Ce Heath Underwriting & Insurance (Australia) Pty Limited v Edwards Dunlop & Co Limited

[1991] HCATrans 325

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S65 of 1991

B e t w e e n -

C.E. HEATH UNDERWRITING &

INSURANCE (AUSTRALIA)

PTY LIMITED

Applicant

and

EDWARDS DUNLOP & CO. LIMITED

Respondent

Application for special

leave to appeal

DEANE J
TOOHEY J

GAUDRON J

Heath 1 15/11/91

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 NOVEMBER 1991, AT 11.13 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 A.G. BELL, for the applicant.

(instructed by Blake Dawson Waldron)

MR M.A. PEMBROKE:  May it please Your Honours, I appear for

the respondent. (instructed by Mallesons Stephen

Jaques)

DEANE J: Yes, Mr Gee.

MR GEE:	Your Honours, may I begin by handing up - this is
not as daunting as it might look, Your Honours - a bundle containing an outline of our essential
submission on this application and copies of a
couple of authorities to which we would wish to
make reference.

The application book did not include either

the fidelity policy, the so-called blanket fidelity

policy, nor the industrial special risks policy

that preceded it, and copies of those are

available should it be found necessary to refer

more broadly than appears in the application

book.

Your Honours, we are conscious, in starting

the application, that the court below was

i-nterpreting a document inter partes but we would

respectfully submit that as it has turned out, the

process of interpretation has thrown up a true
point of genuine importance and we respectfully

submit, on the basis of the authorities and the

arguments set out in our outline, that the majority

decision below is attended by sufficient doubt to

justify a grant of leave.

The essential situation was that after the issue of an industrial special risks policy which

was renewed once, part of which covered fidelity

risk, there was then issued the so-called blanket

fidelity policy to replace that part of the

industrial special risks policy, and the details of

the way in which those policies were issued and

operated from time to tiine are perhaps most

conveniently set out in the judgment at first

instance, particularly at pages 1 and 2.

What happened was that the loss caused by the dishonest employee extended from as early as 1982

to June 1988. It was discovered in August 1988.

The plaintiff made, of course, no claim in respect of loss suffered before 31 May 1983, which was the commencement of the ISR policy, but claimed for the

whole of the loss which had taken place within

successive policy years, as we would say, on the

basis that they were all caught up under the policy

Heath 2 15/11/91

in force at the date of discovery or,

alternatively, under the policy immediately

preceding that which had a 12 month discovery
period.

The insurer acknowledged that in respect of

losses which had actually occurred within the
policy year ending April 1987 and the one which was
in force at the time of discovery the indemnity was

payable. So it is the difference that became the

subject of dispute and that was an agreed amount of

some $420,000 as appears at page 2.

The argument turned, in the court below,

Your Honours, on examination of the terms of the

blanket fidelity policy and crucially depended on

what constituted the policy period. The competing

arguments were, for the present respondent, that

with each successive renewal so-called there was
really an extension of the policy so that one had

what came to be referred to as a "seamless" period

of cover from the inception of the policies; for
the present applicant, the submission was that the
policy period was a series of disparate individual

policy periods and in respect of each two things

had to be true for indemnity to be enjoyed: first,

that the loss should have actually occurred within

a given policy period, seen as a separate calendar

period, and that that loss should have been
discovered within 12 months from the end of that

policy period.

GAUDRON J: Does your proposition that each renewal effects a

new contract of insurance take you the full

distance for that proposition?

MR GEE:	It is not necessary, with respect, Your Honour,
that it should. What we would be seeking to show
is that the way in which the matter was in fact
decided by the court below, because in effect the
contrary assumption was made, had the consequence
that when they came to reason about the true
construction of the precise wording of the individual policy, that reasoning came to be
infected by misapprehension as to the nature of a
renewal.  So I would answer Your Honour's question
by saying, if that fundamental was erroneous on the
part of the court below, then in this particular
case there is not only then considerable doubt about the position that the majority would have
arrived at without error, as we would submit, but
we would then draw in aid the fact that of the four
judges who have heard the matter, two resolve the
actual point of construction in our direction and
that the matter does call for examination by the
only remaining Court of resort.  So that is how we
Heath	15/11/91

would put the answer to that question,

Your Honours.

DEANE J: There is an unmentionable consideration that

militates against you in the back of one's mind,

Mr Gee, and that is that if an insurance company

has a policy in a form that a majority of the Court

of Appeal thinks means something which favours the
insured, why should this Court intervene to protect

the insurance company?

MR GEE:	Because, Your Honour, in coming to that conclusion
about the particular policy, the court threw up or
partly reasoned, at least - we would say centrally
reasoned - on a process that affects potentially a
very large number of other persons as well as the present litigants.

DEANE J: Then perhaps I should have said, if the insurance

industry cannot get its game in order to a

sufficient extent that its documents say what they

mean them to say, why should this Court deprive the

insured, who has the support of a majority of the

Court of Appeal, of his victory?

MR GEE:	The short answer, Your Honour, is that that
majority regrettably proceeded in error. I will
return the unstated proposition with another, that to found upon error can only compound it and if it
affects the industry as a whole adversely, if it be
right that the view was arrived at in error, it is
no answer to that to say, well, you may have
contributed to that by documents wanting in perfect
clarity.
But, Your Honours, could I respectfully take the Court to the particular aspects of the majority
judgment below which, we would submit, make good
the proposition that we contend for.
DEANE J:	Mr Gee, subject to being corrected by the other

members of of the Bench, I think you can proceed on

the basis that we accept that there is an arguable
question involved and that we can see that there is

some general importance in the answer to the

question.	I do speak for the Bench when I say
that.

MR GEE:	Your Honour, if I may say so with the utmost
respect, that would normally call for a grant of leave, the combination of those two elements.
TOOHEY J:	So long as the conclusion is right.
MR GEE:	Your Honour, there is nothing, with the utmost
respect, erroneous about the tentative view just
advanced by Justice Deane.

Heath 4 15/11/91

TOOHEY J:  I am not sure that you are being invited to

confirm us in our position, Mr Gee.	It was more by
way of a hint.

MR GEE:	No doubt, Your Honour, and it is at moments like
these that caution overwhelms one.
DEANE J:	Mr Gee, I do not want to stop you, but you will

have an opportunity of replying. What would you

say about costs, in the event that you were given

leave, since the basis on which you will get leave

is the suggestion that it is a question of general

importance to the insurance industry as a whole?

MR GEE:	May I do two things, Your Honour, before I answer
that question: one is to take instructions, and
the other is to hear what is put for the respondent
as to why leave ought not to be granted.

DEANE J: Certainly. Yes, Mr Pembroke.

MR PEMBROKE: If Your Honours please, the principal

submission for the respondent is that in truth the

decision does not give rise to a question of

general importance. That is because, on its true

analysis, this really is a case of construction

which is very much dependent on its own peculiar

facts.

The judgments below threw up the various

countervailing features of the documents. One of

the features in which the question had to be

resolved was the peculiar context in which the

problem arose in this case. May I just recap on

that, Your Honours? There was, as has been

explained, an industrial special risks policy with

a fidelity component. The fidelity component

extended to losses discovered within 12 months of
the termination of the policy, not within 12 months
of any particular policy period or period of

insurance but within 12 months of the policy.

It so happened, for reasons which do not

matter, that the same insurer, the applicant,

substituted the fidelity cover, which was part of

the ISR policy, with a brand new policy.	In the
brand new policy, the wording was slightly
different.	The construction contended for by the

applicant in the fidelity policy, the second

policy, is radically different from that which

applied under the industrial special risks policy.

So that in truth, when the courts below were

considering the question of construction, they were

really looking at two policies, not just the

fidelity policy, because the first policy provided

part of the context in which that question of

construction arose.

Heath 5 15/11/91

Secondly, it is, on no view, a case about

whether a renewal affects a new contract or not.

There was, in my submission, no misapprehension by

the court below as to the nature of a renewal.

That, I think, is clear, in my submission, from

page 27 line 25 in the judgment of

Mr Justice Clarke, and going over the page to

line 10 on page 28. The essence of His Honour's

reasoning on that issue was that upon a renewal the

expression "policy period" had a different meaning.

GAUDRON J:  That must be right. On any view, once the

renewal came about, it had a meaning different from

that defined in the first policy.

MR PEMBROKE:  Yes. So that really does not touch on the

question as to whether there was a new contract

each time there was a renewal. The question is,

what is the meaning of the expression "policy

period" in each further contract of insurance? It

was not really put, in the courts below, that there
was not a new contract. So that in truth the issue

simply is, how does one construe the expression

"policy period" in this particular context against

the overall commercial background of the prior

policy to which I have referred when that
expression is defined for the first year but is not
defined for the subsequent years; when the same
policy number applies throughout for all subsequent

renewals and when the certificate of insurance

states that cover is provided for year 1 and for
such further period or periods as may be mutually

agreed.

Additionally - and this is one of the factors

which was put before the courts below - the

construction contended for by the respondent is

quite simple in its operation; it is entirely

consistent with the first policy and is readily

comprehensible. If I may say so, the construction
contended for by the applicant operates somewhat

particularly clear when one tries to look at the awkwardly by comparison and that becomes	combined operation of the two policies in relation
to the way the second policy sought to pick up
losses which would otherwise have been covered by
the first policy.

So, Your Honours, the burden of my submission

on this point is that the expression "policy

period", in the context with which we are

concerned, does not represent a definition for all

purposes and in all contexts and it is not

necessarily to be equated with the expression

"period of insurance" which appears elsewhere in

the policy and which may or may not have a

different meaning. This issue is a peculiarity of

Heath 6 15/11/91

the way in which the insurer, the applicant, has

brought about two policies, one after another, both

seeking to cover the same risks.

Finally, Your Honours, as Justice Deane has

pointed out, even if there were some significance

on this issue in relation to other policies, the

decision does not and cannot have any longstanding

or immutable effect.	The answer lies in the
drafting.

For those reasons, Your Honours, it is my

submission that the issue does not give rise to a

question of general importance and for those

reasons, in my submission, the application should

be dismissed.

DEANE J:  Mr Pembroke, perish the thought, but if your

submissions should not prevail and leave would

otherwise be granted, have you anything to say

about whether it should be on conditions relating

to costs?

MR PEMBROKE:  My submission would be that in any event the applicant pay the costs of any appeal.

DEANE J: What about the orders for costs below? Would you

seek a condition that they be not disturbed?

MR PEMBROKE:  Yes, Your Honour. If Your Honours please.

DEANE J: Very well. Mr Gee, you need to address the

question whether you are in a position to give an undertaking to pay the costs of any appeal in any

event. I am not asking you to give an undertaking

about the costs in the courts below.

MR GEE:	Your Honours, the justification, if leave were
granted, for the imposition of that term would be that only insurers represented by the present applicant would benefit from the matter being
ventilated in the Court. With great respect, that
is not quite the case.
DEANE J:	The justification would be that part of the basis

upon which you would get leave is that the

insurance industry generally wants the matter

cleared up on an appeal to this Court. Now, I

think the suggestion that the group of insured

would benefit from any appeal is not very strong,

in the circumstances of this case.

MR GEE:	In the circumstances of looking at a particular insured, that is unanswerable, but there is another consideration, with respect, Your Honour, and that
is that this will, if allowed to be ventilated further, benefit those acting for insured, namely

Heath 7 15/11/91

brokers, as much as any insurers but, beyond that,

we have nothing further to say.

DEANE J:	I see.
MR GEE:	I would need, of course, depending on the precise
form of the term that the Court was minded to put in the event of a grant, just to take formal
instructions on the matter.
DEANE J:	I do not think we need an undertaking, Mr Gee.

There will be a grant of leave to appeal in this

matter on condition that the applicant pay the

respondent's costs of the appeal in any event. It

will be a matter for your client whether it wants

to take advantage of that grant or not.

MR GEE: If Your Honour pleases.

AT 11.35 AM THE MATTER WAS ADJOURNED SINE DIE

Heath 15/11/91