AFG Insurances Ltd v Andjelkovic

[1981] FCA 119

Re: A.F.G. INSURANCES LIMITED
And: ELLI ANDJELKOVIC (1981) 54 FLR 398
No. F.C. 23 of 1980
Law Reform (Miscellaneous Provisions) Ordinance 1955 (A.C.T.) - Insurance
1 ANZ Insurance Cases 60-443

COURT

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Franki(1), McGregor(1) and Kelly(1) JJ.

CATCHWORDS

Law Reform (Miscellaneous Provisions) Ordinance 1955 (A.C.T.) - ss.25(1), 26(1)(2) and (3) - Charge on insurance moneys - Applicant injured as result of fault of insured - Application for leave to commence action against insurer - Considerations affecting exercise of discretion to grant leave.

Insurance - Respondent injured due to negligence of insured - Application for leave to sue insurer - Whether leave may be granted - Whether respondent had arguable case against insurer - Law Reform (Miscellaneous Provisions) Ordinance 1955 (A.C.T.), ss. 25 (1), 26 (1), (2), (3).

HEADNOTE

The respondent sustained severe injuries due prima facie to the negligence of the insured. The primary judge granted leave to the respondent to commence an action against the appellant (insurer) pursuant to s. 25 (1) and s. 26 of the Law Reform (Miscellaneous Provisions) Ordinance 1955. The appellant appealed against this decision. Held, per curiam, upholding the appeal, that leave should be refused because the respondent had failed to present an arguable case that the circumstances under which the injury was sustained were within the terms of the policy.

HEARING

Canberra, 1981, March 25; July 23. #DATE 23:7:1981

APPEAL.

Appeal from a judgment of the Supreme Court of the Australian Capital Territory to the Full Court of the Federal Court of Australia. The facts of the case and ss. 25 (1) and 26 (1), (2) and (3) of the Law Reform (Miscellaneous Provisions) Ordinance 1955 are set out in full in the judgment which follows.

R. S. Hulme, for the appellant.

T. J. Higgins, for the respondent.

Cur. adv. vult.

Solicitors for the appellant: Dare Reed.

Solicitors for the respondent: Higgins.

E. F. FROHLICH

ORDER

1. The appeal be upheld.

2. The order granting leave to commence proceedings against the appellant is rescinded.

3. The respondent pay the appellant's costs of the application to the Supreme Court and of this appeal.

JUDGE1

Section 25(1) of the Law Reform (Miscellaneous Provisions) Ordinance 1955 of the Australian Capital Territory ("the Ordinance") provides for a charge on certain insurance moneys in the following terms:-

"25. (1) If a person (in this Part referred to as 'the insured') has, whether before or after the commencement of this Ordinance, entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his liability is, on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of the liability may not then have been determined, a charge on all insurance moneys that are or may become payable in respect of that liability".

Sub-sections 26 (1)(2) and (3) of the Ordinance are as follows:
"26. (1) Subject to the next succeeding sub-section, a charge created by this Part is enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured.

(2) In respect of any such action and of the judgment given in any such action the parties have, to the extent of the charge, the same rights and liabilities, and the court has the same powers, as if the action were against the insured."

(3) Except where the provisions of sub-section (2) of the last preceding section apply, no such action shall be commenced in any court except with the leave of that court, and leave shall not be granted where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim have been taken." (Section 25(2) has no relevance to this appeal.)

The appellant has appealed from a judgment of the Supreme Court of the Australian Capital Territory, which, pursuant to s.26 of the Ordinance, granted leave to the respondent to sue the appellant in its capacity as insurer of Brentwood Homes (Builders) Pty. Ltd. ("the building company").

For the purposes of this appeal it is common ground that the evidence before the Court established that:

(a) On 23 September 1973 the respondent was viewing an exhibition home which had been constructed by and was, at the time of the accident, occupied by the building company;

(b) The respondent claims that, when descending the front steps of the house, she sustained a broken hip and other severe injuries caused by a fall which occurred because the bottom step was missing. It is conceded by the appellant that the respondent could have established facts which showed a prima facie case of negligence against the building company but these facts were not admitted, and

(c) The appellant had entered into an insurance policy, ("the policy") to which we refer later, with the building company which contained provisions concerning public liability insurance.

The learned primary Judge summed up his decision in the following way:
"The main purpose of the provision requiring leave to commence the statutory action is to prevent the substitution of a statutory claim for a claim against the insured where the latter is available and will apparently be effective. Leave may also be refused where the applicant's claim is unarguable, i.e. where the applicant's contention, that the statutory conditions for the vesting in him of a right of action have been fulfilled, could not possibly succeed. But if on such an issue there is an argument in the applicant's favour which could be seriously put, then in my opinion, on the proper construction of the Ordinance, leave should be granted and the issue should be determined in the action in any available way."

The appellant submitted that the learned primary Judge in deciding the issue as to whether or not a charge had arisen should not have given leave unless he found that such a charge did exist. As a subsidiary argument it was submitted that, if the learned primary Judge was correct in deciding that leave should be granted if a serious argument in the respondent's favour could be put, then, in this case, no such argument could be put.

Counsel for the respondent argued that the respondent was entitled to leave pursuant to s.26(3) of the Ordinance if she could show a prima facie case of liability which he equated to a seriously arguable case, but he conceded that, if the incident took place outside the terms of the policy, the respondent was not entitled to leave. For the purpose of the appeal he said that the only real issue was: "Was there an arguable case?".

Section 26(3) commands the Court not to grant leave in certain circumstances. It is not easy to decide precisely what is embraced in the words which describe the circumstances where the Court is not to grant leave. In our opinion the Court has a general power to grant leave in all cases which do not fall within the provision that it shall not grant leave and in which it is made to appear by evidence available in the application that there is an arguable case of liability against the insured, being a liability against which the insured is indemnified by a contract of insurance in force at the time of the happening of the event said to give rise to the claim. We accept the relevant test proposed by the respondent which is really the test formulated by the primary Judge, namely, - has the respondent presented a case which is at least arguable?

The learned primary Judge took the view that the respondent had made out such a case. In our opinion no such case was made out for the reasons which we will develop.

The relevant part of section II of the policy, under the heading "Public Liability Insurance" reads:
"1. The Insurers will indemnify the Insured in respect of accidents happening in connection with the performance of the Contract described in this policy against liability at law for damages in respect of:

(A) death of or bodily injury to any person not being a person who at the time of the accident is employed by or is engaged in and upon the service of the Insured under a contract of service or apprenticeship or is engaged by the Insured under a sub-contract."

The policy clearly defines the contract described in the policy as "Construction of Private Residences".

We consider that a person injured, as the evidence on behalf of the respondent claims, whilst viewing an exhibition home cannot be said to have suffered that injury in an accident happening "in connection with the performance" of a contract to build that home; nor on the evidence in this application, is such a proposition arguable.

Should it be arguable that such an accident did happen "in connection with the performance of the contract" the respondent would then also have to show at least an arguable case that the policy was in force in relation to the relevant risk at the relevant time.

The proposal in respect of which the policy was issued read in part:
"Period of Insurance
From: 28/9/72
To: 28/9/73
Including..3..months Maintenance."

The declaration conditions forming part of the policy included:
"Period of Insurance:

The period of insurance applying to each Contract represents the whole of the period of construction providing this does not exceed Six (6) months unless by special agreement. It is understood that this Declaration Policy shall remain in force from the 28 September 1972 to 28 September 1973 and any subsequent period for which the Insured shall pay and the Company shall accept a renewal premium. Such renewal premium to be effected on a provisional premium calculated at the rate specified herein, or any increase that may be agreed between Insurer and Insured, applying to the total value of all contracts commenced during the policy year. If for any reason whatsoever the Insured does not wish to renew the Policy or the Insurer does not wish to accept renewal, those risks already accepted during the currency of the Policy will remain in force until such times as they are handed over to the Principal subject to conditions of cancellation and/or any period for maintenace which has been stipulated by declaration, but not exceeding Three (3) months unless by special agreement."

Counsel for the respondent presented an argument based on the provisions of a contract between a finance company, Alliance Acceptance Co. Limited, and the building company, concerning provision of finance to the building company. He submitted that this contract constituted a "special agreement" as those words appearing in the conditions relating to "Period of Insurance" are to be understood. In our view there is nothing in the policy or in that contract which could in any way support that argument. The words "special agreement" appearing in the clause dealing with the period of insurance clearly relate only to any agreement between the appellant and the building company.

If it be open to the respondent to argue that a maintenance period is relevant in consideration of the period of time to which the policy extended, it is necessary to consider memo 4 of the policy which provides:
"(a) When the whole or any part of the works insured by this Policy is taken over or put into service (whichever shall be the earlier) by the Principal, this Insurance shall be terminated as regards the property so taken over or put into service.

This Insurance, however shall remain in force to the extent defined in sub.paragraph (b).

(b) If a Maintenance Period is specified in the Schedule, the liability of the Insurers during such a period shall be limited to any loss or damage caused by the Insured in the course of the operations carried out for the purpose of complying with the obligations under the Maintenance Clauses of the Contract."

No maintenance period is specified in the schedule other than by the notation "As per attached declaration conditions". We have already set out the declaration conditions dealing with any period for maintenance. There is no evidence that any period of maintenance was specified in the declaration. In addition the respondent's solicitor deposed that at the date of the accident the house "was occupied by" the building company. No evidence suggests that any maintenance period was then operative. Furthermore the injury suffered by the respondent was not shown to have been caused by the building company in the course of any operations of the kind referred to in memo 4(b).

We consider that the respondent did not show that she had any case or even one that could be said to be arguable. The evidence before the Court did not permit any serious argument that the injury which took place was within the terms of the policy. In our opinion, once that conclusion is reached, the only appropriate course is for leave to be refused.

We would uphold the appeal and order the respondent to pay the appellant's costs.

We would make the following orders:

i. The appeal is upheld.

ii. The order granting leave to sue is rescinded.

iii. Respondent pay the appellant's costs of the application and of this appeal.