Norwich Winterthur Insurance Australia Ltd v Dennert and Federation Insurance Limited File No. SCGRG 91/3052 Judgment No. 3649 Number of Pages 9 Insurance

[1992] SASC 3649

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA FULL COURT King C.J.(1), Olsson(2) and Mullighan(3) JJ

CWDS
Insurance - insurance of motor vehicles against damage and loss - first respondent employed on a farm property - without own vehicle whilst it under repair - respondent obtained permission from farm manager to use a car owned by farm business - this car collided with a train while she was driving it, causing damage - business car insured by appellant - whether first respondent entitled to indemnity under this insurance policy - whether first respondent driving car with permission of the insured within the meaning of that insurance policy - first respondent had insurance for her own car which extended cover to any vehicle she used in substitution for that car - whether that insurance policy covered damage caused by the first respondent while driving the business car.
Motor Vehicles Act 1959 (SA) s107. Australian Casualty Company Limited v Frederico (1986) 160 CLR 513, applied. Minister of Transport for Ontario v Canadian General Insurance (1971) 18 DLR (3rd) 617 and Rogerson v Scottish Automobile and General Insurance Co Ltd (1931) All ER 606, distinguished.

HRNG ADELAIDE, 31 August 1992 #DATE 16:10:1992
Counsel for appellant:             Mr T.L. Stanley
Solicitors:   Ross and McCarthy
Counsel for respondent Dennert:     Mr R.C. White
Solicitors:   Johnston Withers
Counsel for respondent Federation: Mr S.M. Adams
Solicitors:   Adams Kandelaars

ORDER
Appeal dismissed.

JUDGE1 KING C.J. I agree in substance with the reasons for judgment of Olsson J and add only the following comments. 2. The question whether Dennert is entitled to indemnity under a policy of insurance other than that issued by Norwich depends upon whether such indemnity arises under section 4 of the Federation policy. That section is so far as material in the following terms:
    "The Company will in respect of a motor vehicle other than the
     Insured's own but in the Insured's legal custody or control
     being used in substitution for the Motor Vehicle described in
     the said Schedule and which is not then in use, indemnify the
     Insured ..." 3. The onus of proving that Dennert had legal custody and control of the vehicle and was using it in substitution for her Toyota, lay on Norwich. I do not think, however, that the outcome of this case depends upon onus. The facts have been fully elucidated and the conclusions to be drawn from them are for the court. 4. The words "used in substitution" are not words of art. They are ordinary words which the draftsman of the contract has chosen to express the contractual intention. I do not think that their meaning is elucidated by using what are thought to be synonymous expressions. It is a question of applying the words of the contract to the primary facts. Whether the vehicle was used "in substitution" for Dennert's own car is a question of fact and degree. Not every use of a car which is borrowed for a specific purpose or journey at a time when the borrower's vehicle is not in use, is in substitution for the borrower's own vehicle. It depends upon the surrounding circumstances. The borrowing in this case was for the purpose of a specific limited journey. No doubt the borrowing would not have occurred on this occasion if Dennert's own car had been available but more than that is required to enable the use of the vehicle to be characterised as in substitution for Dennert's own car. 5. I agree with Olsson J that the correct conclusion on the facts of this case, is that the car was not being used in substitution for the car insured under the Federation policy. 6. The appeal should be dismissed.

JUDGE2 OLSSON J. This is an appeal against a judgment entered by Wilson D.C.J. as the outcome of the trial of a preliminary issue in proceedings in the District Court. 2. In those proceedings the Australian National Railways Commission, as plaintiff, sued the respondent Dennert in negligence for damages resulting from a collision between a motor vehicle driven by her and a train owned by it. That collision occurred at a level crossing near Saddleworth in the mid-north of South Australia and caused damage to the train. 3. The respondent Dennert joined the present appellant (to which I will refer as "Norwich") and the respondent Federation Insurance Limited (to which I will refer as "Federation") as third parties. She claimed indemnity from one or other of them, by virtue of two separate policies of insurance to which I shall shortly refer. 4. Agreement was reached between all parties that it was desirable to resolve the issue of liability arising in the third party proceedings prior to the determination of the principal issues as between the plaintiff and the respondent Dennert. 5. The learned trial judge acceded to that proposition and the judgment now appealed against is confined solely to that aspect of the proceedings. 6. The primary findings of fact made by the learned trial judge are not now in dispute, although some inferences to be drawn from them are in contention. The accident in question occurred on Thursday 17 November 1983. At the time the respondent Dennert (to whom I shall simply refer as "Dennert") was a single woman aged 18 years. She was employed on a farm property near Saddleworth as a live-in housemaid. 7. The pastoral business carried out on the property was conducted as a partnership activity by Messrs David and Colin Baldock, both of whom resided outside South Australia. 8. The partnership operations were actually managed by Mr Robert Baldock, the father of the two partners. The partners themselves had no active role in the business other than to oversee the budget and monitor the financial situation. All decisions regarding the day-to-day running of the farming operation were left to Mr Robert Baldock, who had unlimited authority in that regard. 9. Specifically, he had unfettered authority in relation to the use of the plant and vehicles used in the business. It was the express finding of the learned trial judge that, so far as permitting others to use partnership vehicles was concerned, this was a matter entirely within the discretion of Mr Robert Baldock and his wife, for whom Dennert primarily worked. As manager, Mr Robert Baldock had the final say in the event of any disagreement. 10. One of the vehicles used in connection with the partnership business was a Datsun 200B sedan. This was owned by and insured in the names of the two partners. It was the subject of a policy of insurance issued by Norwich to the two partners. 11. The lastmentioned policy, inter alia, indemnified the partners in respect of any liability at law for damage occasioned to the property of third parties, caused by the use of the Datsun motor vehicle. Inter alia, the policy specifically provided as follows:-
    "To the extent of the indemnity granted under this section the
     Company will treat as though he were the Insured any person in
     charge of the Motor Vehicle with the Insured's permission and
     who -
     (a) is not entitled to indemnity under any other policy;
     ... " 12. Dennert's permanent home was at Keith with her parents. 13. When she had weekends off she would normally return to Keith, although she had sporting affiliations in the Saddleworth area. Specifically she played basketball for a local team. This necessitated attending basketball practice, when she had time off, during the week. 14. At the time of the accident Dennert owned a Toyota Corolla motor car, which, some months earlier, had been bought for her by her father. She normally used this vehicle both to travel to and from Keith and also for all of her personal commuting requirements in and around Saddleworth. 15. Dennert had, in fact, used her Toyota Corolla to travel to her home at Keith on the weekend preceding the accident. 16. During the return journey on the Sunday of that weekend the Toyota broke down near Tailem Bend. As a consequence Dennert's father arranged for it to be towed back to Keith for the purpose of effecting major repairs. Dennert managed to obtain a lift back to Saddleworth in time to resume her work on the Monday morning. 17. She deposed that, when told of what had occurred, Mr Robert Baldock responded to the effect that she could borrow the Datsun if she ever needed it for anything. The inference which I draw from this is that he was merely stating a general attitude, rather than giving her carte blanche to take the vehicle whenever she required it, without further reference to him or his wife. 18. On the afternoon of the accident, Dennert asked Mr Robert Baldock if she could borrow the Datsun to drive into Saddleworth for basketball practice. He expressly granted her permission to do so. The collision between the Datsun and the train occurred whilst Dennert was on her way to basketball practice. 19. As a consequence of the accident Dennert received personal injury and was hospitalised for a short period. She was then taken home by her father. 20. On the Saturday following the accident Dennert's father telephoned one Symonds who was, for some time, the Area Manager of Federation and through whom Dennert's father had arranged a comprehensive insurance policy on her Toyota. That policy contained a covenant to the effect that Federation would indemnify the insured "in respect of a motor vehicle other than the Insured's own, but in the Insured's legal custody or control, being used in substitution for the Motor Vehicle" covered by the policy. It was also a term of the policy that the insured or his legal personal representative should give notice in writing to Federation of any accident, damage or loss as soon as possible after the occurrence of it. 21. In the belief that Symonds was then still the Area Manager of Federation, Dennert's father informed him that Dennert had had an accident when driving her employer's vehicle. 22. In fact Symonds had, shortly before that time, ceased to be the Area Manager of Federation. However, he did not inform Dennert's father of that fact when the latter spoke to him. Symonds informed Dennert's father that he need not worry about it (i.e. the accident), because the insurance company concerned with the car actually involved in the accident should cover it. In the event Federation did not receive formal notice of the accident until 2 September 1985, when Dennert's solicitors wrote to it. 23. Against the foregoing background, issues arose in the third party proceedings as to:-
    (a) whether Dennert, not being a party to the actual contract
        of insurance, was entitled to sue Norwich for indemnity
        under it;
    (b) whether, in the relevant sense, Dennert was driving the
        Datsun with the permission of the insured under the Norwich
        policy; and
    (c) whether Dennert was entitled to indemnity under the policy
        issued by Federation, so as to exclude the liability of
        Norwich under its policy - assuming that it was otherwise
        liable to indemnify Dennert. In the course of written
        reasons published by him, the learned District Court judge
        carefully traversed all of these points. In the event he
        concluded that Dennert was entitled in law to sue Norwich to
        claim the indemnity granted by the policy issued by it and
        had, at the relevant time, been driving the vehicle with the
        permission of the insured under that policy. He further
        held that, in the relevant circumstances, Dennert was not
        entitled to indemnity under the policy issued by Federation
        and that, accordingly, Norwich was liable to indemnify
        Dennert in respect of any damages properly awarded against
        her. He entered judgment against Norwich accordingly on the
        third party issue. It is against that judgment that Norwich
now appeals. 24. It is convenient, first, to dispose of the issue as to whether, at the relevant time, Dennert was driving the Datsun with the permission of the insured under the relevant policy issued by Norwich. 25. Norwich argued before this Court, as it did at first instance, that a person could not be said to have been driving the Datsun with the permission of the insured (that is to say David and Colin Baldock) unless there was specific evidence that they personally had granted the permission or, alternatively, that they had positively acquiesced in the decision of Mr Robert Baldock as the manager of the partnership business. It was said that, because there was no evidence that the two insured persons had at least brought their minds to bear upon the question of the borrowing of the vehicle, then, on the authority of Minister of Transport for Ontario v Canadian General Insurance Co (1971) 18 DLR (3rd) 617, any claim against Norwich was bound to fail in limine. The lastmentioned case related to a policy of insurance issued in relation to a motor car leased by a private family company. The vehicle was, in fact, used as a family car and the majority shareholder and president of the company permitted his son free access to and use of it. There was never any specific discussion as to whether the son could or could not allow anyone else to drive the vehicle whilst he was using it, nor was there any suggestion that a course of such conduct had occurred. On the night in question the son was using the vehicle. Without prior reference to his father he permitted a young friend (who did not possess a driver's licence) to drive it. An accident occurred as a consequence of the friend's negligence. 26. Under the policy of insurance the insurer, agreed to grant indemnity in respect of loss or damage arising from the driving of every person other than the lessee of the vehicle, "who with the lessee's consent personally drives the automobile". 27. The majority of the Supreme Court of Canada held that, on the evidence, it could not be said that the father had acquiesced in his son permitting other persons to drive the family car, and that the authority given to the son did not extend to him giving such permission. It could, therefore, not be said that the lessee had consented to the driving in question. 28. Given such a fact situation it is not surprising that the learned trial judge did not consider the decision in the Canadian General Insurance Co Case helpful for present purposes. As he pointed out, the evidence before him unequivocally established the fact that the two partners, who were the insured under the policy issued by Norwich, had entrusted their father Mr Robert Baldock with full and unfettered authority to conduct the business operations generally; and, in particular, to make day-to-day decisions regarding the use of partnership motor vehicles. It was entirely in his discretion and within his delegated authority as to what permission should be granted in that regard. It seems to me that, on the uncontroverted facts, Mr Robert Baldock possessed actual authority from the insured, as their agent, to make such day-to-day decisions in and about the partnership operations as he, in his sole discretion, deemed appropriate. The only evidence of any limitation of his authority bore upon general budgetary and financial considerations. Indeed, bearing in mind the fact that neither of the partners was resident in South Australia, the conduct of the farming operations generally would obviously have been well nigh unworkable had that authority not been possessed. 29. That being so, there can be no doubt that the learned trial judge was correct in concluding that, in granting Dennert permission to use the Datsun, Mr Robert Baldock was acting within the scope of his actual authority. Accordingly, in law, the permission granted by their agent was that of the principals themselves; and thus was a permission of the insured under the Norwich policy. In my view there is no substance in this ground of appeal and I would reject it out of hand. 30. I here pause to record that the question debated before the learned trial judge, as to whether Dennert was entitled in law to bring proceedings against Norwich for the purpose of claiming the benefit of an indemnity under a contract of insurance to which she was not a party, did not remain in issue on the present appeal. 31. Suffice it to say in that regard that, having discussed the problem of whether or not the decision of the High Court in the case of Trident General Insurance Co Limited v McNiece Bros Pty Ltd (1988) 165 CLR 107 stood as authority for the proposition that, in the circumstances revealed by the evidence, Dennert could sue to enforce the provisions of the Norwich policy, he did not base his conclusion on that footing. 32. Having noted the somewhat equivocal status of the Trident Case for the purposes of the present matter, the learned trial judge was disposed to found his ultimate decision upon the provisions of the Motor Vehicles Act 1959 (SA). 33. He directed his attention to the provisions of section 107 of that statute, which provides as follows:-
    "107. Notwithstanding any enactment, an insurer under a policy
         of insurance (whether under this Part or otherwise) in
         relation to a motor vehicle is, as from the date of the
         policy, liable to indemnify the persons or classes of
         persons specified in the policy in respect of any
liability which the policy purports to cover." 34. On what he regarded as the plain intendment of the section, as reinforced by the type of reasoning of Goddard J (as he then was) in Tattersall v Drysdale (1935) 2 KB 174, the learned trial judge was of opinion that the section operated to vest in Dennert a legal right directly to seek and enforce the benefit of the indemnity granted by the relevant policy of insurance, as a person who had, at the relevant time, been driving the Datsun with the permission of the insured under the policy. It was his opinion that the reference to "a policy of insurance under this Part or otherwise" was not confined to situations in which there had been loss, damage or injury to persons, as opposed to property. 35. The validity of that reasoning is not now challenged and there is no need further to pursue the issue. 36. Finally, it becomes necessary to consider whether, within the meaning of the Norwich policy, Dennert was, at the time of the accident, a person entitled to indemnity under any other policy. 37. It was common ground before the learned trial judge that such a situation could only have arisen if, at the time of the accident, it could fairly have been said that Dennert was driving a motor vehicle, other than her own, which was both in her legal custody or control and also being used in substitution for the Toyota, which was not then in use. 38. There is no doubt that, as a matter of fact, the Toyota covered by the Federation policy was certainly not in use, in the relevant sense, at the time of the accident. It was then in course of major mechanical repair. However, the real questions which arose were as to whether the Datsun was in the legal custody or control of Dennert, and being used in substitution for the Toyota. As to this the learned trial judge concluded that the Datsun was neither in the "legal custody and control" of Dennert in the relevant sense, nor was it being used in substitution for the Toyota. 39. As to the first aspect he reasoned that the concept of "legal custody and control" - as he expressed the phrase - derived from the notion of possession, which in turn connoted the existence of exclusive dominion or exclusive authority. He considered that, at the time of the accident, the insured partnership clearly retained legal custody and control of the vehicle and, accordingly, the relevant provision of the Norwich policy did not apply on that ground alone. As to this he adverted to certain authorities discussed in ANZ Banking Group v McDermott and Others (1989) 148 LSJS 318. 40. It was his further opinion that, in any event, a motor vehicle can only be said to be used in substitution for another if it is used in the place of, and is standing in, the stead of that other motor vehicle. He reasoned that, before it can truly be said that a motor vehicle is used in substitution for another motor vehicle, it must be demonstrated that it is of the same character as the other vehicle - in terms of its use and control and the user's rights in respect of it - and it must have the same function and serve the same purpose, so far as the user is concerned, as its predecessor. 41. The learned trial judge concluded that it could not be said that the Datsun was available to Dennert at all times for her to use whenever and wherever she wished, nor was she entitled to use it in the same general manner as the Toyota, that is to say, to both drive to and from her place of employment and also on a more or less exclusive basis for her own general purposes at all times. Rather was it the situation that her use on the day of the accident was no more than an isolated use for a very specific, limited and temporary purpose. He sought to contrast such a situation with one in which a loan car is made available to a customer by a vehicle repairer for the duration of repairs to the customer's vehicle, or a hire car is taken on hire on an unlimited basis in substitution for a person's vehicle which might temporarily be unusable. 42. So it was that the learned trial judge determined that, on that basis, the exclusion provision in the Norwich policy also had no application to the facts established by the evidence. 43. In my opinion the actual ultimate conclusion of the learned trial judge was correct, although on a basis of reasoning somewhat different from that adopted by him. I consider it unhelpful to seek to dissect the relevant content of the Norwich policy into its component phrases and then to endeavour to construe them in isolation from one another. 44. I agree with the submission of counsel for Federation that the ordinary rules of construction apply to a policy of insurance and that, in general, the Court ought to approach such a task by considering the construction of each policy standing alone, applied to the particular facts under consideration. The ordinary and natural meaning of words used ought to be adopted, consistently with the probable intention of the parties (Australian Casualty Company Limited v Federico (1986) 160 CLR 513 at 520). In such an exercise extreme care ought to be taken in attempting to apply the reasoning in published authorities which are the product of different documentary environments applied to other fact situations. 45. A classic example of the lastmentioned problem is the reliance sought by counsel to be placed on the reasoning of the House of Lords in Rogerson v Scottish Automobile and General Insurance Co Ltd (1931) All ER Rep 606, which focused on different phraseology and context and was preoccupied with the question of whether it could properly be said that a motor car was, at the time of an accident, being used "instead of the insured" vehicle, when that vehicle had already been sold. 46. In the instant case, if it was to have escaped liability, Norwich bore the evidentiary onus of demonstrating that, at the time of the accident, Dennert was driving a vehicle, other than the Toyota, which was both in her legal custody or control and also being used in substitution for the Toyota - the latter not then being in use. I entertain no doubt that, reading such provision as a whole, what was in contemplation by the draftsman of the policy was more than a mere bald situation in which Dennert was, as a matter of fact, using the Datsun instead of the Toyota on a particular occasion. The policy was clearly intended to apply to circumstances in which Dennert's right to use the vehicle was so unqualified that it could truly be said that she was not merely using an alternative means of transport, but had full unrestricted and continuing discretionary use of it for some finite period of time, in replacement of the Toyota. 47. The essential notion of the concept of substitution is that the substituted item stands in the place of, or replaces, something else for a period of time - be that period long or short. In short, what is in question is very much a question of fact and degree. 48. So it is that a loan vehicle made available to a customer whilst the lender is attending to some work on the customer's vehicle, albeit perhaps for only a few hours, could fairly be said to be used in substitution for the customer's own vehicle, provided that, for the relevant period, the customer could use it, more or less at will, as his or her own for general purposes. 49. In the instant case that was not the factual situation. This was a "once off" permission granted for a very short, specific and limited purpose. The vehicle was merely being made available as an alternative means of transport to and from a basketball practice, and in no relevant sense in substitution for the Toyota. Dennert had no discretion as to the use of it beyond the specific authority given to her - to drive to and from the practice. 50. I therefore find it unnecessary to embark upon an analysis of the arguments advanced as to the true meaning of the phrase "legal custody or control". That issue is best left for another day. It is adequate merely to note that, in his reasons for decision, the learned trial judge appears to have been mistaken concerning the actual phraseology employed, in that he directed attention to the conjunctive expression "legal custody and control", whereas the policy employs the disjunctive expression "legal custody or control". 51. I simply content myself with concluding that the lastmentioned phrase, as expressed in the policy, imports to the concept of "substitution" a strong reinforcement of the notion of something more than a mere alternative means of transport on a single, discrete, specifically approved occasion for a limited purpose. I agree with Mr Adams, of counsel for Federation, that, according to its normal connotation, the expression legal custody or control (when employed in conjunction with the concept of substitution) tends to imply a degree of exclusivity of use and unfettered authority which was not in fact present in the case at bar. 52. It follows that Federation was not, on the facts, liable to indemnify Dennert in relation to the accident which occurred on 17 November 1983. Any liability for damages on the part of Dennert remained that of Norwich under its policy. 53. For those reasons I would dismiss the appeal.

JUDGE3 MULLIGHAN J. I agree that the appeal should be dismissed for the reasons expressed by King C.J. and Olsson J.