AQUAGENICS PTY LTD V CERTAIN UNDERWRITERS AT LLOYD'S

[2017] FCA 634, Federal Court of Australia, Justice Davies, 5 June 2017

Insurance (professional indemnity) - Claim made against assured - Meaning of "wrongful act" - Exclusion for assumed liabilities - Exclusion for defective workmanship

The assured was employed by the Council to design and build a waste water treatment plant in Tasmania. In June 2007 the assured left the site, claiming that it had performed the necessary pre-commissioning works but could go no further as a result of the Council's failure to carry out its own obligations. On 30 August 2007 the Council gave notice that, without prejudice to any claims for damages, it had "decided to take out of your hands the pre-commissioning and commissioning works required by the contract and will engage another person to attend to these contractual obligations". On 19 September 2007 the Council confirmed the 30 August decision and also stated that "we will be exercising our rights to claim damages/compensation in respect of your breach of the contract and of the costs of having the work undertaken by another entity". The dispute was referred to arbitration, and in the arbitration the Council added claims for damages for defective performance. By awards published in March 2013 the arbitrator held that the assured had failed to undertake pre-commissioning as required by the contract, that the breaches were substantial and that the Council had properly taken the pre-commissioning works and commissioning works out of the hands of the assured. He also found that there were breaches of the design and construction obligations under the contract. The sum awarded was AUS$1,346,111.57