Jackson v McDonald’s Australia Ltd  NSWCA 162
Following on from the New South Wales Court of Appeal decision in GIO General Limited v Centennial Newstan Pty Ltd1 in which the Court found an indemnity and insurance clause in a contract in the ‘Erect Safe’ mould operated to provide indemnity to a principal,2 the decision ofJackson v McDonald’s Australia3 follows that line of reasoning in that the principal extension clause was activated to cover a contractual indemnity in a contract between McDonald’s Australia (McDonald’s) and one of its cleaning contractors.
The plaintiff brought a personal injury claim against McDonald’s and a cleaning contractor known as Holistic Facility Services (Holistic). Holistic was deregistered at the time of proceedings and its public liability insurer CGU Insurance Limited (CGU) was a party to the claim.
The plaintiff was injured when he fell on stairs at McDonald’s in Sydney in the early hours of the morning of 4 June 2007. The floor had recently been mopped, most likely by Holistic.
The primary judge held that neither McDonald’s nor Holistic was liable in negligence. In coming to that decision, the judge rejected certain critical aspects of the plaintiff’s evidence. This led her Honour to conclude that the requisite elements of causation had not been made out. Instead it was held that the plaintiff fell because of ‘inattention or misstep’while talking to his friend, holding his skateboard and not holding on to the handrail.
Importantly, with respect to the issue on appeal, the primary judge found in McDonald’s favour in relation to its claim against CGU, finding that CGU was liable to indemnify McDonald’s under the Holistic policy of insurance. In doing so, her Honour found that the only basis on which McDonald’s faced exposure to the claim was because Holistic had caused water to be on the floor and there was no other basis for which McDonald’s, as occupier, was liable. Importantly, it was found that the steps had non-slip strips and handrails and that McDonald’s required Holistic to use slip resistant detergent.
CGU appealed against the finding it was obliged to indemnify McDonald’s. To understand the issues on appeal it is necessary to briefly understand the wording of the contract between Holistic and McDonald’s, and the wording of Holistic’s policy with CGU.
The contract included the following:
Clause 1.6 ‘All suppliers assume responsibility for and agree to stand behind their Products. As such, you must agree to indemnify McDonald’s, and its franchisees, from any and all claims, damages, expenses and lawsuits caused by your Products [which was found to include services]…’ Clause 1.7 ‘Suppliers must maintain comprehensive general/public liability insurance in an amount approved by McDonald’s and with a carrier having a financial rating approved by McDonald’s, listing McDonald’s including McDonald’s Australia Limited and McDonald’s Properties Australia Pty Limited and its franchisees as additional named insured, and provide McDonald’s, upon request, with proof of such insurance.’
The relevant wording of the Holistic policy included the following:
‘Clause 5.2 Provided that they observe, fulfil and are subject to the definitions, terms, conditions and exclusions of this Section, We will also indemnify, as though they were You, the following that are not named in the Schedule.
- Any party with whom You have entered into an agreement for the purpose of Your Business, but only for Occurrences for which You would be liable in the absence of the agreement and only to the extent that the agreement requires You to indemnify that party in relation to that Occurrence.’
CGU accepted that McDonald’s was a party with which Holistic entered into an agreement for the purpose of Holistic’s business, thereby activating the first part of clause 5.2(a). The focus then turned upon the particular ‘Occurrence’ – if McDonald’s was to have, in respect to its liability to the claimant, the benefit of Holistic’s insurance ‘as though’McDonald’s was Holistic, it was necessary for McDonald’s claim to be an ‘Occurrence’ for which Holistic would be liable in the absence of the contract between Holistic and McDonald’s.
The CGU policy defined ‘Occurrence’ as follows:
Personal Injury or Damage to Property that:
- is neither intended or expected by You and would not be expected from the standpoint of a reasonable person in Your position;
- is caused by an Event; and
- within the Geographical Limits; and
- during the period of Insurance.’
The relevant ‘Occurrence’ for present purposes was found to be the personal injury suffered by the claimant when he slipped and fell. The policy provision under consideration therefore raised two questions:
- First, whether the injury was one for which Holistic would be liable in the absence of its agreement with McDonald’s; and
- Second, whether the agreement between McDonald’s and Holistic required Holistic to indemnify McDonald’s in relation to the injury.
The first question was answered in the affirmative due to the circumstances that Holistic performed the mopping and incurred a duty of care. The injury was, on that footing, one for which Holistic was liable apart from its agreement with McDonalds.
As to the second question, clause 1.6 of the contract meant that Holistic was required to indemnify McDonald’s in relation to the plaintiff’s injury. McDonald’s was therefore entitled to indemnity from CGU under clause 5.2 of the Holistic policy for the injury sustained by the plaintiff.
McDonald’s submitted at trial that, even in the absence of liability in damages on its part for the plaintiff’s injury, the indemnity under Holistic’s insurance with CGU protected it for the legal costs incurred. The primary judge agreed with this, but without any explicit statement of her reasoning.
On appeal, the court held that the primary judge was in error when she decided that the CGU policy required CGU to indemnify McDonald’s for its legal costs. This is because the indemnity provided to McDonald’s by CGU was limited to an ‘Occurrence’, as that term was defined in the policy. Because the definition of ‘Occurrence’ did not include legal costs, the Court of Appeal held that the policy did not extend to cover McDonald’s legal costs. The fact that there had been no finding of substantive liability for personal injury or property damage (an ‘Occurrence’) was instrumental in the finding that the indemnity afforded by clause 5.2 of the Holistic policy did not flow through to cover legal costs.
One is left to wonder whether, had Holistic not been deregistered, McDonald’s could seek its costs directly from Holistic pursuant to the contract. It appears that, based on the Court’s findings, it probably could. It also seems that if there had been a substantive finding of liability, then McDonald’s defence costs may well have fallen within the scope of the Holistic policy.
One final consideration is whether McDonald’s had liability independent of Hollistic, say for example, the stairs were inherently slippery, whether the indemnity would operate at all.
Lessons for insurers
As with most claims of this nature, the particular circumstances of the case are unique and it is unlikely to provide much guidance when attempting to interpret different clauses in different agreements.
The key lesson to be learnt from this decision and from the earlier decision in GIO v Centennial Newstan, is the effect they have on Erect Safe, and the emphasis placed upon the need to ensure that each matter is to be determined on its own facts and wordings of the clauses under consideration. It is also evident that the Erect Safe ‘defence’ often used by defendants and insurers is, perhaps, of diminishing value.
It is therefore critical in the defence or pursuit of these claims that clauses are carefully considered in light of all of the facts to ensure they are given their true meaning and effect.