a result of negligent acts or omissions by Jobs Engineering in designing, manufacturing or supplying machinery and equipment, including the negligent failure to give advice of the kind which it should have given to V & D Ridolfo. My construction of exclusion 10(a) is consistent with the evident object of the products liability cover, namely, to provide indemnity, of real and not negligible value, in respect of claims for personal injury and property damage caused by defective goods and property designed and manufactured by Jobs Engineering, and put into circulation within Australia. In my opinion, the approach taken by Buss JA in Fitzpatrick should be applied here. The exclusion clause considered here is sufficiently identical to that in Fitzpatrick and the type of policy involved was relevantly similar, in the sense that it was to provide specific cover to the respondent for claims for sums which it became legally liable to pay for bodily injury. The construction given to the exclusion clause by the Western Australian Court of Appeal enables the policy to provide the indemnity which the parties undoubtedly intended the policy to have. To adopt a different construction would have significantly undermined the commercial purpose of the policy. Insurance policies are rarely confined in their terms by state boundaries and it is important that the clauses which are relevantly the same should be given the same construction. Finally, this Court should apply the decisions of a court of equal status unless the Court considers that the decision is wrong and should not be followed: see Australian Securities Commission v Marlborough Gold Mines Ltd; [27] Farah Constructions Pty Ltd v Say-Dee Pty Ltd. [28] The policy was a public liability policy. It excluded claims arising out of a breach of duty owed in a professional capacity by the respondent. The respondent did not owe a professional duty to Mr Barlow. Rather, it owed him a duty of care as a third party in respect of whom it was reasonably foreseeable might suffer damage as a result of its negligence in designing and supplying plant and equipment to Delta and its predecessors and in the manner in which it carried out maintenance on that plant and equipment. Accordingly, I am of the opinion that the exclusion does not operate in this case so as to disentitle the respondent to indemnity under the policy."
14. Thus, in both Fitzpatrick and Vero it was held, in effect, that whether or not the insured was in breach of its professional duty to its client, the claim made by the third parties (Mr Fitzpatrick and Mr Barlow) against the insured was not a claim that arose from any such breach of professional duty. Rather those claims were held to arise from the common law duty that the insured owed the third party. For those reasons, the Court held that the exclusion in question was not engaged.
15. Unlike the exclusions considered in Fitzpatrick and Vero, the Exclusion in this case is expressed by reference to claims arising out of the rendering of professional advice, rather than claims arising out of a breach of professional duty.
16. To repeat, the Exclusion provides that the insurers are not liable for claims: "[A]rising out of the rendering of or failure to render professional advice or service given for a fee by the Insured."
17. Similar clauses were considered by the Court of Appeal in Transfield and in Limit.
18. The exclusion in Transfield was in respect of liability: "10.4 Caused by or arising out of, 10.4.1 The rendering of or failure to render professional advice or service by the Insured or any error or omission connected therewith. 10.4.2 Advice, design, formula or specification given for a fee."
19. The exclusion in Limit was: [29] "This policy does not apply to personal injury, property damage or advertising injury arising out of the rendering of or failure to render professional services, during the policy period by any Named Insured".
20. Although the exclusions in Transfield and Limit are worded a little differently from the Exclusion in this case, I do not find those differences to be material. There is no dispute in this case that the advice given by Mr Ayre, and thus, as I have found, by SunWater, was professional advice. Nor is there any dispute in this case that the advice given by SunWater was given "for a fee".

Is there a material difference between a "professional duty" exclusion and a "professional service" exclusion?

1. Mr Darke SC, who appeared with Mr Ng and Mr Jedrzejczyk for Liberty, submitted that there is a material difference between an exclusion for liability for claims arising from a breach of professional duty on the one hand and an exclusion of claims arising out of the rendering of a professional service on the other.
2. Mr Darke submitted that the exclusions were textually and conceptually different in nature.
3. On the other hand, Mr Sheahan submitted that the "distinction collapses on examination". Mr Sheehan submitted that both forms of exclusion "operate by reference to the character of the relevant duty that gives rise to liability"; explicitly in the case of a professional duty exclusion and implicitly but, necessarily, also in the case of a professional service exclusion.
4. I do see a distinction between the two types of exclusion clauses.
5. As Mr Darke submitted, "[o]ne operates by reference to the character of the duty the insured owed and the other operates much more broadly simply by reference to the character of the advice or service".
6. If a claim arises from a breach of professional duty, it is hard to see how it would not also arise from the rendering of the professional service that gave rise to that breach of professional duty.
7. But if a claim arises from the rendering of a professional advice or service it might not arise from a breach of professional duty. Indeed, the question of whether it does will depend on how the professional advice or service exclusion is construed.
8. If in this case the Exclusion was in respect of claims arising from a breach of professional duty, the decision in Vero would compel the conclusion that Rodriguez's and the group members' claims did not arise from a breach by SunWater of its professional duty to Seqwater (if there was such a breach of duty) but, if they did arise at all, from a breach of SunWater's general law duty to Rodriguez and the group members or from SunWater's vicarious liability for Mr Ayre's breach of general law duty; and thus that the Exclusion was not engaged.
9. Whether the result is different here depends on how the Exclusion is construed and, in particular, on whether it is to be read down as SunWater submits.
10. Thus, the correctness of Mr Sheahan's submission that there is no distinction between the two types of exclusion clauses assumes, rather than compels, the conclusion that the construction of the Exclusion for which SunWater contends is correct.
11. In Limit, Rein J saw a professional service exclusion clause as being wider than a professional duty exclusion clause "because it does not require a breach of duty" but did not see the difference as being material. [30] I would respectfully suggest that this depends on how a professional service exclusion, such as the Exclusion, should be construed.
12. I now turn to that question.

Should the Exclusion be construed as concerning only claims made by Seqwater?

1. In Transfield, the Court was considering an exclusion which was to the same effect as the Exclusion in this case, albeit, one that was divided into two components.
2. In relation to the first component (claims arising out of "the rendering of or failure to render professional advice or service") Campbell JA concluded that the exclusion was not engaged because advice given by the insured in that case was not "professional" advice.
3. The other members of the Court, (Beazley JA and McClellan CJ at CL) did not need to consider this question as they resolved the appeal on a different basis. I will return to this below.
4. In reaching his conclusion that this aspect of the exclusion in Transfield was not engaged, Campbell JA referred to both Fitzpatrick and Vero (remembering that Campbell JA was a member of the Court in Vero and joined in the reasons of Beazley JA that I have set out above). Thus, his Honour said: "191. No features of the particular insurance policy in question are pointed to as aids to construction of this phrase. [31] In construing any exclusion, the language of which admits of more than one interpretation, the court takes into account both the contra proferentem principle (which is well established in insurance law, whatever its status might be in other areas of contractual interpretation: North v Marina, [32] and the principle that it would not give effective business operation of a contract if an exclusion clause inappropriately circumscribed the cover provided by the insuring clauses: Fitzpatrick v Job … at [270]. This court has recently applied Chemetics [33] and Fitzpatrick v Job, in Vero Insurance Ltd v Power Technologies Pty Ltd … at [147]-[149]. The High Court refused special leave to appeal from the decision in Vero on 7 March 2008. 192. Upholding the trial judge's decision [34] concerning construction of this exclusion is comfortably within the language of the clause, and would be in accordance with the contra proferentem principle. There is no relevant point of distinction between the present case and Vero, so far as the construction of the exclusion is concerned. In these circumstances there is no need to rely on the principle whereby exclusion clauses should not be construed so as to circumscribe inappropriately the insuring clauses. In my view the trial judge's decision on this question of construction was right."
5. His Honour referred to both Fitzpatrick and Vero but only, as I read his Honour's reasons, to agree with the general proposition that the contra proferentem rule applies in relation to the construction of exclusion clauses, a point that was relevant to his Honour's conclusion that the advice or service given by the insured in Transfield was not of a "professional" nature.
6. His Honour did say [35] that "there is no relevant point of distinction between the present case and Vero, so far as the construction of the exclusion is concerned." But I do not read Campbell JA as there comparing the texts of the exclusions in Transfield (a professional services exclusion) to that in Vero (a professional duty exclusion). There was no issue in Transfield that the advice was given to the insured's client. The question in Transfield was whether the advice given was "professional" in nature.
7. In relation to the second aspect of the exclusion clause in Transfield ("advice … given for a fee") Campbell JA addressed the precise question that arises in this case, namely, whether the professional advice exclusion should be construed as being confined to claims made by the party to whom the advice was given.
8. His Honour recited [36] the submission made to that effect for the plaintiff: "Mr Campbell [37] also submitted that application of the principle of construction [38] should lead to the exclusion only applying to liability to the person to whom the advice was given, or the person who commissioned the advice."
9. His Honour continued: "209. In Vero a firm of engineers had a public liability policy, that excluded liability for 'claims arising out of a breach of the duty owed in a professional capacity by The Insured …'. The engineers designed and installed some boilers at a power station. The design and installation was in no way defective. However, the boilers incorporated some asbestos lagging. Asbestos dust and fibre were released in the course of carrying out maintenance work on the boilers, and came to be inhaled by a worker, Mr Barlow, giving him mesothelioma. Mr Barlow sued the operators of the power station, who claimed contribution from the engineers. The question at issue was whether the engineers' insurance policy responded. The trial judge held that the engineers were liable in tort to the worker, because they had failed to warn the Electricity Commission about the dangers of asbestos, and the necessity to adopt stringent precautions against workers inhaling the asbestos fibres when the fibres were disturbed. The trial judge found this to be a common law duty owed to Mr Barlow against the foreseeable possibility that the power station operator would be negligent, not a professional duty owed to the power station operator. Beazley JA, (with whom Harrison J and I agreed) held that the exclusion did not operate because (at [149]): The respondent did not owe a professional duty to Mr Barlow. Rather, it owed him a duty of care as a third party in respect of whom it was reasonably foreseeable might suffer damage as a result of its negligence … 210. In my view that decision does not result in the exclusion in the present case being narrowed in a way Mr Campbell contends. In Vero, the engineers had not breached any duty owed in a professional capacity at all - there was nothing wrong with the boilers that they designed and installed. Rather, the claim arose out of a duty of a different character, namely an ordinary common law duty of care. 211. The exclusion that is in question in the present case depends upon the manner in which the liability against which indemnity is sought arose (viz, from the giving of advice for a fee). It would involve narrowing the exclusion, in a way for which there is no textual support, if it were restricted to liability owed only to the narrow class for which Mr Campbell contends."
10. Here, Campbell JA, who as I have said was a member of the Court in Vero, explicitly rejected the construction of the exclusion as being confined to or by "the person to whom the advice was given, or the person who commissioned the advice". That is in substance the submission that is made on behalf of SunWater in this case.
11. It is true that, in this element of the exclusion in Transfield, reference was made to advice "given" rather than (as in the first element of the exclusion in Transfield, and also in this case) to advice "rendered". But I see no relevant distinction between those two words in that context.
12. McClellan CJ at CL, with whom Beazley JA agreed, did not address this question as his Honour concluded that the insured was not giving "advice" at all and that, for that reason, and contrary to Campbell JA's conclusion, the exclusion was not engaged.
13. In the result, Campbell JA was in dissent in concluding that, overall, the exclusion clause was engaged and that the insured was not liable to indemnify the insured.
14. I think it is fair to say, as Mr Sheahan submitted, that it cannot be concluded that Beazley JA and McClellan CJ at CL must be taken to have accepted Campbell JA's conclusion that the second element of the exclusion ought not be read down to apply only to claims by the person to whom the advice was given. As Mr Sheahan submitted, having seen a different answer to the insurer's case, their Honours did not address that question and decided the question of the insurer's liability to indemnify the insured on a different basis.
15. However, the fact remains that a judge of appeal has expressed the emphatic conclusion that there was no "textual support" for the narrow construction of the exclusion in Transfield for which the plaintiff in that case contended.
16. As I have said, I see no relevant distinction between the exclusion clause in Transfield and the Exclusion here.
17. In Limit, Rein J expressed an opinion that I see as being inconsistent with and different to that expressed by Campbell JA in Transfield.
18. Rein J said of the decision in Transfield: "181. It will be observed that [in Transfield] [the insured] had a professional liability to [the insured's client], not to the injured plaintiff; the court regarded the liability to the plaintiff as within cover because it did not arise out of a separate professional engagement of [the insured] in the nature of a consultancy. This aspect focused upon what was meant by 'advice for a fee'. The court was unanimous that the reasoning in Vero applied to the first part of the clause. Campbell JA, in dissent, certainly did not accept the argument that liability to [the plaintiff in Transfield] was not caught by the exclusion because he was not the client … The last passage of McClellan CJ at CL's judgment … did not, in coming to a contrary view, expressly embrace the argument put on behalf of [the plaintiff in Transfield], and probably does not do so implicitly. I accept therefore that Transfield is not authority in support of [the argument that the exclusion should be read down as applying only to a claim by the client] but given the entire court's acceptance of Vero and Vero's acceptance of what had been said by Buss JA in Fitzpatrick … I do not regard Transfield as authority against [a reading of the exclusion as being confined only to a claim by a client]."
19. His Honour continued: "186. In forming a view as to the ambit of the exclusion I think it is significant that the cover provided was public liability cover, and that the underlying activities were to be provided pursuant to a design and construct contract. The liability and also everything that is specifically mentioned is required to arise out of the rendering (or failure to render) a professional service, which entails the provision of a service to a client. The JV did not render a service to anyone other than PowerGrid. It is true that the JV had professional indemnity cover from another source, but leaving aside PowerGrid the property owners here were not clients of the JV and the existence of other cover cannot control the terms of the cover provided by the ACE policy. 187. In my view an interpretation of 'professional services' that is not restricted to professional clients of the JV would cut back the cover dramatically and pays insufficient regard to the obvious commercial purpose of the policy and I adopt the approach taken in Fitzpatrick, Vero and Transfield, which is to read down the clause as dealing with liability to a client."
20. I would respectfully suggest that nothing said by the Court in Transfield compelled the conclusion to which Rein J came in the last quoted paragraph ([187]) and that, to the contrary, the opinion expressed by Campbell JA as to the second element of the exclusion in Transfield is inconsistent with that conclusion.
21. Further, to the extent that Rein J placed emphasis (in [186]) on the fact that the exclusion in Limit was in respect of services "rendered", his Honour appears not to have appreciated the force of Campbell JA's conclusions in respect of the relevantly indistinguishable provision in Transfield (which although using the word "given" rather than "rendered", was to the same effect).
22. Faced with conflicting authority on the question, I feel obliged to follow that of Campbell JA because, although his Honour was in dissent on the result in Transfield, the relevant opinion he expressed was not dissented from by the other members of the Court and, to that extent, has the status of appellate authority.
23. In any event, I agree with Campbell JA's view as it appears to me to be faithful to the text of the exclusion. To put that another way, I agree with Campbell JA that there is no "textual support" for reading down the Exclusion so that it applies only to claims made by the intended recipient of the "professional advice or service": i.e. Seqwater.

The other exclusions

1. SunWater also submitted in writing that the context in which the Exclusion appears as 1 of 11 general exclusions in the Primary Policy supports its confined construction of the Exclusion.
2. The other exclusions referred to were those relating to claims arising out of war, terrorism, radiation and asbestos, operations in the United States, employer's liability, environmental pollution and the like.
3. I cannot see what light the wording of those other exclusions sheds on the proper construction of the Exclusion.

Arising out of

1. SunWater also in writing contrasted the words "arising out of" in the Exclusion with words used in relation to other exclusions such as "arising directly or indirectly, caused by, contributed to by, or arising from" (used in General Exclusion 4 concerning "radiation"), or "arising out of or in connection with" (used in General Exclusion 10 concerning operations in the United States).
2. I do not see how these matters assist in the construction of the Exclusion. Indeed, Mr Sheahan accepted in oral submissions that the "conservative" construction for which he advocated involved reading the Exclusion as if it referred to claims arising "directly" out of the rendering of a professional advice or service, or, more extremely, as if it referred to claims "for" the rendering of such services.
3. I see no textual support for such a construction.
4. I have found, contrary to SunWater's submissions, that SunWater did render professional advice or a professional service to Seqwater.
5. It follows from that conclusion, and from my conclusion as to the proper construction of the Exclusion, that SunWater's liability under Beech-Jones J's judgment is one "arising out of" the rendering of that professional advice or service, notwithstanding the fact that Beech-Jones J held that SunWater did not itself owe a duty of care to the group members.
6. In any event, as Mr Darke pointed out in reply, SunWater's ultimate liability now arises under the Settlement Deed. It is clear that, based on my findings, SunWater's liability under the Settlement Deed arose out of its rendering of a professional advice and service.

The apparent commercial purpose of the policies

1. Finally, it was submitted on behalf of SunWater that the narrow construction of the Exclusion it advocated would give better effect to the apparent commercial purpose of the insurance policies.
2. SunWater drew attention to the opening words of the "Business Description" in the Primary Policy: "Principally, SunWater undertakes the management of water and water infrastructure, designs, operates and maintains water infrastructure and systems, locally and nationally and undertakes engineering consultancies related to water infrastructure locally, nationally and overseas for private and public clients".
3. SunWater submitted: "… if any negligent acts of SunWater's flood operations engineers under the Service Level Agreement were to be characterised as the rendering of or failure to render professional advice or services, within General Exclusion 8, the insurance coverage would be severely circumscribed. The policy would not respond unless SunWater's legal liability to pay was not attributable to the performance of its flood management operations, which typically would involve some aspect of rendering professional advice or services in consideration for a fee payable by Seqwater".
4. However, the description of SunWater's business also includes: "Maintains and operates water and waste water treatment facilities and systems and (a) generation of electricity through use of hydro electric generation using water controlled by SunWater, locally; and proposes to (b) set-up a water exchange to conduct water trading activities; (b) is examining feasibility of treating and supplying groundwater and water extracted as a by-product of coal seam methane gas operations by third parties. Business management, chattel ownership and property and major infrastructure ownership, leasing and renting, locally and nationally for undertaking its business and providing accommodation for staff … Volunteer Work by SunWater employees …".
5. The latter descriptors of SunWater's business contemplate provision of a range of services and activities which could not be described as "professional".
6. Further, the full "Business Description" appears three times in the Primary Policy; once in the general wording applicable to both the general insurance and the professional indemnity insurance cover, and then in the wording specifically applicable to the general insurance and professional indemnity insurance cover.
7. For that reason, I find the element of the "Business Description" on which SunWater relied to be neutral in relation to the proper construction of the Exclusion.
8. I also find it to be neutral on the construction question the fact that SunWater's "Estimated Turnover" as recorded in the Primary Policy greatly exceeded its "Estimated Professional Fees" because, again, this material is recorded in that part of the wording that governs both general liability and professional liability cover provided by the Primary Policy.
9. In my opinion, the wider point is that the Exclusion is, in effect, an exclusion in relation to claims for professional negligence. In oral submissions, Mr Sheahan accepted that this was "the basic thrust" of the Exclusion.
10. SunWater has claimed indemnity under the general liability provisions of the Primary Policy. But, as I have said, the Primary Policy also provided professional indemnity cover. Unlike the circumstances considered by Rein J in Limit, SunWater's professional indemnity cover did not arise from "another source" [39] but from the very policy the subject of SunWater's claim for indemnity.
11. A construction of the Exclusion as excluding liability for a claim in professional negligence in circumstances where the same policy provided professional indemnity cover, does not seem to me to produce an uncommercial or unreasonable result or to circumscribe unduly the ambit of the cover afforded under the general liability provisions in the Primary Policy.
12. It may be that the cover afforded by the professional indemnity component of the Primary Policy would not necessarily be contiguous with that excluded by the Exclusion as I have construed it. But the fact remains that the Primary Policy has the two elements to which I have referred so that the natural reading of the Exclusion so as to exclude, in effect, claims for professional negligence sits comfortably within the structure of the Primary Policy as a whole.
13. I do not accept Mr Sheahan's submission that "it makes more sense for the exclusion to be narrow than to be broad in the context of the PI policy" because "by having a narrower exclusion … you funnel the true professional negligence claims into the professional negligence indemnity policy with whatever conditions, exclusions, limits, sub-limits and so on" as may be in the professional negligence policy. It appears to me that the position is the reverse of that suggested by Mr Sheahan: it is the broader view of the Exclusion that would have this effect.

Conclusion

1. For these reasons, my conclusions are SunWater was rendering a professional advice or service and that, on its proper construction, the Exclusion is not confined to claims made by the recipient or the intended recipient of the professional advice or service in question.
2. In my opinion the claim made against SunWater by the group members in the class action proceedings, now resolved by the Settlement Deed, is a claim "arising out of the rendering of failure to render professional advice or service for a fee" and is excluded from cover by the Exclusion in the Primary Policy.
3. I invite the parties to confer and agree on the steps to be taken next.

Endnotes

1. The Somerset Dam is upstream from the Wivenhoe Dam.
2. [2019] NSWSC 1657.
3. Clause 2.1.
4. Clause 2.2.
5. Clause 2.3.
6. Which must have been intended to be a reference to the Senior Flood Operations Engineer, as the Manual does not refer to a "Senior Flood Engineer".
7. Clause 2.3.
8. As Beech-Jones J found at Chapter 11 [157] in Rodriguez & Sons Pty Ltd v Queensland Bulk Water Supply Authority t/as Seqwater.
9. See [22] above.
10. See [23] above.
11. At Chapter 11 at [160]-[161].
12. [2009] WASCA 181 at [121] (McLure JA).
13. Chapter 11 at [191].
14. McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [22] (Gleeson CJ).
15. Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ).
16. Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 at 407 (McHugh JA).
17. Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; [1986] HCA 82 at 510-511 (Mason, Wilson, Brennan, Deane and Dawson JJ).
18. McCann at 602, [74] (Kirby J).
19. Transfield Services (Australia) Pty Ltd v Hall [2008] NSWCA 294 at [205] (Campbell JA); this passage is not reported in the authorised report at (2008) 75 NSWLR 12.
20. P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Thomson Reuters) at [19.60].
21. [2007] WASCA 63 at [256] (Buss JA).
22. [2007] NSWCA 226 at [8] (Beazley and Campbell JJA and Harrison J).
23. [2008] NSWCA 294: although the relevant passages from Transfield are not reproduced in the authorised report at (2008) 75 NSWLR 12.
24. [2009] NSWSC 514.
25. At [147].
26. Who wrote the principal judgment in Fitzpatrick; with which Steytler P agreed.
27. (1993) 177 CLR 485; [1993] HCA 15 at 492.
28. (2007) 230 CLR 89; [2007] HCA 22 at [135].
29. At [19].
30. At [175].
31. That is "the rendering of or failure to render professional advice or service".
32. [2003] NSWSC 64.
33. Chemetics International Ltd v Commercial Union Assurance Co of Canada (1984) 11 DLR (4th) 754.
34. That is, that "professional advice" was advice that would, in the circumstances of the case, be expected to be given by a professional engineer and not merely advice of a skilful character: see [187]-[189].
35. At [192].
36. At [208].
37. Mr S J Campbell SC as his Honour then was.
38. That exclusion clauses should not be interpreted so as to circumscribe excessively the insuring clause.
39. At [186] of Limit; See [113] above. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 December 2021