GBRH Holdings Pty Ltd v Helicopter Services Cairns Pty Ltd (As Trustee for the Helicopter Services Discretionary Trust [2013] HCATrans 19 (15 February 2013)

Last Updated: 19 February 2013

[2013] HCATrans 019

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B45 of 2012

B e t w e e n -

GBRH HOLDINGS PTY LTD (ACN 143 159 424)

Applicant

and

HELICOPTER SERVICES CAIRNS PTY LTD (ACN 097 868 776) AS TRUSTEE FOR THE HELICOPTER SERVICES DISCRETIONARY TRUST

Respondent

Application for special leave to appeal

FRENCH CJ
HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO BRISBANE

ON FRIDAY, 15 FEBRUARY 2013, AT 10.14 AM

Copyright in the High Court of Australia

MR D.B FRASER, QC: May it please the Court, I appear with MR P.W. TELFORD of counsel, for the applicant. (instructed by Williams Graham & Carman Solicitors)

MR P.A. FREEBURN, SC: I appear for the respondent. (instructed by Miller Harris)

FRENCH CJ: Thank you.

MR FRASER: Your Honours, we submit that there were two errors in the approach of the court below. The first was the failure to identify the nature and extent of the applicant to indemnity under its policy with Allianz, and that error occurred, with respect, because the Court of Appeal appears to have only had regard to the requirements at common law as to insurable interest in considering the applicant’s right to indemnity under the policy and failed to appreciate the implications of section 17 of the Insurance Contracts Act.

That error, we submit, led to the second. We submit that the Court of Appeal wrongly concluded that because the applicant had agreed with the respondent that it would acquire no interest in the helicopter, subject to the terms of agreement, until either option under the agreement was exercised it had ceded to the respondent all the proceeds of the policy to which it might otherwise have been entitled. Your Honour, that conclusion appears in the application book at page 17, paragraphs [29] to [32] and we refer to those paragraphs in detail in our outline.

HAYNE J: Is not the second point the point at which analysis must begin?

MR FRASER: Yes, your Honour, because ultimately the only rights that the applicant has are those rights possessed under the hiring agreement, so all of the rights that it has come from that agreement, and in consequence of that agreement it agreed to hold the respondent harmless against all risks, and to do that it obtained, in accordance with the terms of the contract, a policy noting the respondent’s interest.

So, when one looks at it one would look at it in terms of regarding traditionally the applicant as the bailee with an entitlement to receive the whole of the proceeds from the insurer, since section 48 of the Insurance Contracts Act, the respondent would have a right to recover its loss directly from the insurer, but in the meantime the applicant’s right is a right to receive the proceeds directly from the insurer and then account to the respondent after indemnification of its own loss for the amount of the respondent’s entitlement. That is where it becomes very difficult in terms of the guidance needed to identify the - - -

CRENNAN J: The applicant was never sued by the owner in relation to the loss of the helicopter.

MR FRASER: No, your Honour. What occurred was that the insurer became aware there was a dispute between the applicant and the respondent and paid the proceeds of the policy to a solicitor’s trust account to be decided between the two of them as to who was entitled to which part of the proceeds.

HAYNE J: In light of the agreement the applicant had made, what was its loss?

MR FRASER: Its loss, your Honour - well, it had the right under the agreement to acquire a helicopter for significantly less than the proceeds of the policy, which - - -

FRENCH CJ: That is the $525,000?

MR FRASER: Yes, your Honour. It had the right to acquire it for $525,000, less the amount that it had already paid off to the respondent’s debt which was secured over the helicopter with its financier. So, in effect, at a practical level the applicant stepped into the shoes of the respondent in terms of paying out the chattel mortgage that had been given to the financier, in this case CBA. So, it is a very common set of circumstances, your Honour, and indeed, when one looks at the provision under which the parties agreed to regulate their rights - and perhaps I should take your Honours to that now, it is at page 52 of the application book, in clause 13(4). It is a fairly standard means of risk allocation in commercial contracts, subsection (4):

The Grantee shall be responsible for all risks –

then about four lines down -

and the Grantee undertakes to indemnify . . . the Grantor . . . from such risks and to cover the same adequately by an insurance or insurances with . . . the Grantor’s interest noted –

So, rather than each party taking out a separate policy to insure their respective interest the parties agreed that the applicant would be the policyholder and would insure on the basis that it also noted the grantor’s interests in the helicopter. Now, our submission is that that caused - - -

CRENNAN J: Are you able to point to something in the insurance policy where what you are calling the applicant’s interest was treated as a risk to be covered?

MR FRASER: Yes, your Honour. If your Honour goes to the policy which appears at page 82 of the application book, the relevant parts, about line 18 – well, starting with line 16:

We agree, in consideration of the payment . . . to indemnify you against loss, damage, liability or expense arising out of an Accident . . . subject to the Policy terms, conditions –

Section 1 is “Loss of or Damage to Your Aircraft” and subclause 1 of that is somewhat convoluted but in the end what it amounts to is a promise by Allianz in these terms; we will pay for the loss of your aircraft from the risks covered. If you go over the page you will see in clause 10 at about line 52 that Allianz has said:

If we exercise our option to pay for your Aircraft:

(a) we will pay you the Agreed Value of the Aircraft as stated in the Policy Schedule less any applicable deductible;

CRENNAN J: Then there is that exclusion in 7(d) in relation to “Consequential loss or economic loss”.

MR FRASER: Yes, your Honour. This was raised as a notice of contention but not dealt with in the Court of Appeal below and our response to that is really twofold. The first is that we are not talking about here any amount which might have been sought to be recovered as consequential loss or economic loss because the insurer in fact paid the agreed value. So it is a question of the entitlement to the agreed value by reference to the parties’ rights and interests both under the agreement which is, of course, ultimately the source of all of their dealings in relation to the insurance policy itself.

HAYNE J: But the arrangement between grantor and grantee is recorded at 47 and following, correct? Is that right? At application book 47 and following?

MR FRASER: Yes, your Honour.

HAYNE J: There is a “Put and Call Option”.

MR FRASER: Yes.

HAYNE J: The grantor can sell it in the meantime.

MR FRASER: If the grantor sells it, it has to pay the difference, the same amount that we claim, to the grantee.

HAYNE J: But the only rights that the grantee had were put and call and hire.

MR FRASER: And the right to exploit, of course, is part of that; yes, your Honour.

HAYNE J: Well, it could hire.

MR FRASER: Yes, your Honour, and it could on-hire if it wished without consent.

HAYNE J: Yes.

MR FRASER: So, your Honour, our submission is that the issue which really emerges is how does the grantee, the applicant in this case, then account for the policy proceeds in terms of principle where each party is an insured person, and I note that the respondent contends that section 1 of the policy only refers to his client, but in the authorities that we have relied upon, in particular can I take your Honours to the decision of Justice Hill in Howard v Australian Jet Charter Pty Ltd. It is in our bundle at page 164, point 6 is the relevant passage. This is a policy which is in very similar terms to that which this Court is concerned with this morning.

HAYNE J: Were the commercial arrangements between the two persons the same?

MR FRASER: The report indicates that the contract between the two parties, that is, the owner and the operator in that case, were not before the court, so I cannot answer that accurately, but essentially there was an owner and an operator and the policy terms were very similar, including the agreed value provisions. In that case Justice Hill noted in the second line, in the past – sorry, in response to this submission, it was said that the hirer’s:

rights and interests fell solely under ss 2 and 3, not presently material. In the past, this submission might perhaps have been supported by the need for an insured person to have an insurable interest in the property insured.

Then his Honour went on to make specific observations about section 17 and the impact of it on a provision of that kind. Now, his Honour was not deciding the point finally and no one has, and the leading texts on the point, Kelly & Ball, for example, say that section 17 requires judicial clarification in this area.

Your Honours, there is one other point, and while your Honours have our bundle, could I ask your Honours to go to page 213? This is from the judgment of Lord Reid in the decision of Tomlinson (A.) (Hauliers) Ltd v Hepburn, and it is at point B about the obligation of the bailees in that case to the owners of the goods in that case:

The respondents are entitled to recover under it –

they were the bailees –

the value of the goods up to the limits expressed in the policy. But the law will require them to account to Players, the owners of the goods, for what they do not require for their own indemnification.

Now, that principle has not been the subject of, in our submission, any clarification in the context of the Insurance Contracts Act because one would think that logically any obligation to account, given the ordinary position that the bailee will be able to receive the whole of the proceeds, would then be referrable to the agreement between the bailee and the owner, and in those terms if the agreement, as here, simply provided that the bailor would be noted – that their interest would be noted on the policy - in our submission, that would give rise to a set of circumstances where one would turn to the bailment agreement - in this case, the hiring agreement – to understand how the parties’ rights would be regulated.

When one goes to that, one would have regard to the position at law in terms of identifying the quantification of a party’s loss as discussed in Commonwealth v Amann Aviation, that where contingencies are involved they must be brought to account. In this case, on the facts, on the assumption that the agreed value, what represented the market value of the helicopter which was destroyed, the loss of the applicant of its rights in the helicopter which arise from the agreement would be the difference between that amount and the amount it could have acquired the helicopter for, which is the amount we have set out in the outline.

FRENCH CJ: What do you say to the proposition at paragraph 17 of the respondent’s submission at page 39? It is all to do with the particular contractual arrangements.

MR FRASER: Your Honour, in our submission, that is not correct for the reason that this is a very standard operation or standard relationship between bailor and bailee where the reason why the arrangement has been entered into is to facilitate the economic interests of the bailee and the bailor and, in terms of insurance, the way it is done to protect the parties’ rights in that respect is to ensure through a tripartite – or in this situation more parties were involved because the bank was also noted – and in those circumstances, given that there is no discussion of how section 17 will operate in that context, how the obligation of an insured, that is, the contracting party under the policy, is obliged to account for the named insured who was not a party to the contract.

In our submission, as has been said by the text writers on the point, it requires clarification because - can I actually take your Honours to the discussion of this point which is really a statutory modification of the indemnity principle? Could I ask your Honours to take up the respondent’s bundle of authorities and if your Honours could go please to page 49 of that bundle? It is really paragraph [12.0100] where the indemnity principle is discussed.

If your Honours then go to page 57, which is the same extract from Kelly & Ball, Principles of Insurance Law, at paragraph [12.0110] under the heading “Statutory modification of indemnity principle”, there is a discussion in the second paragraph:

The effect of this section is to adopt the “economic” test . . . Even if the insured has no legal or equitable rights over the insured property, he or she has an insurable interest if loss or damage to the property would be likely to cause him or her financial loss.

Now in this situation, as bailee, the applicant had a recognisable insurable interest, and accordingly would, as we submit, be entitled prima facie to the proceeds of the policy according to the Tomlinson approach, stated by Lord Reid, it would be an obligation to account. But then if you go to the last paragraph on the page, the learned authors state:

Section 17 gives rise to a number of problems. The first is a simple drafting error . . . The second problem lies in ascertaining the amount the insured is entitled to recover under the policy. The section says nothing on the matter.

This is a case which, to respond to your Honour’s query about - - -

FRENCH CJ: I am not sure I agree with the proposition that a drafting error should be fixed by judicial interpretation. It is just what the text writer seems to - - -

MR FRASER: Yes, well, he must be a pro-active author, your Honour.

HAYNE J: That is a description.

MR FRASER: But in our submission, the real point is that there is nothing said in section 17 on how you assess that right, and more significantly, where it intrudes into a common commercial relationship which involves the application of Commonwealth legislation, it is a problem which is going to come up again and again.

There is, with respect, no real analysis of how section 17 operates here, nor indeed how one would treat the obligation to account by the applicant here to the respondent as to the proceeds. In our submission, it is not simply a particular instance or a particular agreement because the fundamental principles which underpin the agreement will be unchanged in every one of these relationships.

FRENCH CJ: The section tells you that, “the insurer is not relieved of liability . . . by reason only”, et cetera. The liability is defined by reference to the policy.

MR FRASER: That is correct, your Honour. Yes, we accept that. We submit that in this policy the liability would be clear, the insurer would have to pay the applicant the whole of - - -

FRENCH CJ: You rely on that provision which says they have paid the agreed value of the aircraft?

MR FRASER: I am sorry, I just missed the first part of your Honour’s question.

FRENCH CJ: You rely on that provision which talks about paying the agreed value of the aircraft that you took us to?

MR FRASER: Yes, your Honour. In those circumstances, in our submission, there would be no impediment, in policy terms, but the issue which emerges then is how do the parties regulate their commercial dealings thereafter in relation to those proceeds? Is it to be done by reference to the terms of their agreement? Is it to be done by an analysis of what is meant by “recovery of loss” for the purposes of section 48 of the Insurance Contracts Act, or is it to be done on some other basis, and if so, what? Our submission is it should be done by reference to the contract in the ordinary assessment of damage principles, in which case the applicant ought to have succeeded below.

FRENCH CJ: Thank you, Mr Fraser.

MR FRASER: Thank you, your Honour.

FRENCH CJ: We do not need to trouble the respondents.

The resolution of the dispute between the parties turned upon the particular commercial arrangement they had made. No disputed point of general principle would fall for consideration if leave were to be granted. The actual orders made by the Court of Appeal are not attended by doubt. Special leave will be refused with costs.

The Court will now adjourn to reconstitute.

AT 10.36 AM THE MATTER WAS CONCLUDED