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CASE NOTE ANALYSIS:

CASE NAME AND CITATION : SPENO RAIL MAINTENANCE AUSTRALIA PTY


LTD -v- METALS & MINERALS INSURANCE PTE
LTD [2009] WASCA 31 (S)
PRESIDING

: MARTIN CJ, McLURE JA, BEECH AJA

HEARD

: 14 OCTOBER 2009

FILE NO/S

: CACV 101 of 2007

BETWEEN

: SPENO RAIL MAINTENANCE AUSTRALIA PTY


LTD (Appellant) AND METALS & MINERALS
INSURANCE PTE LTD (First Respondent),
ZURICH AUSTRALIAN INSURANCE LTD (Second
Respondent), HAMERSLEY IRON PTY LTD (Third
Respondent)

FILE NO/S

: CACV 102 of 2007

BETWEEN

: SPENO RAIL MAINTENANCE AUSTRALIA PTY


LTD (Appellant) AND METALS & MINERALS
INSURANCE PTE LTD (Respondent)

FILE NO/S

: CACV 103 of 2007

BETWEEN

: SPENO RAIL MAINTENANCE AUSTRALIA PTY


LTD (Appellant) AND HAMERSLEY IRON PTY LTD
(Respondent)

ON APPEAL FROM:
Jurisdiction

: SUPREME COURT OF WESTERN AUSTRALIA

PRESIDING

: JOHNSON J

Citation

:ZURICH AUSTRALIAN INSURANCE LIMITED v


METALS & MINERALS INSURANCE PTE LTD
[2007] WASC 62

File No

:CIV 1679 of 2002, CIV 2243 of 2003, CIV 1277 of


2003

Abstract
This is a consolidated proceeding from the three appeals filed by Speno Rail
Maintenance Australia Pty Ltd (Speno). This case concerns with s 45 of the
Insurance Contracts Act 1984 (Cth) which tend to render void other insurance
clause provisions which limit or exclude the liability of an insurer to indemnify the
insured party against loss on the ground that the party has entered into another
contract of insurance for the same risk.

It also clarifies who has the right of

subrogation in cases if there was double insurance and explains the principles on
equitable right of contribution between co-insurers.
Factual Background:
The appellant Speno, a rail grinding contractor, entered into a service contract
with Hamersley Iron Pty Ltd (Hamersley), a company engaged in the mining,
manufacturing, transporting and loading of iron ore. 1 The parties agreed that Speno
would indemnify Hamersley against common law liability for personal injury that may
arise from the service contract2. In compliance with the contract, Speno got an
insurance policy at Zurich Australian Insurance Ltd and named Hamersley as
beneficiary even though the latter is not a party to it 3.
Meanwhile, Hamersley got its own insurance with Metals & Minerals
Insurance Pte Ltd (MMI) against all claims resulting from anything done in
performance of the contract which might result in death or injury to any person 4. That
contract contained a clause - the underlying insurance clause - to the effect that, if
Hamersley was indemnified under another insurance contract (whether effected by
Hamersley or by another party on Hamersleys behalf), then MMI would only be
liable for excess insurance over the limit of the indemnity provided for in the
underlying insurance.5
During the term of the service contract, two employees of Speno were injured
and brought a personal injury claim against Hamersley.

One of the injured

employees settled the case while the other proceeded to trial and was awarded

1 Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2007]
WASC 62 [142], 2
2 Ibid, 2
3 Ibid, 3
4 Ibid, 4
5 Ibid, 4
2

$1,259,969.00 in damages for his injury. Hamersley sought after Zurich for the injury
claims and Zurich pay out the claim and discharge Hamersley from liability 6.
After the pay out, Zurich go after MMI for contribution since Hamersley has
also maintained an insurance policy with MMI covering the same risk which
according to Zurich resulted to a double insurance (Zurich contribution action) 7. MMI
refused to make a contribution and raised the argument that the insurance contract it
had with Hamersley contained an underlying insurance clause which covers only
the excess insurance over the limit of the indemnity provided for in the underlying
insurance8. MMI maintained that there was no double insurance to speak of by
reason of this underlying insurance clause 9. Speno countered that the underlying
insurance clause was void by virtue of s 45 of the Insurance Contracts Act 1984
(Cth)10. MMI commenced a proceeding against Speno and claimed that if it had any
obligation to contribute to Zurich, then it has Hamersleys right to claim indemnity
from Speno by virtue of subrogation (the subrogation action) 11. MMI further caused a
writ of fieri facias in the name of Hamersley to be issued against Speno while the
latter applied to strike it out (Speno strikeout application). 12
Initially, Zurich was successful in the Zurich Contribution Action while MMI was
successful in both its subrogation action and the Speno strikeout application 13.
6 Ibid, 5
7 Ibid, 6
8 Ibid, 6
9 Ibid, 6
10 Ibid, 6
11 Ibid, 6
12 Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte
Ltd [2009] Wasca 31 (S), 46
13 Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2007]
WASC 62 [142], 8
3

Speno appealed against the decision in each action 14. MMI cross-appealed against
the judgment in the Zurich Contribution Action 15.
Key issues:
Zurich Contribution Action Whether the underlying insurance clause in the
Hamersley policy was void by the operation of s 45(1) of the Insurance Contracts Act
1984 (Cth), and if so whether it could be severed.
Subrogation Action and the Speno Strikeout Application - Whether the 2000
judgment meant that Hamersley had been fully indemnied by Zurich in respect of its
liability, so that the obligation of Speno to indemnify Hamersley had been
discharged.

Judgment:
Narrow application of s 45(1) of the Insurance Contracts Act 1984 (Cth)
As to the validity of the underlying clause in the Hamersley policy, the court declared
that the clause was not rendered void by the operation of s 45(1) of the Insurance
Contracts Act 1984 (Cth) and can be permissibly severed without affecting the
meaning of what remains after the severance.16
The Court of Appeal ruled that s 45 of the ICA only voided other insurance
clauses when those clauses referred to a policy entered into by the insured
himself.17 It was further held that the policy of MMI with Hamersley is an excess
insurance policy over the limit of the indemnity provided for in the underlying
14 Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte
Ltd [2009] Wasca 31 (S)
15 Ibid
16 Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd
[2009] Wasca 31 (S),12, 13, 110

insurance and so no double insurance can be concluded in the circumstances 18.


With this finding, the court dismissed Zurichs claim for contribution.
Rights of subrogation
In relation to the subrogation claim, the Court of Appeal emphasized that

payment or agreement by an insurer of a full indemnity, at


least to the extent covered by the policy, is a pre-condition to
the exercise by the insurer of a right of subrogation. It was also
ruled

that

the

doctrine

of

subrogation

does

not

allow

subrogation by an insurer who makes a payment of a


contribution to another insurer when the other insurer has
indemnified the insured. It was the insured who indemnifies
has the exclusive right of subrogation in a case of double
insurance.19
Liability of Speno under the 2000 judgment
Speno

contended

that

the

payment

by

Zurich

of

Hamersley's liability under the 2000 Judgment to one of the


claimants, discharged both Zurich's obligation to indemnify
Hamersley and Speno's obligation to indemnify Hamersley 20.
MMI countered that Speno was not discharged from its liability
under the 2000 Judgment since the liabilities of Speno and
Zurich are not equal and coordinate. As found by the Full Court

17 Ibid, 9, 10
18 Ibid, 29, 127, 128
19 Ibid, 1, 13, 211
20 Ibid, 228(c)
5

in Speno v Hamersley (2000), Speno's liability is primary and


Zurich's is secondary.21
In deciding this issue, the Court ruled that the payment
made by Zurich discharge Speno's liability to indemnify
Hamersley22. Once judgment is entered in respect of a cause of
action, the cause of action is merged in the judgment of the
court and ceases to exist apart from the judgment:

Handley

KR, Spencer Bower, Turner & Handley, Res Judicata (3rd ed,
1996) [393]23. The Court of Appeal went on to say that there is
nothing in the 2000 Judgment which gives a different character
to the respective liabilities of each of Speno and Zurich to
indemnify Hamersley. In particular, one liability is not primary
and the other secondary.

Each party is simply liable to

indemnify Hamersley.24 The basis of the right of contribution is


that discharge by one obligor of its obligation discharges the
obligation of the co-obligor:

Albion Insurance Co Ltd v

Government Insurance Office of New South Wales Ltd


(1969) 121 CLR 342 (350 - 351); Burke v LFOT Pty Ltd [2002]
HCA 17; (2002) 209 CLR 282, [14], [38], [41].25
1440 words
Case Law:

21 Ibid, 229
22 Ibid, 230
23 Ibid, 242
24 Ibid, 245
25 Ibid, 247
6

Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd [2009] Wasca 31 (S)
Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2007] WASC 62 [142]
Albion Insurance Co Ltd v Government Insurance Office of New South Wales Ltd (1969) 121 CLR 342
Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282