When a Contract and Insurance Policy Collide
/Siemens (New Zealand) Limited v Broadspectrum (New Zealand) Ltd [2017] NZHC 287
Siemens (New Zealand) Limited sued Broadspectrum (New Zealand) Limited for allegedly negligent work in installing and assembling a transformer. The transformer failed, could not be repaired and was eventually sold for scrap metal. Siemens claimed a loss of NZ $1,137,742.57. Broadspectrum counterclaimed, alleging that various contractual provisions limited its liability. It then applied for summary judgment on its counterclaims.
The application required the court to consider two competing contractual provisions in the master supply agreement (MSA) to which they were parties.
First, Broadspectrum relied on clause 19.6 of the MSA. This required Siemens to have a contract works insurance policy and limited Broadspectrum’s lability to the A $50,000 policy excess in respect of ‘existing property.’
Broadspectrums second cause of action took the opposite, alternative track. It said that if Siemens had not taken out a contract works policy, it would be in breach of the MSA and entitle Broadspectrum to limit its liability by A $50,000 in any event.
The third cause of action was based on a general limitation provisioin in the MSA that limited Broadspectrum’s liability to an amount specified in a Supply Schedule – in this case the agreed price of the transformer work being NZ $323,725.30.
Broadspectrum used these clauses as the basis of three counterclaims, upon which they were applying for summary judgment, or, in the alternative, strike out.
Siemens opposed the applications for summary judgment on both procedural and substantive grounds.
Procedural basis
A counterclaim must be capable of being an independent cause of action. Accordingly Siemens argued that Broadspectrum’s alleged counterclaims were not counterclaims in law but rather partial affirmative defences as to quantum. Under the High Court Rules a defendant can only succeed in a summary judgment application where it can satisfy the court that none of the plaintiff’s causes of action can succeed. Broadspectrum’s counterclaims would not meet this requirementbecause they were aimed only at reducing the quantum of the loss for which Broadspectrum could be liable and did not address liability itself.
This court did not agree. Sargisson AJ said that had Siemens not issued any proceedings “but instead simply demanded payment for the alleged loss, there would be no argument that Broadspectrum could not bring a claim seeking a declaration as to the meaning of the pertinent clauses of the MSA.” Therefore Broadspectrum could bring a summary judgment application as a counterclaim plaintiff and only had to satisfy the court that Siemens had no defence to the part of its cause of action relating to quantum.
Sargisson AJ therefore continued to consider the substantive applications themselves.
Substantive basis
As the counterclaim plaintiff and applicant for summary judgment, Broadspectrum had the onus of analysing and explaining the meaning of the relevant contractual clauses. Sargisson AJ held that it had failed to discharge the evidential onus of showing exactly how the clauses should be interpreted. Indeed she commented that the interpretation issues became murkier during the course of the argument.
Further, she referred to the case of Firm PI Limited v Zurich Australian Insurance Limited T/A Zurich New Zealand [2014] NZSC 147 which affirms that when considering a contract, individual clauses must be read in the context of the rest of the agreement and in conjunction with what the parties understood those clauses to mean. Sargisson AJ considered that a full trial would be necessary to work through these issues.
She also said that summary judgment was inappropriate in this case, given that it would mean separating issues of damages from issues of liability. Siemens should have the right to present their arguments in full at trial alongside issues of liability.
Sargisson AJ further concluded that as Broadspectrum has failed to convince the court to give summary judgment, it had little chance of proving Siemen’s claim for a competing interpretation of the disputed clauses was frivolous, vexatious or an abuse of process. Therefore the strike out application was also declined.
Comment
Craig Langstone and Imogen Allan appeared for the successful party - Siemens. Craig Langstone from Fee Langstone says procedurally, this case has rather widened the boundaries to allow defendants to pursue summary judgment and/or strike out applications in reliance upon limitation clauses, even where liability itself has not been determined. However more importantly, the case has shown once again the common disconnect between construction contracts and the insurance policies sitting behind them. However this is only round one as Broadspectrum has appealed to the Court of Appeal. A further update will follow after the Court of Appeal’s decision.
