Imaging Applications Pty Ltd and Anor v Sun Alliance Australia Ltd and Ors M84/2001

[2002] HCATrans 641

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M84 of 2001

B e t w e e n -

IMAGING APPLICATIONS PTY LTD and MICHAEL IAN PETCH

Applicants

and

SUN ALLIANCE AUSTRALIA LTD, ALEXANDER STENHOUSE LTD and the LAW INSTITUTE OF VICTORIA

Respondents

Application for special leave to appeal

GLEESON CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 13 DECEMBER 2002, AT 2.04 PM

Copyright in the High Court of Australia

MR M.I. PETCH appeared in person.

Your Honours, I appear on behalf of the applicants.  Your Honours, I have two preliminary matters to raise.  One is that I am the second applicant and of necessity, being a barrister and solicitor of this Court, I am appearing for them.  So I am somewhat of a hybrid and in these and other circumstances, namely that Justice Hedigan has described the first applicant, myself, as “impecunious”.  I do not have robes and I do not have the wherewithal to obtain them and I seek permission of the Court to appear before you in mufti and civvies.

GLEESON CJ:   Yes, you have that.

MR PETCH:   Thank you.  The second preliminary matter is that when I prepared the authorities of the applicants I overlooked, perhaps because it was so self-evident to me, being rather close to this matter over a period of time, that I should have included in the authorities a copy of the Insurance Contracts Act and the Insurance (Agents and Brokers) Act.  That is the new statutory regime of the Commonwealth and I have ‑ ‑ ‑

GLEESON CJ:   Yes, we have those now, thank you.

MR PETCH:   Fine.  They are the two preliminary matters, your Honours.

MR I.A. ARNOLD:   If the Court pleases, I appear on behalf of the first respondent.  (instructed by Norris Coates)

MR A.A. NOLAN:   If the Court pleases, I appear on behalf of the second respondent.  (instructed by Middletons)

MR J.B.R. BEACH, QC:   For the respondent, I appear with MR P. ZAPPIA.  (instructed by Joseph Barravecchio)

GLEESON CJ:   Yes, Mr Petch. 

MR PETCH:   No, I am happy here if ‑ ‑ ‑

GLEESON CJ:   Yes, then go ahead with your submissions.

MR PETCH:   Thank you.  I take it I can be heard here.  The only advantage is perhaps that I get a warning light after five minutes, is that it, your Honour?

It will be said it has been said against the applicants that all that they seek to place before you are decisions of whatever quality they may be that arise in interlocutory matters, pre-trial and that none of the matters that the applicants raise have been finally determined; that they can be finally determined at the trial; that that is where they should be determined; and that this application, as it was to the Victorian Court of Appeal, the court below, is misconceived.

One of the citations for that proposition is a case which is included amongst those which will be submitted to you by the first respondent, Sun Alliance, and it is one that is referred to in one of the replies to the summaries of arguments of the respondents, that is, one of the replies of the applicants.  From memory, it is called Brown Male Fashions and it is a decision as to those circumstances where a superior court will review and interfere with a decision based upon the discretion of a primary judge.  It is said, and I suppose it is trite law, that it is rare that those occasions will arise where appellate judges would so interfere.

I was struck by a remark of Justice Murphy in that decision where he said, in effect, sometimes procedural and evidentiary matters pre-trial have substantive outcomes, and I put it to you that this is just that sort of a case.  It arises for this reason, that the applicants who are plaintiffs seek indemnity under a contract of insurance from Sun, alternatively, damages from the second respondent, Stenhouse, or the third respondent, the Law Institute of Victoria.  The claim is made under a package of insurances which includes a fidelity guarantee for employee dishonesty.  The circumstances of alleged employee dishonesty are those where there has been a judgment in the Supreme Court of Victoria in which these two applicants, myself and Imaging Applications, have a judgment against Dr Cullinan as defendant, an unsatisfied judgment, for employee dishonesty, that, as an employee, he took company property, thereby causing the company and myself loss and damage.

Now, of course, none of the respondent defendants were parties to that action.  So the central core of the issues that I seek special leave for is, I think, what the Americans would call “non-party preclusion”.  In what circumstances is a claimant for insurance allowed to rely upon a reasoned judgment supported by evidence, not a default judgment, a judgment which has probative value, in saying, “We should not have to reprove a case we have already won in the Supreme Court of Victoria, notwithstanding that none of you were parties.  Your obligation is to accept those and there are various reasons why you should accept those decisions of the court.”  That brings us to the various reasons.  They are ‑ ‑ ‑

GLEESON CJ:   Just before you develop those, your application before the Court of Appeal was an application for leave to appeal from Justice Kellam?

MR PETCH:   Yes, it was.

GLEESON CJ:   Why did you require leave to appeal?

MR PETCH:   I required leave to appeal because his Honour’s judgment ‑ ‑ ‑

GLEESON CJ:   Was interlocutory.

MR PETCH:   ‑ ‑ ‑ interlocutory judgment, failed to make any reference whatsoever to at least three arguments.

GLEESON CJ:   No, I was not asking what the ground of appeal was.  I was asking why you needed leave, and you needed leave because his judgment was interlocutory?

MR PETCH:   Yes, your Honour. So what occurred was that a summons was brought before Justice Kellam which sought summary judgment that the employee dishonesty by conversion of company property causing it loss and damage was sufficiently established not to have to be reproved and re‑litigated. Secondly, that to require it to be – and one of the reasons was that it was in breach of section 13 of the Insurance Contracts Act, that the utmost good faith was an obligation which required the harshness of the adversary system to be mitigated by a new principle that suffuses the rules of law and evidence and under section 12 is expressed to be paramount, that is, that, yes, you can have all of your procedural and evidentiary steps but you have another hurdle to get over. You could only have them if to use them would be in the utmost good faith. That was one of the arguments.

The second one was that it was an abuse of process of court and in the application book there is Rogers v The Queen and the reference to other High Court authority which says that even where there may be no issue estoppel or res judicata, there will be circumstances where it will be an abuse of the processes of the court.  That is the second argument.

The third argument is an estoppel argument, that is, that at the time the claims were refused they were refused on insurance grounds.  They were not refused on the basis that there had not been a fraud or a flood.  On that basis, the applicants in 1990 went into the commercial list thinking they had a short five-day documentary case and were saying, “Well, there is a judgment of the Supreme Court, violà, there can be no doubt about the event.  The question is, are we covered.”  It only emerged in the case that suddenly the whole of those events were called into question with a barrage of further and better particulars, every act, fact, matter, circumstance, and here we are 10 years later dealing with those or trying to overcome that problem.

So the summons asked for summary judgment on the events. Secondly, it sought as a preliminary question that an agency which existed called a binder or a bordereau between the first respondent defendant, Sun Alliance, as underwriter and the insurance intermediary, Alexander Stenhouse, made Stenhouse not only our broker but the underwriting agent of its principal Sun Alliance. Therefore, both under the common law and under section 11 of the Insurance (Agents and Brokers) Act, the knowledge of the intermediary is the knowledge of the principal whether or not that intermediary acted within the scope of the intermediary’s authority.  That was another ground which raises the question of a binder.

The binder has never been, to my knowledge, interpreted in its statutory form.  There is a decision I have referred to called Con-Stan Industries in which this Court almost, I think, by obiter said that a bordereau means a binder.  But the word “binder” is defined in both of those Acts of Parliament and in these days not many people buy insurance retail, as it were.  They are usually buying under the footy plan they are in or the boy scout plan or, as we did in this case, something that had been sponsored by the Law Institute of Victoria and often in circumstances where intermediaries are acting on both sides of the fence. 

Secondly, the utmost good faith has been adjudicated to a certain extent in other courts and it has been held to extend to the way that an insurer handles claims. The major difference between old uberrimae fides and the statutory expression of it which appears in the UK in section 105 of the Marine Insurance Act is that the Australian variety is made an implied term of every contract of insurance to which the Act applies. The expression has not, to my knowledge, been ruled upon by the High Court of Australia and I have guessed that in the field of general insurance there may be 5 million or so contracts out there where the obligation of the parties and, indeed, the insurer to act in the utmost good faith is an implied term. The Act extends to contracts of life and superannuation. One might like to add another 10 million contracts where the phrase appears.

What does it mean?  In the Court of Appeal Justice Batt said to me “Half, I think is a question, half is an assertion.  Mr Petch doesn’t utmost good faith stop at the door of the court?  And was there not a decision to the effect?”  I said, “Not to my knowledge in Australia”, and I found it.  It is a case called The Star Sea in the House of Lords, Manifest Shipping v Uni‑Polaris Shipping, where a decision had to be made on what “utmost good faith” meant in the context of the statutory obligation of utmost good faith in the Marine Insurance Act. In that court they held that it was a duty that was collateral or floated alongside the contract of insurance. It was not itself an implied term. It may well be that that approach by English authorities influenced the drafters of section 13 of the Insurance Contracts Act because they explicitly have made “utmost good faith” a term of the contract.

The question of principle before this Court is, does Australian statutory good faith stop at the door of the court so that insurance claimants face the full forensic ferocity of a trial, or does it extend not merely from the claims manager but also to the solicitors they engage and the barristers they engage, and does it control the manner in which they will conduct a court defence?  It is the contention of the applicants that there is no strange alchemical change once we enter court, although that is what was said of the different duty in the English case. 

In Australia section 12 to which I refer your Honours in Part II on page 12 of the Insurance Contracts Act makes the importance of this part very clear:

The effect of this Part is not limited or restricted in any way by any other law, including the subsequent provisions of this Act, but this Part does not have the effect of imposing on an insured in relation to disclosure of a matter to the insurer, a duty other than the duty of disclosure.

So it is paramount as far as the insurer is concerned and it is limited to the duty of disclosure as far as an insured is concerned.  The applicants ask the Court to invest “utmost good faith” with meaning.  How high is it as a standard?  Is it more than mere good faith?  How wide is it?  What is its ambit?  Does it extend into court?  Are we able to say, for example, as we have been saying in this case, you are now allowed to deny the events in that fraud case, notwithstanding that you are not a party.  You are not allowed to put in bare denials and put us to the proof of three weeks of litigation before we even mention the word insurance, because to do so is not in the utmost good faith.  Secondly, it is an abuse of process of the Court.  Third, there is an estoppel argument that you are no longer entitled to put it.  And, fourth, and in particular, relevant, I think, to a decision by your Honour Justice Hayne in Unity Insurance Brokers v Rocco Pezzano, there must be an end to litigation. 

It was a decision where a settlement was reached to which the insurer was not a party – excuse me, a settlement was reached on the advice of counsel to which the broker was not a party.  It simply said, “We are not bound by it because we are not privy to it”, and Justice Kirby in dissent said, “I prefer principle.  They are not bound”.  The majority of the Court chose pragmatism in the context of an insurance action and it was not confined to those precise set of circumstances, your Honour.

There are no tight confining words and we would say that here too there must be an end to litigation and it does not come from the defendants to deny a reasoned judgment with probative value in the absence of fresh evidence which was not available to the court at that time or evidence that the evidence given by myself and three other deponents was incorrect or false and that there has been a miscarriage or a perversion of justice.  Not one tittle of new evidence has ever been put in.  Perhaps they are keeping their powder dry, but if they keep their powder dry for long enough, an embattled claimant for insurance never gets to the long causes list and has a four week trial. 

So this is an appeal which says we must look at substance, not at form.  We must look at outcomes, not at process, because of these higher principles expressed in Rogers v The Queen on abuse of process, because of the reach we say of the “utmost good faith” into court – and my personal opinion as a commercial lawyer is that the sooner the Bar is subject to the utmost good faith in as many instances as possible, the higher will be the regard for the justice system in this country.  The issues are of immensely broad public interest and I have no more to say than that at this stage.

GLEESON CJ:   This is an application for special leave to appeal from a decision of the Court of Appeal of the Supreme Court of Victoria refusing leave to appeal from a decision of a single judge of the Supreme Court of Victoria in relation to an interlocutory application.  No error has been shown in the approach to the matter taken by the Court of Appeal and the application is refused with costs.

AT 2.25 PM THE MATTER WAS CONCLUDED