BETWEEN : SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD

BETWEEN : ZURICH AUSTRALIAN INSURANCE LTD (ACN 000 296 640)

Contracts - Indemnity clause - Indemnities against all liabilities, losses and damages - Insurance clause - Negligence - Recovery under contracts of insurance arranged pursuant to insurance clause

Insurance - Contribution and subrogation - Co-ordinate liability - Insurer's recovery against own insured - Liability of third party - Res inter alios acta - Secondary liability

Insurance - Exclusion clauses - Construction - Vehicle insurance exclusion - Motor Vehicle (Third Party Insurance) Act 1943 - "Caused by" - Liability - Relevant negligent act or omission

Insurance - Exclusion clause - Construction - Employer's liability exclusion - Joint insured - Cross-liability - Application to "Insured" - Application to "Principal"

Insurance - Insurance clause - Construction - "Arising out of" - "In respect of"

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

Broquedis v Employers Mutual Liability Insurance (1974) 360 NYS 2d

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 52 ALJR 20

Canada General Insurance Co (1974) 2 OR (2d) 506

Celik v NRMA Insurance Ltd [2000] NSWSC 380

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

Elf Enterprises v London Bridge Engineering Ltd & Ors (1997) TLR 607

FAI v Turner (1976) 50 ALJR 767

FAI General Insurance Co Ltd v Hendry Rae & Court (1993) 10 WAR 332

GIO of New South Wales v RJ Green & Lloyd Pty Ltd [1966] HCA 6; (1965) 114 CLR 437

Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350

Medlin v The State Government Insurance Commission [1995] HCA 5; (1994-1995) 182 CLR 1

Permanent Building Society v Wheeler (1992) 10 WAR 109

Technical Products Pty Ltd v SGIO (Q) [1989] HCA 24; (1989) 167 CLR 45

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

Workers Rehabilitation & Compensation Corporation v JR Engineering Services Pty Ltd (1995) 180 LSJS 276

1 MALCOLM CJ: These two appeals were heard together. Both arose out of the same incident. In 1992 Speno Rail Maintenance Australia Pty Ltd ("Speno") entered into a contract with Hamersley Iron Pty Ltd ("Hamersley") by which Speno undertook to carry out certain rail grinding work for Hamersley on the latter's railway. A Mr Nolan was employed by Speno in performing rail grinding work under the contract.

2 On 24 May 1995 Mr Nolan was travelling on the railway in a Toyota HIRail, namely, a motor vehicle adapted for travel on rails. The railway was operated by Hamersley. As a result of the negligence of employees of Hamersley, for which it was vicariously liable, the rail switches at a certain siding were operated in such a manner as to cause the HIRail to be derailed and to overturn. As a consequence, Mr Nolan struck his head against the roof and sustained serious head injuries.

3 Mr Nolan claimed damages for negligence from Hamersley. Hamersley claimed to be entitled to be indemnified by Speno for its liability to Mr Nolan and joined Speno as a third party. The claim for an indemnity against Speno was based upon cl 37 of the contract between Hamersley and Speno which provided that:

"The contractor [Speno] shall be solely liable for, and shall be deemed to indemnify and hold harmless the company [Hamersley] against any and all liabilities, losses, damages ... of every name or nature whatsoever arising whether:

(a) under any statute or at common law in respect of personal injury ... or death of

(i) any and all persons employed by it in the execution of the Work/Services ...

resulting either directly or as a consequence of the performance of the Work/Services under the Contract."

4 Hamersley also claimed it was entitled to be indemnified by Zurich under one or other or both of two policies of insurance, namely, a General Liability Policy and an Umbrella Policy. Hamersley joined Zurich as a fourth party for this purpose. Both of these policies had been obtained by Speno pursuant to its contract with Hamersley. So far as the claim under the Umbrella Policy was concerned, Zurich contended that Speno and Hamersley had engaged in misleading or deceptive conduct with the consequence that Zurich was entitled to damages against them, being the equivalent to whatever Zurich was required to pay to them by way of indemnity under the policy. Zurich also contended that, if it was required to indemnify Hamersley, Speno also had a co-ordinate liability with Zurich to indemnify Hamersley. Consequently, Zurich claimed contribution from Speno of one-half of the amount it was liable to pay Hamersley.

5 The learned trial Judge held that Hamersley was liable to Nolan in damages for negligence and gave judgment for Nolan against Hamersley for the amount of damages assessed. His Honour then held that Speno was liable to indemnify Hamersley under cl 37 of the Hamersley-Speno contract. It was also held that Zurich was liable to indemnify Hamersley under the Umbrella Liability Policy. This was a consequence of rejecting the case made out by Zurich for misleading or deceptive conduct in regard to the Umbrella Policy. A claim by Zurich against Speno for a contribution was also dismissed. Surprisingly, the learned Judge ordered Zurich to indemnify Speno, although he had not claimed any such relief at the trial. While this gratuitous gesture was in error, it was of no consequence.

6 In the result, Zurich appealed against the orders requiring it to indemnify Hamersley and Speno, the dismissal of its claims with respect to the Umbrella Policy, and the dismissal of its claim for contribution. Speno appealed against the order requiring it to indemnify Hamersley.

Zurich's liability to Hamersley under the General Liability Policy

7 I agree with Ipp J that it is first necessary to determine whether Zurich was liable to indemnify Hamersley under the General Liability Policy, as was contended for by Speno and Hamersley. The learned trial Judge had concluded that Hamersley's claim for an indemnity under the General Liability Policy was within the scope of the cover, but liability was excluded by the "employer's liability exclusion" in exclusion 1(a) of the policy. On the appeal, Zurich contended that the learned trial Judge was in error in concluding that Hamersley's claim under the policy fell within the scope of the cover. In what was described as a "coverage" clause, the General Liability Policy provided that:

"[Zurich] will pay to or on behalf of the insured all sums which the insured shall become legally liable to pay for compensation in respect of:

(1) Personal injury

... occurring ... as a result of an occurrence happening in connection with the insured's business ..."

8 The relevant policy defined "the insured" in cl 5(a) as including "the insured named in the schedule". Speno was so named and Hamersley was also so named as an insured as a "principal" in respect of the contract between Hamersley and Speno. The significance of this appears from the definition of "the insured" in cl 5(c) of the policy which relevantly provides that:

"Any principal in respect of his liability arising out of the performance, by the insured designated in definition 5(a) of any contract or agreement for the performance of work for such principal to the extent required by such contract or agreement, but subject always to the terms, conditions and exclusions of this policy."

9 It was accepted by Zurich that Hamersley was an insured under the policy, but only in respect of any liability of Hamersley "arising out of the performance by [Speno] of any contract ... for the performance of work for [Hamersley]". It follows that the policy distinguished between the interests of Speno and Hamersley as insureds. While Speno was fully insured in the conventional manner, Hamersley's cover was limited to its capacity "as a principal" and to "liability arising out of the performance" by Speno of the work the subject of the rail grinding contract with Hamersley. It was in this context that the learned trial Judge concluded that the accident would not have happened if Speno had not been performing rail grinding works or services under the contract, with the consequence that the liability of Hamersley to Nolan arose out of the performance of the contract by Speno.

10 It was contended on behalf of Zurich that Hamersley's liability in damages to Nolan did not arise out of performance by Speno of the contract, with the consequence that it was not a liability within cl 5 of the schedule in respect of which Hamersley was an insured. It was submitted that Hamersley's liability to Nolan "arose out of" the negligent operation by Hamersley employees of the points at the siding, which caused the HIRail to be derailed. It was contended that the fact that the points at the siding were negligently operated was merely coincidental and not causative of the liability. In support of this submission it was contended that the performance of the contract by Speno formed no element of Mr Nolan's cause of action against Hamersley. Further, nothing Speno did or omitted to do in performance of the contract gave rise to Hamersley's liability to Mr Nolan. Mr Pullen went so far as to say, putting it at its highest, Speno's performance of the contract with Hamersley merely gave occasion for Hamersley to be negligent. In other words, the submission was that the performance by Speno of its contract with Hamersley was not causally or consequentially related to the accident.

11 In the language of the policy, the question to be determined was not whether the liability to Mr Nolan was caused by the performance by Speno of the contract, but whether the liability of Hamersley to Nolan arose out of the performance by Speno of the contract with Hamersley. In Dickenson v Motor Vehicle Insurance Trust [1987] HCA 49; (1987) 163 CLR 500 at 505 Mason CJ, Wilson, Brennan, Dawson and Toohey JJ said:

"Whether or not the appellant's injuries were actually caused by the use of a motor car, it is sufficient to say that they arose out of such use. The test posited by the words 'arising out of' is wider than that posited by the words 'caused by' and the former, although it involves some causal or consequential relationship between the use of the vehicle and the injuries, does not require the direct or proximate relationship which would be necessary to conclude that the injuries were caused by the use of the vehicle: State Government Insurance Commission v Stephens Bros Pty Ltd [(1984) [1984] HCA 32; 154 CLR 552 at 555, 559]."

12 In my opinion, Mr Nolan's journey on the HIRail was something being done in the course of the performance of the contract by Speno. It follows that the negligent incident giving rise to liability occurred in the course of Speno's performance of the contract. The injury to Mr Nolan occurred in the course of such performance. In my view, this was enough to establish that Hamersley's liability was one "arising out of" the performance by Speno of the contract. It follows that Zurich was bound to indemnify Hamersley in respect of its liability to Mr Nolan and this particular ground of appeal fails.

13 The next issue which arose at the trial was whether the liability of Zurich to indemnify Hamersley under the General Liability Policy was excluded by the vehicle statutory exclusion clause in exclusion 2. The learned trial Judge held that it was not and Zurich appealed in respect of this decision. Exclusion 2 provided that Zurich would not be liable for claims in respect of:

(2) VEHICLES

Personal injury or property damage caused by any vehicle in respect of which there is at any time a statutory obligation to effect insurance or to contribute to a fund."

14 In this respect the learned Judge said, first, that the exclusion was limited to the situation of "personal injury caused by any vehicle". His Honour also said:

"The words 'caused by' connote a 'direct or proximate relationship': Dickenson v MVIT [1987] HCA 49; (1987) 163 CLR 500, SGIC v Sinfein Pty Ltd (1996) 15 WAR 434. In my view, the proximate cause of the accident was the negligence of Hamersley."

15 It was a matter of pure coincidence that, at the time when the points were negligently changed by Hamersley employees, Mr Nolan was travelling in the HIRail. While the negligent changing of the points caused the accident involving the HIRail to occur, with the consequence that Mr Nolan was injured, the sole cause of the accident was the negligent changing of the points. In this respect, I have nothing to add to the careful and detailed analysis of the circumstances by Wheeler J. As Ipp J has pointed out, nothing Mr Nolan did when driving the HIRail vehicle had anything by way of causation to do with the injuries he sustained. Those injuries were not "caused by" the HIRail: cf SGIC v Sinfein Pty Ltd (1996) 15 WAR 434 at 452 - 454 per Ipp J.

General liability policy: Employer's liability exclusion clause

16 A further issue raised by Zurich was that the employer's liability exclusion clause under the General Liability Policy had the effect of excluding liability by Zurich to indemnify Hamersley in respect of the liability of Hamersley to Mr Nolan. The employer's liability exclusion clause in the policy provided that:

"[Zurich] shall not be liable for claims in respect of:

(1) EMPLOYER'S LIABILITY

Personal injury to any person:

(a) arising out of or in the course of the employment of such person in the service of the insured."

17 The learned trial Judge held that as Mr Nolan was employed by Speno, the exclusion clause applied to exclude liability. I agree with Ipp J that this conclusion could only have been reached by the learned Judge construing the exclusion clause to mean that liability on the part of Zurich to Hamersley was excluded, because Hamersley's claim for an indemnity was in respect of liability for damages for personal injury, to a person arising out of or in the course of employment of such person, in the service of the insured, namely, Speno.

18 It was in this connection that Speno and Hamersley relied upon the cross-liability clause in cl 14 of the policy which provided as follows:

"For the purpose of this Policy, each of the parties comprising the Insured shall be considered as a separate legal entity and the word 'Insured' shall apply to each party as if a separate policy had been issued to each of the said parties but nothing herein contained shall operate to increase the Company's Limits of Liability stated in the Schedule."

19 It was contended for both Speno and Hamersley that, for the purpose of the policy, Hamersley was a separate named insured under the policy. Consequently, the effect of the cross-liability clause was that the policy had to be regarded as if it were a separate policy issued to each of Speno and Hamersley individually. As a result, as Mr Nolan was employed by Speno, not Hamersley, the exclusion did not apply to claims by Hamersley.

20 I agree with Ipp and Wheeler JJ that the cross-liability clause should be given its natural meaning in relation to each of the clauses of the insurance contract, except to the extent that the express words or context otherwise requires: Weightman v Noosa Shire Council [1999] QSC 368. I also agree with what their Honours say about Fletcher Organisation Pty Ltd v CML Fire & General Insurance Co Ltd (1987) 4 ANZ Ins Cas 60-805, in which there was no cross-liability clause. I also agree with the further point made by Ipp J that the exclusion clause was intended to apply to "employer's liability", but the claim by Hamersley for an indemnity by Zurich against the claim by Nolan was not a claim "in respect of employer's liability", so that the employer's liability exclusion clause was not called into play at all. In the result, therefore, as Ipp J has pointed out, the effect of the exclusion clause, when read with the cross-liability clause, had the effect that Zurich was not liable to indemnify Hamersley in respect of claims for personal injury by a person which arose out of or in the course of the employment of such person by Hamersley.

21 It follows that I agree with Ipp and Wheeler JJ that the appeals of Speno and Hamersley should be allowed, to the extent that it should be ordered that the employer's liability exclusion clause does not operate to exclude the liability of Zurich to indemnify Hamersley in respect of the claim by Mr Nolan.

Failure to disclose: Misleading or deceptive conduct and waiver

22 Wheeler J has dealt with the claim for damages by Zurich for misleading or deceptive conduct under the Trade Practices Act 1974 (Cth). This claim is contingent on Zurich being liable to Hamersley under the Umbrella Policy. In the result, however, Zurich has been held to be liable to Hamersley under the General Liability Policy. It was accepted by senior counsel for Zurich that in those circumstances this particular claim by Zurich could not be maintained.

Clauses 37 and 38 of the Hamersley-Speno contract

23 The learned Judge ordered that Speno indemnify Hamersley under cl 37(a) of the contract between Hamersley and Speno. In this respect, I am in entire agreement with Ipp J and Wheeler J that Speno's liability to indemnify Hamersley under cl 37(a)(i) of the contract was not qualified by anything in cl 38 of the contract.

Zurich's entitlement to contribution from Speno

24 The next question is whether Zurich was entitled to contribution from Speno in respect of the indemnity which Zurich was required to provide to Hamersley. It was accepted by counsel for Zurich that its right to contribution was dependent on whether the liabilities of Speno and Zurich to Hamersley were co-ordinate as explained in Albion Insurance Co Ltd v Government Insurance Office (NSW) [1969] HCA 55; (1969) 121 CLR 342 at 345 - 346 by Barwick CJ, McTiernan and Menzies JJ, and at 349 - 352 per Kitto J, with whom Windeyer J agreed. I agree with Ipp and Wheeler JJ, for the reasons which they give, that the liabilities of Speno and Zurich to Hamersley were not co-ordinate. The liability of Zurich arises from a contract of insurance. The liability of Speno does not. The legislation that governs the liability of Zurich to Hamersley has no application to the liability of Speno to Hamersley. The distinction between an insurance benefit as opposed to a benefit obtained by a contract other than one of insurance is referred to in National Insurance Co of New Zealand Ltd v Espagne [1961] HCA 15; (1961) 105 CLR 569 at 572 - 573 per Dixon J; and at 597 - 601 per Windeyer J.

25 The learned trial Judge ordered that Zurich also indemnify Speno under the Umbrella Policy. Zurich appealed against this order. There was in fact no claim by Speno for such relief at the trial. At the hearing of the appeal, however, the omission to make such a claim was cured by an amendment allowed at the hearing of the appeal, which was not opposed. Zurich contended that that there was no basis upon which such an order could be made. It appears that the matter was raised and dealt with by the learned Judge after his reasons for judgment were delivered, and when his Honour was hearing submissions regarding the orders which should be made. The transcript, if any, of that part of the proceedings was not included in the appeal book, or otherwise made available to the Court. We were not informed on what basis the order was made, and the parties appeared to be content for the matter to be argued before us as if it were a new point raised on appeal without objection.

26 The essence of the claim, as pleaded by Speno as third party against Zurich as fourth party, was that before the contracts of insurance were made, Speno, by its insurance broker, informed Zurich in writing that:

(a) Speno's contracts almost always required Speno to indemnify and hold harmless the principal and waive rights of subrogation that might otherwise be exercised by the Speno's insurer against the principal liability; and

(b) any insurance policy issued by Zurich must indemnify against that liability.

27 It was common ground that the policies issued to Speno did not contain an indemnity against that liability. Speno contended that the denial of liability by Zurich to indemnify Speno, in respect of its contractual obligation to Hamersley, constituted a breach of its duty of good faith because the relevant obligation had been specifically brought to Zurich's attention and Zurich had been told that such cover was specifically required. As Wheeler J has rightly pointed out, there was no express representation by Zurich that the cover had been or would be provided. Zurich remained silent and simply offered to issue the policies and proceeded to issue them in terms which did not provide indemnity against the liability.

28 With respect, in these circumstances, the question which arises was whether Zurich, as the insurer, was under a positive duty to disclose that it had not covered the liability, rather than whether Zurich's silence constituted a representation that the cover had been included. It is, of course, a duty on the part of both the insured and the insurer that they act in the utmost good faith towards each other: Banque Financiere de la Cite v Westgate Insurance Co [1991] 2 AC 249. According to the authorities, such duties arise at common law and are applicable to all contracts uberrima fidei: Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 58 ALJR 502. In that case at 506-509 Mason CJ, Brennan, Deane and Dawson JJ pointed out that the duty to disclose was not an implied term of the insurance contract, because the duty to disclose material matters arose prior to the making of the contract, and included a duty to disclose any facts likely to be material to the other party's decision whether or not to enter into the contract. It is against this background that s13 of the Insurance Contracts Act 1984 (Cth) provides that:

" A contract of insurance is a contract based on the utmost good faith, and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith."

29 Section 14(1) of the Act provides that if reliance by an insurer on a provision in a contract of insurance would be to fail to act with the utmost good faith, the insurer may not rely on the provision. A mutual obligation is also imposed on an insured. This provision does not limit the application of s13. Section 14(3) provides that:

" In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of a kind mentioned in s37 or otherwise."

30 Section 37 of the Act provides that an insurer may not rely on a provision in a contract of insurance (not being a prescribed contract) of a kind that is "not usually included in contracts of insurance that provide similar cover", unless, before the contract was entered into the insurer clearly informed the insured in writing of the effect of the provision. Whether the contract in question was or was not a prescribed contract does not appear, but the significance of the provision in the present context is that it is consistent with the existence of a duty to disclose in the present case, where there was a request for specific cover and a response which simply forwarded the policy without comment and, in particular, without pointing out that, not only had the cover not been provided, but that the insurer would seek an indemnity from the insured upon the occurrence of the very event against which the insured had sought cover.

31 Scotford, The Insurer's Duty of the Utmost Good Faith; Implications for Australian Insurers (1988) 1(2) ILJ 1 at 23 suggests that the duty on an insurer is such that underwriters:

"...in deciding upon policy terms and conditions...should act fairly and honestly so that there is no attempt to hide from the insured harsh or restrictive provisions in the policy. Section 14(3) clearly envisages that an insurer may be exposed to an allegation of acting without utmost good faith, and that a court looking at that question would be entitled to have regard to notification given by the insurer to the insured of any such provision in the policy."

32 It was submitted on behalf of Speno that it would be a breach of Zurich's duty of good faith to deny liability to indemnify Speno in respect of its contractual obligation to Hamersley, when the contractual obligation was specifically brought to Zurich's attention and it was made clear to Zurich that this cover was required. By letter dated 29 March 1995 the brokers representing Speno, in a covering letter enclosing the proposal forms for the relevant insurance, said:

"The Insurance Clauses of the aforementioned Contract Agreements are, for the most part, unchanged and still require the Insured to indemnify and hold harmless the various Principals and waive rights of recovery that Insurers may otherwise have against Principals. It is essential that this is allowed by Zurich Australian Insurance Ltd in Speno Rail Maintenance Australia Pty Ltd's Policies as it has been previously."

33 In a further letter dated 20 April 1995 the brokers said:

"Further to my letter of 29th March, enclosed please find copies various Insurance Clauses from all current Contracts of Speno Rail Maintenance Australia Pty Ltd.

Please do not hesitate to notify any queries or further information you may require and we will look forward to the return of the policy documents in due course."

34 Speno's statement of claim against Zurich pleaded in par 19A that prior to the relevant policies of insurance being made the above information and request were both communicated to Zurich. Zurich's duty to act with the utmost good faith is pleaded in par 19B. Reliance is also placed on s 13 of the Insurance Contracts Act 1984 (Cth). It is also pleaded that the policies were issued without providing the specific cover which Speno required, and without informing Speno that the cover was refused, or not incorporated in the relevant insurance policies.

35 In my opinion, these uncontested facts raise a question whether the duty to act in the utmost good faith required Zurich to disclose to Speno via its broker that the policies it proposed to issue to Speno would not contain the provisions which Speno had sought to be included. There is no allegation of fraud. Absent a duty to disclose, I agree with Wheeler J that, at best, the failure to disclose could only constitute a misrepresentation by silence that the policies were being issued in accordance with the request which had not been expressly refused. In such a case, the aggrieved party would be entitled to have the contract set aside in equity: Newbigging v Adam (1888) 13 App Cas 308 at 317; Hindle v Brown (1907) 98 LT 44; and Armstrong v Jackson [1917] 2 KB 822. That alone would be of no assistance to Speno. However, in such a case it has been suggested that the insured may be entitled to be indemnified against such obligations as he may have incurred under the contract: Newbigging v Adam (1886) 34 Ch D 582 in the Court of Appeal. In that case a person was induced to enter into a contract of partnership by misrepresentations which were not such as would entitle him to bring an action for damages for breach of contract. It was held that, on rescission of the contract, he was entitled to be indemnified against the debts and liabilities of the partnership. This was a means of restoring him to his former position. As Cotton LJ put it at 589:

"In my opinion it cannot be said that he is put back into his old position unless he is relieved from the consequences and obligations which are the result of the contract which is set aside. That is a very different thing from damages."

"If we turn to the question of misrepresentation, damages cannot be obtained at law for misrepresentation which is not fraudulent, and you cannot ... give in equity any indemnity which corresponds with damages."

37 Bowen LJ went on to consider the scope of relief available on rescission at 592 - 593 as follows:

"It is said that the injured party is entitled to be replaced in status quo with this limitation- that he is not entitled to be replaced in exactly the same position in all respects, otherwise he would be entitled to claim damages, but is to be replaced in his position so far as regards the rights and obligations which have been created by the contract into which he has been induced to enter."

" ... the inclination of my opinion is towards the view of Lord Justice Cotton; that I am inclined to hold that the Plaintiff is entitled to an indemnity in respect of all obligations entered into under the contract when those obligations are within the necessary or reasonable expectation of both the contracting parties at the time of the contract."

" It appears to me ... plain that the Plaintiff having been induced by the Defendants to enter the contract of partnership, it must have been in the contemplation of the parties that the new partner would under that new partnership become liable to the ordinary partnership obligations, and the obligations against which indemnity is sought are such ordinary partnership obligations."

40 The decision in that case was affirmed by the House of Lords in Newbigging v Adam, supra, but without reference to this point. It is significant, however, that the narrower view of the scope of the indemnity expressed by Bowen LJ which has become accepted as correct: Whittington v Seale-Hayne (1900) 82 LT 49; Munchies Management Pty Ltd v Belperio [1989] ATPR 50,026 at 50,035- 50,036; and JAD International Pty Ltd v International Trucks Australia Pty Ltd (1994) 50 FCR 378 at 392 per Keely, Hill and Drummond JJ.

41 In Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1987] 2 All ER 923 Steyn J held that the remedy for breach of the duty of utmost good faith was not confined to avoidance of the contract and a return of the premium, but could include a claim for damages where that would be the only effective remedy. However, in order to succeed in a claim for damages it was incumbent upon the plaintiff to prove that the non-disclosure had induced him to enter into the contract. On the facts in that case, it was clear that the banks would not have entered into the loans if they had known of the deception which took place in that case. Consequently, since the return of the premium would be a wholly ineffective and inadequate remedy, it followed that the banks were entitled to recover damages. It was also held that the doctrine of contributory negligence had no application to the breach of the duty of utmost good faith which was not a form of liability dependent on fault or negligence.

42 An appeal to the Court of Appeal reported as Banque Financiere de la Cite SA v Westgate Insurance Co Ltd [1990] 1 QB 665 was allowed. It was held that the duty of full disclosure, being neither contractual, tortious, fiduciary or statutory in character but founded on the jurisdiction originally exercised by the Courts of Equity to prevent imposition, did not give rise to a claim in damages. It was confirmed, however, that the obligation to disclose material facts was a mutual and absolute obligation imposing reciprocal duties on both insurer and insured. In the case of the insurer, the duty required him to disclose all facts known to him which were material either to the nature of the risk sought to be covered or the recoverability of a claim under the policy which a prudent insured would take into account when deciding whether to place with that insurer the risk for which he was seeking cover.

43 In Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1989] 3 All ER 628 it was held by the English Court of Appeal that the obligation of utmost good faith which preceded or continued after the making of a contract of insurance arose by operation of law as an incident of the contract and not from any implied contractual term and, as a result, was incapable of supporting a claim for damages. In this respect, the principle stated by May LJ at 659 - 660 expressed a number of reasons why the pre-contractual duty of disclosure in a contract of utmost good faith could not be held to constitute a tort so as to give rise to a claim for damages. May LJ stated four reasons for that, namely [All ER 659]:

"First, the powers of the court to grant relief when there has been non-disclosure of material facts stems from the jurisdiction originally exercised by the courts of equity to prevent imposition. Since duress and undue influence as such gave rise to no claim for damages, the court saw no reason in principle why non-disclosure as such should do so. Second, the decision in Container Transport International Inc v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1984] 1 Lloyd's Rep 476 established that, where an underwriter seeks the remedy of avoidance of a policy, the actual effect of the non-disclosure on his mind is irrelevant and what matters is the effect of the non-disclosure on the mind of a notional prudent underwriter. This principle illustrated one of the conceptual difficulties involved in upholding the remedy by way of damages. Third, the clear inference from the Marine Insurance Act 1906 is that parliament did not contemplate that a breach of the obligation of utmost good faith would give rise to a claim to damages in the course of such contract. Fourth, since in the case of a contract uberrimae fidei the obligation to disclose a known material fact is an absolute one, and attaches with equal force whether the failure is attributable to 'fraud, carelessness, inadvertence, indifference, mistake, error of judgment or even to [the] failure to appreciate its materiality' (see Ivany, General Principles of Insurance Law (5th edn, 1986) p156), a decision of the breach of such an obligation in every case and by itself constituted a tort, if it caused damage, could give rise to great potential hardship to insurers and even more, perhaps, to insured persons (see [1989] 2 All ER 952 at 997, [1989] 3 WLR 25 at 89).

Those reasons seem to us to be equally persuasive against regarding breach of the obligation of utmost good faith, in a contract of insurance, so far as concerns a breach of the obligation occurring after the contract has been made and in the course of the contract, as constituting breach of an implied term of the contract and is therefore capable of supporting a claim to damages."

44 The position is, of course, different in Australia because the requirement of disclosure is made an implied term of a contract by virtue of s 13 of the Insurance Act.

45 In Banque Financiere de la Cite SA v Westgate Insurance Co Ltd, supra, the House of Lords held that in a contract of insurance the obligation of the utmost good faith fell on both parties. There was a duty on the insurer which at least extended to disclosing all facts known to him which were material, either to the risk sought to be insured against or the recoverability of a claim under the policy, which a prudent insured would take into account in deciding whether or not to place the risk for which he sought cover with the insurer. The duty had been formulated in those terms by Slade LJ in that case in the Court of Appeal: Banque Keyser Ullmann SA v Westgate Insurance Ltd [1990] 1 QB 665 at 772. The duty was limited to disclose that which was "material ... to the recoverability of a claim under the policy". Lord Jauncey said at 281 that:

"The duty of disclosure arises because the facts relevant to the existence of the risk are most likely to be within the knowledge of the insured and the insurer has to rely on him to disclose matters material to that risk. The duty extends to the insurer as well as to the insured: Carter v Boehm (1766) 3 Burr 1905. The duty is, however, limited to facts which are material to the risk insured, that is to say, facts which would influence a prudent insurer in deciding whether to accept the risk and, if so, upon what terms and a prudent insured entering into the contract on the terms proposed by the insurer. Thus any facts which would increase the risk should be disclosed by the insured and any facts known to the insurer but not the insured, which would reduce the risk, should be disclosed by the insurer."

46 The omission from the cover of the specific indemnity sought by Speno was a fact known to the insurer. It was, however, a fact which the insured or the insured's professional insurance broker were capable of discovering by perusing the policy with care. In the particular circumstance, however, when the cover was complex as in this case, I consider that there was "a duty to speak" on the part of Zurich to inform Speno that the policies which it was providing did not extend to Speno the cover it had specifically requested. The information was clearly within the category of matters material to the question whether, in the particular

circumstances a prudent prospective insured would want to know. Consequently, in my opinion, there was a breach of the duty of the utmost good faith on the part of Zurich. Unfortunately, for Speno, however, the duty does not require that Zurich make the representation good by providing the relevant cover. In Banque Financiere de la Cite, supra, the House of Lords held that damages were not available for a breach of the duty of utmost good faith, the remedy is to rescind the contract and obtain a refund of the premium. That is a remedy which is inconsistent with the claim made under the policy as a result of which Speno must be taken to have affirmed the contract. It makes no difference that, in Australia, the duty has been made an implied term of the contract by statute: cf Kramer v McMahon [1970] 1 NSWLR 194 at 204 per Helsham J; and Academy of Health and Fitness Pty Ltd v Power [1973] VicRp 25; [1973] VR 254.

47 It follows that I am of the opinion that Zurich is liable to indemnify Hamersley under the General Liability Policy and is liable to indemnify Speno. I agree with Ipp and Wheeler JJ that none of the other challenges made to the findings of the learned trial Judge should be upheld. It will be necessary to hear counsel regarding the orders to be made to dispose of these two appeals.

48 IPP J: I have had the benefit of reading the reasons to be published by Wheeler J. I agree generally with those reasons and shall briefly explain why I have come to the same conclusions as her Honour.

49 In 1992 Speno Rail Maintenance Australia Pty Ltd entered into a contract, termed Contract-HS1243, with Hamersley Iron Pty Ltd. By that contract Speno undertook to carry out certain rail grinding work for Hamersley. Mr Nolan was an employee of Speno and part of its workforce involved in performing rail grinding work pursuant to Contract-HS1243.

50 On 24 May 1995, Nolan, in the course of doing the rail grinding in question, was travelling in a Toyota HIRail (a motor vehicle adapted for travel on rails) along a rail track operated by Hamersley. Hamersley employees, for whom it was vicariously responsible, negligently operated the rail switches at a certain siding and caused the HIRail to be derailed and to overturn. The roof of the HIRail collapsed. Nolan struck his head against the roof and, in consequence, sustained serious head injuries.

51 Nolan claimed damages from Hamersley caused by its negligence. Hamersley in turn claimed an indemnity from Speno and Zurich Australian Insurance Ltd. The indemnity Hamersley sought from Speno arose from a contractual promise made by Speno in terms of cl 37 of Contract-HS1243. That clause provided:

"The contractor [Speno] shall be solely liable for, and shall be deemed to indemnify and hold harmless the company [Hamersley ...] against any and all liabilities, losses, damages ... of every name or nature whatsoever arising whether:

(a) under any statute or at common law in respect of personal injury ... or death of

(i) any and all persons employed by it in the execution of the Work/Services [rail grinding] ...

resulting either directly or as a consequence of the performance of the Work/Services under the Contract."

52 The indemnity Hamersley sought from Zurich arose from two policies of insurance termed a General Liability Policy and an Umbrella Liability Policy. Both policies had been procured for Hamersley by Speno pursuant to its obligations under Contract-HS1243.

53 Zurich raised what in effect was a special defence to the claims under the Umbrella Policy. It claimed that Speno (who had taken out the policy for the benefit of Hamersley) and Hamersley had engaged in misleading or deceptive conduct in regard to the Umbrella Policy and in consequence Zurich was entitled to damages against them being the equivalent of whatever Zurich was required to pay to them by way of indemnities under the policy.

54 Zurich, further, claimed that, if it was obliged to indemnify Hamersley, then Speno had a co-ordinate liability (with it) to indemnify Hamersley. On that basis, Speno should be ordered to contribute to Zurich one-half of the amount Zurich was obliged to pay Hamersley.

55 The learned trial Judge, after determining the quantum of damages to which Nolan was entitled, granted judgment against Hamersley in favour of Nolan. He held that Hamersley was entitled to an indemnity from Speno under cl 37 of Contract-HS1243. He held that no liability attached to Zurich under the General Liability Policy but concluded that Zurich was obliged to indemnify Hamersley under the Umbrella Liability Policy. His Honour did not uphold Zurich's contentions concerning misleading or deceptive conduct in regard to the Umbrella Policy. He dismissed Zurich's claim against Speno for a contribution. The learned Judge also ordered Zurich to indemnify Speno, although Speno had not claimed such relief at the trial.

56 In a series of appeals that came before this Court, Zurich appealed against the orders requiring it to indemnify Hamersley and Speno, against the dismissal of its claims for misleading and deceptive conduct in regard to the Umbrella Policy, and against the dismissal of its claim for contribution. Speno appealed against the order requiring it to indemnify Hamersley.

57 It is first necessary to determine whether Zurich is liable to indemnify Hamersley under the General Liability Policy, as contended for by Speno and Hamersley.

58 The learned trial Judge found that the claim in respect of which Hamersley sought indemnity under the General Liability Policy was covered by the policy, but liability was excluded under exclusion 1(a) of the policy, being an exclusion termed the "employers liability exclusion".

59 Before dealing with exclusion 1(a), however, it is necessary to consider the argument advanced by Zurich that the learned Judge wrongly held that the claim by Hamersley fell within the scope of the cover.

60 The "Coverage" clause of the General Liability Policy provided:

"[Zurich] will pay to or on behalf of the insured all sums which the insured shall become legally liable to pay for compensation in respect of:

(1) Personal injury

(2) ...

(3) ...

occurring ... as a result of an occurrence happening in connection with the insured's business ...."

61 Clause 5(a) of the General Liability Policy defined "the insured" as including "the insured named in the schedule". The schedule recorded the insured as being Speno, but also noted that Hamersley was an insured as a "principal" in respect to Contract-HS1243. The relevance of Hamersley so being described becomes apparent from cl 5(c) of the policy which includes as part of the definition of "insured":

"Any principal in respect of his liability arising out of the performance, by the insured designated in definition 5(a) of any contract or agreement for the performance of work for such principal to the extent required by such contract or agreement, but subject always to the terms, conditions and exclusions of this Policy."

62 It is not disputed that under cl 5(a) and cl 5(c), read with the schedule, Hamersley was an insured under the policy but only in respect of its "liability arising out of the performance by [Speno] of any contract ... for the performance of work for [Hamersley]". In other words, it was accepted that, for the purposes of cl 5 and the schedule, a distinction is to be made between Speno and Hamersley as insureds. While Speno was an insured in the ordinary sense of the term, Hamersley was only an insured "as a principal" to the extent stipulated. The extent stipulated comprised "liability arising out of the performance" by Speno of work for Hamersley under Contract-HS1243.

63 The learned trial Judge found in this respect that:

"The accident would not have happened if Speno had not been performing rail grinding works/services under the contract.

In my view, Hamersley's liability to Nolan therefore arises out of Speno's performance of the contract."

64 Mr Pullin QC, senior counsel for Zurich, submitted that this reasoning was an application of the "but for" test of causation which must be eschewed: Chappel v Hart (1998) 195 CLR 232. Mr Pullin contended that Hamersley's liability to pay Nolan the damages sustained by him did not arise out of the performance by Speno of the contract, and hence was not a liability within the meaning of cl 5(c), in respect of which Hamersley was an insured. He submitted that Hamersley's liability to Nolan arose out of its negligent operation of the points at the siding which caused the HIRail to be derailed, and the fact that the negligent operation occurred in performing Contract-HS1243 was merely coincidental and not causative of the liability. He pointed to the fact that Speno's performance of the contract formed no element of Nolan's cause of action against Hamersley, and nothing Speno did or omitted to do in the performance of the contract gave rise to Hamersley's liability to Nolan. According to Mr Pullin, the most that could be said against Zurich on this issue is that Speno's performance of Contract-HS1243 merely gave occasion for Hamersley to be negligent. The essence of the submissions so advanced was that Speno's performance of Contract-HS1243 was not causally or consequentially related to the accident.

65 It is important to appreciate that the question that falls for determination is not one of causation at common law, but rather whether on the facts Hamersley was relevantly an insured within the meaning of words used in the policy. According to the policy, the question to be determined is simply whether Hamersley's liability to Nolan arose out of the performance by Speno of Contract-HS1243. The answer to this question does not depend on common law principles of causation.

66 It is true that the negligent act that gave rise to liability was the operation of the switches while the HIRail was travelling on the rail track, and not some aspect of Speno's performance of Contract-HS1243. But the incident giving rise to liability occurred in the course of Speno's performance of the contract. That is to say, the HIRail was on the track and Nolan was in the HIRail only because Speno required them to be in those places so as to enable it to perform the contract. There is undoubtedly a causal link between Hamersley's liability and the performance by Speno of the contract, namely, the presence of the HIRail (with Nolan in it) on the tracks at the very moment the switches were negligently operated.

67 The words "arising out of" are well recognised as being of broad import. Further, in the context of an insurance policy, there is no reason to construe them narrowly. It is difficult to conceive of any situation where Hamersley could incur a liability arising out of the performance by Speno of its contract (within the meaning of cl 5(c)) in circumstances different in principle to those in the present case. Despite valiant attempts by Mr Pullin to give examples of this kind, none was persuasive.

68 Here we have a situation where Nolan was injured in carrying out the duties Speno was obliged to perform under Contract-HS1243, in circumstances that rendered Hamersley liable. In my opinion, as a matter of the ordinary meaning of the English language, that liability arose out of the contract. In my opinion, the learned Judge was correct in the conclusion to which he came and I would not uphold this ground of appeal.

69 The next question is whether the liability, that would otherwise attach to Zurich to indemnify Hamersley under the General Liability Policy, is excluded by the vehicle statutory insurance exclusion clause (exclusion 2). The learned trial Judge held against Zurich on this issue and Zurich appealed in this respect.

"[Zurich] shall not be liable for claims in respect of:

(1) ...

(2) VEHICLES

Personal injury or property damage caused by any vehicle in respect of which there is at any time a statutory obligation to effect insurance or to contribute to a fund."

71 The learned trial Judge pointed out that the exclusion referred to "personal injury caused by any vehicle". His Honour said:

"The words 'caused by' connote a 'direct or proximate relationship': Dickenson v MVIT [1987] HCA 49; (1987) 163 CLR 500, SGIC v Sinfein Pty Ltd (1996) 15 WAR 434. In my view, the proximate cause of the accident was the negligence of Hamersley."

72 I agree that the personal injury to Nolan was caused by the negligent changing of the points and not by the HIRail. This matter is dealt with in detail by Wheeler J and I agree, with respect, with what her Honour has stated. The fact is that nothing Nolan did when driving the vehicle had anything to do with the injuries he suffered. It follows that his injuries were not "caused by" the HIRail: see SGIC v Sinfein Pty Ltd (1996) 15 WAR 434 (at 452-454).

73 The next question is whether, as Zurich submitted, under the General Liability Policy the employer's liability exclusion clause has the effect of excluding liability on the part of Zurich to Hamersley. This argument was disputed by Speno and Hamersley.

74 The employer's liability exclusion clause provided:

"[Zurich] shall not be liable for claims in respect of:

(1) EMPLOYER'S LIABILITY

Personal injury to any person:

(a) arising out of or in the course of the employment of such person in the service of the insured.

75 The learned trial Judge held that as Nolan was employed by Speno, "the injury was to a person in the service of Speno, and therefore the exclusion clause applies to exclude liability under the General Liability Policy." That is to say, his Honour construed the exclusion clause to mean that liability on the part of Zurich to Hamersley was excluded because Hamersley's claim for an indemnity was in respect of liability for damages for personal injury to a person arising out of or in the course of employment of such person in the service of the insured, namely, Speno.

76 Speno and Hamersley relied on the cross-liability clause. This provided:

For the purpose of this Policy each of the parties comprising the Insured shall be considered as a separate legal entity and the word 'Insured' shall apply to each party as if a separate policy had been issued to each of the said parties but nothing herein contained shall operate to increase the Company's Limits of Liability stated in the Schedule."

77 The argument submitted on behalf of Speno and Hamersley was that Hamersley was a named insured under the policy and, by virtue of the cross-liability clause, the policy had to be regarded as if it were a separate policy that had been issued to it. On this basis, as Nolan was not an employee of Hamersley, the exclusion did not apply to claims by Hamersley.

78 I agree with the view expressed by Wheeler J that "the cross-liability clause should be given its natural meaning in relation to each of the clauses of the contract of insurance, except to the extent that the express words or context otherwise require". This is consistent with the views expressed by Ambrose J in Weightman v Noosa Shire Council [1999] QSC 368. I further agree with her Honour that the facts of the present case differ from those in Fletcher Organisation Pty Ltd v CML Fire & General Insurance Co Ltd (1987) 4 ANZ Ins Cas 60-805. As there was no cross-liability clause in the Fletcher Organisation case, the reasoning in that case is not presently applicable.

79 Further, I would point out that, whereas the exclusion clause was intended to apply to "employer's liability", the claim by Hamersley against Zurich for indemnity against the claim by Nolan is not a claim "in respect of employer's liability". Nolan's claim against Hamersley is not a claim by an employee of Hamersley and Hamersley is not liable by reason of it being an employer of Nolan. In my view, the employer's liability exclusion clause is inapposite to exclude Zurich's obligation to indemnify Hamersley against the claim by Nolan.

80 I would construe the exclusion clause, in the light of the cross-liability clause, as meaning, relevantly, that Zurich is not liable to indemnify Hamersley in respect of claims for personal injury to any person, arising out of or in the course of the employment of such person in the service of Hamersley.

81 Accordingly, I agree with Wheeler J that the appeal of Speno and Hamersley should be allowed to the extent that it should be ordered that the employer's liability exclusion clause does not exclude Zurich's liability to indemnify Hamersley against the claim by Nolan.

82 The learned trial Judge ordered that Zurich also indemnify Speno (under the Umbrella Policy). Zurich appealed against this order. As I have mentioned, there was no claim by Speno for the relief so granted. This omission, however, was cured by an amendment granted without opposition at the hearing of the appeal.

83 The damages claimed by Zurich for alleged misleading or deceptive conduct under the Trade Practices Act are dependent on Zurich being liable to Hamersley under the Umbrella Policy. As I have mentioned, Zurich's claim for such damages was raised as a special defence to the claim under the Umbrella Policy. Mr Pullin, accordingly, accepted that if Zurich were held to be liable to Hamersley under the General Liability Policy (as I have held to be the case), Zurich's claim under the Trade Practices Act falls away.

84 Zurich contended that neither the Umbrella Policy nor the General Liability Policy provided that Zurich indemnify Speno. That contention was not disputed. Mr Martino, counsel for Speno, submitted, however, that it would be a breach of Zurich's duty of good faith for it to deny liability to indemnify Speno. This submission was based on the fact that, in negotiations before the policies were issued, Speno, by its insurance broker, impliedly requested Zurich to provide cover to it and Zurich did not respond in any way save by issuing policies without that cover. In my opinion, the facts show no implied representation by Zurich, no improper non-disclosure on its part and no breach of its duty of good faith. The learned Judge erred in ordering that Zurich indemnify Speno and this order must be set aside.

85 I now turn to Speno's appeal against the order that it must indemnify Hamersley under cl 37(a)(i) of Contract-HS1243.

86 Speno submitted that its liability under cl 37(a)(i) was qualified by cl 38. Clause 38 provided:

(a) Insurance Conditions

...

(vii) The contractor [Speno] shall ensure that any policy of Workers Compensation Insurance taken out by the Contractor to cover Work/Services performed pursuant to the contract shall be indorsed to indemnify the Company [Hamersley] against any and all liability [Hamersley] may have either by operation of statute or at common law. (a) except for Workers Compensation Insurance [Speno] shall ensure that all Insurances to be taken out pursuant to this Clause and those which [Hamersley] feels desirable to have shall:

(a) include [Hamersley], its officers, employees, agents and representatives as co-insured; and

(b) provide a waiver by insurers of all expressed or implied rights of subrogation against [Hamersley], its officers, employees, agents and representatives."

87 The first argument advanced by Speno in regard to cl 37 and cl 38 is that cl 38 prevents cl 37 from applying where Hamersley is entitled to the benefit of the insurance arranged by Speno under cl 38. I am unable to understand this argument as Speno did not dispute that Hamersley's claim against Speno for indemnity was brought in Hamersley's own right and not on behalf of an insurer. That is to say, there was no question concerning any benefit of insurance that arose in this context.

88 Mark Rowlands Ltd v Bernie Ins Ltd (1985) 2 Lloyds Report 437 was cited in support of Speno's argument. It was held in that case that in the circumstances that obtained (and, particularly, having regard to the terms of the lease that was in issue), the insurer of the plaintiff landlord could not be subrogated to the rights of the landlord so as to be able to claim damages from the defendant tenant. But that case was one in which the insurer sought to sue by subrogation, and the decision turns on the law relating to subrogation. That is entirely different to this case, where Hamersley sues in its own right, and no insurer is involved in respect to the indemnity sought by Hamersley from Speno.

89 Thus the issue that presently arises is whether there is anything in cl 38 that prevents Hamersley, in its own right, from claiming indemnity under cl 37. When the issue is seen in this light, I do not think that Mark Rowlands Ltd v Bernie Ins Ltd is of assistance. Rather, the remarks of Phillips JA in Buller Ski Lifts Ltd v Mount Buller Alpine Resort Management Board [2000] VSCA 31 are pertinent. His Honour said:

"It seems to me plain, simply on the wording of cl 7.1, that the insurance which is to be obtained by the lessee and maintained in the name of both lessor and lessee will guarantee the very indemnity which the lessee undertakes to provide in cl 8.2. The trial Judge expressed the opinion that if that was so there could be no point in the insurance because the lessee was already obliged to indemnify the lessor to the same extent as mentioned in cl 7.1; but the need for insurance cover recognises, I think, the commercial possibility of insolvency or some other obstacle standing in the way of the lessee meeting the call for an indemnity, when made."

90 Applying this approach, which in my opinion is the appropriate one in the circumstances, there could well be a commercial reason for Hamersley obtaining an indemnity under cl 37 and requiring policies to be taken out by Speno in terms of cl 38. Whether an insurer of such a policy would have the right to claim against Speno, were Speno to have indemnified Hamersley under cl 37, is not presently to the point. That is not an issue with which the Court is required to deal.

91 Accordingly, I am not persuaded that there is anything in cl 38 which affects the liability of Speno under cl 37 to indemnify Hamersley.

92 The next issue that arises is whether Zurich is entitled to a contribution from Speno in respect of the indemnity it is required to provide to Hamersley. It was accepted by Mr Pullin that Zurich's right to a contribution is dependent upon whether the liabilities of Speno and Zurich to Hamersley are co-ordinate, and is to that question that I now turn.

93 Zurich's liability arises from a contract of insurance and Speno's liability does not. Legislation that governs Zurich's liability has no application to the liability of Speno. The peculiar character of an insurance benefit (as opposed to a benefit conferred by a contract that is not one of insurance) is discussed in National Insurance Co of New Zealand Ltd v Espagne [1961] HCA 15; (1961) 105 CLR 569. The two liabilities are intrinsically different in character. In my opinion, they are not co-ordinate and I agree with what Wheeler J has said in this respect. I would not uphold Zurich's argument on this issue.

94 In summary, therefore, I would hold that Zurich is liable to indemnify Hamersley under the General Liability Policy but is not liable to indemnify Speno at all. I would make consequential orders following on these findings. I would not uphold any of the other challenges made to the findings of the learned Judge. I would hear counsel as to the orders that should be made.

95 These appeals arise out of a decision of Williams DCJ delivered in the District Court on 5 August 1999. In order to understand the orders made by his Honour and the issues that arise, it is convenient to turn to the factual and contractual background. Mr Nolan had been employed by Speno Rail Maintenance Australia Pty Ltd ("Speno") to operate a machine used to grind railway lines to a correct profile. He suffered an injury, which arose in the following way.

96 Having secured the grinder machine some distance out of Dampier, he transferred into another vehicle. This was a Toyota Landcruiser, which had an adaptation that enabled it to travel along the railway line. Each morning those operating the grinder would drive from their accommodation to the railway track on the road in the Landcruiser, which

would be lined up with the railway line and then driven along the railway to wherever work was to commence. The vehicle with these modifications was described as a Toyota HIRail. The railway track was operated by the respondent, Hamersley Iron Pty Ltd ("Hamersley").

97 At about 6.40 am, the HIRail was proceeding through a switch at a siding when, due to the admitted negligence of a Hamersley employee, the points at the siding were switched, causing the HIRail to be derailed and to turn over. Both men in the Landcruiser, Mr Nolan and a Mr Oatway, were injured. The injuries were apparently caused by the collapse of the roof of the vehicle. Mr Nolan's injury was primarily an injury to the head, which led to his claim for damages.

98 The business of Hamersley was that of mining, manufacture, transportation and loading of iron ore. As part of this business, Hamersley employed Speno to provide services which consisted primarily of rail grinding - including the operation and maintenance of Hamersley's rail grinding machine, provision of spare parts and provision of a vehicle for Speno's workforce. Within the contract between Speno and Hamersley (known at trial as either "the works and services contract" or "contract HS1234") there was an indemnity clause, cl 37(a)(i), which relevantly read:

(a)(i) the contractor [Speno] shall be solely liable for and shall be deemed to indemnify and hold harmless the company [Hamersley] ... against any and all liabilities, losses, damages ... of every name or nature whatsoever arising whether:

(a) under any statute or at common law in respect of personal injury ... or death of

(i) any and all persons employed by it in the execution of the Works/Services [rail grinding] ...

resulting either directly or as a consequence of the performance of the Works/Services under the Contract."

99 It was held by the trial Judge that Speno was required to indemnify Hamersley in respect of Mr Nolan's damages under this provision. I will turn to his Honour's decision in more detail shortly. It is convenient to mention also the next clause of this contract, which has some relevance to the appeal by Zurich Australian Insurance Ltd ("Zurich"). Clause 38 relevantly read:

(a) insurance conditions

...

(vii) the Contractor shall ensure that any policy of Workers' Compensation Insurance taken out by the Contractor to cover Work/Services performed pursuant to the contract shall be indorsed to indemnify the Company against any and all liability the Company may have either by operation of statute or at common law.

(viii) except for Workers' Compensation Insurance the Contractor shall ensure that all Insurances to be taken out pursuant to this Clause and those which the Contractor feels desirable to have shall:

(a) include the Company its officers, employees, agents and representatives as co-insureds; and

(b) provide a waiver by insurers of all expressed or implied rights of subrogation against the Company, its officers, employees, agents and representatives."

100 Speno had sought workers' compensation insurance from Zurich in respect of these works but, having been provided with a quote, decided not to proceed with that insurance. Instead, Speno obtained workers' compensation insurance from CIC Insurance Co. It was common ground that this policy did not extend to respond to the circumstances of Mr Nolan's claim. However, Speno had taken out both a general liability and an umbrella policy with Zurich, with Hamersley named as principal.

101 As the claim progressed, first Mr Nolan sued Hamersley for negligence and negligence was in due course admitted. Hamersley issued a third party statement of claim against Speno, claiming indemnity under cl 37 of contract HS1243. At that stage, Speno defended the third party claim primarily on the basis of cl 38, contending that on the proper construction of the contract either Hamersley was first required to seek to recover under contracts of insurance arranged pursuant to cl 38 or alternatively, that Speno was not required to indemnify Hamersley where it could claim pursuant to the contracts referred to under cl 38. As I have noted, it came to be common ground that the CIC Insurance contract did not cover that claim.

102 Speno claimed against Zurich as fourth party to the proceedings. This claim arose because of the two policies taken out by Speno as insured with an indorsement adding Hamersley as principal. Speno claimed an order requiring Zurich to perform those contracts. At some time later, Hamersley also claimed directly against Zurich pursuant to those policies, filing a notice of indemnity in early 1999.

103 In respect of both policies, Zurich argued at trial that neither policy responded to the claim for the reason that the event in question was outside the scope of the cover provided by the insurance clause of each contract. His Honour rejected this argument. In relation to both policies there was an exclusion clause, referred to as the "vehicle statutory insurance" exclusion, and Zurich argued that if either policy otherwise would have covered this event, it fell within that exclusion. Although the exclusion clause was in somewhat different terms in respect of each policy, his Honour held that in neither case was that clause applicable.

104 In relation to the general liability policy there was an employer's liability exclusion clause, and his Honour held that the event in question fell within the scope of that exclusion clause so that the general liability policy was not applicable. His Honour dealt with an argument in relation to the umbrella policy that there had been non-disclosure and misrepresentation by the broker acting as agent for both Hamersley and Speno. It is enough to note for the present that his Honour took the view that there was a material failure to disclose but that in the circumstances, Zurich should be deemed to have waived compliance with the duty of disclosure.

105 Zurich also submitted to his Honour that if it were liable pursuant to either relevant policy, then it was entitled to claim contribution from Speno on the ground that Speno was also liable to indemnify Hamersley pursuant to contract HS1243. His Honour held that the liability of Speno to Hamersley was not coordinate with the liability of Zurich and that, further, Zurich was not entitled to contribution from Speno for its liability to Hamersley under insurance policies where Speno was also an insured under those policies. It was his Honour's view that Zurich was not entitled in those circumstances to seek contribution from its own insured.

106 His Honour made the following findings, which conveniently summarise the outcome of all the arguments raised at trial:

"(1) Nolan is entitled to judgment against Hamersley in the sum of $813,381.10.

(2) Hamersley is entitled to be indemnified by Speno in respect to the judgment sum.

(3) The general liability policy and the umbrella policy both respond to the claims by both Hamersley and Speno.

(4) The vehicle statutory insurance exclusion in both the general liability policy and the umbrella policy do not apply to either Hamersley or Speno.

(5) The employer's liability exclusion in the general liability policy applies to both Hamersley and Speno.

(6) There has been non disclosure by Hamersley, Speno and the broker in relation to the umbrella policy.

(7) Zurich is deemed to have waived non compliance with the duty of disclosure under s 21(3) of the Insurance Contracts Act.

(8) That the claim by Zurich against the broker, Speno and Hamersley for misrepresentation and relief under s 83 of the Trade Practices Act fails.

(9) Although unnecessary to decide, the limitation defence raised by the broker and Speno fails.

(10) That contribution claimed by Zurich against Speno fails.

I will hear counsel as to the proposed orders which should be made."

107 It is convenient to set out the issues arising in the appeals in the order in which they were argued at the hearing. Zurich's grounds of appeal are as follows:

"(1) The learned trial judge erred in law in concluding, in relation to the general liability policy and the umbrella policy, that Hamersley's liability to the Plaintiff arose out of Speno's performance of Contract HS-1243.

(2) The learned trial judge erred in law in concluding that personal injury to the plaintiff was not caused by the vehicle; and

(3)-(5) ... [These grounds attack his Honour's findings (7) and (8) above. They arise only if the umbrella policy responds to the claim and the general liability policy does not].

(6) In the alternative to grounds (1) to (5), the learned trial judge erred in law in concluding that Speno's liability to Hamersley under clause 37 of Contract HS-1243 was not a coordinate liability with the liability of Zurich, and therefore erred in not ordering contribution against Speno.

(7) The learned trial judge erred in law in entering judgment in favour of Speno against Zurich for indemnity under the umbrella policy when Speno had not sought any such relief against Zurich.

108 By notices of cross-appeal and of contention, Speno and Hamersley raised the following issues:

109 • On a proper construction of cl 37 of contract HS1243 whether that clause applies so as to give indemnity where Hamersley is entitled to the benefit of insurance arranged by Speno pursuant to cl 38.

110 • Whether Speno is under an obligation to indemnify Hamersley or whether such indemnity is precluded because it would have the effect of Zurich practically exercising a right of subrogation against Speno, its own insured.

111 • Whether the learned trial Judge was correct in concluding that the employer's liability exclusion in the general liability policy excluded Zurich's liability on that policy.

112 • Whether Zurich was able to establish that it had altered its position as a result of any misleading or deceptive conduct on the part of the broker representing Hamersley and Speno.

113 • Whether it would be a breach of Zurich's duty of good faith to deny liability to indemnify Speno in respect of its obligation to Hamersley, that obligation having been specifically brought to Zurich's attention at the time at which insurance was arranged.

114 It should also be noted that in response to ground 7 of Zurich's grounds of appeal, Speno seeks to amend its statement of claim by the addition of a claim that Zurich indemnify it against its liability to Hamersley, and that amendment was granted by leave without opposition at the hearing of the appeal.

The insurance clause and the statutory vehicle insurance exclusion

115 The propositions advanced by Zurich in relation to both of these issues revolve around questions of causation, and it is therefore convenient to deal with them together.

116 The two vehicle exclusion clauses are different. The primary focus of the argument was upon that contained in the umbrella policy. It read as follows:

"The Company shall not be liable for claims in respect of: ...

2 VEHICLES

Personal Injury caused by any vehicle in respect of which there is a statutory obligation to effect insurance or contribute to a fund.

In no event shall coverage be provided for Personal Injury which would be recoverable from the abovementioned statutory insurance or fund whether such insurance or contribution to the fund has been effected or not except in the event of accidental or erroneous failure to maintain such statutory insurance or contribution to a fund."

"The Company shall not be liable for claims in respect of: ...

2 VEHICLES

Personal Injury or property damage caused by any Vehicle in respect of which there is at any time a statutory obligation to effect insurance or to contribute to a fund.

PROVIDED THAT

If no indemnity is afforded by any other insurance or fund, this Exclusion shall not apply to Personal Injury or Property Damage:

...

(b) Use of any Vehicle as a tool of trade on any site where the Insured is undertaking work or at the premises of the Insured.

However, this Proviso (b) does not extend coverage to Vehicles:

(i) whilst in transit within any worksite or

(ii) used for transport or haulage."

118 It is to be noted that a difficulty in construing the proviso to this clause is that critical connecting words appear to be missing. It is not clear whether the exclusion in par (b) extends to personal injury "caused by" or "arising from" or "related to" the use of a vehicle as a tool of trade. Other possibilities may be imagined, each with different implications. However, in my view, it is possible to understand this clause, in the circumstances of this case, without resort to the proviso.

119 So far as the insurance clause is concerned, it is in each policy relevantly the same and reads:

"[Zurich] will pay to or on behalf of the Insured all sums which the Insured shall become legally liable to pay for compensation in respect of (1) personal injury ... occurring ... as a result of an Occurrence happening in connection with the Insured's Business ...".

120 The definition of "Insured" is relevantly the same in each policy. Turning to the umbrella policy, the definition is by par 1(a) of the definitions the insured named in the schedule [ie Speno] but also includes by cl 1(c) of the definition:

"any principal [ie Hamersley] in respect of his liability arising out of the performance by the Insured designated in definition 1(a) [ie Speno] of any contract or agreement for the performance of work for such principal to the extent required by such contract or agreement, but subject always to the terms, conditions and exclusions of this Policy".

121 The question here is whether Hamersley's liability is one "arising out of" Speno's performance of the contract.

122 There is substantial common ground between Zurich and Hamersley as to the relevant test to be applied to determine whether this expression is satisfied. Each refers to Dickenson v Motor Vehicle Insurance Trust [1987] HCA 49; (1987) 163 CLR 500 at 505, where the High Court said:

"The test posited by the words 'arising out of' is wider than that posited by the words 'caused by' and the former, although it involves some causal or consequential relationship ... does not require the direct or proximate relationship [implicit in the word 'caused']".

123 Zurich relies upon Dickenson also for the proposition that it is important to distinguish between the liability of Hamersley for injury, and the injury which was caused to Mr Nolan. It stresses, correctly, that it is the former and not the latter which must relevantly arise out of the performance by Speno of its contract.

124 However, the next, and critical, step in the reasoning suggested by Zurich is as follows. It is submitted that the word "liability" is a reference only to a "negligent act or omission" of Hamersley. Reliance is placed for this proposition upon a passage in a judgment of Connolly J in the Full Court of the Supreme Court of Queensland which was approved by the High Court in Technical Products Pty Ltd v State Government Insurance Office (Qld) [1989] HCA 24; (1989) 167 CLR 45 at 47-8. To put the passage relied upon in its context, the facts in that case were that a workman had been injured when he fell from a pallet supported by the tines of a forklift while loading goods into a container on the back of a motor vehicle. The motor vehicle was subject to insurance cover under the Motor Vehicles Insurance Act 1936 (Qld). The workman's employer was held liable in negligence due to the unsafe condition of the forklift. The question for the court was whether that situation attracted s 3(1) of the Motor Vehicles Insurance Act 1936 (Qld), which required the owner of a vehicle to effect insurance cover "against all sums for which he ... shall become legally liable by way of damages in respect of such motor vehicle for accidental bodily injury ...". The question was whether the employer was liable "in respect of" the motor vehicle.

125 As in Dickenson, the court pointed to the difference between a focus upon the relevant liability and upon the injury. In considering the words "in respect of" the court noted that the nexus between legal liability and the motor vehicle was a broad one, not susceptible of precise definition, but that it would not exist unless there were "some discernible and rational link between the basis of legal liability and the particular motor vehicle". Their Honours then went on to say that that point was well made in the judgment of Connolly J, upon which passage Zurich relies in the present case. His Honour had said (omitting citations):

"If the liability of the respondent in this case is to be described as being in respect of the trailer, there must, in my opinion be more than the mere presence of the trailer at the scene. ... it is not sufficient, in order to satisfy the requirement that the person entitled to the benefit of the cover be 'legally liable ... in respect of such motor vehicle' , that there be no more than a connection or relation in time or sequence between the motor vehicle and events which in law give rise to the liability. What is required is that there be a relationship between the motor vehicle and the very act or omission which gives rise to that liability." (emphasis added)

126 In my view, to attempt to extract from Technical Products Pty Ltd the proposition that Hamersley falls within the definition of "Insured" only where there is a causal relationship between the negligent act or omission of Hamersley and the works and services contract, is misconceived. The focus of the judgment is upon the expression "in respect of" and the relationship which that implied between the liability and the vehicle. It was in a particular statutory context. It is not to be taken as establishing that in all contexts in which the word "liability" appears, it is necessary or possible to substitute the words "negligent act or omission". Indeed, in many contexts it would not make sense to do so.

127 Liability, in the law of tort, generally arises out of a combination of a duty of care owed to a person and a negligent act or omission breaching that duty of care. This is a simplistic analysis, but it is sufficient for present purposes. In my view, it is liability in that composite sense which must arise out of - that is have some causal or consequential relation with - the performance by Speno of the contract. My principal reason for reaching this view is that this seems to me to be consistent with the ordinary understanding of liability, rather than the partial and restricted meaning which Zurich seeks to have the expression bear. However, I am fortified in this conclusion by what appears to me to be the consequence of adopting the narrower view.

128 If one were to adopt Zurich's analysis that it is the negligent act or omission by Hamersley which must arise out of the performance by Speno of the contract, it is difficult to imagine any situation in which this could be said to occur. The example given by Mr Pullin QC, counsel for Zurich, of a situation in which he said the definition would be attracted was along the following lines. If in performing its contract Speno had unloaded from the HIRail some equipment and placed it into a pathway commonly used by people on Hamersley's site, and had been seen by a Hamersley supervisor who was aware that the area was a pathway but who failed to remove the goods, then if some person had walked through the pathway at night and tripped over the goods, Hamersley, as occupier of the site, would have a liability which arose out of Speno's performance of the contract by reason of the fact that Speno had brought the goods to the site and placed them there.

129 However, if one adopts the strict analysis contended for by Zurich in this case, and asks the question of what is the relevant negligent act or omission on the part of Hamersley, then the answer appears to be that it would be a failure to take reasonable care to remove from the site materials which it should have known were there and should have foreseen to be a hazard to visitors. On that strict analysis, the negligent act or omission does not arise out of Speno's performance of its contract; rather, the presence of the goods has "merely given occasion for the operation of" Hamersley's negligence.

130 In my view, the reason that one might readily accept that Hamersley's liability arose out of Speno's performance of its contract in the example given, is that the presence of the hypothetical goods, forming part of Speno's performance of its contract, give rise to the duty of care which is owed to visitors to ensure that this type of hazard does not remain on the site.

131 In the present case, I have no difficulty with Zurich's proposition that the relevant negligent act or omission was the switching of the switches or points by the Hamersley employee. However, in doing so, Hamersley breached its duty of care which was owed to those travelling on the railway that it operated. It was by reason of Speno's performance of the contract that Mr Nolan, Speno's employee, was travelling on the railway. His presence was directly related to and formed part of the performance of the contract, and in that sense the duty, which was one ingredient of Hamersley's liability, "arose" out of the performance of the contract by Speno.

132 The view which I have formed is very similar to that taken by his Honour, which was to the effect that Mr Nolan's accident and injuries (and hence Hamersley's liability) were consequential upon the performance by Speno of the contract because Mr Nolan was travelling on the railway in order to return to the Speno depot to hand over the next rail grinding shift and to submit work and service reports for Speno to give to Hamersley as required under the contract.

133 Zurich points to his Honour's conclusion that "the accident would not have happened if Speno had not been performing rail grinding ... under the Contract" as demonstrating that his Honour erroneously applied the "but for" test as the sole criterion for determining whether the liability arose from the contract. However, in my view there is no substance in this contention. The "but for" test, applied as a negative criterion of causation, has an important role to play: Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408 at 412-413. There is nothing in his Honour's reasoning to suggest that this was the sole test applied by him and that he did not apply the sorts of ordinary value judgments and commonsense which have been held to be relevant in such cases. In any event, in my view the conclusion which his Honour reached was correct.

134 In relation to the vehicle statutory insurance exclusion, the difficulty that Hamersley faces is that the words used in that exclusion are, unlike the very broad term "arising out of" in the insurance clause, narrow in scope. The meaning of the phrase "caused by" is a reference to the "effective or dominant cause of the occurrence". It denotes a direct or proximate relation of cause and effective agent, referring to what might be colloquially called the "most causative" of the operative causes: see SGIC v Sinfein Pty Ltd (1996) 15 WAR 434 at 453-4, 457-8 per Ipp J, and 462 per Parker J, also Wayne Tank Co v Employers' Liability Ltd [1974] 1 QB 57 at 66.

135 Zurich submits that his Honour was in error in rejecting Zurich's submission that the vehicle caused the plaintiff's injuries because he was strapped into it when the vehicle overturned and so his injuries were "caused" by his body striking against parts of the vehicle's cabin. His Honour took the view that that argument directed attention to the motor vehicle as the "instrument of the injury" and not as the cause of it.

136 His Honour took the view that the cause of Mr Nolan's injuries was the negligent changing of the points by Hamersley. In argument to the contrary, counsel for Zurich relied particularly on Fire and All Risks Insurance Co Ltd v Turner (1976) 50 ALJR 767. In that case, injuries suffered by a passenger in a motor vehicle through fragments of glass spattering him as the result of the windscreen being shattered by a bullet negligently discharged from a rifle taken by the owner of the vehicle as he was alighting from it, was held to be injury "caused through or in connexion with" a motor vehicle. In my view, the much broader expression used in that case is clearly distinguishable from the vehicle statutory exclusion clause here. I would respectfully adopt the observation of Jacobs J in that case, at 768 that, "I do not think that it is profitable to compare the facts in this case with the facts in other cases ... based on legislation [or other wording] similar to, but not identical with, the Queensland legislation." I do not accept Zurich's criticism of his Honour's view of the "causation" issue.

137 The submissions of Zurich on this point also assert that his Honour erred in concluding that the purpose of the exclusion was to exclude indemnity in circumstances where compulsory vehicle insurance would respond. However, as I understood the argument on the appeal, that submission was abandoned and it was sought instead to satisfy the court that, in the circumstances of this accident, the relevant vehicle insurance would respond. I should add that this concession, as I understood it to be, was in my view correctly made, at least in relation to the umbrella policy. The second sentence of the exclusion in the umbrella policy is consistent only with his Honour's view of the intention of the clause. The position in respect of the general policy is not as clear. The proviso appears to be directed to a situation which some statutory policies may respond and others may not. It does not shed light directly on this issue.

138 The insurance required by the Motor Vehicle (Third Party Insurance) Act 1943, in my view, would not respond in the circumstances of this case. The long title of the Motor Vehicle (Third Party Insurance) Act 1943 relevantly explains that it is an Act "to require owners of motor vehicles ... to be insured against liability in respect of death or bodily injuries directly caused by, or by the driving of, such motor vehicles, whether caused on or off a road." The fact that the vehicle was not on a road at the relevant time does not therefore present a difficulty, but the issue arises as to whether the injury was "directly caused by, or by the driving of" the vehicle. The policy issued under the Motor Vehicle (Third Party Insurance) Act follows that wording. There was some reference by Zurich to Dickenson's case in this connection, but it is not helpful to consider that case since the terms of the relevant legislation have been altered significantly since it was decided.

139 In my view, for the purposes of that Act, this injury could not be regarded as "directly caused by or by the driving of" the vehicle. Any doubt is put to rest by s 3(7) of that Act, which provides that, for the purposes of the Act, "the death of or bodily injury to any person shall not be taken to have been caused by a vehicle if it is not a consequence of the driving of that vehicle or of the vehicle running out of control". While the circumstances of the accident are not explained in detail in the appeal books, it seems unlikely that the derailing and overturning of the HIRail could be described as an instance of that vehicle "running out of control". Certainly there is nothing to suggest that the way in which the vehicle was driven had any causal connection with the injury.

140 I would agree with his Honour's conclusion that the exclusion in neither policy is applicable here where the injury was not "caused by" the HIRail. In relation to the umbrella policy, the non-response of the statutory policy is a further reason for finding that exclusion inapplicable.

General Liability Policy - Employer's Liability Exclusion

141 Speno submits that his Honour was in error in finding that the reference to the "Insured" in this exclusion refers to Speno and not, where a claim is made by Hamersley, to Hamersley. The clause is in the following terms:

"The Company shall not be liable for claims in respect of:

1 Employer's liability

Personal injury to any person:

(a) arising out of or in the course of the employment of such person in the service of the Insured."

142 I have already referred at p 13 of these reasons to the definition of "Insured", for the purpose of the policy. It is also desirable to note cl 11 and cl 14, which read as follows:

"11 JOINT INSURED

Where the Insured is comprised of more than one party, information supplied to the Company shall be deemed to have been furnished by and on behalf of all such parties, and any information supplied to the Company or any omission or non-disclosure in relation to any renewal or extension hereof, shall likewise be deemed to have been furnished, omitted or withheld on behalf of all such parties.

14 CROSS LIABILITY

For the purpose of this Policy each of the parties comprising the Insured shall be considered as a separate legal entity and the word 'Insured' shall apply to each party as if a separate policy had been issued to each of the said parties but nothing herein contained shall operate to increase the Company's Limits of Liability stated in the Schedule."

143 The contention of Speno is that, as a result of the cross liability clause, where a claim is made by Hamersley as insured, the employer's liability exclusion applies where the claim is in respect of the employment of a person in the service of Hamersley, Hamersley being the relevant insured. Mr Nolan was employed by Speno, so the clause does not bar a claim by Hamersley. On its face, that would appear to be precisely the intended effect of the cross liability clause. However, Zurich submitted that the terms of the policy are such that it is not possible, on each occasion where the word "Insured" appears to substitute the word "Hamersley" so as to arrive at a separate policy for Hamersley. I deal first with certain arguments to this effect, which appear to me to lack substance, and then turn to others that are capable, in my view, of affecting the construction of the policy.

144 First, it was suggested that the only purpose of the cross liability clause was to limit to the effect of cl 11 (the joint insured clause) where an insured was brought in as principal rather than as a co-insured named in the schedule. As a matter of interpretation, I am unable to see why this should be so. Each of the joint insured and cross liability clauses are directed to the concept of an insured which is "comprised" of more than one party, and neither appears to distinguish between the situation where an insured is so comprised by reason of falling within par (a), or by reason of a principal being brought in under par (c) of that definition. Rather than the cross liability clause being intended to limit the effect of the joint insured clause, it is my view that, if anything, the intention of the policy is the other way around; that is, notwithstanding that each of the insured is to be considered as a separate legal entity and as having a separate policy, misrepresentation or non-disclosure by one will affect the insurance of each.

145 Next, it was suggested that to substitute the word "Hamersley" as the insured at all points would be vastly to expand the risk of the policy, so that instead of covering a small company engaged in rail grinding, the policy would be covering Hamersley "for its operations world wide". That submission cannot stand with the condition attached to the insurance of Hamersley as principal in par (c), the effect of which is to ensure that it is insured as principal only in respect of liability arising out of the performance by Speno of its contract, so that it is only in respect of those portions of Hamersley's world wide operations which are so connected, or likely to be so connected with the rail grinding by Speno, as to give rise to liability on the part of Hamersley, that any question of risk in respect of Hamersley would arise.

146 However, it is correctly asserted by Zurich that some clauses are simply inapplicable to Hamersley and others distinguish between Speno as "Insured" and Hamersley as principal. For example, in the insurance clause itself, which provides that Zurich will pay compensation in respect of personal injury as a result of an occurrence "happening in connection with the Insured's business or products" the relevant business must be the business of Speno. This is by reason of the definition of "Business" which refers to all activities and operations of the "business stated in the schedule" and the business stated in the schedule is "ultrasonic rail testing, grinding ..." which is plainly the business of Speno. In the policy indorsement dealing with subrogation, it is provided that "where the Insured is required by a Principal by warranty or agreement under a written contract to hold the Principal harmless for their negligent acts and omissions ... Zurich agrees to waive the right of subrogation, but only in relation to named contracts". In this context, the reference to the Insured is plainly a reference to Speno as distinct from Hamersley.

147 However, it also appears to be the case that many - probably the majority - of the clauses contained in the contract are capable of applying both to Speno and to Hamersley in respect of separate policies deemed to be issued to them pursuant to the cross liability clause; for example, the requirement to take reasonable care and precautions to prevent personal injury and property damage, the requirement that the Insured give notice in writing as soon as practicable of events likely to give rise to claims, and the condition that the Insured not admit liability without written consent of Zurich.

148 On its face, as I have noted, the effect of the cross liability clause would appear to be to require that the reference to the "Insured" in the employer's liability exclusion be read as a reference to Hamersley where the claim is made by Hamersley in respect of its interest. In the context of a policy in which many, but not all, of the clauses are capable of being read as the cross liability clause would appear on its face to suggest, the question is whether there is anything in the wording, nature or context of the employer's liability clause which would suggest that that clause should be read as if the reference to the insured were a reference to Speno.

149 In relation to this issue, Zurich suggests that to read the word "Insured" as if it referred to Hamersley rather than Speno, would be to create a "dramatic and totally different risk ... when it could not have been intended by the parties." However, there is nothing in the circumstances of the contract which, to my mind, indicates that the intention of the parties was to exclude liability only in respect of persons employed by Speno. One can readily imagine circumstances in which liability would arise in Hamersley for injury arising out of the course of employment of one of its employees as a result of the performance of the contract by Speno. In precisely this situation, Hamersley employees could have been working or travelling nearby when the HIRail was derailed and have been injured as a result; or, to adapt the example given by Mr Pullin QC in another context, Hamersley could have negligently permitted or directed Speno to park the HIRail or to place other equipment in an area where it posed a hazard to the employees of Hamersley. A risk of this kind would, one would assume, be covered by Hamersley's own employer's liability policy, and it would appear to me to be entirely possible that the parties would have intended that Zurich's liability to Hamersley in respect of Hamersley's own employees should therefore be excluded. There appears to me to be no particular reason, having regard to the purpose and scope of the policy, to consider that the parties would have intended the reference to the Insured in this clause always to read as a reference to Speno.

150 It appears to have been accepted on all sides that it was not possible to read the reference to the Insured in this exclusion as if it were a reference to "any insured" so that it was capable of referring both to Hamersley and to Speno at the one time. That view appears to me to be correct, both as a matter of principle and as being consistent with all of the reported decisions to which the parties have referred as bearing on this issue: Fletcher Organisation Pty Ltd v CML Fire & General Insurance Co Ltd (1987) 4 ANZ Ins Cas 60-805, Stolberg v Pearl Assurance Co Ltd (1971) 19 DLR (3rd) 343, VL Credits Pty Ltd v Switzerland Insurance Co [1990] VicRp 83; (1989) 5 ANZ Ins Cas 60-936, Weightman v Noosa Shire Council [1999] QSC 368, In re FAI General Insurance Co Ltd, unreported; SCt of Qld; 25 June 1998.

151 It was submitted by Zurich that the Fletcher Organisation case was directly on point in relation to this issue, and that the reasoning in that case should be followed. However, there are a number of important points of distinction. The first is that there was, so far as I can discern from the report, no cross liability clause in that case. Rather, the relevant policy was clearly the policy of the bricklaying contractor and the relevant indorsement which related to the Fletcher Watts Group as subcontractor provided merely that the policy "extends to indemnify the Fletcher Watts Group ... (hereinafter called 'the principal') for claims in respect of bodily injury ... arising solely out of the business of the insured ... ". I would see this as the most important distinction between that case and this, since in my view the cross liability clause should be given its natural meaning in relation to each of the clauses of the contract of insurance, except to the extent that the express words or context otherwise require.

152 Further, in Fletcher Organisation the indorsement, as I have noted, was one to indemnify the principal for claims arising "solely" out of the business of the insured. That appears to be somewhat more restrictive in scope and more difficult to apply even than the clause incorporating Hamersley as principal in this contract, which I have discussed in relation to the question of whether the injury "arose out of" Speno's performance of its contract. So far as the indorsement in the Fletcher Organisation case was concerned, Clarke JA, with whom the other members of the Court of Appeal agreed, took the view that the indorsement focussed attention on claims arising out of the insured's - that is the contractor's - business so as to exclude indemnity in respect of claims by an employee of the principal against his employer in respect of injuries occurring in the course of the employment. If that view were correct, then the employer's liability exclusion would have no area of operation if it were read so as to apply to persons injured in the course of their employment with the principal.

153 In my view, therefore, the Fletcher Organisation case is distinguishable, and it was upon this case that his Honour relied. The operation of the cross liability clause appears to me to be decisive. I would therefore respectfully disagree with his Honour's view that the employer's liability exclusion in the general liability policy operated so as to exclude Zurich's liability to Hamersley in relation to the injury sustained by Speno's employee, Mr Nolan. I would to that extent allow Speno's appeal.

Failure to Disclose, Misleading and Deceptive Conduct, and Waiver

154 These matters arise only in relation to the umbrella policy, and therefore fall to be determined if the umbrella policy provides coverage but the general liability policy does not. Because of the conclusion which I have reached in relation to the general liability policy, it is therefore unnecessary to consider these questions further.

Clauses 37 and 38 of the Works and Services Contract

155 Speno claims on its appeal, in broad terms, that his Honour erred in failing to accept Speno's submission that it was an implied term of the works and services contract that if Hamersley was entitled to be indemnified under a policy of insurance arranged pursuant to cl 38, then Hamersley would not require Speno to indemnify it. Alternatively, it submitted that if Hamersley was entitled to be indemnified pursuant to cl 37 of the works and services contract, that entitlement to indemnity was reduced to zero by reason of Hamersley's entitlement to indemnity from Zurich under the policy required by cl 38. The relevant clauses are set out at pages 5 and 6 of these reasons.

156 His Honour took the view that there was no basis for implying a term into the contract requiring Hamersley to claim indemnity under the Zurich policies first because such a term was not so obvious as to go without saying, was not necessary to give business efficacy to cl 37 and, on the contrary, contradicted cl 37 by rendering it nugatory. His Honour took the view that the construction contended by Speno was contradictory to the plain and obvious meaning of cl 37, and overlooked the commercial nature of the contract and the parties' commercial relationship. His Honour noted that there would be no need for cl 37 if it only applied if the insurances which Speno was required by cl 38 to procure, failed to respond.

157 This last view is perhaps too broad. I discuss the relationship between cl 37 and insurance under the next heading. However, the reservation which I have expressed about this point does not, I think, affect the rest of his Honour's reasoning, with which I would agree. Nothing in the very brief submission of Speno in relation to this point has persuaded me otherwise.

Zurich's Entitlement to Contribution against Speno

158 The trial Judge reached the view that Zurich was not entitled to contribution from Speno. The principle upon which contribution was claimed was that Speno was liable to indemnify Hamersley under cl 37 of contract HS1243. That liability was said to be a co-ordinate liability with that of Zurich, and those persons who are under co-ordinate liabilities to make good the one loss must share the burden pro rata. This is a principle which applies (inter alia) in respect of insurers, where more than one insurer has insured the insured in respect of the same event: Albion Insurance Co Ltd v Government Insurance Office (NSW) [1969] HCA 55; (1969) 121 CLR 342.

159 However, for a right of contribution to arise, it is essential that the parties have shared an obligation which may be described as "co-ordinate": Meagher Gummow and Lehane," Equity Doctrines and Remedies" (3 ed) par 1001-1006. Speno maintained that its liability was not co-ordinate with that of Zurich, and his Honour the learned trial Judge agreed. His Honour also agreed with Speno's proposition that Zurich was not entitled to contribution under an insurance policy where Speno was also an insured under that policy; Speno put this on the basis that it would be inconsistent with equity and the insurer's duty of good faith for the insurer to recover contribution from its own insured when the insured has paid the policy premium.

160 To deal with the latter proposition first, it is not clear to me why it would not be open for Zurich to recover from Speno by way of contribution, merely because Speno was an insured under the general liability policy. Speno was not insured under the policy in respect of this occurrence, since the employer's liability exclusion applied in respect of it, so that the policy did not respond so far as Speno was concerned. The relevant "insured" was Hamersley, which was the insured claiming pursuant to the policy. I have discussed these matters at length in the context of the cross-liability clause and the employer's liability exclusion. Speno may have paid the policy premium in respect of Hamersley's insurance pursuant to that policy, but it was for Hamersley's benefit, not its own. Rather, Zurich would in this context be seeking to recover contribution from Speno as a third party liable to indemnify Hamersley under the separate contract, being the works and services contract HS1243. It appears to me that questions of equity and good faith cannot arise in this context merely because as a matter of fact the premium has been supplied by Speno.

161 The more difficult question is the question of whether the liabilities of Speno and Zurich are to be regarded as "co-ordinate". As is noted in Meagher, Gummow and Lehane, there is a dearth of authority relating to the question of whether liabilities, in order to be co-ordinate, must be of the same nature and attract the same remedies. None of the Australian cases referred to by the parties (at the hearing of this appeal, or by letter afterwards) assist in relation to the liabilities in issue here.

162 The only decision directly on point is to be found in the decision of the Scottish Court of Sessions in Caledonia North Sea Ltd v London Bridge Engineering Ltd (unreported, First Division, Inner Court of Sessions, Scotland 17 December 1999). The view expressed in the judgments in that case is that liabilities of the kind arising in this case are not co-ordinate. The reasoning in each of the four separate judgments is lengthy and detailed, and I do not consider that it is necessary to set it out in full.

163 That case arose out of an explosion on an oil platform in the North Sea. The reclaimers were the successors in title of the owners of the platform. The defenders were contractors who had employees who were killed or injured while working on the platform. The reclaimers paid damages to those injured or their relatives. By a contract between the defenders and the reclaimers there were indemnity clauses in favour of the reclaimers. The reclaimers had been indemnified by their insurers in respect of the majority of those claims. It was argued that, having been indemnified by their insurers, the reclaimers were unable to claim under the indemnity clause in the contract with the defenders. An issue arose as to whether the insurers would have had any right of subrogation, or of contribution, against the defenders.

164 A summary of the argument on behalf of the reclaimers, which was essentially that accepted by the court, is to be found at pages 41 and 42 of the opinion of Lord Sutherland. Omitting citations, and paraphrasing somewhat, it runs as follows. An indemnity clause in a contract for services cannot be isolated from the rest of the contract and treated as if it were a freestanding insurance contract. In that case (although not in Hamersley's case) it was paralleled by comparable indemnity in favour of the defenders. While the events which occurred happened to constitute a risk covered both by the contractual indemnity and the reclaimers' own insurance, this does not mean that the indemnity clause and the insurance policy are to be treated as being on the same footing. The defenders are not an insurance company and are not subject to any of the constraints the law places on insurance companies and their contract is not subject to, and does not benefit from, the rules which have evolved and constitute the general law of insurance. So far as insurance policies are concerned, they are generally taken out by a party for his own protection and are res inter alios acta as far as a third party is concerned, so that when considering the rights and liabilities of parties to a commercial contract, whatever insurance may have been taken out by either party for whatever purpose falls to be ignored (I interpose here that of course in this case the premium was paid by Speno but it was nevertheless Hamersley's interest which was insured and for Hamersley's purposes, it appears to me).

165 If the reclaimers have a right of indemnity as part of their contract with the defenders, that is a primary contractual right which remains vested in them whatever arrangements may have been made between the reclaimers and their own insurers. There are many examples of contracts which are regarded as primary and which remain vested in insured persons, giving rights to subrogation on payment by insurers. For example, a right of subrogation rather than contribution has been upheld where a civil body had a statutory duty, where there is a covenant in a lease, where there is absolute liability of a bailee, where a seller has rights under a contract of sale, and where there is a right of contribution under general average. In America, subrogation has been upheld where insurers had paid but the insured had a contract of indemnity with a third party. The use of the word "indemnity", it was said, does not convert what is an ordinary contractual provision into an insurance policy or place the contractual provision on the same footing as an insurance policy.

166 Lord Sutherland took the view, as did other members of the court, that a contractual scheme which included indemnities was "intended to allocate primary responsibility". His Lordship noted that, if the contractors had paid under the indemnity clause, the reclaimers would not then have had any claim against their insurers, having suffered no loss, and nor in his view could the contractors claim contribution from the reclaimers' insurers on the basis that they were joint indemnifiers of the reclaimers. That was because the reclaimers' insurance arrangements were res inter alios acta as far as the contractors were concerned. His Lordship referred to contribution as a "two-way exercise", so that the conclusion that contribution cannot be claimed from the insurers meant that neither would the insurers be able to claim contribution.

167 It appears to me that the status of a policy of insurance as res inter alios acta so far as third parties are concerned, and the cases to which the Court of Session refers where a right of subrogation has been held to exist, suggest that where, as here, there is a contract for services which contains within itself an indemnity provision, together with insurance which may also cover the events the subject of the indemnity, it is generally appropriate to regard the insurance as a secondary rather than a co-ordinate obligation.

168 I would not be prepared to suggest that this must invariably be the case; rather, it appears to me that the terms of the particular indemnity provision will be relevant. However, in this case, the works and services contract is, as one would expect, a document dealing in detail with all of the rights and liabilities of the parties arising in relation to the work to be performed by Speno. It does appear to me that in the context of that contract, the indemnity clause is, as Lord Sutherland put it, intended "to allocate primary responsibility".

169 His Lordship went on to observe that the fact that a party chooses to insure against the possibility of non-recovery under the indemnity clause cannot affect the contractual obligations. It appears to me that that observation is equally applicable to this works and services contract where Hamersley required in effect that certain insurances be taken out or indorsed for the benefit of Hamersley. It seems to me that a rather similar view of the relationship between indemnity and insurance clauses, in the context of a lease, was taken by the Court of Appeal of Victoria in Buller Ski Lifts Ltd v Mount Buller Alpine Resort Management Board [2000] VSCA 31 [8] per Phillips JA where the court observed that the need for insurance cover recognises "the commercial possibility of insolvency or some other obstacle standing in the way of the lessee meeting the call for an indemnity, when made". This too appears to regard the indemnity provision as primary.

170 It follows, in my view, that the learned trial Judge was correct in reaching the conclusion that Zurich was not entitled to contribution from Speno because the liability of Speno to Hamersley pursuant to contract HS1243 was not a co-ordinate liability with the liability of Zurich.

171 In the orders made by the learned trial Judge, there was an order that "the fourth party (Zurich) indemnify the third party (Speno) in respect of the judgment sum". This order is attacked on two bases.

172 First, it was said that there was no claim by Speno for such relief. However, that defect in Speno's statement of claim was cured by amendment made by leave and without opposition at the hearing of the appeal.

173 Next, however, Zurich contends that there is simply no basis upon which such an order might be made. I should note that no party sought to put before us the reasons of the learned trial Judge in making such an order, or any record of the contentions which may have been before his Honour in respect of this matter. At the conclusion of his judgment, his Honour expressly stated that he would hear counsel as to the proposed orders which should be made, and I assume that that was done. The court is now being asked to review the order made by his Honour without any record of the way in which his Honour reached the conclusion that it was appropriate to make it.

174 However, no point was taken before us in relation to the absence of any material indicating what his Honour's reasons may have been. Rather, the parties appeared to be content to argue afresh the question of whether there was any basis upon which the order could have been made, and I propose therefore simply to deal with those arguments.

175 So far as Speno is concerned, the basis of its claim appears to be found in par 19A of its amended statement of claim against the first fourth party dated 4 February 1998. That reads as follows:

"Before each of the combined general liability policy, the motor vehicle policy [now irrelevant] and the umbrella liability policy were made, the third party, by its insurance broker, informed the first fourth party in writing that:

a) the contracts entered into by the third party with principals almost always require the third party to indemnify and hold harmless the principal and waive rights of subrogation that might otherwise be exercised by the third party's insurer against the principal ('Liability');

b) any insurance policy issued by the ... fourth party to the third party must indemnify the third party against the Liability.

PARTICULARS OF INFORMATION

The information was contained in the following documents:

a) an unsigned undated document entitled 'UNDERWRITING INFORMATION',

b) the third party's proposals for liability insurance dated 7 January 1991 and 15 March 1995;

c) the third party's proposal for umbrella liability insurance dated 15 March 1995;

d) a letter from the AIBA Group to the first fourth party dated 29 March 1995."

176 It seems to be common ground that the policies which were actually issued to Speno did not indemnify it against that liability, but it is argued that it would be a breach of Zurich's duty of good faith to deny liability to indemnify Speno in respect of its contractual obligation to Hamersley when that contractual obligation was specifically brought to Zurich's attention and it was made clear to Zurich that that cover was specifically required. Speno refers, in that respect, to two cases, they being: Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1994) 8 ANZ Ins Cas 61-235 and Kelly v New Zealand Insurance Co Ltd (1996) 130 FLR 97. I do not think it is necessary to go to the facts of those cases, save to observe that they were cases in which there was found to be an unequivocal representation that indemnity would be provided and where there was evidence of reliance upon the representation.

177 In this case, the representation, if any, can only have been made by silence. There was no express representation to the effect that either policy would meet Speno's liability to Hamersley. Rather, Speno advised Zurich of its requirements and Zurich offered to issue to Speno the policies which were in fact issued. It is difficult to see how in those circumstances the mere offer of policies in the terms issued could be regarded as a representation that the policies met all conditions required by Speno, rather than simply as a counter-offer to provide policies in those terms instead of those requested by Speno. There is no evidence as to whether Speno realised that the policies did not extend to its liability to Hamersley in these circumstances and nevertheless accepted the policy or whether it had a mistaken belief that the policy would respond in the way that it had requested.

178 The contention made on behalf of Speno must involve the proposition that it is not enough for the insurer, where requested to provide cover in particular terms (which terms may be in some cases detailed and complex) simply to provide as Zurich did the proposed policy wording; rather, it must specifically draw to the attention of the insured every way in which the policy proposed by the insurer may differ from that sought by the insured. I do not see why this should be so. Prima facie, provision of the proposed policy wording together with an indication that insurance will issue subject to those terms is an adequate - in most cases arguably the clearest - way of ensuring that the party to be insured understands the terms proposed by the insurer. In the absence of any express representation by Zurich that the proposed terms would respond in the way requested by Speno, and in the context of an insurer negotiating with a party who would appear to have some experience in commercial and insurance matters, I do not see how there can be any breach of the duty of good faith in the course taken by Zurich, or any foundation for the claim, which is essentially one of estoppel, made by Speno.

179 There is therefore in my view no basis for the making of the order that Zurich indemnify Speno, which was made by his Honour.

180 It follows from these reasons that the only finding made by his Honour which was in my view in error, was that numbered 5 in the summary quoted on page 9 of these reasons. Rather, in the context of this accident, it is my view that the employer's liability exclusion applies only in respect of Hamersley and that it is therefore irrelevant in this case where the person injured was employed by Speno. It has not been necessary to consider the findings made by his Honour as findings 6, 7 and 8. For the reasons I have given, I would set aside his Honour's order number 3 made on 5 August 1999 that, the fourth party indemnify the third party in respect of the judgment sum. It appears to me that it is appropriate to require the parties to provide a minute of orders which should flow from these conclusions, and to hear argument in respect of proposed orders if the parties are unable to agree.