Calliden Insurance Limited v Chisholm [2010] HCATrans 103 (23 April 2010)

Last Updated: 29 April 2010

[2010] HCATrans 103

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S361 of 2009

B e t w e e n -

CALLIDEN INSURANCE LIMITED

Applicant

and

DANIAL ARTHUR CHISHOLM

Respondent

Application for special leave to appeal

HEYDON J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 23 APRIL 2010, AT 12.25 PM

Copyright in the High Court of Australia

MR L. KING, SC: May it please the Court, I appear with MR A.P.P. LO SURDO, for the applicant. (instructed by Hunt & Hunt Lawyers)

MR S.G. CAMPBELL, SC: I appear with MR C.K. HICKEY for the respondent, may it please the Court. (instructed by Emery Partners)

HEYDON J: Yes, Mr King.

MR KING: Your Honours, before I begin in earnest, could I deal with a housekeeping matter? At page 42 of the application book at paragraph 23, towards the end of the second line, “insured” should read “insurer” - “the obligation of the Insurer under the Policy”. Your Honours, the basis of this application is that at first instance and the Court of Appeal, effect was not given to the plain meaning of condition 3 of the contract of insurance and that the misconstruction that was applied visits an injustice upon the applicant in this case.

Now, beyond this case, given that one can tell from the appearance of the policy that it is a standard broad form policy - it begins at 46 of the application book - it is a standard policy. The condition was obviously part of a standard policy. That inevitably means that there will be wider ramifications for my client. It is obviously not a one-off policy or a one-off condition.

Your Honours, the condition itself appears in the reasons of the Court of Appeal at page 25 of the book and in the policy itself at page 53, and as can be seen it comprises two sentences. The two sentences are really divided into two discrete parts and the critical part is the first sentence, although as I will shortly show, the Court of Appeal used the presence of the second sentence, in my submission, to skew the meaning of the condition.

Your Honours, when one looks at the condition, one sees immediately and quite strikingly that the first sentence contains the expression “must first bear the amount of the Excess” and I emphasise “first bear”, your Honours. It is not “bear the first $25,000”, nor is it, “bear the excess” or anything like it. It is “first bear”. Then it goes on to use a second expression “before becoming entitled to cover”, and I emphasise “before”. Your Honours, you would not ordinarily see in an insurance policy the second expression “before becoming entitled”.

I will not take the Court to the excess provision in the case in this Court in Government Insurance Office v Atkinson-Leighton Joint Venture, which is noticed in the judgments below. It is in 146 CLR and the clause is set out in the judgment, amongst other places, of Justice Stephen at page 229, but it simply says, in usual form, that the insured will bear. It does not have the “before becoming entitled to cover”. That, in my submission, plainly creates a condition precedent to the right of indemnity. It is saying that something must happen before something else happens. It is a trigger.

But the Court of Appeal, your Honours, in paragraph 14 of its reasons at page 28 of the book starting at line 19, said that the clear intent of the policy was that the insurer should not be paid the excess, but rather they should simply not have to pay it. In other words, notwithstanding the presence of these emphatic words, they treated it as a standard excess clause, and your Honours, in my submission, that simply cannot stand with the wording of condition 3. Read as a whole, in my submission, “bear” must mean “pay to the insurer”.

Your Honours, it is a good example, in my submission, of how resort to the dictionary meaning of a single word in a collocation of words can defeat the obvious contextual meaning of the collection of words. Your Honours do not need to be reminded that whilst one can go to dictionary meanings, as a matter of construction of statutes or private instruments, applying a dictionary meaning to a single word can defeat the obvious meaning, and that is the position here, in my submission, and the context, in my submission, of this composite expression in the first sentence of condition 3 is important.

There is the condition itself. I have already dealt with that. Then it is of course found in the policy as a whole, and the insuring clause makes it clear that the scope of the indemnity is subject to the conditions of the policy. The Court of Appeal noted that part of the policy in its reasons at page 26 of the book, but in the policy itself - it is at page 62 “Cover Details”, your Honours see that:

In consideration of the payment of premium, subject to the terms, definitions, conditions -

Then there is a third contextual matter, your Honours, the commercial setting of the policy. Your Honours, going back to the second contextual matter, the fact that the insuring clause is subject to the policy conditions including condition 3, in my submission shows error on the part of the Court of Appeal at paragraph 17 of its reasons at page 29 of the book. There their Honours said that clause 2.3 of the insuring clause or the cover details in some way dominated condition 3, yet condition 3 is a condition to which the insuring clause is subject.

Condition 3 cannot be in any sense subsidiary to clause 2.3. That is what the Court of Appeal said. We put this criticism clearly enough, with respect, your Honours, in paragraph 22 of our summary of argument at page 42 of the book. In my submission, in the very next paragraph of their reasons the Court of Appeal go on to compound the error. They hold that condition 3 refers to multiple excesses, it is concerned with multiple excesses. Your Honours, that overlooks the bifurcation of the clause into the two sentences. The first sentence plainly has nothing to do, in my submission, with multiple excesses and only the second sentence deals with that.

Your Honours, the Court of Appeal, when I come to the third contextual matter which I say is important, the Court of Appeal made a couple of brief references to commercial implications in this case - paragraphs 21 and 25 of their reasons at 30 and 31 of the book, but you have only got to look at those, with respect, to see that they are not really background commercial considerations that were a setting to the policy at the time of the formation of the contract.

The relevant considerations of that kind are not mentioned by the Court of Appeal at all. They appear in the affidavit of Ms Hamilton, which is at pages 66 and 67 of the book and what that shows, quickly summarised, because it is already summarised, your Honours, in paragraphs 28 and 29 of our summary of argument, shows that this class of risk – risk involving body hire companies in industry was not regarded as a good risk and that the effect of the excess provision of condition 3 was to top up the premium when the claims inevitably came. I would refer your Honours to paragraphs 28 and 29 of our summary of argument at pages 42 and 43 of the application book.

Another matter of the overall construction of the policy is this, your Honours. The Court of Appeal said that they were dealing with this case on the basis that the excess condition applied to defence costs. They said that in paragraph 23 of their reasons at page 30 of the book, but in dealing with the matter of defence costs, with all respect to their Honours, they seem to have completely overlooked the more obvious implications of the provisions about defence costs – and this is another commercial factor. It is pointed out in paragraphs 23 to 27 of our summary of argument, your Honours, at page 42 of the book, and I will endeavour to condense it as quickly as I can.

Your Honours, what the point comes to it is that because the insurer is obliged to, as it were, take on the defence of claims however unmeritorious they may be – that part of the argument, when I corrected at the outset, the spelling of “Insured” to “Insurer” - if the construction we contend for, and which we say is plainly the only one, is not applied, even if

$25,000 or more is spent in a completely hopeless case, the insurer does not get the protection of condition 3.

Your Honours, the only other things I want to say are these. The Court of Appeal appears to have relied on the wording of excess of loss reinsurance treaties, referred to the Fagan litigation going from first instance through the Court of Appeal to the House of Lords. Now, drawing some sort of an analogy from that, again with all respect to their Honours, is like comparing apples with oranges, in my submission. Reinsurance only becomes applicable, the reinsurer only becomes liable in any given situation when the reinsured’s liability goes past a set figure or figures. That justifies, and has always justified in that discrete area of insurance law, treating words like “actually paid” in reinsurance treaties as measuring or quantifying expressions, rather than a requirement of physical payment.

Finally, your Honours, the Court of Appeal moved on and dealt with the pay to be paid provisions in Lloyd’s Protection and Indemnity Club contracts saying that they were very different for reasons which are outlined. Your Honours, in my submission, the only difference is that in those cases, the whole lot has to be paid. This case is one in which $25,000 has to be paid up front, as it were, to trigger the indemnity. There is no difference in principle of any kind that the Court of Appeal has validly pointed out.

With respect, those cases assist me, I say, because they show that the idea of a trigger conditioning indemnity is not foreign or unknown to the law. Your Honours, that is really, with respect, a restatement of our summary of argument but those are my submissions.

HEYDON J: Thank you, Mr King. We will not trouble you, Mr Campbell.

The applicant for special leave is seeking an opportunity to appeal to this Court in order to test the construction of condition 3 of an insurance policy. The Court of Appeal agreed with the District Court judge on the construction. In our opinion, there are insufficient prospects that if the matter were fully argued on appeal it would be concluded that the Court of Appeal’s reasoning is incorrect. Accordingly, the application is dismissed with costs.

AT 12.40 PM THE MATTER WAS CONCLUDED