Reported Decision : (2006) 14 ANZ Insurance Cases 61-673 New South Wales Supreme Court CITATION : Hall v Adventure Training Systems Pty Limited & Anor [2005] NSWSC 1079 HEARING DATE(S) : 23/09/2005, 27/09/2005 JUDGMENT DATE : 28 October 2005 JUDGMENT OF : Hoeben J at 1 DECISION : Leave granted pursuant to s6 of Law Reform (Miscellaneous Provisions) Act 1946 to join QBE Insurance Limited as defendant. CATCHWORDS : Insurance - application to join insurer as additional defendant pursuant to s6 Law Reform (Miscellaneous Provisions) Act 1946 - arguable case for indemnity under policy - was claim covered by insurance clause - did claim come within exclusion - meaning of "professional advice". LEGISLATION CITED : Law Reform (Miscellaneous Provisions) Act 1946 Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399 at 446 Chemetics International Limited v Commercial Union Assurance Co of Canada (1984) 11 DLR 754 FAI General Insurance Co Limited v Gold Coast City Council (Queensland Court of Appeal, 11.12.1992) CASES CITED : GIO (NSW) v RJ Green and Lloyd Pty Limited (1966) 114 CLR 437 at 445, 447 Government Insurance Office of NSW v Council of the City of Penrith (1999) 102 LGERA 102 Legal and General Insurance Australia Limited v Eather (1986) 6 NSWLR 390 at 394A Tzaidas v Child & Ors (2004) 208 ALR 651 Norman Lindsay Hall - Plaintiff PARTIES : Adventure Training Systems Pty Limited - First Defendant Transfield Services (Australia) Pty Limited - Second Defendant FILE NUMBER(S) : SC 20150/2004 S Campbell SC/ K Andrews - Plaintiff COUNSEL : No appearance - First & Second Defendants J Stevenson SC/E Muston - Proposed Third Defendant Wyatt Attorneys - Plaintiff SOLICITORS : No appearance - 1st & 2nd Defendants Hicksons - Proposed 3rd Defendant LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION HOEBEN J Friday, 28 October, 2005 20150/2004 – Norman Lindsay HALL v ADVENTURE TRAINING SYSTEMS PTY LIMITED & ANOR JUDGMENT 1 HIS HONOUR: This is an application by the plaintiff pursuant to s6 of the Law Reform (Miscellaneous Provisions) Act 1946 (the Act) to add QBE (Australia) Pty Limited (QBE) as a defendant in the proceedings. There was no appearance by the defendants. The application was opposed by QBE. Background 2 The plaintiff was a Petty Officer in the Royal Australian Navy and as such was required to perform duties at the "Endeavour High Ropes Course" (the Course) situated at HMAS Sterling in Western Australia. This was a physical fitness course used by members of the defence forces. 3 The plaintiff alleges that the first defendant had contracted, either with the Commonwealth of Australia or with the second defendant, to provide certain services including inspection and/or maintenance services and/or the provision of products in relation to the Course. 4 The plaintiff alleges that the first defendant carried out that work and provided those services and products between 10 November 1999 and 17 December 2001. Specific reference was made to maintenance and services performed on the Course on 12 December 2001 by the first defendant. The plaintiff alleges that pursuant to its agreement with either the Commonwealth of Australia or the second defendant, the first defendant was required to check for rust and if rust was found, to adequately treat it. 5 The plaintiff alleges that when providing the services and carrying out these works between 12 and 13 December 2001, the first defendant failed to check beneath the swagged ends of the metal ropes forming part of the Course and in particular the rope attached to a support pole to which a flying fox was connected. That swagged end was affected by corrosion. On 29 January 2002 the plaintiff whilst ascending the Course in the vicinity of the flying fox pole suffered serious injuries when he fell to the ground as a result of the metal rope breaking at the point of corrosion. 6 The plaintiff alleged negligence against the first defendant in that it failed to adequately inspect the course and failed to replace the corroded metal rope. 7 It was common ground that negligence could be established against the first defendant on the basis pleaded and that if negligence were so established the first defendant would be unable to satisfy the judgment. Accordingly the issue between the plaintiff and QBE was whether QBE was obliged to provide indemnity to the first defendant in such circumstances. Policy of insurance 8 At the time when the plaintiff was injured there was in place, as between the first defendant and QBE, a "public and products liability policy". The cover provided was set out under the "general operative clause" as: "The Underwriter will pay to or on behalf of the Insured all sums which the Insured shall become legally liable to pay by way of compensation including claimants' costs and expenses (but excluding fines, penalties, punitive, exemplary and/or aggravated damages). This indemnity only applies to such liability arising out of the Insured's Business ("the business") and as defined by each insured Section of this Policy, subject to the terms, conditions and exclusions of such Section and of this Policy as a whole." 9 Under the "general operative clause" there were a number of definitions: "1.2 "Product" means any commodity, article or thing (after it has ceased to be in a possession or under the control of the Insured) which is or is deemed (whether by law or otherwise) to have been manufactured, constructed, grown, extracted, produced, processed, assembled, erected, installed, treated, altered, serviced, repaired, sold, handled, supplied or distributed by the Insured or by others trading under the name of the Insured, including any container thereof but does not mean a motor vehicle." "1.5 "Business" is the business shown in the Schedule." "1.8 "Occurrence" means an event, including continuous or repeated exposure to substantially the same general conditions, which results in Injury or Damage neither expected nor intended from the standpoint of the Insured. All events of a series consequent on or attributable to one source or original cause shall be deemed one Occurrence." 10 The indemnity provided under the public liability section of the policy was: "The Insured is indemnified by this Section in accordance with Clause 1 of the General Operative Clause in respect of Injury and/or Damage first happening during the Period of Insurance as a result of an Occurrence but not against claims arising out of or in connection with any products." 11 The indemnity provided under the products liability section of the policy was: "8. The Insured is indemnified by this Section in accordance with Clause 1 of the General Operative Clause against claims arising out of or in connection with any Product in respect of Injury and/or Damage first happening during the Period of Insurance as the result of an Occurrence." 12 Under the "general exclusions applicable to all sections of this policy" was the following exclusion: "Sections 1 and 2 do not cover Liability: 10.4 Caused by or arising out of, 10.4.1 The rendering of or failure to render professional advice or service by the Insured or any error or omission connected therewith. 10.4.2 Advice, design, formula or specification given for a fee. Provided that this exclusion does not apply to the rendering of first aid or medical services on the Insured's premises by medical persons employed by the Insured." 13 The "renewal certificate" in respect of the period during which the accident occurred did not refer to the "Business" as such. Under the heading "Occupation" the following was set out: "Retail sale of Adventure Equipment (packs, sleeping bags, rock climbing gear) and sale, installation and training of ropes confidence courses." 14 The policy was originally taken out by the first defendant in 1993. On the proposal then completed under the heading "Nature of Business" the following was set out: "Fabrication, installation, sale and training of outdoor education activities." 15 In another part of the proposal under the heading "Occupation (provide full details of all work undertaken and attach latest Annual Report and Products Brochures)" the following was set out: "Sale of adventure equipment (retail) ie packs, sleeping bags, rock climbing gear. Sale, installation and training of ropes confidence courses." No other proposal had been completed by the first defendant. 16 Clearly there was no "Business" specifically referred to in the schedule on the "renewal certificate". It referred to "Occupation". The proposal referred to both "Business" and "Occupation" and the information provided in the proposal was slightly different in relation to each. The "renewal certificate" substantially replicated the description given in respect of "occupation" in the proposal. 17 Some debate took place at the hearing as to which description was to be relied upon for the purposes of applying the general operative clause. If the matter was of significance, I am of the opinion that the first defendant and therefore the plaintiff would have been entitled to rely upon both descriptions. The difficulty was brought about by the ambiguity in the wording of the policy and the proposal. For the purposes of this application, however, it is not necessary to make such a finding. What is clear on either description is that the business included "installation, sale and training of ropes confidence courses". Nature of dispute 18 So far as is presently material, s6 of the Act provides: "6(1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability. (2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding up. … (4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the courts shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim have been taken. …". 19 Section 6 of the Act creates "a new right with an associated remedy to enforce it". (Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399 at 446.) The right is the charge established by s6(1). Unless at the time of the event giving rise to the claim against the insured, the insured was a corporation under winding up within s6(2), the remedy is subject to the requirement of leave. 20 The purpose of the leave requirement has been described in various ways. For present purposes it is sufficient that it was intended to protect insurers from unwarranted direct actions by claimants upon their insureds. It was agreed between the parties that the express prohibition in s6(4) did not apply. It was also accepted that the application may be refused in the exercise of the general discretion to grant leave even if the prohibition did not apply. For the plaintiff to be successful in this application, it was necessary for the general discretion to be exercised in his favour. 21 For the purposes of the exercise of the general discretion it is necessary for the plaintiff to establish that it is arguable that QBE is obliged to provide indemnity to the first defendant in respect of the plaintiff's claim against it. (Tzaidas v Child & Ors (2004) 208 ALR 651 at para 21.) As Santow JA said in that case (para 140) to establish an arguable case "is a relatively modest hurdle". Put another way, if it is unarguable that the policy could respond to the claim, leave should not be granted. 22 QBE relied upon two matters: (i) The breach of duty giving rise to the claim was not covered by the policy. (ii) The breach of duty giving rise to the claim fell within the professional advice exclusion in clause 10.4 of the policy. The plaintiff accepted that he had the onus of establishing that it was arguable that the policy covered the default which led to his injuries. QBE accepted that it bore the onus of establishing that it was unarguable that the default which led to the plaintiff's injuries fell outside the professional advice exclusion. Was the breach covered by the policy 23 The plaintiff accepted that the breach of duty relied upon in the statement of claim did not in terms involve the fabrication, installation or sale of any part of the Course. The failure was a failure to adequately inspect. Nevertheless the plaintiff submitted that such an inspection was a usual precursor to sale and/or installation of equipment for such a training course. 24 The plaintiff submitted that in most situations before a quotation could be given for sale and/or installation of such training equipment, an inspection would have to take place. Reliance was placed upon the documents in exhibit A. These comprised inspection reports of the course followed by a quotation for the sale and installation of replacement equipment, the need for which had been identified by the inspection. In those circumstances the first defendant's liability as particularised in the statement of claim arose out of its business in accordance with the "general operative clause". 25 QBE submitted that the liability alleged against the first defendant in the statement of claim was based upon a failure to inspect. It had nothing to do with either the sale, installation or fabrication of any components of the course. There was no reference to inspection as a part of the first defendant's business in either the schedule to the renewal certificate or in the proposal. Accordingly the liability alleged against the first defendant in the statement of claim did not come within the "general operative clause" in that it did not arise out of the first defendant's business. 26 It is clear, as the plaintiff conceded, that the word 'inspection' is not used in the description of the first defendant's business and occupation in either the schedule in the renewal certificate or in the proposal. That does not end the matter. The wording in the general operative clause is: "This indemnity only applies to such liability arising out of the insured's business". The phrase "arising out of" in the context of compulsory motor vehicle insurance has been held to require a less proximate relationship than is required to satisfy the words "caused by". ( GIO (NSW) v RJ Green and Lloyd Pty Limited (1966) 114 CLR 437 at 445, 447.) It seems to me to be arguable that such a broad interpretation should apply to its use in the "general operative clause". 27 It also seems to be eminently arguable that when interpreting the phrase "arising out of the insured's business" where used in the "general operative clause" of a policy which relates to both public and product liability, one should not be seeking subtleties but rather applying broad and practical conceptions. 28 Using that approach I am satisfied that a business which includes in its description the fabrication, installation and sale of outdoor training facilities would include an inspection capacity so that appropriate quotations for those matters could be made. The plaintiff has accordingly established that it is arguable that the liability of the first defendant, as particularised in the statement of claim, comes within the "general operative clause" of the policy. Professional advice exclusion 29 QBE submitted that the default of the first defendant relied upon by the plaintiff came within general exclusion 10.4 of the policy on two bases. First the failure to adequately inspect meant that the inspection report as to the state of the Course was defective. It followed that the liability of the first defendant arose out of a failure to render professional advice or service. 30 The second basis relied upon clause 10.4.2 in that the liability of the first defendant arose out of advice given for a fee, ie it arose out of the failure by the first defendant to include in its inspection report the corrosion of the metal rope and the first defendant had charged a fee for that report. 31 The plaintiff responded by relying upon the three principles identified by Kirby P in Legal and General Insurance Australia Limited v Eather (1986) 6 NSWLR 390 at 394A. In particular the plaintiff relied upon the proposition that where there was doubt as to the meaning of the policy, particularly in respect of terms contained in a standard printed form proffered by the insurer, the courts would interpret the policy contra proferentem. The plaintiff also relied upon the third proposition that insurance policies were to be construed in their commercial and social setting, having regard to their purposes. If one construction struck fundamentally at the purpose of the policy whilst another construction that was reasonably available would give effect to that purpose, the latter ought be preferred. 32 In answer to the first argument by QBE, the plaintiff submitted that the person who carried out the inspections relied upon by the plaintiffs had the qualifications of a rigger. That combined with the nature of the advice meant that such advice as was given would not constitute "professional advice" as the courts have interpreted that concept. 33 The plaintiff accepted that the word "professional" had been given a very broad meaning in GIO General Limited v Newcastle City Council (1996) 38 NSWLR 558 at 568F. The plaintiff sought to distinguish that case in that it was not dealing with an exclusion clause in a policy but related to professional indemnity insurance granted to a local government authority. What was or was not professional advice for the purposes of that case had to be looked at in the context of a policy written for a local government authority. 34 The plaintiff relied upon such cases as FAI General Insurance Co Limited v Gold Coast City Council (Queensland Court of Appeal, 11.12.1992); Government Insurance Office of NSW v Council of the City of Penrith (1999) 102 LGERA 102 and Chemetics International Limited v Commercial Union Assurance Co of Canada (1984) 11 DLR 754 where a more narrow interpretation of the word "professional" was given, particularly in the context of an exclusion clause. 35 It is not necessary for me to resolve this question. What is clear from the decided cases is that an arguable issue is raised as to whether or not the sort of advice provided by the first defendant constituted professional advice for the purposes of exclusion clause 10.4.1. On this question I am not satisfied that QBE has discharged its onus of establishing that there was no triable issue as to whether or not the defective advice was "professional advice" for the purposes of the exclusion clause. 36 In relation to the second argument of QBE, it seems to me too simplistic to hold that the exclusion applies to any advice given for a fee. As was pointed out in Eather where ambiguity exists, one has to look at the context of the policy and examine whether a particular interpretation strikes fundamentally at the purpose of the policy. If the word "advice" in exclusion 10.4.2 were entirely unqualified it would, in my opinion, strike at the very purpose of the policy which was to provide product and public liability cover in respect of matters arising out of the insured's business. It is difficult to envisage selling, installation and training in respect of outdoor education activities without the provision of some advice. 37 In its context the word "advice" is used with the words "design formula or specification". These words must qualify its meaning. It is also not without significance that clause 10.4.1 referred specifically to "professional advice". 38 It is not necessary for me to decide what meaning is to be given to the word "advice" as used in exclusion 10.4.2. What is clear, however, is that the word is not to be interpreted as advice simpliciter without qualification. It is certainly arguable that in its context the word involves professional advice or advice analogous to that associated with the provision of designs formulae or specifications. In my opinion there is a triable issue as to whether or not the liability of the first defendant relied upon by the plaintiff in the amended statement of claim is caught by exclusion 10.4.2. Conclusion 39 The nature of the plaintiff's application is important. It is to amend the statement of claim to add an additional defendant, being the insurer of the first defendant. It is an interlocutory application. Of necessity the evidence is incomplete. For the reasons set out above it is arguable that the policy responds to the claim made by the plaintiff against the first defendant. Accordingly, I am of the opinion that leave should be granted to the plaintiff to join QBE as an additional defendant pursuant to s6 of the Act. 40 No submissions were put to me as to costs. It was necessary for the matter to come before me on a second occasion, as a result of the plaintiff filing an amended statement of claim. Accordingly, although the plaintiff has succeeded in its motion, there may be an issue as to the costs of the second day. Accordingly I reserve the question of costs. 41 The orders which I make are as follows: (1) Pursuant to s6 of the Law Reform (Miscellaneous Provisions) Act 1946 I grant leave to the plaintiff to join QBE Insurance Limited as a defendant to these proceedings. (2) I reserve the question of costs. (3) Liberty is granted to the parties to approach the court on two days' notice for the purpose of arguing costs if an agreement cannot be otherwise reached as to costs. ********** 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.