Galaxy Homes Pty Ltd as Trustee of the Galaxy Homes Unit Trust v The National Mutual Life Association of Australasia Ltd

[2013] HCATrans 327

[2013] HCATrans 327

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne       No A18 of 2013

B e t w e e n -

GALAXY HOMES PTY LTD AS TRUSTEE OF THE GALAXY HOMES UNIT TRUST

Applicant

and

THE NATIONAL MUTUAL LIFE ASSOCIATION OF AUSTRALASIA LTD

Respondent

Application for special leave to appeal

KIEFEL J
KEANE J

TRANSCRIPT OF PROCEEDINGS

FROM MELBOURNE BY VIDEO LINK TO ADELAIDE

ON FRIDAY, 13 DECEMBER 2013, AT 2.56 PM

Copyright in the High Court of Australia

MR S.J. DOYLE, SC:   If your Honours please, I appear with MR T.A. BESANKO for the applicant.  (instructed by Gilchrist Connell)

MR J.J. GLEESON, SC:   If your Honours please, I appear with MR D.J. CHRISTIE for the respondent.  (instructed by Fisher Jeffries)

KIEFEL J:   Yes, Mr Doyle.

MR DOYLE:   Your Honours, the applicant lost in the Full Court on two grounds, both of which involve issues of construction of the insurance policy and are the subject of the special leave questions that we identify in our summary of argument.  The first ground related to the construction of the insuring clause and in particular what was necessary to establish a prognosis or opinion that a person, here Mr Eden, would die within 12 months.

The second related to the construction of an exclusion clause, clause E.1, in relation to pre‑existing medical conditions.  But importantly, both of these construction issues involved reasoning by the Full Court to the effect that they rejected a submission that the principle of contra proferentem had any role to play in resolving the construction issue.  It is our contention that by relegating ‑ ‑ ‑

KIEFEL J:   Mr Doyle, the critical matter of construction for your case is the definition of “terminal illness”, is it not, because the exclusion clauses would only arise under a notice of contention?

MR DOYLE:   Not quite, your Honour.  We did lose on those alternative grounds.  At first instance, we lost only on the failure to make out the insuring clause, but on appeal we lost on the secondary ground that there was ‑ ‑ ‑

KIEFEL J:   Yes, but for the purpose of an application for special leave your focus is on the definition of “terminal illness”, is it not?

MR DOYLE:   My focus is on that but there are different matters that the respondent intends to raise by way of contention.  For us to ultimately succeed on the appeal ‑ ‑ ‑

KIEFEL J:   I see, yes.

MR DOYLE:   ‑ ‑ ‑ we would need to overcome the findings in relation to both of those matters and, hence, we do seek special leave in relation to both.  We say the effect of the Full Court’s reasoning in relation to both insuring clause and the exclusion clause is to relegate the principle of contra proferentem to a principle of last resort which we say is erroneous.  Rather, it is a principle that ought to be with the construer or of significance and inform the inquiry throughout the construction inquiry, as long as there is a level of threshold ambiguity.  The other respect ‑ ‑ ‑

KIEFEL J:   Well, that is the matter that you have to deal with because the way in which the Full Court appear to have approached it, they did not seem to have much doubt that the term “will” connotes a degree of certainty.

MR DOYLE:   That is so, and that is the other prong of our challenge to their reasoning, that their reasoning has the threshold of ambiguity, sets it at too high a level to give the contra proferentem principle any meaningful work to do.

KIEFEL J:   But there has to be some kind of ambiguity, does there not, otherwise the court would come close to rewriting the party’s bargain?

MR DOYLE:   Certainly there has to be and it has to be at the level of perhaps two available meanings or reasonably available meanings on the natural and ordinary interpretation of the words or the language used in some authorities is to the effect that there is ambiguity on the face of the policy or the document.  We accept that there is a threshold but we say that the threshold is not nearly as high as the Full Court’s approach to these two clauses suggest.

KIEFEL J:   So the special leave question about this matter of construction would concern degrees of ambiguity?

MR DOYLE:   Yes, or put in other terms, what is the threshold level of ambiguity that is required before the contra proferentem principle is invoked.  The other aspect of the ‑ ‑ ‑

KIEFEL J:   But that could not apply universally, you mean in this particular case?

MR DOYLE:   It has to be applied in obviously individual cases and it is difficult to articulate what the threshold level of ambiguity is but we say ‑ ‑ ‑

KIEFEL J:   There could be a reason for that.  There could be a reason for the difficulty to articulate it.

MR DOYLE:   There could be reasons, I understand the significance of that observation but, in my submission, this reasoning of the court combined with the reference to the rule as one of last resort and the level of ambiguity required here to engage the principle really does render it a principle which would be of little or no utility.  We say there is some support for the Full Court’s approach in some passages from the reasoning of Justice Kirby in the McCann decision and the Johnson decision referred to in the outlines.  But what we say is that it is difficult to reconcile that approach with the primacy that is afforded to the contra proferentem principle, particularly in the area of insurance policies and insurance policies ‑ ‑ ‑

KIEFEL J:   What do you mean by “primacy”?

MR DOYLE:   It being, if you like, an overarching or primary rule of construction rather than a principle of last resort.  We say that the Full Court’s interpretation of Justice Kirby’s articulation is to really put to one side contra proferentem until one has exhausted the work to be done of all of the other canons of construction, and only then if you are left with a level of ambiguity, and a high one at that, does one then resorts to contra proferentem.

We say, and it is not referred to in the outlines, but Justice Callinan’s reasoning in the Rich v CTU Insurance Case is an illustration of the opposite approach of front and centre, with you all the time as you construe the policy is the overarching factor that we have a principle of contra proferentem which ought to lean one towards a liberal construction of the policy in favour of the party other than the profferer of the document and that that ought to influence the weight that you attach to various other of the construction techniques on the way through. 

We say that is the approach that is dictated by earlier High Court cases such as the Maye decision and Federico decision and the CE Heath decision all referred to in both my summary of argument and reply.  There is reference, for example, in the text of Derrington that we have referred to of a trend towards that approach. 

Now, something has happened if this Full Court approach and application of Justice Kirby’s articulation of the test is correct.  There has been, if that be correct, by a process of osmosis a relegation of the importance of this principle.  We say, if that is the correct approach, then this Court should say so in clear terms because the traditional approach gives far greater prominence, we say, to contra proferentem principle. 

But the best way, in my submission, of demonstrating the force in our point is to turn to the two clauses.  If your Honours could turn first to the insuring clause which appears in the reasons of the Full Court at page 89 I think it is of the application book.  You will see the definition in paragraph 3 at page 89, and it is really just the first two lines.  It means:

Terminal illness means any illness which, in our opinion –

and the opinion is important –

will result –

are the key words –

in the death of the person insured within 12 months, regardless of any treatment –

Now, the Full Court held that the only natural and ordinary meaning of “will” in that context is to connote a level of certainty.  Now, interestingly, the Full Court implicitly accept that that literal construction could not be right because it would almost render nugatory the cover and so they temper the meaning and say, well, it must mean something approaching certainty or something near certain which in my submission ‑ ‑ ‑

KIEFEL J:   Well, their Honours did not do that in a vacuum.  Paragraph 48, it is clear that that degree of certainty is reached, having regard to the nature of the policy and the advanced life benefit for terminal illness.  I mean, in that context it is explicable that a degree of certainty might be required.

MR DOYLE:   Your Honour is right.  The key passages are paragraphs 48 through to 52.  In my submission, contra proferentem – I do not say there is any magic in the paragraph numbers but it ought to have been injected in the process in paragraph 48 with a recognition that there are available two alternative meanings ‑ ‑ ‑

KIEFEL J:   But how could it apply on the reasoning of the Full Court who had regard to the ordinary and natural meaning of the word “will” in a context of a particular type of policy which is a life policy which provides an additional benefit but in the context of a life policy?  It is not a disablement policy with an extension.  It is a life policy.

MR DOYLE:   I accept that, your Honour, and the point I was coming to is if contra proferentem is in the process from the start, when one gets to, for example, as I understand it, the matter your Honour is referring to is perhaps best expressed in paragraph 51, that this was an accelerated benefit or ‑ ‑ ‑

KIEFEL J:   Yes, quite so.

MR DOYLE:   ‑ ‑ ‑ an additional cover but, in my submission, if – we challenge that reasoning in absolute terms but certainly if one has contra proferentem in one’s kitbag at this point one is weighing particular matters differently, but even putting that to one side, our submission is its accelerated nature is neutral.  The significance of the point is that in the ordinary course a policy such as this would be rolled over rather than cancelled, that was a peculiarity of this case. 

So in the ordinary course the cover which has been sought to be accelerated here would be payable in any course.  In my submission, the natural inference then is why would an insurer, as a matter of objective intention, be particularly concerned about having to pay it in advance.  On the other hand, an insured, one might expect, who is confronted with a terminal diagnosis would be very keen to secure the benefit in advance. 

So, in my submission, in absolute terms that is a neutral factor but if one brings in the principle of contra proferentem which, in my submission, should have been engaged from the outset, then one would scrutinise very carefully the weight that the court was prepared to attached to the consideration identified in paragraph 51.  So we do not say that other tools of construction go out the window, we just say they are tempered or weighted differently when one is in the realm of words which are, we say, inherently ambiguous or at least capable of different meanings. 

The first step in the process, in our submission, should be the one in paragraph 48 that answered differently, namely, what does the word “will” ordinarily mean in the sentence in which it appears here - an opinion that something will happen.  Ordinarily, particularly when we are talking about a medical opinion, but often opinions are expressed in terms of “In your opinion will X happen tomorrow?” “In my opinion it will”.  Depending on the nature of the event, the most likely interpretation is that it is not an expression of certainty but if it is a binary outcome or a choice between two that you believe A is more likely than B. 

Now, we contend that that is the correct construction, even putting to one side contra proferentem, but to reject that as even reasonably available and not inject contra proferentem at this stage we say is an error.

KIEFEL J:   Except that on one view the words “in our opinion” do not detract from the words “will result”.  Rather they are put there in an attempt to render non‑reviewable in a sense the opinion of the insurer.  Now, that probably does not work but, relevantly, those words probably do not detract from “will result”.  They are talking about something else.

MR DOYLE:   In my submission, they do but I accept that there may be other reasons for…..but even if one strips the clause of the language of opinion, what is being called for is still inherently a medical prognosis and the point is almost as forceful even without the opinion if it is a medical prognosis.  When we are in that field, things are rarely if ever expressed in terms of certainty, particularly when we are talking about timeframes of 12 months as opposed to much longer timeframes.  So that is a relevant consideration, I accept that, but, in my submission, not one that will carry the day. 

Again, matters that have just passed between your Honour and me might take on a different complexion if we are in an area where contra proferentem is engaged in the exercise as opposed to construing a commercial contract between two parties of equal bargaining strength, or at least that is what the traditional view of contra proferentem would say.  One would lean towards the construction I am proffering, subject to words which almost require a less liberal construction.

The next matter the court brought into account appears at paragraph 49, again, in my submission, in error but at the very least overemphasised in light of contra proferentem.  There is reference to two decisions, McArthur and Tower, where there were terms which unambiguously addressed the degree of certainty.  The words were “likely” in one case and “highly likely” in the other case in similar clauses. 

Now, we say all those cases establish is that if you say something express and unambiguous about the degree of certainty of course effect will be given to the clear intention.  But that just begs the question here as to whether or not there has been an indication of an intention to effect the degree of certainty here rather than being a factor that assists determining the outcome.  In paragraph 50, the Full Court emphasised the words at the end of the first sentence of the insuring clause that the matter be approached:

“regardless of any treatment that might be undertaken”.

Again, in my submission, at best a neutral factor.  But the work that those words have to do is simply to preclude a finding that you will satisfy the definition by reason of a decision not to undertake treatment.  It says you need to, regardless of whether you intend to undertake treatment, the prognosis or opinion has to have regard to the treatment although, in my submission, it says nothing about the degree of certainty.

The final point in relation to the insuring clause is in what, in my submission, ought to have been a warning sign that something was going wrong with the construction process when the last sentence in paragraph 50 refers to the position being that:

even a theoretical recovery from the most expensive and rare treatment is to be taken into account.

Then in paragraph 52, the court has expressed recognition that the approach they take involves construing the word “will” strictly - in my submission, the antithesis of the traditional approach of contra proferentem.

KIEFEL J:   I think your time is up, Mr Doyle.  That is correct, is it not?  There is another two and a half minutes I am told, I am sorry to have cut you short.

MR DOYLE:   Thank you, your Honour.  I will try to stick to that timeframe.  Your Honour, a similar issue arrives in relation to the pre‑existing medical condition.  The issue there is the level of abstraction or specificity of which the identity between the condition complained of and the condition that is pre‑existing needs to be established.  We say there is, as a matter of substance, a real difference between a metastatic disease, on the one hand, and a localised tumour, on the other hand.  Even though with the benefit of hindsight one led to the other that does not mean that for all purposes they are the same condition.

Again, if you approach the construction with contra proferentem in mind, by reason of that ambiguity I have identified, then there is no reason to depart from the construction that we have proffered.  It does not result in an unworkable or uncommercial construction. 

The other matter that we need to overcome is section 47 of the Insurance Contracts Act and we say in having regard to the remedial nature of that provision that the court erred in confining the work to be done by subsection (2) to conditions that were – sorry, ought to have confined it to conditions that one was aware of at the time of entry into the policy that one was suffering from, that it ought not to extend - permit the exclusion of cover in respect of historical matters. 

We say to hold otherwise would be to upset or potentially upset the balance that has been achieved in the codified regime in Part IV of the Act in relation to non‑disclosure and to potentially allow through matters of form a different outcome to be reached in relation to matters that were not fraudulently withheld and were not causative of the insurance cover being granted.

KIEFEL J:   We need not trouble the respondent in this matter.

The central question in this matter concerns the definition of “terminal illness” in a life policy which included a terminal illness benefit.  The definition requires that the insurer hold the opinion that the illness “will result” in the death of the insured person.  The Full Court of the Supreme Court of South Australia held that the clause requires a high level of certainty and that the evidence accepted by the trial judge did not satisfy this requirement.  The construction favoured by the Full Court did not admit of the application of the contra proferentem rule.  An appeal from the decision of the Full Court on this question would not enjoy sufficient prospects of success to warrant the grant of special leave. 

It is not necessary in these circumstances to address the other issues which would arise only on the insurer’s notice of contention.

Special leave is refused.

Is there any order for costs sought?  No.

MR GLEESON:   Yes, your Honour.

KIEFEL J:   Can you resist an order for costs?

MR DOYLE:   No, your Honour.

KIEFEL J:   Special leave is refused with costs.

The Court adjourns to 3.30 pm on Monday, 3 February 2014 in Canberra.

AT 3.18 PM THE MATTER WAS CONCLUDED