AMP Workers Compensation Services (NSW) v QBE Insurance

[2002] HCATrans 286

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S241 of 2001

B e t w e e n -

AMP WORKERS COMPENSATION SERVICES (NSW) LIMITED

Applicant

and

QBE INSURANCE LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ
KIRBY J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 9 AUGUST 2002, AT 10.36 AM

Copyright in the High Court of Australia

MR C.G. GEE, QC:   May it please the Court, I appear with my learned friend, MR P.M. MORRIS, for the applicant.  (instructed by Moray & Agnew)

MR J.D. HISLOP, QC:   May it please the Court, I appear with my learned friend, MR D.L. RONZANI, for the respondent.  (instructed by Henry Davis York)

GLEESON CJ:   Yes, Mr Gee.

MR GEE:   Your Honours, the underlying factual position was straightforward.  The employer was the common insured under the two contracts of insurance.  The employer, of course, was not sued and there was no liability visited upon him which triggered the indemnity operation of either policy.  There was no moment at which the employer could have sued either the third party insurer or his employer’s liability insurer for indemnity under either contract. 

So the way in which the courts below concluded that the employer’s liability insurer should make a contribution was upon the basis that a potential, inchoate, possible liability which did not, in fact, fall upon the employer might have done so and that, therefore, the third party insurer was relieving the other insurer by that payment.  So the court below, in effect, and almost in these words, adopted the notion that the payment benefited the employer’s liability insurer and, therefore, ipso facto, contribution followed. 

Your Honours, that proposition gives rise, in our submission, to the basis for special leave, especially because, since the decision below and since the submission of the written submissions on both sides, the Court has handed down its decision in Burke v LFOT Pty Ltd in which questions of contribution between persons under supposed co‑ordinate liabilities were considered.

GLEESON CJ:   Now, I did not sit in that case, so could you just remind me of what aspect of that case bears on this one?

MR GEE:   Yes.

KIRBY J:   If any.

MR GEE:   I go, your Honours, to statements in the judgment of Justice McHugh.

GLEESON CJ:   I do not seem to have this.

MR GEE:   It should be at the end of the applicant’s bundle, your Honours.  It was delivered yesterday.

GLEESON CJ:   I see, thank you.

MR GEE:   Your Honours, I begin at paragraph [38] of the report in the judgment of Justice McHugh, who was one of the members of the majority.  In that paragraph he said, in making some general observations, about six lines from the bottom of the page:

When a person pays more than his or her share of a common monetary obligation, the payment pro tanto discharges the obligation of all who owe the common obligation.

There was, of course, no common monetary obligation in this case.

HAYNE J:   Why?  Why was there not?

MR GEE:   Because no such obligation ever fell on the employer, nor – and this, we submit, is relevant – could it ever fall from the moment the third party insurer elected to settle on the terms that it did with the injured party, so ‑ ‑ ‑

KIRBY J:   Does that affect the obligation as distinct from how the obligation was satisfied?

MR GEE:   Your Honour, I am making these submissions on the assumption against myself that there lurked in the background the possibility that liability might have been visited upon the employer.

GLEESON CJ:   No, the law visits liability upon people.

MR GEE:   Yes.

GLEESON CJ:   People seek to vindicate their rights by suing.

MR GEE:   Yes.

GLEESON CJ:   But the vicarious responsibility that existed was an obligation, was it not?

MR GEE:   Well, it may have been, your Honour, and let me assume just for immediate purposes that it can be so characterised.  It was certainly extinguished at the moment that the third party insurer settled.

HAYNE J:   That is always so, is it not, in any case of double insurance where one insurer has paid out?

MR GEE:   Yes, with respect, your Honour ‑ ‑ ‑

HAYNE J:   So what is the legal significance that you attribute to the fact of payment discharging?

MR GEE:   The legal significance, your Honours, is that, first of all, there can never be a moment at which, in this particular case, either insurer could come under an obligation to the common insured, that we were the owner under the third party policy and only the owner and we were the employer, of course, under the other.

HAYNE J:   Why did that common liability not arise immediately upon the happening of the accident?

MR GEE:   Well, it never crystallised as liability in any shape or form, in my respectful submission, even adopting ‑ ‑ ‑

GLEESON CJ:   And it did not crystallise as a judgment.

MR GEE:   No, and nor did it crystallise, in my submission, as a liability.  At highest, pace your Honour the Chief Justice, an obligation arose, at highest.

GLEESON CJ:   Well, if you look at the language of Justice McHugh here, he says:

the payment pro tanto discharges the obligation of all who owe the common obligation.

He does not say that payment pro tanto discharges the obligation of all who are sued.

MR GEE:   He does not, your Honour.  Let me move on to the way his Honour developed it relevant to what we submit is the leave point here.  It will be now be apparent to the Court, with respect, that there being no way in which this case can be fitted into the traditional mould of contribution between insurers because of the fundamentals that I have given the Court earlier ‑ ‑ ‑

HAYNE J:   That is the point at which I have difficulty, Mr Gee.  I do not for my part need persuasion that there is a point of importance here.  What I need persuasion about is why the courts below were wrong.  It is not evident to me.

KIRBY J:   That is my position.

MR GEE:   Now, your Honours, I have to just go through a few paragraphs of Justice McHugh in this case.  At paragraph [45] he pointed out that in a case of Cockburn v GIO, the President of the Court of Appeal relied on an old case of Ruabon:

to support the proposition that “something more” is required to enliven a right to contribution than the fact “that the claimant’s payment has benefited or relieved the defendant financially”.

I will develop that a little further but that is, with respect, the key.

Now, then if I could skip some paragraphs, I move over, your Honours, to paragraphs [57] and following of his Honour’s reasons.  In discussion the approach of the Federal Court in the case under appeal in the Burke decision, his Honour referred to what had been said by Justice Lehane in respect of damages for breach of a shared obligation.  His Honour Justice McHugh went on:

With respect, the adjective “shared” is misplaced.  The obligations which LFOT and Burke had in this case were only “shared” in the sense that Hanave –

the applicant –

was the object of them.  In other respects, the obligations were different.  This case involves a liability in damages arising from two parties breaching their separate and distinct obligations.

We submit that is apt but it is not our ultimate point.

That characterisation illustrates the lack of a common interest between LFOT and Burke.

Then he went on to cite a passage from the Federal Court’s decision and, in particular, Justice Lehane in paragraph [58] and your Honours see the passage that is indented there.  Incidentally, that very passage was cited by the first instance judge in this case as supporting the conclusion at which he arrived.  Your Honours will see the words italicised, “The object is to ensure” et cetera.  Now we come to what we submit throws up the leave point here.  His Honour Justice McHugh said in paragraph [59]:

The italicised portion illustrates the “payment as benefit” theory that influenced the reasoning of the majority judgments in this case.

So the present case, in my submission.

The comments of his Honour bear a strong resemblance to the views expressed in his co-authored text.  However, as Mason P pointed out in Cockburn, “merely because a remedy is given against a defendant that hits it in its pocket is not enough to generate a right of contribution” from another person who is also liable to the person who has that remedy.

You can substitute the two insurers for that and finish up in the same situation.

If a person had a claim for contribution in those circumstances, then –

et cetera.   Now, your Honours, I might say parenthetically that other Justices of the Court involved in the Burke decision and, in particular, Acting Chief Justice Gaudron and your Honour Justice Hayne made some general remarks about contribution which did not take the matter quite as far as we need to go for the resolution of the present problem.

GLEESON CJ:   Would your argument be any different if the injured person had sued the employer?

MR GEE:   It would be likely to depend upon the outcome of those proceedings.  Now, the difficulty here, your Honour, is that one of the reasons why we respectfully submit that error crept in below was that the court focused its attention on what might have happened rather than what did happen.  Then, having worked out that something might have happened that did not, it was then concluded that the payment by QBE relieved AMP of some payment that it might have had to make but did not ‑ ‑ ‑

HAYNE J:   But that is always the case in any double insurance case.

MR GEE:   Yes, your Honour, and that is where I move on, with respect, to the key because that is a classic illustration, in our respectful submission, of the payment as benefit, that is, the bare payment relieving the other as sufficient to trigger the right to contribution, and that is ‑ ‑ ‑

GLEESON CJ:   That is why I asked you the question.  How would you apply the passages in Justice McHugh’s judgment that you are relying on to a case where the employer had actually been sued and, if you like, been sued to judgment?

MR GEE:   To judgment.  Well, your Honour, a quite different case would arise, with great respect.  In that case, you would be able to see that as a matter of contract between the employer and, on the one hand, the third party insurer and, on the other, the employer’s liability insurer, that common insured could sue either, perhaps both, and that therefore you would have no problem in establishing a common burden, to use the cant phrase, common to both insurers.  So that the argument in that sense would be an entirely different one, but here we have a situation where the only justification for what was the outcome below was the bare notion that relief by payment of one, ipso facto, triggered contribution and that, with respect, needs examination by the Court.

GLEESON CJ:   In preparing the annual accounts of the employer’s insurer, if the insurer had known all the relevant facts, how would the possibility of a claim against the employer have been reflected?

MR GEE:   It is conceivable, your Honour, that it would have been treated as something that needed to be the subject of a reserve.  It would not have been incurred but not reported because your Honour hypothesises that the facts were known.  It may have been the subject of a reserve, but even that would be a question of judgment if among the facts that were known was that the employer was not used.  It may very well be that a correct judgment in that case would be that there would be no need to have a reserve for that matter.  So, your Honour, I submit with the utmost respect that your Honour’s question will not provide an answer to the problem posed, in our submission, in this case and requiring the attention of the Court. 

Now, we would respectfully in the short remaining time point to some particular matters in the judgment below in which we submit that error can be seen.  I am reminded, your Honours, that our written submissions have set out our submissions about the working through of the matter in relation to the sort of Lister v Romford point and its replacement by the Employees Liability Act.  In the time available, I will not develop that beyond what is in our writing, your Honours.  Now, your Honours, could I go particularly to paragraphs ‑ ‑ ‑

KIRBY J:   How is the Lister v Romford point relevant in light of statutory amendment in New South Wales?

MR GEE:   In this way, your Honour, that under the Lister law the negligent employee could theoretically be sued for his breach of his contract and its implied term to do his work carefully.  It is true that the Employees Liability Act abrogated that right, but at the same time it gave a right for the employer to proceed against the employee’s insurer if there was one.  So that on a full working out of rights in this case, the employer’s insurer could have actually fed back through that provision and got it all from the third party insurer.  If you take the extreme case where only the employer was sued, for example, and the employer’s liability policy paid, by that route we would have been able to get it all from the third party insurer and so we have called that in aid.

Now, your Honours, paragraphs 13 and 14, in our respectful submission, involve error.  The court below, incidentally, posed the issue in terms of the timing of judgment as to whether contribution was to be judged at the time of the happening of the event or the time at which the claim for contribution was made.  I must say that we did not really put the submissions on that basis, your Honours, and that led to what happened or what was encapsulated in these paragraphs where Justice Handley, giving the judgment of the Court, said:

If the submission on behalf of AMP that the question of double insurance must be considered when the claim for contribution is made were to be fully accepted the right would be lost in every case.

Then he said, with respect, correctly:

The right of contribution only exists in respect of insurances which are contracts of indemnity, where two or more insurers are on risk in respect of the same loss or liability.

Those, incidentally, were the words of what would be regarded as the leading decision of the Court, Albion, where Justice Kitto, as we pointed out in our writing, actually spoke of the need for a loss which the identical insured has sustained.  But just going on with these paragraphs, his Honour said:

The right arises when and because one of the insurers has paid more than his proper share of the common demand.

With respect, there was no common demand.  How could there be a common demand upon the insurers of the only common insured, the employer, when at no moment did that entity have any right to make any demand upon either of those insurers?  Then his Honour went on:

Where one of the insurers has paid in full the indemnity principle is satisfied and the insured then has no right of indemnity against any other insurer.

Let that be granted and something like that, I think, was said by your Honour Justice Hayne only a few moments ago.  But, with respect, your Honours, that then shifts the proper direction of the inquiry.  It shifts it from looking at the obligations inter se between parties who might have to contribute away to an irrelevant consideration which is the remaining rights, whatever they might be, of the ultimate insured, in this case, the driver.  So that, in our respectful submission, the court there posed itself quite an erroneous test for judging this question of contribution and that what the court, in our submission, ought to be examining – and I hope I do not have to address on the importance of the point.  It is at that difficult interface between the field of third party statutory insurance and employer’s liability insurance.  What the Court ought to be examining, with respect, is the exact elements when payment will, ipso facto, trigger a right to contribution, if there are any such moments, and what the boundaries of that notion, if it is a valid notion, might be. 

In our submission, there is quite enough in what has fallen from at least one of the Justices in the Burke Case to indicate that that is a field far from settled and needs examination, this being a vehicle which is perfectly apt, in our submission, to do it.  It throws up some pure legal questions, it would not be a lengthy appeal and the matter of importance to major sections of the community could thus be resolved.  Thank you, your Honours.

GLEESON CJ:   Yes, Mr Hislop.

MR HISLOP:   Your Honours, the judgment of the Court of Appeal records at page 79, line 40, that AMP did not dispute that the position would have been different if Mitchell had sued the employer and judgment had been ordered against it for the same amount.  In that event, there would have been double insurance and QBE would have been entitled to contribution.

In our submission, that concession throws up or highlights the artificiality of AMP’s position, where, on their approach, the result is to turn upon the fortuitous procedural event as to whether the plaintiff sues the employer or just the employee for whom the employer is vicariously liable.  The preference by the AMP is for form over substance.  The Court of Appeal has, by the application of established principle, reached a conclusion which is consistent with the basis that there is a co-ordinate liability and that the general principles of justice require that in those circumstances there should be an entitlement on the part of the insurer who has paid.

KIRBY J:   Does not Mr Gee have some substance in his criticism of those last words in paragraph 13 of Justice Handley’s ‑ ‑ ‑

MR HISLOP:   Save this, your Honour, that when one has regard to the totality of the judgment in Albion and, in particular, those parts relied upon by the court subsequently in its judgment, it would appear that the overall approach of the court is that double insurance occurs when an insured is insured against the same risk with two independent insurers.

KIRBY J:   It is the risk rather than the demand, if you see the last words in paragraph 13 are:  “more than his proper share of the common demand”.  It is really the more of its proper share of the common burden, the common obligation.

MR HISLOP:   But when one reads the majority judgment in Albion, the starting point is that there is double insurance when the insured is insured against the same risk with two independent insurers.  That is this case because the obligation to cover arose at the time of the casualty and it is that which under the approach in Albion gives rise to the double insurance situation.  As the Court properly pointed out, the actual liability under the policy is not the test because the insurer from whom contribution is sought is never liable once the other insurer has paid.  So that, in our submission, the Court of Appeal was correct to conclude as it did that the double insurance arose when there was an obligation on the part of each insurer arising out of the obligation incurred by the employer at the time of the casualty.

KIRBY J:   It is the substance of the co-ordinate obligations.  It is not the procedural demand that is made.

MR HISLOP:   Yes, it is the substance.

KIRBY J:   That is your point and you say that one has to read what Justice Handley says in paragraph 13 in the context of the overall treatment of the common obligations in the judgment?

MR HISLOP:   Yes, and it is clear that the basis is that common obligation and, in our submission, that is an appropriate conclusion to reach.  To reach the opposite conclusion for which it is contended would involve supreme artificiality and depend upon the caprice, I think it was said, of the plaintiff as to who he chose to sue.  That cannot be a proper basis to deny a recover when under the principles of co‑ordinate liability it ‑ ‑ ‑

KIRBY J:   That was my view in LFOT.

GLEESON CJ:   It is of some practical importance at least ‑ I do not know whether this has anything to do with what actually occurred in the present

case, but we are familiar now with legislation in various jurisdictions in Australia that inhibits claims against employers.

MR HISLOP:   That has no application in this case.  It was clear that the damages recoverable were all to be calculated under the Motor Accidents Act, that is by reason of section 151E of the Workers Compensation Act.  So there is no difference there.

KIRBY J:   You would say that it will be time enough to consider that common obligation in that circumstance when such a case comes before us, but that is not this case?

MR HISLOP:   Yes, quite.  As for my learned friend’s other point which he referred to as being in his written submissions, the working out of rights, that was never a point taken in the Court of Appeal below.  Indeed, and I can take the Court to the references to show that it was, in effect, disavowed as an approach that could be taken and by reason of that the second point which my friend relies upon substantially in his written submissions would not be an appropriate one for this Court to consider when it was not raised and dealt with in the Court of Appeal below.  So if it please the Court, they are the submissions.

GLEESON CJ:   Yes, Mr Gee.

MR GEE:   Your Honours, first on the question of the fortuity of the event, could we ask the Court to go to paragraph 12 of the Court of Appeal judgment.

GLEESON CJ:   Page 81?

MR GEE:   Thank you, your Honour.

QBE could also have required Mitchell –

Mitchell was the injured party, of course, your Honours –

as a term of the settlement, to join the employer as an additional defendant and take judgment against both defendants or against the employer alone.  Mitchell and his legal advisers were not likely to refuse such a request.  In either event AMP could have had no answer to the contribution claim.

Then his Honour went on:

One must wonder about a defence to an equitable claim for contribution which is only available because of events outside the control of both insurers which could have been defeated –

et cetera.  Now, your Honours, this was a settlement between QBE and the injured party.  If QBE had wanted the term that his Honour postulates, they could easily have stipulated for it and whether that would have produced the result which is then claimed is another question, but ‑ ‑ ‑

KIRBY J:   I take the force of that and I can see your criticism of paragraphs 12 and 13 and I think there is some force in it, but the substance of what the Court of Appeal did was to look at the co-ordinate obligations and the substance of those obligations, and is that not the correct approach that everybody agrees with in the principle of contribution as Justice Kitto explained it in Albion?  What Justice Kitto said was common ground between the majority and the minority in Burke v LFOT.

MR GEE:   Yes.

KIRBY J:   So it is just a question of applying that principle in the particular circumstances.

MR GEE:   With the utmost respect, your Honour, if we could just have a look at page 94 of the application book in which the relevant passage from that celebrated judgment is set out in our paragraph 11 of our written submissions.  After pointing out that the employer was never sued, we said what was necessary but what would never occur was for MRT to have sustained a loss, and we then cited Justice Kitto in Albion:

what attracts the right of contribution between insurers . . . is simply the fact that each contract is a contract of indemnity and covers the identical loss that the identical insured has sustained –

Now, with the utmost respect, if that is the law, then it could not be applied to this case because the employer ‑ ‑ ‑

HAYNE J:   Do I understand from paragraph 12 of your submission that you mean by “loss” actual payment out?

MR GEE:   I mean loss in the sense, your Honour, that the insured has sustained, let us assume, a judgment, for example, which in turn gives rise to a right to claim against its insurer – either insurer in this case ‑ ‑ ‑

HAYNE J:   But nothing short of that constitutes loss?  Suit to judgment.

MR GEE:   If you take the position that I just took the Court to, that the law as stated by his Honour is loss, is loss, is loss, if you ‑ ‑ ‑

GLEESON CJ:   So that the professional indemnity insurers of the designers of the twin towers hit on 11 September, assuming they did not put asbestos in it, which I gather is now regarded as something negligent, did not suffer a loss on September 11?

MR GEE:   No, your Honour.  The loss that his Honour Justice Kitto was speaking of was the loss of the insured, the common insured, the loss sustained by that party who in turn had – that loss gave rise to contractual rights against the insurers.  Now, what we are putting from a special leave point of view, your Honours, with respect, is that even if you thought that a formulation based on identical loss that an insured has sustained is extreme, this case goes to the opposite extreme where bare payment relieves somebody ‑ in this case the employer’s insurer – of, let us assume, an obligation.  But that is precisely what the Court in Burke is throwing up as a matter of question.

GLEESON CJ:   What about the property damage insurers of the World Trade Centre, did they suffer a loss on September 11?

MR GEE:   Yes, your Honour, but, with the utmost respect, we are not talking about indemnity insurance in that case.  We are talking about a contract which at the moment the buildings suffered damage, that is, a contract of insurance, gave rise to quite different – conceptually different rights in their insured to say, “I have sustained a physical loss.  You pay me the money that our contract requires.”  I am very conscious of the time, your Honours, but what Justice Kitto was putting in the passage indicated was that unless and until there is a loss in the insured ‑ and that loss, we respectfully submit, does not arise merely because an obligation arose at the moment of the motor accident ‑ ‑ ‑

KIRBY J:   But you cannot press that too far, as you yourself pointed out when you started, because with indemnity insurance once one has indemnified there is no liability and, therefore, double insurance principles are designed to look at the substance of liability of each to the one common insured. 

MR GEE:   In principle, of course, they are, with respect, your Honour, but what I submitted was the error that crept in below was to shift attention away from that inquiry, that is, what are the respective obligations of the supposed contributors, to what are the now irrelevant rights of the underlying insured under each contract, and it was that shift which then, in our submission, took the eye of the court below away from the true inquiry.

GLEESON CJ:   Yes, thank you, Mr Gee.

MR GEE:   If your Honours please.

GLEESON CJ:   In this matter the Court is of the view that the actual decision of the Court of Appeal of the Supreme Court of New South Wales is not attended with sufficient doubt to warrant the grant of special leave to appeal and the application is refused with costs.

We will adjourn for a short time to reconstitute.

AT 11.09 AM THE MATTER WAS CONCLUDED