Kightly v Insurance Commission of WA

[2006] HCATrans 257

[2006] HCATrans 257

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P55 of 2005

B e t w e e n -

PAUL KIGHTLY

Applicant

and

INSURANCE COMMISSION OF WESTERN AUSTRALIA

Respondent

Application for special leave to appeal

KIRBY J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 19 MAY 2006, AT 12.59 PM

Copyright in the High Court of Australia

MR R.J.L. McCORMACK:   May it please the Court, I appear for the applicant.  (instructed by Bradley & Bayly)

MR K.J. MARTIN, QC:   May it please the Court, I appear with my learned friend, MR D. WALLACE, for the respondent.  (instructed by Downings Legal)

KIRBY J:   Yes, Mr McCormack.

MR McCORMACK:   Your Honours, the issues of general importance which justify the grant of special leave in this case, which is not entirely devoid of facts, are centred around the proper construction of a policy which is extremely common throughout Australia, that is, a personal accident disability policy.

KIRBY J:   It has a bit of look of double dipping, though, does it not?

MR McCORMACK:   Yes, the paranoia or near paranoia against double dipping ‑ ‑ ‑

KIRBY J:   It is not paranoia, it is just the law does not tend to like double dipping and tends to develop principles to prevent it.

MR McCORMACK:   If it please, your Honours, the issue of double dipping is not unrestrained.  It does apply, but it must be set in a context of the application, and the proper application of legal principle.

KIRBY J:   That is true.

MR McCORMACK:   It is for that reason that ‑ ‑ ‑

KIRBY J:   That is why you are here today to assist us to come at the proper principle.  What was error of the Court of Appeal in discerning the applicable principle?

MR McCORMACK:   In terms of the error of the Court of Appeal it is to err by not construing through a consideration of the subject policy in its entirety line by line before concluding that the contingent event which triggered a predetermined payment not measured by the loss was able to change in its legal character from contingency insurance to indemnity insurance in relation to four of 48 or 49 separate items.

That result can indeed be achieved as Chief Justice Dixon in the Espagne Case, which is in the applicant’s book of authorities at page 5 ‑ being page 573 of that case – makes clear that:

in a contract of accident insurance; where in the absence of special stipulation the insurer will not succeed by subrogation or otherwise to the insured’s right of recourse against others in the case of injury by their negligence.

So the position is that the rule in Bradburn’s Case, 1874, which has been applied and is a rule of general application – not total, there are exceptions to it, and as articulated in the judgment of Justice Windeyer in the Espagne Case, is a rule which should be adhered to unless and until, as a matter of proper construction by the words of a personal disability policy, a different result such as Chief Justice Dixon in the same case described as a special stipulation should lead to a classification of indemnity insurance thereby entitling the right of subrogation to apply.

What has occurred in this case, your Honours, is the Court of Appeal has erred in two particular areas:  one, the judgment of the President of the Court of Appeal, President Steytler, with the two other judges agreeing but without providing any additional reasons, proceeded on the basis that “actual financial loss” was proved.  Now, that phrase which appears in the reasons of his Honour in paragraph 42 at page 42 of the application book reflects the critical question which occupied his Honour’s mind and I read:

the question which arises in this case, being that of whether, in the case of an insurance policy which provides an indemnity against actual financial loss, moneys recovered from the tortfeasor in reduction of that actual loss should be taken into account.

That is also dealt with at an earlier passage of his Honour, that is paragraph 36 at application book 40.  The issue there is dealt with by the judge at first instance in the District Court of Perth, Judge Martino, who identified each of the four items quite specifically as not involving any benefit which was measured by the loss.

The approach by Justice Steytler in the Court of Appeal is in error in that it presupposes actual financial loss was proved in the sense of liability being established against a wrongdoer.  That does not occur in this case, nor importantly does the wording of the policy touch and concern any such concept.  It is, for instance, the weekly payments are 1 per cent of the capital sum up to a maximum.  That can be seen at page 11 of the application book in paragraph 36 of Judge Martino’s reasoning where his Honour went carefully through and identified each of the benefits in support of his conclusion that the policy was indeed an accident policy as being fixed sums, and they were not, and at line 35 at page 11 is the critical passage which bespeaks very sound and authority of venerable antiquity that it is not measured by the loss.

So the fundamental sine qua non in order to establish an indemnity policy is that the benefit is measured by the loss.  Here a 1 per cent of an amount where there is no suggestion that the applicant, Mr Kightly, had to prove his loss demonstrates the error which was fallen into by their Honours.

The wording of the relevant clause pertaining to that aspect can be seen at pages 6 and 7 of the application book, and perhaps the shortest in the time that I have to assist your Honours, I refer briefly in the applicant’s book of authorities to the judgment of Sir Robert Megarry, Vice‑Chancellor, in Medical Defence Union Ltd v Department of Trade and that appears at page 37 where the time‑honoured definition of the distinction between indemnity insurance and contingency insurance has been elided by the error, the pathway that Justice Steytler went down on the assumption that (1) as a matter of construction the weekly payments involved actual loss.  That being an error as a matter of construction is the first principal point.  That secondly, there is no sum which is paid to the applicant under the terms of the policy which is anything other than a predetermined estimate or amount which bears no relation to fault.  It is payable regardless.

The matter is complicated further in that Mr Kightly took the benefit as a volunteer and received it as a matter of benevolence.  That is dealt with in the case of McCamley, and they are in my submissions, so I will not trouble your Honours with that.  The only other case which I can most usefully draw, I believe, your Honours’ attention to and that is the pivotal case that is put against me and the submissions, and that is the judgment in the Glynn v Scottish Union & National Insurance Case and in particular the passages at pages 50 to 51.

I invite your Honours to compare and contrast those words, which I will take your Honours to specifically, to the elucidation of the principles of the High Court stated in 1961 by Justice Windeyer and agreed to by Chief Justice Dixon, which is the rule in Bradburn’s Case is too well established such that it should not be departed from unless and until a special stipulation which is identified by the Court changes the character of the contingency insurance to one of indemnity.

The error in the Court of Appeal is that their Honours did not take that step.  Importantly, at page 50, which is 938 of the case, the judgment there of the Court of Appeal in Canada – and I pause to mention there is no case on this point in Australia.  There has been no consideration of this issue for 45 years.  The law upon which the High Court has proceeded for 45 years and upon which millions of Australians depend for advice as to whether their claims are or are not some kind of hybrid, part indemnity, part contingency, as the Court of Appeal would have it, or whether they are indeed covered by Justice Windeyer’s statement at page 588 of the Espagne Case.  There in the left‑hand column after going through the various academic texts and cases the Court states in the judgment:

Such statements are valid –

and there it is referring to the time‑honoured rule as stated in Porter’s Law of Insurance:

the usual form of an accident policy or contract is to pay a certain fixed sum per week in case of injury . . . Such policies do not contemplate indemnity, and avoid the necessity of going into the assured’s accounts or private affairs.

Then further down, continuing on that statement I was reading:

Such statements are valid, however, only to the extent that, in the personal accident insurance contract concerned, there is no requirement that the insured, in order to become entitled to recover under the policy, prove pecuniary loss, in addition to the occurrence of the accident.  They would be true of a contract whereby the insured agreed to pay a fixed sum per day for each day the insured be necessarily disabled from working.

So there, the very case that is put against me is strong support for the facts of this case demonstrating a serious error has occurred in the Court of Appeal, and as a result, the balance of the case which then ran into the issues, what happens when solicitors are compromised in the District Court before any of these kinds of issues under personal accident policies occur, are they, as held by the Court of Appeal, engaged in an act of breaching the duty by no bona fide consideration of an insurer in compromising an action without any admission as to liability and by an unapportioned amount.

So at the end of that situation one has an unapportioned amount with no finding of fault, no damage proved at all and from that the equitable right of subrogation was held by the Court of Appeal to take four specific amounts and require them to be repaid.  So it is a specific amount pulled from, recouped from on the basis of double dipping plus other rationale from the unapportioned amount.

There is no comity between those two Acts.  It is not to say that in certain circumstances that could not occur.  Chief Justice Dixon has indeed identified such a case but there is nothing exposed in the Court of Appeal’s reasoning which would qualify as an acceptable chain of reasoning disclosing the legal and equitable principles brought to bear both on the construction issue and in support of the conclusion that the policy by its express terms speaks in terms of actual financial loss to be proved.  The policy does not say that, therefore that discloses an error which has consequences far beyond the modest sum involved in this case, and that turns then to what is the utility of this case as a vehicle for a grant of special leave.

It is, may it please, your Honours, touching and concerning an area of law not gone into by the High Court for 45 years.  It involves every – potentially every personal accident and disability policy in Australia.  The only basis for the Court of Appeal was two Canadian cases which properly read do not support the proposition anyway for the reason I have articulated, namely, no proof of pecuniary loss was required, and I mention again it is 1 per cent of the capital sum up to the maximum limit.  So the kinds of cases which their Honours had regard to are extraterritorial to Australia and fly in the face of the statement of Justice Windeyer, in particular in the passages which I have referred your Honours to in the case of Espagne.

May I also draw your Honours’ attention to how the rule in Bradburn’s Case is treated by the other members of the Court.  Firstly, Justice Menzies, at page 581 – I do not read from that, but it is in support of what is “the earliest and most authoritative case in this branch of the law”, so said the High Court in 1961 through Justice Menzies.  That is at page 13 of the book.  Justice Menzies goes on in a useful passage at the top of page 582 - that is page 14 of the book - explaining why double dipping is not appropriate where the payment was not made in circumstances which involve measure of the loss but rather a predetermined amount which was contracted for.  Then Justice Windeyer deals with the decision in Bradburn’s Case saying it:

has stood too long and on too firm a foundation of policy and justice to be unsettled by demands for logical consistency.

That is at page 588, applicant’s book 20, and again on the following page at about point B where double dipping expressly referred to:

Faced with this, those who invoke the “rule in Bradburn’s Case” recognize that it may result in the defendant being liable to pay for harm the consequences of which have already been mitigated, and in the plaintiff therefore getting pecuniary compensation from two sources for the same damage -

and so on.  Finally, if I could draw your Honours’ attention to Justice Windeyer again at page 26 where he returns to the judgment of Justice Pigott.  The other judgment is of Lord Baron Bramwell, and it is important to note, and may it please your Honours, that the rule in

Bradburn’s Case did indeed involve a defendant and the case there can be distinguished because it sought to reduce the tortfeasor’s responsibility.

If it please, your Honours, the other reference I was going to give is at pages 31 to 32 of the Espagne Case and in particular the passage at the base of 31 of the book which is justification for the grant of special leave.  May it please your Honours.

KIRBY J:   Thank you, Mr McCormack.  Mr Martin, it seems a little ungracious of you as a large insurer to be not wanting to have this matter revisited after 45 years, and what I would like your assistance on is this.  You, in your submissions, contend, as I understand it, that what the Court of Appeal did was to effectively apply the Espagne decision, whereas what we have now heard from the applicant is that this is a departure from that decision.  If it were a departure, well that would certainly attract the grant of special leave.  What do you say about that?

MR MARTIN:   Your Honours, in our respectful submission, there is a conflating of two different principles.  First of all, there is the principle in Espagne’s Case which is a reflection of the principle in Bradburn’s Case which is that a tortfeasor who does wrong to an injured party cannot profit because the injured party perchance might have taken out a policy of insurance, and thus in Espagne the beneficiary of the disability pension for chronic blindness as a result of the injury, that pension could not be brought to account to reduce the damages payable to the liable tortfeasor.

Now, this case, with great respect, does not raise the principle in Espagne or the principle in Bradburn’s Case.  What is involved in the present case, and as was applied by Justice Steytler in the Court of Appeal, is the rule in Castellain v Preston applicable to insurers which is that from the perspective of an insurer who has an indemnified and insured, having done so it then enjoys in the context of a liability indemnity policy subrogation rights as against the tortfeasor.

So one can see immediately that the perspective that this case is concerned with has nothing to do with tortfeasors being exonerated from liability perchance because an injured person has protected themselves, this, rather, is about the classic principle of indemnity accepted by the High Court in Monson’s Case in the 1960s by three Judges of the Court referring to the celebrated case of Castellain v Preston under which having indemnified an insurer in the context of an indemnity policy will then enjoy subrogation rights against the tortfeasor who has injured the insured.

Now, the only question that arises in the present case is a question of characterisation and analysis of the RiskCover policy that applied in these particular circumstances, and the way it was approached by the trial judge was to simply say, it is labelled a personal accident policy, ergo they are of the character of a policy which is not in the nature of indemnity.  They are a policy of contingency whereby when the event occurs there is an entitlement and hence the classic situation of a life policy upon a death occurring or, indeed, an agreement to pay an amount of money predicated upon an injury or loss of an arm, some injury of that kind, translating to a fixed sum.

Now, Justice Steytler’s exercise of characterisation which was not performed by the trial judge culminated at paragraph 36 of his reasons after a clause by clause analysis of the RiskCover policy, and with great respect, the conclusion that he reached, having looked at all of the categories of entitlement, medical expenses which Mr Kightly had sustained, rehabilitation expenses which Mr Kightly had sustained, travel expenses which he had incurred and finally his loss of income which he had incurred, his Honour analysed those clauses which gave rise to those entitlements under the policy, and then in culmination at paragraph 36 on page 40 of the application book reached the view that:

in each case the policy provides for indemnification in the case of actual, proved, financial loss.  There being nothing in the policy which, as I read it, reflects an intention to exclude the right of subrogation –

and then he referred to a clause 1.5(f) which is in fact, with respect, overwhelming on this point, and it is set out at page 30 of the application book at paragraph 7 of his Honour’s reasons, where one can see that this policy arrangement was constructed on the basis that if there was a prospect of recovery from “any other source” – you will see that in (ii) in the last sentence on page 30 that that would reduce the entitlement of the volunteer under the RiskCover policy.  Now, a plainer message could not be sent that this is not a contingency policy than a clause that says the money that you are going to get is going to be diminished by what you can recoup from other sources.

So in our respectful submission, there is no point of principle here.  Everyone recognises that if it is a contingency policy one keeps the money.  The question that needs to be addressed is whether in the context of a personal accident policy, whether it is a policy of indemnity or it is a policy of contingency.  Hence the whole issue is one of analysis and characterisation.

My learned friend has said that there are many personal accident policies in Australia, that is indeed quite right, but this particular policy, we would submit, is sui generis and the fact that a court might reach a conclusion in analysis one way, on this particular policy, does not mean that

a different conclusion may not be reached where there is no clause 1.5(f), for instance.  So, in our respectful submission, there is no point of wide general importance here.  It is an exercise of interpretation.  Indeed, on my learned friend’s submissions it is an exercise of construction.

My learned friend’s other points, first, to the effect that because Mr Kightly was not a named insured but rather enjoyed the advantage of being a volunteer, as defined, that somehow this makes him in receipt of a voluntary payment or something of that character, our short answer to that is that applying orthodox principles flowing out the High Court’s decision in Trident, Mr Kightly could have sued on this policy to recoup the benefits that he could prove that he had incurred such as medical expenses, loss of income.

My learned friend’s third point in support of special leave is to the effect that there was a settlement in relation to Mr Kightly’s having been paid out under this policy, he then pursued District Court litigation against an alleged tortfeasor, the Surf Lifesaving Association, for his personal injuries arising out of the very same accident.  Justice Steytler was alive to that.  In the end he compromised and there was a deed of release and a consent judgment for $145,000 in respect of his personal injuries arising out of the same accident.

Now, our friends put it on the basis that that is an unapportioned amount.  We say that on any view the law as summarised by Justice Steytler, particularly the decision of Sir Garfield Barwick in the Brisbane Stevedoring Case, is explicit on that point and that there is an entitlement applying orthodox principles of indemnity law under the correct principle, that is, the principle in Castellain v Preston.  Those are our submissions.

KIRBY J:   Yes, thank you, Mr Martin.  Anything in reply, Mr McCormack?

MR McCORMACK:   Briefly, if it please.  The difficulty with my friend’s submissions is that they proceed on a false premise, not of his making but of the Court of Appeal in paragraph 42 at page 42 of the application book, namely, actual proven loss, because everything that flowed from that premise resulted in subrogation.  If the proposition be tested this way, remove the essential and necessary condition for the policy to respond by taking out actual proved loss as distinct from a benefit by way of a payment of a predetermined amount, and the entire judgment is shown to have been infected as a matter of legal principle so that the vice is so irreparable that it can only be corrected by a grant of special leave to look at a matter which has been followed diligently for 45 years including by solicitors and has now been turned on the authority of two Court of Appeal Canadian cases

into a very dangerous situation indeed economically, and for those people who seek to rely on such a policy the question can be closed for my reply on this basis, which limb would the Court of Appeal have a particular item come under?  Is it contingency or is it indemnity?  If indemnity, subrogation and the applicant loses.  If it is the other way then the rule in Bradburn’s Case and Espagne is the proper guiding principle.  May it please your Honours.

KIRBY J:   Thank you for your help, Mr McCormack.  We see no error in the reasons of the Court of Appeal of the Supreme Court of Western Australia.  The Court of Appeal correctly characterised the applicable policy and reached the conclusion which is stated in paragraph 36 of the reasons of Justice Steytler, the President.  Those reasons appear both legally correct and sensible in the circumstances of the case.

Accordingly, all that is involved is the application of settled law.  The intervention of this Court is not called for.  Nor are we convinced that intervention would be warranted on the basis of the justice of the case.  Special leave is therefore refused.  It must be refused with costs.

The Court will now adjourn to reconstitute for the matter of McGowan.

AT 1.28 PM THE MATTER WAS CONCLUDED