Maxwell v Highway Hauliers Pty Ltd

[2014] HCATrans 158

[2014] HCATrans 158

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth   No P12 of 2014

B e t w e e n -

MATTHEW MAXWELL (THE AUTHORISED, NOMINATED REPRESENTATIVE ON BEHALF OF VARIOUS LLOYDS UNDERWRITERS)

Appellant

and

HIGHWAY HAULIERS PTY LTD (ACN 008 863 214)

Respondent

HAYNE J
CRENNAN J
KIEFEL J
BELL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 6 AUGUST 2014, AT 10.16 AM

Copyright in the High Court of Australia

MR B.W. WALKER, QC:   May it please the Court, I appear with MR P. KULEVSKI, for the appellant.  (instructed by CLS Lawyers)

MR B.W. RAYMENT, QC:   May it please your Honours, I appear with my learned friend, MR G.R. HANCY, for the respondent.  (instructed by WHL Legal Pty Ltd)

HAYNE J:   Yes, Mr Walker.

MR WALKER:   Your Honours, at the risk of triteness we start with a proposition requiring attention to the first of the relevant insurance matters, namely, the nature ‑ sometimes called in the authorities type or kind ‑ of the cover provided by the policy in question.  We do so in response to the requirements laid down by this Court in FAI v Australian Hospital Care (2001) 204 CLR 641.

Your Honours are familiar with the passages but I think both sides have cited with equal vehemence in support of their rival arguments at page 656 and following.  It starts really at paragraph 33.  I will not weary your Honours by reading passages with which you are very familiar but it suffices to say that it is critical, as we put in our first proposition, to understand the kind of cover provided. 

Now, of course, we need to start by conceding this is cover relevantly for damage to vehicles.  There is also cover provided for, in effect, damage by vehicles, but this is damage to vehicles.  We make what we hope is the obvious but compelling point that these are vehicles with drivers and the drivers are very often, if not perhaps always, very often the vector of interest for an underwriter in relation to risk.

Proposition two seeks to take up that matter.  In particular, may I go to one that is not in question in this case but which lends itself - we say evocatively - to an analysis about act or omission within the meaning of section 54.  Could I take your Honours, please, in volume 2 of the appeal book to page 433 where, in the long list of clause 3 “Exclusions”, one will find that at about line 20 on that page in the left‑hand column the stipulations concerning what are called “Underage and Inexperienced Drivers”?  One sees that there is a right not to pay, and I quote the words in the left‑hand column on 432 about line 23, “We will not pay if”.

There is a right not to pay in the events which are stipulated under that heading “Underage and Inexperienced Drivers” and one sees that it involves what might be regarded as the crude, if effective ‑ that is, arbitrary but bright line delineation of drivers, the activities of whom will or will not produce cover under the policy by reference to their age.  You see that there are different categories depending upon the nature of the vehicle and presumably whether informed by actuarial statistics or otherwise there is a bright line delineation – “limitation or restriction”, to use the expression in the authorities ‑ of the cover provided by reference to age.

Now, we say of that ‑ which has to do with what might be regarded as a matter, a criterion, picking up an underwriter’s view of risk ‑ we say of that that it is only with incredible artificiality, that is, a process which would be rejected in construing section 54, that one could fit “acts or omissions” within that.  It is not relevantly an act or omission of anyone that a driver is or is not below or above a certain age.

HAYNE J:   Why?

MR WALKER:   The only act or omission is the assignment to the driving task in question of an underage or overage driver.  That, in our submission, is for the reasons we are going to come to, particularly in proposition 3, that is the very kind of act or omission which is not, according to the authority in FAI, within section 54 because it transforms the nature of the claim.

It is certainly not an act or omission on the part of the driver to have or have not attained a particular age.  You can torture the language to produce that but it is, in our submission, ludicrous.  It could be, as I say, an act or omission of the supervisor to allow an underage or overage driver to do a particular trip.

HAYNE J:   Well, an act or omission of the insured.

MR WALKER:   Quite so.  When I say supervisor, I mean of the insured, yes.  There is no difficulty of – you do not have to look for a third party.  It might just be the insured; quite so.  But that is, in our submission, precisely what is necessary in order then to appreciate the force of our third proposition.  Before I go to the third proposition, can I of course go to the one that was in question in this case?

As your Honours know, you will find it relevantly in what is called ANZ3.  It starts at page 435, right‑hand column, about line 30, but the text of ANZ3 is found on page 436, left‑hand column, starting at about line 20.  Depending upon which policy is in question, it is either no cover or no indemnity is provided.  One sees there that the second dot point in relation to a kind of vehicle and trip, which is obviously understood by the parties to have certain risk rating attached, that there is the requirement that the driver:

Has a PAQS driver profile score of at least 36, or an equivalent program approved by Us –

It is common ground that that was not true of either of the drivers in this case.  So one then goes, of necessity, back to FAI in order to understand what the position should be in relation to the act or omission, the non‑event or the state of affairs.  I accept that the phrases are, alas, interchangeable, which resulted in these two drivers not having that PAQS profile.

In FAI 204 CLR 659, if one picks it up at paragraph 40 the typographic emphasis is clear in the second line of that paragraph. It is the claim which:

the insured has in fact made.

This is the beginning of reasoning which, as one sees by the way in which it culminates at the end of paragraph 42, particularly the words in parenthesis, is intended to measure the claim against the contracted cover and the point is being made that section 54 does not, or cannot, have the effect of altering the claim so as to remove an essential element in it which happens to produce a lack of cover either by reason strictly of a right to refuse or simply a failure for cover to exist in any case.  The difference does not matter on the authorities. 

Paragraphs 40 through 42 use as an example the decision – not the reasoning – the decision in the New South Wales case, Greentree, to which I do not need to take your Honours, not least because the reasoning has been overruled by this Court, but the outcome provides in this part of this Court’s reasoning in paragraphs 40 to 42 of FAI, the outcome provides a readily utilisable example of how section 54 operates and will not operate. 

It is be recalled that what mattered in Greentree is that the third party claim called a demand was not made within the period that was requisite in order for it to be a liability for which indemnity was granted, and nothing in the operation of section 54 by dint of the identification of an act or omission could alter that fact with the result that that which was inherent in the claim, namely, the need to see whether there was a demand made within a period which meant that the insurer was liable to provide indemnity was true or not.

That could not be changed by reference to an act or omission notwithstanding, of course, literally, one can say that the fact that a demand was made on Wednesday could be regarded as the outcome of an omission for it to have been made by the person who did eventually make it on Monday.  That is a form of reasoning that is rejected in these paragraphs, 40 through 42, and it is rejected as the Court well knows from the repetition and emphasis of the phrase in the cases, including the decision below in this case, by reference to the sentence to be found in the middle of paragraph 41:

Section 54 does not permit, let along require, the reformulation of the claim which the insured has made ‑

which, of course, refers to altering that which is essential for the claim to trigger a liability of the insurer being altered so as to change the facts from what they truly are.

HAYNE J:   Is there any suggestion in this case of altering or varying the claim that was made?

MR WALKER:   Yes.

HAYNE J:   How?

MR WALKER:   We submit that properly understood this is ‑ ‑ ‑

HAYNE J:   Very dangerous words, Mr Walker.

MR WALKER:   Understood as we would have this Court understand it is of course what I mean – that this is a policy which is not exhausted as to a relevant description of its type or kind by referring to damage to vehicles.  It is damage to vehicles driven by drivers with particular characteristics.  This is not a policy issued for the cheap labour of 19‑year‑olds to take B‑Doubles across the continent and back.

HAYNE J:   I understand that proposition, but in what sense in this case is it proposed or suggested against you that there is some change to be made about the claim that was made?

MR WALKER:   Inherent in the claim, in order to trigger cover – inherent in the claim is not only the vehicle that is on the relevant list - that is not in issue but might be in another case - but also that the vehicle is driven by a driver falling within the descriptions required by the policy.  There is simply no cover provided for property damage to these vehicles if driven by a 19‑year‑old.

KIEFEL J:   Is not your real point that no claim could be made?

MR WALKER:   That is right, I am trying to use ‑ ‑ ‑

KIEFEL J:   But you are ignoring the fact of the claim.  Once there is a claim made in fact, according to FAI, you have to address whether or not the insurer can reject it whereas you would deny the premise upon which FAI proceeds, as I see it.

MR WALKER:   I hope not.  I am trying to proceed on this basis, that one takes the claim including that which is inherent in it.  In other words, it is not a matter of looking at the actual bit of stationery, it is a matter of understanding the claim as a demand by an insured for the insurer to perform the insurer’s obligation and claim necessarily has to match the cover. 

So in this case, the claim for property damage to a private motor car, not one of the listed trucks, no act or omission such as failing to obtain cover for your private motor car under the same policy would alter the fact of the claim which is, as the Court has said in FAI, the premise of section 54’s operation and the claim would be for a private motor car.  That could be seen not to fall within the policy.  Section 54 does nothing to alter that.  The claim is fixed and if the claim does not fall within the cover then section 54 can do nothing to alter the bargain of that risk which is constituted by the policy.

HAYNE J:   Well, can I just unpack that a little?  The proposition I understand you to be advancing is that the claim must match the cover.  Is that right?

MR WALKER:   Yes.

HAYNE J:   Is that equivalent to a proposition that the claim must accord with and engage the contract?

MR WALKER:   Yes, I would use, with respect, the language of the parentheses in paragraph 42, the claim must:

identify those demands in relation to which indemnity must be given).

HAYNE J:   Is not the whole purpose of 54 of the Act to modify the general proposition that a claim will be met if, but only if, it accords with and engages the contract according to the terms?

MR WALKER:   Yes, your Honour, and that is our difficulty.

HAYNE J:   Well then, we are in a field of the construction of 54, are we not?

MR WALKER:   Of course we are.  The way your Honour has put it, with respect, is the difficulty for us, that is, the position we are putting.

HAYNE J:   Yes.  That is why I put it to you.

MR WALKER:   I appreciate that entirely.  Trying to grapple with it is why I have gone to these paragraphs in FAI, because the more apparent than real difficulty ‑ something that I should say counsel feels keenly when it is reread ‑ in paragraph 39, is what is called by Justices McHugh, Gummow and Hayne in that passage, is what is called the:

intuitive rejection of a construction of s 54 which would require an insurer to pay a claim where there has been no event during the period of cover which the insured could have relied on as engaging the insurer’s obligations under the contract.

Now, that intuitive rejection stays only in these reasons as an intuitive rejection, but it is the beginning of reasoning which culminates in the passages that I have already taken you to, paragraphs 40, 41 and 42 ‑ ‑ ‑

KIEFEL J:   We are not in that territory here, we are in the territory where something is called a limitation on the scope of cover, but which is – in insurance terms, putting the statute aside – in reality a limitation of risk.

MR WALKER:   It is, it is.

KIEFEL J:   That is the kind of discussion that paragraph 3 of FAI would deny, which is to say that is the kind of discussion and the kind of drafting technique which section 54 intends to obviate.

MR WALKER:   Your Honour, it is quite impossible for me not to assent to the proposition you have just put.  The whole of FAI is, with respect, pregnant with that tension.  Section 54 is Parliament saying, “freedom of contract?  No”.  There is an imposition after the event of the contract which looks to instances in which a statutory act or omission has the effect which section 54, either through the subsection (1) gate or the subsection (2) gate, with the onus questions for subsection (2), with the prejudice questions for subsection (1), requires.  There is no doubt about that.  It is quite impossible for us to resist.

To the extent that my argument, as it were, abolishes or reduces section 54 to nothing more than printed words, then we ought to lose, because it obviously is intended to have substantive effect.  But we – that is, the appellant – are placing before this Court the implications of FAI, and the way in which FAI deals with the result in Greentree, where of course one can say, in Greentree it was by an omission of the injured party to make a demand in the policy period that meant the insurer was entitled to refuse to pay, but whether intuitively triggered or not, the reasoning of this Court in FAI says that result was correct.  The passage that I have already drawn to attention, in paragraphs 40 to 42, culminates, as your Honours know in the application to the facts of FAI in paragraphs 43 and 44, page 660 of 204 CLR and, in particular, I draw to attention the last sentence of 44:

It was that the policy did not extend to the demand referred to in the claim for indemnity.

Now, it is appreciated that we cannot as a matter of authority and, for the reasons that Justice Kiefel has pointed out to me, we cannot successfully put an argument that section 54 is not a means by which the scope of cover can be affected.  Section 54 on its face affects the scope of cover.

CRENNAN J:   But you seem to want to make a special case for exclusion, obligations which can be traced back to an exclusion clause.

MR WALKER:   My argument does not depend, or to put it another way, should fail if it is seen truly to depend on characterisation in this case of the PAQS requirement as, in strict insurance terms, an exclusion or not.  It does not turn as a matter of authority - we accept this, we do not challenge it - it does not turn, as Justice Kiefel has noted in her observation to me, it does not turn on drafting techniques.  It does not turn on whether something is, as it were, in the primary obligation, the promise of indemnity or whether it is an exclusion.  It does not turn on whether one can say notionally here is cover that is taken away by another circumstance as opposed to there is no cover ever for this event.

KIEFEL J:   Is your argument simply that there is no relevant omission?

MR WALKER:   Yes.  It is not a relevant omission because the only omission in question is one which, in order for the respondent to succeed, has to be such as leads to, what is called in paragraph 41, “the reformulation of the claim”.  Now, Justice Hayne asked me about that and my answer still has not arrived to that question.  The reformulation of the claim in question is to say that the claim under a policy which requires drivers with a PAQS qualification is here a claim for vehicles where drivers do not have PAQS qualification and if reformulated the act or omission reformulates the claim by omitting the requirement for PAQS qualification or, to put it another way, treats the drivers as if they had the qualification they did not have whereas the true claim, the one in fact made, is for vehicles driven by people without that qualification.

HAYNE J:   Would the policy respond to damage to the vehicle that happened when the vehicle was stationary and unattended by a driver.

MR WALKER:   Yes is the answer.  That is why I said earlier, drivers are in many cases, but almost certainly not all cases, necessary in terms of the risks out of which the indemnified offence might arise.  Even there, your Honours appreciate that the way in which a vehicle has been parked, including its location and warnings and the like, may well be due to a driver, even if the driver is not ‑ ‑ ‑

HAYNE J:   That is an issue of causation.

MR WALKER:   No, quite so.  What I am saying is the driver, including what I am going to call the underwriting criteria relevant to drivers apparently under a certain age and over a certain age – we are not good risks, at least in the main - these are not incidental matters.  These are not incidental matters.  The notion of the quality and qualifications of a driver – age, licence, training, record – being, as it were, incidental or a matter of mere detail to the decision to underwrite the risk, the price at which one does it, is, in our submission, such as to be rejected upon its simple statement together with the physical state of the vehicles and what they are doing – in this case crossing the continent and back – are right at the heart of the underwriting decision.

KIEFEL J:   Could I clarify one aspect of the matter?  As I understand it, the primary judge found that there was no relevant prejudice to the insurer’s interests in the events which occurred for the purposes of section 54(1).

MR WALKER:   This is a case – our case is a case where there is no question of prejudice within the meaning of section 54(1).

KIEFEL J:   That issue was not taken up to appeal because it is not addressed in the Court of Appeal?

MR WALKER:   That is correct.  There are a number of, as it were, issues that might have been, but were not, and have been utterly quelled - I think between the two of us in our written submissions we have spelled that out - but it is very important, particularly for an argument I am going to come to - my last proposition - to note that in fact in this case there was no prejudice argued.

GAGELER J:   Mr Walker, have you had an opportunity to look at the Law Reform Commission Report No 20?

MR WALKER:   Yes.

GAGELER J:   The notes on the clauses ‑ ‑ ‑

MR WALKER:   Yes.

GAGELER J:   ‑ ‑ ‑ and the two examples given of the operation of clause 54?

MR WALKER:   Yes.

GAGELER J:   Both of those appear to contradict the submission you have just made.

MR WALKER:   They both of course precede FAI, and that is how I must tackle that.  That is not enacted law.  That is an understanding by people who were not making law and were not construing the statute in any authoritative fashion.  That does line up against me and the short answer is that has no independent persuasive, let alone authoritative force compared to this Court’s explanation in FAI and as your Honours know – and I am now repeating myself, I fear – the force of what his Court did by endorsing the outcome in Greentree for the reasons given in FAI, in our submission puts paid to the notion that the reformers’ hopes or expectations should affect the reading of section 54, because it can be said that this Court’s approach to Greentree would, with respect, also run up against, conflict with the implications of those examples in the travaux preparatoires.

HAYNE J:   Would you accept that the framework for examination of the issue in the case is provided by the last sentence in paragraph 39 of FAI? That is at page 658 of the report of FAI, the last sentence on the page.

MR WALKER:   Yes.  The following passage, of course, is where, on that case and in relation to Greentree’s outcome, that close attention is illustrated.

HAYNE J:   I understand that, but if the last sentence provides the framework does your argument hinge upon giving a particular content to the claim which the insured has made in this case?

MR WALKER:   In a sense, yes, but it is in the sense, we hope, taken from the first sentence of paragraph 40.  That is:

the claim on the insurer which the insured has in fact made ‑

Then at the foot of that paragraph ‑

The insured’s claim on the insurer therefore had to identify –

This is why I say we are not looking at the actual stationery.  It is not the degree of art, or lack of art, shown in the particular actual claim made.  It is what the claim in terms of an insured’s demand for performance of a policy has to do.  That is what the last two sentences of paragraph 40 are saying, that the claim had to identify when the demand was made.  The policy was against liabilities, or costs, in relation to demands made within a period in order for the claim to be a claim which required payment given “the effect of the contract of insurance between the parties” had to do certain things.

We lose if we do not persuade your Honours that the qualifications of the driver – the PAQS quality – is analogous to the time when a third party demand was made in the liability insurance in question here, or in Greentree – in FAI or in Greentree.  For the reasons I have already put, in our submission, it is extremely clear in underwriting terms that it is at the heart of the matter which produces the contract of insurance, the matter being the assessment of the underwriting risk and the pricing of the obligations.

HAYNE J:   How does that relate then to the fact that the critical element in pricing was not causative of loss?

MR WALKER:   That will often be the case.  That is, a decision whether to underwrite a risk or not may be as a result of – I will call it a checklist approach – 20 criteria, but any particular accident can be due to something either only one of them – or relating it to only one of them – or to none of them at all.  That, of course, does not affect the fact that those criteria were material to the underwriting obligation being undertaken at the price it was undertaken.  Section 54, obviously, is designed to accommodate what was perceived as – I do not think it is too strong a phrase – the social injustice of the terms of the contract being enforced.

I hope I do not indicate a view one way or the other by the way I have framed it, but the contract is made, I do not have to pay if, and Parliament said well, that is socially unjust in certain circumstances.  Subsection (2) and the onus provisions thereafter of section 54 reflects one of the cases where there is what I will call an inherent capacity of the matter to affect the likelihood of the occurrence of the event, but the insured, regardless of where the common law would place it, discharges an onus to prove that it did not operate in that case.

That obviously is contrary to the common law effect of the contract, we accept, and it happens not to be this case.  This case appears to have been argued on the basis that it was subsection (1) that applied.  As I say, that is a forensic choice that has been made - it cannot be revisited - where the functional equivalent of that proof of non‑causation that applies in subsection (2) cases for subsection (1) is fulfilled by the prejudice point where, according to the authorities, in what might be called a quasi or pseudo‑damages sense, as it were, pretend the matter in question in a matter of obligation and inquire what is necessary in order to compensate the insurer for the departure from the terms of the policy.  That, again, is a very important part of the understanding of the scheme of section 54 and explains the extent to which there is a limit proposed by Parliament on the rewriting of the policy.

Our point is this, that FAI shows that a limit on the rewriting of the policy is to be observed and operates by refusing to permit the act or omission in question to be used to reformulate, as their Honours put it in that passage, the actual claim.  The actual claim here is in relation to drivers without the qualification.  The act or omission which resulted in that state of affairs or non‑event, call it what you will, is not one which can be, by section 54’s operation, used to change that actual claim to a claim which would fit within the policy, and that is the significance of ‑ ‑ ‑

KIEFEL J:   Is it correct to call it the reformulation of the claim or rather to permit the claim to be made at all?

MR WALKER:   Your Honour appreciates that I am using the language of the authority.  For reasons I am about to come to, it really does amount to the second alternative that your Honour has put.  It is reformulate so as to make the claim one to which the policy responds - a fiction, so as to create a fiction - so that the claim here is for vehicles damaged while in the charge of drivers with the qualification.

GAGELER J:   Mr Walker, ultimately you have to relate your submission to the text of section 54.  Does the submission boil down to the proposition supported, you say, by FAI, that the word “claim” in section 54(1) means a claim for an insured risk?

MR WALKER:   Yes, it does, it certainly does.  I accept that shorn of authority it is not obvious that is the only way it could be read, but authority means that is how it is to be read.

GAGELER J:   The only authority that you are relying on is FAI.  You get that from FAI you say?

MR WALKER:   Yes, and that is the only one, none the worse for being only.

KIEFEL J:   In face of paragraph 40 of FAI which refers – and 41 which refer to the claim which has, in fact, been made.

MR WALKER:   That is right.  Our argument is not in the face of that, our argument embraces that.  It says the claim, in fact, made here is a claim for damage to a vehicle driven by people who did not meet PAQS.  That is inherent in the claim because that is the fact.

GAGELER J:   It would also be inherent in the claim, in your submission, that no exclusion under clause 3 of the policy would apply?

MR WALKER:   I may not have understood that question correctly.  We are putting an argument regardless of the scope of cover or exclusion characterisations, regardless of onus questions and yes, our argument does turn on a claim being a demand by an insured that an insurer perform its obligation.  Such a demand can only be one which matches, to use an earlier expression of mine, the cover, with all its attributes.

HAYNE J:   The whole point of 54 was to modify the requirement that the insurer could depend upon the legal consequence of the text of the policy.

MR WALKER:   Your Honour, we have wrestled with that and that is why I keep coming back to FAI. If one looks at paragraph 44 of FAI, the reason given there includes this:

The claim made . . . was for indemnity against liability for a demand that was not a demand of the kind dealt with by the policy because it was not a demand by a third party made within the period of cover. 

In other words, the reasoning there points to the very matter that Justice Hayne has just raised with me.  The bargain of the parties ‑ I cannot avoid the phrase, not if I am being straightforward ‑ the scope of cover is the reason given in paragraph 44 with the hypothesised different outcome, see paragraph 45, commencing “By contrast”. 

One sees there a distinction in one of those claims made query and notified policies between the making of the third party demand and the notification to the insurer by the insured, and the selection of the level of generality at which one characterises the kind or type of cover will be critical because by parity of reasoning if the type or kind was seen as demand made and notified, as it were, a hyphenated composite concept, then paragraph 45 would not apply by exactly the same reasoning as occurs in paragraph 44.  So that it does come down to a characterisation question.

Now, it has to be said there is tension within the reasons of FAI on this very point.  If one goes back to page 652 CLR, in particular, paragraph 23, which goes onto page 653 as well, there is an admonition against proceeding by what I am going to call labels.  But that notwithstanding, it is crystal clear in the ratio for the actual decision in FAI ‑ see, as I say, the passage starting, I suppose right back in paragraph 33 and going through to 44, as I have said ‑ that there needs to be a characterisation of the cover so as to understand what is inherent in the claim, so as to measure whether the reliance on section 54 does or does not transgress the requirement that section 54, by its positing of the effect of an act or omission on a right to resist payment – to use the language of FAI in paragraph 41 ‑ reformulates the claim, the facts of Greentree, the facts of FAI, the reformulation that refers to pretending – my word – that the demand was made when it was not made.

KIEFEL J:   You have described the claim as a claim for damage to vehicles driven by drivers ‑ ‑ ‑

MR WALKER:   With characteristics.

KIEFEL J:   ‑ ‑ ‑who were not qualified.  But, on another view, the claim made by the insurer is simply for indemnity with respect to damage to vehicles ‑ ‑ ‑

MR WALKER:   I accept that.

KIEFEL J:   ‑ ‑ ‑that the vehicles were driven by non‑qualified people is a fact affecting the insurer’s liability to repay, but it is not a correct characterisation of the claim.

MR WALKER:   If that is the way in which the Court sees the policy, that would be to proceed in accordance with the method displayed in FAI, and we would lose.  That is what I mean by, it is how one characterises.  It is partly a question of level of generality.  It is certainly not, on the authorities, to be done by identifying something as an exclusion as opposed to a primary description of cover.  That, apparently, for the reasons pointed out at the very beginning of FAI, is not the way it is done but, nonetheless, there does need to be a characterisation.  That is why I made the point I did about paragraphs 44 and 45, how 45 would be different, had there been a characterisation on that hypothetical of “made and notified” being part of an indivisible, composite requirement.

BELL J:   Central to your characterisation in paragraph 28 of your submissions is that it was central to the risk and the scope of cover that the driver be qualified.

MR WALKER:   Yes, and we do not shrink from the fact that when you are thinking about how to characterise a policy, taking into account the commercial core of the underwriting decision would be useful, at least, to a court.

BELL J:   One difficulty with that, that the respondents point to at paragraph 53.5, is that what is central to the risk will be a combination of elements including exclusions, and it is ‑ ‑ ‑

MR WALKER:   Yes.  My argument is unquestionably in danger of running so far as to leave in doubt any sensible operation of section 54.  We do appreciate that, which is why we try to draw the line in this case in accordance with the guidance given in FAI.  There was a line drawn in FAI.  Now, with respect, it does not lend itself to immediate application to other kinds of cases but it is an authoritative indication by which we are to be guided as to how one applies it.

BELL J:   What is the line that you have drawn?

MR WALKER:   That you cannot by dint of supposing the act or omission not to have occurred reformulate the claim and there are two judicial explanations of that that we wish to add to the words I have already sufficiently quoted.  There is the approach illustrated by Justice Kirby’s comment to be found in the same authority, FAI 204 CLR 675. In the middle of that paragraph, about the middle of that page, his Honour says, and this is picking up the notion that I think Justice Kiefel inquired about as to whether this is a relevant omission:

It is no more “by reason of” such “omission”, in the sense that s 54(1) contemplates, than it would be “by reason of” an omission on the part of the insured itself to secure a better, larger or more ample policy of insurance.

In this case one would posit that the cover will be available even for a driver without the qualification, if the lack of qualification was not causative of the accident.  One can see why that would be in accordance with what I call the social policy evident in the project which resulted in section 54 being enacted.  Our single point is that that is not what this Court did in FAI.  It says that you cannot proceed to reformulate the claim. 

Now, another approach to reformulating the claim is in the recent New South Wales Court of Appeal consideration of these matters namely, Prepaid Services v Atradius Credit.  I am using the report at 302 ALR 732 and the particular passage to which we wish to draw attention is on page 765, paragraph [132], where Justice Meagher, with the agreement of the others in the court, says at line 25 and following:

s 54 does not permit or require the reformulation of the insured’s claim ‑

So that is the FAI term ‑

so that it includes elements or characteristics which it is said would have been present but for the relevant act or omission.

With respect, that is a useful gloss.  It seems to be in accordance with the purpose of the ban on reformulation which this Court pronounced in FAI. It is to make the claim that which it is not in order that cover is provided, in other words, in order that a refusal to pay can be sidestepped.

HAYNE J:   I know that you say nothing turns on the particular form in which the claim was made, but do we find in the appeal papers the claim form as completed?

MR WALKER:   We do.

CRENNAN J:   And the terms in which it was denied?

MR WALKER:   We would find both of those, the correspondence.

HAYNE J:   In particular, whether the claim form, which I assume the underwriters supplied ‑ ‑ ‑

MR WALKER:   The short answer is no, it does not.  As your Honours understand, that is why I keep referring to the word ‑ ‑ ‑

HAYNE J:   I was taking it a little slower, Mr Walker.

MR WALKER:   That is why we keep referring to the word “inherent”, and that it is inherent at which ‑ ‑ ‑

HAYNE J:   Yes, it is not there in the claim form.

MR WALKER:   Quite.

HAYNE J:   The underwriters did not positively ask was there a PAQS driver driving it.

MR WALKER:   No, quite.  I will get the page so as to insert the stake more securely in my own heart, your Honours.  But that is a matter which cannot be left out of the count in what I am going to call the critical – really the decisive – characterisation question, but I have called it – in volume 2, 516 is the commencement of the letter of refusal, but that is not going to – one of the claims, the second I think, is at page 508.  I think it is fair to say that is not obviously an underwriter’s form but it does refer to a request for details.  Yes, there is a claim form of the brokers at 493, and where you will find driver references at 495.  There is another form to be found starting at 441, our form.  In both of those forms, in driver’s details, age is required, but nothing in relation to PAQS or, indeed, a number of the other matters in the policy.

HAYNE J:   Yes.

MR WALKER:   In our submission, and notwithstanding the criticisms that have been expressed I think in four passages to which we have drawn attention in our written submissions, namely, the three separate sets of reasons below in this case and in Atradius in the New South Wales Court of Appeal of his approach, the approach by Justice Chesterman – I do not need to take you to it.  We have given you the citation, particularly paragraph 80 with respect to the failure there of the pilot to have undertaken the requisite review.

To give the pilot the characteristic of complying with the safety requirements which in turn was an element in the cover was, in our submission, faithfully in accordance with the way this Court required it to be done in FAI, the subject of consideration by the Queensland Court of Appeal through Justice Chesterman’s reasons agreed in by the other members of the court, pointing out that the act or omission was not one which could work the effect sought by the insured under section 54 without illegitimately reformulating ‑ in the sense that this Court has used that expression – the claim, so as to treat the person who had not done something as if the person had done something.  In our submission, it is an unavoidable outcome of the reading of FAI that that is what might be called the limit on the imposition by section 54 of liability on an insurer beyond the scope of the agreed cover.

Your Honours, that leaves our last proposition, some of which has already been touched on, particularly in an answer I gave Justice Bell.  I do not need to elaborate much further on it.  I stress – as I did in answer to Justice Kiefel’s inquiry – that this is not a case where we can point to anything in relation to prejudice, not even an argument about it or a contention about it.  But it is part and parcel of the words to be construed in section 54(1) and, in our submission, it is in our favour to observe just how odd and artificial it would be to propose some monetary allowance on account of drivers, which as your Honours know we were actually assured would be undertaking this test, not undertaking this test, not passing the test to the stipulated degree. 

In our submission, that really is a question about being prepared to take the risk at all.  One knows in this particular case the risk was one that required specific attention because of the poor record.  In our submission, it becomes very difficult to deal with a section 54 application, depending upon the requirements to allow for prejudice at the end of subsection (1) as a justification for removing the operation of “the restrictions or limitations” – that is this Court’s expression – the restrictions or limitations inherent in a claim of a kind that engages the promised indemnity.

That, in our submission, shows that this Court still sees a fundamental role as was made clear in paragraph 39, to which we have drawn attention, in ascertaining the effect of the insurance.  Now, the effect is not simply the right to resist payment.  It will include that, of course.  But it also involves what is it which by way of claim can engage at all the liability of the insurer.  May it please the Court.

HAYNE J:   Thank you, Mr Walker.  Yes, Mr Rayment.

MR RAYMENT:   May it please, your Honours.  In our submission, the submissions which your Honours have just heard come back to an argument based upon words used in an earlier decision of this Court that section 54 will not operate in the very class of case that it was intended to cover and that with remedial legislation and the words of the section being entitled to the most ample construction. 

This is exactly the kind of case, in our submission, with which section 54 was concerned.  There was a temporal exclusion, we submit, in the policy.  The circumstances which attracted that exclusion were not causative of any loss under the policy by concession.  We conducted a trial in which there was an issue raised under section 54(3) and, as President McLure pointed out, effectively we won it.  But before we had the opportunity to get such a finding the insurer, at trial and then on appeal again, conceded subsection (2) had no application to the case with the consequence that causation issues went out the window.   

Then they conceded as well in the Full Court that there was no prejudice in the matter so that those words in the section had no application.  We submit that utterly orthodox application of section 54 is involved in this case and we also submit, with respect, that nothing that was said in FAI was intended to achieve any different result. 

First of all, you ask was there an act, and we submit there plainly was an act.  The act was that the drivers of the two trucks which were involved in accidents had not sat for the PAQS test and therefore had not achieved a profile of 36 percentile points, which sounds like a pretty low bar that they had to follow.  They were operating the two trucks as drivers. 

The act, in our submission, was the operation of the vehicles by the two drivers in those circumstances.  That was the act relied upon by the appellant to refuse the claim.  I think Mr Walker did not quite complete an answer to that question.  At paragraph 49 of the trial judge’s judgment, at page 579 of volume 2 of the appeal book, the actual reason given for rejecting the claim is set out written by the lawyers.  Your Honours see the second‑last paragraph.  They sum it up by saying:

In other words, there is an absence of relevant cover between our client and your client by virtue of the fact that the vehicle was being driven by an untested driver.

No indemnity is provided.  It says in the exclusion clause that your Honours were taken to in the ANZ 3 exclusion which is printed in the policy form, when - a temporal exclusion - when the vehicle is being operated by drivers of B‑Doubles - and B‑Doubles were what we were concerned with in this case; apparently that is a prime‑mover followed by two trailers linked together, a B‑Double.  These were both B‑Doubles - unless the driver has a PAQS driver score of at least 36 and it is the operation, in our respectful submission, to which section 54 directs attention, it does not matter whether you take the other view that it is the omission of the drivers to obtain the PAQS profile of 36 for this purpose.

HAYNE J:   An act or omission must surely be the act or omission of the insured, must it not?

MR RAYMENT:   Well, not necessarily under the section, your Honour.  It says “or any other person”, but there is an act or omission of the insured being putting the drivers in control of the vehicle, so it really – with great respect, it does not matter how you look at it.  It was put a number of ways by the various judges who dealt with this case below, all of whom concluded that these circumstances produced an act or omission in this case.  I do not think my learned friend has sought to say, well, it would have involved the assessor of the PAQS test to look at the question whether there was an omission being something that was reminiscent of what Justice Chesterman said in Triple C.  My learned friend has not addressed it.  We submit such a submission would be dealt with in Antico, where you had to get the consent, your Honours will remember, of the insurer, and the Court accepting that nevertheless concluded that there was a relevant omission to obtain the consent.

What had happened was Sir Tristan Antico failed to ask for the consent initially, and a year after he had been incurring costs he then failed to comply with a number of conditions that he had to comply with, and all of that was said in the Court to be part of the causal background of the non‑compliance, which was sufficient; if your Honours go to page 672 of the report, to produce the result that there was a failure to pay “by reason of”. It does not say by reason only of, it just directs attention to the causal picture and some material part of the causal picture. That is 188 CLR 652 at 672. But my learned friend has not addressed it, so I will not stay with it.

So you have an act or omission.  Antico also discussed this question of prejudice, and below it was conceded that there was no relevant prejudice here – that is, before the Full Court.  So we say the operation was the Act, and there it is, squarely within the language of section 54 in its opening words.  The claim, we submit, was a claim for cover under the policy, and there were several parts to it, as my learned friend said.  If your Honours go to volume 2 of the appeal book, at page 431, the coverage of the policy is there, before you come to the exclusion clauses:

1.1.Accidental Loss or Damage

If during the Period of Insurance Your Vehicle:

·Incurs Accidental Damage, or damage caused by fire –

et cetera, we will replace or repair, and so on; section 1.1, under which the claim was made.  Section 2.1 covered legal liability, arising from the use of the vehicle.  Both of them were subject to an exclusion, which your Honours have looked at – ANZ3.  It is a temporal exclusion:

No indemnity is provided under this policy of insurance when Your Vehicle/s are being operated by –

second bullet point – drivers without the relevant PAQS profile.  Now, your Honours, leaving aside for a moment what is said in FAI, it has been, we submit, the premise of consideration in this Court and elsewhere in discussing section 54 that it is an ameliorative, beneficial piece of legislation designed to remove unfairness as between insurer and insured.  No question about it.  In particular, as one sees from the explanatory memorandum, and one sees from the Law Reform Commission Report, temporal exclusions were seen as classic examples of the purpose of the section.

Justice Meagher, if I can go back to the case my learned friend just referred to in the Court of Appeal, summarised the matter well and correctly, in our submission - that is Prepaid Services Pty Ltd v Atradius Credit Insurance NV (2013) 302 ALR 732 - when he discussed this very case and the Queensland Court of Appeal decision, which my learned friend has cited, Triple C. 

At page 766 his Honour goes carefully through the matter with the concurrence of the other members of the court.  His Honour refers to the fact that both the explanatory memorandum, which expressly mentions temporal exclusions, and the Law Reform Commission Report, indicated an intention to deal with such a matter.  It is paragraph [140] where his Honour gives the relevant references.  We have included them in the supplementary materials put to the Court. 

His Honour says the effect of doing what Justice Chesterman would do or, we would add, now what the appellant would seek to do here, would be to undo all of that.  If you read the words, which we submit were never intended to go as far as our learned friends have put, in the way in which Justice Chesterman did and in the way in which the appellant does, you destroy one of the main purposes of section 54, and it cannot have been the intention of this Court to do that in the context in which the remarks were made, we respectfully submit.

Now, if I could go straight to FAI, the submission that had been made in FAI which occasioned the remarks to which our learned friends have referred is summarised at paragraph 28 of the plurality’s judgment, 204 CLR at 654. That was a submission - your Honour Justice Hayne, I think, was the only member of the present Court who was there that might remember that ‑ ‑ ‑

HAYNE J:   That is a badge of honour.

MR RAYMENT:   Well, yes, it is.

HAYNE J:   A reason for caution.  We will not trouble you about those things, Mr Rayment.

MR RAYMENT:   Spoken by a man – I think I might be the present age of your Honour – it is certainly a badge of honour.  Paragraph 28 refers to the submission with which the Court was dealing and it was that you could not use this section – it was nothing to do with the mischief with which the section is concerned and to turn a “claims made” policy into something which it was not.  The insurance was not paid for.  The insurance was not obtained.  The insurer contended that applying 54(1) literally, you could hold an insurer liable for a claim not made during the period of the “claims made” policy, which is absurd. 

It was certainly not the mischief, in our submission, described in the Law Reform Commission Report evident from the section with which section 54 is concerned.  Similarly, Justice Kirby described the submission - paragraph 71 of his judgment at 670; the same submission.  The Court, in our respectful submission, was making clear that section 54 achieved no such result, in paragraphs 40 to 42 that our learned friends have referred to.  If one turns back to them, they actually had in mind this kind of case exactly in paragraph 42.  Their Honours said:

The restrictions that are inherent within a claim vary according to the type of insurance in issue.  Under an “occurrence” based contract –

which this is –

no claim can be made under the contract unless the event insured against takes place during the period of cover.

So if we were trying to violate such a restriction we would stub our toe on paragraph 42.  That is the relevant effect of what their Honours are saying in relation to limitations and restrictions insofar as concerns this case, in our submission.  Nothing was said in this case which was intended to go as far as our learned friends submit and Justice Chesterman appeared to think.

CRENNAN J:   I think paragraph 46 makes that more than clear.

MR RAYMENT:   Yes, quite.

HAYNE J:   I suspect also that it may be useful to take account of what is said in paragraph 20.  As I understand the argument against you, it is at least in part an argument that there is no relevant act or omission because for the respondent to succeed the claim must be reformulated.  At least on one view of what is said in Antico and in paragraph 20 of FAI, the very premise of section 54 is that there is a claim and a contract, the effect of which is that the insurer may refuse to pay the claim.

MR RAYMENT:   Yes, which is precisely this case, in our respectful submission, and it happens to arise under what is a classic temporal exclusion discussed in all of the background materials.  So we submit that nothing said in FAI ought to be understood as even applicable to an…..policy where the event does occur within the period of insurance.  What the Court was seeking to do was show that the argument that had been put on behalf of the insurer did not, in fact, involve section 54 properly understood for those reasons.  So we would respectfully submit that for just the reasons that Justice Meagher gives in the New South Wales Court of Appeal case of Prepaid Services the decision below is to be preferred to the decision in Johnson v Triple C.  The decision below follows a proper understanding of section 54. 

Your Honours, the concessions made in this case, in effect, have to be noticed.  Section 54(2) was conceded to have no application, that is, to read the terms of the section, the conduct in question was incapable of producing any loss under the policy.  That makes it really – it is a very poor environment, in our respectful submission, to hear a submission about the underwriting problems in this case, if that much is true.  Your Honours, can we go to Triple C?

HAYNE J:   With a view to doing what, Mr Rayment?

MR RAYMENT:   Shortly submitting that it is wrong, if your Honours please, only shortly. 

HAYNE J:    Yes.

MR RAYMENT:   Your Honours, the cover – I am referring to the report in 243 FLR 336 of the case.

HAYNE J:   Does the demonstration of what you would say is error in Triple C involve some elaboration of the arguments you have already made?

MR RAYMENT:   Actually not.  As a matter of fact for all of the reasons I have already put - that is why I was going to do it shortly - we submit it was wrong.  Your Honours, one can see what the cover was in Johnson v Triple C at paragraph [19].  It was:

“Indemnify (the respondent) for all sums for which (it) become(s) legally liable to pay . . . in respect of; (a) accidental bodily injury . . . to passengers whilst . . . on board . . . the aircraft.

It was a currents based liability policy.  There was a temporal exclusion from the cover in paragraph [20]:

this policy does NOT apply whilst –

it said, the aircraft being used some way.  In paragraph [70], Justice Chesterman concluded there was no omission because they had no capacity - rather that the pilot of the aircraft had no capacity to achieve this result without the involvement of the flight instructor who would check his performance.  That, we submit, is exactly inconsistent with Antico in this Court. 

CRENNAN J:   To identify and limit the risk it is just hard to see, in the light of the concessions made by the appellant, what the operation of section 54 is, how it is remedial ‑ ‑ ‑

MR RAYMENT:   It destroys it, really, in our respectful submission.  The submissions have been made in‑chief, it takes it away.  Now, at paragraphs – I will do it shortly, your Honours.  In paragraphs [79] to [80], his Honour adopts a view which we respectfully submit is wrong for the same reason as the appellant’s submissions are wrong about the language used in FAI.  Paragraph [83], we submit, should be compared with what Justice Meagher said, which we respectfully submit is correct, in the Court of Appeal.  Paragraph [83] concludes that:

It is an omission which is relied upon to give rise to a claim which the insured could not otherwise make.

So it is really the same kind of submission as our learned friends have made here and Justice Meagher discusses.  In paragraph [84], their Honours concluded in that case that subsection (2) did apply and it is interesting to note that the insured, apparently, in Johnson v Triple C, had not made a case of lack of causative effect under subsection (3), which, if one reads the special leave application in the case, seems to have led to the refusal of special leave, because just questions of fact arose.  I think your Honour Justice Bell ‑ ‑ ‑

BELL J:   Lively questions of fact, as I recollect it.

MR RAYMENT:   Yes.  Your Honours, we respectfully submit that that decision is wrong, and the occasion for granting special leave in this case to consider it by comparison with the decision below is an occasion, we submit, to reject its reasoning.  Those are our submissions, if the Court pleases.

HAYNE J:   Thank you, Mr Rayment.  Yes, Mr Walker.

MR WALKER:   No reply.

HAYNE J:   The Court will consider its decision in this matter and adjourns to 10.15 tomorrow.

AT 11.35 AM THE MATTER WAS ADJOURNED