King v CGU-VACC

[2008] NSWSC 306

CITATION:	King v CGU-VACC [2008] NSWSC 306
HEARING DATE(S):	1 April 2008
JUDGMENT DATE :	9 April 2008
JURISDICTION:	Common Law Division
JUDGMENT OF:	Harrison AsJ
DECISION:	(1) The appeal is dismissed. (2) The orders made by his Honour Magistrate Heilpern dated 15 October 2007 are confirmed. (3) The amended summons filed 1 April 2008 is dismissed. (4) The plaintiff is to pay the defendant's costs as agreed or assessed.
LEGISLATION CITED:	Local Courts Act 1982
CATEGORY:	Principal judgment
CASES CITED:	Allen v Kerr & Anor [1995] Aust Torts Reports 81-354 Australian Casualty CO Limited v Federico [1986] 160 CLR 513 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Carr v Neiull [1999] NSWSC 1263 Devries v Australian National Railways Commission (1993) 177 CLR 472 RL & D Investments Pty Ltd v Bisby (2002) 37 MVR 479; [2002] NSWSC 1082 State Rail Authority of New South Wales v Earthline Constructions Pty Litd (in Liq) (1999) 160 ALR 588 Swain v Waverley Municipal Council (2005) 220 CLR 517 Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25 Yuwana Nominees Pty Ltd v Jason Ong [2008] NSWSC 156
PARTIES:	Treavor King (Plaintiff) CGU-VACC Insurance Limited (Defendant
FILE NUMBER(S):	SC 15606/2007
COUNSEL:	Mr A Rogers (Plaintiff) Mr M B J Lee (Defendant)
SOLICITORS:	Fitzpatrick Solicitors Pty Ltd ( Plaintiff) William Roberts Lawyers (Defendant)
LOWER COURT JURISDICTION:	Local Court
LOWER COURT FILE NUMBER(S):	4968/2006
LOWER COURT JUDICIAL OFFICER :	Heilpern LCM
LOWER COURT DATE OF DECISION:	15 October 2007

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

ASSOCIATE JUSTICE HARRISON

WEDNESDAY, 9 APRIL 2008

15606/2007 - TREAVOR KING v CGU-VACC INSURANCE

JUDGMENT (Appeal decision of Local Court Magistrate;
exclusion clause)

1 HER HONOUR: By amended summons filed 1 April 2008, the plaintiff seeks firstly, an order that leave be granted to appeal against the judgment of his Honour Magistrate Heilpern LCM delivered on 15 October 2007 in matter No 4968/2006; secondly, that the judgment be set aside; and thirdly, that the matter be remitted to the Local Court for determination in accordance with the Court’s directions.

2 The plaintiff is Treavor King. The defendant is CGU – VACC Insurance Limited (CGU). The plaintiff relied on the affidavit of Denis Fitzpatrick sworn 5 March 2008.

3 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 73 of the Local Courts Act 1982 permits a party who is dissatisfied with a judgment as being erroneous on a point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor [1995] Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156; Carr v Neill [1999] NSWSC 1263 and R L & D Investments Pty Ltd v Bisby (2002) 37 MVR 479; [2002] NSWSC 1082. The judicial officer cannot act on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588.

4 In Swain v Waverley Municipal Council (2005) 220 CLR 517, the Chief Justice at [2] reiterated that in the common law system of civil justice, the issues between the parties are determined by the trial process. The system does not regard the trial as merely the first round in a contest destined to work its way through the judicial hierarchy until the litigants have exhausted either their resources or their possibilities of further appeal.

5 Section 75 of the Local Court Act provides that the Court may determine an appeal either (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Court for determination in accordance with the Supreme Court’s directions, or (d) by dismissing the appeal.

Grounds of Appeal

6 The plaintiff appeals the whole of the decision of Heilpern LCM made on 15 October 2007 on the grounds, firstly, that the Magistrate erred in law in holding that the plaintiff has submitted, that in construing a clause in a policy of insurance (the clause), the clause did not mean what it said; secondly, the Magistrate erred in law, or alternatively erred on a mixed question of law and fact, in his finding that the effect of the clause was clear beyond the possibility of misunderstanding; thirdly, the Magistrate erred in law in either construing the clause at all, or alternatively in construing the clause by reference to the facts of the case rather than by construing the clause according to law and then applying that construction to the facts of the case; fifthly, the Magistrate erred in law by having regard to authorities dealing with the question of whether exclusion clauses applied which were unrelated to the question before him being the meaning of the clause; and sixthly, the Magistrate erred in law, or alternatively on a mixed question of law and fact, in holding that the clause was not capable of bearing the meaning contended for by the plaintiff.

7 On 15 October 2007, the Magistrate held that the plaintiff had failed to establish that there had been a breach of the contract by CGU in failing to pay the insurance claim. The Magistrate entered judgment in favour of the defendant and dismissed the plaintiff’s claim.

Background

8 On 5 September 2002, Mr King entered into a contract of insurance with CGU. Mr King was the owner of the insured motor vehicle. On 29 May 2003, Mr King’s son Jason borrowed the vehicle. Without the permission of Mr King, Jason lent the vehicle to David Bell. David Bell crashed the vehicle. He was unlicensed and intoxicated at the time. The vehicle was a write off.

9 On 3 June 2003, Mr King made a claim under the insurance policy. A clause in the policy (the policy) (Bundle p 80) that applies to comprehensive insurance reads:

“What we will pay for
If your vehicle is:

· damaged, or

· stolen and not recovered,

and your claim meets the condition of this policy, we will …

· repair your vehicle, or

· pay the costs repairing your vehicle, or

· declare your vehicle a total loss and pay the sum insured.”

10 On 7 July 2003, CGU refused the claim. CGU relied on an exclusion clause under the policy because Mr Bell was unlicensed and intoxicated.

11 The relevant exclusion clause (the exclusion clause) is contained in the policy booklet at 16. It applies to every level of cover in the policy and relevantly reads:

“We will not pay for loss or damage or for legal liability for damage to other peoples property or for death or bodily injury when the driver of your vehicle:

· Was not licensed or legally authorised to drive it

· Was affected by intoxicating liquor and/or drugs such that his or capacity to control was to any extent diminished

· Had a blood alcohol level exceeding the legal limit in force where your vehicle was being driven

· Refused or fails to submit … to a blood alcohol or breath test

· Unreasonably leaves the scene following the accident or event …

· Was engaged in unlawful activities

· Has been refused vehicle insurance by any insurer within the last five years unless we have been advised of this and have agreed in writing to provide cover.”

The pleadings

12 Shortly stated, by statement of claim Mr King sought payment of the sum $17,300 from CGU for breach of contract.

13 By amended defence filed 10 August 2007, CGU pleaded that Mr King was unable to prove firstly, that it was in breach of contract by failing to pay the claim pursuant to the insurance contract because of the exclusion clause; and secondly, that Mr King breached his obligation to be truthful and frank in relation to any claim under the policy including the claim. The third ground of defence was not determined because Mr King abandoned that ground in final submissions. The Magistrate did not decide the second issue in the light of his decision made on the first ground of the defence.

The submissions before the Magistrate and the Magistrate’s decision

14 There were three uncontested findings of fact made by the Magistrate. They are firstly, that the driver of the vehicle was not licensed or legally authorised to drive the vehicle as he was not licensed and had not been licensed since 1997 (the accidence occurred in 2003); secondly, the driver was affected by intoxicating liquor such that his capacity to control the vehicle was to any extent diminished (his PCA reading was 0.12); and finally, the driver had unreasonably left the scene following the accident.

15 Counsel for Mr King submitted that firstly, on the face of the clause he was entitled to recover, as it was common ground that the vehicle was damaged; and that secondly, the exclusion clause did not operate to exclude liability because the driver was not authorised to drive the motor vehicle and if the exclusion clause is properly construed, it does not extend to circumstances where the driver of the vehicle was not authorised to drive it.

16 Before the Magistrate, Counsel for Mr King also submitted that the exclusion clause could not mean what it says because the result of such an interpretation would be so surprising, startling, ridiculous, preposterous and astonishing that such a construction must fail. Mr King contended, for example, that if the vehicle had been stolen and then written off by a drunken person, that the exclusion clause would exclude liability to pay the owner under the insurance contract. At the hearing of this appeal a further example was provided. That is, if the owner is attending a picnic and a person who has consumed alcohol and who is known to the owner drives the car without the owner’s permission, likewise the exclusion clause would exclude liability to pay the owner under the insurance contract. These results he contended were absurd.

17 The Magistrate’s reasoning in relation to the exclusion clause is set out in [7] to [9] which read:

“7. The plaintiff argues that the exclusion clause ought be read as being limited to circumstances where the insured person authorises the use by the drunken or unlicensed person. To support this contention the plaintiff argues that it is ambiguous and that the contra proferentem rule applies. I reject this contention. There is no ambiguity in the clause. It is abundantly clear and sweeping. There is no doubt as to the meaning of the clause. It may be unfair, it may be surprising and astonishing, but these do not trigger the cases relating to ambiguity or clouded meaning such as Houghton v Trafalgar Insurance [1954] 1 QB 247, Budget Stationary Supplies v National Australia Bank (Unrep NSWSC BC9604518) and other referred to in the plaintiff’s submissions at 3.13 to 3.18. This is indeed a case where, as Lord Denning put it with respect to another exclusion clause, the insurer has made the words “clear beyond the possibility of misunderstanding” – White v Warwick [1953] 1 WLR 1285.
8. The plaintiff also relies on cases where the courts have amended contracts so that they avoid an absurdity. Principally, by way of modern Australian cases, they rely on Westpac v Tanzone [2000] NSWCA 25. In that case the literal interpretation of a contract saw rent payable by Westpac rise exponentially to a ridiculous figure, due to an obvious “mistake by the draftsperson” (at 34). “The mistake produces an absurdity” (at 37). Words were added to the contract by the court for the purposes of interpreting the contract to ameliorate the obvious mistake and thus properly reflect the intention of the parties to be assessed objectively from the whole context of the lease.
9. However unreasonable the plaintiff contends the results of the operation of the exclusion clause, it is not in my view absurd in the circumstances of this case , nor is it the result of an error in drafting. To use the example of a vehicle stolen by a drunk is a different factual situation altogether. The vehicle in the present case was not stolen, and no claim for theft has or could be made out. If a drunken person stole a vehicle, and an insurance claim was rejected based on the theft clauses, then reliance on the exclusion clause could be absurd – that would need to be decide on the facts of that case, and presumably on a careful analysis of the theft provisions. Here the son lent the vehicle.”

18 The Magistrate concluded at [15]:

“Over many years, the cases have made it clear that an ambiguity or absurdity is required before an exclusion clause will be “read out” of a contract of this type. Accordingly, as it is my view that the exclusion clause is neither absurd nor ambiguous the first defence is established, that the exclusion clause applies. The Plaintiff has failed to establish that there has been a breach of the contract by failing to pay the insurance claim.”

19 The starting point in my analysis, I think, is a passage in Australian Casualty Co Limited v Federico [1986] 160 CLR 513 at 520, where the High Court (per Gibbs J) stated:

“The ordinary rules of interpretation apply to a policy of insurance. As in the case of any other commercial contract, a court may depart from the strictly literal meaning of a particular expression to place upon it an alternative construction which is more reasonable and more in accord with the probable intention of the parties if the words will bear that construction: McCowan v Baine [1891] AC 401 at 403; see also MacGillivray & Parkington, op cit, at pp 436, 437 (paras 1037, 1039) and 66 ALR 99 at 103 and Sutton, Insurance Law in Australia and New Zealand (1980) p 294, para 8.45. Further “the trend is, if anything, to adopt a liberal interpretation in favour of the assured, so far as the ordinary and natural meaning of the words used by the insurers permits this to be done”: Halsbury 4th ed, vol 25, para 594, note 1, cited in Mount Albert City Council v New Zealand Municipalities Co-operative Insurance Co Ltd (62).”

20 Both parties referred to Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25 at [19] to [23] where the Court of Appeal stated:

“19 On the construction question, Westpac repeated the submission it had put to the trial judge, that Tanzone’s construction led to absurd results and that clause 2.02 should be construed to avoid the absurdity. Windeyer J accepted the legal proposition upon which the submission was based. He said:

“The question is whether these words [ie of clause 2.02] lead to an absurd result looking at the situation in 1985. If they do then they should be construed so as to avoid the absurdity by supplying omitting or correcting words.”


20 Windeyer J cited Fitzgerald v Masters (1956) 95 CLR 420 and Watson v Phipps (1985) 60 ALJR in support of his view. In this we think he was correct. Other authorities are to the same effect: see Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (Cth) (1991) 147 CLR 297 for the Australian position and cf, in England, Mannai Investments Co Pty Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, particularly per Lord Hoffmann in each case.

21 In Australia, Fitzgerald v Masters and Cooper Brookes in particular have been followed many times and are well entrenched High Court authorities. We note at this stage that contrary to submissions put by Tanzone, these cases are by no means limited to instances of ambiguity, nor is their authority affected by R v Young (1999) 46 NSWLR 681.

22 Returning to Windeyer J’s line of reasoning, he went on to cite authority to the effect that mere unreasonableness of itself is not enough to justify application of the absurdity rule. Again, we agree with him that the authorities justify this distinction.

23 Put shortly, Westpac’s submission in this court was that the present case fell into the absurdity category, not the merely unreasonable one. Notwithstanding Windeyer J’s view to the contrary, which commands respect, we agree with Westpac’s submission. Windeyer J’s view expressed Tanzone’s basic submission to him and this court.”

21 Mr Lee, Counsel for CGU referred to an instructive passage from Yuwana Nominees Pty Ltd v Jason Ong [2008] NSWSC 156, where Rein AJ summarised the principles of the construction of a contract. At [8] his Honour stated:

“8 There was agreement that the following principles of construction, summarised by reference to High Court authority in a decision of mine, Marguerite Pocknell v Payce Properties Pty Ltd [2008] NSWDC 5, applied:


(1) “The primary duty of a Court in construing a written contract is to endeavour to discover the intention of the parties from the words used of the instrument in which the contract is embodied”; a clause’s meaning may be revealed by other parts of the document per Gibbs J (as he then was) in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109.

(2) The Court endeavours to ascertain the meaning of the terms agreed upon objectively – the subjective intentions of the parties are not relevant: see Toll (FGCT) Pty Ltd (formerly Finemores GCT Pty Ltd) v Alphapharm Pty Ltd (2004) 219 CLR 165, and see Equuscorp Pty Ltd v HGT Investments Pty Ltd (2005) 218 CLR 47 at [34].

(3) The process of interpreting terms is a pragmatic process, and “no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements” Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, per Barwick CJ at [35]-[36], [40]-[42]. Commercial contracts should be construed “fairly and broadly, without being too astute or subtle in finding defects” per Lord Wright in Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2 cited with approval by Gibbs J in Australian Broadcasting Commission (supra) pp.109-110.

(4) Questions as to meaning are “to be answered in a practical and realistic way, not in a way which adopts an overly fine or theoretical approach that is alien to commercial agreements”: McCann v Switzerland Insurance Australia Ltd (2000) 176 ALR 711, 729.

(5) “There is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning”: per Mason J (as he then was) in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 348, which His Honour remarked has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract.

(6) “If the words are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust” per Gibbs J in Australian Broadcasting Commission (supra) and see Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276 at [38] per Beazley JA (Campbell JA concurring).

(7) If the words used give rise to absurdity or inconsistency “words may generally be supplied, omitted or corrected in an instrument when it is clearly necessary in order to avoid absurdity or inconsistency” per Dixon CJ and Fullagar J in Fitzgerald v Masters (1956) CLR 420 at pp.426-7.

(8) In resolving an ambiguity “… if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, ‘even though the construction adopted is not the most obvious, or the most grammatically accurate’", and “it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument” per Gibbs J in Australian Broadcasting Commission (supra).”

22 The policy is described as a Motor Vehicle Insurance Policy. The cover provided was “motor – comprehensive – market value”. There is a clause in the policy which sets out what the insurer will pay for in relation to a comprehensive policy and a clause which sets out what the insurer will not pay for that applies to every level of cover in this policy. Under the heading “What we will not pay for” there are three sub-headings. Each sub-heading is followed by bullet points. Next to each bullet point certain circumstances are specified. Under the first sub-heading the exclusion clause, which had been reproduced earlier in this judgment, appears. The two other sub-headings are “We will not pay for loss, damage or legal liability if your vehicle was” it then list various circumstances, and “We will not pay for”. Under this third sub-heading one bullet point entry is “loss which occurs because you cannot use your vehicle, depreciation and loss or damage or personal injury intentionally caused by you or a person acting with your express or implied consent”. That bullet point entry links the driver’s consent to an event or circumstance.

23 The objective intentions of the parties at the time of entering into the contract was to set out specified circumstances where the insurer would pay the claim and a set of specified circumstances where the insurer would not pay the claim. The parties did not consider that in all the circumstances there should be the driver’s consent or awareness linked to the event. Where the driver’s consent was a consideration the words “a person acting with you (the drive’s) express or implied consent” were included.

24 So far as the theft example is concerned, it is covered in the policy. It provides that the vehicle will be declared a total loss the insurer will pay the sum insured less any excess when the vehicle is stolen and not recovered within 28 days of the insured lodging a claim.

25 It is my view the words appearing in the clause headed “what we will not pay for” are unambiguous. Hence, I agree with the Magistrate that the words appearing in the exemption clause are unambiguous. If the words are unambiguous the Court must give effect to them, notwithstanding that the result may appear to be capricious or reasonable. Hence, the Court must give effect to the words contained in the exclusion clause. I agree with the Magistrate that the words used do not give rise to absurdity. Nor do the words give rise to inconsistency. I have reached the same conclusion as the Magistrate. There is no error of law.

26 The appeal is dismissed. The orders made by his Honour Magistrate Heilpern dated 15 October 2007 are confirmed. The amended summons filed 1 April 2008 is dismissed.

27 Costs are discretionary. Costs normally follow the event. The plaintiff is to pay the defendant’s costs as agreed or assessed.

The Court orders

(1) The appeal is dismissed.

(2) The orders made by his Honour Magistrate Heilpern dated 15 October 2007 are confirmed.

(3) The amended summons filed 1 April 2008 is dismissed.

(4) The plaintiff is to pay the defendant’s costs as agreed or assessed.
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