PASMINCO METALS-SULPHIDE PTY LTD v BRAMBLES AUST LTD SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL SPIGELMAN CJ, MASON P, POWELL JA 25 August 1998 [1998] NSWCA 169 CONTRACTS — construction and interpretation — contractual obligation to procure insurance — meaning of "subcontractor". Spigelman CJ. Ex tempore I will ask Mason P to deliver the first judgment. Mason P. Proceedings were commenced in the Common Law Division by the second respondent (Mr Murray) against the first respondent (Brambles) as first defendant and the second respondent (Sulphide) as second defendant. Mr Murray claimed damages for personal injuries suffered at factory premises at Cockle Creek. It was alleged in the Statement of Claim that Sulphide was the occupier of the factory and that Brambles was in control of and had responsibility for the performance of sand-blasting work on the premises and/or was the occupier with responsibility for that part of the factory premises where the sand-blasting work was being carried out. Each defendant was sued in negligence as well as upon statutory counts. Mr Murray did not plead that he was employed by either corporation. His evidence was that his employer was Allman Industrial Services Pty Ltd, and it was that employer who instructed him to go to the factory. After commencing work Mr Murray was injured when he struck his head on a beam obstructing a walkway on some scaffolding. Each defendant filed a Defence. Ultimately, on 8 February 1995, Mr Murray settled his claim against Brambles for $195,000. His claim against Sulphide was discontinued. These facts present the background to the appeal, which is concerned with a contractual dispute between Brambles and Sulphide which was litigated pursuant to the Second Cross Claim filed in Mr Murray's proceedings. Sulphide had contracted with Brambles for Brambles to carry out construction work at the factory. The Agreement is a lump sum contract dated 2 December 1988. Sulphide, by its earlier name, is referred to as "The Company" and Brambles, by its earlier name, is referred to as "The Contractor". For a consideration of about $4 million Brambles agreed to prepare for painting all steel work, apply heavy duty coatings to protect the steel work from further corrosion, inspect, test, maintain these coatings and clean up the site on completion of work, as indicated by the Specification. Details of Brambles' obligations were set out in the 47 page Agreement (containing its Specification or special conditions) and 5 Appendices. These included App 1, General Conditions of Contract for Construction Contracts. Condition 3 of these General Conditions stipulated: 3 PRECEDENCE OF DOCUMENTS 2 UNREPORTED JUDGMENTS If there is any conflict between the agreement including special conditions relating thereto executed by the parties, the specifications, the drawings and these general conditions or any of them: (a) the provisions of the said Agreement and special conditions shall be paramount; ... The claim propounded in the Cross Claim is based on cl 9(a) of the General Conditions which provided: 9 INSURANCE (a) The Company shall arrange 'Contractors' All Risks' insurance in the names of the Company and any sub-contractors for the full Contract value from time to time of the Work done at, and Goods delivered to the Site during the period of the Contract including the period of maintenance and guarantee. This insurance shall include cover against liabilities to third parties in respect of bodily injury (including death) and damage to property to the limit of $5,000,000 for any one accident or as otherwise mutually agreed between the Company and the Contractor, but shall not otherwise cover the plant, machinery, tools and equipment of the Contractor, his employees or sub-contractors or their employees. The policy shall provide that the Company and the Contractor and any sub-contractors shall be regarded each as third parties to the other. Unless otherwise specified or mutually agreed the policy will provide for the following excesses: Fire, Explosion, third party and all other risks $5,000 and the Contractor shall be responsible for and shall indemnify the Company against all losses claims and demands below the amount of such excess ... The essential case of Sulphide, here and below, was that other parts of the Agreement imposed and defined the relevant insurance — procuring obligation of Sulphide. These were cl 3.03 of the Special Conditions and cl 9(d) of the General Conditions. Each of these provisions relevantly stipulate that the Contractor, ie Brambles, shall keep itself insured: against all claims and liabilities arising, whether at Common Law or under any statute relating to Workmen's Compensation or Employers' Liability, from any accident or injury to any person employed by the Contractor or by a sub-Contractor on or in connection with the work ... The minimum cover differs between the two provisions, being $500,000 in the Special Conditions and $200,000 in the General Conditions, but nothing turns directly on this in the present case. The higher sum prevails because of cl 3 of the General Conditions. An essential, but not necessarily conclusive, step in Sulphide's argument was to establish that Mr Murray was an employee of Brambles or of a sub-contractor of Brambles on or in connection with the work. Unless this were shown, neither cl 3.03 of the Special Conditions nor cl 9(d) of the General Conditions were engaged. Absent such engagement, a necessary step in Sulphide's attempt to escape liability stemming from cl 9(a) of the General Conditions (with its permitted $5000 excess) failed. Newman J held that Mr Murray came to the site as the employee of Allman Industrial Services Pty Ltd, a company that provides labour to other organisations that are engaged in a variety of industrial projects. He reported to Bramble's site supervisor, Mr McCullough. Having passed a medical examination, he was directed by Mr McCullough as to the performance of work and supplied by Brambles with the equipment and clothing necessary to do the job. URRASMINCO METALS-SULPHIDE PTY LTD v BRAMBLES AUST LTD (Spigelman CJ) 3 At trial Sulphide contended that this made Mr Murray a pro hac vice employee of Brambles, thereby bringing him within the scope of cl 3.03 of the Special Conditions and cl 9(d) of the General Conditions. This submission was rejected. After citing a number of well-known Australian and English decisions, Newman J concluded that Mr Murray remained the employee of Allman Industrial Services and that he did not become the employee of Brambles, notwithstanding that he was willing to accept Mr McCullough's orders. This finding is no longer challenged in the appeal. Based on this finding, Newman J concluded that cl 3.03 of the Special Conditions did not apply and that cl 9(a) of the General Conditions represented the relevant contract for the purpose of determining the Cross Claim. In my view he was correct to do so. The Combined Liability Policy taken out by Sulphide in purported compliance with cl 9(a) has a $50,000 excess as distinct from the $5000 excess stipulated in cl 9(a). Brambles succeeded on the basis that the $195,000 payable to Mr Murray under the Terms of Settlement was recoverable under that Policy, less its $50,000 excess; and that such right of reimbursement was to be brought into account in Sulphide's favour. Hence the verdict on the Cross Claim of $45,000 plus costs. The appellant accepts that, if cl 9(a) of the General Conditions is considered in isolation, Brambles is a sub-contractor in terms of its opening words, and that the second sentence of cl 9(a) would prima facie include cover against the liability to Mr Murray. But cl 9(a) is not to be read in isolation. It is to be read with cl 9(d). So much must be readily conceded. However, cl 9(d) addresses a distinct area of insurance cover, albeit one which might partially overlap with the field of cl 9(a). Clause 9(d) is concerned with liability to employees, being employees of Brambles as the Contractor or by a sub-contractor "on or in connection with the Work". The distinctive fields of cll 9(a) and (d) are also emphasised by the absence of any provision for an excess in cl 9(d); and the limits of cover ($5 million in the case of cl 9(a), and $200,000 in the case of cl 9(d)). See also cl 9(e). On appeal Sulphide contends that Mr Murray was employed "in connection with the Work", albeit that his employer never ceased to be Allman Industrial Services. It is submitted that Allman was a "subcontractor" for the purposes of cl 9(d). It is submitted that cl 9(d) should be treated as excising from cl 9(a) the subject matter of injuries to employees (whether of Brambles or of sub-contractors). I am not sure that one is driven to this mutually exclusive construction of cll 9(a) and (d). But the submission goes nowhere unless Allman Industrial Services was a "subcontractor" of Brambles. The judgment of Newman J does not suggest that Sulphide's case was run below on this basis. Indeed Brambles submits that this case was not put. Merely because Allman supplied labour to Brambles would not necessarily make it a subcontractor any more than the fact that a supplier of steel wool would necessarily become a subcontractor. The case was run on the basis of Mr Murray becoming Brambles' employee, and that case failed. It would not be just for Sulphide to be permitted now to run an alternative case that could turn upon unexplored evidence. In my opinion the appeal should be dismissed with costs. Spigelman CJ. I agree. The natural and ordinary meaning of the word "sub-contractor" suggests a person or firm that performs some part of the work, rather than a person or firm that supplies services or equipment for use in the work. 4 UNREPORTED JUDGMENTS Mr Jackson directed attention to the nature of the work involved in this particular contract, specifically painting and application of heavy duty coatings to steelwork. It is clear that it does involve and assumes the use of labour. However, in my opinion it also extends to the supply of equipment and other material required for the work. I am of the same view that the President has enunciated and would in fact conclude that the evidence, such as it was, below was not sufficient to establish that Allman was a subcontractor within the meaning of cl 9(d). I agree with the order proposed by the President. Powell JA. I agree with the reasons given by the President and the additional reasons given by the Chief Justice. Spigelman CJ. The Court is of the view that indemnity costs are not appropriate on this occasion in view of the arguments put and, accordingly, the order of the Court will be that the appeal is dismissed with costs. [1] Appeal dismissed. Counsel for the appellant: D F Jackson QC/ R A Pepper Counsel for the respondents: M L Williams/ B J Shields Solicitors for the appellant: Rankin & Nathan Solicitors for the first respondent: Ebsworth & Ebsworth Solicitors for the second respondent: Moroney Rutter & Mantach