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Queensland Judgments

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Authorised Reports & Unreported Judgments
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Delta Pty Ltd v Mechanical and Construction Insurance Pty Ltd  
Unreported Citation: [2019] QCA 62
EDITOR'S NOTE

In this case, the appellant and a third-party subcontractor settled claims between them concerning breaches of the subcontract. The settlement deed provided for the payment of a settlement amount by the subcontractor to the appellant and an assignment by the subcontractor to the appellant of the subcontractor’s rights under an insurance policy. The appellant, as the assignee insured, claimed indemnification for losses suffered in connection with breaches of the subcontract by the subcontractor. Three issues which arose for determination are considered in this note: first, whether the settlement deed rendered the subcontractor “legally liable” to pay the settlement amount; secondly, whether the subcontractor’s assumption of that liability was reasonable; and thirdly, whether the subcontractor was liable to pay that amount in accordance with the terms of the insurance policy.

Fraser and McMurdo JJA and Flanagan J

12 April 2019

Background

In May 2006, the Queensland Investment Corporation (“QIC”) contracted with the appellant (“Delta”) for it to undertake an excavation on certain land, in preparation for the construction of a high rise building. [2]. In or about September 2006, Watpac contracted with QIC to carry out the construction work, the contract between QIC and Delta was replaced by a contract between Watpac and Delta, and Delta entered into a subcontract with Team Rock Anchors Pty Ltd (“TRA”) for it to complete that part of Delta’s contract work which comprised the installation of rock/ground anchors. [2]. The purpose of the anchors was to secure four retaining walls. [3]. TRA held an insurance policy with the respondent insurer (“Mecon”), under which TRA was a named insured. [5].

In 2012, Delta sued TRA for damages for, inter alia, breach of subcontract by reason of its defective installation of ground anchors. [3], [5]. After Mecon denied liability to indemnify TRA pursuant to the insurance policy, TRA brought a third party claim against Mecon claiming an indemnity pursuant to the insurance policy. [5]. That claim was discontinued when TRA could not supply security for Mecon’s costs. [5]. In May 2016, Delta compromised its claim against TRA by a settlement deed, which included an assignment to Delta of TRA’s rights under the insurance policy. [5]. The proceedings thereafter involved only claims by Delta against Mecon. [6]. Two claims remained in issue. [6]. The one which is discussed in this note was a claim by Delta as assignee of TRA’s claimed right to an indemnity of the settlement amount under the settlement deed or, alternatively, an amount assessed by the court. [6]. At trial, judgment was given for Mecon against Delta. [7]. 

Court of Appeal

In the Court of Appeal, the issues concerned the question whether the insurance policy issued by Mecon covered claims made by Delta arising out of breach of contract by Delta’s subcontractor, TRA. [1]. It was not in issue that TRA assigned its claim for an indemnity under the policy to Delta. [9]. What was in issue was whether TRA was entitled to such an indemnity. [9]. The relevant clause of the insurance policy provided that “[Mecon] will provide indemnity for all amounts which you become legally liable to pay in compensation of Personal Injury or Property Loss that happens within the Territorial Limits during the Period of Insurance as a result of an Occurrence which arises in connection with your Business”. [8].

It was common ground that, in circumstances in which Mecon had denied liability to indemnify TRA, TRA was entitled to an indemnity if it proved that: (i) the settlement deed rendered TRA “legally liable” to pay the settlement amount, (ii) TRA’s assumption of that liability was reasonable, and (iii) TRA was liable to pay that amount in accordance with the terms of the insurance policy, specifically, it was an amount “which [TRA became] legally liable to pay in compensation of ... Property Loss”. [13]. In the Court of Appeal, the leading judgment was given by Fraser JA, with whom McMurdo JA and Flanagan J relevantly agreed. An argument that it was not necessary for Delta to prove (i) was rejected at the outset of Fraser JA’s reasons. [13]–[21].

Did the settlement deed render TRA “legally liable” to pay the settlement amount?

The settlement deed relevantly provided, in cl 2.2, that “[s]ubject to clause 2.2, and without any admission as to liability, TRA hereby agrees to settle the Delta Claim upon the basis that ... TRA agrees to pay to Delta the [settlement amount], in full and final settlement of the Proceeding”. [11]. Clause 2.3 relevantly provided that “TRA remains, and shall remain, liable to Delta for the Settlement Amount, but TRA’s liability in respect of the Settlement Amount is limited to the amount actually recovered by Delta under the Mecon Policy as assignee of TRA”. [11].

The trial judge found that the settlement deed did not render TRA “legally liable” for the settlement amount. [22]. Fraser JA disagreed, holding that, properly construed, the settlement deed rendered TRA unconditionally liable to Delta for the settlement amount and precluded Delta from enforcing that liability except by and to the extent of any recovery by Delta as the assignee of TRA’s right to an indemnity under the insurance policy. [32]. Accordingly, the settlement deed did render TRA “legally liable” to pay the settlement amount. [33].

Did Delta prove that the settlement amount was reasonable?

The trial judge concluded that the settlement amount was not reasonable. [35]. Fraser JA disagreed, holding that the settlement amount was objectively reasonable. [35]–[74].

Was TRA liable to pay an amount “in compensation of ... Property Loss”?

The insurance policy defined “Property Loss” to mean “physical loss, damage or destruction of tangible property including resultant loss of use of such property” and/or, in certain circumstances, “loss of use of tangible property”. [75]. The trial judge held that there was no such “Property Loss” because Delta did not lose any property by reason of the defective installation of the anchors; it simply suffered economic loss. [76]. Fraser JA held that Delta’s argument on this point failed because, amongst other things, the movement of the relevant retaining walls was not “Property Loss” within the meaning of the insurance policy, and the postulated “Property Loss” did not result from an “Occurrence” within the meaning of the insurance policy. [92].

Conclusion

Fraser JA also considered a number of matters raised by way of notice of contention, and concluded that Mecon had established an entitlement to avoid paying TRA’s claim. [106]–[144]. In the result, the appeal was dismissed. [158], [159], [163].

M J Hafeez-Baig