Newcastle City Council v GIO General Limited

[1996] HCATrans 285

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S16 of 1996

B e t w e e n -

NEWCASTLE CITY COUNCIL

Applicant

and

GIO GENERAL LIMITED

Respondent

Office of the Registry
  Sydney  No S28 of 1996

B e t w e e n -

NEWCASTLE CITY COUNCIL

Applicant

and

GIO GENERAL LIMITED trading as GIO AUSTRALIA

Respondent

Application for special leave to appeal

TOOHEY J
GAUDRON J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 SEPTEMBER 1996, AT 10.58 AM

Copyright in the High Court of Australia

________________________

MR J.R. SACKAR, QC:   In both matters, if the Court pleases, I appear with my learned friend, MR D.L. DAVIES for the applicant.  (instructed by Phillips Fox)

MR B.W. RAYMENT, QC:   If the Court pleases, I appear with my learned friend, MR N.G. REIN, for the respondent.  (instructed by Abbott Tout)

TOOHEY J:   Thank you.

GAUDRON J:   Are we, in substance, only concerned with one matter?

MR SACKAR:   Yes.

GAUDRON J:   The other is still a preventive application, as it were.

MR SACKAR:   Yes.  If the Court pleases, we have raised ‑ ‑ ‑

GUMMOW J:    What do we do with the preventive application if the other one succeeds?

MR SACKAR:   Nothing very much, I suppose.  In one sense, the settlement in personal injuries matter will not be the subject of any attempt on the part of the GIO to reagitate that matter.  The same point is raised in both.  In a sense, the first matter is academic, I suppose.  It is really the second point that has much greater impact as far as my client is concerned.

TOOHEY J:   I was going to ask you that. What is the position if you made good, at least arguably good for the purposes of the application, that the Court of Appeal erred in its approach to section 40(3) of the Act but failed to make such a case in respect of what has been described as the first issue, whether personal injuries were caused by an occurrence in connection with the applicant’s business. Where does that leave you, Mr Sackar?

MR SACKAR:   If I get up on the section 40 point, in effect, I am satisfied.

TOOHEY J:   You mean because you can then come under section (c) of the policy and you can put section (a) to one side?

MR SACKAR:   Yes.  There is a subsidiary argument, namely that what the Council did was not relevantly professional, if I can use the shorthand description, and there was an occurrence which would lead us to be able to claim cover under insuring clause (a).  We claimed before both judges that we are entitled to claim under (a), that was in issue because it was said that the relevant earthquake was not an occurrence.  Then the question arose, “Were we, as it were, forced to observe the endorsement?”, and the question that then arose was whether what the Council did was the rendering of professional advice in accordance with the endorsement at page 99.  There was an issue about that.  Both judges at first instance, Justice Bainton and Justice O’Keefe said no, what the Council was doing was acting in pursuit of its statutory functions.

Having lost that issue, as it were, we then can only claim cover under (c). That is, if we lose on occurrence, the endorsement as it were is alive and we are then faced with (c), and the question then arose, having lost on the professional point, if you like, whether we could then say that section 40 nonetheless came to our aid because a claim was not made during the period of insurance.

TOOHEY J:   I understand how section 40 then comes in in regard to the second issue, but do you not have to disturb the finding below in regard to the second issue?

MR SACKAR:   Not necessarily, because we would be left in the situation where we could either be covered, as it were, by section (c) of the policy, which would not involve us disturbing the finding on occurrence nor the finding on professional activity, but would depend upon us convincing the Court that, if we assume against ourselves for the moment that we have lost on occurrence and we have lost on professional activity, we nonetheless because of section 40 can claim under insuring clause (c). In other words, the occurrence point and the professional activity point is really a fall back for us for an alternative. Justice O’Keefe, for example, found we could claim under either.

So my proposition is, and why I was going to deal with section 40 first, is because it assumes against me that I have lost on the occurrence. We are involved in a professional activity and therefore my only resting place, if I have one, is (c), subject to section 40.

GAUDRON J:   It has the advantage, from your point of view, of raising the question of the statute rather than the terms of the policy, I suppose.

MR SACKAR:   Yes.  And has the other advantage that it may be the only one of the three points that raises any special leave question.

TOOHEY J:   Yes, there is that about it

MR SACKAR:   So I had proposed to deal with it in that order. We put in a supplementary argument yesterday and it is really that supplementary argument which raises the section 40 point. May I briefly address the Court on that.

We say that the Court of Appeal failed to apply subsection (1) of section 40 and that is because of the narrow construction they placed upon the words “excluded or limited”. His Honour the President, at page 57 line 30 of the book - and may I just invite your Honours to go to these two or three passages:

The appellant -

which was, of course, the GIO -

argued that a policy of insurance will only be within s 40 of the Act where the requirement that the insured give notice of any claims is a condition precedent to the insurer’s being liable.....If this contention be correct, it is necessary to decide whether the requirement of notice contained in condition 3 of the policy is a condition precedent.....The appellant submitted that condition 3 was not -

So that was the focus below.  Over the page at 58, the top of the page:

Upon examination of the terms of the policy, and in the absence of express words to the contrary, it is clear that condition 3 is not a condition precedent to liability. It was merely part of the definition of the scope of the insurance. The question is then presented: does the fact that condition 3 is not a condition precedent to liability mean that s 40 of the Act will not apply?

Now, at the bottom of page 58 the learned President as he then was said this:

Although s 40 of the Act is capable of application beyond “claims made and notified” -

this policy here is a claims made policy only -

it does require that any provision requiring notification be a condition precedent to the insurer’s liability to indemnify.

Now, my argument on section 40 does not depend upon condition 3 being a condition precedent. I make that clear. But we say that what appears to have troubled the court below was the requirement that the exclusion or limitation be of the nature of a condition precedent because of the - and I will come to it in a moment - concern about notice.

Justice Sheller dealt with this issue at page 64 at line 25 and he said he agreed with the President on section 40. He said:

Section 40 applies to a contract of liability insurance if its effect is that insurer’s liability is excluded or limited by reason -

At line 36:

The contract of insurance does not have this effect.  At most condition 3 requires that notices in writing shall be given.....Even taking account of the cancellation condition 12, this does not have the effect that the insurer’s liability is excluded or limited -

et cetera. Justice Powell agreed with the President. Both of those judgments, we say, show, with respect, that the court was looking for an exclusion or limitation of the kind there described as a condition precedent and thereby gave too narrow a construction to at least the word “limitation” in section 40. We say that they did not have sufficient regard to the words “the effect” which draws direct attention to the substance of the contract. They failed to apply the purposive approach to statutory interpretation and they did not read subsection (1) in conjunction with subsection (3) to see, in my respectful submission, what section 40 is about.

GUMMOW J:   This is a protective provision; protective of the interests of the insured.

MR SACKAR:   Yes.  Now here, factually, the court decided that we had given notice.  The Court will find that at the very end of Justice Kirby’s decision.  It was not expressly adverted to by Justice Sheller and, of course, Justice Powell, but at page 60 of the book:

Since the respondent is unable to rely on s 40 to require the appellant to indemnify it against the Club’s claim, it is not necessary to decide whether the respondent satisfied the notification requirements of s 40(32) of the Act. However, if it had been necessary to decide this issue, I would have agreed with the conclusions reached by Bainton J and O’Keefe CJ Comm D.

The earthquake occurred in December of 1989.  In the July of 1990 and later again in the December of 1991, a letter was sent with a newspaper clipping.  In the July letter the newspaper attachment talked about some remarks made at a coronial inquiry which gave rise to certain allegations about the Council and so on because of the collapse of buildings. 

Now, the court found, in this case, that we had complied with subsection (3).  It is the question of whether we get in the front door on subsection (1) and it is that point that I want to address now very briefly.  We say this, that so far as the effect of the policy is concerned, there are a number of ways that a draftsperson of the contract of insurance can deal with cover, and we set them out in our supplementary argument, either by addressing the scope of the insuring clause or by imposing conditions precedent or by the extent of the exclusion.  We say that in order to ascertain the effect the court really has to look at all three and here it is not correct to say that there was not a limitation.  There was a limitation.  The limitation was claims made.  That was the door through which the insured had to walk, if he could at all, in order to comply with this policy in order to claim cover.  This was not, as I have said, claims made and notified.

So consequently, by reason of the fact that the court below were casting about for either exclusions or condition precedent, that was an entirely inappropriate approach and, indeed, one looks at the substance or, as the legislation says, the effect of the policy. Here, the effect was a limitation, namely claims made. Now, when one goes to explanatory memorandum dealing with section 40 or, indeed, the Law Reform Commission’s Report, if I may just direct the Court’s attention to those few remarks, first of all the explanatory memorandum at the bottom of the argument:

Some contracts of liability insurance apply to claims made during the period of cover rather than to events which occurred during that period.  Thus an insurer may be entitled to refuse a claim made after the expiration of the cover even though it was made in respect of an event occurring within the period and the facts were notified to the insurer.

Now that was, with respect, the evil.  The Law Reform Commission Report had dealt with it on the basis that an insurer should be required to provide cover and we say that having considered that that was the evil, the approach given to the word “limited” for example in subsection (1) was far too narrow and that when one looks to subsection (3), if I may just invite the Court to go to the Act, subsection (1):

This section applies in relation to a contract of liability insurance the effect of which is that the insurer’s liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss.....is not given -

Now clearly, if a claim is not made, it goes without saying that notice of it would not be given.  However, subsection (3):

Where the insured gave notice in writing to the insurer of facts that might give rise to a claim.....before the insurance cover provided by the contract expired, the insurer is not relieved -

So here we have a manifestation of the very evil that the explanatory memorandum and, indeed, the Commission’s report pointed to. So we say therefore that even if section 40(1) is at all ambiguous, subsection (3) makes it very clear what the section generally is directed to.

Now of course also under section 21 of the Act an insured has an obligation to disclose facts, we say, similar to those which might be disclosed under a subsection (3) notice upon renewal. We therefore say, with respect, that the proper interpretation of section 40 was not to look for a condition precedent or for some exclusion but to look to the effect. And the effect, quite simply, on the literal words of the section was a limitation on cover, the limitation being a policy which provided for claims made. But if claims were not made, what does the insured do? Between the devil, perhaps, and the deep blue sea. A notification of facts in this case has led to a rejection of indemnity. Can it therefore be correct to think that the legislation had in mind that if a notification of these facts was made an insured would be left in the position of either not getting cover for future years or worse, having as a condition perhaps of future cover the exclusion in relation to the events which were disclosed, either consistent with section 21 or, we say, consistent with the effect of this policy.

Now, the second two issues, namely professional and/or occurrence I need only say this about them, that perhaps on their own they would not be sufficient - or individually - perhaps sufficient to grant leave.  They are nonetheless important questions.  Certainly on the question of occurrence we submit, with the greatest of respect, that Justice Sheller who was in our favour on that issue was correct.  If I may just ‑ ‑ ‑

GAUDRON J:   That did not take you very far, did it?

MR SACKAR:   It did not take me very far.

GAUDRON J:   And you have the same problem with occurrence.

MR SACKAR:   I have the same problem, and I fully accept those limitations and that is why I have dealt with the argument in the order I have.  But may I just perhaps formally submit that we say that Justice Sheller is correct on that issue and that on the issue of professional, Justices Bainton and O’Keefe were likewise correct and the Council was pursuing its statutory functions.  They are our submissions.

TOOHEY J:   Mr Sackar, I just want to be quite clear about this, that if special leave were granted, confined to the meaning and operation of section 40, that is sufficient for the applicant’s purposes. I appreciate that you seek special leave in respect of the other matters, but such a grant would create a viable situation for the Court.

MR SACKAR:   It would be sufficient, certainly in terms of this particular matter, but because this is a broad form policy and because it raises other matters, dealing with those other two issues, we would submit with respect, would not be a lengthy process, essentially questions of construction, and therefore because of the overall importance of such a policy we would submit that it would not be adverse to our interests if leave were limited, but we would invite the Court to consider joining those two issues if it were disposed to grant leave on the argument, for the reasons I have put.

GUMMOW J: If you received a limited grant relating to section 40 and you were successful, what impact would the allowance of the appeal on that issue have on the orders of the Court of Appeal? Would it completely overthrow the treatment of the case?

MR SACKAR:   It really would because fundamental to their decision was the inapplicable nature of the argument relating to section 40, so it would certainly have that effect and therefore ‑ ‑ ‑

GUMMOW J:   What orders would it produce in place of the orders of the Court of Appeal?

GAUDRON J:   Appeal dismissed, would it not?

MR SACKAR:   Yes, that would be it.

TOOHEY J:   Where would it leave the protective appeal?

MR SACKAR:   Perhaps it would not need to be processed.  It could be disposed of perhaps in the same way.

TOOHEY J:   You are, I take it, seeking leave to appeal in respect of both matters?

MR SACKAR:   Yes.  As I have said, quite frankly there is no financial difficulty in respect of the judgment from Justice O’Keefe because of the stand taken by the GIO.

GAUDRON J:   But at the end of the day you would seek that the order of the Full Court - the order that should be made would be that the appeal to the Full Court be dismissed in both matters.

MR SACKAR:   Yes, it should be made because that decision should not stand, notwithstanding the fact that it does not have the same impact upon us as would an adverse decision from Justice Bainton.

TOOHEY J:   Thank you, Mr Sackar.

Mr Rayment, just before we call on you, there is a matter which is No 8 in the list, Kriticos v State of New South Wales and Another.  I have been handed a notice of discontinuance of the application for special leave to appeal.  I do not know whether counsel or those instructing them are in Court.  I will just mention the matter of Kriticos.

AT 11.18 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.19 AM:

TOOHEY J:   Mr Rayment, we wish to hear from you only on the section 40(3) point.

MR RAYMENT:   May it please your Honours. We would respectfully submit that if you read section 40 it is clear enough that a decision has been taken by the draftsman that one kind only of policy will attract the provisions of subsection (3).

GUMMOW J:   So this is a submission that it is so plain that there is no question of any ‑ ‑ ‑

MR RAYMENT:   We would respectfully submit that it is plain; that upon the proper construction of section 40(1) the the kind of contract of liability insurance to which the section is addressed is one the effect of which is that the insurer’s liability is excluded if notice of a claim against the insured is not reported to the insurer during the year of insurance. That is a well known kind of policy. The typical one that is referred to in, for example, recent reported cases as a claims made and notified policy is well known. It has advantages to insurers to write claims made policies as policies requiring the reporting to the insurer during the year of insurance of claims which arise during that year. The advantage is that at the end of the year they can know the extent to which they will be called upon to pay pursuant to the year of insurance just finished.

GAUDRON J:    But does that not require you to read 40(1) in isolation from the terms of subsection (3) which speaks clearly enough of a “claim, when made”?

MR RAYMENT:   Subsection (3) does actually contain some words which explain to some extent why it is that the particular form of policy chosen to be referred to in subsection (1) has been chosen.  Your Honours, in the fourth line in the print I am looking at of subsection (3) the words “but before the insurance cover provided by the contract expired” appear.  The particular privilege which is extended to insureds is the privilege of bringing within the policy circumstances which come to the notice of the insured during the year of insurance which are notified to the insurer within a reasonable time or, as this section says, “as soon as was reasonably practicable”, but also which are notified to the insurer before the year of insurance expires.  So it is only those insurers who are put on notice that this kind of claim is to be made upon them in the year of insurance itself who will be subjected to the liability referred to in subsection (3). 

Now, in those circumstances, it is perhaps easier to understand why it is that the particular form of contract of liability insurance chosen by the legislature to be the subject matter of this privilege is a claims made and notified policy.  Because such an insurer would be used to getting notice of claims during the year of insurance and not to be subject to their liability ‑ ‑ ‑

GAUDRON J:   From which words do you find that in subsection (1)?

MR RAYMENT:   It is the description of the contract of liability insurance.  It is a particular kind and only a particular kind which is referred to in subsection (1), that is, one:

the effect of which is that the insurer’s liability is excluded or limited by reason that notice of a claim -

and I will leave out irrelevant words -

is not given to the insurer -

It is only those contract of liability insurance which involve a reporting to the insurer of notice of a claim to which subsection (3) applies.  If the draftsman ‑ ‑ ‑

GUMMOW J:   Do you endorse this fixing in the Court of Appeal of a concept of conditions precedent?

MR RAYMENT:   As a matter of fact, your Honours, in our respectful submission, certainly what the Court of Appeal said ‑ ‑ ‑

GUMMOW J:   Because that is how the law will be.

MR RAYMENT:   Pardon?

GUMMOW J:   That is how the law will be taken to be, I suppose.

MR RAYMENT:   We would respectfully submit that what the Court of Appeal have said about section 40 is that it is essential that the contract of insurance to which the section applies be one that will require the reporting of claims to the insurer during the year of insurance. It is essential. Whether it be in the language of a condition precedent so, for example, separate from the scope of cover in the policy or within the scope of the policy itself, in our respectful submission, is on the proper reading of the Court of Appeal decision quite irrelevant. Their Honours said that the classic form of policy which would fall within section 40(1) was a claims made and notified policy.

Now, you would not get, in that form of policy, the requirement of reporting referred to in a condition, you would get it in the scope of the cover. My learned friend, Mr Sackar, in our respectful submission, we would say, is wrong to criticise the Court of Appeal on the basis that the scope of the cover would have been said in the Court of Appeal not to be a place in which one would define “relevant matter” for the purposes of subsection (1). My learned friend says the Court of Appeal has it wrong. They have taken too restrictive a view of section 40 by requiring that it be a condition precedent, treating that as something separate from the scope of insurance. Now, the very form of contract which the Court of Appeal did say was within this section is the claims made and notified policy and, for example, the way it is done in the East End Case, the way it is made a claims made and notified policy is quite simply to make it part of the scope of cover.

In the recounting of the terms of the policy in East End, at page 402 of the report, the Chief Justice set out, just between letters E and F, the terms of the policy which were relevant.

“Indemnifying the insured ... against any claims for breach of professional duty ... which shall be first made against the insured within the period (stated above) ... and which shall be notified to Underwriters or their representatives during the period of cover (stated above).”

So there it is, making the policy a claims made and notified policy by appropriate language in the scope of cover. That is how it would usually be done, your Honours. So the Court of Appeal saying a claims made and notified policy is that which is classically within section 40 involves saying that a policy which accomplishes that result by appropriate words in the scope of cover will squarely be within the section. It does not have to be in some separate condition for that purpose. In other words, it would be a wrong construction of what the Court of Appeal said to limit the construction of section 40 to cases where there is some separately stated condition precedent, in our submission. It does not matter how the result is achieved so long as it is essential to the cover, the operation of the cover, that there be a reporting to the insurer. Then section 40 will apply and subsection (3) will apply.

But where you have, as here, a policy which requires only a claim to be made during the year of insurance and nothing else, section 40 has nothing to say about the matter. If the legislature was dealing with such a policy, your Honours, the words which I drew attention to in subsection (3), the words “but before the insurance cover provided by the contract expired”, would be less likely to be present. There would be no reason so to limit the privilege which you confer by subsection (3) if you were intending in subsection (1) in some way to catch pure claims made policies. You would extend to the insured the ability to notify a claim so long as he became aware, during the period of insurance, that the circumstance is likely to give rise to the claim. You would no more require him to actually send the document to the insurer during the year of insurance in that case than you would in the case of the claim.

So we would respectfully submit the Court of Appeal got this right. Really what would be sought to be achieved by having this Court look at the matter is effectively to ask this Court to give a meaning to section 40 inconsistent with its plain meaning. Those are our submissions, your Honours.

TOOHEY J:   Thank you, Mr Rayment.

Mr Sackar, there will be a grant of special leave in each of these applications, although one I think needs an extension of time, does it not?

MR SACKAR:   Yes, it does, because the application was filed out of time.  I should have asked for that.

TOOHEY J:  Is that S28?

MR SACKAR:   Yes, it is.

TOOHEY J:   Is there any objection, Mr Rayment?  There will be an extension of time in the case of application S28 of 1996. 

In each of the applications, there will be a grant of special leave confined, however, to the meaning and operation of section 40 of the Insurance Contracts Act 1984.

It seems to me, Mr Sackar, that if you had a grant of leave confined to ground 2 of your notice of appeal in each case, that would be all that you would need, consistent with the approach which the Court has taken.

MR SACKAR:   Yes, if the Court pleases.

TOOHEY J:   So would it be convenient to grant special leave in each case confined to ground 2 in the draft notice of appeal.

MR SACKAR:   If the Court pleases.

TOOHEY J:   Very well.

AT 11.30 AM THE MATTER WAS CONCLUDED