CGU Insurance Limited v Porthouse

[2008] HCATrans 143

[2008] HCATrans 143

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S530 of 2007

B e t w e e n -

CGU INSURANCE LIMITED

Appellant

and

ANTHONY PORTHOUSE

Respondent

GUMMOW J
KIRBY J
HEYDON J
CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 26 MARCH 2008, AT 10.17 AM

Copyright in the High Court of Australia

MR M.A. PEMBROKE, SC:   If the Court pleases, I appear with my learned friend, MR G. LUCARELLI, for the appellant.  (instructed by Kennedys)

MR A.J. MEAGHER, SC:   May it please the Court, I appear for the respondent with my learned friends, MR A.J. PAYNE and MR D.F.C THOMAS.  (instructed by Langes Lawyers)

GUMMOW J:   Yes, Mr Pembroke.

MR PEMBROKE:   Your Honours, the amended notice of appeal, to which there is now no objection, appears at page 490 of the appeal book and the summons seeking leave is at page 487.  Your Honours should make that order.

GUMMOW J:   Yes.  That is not opposed?

MR MEAGHER:   No, your Honour.

GUMMOW J:   We make that order.

MR PEMBROKE:   Your Honours, may I take you to some aspects of the policy in question.

KIRBY J:   What is the difference between the amended notice of appeal and the original?  It is not underlined.

MR PEMBROKE:   There is a change of structure, your Honour, and the second paragraph in the amended notice of appeal did not appear in the original and in paragraph 6 there have been included some words referring to the absence of reasons and the failure to enunciate any basis supporting this conclusion by the Chief Judge in Equity.

KIRBY J:   Yes.  He was sitting as an acting judge of appeal.

MR PEMBROKE:   Yes, he was.  May I start with the policy, your Honours, and draw your attention to some features of it.  The policy appears at page 369 of the appeal book.

KIRBY J:   Can I ask a little question that has been puzzling me.  It may be somewhere in the facts, but I did not quite know.  Was the respondent insured with the appellant before the subject policy was taken out?  In other words, was this a continuation of a policy which he had held in previous years?

MR PEMBROKE:   No.  He was insured with another insurer.  I will take you to the policy schedule for that insurance for the period ending 30 June 2004.

KIRBY J:   So this was a new policy of insurance with a new insurer.

MR PEMBROKE:   Yes.  At 369 there appears the schedule to the policy, your Honour.  You will see item 1 is the name of the respondent and item 5 is the period of insurance – June 2004 to June 2005.  Item 7 is the sum insured; 7.4 states that there is no retroactive date; 7.6 identifies the date of the proposal and declaration as being 20 May 2004.  Item 9 indicates that there is additional coverage for disciplinary proceedings and inquiries.

The terms of the policy appear commencing at page 373.  In section 2.1 the policy provides that the insurer agrees to provide the cover described in the policy upon payment of the premium and 2.2 states that before the policy came into effect the insurer was provided with information in the proposal, and perhaps in other ways.  It goes on to state that the insurer has relied on this information to decide whether to enter into the contract.

Section 3.1 is the identification of the first component of the cover.  It is indemnity for claims for civil liability, which is a combination of two defined terms, to a third party:

incurred by the insured in the conduct of the Insured Professional Business –

It is subject to several conditions, the most important of which are that the claim or claims is or are made while the policy is in force.  It is a claims made policy in that respect – and (b) that the insurer is told about it “in writing as soon as reasonably possible while this Policy is in force”.  Section 3.2 simply sets out the types of civil liability which are covered.

The second component of cover is identified in 3.3.  This is not cover against claims.  This is cover against claim investigation costs.  It is also a defined term and I will come to the definition in a moment.  The insurer agrees to pay an amount equal to the policy limit or claim investigation costs, and there were certain irrelevant conditions.  The definition is in clause 11.3, to which I am shortly coming.  The third component of cover is 3.4, cover for disciplinary proceedings or inquiries, and the insurer agrees to provide cover for the costs of disciplinary inquiries and proceedings on the terms set out in 3.4.

KIRBY J:   You make something in your argument of the ambit of 3.3?

MR PEMBROKE:   Yes, we do.  May I turn then to the definitions which will make that a little clearer?  The definitions commence on page 382 under section 11.  Section 11.1 is the definition of civil liability, which is straightforward.  Section 11.2 is the definition of claim.  It is defined to be:

Any originating process (in a legal proceeding or arbitration), cross claim or counter claim or third party or similar notice (or a formal written demand) claiming compensation against and served on an insured.

11.3 Claim Investigation Costs
The legal costs and expenses of investigating, defending or settling any Claim (or anything which might result in a Claim), which would be covered by this Policy at the time the legal costs and expenses arise.

Then there is a definition of “Covered Claim” in 11.5, which means:

Claims, liabilities losses, costs or circumstances which may give rise to a Claim, which We may agree to cover under this Policy.

GUMMOW J:   Well, 11.12 talks about allegations, not claims, does it not?

MR PEMBROKE:   That is right, yes.  That is an important point to which I will come back.  In adumbration of the point about the width of the definition of claim investigation costs, could I draw your attention to section 7.9, which provides that the insurer shall – if the insurer pays to settle anything which might give rise to a claim such a payment is taken to be the settlement of a claim.  I have paraphrased that rather badly but that is the gist of it.

KIRBY J:   I do not see the significance of that immediately.

MR PEMBROKE: Well, the policy clearly contemplates payments to settle allegations or circumstances or a range of things short of a claim, which for reasons which we have explained in the written submissions and which I will develop makes the reference to “allegation” in clause 11.12 defining known circumstances significant.

KIRBY J:   “Allegation” itself is not defined.

MR PEMBROKE:   No, it is not.  Your Honours, the policy in section 6 states what it does not cover, page 376, section 6.1.  It says it does not cover any of the following claims or losses.  Then 6.1 says “Known Claims and Known Circumstances”, and then there are four categories set out and (b) and (c) pertain to this case:

(b)      Claims (or losses) arising from a Known Circumstance, or

(c)Claims (or losses) directly or indirectly based upon, attributable to, or in consequence of any such Known Circumstance or known Claims (or losses) -

So then, your Honours, we get to the definition of “Known Circumstance” in clause 11.12, which is at page 383. Your Honours will see that it provides:

Any fact, situation or circumstance which:

(a)      an Insured knew before this Policy began; or

(b)a reasonable person in the Insured’s professional position would have thought, before this Policy began,

might result in someone making an allegation against an Insured in respect of a liability, that might be covered by this Policy.

Your Honours are only concerned with 11.12(b).

KIRBY J:   There is nothing in the Insurance Contracts Act that impinges on the construction of these provisions?

MR PEMBROKE:   No, your Honour.

KIRBY J:   You do not really refer to it in your submissions, or at least your primary submissions.

MR PEMBROKE:   No.

KIRBY J:   The respondent does, but we are not concerned with that Act.

MR PEMBROKE:   No, we are not, your Honour.  So, your Honours, the claim for indemnity under the policy arises from certain unchallenged findings of negligence against the respondent in a judgment of the District Court of New South Wales.  The findings which resulted in the claim for indemnity are to be found in the judgment commencing at 397, and on 398 and 399 the District Court judge set out her findings, or some of her findings, principal findings.  There are some that I would wish to draw your attention to:  1, 2, 6 and 7, then 8 which is, of course, the nub of the negligence, and your Honours no doubt have appreciated what happened that the respondent failed to appreciate that the Workers Compensation Act applied to his client’s claim.  He thought that because he was an offender serving a community service order, or performing work pursuant to such an order, he was not covered by the Workers Compensation Act.

KIRBY J:   Could I just ask you to clarify a factual matter?

MR PEMBROKE:   Yes, your Honour.

KIRBY J:   The plaintiff, the injured worker I will call him, sued both the solicitors and the barrister?

MR PEMBROKE:   Yes.

KIRBY J:   As I understand the facts, if the solicitors had issued the proceedings by a certain time before the new law came into effect, the obligation to prove the 15 per cent, which proved fatal to the viability of the claim, would not have been a problem.

MR PEMBROKE:   No.

KIRBY J:   Is there a causation question in this case that the solicitors should have got in and issued the process knowing that the axe was about to fall, or is that the very matter upon which they sought the advice of the barrister?

MR PEMBROKE:   They sought the barrister’s advice.  They had sought it for some time beforehand.  He sought to investigate and research the question and failed to identify the applicability of the Workers Compensation Act.

KIRBY J:   My question is really an earlier one.  If there is liability both of the solicitor and the barrister, is the solicitor’s liability antecedent to that of the barrister and therefore, as it were, knocking out any relevant causal consequence of the barrister’s liability later down the track in point of time if the solicitors could have commenced the proceedings within time?

MR PEMBROKE:   I would not have thought so, your Honour, because the facts clearly indicate that the solicitor was relying upon the barrister’s expertise, he being a specialist in workers compensation law, and was seeking his advice about what should be done and, in particular, without saying so, whether there was any reason to hurry up the filing of the proceedings.

KIRBY J:   I think the trial judge does say something to the effect, and it would certainly conform with my recollection that there was quite a lot of discussion in the legal profession at the time of the pending sword of Damocles.

MR PEMBROKE:   Yes, and that is the point of finding No 9 on 399 to which I was about to go at line ‑ ‑ ‑

GUMMOW J:   But we do not have that expert evidence reproduced, do we?

MR PEMBROKE:   No.

KIRBY J:   I think Justice Gummow said on the special leave that if this were an architect you would get expert evidence, but as it is law, it is just assumed that the courts know these things.

MR PEMBROKE:   There was expert evidence before the District Court from two senior counsel who gave evidence as to what would have been appropriate for the respondent to do or to know.

GUMMOW J:   Mr Curran and Mr Gross.

MR PEMBROKE:   Yes.

GUMMOW J:   But we do not have their evidence.

MR PEMBROKE:   No, we do not.  We just have some extracts from it in the judgment.

KIRBY J:   Is that not relevant to what the objective reasonable person in the professional circumstances of the barrister would have done?

MR PEMBROKE:   Yes, but we are not looking at that question, if I may say so.  The question is, and I am about to come to it, having been apprised in May 2003 – this is some years after the act of negligence – having been apprised of the full reality of his error, the question is what knowledge, or what reaction to those facts would a reasonable person in his professional position have had when taking out his insurance in ‑ ‑ ‑

KIRBY J:   Did Mr Curran and Mr Gross give evidence on that point?

MR PEMBROKE:   No, they were not concerned with that question.  That was not an issue which they were addressing.

KIRBY J:   Would have evidence been admissible on that issue from them?

MR PEMBROKE:   No, this is the question which was raised at the special leave application.  It is conceivable that in an indemnity dispute like this where a clause is in issue, like 11.12(b), expert evidence might be admissible as to what a reasonable person in the insured’s professional position might have thought.  There was no such evidence and the answer I gave to the presiding judge at the special leave application was that in a case involving lawyers one usually would not need it, but you might need it in the case of an architect or another profession.

GUMMOW J:   Just when you do need it, actually.

KIRBY J:   It makes a big assumption, given the enormity of the body of the law, that everyone knows all of it and we know it best of all.

MR PEMBROKE:   No, but the question is not whether he was negligent, the question is whether having been told about the problem he was aware of facts and circumstances which might give rise to an allegation.  That will become clearer, if I may say so, in a moment.

KIRBY J:   Everything will become clearer, in due course.

MR PEMBROKE:   Yes.  Could I give your Honours a conspectus of the relevant facts in chronological order, but before doing so, could I acknowledge a factual error in paragraph 20 of the appellant’s written submissions, which is correctly picked up in paragraph 17 of the respondent’s submissions?  The point relates a letter dated 30 October 2002 and we accept what the respondents say.  We took rather too literally a statement in Justice Hodgson’s judgment and simply translated it ‑ ‑ ‑

GUMMOW J:   How should we amend paragraph 20?

KIRBY J:   What is the equivalent paragraph in the respondent’s submissions?

MR PEMBROKE:   Paragraph 17, your Honour.  We think the easiest way of amending paragraph 20 is perhaps to put a full stop at the end of “Workers Compensation Act”.  The letter which is there referred to, and your Honours might make a note of this reference, is at AB 261, and it will speak for itself.

KIRBY J:   This case is unusual in that normally we get the statement of the facts from the appellant and then the respondent points out any variations or differences, but instead of that, Mr Meagher, who is a canny old operator, has, as it were, presented the entire facts from his perspective and I do not know how we are to resolve that except, I suppose, trying to work out what we think from the references and so on.

MR PEMBROKE:   Yes.  Like some other things, it will be clearer by this afternoon.

KIRBY J:   Even earlier perhaps.

MR PEMBROKE:   Yes.  It might be clearer by 11.30.  Your Honours, may I just deal with some of those facts?  May I point out that the relevant date for the examination of ‑ ‑ ‑

GUMMOW J:   Just before you do that, what is the construction point about 11.12(b), because if we do not know what that is, it is no good looking at any facts?

MR PEMBROKE:   No, it is not.

GUMMOW J:   What is the construction point?

MR PEMBROKE:   The construction point is this, if I can put it this way, to what extent, if any, is it appropriate to have regard to the thought processes of the insured in construing and applying 11.12(b)?  None.  You have regard to the objective circumstances to which he was exposed at the time.

KIRBY J:   You say it is a true disjunction, “or (b)”, and if you are in the realm of (b) then you are not concerned with what the insured knew, you are simply concerned with what a reasonable person – and you are putting aside what the insured knew.  For the moment you are accepting what has been held in that respect and you are concentrating on (b) and saying that provides the entire realm of discourse and the solution to the problem in hand.

MR PEMBROKE:   But it does require you, of course, to take into account the circumstances which pertained to him at the time.

GUMMOW J:   Wait a minute.  So what is the content of the phrase “in the Insured’s professional position”?

MR PEMBROKE:   The content of that phrase is – if I may do it this way – it is this, the circumstances which were known to the insured, that is his knowledge of the relevant facts and circumstances at the relevant time and the opportunities which the insured had to react to those facts.

KIRBY J:   So is it not a purely objective matter because that phrase, “in the Insured’s professional position” imports into paragraph (b) what was known to the insured – the actual insured, individual.

MR PEMBROKE:   Yes, anyone in his position who knew those facts and was a reasonable person in his position, what would their reaction be?

CRENNAN J:   Distinguishing between what the insurer knew and what the insurer thought, which might be entirely subjective.

MR PEMBROKE:   It could be, yes.  In this case, as you will see, the insured had a fixed belief that he had done nothing wrong and that no claim against him could succeed.  The question, of course, was quite different.

KIRBY J:   Is not his position more accurately that he did not turn his mind to any liability of his own?

MR PEMBROKE:   No, I think it is fair to say that he had a fixed belief, and I will take you to the findings in the evidence about that.  There are also findings about not turning his mind.  The way I described the content of 11.12(b) ‑ ‑ ‑

HEYDON J:   He took a different view of the construction of the workers compensation legislation, a view which was shared by Judge Graham, from that which has eventually prevailed, is that not the position?  He formed a view of the construction of the legislation.  It now happens to be regarded as wrong, but did not Judge Balla say that?

MR PEMBROKE:   He did not actually say that but what you can say fairly is that in preparation for the appeal in discussions with his leader at the time briefed on the appeal from Judge Graham his leader said words to the effect, “I think we’ve got reasonable prospects of success.”  The insured respondent did not say, “I held the view that Judge Graham was right”, or something like that, but that may be inferred from his statements which he made frequently that, “I didn’t think I’d done anything wrong.”

HEYDON J:   On page 421 at about line 22 Judge Balla says:

By the time of the hearing before Judge Graham he had looked at it and formed the view that they had a good argument.

MR PEMBROKE:   Yes.

HEYDON J:   So it is not just dependent on Mr Williams’ advice before the Court of Appeal hearing.

MR PEMBROKE:   Yes.  I want to come back to that in a little more detail.  It is obviously a central factual part of the case but ‑ ‑ ‑

KIRBY J:   The anchor to your case is not so much in paragraph (b) as in the words that follow, “might result in someone making an allegation” because if all you have a reasonable person has to have thought relates to the making of an allegation then that is a much softer requirement to enliven the obligation of notice.

MR PEMBROKE:   Yes.  That is a matter which the dissenting judge thought was important also.  Your Honours, I mentioned May 2003.  That is the relevant starting date for any examination of the facts which were found and are undisputed.  That is because of what appears at 392, or it is explained at page 392.  At 392, some years later, the solicitor for the appellant investigating the respondent’s claim under his policy wrote to him and said:

as I understand what we discussed this morning, it was on 15 May 2003 that Peter Sternberg ‑

he was counsel for the State -

advised you that the plaintiff had a real problem arising from the retrospective effect of the amendments to the Crimes (Administration of Sentencing) and also expressed the view that the plaintiff would not reach the 15% threshold, at which point you successfully applied for an adjournment to enable you to work up an argument to overcome the problem . . . If that is right, I also understand you to accept that as at 15 May 2003, there may have existed known circumstances.

He then sets out clause 11.12 and says in the next paragraph:

As at 30 June 2004, you knew -

those three matters.  He then asked for the insured’s comments, which are at page 395.  He mentions that QBE was the insurer on risk for the period July 2002 to July 2003.  Then he says:

as to “known circumstances” i knew the matters ‑

That is each of those three matters ‑

you have set out.  as [Judge] Graham’s decision was subject to appeal i didn’t know whether any of those matters would give rise to a claim against me and hadn’t really turned my mind to it.  it was all so contingent on what the court of appeal would do.  i don’t know if there is much else I can add.

HEYDON J:   The respondent waived privilege in this, did he?

MR PEMBROKE:   It might have been, but I think it was waived at the trial.

KIRBY J:   This was an exhibit, was it?

MR PEMBROKE:   Yes.  All of these documents were exhibits.

KIRBY J:   An exhibit in the trial, not in the Court of Appeal?

MR PEMBROKE:   In the trial.  Your Honour, what actually happened in May 2003 appears at 276.  This is a note by the respondent’s instructing solicitor on the occasion when the hearing was called on.  At 276, line 42 the note taker records:

Defendant have now withdrawn their offer settlement in the sum of $30,000.00 plus costs and have put as their final offer of settlement, verdict for the Defendant with each party to pay their own costs, in light of the Defendant’s argument that this matter is effected by the Community Services Orders Act 2001, whereby section 151 H‑2 assessment required by Approved medical specialist with assessment of 15% whole person impairment prior to commencing proceedings.

At page 277, line 40:

legislation came into effect on 27/11/01.  We commenced proceedings on 11/12/01 without approved medical specialist assessment.

We will be arguing that this legislation should not apply to the Plaintiff as his claim is only assessed in accordance with Workers Comp legislation as a deemed worker, but he is not a deemed worker for the purposes of the Act.

Then 278.  It is not entirely clear whether these pages are in the right sequence, but at the top of the page:

Defendant have raised another argument, re - new amendments to workers comp legislation which came into effect on 27/11/01. 

We filed commencing proceedings on 11/12/01.

If the new legislation applies to Plaintiff’s injury, we do not think he would exceed the threshold. 

We cannot meet the argument today, we would need to properly look and research the issues raised under the Community Services Orders Act 2001.

Advising Mr Bahmad that we will be making an adjournment application in order to properly address the issues of law raised by the Defendant.

KIRBY J:   Whose writing is this?

MR PEMBROKE:   By inference, we think it is the respondent’s instructing solicitor at the trial.  Your Honours, at 281, the instructing solicitor then wrote to Mr Bahmad, the plaintiff, and the dissenting judge in the Court of Appeal emphasised the warning which the plaintiff had been given at this time by this letter and by some other matters which I will come to.  At line 41:

In light of the Defendant’s raising an argument for the first time in these proceedings that your matter will be affected by the Community Services Orders Act or by Section 151, assessment is required . . . This legislation came into effect on 27 November 2001 and I confirm that proceedings were commenced in your matter on 11 December 2001.  As no assessment was obtained . . . The Defendant is now arguing that your matter falls within that legislation and thereby you have not complied with the requirements of the legislation and the matter should therefore be struck out and cannot proceed.

Obviously as advised by myself and the barrister Mr. Anthony Porthouse, we would need to review and investigate the matter . . . 

If it transpires that in fact the legislation is correct and does apply to your claim, it may be that your matter may be struck out and that you are caught by the operation of the legislation and of greater significance will be the fact that you are not eligible to claim Worker’s Compensation as you are only a deemed worker for assessment pursuant to the Act . . . It may be that the operation of the law shuts you out of any entitlements to claim under any legislation. 

Now, in addition to that letter, your Honour, the respondent himself personally explained to the plaintiff the consequences of the failure to file his proceedings before the relevant date at pages 158 and 159.  At 158:

Q.       May we take it that a reasonable short period after that, that is after having [looked] at the particular transitional provision in question, may we take it that you formed the view that if what the Crown was saying was right, your client would be out of court completely, correct?
A.       Yes.

Q.       Would have no remedy at all, correct?
A.       Correct.

Q.       Not even out of pockets.  Correct?
A.       Correct.

Q.       And you formed the view didn’t you, sir, shortly after May 2003 that if the point was good it was a knock out point, correct? 
A.       Correct.

At 159:

Q.       Did you give any advice to the plaintiff to that effect, that if this point is good you are out of court?
A.       Yes.

Q.       In what form did that advice take?
A.       That was verbal advice on the day of the hearing, the day of the adjournment hearing.

Then line 10 he says:

the point was raised the point was explained to the plaintiff and he was told what the effect of it would be.

Q.       And was it suggested to the plaintiff that that result would come about because his claim had not been filed two weeks earlier?
A.       Had not been filed by 27 November 2001, yes.

Q.       Did you explain to the plaintiff that the result of him potentially being thrown out of court arose because his claim had not been filed two weeks earlier?

Then the answer in the affirmative is given at line 26.  So I mention these things because, as I said, this is the starting point for the revelation to the respondent that there were circumstances that an allegation might be made.

KIRBY J:   Now, I am just not quite sure as to where the taking out of the insurance fits in relation to these events.  You have to get that very clearly in our minds.

MR PEMBROKE:Yes, and I will deal with these facts in the order in which they occurred, but this is May 2003, your Honour.  On 20 May 2004 the proposal was completed and on 30 June 2004 the policy commenced, and 30 June 2004 is the operative date for knowledge of facts and circumstances by a reasonable person in the insured’s professional position.

KIRBY J:   Why is 30 June 2004 the operative date?  Is that a provision in the policy?

MR PEMBROKE:   Because the terms of clause 11.12 provide so. I think it uses the phrase “commencement of the policy”.

KIRBY J:   So a good year before the policy commenced and the proposal was put, the insured’s barrister knew of the fact that his client, whom he had advised, would be knocked out by an apparent mistake.

MR PEMBROKE:   And, what is more, he knew that his client knew.

KIRBY J:   Well, he had advised his client correctly.

MR PEMBROKE: The actual words of clause 11.12(b) are:

a reasonable person in the Insured’s professional position would have thought, before this Policy began -

The policy began on 30 June 2004.  So your Honours, those events in May 2003, the letter of 19 May, and the ‑ ‑ ‑

KIRBY J:   Can I just ask you to pause, so I can get it in my own mind, whilst ultimately this matter has to be determined in accordance with the language of the policy, it would not be a surprising outcome if the test is an objective test that the insured, knowing these events at the time he puts a proposal in and gets the policy issued, would be obliged to inform the insurer of those facts, because the very nature and character and essential feature of insurance is that the risk is unknown or that allegations have been disclosed.  Now, am I just being too old fashioned in taking these views? Have these things been changed by the Insurance Contracts Act in a way that is relevant?

MR PEMBROKE:   No, it is still what Lord Mansfield said in Carter v Boehm, that it is a contract of speculation. The purpose of clause 11.12 is to ensure that the contract is on a level playing field so that the insurer is genuinely promising to pay, upon payment of the premium ‑ ‑ ‑

KIRBY J:   Otherwise people could take out insurance with new insurers and get cover for risks which have already accrued, of which they are aware.

MR PEMBROKE:   That does happen.

KIRBY J:   It is attempted, but the law stands as protection to ensure that it does not succeed, as I understood the law.

MR PEMBROKE:   Your Honours, those events - that is, the letter of 19 May and the respondent’s personal explanation to the plaintiff - had two effects which were interrelated.  The first is that the trial judge was satisfied that the plaintiff understood that his claim might be defeated.  That appears at 464, and this is in a summary of the trial judge’s finding - I will come to her own finding – paragraph 83, line 40 – this is the dissenting judge’s reasons in the Court of Appeal –

She expressed her satisfaction that the plaintiff was himself aware that there were legal issues relating to the assessment of his damages from May 2003, when he had been advised by his legal representatives in writing that his case depended on obtaining, prior to commencing proceedings, an appropriate medical assessment of a “15% . . . The plaintiff also knew that there was a possibility that the legislation could operate to defeat his claim.

The finding of the trial judge from which his Honour has made that summary is at 420, line 35:

On cross examination the plaintiff said that before he received that letter –

That letter was the 19 May 2003 letter –

he had been confident that he had a strong case. After reading the letter he felt let down.

Then at line 50 ‑ ‑ ‑

KIRBY J:   But that is not the issue, is it?  He may have a strong case but he has a duty to disclose anything that might give rise to allegations.  “Might”, “allegation” - they are two very provisional matters.

MR PEMBROKE:   Your Honour, I might make myself clearer if I distinguish between the respondent on the one hand and Mr Bahmad, who was the ‑ ‑ ‑

GUMMOW J:   You are not trying to avoid this policy for non‑disclosure?

MR PEMBROKE:   No, no.  So the plaintiff at line 35 is Mr Bahmad, and my point is that the evidence was that Mr Bahmad felt let down in May 2003, hence the probability or possibility of an allegation is all the greater.

KIEFEL J:   Well, perhaps converted to a more objective test what had been conveyed to the plaintiff is relevant to understand the likelihood of the allegation.

MR PEMBROKE:   Precisely.  At line 50 her Honour said:

Firstly I am satisfied that the plaintiff was aware that the plaintiff was aware that there were legal issues relating to the assessment of his damages -

In fact, the dissenting judge in the Court of Appeal has paraphrased that paragraph I think word for word at 464.  I said there were two effects flowing from those events in May 2003.  The second was, and it is interrelated and is perhaps the other side of the same coin, is that they operated as a warning to the plaintiff that the reason why he might lose his case was because of the failure of his solicitors and barrister to commence proceedings before 27 November 2001.

KIRBY J:   At a later stage I think the barrister disclosed that he thought a conflict of interest situation might have arisen and got out of it but he did not do it at this stage?

MR PEMBROKE:   No.

KIRBY J:   That tends to confirm that he himself did not at that stage see that there was a potential problem for himself.  When did he remove himself from the – and when did the solicitors?

MR PEMBROKE:   As he left the Court of Appeal on 19 July 2004, as he left the Court of Appeal, I will take you to it.  Having, it would seem from the judgment of the Court of Appeal, been given short shrift, at least his leader was, and the plaintiff, Mr Bahmad, having expressed his alarm, the respondent apparently went back to his chambers and wrote a letter saying, “Mr Bahmad has already raised an issue about the negligence of his solicitors”.

KIRBY J:   Where is this letter?

MR PEMBROKE:   Page 386.  So at 386 the operative paragraph is the fourth paragraph:

The plaintiff has already raised ‑ ‑ ‑

KIRBY J:   What is the date of the policy?

MR PEMBROKE:   The policy commenced on 30 June 2004, so this particular ‑ ‑ ‑

KIRBY J:   That is afterwards.

MR PEMBROKE:   Yes, it is, that is right.  So this knowledge does not matter in one sense.

GUMMOW J:   Well, I cannot see how it sheds any light on the expression “Before this policy began”.

MR PEMBROKE:   It does not.

GUMMOW J:   What was the insured’s professional position?  That is why you are taking us to all these factual matters, is it not?

MR PEMBROKE:   Well, I am really only just answering his Honour Justice Kirby’s question.  This is not an event prior to the commencement of the policy from which one can infer that a reasonable person would have had the requisite thought.

GUMMOW J:   But do you take us to all these matters of fact to say, this is what he knew, and then you say, this is what this hypothetical person would have thought, step two?

MR PEMBROKE:   Yes.

GUMMOW J:   What is put against you as you understand it on the construction?

MR PEMBROKE:   I have to say that it is a little opaque to us, but ‑ ‑ ‑

GUMMOW J:   I thought you might say that.

MR PEMBROKE:   I think it would be frankly safer for Mr Meagher to answer that question.

KIRBY J:   You have to give us a bit of help.

GUMMOW J:   Well, if you do not know what ‑ ‑ ‑

MR PEMBROKE:   Well, I read what he has written.

GUMMOW J:   If you do not know what you are trying to answer you are in trouble, I would have thought.

KIRBY J:   Well, clearly, he is trying to say that in that paragraph (b) the phrase, in the position of the insured, brings in an inquiry into what his client had in his mind as well as some objective construct, a fiction, that we are in the real world, and that given the chaos of the legislation and the retrospective effect and the uncertainty of the position at the time, a reasonable person in that position would have had much the same reaction as he had.

MR PEMBROKE:   I am not quite sure that that is what he says.  I think perhaps he only goes so far as to say that it is reasonable to test what a reasonable person would have thought by reference to what the insured thought.

KIRBY J:   You see, it is all relevant to whether it might cause this reasonable person “in the Insured’s professional position” to have thought that there might result an allegation that might be covered by the policy, double hypothetical.

MR PEMBROKE:   Yes.

KIRBY J:   An allegation that might be covered might result in an allegation – it is a triple hypothetical.  It might result in an allegation which is something less than a claim that might be covered by the policy.

MR PEMBROKE:   Yes.

CRENNAN J:   Is not the difference between you very narrow?  You were construing the relevant phrase as encompassing circumstances known to the insured and Mr Meagher is arguing that it encompasses also what was actually thought by the insured as well as what was known.  That is the fact of what was actually thought is encompassed.

MR PEMBROKE:   Yes, certainly that is a clear distinction and we do not cross that line.  I think Mr Meagher embraces what you say.

CRENNAN J:   That was, as I saw it, the difference within a very narrow compass between you on the construction.

MR PEMBROKE:   Yes.

GUMMOW J:   We have to try and find out what the battlefield is so we can evaluate what is being pushed at us.

KIRBY J:   In the end we have to construe this policy as a sensible commercial document between parties at arm’s‑length in the world of insurance which is designed to cover unknown risks.

MR PEMBROKE:   Yes.

KIEFEL J:   Is Mr Meagher saying that evidence of the insured’s state of mind is relevant to the hypothetical person as long it is not unreasonable?

MR PEMBROKE:   Yes, I think he might be saying that.  One of the responses that we make is that – first of all, in this sort of case the insurer might just rely on paragraph (b), in which event you would never see the insured as a witness, there would be no need for him to give evidence, there is no basis for him doing so, so you would not know what his subjective thought processes were and an insurer might well, in these sorts of cases, regard that as a far preferable position to take because insureds sometimes take positions in relation to what they thought which are difficult to accept.

KIEFEL J:   But if you have the question, the relevance of the insured’s state of mind as only being part of the evidence going to an accepted position which assumes the hypothetical person’s viewpoint, does it not simply become a question of fact, that is, that that construct accepts that it is an objective test, and then it is just a question of fact.  The argument really here falls into the compass of fact.

MR PEMBROKE:   Your Honour, it is a question of fact, whatever way you look at it, but the question is whether judges in the courts which hear these sorts of cases should ever be troubled by trying to take into account the subjective evidence of the insured and ‑ ‑ ‑

KIEFEL J:   But that is as may be.  I am perhaps not being clear.  Does it not in a way become irrelevant if it is not helpful to the question, that is the hypothetical person’s viewpoint of whether an allegation was likely to be made?  If it says nothing it is beside the point.

MR PEMBROKE:   Yes.

KIEFEL J:   We could write some paragraphs about which approach is correct but probably it will not matter very much for the result, will it?

MR PEMBROKE:   If the subjective thought processes were ‑ ‑ ‑

KIEFEL J:   If the insured’s approach is not the one that the person – the hypothetical person - would have ‑ ‑ ‑

MR PEMBROKE:   I agree that one should not have to go through that process.  The clause does not require you to go through that process and I think that is the point of distinction between us.

GUMMOW J:   Yes, I think we see the battleground, now, subject to what Mr Meagher says.

MR PEMBROKE:   Yes.  What we say is that going through that process involves an unnecessary an irrelevant inquiry and one which is tinged with the potential for danger.

KIRBY J:   Except that this Court has said that you read documents as a whole, that you read (b) in the context of a clause that has (a), that (a) is the primary provision of the clause and therefore, on the face of things, the first thing you look at and (b) by the reference to “in the Insured’s professional position” makes it clear that (b) is not entirely objective.

MR PEMBROKE:   But it also makes it clear by the structure of the clause and the language and the syntax that (b) is dealing with something quite separate from the subject matter of ‑ ‑ ‑

GUMMOW J:   It is disjunctive anyway, not cumulative at all.

KIRBY J:   But on your theory of the clause, you never really need (a), so why have it in there?  Would a circumstance ever be raised where you would need (a)?

MR PEMBROKE:   There is often a situation which arises where the insured does in fact have actual knowledge.

KIRBY J:   The insured is an interested party and, therefore, almost certainly if there is a dispute, which by hypothesis there is, the court is going to have to look at (b) and, therefore, (a) by the hypothesis of the dispute, is rendered really irrelevant.

GUMMOW J:   There might be a written admission.

MR PEMBROKE:   There might be.  There might be a number of circumstances in which (a) might be applicable, but certainly, I think, in the day‑to‑day operation of these clauses (b) is the important one for insurers.

KIRBY J:   Was any thought given to the – I suppose it is an adjectival clause – “in the Insured’s professional position” as meaning simply find a reasonable person who (a) is in the same profession as the insured, and (b), is at a certain stage of that profession, so that you are not expecting Jack Smythe’s brilliance in a four year barrister.  It is not going into the particular insured’s brain.  It is simply looking at that particular professional position, that he is a barrister, that he does have some specialisation in this particular field, and that he is four years out.

MR PEMBROKE:   He is not four years out in one sense, because he was admitted as a solicitor a long time before that, but we think that the dissenting judge put it fairly at page 472 in paragraph 99 and we adopt the dissenting judge’s description of the content:

of a reasonable person in the insured’s professional position –

It is the first six lines of paragraph 99 on 472.

GUMMOW J:   Yes.  This is what is being put to you, is it not?

MR PEMBROKE:   Yes.

GUMMOW J:   These words:

the insured’s knowledge of the relevant facts and circumstances at the relevant time –

That would be beside the point if the phrase “professional position” simply means a barrister of so many years call.

MR PEMBROKE:   Yes, but he has to be a barrister of so many years call, with whatever expertise he has, in the shoes of the insured with the knowledge that he has of what has transpired.

KIRBY J:   The view that I have expressed as a possible one that strikes me when I look at the clause is more compatible with (b) being an objective criterion whereas (a) is a subjective criterion.  It is simply saying it is still objective, it is a reasonable person, but it is a reasonable person who is in the same profession and at the level of professional experience of the particular insured, but nothing else.  We do not go into any details about what he knew or what he thought.  It is just looking at his professional standing.  I do not know whether that helps you or Mr Meagher, that approach ‑ ‑ ‑

MR PEMBROKE:   I do not have any difficulty ‑ ‑ ‑

KIRBY J:   But it does seem more consistent with a subjective and an objective differentiation between (a) and (b).

MR PEMBROKE:   Could I point out, your Honours, that whether or not the insured was at a certain stage of his professional development or not, we are concerned as I mentioned at the outset with his appreciation of the likely reaction of Mr Bahmad 12 months later.  So even if the respondent might have been excused – and he was not excused by the trial judge – for his oversight, the fact is the unpleasant consequences of his oversight were laid out for him between May 2003 and June 2004.

KIRBY J:   You say whatever the time from the admission of the barrister, that you are only one minute out, and you know that, if you make errors that are rendering you civilly liable, especially if you are in the business of dealing with people who are suing for civil liabilities, that that is something that might result in an allegation that might be covered by the policy.

MR PEMBROKE:   Yes.

KIRBY J:   Your antennae are up.

MR PEMBROKE:   Yes.  You would be sitting on the edge of your seat at the appeal hearing.

KIRBY J:   I have to say I have some sympathy for the barrister in this case because it would be a mistake that would be very easy to make.  But the policy is, at least in my reading of it at the moment, very clear, especially when looked at in the context of insurance policies.

HEYDON J:   Does the reasonable person know things other than what the insured knows?  For example, according to the trial judge neither the solicitors nor the barrister they briefed – the present respondent – were informed by the plaintiff that he felt let down in May 2003.  He made no complaint to them about dissatisfaction with their performance.

MR PEMBROKE:   No, not at that time.

HEYDON J:   Is that a fact that the reasonable man takes into account?  It is a real thing.  It is there.

MR PEMBROKE:   I think it is an objective fact that Mr Bahmad has not made a complaint up to 30 June 2004.

GUMMOW J:   It is one of the facts, situations or circumstances, is it not, in the opening words?

MR PEMBROKE:   Yes, I agree.  Yes, your Honour.

HEYDON J:   If they knew that he was cross about the May 2003 letter, then it would be easier to infer that it might result in him making an allegation later.

MR PEMBROKE:   Yes, it would be much easier.  But this is not that case.  This case is that the respondent must have known, or perhaps a reasonable person in his position must have known, that the matter was so finely balanced that an adverse decision in the Court of Appeal would almost certainly result in an allegation.  I want to come to some other indications ‑ ‑ ‑

KIRBY J:   From what you have just said to me, you really are saying that, just five minutes out from being admitted, a barrister, especially one who has been in practice, would in fact know that the situation he was in at the time that the disclosure was first made to the worker might result in an allegation that might be covered by the policy.

MR PEMBROKE:   Yes.

KIRBY J:   In other words, he falls in (a).

MR PEMBROKE:   I do not think the language of the policy permits that.

KIRBY J:

Any fact, situation or circumstance which:

(a)      An Insured knew ‑ ‑ ‑

MR PEMBROKE:   Yes, you are right.

KIRBY J:   He knew all these defaults, arguments and the unusual course that Judge Graham had taken and that he knew which might result in someone making an allegation against the insured in respect of liability that might be covered by the policy.

MR PEMBROKE:   Yes.  I think that is theoretically possible, and in fact I think the respondent was tested on that at the trial.  I think (a) and (b) were alive at the trial.  As your Honours know, the respondent maintained his evidence at the trial of no knowledge and the trial judge accepted his evidence.  There was no appeal from that finding, so that is why (b) became an issue in the Court of Appeal.

GUMMOW J:   Could we just go back to Justice Hunt’s passage at page 472, for a minute, the paragraph 99 which you took us to?

MR PEMBROKE:   Yes, your Honour.

GUMMOW J:   You talk about these thought processes.  What I wanted to ask you was, looking at the opening words of 11.12, “Any fact, situation or circumstance” do you or do you not say that there may be facts, situations or circumstances which are not known to this particular insured but which nevertheless can be taken into account in enlivening 11.12(b)?

MR PEMBROKE:   I certainly say that there is, that there would be or may be.

GUMMOW J:   Because that would give a much wider operation to paragraph (b), would it not?

MR PEMBROKE:   Yes. We submit that the sense of the disjunction between (a) and (b) is to capture within (b) the broader realm of facts and circumstances which:

a reasonable person in the Insured’s professional position would have thought, before this Policy began, might result –

et cetera.  Your Honours, after May 2003 ‑ ‑ ‑

HEYDON J:   Can I just interrupt, I am sorry.  That May 2003 letter that the solicitors sent to the plaintiff, you spoke before as though the respondent knew that it had sent.  Is there evidence?

MR PEMBROKE:   No, I do not think there was evidence of that and I did not mean to suggest that, but I did mean to cover the position by pointing to the respondent’s own evidence of his verbal explanation to the same effect at 158 and 159.

HEYDON J:   But that was given after 30 June 2004, was it not?

MR PEMBROKE:   No.  The evidence at 158 and 159 is the respondent recounting what he said to Mr Bahmad at the time of the adjournment of his case on 15 May 2003.

HEYDON J:   Yes.

KIRBY J:   At that stage that he used a knockout point.

HEYDON J:   But he does not give any evidence that the plaintiff remonstrated with him and expressed a feeling of being left out.

MR PEMBROKE:   No.  Maybe he was not asked that question.  The evidence at 159 is evidence of what he said on the day of the trial when it was adjourned.

HEYDON J:   So your argument is that a reasonable man would have known of that letter, even though the barrister did not know of that letter, and, secondly, that a reasonable man would have known that the plaintiff was upset by it, even though the barrister did not know he was upset by it?

MR PEMBROKE:   Yes.  It may not matter to me and probably does not matter whether he knew of the letter or not.  The fact is that one way or another the respondent, or a reasonable barrister, would have known that Mr Bahmad was apprised of the fact that there was a knockout point and that it all arose by the failure to file his originating process by the relevant date.

HEYDON J:   Yes, and the knockout point turned out to be an air shot in front of Judge Graham.

MR PEMBROKE:   It is a little more than an air shot and may I come to that.  Your Honours, after that May 2003 exchange of views, the respondent was asked to give advice on this issue and you will see that at 287 at line 40 his solicitor asked him or noted that he was going to advise, lines 40 to 43.  That is 21 July 2003, and then at 289 on 8 August the solicitor wrote again saying he looks “forward to receiving” that advice on the issue.  Then at 293 on – I think it is 13 August 2003 at line 30, the note there suggests that the advice may ultimately have been given orally, if at all.  There is no other evidence of advice on this question.

Then, your Honours, Justice Heydon has mentioned Judge Graham’s judgment.  That is important for this reason.  It starts at 295.  I need not tarry too long here.  At the bottom of 308, line 60, his Honour in expressing his own reasons and misgivings and doubts said:

These matters are never easy to determine.

He went on to make a few further statements, concluding at line 22 on page 309.  Then, as your Honours know, he found against the State that what the dissenting judge in the Court of Appeal found significant and, we submit, was significant and would have been significant to a reasonable person, is what transpired at 325 to 327.  Counsel for the State at 325, line 52, asked for an “unconditional stay” and at 326, line 17:

HIS HONOUR:   There is obviously an issue, legal issue that is arguable.

PORTHOUSE:   Yes.

HIS HONOUR:   Minds might differ on that point.

PORTHOUSE:   I would concede there is an issue to go further if the defendant is so minded.

HIS HONOUR:   Yes.  I’d prefer not to be the first one to have to decide it, frankly, but that’s the way things worked out and I can understand it is by no means a simple legal issue to be resolved, the defendant has a lot on its side in terms of the ordinary words of the section but the extent to which one can go behind it is I suppose the arguable point –

KIRBY J:   Unless you are taking something out of the respondent’s, in this Court, statement, which is a sort of admission, I would concede that there is an issue to go further.  I do not myself find what Judge Graham did all that unusual.  After all, if he had not granted the stay then they would have been running up to the Court of Appeal and it would have granted a stay.

MR PEMBROKE:   Yes.  There are two things to say about that.  The respondent thought it was unusual and said so.  I will come to that.  In the Court of Appeal Justice Hunt, who probably alone amongst the judges on that Bench had a lot of experience in these sorts of cases, thought it was unusual.  Can I deal first with what ‑ ‑ ‑

HEYDON J:   Justice Hodgson has plenty of experience in negligence cases at trial and on appeal.

MR PEMBROKE:   Yes.  I did not mean to suggest that he did not, but Justice Hunt has a great deal.

GUMMOW J:   It does not matter either way, does it?  It is an invidious sort of remark to make, actually.

MR PEMBROKE:   At page 163 the respondent was asked at line 6:

Although Judge Graham had found for your client, the issue of the application of the Worker’s Compensation Act, to your client was eminently arguable, wasn’t it?
A.       Yes.

Q.       And Judge Graham in effect acknowledged that, didn’t he?
A.       Yes.

Q.       And he said did he not, the defendant has a lot on its side in terms of the ordinary words of the section –

Then the cross-examiner paraphrases what the judge said.

A.       Well, it’s in the transcript.

Line 29:

Q.       Yes now Mr Porthouse his Honour also declined to allow any out of pockets to be paid to your client, correct?
A.       Yes.

Q.       Now may I ask you this question.  That is an –

It should read “unusual”.  That is clear from the context –

circumstance, isn’t it in the personal injury area, for a plaintiff to have been awarded a verdict but for the whole of the verdict to be stayed?
A.       Yes it was an unusual case--

Q.       No, no just answer my question Mr Porthouse.  It is unusual isn’t it, for a whole verdict to be stayed, correct?
A.       Yes, yes.

Then the dissenting judge at 473 ‑ ‑ ‑

HEYDON J:   What about the next question?

MR PEMBROKE:   Yes.  That is consistent with the respondent’s approach, which I will come to, throughout the trial.  I am not here challenging the finding of the trial judge that she accepted the respondent’s evidence.  In the Court of Appeal at page 473, the dissenting judge on this issue said in paragraph 100 at line 42, after the reference to senior counsel, to which I said I would come back:

Even if that were not so, the reasonable person in the respondent’s professional position would also have been aware of the unusual course followed by Judge Graham, when he granted the State’s application for an unconditional ‑ ‑ ‑

KIRBY J:   It is probably fair to say – it is certainly fair to say it was unusual, but we have said in Burgundy Royale that we would prefer courts below to give their own stays before - we have to give it, and theoretically at least the same applies from the Court of Appeal to the trial courts, but it is probably fair to say it is unusual.  The blood you are trying to get out of this particular stand, moving it to try and get more and more, is that before the proposal was put in, whatever doubts and whatever mind of consideration the respondent was having about his situation, he should have known at that point by the fact that Judge Graham took this unusual course of staying his own orders instead of leaving it to the Court of Appeal to do so, that this was something that might result in something happening down the track.

MR PEMBROKE:   If I may say so, your Honour, the unusual aspect is not that it was a stay, it was that it was unconditional and applied to the out‑of‑pocket expenses.  Normally, you would allow the plaintiff to have his out of pockets.  The dissenting judge at 473 in the last sentence on that page said:

He was clearly indicating concern that his ruling may not survive an appeal.

Your Honours, the inevitable appeal followed a few weeks later.  At 329 is the notice of appeal, and the grounds of appeal are brief and to the point, paragraphs 1 and 2 on 329.  The State’s written submissions followed a short ‑ ‑ ‑

KIRBY J:   What is the date of this?

MR PEMBROKE:   The notice of appeal is ‑ ‑ ‑

KIRBY J:   30 October?

MR PEMBROKE:   No, 12 September 2003, your Honour.  That date is the call over date.  There should be a stamp on page 331.

KIRBY J:   So at the time of the policy proposal the respondent knew that this course of events had unfolded and that the matter was going on appeal and ‑ ‑ ‑

MR PEMBROKE:   Yes, well, this is now nine months before the policy proposal, this is September 2003.

KIRBY J:   Could you just tell me what would have happened if the respondent had stuck with his old insurer?  This is a policy from year to year, so if he had stuck with his older insurer and it is a claims‑based policy would he have had to disclose this event and then that insurer can decide not to grant a policy for the ensuing year?

MR PEMBROKE: What he should have done, if he was just renewing an existing policy, is disclose this event at the time of his proposal or prior to the commencement. That would have the result that he was not covered under the policy for the renewed period, that is commencing June 2004, but section 40(3) of the Insurance Contracts Act would protect him and ensure that he was covered in the preceding year even though the claim ultimately was not made in that policy period.

KIRBY J:   Yes, it is just that sitting in courts you become a bit suspicious and then the question becomes, why did the respondent change his insurer midstream?

MR PEMBROKE:   I think we are not suggesting that there was anything untoward about that, the evidence does not touch it.  It is the case that every year barristers are offered insurance by a group of three or four professional indemnity insurers and sometimes their terms vary ‑ ‑ ‑

KIRBY J:   Anyway, we can put that out of our minds.

MR PEMBROKE:   I think your Honour can.

HEYDON J:   Was QBE in the group for 2004/2005?

MR PEMBROKE:   I have not checked that, but – I do not know, your Honour, no, I would be speculating.  I said that the State’s written submissions followed shortly afterwards, that is at 333, that was 24 October 2003, and they are also brief, consistent with the grounds of appeal, and your Honours can see the narrowness of the argument at 334, paragraphs 5 and 6 and paragraphs 8 and 9.

KIRBY J:   Do we have the Court of Appeal reasons for ‑ ‑ ‑

MR PEMBROKE:   Yes, I am coming to that in a moment.  The very simple point was that an injured offender performing work pursuant to a community service order was a worker under the workers compensation legislation and therefore the amendments which took effect on 27 November 2001 applied to him equally as it did apply to others and there was no way around that.  That is what the Court of Appeal said, and I will come to that in a brief moment.  The respondent - - -

KIRBY J:   It is piling a deprivation of important rights upon a fictitious definition of “provision” and therefore one could, as it were, see that there could be an argument that a court might say, well, if Parliament is going to take away those rights it has to do it much more explicitly than it has by the route of a definition.  That would presumably have been the contrary argument.

MR PEMBROKE:   Yes.  The respondent drafted written submissions himself in January 2004, so we are still six months before the policy commencement.  His written submissions appear commencing at 341, that is, his letter to his solicitor enclosing the written submissions, suggesting some silks who might lead him.  The submissions themselves - - -

GUMMOW J:   On a speculative basis.

MR PEMBROKE:   Yes.  The submissions themselves commence at 343 and following.  It is a little difficult to follow the argument in those written submissions and it may be, your Honours, that it was put differently at the hearing of the appeal.  It may be that the nub of it is in paragraph 19 on 348 and 349 and then again in paragraph 21.

KIRBY J:   I had forgotten entirely that case of Booker, but it says rather more elegantly than I just said at what I was getting at.

MR PEMBROKE:   Without in the least bit intending to be disrespectful, the last sentence of paragraph 22 appears to be the driving point.

GUMMOW J:   Unfortunately, that is one of the things the New South Wales Parliament was setting out to do was to take away people’s rights.

MR PEMBROKE:  Yes.  Your Honours, the dissenting judge in the Court of Appeal described the respondent’s argument – I should say, the argument put by his leader in the Court of Appeal – in a certain way and that appears at page 473, paragraph 100, line 32.  He said:

Stated briefly, the argument was that the transitional provision had to be read as being limited to cases in which damages were to be recovered for a “work injury”.  The very obvious difficulties involved in this argument put are demonstrated in this Court’s rejection of that argument.  In my view, those difficulties would have been apparent to a reasonable person in the respondent’s professional position –

KIRBY J:   That is all you have to say, really, is it not?  The difficulties would have been obvious.

MR PEMBROKE:   Yes, precisely.  I am coming to the judgment in a moment but you would have noticed – and I mentioned it earlier – that Justice Hunt referred in that paragraph to “the assurances by Senior Counsel then appearing for the plaintiff” at line 41.  That is a reference to some evidence which was given at the trial, at 184.  At 184, line 39, Mr Williams of senior counsel was giving evidence and he was asked this question:

MR PEMBROKE:   Your Honour, we make this submission. The construction of 11.12(b) for which we have contended emerges from its language, its structure and its syntax. We accept what clause 10 says. We accept what section 52 of the Insurance Contracts Act says, but we do not see that there is any inappropriate crossover ‑ ‑ ‑

GUMMOW J:   There is no fraud here.

MR PEMBROKE:   No. There is no inappropriate crossover and no reason to affect what would otherwise be the sensible construction of clause 11.12.

GUMMOW J:   There might be fraud. Clause 11.12 could operate in cases where there was fraud.

MR PEMBROKE:   If that were the case, one might have a different argument perhaps, or a different case.

GUMMOW J:   In that situation your client would have given up its right of avoidance of the policy but it would have its right to deny a particular claim.

MR PEMBROKE:   That is right.  They are our submissions in reply, if your Honours please.

KIRBY J:   Can I just ask you – there are two little matters.  First of all, you have not said anything about the other contextual matter that was urged upon us, namely the Legal Profession Act and the fact that this is not just an ordinary inter partes contract of insurance, this is a contract of insurance which has a statutory provenance and it is a very important one because, if you do not have it, you cannot practise.  What is your answer to that?

MR PEMBROKE:   The answer to that is that contracts of professional indemnity insurance for professionals including lawyers are avoided all the time.  It just happens.  There are multifarious reasons why that happens.  Unless the insured has notified under section 40, there is no reason why the prior policy will ever have effect.  There will be a gap and my friend concedes there will be a gap.

KIRBY J:   Does the fact that the policy has to fit in with the Legal Profession Act and that without it a person loses their professional livelihood provide a contextual element that means that when you are looking for the commercial purpose you will read the policy in a way that it is not going to have draconian consequence for a barrister without very clear effect?

MR PEMBROKE:   We submit not, because clauses like 11.12 are designed to regulate the relationship between the insured and the insurer and to provide protection for the insurer so that he is on a level playing field with the insured and the contract is a true contract of speculation.  The circumstance of the Legal Profession Act relates to the relationship between the insured and his client and the client always has alternative rights to sue the insured with or without insurance.  So there are two different things in play and we submit that the Legal Profession Act does not affect the proper construction of 11.12(b) as between insurer and insured.

KIRBY J:   Are you going to say anything about Mr Meagher’s submission that looked at, as at the point of time before and up to when the proposal was made and the insurance entered into, that it was not known and it would not have been probably inferred that the legislation would apply retrospectively in a way that would catch these particular circumstances and that, therefore, looked at from that point in time, the barrister was entitled to take a view that he was innocent of any negligence and ‑ ‑ ‑

MR PEMBROKE:   I was wary of going back to more facts and I have tried not to but that seems to us to be an unsustainable argument in the light of the collocation of the facts to which I took you to, namely, that by

May 2003 the barrister/respondent was aware of the argument against him and presumably remained aware and addressed that issue in his submissions in the Court of Appeal and all that he ‑ ‑ ‑

KIRBY J:   He was certainly aware of the argument against the plaintiff and the question is whether the terms of the clause which is critical to this case, 11.12(b), addresses attention through those words “in the Insured’s professional position” to the crossover between his thinking and concentration of attention on the plaintiff’s case to a thinking that, “Wait on, if I am wrong in this and if it all comes unstuck and house of cards falls down and the Court of Appeal comes down against me, well, I might be having an allegation, in fact, I might be sued, in fact, it is very likely that I will be sued”.

MR PEMBROKE:   I apologise.  I may not have made myself clear, or may not have understood your Honour.  That is the second point which I mentioned in reply, that is, that there was no equivalence between the person in the respondent’s position exercising reasonable care in relation to the conduct of his own duties towards his clients and his appreciation of whether or not he was negligent and whether a reasonable person in the insured’s professional position would have thought that an allegation might be made.  I gave some general examples of allegations occurring in circumstances where you might not have thought you were negligent or you might not have been negligent but allegations do emerge and circumstances arise which put you on notice that they are emerging.  If the Court pleases.

GUMMOW J:   Just a minute.  Your junior has been trying to tell you something.

MR PEMBROKE:   I hope not.  He has changed his mind, your Honour.

GUMMOW J:   We thank counsel for their assistance.  The Court will consider its decision in this matter and we will adjourn until 10.15 am tomorrow.

AT 3.57 PM THE MATTER WAS ADJOURNED