Hurst v Wesfarmers Federation Insurance Ltd B36/2002

[2003] HCATrans 839

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B36 of 2002

B e t w e e n -

MICHAEL WILLIAM HURST

Applicant

and

WESFARMERS FEDERATION INSURANCE LTD

Respondent

Application for special leave to appeal

GLEESON CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON WEDNESDAY, 25 JUNE 2003, AT 11.13 AM

Copyright in the High Court of Australia

MR R.G. BAIN, QC:   May it please the Court, I appear for the applicant with my learned friend, MR C.A. WILKINS.  (instructed by Broadbent Radich Sampson)

MR S.C. WILLIAMS, QC:   May it please the Court, I appear with my learned friend, MR R.T. WHITEFORD, for the respondent.  (instructed by HMB Lawyers)

GLEESON CJ:   Yes, Mr Bain.

MR BAIN:   As your Honours will appreciate, this matter involves the question of how a condition in a policy of indemnity insurance which generally provides that the insured will comply with all relevant statutory requirements may be interpreted.

The approach taken by his Honour Justice Byrne, the trial judge, was favourable to the applicant where his Honour adopted a construction which was beneficial and it had regard to the evident purpose of the policy being to afford indemnity cover in circumstances where the artisan would be liable in negligence.  His Honour in various points of that judgment made the obvious point that, given the ambit and given the terms of prescriptions such as the Gas Code here and safety regulations generally, it is a rare circumstance indeed in which an artisan may be negligent in not performing, as here gasfitting, properly and not also be in breach of a statutory prescription.

GLEESON CJ:   Mr Bain, where can we most conveniently find the provision that we are construing?

MR BAIN:   Your Honours will find that in paragraph 7 of our outline.  It is also replicated in the Court of Appeal judgment.  Page 67 of the application book is where it appears in paragraph 7 of our outline.  It appears in both the other judgments below, of course.

GLEESON CJ:   Page 67 of the book?

MR BAIN:   Page 67 of the book, paragraph 7 at the foot, your Honour ‑ ‑ ‑

GLEESON CJ:   Thank you.

MR BAIN:   ‑ ‑ ‑ where your Honour sees three excerptions from the relevant provisions.  We are concerned with (c).

GLEESON CJ:   What is the construction you place on (c)?  I know you say it is nasty, but what do you say it means?

MR BAIN:   We say, as we suggested to his Honour the learned trial judge, that it should be read as if that provision said “take all reasonable precautions to comply with all statutory obligations”, et cetera.

GLEESON CJ:   Just a moment, “you shall take all reasonable precautions to”?

MR BAIN:   To be construed as if it said that, your Honour.

GLEESON CJ:   And how would that apply to the facts of this case?

MR BAIN:   On the facts of this case, it would entitle the applicant to the benefit of insurance because he has the benefit of favourable findings by his Honour the trial judge, not upset on appeal, that he did not cause the risk, that he did not act recklessly, that he did not do the relevant conduct deliberately in the sense that he did not knowingly breach the regulations, and that this was a momentary error of judgment, in effect.

GLEESON CJ:   Did he have a finding that he took all reasonable precautions?

MR BAIN:   No, he did not, your Honour.

GLEESON CJ:   Where does that leave us?

MR BAIN:   It will leave the position where the insurer contends that there was a failure to take all reasonable precautions to comply with statutory requirements, but that is to be construed on settled principle as being only demonstrable by the insurer if the insured courted the risk and the insured does have the benefit of a finding that he did not court the risk.

GLEESON CJ:   I am not sure I understand the meaning of the expression “take all reasonable precautions to comply with” something.  Does that mean “take all reasonable steps to comply with”?

MR BAIN:   It would, your Honour.

GLEESON CJ:   What is the difference?

MR BAIN:   We cannot identify immediately in the case of an artisan any obvious difference between precautions and steps, your Honour, because steps may involve, for example, giving warnings; it may involve giving instruction; it may involve doing something physical; it may involve doing work in a certain way; it may involve perhaps planning work in a certain way.

GLEESON CJ:   What is the difference between taking all reasonable steps to comply with a regulation and complying with a regulation?

MR BAIN:   In an insurance context, your Honour, it is that the former has the effect of a line of cases that come from Fraser v Furman referred to in the judgments, that a simple failure, as it is sometimes put, that is, a non‑compliance per se, will not amount to a failure to take reasonable precautions because it is said a failure to take reasonable precautions, having regard to the purpose of a policy of indemnity insurance, may only be made out if it can shown that the insured courted the risk.

GLEESON CJ:   What was the actual non‑compliance?

MR BAIN:   The non‑compliance in question was this, your Honours ‑ ‑ ‑

GLEESON CJ:   Or, more accurately, what was the regulation that was not complied with?  Where do we see that?

MR BAIN:   There is difference between the Court of Appeal and the learned trial judge in that, but we see that in the Court of Appeal’s judgment.  The answer to your Honour is 81(1)(b) of the regulations, but we find that in the Court of Appeal’s judgment, for whom his Honour Mr Justice McPherson spoke.  That commences at page 53 of the book.  That is some distance into the judgment because his Honour was also dealing with another matter.  Your Honour will find the regulation set out at the midpoint or thereabouts of page 54.  There is after that a discussion of the relevant statutory schema.  As I mentioned a moment ago ‑ ‑ ‑

GLEESON CJ:   Let us just stick with this.  It is 81(1)(b)?

MR BAIN:   Yes, 81(1)(b) was found by his Honour the trial judge not:

permit to be installed or used any . . . fitting which is not in compliance with this regulation.

Your Honours will take that from about 50 per cent of the page.  That was the finding at trial.

GLEESON CJ:   What was the finding of the Court of Appeal?

MR BAIN:   The finding of the Court of Appeal was that the applicant failed because he achieved a device which did not fail safe, and your Honour finds that discussion at the bottom of page 54 to the top of ‑ ‑ ‑

GLEESON CJ:   Where is the regulation?  Can you identify the regulation that the Court of Appeal said he failed to comply with?  I just want to read it.

MR BAIN:   I am sorry.  The answer is in the book of materials which we have given your Honours.  It is regulation 100, and your Honours will find that at page 6 of the book.

GLEESON CJ:   What part of that?

MR BAIN:   Your Honours will see – I am sorry to be jumping between sources – at page 54 of the application book is excerpted that part of the regulation relied on by his Honour Mr Justice McPherson.  Your Honour will see it – I am sorry, I am breaking your Honour’s attention.

GLEESON CJ:   What was the standard or rule or code specified in column 1 that was not observed or complied with?

MR BAIN:   It was the Gas Code, your Honour, and it is referred to at the bottom of page 54 of the application book.  We are concentrating on what the Court of Appeal made of this, your Honours.

GLEESON CJ:   Yes, I just want to read the words of it.  Can you read them out?  Which are the words?

MR BAIN:   In clause 5.2.10 the words taken up by his Honour are “an appliance” from the end of the first line, “shall fail safe” at the end of the second line.

GLEESON CJ:   What does that mean?

MR BAIN:   It means that where there is, as there was here in its original form, a gas‑operated device which has a mechanism whereby if the flame fails the device will shut down, then there must be the same situation achieved so that the control which operates it “shall fail safe”.

The factual setting here, your Honours, was that there was such a device initially in the pizza oven in question.  As a temporary expedient, at the request of the owner, Mr Hurst effected a repair by taking out the automatic fail safe device, a replacement automatic fail safe device was not available, he put in a manual valve.

GLEESON CJ:   What do you mean this was a temporary expedient to ‑ ‑ ‑

MR BAIN:   It was a temporary expedient because he, first, refused to carry out the repair.  At the entreaty of the owner of the premises who conducted a pizza parlour business, he agreed to put in a manual valve for a very short time, some few days, until an appropriate replacement part could be found, that is, a new automatic fail safe unit.

GLEESON CJ:   What did the Court of Appeal find about whether that constituted a reasonable step to comply with the regulation?

MR BAIN:   It did not find anything in that regard, your Honour.  Looking at this judgment, his Honour simply found that that did not achieve the end required by the regulation, that was that the appliance fail safe.

GLEESON CJ:   You are appearing for Mr Hurst.

MR BAIN:   I am, your Honour.

GLEESON CJ:   And he was an expert?

MR BAIN:   He was a gasfitter, your Honour.

GLEESON CJ:   He was a gasfitter.

MR BAIN:   Perhaps I should indicate the parties.  The form of the original action was that the owner of certain commercial premises sued both Mr Hurst ‑ ‑ ‑

GLEESON CJ:   Ms Cole.

MR BAIN:   ‑ ‑ ‑ and Ms Cole, who was the owner of the pizza parlour, on different bases.  She succeeded against both, against Mr Hurst on the footing that he owed a duty of care and against Ms Cole, both on the same footing and in contract.

GLEESON CJ:   I have some difficulty understanding how it could be said that your client took all reasonable steps to comply with the regulation.

MR BAIN:   In the facts as found by the learned trial judge, and there was no adverse determination of this on appeal – I will come to one point in a moment, if I may – his Honour accepted that Mr Hurst, conscious that he was installing a manual valve rather than an automatic valve, a fail safe, had pointed out the fact that the manual valve would not fail safe to Ms Cole and her then partner, now husband.  He had instructed them in how to use it.  He supervised their showing him that they were competent to use it.  He had instructed them not to leave the oven with that valve on unattended, that is, to watch it.

GLEESON CJ:   Was there evidence as to whether he knew that was a breach of the regulations?

MR BAIN:   There was no evidence that he knew that that was a breach of a specific regulation but there was, I think, a concession in cross‑examination that he understood that one should replace a fail safe with a fail safe.  Indeed, it was, of course, to that end that he had ordered a fail safe, or attempted on the afternoon of the repair to order a fail safe, none was in stock from his usual supplier, there was to be a short delay, and at Ms Cole’s request, to enable her to trade over a long weekend, he effected the temporary repair.  Indeed, to complete the factual scenario, the following working day after that long weekend, he obtained the fail safe replacement and offered to install it then, but was refused opportunity to do that by Ms Cole.

His Honour found that there had been instruction, warning, consciousness of the difference between the automatic and manual operation of the risk and he had emphasised with the proprietors of the pizza parlour what they should do to avoid the risk.

GLEESON CJ:   There is a deliberate failure to comply with the regulations.

MR BAIN:   There was a deliberate insertion of a manual valve rather than an automatic fail safe.  There was a consciousness of the difference.

GLEESON CJ:   And I think you said earlier a consciousness of a knowledge that you should replace a fail safe with a fail safe.

MR BAIN:   I do not have the reference to hand, indeed, it is not in the Court’s papers on this application, but to answer your Honour the Chief Justice’s question the best I can say is I have a recollection that there was a concession in cross‑examination that he knew that it certainly was not desirable – I cannot remember the precise language, my learned friend will undoubtedly answer the question – but he had a consciousness that one should replace a fail safe with a fail safe.

GLEESON CJ:   When you say it was not desirable, you mean it was not safe?

MR BAIN:   No, there was no ‑ ‑ ‑

GLEESON CJ:   What other criterion of desirability or undesirability would there be except safety?

MR BAIN:   There would be a safety implication, of course, to a tradesperson in there being an automatic device.  No one could suggest that a tradesperson would be unconscious that the automatic device was there, broadly speaking, for safety reasons, but, as I recall, the evidence did not get above that so far as he was concerned.  He did accept in some terms that he realised that he was putting in a manual valve which was not as safe, I suppose, to inference, as an automatic valve.  To that end, as I have emphasised, and I should not be repetitive in this application, he was at pains, as his Honour the trial judge accepted, to take the precautions fit for the occasion as he thought to ensure that there would not be a risk of malfunction.

I am reminded by my learned junior that the findings at first instance under a heading “All reasonable measures”, in fact, are collected at page 29, paragraph [53], of his Honour the learned trial judge’s reasons.  The detail of what amounted to those reasonable precautions I have rehearsed already to your Honours.

GLEESON CJ:   Thank you.

MR BAIN:   On that question – I said I would come back to one aspect in answer to your Honour the Chief Justice – on page 55 of the application book, at paragraph 41 of his Honour Mr Justice McPherson’s judgment, there was the only treatment of this question of reasonable precautions in the Court of Appeal.  As your Honours see in paragraph [41] at about line 35, his Honour says nothing about the favourable findings of fact and the conclusion that I have just mentioned but ‑ ‑ ‑

GLEESON CJ:   It is the sentence beginning with the words “Even if it could be” that has been of concern to me and that has been the subject of our discussion so far.

MR BAIN:   Yes, that is so and that is what I was moving to, your Honours, because what his Honour is there referring to is not any quality of Mr Hurst’s conduct, not any quality of the insured’s conduct, which is what the case has focused upon, as the reasons of the learned trial judge show, his Honour was there referring simply to the prospective gravity of the risk.  His Honour takes the language of a simple breach of a regulation from language that was employed in an important obiter dictum by another differently constituted Full Court of the Supreme Court of Queensland in Gold Coast Bakeries v Heat & Control – and we will come back to that if we may – but that is where his Honour picks up the language of “simple breach of a regulation or by‑law”.  His Honour speaks only of the gravity of what was risked rather than anything to do with the quality of the conduct of the insured in, let us assume, doing something that ran that risk – not courting that risk, but ran that risk.

GLEESON CJ:   You said he did something that he knew was undesirable and the most obvious criterion of desirability is safety.

MR BAIN:   He did something which was undesirable as a matter of judgment.  It was found to be a matter of judgment.  It was found not to be a courting of the risk in the sense that knowing of the particular risk, nonetheless, he took no precautions and was willy‑nilly about the risk.

GLEESON CJ:   But it hardly a case of a simple or technical contravention of a regulation.

MR BAIN:   As, in lay language, it is no technical contravention of the regulations, it is something which, as it proved, was causally connected to harm.  There was a risk, one can infer at large, that if a manual valve is left turned on, then something like what happened may result.  There is no escaping that.  But that was not the focus or, in our respectful submission, should not be the focus for the purposes of construing an insurance policy because the insurance policy, and an indemnity policy in particular of course here, presupposes that there will be such errors of judgment, including errors of judgment about safety considerations.

So, what has happened here, as was found below, is that someone has made an error of judgment, has not been inattentive to what he is doing, and risk in that sense; rather, he has been at pains to take precautions which he thinks to be reasonable, to be responsible.  So the question, in our submission, is not whether it is the consequence that was being risked but, rather, the way in which the risk was being addressed which ought govern the situation. 

That is certainly so in the context of the construction of “all reasonable steps”, as they are sometimes, indeed, termed, or “all reasonable precautions” clauses, because the same considerations can apply precisely analogously, in our submission, to such prescriptions if there is an obligation explicitly.  Take the example, we could go back to the earlier choices that existed within the policy here and take all reasonable precautions to do a certain thing, and that may be of safety implication, and the failure to do that may have the same gravity of risk associated with it.

GLEESON CJ:   But your client did not even attempt to comply with the regulations.  What your client attempted to do was to minimise the risk flowing from non‑compliance with the regulation.  That is a different thing from taking all reasonable steps to comply with the regulation.

MR BAIN:   I am sorry, I thought I was cutting across your Honour.  What was found by his Honour Justice Byrne was that there was a permitting to be used contrary to the regulations.  What the Court of Appeal settled on was that there was, as I have identified, a failure to make safe.

GLEESON CJ:   Failure to in a different regulation.

MR BAIN:   It is part of the same battery but, yes, it is a different regulation.  In either event, there has not been compliance with the condition of the contract, but, in our respectful submission, if one does not conform with a regulation but does so in circumstances in which, even let us assume that there is a consciousness that the person is not conforming, they take other precautions to address the same harm which is the focus of the regulation, then, in our respectful submission, looked at as a beneficial prescription intending to confer insurance in respect of negligence by error of judgment, what the insured is identified as having done ought to be taken as an error of judgment, not a courting of the risk. 

Yes, it is true that, as your Honour the Chief Justice has said, he did not attempt to comply with the regulation in the sense literally of making it fail safe.  The facts as found say that he knew he could not because he did not have a fail safe, but he put in place a temporary repair ‑ ‑ ‑

GLEESON CJ:   You mean he did not bring with him.

MR BAIN:   No, he did not bring it with him.  He came to a job not knowing what he would need.  He attempted to obtain one whilst at the job, the facts show, and was thereafter unable to do so.  So we get to the notion of a temporary repair.  I notice that the red light is on, your Honours.

GLEESON CJ:   There was a question I wanted to ask you, but not related to this particular application.  Your client is unrepresented in the next application, is that right?

MR BAIN:   That is my understanding, your Honour.  The solicitor who instructs us was asked to enter an appearance on behalf of Mr Hurst in that application and she took instructions to do so, but that is as far as the instructions run, in my understanding.  I will confirm that, your Honour.  That is confirmed, your Honour.

GLEESON CJ:   So Mr Hurst will be unrepresented in the next proceedings, or unrepresented by you?

MR BAIN:   Unrepresented, your Honour.

GLEESON CJ:   Thank you, I just wanted to clear that up.  It was a little puzzling, that is all.

MR BAIN:   Yes, quite.  As your Honour appreciates, lest that be left in the air, without the benefit of insurance, of course, Mr Hurst’s position is naturally limited.

GLEESON CJ:   Thank you.  We do not need to hear you, Mr Williams.

The Court is of the view that having regard to the facts of the case there are insufficient prospects of success of an appeal to warrant a grant of special leave.  The application is refused with costs.

AT 11.36 AM THE MATTER WAS CONCLUDED