A claim for indemnity under a Master Agreement arising from flooding found to have sufficient connection with the execution of the contract works and therefore considered to have good prospects of success to avoid a summary judgement.
In issue
- Whether Shamrock Civil Engineering Pty Ltd (Shamrock) was liable to indemnify Cleanaway Solid Waste Pty Ltd and Cleanaway Pty Ltd (collectively, Cleanaway) under clause 10(a) of the Master Agreement.
- Cleanaway sought reimbursement from Shamrock for nearly $31 million in costs incurred in remediating environmental damage caused by heavy rainfall and subsequent flooding at a construction site.
- Shamrock applied for summary judgment, arguing that Cleanaway had no real prospects of success in its indemnity claim.
The background
This case concerned an application for summary judgment issued by Sharmock as a result of Cleanway having been joined by way of cross claim to proceedings on foot involving its broker and insurers.
Shamrock was contracted by Cleanaway under a Master Agreement dated 30 November 2015 (Agreement) to undertake earthworks (Works) at a waste dump site owned and operated by Cleanaway at New Chum, Ipswich. A subsequent Statement of Works dated 5 December 2019 detailed Shamrock’s obligations, which included the construction of a cell within the landfill where waste could be placed. The contract was later varied in October and November 2021 to include additional works.
In February 2022, an extreme weather event resulted in heavy rainfall at the New Chum site, causing severe flooding. The water accumulated in an area of the landfill site, forming a lake that subsequently became contaminated due to leachate from the waste materials stored at the dump. The contamination led to strong odours and environmental hazards, prompting regulatory intervention. An environmental order was issued against Cleanaway, requiring it to take immediate remediation actions.
Cleanaway asserted that it had incurred approximately $30.96 million in costs for dewatering the site, treating contaminated water, managing leachate, repairing damage to landfill structures and addressing the environmental impact. Cleanaway issued a cross-claim against Shamrock on the basis that clause 10(a) of the Agreement required Shamrock to indemnify it for these expenses. Clause 10(a) relevantly stated that Sharmrock shall be liable for and shall indemnify Cleanway against 'any liability, loss claim or proceeding whatsoever in respect of loss, destruction or damage to any property…arising out of or in the course of or by reason of the execution of the Works…'.
Shamrock contended that the flooding resulted from an environmental natural disaster and was not within the scope of its indemnity obligations. It applied for summary judgment pursuant to rule 293 of the Uniform Civil Procedure Rules 1999 (Qld) and its submissions included, among others, that 'very clear words would be required before a Court would conclude that the presumed intention of the parties was that by clause 10 of the Master Agreement, Shamrock agreed to provide an indemnity to Cleanaway, unlimited in scope, against the risk of the principal suffering loss from flooding, earthquake, fire or other natural disaster'.
The decision at trial
The court dismissed Shamrock’s application for summary judgment, finding that Cleanaway had a reasonable prospect of success. The court confirmed that the starting point of contract interpretation is to examine the words actually used, rather than what the parties can be presumed to have intended. Having regard to the plain words of clause 10(a), the court was satisfied that Cleanaway’s claim had a sufficient connection to the execution of the works, as the flooding occurred 'in the course of' the contractual works, even if not directly caused by Shamrock’s activities. Ultimately it was found that Cleanway’s argument was one with 'good prospects', such that the test for summary judgment under r 203 of the UCPR1 was not satisfied.
Implications for you
This case is a reminder of the principles that a court will apply when interpretating contracts, particularly regarding the application of indemnity clauses. Contractors need to carefully review the terms of any indemnity clauses to ensure they understand the full scope of work to be undertaken and relevant risk exposures. Potentially broadly drafted indemnity clauses may have unintended consequences and extend liability well beyond the work a party is contracted to do. It may also affect the extent to which any insurance policy(ies) might potentially respond to a claim, for example, because of the operation of a contract liability exclusion.
Shamrock Civil Engineering Pty Ltd v Honan Insurance Group Pty Ltd [2024] QSC 313
1 I.e. that a) the plaintiff has no real prospect of succeeding on all or part of the plaintiff’s claim and b) there is no need for a trial of the claim or part of the claim.
