Moltoni Corp v QBD Insurance

[2001] HCATrans 398

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P92 of 2000

B e t w e e n -

MOLTONI CORPORATION PTY LTD

Appellant

and

QBE INSURANCE LTD

Respondent

GLEESON CJ
GAUDRON J
McHUGH J
KIRBY J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON TUESDAY, 23 OCTOBER 2001, AT 10.15 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR G.R. HANCY, for the appellant.  (instructed by Blake Dawson Waldron)

MR F.M. DOUGLAS, QC:   If the Court pleases, I appear with my learned friend, MR G.R. DONALDSON, for the respondent and also for the applicant for special leave to cross‑appeal.  (instructed by Kott Gunning)

GLEESON CJ:   Yes, Mr Jackson.

MR JACKSON:   Thank you, your Honours.  As is apparent from the written submissions, the appellant seeks to have restored the judgment in its favour on its third party claim against the insurer respondent.  The respondent’s application for special leave to cross-appeal seeks to obtain judgment for the respondent rather than the new trial which was ordered by the Full Court.  Your Honours, may I deal with the application for special leave to cross-appeal at the time of making our reply on the substantive appeal.

Could I go in relation to our appeal first and briefly to the orders which are in question.  The primary judge’s order your Honours will see in volume 2 of the appeal book at page 434.  There was first of all, and I am referring to orders 1 and 2, judgment against the appellant in favour of the plaintiff in the action with costs and then, as appears from order 3 on page 435, there was judgment in the appellant’s favour for an indemnity in respect of, to put it shortly, the judgment obtained by the plaintiff.

In the Full Court the orders appear at page 475 of the same volume and your Honours will see that the appeal by the present respondent was allowed, order 1. The order for indemnity was set aside, order 2, and there was then a retrial ordered. Your Honours, the decision of the Full Court was by a majority and the majority decided on different grounds: one, Justice Ipp on the basis of the approach to be taken in relation to section 54(1) of the Insurance Contract Act 1984; the other, Justice Wallwork on the basis of sufficiency of the reasons on a factual issue.

Both issues, however, arose in connection with section 54(1) and the issues arose in circumstances where, to put it very shortly, the relevant policy contained a condition, which your Honours will see at page 258 of volume 2 and there is condition 2 in the left column where the condition required notice of an injury to an employee as soon as practicable after the employer knew about it, to put it shortly, and as appears from the preceding page, page 257 “due observance . . . of the Conditions” was stated to be “a condition precedent to” the insurer’s liability in respect of the claim; that is the last paragraph on page 257.

Your Honours, the insuring clause is relevantly at page 273 and your Honours will see in the left column commencing at line 15, there is a paragraph which deals with insurance in respect of liability or, to put it shortly, workers’ compensation under the West Australian Act and then your Honours will see in the next paragraph, the one commencing at line 21, an agreement, and if I could read out the essential parts of it:

It is . . . further agreed . . . that the Insurer will indemnify the Employer against legal liability to pay damages and in addition will pay all reasonable costs and expenses incurred with the written consent of the Insurer . . . and at Common law for personal injury sustained by any person employed by the Employer under a contract of service –

So it was a common law provision in relation to indemnity for common law liability.

HAYNE J:   Does anything turn on the “if clause” that follows that, “if such injury is”, et cetera?

MR JACKSON:   No, your Honour.  Well, perhaps I should say not in our submission, your Honour; we do not understand anything to arise from it.  There was a gap in time in giving notice and the gap in time from giving notice was from 7 November 1992 to 6 April 1994.  These aspects are set out in our written submissions in paragraphs 7 and 11.  I think we say in paragraph 11 that it was approximately 17 months after it occurred and your Honours will see the dates there set out.  The failure to give notice, in those circumstances, and this is where one ‑ ‑ ‑

KIRBY J:   Can I just ask what, in your submission, is the purpose for the requirement of prompt notification?

MR JACKSON:   Your Honour, the first thing is that the notification is to provide to the insurer notice that a claim is being made.  Now, the reasons for that are manifold.  One reason, for example, would be to enable the insurer to make provision for it in its accounts.  Another reason would be to enable the insurer to take whatever action it thought appropriate in relation to determining whether to pay the claim.  I accept that in relation to notice, one of the reasons is to enable the insurer to consider the claim if it chooses to do so.

KIRBY J:   In this area of operations it could include, for example, checking whether the claim was a fraudulent claim; putting investigators on the claim, having video film taken of the claimant as to the quantum of the claim; maybe also notifying reinsurers - that is one of the obligations of a reinsurance policy.  So there are lots of reasons, one would think, for such requirements.

MR JACKSON:   Yes.  There are a number of possibilities.  The extent to which they would be material to a particular insurer will depend on the circumstances and the circumstances of a particular insurer may change from time to time.  It may change by reason, for example, of changes in ultimate ownership of the insurer, on the one hand; changes in the extent to which the insurer’s business focuses on that class of work; also, changes in the extent to which the insurer actually decides to take action when claims are made to it.

KIRBY J:   In the case as between the plaintiff and your client, was there a dispute as to the plaintiff’s having sustained an injury as distinct from the consequences and significance of the injury?

MR JACKSON:   Yes, your Honour.  I am sorry, I think I am answering that incorrectly.  There was a dispute as to liability as distinct from the fact of there having been some injury.  I think that is correct.

KIRBY J:   It was accepted that something had happened and that was adequately chronicled at the time?

MR JACKSON:   Well, your Honour, may I check that.  Certainly liability was in dispute.  Whether the precise point was in dispute, your Honour, is something I will just have to check.  That there was injury was not disputed; the consequences were.

May I go then to the critical provision, which is section 54(1) of the Insurance Contracts Act. Your Honours, one starts in relation to that provision with subsection (6) and that defines, “A reference in this section to an act” including, amongst other things, in paragraph (a), a reference to “an omission”. Your Honours, the section then contains some groups of provisions and they fall, broadly speaking, into relevantly two. The first group concerns subsections (2) and following, and that concerns circumstances starting with subsection (2); that is where the act may have contributed to the loss itself. Then one comes to the other group contained in section 54(1). I do not think I need to take your Honours to it, but your Honours will see the arrangement of the section discussed in this Court’s decision in Ferrcom Pty Ltd v Commercial Union Assurance Company (Australia) Ltd (1993) 176 CLR 332 at pages 339 to 340.

Coming to subsection (1), your Honours will see that the condition of operation of subsection (1) is that, were it not for the existence of section 54, the insurer would be entitled to:

refuse to pay the claim . . . by reason of some act of the insured or of some other person –

And there are two other requirements about the Act, bearing in mind, of course, that it includes by reason of subsection (6) “omission”. First, it must have taken place after the contract of insurance was entered into. Your Honours will see that in the clause commencing, “being an act that occurred after the contract was entered into”. The second requirement, your Honours, is that it is not an Act to which section 54(2) applies and your Honours will see that expression put in parenthetically, “not being an Act in respect to which subsection (2) applies”. Now, could I just say it was conceded at the trial in this matter that subsection (2) was not applicable. Your Honours will see that referred to by the primary judge in volume 2 at page 428 in a passage which commences in the last paragraph on that page and goes over to the top of the next page.

KIRBY J:   I am sorry, I did not take a note of those pages.

MR JACKSON:   It is page 428, line 51 to page 429, line 9.

KIRBY J:   You also made a concession at the hearing, did you not, that your default would, but for the Act, entitle the insurer to refuse indemnity?

MR JACKSON:   Yes, your Honour.

GLEESON CJ:   How, if at all, does section 54 deal with the first aspect of the purpose of a notification provision that you mentioned - that is to say, enabling the insurer to make adequate provision in its accounts?

MR JACKSON:   Well, your Honour, in circumstances where section 54 might be engaged by reason of late notification, it may be that an insurer would seek to mount a case and one might expect that it would be a case perhaps mounted by the liquidator of an insurer.

GLEESON CJ:   Yes.  I was going to say the person who is likely to be prejudiced is not the insurer; it is the unfortunate individual who bought shares in the insurer at a time when proper provision was not made.  Where does the statute deal with that?

MR JACKSON:   Well, it may not, your Honour, in the end. In response to your Honour Justice Kirby, I was answering the reasons why notification might be required. Whether the circumstances of section 54(1) assist an insurer in all those circumstances is a different question.

HAYNE J:   Is there any amplification anywhere of the expression “the insurer’s interests”?

MR JACKSON:   No, your Honour, but could I just say in relation to that, when one looks at the provision it is speaking fundamentally in terms of money.  Your Honours will see that the obligation of an insurer is an obligation there referred to as an obligation to pay the claim, “may not refuse to pay the claim”.  Then the second thing one sees is this, that it speaks of liability being “reduced by the amount”, again speaking in terms of money, and then, when one goes to the concluding part of the subsection, it speaks of:

the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act.

And prima facie, your Honours, we would submit it is speaking in terms of financial interests.  In other words, to what extent is the insurer financially more liable than otherwise would have been the case?

KIRBY J:   Mr Douglas is seeking clemency from the Court for a concession made by his predecessor at the trial in respect of the cross‑appeal application.  In his footnote he points out that some developments have happened in the law of equity before and since, I think, the Act was enacted, which suggests that the common law has moved a little in the direction in which the Act has developed.  If the cross‑appeal is allowed and is in favour of Mr Douglas’s client, do you similarly seek to withdraw the concession that you made at the trial in respect of the position of the common law and that you, but for the Act, would not be entitled to indemnity?  It may be that the common law has moved on.  I do not know, I have not looked at those English cases, but Mr Douglas very candidly lists them in his footnote.

MR JACKSON:   Yes, your Honour. The moving on has occurred in circumstances where there is not an equivalent of section 54 and the moving on has been the subject of what one might well think would be a somewhat valid criticism about the inappropriateness of adopting that view in circumstances where there are fairly clearly expressed provisions of the contract. So, tempting as what your Honour has put to me is, I feel some difficulty in accepting it, with respect.

KIRBY J:   Just that I have a sense of perfect equity as between both ends of the Bar table.  You do not want it?

MR JACKSON:   No.

KIRBY J:   Very well, I have tendered it; you reject it.

HAYNE J:   Timeo Danaos.

MR JACKSON:  Well, your Honour, may I move on. What I was dealing with was section 54(1) and essentially what we would seek to say is that the operation of section 54(1) is, to put it shortly, that the ability of the insurer to refuse to pay the claim is taken away, on the one hand, and, on the other hand, the liability in respect of the claim is reduced by the amount that “fairly represents”, and your Honours will see the remaining words of the provision.

Could I go then to the primary judge’s reasons.  As is apparent from his Honour’s reasons, on the evidence before him the trial judge was not satisfied that the respondent would have taken any relevant action if there had been timely notification and that any relevant action would have produced a difference.  May I first indicate to your Honours where that passage is to be found in the primary judge’s reasons and then seek to make some observations about it.  The passage commences at page 431 at about line 39 and goes through to page 433, line 50.  Your Honours, may I commence in relation to it by mentioning one matter.  That is that the task upon which the judge conceived himself there to be engaged and the standard of proof that he applied in so doing is adverted to immediately before that passage, and you will see that referred to at line 19 on page 431.  Your Honours will see:

Mr Odes –

who was leading counsel for the present respondent below –

invited me to determine on the balance of probabilities and by reference to Sellars, whether there had been prejudice and then to value the effect of any prejudice by reference to the likelihood of the possibility of a different outcome –

And he said in the next paragraph:

I accept that is now to be regarded as the correct approach, and that Sellars ought to be regarded as applicable.

Now, your Honours will then see that the judge was being asked in that passage to which he refers to decide on the balance of probabilities whether there had been some prejudice to the interests of the respondent.  If there had been, it would then have been for him to endeavour to value, to put it loosely, the effect of that prejudice.

KIRBY J:   Is not that what you say is the correct interpretation of the section?

MR JACKSON:   Indeed, precisely, your Honour.  The point I am seeking to make about it is this, your Honours, that what the judge did was what he was asked by both sides, in effect, to do.

KIRBY J:   And what you say is the correct thing to do.

MR JACKSON:   Indeed.  And then when one gets to the Full Court, in our submission, one sees the judge in Justice Ipps’ reasons for decision being criticised adversely for having done that and that is the point I am about to seek to make.  Your Honours will see that the judge was applying the test that he had been invited to apply.  Could I just indicate - and I will not give your Honours all the references - how one can identify that that was what he was doing.  Remaining at page 431, your Honours will see in the paragraph commencing at line 40, he says:

To avoid the declaration sought by the defendant, and the obligation to fully indemnify the defendant, the third party must therefore establish on the balance of probabilities that the defendant’s failure to give timely notice prejudiced the third party’s interests, to some extent and that it suffered some detriment as a result.

He then goes on to set out the argument that was advanced and your Honours will see the way in which he refers to the argument being put to him.  For example. at page 431, line 51, the contention was that if Mitchelson’s evidence was adopted, “it was probable” that what is set out there would have happened.  Similarly, your Honours, at the top of page 432, line 10, “A factual assessment would probably also have been undertaken.”  Line 15, “it was probable”.  Line 24, “would also have been likely”, et cetera.  Your Honours, I will not go to the remaining references, but they go through to page 433 line 51 and finally to the conclusion at which the judge arrived, at the end of page 433, where he said he was:

not persuaded that the third party’s interests were prejudiced as a result of that omission.

That was a finding that no prejudice was established.  There was no question of working out what might have happened, what the value of it might have been if it had been.

Could I go then to the course taken by the respondent and by Justice Ipp in the Full Court.  The course taken by the respondent and by Justice Ipp in its favour in the Full Court was, in our submission, a departure from that approach and a departure that was incorrect.  Your Honours, will see, if I could go to page 446, paragraph 14 ‑ ‑ ‑

KIRBY J:   Before you do that, what was the ground of appeal that gave rise to what you say is a retreat from the position that they adopted at trial?

MR JACKSON:   Your Honour will see the notice of appeal – section 54 is dealt with at page 438 commencing at paragraph 4. Your Honours will see, first of all, paragraph 5 really still works on the basis of balance of probabilities; you will see “would have . . . referred”. Paragraph 6 is a plea in the round, as it were. Paragraph 7 is a factual matter and then paragraph 8 simply again refers to the facts and paragraph 9 seems to involve again a balance of probabilities test.

Then one goes from there to what was said by Justice Ipp.  Could I take your Honours to page 446, paragraph 14, and what was said by his Honour was that Mr Odes:

submitted that the learned Judge erred in applying the ordinary civil standard.

One then sees at page 447, paragraph 19, after having referred in paragraph 18 to the submission made on our side, then said in paragraph 19 that he accepted:

the submission of Mr Odes that the appellant’s loss of opportunity was analogous to the loss of a chance and, just as the loss of a chance is compensable, so is a value to be attributed to the opportunity that was lost.

And then his Honour appeared to take the view on page 448, paragraph 22, and in particular at page 449, about line 10, to say:

In the circumstances of this case, in my view, upon proof that condition 2 was breached, it was established that the appellant had sustained some prejudice.  That prejudice was the loss of the opportunity . . . The very nature of that opportunity was such that its loss resulted in some prejudice being suffered.

That appears to be the central part of the reasoning of his Honour.

I will come back to his Honour’s reasons in just a moment if I may, but may we say two things about it.  The first is that it is a little, perhaps if I could use the expression, hard or tough on the trial judge to be criticised adversely for acting on the basis suggested to him by the appealing party ‑ ‑ ‑

GLEESON CJ:   Was this a submission that Mr Odes volunteered in the Court of Appeal or was he encouraged to make it in the course of exchanges?

MR JACKSON:   Your Honour, I am not able to answer that question.

GAUDRON J:   Perhaps while you are interrupted, what was the point of the reference to Sellars before the trial judge?  Was that to the quantification of it?

MR JACKSON:   The point of it, your Honour, was to endeavour to demonstrate that the approach to be taken was – and if I could just go back to the bottom of page 430, top of 431, to demonstrate really that there were two stages.  Stage one was to endeavour to identify had there been something lost without quantifying it.  So that was the first stage, and the second stage was to quantify it if there had been something found to be lost.

GAUDRON J:   Thank you.

KIRBY J:   Are there really two theories of 54?  One is that any late notification is going to be inconvenient to some degree to an insurer and will mean that whatever investigations an insurer can do, it will be late and may miss a point and therefore you approach it a bit like contributory negligence assessments, in a very general way and you say you have to allow something as a penalty or something as a reduction because of the fact that - you can never been sure, but there will be some disadvantage, whereas your theory is that you have to get over the 50 per cent in order to get any deduction; you have to have probability.  Is that the choice?

MR JACKSON:   With respect, your Honour, not quite.  The argument on the other side is that, as we would apprehend it, except for perhaps the most unusual case, there would always be some value to be ascribed to the loss of opportunity.  I will come back to that theory in a moment if I may.  The other view for which we would contend is that one has to identify whether it is more likely than not that something would be done.  If something would be done, the results that might follow from that are a different…..value.  Could I in relation to the first of those things say this.  The contention that there would have to be some deduction really encounters, in our submission, two difficulties.  One is if one took the simplest case where there was no notification but the evidence was absolutely clear as to the nature of the injury sustained and that there had not been any change in it.

Take someone who lost a leg in an accident.  A “happened all at once” situation does not change and the evidence demonstrates that whether they are notified today or six months later could not make the slightest difference to any aspect of the case.  Now, in those circumstances, the evidence, if it demonstrated that, would not leave, we would submit, any room for a finding that there should be some deduction.

The second aspect, your Honours, is that one really does need to start from the words of the provision and the words of the provision apply a fairly muscular, in a sense, test because what they say – and one is, of course, speaking about a situation as between insurer and insured and, whilst not always, very frequently and perhaps most often, the insured will be someone who is in not a strong a financial position as the insurer, that what they say is that the claim is to be reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced.

Now, the way in which the provision is framed is, of course, capable of a number interpretations.  If one is looking at the words of it, what it suggests is that it is saying what is the extent that fairly - and one would think “fairly” comprehends with it a conception of “on the evidence” - what fairly represents the extent to which the interests were prejudiced as distinct from being merely theoretically prejudiced.

HAYNE J:   You have suggested, then, that there may be more than one way in which the expression could be read.  Do you offer any other way in which it might be read?

MR JACKSON:   No, I am sorry, your Honour, what I was seeking to do was to accept the possibility that one way of reading the section might be to say you do not look at reality but in determining the extent to which the insurer’s interests were prejudiced you are able to take into account theoretical matters.  It is not the suggestion that the matter – the contention for which we advance.

HAYNE J:   No.  I understand that but it seemed to me that something really did turn on “were prejudiced”.  It is, at least on its face, seeming to speak about actual prejudice by reference to what would have happened, not what might have happened.

MR JACKSON:   Your Honour, that is our submission.  All I am seeking to say is that if one does see – because in one of the judgments below that another view appears to be taken of the provision.  All I am seeking to say is that assuming that view is one that theoretically is open as a possible meaning of the section, the better view is the one that the provision is speaking about, reality as distinct from theoretical.

GLEESON CJ:   It has also got to be prejudice of a kind that is capable of being represented by an amount.

MR JACKSON:   Yes, your Honour, quite, because as a result of the operation, the provision in term.

KIRBY J:   I suppose the argument to the other side is that because an omission might have led on to something that you will never know in the event that nothing was done, no notice was given, that you can never, as it were, prove with certainty what might have happened if you had been notified earlier.  Take, for example, your case of the lost leg.  There may be no dispute about the injury but as cases that have come into this Court show, the extent of the disability, the incapacity, may very well be a matter of dispute.  If you do not give notice for 18 months, well, people with lost legs can be back at work within four weeks or can be back at work within 18 months.

MR JACKSON:   May I just say in response to that, your Honour, that there are really two aspects to it.  The cases on which our learned friend’s submissions rely of instances in courts below where reference has been made to different provisions and prejudice in relation to them, all the cases seem to be ones where the evidence has demonstrated that it was probable that something would have been, and do not work on the assumption that the evidence was left a blank.

KIRBY J:   I think that is what happened in Ferrcom.  Mr Hoffman, the insurance broker, was called to indicate what happened in the industry and what was done in the case where notice was given.

MR JACKSON:   Yes. Your Honour, the view taken in that case – I will take your Honours to it in just a moment - in the Court of Appeal – and I refer particularly to your Honour’s judgment – was that the particular position of the particular insurer that was relevant under section 54(1) and that one had to look to see what that particular insurer would have done in the case itself. The evidence demonstrated that they would have gone, to put it shortly, off risk, and so the result was that section 54(1) did not help the insured because the prejudice was that they had not gone off risk.

HAYNE J:   Then, does not your reading of the provision equate with a reading, represents the extent to which the insurer was prejudiced?  The insurer’s interests might be understood as looking to something more than their financial loss?

MR JACKSON:   Your Honour, whether there is any difference between the two expressions, in our submission, is a difficult question because – the provision has a slight history.  The term “the insurers” was originally “his interests” and I just mention that in passing.  Having said that, the situation which obtains, in our submission, is that one is looking to see a provision which is covering a large number of possible situations.  Probably the result is, your Honour, that whether one used the expression “the insurer was prejudiced” or, “the insurer’s interests were prejudiced” is a selection of terms, the operation of each of which does not arrive at a different conclusion.

HAYNE J:   Because a view against you would be that the insurer should have had the choice, did not have the choice.  True it is, that is a difficult valuation task but you are required to do it, put a value on the fact that the insurer was denied the choice about whether to send for rehabilitation, whether to call in the investigators, et cetera.  All of that is somehow encompassed by this expression, “the insurer’s interests”.

MR JACKSON:   Your Honour, even if one were to accept all of that, the situation which would yet obtain would be that section 54(1) uses the expression:

the amount that fairly represents the extent to which the insurer’s interests were prejudiced –

Now, if the evidence in a particular case demonstrated that the insurer would not have taken any relevant action, on the balance of probabilities, then the valuation of what might have happened had the action been taken does not arise for consideration.

HAYNE J:   But it would arise, for example, if that insurer set a target of investigating 10 per cent of employment-related claims and thus one could not really predict whether this one would or would not have hit the 10 per cent that were investigated.  How do you cope with that kind of circumstance which is at least possible?

MR JACKSON:   Your Honour, in a case of that kind, if the evidence established – first of all, if I could just take an example that is slightly different from the one your Honour put to me – if one took a case where it was established that in every case that course was followed and that the result of following that course was to reduce the amount that might otherwise be payable across the board, as it were – and, your Honour, I am putting it in very short fashion – then one might well form the view, on the balance of probabilities, that there was an opportunity which had been lost and depending on how the evidence fell, that one would then go on to value that opportunity in the particular case.

It would not follow, your Honour, from having found that there was an opportunity, that the valuation was necessarily a pure percentage because it may well be that when one looked at the facts of the particular case they would demonstrate that although the opportunity had not been provided, that the opportunity would not have been of any value in the particular case.  That is the first thing. 

If one had a situation where the proposition was that 10 per cent of cases were routinely investigated and had a particular result, then it may well be a borderline case but the probability would be – I am sorry, I am putting it badly – the result one might arrive at or the conclusion that might be formed would be that an opportunity had been lost but the valuation of the opportunity would be a much more difficult question.  Difficult because, apart from depending on the facts of the particular case, one would then have to factor into it the proportional aspect brought about by only 10 per cent.

GLEESON CJ:   Is a possible point of view that the insurer’s interests in the present case included the insurer’s contractual right and that the insurer had a contractual right to have some information which it was denied and that denial of information constituted a prejudice of the insurer’s interests, necessarily?

MR JACKSON:   Your Honour, the first parts of that are ones that one would have to agree with, that there was a contractual right and that the contractual right was a right to have information provided to the insurer but it does not follow from that that the failure to provide that is more than, or is necessarily more than the occasion for bringing into operation section 54(1) as distinct from being the result of its application.

GLEESON CJ:   Whether he was right or wrong, Justice Ipps’ approach seems to have been to say, having regard to the terms of the contract the insurer’s interests were self‑evidently prejudiced because what the insurer did not get was information to which it was contractually entitled and then would go directly to the question of working out the amount that fairly represents the prejudice which obviously occurred.

MR JACKSON:   Your Honour, on that assumption his Honour categorises the failure to notify as necessarily prejudice but, in our submission, it may be in one sense prejudice, purely in ‑ ‑ ‑

GLEESON CJ:   I think, to express it more amply, prejudice to an interest of the insurer, the interest being the contractual right to the notice.

MR JACKSON:   Could I say in relation to that, in one sense, of course, one can say that for a person to not have the advantage, such as it may be, given by performance of a contractual obligation by another is a prejudice or may be a prejudice. What we would seek to say, however, in relation to that is that the issue arises in circumstances where the – I am sorry, may I start that again? If one is talking about section 54(1), the circumstances that bring section 54(1) into play are ones where almost inevitably there is likely to have been a breach of a term of the contract of insurance that was the opening words of it.

One looks then to see whether the right that is given by the contract in respect of that prejudice, that is, the right to refuse to pay the – I am sorry, in respect of that breach of contract, that is the right to refuse to pay the claim, that is taken away.  Then what is provided for by subsection (1) is that there is to be an inquiry and one looks to see, the right to bring the contract to an end having gone away, whether there has been, in fact, in our submission, prejudice to the insurer.  What I mean by that is by saying, in fact, is that a concept of that kind is brought about, we would submit, by the existence of the expression, for example, “that fairly represents the extent to which” there was a prejudice “as a result of that act.”

HAYNE J:   It means that the prejudice must be a financial prejudice.
\
MR JACKSON:   Yes, your Honour.

HAYNE J:   No other form of prejudice, as, for example, prejudice constituted by the fact standing alone of failure to abide the contractual stipulation takes you only part of the way.  You have to attribute a financial consequence or effect to that failure to abide the stipulation.

MR JACKSON:   Yes, and it has to come to money, in the end.

GLEESON CJ:   Not only that, it has to be of financial consequence to the insurer, not, for example, a financial consequence to the insurer’s shareholders.

MR JACKSON:   That is so, yes. Your Honours, if one looks at the context in terms of the words of section 54(1), the reduction in amount is a reduction in amount of the amount that otherwise the insurer would be liable to pay under the contract.

KIRBY J:   The presupposition of the section is that there has been a breach of a condition which in the old law would have entitled the insurer to deny indemnity.  I think that would confirmed, if one looks at the Law Reform Commission Report.  That was the mischief that it was trying to cure and which the Act has been held to have sought to cure.

MR JACKSON:   Yes.  Your Honours, could I say ‑ ‑ ‑

KIRBY J:   Have there been many cases concerning - apart from Ferrcom,have there been many cases where courts have approached the calculation of the prejudice because it is quite a difficult thing to do, really.

MR JACKSON:   It is, your Honour.  The answer is “relatively few”.  There is a decision in – I think is Hanover Insurance, a decision of a judge of the Federal Court, relatively recently, dealing with a superannuation claim.  Hanover Insurance is one of the parties to it.  There are few cases - and it one, I think, which result in anything other than 100 per cent one way or the other.  The only other cases of which I am familiar are ones where there has been some reduction by reference to the amount by which a premium might have been increased, or something of that kind.

KIRBY J:   The concept of “fairly represents” seems to import notions akin to contributory negligence assessments of what is equitable and just and that seems to contemplate something other than an “all or nothing” position which was the old common law.  If you had failed to give notice, well, you got nothing, and that was what offended the Law Reform Commission and, apparently, the Parliament.  It is difficult to know how one would approach the case unless you embrace a theory that “fairly represents” means that you have to do some sort of broad justice of saying, “Well, of course there is some disadvantage to an insurer”.  You have just got to make some calculation of what fairly represents that disadvantage, but that may have to rest upon evidence that in 10 per cent of cases we find, by getting in there quickly, we can find fraud.

MR JACKSON:   And evidence that is accepted.  Once one gets to that point then it is possible to value what value to value it.  Unless one gets there, there is a silence, your Honours.  I think your Honour referred to this in Ferrcom in the Court of Appeal in New South Wales, unless there is evidence that something would have happened you do not get anywhere, you do not get off the ground, for the insurer.

Could I take your Honours back to say a couple of more things about what appears at page 431 in the primary judge’s reasons?  Your Honours will see at page 431 in the passage which commences at line 49 through to page 432, about line 33, that the judge is reciting the argument that was put forward on behalf of the other side.  We would simply invite your Honours to note that our learned friend’s written submissions in pages 7 and 8, paragraph 27, footnote 17, treat what is there said by the judge as findings but it is plain enough, in our submission, that the argument is simply being recited.  The dealing with the merits of it commences at page 432 about line 26.

The second thing about it, your Honours, is that it is clear that the judge was not satisfied that the respondent would have been referred to rehabilitation or to a medical specialist prior to November 1993 and that was relevant because of the contention which appears at the bottom of page 431 commencing about line 49.  Thirdly, your Honours, for similar reasons, the reliance on the inability to examine and assess shortly after 7 November 1992 should not succeed because the judge found that the opportunity would not have been taken.

GLEESON CJ:   Perhaps, more accurately, found that he was not satisfied that the opportunity would have been taken.

MR JACKSON:   Yes, your Honour. I accept that. Now, in short, if one goes back to the words of section 54(1), the judge found that the act was the failure to comply with condition 2, but that in the particular case the insurer’s interests were not prejudiced by that act. Could we invite the Court, also, to note in relation to this aspect of it, the analysis of the evidence by Justice Murray in the Full Court at page 469.

KIRBY J:   It is a fair criticism of the primary judge’s reasons that it has been really left to the Full Court to do the analysis of the reasons of the witnesses called by the insurer.   With respect to his Honour, it is not a very satisfactory analysis of the evidence which a party tendered to resist a very substantial burden of insurance.

MR JACKSON:   Is your Honour speaking about the medical evidence or the ‑ ‑ ‑

KIRBY J:   No, the evidence of Mr Mitchelson.

MR JACKSON:   Your Honour, can I just say that that is not the – the part that is at page 431 is not, I think, the whole of the recitation of the evidence by the primary judge in relation to Mr Mitchelson.  Your Honour will see a little earlier ‑ ‑ ‑

KIRBY J:   It is at 407 and 408.

MR JACKSON:   Yes, your Honour, it is at page 407 and 408 where he discusses the evidence that he gave.  It is apparent that he considered the evidence.  He then saw him giving oral evidence, he heard him ‑ ‑ ‑

KIRBY J:   It is more in his analysis of why he reached his conclusions.  It may be that it is enough ‑ ‑ ‑

GAUDRON J:   As I read it, though, it did seem to turn on the fact that the doctors had certified the injured worker fit to return to work, is that correct?

MR JACKSON:   Yes.  To light work, your Honour.  Yes, that was what was said.

GAUDRON J:   Yes, and he formed a view that once that certificate had been given there was no reason to think that they would have done anything else.

MR JACKSON:   And also had gone back to work.

GAUDRON J:   Yes.

MR JACKSON:   Yes.  So, your Honour, what he is saying is that he says at page 432, having recited the evidence - he did not have to say that he had heard the evidence and seen Mr Mitchelson in the witness box.  He said on that page that he believe he gave it honestly and he specifically accepted part of it and then he went on to give the reasons at line 35 why he did not accept it.  Now, as Justice Murray said in his reasons, a judge only thinks his own reasons are perfect but we would submit there was no particular reason why the judge had to say more than he said that he was, namely, not persuaded that any broad policy was applied consistently, or that if they had received a claim, it would have been referred, et cetera.

Many of these things, of course, are matters ultimately of impression in relation to which it is sometimes impossible to say more than that that is the view and judgments would be very long, indeed, as some tend to be becoming, if one had comments about every aspect of every witness who gave evidence and every aspect of the pleadings and their life. 

I was going to take your Honours to Justice Murray at page 469.  The passage to which I wish to refer consists of paragraphs 100 through to 109 on page 472.  I do not intend to go through them paragraph by paragraph but what your Honours will see, if I could just indicate the most significant parts of them, in paragraph 100 his Honour says that he did not want to:

leave the matter without referring to the second principle plank –

and your Honours will see what is there set out.   He describes that a little more fully in paragraph 101.  Your Honours will see in paragraph 102 that he refers to the review of the evidence by the trial judge.  Your Honours will appreciate that the trial judge had discussed the evidence about the injuries fairly fully in dealing with the question of damages, as apart from the third party question, but your Honours will see, particularly, in paragraph 102, about line 17, where he refers to the fact that there had been an MRI scan in December 1993 which:

did not show that the disc bulge apparent in the CT scan of November 1993 –

which was the thing that gave rise to the possibility that there had been a further injury in November 1993 and he said it:

was a more sensitive test.

Now, your Honours will then, if one goes through then to paragraph 108 – he refers to the fact that:

it was necessary to make findings of fact based on whichever medical opinion –

and then your Honours see on page 472, about line 9, having quoted from the primary judge, his Honour said – correctly, in our submission – that:

By that remark his Honour clearly meant that having accepted the opinion of Mr Woodland and Mr Bell in preference to that expressed particularly by Mr Batalin, but to some extent also by Professor Hollingworth, he considered that the cause of the plaintiff’s final injuries was established to be continuing degenerative change in his back made symptomatic by the accident of 7 November 1992 and to which any incident associated with the worsening symptoms in November 1993 made no effective contribution.

Your Honours will see in the next paragraph, paragraph 109, his Honour says that:

it followed that the lost opportunity . . . was of no value –

to put it shortly, your Honours, “in any event”. 

I had referred your Honours earlier to some of the passages in Justice Ipps’ reasons in the Full Court.  I think I have taken your Honours to the essence of his Honour’s reasons but may I go back to page 448 and, in particular, to paragraph 22 and the part of paragraph 22 on that page – at the top of that page.  Your Honours will see at about line 11 the proposition that his Honour puts that:

In the circumstances of this case, in my view, upon proof that condition 2 was breached, it was established that the appellant had sustained some prejudice.

That would seem to mean that there has to be a notional value given to the loss of opportunity in every case and such a value has to be given in spite of a finding that the opportunity would not have been taken.  Could I refer also to paragraph 24 on page 450 where he appears to say something to the same effect.

GLEESON CJ:   Justice Wallwork left that question open.

MR JACKSON:   Yes, your Honour, and, of course, Justice Murray decided the other way.

GLEESON CJ:   Yes.  Justice Wallwork, as I understand it, between pages 459 and 461, did not disagree with the finding of fact of the trial judge, he just said the trial judge had given insufficient reasons for it and the matter should go back for a retrial.

MR JACKSON:   That is so, your Honour.

MR JACKSON:   Whereas Justice Murray said you can criticise the structure of the reasons but the essential lines of reasoning are there.

MR JACKSON:   Yes, your Honour.  I was going to say, your Honours will see that Justice Wallwork did adopt a different approach and his basis for dealing with it appears to be, your Honours, in the end at page 461 in paragraphs 72 and 73 and, as your Honour the Chief Justice said, that was to say, essentially, that the primary judge’s reasons did not deal sufficiently with Mitchelson’s evidence.

Now, your Honours, could we note in passing that our learned friend’s written submissions do not deal with this issue at all.  There is nothing in the written submissions to attempt to support the approach that was taken by Justice Wallwork, and I will come to that in a moment, your Honours.

KIRBY J:   Was there a ground of appeal complaining of the lack of reasons?

MR JACKSON:   Yes, your Honour, there was. The notice of appeal commences at 436. Ground 4, your Honour, deals with the doctors. Your Honour, there does not appear to have been a specific ground of appeal in relation to Mr Mitchelson and I think it is right to say that Justice Murray adverted to the fact that the argument on the appeal appeared to have gone a little beyond the notice of appeal. May I give your Honour a reference to that in just a moment? I seem to have lost that page. Your Honours, if I could come back to section 54(1). May I take your Honours to our written submissions ‑ ‑ ‑

HAYNE J:   Just before you go back may I, while still with Justice Ipp’s reasons, go to paragraph 7 at page 444?  I just wanted to be sure that I understand what his Honour is there saying.  As I read it, his Honour appears to say that Ferrcom stands for the proposition that prejudice is:

the existence of a liability which, in whole or in part, would not have been borne . . . The appellant contended that the respondent’s conduct caused it prejudice in this sense.  The “liability” –

was the liability of Mr Symons –

The prejudice sustained . . . was the opportunity it lost to so reduce that liability –

which appears, on its face, to be moving from existence of liability that would not have been borne to opportunity to reduce.

MR JACKSON:   Yes, your Honour.  There is a difference and that is why, your Honour, we would seek to say if one looks at the way in which the primary judge dealt with it, he was dealing with it on a basis that was really quite different from the way in which Justice Ipp dealt with it.  What has taken place, in our submission, is this, that one does need to bear in mind that in Ferrcom the Court was dealing with a case where it was already established that the opportunity would have been taken and that was the starting point.  So, the case in the end was one involving the valuation of the opportunity and that was the position.

Your Honours, I was going to come to the fact that one must, in our submission, first decide, before coming to value the opportunity, whether something has actually been lost.  Your Honours, one can see that, in our submission, from Sellars v Adelaide Petroleum N L (1994) 179 CLR 332. Your Honours, in that case there is a discussion which goes on for some distance of earlier decisions dealing with the assessment of future possibilities and also past hypothetical situations. The discussion commences at page 351 and it concludes at page 355.

The relevant part, your Honours, is in the first two new paragraphs on page 355 and we refer particularly to the paragraph commencing about halfway down page 355:

On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage.  Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage.  However, in a case such as the present –

and that was a contract that might have been entered into –

the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities.

Now, your Honours, if I could just pause at that point, what your Honours will see is that that is what was being sought to be applied by the primary judge in this case in the passages to which I have taken your Honours at pages 431 and 432 where his Honour uses those words or words which are a paraphrase of them.  Your Honours will see, for example, page 431, the paragraph commencing line 40:

establish on the balance of probabilities that the defendant’s failure to give timely notice prejudiced the third party’s interests, to some extent, and that it suffered some detriment as a result.

Your Honours, that is, in our submission, the appropriate test.  Could I refer your Honours also to Justice Brennan at pages 367 and 368 to the same effect.

Now, your Honours, if I could take your Honours then to our written submissions for just a moment at paragraphs 31 to 40.  We seek to set out fundamentally what I have been endeavouring to put to your Honours.  Your Honours, I do not propose to go to that in more detail but your Honours will see the essence of what we seek to say there.

Your Honours, could I say that the approach, in our submission, is supported by the approach taken by the Court in Ferrcom 176 CLR 332 and may I refer particularly to page 339. Your Honours will see that the members of the Court, about halfway down page 339, said that:

Their Honours –

speaking about the Court of Appeal –

assessed the prejudice to Commercial Union resulting from Ferrcom’s failure to notify the registration of the mobile crane by adopting the hypothesis that Commercial Union would have cancelled the policy and would not have accepted any further risk of damage to the crane by overturning.  The evidence of Mr Hughes . . . demonstrated that no other hypothesis was reasonable.  It is by reference to that hypothesis that the court has to determine the amount “that fairly represents –

So, your Honours will see that there had been a finding that if the condition had not been breached the insurer would have gone off risk.  That was a fact which had been established on the balance of probabilities.  We give your Honours the references to where that had been established in our written submissions in paragraph 29 and your Honours will see the reference to the decision in the Court of Appeal.

Your Honours will also see then, in returning to the judgment in this Court in Ferrcom, that at page 342, halfway down the page, in dealing with the question of the amount fairly representing the prejudice, what their Honours say is:

An assessment of the amount fairly representing the prejudice to Commercial Union must include the value of the lost opportunity of cancellation determined by reference to the facts as revealed by the evidence.  The value of that lost opportunity is, in the events that have happened, equivalent to the liability –

Then, your Honours will see at the last paragraph on the page:

the value of that lost opportunity depends on the hypothesis that Commercial Union would have exercised the right to cancel the policy –

et cetera, and your Honours will see, at the top of the next page –

In the present case, the Court of Appeal by majority found that Commercial Union would have gone off the risk of the crane’s overturning had Ferrcom notified it of the registration of the mobile crane and the evidence to support that hypothesis was extremely cogent.

The point we would seek to make, your Honours, is that the observations in Ferrcom arise in a context where the initial question had already been decided.  Your Honours, this is a case which simply went the other way.  The evidence was to the effect that nothing would have happened.  Your Honours, could we go for a moment to what was said in Ferrcom (1991) 22 NSWLR 389 in the Court of Appeal?

GLEESON CJ:   Just before you leave Ferrcom in this Court, on the top of page 342, in the first complete sentence on that page, do you accept that as a complete statement of the kind of prejudice to interests to which section 54 is referring?

MR JACKSON:   Your Honour, may I say I think so.  It is possible that there are other cases but broadly speaking, yes, your Honour.  Yes.  Your Honours, I suspect your Honours do not have Ferrcom in the Court of Appeal.

GLEESON CJ:   Yes, we do.  It is attached to the respondent’s submissions.

MR JACKSON:   I am sorry, your Honour. I was going to refer your Honours to what was said by your Honour Justice Kirby at page 394 about letter F on the page where your Honour was speaking about section 54(1). The point I want to make is that your Honour’s observations reflect the need to look at the position of the particular insurer. Your Honours will see letter F, your Honour said:

For a number of reasons I believe that the former is the correct approach. First, as a simple matter of statutory construction, the focus of the closing part of s 54(1) is upon the conduct of the particular insurer. It is that insurer which is prevented by law from refusing to pay the claim. It is that insurer whose liability in respect of the claim is reduced. The extent of that reduction is determined by reference to the extent to which that insurer’s interests were prejudiced. To measure that extent, it is necessary to weigh the prejudice not to a hypothetical insurer, or insurers generally, but to the very insurer which is deprived of the pre‑existing legal right to refuse to pay the claim.

Your Honour dealt in the next paragraph, and perhaps in the passage, your Honours, that goes through to page 395C.  I will not read it out but what is apparent if one looks at that passage is that there is reference to the position of the particular insurer and the circumstances of each case.  Could we refer also, your Honours, to Justice Handley at page 421 about letter D in a passage which goes through to page 422 about letter D.

GLEESON CJ:   If that statement on the top of 342 in 176 CLR is a complete statement of the kind of prejudice to which section 54 is referring - and I am not suggesting it is not - that demonstrates, does it not, that the interests about which section 54(1) is talking are the interests of the insurer, vis-a-vis, the insured?

MR JACKSON:   Yes.

GLEESON CJ:   Not, for example, general commercial interests in relation to making proper provisions.

MR JACKSON:   Yes, your Honour, yes, and, your Honour, that really is supported, of course, by the fact that the starting point of section 54(1) is the contract of insurance which, of its nature, involves contracting parties. Your Honours, our learned friend’s argument appears, in essence, to be, as Justice Ipp said, that there must be prejudice because of loss of opportunity and, in a sense, irrespective of what the evidence in a particular case might be.

Could we say several things about that?  The first is that the evidence simply did not establish such a situation.  The second thing is that our learned friend’s submissions place some reliance on the decision of Justice Murray in the Supreme Court of Victoria in Jimaco Clothing Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1985) 3 ANZ Insurance Cases 60-640.

Now, your Honours, that is a case that arose under section 27 of the Instruments Act 1958 Victoria, which is paraphrased at the bottom of the left column of page 78,941. Your Honours will see the last six or eight lines. Your Honours, that was a case where there was evidence before the tribunal at first instance, the magistrate, of the insurer’s practice and that that is so appears at page 78,940 in the right column about point 6, going on through that paragraph.

Your Honours, it is plain that that evidence was treated as evidence which should have been accepted and your Honours will see, however, that the practice, in a sense, was proved but what one sees is that page 78,943, in the left column, the last paragraph in the left column, five lines into it, it is recognised that there may be cases that any such general prejudice was not proved.  Your Honours will see the observation:

While it may be true that in some cases all that could be said is that a party might have suffered prejudice but that the matter was purely one of conjecture, in the present case in my opinion there was abundant evidence to demonstrate that the respondent had in fact suffered prejudice.

Then his Honour refers to the evidence in that case.

Now, if the statute in that case - and it was an all or nothing statute - was one that had required valuation, that would have been the next step to work out what was the particular sum of money that was the amount by which there would be some deduction from the amount otherwise recoverable.             Your Honours, we would also submit that if one looks at the other decision relied upon by our learned friend’s submissions in relation to prejudice in somewhat similar situations, what is contemplated is that there will be evidence of prejudice.

Your Honours, could I say, if I could go back for a moment to our learned friend’s submissions or, with respect, absence of submissions, in relation to the view taken by Justice Wallwork.  I submitted earlier that it was not adverted to in any substantive way in their written submissions.  I should say there are two references in passing to it.  One is at page 1 of their submissions, paragraph 3, where it is simply accepted that our statement that it was “a relevant issue” is correct.  The other reference is at page 15 in paragraphs 47 and 49 where it appears to be touched on, somewhat lightly.

Your Honours, if the point is sought to be supported, in our submission, we would seek some liberality in the ambit of our reply upon it, but otherwise we seek to rely upon our written submissions.

KIRBY J:   There was no evidence of a general kind brought, the kind I was mentioning earlier, namely that in 10 per cent of cases we have found that if we can get quickly and put the investigators on the matter, we discover fraud.

MR JACKSON:   Your Honour, evidence of that broad kind, without perhaps the precision in the way your Honour has put it to me, was sought to be adduced from Mr Mitchelson, but the evidence that he gave was evidence of a somewhat broader character of some endeavours and evidence that really, in our submission, just did not go far enough.

KIRBY J:   In your submission, could evidence of that general kind help a court to determine the loss that fairly – the word “fairly” introduces a certain generality and not precision in the determination of the damage, the reduction in the claim.

MR JACKSON:   Your Honour, the term “fairly” does two things in a sense.  One is that it enables a range of considerations to be taken into account which can, if I can use the expression, fairly bear upon what is a fair result.  But the other is, of course, that the use of the term “fairly” is not, in a sense, a licence to go everywhere.  What it does require is a determination of what, in truth, by an application of a fair judgment, was the prejudice suffered.  Your Honour, what I am seeking to say is that it does not really provide the opportunity to go all over the field.  It looks to the precise issue and requires a determination of what is fair in the circumstances.

Your Honour, may I say one more thing in response to what your Honour put to me?  When one is talking about evidence of the insurer’s practice, what the evidence of the insurer’s practice would demonstrate is that there is a possibility which had been lost.  Now, how good the possibility is, once that first stage has been passed on the balance of probabilities, is a matter for valuation and that may depend on many things.

KIRBY J:   The Parliament did not say, “Reduced by the amount representing the extent to which the insurer was prejudiced”.  It is the insurer’s interests.  Then, it did not have to put the word “fairly” in.  It could have just left it as “Reduced by the amount that represents the extent”, but it put this word “fairly” in, which is a sort of invitation to do a general fairness as between the parties.

So, I suppose the question is whether those two words, the “fairly” and the “interests” broadens the lens looking at, say, evidence of a general character that shows that we cannot prove it definitely in this case because, in the nature of things, omissions and what would have happened if there had not been an omission cannot be certainly proved, but we assert that “fairly” requires you to take into account that in a certain percentage of cases, if you get in quickly you can show that the interests were gravely affected because there would be no claim.

MR JACKSON:   Your Honour, could I say in relation to that that we would submit two things, I suppose.  The first is that the context in which the phrases are being used is a context in which one is speaking about, first, not permitting the insurer to take advantage of a breach of a term of the policy and, of its nature, the breach of the term may be serious.  It may be trivial.  It may be somewhere in between.  So, that is the first thing.

The second thing is that the way in which the section ultimately works itself out is in relation to money and it potentially reduces the amount of the claim.  When it speaks then of “fairly representing”, we would submit that it is looking more to, if one had to select synonyms for “fairly”, what really, or perhaps truly, represents the prejudice to the insurer’s interests as distinct from, say, a wide‑ranging examination where it is looking to see how much did the insurer really suffer by reason of the breach.

GLEESON CJ:   But a lot of these contractual stipulations are there to protect interests of insurers that go beyond their interests, vis-a-vis, a particular insured.

MR JACKSON:   Yes.

GLEESON CJ:   They are there to protect aspects of an insurer’s business practices.  That may be relevant to its profitability but that may have little to do with its position in relation to a particular insured.

MR JACKSON:   Yes, your Honour, that is so and some of them are provisions that are brought about by reinsurers of particular kinds.

GLEESON CJ:   Yes.

MR JACKSON:   Your Honours, those are our submissions.

GLEESON CJ:   Thank you, Mr Jackson.  Yes, Mr Douglas.

MR DOUGLAS:   If the Court pleases, there are two matters which are before the Court.  One is the matters which have just been addressed by Mr Jackson.  The other is the application for special leave.  I am in the hands of the Court as to which matter we deal with.

GLEESON CJ:   It is probably convenient to deal first with your answer to Mr Jackson’s arguments and then when we come to your application for special leave it is probably also convenient to hear the substance of what you want to say about that point and we will deal with your application in due course when we give our reasons.

MR DOUGLAS:   If it please the Court.  My learned friend’s argument relies upon findings said to have been made by the trial judge in relation to what would have happened had we received notice under the policy.  His Honour found, so it would appear, on the balance of probabilities, in our respectful submission, that we would not have investigated this particular plaintiff had we received notice at the relevant time.

KIRBY J:   Mr Jackson says that is because that is the way your predecessor presented the matter and it does seem in his recitation of what Mr Odes said that that is how he presented the matter to him.

MR DOUGLAS:   Your Honour, in our respectful submission, the way in which the matter has been dealt with in the judgments under appeal and in his Honour’s judgment at first instance takes the matter beyond that because his Honour was invited to look at the matter by reference to the decision in Sellars’ Case and my learned friend, Mr Jackson, as I would understand him, concedes or seeks to put to the Court but, in fact, the matter was approached by reference to that two‑stage test in that case in relation to what we would have done and, of course, it would always be a very difficult matter one would imagine for an insurer to prove what it would have done in relation to any particular plaintiff.

HAYNE J:   Why?

MR DOUGLAS:   Because they are large organisations.  They have a number of employees.  They presumably refer matters to a number of consultant specialists.  So, unless they have a universal practice, as was, for example, your Honour, the case in Ferrcom and that is what Ferrcom was because in Ferrcom the insurer was able to call Mr Hughes to give evidence to say that he really would not have, in any circumstances, had he known that the crane was registered, allowed it to remain under cover without an endorsement which meant that the insurance company was not liable for overturning and that whilst he would have considered, in some circumstances, from some brokers, a proposition of insurance without the endorsement in relation to overturning it, he would not have done so in relation to this particular insured.

The passage which my learned friend read out to the Court from that judgment, that is a judgment of the High Court which appropriately reflects the factual findings which were made in the Court of Appeal, is that no other hypothesis was reasonably available and that is a passage to be found – if I could just go to that – at 339 at the middle of the page where it said:

Their Honours assessed the prejudice to Commercial Union resulting from Ferrcom’s failure to notify the registration of the mobile crane by adopting the hypothesis that Commercial Union would have cancelled the policy and would not have accepted any further risk of damage to the crane by overturning.  The evidence of Mr Hughes, accepted by Kirby P and Handley JA, demonstrated that no other hypothesis was reasonable.  It is by reference to that hypothesis that the court has to determine the amount “that fairly represents the extent to which [Commercial Union’s] interests were prejudiced as a result of” Ferrcom’s failure to notify the registration of the mobile crane.

In relation to the facts of this particular case, we did not have a Mr Hughes.  We called a Mr Mitchelson, and his evidence is summarised by the trial judge at pages 407 and following of the appeal book and you will see that his Honour has found that he:

was the major claims controller with the third party from 1987 until 1993 and also acted as claims manager from time to time.

Active file management was a strength of the third party’s operation, and rehabilitation was something where there had to be a referral as soon as possible, he said.

A referral for rehabilitation would ordinarily occur within three months, Mr Mitchelson said, particularly when a worker had been certified fit only for light duties.  He later agreed, however, that in respect of some files that he had seen which had been discovered to the defendant by way of examples, and where a referral to rehabilitation had been made, each concerned a worker who had not returned to work.

That is the point of distinction which Justice Gaudron made before, namely that most of the material which was tendered by the insurer in this case concerned employees who had not returned to work and so, therefore, if one weighed the possibility of this particular employee being investigated, it was less than one of those who had not returned to work.

He also makes the finding at the top of page 408 that:

Although the question of any referral to a medical specialist was within the discretion of the employee who dealt with a particular file, in general the third party’s policy was for a referral to be made within three months of receipt of a claim.

Now, my learned friend has taken you to those parts of the judgment where he says he was not satisfied in this particular case that this particular plaintiff would, in fact, have been referred for investigation.  Now, if that is the test, if an insurer has to prove on the balance of probabilities in each of these cases that a particular plaintiff would have been referred by a particular officer and one does not know who that officer would be because it would depend upon who the officer was this particular plaintiff was assigned to at a particular time.

KIRBY J:   But I think you accept in your written submissions that the onus was on you to establish the fair amount by which the claim should be reduced, so that if the evidence is not there of the particular officer at the particular time, that is your lookout.

MR DOUGLAS:   No, your Honour, that cannot be so.  If one were to take an approach like that, in our respectful submission, that would be contrary, for example, to the approach which was taken by this Court in Antico’s Case.  Could I just go to that case to explain why we believe that to be so.  It is in the ‑ ‑ ‑

HAYNE J:   Sorry, in aid of what proposition?  What is the proposition you are advancing, Mr Douglas?

MR DOUGLAS:   I understood Justice Kirby to put to me that unless we can prove by reference to our particular employee or agent what we, in fact, would have done in the particular circumstances had we received earlier notice, then we just cannot establish prejudice.  That is a proposition which is ‑ ‑ ‑

KIRBY J:   Unless at the end of the case there is evidence on which the judge can discern what is the fair proportion, then you have not established what would fairly be the reduction.

MR DOUGLAS:   Well, valuation exercises of this kind are always very difficult.  If the situation was, contrary to the evidence which I have just referred to and found by the trial judge that in fact we had no practice of referring any employees at all, we could understand that there would in fact be no prejudice.  If the situation is that we do have a practice where some employees are in fact investigated similar to the 10 per cent example which I think was put by the Chief Justice before, then we would say we get above the de minimis threshold and it then becomes a question of valuation.

KIRBY J:   Yes, but, Mr Douglas, section 54(1) says:

the insurer may not refuse to pay . . . but his liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced –

Now, it is not going to be possible for most insured to show what the insurer’s interests are; that is in your camp.  Forensically, you have to show how your interests would be affected.

MR DOUGLAS:   We have to but it is a question of what the onus is.  If we have to satisfy this onus, that we would have referred the particular plaintiff and that particular plaintiff, having been referred, would have received remedial treatment such that some future consequence would have been avoided, well, that is an almost impossible task in most circumstances.

HAYNE J:   In aid of what proposition?  What is the proposition we are being taken to Antico for?

MR DOUGLAS:   As to where the causation and loss inquiry ceases and where the valuation inquiry commences, as to what we have to prove.  In Antico’s Case the insured had been insured against legal expenses with a particular insurer and had sued the broker under a policy – there was a policy which had been taken out for legal expenses.  The plaintiff, Sir Tristan Antico, had been unsuccessful against the insurer and had sued the broker.  The question which arose in this case was dependent upon the terms of a policy which are set out at page 657 of the judgment.  You will see that the facts are summarised where:

Sir Tristan Antico (the insured), by C E Heath Casualty & General Insurance Ltd (the insurer) providing an indemnity for legal expenses incurred as a result of proceedings that be brought against the insured during the period of twelve months from 22 December 1989.  Proceedings were brought against the insured as a director of a company during that period.  The proceedings were compromised.  The insured incurred legal expenses which were said to be well in excess of $1 million in dealing with the claims.  The insurer declined to pay and the insured sued to enforce his alleged right to indemnity under the policy but his claim was dismissed.

The respondent Heath Fielding Australia Pty Ltd was the insured’s broker. The insured joined the broker as a defendant in the proceedings in which he sued the insurer. He obtained a finding that was upheld on appeal that the broker had breached its retainer and its duty to the insured. Although the trial judge had left for later determination the question whether the conduct of the broker caused loss and damage to the insured, two issues of law relevant to the assessment of any such loss and damage were determined in the proceedings. The first question was whether the insured’s failure to obtain the insurer’s consent under condition 1 of the policy is an omission to which s 54 of the Insurance Contracts Act 1984 (Cth) (the Act) applies. The second question was whether the insured’s failure to comply with the conditions of the policy contained in cll 9.2, 9.6 and 9.7 is an omission to which s 54 of the Act applies.

Now, important to the consideration of the case were the conditions of the policy and I just direct the attention of the Court to the conditions set out in the judgment of the Chief Justice, Sir Gerard Brennan, at the foot of page 657 which provides:

We shall not be liable to indemnify you under this Policy unless you have obtained our specific consent which we are only obliged to give if you have reasonable grounds for defending any claim or proceedings made or instituted against you, or there are reasonable grounds for the successful outcome of any matter.  In considering any request for indemnity we will have regard to the opinion of the Appointed Representatives as well as that of our own advisers particularly with regard to the prospects of success of the claim or proceedings.

If we refuse to grant a request for the provision of indemnity, we shall give you detailed reasons for our refusal.  We shall also give you access to our advisers so that representations can be made to them.  If we still refuse to consent, you may obtain the opinion of a Queen’s Counsel (acceptable to us both or failing agreement, to be appointed by the President of the Law Society of NSW for the time being).  We shall give our consent if that Queen’s Counsel is of the opinion that you have reasonable grounds for defending any claim or proceedings made or instituted against you –

Then section 54 is referred to.

Could I at that stage go to the joint judgment and particularly to page 673 at about point 5 on the page:

The effect of condition 1 of the Policy is to protect the position of the Insurer against payment of legal expenses incurred by the insured in defending claims or proceedings where the insured lacks reasonable grounds for that defence or there is an absence of reasonable grounds for the successful outcome of the matter.  That this is so is emphasised by the final paragraph of the condition.  This provides that, where a request for indemnity has been refused, the insured will still have the indemnity if the insured continues with the defence and it is successful.  Ex post facto, the existence of reasonable grounds will have been demonstrated.

The operation of condition 1 may be illustrated by taking the case where the earlier steps indicated in condition 1 have been followed, but the Queen’s Counsel gives an opinion which does not conclude that the insured has reasonable grounds for defending the claim or proceedings made or instituted against the insured or that there were reasonable grounds for the successful outcome of the matter. The furnishing of the unfavourable opinion will be an “act . . . of some other person” within s 54(1). Under the contract of insurance this may found a refusal by the Insurer to pay a claim by the insured. However, s 54(1) would operate to deny to the insurer the right to refuse to pay the claim by reason only of that act of the Queen’s Counsel. Rather, the liability of the Insurer in respect of the claim would be reduced by the amount which fairly represented the extent to which the interests of the insurer were prejudiced as a result of that act. Those interests would be prejudiced to the extent to which the insured laid out funds on the defence where, in truth, there had not been reasonable grounds for doing so. That issue would fall for curial determination in assessing damages against the insurer.

So then reading down the page, the third paragraph ‑ ‑ ‑

GLEESON CJ:   Just you pass from that, the act of the Queen’s Counsel is the act in giving a certain opinion?

MR DOUGLAS:   Yes, your Honour, but there are reasonable grounds for defending the action.

GLEESON CJ:   How are the interests of the insurer vis-à-vis the insured prejudiced as a result of that unfavourable opinion?

MR DOUGLAS:   If an opinion is given that there are reasonable grounds for defending the action, then the insurer, its consent having been sought, has to give that consent.

GLEESON CJ:   No, that is the opposite opinion.  This is on the hypothesis the Queen’s Counsel gives an opinion that does not conclude that the insured has reasonable grounds.

MR DOUGLAS:   If the Queen’s Counsel gives that opinion, then the insurer does not have to give its consent.

GLEESON CJ:   But how are the interests of the insurer prejudiced as a result of the Queen’s Counsel giving an unfavourable opinion?

MR DOUGLAS:   Is it not more the situation, as it is put in the last paragraph, your Honour, that the insurer has really lost the opportunity of having a Queen’s Counsel reasonably consider that Antico had reasonable grounds for defending the claim?

GLEESON CJ:   This is talking about the act of the Queen’s Counsel, not the act of the insured in failing to give a notice, is it not?

MR DOUGLAS:   That is true, your Honour and it is different because the Queen’s Counsel is a third party.  But in the circumstances of this particular case, his Honour has accepted that.  The question whether or not this particular plaintiff would have been referred for rehabilitation or other treatment and so on depended upon the discretion of an employee and not a particular employee such as in the case of Mr Hughes, but a number of claims officers who had the responsibility for dealing with the situation. 

But the way in which the Court characterised the opportunity in this case appears in, I think, the second-last line on page 674 where it said:

In the present case, the Insurer has lost the opportunity of being provided with such an opinion which was favourable to it.

We have lost the opportunity of being provided with notice at the appropriate time.

The measure of the prejudice to the Insurer addressed in s 54 will turn upon the probability that a Queen’s Counsel reasonably would have considered that the appellant had reasonable grounds for defending the claim against him and whether the amount of costs incurred would have been less had the appellant complied with condition 1 and the other relevant provisions of the policy.

So in this particular case, we would say that we have lost the opportunity of getting notification at the relevant time. 

GAUDRON J:   But you are talking about different things, are you not, in terms of the notification and obtaining Queen’s Counsel’s advice?

MR DOUGLAS:   Well, they are both contractual rights arising under insurance policies, they are different rights, different in their character, but nonetheless they are both contractual rights which were bargained for on this occasion.  We have been deprived of one, and on this occasion Sir Tristan Antico’s insurers were deprived of the opportunity of getting that Queen’s Counsel’s advice at the appropriate time.

GAUDRON J:   But the evidence may well be different when you are talking about what Queen’s Counsel might have advised and so on.  It seems to me to be a very different issue from no notice, but even had you had notice by reason that the man had been certified fit to return to work, you would not have done anything.  It seems to me one is splitting hairs.  Maybe even if you did lose an opportunity, it was of no value because you would not have used it.  It has to be a meaningful opportunity.  The finding here was that it simply was not meaningful.

MR DOUGLAS:   No, there was no finding made here, your Honour, no.

GAUDRON J:   No, but the ultimate.

MR DOUGLAS:   The finding in this case?

GAUDRON J:   Yes.

MR DOUGLAS:   But we had a system in place.  There must have been a possibility that this particular person would have been referred out if we were looking at it in Malec v Hutton terms of more than 1 per cent.

GAUDRON J:   Yes, but we are not, are we, because you look at the last paragraph:  “will turn upon the probability”.  It is not “possibility”, it is “probability”.

MR DOUGLAS:   That is a measure of the prejudice though, your Honour.

GAUDRON J:   Yes.

MR DOUGLAS:   So that is looking at the valuation inquiry ‑ ‑ ‑

GAUDRON J:   The measure of the prejudice will be nil if there is no probability, et cetera. 

MR DOUGLAS:   But, your Honour, we read that, I must say, as referring to the two-stage inquiry which is referred to in the majority judgment in Sellars’ Case. 

GAUDRON J:   Yes, it may be a two-stage inquiry in one sense but, equally, there is no need for there to be a two-stage inquiry surely if you say, “Well, the probabilities are that nothing would have happened”.  It may bear on the onus of proof though.

MR DOUGLAS:   What we are concerned about in this case is what the proper test is.  We are not too concerned about the particular case in question.  But if his Honour has found in this case that there was simply no possibility in the sense of de minimis of us referring this particular person for further investigation and report, we do not understand that is the way in which one interprets these judgments.  I do not want to go back to the passages which Mr Jackson read out, but we read his Honour’s findings as being on a balance of probabilities that we would not have referred this particular person.  We would need to satisfy your Honours, as we would have thought, that there was at least some chance on the balance of probabilities that this person would have been referred.  After that we would then simply have to establish as a valuation inquiry what our measure of prejudice is if you are going to apply principles akin to the principles set out in Sellars’ Case within the statutory framework of this legislation.

HAYNE J:   Now, Antico must be understood, must it not, in light of the fact that the insurer was not a party to proceedings in this Court?

MR DOUGLAS:   Your Honour, I do not think that really had much to do with it.

HAYNE J:   In particular by reference to what appears at 674 and the paragraph first commencing on that page.

MR DOUGLAS:   Which paragraph, your Honour?

HAYNE J:   Page 674, the paragraph first commencing on that page:

A relevantly similar outcome applies –

et cetera, where their Honours at lines 4 and following say that:

the essential issue arising from the application of s 54 . . . is the ascertainment and quantification of the prejudice (if any) the Insurer sustained . . . As the action . . . stands at present, there has been no adjudication of whether the appellant had such reasonable grounds.

What was sought was:

forensic advantage . . . the denial to the appellant of the opportunity for such an adjudication –

Antico presents in a very difficult procedural and forensic setting, does it not?

MR DOUGLAS:   Well, the insurer had been a party up to the stage of the Court of Appeal proceedings.

HAYNE J:   Just so.

MR DOUGLAS:   Secondly, your Honour, the court could have, if it had wished to on that occasion, referred out for further investigation by the trial judge the issue whether the insurer had in fact lost the opportunity of being provided with such an opinion which was favourable to it in the sense that the broker would need to have called evidence that the insurer would in fact have sought to exercise that right under the policy, because that is what has been put ‑ ‑ ‑

HAYNE J:   That is the right to call for an opinion?

MR DOUGLAS:   Yes, your Honour.  Now, there was no evidence about that at the trial or on appeal or before the High Court, and yet the High Court accepted, as we understand it, that the existence of a contractual right in the policy of itself was a sufficiently valuable right for the insurer in that case to have had the opportunity.

When you look at Sir Gerard Brennan’s judgment, he took a really quite different approach to this which is contrary to the position which was taken by the majority and it is set out at pages 662 to 663.  I will not read it all out to the Court, but it is a form of relief which he proposed which shows what he thought needed to be established in order for Antico to get relief against the broker.

HAYNE J:   But was the consequence of the outcome favoured by the majority in Antico that the issue was alive on return to the New South Wales courts whether the insurer suffered prejudice, or was that issue killed by what happened in the High Court?

MR DOUGLAS:   Your Honour, what was alive when it went back – and I do not think the judgment is reported but it went back to Mr Justice Hunter – was the question of the measure of prejudice, your Honour.

HAYNE J:   That is, was there measurable prejudice sustained?

MR DOUGLAS:   Well, measurable in the sense that above the de minimis standards laid down by the first stage of the test.

HAYNE J:   You see, at the moment I read Antico as saying nothing about the issue that then existed between insured and insurer about whether prejudice was sustained.  Rather, the decision in Antico denied, I think I am right in saying, the forensic advantage short of having the issue put to death.  But do I have the understanding of the case inverted?  I may have.

MR DOUGLAS:   Your Honour, I can only proceed on the basis of what the Court has said at the foot of page 674.

HAYNE J:   So can I, Mr Douglas.  What am I asking for is your submission and your assistance.

MR DOUGLAS:   Well, I am trying, your Honour, and I regret if I am not able to provide more assistance than that.  But our interpretation of that, your Honour, is that the Court was satisfied that the insurer had lost an opportunity of being provided with an opinion which was favourable to it and that was sufficiently valuable to satisfy the first stage of the inquiry under Sellars’ Case and that all it was referred back for was for questions of what was the value which you would put upon that opportunity.

Your Honours, could I also go to the specific facts of Sellars’ Case, because, in our respectful submission, that also assists.  It is to be found at divider 13 of our bundle and the Court may recall that this was a case in which there was a possibility of entering into the contractual relations of two parties.  The other party was referred to as “the Pagini transaction”.  In the joint judgment at pages 344 through to 347, I think it would be correct to say that the trial judge’s findings, Justice French, were to the effect that he was satisfied on the balance of probabilities that had the negotiations proceeded with Pagini rather than with the other party, on the balance of probabilities he was satisfied that the contract would have been entered into, but he was not satisfied on the balance of probabilities that the conditions precedent of that contract would have been met.  So that the contract would not have proceeded.  That is to be found specifically at page 346 at about point 5, where he says:

The trial judge gave specific consideration to the question whether each of the conditions precedent was likely to be satisfied.  In this respect, his Honour made the following findings:  (a) that there was at least an even chance that the consent of the Bank of Papua New Guinea to the share transactions referred to in cl. 3.1(a) would be obtained; (b) that there was no basis for speculating that the condition in cl. 3.1(b), that no material breach or material inaccuracy in any of the warranties become apparent, would not be satisfied; (c) that, likewise, there was no basis for speculating that the condition in cl. 3.1(c) that there be no breach of obligations, covenants or undertakings, would not be satisfied; (d) and (e) that it was unlikely that the provisions prescribed in cl 3.1(d) and (e) would have been withheld; (f) that it was likely that the Treasurer’s consent required by cl. 3.1(f) would be obtained; and (g) that Pagini had a reasonable prospect of obtaining the financial accommodation required by cl. 3.1(g).

It then went on to say:

Evidently the trial judge was persuaded, on the balance of probabilities, that the Pagini agreement would have been entered into but for the misrepresentations, but he was not persuaded, according to that standard of proof, that all the various conditions precedent to its performance would have been satisfied.  His Honour held that there was more than a speculative possibility that the Pagini agreement would have been concluded and completed.  He accepted that, had the agreement been completed, the applicants would have derived the benefits calculated by Mr Gorey, an accountant, except for certain capital losses.  The trial judge then discounted the resulting figure to 40 per cent to allow for the probability that the agreement would not have proceeded and allowed for certain additional discounts in relation to particular items.  In the result he awarded to the applicants damages –

You have a situation here in which, as we would understand the findings, whilst the Court was satisfied on the balance of probabilities, the contract would have been entered into so that the parties would have been in legal relations.  Ultimately, the conditions precedent to the fulfilment of that contract would never have been met.

So, if Justice Murray’s decision, or the way in which he has put it, and if that passage which the Chief Justice referred to in Ferrcom where the word “would” is used is to be the test under section 54, it would seem to us to be adopting a stricter test than that which is applicable in cases such as Sellars and those which have followed on from it. 

A passage which is referred to Justice Murray’s decision from Justice Brennan’s judgment is to be found at page 362 at about point 5 as being synonymous with the test which is laid down by the majority in the well-known passage which is often referred to.  What has been quoted by Justice Murray from page 362 is a passage which says:

Gates v City Mutual Life Assurance Society Ltd shows that, for the purposes of s 82(1) of the Act, the loss of a mere opportunity to acquire a benefit is not in itself a loss, but the loss of the benefit will be such a loss if the plaintiff proves that he could and would have taken the opportunity and that the benefit would then have been yielded. 

Now, if you apply that too strictly to the factual circumstances which were present in Sellars and understanding the trial judge’s findings that although the contract would have been entered into the conditions precedent would not have been met, it is difficult to see, if that is the essence of his Honour’s reasoning, one could then justify the result which he ultimately reached.  When one looks at the subsequent passages of the judgment, particularly at the foot of page 367 and over to the top of page 368, his Honour says at the foot of page 367:

Unless it can be predicated of an hypothesis in favour of causation of a loss that it is more probable than competing hypotheses denying causation, it cannot be said that the plaintiff has satisfied the court that the conduct of the defendant caused the loss.  Where a loss is alleged to be a lost opportunity to acquire a benefit, a plaintiff who bears the onus of proving that a loss was caused by the conduct of the defendant discharges that onus by establishing a chain of causation that continues up to the point when there is a substantial prospect of acquiring the benefit sought by the plaintiff.  Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities.  A constant standard of proof applies to the finding that a loss has been suffered and to the finding that that loss was caused by the defendant’s conduct, whether those findings depend on evidence of historical facts or on evidence giving rise to competing hypotheses.  In any event, the standard is proof on the balance of probabilities.

Although the issue of a loss caused by the defendant’s conduct must be established on the balance of probabilities, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered.

His Honour then goes on.

It was those passages, as we understand it, which enabled his Honour to come to the view that in that particular case, what had been lost was the opportunity to conclude any contract and thereby to acquire benefits under it which was a valuable opportunity.  But just looking at that case in the context of the factual circumstances in which it was decided, one cannot come to the view, in our respectful submission, that an insurer in the position which this insurer occupies needs to establish that it would in fact have investigated the particular plaintiff in question and that, having done that, a particular beneficial consequence would have been ensued.

GAUDRON J:   I am not too sure that that is right and, again, this may be a little difficulty with the trial judge’s reasoning.  It might be sufficient to show that they regularly investigated a number of cases of that kind but your evidence stopped short of that, did it not?  Your evidence came to the point where it investigated cases, took steps where there had not been a doctor’s certificate certifying “fit to return to work” and subsequent return to work.

MR DOUGLAS:   Your Honour, there is no doubt about it.  The evidentiary basis of our case in that regard was, on his Honour’s findings, that there were no instances brought forward before the court by way of evidence of particular individuals who had in fact ‑ ‑ ‑

GAUDRON J:   So there was no evidence of a practice in relation to people in this particular category?

MR DOUGLAS:   Your Honour, I think that is taking it a bit far, in my respectful submission.  If the Court goes to Mr Mitchelson’s evidence at about 209 in the middle of the page:

What was your personal experience as to the practice that was followed by QBE when you joined in relation to rehabilitation referrals?---When I joined QBE rehabilitation was a matter that had to be referred to as soon as possible.  Sometimes there could be a delay of up to 3 months but 3 months was basically the time-frame which had been adopted for the appointment of rehab.

Was that at the time that you joined QBE that that ‑ ‑ ‑?---That was at the time that I joined QBE . . . While I was the major claims controller.

Then he says at the top of page 210, about line 10:

The practice was told to me by Ron Burto who was the then claims manager, and it was a ‑ ‑ ‑

GAUDRON J:   The practice was to do this in respect of persons who had returned to work?  It seems unlikely, does it not?  It seems more likely, as the trial judge found, that once they were back at work, that was the end of the matter.

MR DOUGLAS:   I could read the passages from the evidence out to your Honour.  I am not sure that is a useful use of time, but what the Court will find in looking at that evidence is that there was no overall general policy dictated by the company but rather, and as found by his Honour, for example, if we look at page 212 at about lines 15 to 20:

whether and when there was a referral to a medical specialist would depend upon how the claim was looking.  It was up to the individual judgment of the claims person handling the file.

30.  Similarly to rehabilitation, in general, the policy was the workers were to be referred within the first 3 months of the claim.

There is also a further reference, I think over the page, to individual discretion.

KIRBY J:   Just so that I will understand where this argument is going, would you tell me in a nutshell what your contention of the fair disadvantage that you suffered by reason of the delay in the giving of claim – disadvantage to your client’s interests.

MR DOUGLAS:   Your Honour, we have lost the opportunity of having this person investigated at an earlier stage.

KIRBY J:   Investigation for rehabilitation?

MR DOUGLAS:   Yes, and for rehabilitation.  If our evidence had gone to this extent in which we said we had a universal practice of investigating these persons and always referring them to a rehabilitation consultant and always referring them to a panel of medical doctors straight away, then we would be in a Ferrcom situation.  We would be quite happy about that.  Obviously we are not in that situation.  But on the findings of the trial judge, it is also not the situation that there was never any possibility that this particular person would be referred for rehabilitation investigation.

KIRBY J:   Let me understand it very clearly.  Is the contention that the loss of the chance of investigation goes to the happening of this particular plaintiff’s injury at all or only to this particular plaintiff’s damage?

MR DOUGLAS:   That depends upon the second set of factual findings which have been made by his Honour as to the relationship, if any, between the November 1992 incident and the alleged November 1993 incident and also, whether or not you accept the evidence as to whether there was a separate injury in November 1993, his Honour did in fact find that the plaintiff’s symptoms were aggravated as a result of heavy work he was subjected to in 1993.  So that is a finding which was made by the judge.

McHUGH J:   Is not the critical issue in this case on your argument as to whether a loss of chance case can be defeated by proof that on the probabilities the chance would not have occurred?

MR DOUGLAS:   Yes, your Honour.

McHUGH J: Forget about section 54 for the moment and assume that the condition 2 did not allow the insurer to terminate the contract but there had been a failure to give you the notice. You could have sued then for breach of contract.

MR DOUGLAS:   Yes, your Honour.

McHUGH J:   I suppose you would say you are in Chaplin v Hicks territory?  You lost an opportunity.

MR DOUGLAS:   Yes, we lost an opportunity.

McHUGH J: You would also say you are prejudiced for the purpose of section 54?

MR DOUGLAS:   Yes.

McHUGH J:   Could the plaintiff in Chaplin v Hicks have been defeated if the trial judge had said, “Notwithstanding that the letter went astray and so she never had the opportunity to move to the next stage, nevertheless I have seen all the photographs of the respective women and I find on the probabilities that she would not have won the prize”?  Could her claim be defeated on that basis?

MR DOUGLAS:   Your Honour, we would say not in the particular circumstances of that case.  Whether the same test applies in the valuation of a commercial opportunity may be a bit different.

McHUGH J:   In Chaplin v Hicks, if I remember rightly, it was said that the contract was one that gave the plaintiff the right to present herself and she had been deprived of that right and therefore the chance of getting a prize.  The argument was the question of valuation of that chance.  But supposing the trial judge had said, “I’ve seen the woman that won it and I’m absolutely convinced that this plaintiff could not have succeeded”.  Would her claim have failed?  In other words, would she be entitled only to nominal damages?

MR DOUGLAS:   That was a jury trial, your Honour, so the question of damages was at large before the jury.  It is a bit difficult to see how that case could have been taken away from a jury on that basis, because one is almost saying as a question of law she could not succeed.

McHUGH J:   Could the jury have brought in a verdict for nominal damages?

MR DOUGLAS:   That would be up to the discretion of a jury, yes, your Honour.

HAYNE J:   But what should the judge have told them?  What instruction would the judge give in Justice McHugh’s example:  “If you are satisfied that more probably than not this woman would not have succeeded”?

MR DOUGLAS:   Possibly in this day and age – and it is often difficult to look beyond hindsight, but I suspect that the judge should have said something similar to what was said by the majority in Sellars’ Case.  So that, “If you are of the view that she had simply no hope of doing it, then you may find just nominal damages.  On the other hand, you may approach it differently”.

McHUGH J:   It just occurs to me that you may win the battle here and lose the war.

MR DOUGLAS:   We would be happy to have the right test applied, your Honour.  Looking at if from the point of view of the insurance industry generally though, we would not wish to have a test which requires insurance companies under a provision which was intended to be remedial in its operation and to have beneficial consequences so far as the insured are concerned, but also not to penalise an insurer who has, so far as this insured is concerned, at least been put in a position, deliberately so on his Honour’s findings, where ‑ ‑ ‑

KIRBY J:   But it does penalise the insurer because it takes away the right that exists in the common law to simply deny indemnity.

MR DOUGLAS:   Yes, but the legislature has spoken and we are not concerned about that, but we see a test which says that you have to establish that you would have investigated a particular individual and that that would have a particularly beneficial consequence.

McHUGH J:   May not one way of looking at this section be to regard it as taking away your right to refuse to pay anything in these breach of contract type cases and that what fairly represents the amount of your prejudice is what you would have received for breach of contract in any event?

MR DOUGLAS:   There is a mention of that in the Law Reform Commission’s report, but your Honour is familiar with that passage which is referred to in Ferrcom.  Nonetheless, the passage goes on to deal with questions of proportionality and fairness and, in our respectful submission, when one looks at that as a guide to the interpretation of the provisions, notwithstanding the reference to contractual damages, one would not say that in all circumstances one effectively by way of cross‑claim, as your Honour was suggesting to me before, has to prove what you would have recovered on a cross‑claim for damages for breach of contract.

McHUGH J:   Well, I wonder.

MR DOUGLAS:   Another aspect of prejudice in a case such as this – if I could move to ‑ ‑ ‑

KIRBY J:   Just before you do that, what is so hard on the insurance industry to have to produce evidence that establishes what the damage to the particular insurer’s interest – the section seems to be focused not on the industry but on the particular insurer.  What is so difficult about doing what was done in Ferrcom, bringing along a person like Mr Mitchelson and saying, “This is our practice and this is what we would normally do and I believe this is what we would have done in this case and, had we had that opportunity, then my experience is that in a large number of cases you get the person back to work quickly”, or you can investigate the case in a timely way and that is much better than trying to reconstruct things years later?  It is…..expert evidence from the insured’s own mouth.

MR DOUGLAS:   I think your Honour is probably much more familiar with the facts of Ferrcom than I am, but there was a Mr Hughes called in that case and, as I understand it, it was a very specialised form of underwriting.  Mr Hughes was in the position where he could say on behalf of Commercial Union, “This is what I would have done”.  The Court was able, on the basis of his evidence, as we understand it, to say no other hypothesis was reasonably ‑ ‑ ‑

KIRBY J:   That is a strong factual case but life is not full of strong factual cases.  Life is full of fairly assessing and that would merely mean bringing along a person, the key claims manager in the insurer, and saying, “Look, I have controlled 200,000 cases last year and I’ve been doing that for 15 years and this is what normally happens and this is what I believe would have happened in this case”.  I do not see that that is a big problem.

MR DOUGLAS:   But, your Honour, that is what we did.  We called Mr Mitchelson to give evidence like that and, amongst other things, he gave evidence.  But ultimately it was up to the discretionary judgment of the individual claims person handling the file.

GAUDRON J:   But he did not give evidence of any practice or any matter in relation to people who had returned to work.

MR DOUGLAS:   Your Honour, that is, I think, putting a different gloss on it.  In our respectful submission, that is not the way evidence came out.  Rather, he gave evidence ‑ ‑ ‑

GAUDRON J:   No, it is not the way the evidence came out but it is the way the trial judge ultimately analysed it.  The trial judge analysed it and said, “What might have happened under the policy in other cases is irrelevant because the evidence is not of practices relating to people who had returned to work.  I think they simply wouldn’t have done anything in circumstances”, the trial judge concludes, “or I’m not satisfied that they would have done anything in relation to a worker who had returned to work with a certificate saying he was fit for light duties”.

MR DOUGLAS:   Your Honour, we would prefer to put that evidence, as we understand his Honour’s reasons, on this basis, namely that he was not satisfied that we would in fact have investigated this particular plaintiff because the only evidence we had led before him was evidence of persons who had not returned to work.

GAUDRON J:   That is one way of interpreting it but there is another way of interpreting it, is there not?  I really do not read what the trial judge said, or as anything said by the dissenting judge in the Full Court, as saying that you have to establish that the particular person would have been investigated, if you like.  But you have to establish something as the first step, have you not?

MR DOUGLAS:   Your Honour, we have to and, as we would understand it, having established we had a practice of investigating individuals, that of itself was sufficient.  But considerations which your Honour is pointing out to me go to the valuation of the opportunity unless ‑ ‑ ‑

GAUDRON J:   But, as I put to you earlier, Mr Douglas, that may take no effort if you fail to satisfy the trial judge that you would have done anything other than ignore the opportunity.

MR DOUGLAS:   The test is more important than the result but, if that is the result of the evidence in this particular case, that is the result of the evidence in this particular case.  But, in our respectful submission, on cases such as Malec v Hutton and Sellars, if they are to apply in this area by analogy, one would really have to say that there was a de minimis chance of this particular plaintiff being investigated.  If that is the situation and that is the factual finding - we do not understand that to be the trial judge’s factual finding – then we can accept what your Honour is putting to us.  On the other hand, if that is not the situation, there was some possibility, then one moves on to the next stage of inquiry.

KIRBY J:   Do you remember at the beginning I asked Mr Jackson that there were two theories of the section, one in a sense that you had to get past 50 per cent and then you began to get a deduction.  Your theory, as I understand it – please correct me if I am wrong – is that that is an incorrect approach in so far as authority – Ferrcom in the Court of Appeal of New South Wales said that.  That is not a correct approach.  It is not a balance of probabilities.  You simply look to what would be a fair reduction by reason of the fact that this particular insured has lost something which notoriously for hundreds of years insurers have regarded as important.  Okay, it is difficult to assess what it is but it is like contributory negligence; you just have to work out a proportion, a percentage.  Is that your theory of the section?  I want to get it clear in my brain.

MR DOUGLAS:   Your Honour, we would advance the second proposition which your Honour put but we would also advance a proposition more analogous with Sellars where you would actually have to establish on the balance of probabilities that there is in fact some loss of an opportunity.

KIRBY J:   Even minimal?

MR DOUGLAS:   Yes, minimal in the sense that it is used in those authorities.  It may be, for example, when looks at a Ferrcom Case – the cases are referred to in our footnotes, but there is a decision in England of Allied Maples which is referred to in McGregor on Damages.  It may be that Ferrcom is to be understood in this context, but what actually happened in Ferrcom was that the very person who would have made the decision within the organisation of the insurer was called.  So the insurer was in the position where it could and probably should have proved what it would have done in the circumstances by reference to that particular individual’s evidence.

So in a circumstance like that, one could imagine that the test may be the balance of probabilities if the insurer is in a position to bring forward the key players who would have been involved in the decision making at the time.  But if that is not the situation and you have to deal with employees who are not nominated at the relevant time where it would be a matter of serendipity which particular employee or consultant dealt with the matter, whether these matters were outsourced and, if so, to whom, then that is more akin to a third party decision similar to that which was looked at by Justice Deane in Amann’s Case where he refers to the decision of Mellish about the captain who had two trips on the East India ship.  So there may be a distinction to be drawn in cases of this nature where an insurer is in a position - - -

KIRBY J:   Just help me.  I understand now how you are putting it, but just speculate.  What do you say is the sort of approach that the primary judge, accepting your witness to the full, would have found fairly represented the extent to which your client’s interests were prejudiced as a result of their delay?  Is it 5 per cent, is it 15 per cent, is it 20 per cent?

MR DOUGLAS:   I have not really thought about that, your Honour.  It is not a very large figure, we do not think.

HAYNE J:   What is the criterion of fairness you are engaging?  Fairness is a conclusion.

MR DOUGLAS:   Similar to the sorts of considerations, in our respectful submission, which your Honour has indicated in the contributory negligence field.

HAYNE J:   That is by comparison of fault.  There is an identified and recognised criterion.  What is the criterion of fairness that would be engaged here?

MR DOUGLAS:   It is not, in our respectful submission, the one which Justice McHugh put to me, which is:  would we be able to recover on a cross‑claim for damages?  It is something more intangible than that.

McHUGH J:   But is that not what we said in Ferrcom?  Neither counsel has taken us to pages 340 or 341 in Ferrcom.  We spoke about the ordinary contractual principles in Ferrcom.  What I put to you earlier was what I thought we decided in Ferrcom as to the proper approach.

MR DOUGLAS:   We have to be able to mount a cross-claim for contractual damages for breach of the promise.

McHUGH J:   Yes.  At the bottom of 340 in Ferrcom we set out what the Law Reform Commission referred to and then we spoke about:

The “ordinary contractual principles” as to damages are indeed difficult to apply . . . a failure to satisfy the condition precedent as a breach of a term obliging compliance.  By doing so, “the extent to which –

you –

[have been] prejudiced . . . can be assessed.

MR DOUGLAS:   Certainly the Court was very concerned about the concepts of proportionality and fairness.

McHUGH J:   That is right and even when we get down further, when we talk about this notion of proportionality, we are even - more difficult.  But it was my understanding of what we were doing that we really saw it as a breach of contract case in which the insurer’s prejudice was determined in effect by a notional cross‑claim.

MR DOUGLAS:   We had not read it that way, your Honour.  We had understood it to be an all or nothing case, so there was no other hypothesis reasonably available, so it was a 100 per cent deduction.  The prejudice was equivalent to the liability.

GLEESON CJ: There will be some cases to which section 54 applies that cannot be treated as breach of contract. Section 54 applies to acts or omissions of third parties, some other person who may not be a party to the contract of insurance. But in a case such as the present where the relevant act or omission is a breach of contract, why cannot the prejudice to the insurer’s interests be calculated by looking at the damage that has been suffered as a result of the breach of contract?

MR DOUGLAS:   But “damage” in that context must mean damages in the sense that they have been referred to in Sellars’ Case, that is loss of an opportunity.

McHUGH J:   Then that raises the question I put to you earlier as to whether a loss of chance case can be defeated by proof that on the probabilities the chance would not have occurred.

GAUDRON J:   It is always loss of a valuable opportunity too.  It is not simply a loss of opportunity.  If I miss the plane I was intending to catch but I had no ticket on it and the plane was fully booked, I have lost nothing, have I?

MR DOUGLAS:   That is the threshold inquiry in Sellars though, is it not, your Honour?

GAUDRON J:   Well, in a sense.

MR DOUGLAS:   It has no value at all.

GAUDRON J:   That is right.  Unless you could establish that you would have done something with this opportunity, where is its value?

MR DOUGLAS:   But let us go back to Sellars, your Honour.  In Sellars the findings of the trial judge were that the contract would not have gone through to fulfilment.

GAUDRON J:   No, the findings were that the contract would have been entered into.

MR DOUGLAS:   We are one step ahead of that, your Honour.  We already have a contract under which we have certain rights.

GAUDRON J:   Yes, but you are not talking – the lost opportunity there was the opportunity to enter into a contract.  The opportunity you are talking about is an opportunity to investigate and refer for rehabilitation.

MR DOUGLAS:   I accept that, your Honour.  So we have that right.

GAUDRON J:   Yes, but it seems to me that if you could establish that in every tenth case, for example, of persons who had returned to work certified fit for light duties you nonetheless referred them for rehabilitation, then we would be in one area.  There might be a question whether you had really lost anything of value because you still exercised the practice of referring one in every tenth case.  There might be a question whether you had lost anything at all in that situation other than de minimis.  You can show you can do it in every case.  Then you value the lost opportunity by reference to the consequences or the averaged consequences of what happens.  But your evidence seems to me to come short of it, or at least the way the trial judge analysed it.  The problem seems to me to be that the trial judge is saying there is no evidence about the people who are returning to work fit for light duties.

MR DOUGLAS:   Your Honour, if the result is in this case that we have not met the threshold test in Sellars, then we are content with that.  We understand certain passages of the trial judge’s reasoning and of the Court of Appeal, particularly Justice Murray’s decision, to be postulating a test which is different from that which your Honour is putting to me now.  I think we have been through that territory and I do not think I really need to develop that any further.

GLEESON CJ:   Mr Douglas, we might adjourn now.  The first of those questions that Justice Gaudron asked you about the consequences of missing a plane will give you something to think about over the adjournment.  We will resume at 2.15.

AT 12.41 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.24 PM:

GLEESON CJ:   Yes, Mr Douglas.

MR DOUGLAS:   Your Honour, before lunch I had been answering some certain questions from Justice Gaudron in relation to the factual findings made by the judge and I think if I could just, once again, give a reference to page 432 at lines 35 to 50, which seems to us to be the essence of the judge’s reasoning in relation to Mr Mitchelson’s opinion and, our submission is that those findings there are not findings that, according to the de minimis standard, there was no possibility if he would have been referred but rather it is a finding on the balance of probabilities that he would not have been referred.

Once one gets beyond that hurdle, if one gets beyond it, there is another hurdle which is put in our way which relates to the medical evidence.  It has, I think, three facets, one of which is the aggravation of the pre‑existing condition brought about by heavy work done in 1993.  The other one is the non‑acceptance by the trial judge of the theory that there was another incident or accident in November 1993, and the third of which is the effect upon the opinions of the medical specialists who gave evidence of the fact that they did not get the opportunity to see the plaintiff at a time prior to November 1993 in order to determine whether, in fact, there had been an incident in November 1993.

In relation to the first of those matters, the trial judge did make a finding at 414 point 6 at about line 35:

that the plaintiff’s symptoms increased in the latter part of 1993 principally as a result on the injury of 7 November 1992 of the heavy work that he was then required to do.

So, if it were the situation that, in fact, there had been intervention earlier in 1993 and he had been put on light duties rather than heavy duties, that aspect of his symptoms could, at least, have been alleviated, one would have thought.

The second matter that I want to go to is this question of whether there was, in fact, an injury in 1993.  That is dealt with by the trial judge at page 433.  He deals with both the lack of opportunity to examine the plaintiff and the question whether there was a subsequent incident in November 1993.  That commences at the foot of page 432, where he says:

The third party also said that it had suffered prejudice through the lack of any opportunity to examine the plaintiff and assess the extent of his injuries after 7 November 1992.  In that regard reference was made to Morrissey –

and –

Jimaco –

which my learned friend has taken to you in‑chief.  I will not take you to it.  Could I, in that context, just briefly give the Court a reference to a decision in relation to the equitable defence of laches.

KIRBY J:   In relation to what?

MR DOUGLAS:   The equitable defence of laches, the decision of Orr v Ford (1988-1989) 167 CLR 316 and particularly that passage in the joint judgment at page 330 where they discuss the concept of prejudice in that connection where, in the joint judgment, it is said:

The question of prejudice resulting from unavailability of evidence necessarily involves some degree of speculation, but it is not a question of pure speculation.  The issue is not whether evidence may have been lost but whether evidence which may have cast a different complexion on the matter has been lost.  Thus in Crago v McIntyre a defence of laches was successful because a different conclusion may have been reached “if all of the witnesses, including the doctors, who could have given first‑hand accounts of the plaintiff’s behaviour, and of other relevant circumstances, had been available to be called as witnesses”.

The subject was also dealt with in the judgment of Justice Deane who was in the minority at page 344 point 5 over to 345.

I refer to that for this reason.  The question of prejudice is relevant in that connection and there are obviously some cases such as those which have been referred to where delay, which leads to the unavailability of evidence, can result in a successful defence in equity to a claim which had been brought.

It may not be that the contractual analogy is always a correct analogy in these cases.  It may be in some and not all and the way in which, traditionally, courts of equity have looked at the question of prejudice arising from delay may be, in some circumstances, an appropriate analysis in cases such as this.

Now, having said that, his Honour did find that that, in fact – well, all of the medical specialists gave evidence to the effect that their ability to offer an opinion had been affected by the fact that they had only been consulted at a later stage.  The evidence of the medical specialist – if I could just go to it very briefly - if your Honours just go to appeal book volume 1, Dr Woodland who was the treating orthopaedic surgeon - it is really that part of his evidence commencing at page 159 of the appeal book, really lines 35 to 50, which I will not read out and then over the page down to the question at the foot of page 160, where he admitted that it was a possibility that some:

further pathology has occurred – in his lower back when he is working for that employer, a period of 6 months –

so, he agreed with that proposition.  Also, the questions and answers on page 161 at line 10 to line 20 where he also agreed with that possibility.  Likewise, of Dr Woodland, the evidence which I shall not read out, but at page 165 from line 5 through to page 166 he never agreed that it was a probability but he did agree that it was a possibility that there had been some further pathology.  At page 167 at lines 25 to 30 this question and answer:

I take it, doctor, you would have been in a far better position to have expressed an opinion had you seen this person shortly after the 92 injury?‑‑‑Yes.

I take it that you are at a disadvantage really simply because a lot of water has flowed under the bridge since that time?‑‑‑Yes.

So, what you have in a case such as this, and as his Honour records in his judgment, that was really universally the position of the medical specialists, the evidence on which one determines whether or not, in fact, there was subsequent pathology in late 1993 is determined on the basis of evidence which itself is not what it could have been because of the delay which has taken place.

The critical part of the medical evidence which was influential in Justice Wallwork’s judgment was the evidence of Dr Batalin at page 236 and you will see that his evidence really commences at page 234.  He deposes to the fact that:

There was a CAT scan –

this is in the middle of page 235 –

in November 92?‑‑‑Yes.

And a CAT scan in November 93?‑‑‑That’s correct.

And then over the page, at page 236 he was asked this question and gave this answer:

Do you draw any inference from the difference in the two CAT scans?‑‑‑Yes.  They are different.  If you look at them properly yourself you will see there is evidence of two things:  one, pre‑existing Scheuermann’s disease and slight degenerative change, but the second scan in 93 had also a super imposed disc lesion.  No doubt about that.

What inference do you draw from that?‑‑‑Something had happened in between.

Then there was some discussion and then over the page, at page 237, there is a question from Mr Odes.  Perhaps I should read them:

Doctor, you were telling me the inference that you draw from the two – the difference in the report of November 92 and November 93, you were telling us what inference you draw?‑‑‑In between there was progression of disc lesion which is very important.  This basically means either that the generative problems that have been there in the first place have progressed or there have been other problems or other injuries and meanwhile there are the two inferences that as a specialist I would draw.

Do you lean in favour of either one?‑‑‑Yes.  I spent considerable time talking to this patient and I did note in between – since that accident, he has engaged in a number of other occupations which are of heavy nature and if one is to allow a possibility of, for instance, lifting baths – I fully sympathise those cast iron baths are very heavy.  Those of us who lifted them ourselves can vouch for it.  That’s true.  That’s a significant force but nevertheless if there has been since other episodes that subject his back to bending and lifting and if you see an x‑ray which only shows degenerative changes and subsequent x‑rays shows disc protrusion to the left, then one has to draw logical medical conclusion that they may be caused in relationship to subsequent events.

I have no further questions.

Mr Hancy, who was for the defendant, then asked a somewhat inconsequential question about discograms and then asked no further questions in cross‑examination, so there was no challenge to that opinion which had been expressed by Dr Batalin.  Mr Justice Murray in relation to that aspect of the matter sought to deal with it by saying, “Well, he obviously didn’t”.

KIRBY J:   What page?

MR DOUGLAS:   At page 472, where his Honour Justice Murray draws attention at the top of the page to the fact that:

he was “not persuaded that the position would have been different had the defendant given timely notice of the claim to the third party.”  By that remark his Honour clearly meant that having accepted the opinion of Mr Woodland and Mr Bell in preference to that expressed particularly by Mr Batalin, but to some extent also by Professor Hollingworth, he considered that the cause of the plaintiff’s final injuries was established to be continuing degenerative change in his back made symptomatic by the accident of 7 November 1992 –

Well, that is, in our respectful submission, a very charitable way of seeking to deal with the fact that his Honour the trial judge did not anywhere in his findings say why he did not accept the evidence of Dr Batalin.  He had not given that opinion which is not cross‑examined upon and which clearly established, in our respectful submission, that there was, in fact, subsequent pathology in November or December 1993.  That was really the basis of Mr Justice Wallwork’s reasons, which are to be found at page 456.

KIRBY J:   But where the judge has conflicting testimony, does he really have to go so far as to say, “Well, I don’t believe”, or “I don’t accept”?  Can he not say what the primary judge said here, that he was not persuaded and adhere to that and prefer one line of testimony to another?

MR DOUGLAS:   Your Honour, it is a very different situation when you have a clear opinion like that which is not challenged by cross‑examination.  If you have conflicting opinions which have been tested in the evidence, that is one thing but there was no testing of that opinion of Dr Batalin’s.  It really is quite an inappropriate way in which to proceed at a trial of first instance to not challenge an opinion which goes directly to the point in issue and then not to have it dealt with in the reasons for the decision of the trial judge.  That is a very important issue and a fundamental issue in terms of trial procedure, in my respectful submission.  I need only refer to the decision in Browne v Dunn.  That is really, in our respectful submission, where Justice Wallwork came to his independent and separate view, because, as he says in paragraph 51 of the judgment:

It was conceded for the respondent that the learned Judge had not expressly stated why he had preferred one medical opinion to the other and that there had been no express finding dealing with the difference of opinion between the two doctors as to what was to be drawn from the CT scans.  However, it was argued for the respondent that the plaintiff himself had given evidence which explained what had happened.  That was that he had not recovered from his problem in November 1992 but he had worked on in spite of the pain and had been helped out by other people.  Eventually he had reached the conclusion that he could not continue.  It was submitted that the CT scan had to be understood in that context.

One simply says, “Well, if the plaintiff says he didn’t have an injury, he just aggravated it”, he could do away with the doctors altogether, then the fact of the matter is the plaintiff may not have been aware that he, in fact, had injured himself.  So, what Justice Wallwork did, if you look at page 457 at paragraph 56 he upheld “ground 4 of the appeal” and whilst it is true to say that it was formulated originally as a failure to give any or any sufficient reasons, it is important to look at page 472 paragraph 110 of Justice Murray’s judgment where he says there:

is a weakness in the way the ground is formulated, although, without objection, the argument on the appeal canvassed the question at issue more widely.

We just give the Court those references because our position in relation to the medical evidence is that there was evidence that there was at least a possibility that if there had been intervention at an earlier stage, in early 1993, the aggravation found by his Honour by the plaintiff doing heavy work during 1993 could have been avoided.  So that is undoubted because his Honour has made that finding.  But also, there was evidence which, in our respectful submission, if appropriately analysed was capable of supporting a finding that with earlier intervention, a subsequent injury to the plaintiff’s spine could have been avoided.  Those are the matters we would wish to deal with.

KIRBY J:   Can I just ask you to translate now that material that you put into the words of the statute just to give me an idea what a judge sitting in the District Court, adopting your view of the evidence, would say when he comes to the statutory formula of “reduced by an amount that fairly represents the extent” to which your client’s interest has been prejudiced as a result of the Act?  Now, just give me a few lines of the judge’s reasons.

MR DOUGLAS:   Well, his Honour would say that he is satisfied, on the evidence, that there was more than just a mere chance that the plaintiff would have been referred for assessment and rehabilitation.

KIRBY J:   So, it is not de minimis?

MR DOUGLAS:   It is not de minimis.

KIRBY J:   It is past the de minimis test?

MR DOUGLAS:   Yes, past the de minimis test.

KIRBY J:   Yes.

MR DOUGLAS:   And he would then look at it in terms of possibilities and probabilities as to what the possibility was that he would, in fact, have been referred for assessment and rehabilitation and what the possibility was, that that having happened, there would not have been any subsequent aggravation of his spine in 1993 and whether he would have to come to some view as to whether there was a possibility that there was an incident in 1993 which may also have affected it, and having weighed those things up, he would then have to – and I tried to answer a question from Justice Hayne this morning about how does one quantify these questions of fairness and proportionality and I must say, with respect, that I have the same difficulty as he has, I suspect, with those concepts because they are very vague and I can only really submit to the Court that the test is really the test which was used in Sellars.  You just have to do the best you can on the material available.

Now, there may be some cases like Orr v Ford where the concept of prejudice is not there to be understood or discussed in contractual principles or solely in terms of contractual principles.  There may be circumstances where the conduct of the insured has been such that the insurer has been deprived of the opportunity really of establishing that it was not liable at all.  One could imagine, for example, a fire insurance situation where notice was not given at an appropriate time and all of the evidence has been destroyed.

It seems to us that it would be inappropriate always, in these circumstances, to have these cases determined in accordance with contractual principles and we do not see the law reform report as indicating that and so we would simply say the statute, looking at fairness and proportionality, trying to do the best it can in the interests of both the insured and the insurer, is suggesting a number of ways in which an equitable result can be reached.  But it is certainly true that in a large number of cases the common law analogy of loss of a chance is one which is appropriate.  That, I think, is as much as I could say about how one would approach one’s task.

In so far as the evidence is concerned, if the question is one of what the insurer would have done, and that is capable of being proved on the balance of probabilities, for example, if the question is, “Was the crane registrable or wasn’t it?” well, then that has to be proved on the balance of probabilities.  You have to set up your chance by reference to the historical facts or actual facts which are capable of being proved on the balance of probabilities but when you are, in fact, talking about past hypotheses, then the test in Sellars applies.

Past hypotheses include circumstances where the individuals who would have been the actors on the scenes cannot be identified and there is no fixed policy which would have applied and where, as we say, a case such as this, I think it is the second category which is referred to by Sir William Deane in his judgment in Amann of the exercise of a discretionary power, similar to Mellish’s Case and the case I mentioned before lunch about the captain whose right to have a second voyage depended upon whether the East India Company would have given him one and they led evidence before the jury that a voyage to the East Indies could be £4,000 to £8,000 and the jury gave them something in the middle.  That is, I think, how the Court really has to approach it.  I really have nothing more on that point, your Honours.

If I could then deal with section 9.  Your Honour has pointed out in argument to my learned friend, Mr Jackson, that we seek a concession but it is a small concession we seek because there was a concession made by my predecessor, at page 428 at lines 20 to 30, where he said:

In the present case Mr Odes conceded that the operation of the IC Act, and in particular s54, could not be avoided merely because the same contract of insurance included workers’ compensation cover, so that another part of the contract was entered into for the purposes of a law that related to workers’ compensation.

Now, I think the emphasis which should be placed upon that concession is the word “merely”.  In any event, it is merely something, if I could use that expression again, that was said in argument.  It is not a concession about a material facts or something of that nature and my learned friend, Mr Jackson, has conceded in his written submissions that there is no other evidence which would have been led in relation to this issue.

We do not press the special leave application except in relation to the statutory construction question.  There were paragraphs in it which dealt with other issues which ‑ ‑ ‑

KIRBY J:   But if you had advanced it in the Full Court, is it not true that those matters which, very correctly, you have drawn to our notice in the footnote about the developments of the common law, might have been explored, that the other side might have said, “Well, even if we’re forced back to the common law, the common law has moved on since section 54 was enacted and therefore, you can take into account, if we’re forced back to that, that situation”.

MR DOUGLAS:   Well, my learned friend, Mr Jackson, does not want to withdraw any concession in relation to that and it is capable of being remedied by allowing him to do that and he does not show any inclination to run that argument today.  I just wanted to indicate that we do not press paragraph 1 or paragraph 2 of the ‑ ‑ ‑

KIRBY J:   This is of your written submissions?

MR DOUGLAS:   No, amended notice of cross‑appeal, your Honour, at page 481, because they would involve this Court in a substantial evidentiary exercise which we do not wish to inflict upon it.  But we do press paragraphs 1A and 2A.

KIRBY J:   I am sorry, could you tell me the paragraphs you do not press now?

MR DOUGLAS:   We do not press 1 and 2, but we press 1A and 2A.

KIRBY J:   Paragraph 1A is left in.  Page 481?

MR DOUGLAS:   Yes, your Honour.  The statute is in very plain language.

KIRBY J:   I have heard that before.

MR DOUGLAS:   There is a bundle – mine is entitled “Respondent’s Cases Cross Appeal” and divider 1 in that bundle has the provisions of section 9 and it says:

Exceptions to application of Act

(1)  Except as otherwise provided by this Act, this Act does not apply to or in relation to contracts and proposed contracts:

(a) of reinsurance –

and then paragraph (b) – I will not read it out – or paragraph (c) and (d), then you come down to (e) –

entered into or proposed to be entered into for the purposes of a law (including a law of a State or Territory) that relates to:

(i) workers’ compensation –

So far as this is concerned, the Court will have available to it, I believe, a copy of the most recent reprint of the Workers’ Compensation and Rehabilitation Act.  That contains some amendments which were made in 1999.  They should have also available to them the earlier form of the Act, which was the form of the Act as from 20 December 1993, which I am instructed is the form of the relevant provisions of the Act which relate to civil proceedings in addition to or independent of this Act.  That is the form they are in relevantly so far as this proceeding was concerned.  Dealing with the obligation to obtain insurance, that is to be found in section 160, if you just go to the Act, and it says:

Subject to this Act, every employer shall obtain from an approved insurance office and shall keep current a policy of insurance for the full amount of his liability to pay compensation under this Act to any worker employed by him including any increase in amount occurring during currency of the policy.

There is a provision in section 169 for forms of policy, though I am told that there is no form which has been prescribed.  So the policy which we are dealing with is the one which my learned friend took you to in volume 2 and the common law extension is to be found at page 273.

HAYNE J:   And was there any statutory obligation to effect that common law extinction?

MR DOUGLAS:   No, your Honour, no, not in Western Australia.

HAYNE J:   Why is that not conclusive of the point against you?

MR DOUGLAS:   Because, your Honour, when one looks at the legislation, what one has to look at is whether the contract was entered into or proposed to be entered into for the purposes of the law that relates to workers compensation.  Now, that is certainly the case here.  This contract was entered into for that purpose.  One of the other purposes ‑ ‑ ‑

HAYNE J:   Well, for that purpose and other purposes.

MR DOUGLAS:   Yes, but the terms of a statute do not direct one’s intention to the sole purpose, for example, or to the extent that that policy has been entered into solely for the purpose of workers compensation.  That is not the language of the section.  The way in which Justices Wallwork and Murray approached it down below was to look at the question your Honour looked at and say, “Well, is there a compulsory requirement to obtain insurance for damages in respect of a common law action which may be brought?”  But we say one should look at the words of a statute and its plain intendment is to simply invite one to look at whether the contract was entered into or proposed to be entered into for the purposes of the law that relates to workers’ compensation.

HAYNE J:   Thus if, in fact, the policy written here had been an industrial special risks policy covering workers comp, common law liability, loss of profits and damage to client, no aspect of that policy would have come within the Act on your construction.  Is that right?

MR DOUGLAS:   Your Honour, obviously we have thought about that question and obviously there must be examples where the extent of the cover which has been provided may, in fact, intrude upon the purpose for which the insurance policy has been entered into.  But, when one looks at the relationship which exists in this State between workers compensation and damages for personal injuries suffered in the workplace, one can see that there is, in fact, a very significant degree of relationship between them.

If you look at that white hand‑up which I handed up to the Court, the Court will see that there are very strict controls upon the types of common law actions which can be brought in this State.    In section 87 of the Act costs between solicitor and client in common law actions are regulated and in section 91 of the Act it is provided that:

If an action is brought to recover damages independently of this Act, and it is determined in such action that the disability is one for which the employer is not liable in such action, but that he would have been liable to pay compensation under this Act, the Court, in which the action is tried shall assess that compensation, or refer the assessment of the compensation to the Directorate, and shall deduct from that compensation all the costs which have been caused by the plaintiff bringing the action, instead of taking proceedings under this Act, and shall enter judgment accordingly.

It is provided that both damages and compensation are not recoverable and that is the purpose of section 92.  There are provisions, similar to those which are found in other States, whereby if, in fact, a stranger has been wholly responsible for the injury which has been caused to the employee, well then the employer or the insurer who has funded the employer obtains a remedy against the stranger either for the whole of it, if the stranger is wholly responsible or, on the basis of contribution, if a stranger is only partially responsible for it.

There are guides in Division 2 or constraints on awards for common law damages which are quite complex in terms of the thresholds which apply and you will see, for example, there is a provision limiting the power of courts.  It provides:

If this Division applies a court is not to award damages to a person contrary –

and in 93D:

Damages can only be awarded if the disability results in the death of the worker or it is a serious disability.

(2)  A disability is a serious disability if, and only if –

(a) the degree of disability would, if assessed as prescribed in subsection (3), be 30% or more; or

(b) the future pecuniary loss resulting from the disability is of an amount that is at least equal to the prescribed amount.

Then there are other quite complex provisions which I do not think I need to take the Court to, for example, 93E providing for “Restrictions on damages for non‑pecuniary loss” and 93F providing for “Restrictions on damages for gratuitous provisions of home care services”.

One can see from the scheme of this Act that, at least in relation to common law damages, as distinct from the categories of insurance which your Honour was putting to me in the example before, that there is an extensive interaction between the two remedies.  There are provisions where you cannot have double compensation and there are provisions limiting the amount of damages which you can recover at common law and there are procedures whereby an employer can recover from strangers damages which have been occasioned to an employee and for which that employer has paid compensation.

Those matters, in our respectful submission, are at least, having regard to the statutory definition which we are dealing with here, as controlling - well, “controlling” is not the right word - but at least as influential as the fact that in some States common law damages are the subject of compulsory insurance, I think, in virtually all States apart from South Australia and Western Australia, which we have referred to in our written submissions.

GAUDRON J:   Is not the question though whether there is one or two contracts of insurance in this one document?

MR DOUGLAS:   Your Honour, to use what Sir Harry Gibbs said in Deaves v C.M.L. Fire and General Insurance (1978) 143 CLR 24 in relation to a composite policy which had a number of parties, where one of the parties sought to get out of it, he said:

Further, although the policy is a composite one, all four insured are parties to it; the policy may embody two insurances, but it constitutes one contract.

The question is not whether there are two insurances, your Honour, but whether there is one contract.  We are dealing here with one contract.

GAUDRON J:   We have one document but we have separate promises.

MR DOUGLAS:   No, your Honour, with respect.

GAUDRON J:   Well, you have “it is hereby agreed ‑ ‑ ‑

MR DOUGLAS:   How do you divide up the premium?

GAUDRON J:   I am asking you the questions.

MR DOUGLAS:   I am sorry, your Honour, that was impolite of me ‑ ‑ ‑

GAUDRON J:   But you have separate promises, have you not?

MR DOUGLAS:   Yes, they are separate promises contained in the one document and in the one contract.

GAUDRON J:   Contained within the one document.  The question is whether they are within the one contract.  What are the usual tests for that?  I mean, certainly the document is one which is entered into, I dare say, for the purpose of the law that relates to workers’ compensation.

MR DOUGLAS:   Undoubtedly, your Honour, yes.

GAUDRON J:   And that much appears from the first promise.

MR DOUGLAS:   Yes, your Honour.

GAUDRON J:   Second promise - is “contract of insurance” defined?

MR DOUGLAS:   No, your Honour, not that I am aware of.  Yes, your Honour, I am sorry, it is section 10.

GAUDRON J:   We have not been blessed with that.

MR DOUGLAS:   You have not?

GAUDRON J:   What is the definition?

MR DOUGLAS:   Should I read it out to your Honour?

GAUDRON J:   Yes.

MR DOUGLAS:  

(1)  A reference in this Act to a contract of insurance includes a reference to a contract that would ordinarily be regarded as a contract of insurance although some of its provisions are not by way of insurance.

(2)  A reference in this Act to a contract of insurance includes a reference to a contract that includes provisions of insurance in so far as those provisions are concerned, although the contract would not ordinarily be regarded as a contract of insurance.

(3)  Where a provision included in a contract that would not ordinarily be regarded as a contract of insurance affects the operation of a contract of insurance to which this Act applies, that provision shall, for the purposes of this Act, be regarded as a provision included ‑ ‑ ‑

KIRBY J:   Which section of the Act is that?

MR DOUGLAS:   Section 10, your Honour.

KIRBY J:   It gives you a bit of support, I think.

MR DOUGLAS:   I think so, your Honour.  In my respectful submission, it does.

GAUDRON J:   What is the general law for determining whether a document contains one or more separate contracts?

MR DOUGLAS:   Well, your Honour, the most informative reference we have been able to find is that one in Deaves’ Case, which was a case which dealt with joint insurance, and there is also a certain amount of learning which stems from a decision of the Master of the Rolls, Sir Wilfrid Greene, in the Midland Bank Case which is referred to in that decision at pages 70 to 71, but most of the discussion in this area occurs in the area of what one might call “joint insurance” where you have a number of parties whose interests ‑ ‑ ‑

GAUDRON J:   What about outside the field of insurance?  I thought we had one about a charge or something over used cars some time ago.

MR DOUGLAS:   Your Honour is testing me now.  Certainly, one of the strongest indications would be the fact that you have one composite sum of money paid by way of premiums with promises which are given, the fact that there is no means apparent on the face of a document for dividing that premium up into the respective parts of that premium which were referable to the promise in respect of workers’ compensation and the promise in respect of common law damages.

KIRBY J:   Do we know that there is one premium payable for this particular policy?  Was that brought out in the ‑ ‑ ‑

MR DOUGLAS:   We do, your Honour, it is to be found at page 271.  The relevant one, that is the relevant period, expiry date 25 January 1993, date issued 16 April 92, is to be found at page 271.  You will see there is a composite premium with stamp duty of $30,238.09.

KIRBY J:   We just have to be a bit careful that we interpret this phrase in its context.  Its context is section 9.  Its context is an exception from a protective statute.  You look at the other exceptions, they are in reinsurance, national health, marine insurance - very particular, very specific, and one can see the reasons that they are a genus.  The genus is peculiar insurance policies and if we have a choice, if the statute is ambiguous, as I presently am inclined to think it is, why would one not read it in a way that upholds the purposes of the Act, upholds its protective policy and reads “workers’ compensation” to mean, as Mr Jackson suggests, “and workers’ compensation alone”, because, if the Parliament had intended it to be “workers’ compensation and employer’s liability”, which is a well‑known species of insurance, it could have said so, but it did not, and did not in a context where we know that the law in different States is different.  Sometimes you have to have it, sometimes, as in Western Australia, you do not.

MR DOUGLAS:   Your Honour, against that you have the context that the right of action for damages at common law is not only in the statutory provisions in this State but ‑ ‑ ‑

KIRBY J:   I agree.  There are straws in the wind in both interpretations, and the way you have pointed out that this statute links in the employer’s liability and deals with it is an argument for you.  It seems to me this is ambiguous and, therefore, we have to look to what is the preferable construction there.

MR DOUGLAS:   I would not wish to be taken to be conceding that it is ambiguous and it is possibly unclear, but the wording really does direct attention to the purposes of the law that relates to ‑ ‑ ‑

KIRBY J:   I think it is ambiguous, because one of your arguments is that those words, “that relates to”, extends the scope of it, but I do not think that that is so.

MR DOUGLAS:   Even accepting that it is ambiguous, there are a number of other considerations.  One has the statutory framework which we have referred to in our submissions which shows that in a number of States these requirements are compulsory, that is, a requirement to insure for common law damages.  So one would have thought that the Federal Government may have been trying to speak with one voice when it came to the subject matter of workers’ compensation.  It may be that the department did not direct its mind to the fact that in some States there was not this compulsory requirement, but that does not mean that one should then, because of the absence of the compulsory requirement in this State, interpolate that requirement into the express wording of the legislation so as to exclude from the ambit of the exception something which, on a sensible reading of the statute, obviously was intended to be dealt with by the exception.

When one comes to other classes of insurance totally unrelated to workers’ compensation, such as those referred to by Justice Hayne in the question which he put to me, other considerations would apply.  If there was clearly an attempt to take advantage of this exception by rolling up a whole number of insurances together, including workers’ compensation, we can readily see ways in which this Court could deal with that situation.  But we are dealing here with a statutory framework where these types of – for common law action for damages and a right to obtain workers’ compensation, they are throughout Australia closely interlinked.  They have been the subject of considerable regulation over the last 20 to 30 years.  The interaction between them has become more and more apparent and ‑ ‑ ‑

KIRBY J:   But if you look at the other classes, (a), (b), (c) and (d), they are dealt with by a particular statute, such as the National Health Act and the Marine Insurance Act, or they are of a particular character, a universal character, whereas you cannot say that about workers compensation once you go beyond the species so‑named workers compensation.

MR DOUGLAS:   I accept that, your Honour, but if you look at the category of reinsurance, that is quite general.  It relates to all reinsurances, so one cannot really glean from those other paragraphs of section 9 what one might call a predominant legislative intention to only benefit certain statutory forms of insurance.

KIRBY J:   I think the double “relates to” may actually help you because there is the umbrella “which refers to”, “does not apply to”, or “in relation to”, and then you have “relates to” workers compensation, and so it is double relationship, it is very vague language.

HAYNE J:   Does anything in your submission turn on the terms of the policy at 273, particularly in column 1, the “if” clause commencing at line 28?

MR DOUGLAS:   Your Honour, in our submission, that does assist because what it makes clear is that the indemnity in respect of common law damages is only an indemnity to the extent that you are able to recover those damages consistently with the statutory framework which we have just outlined.

KIRBY J:   Look at (e)(ii), it is the:

compensation for the death of a person, or for injury to a person, arising out of the use of a motor vehicle.

Now, why did the Parliament not include that in (i)?  That would have helped you if that had been there, “compensation for the death of a person, or for injury” that is covered by workers compensation.  Instead, they use just the species, “workers compensation”.  I know one is sort of trying to pull these words apart in order to get the parliamentary purpose but it is ambiguous and that leads me to repeat the question.  If it is ambiguous, why should one not give the construction that narrows the exemption from what is a very important reform of Australian insurance law intended to be of general application?

MR DOUGLAS:   The exemption does not say, “This law does not apply to workers compensation insurance”.  If they wanted to do that, they could readily have done that.  They may have been aware that there were various statutory schemes in relation to the interaction between common law damages and workers compensation and so, therefore, they have chosen that form of words to try and embrace all of it.

HAYNE J:   On the question of one contract or two, would the question of non‑disclosure and its significance be regulated by the relevant Western Australian Workers’ Compensation Act in respect of this policy, or would it be regulated by the Insurance Contracts Act?

MR DOUGLAS:   I think we would have to say, if we are correct in our submission, that it would be regulated by the Western Australian law and not by the Insurance Contracts Act.

KIRBY J:   Do you have a constitutional question then?

MR DOUGLAS:   Only if there is a conflict between the two laws, your Honour.

KIRBY J:   …..federal Act does not cover the relevant field.

MR DOUGLAS:   It would depend upon whether there was a conflict, in a sense, an inconsistency.

HAYNE J:   Is one purpose of 9(1)(e) then, in part, an avoidance of inconsistency with State law?  There are other purposes obviously, but is that one of its functions, to leave, for example, the infirmity of a policy where there has been a relevant non‑disclosure to be regulated by State law in the field of workers comp?

MR DOUGLAS:   That could be one of its policies, your Honour, and certainly the area of workers compensation and damages for personal injury suffered in the workplace and damages arising out of the use of a motor vehicle are all matters which are heavily regulated under the State laws of all of the States of this country.  It is not the subject of a national…..and it may be that what underlies that exception is a desire to exempt from a national insurance contract scheme these particular classes of insurance.

The only inconsistency case I can think of which has any relevance in this area of insurance is a decision called Palmdale‑ AGCI, which dealt with the interaction between workers compensation insurance and the Insurance Act back in the seventies some time, and that was in relation to the licensing requirements, because I seem to recall that decision - Justice Hayne was in it and so was I.  It was found that State and

Commonwealth legislative provisions could exist together.  But this does seem to evince a legislative intention to carve out areas which are traditionally areas of State law and State compensation for the State.  I am instructed, your Honour, that they were left out of the terms of reference to the ALRC altogether.  I can find that reference ‑ ‑ ‑

KIRBY J:   How were they left out?  What was the actual exemption - in similar terms to section 9(1)(e)?

MR DOUGLAS:   The reference to it is in our submissions, but it is in the terms of reference which form part of the Law Reform Commission Report No 20 of R.J. Ellicott, QC and it says:

It is to report upon the adequacy of the law governing contracts of insurance excluding marine insurance, workers’ compensation and compulsory third party insurance, having regard to the interests of insurer, insured and the public.

KIRBY J:   I think that is a little bit against you, is it not, in that if it had been workers compensation and employer’s liability, but they could not really say that because there is no common standard around Australia, whereas there is a common existence of workers compensation insurance, as such.

MR DOUGLAS:   In that context, it may have a more general meaning than just workers compensation.  It is not compulsory workers compensation.  It may mean just “compensation for workers for injuries sustained”.  That is another interpretation which is open, I accept that.  Those are our submissions.

GLEESON CJ:   Thank you, Mr Douglas.  Yes, Mr Jackson.

MR JACKSON:   Your Honours, may I deal first with the issue in the cross‑appeal?  Your Honours will see, in relation to the various provisions of the Act - I suspect your Honours may not have the relevant parts of it - that in relation to the question of inconsistency, the starting point is really section 7 of the Act, and section 7 expresses:

the intention of the Parliament that this Act is not, except in so far as this Act, either expressly or by necessary intendment, otherwise provides, to affect the operation of any other law -

to put it shortly, whether the laws be the common law or the statute law.  Then one sees the proposed ambit of the Act, and that is provided for by section 8(1) which says that:

Subject to section 9, the application of this Act extends to contracts of insurance and proposed contracts of insurance the proper law of which is or would be the law of a State or the law of a Territory in which this Act applies or to which this Act extends.

So that it applies to contracts of which the proper laws, the law of the State, are subject to section 9.

When one goes then to section 9, one is dealing with something which is, in a sense, an exception to the broader proposition set out in section 8(1), and your Honours will appreciate, as your Honour Justice Kirby observed, that the Act is one which is intended to provide benefits to insured and also to regulate the business of insurance more generally.  Your Honours will then see in section 9(1) that it says the:

Act does not apply to or in relation to contracts and proposed contracts:

. . . 

(e)  entered into or proposed to be entered into for the purposes of a law (including a law of a State or Territory) that relates to:

(i)  workers compensation -

Now, your Honours, in our submission, the more natural meaning of the provision is that it is speaking about contracts which are entered into for the purposes of a law of a State, and that is entered into in order to comply with, or perhaps to take the benefit of, a law of the State and a law of a State that relates to workers compensation, workers compensation being in the present case the type of provisions for compensation independently at fault that are provided for by the Act.

We would also submit that the natural meaning of the provision is, as we have submitted in our written submissions, that the exception being carved out is - that it does not apply to such contracts to the extent to which they are contracts entered into for the relevant purpose.  Your Honours, when one goes to the terms of the relevant Act in Western Australia, what one sees is that whilst there are some provisions dealing with common law actions for damages in respect of persons who are employees, there is no provision requiring that there be any insurance in respect of common law damages or in respect of any liability at common law.  The only requirement for insurance is that provided for by section 160 and, in our submission, the insurance in respect of that is the only part that is caught by section 9(e)(i).  We have put that in our written submissions and we would seek to rely upon that.

Your Honours, could I go back then to the appeal, and there are a few matters with which I wish to deal.  The first concerns the observations by our learned friends about the findings in relation to the practices that have been adopted, or were said to have been adopted, by the respondent.  If one sees the actual finding as to the practice at page 432 in volume 2, your Honours will see, dealing with Mr Mitchelson’s opinion in lines 35 and following, it is plain that the judge, and your Honours will see about line 44, was saying that he did:

not feel persuaded to the requisite standard that any broad policy or aim . . . was applied consistently -

Our learned friends referred to the statements by the judge in relation to Mr Mitchelson’s evidence, which appear at pages 407 and 408, as if they were findings, but what is apparent, in our submission, is that if one looks at the statements by the judge, he is simply recounting the evidence that Mr Mitchelson gave without there expressing any view about whether he accepted it or not.

Your Honours, we would say, if one looks at some of the evidence - and I will only take your Honours to one passage at page 233 in volume 1 - what one sees is, in the passage that goes from about line 12 through to line 28, that it was apparent that what might have happened to the plaintiff in this case was purely a matter of speculation.

KIRBY J:   Who was Mr Hancy?

MR JACKSON:   Mr Hancy was ‑ ‑ ‑

HAYNE J:   The incorporated nominal junior, is he, Mr Jackson?

MR JACKSON:   Yes, your Honour.  He is here in spirit, your Honour, and - well, he was the counsel at the trial for our side.  Your Honour Justice Gaudron referred to the question whether in some cases there was really a two‑stage inquiry or whether the two overlapped, and there was really one thing.  Your Honours will see at page 472 in volume 2, in Justice Murray, it is paragraph 109, where he, in our submission correctly, was expressing the view that, and he is referring of course to the primary judge’s reasons, “that the lost opportunity” was in fact “of no value”, which is in a sense the other way of putting the matter.

Our learned friends referred to Antico 188 CLR 652. Your Honours, to put the observations made in that case in their context, one does need to see the issue that was being decided, and what that issue was appears at page 665 in the paragraph commencing at about point 4 on the page. Your Honours will see that their Honours said:

The question for this Court does not concern the identification of any relevant “prejudice”.  It is the threshold issue of whether the Court of Appeal was correct in holding that the appellant’s failure to obtain the consent . . . was not an act or omission -

That was the issue with which the Court was dealing and your Honours will see the conclusion of the reasons of the Court at page 675 makes that apparent again.  Your Honours will see about point 5 on that page:

Since the Insurer is not a party to the appeal to this Court, it may not be appropriate to disturb the relevant order made by the Court of Appeal.  But, as between the parties to the appeal, we would answer those questions as follows -

Your Honours will see the two questions and two answers relating to the issue earlier adverted to.

HAYNE J:   To that may be added 674 point 5 in that short paragraph in the middle of the page, “The failure may or may not have prejudiced the interests”.

MR JACKSON:   Yes, your Honour.  So the point I am seeking to make about it is that the issue of whether there was prejudice, what constituted prejudice and what was the consequence of it, was not one that fell for determination by the Court.  Could I just move then to Sellars 179 CLR 332 for one moment at page 368. Your Honours will see the passage commencing in Justice Brennan, about the first new paragraph on page 368. Our learned friend referred, I think, to the first few lines and what your Honours will see is that his Honour distinguishes between, on the one hand:

Although the issue of a loss . . . must be established on the balance of probabilities, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered.  Proof on the balance of probabilities has no part to play in the evaluation of -

But as to the existence, your Honours, in our submission, it does.

Your Honours, could I deal then with a matter raised by our learned friends in relation to the evidence of Mr Batalin that our learned friend raised this afternoon.  If I could take your Honours to volume 1, page 237.  What your Honours will see in the passage to which our learned friends referred in the last question and answer on page 237, he gave evidence in the last four lines about the two x-rays and said that:

subsequent x-ray shows disc protrusion to the left, then one has to draw logical medical conclusion -

Your Honours, that was in a context where he was referring to evidence about the two CT scans that had been done but the evidence that had been given already was the evidence of Dr Woodland at page 147, where your Honours will see at the bottom of that page that he referred to the fact that there was more than those two scans.  What there was also was an MRI scan which he said was much more sensitive than the CT scan and then, your Honours, that was discussed at page 148, particularly the second paragraph question and answer and he went on to discuss that at quite some length.

Your Honours will see that in those circumstances, although no doubt perhaps it could have been dealt with differently, one had a situation where the evidence that was being given by Mr Batalin was evidence based on material in relation to which there was already evidence that there was a better and more sensitive way of dealing with it.  So that, your Honours, one might understand why there was not a lengthy cross‑examination of him about that.  I should also have taken your Honours, while dealing with that, to page 165 in Dr Woodland’s evidence at the bottom of the page, the last five lines going over to the top of the next page where he said the later scan may have been a “red herring”, and he gave the reasons for that.

Your Honours will then see, if one goes to the way in which the judge dealt with the evidence in volume 2 at page 394, the last paragraph on that page, he was conscious of the evidence in relation to these issues and then at the top of the next page in the first new paragraph, referred to the fact that:

no bulge was shown in the MRI scan taken in the subsequent month, although the latter was a more sensitive test.

When one goes to page 406, your Honours will see in the paragraph commencing about line 32, he refers to the evidence of Mr Batalin.  We would submit that if one goes to the analysis of the evidence that I took your Honours to this morning - that analysis of the evidence and the judge’s findings that was engaged in by Justice Murray, commencing at page 469, paragraphs 100 to 109 I took your Honours to this morning, he refers to the matters which demonstrate that the view adopted by the primary judge on this issue was perfectly open.  Could I refer particularly in that regard to paragraph 102 at page 470.  Your Honours, those are our submissions.

KIRBY J:   Mr Jackson, there were two questions, though they might actually be properly directed to Mr Douglas.  The first was that there was a mention in the written submissions - I am not sure whether it was on your side or the other - that the absence of the plaintiff had some significance.  Now, it has not been voiced by either of you to the end of the case.  It does not seem to be relevant to me but in your submissions is there any ‑ ‑ ‑

MR JACKSON:   I do not pursue the point.

KIRBY J:   I am sorry?

MR JACKSON:   The point was ours, I do not pursue it.

KIRBY J:   The second is that if Mr Douglas were to succeed on the cross‑appeal, it would seem just that his client should have to pay all the costs in the Court of Appeal where the matter was conceded and in this Court because those points were not litigated in those courts and you come here to contest the point in the Full Court.  I suppose that would be your submission.

MR JACKSON:   It would, your Honour, and could I say that some of the points really appear for the first time in a sense in my learned friend’s written submissions as is obvious, so there is a further freshness about some of them than there was even in the Court of Appeal, and the freshness ‑ ‑ ‑

KIRBY J:   It seemed to be a little bit fresher down your end of the table.

MR JACKSON:   Your Honour, with respect, if I may say so, there is nothing new in anything we have put to the Court from what went below.  Could I just say, however - I will not labour the point about the freshness - but it does leave your Honours in a situation where one has the perhaps unusual situation where a point conceded at first instance, never the subject of discussions in any relevant sense in either of the two courts below, thus providing no assistance to the court, is raised for the first time here.

KIRBY J:   You are not raising a constitutional question that it cannot be a subject of appeal?

MR JACKSON:   No, your Honour, what I am submitting is that it would be unusual for there to be a grant of special leave in such circumstances and that that is an appropriate course for the Court to follow now.

GLEESON CJ:   Mr Douglas, is there any thing you want to talk about.

MR DOUGLAS:   No, your Honour.

GLEESON CJ:   Thank you.  We will reserve our decision in this matter.

AT 3.29 PM THE MATTER WAS ADJOURNED