Mobis Parts Australia Pty Ltd v XL Insurance Company Se

[2019] HCATrans 161

[2019] HCATrans 161

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S78 of 2019

B e t w e e n -

MOBIS PARTS AUSTRALIA PTY LTD (ABN 34 107 778 156)

Applicant

and

XL INSURANCE COMPANY SE (ABN 36 083 570 441)

Respondent

Application for special leave to appeal

KIEFEL CJ
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 16 AUGUST 2019, AT 11.15 AM

Copyright in the High Court of Australia

MR N.C. HUTLEY, SC:   If your Honours please, I appear with my learned friend, MR T.M. MEHIGAN, for the applicant.  (instructed by Ashurst Australia)

MR J.T. GLEESON, SC:   May it please the Court, I appear with MR D.S. WEINBERGER and MS K.I.H. LINDEMAN for the respondent.  (instructed by McCabe Curwood Pty Ltd)

KIEFEL CJ:   Yes, Mr Hutley.

MR HUTLEY:   Thank you, your Honours.  Your Honours, we have a small bundle of a few cases we will be taking your Honours to which we will hand up.  The essential issue is what an insured is obliged to prove to make out a claim for loss of goods under a policy of insurance such as the present.  We submit that if the insured establishes on the balance of probabilities that it has been deprived of possession in circumstances where the fate of the goods is uncertain then that is sufficient ‑ and by “fate” we mean the repossession of the goods – and the risks which create the uncertainty can be either of destruction, permanent retention by a third person or absconding.

GAGELER J:   What do you mean by “uncertain”?

MR HUTLEY:   We mean that they are placed quoad the owner in a position where he or she cannot be realistically certain of their recovery for the future.  That is what we mean by uncertain.  It is not theoretical and it is necessary to go to the cases, and in one sense all the British cases – and your Honours will see in reference to them – expressly say it is a question of uncertainty and do not express themselves in the terms of balance of probability. 

In fact, the Court of Appeal’s judgment, Justice Meagher’s judgment, is the first judgment dealing with this sort of circumstance where it has been held that the inquiry is a simple question of inquiring on the balance of probabilities as at the time of loss as to whether there will be recovery or not of the goods.

GAGELER J:   So you say it is enough that there is a real risk of non‑recovery, do you?

MR HUTLEY:   Well, we say one has to look at the realities of the risks because often in circumstances such as dispossession it is not sufficient to say merely 51 per cent chance of recovery means they are not lost and 49 per cent of chance of recovery means they are lost.  We say that the courts have historically in these cases looked at the position on the basis of reality of risk and assisted in assessing that with what is called, in some of the cases, “wait and see”, or other cases saying “one awaits developments” of the risks inherent in the situation created to evaluate whether they were lost at the point to which the disposition took place.

KIEFEL CJ:   Is there a difficulty, though, that by reason of the evidence of the general manager that his assessment was that the property could be recovered?  I mean, where is the uncertainty?

MR HUTLEY:   Well, your Honour, one of the interesting things is, as your Honours would have noticed, that the relevant policy involved was from 23 June 2014 to 23 June 2015.  The finding was that the opinion of the general manager was expressed after that time, after a plan was put in place for the recovery and very shortly before the fire which destroyed them.  So if you ask the question during the policy what was the position, one would have thought the answer was there is a position of complete uncertainty because the goods were, in effect, trapped in the structure which all the evidence was it could collapse if one put – tried to recover them, there were risks of fire.

So if one asked at the point of view during the policy, what was the position, the position was of complete uncertainty as to whether there would be recovery.  Then the general manager, who was just the general manager, formed a view, as Justice Meagher observed, shortly before the fire that it was likely that the bulk would be recovered, the 18 million your Honours will have seen.

Now, we say that is a perfect example of an incorrect approach to it.  The “wait and see” doctrine does not take as a terminus ad quem that the expression of an opinion – not even, as it turns out, of a person who was not an expert loss recovery person, he just happened to be the manager of the organisation, no doubt informed on the basis of what they thought was likely to occur by way of recovery - and as Justice Meagher held at the relevant paragraphs to which we will come ‑ I think it is paragraphs 108 and 109 at page 256 of the application book, if I could take your Honours to them - I will come back to what his Honour meant by the word “uncertain”, which is another aspect of his three grounds:

Finally, and in any event, the primary judge was right not to “accept that, at the time of the collapse it was ‘uncertain’” – to whatever degree . . . Although the “extent” of stock damaged or destroyed was not certain, the fact that Mobis Australia would recover some stock from the warehouse was (even if it was not immediately apparent) –

Now, that is, with respect, was the beginning, with respect, of the error.  If it is possible or even likely that one piece of equipment might come out of this disaster because it is unlikely that there will be total loss of everything, that cannot, with respect, lead to the conclusion that there is no loss of anything.  In other words, if the likelihood is – and you cannot say of any particular piece – that it will be wholly lost but it is likely that there will be some minor recovery then it, with respect, we say, is absurd to suggest that that means in the event that, as here, 99 per cent is destroyed you cannot recover anything.  His Honour then said, dropping down to 108:

More significantly, Mr Stoddart’s considered assessment immediately prior to the fire, and after the appointment of Metropolitan Demolitions –

Namely, after the end of the policy:

was that “the majority of the stock was capable of being salvaged for sale and distribution” –

et cetera, and then they went on.  So we say that is exactly the sort of situation where the cases say there is – it is not certain that they will be recovered and not certain that they will be destroyed, they were merely capable.  That takes one to – if I can hand up to your Honours a little bundle of cases and particularly the leading case which formed the crux of their Honours’ consideration, which is the decision of the Court of Appeal in Moore v Evans, which your Honours will find at tab 1.

This was a judgment which went on appeal to the House of Lords, and the House of Lords upheld the decision in [1918] AC 185. The case was the case concerning jewellery which during the war was inaccessible to the owners but under the - not, as it were, in any apparent physical risk in a bank in Belgium and the finding of fact which was critical to the whole case is that of Lord Justice Swinfen Eady at 465. His judgment was the majority judgment and which Mr Justice Lawrence agreed. It is at 465 at point 1:

For aught that appears in evidence, these jewels have remained in safety ever since in the bank in Brussels.

So, in other words, there was no evidence at all that these goods were at risk.  That led to the desire to rely on the adventure cases to deal with marine law which are concerned with a different problem, as your Honours are aware, and that was rejected, that constructive total loss was inapplicable. 

Now, Lord Justice Bankes at 471 – his statement is the statement which is referred to by Justice Meagher at application book 254, paragraph 98 where it says:

A case like the present must, I think, be dealt with on the general principles applicable to the law of contract, and the meaning of the parties ‑

et cetera.  Then he went on, dropping down to about point 5:

The word “loss” in such a policy as this may have a very different meaning when applied to perishable goods . . . from what should be attributed . . . circumstances –

Then he turns to deprivation and says:

As applied to this last mentioned class of goods the first and natural meaning of the word “loss” seems to me to be the being deprived of them.  It is manifest, however, that it is not every kind of deprivation which was within the contemplation of the parties . . . On the other hand complete deprivation amounting to a certainty –

Now, the Court of Appeal has inferred that one has moved purely by that judgment to a balance of probabilities analysis which is to take place at the time of the relevant occurrence.  What the court did not have regard to, with respect, is what his Lordship said at page 473 when he was dealing with chances.  He referred to Mr Justice Blackburn and there is a quote, and then he says:

I think these last words are applicable to a case like the present.  If the true conclusion from the facts existing at the time of action brought was that the plaintiffs’ chance of recovering their jewels was a mere chance, then the plaintiffs might be entitled to recover on the ground of a loss of the jewels.  On the other hand –

This explains what he means by “mere chance”:

if the facts indicated that the chance was all the other way, and that there was no reason to suppose from anything that had happened up to the date of trial that the plaintiffs would not ultimately recover their goods, though they might have to wait a long time for them –

et cetera.  So what he does not express himself in terms of, and has never been considered to express himself in terms of in any English court, of that it is a question of the balance of probabilities.

KIEFEL CJ:   Nevertheless, his Lordship is referring to loss, not uncertainty.

MR HUTLEY:   But the other cases – because one is, in effect – because he is speaking in terms of chance, that is ‑ ‑ ‑

KIEFEL CJ:   Chance of a ‑ ‑ ‑

MR HUTLEY:   ‑ ‑ ‑ the chance of it not coming through.  That is what his Honour is referring to, not to certainty of destruction.

KIEFEL CJ:   So it is a loss of a chance of a kind of an outcome?  Is that the territory we are in?

MR HUTLEY:   It is an inquiry we say, which is a realistic inquiry ‑ and the other cases your Honours will have seen, it is expressed in such things in Kuwait Bank and in Holmes v Payne is you do not have to prove on the balance of probabilities that the goods are gone forever.  What you have to prove is uncertainty that they are gone forever, and the degree of uncertainty will be assessed with the benefit of what is called the “wait and see” doctrine, i.e. where there are – the occurrence produces a situation of real uncertainty, such as we say here.

You have the goods in a broken‑down structure.  If things go badly, you will lose them.  If things go well, you will recover them.  You may believe, on the balance of probabilities, as the relevant individual did after the end of the policy the day before the fire, that it was likely you were able to get everything.

KIEFEL CJ:   In fact, you got some.

MR HUTLEY:   You got 100,000 and lost 18 million.

KIEFEL CJ:   Just so I am clear, you do not rely upon the doctrine of marine law at all, the adventure cases?

MR HUTLEY:   Not at all, your Honour.

KIEFEL CJ:   So the notion of uncertainty is derived from ‑ ‑ ‑

MR HUTLEY:   The concept – we say that that is what the cases have determined to mean in such policies as what constitutes loss.  All the English cases express it not in terms of destruction or on the balance of probabilities that you will not recover ‑ ‑ ‑

KIEFEL CJ:   What then is the difference between loss and risk in insurance law on this view?

MR HUTLEY:   Your Honour, the difference here is that the peril you are insured against ‑ ‑ ‑

KIEFEL CJ:   Has not come to pass.

MR HUTLEY:   ‑ ‑ ‑ has fallen in.  You are not insuring against it.  One of the reasons which informs it, of course, we say is insurance law is inherently periodic.  One of the difficulties which arises is if you have to have actual destruction ‑ ‑ ‑

KIEFEL CJ:   It is like we are involved in time sliding.  Which period are we actually looking at, Mr Hutley, for assessment of loss?

MR HUTLEY:   We say the loss occurred at the time of the storm.  When these goods were placed in a position where ‑ ‑ ‑

KIEFEL CJ:   When is the determination of loss made then?  When can that decision be made?

MR HUTLEY:   Well, your Honour, we say on the balance of probabilities one has to – the approach you take ‑ what evidence can inform that conclusion can also involve what happens thereafter.  If it is the working out of the risks which are inherent in the risky situation you are in, the English cases say the loss can be at the time the peril fell in and we say that is the reason why these cases are expressed in terms of uncertainty and not actual destruction or balance of probability.

Now, we say that there was a fundamental error by the Court of Appeal and the Court of Appeal sought to deal with these at application book 255, paragraph 102, when they were dealing with some of the leading cases in England which have referred to this in terms of uncertainty, for example, Holmes v Payne which is referred to at paragraph 102.  Similarly, in the paragraph subsequently and sufficient for current ‑ Mr Justice Rix in Kuwait Airways Corporation expressly said that, in his view, it was not a likelihood or balance of probabilities, it was a question of uncertainty and your Honours will see that from the paragraph above.

Now, the Court of Appeal have said that these are wrong and that is, we say, the important point at the first instance in this exercise.  They have said that the English cases expressing these tests in terms of uncertainty are wrong.

GAGELER J:   Do you say that the last sentence in paragraph 103 is incorrect?

MR HUTLEY:   Yes.  We say that is wrong.  It does not pay adequate attention – and that is where it becomes important to understand that loss has to occur within the policy period.

GAGELER J:   So what is it?  How would you reformulate the ‑ ‑ ‑

MR HUTLEY:   We would say it is this.  In the event of – loss can be deprivation together with real uncertainty as to whether there will be recovery, the reality of that uncertainty as a matter of law able to be assessed at the time of inquiry with the benefit of hindsight.  It is not necessarily wholly a prospective exercise because the law realises with respect to these sorts of deprivation we say it is specious to imagine one can truly engage in a balance of probabilities exercise with certainty at necessarily the given point in time.

GAGELER J:   What if the fire had not occurred?

MR HUTLEY:   And we had recovered it?  Then the court says, with the benefit of hindsight, the “wait and see”, you had not lost it.  We cannot recover with respect to the 103 that we got, but with respect to the ones that were not, we can, because in effect the court – the law – and this is what the meaning of loss for the purposes of these sorts of policies – has taken a sensible and pragmatic approach to the construction of the policy.

This is not, in effect, some syllogistic simplistic reasoning with respect to the Court of Appeal.  It is dealing with the realities that these sorts of policies have to deal with the myriad of contingencies whereby goods become subject to perils, risks, once they are out of the control of the insured, which is specious, we say, to engage as we say the Court of Appeal’s analysis was relying on one person’s opinion as to the likelihood of recovery which within days, literally almost within hours, is proved utterly wrong.

That is no criticism of the gentleman, it is just that when one is dealing with goods in peril situation it is of a nature – and the insurance industry – and insurance law has treated this in a pragmatic and sensible way.  That is why Lord Justice Rix – or Mr Justice Rix at the time – rejected unlikelihood, because unlikelihood in effect sets up a false and impractical commercial inquiry, that is, you sit down and you pretend that you engage in a, as it were, forward‑looking – only forward‑looking inquiry at the time of the occurrence when it is obvious that to speak in terms of balance of probabilities 51 per cent when one is dealing with risks of this variety is really quite specious.

What is the difference between just over 50 per cent and just under 50 per cent in circumstances where one is dealing with goods which, by

hypothesis, will have been put in peril and have commercially – particularly if one – an insurance period is likely to expire before, as it were, the risks run out, will be uninsurable.

KIEFEL CJ:   I see the light, Mr Hutley.

MR HUTLEY:   Your Honour, that is our essential point.  With respect to the two other points by his Honour Justice Meagher, with respect to likelihood being merely – is it red or orange, your Honour?

KIEFEL CJ:   It is red.

MR HUTLEY:   I do apologise.  I am sorry, your Honour.

KIEFEL CJ:   It is all right, you can finish your argument about the other two points.

MR HUTLEY:   I will just finish.  I do apologise, your Honour.  As to uncertainty being solely 50/50, if your Honours go to the – look quickly at the decision of Rickards v Forestal to which he makes reference, it is apparent – and the relevant passages which he quoted – when one goes to the antecedent part of page 87, it is quite clear that his Lordship was not saying uncertainty only existed when there was 50/50.  He is using uncertainty there to contrast it from unlikely for the purposes of analysis of the term.  He was not saying that under the former law of constructive total loss you could only get a constructive total loss that was 50/50 because that would have been absurd because you could defeat a constructive total loss by proving a likelihood – an insurer could defeat a constructive total loss notice by merely proving the likelihood was less than 50 per cent or greater than 50 per cent.  Those are our submissions.

KIEFEL CJ:   Yes, Mr Gleeson.

MR GLEESON:   Your Honours, could I emphasise aspects of the terms of the policy and then the concurrent findings of fact which we submit dispose of this application?  The policy is at page 142, referred to by the primary judge at paragraphs 839 to 841, the essence of which was it was a non‑marine insurance policy requiring damage during the period of insurance, “damage” relevantly meaning physical loss caused by an occurrence during that period.

In the present case, the storm occurred on 25 April and the policy expired on 23 June.  The burden of the applicant’s case was that on 25 April it suffered an actual loss of the entirety of the stock then remaining in the warehouse.  That is what it needed to prove.  The essential concurrent factual finding is that the actual loss did not occur then, it occurred at the end of July when the fire intervened in the salvage process.

Your Honours, in terms of those concurrent findings could I go first to the primary judge commencing at the next page, page 143 at paragraph 848 and following.  This is Mr Stoddart, who Mr Hutley has just made some submissions about as a man who came up with an estimate just before the fire and he could well have been right or wrong.  That is wrong on the facts.  Mr Stoddart, the manager – this is still during the policy period, we see that from 847 – he was the person that devised the recovery process, over the page, paragraph (1), a process:

to recover as much stock from the warehouse as possible –

and that was the process that at 849 in fact achieved $123,000 in recovery.  Could I also indicate on page 146 at paragraph 861 the very same Mr Stoddart accepted in cross‑examination that he:

had a number of discussions following the collapse on Anzac Day –

and he indicated:

the majority of the stock was capable of being salvaged –

He agreed with that.  So that was the man who then came up later on with some more precise estimates of the amount of stock which was recoverable.  You will see on page 147 at paragraph 866, his initial estimate immediately after the fire was that 17 and a half million dollars of stock would have been recovered.  He is asked about that.  Then a more considered estimate at the foot of the page he came up with ‑ the amount was 18.5 million dollars.

So the essential finding of the primary judge was that immediately following the storm back in April, on the best assessment available, a very large amount of stock would be recovered.  That is the finding which the Court of Appeal at page 256 in paragraphs 108 and 109 confirmed, and it is important to note in 109 that Mr Stoddart’s assessment of 18.4 million in fact included all relevant risks, including fire.

KIEFEL CJ:   This is addressed to an uncertainty argument but is your primary proposition that there was in fact no physical actual loss?

MR GLEESON:   That is our primary proposition, and that is the proposition and that can be established at any of the three levels Justice Meagher identified.

KIEFEL CJ:   We do not need to hear further from you, Mr Gleeson.

MR GLEESON:   May it please the Court.

KIEFEL CJ:   Do you have a reply in relation to the matters raised?

MR HUTLEY:   Your Honours, the point put is in fact there had not been a loss at the relevant time, that is, the goods had not been destroyed.

GAGELER J:   The period of the policy being a critical point.

MR HUTLEY:   We accept that.  We embrace that.  As your Honours would have seen in the decision of Scott v Copenhagen, in the judgment of Lord Justice Rix at 215 – that is at tab 2 – his Lordship accepted that whether the events subsequent – and your Honours will see this at about point d to e:

A total loss cannot be proved without a proper search, or more than one, and perhaps also without the passing of a certain period of time just in case the property ‘turns up’ . . . Where, however, loss is proved, I can see arguments both ways for saying that the loss occurs when it is first discovered (perhaps even earlier), or only after further search.  That is not this case:  and in practice the problem does not appear –

et cetera.  What we say the cases show is that if a risk falls in and the risk existed at the time and that was inherent in the occurrence which occurred, the loss is taken to have occurred at the time of the occurrence; you do not have to have the policy destroyed at that time.

For example, if it is inevitable that the property will be destroyed the day after the policy period, our learned friend’s arguments lead to the conclusion you suffer no loss in the policy period and that cannot be right and that has never held to be the law.  The real question here is it is not that, in effect, the destruction has to occur; the question is what is the character of events which produced the loss?  Our learned friend says it is only that.  If that is the case that would render absurd insurance policies which are for periods where an inevitability is confronted with respect to goods but the actual destruction takes place afterwards.

KIEFEL CJ:   If there is an inevitability there would usually be something inherent in the property that would allow you to take a point back in time to say there was in fact a loss.

MR HUTLEY:   We would accept that, your Honour, but if it is only 49 per cent or 48 per cent that it is going to fall over the next day, our learned friends would say you are uninsured and it is your loss.  If it is

51 per cent and it is going to be destroyed the next day you are insured.  We say that the cases have expressed themselves exactly in terms contrary to that analysis.  Therefore to say that there has to be a loss, that is, destruction within the period is simply contrary to principle.  Our learned friends, that is their primary point, because once one moves from that one is then dealing almost of necessity in assessment of likelihood of risk.

The cases make clear in England that that is not to be done on a balance of probability analysis because it is spurious, because in respect of dynamic situations of this variety it is spurious from a commercial point of view that people would agree to have the fate of their insurance on an assessment as fine as the balance of probabilities.  They are looking for protection against a real range of risk which has fallen in, even if they mature 24 hours after the policy. 

That is why we say, your Honours, it is an important question, and the Court of Appeal’s analysis, and the primary point of our learned friends is wrong in principle and it in effect renders such insurance of this variety of little commercial value.

KIEFEL CJ:   We consider that there is insufficient reason to doubt the correctness of the decision below.  Special leave is refused with costs.

MR GLEESON:   May it please the Court.

KIEFEL CJ:   The Court will adjourn to reconstitute.

AT 11.47 AM THE MATTER WAS CONCLUDED