Contractors Beware – Indemnity Clauses create Shaky Ground in Queensland
Employment Law: 16 June 2025
Author: Erin Prout & Jenny Au - Our People
The recent case of Shamrock Civil Engineering Pty Ltd v Honan Insurance Group Pty Ltd [2024] QSC 313, concerned a waste site in Ipswich which cost $31 million to remedy. The question before the Supreme Court of Queensland was who whether liability should rest with Cleanaway or Shamrock.
Cleanaway had engaged Shamrock under a Master Agreement to construct an open pit area at the site where waste could be placed.
Heavy rainfall at the site resulted in major flooding, with the site resembling a swampy lake. The water became putrid as waste stored at the site leached into the water. An environmental order was issued against Cleanaway who paid approximately $31 million to drain the site and treat the contaminated water.
A cross-claim was made by Cleanaway against Shamrock that, pursuant to an indemnity clause in the Master Agreement, Shamrock was obliged to reimburse Cleanaway for the $31 million spent draining the swamp. The indemnity clause in the Master Agreement stated:
10. Contractor’s Indemnity
The Contractor shall be liable for and shall indemnify the Principal against:
- any liability, loss claim or proceeding whatsoever in respect of loss, destruction or damage to any property, real or personal, arising out of or in the course of or by reason of the execution of the Works; and
- any liability, loss, claim or proceeding whatsoever arising at common law or under statute in respect of personal injury to or the death of any person whomsoever arising out of or in the course of or by reason of the execution of the Works,
but the Contractor’s liability under this Clause shall be reduced proportionately to the extent that an act or omission of the Principal, or its employees or agents contributed to the loss, damage, death or injury. For the purposes of this Clause the Project Manager, any quantity surveyor or other consultant shall be an agent of the Principal but tenants, their visitors, invitees, and contractors shall not be agents of the Principal.
This clause shall not apply to:
- the extent that the liability of the Contractor is limited by another provision of this Deed;
- claims in respect of the right of the Principal to construct the Works on the Site; and
- damage which is the unavoidable result of the construction of the Works in accordance with this Deed. [emphasis added].
Conflicting interpretations
Cleanaway argued that the damage caused was related to work conducted under the Master Agreement, as the earth moving works had created the open area that allowed the pooling of water, as such they contended that they should be indemnified by Shamrock.
In opposition, Shamrock argued they, when signing a contract to undertake works, did not intend to indemnify Cleanaway for damage caused by natural disasters, especially not in a manner that appeared to be unlimited in scope. Shamrock stated that a reasonable businessperson would recoil at such an interpretation of the indemnity clause. They contended that the cross-claim made by Cleanaway should be summarily dismisses as it had no real prospects of success.
Court’s Decision
Justice Freeburn did not accept Shamrock’s approach, noting:
- The rights and liabilities of parties under a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
- A court will consider what a reasonable businessperson would have understood the terms to mean.
- Ordinarily, the interpretation of a commercial contract is done by reference to the contract alone. There are some instances where external events can be considered.
When looking at the terms of the contract as a whole, it became clear that Shamrock had taken on significant risks and liabilities. For example, it had the onus of maintaining insurance. This was consistent with the natural reading of the contract which provided that Shamrock was the entity taking on the risk for any losses, including from natural disasters or works they were contracted to complete.
In relation to the phrase “arising out of or in the course of or by reason of the execution of the Works”, Shamrock submitted that the clause should be interpreted to mean that there had to be a causative link between the damage and the execution of the works. They further noted that the two carve outs in the clause regarding the reduced liability if Cleanaway “contributed to” the loss or damage and removed liability if the damage was an “unavoidable result of the works” strengthened their interpretation of the phrase.
His Honour was not convinced and noted that the ordinary and plain meaning of the phrase would not require such a causal link, the ordinary meaning being that the damage can arise:
- out of the execution of the work; or
- in the course of the execution of the work; or
- by reason of the execution of the work.
His Honour did not believe that the ordinary meaning of the phrase conflicted with the carve outs.
Justice Freeburn ruled that there was a ‘real prospect’ and ‘good prospect’ that Cleanaway would establish that the $31 million in clean-up costs were “in respect of loss, destruction or damage to any property, real or personal”.
Application for summary judgment was dismissed.
Key Takeaways
For business owners and particularly those entering into construction or earth-moving contracts:
- Each Master Agreement should be carefully reviewed by a lawyer to ensure that appropriate clauses are included which limit liability;
- If liability is being taken on, consider whether it ought to be capped at a certain amount;
- A specific carve-out may be appropriate for any loss or damage arising from a natural disaster; and
- Adequate insurance cover should be obtained and reviewed regularly.
If you are negotiating the terms of a contract or need assistance understanding your contractual risks, our dedicated team of lawyers can assist.