[2018] NSWCA 55 (28 March 2018)


Exclusion for Assumed Liabilities


This case in part involved the consideration and effect of a standard liability exclusion dealing with an insured’s assumed liability.


The case also has lessons and insurance policy implications for insureds which are in the business of the supply of labour hire pursuant to written contracts.


QBE/386 was the general liability insurer of the labour hire company.


Facts

SCM was a labour hire company for a BHP company operating a colliery on the outskirts of southern Sydney.


Soon after commencement of employment, a new, young labour hire employee was injured in the mine after falling from a ladder.


While SCM had a team supervisor, it seems that the injured worker obtained negligible onsite training to avert the risk which he encountered.


The injured worker sued his employer and the colliery operator as occupier, seeking common law damages for the injuries which he suffered.


The colliery operator cross claimed against SCM.


SCM cross claimed against its public liability insurer in respect of the value of the settlement between SCM and the colliery operator.


The agreement between SCM and the colliery operator had an indemnity provision as follows:

For

i. Breach of Agreement

ii. Negligence on SCM’s part but also

any liability and/or any loss or damage of any kind whatsoever, arising directly or indirectly from……… injury……… of any of (SCM’s) employees.


SCM’s general liability policy had an exclusion in the following terms:


The policy did not cover liability:


Assumed

Under the terms of a contract agreement or warranty, unless the insured would have been liable in the absence of such terms or warranty.


QBE/386 did not suggest that the exclusion operated to exclude SCM’s right to cover for SCM’s general breach of agreement.


Settlement

The injured worker settled his claim against each of the defendants for $375,000, inclusive of costs.


As between themselves, SCM and the colliery operator agreed to split the settlement 60/40 respectively.


In addition, SCM agreed to settle with the colliery operator by indemnifying it in relation to its 40% and in addition, paying its costs of $40,000.


QBE/386 declined to indemnify SCM in respect of the component of settlement between SCM and the colliery operator.


The Trial Decision

QBE/386 was ordered to indemnify SCM in respect of SCM’s liability to the colliery operator.

For inelegant reasons, the Trial Judge found that the exclusion did not impede SCM’s right to indemnity.


Court of Appeal

QBE/386 appealed.


The Court of Appeal agreed with the Trial Judge’s conclusion on the effect of the exclusion because SCM’s liability was easily characterised as a liability for breach of contract, regardless of the operation of the assumed liability under the contract.


The Appeal Judge who wrote the Court’s reasons said

“Liability will only be assumed under a contract, agreement or warranty if the only reason the insured is liable, is that assumption of liability. That is to say, the words, “unless the insured would have been liable in the absence of such terms or warranty”

are to be read with the word “assumed” and confirm that the exclusion is directed to liability which only rests (our emphasis) with the insured because of it’s voluntary act of assumption.


The Judge went on to say

It is clear that the liability claim by SCM against QBE is liability, was not assumed by it, but rather was liability for which SCM would have been liable in the absence of (the indemnity clause under the contract).


Conclusions

The interpretation of some insurance provisions can be complicated by the width of the insured’s underlying agreements which constitute the things which need to be interpreted in understanding how the policy might work.


It is obvious that while SCM presented all of the arguments from the start, which found favour with the Court of Appeal, the insurer was never persuaded by them.


Other Matters

Insurance brokers often receive requests to review contracts of indemnity. The case highlights the difficulties with which a broker can be presented.


That is why we hold ourselves out as being able to assist in that chain of enquiry.


It was not disputed that the insured never notified insurers of the existence or content of the particular agreement on which the case rested.


The insurer submitted that that constituted actionable non-disclosure entitling it to reduce its liability to nil.


While the matter came to be decided at a factual level, a different way, the Court did not have to decide what the consequences may be had there been no redeeming facts which allowed that point to be got around.


Where insurance is being organised by a broker for a labour hire supplier, the broker has an interest in requiring the insured to answer questions relevant to the existence of and nature of the labour supply contracts regardless of whether they contain provisions seeking to impose liability by way of indemnity.


QBE/386 submitted, and it seems to have been accepted, that had it been aware of the contract, it would have excluded the indemnity risk. We are not sure what it meant by that because it had already excluded a real assumed liability unless QBE was meaning to infer that it would have excluded cover for the insured’s liability to pay damages for ordinary breach of contract.


The trial between the insured and between SCM and QBE lasted 8 days and the Court of Appeal pithily observed that the cost of the trial would have far exceeded the amount in dispute.

Updated: Mar 16, 2020

[2018] NSWCA 55 (28 March 2018)


Exclusion for Assumed Liabilities


The Trial Decision

QBE/386 was ordered to indemnify SCM in respect of SCM’s liability to the colliery operator.

For inelegant reasons, the Trial Judge found that the exclusion did not impede SCM’s right to indemnity.


Court of Appeal

QBE/386 appealed.


The Court of Appeal agreed with the Trial Judge’s conclusion on the effect of the exclusion because SCM’s liability was easily characterised as a liability for breach of contract, regardless of the operation of the assumed liability under the contract.


The Appeal Judge who wrote the Court’s reasons said

“Liability will only be assumed under a contract, agreement or warranty if the only reason the insured is liable, is that assumption of liability. That is to say, the words, “unless the insured would have been liable in the absence of such terms or warranty”

are to be read with the word “assumed” and confirm that the exclusion is directed to liability which only rests (our emphasis) with the insured because of it’s voluntary act of assumption.


The Judge went on to say

It is clear that the liability claim by SCM against QBE is liability, was not assumed by it, but rather was liability for which SCM would have been liable in the absence of (the indemnity clause under the contract).


Conclusions

The interpretation of some insurance provisions can be complicated by the width of the insured’s underlying agreements which constitute the things which need to be interpreted in understanding how the policy might work.


It is obvious that while SCM presented all of the arguments from the start, which found favour with the Court of Appeal, the insurer was never persuaded by them.


Other Matters

Insurance brokers often receive requests to review contracts of indemnity. The case highlights the difficulties with which a broker can be presented.


That is why we hold ourselves out as being able to assist in that chain of enquiry.


It was not disputed that the insured never notified insurers of the existence or content of the particular agreement on which the case rested.


The insurer submitted that that constituted actionable non-disclosure entitling it to reduce its liability to nil.


While the matter came to be decided at a factual level, a different way, the Court did not have to decide what the consequences may be had there been no redeeming facts which allowed that point to be got around.


Where insurance is being organised by a broker for a labour hire supplier, the broker has an interest in requiring the insured to answer questions relevant to the existence of and nature of the labour supply contracts regardless of whether they contain provisions seeking to impose liability by way of indemnity.


QBE/386 submitted, and it seems to have been accepted, that had it been aware of the contract, it would have excluded the indemnity risk. We are not sure what it meant by that because it had already excluded a real assumed liability unless QBE was meaning to infer that it would have excluded cover for the insured’s liability to pay damages for ordinary breach of contract.


The trial between the insured and between SCM and QBE lasted 8 days and the Court of Appeal pithily observed that the cost of the trial would have far exceeded the amount in dispute.

  • Kevin Gibbons

Updated: Mar 16, 2020

Can payment claims be made under Security of Payments Legislation when a Contract has been terminated?


Introduction

Performing functions without which the multi-billion dollar building and construction industry would not be able to function, the surveying profession, like many other providers in the industry, often encounters issues with non-payment of invoices from principals, for one reason or another.


We have previously written articles in ACSIS news about the Security for Payments legislation which is in place throughout Australia, and the importance of issuing payment claims strictly in accordance with its provisions.


This article examines a discrete part of the Security for Payments legislation, being the ‘Reference Date’ in light of the decision of the High Court in Southern Han Breakfast Point Pty Ltd (in Liquidation) v Lewence Construction Pty Ltd [2016] HCA 52, and outlines some issues which may arise in relation to seeking protection under the Security of Payment legislation when a dispute with a principal occurs.


Relevant Legislation

The relevant legislation in respect of reference dates is uniform throughout Australia (with the exception of Northern Territory and Western Australia). For ease of reference and because of the jurisdiction of case the Lewence outlined below, this article is drafted by reference to the New South Wales legislation.


Section 8(1) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SoP Act) provides that ‘[o]n and from each reference date under a construction contract, a person… who has undertaken to carry out the work or supply related goods and services… is entitled to a progress payment.’


Section 13(1), relating to payment claims, provides that ‘[a] person referred to in s 8(1) who is or who claims to be entitled to a progress payment may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.’


In the absence of any reported cases to the contrary, it seems to be generally accepted that surveying services in respect of the proposed or approved construction development constitute construction work to which the SoP Act applies.


The accepted process revolves around a person who claims to be entitled to a progress payment under a construction contract (the claimant) making a payment claim against the person liable to pay under the contract which they must either pay or dispute within a specified timeframe. If the payment claim is not challenged within the period prescribed under the legislation, the amount becomes immediately due and payable and a claimant can either recover the unpaid amount as a debt in court or serve Notice of the claimant’s intention to suspend its services under the construction contract.


If the claimant opted to commence recovery action in court, the person liable to make the payment is precluded from defending the recovery action on the basis of a set-off.


The statutory right to issue payment claims under the SoP Act, however, is contingent upon them being issued on or after a reference date which is expressed in the construction contract (or under legislation if not provided in the contract), which is usually once per month. Typically, the legislation also provides that a claimant can only make one payment claim for each reference date.


The Facts and the Judgment

In 2013 Southern Han contracted with Lewence in relation to the construction of a large commercial development in Breakfast Point, NSW.


On 7 October 2014 Lewence issued a payment claim. It was issued on a reference date which was monthly.


On 27 October 2014, Southern Han took all remaining work away from Lewence on the basis that Lewence had allegedly breached its contract.


Lewence contended that Southern Han’s conduct was a repudiation of the contract and terminated the contract in accordance with its terms.


In early December 2014, Lewence served a final payment claim relating to work it had performed up until Southern Han had allegedly repudiated the contract.


Following an adjudication process under the SoP Act, an adjudicator determined that Southern Han owed Lewence in excess of $1,200,000.


Southern Han prosecuted proceedings in the NSW Supreme Court, seeking to set aside the adjudicator’s decision. It submitted that no further reference date could arise following the termination of the contract 27 October 2014; and on that basis the payment claim served by Lewence in December 2014 was invalid, and no further payment claim could be made following the termination of the contract.


The Supreme Court agreed with that position and overturned the adjudicator’s decision.


Lewence successfully appealed the Court’s decision in the Court of Appeal, which found that while the question whether a reference date had arisen may be considered by an adjudicator, the absence of a reference date is not automatically fatal to the validity of a payment claim.


On appeal to the High Court, Southern Han’s favourable judgment by the trial judge was upheld.


The High Court held that ‘a valid reference date is a precondition to the making of a valid payment claim under [the SoP Act];’ and on that basis, no reference date accrued after termination on 27 October 2014.


Impact on Surveyors

In circumstances where a construction contract has been (or purported to be) terminated and moneys are still alleged to be owed by a principle, the decision in Southern Han is instructive that the protections afforded under the SoP Act may provide little or no comfort, and ordinary fee recovery proceedings may be required to recover moneys owed.


If a contractor wishes to terminate and the date of termination is earlier than the ‘next reference date’, a claim for payment for services between the last reference date and the termination may not be dependant on the litigation protections under the SoP Act. If one wishes to have the protections available under the Act but one does not wish to lose the statutory recovery regime, one needs to consider carefully the date of termination.


In Lewence’s case, the last payment claim could have been protected if issued by the next reference date (after 7 October 2014), and termination postponed accordingly.


Its omission to postpone termination was found to have caused it to lose its statutory recovery rights.