Ronald Steele t/as Dragon Scaffolding v Insurance Australia Limited & Anor [2008] HCATrans 210 (23 May 2008)

Last Updated: 29 May 2008

[2008] HCATrans 210

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M131 of 2007

B e t w e e n -

RONALD STEELE T/AS DRAGON SCAFFOLDING

Applicant

and

INSURANCE AUSTRALIA LIMITED

First Respondent

HIH CASUALTY & GENERAL INSURANCE LIMITED

Second Respondent

Application for special leave to appeal

GLEESON CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 23 MAY 2008, AT 11.26 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC: If it please the Court, I appear with my learned friend, MR J.R. DIXON, SC, for the applicant. (instructed by TressCox)

MR P.B. MURDOCH, QC: May it please the Court, I appear with MR M.W. THOMPSON, SC, for the first respondent. (instructed by Norris Coates)

GLEESON CJ: Yes, Mr Walker.

MR WALKER: Your Honours, in this case it had been held to have been coordinate, within the meaning of the established principles, for an insurance policy which was alleged, eventually successfully, to answer to the circumstances of an accident involved in some construction work that your Honours have seen described in paragraph 5 of our written outline. Coordinate with that policy was held to be a payment made by arrangements long postdating the making of that policy by reason of the failure of a second insurer altogether, a second insurer who had issued a policy which itself, by our continued concession, was plainly coordinate with the first of the policies.

However, the payment was made, notoriously, pursuant to an arrangement funded ultimately by the Commonwealth Government in order to make good the social catastrophe reflecting in the financial disaster for various disappointed insureds as a result of HIH’s collapse. It was not in terms – that is as to legal origin or in fact - the same as the HIH insurance policy. It was reflective, though, in this case only as to 90 per cent of quantum.

It was a reflex which, in our submission, showed convincingly that it was secondary in the sense conveyed by that epithet in the pair “primary/secondary” used by the House of Lords in the Caledonia North Sea authority which, in our submission, renders this an issue ripe for this Court to consider.

GLEESON CJ: Mr Walker, I would like to understand a little better than I do at the moment the basis of the payment by what I will call the Commonwealth authority - - -

MR WALKER: The Scheme, yes, your Honour.

GLEESON CJ: Yes. Was it a payment of indemnity in consideration for an assignment of rights?

MR WALKER: No. Your Honour, whether it was of indemnity in the same sense as SGIC’s obligation was an indemnity, is to be doubted. We submit it is not. It was a payment to reflect the indemnity enjoyed in law but denied by bankruptcy in fact which had been promised by HIH.

GLEESON CJ: Was there a contract between the payer and the payee?

MR WALKER: Eventually there was because there was an assignment which was expressed to be in consideration for receipt of the payment under the scheme, but at the point where the question of any payment at all arose, there was no contractual compulsion requiring the Scheme to make it. In that sense, there was not a contract at the relevant point, that is the point at which the payee could call for payment. He never had the right to call for payment until the binding arrangement, which depended for its inception upon the Scheme’s discretion, was entered into by which the Scheme obtained his assignment of rights in return for the 90 per cent payment, so that there is a contract resulting in the assignment but there is not a contract compelling the indemnity absent that assignment.

That is another foundation upon which we would seek to persuade the Court, were special leave granted, that this is plainly so different in kind as to fall necessarily to be characterised as secondary compared with the primary liability of SGIC as the remaining solvent insurer with respect to the accident itself or the liability arising from the accident itself.

Your Honours, the decision of the Court of Appeal in this case sits most awkwardly, in particular, with the decision of the Full Court of the Supreme Court of Western Australia in Speno Rail v Hamersley Iron [2000] WASCA 408; 23 WAR 291, to which reference is made in paragraph 25 of our written submissions, application book 93.

It is of significance – I regret it is not pointed out in that paragraph – to note that the reasons of the court, particularly those of Justice Wheeler, in relation to the detection of coordinate or not in relation to the liabilities concerning which discharge or contribution was in question, was made by reference to the authority of the Court of Sessions, that is before the matter went to the House of Lords in Caledonia North Sea.

The appeal was dismissed in the House of Lords. The principles are, with respect, pronounced in the same fashion but, in our submission, it is ripe for this Court to consider whether the approach taken in particular in the speech of Lord Hoffmann, to which attention has been drawn, whether that is an approach which applies in this country as well.

Your Honours will appreciate that a number of formulations have been attempted, both in this Court and elsewhere, of how to detect whether liabilities are coordinate for the purposes of a number of the related doctrines, relevantly for contribution and/or the question of discharge by payment.

In our submission, the adoption of the analysis which can be seen to reflect an approach taken in America, by reference to the House of Lords’ approach of identifying as between two putatively coordinate liabilities whether in truth one is primary and the other is secondary is a useful and practical and commercially sound way to proceed in areas which are dominated by insurance disputes but are by no means limited to insurance disputes.

The approach, as your Honours have seen, also involves the key question asked in terms of what I will call legal sequence, who is first liable, thus, for example, somebody with a contractual obligation to make good damage is first liable compared, for example, with an insurer of the person whose property has been damaged. In this case we concede the all important coordinate liability of the two insurance policies which relevantly, though issued in different circumstances shown by the facts, covered the same person for precisely the same risk.

One of those policies failed financially. As it happens, the litigation proceeded as it did because the other policy is the subject of a dispute as to liability. That has now been resolved leaving the case a clean vehicle to determine the question whether the Court of Appeal has decided this case in a way which in principle departs in a most serious way from the approach that a court of coordinate authority in Western Australia has already applied in this country.

That, in our submission, presents in the most important commercial area a matter where this Court’s intervention is called for. It is an extra and important element that this Court would then be called upon to examine for itself whether the approach which the House of Lords saw as being consistent with this Court’s approach in Albion of investigating a sequencing of liabilities in primary and secondary terms is one which will assist in the adjudication of disputes of the kind that are raised in this case.

It is for those reasons, in our submission, that this is a case ripe for special leave. Your Honours have seen that there are some more special aspects peculiar to my client’s position why we seek special leave, namely, that as the nature of my client shows – that is my client, the Scheme, shows, there is the real possibility of the result in this case affecting other matters. In our submission, however, the general public importance is raised by the importance of the doctrinal approach to ascertaining when liabilities are coordinate for the quite critical and radically decisive questions of contribution, discharge and subrogation. May it please the Court.

GLEESON CJ: Thank you, Mr Walker. Yes, Mr Murdoch.

MR MURDOCH: If the Court pleases. The answer to the question that the Chief Justice posed to Mr Walker and which, with respect, Mr Walker did not answer, that question being was it a payment of indemnity in consideration of the assignment of rights ought to be answered, indubitably, yes, as was the question, was there a contract?

In our submission, for reasons that we have outlined in the application book, the application for special leave ought to be refused for at least two reasons: first, because the judgment of the Court of Appeal, in our submission, was plainly correct or at least not attended with any sufficient doubt and, secondly, because, in our submission, the matter does not give rise to any question of law of sufficient public importance. Thirdly, perhaps for a reason identified by Justice Ashley in paragraph 62 of his reasons in the Full Court identified at page 43 of the Court book where his Honour had remarked:

Before embarking on that task, I should mention that the learned judge seems not to have been provided with all the documents which were apt to disclose the setup and operation of the Scheme, and the interrelationship of the parties to it. See Balangarri Aboriginal Corp (in liq) v Cleanthous and anor. If I am correct in what I have just said, then a proceeding with potentially broader ramifications was determined at first instance, and will be determined by this Court, on an incomplete and possibly misleading factual basis.

Regarding the second question of whether the matter gives rises to a question of sufficient public importance, we say that it does not because firstly the result largely turns on the construction of a private document, its meaning and effect, that is, the agreement between Steele and the Scheme, and secondly, because in our submission the issue that the applicant seeks to agitate is highly unlikely to arise again.

It should be noted that the HIH Scheme is unique. It was devised by the Federal Government to overcome a problem that arose in connection with the collapse of the HIH Insurance companies. That Scheme has now almost run its course and there must be few, if any, former HIH insured remaining to be indemnified in connection with contracts of insurance that were underwritten before HIH’s liquidation in March 2001.

Primarily, however, it is our submission that the Court of Appeal was correct in concluding that Steele had no right to be further indemnified because he was suffering no relevant loss. His liabilities - - -

HEYDON J: Can I just interrupt you at that point? As you say, the effect of the Court of Appeal’s reasoning is that Steele – just leaving aside the 90 per cent versus 100 per cent issue – could not recover any more because he had been indemnified.

MR MURDOCH: Yes.

HEYDON J: Therefore, does it not follow that the assignment which the Commonwealth entity took from him of his rights meant that the Commonwealth entity could not sue on that assignment because it could not be in a better position than the assignor?

MR MURDOCH: That was our proposition.

HEYDON J: Why would the Commonwealth entity go through this empty procedure of erecting an assignment that is simply nugatory?

MR MURDOCH: One does not know. There is no adequate explanation but what one does have are the documents between the parties that clearly do, as the Court of Appeal and in particular his Honour Justice Ashley found, establish clearly the existence of a contract between the parties and a contract which, in our respectful submission, he properly categorised as a contract of indemnity.

HEYDON J: But the consequence of making it a contract of indemnity is to make the whole assignment machinery pointless. One assumes that the Commonwealth entity meant it to have a point and how you characterise the subvention that the Commonwealth entity made to victims of the HIH collapse must depend, at least to some extent, on the attitude of the Commonwealth entity.

MR MURDOCH: But the reason an assignment was taken, if your Honour pleases, was not just for the purposes of establishing a right to take proceedings against a third party like SGIC, it was also taken for the purposes of being able to assert Mr Steele’s rights in the winding-up of the HIH companies in circumstances where the HIH companies had already afforded him cover and indemnity under the policy.

HEYDON J: That is the first limb of the assignment, but it does not explain the second limb.

MR MURDOCH: It might not explain the second, but it does explain the first.

GLEESON CJ: Is it possible that Mr Steele would have had rights in addition to his rights against SGIC? I do not know what caused the screen to collapse but I am wondering how much we know about the circumstances in which Mr Steele found himself before he entered into this contract with the authority, with the Scheme?

MR MURDOCH: Those issues, I think, your Honour, had been agitated in the Supreme Court in New South Wales. Mr Steele had been the subject of proceeding by the company that owned the screen and in turn Mr Steele had sought to be indemnified by the person who had supplied the scaffolding to him but he failed in those proceedings. I am not able to identify, as I stand here, what other rights Mr Steele might have wished to agitate against others but the Court does not know, in part, for the reasons explained by Justice Ashley.

GLEESON CJ: But at least we know that at some stage he was asserting some right against some third party.

MR MURDOCH: Yes, and those proceedings were not concluded until after the Scheme had agreed to indemnify Mr Steele. In our submission, the reasons why the payments were made on Mr Steele’s behalf by the Scheme were properly characterised by the Court of Appeal as having been made pursuant to a contract of indemnity rather than as a merciful benefit or subvention of the Commonwealth or of something resembling social security payments, bushfire relief and the like. Those arguments were compellingly developed by Justice Ashley.

The applicant for leave had pleaded that the agreement between Steele and the Scheme was a contract of indemnity and his Honour Justice Redlich rejected Steele’s argument, if such an argument had been put, that there was no contract between Steele and the Scheme and the burden of material according - - -

HEYDON J: It is a peculiar type of contract, though, is it not? It is sort of, “I will pay you £100 if you walk to York”. It is unilateral.

MR MURDOCH: It is unusual, but it nevertheless was a contract and good consideration was given for it in the assignment by Mr Steele of such rights as he had.

HEYDON J: The benefit of indemnity arises, as it were, eo instanti with payment. There is no promise to indemnify.

MR MURDOCH: It did, although in this case the first payment that was made was a payment by the Scheme in respect of costs that were being incurred by Mr Steele’s solicitors and that payment which enlivened the contract between the parties took place well before the New South Wales proceedings were determined and before liability was found against Mr Steele.

GLEESON CJ: But does that mean that at the time the contract of which we are speaking was entered into there were questions concerning the amount of Mr Steele’s ultimate loss?

MR MURDOCH: Yes.

GLEESON CJ: Unresolved questions?

MR MURDOCH: Yes. So, as the court had found, any element of uncertainty that had been caused by the discretionary elements of the Scheme that existed at that time were then dispelled between Steele and the Scheme and was concluded by the making of that first payment of indemnity. The court also found that the mere fact that the Scheme was found by the trial judge not to be an insurer could not by itself have the consequence that the payments made by it could then properly be characterised as a merciful benefit or a subvention of the Commonwealth Government. So the Court of Appeal was clearly correct, in our submission, to accept and apply the statement of Lord Hoffmann in the Caledonia North Sea Case that Mr Walker referred to recorded at paragraph 154 of his Honour’s judgment.

The Court of Appeal determined, in essence, that the contract between the Scheme and Steele, whereby Steele was indemnified, when considered in the light of Lord Hoffmann’s reasons meant that from the Scheme’s perspective they were in no better position than having a liability that was coordinate with the SGIC policy, that because, in effect, the Scheme was standing in the shoes of HIH.

What was important in the resolution of this proceeding was that any liability looked at in that light on the part of HCSL was found to be, from their perspective, no better than coordinate. The importance of that was that because HCSL had not been a party to this proceeding and had not sought to be indemnified by way of contribution then the issue of contribution simply did not arise in the proceeding before this Court and the finding by the court that their position was no better than coordinate meant that the proceeding must fail because there were no rights either under the assignment or by virtue of subrogation that could be pursued in the name of Mr Steele.

HEYDON J: In that last submission I think you said that the Commonwealth entity did not seek to become a party to the proceeding? Is your understanding that Mr Steele is suing in his own right or has he lent his name for use by the Commonwealth entity pursuant to the assignment or what is the position?

MR MURDOCH: My understanding is that what Mr Steele did was to assign his rights and that the proceeding that was being brought was being brought by HCL using Mr Steele’s name pursuant to the provisions of the assignment that he had granted.

HEYDON J: So HCL was in effect a party to the proceedings?

MR MURDOCH: Mr Steele was but there was no – the Scheme or HCSL was not a party to the proceeding and in those circumstances there was nobody making claim for contribution and the finding that the liabilities of the Scheme and SGIC were, at best, from the Scheme’s perspective coordinate meant that such rights as may have existed were rights of contribution not rights to be pursued by way of subrogation or under the assignment.

GLEESON CJ: What has happened to those rights of contribution?

MR MURDOCH: If there are rights of contribution then they were not determined by this proceeding.

GLEESON CJ: Could they be determined at some future time?

MR MURDOCH: A claim might indeed be made in that regard.

HEYDON J: Yes, but could they be made without objection by you?

MR MURDOCH: There are grounds upon which objection could be made by my client.

GLEESON CJ: What do you have in mind, Anshun estoppel, or something like that? What other grounds?

MR MURDOCH: The grounds of a finding by the Court of Appeal that properly construed the situation here revealed that the primary liability was the liability of the Scheme and the secondary liability was the liability of the insurer.

GLEESON CJ: But the Court of Appeal, for that matter, Justice Bongiorno, did not purport to adjudicate upon a claim for contribution, did they?

MR MURDOCH: No.

HEYDON J: Mr Walker’s claim for special leave will be much weaker if you accept that his – I withdraw that – that the Commonwealth entity has a right of contribution and his claim will be much stronger if you maintain that it no longer has any right of contribution.

MR MURDOCH: We do not maintain that it no longer has a right of contribution, rather, what we maintain is whether it does or does not have a right of contribution is still an arguable issue.

HEYDON J: You will not take any objection to that being argued in properly constituted proceedings? In those proceedings you will concentrate on the substantive merits rather than the events of these proceedings?

MR MURDOCH: Yes. In our submission it is quite unhelpful, as the applicant for leave does, to focus on the socioeconomic circumstances or the political motivations that might have inspired the Federal Government to fund the Scheme or to speculate on what the Government considered would be fair and appropriate outcomes. In our respectful submission, those considerations should not inform the Court’s task in deciding whether the liability of the Scheme should be considered to be secondary to or coordinate with any obligation owed by SGIC.

What is important, in our submission, are the intention and effect of the contract between the Scheme and Mr Steele and the indemnity that was provided under it. Mr Steele had no relationship – legal relationship – with the Federal Government. His relationship was with HCSL and it was that legal relationship and that indemnity given pursuant, that in our submission properly informed the Court of Appeal’s characterisation of HCL’s position as being no better than coordinate.

So our submission is there is quite simply no existing controversy, either at appellate or any other level warranting special leave of appeal, there is no point of general application, and in these sorts of cases one is, as always, driven to consider the particular terms of the contracts or agreements providing indemnity in order to ascertain their particular status. If the Court pleases.

GLEESON CJ: Thank you, Mr Murdoch. Yes, Mr Walker.

MR WALKER: Your Honours, one thing is clear, whether the word “indemnity” can be usefully or accurately applied to what HCSL paid. It is not indemnity in the same sense as what was claimed from SGIC. The difference of 100 per cent and 90 per cent is enough to indicate that. It is also important that, as we note in paragraph 18 and elsewhere in our written submissions, this is not a payment which is available simply because a policy of insurance issued by a now bankrupt insurer applied. There were superadded references to matters of hardship.

It is not irrelevant to understand that that had its source in the merciful subvention by Government decision in relation to what was, like it or not, a social phenomenon. Those are matters which are fundamental to an appreciation in law of what is and is not a set of coordinate liabilities and that startling difference in provenance separated not only in legal form but also by time and the intervening event of HIH’s collapse all strongly indicated that the only matter which truly produces a view of coordinate liability is what might be called the economic equivalence approach. If Mr Steele is looked after by the Scheme that is economically equivalent, give or take the 10 per cent my friends would ignore for the purpose of their argument, to being looked after by SGIC.

But that economic equivalence has never sufficed - at least until the decision of the Court of Appeal in this case - to demonstrate coordinate liability. Indeed, something in the nature of economic equivalence is normally the premise of an argument that there is not coordinate liability, for example, producing a right to contribution or producing discharge upon payment by one.

In our submission, the authority in New South Wales that we note in paragraph 26, Zurich v CSR Case, is but one of a number of cases which stands four square against the notion that underlies the way in which my friends put this argument, namely, that economic equivalence will produce a finding of coordinate liability for the important purpose of the relevant doctrines.

Another way of addressing the question of whether it be an indemnity or not, and indeed underlying, perhaps, the inutility of proceeding by labelling it an indemnity or not is to note that there was no cover of risk of an accident provided by the Scheme. There was no risk of the accident by the time the Scheme came into existence. It had occurred. The only thing in the nature of a risk was not truly a risk in any insurance sense, but simply the working out with the resultant uncertainty until adjudication of the amounts that would be payable by one party or another as a result of an accident and a contractual indemnity in the nature of insurance having fallen in.

GLEESON CJ: To participate in the Scheme did you have to satisfy somebody that you were a small business person?

MR WALKER: Yes. There is a superadded requirement. It was not enough simply to say, “I had a policy with HIH”. Paragraph 62 is referred to as if to say this case will go up in some crippled form in relation to facts.
Of course the Scheme was not proved in all details but neither need it be on no view – on no possible view, given the date of the accident, the policies that preceded the accident, HIH’s collapse and the inception of the Scheme, on no view could there be the common kind of burden which produces coordinate liability.

Finally, in relation to the issue newly revealed of whether my client has recourse by way of the contribution proceedings suggested by the Court of Appeal as the proper course to have followed, it is now revealed that the at best coordinate finding in the Court of Appeal is plainly to be relied upon against us in any contribution proceedings in a fashion which proves, ironically, to support our application for special leave because it is said that in any such proceedings it will be proposed that the Scheme’s payment answers the description of “primary” compared to SGICs liability answering the description of “secondary”.

That, in our submission, is, we remark in passing, a startling way to apply the “primary/secondary” classification the House of Lords found useful and the Western Australian Supreme Court Full Court found useful, but it certainly shows that that is an issue of doctrine and a matter of judicial method which will be important however the financial disputes between these parties were to fall out and thus right now to be determined by this Court. May it please the Court.

GLEESON CJ: The proceedings that were the subject of the decision by the Court of Appeal in this case arose out of the very particular circumstances of a scheme set up following the collapse of an insurance company. We think the case does not raise an issue of general principle suitable to a grant of special leave to appeal. We are not persuaded that the interests of justice require such a grant. The application is dismissed with costs.

MR WALKER: May it please the Court.

GLEESON CJ: We will adjourn for a short time to reconstitute.

AT 12.03 PM THE MATTER WAS CONCLUDED