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[2013] NSWCA 181
Court of Appeal (NSW)
2013-04-16
Beazley P, Meagher JA, Simpson J, White J
Original judgment source is linked above.
The application of the dewatering exclusion 38This provision excludes from the cover provided under s 1 "costs associated with the installation and operation of any dewatering equipment or any other costs of dewatering operations". Vero submits that the ordinary and literal meaning of "dewatering" is "to remove water from" a place or thing, and that the word should be given that meaning when used in cl 5 of the endorsement. It argues that the clause has two parts and that its application should be considered by reference to each part. The first excludes costs associated with the "installation and operation of any dewatering equipment". The expression "dewatering equipment" describes any equipment or implement capable of being used to remove water from a place or substance. Suction pumps and siphons answer that description and accordingly are "dewatering equipment" as that expression is used in the first part of the clause. The pumps and siphons do not cease to answer that description if they are being used to lower the level of water in a place as distinct from being used to remove it so as to leave that place, as far as practicable, free of water. Nor do they cease to answer that description if they are being used to move water from one place to another, although not for the purpose of leaving the first place free of water. Vero submits that this is so because the description "dewatering equipment" is not concerned with the purpose for which the equipment is being installed or operated. 39In relation to the second part of the clause, Vero submits that the expression "dewatering operations" describes the activity of moving water from one place to another. It is not concerned with the purpose for which that activity is undertaken. Accordingly, it does not matter that its purpose is not to leave the place from which the water is moved free of water. 40Before considering these arguments and the construction of the exclusion clause, it is necessary to note some relevant principles. The language of a particular provision in a contract of insurance must be construed having regard to its other terms, the commercial circumstances which it addresses and the objects which the parties can be presumed to have intended to secure by making their contract: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; 203 CLR 579 at [22]; Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 at [15]. Words used in a contract which have an ordinary or literal meaning will usually be given that meaning unless consideration of the text and context provide a principled basis for adopting some other meaning. For example, words will not be given their ordinary or literal meaning if they have another specialised meaning and, by reference to the text and admissible evidence of surrounding circumstances, reasonable persons in the position of the parties would be presumed to have intended that the words have that specialised meaning: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337 at 350-352; Holt & Co v Collyer (1881) 16 Ch D 718 at 720. 41As has already been noted, when addressing the construction of this exclusion, the primary judge had regard to the terms of the Works Contract and evidence of lay and expert witnesses as to the meaning of "dewatering". Vero contends that her Honour erred in admitting this evidence because there was no ambiguity or uncertainty about the meaning of that word and because, in relation to the Works Contract, its terms, as distinct from its existence, were not known to both parties: Codelfa Construction Pty Ltd at 350-352. The first of these arguments involves the proposition that this Court was wrong to conclude in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 that, on the current state of High Court authority, the identification of ambiguity is not a pre-condition to receiving otherwise admissible evidence of surrounding circumstances. 42It is possible to deal with the issues which arise as to the construction of this exclusion without regard to the terms of the Works Contract or the lay and expert evidence referred to by the primary judge (at [81]-[103]). If it was necessary to have regard to contextual facts known to both parties it would be sufficient to consider the information provided by APS's insurance broker, Marsh Ltd, to Vero at the time the endorsement was negotiated and agreed. That information included a general description of the scope of the works called for under the contract, including those for the reconstruction of Kensington culvert. 43The ordinary and literal meaning of "dewater" is, as appears to be common ground, to remove water from a place or thing. In cl 5 "dewatering" is used in the description of the costs excluded from the cover in s 1. They are costs "associated with the installation and operation of any dewatering equipment" or "any other costs of dewatering operations". The use of "other" in the second part of the clause indicates that the costs described in the first fall within the description "dewatering operations". That has the consequence that the reference to "dewatering equipment" in the first part is to equipment being used for the purpose of dewatering and not merely to equipment capable of being so used. It remains necessary to determine what is meant by "dewatering operations". Adopting the literal meaning of those words, they describe activities the purpose or object of which is to remove water from a place or thing. Reference to the definition of "dewater" in The Oxford English Dictionary, Volume IV, 2nd ed (1989) Clarendon Press, which is relied upon by Vero, confirms that when used in relation to the dewatering of culverts, roadways, canals or tunnels, dewatering refers to the removal of water in the sense of draining or taking it away. 44Whilst accepting that the ordinary meaning of "dewatering" is removing water from a place, Vero says that in the exclusion clause the description is not to be understood as referring to the draining or taking away of all, or practically all, water from a place or thing. Nor is it to be understood as only describing activities involving the removal of water so as to permit construction or other works to proceed or continue. This argument suggests that there is a question as to whether the literal meaning of "dewater" unambiguously captures its meaning as used in the exclusion. There it is used to describe costs excluded from cover under the material damage section of a contract works policy. The subject matter of that cover includes loss or damage to property which is part of the works, including temporary works, constructed under an insured building contract. On the occurrence of such loss or damage the insurer agrees to pay the costs of repairing, replacing or reinstating the lost or damaged property to its condition when new or as it existed immediately prior to the loss or damage. Thus, the costs sought to be excluded may be costs incurred in reinstating or restoring construction works or they may be costs incurred in cleaning up or demolishing or protecting insured property, under one of the extensions to the cover under s 1. In either event, the costs excluded are costs referable to "dewatering operations" as that expression is ordinarily to be understood in the context of construction operations. 45To the extent that the meaning which that expression has in that context is different from its ordinary meaning, evidence was admissible to prove that specialised meaning. The decision of Mocatta J in Scragg v United Kingdom Temperance & General Provident Institution [1976] 2 Lloyd's Rep 227 provides an example of the application of the relevant principles in the context of the interpretation of an insurance policy. The primary judge admitted, for that purpose, evidence of the parties and of qualified engineers as to the ordinary meaning of "dewatering" when used in the context of construction operations. That evidence was that it describes the activity of removing water from an area to enable construction works to commence or continue in that area: Reasons at [84], [87], [92], [93], [98], [102]. 46The information provided by APS's insurance broker to Vero at the time the endorsement was agreed also shows that the words "dewatered" and "dewater" were used to refer to the removal of water from a part of the works site to enable construction to proceed in that area. That information included a general description of the scope of the works called for in the reconstruction of Kensington culvert. Having referred to the construction of the cofferdam, that description noted that once "dewatered, the existing works will be demolished, except the heritage brickwork that will be salvaged and stored". There were two other references to "dewater" or "dewatering" in the documents provided to Vero. They were in the Contractor Programme and in an attachment to a DPWS report which reviewed the drainage system in the Parklands and provided options for the redesign of the stormwater flow control structure. In the Contractor Programme, the timeline for tasks in relation to the remediation of the Busby and Randwick Ponds includes, for February 2003, "Dewater Ponds". In the attached Douglas Partners Report those remediation works are described as including drawing the water level in those ponds down "to the lowest practicable level". In the cost estimates attached to the DPWS report one item of works provided for is described as "stormwater diversion, dewatering and flood protection during construction". 47In its terms, the exclusion only applies to costs incurred or involved in the activity of "dewatering". Adopting the ordinary and literal meaning of "dewater", that activity is the removal of water from a place. The evidence indicated that the expression "dewatering operations" has the same meaning when used in the context of construction operations. The expression was also used in that sense in the information provided to Vero. So understood the activity of "dewatering" is different from, and likely to be more restricted than, the activities of monitoring and maintaining water levels or flood control or water diversion. Whilst these activities may involve the movement or diversion of water from one place to another, they describe a broader range of activities than "dewatering". 48The costs and expenses in issue are not within the dewatering exclusion so construed. Whilst many of those costs were associated with the installation and operation of suction pumps and siphons, that equipment was not being used for the purpose or object of removing water from a particular place so as to enable an activity or work to proceed in that place. That is so notwithstanding that the removal of water from Kensington Pond protected the cofferdam and ultimately permitted work to continue on the Alison Road side of that wall, after the period of excessive rain had passed. Although the removal of water from Kensington Pond allowed water to be released from the Busby and Randwick Ponds so as to reduce their water levels, the activities conducted in and around Kensington Pond were not undertaken for the purpose or object of removing water from either of those ponds, as Vero contends in its written submissions in reply. 49The primary judge was correct to conclude that the dewatering exclusion did not apply.
The existence of an implied term in s 2 50The respondents contend for the implication of the following term into s 2 of the Policy: "... that where loss, damage or liability which would otherwise have occurred was avoided by the exercise of reasonable care, the expenditure of money and/or the performance of work by APS and/or Bedi or any person acting on their behalf whether pursuant to the obligations referred to in paragraph 17AB [of the second further amended statement of claim] or otherwise, [Vero] would indemnify APS and/or Bedi against such expenditure, costs or for the value of such work". 51The reference to the obligation in paragraph 17AB is to Condition 1(a) in s 2 of the Policy. That condition provided: "In the event of an Occurrence likely to result in a claim under this Policy the Insured shall: (a) at the Insured's expense, take such immediate action as may be necessary to minimise the extent of Personal Injury and/or Property Damage; ..." 52Section 2 indemnifies against the insured's liability for Personal Injury or Property Damage sustained during the period of insurance as a result of an Occurrence. The latter is defined, in relation to s 2, as an event which occurs during the period of insurance and results in Personal Injury or Property Damage which is "neither expected nor intended" from the standpoint of the insured. Personal Injury and Property Damage are defined broadly to include bodily injury, death and physical loss of, damage to or destruction of property. 53The respondents contend for the implication of this term into s 2 of the Policy as a matter of law or to give business efficacy to that contract. A term implied by law is one which arises from the type or class of contract in question and is treated as a legal incident of the contract: see Liverpool City Council v Irwin [1977] AC 239 at 254-255; Esso Australia Resources Ltd v Plowman [1995] HCA 19; 183 CLR 10 at 30; Codelfa Construction Pty Ltd at 345; Breen v Williams [1996] HCA 57; 186 CLR 71 at 103; Byrne v Australian Airlines Ltd [1995] HCA 24; 185 CLR 410 at 447-449. A term implied in fact is one implied in the circumstances of a particular contract because it is necessary to do so in order to give that contract business efficacy. In a case such as the present, where the agreement of the parties is recorded in a formal written contract, such a term will not be implied unless the conditions summarised in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282-283 have been satisfied. See also Codelfa Construction Pty Ltd at 347; Byrne v Australian Airlines Ltd at 441-442. 54A term will not be implied into a particular contract to give it business efficacy if that term contradicts any express term of the contract: BP Refinery at 283. Similarly, the implication of a term ordinarily implied by law into a contract of a particular type or class may be excluded by an express provision to that effect or if the term sought to be implied would be inconsistent with any express term of the contract: Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 at 490-492; Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 240-241; Byrne v Australian Airlines Ltd at 449-450. 55Having regard to those principles, this argument of the respondents may be dealt with briefly. It is said that such a term should be implied into the Policy as a legal incident of "construction works" contracts of insurance which impose a duty on the insured to act for the benefit of the insurer in the event of an occurrence resulting in third party injury or damage for which the insured may be liable. The duty referred to is the contractual obligation imposed by Condition 1(a) in s 2. That provision requires in that event that the insured at its "expense" take action to minimise the extent of third party injury or property damage for which the insured may be liable. The implied term contended for is inconsistent with that express term. The same conclusion was reached in relation to a similar provision in Yorkshire Water Services Ltd v Sun Alliance & London Insurance PLC [1997] 2 Lloyd's Rep 21 at 30, 33. For that reason, the term could not be implied into the Policy either as a legal incident of the contract or to give it business efficacy. 56That conclusion makes it unnecessary to address the many difficulties which otherwise stand in the way of the implication of the provision contended for. There is no English or Australian authority which holds that such a term should be implied as a legal incident of a contractor's or public liability policy. To the extent that the question of implication has been addressed, it has been on the basis that in the circumstances of a particular contract it may be necessary to imply a term drafted so as to give that contract business efficacy. See, for example, Netherlands Insurance Co. Est. 1845 Ltd v Carl Ljungberg & Co. A.B. [1986] 2 Lloyd's Rep 19 at 22-23; Yorkshire Water Services Ltd at 30-33; Guardian Assurance Co at 309; Re Mining Technologies Australia Pty Ltd (Supreme Court of Queensland, White J, 28 November 1996, unreported); on appeal at 66-69, 71-72, 88; PMB Australia Ltd v MMI General Insurance Ltd [2002] QCA 361; 12 ANZ Ins Cas 61-537 at [25]-[26].
The applicable limit of liability and excess 57The only basis on which the respondents are entitled to an indemnity is under the temporary protection extension in s 1. By cl 2 of the endorsement, Vero's liability under that extension is limited to $250,000 "any one Occurrence". The respondents did not argue that their claim involved more than one such occurrence. 58Clause 3 of the endorsement provides that there is an excess of $50,000 "each and every occurrence in respect of ... storm, tempest or earthquake; and $25,000 each and every occurrence in respect of all other claims". Although occurrence is not capitalised in cl 3, it is clear from the schedule to the Policy (and in particular the provisions dealing with excesses) that the references in cl 3 are to "Occurrence" as defined. In s 1 that describes an event which results in "Loss, Destruction of or Damage to the Property Insured". In the context of an entitlement to an indemnity under the temporary protection extension, that reference is to the physical damage falling within the closing words of that clause. It is that damage which triggers the operation of that extension. In this case that damage was to the cofferdam wall. 59As Vero points out, the primary judge did not address whether any damage to the cofferdam wall was caused by "storm" or "tempest". It submits that if there was a relevant event which resulted in such damage, it answered one or other of those descriptions. Vero describes the weather conditions between 13 and 17 May 2003 as involving "excessive rainfall" in the Sydney region. It proffers no other description of the relevant conditions and points to no relevant finding of the primary judge. Nor does it contend for any particular findings as to those conditions by reference to the underlying evidence. The respondents' submissions do not at all address the question posed by the excess provision. Instead, they seek to support the wrong analysis of the primary judge. 60In Harper v Zurich Australian Insurance Ltd (1987) 4 ANZ Ins Cas 60-779, Clarke J addressed the meaning of an exclusion in respect of "storm and/or tempest" damage. After referring to two English authorities which suggested that storm meant rain accompanied by strong wind, he concluded that "storm" describes a disturbance of the atmosphere manifested by, for example, a sudden heavy rainfall, loud and disturbing thunder, snowfalls or lightning outbreaks but not necessarily high wind; whereas "tempest" describes an event involving violent winds or winds of high velocity, whether or not accompanied by rain (at 74,744). 61The findings of the primary judge as to the nature of the rainfall in mid-May 2003 do not answer either of these descriptions. They describe that rainfall as "torrential", "heavy" and having substantial "intensity": Reasons at [1], [6], [11], [20]. Vero does not contend for any different findings as to the nature of the weather event or events over the period from 13 May 2003. On the basis of the primary judge's findings, the weather conditions resulting in the damage to the cofferdam wall do not answer the description "storm" or "tempest", accepting for that purpose that those words have the meanings adopted by Clarke J. It follows that an excess of $25,000 applied to the respondents' claim to an indemnity.
Amount of overhead expenses recoverable 62The amount involved in this issue is no more than $64,934. The respondents' claim as assessed by the primary judge was $361,608.75. After deducting the maximum amount in dispute the respondents' claim remains greater than $275,000 which is the excess which they must bear of $25,000 and Vero's limit of liability of $250,000. Accordingly, it is not necessary to address this issue because its resolution in favour of Vero will not reduce the amount of its liability to the respondents.
Proposed orders 63The judgment in favour of the respondents should be set aside and judgment entered for $250,000 plus interest to 27 April 2012. As the respondents remain successful in their claim against the appellant, the order that the appellant pay the costs of the trial should stand. There will, however, be a need for submissions which address the costs of the appeal. The appellant has succeeded in its challenge to the basis on which the primary judge found for the respondents, but ultimately failed because of the respondents' success on a contention raised at the end of the hearing. 64To give effect to these conclusions, the following orders should be made: (1)Appeal allowed in part. (2)Order 2 made on 9 March 2012 and Orders 1 and 2 made on 27 April 2012 by Gibson DCJ be set aside. (3)Direct the parties to calculate the pre-judgment interest due on the amount of $250,000 up to 27 April 2012 and to prepare and lodge with the Court a consent order providing for the entry of judgment for the first and second respondents against the appellant for $250,000 plus the amount of that interest. That judgment is to take effect on 27 April 2012 and the consent order is to be filed within seven days of the date of this judgment. (4)Direct the parties to lodge with the Court written submissions as to the order for costs which should be made in relation to the costs of the appeal. The respondents to file their written submissions within seven days of the date of this judgment and the appellant to file its submissions within seven days thereafter. The Court will then determine the question of costs on the papers. 65SIMPSON J: I agree with Meagher JA.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 June 2013
Vero Insurance Ltd
Australian Prestressing Services Pty Ltd
ity Council v Irwin [1977] AC 239 McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; 203 CLR 579 Netherlands Insurance Co. Est. 1845 Ltd v Carl Ljungberg & Co. A.B. [1986] 2 Lloyd's Rep 19 PMB Australia Ltd v MMI General Insurance Ltd [2002] QCA 361; 12 ANZ Ins Cas 61-537 Re Mining Technologies Australia Pty Ltd (Supreme Court of Queensland, White J, 28 November 1996, unreported) Re Mining Technologies Australia Pty Ltd [1999] 1 Qd R 60 Scragg v United Kingdom Temperance & General Provident Institution [1976] 2 Lloyd's Rep 227 Transfield Constructions Pty Ltd v GIO Australia Holdings Pty Ltd (1997) 9 ANZ Ins Cas 61-336 Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 Yorkshire Water Services Ltd v Sun Alliance & London Insurance PLC [1997] 2 Lloyd's Rep 21 Texts Cited: The Oxford English Dictionary, Volume IV, 2nd ed (1989) Clarendon Press Category: Principal judgment Parties: Vero Insurance Ltd (Appellant) Australian Prestressing Services Pty Ltd (First Respondent) Bedi Enterprises Pty Ltd (Second Respondent) Representation: Counsel: A S Martin SC, C A Botsman (Appellant) M R Gracie, S Haddad (Respondents) Solicitors: McMahons Lawyers (Appellant) Balmain Lawyers (Respondents) File Number(s): 2012/102842 Decision under appeal Date of Decision: 2012-03-09 00:00:00 Before: Gibson DCJ File Number(s): 2009/334000
[1996] HCA 57
[2002] QCA 361
(1977) 180 CLR 266
(1987) 10 NSWLR 468
(1993) 113 ALR 225
(1974) 48 ALJR 307