Baulderstone Hornibrook Pty Limited v Paul Segaert Pty Limited [2008] NSWSC 972

New South Wales Supreme Court

CITATION : Baulderstone Hornibrook Pty Limited v Paul Segaert Pty Limited [2008] NSWSC 972

HEARING DATE(S) : 26 August 2008 JUDGMENT OF : McDougall J at 1

EX TEMPORE JUDGMENT DATE : 26 August 2008

DECISION : See paras [37] and [38] orders made in chambers on 27 August 2008.

CATCHWORDS : INSURANCE - application for leave to proceed against insurer of insolvent company - whether claim for breach of design obligation or for failure to install material of the specified quality - whether claim within insuring clause.

LEGISLATION CITED : Law Reform (Miscellaneous Provisions) Act 1946

Bellgrove v Eldridge (1954) 90 CLR 613 CASES CITED : Goddard and Smith v Frew [1939] 65 Lloyds Reports 83 Vosten v The Commonwealth [1989] 1 Qd R 693 West, Wake, Price and Co v Chin [1956] 2 Lloyds Reports 618

PARTIES : Baulderstone Hornibrook Pty Limited (ACN 002 625 130) (Plaintiff) Paul Segaert Pty Limited (ACN 000 031 685) (Defendant)

FILE NUMBER(S) : SC 55024/08

P Morris / B A Arste (Plaintiff) COUNSEL : M A Jones (QBE) S Golledge (Defendant)

SOLICITORS : James Tuite & Associates (Plaintiff) Henry Davis York (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

McDOUGALL J

26 August 2008 ex tempore (revised – 26 August 2008)

55024/08 BAULDERSTONE HORNIBROOK PTY LIMITED v PAUL SEGAERT PTY LIMITED TRADING AS LIDCO JUDGMENT 1 HIS HONOUR: The plaintiff (BHPL) contracted with the University of Technology, Sydney (the university) to carry out works at a high rise building on the university's Broadway campus. Those works included substantial glazing. BHPL agreed with the present first defendant (Lidco) that Lidco would carry out the design, procurement and installation of the glazing. 2 It appears to be the case that some of the glazing installed by Lidco was defective, and susceptible to spontaneous fracture. The university required BHPL to replace all glazing in the relevant areas, and not just that which had fractured. BHPL did so. 3 BHPL claims that it has suffered loss. It says that Lidco is responsible for the loss. The claim that BHPL puts is in substance that Lidco did not comply with a requirement in the specification that the glazing in question comprise what is known as heat soaked glass. BHPL says that the process of heat soaking would have detected the crystalline impurities that were the cause of the spontaneous fractures. 4 Lidco is in liquidation. BHPL wishes to sue Lidco's professional indemnity insurer at the time, QBE Insurance (Australia) Limited (QBE). It seeks leave to commence proceedings against QBE, by joining QBE as a second defendant in the existing proceedings. 5 QBE submits that leave to join it (I should have said that leave is sought pursuant to s6 of the Law Reform (Miscellaneous Provisions) Act 1946) should be refused. That is so, QBE submits, because the claim that is made against Lidco is not a claim that falls within the insuring clause of the policy, or alternatively is a claim that is excluded by an express condition of the policy. 6 In substance, QBE submits, the proximate cause of the loss sustained by BHPL was the failure of Lidco to supply and install heat soaked glass. That failure, QBE says, was not a breach of an insured obligation. 7 The insuring clause of the policy provides that QBE agrees to indemnify Lidco against legal liability for any claim for compensation first made and notified during the period of cover "for breach of professional duty in the conduct of the professional business practice carried on by or behalf of [Lidco] by reason of any act, error or omission committed or alleged to have committed on the part of [Lidco]". 8 The policy schedule defines Lidco's "professional business practice" as "structural engineers, drafting, project managers and designers of curtain walls". 9 Whilst looking at the policy schedule, it is necessary to take into account what is called the "manufacturing, construction, installation exclusion" (the MCI exclusion). By that exclusion, QBE is not liable "to provide indemnity in respect of any claim against [Lidco] in respect of any manufacturing, erection, construction, installation, maintenance or demolition activities and taken by [Lidco] unless such claims are directly based upon, or directly attributable to, an act, error or omission...in design completed by [Lidco]". 10 At one stage, QBE relied also on clause 4.7 of the exclusions. That exclusion related to "physical loss or, damage to or defective installation of, any tangible property...other than a claim arising from a breach in [sic] professional duty by [Lidco]". 11 If that exclusion remains relevant, it adds nothing to the argument based on the insuring clause and the MCI exclusion, in the sense that if leave is to be refused because of the insuring clause or the MCI exclusion, that will be sufficient; and if it is not it would not, be refused because of clause 4 .7. 12 By clause 8.1 of the subcontract made between BHPL and Lidco, Lidco was obliged to "carry out and complete the design of the whole or such part of the project referred to in schedule 1". That design was required to be "fully and professionally completed...without error or omission or defect so that it complies with the provisions of the subcontract and is fit for construction...". 13 By item 15 of schedule 1, the design obligation was described as "detailed design"; and by item 16, it was confirmed that responsibility for detailed design works rested with Lidco. 14 The specification for glazing, which was part of the subcontract and in accordance with which Lidco was required to carry out its design obligations, required that glazing in the area in question be heat soaked. That was said to be "required for all toughened glass". The areas that included the failed glazing, in which all suspect glazing was removed, were to be glazed by toughened glass. 15 As I have said, the university made a claim on BHPL. In due course, BHPL made a claim on Lidco. The claim was said to be "made on the basis of incorrect glass being installed to the" relevant areas. The claim noted that the glass was to have been heat soaked, but had not been heat soaked. 16 Lidco made a claim on its insurance policy. The claim form noted in section D that the scope of Lidco's work under the subcontract included the supply and installation of clear toughened float glass in certain areas; and that the glass was required to be heat soaked. Lidco conceded to QBE that none of the toughened glass supplied for the project was in fact heat soaked. 17 In section E of the claim, Lidco stated: "We have not complied with the architects specification requiring that all toughened glass be heat soaked. This requirement was overlooked (not considered) by the Lidco design, drawings and procurement personnel when completing workshop drawings and subsequent purchase orders for the toughened glass procured for this project."