New South Wales Supreme Court CITATION : MLA Holdings v Asciano Services [2010] NSWSC 204 HEARING DATE(S) : 17/3/10 JURISDICTION : Equity Division Commercial List JUDGMENT OF : McDougall J at 1 EX TEMPORE JUDGMENT DATE : 17 March 2010 DECISION : Judgment for plaintiff for damages to be assessed CATCHWORDS : CONTRACTS - interpretation of contracts - where equipment supplied by plaintiff to defendant was damaged - whether defendant liable under contract to meet direct costs of repairs or whether defendant is entitled to be indemnified by insurance that plaintiff was required to effect and maintain. CASES CITED : Erect Safe Scaffolding (Australia) Pty Ltd v Sutton [2008] 72 NSWLR 1 PARTIES : MLA Holdings Pty Limited (Plaintiff) Asciano Services Pty Limited (Defendant) FILE NUMBER(S) : SC 2009/298768 COUNSEL : R A Cavanagh (Plaintiff) C H Withers (Defendant) SOLICITORS : DLA Phillips Fox (Plaintiff) Piper Alderman (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST McDOUGALL J 17 March 2010 (ex tempore – revised 17 March 2010) 2009/298768 MLA HOLDINGS PTY LIMITED v ASCIANO SERVICES PTY LIMITED JUDGMENT 1 HIS HONOUR: The plaintiff (MLA) and the defendant (Asciano) are parties to a "Reach Stacker Supply Agreement" made on 13 March 2007 but apparently having an effective date of 20 December 2006. Pursuant to that agreement, MLA agreed to supply certain equipment to Asciano for use by Asciano in its business. The agreement contained detailed provisions allocating liabilities between the parties, and relating to insurance. An item of equipment, known as a reachstacker, supplied by MLA to Asciano pursuant to the agreement has been damaged. The question for decision is whether, pursuant to cl 7 of the agreement, Asciano is liable to meet the direct cost of repairs of that reachstacker or whether, pursuant to cl 20, it is entitled to be indemnified by insurance that MLA was required to effect and maintain. The agreed facts 2 The hearing (which was on the question of liability only) proceeded on the basis of a statement of agreed facts. For convenience, I set out the whole of that statement in these reasons: 1. The Plaintiff and the Defendant are companies duly incorporated and are able to sue and be sued in and by their corporate names and styles. 2. The Plaintiff imports and supplies Vulcan range forklift trucks and reachstackers. 3. The Defendant, now known as Asciano Services Pty Ltd, operates a large private rail freight business. 4. Pursuant to a Reachstacker Supplier Agreement dated 20 December 2006 (but signed on 13 March 2007) between the Plaintiff and the Defendant ( Agreement ), the Plaintiff supplied equipment (including reachstackers) to the Defendant for the Defendant's use. A true copy of the Agreement is behind tab 1 of the Agreed Documents. 5. On 28 November 2007, Mr Jolly (a labour hire employee who was under the direction of the Defendant) used a Vulcan reachstacker, model C4026CH ( Reachstacker ) to load a 5.76 tonne shipping container onto a train wagon at the Defendant's Adelaide Terminal. 6. The Reachstacker was attached to the container which was resting on the train wagon. The wagon unexpectedly moved forward, causing the container on the Reachstacker to be caught on a container that was already on the wagon. The Reachstacker was dragged forwards and sideways before tipping over ( Incident ). The container remained attached to the Reachstacker throughout the Incident. 7. As a result of the Incident, the Reachstacker sustained significant damage. 8. The damage to the Reachstacker arose solely through misuse or accident on the part of the Defendant. 9. The Reachstacker was Equipment as defined in the Agreement. 10. Pursuant to the Agreement, the Plaintiff supplied the Equipment (including the Reachstacker) to the Defendant for use by the Defendant. 11. As a result of the Incident, the Plaintiff contends that the Reachstacker is beyond repair, in the sense that the cost of repairs to the Reachstacker are likely to exceed its replacement cost ( Repair Cost ). 12. It was a term of the Agreement (clause 7.1) that the Defendant would in the circumstances of the Incident pay to the Plaintiff the Repair Cost of the Reachstacker. 13. The Defendant admits that it is liable to pay the Repair Cost pursuant to clause 7.1 but says that it is entitled to set off such liability as a result of the Plaintiff's breach of the Agreement (which is denied by the Plaintiff). 14. At the time of the Incident the Plaintiff held property insurance for loss or damage in respect of the Equipment under the terms of an Industrial Special Risks policy number 0000288 underwritten by Allianz Australia Insurance Limited ( ISR Policy ). True copies of the ISR Policy schedule, wording and certificate of currency are behind tab 2 of the Agreed Documents. 15. The ISR Policy contained a $100,000 sub limit in Section 1 of the Policy schedule in respect of Accidental Damage (as defined in the Policy) to Equipment. 16. At the time of the Incident the Plaintiff also held public liability insurance under the terms of policy number 710061994 LCP underwritten by Allianz Australia Insurance Limited ( PL Policy ). True copies of the PL Policy schedule, wording and certificate of currency are behind tab 3 of the Agreed Documents. 17. The defendant was not named as an Insured under the ISR Policy, the PL Policy, or under any other policy held by MLA. 18. The Plaintiff has demanded the Repair Cost of the Reachstacker from the Defendant. 19. The Defendant has refused to pay the Plaintiff the Repair Cost. Relevant terms of the agreement 3 As I have indicated, the liability that MLA asserts is said to arise under clause 7. So far as it is relevant, that clause reads as follows (I note that Asciano is referred to by its former name, Pacific National): 7.1 If any item of Equipment is damaged while the Equipment is being operated by Pacific National solely through misuse or accident on the part of Pacific National or any of its Personnel, the direct cost of repairs will be met by Pacific National but does not include any consequential or indirect loss or damage of any nature. For the purpose of this clause 7.1 'damaged' does not include: (a) matters falling within routine or preventative maintenance; (b) wear and tear to tyres or Equipment; (c) anything arising from MLA failing to maintain the Equipment in accordance with the applicable manufacturer's instructions or this Agreement; or (d) anything arising from the Equipment not meeting the Specification. 7.2 For the purposes of clause 7.1: (a) "repairs" or "repair" include: (i) reasonable testing of the Equipment by a person approved by Pacific National to determine the extent of damage; (ii) repair of any structural or operational damage in the Equipment which is detectable by electronic; mechanical or any other means; (iii) repair of any damage that affects the ability of the Equipment to be operated in a safe manner; (iv) any other reasonable repairs required to restore the Equipment to a safe condition to operate; (v) inspection by a qualified mechanical engineer approved by Pacific National to assess and confirm that the Equipment is able to be safely operated in a manner consistent with any of Pacific National's statutory obligations; (vi) repair performed in accordance with the manufacturer's original design and specifications, taking into account the age and wear and tear of the Equipment, such that the long term reliability of the Equipment is not adversely affected; and (b) "damage" means any visible or latent damage to the Equipment which affects the ability of the Equipment to operate in a safe manner. 7.3 If the parties disagree as to how the Equipment damage was caused and no agreement can be achieved within a reasonable period, the matter is to be resolved in accordance with the dispute resolution procedures set out in clause 24. … 7.6 Subject to clause 7.7, MLA must not repair any Equipment damaged through misuse or accident as referred to in clause 7.1 until: (a) Pacific National has been informed of the: (i) cause of the damage; (ii) extent of the damage; (iii) scope of works reasonably required to repair the damage; (iv) likely cost of the works notified in clause 7.6(a)(iii); and (b) Pacific National has approved in writing the undertaking of the repairs notified under clause 7.6(a). 4 By cl 19 of the agreement, MLA agreed to indemnify Asciano from everything except liability that Asciano had under cl 7.1. Clause 19.1 (which is all that is relevant for present purposes) reads as follows: 19. Indemnity 19.1 Subject to clause 7.1, MLA must indemnify, and keep indemnified, Pacific National from and against: (a) any costs, expenses, loss, liability or damage, whatsoever and howsoever, whether directly or indirectly, and whether or not foreseeable, suffered or incurred by Pacific National; and (b) any liability whatsoever in respect of any action, claim, proceeding brought or threatened to be brought (including all costs and expenses which Pacific National may suffer or incur in disputing any such action, claim or proceeding), against Pacific National, in respect of, in relation to or in connection with the supply of the Equipment, the provision of the Services or the use of any building, facility or area referred to in one or more of clauses 3.9 to 3.14. 5 Clause 20 of the Agreement required MLA to effect certain described insurances. So far as that clause is relevant, it reads as follows: 20. Insurance 20.1 MLA must, at its cost, effect and maintain during the Term the following insurances with insurers of repute and good standing: (a) public liability insurance for the amount set out in Schedule 1, or such other amount as Pacific National may reasonably require, (b) property insurance, for loss or damage, in respect of the Equipment, and any parts or other items brought into a Terminal by or on behalf of MLA for the purposes of providing the Services; (c) workers compensation insurance as required by law; and (d) any other insurances as required by law. 20.2 The insurance policies referred to in clauses 20.1(a) and (b) must include: (a) Pacific National as an insured for its respective rights and interests; and (b) a cross-liability clause in which the insurer agrees to a waive all rights of subrogation or action that it may have or acquire against all or any of the persons comprising the insured and for the purposes of which the insurer accepts the term "insured" as applying to each of the persons comprising the insured as if a separate policy of insurance had been issued to each of them. … 20.4 MLA must ensure that any subcontractors it engages in connection with this Agreement also has similar insurances as MLA is required to effect in accordance with clause 20.1 and in respect of those insurances, the provisions of clauses 20.2, 20.3, 20.5 and 20.6 will also apply. 20.5 MLA must promptly notify the Pacific National Representative in writing of the occurrence of any event that may give rise to a claim under a policy of insurance referred to in clauses 20.1(a), (b) or (d) which is relevant to this Agreement, and ensure that the Pacific National Representative is kept fully informed of subsequent relevant action and developments concerning the claim. 20.6 The effecting of insurance pursuant to clause 20.1 or any of them shall not in any way limit the liabilities or obligations of MLA under other provisions of this Agreement. The issues on the pleadings 6 The Commercial List Statement alleged in substance that the reachstacker in question had been damaged on 28 November 2007, solely through misuse or accident on the part of Asciano, and that cl 7.1 of the agreement was thereby engaged. The Commercial List Response admitted all those matters (with a presently irrelevant exception as to whether the cost of repairs exceeded the replacement value of the reachstacker). However, by way of defence, the List Response asserted that MLA was required to obtain insurance pursuant to cl 20, which insurance should have covered Asciano for the claim in question; and that Asciano was entitled to set off against the liability that it had under cl 7.1 the benefit that it should have got pursuant to appropriate insurance. 7 That defence was repeated in Asciano's Cross-Claim List Statement. In its response to that cross-claim, MLA asserted that it did take out required insurance. Further, it said, there was a sub-limit of liability of $100,000 in respect of any one occurrence under the policy that was effected pursuant to clause 20.1(b) of the agreement, and even if Asciano's contentions were otherwise correct, it would have been entitled to recover no more than the sub-limit of $100,000. 8 It is common ground that the cost of repairs to the reachstacker, and I think also its replacement value, exceeded substantially the sum of $100,000. 9 Although Asciano did not file a reply to the Cross-Claim List Response, it submitted in the hearing before me that if the relevant policy were limited in the way asserted, then that itself was a breach of cl 20.1(b). The parties' submissions 10 It is not necessary to set out in detail the parties' submissions. They were encapsulated in helpful and comprehensive written submissions, to which, with admirable economy, counsel spoke. Those submissions remain with the papers. 11 In essence, MLA submitted that the obligation cast on Asciano by cl 7.1 was a standalone obligation, unaffected by MLA's admitted obligation to effect insurance pursuant to cl 20 of the agreement. MLA submitted, I think correctly, that the obligation to insure should be construed not just in the context of the Agreement generally (that, of course, is a given) but with particular reference to the parties' express allocation of risk as set out in the agreement. It relied on the decision of the Court of Appeal in Erect Safe Scaffolding (Australia) Pty Ltd v Sutton [2008] 72 NSWLR 1. 12 Asciano submitted that the insurance obligations cast on MLA by cl 20 were intended, in effect, to back up the contractual allocations of risk. Thus, Asciano submitted, the obligation that it had assumed by cl 7.1 was required to be the subject of insurance taken out pursuant to cl 20.1(b). 13 MLA submitted that the construction for which Asciano contended gave cl 7.1 no real work. Asciano replied by submitting that in effect what cl 7.1 did was cast on it the residual risk that the insurer might fail, or that for some other reason the claim might not be paid; and, in any event, an obligation to meet any uninsured part of the claim. I hasten to point out that the latter part of that submission in response was put not by reference to the limit of liability in the policy actually effected but by reference to some excess or deductible for which MLA might have bargained. 14 In relation to the limit of liability, Asciano submitted that on a proper construction of the obligation to insure, the property insurance effected pursuant to cl 20.1(b) should be for the full insurable value of the subject "Equipment". Decision 15 The question is a narrow one and not, I think, one in relation to which the mind of the decision-maker is likely to be assisted by prolonged reflection. That is why I have decided to give these reasons orally, acknowledging as I do that with reservation and contemplation, they could perhaps have been expressed more fully or more elegantly. 16 The starting point is, obviously enough, the contractual allocation of responsibility. Clause 7.1 casts on Asciano the obligation to meet the direct cost of repairs of equipment damaged, whilst it is being operated by Asciano, solely through misuse or accident on the part of Asciano. Otherwise, if (as Mr Withers of counsel for Asciano pointed out) a third party (or for that matter MLA itself) be found to be even 1% responsible for the damage caused, cl 7.1 does not apply. 17 Outside the field of operation of cl 7.1, MLA is bound by cl 19.1 to indemnify Asciano against all liability that Asciano suffers, including claims made against it, in respect of the supply of the equipment and ancillary matters (I have omitted as much as possible of the boilerplate verbiage). 18 By contrast to cls 7.1 and 19, the obligation to insure does not seem immediately to be related to the risk allocation that cls 7.1 and 19 provide. No doubt, the obligation to effect insurance could be seen to underpin the indemnity obligations assumed by MLA pursuant to cl 19. But on any view, the obligations seem to go beyond that. 19 As I have indicated, what is in question here is the extent or application of the obligation to effect insurance imposed by cl 20.1(b). That refers to "property insurance, for loss or damage, in respect of the Equipment...". The structure of the agreement is that the equipment is hired to and operated by Asciano. Nonetheless, it remains the equipment of MLA. 20 By cl 20.2, the insurance effected pursuant to (among others) cl 20.1(b) is to include Asciano as an insured for its respective rights and interests. It is not easy to see what right or interest Asciano would have in any item of equipment provided to it on the terms of the agreement. There is no reason to think that it would have any proprietary right or interest. At most, perhaps, it might have some right or interest as a hirer (if indeed, on the proper construction of the agreement as a whole, it does provide for the hire, as opposed to the mere supply, of equipment). 21 Even if Asciano has some right or interest in "Equipment" that is provided to and used by it on the terms of the agreement, it does not follow that it is such a right or interest that would be damaged, and the subject of indemnity under a policy of property insurance, through the assumption of liability under cl 7.1. Clause 7.1 does not provide for anything other than an express assumption of liability to make good the direct cost of repairs in the circumstances contemplated by that clause. That is something that would ordinarily be covered by some form of liability insurance, not by a form of property insurance. The liability imposed by cl 7.1 does not seem to me to fit easily within the concept of a policy of property insurance, in respect of the equipment, extending to Asciano as insured for whatever right or interest it has in that property. To put it another way, it does not seem to me that the contractual liability that Asciano assumes pursuant to cl 7.1 is a right or interest to which, by virtue of cl 20.2(a), insurance effected pursuant to cl 20.1(b) is required to extend. 22 Accordingly, I conclude that the obligation to indemnify cast on Asciano by cl 7.1, which on the admissions on the pleadings and the Agreed Statement of Facts is enlivened in this case, was not required to be the subject of a contract of insurance effected pursuant to cl 20.1. It follows from that that MLA is entitled to judgment for damages to be assessed, and that the cross-claim must be dismissed. Orders 23 For those reasons, I direct entry of judgment for the plaintiff against the defendant for damages to be assessed. 24 I order that the cross-claim be dismissed. 25 I reserve the question of costs. 26 I stand the proceedings over to 9.15am on 28 April 2010 before me. ********** 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.