By Dominic Young, Solicitor and David Slatyer, Partner
Background
Lake Fox Limited, trading as Rocky’s Own Transport Co (‘ROTC’), operated a transport business.
ROTC entered a ‘Transport Services Agreement’ (‘TSA’) with Orica Australia Pty Ltd (‘Orica’), to provide transport services.
A truck driver employed by ROTC was injured at Orica’s premises and the employee brought a claim against Orica, which Orica settled in respect of their own liability.
Orica brought a third-party claim against ROTC for breach of contract, by failing to effect an insurance policy that provided cover to Orica.
Clause 21.2 of the TSA provided:
[ROTC] must, at its own expense, procure and maintain the following minimum insurances:
arising out of the performance of this Agreement (including the provision of the Transport Services) by [ROTC] …
Clause 21.3 of the TSA also provided:
The insurance policies required under Clause 21.2(b) and (c) of this Agreement shall include Orica as an additional insured or a person to whom the benefit of insurance extends for its respective rights and interests.
ROTC took out a public liability insurance policy which complied with clause 21.2 of the TSA. The policy stated the Insured to be “ROTC and subsidiary and/or related corporations all for their respective rights, interests and liabilities.”
ROTC’s policy schedule provided that:
All business insured under this policy is transacted under the Rocky’s Own Transport Conditions of Contract except for specific customer contracts that have been noted and approved under this policy of insurance. Copies of all Specific Customer Contracts are to be noted and approved by the Insurer and the Insurer reserves the right to charge a reasonable additional premium if a specific customer contract is onerous in nature.
The TSA was listed as an Approved Specific Customer Contract.
The policy definition of “Insured” extended the insurance cover to related entities but did not extend the cover to “Specific Customers”, or to contractors or principals generally.
The policy did not identify Orica as an “additional insured”, or as a co-insured, or an insured at all. The policy also did not extend the benefit of the insurance to Orica for its rights and interests.
The result of this was that the ROTC’s liability policy did not satisfy the requirements of the TSA by either naming Orica as an “additional insured” or as a person to whom the insurance extended for Orica’s right and interests. Hence Orica’s claim for breach of contract.
ROTC referred to various case authorities and argued that, when properly interpreted, the TSA did not require them to take out insurance extending to cover Orica for its own negligence.
Decision
In making his decision, Freeburn J of the Queensland Supreme Court referred to the principles of contractual interpretation. When interpreting a provision of a contract, the words, context and purpose of the contract as a whole must be considered. His Honour’s view is that because interpretation requires consideration of the text, context and purpose, that by necessity it will be different for different contracts.
The starting point of all contractual interpretation is an objective consideration of the text used in the contract and what a reasonable business person would have understood the terms to mean (citing Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37). Freeburn J found that clause 21.3 of the TSA was clear and free of ambiguity when the ordinary and literal meaning of the text was considered. Clause 21.3 required ROTC to take out a public liability insurance policy which named Orica as an ‘additional insured’ or otherwise comprehended Orica as entitled to the benefit of the policy. ROTC conceded that there was no ambiguity in clause 21.3 of the TSA.
ROTC principally relied on the case of Erect Safe Scaffolding v Sutton (2008) 72 NSWLR 1 and argued that the operation of clause 21.3 was consistent with the interpretation adopted in that case, namely that the obligation was not to insure another party for their negligence. Freeburn J warned that “the court needs to be cautious in using prior decisions of the court as helpful in interpreting different contracts in a different context”. Hs Honour found that the paragraph in Erect Safe relied upon by ROTC was not intended to be a statement of principle and the interpretation was distinct and specific to the particular contract before the court in that case.
Freeburn J considered that one of the purposes of a public liability policy is to provide cover for an insured’s risk that they may be liable to third parties, whether or not that is ultimately found to be the case. The trigger is the “Occurrence”, rather than any particular party’s negligence. The TSA simply required ROTC to have a public liability insurance that covered Orica.
Hence ROTC was found liable for breach of the TSA.
The damages payable to Orica was measured by the settlement amount Orica paid to the employee that would have been covered by ROTC’s public liability policy had cover been originally extended to Orica as required by the TSA; that is equivalent to an indemnity.
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