FAI General Insce v Junemill Limited

[1998] HCATrans 101

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B54 of 1997

B e t w e e n -

FAI GENERAL INSURANCE COMPANY LIMITED

Applicant

and

JUNEMILL LIMITED (IN LIQUIDATION)

Respondent

Application for special leave to appeal

BRENNAN CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON FRIDAY, 17 APRIL 1998, AT 9.58 AM

Copyright in the High Court of Australia

MR P.A. KEANE, QC:   May it please the Court, I appear with MR A.B. CROWE, for the applicant.  (instructed by Clayton Utz)

MR P.R. DUTNEY, QC:   If the Court pleases, I appear with MR I.R. MOLLOY, for the respondent.  (instructed by Higgins Teale)

BRENNAN CJ:   Yes, Mr Keane.

MR KEANE:   Your Honours, the issue of principle which the applicant wishes to agitate on appeal is whether a third party’s intimation to an insured that the third party will sue if loss is ultimately suffered by the third party, is a claim on the insured for the purposes of a claims made policy because, for the reason that the third party asserts, that the intimation should be regarded as a claim.

BRENNAN CJ:   Which loss are you speaking about?

MR KEANE:   The loss suffered by the third party claimant.

BRENNAN CJ:   Why is there not a loss in this case simply by reason of the breach of the contract?

MR KEANE:   Your Honour, there may be a cause of action but that is not the loss ‑ ‑ ‑

BRENNAN CJ:   A cause of action and damages?

MR KEANE:   We were going to say, your Honour, that is not the loss which was foreshadowed as the subject of the claim.  One can see that from the letter at page 60 of the record whence it appears that the first of the two letters that are relied upon to constitute the claim, in the third paragraph, the highlighted paragraph which commences at about line 9, says:

The purpose of this letter is to put you on notice that in the event of our client sustaining a loss in relation to any of the mortgages comprising its mortgage portfolio and upon which you have prepared a valuation, our client intends to commence legal proceedings against you.  We request that you advise your indemnity insurer of our client’s intention forthwith.

Now, your Honours, the important features of that letter is that it indicates an intention to claim in the event of a loss - it is not asserting a present loss and it is not asserting a present claim, it is asserting an intention to claim in the future.  As to the second letter ‑ ‑ ‑

HAYNE J:   Is that right if you go back to the previous sentence, Mr Solicitor:

We have given advice ..... in our opinion there exists a number of grounds for legal proceedings -

MR KEANE:   Well, your Honour, in our respectful submission, to say that is to say not much more than, our client has a grievance.

BRENNAN CJ:   A grievance meaning thereby a cause of action sounding in damages?

MR KEANE:   Well, possibly, your Honour.  But one, in our respectful submission, cannot ignore the fact that the letter goes on then to tell us that there has not yet been a loss.

BRENNAN CJ:   Well, quite.  The third party says, “You have given an overvalue of the securities that we have got” ‑ ‑ ‑

MR KEANE:   We are at risk.

BRENNAN CJ:   “We are at risk if we need to realise on those securities of failing to get back our money and that is what we will be suing you for, but you are responsible for this because in breach of your contract you overvalued the securities, and we are entitled to damages on that account, simpliciter.”  Now, there are, therefore, at least two areas which might be regarded as a relevant loss.  For the purposes of the statute or for the purposes of the contract, why is not the entitlement to damages for breach of contract, in itself, not amounting to a loss?

MR KEANE:   Your Honour, neither of the possibilities that your Honour has put to us is asserted to be the loss in respect of which recovery is sought as a ‑ ‑ ‑

HAYNE J:   Because events later overtook ‑ ‑ ‑

MR KEANE:   No, as a matter of present demand, your Honour.  Our contention is that in this field of commercial discourse, there is a well established distinction between - that is to say, in insurance policies that are claims made policies, there is a radical distinction between a warning or a threat that a claim will be made for a loss, if that loss is suffered, and an intimation of an intention to claim.  Our case, our contention is that that is putting the other side’s case at its highest, having regard to the letters that were written, and to the extent that the Court of Appeal has relied upon the second letter at page 60 and, in particular, paragraph 3 of that letter, which is at page 60 at about line 27:

We request that you acknowledge receipt of this letter and confirm.....that this letter will operate as sufficient notification of a claim, full details of which will be provided in due course, under the terms of their policy, notwithstanding that the policy may subsequently lapse before a formal detailed claim is made.

In our respectful submission, it is that intimation which the Court of Appeal relied upon in its reasons to identify, in the case of Justice Fryberg and Justice McPherson, explicitly on their part, a contention that there was an implied assertion of a loss, not the assertion of the loss arising because the third party was at risk or because there was an assertion of a claim for nominal damages for breach of contract, but implied assertion of a loss, as one sees from his Honour’s reasons at page 49, lines 15 to 25, and page 45, lines 15 to page 46, line 15.

BRENNAN CJ:   Page 49, what lines?

MR KEANE:   Page 49, about line 17, your Honour, and one needs then to go back to page 45 at line 15 and read down to line 10 on page 46 where, reading the two letters together, Justice Fryberg, with whom Justice McPherson agreed, held that the letters constituted an existing claim on the footing that they imply an existing loss.  Now, the process of reasoning, both by Justice Fryberg and it would seem by the President, one can see at page 30, lines 1 to 3, their reasoning fixes importantly on the second letter and the request that the letter be treated as a claim.  Its importance to the President obviously lies in the fact that the second letter went beyond a statement that a claim might be made and both sets of reasons rely on the request that the notification be treated as a claim, because it implies the assertion of a loss.  Now, one thing is clear about that, that it is not working on the footing that there is a contention that there is a demand for an existing loss for being at risk or for nominal damages for breach of contract.

HAYNE J:   What then is the claim, you say, was being asserted in paragraph 3 as it appears on page 60 at line 28?

MR KEANE:   What it was, your Honour, may well have been an attempt to, as it were, verbal the insured and through the insured, the insurer.  If we can answer your Honour this way:  if the Court of Appeal is correct in what it has done, in every case a third party can, by telling an insured to treat the notice of a grievance involving a potential claim, as a claim, if it can, by doing that, affect the insurer’s obligation to the insured, it can do so, even though in truth there has been no demand for the recovery of an asserted loss.  A third party could, and after this decision, would write saying, “We have just recently had some valuations from you.  We are not sure that the transactions we have effected in reliance on them are going to work out.  We ask that you treat this letter as a claim for the purposes of your insurance.”  Now, in our respectful submission, if this decision is correct, that can be done even though the insurer has plainly not agreed to give cover in respect of such intimations of intention to claim.

HAYNE J:   Is there not a further fact, additional to the ones you have mentioned, namely, the fact that the claimant asserted an existing number of grounds for legal proceedings, not the possibility of grounds for legal proceedings, but existing grounds?

MR KEANE:   But made no demand for a loss, rather, explicitly indicated an intention to make such a demand only in the event that a loss was suffered.  Our contention being, your Honour, that in this field of discourse, it is well recognised that a claim means a demand for recovery of a sum said to be owed, or for some relief then due.

BRENNAN CJ:   What is this “well recognition” that you are relying on?

MR KEANE:   Your Honour, it is exemplified very well in the decision of the Court of Special Appeals of Maryland in Klein v Fidelity & Deposit Company of America, a decision that was not available to us when we did our written submissions.  We provided a copy to the Court in that bundle we have given the Court.  It is the last case in the bundle of authorities.  If your Honours go to page 334 - we are only going to take your Honours to a number of passages where the Court recognises that “claim”, in this context, in the context of claims made policies, is treated as “claim” in its primary meaning, being a demand for something due or believed to be due.  If your Honours would go to page 334 of the judgment ‑ ‑ ‑

HAYNE J:   Just before you do, forgive my ignorance, but the Court of Special Appeals of Maryland stands where in the State hierarchy of courts of that State?

MR KEANE:   Your Honours, as we understand it, it is the ultimate Court of Appeal of that State, but I am not able to assist your Honour more.

HAYNE J:   Simply, I have not had the privilege of reading their work before, Mr Solicitor.

MR KEANE:   Your Honour and I are at least ad idem on that.  I must say I had not averted to the point your Honour makes.  The importance of the case though, with respect, is that it does collect reference to a large body of judicial exegesis which recognises that a claim is, in this context, a demand for something due or believed to be due.  We can take your Honours to page 334 in the first full paragraph of text, page 337 in the first two paragraphs on that page and, in particular, recalling a question your Honour Justice Hayne raised with us, we refer your Honour to the first paragraph where it said:

The existence of claims “of” wrongful acts does not of itself mean that claims were made against the officials “for” the wrongful acts.

We invite your Honours to read the second paragraph as well.  Page 339 in the second and third paragraphs and at page 340, the passage cited from the judgment of the Californian Court in Hill v Physicians and Surgeons Exchange of California, that passage being cited about point 5 of the page.

HAYNE J:   How does any of this sit with the particular definitions of the particular policy with which we are concerned, which appear, as I understand it, at page 28 of the application book?

MR KEANE:   Your Honour, we are not concerned with matters of impression and degree which might turn on nuances of syntax and context.  We are concerned here with the primary meaning to be given to “claim” in, what we say is a recognised field of discourse, the primary meaning being consistent with that referred to in authority in Australia, such as Walton v National Employers’ Mutual Insurance Association, and in England in West Wake Price v Ching, which are referred to at page 64 of our outline.

HAYNE J:   Do I understand you to say the definitions are irrelevant?  I find that surprising.

MR KEANE:   The definitions, your Honour, we do not say are irrelevant, but we say they do no more than give effect to the primary meaning of “claim” made in this context.  And we are responding to your Honour because we apprehend that your Honour’s concern is that this is a distinction, the distinction of which we speak is something which turns on peculiar language.

BRENNAN CJ:   The peculiarity of the language here is that there is a claim that is deemed to be first made by the applicant, et cetera, so there is a deeming provision in the contract.

MR KEANE:   There is, your Honour, but in our respectful submission, the relevant concern is what is comprehended by the notion of claim made.  While it is, of course, important to determine when the claim has first been made, and while that deeming provision goes to assisting with identifying the time at which that has occurred, in our respectful submission, there is a core question of what is comprehended by the making of a claim, and we are concerned here with whether these two letters do so.  The affirmative answer which the Court of Appeal gave does not depend upon any refinements or deeming provisions of the policy, but rather the view they took that ‑ ‑ ‑

BRENNAN CJ:   Yes, I understand that, but apart from the Court of Appeal, the situation is this, is it not, that you have your third party expecting that it may suffer a loss on the realisation of its securities, and it writes and it says, “We let you know that if and when we suffer this loss, we will hold you liable”.  That is your case, is it not?

MR KEANE:   It is, your Honour.

BRENNAN CJ:   On that footing, the question is whether or not a notification in those terms would be a claim that is deemed to be first made when there is a reception of an intimation of the insured as being held responsible, in part or in whole, for a loss.  Is your argument that the loss referred to in that clause - that is clause 4 - is a loss which has already occurred?

MR KEANE:   Your Honour, our argument is that it has to be a loss that is asserted to have occurred.

BRENNAN CJ:   Is asserted to have occurred.  Condition 3 then, which allows the intimation of a likely claim, falls in a different area of discourse?

MR KEANE:   It does, your Honour, because that is concerned with occurrences that may give rise to a claim.  It is a different part of the stream, your Honour.

BRENNAN CJ:   Why is it that the correspondence in question does not amount to a fulfilment of condition 3?

MR KEANE:   Your Honour, the answer to that question was given by Justice Dowsett, and the answer is that it does not identify occurrences that may give rise to a claim, the occurrences being the circumstances which give rise to an assertion of negligence.

BRENNAN CJ:   What, not a sufficient particularisation of the acts or omissions which constituted the negligence?

MR KEANE:   Yes, and not proof, in this case, of when those circumstances came to the knowledge of the insured.  That was the basis on which his Honour held that clause 3 and section 40(3) of the Insurance Contracts Act could not be invoked.  It is to avoid the consequences that the claim had been made out of time.

BRENNAN CJ:   That really makes this case one of the sufficiency of the language of the letters to particularise the acts or omissions in question.

MR KEANE:   Your Honour, our contentions which we advance, and on which we stand, is that it is not just the sufficiency of the letters, it is the particular point that the letters are sufficient because of the assertion in the letter that it should be treated as a claim.  Our contention is that the assertion by the third party cannot have that effect as between insured and insurer.

BRENNAN CJ:   What does it convey to the mind?  Surely it conveys to the mind that there has been negligence on the part of Junemill, which is going to be productive of loss.

MR KEANE:   Quite, your Honour.

BRENNAN CJ:   To the third party, and that negligence consists of negligence in the valuation of properties.

MR KEANE:   And, your Honour, in so far as there is going to be a claim for that loss, that is a claim which, in the case of claims made policies, where the underwriter has taken the risk only in respect of claims made during the period of the policy, it has to be a claim made in that period, not a claim foreshadowed in that period.  It has to be a claim being a demand for an existing loss in that period, not for a loss that might occur in the future, which will be outside the period.

BRENNAN CJ:   How does that square with the language of condition 3?

MR KEANE:   Your Honour, condition 3 affords a possibility for extending the cover, but not in respect of claims made, but in respect of occurrences that have occurred and have been notified.

BRENNAN CJ:   That is right, and then if a claim is subsequently made, it is deemed to have been made within the period.

MR KEANE:   That is so.

BRENNAN CJ:   Then why does not this case fall within that?

MR KEANE:   For the reasons given by his Honour Justice Dowsett, which we mentioned.

BRENNAN CJ:   Yes, which really means that this case turns on whether or not the language of the letters is sufficient to bring home the nature of the accounts in question.

MR KEANE:   And, if it be established as a matter of fact that knowledge of that occurrence came to the insured during the relevant period, as opposed to an earlier point in time,  that is to say, earlier than the policy.

BRENNAN CJ:   What has to be brought home to the knowledge of the insured is awareness of an occurrence, whenever occurring, which may subsequently give rise to a claim against it.

MR KEANE:   Quite, your Honour.  And that awareness of the occurrence ‑ ‑ ‑

BRENNAN CJ:   Is not your argument this, that whenever the occurrence occurred, no claim was contemporaneously being made, but in the future the claim might be made?

MR KEANE:   Yes, your Honour.

BRENNAN CJ:   Why does not that fit precisely within condition 3?

MR KEANE:   Your Honour, for the reason that it does not identify the occurrences and it does not establish that the awareness of that came to the insured during the term of the policy.  Its awareness of occurrences were never occurring, not awareness whenever obtained.

BRENNAN CJ:   But it is not a question of awareness of the occurrence, it is awareness of an occurrence which has a particular quality.

MR KEANE:   Quite, your Honour.

BRENNAN CJ:   Which may subsequently give rise to a claim, and that was something which did arise in the course of the currency of the policy.

MR KEANE:   Your Honour, that was a fact resolved against the respondent by Justice Dowsett on the footing that that had not been demonstrated as a matter of evidence.

BRENNAN CJ:   That depends entirely upon the language of the letters, does it not?

MR KEANE:   That is so.

BRENNAN CJ:   Well then, what is the special leave point?

MR KEANE:   Well, your Honour, there might be two.  The second might be the proper construction of section 40(3) in that event.  Your Honour, I am confronted with this red light, which has been on for some time.

BRENNAN CJ:   You have the benefit of me, I could not see it.

MR KEANE:   Your Honour, if I can conclude, I will do it briefly.  Our submission is that the material shows that this decision is a significant problem for the industry.  We have given your Honours reference to affidavit material which we referred to at pages 63 and 64 of our outline and it gives rise to a legal problem of considerable difficulty and importance in that the Court of Appeal’s decision creates from language which is explicitly not that of present demand of compensation for existing loss a claim which is only so because the third party has called it so.  Those are our submissions.

BRENNAN CJ:   Mr Dutney?

MR DUTNEY:   Thank you, your Honour.  Your Honour, in our submission, this is a case that turns solely on the construction of the two letters at page 60.  The first of those letters foreshadows a claim being made in the event that a loss has been suffered.  Some time later there is a second letter, which encloses the first letter and states, in effect, that we now want you to treat this as a claim.  The Court of Appeal differed as between the President and the other members as to whether condition 4 required there to be an existing loss.  But, in our submission, if one looks at the two letters in conjunction with each other, it does not really matter which view is taken of that, because if no existing loss is required, the first letter is sufficient; if an existing loss is required, then the second letter, in light of the first, the first foreshadowing a claim if there is loss, the second saying treat this as the claim.

The only inference, in our submission, which can realistically be drawn from that combination of correspondence is that drawn by Justice Fryberg at page 46, which was that there is an inference of an existing loss.  So then, in our submission - and that is at about line 10 on page 46 - and that seems to be the basis upon which he comes to that conclusion.  Now, so far as the case is concerned, in our submission, in light of those facts, it is not a case of any general application.  His Honour Justice Fryberg, who wrote the majority judgment at page 49,

purports to apply an existing body of law without dissenting from it, and simply concludes in the last two lines of page 49 that in the light of the authorities, which are not challenged, the two letters read in conjunction with each other constitute a claim.

So that, in our submission, this is not an appropriate case for special leave.  It is a case that turns on its own peculiar facts and the construction of the peculiar wording of the two letters.  But, in any event, in our submission, if one looks at the letters in the way that the Court of Appeal did, it is difficult to come to any other conclusion other than there has been, at the least, an intimation from the third party that the insured is being held responsible in whole or in part for the loss occasioned by the negligent valuations which fits squarely within the definition in the contract.  The alternative argument which is mounted is that in relation to condition 3, that even if that contention be wrong, it is difficult to avoid the conclusion, in our submission, that condition 3 would cover the notification, even if it falls short of an existing claim, that a claim will be made of that notification occurring within the duration of the policy.

In our submission, it is that notification on the 21 August which invokes condition 3, because that is the event which makes the insured aware that there may subsequently be a claim against it in relation to the valuation.  So it does not really matter, in our submission, that the particular valuations are not specifically identified in the correspondence, because the important fact of which the insured only becomes aware during the currency of the policy is that there might be a claim against it in respect of the valuations and, of course, the insured knows what valuations it has carried out for the third party.

So it is for those reasons, in our submission, that special leave should be refused.  This is not a case in which any principle of law is involved other than the application of existing principle.  It is a case that turns on its particular facts and the construction of the particular letters and, in our submission, there is little doubt that the decision of the Court of Appeal was correct.  That is all we wish to say on the application.

BRENNAN CJ:   Thank you, Mr Dutney.  Mr Solicitor?

MR KEANE:   Your Honours, as to the points my learned friend has just been making, can we refer the Court to page 12 of the record, in relation to the attempt to cast the claim put forward in the letters as an occurrence for the purpose of condition 3.  Your Honours will go to page 12 of the record and look at lines 20 to 25, and we submit, with respect, his Honour was correct in his view, that the fact that IOOF had written asserting that it may,

in some circumstances, sue the plaintiff was certainly an occurrence, but it was not an occurrence which might subsequently give rise to a claim.

HAYNE J:   Forgive me if I say it, Mr Solicitor, I cannot help but wonder what the argument might have been had there not been this exchange of correspondence at the time.  Insurers commonly look to insureds for early notification of these things.  They might well have been heard to argue that the correspondence was such as to amount to an occurrence.

MR KEANE:   Your Honour, an occurrence, in our respectful submission, is something which is a matter of fact.  It may causally give rise to a claim, not notification of a grievance.  The other thing we wish to say, for your Honours information and for my edification, I have been instructed that the Maryland Special Court of Appeals is an intermediate appellate court below the Maryland Court of Appeals, which is the ultimate court.

BRENNAN CJ:   The issue which the applicant seeks to raise on appeal can arise only on a particular construction of two letters written by the solicitors for the third party and on the language of clauses 3 and 4 of the particular policy.  The case is not a suitable vehicle for raising the issue which the applicant seeks to raise.  For that reason special leave will be refused.

MR DUTNEY:   I would ask for costs, your Honour.

MR KEANE:   Nothing to say, your Honour.

BRENNAN CJ:   With costs.

AT 10.29 AM THE MATTER WAS CONCLUDED