Avant Insurance Limited v Darshn & Anor

[2022] HCATrans 210

[2022] HCATrans 210

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S59 of 2022

B e t w e e n -

AVANT INSURANCE LIMITED

Applicant

and

SRI BALAKRISHNAN DARSHN

First Respondent

MEDICAL INSURANCE AUSTRALIA PTY LIMITED

Second Respondent

Application for special leave to appeal

GAGELER J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 18 NOVEMBER 2022, AT 2.00 PM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend MR M.T. McCULLOCH, SC for the applicant.  (instructed by Carter Newell Lawyers)

MR S. HABIB, SC:   If it please the Court, I appear with my learned friend MS K.A. MORRIS for the first respondent.  (instructed by William Roberts Layers)

GAGELER J:   Thank you.  Mr Walker.

MR WALKER:   May it please your Honours.  The policy in question contained terms that you will find extracted by their Honours in the Full Court at pages 129 and 130 of the application book.  It is, to use the jargon, a claims made policy – as the heading quoted in paragraph 9 of their Honour’s reasons makes clear – where the time of notification is one of the important elements of how one can claim an indemnity.

Over the page, on page 131, still containing quotations from the terms of the cover, you will see that upon the acceptance of a claim for indemnity, the insured agrees that the insurer will have the conduct of a claim and that the insurer has the liberty to defend or settle as they think fit.  Under the heading “We will appoint the lawyer or other person”, the stipulation between the parties, that is, insured and insurer, is that the insurer:

will appoint the lawyer . . . to provide services to us –

meaning the insurer:

for the benefit of you –

meaning the insured, the indemnified defendant in a classic case:

When we –

the insurer:

appoint the lawyer . . . we do so in our own capacity and not as an agent for you.

That, as your Honours know, in the reasons in the Full Court, is treated as a contraindication to the nature of the argument we put concerning retainer and the consequential authority to communicate.  But, in our submission, that was reasoning that obviously overlooked the context in which those words appear.  The appointment of the lawyer by the insurer is to “provide services” to the insurer:

for the benefit of you.

The benefit being, of course, in the form of the promised indemnity, which preserves the liberty to defend or settle as the insurer sees fit.  That is spelled out in what might be called a less than grand fashion, but certainly a sharp‑edged fashion concerning a claim, if not a stipulation, concerning the incidence of GST.  The services are supplied by the lawyer to the insurer, not to the insured.

If I could then ask your Honours to go to the statutory provisions with which you are familiar, and the importance of which can hardly be overstated.  At pages 162 and 163 from the Insurance Contracts Act, you will see sections 13 and section 40.  May I start with section 40(3) which, as subsection (1) makes clear, applies to contracts of liability insurance of a kind illustrated by the policy to which I have just taken you.  In subsection (3), the opening words require the actor for the legal conduct in question to be the “insured”:

Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured –

and then I need not read what follows because it has the effect of ameliorating the position from the point of view of the insured.  In the case of what I will call late notification, upon the proposition – upon the fact being held, I should say – in the terms of section 40(3) that there was a notice given by the insured as soon as is reasonably practicable after the insured became aware of certain facts.  So, the attribution to the insured, both of conduct – giving of notice – and of state of mind – being aware of facts – is at the heart of the operation of subsection (3), which overtly alters what would otherwise be the effect of contractual stipulations.

One looks, in other words, for the degree of formality that would be conjured – in any event – by the notion of giving notice in writing of facts that might give rise to a claim.

Just to remind you of the facts of this case.  The insured doctor was already being provided the benefit of cover and the benefit of the services provided to us – the insurer – of Makinson d’Apice in the case of claims by Mesdames Scotford and Summers‑Hall.  The Scotford and Summers‑Hall claims were the subject of the retainer by us for the benefit of the insured, pursuant to that form of the cover provided by the policy.

GAGELER J:   The lawyers were representing the doctor in that proceedings?

MR WALKER:   Unquestionably.

GAGELER J:   To that extent, at least his agent.  They in fact gave notice – leave aside what capacity they gave notice in.

MR WALKER:   We dispute that that is notice within the meaning of section 40(3) ‑ ‑ ‑

GAGELER J:   On the findings made, it constitutes ‑ ‑ ‑

MR WALKER:   Your Honour anticipates me.  That is a factual characterisation, it is certainly not to the forefront of a special leave application.

GLEESON J:   The grounds of appeal do seem to suggest that a few facts are in issue.

MR WALKER:   Your Honour, certainly at a characterisation level, I think your Honour may also have in mind the notion of the knowledge of Ms Gillman, our officer in what I will call the “helpline” section; of the supposed material identity of the subpoena that the doctor wanted advice about, but did not wish to go to the possible expense of supplying it to us.

GAGELER J:   That goes to the point that was not quite decided, I think.

MR WALKER:   Your Honour puts it – if I may say so – nicely.  I was going to draw to your attention that their Honours start by saying it does not need to be decided, but then conclude by saying there was no error at first instance.  That ought not tell against us in special leave, that aspect of section 13 to which I will come, perhaps as a coda to what I would like to put about section 40(3), and that is this:  going back to what Justice Gleeson asked me, yes, there is another question of fact which in itself should never attract a moment’s contemplation of special leave – but it is a straightforward matter.

There is simply no evidence that before the subpoena was shown to Ms Gillman; she knew that it was materially identical.  She knew it was an extensive one, but she also knew that there had been an answer to it by the doctor.  That is really not at the heart of the matter.  What is at the heart of the matter is the Makinson d’Apice report to us.  Those are the solicitors retained by us to provide services to us in order that we carry out our contractual promise, in part, of providing the defence; a promise which has conditions on it, namely that cooperation can be ensured.

As Justice Gageler has pointed out – and we entirely accept, and the proposed appeal would do nothing to canvass, so far as the court in which the professional negligence litigation is being conducted, there is not the slightest qualification for the proposition that the solicitor on the record for the insured is the insured’s solicitor.  So far as the law of negligence is concerned, there is not the slightest qualification whilever that position is held by that solicitor of his or her duties of care or loyalty to the insured.  No question about that.

To the extent that that carries in its train anything fiduciary, it would follow.  But as the Court of Appeal in New South Wales has pointed out – and it is not an uncommon caveat that needs to be expressed in insurance law – there is almost a possibility of a conflict which will render a continued acting by a solicitor retained by an insurer for the benefit of an insured arising by reason of differences between the two of them.

That only highlights that it is not ever enough to say, of a retainer made by an insurer for the benefit of an insured, that that renders the solicitor an agent for the insured as if that were a general proposition concerning what I will call general business or a comprehensive, more or less unlimited, scope of the interests of the insured.  In particular, for example, it is absurd to suggest that complaints about the extent of the insurer’s conduct, whether it complied or not with the promises made by the insurer under the policy, it is absurd to suppose that the insurer has retained, for the insured, that solicitor to act against the interests of the insurer in a dispute about the policy.

GAGELER J:   It comes down to the scope of the retainer, which is really not governed by the terms of the policy.

MR WALKER:   Yes, your Honour.  Our case either has the strength or the weakness or maybe both that that is a very important general proposition.  It is the strength, with respect, of the orthodox and correct reasoning in the Court of Appeal of Queensland and the decision we have drawn to attention, distinguished, we submit, unconvincingly by their Honours below, that is IVI v Baycrown.

That was distinguished on the basis of the epithet transactional to describe the setting in which the scope of the retainer of a solicitor fell to be examined in terms of the disputed question whether the solicitor was the agent to receive notice of a principal or a putative principal being a party to the transaction in question, a sale.

Now, I need hardly say that, if anything, being transactional in the terms of forming legal relations scarcely makes the matter less acute than it does with respect to giving a statutory notice under the Insurance Contracts Act. They are both transactional in the sense that it is the legal result of the mutual conduct of two parties that is the issue in question as to which authority becomes critical.

And so, we have a conflict between the straightforward answering of the properly-posed question, what is the scope of the retainer as between the position in the Queensland Court of Appeal and the position taken by the Full Court in this case.  This is not an issue where one can make it, as it were, an Alsatia for insurance contracts.  This is just contract.  And it is for those reasons that one then turns to the way in which the matter was determined so as to show that this is an ideal vehicle to examine the question for the important purpose of section 40(3).  Who is it, apart from the insurer themselves – that is, directly – who can sensibly be understood to have the authority to give the requisite notice?

GAGELER J:   Is that not a fact question?

MR WALKER:   Well, of – but every – the application of stipulations in a contract, as affected by a statute, they cannot even get the status of a matter before the court unless there are facts.  And so, every case is, of course, its own case.  But that is why the typicality of cases is one of the hallmarks of an appropriate vehicle for the grant of special leave.

I have drawn attention in my earlier remarks, to the passage you will find in paragraph 41, at application book 137.  That is where their Honours draw to attention that, in appointing the solicitor, the insurer is not acting as agent for the insured.  It overlooks the other language, but, with respect, at least in the reasoning, in the final two sentences of paragraph 41, elides the distinction between the benefit of the insured in defending the claims of
Scotford and Summers-Hall against him, and the benefit, entirely generally put, it turns out, after the event and after the policy period has expired, in defending a claim brought by Sanchez.

You will not find, in the paraphrase of the notice by Makinson d’Apice, that is, the solicitors retained by us to provide services to us for the benefit of the insured, any reference in terms to a claim against that doctor by anyone called Sanchez.

GLEESON J:   Do you dispute what is said in the last paragraph, paragraph 43 of the reasons?

MR WALKER:   Paragraph 43.  Yes, this notion that it would be an “expected incident” is, in our submission, a most uncertain way to reason.  We are not talking about a trade custom, we are not talking about a Moorcock implication.  We must be talking about, just what do the words mean?  When you appoint somebody to provide services to you, that is, the insurer, for the benefit of your customer to whom you have promised the benefit of such services, the insured, in our submission, it is not only not expected but it is strongly counterintuitive that an incident of that would be that the solicitor becomes the means by which the insured makes a new claim on the insurer, because the scope of the retainer is from, and is delineated firmly and – before this case without any doubt about it – by the claim for which the indemnity had been granted and in relation to which the legal services had been retained by the insurer in order to give what it promised to the insured.  It is triggered claim by claim, this is a claims made policy.

GLEESON J:   In the context of a contract of utmost good faith, why would that be surprising?

MR WALKER:   Your Honour is jumping to the section 13 notion, with respect.  There is utmost good faith, but one is not here talking about making any claim or communicating anything with respect to Scotford and Summers‑Hall.  Sanchez was not in the question, and the notion that the solicitor is there to receive information and pass on information about Sanchez simply cannot be gained from anything about the retainer that their Honours have held.  It does not ever amount to a retainer to act for the doctor in relation to claims by others any more than to act for him in relation to a quite different form of insurance, say, for household damage.

It is for those reasons that, yes, the last sentence of 43 on 138 of the application book, we certainly do contest.  Your Honours, that last sentence ends up:

in the course of acting . . . in the Scotford proceedings and Summers‑Hall proceeding.

And that really underlines the problem.  It really says that the solicitor apparently owes a duty, pursuant to a relationship which grants an authority, to pass on information that is not information for the purposes of defending Scotford and Summers‑Hall proceedings at all.  Quite different, new proceedings, and the very difference, of course, is why we are here, because none of this falls within the scope of the retainer, that is, the indemnity which had been granted with respect to those two other claims.

Now, the actual notice ‑ ‑ ‑

GLEESON J:   So, are you saying that Makinson d’Apice, if they became aware of facts, would not be able to advise the doctor that he ought to notify under section 43, if that had been the fact?

MR WALKER:   Your Honour puts it, would not have been able to.  There is a difference between what I might call a volunteered – some might say

officious – intervention on the one hand, and that which is required by your retainer on the other hand.  In our submission, there is no term of the retainer by which Makinson d’Apice were required, by law, enforceably ‑ ‑ ‑

GLEESON J:   Were they permitted?

MR WALKER:   Not by the terms of the retainer they had with us.  We did not retain Makinson d’Apice to act adversely to us with respect to the policy.  That would be fundamentally wrong, could not be spelled out from the retainer.  As the New South Wales Court of Appeal has had occasion to point out, that just comes with the territory of an indemnity policy under which one of the benefits gratefully accepted by most insureds is that the insurer will take the time, trouble and expense of retaining the lawyers, but certainly not retaining the lawyers so as to act against the insurer, only in the overlap of different interests, which are common, which is to meet or compromise which itself produces conflicts to be settled by . . . . . clauses, the claim by the third party, in this case, the patient.

It is for those reasons that the kind of notice that you see was given, page 141 of the application book, paragraph 151.  Notwithstanding what might be an excessive spelling‑out in that paragraph, it is appropriate that we accept that that is what the notice said, but you will notice there is nothing there about a claim by Sanchez.  What there is, is information that the extant – that is, the then-current obligation to indemnify, including by the provision of legal services, might involve having to deal with one or other – it turned out to be just one, of the two claims in the representative proceedings, rather than in the proceedings already on foot.  That, in our submission, cannot possibly amount to what the Full Court held . . . . .

I see the time, may it please your Honours.

GAGELER J:   Thank you.  Mr Habib, we do not need to hear from you.

MR HABIB:   Thank you.

GAGELER J:   We are not persuaded that there is sufficient reason to doubt the correctness of the decision of the Full Court of the Federal Court to warrant the grant of special leave to appeal.  Special leave is refused with costs.

The Court will now adjourn until 10.00 am on 6 December.

AT 2.22 PM THE MATTER WAS CONCLUDED