Ferrcom Pty Limited v Commercial Union Assurance Co of Australia Limited

[1991] HCATrans 218

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S36 of 1991

B e t w e e n -

FERRCOM PTY LIMITED

Applicant

and

COMMERCIAL UNION ASSURANCE CO

OF AUSTRALIA LIMITED

Respondent

Application for special leave

to appeal

BRENNAN J
DAWSON J

GAUDRON J

Ferrcom 1 9/8/91

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 9 AUGUST 1991, AT 12.24 PM

Copyright in the High Court of Australia

MR c.s.c. SHELLER: In this matter, if the Court pleases, I

appear with my learned friend, MR D.J. HIGGS, for

the applicant. (instructed by Lamrocks)

MR A.R. EMMETT, QC:  May it please Your Honours, I appear

with my friend, MR K.E. LINDGREN, for the

respondent. (instructed by A.R. Connolly & Co)

BRENNAN J:	Mr Sheller.
MR SHELLER:	Your Honours, this is an application for leave

to appeal from a decision of the Court of Appeal

which was a majority decision of the President and

Mr Justice Handley.	Mr Justice Priestley
dissented.	May I hand up to Your Honours an

outline of our submissions?

BRENNAN J: Yes, Mr Sheller?

MR SHELLER:  May I also hand up to Your Honours a print of the Insurance Contracts Act. The relevant section,

section 54, is found, Your Honours, at page 26.	As
Your Honours would observe from the written
outline, if I could invite Your Honours to go to
the application book at page 151, the ground of
appeal that we would seek to agitate is that:

In determining the amount that fairly represented the extent to which the respondent

insurer's interests were prejudiced as

provided in s.54(1) of the Insurance Contracts

Act 1984, as a result of the appellant's act of non-disclosure the Court erred in applying a subjective rather than an objective test.

GAUDRON J:  Is that the only one you would rely on?

MR SHELLER: That is the only point, Your Honours, we would

seek to agitate.

GAUDRON J: Because it seems to be, from glancing through

your submissions, that what was really being put

was that the particular broker was an entirely

irrelevant consideration.

MR SHELLER: That is one thing that we would say,

Your Honour, as a - - -

GAUDRON J:  You say that simply follows from - well, it does

not follow if you simply say, "erred in applying a

subjective test".

MR SHELLER:  Your Honours, what we say is that one should

not approach the problem by setting a choice of a

subjective or an objective test. One should

approach the problem by determining what is meant

by "fairly represents" and we say that within that

Ferrcom 2 9/8/91

expression what the trial judge, Mr Justice Giles,
took account of was within the ambit of what the

subsection allowed him to take account of in making

that assessment. And if I can seek to develop

that, Your Honour, and the reasons why we say that

the main thing is that it is not a subjective test

in the sense that one is confined to looking to

what this particular insurer would have done taking

into account the particular broker that the insured

employed, but can I seek to develop that,

Your Honours?

BRENNAN J: It may be that those terms are a little

confusing, if not misleading.

MR SHELLER:  The terms "subjective" and "objective"?

BRENNAN J: Yes.

MR SHELLER:  Yes. We would submit that it is really like a

sort of Procrustean bed of saying, "Well, the test

is subjective. Now, what can be fitted into that

test?", and we submit that, with all respect, the

Court of Appeal tended to ignore what

Mr Justice Giles, in effect, was doing which was

not to apply a test but simply to say that in

determining what amount fairly represented the

extent of the insurer's prejudice, he was entitled

to take into account the fact that the insurer

offered this particular insurance at a particular

price. If this had happened it was the right

broker and we say he was entitled to take that into

account and that, accordingly, the appeal should

not have been allowed.

BRENNAN J:  What is the best finding of fact in your favour

in that respect by Mr Justice Giles?

MR SHELLER:  Your Honour, we have set out the facts in

paragraph 4. Could I ask Your Honours to go to

paragraph (d) which is on page 3, and in the

application book the references are firstly at

page 47 in his judgment. Your Honours read down in
paragraph (d) that the insurer led evidence that if

the insured had informed it on or shortly after

21 May that the crane had become registered it

would not have allowed it to remain covered under

the policy but would have offered to cover it under

a commercial motor vehicle policy with an

endorsement excluding damage cause by overturning

arising out of its operation as a crane. That

appears at page 46, line 25.

We then go on to say, however, its

underwriter - - -

Ferrcom	9/8/91
BRENNAN J: Just pausing there for a moment. If the

evidence stopped there it would be a nil award, is

that correct?

MR SHELLER:  Your Honour, if one takes a subjective test,

certainly, and probably, Your Honour, even on what

we would describe as "the fair representation test"

but what matters here and what mattered to

Mr Justice Giles is that there was evidence which

we set out here that the underwriter acknowledged

that the insurer might have agreed not to insist

upon the endorsement in consideration of an

additional premium and possibly an increased excess

and, Your Honours, one finds that on page 47

starting at line 14. Perhaps I should read a bit

above that.

DAWSON J: Just before you do, you might be able to explain

to me something that puzzles me, Mr Sheller. The

overturning of the crane or the possible

overturning of the crane has nothing whatsoever to

do with its being registered.

MR SHELLER:  No.

DAWSON J: Whilst performing that function or the function

which it is likely to overturn, it is not really

being used as~ registered vehicle, and apparently

the insurance company simply put it into a

different category as a registered vehicle and that

is why they say they would have put this

endorsement on it. But in terms of increased

risk - and this lurks behind what you are saying -

there was absolutely no increased risk, for present
purposes, in its being a registered vehicle or not

being a registered vehicle. That is right, is it

not?

MR SHELLER:  Precisely, yes. The whole thing turns upon

what is accepted as a material variation in that it
was registered and the failure to notify the

insurer of that material variation with the

consequence under the policy that the insurer was

able to avoid liability. Now, we say -

DAWSON J:  And that, in a sense, is fortuitous.

MR SHELLER: Yes, entirely.

DAWSON J: Has nothing to do with risk, yes.

MR SHELLER:  But it is that that picks up the operation of

section 54. But, in any event, if I just - - -

DAWSON J:  I am sorry, I interrupted you. You were going to

page 47, Mr Sheller.

Ferrcom 9/8/91

MR SHELLER:  Yes. But if one goes to page 47, it really

starts at line 3, the passage:

Mr Hughes -

that was the underwriter that was called by the

insurer -

acknowledged that it would have been possible

for CU to have agreed not to insist upon the

endorsement in consideration of an additional

premium and possibly an increased excess, and

said that in determining whether or not to do

so he would have taken into account the

insurance which CU had for the insured, the

insured's past claims experience, "and most

important the support and amount of insurance

business placed with Commercial Union by the

particular broker". He said that the record

of Club Insurance Brokers Pty Ltd and Inbush - who were my client's brokers -

was such that he would not have agreed to

provide cover without the endorsement so long

as they were the brokers involved, no matter

what premium adjustment might have been

possible and no matter what level of excess

might have been arrived at. If, however, the

broker involved were Hemms Cassell &

Associates Pty Ltd (which broker placed

Ferrcom's motor vehicle insurance with CU as

from 4 July 1988) he said that he would

reluctantly have agreed to provide cover

without the endorsement upon payment of an

additional premium and stipulation for a

higher excess.

And then he describes what the premium adjustment
would have been.

Now, Your Honours, he said that that evidence

was unimpaired and at the top of page 48:

It was not specified how CU would have gone

off risk in relation to the crane, but

presumably it would have involved general

condition 3(a)(2) of the policy whereby it

could cancel the policy on thirty days'

notice.

And the section of the Act would have permitted

this.

Then His Honour came to deal with the fair

representation:

Ferrcom 9/8/91

In assessing the fair representation of the extent to which CU's interests were

prejudiced it seems to me that it is proper,

if not necessary, to do more than simply

conclude that CU would have gone off risk by
cancelling the policy had the notification

been given to it. Regard must also be paid to

what Ferrcom would have done if told by CU,

upon notification having been given, that CU

would no longer cover the crane. There was no

direct evidence of this. However, I think I

can infer that Ferrcom would have asked CU for

the terms on which it would cover the crane,

and upon being told that it would provide

cover by way of the commercial motor vehicle

policy but with endorsement ME35A, would have

enquired as to the terms on which that

endorsement would be dispensed with. Cover

against loss or damage through overturning is

clearly a vital aspect of the cover required

for a crane, and I decline to conclude that

Ferrcom would have done nothing.

GAUDRON J:  Mr Sheller, could I interrupt you there? On the

argument that is embodied in your submissions, was

that inquiry necessary, that latter inquiry that

you have just read, by His Honour, as to what

Ferrcom would have done?

MR SHELLER:  Your Honour, we would not say that it was not

part of the inquiry that could and should have been

conducted in determining what amount fairly

represented the extent of the preference.

GAUDRON J: 

You see, I have some difficulty if you go to the

point of saying - of hypothesizing - what would
have happened in particular events. There are all
sorts of difficulties about assessing the

probabilities and proving one way or the other

which would suggest that one needs something which

is, really, much more like, "Well, it's a risk that

would have been accepted but on certain terms",

rather than hypothesizing what might have happened

and going into, I suppose, the probabilities of

hypothetical situations.

MR SHELLER: Well, Your Honour, His Honour refers to that

but what we would respectfully submit he regarded

as decisive is the part that appears on page 49

when he says that he is left, as Your Honour

suggests one would be, in a state of uncertainty -

that is at line 8. Then he says:

It seems to me that attention must be

concentrated upon the prejudice to CU to which

s 54(1) refers. The purpose of the test

stated its terms of prejudice is to arrive at

Ferrcom 6 9/8/91

a figure for the damages suffered by CU by

reason of the failure to notify the

registration of the crane. Where CU would

have been prepared, albeit unwillingly, to

provide cover without the endorsement had the

approach been made through a broker of good

standing in its eyes, I consider that I should

conclude that the prejudice to its interests

as a result of the failure of Ferrcom to

notify the registration of the crane was not

that it remained on risk in relation to damage

to the crane from overturning, but that it

remained on risk without having received the

additional premium or imposed the increased

excess of which Mr Hughes spoke.

DAWSON J:  It could even go further than that, could it not,

because when you talk about "fair", you are really

talking of what is fair, the increased risk. But the insurance company was under no increased risk here. The risk of overturning had been something

which had been insured against and for which a

premium had been paid.

MR SHELLER: That is right, Your Honour.

DAWSON J:  I mean, the fact it would, for internal reasons,

have done something which is not entirely

understandable, as far as I am concerned any way,
because it classified it as something else, really,

does not go to the question of fairness, does it?

MR SHELLER:	No, but, Your Honour, I would
DAWSON J:	It was asked to pay up when the risk, for which

the insured had insured, eventuated.

MR SHELLER: Yes, precisely. I mean, there was no greater

risk, but where we fell down with the majority of
the Court of Appeal was that it effectively said

that what His Honour had regarded as decisive here

was simply not available to be considered, that it was entirely a subjective test.

GAUDRON J: That seems to have been a new point of take-off

in the Court of Appeal, was it?

MR SHELLER:  Your Honour, it is the take-off which

apparently was seen as defeating what was held to

be the position by Mr Justice Giles. Your Honours,

there are various matters about this which we have

set out in our outline, that - - -

BRENNAN J:  We can trouble you, perhaps, after we have heard your opponent on that, Mr Sheller.

MR SHELLER: If Your Honours please. Yes, Mr Emmett?

Ferrcom	7	9/8/91
MR EMMETT:	May it please Your Honours.	On proper analysis

of what the Court of Appeal did, Your Honours,

there is no difference of approach between what

they were doing and what Mr Justice Giles was

doing. The common element in what all three, that

is the majority and Mr Justice Giles, were doing

was to determine by hypothesis what might have

happened in the given circumstances as they arose.

BRENNAN J: But was that the correct approach?

MR EMMETT:  In our submission, yes. Mr Justice Giles took

that view, the majority took that view. To depart

from it at this stage really does involve a

problem. Now, Your Honour Justice Gaudron was

correct in saying that the question of a dichotomy
between subjective and objective was a new point in

the Court of Appeal. That is certainly not the way

in which it was addressed by Mr Justice Giles. It

is by no means clear how that got introduced into

the question but, as we understand it, it was a

submission made by the present appellant. But, in

a sense, it is an irrelevance because when one

looks at what the majority did, they were doing

just what Mr Justice Giles did but they came to a

different conclusion on the facts. To say that

Mr Justice Giles was wrong in the approach really is a totally new proposition. That was never put,

it appears from the judgments any way of the Court

of Appeal -

GAUDRON J:  I am not too sure that that is what is put

against you, Mr Emmett. Certainly, that is one way

of reading what Mr Justice Giles did but another

way of reading it is to say, "Look, I'm not really

concerned with what would have happened at all. I

have to look at what is the real prejudice."	I am
looking at page 49.

MR EMMETT:	But one has to read that in the context of what he has already said at page 48, which my learned
friend has read, at line 7:  In assessing the fair

representation ..... it is proper, if not

necessary, to do more than simply conclude

that CU would have gone off risk ..... Regard

must also be paid to what Ferrcom would have

done -

he is stating quite positively, without any

equivocation, that is a proper consideration and it

may well be a necessary consideration.

DAWSON J:  I may be very simplistic and wrong, Mr Emmett,

but - - -

Ferrcom	9/8/91
MR EMMETT:	I am sure not, Your Honour.
DAWSON J:	Why, if you have paid your premium to be insured

against a certain risk and that risk eventuates and

you claim against the insurance company, has the

insurance company suffered any prejudice?

MR EMMETT:  Your Honour, that is a different matter

altogether. There was no change - we do not

suggest that the risk which eventuated was in any

way affected by - - -

DAWSON J: Well, let me put it quite plainly. This company

insured against the overturning of the crane and

paid a premium for that, did it not?

MR EMMETT:  It paid a premium for damage to the crane in any number of circumstances, not just for overturning.

DAWSON J: Yes, but one of which was the overturning.

MR EMMETT: It included that, yes.

DAWSON J: Yes, and it overturned.

MR EMMETT:	Yes.
DAWSON J:	And they said, "Well, no, we're not going to pay because of this, this and this", but where is the
prejudice to the company?  You pay a premium in
relation to a risk.
MR EMMETT:	But the prejudice - if it be the fact that this

company simply would not have insured that

crane - - -

DAWSON J: All that is in the realm of hypothesis, but - - -

MR EMMETT:	But that is the point, that is the very issue. Different conclusions were reached by the trial
judge and - - -

DAWSON J:  We are not talking about that. We are talking

about, here, what fairly represents the extent to

which the insurance interests were prejudiced. If

it insures against a risk and the risk eventuates,

well, there is no prejudice.

MR EMMETT:  Your Honour, the prejudice is that this

company - if it be the factual finding, and that is

what the court had to determine - would not have

insured this crane under the terms of that policy.

DAWSON J: That, perhaps, is not the question. It would

have insured this crane against that risk.

Ferrcom	9	9/8/91
MR EMMETT:	No.	That is the factual question on which there

was a difference between the trial judge and the

Court of Appeal. The Court of Appeal said, "On all

of the evidence, we conclude that this company wouldn't have insured that crane in all of the circumstances of this case."

DAWSON J: Perhaps I put it wrongly. It would have insured

this risk for that premium.

MR EMMETT:	Your Honour, it may have.
DAWSON J: No, no, it would have.	It did.
MR EMMETT:	No, no, it did not.

DAWSON J: Well, it did. Forget about this particular

crane. It would insure cranes for that premium, if

they were not registered. Let me put it another

way, it would insure against that particular risk

for that premium, and did.

MR EMMETT: This company would - no, no, but Your Honour is

ignoring the fact, the change of the registration,

and the trial judge - - -

DAWSON J: But I am talking about the risk, not the

registration. In a sense, that is extraneous.

MR EMMETT: Well, no, it is not because the trial judge

found - and it was not in issue in the Court of

Appeal - that the registration was a material

change.

DAWSON J: Well, let me put it this way: if this crane had

not ever been registered, the same crane, and had

been used in the way in which it was being used

when it overturned, the insurance company would

have had to pay up, would it not?

MR EMMETT:	Yes.
DAWSON J: Yes. Well, the fact that it was registered and

events took place and so on, under which the

insurance company might or might not have done

something does not really matter.	It got its
premium for the risk which it insured.	I see what
you are putting, of course.

MR EMMETT:  Your Honour, with respect, is addressing the

wrong question. There is no doubt that what was

done did not affect the risk which actually

eventuated, but that is not the inquiry which

section 54 requires. This insured failed to comply
with what section 54 converts into a contractual

obligation.

Ferrcom 10 9/8/91

DAWSON J: Except what the insurance company says it would

have done bore no relationship to any increase in

the risk at all.

MR EMMETT:  Not of this risk but of a different risk.

DAWSON J: No, no. Well, maybe, but not of this risk.

MR EMMETT: But, Your Honour, with respect, cannot dismiss

the fact that this company would not have

undertaken that different risk and that is what

section 54 is concerned with. It is not just

concerned with what the result was in relation to

the particular risk. That is certainly not what

Mr Justice Giles put or the basis upon which
Mr Justice Giles made his finding nor, indeed, was it Mr Justice Priestley. Your Honour's

proposition, with respect, is a new one.

DAWSON J: Yes, it is quite novel in the light of the

judgments, yes.

BRENNAN J: But the reality is that the loss which your

client suffered was the loss of the opportunity of

going off risk, was it not?

MR EMMETT:	Yes.
BRENNAN J:	And so it is a question of the value to your

client of that opportunity?

MR EMMETT:  Assessed on the basis of the evidence that was

available to the relevant tribunal.

BRENNAN J: Yes.

MR EMMETT:  And what we say is that when all of the evidence

is looked as, as the President and

Mr Justice Handley did, they find it was a near

certainty that this company would have gone off

risk in relation to that policy.	Now,
Mr Justice Giles came to a different view but only

on the question of how the facts were analysed, not

on the basis of some different approach or

different principle.

GAUDRON J: But it does depend whether the section is aimed

at making some adjustment for the loss of an

opportunity or of a loss of a chance, which is not

necessarily easily quantified, or whether it is

talking about something else which is - - -

MR EMMETT:  I did not want to interrupt, Your Honour. The

report tells us what it is directed to. It

effectively says: whereas, under the general law,

if somebody fails to satisfy a condition, then the

insurer is entitled to get off scot-free no matter

Ferrcom 11 9/8/91

how material or otherwise that condition was. So,

what they said the approach to adopt is this: you

treat that condition not as a pre-condition of

entitled to indemnity, you treat it as a promissory

obligation of the insured and you then inquire what

is the damage which the insured suffers as a

consequence of this deemed breach of a promise by

the insured? What is the damage that the insurer

suffers as a result of this deemed breach of
promise by the insured?

My learned friend's written submissions cites that passage from the report at page 7:

"Where the insured's conduct could not, in

principle, have caused or contributed to the

loss, the insurer should also be limited to a

right to damages. Those damages should be

assessed by reference to ordinary contractual

principles. That would, presumably, involve
an application of the principle of

proportionality."

So what you do is say, "Well, let it be assumed

that there was a promise by this insured that he

would notify the insurer if this machine was going

to be registered." Now, if, as a matter of fact,

the insurer would say, "Well, we just never
insure registered machines.", if that had been the
factual finding then, in our submission, the

insured could not succeed because his breach of

contract has resulted in there being a liability on

the part of the insurer which would not have been
there if he had complied with his obligation. It

has nothing to do with whether the risk that

occurred was the risk that he was required to

notify.

GAUDRON J: But you can view a statement, "We never insure a

particular machine" in two ways - a statement to

that effect.	You can view it either as a certainty
as to the facts that would happen or you could view	it in terms of saying, "Well, is there prejudice to
a reasonable insurer who never accepts a particular
sort of insurance in forcing him to keep that
insurance?", and you would sort of be inclined to
answer that, "Yes", would you not?

MR EMMETT:	But that involves - - -
GAUDRON J:	But you could look at that issue in two ways and

reach precisely the same answer.

MR EMMETT:	What we say is that Mr Justice Giles and the majority approached it in the same way, which is
the correct way.  You say, "What would have

Ferrcom 12 9/8/91

happened if this insured had done what he was

obliged to do?"

DAWSON J: But if what would have happened bears no

relationship to the real question - I mean, why was

it that the insurer decl~ned to insure registered

cranes against overturning when he would apparently

insure unregistered cranes against overturning?

MR EMMETT:  Because there were all sorts of different risks

involved and that was gone into - - -

DAWSON J: There is no different risk about

overturning - - -

MR EMMETT:  Oh yes there are, with respect, Your Honour.

That was a factual matter.

DAWSON J: Well, registration does not make any difference

to the overturning of a crane when it is being

used. It cannot.

MR EMMETT:	No, indeed.
DAWSON J:	And that was the risk.
MR EMMETT:	Yes, but·this was not just a policy against

overturning.

DAWSON J:  I mean, there would be additional risks to it

being used on the road and so on but that is not

what is in question here.

MR EMMETT: Well, it is, with respect, Your Honour. This is

not a policy against overturning. It is a policy

against damage from whatever cause, subject to some

limitations.

DAWSON J:  I could understand an increased premium in

relation to registered cranes because they would be

used on the road and there are increased risks on	the road but we are not concerned with this crane
being used on the road. Why did they decline to
register for overturning? There does not seem to
be any rational reason to me.

MR EMMETT: Well, that was examined and that evidence is not

all in the appeal book because it is just not

relevant, with respect.

DAWSON J: Well, can you tell me what is the increased risk

of overturning on the part of an unregistered crane

as opposed to a registered crane?

MR EMMETT:  Your Honour, we do not say there is an increased

risk of overturning.

Ferrcom 13 9/8/91

DAWSON J: Well, there cannot be, can there?

MR EMMETT: Well, I do not know. There may be, there may

not be, but that was not a relevant issue.

DAWSON J: Well, certainly the evidence does not disclose

any and it would not be obvious to me.

MR EMMETT:  I do not know whether the evidence did or did

not because it is not relevant, with the greatest

respect, to the question that is now raised by the

appellant.

DAWSON J: All I am saying is if that is a circumstance

which is mere quirk of the practices of the

insurance company, perhaps when you are looking at

what fairly represents the extent to which the

insurer's interests were prejudiced, you may come

to the conclusion that they were not, really.

MR EMMETT: Well, Your Honour, test it in this way: let it

be assumed, contrary to the fact, that the

insured's witness went into the witness box and was

asked this question, "If you had been told" - I

will go back one step. This evidence was given by

him: "I am told that I have an obligation to notify of registration.	I go to the insurer and
say, 'I have now registered this machine'.	The

insurer says to me, 'Well, in that case, we will

not insure it except with the endorsement excluding

overturning' and the evidence is the insured says,

'All right, I accept that insurance with that

endorsement.'"	Now, let me assume they were the
facts.	Now, it must be, if my learned friend's

proposition is right, that nevertheless - - -

DAWSON J: What I am putting to you here is that

registration makes no difference in relation to the

particular risk we are concerned with. Let me give

you an example.

MR EMMETT:  Your Honour, with respect, did not let me finish

that one, but any way.

DAWSON J: If a particular insured got an insurance policy

from the insurance company and did not disclose the

fact that he was red haired, and eventually it

transpired that the insurance company did not

insure red-headed people, it would make no

difference to the risk. When one is calculating

what fairly represents to the extent to which the

insurer's interests were prejudiced, one would say

it did not matter.

MR EMMETT:	But Your Honour is putting different words into section 54.	Your Honour is saying - - -
Ferrcom	14	9/8/91

DAWSON J: 

I thought I was reading them.

MR EMMETT: 

- - - what different risk would be incurred in

relation to the matter that is the subject of a
claim.

DAWSON J: 

I am saying where was the insurer prejudiced if

the event, the registration of the vehicle or

non-registration, has nothing to do with the risk

we are concerned with?

MR EMMETT:  If it be the fact that this insurer, when

notified, would have gone off risk.

DAWSON J: That is the same in the red-headed example.

MR EMMETT: Exactly.

DAWSON J:  If it had been notified that he was red headed he would have -

MR EMMETT: Exactly.

DAWSON J:  So that in that case you would say the insurer

would escape entirely on the basis that the insured

did not say that he was red headed?

MR EMMETT:  Yes, Your Honour. That is what section 54 - - -

DAWSON J: Well, I find it hard to believe that a section,

an ameliorative section like section 54, was

intended to have a result like that.

BRENNAN J:  I take it your proposition is that there was an

approach to this case taken in both the courts

below in which both courts set about evaluating the

lost chance of going off risk?

MR EMMETT:	The likelihood of that happening, yes.
BRENNAN J:	No, the value of it?
MR EMMETT:	Well, you look at the likelihood of it. I do

not think anybody assessed the value of that

chance. They looked at the likelihood of that

happening and concluded on the balance that that is

what would have happened.

BRENNAN J: And then went on to say, "And if it had

happened, then we look at what might have happened

thereafter"?

MR EMMETT:  Yes. That is what the section seems to require.

You have to look at what - and courts have to do

this all the time. They have to hypothesize as to

what might have happened if a contractual

obligation had been performed and you then work out

Ferrcom 15 9/8/91

whether the plaintiff is in a better position or
worse position as a consequence of the failure to

perform and you work out the damage. Now, that

does involve, to some extent, valuing the chance.

BRENNAN J:  The problem is, of course, that the intermediate

step is not that there is a repudiation for a

breach but a going off risk in exercise of

contractual rights.

MR EMMETT:  Yes.

BRENNAN J: Yet, in some way, one has to evaluate the damage

which flows from that which is the contractual risk

that would have resulted in no more than the

termination of the contract. I am not saying that

is for or against you, it just seems to me to be an

interesting problem, that is all.

MR EMMETT:  But it is resolved in this case simply according

to the facts. I see it is 1 o'clock, Your Honours.

BRENNAN J: Yes. Well, we will muse over those facts at

lunch-time.

MR EMMETT: Well, I would like to take you just to some

passages in the appeal book that indicate -

BRENNAN J: Yes. I understand your argument is not

complete. We will adjourn until 2 o'clock.

AT 1.02 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.00 PM:

BRENNAN J: Yes, Mr Emmett?
MR EMMETT:	May I endeavour to dispel the heresy which, with

respect to Your Honour Mr Justice Dawson, has

approached the matter.

DAWSON J: It might be heresy, yes. Are you going to tell

us how the other subsections of that particular

section work in with it?

MR EMMETT: Section 54?

DAWSON J: Yes.

MR EMMETT: Indeed. That was what I was about to endeavour

to do. The section is set out at page 41 of the

Ferrcom 16 9/8/91

application book which is where I am reading from. If Your Honours have the Act, hopefully, the words

are the same. Section 54 is, first of all, subject

to the section and it relevantly provides that:

where the effect of a contract of insurance

would ..... be that the insurer may refuse to

pay a claim ..... by reason of some act of the

insured -

now, it is common ground that that would have

applied, namely that because of the act of omitting

to notify about registration, the insured would

have been entitled to refuse to pay the claim. So,

the first requirement for section 54 to apply has

been satisfied. But then it says:

being an act that occurred after the contract

was entered into -

well, again, that is satisfied. The act was the

omission to notify of registration. But, very

significantly:

not being an act in respect of which

subsection (2) applies.

That directs one to subsection (2). It says:

where the act could reasonably be regarded as

being capable of causing or contributing to a
loss in respect of which insurance cover is
provided by the contract, the insurer may

refuse to pay the claim.

Now, section 54(1) is concerned with an act

which does not fall within subsection (2). With

respect, Your Honour Mr Justice Dawson was

referring to that sort of risk.

~

DAWSON J: Except I was referring rather to (3) than (2).
MR EMMETT:	But we do not even get to (3), in our

submission, because section 54 only applies -

54(1), and that is all the court at first instance
purported to apply. Section 54(1) only applies
with respect to an act that does not fall within
subsection (2). This act does not fall within
subsection (2). If the act falls within
subsection (2), well then, the insurer is entitled

to refuse to pay the claim under subsection (2)

subject, of course, to the question of

subsection (3) which is what Your Honour

Mr Justice Dawson was referring to. If the insured

can show that no part of the loss was, in fact,

caused by this act, then the insurer may not refuse

to pay the claim by reason only of that act.

Ferrcom	17	9/8/91
DAWSON J: Yes.

MR EMMETT:  But that, with respect, just has nothing to do

with subsection (1). The way in which one, in our

submission, is to approach section 54 is to look at

subsection (2) first. That is qualified by
subsection (3). If you do not get within

subsection (2), then you go back to subsection (1)

and you have this notion of assessing the damage.

Subsections (2) and (3) are concerned with avoiding the claim under the general law which, by

definition, this insurer would have been entitled

to do but for the operation of this section.

BRENNAN J:  Does subsection (1) arise if subsection (3) is

applicable, having regard to the introductory words

of subsection (l)?

MR EMMETT: Well, Your Honour, it has never been put

otherwise.

BRENNAN J: Otherwise than?

MR EMMETT:	This case has never been conducted otherwise than on the basis that subsection (1) is the only
relevant provision of section 54 that applies.

BRENNAN J: Yes. That raises some problems, perhaps.

MR EMMETT: Well, it would involve problems in granting

leave to consider that question.

BRENNAN J: Yes.

MR EMMETT:	I mean, that is just not an issue that any of the judges has expressed a view about at this
stage. The approach has been taken: this is just a section 54(1) claim or nothing at all so far as
this insured is concerned.  Now, we would, with
respect, say that is the correct approach, for the reasons I just outlined, that you start with
subsection (2); you qualify it with subsection (3).
If, however, you do not get within subsection (2)
then the insured has another go at it, namely, he
can still have the cover - I am sorry. Assuming
subsection (2) applies then, of course, that is the end of the matter. If subsection (2) does apply,
the insured is given a second chance. He can then
go back to subsection (1). But our primary
submission here is that this really is not the
issue. It is not the issue, as we understood it,
that my learned friend opened to Your Honours,
either orally or in his written document, and it
does not appear in any of the judgments below, so - - -

Ferrcom 18 9/8/91

DAWSON J: It is true, but there is some difficulty about

interpreting a section of the Act with your hands

tied, is there not, as it were?

MR EMMETT:	I beg Your Honour's pardon?
DAWSON J:	I mean, if one sees the problem as going beyond

the objective/subjective argument, there is some

difficulty, is there not, in attempting to

circumscribe by the grounds of appeal the way in

which one can look at the subsections?

MR EMMETT:  But it is a question of whether or not this is

an issue that has fairly been raised in these

proceedings and it just is not an issue that has

ever been raised before to suggest that

subsection (3) has any application. I do not, at

the moment, know whether that might have called,

possibly, for further evidence below. It may, it

may not, I just do not know at the moment, if what

is now being put is that subsection (3) is the

determinative provision in relation to this claim.

BRENNAN J: Well, your proposition is that this was fought

on a particular basis which involved the

ascertainment of the hypothetical situation and
that the only departure between the primary judge
and the Full Court, or the Court of Appeal was as

to the quantification of that hypothetical

situation?

MR EMMETT:  Yes. They each addressed the question of what

would have happened in circumstances that were not

fact and they came to a different conclusion but

simply because of different weight being given to

different considerations, and it was that that I

wanted to take Your Honours to to endeavour to

persuade Your Honours that that really was, when

you look at what all three of the relevant judges

did, and even Mr Justice Priestley did, that was

what they were doing. They all came to different

conclusions on these facts but they were all

addressing the same question.

GAUDRON J:  Mr Justice Giles, though, at the bottom of

page 49 seems to have either limited the question

or extended the question - perhaps limited, I

think, because he says:

Any other conclusion would mean that the

extent of the prejudice to CU turned upon how

persistent Ferrcom would have been ..•.. and

whether or not it happened to employ the

appropriate broker.

Ferrcom 19 9/8/91

He seems to, in that sentence at least, suggest

that they may be extraneous considerations.	Then
he goes on to say, "The burden", of course.

MR EMMETT:  Yes. But, with respect to Your Honour, one must

go back to the context in which he was putting that

and that involves going back to page 48, and I

started to put this before, at about line 6:

it is proper, if not necessary, to do more

than simply conclude that CU would have gone

off risk ..... Regard must also be paid to what

Ferrcom would have done -

GAUDRON J: But then that seems to have been turned around.

MR EMMETT: It is by no means clear that that is what he is

doing because he says at the bottom of the page,

line 21:

I decline to conclude that Ferrcom would have

done nothing.

Perhaps, if I go back one step. At line 11 he

says:

Regard must also be paid to what Ferrcom would

have done -

then at line 13:

There was no direct evidence of this.

Line 21:

I decline to conclude that Ferrcom would have

done nothing.

So, he is making a judgment about the facts.

At that stage Ferrcom may have -

done one thing or another.

What is uncertain is whether or not the enquiries made by Ferrcom of CU would have -

led it to do this or do something else. And that

is what he is saying at the bottom of page 48 and

the top of page 49. It is in the context of his

uncertainty as to how to determine that

hypothetical set of circumstances then leads him to

try to adopt another approach.

GAUDRON J:  It is precisely because of the vagaries of those hypothetical considerations that it might be

Ferrcom 20 9/8/91

suggested that another approach is the correct

approach, is it not?

MR EMMETT:  With respect, that is not really what he is

doing. He is endeavouring to work out what he says

is the correct thing to do, namely, what is our

best estimate of what would have happened in the

circumstances.

BRENNAN J:  Mr Emmett, you wanted to take us to some

passages to demonstrate what you are saying. It

might be desirable if you were to do that.

MR EMMETT:  I have taken Your Honours to the passages at

pages 48 and 49. At page 49, as Your Honours point

out, at the bottom of the page, he is saying, "Any

other conclusion", but one has to consider what the

conclusion is. At line 17:

I consider that I should conclude that the

prejudice to its interests as a result of the

failure of Ferrcom ..... was not that it

remained on risk ..... but that it remained on

risk without having received the additional

premium.

Now, that was said in the context of what he again

says at line 11:

The purpose of the -

section 54(1) -

test ..... is to arrive at a figure for the

damages suffered by CU by reason of the

failure to notify ..... Where CU would have been

prepared, albeit unwillingly, to provide

cover •...• ! consider that I should conclude -

one thing. And he then says, simply by way of

explanation as to why he has come to that

conclusion on the facts: 

Any other conclusion would mean that the

extent of the prejudice to CU turned upon how

persistent Ferrcom would have been in its

enquiries of CU and whether or not it happened

to employ the appropriate broker, and not for

any reason connected with the nature of the

risk -

but what he is saying, in our submission, is: "That

is the reason why I have formed this conclusion

about the hypothesis rather some different

conclusion." He has already stated, "I do not

see why I should conclude that Ferrcom would have

done nothing and because of the difficulty of

Ferrcom 21 9/8/91

postulating what Ferrcom might have done in the particular circumstances, I conclude in the way

that I do" but, again, simply on the hypothesis

that he stated at page 48.

Now, that is the same approach which the three

members of the Court of Appeal adopted.	One of
them came to the same conclusion as

Mr Justice Giles; two of them came to a different

conclusion on the facts.

If Your Honours goes to page 76,

Mr Justice Kirby is saying, at line 15:

Because I have concluded that the fair

representation of the insurer's prejudice must

be judged upon the basis of an hypothesis that

the insured had informed the insurer of the

relevant material fact, it is necessary, in my

approach, to determine what would then

probably have occurred.

Now, that, with respect, is exactly what

Mr Justice Giles was saying he should try to do.

Mr Justice Kirby then goes on to consider the

evidence and concludes, ultimately, that it is

almost a certainty that when you look at all of the evidence including the conduct of the insured after

the event, it is almost a certainty that had there
been a notification of registration by this
insured, this insurer would have gone off risk.

That is the question which Mr Justice Giles was posing but came to a different conclusion.

Now, the important fact which Mr Justice Giles

does not deal with in his judgment and which two of

the judges in appeal found persuasive was the fact

that after the event - and this, perhaps, is best

summarized in Mr Justice Kirby's judgment at the

bottom of page 80, at line 20:

A good indication of what it is likely that

the insured would have done, when in the hands
of Inbush -

that was the name of the broker -

can be gleaned from what actually did happen

ten months after the loss when its new

brokers, Hemms Cassell, sought comprehensive insurance in respect of the insured's crane. As the evidence shows, Hemms Cassell accepted

precisely the cover which Mr Hughes said would

have been offered to Inbush. They did so

without objecting to the subject exclusion. insurance. If the new brokers accepted the

Ferrcom 22 9/8/91

exclusion after an event had occurred which
alerted the insured (and those advising it) to

the peril of overturning, how much more likely

is it that the ordinary policy for a

registered crane would have been accepted from

the insurer had it been offered upon
notification of the fact of the crane's

registration? That regular policy, by

endorsement ME35A, excluded cover against the

risk of overturning. On the probabilities,

therefore, the event which occurred would have

fallen outside the insurer's cover. The

insurer would thus not have been liable to

indemnify the insured.

Now, Mr Justice Handley also attached

significance to that aspect. Mr Justice Priestley

was persuaded by different matters, but they all

decided the matter, with respect, on the facts

adopting an approach which they certainly did not

say was different from that which Mr Justice Giles

had adopted. The question of the dichotomy between

subjective and objective was something that was

introduced in the Court of Appeal but does not

seem, ultimately, to have resulted in any of the

judges taking a different approach. They did

decide to characterize what they were doing as a

subjective approach but, in our submission, when

one looks at those pages, 48 and 49, what

Mr Justice Giles says, in our submission, the

approach is the same and they simply came to a

different answer on the facts. If that is the

proper analysis, in our submission, it indicates

that this is not an appropriate case in respect of

which leave should be granted because it does not

throw up any principle as to the construction of

section 54.

It is clear enough from what the report to the

Law Reform Commission said, that the approach which

is to be adopted is, in effect, to see what damages

were suffered by the insured by the deemed breach
of the contractual obligation.	Now, that may

entail - although it is not the only question - the question that Your Honour Mr Justice Brennan put to

me, namely, an assessment of the chance, the value

of the chance, but that is just one of the aspects

that has to be taken into account.

Could I hand up to Your Honours a copy of some

extracts from the insurance contracts report of the

Law Reform Commission. I do not propose to take

Your Honours through the whole lot but I thought the whole of the context should be there.

Specifically, paragraph 228, which is the last page in the copy that I have handed to Your Honours, is

what we refer to and this is the principle which is

Ferrcom 23 9/8/91

recommended as being the appropriate principle to

be adopted for the purposes of section 54. About

half-way down the page Your Honours will see:

The Commission has concluded that the only satisfactory solution is a combination of two

tests. Where the conduct of the insured

might, in principle, have caused or

contributed to a loss, a causal connection

approach should be adopted. As between

termination and damages in these cases, there

may not be a great deal to choose. But

damages provide a more flexible remedy in

those rare cases where the insured's conduct

caused or contributed to only a part of the

loss. Given the insured's superior knowledge

concerning the circumstances of most losses,

he should bear the burden of proof. Where the
insured's conduct could not, in principle,

have caused or contributed to the loss -

and this is the point of Your Honour

Mr Justice Dawson -

the insurer should also be limited to a right to damages. Those damages should be assessed

by reference to ordinary contractual
principles. That would, presumably, involve

an application of the principle of

proportionality.

Whatever that means.

DAWSON J: Yes, I was going to ask what that does mean.

MR EMMETT:	The commission does refer earlier to the question of proportionality, and I will take
Your Honours to that in just a moment, but I will
just finish reading this passage:

The Commission recognizes that, in some cases,

that principle might be difficult to apply.

But it believes those difficulties are

justified by the need to strike a fair balance

between insurer and insured in the relatively few cases to which the principle would apply.

The actual test should be stated in terms of

prejudice to the insurer. Damages should be
measured by reference to the prejudice the

insurer has suffered as a consequence of the

insured's conduct. As in the case of

misrepresentation and non-disclosure, the

right to damages should be exerciseable only

by way of reduction of a claim. In some

cases, as where the insured warrants that the

driver of the insured vehicle is licensed, the

relevant conduct might be that of a person

Ferrcom 24 9/8/91

other than the insured. Consequently, these

recommendations, and those of the next two

paragraphs, should extend to any conduct that

is the subject of a term in the contract.

They should also extend to -

various other things.

Now, one finds some light thrown on this

concept of proportionality - - -

BRENNAN J: This problem arises, does it not, that is, the

application of these observations by the Law Reform

Commission to the construction of the statute.

That arises only once we get into the

subsections (2), (3) and (4) construction problems,

does it not?

MR EMMETT:  No, with respect. I am really only referring to

this to indicate that the approach adopted by

Mr Justice Giles at page 48 and the judgement in

the Court of Appeal is consistent simply with the

obvious approach of determining what are the

damages. You just look, in the same way as you

look at any breach of contract: what is the

consequence as between these two parties of the

failure to perform? Now, if that involves some

subjective element, so be it. It may involve some

objective element as well. But I am not relying on this material to endeavour to persuade Your Honours about a particular construction but just to

indicate that the approach which I am suggesting

Mr Justice Giles adopted is consistent only with

this view of the purpose of section 54.

Just to assuage Your Honour Mr Justice

Dawson's curiosity the questio.n of - - -

DAWSON J: Paragraph 226 speaks of proportionality.

MR EMMETT: There is one reference to proportionality there

but one also finds it - - -

DAWSON J: It says that:

The insurer would only be responsible for its

proportion of the total risk.

It seems to be that you look at the premium and see
the extent to which it would have been increased

and proportionally you reduce the liability in so

far as that premium was not charged to pay the full

amount of the loss.

MR EMMETT: Well, Your Honour, if that were the

proportionality principle to be applied, that

certainly was not applied by anybody below.

Ferrcom	25	9/8/91
DAWSON J:	No.	I do not speak with any confidence in this

area at all but that seems to be what that part is

saying, any way.

MR EMMETT:  It is referred to elsewhere. I had a wrong

reference, I think, Your Honours, to the earlier

passage.

BRENNAN J: Perhaps your junior could have a look for it

while you continue your argument.

MR EMMETT:  Yes, Your Honour. But, as we apprehend it, what

they are talking about with the principle of

proportionality is that it is the difference

between all and nothing and some intermediate

measure; in other words, the principle of

proportionality which you adopt is something that

they are considering but what they are saying is

section 54 is designed to overcome the common law

principle that if there is a failure to comply with

the condition, then the insurer gets off scot-free

and that is what section 54 is designed to overcome

and that is what they mean by "the principle of

proportionality". How you determine the proportion

is a matter ultimately, they decide, to be judged

by ordinary principles of damages for breach of

contract.

DAWSON J: Well, we will not go into it, but there are not

any ordinary principles. You could only do it by

reference to the proportion of the increased

premium which would be payable in respect of that

risk.

MR EMMETT:  That is not what section 54 requires you to do.

DAWSON J: That seems to be what they thought, but let us

not go into that.

MR EMMETT:  We should not go into that, no. With respect,

that question would not arise even on the appeal.

our submission is that that question just does not	If it were, then maybe we would have a problem but
arise on the appeal.

BRENNAN J: Whatever the interpretation of the Act may be

may be very much a matter for special leave to

appeal. As I understand your proposition it is,

whatever it is, this is the construction that was

adopted below in both courts and those being the

only issues for determination, these are the facts

of the case.

MR EMMETT:	Yes.
BRENNAN J:	Now, once you shift from there, it seems to me

you are in a special leave area.

Ferrcom 26 9/8/91

MR EMMETT:  No, but I, with respect, was not intending to

shift from there and I do not think I have. I do

not want to get into that other than to show - it

was really only the reference to damages for breach

of contract that I wanted to draw to Your Honours'

attention and that is what Mr Justice Giles was

doing, what would have happened had there been no

breach of contract, and that is something which the

courts do all the time and that is what he was
endeavouring to do on pages 48 and following; that

is what the Full Court - the Court of Appeal was

doing in the passages that I have referred to and

that is the approach upon which this case has been

decided hitherto and that does not involve, on

either view of the meaning of section 54, anything

other than consideration of particular facts. May

it please Your Honours.

BRENNAN J: Mr Sheller?

MR SHELLER:  If Your Honours please. Your Honours, we would

respectfully submit that it is a fallacy, with all respect, to suggest that the majority in the Court

of Appeal and Mr Justice Giles took the same

approach to this.

Your Honours, if I could ask you to go,

please, to page 73 of the appeal book. The first

question that the President posed was whether it

should be an objective or subjective approach and

he described that at about line 27 as:

A threshold question arises whether, in order to judge "the amount that fairly represents" the extent of prejudice to the insurer's

interests, it is necessary to decide what the

particular insurer, hypothetically, would have

done (relevantly) had it been notified of the

material fact (the subjective test) -

and then having stated the objective test, he said: For a number of reasons I believe that

the former is the correct approach.

BRENNAN J: What does the second or objective test mean

other than what the subjective test means?

MR SHELLER:  Your Honour, what we say is the second test,

whether one calls it "objective" or otherwise, is

precisely what Mr Justice Giles did, that is to

say, he considered what was the fair statutory

adjustment. Your Honours, that is abundantly

apparent, particular from the passage that

Your Honour Justice Gaudron pointed out at page 49,

what Mr Justice Giles was doing. He said that he

was in a state of uncertainty as to what in fact

Ferrcom 27

would have been done, but then he said, really,

three things. At about line 11:

The purpose of the test stated its terms of

prejudice is to arrive at a figure for the

damages suffered by CU by reason of the

failure to notify the registration of the

crane.

Then he says:

Where CU would have been prepared, albeit

unwillingly, to provide cover without the

endorsement had the approach been made through

a broker of good standing in its eyes -

Now, the finding was that the particular broker
here was not such a broker. So, what he is putting
forward here is not the insured's broker but a

broker of good standing in the insurer's eyes.

Then he says:

I consider that I should conclude that the

prejudice to its interests as a result of the

failure of Ferrcom to notify the registration

of the crane was not that it remained on risk

in relation to damage to the crane from

overturning, but that it remained on risk

without having received the additional premium

or imposed the increased excess -

that is to say, imposed or received from some other insurer who happened to have a broker acceptable or in good standing in the eyes of the insurer.

BRENNAN J:  Mr Sheller, as a matter of principle, as

distinct from the analysis of the facts that relates

to it, if one looks at what Mr Justice Giles said at

pages 48 and 49 and one discovers, for example, on
page 48, His Honour, having hypothesized what would

have happened if the notice had been given, goes on

in the first complete paragraph there to say:

Regard must also be paid to what Ferrcom would have done -

et cetera, and then turned to page 74 where the

President says at line 20:

The only way that such "prejudice" may be

assessed, in a case of non-disclosure, is to

hypothesize that the insured had disclosed the

relevant fact in a timely way and to consider

what probably would then have occurred.

Now, is the President doing anything different from

what Mr Justice Giles did at pages 48 and 49?

Ferrcom	28
MR SHELLER:	With respect, entirely, we would submit,

Your Honour, because there he is applying what he

has defined as his subjective test on page 73: the

particular insurer in respect of this particular

insured.

BRENNAN J: Did Mr Justice Giles do anything differently?

MR SHELLER:  We would respectfully submit that at page 49 he

did precisely the opposite, Your Honour, because

first of all he is considering the situation on the

basis of what would have happened if the broker had

been a broker of good standing in its eyes. Now,

Your Honour, the evidence was, and that was part that I think I read to Your Honours at page 47,

line 11, that these particular brokers who were

retained by the insured were not such brokers.

Apparently, the evidence was - if I could read it

to Your Honours again:

the record of Club Insurance Brokers Pty Ltd

and Inbush with CU was such that he would not

have agreed to provide cover without the

endorsement so long as they were the brokers

involved, no matter what premium adjustment

might have been possible and no matter what

level of excess -

Now, Your Honours, if I could just come back

to the third matter which Your Honour

Justice Gaudron pointed out at the bottom of

page 49 where he says:

Any other conclusion would mean that the

extent of the prejudice to CU turned upon how

persistent Ferrcom would have been in its

enquiries of CU and whether or not it happened

to employ the appropriate broker -

Now, he is there casting aside that as being

decisive or, indeed, significant and yet, according

to the test, the subjective test, that is not

merely significant, it is decisive of this case.

Now, Your Honours, we say a different approach

is taken and we further say that the subjective

test as defined by His Honour, the President, is

wrong, with respect.

GAUDRON J: Would it be wrong though if the answer were a

certainty?

MR SHELLER:  Yes, Your Honour, it would. Simply to say

there is a subjective test is, we respectfully

submit, always wrong and one can take that up by

reference to the quite different language that is

used in section 28(3), and this comes back to a

Ferrcom 29 9/8/91

matter that was raised by my friend, and then the

passage could not be found, but, Your Honours,

section 28(3) which is dealing with the limitation

of liability following upon misrepresentation or

non-disclosure - and this is at page 13 of the

print:

to the amount that would place him -

that is to say, the insurer

in a position in which

the insurer -

would have been if the failure had not

occurred or the misrepresentation had not been

made.

Now, that is the 28(3) test as contrasted with the section 54(1) test which introduces this expression

"fairly represents".

Your Honours, one asks then what did the - the references having been made to the Law Reform

Commission, one passage has been referred to by my

friend dealing with 54(1) and that is set out in

His Honour the President's judgment - and, indeed,

the Law Reform Commission report was part of the

basis for His Honour saying that the subjective

test was the appropriate test - now, Your Honours,

if I could hand up another print of the Law Reform

Commission report because it has the page that
deals with what is meant by "proportionality", and

Your Honour Justice Dawson, what Your Honour put to

my friend is exactly what the Law Reform Commission

says in paragraph 188 when it explains what is

meant by "proportionality".

DAWSON J:  I am glad I am sometimes right.

MR SHELLER:  Your Honour, can I just invite Your Honour to the bottom of that page:

An insurer would be entitled to recover such

damages as would compensate it for the loss it

had suffered as a consequence of the breach of

that notional term. Normally, those damages

would be the difference between the cost to

the insurer of bearing the risk it had agreed

to bear - that is, the cost of the risk if the

representation were true or the fact which was

not disclosed were false - and the cost to the

insurer of bearing the actual risk - that is,

the cost of bearing the risk given that the

representation was false -

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and so on.

This appears to be the rationale behind the

principle of proportionality -

and that is the very principle that is said to

apply to section 54(1). Now, we respectfully

submit that that ties in with the approach that was

taken by Justice Giles which takes account of

"fairly represents" as distinct from the Court of

Appeal which applied a different test and, we

submit, wrote "fairly" out of the section.

So, Your Honours, we submit that it is wrong,

with respect, to submit that the same approach was

taken and we submit that the test, the subjective

test that was adopted by the President and agreed

to by Mr Justice Handley, with all respect, is not

the correct test, that this is the only authority

on this section and it is a matter of great public

importance in this industry and, accordingly, we

would submit that it is a case for special leave.

BRENNAN J:  Now, the question of the grounds which you have:

at the moment your proposal is to have a ground

which reads simply, "The court erred in applying a

subjective rather than an objective test" and as we

have seen, the meaning of either of those terms is

far from distinct. I can understand that one

aspect of your ground would be that "The court

erred in applying a subjective test as defined in

the judgment of the learned President of the Court

of Appeal".

MR SHELLER: Yes, that is what I have in mind.

BRENNAN J:  Now, that is saying the negative. How would you

formulate the positive?

MR SHELLER:  Your Honour, we submit that the test is a test

which requires a decision as to what is the amount

which fairly represents. That is the language of

the section.

BRENNAN J: Quite.

MR SHELLER:  And that that embraces here exactly what

Mr Justice Giles did; in other words, that he was

entitled to take account of the material he did

take account of and to consider it as decisive

which is what he did do. He regarded the

availability of this other premium as being a

matter that was decisive and we respectfully submit

that he was correct in that.

Ferrcom 31

BRENNAN J: Well then, your additional ground is that there

was no error in the finding of the trial judge as

to the assessment of the loss.

MR SHELLER: Yes, Your Honour.

BRENNAN J:	Mr Sheller, you shall have your special leave but upon some terms. I take it that the first of
these terms would be satisfactory to you and that
is that your ground 2(a) would be amended so as to
read, in the last line following the word "subjective", inserting the words "test as defined in the judgment of the learned President of the
Court of Appeal".
MR SHELLER:	Yes, Your Honour.
BRENNAN J:	The second is much less stringent and that is

that you should have liberty to add to that ground

of appeal, as you may be advised, to formulate in

whatever way you propose the appropriate test which

should be applied.	Do you wish to have special
leave on those terms?

MR SHELLER:  Yes, Your Honour.

BRENNAN J: Very well, there will be special leave

accordingly. We are indebted to counsel for your

assistance in the case.

AT 2.42 PM THE MATTER WAS ADJOURNED SINE DIE

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