Manitowoq Platinum Pty Ltd & Anor v WFI Insurance Ltd

[2018] HCATrans 243

[2018] HCATrans 243

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth   No P36 of 2018

B e t w e e n -

MANITOWOQ PLATINUM PTY LTD

First Applicant

JDE ROMA PTY LTD

Second Applicant

and

WFI INSURANCE LTD

Respondent

Application for special leave to appeal

BELL J
KEANE J
NETTLE J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO PERTH

ON FRIDAY, 16 NOVEMBER 2018, AT 12.09 PM

Copyright in the High Court of Australia

MR G.R. HANCY:   May it please your Honours, I appear for the applicants.  (instructed by Lavan)

MR G.J. PYNT:   May it please the Court, I appear for the respondent.  (instructed by Greenland Legal)

BELL J:   Yes, Mr Hancy.

MR HANCY: Two issues we seek to agitate, your Honours. First, the question for the court below was not – was one of contract construction. It was not a matter concerning section 54 of Insurance Contracts Act. Section 54 is not an aid to construing the meaning of the clause in an insurance contracts.

Your Honours will see from the provision itself that it applies where the effect of a contract of insurance would, but for the section, be that the insurer may refuse to pay a claim.  It is not a clause that provides where the effect of a contract of insurance would, in part, because of this section, be that the insurer may refuse to pay a claim. 

The second issue is one of onus on the question of the application of a limiting provision in an insurance contract.  The respondent relied on a clause in its policy to justify its refusal to pay.  It has accepted, certainly in these proceedings, that it had the onus of proving that there was a breach.  Now, that onus meant that it was not enough simply on appeal to show that the primary judge was wrong in her interpretation.  There was also a requirement for the respondent to show what it said the clause meant. 

NETTLE J:   Mr Hancy, assuming you are right about all that, what do you say about paragraph 125 of Chief Justice Martin’s judgment?

MR HANCY:   This requires consideration still of the question of onus because the approach that the respondent ought to have taken, and that ought to have been identified in knowledge by the court below was first of all identify the meaning of the condition, establish what the facts and circumstances were that were required to engage the condition, and then, if a relevant matter was not established, identify whether the insured, in this case, the applicants – sorry, Boss ‑ or the applicants, in effect, representing Boss, had made any concession in the pleadings or the submissions that obviated the requirement to establish the matter.

This paragraph is part of a different approach that his Honour took, which was to fuse concepts and fuse elements of two distinct parts of the case before the primary judge.  There was the liability case and there was the insurance case.  They had different pleadings, different legal issues, and ultimately the insurance issue, as we contend, turned on a question of construction of the meaning of regulation 47 of the Water Services Licensing Regulations.

His Honour, as I said, did not take the approach that we submit should have been taken but rather he embraced this notion of responsibility for the work to link two different ideas and two different legal frameworks – that is, the liability framework and the insurance indemnity framework.

BELL J:   I am sorry, Mr Hancy, but was not his Honour saying, even if the view that he took of the trial judge’s embrace of Furman as the appropriate way to view the construction of the clause was right, the case would still have failed?

NETTLE J:   In the way in which it was run at first instance.

MR HANCY:   We did not seek to sustain the reasoning of the trial judge and that was not the point I was endeavouring to make to the court below and the way in which I approached it has not been articulated in the reasons of the Chief Justice.  We have endeavoured to explain in our written submissions that the way we approached it is that the respondent as the insurer, seeking to rely on a limiting provision, had a double onus.  The first was to show that the decision of the primary judge was wrong and, secondly, to show what that decision should have been.  Our focus was on the second element, not on the first.

So our point below, as it is here, is that even if you accept that the primary judge was incorrect in her approach, the insurer still had to establish what that provision meant and then it had to establish what were the facts and circumstances that engaged it.  That is the approach that we were endeavouring to put below and we endeavour to put here.

BELL J:   But Mr Hancy, if, on the construction most favourable to your client, having regard to the fact that the case was run on the basis of no distinction being drawn between Boss and Mr O’Dea and Millstream, the conclusion of the appellate court is the case would have failed.

MR HANCY:   We contend that that is not the way the case was run.  Certainly it is the case that the point that we were seeking to make on appeal was not the focus of attention before the primary judge because the primary judge found a different way to find that the limiting clause did not apply.  But that did not obviate the requirement for the insurer still to establish what the clause meant and that the facts were established that engaged it and it was not run.

His Honour has made this comment here about the distinction between Boss and O’Dea and Millstream Plumbing but it was not the case that there was anything in the pleadings, in the submissions, or by way of concession that obviated the requirement for the insurer at trial and on appeal to show what the clause meant and to show that the relevant facts had been established and engaged the provision and entitled it to deny indemnity.

KEANE J:   But, Mr Hancy, if one looks at paragraph 124 of Chief Justice Martin’s judgment, this is at page 98 of the book, the Chief Justice says:

As I have noted, the trial judge held that relevant Australian Standards and reg 47 of the WSL Regulations were breached. 

So, so far so good.  You actually have his Honour acknowledging a finding of breach.  But then he says:

For the reasons I have given, the respondents’ submission to the effect that a distinction should now be drawn –

that is to say now be drawn by the Court of Appeal:

between a breach by Boss and a breach by Mr O’Dea/Millstream Plumbing Pty Ltd should not be entertained.  It follows that the appeal must be determined on the basis that Boss was in breach of the relevant condition. 

His Honour’s point is because no distinction was made between Boss and Millstream for the purposes of the relevant breach so far as the claimant was concerned, the original plaintiff, once it is shown that there was a breach by O’Dea of the Australian standards, then there was shown a breach by the insured for the reason that no one on either branch of the case, whether the liability case or the insurance case, drew a distinction between them.

NETTLE J:   Can I add to that, paragraphs 94 and 95 of Chief Justice Martin’s judgment where he takes up the fact that insurers at first instance sought to draw the distinction between Boss and the plumber and you resisted it which led to his Honour’s observation at 95 that if you were now going to contend for it you had to file a notice of contention which you declined to do.

MR HANCY:   The two issues were separate.  The question of liability was one of whether Boss had carried out a fit‑out work and it did work or it had work done or allowed work to be done or failed to have it done correctly.  That is a different issue from whether Boss breached regulation 47.  One is determined on the basis of tort or contract and the other is determined by a construction of the meaning of regulation 47.

His Honour has made this point but it does not address the argument that we contend.  It is still the position with the insurer at trial and on appeal to establish the facts that engage the condition.  Prior to that, of course, it must establish what the condition means.  None of this material that your Honours have pointed out from the reasons of the court below addresses those issues.  It circumvents them by saying, in effect, there is some kind of onus that was placed on the applicant to do more than it did when the onus was always on the insurer.

The insurer pleaded that the regulation had been breached by Boss, the shop fitter, or by Millstream Plumbing.  That was its pleading, to deny indemnity.  It was not a pleading to answer a claim of liability in tort or contract.

NETTLE J:   I think I understand.  The judge found that you, Boss, had breached the regulation – this is at page 41 of the application book, in paragraph 162 – and her Honour said it could only be in relation to the general direction and control of the plumber that she would be in breach of regulation 47.  Is that disputed or do you embrace that?

MR HANCY:   Well, we dealt with that below.

NETTLE J:   What do you say about it now?

MR HANCY:   What we say about that is her Honour is expressing a hypothetical.  That is not a finding that Boss breached the regulation.  Her Honour is saying well, it could only be – that is, hypothetically, it could only be under regulation 47.  That is what she is saying.  That is not a finding of breach – was not a finding of breach.  It was not treated by the court below as a finding of breach.

NETTLE J:   Well, I thought what she might have said was if that were the finding then it would be important to know whether or not the test is one of recklessness or lack of reasonable care.  But you do not say that?

MR HANCY:   Well, that is what her Honour went on to talk about and that is what his Honour below said about it.  It is a hypothetical in the context of determining whether that relevant conduct reached a level of recklessness for the purposes of the approach that her Honour took to construing the limitation clause – that is, it required, by implication, recklessness by the insured.  But it is still a hypothetical.  Her Honour did not make the relevant finding and none of that ever removed the onus that the insured or insurer always had of proving the facts that engaged the limiting provision.

NETTLE J:   Let us just assume for a moment that what her Honour says there, at page 41 of the application book, amounts to a finding that Boss was in breach of its obligation under regulation 47 to supervise the plumber but not to a level, paragraph 163, of being reckless.  Is that what you say opens up the question of whether or not Chief Justice Martin was correct in saying it was sufficient there be a lack of reasonable care for the purpose of the compliance with the term of the policy?

MR HANCY:   Well, we did not rely on the recklessness approach to construing the clause.

NETTLE J:   Very well.

MR HANCY:   We do not before your Honours because none of that tackles the question of the second element of what I submitted before the court below was the double onus.  None of that tackles it.  We referred to it as being the closest you would get in the reasons to a finding, but it is not a finding of breach by Boss of regulation 47.  We did not refer to it in terms of supporting her Honour’s approach to the limitation clause. 

NETTLE J:   Thank you.

MR HANCY:   But it is, your Honours, our submission, as it was, that this is really - what the finding should be was a matter that should have been agitated by the insurer and I have made the submission that it was never clear what it said the clause meant. If I can go back to section 54 being used as an aid to construction, your Honour says there are certainly at least five areas where it is apparent that the court below utilised section 54 as an aid to construction and not something, as it should have been used for, that may apply after the question of construction has been resolved.

First of all, his Honour identified it as one of the three provisions of relevance to the appeal.  He referred to it secondly in connection with two other conditions that were ostensibly unqualified to keep insured property in good condition and comply properly with the requirements of public authorities.

BELL J:   Are you on application book 99 at this point?

MR HANCY:   I can take your Honours to the application book pages, at 92, paragraph 104.

BELL J: Where is the reasoning you identify in relation to your section 54 point?

MR HANCY:  

With respect to her Honour, it is not self‑evident that excluding the obligation of the insurer to indemnify in cases in which failure to keep insured property in good condition or to comply promptly with requirements of public authorities was causally connected to the liability of the insured –

with a footnote to section 54:

would be repugnant to the commercial purpose of the policy.

So that is the second reference to it.  The first was at 67, paragraph 35.  That was the provision identified as one of three of relevance.  Next, there is page 96, paragraph 118.  This is also relevant to what the court decided the provision meant, and it is really by implication at 118.  You will see at the bottom of that paragraph:

The policy in this case provides indemnity for all liability incurred within the entire range of circumstances giving rise to a duty of care, whereas the condition only excludes indemnity where –

and I will add the numbers.  One:

a breach of the duty to perform work with care and skill, and only then if the breach corresponds –

Two:

to a breach of relevant legislation or Australian Standards -

Three:

being a breach which was causative of the loss.

Now, that element is of course picking up the theme of section 54. The next reference ‑ ‑ ‑

KEANE J: But not to construe the policy. As is apparent from paragraph 129 at page 99, the relevance of section 54 is that the policy:

allows for the fact that a breach of condition which is not causally related to the indemnified loss would not entitle the insurer to refuse

indemnity.  The proposition implicit in the reasoning of the trial judge to the effect that absolute and unqualified language should have been used to describe the rights of the insurer in the event of a breach of condition would result in policy wording that would be misleading.

This is all directed simply to the point that if there is a failure to comply with a condition, that enlivens the entitlement under section 54. It is not using section 54 to tell you what the provision or the condition of the policy means.

MR HANCY:   Your Honour, do I have any time left?

BELL J:   Can you respond, if you would, to Justice Keane’s observation?

MR HANCY: If you read on to paragraph 131 and put all of that in context, it is, we submit, very clear that section 54 is being used as an aid to construction, particularly at 131 at the foot of the page:

The terminology used in the policy is entirely consistent with a construction of the policy to the effect that, in the event of a breach of condition which is causally related to the indemnified loss, the insurer may decide to refuse indemnity.

KEANE J:   Yes.

MR HANCY: Over the page, paragraph 132 is relevant. If you then return to what appears to be the court’s view of what the condition meant in 118, clearly they are incorporating this notion of causative loss which, in the context of the discussion, all of the matters that I have identified can only come from a reference to section 54, which I might add the respondent says it was appropriate to refer to on the construction question.

BELL J:   Yes.  We do not need to hear from you, Mr Pynt, thank you.

In our opinion there are insufficient prospects that were leave granted any appeal would succeed and for those reasons special leave is refused with costs.

Adjourn the Court to 10.00 am on Tuesday, 4 December in Canberra.

AT 12.32 PM THE MATTER WAS CONCLUDED