CGU Insurance Limited v Sanders S260/1999 [2000] HCATrans 323 (16 June 2000)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S257 of 1999

B e t w e e n -

CGU INSURANCE LIMITED

Applicant

and

ALEXANDER FRANK BEARD

Respondent

Office of the Registry

Sydney No S258 of 1999

B e t w e e n -

CGU INSURANCE LIMITED

Applicant

and

JENNY STENSSON

Respondent

Office of the Registry

Sydney No S259 of 1999

B e t w e e n -

CGU INSURANCE LIMITED

Applicant

and

KEVIN ROBERT PEARCE

Respondent

Office of the Registry

Sydney No S260 of 1999

B e t w e e n -

CGU INSURANCE LIMITED

Applicant

and

MARTIN EDWARD SANDERS

Respondent

Applications for special leave to appeal

GAUDRON J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 16 JUNE 2000, AT 11.06 AM

Copyright in the High Court of Australia

MR B.W. RAYMENT, QC: In these matters I appear with my learned friend, MR S. HABIB, for the applicants. (instructed by A.R. Conolly & Company)

MR C.G. GEE, QC: May it please the Court, I appear with my learned friend, MR P.M. MORRIS, for the respondent in each case. (instructed by C.E. Cranney & Co)

GAUDRON J: Yes, Mr Rayment.

MR RAYMENT: Your Honours, we submit that it is for the claimant under section 6 to prove the existence and enforceability of the charge referred to in that section on the proper construction of the section.

GAUDRON J: Yes, but you have got some words in one of the subsections that looks suspiciously as though they say otherwise.

MR RAYMENT: Your Honour is probably referring to the second paragraph of subsection (4) and if I may go straight to the question arising in relation to those words.

GAUDRON J: Yes.

MR RAYMENT: It would be convenient if I may just hand to your Honours - one for each of your Honours - a collection of materials because the words to which your Honour has just referred have been looked at in a number of cases going back to Andjelkovic before Chief Justice Blackburn in 1981, the section being in similar terms in the Australian Capital Territory. Could I go straight there, if your Honours please. In the course of discussing the corresponding provision in the ACT Chief Justice Blackburn said, and may I please go to page 355 of the report of his Honour's decision. When directing attention to the words:

Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken."

His Honour said - if I may go the top of the page on 355:

It must be observed that the words.....probably do not mean that the court is required to determine whether or not the insurer is or is not liable; that would be to anticipate the determination of the "proceedings" which are required by the section to be "taken" but not concluded; moreover, it might well be a very difficult question to determine in an application for leave, to which the insured is ex hypothesi not a party. The proper construction of the words must be "the court is satisfied that the insurer has a bona fide and arguable ground for disclaiming liability" In the face of the words of the subsection, that may be a surprising conclusion, but it seems to me that it must be correct.

His Honour then goes on - - -

GAUDRON J: So that an insurer may not be joined with a - may escape liability without determination of the final issue?

MR RAYMENT: His Honour was really directing attention to the presence of both limbs, to the proviso in subsection (2), that is, the court has to be satisfied of two things, first that the insurer is entitled to disclaim liability, and, secondly, that any proceedings necessary to establish that have been taken. His Honour went on:

Is that conclusion an argument which helps to solve the problem of whether the respondent is, in an application for leave, entitled to a final decision on the existence of the statutory charge? I believe that it is. I cannot think that the legislation can be rationally construed as requiring that on an application for leave the court must finally decide whether the terms of the contract are such as to bring the statutory charge into existence under s 25(1), but on the question whether the second limb of s 26(3) applies, need decide only that the insurer has a bona fide and arguable case. In the case before me, as I have just said, the latter question does not arise, but in my opinion the necessary construction of the latter part of s 26(3), which prescribes circumstances in which leave may not be granted, indicates the proper constructon of the whole legislative scheme, and leads me to the conclusion that unless I think that the applicant's contention as to the construction of the policy is unarguable, I should grant leave and allow that contention to be made and opposed in the action.

Now, that case then went to the Full Court where the Full Court did not decide what the proviso meant but did decide that it was proper to grant an application for leave if there was an arguable case of liability, and this Court dismissed an appeal without deciding the precise meaning of the words to which we have just referred.

Then Mr Justice Mahoney in Lissenden v Yorkville Nominees Pty Ltd (1984) 3 NSWLR 138, which we have handed up a copy of, identified at page 142 three possible meanings of the words to which your Honour has just referred. He said the first, in effect, just below line E, which was one that neither party had contended for is:

that the court, in order to determine whether this first matter exists, must be satisfied, in the sense of making a final judicial determination, that, upon the facts of the instant case the insurer is relevantly entitled to disclaim liability under the policy. The second matter of which the court must be satisfied, viz, that the proceedings "necessary to establish that the insurer is so entitled to disclaim" would be ordinarily superfluous if such were the meaning of the first matter.

So, he rejects it out of hand. The second meaning, then - the second alternative he refers to just below the letter F is that adopted by the trial judge before him:

is that the court from which leave is sought shall not give it if there is an arguable case that the insurer is not entitled to disclaim liability as provided.

The word "not" must be erroneous in line 2, shall:

give it if there is an arguable case that the insurer is not entitled to disclaim liability as provided.

Then, the third alternative, which is the one he prefers himself, is that the words in question merely mean that the court must be satisfied that pursuant to the contract there is a right of avoidance in certain circumstances and that some proceedings have been taken. He describes that third alternative just below letter G. Then at page 143 says below letter C:

Were the matter free from authority, I would nevertheless be inclined to adopt the third alternative construction.

And, he says why that it is, but proceeds on the basis that Andjelkovic's Case had in effect established that the second was correct.

GAUDRON J: But that does not - that proviso is not relevant in this case, is it? Leave was granted, by consent, pursuant to subsection (2) in this case, I take it, is it?

MR RAYMENT: Yes.

GAUDRON J: I am sorry, yes. Was it subsection (2)? Yes.

MR RAYMENT: No, not under subsection (2), but leave was granted on the basis that there was an arguable question to be tried in the case and on the basis that the issue of insurance would be dealt with at the trial, conformably with - - -

GAUDRON J: Was not the insured a corporation?

MR RAYMENT: Yes.

GAUDRON J: And was it not being wound up?

MR RAYMENT: I do not think it was, at that time, not at the time of the leave application. But, in any event, subsection (2) was not - - -

GAUDRON J: It would seem to me that on the approach taken by Justice Mahoney the onus would clearly have been on you.

MR RAYMENT: No, with respect, he does not XXXX

GAUDRON J: No, but it would seem to me, on the approach taken by Mr Justice Mahoney - I am sorry, I have put that wrongly. On the first alternative, which seems to me to be a natural and ordinary meaning of the words, it is on that approach that the onus would clearly be on you.

MR RAYMENT: Yes, if the first of the three alternatives of Mr Justice Mahoney were correct then there would certainly be reason to think that there may be an onus on the leave application on the insurer, but that is the one that has been so far, at any rate in this country, uniformly rejected.

GAUDRON J: Yes, but that is not the issue that arises in this application.

MR RAYMENT: No, but what does arise is the proper construction of section 6 and I have only really referred to it because I apprehended that your Honour wished me to deal with those words.

GAUDRON J: No. What concerns me is that:

Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured: and in respect -

thereof -

the parties shall, to the extent of the charge, have the same rights and liabilities - - -

They seem to me to be the words that suggest that your contention is not well founded.

MR RAYMENT: We would respectfully submit, your Honour, that they go the other way, that they provide the opposite conclusion. May I just seek to seriatim set out the propositions for which we contend. The first is that it is for the claimant to prove the existence and enforceablity of the charge under the section.

GAUDRON J: Where do you take that from?

MR RAYMENT: We take it from the fact that the claimant must enforce the charge. Subsection (4) says that to the extent of the charge the rights will be as nearly the possible the same as they would be if the claimant were suing the insured, that is, the claimant would have, in our respectful submission, in the ordinary case, an ordinary burden of proof to prove his case and that is one of the matters which is caught up by subsection (4) when it refers to the rights being as nearly the - - -

GAUDRON J: But what about the more precise specification of the rights and liabilities shall be the same?

MR RAYMENT: They are the same as an action by the claimant against the insured.

GAUDRON J: In which the insurer bears the onus.

MR RAYMENT: The words are not as nearly as possible the same as if the action were brought by the insured against the insurer, but rather, attention is only directed - the analogy is only to the claim of the claimant, the common law claim in the typical case of the claimant against the insured.

GAUDRON J: It really is an extraordinary proposition, is it not, that an Act which is intended to benefit third parties would impose upon third parties a greater burden than it would upon the insured.

MR RAYMENT: A different burden.

GAUDRON J: Greater.

MR RAYMENT: We would respectfully submit it is not greater because they must prove - under this newly created right they must prove matters going to both the enforceability and the existence of the charge.

CALLINAN J: Involving matters peculiarly within the knowledge of the insurer.

MR RAYMENT: Yes, if a matter within the knowledge of the insured required proof in the case, then very slight proof would on well-established authority be required to make out a prima facie case. We refer to that in our written submissions.

GAUDRON J: But it is also the knowledge of the insurer that becomes critical.

MR RAYMENT: Yes, but in De Gioia's Case it was clear that if you have to prove as part of your case, as one often does, something within the knowledge of the other party - - -

CALLINAN J: But that can be a common.....as Justice Davies said by the shifting of the evidentiary onus from time to time to which I think Mr Justice Davies expressly referred.

MR RAYMENT: If I may just seek to put these propositions one by one. The second proposition, we submit, is that here can be no charge if there are no insurance moneys payable under the policy and we referred in our written submissions to what was said in this Court in Bailey's Case for that proposition. In the next case we submit that the quantum of moneys payable under the policy goes to the extent of the charge, see the Full Court in Dixon's Case which we have handed up, at page 397. Their Honours there say that the words "the extent of the charge" in subsection (4) encompass not only the claim of the claimant against the insured but also the question of whether moneys are payable under the policy and if so to what extent.

Then, we submit, that as the trial judge said at page 4 of the application book, if that be so the matter is solved by subsection (4) itself, making it plain that matters going to the extent of the charge are to be dealt with in the same way as if the action were an action between claimant and insured, that is, claimant bearing an onus of proof.

Could I go, please, to the reasoning of the Court of Appeal at page 173 on this matter. Paragraph 13 leaves out the fact that if there is no indemnity there is no charge and omits to mention that an essential ingredient, therefore, in the action. We submit that paragraph 15 rests on the same omission. Your Honours will see that at line 50 his Honour has referred to the second paragraph of section 6(4) and we have already referred to the history of that section in relation to Andjelkovic's Case, Lissenden's Case and the same was said in Dixon's Case. So, in our respectful submission, there is a substantially arguable question on a matter which arises- it is law free, except in this case, in this country. It arises in New South Wales, the ACT and the Northern Territory and we would submit that for the reasons I have indicated it is a proper question for this Court to consider.

The second matter in the application is best considered by looking at what the trial judge said about the application before him at page 2 of the application book. His Honour there described the circumstances in which he came to give his preliminary ruling on the onus question. His Honour says, line 5:

The issue is normally one which would fall, at least in the first instance, on the plaintiffs' counsel to decide, in the course of making a decision at what stage he should close his case. However, as I have said, both counsel for the plaintiffs and counsel for the fifth defendant insurer sought that I make the decision, rather than have the rights of both parties -

which we would stress -

possibly affected by misjudgment, either at this stage or later in the proceedings -

"later in the proceedings" can only mean in the defendant's case -

as to the correct answer to this question.

It is a question which arises directly under the terms of the Act to which I have referred and there is a deal to be said for the view that neither the plaintiffs nor the fifth defendant should have to suffer the consequences of their counsel making what may turn out to be a wrong decision on a point -

Then his Honour says:

Upon both of them agreeing on behalf of their clients that there would not be any appeal from any decision by me on the question prior to the conclusion of the hearing before me, and on the formulation of the question, it seemed to me proper to acquiesce in their joint approach.

GAUDRON J: Now, does not that just suggest that the first meaning which everyone has rejected is the proper meaning of section 6? You deal with this as a preliminary issue, in toto, instead of which the parties here, at risk, I should have thought - clearly at risk - of the precise events which happened in this case, selected out a tiny portion of the question, then rested their rights on it, without regard to the possibility that it might be wrong, which possibility was being asserted as the truth at all stages by the plaintiff; that is to say, by selecting out a tiny part of this overall matter, did you not make your own bed?

MR RAYMENT: Both parties asked the judge to do this, your Honour.

GAUDRON J: Yes. Well, did not both parties make their own beds?

CALLINAN J: Each aware that it could lose on the point.

MR RAYMENT: But each knowing that if it lost on the point, it would be protected by the fact that it was acting on a ruling rather than some view of the parties.

GAUDRON J: What, it would be protected so it could get a new trial so it could make forensic decisions? The question, if there be one, in relation to the second point surely is whether you were denied natural justice. That would be the only question.

MR RAYMENT: That is our submission.

GAUDRON J: You have got to look at the way the parties chose to conduct their case and you have to look at the question whether you were prevented from calling evidence.

CALLINAN J: And as Justice Davies said at page 176:

No party was precluded from calling whatever evidence the party wished to call. No party was misled. The parties were given a fair opportunity to put before the Court whatever evidence they wished to be taken into account.

MR RAYMENT: Your Honours, if one cannot act on a ruling given by a trial judge and be protected by it - - -

GAUDRON J: What has happened to the notion that you fought your cases in their entirety or in accordance with the way the Act requires. This practice has grown up of selecting out tiny little questions and this is the consequence of doing it.

MR RAYMENT: Yes, it is the consequence, but the way in which the matter has worked out, and it was a joint application pressed earnestly by our learned friends upon this trial judge in his case in-chief, of which he had the benefit before he closed his case, we would respectfully submit that for the goal posts to be moved after the event - - -

GAUDRON J: No, they were not moved. The parties erected their own goal posts.

MR RAYMENT: But both parties - - -

GAUDRON J: They just perhaps did not see that they were slightly out of alignment.

MR RAYMENT: Yes. We would respectfully submit that there would be a gross miscarriage of justice if we were held, after the event, to the evidence that we called on the basis of the trial judge's ruling, without an opportunity to prove the case on the basis that the onus decision was quite different.

GAUDRON J: You want to change the goal posts relating to the rules of natural justice and procedural fairness. You want to change them to say, notwithstanding that you had every opportunity, notwithstanding that you had experienced counsel, notwithstanding that the courts have pointed out time after time that the selection out of a tiny portion of a case often involves adverse consequences which the parties ought to think about, that the rules of natural justice should be changed to accommodate people who have made conscious decisions in one area without perhaps thinking them through.

MR RAYMENT: We would respectfully submit that unless the Court could be satisfied that the evidence would have been entirely the same in any event, there must be such injustice as would - - -

CALLINAN J: This case is like a few cases we have had before us. It demonstrates how dangerous it can be to seek to separate issues and not to have the trial conducted in the orthodox longstanding way in which trials have been conducted. I think it is a recipe for trouble. It is a recipe that everybody here concocted and you will have to live with the consequences, I would think.

MR RAYMENT: In our respectful submission, if one cannot rely upon the ruling of a trial judge during the course of a case, made in answer to a separate question, what can one rely upon?

GAUDRON J: One can rely on the orthodox procedures.

MR RAYMENT: It really would be destructive of the ability of a judge to make an early ruling. In Fidelitas Shipping Lord Justice Diplock set out, and we have quoted it in our written submissions, and it has been applied by this Court last year, what the consequence is of a preliminary decision being given by the court. It is at page 214.

GAUDRON J: It is one thing to have a preliminary decision on a discrete issue which is determinative of the rights of the parties or which may be - which, if it is decided one way, is determinative of the rights of the parties. This was a procedural ruling. It was not the determination of an issue, even, it was just a procedural ruling.

MR RAYMENT: Yes, your Honour. But, it was a critical question. It was a critical question to do with the conduct of the case.

GAUDRON J: No, it was a critical question if you elected to conduct your case one way rather than the other.

MR RAYMENT: Yes. And both parties, then, had the benefit of it, that is the difficulty, we would submit, but - - -

GAUDRON J: Mr Gee's clients might have thought they did not have the benefit of it.

MR RAYMENT: Well, just because they lost it, but if they had won it they would have had the benefit of it. At page 214 we have set out what Lord Justice Diplock explained in Fidelitas Shipping:

Where the issue separately determined is not decisive of the suit the judgment upon that issue is an interlocutory judgment and the suit continues. Yet I take it to be too clear to need citation of authority that the parties to the suit are bound by the determination or the issue. They cannot subsequently in the same suit -

this is except on appeal:

advance an argument or adduce further evidence directed to showing that the issue was wrongly determined.

Now, that, in our respectful submission, means that one is protected by law and one can act on it.

CALLINAN J: Was any application made after Justice Hulme made his ruling by either party with respect to reopening or calling evidence?

MR RAYMENT: The case in-chief had not closed.

CALLINAN J: No.

MR RAYMENT: It closed after his Honour's ruling, in the light of his ruling. The case for the defendant had not opened.

CALLINAN J: And everybody knew that there could be an appeal on this point after the conclusion of the case, that it could end up going the other way, in other words.

MR RAYMENT: Yes, but each party knew that he had the protection of the ruling as well, consistently with Fidelitas Shipping.

CALLINAN J: You would have to be an optimist, having won on the point, to think that would necessarily be the end of it and that it would not go on appeal.

MR RAYMENT: Can I then show your Honours what happened in the Court of Appeal, they having reversed the onus. The trial judge at pages 27 through to 30 made findings in the application book, but according to a number of the witnesses, Mr Saffron was a moral risk. On 27 he said that about Mr Gilet who was the relevant underwriter. Over the page he said Mrs McDowell, an expert, gave evidence that he was a "moral" risk. Owen, on the same page, said that he was a "moral risk". Graves said that it relevant to disclose his ownership of a building. Enshaw, himself, the plaintiff's expert, said, "a number of underwriters would not have" written Saffron.

Then, Mr Hoffman, at the top of page 29, the other expert of the plaintiff, agreed that "most underwriters would refuse to" write if Mr Saffron owned the building.

GAUDRON J: You were not insuring interests of Mr Saffron.

MR RAYMENT: No.

GAUDRON J: No.

MR RAYMENT: No, but these witnesses were giving evidence based upon the facts of this case, that is, that here was proposed insurance in a building owned by Saffron, and at 29 he says just above the reference 21(1)(a).

GAUDRON J: This was a public risk policy, not a fire policy, was it not?

MR RAYMENT: Yes, your Honour.

GAUDRON J: Yes.

MR RAYMENT: At about line 35 his Honour concludes that in fact the ownership of Saffron was relevant to the determination of whether to write the risk or not. In the Court of Appeal, then, their Honours overturned those findings and at page 188, paragraph 55 concludes that the expert broker engaged by the insured:

Mr Aghion would have known that Mr Saffron's association with the building was a relevant matter for Commercial Union to take into account.

In paragraph 56 at the foot of the page they say they cannot be satisfied that:

had he known of Mr Saffron's involvement, he would have known that that matter was relevant to the acceptance of the risk.

Over on the following page, at the foot of the page, his Honour, speaking for the court says:

Accordingly, I do not think it proper to form the conclusion that Mr Aghion.....knew that to be a matter relevant to the risk.

Then, paragraph 59 is to the same effect. We would respectfully submit that what has happened here is that findings of fact one way by the trial judge on matters not affected by onus have in effect been, when the matter be revisited by the Court of Appeal following a change of the rules, overruled.

GAUDRON J: The trial judge decided it on one subsection and the Court of Appeal on another subsection, did it not?

MR RAYMENT: Yes.

GAUDRON J: The trial judge found it on the basis of CGU's knowledge.

MR RAYMENT: Of knowledge, yes.

GAUDRON J: So, it was not overturning factual findings, it was making different findings on the same evidence, was it not?

MR RAYMENT: It was overturning these findings that I have just referred your Honour to.

GAUDRON J: Which findings?

MR RAYMENT: The findings at 27 to 29 - - -

GAUDRON J: That was an accounting of the evidence.

MR RAYMENT: Yes, but there - - -

CALLINAN J: Is not that all dealt with at page 179 in the Court of Appeal, explained and rationalised?

MR RAYMENT: Whereabouts, your Honour?

CALLINAN J: Well, all of page 179, particularly the last sentence on the page.

MR RAYMENT: No, this deals with a survey, your Honour.

CALLINAN J: Yes, which includes the matter of "moral risk". If you look at line 17:

My conclusion that the survey was intended to cover all relevant aspects of the physical risk and of "moral risk" was supported by the evidence of Mr Gilet who said that he expected his surveyor to report on both physical risk and "moral risk".

MR RAYMENT: But the court did not find that there was a waiver of any disclosure of a moral risk from the fact that there was a survey.

CALLINAN J: What about at line 49:

As the insurance was not cancelled, Commercial Union is bound by whatever was disclosed by the survey report - - -

MR RAYMENT: But the survey report did not disclose Saffron's ownership, that is the difficulty.

CALLINAN J: But it was intended to deal with, and did deal with, moral risk of which Saffron's relationship and not ownership, I might say - of which Saffron's relationship was an element.

MR RAYMENT: Yes, but the surveyor was not there to excuse the insured from making disclosure. If the surveyor did not turn up the fact, as he did not, of Saffron's ownership, well, then, the survey would not supplant the obligation to make disclosure. We submit that the findings from 27 to 29 that the matter was relevant to Commercial Union - - -

GAUDRON J: But what I was putting to you, Mr Rayment, is that that simply recounts the evidence. They are not findings, and ultimately, the question was whether the backpacker company - I think it is a company - and its broker knew or ought to have known that Mr Saffron's beneficial ownership of shares in the company which owned the real estate was a relevant or material matter.

MR RAYMENT: Yes, your Honour.

GAUDRON J: That is a different question from the evidence that is being recounted at page 27, is it not?

MR RAYMENT: What appears at page 29 between lines 35 and 45 is the finding. What appears from pages 27 to 29 are the reasons for it and at - - -

GAUDRON J: Yes, and the finding was that it was a matter relevant to CGU.

MR RAYMENT: Yes, that the - - -

GAUDRON J: The Full Court's finding was so be it, but did the backpacker company and/or Mr Aghion know. or ought they reasonably to have known. that it was relevant?

MR RAYMENT: But your Honour would see that the reasons from 27 to 30 are not matters for the most part relevant to Commercial Union at all, they are relevant to any insurer in the market place, and Mr Aghion is a broker with experience in hard to place risks. He must have known what - matters of notoriety that are the subject of the reasons at pages 27, 28 and 29. Mr Graves was from another insurer. He spoke about his position. Mr Owen from another insurer, again, spoke about his company's position. Mrs McDowell was an expert like Aghion and she spoke about the general position. All of them said that it would be relevant to an insurer, generally, to know these matters.

If your Honours compare that with then what the Court of Appeal had done with these matters, we submit there is a tension. His Honour's conclusion about knowledge of course is at page 30 on the basis of the matters that he had there referred to, inter alia, and his view about onus.

May it please your Honours, we would respectfully submit that for those reasons the application should be allowed.

GAUDRON J: Thank you, Mr Rayment. We need not trouble you, Mr Gee.

The Court is of the view that the proposed appeal does not enjoy sufficient prospects of success to justify the grant of special leave. Costs having been the subject of written submissions, special leave will be refused with costs.

Call the next application.

AT 11.42 AM THE MATTER WAS CONCLUDED