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High Court of Australia Transcripts |
Last Updated: 16 October 2009
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Perth No P33 of 2009
B e t w e e n -
ZURICH AUSTRALIAN INSURANCE LTD
Appellant
and
METALS & MINERALS INSURANCE PTE LTD
First Respondent
SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD
Second Respondent
HAMERSLEY IRON PTY LTD
Third Respondent
Office of the Registry
Perth No P29 of 2009
B e t w e e n -
HAMERSLEY IRON PTY LTD
Appellant
and
SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD
First Respondent
ZURICH AUSTRALIAN INSURANCE LTD
Second Respondent
METALS & MINERALS INSURANCE PTE LTD
Third Respondent
Office of the Registry
Perth No P30 of 2009
B e t w e e n -
METALS & MINERALS INSURANCE PTE LTD
Appellant
and
SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD
First Respondent
ZURICH AUSTRALIAN INSURANCE LTD
Second Respondent
HAMERSLEY IRON PTY LTD
Third Respondent
FRENCH CJ
GUMMOW J
HAYNE J
HEYDON
J
CRENNAN J
TRANSCRIPT OF PROCEEDINGS
AT PERTH ON TUESDAY, 13 OCTOBER 2009, AT 10.27 AM
Copyright in the High Court of Australia
__________________
MR J.E. MACONACHIE, QC: I appear with MR H.M. O’SULLIVAN and MR J.S. EMMETT for the appellant in the first matter and respondents in the second matter. (instructed by SRB Legal)
MR B.W. WALKER, QC: May it please the Court, I appear with my learned friend, MS C.A. ELPHICK, for Metals & Minerals Insurance Pty Ltd and Hamersley Iron Pty Ltd, respectively appellant in P30 and P29, and the first and third respondents in P33. (instructed by DLA Phillips Fox)
MR E.M. CORBOY, SC: May it please, your Honours, with my learned friend, MR S.F. POPPERWELL, I appear for Speno Rail Maintenance Australia Pty Ltd. It is the second respondent in P33, and the first respondent in P29 and P30. (instructed by Pynt & Partners)
FRENCH CJ: Yes, Mr Maconachie.
MR MACONACHIE: Your Honours, the Court sent a letter yesterday asking that the parties pay attention to the whole of the Act, and in particular, sections 48, 56 and 76. We have produced a short written document which addresses what we perceive to be the Court’s concern with respect to the way in which those three sections in particular interact with section 45, and we perceive that your Honours each have a copy of that document.
FRENCH CJ: Yes, thank you, Mr Maconachie.
MR MACONACHIE: Very well. Your Honours, the short point which is at the heart of the appeal P33 can be expressed thus. It is a question of statutory construction, to be answered by the application of well-established rules or principles to determine whether section 45(1) of the Insurance Contracts Act permits intra-clause severance at all, or alternatively intra-clause severance for this particular contractual provision. Can I start, your Honours, by taking you to the appellant’s written submissions, and without reading them in their entirety, take your Honours to some of the material and give you references to the appeal books and the like, which we hope might be of assistance.
First, in paragraph 2 of the appellant’s statement of issues, there is a reference to the construction of a particular clause, that clause being found in volume 2 at page 359 of the appeal book. It is there set out, your Honours. We would merely want to emphasise the following words for the purpose of the submissions that we make. Firstly, the word “customary”:
Underwriters acknowledge that it is customary for the Insured to effect, or for other parties . . . to effect, on behalf of the Insured, insurance coverage specific to a particular project, agreement or risk.
In the next paragraph, what might be called the operative paragraph perhaps, we emphasise the word “such” in the first line, and the words “such other Insurance” in the third and fourth lines, and in the course of these submissions, I will attempt to demonstrate why those words have some importance.
GUMMOW J: The opening sentence on page 359, the acknowledgment of what is customary – is that not reflected, if that is the word, in section 48 of the Act?
MR MACONACHIE: In section 48, your Honour?
GUMMOW J: Yes.
MR MACONACHIE: We would submit not, your Honour. I do not immediately see the point that your Honour makes.
GUMMOW J: There is a privity problem underlying all this, is there not?
MR MACONACHIE: Yes, there is. There is a privity consideration that underlies it all, but not so, we would think, as to deny the first and second propositions for which we contend. If the section is read as we say it should be read so that if there is a contract which contains another insurance clause of whatever type, that provision clause is void and one does not look any further than that.
GUMMOW J: Section 45 does not talk about parties.
MR MACONACHIE: No, it does not.
GUMMOW J: May that not be significant, given the presence of section 48?
MR MACONACHIE: We submit not, because the purpose to which Parliament directed its attention was the eradication of this kind of clause because of its capacity to interfere with, to interrupt the right of the insured, or someone who has the benefit of the insurance from obtaining access to insurance funds at a time, almost always, when the party entitled to the benefit of the insurance is in desperate need of funds. One of the purposes, we say, of section 45 is to make it plain that insurers cannot stand back and say “Him, not me”. They must abide by the promise that they made and fight out between themselves at a later point in time, as provided by section 76, the contribution proceedings.
CRENNAN J: But section 48 gives some support, does it not, to your desire to read widely in section 45 the words “has entered into some other contract of insurance” with the emphasis on “entered into”?
MR MACONACHIE: It does, but our principal position is that one concentrates on the words “the provision is void” and whether, for the purposes of this case, with this particular contractual framework, the contract was entered into by the insured. That the person who seeks the benefit of it was not a party, we say, is neither here nor there. It is the provision which is void and if it is found in an insurance policy then it is struck down. One does not immediately go to questions of severance and the like. The policy of the Parliament plainly expressed, we say, as Judge Robin, QC - who incidentally was the unsuccessful junior in Deaves’ Case - that is how he saw it and that is how Justice Johnson construed it. It is a construction that is plainly open. It is one that promotes the policy; that is plain. Any other construction, the one contended for by Chief Justice Martin and the one contended for, if that is the right word, by Justice Beech, derogate from that purpose or policy and accordingly, we say, conventionally and in obedience to section 15AA, that construction that promotes rather than derogates from the plain words and the plain purpose of the section is to be preferred.
GUMMOW J: Is there some common basis for arguing these sections between the parties?
MR MACONACHIE: I do not follow, your Honour.
GUMMOW J: Is there some common assumption as to the construction of these sections? Maybe I am wrong.
FRENCH CJ: If the double insurance provision had been separated out into two covenants - - -
MR MACONACHIE: Yes.
FRENCH CJ: One covenant dealing with a case in which the insurance is undertaken by one party naming the other party, who is not thereby a party to the insurance, that 45(1) would not apply to that second class of covenant.
MR MACONACHIE: We accept that it may not apply, but that is not a question that arises having regard to the facts of this case. It is for another day.
FRENCH CJ: You just say the whole provision defaults.
MR MACONACHIE: Yes, and it might be a more difficult argument to say if there are two clauses then one survives and one does not, but we say that is for another day. We note in paragraph 4(iii) of our written submission that there is that wider construction, but we say we do not need to go there in terms of this case, but we bring it to the Court’s attention because it is plainly enough this Court’s obligation to look more broadly perhaps than just the particular form of this provision.
FRENCH CJ: The Court of Appeal said at page 450 - or Justice Beech at paragraph 111:
When the underlying insurance clause is severed in the way set out above, the result of its operation in the events that have happened is, the parties all accepted, that there was no double insurance.
Is that a correct statement?
MR MACONACHIE: In the context of this case, but there is but one and singular covenant in this case - - -
FRENCH CJ: I understand the point you are making, yes.
MR MACONACHIE: So that the approach that we took was to say it is not an argument that we have to grapple with in this case. It is a case in which there is one clause which provides for one single covenant, and we will explain hopefully, if we have not already done so, why – and therefore that more difficult question of construction just does not arise in this case.
GUMMOW J: What I was putting to you, Mr Maconachie, is you do not need to get to severance because when you read 48 with 45, it hits both. But anyway, I will not say any more.
MR MACONACHIE: Your Honour, if I understand you correctly, it may be that in the discharge of its obligations, its functions, this Court might want to look at the broader construction and if that be so, then we would be happy to deal with it in any event.
GUMMOW J: It just seems remarkable to have a case that has gone on as this case has for some years, and counsel at no stage seems to have directed the courts in Western Australia to the ordinary idea that you might want to read the whole of Division 2 of Part V of the Act before you settle down to construe one particular section of it, that is all.
MR MACONACHIE: If your Honour pleases. We attempted to do that
in the written submission that was delivered this morning. Can I take
your Honours
to paragraph 6 of the written submission? There is a
reference there to the Hamersley-Speno contract. Can I give you a reference
for
that. It is at volume 2, pages 255 and following, with the relevant
clause, clause 38(b), being found in the top right-hand
corner of
page 278. That which follows, your Honour, I will not read, but at
page 3 of the written submission there is a footnoted
reference at
footnote 10 to page 359 of the appeal book, and it is at 359 that
your Honours will find the underlying insurance clause.
I have already
given you the reference to that.
At paragraph 11 of the written
submission, your Honour, we make the point, perhaps already addressed, that
section 45(1) may not,
according to its terms, apply to the situation where
an insured has the benefit of a contract of insurance even though the insured
is
not a party to the contract. Whether or not it does so is a situation
irrelevant presently, having regard to the terms of the
underlying clause which
we say, as I mentioned a few minutes ago, is a single clause providing a single
covenant, a single remedy
and, accordingly, we say, on the particular form of
this contract is irrelevant.
Then there follows in paragraphs 13 to 15 a short analysis of Justice Johnson’s approach to the problem, one for which we contend, and also that of Judge Robin in Austress, which you will find in the supplementary materials behind tab 1, albeit that the index suggests that it is at tab 2.
GUMMOW J: Was this case really heard in 2003 and judgment delivered in 2007?
MR MACONACHIE: That is so, but, your Honour, not that I am personally aware of it, Justice Johnson suffered a significant, and as I understand it, serious illness which, at least in part, explains why it was that the delivery of judgment was so long after the argument before her Honour. Mr Corboy may be able to help you more with that, but that is as I understand it. Can I take you to paragraph 18, your Honour, where the analysis that Justice Beech brought to bear on the problem - - -
HAYNE J: Where are you, Mr Maconachie? What page?
MR MACONACHIE: I beg your Honour’s pardon. You will find that at page 446 of volume 2.
HAYNE J: Thank you.
MR MACONACHIE: In particular, as we note in the written submission, it is at 446 where it starts, your Honour, and 449 to 450 is where he comes to the relevant conclusion, and he determined that:
The test for severability is that severance of a contractual term that is void by reason of public policy or statute is permissible if the elimination of the invalid promises changes the extent only but not the kind of the contract -
But we say that the central question is whether section 45 admits of intra-clause severance at all. Our secondary, or fallback position, is that if it does, which we say it does not, singularity in the Attwood v Lamont sense makes it unavailable in any event. To paragraph 19, there is reference - - -
FRENCH CJ: He sets out the alternative approaches to construction at paragraph 97, I think, does he not?
MR MACONACHIE: Yes, I think that is right, your Honour. Yes, he does.
FRENCH CJ: And adopts the second.
MR MACONACHIE: And adopts the second. Chief Justice Martin took an effect approach. The approach taken by Justice Beech was to look at the clause and to read words into it to the extent that we say that derogates from the plain and obvious purpose. If there were to be any reading into the section it should be in section 45(2), which would promote the Parliament’s purpose. Could I then take you to page 6 of our written submissions and in particular paragraph 21 and we there set out the various matters which we say are of importance in determining the mischief to be addressed or the purpose which Parliament had in mind.
We make the point in paragraph 22 that the text of section 45(1) in the same form as enacted was first put forward by the ALRC. That is not to construe, of course, the ALRC document, but to call it in aid in demonstrating what was the purpose that Parliament was directed at. It is a form of words that was, at no point in the legislative process, the subject of any political give and take, as it were.
It reflects the concerns that were expressed by Justice Murphy in Deaves’ Case, which you will find behind guide card 4 in the supplementary material. I do not want to take your Honours to it, except perhaps to ask if you would be kind enough to look to page 78, the last page in guide card 4. In the compilation of the volumes, your Honour, at least in my volume, there was an error. Do your Honours have, at the back of guide card 4, a page 78.
FRENCH CJ: Sorry, what are you referring us to? What volume?
MR MACONACHIE: In the volume – appellant’s book of authorities and other materials, behind guide card 4 - - -
FRENCH CJ: That is Deaves, I think, is it not?
MR MACONACHIE: That is Deaves. In my volume, page 78 was not reproduced. It happens to be the page - - -
FRENCH CJ: I have a page 78.
MR MACONACHIE: Justice Hayne appears not to.
HAYNE J: I am specially favoured.
MR MACONACHIE: I will see that your Honour gets a copy of it. I do apologise for that.
HAYNE J: Thank you so much.
HEYDON J: But neither page 78 nor any other part of Justice Murphy’s judgment seems to deal with the section 45 problem, or am I wrong?
MR MACONACHIE: It does in this sense, we say, your Honour. Deaves was a case in which – and other insurance clause operated to the disadvantage of a person who had the benefit of the insurance, and what Justice Murphy had to say, starting at page 77 - - -
HEYDON J: The last four paragraphs of his judgment, which start at the bottom of page 77, comprise an attack upon the respondent insurer’s conduct and inferentially on many other insurers, but it does not seem to be targeted towards any clause of the type section 45 is directed to.
MR MACONACHIE: We perceive it to do so and so did the authors of the ALRC, who specifically referred to it in Chapter 11. We read it as a complaint that this kind of provision in a policy is one that works to the disadvantage of insureds, has little or no real benefit to insurers, and it is the kind of evil that should be eradicated from the law of insurers.
FRENCH CJ: How does that purpose answer the question whether section 45 applied to a provision of an insurance contract will always sweep away the whole provision regardless of the existence in it of elements that on your assumption would not otherwise be covered by section 45(1)?
MR MACONACHIE: May not otherwise be covered.
FRENCH CJ: Yes, I said on your assumption.
MR MACONACHIE: Yes.
FRENCH CJ: For the purpose of argument.
MR MACONACHIE: Your Honour, a short way of responding is to say that the intention of the Parliament was to make it plain that in whatever form such a clause might appear, it should be void, and you look at the provision not after events that occurred which might give rise to a claim, but you look at the provision, the clause, we say, because that is the primary meaning, not the effect, just the effect of the clause as Chief Justice Martin did and say that the provision is that part of the clause which offends and our written submissions and further propositions I want to put to you demonstrate that that must be wrong. As my learned junior, Mr Emmett put it, it is a “clause and effect” argument. It is the clause to which the - - -
FRENCH CJ: So-called potential effect, I think, in the judgment.
MR MACONACHIE: Yes, that is how it is being characterised, but the - - -
FRENCH CJ: That does not go to the point I just put to you, does it.
MR MACONACHIE: It does, we say, in this sense, that in the event that you identify a clause which has that potential, that clause, irrespective of the drafting technique that is employed, is said by the Parliament to be void. The scheme of sections 45, 48, 56 and 76 we have attempted to explain as we contend for in our supplementary written submission and that scheme can only really operate, we say, if section 45(1) was intended to have the effect that we say it has by reason of the form of it and the purpose behind it. The proposition you are putting to me, your Honour, assumes that common law rules or principles of severance are available. We say section 45(1) denies that that is so. It is a matter of statutory construction as was, in a different legislative context, decided by this Court in SST.
A further reason upon which we rely is to be found in paragraph 51 of our written submission. It is there to be read, your Honours. The rest of the extraneous material is dealt with in the further following paragraphs and then in paragraphs 30 to 38 we deal with what is essentially, we submit, uncontroversial material. Perhaps before I go there I should say that it is paragraphs 4 to 11 of our supplementary submissions this morning which extract the same purpose from sections 55, 48, 56 and 76.
Now, paragraphs 39 and following, your Honours, deal with what we identify as the four possible approaches to severance. We again make the point that what we are concerned with here is not severance in the sense of severing a clause from a contract but rather whether or not severance intra-clause is contemplated or permitted by section 45(1). Our preferred, and we say the correct approach, is at 41(i). The second approach, which we also rely on, but in the alternative, is at 41(ii). The third, (iii), deals with the approach taken by Justice Beech and the fourth, (iv), deals with the effect approach which found favour with Chief Justice Martin.
Can I take you then, your Honours, to paragraph 47 of the written submissions. The definition of “provision” in 48, we say, as a legal expression in the Oxford Dictionary is “Each of the clauses or divisions”. The Macquarie Dictionary makes the same point. The first and primary meaning of “provision” is “a clause in a legal instrument”. To adopt that approach, we submit, promotes the purpose of the legislation read as a whole and in the context of 48, 56 and 76 as explained in the written submission delivered this morning.
Can I take your Honours then to paragraph 52. Some criticism is made of our approach by our opponents on the basis that it is a try for form over substance, but we say that it is as plain as day that what Parliament was attempting to do was to identify a provision, a clause, which had the characteristics or criteria of other insurance and sought to deal with them by providing that the provision was void. Whilst, if there were two separate clauses, section 45(1) might only apply to one rather than the other, that does not arise in this case. What we say is that this is an area of discourse in which form is substance because it is the way in which the draftsman attempts to avoid the evil. That was the purpose of the section that is attacked.
In paragraph 53 we deal with implicit criticism by Justice Johnson that this would be “a very technical result”. In response to that we say that where a contract is in writing, the court is concerned to construe the words chosen by the parties, not to ask what the parties intended. The written words have a special legal significance. It should not be surprising that the drafting of a contract is important to how section 45 applies to that contract.
In paragraph 54 - could I put to your Honours a number of other textual indications that “provision” means clause. Apart from the dictionary meanings, we would pose this for your Honours’ consideration. It is to be found in part in paragraphs 12 to 14 of the supplementary submissions. Imagine a clause that said, “I deny liability in respect of any loss for which the insured has entered into some other contract of insurance”. That clause would be void. It would be very odd if section 45 permitted a person to deny liability in respect of other insurance that was entered into compulsorily. That is because a clause that excludes liability in respect of other compulsory insurance only is a very different kind of clause. If that be accepted then section 45 does not operate on the effect of a clause, it operates on the clause itself.
Sections 43 and 52, which your Honours will find behind guide card 10 in the additional material – it is probably easier to follow the section numbers rather than the page numbers - 43 and 52 draw a distinction between a provision and an effect of a provision – see section 43:
Where a provision included in a contract of insurance has the effect -
That provision is void. Section 52:
Where a provision of a contract of insurance –
I leave out the bracketed words –
purports to exclude, restrict or modify, or would, but for this subsection, have the effect of -
There is a clear distinction between the two concepts, we submit. In particular, with respect to section 52, we say this. It refers to two situations, that is a provision which purports to exclude and a provision that would have the effect of excluding. That clearly draws a distinction between the provision and the effect of the provision. The words in parenthesis in section 52 say that the provision includes:
a provision that is not set out in the contract but is incorporated in the contract by another provision of the contract –
They show that when the drafter used the word “provision” he or she was concerned with the drafting of the contract. “Provision” in that context must mean clause. If it meant “effect”, the words in parentheses we say would be otiose.
Sections 40 and 54, in contrast, operate by reference to the effect of a contract. They do so by referring not to a provision but to the contract’s effect. All of those are indicators, in our respectful submission, in support of the construction of 45 consistent with our preferred primary submission. I do not wish to read to your Honours any other parts of our preferred approach submission. Can I take your Honours to page 12, paragraph 58 of our written submission. Where a contractual clause is void because it is contrary to public policy, questions of severance often arise.
GUMMOW J: That is not this case, is it?
MR MACONACHIE: No, it is not.
GUMMOW J: We are construing the words “is void” in the section. That is what we are trying to do.
MR MACONACHIE: The purpose that Parliament had in mind was to deal with a manner or form of contracting which was seen to be not in the public interest and in that sense is a clause contrary to the policy that Parliament expressed, not only in section 45 but in a disparate number of ways in respect of a disparate number of other contractual principles and drafting techniques and the like. So there is, as it were, a public policy behind the idea that section 45 addresses.
Our second approach only arises, of course, if the primary submission we make does not find favour with the Court. But even if severance is available the question then becomes how do the rules or principles relating to severance apply having regard to the form and content of the clause which is to be found at 359. The approach, we say, is to sever the whole of the offending clause unless the clause contains in substance two separate covenants, only one of which is offensive to the relevant rule of public policy. At tab 2 in Attwood’s Case - - -
GUMMOW J: That is a covenant in a restraint of trade case, is it not?
MR MACONACHIE: I am sorry, your Honour.
GUMMOW J: Is Attwood v Lamont the case you are referring to?
MR MACONACHIE: It is a restraint of trade case, yes. It is an approach to severance that might be dictated, we say, by the words of the clause with which your Honour is concerned. At page 593 of Attwood’s Case, Lord Justice Younger, with whom Lord Justice Atkin – see page 580 – agreed, said this:
Now I agree with the Master of the Rolls –
Lord Sterndale –
that this was not a case in which upon any principle this severance was permissible. The learned judges of the Divisional Court, I think, took the view that such severance always was permissible when it could be effectively accomplished by the action of a blue pencil. I do not agree. The doctrine of severance has not, I think, gone further than to make it permissible in a case where the covenant is not really a single covenant but is in effect a combination of several distinct covenants. In that case and where the severance can be carried out without the addition or alteration of a word, it is permissible. But in that case only.
GUMMOW J: If you are going to refer to Attwood v Lamont one has to look at footnote (54) in SST Consulting, does on not?
MR MACONACHIE: Let me go to that, your Honour.
GUMMOW J: Paragraph 44 of the judgment, SST Consulting [2006] HCA 31; 225 CLR 516 at 530. What is being said there is that that was in a context where form was extremely important.
MR MACONACHIE: I am sorry. I did not hear that, your Honour. That was said in a context - - -
GUMMOW J: In a context in which matters of form were treated as important.
MR MACONACHIE: Yes.
GUMMOW J: That is not this case. We are construing a provision in a purposive statute.
MR MACONACHIE: Indeed, but it is - - -
GUMMOW J: We laboured to try and explain some of these distinctions in SST.
MR MACONACHIE: Indeed, your Honour. All of that, we say, favours our first approach, but the point that we wish to make here is that the idea of section 45 of the Insurance Contracts Act is that form is important. The very essence, we say, of section 45 is to look at a clause and if it contains in any way the criteria of that which is sought by Parliament to be avoided then the provision is struck down, severability is not available. In any event, even if it is but for the same reason, that is that form is important, form is substance in the context of these other insurance clauses, the Attwood v Lamont singularity principle denies the operation or the application of the “blue pencil” rule. Attwood v Lamont is then the subject of discussion or analysis in the written submission – I will not read it.
Can I take your Honours to paragraph 63 where we refer to SST. Your Honours will find it at tab 8 in the appellant’s book of authorities and, in particular - paragraph 48 it commences. In the last sentence of paragraph 63:
“References which postulate particular contractual intentions of the parties if the restraint of trade doctrine strikes at part of their contract are inapposite when construing s 4L . . . The severance it requires does not hinge upon any assumption about the intention of the parties, but turns upon the effect to be given to statutory purposes.”
That is why the first approach should be adopted. But if the Court holds, we say in paragraph 65, that the second approach is the one mandated by section 45, then the question arises whether the other insurance clause contains, in substance, two separate covenants.
That is a question of contractual construction. It should be answered in the negative. It is a single covenant. As drafted it gives a single ground. There are certain textual indications of singularity, we say, and they are these. The other insurance clause is a single clause. Secondly, the other insurance clause takes as its criterion of operation a single custom, being the custom of procuring other insurance for specific projects or risks. In that regard the reference to the two situations – insurance effected by the insured and insurance effected on behalf of the insured – does not reflect two situations that were intended to receive any sort of differential treatment. Rather the two situations represent the universe of relevant other insurance simply reflects an attempt to cover the field.
Thirdly, the single custom procuring other insurance for specific projects or risks is one that is described in an attempt to engage section 45(2). That attempt fails and nobody suggests otherwise. The attempt, however, indicates a consciousness on the part of the drafter that the other insurance clause would, or at least might, fall foul of section 45(1). That suggests that the drafter regarded it as a single provision that would be rendered void by 45(1) unless the protection of 45(2) was available.
Fourthly, twice in the second paragraph there is reference to “such” or “such other insurance”. That indicates that the clause is dealing with a single concept, being the other insurance situation as described in the first paragraph of the clause. The second reference is particularly telling, we submit. It defines the concept as underlying insurance. It is a single concept that covers all other insurance situations and is so intended to be.
Fifthly, the syntax is very tightly compacted in the second paragraph. It simply refers to insurance effected by or on behalf of the insured. It does not separate out the two situations syntactically such as by using two separate subparagraphs or even two separate grammatical clauses. We say that, as observed by the High Court in SST – accordingly, we say, your Honour, that those indicators favour the proposition that this contractual provision, this contractual clause, should be construed as a single covenant and the approach to severance favoured by Justice Beech is just not available.
The third approach that we have identified, the “sever as little as possible” approach, was that adopted by Justice Beech. This approach should not be accepted as the correct approach to 45(1). The principal reason that we advance is that to take that approach to severance addresses less of the mischief at which section 45(1) was directed; that is the approach that we submit in the supplementary document is plainly to be observed by reading section 45(1) informed by 48, 56 and 76. We observe in paragraph 71 that the SST Case dealt with severance of a clause, not severance intra-clausally. I do not want to go any further than our written submission goes in respect of that proposition, your Honours.
The fourth approach, the Chief Justice Martin approach, does not involve consideration of the words of the contract. It looks at effect rather than at the provision which gives rise to the effect. There is reference then – pardon me, I am being kept on a fairly tight reign here. Yes, I am reminded, your Honours, that I have spoken to the question of effect and the way it is wrong.
Could I take you to paragraph 83 of our submissions, your Honours. What is said there is an amplification of the third point we made, that is the
wider construction, and is put forward so that the problem for resolution is seen in that broader context. They are our submissions.
FRENCH CJ: Thank you, Mr Maconachie. Yes, Mr Walker.
MR WALKER: May it please your Honours. Your Honours, at the outset we need to confront what issues are raised against us. Both camps of respondents to the appeal in 33 have raised in their written submissions the course in the court below. Your Honours will recall that there had been argued at trial the proposition that an understanding of the special clause in question and a proper interpretation of the provisions of section 45 combined to produce the situation that Hamersley had entered into some other contract of insurance within the meaning of section 45.
That was argued at first instance. It was lost at first instance. It was not the subject of an appeal to the Court of Appeal. A concession by way of a premise for the argument in the Court of Appeal is recorded, as the written submissions note. It was not the subject of an application, therefore, for special leave to appeal, and references to what I say without any facetiousness, the helpful, as it were, postscript to the written submissions in-chief by the appellant were taken up in the written submissions for both camps of respondents by pointing out that forensic course.
GUMMOW J: Well, Mr Walker, we have to construe this Act - - -
MR WALKER: Your Honour anticipates my very next sentence, if I may.
GUMMOW J: Yes, and what you have hanging over you, as far as I am concerned, and Mr Maconachie has hanging over him, is a retraction of his grant of special leave because I would be asked to construe the Act on a basis that seemed to me to be unacceptable or at least requiring further consideration.
MR WALKER: Your Honour, we certainly say, as we have said in our written submissions, that it is not enough to look at section 45 in isolation. We wish to add in address more provisions than those we referred to in written submissions than indeed than those that were referred to in the Court of Appeal. But it is clear that an understanding of the notion or concept of privity, as it is or is not conveyed by the various terms used in the statute, certainly focuses attention on the forensic decision taken before the Court of Appeal below for the present appellant not to challenge the reading of the special clause and section 45.
GUMMOW J: What is the construction of section 45 which is the agreed construction?
MR WALKER: The agreed construction, as we understand the premise of the argument in the Court of Appeal, is that the words “entered into” in close connection with the expression “contract of insurance” involves the full tactical requirement of privity of contract, offer and acceptance, and in this case, I need to add, excluded any agency.
GUMMOW J: And it involves reading the word “enter” in a way that excludes the operation of the Act, to deem some entry to have taken place.
MR WALKER: That is the section 48 question?
GUMMOW J: Yes, that is right.
MR WALKER: Now, I am going to try and persuade your Honours that in fact section 48 does not go as far as Justice Gummow has said, or perhaps it goes the full distance of giving rights to such a person but it does not go by the means of deeming them to be in privity in the full sense. In particular, it does not go so far as to deem them to have been a or the party who historically made the contract by entering into it, and we submit that it is the inexorable meaning to be gathered in context from the words of section 45 that the question concerning the voidness of so-called provisions is to be capable of being judged at the point when the contract is first made. Bearing in mind, as we shall point out, that persons who may benefit from a policy may be described generically in a way where their identity may not be completely knowable on day one of the contract’s existence, in our submission, this is of some moment.
So the first point we have to grapple with, we accept, is that although the parties come to this Court with an agreed understanding of section 45 set by the.....in the Court of Appeal. An understanding of what section 45 is talking about when it talks about entered into some other contract of insurance is basal to everything else in the case. We accept that. It may or may not, depending upon - - -
GUMMOW J: This is a pure question of law, is it not?
MR WALKER: Yes.
GUMMOW J: We have always proceeded on the footing that concessions between parties cannot control how we construe statute otherwise we would produce monstrous results for other people.
MR WALKER: Yes. I am not arguing for monstrous results, preferable course perhaps might be withdrawal, revocation of special leave. But I do not want to be misunderstood in my answer to Justice Gummow’s question. The understanding of the phrase “entered into some other contract of insurance” is a question of law. However, I cannot say that there is no Suttor v Gundowda point, although it is to be borne in mind against me that this matter was fully raised at trial, fully raised at trial, I stress.
HEYDON J: What is the Suttor v Gundowda point in those circumstances?
MR WALKER: Your Honour, I simply, not having been in the Court of Appeal, do not know what, if anything, may - - -
GUMMOW J: Well, your task is to inform yourself and not just leave it for us to worry.
MR WALKER: The point has only just arisen, your Honour.
GUMMOW J: Yes, I realise that. It was telegraphed yesterday, I would have thought.
MR WALKER: The point was not argued in the Court of Appeal. What of course may have followed – this is not a matter of record, it is a matter of what is not in the record – in relation to an appeal by way of re-hearing in the Court of Appeal concerning what is to be gathered from the dealings between the parties, particularly concerning whether there was, for example, any real agency, for example, I do not know.
HEYDON J: You may be right but Suttor v Gundowda is usually understood as precluding the taking of a fresh point on appeal which could have been met by evidence at the trial, not by new evidence in the Court of Appeal.
MR WALKER: That why I have said against me your Honours should bear in mind there is no shortage of trial opportunity here. Now, that means, in our submission, that we certainly have to grapple with what does section 45 mean. As it happens, we take the position on the merits of the argument, which we are willing obviously to embrace, that the concession by conduct in the Court of Appeal by the present appellant was correct, that entered into some other contract of insurance are intractable words of art in relation to the privity question, and when one places it in the larger context, chiefly linguistic, of the way in which other provisions, other sections of the Act refer to parties, insureds and persons having benefit who are not parties - - -
GUMMOW J: But 45(1) is talking about the liability of the insurer under the contract, is it not?
MR WALKER: Yes.
GUMMOW J: And 48 seems to be conferring a right to recover from the insurer, so it seems to be positing a liability to the insurer.
MR WALKER: Yes.
GUMMOW J: Notwithstanding that the person is not a party to the contract.
MR WALKER: That is right. So it is a provision – may I come then directly to section 48 but otherwise I will just deal for convenience with the provisions of the statute to which we wish to draw attention in numerical sequence, but coming directly to 48 now in answer to Justice Gummow’s question. We submit that it is a section which if in policy there had been raised the possibility of deeming a non-party to be a party or to have all of the party’s rights, et cetera, that policy choice was made quite differently. The premise of the person not being a party is not something which is overthrown, it is embraced.
Then there are specified provisions, that is, specified effect called a right to recover, et cetera, provided in section 48 and circumscribed by the terms of section 48. There are correlative obligations, see paragraph 48(2)(a) in particular which you will note, however, the beginning of subsection (2) may be “Subject to the contract itself”. So that a contract between A and B may regulate another person, a non-party’s right and correlative obligation otherwise imposed under section 45.
In our submission, that way of dealing with the position of a person who is “specified or referred to as a person to whom the insurance cover provided by the contract extends” shows that there is not a straightforward or universal solvent adopted or applied of treating that person for all purposes and in all the contexts otherwise dealt with by the Act as being a party to the contract of insurance.
Now, your Honours, that is one of the main aspects of the case in terms of statutory interpretation. There is another, subsidiary in one sense but very important in this case, because it is apparently, or was at least, the only point in the case. That is the question whether the effect required by section 45 on provisions having the relevant character described in section 45 is one which has what has been unfortunately called a severance possibility or not.
Those are the two matters to which I would now like to refer as I go through in turn in numerical sequence some provisions of the Act which, in our submission, your Honours will find supply context to answer the questions raised by two of those two points. Could I start with noting section 10. This is a provision to which we draw attention because it uses the concept of provisions, it shows the relation of provisions to a contract and it shows the notion of provisions as supplying a character, obviously through operational effect of the provisions.
So in section 10 one sees the notion of a contract having provisions, a contract “although some of its provisions”. In subsection (2) a reference to including provisions “in so far as those provisions are concerned, although the contract would not ordinarily be regarded”. Subsection (3), again a reference to the operation of a contract by reason of a provision being included in it affecting it. That, in our submission, rather supports the notion that one looks to substance and effect without an excessively artificial separation of words and their effects.
HEYDON J: Well, the effects only exist because the words have a certain construction. Is it not the same thing?
MR WALKER: I think that is yes, your Honour. It is about what the words mean and therefore what effect they have, how they may affect characterisation of a contract in section 10, and the same is true in section 45, unquestionably. That rather, in our submission, focuses on what the words are doing rather than how they are printed, is my point.
In section 11 the definition of “insured and insurer”, the place where one might have found deemed inclusion of third party beneficiaries, rather limits the extension by way of inclusion to the “proposed insured” and “proposed insurer”, for what that may be worth.
In section 20, the provision I referred to earlier, an insurer “is not relieved of liability” by reason only “that the names of the persons who may benefit under the contract” - a generic expression which, in our submission, picks up the possibilities obviously contemplated - not only because of the well-known practice but by reason of the actual provisions of section 48. Again, section 20 is a section where the opportunity was presented, as it were, schematically to make such people for all purposes parties but there was no such choice made, whether by way of undisclosed principles, provisions or otherwise.
GUMMOW J: No, that is not quite right, Mr Walker. Section 20 indicates a legislative plan which fixes upon this notion of the liability of the insurer and expands it.
MR WALKER: Yes, in that sense in this case prevents it from being stymied, yes.
GUMMOW J: Regardless of what otherwise might be what I might call textual questions arising from contract law.
MR WALKER: Yes, they are not just textual obviously, they are very critical - - -
GUMMOW J: No, but 20 could be just textual. It could be employees for the time being.
MR WALKER: Yes, in fact that is what one would expect.
CRENNAN J: It covers classes of persons.
MR WALKER: Exactly. As I said earlier, that generic provision can be made in such a way that you will not know at the time the contract is entered into who are all the persons who may benefit under the contract.
GUMMOW J: However that may be the focus is upon the liability of the insurer.
MR WALKER: But it does so by recognising and not abolishing the distinction between a party and somebody who simply may benefit under the contract.
GUMMOW J: Well, it is putting it to one side.
MR WALKER: It is putting it to one side but it is not treating them as – it is not, for example, at this point saying that those people, for example, are under duties of disclosure, et cetera. Such people, if described generically, cannot all as individuals, be subject to a duty of disclosure, for example. So assimilation of their position to that of a contracting party, the insured or the proposed insured as the definition in section 11 extends it to mean, would not work, in our submission, for those generic descriptions.
HAYNE J: But the liability under the contract spoken of in section 20 extends to and includes liability of a kind required by section 48.
MR WALKER: Yes, that is why section 48 is so important. Section 28 uses an expression “the person who became the insured under a contract of general insurance upon the contract being entered into”, so that phrase “entered into” is there found. In our submission, bearing in mind the context in which it is found, non-disclosure, et cetera, reflects a concern with the Act most certainly not to abolish across the board in such a way as to require reading into every relevant provision the difference between a party and a non-party.
May I next take you to section 38. This is for a reference to a provision, “a provision included in an interim contract”, under such a provision liability is et cetera, et cetera, that provision is void. This is one of the parts of the Act to which Justice Beech referred in preferring our argument in the Court of Appeal, that is rejecting the proposition that section 45 required the whole of the printed form in which the putatively offending provision is found to be swept away by the statutory avoidance, and his Honour pointed out that section 38 would be an example where the same approach of sweeping the whole away would work a perverse effect.
GUMMOW J: Again, in 38(1) the expression is “the liability of the insurer”.
MR WALKER: Yes, exactly. Much of the Act can be described, of course, as regulating, in some cases reversing, in many cases from the point of view of an insured or person’s benefit ameliorating former ways of declining liability. Section 40 is one of those references to effect. One sees it starts off by referring to “a contract . . . the effect of which”. In our submission, the way in which language is used in this statute is natural in relation to contract and provisions. A contract is made up of provisions. Provisions are terms which provide for certain consequences. It is the effect, what the words do that is the aim of provisions such as 40.
The same is true in section 43, the same kind of language is used – “Where a provision included in a contract” - so a component of a contract are provisions. Contract of course is more than just a printed form, it is the compact, the consensus, where it has the effect, et cetera, “the provision is void”. That is another one where, in our submission, one would not expect everything to be swept away depending upon word processing layout. I will come back to section 45 of course and section 48 which are next in sequence.
Looking at the other contextual ones, section 52, to which my learned friend took you this morning, uses the expression in the parentheses of something being “set out” – or “not set out” I should say – but being incorporated “by another provision”. Now, that, of course, means that the Act is making it very clear at least here that when one is looking for that which is prohibited by way of so-called contracting out, it is the effect of what the words are doing. In this case, the words may, for example, be incorporating standard terms contained at some memorandum otherwise to be found in a contract between others, for example, in some parallel policy.
Again, in our submission, that supports the approach taken by Justice Beech. The same can be said, I do not need to elaborate on the point, in section 54. Again, one sees, apropos Justice Gummow’s comments to me, that there is a concern there with regulating the extent of liability, in particular by way of supposed amelioration in favour of an insured.
The same can be said of section 56. This in particular goes to what I will call the privity question. It uses the expression “a person who is not the insured under a contract of insurance”. Now, it is a claim obviously by a person able to claim under section 48. The statute makes no bones about it, that person is not the insured. In our submission, at least prima facie, the natural understanding in this Act of “insurer and insured” even with, especially with the express extension of that definition, is that they are the parties to the contract, that is they are the people who entered into the contract. In our submission, section 46 is powerful textual context to support the position we have taken on the operation of section 45.
Section 57, I note in passing, is another example of the regulation concerned with regulating the nature and extent of liability. Then section 68 again uses familiar expressions, a contract including a provision that has certain effect:
the insurer may not rely on the provision unless the insurer clearly informed the insured . . . of the effect of the provision.
This has, I suppose, some more than merely linguistic relation to the present case because this goes to the obligation on an insured not to prejudice rights of subrogation, a matter which, before section 68 was enacted, could lead to devastating outcomes. Section 68 regulates that by somewhat ameliorating it in favour of the insured, but it is of some significance to see that the effect can still be stipulated for and simply that there must be the express attention drawn to it in the fashion set out in section 68 at pain otherwise of not being able to enforce that provision, rely on that provision. Again, in our submission, it shows concern with what words are doing, how they are characterised as to their legal effect rather than the way in which they are printed.
Section 76, if I can draw this finally to attention, obviously invites comparison with section 48. Looking at section 76 first of all on its own, one sees after the provisions to which I have drawn attention that it uses the expression “the insured” and hitherto in the statute one does not find, even in, we would say especially in, section 48, you do not find the insured in terms either defined as or deemed to include somebody who did not enter into the contract and who is not a party in the sense of privity.
Now, I confess, read on one view purposively, that presents a bit of a difficulty for my argument because it is not immediately obvious why something as beneficial from the point of view of everyone except insurers, who I think may be seen as the constituency for the statute makers – that is everyone except insurers – it is not immediately obvious why that would not apply to everybody who is entitled to make a claim. But I have already drawn to attention where the statute, for example, in section 56 in relation to fraud, needs to pay regard to the process of claim. Express attention is paid to the difference between someone entitled to make a claim and an insured.
Now, when one looks at subsection (2), however, the balance swings the other way. There is nothing, in our submission, in subsection (2) of section 76 that really is in either a policy or pre-enactment principle sense relevant to or appropriate for a third party claimant, a third party beneficiary, not a party for whose benefit the policy provides for the capacity for them to make a claim. So although section 76 at first sight seems to destroy the textual scheme upon which we rely, in our submission, it does ultimately support it.
So I come back to the two provisions which are at the heart of the matter, sections 45 and 48. Could I go back to 48 first. First of all one sees that as already provided, in a sense, by section 20, the enacted words contemplate that the cover may extend – that is the wording of section 48 not section 20 – the cover may extend to a person who “is specified or referred to . . . whether by name or otherwise”. So again, it may be by way of a function and it may be, in the ordinary course it will be in any large operation, including perhaps individuals, maybe even corporations who by way of employment or contract, do not have that character when the contract is first entered into but acquire it during its currency.
There are, in our submission, again reasons of principle stemming from the position pre-enactment why one would not treat all such people, some who may have the character at the time the policy was made, some who may not have that character at the time the policy was made, some who may be known, some who may not be known, some who may not be knowable, there are reasons obviously why section 48 would not go so far as to deem such a person for all purposes to be parties to the contract or to be insureds.
That is why, in our submission, section 48, by its very explicit treatment of the case it covers, rather emphasises that elsewhere in the statute the concepts of privity, of parties to the contract of insurance and the notion of people who are not parties nonetheless having the benefit of being able to make a claim, ought to be given full weight without any further, so-called purposive extension.
To put it another way, section 48 is perhaps the key provision where one sees purpose in the sense of what the words enacted intended to achieve. It is not what the ALRC intended, it is what the words enacted can be seen to be attempting to achieve, rather than, as it were, overlaying the whole of the statute with some purpose broader than the lexical content of the words in question will themselves reveal.
While having made that reference to the ALRC, may we simply add to what we have said in writing the following. It is to be recalled that relevantly the provision of section 45 which was enacted was that which is referred into the report. All sides’ written submissions have made reference to that. That, in our submission, tells rather in our favour rather than against, because it is simply not possible, in our submission, to say that words chosen with or without the rich debate that has been referred to in the supplementary written submission this morning, it is simply not straightforward to say they were intended to have a wider meaning than is either explained in the text of the report or is evident from an ordinary English reading of those words.
In short, one cannot and should not, under the guise of the mischief rule, look for some purpose and say that it is wider than the words enacted will bear as a matter of ordinary English, particularly when the ordinary English is being used in a field dominated by terms of art. This is, after all the Insurance Contracts Act.
GUMMOW J: Section 48(1) appears, on one view of it, a deeming provision, is it not? It is translating something into something else.
MR WALKER: We would say not, your Honour, that that was a choice that they did not make. It is a provision which may have, for some people in some circumstances, the same outcome as a deeming provision - - -
GUMMOW J: The deeming is in the last words “notwithstanding that the person is not a party to the contract”.
MR WALKER: Yes. They have a right to recover. This is a statutory right to recover, and those last words show, particularly where one sees the terms of art “party to a contract” used throughout, show that the statute makers are consciously regarding the general law which would operate but for the statute and recognising that effect entrenches upon it to a specified extent and only to that extent.
HAYNE J: The “notwithstanding” clause marries with the introductory clause “Where a person who is not a party”.
MR WALKER: Yes.
HAYNE J: If event A, notwithstanding event A, a person has a right to recover.
MR WALKER: That is because “party to a contract”, they are terms of art. They require an understanding of the common law of contract. They require an understanding and assume an appreciation of the importance of privity. One can leave aside so-called exceptions to or qualifications of a doctrine of privity in terms of who can enforce a contractual promise. Section 48(1) is posited on the basis that not being a party to a contract is likely either to deprive you of, or at least severely hamper you in, the capacity to assert a right to recover an amount of loss from an insurer. In our submission this ought not to be seen as a deeming provision, though it will have the effect in certain circumstances, if I can use this expression, “relation to deeming provisions” as if it had been a deeming provision.
FRENCH CJ: What is the significance of “in accordance with the contract”?
MR WALKER: It looks back to the phrase “to whom the insurance cover provided by the contract extends”. The contract will say, “This covers you, the premium payer, plus all your subsidiaries, plus all their general-managers or whatever”.
HAYNE J: What is to be recovered is what is to be recovered as provided for.
MR WALKER: So the first thing is the contract will have actually said, “I, the insurer, will pay certain persons who are not parties to the contract”, but then as Justice Hayne has pointed out, the policy will also define the extent of the cover and that must be inherent in the notion of “the insurance cover provided by the contract”. It is what the contract provides, if I may say, by its provisions. What the contract provides will be defined both as to criteria of liability as well as methods of measuring loss and sometimes, of course, references to conduct by the person claiming at the time, for example, of the accident, such as carrying out general prudent steps required of an employer, et cetera. So section 48, in our submission, powerfully supports the notion that one does not look for what we would respectfully submit is a more or less nebulous general purpose which is called in aid for the reading of section 45.
GUMMOW J: This expression “the insured” which is used throughout the legislation, is that defined?
MR WALKER: Yes, section 11 defines it.
GUMMOW J: In any helpful way?
MR WALKER: Your Honour may find this less than helpful.
HAYNE J: The sting is in the tail.
MR WALKER: One has turned to it in this case eagerly to see what it says about privity and the answer is nothing, but I use it this way - - -
GUMMOW J: I am just wondering whether one cannot read these sections to say that the effect of 48 is that although this person is not a party to the contract, it is put in the position of an insured because it has the right to recover, and do you not then read 45 accordingly which talks about “the insured”, does it not?
MR WALKER: That is the argument against us, your Honour. I understand that is what we now have to meet, regardless of the courts below.
FRENCH CJ: The right to recover conferred by the statute qualified by an accordance with the contract may be vitiated by some breach on the part of the party to the contract who has nominated this person as a beneficiary, for example, non-disclosure or a whole variety of things that might occur.
MR WALKER: Yes, that is right. Well, non-compliance with occupational health and safety, for example, in an egregious way that is, so - - -
FRENCH CJ: Over which the beneficiary has absolutely no control.
MR WALKER: Over which a person not a party has no control, quite. In particular where one is talking about that which would automatically follow of the very nature of the concept if such persons were being treated as parties, insureds, namely the correlative obligations, rather than it being dealt with in that fashion in subsection (1), or generally in subsection (2), there is a specification which, in our submission, particularly with the opening words “Subject to the contract”, rather strongly argues against section 48 being seen as a provision which in law makes a person specified or referred to, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, a long-winded phrase that I will just call the non-party beneficiary, you cannot read section 48 as if non-party beneficiaries are, by its terms, treated for all purposes of contract law or for the statute - - -
GUMMOW J: We are only worried about the purposes of 45 at the moment.
MR WALKER: Quite, but one starts with the general first, because there is no reference to section 45 here. As I say, the whole of the Act has to do with regulating in many ways, some of which we touched on when I went through the various provisions, the liability and the way in which liability may be disclaimed or reduced, of insurers.
FRENCH CJ: The critical words in 45 are “entered into”, are they not? That was the focus at trial.
MR WALKER: Yes, and I entirely accept that this is right at the heart of everything, at the base of the present argument, but it seems to have been the pass that was sold in the Court of Appeal. Your Honours, could I just go back and try and - - -
GUMMOW J: Does the Act use this phrase “entered into” in other sections, do you know?
MR WALKER: I drew attention to at least one other, your Honour, which was - - -
CRENNAN J: In 11(9), it has a reference to “the entering into of a contract of insurance”.
HAYNE J: It is the language of contract.
MR WALKER: Section 9 certainly uses the expression very often, and then I think I drew to attention section 28 where you find the same - - -
HAYNE J: Section 28 “upon the contract being entered into” is a definition of time, is it not, rather than some identification of the condition for engagement of a provision which is the circumstance of 45, by reason that the insured has entered into.
MR WALKER: Yes, they are the same concerned with temporality that your Honour Justice Hayne has just noted in section 28 and I accept that is a different subject matter, section 28 and section 45. The same concern with temporality can be seen in sections 24 and 25 - - -
FRENCH CJ: As to 29, that really is focusing on a party entering into, is it not, because it is talking about duty of disclosure.
MR WALKER: Yes, this is a person named as “the person who became the insured”, et cetera.
HAYNE J: Section 29 is both time and perhaps contractual effect.
MR WALKER: Privity. Yes, that is the capacity to become a party or becoming a party to a contract because of that thing called “entering into it”. As I say, 24 and 25 have the same temporal concern, but equally the temporal concern has point because it is regulating the rights between the parties to the contract by reason of conduct, including in the anterior stage.
HAYNE J: Certainly, but you are not focusing on the ambit of the expression which is the question for debate under 45, “the insured has entered into some other contract” at least has within its core meaning the contracting party. Does it go beyond that? That is the question.
MR WALKER: Exactly. Neither side can point to any provision of the statute, least of all a definition section that says conveniently that the “insured” in section 45 – or must mean, conveniently, that the insured in section 45 has or has not any meaning other than the ordinary meaning. Section 11’s definition of “insured” is rather expressed as if it has its ordinary meaning in a statute that uses terms of art. All the definition does is to include significantly for that anterior period. By the way, they do not actually bother then to use the expression in those provisions with that extended definition, as I have drawn to attention in 24 and 25, though they could have.
HAYNE J: It is to be noted also that in 45(1) in line 2 where we have the reference to “liability of the insurer”, assumedly that is to be read as liability as extended and enlarged or otherwise affected by the Act, including in particular 48, but that is used as part of the expression identifying the relevant nature of the provision. The provision has the effect of limiting, et cetera, and then the further limitation is, is it not, so the provision has an effect, and the provision must meet the further criterion that it is a provision limiting it by reason that. At what point does the amplification of liability – I use that in an attempt to find a neutral phrase – in 48 speak to any of the several steps that 45(1) has you take to get to the conclusion, “the provision”, whatever that is, “is void”?
MR WALKER: First of all, if I can start from the back of subsection (1), there is a carve-out from this referred to by my learned friend for contracts required to be affected, et cetera. Bearing in mind the nature of that carve-out, that is this statute leaves unimpaired, works no implied repeal of, and no section 109 effect on, what might be called, public interest regulation of activities requiring them to be insured or carried out by insured persons.
HAYNE J: It is leaving workers compensation and third party driving.
MR WALKER: Quite, and barristers, your Honour, in the brave new days.
HAYNE J: Such things are beyond our ken now, Mr Walker.
MR WALKER: The joys of apotheosis, your Honours. The public interest nature of that carve-out means that you surely would not interpret that class of carved-out contract as not including contracts entered into after the policy was entered into, but during its currency. So it speaks of a past existing at the time of the accident or claim, probably the accident in most cases; the event giving rise to the liability. That certainly must be so for what I will call those public interest requirements, and by parity of reasoning, in our submission, when one looks at the grammar of “has entered into”, the past tense is being used of the conduct of the insured, judged temporally from the time of the accident or claim, not from the point at which the policy of insurance came into effect, and again read purposively, that is in contractual terms as well as statutory terms, that really must be so. We do not understand that much is contested.
GUMMOW J: The temporal operation of 45(1), you ask whether 45(1) is engaged at the time when there is a question of the liability of the insurer.
MR WALKER: Exactly. It is the concern with liability that, in our submission, then cements the proposition that it is accident or claim, that which can bring in its train liability, which is the concern. That is the beginning framework for my answer to Justice Hayne’s question. In terms of the various steps in question, then it becomes, in our submission, really fairly clear that the word “insured” in subsection 45(1) means only the insured, because in our - - -
CRENNAN J: You mean a party to an insurance contract?
MR WALKER: It can only mean the true party.
CRENNAN J: True party to an insurance contract.
MR WALKER: I should have not introduced that epithet, true, the party. I can feel the word “deemed” coming up over my shoulders, your Honour, I am trying to push it off. The insured here is somebody of whom an activity is being posited using a term of art - “has entered into”.
GUMMOW J: But it is an historical inquiry then, is it not?
MR WALKER: It is an historical inquiry then, but none of these third party beneficiaries will have done anything which at common law or by any of the language adopted and adapted from the common law in this statute even begins to resemble entering into a contract with an insurer. Some of them may have done nothing other than take a job. Some of them may have done nothing other than make contract for the supply of widgets to a building site.
In our submission, it is not only the word “insured” that we submit is intractable in the incapacity for judges to extend that beyond the term of art with the express inclusion that section 11 has by way of extension, but also this notion of “entered into” simply does not fit in any relevant purposive way, understanding purpose by reference to the enacted words rather than by some very vague general idea to make life easier for people who claim, in our submission, the combination of those expressions very strongly supported the concession which was made and provided the premise for the argument and decision in the Court of Appeal.
HAYNE J: The contrary of the concession made in the court below would have been achieved by reading the “by reason” clause as “by reason of the making”, perhaps “by reason of the making or currency of some other contract of insurance”. It is the injection of “the insured has entered into”.
MR WALKER: It is the active voice “the insured has entered into” that we rely on. If you had referred to the fact that a contract had been made, that would have been contextually consistent because section 48 is an example, section 20 is another example, where provisions of this statute contemplate a contract being made for the benefit of somebody not a party to it.
CRENNAN J: You could have, instead of “entered into”, have “cover under”.
MR WALKER: Yes. All of those are expressions which find cognates actually used in the statute and we submit it may be a pedestrian, but nonetheless, it is a good canon of interpretation that one should be wary of reading chosen words as if they were the same as other forms of words which more obviously would have worked the desired effect, which obviously have been considered, because they have been used in other parts of the same statute. The notion of giving effect to choices made, including those options not taken, in statutory interpretation, in our submission, is quite important in this statute, bearing in mind the obviousness with which privity could have been abolished, not with one stroke of a pen, but with a relatively short provision with an overall deeming effect.
Your Honours, if we are right about that matter which was conceded below, then we do come to the question which was the subject of a grant of special leave, namely, on the basis of that agreed operation of section 45, namely that it does not catch a policy not made by the insured in the formal sense of contractual privity and a specified person entering into contractual relations.
We then come to the term itself, and if I could take you back to volume 2 of the appeal book to page 359. Now, it is to be recalled the forensic setting of all this, because it is of some moment to our appeal as well, Zurich wishes to say of this special clause, so-called, that it is affected in the manner argued by section 45 so that the cover in this policy provided by MMI shorn of all of the provisions of the special clause, is available to Hamersley which will provide a co-insurer from whom contribution can be sought. That is the setting. It will give rise in due course to the questions of subrogation which depend entirely upon Zurich succeeding in their section 45 argument.
GUMMOW J: In your view then, a construction that would be open to you is to say where the concluding words “the provision is void”, it means is void insofar as it has that effect.
MR WALKER: Yes, the word “provision” describes what words do. Words provide thus. There is provision made thus. These are ordinary ways of speaking in the law using the word “provision”.
GUMMOW J: But then one has to resolve that the omission, if that is what it was, on the part of the draftsman to refrain from using some expression like “has cover” produces the result the mischief sought to be remedied by 45 miscarries in a sense, and you say, so be it.
MR WALKER: I would try to encourage your Honour not to take the steps in the first part of your Honour’s question to me.
GUMMOW J: All I am saying to you is Sir Owen Dixon would have said this is a piece of law reform in need of reform.
MR WALKER: We know he said that about a provision other than section 45, and the description can be and has been applied to many others as well, but I suppose, your Honours, I am taking this point. One needs to be careful in identifying, tendentiously, what the mischief is, and it is one thing in this case to say all other insurance clauses are a bad thing. We know Parliament did not say that because they have already done at least two carve-outs and it is not just the ones required by law that are important, what I will call the explicit express specified excess layer approach is of course to be encouraged. It is a way of getting economic cover, it affects premiums, and that is a very important subsection (2) carve-out in section 45. So one can forget that there is any general mischief that all other insurance clauses are bad.
One then comes, in our submission, to another possibility, provisions which as between the contracting parties, the insurer and the insured, if I can use the expressions, statute thought did not need any other than a simple extending provision to define, as between them there will no longer be the capacity for a provision to be made which has the effect described in section 45(1) and when one - - -
GUMMOW J: Another situation though, with respect to persons having a right under 48.
MR WALKER: Yes. After all, in terms of a number of matters, including the identity of those persons and what insurance markets they are in, for example, they could be extremely different. They have not been deemed to be insureds, either in the ordinary sense of that word or in the extended defined sense of being the persons who are, in effect, proponents and they very often will not substantively be capable of being either of those up to and including the point of entering into the contract of insurance. It is at the point of the entry of the contract of insurance that one knows what its terms are – and I have used the word “terms” just to pick a neutral at the moment - but you know them then, they are fixed then, subject of course to statutory effect or to later agreement varying.
It is for those reasons, in our submission, that again the word “insured” is most inapt to include somebody who may not, by dint of a generic description, even exist at all, let alone have the character that brings them within the class of persons to whom section 48 speaks at the time when the terms of the contract of insurance are known. It is, in our submission - - -
GUMMOW J: No, but we are applying 45 at the time when there is a question of liability I thought you said.
MR WALKER: I appreciate that, your Honour - - -
CRENNAN J: You have agreed that could include under 48 - liability.
MR WALKER: I think the answer is yes and no to Justice Gummow, and no to Justice Crennan. Could I just try to explain what I mean.
GUMMOW J: All I am putting to you is that the assumption is that the class is closed by the time you are reading 48. You are asking, is there liability for this person.
MR WALKER: Ultimately that is the section 48 question. Going back to section 45, the operation of the provision, the character of which is in question under 45(1), is an operation that between the parties to the contract looks to what will be the case when an accident or claim comes along. That is what the insured “has entered into” means. “Has entered into” refers to accidental claim time. But as to whether the provision has been included in the contract, which has that effect, you know that at the time the contract is entered into, you must know it then.
FRENCH CJ: It is just a matter of construction of the provision.
MR WALKER: It is just a matter of construction. It may just say words like this, or it will have the effect, it will do this between the parties, that the bargain is that there will not be cover if it turns out that the accident for which you make the claim is one against which you have entered into some other contract of insurance, that being judged as at the time of accident or claim. But a provision in the party’s bargain in the policy to that effect must be known to exist, that is, to be “included in a contract of general insurance” at the time the contract is “entered into”.
Now, that last “entered into” does not come from subsection (1) but, in our submission, it is clear that this is a statute that does not depart from the notion that a contract’s terms are known when it is entered into. To put it another way, a contract is entered into because then you know what its terms are. Until you know what its terms are there is not a contract entered into. So that, for those reasons, there then emerges the important matter of public policy in construing such a provision which avoids provisions of a negotiated contract, entrenches on freedom of bargain, one needs to know with some clarity at the point of first inception of the policy, when the contract is made, whether its policy provisions are void or not.
For those reasons, in our submission, again one would be looking to the conduct of what may well be the only named person certainly a stage where you will not know the names of all the third party beneficiaries or you need not know, I should say, the names of all the third party beneficiaries. That then, of course, leads, as I say, to the application of that reading of section 45 to the special clause found in volume 2 of the appeal book at 359. In the first line of the, as it were, preamble your Honours see the word “or”, “the insured to effect, or” – I emphases “or” – “for other parties . . . to effect, on behalf of the Insured”.
Then in what my friend can then be called the operative provisions, the next paragraph commencing “In the event” you see in the first and second line “effected by or on behalf of the Insured”. It is clear by the use of the word “or” that if one is to use the word of covenant or promise for the purposes of the common law approach to severability taken to a degree by our learned friends, then the scheme set up by this wording is X leads to Z and Y leads to Z or, as a matter of ordinary English, X or Y leads to Z. Now, that invites severance in the sense that X leads to Z, Y leads to Z that is our promise. X or Y lead to Z. It is not, of course, the compendious bundled one which would be X plus Y leads to Z, where X on its own would not lead to Z or Y on its own would not lead to Z. This is X or Y.
HEYDON J: Your point is this that if this special clause had not been one special clause but it had been special clause one containing X and special clause two containing Y - - -
MR WALKER: And both led to Z.
HEYDON J: Both leading to Z, there would be no problem with severance. Nor would there be a problem - - -
MR WALKER: According to the argument against us.
HEYDON J: Nor would there be a problem if, instead of being set out as it is it internally broke it up into little (a) and little (b), you cross out one of them and you say there is no substance in any difference between (a) - - -
MR WALKER: Yes, that is right, and I call in aid rhetoric such as this is mere word processing or layout. Now, it is not mere rhetoric because the fact is that an indent, a colon, a little (a) or a little (i) and a semicolon would make the difference. Now, most people would not see that as the stuff of radical effect on substantive rights.
HEYDON J: And “provision” does not mean special clause or something with a number or something that is on a page, it means, as it were, the creation of a right.
MR WALKER: An importing of legal consequence. That, in our submission, is what a provision – that is why we use in - - -
GUMMOW J: Well, you get that from the word “effect” or you get support from the word “effect”.
MR WALKER: Yes. We say one has got to be very wary of having imposed on one in legal discourse the order that lexicographers, who may only be incidentally lawyers and seem to have taken a career choice against it, by which they order the meanings they give in contemporary dictionaries. Now, I am not talking about historical dictionaries which are ethnologically based and you may actually be dating the appearance of certain meanings. It is for those reasons, in our submission, the assertion, which I can answer as well from the Bar table as my friend can make it from the Bar table, that the primary meaning of “provision” is what he calls clause, meaning the printed text as opposed to what is imported by way of legal consequence, we challenge that completely.
In our submission, in legal English, and the Insurance Contracts Act is written in legal English, the word “provision” and its cognate “provides” refers to the legal consequence imported by the use of certain words against often the background of general or statutory law. That is why one sentence in the olden days when statutes were shorter and many insurance policies were very short, in one sentence you may have, separated by conjunctions, which for the ease of the short-sighted would often be printed in block and underlined so you knew where you were up to and you would tell the judge, I am now up to the fifth and, or whatever it is, were making several provisions.
They were making distinct promises all of which, of course, were interdependent in the sense that they were bundled – to use a metaphor advanced by our friends – together, this is the whole of the contract. The metaphor does not advance things. To call something a bundle is simply to say they are all to be found in the same place. Of course that is true of every provision in a contract. Common law severance starts to exam the significance of that but, in our submission, we do not have to get into common law severance at all.
Before I leave common law severance, can I simply, therefore, point out that, in our submission, the special clause found at volume 2 of the appeal book 359 is one the English of which, without word processing layout, without numbering, without more emphatic punctuation, nonetheless by the simple ordinary and unmistakable word “or” shows two separate cases; X leads to Z, Y leads to Z, you do not need both of them, one will do. That, in our submission, would, if the court were to regard this as having the slightest relation to a common law severance approach, that would be enough. In our submission, that so much can be shown by what might be called the blue pencil approach taken by Justice Beech or the straightforward conceptual distinction which we urge to be superior with great respect to the Chief Justice in the court below.
I now come to why you should not be concerned, however, with common law severance. I will not take your Honours to the passages because I think most of them have been noted, but in SST [2006] HCA 31; 225 CLR 516 at 530 to 533 could I specially note that to which attention has already been drawn, paragraph 44, which has footnote (54), but also, of course, paragraphs 50 and 52. It is, of course, those last paragraphs which in particular put paid to the usefulness of resort to so-called common law or general law approach to the severability question.
Now, we are talking here about severability of contractual provisions, true, but we are doing so in obedience to a statutory command. In our submission, even to use the notion severance or severability is to take a step in the wrong direction. All one asks is, what is the provision, it shall be void, and the provision is to be known, it has the mark of Cain, by reason of the description in section 45. Nothing which does not bear that character is avoided by section 45 and bearing in mind that this is avoiding bargained terms between parties, in our submission, there is important common law reason to construe section 45 as restricting its avoidance to that which is described in the provision itself. What is described in the provision itself unmistakably has as the pivot between the avoided provision and its character that brings avoidance, it has the expression “the effect of”.
Now, it is not possible to say that in one of those very longwinded sentences from days of yore that three-quarters of the page which deals with the promise of indemnity and the description of the forms of accident liability and delimits of quantification and is then followed by the familiar words, again breathlessly perhaps without commas, “provided that” which one often used to see, still does see, “provided that such cover shall not be available if”, it is just not possible to say that those first three-quarters of the page are words or provisions that have the effect to which section 45 would speak in that old-fashioned single sentence policy insuring clause.
It would be clear, of course, that the proviso is a provision which has the section 45(1) effect and that provision would be void. It would be, in our submission, perverse, bearing in mind the very general beneficial to insured’s and benefited persons approach taken by the appellant, to treat the breathless sentence of the one-page insurance policy as swept away, all of it. It is one sentence and everything, the indemnity clause and everything, goes away. That would be, in our submission, most odd. Equally odd would be perhaps an insuring clause followed by three provisos, the first two of which are familiar provisions regulating the prudent conduct of the insured, to prevent moral hazard and providing limits, for example, by subject, for example, to reasonable reinstatement or the like.
Those are not provisions which have been the subject of statutory entrenchment so as to qualify the way in which the parties may bargain for their operation, but if they are contained within the same sentence or within an un-numbered single page policy, on the argument against us, the clause and effect argument, as my learned friend put it, the whole must be swept away and that, in our submission, just could not be tolerated intuitively. That would then give rise to what, in our submission, would be an unprincipled need for qualification of the approach taken by our learned friends to accommodate such cases. Their only principled answer is to say, well, this is a reason to give up long sentence contracts of insurance. Well, that may or may not be, in our submission. It is not obvious that the modern form of drafting contracts is better than the old single page form.
For those reasons, in our submission, when one examines the command or the dictate in section 45 that a provision is void, everything, the canon of entrenching on what would otherwise be the common law position about a bargain, the textual emphasis on effect, all combine to require that the avoidance only go to that which has the stipulated effect. If that means taking out a word or two here blue pencil style, then so much the more obvious and straightforward, as the Chief Justice said, will the exercise have been. But one does not need, with respect, to have to proceed with the limitations of the “blue pencil” which notoriously, at least at one stage, prevented what might be called syntactical repair jobs.
Section 45 has nothing to do with such things. The more purposive the appellant stresses the provision ought to be seen or the Act as a whole should be seen, the less likely, in our submission, it is to be concerned with matters of layout by sophisticated or unsophisticated foreign or local insurers. Your Honours, that concludes what I wanted to say as respondents. It would, I take it, be your Honours’ wish that I say whatever I want to say in favour of our appeal immediately now?
FRENCH CJ: We will consider that over lunch, Mr Walker. Before we do adjourn, Mr Maconachie, in view of what has fallen between yourself and the Bench earlier, it might be that you would give some thought over lunch to the question whether you should apply for leave to amend your grounds of appeal to raise the correctness of the concession adopted in the Court of Appeal. Now, that is not to pre-empt the question whether leave would be granted if you were to so apply.
MR MACONACHIE: Well, I can tell your Honours now that I will be making that application, particularly having regard to the way in which Mr Walker has dealt with the matter and accepted that it is before the Court, as it were.
FRENCH CJ: Yes, all right. We will adjourn till 2.15.
AT 12.45 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.20 PM:
FRENCH CJ: Yes, Mr Maconachie.
MR MACONACHIE: Your Honours, I apply to amend the notice of appeal in accordance with the document that I will hand to your Honours, if
I may. There is one for the Registry. Ground 4 on the top of the second page is the amendment, if your Honours please.
FRENCH CJ: Yes.
MR MACONACHIE: Accordingly, should I say, I would ask for an extension of the special leave granted in July in order to allow that to be done.
FRENCH CJ: Yes. Thank you, Mr Maconachie. Yes, Mr Walker.
MR WALKER: Your Honours, we object to the leave being granted. In our submission, this is an extremely clear case, stark on the record of the Court of Appeal, where this point having been considered was expressly, comprehensively and without qualification conceded in the court below.
GUMMOW J: So what?
MR WALKER: It is, in our submission, in accordance with the principles enunciated in Coulton v Holcombe of itself significant that on a first appeal and certainly on a second appeal there should be a cleaving to the issues, not just arguments, the issues as framed by the parties and though this was raised at first instance when it came to the Court of Appeal from which the appeal is brought to this Court, this is an issue which had been removed. It is not a mere extra argument to bolster other arguments putting the same contention. This is now a completely new issue beyond those which were ventilated in the Court of Appeal.
I have to say I cannot put and I do not put that we are not ready to meet it. I think I have said everything I want to say on it, so it really is, if I may use the expression, the disciplinary point. There needs to be, in our submission, clarify of issue and this is not a case where any of the parties at the Bar table, except perhaps my friend, Mr Corboy’s, client, is in a position needing, as it were, special sympathy.
FRENCH CJ: Thank you, Mr Walker. Mr Corboy?
MR CORBOY: If your Honours please, I am instructed to also oppose for the reasons given by Mr Walker. There are only two other matters that I should point out. As counsel who appeared at trial I have to say I am not aware that there is any evidence that would have been adduced. Obviously, the issue was alive at trial. It was contested at trial on an agreed statement of facts and an agreed bundle of documents, so it is not a situation in which this is a new point being taken for the first time. I accept that entirely.
The only other matters that I would defer to are that to the best of my recollection this issue was expressly canvassed in the special leave application and by submissions in reply I think Mr Maconachie expressly disavowed the point. In the Court of Appeal, insofar as section 48 was canvassed in the Court of Appeal, we raised section 48 in our submissions to the Court of Appeal at page 159 of appeal book volume 1 in that we made a submission that her Honour:
Johnson J correctly found that the expression, “has entered into some other contract of insurance” meant -
et cetera, and amongst other things, we said that it was consistent with the distinction expressly drawn in section 48 of the Act between the person who was a party to an insurance contract and a person who was entitled to its benefits and we have referred to two New South Wales authorities that dealt with that issue which if necessary I will briefly mention to your Honours in due course.
In response, the submissions from Zurich in the Court of Appeal at page 187 expressly accepted the propositions advanced in that paragraph 17 of our submissions. We did rely on section 48 in the sense that we saw that as being supportive of what her Honour had found and that that was really the starting point, in our submission, to understanding then the application of section 45 in the way in which the Chief Justice, for instance, in the Court of Appeal then said section 45 was to be interpreted in the light of the concessions made by Zurich as to the meaning of “has entered into”. If it please.
FRENCH CJ: Thank you. Yes, you will have leave to amend your notice of appeal accordingly, Mr Maconachie, and special leave is extended to cover that.
MR MACONACHIE: May it please the Court.
FRENCH CJ: Is there anything further that you were going to say in relation to that amended ground?
MR MACONACHIE: Briefly. First, could I take your Honours to section 45(1) which you will find behind tab 10 in the appellant’s book of authorities and other materials. We say that section 45(1) should read, “so that it means limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into an arrangement giving it cover under some other contract of insurance”.
There are two aspects of it that I would want to address, first, the word “insured”. In paragraphs 22 to 25 of the supplementary submission that was put in this morning we make the point that the Act sometimes used terminology inconsistently and address in four or five paragraphs why that is so and particularly we make the point that this is a wide ranging law reform measure intended to address a disparate number of perceived evils in a variety of different ways and accordingly, as was said in this Court recently, I think by Justices Crennan and Kiefel, in that situation “purpose” can be a surer guide than the literal meaning of the words.
That case is Minister for Immigration and Citizenship v SZJGV and Another, the media neutral citation of which is [2009] HCA 40. I have copies if your Honours would like them. I would want to take your Honours to only a couple of paragraphs. First, on page 4 of that pamphlet, if I can call it that, in paragraph 9 of the joint judgment of the Chief Justice and Justice Bell at about point 3 on the page, commencing in the middle of the line:
If the language be so intractable that it requires a word or words to be given a meaning necessary to serve the evident purpose of the provision, then such a course may be permissible as a “realistic solution” to the difficulty.
Reference is made to Cooper Brookes and another case. Over the page at page 5, referring to Cross’ Statutory Interpretation – at the top of the page, your Honours:
“In omitting or inserting words the judge is not really engaged in a hypothetical reconstruction of the intentions of the drafter or the legislature, but is simply making as much sense as he can of the text of the statutory provision read in its appropriate context and within the limits of the judicial role.”
At page 25 in paragraph 62 in the joint judgment of Justices Crennan and Kiefel:
The result of such a construction would be both inconvenient and improbable. This may suggest that an alternative to a literal approach, one which more closely conforms to the legislative intent, is preferable.
Your honours, the word “insured” we say can be read to include a section 48 beneficiary without doing any violence to the language at all. In Brown v Brook [1971] HCA 30; 125 CLR 275 - your Honours have copies – a money lending case, your Honours, notwithstanding that the word “money lender” was defined, albeit in terms of unless the context otherwise appears, the word “money lender” was given a different meaning than that defined in order to achieve, we say, the purpose.
FRENCH CJ: I think these are examples of particular statutes, a question of room to move.
MR MACONACHIE: Indeed they are.
FRENCH CJ: But how do you fit a third party beneficiary who is not a party to an insurance contract into the words, “insured has entered into some other contract of insurance”?
MR MACONACHIE: I am about to come to that, your Honour, I think, I hope. I want to take you, if I can, to section 51 and then section 54 of the Insurance Contracts Act. There is a theme – the idea behind that is that somebody, not a party to the contract, has the benefit of it, as it were, section 54(3). In section 54(3) the word “insured” is used. We say that in order to achieve the purpose that is intended by the section it has to be read to include a section 48 beneficiary, but more importantly and unambiguously I say it is a much more difficult proposition the words “has entered into”.
It is only by adopting, we accept, a very strained construction of those words that they can be brought to bear on a section 48 beneficiary, but whilst that construction may be strained, it is available. The fact that the Act uses different expressions in other sections to provide this effect is not fatal to the point and, for the reasons set out in our supplementary submissions at 23 to 25, we say that the point is available. Of course, if that construction is available and adopted by the Court, our primary proposition and our secondary proposition with respect to severance does not arise.
I do not advance that argument with enormous enthusiasm. I gave it away unambiguously in the Court of Appeal, but that is what we are encouraged to do, to try and put before the courts those submissions and take those points which appear to us to be those which the court should consider, but having regard to the way in which the matter has gone, we rely on that approach in the alternative to your preferred constructions. That is all I wish to say.
FRENCH CJ: Thank you, Mr Maconachie. Yes, Mr Walker.
MR WALKER: Your Honours, on subsection 54(3), we know that subsection (3) is referring to the same relationships and consequences as subsection (1) does. The expression “the act” in the second line of subsection (3) picks up the same expression in subsection (2) and refers back to the expression “some act of the insured or of some other person”, and then goes on to describe other aspects of the act. The fact that the insured or some other person is named in that definitional description of the
Act which is the subject of subsection (3) provisions, indicates, in our submission, that one cannot surely read “the insured” in subsection (3) as also including some other person.
In short, as appears from the way in which the words have been offered to be read into section 45, the argument against us under the amended ground of appeal does seem to be put the proposition that in this Act, or at least in section 45, apparently also in section 54(3), the expression “the insured” is said to include these third party beneficiaries, to use the shorthand, and, in our submission, there is not textual or, for that matter, purposive call for that extension.
The words which my learned friend offers as explaining the meaning of section 45 in accordance with the ground added by amendment to the notice of appeal, are that the insured has entered into an arrangement giving it cover under some other contract of insurance. That appears in this case to pick up the contractual provision between Hamersley and Speno under which Speno is contractually obliged to take out the policy. In our submission, none of that, however, alters the fact commercially and the character legally that is Speno that is the insured for the purposes not only of other provisions, but also section 45 of the Act. The words being read in, in our submission, are not adequate to the task. That completes all I wanted to say in answer to that appeal.
FRENCH CJ: Yes. Yes, Mr Corboy.
MR CORBOY: Your Honours, in relation to this matter we adopt gratefully all of the submissions that have been put by my learned friend, Mr Walker, and we simply want to make a few points to tidy up matters that have arisen in the course of argument this morning. There was reference to the extent to which the Act uses the phrase “has entered into” and some of the relevant sections of the Act were identified. There are other sections. I am certain that her Honour Justice Crennan did direct Mr Walker to section 11(9), but those instructing me were not entirely certain that that was the case, but I am certain your Honour did, but, in any event, obviously critically, section 11(9) expressly provides that:
a reference in this Act to the entering into of a contract of insurance includes a reference to:
(a) . . . the making of an agreement by the parties to the contract to extend or vary the contract;
(b) . . . the making of an agreement by the parties to the contract to renew, extend or vary the contract –
and we simply point that, in our submission, it is assumed that the making of the contract is the entering into the contract and then to avoid any subsequent argument that renewal or extension or variation is not an entry into, then subsection (9) is providing that clarification. It is then perhaps relevant to note that the Act does, in various sections, refer to a party to a contract of insurance, for example. So in section 13 there is reference to requiring each party to it being the contract of insurance, section 14, “If reliance by a party to a contract of insurance” and so on.
Then in section 16 we again get a reference to “entering into”, it is a temporal reference, but nevertheless it is again a reference which is entirely consistent with the notion that entering into is the making of the contract between the parties to the contract as conventionally understood. Likewise in section 21, critically in relation to duties of disclosure, again:
an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into –
So again a temporal reference, but again this notion of entering into the contract as between the insured and the insurer Again, in section 22 in relation to the obligation imposed on an insurer to inform the insured prior to entering into a contract of insurance the duty of disclose. In section 24, which I think my learned friend, Mr Walker, did refer the Court to, negotiations for contract but before it was entered into, hence, his submission in relation to the reference being to the terms of the contract as agreed between the parties once they have entered into the contract of insurance.
The short point therefore that emerges is that, as my learned friend, Mr Walker, has emphasised, the Act is using an expression like “entered into” consistently and with a particular meaning and with precision and likewise, when it refers to the “insured” and “the insurer” it is doing so consistently and deliberately and likewise where it refers to “parties to the contract of insurance” in obvious contra-distinction to section 48, for example, where again consistent with the careful attention that the Act has paid to these different concepts and expressions the drafting of the section avoids any of the language of “the insured”, “entry into” and the like and carefully distinguishes “a person who is not a party to the contract” and it is that person who has the right to recover and so on. The language is all entirely consistent with these distinctions being maintained throughout the Act, for the reasons that have been advanced by Mr Walker.
The other point that we would direct the Court’s attention to in relation to the language of the Act is to pick up on a point that my learned friend, Mr Walker, made that section 48 as we read it is not a deeming provision, it is a provision that confers a statutory right. That is how we then read section 56(1) where that draws a distinction between a claim “under a contract of insurance, or a claim made under this Act” and as we read “a claim made under this Act” that is a reference back to section 48 and to a section 48 claimant, because that claimant has been granted a statutory right. It is not a right to make a claim under a contract of insurance as such. It is a claim pursuant to the Act pursuant to section 48 to make a claim, which is then to be dealt with in the way explained by my learned friend, Mr Walker, according to a contract of insurance.
So, section 56(1) itself is preserving that distinction between the contract of insurance and a claim made under this Act where that, as we say, is a reference, in our view, back to section 48 and again is inconsistent with the notion of section 48 having some deeming effect.
The other matter then in relation to the language of the Act, very briefly, is the use of the word “provision”. My learned friend, Mr Maconachie’s, preferred construction as he puts it equates the word “provision” with “clause” and we simply point out, and we have done this in our written submissions, that the Act uses the word “provision” to refer to both the provisions of a contract of insurance, to refer to the provisions of the Act itself and to refer to provisions of regulations made pursuant to the Act, which rather suggests to us that it is simply being used in the broad sense of making provision for something which has a particular legal effect according to the words used. It is the words used and the substantive effect of the words used that the Act is concerned with when it talks about a provision. It is not concerned with how those words might be organised, which is really the essence of my learned friend, Mr Maconachie’s, preferred construction.
The only other matter then that I wish to mention is that the alternative construction or the alternative severance argument advanced by Mr Maconachie is the notion that within the underlying insurance clause there is an indivisible single promise. The short answer to that is the one that has already been given by my learned friend, Mr Walker. The word “or” tells you the answer to that question. Likewise, in Mr Maconachie’s submissions, it is put that because the effect of the underlying insurance clause is to provide for a single outcome, exclusion or limitation of liability, it must be a single indivisible promise. Well, that does not follow at all.
What the provision provides for is two circumstances which will operate. When either circumstance operates there is a particular consequence. It is the same consequence, but that does not tell you that there is a single indivisible promise and really the single indivisible promise submission made by Zurich is a submission that ultimately turns again on form, rather than on the substance of the words that are actually used, the meaning and effect of the actual words in the policy.
Indeed, when one looks at the policy itself the policy is rather curiously organised, but there are a number of provisions in the policy which are simply organised as a series of paragraphs. It is impossible, in our respectful submission, to impute to the parties an intention that there would be a single indivisible promise simply because two circumstances are dealt with in the one paragraph or the one long provision, when one looks at the way in which the rest of the policy has been written. In fact, the contrary intention would be inferred from the form of the policy itself. If it please the Court.
FRENCH CJ: Yes, thank you, Mr Corboy. Yes, Mr Maconachie.
MR MACONACHIE: Can I start - first I rely on the written submission in reply that was put on. The one-sentence policy to which my learned friend, Mr Walker, addressed some remarks, the same subject was the address by Mr Corboy right at the end of his submissions. We say that the proposition in the opening paragraph of the underlying clause which is at page 359, volume 2 of the joint appeal book, informed by the way in which the second paragraph is structured makes it plain that the word “or”, which is relied upon so heavily by my learned friends does not give rise to separate and distinct obligations or covenants.
Underwriters acknowledge that it is customary for the Insured to effect, or for other parties (including joint venture partners, contractors and the like) to effect, on behalf of the Insured, insurance coverage specific to a particular project, agreement or risk.
That is identifying a singular situation which might arise in a number of different ways, or at least two different ways, but then what I have termed the operative part of the clause provides:
In the event of the Insured being indemnified under such other Insurance effected by or on behalf of the Insured –
the word “such” there appearing and the words “such other Insurance” which refers to the latter paragraph of the clause, demonstrate that what is being referred to is a single concept, that of other insurance.
The issue of separate paragraphs, numbers or otherwise is not the issue. A single sentence policy may have a number of successive provisions joined by the word “and”, as my learned friend suggested, but when looked at grammatically there are a number of successive propositions. It is not a question of breaking the matter up into numbered paragraphs or subparagraphs and the like, but it is looking at what is the substance of the structure of the relevant contractual provision.
Mr Walker, in addressing the concept of provision, spoke of it meaning the creation of a right or that a provision describes what words do. In a particular context that may be so, but we say the way in which the word is used in the Act generally, but more particularly in section 45, it is intended to deal with a clause such as that at page 359 of the second volume of the appeal book which addresses a single concept, that is, if there is other insurance section 45(1) bites on the whole of the provision and not just the effect of it, because the word “provision”, in effect, as we have said earlier, can be used with different meanings.
I want to take your Honours, if I could, to section 51. My learned friend, Mr Walker, paid particular attention to section 56, as did Mr Corboy, demonstrating that there was a difference demonstrated or pointed to between a claim under a contract of insurance or a claim under the Act. Section 51 provides for, as it were, direct recourse against the insurer. It cannot be, we would say, that the word “insured” is used in 51 to be restricted to a party to the contract but not to a section 48 claimant. It would, we say, make a nonsense of the direct right given by section 51. It is the insurer’s liability that is the target of section 51 and the word “insured” is used, we say, in that broader concept. Equally, section 45, the target is the insurer’s liability, and it is in respect of that that the section is intended to bite. Those are our submissions, your Honours.
FRENCH CJ: Thank you, Mr Maconochie. Mr Walker, it is still the position, is it, as set out in your submissions in relation to P30 that the appeals in P29 and 30 would only need to be resolved in circumstances where the appeal in P33 succeeded?
MR WALKER: Yes.
FRENCH CJ: The Court will adjourn briefly to consider what course it should take.
At 2.57 PM SHORT ADJOURNMENT
UPON RESUMING AT 3.05 PM:
FRENCH CJ: The Court has decided that it will consider these matters on the arguments thus far advanced. If necessary, the Court will re-list appeals P29 and P30 for further argument. The Court will adjourn until 9.30 tomorrow morning.
AT 3.06 PM THE MATTER WAS ADJOURNED
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URL: http://www.austlii.edu.au/au/cases/cth/HCATrans/2009/269.html