Claiming against insurers and breaking the chain of causation – a review of the decision in Sydney Trains v Argo Syndicate AMA 1200

Written by Rachel Woods

On 24 August 2016, Ms Nicole Michael (Ms Michael) suffered personal injuries at Penshurst Train Station when she slipped and fell on tiles laid by Infrastruction Pty Ltd (Infrastruction”). Ms Michael obtained judgment against Sydney Trains on 5 July 2018 for the injuries suffered (“the personal injury proceedings”).

Sydney Trains issued a Statement of Claim against Argo Syndicate AMA 1200 (Argo”), the products and public liability insurer of Infrastruction pursuant to section 601AG of the Corporations Act 2001 (Cth) (the Corporations Act”) and section 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (“the CLTPCAI Act). Sydney Trains sought damages for breach of contract and/or a complete indemnity for and/or contribution to the sum paid to Ms Michael in the personal injury proceedings.

Claims against insurers

Section 601AG of the Corporations Act states a party “may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if: (a) the company had a liability…; and (b) the insurance contract covered that liability immediately before deregistration.”

Section 4 of the CLTPCAI Act states “If an insured person has an insured liability to a person (“the claimant”), the claimant may, subject to this Act, recover the amount of the insured liability from the insurer in proceedings before a Court.” Importantly, section 5 of the CLTPCAI Act states proceedings under section 4 of the CLTPCAI Act may not be brought, or continued, against an insurer without leave of the Court.

The Notice of Motion [2021] NSWDC 685

Sydney Trains filed a Motion seeking leave to proceed with their claim against Argo in December 2021. The application for leave was opposed on the basis the policy of insurance did not respond to the claim, the claim for indemnity was statute barred and the delay by Sydney Trains in bringing the claim against Infrastruction unfairly prejudiced Argo in its ability to have a fair trial (because Infrastruction had been deregistered and, despite attempts, Argo could not secure the assistance of the former director).

The Court found there was an arguable case insofar as the policy responded (though, was not prepared to finally determine the question at the Motion). Interestingly, the Court commented it would be more appropriate to consider the question of whether leave should be granted under to section 5 of the CLTPCAI Act after the substantive Hearing, particularly in circumstances where a Hearing of the matter would inevitably occur. The Court noted that, at such time, the judge presiding over the Hearing would have received evidence which may have assisted in determining whether the application for leave should be granted.

Ultimately, however, the Court exercised its discretion not to grant leave for Sydney Trains to pursue Argo under section 4 of the CLTPCAI Act because Sydney Trains’ management of the personal injury proceedings and the delays in seeking an indemnity from Argo were avoidable. The Court found the trial process had been compromised by the conduct of Sydney Trains.

Despite leave under section 4 of the CLTPCAI Act being refused, Sydney Trains continued to pursue its claim for damages for breach of contract pursuant to section 601AG of the Corporations Act.

Substantive hearing [2023] NSWDC 381

Whilst parties agreed there was a contract for the completion of the laying of the tiles upon which Ms Michael slipped, the terms of the contract were disputed. Argo defended the claim on the basis the elements of contract were not made out; and if the claim was made out, the policy did not respond; and if the policy responded, exclusion clauses defeated the claim.

The Court was not satisfied the loss suffered by Sydney Trains (being the amount payable to Ms Michael including interest and costs, as well as its own costs of defending the personal injury proceedings) was caused by the breach of contractual terms, by virtue of the legal doctrine of novus actus interveniens. The breach of contract claim therefore failed against Argo.

Novus actus interveniens

This doctrine states a deliberate or negligent act of another, after the initial breach, can supervene as the legal cause of the loss.

In this instance, the Court found Sydney Trains had actual knowledge the tiles laid were not compliant and elected to open the concourse regardless. The Court held this was a sufficient basis to find a break in the chain of causation between the breach of contract by Infrastruction and the loss allegedly suffered by Sydney Trains.

Policy response and application of exclusion

Notwithstanding the Court’s finding Sydney Trains had failed to make its claim of breach of contract, the Court commented on whether the policy of insurance would have responded had the claim been made out.

One of the clauses of the policy examined by the Court was:

The Insured is indemnified in accordance with the Insuring Clauses against liability for injury, damage or advertising liability sustained as a result of an Occurrence during the Period of Insurance.’ (emphasis added).

Argo contended the use of the term ‘liability for injury’ (emphasis added)should be construed narrowly and relates only to compensation for the injury itself. The Court disagreed with this approach, finding a wider construction of the word ‘for’ should be applied to ensure a businesslike interpretation of the policy. In making this determination, the Court upheld and applied previous case law. The Court reiterated the relevant factors to consider are the language used, the commercial circumstances to which the document applies and the objects which it is intended to secure.

The Court then turned to the exclusion clauses relied upon and again, applied a ‘businesslike interpretation’ of the policy. The Court noted that, if the installation of tiles was construed in a manner whereby it was akin to a performance warranty, such a construction would leave “very little work for the Policy to do”. The Court also held the correct contextual interpretation of “professional activities” required the exercise of skill and judgment; characteristics which were not required for the selection, acquisition or laying of tiles.

Ultimately, the Court held that, had Sydney Trains successfully established a claim in breach of contract, the policy would have responded, and Argo would have been liable to pay Sydney Trains pursuant to section 601AG of the Corporations Act.

Appeal [2024] NSWCA 101

Sydney Trains filed a Notice of Appeal which  challenged only the finding of the primary judge that the chain of causation had been broken. In addition to responding to the appeal, Argo filed a Notice of Contention challenging the primary judge’s findings with respect to the breach of the implied terms of the contract, causation for the loss, as well as the finding the policy of insurance would have responded to the claim.

On appeal, The Court upheld the primary judge’s findings there had been a breach of the implied terms of the contract by Infrastruction. The Court also upheld the primary judge’s finding with respect to the slipperiness of the tile being the cause of Ms Michael’s fall.

Break in the Chain of Causation

Sydney Trains maintained the mere fact it had in its possession Work Safe Slip Testing Reports in relation to the tiles, was not sufficient to show any relevant officer of Sydney Trains had knowledge of the reports or their findings. Sydney Trains also submitted there was no evidence nor any submission made by Argo that it was aware of the significance of the non-compliance.

Argo argued that possession of the reports entailed knowledge of their contents and it was “inescapable” that Sydney Trains was aware of the significance of the results, noting their role as a government entity.

On appeal, the Court overturned the finding of the primary judge that Sydney Trains had caused an intervening event which superseded the breach of contract as being the cause of the loss suffered.

It was agreed between the parties that Argo had the onus of establishing the conduct by Sydney Trains which it alleged broke the chain of causation. The Court, on appeal, found Argo had not discharged its onus. The Court found there was limited evidence available as to what actually happened (and when) between  the initial laying of the tiles and the date of Ms Michael’s injury.

The Court further found the contention of novus actus interveniens is merely a conclusion for which a party contends – reiterating a party must adduce evidence explaining how or why that conclusion should be reached.

Considering the Court had overturned the decision as to whether the breach of contract claim had been made out, Argo contended the primary judge had erred in their finding that the insurance policy responded to the claim and/or that the exclusion clauses were not applicable.

On appeal, the Court held the primary judge had not erred in their findings that the policy of insurance did respond to the claim and that the exclusion clauses did not apply.

The Court accepted the primary judges’ findings (discussed above), but also noted a narrow construction of the wording of the policy would be a “serious limitation to the protection afforded” under the policy and reiterated the policy is to be read as a whole and construed in light of the commercial circumstances the document addresses.

Implications for insurers

The Notice of Motion reiterates the fact the Court has discretion to grant or refuse leave to proceed against another insurer under s4 of the CLTPCAI Act. It highlights the importance of ensuring a claim is brought in a timely fashion to ensure no substantive prejudice is caused.

The substantive decision serves as a reminder to insurers to consider whether an intervening event creates a break in the chain of causation between the initial cause of the loss and any subsequent losses.

The decision also reinforces the Court’s well-established approach to policy interpretation and construction, being that the contract should be reviewed in a businesslike manner with regard to the language used and the commercial circumstances to which the contract relates.

If you wish to discuss this decision, please contact Rachel Woods on 02 8047 2880 or any member of the Ligeti Partners team on 03 9947 4500.

Ligeti Partners Contacts

Spencer Pascal

Spencer Pascal

Principal Lawyer