Government Insurance Office of New South Wales & Anor v Kimmedy

[1989] HCATrans 32

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4

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl03 of 1988

B e t w e e n -

GOVERNMENT INSURANCE OFFICE

OF NEW SOUTH WALES and QANTAS

AIRWAYS LIMITED (As the

Administrators of the Voluntary

and Contributory Loss of Licence

Insurance Plan)

Applicants

and

MICHAEL KIMMEDY

Respondent

Application for special leave to

appeal

Kinnnedy

MASON CJ
DEANE J

TOOHEY J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAYt 17 FEBRUARY 1989t AT 11.01 AM

Copyright in the High Court of Australia

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MR C.S.C. SHELLER, ~C: If Your Honours please, I appear

with my earned friend, MR A.G. BRIDGE, for the

applicants. (instructed by John S. MacLennan)

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

with my learned friend, MR P. DEAKIN, for the

respondent. (instructed by Leigh Virtue & Collins)

MASON CJ: Yes, Mr Sheller?

MR SHELLER:  Your Honours, this is an application for special

leave to appeal from a majority decision of the

Court of Appeal. Your Honours, in aid of coherence,

may I hand up to Your Honours a chronology?

MASON CJ: Yes, thank you.

MR SHELLER:  Your Honours, on 22 October 1985, the respondent

lost his airline transport pilot licence. It was

cancelled on a ground that he failed to meet a

required medical standard by reason of migraine. insurance plan which is called the "Voluntary

and Contributory Loss of Licence Insurance Plan"

of which the applicants were administrators; he

being a member of that plan. That claim was

rejected on the basis of an exclusion clause which

is found at page 37 in the application book,

the ground being that migraine was a classified

illness on the basis that it was of:

a nature as to be incapable of diagnosis by objective medical

evidence.

That part of the definition appears at line 14,

and the effect of a disability arising from such an illness appears from line 21 down to line 29.

That rejection was challenged by the respondent

by a summons seeking declarations and orders which

came on for hearing before Mr Justice Yeldham and

there were two issues for determination, Your Honours:

firstly, whether at the relevant date, that is at

the date of the cancellation of the licence,

22 October 1985, the insurance plan contained that

exclusion clause and, secondly, if so, whether the illness answered the description of the exclusion.

His Honour Mr Justice Yeldham held that the

exclusion was part of the plan at the relevant date but that the illness did not answer the description

and, accordingly, the respondent succeeded before

him; the applicants appealed to the Court of opinion that the illness was caught by the exclusion.

However, two members, Justices Samuels and Clark,

disagreed with Mr Justice Yeldham and held that the

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exclusion was not part of the rules which governed
the respondent's membership. And it is against
that part of the judgment by those two members of

the court that this application is brought.

Mr Justice McHugh dissented.

Now, Your Honours, the aim of that chronology

is to show in chronological order what the background

of the matter is though, as a matter of principle,

that may not matter greatly. In fact, prior to

July 1981 the applicant, together with other Qantas

pilots, were members of the Australian Federation of

Air Pilots. There were two insurance plans, one
maintained by Qantas, the other a voluntary plan,

an additional cover which came to be known as the

Mutual Benefit Fund, the MBF. That second voluntary

plan contained an exclusion clause in similar terms

to the one here in question.

The catalyst of the particular dispute here

was that as from March 1981, Qantas pilots resigned

from the Australian Federation of Air Pilots and

formed a new association, the Australian International

Pilots Association and as from 30 June 1981 the cover

under the MBF in respect of Qantas pilots ceased.

So that obviously enough at that point of time there

was need for a new voluntary plan for the members

of the new association. There followed a period of

negotiation which was held to continue from May 1981

through until January 1984 and during that period

of negotiation there were various insurance arrangements

on an interim basis and Your Honours will see that there

are a number of communications which are referred to

in the chronology by date that deal with that:

communications between the applicants and the

organization and communications between the organization

and its members.

Now, critical in all that, Your Honours, was

the communication which took place on 23 February

1982 - and I regret to say that on the bottom of

the first page that ought to appear, Your Honours,
as 11 23 February 1982 11 instead of 111983".	But that

communication is set out in the application book at

page 9. The reference to it starts in His Honour

the trial judge's judgment at line 15 and it was a

communication sent by the union to the pilots and

it set out the history of negotiation, it referred

to the cesser of the Mutual Benefit Fund at line 25;

it referred to negotiations of the new plan and its

objects and then over the page on page 10 at about

line 38 it referred to "Exclusions" and it said:

Exclusions to cover are similar to those under the AFAP/MBF and QAL Plans.

That is to say, under the old voluntary and the

continuing Qantas plan. And then over the page it said that:

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Under the heading "Copy of Plan" .....

"A copy of Plan Rules can be sighted at

Qantas" -

and then His Honour observed at line 10:

that the exclusions under the MBF Scheme, to which the plaintiff formerly belonged,

and those under the Qantas Company Plan

were entirely different, insofar as the

former did and the latter did not contain

an exclusion similar to that relied upon

by the defendants.

Now, Mr Justice Samuels, in his judgment,

regarded that document as a watershed. The respondent

had, as a result of earlier applications, been a

member of this plan in its formative or interim

state. Relevantly, Your Honours, after this document

went out to the pilots he, from time to time, renewed

or continued his insurance and in particular, on

27 November 1984, he applied for renewal for the

final period which covered the date of cancellation.

Your Honours, His Honour Mr Justice Samuels

regarded the insurance as having been fixed by the

document sent by the union to the pilots on

23 February 1982 and accordingly, on that basis,

held that as at October 1985 the exclusion clause

was not part of the plan. Your Honours, so far as

the plan itself was concerned, on 23 February 1983,

the next year, the union received from Qantas and
from GIO the final draft of the rules which contained
the exclusion. That, I regret to say, is omitted
from the chronology, Your Honours, but in fact the

reference to it is at page 36 in the application book.

The rules were finally agreed on 20 January 1984.

In May 1984 they reached a final printed form and

that final printed form was sent to all pilots

including the respondent and, of course, it was

after that that the application in respect of this

particular period of insurance was made by the

respondent.

Now, Your Honours, Mr Justice Yeldham, at page 16,

held, and this is at line 8 on that page:

that by November 1984, when the plaintiff

renewed his insurance, the relevant

contract of insurance was that ..... finally

agreed ..... and sent to the plaintiff as a

member of the union in May 1984.

Mr Justice Samuels took the view, at page 40, and this starts at line 20, that after an interim

period:

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the circular of 23 February 1982

purported to reveal the terms of a final

agreement -

and he referred to the -

language such as: "the objective

has been achieved" -

and then said at line 25:

Hence the document constituted an offer by

AIPA as agent for the sponsors (of which

it was one) to grant or affirm "coverage"

under the new plan on the terms of the Plan

Rules to which the circular referred and which superseded the rules of the Qantas

Plan.

Now, Your Honours, in dissent, Mr Justice McHugh,

at page 50, approached the matter in what we would

respectfully submit is the correct manner and, indeed,

we would be so bold to say, the only manner,

that:

On 23 February 1982, the Australian

International Pilots Association (AIPA)

sent out a circular to its members concerning
"the voluntary and contributory loss of

licence insurance plan".

And then he referred to that passage that I read

about the exclusions, and then at the top of page 51,

to the availability of the rules for sighting.

When Printing and incorporation into the

Policy document has been finalised each

member will be given a copy of the Rules.

The respondent did not examine these

Rules.

Then His Honour went on:  When on 18 May 1982 the respondent

submitted a further application for

insurance under the loss of licence insurance

plan, I think that the conclusion which

should be drawn is that he entered into a

contract which incorporated the Plan Rules

as they had been or would thereafter be

agreed to by AIPA and Qantas. As a

general rule when a member of an organisation

enters into a contract whose terms are

understood to be governed by rules

negotiated by the organisation and the other

party to the contract, the parties to the

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contract should be taken as contemplating

that they will be bound by the rules as
they are negotiated from time to time by

the organisation and the other party. I

do not think that it is necessary that the

rules or changes in the rules which govern

the contract should be brought to the
attention of the member or that it matters

that the rules are changed after the

member enters into the contract. The

better view of this sort of arrangement is

that the members are content to be bound by

whatever the organisation does on their

behalf. In legal theory the organisation

should be treated as an agent with authority

to bind the members from time to time when it consents to any changes in the rules or other contractual terms.

And then His Honour went on to apply that reasoning

to this particular policy.

Now, Your Honours, what we would submit is

fundamental to this and which is a matter of

general importance is that when one has, as one has

here, and one has conunonly an insurer negotiating

with an organisation of members of which there may

be a great many - it appears in this case there were

some 300 but, of course, in many organizations

there are many more than that - in a variety

of policies which may go through disability,

professional indemnity and a variety of other things,

it is axiomatic, we would submit, that the organization

is negotiating on behalf of its members. And if one

finds, as one finds here, a plan which is being

set up and ongoing, that from time to time changes

will be made and will be negotiated between the

insurer and the organization as representative of

its members and, that, we would submit, is what

Mr Justice McHugh is saying and that, we would submit,

is quite contrary to the view that apparently was

taken by Mr Justice Samuels, namely, that the

organization was in some way the agent for the

insurer and that by sending out a document to the
member in a particular form it set in stone the

form of a plan from that time forward.

We would respectfully submit that there are

two fundamental and important matters thrown up
by that: firstly, the question of whether an

insurer who negotiates with an organization on

ongoing terms of a plan of this sort - and it is

important to emphasize that it is a plan - that

where the insurer negotiates with that organization,

it can negotiate in the faith that ordinarily the

organization would bind its members; and, secondly,

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that if an organization sees fit to communicate
to its members about those negotiations it is

wrong, we submit, to create a situation that

seems to be created by Mr Justice Samuels' judgment

that the organization is said to be communicating

on behalf of the insurers and to be binding the

insurers. That sort of reasoning, we would

respectfully submit, makes plans of this sort,

which are common enough, almost impossible to

carry into effect and puts insurers in a very

difficult, if not impossible position in

negotiating with member organizations of the sort

that one has exemplified here.

For those reasons, Your Honours, we would

submit that this is a case in which there is a

question of law of public importance because it

is of general application and furthermore, we

would be so bold as to submit that the view

adopted by two members of the Court of Appeal is

obviously wrong and that the view of the other

two judicial minds who have considered this

case, the judge at first instance and

Mr Justice McHugh, should prevail.

DEANE J:  Mr Sheller, what you say would not always be the

case though, would it? I mean, if you look at

page 9, that second-last paragraph there sets

out what could well be a factual situation, that

is employer, insurer and union do engage in a

joint undertaking under which union acts for the

insurer in, as it were, accepting proposals and

passing them on, and gets a percentage commission

of the premium.

MR SHELLER:  Your Honour, undoubtedly there could be a

situation like that but we would respectfully

submit that that is really not what is being said

there. What is being talked about there is the

common enough situation where an organization

on behalf of all its members seeks to set up an

perhaps in this case, the employer and also an insurance plan and to do that it calls in aid, insurer. Now, Your Honours, that is a common

enough thing going on in the community and, of

course, it is obviously a very convenient matter
because it enables an insurer to deal with one
rather than many members and it enables the

members to have the benefit of dealing together

and, Your Honours, one of its great advantages
would be its flexibility, that from time to time

as benefits are seen and particularly in a

contributory fund of this sort, no doubt, from

time to time amendments are seen as being beneficial
to the members as a whole. That would, no doubt,

be what is being sought to be achieved. Now,

Your Honours, we would respectfully submit that in

the ordinary course, as Mr Justice McHugh says, one

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would treat the organization as the agent of the

members from time to time to vary the plan

accordingly. What His Honour is talking about and

what this case is about is a general principle,

Your Honour.

Your Honours, those are our submissions on

the basis of which we would ask for leave.

MASON CJ: Yes, thank you, Mr Sheller. The Court need not

trouble you, Mr Stitt.

The first point which the applicant seeks

to raise, whether an exclusion clause forms part
of the relevant contract, turns on the particular
facts of this case. The second point,which arises

only if the applicant succeeds on the first point,

is whether this case falls within the exclusion

clause. That question is one of construction of

a particular provision in a contract not involving

a point of general principle. The case is therefore

not appropriate for the grant of special leave to

appeal and the application is refused.

MR STITT: With costs, Your Honour.

MASON CJ: You do not oppose that, Mr Sheller?

MR SHELLER:	No, Your Honour.
MASON CJ:	The application is refused with costs.

AT 11.25 AM THE MATTER WAS ADJOURNED SINE DIE

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