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CGU Insurance Ltd v Porthouse

CGU Insurance Ltd v Porthouse

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HIGH COURT OF AUSTRALIA
GUMMOW, KIRBY, HEYDON, CRENNAN AND KIEFEL JJ
CGU INSURANCE LIMITED  APPELLANT
AND
ANTHONY PORTHOUSE   RESPONDENT
CGU Insurance Limited v Porthouse [2008] HCA 30
30 July 2008
S530/2007
ORDER
1.     Appeal allowed.
2.Set aside the order of the Court of Appeal of the Supreme Court of New South Wales made on 11 April 2007 and, in its place, order that:

(a) the appeal to that Court be allowed;

(b)orders 3 and 8 made by Judge Balla in the District Court of New South Wales on 23 March 2006 be set aside and in their place order that judgment be entered for the appellant on the respondent's cross-claim; and

(c)the respondent pay the appellant's costs at trial and in the Court of Appeal of the Supreme Court of New South Wales.

3. The appellant pay the respondent's costs of the appeal to this Court.
On appeal from the Supreme Court of New South Wales
Representation
M A Pembroke SC with G Lucarelli for the appellant (instructed by Kennedys)
A J Meagher SC with A J Payne and D F C Thomas for the respondent (instructed by Langes Lawyers)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

GUMMOW, KIRBY, HEYDON, CRENNAN AND KIEFEL JJ. This appeal concerns the interpretation and application of an exclusion provision in a policy of professional indemnity insurance. CGU Insurance Limited ("the appellant"), the insurer under the policy, denied liability to indemnify Mr Anthony Porthouse ("the respondent"), a barrister, for losses arising from a successful claim made against him. The insurer alleged that an exclusion from insurance cover (the "Known Circumstances" exclusion) applied.
The policy
The policy conformed with requirements set by the Legal Profession Act 1987 (NSW) which provided that the Bar Council in New South Wales may not issue a practising certificate to an insurable barrister unless it is satisfied that there is, or will be, in force a professional indemnity insurance policy of a type approved by the Attorney‑General[1].
[1]Sections 38R(1) and 38R(2)(b). Section 403 of the Legal Profession Act 2004 (NSW), now in force, is to the same effect and came into operation on 1 October 2005.
The appellant's obligation, as insurer, was to indemnify the insured from 30 June 2004 (the "inception" date) until 30 June 2005, up to the policy limit "for any Claims [made and notified] for Civil Liability to any third party which is incurred by the Insured in the conduct of the Insured Professional Business Practice" (Section 3.1)[2].
[2]The use of "Section" follows the policy document.
Cover in respect of specified types of claims for civil liability included claims in respect of a "breach of duty" (Section 3.2(a)), claim investigation costs (Section 3.3) and the legal costs and expenses of disciplinary proceedings or enquiries (Section 3.4). The policy defined "Civil Liability", "Claim", "Covered Claim" and "Proposal". The information given by the insured in the proposal was included in the policy (Section 11.13(d))…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2008] HCA 30
Decision Date: 30 July 2008

CaseChat Overview and Summary

CGU Insurance Limited appealed to the High Court of Australia against a decision of the Court of Appeal of the Supreme Court of New South Wales, which had upheld a District Court judgment. The dispute concerned a claim for indemnity under a professional indemnity policy issued by CGU to a barrister, the respondent. The barrister had provided advice to a client, Mr Bahmad, regarding a workers compensation claim. This advice was later found to be negligent, and Mr Bahmad's claim was significantly diminished due to legislative amendments that came into effect shortly after the negligent advice was given. The barrister sought indemnity from CGU for the damages awarded against him, but CGU denied liability based on a "Known Circumstance" exclusion clause in the policy.

The central legal issue before the High Court was the proper construction and application of the "Known Circumstance" exclusion clause. Specifically, the Court had to determine whether the exclusion operated by reference to an objective standard, requiring consideration of what a reasonable person in the insured barrister's professional position would have thought, or if the insured's subjective state of mind was relevant. The exclusion defined a "Known Circumstance" to include any fact, situation, or circumstance which a reasonable person in the insured's professional position would have thought, before the policy began, might result in an allegation of liability covered by the policy.

The High Court, in a joint judgment, allowed the appeal. Their Honours reasoned that the "Known Circumstance" exclusion clause was to be construed objectively. The test was not what the insured barrister actually thought about the possibility of a claim, but rather what a reasonable barrister in his position would have considered might lead to a claim. The primary judge had erred by focusing on the barrister's subjective belief that he had not acted wrongly, rather than on whether a reasonable person in his position would have foreseen the possibility of an allegation of negligence, irrespective of his personal view on his blameworthiness. The Court found that the facts known to the barrister at the time, including the impending legislative changes to the Workers Compensation Act and the potential for a claim to be adversely affected by the timing of filing proceedings, were such that a reasonable barrister would have considered the possibility of an allegation of negligence.

Consequently, the High Court set aside the orders of the Court of Appeal and the District Court. Judgment was entered for CGU Insurance Limited on the barrister's cross-claim, meaning CGU was not liable to indemnify the barrister. The barrister was ordered to pay CGU's costs at trial and in the Court of Appeal, with CGU ordered to pay the barrister's costs of the appeal to the High Court.

Orders

Orders of the court

1. Appeal allowed.

2. Set aside the order of the Court of Appeal of the Supreme Court of New South Wales made on 11 April 2007 and, in its place, order that:

(a) the appeal to that Court be allowed;

(b) orders 3 and 8 made by Judge Balla in the District Court of New South Wales on 23 March 2006 be set aside and in their place order that judgment be entered for the appellant on the respondent's cross-claim; and

(c) the respondent pay the appellant's costs at trial and in the Court of Appeal of the Supreme Court of New South Wales.

3. The appellant pay the respondent's costs of the appeal to this Court. (Oders of the Court delivered in a joint judgment)

Background

Background to the litigation

Section 2.2 of the policy stated that the insurer relied on the information provided by the insured in the proposal "to decide whether to enter into this contract and on what terms".The facts The events which give rise to the respondent's claim for indemnity occurred in 2001 and the basic facts are not in dispute. On 17 April 1999 Mr James Bahmad sustained an injury while performing work pursuant to a community service order under the supervision of the Probation and Parole Service. While raking grass on a steep embankment he slipped and fell, injuring his right shoulder. On 16 December 1999 he consulted Cameron Gillingham Boyd, solicitors, concerning his rights to compensation for that injury. In May or June 2001 the respondent was briefed to advise whether Mr Bahmad had a claim under the Workers Compensation Act 1987 (NSW) ("the Workers Compensation Act") or a claim in respect of negligence against the Department of Corrective Services. In a memorandum of advice dated 12 June 2001 the respondent advised wrongly that the Workers Compensation Act did not apply to Mr Bahmad's claim as there had been "no employment for wages". The advice did not refer to the Crimes (Administration of Sentences) Act 1999 (NSW) which governed Mr Bahmad's potential action and set limits on common law damages for injuries to offenders undertaking community service[3].[3]Section 122, which commenced on 3 April 2000 and has since been repealed, provided that Divs 1 and 3 of Pt 5 of the Workers Compensation Act applied to any award of damages in respect of personal injuries, incurred while involved in community service work, in the same way as they applied to an award of damages referred to in those Divisions. As part of a comprehensive programme of tort reform, from about June or July 2001, the New South Wales government foreshadowed proposed restrictions on common law claims for injuries governed by the Workers Compensation Act. The proposed amendments included transitional provisions having the effect that proceedings brought before the commencement date of the legislation would not be affected by the restrictions. It was not contested that it became well known in New South Wales that the commencement date of amendments to the Workers Compensation Act was to be 27 November 2001. On 26 November 2001 the respondent was instructed to draft a statement of claim on behalf of Mr Bahmad. Immediately before 27 November 2001, s 151H of the Workers Compensation Act prohibited damages for economic loss from being awarded unless the injured worker had suffered a serious injury. It is not contested that Mr Bahmad had suffered a serious injury within the meaning of s 151H(2A) as it stood before 27 November 2001. Section 151H was amended[4] to prohibit the awarding of damages unless the injury suffered resulted in a degree of permanent impairment of the injured worker that was at least 15% ("the 2001 amendment"). The amendment took retrospective effect on the day the Bill for the 2001 Act[5] was introduced into State Parliament which was 27 November 2001.[4]Item 7 of Sched 1.1 to the Workers Compensation Legislation Further Amendment Act 2001 (NSW).[5]Section 2(2) of the Workers Compensation Legislation Further Amendment Act 2001 (NSW).

Evidence

Evidence Before The Court

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Decision

Reasons for decision

GUMMOW, KIRBY, HEYDON, CRENNAN AND KIEFEL JJ

On 3 March 2005 Mr Bahmad commenced proceedings in the District Court of New South Wales against his former solicitors and the respondent (as second defendant), alleging negligence. The case advanced on behalf of Mr Bahmad was that had his legal representatives acted with reasonable diligence and filed a statement of claim earlier, his claim would not have been caught by the 2001 amendment to the Workers Compensation Act, which commenced on 27 November 2001 and reduced his entitlement to damages to nil. A claim for civil liability arising from the conduct of the respondent's professional practice was thus made and it was duly notified. The insurer, who had declined the respondent's claim for an indemnity, was joined in the proceedings by the respondent (then, the cross‑claimant) as a cross‑defendant.The decision of the primary judge The primary judge in the District Court in these proceedings was Balla DCJ. She made numerous findings of fact[8] and held that both the solicitors and the present respondent, the barrister, had been negligent. Her Honour found that the respondent breached his duty of care to Mr Bahmad. Her Honour gave judgment against the respondent and his instructing solicitors for $170,000 plus costs. She apportioned responsibility equally between the solicitors and the barrister, considering that it was just and equitable for them to share Mr Bahmad's loss equally.[8]Bahmad v Gillingham unreported, District Court of New South Wales, 17 March 2006. In relation to the respondent's cross-claim against his insurer, her Honour found that the exclusion in Section 6.1 of the policy, relied upon by the insurer, did not apply. Evidence of the respondent's state of mind as at 20 May 2004, when he completed the Proposal, was elicited during his cross‑examination before the primary judge. The cross‑examiner asked whether it was the respondent's view, as at 20 May 2004, that whatever happened in the Court of Appeal the plaintiff was never going to make an allegation against him. He responded "I didn't believe I'd done anything wrong and I had no belief at that time that a claim would be made against me no matter what happened in the Court of Appeal." When asked whether he had turned his mind on 20 May 2004 to the question of whether the plaintiff was going to make a claim against him, the respondent answered "[t]here was no cause for me to turn my mind to something which didn't exist, which was the notion that I'd done something wrong in the conduct of this case." These answers show the respondent's concentration upon blameworthiness, rather than upon the possibility of a claim arising. In relation to the first limb of the definition of "Known Circumstance" in Section 11.12(a) of the policy, the primary judge found that:"the [respondent] did not know, before the policy commenced, that [Mr Bahmad] might make an allegation of negligence that might be covered by the policy. Accordingly, the first limb of the definition relating to the exclusion does not apply."

Ratio Decidendi

Legal Principle Established

Established by: GUMMOW, KIRBY, HEYDON, CRENNAN AND KIEFEL JJ

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