Macdonald v C.E.Heath Underwriting & Insce

[1997] HCATrans 386

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S61 of 1997

B e t w e e n -

NEIL MACDONALD

Applicant

and

C E HEATH UNDERWRITING AND INSURANCE (AUSTRALIA) LIMITED

Respondent

Application for special leave to appeal

TOOHEY J
GAUDRON J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 DECEMBER 1997, AT 9.01 AM

Copyright in the High Court of Australia

MR B.W. RAYMENT, QC:   May it please your Honours, I appear with my learned friend, MR G.J. NELL for the applicant.  (instructed by A.R. Conolly & Company).

MR J.B. SIMPKINS:   If your Honours please, I appear for the respondent (instructed by Phillips Fox).

TOOHEY J:   Yes, Mr Rayment.

MR RAYMENT:   Your Honours, there would be no grant of special leave in this case unless the Court were satisfied that the Court of Appeal was wrong in the way in which it construed the policy of insurance in the case, because that question could not give rise to a grant of special leave.

Your Honours, what Mr Justice Priestley said at page 62 of the application book about the policy was that - and I pick it up at about two‑thirds of the way down the page:

Section II of the policy does not, in my view, give to the categories of person named in it independent cover for any relevant liability they may cause to the firm.  What is extended to them is the same cover, that is indemnity against the same claims, as Section I provides to the firm.

Now, in our respectful submission, when your Honours look at the policy which is set out at page 4 of the application book, that is incorrect.

TOOHEY J:   But the proposition is a somewhat surprising one, is it not?  Is it oversimplifying it to say that the applicant’s argument is that, while he is not an identified or a named insured in the policy, he claims the benefit of the policy, although, although, if he were a named insured, he would be caught by an exclusion and unable to recover under the policy?

MR RAYMENT:   Yes.

TOOHEY J:   Because he comes in by the side door, as it were, he gets the benefit of the policy minus exclusion.

MR RAYMENT:   Because he comes in as a different - - -

TOOHEY J:   But is that the proposition?

MR RAYMENT:   Yes.

TOOHEY J:   I put it somewhat crudely, but is that the way it works?

MR RAYMENT:   Well it is the way it works, I am not sure that I would put it that way, with great respect.

TOOHEY J:   Is that the way you would like it to work?

MR RAYMENT:   Yes, your Honour, in substance, it is.  Your Honours, could I just, though, seek to make good the proposition, if I may, that what Mr Justice Priestley said was prima facie wrong.  Your Honours, at page 4 of the application book the terms of the certificate are set out.  Your Honours will see from about line 10 that the indemnity given to the firm, which is the direct insured under the policy, is an indemnity for acts and omissions, leaving out words which I think probably should not be there, but are irrelevant in any event:

In or about the conduct of any professional business conducted by or on behalf of the assured firm or their predecessors in business.

That is section I of the policy giving the direct indemnity of the insured.  Then you have “Extensions” as it is described, and that is a series of provisions, clause 1 of which is expressed in these terms:

This Certificate shall cover the liability of -

a series of things.  Now, the first of them no longer depends upon the firm being engaged in any professional business, but solely depends upon the insured or, rather, the extended insured, the employee, having been involved in an act, error or omission, in the course of his or her employment by the insured firm in the conduct of the assured firm’s business.  Now, that is a distinct concept, in our submission, in a case falling within (a).  That sets out the criterion under which the employee has an indemnity rather than any matter which appears in section I of this policy.  In other words, you do not have to first establish that the matter is within section I of the policy and then find it is within section II.  It is sufficient to find it is within section II.  And one can see another example of that, in our submission, in 1(e) where reference is made to:

partners or employees in respect of any appointments held when acting as Trustees, Receivers, Liquidators -

et cetera.  That may or may not be something that would otherwise attract vicarious liability.

TOOHEY J:   Paragraph (a) of the extension would not of itself identify the scope of liability under the policy.

MR RAYMENT:   We would submit it does.  It is:

any act, error or omission.....or breach of contract between the assured firm and its clients committed in the course of their employment by the assured firm in the conduct of the assured firm’s business. 

We would say that is how it is specified.  Your Honours, it goes on to draw a distinction firmly, at any event, between “assured firm” and “employee”.  If you look at clause 4, clause 8, there the assured firm but not the employees have additional cover in terms mentioned in those provisions.  The same with clause 9.

Then when you come, your Honours, to the exclusions.  They are plainly expressed solely in terms of a claim by the assured firm, not a claim by others such as deceased partners, the estates of employees and the like.  It says:

This Certificate shall not indemnify the assured firm against Claims made upon Assured -

in certain respects. 

Your Honours, the insurer, in our respectful submission, has, by the language of the policy, made the exclusion apparently applicable only to a primary claim under the indemnity provision.

GAUDRON J:   That depends on your reading the extension really as a separate cover, though, does it not, Mr Rayment?

MR RAYMENT:   It does, your Honour.

GAUDRON J:   Yes.

TOOHEY J:   And also it seems to involve the proposition that the exclusion should read, “This certificate shall not indemnify the assured firm nor any of the persons covered by the extension in clause 2”.

MR RAYMENT:   The view against us involves that.

TOOHEY J:   Your argument would require that the exclusion clause expressly not indemnify, not only the assured firm but all those who might seek to take the benefit of the extension provision.

MR RAYMENT:   Yes, we would say the “assured firm” - - -

TOOHEY J:   Means no more than that.

MR RAYMENT:   - - - means the “assured firm” which has been defined in the policy.  It is defined so as to include the partners and not their employees and not former partners.

HAYNE J:   Despite the use in the exclusions of the expression “assured”, you have the “assured firm”, claims made upon “assured” which seems to be something different again.

MR RAYMENT:   Yes, “assured”, I think, is not defined at all.

HAYNE J:   Not, I think, defined.

MR RAYMENT:   It seems to be - - -

HAYNE J:   Which might suggest that the exclusion is rather more generality, may it not?

MR RAYMENT:   Well, if it were you would expect to find, would you not, your Honour, some definition which would make it plain that “assured” meant anybody who may make a claim under the policy whether or not an insured. “Assured” would normally mean the same as “insured” and “insured” would not normally extend to what we would call a section 48 claimant, in our submission.

HAYNE J:   But does this debate highlight that the point that needs to be first addressed in this matter, on your argument, is the point of construction of the particular policy?

MR RAYMENT:   I have to accept that, your Honour. I began by saying that. I certainly could not put it otherwise. If your Honours think that it is sufficiently arguable that the exemption clause means what it says, and we would submit there has to be good reason why there is not, then there arises, in our respectful submission, the quite important issue under section 48 of the Insurance Contracts Act and one upon which the Court of Appeal have expressed a view which, arguably - and maybe the argument is correct - is binding in New South Wales at least.

If your Honours read the way in which it is being put on page 63 of the application book, what Mr Justice Priestley seems to there do is say, “Well, if I had been of another view, I would have had to come to two questions, section 48 and Trident. I can deal with the section 48 question here and now and say that I would have found that section 48 would have been of no use to Mr MacDonald.” Now that, in our respectful submission, is going to be, at the very least, highly persuasive in New South Wales. It is arguably going to be binding. Now, what of course it does, if you look at section 48, is cut it down.

GAUDRON J:   If your argument is right, in any event, why do we get to 48?  If your argument is right, you are covered.

MR RAYMENT:   Well, we need to be either covered by reason of section 48 or covered on the proper construction of the contract, having regard to Trident.

GAUDRON J:   Yes.  If your construction point is right, we do not get to 48, do we?

MR RAYMENT:   We would submit, we do.

GAUDRON J:   Why?

MR RAYMENT:   It was submitted against us and you could not say it was wrong to do so, that there was no route by reason of which the present applicant could succeed against the insurer in any event. It was said section 48(3) was in his path because the insurer has the same defences to an action under the section as he would have in an action by the insured.

GAUDRON J:   I see, yes.

MR RAYMENT:   And then it was said Trident will not help either. So, that one would get into it, in our respectful submission.

HAYNE J:   It is still not clear to me that that is so, Mr Rayment.  On your construction of the policy, the exclusion does not bite; the cover is there; why do you ever get to 48?  If the construction is not as you put forward, why do you ever get to 48?

MR RAYMENT:   Your Honours, the claim was made against the insurer, both under section 48 and under the general..... It was not common ground that either would be successful at all. Indeed - could I say this - the only arguments against us in the Court of Appeal were arguments about such a

matter, section 48(3) and the like. The particular construction point that found favour with the Court of Appeal was suggested by the court.

But, your Honours, could I just say something about section 48(1)? What Mr Justice Priestley has said about it is that it also embodies the notion of extended cover so that - he said at page 63 at the foot of the page. Perhaps I will go straight to page 64:

section 48(1) seems to me to be dealing with cases where (i) cover is provided by a contract of general insurance to a party to that contract and (ii) that cover is extended by the contract to a person specified or referred to in the contract.

So, if that is right, your Honours, and an insurer wished to avoid the operation of section 48, all the insurer would need to do would be to make it plain that the cover given to persons falling into a certain category was different cover, in some respect or other, from that given to the primary insured.

Now that, in our respectful submission, if you look at section 48, is not pertinent in the construction of the section. What we would submit it means simply is this: if a person is mentioned in section 48, if a person is mentioned in the policy as a person, or described as a person to whom the insurance cover extends, whether it extends independently or otherwise, that person is given a right of recovery.

What has been said in the Court of Appeal about section 48(1), in our respectful submission, cuts down section 48(1) in a way in which could not have been intended by the Parliament. May it please your Honours, those are our submissions.

TOOHEY J:   Yes, thank you, Mr Rayment.  We need not trouble you, Mr Simpkins.

An appeal in this matter would have no sufficient prospect of success to warrant a grant of special leave to appeal.  Accordingly, the application is refused.

Are you happy to retire, Mr Simpkins?

GAUDRON J:   Or do you have a further application to make?

MR SIMPKINS:   Yes, I would ask for an order for costs, if your Honours please.

TOOHEY J:   Mr Rayment?

MR RAYMENT:   We have nothing to say to that, your Honour.

AT 9.16 AM THE MATTER WAS CONCLUDED