New South Wales District Court CITATION: Safwat Beshara v Australian Postal Corporation; Australian Postal Corporation v Swan Services Pty Ltd; Swan Services Pty Ltd v The Underwriter Insurance Company Pty Ltd; Australian Postal Corporation v The Underwriter Insurance Company Pty Ltd (No 3) [2008] NSWDC 73 HEARING DATE(S): 7 - 16 April 2008, 8 May 2008 JUDGMENT DATE: 14 May 2008 JURISDICTION: Civil JUDGMENT OF: Goldring DCJ 1. Dismiss cross-claim by Australia Post against Services. 2. Australia Post pay the cross defendant Services' costs of the (first) cross-claim. 3. Dismiss the cross-claim by Services against Underwriters. DECISION: 4. Services to pay Underwriter's costs of the cross-claim. 5. Dismiss the cross-claim by Australia Post against Underwriters. 6. Australia Post to pay Underwriter's costs of the cross-claim. 7. Australia Post's costs payable by the plaintiff to include costs of the cross-claim by Australia Post against Services payable by Australia Post to Services up to and including 30 June 2007. 8. Services' costs payable by Australia Post to include costs of the cross-claim by Services against Underwiters from 1 July 2007 payable by Services to Underwriters from 1 July 2007. CATCHWORDS: COSTS - cross-claims - when allowed - Bullock or Sanderson order LEGISLATION CITED: Workers Compensation Act 1987 CASES CITED: Georgitsis v Lend Lease Interiors Pty Limited (1989) 17 NSWLR 106 Trident General Insurance Co Ltd v McNiece Bros Pty ltd (1988) CLR 107 Safwat Beshara (Plaintiff) PARTIES: Australian Postal Corporation (Defendant/Cross Claimant) Swan Services Pty Ltd (Cross Defendant/Cross Claimant) The Underwriter Insurance Company Pty Ltd (Cross Defendant) FILE NUMBER(S): 4885 of 2003 T McKenzie (Defendant/Cross Claimant) COUNSEL: D T Miller SC with M Castle (Cross Defendant/Cross Claimant) R A Cavanagh (Cross Defendant) Graham Jones Lawyers (Defendant/Cross Claimant) SOLICITORS: Moray & Agnew (Cross Defendant/Cross Claimant) DLA Phillips Fox (Cross Defendant) JUDGMENT ON COSTS AND RELATED ISSUES 1 HIS HONOUR: On 16 April this year I dismissed a claim by the plaintiff against Australia Postal Corporation, ("Australia Post"), for damages for compensation for personal injury. Australia Post was sued for breach of its duty as occupier of premises where the plaintiff was seriously injured while he was working as a cleaner. I found there was no breach of duty. That was all that was necessary for the decision. 2 After dismissing this claim I ordered that the plaintiff pay Australia Post 's costs. 3 Australia Post had brought a cross-claim against Swan Services Pty Ltd ("Services"), which was a party to a contract with Australia Post to provide cleaning services at its Granville workshop. The contract contained a provision by which Services undertook to indemnify Australia Post against certain liabilities. This is set out below. The cross-claim relied on this indemnity provision. 4 After I dismissed the plaintiff's claim, I dismissed Australia Post 's cross-claim but reserved questions of costs. 5 Services claimed an indemnity for its contingent liability to Australia Post against its insurers, The Underwriter Insurance Company Pty Ltd ("Underwriters"), relying on a policy of insurance. Underwriters refused the claim and Services then brought a cross action against it. Australia Post claimed to be a co-insured because of the effect of the indemnity provision in its contract with Services and it also brought a cross-claim against Underwriters. 6 At the conclusion of the hearing, after giving my judgment, I also dismissed these cross claims and reserved questions of costs. When the question of costs was listed for hearing, counsel for Australia Post said that he had not understood that the cross-claim against Underwriters was dismissed, and counsel for Services indicated that its cross-claim against Underwriters was not just for legal costs, but for an indemnity against all expenses it had incurred. To enable the matter to be argued fully, I vacated those orders in respect of the two cross-claims against Underwriters. 7 I received substantial written submissions from all parties (except the plaintiff) in relation to the costs issue, which appears to be more complex than the liability issues that are determined after the hearing. 8 In addition to the cost orders which it seeks, Australia Post seeks a Bullock or Sanderson order against the plaintiff if it is required to pay costs to any other party. Services seeks such an order against Australia Post if it is required to pay Underwriters' costs. Australia Post's Claim against Services 9 The relevant provisions in the agreement between Australia Post and Services read as follows: 14.2 Liability for Injury to Persons The Contractor [i.e. Services] shall be liable for and shall indemnify Australia Post against any liability, loss, claim or proceeding whatsoever arising under any legislation all at common law in respect of personal injury to or death of any person whomsoever arising out of or in the course of or caused by the execution of the Services provided always that the same is due to the negligence, act, omission or default of the Contractor, the Contractor's servants or agents, and provided further that the Contractor's liability to the indemnify Australia Post shall be reduced proportionately to the extent that the negligence, act, omission or default of Australia Post or any person other than the Contractor for whom Australia Post is responsible may have contributed to the personal injury or death. 10 Australia Post claims that it was reasonable to join Services as a party to the action because, if it had been found to be liable to the plaintiff, it was entitled to be indemnified. It is not in issue that the contract covered the provision of cleaning services at the Granville workshop. 11 In the course of my findings in the hearing I indicated, because the question of apportionment of liability under the Workers Compensation Act 1987, s 151Z, had been argued fully, that on the evidence before me I would have attached a proportion of responsibility for the plaintiff's injury to its employer. However, I did not consider that this question was properly raised before me and I did not understand counsel to argue it as such. I did not consider the question of whether, for the purpose of the indemnity, Cleaners was the agent of Services, and there was no evidence about this. This indication was based on the absence of any evidence called to rebut the plaintiff's evidence that an employee of Cleaners, who was apparently available to give evidence but was not called, had given him certain directions. The finding was given because the question of the application of the Workers Compensation Act 1987, s 151Z was argued vigorously during the hearing, but was not strictly necessary to the decision of the case. In the absence of Cleaners as a party the indication certainly could not bind that company. While Services did not deny that Cleaners may have been its agent, it did not present its case on that basis and cannot be held responsible for failing to do so. The submission of Australia Post with respect to costs would, in effect, require me to reopen this issue and hear further evidence. As Australia Post did not raise this matter at the hearing nor indicate any intention to do so even after I had given by reasons, I am not prepared to do so now, and indeed I think it would be improper for me to reopen this issue. 12 This is important because of the words "provided always that the same is due to the negligence, act, omission or default of the Contractor, the Contractor's servants or agents" in the indemnity provision. Only if it can be shown that the injury to the plaintiff was caused in that way, after a proper hearing, is the indemnity invoked. I did not make any finding of negligence on the part of Services or its agents, and could not make such a finding on the evidence presented at the hearing. In any event, Australia Post was found not to be liable; and neither was Cleaners -- nor, not being a party, would that have been possible. There was no evidence or argument as to whether there was any agency between Services and Cleaners, and if so what the terms and conditions of that agency were. 13 Accordingly, there was no finding that Australia Post suffered any loss or liability as a result of the negligence, act, omission or default of Services or its agents. For that reason, Georgitsis v Lend Lease Interiors Pty Limited, (1989) 17 NSWLR 106, upon which Australia Post relied, is not relevant to this claim; it concerned a situation where an employer had been found liable. 14 In those circumstances it would not be possible for Australia Post to succeed in its claim for indemnity. Even if it has incurred legal costs in defending the plaintiff's claim, I could not find that this expense fell within the meaning of the expression "any liability, loss, claim or proceeding whatsoever", as used in clause 14.2. Indemnity agreements are construed contra proferentem, with the consequence that as against Australia Post as the person claiming the indemnity, it will be construed strictly. 15 That question is different from the question whether Services is entitled to its costs on the cross-claim. 16 Australia Post took reasonable action in commencing this cost cross-claim. However, there was a real issue at one stage as to who the plaintiff's employer actually was. Australia Post had contracted with Services for cleaning services, and apparently assumed that Services employed the plaintiff. This was a perfectly reasonable assumption. However, Services had made other arrangements for the actual employment of the people who performed the cleaning services. From a date in about June 2007, that issue was resolved, and the parties agreed that, at the time of his injury, the plaintiff was employed by another company associated with Services, Swan Cleaners Pty Ltd ("Cleaners"). Cleaners was never a party to these proceedings, and, as it was quite clear that because the plaintiff did not cross the threshold of 15% whole person impairment, he could not recover common law damages against his employer. There was no evidence as to what the relationship between Services and Cleaners was in relation to the Granville workshop and I made no findings about this issue. 17 The Court file shows that until some date in June 2007, it was not clear that Services was not the employer of the plaintiff. Until that issue was clarified, given the nature of the claim, Australia Post could not be said to have acted unreasonably in joining as a cross-defendant a person who appeared to be the employer. If, and only if, the employer had been found liable, the indemnity would come into operation. The evidence presented in the trial included the contract between Australia Post and Services, and correspondence addressed to the plaintiff from both Services and Cleaners. It was certainly not clear to the plaintiff as to who his employer was. However, once the issue of the proper employer was clarified, in the absence of specific evidence of the nature of the relationship between Services and Cleaners, it seems to me that a proper course would have been for Australia Post immediately to discontinue the proceedings against Services, even though that company had entered into the contract with Australia Post for the provision of cleaning services. By that stage it was clear that common law proceedings against the employer by the plaintiff could not have succeeded because of the degree of his impairment, and it would have been fruitless to join the employer except to the extent that s 151Z might have applied, the situation to which Mathews J referred in Georgitsis. 18 Once the plaintiff's claim against Australia Post was dismissed, no compensation was payable by Australia Post to the plaintiff, and it had no basis for claiming an indemnity in respect of the compensation or anything else. I am not satisfied in these circumstances that there is any reason to depart from the general rule that the costs should follow the event from the time at which it became clear that Services was not the employer of the plaintiff. 19 I will therefore order that the cross claimant (Australia Post) pay the cross defendant Services' costs of the cross-claim. 20 It is reasonable for Australia Post to have pursued an action against the plaintiff's employer, but once it became clear that Services was not the employer, continuation of the action against it seemed to be based on a fairly remote contingency and became unreasonable. 21 At the conclusion of the hearing counsel for Australia Post indicated that when the matter of costs was to be argued he would seek a Bullock or Sanderson order, and although the plaintiff was excused from attendance at the costs hearing, for the reasons I have stated, I am prepared to order that the costs payable by the plaintiff include the costs of the cross-claim payable by the defendant to the cross defendant up to and including 1 July 2007. Services' claim against Underwriters 22 Services was insured under a policy of insurance issued by Underwriters. The relevant provisions of this policy read as follows: "... [T]he Company will pay to or on behalf of the Insured all sums provided by the Policy which the Insured shall become legally liable to pay as compensation for: 1. Personal injury . . . caused by an Occurrence..." 23 It is not in dispute that the plaintiff suffered personal injury and it was caused by an Occurrence as defined in the policy. The policy continues: " Supplementary Payments The Company will pay in addition to the applicable Limit of Liability: all expenses incurred defending in the name of and on behalf of the Insured any claim or suit against the Insured to recover compensation in respect of and/or or arising out of Occurrences covered hereby." and "(b) all expenses incurred by law with permission of the Company for the investigation, negotiation and defence of claims and suits". " Exclusions The Company shall not be liable to indemnify the insured in respect of: . . . 9. Contractual Liability liability to pay compensation for Personal Injury, Property Damage or Advertising Liability where the liability has been assumed solely under an agreement unless such liability: (a) would have attached in the absence of such agreement, or (b) is usual to the Insured's occupation or trade or (c) is assumed by the Insured under warranty of fitness or quality, or is implied by law, in respect of the insured's products." 24 Services agrees that because the plaintiff's claim and Australia Post's cross-claim failed, it has no obligation to pay compensation to any one. It does, however, claim both its legal costs and other associated expenses incurred in defending the cross-claim, and it is this claim that has been rejected by Underwriters. 25 Underwriters says that the cross-claim against it by Services must have failed, because the subject matter of the claim was not covered by the policy. It says that any liability to indemnify Services under the policy applies only if Services is found liable to pay compensation, on a basis that does not fall within an exclusion from the policy, and only in respect of the amount of that compensation. 26 An insurer cannot escape its responsibilities under the policy if it exercises its right of subrogation and successfully defends an action for personal injury compensation brought against its insured. This is a common occurrence. However, Underwriters says in this case that the plaintiff made no claim against Services for compensation. The claim against Services was brought by Australia Post under the provisions of the indemnity agreement (clause 14.2 set out above). The claim is not a claim for compensation for personal injury, but a claim for a contractual indemnity which falls within exclusion 9, which I have set out above. This contention is undoubtedly correct and there was no basis for Services to claim under the policy in these circumstances. 27 Therefore there is no reason to depart from the rule that costs should follow the event. It is now appropriate that I formally dismiss the cross-claim by Services against Underwriters and direct that Services pay Underwriters' costs of the cross-claim. In the circumstances I need not consider whether Services is entitled to any order against Australia Post in the nature of a Bullock or Sanderson order, as that question would arise only if Services' cross-claim against Underwriters had been successful. 28 Services also seeks an order in the nature of a Bullock or Sanderson order against Australia Post in relation to the costs it is liable to pay Underwriters. 29 Underwriters is a party to these proceedings only because Australia Post brought its cross-action against Services. As I have found, it was reasonable for Australia Post to have cross-claimed against Services until it became obvious that Services was not the employer of the plaintiff. The cross-claim was reasonably brought as long as there was a reasonable possibility that Services may have been found to be the employer, or subject to some liability as such. After that, I have found that the reasonable course of action would have been for Australia Post to have discontinued its cross-claim against Services. 30 In the circumstances, there should be an order that the costs of Services to be paid by Australia Post should include the costs payable by it to Underwriters in respect of its cross-claim against Underwriters incurred after 1 July 2007. Australia Post's cross-claim against Underwriters 31 Australia Post claims to be a co-insured with Services pursuant to the agreement, clause 14.2. This allegation was pleaded, but, so far as I can discern, no evidence other than the indemnity provision was adduced in evidence to support the contention. It says that its liability to pay compensation arises because it is entitled to the benefit of any insurance cover which Services had. Logically, it stands in the same position as Services, and if, as I have stated, Services cannot claim under the policy, then Australia Post is in the same position, even though it might be argued that Australia Post's liability "would have attached in the absence of" the indemnity agreement and therefore does not fall within exemption 9 in the insurance policy, set out above. However, I also fail to see how, exactly, Australia Post claims to be a co-insured. If Australia Post claims as a co-insured, must have precisely the same rights and obligations as the coinsured. However, it is not necessary for me to decide this. 32 What is clear is that Australia Post was not a party to any contract with Underwriters, nor, on the evidence before me, could it claim to be a party for whose benefit any contract between Underwriters and a third party was made. It has presented no evidence which would bring it within an exception to the general rule, such as that stated by the High Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107. 33 Australia Post's cross-claim against Underwriters is dismissed. Australia Post must pay Underwriters' costs of its cross claim. I make the following orders: 1. Dismiss the cross-claim by Australia Post against Services 2.Australia Post pay the cross defendant Services's costs of the (first) cross-claim. 3.Dismiss the cross-claim by Services against Underwriters 4.Services to pay Underwriters' costs of the cross-claim. 5.Dismiss the cross-claim by Australia Post against Underwriters 6.Australia Post to pay Underwriters' costs of the cross-claim. 7.Australia Post's costs payable by the plaintiff to include costs of the cross-claim by Australia Post against Services payable by Australia Post to Services up to and including 30 June 2007. 8.Services's costs payable by the Australia Post to include costs of the cross-claim by Services against Underwriters from 1 July 2007 payable by Services to Underwriters from 1 July 2007. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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