Dixon, Meachelle v Royal Insurance Australia Ltd

[1998] FCA 1768

FEDERAL COURT OF AUSTRALIA

INSURANCE – claim for enforcement of change upon insurance moneys – disclaimer of liability to indemnify insured – whether insurer entitled to disclaim liability – construction of proposal forms against insurer if ambiguous – application of principle of contra proferentem – whether trial judge correct in deciding that application for leave to commence proceedings did not conclude question whether insurers were entitled to disclaim liability – application of Anshun principle – whether, where leave is sought under s 26(3) of the Law Reform (Miscellaneous Provisions) Act 1955 (ACT) to commence an action, the question whether the insurer is entitled to disclaim liability is to be determined once and for all on the application for leave.

Law Reform (Miscellaneous Provisions) Act 1955 (ACT), ss 25, 26, 27
Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 6

Yorkville Nominees Pty Ltd v Lissenden (1986) 160 CLR 476, cited
Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399, followed
Andjelkovic v AFG Insurances Ltd (1980) 31 ACTR 17, considered
AFG Insurances Ltd v Andjelkovic (1981) 54 FLR 398, considered
Lissenden v Yorkville Nominees Pty Ltd (1984) 3 NSWLR 138, cited
FAI General Insurance Co Ltd v McSweeney (1997) 73 FCR 379, cited
National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (Lindgren J, 6 June 1996, unreported), cited
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, considered

MEACHELLE DIXON v ROYAL INSURANCE AUSTRALIA LIMITED AND CIGNA INSURANCE (AUSTRALIA) LIMITED AND LEADENHALL INSURANCE LIMITED

AG 17 of 1997

MILES, LEE AND LEHANE JJ
CANBERRA
24 DECEMBER 1998

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY

DISTRICT REGISTRY

AG 17of  1997

ON APPEAL FROM THE SUPREME COURT
OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:

MEACHELLE DIXON
APPELLANT

AND:

ROYAL INSURANCE AUSTRALIA LIMITED
FIRST RESPONDENT

CIGNA INSURANCE (AUSTRALIA) LIMITED
SECOND RESPONDENT

LEADENHALL INSURANCE LIMITED
THIRD RESPONDENT

JUDGES:

MILES, LEE AND LEHANE JJ

DATE OF ORDER:

24 DECEMBER 1998

WHERE MADE:

CANBERRA

THE COURT ORDERS THAT:

1. The appeal be dismissed with costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY

DISTRICT REGISTRY

AG 17 of 1997

ON APPEAL FROM THE SUPREME COURT
OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:

MEACHELLE DIXON
APPELLANT

AND:

ROYAL INSURANCE AUSTRALIA LIMITED
FIRST RESPONDENT

CIGNA INSURANCE (AUSTRALIA) LIMITED
SECOND RESPONDENT

LEADENHALL INSURANCE LIMITED
THIRD RESPONDENT

JUDGES:	MILES, LEE AND LEHANE JJ
DATE:	24 DECEMBER 1998
PLACE:	CANBERRA

REASONS FOR JUDGMENT

THE COURT:

Facts

On 1 December 1984 the appellant was a passenger in an aircraft which crashed and was destroyed near Goulburn, New South Wales.  The pilot of the aircraft was Edward Joseph Priest.  The appellant was injured in the accident; she proceeded against Mr Priest to recover damages for negligence.  She obtained judgment ex parte against Mr Priest; damages were assessed at $148,696.32.  A judgment entered for that sum, together with costs, remains unsatisfied.

Mr Priest was one of the insured under a policy of insurance underwritten by the respondents.  In broad terms, the policy covered the aircraft against damage or destruction and also provided cover for legal liability to passengers:  the amount of the underwriters’ liability, in relation to a claim by any one passenger, was limited to $100,000.  It is common ground that, but for particular matters relied upon by the respondents as entitling them to “disclaim” liability under the policy, the cover extended to the destruction of the aircraft in the accident at Goulburn and Mr Priest’s legal liability, in negligence, to the appellant.

During a period of a little more than two years before Mr Priest signed the proposal for that policy of insurance, he was involved in two incidents on which the respondents now rely.  The earlier of the two incidents occurred on 1 February 1982.  On that day Mr Priest landed an aircraft in a paddock near the Orroral Valley Spacecraft Tracking Station.  When he was about to land, he saw that a cow was in the paddock and appeared likely to wander in front of the point at which he was to land; he applied full power; that had the effect of frightening the animal away from his path, and he reduced power in order to complete the landing.  Unfortunately the flaps, which had been fully extended for landing, suddenly retracted with the result that the aircraft landed heavily and suffered substantial damage.  The flaps retracted because a locking pin had not been properly engaged.  The incident was investigated by the Air Safety Investigation Branch of the Department of Transport and Mr Priest was cautioned by a letter from the Department.  The tone of the letter may fairly be described as one of firm warning.  It concluded:

“I trust that you have learnt some lessons from your accident that perhaps in future will instil a professional approach to your flying.It is in this hope that I propose to take no further action.”

The later incident occurred on 25 June 1983 at Canberra Airport.  Mr Priest requested an ILS approach while not the holder of an appropriate instrument rating.  This incident was investigated also and Mr Priest was “counselled”: evidence was given of the “counselling”, in which the following proposition was put to Mr Priest:

“You requested an ILS approach into Canberra Airport when you were not appropriately rated to make such an approach, and you did not have the correct documentation.You breached the Regulations, didn’t you?

to which, according to the evidence, Mr Priest responded:

“Yeah.Yeah.I guess so.”

That evidence was given by Mr Paul Middleton, who was at the time an examiner of airmen with the Department of Aviation and conducted the interview with Mr Priest.  He was not cross-examined.

The proposal, on the basis of which the policy of insurance was issued, was (as we have mentioned) signed by Mr Priest and was dated 2 June 1984.  It included a section headed “PILOTS – This information is required for each pilot who will operate aircraft during policy period”.  Beneath that heading was a series of columns.  The first column was headed “Name”, the second “Age”, the third “Hours all aircraft” with two sub-headings, “day” and “night”, the fourth “Hours this type” with two similar sub-headings, the fifth “License” with sub-headings “No.”, “Date” and “Class” and the sixth was headed “Date and Details of any Flying Accident or Offence”.In the first column the names of three pilots were listed, one of whom was Mr Priest.  Their ages, flying hours and licence particulars were given; the column headed “Date and Details of any Flying Accident or Offence” was completed “No” for Mr Priest.

The proposal form also included a question, “Have any of the above named pilots ever been cited for any violation of Air Navigation Regulation?  If so, give full details.”  To that question, the answer “No” was given.

There was then a series of columns headed “Losses during last three years” in which those proposing for the insurance were asked to complete various particulars, including “No. of Aircraft owned/operated by Proposer?” and details of damage to aircraft and losses relating to third parties and passengers.  That section of the proposal was completed by writing “No” in the column seeking “No. of Aircraft …” and “No losses” across the other columns.

The proposal concluded with the following declaration:

“I/We hereby declare that the foregoing particulars are true and complete to the best of my/our knowledge and belief and I/We agree that this declaration and the answers given herein and any other written statement made by me/us or on my/our behalf for the purpose of the proposed insurance shall be the basis of, and incorporated in, the contract between me/us and the Assurers.I am/We are prepared to accept insurance on the terms and conditions set forth in the policy issued by Aviation & General Underwriters for and on behalf of the Assurers …”

The policy recited the proposal (and the warranties of the truth and completeness of the statements contained in it) “which is the basis of this contract and is deemed to be incorporated … ”.

The proceedings under appeal

Having failed to obtain satisfaction of her judgment against Mr Priest, the appellant sought to enforce the statutory charge arising under s 25 of the Law Reform (Miscellaneous Provisions) Act 1955 (ACT). The construction of ss 25, 26 and 27 is one of the central issues in the appeal and the sections should be set out in full:

“Amount of liability to be charged on insurance moneys payable against that liability

25.   (1)If a person (in this Part referred to as “the insured”) has, whether before or after the commencement of this Act, entered into a contract of insurance by which he or she is indemnified against liability to pay any damages or compensation, the amount of his or her liability is, on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of the liability may not then have been determined, a charge on all insurance moneys that are or may become payable in respect of that liability.

(2)If, on the happening of the event giving rise to the claim for damages or compensation, the insured (being a corporation) is being wound up, or if any subsequent winding–up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) apply notwithstanding the winding-up.

(3)Every charge created by this section has priority over all other charges affecting the insurance moneys, and where the same insurance moneys are subject to two or more charges by virtue of this section those charges have priority between themselves in the order of the dates of the events out of which the liability arose, or, if the charges arise out of events happening on the same date, they rank equally between themselves.

Enforcement of charge
26.  (1)Subject to subsection (2), a charge created by this Part is enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured.

(2)In respect of any such action and of the judgment given in any such action the parties have, to the extent of the charge, the same rights and liabilities, and the court has the same powers, as if the action were against the insured.

(3)Except where subsection 25(2) applies, no such action shall be commenced in any court except with the leave of that court, and leave shall not be granted where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim have been taken.

(4)Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.

Protection of Insurer
27.  (1)            Notwithstanding anything in this Part, a payment by an insurer under the contract of insurance without actual notice of the existence of a charge under this section [sic] is, to the extent of that payment, a valid discharge to the insurer.

(2)   An insurer is not liable under this Part for any greater sum than that fixed by the contract of insurance between the insurer and the insured.”

The appellant sought, and on 14 August 1991 was granted, the leave of the Court, under s 26(3), to commence an action against the respondents under s 26(1). The application for leave was opposed on the footing that the respondents were entitled to disclaim liability; Higgins J, however, was not satisfied of the respondents’ entitlement and granted leave.

Having obtained leave, the appellant commenced proceedings against the respondents in the Supreme Court.  The respondents resisted the action on the basis of a claim of entitlement to disclaim liability under the policy; that entitlement was said to arise from (among other things) the way in which, following the two incidents to which we have referred, the proposal was completed.  Those matters, in circumstances which (for reasons which will appear) we need not describe, had not been relied on in opposition to the application for leave. 

Gallop J dismissed the appellant’s action and ordered that there be judgment for the respondents.  The essence of his Honour’s reasoning may be shortly stated.  The decision on the application for leave to commence proceedings did not conclude the question whether the respondents were entitled to disclaim liability, but was preliminary only; there was no principle which prevented the respondents from relying, by way of defence to the action, on matters which they could have raised, but did not raise, on the application for leave; the contract of insurance, entered into before the Insurance Contracts Act 1984 (Cth) took effect, was one under which the respondents’ liability was conditional on the truth of matters stated in the proposal; that being so, an untrue statement in the proposal, whether material or not, entitled the respondents to disclaim; and, because of the failure to mention either of the two earlier incidents, each of the three statements in the proposal, to which we have referred, was untrue.

The appellant appeals against his Honour’s order directing judgment for the respondents.

Arguments on the appeal: discussion

The appellant accepts, rightly in our view, that this is a case where the insurers’ liability is conditional on the truth of the statements in the proposal: Yorkville Nominees Pty Ltd v Lissenden (1986) 160 CLR 476 at 480, 481, 485, 491. The appellant’s submissions fall into two groups: in the former, there is an argument about the construction of s 25 and s 26, the effect of which is that matters going to an insurer’s entitlement to disclaim must be raised, if they are to be raised at all, and will be finally dealt with, on the application for leave under s 26(3); and there is a related argument based on the Anshun principle, to the effect that where an insurer could, and reasonably should, have raised on the leave application a matter going to an asserted right to disclaim, the insurer will be estopped from raising that matter as a defence in the consequent proceeding under s 26(1). The second group of arguments relies upon a basic proposition that the proposal form is ambiguous and is to be construed contra proferentem; and that when it is construed in that way the impugned statements are not false.  We shall deal with the two groups in reverse order.

(a)       Was an untrue statement made in the proposal?

The appellant referred us to a number of the well-known cases about ambiguity in proposal forms which support the proposition that such forms, if they are ambiguous, will be construed against the insurer.  But the authorities give only general guidance as to the way in which the established principle is to be applied to particular expressions used in a particular proposal form. 

In relation to the form with which we are concerned, there is in our view considerable force in much of what was put to us by counsel for the appellant.  For instance, where there are three proposers and details are sought of losses, apparently in respect of “Aircraft owned/operated by Proposer”, there may well be ambiguity as to what is meant by “proposer” so that that portion of the proposal would be read as referring only to aircraft owned or operated by (in this case, the new venture commenced by) the three of them.  Similarly, it is by no means self-evident what the proposal means by the word “cited” in the question “Have any of the above named pilots ever been cited for any violation of the Air Navigation Regulations?”.  “Cited”, it is common ground, is not an expression to which the Regulations themselves give a particular meaning; and dictionary definitions, referred to in argument, do not provide a clear guide to the ordinary meaning of the term in the present context.  The appellant may well be on firm ground when she argues that “cited” must denote at least some formal procedure by which a pilot is accused of, or charged with, an infringement of the Regulations, and that in the circumstances it was not untrue to answer “no” to the question whether that had happened.  Similarly, where a proposer is asked to state particulars of any “offence” or “flying offence” in relation to a pilot, there is merit in the proposition that the form should be construed as requiring only a statement of offences of which a pilot has actually been convicted. 

It is unnecessary, however, for us to come to a final view about those matters because we are unable to accept that there is any ambiguity about what is required by the phrase “date and details of any flying accident”.Counsel for the appellant argued vigorously that it was not clear what was required by that section of the proposal, because it was not expressed in the form of a clear question; but the proposal speaks of information “required for each pilot who will operate aircraft during policy period” and the headings of the columns state clearly enough what is required even if the columns themselves leave little room for detail.  Secondly, counsel submitted that ambiguities arose from the use of the word “or” between the two categories, accident and offence.  A possible reading was that an accident was required to be disclosed only where, in the circumstances of the accident, an offence was committed.  Two even bolder submissions, as we understood the argument, were made: one was that the proposer might choose of which of the two categories, accident and offence, particulars were to be given; the other was that the answer to the double-barrelled question might be construed simply as a refusal to answer the question at all, rather than as an actual answer which was either true or untrue. 

We accept that the proposal form is to be looked at through the eyes of a lay proposer and, where there is ambiguity, construed in favour of the insured.  We are quite unable to see, however, that any reasonable proposer, reading the form, could suppose that he or she was not required to state the date, and at least brief details, of any flying accident in which he or she had been involved.  That at least, in our view, whatever precisely may be required in relation to an offence, was clearly and unambiguously required by this proposal form.  “No”, in relation to Mr Priest, was in our view an unambiguous assertion that he had not had a “flying accident”.  But, equally plainly, he had.  He had landed an aircraft at the Orroral Valley Spacecraft Tracking Station in a way that caused it substantial damage.  The answer was untrue and, in consequence, the respondents were, subject to the effect of the Law Reform (Miscellaneous Provisions) Act 1955 (Cth), entitled to disclaim liability.

(b)       Effect of the Law Reform (Miscellaneous Provisions) Act, ss 25 and 26

In essence, the appellant’s argument was that, as a matter of construction, where leave is sought under s 26(3) to commence an action, the question whether the insurer is entitled, under the terms of the contract of insurance, to disclaim liability is to be determined once and for all on the application for leave. Two consequences, it was said, followed from that. One was that when the Court grants leave, having considered and rejected a claim that the insurer is entitled to disclaim liability, its decision on that point is final and the question cannot be re-agitated in the proceeding commenced under s 26(1). The other was that the insurer, having had the opportunity to raise the question of its entitlement to disclaim on the application for leave, could not raise it again as a defence to the action commenced under s 26(1): that was so, it was said, both in circumstances where the issue had not been raised at all on the application for leave and where, on that application, it had been raised upon a particular basis in circumstances where some other basis might have been available but was not relied on.

In the present case, the respondents resisted the application for leave relying (in part) on an asserted entitlement to disclaim; in asserting that entitlement they relied on things that were said to have happened during the flight in the course of which the accident (in which the appellant was injured) happened:  for example, that Mr Priest during the flight engaged in formation flying.  Particularly, the respondents did not rely upon either of the two earlier incidents as entitling them, given the terms of the proposal and the contract of insurance, to disclaim liability.  The effect of the appellant’s submission, if accepted, would be that the statute gave the respondents one opportunity to raise those matters.  That opportunity arose on the application for leave.  They could not raise them by way of defence to the action brought by the appellant once leave was granted.  Neither could they re-agitate other matters relevant to their claimed entitlement to disclaim, those matters having been conclusively determined by Higgins J in deciding to grant leave.

Three particular aspects of s 26 were relied upon. First, the action against the insurer commenced under s 26(1) is one in which the charge created by s 25 is to be enforced against the insurer “in the same way and in the same court as if the action were an action to recover damages or compensation from the insured”. Secondly, s 26(2) provides that the parties have, in respect of the action, to the extent of the charge, the same rights and liabilities, and the court has the same powers, as if the action were against the insured. Thirdly, an action under subs (1) may (s 26(4)) be brought although judgment has already been recovered against the insured. In sum, what the statute contemplates, it was said, is that the matters to be determined in the action commenced under s 26(1) are those going to the liability of the insured to the plaintiff, as opposed to the liability of the insurer under the policy.

Two comments may be made immediately.  One is that there might well be merit, in point of policy, in a statutory scheme which required matters going to the insurer’s liability under the policy to be dealt with on an application for leave, leaving as the only matters to be determined in the action matters going to the liability of the insured and the amount of damages for which the insured is liable.  Secondly, there seems to be no reported case in which the precise point raised by the appellant has been decided. 

There can be no doubt, however, that under the actual statutory scheme matters which might have been in issue in an action between plaintiff and insured will inevitably not be the only matters in issue between plaintiff and insurer in an action commenced under s 26(1). That is so at least because s 27(2) limits the amount recoverable to the amount of the cover under the policy and also, no doubt, because there may be a question whether, or to what extent, the insured is entitled to rely on a discharge under s 27(1). Additionally, subs (1) is expressed to be subject to subs (2), and subs (2) includes the phrase “to the extent of the charge”. Those words (like much else in the provisions) are not felicitously chosen. They might perhaps be taken to express a limit on the amount recoverable by a plaintiff. But if they are intended to say that the plaintiff can never recover against the insurer more than he or she could recover against the insured (that being the extent of the claim secured by the charge) then they add nothing to what is already the effect of s 26(1). We are inclined to think that the words are intended to recognise that, since the plaintiff’s claim against the insurer arises under a charge of the rights of the insured, the plaintiff’s claim against the insurer can rise no higher than that of the insured (apart from dealings by the insured after the charge took effect). It might be said that that would be the case in any event, but it may have been thought that, but for the qualification, the wide words of s 26(1) could throw doubt on that otherwise rather clear proposition; in which case, the words may be regarded as reflecting no more than a concern to ensure that the terms of subs (1) would not be taken to contradict the nature of the interest given to a plaintiff.

The claim which s 25 gives to a plaintiff in a case such as the present, and which is enforceable by the means provided by s 26, is a charge on all insurance monies that are or may become payable in respect of the liability by the insured to the plaintiff, against which the insured is indemnified by the insurer. The plaintiff, in other words, has a claim on the insurance monies which derives from the insured’s own claim under the policy. Because the charge arises on the happening of the event giving rise to the (plaintiff’s) claim for damages, the rights of the plaintiff, as chargee, will ordinarily not be affected by any dealings by the insured, in relation to the claim under the policy, entered into after the happening of that event (Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399) but the derivative nature of the plaintiff’s claim means that it is subject, for example, to limitations and defences affecting, or available against, the insured at the time when the charge took effect.

It does not follow from that, of course, that an insurer’s entitlement to disclaim is not required to be dealt with once and for all at the time leave is sought under subs (3).  What is clear, however, is that there are a number of classes of matters which go to the extent or value of the claim subject to the charge and thus, on the construction we prefer, to the “extent of the charge”, and are therefore relevant to an action under s 26(1). Even the limitation on the amount recoverable under s 27(2) may raise issues of construction of the policy; and there may be other questions of construction of the policy going, for example, to the extent of the cover, including its availability in relation to the event giving rise to the plaintiff’s claim. Such matters include also issues such as those agitated in the present proceedings: for instance, whether, having regard to the terms of the policy, conduct of the insured connected with the event giving rise to the claim disentitled the insured to recover under the policy; and whether untrue statements by the insured in the proposal for the policy entitled the insurer to deny liability or to rescind or avoid the policy altogether. What, in our view, is plain is that the construction for which the appellant contends could have no wider result than that the question whether the insurer “is entitled under the terms of the contract of insurance to disclaim liability” is decided, once and for all, on the application for leave.  The ambit of the words “disclaim liability” is not, perhaps, entirely plain; but it may be said with confidence that it does not cover all the matters, to which we have referred, going to the extent or value of the claim subject to the charge.  In a passage not affected by the judgment of this Court or the High Court on appeal, Blackburn CJ said in Andjelkovic v AFG Insurances Ltd (1980) 31 ACTR 17 at 22, 23:

“Are the words “entitled under the terms of the contract of insurance to disclaim liability” to be read as equivalent to “not liable under the contract of insurance”?The respondent before me did not so contend, and I do not think that that contention should succeed.The words are obviously not apt, for example, to cover the case where the respondent contends that it was not a party to the contract of insurance: in that case its argument would be that it is not “the insurer” within the meaning of s 26(1).But are the words meant to cover every ground on which the respondent, though a party to a contract of insurance, could be held not liable on that contract, or are they confined to the case where the respondent appears on the facts asserted by the applicant to be liable to the insured under the contract, but has a defence based either on some express term of the contract (eg failure by the insured to notify the insurer within time) or on some doctrine of insurance law (eg non-disclosure by the proposer) or of the general law (eg fraud or set-off)?I am far from confident that this suggested distinction would be easy to make in every case, but in the case before me it is so:that the respondent maintains that upon the proper construction of the contract the claim by the applicant is not a risk covered by the policy.That defence is not a defence provided either by an express provision of the contract, or by a special doctrine either of insurance law or the general law.”

It would not, in our view, be a satisfactory construction of the provisions which resulted in some such matters arising between insured and insurer, being required to be determined finally on the leave application, but leaving it open to the insurer to agitate others on the hearing of the application: and particularly so where the dividing line between the two categories may not be altogether clear.

Two other aspects of the provisions support that approach, contrary to the construction contended for by the appellant. First, if the insured is in liquidation when the event giving rise to the claim occurs, leave under s 26(3) is not required, so that, in such a case, the insurer clearly may rely, in an action under s 26(1), on a right to disclaim. It would be an odd result if the defence was available to an insurer where the insured was in liquidation but not in other cases. Secondly, circumstances giving rise to an entitlement to disclaim may arise (under an insurance contract as it stood at the time of the event giving rise to the claim) after leave has been granted under s 26(3). It could hardly be the case that the insurer could not, in the action under s 26(1), rely on those circumstances.

In any event, the course of authority, even if not directly and immediately in point, is contrary to the appellant’s submission.  On appeal in Andjelkovic (AFG Insurances Ltd v Andjelkovic (1981) 54 FLR 398) the Court said this at 400:

“Section 26(3) commands the court not to grant leave in certain circumstances.It is not easy to decide precisely what is embraced in the words which describe the circumstances where the court is not to grant leave.In our opinion the court has a general power to grant leave in all cases which do not fall within the provision that it shall not grant leave and in which it is made to appear by evidence available in the application that there is an arguable case of liability against the insured, being a liability against which the insured is indemnified by a contract of insurance in force at the time of the happening of the event said to give rise to the claim.We accept the relevant test proposed by the respondent which is really the test formulated by the primary judge, namely, has the respondent presented a case which is at least arguable?”

Nothing was said by the High Court, on further appeal ((1982) 49 ALR 245), which cast any doubt on those propositions (the appeal to the High Court was dismissed). The effect of what this Court said was that, apart from one set of circumstances (the boundaries of which are uncertain) in which the Court is bound to refuse leave, leave will be granted to a plaintiff whose case against an insurer is “arguable”, having regard to matters (plainly enough) both going to the insured’s liability to the plaintiff and relevant to the insurer’s liability under the policy.  That reasoning has been applied, or referred to with approval, on numerous occasions.  A number of cases were referred to in the course of argument:  see particularly, on the New South Wales equivalent (Law Reform (Miscellaneous Provisions) Act 1946, s 6), Lissenden v Yorkville Nominees Pty Ltd (1984) 3 NSWLR 138, especially at 141, 142 per Mahoney JA; see also the decisions of Lindgren J in FAI General Insurance Co Ltd v McSweeney (1997) 73 FCR 379 at 418, 419 and particularly in National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (6 June 1996, unreported) at paras 62 to 81 inclusive, where his Honour considers in detail the authorities dealing with the New South Wales provision.

Most important, however, is the detailed consideration by McHugh and Gummow JJ, in Bailey at 440-450, of the antecedents and effect of s 6 of the New South Wales Act. Two passages in their Honours’ judgment are particularly important for present purposes. At 448, after quoting the last sentence of s 6(4) of the New South Wales Act (the equivalent of the latter part of s 26(3)) their Honours said:

“This provision is not directing the Court that leave be denied only in a case where it is satisfied both of entitlement to disclaim liability and that necessary steps have been taken to establish entitlement to do so.Leave may be refused in other cases but must be refused in these cases.What the sentence does suggest is that, if there is an entitlement to disclaim, there may be no monies which are or may become payable in respect of the liability of the insurer to the insured and thus nothing upon which the charge specified in s 6(1) can operate.”

Then, at 449:

“The phrase in s 6(1), “insurance monies that … may become payable”, is apt to deal with the situation where, whilst the charge has descended, there is as yet no sum which could be identified as presently payable by the insurer to the insured.In such a case, the statutory charge operates, by loose analogy to an agreement for a charge on after-acquired property, upon such moneys as and when they do become payable.However, there will be nothing in respect of which the charge may be enforced if the moneys never become payable by reason of the exercise by the insurer of rights to avoid the contract or of a vitiating factor in its formation.So also in the case of a breach which, pursuant to the terms of the contract … or the general law, entitles the insurer to disclaim liability and this state of affairs exists when action is brought by the claimant under s 6(4) or, as necessary, leave is sought to commence that action.In all these cases, there were no insurance moneys which were payable when the charge arose and none have become payable.”

Thus a number of circumstances, affecting the relationship between the insurer and the insured, may produce the consequence that there are no insurance monies subject to the charge or, therefore, recoverable by a claimant under s 26. Among those circumstances are breaches entitling the insurer to disclaim liability. The circumstances may exist either when action is brought to enforce the charge or when leave is sought. The clear inference is that nothing in the provisions precludes the insurer from relying on any of those circumstances, which have the result that there are no insurance monies to be subjected to the charge, in an action to enforce the charge even if the circumstances (whether or not circumstances properly to be described as entitling the insurer to disclaim liability) existed when leave was sought to commence the action.

The majority of the Court, Brennan CJ and Deane and Dawson JJ, took a view about other aspects of the case which enabled them to dispose of it without resolving any controversies as to the construction of the legislation.  But their Honours nevertheless said at 415:

“However, as the proper construction of s 6 appears to have given rise to difficulty and as the matter was argued, it is appropriate that we express our agreement with McHugh and Gummow JJ upon the effect of that provision.”

Thus, even if strictly obiter, the High Court has expressed a clear view of the construction and effect of provisions in substantially identical terms to those in question here.  There can be no doubt that we must follow what was said in Bailey.  What was said there, read with the other authorities to which we have referred, leads in our view inevitably to the conclusion that the appellant’s submission on construction must be rejected.

That being so, we do not think it is open to hold that a different result is to be arrived at, on the facts of this case, by an application of the principles stated in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. The substantial question on an application for leave is whether a claimant has an arguable case; leave is required to be refused, under s 26(3), only if the Court, on the application for leave, is satisfied that the insurer is entitled to disclaim and that any proceedings necessary to establish that entitlement have been taken; and as a matter of construction, matters going to the insurer’s liability may be raised by way of defence to an action under s 26(1). That those three propositions are true, in our view, follows from what we have already written. That being so, it cannot be said, in our opinion, that the Anshun principle requires an insurer on an application for leave to raise matters, relevant to an asserted entitlement to disclaim, then available to it, on pain of finding itself estopped from raising them subsequently. The principle was stated by Gibbs CJ and Mason and Aickin JJ, at 602, thus:

“… we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it.Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff’s claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding.”

It may well be that the Anshun principle is unlikely ever to apply so as, where leave is necessary to commence a proceeding, to prevent a party from relying, in the proceeding, on a matter which could have been raised, but was not, on the application for leave. In any event, in the present case there was only one proceeding in which all issues between the parties could be determined, and that was the action commenced under s 26(1).

Conclusion

For those reasons the appeal, in our view, should be dismissed.  The appellant should pay the respondents’ costs.

I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Dated:             24 December 1998

Counsel for the Appellant:	G. Segal with F. Tuscano
Solicitor for the Appellant:	Gary Robb & Associates
Counsel for the Respondents:	C. Waterstreet
Solicitor for the Respondents:	Blake Dawson Waldron
Date of Hearing:	3 November 1998
Date of Judgment:	24 December 1998