Shamrock Civil Engineering Pty Ltd v Honan Insurance Group Pty Ltd [2024] QSC 313

Michael Creedon  |  Megan Sharkey  |  Jazmin Sherrington

Key takeout

This case is a reminder that parties seeking indemnity for property damage must ensure that the indemnity clause in their contract is interpreted based on the literal meaning of the words used, rather than the parties’ intentions.

Facts

Cleanaway Solid Waste Pty Ltd and Cleanaway Pty Ltd (together referred to as Cleanaway) entered into a master agreement with Shamrock Civil Engineering Pty Ltd (Shamrock) to conduct earthworks and other related works at the New Chum site (site). A key component of the agreement was for Shamrock to construct a cell, which is a designated area for disposing of waste.

In late February 2022, the site experienced significant rainfall that caused extensive flooding, effectively turning the landfill area into a large, stagnant pool of water. As waste material from the landfill began to leach into the water, the site became foul-smelling, which resulted in an environmental order being issued against Cleanaway. Cleanaway alleged it incurred $30,962,566 of costs for draining the flooded site and addressing the noxious odours.

Cleanaway made a cross-claim against Shamrock, pursuant to an indemnity clause in the agreement. Cleanaway’s position was that Shamrock should be responsible for reimbursing the costs associated with the environmental cleanup. Shamrock, in turn, applied for summary judgment arguing that Cleanaway’s indemnity claim is unlikely to succeed and as such, the cross-claim should be dismissed.

Decision

The court dismissed Shamrock’s application for summary judgment. The court was not satisfied that Cleanaway had no real prospect of succeeding and that there was no need for a trial of this claim.

Interpretation of the indemnity clause

The court focused on the interpretation of the indemnity clause within the contract, which required Shamrock to indemnify Cleanaway for any loss or damage to property arising out of the execution of the works. Freeburn J emphasised the significance of interpreting the literal meaning of the contract’s words instead of inferring the parties’ intentions. His Honour noted that the process of contract interpretation should not start with an assumption of the parties’ presumed intentions. Furthermore, His Honour warned of the dangers in commencing the interpretation with preconceived notions of what might be expected from a particular agreement.

Scope of damage

The court found that it was strongly arguable that the putrid lake on the land constituted a physical alteration or change to the land, impairing its value or usefulness, and thus could be considered damage to real property. Freeburn J interpreted that the damage occurred ‘in the course of the execution of the works,’ meaning it happened during the contract period, even if not directly caused by the works themselves. This interpretation was crucial in establishing that the damage fell within the scope of the indemnity clause.

Furthermore, the court recognised a real prospect for Cleanaway to demonstrate at trial that the claimed $31 million in costs were indeed ‘in respect of loss, destruction or damage to any property, real or personal.’ This finding was based on the evidence presented, which suggested that the costs were directly related to the damage caused by the putrid lake.

Risk for natural disasters

The court also addressed Shamrock’s argument that the parties’ contract did not require them to indemnify Cleanaway against the risks of a natural disaster. Freeburn J rejected this argument, stating that very clear words would be required before a court would conclude that this was the parties’ intention. It was noted that Shamrock was required to take out insurance to cover such risks, suggesting that the parties had foreseen and allocated the risk of natural disasters within the contractual agreement. His Honour further highlighted that the contract anticipated Shamrock taking out various insurances, including contract works insurance, which would extend to cover risks associated with the actions of either party or neutral causes like weather conditions.