JUDGMENT
1 HIS HONOUR: On 19 April 2010 the Court issued orders the effect of which was to dismiss the proceedings brought by the plaintiff. This judgment deals with issues remaining in the cross-claim. The plaintiff brought proceedings in negligence and for breach of the Trade Practices Act 1974 (Cth), seeking damages for psychiatric injury arising from his employment or from a breach of representations made prior to entry into employment.
2 The Court, bearing in mind the provisions of the Civil Liability Act 2002, determined that the risk was not foreseeable (see Miskovic v Stryke Corporation Pty Ltd t/as KSS Security [2010] NSWSC 128 ("the earlier judgment") at [73]). Even if the risk were foreseeable, it could not be said to be "not far-fetched or fanciful": ibid. As a consequence of which it would not be "not insignificant": s 5B(1)(b) of the Civil Liability Act.
3 The Court also determined that the employer, Stryke Corporation Pty Ltd t/as KSS Security ("KSS"), if the risk were foreseeable and not insignificant, would not be liable because a reasonable person in the position of KSS would not have taken those precautions (see [74] of the earlier judgment) to overcome the possible effects of overwork: s 5B(1)(c) of the Civil Liability Act.
4 Lastly, the Court determined that the only area in which there was a lack of due care that would otherwise meet the criteria in s 5B(1) of the Civil Liability Act was in relation to an incident in which the plaintiff was caught in a lift that was inoperative and the lack of due care related to the failure to have a system in which security guards were contacted regularly for safety checks. Nevertheless, as to the latter matter, the evidence before the Court did not disclose that it caused, or was a substantial contributing cause of, damage. As a consequence of the foregoing, judgment was issued against the plaintiff. Further, if there were negligence arising from the "overwork", the contributory negligence of the plaintiff would equal and cancel out any damages that may be awarded: Civil Liability Act, s5S. The Court also determined that there had been no contravention of the Trade Practices Act.
5 During the course of the proceedings there was a difference between the employer and the cross-defendant, its insurer (hereinafter "the [or its] Insurer"). That matter was, in one respect, unrelated to the claim for damages by the plaintiff. It related to the terms of the insurance contract which, not unusually, required the Insurer to indemnify KSS against certain losses. The insurance company refused to indemnify it against any claim under the Trade Practices Act and the Court determined that the claim for insurance did not indemnify the employer against damages under s 53B of the Trade Practices Act. It may well be that the employer, in that regard, would be covered for such a claim under professional indemnity insurance.
6 The basis for that finding was the nature of the claim under s 53B of the Trade Practices Act, being a claim for damages for misleading conduct, rather than for any injury. The Court determined that, even though the damages may be calculated by reference to the personal injury, the liability was not "for any injury" as required by the terms of the insurance contract. Nevertheless, I gave leave to the parties to raise with the Court issues associated with the cross-claim, namely, the dispute between the employer and its Insurer. As already noted, this judgment deals with those issues.
7 The remaining issues, while essentially dealing with the question of costs, relate primarily to the terms of the contract and, according to the employer, KSS, require the Court to alter its judgment in relation to the cross-claim from judgment for the cross-defendant (the Insurer) to judgment for the cross-claimant (KSS).
8 It is necessary to reiterate the terms of the contract of insurance that were included at [84] of the earlier judgment. In the earlier judgment, the Court was dealing with the liability of the Insurer under the indemnity for damages arising under the Trade Practices Act as pleaded. The terms of clause 3 of the insurance contract are:
" What the Insurer is liable for
3. The insurer will indemnify the Employer against all of the following sums for which the Employer becomes liable during or in respect of the period of insurance:
(a) compensation that the Employer becomes liable to pay under the Act to or in respect of any person who is a worker of the Employer (including any person to whom the Employer is liable under section 20 of the Act);
(b) any other amount that the Employer becomes liable to pay independently of the Act (but not including a liability for compensation in the nature of workers compensation arising under any Act or other law of another State, a Territory or the Commonwealth or a liability arising under the law of another country) for any injury to any such person (not including liability in respect of an injury, suffered by a person other than such a worker, arising out of any rescue or attempted rescue);
(c) cost and expenses incurred with the written consent of the Insurer in connection with the defence of any legal proceeding in which any such liability is alleged.
The Insurer will not indemnify the Employer for the Employer's liability for GST payable on the settlement of a claim."
9 The earlier judgment concerned the construction of paragraph (b), recited above, whereas this judgment concerns the construction of paragraph (c) of the foregoing. It is conceded, for the purposes of these proceedings, that such costs as have been incurred have been incurred "with the written consent of the Insurer" and the construction turns on the proper meaning to be given to that part of (c) of the foregoing which reads "in connection with the defence of any legal proceeding in which any such liability is alleged".
10 This issue was the subject of some argument during the course of the earlier proceedings, but was somewhat subsumed within the major issues associated with the claim of the plaintiff and the liability of the insurer to indemnify for the claim under the Trade Practices Act. As a consequence, the Court granted leave to deal with any different order for costs, including an order arising under the terms of the contract of insurance. As a consequence of the remaining issue, the orders issued on 19 April 2010 were not entered. The plaintiff did not participate in any subsequent proceeding.
Principles of construction
11 The principles of construction of a contract are well known and, to the extent possible, a commercial construction shall be given to a contract between business entities. Overall this means that the whole contract must be construed in a commercial context, and, while the ordinary and grammatical meaning will be given to words, that meaning will be taken from a common sense approach, meaning, amongst other things, that the parties intend the contract to operate reasonably: see Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 at 437 (per Barwick CJ); Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] 2 VR 732 at 740 (per Marks J); Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693 at 708-709; Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541 at 554. However, reasonableness and commercial construction will not overtake words that are clear and fairly susceptible of only one meaning: Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 851 (per Lord Diplock).
12 In relation to insurance contracts, which are, by definition, contracts of indemnity, some other rules apply. As the High Court has made clear, it is now settled principle in Australia governing the interpretation of contracts of indemnity that a doubt as to the construction of a provision in such a contract, arising either from the uncertain meaning of a particular expression or from the apparent width of possible application, should be resolved in favour of the indemnifier: Bofinger v Kingsway Group Limited [2009] HCA 44; (2009) 239 CLR 269 at [53], relying on Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424 at 433-437.
13 Further, although a different approach is taken by the US Supreme Court, the High Court has declined to adopt the distinction in strict approach between insurance contracts on the one hand and other contractual indemnities on the other: see Andar, supra, at 435 referring to Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 at 561. The contra proferentem rule, on which the strict approach to indemnities depends, may have a very different outcome when it is the insurance company that proposes the contract and relies on the indemnity for its business. Nevertheless, nothing, in this case, turns on any possible distinction between the approach to insurance contracts, on the one hand, and other indemnities, on the other, and the Court is bound by the previously-mentioned refusal to draw such a distinction.
14 As earlier stated, priority is given to the common sense construction of the words of the contract in the context of the contract and plain words must be given their meaning.
Construction of the clause
15 In this case, paragraph 3(c) of the insurance contract is, in the view of the Court, in clear terms and is fairly susceptible of only one meaning.
16 The context, in which this contract is executed, is that the Insurer is indemnifying the employer against what used to be called workers' compensation claims, including claims, of any kind, where a worker claims against the employer for any injury to such person. While the Trade Practices Act claim was not a claim in which liability depended upon the injury to the plaintiff, it was a claim in which the calculation of damage was the alleged injury. The Trade Practices Act claim was plainly a means of ensuring a cause of action against the employer for the injuries sustained. The major and substantive aspect of the proceedings was a claim by a worker against an employer for personal injury, namely, the negligence claim.
17 Since there is no issue between the parties as to the "written consent of the Insurer", the clear and unambiguous construction of clause 3(c) is that these proceedings, being proceedings in which a liability that has been indemnified is alleged, are proceedings of a kind described as "any legal proceeding in which any such liability is alleged". As a consequence, whether or not the costs and expenses were incurred in defending the claim in negligence or under the Trade Practices Act, they were "costs and expenses incurred … in connection with the defence of any legal proceeding in which any such liability is alleged".
18 The indemnity for such costs and expenses is otherwise relevantly unqualified as there has been no settlement and the Court is not concerned with the liability for GST, if any.
19 On one view, the foregoing gives rise to an unusual result. While it is unnecessary to determine it in these proceedings, even if the negligence claim subject to the indemnity were a minor part of the defence of any legal proceedings, all of the costs and expenses would be indemnified. But that result is not inconsistent with a commercial construction of the contract, or to a reasonable operation of the contract, because the Insurer always has the ability to refuse consent.
20 For the foregoing reasons, all of the costs and expenses incurred by KSS in defending the proceedings must be indemnified by the Insurer, including those costs incurred in defending the claim under the Trade Practices Act.
The effect on the judgment
21 Plainly, in light of the foregoing, the order as to costs must change, inter alia, because the contract provides an indemnity for costs and expenses. As earlier explained, indemnities are different in operation from orders made by the Court for costs. An indemnity to pay costs and expenses is a primary obligation imposed by contract, or by the relation of the parties, to save and keep harmless from loss from the event so described: Victorian WorkCover Authority v Esso Australia Ltd [2001] HCA 53; (2001) 207 CLR 520 at 528.
22 Further, an indemnity is not calculated under the same principles as are damages for breach of contract. Consequential damage or loss, unless expressly exempted, is covered by an indemnity without recourse to what is known as the second limb in Hadley v Baxendale (1854) 9 Ex 341 (156 ER 145). As a consequence, all damages and expenses incurred in relation to every part of the proceedings is indemnified.
23 By definition, the cross-claim against the Insurer can only be brought in the proceedings to the extent that the cross-claim relates to, or is connected with, the plaintiff's claim in the original proceedings: s 22(2) of the Civil Procedure Act 2005 and Rule 9.1 of the Uniform Civil Procedure Rules 2005; and see Padwick v Scott (1876) 2 Ch D 736. As a consequence, the cross-claim must be, relevantly, "in connection with" the defence of any legal proceeding in which the liability is alleged. Therefore, the cross-claim is also subject to the indemnity.
24 The documents before the Court make clear that the judiciable controversy between the parties was a controversy both as to the liability of the Insurer to indemnify against the claim under the Trade Practices Act and the liability of the Insurer to indemnify KSS for its costs of defending the claim under the Trade Practices Act. The attitude of the cross-defendant Insurer was to require KSS to undertake the defence of the negligence action, which it successfully did. In those circumstances, even in the absence of the indemnity, some, at least, of the costs of the cross-claim would be available to KSS.
25 In those circumstances, it is inappropriate to continue an order that there be judgment for the cross-defendant on the cross-claim. At least part of the cross-claim has been successful. It is also inappropriate to continue the order relating to costs, which, in my view, are covered by the indemnity.
Orders
26 It seems, therefore, that it is necessary to amend the orders originally made insofar as they deal with the cross-claim. Those orders were paragraphs (ii), (iv) and (v). The Court will rescind each of those orders and make orders in lieu thereof.
27 Neither the defendant nor the cross-defendant has sought to exercise the leave granted in relation to costs as against the plaintiff and no alteration will be made to the orders made in relation to that issue.
28 For the foregoing reasons, the Court makes the following orders: