SunWater Limited v Liberty Mutual Insurance Company

1. [1]

   BELL CJ: I have had the considerable benefit of reading the reasons of Macfarlan JA in this matter, am grateful for his Honour’s exposition of the issues and agree with his very clear analysis of those issues. For the reasons his Honour gives, I, too, would dismiss the appeal with costs.

2. [2]

   MACFARLAN JA: This is an appeal by SunWater Limited (“SunWater”) against a judgment dated 3 December 2021 of Stevenson J sitting in the Commercial List of the Supreme Court (Liberty Mutual Insurance Company, Australia Branch v SunWater Ltd (No 2) [2021] NSWSC 1582). His Honour found that an exclusion clause in the General and Products Liability insurance issued to SunWater operated to deny any entitlement of SunWater to indemnity in respect of a liability arising out of certain class action proceedings (see Rodriguez & Sons Pty Ltd v Queensland Bulk Water Supply Authority trading as Seqwater (No 22) [2019] NSWSC 1657 (“Rodriguez Class Action”)). Those proceedings related to the Queensland floods of January 2011 and the release of, or failure to release, water from the Somerset and Wivenhoe Dams in the days leading up to the 2011 flood event. Somerset and Wivenhoe Dam are owned and operated by Queensland Bulk Water Supply Authority, trading as Seqwater.

3. [3]

   By the Class Action, Rodriguez and the Group Members, who suffered property loss when substantial areas located downstream from the Wivenhoe Dam (and from the Somerset Dam which is upstream from the Wivenhoe Dam) were inundated by floodwaters, claimed damages from SunWater, the State of Queensland and Seqwater.

4. [4]

   SunWater’s liability was alleged to have arisen out of its provision to Seqwater of services pursuant to a “Service Level Agreement – Flood Management Services” (“the Service Level Agreement”) with Seqwater dated 13 October 2009.

5. [5]

   SunWater appealed against two of the judgments delivered by Beech-Jones J (as his Honour then was) in the Rodriguez Class Action proceedings but settled the proceedings on the basis that it accepted liability for an agreed sum of money. In the present proceedings it sought indemnity from its insurers in respect of that liability. The exclusion clause (General Exclusion 8), upon which certain of the insurers successfully relied at first instance to deny indemnity, excluded liability: “arising out of the rendering of or failure to render professional advice or service for a fee by The Insured”.

6. [6]

   On its appeal to this Court against Stevenson J’s judgment, SunWater relied on two grounds as follows:

   1. (1)

      That the primary judge erred in finding that the claims against SunWater in the Class Action proceedings arose out of professional advice or service given by SunWater, within the meaning of General Exclusion 8.

   2. (2)

      That the primary judge erred in concluding that the exclusion applied to claims made against SunWater by persons who were not the recipients or intended recipients of the professional advice or service given for a fee by SunWater.

7. [7]

   For the reasons that appear below, I have concluded that the primary judge was correct to find that General Exclusion 8 (‘Exclusion 8’) applied and that SunWater was not therefore entitled to indemnity.

THE SERVICE LEVEL AGREEMENT

1. [8]

   The Service Level Agreement of 13 October 2009 commences by referring to Seqwater’s ownership of Wivenhoe, Somerset and North Pine Dams and to the existence of an earlier agreement (of 2001) between the parties which related to SunWater’s provision to Seqwater of, inter alia, flood management services. It then recites that SunWater is to continue to provide flood management services.

2. [9]

   Clause 3 of the Agreement is relevantly in the following terms:

3. [10]

   The “Service” referred to in these provisions is defined in clause 1.1 to mean “the service to be provided by SunWater to Seqwater under this Agreement, as described in the Service Schedule”. The “Service Schedule” is in turn defined to mean the Schedule to the Agreement.

4. [11]

   Clause 6.1 provides for the payment of fees in accordance with the Service Schedule.

5. [12]

   The Service Schedule commences with the following provision under the heading “GENERAL”:

6. [13]

   The Flood Operations Manuals are referred to in the Service Schedule as follows:

7. [14]

   In clause 5 the Schedule provides for SunWater to establish and maintain a “Flood Control Centre” and to “competently deal with flood events” in accordance with the requirements of the Standard Operating Procedures, Emergency Action Plans and the Flood Operations Manuals.

8. [15]

   The following is then included in clause 6 under the heading “FLOOD OPERATIONS AND REPORTING”:

9. [16]

   Clause 7 of the Schedule provides for a specified annual amount to be paid to SunWater for its services, “with flood events to be paid for on an hourly rate basis in accordance with the schedule of rates”. The Schedule of Rates includes “Duty Flood Engineers” with a Standard Hourly Rate of $270.

10. [17]

    The Manual (bearing the full title “Manual of Operational Procedures for Flood Mitigation at Wivenhoe Dam and Somerset Dam”) includes the following concerning a Senior Flood Operations Engineer:

11. [18]

    The “Chief Executive” is defined by clause 1.2 to mean the Director General of the Department of Environment and Resource Management or nominated delegate. “Flood Event” is defined to refer to a situation where the Duty Flood Operations Engineer expects the water level in either of the Wivenhoe or Somerset Dams to exceed the Full Supply Level.

12. [19]

    Clause 2.8 confers a discretion on the Senior Flood Operations Engineer to depart from the procedures in the Manual if certain circumstances arise.

THE CLASS ACTION PROCEEDINGS

1. [20]

   The primary judge in the present case described the Rodriguez Class Action proceedings in the following terms.

2. [21]

   In the Class Action proceedings, Rodriguez & Sons Pty Ltd, on behalf of the Group Members, alleged that insufficient releases of water for flood mitigation purposes were made from Wivenhoe and Somerset Dams, with the result that, when there was extreme rainfall on 9, 10 and 11 January 2011, the dam operators were forced to release large volumes of water, exacerbating the impact of the flood on downstream urban areas and Rodriguez and the Group Members’ properties.

3. [22]

   Rodriguez brought a claim against SunWater for negligence, including on the basis that SunWater was vicariously liable for breaches of duty committed by its employee, Mr Robert Ayre, who was acting as the Senior Flood Operations Engineer at the time. Rodriguez alleged that Mr Ayre failed to conduct flood mitigation operations in accordance with the Manual of Operational Procedures and in such a manner as to prevent the inundation of the areas in which Rodriguez’s and the Group Members’ properties were located. SunWater was asserted to be liable either for its own acts or omissions, based on its obligations to provide the flood management services under the Service Level Agreement with Seqwater, or alternatively, vicariously liable for the conduct of Mr Ayre as SunWater’s employee. Beech-Jones J found that SunWater was vicariously liable for breach of a duty of care that Mr Ayre owed to Rodriguez and the Group Members. He found that SunWater did not itself owe a relevant duty of care to Rodriguez and the Group Members.

4. [23]

   As noted above, SunWater’s appeal from Beech-Jones J’s decisions was settled prior to its determination. SunWater sought indemnity in the present proceedings for the amount for which it was liable under the settlement.

5. [24]

   Some observations and findings of Beech-Jones J that SunWater relies on in the present proceedings are as follows:

SUNWATER’S INSURANCE

1. [25]

   SunWater seeks indemnity under two contracts of insurance. The first is a combined policy of General and Products Liability insurance on the one hand and Professional Indemnity insurance on the other. It was issued by the second, third, fifth, sixth and seventh respondents for the period 30 June 2008 to 30 June 2010 and was later extended to 30 June 2011 (“the Combined Policy”).

2. [26]

   The second policy (“the Excess Liability Policy”), issued by the first respondent, provided cover in respect of the first excess layer of SunWater’s General and Products Liability insurance, on the same terms as the underlying insurance. Insurance existed in respect of further excess layers but it is not presently relevant.

3. [27]

   The precise details of the insurers’ positions are not of significance for the purpose of determining the issues that have been raised for resolution on appeal. It is sufficient in this regard to adopt SunWater’s description as follows of the position:

4. [28]

   Under the General and Products Liability insurance, the insurer agreed to indemnify SunWater in respect of its legal liability to pay compensation relating, inter alia, to property damage. The cover expressly extended to liability incurred by way of settlement of claims.

5. [29]

   SunWater’s business was described in two places in the General and Products Liability policy documents in the following terms:

6. [30]

   The following further information concerning SunWater’s business was stated, immediately prior to one of these descriptions, as follows:

7. [31]

   The exclusion clause in question in the present proceedings appears as the 8th of 11 General Exclusions, as follows:

8. [32]

   As earlier indicated, the Professional Indemnity policy constitutes part of the Combined Policy. It is a distinct and self-contained component of it. Its description of SunWater’s business is in the same terms as that in the General and Products Liability policy (see [29] above).

9. [33]

   The Professional Indemnity insuring clause is in the following terms:

10. [34]

    The expression “Professional Activities and Duties” used in this clause is defined later in the policy as follows:

Was SunWater rendering professional advice or service to Seqwater?

1. [35]

   The primary judge noted that SunWater did not dispute that it provided some “services” to Seqwater (but not “professional advice or service” as referred to in Exclusion 8) and that the services that Sunwater’s employee, Mr Ayre, provided in his role as Senior Flood Operations Engineer constituted “professional advice or service” provided by Mr Ayre.

2. [36]

   His Honour then referred to, and rejected, SunWater’s submission that SunWater did not itself provide the professional services provided by Mr Ayre but was merely “providing people to provide services”. In elaboration of this, Sunwater submitted that the Service Level Agreement was “properly characterised … as a labour hire arrangement rather than a professional services arrangement”.

3. [37]

   His Honour accepted that one of SunWater’s services was to provide “appropriately qualified and experienced personnel” to Seqwater but held that “the reality was that SunWater was, by its employee, providing professional engineering services”.

4. [38]

   His Honour did not consider that the observations and findings of Beech-Jones J in the Rodriguez Class Action (quoted above at [24]) contradicted that conclusion.

Is the Exclusion confined to professional advice or service rendered to Seqwater?

1. [39]

   SunWater’s submission, in relation to this question posed for the primary judge’s consideration, was that Exclusion 8 “only applies to claims made by the recipient or intended recipient of the professional advice or service given for a fee by SunWater: that is Seqwater”.

2. [40]

   After considering the legal principles applicable to the construction of insurance contracts generally, his Honour referred to the decisions of the Western Australia Court of Appeal in Fitzpatrick v Job t/as Jobs Engineering [2007] WASCA 63 (“Fitzpatrick v Job”), the New South Wales Court of Appeal in Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226 (“Vero”), and in Transfield Services (Australia) v Hall; Hall v QBE Insurance (Australia) [2008] NSWCA 294 (partially reported at 75 NSWLR 12) and that of Rein J in Limit (No 3) Ltd v ACE Insurance Ltd [2009] NSWSC 514.

3. [41]

   His Honour considered that the observations of Campbell JA in Transfield supported the view that Exclusion 8 was not confined in its operation to liabilities to the recipients of the relevant advice or service, that is, to clients of the insured party. On this view, the liability in the present case, which was to third parties to whom the advice or service caused loss, was excluded even though it was not a liability to the recipient of the advice or service, in this case Seqwater. His Honour noted that he regarded the first instance decision of Rein J in Limit as inconsistent with Transfield, and that he was obliged to follow what Campbell JA said, and in any event agreed with him.

4. [42]

   His Honour then noted that unlike the exclusions considered in Fitzpatrick v Job and Vero, the exclusion in the present case “is expressed by reference to claims arising out of the rendering of professional advice, rather than claims arising out of a breach of professional duty”. His Honour did not however consider the distinction to be presently material.

5. [43]

   The primary judge accordingly gave a negative answer to the question recorded in the heading at [39] above, with the consequence that Exclusion 8 excluded SunWater’s claim from the insurance cover. His Honour did not regard the “Business Description” statements in the policies nor the estimates of turnover in the General and Products Liability policy as dictating a different conclusion.

6. [44]

   His Honour’s conclusions included the following observations:

LEGAL PRINCIPLES

1. [45]

   It is sufficient for present purposes to quote Hammerschlag J’s (as his Honour then was) recent description in HDI Global Specialty SE v Wonkana No.3 Pty Ltd (2020) 104 NSWLR 634; [2020] NSWCA 296 (“HDI Global”) of general legal principles applicable to the construction of insurance policies (the numerous citations given are omitted):

GROUND 1: WHETHER SUNWATER WAS RENDERING PROFESSIONAL ADVICE OR SERVICE TO SEQWATER

1. [46]

   SunWater summarised its submissions in relation to this ground of appeal as follows:

2. [47]

   SunWater then sought to demonstrate the correctness of the submission in sub-paragraph (c) by referring to various provisions of the Service Level Agreement and the Flood Operations Manual, which are quoted in [9]-[17] above.

3. [48]

   SunWater then noted that Beech-Jones J had found it liable to Rodriguez and the Group Members by reason of its vicarious liability for the conduct of Mr Ayre who was an employee of SunWater nominated by Seqwater to be the Senior Flood Operations Engineer. In support of its submissions, SunWater particularly emphasised the following findings of Beech-Jones J, which are partly included in the quotations in [24] above:

4. [49]

   SunWater’s oral submissions to this Court were to similar effect. For example, Senior Counsel contended that “the water release decisions were not [what] SunWater was contracted to provide. It contracted to provide people…”.

5. [50]

   SunWater then asserted that the primary judge did not engage with the requirement of Exclusion 8 that the liability in question arose out of professional services or advice given by SunWater, as distinct from Mr Ayre. The primary judge did however do that by observing that “the reality was that SunWater was, by its employee, providing professional engineering services”.

6. [51]

   Moreover, it is clear from the Service Level Agreement that SunWater’s essential contractual obligation was to provide “flood management services”. Clause 3.1 stated that it was to provide the “Service” which was defined to mean “the service to be provided by SunWater to Seqwater under this Agreement, as defined in the Service Schedule” (see [10] above). Then in the Service Schedule the “Scope of Work” described the provision by SunWater of “flood management services”. The fact that SunWater was to provide those services at least in part by the method of providing appropriately qualified and experienced personnel (see for example clause 3.2(b)) quoted in [9] above) does not mean that SunWater itself did not provide the flood management services. As the primary judge said “the reality” was that it did so, inter alia, through its employee Mr Ayre.

7. [52]

   As I have indicated, the primary judge’s finding that SunWater provided the flood management services through its employee, Mr Ayre, was entirely consistent with Beech-Jones J’s finding that SunWater was vicariously liable for Mr Ayre’s conduct. Many cases have discussed the theoretical basis of the doctrine of vicarious liability. The debate has centred on whether the liability of the principal is for the act of another or for the wrong of that other. The former involves the proposition that the act of the subordinate is to be regarded as the act of the principal, as expressed by the Latin maxims qui facit per alium facit per se (he who acts through another is deemed to act in person) and qui per alium facit per se ipsum facere videtur (he who does anything by another is deemed to have done it himself). The latter view, namely that “the master is liable not for a breach of duty resting on him and broken by him but for a breach of duty resting another and broken by another”, has however gained currency with the passage of time (see Darling Island Stevedoring and Lighterage Co Ltd v Long (1957) 97 CLR 36 at 57; [1957] HCA 26 (Fullagar J); Kable v New South Wales [2012] NSWCA 243 at [53] (Allsop P); Pioneer Mortgage Services v Columbus Capital (2016) 250 FCR 136; [2016] FCAFC 78 at [48]–[58] (Davies, Gleeson and Edelman JJ); Optus Administration Pty Ltd v Wright (2017) 94 NSWLR 229; [2017] NSWCA 21 at [281] (Gleeson JA)).

8. [53]

   The former view supports the primary judge’s conclusion because, in accordance with that view, Mr Ayre’s acts are to be regarded as those of SunWater. The latter view is however also consistent with that conclusion. On that view, SunWater’s vicarious liability arose because Mr Ayre’s acts were done in the course of his employment by SunWater, irrespective of whether the particular acts were authorised or directed by SunWater (see Prince Alfred College Incorporated v ADC (2016) 258 CLR 134; [2016] HCA 37 at [39]-[85] particularly at [39] and [80] where the plurality described the connection to employment that gives rise to vicarious liability). None of the parties to the present case contended that Beech-Jones J’s finding of vicarious liability was erroneous. It carries with it the conclusion that Mr Ayre acted in the course of his employment by SunWater in engaging in the conduct that Beech-Jones J found to be negligent. He was thus acting on behalf of SunWater in providing flood management services.

9. [54]

   In light of these considerations, ground 1 must be rejected.

GROUND 2: IS EXCLUSION 8 CONFINED TO PROFESSIONAL ADVICE OR SERVICE RENDERED TO SEQWATER?

1. [55]

   SunWater summarised its submissions in support of this ground of appeal as follows:

2. [56]

   As to the first contention, authority supports the view that it is relevant to the construction of an exclusion clause in an insurance policy to consider whether the construction advanced by the insurers would circumscribe excessively the insuring clause and therefore defeat the commercial purpose of the contract of indemnity (see for example, Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance (2018) 359 ALR 256; [2018] NSWCA 100 at [125] (“Weir Services”)). This is not however a principle that permits rejection of the plain meaning of an unambiguous exclusion clause simply because another meaning might appear more reasonable in light of other terms in the policy. In Fitzpatrick v Job, Buss JA (as his Honour then was) at [268] referred to cover in the policy in that case being “severely circumscribed” on the construction contended for, and continued:

3. [57]

   Whether this puts the threshold for departure from the natural meaning of an exclusion clause sufficiently high need not be determined in the present case as, for the reasons given below, I do not consider that the present case is analogous to Fitzpatrick v Job. In insurance and contract law generally the circumstances which warrant departure from literal meanings have been severely constrained (see the summary in HDI Global at [116] and [117] quoted in [45] above).

4. [58]

   SunWater relied on a reference by McHugh JA in Legal & General Insurance v Eather (1986) 6 NSWLR 390 at 407 (“Eather”) to the defeat of “an important part” of the cover if a particular interpretation of an exclusion clause were adopted. His Honour was however there dealing with a requirement in an insurance policy that the insured “take all reasonable precautions to avoid or minimise injury, loss or damage…”. The expression “all reasonable precautions” was clearly one open to different possible interpretations and the Court decided that a narrow interpretation was appropriate. The case contrasts with the present in that, in Eather, no violence was done to the language of the policy in adopting the narrow construction. Here, the critical words are “arising out of”. Those would need the importation of an implied restriction in their operation in order to be read down. Eather does not therefore provide support for SunWater’s submission that Exclusion 8 should be read down in the manner suggested by Ground 2 of the appeal as otherwise “an important part of what is covered by the general ground of indemnity… is wiped away by” it.

5. [59]

   Turning to the question of whether in any event there would, on the insurers’ construction of Exclusion 8, be such an excessive circumscription of cover, SunWater emphasised the terms of the Business Description found at three places in the Combined Policy (see Business Description excerpted above at [29]). The first paragraph of that Description commences with the word “Principally”. As the primary judge held, all, or at least most of, the activities referred to in the first paragraph of that Description would aptly be described as professional. On the other hand, SunWater implicitly accepted that many, if not most or all, of the activities described in the second and third paragraphs of the Description would not be “professional” activities and Exclusion 8 would not therefore exclude liabilities arising out of them. Nevertheless, SunWater submitted that on the insurers’ construction the exclusion would operate in respect of all of the “principal” activities of SunWater’s business because the first word (“Principally”) of the first paragraph so described the activities listed in that first paragraph. Thus, SunWater submitted, the apparent scope of the insurance policy would be substantially undermined by the insurers’ broad construction of Exclusion 8.

6. [60]

   SunWater then submitted that, by reason of the term “Principally” in the first paragraph of the Business Description, there was therefore “textual support” for its narrower construction of Exclusion 8.

7. [61]

   SunWater further submitted that there was no practical difference between clauses (such as those considered in Fitzpatrick v Job and Vero) that required a breach of professional duty and those (such as that in the present case) turning simply on the rendering of professional services. It submitted that “[i]t would be rare indeed for a claim to be made, even by a third party, which can be said to arise from professional services but which did not involve any breach of duty as a professional”. It therefore submitted that the fact that Exclusion 8 did not require a breach of duty to have occurred but simply the liability to have arisen out of the provision of professional advice or service was not a reason to construe it any more broadly than the clauses considered in Fitzpatrick v Job and Vero which did require a breach to have occurred.

8. [62]

   For a number of reasons I consider that, as the primary judge held, Exclusion 8 does operate to exclude cover in the present circumstances.

9. [63]

   First, I do not consider that adoption of the insurers’ construction, that is, reading Exclusion 8 as not confined to liabilities to persons to whom SunWater has provided advice or service, would circumscribe excessively the cover afforded by the Combined Policy. Whilst the clause would, on that construction, exclude cover from liabilities arising out of professional activities generally, the Business Description in the policy indicates that a substantial part of SunWater’s activities are non-professional in character. That these non-professional activities are in fact of major significance is indicated by the turnover estimates also contained in the policy. These identify “Professional Fees” as a limited percentage only of total turnover (see [30] above). The word “Principally” at the commencement of the first paragraph of the Business Description must in light of those estimates be seen as referring to something other than a ranking of the professional activities according to their ability to generate income. To what “Principally” in fact refers is left unclear, leaving SunWater’s circumscription of cover argument without a sound basis. SunWater suggests, by implication, that it might relate to the “risks covered and the size of potential claims” but whether it does is a matter of speculation.

10. [64]

    Also against the attribution of significant weight to the use of the word “Principally”, is the reference in the third paragraph of the Business Description to SunWater’s major infrastructure ownership. This would appear to be a matter outside the purview of Exclusion 8 because SunWater would be unlikely to be rendering professional fee-paying advice or service in relation to its own infrastructure. That its dam ownership is of major significance to its business was suggested by a document in evidence to which the Court was taken in argument by SunWater, indicating that SunWater owns and operates some 18 named dams in Queensland, apart from the three dams the subject of the Service Level Agreement between SunWater and Seqwater.

11. [65]

    Also of relevance on the circumscription of cover point is the existence in the Combined Policy of a separate professional indemnity component. The insurers’ interpretation of Exclusion 8 does not mean that under the policy as a whole all liabilities arising out of professional activities are excluded. Rather, if adopted, it would leave many liabilities arising out of fee-paying professional activities to be covered under the professional indemnity component of the policy. Thus, SunWater would not automatically be deprived of cover under the Combined Policy in respect of liabilities to non-clients arising out of SunWater’s professional activities. Instead SunWater would have to seek indemnity under the Professional Indemnity component of that policy: hardly a surprising or anomalous consequence. The force of this consideration is not in my view negated or diminished by the fact that there may not be complete identity between claims excluded from the General and Products Liability policy and those included in the Professional Indemnity cover. Nor is it negated by (as occurred here) the insured choosing to obtain a much lower limit on its Professional Indemnity insurance than on its General and Products Liability insurance. SunWater submitted in this context that the present claims were not within the professional indemnity component of the Combined Policy because that cover is restricted to “professional work involving design and consulting activities”. Whether or not that is so, the point remains that by reason of Exclusion 8 and the separate professional indemnity cover, the inference is available that the insured chose to have its professional indemnity claims addressed by that separate cover.

12. [66]

    The rationale behind statements in the authorities about excessively circumscribing cover is not therefore applicable here because cover (even if not complete) of professional negligence claims by third parties remains available under the professional indemnity component of the Combined Policy. As a result there is no question of the commercial purpose of the Combined Policy being defeated (see [55] above).

13. [67]

    Moreover, the following submission made by the insurers has force and points to an anomalous situation that would arise if SunWater’s construction were adopted:

14. [68]

    Secondly, in its “natural and ordinary meaning” (see Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; [1986] HCA 82 at 510 (“Darlington Futures”)) Exclusion 8, does not contain any limitation on its operation of the type for which SunWater contends. No aspect of its wording suggests that it should be limited to liabilities to persons to whom SunWater has rendered professional advice or service, as distinct from others, as referred to by Beech-Jones J in the class action proceedings, who may have suffered loss as a consequence of the provision of that advice or service. The words used would have to be read down if such a limitation were to be imported. The expression “arising out of” used in the Exclusion is a broad one, well capable of capturing the circumstances of the present case (see IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 at 483 (Clarke JA) and 487 (Handley JA)). If the parties had intended to incorporate the limitation for which SunWater contends, it would have been easy for them to limit the operation of the words “arising out of”, as they did in General Exclusion 1 where the expression “arising out of” is used but the Exclusion states that it nevertheless does not apply to certain identified matters.

15. [69]

    Thirdly, there is in these circumstances no occasion for operation of the contra proferentem rule, which has been described as a rule of “last resort” (Central Coast Council v Norcross Pictorial Calendars Pty Ltd (2021) 391 ALR 157; [2021] NSWCA 75 at [126]; Rava v Logan Wines Pty Ltd [2007] NSWCA 62 at [55]). As stated in Darlington Futures at 510 the contra proferentem rule is in some circumstances applicable where there is ambiguity in an exclusion or limitation clause. For the reasons given above Exclusion 8 contains no such ambiguity. There is thus no textual hook upon which SunWater’s construction argument could be based. SunWater sought to find a basis for reading down Exclusion 8 in the impact it would allegedly have in circumscribing cover under the Combined Policy if it had the meaning given to it by the insurers. For the reasons given above in [63] – [67], that attempt was unsuccessful, leaving SunWater without a basis on which its contention that Exclusion 8 should be read down could be supported.

16. [70]

    Fourthly, to reject SunWater’s contended-for limitation on the operation of Exclusion 8 is not inconsistent with relevant authority, to which I now refer.

17. [71]

    In Fitzpatrick v Job, Mr Fitzpatrick was injured as a result of Jobs Engineering’s professional activities but he was not a client of that firm. Jobs was found entitled to claim on its insurance notwithstanding an exclusion of liability arising “out of a breach of duty owed in a professional capacity”. The Supreme Court of Western Australia held that the exclusion clause should be limited to liabilities to clients of Jobs, on the basis that a broader construction would severely circumscribe the insurance cover and would therefore be “an uncommercial and unreasonable result” (at [268]).

18. [72]

    A similar result was reached by this Court in Vero Insurance Ltd v Power Technologies Pty Ltd in which the exclusion clause and circumstances were found to be analogous to those in Fitzpatrick v Job.

19. [73]

    In both Fitzpatrick v Job and Vero, the exclusion clauses referred to liabilities arising out of a “breach” of professional duty. Exclusion 8 in the present case is expressed more broadly but the difference is not in my view material in the context of determining the issue posed by Ground 2 (or in fact Ground 1). That is, the difference does not make it more or less likely that Exclusion 8 is confined in its operation to liabilities to clients: the key expression is “arising out of” and that appears in both types of clauses.

20. [74]

    In Transfield Services v Haul [2008] NSWCA 294; partly reported at 75 NSWLR 12, Campbell JA (who dissented in the result) considered an issue, not expressly considered by the other judges, of whether a clause that excluded liability “[c]aused by or arising out of…[1] The rendering of or failure to render professional advice or service by the Insured or any error or omission connected therewith… [2] Advice, design, formula or specification given for a fee”, should be construed as limited to liabilities to clients of the insured and not extend to third parties. His Honour concluded that it should not be so limited, stating that such a construction “would involve narrowing the exclusion, in a way for which there is no textual support” (at [211]).

21. [75]

    Weir Services involved an insured’s claim for indemnity in respect of its liability to a client to whom it supplied professional services. Whilst it was found that the insured’s claim failed for other reasons, it was also found that the claim would have been defeated by a professional indemnity exclusion in the policy, excluding liability “caused by or arising from the rendering of or failure to render professional advice or service…” (at [48]). Barrett AJA, who gave the principal judgment, referred in passing to the possibility, not relevant to the proceedings then before the Court, of a professional service exclusion being “confined to claims arising out of breaches of duty owed to persons who have retained the insured to perform such service in the course of its business”. His Honour referred in this regard to Fitzpatrick v Job and to Vero.

22. [76]

    The upshot of these authorities is that, as a matter of principle, a conclusion that a particular broad construction of an exclusion clause would circumscribe excessively the cover provided by the relevant policy might warrant a narrow construction of the exclusion being adopted, but much will depend on the particular circumstances of the case. For the reasons I have given above in [63] - [66] I do not consider that the conclusion can be drawn in the present case that the insurers’ construction would have that consequence and that the present case can be regarded as analogous to that considered by Buss JA in Fitzpatrick v Job (see [56] above). The exclusion clause is not ambiguous, either by reason of its terms or by reason of any other aspect of the policy documents, and there is no warrant for not giving its broad unambiguous terms their natural meaning. As a result, there is no basis for reading down its clear terms.

23. [77]

    In the first instance decision in Limit (No 3), Rein J examined the three different judgments in Transfield and concluded that there was no majority support for the view of Campbell JA that the exclusion clause in question there was not to be confined to liabilities arising out of professional advice or service given to a client. Rein J then concluded:

24. [78]

    The primary judge in the present case also considered the judgments in Transfield and concluded, as did Rein J, that they did not give rise to any binding authority. Nevertheless, the primary judge thought he should follow what Campbell JA said as persuasive dicta of a Court of Appeal judge. In any event he agreed with Campbell JA’s non-binding opinion on the point and therefore concluded that “there is no ‘textual support’ for reading down the Exclusion so that it applies only to claims made by the intended recipient of the ‘professional advice or service’: i.e. Seqwater”.

25. [79]

    On the present appeal, none of the parties contended that Transfield constituted binding authority. As I have said, whilst regard is to be had, as indicated in the cases to which I have referred, to whether a particular construction of an exclusion clause would curtail excessively the cover provided by the insurance policy in which the clause appears, each case is to be determined on its own facts and in light of the wording and proper construction of the particular policy under consideration. For the reasons I have given, SunWater’s circumscription argument does not assist it in the present case. SunWater is therefore left without any textual basis for its argument that the Court should adopt a more restricted construction of Exclusion 8 than is justified by its wording.

26. [80]

    For these reasons, ground 2 should be rejected.

ORDERS

1. [81]

   For the reasons above, neither ground of appeal has merit. As a result, the appeal should be dismissed with costs.

2. [82]

   MEAGHER JA: I agree with Macfarlan JA.