Custom Fab Solutions Pty Ltd v Liberty Managing Agency Limited Company & Anor [2025] QDC 140

DISTRICT COURT OF QUEENSLAND CITATION: PARTIES: FILE NO/S: DIVISION: PROCEEDING: ORIGINATING COURT: DELIVERED ON: DELIVERED AT: Custom Fab Solutions Pty Ltd v Liberty Managing Agency Limited Company Number 03003603 & Anor [2025] QDC 140 CUSTOM FAB SOLUTIONS PTY LTD (Applicant) v LIBERTY MANAGING AGENCY LIMITED COMPANY NUMBER 03003606 and OTHERS (Respondent) 2450/25 Civil Application District Court at Brisbane 12 September 2025 (ex tempore) Brisbane HEARING DATE: 12 September 2025 JUDGE: Porter KC DCJ ORDER: The Court declares that: 1. The respondents are liable to indemnify the applicant pursuant to clause 3.28 of the contract of insurance number AU00000665-001 in the amount of $45,000.00, being: (a) penalty of $50,000.00; (b) less the deductible of $5,000.00 The Court orders that: 1. The respondents pay to the applicant the sum of $45,000.00 on or before 12:00 pm 25 September 2025. -- 1 of 7 -- 2 2. The respondents pay the applicant’s costs of the proceeding on the standard basis, to be agreed or assessed. COUNSEL: D. Davison for the Applicant. H. Clift for the Respondent SOLICITORS: Enyo Lawyers for the Applicant. Barry Nilsson Lawyers for the Respondent. [1] By the Work Health and Safety and Other Legislation Amendment Act 2024 (Qld) (the Amendment Act) Parliament introduced section 272A. That section is headed ‘Insurance or other indemnities against penalties’ and was directed in broad terms at prohibiting the provision of insurance or indemnities for a penalty imposed on a person under the Work Health and Safety Act 2011 (Qld). [2] The respondents are underwriters who entered into a contract of insurance with the applicant well before the introduction of section 272A. A penalty under the Act has been imposed on the applicant and the policy prima facie responds. The respondents are concerned, however, that the statutory prohibitions introduced by section 272A and, in particular, by 272A(1)(b), apply such that paying the sum to which the applicant is prima facie entitled under the policy in respect of the penalty might be an offence. [3] The applicant, not surprisingly, disagrees. It contends that paying on the policy in respect of the penalty will not breach section 272A(1)(b) and will not breach any other provision so long as the sum is paid (or, as I will discuss at the end, the entitlement merges in a judgment for the sum) before 28 September 2025. [4] For the reasons that follow, I agree in the submission of the applicant. Background [5] The parties have very helpfully agreed on a comprehensive statement of facts. I will not refer to everything in that statement, but I note the whole of its contents. Of most direct relevance, however, are the following facts. [6] The applicant is an insured under a policy I will soon describe. The first to third respondents are certain Lloyd’s underwriters, and the fourth respondent is another insurance underwriting company. The respondent’s underwriting agent is DUAL Australia Pty Ltd (Dual). The applicant and the respondents are parties to a management liability contract of the insurance (the policy). [7] The applicant is an insured within the meaning of that word under the policy. The respondents are the insurers under the policy. By the policy schedule, the insurance period is for a year ending on 7 October 2023 with an indemnity limit of a million dollars. [8] Section 3 of the policy contains certain automatic extensions. Those extensions include, by 3.21, occupational health and safety defence costs by which the insurers agree to pay, on behalf of the insured, and defence costs arising from any claim made against an insured where such claim arises from a breach or alleged breach of any Commonwealth, State or Territory occupational workplace health and safety -- 2 of 7 -- 3 legislation. There is also an automatic extension which the parties agree applies to fines and penalties by clause 3.28 headed Statutory Liability (Fines and Penalties). [9] The policy provides: [w]e agree to pay to or on behalf of the insured all statutory liability and defence costs arising from any claim if we are not legally prohibited from doing so. The definition, importantly, of “statutory liability” in clause 6.57 provides that that phrase means: (a) civil fines and civil penalties awarded against an insured for a breach of an act, and (b) pecuniary penalties awarded in criminal proceedings except where the insurance of such penalties is legally prohibited. [10] The policy schedule identifies a sublimit of a quarter of a million dollars for extension in 3.28 with a deductible of $5,000. [11] On 30 January 2023 an employee of the applicant was injured in a workplace incident at the warehouse of the applicant’s business in Townsville (the incident). On 1 February 2023 the applicant’s insurance broker sent an email by which he notified Dual of the incident. [12] On 29 January 2025 the applicant was served with a complaint under the Justices Act 1886 (Qld) which alleged that by reason of the incident the applicant had breached that Act. I infer that the applicant pleaded guilty, because the prosecution was listed for sentence in the Townsville Magistrates Court on the 25th of August 2025. At that hearing, that Court imposed a penalty of $50,000 on the applicant for breaching the Act (the penalty). [13] The Justices Act proceeding gave rise relevantly to two categories of loss for the applicant to which the policy responded: (a) The first category was the costs of defence of the proceedings. There is no suggestion of any statutory prohibition in respect of indemnity for that loss, and the respondents have indemnified the applicant pursuant to clause 3.21 of the policy for those costs minus the deductible. (b) The second category of loss is the penalty. It is common ground that the applicant is prima facie entitled to indemnity under the policy subject to the effect of section 272A. [14] On 26 August 2025 the applicant’s solicitors made a written demand on the respondents requiring them to indemnify for the penalty pursuant to clause 3.28 of the policy. The respondents declined to pay to the applicant the quantum of the penalty, notwithstanding that clause 3.28 of the policy prima facie responded. The reason for this position arises upon consideration of the combined effect of sections 272A and 326 of the Amendment Act. [15] The Amendment Act introduced s. 272A in the following terms: 272A Insurance or other indemnity against penalties (1) A person must not, without reasonable excuse— (a) enter into a contract of insurance or other arrangement that purports to insure or indemnify a person for a liability for all or part of a monetary penalty under this Act; or (b) provide a contract of insurance or an indemnity for a liability for all or part of a monetary penalty under this Act; or -- 3 of 7 -- 4 (c) take the benefit of a contract of insurance or other arrangement, or an indemnity, that purports to insure or indemnify a person for a liability for all or part of a monetary penalty under this Act. Maximum penalty—500 penalty units. (2) Subsection (1) places an evidential burden on the accused to show a reasonable excuse. (3) A term of a contract of insurance or other arrangement, or an indemnity, is void to the extent it purports to insure or indemnify a person for a liability for all or part of a monetary penalty under this Act. [16] Part 16, division 8 contained relevant transitional provisions. Section 326 appeared in subdivision 1 and provided as follows: 326 Application of s 272A (1) Section 272A(1)(a) and (b) applies in relation to a contract of insurance or other arrangement entered into, or an indemnity provided, on or after the day that is 6 months after the commencement. (2) Section 272A(1)(c) applies to a person on or after the day that is 18 months after the commencement. (3) Section 272A(3) applies in relation to a contract of insurance or other arrangement entered into, or an indemnity provided, on or after the commencement. [17] The respondents set out their reasons for declining indemnity by their letter dated 29 August 2025. After setting out the relevant factual background, they articulated their position as follows, Relevantly, the new provisions provide that: (a) From 28 September 2024, a person is prohibited from entering into, or providing, a contract of insurance or an indemnity for a liability for all or part of a monetary penalty under the Act (section 272A(1)(a) and (b) and section 326(1) of the Act); and (b) From 28 September 2025, a person must not take the benefit of any insurance policy or other form of indemnity in respect of a monetary penalty (section 272A(1)(c) and section 326(2) of the Act). Section 272A(1) of the Act is a civil penalty provision, and contravention of it constitutes a criminal offence. DUAL is obviously mindful of those significant consequences, and the risk to all parties that a court could adopt a range of different approaches to the construction of the relevant provisions. Having carefully considered the position, DUAL’s position is that the expression “provide…an indemnity for a liability” in s 272A(1)(b), read naturally, is capable of referring to either: 1. The provision of a legal arrangement which, when performed, will provide “an indemnity” for a liability – which need not be by way of insurance; or 2. The actual provision of a payment which in fact provides “an indemnity” for a liability – whether under an insurance or other arrangement. In those circumstances, based on that reading of the section: 1. DUAL is required to decline to indemnify the Company in respect of the penalty because: a. pursuant to section 272A(1)(b) of the WHS Act, DUAL is prohibited from providing an indemnity in respect of the penalty; b. the relevant cover “for statutory liability” does not extend to any penalties which are not insurable, noting that the cover is limited to “pecuniary penalties awarded in criminal proceedings, except where the insurance of such penalties is legally prohibited”; and 2. If DUAL indemnified the Penalty in this case, there is a significant risk that a court would find that: -- 4 of 7 -- 5 a. This conduct involves a contravention by DUAL of s 272A(1)(b), a civil penalty provision and criminal offence, because it involves “[providing]…an indemnity for a liability for all or part of a monetary penalty under this Act”; and b. This conduct is not protected by the transitional provisions of s 326(1), because it would be “an indemnity provided, on or after the day that is 6 months after the commencement”. However, should the Company wish to challenge the above decision, DUAL will not oppose any originating application filed by the Company (at its cost) seeking a declaration or court order compelling DUAL to pay the penalty. DUAL will of course abide by any such declaration or order. Any such order of the Court must be obtained prior to 28 September 2025. From that date, the Company will be prohibited (by s 272A(1)(b) of the WHS Act) from taking the benefit of any insurance or other form of indemnity in respect of the penalty. [underlining added] [18] The course contemplated by the penultimate paragraph in the above quote was adopted by the applicant who filed this originating application on 1 September 2025. Analysis [19] The issue can be articulated as follows: as at the present date, does paying the applicant the amount of the penalty pursuant to the indemnity which arises under a contract of insurance entered into before September 2024 involve a breach of section 272A(1)(c)? [20] In my view, it does not for the following reasons. [21] Section 272A(1) contains three prohibitions which should be construed so far as possible to cover separate acts on the basis that all parts of the provision should be given work to do. It is straightforward to do so when they are considered against the background of the general law of contracts of insurance and indemnity which should be taken into account in construing a statute concerned with regulating such documents. [22] Section 272A(1)(a) is concerned with prohibiting entry into a contract of insurance or an arrangement analogous to such a contract. That construction flows from the use of the expressions contract of insurance and arrangement in the provision and from the fact that both the contract of insurance and the other arrangement referred to have the same purpose, namely purporting to ensure indemnity or indemnify a person for, in effect, a penalty under the Act. Section 272A(1), then, is, in my view, concerned with prohibiting the entry into bilateral contracts of insurance or analogous arrangements. [23] By contrast, 272A(1)(b) should be construed as applying to: (a) Arrangements which can give rise to a contract of insurance; or (b) Unilateral indemnities. [24] The circumstance contemplated in respect of the first limb is where there is provision of a contract of insurance or an indemnity for a penalty by a person who is not a party to some form of bilateral contract of insurance or other arrangement. [25] How could that come about? In respect of the provision of a contract of insurance the answer is by the activities of underwriting agents who provide contracts of insurance but are not parties to them. Underwriting agents are a well-established part of the indemnity insurance industry. They can properly be described or -- 5 of 7 -- 6 characterised, in my view, as providing a contract of insurance when they arrange such a contract, albeit they do not fall within 272A(1)(a) because, at least in the ordinary course, they are not parties to the contract. [26] As the second limb, it is a common incident of commercial life for indemnities to be provided by deed. They include, for example, indemnities for receivers appointed under mortgage documents or under company charges. It is also common for indemnities to be given to directors and company officers in respect of liabilities which might arise from their conduct as such. Construing indemnity in section 272A(1)(b) in this manner gives the word work to do in a manner which rationally assists in covering the field in respect of the third party arrangements which might infringe the prohibition. [27] Construing 272A(1)(b) in this dual manner is also consistent with the opening words of 272A(1)(a) and (b). Section 272(1)(a) begins with the words a person must not, without reasonable excuse, “enter into” a contract of insurance or other arrangement which is consistent with entering into a bilateral legal arrangement. By contrast, 272A(1)(b) introduces its prohibition as a person must not, without reasonable excuse, “provide a” contract of insurance or indemnity. The construction advanced by the applicant makes sense of the differing introductory words to the prohibition. [28] Further, when section 272A(1)(b) speaks of provision of an indemnity, it sits comfortably with the idea of provision of the promise to indemnify. There is a distinction between providing an indemnity in the sense of incurring the legal obligation to indemnify on the one hand, and to indemnify a party in the sense of paying the amount due under the indemnity on the other. The first is a formal legal obligation. The second is the result of the occurrence of the facts which provide for indemnity. [29] This understanding of the dual character of the concept of indemnity sits comfortably in section 272(1)(c). That provision prohibits taking the benefit of “a contract of insurance or other arrangement or an indemnity.” Relevantly, it treats a contract of insurance arrangement or indemnity as equivalent concepts. That further supports the applicant’s construction of section 272A(1)(b) which construes indemnity in that context as referring to a legal obligation to pay, not the making of the payment. [30] In addition, the phrase “to take the benefit of” an indemnity is language which is consistent with the concept of making payment of a sum which falls due on the facts as they occur. [31] The transitional provisions also support the construction contended for by the applicant. They give, in section 326(1), the same date for commencement for 272A(1)(a) and (b), which is consistent with an intention in Parliament that both provisions concern the same kind of act being the entry into or facilitation of a legal obligation to indemnify. Section 326(2), on the other hand, gives a longer period of grace. That is consistent with an intention to give a relatively short period of grace for incurring obligations after the commencement of the Act with a longer period of grace for the performance of such obligations. That construction also appears to be consistent with the explanatory memorandum to the Amendment Act as explained in the applicant’s submissions. [32] Finally, if indemnity in section 272(1)(b) meant a payment rather than an obligation to pay, indemnity under 272A(1)(c) would seem to have little, if any, work to do. -- 6 of 7 -- 7 [33] For those reasons I accept the applicant’s construction of section 272(1)(b). It is the incurring of an obligation to indemnify, not a payment under that obligation which falls within the scope of the word “indemnity” in 272A(1)(b). [34] Section 272A(1)(c) will take effect on 28 September 2025. That date has not yet arrived. The applicant accepts that they cannot take the benefit of the contract of insurance or take the benefit of the indemnity provided by after that date but, as I am determining this matter now, there will be time for the performance of the obligation before the expiry of the grace period under 272A(1)(c) on the 28th of September 2025. [35] The applicant filed with leave an amended originating application by which a declaration was sought in terms of paragraph 1(a) and (b) and an order that the respondents pay the amount of $45,000, which is the penalty minus the deductible, before Friday, 19 September, or, in the alternative, an order the respondents pay the applicant the amount of $45,000 as money due under a contract by that date. [36] The declaration sought I ordinarily would not make, because I had to determine as an issue leading to the orders for payment that the respondents are liable to indemnify the applicant as the declaration seeks. There is usually no point making declarations in respect of one or more issues that make up the necessary chain of reasoning leading to an order. Such matters give rise to issue estoppels that bind the parties in any event. [37] In this case there is uniform enthusiasm for a declaration because of the understandable anxiety of the respondents to have a clear statement about the lawfulness of the payment. I accept there is utility in making that declaration in those circumstances. [38] I will make the declarations sought in subparagraph (a) of the relief claimed, because it seems to me that in this particular case the amended relief sought is the correct form of relief because it is a claim for a liquidated sum under a contractual obligation. It is, of course, possible that a breach of an obligation to indemnify can lead to general damages, but where what is sought is payment only of the amount due under the indemnity, the situation is the same, it seems to me, as to when someone is suing on a debt, in that the amount might be in dispute, but once it is determined, that sum is due as a liquidated sum under the contract. [39] For those reasons I intend to make orders in terms of paragraph 1(a) of the amended originating application, and 3, omitting the reference to the alternatives. -- 7 of 7 --