Campbell Wallis Moule & Co Pty Ltd & Ors v Ce Heath Underwriting & Insurance (Australia) PTy Ltd

[1991] HCATrans 143

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No Ml4 of 1991

B e t w e e n -

CAMPBELL WALLIS MOULE & CO PTY

LTD, MAXWELL NORMAN CAMPBELL,

JOHN WILLIAM WALLIS and JOHN

ALFRED MOULE

Applicants

and

C.E. HEATH UNDERWRITING &

INSURANCE (AUSTRALIA) PTY LTD,

AMP FIRE & GENERAL INSURANCE CO

LTD and CARLINGFORD AUSTRALIA

GENERAL INSURANCE CO LTD

Respondents

Application for special leave

leave to appeal

MASON CJ DAWSON J MCHUGH J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 7 JUNE 1991, AT 10.15 AM

Copyright in the High Court of Australia

Campbell 1 7/6/91

MR K.M. HAYNE, QC: If the Court pleases, I appear with my

learned friend, MR J.V. KAUFMAN, on behalf of the

applicants. (instructed by Middletons)

MR F.H. CALLAWAY, QC:  May it please the Court, I appear

with my learned friend, MR W.F. LALLY, for the

respondents. (instructed by Phillips Fox).

MASON CJ:	Mr Hayne?
MR HAYNE:	If the Court pleases. Your Honours, we submi't

that the point that is raised in this case is

whether insurers must decide promptly upon the

receipt of relevant information bearing upon their
liability to indemnify whether or not to admit or

deny liability to indemnify. It is submitted that

that point arises in this way: the appeal division

in Victoria has held that the underwriters in this

case conducted the litigation, on behalf of the
insured, up until a point 10 days before the case
was fixed for trial pursuant to an assent given by

the insured at the time of the service of the writ

upon them. The appeal division rejected the

holding of the trial judge that once underwriters

had possession of all relevant matters bearing on

their liability to grant indemnity or not under the
policy, information they had by December, the
underwriters' solicitors thereafter remained in
control of the defence of the action and could
remain in control of the defence of the action only

pursuant to the contractual right under the policy.

By rejecting that conclusion and adopting the

view that the underwriters' conduct of litigation

was attributable only to the insured's assent and not to the contractual right under the policy, it is submitted that the court rejected the

proposition that there is a time after the receipt

of all relevant information by which an insurer

must make up its mind about whether a claim falls
within or without the indemnity granted under the

policy, for it is clear, we would submit, from the

findings at first instance not challenged on appeal, that if an insurer must act within a reasonable time then in this case that reasonable

time had passed, and we would say that its

continued conduct of the litigation then was

attributable only to its contractual right under

the policy.

Now, Your Honours, it is submitted that the

generality of the application of that point is

apparent. It is a point that arises, or can be

made to arise every time an insurer wishes to

preserve its position pending further inquiry.	We
do not cavil at the proposition that, of course,
insurers may make inquiries into relevant facts

Campbell 2 7/6/91

before determining whether liability should or

should not be granted under a policy. The

obtaining of an assent of the insured to
underwriters' solicitors conducting the litigation

in the name of the insured pending those inquiries

is, of course, commonplace. Thus the point that

arises is one, we would say, that is of general

occurrence and thus the point is one of general

application.

We would submit that the error in the judgment below is apparent in this way: in the phrase that

was much used by counsel for the underwriters below

the case was thrown back into the lap of the
insured 10 days before trial. If the Full Court is
right in its conclusion, then it could have been
given back to the insured on the eve of trial or,

indeed, after the conduct of trial before verdict,

or even perhaps after verdict and there would have

been no election shown by the underwriters because,

if the Full Court is right, the underwriters were
conducting the defence of the action pursuant to

the assent which the insured gave at the time of

service of the writ upon them. The conduct of the

trial would in those circumstances then, in the

words of the Full Court, have been pursuant to a
right for which the underwriters had stipulated and

which they had been granted by the insured.

So, the control of disposition of the

proceeding would have remained with underwriters

even though the underwriters, being in possession

of all relevant information on which to make their

decision about whether liability to indemnify

should or should not go, simply chose not to make

such a decision. ·

We would submit that the point that arises is

not met as it would appear from the reasons of

Mr Justice Brooking. The appeal division though it

was met by reference to obligations that solicitors

for underwriters may have to have regard to the

interests of their insured in the course of their

conduct of the defence.

DAWSON J:	Mr Hayne, what you are really putting is that there is some limit to be implied upon the capacity
of the parties to agree that the underwriters should conduct the litigation without exercising an
election?
MR HAYNE:	Your Honour, with respect, no, I am saying that

when parties agree that underwriters may conduct

litigation, underwriters reserving their right

pending further investigation, which is the case

here, then underwriters are bound to make their

Campbell 3 7/6/91

mind up promptly upon receipt of all relevant

information bearing on the issue.

DAWSON J: That is a limitation on the capacity to agree, or

at all events it is an implied term in the

agreement that they will make up their minds within

a reasonable time?

MR HAYNE:  Yes, Your Honour, yes, it is, and it is submitted

that it is that point which has not been taken to

account at all in the decision below, and it is

that point which leads to the error that thus

occurs.

McHUGH J: But this must depend upon a proposition of law,

must it not, because in the letter of the

28 October, the solicitors said that "We confirm

that underwriters rights still remain reserved."

So, to overcome that you have to point to some

principle of law or rule of law which says that

that reservation became legally spent?

MR HAYNE:  Yes, Your Honour, and the point on which we would

seek to rely and the point we seek to raise is,

that it is not open to underwriters to reserve

their position after they have come into possession

of all information bearing upon the issue of

liability to indemnify or not, and the basis of

that proposition is no more than the general

obligations of good faith between insured and

insurer. That is, that an insurer may not simply

nurse to himself the decision once he has all the

information. We do not cavil at the point that, of

course, he may make all relevant inquiries and

obtain the information, but once he has the
information may he thereafter say, "I will continue

to conduct the litigation still reserving my

rights"? We would say the answer to that is no,

and it is that point which we say is the point

raised squarely by this case and the point which we

would seek to debate.

MASON CJ:  Now, did you put this proposition of law to the

Full Court?

MR HAYNE:  In those terms that I have just articulated it,

no, Your Honour, and the circumstances of the point emerging are apparent from the judgment below. The

point -·'is a point that was not argued on the
princi 11 heari~g of the appeal, it emerged when

the ca J was re-entered for further argument. But

if Your Honour is asking me whether I articulated

below the proposition in the form I have just

articulated it, the answer to Your Honour's

question is, no.

Campbell 7/6/91

McHUGH J: It does not appear that solicitors had advised

the underwriters before, what, 19 January, was it?

MR HAYNE: 

19 February, I think, Your Honour; in any event

January/February, some six weeks after setting down
for trial, though they had been in possession of
the facts since December.

McHUGH J: Yes, and it was 21 February that the solicitors

wrote to your client?

MR HAYNE:  Yes, Your Honour, 10 days before trial, but I

shall not make the jury points that then follow.

But, Your Honours, the point which we submit

emerges is that which I have articulated. We would

say that the point is not one that is cured by reference to obligations to have regard to the interests of the insured because the difference

between controlling a proceeding and simply being

the object of a duty to take care is a difference

that is real and radical. One need only refer to

the proposition that a party sued may, if in

control of the proceeding, wish to have regard to
extraneous matters such as its professional

reputation to identify the difference between

having control of a proceeding and being the object

of a duty to take care .

McHUGH J:  What concerns me, having regard to the way that

you now put it, is whether there was ever an

investigation of this issue at the trial, I mean,

the source of this legal right is the good faith of

• • • • • ?

MR HAYNE: Yes, Your Honour. But, Your Honour, underlying,

if I may say so, what Your Honour is putting to me

is, is the course of proceedings such as that there

should have been a different or other factual

inquiry from that which has, in fact, occurred.	We
would submit quite plainly, no, because the duty

upon which we seek to rely is no more than the duty

of good faith between insurer and insured, and the

whole of the facts surrounding the course of events
from the time of - before institution of

proceedings, but from institution of proceedings

until settlement of the ultimate proceedings was

fully investigated in the course of trial.

McHUGH J: But assuming the solicitors were in full

possession of the facts in December - - -

MR HAYNE:  So, it was found?

McHUGH J: It was found, yes.

MR HAYNE:  Yes, Your Honour.

Campbell 5 7/6/91

McHUGH J: Well, then there are questions of reasonableness,

of delay in informing the insurer. I think they

did do it on 19 January I thought, I may be wrong

about that, and then the insurer did not make up its mind, apparently, for another month or more, would not those matters have to be investigated?

MR HAYNE:	But they were, with respect, Your Honour, and were by the primary judge Mr Justice Tadgell.	We
would submit that they were investigated and we

refer, particularly, to the passages from pages 26

through to 29 of the application book, where

His Honour examined, we would submit with care, the

course of events that occurred between solicitors

having acquired all relevant knowledge, and

His Honour found that they had acquired all relevant knowledge at least by 16 December 1988.

McHUGH J: But His Honour was dealing with it in terms of

election, and he seems to have been dealing with it

in terms of an election between different courses

of conduct - - -

MR HAYNE:	Yes, Your Honour.
McHUGH J:	but as I understand it, that is not the way

you put it?

MR HAYNE: Well, Your Honour, then I have not made myself

clear, because we would submit that if the duty

exists then the point is one of election because if

underwriters were under a duty to decide, then

their course of conduct after 16 December or

shortly after, when they should reasonably have

made their mind, was attributable only to the

exercise of one right, namely, the compulsive right

under the policy rather than any other right for

which they had stipulated and which they had been

given. Thus the point, we submit, does become a

point of election. But I put the case as I do

because the consequence is one of election.	The
point - the logically anterior point that gives	rise to the election - is the existence of this
duty or no and it is that point which we say is the point of general public importance.

Your Honours, the Court has looked recently,

on several occasions, at election and at the

principles that are to be applied in connection

with election. Those principles are well stated

and I do not seek to say to Your Honours that - - -

MASON CJ:  I do not think everyone agrees with that

statement?

MR HAYNE:  As I uttered it, Your Honour, I knew I had gone

too far, again, but the Court has recently looked,

Campbell 6 7/6/91

on a number of occasions, at election in

Khoury's case and earlier in Sargent's case and, of

course, most recently, in Verwayen's case, to some

extent - perhaps some limited extent. But the

application of the doctrine of election is, we

would submit, not the area of immediate

controversy. The area of controversy is that

logically prior question of how does one explain -

how ought objectively the conduct of underwriters

be explained between 16 December and the letter of

21 February.

MASON CJ:  Mr Hayne, do you have support in authority for

this broad proposition of law that you are

contending for as applied in circumstances like

unto the circumstances of the present case?

MR HAYNE:  No, I do not, Your Honour, and indeed the absence

of authority directly in point is something to

which we would point as being a matter - - -

MASON CJ:  I follow that.

DAWSON J: It sounds very like a sort of estoppel that you

are putting, Mr Hayne?

MASON CJ: Yes.

MR HAYNE:  Your Honour, we do not put it in terms of

estoppel if only because estoppel has never been

pleaded in this action and never argued - - -

DAWSON J: Because you cannot, that is why, yes; because you

cannot put it in terms of estoppel in the

circumstances.

MR HAYNE:  Your Honour is uncharitable, but right, if I may

put it in that way, yes. Estoppel is not there but

election is if the inquiry is about the objective

conduct of the insured, election being concerned

with what the party does, not what it induces the

opposite party to do.

MASON CJ: Yes, you would not like estoppel because estoppel

would be fastening too much on the conduct of the

parties as the transaction developed. You would

prefer a duty by way of election because it would
rather look to the relationship between the two

parties and seek to generate an obligation out of

that relationship?

MR HAYNE:  Yes, Your Honour, and, as I say, and as

His Honour Justice Dawson has been good enough to

point out to me, estoppel is something that is not

relied on and cannot be relied on in this case.

Campbell	7/6/91
McHUGH J:	Mr Hayne, what about that decision of Blake

v Exchange Mutual Insurance Company of Philadelphia

to which Mr Justice Murphy refers in his judgment,

does that support your proposition or is that -

MR HAYNE:  Your Honours, so far as we can pursue Blake

through the cases in the United States, it has
developed down the path of estoppel as estoppel has

been developed and understood in the States and in

the United States of America, and thus the debate

in the cases seems to have been fastening on

estoppel, not on concepts of election as we would

seek to raise them. But Blake's case is, perhaps,

no more than an example of what we would say is the

general underlying obligation of a good faith one

to another.

McHUGH J: Because there is a reference to good faith in

that quote?

MR HAYNE:  Yes, there is, Your Honour, but it appeared to us

not to lead us to a stream of authority that we

could usefully draw to Your Honours' attention on

the point.

Your Honours, I have identified the point for

which we contend, I have identified the generality

of its application.	We would submit that the court
below was in error and that leave should go.	If
the Court pleases.

MASON CJ: Yes, thank you, Mr Hayne. The Court need not

trouble you, Mr Callaway.

Having regard to the way in which the case has been conducted in the courts below, the Court is of opinion that it is not an appropriate vehicle for

the determination of the general proposition of law

for which the applicant now contends.	The
application is therefore refused.

MR CALLAWAY:  If the Court pleases, we ask for costs.

MASON CJ:	You do not oppose that?
MR HAYNE:	I have nothing to say, if Your Honours please.
MASON CJ:	The application is refused with costs.

AT 10.32 AM THE MATTER WAS ADJOURNED SINE DIE

Campbell 8 7/6/91