Lambert Leasing, Inc & Anor v QBE Insurance Australia Ltd & Ors

[2017] HCATrans 57

[2017] HCATrans 057

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S240 of 2016

B e t w e e n -

LAMBERT LEASING, INC

First Applicant

SAAB AIRCRAFT LEASING, INC

Second Applicant

and

QBE INSURANCE AUSTRALIA LTD ACN 003191035

First Respondent

MACKELLAR MINING EQUIPMENT PTY LTD ACN 010398428

Second Respondent

DRAMATIC INVESTMENTS PTY LTD ACN 059863204

Third Respondent

Application for special leave to appeal

GAGELER J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 MARCH 2017, AT 9.29 AM

Copyright in the High Court of Australia

____________________

MR D.L. WILLIAMS, SC:   May it please the Court, I appear with my learned friends, MR C.S. WARD and MR P.F. SANTUCCI, for the applicants.  (instructed by Marque Lawyers)

MR N.C. HUTLEY, SC:   If your Honours please, I appear with my learned friend, MR T.J. BRENNAN, for the respondents.  (instructed by Norton White)

GAGELER J:   Mr Williams, we are inclined to think that your section 45 point raises an arguable question that is of a High Court nature.  The difficulty for you is the prematurity point.  Unless you can get over that, this case does not go anywhere.

MR WILLIAMS:   Yes.  Can I address that then directly?  The prematurity point took a funny turn in the Court of Appeal, and that is because ‑ ‑ ‑

GORDON J:   What was the funny turn it took?

MR WILLIAMS:   The question of whether or not there had been a valid claim for privilege made, or a claim for privilege made in the court below.  But, of course, the case had been conducted, as the respondents now accept, on the basis that privilege was claimed and available.  If one goes to the respondents’ submissions at paragraph 30 – this is in the ‑ page 206 of the application book.

GORDON J:   But is that factual premise right?  Practically – and this is the bit I do not quite understand – one would have thought that the documents could have been produced regardless in the usual way; that is, that they are produced on the basis that there is no waiver of privilege in order for limited insurance purposes.

MR WILLIAMS:   Well, this was not a case ‑ ‑ ‑

GORDON J:   Is that not right?

MR WILLIAMS:   If the parties had a common interest in the examination of those documents for the purposes of examining questions of indemnity perhaps, but they did not have a common interest.  What was clear that was happening here is that the insurer was seeking to find whatever it could to seek to deny indemnity and the fear, of course, was that in circumstances where the litigation in the US is on foot and the plaintiffs in the US proceedings would be keen to see such material if it was capable of being provided or obtained, then it was appropriate that the privilege not be waived in the sense of being provided to the other parties.

GORDON J:   Did that position prevail throughout?  It might have been the position upfront, but it changed, did it not?

MR WILLIAMS:   After the settlement?

GORDON J:   Yes.

MR WILLIAMS:   The settlement only occurred after the reasons for judgment were delivered in these proceedings.

GORDON J:   By the trial judge?

MR WILLIAMS:   Yes.

GORDON J:   Yes.

MR WILLIAMS:   And what happened is we sought leave to put before the Court of Appeal – the sequence was the appeal was – the reasons for judgment were handed down, parties started discussing settlement, reached agreement for settlement in principle, we then commenced the appeal, the process in the US involves court approval for settlements.  The court approval for settlements was not obtained until December 2015.  There are two inconsistent findings in the Court of Appeal’s judgment about that, but December 2015 was when the appeal was – sorry, when the proceedings were finally dismissed.

So, as at the time of the judgment, that is, in June of 2015, the proceedings had not been settled.  When it came time to deal with the matter in the Court of Appeal we thought, well, it is appropriate that the court be informed of what has happened subsequently.  We sought leave to adduce evidence to put the material before the court, and that was refused.  So the court now held that the case had been determined on a particular basis and the appeal should proceed on a particular basis.

GAGELER J:   On this question of prematurity, you have drawn our attention to page 206.

MR WILLIAMS:   Yes.

GAGELER J:   What is your answer to the short answer, or your rejoinder to the short answer in the first sentence at paragraph 29?  The short answer to the applicants’ case on prematurity is that there is no error.

MR WILLIAMS:   Well, there is no new case.  If one goes to see what is accepted – how it was accepted the trial was conducted – that is the applicants’ submissions 25; that is at application book page 190 ‑ your Honours will see at paragraph 25 this is what is accepted as the way in which the case was conducted:

In the course of the Applicants’ repeated attempts to obtain a decision from QBE, QBE sought production of the regular reports to Underwriters prepared by the attorneys . . . The Reports then in existence were listed as privileged in the Applicants’ list of documents . . . At the trial it was accepted by QBE that production of the Reports prior to QBE confirming that it would provide indemnity would jeopardise a claim for privilege due to the lack of a common interest between QBE and the Applicants.

Then it goes on to deal with the evidence to like effect that was given.  So, that was the way in which the case was conducted.  It would not have been open to the respondents when it got to the Court of Appeal to say, “Well, you did not claim privilege”, as that just was not an issue in the underlying proceedings.  What happened is that the court itself started making inquiries about when and where the claim for privilege had been made and there was not obviously in the appeal books the material about all of that because it was not either in the proceedings themselves or on the appeal.

If the respondents had sought to run the argument that the Court of Appeal came up with itself, they would have been told that is not the way this case was conducted.  What happened here was a real injustice that was done to the applicant because it meant the Court of Appeal saying to it, “There is just not a proper foundation for any of this because certain things were not done in the proceedings below”, but that ignored the way in which the proceedings had been conducted.  That is one of the reasons, we say, that it miscarried when it got to the Court of Appeal.

So far as a new case on appeal, we always put the case that it is accepted we put, and that is the way in which the case was conducted.  Now, I think what my friends are suggesting is that the notion that there is a fundamental right of privilege that was in issue did not receive as much attention as it did on appeal, but that is for the obvious reason that it was accepted that the underwriting reports were privileged and that they should

not be handed over, at least not until the proceedings in the US were finished.

GORDON J:   Have they been handed over?

MR WILLIAMS:   Yes, they were the subject of the application for leave to adduce the further evidence.  That was what was sought to be advanced.  So, we are in a situation where at the time when we ran the case there was a certain factual matrix.  We ran it on that basis.  After things changed we sought to put that before the court.  The Court of Appeal said, “No, no, no, you cannot do that.  It is back to the factual matrix upon which the case was run”.  We said, “All right, based on the factual matrix on which the case was run we are entitled to succeed”.

The prematurity point is a bad one.  If it is right it means that the clause that one commonly finds in insurance policies, namely, an obligation to provide information to the insurer, can be used to prevent the insurer having to make a determination as to indemnity.  The only thing that was not provided here ‑ all the underlying material about the crash and the aircraft and the like was provided – the only things that were not provided were the reports to underwriters.

Those reports to underwriters included, as Justice Payne observed – those reports were not only reports to underwriters, but reports to the insureds themselves.  That is paragraph 50 of the judgment at 152 of the application book.  The underwriting reports, as is apparent from paragraph 44 of the judgment, application book 140 – do your Honours see the description of what those reports were about:

Those reports, although prepared by the appellants’ US counsel, were for the purpose of provision to the insurer who was funding defence costs and also the present proceedings brought by the appellants against QBE.

That is the very proceedings about which the court was being asked to rule.  So, the proposition that underpins all of this reasoning is that in circumstances where there is a clause in an insurance policy that requires information to be given, that can be used as an excuse by an insurer to make no decision as to indemnity unless and until the party who seeks to claim indemnity produces its privileged material.  We say that is wrong.

GAGELER J:   All right.  We will hear from Mr Hutley on this point.

MR HUTLEY:   Your Honours, to understand how the case was run, at first instance obviously the Missouri proceedings were still on foot.  The relevant clause in the policy, which your Honours have seen in section 4(3)(c) provides an obligation to supply information.  It was accepted at trial that there could be a risk if one handed over the documents whilst ‑ ‑ ‑

GORDON J:   The Missouri proceedings were on foot.

MR HUTLEY:   ‑ ‑ ‑ the Missouri proceedings were on foot and cover had not been bound – they accepted that there could be a waiver.  There would be conflicts questions under which law you determine that – is it Missouri ‑ your Honours appreciate.  But the case was run on the basis that that problem would evaporate when the suit came to an end and therefore the trial judge found it was premature.

Now, I accept with respect to 16 of the reports – and your Honours can see them at page 150 to 153, that is, the reports up to 24 May 2012, those were reports which we were advised of in the suit and which the suit was conducted on the basis that they were privileged, and to that extent I accept that, with respect, in the Full Court and the Court of Appeal an error as to 16 reports was made when Justice Payne said there was no basis for privilege.  That, with respect to his Honour, seemed to have been a development after the hearing.  We certainly did not put that position.  We were content to run on the basis that they were privileged and there was a risk with respect to them.  With respect to six other reports, we had never seen them.  I will not dwell on those for the moment.

So we have a trial, a case being run, that ultimately you will get these reports – you can get these reports when there is no longer a risk of waiver which is material, namely, if the proceedings come to an end, as we understood it.  That led to the prematurity finding of his Honour at trial.  In the Court of Appeal our learned friends changed tack.  They said you can never under this clause be required to hand over privileged documents, period.

GORDON J:   That cannot be right, can it?

MR HUTLEY:   Quite, it absolutely cannot be right, and your Honours will see that Justice Payne observed that he did not think that was likely to be right at Court of Appeal 67 ‑ paragraph 67 in the Court of Appeal where his Honour observes on that at page 145 in the application book:

is apt to require an insured to produce documents in certain circumstances ‑ ‑ ‑

GORDON J:   Which is the proposition I put to Mr Williams.  There must be circumstances where they can be produced.

MR HUTLEY:   Quite.  But our learned friends were seeking to establish error by the trial judge and therefore they sought to change tack by saying it cannot be premature ‑ ‑ ‑

GORDON J:   Ever?

MR HUTLEY:   ‑ ‑ ‑ ever because you can never get them.  That was the attack our learned friends were taking.  We say, irrespective of his Honour’s findings with respect to the privileged reports and the assumptions, the point was hopeless.  But his Honour ‑ our learned friends’ point was hopeless.  Our learned friends sought to have these reports admitted on appeal against us because they had decided because the case was over they would give them to us.  That led to the ‑ ‑ ‑

GAGELER J:   I am sorry, is that the 16 or the ‑ ‑ ‑

MR HUTLEY:   The whole 22, your Honour.  We were ignorant of anything beyond the 16.  The 16 were referred to in a list; we did not know about the others.

GORDON J:   So – or in the discovery, the other six had not been disclosed?

MR HUTLEY:   Quite.  Therefore there was an application by our learned friends to adduce further evidence in the Court of Appeal against us.  That was dealt with by the Court of Appeal at paragraphs 101 and following at page 154, and the court basically said, well, you cannot get these in because it is to be understood that this was an application for a declaration that we were bound to indemnify, not just the declaration which is now sought to be advanced in this Court, which is essentially concerning two matters, firstly, the effect of section 45 and, secondly ‑ ‑ ‑

GAGELER J:   Page 187.

MR HUTLEY:   ‑ ‑ ‑ the effect of this clause.  Now, I will come to those.  But ultimately these proceedings were proceedings seeking an indemnity, that is, a declaration that we were bound to indemnify.

GORDON J:   So is it the position you can put the prematurity point to one side and just consider the 45 question, given the limited way it is now put on appeal?

MR HUTLEY:   But the difficulty with it is that the proceedings were premature.  Your Honours will get a hearing here, but the proceedings will still be dismissed.  The proceedings had been dismissed and there is no error in them being dismissed.  This is, with respect – and that explains the prematurity and we say the court was completely right to deal with it in the way they did, even allowing for the mistake about the 16 reports.

But there are other problems with respect to this application.  Our learned friends have been found – their client, essentially who stands behind their client – Global – has been found to have fully indemnified the insured.  Those findings were made by the Court of Appeal at 195 to 196 at application book 171 and 211 at application book 173.  Your Honours can see the factual matrix in the context of which they made that at paragraphs 6 to 8 at page 132.  So the court has found that there has been a full indemnity by Global.  It has given indemnity.  It is not entitled to indemnity against us.  Global, for whatever reason, originally thought it was bound to indemnify.

GORDON J:   That brings into a place the deed, does it not, and whether or not the deed which now talks about it being a loan ‑ ‑ ‑

MR HUTLEY:   Quite.  Therefore, to get to this, to have any sense, you have got to get through that.  And that, with respect, is so far away from matters which would concern your Honours in the usual case as to render this case an inappropriate vehicle.  There is another problem – so they have to get through that and your Honours would have to determine that to have any utility.

But even at the section 45 point, we accept that whether insured means a party to the contract, relevantly here with respect to the QBE policy, is a point of interest – but whether they have to be a party to a Global policy is a point that this court has determined and it is common ground that they were right.  That is, the policy ‑ and common findings of fact and law about this policy at trial and on appeal is that my learned friends’ clients were not a party to the Global policy.  Now, that was determined on questions of fact and Swedish law and about, with respect, there is no matter of general importance.

With respect, your Honours to get to the interesting point will have to overturn the findings that my learned friends’ clients were not parties to the Global policy.  That is the first step that has to be gone through.  So, in our respectful submission, there is no issue of general importance in that.  Some reference is made to the decision of the Court of Appeal in CE Heath v Grey and if one goes to CE Heath v Grey that was a question whether directors were a party to a directors and officers policy.  Now, not surprisingly, they were found to be parties.  But if one goes to the actual findings, the case wholly turned upon a detailed consideration ‑ ‑ ‑

GORDON J:   Of the terms.

MR HUTLEY:   ‑ ‑ ‑ of the particular facts and terms.  I can take your Honours through them.  It was very peculiar, the form of the proposal, the form of the policy, the form of the terms, the nature of the insurance.  So, to get to the interesting point – and we accept it is ‑ your Honours have to overturn a completely uninteresting point which has been found at two levels.  So, in our respectful submission, at every level the chances of your Honours meaningfully getting to the interesting question, which is the last step over which three hurdles of supreme High Court disinterest or uninterest – I am not sure if it is uninterest – makes this a vehicle which is not appropriate to seize upon or to deal with what we accept is an interesting question.  Those are our submissions.

GAGELER J:   Thank you.  Yes, Mr Williams.

MR WILLIAMS:   Can I deal with the fully indemnified point first.  That turns on whether or not we are right about our section 45 point.  It was held that we were fully indemnified because such payments that had been made by the Global insurers were paid by way of indemnity because we were wrong about section 45.

GAGELER J:   Yes.

MR WILLIAMS:   If we are right about section 45, then there is no double insurance.  The Global policy is an excess policy and any payments that were made were not made by way of indemnity.  One gets the principle from Sydney Turf Club v Crowley.  One needs to have double insurance before that principle arises.  We have given your Honour a reference not only to that case but also to ‑ at 221, paragraph 15, the decision Cooperative Bulk Handling Limited v SGIC.  So, that deals with the fully indemnified point.

So far as the party point is concerned, it was our case that the question of whether an entity is a party to a contract of insurance, is ordinarily determined as a matter of construction by looking at the policy document itself.  True it is, one could look at some surrounding documents if necessary.  What the Court of Appeal did in relation to that matter was quite erroneous.  If one goes to the Court of Appeal’s judgment at – the discussion starts at page 162.  Your Honours will see the heading:

Did the appellants “enter into” the Global Policy?

GAGELER J:   Page 162 – I am sorry?

MR WILLIAMS:   Yes, application book 162.

GAGELER J:   Yes.

MR WILLIAMS:   Your Honours will see the feature of the Global policy itself in paragraph 149(2).

GAGELER J:   Yes.

MR WILLIAMS:  

the policy schedule defines the “Insured” as “SAAB AB and/or controlled and/or affiliated and/or associated and/or subsidiary companies now in existence or as may be hereafter constituted or acquired –

et cetera.  Now, it was an agreed fact that the applicants were subsidiaries at the time the policy was entered into.

If one goes to the Court of Appeal’s reasoning as to why, as a matter of construction, the subsidiaries were not parties, it starts at paragraph 163.  One looks at 163 – sorry, there is, first of all, a discussion about whether or not it is Swiss law or Australian law that is ‑ ‑ ‑

GAGELER J:   Swedish.

MR WILLIAMS:   Sorry, Swedish law or Australian law that is relevant.  The contention was ultimately accepted that, on the question of the ‑ ‑ ‑

GORDON J:   There were four reasons, were there not, that they relied upon?

MR WILLIAMS:   Yes.  So far as the first is ‑ ‑ ‑

GORDON J:   Future subsidiaries, notice of terrorism insurance coverage, subsidiaries held insurable interest and the supplementary note described the insured as SAAB.

MR WILLIAMS:   Yes, that is right.  So far as these are concerned, we have dealt with them in our written submissions, particularly in our responsive submissions, at 219 to 220.  So far as the first of those is concerned, there is appellate authority – that is the CE Heath v Grey – to the effect that merely because one has this issue about future parties that cannot be parties at the time the contract is entered into, does not mean that those that exist are not parties.  The CE Heath provision involved a similar concept in relation to directors.  Some purported to cover directors, both who were currently directors and those who might become in the future.  The Court of Appeal held that that was not fatal to those that existed at the time being parties.  So that deals with that point.  Can I deal with the ‑ ‑ ‑

GORDON J:   I do not know that Mr Hutley agrees with that.  His contention is that it turned upon the particular terms of the ‑ ‑ ‑

MR WILLIAMS:   There is no doubt that there was a discussion about the terms as a whole, and there was no doubt that there was evidence given about various features of the policy.  The point I am making now is that it is not a disqualifying feature that ‑ ‑ ‑

GORDON J:   Of itself.

MR WILLIAMS:   Of itself, no.  Now, your Honours will see in our written submissions that we have identified what we say is a significant difficulty with the reasoning here, in paragraph 9 on page 220.  We had hoped, your Honour, that we would receive a concession that would allow us not to have to show your Honours what the documents we are concerned about are.  That has not been forthcoming.

GAGELER J:   Your time on the special leave application is up.  Is this a short point that you are about to embark on?

MR WILLIAMS:   The short point is this.  Your Honours, the insured is defined in the policy – in the slip – in exactly the same way as it is in the policy.  In other words, in the same way as it – my friend says it is not.  May I hand the document up please?

GAGELER J:   Yes, all right.

MR HUTLEY:   There has been a finding about that.

MR WILLIAMS:   I know, it is erroneous.

MR HUTLEY:   No, at first instance, which was unchallenged on appeal.  So, their Honours should be taken to the fact that ‑ you are just seeking to challenge a finding which was unchallenged on appeal.

MR WILLIAMS:   You will have your turn.  You have had your turn.

GAGELER J:   Gentlemen, let us get on with it.

MR WILLIAMS:   Yes.  This is the slip to which the reference is made in the judgment.  Your Honours will see at page 667 the description of the insured at point I to K, in exactly the same terms as appears in the policy itself.  The document that his Honour Justice Payne described as the slip is at page 685 which is at – 685, using the bottom page numbers.  Your Honours will see that it is “Attaching to Policy” in the top left‑hand

corner and then there is the “Assured/Account SAAB”.  That is what has been misdescribed as the slip.  The slip is the body of the document.  The other document that his Honour was attracted to, and deals with, is at 686.  That is the terrorism notice.  Your Honours will see that that is a “Policyholder Disclosure Notice of Terrorism”.  It gives people the option of whether or not to take up the terrorism coverage and they did not.  One sees that at the foot of the page:

I hereby reject the offer of Terrorism Coverage –

GAGELER J:   Yes.

MR WILLIAMS:   The point made against us is that the heading:

Named Insured – SAAB AB ‑

in the box is determinative of the question of whether or not ‑ or at least highly persuasive.  So, the Court of Appeal was wrong in saying that the slip said something different to the policy.

GAGELER J:   So this goes to your ground 2(b)?

MR WILLIAMS:   It does, yes.

GAGELER J:   Yes.

MR WILLIAMS:   So, for those reasons, we say – and, because the Court of Appeal was disinclined to approach it as a pure matter of construction, we say there is a proper point to be argued here and we have reasonable prospects of it.

GAGELER J:   Thank you.

In light of the procedural history of this matter, we consider the applicants’ prospects of success on proposed ground 3 to be poor were special leave to be granted.  We therefore consider it to be an inappropriate vehicle to consider the questions sought to be raised by proposed ground 2.  In those circumstances special leave is refused with costs.

AT 10.19 AM THE MATTER WAS CONCLUDED