Prestige Form Group NSW Pty Ltd v QBE European Operations PLC

The Incident 3 At all material times, Prestige carried on the business of formwork contracting, meaning the erection of formwork into which concrete is poured. On 24 February 2022, Prestige and Richard Crookes Constructions Pty Ltd (RCC) entered into a subcontract for the provision of formwork and associated works in connection with a construction project being carried out by RCC at 2 Oran Park Drive, Oran Park, New South Wales (the Project). 4 On about 29 July 2022, Prestige completed the formwork for "Basement 1" for the Project. Basement 1 was the first basement level above the bottom level, which was known as "Basement 2". On 1 August 2022, that formwork failed while concrete was being poured into it by a third-party contractor engaged by RCC, causing the concrete slab to collapse onto the ground below (the Collapse). On 3 August 2022, RCC notified Prestige that, as a result of the Collapse, damage had occurred to "the Works" (as that term is defined in the subcontract) and foreshadowed a claim against Prestige arising out of the Collapse. 5 On 17 August 2022, RCC wrote to Prestige, again noting that damage had occurred to the Works as a result of the Collapse and asserting an entitlement to be indemnified by Prestige for any loss, expense, cost and/or damage incurred in connection with it. On 19 September 2022, RCC wrote to Prestige in similar terms and demanded that Prestige make a payment of $2,087,278.03, which amount RCC claimed to have incurred in connection with the Collapse. On 7 November 2022, RCC notified Prestige that its assessment of the loss, expense, costs and/or damage it had incurred as a result of the Collapse had increased to $2,727,392.18, and again sought payment from Prestige. 6 Prestige has sought indemnity under the Policy with QBE in respect of any liability it might have to RCC arising out of the Collapse. QBE has declined to indemnify RCC on grounds that relevantly include an assertion that any liability Prestige might have in relation to the claim presently made against it by RCC is excluded by the Contract Works Exclusion (defined below) contained in the Policy. QBE accepts that all elements of the insuring clause in the Policy will be satisfied by any liability Prestige might have to pay compensation to RCC for the damage caused to the Works by the Collapse, but claims that the circumstances fall within a number of exclusions, relevantly the Contract Works Exclusion.

Salient Terms of the Insurance Policy 7 The Policy comprises the "Qanta Contractors Liability Policy Insurance Wording Version 1.1", together with a "Schedule of Insurance" (the Schedule), which contains various details and endorsements. The Schedule identifies Prestige as the Named Insured, and describes its business as: "Residential and commercial formwork, erection & dismantles [sic] & property owners/occupiers". It is common ground between the parties that that is a correct description of Prestige's business. The Period of Insurance is from 2 February 2022 to 2 February 2023. The Limit of Liability is A$20,000,000. 8 The insuring clause in the Policy is in the following terms: The Insurers (subject to the terms, conditions and exclusions contained in or endorsed on this Policy) will pay to or on behalf of the Insured all sums which the Insured shall become legally liable to pay as compensation for: 1. Personal Injury; or 2. Property Damage; or 3. Advertising Liability first happening during the Policy Period within the Territorial Limits and caused by an Occurrence within the Territorial Limits in connection with the Insured's business. 9 The exclusions in the Policy are relevantly as follows: The Insurers shall not be liable to indemnify the Insured in respect of or in any way connected with any: … 6. Contract Works liability in respect of damage to property which consists of or forms part of the Contract Works 7. Damage to Insured's Products liability to pay compensation for Property Damage to the Insured's Products where such damage is directly caused by a fault, defect, deficiency or unsuitability in the Insured's Products. But this exclusion shall only apply in respect of damage in respect of Property Damage to that part of the Insured's Products containing such fault, defect, deficiency or unsuitability or to which such fault, defect, deficiency or unsuitability is directly attributable. … 11. Faulty Workmanship liability for the cost of re-performing, completing, correcting or improving any work done or undertaken by the Insured. … 19. Property in Physical or Legal Control liability to pay compensation for Property Damage to: a. property owned by the Insured. b. property leased or rented to the Insured. c. property in the physical or legal control of the Insured. [There then follow two provisos as to circumstances in which that exclusion shall not apply to liability for "Property Damage"] d. any property in the physical or legal control of the Insured up to the sublimit detailed in the Schedule. I refer to exclusion clause 6 as the Contract Works Exclusion. 10 The conditions stated in the Policy include the following under the heading, "4. Cross Liabilities": Where more than one party comprises the Insured each of the parties shall be considered as a separate and distinct unit and the word Insured shall be considered as applying to each party in the same manner as if a separate policy had been issued to each of the said parties provided that nothing in this clause shall result in the increase of the Insurers' Limit of Liability in respect of any Occurrence or Policy Period. 11 The Policy contains the following relevant definitions: "Contract Works" means engineering, construction, electrical or mechanical, installation or erection works, including formwork, hoardings, temporary buildings or works, scaffolding, principal supplied or free issue materials, materials for incorporation in the works and additions, alterations, refurbishing or overhaul of pre-existing property. "Insured" means: a. the Named Insured stated in the Schedule. b. all subsidiary companies (now or hereafter constituted) of the Named Insured whose place of incorporation is within Australia and whose business falls within the definition of the Business. c. any Director, Executive Officer, Employee, Partner or Shareholder of the Named Insured, or of any company designated in paragraph (b) above, but only while acting within the scope of their duties in such capacity. d. any principal in respect of the liability of such principal arising out of the performance by the Named Insured, or by any company designated in paragraph (b) above, of any written contract for the performance of work for such principal, where such contract expressly obliges such Insured to provide insurance of the type provided by this Policy and then only to the extent required by such contract. e. any other party who enters into a written contract with the Named Insured, or any company designated in paragraph (b) above, for any purpose of the Business, where such contract expressly obliges such Insured to provide insurance of the type provided by this Policy and then only to the extent required by such contract. f. any incorporated or unincorporated association or organisation including their office bearers and members organised by the Insured (other than an Insured designated in definition 1(d) or 1(e)) or their employees with the consent of the Insured for the purpose of providing canteen, social, sports, welfare and or child care organisations or first aid, medical, fire or ambulance services for such employees. "Insured's Products" means anything, after it has ceased to be in the possession or control of the Insured, manufactured (or deemed to have been manufactured), grown, extracted, produced, processed, assembled, constructed, erected, installed, repaired, serviced, altered, modified, treated, handled, bottled, labelled, sold, supplied, resupplied, distributed, imported or exported by the Insured or on behalf of the Insured, and shall include: a. any packaging or container thereof. b. the design, formula or specification thereof. c. any markings, instructions, advice or warnings given or omitted to be given in connection therewith. d. discontinued products. "Occurrence" means an event, including continuous or repeated exposure to substantially the same general conditions, which results in Personal Injury, Property Damage or Advertising Liability which is neither expected nor intended from the standpoint of the Insured. "Products Liability" means liability covered by this Policy in respect of Personal Injury or Property Damage: a. caused by any defect, or the harmful nature of any of the Insured's Products. b. resulting from any defect or deficiency in any direction or advice given at any time, or intended to be given by the Insured concerning the use or storage of the Insured's Products. "Property Damage" means: a. physical injury to, destruction or loss of tangible property and any loss of use of that property resulting therefrom. a) loss of use of tangible property which has not been physically injured, destroyed or lost which is caused by physical injury to or destruction or loss of other tangible property which occurs during the Policy Period. 12 RCC is also an Insured within the meaning of paragraph (d) or (e) of the definition of "Insured", by reason of the terms of the subcontract between RCC and Prestige. There are two relevant provisions in that subcontract. First, cl 15.1 obliged Prestige to effect an insurance policy for not less than $2,950,000 covering the whole of the "Subcontract Works" and other related matters. The "Subcontract Works" were defined in such a way as to include the design, supply and installation of all formwork for concrete for the Project. Second, cl 16.1 obliged Prestige to effect a public and product liability insurance policy for not less than $20,000,000 in the joint names of itself, RCC, the Principal and all subcontractors for their respective rights and interests and which covers their liabilities to third parties.

Applicable Legal Principles 13 There was no dispute between the parties as to the applicable legal principles. In view of the extensive treatment of those principles in recent appellate decisions, I set out below a short summary of those principles which are applicable to the present dispute. 14 Commercial contracts should be construed with reference to the commercial purpose sought to be achieved by the terms and should make commercial sense and avoid making commercial nonsense or working commercial inconvenience: Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544 at [17] (Kiefel, Bell and Gordon JJ); Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35] (French CJ, Hayne, Crennan and Kiefel JJ). 15 The insuring clause and any exclusion clause must be read together in a harmonious way so that due effect is given to both, and the right conferred by the former is not negated or rendered nugatory by the construction adopted for the latter. In relation to the construction of exclusion clauses, such a clause is to be construed according to its ordinary and natural meaning, read in the light of the contract as a whole: Hakea Holdings Pty Ltd v Neon Underwriting Ltd [2023] FCAFC 34; (2023) 164 ACSR 591 at [103]-[104] (Jackman J, with whom Colvin and Button JJ relevantly agreed); Star Entertainment Group Ltd v Chubb Insurance Australia Ltd [2022] FCAFC 16; (2022) 400 ALR 25 at [14] (Moshinsky, Derrington and Colvin JJ). 16 As Meagher JA and Ball J explained in HDI Global Speciality SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296; (2020) 104 NSWLR 634 at [48]-[53], in circumstances where the literal meaning of the language of the agreement is absurd and it is clear what the parties' objective intention is to be taken to have been, that objective intention prevails over the literal meaning, although "absurdity or inconsistency" may not strictly be required and there is much to be said for a requirement only of a "clear" mistake or "something opposed to reason". Further, their Honours said that the application of those criteria should not obscure the fact that the question remains one of the ascertainment of the parties' objective intention through the application of ordinary principles of construction; the relevant criteria are merely steps involved in reasoning to a conclusion that, by one word or phrase, the parties meant something else. 17 As to the contra proferentem rule, the rule is to be applied only as a last resort after the orthodox process of construction has failed to resolve an ambiguity, and it is not a rule which may be applied to resolve "any ambiguity": LCA Marrickville Pty Ltd v Swiss Re International SE [2022] FCAFC 17; 290 FCR 435 at [83]-[102] (Derrington and Colvin JJ, with whom Moshinsky J agreed); Hakea Holdings Pty Ltd v Neon Underwriting Ltd at [105] (Jackman J, with whom Colvin and Button JJ relevantly agreed).

Submissions for Prestige 18 Prestige submits that the Contract Works Exclusion should be narrowly construed so as to confine its application to the Insured's own Contract Works or those within its possession. Prestige submits that if that narrow construction were not adopted it could give rise to anomalies. For example, if the Insured were negligently to cause the release of toxic materials or fire which caused property damage some distance from the Insured's worksite, the policy would respond to a claim by a residential home owner who was not engaged in any of the activities described in the Contract Works Exclusion, but would not respond to a claim by the owner of a neighbouring property who happened to be renovating or building at the time. Prestige submits that such a result would be absurd and not businesslike, despite the literal application of the words used in the Contract Works Exclusion and the breadth of the definition of "Contract Works". Prestige submits that there is no textual support in the Policy for drawing the line at the boundary of the building site at which the Insured is carrying on the activities described in the Policy and at which the activity causing the damage is most likely to have occurred. Accordingly, Prestige submits that that leaves the interpretation for which Prestige contends as the preferable construction. 19 Prestige draws attention to the use of the definite article "the" before "Contract Works" in the Contract Works Exclusion, rather than the use of "any" or "all" immediately preceding "Contract Works", which could have been used had the parties intended a broader meaning. Alternatively, the parties could have refrained from using any form of determiner at all. Prestige submits that the definite article "the" is used when the identity of the noun to which it refers is known. In the instant case, Prestige submits that the noun being referred to, namely "Contract Works", must be read down to mean "the Insured's Contract Works" in order to give the exclusion a businesslike operation which is consistent with the commercial context and the parties' objective intention. Prestige further submits that this is supported by the following features of the Policy: (a) the Policy "overarchingly" provides third-party property insurance cover to Prestige, an Insured involved in the construction industry and specifically in the business of formwork, such that the formwork is "the Contract Works" to which the exclusion pertains; (b) the exclusion operates to exclude "liability in respect of damage to property which consists of or forms part of the Contract Works", which appears to encapsulate certain property only (i.e. that property which consists of or forms part of the Contract Works); (c) the property which consists of or forms part of the Contract Works in this instance, having regard to the Insured's business description and the commercial context in which Prestige and QBE came to strike their bargain, is the formwork erected by Prestige; (d) from the perspective of another hypothetical insured, such as a scaffolding contractor, it would make sense that the narrower definition would equally apply to exclude liability for damage to their property which forms part of the Contract Works, which in that particular case would comprise the scaffolding equipment; and (e) the narrow interpretation propounded by Prestige is squarely in line with the objective intention of the Policy which, as a third-party property liability policy of insurance, would logically allow for an exclusion in respect of first-party property damage. 20 Prestige submits that the notion that, as a construction contractor, it would pay a significant sum of money for third-party property insurance cover which does not provide cover to it in respect of construction-site related risks (which conceivably represent the totality of property-related risks to Prestige) is absurd. Prestige submitted that applying a broad definition, and thereby including third-party property, would effectively negate the commercial intent of the Policy which is to provide cover for damage to third-party property and thereby produce a commercial nonsense. Prestige referred to McMurray v AIG Insurance Australia Ltd (No 5) [2021] WASC 300 at [489] as an example of a case where a differently worded contract works exclusion was found not to apply partly, as the policy expressly included "structures" and to apply the term "structures" in the relevant exclusion clause would be inconsistent with the overall terms of the policy. As a fall-back in the event that the construction of the exclusion remains ambiguous following the application of all other principles of construction, Prestige contends that the contra proferentem rule ought to be applied such that Prestige, rather than QBE, should benefit from the ambiguity.

Submissions for QBE 21 QBE submits that the natural and ordinary meaning of the words used in the Contract Works Exclusion does not support the construction advanced by Prestige, and characterised Prestige's construction as involving the insertion of words that are not there. QBE submits that if one adopts the orthodox technique of incorporating the definition of Contract Works into the operative text of the exclusion in the manner indicated in Halford v Price (1960) 105 CLR 23 at 28 (Dixon CJ, with whom Menzies and Windeyer JJ agreed), and 32-33 (Fullagar J), the exclusion provides: The Insurers shall not be liable to indemnify the Insured in respect of or in any way connected with any: … liability in respect of damage to property which consists or forms part of the [engineering, construction, electrical or mechanical, installation or erection works, including formwork, hoardings, temporary buildings or works, scaffolding, principal supplied or free issue materials, materials for incorporation in the works and additions, alterations, refurbishing or overhaul of pre-existing property]. 22 QBE submits that nothing in the words used by the parties suggests an intention to confine the operation of the Contract Works Exclusion to "the Insured's Contract Works". On the contrary, QBE submits that the definition of "Contract Works" is all-encompassing and extends well beyond that element of any works being constructed by the Insured. 23 QBE submits that the use of the definite article when introducing the defined term "Contract Works" into the exclusion cannot fairly be read as manifesting an intention to qualify or limit in any way the application of that broad definition where it is deployed in the exclusion. On the contrary, QBE submits that the immediate textual context provided by the Damage to Insured's Products Exclusion (being exclusion clause 7), together with the definition of Insured's Products, makes clear that the parties were alert to the potential distinction between works undertaken by the Insured and those associated with a project more generally and did use clear language to delineate the two where it was required to give proper effect to their bargain. However, they made no attempt to do so in the Contract Works Exclusion. Similarly, the Faulty Workmanship Exclusion (being exclusion clause 11) uses the concept of "any work done or undertaken by the Insured", but that concept is not picked up in the Contract Works Exclusion. Further, the Property in Physical or Legal Control Exclusion (being exclusion clause 19) uses the concept of "property in the physical or legal control of the Insured", but that concept is not picked up in the Contract Works Exclusion either. 24 QBE further submits that the proposition that the use of the definite article enables the Contract Works Exclusion to be construed in the manner contended for by Prestige is difficult to reconcile with the wide array of entities captured by the definition of Insured. For example, it was expressly contemplated by the parties that RCC would be an Insured. 25 From a commercial perspective, QBE submits that an insurer in the position of QBE may well regard losses associated with damage to property which is actively undergoing construction as presenting a unique or special class of risk. QBE submits that there is nothing absurd or uncommercial about an insurer's decision to exclude this class of risk from a general liability cover provided under the Policy. Nor is it absurd to think that a contractor in the position of Prestige would pay a substantial premium for a general liability policy that did not include this class of risk. QBE submits that if Prestige had wanted such cover, it could have obtained a conventional contract works policy of the type referred to in cl 15 of the subcontract with RCC. QBE submits that such a construction has no impact on the cover provided through the insuring clause for any liabilities Prestige might have for Personal Injury or Advertising Liability. The construction also leaves untouched a substantial body of cover for liabilities arising from third-party Property Damage. QBE puts forward by way of example that, if the Collapse had caused damage to a neighbouring property, any liability which Prestige might have had for that Property Damage would not have been excluded by the Contract Works Exclusion. Similarly, the exclusion would have no operation where a motor vehicle or some other item of third-party property was damaged by materials coming loose and falling onto the street. 26 QBE submits that it is Prestige's construction which produces an unbusinesslike result. QBE draws attention to the nature of the Policy as a third-party liability policy, providing cover for third-party claims made against the insured. The Policy does not provide first party cover. If Prestige's own property, including any formwork it might have erected in connection with a project, were to be damaged, the only party which would logically suffer loss is Prestige, and Prestige could not bring a third-party claim against itself. QBE thus submits that, viewed in the context of the insuring clause, Prestige's construction of the Contract Works Exclusion deprives it of any meaningful operation, as it would be confined in its operation to liabilities that could never arise.

Consideration 27 In my view, the ordinary and natural meaning of the language used in the Contract Works Exclusion does not favour Prestige's narrow construction. I am unable to discern any textual support for that construction. The use of the definite article "the" is too slender a hook to bear the weight of the proposed distinction between Contract Works which are owned by, or in the possession of, the Insured which makes the claim under the Policy, and those which are not. While I accept that use of the definite article "the" ordinarily suggests a reference to Contract Works which are known to, or ascertainable by, the parties, that is much too broad and general a concept to have the effect of confining the exclusion in the way suggested. 28 Further, Prestige's construction stands in stark contrast to the express language used in other exclusions. The exclusion for Damage to Insured's Products picks up the definition of Insured's Products, which in turn depends upon whether the thing in question has "ceased to be in the possession or control of the Insured". That exclusion therefore turns on whether something is in the Insured's possession or control, i.e. the very distinction which Prestige seeks to introduce to the Contract Works Exclusion. Similarly, the exclusion pertaining to Faulty Workmanship depends on whether the relevant work has been "done or undertaken by the Insured". Further, the exclusion relating to Property in Physical or Legal Control uses the concept of whether the property in question is "property in the physical or legal control of the Insured". The language of these exclusions demonstrates that the parties had express language readily available for making the kind of distinction which Prestige contends is implicit in the Contract Works Exclusion. In those circumstances, the fact that such language has not been used in the Contract Works Exclusion should be regarded as intentional. 29 I am not persuaded that there is anything unbusinesslike (or absurd) in adopting the ordinary and natural meaning of the exclusion. The Policy still provides substantial cover for Property Damage in relation to property other than that comprised in the Contract Works. QBE's examples of claims by adjacent owners or by the owners of vehicles nearby are well made. Moreover, the Contract Works Exclusion would not qualify the cover available for Personal Injury or Advertising Liability. 30 Nor am I persuaded that an anomaly arises in the case of cover being excluded for a claim by an adjacent owner who happens by chance to be renovating or undertaking other building work at the time. While such renovations or building work may fall within the strictly literal meaning of the concepts referred to in the definition of Contract Works, it seems to me that the use of the word "Contract" in "Contract Works" may have a role to play in those circumstances, albeit one which is perhaps obscured by the technique of construction adopted in Halford v Price of incorporating the definition into the substantive clause. Defined terms in a commercial contract should not be treated as akin to algebraic symbols, but rather are labels which are seldom arbitrary and are usually chosen as a distillation of the meaning or purpose of a concept intended to be more precisely stated in the definition: Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 at [17] (Lord Hoffmann). Without expressing a concluded opinion on the point, it seems to me to be reasonably arguable that the kind of works defined by the label "Contract Works" are intended to be limited to works which are the subject of a contract entered into by one of the various Insureds. On that basis, the Contract Works Exclusion would not apply to construction work undertaken by an adjoining property owner which was not the subject of any contract with one or other of the Insureds. Further, there may be other ways of resolving the anomaly adverted to by Prestige, such as by way of reference to the proposal for the Policy, which may well indicate the Contract Works which were mutually known to the parties to the Policy. The proposal for the Policy in the present case was not in evidence before me, and I mention that only as a theoretical possibility. 31 For completeness, I am not persuaded by QBE's argument based on the allegedly unbusinesslike result of Prestige's construction in the context of a third-party liability policy. In the context of Condition 4 dealing with Cross Liabilities, as Prestige submits, one of the Insured can make a claim against another Insured (as here) within the scope of the insuring clause. On Prestige's narrow construction, a claim by RCC against Prestige may fall within the insuring clause and not be excluded by the Contract Works Exclusion, if the claim relates to damage to RCC's property, and not property owned or in the possession of Prestige. There is no absurdity in contemplating that cover may extend to damage to the property of other people (that is, other than the particular Insured claiming on this Policy) who may be working on the building site. However, as I have indicated above, I am unable to discern any textual support for Prestige's narrow construction and the language used elsewhere in the Policy points strongly against such a construction.

Conclusion 32 Accordingly, the separate question should be answered: No. 33 Both parties expressed a preference for dealing with the question of costs and consequential orders after reading my reasons. QBE may seek orders finally disposing of the proceedings as the logical corollary of my answer to the separate question. In those circumstances, it seems to be appropriate that QBE should go first in filing and serving its submissions on costs and consequential orders, together with any affidavit in support, and I will give QBE 7 days to do so. Prestige will have a further 7 days to respond, and QBE will have a further 7 days to reply. I anticipate that I will then decide those remaining questions on the papers. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.