Sebastian v Australian Capital Territory & Ors [2006] ACTSC 6 (23 February 2006)

Last Updated: 6 April 2006

JOHN CALVIN SEBASTIAN v AUSTRALIAN CAPITAL TERRITORY & ORS

[2006] ACTSC 6 (23 February 2006)

CONTRACTS - construction dispute - indemnity clauses - which defending party liable for plaintiff's loss?

No. SC 335 of 1996

Judge: Higgins CJ

Supreme Court of the ACT

Date: 23 February 2006

IN THE SUPREME COURT OF THE )

) No. SC 335 of 1996

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: JOHN CALVIN SEBASTIAN

Plaintiff

AND: AUSTRALIAN CAPITAL TERRITORY

Defendant

AND: NATIONAL CAPITAL EARTHMOVERS PTY LTD

First Third Party

AND: WILLING & PARTNERS PTY LIMITED

Second Third Party

ORDER

Judge: Higgins CJ

Date: 23 February 2006

Place: Canberra

THE COURT ORDERS THAT:

1. The claims against the first third party by the defendant and the second third party be dismissed;

2. Judgment be entered in favour of the defendant against the second third party.

1. The plaintiff has claimed damages against the defendant for personal injury. The defendant has launched third party claims against the first and second third parties. The latter have claimed contribution as between themselves.

2. On 5 September 2005, by consent, judgment was entered in favour of the plaintiff against the defendant in the sum of $350,000 and costs.

3. The plaintiff had suffered injury on 27 December 1990 at a gross pollution trap then under construction at Tuggeranong Creek in the Australian Capital Territory. In brief terms, the construction site had been left in a hazardous situation so that casual visitors, such as the then infant plaintiff, might suffer injury in negotiating the site. A construction reinforcement rod left bent and exposed struck the plaintiff's eye as he ducked under a barrier.

4. The defendant had, on 18 December 1990, entered into an agreement with the first third party to complete the relevant works (the Contract). Before then the works had been commenced and left uncompleted by R & G Shelley Pty Ltd (Shelley). That company then became defunct.

5. The defendant particularly relied on Clauses 12 and 15 of the Contract in its claim against the first third party. Possession of the site was formally granted to the first third party on 20 December 1990. However, it was not thereby authorised to commence work.

6. Clause 12 of the Contract provided -

The Contractor shall be deemed to have -

...

(c) examined the site and its surroundings; and

...

Failure by the Contractor to do all or any of the things he is deemed to have done under this clause will not relieve the Contractor of his liability to perform and complete the Contract in accordance with the terms and conditions thereof.

7. Clause 15 - Protection of Persons and Property provided -

The Contractor shall provide, erect and maintain all barricades, guards, fencing, temporary roadways, footpaths, signs and lighting and provide and maintain all watching and traffic flagging lawfully required by any public or other authority or necessary for the protection of the work under the Contract or of other property or for the safety and convenience of the public and others and shall remove the same when no longer required.

...

8. By virtue of Clause 18, the first third party agreed with the defendant -

Subject to the next succeeding paragraph of this clause, the Contractor shall indemnify and keep indemnified the Principal [that is, the defendant] against all loss of or damage to the property of the Principal (other than the Works and the Temporary Works or a separable part of the Works but including existing property in or upon which the work under the Contract is being carried out) and from and against any claim, demand, action, suit or proceeding that may be made or brought by any person against the Principal, the Superintendent or the employees, professional consultants or agents of the Principal or any of them in respect of personal injury to or the death of any person whomsoever or loss of or damage to any property whatsoever arising out of or as a consequence of the construction or maintenance of the Works by the Contractor or his employees, agents or sub-contractors and also from any costs and expense that may be incurred in connection with any such claim, demand, action, suit or proceeding.

The Contractor shall not, under the last preceding paragraph of this clause, be rendered liable for or in respect of personal injury to or the death of any person or loss of or damage to property resulting from any breach by the Principal of any provision of the Contract or any negligent act or omission of the Principal, the Superintendent or the employees, professional consultants or agents of the Principal or for or in respect of any claims, demands, actions, suits or proceedings, costs and expenses whatsoever in respect thereof or in relation thereto.

9. The first third party, in its defence, pleaded that, despite those clauses, it was, by virtue of Clause 22 of the Contract, not actually entitled to access to the site nor to perform work until it produced evidence of its insurance details to the second third party. The second third party was "the Superintendent" appointed under the Contract. The details of insurance in question were provided on 7 January 1991. It further contended that, as it had not done anything to the works as at the date of the plaintiff's accident, the injury he sustained did not arise out of "or as a consequence of the construction or maintenance of the works by the contractor or his employees, agents or sub-contractors ...".

10. The previous contractor, Shelley, had ceased work about June 1990 and was dismissed from the site in August 1990. The new contractor, the first third party, was subsequently engaged to complete the works. The second third party, the previous superintendent of Shelley, tendered to "re-document" the project.

11. Tenders were called by the second third party on behalf of the defendant. On 30 November 1990, it recommended acceptance of the first third party's tender. On 18 December 1990 the defendant issued a letter of acceptance of the first third party's tender and directed the second third party to give possession of the site to the first third party to ensure site amenities (that is, toilets etc) were provided as soon as possible in order to avoid industrial disputes.

12. The Contract was not formally signed until 27 February 1991 but each tenderer was expected to have visited and inspected the site before submitting their tenders (see cl 13 Tender Conditions). The tender conditions referred tenderers to the second third party for enquiries and permission to access the site.

13. The first third party agrees that it did visit the site and inspect it in November 1990. It took out insurance in relation to the works as from 7 January 1991. It already had public liability insurance.

14. The position, as at 20 December 1990, as the second third party understood it, was as stated by it to the first third party -

(a) you will be notified by the ACT Public Works of the Department of Urban Services when the contract documents are ready for signing,

(b) in accordance with Clause 27.1 of the General Conditions of Contract you have been granted possession of site,

(c) (i) work must not commence until evidence of insurance has been produced as required under Clauses 17, 19, 20 and 21 of the General Conditions of Contract,

(ii) evidence of the above insurance policies should be shown to:

Willing & Partners Pty Ltd

8-10 Purdue Street

(P O Box 3064)

Belconnen ACT 2616

Tel: [phone]

who will advise the Principal accordingly.

15. Further, the first third party applied on 14 December 1990 for a waste discharge licence. It was granted on 19 December 1990.

16. It was expressly agreed that the Contract, pending the formal execution of documents was to be in accord with the draft documents (cl 6.1 Master Agreement). That was admitted by the first third party to be the case. Thus the Contract had effect from acceptance of the tender even though formal execution was delayed,

17. Mr Parker, for the first third party, submitted that, as the first third party had done no work on the site before 7 January 1991, the mere fact that it had inspected the site before the accident and, perhaps, should have concluded that it was hazardous to persons who might cross the area, enlivened no duty on its part to the defendant to warn it of that risk, nor could it lawfully have undertaken any work to render the site safe until after 7 January 1991. Thus, Mr Parker contended, the first third party was not liable tortiously either to the defendant or, under the notice of contribution, the second third party for any failure to advise the defendant, or the second third party, for any failure to advise as to the safety of the site.

18. In my opinion that contention is correct. It follows that the only issue to be faced by the first third party is whether, upon the acceptance of its tender, it became contractually bound to indemnify the defendant. It had no contract with the second third party.

19. Again, in my opinion the answer is clear. Clause 18 of the Contract fixes liability under the indemnity provided for by reference to work done by the contractor, that is, the first third party. It did not and was not contractually obliged or even permitted, until after 7 January 1991, to do any work under the Contract. It follows that the first third party is not liable to the defendant or the second third party to contribute to the defendant's liability to the plaintiff.

20. So far as the second third party is concerned, though there was some difficulty in locating its actual original agreement entered into with the National Capital Development Authority (NCDC) in 1988, there is no doubt that it was, relevantly, in the same terms as the then standard agreement, an example of which was Document A, exhibit 3. The rights and liabilities of the NCDC upon self-government (9 May 1989) became those of the defendant.

21. That original agreement (the Agreement) also contained an indemnity clause -

14. INDEMNITY

(i) Subject to sub-clause (ii) the Consultant hereby indemnifies and shall keep indemnified the Commission, the Commonwealth of Australia, their and each of their respective officers and employees against all loss, damage, demands, actions, suits, proceedings, costs and expenses arising out of or as a consequence of any breach by the Consultant or its employees or agents of any of the provisions of this Agreement or of any negligent act or omission on the part of the Consultant, his agents or employees.

(ii) The Consultant will not be rendered liable for or in respect of personal injury to or the death of any person or loss of or damage to property resulting from any breach by the Commission of any provision of this Agreement or from any negligent act or omission of the Commission, the Commonwealth, or their employees, professional consultants or agents, or for, or in respect of any claims, demands, actions, suits or proceedings, costs and expenses arising from or connected with any such breach or any such negligent act or omission.

22. The main duty of the second third party under this Agreement was the supervision of Shelley's execution of the works. That was a duty additional to the original obligation to prepare and administer documentation for that Contract. The NCDC, on 15 July 1988, approved the appointment of Mr Peter Szlapinski, an employee of the second third party, as "Clerk of Works". Effectively, that meshed with the provisions of the Contract whereby the third party agreed to accept the authority of "The Superintendent" (cl 2) to administer and supervise the construction works. The Contract identified "the Superintendent" as the second third party. The "superintendent's representative" was provided for in cl 24. As noted, that was to be Mr Szlapinski. That person was to be the equivalent of a Clerk of Works.

23. Pursuant to the original agreement with respect to Shelley, the second third party provided regular, indeed, daily reports on the progress of the works (or lack thereof).

24. It was part of the obligation of the contractor engaged to perform the construction work initially, Shelleys, then the first third party, to ensure the safety of members of the public, particularly if failure to do so might involve the Principal that is, the defendant, in legal liability.

25. During the currency of the works the unsafe state of the site should have prompted a direction pursuant to cl 23 of the Contract (or its equivalent) being given by the second third party to the then current contractor.

26. During July 1990 the site was almost continuously flooded, according to the second third party's daily reports. The last report referring to Shelley as the contractor was dated 23 August 1990. Until 30 August 1990, the Principal was referred to as "Public Works". That is a reference to an agency of the defendant. The next report, dated 11 January 1991, named the first third party as "Contractor".

27. In the meantime the second third party had carried out the task of giving notice of termination to Shelley. The second third party inspected the works with a view to advising the defendant both on "redocumentation" for the completion of the works and also to evaluate tenders to be received for those works. It is inconceivable that a qualified supervisor, such as Mr Szlapinski was held out to be, would not have recommended immediate action to render the site safe to members of the public, particularly children, whilst the new contractor was being chosen and before it was given access to the site with authority to carry out work.

28. There was correspondence in September 1990 between the second third party and the defendant agreeing upon fees for redocumentation including site assessment (3.0 hours each for a Construction and a Design Engineer). Expressly mentioned on 21 September 1990 was 50.0 hours for -

Preparation of a report highlighting details of as-constructed works, deteriorated works, etc. On site field measurements and advice and assistance to the Engineer and Draftsman in relation to design and documentation.

29. The second third party was formally engaged on 18 September 1990 following acceptance of its recommendation and tender evaluation agreement, to supervise the first third party during its performance of the works.

30. The report, presumably made, as referred to in the letter of 21 September 1990, was not before me. I must assume that it contained no observations of any relevance.

31. It is clear to me that from the time Shelleys ceased to be in occupation of the site, whatever precautions it may or not have had in place to protect members of the public, none were recommended or done before this unfortunate accident causing injury to the plaintiff. It is difficult to understand why, once Shelley had been excluded and sole occupation returned to the defendant, that it and it's appointed supervisor, the second third party, would not have taken such steps.

32. Nor does it seem to me that some form of contractual absolution from such an obvious and common sense obligation can be construed from the terms of the further engagement of the second third party to terminate the services of Shelley and to undertake the quest for a further contractor to complete the works.

33. It seems to me that, in the circumstances, the defendant relied upon the second third party to advise it of measures required to render the site of the works reasonably safe. It was entitled to rely on the second third party for that purpose. The second third party tendered no relevant advice. At each stage of cessation of the Shelley contract and the progress towards engaging the first second party, the second third party was bound by cl 14 (Indemnity) of the Agreement.

34. The second third party was, in failing to advise the defendant of the state of works before the plaintiff's accident, clearly in breach of cl 14(i) of the Agreement. That is so irrespective of whether the second third party did a post exclusion inspection pursuant to the contract of supervision of Shelley or pursuant to the contract concerning the proposal to engage the first third party. Whilst I accept that there was a "direction" given to the second third party from the defendant that "all work on the project should cease" after Shelley's default that would not, in my view, exclude the second third party's obligation to report on the state of the site and to warn the defendant that remedial measures were needed to render the site safe. It was certainly not so treated by the second third party which charged for such. In any event, that obligation was revived by the re-engagement of the second third party on the pre-existing terms, albeit with a different objective. The direction, if that be what it was, merely notified the second third party that there was no further need to instruct or direct Shelleys. It had nothing to do with the second third party's obligation to report to the defendant on the safety of the site.

35. There was an issue as to whether the defendant had, or was known to the second third party to have had, no sufficient resources itself to carry out such remedial work. Of course, as I noted in argument, the defendant can only act through servants or agents. However, had it been warned by the second third party of danger to members of the public from the condition of this site, it could hardly excuse itself by saying it could not afford to carry out such work even through an appropriate contractor.

36. Certainly, through Mr Peter Tait (Project Officer of the defendant) the defendant had the opportunity, following Shelley's exclusion, itself to visit and assess the site. Mr Tait's claim that the defendant nevertheless relied on the second third party to report to it is, to my mind, not really exculpatory. However, it does explain why the defendant agreed to a verdict for the plaintiff. It does not however, affect the contractual arrangement between the defendant and the second third party.

37. If this was merely a claim for contribution based on comparative negligence, it would, I think, be 50:50 as between the defendant and the second third party. However, the third party claim (as amended) is framed fairly and squarely on the terms of the Agreement, including cl 14.

38. Whether or not it should have, before termination, directed Shelley to render the site safe, the second third party clearly had that obligation thereafter up to the time of the plaintiff's injury. Thus the particular of breach "failing to advise the Defendant that the site was unsafe ..." is made out.

39. Whilst a duty to the public is pleaded, that is irrelevant to the second third party's duty to the defendant. The second third party is not a defendant. It was in clear breach of its duty to the defendant imposed by the Agreement to safeguard the defendant from public liability.

40. In those circumstances, it is sufficient to observe that the second third party's breach was unarguably causative of the injury to the plaintiff. I cannot accept that the defendant would have not acted on advice that the site was unsafe when remedial measures would have involved so little work and expense. That advice would have stressed urgency, if competently given. The defendant should, therefore, have had from August 1990 to have carried out the minor task of rendering the site safe.

41. The second third party pleaded, in its defence to the amended third party claim -

... The Second Third Party admits an agreement was reached between the Second Third Party and the Defendant for the Second Third Party to act as the site supervisor for the completion of the trap by the First Third Party, but says that agreement was reached on or about 15 January 1991 and not 18 December 1990 as alleged. The Second Third Party does not admit that any such agreement was made on the terms of any Contract or Supervision proposal.

42. That pleading is no answer to the claim relying on breach resulting from failure to report, at the conclusion of the Shelley period and pursuant to the terms express and implied of the Agreement (in similar terms to that re "Stranger North") requiring an assessment of the site and advice to render it safe. The mere denial offers no answer to that claim.

43. In any event, the second third party had been engaged, virtually as soon as Shelley was expelled from the site, to continue to arrange the completion of the project, first calling tenders. The departmental approval to call tenders had been given and accepted by the second third party at least by 29 November 1990 when it wrote to the defendant advising its "pre-tender estimate" was $400,000. The tenders were received on that day. The lowest was $484,544 from the first third party. Approval to accept that tender was given on 14 December 1990 and the second third party was then advised, at the same time to -

Please proceed on the basis of the Agreement between Willing and Partners and the Australian Capital Territory to administer the Contract in the amount of $484,544.00 with National Capital Earthmovers Pty Ltd for the construction of the abovementioned project.

44. Even if the second third party had been relieved of its obligations under the Shelley contract they were clearly revived at least from 14 December 1990. The formalisation of that agreement on 15 January 1991 did not mean that legal relations were assumed only then.

45. It is true that the second third party could not have discharged its obligation to the defendant by directing the first third party to make the site safe. However, it could have warned the defendant of the risk posed by the state of the site, given that the first third party had yet to be given access to the site with authority to carry out work.

46. I am, therefore, of the view that the defendant's claim for indemnity against the second third party must succeed. It is unnecessary to further consider the claim in negligence though, as I have indicated, both the second third party and the defendant would bear equal responsibility to the plaintiff if liability was to be assessed on that basis.

47. There will be judgment entered in accordance with these reasons in favour of the defendant against the second third party.

48. The claims against the first third party by the defendant and the second third party are dismissed.

49. I will hear the parties as to costs and any other consequential orders and directions.

I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Higgins.

Associate:

Date: 23 February 2006

Counsel for the plaintiff: Mr Mildren

Solicitor for the plaintiff: Barker & Barker

Counsel for the defendant: Mr D Davies SC, Mr P Walker

Solicitor for the defendant: ACT Government Solicitor

Counsel for the first third party: Mr F G Parker

Solicitor for the first third party: Moray & Agnew

Counsel for the second third party: Mr R L Crowe SC, Mr S Hausfeld

Solicitor for the second third party: Hunt & Hunt Lawyers

Date of hearing: 5^th, 6^th and 7^th September 2005

Date of judgment: 23 February 2006