Erect Safe Scaffolding (Australia) Pty Limited V Sutton  NSWCA 114
Giles JA, Basten JA, McClellan CJ at CL
- The Court of Appeal considered whether an indemnity in a subcontract extends to a liability of the head contractor which arises not merely from the activities of the sub-contractor in the performance of the works, but also as a result of a breach of an independent duty owed by the head contractor to the injured third party.
- On 21 October 2002, the plaintiff was injured whilst working on the construction of a large multi-storey residential and commercial building. The head contractor on site was Australand Constructions Pty Limited ("Australand"). The plaintiff was employed by Dalma Formwork Pty Limited ("Dalma"), a sub-contractor to Australand. Dalma was not a party to the proceedings.
- Erect Safe Scaffolding (Australia) Pty Limited ("Erect Safe") provided scaffolding services to Australand pursuant to a subcontract dated 9 September 2002.
- The relevant clauses of the subcontract were as follows:
"11. The Subcontractor must indemnify Australand Constructions against all damage, expense (including lawyers' fees and expenses on a solicitor/client basis), loss (including financial loss) or liability of any nature suffered or incurred by Australand Constructions arising out of the performance of the Subcontract Works and its other obligations under the Subcontract.
12.1 Public Liability Before commencing work, the Subcontractor must effect and maintain during the currency of the subcontract, Public Liability insurance in the joint names of Australand and the Subcontractor to cover them for their respective rights and interests against liability to third parties for loss of or damage to property and the death of or injury to any person. 'Subcontract Works' means the whole of the design and work to be executed in accordance with the Subcontract, including variations ..."
- Australand formed a Safety Committee which included a representative of each sub-contractor, including a representative from Dalma, Mr Woodward, and representatives from Australand.
- The plaintiff was 59 years of age. He was constructing formwork when he struck his head on a protruding cross-bar, erected by Erect Safe, causing him to fall backwards, sustaining injury to his neck.
- The plaintiff was diagnosed with a "whiplash injury". He underwent treatment and was left with constant pain radiating down his arms. The plaintiff continued working for a further 12 months on full duties post accident.
- Mr Woodward gave evidence that a week or two prior to the plaintiff's injury he noticed the protruding cross-bars and notified the Safety Committee. Notwithstanding this, the defect was never noted in any minutes of the Safety Committee and as a consequence there was no evidence of a direction to Erect Safe to remedy the problem.
District Court Decision
- The trial judge, Goldring DCJ, found the Safety Committee minutes were not maintained with a degree of accuracy and therefore gave little weight to the fact there was no mention of the hazard, ultimately finding the hazard was not removed or rectified within a reasonable period of time.
- The trial judge found Erect Safe and Australand had breached their duty of care owed to the plaintiff, on the basis that Dalma, as the employer of the plaintiff, was entitled to rely upon the Safety Committee to ensure that Erect Safe remedied any hazard. Fault was apportioned two-thirds to Erect Safe and one-third to Australand.
- Goldring DCJ awarded damages of $663,369.97, including an allowance of 38% of a most extreme case for non-economic loss.
- Goldring DCJ accepted clause 11 of the contract between Erect Safe and Australand imposed obligations of indemnity and insurance upon Erect Safe. Specifically, Clause 11 required Erect Safe to provide an indemnity to Australand and clause 12 required Erect Safe to obtain insurance in the joint names of Australand and Erect Safe. Erect Safe conceded that no policy of insurance existed.
- Accordingly, it was found that Erect Safe was required to indemnify Australand in respect of the verdict obtained by the plaintiff. Australand was entitled to damages for Erect Safe's breach of its obligation pursuant to clause 12.
- Erect Safe and Australand appealed the decision. The Appeal Court considered three issues. Firstly, whether the trial judge erred in finding Dalma was not partly liable for the plaintiff's injuries. Secondly, whether the trial judge erred in finding Erect Safe was liable to indemnify Australand pursuant to clause 11 and liable for a breach of clause 12. Thirdly, whether the trial judge erred with respect to the assessment of quantum.
Court of Appeal Decision
- The Court held, per McClellan CJ who delivered the majority judgment, that on the first issue of appeal it was not satisfied Dalma could discharge its duty to its employees by relying upon the Safety Committee. Dalma did not have exclusive responsibility for the safety of the premises under the control of Australand, but nonetheless, Dalma owed a duty to avoid exposing the plaintiff to an unnecessary risk of injury.
- Whilst McClellan CJ accepted that steps had been taken by Dalma to advise the Safety Committee of the hazard, it was found that nonetheless Dalma failed to warn its own employees or exclude them from working in the dangerous area. Accordingly, Dalma had breached its duty of care to the plaintiff. Liability was apportioned 60% to Erect Safe, 25% to Australand, and 15% to Dalma.
- On the second issue of appeal, the Court considered whether clause 11 confined the liability of Erect Safe to indemnify Australand for liabilities arising from Erect Safe's performance of the Subcontract Works or whether it extended to a liability of Australand which arose in relation to those Works.
- McClellan CJ found the decision in Leighton Contractors Pty Ltd v Smith  NSWCA 55 was not consistent with the construction that he preferred in this case. McClellan CJ considered the indemnity was confined and did not extend to clause 12 as clause 11 did not lack clarity. His Honour noted that clause 11 provided for Erect Safe to indemnify Australand against all "damage etc". His Honour found that although the indemnity was initially described in broad terms, it was confined by the word "arising".
- McClellan CJ held the liability of Australand did not "arise" out of the performance by Erect Safe of any of its contractual obligations, but rather the liability of Australand arose from its own independent act of negligence in failing to maintain an appropriate safety regime for the site.
- Therefore, it was found that it must follow that the requirement of clause 12 to obtain insurance to cover both Australand and Erect Safe was for liability arising from clause 11 and not insurance for any liability of Australand, even that arising from its own negligence. McClellan CJ held:
"The obligation was to obtain insurance to cover Australand and Erect Safe "to cover them for their respective rights and interest against liability to third parties....". Australand's "rights and interests" referred to are those provided by the indemnity provided in clause 11. There being no right in Australand to recover from Erect Safe in respect of damages occasioned by its own negligence, there was no obligation in Erect Safe to obtain insurance to support Australand's direct liability to another caused by the negligent act of Australand."
- On the question of damages, McClellan CJ found that whilst the assessment of 38% of a most extreme case was at the higher end of the scale, the Court was not prepared to disturb the finding on the basis it was within the trial judge's discretion. Each ground of attack upon the award of damages failed.
- Giles JA agreed with McClellan CJ, save for two issues.
- Firstly, Giles JA was of the view that Dalma shared the same obligation as Australand to workers on site to take reasonable care to see that danger was dealt with within the system and accordingly, Dalma's responsibility to the Plaintiff was equal to that of Australand. It was Giles JA's opinion that apportionment should be 50% to Erect Safe and 25% each to Australand and Dalma.
- Secondly, in respect of the decision regarding Clause 11, Giles JA found the case of F & D Normoyle Pty Ltd v Transfield Pty Ltd  NSWCA 193 ("Normoyle") was similar to the present case where the words in the indemnity clause were "arising as a result of any act, neglect or default by the sub-contractor ... relating to the execution of the works".
- In Normoyle, it was held by the majority that "act" did not extend to an act which was neither a neglect nor a default, and that neither of the sub-contractors had been in neglect or default.
- Giles JA concluded:
"Although Erect Safe created the problem and failed to rectify it, the basis for Australand's liability was breach of its own duty of care owed to Mr Sutton. The breach was by its own default and not because it was fixed with liability by reason of the default of Erect Safe. Australand's own breach of its own duty of care brought the liability upon it, although Erect Safe's performance of the Subcontract Works provided the occasion for it to incur liability. In my opinion, that is insufficient for the liability to have arisen out of the performance by Erect Safe of the Subcontract Works and of its other obligations, with cl 11."
- In a compelling dissenting judgment, Basten JA was not satisfied that the High Court in Andar Transport Pty Ltd v Brambles Ltd  HCA 28 had turned away from the principle stated in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 ("Darlington") that an exclusion clause in a commercial contract should be construed according to its natural and ordinary meaning.
- Basten JA considered the Court of Appeal was bound to follow the judgment of the High Court in Darlington where their Honours stated in considering recent English authorities: "These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity."
- His Honour noted it was Erect Safe's submission that because Australand was liable on the basis of its own act or omission, which constituted a breach of the duty which it, Australand, owed to the injured party, it would not be sensible to read the indemnity as extending to conduct over which Erect Safe had no control.
- Basten CJ considered the construction proposed by Erect Safe did not reflect the natural and ordinary meaning of the language of clause 11.
- The correct approach, in Basten JA's opinion, was to be found in the decision of Leighton Contractors Pty Ltd v Smith  NSWCA 55 providing:
"It should follow that Erect Safe's obligation to take out insurance, in so far as the insurance covered Australand, was intended in the absence of any indication to the contrary, to be co-extensive with its obligation to indemnify Australand. It follows that the clauses should be read together and the construction of one may be influenced by the construction of the other."
- The decision confirms the recent trend of the Court of Appeal not to disturb findings for non-economic loss where the finding is within the range even though McClellan CJ noted the assessment of non-economic loss of 38% of a most extreme case was at the higher end of the range. The decision in Harrison v Melham 2008 NSWCA 67 is another example of this trend where the Court of Appeal did not disturb the trial judge's assessment of non-economic loss of 55% of a most extreme case in respect of a 32-year old male who had a fusion at L4/5 but remained fit for light duty work.
- The decision highlights the non-uniform approach by the Courts with respect to the interpretation of indemnity and insurance clauses, highlighting disagreement with regard to what the High Court decided in Andar Transport Pty Ltd v Brambles Ltd  HCA 28 and whether the Darlington Futures decision remains good law.
- It is surprising the Court was not referred to the unreported decision of the NSW Court of Appeal in Western Sydney Regional Organisation of Councils Group Apprentices v Statrona Pty Limited, which dealt with an agreement to obtain insurance whereby WSROC was obliged to effect insurance to indemnify Stratona against liability for workers compensation and common law damages for injuries to apprentices whilst working for Stratona. It was held if WSROC did not have such a policy as required, indemnifying Statrona against its liability, it was liable to Statrona for such damages as would, in effect, indemnify Statrona against its liability. If it did have such a policy, Statrona would be entitled to claim under the policy for, in effect, such an indemnity. We consider similar principles could have been argued in respect of the construction of clause 12 in this case.
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