Insurance Australia Ltd v HIH Casualty & General Insurance Ltd (In liq)

SUPREME COURT OF VICTORIA
COURT OF APPEAL

No 5769 of 2000

INSURANCE AUSTRALIA LIMITED

(ACN 000 016 722)

Appellant

HIH CASUALTY & GENERAL INSURANCE LIMITED (IN LIQUIDATION)

(ACN 008 482 291) and

RONALD STEELE (T/AS DRAGON SCAFFOLDING)

Respondents

---

JUDGES:	CHERNOV, ASHLEY and REDLICH JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	10 May 2006 and 11 May 2006
DATE OF JUDGMENT:	18 October 2007
MEDIUM NEUTRAL CITATION:	[2007] VSCA 223

---

Insurance – Third party liability policy issued by appellant – Protection extending to liability of contractors and sub-contractors of insured – Third party liability policy held by sub-contractor in his own right – Latter policy issued by HIH – Incident giving rise to claim against sub-contractor for property damage – Payment by HIH of some legal costs of sub-contractor – Subsequent failure of HIH – Judgment for third parties against sub-contractor – Payment of 90 percent of judgment sum and costs by HIH Claims Support Ltd (HCSL) – Whether payment by HCSL relieved appellant of liability to indemnify sub-contractor – Whether HCSL an insurer – Whether payment by HCSL made pursuant to a contract of insurance – Whether amounts paid by HCSL indemnification of sub-contractor – Whether amounts paid by HCSL should otherwise be taken into account in relieving appellant of liability to indemnify sub-contractor - Whether HIH entitled to equitable contribution from appellant in respect of costs paid by HIH before its failure.

---

APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr P B Murdoch, QC with Mr M W Thompson SC	Norris Coates Lawyers
For the Respondents	Mr J R Dixon	Tress Cox Lawyers

CHERNOV JA:

I have had the considerable benefit of reading the draft reasons for judgment of Ashley JA in this case. As I explain below, principally for the reasons given by his Honour, I consider that the appeal should be allowed.

The facts pertinent to this appeal are set out in his Honour’s reasons and there is no need to restate them here. It is sufficient to note that, on 11 November 2002, judgment was entered in the Supreme Court of New South Wales in favour of Screenco Pty Ltd (“Screenco”) against the second respondent (“Steele”) and R L Dew for breach of contract in the sum of $1,461,045 arising from the fall in March 1998 of a large video screen caused by the collapse of part of the scaffolding that had been erected by Steele. R L Dew obtained judgment for an indemnity against Steele on a cross-claim.

Steele was insured in relation to his business by the first respondent (“HIH”) which failed in 2001 and was wound up. Prior to its collapse, HIH had accepted Steele’s claim under its policy and paid approximately $80,000 towards his legal costs incurred in the New South Wales proceeding.

The New South Wales judgment was essentially satisfied, as to 90 percent, by HIH Claims Support Ltd (“HCSL”), which administered a fund created by the Federal Government to assist those who were insured with HIH but whom the failed insurer was unable to indemnify. To obtain such payment, Steele offered HCSL, as he was required to do by the scheme, an assignment of his rights under the HIH policy and his rights against any person in connection with the event in question. The documentation that evidenced the scheme essentially said that acceptance of the offer would be constituted by the payment of a benefit under the scheme. In the event, the offer was accepted by HCSL and the payment in question was made accordingly.

Steele also had the benefit of cover of a policy (“the SGIC policy”) issued by the appellant, which was then known as SGIC General Insurance Ltd. That policy covered the event in question. After HCSL satisfied the New South Wales judgment as I have described by the payment of 90 percent of it (together with 90 percent of the costs) to Screenco, two claims were made on the appellant by reference to the SGIC policy. The first was by HIH for equitable contribution in respect of its costs to which reference has been made. The second claim was made by Steele who sought to be indemnified in respect of damages and costs awarded against him in the New South Wales proceedings in favour of Screenco.

The appellant first argued that it was not liable for either of those claims because the SGIC policy did not apply to the circumstances of the case by reason of the operation of at least one of three exclusion clauses in the policy. In any event, said the appellant, Steele had no right of indemnity under the policy given that, effectively, he suffered no loss given that the New South Wales judgment has been satisfied by HCSL (as to 90 percent).

The trial judge concluded that the exclusion clauses on which the appellant relied were not applicable and, therefore, the policy applied so that, in the circumstances, the appellant was, at the very least, liable to make equitable contribution to HIH in respect of its costs to the extent of 50 percent. His Honour made a declaration to that effect. The conclusion by the trial judge that the exclusion clauses had no operation is challenged on appeal, but I consider that this claim must fail because, for the reasons given by Ashley JA, they did not operate in the prevailing circumstances such as to remove the liability of the appellant under the policy.

The appellant’s argument that Steele was not entitled to be paid again under the SGIC policy because he had already been indemnified by the HCSL payment was also rejected by the judge. Contrary to the appellant’s claim, his Honour considered that the agreement between HCSL and Steele was not a contract of insurance such as to cause HCSL to become his insurer. And the learned primary judge was also of the view that the HCSL payment did not constitute an indemnity such as to disentitle Steele from claiming under the SGIC policy. The judge concluded that, properly characterised, the HCSL payment was an ex gratia benefit provided by the Commonwealth Government to alleviate, in certain circumstances, financial distress caused by the collapse of HIH. The payment, said his Honour, resembled payments such as social security payments, bushfire relief and the like and was not an indemnity. Consequently, his Honour made a declaration to the effect that Steele was entitled to be indemnified under the SGIC policy and ordered that there be judgment for him against the appellant in the sum of $1,890,711.

In my view, however, Steele has no right to payment under the SGIC policy because he has been indemnified in respect of the same risk by the HCSL payment. It is clear enough, I think, that, once HCSL accepted Steele’s offer to assign his relevant rights to it by effectively paying 90 percent of the New South Wales judgment debt and costs, an enforceable contract came into existence between the two parties. For practical purposes, that contract was executed at the time of its formation – Steele received the benefit of the payments, and HCSL acquired the rights formerly vested in Steele which it could enforce notwithstanding that the assignment of those rights was an equitable assignment, given that it was made for valuable consideration. And it is probably the case that the contract cannot be properly characterised as a contract of insurance as was concluded by the learned trial judge and Ashley JA. But this point does not have to be resolved in this appeal because I think that, essentially for the reasons given by Ashley JA, the payment by HCSL was not akin to an ex gratia payment of the kind referred to by the learned primary judge. It was intended to indemnify Steele in respect of the New South Wales judgment. And the payment had that consequence; once it was made, the relevant liability of Steele to the judgment creditor was correspondingly discharged. In other words, it rendered him correspondingly harmless in respect of the claim made against him by Screenco.[1] Hence, he was not entitled to be paid again in respect of the same risk under the SGIC policy.
[1]Yeoman Credit Ltd v Latter [1961] 1 WLR 828, 831, 834 (Holroyd Pearce LJ).

I mention for completeness two matters. First, as Ashley JA explains, it was

not claimed by Steele in the appeal that he was entitled to an indemnity from SGIC in respect of that part of the judgment sum and costs that was not paid by HCSL, namely, the remaining 10 percent. The second is that, principally for the reasons given by his Honour, I would refuse SGIC leave to amend its notice of appeal as it sought to do during the hearing of the appeal. In any event, given the above conclusions, the amendment would have no practical effect.

In the circumstances, as I have said, I would allow the appeal to the extent of setting aside his Honour’s declaration and judgment made on 26 August 2005 against SGIC in favour of Steele.

ASHLEY JA:

This appeal raises two broad questions. First, is the appellant, Insurance Australia Ltd, formerly SGIC General Insurance Ltd, (“SGIC”) liable to indemnify Ronald Steele (“Steele”), pursuant to a Contract Works Material Damage and Third Party Liability Policy, against his liability arising out of an incident which occurred at Albert Park on 3 March 1998? Second, is the appellant liable to make equitable contribution to HIH Casualty & General Insurance Limited (in liquidation) (“HIH”) in respect of indemnity provided by HIH to Steele, pursuant to a policy of insurance (“the HIH policy”) underwritten by World Marine & General Insurance Pty Ltd, a company in the HIH Group, arising out of that incident?

There are two aspects to the first question. Stated as sub-questions, they are as follows. First, is the appellant relieved from any obligation to indemnify Steele under the SGIC policy because payment was made by HIH Claims Support Ltd (“HCSL”) in discharge of the major part of liability established in favour of several parties against Steele? Second, if the SGIC policy must otherwise respond, is SGIC’s liability to indemnify Steele, and to make equitable contribution to HIH, relieved by operation of an exclusion clause?

A judge in the Trial Division resolved each aspect of the first question, and in turn the two broad questions, adversely to SGIC. He did so for reasons to which I shall later refer.

Pertinent circumstances

In 1998, Screenco Pty Ltd (“Screenco”) contracted with the Australian Grand Prix Corporation (“The Corporation”) to erect a large video screen at Albert Park, for use in connection with the 1998 Australian Grand Prix. Screenco retained R L Dew & Co Pty Ltd (“Dew”) to erect scaffolding which would support the screen. Dew subcontracted that work to Steele, who traded as Dragon Scaffoldings.

Steele and his employees did the work on 2 and 3 March 1998. By the afternoon of 3 March they had erected the necessary scaffolding, which included a horizontally mounted beam from which the screen was to be suspended. All that remained for them to do was to place tarpaulins over the scaffolding. The tarpaulins were essentially to serve an aesthetic purpose. It was put to Steele in cross-examination that “It’s just for cosmetic purposes, really, isn’t it?” He replied “That’s basically what it is, yes”. But the tarpaulins would also have provided the screen and operating equipment with limited protection from any wind or rain. The tarpaulins had not been erected because safety harnesses had not been available for use by Steele’s workers. WorkCover officials had ordered that the job not be done absent availability (and use) of safety harnesses.

After Steele and his men had left the site, Screenco employees elevated the screen, and suspended it from the beam. But the beam was not strong enough. It bent. The screen fell to the ground and was effectively destroyed.

Steele held liability insurance, including public liability cover, under the HIH policy. It can shortly be said that the circumstances of the incident in which the screen was damaged were such as called upon the HIH policy to respond. Of that policy, more later.

Subject to its limitations, exclusions, terms and conditions, Steele also had the benefit, at relevant times, of cover given by the SGIC policy. Although the policy was procured by the Corporation, it insured, inter alia, contractors and sub-contractors of the Corporation. Of this policy, also, more later.

The New South Wales proceeding

In 1999, Screenco brought a proceeding against Dew and Steele in the Supreme Court of NSW, claiming damages in consequence of the damage to the screen. Steele brought a cross-claim against the company which had supplied him with the scaffolding components, Highrise Group Pty Ltd (“Highrise”).

Steele called on the HIH Policy in connection with the NSW proceeding. HIH accepted that the policy responded and began to undertake defence of the claim. It engaged solicitors, and paid them $80,684.03 (“the HIH costs”). Then, on 27 August 2001, HIH was placed into liquidation.

Thereafter, Steele applied for assistance from HCSL, a not-for-profit company set up by the insurance industry to administer the $640 million HIH Claims Support Scheme (“the Scheme”), which had been established by the Commonwealth Government to assist certain persons disadvantaged by the collapse of HIH.

HCSL responded to Steele’s application for assistance by issuing an “Eligibility Confirmation Certificate”, and by retaining solicitors on his behalf in the NSW proceeding.

The solicitors – they were the solicitors originally engaged by HIH to act for Steele – were unsuccessful in their defence of the Screenco claim on his behalf. On 11 November 2002 Screenco obtained judgment against Dew and Steele in the NSW proceeding in an amount of $1,461,045 plus costs to be taxed. In contribution proceedings between Dew and Steele, the latter was held liable to contribute 100 percent, and to pay Dew’s taxed costs. Steele’s cross-claim against Highrise failed, and Steele was ordered to pay its taxed costs.

On 13 December 2002 the insurer appointed by HCSL to manage Steele’s defence of the NSW proceeding, QBE Management Services Pty Ltd (“QBE”), paid 90 percent of the judgment debt – that is, $1,314,941.61 – to Screenco’s solicitors. Later on, it paid 90 percent of the costs of Screenco and Highrise. Such payments, of course, were funded by the Scheme. Payment of those moneys represented acceptance by HCSL of an “offer to assign rights” which Steele had signed when he applied for assistance.[2] Of that offer, more later.
[2]Indeed, he had signed two of them, for the first contained an error as to the relevant HIH policy number.

Steele was apparently impecunious. For that reason, the balance of the judgment in favour of Screenco was in fact paid by Dew’s insurer, likewise the balance of Screenco’s costs. Ninety percent of Dew’s costs were paid by the Scheme. Dew, having account of Steele’s financial position, took no step to recover from him the balance of the judgment amount, or its own costs. The same can be said of Highrise in respect of the balance of its costs; and the same again can be said of solicitors who acted for Steele. None of this is to say that any of Steele’s creditors[3] gave up pursuing their entitlement against him for all time; although it is relevantly the fact that at time of trial, and apparently still when the matter was before this Court, that Steele had not paid Dew the balance of the judgment sum and its costs, nor the balance of Highrise’s costs.

The Victorian proceeding

[3]Except, as the learned judge found, Steele’s own solicitors.

On 15 June 2000, long before resolution of the NSW proceeding, HIH[4] and Steele commenced a proceeding in the Supreme Court of Victoria against SGIC. HIH claimed equitable contribution against SGIC, on the basis that it and SGIC were liability insurers of Steele for the same risk, in respect of which risk, it asserted, it had provided policy indemnity to Steele. There was, HIH claimed, double insurance. The relevant risk was Steele’s prospective liability to Screenco and other parties in the NSW proceeding.
[4]Specifically, HIH Casualty & General Insurance Limited. No point was taken, if it could have been taken, that this company was not the correct plaintiff.

In the Victorian proceeding, HIH claimed contribution only in respect of the HIH costs.

For his part, Steele claimed – I am now referring to the statement of claim in its original form – that if he had any liability to Screenco or Dew in the NSW proceeding, it was a liability for which he was entitled to be indemnified by SGIC under the SGIC policy. It was pleaded that SGIC was liable in equity to make contribution to HIH in such sum as was just and equitable. Asserted as a percentage, it was alleged that it was just and equitable that each of HIH and SGIC pay 50 percent of any sum for which Steele should become liable.

But, it was pleaded, SGIC had wrongly refused indemnity; and so it was that the plaintiffs claimed a declaration that SGIC was liable to make contribution in respect of any sum for which Steele might be held liable.

By the time that the Victorian proceeding came to trial, events had moved on. The NSW proceeding had come to an end.[5]
[5]Having gone through trial, an unsuccessful appeal by Screenco (which attempted to enlarge its success at trial), and then an unsuccessful application by Screenco for leave to appeal to the High Court.

I should refer to aspects of the Third Further Amended Statement of Claim, which was current at trial. It pleaded:

· The fact of the judgment for Screenco in the NSW proceeding.

· The payment by Steele of $1,314,941.01 to Screenco (“the Screenco payment”).

· Steele’s continuing liability to Screenco and Dew.

· The incurring by Steele of costs in respect of the NSW proceeding.

· The payment by HIH of the HIH costs.

· SGIC’s liability in equity to make contribution to HIH in respect of the amount paid.

· That “. . . Steele’s liability to Screenco and R L Dew by the judgment in the NSW Proceedings and the part satisfaction of it . . . is a liability and/or a payment which Steele is legally obliged to pay by way of compensation for, amongst other things, property damage as a result of an occurrence in respect of which Steele is entitled to be indemnified by SGIC under the Policy, whether at common law or pursuant to s. 48 of the Insurance Contracts Act 1984 (Cth).”

· SGIC’s wrongful refusal to indemnify Steele.

· An agreement between Steele and HCSL (“the assignment agreement”) by which Steele assigned his rights under the HIH policy to HCSL, which agreement was pleaded as follows:

“Further and alternatively by an agreement made in or about 10 July 2001, following the liquidation of HIH, Steele agreed with HIH Claims Support Limited ABN 92 096 857 635 (“HCSL”) to assign to HCSL his rights under the HIH Policy (“the HCSL Agreement”).
PARTICULARS
The agreement is written, constituted by:
(i)application form issued by HCSL entitled ‘Offer to Assign your policy holder rights’ which contain conditions and obligations (‘application form’);
(ii)document entitled ‘Notes for Applicants’ issued by HCSL which accompanied the application form;
(iii)document entitled ‘Offer to Assign your rights as a policy holder’ signed by the second plaintiff on 10 July 2001;
(iv)copy document entitled ‘Eligibility Confirmation Certificate’ dated 30 August 2001 and signed on 31 August 2001; and
(v)copy letter from QBE management Services Pty Ltd to the second plaintiff dated 10 October 2001.”

· Terms of the assignment agreement that –

“Steele assigned to HCSL any rights, howsoever arising, which he might have or obtain against any person or organization other than the HIH insurer, in connection with the matters which might have given rise to his need to make a claim under the HIH policy.

HCSL agreed to pay a benefit under the HIH Claims Support Scheme to, or on behalf of, Steele.”[6]
[6]Paragraph 22(a), (d) of the Third Further Amended Statement of Claim.

· That the Screenco payments had been made pursuant to the assignment agreement.

· That the matters alleged by Steele against SGIC were rights of the kind which had been assigned.

· That the assignment agreement was “a contract of indemnity”.

· That Steele had, in equity, assigned the benefit of the proceeding to HCSL.

In the event, HIH sought a declaration that SGIC was liable to make contribution to it in respect of the HIH costs; whilst Steele sought a declaration that SGIC was liable to indemnify him –

“In respect of all sums in respect of which [he] has paid (or which have been paid by HCSL on his behalf) or has been held liable to pay to [Screenco and/or Dew in the NSW proceeding], or otherwise by reason of the incident”.

Steele sought judgment, also, for the amount of the Screenco payments and his own costs of defending the NSW proceeding.

Pausing, Steele’s claim at the outset had been for a declaration of SGIC’s liability to indemnify him in respect of any liability which he might incur in the NSW proceeding; and for a declaration that SGIC was liable to make contribution, together with HIH, towards any sum for which he might be held liable in that proceeding. That claim, if successful, would have resulted in SGIC being liable to contribute towards any damages and costs (including Steele’s own costs) – the claim being for a 50 percent contribution.

But at trial, the NSW proceeding having concluded, moneys having been paid and some moneys remaining unpaid,[7] Steele sought a declaration of SGIC’s liability to indemnify him in respect of all such amounts; and an order for payment to him of such amounts as had been paid. In aid of those claims, Steele alleged that the payments had been made by him, and that he remained liable for the amounts outstanding. He also pleaded that, having assigned to HCSL such rights as he might have had against SGIC, he had in equity assigned the benefit of the proceeding to HCSL.
[7]As I have said, the balance of the judgment sum had been paid by Dew’s insurer, and so Steele’s liability was to Dew, not Screenco.

The success of Steele’s claim, as will be seen, depended upon characterising the payments made by HCSL as not being an indemnification of Steele; or at least as being payments of a kind which must have been ignored in a claim by Steele against SGIC. The practical consequence of the claim thus formulated, if successful, was that SGIC – which on this hypothesis was liable to indemnify Steele just as HIH had been so liable – would have a right to seek contribution from HIH; that is, by the uncertain and lengthy course of proving in the liquidation.

In its defence to the initial statement of claim, SGIC denied that Steele was entitled to indemnity under the SGIC Policy in the event that he had any liability to Screenco or Dew. It relied on a number of exclusions in the policy. In reliance on those exclusions, it denied both its liability to make contribution in respect of the HIH costs, and that it had wrongly refused to indemnify Steele.

I turn to the SGIC defence current at trial. By that document, SGIC relevantly:

· Admitted, in substance, that the HIH Policy obligated HIH to indemnify Steele in relation to liability arising from the incident.

· Admitted the NSW judgments.

· Denied that Steele had made the Screenco payment.

· Did not admit that Steele remained liable on the unsatisfied part of the NSW judgment, including the costs of Screenco and Dew.

· Alleged that all liabilities to pay Steele’s costs had been incurred only by one or more of HIH, QBE and HCSL.

· Denied that Steele’s liability to Screenco and Dew, and the payments made, called on the SGIC Policy.

· Denied that it was liable to contribute to the payment of the HIH costs.

· Denied a wrongful refusal to indemnify Steele.

· Did not admit the making of the assignment agreement.

· Did not admit the pleaded terms of the assignment agreement.

· Admitted that HCSL had paid the amounts earlier said to have been paid by Steele, but not that it had done so pursuant to the assignment agreement.

· Did not admit that the matters alleged by Steele against SGIC fell within a term of the assignment agreement.

· Denied that the assignment agreement was a contract of indemnity.

· Denied that Steele had, in equity, assigned HCSL the benefit of the proceeding; and pleaded that any assignment was one made in law.

· Pleaded that QBE, as agent of HCSL, had made the Screenco payment; this extinguishing, to the amount paid, Steele’s liability to Screenco and Dew.

· Pleaded that:

“In such circumstances, to the extent of the settlement payment, there exists no liability in Steele to be indemnified under the policy.”

· Pleaded, further or alternatively, that:
“Steele has assigned all his rights and benefits under the Policy to HCSL or to a related entity and accordingly has no rights to claim thereunder.”

· Pleaded, further or alternatively, that:
“For SGIC to pay Steele any sum claimed in this proceeding would be to unjustly enrich Steele in that he has suffered no loss for which he should be indemnified or compensated.”

· Relied upon exclusion clauses (b), (h), and (m) of the SGIC Policy.

Pausing, the defence current at trial denied that the SGIC Policy must respond to the incident, calling upon exclusions (b), (h) and (m). If SGIC made good its contention that any one of those exclusions applied then, if no provisions of the Insurance Contracts Act 1984 (Cth) (“the Act”) could be successfully relied upon by Steele, HIH’s claim for contribution in respect of the HIH costs must fail, as must the claim made by Steele.

The validity of Steele’s claim was also challenged on other bases. SGIC pleaded that an entity other than Steele had made the payments to Screenco, this extinguishing his liability to that company to the extent of the payment. Accordingly, Steele was to that extent not under a liability which called for indemnification. Again, it was pleaded, Steele had assigned any relevant rights – that is, against SGIC – to HCSL or a related entity. So he had no right to seek indemnification. Further, Steele having suffered no loss, he would be unjustly enriched if he was indemnified in the amounts claimed.

I should mention a further aspect of the pleadings. They contained an oddity in light of the way in which the parties conducted the trial and the appeal. The plaintiffs pleaded that the assignment agreement was a contract of indemnity. SGIC denied it. The parties adopted exactly the opposite positions at trial, and on the appeal.

I turn to the conduct of the trial. It did not altogether coincide with the pleadings.

The HIH costs claim was defended by SGIC on the basis that the SGIC policy did not respond to Steele’s liability in the NSW proceeding by reason of one or more of the three exclusion clauses. But it was accepted that clause (h) should be understood to be an exclusion different in content to the exclusion as literally expressed; and the learned judge so approached it. His Honour concluded that HIH was entitled to equitable contribution of $40,342.01. In this appeal, as I have noted earlier, SGIC relies upon only one of those exclusions, namely exclusion (h).

The Steele claim was also defended on the footing that one or more exclusion clauses applied. Again, the learned judge held that none of them applied. Again, on this appeal, SGIC relies only on exclusion (h).

Further at trial, SGIC maintained that the claim to indemnity from SGIC must fail because Steele had already been indemnified by another insurer – that is, HCSL; and in any event because what had been paid was an indemnity, and Steele had no right to be indemnified twice.

The way in which SGIC advanced its case at trial led the learned judge to focus upon the question whether HCSL and/or the Scheme was an insurer – which question he answered in the negative; and the further question whether what had been paid on Steele’s behalf should in any event be characterised as an indemnity – which question he also answered in the negative.

The learned judge mentioned, but only briefly, the assignment agreement. He said that one right which Steele had assigned was his right to indemnity under the SGIC Policy; and “(n)o notice of that Assignment having been given to [SGIC], [HCSL] is entitled to sue in Steele’s name to enforce the claim for indemnity under the [SGIC] Policy”. His Honour went on:

“It is no answer for the defendant to assert that because Screenco has been paid by [HCSL] and other parties have had their costs met there is no liability in Steele which it is required to indemnify. Nor is it an answer to say that [HCSL] is confined to seeking equitable contribution as a co-insurer from it by suing in its own name. It may be that upon meeting Steele’s claim the defendant has a right to prove in the liquidation of HIH for equitable contribution as a co-insurer but that question is not now before the Court.”

The first part of the passage just cited might have related to the pleaded defence that Steele had assigned any relevant rights; and to the unstated corollary that he could not sue for indemnification in respect of moneys paid. But his Honour’s reasons, read in full, do not suggest that any such argument was advanced.

The latter part of the passage addressed a matter not squarely raised by the defence. It focussed upon the argument – rejected by his Honour – that HCSL should be characterised as a co-insurer.

All in all, his Honour’s reasons strongly suggest that, the operation of the exclusion provisions aside, the debate had to do with whether HCSL should be characterised as an insurer, whether the assignment agreement was a contract of indemnity insurance, and whether amounts paid on Steele’s behalf in any event constituted an indemnity.

Having rejected SGIC’s arguments, including its reliance on the exclusion clauses, it followed that his Honour should make the declaration sought by Steele, and give judgment in Steele’s favour for a money sum, each of which he did.

I should mention again another issue disposed of at trial. His Honour held that Steele should not be able to recover in respect of the unpaid balance of his own costs. That finding is not the subject of cross-appeal.

SGIC sought to rely upon eight grounds of appeal. Later, I will set them out verbatim. For the present, it is enough to say that one related to the judge’s finding that exclusion (h) in the SGIC Policy had no application, that six related to his Honour’s conclusion that Steele’s claim was not foreclosed for one reason or another, and that the eighth was a proposed added ground - by which SGIC sought leave to raise arguments not advanced at trial in defence of the claim in respect of the HIH costs. The Court heard argument upon the substance of that ground and reserved its decision on the application for leave to rely upon it.

The HIH Policy, the Scheme, and the SGIC Policy

In order to understand the issues raised on the appeal, it is necessary to say something about the HIH Policy, the Scheme, and the SGIC Policy.

The HIH Policy

The HIH Policy, renewed for the period 3 September 1997 to 3 September 1998, was of the general liability type. By clause 1, subject to the terms, conditions and exclusions of each section of the policy, and the policy as a whole, the underwriter agreed to indemnify Steele against its liability to pay compensation, including costs and expenses, in respect of liability arising in the course of the conduct of Steele’s business, and as defined by each insuring section of the policy.

By section 1 of the policy, Steele was indemnified, in accordance with clause 1, and subject to a presently irrelevant exception, in respect of injury and/or damage occurring during the period of insurance. Damage was defined by clause 1(b) to mean “loss of or damage to tangible property including the loss of use thereof resulting therefrom”.

Clause 11 of the policy set out general exclusions. Clause 11.10 limited indemnity in the event that there was another policy which more specifically provided liability cover in respect of the event the subject of the claim. That clause was not invoked by HIH. Neither was it said by the parties to be of any significance.

In the event, it was not in dispute that Steele was entitled to the provision of indemnity under the HIH Policy if Steele was liable for the incident in which the screen was damaged. Indeed, up until the time of the collapse of HIH, that insurer undertook Steele’s defence of the NSW proceeding.

The Scheme

The Commonwealth established the HIH Claims Support Scheme in respect of certain claims made under policies issued by companies in the HIH group. In July 2001 it appropriated $640 million from consolidated revenue; and, at about that time, it appointed HCSL to administer the Scheme.

The learned trial judge observed that –

“The only legislative basis for the HIH Support Scheme appears to be a one line Act of the Commonwealth Parliament appropriating the $640 million from consolidated revenue. There is no statutory description of the nature of the support fund, the rights and liabilities of claimants upon it or even any criteria for determining eligibility for assistance.”

It was not submitted in this Court that this description of the legislation was other than accurate.

No oral evidence was adduced at trial as to the structure of the fund established by the Scheme, or as to the way it operated. Relatively few documents were put into evidence. Some were Commonwealth documents; others were documents created by HCSL. It is necessary to describe the content of those documents, beginning with a Commonwealth document headed “Notes for applicants” (“the Notes”).

Before embarking on that task, I should mention that the learned judge seems not to have been provided with all the documents which were apt to disclose the set-up and operation of the Scheme, and the interrelationship of the parties to it. See Balangarri Aboriginal Corp (in liq) v Cleanthous and anor.[8] If I am correct in what I have just said, then a proceeding with potentially broader ramifications was determined at first instance, and will be determined by this Court, on an incomplete and possibly misleading factual basis.
[8][2004] WASC 200, [14], [27]–[32].

Be that as may, I go to the Notes. They provided that a person qualified to apply for the Scheme if such person was a policy holder or insured who had a claim under an insurance policy issued by a company in the HIH group, and if such person was, inter alia, an “Australian Small Business Proprietor”. That term was defined.

The Notes defined the companies in the HIH group, and provided that the claim must relate to an event which occurred before 11 June 2001. In the case of “claims made” insurance, the claim must have been made, or a circumstance notified to the insurer, before that date.

The Notes said this: “As the Scheme is funded by taxpayers, a means test applies to restrict the Scheme to cases of genuine hardship.” The means test particularly applied in the case of claims by individuals.

The reach of the Scheme was also diminished by a series of exceptions. So a person who was not an “Australian Citizen” or an “Australian Permanent Resident” as defined did not qualify for assistance. Likewise if the applicant’s business was not a small business as defined. Likewise if the claim fell into any one of a number of specified categories – compulsory third-party, workers’ compensation, builders’ warranty, or compulsory professional indemnity insurance for legal practitioners.

The Notes said that the Scheme would pay 100 percent of the amount which the insurer would have been obliged to pay under the relevant policy for certain types of claim; and that -

“For other types of claim to which the Scheme applies, it will meet 90 percent of the amount which the insurer would have been obliged to pay under the relevant policy. The policy holder must pay any excess and all other terms, conditions and limits of the policy still apply.”

The Notes made it clear that the claimant would have to pay not only 10 percent of any court judgment or settlement amount, but also 10 percent of the costs incurred in investigating and defending any claim.

The Notes stated that:

“The Scheme does not provide you with a replacement insurance policy. You should seek alternative cover immediately if your insurance cover is still with an HIH company”.

The Notes provided that a claimant should make an application for assistance. Eligibility was in the first instance to be decided by HCSL. There was provision, it was said, for both internal and external review of a decision by HCSL to refuse assistance.

The Notes effectively ended with the following highlighted statement:

“The Scheme may be withdrawn or criteria for eligibility altered at any time without notice”.

I next refer to a Commonwealth document entitled “Application for assistance”. That document set out a pro forma which was to be completed by an applicant and forwarded to HCSL. It referred the reader to the Notes. It also said this:

“In return for assistance under the Scheme, you will be required to assign your rights under the policy against your insurer, along with any legal rights you may have against any one else relating to your claim under the policy, to HCS Ltd. For more information, please refer to the explanatory Notes detailed in the Offer to Assign your Policyholder Rights.”

The application form itself required the provision of material apt to disclose whether the circumstances of the applicant and the claim were such as to attract the operation of the Scheme as it had been described in the Notes.

I go the Commonwealth document entitled “Offer to Assign your Policyholder Rights”. This four page document contained three pages of “Conditions and Obligations”, and a one page pro forma offer to assign rights.

According to the text of the conditions and obligations, the applicant was currently an unsecured creditor of the HIH group. That was likely to yield the applicant, in the long term, less than 50 cents in the dollar.

The document then said this:

“The Commonwealth Government has agreed that, in certain cases, and subject to the limitations of the HIH Claims Support Scheme, it will provide the benefit that would have been provided by HIH under an insurance policy.”

It said that if an applicant filled in the form, such applicant would be –

“ … offering to assign to HCS Ltd:
· Your rights under your policy of insurance against the HIH company which issued it; and
· Any rights which you may have against other persons or organisations in connection with your claim under that policy.

You will also be undertaking to provide all reasonable assistance and co-operation to HCS Ltd and other parties.”

The document then set out what was meant by the provision of reasonable assistance and co-operation. In essence it meant that the applicant must co-operate with HCSL, fully comply with the terms of the HIH policy and agree to continue to perform and observe all the obligations, conditions and provisions of the policy, as though HCSL was the insurer which issued it.

The document informed the applicant that if HCSL accepted the offer of assignment of rights, it would mean that HCSL would pay the applicant –

“at least 90 percent of the amount that would have been provided by the HIH insurer under your insurance policy.”

but that the applicant would no longer have a right to recovering any funds from HIH when it was eventually liquidated, nor any right to pursue rights which the applicant might have against any other persons or organisations in connection with the claim under the policy.

The document was explicit in describing how it was that an offeror would know if HCSL had accepted the offer made:

“The only method which HCS Limited may use to accept your offer is payment of a benefit under the Scheme. Where the benefit consists of a series of payments relating to one claim, the first payment of the series constitutes acceptance by HCS Limited of this offer.”

The document also provided that if the HCSL accepted the offer, but the applicant did not comply with the requirements of the Scheme or the undertaking to provide all reasonable assistance and co-operation, then HCSL might in its absolute discretion withdraw the provision of further assistance under the Scheme or set a limit on the total amount which would be paid under the Scheme.

By the pro forma offer to assign, the offeror offered to assign rights of the kinds which I have earlier described, on the terms, conditions and obligations advised, “(i)n return for the payment of a benefit under the Scheme.”

I turn to two documents which emanated from HCSL. The first of them appears to have been downloaded from the internet. HCSL described itself this way:

“HCS is not an insurance company, nor is it affiliated with any member of the HIH group. It is a not-for-profit company established by the insurance industry to administer the Commonwealth Government’s HIH Claims Support Scheme”.

Concerning assistance, the document said this:

“When we have your application for eligibility, we will be able to determine whether you are eligible for assistance under the Scheme. The Commonwealth Government has determined the assistance to be provided to individuals and small businesses and has issued eligibility criteria for access to the Scheme. Click here for eligibility criteria.
Once we have confirmed that you are eligible under the HIH Claims Support Scheme, we will forward your application to one of the participating insurance companies, where your insurance claim will be assessed according to the terms and conditions of your policy.”

The document stated that “the application for eligibility package” contained notes for applicants, an application for assistance, a statutory declaration for small business proprietors and an offer to assign policyholder rights. Concerning the last-mentioned, it said:

“This is the most important form to complete and include in your application package. Without it, your application cannot be processed. Please ensure that it is fully completed, signed and affixed with a company seal (if required under your company’s constitution).”

I turn to an HCSL document headed “HIH Claims Support Scheme”; and sub-headed “Notes for Australian small business proprietors (June 2002).” Despite the date of the document, it appears not to have been in debate that it was relevant in the circumstances of this case.

Much of what the document said repeated the content of the Notes to which I referred a little earlier. Beyond that, it described the Scheme as “a discretionary, administrative scheme funded by the Commonwealth”; and it stated that “The Commonwealth may vary the terms of the Scheme, suspend the Scheme or withdraw the Scheme at any time.”

Apparently appended to this document was a pro forma statutory declaration which was to be completed by an Australian small business proprietor.

So much for the generic documents pertaining to the Scheme. So far as I can see, there was not put into evidence any application for assistance signed by Steele, nor any statutory declaration. But it was agreed between the parties that Steele had applied for assistance under the Scheme. Further, offers to assign rights dated 10 July 2001 and 31 October 2001 were put in evidence. The latter corrected the relevant policy number.

An application for assistance having been made, Steele was assessed as eligible for assistance on the footing that, when entitlement to indemnify was confirmed, the Scheme would pay 90 percent of the amount which would have been paid by HIH under the terms of the HIH policy.

The SGIC Policy

The SGIC Policy was dated 12 April 1995. It was described as a “Contract Works Material Damage and Third-Party Legal Liability Policy”.

The Schedule to the Policy described “The Insured” as, inter alia, the Australian Grand Prix Corporation and “Contractors and Sub-contractors for their respective rights and Interests.”

“Construction operations” were defined by the Schedule as, inter alia, “All Works (within the meaning ascribed to that term under Section 28 of the Australian Grand Prix Act 1994) undertaken by the Australian Grand Prix Corporation (or its Contractors, Sub-Contractors …).”[9]
[9]“Works” was defined as follows: “‘works’ includes road construction or diversion, removal, relocation or planting of trees, installation of services, relocation of ovals, building or facilities, construction of other structures whether of a permanent or temporary nature or demolition works or works altering the topography of Albert Park.”

The “Construction Period” was defined by the Schedule to commence on 31 January 1995 and terminate on 30 June 1996, save that it might be extended by agreement between the Insured and the Insurers.

Insurance was provided under three sections of the policy: Section A, Material Damage; Section B, Defects Liability; Section C, Legal Liability. Limits were set under the different sections, and there was an excess.

The “Period of Insurance” in respect of Sections A and C was from 31 January 1995 to 30 June 1996. The period of insurance in respect of Section B was described this way:

“Commencing on the date of the issue of a Certificate of Practical Completion under any contract for the undertaking of work forming part of the Works and continuing for a period of 12 months in respect of such contract (‘maintenance period’).”

There was a separate insuring clause in respect of each section of the policy. I need only set out relevant parts of the insuring clause for Section C:

“The Insurers hereby agree, subject to the limitations terms and conditions hereinafter mentioned, that they will:
(a)Pay on behalf of the Insured all sums which the Insured shall become legally obliged to pay by way of compensation for –
…
(2)property damage

as a result of an Occurrence happening anywhere in Australia during the period of this insurance in connection with the Construction Operations detailed in the Schedule:
(b)Defend in the name of and on behalf of the Insured any claim or suit against the Insured to recover damages on account of such … Property Damage … :
(c)Pay, in addition to the limits of liability expressed in the Schedule
…
(2) all expenses incurred by or with the permission of Insurers for investigation, negotiation and defence of claims and suits; … “

“Occurrence” was defined to mean an event which during the Policy Period unexpectedly or unintentionally caused, inter alia, property damage.

“Property Damage” was defined to mean, inter alia:

“(a)physical damage to or destruction of tangible property which occurs during the period of insurance including loss of use thereof at any time resulting therefrom.”

There were exclusions specifically applicable to Section C of the policy. One of those exclusions was as follows:

“(h)Property Damage to any property which forms part of the Works prior to the issue of the Certificate of Practical Completion”.

The policy contained a clause dealing with Determination of Liability and Insolvency, which said this in part:

“No action shall lie against the Insurers unless the Insured shall have fully complied with the terms of this Insurance, nor until the amount of the Insured’s obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the Claimant and the Insurers”.

The policy was given extended operation by Endorsement No 4 to the policy, approved by SGIC and dated 6 February 1998. By that endorsement the period of insurance was stated to commence on 30 June 1997 and end on 30 June 1998.[10]
[10] The endorsement recorded agreement that the policy was renewed “for the forthcoming 12 months”. Notwithstanding that the document was dated 6 February 1998, this was no doubt an intended reference to the period commencing 30 June 1997.

The Endorsement defined “Construction Operations” somewhat more broadly than that term had been defined in the original policy.

The insuring clauses were set out in short form. In respect of Section C, the Endorsement said this:

“Legal liability to third parties for … Damage to Property as a result of an occurrence happening in connection with a business as defined in the Policy”.

The Endorsement contained special conditions. The second of them said this:

“The Principal to provide Insurers with copies of Certificates of Practical Completion and Final Certificates under all contracts for the Works.”

The Endorsement was issued subject otherwise to the terms, conditions and limitations of the policy.

The resolution of the proceeding at trial

I have already described the issues which were agitated at trial, and the way in which the learned judge resolved them. But I think it is desirable to supplement that description to some extent.

As I have said, the learned judge rejected the argument that any of the exclusions in the SGIC Policy applied. Having regard to the way in which the matter proceeded in this Court, it is only necessary to refer to what his Honour said about exclusion (h). Thus:

“It is accepted by all parties that no Certificate of Practical Completion was ever issued in respect of the scaffolding which collapsed. Nor did any of the parties to the contracts which led to its erection ever expect such a certificate to be issued. It was not contemplated by the contract between the Australia Grand Prix Corporation and Screenco, nor that between Screenco and R L Dew, nor that between R L Dew and Steele. Indeed the evidence before the Court was that it was not normal practice for Certificates of Practical Completion to be issued for any work carried out in respect of the Grand Prix. … the Chief Executive Officer of the Australian Grand Prix Corporation gave evidence that the practice of the Corporation with respect to works being undertaken for it was to ascertain that the works were complete and functioning. It did not issue Certificates of Practical Completion nor would anyone on its behalf.”

The learned judge observed that the term “Practical Completion” was not defined by the policy. SGIC, he said, accepted that to give any meaning to the exclusion at all it must be given “a common sense meaning”. It argued that Steele had not completed his contract and that, as the works were not complete, the exclusion applied.

His Honour noted that the plaintiffs argued that the clause could not “be given a reasonable construction capable of giving effect to the intention of the contracting parties.” Given its literal meaning, as no Certificate of Practical Completion was ever likely to be issued, the existence of the clause would exclude every possible claim. This would destroy the policy, and so could not have been the intention of the parties to it.

His Honour said this:

“At the time this accident occurred the structure which collapsed was, for all practical purposes, complete. It lacked only a tarpaulin covering which added nothing to its structure or integrity, its capacity to carry out the function for which it was erected or anything else other than its aesthetic appearance. Mr Potter, of Screenco, considered that it was complete. It was suitable, so far as he could see, for the erection of the … screen and the lack of a tarpaulin did not effect that operation.
Accepting the defendant’s contention that the clause should be given a common sense meaning that meaning must be that it operates not until completion of works under a relevant contract but until practical completion of those works. The word ‘practical’ must be given a meaning. Completion of a contract means full and final completion. In Morgan v S S Constructions Pty Ltd [1967] VR 149 the Full Court of this Court distinguished ‘completion’ from ‘substantial completion’. ‘Practical completion’ must be dissimilarly distinguished here. On the facts in this case Mr Steele’s contract to erect the scaffolding which later collapsed was practically complete at the time the accident occurred. The clause, accordingly has no operation in this case.
It may be, of course, that the clause is, as the plaintiffs contend, void for uncertainty. Indeed, not only is it possibly uncertain with respect to the question of Certificates of Practical Completion but it is very difficult to give a sensible meaning to the opening words of the clause which refer to ‘The Works’ in the context of this policy and its Endorsements. However, having regard to the defendants’ argument and the evidence to which reference has been made, there is no need to examine these questions further.”

Concerning the issues whether the Scheme was an insurer and whether the agreement between it and Steele constituted an insurance policy pursuant to which indemnity had been given, his Honour said “if it is an insurer who has provided an indemnity pursuant to the policy, the principles expounded in Sydney Turf Club v Crowley [1971] 1 NSWLR 724 would appear to be applicable.” But his Honour held that, “it could not be concluded that [the Scheme or HCSL] was an insurer.”

The threads of his conclusion were these: first, it is an essential element of insurance that there be an obligation to indemnify in respect of the risk of an adverse event which may or may not occur. Second, the insured must be contracting “for the certainty of payment in specified circumstances, not simply for the certainty of proper consideration being given to his claim that a discretion to make a payment in those events should be exercised in his favour.”[11] Third, in the present case the offer to assign rights made by Steele was expressed to be “in return for the payment of a benefit under the Scheme”. No premium was payable, and no event was being insured against. Fourth, the language of the application, the Eligibility Confirmation Certificate and the terms of the QBE letter of 10 October 2001 spoke only of Steele being “eligible for assistance”. Those matters, together with the discretionary nature of the fund, and the way in which it was set up, led to conclusions that the Scheme was not an insurer, and that whatever was paid to or on Steele’s behalf was not an indemnity “but rather a merciful benefit or subvention of the Commonwealth Government”. Fifth, there was no uncertain event which might or might not occur with respect to Steele’s relationship with HCSL. It was not the case that “the uncertain event being incurred against was the result of the trial”. The critical event had already occurred. It was not uncertain whether it would or would not occur. A submission for SGIC that the uncertain event being insured against was the result of the trial in the NSW proceeding should be rejected because, as soon as assistance was granted, the Scheme began to make payment of Steele’s legal expenses.
[11]Medical Defence Union Ltd v Department of Trade [1980] 1 Ch 82 (Megarry VC).

In the event, his Honour concluded, neither the Scheme nor HCSL was an insurer. Still less was either of them an insurer insuring the same risk as SGIC.

The learned trial judge addressed the further argument advanced for SGIC that even if there had been no insurance contract between Steele and the Scheme, nevertheless an indemnity had been provided to him. His Honour rejected that argument because he concluded that the payments made to or on behalf of Steele were not indemnities but “benefits provided by the Commonwealth Government in alleviation of financial distress caused by the catastrophic insolvency of HIH”.

I should expand upon only one further aspect of his Honour’s reasons. Having rejected SGIC’s submission that any of the exclusions in the SGIC Policy applied, it followed that HIH was entitled to contribution in respect of the HIH costs. Argument having centred upon the question whether the SGIC Policy responded in the circumstances, there appears to have been no issue as to the extent of the contribution which should be ordered. HIH contended for a 50 percent contribution, and his Honour made an order to that effect.

The grounds of appeal

“1.That his Honour erred in fact and in law in finding that, for the purpose of exclusion clause 3(h) of section C of the policy insurance issued by the appellant (then called SGIC General Insurance Ltd) to Australian Grand Prix Corporation (“the policy’) the contract under which the second respondent (“Steele”) was to erect the scaffolding the subject of the proceeding was practically complete at the time of the accident the subject of the proceeding.
1A.That his Honour erred in fact and in law in finding that the first respondent was entitled to recover the sum of $40,342.01 as equitable contribution from the appellant:
(a)in circumstances where there remained to be established the totality of rights of contribution between those parties; and
(b)without reference to the totality of such rights.

2.That his Honour erred in fact and in law in finding that the payments made by HCSL in respect of liabilities in Steele established in the NSW proceeding did not preclude a claim by Steele under the policy for indemnity in respect of the same liabilities.
3.That His Honour erred in fact and in law in failing to find that because Screenco Pty Ltd had been paid by HCSL and because other parties had their costs met in the NSW proceeding there was no liability in Steele which the appellant was required to indemnify.
4.That His Honour erred in fact and in law in finding that the agreement between Steele and HCSL was not an agreement of insurance.
5.That His Honour erred in fact and in law in finding that there was no uncertain event which might or might not occur with respect to Steele’s relationship with HCSL when that event was the establishing of a liability in Steele to pay damages or provide other relief in the NSW proceeding.
6.That His Honour erred in fact and in law in finding that HCSL did not insure Steele in respect of the same risk as that insured by the appellant.
7.That His Honour erred in fact and in law in finding that the payments made by HCSL to or on behalf of parties in the NSW proceeding were not made by way of indemnity of liabilities established in Steele in the NSW proceeding.”

Resolution of the appeal
Exclusion 3(h)

In resolving the appeal, I should first deal with exclusion 3(h) of the SGIC policy. I have set it out at [100]. Argument concerning that exclusion was not at the forefront of SGIC’s argument. Nonetheless, if the attack on the conclusion reached by the learned trial judge was made out, it would mean that the appeal must, without more, succeed – both against Steele and HIH.

The trial was conducted on the basis, in effect, that the exclusion fell for consideration as if the words “the issue of the certificate of” were pencilled out; that is, so that the clause would operate to exclude property damage which occurred prior to practical completion in fact. The parties were content so to approach the matter on the appeal, although Steele and HIH also sought to support the favourable conclusion at trial in reliance upon the actual language of the clause, and what they submitted were the consequences of that language.

The appellant contended, on the footing that the clause should be considered as if it dealt with the fact of practical completion, that the judge below was wrong to have concluded that the damage was done before practical completion. The term “practical completion”, counsel submitted, is a term of art in building contracts. It means completion of all the work agreed to be performed.[12] Whether the relevant contract was that between the Corporation and Screenco – which SGIC contended was the case – or between Dew and Steele, the contract was not practically completed when the screen was damaged. At least, Steele had not erected the tarpaulins. The judge had erred, counsel submitted, because he had equated “practical completion” with “substantial completion”.
[12]Citing Halsbury’s Laws of Australia; 065 - Building and Construction, para 65-935, and Ukrainian Association of WAin Perth Inc v Squire Constructions [2004] WASC 4, [43].

Counsel for the respondents submitted that SGIC was attempting to challenge a finding of fact in circumstances where the judge had not misdirected himself as to the meaning of “practical completion”. Such completion is for the purpose of allowing the employer to take possession of the works to use them as intended.[13] In the present case, counsel submitted, the evidence was that Screenco had itself decided that the scaffold was so completed. It had taken possession of the scaffold in order to erect the screen, as part of its contractual obligation to the Corporation. It had done so, by its Mr Potter and other workmen, even before Steele and his men, having been told by a WorkCover inspector to put up the tarpaulins using a cherry-picker, had left the site for the day.
[13]Citing J. Jarvis & Sons Ltd v Westminster Corporation (1969) 1 WLR 1448, 1458; Murphy Corporation Ltd v Acumen Design & Development (Qld) Pty Ltd (1995) 11 BCL 274, 294.

Before addressing the competing arguments in point of principle, this may be said: counsel for the respondents was correct in submitting that, despite the tarpaulins not having been erected, Screenco had taken over the scaffold before the incident occurred. The Screenco production manager, Mr Potter, gave evidence that, “absolutely”, the structure was then in an appropriate state to erect the screen – although that evidence, obviously enough, was not directed to what proved to be the inadequate strength of the “I” beam. The witness said also that the tarpaulins would have added nothing “structural integrity wise”.

In my opinion, the learned trial judge did not misdirect himself with respect to the term “practical completion”. He was invited to deal with exclusion (h) on the basis that it could not be given literal application – that is, because the overall contractual regime at the Grand Prix made no use of “certificates of practical completion”. Further, the term “practical completion” was not defined by the SGIC policy, and his Honour was invited by counsel to give the clause a “common sense meaning”. That was not the same as submitting that the term should be given the technical meaning which might it bear under a construction contract; a fortiori under such a contract which defined the term.

In the event, it is not surprising that his Honour, seeking to give meaning to the adjective “practical”, treated it as comprehending, in the circumstances of the case, a situation in which all the structural work which Steele was to perform was in fact complete; that being the perception of the contractor to which, at a remove, Steele was sub-contracting. So to construe the meaning of “practical” was not to equate it with “substantial”.

I should add three matters. First, if the term “practical completion” should have been construed as if it appeared in a construction contract, it does not follow that a result favourable to SGIC would have eventuated. The observations of Williams J, as his Honour then was, in Murphy Corporation,[14] if applied to the present case, well justified the conclusion of the learned trial judge. Jarvis & Sons, also relied upon by the respondents, would very likely lead to the same conclusion. In the UkrainianAssociation case, relied on by SGIC, there was a contractual definition of “practical completion”.[15] The passage in the reasons for judgment of Pullin J relied upon by SGIC[16] carries the matter no further. It does not conflict with what was said by Williams J in Murphy Corporation, nor with the passage in the reasons of Salmon LJ in Jarvis & Sons cited by Williams J. Again, the passage from Halsbury’s Laws of Australia[17] upon which the appellant relied did not, in my opinion, assist it.
[14](1995) 11 BCL 274, 294–295.
[15][2004] WASC 4, [27].
[16]Ibid [43].
[17]Citation, n 12.

Second, in my opinion the relevant contract was the contract between Dew and Steele, not the contract between the Corporation and Screenco. The trial was conducted, as appears from his Honour’s reasons for judgment at [27], on that basis. The suggestion that it was otherwise was only made on the appeal; and it was not much pursued.

Third, I have not found it necessary to deal with the respondents’ submissions that –

·Exclusion 3(h) was, for a variety of reasons[18] so vague and uncertain in its meaning that it could not be given a literal construction, in the circumstances of the case, capable of reasonably giving effect to the intentions of the parties.
·Section 54 of the Insurance Contracts Act 1984 precluded SGIC’s reliance on the exclusion even if it was not so vague and uncertain as to be incapable of operation.[19]
[18]Including provisions of Endorsement No 4.
[19]The submission depended, as I understand it, on there having been practical completion in fact.

Was there a contract between Steele and HCSL? Was it a contract of insurance?

Counsel for SGIC submitted that a contract was entered into between Steele and HCSL, and that it was a contract of insurance. It was a contract of liability insurance, which is a species of indemnity insurance.[20]
[20]Kelly & Ball, Principles of Insurance Law, [14.0010].

The contract made between Steele and HCSL counsel submitted, was a contract of insurance because the three requirements for such a contract stated by Channell J in Prudential Insurance Company v Commissioner of Inland Revenue[21] were satisfied. Counsel summarised the requirements this way:
[21][1904] 2 KB 658, 662, 663.

· There must be an agreement, for consideration, to provide a benefit,[22] upon the happening of an event.

· There must be uncertainty whether or not the event will occur at all, or as to the time at which it will happen.

· The insured must be at risk of suffering a loss.

[22]Usually a payment of money.

In this case, the argument ran, it mattered not that many of the customary indications of an insurance arrangement were absent; for at its heart, the arrangement was of that kind. There was a contract, as Steele and HIH had conceded at trial. There was an uncertain event. It was a finding of Steele’s liability, that being the event which triggered the obligation to indemnify (for HCSL had undertaken to indemnity Steele, in effect, according to the terms of the HIH policy). Finally, when Steele and HCSL entered into their contract, Steele was at risk of suffering a loss – that is, the imposition of liability in respect of the incident.

Further according to the submissions for SGIC, the situation was one in which (assuming that exclusion 3(h) of the SGIC policy did not operate in its favour) Steele had been indemnified by one of two insurers in respect of the same liability – that is, the loss arising from liability imposed upon the insured, whether by judgment, arbitration, or agreement to which the insurer and insured were parties.[23] In the present case, authority apart, both contracts of insurance turned on the imposition of liability upon Steele. Counsel relied, in the case of the SGIC policy, upon the Section C Insuring Clause and the Determination of Liability and Insolvency Clause;[24] and, in the case of the (asserted) HCSL contract of insurance, upon HCSL’s commitment to pay, if it accepted the assignment of rights, “at least 90% of the amount that would have been provided by the HIH insurer under [Steele’s] insurance policy” – the HIH policy committing HIH to indemnify the Steele against his liability to pay damages in respect of liability arising in the course of his business during the period of insurance.
[23]Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363, 373-374 (Denning MR), 377-378 (Salmon LJ).
[24]Set out in these reasons at [97] and [101].

Upon the assumption that Steele had been indemnified by one of two insurers in respect of the same liability, SGIC submitted, in accordance with authority, that Steele was not entitled to be indemnified twice over, and that the insurer which had paid could not seek to enforce a right to contribution by way of suit in the insured’s name by way of subrogation.[25]
[25]These principles were not in dispute. They are exemplified by Sydney Turf Club v Crowley [1971] 1 NSWLR 724, 730, 733 (Jacobs JA), 734-735 (Mason JA); (1972) 126 CLR 420, 424 (Barwick CJ).

Pausing for a moment, if the arrangement between Steele and HCSL was contractual, and if the contract was a contract of insurance, it appears to me that SGIC’s argument must be accepted. It would not tell against that conclusion that HCSL would pay only 90 percent of the amount that would have been payable by HIH.

I turn to the submissions advanced by Steele and HIH. Paragraphs [21]–[22] of the Statement of Claim current at trial pleaded that an agreement for good consideration had been made between Steele and HCSL. Paragraph [23] described it as a “contract of indemnity”. In their written outline of submissions in this Court, Steele and HIH described the relevant arrangement as “a contract for the provision of a benefit from a discretionary administrative Scheme”. But in oral submissions counsel seemed to back away from the characterisation of the arrangement as contractual. Referring to the Balangarri Aboriginal Corporation case,[26] he submitted that Steele had no enforceable right against the Scheme.
[26]Citation, n 8.

Perhaps counsel was just seeking to argue, in another way, that Steele had no contractual right to payment. But if he did seek to argue that no contract was made between Steele and HCSL, I would reject the argument. Balangarri involved the determination of a strike-out application and an application for summary judgment. One matter which fell for consideration was a pleading that a contract had been made between an HIH insured and HCSL. Commissioner Zilko SC held that the plea was bad because HCSL had made no payment following upon the offer to assign rights. He said:

“. . . acceptance of a policy holder’s offer to assign only occurs when payment is made under the Scheme . . . no contract can come into existence . . . until payment of a benefit is made.”[27]

[27][2004] WASC 200, [23].

In my respectful opinion that was a correct statement of the position. The part of the offer to assign rights set out at [80] above shows why that is so.

The point made by the learned Commissioner had nothing to say upon the question whether, when a payment was made, a contract was then concluded. In my opinion, the indications are strongly that a contract was then made. At that point, in return for money being paid in relief of liability, the HIH policyholder assigned potentially valuable rights –both under the HIH contract, and external to it.

I should add this. It follows from what I have said that in my view the particulars of the agreement pleaded by paragraph [21] of the Statement of Claim[28] were incomplete. No reference was made to the critical fact of payment.
[28]Summarised, inter alia, at [32] above.

I return to the submissions advanced by the respondents. Counsel contended, in short, that the learned trial judge had been correct, for the reasons, which he gave, to reject the proposition that the contract was one of insurance.

There are several aspects of his Honour’s analysis with which, respectfully, I am unable to agree. But I am satisfied that his Honour’s conclusion was correct.

Before addressing the difficulties which I perceive in his Honour’s analysis, and the reasons why I consider that his Honour’s conclusion was correct, it ought be observed that it has been judicially recognised that the requirements for an insurance contract stated by Channell J in the Prudential case are not all encompassing.[29] Likewise, it has been observed that some contracts may satisfy all three requirements and yet not be true contracts of insurance.[30] For all that, however, what was said by Channell J in Prudential has proved very useful over a long period of time; and I think it is useful in the circumstances of this case.
[29]See, for example, Gould v Curtis [1913] 3 KB 84; Medical Defence Union Ltd. v Department of Trade [1980] Ch 82, 89–90, 92–93 (Megarry V-C). So also, there may be insurance, it seems, although its provision is pursuant to statute: R v Cohen & Ors, ex parte Motor Accident Insurance Board (1979) 141, CLR 577, 588 (Mason J).
[30]Department of Trade & Industry v St Christopher Motorists Association Ltd [1974] 1 WLR 99, 106, (Templeman J, as his Lordship then was).

I turn to the difficulties which I perceive in his Honour’s analysis. There are two of them. First, as will be seen hereafter, I do not accept characterisation of the payments made under the Scheme as “a merciful benefit or subvention of the Commonwealth Government”; something resembling “social security payments, bushfire relief payments and the like.” Rather, and I consider that the burden of the material adduced at trial made it clear, such payments, when made to a successful litigant, constituted an indemnification of Steele.[31]
[31]The same may be said of payment of his own costs, as well as the costs of the successful litigants.

Second, and this is a matter of emphasis, the Scheme was discretionary in that it picked and chose which classes of HIH policy holders would be eligible for benefits, and as to the scale of benefits which would be paid. In that way, it may be said, the Scheme exhibited something like the discretionary features which were considered by Megarry V-C in Medical Defence Union Ltd v Department of Trade[32]; and which led to the conclusion that the pertinent contracts were not contracts of insurance.
[32]Citation n 29.

Those elements of uncertainty disappeared, however, when a contract was concluded by the making of a payment, or first payment. To my mind, that is of importance, notwithstanding that there still remained an element of uncertainty and discretion in that the Commonwealth reserved the right, inter alia, to withdraw the Scheme at any time.[33]
[33]Because it is not a decisive consideration, I need not decide whether a decision by the Commonwealth to suspend the Scheme, after a payment had been made in consequence of an offer to assign rights, could have been the subject of successful suit by the former HIH policy holder.

I turn to the matters which have persuaded me that his Honour’s conclusion was correct. First, it is true, under liability insurance, that liability to indemnify arises when there is a judgment, arbitration or agreement adverse to the insured. It is also true that the event in respect of which liability in due course attached – that is, an adverse judgment in the New South Wales proceeding – had not occurred when Steele made his offer to assign rights.

In my opinion, however, that is only part of the story. It is of the nature of a liability policy, generally speaking, that there are two components to the conception of an uncertain event: that is, uncertainty whether an event of a particular kind will occur during the period of insurance, and uncertainty whether any such event will crystallise into liability of the insured in favour of another person. But by this agreement HCSL undertook, at least provisionally, to make payment in respect of liability attaching to an event of the first kind which was no longer uncertain, and which had occurred otherwise than in what might be called a period of cover.

Again, it appears that the Scheme made payments in respect of Steele’s own costs before judgment was given against him in the New South Wales proceeding in September 2002. On SGIC’s argument, the uncertain event calling for indemnity only occurred when judgment was entered against him. If that was literally the case, one might focus on the payment to Screenco as the first relevant payment; and that post-dated the event being rendered certain. On the other hand, if payments in respect of costs, which accorded with the regime that would have applied under the HIH policy, were part of the indemnification, then it could not be said, without qualification, that the critical event was the imposition of liability against Steele in the New South Wales proceeding.

Second, I doubt that an assignment of rights by Steele – which would crystallise in money terms if and when he was held liable in the New South Wales proceeding – should be equated with a premium, which is the usual form of consideration paid for insurance cover,[34] and which is ordinarily paid, in part at least, before the occurrence of an event which in due course culminates in imposition of liability upon the insured. It is the more difficult, I think, to equate the assignment of rights with premium paid in the case of the assignment of rights in respect of HIH. There, what was being assigned was a right to prove as an unsecured creditor in the HIH winding-up in the event that liability was imposed on Steele in the New South Wales proceeding.
[34]The absence of a “premium in the true sense” may not be decisive against there being insurance: Australian Health Insurance Association Ltd v Esso Australia Ltd (1993) 41 FCR 450

Third, in the way which I have described, on its face there remained under the agreement a certain discretionary aspect to payment, even after the first payment had been made.

The nature of the HCSL payments

Whether or not there was a contract between Steele and HCSL, payments were made which largely, though not completely, extinguished his liability under the New South Wales judgment to the successful parties – both in respect of the judgment sum and costs; and which, to the same extent, met his own costs. According to the argument for SGIC, in either event the payment should be characterised as indemnification – although it was the fact of payment, not its characterisation as “indemnity” which was decisive. According to the submissions for HIH and Steele, however, the learned trial judge had been correct to characterise the payments as a merciful subvention or the like; and for that reason they did not stand in the way of the present claim.

The significance of the dispute was this: if the payments were an indemnification, it would not seem to matter whether they had been paid under a contract of indemnity insurance, a contract of indemnity otherwise, or simply constituted an indemnity in fact. In any of those situations, the relevant consideration would be Steele that was entitled to one (full) indemnity, but no more.

The principle is of long-standing. In the case of an amount paid in the first instance otherwise than under an insurance contract, it is illustrated by Castellain v Preston;[35] and see the observations of Wheeler J in Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd,[36] referring to Caledonia North Sea Ltd v London Bridge Engineering Ltd.[37]
[35](1883) 11 QBD 380.
[36](2000) 23 WAR 291, 327, [166]–[167].
[37][2000] Lloyd’s Law Reports 249. The case went on appeal to the House of Lords. The observations of Wheeler J were cited with apparent approval by Lord Bingham of Cornhill at [2002] UKHL 4, [16].

Again, if the insurer has indemnified its insured first, and then the insured recoups money from another source – for example, by recourse to a contractual indemnity – the insurer has a right of recoupment in turn from its insured. This was described in Castellain as the exercise of a right of subrogation. The use of that description in such circumstances was criticized in British Traders Insurance Co Ltd v Monson.[38] But that is not to deny the soundness of the substance of the proposition, which was said in Transport Accident Commission v CMT Construction of Metropolitan Tunnels[39] to have been long accepted.
[38](1964) 111 CLR 86, 94 - cited in Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, (4^th ed, 2002), [9]-[160].
[39](1988) 165 CLR 436, 441 (Wilson, Dawson, Toohey and Gaudron JJ).

So, in the present case, if the moneys paid for or on behalf of Steele by HCSL were paid by way of indemnity, no question could arise of Steele seeking indemnification from SGIC. Nor, as I understand it, could HCSL exercise a right of subrogation so as sue SGIC in Steele’s name to recover what it had paid. That is so for several reasons.

First, there are circumstances in which, in the context of insurance, recovery of moneys paid may be sought by the exercise of a right of subrogation. But that is characteristically where an insurer has indemnified its insured and seeks recoupment in a proceeding against a party which is for some other reason liable to indemnify the insured. The most common examples are persons liable to the insured in tort or contract. In my respectful opinion, the different circumstances which may arise, and their consequences, were described pithily and accurately by Lord Hoffman in the Caledonia North Sea case. His Lordship said:

“It is certainly a general principle, as [counsel] says, that a person who has more than one claim to indemnity is not entitled to be paid more than once. But there are different ways of giving effect to this principle. One is to say that the person who has paid is entitled to be subrogated to the rights against the other person liable. The other is to say that one payment discharges the liability. The authorities show that the law ordinarily adopts the first solution when the liability of the person who paid is secondary to the liability of the other party liable. It adopts the second solution when the liability of the party who paid was primary or the liabilities are equal and co-ordinate.”[40]

[40][2002] UKHL 4, [92].

His Lordship referred to “primary” and “secondary” liabilities. The meaning to be ascribed to those adjectives was described by Lord Mackay of Clashfern in the same case. His Lordship said, having considered many authorities:

“[The] cases show that generally liabilities incurred in tort or delict, or in contract will be primary while the liability of the indemnity insurer of the injured party will be secondary.”[41]

[41]Ibid [62]; and see also [89] (Lord Hoffman).

Second, any right of recoupment that HCSL might have would be in consequence of assignment of rights; not by operation of subrogation. The two mechanisms are intrinsically different.[42]
[42](Meagher, Gummow and Lehane), [9]-[015] and [9]-[120].

What I have so far said leads to this point: if what was paid by HCSL was, by contract or in fact, indemnification of Steele otherwise than pursuant to a contract of insurance, then in my opinion – subject to an important matter which must next be considered – the indemnification should be regarded as having been made by a person primarily liable. That is so although the contract pursuant to which moneys were paid was somewhat different in type to contracts where the “primary” and “secondary” liability dichotomy has been considered - contracts imposing, for instance, an obligation on a tenant to leave premises in good repair, or an obligation on a contractor to indemnify the liability of a principal. At its highest, I think, the liability of HCSL was co-ordinate with the liability of SGIC; and in those circumstances HCSL should have brought a proceeding seeking contribution.

It follows from what I have just said that Steele could not sue SGIC seeking indemnification in respect of amounts paid for or on his behalf in the New South Wales proceeding; and that HCSL could not sue in Steele’s name to recoup its payments. Nor could HCSL sue to recoup its payments in a stand alone proceeding against SGIC. That would leave open the question whether it might successfully claim contribution from SGIC, a question which was agitated on the appeal, and to which I briefly referred a moment ago. That question need not be resolved. If the liabilities of HCSL and SGIC were co-extensive or co-ordinate[43] then there would be such a right. But that question did not arise on the pleaded claim in its amended form, save in respect of the HIH costs.
[43]See, for instance, Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342, Zurich Australia Insurance Limited v CSR Limited (2001) 52 NSWLR 193, Burke & Anor v LFOT & Ors (2000) 178 ALR 161.

I said a moment ago that there was an important matter which must be considered. It concerns the proper characterisation of the moneys paid by HCSL. There is a broad principle, applicable at least in insurance law and torts law, that credit need not be given by an injured party for moneys received by it which are not to be characterised as extinguishing or reducing that party’s loss, but are rather to be characterised as having been received independently of right of redress. In the field of insurance, the principle is exposed in cases such as Burnand v Rodocanachi Sons & Co[44] and Merrett v Capitol Indemnity Corporation.[45] In torts law it is seen in personal injury cases such as National Insurance Company of New Zealand v Espagne[46] and Redding v Lee; Evans v Muller,[47] and in claims for property and other damage such as Wollington v State Electricity Commissions of Victoria (No.2),[48] and Monroe Schneider Associates Inc and anor v No.1 Raberem Pty Ltd and anor.[49]
[44](1882) 7 App Cas 333.
[45][1991] 1 Lloyds Law Reports 169.
[46](1961) 105 CLR 569.
[47](1983) 151 CLR 117.
[48][1980] VR 91.
[49](1991) 33 FCR 1.

Burnand was an underwriters’ claim against the insured arising out of moneys paid under marine cargo valued risk insurance in respect of the destruction of the insured’s cargo by the act of a Confederate warship in the course of the American Civil War. Subsequent to the incident, the United States Congress established a compensation fund to meet the difference between the real loss sustained by the insured and the amount recovered under insurance. The underwriters failed in their attempt to recover the amount of compensation paid to the insured.

The broad principle was described as follows by Lord Blackburn:

“The general rule of law (and it is obvious justice) is that where there is a contract of indemnity (it matters not whether it is a marine policy, or a policy against fire on land, or any other contract of indemnity) and a loss happens, anything which reduces or diminishes that loss reduces or diminishes the amount which the indemnifier is bound to pay; and if the indemnifier has already paid it, then, if anything which diminishes the loss comes into the hands of the person to whom he has paid it, it becomes an equity that the person who has already paid the full indemnity is entitled to be recouped by having that amount back.
The first question is this. There had been a policy of insurance and a total loss by capture and destruction of the property insured and a payment of the full value insured – a payment of the total loss under that policy. Subsequently to that payment there came the Treaty of Washington; and afterwards, in consequence of an Act of Congress, a sum of money was paid to the persons who had received payment under the policy; and the question, I apprehend, comes to be, Was that sum or was it not paid so as to be a reduction or diminution of their loss?”[50]

[50](1882) 7 App Cas 333, 339

His Lordship also said this:

“Bramwell L.J. in his judgment has used the phrase, ‘It was not given as salvage’. I should myself prefer to use my own phrase expressing the same idea and to say that it was not paid in such a manner as to reduce the loss against which the plaintiffs had to indemnity the defendants; it is the same thing but rather differently expressed.”[51]

[51]Ibid 341.

There is no doubt that the principle is firmly established. It was so described by Steyn J, as his Lordship then was, in Merrett v Capitol Indemnity Corporation.[52] See also CMT Construction.[53] In the latter case it was said that an insured “is not fully indemnified in respect of loss or liability if required to account for benefits not touching that loss or liability.”[54]
[52](1991) 1 Lloyds Law Reports, 169, 171.
[53](1988) 165 CLR 436, 442 (Wilson, Dawson, Toohey and Gaudron JJ)
[54]Ibid 442.

In the torts cases, the significance of various kinds of benefits received by a plaintiff has been considered in the context of assessment of damages, including mitigation of damages. Espagne concerned the effect, if any, of an invalid pension granted to the plaintiff on account of his injury-caused blindness. Redding v Lee; Evans v Muller concerned the significance of payments of an invalid pension and unemployment benefits. Wollington decided that principles established in personal injuries case extended to a claim for property damage; and held that payments made by the State Government to the plaintiff out of a bushfire relief fund were not to be brought to account in assessing damages. Monroe Schneider raised a question as to the relevance of a payment made by a third party to the plaintiffs. It was held by majority that if the payment was made by the third party because it believed that the plaintiff was deserving of assistance in an unfortunate predicament, or to protect good relations between them, or for general commercial reasons, then it should be excluded in assessing damages.

In Redding,[55] Mason and Dawson JJ, cited this passage from the reasons for judgment of Dixon CJ in Espagne:

“ … there may be advantages which accrue to the injured plaintiff, whether as a result of legislation or of contract or of benevolence, which have an additional characteristic. It may be true that they are conferred because he is intended to enjoy them in the events which have happened. Yet they have this distinguishing characteristic, namely they are conferred on him not only independently of the existence of right of redress against others but so that they might be enjoyed by him although he may enforce that right: they are the product of a disposition in his favour intended for his enjoyment and are not provided in relief of any liability in others fully to compensate him.”

[55](1983) 151 CLR 117, 136.

Dixon CJ also said, in the passage cited by their Honours, that such an situation is readily seen in the case of benevolence - as by public subscription for an injured neighbour; and in the case of accident insurance taken out by a person who is later injured. But, as Espagne itself showed, they were simply examples of the principle at work.

Having also referred to the reasons for judgment of Windeyer J, their Honours concluded that later decisions of the Court, applying the principles expressed by Dixon CJ and Windeyer J, made it clear that –

“the issue turns on the character and purpose of the particular financial benefit which the plaintiff receives: was the benefit conferred on him independently of any right or redress against others and so that he might enjoy the benefit even if he enforced the right.”[56]

[56]Ibid 137.

The place to be given to “purpose” in the necessary analysis, and just what the word means in context, might raise difficult issues in a particular case. In Espagne, Windeyer J described one category of benefits that was to be disregarded in assessing damages as “cover[ing] a variety of public charitable aid and some forms of relief given by the State as well as the produce of private benevolence”. He said that determination whether a payment was that kind was by determination of “the intent of the person conferring the benefit.”[57] But in Wollington, Young CJ and Menhennitt J said that to avoid deciding whose purpose was relevant, the court should concentrate on the character of the receipt in the hands of the recipient.[58] That case illustrated the problems which might arise in determining purpose. Was the relevant purpose that of Parliament, the Executive Council, the Premier, the Treasurer, the Emergency Relief Committee, its chairman or his deputy?
[57](1961) 105 CLR 569, 599–600.
[58] (1980) VR 91, 99.

In the present case, I consider that the circumstances, however they are considered, lead to a conclusion that what was paid was an indemnity which was not to be equated with a merciful subvention of the Commonwealth Government, or as something resembling social security payments, bushfire relief payments or the like. By that I mean that such a conclusion flows from application of the Rodocanachi line of authority; and that it flows also from the Espagne line of authority, assuming it to be any different.

The matters that have led me to the conclusion which I have just expressed are as follows (they are not in any particular order of importance).

First, as I have said already, the effect of the HCSL payments was to indemnify Steele against his liability in the New South Wales proceeding. Counsel for HIH and Steele submitted, as I understood it, that the payments did not constitute an indemnity. He cited the following dictum of Asprey JA in Total Oil Products (Australia) Pty Ltd v Robinson.[59] In a case which raised the question whether a clause in a deed was a guarantee or an indemnity, his Honour said that –

“An indemnity is a contract whereby the promisor (the person giving the indemnity) undertakes to the promisee (the person indemnified) to save the promisee harmless from such loss as the promisee might suffer as a result of entering into a transaction with a third party at the request of the promisor.”

[59](1970) 1 NSWR 701, 703.

What his Honour said would have been too narrow had he intended to cover the field as to what is comprehended by the concept of an indemnity. But evidently his intent was directed to the problem in the instant case. It may be that counsel relied upon the dictum to propose that an indemnity, properly so-called, must extend to the entirety of an insured’s loss. But, if that was his purpose, I think that he sought to make out of the dictum something that was not there. Sutton, Insurance Law in Australia, speaks of “an indemnity against loss, and the measure of the loss is the measure of payment within the limits of the policy”.[60] Again, it is not uncommon for liability insurance policies to cap the amount of any payment which must be made if liability arises thereunder. Further, the fact that the liabilities of two insurers, or of an insurer and another person liable to make payments to an insured, are not the same in money terms does not mean that they cannot be liabilities to indemnify which are co-ordinate, and will permit the bringing of contribution proceedings.
[60](3rd ed, 1999), [1.2].

Second, it is probably not necessary to characterise the HCSL payments as an indemnity in order conclude that they stand in the way of Steele’s present claim; and to reject the conclusion arrived at by the learned trial judge. As to the latter aspect, I do not think it could be reasoned, if the payments were not an indemnity, that they must necessarily have been a merciful subvention - and must therefore be ignored.

Third, granted that the Commonwealth Government intended by the Scheme to confer a benefit upon people hard hit by the collapse of HIH, and that there was a discretion as to what classes of persons would be assisted, and to what extent, the methodology of assistance which was in fact rendered was in the end businesslike. It was by way of contract. The Scheme paid out no moneys without having obtained something of value in return – the assignment of the insured’s rights not only against HIH, but also against any third party. Further, it was a condition of the contract struck between HCSL and an insured that the latter would not only comply with his obligations under the HIH policy, but also comply with additional obligations to assist. As an aspect of the essentially businesslike quality of the Scheme - and this is not to suggest any criticism of the Government - the Minister described the consequence of the assignment regime, in his Second Reading Speech, as being that “the Commonwealth Government will become the largest single creditor of HIH”. To my mind, the circumstances which I have mentioned show a scheme remote from provision of social services, or public benevolence, or “no strings attached” governmental relief in the face of natural disaster.

Fourth, the measure of the relief which was provided had reference to the benefit that would have been payable under the HIH policy. Once the contract was concluded between HCSL and Steele, by a payment of money, HCSL committed itself to pay 90 percent of what would have been payable under the policy. That included payment of 90 percent the costs of the successful claimants and of Steele himself.

Fifth, it is true that the Commonwealth reserved to itself the right to vary or terminate the Scheme at any time; and that it allocated a definite overall amount to fund the Scheme. I accept that these circumstances emphasised that there was a discretionary aspect to the Scheme notwithstanding that payments were made for and on Steele’s behalf. But those circumstances do not lead, of themselves, to a conclusion that moneys paid had the character contended for by Steele and HIH.

Sixth, if the subjective purpose of the Commonwealth in making the payments was to be considered, then in my opinion it could not be said that an intent was disclosed that payments were not to stand as indemnification of an insured, as distinct from being payments made ex gratia. At the least, the position was left ambiguous. The Minister’s Second Reading Speech shows that assignment of rights was considered to be an important feature of the Scheme. Particularly in respect of third parties – which would include insurers and other persons liable to make good the insured’s loss – payments made in return for such assignment would seem to be of little if any value if they were simply made ex gratia, and other than by way of indemnification.

The 10 percent not paid by the Scheme

Paragraph 15A of the statement of claim current at trial pleaded Steele’s continuing liability on the unsatisfied part of the New South Wales judgment. Paragraph B of the prayer for relief sought a declaration of SGIC’s liability “in respect of all sums in respect of which Steele has paid (or which have been paid on his behalf) or has been held liable to pay …” Paragraph C of the prayer for relief, however, claimed payment only of the amounts paid by HCSL.

Despite the two paragraphs first mentioned, I do not think that it was plainly argued in this Court that Steele was entitled to judgment for the 10 percent of the judgment sum and costs not paid by HCSL. Presumably that was so because Steele’s offer to assign rights was, relevantly, any rights that he might have against a third person arising out of the incident.[61] That assignment was not expressed to be limited to the 90% of the claim and costs which HCSL agreed to, and did, pay. It might be the case that HCSL, if entitled to indemnity in a particular case, could recover more than it had thus far paid on the insured’s behalf. Presumably it could only do so if it committed itself to paying the balance to or for the insured. But those issues need not be further investigated. Although HCSL’s indemnification of Steele was less than full, I think that the basis upon which the appeal was apparently conducted – that is, that the assignment stood in the way of Steele seeking payment to him of the balance of the judgment sum and costs – was correct. Further, any claim for a declaration must have been made in a proceeding brought by HCSL, and in any event such a claim must have failed because, as I have concluded, HCSL was not entitled to indemnification by SGIC.
[61]I note also that SGIC contended that the assignment was wholly ineffective against it. It was thus not in the interests of HCSL, which surely had an important role, de facto, in this litigation, that there be a submission for Steele which argued other than that the assignment was wholly effective.

The HIH costs

SGIC sought to amend its notice of appeal to raise, as I noted earlier, an issue not raised at trial. It sought to argue that the trial judge should not have made an order for equitable contribution in respect of the HIH costs because there remained to be established the totality of the rights of contribution between HIH and SGIC; and because his Honour erred by making the order without reference to the totality of such rights. On an assumption that its reliance upon exclusion 3(h) failed, no challenge was thus made to the conclusion that HIH and SGIC had been insurers of the same risk, or as to the propriety of the order that the extent of SGIC’s contribution should be 50 percent.

In my opinion leave to amend should be refused. Making an assumption that the point is only one of construction or of the law, I consider that it is nonetheless not expedient and in the interests of justice to permit it to be raised.[62]
[62]Water Board v Moustakas (1988) 180 CLR 491, 497 (Mason CJ, Wilson, Brennan and Dawson JJ). See also Geelong Building Society (In liquidation) v Encel [1996] 1 VR 594.

According to the submissions for SGIC, there cannot be contribution ordered for a sum which is smaller than the claimant’s appropriate proportion of the total amount paid. Counsel relied upon authorities and a principal text relating to sureties.[63]
[63]Ex parte Gifford (1802) 6 Ves 805, Davies v Humphreys (1840) 6 M & W 153, 167-169 (Parke B), Ex parte Snowdon (1881) 17 Ch D 44, Stirling v Burdett [1911] 2 Ch 418 and Rowlatt, Principal and Surety, (5^th ed.), [7]-[45] to [7]-[64].

Here, counsel submitted,

“it would offend principles of natural justice for SGIC to be required to make contribution to HIH where SGIC will have rights of contribution against HIH in respect of any payment it is required to make under its policy by way of indemnity of Steele’s liabilities arising from the NSW proceeding.”

Particularly that was so “with HIH being wound up in insolvency.”

Assuming for present purposes, that the authorities and text cited by counsel were in point, I consider that the factual substratum relied upon by SGIC was not established. It is for that reason, mainly, that leave to amend ought be refused. Pertinent circumstances are as follows.

First, I have concluded that the payments made by HCSL were an indemnification of Steele against his liability in the NSW proceeding. For that reason,[64] Steele cannot obtain indemnification by SGIC in this proceeding – whether he is treated as suing in his own right, or in the some way for the benefit of HCSL. Nor could HCSL recover from SGIC, in another proceeding, the indemnity paid by it to or for Steele. Rather, at best, HCSL could recover equitable contribution from SGIC. So the starting point of SGIC’s argument - that is, that it could be obliged to indemnify Steele in respect of his liabilities in the NSW proceeding - is not made out.
[64]And because, in respect of the shortfall, he is precluded by his assignment of rights from bringing a personal action to recover the same.

Second, in a proceeding for recovery of contribution, HCSL would sue in its own right, as the entity which had indemnified Steele. The assignment of rights by Steele in respect of HIH was relevantly of “all rights to receive or demand the receipt of any benefit arising from any claim which you have made or make under your HIH policy, where the claim is the subject of the payment of a benefit under the Scheme.” The effect of this assignment was not to place HCSL in the shoes of HIH for purposes of contribution between it and SGIC.

Third, if HCSL was able to make a claim for contribution against SGIC, and succeeded in that claim, it could only succeed, I should think, to the extent of 50 percent of amounts paid and payable. In those circumstances, how could it be said that SGIC would then have a claim for contribution against HIH, taking as a

starting point its 50 percent contribution to Steele’s overall indemnification?

Fourth, it follows that the only amount in respect of which there could be a claim for equitable contribution as between HIH and SGIC is the amount of the HIH costs. In the event, I consider, the principles relied upon by SGIC do not stand in the way of the order made by the learned trial judge.

Orders

In my opinion, the order for payment by SGIC of contribution in respect of the HIH costs should be upheld. Otherwise, the appeal should be allowed.

REDLICH JA:

I have had the advantage of reading in draft the reasons of Ashley JA and agree for the reasons he gives that the appeal must in part be allowed. In my view SGIC was relieved from any obligation to indemnify Steele under the SGIC policy because of the payment made by HCSL. That payment was intended to and in fact discharged the major part of Steele’s judgment debt arising from the New South Wales proceedings. The principle discussed in Caledonian North Sea[65] was therefore enlivened as the payment diminished the amount which SGIC was bound to pay under its contract of indemnity with Steele. I also agree with Ashley JA for the reasons he has given that the trial judge was correct to allow the HIH claim for equitable contribution as between HIH and SGIC for the amount of the HIH costs and that the exclusion clause under the SGIC policy did not relieve SGIC from liability under the policy.
[65][2000]Lloyd’s Law Reports 249; [2002] UKHL 4,[16].

---

[2007] VSCA 223

18 October 2007