BP Australia v VACC Insurance

[2000] HCATrans 322

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S246 of 1999

B e t w e e n -

BP AUSTRALIA LIMITED

Applicant

and

VACC INSURANCE CO LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ
GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 4 AUGUST 2000, AT 10.12 AM

Copyright in the High Court of Australia

MR R.A. CONTI, QC:  In this matter, your Honours, I appear with MS C.T. PINKERTON, for the applicant.  (instructed by Connery & Partners)

MR J.D. HISLOP, QC:  May it please the Court, I appear with my learned friend, MR S.G. CAMPBELL, for the respondent.  (instructed by Curwood & Partners)

GLEESON CJ:   Yes, Mr Conti.

MR CONTI:    Your Honour, three subjects arise for address this morning.  Firstly, do matters of general importance arise in relation to the doctrine of issue estoppel in this now reported judgment below of the Court of Appeal – it is reported in 47 NSWLR – being questions as to identity of parties and identity of issues?  Secondly, was the doctrine correctly applied?  Thirdly, is this an appropriate vehicle?

GAUDRON J:   Yes, it is really the third question you need to address, do you not, in the sense that it looks as though, on one view, the Court of Appeal said that there should have been a factual finding to that effect regardless of any issue estoppel and that, it seems to me, to raise a question of who bore the onus in these Law Reform (Miscellaneous Provisions) proceedings?

MR CONTI:    Your Honour, the cases which have not ever reached this Court on the questions of onus are divided.  In Queensland and New Zealand it has been said that the onus is on the insurer.  In New South Wales in the Full Court, and also in Victoria in single instances, they have found that the onus should be placed on the insured, although the views expressed by Sir Frederick Jordan which are cited below are to the effect that the onus which is placed on the insured is – can I paraphrase – very slight indeed as one would understand when one is talking about a policy with a whole lot of conditions.  It would be a matter of merely putting forward some sort of prima facie situation.

But, your Honour, the way the case was decided below, if I could take you to it shortly, was we do not have to determine onus because the evidence is all there and we will look at the matter after we have dealt with the issues of law and look at what the evidence says.

GAUDRON J:   But we would not get to the important question of principle, would we, if , as a matter of fact, it should be determined one way or the other?

MR CONTI:    Yes.  If, as a matter of fact, there was breach of the policy condition, then the general questions do not arise.  Can I deal with those very briefly?  There were two matters which were raised by Justice Fitzgerald which appear in paragraphs 38 and39 of his judgment at pages 50 and 51.  The first, and his Honour deals with this matter briefly, after a very extensive analysis of the law, on these two pages, and in these two paragraphs, 38 and 39 alone.  His Honour states in the first particular paragraph:

These statements are also inconsistent with BP’s submission in this Court that Geselle need to do no more in order to comply with special condition…...of the material portion of the insurance policy than delegate responsibility for the operation of its Moruya service station to a “competent employee”.

Your Honour, the finding that there was no evidence in that matter of employing a competent employee does not bear on the outcome.  That was one basis upon which we sought to influence the outcome our way.  We did not need to demonstrate, however, that we had a competent employee.  The critical question is, what was the mind of the employer?  It was not a case of whether this employee, Pike, was negligent and, therefore, vicarious liability could be visited to the employer because that is, of course, a matter of tort.

This is a case of a contractual condition in a policy but the critical question is, what was the mind, for instance, of the managing director?  His Honour referred to the Tesco Supermarkets Case, and rightly so, which talks about the mind of the employee.  His Honour referred to Whitehead v Hamilton in this Court which spoke about the mind of the managing director, but it did not arise in this case.  There is no doubt that there was a vicarious liability for the negligence of this employee.  But that is not the question.

GLEESON CJ:   But Mr Justice Fitzgerald appears to have concluded, when you relate paragraphs 38 and 39 to paragraph 6, he appears to have concluded that, quite apart from questions of estoppel, on the evidentiary material, the proper conclusion was that the conduct of Geselle was reckless in the extreme.

MR CONTI:    Yes, but reckless by virtue of - a close analysis of his judgment demonstrates it was recklessness by virtue of the conduct of the person on the service station, Pike.  It was he the one, and he alone, that his Honour found knew of the malfunctioning bowser.

GLEESON CJ:   I am not sure that is right.  I you look at 39, there seems to be a finding about Mr Geselle.

MR CONTI:    Yes.  Now, your Honour, that particular finding, if I can now deal with that, is contrary - his Honour had no basis for that particular finding at all.  It was contradicted by what appears at page – I will just get the material.  There is a direct finding by the judge below at page 25, lines 6, 7 and 8:

From the first report of VACC’s loss adjuster it is clear that Mr Gizelle was quite ignorant of any problem at the service station.

That report went into evidence unopposed ‑ ‑ ‑

GAUDRON J:   And this is before ‑ ‑ ‑

MR CONTI:    This is the judgment appealed against, that is by the last judge, acting Justice Bowden.

GAUDRON J:   Yes.

MR CONTI:    He was determining the section 6 issue and he said, in evidence which was not opposed, Mr Geselle was quite ignorant.  Now, with respect, his Honour’s finding in paragraph 39 ‑ ‑ ‑

GAUDRON J:   Again, this is one of the things that worries me.  You have a couple of negatives there, I think.  Nor is there any evidence that Mr Geselle did not know what was being done.  So who had to prove that he did not know it?

MR CONTI:    Your Honour, we had an onus to prove that the policy condition was complied with.  That was not his Honour’s approach.  As Justice Brownie said, the majority are asking the wrong question.  They are not looking at the mind of the employer.  The majority, when I refer to them, with respect, are looking at the vicarious liability.

GAUDRON J:   Yes.

MR CONTI:    It is the vicarious liability, when you look at the way in which, in the judgment below ‑ ‑ ‑

GAUDRON J:   But there was a positive duty on Geselle under the policy, was there not?

MR CONTI:    Yes, there was a positive condition on Geselle under the policy.

GAUDRON J:   To take all reasonable steps.

MR CONTI:    To take all reasonable steps.  That is so.

GAUDRON J:   It seems to me the question is, did he take all reasonable steps?  Not did he know what was being done or what did he reasonably ‑ he took no steps in this case, did he not?

MR CONTI:    But one cannot, as it were, take steps in a vacuum if one did not know of the problem ‑ ‑ ‑

GAUDRON J:   I am not sure about that.  It would be one thing just for it to be proved that he had given instructions to Mr Pike, albeit of a general nature.  For example, even if he had instructed Mr Pike to contact him if there were any troubles.

MR CONTI:    But, with respect, being realistic, as an owner of, for instance, a service station, continually ask Dorothy Dix questions of the employee, “Are the pumps functioning correctly?”, et cetera.  If he does not know, then why is his obligation, as it were, crystallised?  Can I just take you to what Sir Frederick Jordan did say?  It is cited in the judgments, precisely on this question of knowledge.  It is to be found, actually, the passage is cited on page 77 of the application book, page 236 of the judgment, and your Honours see the words have been underlined and this is in the context of his Honour speaking about onus.  He says:

But knowledge on the part of the person so employed that he is acting carelessly is not knowledge –

Now, if it is not knowledge, then the question arises, “To what extent does an employer, at all levels of employment” – he may be a managing director, et cetera, et cetera, “how often has he got to go around and make inquiries?”.  Now, one way, and I appreciate what your Honour is saying, and I know it is a very important matter ‑ ‑ ‑

GAUDRON J:   No, the question is about the negative way in which it is put in paragraph 39:

Nor is there any evidence that Mr Geselle…..believed that Mr Pike was competent.

MR CONTI:    In the absence of that evidence, we would respectfully submit, his Honour was correct ‑ his Honour, in the minority judgment, was correct.  His Honour said, “That is asking the wrong question”.  The question is, within the Sir Frederick Jordan test, “Did there exist knowledge of this faulty bowser?”  If there did not exist that knowledge, then that is, as it were, the starting point, and that is where ‑ ‑ ‑

GAUDRON J:   Well, of course, at least some of the agents of the company, at least Mr Pike, and it is the company’s knowledge we are looking at, at least Mr Pike had knowledge.

MR CONTI:    Yes, he had the knowledge but he is a mere employee and when the findings were made which your Honour the Chief Justice referred to at the beginning of – opening at page 5, paragraph 5, “Geselle knew”, “Geselle had arranged”, et cetera, what he is speaking there is of vicarious liability.  That is all the first District Court judge had to consider, was vicarious liability.  When he speaks there of “knows”, he is speaking only of the employee.  If one translates this doctrine into, for instance, Whitehead v Hamilton, which is cited in these judgments, if one translates this doctrine into Tesco Supermarkets, it creates an extraordinary difficulty of application on a very important matter of public interest as to the extent to which the mind of the company, the managing director, must make the relevant inquiries and it becomes too onerous and too impractical.

It was acknowledged by Sir Frederick Jordan when he put together a very reasoned judgment in Kodak and spoke about the slight onus, and I am paraphrasing that, that is not his exact expression, when he spoke about that he recognised that if one goes too far in the way of construing this kind of policy in favour of the insurer, then there is no insurance at all.  The insurer, as it were, escapes from responsibly for the very matters for which he has issued the policy.

Your Honour, that is as far as we can take the matter.  We would submit that Justice Brownie was correct.  He said, “Look, one does not get to the two questions of Justice Fitzgerald”.  His Honour was aware of the judgment of Justice Fitzgerald and he said “Look, that is just asking the wrong question in all the circumstances that happened”, and that is how his Honour approached the matter.  One had to go, in the very first instance, to understand whose mind is the mind to be, as it were, investigated.

GLEESON CJ:   Mr Conti, the concluding paragraph of Justice Brownie’s judgment raises an issue that does not seem to have been pursued by anybody and still is not being pursued by anybody.  I am only curious to know whether what his Honour said there was based on some misunderstanding on his part.

MR CONTI:    No, I think, with respect, your Honour, his Honour seems to be – I am not quite sure of the sentence you are addressing.

GLEESON CJ:   Paragraph 81 on page 69.

MR CONTI:    Yes.

GAUDRON J:   Does section 54 operate to the extent of the prejudice.

MR CONTI:    Section 54.  Your Honour, section 54 did not arise in this kind of case because what section 54 is talking about is, as it were, not shutting out the insured entirely depending on whether, in the circumstances in the case, the degree of prejudice.  In the facts in this case, we would not have been able to raise section 54.  It was a case of either win or lose.  It was not a matter of giving partial entitlement, as it were, by way of claim.

GLEESON CJ:   So that comment was based on a misunderstanding by the Judge.

MR CONTI:    No, I think he was –the majority judgment were aware of it and it was also – the District Court judge below was aware - also mentioned section 54 but it just was not a section 54 type case and that is why it was never raised and so that would not be a matter of concern. 

Your Honours, may I address on matters of general importance, very briefly?  Your Honours, what we have to determine, of course, is whether there is an identity of issues and an identity of parties.  An identity of parties has been spoken about in the cases by reference to the expression “privies”.  That was Blair v Curran…..to the High Court.  Is the insured, Geselle, and the insurer privy?

As Justice Brownie found, there is no law to that – there has been no authority in this kind of context to that effect.  However, what Justice Fitzgerald conceded was that in the reverse situation of the insurer wanting to dispute liability on the claim, the insurer – it was not bound by the judgment – and that was the South Australian decision which is referred to by his Honour at page 46 of the judgment of the majority, Justice Fitzgerald said:

J N Taylor Holdings Ltd v Bond seems to me clearly correct.  I cannot discern any basis upon which an insurer could be precluded from asserting a breach of policy against an insured contrary to findings of fact in a proceeding in which judgment –

et cetera.  Well, that conclusion seems to constitute a considerable obstacle to VACC’s allegation of issue estoppel, the respondents.  His Honour then seems to, as it were, drift away from the reasoning, accepting that problem.  He also accepts that there was no abuse of process in the South Australian Trust Case, and that again tended to be our way, although not on identical factual circumstance, in the sense of it raising the principle but very closely analogous to it.

Having accepted those matters, his Honour then, as it were drifts into Thompson v Palmer and then speaks about Tesco, but as it were moves away, we would respectfully submit, from the issue.  We say that there is a very good reason why you could not say that an insured are insurer privies.  Their interests will always tend to be not representative, as it were, together and tend to be apart because when claims arise there is an issue.  Your Honours, the other ‑ ‑ ‑

GAUDRON J:   Well, section 6 itself makes it difficult to contemplate how ordinary principles of estoppel could work in this area, does it not?

MR CONTI:    Yes, we would respectfully submit, your Honour, and of course ‑ ‑ ‑

GAUDRON J:   And particularly in this case, you did not know that you ‑ ‑ ‑

MR CONTI:    Precisely.

GAUDRON J:   You did not know that you would need to rely on it until you were called upon to pay out the whole judgment.

MR CONTI:    That is right, yes, exactly right, and, of course, not only that, but, of course, we would submit there has to be identity of issues and how can there be an identity of issue between tortious liability, which is the subject of a claim under an insurance policy, with contractual liability of the insured itself and, of course, what has to be determined in terms of the contractual liability, I have already taken your Honours to in the judgment of Justice Jordan in Kodak.  If your Honours please.

GLEESON CJ:   Yes, Mr Hislop.

MR HISLOP:   Thank you, your Honour.  Your Honours, as the Court has observed, before one gets to any of the legal questions in this case there is a question of fact to be determined and ‑ ‑ ‑

GAUDRON J:   It has been determined in various ‑ ‑ ‑

MR HISLOP:   That issue of fact has been determined ‑ ‑ ‑

GAUDRON J:   In various ways, but I am not too sure that they make sense.

MR HISLOP:    Well, with respect, we submit they do.  As I understand, what my learned friend was – I will go back one step.  In the Court of Appeal, the facts were determined by the majority in a way that determined, having regard to the facts alone and not relying upon estoppels or any other matters, and not relying upon any questions of onus because they were said to be irrelevant, it was found that the facts established a breach of the special condition.  If that is so, the whole claim falls to the ground.

GAUDRON J:   What are those facts that establish that and, for these purposes, is the question, did BP establish there was no breach of the conditions or did you establish that there was?

MR HISLOP:   Well, under the law as it applies in New South Wales, and has done for a very long time, the onus would be upon BP to establish breach, and I think my friend, in his argument ‑ ‑ ‑

GAUDRON J:   To establish breach or no breach.

MR HISLOP:    Well, they would have to establish no breach.

GAUDRON J:   They have to establish something.

MR HISLOP:    Yes, and I think ‑ ‑ ‑

GAUDRON J:   And if they establish that the managing director did not know about it, they have established something, or perhaps there is a change of onus at that point, is there?

MR HISLOP:    We would submit not, but the overall ‑ ‑ ‑

GAUDRON J:   Well, there might well be in the facts of this case.

MR HISLOP:    Your Honour, there was nothing which the Court of Appeal found which established there had been no breach of the section and my learned friend has attacked that on the basis the court was directing itself to the wrong question, that they were not having regard to the fact that it had to be a breach by Geselle rather than by some employee who was merely an employee.  But that is not correct as is apparent from the opening words in the judgment of Mr Justice Fitzgerald at 49, paragraph 37, where he said:

While only a breach by Geselle of special condition 3 of the material portion of the policy would entitle VACC to refuse indemnity, it does not follow that Mr Pike did not represent Geselle for the purpose of determining…..such a breach occurred.

He then cites Tesco, which is the delegation to the full delegation of the employee so that its knowledge becomes that of the company.  That was this case because Mr Pike was put in sole control, it would seem, of this particular service station.  He continued on to base it upon the fact ‑ ‑ ‑

GAUDRON J:   But Justice Brownie says he was not put in control of ensuring compliance with the insurance condition.  There is no evidence that he was put in control to that extent.

MR HISLOP:   But that, in any event, in our submission, would not matter.  It is a question of whether Geselle was reckless, to shorthand it, in its operation and it would not matter if the whole of the operation, at a factual level, was placed with the employee, Pike.  If there was a delegation of the way in which the business be carried on, and so on, it would not matter that he was not specifically asked to consider the insurance situation, in our submission. 

In any event, there are other bases which were put forward by Mr Justice Fitzgerald, such as the non-competence of Mr Pike in the way he conducted the matters.  There was no evidence that Geselle did not know it was being done, and so on and so forth, as set out in his judgment.  So, there is that factual finding that stands at the moment and the Court would have to get into a dispute about the determination of the facts before it would get to any questions of law. 

It is not correct, as my learned friend has suggested, that Judge Kirkham did not consider, or was not required to consider, the question of the knowledge of Geselle in his judgment.  Judge Kirkham did determine that.  He found the recklessness was recklessness in the extreme and he attributed that recklessness to Geselle itself.  He had to do that because he was making a finding against Geselle of a liability for exemplary damages and that, on the authorities, can only be made if one finds that the fault is that of the, in this case, Geselle.

It is not enough to find that there was gross recklessness by an employee to found exemplary damages.  It has to be the fault of the particular person who was made liable, that is, Geselle.  So, one starts off with a clear finding by Judge Kirkham of recklessness in the extreme which he lays at the door of Geselle itself and we have those findings confirmed by the majority in the Court of Appeal, and unless this Court was to involve itself in working its way through the facts and come to some different conclusion, one just does not get to the questions of law in any event.

GLEESON CJ:   The questions of estoppel only arise because of Judge Kirkham’s finding, do they not?  That is the origin of the problem of estoppel.

MR HISLOP:   That is the origin but, as I submit, there is a separate factual finding which is in accord with that and completely separate and apart from it.  We have a separate factual finding by the majority of the Court of Appeal that says that section 3 applies having regard to the facts of the case.  So, whilst it is supported by the factual findings of Judge Kirkham, the decision of the majority of the Court of Appeal stands alone.

GLEESON CJ:   The majority of the Court of Appeal says, as I understand it, that BP are estopped from denying that fact as found by Judge Kirkham but they then said that, in any event, the fact was correctly found.

MR HISLOP:    Precisely, yes.

GAUDRON J:   And should have been so found by Acting Judge Bowden.

MR HISLOP:    Yes.

GAUDRON J:   On the evidence.

MR HISLOP:    Yes, on the evidence.  The only other particular matter we would put is that the finding based upon the inconsistent judgment type approach was a correct one in the circumstances, that the result is a just one, where a party has sought to rely upon a finding of exemplary damages or the culpability associated with that in order to increase the contribution which it recovers and then seeks to ignore that, put it to one side, when it makes an attempt to claim against the insurer under section 6.  But the initial problem in relation to the facts, in our submission, remains.  If it please the Court, they are the submissions.

GLEESON CJ:   Yes, Mr Conti.

MR CONTI:    Yes, one matter, your Honours.  Can I just take you to page 25 again of the application book?  I read to you the second sentence.  Can I also draw your attention to the third sentence, “Mr Gizelle had no reason”, the whole of that sentence.

GLEESON CJ:   Thank you.

The Court is of the view that having regard to the factual contentions in issue in the matter, the matter is not a suitable vehicle for considering the questions of principle sought to be raised by the applicant.  For that reason, the application will be refused.

Can you resist an order for costs?

The applicant must pay the respondent’s costs of the application.

AT 10.40 AM THE MATTER WAS CONCLUDED