Tow operators, trailers and terms

The recent Queensland District Court decision of Lyschrome Pty Ltd v Peter Cusato Transport (a Firm) [2017] QDC 162 illustrates the need for transport operators to carefully consider the terms of subcontracting agreements and any obligations in those agreements to take out particular insurance policies.

What happened?

JAT Refrigerated Road Services Pty Ltd sued Peter Cusato Transport to recover the value of two refrigerated trailers, towed pursuant to a subcontracting agreement.

JAT entered into a subcontracting agreement (commonly termed a tow operator agreement) with Peter Cusato Transport. Under the agreement, Peter Cusato agreed to:

(a) use its prime mover to transport two maxi-cube refrigerated trailers owned or leased by JAT;

(b) be ‘solely liable’ for materials and equipment supplied by JAT for the purpose of carrying out the work; and

(c) take out a policy of non-owned trailer insurance over JAT’s trailers that included JAT as ‘an additional named insured for liability arising out of this contract’.

The trailers were damaged beyond repair in a road accident in January 2013. The accident occurred without any fault on the part of Peter Cusato. Although Peter Cusato had taken out a policy of ‘trailer in control’ insurance, the policy only extended to ‘legal liability for damage to trailers under your control … belonging to a principal’. The insurer declined to pay the claim because the only reason Peter Cusato was liable for the damage to the trailers was as a result of the provisions in the subcontracting agreement. Without those provisions, Peter Cusato would have had no liability as the accident occurred without fault on its part.

JAT argued that Peter Cusato was required to indemnify it for the damage caused to the trailers and that Peter Cusato was in breach of the subcontracting agreement. Peter Cusato contended that the subcontracting agreement was so uncertain that it was unenforceable.

Despite various undefined terms and clause numbering errors in the subcontracting agreement, the Court found that the parties clearly intended Peter Cusato to be strictly liable for any damage to the trailers that occurred while the trailers were being towed. Peter Cusato was ordered to pay the value of the trailers, being $292,000, to JAT.

Implications for transport providers

Transport providers should read agreements with customers and principal carriers carefully and ascertain:

(a) the extent of their liability, and, in particular, whether they are strictly liable for any damage, regardless of fault; and

(b) the type of insurance policy or polices required to meet any liabilities, and to comply with the terms of the agreement.

Cooper Grace Ward is hosting a webinar on 21 March 2018 that will discuss common misconceptions about transport insurance and issues that frequently arise for transport operators. Click here to register your attendance.