KD Morris & Sons Pty Ltd v GJ Coles & Coy Ltd [1972] HCA 37; (1972) 132 CLR 88 (23 July 1972)

HIGH COURT OF AUSTRALIA

K.D. MORRIS & SONS PTY. LTD. v. G.J. COLES & COY. LTD. [1972] HCA 37; (1972) 132 CLR 88

Building Contracts

High Court of Australia
Barwick C.J.(1), Gibbs(2) and Stephen(3) JJ.

CATCHWORDS

Building Contracts - Construction - Contract to execute work on premises partly on proprietor's land and partly on land of third person - Existing structures at risk of proprietor as to damage by fire - Proprietor required to maintain insurance - Fire damage to third person's premises through negligence of builder - Whether builder entitled to indemnity from proprietor.

HEARING

Brisbane, 1972, June 5;
Sydney, 1972, July 23. 23:7:1972
APPEAL from the Supreme Court of Queensland.

DECISION

July 28.
The following written judgments were delivered:-
BARWICK C.J. The appellant in the action in the Supreme Court of Queensland the damage resulting to the premises of G.E. Cominos & Co. ("Cominos"), a co-plaintiff with the respondent in the action, from a fire of which the appellant's negligence was a cause. The appellant, by a counterclaim in the action, sought to recover that amount from the respondent under a promise of indemnity claimed by the appellant to have been given to it by the respondent by a clause in a building agreement between them. By that agreement the appellant promised the respondent to effect alterations to shop premises part of which were on land belonging to the respondent and part upon land belonging to Cominos. The latter were leased to the respondent. (at p90)

2. The claimed indemnity was not express but is said to arise by inference from the express terms of cl. 15 (B) of the building agreement, which is in the following terms:

"(B) The existing structures and the Works and unfixed
materials (except plant, tools and equipment) shall be at the sole
risk of the Proprietor as regards loss and damage by fire and/or
explosion and/or earthquake and/or lightning and/or civil
commotion and the Proprietor shall maintain a proper policy of
insurance against such risks, which policy and the receipt for the
last paid premium for its renewal he shall upon request produce
for inspection by the Builder and, if any loss or damage affecting
the Works is so occasioned by fire and/or explosion and/or
earthquake and/or lightning and/or civil commotion, the
Proprietor shall pay to the Builder the full value of all work and
materials then executed and delivered calculated as provided in
clause 9 of these Conditions, and this contract as to subsequent
work may at the option of either party be determined by notice
by registered post from either party to the other, provided that
on receipt of such a notice the other party may himself give
notice in pursuance of clause 26 of these Conditions that a
dispute or difference has arisen on the question whether such
determination will be just and equitable. If the Proprietor shall
have failed upon request to produce any receipt showing the
policy to be effective the Builder shall be entitled to insure the
said structures and Works against the said risks and upon
production of the receipts for any premiums to add their
amount to the Contract Sum." (at p90)

3. The other provisions of the agreement, and the additional facts of the matter, are set out in the reasons for judgment prepared by my brother Gibbs which I have had the advantage of reading. I agree with the construction which my brother places on the language of cl. 15 (B). (at p91)

4. In my opinion, the plain intention of the clause, which we were told is in a form commonly used in such agreements, is to place upon the building owner the loss, by any of the stated causes, of the building owner's property and of the partially completed work done and unfixed materials supplied under the agreement, so that the building owner will be unable to sue the builder in respect of the loss of the building owner's property and will be liable to pay the builder for the partially completed work and unfixed materials, notwithstanding their destruction by one of these stated causes. That, in my opinion, is the full effect of the clause so far as concerns the matters presently in dispute. The clause, in my opinion, was not intended to give any right to the builder to recover from the building owner any sum which the builder might be required to pay to the owner of other property because of injury to or destruction of it due to one of the stated causes, even though the building agreement called for work to be done by the builder on that other person's property. But the building owner's inability to sue the builder in respect of the loss of the building owner's property will extend to the loss of the building owner's interest in that other person's property due to one of the stated causes, if that property is included in the expression "existing structures" in the clause of the agreement. (at p91)

5. In the present case, the building owned by Cominos and leased to the respondent was, in my opinion, included in the expression "existing structures". The respondent, therefore, by reason of cl. 15 (B), could not recover from the appellant any loss suffered by the respondent in respect of its interest as lessee in the building on Cominos' land and would be bound to pay the appellant for the work done under the agreement on that building and for the unfixed material on that land, notwithstanding the injury to or destruction of them by one of the stated causes. But the respondent did not own the building and its owner's loss of or in connexion with it was not, in my opinion, a matter within the purview of the clause. The building owner, under the clause, accepts his own losses but, in my opinion, makes no promise whatever as to losses which may be sustained by other persons. (at p91)

6. In my opinion, the obligation accepted by the building owner to insure "against such risks" is quite consistent with this view. Whilst it may be possible that the respondent in this case, as lessee from Cominos, was bound by the terms of the lease to insure the leased building itself against loss by one or more of the stated causes, the risk referred to in cl. 15 (B) will not extend beyond the building owner's interest in that building. Likewise, in my opinion, the builder, if the building owner did not insure as promised, would not be entitled to insure the "said structures", except to the extent of the building owner's interest therein; that is to say, he would not be entitled to insure the building itself on Cominos' land. (at p92)

7. In my opinion, the respondent, by the building agreement between it and the appellant, did not indemnify the latter against any sum which the appellant might be called upon to pay to the owner of that part of the "existing structures" which were not owned by the respondent, for the destruction of, or damage to, such part of those structures, resulting from one of the stated causes. The appellant's counterclaim, in my opinion, was rightly dismissed. The appeal should be dismissed. (at p92)

GIBBS J. The respondent, G.J. Coles & Coy. Ltd. ("Coles"), at the material time was the occupier of shop premises at Cairns which were constructed in part upon land owned by Coles itself and in part upon adjacent land owned by a firm, G.E. Cominos & Co. ("Cominos"), and leased to Coles. On 21st August 1962 Coles entered into a written agreement with the appellant, K.D. Morris & Sons Pty. Ltd. ("Morris"), whereby Morris (which was referred to in the contract as "the builder") agreed with Coles (which was therein called "the proprietor") to execute and complete the work therein described, namely, certain alterations and additions to the shop premises. On 29th September 1962 while work was being carried out under the agreement, a fire broke out which caused damage to that part of the premises owned by Cominos. In addition, certain chattels belonging to Coles were damaged in the fire, but that is not material on this appeal. In an action brought by Coles and Cominos against Morris and two other defendants (a workman and a sub-contractor), the learned trial judge held that the fire was caused by the negligence of Morris and by the negligence of the other defendants and held that Morris was fifty per cent to blame, and gave judgment in favour of Cominos for $22,500 in respect of the damage suffered to the shop premises. By a counterclaim in the action, Morris sought a declaration that it was entitled to indemnity from Coles in respect of any sum that Morris was required to pay for damage to the shop premises, that is, to the property of Cominos. The learned trial judge dismissed the counterclaim and this appeal is brought from his judgment. The only question in issue on the appeal is whether, under the provisions of the agreement, Morris is entitled to be indemnified by Coles against its liability to pay damages in respect of the loss caused to Cominos by the negligence of Morris. (at p92)

2. The agreement between Coles and Morris included the conditions contained in the standard form of building contract issued under the sanction of the Royal Australian Institute of Architects and the Master Builders' Federation of Australia. By cl. 14 (c) of the conditions of the contract it was provided as follows:

"Injury to Property. The Builder shall be liable for and shall
indemnify the Proprietor and shall insure against any legal
liability, loss, claim or proceedings in respect of any injury or
damage whatsoever to any property, real or personal, insofar as
such injury or damage arises out of or in the course of or by
reason of the execution of Works, PROVIDED ALWAYS that
the same is due to any negligence, omission or default of the
Builder, his servants or agents, or of any sub-contractor, AND
SUBJECT ALSO as regards loss or damage by fire and/or
explosion and/or lightning and/or civil commotion to the
provisions contained in clause 15 of these Conditions." (at p93)

3. Clause 15 of the conditions, which was headed "Insurance". contained alternative sub-paragraphs and, as was appropriate, the parties had struck out sub-par. (A), which was applicable to a new building, and had left in the agreement cl. 15 (B), which related to an existing building which was to be altered or extended. Clause 15 (B), upon which the claim by Morris to be indemnified by Coles is based, provided as follows:

"The existing structures and the Works and unfixed materials
(except plant, tools and equipment) shall be at the sole risk of
the Proprietor as regards loss and damage by fire and/or
explosion and/or earthquake and/or lightning and/or civil
commotion and the Proprietor shall maintain a proper policy of
insurance against such risks, which policy and the receipt for the
insurance against such risks, which policy and the receipt for the
last paid premium for its renewal he shall upon request produce
for inspection by the Builder and, if any loss or damage affecting
the Works is so occasioned by fire and/or civil commotion, the
Proprietor shall pay to the Builder the full value of all work and
materials then executed and delivered calculated as provided in
clause 9 of these Conditions, and this contract as to subsequent
work may at the option of either party be determined by notice
by registered post from either party to the other, provided that
on receipt of such a notice the other party may himself give
notice in pursuance of clause 26 of these Conditions that a
dispute or difference has arisen on the question whether such
determination will be just and equitable. If the Proprietor shall
have failed upon request to produce any receipt showing the
policy to be effective the Builder shall be entitled to insure the
said structures and Works against the said risks and upon
production of the receipts for any premiums to add their
amount to the Contract Sum." (at p93)

4. It is convenient also to set out two clauses of the specification, which, although not directly applicable, may throw some light on the meaning of condition 15 (B). These are c11. A. 8 and A. 9, which provided as follows:

"A. 8. PROPRIETOR'S INSURANCE:
Proprietor shall insure in the joint names of the Proprietor
and Builder to cover loss and damage to the subject of the
contract and materials on the site for such Contract against fire,
lighting, explosion, storm and tempest, riot and civil
commotion for the full period and full amount of the Contract
including Builder's Sub-Contractors.

The proprietors shall not accept any responsibility for loss
and for damage to Contractor's plant, machinery and
equipment.

A. 9. CONTRACTOR'S INSURANCE:
Contractor to protect by Insurance his liability as an
employer. This includes Workers' Compensation, Common
Law and/or Act or Acts as applicable to the State in question.

The Contractor is to take out two policies in the names of
himself and G.J. Coles & Coy. Limited, Public Risk (Common Law)
Insurance protection for 50,000.0. pounds (FIFTY THOUSAND
POUNDS) each, against property damage and personal injury.
Policy to be extended on the adjoining buildings or structure or
claims arising in consequence of such damage when applicable.
The cover shall extend from the Date of Possession until the
completion of all works under the Contract and including such
works as require rectification under the Defects Liability
Period." (at p94)

5. The argument submitted on behalf of the appellant was that the "existing structures" included that part of the shop premises which was owned by Cominos, and that the provision of cl. 15 (B) that the "existing structures" should be at the "sole risk" of Coles obliged Coles to pay for any damage caused by fire to that part of the building. It was submitted that the words "sole risk" meant not anly that the risk lay on Coles but also that it did not lie on Morris, with the consequence that if Morris were held liable to Cominos for damage to the building, Coles would be bound to relieve Morris of that liability. In other words, it was said that the effect of the first part of cl. 15 (B) was to indemnify Morris against liability to Cominos for damage to the part of the building owned by Cominos. (at p94)

6. Provisions closely similar to (although not identical with) c11. 14 (C) and 15 (B) were considered by the Court of Appeal in James Archdale & Co. Ltd. v. Comservices Ltd. (1954) 1 WLR 459; (1954) 1 All ER 210 . In that case an action was brought by the employer under a building contract against the contractor to recover the cost of repairs to the employer's building which has been damaged by a fire caused by the negligency of the contractor. It was held that the natural construction of the two clauses, when read together, was that the sole risk of damage to the building by fire, howsoever caused, was placed on the employer, who was accordingly unable to recover from the negligent contractor. It may be assumed, although it is unnecessary to decide, that a similar result would be reached on the proper construction of c1. 15 (B) modified in some respects as it is by c1. 8. but on that assumption there remains the question, which did not arise in James Archdale & Co.Ltd. v. Comservices Ltd., whether under the contract the builder is afforded against the proprietor a right of indemnity against liability to a third party for damage caused by the contractor's negligence to a part of the "existing structures" owned by the third party. (at p95)

7. Clause 15 (B) is a standard clause and in most of the cases to which it would apply the "existing structures" would be owned by the proprietor who had employed the builder to alter or extend them. In those circumstances the clause would exempt the buiilder from liability to the proprietor for loss or damage caused to the "existing stgructures" by fire and the other contingencies mentioned, but it would not naturally be understood as conferring on the builder any right to be indemnified against claims by a third party in respect of such loss or damage. However, if the clause appeared in a contract for the alteration or extension of a building entirely owned by a third party, the provision that the "existing structures" were to be at the sole risk of the proprietor would appear to be nugatory unless it gave the builder a right to indemnity against a claim by the owner of the building, and to be rendered effective might be given an extended meaning if the other provisions of the contract did not indicate that this was not intended. In the present case, where part of the "existing structures" was owned by the proprietor under the agreement and part by a third party, the provision will not be ineffective if it is applicable only to the interest of the proprietor in the "existing structures", but the question whether the words should be understood as giving a right of indemnity against a claim by the third party must be answered in the light of the contract as whole. In my opinion, it is significant that when the parties intended that one should indemnify the other against liability to another person they made express provision to that effect, as, for example, in cl. 14 (C). The language of cl. 14 (C), which provides the builder "shall . . . indemnify the proprietor . . . against any legal liability, loss, claim or proceedings in respect of any injury or damage whatsoever to any property", is in marked contrast to that of cl. 15 (B) which says that "the existing structures . . . shall be at the sole risk of the proprietor", and this change of language strongly suggests that the latter clause is not intended to confer on the builder any right to be indemnified against legal liability to a person not a party to the contract. Moreover, cl. A. 9 obliges the builder to take out public risk policies to insure both the proprietor and himself agains, inter alia, damage to property; both cl. 15 (B) and cl. A.9 require insurance policies to be taken out, and the fact that cl. A. 9 in terms requires the builder to insure against liability to persons not parties to the contract strengthens the view that cl. 15 (B) is intended to provide for the insurance only of the "existing structures" owned by the proprietor and, of course, of the works and materials which, under the agreement, may belong either to the proprietor or to the builder. I therefore consider that in the context of the agreement as a whole, cl. 15 (B) should not be construed as conferring on the builder a right to be indemnified by the proprietor against liability to a third person for loss or damage to a part of the "existing structures" which was owned by that third person. The intention of the relevant words of the clause was that the proprietor who owned the structure upon which the work of alteration or extension was being done should bear the risk of loss or damage caused to that structure, inter alia, by fire; the clause was intended to exclude a claim by the proprietor against the builder and not to give the builder a right to be indemnified by the proprietor against claims by other persons. (at p96)

8. For the reasons I have given I consider that cl. 15 (B) upon its proper construction, did not oblige Coles to idemnify Morris against its legal liability co Cominos for damage to the property of the later and that the counter-claim was rightly dismissed. (at p96)

9. I would dismiss the appeal. (at p96)

STEPHEN J. In my opinion, this appeal should be dismissed for the reasons stated in the reasons for judgment of my brother Gibbs, which I have had the advantage of reading and with which I am in full agreement. (at p96)

ORDER

Appeal dismissed with costs.