Dust Diseases Tribunal of New South Wales CITATION : (Re Ross Lloyd Barlow) Power Technologies Pty Ltd v Vero Insurance Ltd (No. 2) [2010] NSWDDT 15 PARTIES : Power Technologies Pty Ltd Vero Insurance Ltd MATTER NUMBER(S) : 325/4 of 2000 JUDGMENT OF: Curtis J at 1 CATCHWORDS: DUST DISEASES TRIBUNAL - Negligence :- interpretation of insurance policies - exercise of reasonable care that only competent employees are employed - attribution of knowledge to a company Fraser v BN Furman (Productions) Ltd [1967] 3 All ER 57 W & J Lane v Spratt [1970] 1 All ER 162 Wilson v Merry & Cunningham (1868) LR 1 Sc & Div 326 Young v Hoffman Manufacturing Co [1907] 2 KB 646 Cribb v Kynoch Ltd [1907] 2 KB 548 Fanton v Denville [1932] 2 KB 309 Butler v Fife Coal Co Ltd [1912] AC 149 Collector of Customs v Agfa-Gevaert Limited (1996) 186 CLR 389 CASES CITED: R v Brown [1996] 1 AC 543 Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance (1942) 42 SR (NSW) 231 Meridian Global Funds Management Asia Ltd v Securities Commission (1995) 3 WLR 413 Brambles Holdings Ltd v Carey (1976) 15 SASR 270 Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 Woolfall & Rimmer Ltd v Moyle [1942] 1 KB 66 Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 Body Corporate Strata Plan No 4303 v Albion Insurance Co Ltd (1983) 2 ANZ Ins Cas 60-511 Johnson v American Home Assurance Co (1998) 192 CLR 266 Jones v Dunkel (1959) 101 CLR 298 DATES OF HEARING: 1 September 2010 DATE OF JUDGMENT: 17 September 2010 Mr P Webb QC with Mr T M Rowles instructed by Carroll and O'Dea appeared for the Cross Claimant. LEGAL REPRESENTATIVES: Mr B Walker SC with Mr D Talintyre instructed by Piper Alderman appeared for the Cross Defendant. JUDGMENT: Dust Diseases Tribunal of New South Wales Matter Number 325 of 2000/4 (Re Ross Lloyd Barlow) Power Technologies Pty Ltd v Vero Insurance Ltd (No 2) 17 September 2010 Introduction 1. On 29 August 2007 the Court of Appeal ordered that this matter be remitted to the Tribunal for determination of the question whether Power Technologies Pty Ltd (Power Technologies), formerly International Combustion Australia Ltd (ICAL), had complied with its obligation under Condition 4 of the Policy of Insurance to "exercise reasonable care that only competent employees are employed". 2. On 8 September 2009 I granted leave to Power Technologies to reopen its case for the purpose of calling the evidence of Mr Victor Bilbow. Vero Insurance has also been permitted to adduce additional evidence. The Legal Test 3. The Condition is in these terms: The Insured shall exercise reasonable care that only competent employees are employed and shall take all reasonable precautions to prevent bodily injury. 4. The Court of Appeal, applying Fraser v BN Furman (Productions) Ltd [1967] 3 All ER 57, has held that the word "reasonable", when qualifying the obligation to "take all precautions to prevent bodily injury" meant reasonable as between the insured and the insurer having regard to the commercial purposes of the contract, and that satisfaction of the condition required only that the insured prove that it did not, with actual knowledge of the danger, deliberately ignore it. Natural and Ordinary Meaning of the Word Reasonable 5. In Vero's submission the word "reasonable" should not bear this qualified meaning when describing the obligation to "exercise reasonable care that only competent employees are employed", but should instead be read in accordance with its natural and ordinary meaning so as to impose upon the insured an obligation to exercise normal prudence when deciding to either engage or retain the services of an employee. 6. Such an obligation, it argues, would not detract from the commercial purpose of the insurance contract because the insured would remain protected against liability arising from negligent conduct or breach of statutory duty by employees reasonably regarded by the insured as competent. 7. I do not agree. A corporation can only operate through the agency of natural persons. Large corporations such as Power Technologies necessarily delegate the responsibilities of hiring staff to employees over whom the board has no direct control. Because such persons are human, inevitably mistakes will be made and prudence overlooked in the selection or retention of staff who are ill-qualified, careless or accident prone. The commercial purpose of the contract of insurance would be severely compromised if the risks arising from such circumstances were excluded from cover. 8. The decision in W & J Lane v Spratt [1970] 1 All ER 162, while not binding, is illustrative. A firm of carriers negligently employed a fraudster without checking his references, and the fraudster immediately made off with the firm's truck and valuable cargo. A condition in the insurance policy taken out by the firm was that "[t]he Insured shall take all reasonable precautions for the protection and safeguarding of the goods..." 9. In reliance upon Fraser v BN Furman, Roskill J held that, upon the assumption that the condition specifically required that all reasonable precautions be taken in the selection of staff, it required no more than that the insured should not be reckless in employing staff, that is, "with actual recognition by the insured himself that a danger exists, not caring whether or not it is averted". Authority before the Abolition of the Doctrine of Common Employment 10. In written submissions Vero contended that the words "exercise reasonable care that only competent employees are employed" should be read in the context of the common law duty of a master to exercise reasonable care for the safety of his servant as that duty was interpreted under the doctrine of common employment, before the doctrine was abolished by statute. 11. The doctrine held that, in accepting employment, a servant contracted on terms that he would accept the risk of injury from not only his own want of care or skill, but also that of his fellow servants. In Wilson v Merry & Cunningham (1868) LR 1 Sc & Div 326 the doctrine was extended to hold that a manager in charge of operations was in common employment with other employees, so that the employer could escape liability for failing to provide safe premises, plant and systems of work. The employer was liable only for a breach of a personal duty owed to his servant, and that duty was discharged if he selected his manager with due care. 12. At page 333 of the judgment, Lord Cairns said: I think the learned Judge ought to have told the jury that if they were of opinion that the Respondents exercised due care in selecting proper and competent persons for the work and furnished them with suitable means and resources to accomplish the work, the Respondents were not liable to the Appellant for the consequences of the accident. 13. Vero argues that because, under the doctrine of common employment, the employer's duty to take reasonable care for the safety of his workers did not extend beyond the selection of competent staff and the provision of adequate means and resources, it may be inferred that "competence encompasses a requirement that the employer provide employees with sufficient ongoing resources for the proper discharge of their functions". 14. As I understand the argument, it is that employees can only remain competent if they are provided with the wherewithal to safely discharge their function, and failure to provide that wherewithal constitutes a failure to employ competent employees. 15. I do not believe that the authorities cited by Vero, (Young v Hoffman Manufacturing Co [1907] 2 KB 646, Cribb v Kynoch Ltd [1907] 2 KB 548, Fanton v Denville [1932] 2 KB 309 and Butler v Fife Coal Co Ltd [1912] AC 149) support this proposition, but in any event, we are here concerned with the liability of the employer to strangers, not to its own employees. 16. Further, the issue of whether an obligation to take reasonable measures to ensure that employees are sufficiently well informed to avert dangers to others is to be subsumed within a continuing obligation to employ only competent employees, does not advance the resolution of the fundamental question of the "reasonable" extent of either obligation. Conclusion 17. It would be anomalous if the word "reasonable", where twice used in the same sentence imposing conditions, were not to carry the same meaning in respect of each obligation. 18. The High Court in Collector of Customs v Agfa-Gevaert Limited (1996) 186 CLR 389 at 397 approved of a statement by Lord Hoffmann in R v Brown [1996] 1 AC 543 at 561 where he said: The fallacy in the Crown's argument is, I think, one common among lawyers, namely to treat the words of an English sentence as building blocks whose meaning cannot be affected by the rest of the sentence ... This is not the way language works. The unit of communication by means of language is the sentence and not the parts of which it is composed. The significance of individual words is affected by other words and the syntax of the whole. 19. I hold that Power Technologies must prove that it did not, with actual knowledge of the dangers of asbestos, deliberately ignore those dangers when exercising reasonable care that only competent employees were employed. 20. Because the test relates to what is reasonable between the insurer and the insured, I hold it sufficient that Power Technologies prove that the employees causally responsible for Mr Barlow's injuries were competent, rather than that it employed competent employees throughout its organisation. 21. Because the condition speaks of the obligation that only competent employees "are" employed, Power Technologies must prove that competence continued throughout the operation of the policy rather than at its inception. If it came to the knowledge of Power Technologies that employees were not competent, the condition obliged the company to train or dismiss those employees. 22. The evidentiary burden upon Power Technologies to prove compliance with the condition is not heavy. In Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance (1942) 42 SR (NSW) 231 at 237 Jordan CJ said that slight evidence of general compliance with condition precedent may be sufficient in the plaintiff's case. The Evidence of Power Technologies Advertising Brochure 23. In an advertising brochure (Blue Book 601), probably written no earlier than 1980, ICAL claimed that it employed experienced personnel and possessed the ability to efficiently administer large contracts. It asserted that it maintained an administrative centre to provide essential support facilities for each member of the group and that its Construction Department led the field in construction philosophies and techniques. The brochure asserted that a Quality Assurance Department established and monitored the high standards on which the reputation of the company was based. 24. The Chairman's Review in the Report of Directors and Annual Accounts for the year ending 30 September 1959 (Blue Book 687) stated that: "To keep abreast of modern developments, we have had a number of engineers overseas in conjunction with the manufacture of steam generating plant…" Victor Thomas Bilbow 25. Mr Bilbow was employed by ICAL on 2 May 1967 to work as a commissioning engineer at Vales Point Power Station. He progressed to the positions of Construction Manager and Resident Engineer, and worked at both Vales Point and Munmorah. He was called and his statement of 22 October 2008 was tendered without objection. He was not cross-examined. 26. In that statement Mr Bilbow said this: 19. Over the whole time of the period of my employment I was of the opinion that the organisation of the ICAL workforce from top to bottom was excellent. From time to time I met with senior executives of the company including the Chief Executive Ern Stutchbury and the General Manager David Baker. They were always concerned to maintain the efficiency and competence of the workforce and this attitude was reflected by the staff and engineers on site. 20. The ICAL contracts were completed on time and the continued operation of the boilers today is a testament to the competence of the ICAL people who designed and installed them. They were designed for service for 25 years but they have all long exceeded this period. 21. On site we were always very concerned to maintain the competence of our own workforce and the subcontractors whom we retained. It was our policy in those days to have a ratio of approximately 50% employed workforce to 50% subcontractors. 22. Because there were so many people working close to our workforce and within our observation, we were able to entice people from other employment after we had observed their competence and skill firsthand, as in fact Gordon Taylor did with me. When we hired someone it was usually on a recommendation by word of mouth, and all applications for employment of our employees and subcontractors and their employees were carefully vetted by the Resident Engineer from time to time, and also by the Electricity Commission. 23. We were also proud of our safety record. Even though we were often carrying out work at considerable heights, as far as I can remember there were no fatalities in our workforce during the construction of the boilers at the various Power Station sites. 24. During my time at Vales Point and Munmorah Power Station up to my transfer to Liddell Power Station in about 1974, all of the workforce including engineers and Electricity Commission inspectors were continually exposed to asbestos dust, particularly when lagging operations were being carried out. 25. In the period prior to 1974 I did not know of the dangers of asbestos and I did not see or hear any warnings of the dangers of asbestos in this period. 27. Mr Barlow's exposure ceased in 1973. The Evidence of Vero 28. Vero tenders an enormous volume of publications, transcripts of evidence, and judgment extracts from previous proceedings in the Tribunal, to establish that the dangers of asbestos were widely recognised in the general domain at the relevant time. 29. To my mind this material merely confirms the factual basis for my findings in the cross claim by Delta Electricity against Power Technologies, however, in Vero's contention, that evidence signals a "clear failure, if one likes an egregious failure, to meet that which knowledge in the general domain, required an employer to be taking steps to be informed and to take precautions." 30. As I understand Vero's submission, it is that an insured cannot satisfy the test of reasonable compliance with the condition, even when framed as reasonable between insurer and insured, in circumstances where, although the insured is ignorant of the danger, that ignorance is wholly unreasonable. 31. I do not believe that this submission is available. 32. I have already observed in my reasons for judgment that "no one person who constituted the guiding mind of ICAL at any relevant time made a deliberate decision to court the danger to which Mr Barlow was exposed". Implicit in my reasons is a finding that Power Technologies did not have actual knowledge of the risks to which the plaintiff, Mr Barlow, was exposed. 33. I accept that it is not in every case necessary to identify a singular "directing mind and will" of a corporation in order that responsibility for an act or omission be attributed to that corporation. As the Privy Council pointed out in Meridian Global Funds Management Asia Ltd v Securities Commission (1995) 3 WLR 413, in relation to knowledge relevant to the imposition of a statutory duty, the question is one of construction rather than metaphysics. "It is a question of construction in each case as to whether the particular rule [of attribution] requires that the knowledge that an act has been done, or the state of mind with which it was done, should be attributed to the company" (at 423). 34. In Brambles Holdings Ltd v Carey (1976) 15 SASR 270 at 275, another case concerning statutory construction, Bray CJ said that, in a proper case, for the purpose of assigning legal responsibility, a corporation has the combined knowledge or belief possessed by more than one of its officers, and that it was wrong to say that any state of mind to be attributed to a corporation must always be the state of mind of one particular officer alone, and that the corporation can never know or believe more than that which one man knows or believes. 35. Nevertheless, where knowledge is to be attributed for the purpose of measuring a departure from a standard of conduct expected of persons to whom the duty "to take reasonable care that only competent employees are employed" has been delegated, it is appropriate to adopt the approach of Viscount Haldane LC in Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 and attribute to the company the knowledge of the person whose function in the company was to discharge the duty in question. 36. I believe my earlier findings are sufficient to negate Vero's submission that, because of the volume of published material in the public domain, Power Technologies had actual knowledge of the dangers in question. 37. The test applied by Lord Diplock in Fraser v BN Furman was first formulated in Woolfall & Rimmer Ltd v Moyle [1942] 1 KB 66 and is well settled. The test is subjective (Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390, Body Corporate Strata Plan No 4303 v Albion Insurance Co Ltd (1983) 2 ANZ Ins Cas 60-511). 38. In Albion Insurance at 77,906, McGarvie J expressly stated that "there is no place in the relevant principle of construction for either the word "reckless" or the concept of recklessness". 39. Settled interpretations of commonly used language in policies of insurance are not to be disturbed without good reason (Johnson v American Home Assurance Co (1998) 192 CLR 266 at 273 per Kirby J). 40. Even if the test were as suggested by Vero, for reasons which I sought to express in paragraphs 33 to 35 my judgment of 22 March 2006, I would not find on these facts, the onus being upon Power Technologies to prove compliance, that the subjective ignorance of Power Technologies was so egregious as to constitute a relevant failure to reasonably comply with the obligation to engage competent staff. I do not believe that the evidence establishes wilful blindness on the part of Power Technologies. Further submissions by Vero 41. Vero says that the failure by Power Technologies to appoint a person whose duty it was to collate and circulate publications relevant to safety aspects of the work to the engineers "should amount to a finding that the remitted obligation was breached". I do not accept this submission. That fact establishes negligence, but it is not contingent upon any assumption that the negligent omission occurred because Power Technologies failed to exercise reasonable care in the selection of staff. 42. Similarly the failure by Power Technologies to adequately equip the employed engineers and foremen with the knowledge necessary to safely discharge their functions is a failure which does not necessarily follow from a failure to exercise reasonable care in the selection of staff. 43. In submissions Vero complains that the evidence of Mr Bilbow is deficient and suggests various questions which may have been put to him to confirm his assertions that the company was "always concerned to maintain the efficiency and competence of our own workforce", that "all applications for employment of our employees and subcontractors and their employees were carefully vetted by the Resident Engineer from time to time, and also by the Electricity Commission", and that "[w]e were … proud of our safety record." 44. Because Mr Bilbow was present in court and available for cross-examination, I do not believe these complaints have substance. 45. Vero submits that a Jones v Dunkel (1959) 101 CLR 298 inference may be drawn from Power Technologies' failure to call Mr Stutchbury and Mr Baker. Mr Stutchbury was appointed to the board in 1964 and appointed Managing Director during the year ending 30 September 1969. Mr Baker was appointed as a Director during the year ending 30 September 1977. 46. Mr Bilbow was born on 23 February 1934 and employed by Power Technologies on 2 May 1967 when he was 33 years of age. At the time of his employment Mr Stutchbury was the Chief Executive of the company and Mr Baker was the General Manager. I think it unlikely that Mr Stutchbury or Mr Baker was then less than 10 years older than Mr Bilbow, and unlikely that either man was appointed to the board before he had reached the age of 50. It is probable that Mr Stutchbury, should he be alive, is now over 96 years old and Mr Baker, should he be alive, over 83 years old. 47. If either man were alive, and could be located after the elapse of 37 years from the events in question, I would not infer that he could give cogent evidence or, if I were wrong in that, that the evidence would not assist the plaintiff's case. Findings 48. Taking into account the assertions in the ICAL brochure and the Chairman's Review for the year ending 30 September 1959, the evidence of Mr Bilbow (particularly relating to the attitudes of the Chief Executive Mr Stutchbury, and the General Manager Mr Baker), and my earlier finding that the employees of Power Technologies followed widespread practice in an industry where the use of asbestos had not yet been banned, I find that Power Technologies exercised reasonable care that only competent employees were employed throughout its organisation during the period 1 October 1967 to 21 October 1974 when ICAL was insured by Royal and Sun Alliance Insurance Ltd, the liabilities in respect of which have been inherited by Vero Insurance Ltd. Orders 49. There will be judgment for Power Technologies Proprietary Limited against Vero Insurance Ltd in the sum of $200,000 plus interest. 50. The parties are to agree on the sum of interest and file a form of judgment within 14 days, in default of which, I grant liberty to apply on 7 days notice. 51. I will hear the parties on costs. Mr P Webb QC with Mr T M Rowles instructed by Carroll and O'Dea appeared for the Cross Claimant. Mr B Walker SC with Mr D Talintyre instructed by Piper Alderman appeared for the Cross Defendant. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.