Kirby v American Home Assurance Company

[2005] HCATrans 35

[2005] HCATrans 035

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S71 of 2004

B e t w e e n -

JAMES STEWART KIRBY

Applicant

and

AMERICAN HOME ASSURANCE COMPANY

Respondent

Application for special leave to appeal

GLEESON CJ
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 FEBRUARY 2005, AT 9.32 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR T.D. CASTLE, for the applicant.  (instructed by Phillips Fox)

MR R.J.H. DARKE, SC:   May it please the Court, I appear with my learned friend, MR B.J.A. SHIELDS, for the respondent.  (instructed by Ebsworth & Ebsworth)

GLEESON CJ:   Yes.  Mr Jackson.

MR JACKSON:   Your Honours, the issue meriting the ground of special leave concerns section 40(3) of the Insurance Contracts Act which your Honours will see set out at page 47 of the applicant’s authorities.  More particularly, the issue which arises concerns the first part of that provision and it is, namely, whether the applicant:

gave notice in writing to the insurer of facts that might give rise to a claim against the insured ‑ ‑ ‑

if I could pass over some words – during the period of the policy.  Your Honours, may I go immediately to the question raised in the proceedings, namely, whether the issue properly presents itself.  The policy is, relevantly, in the supplementary volume of materials at page 7 under the heading “INDEMNITY”, the first paragraph under that.  Your Honours will see that the relevant part of the first paragraph on that page is as follows:

We hereby agree to indemnify You . . . against all sums which You shall become legally liable to pay as a result of any Claim or Claims -

and there is particular reference to the definition to which I will return -

first made against You during the Insurance Period and reported to Us . . .  for breach of professional duty . . . in the performance of any Professional Services ‑ ‑ ‑

GLEESON CJ:   This claim for breach of fiduciary duty was made, first, several years after the expiry of the claims period, was it not?

MR JACKSON:   Nine years, I think, your Honour, actually.  Almost nine years.  That is so.

GLEESON CJ:   Leaving aside the insurer – putting the insurer to one side, I had the impression that it, as it were, came out of the blue, as far as the parties were concerned.

MR JACKSON:   Yes, your Honour.  That is referred to in passing in the judgment of the primary judge at page 4 of the application book, about line 16.  Your Honours, might I just say, if I could pause at page 7 of the supplementary material with the provision of the policy, that the case concerned amendments to the cross‑claim made in 2000 and it was accepted that, considered alone, they were for breach of professional duty in the performance of professional services and would, other matters aside, have fallen within the indemnity.  Your Honours will see that referred to in the Court of Appeal’s reasons at page 22 of the application book, paragraph 15.  That is the first matter, your Honours.

The second matter is, if I could return to page 7 of the supplementary book and the indemnity provision of the policy, the term “Claim or Claims” is, as is set out there, something which is defined in the policy.  Your Honours will see that the definition of the term “Claim” is to be found on page 8, the next page.  In paragraph 1 of that definition, about line M on the page, your Honours will see that it is simply concerned with an initiating process – if I could put it globally – which alleges:

breach of professional duty as indemnified by this Policy –

The reference to “Policy 1” is simply to the fact that if your Honours look at the top of page 7 the “PROFESSIONAL INDEMNITY INSURANCE” is part of the policy described as “Policy 1”.  The term of the relevant policy was from 1 July 1990 to 1 July 1991, and if I could take your Honours to the application book at page 23 ‑ ‑ ‑

GLEESON CJ:   By the way, I presume that your client had professional indemnity insurance covering the period in which the claim was made?

MR JACKSON:   Your Honour, I do not know that that appears from the material.  There was an assumption to that effect made by the Court of Appeal but the nature of any policy and the way in which it was framed does not appear from the material.  Probably what your Honours says is right, but what it covers is another question.  If I could go to page 23 of the application book what your Honours will see in paragraphs 18 to 20 is that notification of the cross‑claim, in the first place, was provided to the respondent in the period of insurance.

The cross‑claim - and your Honours will see that referred to in paragraphs 18, 19 and 20.  Could I refer briefly to three documents.  The cross‑claim, itself, is in the supplementary volume at page 16.  Your Honours will see that there referred to.  The letter to the broker enclosing the cross‑claim is at page 19 of the supplementary volume.

GLEESON CJ:   Is this the cross‑claim for not doing the accounts properly?

MR JACKSON:   Yes, it is.  Your Honour, you will see the cross‑claim at page 16.  You will see the implied term relied on there in paragraph 5 on page 16 and, essentially, your Honours will see the claim for loss and damage in paragraphs 7 and 8.  How $10,000 in paragraph 7 gets to $100,000 in paragraph 8 is not clear, but perhaps it is just a mistake.

GLEESON CJ:   Now, pausing there, at that stage your client was being sued for fees for preparing the accounts?

MR JACKSON:   We sued for fees.

GLEESON CJ:   Your client was suing for fees for preparing the accounts and your client’s client was resisting the claim for fees by saying “The accounts were not prepared properly and I suffered loss”.

MR JACKSON:   Yes.  What happened was that – as not uncommonly happens – a cross‑claim came and your Honours will see that referred to in the letter to the broker at page 19 of the supplementary volume which says they:

enclose copy of Notice of Grounds of Defence and also Cross Claim.

Your Honours will see the remainder of that material set out on that page and then the communication from the broker to the insurer appears in the application book set out at page 23, paragraph 20 in the Court of Appeal’s reasons and it goes over to the top of the next page and also paragraph 21.

Your Honours, if I could pause at that point, the position which obtained, in our submission, was that in terms of the policy, if I could take your Honours back to page 7, a claim – again claim defined, of course:

for breach of professional duty . . . in the performance of any Professional Services –

had been first made and reported during the period of insurance.  That claim, again as defined, grew.  It expanded somewhat dramatically, no doubt, in the year 2000 but at all times it remained as such, that is as a cross‑claim, secondly, as a cross‑claim in response to a claim for fees and, thirdly, as a cross‑claim for breach of professional duty.

The view taken by the Court of Appeal was that the 2000 amendments introduced a claim that was, to put it shortly, “wholly different from that earlier” obtaining.  You will see that at page 31, paragraph 44.  It

goes over to the top of the next page where the words “wholly different” appear in the third and fourth lines.

Now, your Honours, in one sense that was true, of course, but that view was then carried over – I am sorry, it was true, in one sense, as to the detail of it but that view was then carried over to the section 40(3) issue. Your Honours will see that at page 33, paragraphs 49 through to 51 and, in particular your Honours will see that at paragraph 51 on page 34, predominantly about the middle of the paragraph.

Your Honours, that, in our submission, does not give effect to the language of section 40(3). Your Honours will see the section set out on page 33. Could I just say in relation to it, if one goes to its terms, all that is required is that the insured give notice “of facts that might give rise to a claim” and to do so:

as soon as was reasonably practicable after the insured became aware of those facts –

and, thirdly, to do so within the insured period.  Your Honours, there was nothing, and I adverted to this earlier to your Honour the Chief Justice, to suggest that the applicant was aware of the detail of the 2000 amendments before they were made, and I referred your Honours to page 4, but the insured, the applicant, in the policy period did give notice of the facts which might give rise to a claim in the defined sense.  The policy, of course, as your Honours have seen, does define “claim” by reference to proceedings.  Secondly, it did so as soon as the cross‑claim had been served and, thirdly, it did so during the policy period.

GLEESON CJ:   The argument against you, as I understand it is that this was a different claim and you responded to that by saying, “Well, claim includes what I might call the pleading”.

MR JACKSON:   Yes, your Honour. Policies, of course, define “claim” or sometimes do not define it, but in different ways. In the class of policies that uses this type of definition for “claim” the claim is defined as, in effect, the initiating document. Now, what we say, in our submission, is that we did the things that were required by section 40(3) and did them during the policy period. The view adopted by the Court of Appeal, in our submission, gives a very narrow operation to section 40(3), a provision which the Court in Newcastle City Council v GIO General Insurance Limited (1997) 191 CLR 85 regarded as a provision which was remedial in nature. Your Honours, those are our submissions.

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

We are of the view that there are insufficient prospects of success of an appeal to warrant a grant of special leave in this matter and the application is dismissed with costs.

AT 9.44 AM THE MATTER WAS CONCLUDED