Gordian Runoff Ltd v Westport Insurance Corporation
[2010] NSWCA 57
•1 April 2010
NEW SOUTH WALES COURT OF APPEAL
CITATION:
Gordian Runoff Limited v Westport Insurance Corporation [2010] NSWCA 57
FILE NUMBER(S):
40129/2009
HEARING DATE(S):
4 & 5 November 2009
JUDGMENT DATE:
1 April 2010
PARTIES:
Gordian Runoff Limited (Appellant/Cross Respondent)
Westport Insurance Corporation (Respondent/Cross Appellant)
Assetinsure Pty Limited (Second Respondent/Second Cross Appellant)
Munich Reinsurance Company of Australasia Limited (Third Respondent/Third Cross Appellant)
XL Re Limited (Fourth Respondent/Fourth Cross Appellant)
The Copenhagen Reinsurance Company Limited (Fifth Respondent/Fifth Cross Respondent)
Scor Switzerland Limited (Sixth Respondent/Sixth Cross Appellant)
JUDGMENT OF:
Spigelman CJ Allsop P Macfarlan JA
LOWER COURT JURISDICTION:
Supreme Court
LOWER COURT FILE NUMBER(S):
50235/2008
LOWER COURT JUDICIAL OFFICER:
Einstein J
LOWER COURT DATE OF DECISION:
23 April 2009
COUNSEL:
I M Jackman SC, T M Faulkner (Appellant/Cross Respondent)
M Pembroke SC, T Mehigan (Respondents/Cross Appellants)
SOLICITORS:
Mallesons Stephen Jaques (Appellant/Cross Respondent)
Allens Arthur Robinson (Respondents/Cross Appellants)
CATCHWORDS:
ARBITRATION – practice and procedure – leave to appeal – whether application for leave to appeal and the appeal should have been heard concurrently
ARBITRATION – the award – appeal or judicial review – s 38 Commercial Arbitration Act 1984 (NSW) – meaning of the phrases “manifest error on the face of the award” and “strong evidence of an error of law”
ARBITRATION – the award –adequacy of arbitrators’ reasons – standard of reasons required by an arbitrator not equivalent to that of a judge
INSURANCE – the Insurance Act 1902 (NSW) s 18B – meaning and operation
LEGISLATION CITED:
Arbitration Act 1979 (Eng)
Arbitration Act 1996 (Eng)
Commercial Arbitration Act 1984 (NSW)
Consumer Credit Act 1981 (NSW)
Insurance Act 1902 (NSW)
Insurance Contracts Act 1984 (Cth)
Insurance Law Reform Act 1977 (NZ)
Life Insurance At 1995 (Cth)
Marine Insurance Act 1909 (Cth)
Supreme Court Act 1970 (NSW)
CATEGORY:
Principal judgment
CASES CITED:
Abignano Ltd v Electricity Commission of New South Wales (1987) 3 BCL 290
Antaios Compania Naviera SA v Salen Rederierna AB (The ‘Antaios’) [1985] AC 191
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Clutha Developments Pty Ltd v Barry (1989) 18 NSWLR 86
Container Terminals Australia Ltd v Huseyin [2008] NSWCA 320
Coulton v Holcombe [1986] HCA 33; 162 CLR 1
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East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400
Energy Brix Australia Corporation Pty Ltd v National Logistics Coordinators (Morwell) Pty Ltd [2002] VSCA 113; 5 VR 353
FAI General Insurance Co Ltd v Perry (1993) 30 NSWLR 89
FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (1999) 10 ANZ Insurance Cases 61-445, [2001] HCA 38; 204 CLR 641
Federal Commerce & Navigation Co v Tradax Export SA (The ‘Maratha Envoy’) [1978] AC 1
Gett v Tabet [2009] NSWCA 76; 254 ALR 504
Graham Evans & Co Pty Ltd v SPF Formwork Pty Ltd (1992)
Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706
H v Minister for Immigration and Multicultural Affairs [2000] FCA 1348
Hawk Shipping Ltd v Cron Navigation Ltd [2003] EWHC 1828 (Comm)
HIH Casualty & General Insurances Ltd (In Liq) v R J Wallace [2006] NSWSC 1150; 68 NSWLR 603
Hanseatisches Oberlandesgericht (Hamburg) 8 June 2001
Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206
Kolokythas v Federation Insurance Ltd [1980] 2 NSWLR 663
Kuru v State of New South Wales [2008] HCA 26; 236 CLR 1
Kuswardana v Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186
Mowby Pty Ltd v Moose Property Services Pty Limited [2007] VSC 111
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Natoli v Walker (1994) 217 ALR 201
Network Ten Pty Ltd v TCN Channel Nine Pty Ltd [2004] HCA 14; 218 CLR 273
New York Produce Exchange Charterparty in Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45
Newcastle City Council v GIO General Ltd [1997] HCA 53; 191 CLR 85
Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255; 18 VR 346
Pacific Steel Constructions Pty Ltd v Barahona [2009] NSWCA 406
Parisienne Basket Shoes Pty Ltd v Whyte [1938] HCA 7; 59 CLR 369
Petroships Pte Ltd v Petec Trading & Investment Corp of Vietnam (The ‘Petro Ranger’) [2001] 2 Lloyd’s Rep 348
Pioneer Shipping Ltd v BTP Tioxide Ltd (The ‘Nema’) (No 2) [1982] AC 724
Promenade Investments Pty Ltd v State of New South Wales (1991) 26 NSWLR 184
Promenade Investments Pty Ltd v State of New South Wales (1992) 26 NSWLR 203
Protech Projects Construction (Pty) Ltd v Al-Kharafi & Sons [2005] 2 Lloyd’s Rep 779
Qantas Airways Ltd v Joseland & Gilling (1986) 6 NSWLR 327
QBE Insurance (International) Ltd v Commercial Union Assurance Company of Australia Ltd (1987) 5 ANZ Insurance Cases 60-839
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Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Samick Lines Co Ltd v Owners of the Antonis P Lemos [1985] AC 711
Sasterawan v Morris [2008] NSWCA 70
Sea Containers Ltd v ICT Pty Limited [2006] NSWCA 327
Selvanayagam v University of the West Indies [1983] 1 WLR 585.
Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247
Torch Offshore LLC v Cable Shipping Inc [2004] 2 Lloyd’s Rep 446
Transcatalana de Commercio SA v Incobrasa Industrial Commercial Brazileira SA (The ‘Vera’) [1995] 1 Lloyd’s Rep 215
Universal Petroleum Co Ltd v Handels und Transport GmbH [1987] 1 Lloyd’s Rep 517
Universal Petroleum Co v Handels Und Transport GmbH [1987] 1 WLR 1178; [1987] 1 Lloyd’s Rep 517
University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481
Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1991) 7 BCL 122
Vitol SA v Norelf Ltd (The ‘Santa Clara’) [1996] AC 800
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TEXTS CITED:
A Redfern & M Hunter, Law and Practice of International Commercial Arbitration (4th Ed, 2004, Sweet & Maxwell)
A Walton & M Vitoria, Russell on the Law of Arbitration (20th Ed, 1982, Stevens & Sons Ltd)
A Tweedale & K Tweedale, Arbitration of Commercial Disputes: International and English Law and Practice (2005, Oxford University Press)
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E Gaillard & J Savage (Eds), Fouchard Gaillard Goldman on International Commercial Arbitration (1999, Kluwer Law International)
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UNCITRAL Arbitration Rules, Art 32(3)
UNCITRAL Model Law, Art 31(2)
Uniform Civil Procedure Rules Pt 50 r 50.11, Pt 47
DECISION:
1. Grant leave to appeal from the orders of the Equity Division made and entered on 23 April 2009 and order the appellant to file a notice of appeal within 7 days.
2. Allow the appeal.
3. Set aside the said orders of the Equity Division and in lieu thereof:
(a) Order that leave to appeal in respect of the award dated 10 October 2008 given by F Hoffmann, G E Fitzgerald and I Brown be refused.
(b) Order that the applicants pay the costs of the respondent of the application for leave and of all the matters argued concurrently in the Commercial List.
4. The respondents pay the appellant’s costs of the application for leave to appeal and of the appeal.
5. Cross appeal dismissed with costs.
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
40129/09
SPIGELMAN CJ
ALLSOP P
MACFARLAN JAThursday 1 April 2010
GORDIAN RUNOFF LIMITED v WESTPORT INSURANCE CORPORATION
Headnote
[This headnote is not part of the reasons.]
This was an application for leave to appeal and an appeal, heard concurrently, from orders made on 23 April 2009 by a Judge of the Commercial List under the Commercial Arbitration Act 1984 (NSW) (“the CA Act”), s 38, granting leave to appeal from an arbitration award, allowing the appeal, setting aside the award and dismissing the claim of the applicant to the arbitration, Gordian Runoff Limited (“Gordian”), being the applicant and appellant in the Court of Appeal.
The respondents were excess of loss reinsurers of Gordian’s professional indemnity and directors and officers (“D&O”) insurance portfolio for the 1999 year. A dispute arose between the reinsurers and Gordian as to whether the reinsurance contracts responded to certain claims made on Gordian under a D&O run-off policy issued to FAI Insurance Ltd and its former directors and officers. The dispute was referred to arbitration before a panel of experienced insurance arbitrators.
The arbitrators’ award dated 10 October 2008 was that after the effect of the Insurance Act 1902 (NSW), s 18B was taken into account, the reinsurance contracts applied to claims under the FAI policy made within three years of its inception. The arbitrators found s 18B applied and the reinsurers were obliged to pay claims in fact notified to Gordian under the policy within three years.
The reinsurers sought leave to appeal from the award to the Supreme Court on the grounds of manifest error on the face of the award (the CA Act s 38(5)(b)(i)) and strong evidence of error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law (the CA Act s 38(5)(b)(ii)). Over Gordian’s opposition, the primary judge heard the application for leave to appeal and the appeal concurrently.
The essential complaint of the reinsurers about the award, with which the primary judge agreed, concerned the interpretation and application by the arbitrators of the Insurance Act, s 18B. The primary judge held that the arbitrators had misunderstood s 18B to a degree that satisfied both s 38(5)(b)(i) and (ii) of the CA Act.
Gordian appealed to the Court of Appeal on the grounds that the primary judge had erred in hearing the application for leave to appeal and the appeal concurrently; and in finding that the arbitrators’ award demonstrated manifest error under s 38(5)(b)(i) and strong evidence of an error of law, the determination of which question of law may or may be likely to add substantially to the certainty of commercial law under s 38(5)(b)(ii).
The reinsurers submitted a notice of contention to the effect that three grounds not dealt with by the primary judge were sufficient to justify the orders made by the primary judge. These grounds were that the arbitrators had erred in concluding that the loss was not caused or contributed to by the events or circumstances; failing to provide reasons for the finding that the proviso to s 18B(1) was satisfied; and failing to provide reasons for the conclusion relating to the CA Act, s 22, that general justice and fairness would produce the same result. The reinsurers also cross-appealed in relation to the refusal of the primary judge to permit an issue to be raised about the applicability of s 18B to reinsurance when that point had not been taken before the arbitrators.
Gordian also submitted that there were “points of contention” by way of errors of the arbitrators that the primary judge should have decided favourably to them to maintain the award even if the reinsurers were correct about any of the errors about which they complained.
Held, allowing the appeal and dismissing the cross appeal, per Allsop P (Spigelman CJ and Macfarlan JA agreeing):
The context and legislative history of the CA Act, s 38 make it plain that ordinarily a leave application should precede an appeal. An application for leave to appeal and an appeal should only be heard concurrently in special, indeed exceptional, cases: [102]-[113].
A “manifest error” for the purposes of s 38(5)(b)(i) must be more than arguable; it must be evident or obvious. The primary judge erred in concluding that the arbitrators’ construction of s 18B was manifestly wrong: [116]-[118].
The assessment of whether there was “strong evidence of an error of law” under s 38(5)(b)(ii) required a strong prima facie case that the arbitrators were wrong on a question of law. The arbitrators adopted a broad construction of s 18B, supportable by the words of the legislation. The primary judge was wrong to conclude that there was strong evidence of an error of law: [119]-[174].
None of the three grounds not dealt with by the primary judge was a basis for giving leave to appeal: [175]-[232].
In particular, the assertion that the arbitrators had not provided reasons required by s 29(1)(c) was rejected. To the extent that it was argued that arbitrators had the same legal obligation to provide reasons as judges based on Oil Basins Ltd v BHP Billiton Ltd [2007] VSCA 255; 18 VR 346, such proposition was incorrect. No support can be found from international authorities on the UNCITRAL Model Law Art 31(2), the equivalent of s 29(1)(c), or the legislative history of the uniform CA Acts for the proposition that arbitrators must provide reasons to the standard equivalent to that of a judge. Oil Basins was clearly wrong in this respect and should not be followed: [199]-[222].
The place of “points of contention” raised by a respondent to an application for leave to appeal discussed within the scheme of s 38. In particular, the requirement on a respondent to bring its own application for leave discussed: [266]-[289].
The primary judge was correct not to permit the question whether s 18B applied to reinsurance to be raised. The point had not been taken before the arbitrators and even if they made an error which could satisfy s 38(5)(b)(i) or (ii), arguably it did not “arise out of the award” and given the way the parties had approached the matter before the arbitrators, as a matter of discretion the point should not be allowed to be raised: [233]-[243].
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
40129/09
SPIGELMAN CJ
ALLSOP P
MACFARLAN JAThursday 1 April 2010
GORDIAN RUNOFF LIMITED v WESTPORT INSURANCE CORPORATION
Judgment
SPIGELMAN CJ: I agree with Allsop P.
ALLSOP P:
Table of Contents
Introduction [4] My views in summary [17] Approach to the argument on appeal [19] The background to the dispute [21] The writing of the FAI D&O run-off policy [22] The writing of the 1999 reinsurance programme [30] The 10 xs 10 reinsurance layer [31] The lower layers of reinsurance [43] Claims arise [45] The dispute: the arbitration [58] The dispute: the application to the Commercial List [75] The primary judge’s procedural judgment [82] The primary judge’s principal judgment [84] The issues in the Court of Appeal [101] The procedural issue: should the primary judge have heard the leave issue before the argument on the appeal? [102]
The leave issue: should leave have been granted? [114] The relevant standards for review [114] Manifest error: s 38(5)(b)(i) [116] Strong evidence of an error of law: s 38(5)(b)(ii) [119] Was there strong evidence here that the arbitrators made an error of law in respect of the point dealt with by the primary judge: the construction of the Insurance Act, s 18B? [130]
The difficulties in construction of s 18B [152] Was there strong evidence of error? [161] The points not dealt with by the primary judge [175] Concluding that the loss was not caused by the events or circumstances [179]
Not concluding that it was unreasonable for the reinsurers to be found to indemnify [187]
The arbitrators’ conclusion in relation to the CA Act, s 22 [226] The refusal of the primary judge to permit reliance on the ground that s 18B did not cover reinsurance [233]
Residual matters for decision [244] The proper construction of s 18B [246] Was the loss caused by the relevant circumstance? [256] The proviso to s 18B: was it reasonable to apply s 18B? [261] The appropriate application of the CA Act, s 22 [263] Does s 18B cover reinsurance? [264] How to deal with “points of contention” in an appeal under the CA Act, s 38 [266]
The first “point of contention”: the finding that the FAI policy was outside Gordian’s established acceptance and underwriting policy [290]
The second and third “points of contention”: the asserted error of construction of the policy as a run-off as having a limit of three years on reporting periods in underlying policies [293]
The fourth “point of contention”: the asserted error in concluding that the two lower layers were similarly restricted as the 10 xs 10 layer in respect of the reporting periods of underlying policies [301]
Order [304]
Introduction
This is an application for leave to appeal and an appeal, heard concurrently, from orders made on 23 April 2009 by a Judge of the Commercial List (Einstein J) granting leave to appeal from an award of three arbitrators, allowing the appeal, setting aside the award and dismissing the claim of the applicant to the arbitration, being the applicant and appellant in this Court, Gordian Runoff Limited (“Gordian”). The orders were made under the Commercial Arbitration Act 1984 (NSW) (the “CA Act”), s 38. Leave to appeal in this Court was not opposed. That was an appropriate concession given the issues involved. Leave should be granted. For the reasons that follow the appeal should be allowed, the orders made by the primary judge set aside and leave to appeal in respect of the award refused with costs.
The respondents to the arbitration and in this Court were and are excess of loss reinsurers of Gordian’s professional indemnity (“PI”) and directors and officers (“D&O”) insurance portfolio for the 1999 year. Gordian put in place an excess of loss reinsurance programme of three layers: $10m in excess of $10m, $5m in excess of $5m and $3m in excess of $2m (to which I will refer as the 10 xs 10, 5 xs 5 and 3 xs 2 layers, respectively).
The participants in the three layers were the following:
10 xs 10: Westport Insurance Corporation (“Westport”) 40%
Assetinsure Pty Limited (“Assetinsure”) 30%
Munich Reinsurance Company of Australasia
Limited (“Munich Re”) 15%
XL Re Limited (“XL Re”) 15%5 xs 5: Westport 40%
Assetinsure 30%
The Copenhagen Reinsurance Company Limited
(“Copenhagen Re”) 20%
Scor Switzerland Limited (“Scor”) 10%
3 xs 2: Westport 40%
Assetinsure 30%
Copenhagen Re 20%
Scor 10%
A dispute arose between the reinsurers and Gordian as to whether the reinsurance contracts responded to certain claims made on Gordian under a D&O run-off policy issued to FAI Insurance Ltd (“FAI”) and its former directors and officers.
The dispute was referred to arbitration and heard by a panel of three arbitrators: Messrs F Hoffmann, G E Fitzgerald and I Brown. It was not contentious that the arbitrators, as a group, had deep and longstanding expertise and skill in insurance markets, including the reinsurance market, and in law, including insurance law and statutory interpretation.
The award of the arbitrators dated 10 October 2008 was that after the effect of the Insurance Act 1902 (NSW), s 18B was taken into account, the reinsurance contracts applied to all claims under the FAI policy made within three years of its inception, but to no other claims (that is no other later made claims), subject otherwise to the terms and conditions of the reinsurance contracts.
The dispute focussed upon the fact that the FAI D&O run-off policy provided cover in relation to claims made on, and notified to, Gordian within seven years of inception of the policy. It was asserted by the reinsurers that their reinsurance contracts did not respond to claims made under the FAI policy, because their contracts provided for reinsurance only in respect of underlying policies providing cover in relation to claims made on, and notified to, Gordian within three years of inception of the underlying policy. In the language of the controversy, the reinsurers said that the relevant policies only responded to claims made under original policies of up to three years or with reporting periods of up to (but no more than) three years.
Gordian asserted that there was no such three year temporal limitation in the reinsurance contracts. Alternatively, it submitted that if there were, the effect of the Insurance Act, s 18B, nevertheless, entitled it to cover under the contracts of reinsurance at least for claims made within three years.
The arbitrators concluded that, unaffected by the operation of the Insurance Act, s 18B, the reinsurance contracts (all three layers) did not respond to claims under the FAI D&O run-off policy because of the seven year period for notification under the policy. The arbitrators went on to conclude, however, that s 18B applied and that by its operation the reinsurers were obliged to pay claims in fact notified to Gordian under the FAI policy within three years.
The award of the arbitrators was subject to judicial review in terms of the CA Act, s 38 which is in the following terms:
“s 38 Judicial review of awards
(1)Without prejudice to the right of appeal conferred by subsection (2), the Court shall not have jurisdiction to set aside or remit an award on the ground of error of fact or law on the face of the award.
(2)Subject to subsection (4), an appeal shall lie to the Supreme Court on any question of law arising out of an award.
(3)On the determination of an appeal under subsection (2) the Supreme Court may by order:
(a) confirm, vary or set aside the award, or
(b)remit the award, together with the Supreme Court’s opinion on the question of law which was the subject of the appeal, to the arbitrator or umpire for reconsideration or, where a new arbitrator or umpire has been appointed, to that arbitrator or umpire for consideration, and where the award is remitted under paragraph (b) the arbitrator or umpire shall, unless the order otherwise directs, make the award within 3 months after the date of the order.
(4)An appeal under subsection (2) may be brought by any of the parties to an arbitration agreement:
(a)with the consent of all the other parties to the arbitration agreement, or
(b)subject to section 40, with the leave of the Supreme Court.
(5)The Supreme Court shall not grant leave under subsection (4) (b) unless it considers that:
(a)having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement, and
(b) there is:
(i)a manifest error of law on the face of the award, or
(ii)strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.
(6)The Supreme Court may make any leave which it grants under subsection (4) (b) subject to the applicant complying with any conditions it considers appropriate.
(7)Where the award of an arbitrator or umpire is varied on an appeal under subsection (2), the award as varied shall have effect (except for the purposes of this section) as if it were the award of the arbitrator or umpire.”
Leave to appeal to the Supreme Court from the award of the arbitrators was sought by the reinsurers on the grounds of manifest error on the face of the award (the CA Act, s 38(5)(b)(i)) and strong evidence of error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law (s 38(5)(b)(ii)).
Over the opposition of Gordian, the primary judge heard the application for leave to appeal and the appeal concurrently.
The essential complaint of the reinsurers about the award, with which the primary judge agreed, concerned the interpretation and application by the arbitrators of the Insurance Act, s 18B. The primary judge concluded that the arbitrators had misunderstood s 18B to a degree that satisfied both paragraphs (i) and (ii) of s 38(5)(b) and that the correction of the arbitrators’ approach would add substantially to the certainty of commercial law.
My views in summary
My views sufficient to dispose of the appeal are as follows:
(a)The primary judge committed an error of principle to hear the application for leave concurrently with the argument on the appeal.
(b) Leave to appeal should not have been given on the ground that it was.
(c)Leave to appeal was not properly available on the other grounds sought by the reinsurers.
(d) The primary judge was correct not to permit the reinsurers to argue that there had been relevant error in the arbitrators applying the Insurance Act, s18B to a dispute about reinsurance when the parties had tendered the dispute for resolution to the arbitrators on that basis; though, some reasons, albeit brief, should have been given for that decision.
(e) Accordingly, the appeal should be allowed with costs, the orders of the primary judge being set aside and in lieu thereof the application for leave to appeal against the award of the arbitrators refused with costs.
I have also dealt with other issues argued on the appeal on the assumption that I am wrong in the above views as follows:
(a)If the construction of s 18B were to be decided on appeal, I would reject the reinsurers’ arguments and would agree with the arbitrators’ approach.
(b)If the matter were for me to decide on appeal I would conclude that the loss was caused by the relevant circumstance and so s 18B would not avail Gordian.
(c)I would not offer a view on the questions of the correctness of the conclusions by the arbitrators as to reasonableness for the purposes of the proviso to s 18B and as to general justice and fairness for the purposes of the CA Act, s 22. Nor would I offer a view as to whether s 18B covered reinsurance.
(d)As to Gordian’s so-called “points of contention” which it said the primary judge wrongly ignored, all should have been the subject of applications for leave to appeal under the CA Act, s 38. This issue raised important questions as to the operation of s 38 in relation to questions of law arising out of the award at the instance of both the applicant for leave and respondent.
(e)I would not grant leave on any of the points of contention and I have not dealt with any on a final basis.
Approach to the argument on appeal
The application and appeal raise important questions as to the practice of arbitration and the proper conduct of applications under the CA Act, s 38, and, in particular for present purposes, the general requirement to hear applications for leave to appeal under s 38(4)(b) separately from, and before, the full argument on appeal. These considerations made it important on the appeal to deal separately and first with the issue as to whether the primary judge should have granted leave at all and only then (on the hypothesis that he was correct, or it was open to him, to grant leave) with the substantive issues on appeal. That is how the appeal was argued in this Court; that is how I will structure my reasons.
Before dealing with the correct procedural approach, it is convenient to describe the dispute and the facts in a little more detail. The facts are taken from the reasons of the arbitrators. The precise factual details are not central to the resolution of the appeal, but an understanding of them assists in the appreciation of the scope and detail of the controversy dealt with by the arbitrators.
The background to the dispute
Gordian underwrote PI and D&O risks. The policies were customarily written to cover insureds in relation to claims alleging prior wrongful acts made and notified during the policy period. Gordian sought reinsurance for the risks it wrote.
The writing of the FAI D&O run-off policy
In September 1998, HIH Winterthur International Holdings Ltd (“HIH”) acquired 14.3 per cent of FAI’s issued capital and publicly announced a full takeover bid for FAI. At about the same time, Gordian signed the wording for FAI’s D&O policy covering the period 1 June 1998 to 31 May 1999, for which it held 60 per cent and a Lloyd’s syndicate (“R E Brown”) held 40 per cent.
In late October 1998, FAI’s broker Aon Professional Services (“Aon”) wrote to Gordian inquiring whether in the light of the impending takeover of FAI by HIH, it would convert FAI’s D&O cover (expiring in May 1999) to run-off cover, from a date to be agreed.
Gordian’s usual practice was to provide run-off cover at a suitable premium.
By 20 November 1998, Gordian offered to underwrite as a co-insurer, or as sole insurer, D&O run-off cover as a five year policy, or on an annual basis.
On 13 December 1998, Aon requested Gordian to proceed with a five year D&O run-off policy “as a matter of urgency”.
By 23 December 1998, Gordian (as to 60 per cent) and RE Brown (as to 40 per cent) had agreed to a D&O run-off policy for claims in respect of wrongful acts occurring before the effective date on which claims were made and notified within seven years of the effective date.
The effective date was originally intended to be the date on which FAI became a subsidiary of HIH, and thereby came under the coverage of HIH’s D&O cover. Later, in February 1999, after FAI became a subsidiary of HIH, Gordian and FAI agreed that the effective date would be when Gordian was notified that cover was on foot from HIH’s D&O insurer. On 21 May 1999, Gordian was notified that that date would be 31 May 1999.
The wording for the FAI D&O run-off cover was signed a year later on 23 February 2000.
The writing of the 1999 reinsurance programme
Meanwhile, the 10 xs 10 layer of Gordian’s reinsurance was due to expire on 31 December 1998.
The 10 xs 10 reinsurance layer
The expiring 10 xs 10 reinsurance layer (the 1998 treaty) was led by Everest Re, and included Westport and Assetinsure. The 1998 treaty did not expressly include, exclude or limit either run-off cover or policies for extended periods or with extended reporting periods, other than by reference to a clause entitled “Professional Indemnity North America” (the “PINA” clause). The PINA clause excluded claims which arose in the United States or Canada out of policies with reporting periods of greater than 36 months, unless specifically accepted, or unless issued for 12 months plus “odd time” not exceeding 18 months.
The negotiation by Gordian of the FAI D&O run-off cover occurred at about the same time as Gordian was renegotiating its 1999 reinsurance for the 10 xs 10 layer. Aon Re (another company in the Aon group) was involved in placing the reinsurance, being a different Aon entity to that broking FAI’s D&O risk. The same Gordian employee, however, was concerned with both tasks. In fact, he joined Aon in April 1999.
On 15 December 1998, two days after Aon’s instructions from FAI to proceed as a matter of urgency with a five year D&O runoff policy, Gordian requested Aon Re to obtain terms for renewal of the 10 xs 10 layer. No mention was made of the five year proposal with FAI. The letter stated the following:
“Multi year contracts have gained popularity in recent years and we are frequently asked to write for periods of two to three years, usually as a stretched aggregate over the term or on annual limits basis. In some cases, we are asked after the first year of a multi year contract to ‘roll forward’ the contract for another year so that a new (2 or 3 year) period commences. Our competitors are able to offer this and we have been offering it within our retention but need to obtain reinsurers agreement to use the treaty capacity to write multi year contracts and would appreciate the Everest’s comments on this issue, including under the ‘PINA Special Risks Clause’.”
Aon Re went about the task of placing the reinsurance. Everest Re dropped out. Westport undertook discussions and was sent Gordian’s letter of 15 December 1988. It discussed “multi-year covers” with Aon Re. On 23 December 1998, Westport submitted a quotation to Aon Re for 50 per cent of the 10 xs 10 layer. The quotation included the statement:
“… Original contracts: Up to three years is acceptable. PINA Clause to be amended.”
Aon communicated Westport’s willingness to Gordian and prepared draft placing slips accordingly.
On 23 December 1998 (being the day Gordian signed and stamped Aon’s FAI slip for 60 per cent of FAI’s D&O run-off cover) Westport, Assetinsure and, Munich Re signed a reinsurance placing slip for 1999 for the 10 xs 10 layer; Munich Re re-signed the slip on 29 December 1998; NAC Reinsurance International Limited (“NAC”), which became XL Re, signed the slip on 31 December 1998. The four reinsurers (Westport, Assetinsure Munich Re and NAC) initialled and stamped Gordian’s letter of 15 December 1998, a copy of which was attached to each slip. Assetinsure initialled and stamped Westport’s quotation of 22 December 1998; Munich Re and NAC did not see Westport’s quotation of 22 December 1998; Westport did not initial or stamp that quotation.
The slips provided for the treaty to cover claims made on policies attaching from 1 January 1999 to 31 March 2000 (later changed to 30 June 2000), with wording “as expiring as far as applicable, amendments to be agreed by reinsurers”.
The premium was paid early in 1999.
On 20 January 1999, Aon Re sent a draft wording to Gordian and Westport. A further amended copy was sent to Westport on 20 February 1999. This draft wording did not contain any express provision including, excluding or limiting D&O run-off policies for extended periods or with extended reporting periods, other than a PINA clause.
Westport did not respond until May 2000, over one year later. Gordian responded more timeously and in February 1999 asked Aon Re about the request for policy periods longer than one year. The exchange of letters included the following:
(a) The representative of Gordian said
“I note that there is no limitations concerning the period of insurance of policies issued by [Gordian] and ask that you confirm that we will be covered for policies that are issued for terms in excess of 12 months provided of course that the original policy incepts between 01/01/99 and 31/03/00.”
(b) The representative of Aon Re responded:
“… I confirm reinsurers have noted and agreed to your request (in your letter 15/12/98) with regard to your need to write original policy periods of 2 or 3 years (usually on a stretched aggregate or annual limit basis).”
Upon this exchange, an internal note of Gordian summarised the position:
“Treaty coverage is as expiring except that we now have protection for long term policies up to 3 years (either on an aggregate or annual limits basis). I am seeking clarification on ‘roll forward’ deals where we maintain the original extended term at subsequent ‘expiry’ date.”
A further exchange took place between Gordian and Aon Re about such policies:
(a)Later in February 1999, the representative of Gordian asked the following:
“I have a query in relation to long term contracts and that is if we issue a policy for a 2 or 3 year period (the policy incepts between 01/01/99 and 31/03/00), but at the end of the first year, we are asked to ‘roll forward’ the term for another year so as to preserve the concept of a 2 or 3 year period, what cover do we have under the current treaty for the ‘roll forward’ period?”
(b) In April 1999, the representative of Aon Re responded:
“… I can confirm that your treaties provide reinsurance to cover original policy periods of up to three years. This provision applies to either policies which were: originally written for a 3 year term; or written for a lesser period, and subsequently extended (provided the term does not exceed 3 years) …”
The lower layers of reinsurance
The letter of Gordian to Aon Re of 15 December 1998 also requested renewal on the same terms as the 10 xs 10 layer for the 5 xs 5 and 3 xs 2 layers. By April 1999, when the 10 xs 10 reinsurance appeared to have been agreed and the relevant Gordian employee who had been handling the reinsurance renewals had commenced employment with the Aon group, the lower layers had not been agreed. Another broker, Benfield Greig, was retained by Gordian to place these risks.
From late June 1999 to 1 March 2000, Benfield Greig dealt with the reinsurers on the two lower layers. The arbitrators set this out at [47]-[58] of their reasons. It is sufficient to say for present purposes that slips were initialled and stamped in accordance with the 10 xs 10 upper layer. No wording was as yet issued.
Claims arise
In February 2001, Gordian notified claims to Aon Re under the FAI D&O run-off policy. The reinsurers then became aware of the FAI policy.
In August 2001, Aon Re sent a revised wording, signed by Gordian, to Westport, Assetinsure, XL Re and Copenhagen Re.
In November 2001, XL Re wrote to Aon Re claiming that the draft did not include an agreed term about length of underlying policies. It requested an exclusion in Article 5 as follows:
“(d) policies issued for periods longer than 36 months.”
Aon Re then wrote to Gordian in November 2001 pointing out that two reinsurers had raised the issue of length of underlying policies. Aon Re appeared to accept the point made by the reinsurers, saying in its letter to Gordian:
“… two of them have raised the issue of an effective exclusion of policies issued for periods longer than thirty-six months. This exclusion is not to be confused with the specific PINA clause exclusion of claims-made coverages with an extended reporting period exceeding the same time-span beyond policy expiry, which already appears in the wording. Although the former was not incorporated in the cover note, I find that it was advised as a condition of the quote, among other matters, to Malcolm Fletcher by our Giles Fox per facsimile dated 22nd December 1998, and so should form part of the contract.
Both reinsurers having raised the issue in identical terms, I have duly incorporated the exclusion as item d) under Article 5 of the original wording, and a replacement page is enclosed for substitution in the copy wording on your file, the same substitution being made in the originals held by us pending completion. It will be distributed in conjunction with the matter following.”
Aon Re enclosed an addendum picking up the amendment suggested by the two reinsurers.
On 12 December 2001, Allens Arthur Robinson acting for all reinsurers wrote to Aon Re and Benfield Greig stating that the draft treaty wording:
“‘has not incorporated the agreed term that original policies of up to three years are acceptable’ and requesting ‘that you insert the following clause in Article 5 Exclusions: ‘d) policies issued for periods longer than 36 months.’”
On the same day, 12 December 2001, Aon Re wrote to Allens accepting this position.
Also on the same day, 12 December 2001, Gordian signed the amendment sent to it by Aon Re accepting the change put forward by the two reinsurers, and later propounded by Allens representing all reinsurers.
Later, on 17 December 2001, Aon Re wrote to Westport, Assetinsure, XL Re and Copenhagen Re confirming the addition of exclusion (d), being an exclusion of policies issued for periods longer than three years. It embodied the addendum signed by Gordian.
In February and March 2002, Westport, Assetinsure, XL Re and Copenhagen Re executed the schedules received from Aon Re on 17 December 2001.
On 22 March 2002, Aon Re sent to Gordian an original counterpart of the 1999 treaty wording, the addendum and the signing schedules.
On 1 May 2002, Mallesons Stephen Jaques, acting for Gordian, wrote to Allens stating that Aon Re had not been authorised to agree to the addition of exclusion (d).
Shortly afterwards, on 6 May 2002, Benfield Greig wrote to Westport declining to amend the draft wording prepared in August 2001 for the two lower layers.
The dispute: the arbitration
The first issue dealt with by the arbitrators at [73]-[81] of their reasons concerned the extent of the wording of the reinsurance treaties. The nature of that dispute was identified in [73] as follows:
“[73] The primary question is whether all or any of the reinsurance treaties cover the FAI D&O run-off policy. The critical factor for the purpose of that primary question is not that the FAI D&O run-off policy is a run-off policy but that it covered claims which were made and notified to Gordian within the extended period permitted by that policy of 7 years from 31 May 1999.”
The arbitrators first commented on the volume and unhelpful nature of much of the evidence, both documentary and oral.
The arbitrators then put the PINA clauses to one side as essentially irrelevant.
The arbitrators then expressed their conclusion that, with some immaterial differences, the terms of the three layers of reinsurance were substantially the same and that the question substantially involved the ambit of the 1999 treaty (being the 10 xs 10 treaty wording).
The arbitrators then noted terms of the expiring 1998 treaty that:
(a)Reinsurers agreed “to indemnify [Gordian] in respect of losses under business underwritten by [Gordian] and classified by them as … Directors and Officers Liability Insurance …”; and
(b)Gordian agreed “not to introduce any change in its established acceptance and underwriting policy in respect of the … classes of business to which this Agreement applies without prior approval of the Reinsurers”
The arbitrators noted that the 1999 placing slips provided that wording was to be “as expiring as far as applicable, amendments to be agreed by reinsurers”.
The arbitrators then noted that the 1998 treaty wording and the 1999 slips signed in late 1998 had no express inclusion, exclusion or limitation of cover based on extended policy periods or extended reporting periods. They noted the debate before them as to general industry practice and Gordian’s established acceptance and underwriting policy in this regard. They then made the following finding at [79]:
“[79] We are not persuaded that the FAI D&O run-off policy, which covered claims which were made and notified to Gordian within the extended period permitted by that policy of 7 years from 31 May 1999, was within its then ‘established acceptance and underwriting policy in respect of’ D&O policies. In any event we are satisfied that the 1998 reinsurance treaty applied to D&O policies which provided over for a period of 12 months plus odd time not exceeding 18 months in all. That was plainly the common understanding and intention of the parties when the 1999 reinsurance treaty was arranged at the end of 1998 and Gordian’s letter of 15 December 1998 was initialled and stamped by all reinsurers which signed and stamped the slip for the 1999 reinsurance treaty.”
The arbitrators then turned to the multi-year proposal contained in Gordian’s letter of 15 December 1998, and the reinsurers’ agreement thereto. The reinsurers accepted that they agreed to cover D&O policies for extended periods of up to three years. The arbitrators concluded that there was no need for rectification of the 1999 treaty to include such cover because properly construed, the 1999 treaty was so limited. The arbitrators concluded as follows at [81] of their reasons:
“[81] Gordian’s subsequent communications with Aon Re and internal memoranda confirmed that the reinsurance which it had sought and obtained covered claims which were made and notified to Gordian within an extended period of 3 years. Nothing in the subsequent events, including the reinsurers’ attempts to have that position formally recorded in the documentation, causes us to doubt that the reinsurance treaties did not cover the FAI D&O run-off policy which covered claims which were made and notified to Gordian within the much longer period permitted by that policy of 7 years.”
This finding left Gordian in the position that the terms of the three layers of reinsurance did not respond to claims under policies of periods or with reporting periods of greater than three years.
The arbitrators then turned to the Insurance Act, ss 18(1) and 18B. They disposed of s 18(1) swiftly in a manner not the subject of complaint.
At this point it is convenient to refer to the terms of the Insurance Act, s 18B, which are as follows:
“18B Limitation on exclusion clauses
(1)Where by or under the provisions of a contract of insurance entered into, reinstated or renewed after the commencement of this section:
(a)the circumstances in which the insurer is bound to indemnify the insured are so defined as to exclude or limit the liability of the insurer to indemnify the insured on the happening of particular events or on the existence of particular circumstances, and
(b)the liability of the insurer has been so defined because the happening of those events or the existence of those circumstances was in the view of the insurer likely to increase the risk of loss occurring,
the insured shall not be disentitled to be indemnified by the insurer by reason only of those provisions of the contract of insurance if, on the balance of probability, the loss in respect of which the insured seeks to be indemnified was not caused or contributed to by the happening of those events or the existence of those circumstances, unless in all the circumstances it is not reasonable for the insurer to be bound to indemnify the insured.
(2)The onus of proving for the purposes of subsection (1) that, on the balance of probability, loss in respect of which an insured seeks to be indemnified was not caused or contributed to by the happening of particular events or the existence of particular circumstances is on the insured.”
Gordian’s reliance on s 18B was limited to the claims that were made within three years (albeit under a policy with an extended reporting period of seven years).
The reinsurers argued that s 18B had no material operation.
The arbitrators concluded that s 18B did apply in relation to claims made within three years, if s 18B(1)(a) was satisfied. They stated their conclusion at [88] of their reasons as follows:
“[88] … we see no reason to doubt that s 18B applies in relation to the 3-year claims if the requirements of ss 18B(1)(a) are met. In particular, we are comfortably satisfied that it would be reasonable within the meaning of s 18B(1), and entirely consistent with ‘considerations of general justice and fairness’ within the meaning of the reinsurance treaties, for the reinsurance treaties to apply in relation to the 3-year claims.”
At [89] of their reasons, the arbitrators set out the reinsurers’ basic argument that s 18B had no operation. That argument, which was put to and accepted by the primary judge and substantially repeated in this Court, was recorded by the arbitrators as follows:
“
Section 18B is concerned with the operation of the scope of cover, namely with limitations or exclusions affecting the operation of the insuring clause. It operates where the cover is prima facie available, but where that cover is limited or excluded on the happening of certain events or the existence of certain circumstances. …
This language implies a central requirement that there be a prima facie liability to indemnify. This is further reinforced by the words which follow paragraph (b), namely that ‘the insured shall not be disentitled to be indemnified’. Disentitle means to deprive of a title or right. A disentitlement implies an initial entitlement to be indemnified which is excluded or limited by reason of some event or circumstance, thereby resulting in a deprivation of right.
In this case there is simply no liability to indemnify in the first place. The scope of cover or the area of indemnity did not include the policy issued by [Gordian] to FAI. It never did. It was the wrong sort of policy. ...”
The arbitrators’ reasoning for rejecting these arguments are found in [90]-[94] of their reasons, as follows:
“[90] We do not agree with the reinsurers’ central contention that the FAI D&O policy ‘was the wrong sort of policy.’ By the reinsurance treaties, the reinsurers agreed to indemnify Gordian in respect of losses under D&O policies underwritten by Gordian. However, cover was limited to D&O policies which required that claims be made and notified to Gordian within 3 years from inception. D&O policies which did not require that claims be made and notified to Gordian within 3 years from inception were not covered. The reason why the reinsurance treaties did not cover D&O policies which did not require that claims be made and notified to Gordian within 3 years from inception was that such D&O policies were excluded or because the D&O policies which were covered by the reinsurance treaties were limited. As has been noted, the reinsurers put their contention in different ways at different times. In 2001, they sought to have the wording changed to add an exclusion of ‘policies issued for periods longer than 36 months.’ The rectification claimed in their submissions was the addition of ‘a term that, absent special acceptance, the class of business covered was limited to underlying policies having a term not exceeding three years’. The formulation they initially proposed was an exclusion, the latter a limitation.
[91] Subsection 18B(1)(a) requires that ‘circumstances in which the [reinsurers are] bound to indemnify [Gordian] are so defined as to exclude or limit the liability of the [reinsurers] to indemnify [Gordian] on the happening of particular events or on the existence of particular circumstances’. If an exclusion or limitation of ‘the liability of the [reinsurers] to indemnify [Gordian]’ is based ‘on the existence of particular circumstances’, Gordian is not ‘disentitled to be indemnified by the [reinsurers] by reason only of those provisions of the [reinsurance treaties] if, on the balance of probability, the loss in respect of which [Gordian] seeks to be indemnified was not caused or contributed to by … the existence of those circumstances, unless in all the circumstances it is not reasonable for the [reinsurers] to be bound to indemnify [Gordian].’
[92] The reinsurance treaties do not cover the 3-year claims under the FAI D&O run-off policy although they were made within 3 years from the inception of that policy because the policy covered claims which were made and notified to Gordian within 7 years from its inception and the reinsurance treaties were limited to policies which covered claims which were made and notified to Gordian within 3 years from inception and/or excluded policies which covered claims which were made and notified to Gordian more than 3 years from inception. Subsection 18B(1)(a) operates in relation to the 3-year claims if, but only if, that exclusion or limitation on the liability of the reinsurers to indemnify Gordian in respect of the 3-year claims under the FAI D&O run-off policy is an exclusion or limitation that is based ‘on the existence of particular circumstances’. The ‘particular circumstance’ for this purpose can only be that the FAI D&O run-off policy covered claims which were made and notified to Gordian more than 3 years from the inception of the FAI D&O run-off policy. The ‘loss in respect of which [Gordian] seeks to be indemnified’, namely, its liability on the 3-year claims, ‘was not caused or contributed to by… the existence of [that] circumstance’ because the 3-year claims were made and notified to Gordian within 3 years of the inception of the FAI D&O run-off policy.
[93] Consistently with the remedial character of ss18B(1) and in compliance with the obligation to construe its language so as to give the most complete remedy which is consistent with the actual language employed and to which the words are fairly open, we have concluded that the exclusion and/or limitation on the ‘liability of the [reinsurers] to indemnify [Gordian]’ in respect of the 3-year claims made under the FAI D&O run-off policy is based ‘on the existence of [the] particular circumstance’ that the FAI D&O run-off policy covered claims which were made and notified to Gordian more than 3 years from the inception of the FAI D&O run-off policy. If at large, ‘considerations of general justice and fairness’ would produce the same result.
[94] Accordingly, we have determined that reinsurance treaties cover Gordian’s liability, if any, in respect of the 3-year claims.”
For these reasons the arbitrators made the award that each of the contracts of reinsurance: “applies to claims which were made under the [FAI D&O run-off policy] within 3 years from the inception of that policy but no other claims subject to the terms of the contract of reinsurance including all limits on and exclusions of indemnity under the contract of reinsurance other than the [three year limitation].”
The dispute: the application to the Commercial List
The reinsurers sought leave to appeal under the CA Act, s 38(2) and (4)(b). The leave was sought under s 38(5) on both bases in paras (b)(i) and (ii): manifest error of law on the face of the award; and strong evidence of error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.
The Amended Commercial List Statement identified the errors of the arbitrators in a manner that can be summarised as the arbitrators:
(a) concluding that s 18B applied given the scope of cover found;
(b)concluding for the purposes of s 18B that the loss was not caused or contributed to by the events or circumstances;
(c)failing to address the issue, or expose any reasoning process, justifying a finding that the proviso to s 18B(1) was satisfied;
(d)failing to expose any reasoning process in the conclusion that general justice and fairness would produce the same result.
An application was made to amend the Commercial List Statement to include as an error of law the asserted incorrect assumption by the arbitrators (produced by the fact that the assumption was common ground between the parties) that s 18B applied to reinsurance.
The Amended Summons sought not only leave to appeal, but also orders upon the hearing of the appeal, including that:
“(a) The Award be set aside.
(b)The Award be varied by substituting an order that the claim of the Applicant in the arbitration be dismissed.
(b1)Alternatively, the Award be remitted pursuant to paragraph 38(3)(b) of the Commercial Arbitration Act 1984 (NSW).”
A Commercial List Response was filed by Gordian. This response contained a series of “points of contention” which Gordian asserted entitled it to the award even if the arbitrators relevantly erred in relation to s 18B.
These points of contention were:
(a)The arbitrators failed to make a finding that the FAI D&O run-off policy was within Gordian’s established acceptance and underwriting policy in respect of D&O policies. This was said to involve an error of law.
(b)The arbitrators erred in their construction of the contracts of reinsurance as to their scope of cover. This was said to involve errors of law.
(c)The arbitrators erred in concluding that there were no material differences between the contract of insurance for the 10 xs 10 layer and the 5 xs 5 and 3 xs 2 layers. This was said to involve an error of law.
On 12 December 2008, the Commercial List Judge (Bergin J, as her Honour then was) set the matter down for hearing on 1 and 2 April 2009, in the following terms:
“The plaintiff’s application for leave to appeal under s 38(4)(b) of the Commercial Arbitration Act 1984 NSW and the appeal is listed for hearing on 1 and 2 April 2009.”
The primary judge’s procedural judgment
On 1 April 2009, Gordian sought to persuade the primary judge (Einstein J) to hear the application for leave to appeal first and only if leave were granted, to go on to hear the appeal. The primary judge refused to take this course, saying at [9] of a short ex tempore judgment:
“In my view the court would be assisted, notwithstanding the strictures in the authorities to which Mr Jackman has taken the court, if the applications were heard together in this particular case.”
This procedural course is the subject of the first ground of appeal.
The primary judge’s principal judgment
After setting out (at [7]-[13] of his reasons) the informing principles as to granting leave under s 38(4)(b) and (5), the primary judge concluded that the first threshold, s 38(5)(a), was satisfied. No complaint is made about that insofar as it concerns the point that was decided by the primary judge.
“I would readily accept that in certain contexts the expression ‘arising out of’ may, on the ordinary and natural meaning of the words used, be the equivalent of the expression ‘arising under’, and not that of the wider expression ‘connected with’. In my view, however, the expression ‘arising out of’ is, on the ordinary and natural meaning of the words used, capable, in other contexts, of being the equivalent of the wider expression ‘connected with’. Whether the expression ‘arising out of’ has the narrower or the wider meaning in any particular case must depend on the context in which it is used.”
Here the context is one of the identification of narrow boundaries for curial review of arbitration. Narrower concept and context are involved: not mere connection with the award, but arising out of it, in the sense of coming from the award (including the reasons) not merely coming out of the arbitration process to which the CA Act, s 42 may be seen to be directed.
It is unnecessary to seek to resolve the terminological and theoretical differences that may be seen in the approaches of judges in this State discussed in Jacobs op cit at pp 8869-8878/1. It is sufficient to say that the above approach is consistent with the approach of this Court in Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1991) 7 BCL 122 at 125, and Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234.
It is necessary to turn now to the individual “points of contention”. On the view that I favour, each was required to be the subject of an application under the CA Act, s 38 or s 42.
The first “point of contention”: the finding that the FAI policy was outside Gordian’s established acceptance and underwriting policy
The complaint, put shortly, was that to the extent that the underwriters implicitly found that the policy was not within Gordian’s established underwriting practice, the finding was not lawfully open on the way the arbitration had been conducted. Given that the complaint concerns an implicit finding within the text of the reasons for the award, it can be seen to be a question arising out of the award.
There are powerful considerations in support of this contention: the pleading of the point appears to have been abandoned, no evidence was led by the reinsurers on the question and the hearing otherwise appears to have been so conducted. Such matters do not amount, however, to manifest error on the face of the award; nor would the resolution of the issue be likely to add to the certainty of commercial law.
The court could hear an application under s 42 for misconduct, such term being defined to include a breach of the rules of natural justice: the CA Act, s 4(1). In the absence of such an application and in the light of the balance of my views it is not appropriate to deal further with the issue.
The second and third “points of contention”: the asserted errors in the construction of the reinsurance policy as having a limit of three years on reporting periods in underlying policies and run-off policies
These complaints involve the central conclusions drawn by the arbitrators about the reach of the 10 xs 10 1999 treaty. They are questions arising out of the award.
None of the complaints would be given leave under s 38(4) and (5). For their ultimate resolution they require a virtual rehearing of significant parts of the debate before the arbitrators. They reveal the consequences of a different construction in relation to dealing with so-called notices of contention.
The submissions required the Court to review the arbitrators’ conclusions on industry practice. It was asserted that the arbitrators failed to set out the appropriate legal principles to reach their conclusion of general industry practice or to state facts said to be essential to the conclusions to imply a term consistent with industry practice.
Further, it would be necessary to examine the evidence before the arbitrators to assess the contention that there was no evidence available to support the conclusion.
It was also, asserted that the reference to “common understanding and intention of the parties” in [79] of the reasons was a (legally erroneous) reference to the subjective intentions of the parties.
Further, a process of construction and interpretation of the slips, letters and policy documents would be called for with the attendant examination of surrounding factual material.
None of these points would be given leave under s 38.
It is not appropriate to deal with these matters as if they were to be decided by this Court afresh. To do so would reveal that the CA Act had failed in its role to limit review of arbitration awards. To do so would countenance general appeals on questions of law arising out of an award as long as they were matters raised by a respondent (or even an appellant in answer to a respondent).
The fourth “point of contention”: the asserted error in concluding that the two lower layers were similarly restricted as the 10 xs 10 layers in respect of the reporting periods of underlying policies
Again this is an attack on a factual finding made in the award. The attack is by way of asserted legal error and as such it raises a question of law arising out of the award.
The arguments here once again raised construction issues as to correspondence and treaties, requiring the factual matrix of the taking up of the reinsurance to be examined.
It is plain that no leave would be given under s 38. The task involves the detailed review of letters and communication in the reaching of a particular policy. The questions amply fail the tests in s 38(5).
Order
For the above reasons the orders that I would make are:
1.Grant leave to appeal from the orders of the Equity Division made and entered on 23 April 2009 and order the appellant to file a notice of appeal within 7 days.
2. Allow the appeal.
3. Set aside the said orders of the Equity Division and in lieu thereof:
(a)Order that leave to appeal in respect of the award dated 10 October 2008 given by F Hoffmann, G E Fitzgerald and I Brown be refused.
(b)Order that the applicants pay the costs of the respondent of the application for leave and of all the matters argued concurrently in the Commercial List.
4.The respondents pay the appellant’s costs of the application for leave to appeal and of the appeal.
5. Cross appeal dismissed with costs.
MACFARLAN JA: I agree with Allsop P.
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