CGU Insurance Limited & Ors v Barrie Toepfer Earthmoving and Land Management Pty Ltd [2016] HCATrans 244 (14 October 2016)

Last Updated: 18 October 2016

[2016] HCATrans 244

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S122 of 2016

B e t w e e n -

CGU INSURANCE LIMITED ACN 004478371

First Applicant

NTI LIMITED ACN 000746109

Second Applicant

VERO INSURANCE LIMITED ACN 005297807

Third Applicant

and

BARRIE TOEPFER EARTHMOVING AND LAND MANAGEMENT PTY LTD ACN 066585751

Respondent

Application for special leave to appeal

GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 OCTOBER 2016, AT 11.23 AM

Copyright in the High Court of Australia

____________________

MR P.J. DEAKIN, QC: If the Court pleases, I appear for the applicants with my learned juniors, MR P.R. STOCKLEY and MS O.J. DINKHA. (instructed by Walker Hedges & Co Solicitors)

MR R.A. CAVANAGH, SC: May it please the Court, I appear for the respondent, with MR P.J. GOW. (instructed by Peter Evans & Associates)

GAGELER J: Yes, Mr Deakin.

MR DEAKIN: Thank you very much, your Honours. Your Honours, this is an insurance dispute but it involves wording that has been part of the insurance industry, internationally and in Australia, for many, many years, and it involves Australia-wide policies where similar wording appears. In this matter, your Honours, the New South Wales Court of Appeal overruled detailed factual findings made by the trial judge dealing with the key issue of recklessness without invoking or attempting to apply the Fox v Percy principles dealing with factual review.

GAGELER J: Do you have to get over the factual findings made in the Court of Appeal to get to your point of construction?

MR DEAKIN: We submit not because it should go back to look at was the Court of Appeal entitled to overrule the factual findings of the trial judge when he had the benefit of so much evidence dealing with the extent of the damage in this case and he had the benefit of expert witnesses and he had the benefit of eyewitnesses to this incident, giving rise to the factual findings which he arrived at.

Those factors, we submit, require the Court of Appeal to apply the Fox v Percy approach and it is not permissible, in our respectful submission, absent any identifiable error on the part of the trial judge, to decide the matter, as the Court of Appeal purported to do, on the weight of the evidence and the probabilities, which was the test that Justice Meagher applied.

So the answer to your Honour’s question is one needs to go back to what the circumstances were of the Court of Appeal reviewing the trial judge’s factual findings and whether they were entitled to overrule those findings, particularly on the basis nominated of a weight of evidence point.

GAGELER J: Well, this is a Fox v Percy point.

MR DEAKIN: Yes.

GAGELER J: What I am saying is if you lose on that point do you have an independent point about the construction of the contract or does it simply fall away?

MR DEAKIN: No, your Honour, the construction of the contract point remains very, very much alive and, in particular, as your Honours will have read, the onus of proof question because these policies have been consistently construed in New South Wales with similar wording, your Honours, as imposing the onus on the insured. In Victoria, that remains the law and has been ever since Sir Frederick Jordan’s decision in 1942.

As a matter of construction, theses clauses are construed as conditions precedent in relation to which the insured bears the onus of proof. It is a curious aspect of this case that the Court of Appeal adopted the test enunciated by Justice McHugh in Eather’s Case where his Honour made it plain in enunciating that test it was a burden that the insured bore, and yet the Court of Appeal has concluded that it is a burden that the insurer bears, directly contrary to what Eather’s Case established.

The question of construction, your Honours, is dependent upon the initial issue of who bears the onus and that is far more important – for the purpose of special leave and for the purpose of the circumstances of this case – than a mere question of construction, namely, what do the words mean.

We submit, your Honours, that this is a critical question as to who bears the onus, particularly when, as your Honours have read from the affidavit of Mr Hedges, these policies are issued Australia-wide in relation to vehicles which travel interstate, which your Honours can safely conclude, and for there to be decisions, for instance, in Queensland - your Honour Justice Keane would probably know of the decisions - particularly, that establish a contrary proposition, namely, an onus on the insurer, whereas the decisions in Victoria and until this case the decisions in New South Wales establish that the onus is on the insured.

KEANE J: Mr Deakin, wherever the onus lies, if there is a finding that as a matter of fact the insured or its agent, or servant, did not deliberately court the danger, did not deliberately court the risk, an actual finding that they did not act subjectively unreasonably, does it matter where the onus lay at the start? The findings establish that if Lord Diplock in Fraser v Furman was right, condition 3 was not breached because there was a finding that there was no deliberate courting of the danger, and also there was no recklessness as a result.

MR DEAKIN: Your Honour - of course your Honour understands that the trial judge held the opposite. This trial judge - - -

KEANE J: Well, quite. So wherever the onus is, you have a finding by the trial judge and you have a contrary finding by the Court of Appeal.

MR DEAKIN: But, your Honour, the question of onus is not only important for our special leave gateway that we hope to pass through, but it is fundamental to how these policies will operate throughout Australia. Who has to prove the issue of recklessness?

KEANE J: Unless you come to grips with the findings of fact it is just an academic exercise writing an essay about the topic you are raising for us.

MR DEAKIN: Well, your Honours, we submit it goes much beyond that because it is fundamental to the operations of these policies, and we have a bundle of material which we might hand to your Honours - - -

GAGELER J: The point is it may not be fundamental to the outcome of the case. So, accepting for a moment – at least for the purpose of this argument – that the question of onus of proof, which is related to a question of construction, is an important point, how is it dispositive of the outcome in the present case?

MR DEAKIN: Can we answer your Honour in a number of ways? The first is that in this case we not only have the benefit of the factual findings that we have already dealt with but we have the benefit of a finding by this trial judge that this condition 3 was a condition precedent going to liability. That was the finding of the trial judge. It appears at 50 of the application book at the foot of the page – at application book, paragraph 123, page 50, the second-last line:

On the other hand, the condition of reasonable care (condition 3) is a condition precedent to indemnity and the onus lies on Barrie Toepfer –

That was not disputed at trial but the Court of Appeal came to a different view. But the point we make is that that finding was never challenged. No one said to the Court of Appeal that his Honour was not entitled to find that this was a condition precedent to indemnity.

We submit that is fundamental to the operation of this policy that this trial judge has held that it is a condition precedent to indemnity and has not been challenged. Nor does Justice Meagher anywhere in his judgment say this is not a condition precedent to indemnity. He does not address that trial judge’s findings. That brings into play the passage in Amica that we have given your Honours a reference to and we submit determines that in relation to conditions such as that identified by the trial judge, the onus is on the insured.

Your Honour Justice Keane has asked me, I know, more than once about, well, how does that affect these factual issues but, your Honours, it is such an important point in relation to these factual issues, who has to prove it and the Court of Appeal overturned the trial judge on the basis that we had the onus and it was an essential part of the court’s reasoning, when your Honours look at paragraphs 88 and 89 of the Court of Appeal’s judgment, it turned on the onus question. So, it is not really just a question of fact, with respect, your Honours, it is also critical to why the Court of Appeal was prepared to – I said 88 and 89 and I apologise, your Honours, 88 - - -

KEANE J: Page 214 of the application book.

MR DEAKIN: Paragraph 82, I do apologise, your Honours, I apologise. Paragraph 82:

The insurers did not establish that Mr Luck had not slowed or stopped the vehicle in circumstance where he believed - - -

KEANE J: That is dealing with the exclusion in 7(i), not clause 3.

MR DEAKIN: No, your Honour, with respect, because his Honour took the view that the onus was on us in relation to the condition.

KEANE J: Well, 82 is concerned with 7(i), that is what I am saying. It is not concerned with condition 3.

MR DEAKIN: It is both, your Honour, the last sentence refers to both.

KEANE J: I see.

MR DEAKIN: So, it is the onus question. We, of course, your Honour understands – we, of course, always accepted that we bore the onus on the exclusion clause, no question about that. But this paragraph makes it plain that both for the purposes of the exclusion clause, which we always accepted, and condition 3, which until the Court of Appeal was accepted as being the onus being on the insured, onus was critical because their Honours concluded that we did not discharge that onus.

So, it goes beyond a mere factual issue is our real point. It goes to – and your Honours understand, these are often finely balanced questions as to whether something beyond negligence occurs in the wide variety of circumstances in which these accidents occur and it is often difficult to prove, particularly, as in this case, where we were not able to cross-examine the driver in question because he was unavailable.

So, onus flows into the factual issues and it was critical in this case that the reversal of the onus imposed on us by the Court of Appeal resulted in us failing for the reasons that the Court of Appeal gave. Your Honours, there are variations, of course, between these particular clauses that are employed in these policies but they are all, in effect, reasonable precautions clauses. They are widespread, as your Honours know, from the affidavit of Mr Hedges that is reproduced in the book from pages 224 and thereafter, that these policies are issued by companies, not just the present applicants, across Australia with similar clauses.

There is a conflict in the authorities between the States as it stands at the moment on this critical issue of onus and we submit, your Honours, that it is a point that is of sufficient importance in relation to these policies to warrant the grant of special leave.

GAGELER J: Now, I am not sure that this conflict in authorities is highlighted in your submissions.

MR DEAKIN: We have drawn attention to the fact that Victorian decisions have consistently adopted the same approach but your Honour is correct in a way and that was why I was proposing to hand to your Honour a copy of Derrington because – could we hand to your Honours just some material that we – my learned friends have a copy of this - of course, your Honours know that Justice Derrington is the important author in this area of the law in relation to liability insurance.

Behind tab 8, your Honours will find an extract of the relevant passages from the third edition of Derrington, The Law of Liability Insurance. The differing views on these conditions is referred to on the second page of the extract that your Honour has been handed. So, 1551, the paragraph commencing:

In Australia, there is some disparity of view as to where the onus of proof as to breach of or compliance with a condition lies, that is, whether the insured should prove compliance with the conditions of the policy –

and there is a whole raft of cases referred to there:

or whether the insurer should prove breach of such conditions as it would rely upon.

GAGELER J: Now, if you are saying that the decision in this case is in direct conflict with a decision of an intermediate appellate court of another jurisdiction, can you make that good?

MR DEAKIN: Yes, your Honour.

GAGELER J: Can you take us to the other decision?

MR DEAKIN: Before I do that, where I strayed from was my reference to Wallaby Grip because if we are right about the condition precedent which this trial judge held was applicable to this case then Wallaby Grip determines the outcome of what the Court of Appeal should have done.

But before I come to that, could I just ask your Honours to look at Derrington a little later, paragraph 9-17 because the learned author also deals with specifically these conditions, reasonable care conditions. What the learned author on page 1556 says, paragraph 9-17, when dealing with these very conditions, reasonable care and precautions and compliance with regulations which this clause, of course, deals with is, at the second paragraph at 9-17:

The nature of this provision is not necessarily a condition, and if on its face it does not purport to have that function then it will not be so construed. However, it is usually accepted to set a condition precedent to the liability of the insurer to indemnify the insured in respect of a claim arising out of its breach. This broad construction is justified by commercial utility since an insured should reasonably expect that he should be required to take reasonable precautions and comply with safety regulations and/or requirements, even though it may have no bearing on the safety of the occasion when injury or damage occurs –

et cetera, so it accords with general principle as the learned authors point out that these types of clauses are condition precedents. We have the benefit of the finding that is unchallenged and can I go back to Wallaby Grip? It is behind tab 4 in your Honour’s collection, Wallaby Grip v QBE 240 CLR 444. In the decision of the plurality, could we invite your Honours to turn to page 456. Their Honours are there referring to the decision of Acting Justice Gyles in that case. At 24, your Honours see a reference to Acting Justice Gyles’ consideration of the matter but it is 25 that we rely upon because what their Honours say at paragraph 25 is:

His Honour referred with approval to the judgment of Jordan CJ in Kodak –

which, of course, is our central case:

where a condition necessary to the accrual of liability of an insurer, a “condition precedent”, was contrasted with one which creates a particular exception to the insurer’s obligation. The insured bears the onus of proving the fulfilment of the firstmentioned condition.

This is the first-named condition, squarely and directly as a result of what we have already read to your Honours from page 50 of this book dealing with this trial judge’s conclusions. It is a condition going to liability and, therefore, both as a matter of general principle from what your Honours have read in Derrington and on the facts of this case as found by the trial judge, this Court has laid down, derived from what Sir Frederick Jordan said in Kodak, that in those cases where it is a condition precedent, the insured bears the onus which is what all the law in New South Wales, until this case, adopted and accepted.

Your Honours, the list of the cases that Justice Derrington has – that Derrington’s textbook has referred to is also referred to in Lawless which is behind tab 7 but that just shows your Honours the extent of the conflict in the authorities. But it is worth taking your Honours to it. Behind tab 7 is a decision of the Full Court of the Victorian Court of Appeal CGU Insurance v Lawless (2008) 15 ANZ Insurance Cases 76,497 and on page 76,505, paragraph 38, the extent of the differing views on onus of proof is set out. It perhaps spells it out in greater detail even than Justice Derrington does in the textbook.

So, your Honours, we point to that as being a compelling reason why leave is warranted in this case because these authorities have followed two different streams. In Victoria, that case confirms decisions going back to much, much earlier decisions which have applied, Sir Frederick Jordan’s principles, to impose the onus on the insured.

New South Wales, until this case, followed an identical pattern and this is the first case that we are aware of in New South Wales in which a reasonable precautions clause certainly in this case construed as a condition

precedent has been held to impose a burden on the insurer as opposed to the insured.

When one goes to Eather’s Case, which is in your Honours’ bundle as well behind tab 3, Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR, it is a reasonable precautions case arising out of a loss of property policy and Justice McHugh at 407, having referred to what Chief Justice Jordan said in Kodak v Retail Traders and also the Victorian decision of Albion, his Honour says at between letters D and E on page 407:

In my opinion the words “you are to take all reasonable precautions to avoid or minimise injury, loss or damage” mean that the insured must be concerned to protect the property from loss or damage and must take such steps to protect the property as he thinks are reasonable having regard to dangers which he recognises. The onus of proving compliance with the condition is on the insured –

Justice Kirby, the learned President, as he then was, says exactly the same back on 393 where his Honour – could we read the whole of that paragraph commencing at letter E on 393 because his Honour points out firstly that there has been some controversy about it and also says that merely by describing it as a “condition” does not determine it. But his Honour goes on to say:

However, in this State the authority of Kodak (Australasia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) SR (NSW) 231; 49 WN 197, is to the contrary. To the extent that the pleading, his Honour’s judgment and the written submissions suggest the contrary, they are in error. So much was conceded on the appeal. To reach a different conclusion, it would be necessary to reverse Kodak and this was not argued by either party.

GAGELER J: Thank you, Mr Deakin, your red light is on.

MR DEAKIN: Thank you, your Honour.

GAGELER J: Mr Cavanagh.

MR CAVANAGH: May it please the Court. May I deal with the onus of proof issue. The simple answer to the onus of proof issue, your Honour, is that all the cases to which my learned friend refers involve similar wording to that found in Kodak’s Case where the court found it was a condition precedent. The wording in this policy of this condition is not a condition precedent. So, this case, this finding, this policy – the outcome depends on the wording in the policy and as this Court has said many times in constructing any contract of insurance regard must be had to the precise words using the policy.

Can I take your Honours to the particular condition? It is at application book 193 and at line 42 where his Honour Justice Meagher refers to the introductory clause:

We may refuse to pay a claim, or may reduce the amount payable under a claim to the extent that Your breach of any condition of this policy causes or contributes to loss, damage or liability or prejudices Our interest or rights, in respect of that claim.

Then there is reference to the reasonable care condition. Those words must be contrasted, your Honours, with the words in the earlier cases to which my learned friend refers such as in Eather’s Case or we can start with behind tab 6 - Body Corporate v Albion Insurance at page 701 in the second paragraph:

One proviso of that policy reads:-

“That the due observance and fulfilment by the insured of the terms conditions . . . shall be conditions precedent to any liability –

Then, if we go back to Eather’s Case, a similar clause is found is Eather’s Case. Your Honours, may I hand up the original case, Kodak - if your Honours turn to page 234 of the judgment your Honours will see, continuing on from the page before, the similar words to those found in Albion Insurance, similar words found in Eather and this all stems from the approach of Sir Frederick Jordan in Kodak, that when the introductory words to a condition commence with words as were found in all those three cases, the condition should be treated as a condition precedent thereby imposing an obligation on the insured to establish the elements of the condition.

As Justice Meagher makes plain in his Honour’s judgment, this is not a condition precedent. His Honour deals with that at application book 198 and following, page 199. His Honour refers to - page 200, line 20, Kodak’s Case and Sir Frederick Jordan’s statement at line 45:

the question of where the onus lies must in every case depend primarily upon the nature of the condition and the provisions of the policy –

which is, of course, entirely consistent with what this Court said in Wallaby Grip and, in particular, as again his Honour refers to:

the matter of proof follows largely upon the construction of the terms of the contract of insurance –

So, we simply submit, as the Court of Appeal found, this is not a condition precedent. There is no controversy about who bears the onus in circumstances where it is not a condition precedent. If the insurers wished to make it a condition precedent they could have. They chose not to. So the outcome for this case in terms of onus of proof simply falls to be determined as the Court of Appeal did in accordance with the precise terms used in this policy.

It may be that in other cases because the insurers have adopted language in their policies consistent with that in Kodak that other courts have found that when that language is present those words are present but in some way the insured bears the onus of proof. But this is not a case where the same words are used and, therefore, there is no conflict between the decision in this case and the case in Eather or the decision in Lawless or the decision in Albion Insurers because different words are used. It is like any insurance dispute, the court interprets the words used and comes to a finding.

We submit, with respect, there is no dispute with the earlier cases because this is not a condition precedent and that is how we deal with what seems to be the primary point of my learned friend in terms of the grant of special leave that this is an important case and all these policies have reasonable care conditions. They do, but not all the policies have the same words as were used by the insurers in this case – by the applicants in this case.

In any event, your Honours, we adopt what your Honours have perhaps indicated, why does it make a difference? In this case, there were two statements tendered by Mr Luck, the driver, both of which were to the effect that he did not think in any way that he was going to hit the bridge. Mr Wyborn, the passenger, gave evidence to the effect that it never occurred to Mr Luck or I that we would hit the bridge.

The proposition advanced by the applicants in this case is to this effect, that a very experienced truck driver knowing that he might hit the Hexham Bridge, a major bridge, decided to drive in through it or over it in any event. As Justice Meagher said, that of itself is improbable and it does give rise to the issue of the court would never be satisfied of compelling proof but, in the end, the proof was all one way.

The only relevant witnesses, we submit, with respect to my learned friend, were the driver and the passenger because it is a subjective test. It

really does not matter what the driver behind thought or what he saw, the question is what was the perception of the driver, Mr Luck, and how does the evidence of Mr Wyborn bear on that.

The fact that Mr Luck was not available for cross-examination does not affect things either way. The fact is there were two statements tendered where evidence of his perception was given and Mr Wyborn’s evidence supported it. So that there is no error, we submit, on the part of the Court of Appeal in their findings and in case your Honours need further persuasion, Justice Meagher in the judgment sets out at application book 209 all the ways in which the primary judge erred.

The fundamental error of the primary judge was that his Honour, with respect to him, seemed to focus on, as Justice Meagher again said, what the driver ought to have done. It is not a negligence action. That is not relevant. As between the insurer and the insured, the bar is a lot higher. There has to be a perception of the risk, or a subjective test, a knowledge of the danger and a deliberate courting of the danger. There needed to be findings to that effect and we submit, with respect to the learned trial judge, no error has been demonstrated in the approach of the Court of Appeal in terms of the findings on that fundamental issue.

GAGELER J: Thank you, Mr Cavanagh. Mr Deakin.

MR DEAKIN: Thank you very much, your Honours. What my learned friend has been putting to your Honours in relation to the authorities that he and I have both drawn to the Court’s attention, namely, Eather, Albion and Kodak, is that all of those authorities use words similar to this in relation to reasonable precautions but this is a different case, on Justice Meagher’s approach and on my learned friend’s approach, because of the chapeau that appears at the commencement of these conditions. That appears to be what my learned friend has relied on and, in fairness, it seems to be what Justice Meagher has relied on. He did not use the word “chapeau” but I think your Honours understand - - -

KEANE J: If one goes to page 201 of the application book and paragraph 48 where Justice Meagher draws these considerations together, 48 to 50, where is the error?

MR DEAKIN: Your Honour, this is exactly what I am coming to because his Honour relies on those words that my learned friend read to your Honour at the foot of 193 which are the introductory words to all the conditions:

We may refuse to pay a claim –

et cetera, to say that in this case the onus has switched and that those words, properly construed, make this case different from those cases which have decided the onus is with the insured. But the two points we make about that, your Honour, are these. Firstly, his Honour had no regard in construing that clause to the provision of section 54 of the Insurance Contracts Act.

KEANE J: Why would he, why would he? He has to construe the contract before he gets to the statute.

MR DEAKIN: Your Honour, the statute is relevant to construing the terms of the contract because one has to have regard to what the statute spells out when it, like this clause, speaks about circumstances in which the insurer may “refuse to pay the claim”.

GAGELER J: Where does section 54 come into the analysis of the Court of Appeal? Was an argument put?

MR DEAKIN: Justice Meagher did not refer to it at all and that is our criticism. He construed this clause without having any regard to the terms of section 54 and he did more than that. He said this clause properly construed means that it presumes an entitlement in an insured to an indemnity under this policy whereas this Court’s decision in Antico and repeated in FAI is to the contrary.

KEANE J: No, he does not simply say that. This clause says:

We may refuse to pay a claim, or may reduce the amount payable under a claim to the extent that Your breach of any condition of this policy causes or contributes to loss –

So the extent to which your client is entitled to refuse to pay or to reduce the amount payable depends on demonstration that the breach by the other side has caused or contributed to loss, damage or liability.

MR DEAKIN: That is exactly what his Honour says and we submit it is wrong for two reasons: firstly, that if one has regard to section 54 and we submit by analogy if one has regard to the terms of this contract this Court’s decisions in Antico and in FAI establish that section 54 and by analogy this clause proceeds on the assumption that the insurer is entitled to refuse the claim. His Honour proceeds on the opposite assumption. He says it proceeds on the assumption that this insured is entitled to indemnity under the policy. Perhaps we do need to take your Honour briefly to FAI.

GAGELER J: It will need to be very brief.

MR DEAKIN: I do apologise, but yes, your Honour, it is an important point of principle. In FAI confirming what the Court said in Antico - it is behind tab 5, your Honours, on page 652 of the Commonwealth Law Reports:

“[Section 54 takes as its starting point the existence of a claim and a contract the effect of which is that the insurer may refuse to pay the claim.”

So that is exactly the opposite to what Justice Meagher gleaned from this clause without applying section 54. It assumes the opposite of what Justice Meagher drew from this clause. His Honour failed to have regard to the statute and failed to apply it, when one looks at what section 54 has been construed to mean, we submit, in error. Your Honours, my learned friend has said it is not a condition precedent case. The Court of Appeal did not - - -

KEANE J: Section 54 is for the protection of the insured.

MR DEAKIN: It is, but, your Honour, if one looks at its term, it also puts the opposite of what your Honour has put to me, your Honour Justice Keane put to me, it imposes the onus on the insured to separate out those aspects of the damage that flow from the breach and those which are not. If your Honour looks at section 54(3) and (4) - it is at the front of your Honour’s bundle behind tab 1 - “Where the insured proves” subsection (3); subsection (4) “Where the insured proves”, it is an onus squarely placed on the insured, exactly the opposite of what Justice Meagher in this case has construed these words as meaning even though the statute contemplates the opposite. We submit it is erroneous and this is a case that warrants special leave in our respectful submission.

GAGELER J: Thank you, Mr Deakin.

In this matter we are not persuaded that the applicant would have sufficient prospects of success to warrant the grant of special leave to appeal. Special leave is refused with costs.

The Court will now adjourn to reconstitute.

AT 12.00 PM THE MATTER WAS CONCLUDED