QBE Insurance Ltd v Nguyen - [2008] SASC 138

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
QBE INSURANCE LTD v NGUYEN
[2008] SASC 138
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Gray and The Honourable Justice Layton)
23 May 2008
INSURANCE - GENERAL - POLICIES OF INSURANCE - CONSTRUCTION
INSURANCE - THIRD-PARTY LIABILITY INSURANCE - OTHER THIRD-PARTY LIABILITY INSURANCE - PUBLIC LIABILITY
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - APPEARANCE AND DEFAULT OF APPEARANCE
PROCEDURE - JUDGMENTS AND ORDERS - INTEREST ON JUDGMENTS - IN GENERAL
EQUITY - GENERAL PRINCIPLES - EQUITABLE DOCTRINES AND PRESUMPTIONS - ELECTION - IN GENERAL
Appeal by defendant insurer against a judgment for damages in favour of plaintiff in his capacity as the assignee of the Official Trustee in Bankruptcy of insured – plaintiff was seriously injured during knife attack outside suburban town hall – plaintiff brought proceedings in negligence against the insured, the proprietor of the security firm on duty at function in hall – at the time of the incident the insured held a contract of public liability insurance – insurer initially sought to avoid contract of insurance on ground of fraudulent misrepresentation – plaintiff sought to join insurer in damages action - insurer successful in resisting joinder - purported avoidance by insurer subsequently abandoned – judgment in default of appearance entered in favour of plaintiff against insured for damages which were subsequently assessed – insured declared bankrupt subsequent to default judgment – pursuant to section 117(1) of Bankruptcy Act 1966 (Cth), insured’s right to indemnity under contract of insurance vested in Official Trustee in Bankruptcy – pursuant to section 134 of Bankruptcy Act, by deed of assignment, Official Trustee in Bankruptcy assigned to plaintiff the insured’s right to indemnity under contract of insurance – plaintiff brought proceedings in contract against defendant insurer to recover against the defendant the amount of damages awarded to plaintiff – defendant denied liability but did not challenge assessment of damages – plaintiff’s claim successful and defendant declared liable under contract of insurance and ordered to pay damages including interest pursuant to section 57 Insurance Contracts Act 1984 (SA) – defendant appealed decision to Full Court – whether insured entitled to be indemnified by defendant – whether default judgment established legal liability of insured to pay judgment sum in respect of bodily injury to plaintiff – whether plaintiff’s bodily injury happened as “a result of” an “occurrence” or “event” in connection with the insured’s business – whether judge erred in award of interest on judgment sum – whether judge erred in declining to rule that defendant had elected to restrict its denial of indemnity to the ground of fraudulent misrepresentation – consideration of principles relevant to construction of contract of insurance.
Held, dismissing the appeal: (Per Doyle CJ and Gray J, Layton concurring): Contract of insurance indemnified the insured against sums which the insured became legally liable to pay – default judgment created a legal liability of insured to pay judgment sum in respect of bodily injury to plaintiff – plaintiff’s bodily injury happened as a result of an “occurrence” in connection with the insured’s business – judge was correct to award interest under section 57 of Insurance Contracts Act.
(Per Doyle CJ): The defendant was not precluded by the doctrine of election from restricting its denial of indemnity to the ground of fraudulent misrepresentation.
(Per Gray J): Although not strictly necessary to decide, the defendant should be precluded by the doctrine of election from re-agitating the question of the common law liability of its insured.
(Per Layton J): It is not necessary to decide the election issue in order to reach a final conclusion on the appeal.
Bankruptcy Act 1966 (Cth) s 117(1) and s 134; Insurance Contracts Act 1984 (Cth) s 48, s 48A, s 49, s 51 and s 57; Supreme Court Act 1935 (SA) s 30C, referred to.
AIG Europe (Ireland) Ltd v Faraday Capital Ltd [2006] 2 CLC 770; Bradley v Eagle Star Insurance Co Ltd [1989] AC 957; Cacciola v Fire and All Risk Insurance Co Ltd [1971] 1 NSWLR 691; Edwards v Insurance Office of Australia Ltd (1933) 34 SR(NSW) 88; Enterprise Oil Ltd v Strand Insurance Co Ltd [2006] 1 Lloyds Law Rep 500; Environment Agency v Empress Car Co Ltd [1999] 2 AC 22; Ffrench v Sestili (2007) 98 SASR 28; Forstaff Adelaide Pty Ltd v Hills Industries Ltd [2006] SASC 88; JN Taylor Holdings Limited v Bond (1993) 59 SASR 432; Johnson v American Home Assurance Co (1998) 192 CLR 266; Kernaghan & Ors v Corrections Corporation of Australian Staff Superannuation Pty Ltd (No 2) [2007] FCA 1040; Kok Hoong v Leong Cheong Kweng Mines Limited [1964] AC 993; Lumbermans Mutual Casualty Co v Bovis Lend Lease Ltd [2005] 1 Lloyds Rep 494; [2005] 2 All ER (Comm) 669; March v E & M H Stramare Pty Ltd (1991) 171 CLR 506; McCann v Switzerland Insurance (2000) 203 CLR 579; Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254; Nguyen v Hiotis [2000] SASC 260 (Burley J); Nguyen v Hiotis [2002] SASC 244 (Bleby J); Nguyen v QBE Insurance Limited (2007) 252 LSJS 320 (Duggan J); Nguyen v QBE Insurance Limited (2007) 99 SASR 443 (Duggan J); Nguyen v QBE Insurance Ltd [2000] SASC 341 (Martin J); Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465; Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association Ltd [1985] 2 All ER 395; Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363; Re AMP United Insurances Limited (1996) 1 ANZ Insurance Cases 61-326; Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572 at 596; Sargent v ASL Developments (1974) 131 CLR 634; VACC Insurance Ltd v BP Australia Ltd (1999) 47 NSWLR 716; West Wake Price & Co v Ching [1957] 1 WLR 45; Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd [2005] WASCA 106, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"legally liable", "occurrence", "event", "as a result of", "in connection with", "caused by"

QBE INSURANCE LTD v NGUYEN
[2008] SASC 138
Full Court: Doyle CJ, Gray and Layton JJ

DOYLE CJ: Mr Nguyen sued QBE Insurance Ltd (“QBE”). He claimed a declaration that, as assignee of the right of Mr Hiotis to indemnity under a public liability insurance policy issued by QBE (“the policy”), he was entitled to payment by QBE of an amount of $2,823,700 (“the damages”). This is the amount of damages (inclusive of interest) ordered to be paid by Mr Hiotis to Mr Nguyen by a judgment entered in this Court. Mr Nguyen, as assignee of the rights of Mr Hiotis under the policy, is endeavouring to recover from QBE the damages that Mr Hiotis was ordered to pay.
Mr Nguyen succeeded before a Judge of this Court.
QBE has appealed. The main issue is whether, in the circumstances, Mr Nguyen has proved as against QBE that Mr Hiotis is entitled to be indemnified by QBE in respect of his liability to Mr Nguyen to pay the judgment sum. As assignee of Mr Hiotis’s rights, Mr Nguyen can succeed only if Mr Hiotis is entitled to be indemnified by QBE in respect of the judgment sum.
That in turn raises an issue as to the meaning of the policy. In particular, the question arises of whether proof of a judgment (in default of appearance to a summons) in favour of Mr Nguyen against Mr Hiotis, for damages to be assessed, coupled with a judgment for payment of the damages after those damages were assessed, establishes for the purposes of the policy, and as against QBE, that the judgment sum is an amount that Mr Hiotis is “legally liable to pay”.
A further issue arises. It is whether Mr Nguyen proved that the damages were awarded in respect of bodily injury “… happening … as a result of an Occurrence” as defined in the policy.
The Judge decided both issues in favour of Mr Nguyen.
QBE also challenges the Judge’s award of interest.
By notice of alternative contention Mr Nguyen argues that the Judge should have found in his favour on a further basis, namely, that QBE had elected in a binding manner not to deny that the circumstances satisfied the requirements of Section 1 of the policy, entitling him to succeed as assignee of Mr Hiotis’s rights under the policy.
The facts of the case, the Judge’s reasoning and the parties’ contentions are set out in the reasons of Gray J. There is no need for me to repeat them.
The policy
The policy contains provisions of a kind commonly found in a liability policy.
Section 1 and Section 2 provide as follows:
SECTION 1 – PUBLIC LIABILITY
QBE will pay to or on behalf of The Insured all sums which The Insured shall become legally liable to pay by way of compensation (excluding punitive or exemplary damages) in respect of:-
(a)     bodily injury (which expression includes death and illness)
(b)     property damage (which expression includes loss of property)
happening during the Period of Insurance as a result of an Occurrence in connection with The Business.
…
SECTION 2 – PRODUCTS LIABILITY
QBE will pay to or on behalf of The Insured all sums which The Insured shall become legally liable to pay by way of compensation (excluding punitive or exemplary damages) in respect of:-
(a)     bodily injury (which expression includes death and illness)
(b)     property damage (which expression includes loss of property)
happening during the Period of Insurance as a result of an Occurrence and caused by the nature condition or quality of any of The Insureds Products.
…
“Occurrence” is defined as follows:
“OCCURRENCE” means an event, including continuous or repeated exposure to substantially the same general conditions, which result in bodily injury or property damage neither expected nor intended from the standpoint of The Insured.
The policy contains a number of exclusions. None of them are relevant. The policy contains a number of conditions of the kind commonly found in such policies. They include a condition requiring QBE to defend any action against the insured alleging bodily injury or property damage of the kind referred to in Section 1 and Section 2, and claiming “damages on account thereof, even if such suit is groundless, false or fraudulent …”. There are conditions relating to the giving of notice to QBE of occurrences and of proceedings that might result in a claim; requiring the insured not to make admissions, and conditions entitling QBE to take over the conduct of any proceedings or negotiations relating to a claim.
The policy is an indemnity policy. Mr Hiotis could recover from QBE under the policy only if he could prove that he had suffered a loss as defined by the policy. It is evident from the terms of Section 1 that central to the notion or concept of a loss for the purposes of the policy is the requirement that Mr Hiotis “become legally liable to pay by way of compensation” a sum of money of the kind identified (relevantly, compensation in respect of bodily injury) and in the defined circumstances (the bodily injury being a result of an occurrence in connection with the business).
The first two issues on appeal turn on the construction of the policy.
The policy is a commercial contract. As Gleeson CJ said in McCann v Switzerland Insurance Limited & Ors [2000] HCA 65; (2000) 203 CLR 579 at [22], it is to be given “a business like interpretation”. In interpreting the provisions of the policy the Court should give the words their ordinary meaning (unless there is reason to do otherwise) and should consider the commercial purpose of the contract and its objects.
There is no reason to read Section 1 or Section 2 in a narrow or technical sense. The purpose of the policy is to indemnify Mr Hiotis against legal liability for bodily injury or property damage, as a result of an “event” that happens “in connection with” Mr Hiotis’s business, or an event caused by the nature condition or quality of Mr Hiotis’s products. These provisions are expressed in broad terms.
Was there a sum which Mr Hiotis became “legally liable to pay by way of compensation”?
As I have already said, the policy insured Mr Hiotis against liability or, to be more precise, against legal liability arising from specified circumstances.
Had Mr Hiotis sought to be indemnified by QBE, he would have had to establish that he was “legally liable” to pay to Mr Nguyen a “sum” of the specified kind. That is, he would have had to show that the judgment recovered by Mr Nguyen against Mr Hiotis established that Mr Hiotis was “legally liable” to pay the relevant sum and that that liability arose from the specified circumstances.
The meaning or scope of the expression “legally liable” in Section 1 raises, not an abstract question as to the meaning of legal liability, but a question of the meaning of those words in Section 1 of the policy.
The policy is of a common kind, and similar language to that used in Section 1 has been considered by courts on a number of occasions. Accordingly, a reference to decided cases is appropriate.
The general approach to such provisions appears to be accurately summarised in MacGillivray on Insurance Law (10^th ed, Thomson, 2003) at para 28-6. There the editors state:
28-6 Legal liability
In order to recover under a conventional liability policy, the assured must show that it was under a legal liability to the third party claimant; that the liability is covered by the insurance, and (in the case of a settlement) that any amount paid by way of settlement was reasonable. The general principal is that liability insurance provides an indemnity against actual established liability, as opposed to mere allegations. Where liability has been established by a judgment or similar determination, it is not normally permissible to look beyond the determination in order to establish the basis of the liability. ... (footnotes omitted)
To anticipate what follows, the cases and text books do not determine what the position is if the judgment relied on by the insured to establish an entitlement to indemnity is a default judgment, or is subject to appeal, or if the insurer says that the insured failed properly to defend an action that resulted in a judgment against the insured. On the other hand, implicit in this summary is the proposition that usually proof of a judgment against the insured will suffice to establish legal liability for the purposes of a liability policy. The insured, in proceedings against the insurer, usually will not have to establish by evidence led in that action, his liability to the third party. Proof of the judgment in favour of the third party against the insured will usually suffice.
In Bradley v Eagle Star Insurance Co Ltd [1989] 1 AC 957 the House of Lords considered the circumstances in which an insured is entitled to an indemnity under a liability policy of the kind in question. The issue before the House of Lords was whether the plaintiff could exercise a statutory right to proceed against the insurer of her former employer, a company that had been voluntarily wound up and dissolved. In the context of an application for discovery, it was necessary to determine whether and when the now defunct employer was legally liable to the worker.
Their Lordships considered observations made by Lord Denning MR and Salmon LJ in Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363, and observations made by Devlin J in West Wake Price & Co v Ching [1957] 1 WLR 45. Lord Brandon, speaking for the majority, summarised the position as follows at 966:
In my opinion the reasoning of Lord Denning MR and Salmon LJ contained in the passages from their respective judgments in the Post Office case set out above, on the basis of which they concluded that, under a policy of insurance against liability to third parties, the insured person cannot sue for an indemnity from the insurers unless and until the existence and amount of his liability to a third party has been established by action, arbitration or agreement, is unassailably correct. I would, therefore, hold that the Post Office case was rightly decided, and that the principle laid down in it is applicable to the present case.
A consideration of his speech as a whole makes it plain that in his opinion a judgment in favour of a third party against the insured would usually establish conclusively the legal liability of the insured for the purposes of the policy.
There is nothing that I can find in this decision, in the two decisions referred to or in other English decisions that determines the status for these purposes of a default judgment.
In Edwards v Insurance Office of Australia Ltd (1933) 34 SR(NSW) 88 Davidson J appears to have treated proof of a judgment against the insured as proof of legal liability for the purposes of such a policy: at 94-95. However, the issue in this case turned on the effect of a settlement between the insured and the third party, and Davidson J was not dealing directly with the effect of a judgment. Nor does he make any reference to a default judgment. Similarly, in Cacciola v Fire and All Risks Insurance Co Limited [1971] 1 NSWLR 691 Jacobs JA at 695 treated proof of a judgment in favour of a third party against the insured as creating a legal liability for the purposes of a policy provision similar to the provision now under consideration, but he also was dealing with a somewhat different issue.
In VACC Insurance Ltd v BP Australia Ltd [1999] NSWCA 427; (1999) 47 NSWLR 716 the effect of a judgment against the insured was not directly in issue, but was a matter that fell for consideration along the way. Fitzgerald JA, with whom Meagher JA agreed, summarised the position as follows at 723:
… However, the general view is that, subject to the provisions of particular policy, a judgment against an insured is conclusive, as a matter of contract, to establish the insured’s entitlement to indemnity from the insurer in accordance with the policy. (citations omitted)
He treated the observations by Davidson J in Edwards as supporting his opinion.
None of these Australian decisions deal directly with the status of a default judgment.
In Lumberman’s Mutual Casualty Co v Bovis Lend Lease Ltd [2005] 1 Ll R 494 Colman J made a passing comment about default judgments. The policy in question provided for indemnification in respect of any sum which “the insured may become legally liable to pay …”. The insured had reached a settlement with a third party, in a situation in which there had been claim and counterclaim as between the insured and the third party. The settlement was for a lump sum that did not enable one to identify amounts attributable to the claim by the insured and the counterclaim against the insured. In that context, when the insured made a claim on the insurer for the sum which it said reflected the amount of its liability to the other party, the insurer denied liability, arguing that the settlement between the insured and the third party did not enable one to ascertain the amount of the liability of the insured to the third party. That was the issue that the Judge had to deal with.
In the course of a wide ranging judgment Colman J ruled on a number of preliminary issues. One of them was whether the liability of the insured to the third party had been “ascertained by judgment, award or settlement”. In considering that issue, Colman J said that it was necessary “to ask what engages the insurer’s obligation to indemnify the insured”: at 500. He said at 501:
31.Firstly, there has to have occurred an eventuality which has rendered the insured liable to a third party. Secondly, the eventuality and the consequent liability has to be within the scope of the cover provided by the policy. Thirdly, it must be established that such liability has caused loss to the insured of an amount within the scope of the contractual indemnity. Each of these constituents of the obligation to indemnify the insured has to be established before it can be said that there is a cause of action. This is quite clearly established by the decision of the Court of Appeal in Post Office v Norwich Union Fire Insurance Society Ltd. …
He went on to refer to the reasons of Devlin J in West Wake Price & Co v Ching, to the reasons of Lord Denning MR and Salmon LJ in Post Office v Norwich Union Fire Insurance Society Ltd and to the speech of Lord Brandon in Bradley v Eagle Star Insurance Co Ltd.

After referring to a number of other decisions, dealing with contracts of re‑insurance, he came to the following conclusion (at 503):
42.… I would therefore hold that there is an implied term in a contract of indemnity in the form of a liability policy that it is an essential element of the assured’s cause of action that his loss has been specifically ascertained by means of a judgment, arbitration award or settlement agreement.
He then went on to say:
43.The second and quite distinct facet of the concept of ascertainment in the context of a liability policy is that it is a source of evidence. As such it operates in different ways according to the nature of the ascertainment. Thus, a judgment that the assured is liable in a given amount of damages is normally conclusive evidence as to liability and quantum. This, of course, would not be true of all judgments – notably of a judgment in default or of a judgment arising from a trial where no proper defence had been raised by the assured. The same would be true if there was a pending appeal. An arbitration award would give rise to a similar consequence. However, a settlement of a claim by a third party has a quite different effect. It is common ground that it evidences the amount which the assured has agreed to pay to discharge the claim in respect of the assured’s liability but that it is not conclusive evidence as between assured and insurer either as to whether there was in truth liability or, if so, what the true amount of that liability was.
His Lordship then went on to answer the various issues that arose.
While this expression of opinion, in a carefully reasoned judgment, is entitled to respect, it is appropriate to note that the observation about a default judgment, a trial where no proper defence had been raised and a case where an appeal was pending, is no more than a passing observation. None of these issues were before Colman J.
In Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association Ltd [1985] 2 All ER 395 Bingham J (as he then was) had to consider a public liability policy which gave cover against all sums which the insured might become legally liable to pay as damage in respect of accidental loss and other like matters: at 396. A third party obtained a judgment against the insured but the insurer refused indemnity on the ground that it had not been notified of the legal proceedings as required by a condition of the policy. The plaintiff in the action brought an action against the insurer under legislation which, in effect, vested in a person in the position of the plaintiff any rights that the insured would have had under the contract of insurance with the insurer.
The insurer relied upon the failure of the insured to notify it of the legal proceedings. The plaintiff argued that the insurer could rely upon breach of the notification condition only if the insurer was prejudiced by the lack of notification.
Bingham J upheld the insurer’s argument, and dismissed the action by the plaintiff against the insurer.
It appears that Bingham J considered that the default judgment which the plaintiff had obtained against the insured gave rise to legal liability for the purposes of the policy. He said at [399]:
… The first question which logically arises is whether the claim which the plaintiffs make falls within the cover extended by the insurers’ policy. There is no doubt that a judgment was obtained by the plaintiffs against the insured and the sum of that judgment is accordingly a sum which the insured are legally liable to pay as damages. It is furthermore, as the evidence before me establishes, a sum which they are legally liable to pay as damages in respect of loss of and accidental damage to property. It appears to me that prima facie the claim is one falling within the policy.
However, it has to be said once again that as he ultimately dismissed the action on other grounds, his decision on this point was not essential to the decision of the case, although it also has to be said that the question of breach of condition and prejudice would not have arisen if a default judgment was not sufficient to render the insured “legally liable” for the purposes of the policy.
With that reference to the case law I come back to the question of the meaning of the relevant part of Section 1 of the policy.
The expression “legally liable” is not a technical expression. The words are not words of art. They suggest a liability that is attributable to the operation of law, and one that is imposed by law, as distinct from one assumed by agreement. The last point is confirmed by an exclusion relating to “Contractual Liabilities”, meaning liabilities assumed by the insured.
A monetary liability to a third party under a judgment of a court against the insured renders the insured “legally liable” as a matter of ordinary language. The liability is attributable to and arises from the judgment of the court. The judgment is enforceable in the ordinary way.
To require the insured, if liability is denied by the insurer, to prove in proceedings against the insurer, that the insured is in fact liable in law to the third party would significantly reduce the protection otherwise conferred on the insured by the policy. It would mean that unless the insurer has taken over the conduct of the relevant proceedings, or is joined as a third party and is bound by the result as between plaintiff and insured, the insured will have to bring fresh proceedings against the insurer, and now will have to prove the plaintiff’s claim against the insured. This is a significant burden.
Considering the purpose of the policy, and the circumstances in which it operates, this appears to me to give to Section 1 a meaning that having regard to its consequences, is not “business like”. The cases to which I have referred support the view that ordinarily a judgment in favour of a third party against an insured will be treated as establishing legal liability on the part of the insured for present purposes, although the cases differ on the question of whether such a judgment is conclusive on the point or, in some circumstances, is not conclusive and is able to be impeached. This ambivalence towards judgments is reflected by a passage in Colinvaux’s Law of Insurance (8^th ed, Sweet & Maxwell, London, 2006) where the author states at para 20-23:
20-23Liability to be established and quantified. The assured’s right to indemnification under a liability policy will, in the absence of express wording to the contrary, be regarded as arising once the assured’s liability to the third party has been ascertained, ie established and quantified. This can happen in one of three ways: the assured has been sued to judgment; there is a binding arbitration award against the assured; and the assured has entered into a settlement with the third party.
Judgments and awards are automatically binding on insurers, as there is an implied obligation on insurers in the insurance contract that they will recognise them. It was suggested in Commercial Union Insurance v NRG Victory Reinsurance that a judgment would not be binding on insurers if it was perverse or if the assured had not put in a proper defence, and doubtless the same principle applies also to arbitration awards. Settlements raise entirely separate issues and are considered below. (footnotes omitted)
This same ambivalence is reflected in the reasons of Colman J in Lumberman’s. At para 43 (above) his Lordship says that a judgment is “normally conclusive evidence”, but not always.
It is one thing to say that ordinarily proof of a judgment against an insured in favour of a third party will prove that the insured is “legally liable” for the judgment sum for the purposes of Section 1. But what is the effect of proof of such a judgment when it is based on a procedural default, as is the case here? While the judgment that Mr Nguyen obtained against Mr Hiotis stands, Mr Hiotis is legally liable to pay the judgment sum. In that respect, there is no difference between the position of Mr Hiotis in the present case, and his position had the judgment been a judgment on the merits. Unless an unstated qualification to the words “legally liable” is to be implied (as an implied term of the contract), or is to be read into the expression “legally liable” as a matter of construction, proof of the judgment relied upon by Mr Nguyen appears to satisfy the requirements of Section 1.
It was not suggested in submissions before us that a term is to be implied into the policy, having the effect of preventing Mr Nguyen from relying upon a default judgment. Mr Williams SC, counsel for QBE, based his submissions on the construction of the policy.
Mr Williams submits that a judgment as between the insured and the third party is never conclusive on the question of whether the insured is “legally liable” to the third party. He submits that an insurer can always put an insured to proof of legal liability, even when the judgment has been entered against an insured after a trial on the merits. Mr Williams fallback position is that a judgment is usually conclusive, but will not be conclusive if it is a “flawed judgment”. For these purposes a judgment is flawed if it is a default judgment (there being no determination of liability on the merits), or if the proceedings were not properly defended, or if the judgment is subject to appeal, or if the judgment was obtained by collusion, or if it is “manifestly perverse”. The meaning of the latter expression was not elaborated.
On his approach a judgment in favour of a third party against the insured will establish legal liability for the purposes of Section 1 only if the insurer is joined as a third party and there is an order that the insurer is bound by the decision as between third party and insured, or if the insurer has undertaken the defence of the case against the insured, or if the insured so conducts itself as to be bound by an estoppel.
In my opinion there is no distinction of substance between Mr Williams’ primary submission and his fallback submission. In each case the submission is that a proof of a judgment in favour of a third party against the insured is never conclusive on the issue of whether the insured is “legally liable”, because if the insurer can establish any reason to impeach the judgment then, to be entitled to indemnity, the insured will have to prove afresh the insured’s liability to the third party.
The principle underlying this approach is not apparent. The underlying principle may be that the insured does not suffer the insured loss when the insured’s liability has been determined and ascertained by a court judgment, but only when the insured establishes the fact of that liability in proceedings that bind the insurer. But if proof of the determination and ascertainment of the liability by a judgment is proof of the insured loss, then ordinarily proof of the judgment must amount to proof of the loss. That is the effect of the decisions to which I have referred. And if proof of the judgment is proof of the existence and amount of the relevant legal liability, as the cases referred to by me suggest, then a principled basis must be identified upon which it can be said that in certain circumstances proof of a judgment will not suffice to establish legal liability.
To refer to a “flawed judgment” does not do that. To call a judgment a “flawed judgment” does no more than suggest that there is some flaw or weakness in the judgment. It does not explain why proof of the judgment does not amount to proof of the insured loss. In my respectful opinion Justice Colman, in the observations set out above that he made in Lumberman’s, does not identify a basis upon which proof of a judgment of certain kinds will not amount to proof of the insured loss.
Accordingly, in my opinion there is that initial difficulty with the submission put forward by Mr Williams. To the extent that his submission denies that proof of a judgment in favour of a third party against the insured is proof that the insured is legally liable, the submission is contrary to the tenor of such authorities as there are. To the extent that his submission is that proof of some kinds of judgment will amount to proof that the insured is legally liable, and proof of certain other kinds of judgment will not, his submission fails to identify a satisfactory basis for drawing the distinction that he wishes to draw.
Mr Williams’ submission also suggested that it is uncommercial and impractical to bind an insurer by proof of a judgment that is “flawed”. Why should the insurer be affected by a judgment that does not reflect a decision on the merits, or that is a result of a failure by an insured to do what an insured should do? Moreover, Mr Williams argues that a person who is not a party to court proceedings, and does not derive his or her rights from a party, is not ordinarily bound by findings made in those proceedings. Mr Williams asks, how can a liability insurer be bound by a judgment in favour of a third party against the insured when the insurer was not a party, was not joined and was not ordered to be bound by the outcome, and has done nothing by way of conduct that would have the effect of binding the insurer to the outcome?
As to the former point, there is some force in what Mr Williams says. On the other hand, the position for which Mr Williams contends also produces results that are unfair and unsatisfactory. An insured will fail to obtain indemnity if the insured is unable, when put to proof, to prove afresh the insured’s liability to the third party.
Moreover, in many of the situations in which a judgment against the insured might be “flawed”, the circumstances as a result of which the judgment is said to be “flawed” are likely to give rise to an entitlement on the part of the insurer to decline to indemnify its insured. Under the policy QBE is obliged to defend suits alleging matters that attract the operation of Section 1 or Section 2. By separate provisions of the policy QBE has power to settle claims against the insured. QBE is entitled to notice of occurrences and of claims that might result in a claim under the policy. The insured is not able to make admissions or offers or to enter into a settlement without the approval of QBE.
In short, it is not correct to say that treating proof of a default judgment as proof that the insured is “legally liable” leaves QBE without any ability to protect itself against an insured who fails properly to defend a claim, or who assists a third party to obtain judgment, either actively or by passive conduct.
In my opinion treating proof of a default judgment as proof that the Mr Hiotis was “legally liable” to Mr Nguyen does not produce results inconsistent with the commercial purpose of the contract of insurance, or produce a result that could be said to be inconsistent with “a business like interpretation”.
As to the latter submission advanced by Mr Williams, I consider that this submission overlooks the fact that the ultimate issue is the meaning of the words “legally liable” in this policy. The fact that QBE is not bound by findings in an action to which it is not a party has no direct bearing on the question of the scope of the indemnity provisions of the policy. If, properly understood, the policy means that proof of a judgment (including a default judgment) against the insured establishes that the insured is “legally liable”, then so be it. That is a result of the policy being expressed as it is.
I come back to the words of Section 1 and Section 2 of the policy. It accords with the purpose of the policy, and with the trend of authority, to treat the policy as providing for an indemnity when, as a matter of fact, the insured has incurred a legal liability, rather than only when the insured can prove in proceedings that bind the insurer the existence of a legal liability to a third party. Proof of a judgment in favour of a third party against the insured is proof, as a matter of fact, of the incurring of a legal liability. No persuasive basis has been identified for distinguishing between a judgment on the merits and a default judgment that has not been set aside. (No doubt if there were pending proceedings in which an application was being made by QBE to have the judgment set aside, the Court would await the outcome of those proceedings before deciding whether the insured event had occurred. Likewise, if an appeal against the judgment was pending.) Whatever approach is taken in this case, there will be scope for outcomes that may seem unsatisfactory. However, the policy contains a number of provisions that protect QBE against becoming liable to indemnify an insured who, in effect, “courts” liability to a third party.
I consider that the words “legally liable” should be given their ordinary and natural meaning, and that these words extend to a situation in which the insured has been found liable to a third party under a default judgment that has not been set aside. I agree with the trial Judge in this respect.
Uncontentious matters
QBE accepts that it was proved before the Judge that the sum which Mr Hiotis was “legally liable to pay” (under the judgment awarding the damages) was payable “by way of compensation”, was in respect of bodily injury to Mr Nguyen, and that the bodily injury happened “during the Period of Insurance”.
Was the “bodily injury” of Mr Nguyen “a result of an Occurrence in connection with The Business”?
Mr Nguyen relied on proof of the judgment against Mr Hiotis as proof that Mr Hiotis was legally liable. He did not set out to prove before the Judge that Mr Hiotis owed him a duty of care, was in breach of that duty, or that the breach was the cause of him suffering bodily injury. He did not set out to prove afresh that Mr Hiotis was legally liable to him.
However, Mr Nguyen led evidence before the Judge to establish that the bodily injury he suffered was “a result of an Occurrence in connection with The Business”.
I agree that it was necessary for him to do that. On the proper construction of the policy, proof of the judgment obtained by Mr Nguyen against Mr Hiotis was proof that Mr Hiotis was “legally liable” for the purposes of the policy. However, the other requirements arising from Section 1 of the policy had to be established by evidence and findings in the action against QBE. I agree that QBE was not bound by the findings made by the Judge who assessed Mr Nguyen’s damages, nor was QBE bound by any estoppel that flowed from the default judgment that Mr Nguyen obtained: see VACC Insurance Limited v BP Australia Limited at 725, and JN Taylor Holdings Limited v Bond (1993) 59 SASR 432 at 440-441.
The Judge’s findings in favour of Mr Nguyen on this issue are set out in the reasons of Gray J.
Mr Williams submits that the Judge erred. Much of his argument was based on an application of the principles of causation as they are applied for the purposes of the tort of negligence. He relied in particular on the reasoning of the High Court in Modbury Triangle Shopping Centre Pty Ltd v Anzil [2000] HCA 61; (2000) 205 CLR 254. He submits that the application of the reasoning of the High Court in that case leads to a conclusion that the “Occurrence” identified by the Judge, “the failure to intervene in the altercation so as to protect the plaintiff [Mr Nguyen]” did not have “the required causative connection with Mr Nguyen’s bodily injury”. For these purposes he accepted that the “Occurrence” was “in connection with The Business”.
Mr Williams made the following points, based on the facts of the case.
Mr Hiotis was asked to intervene in the altercation once only. When the altercation came to his attention, he and other employees were in the foyer of the Town Hall. Mr Hiotis and his staff had a responsibility for security inside the Town Hall, and apparently for money that was being handled there. Mr Hiotis could not ignore the question of security inside the Town Hall, and the security of the people who were handling money. The altercation was outside the Town Hall, and his employment was inside the Town Hall. Mr Hiotis called the police. He was cautious about getting involved because of the number of people taking part in the altercation. The whole incident, or at least the altercation, occupied no more than about half a minute or thereabouts. The stabbing occurred very shortly after the altercation was drawn to Mr Hiotis’s attention. Mr Williams argued that a finding could not be made, on this evidence, that acting reasonably in all the circumstances, and responding reasonably to what occurred, Mr Hiotis could have prevented the stabbing of Mr Nguyen. He submits that for Mr Nguyen to succeed as against QBE, it would have to be demonstrated that Mr Hiotis had failed to do what he reasonably ought to have done in the circumstances, and that that failure caused or resulted in the stabbing of Mr Nguyen.

I do not agree that this is the correct approach to the issue now under consideration.
The issue is not whether an act or omission by Mr Hiotis, or by a person employed by him, was the cause of Mr Nguyen’s injury, using “cause” in the sense in which it would be used in an action in negligence by Mr Nguyen against Mr Hiotis. That, in substance is the argument that Mr Williams was deploying.
The issue is whether Mr Nguyen’s injury was a result of an occurrence in connection with Mr Hiotis’s business. An “occurrence” is defined as an event which results in bodily injury. Ignoring the circularity that arises from the definition of “occurrence”, the issue can be restated as being whether Mr Nguyen’s injury was a result of an occurrence or event in connection with Mr Hiotis’s business.
There is no reason to state the issue in the manner in which Mr Williams did. That is, whether it was proved that the failure on the part of Mr Hiotis to do what he ought reasonably to have done in all the circumstances caused the stabbing.
I accept that an issue that has some similarities to the issue of causation arises. The requirement that the occurrence or event be “in connection with the business” introduces a link or connection between the two. I do not suggest that concepts deployed when considering causation in a negligence case will always be irrelevant. But the issue, in my opinion, is not correctly identified by Mr Williams.
The reasoning that appears in the judgments of the several members of the High Court in Modbury Triangle is not directly applicable. That was a case in which the occupier of a suburban shopping centre, in which shops were leased to tenants, was sued by an employee of a tenant who was attacked and injured while walking to his car in the car park. The attack occurred at night, and the shopping centre floodlights had been turned off shortly before the attack. The issue was whether the landowner, as occupier of the land, was in breach of a duty owed to the plaintiff, and, if a breach of duty was established, whether the landowner’s breach of duty caused the plaintiff’s injuries. In effect, it was an action for a breach of a duty to take reasonable care, raising questions of duty, breach and causation. As Lord Hoffmann observed in Environment Agency v Empress Car Co Ltd [1999] 2 AC 22 at 29:
The first point to emphasise is that common sense answers to questions of causation will differ according to the purpose for which the question is asked.
In Modbury Triangle the question of causation arose in the context of whether responsibility should be attributed to the landowner, as occupier, for the injury to the plaintiff. The approach to the question of causation was significantly influenced by the formulation of the duty of care that arose, and by the approach of the court to the question of breach of duty. In the present case, the particular issue that I am considering under Section 1 of the policy is not whether responsibility for Mr Nguyen’s injury, for the purposes of an action against the owner of the land, is to be attributed to Mr Hiotis. That is why the approach to be taken is not the same as will be taken if that were the issue.
The close link between the existence and the formulation of a duty of care, and the approach to the question of causation, is apparent from what was said in Modbury Triangle. As Gleeson CJ said at [37]:
The case provides an illustration of the inter-relationship that sometimes exists between questions of legal responsibility and causation.
He went on at [40] to say that a finding on causation in favour of the plaintiff could be justified only on the basis of an erroneous view of the nature of the defendant’s duty as occupier, and that on a correct legal appreciation of that duty, the occupier’s failure to leave the lights on was not a cause of the plaintiff’s injury. Similarly, at [107] Hayne J said that he preferred to resolve the question of causation by looking to “the more fundamental question of duty”. It was the absence of a relevant duty that led to the conclusion that the defendant must succeed. I refer to this aspect of the reasoning of members of the High Court merely to make the point that the issue in Modbury Triangle was a quite different issue from the issue that arises here.
I return to the provisions of the policy, and to the facts of the case.
The issue now under consideration arises only because I am satisfied that Mr Hiotis was legally liable to pay a sum of money in respect of bodily injury to Mr Nguyen. That was proved by proving the judgment that Mr Nguyen obtained against Mr Hiotis.
I am now considering not the question of the legal responsibility of Mr Hiotis for the injury to Mr Nguyen, but the connection or link that must exist between the bodily injury and Mr Hiotis’s business.
The words “occurrence” and “event” are capable of having a wide meaning. They are certainly capable of applying to circumstances that do not involve affirmative action by Mr Hiotis or active participation by him. They are capable of application to circumstances that involve the conduct of persons other than Mr Hiotis, and persons other than persons for whom Mr Hiotis is responsible in law.
The expression “as a result of” is also capable of bearing a wide meaning. The policy uses a variety of expressions, as Gray J points out. In Section 2, for example, the “occurrence” must be “caused by the nature condition or quality” of products of the insured. I incline to the view that “caused by” is a narrower and more precise concept. It is obvious that QBE could have defined the required link between the bodily injury and the business of the insured more narrowly and more precisely had it wished to do so.
No doubt the provisions in question are intended to identify a link between the injury in question and the business. The link one would expect is a link of a kind that makes the suffering of the injury in question a risk of a kind that Mr Hiotis would want insurance against, and a risk of a kind that can be identified as an instance of risks associated with Mr Hiotis’s business. It is not surprising that fairly general expressions have been used.
I consider that the occurrence or event in question comprises a number of elements. They are the altercation outside the Town Hall, involving persons who had been in the Town Hall; the fact that Mr Hiotis and his employees were working at the Town Hall in the course of Mr Hiotis’s business; the fact that the altercation occurred close to the Town Hall; the fact that an appeal was made to Mr Hiotis or to one of his employees to deal with or to respond to the altercation. I emphasise that in considering what is the occurrence, I do not introduce, as an assumption, the circumstance that Mr Hiotis owed a duty of care to protect Mr Nguyen from injury. Equally, I do not introduce that circumstance as a matter that had to be established by Mr Nguyen to make out either an “occurrence” or “event”. The legal liability of Mr Hiotis to Mr Nguyen is a separate matter, and has already been dealt with.
So described, in my opinion the occurrence can be recognised as illustrating a risk of a kind involved in Mr Hiotis’s business. That is, Mr Hiotis’s business involved the risk of him becoming involved in a disturbance involving people who are at or leaving the function at which he is working, and whether he is in breach of a duty of care in some way or not.
In my opinion these elements or circumstances can fairly be described as an occurrence or event for the purposes of the policy. This, I consider, is what the Judge meant when he said at [67]:
When considered in this context it is my view that the “occurrence” in the present case is properly regarded as the failure to intervene in the altercation so as to protect the plaintiff. This was the basis of the liability of Mr Hiotis alleged by the plaintiff and, in my view, these circumstances answer to the meaning of an “occurrence” within the policy.
I have done no more than spell out, in more detail, what I consider to underlie the Judge’s reference to the failure to intervene in the altercation so as to protect Mr Nguyen.
That occurrence was in connection with the business of Mr Hiotis. It would not have been in connection with his business if, for example, Mr Hiotis and his employees were at the Town Hall not in the course of Mr Hiotis’s business, but simply as participants in the function taking place there. I make this point simply to illustrate that the question of whether there has been an occurrence in connection with the business depends upon all the facts of the case.
The bodily injury sustained by Mr Nguyen was a result of that occurrence or event. The bodily injury occurred in the course of it, and was part of it.
Neither of these two conclusions requires a consideration of whether, acting reasonably, Mr Hiotis should have prevented injury to Mr Nguyen, or should have done all that he reasonably could to prevent that injury.
For those reasons, I agree with the Judge that the bodily injury of Mr Nguyen was a result of an occurrence in connection with the business.
Conclusion
No other grounds for QBE denying liability to indemnify Mr Hiotis were argued before the Judge or on appeal.
I consider that, on the evidence before the Judge, Mr Nguyen was entitled to payment by QBE of the amount of the judgment recovered against Mr Hiotis. The Judge was correct to order that judgment be entered in favour of Mr Nguyen against QBE.
Interest
I am content to adopt the reasons of Gray J on this issue. I agree with his reasons and with his conclusion.
Election
I agree with the trial Judge that the present case is not one in which QBE had to elect as between strictly alternative or inconsistent remedies, one of which could not be exercised without extinguishing the other: see Meagher, Gummow and Lehane’s, Equity Doctrines and Remedies (4^th ed, Butterworths Lexis Nexis, Australia, 2002) para [39-025]. On appeal, Mr Nguyen did not maintain the argument, based on estoppel, that was put to the trial Judge but rejected by him. For these reasons, I would not uphold the notice of alternative contention.
Orders
I would dismiss the appeal by QBE.
GRAY J.
Introduction
This is an appeal by a defendant following a trial before a Judge of this Court.
The judgments under appeal are in favour of the plaintiff and respondent, Michael Luu Nguyen, in his capacity as the assignee of the Official Trustee in Bankruptcy of an insured, Angelo Hiotis, against the defendant and appellant, the insurer QBE Insurance Ltd.[1] The plaintiff had obtained a judgment in earlier proceedings against Mr Hiotis, in his personal capacity as an injured person.[2] Mr Hiotis was relevantly insured under a public liability insurance contract issued by QBE (“the contract”). Mr Hiotis was subsequently declared bankrupt. Pursuant to section 117(1) of the Bankruptcy Act 1966 (Cth), Mr Hiotis’ right to indemnity under the contract vested in the Official Trustee in Bankruptcy upon Mr Hiotis being declared bankrupt. The Official Trustee assigned to the plaintiff by deed of assignment dated 5 May 2005, pursuant to section 134 of the Bankruptcy Act, the whole of the right of Mr Hiotis to indemnity under the QBE contract. The plaintiff then, as assignee, commenced the within proceedings against QBE.
[1] Nguyen v QBE Insurance Limited (2007) 99 SASR 443 (Duggan J), on liability and damages; Nguyen v QBE Insurance Limited (2007) 252 LSJS 320 (Duggan J), on interest.
[2] Nguyen v Hiotis [2002] SASC 244 (Bleby J).
The substantive question arising in the appeal is whether the insured is entitled to an indemnity under the contract. At issue is the construction of the indemnification clause of the contract. A further question arises as to whether the insured is entitled to indemnity under the contract in the proven circumstances. A final issue raised was whether the Judge erred in his award of interest on the award of damages.
The plaintiff, by notice of contention, claimed that the Judge erred in declining to rule that QBE had elected to restrict its denial of indemnity to the ground of fraud, and that, in the circumstance of this assertion being withdrawn, QBE was precluded from defending the claim.
The Incident
The events giving rise to the dispute are unusual and have a protracted history. An understanding of this history is important to the resolution of the issues that arose at trial and arise on this appeal. There was no dispute on appeal about the primary findings of fact made at trial. Accordingly, in recounting the relevant history I have drawn on those findings. There remains, however, a dispute between the parties about the inferences arising, and the legal conclusions to be drawn from, those findings.
On 7 October 1995 the plaintiff was injured in an attack on a main road outside a town hall in suburban Adelaide. He was in the process of leaving a function at the hall when the attack occurred. The plaintiff was stabbed with a knife. He was rendered paraplegic.
The plaintiff attended the function with a group of friends. Members of the plaintiff’s group became concerned about the attitude exhibited by members of another group. The plaintiff and his friends decided to leave. As they walked toward the main foyer and out of the hall, members of the other group followed. On the plaintiff’s case, the attack commenced within the town hall premises, and then the fight, as it developed, moved to the footpath and moved finally to the road where the stabbing occurred.
The organisers of the function contracted with Mr Hiotis, trading as APS Security, to provide security for the function. Mr Hiotis engaged a number of employees to act as security guards.
The plaintiff claimed that security guards in attendance in the foyer simply stood by as the stabbing incident unfolded. It was said that despite repeated requests, the security guards refused to intervene to assist the plaintiff. These allegations were disputed by QBE in the within proceedings.
At the time, Mr Hiotis was a party to a contract of liability insurance with QBE. The contract provided indemnity to Mr Hiotis for legal liability for sums incurred by way of compensation in respect of bodily injury happening as a result of an occurrence in connection with his business.
I will return to the evidence and the learned trial Judge’s findings later in these reasons.
The Earlier Proceedings
On 11 September 1998, the plaintiff issued proceedings in this Court against Mr Hiotis (“the earlier proceedings”).[3] The plaintiff claimed that his injuries, including his paraplegia, were caused by the breach of a duty of care owed to him by Mr Hiotis. The statement of claim alleged, inter alia:
[3] A claim against another defendant, the City of Charles Sturt, was discontinued.
On the 7^th October, 1995 at approximately 9.00pm ... , the plaintiff, his partner and two friends attended a fashion parade at the Woodville Town Hall ... .
The organiser of the event hired [Mr Hiotis] to provide security on the said evening at the hall to provide for the safety and security in and around the hall.
…
The plaintiff and others at the table felt threatened by the conduct of [a] group of men and decided to leave the hall. There were about four or five security guards in the hall at the time, and as the plaintiff approached the foyer area there were at least two security guards present in the foyer. The said security guards and each of them were servants and/or agents of [Mr Hiotis].
As the plaintiff stepped from the foyer area through the front open glass doors of the hall, he was attacked by one of the group … in the entrance area in view of the security guards stationed in the foyer. The said attack was accompanied by loud screaming and yelling.
The plaintiff struggled with the said attacker immediately in front of the glass open doors immediately in front of a canopy covered area which forms part of the entrance to the hall. At this time, other members of the group … joined the attack on the plaintiff and he was pushed from the canopy covered area of the hall out onto Woodville Road … directly outside the entrance to the hall.
At about the same time …, and whilst the group attacking the plaintiff were in the said canopy area, the plaintiff’s partner and friend ran into the foyer of the hall and spoke to a security guard and said words to the effect that there was a fight and assistance was needed. This verbal request was ignored. The said partner and friend of the plaintiff returned approximately 30 seconds later to the foyer area of the Woodville Town Hall and again spoke to the same security guard and said [words] to the effect [that] the plaintiff was being attacked and assistance was needed. The plaintiff’s partner was pointing at the fight as she spoke. The said security guard did not respond. Approximately another 30 seconds later, the plaintiff’s partner returned to the foyer area of the Woodville Town Hall. At this time there was a group of approximately five security guards standing in the said foyer. The plaintiff’s partner yelled to them that the plaintiff was being attacked, and could they help him. A security guard of the largest stature in the group was eating a packet of chips and replied; “Leave them alone”.
Whilst on Woodville Road the attack continued on the plaintiff by the said group of men. The plaintiff was kicked, punched and stabbed in the left arm, chest, abdomen and lower back causing him serious injury. [Mr Hiotis], and at least three other security guards, then intervened stopping the said attack immediately.
...
The said injuries were caused by the negligence and breach of the duty of care of [Mr Hiotis] ... .
[Mr Hiotis], by himself and by his servants and/or agents, was negligent in that he or they:-
(a)Failed to provide an adequate number of security guards to supervise the said fashion parade.
(b) Failed to intervene when the plaintiff was first attacked in the entrance to the hall.
(c)Failed to intervene when the said attack moved into the canopy covered area outside the front glass doors of the hall.
(d)Failed to intervene or lend assistance when the plaintiff was initially pushed by the said group of men onto Woodville Road directly in front of the hall.
(e)Failed to adequately protect the plaintiff as a fee paying patron attending at the hall.
(f)Failed to properly control patrons in and about the hall following admission to the Town Hall.
…
As a result of the said attack the plaintiff, who was then aged 20 years, suffered:-
(a)Penetrating knife injuries to his chest.
(b)Penetrating knife injuries to his abdomen.
(c)Penetrating knife injuries to his mid back and resultant paraplegia.
(d)Bruising to much of his body.
…
In consequence of his injuries the plaintiff has suffered and will continue to suffer:-
(a)Traumatic partial transection of the spinal cord at the level T8 with subsequent ... paraplegia ... .
On 28 April 1999, Mr Hiotis was declared bankrupt. Section 117(1) of the Bankruptcy Act relevantly provides:
Where:
(a)a bankrupt is or was insured under a contract of insurance against liabilities to third parties; and
(b)a liability against which he or she is or was so insured has been incurred (whether before or after he or she became a bankrupt);
the right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall, if the liability has not already been satisfied, be paid in full forthwith to the third party to whom it has been incurred.
I will return to the rights of the Official Trustee in Bankruptcy and the assignment of these rights later in these reasons.
On 6 May 1999, QBE wrote to Mr Hiotis advising that the contract of insurance was avoided by reason of fraud:
We have now completed our investigations which disclose that crowd control activities comprised part of your business.
We note that before the inception of cover and renewal you advised that the business did not engage in such activities.
We consider that your misrepresentation was made fraudulently and hereby avoid the policy from its inception pursuant to section 28(2) of the Insurance Contracts Act 1984.
If contrary to our position your misrepresentation was not made fraudulently, then our liability in respect of your claim would in any event be reduced to nil pursuant to section 28(3) of the said Act as cover would not have been granted if the true position had been represented.

On 28 March 2000, the plaintiff applied to join QBE as a defendant in the earlier action. The plaintiff’s purpose was to have the Court determine whether QBE was liable to indemnify Mr Hiotis with respect to any award of damages made in favour of the plaintiff against Mr Hiotis in those proceedings. QBE opposed the plaintiff’s application for joinder.
On 9 August 2000 a Master dismissed the application.[4] An appeal from the decision of the Master to a single judge was dismissed on 27 October 2000.[5] I will return later in these reasons to discuss what occurred in more detail.
[4] Nguyen v Hiotis [2000] SASC 260 (Burley J)
[5] Nguyen v QBE Insurance Ltd [2000] SASC 341 (Martin J).
On 24 July 2001 a default judgment in the earlier proceedings was entered in favour of the plaintiff against Mr Hiotis for damages to be assessed. There had been no appearance filed. This judgment was in the following terms:
The first defendant Angelo Hiotis having failed to file an appearance to the summons the Court orders that the plaintiff recover from the defendant damages to be assessed.
On 30 July 2002, another Judge of this Court, following a hearing and the calling of evidence, assessed the plaintiff’s damages. The defendant did not attend the hearing. Judgment was then entered in the following terms:[6]
[6]    Nguyen v Hiotis [2002] SASC 244 at [2]-[4], [15], [69].
The Court orders that:
The Plaintiff recovers against the Defendant $2,823,700.00 inclusive of interest.
The Defendant pay the Plaintiff’s costs.
In the course of reasons for the assessment, the Judge observed:[7]
[7]    Nguyen v Hiotis [2002] SASC 244 at [2]-[4], [15], [69].
[Mr Hiotis] was the proprietor of a security service hired to provide security services for the event which the plaintiff was attending at the Town Hall. He has since been declared bankrupt, but the plaintiff has obtained leave from the Federal Court of Australia to proceed against him in this action. [Mr Hiotis] did not enter an appearance, and on 24 July 2001 the plaintiff obtained interlocutory judgment against [Mr Hiotis] for damages to be assessed.
It falls to me to assess the plaintiff’s damages. In doing so, I must act on the evidence before me, but I am conscious that, [Mr Hiotis] not having appeared and not having been represented at the hearing, the evidence led on behalf of the plaintiff is uncontradicted and has not been subjected to the same rigorous testing as might have been the case if [Mr Hiotis] had been represented. However, that does not mean that I should ignore any of the evidence that has been led, and I do not do so. Nevertheless, the plaintiff’s claims must be approached critically and with some care, given the magnitude and devastating effect of his injuries.
…
The plaintiff suffered multiple stab wounds, one of which entered his spinal canal at the T-8 level, rendering him paraplegic.
…
I assess the plaintiff’s damages as follows:

Past non-economic loss

            60,000

Future non-economic loss           170,000

Past loss of earning capacity           142,700

Past superannuation contributions (net)              8,500

Past care           231,000

Past medical expenses             23,000

Home modifications             70,000

Future economic loss         1,000,000

Future superannuation contributions (net)           112,000

Future care           500,000

Future medical expenses           380,000

Future holiday expenses             18,500

Total

Interest

        2,715,700

          108,000

Total

       $2,823,700

For convenience, I refer to the judgment entered on 24 July 2001 and assessed on 30 July 2002 as “the default judgment”.
The Present Proceedings

As earlier observed, by deed of assignment made on 5 May 2005 the Official Trustee in Bankruptcy assigned to the plaintiff the whole of the right of Mr Hiotis to indemnity under the policy issued by QBE. QBE has not challenged the efficacy of the deed of assignment.
On 5 May 2005, the present proceedings were commenced. The plaintiff, as the assignee of the trustee in bankruptcy of Mr Hiotis, sought a declaration that QBE was liable to pay to the plaintiff, as assignee, the sum of $2,823,700. Judgment was sought in that amount against QBE. The plaintiff relied on the one cause of action, being a claim in contract. The pleas of election and estoppel were raised by the plaintiff as defensive pleas. The defence case was that it was necessary for the plaintiff to establish a legal liability to which the contract answered.
QBE denied liability but did not “impeach [the] assessment of damages” as assessed in the default judgment. QBE denied that the pleaded facts made out a case in contract. The defensive pleas of election and estoppel were also denied. Shortly before the trial in the present proceedings, QBE altered its position with regard to the avoidance of the contract of insurance. QBE’s advisers wrote to the plaintiff’s solicitors advising that the allegations of fraudulent misrepresentation were abandoned.
The pleadings from the earlier proceedings and the default judgment were before the Court in the present proceedings. In addition, the parties led oral evidence concerning the circumstances of the incident giving rise to the plaintiff’s injuries.
The Judge, in his reasons for judgment, made restricted findings of fact. He did not make findings concerning the breach of a duty of care on the part of Mr Hiotis. The Judge had been informed that the parties agreed that the question whether there was sufficient evidence before the Court to establish a breach of a duty of care was not an issue for decision in the proceedings. The Judge observed:[8]
Although the evidence as to the events of the evening is of some relevance in providing the factual background against which to consider the issues in the case, I do not regard it as necessary to resolve all aspects of the conflicting versions which I have set out above.
Both parties agreed that the question whether there was sufficient evidence before me to establish a breach of duty of care was not an issue for decision in this case. On the plaintiff’s case, the legal liability relied upon by him was established in the previous proceedings. The further question whether the circumstances answer to the other requirements of the indemnity clause does not require resolution of the competing versions which emerge from the evidence.
[Emphasis added]
At the trial, the plaintiff’s position was that the judgments in the earlier proceedings established the essential common law elements of the tort of negligence – duty, breach and loss and damage. QBE’s position was that the plaintiff had to make out his case in contract and that there had been no attempt in the present trial to make out a case in negligence against Mr Hiotis. It was in these circumstances that the Judge made the observation emboldened above.
[8] Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [53]-[54].
The Judge proceeded to make the following general findings:[9]
[9]    Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [55]-[56].
Generally speaking, I prefer the evidence of Mr Hiotis and Mr Marinus to that of the plaintiff and the Tran sisters. Understandably, the plaintiff went through a frightening experience which happened quickly and caused him great pain. I accept that he was attacked almost as soon as he left the premises and while he was on the footpath a few steps from the front doors. He stressed that the fight in this location lasted for a long time, but other evidence suggests that it moved fairly quickly to the kerb and then further out into Woodville Road.
There is no doubt that the Tran sisters sought help from the security guards and I accept that while the fight was going on they were screaming out. However, I also accept the denials of Mr Hiotis and Mr Marinus that there were three attempts to get them to assist. I accept the evidence that their aid was sought on one occasion and that they responded in the manner described by them in their evidence.
The Judge in the course of his reasons addressed the contract of insurance. The indemnity clause of the contract provided:
QBE will pay to or on behalf of The Insured all sums which The Insured shall become legally liable to pay by way of compensation (excluding punitive or exemplary damages) in respect of:-
(a)     bodily injury (which expression includes death and illness)
(b)     property damage (which expression includes loss of property)
happening during the Period of Insurance as a result of an Occurrence in connection with The Business.
The Judge then addressed the question of whether the plaintiff had established that QBE was legally liable to pay a sum by way of compensation in respect of bodily injury:[10]
As stated above, the defendant’s first argument addresses the phrase “legally liable to pay”. According to the argument, the policy provides an indemnity only in those cases where liability is established by a judgment entered after a trial or following an informed settlement. It is argued that, for the purposes of the policy, a default judgment which is never final cannot be equated with a final judgment.
In my view, this argument must be rejected. Any differences which might exist between a default judgment and a judgment entered after a trial of the issues are irrelevant for the purposes of the indemnity clause in the contract of insurance.
The consideration that a default judgment can be set aside does not alter the fact that, until set aside, it is enforceable in the same manner as a judgment obtained after a trial or by consent.
The Judge concluded that the default judgment created a legal liability to pay, by way of compensation, a sum in respect of bodily injuries. Leaving aside the question of whether the judgment established a legal liability within the meaning of the policy, it was accepted both at trial and on appeal that the judgment was in respect of bodily injury.
[10] Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [18]-[20].
The Judge next addressed the question whether the bodily injury happened during the period of insurance as a result of an occurrence in connection with the business. He reasoned that an occurrence within the meaning of the policy had taken place. He considered that the failure to intervene in the attack so as to protect the plaintiff was the relevant occurrence. He noted that this was the basis of the liability of Mr Hiotis alleged by the plaintiff.
The Judge referred to the broad meaning of the phrase “in connection with” and concluded that the failure to intervene was an occurrence in connection with the business of Mr Hiotis:[11]
If the failure to act in these circumstances can be regarded as the relevant occurrence it poses no difficulty to say that it was an occurrence “in connection with” the business of Mr Hiotis. The words “in connection with” have a wide scope[12]. In Our Town FM Pty Ltd v Australian Broadcasting Tribunal[13] Wilcox J said:
The words “in connection with” have a wide connotation, requiring merely a relation between one thing and another. They do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v Miller (1985) 8 FCR 153 at 154, 160, 163. They may be used to describe a relationship with a contemplated future even: see Koppen v Commissioner for Community Relations (1986) 11 FCR 360 at 364; Johnson v Johnson [1952] P 47 at 50–51. In the latter case the United Kingdom Court of Appeal applied a decision of the British Columbia Court of Appeal, Re Nanaimo Community Hotel Ltd [1945] 3 DLR 225, in which the question was whether a particular court, which was given “jurisdiction to hear and determine all questions that may arise in connection with any assessment made under this Act”, had jurisdiction to deal with a matter which preceded the issue of an assessment. The trial judge held that it did, that the phrase “in connection with” covered matters leading up to, or which might lead up to an assessment. He said (at 639):
One of the very generally accepted meanings of “connection” is “relation between things one of which is bound up with or involved in another”; or, again “having to do with”. The words include matters occurring prior to as well as subsequent to or consequent upon so long as they are related to the principal thing. The phrase “having to do with” perhaps gives as good a suggestion of the meaning as could be had.
[11] Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [68].
[12] Re AMP United Insurances Limited (1996) 1 ANZ Insurance Cases 61-326; Ffrench v Sestili (2007) 98 SASR 28.
[13] Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 at 479-480.
Finally, the Judge concluded that the legal liability was as a result of an occurrence within the meaning of the contract of insurance:[14]
It follows that, in my view, the legal liability was incurred by Mr Hiotis in respect of bodily injury happening during the period of insurance as a result of an occurrence in connection with his business.
[14] Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [71].
The Judge addressed the plaintiff’s alternative pleas of election and estoppel. With respect to the contention that the doctrine of election applied, the Judge noted that the factual basis of the claim was not in dispute, and then commented:[15]
[15] Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [76]-[79].
The plaintiff sought to join [QBE] as a defendant in the earlier action for negligence against Mr Hiotis. The defendant resisted the application and, on 9 August 2000, a master dismissed it. The plaintiff appealed against this decision and the appeal was heard by Martin J.
Earlier, [QBE] had written to Mr Hiotis purporting to avoid the policy. Mr Hiotis was advised of this in a letter from the defendant dated 6 May 1999. The letter stated:
...
We consider that your misrepresentation was made fraudulently and hereby avoid the policy from its inception pursuant to section 28(2) of the Insurance Contracts Act 1984.
…
Counsel for [QBE] advised the Master and Martin J that [QBE] intended to restrict itself to this ground in denying indemnity under the policy. Martin J referred to the intimation in his judgment and appears to have taken it into account in upholding the refusal of the master to permit the joinder of [QBE].
Prior to the present trial, [QBE] advised the plaintiff that it was abandoning the argument outlined in its letter to Mr Hiotis of 6 May 1999. The issues which have been relied upon by [QBE] at trial are identified in these reasons.
It is to be observed that, at trial, the plaintiff advanced his case in election on several bases. It was argued that QBE had made a choice between two inconsistent rights, choosing to enjoy one and surrender the other. As earlier observed, the trial Judge specifically rejected this submission.
The plaintiff also advanced a submission that, having regard to its conduct on the joinder application, QBE could not approbate or reprobate. The submission was in the following terms:
Before Martin J, [QBE] unequivocally communicated its election that the policy had been avoided on the sole ground of fraudulent misrepresentation, and reaped the benefit of so doing, in that this election was the principal reason why it was not joined as a defendant to the earlier action.
[QBE] may not approbate and reprobate. It made an election, and communicated that election to Martin J and enjoyed the fruits of that election. It has subsequently attempted to resile from that election. It would be unconscionable to allow it do so; -see VACC Insurance Limited v BP Australia Limited (1999) 47 NSWLR 716 at [23], [32], [34].
The Judge in the present proceedings, having made reference to the observations of Mason J in Sargent v ASL Developments,[16] rejected this submission and expressed his conclusions as follows:[17]
In my view the short answer to the argument on election is that the rights under consideration are not inconsistent, but simply alternative avenues for challenging the plaintiff’s claim for indemnity. The rationale for common law election is that neither right or remedy may be enjoyed without the extinction of the other.
This is not the present case. [QBE] is entitled to argue that it can avoid the contract of insurance by reason of fraudulent misrepresentation and, if not successful, to claim that the circumstances do not come within the wording of the indemnity clause in any event.
...
In my view, the plaintiff did not act on the intimation given to Martin J in such a way as to result in a detriment to the plaintiff relevant to the creation of an estoppel.
[16] Sargent v ASL Developments (1974) 131 CLR 634 at 655.
[17] Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [81]-[82], [106] (footnotes omitted).
With respect to the plea of estoppel, the Judge rejected the plea on the basis that reliance and detriment had not been established. As there was no complaint on this appeal with respect to this conclusion, it is unnecessary to further record or discuss this aspect of the Judge’s reasons.
The Judge found that the plaintiff had established an entitlement to judgment as the assignee of the trustee in bankruptcy of Mr Hiotis:[18]
I am of the view that the conditions required by the indemnity clause have been established and that the assignment of rights entitles the plaintiff to an order that the defendant pay the amount of the damages awarded in the first action to the plaintiff.
The Judge then made a declaration and order as follows:[19]
A declaration is made that [QBE] is liable, under Insurance Policy AD0923488CLI made between [Mr Hiotis] and it, to pay the Plaintiff the sum of $2,823,700.
Judgment for the Plaintiff be entered for the sum of $2,823,700.
[18] Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [72].
[19] Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [72].
Interest
The Judge, following his decision on the substantive issues, heard the submissions of the parties on the plaintiff’s claim for interest. Interest was sought pursuant to section 57 of the Insurance Contracts Act 1984 (Cth). QBE contended that the plaintiff was not entitled to claim interest pursuant to that Act, but acknowledged that there was an entitlement pursuant to section 30C of the Supreme Court Act 1936 (SA).
The Judge delivered separate reasons with respect to interest.[20] The Judge concluded that section 57 of the Insurance Contracts Act had application and that the plaintiff was entitled, as the assignee in bankruptcy of Mr Hiotis, to pursue a claim under that Act. Accordingly an award of interest was made under the Insurance Contracts Act. The practical consequence was that the plaintiff received interest at a higher rate than would have been adopted in an assessment made under the Supreme Court Act.
[20] Nguyen v QBE Insurance Ltd (2007) 252 LSJS 320.
On appeal, QBE submitted that the Insurance Contracts Act could not be called in aid by the plaintiff and sought a determination from this Court that the award of interest should be made under the provisions of the Supreme Court Act.
The Appeal
Preliminary Observations
In McCann v Switzerland Insurance,[21] members of the High Court made general observations which guide the approach to be taken in the present proceedings. Gleeson CJ observed:
A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.
Kirby J summarised the general principles relevant to the interpretation of a contract of insurance:[22]
… As a species of commercial contract, an insurance policy must be interpreted to give to the words used their ordinary and fair meaning. …
… The meaning to be given to an insurance policy must take into account the commercial and social purposes for which it was written. Under the guise of giving the language of a policy its ordinary and fair meaning, a court is not entitled to make a new contract for the parties at odds with that upon which they have agreed. Maxims and rules of construction, developed as tools to aid the task of interpretation, are subordinate to the primary duty, which is to uphold the contract between the parties. Without the authority of statute, no court is authorised to attribute a different meaning to the words of a policy simply because the court regards the meaning as otherwise working a hardship on one of the parties.
…
… Notwithstanding the primary duty of courts to give meaning to the words in an insurance policy, it has been recognised that, in cases of ambiguity, a “liberal approach” will generally be adopted in the construction of insurance contracts. There are several reasons for this approach. They go back to very old legal authority. In the past, they were commonly summed up in the maxim verba chartarum fortius accipiuntur contra proferentem. Courts now generally regard the contra proferentem rule (as it is called) as one of last resort because it is widely accepted that it is preferable that judges should struggle with the words actually used as applied to the unique circumstances of the case and reach their own conclusions by reference to the logic of the matter, rather than by using mechanical formulae. Nevertheless, dictionaries, facts and logic alone will sometimes not provide an answer to the contest before the court. In those cases: “it is not unreasonable for an insured to contend that, if the insurer proffers a document which is ambiguous, it and not the insured should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or a clause clarifying the promise of insurance which it is offering.”
I will return to the observations from McCann later in these reasons.
[21] McCann v Switzerland Insurance (2000) 203 CLR 579 at [22] (footnotes omitted).
[22] McCann v Switzerland Insurance (2000) 203 CLR 579 at [74] (footnotes omitted).

The Judge then turned to the question of causal connection – “as a result of” – and observed:[36]
The statement of claim in the first action alleged that the plaintiff’s injuries were caused by the negligence of Mr Hiotis in failing to intervene in the altercation so as to adequately protect the plaintiff as a patron attending the function. As I have pointed out, the issue of negligence per se does not arise in this case, but the plaintiff was claiming damages for negligence by omission in circumstances where it was claimed there was a duty to act.
The Judge then concluded:[37]
It follows that, in my view, the legal liability was incurred by Mr Hiotis in respect of bodily injury happening during the period of insurance as a result of an occurrence in connection with his business.
I am of the view that the conditions required by the indemnity clause have been established and that the assignment of rights entitles the plaintiff to an order that the defendant pay the amount of the damages awarded in the first action to the plaintiff.
[36] Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [65] (footnotes omitted).
[37] Nguyen v QBE Insurance Ltd (2007) 99 SASR 443 at [71]-[72].
As earlier discussed, the default judgment established the following essential matters – existence of a duty of care, a breach of that duty, and finally that the breach was a material cause of the plaintiff’s injury and loss. The Judge concluded that the causal link in the indemnity clause – “as a result of” – was established. This view of a default judgment provides an explanation for the limited analysis in the trial Judge’s reasons on this topic.
On appeal, QBE submitted that the contract of insurance, when using the words “as a result of” in the indemnifying clause, was to be construed as a reference to the common law test of causation, as defined in March v Stramare.[38] Counsel for QBE did not discuss the different expressions in the contract of insurance dealing with causal connection, and in particular offered no submission to justify the suggested interpretation having regard to those different expressions.
[38] March v E & M H Stramare Pty Ltd (1991) 171 CLR 506.
The contract of insurance provided that QBE “will indemnify the insurer in accordance with this policy”. There are two sections in the contract, one entitled “Public Liability” and the other “Product Liability”. A clause dealing with the “law costs and expenses” is referable to both sections. The contract sets out a number of exclusions applicable only to the public liability section, and then sets out the exclusion clauses referable only to the products liability section. The contract continues with definitions, which have general application to the entire contract, and concludes with conditions of general application. The contract expressly provided that nothing in the contract should be construed to reduce or waive either party’s rights under the Insurance Contracts Act.
A perusal of the contract discloses that in many of the clauses and subclauses of both sections, causal connection is expressed in materially different terms. Expressions of the different examples used are: “as a result of”; “in connection with”; “arising out of”; “as a result of and caused by”; “caused by or arising from”; “arising directly or indirectly out of or caused by or in connection with”; “arising directly or indirectly from”; “directly or indirectly caused by or contributed to or arising from”; “directly or indirectly caused by or arising from”; “arising in consequence of”; “which results in”.
The different expressions referring to causality suggest different shades of meaning and infer different degrees of causal connection. It is to be recognised that each clause and subclause must be both read as a whole and read in its own particular context.
In the present proceedings, the Court is concerned with the construction of the section of the contract of insurance that deals with a causal connection described by the phrase “as a result of an occurrence in connection with the business”. It is relevant to observe that when dealing with the exclusions applicable to the public liability section of this contract, differing expressions of causal connection are used in addition to the phrase “as a result of”. They include “caused by” and “arising from”. A review of the contract of insurance as a whole would suggest that a broad meaning should be given to the phrase “as a result of”. As in McCann, the proper construction of this contract calls for the application of the contra proferentum rule.[39]
[39] McCann v Switzerland Insurance (2000) 203 CLR 579.
The employment in this contract of insurance of the phrases “as a result of” and “caused by or arising from” would suggest that the words “as a result of” carried a different and wider meaning than “caused by”. The phrase “as a result of” expressed a broad connection. It is unlikely that the notion of causation contained within this phrase was intended to be construed narrowly. In the cases of ambiguity a liberal approach is generally adopted in the construction of insurance contracts. As Kirby J observed in Johnson v American Home Assurance Co:[40]
[I]t is not unreasonable for an insured to contend that, if the insurer proffers a document which is ambiguous, it and not the insured should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or a clause clarifying the promise of insurance which it is offering.
[40] Johnson v American Home Assurance Co (1998) 192 CLR 266 at [19].
Of relevance to the present proceedings are Kirby J’s further observations in McCann concerning the notion of causation: [41]
The disputed phrase, “brought about by”, is ambiguous. It imports notions of causation which are inherently disputable. The ambiguity is evidenced in the differences between the courts below and now in this Court. It is useful, therefore, to return to the basic principles which govern the resolution of such ambiguities.
...
In the modern approach to the construction of contested language, it is usual to look beyond the critical word (by) or phrase (brought about by) or sentence (the exclusion clause) to the whole policy. Because the exclusion clause refers back to “liability”, it incorporates, by reference, the insuring clause. It is that to which the exclusion is addressed. The insuring clause affixes the liability of the insurers, relevantly by reference to civil liability incurred “in connection with the Practice”. Thus there are two large phrases of connection at work. The first, contained in the exclusion clause, is the phrase “in respect of”. The second, contained in the insuring clause, is the phrase “in connection with”. Given such broad expressions of connection, it seems unlikely that the notion of causation contained in the exclusion clause is to be construed narrowly.
[41] McCann v Switzerland Insurance (2000) 203 CLR 579 at [73], [83] (footnotes omitted).
In McCann,[42] Hayne J addressed the construction of the phrase “brought about by”. In discussing the use of that phrase in the context of a dishonesty and fraud exclusion, Hayne J observed: [43]
To decide whether the liability of the insured to the claimant was “brought about” by dishonesty or fraud it is necessary to consider how the claim could have been framed. That step is necessary because, if the claim could not have been framed in a way in which dishonesty or fraud was a material fact in establishing the liability or the extent of liability, it cannot be said that the liability is one which was “brought about” by dishonesty or fraud. By contrast, if the claim could have been framed in a way in which dishonesty or fraud was material, the liability is one which will engage the exclusion.
The reference to material facts is intended to invite attention to those facts which are necessary to constitute a cause of action against the insured. The expression is used in the sense in which it is used in relation to pleadings because the “liability” of the insured to a claimant is established by the proof of the material facts which give rise to the liability. That is, the existence of a liability depends upon proof of those facts which are necessary to constitute a cause of action. The reference which is made to the cases about pleadings is not made for some formalistic purpose. It is made for the assistance that those cases give in distinguishing between the facts which are material to establishing a liability and the facts which might be proved in evidence at trial but do not constitute, or bring about, the insured’s liability to the claimant. I mention the extent of the liability because of the different measure of loss which is applied, for example, in an action for deceit from the measure applied, for example, in an action for breach of contract.
This method of analysis focuses upon the “liability” and makes little mention of what is meant by the expression “brought about by” when it is used in the dishonesty and fraud exclusion. In particular, it makes no mention of “proximate” or other causes. It may be accepted that “brought about by” is an expression which requires a connection between the two elements that are mentioned in the exclusion: a dishonest or fraudulent act or omission being one, and the liability being the other. It is necessary to identify the nature of that connection, lest the application of the dishonesty and fraud exclusion be thought to depend upon nothing more than the amount of evidence that is assembled to show that the insured, or a partner or former partner of the insured, acted discreditably.
The language, although redolent of causation, identifies a different kind of connection between the two elements. One of those elements (the liability) is “brought about by” the other (a dishonest or fraudulent act or omission) if the latter is a component of the former. A liability is brought about by a dishonest or fraudulent act or omission only if the liability is one in which that dishonest or fraudulent act or omission could be a material fact in pleading the claim. It is not brought about by such an act or omission simply because there were dishonest or fraudulent acts or omissions committed at about the time of the events giving rise to liability or because those acts or omissions were committed in the course of some overall relationship between the insured and the claimant. To say that there were “circumstances of dishonesty” attending the relationship between insured and claimant does not identify how or why those circumstances bore upon the nature or extent of the liability giving rise to the loss against which the insured seeks indemnity. It is to assert the application of the exclusion without revealing the connection which is said to exist between the liability and the dishonest or fraudulent act or omission. That is why it is necessary to examine the way in which, in the circumstances of the case, the insured was, or could have been, rendered liable to the claimant.
[Emphasis added]
[42] McCann v Switzerland Insurance (2000) 203 CLR 579.
[43] McCann v Switzerland Insurance (2000) 203 CLR 579 at [127]-[130] (footnotes omitted).
In the present proceedings, Mr Hiotis’ liability to pay compensation for bodily injury, the subject of the default judgment, can be seen to be a consequence of the proceedings that led to that judgment. The statement of claim alleged that the conduct, by omission, of Mr Hiotis involved a breach of duty of care owed to the plaintiff and was a cause of the injury, loss and damage sustained. To adopt the reasoning of Hayne J, the legal liability of Mr Hiotis was the result of an occurrence. That occurrence was the conduct by omission of Mr Hiotis. This conduct allowed the plaintiff to frame his statement of claim and to plead the omission of Mr Hiotis as the basis of his cause of action. This in turn provided the foundation for the default judgment. Once a broad meaning is given to the causal connection implicit in the phrase “as a result of”, this reasoning has application.
Having regard to the terms of the contract of insurance, the phrase in the indemnity clause “as a result of” should be given a broad meaning. It is a phrase used in combination with the phrase “caused by”, and at times is used in apparent contradistinction to that phrase. It would appear to convey a broader meaning than that encompassed by common law causation. As earlier observed, any ambiguity gives rise to an occasion for the application of the contra preferentum rule.
Viewed in this way, it may be seen that the occurrence, that is Mr Hiotis’ failure to act to intervene in the fight, has led to the legal liability arising from the default judgment. It was the omission of Mr Hiotis to act that enabled the pleading of a breach of duty and the allegation of consequent loss or damage which in turn led to the default judgment. They were material facts to be pleaded by the plaintiff. The legal liability of Mr Hiotis was the result of an occurrence within the meaning of the policy.
An alternative process of reasoning arises directly from the default judgment. As earlier observed, the default judgment established the bare essentials that were necessary to give rise to the judgment. These bare essentials were the existence of a duty of care, its breach, and the establishment of consequential damage by way of personal injury. The insured was subject to a legal liability in respect of these matters. The duty of Mr Hiotis was a duty to act to protect the plaintiff, the breach was the failure to act, and the damages were, in respect of bodily injury, caused by the failure to act – that is, the failure to act was a material cause of the injury sustained by the plaintiff. This is the essential nature of the legal liability that arises from the default judgment in the earlier action. There has been no application to set aside or otherwise disturb that judgment. It remained a judgment of the Court at the time of trial. It remains a judgment of the Court at the present time.
Again, as earlier observed, QBE accepted that there was a relevant occurrence in connection with the business of Mr Hiotis. The challenge to the judgment centred on the question of causation – had it been established that the legal liability was a result of an occurrence? In my view the unchallenged judgment relevantly foreclosed the issue of causation according to common law principles. It is also my view that the judgment gave rise to a legal liability within the meaning of the policy. In these circumstances the plaintiff was entitled to succeed before the trial Judge. For these reasons the appeal should be dismissed with respect to these issues.
The Question of Interest
As earlier observed, further issue on appeal was whether the Judge was correct to award interest under the Insurance Contracts Act or whether he should have awarded interest under the Supreme Court Act. The interest rate was higher under the Insurance Contracts Act.
QBE, on appeal, drew attention to a suggested windfall that would follow to the plaintiff. It was pointed out that with respect to the award of damages in the earlier proceedings, Mr Hiotis was obliged to pay interest under the Supreme Court Act. It was said that if QBE was obliged to indemnify Mr Hiotis, and if it was to pay interest under the Insurance Contracts Act at the higher rate, it would follow that Mr Hiotis, or anyone standing in his shoes, would receive an indemnity from the insurer beyond the legal liability incurred by Mr Hiotis to the plaintiff. It was further contended that this problem was acute in circumstances where the judgment debt, which included the interest awarded in the earlier proceedings, had not been paid.
It is convenient at the outset to set out the terms of section 57 of the Insurance Contracts Act. That section provides:
(1)Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section.
(2)The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days:
(a)     the day on which the payment is made;
(b)     the day on which the payment is sent by post to the person to whom it is payable.
(3)The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations.
(4)     This section applies to the exclusion of any other law that would otherwise apply.
(5)     In subsection (4):
law means:
(a)     a statutory law of the Commonwealth, a State or a Territory; or
(b)     a rule of common law or equity.
With respect to interest, the Judge reasoned:[44]
[44] Nguyen v QBE Insurance Ltd (2007) 252 LSJS 320 at [6], [8]-[17], [24]-[26], [28]-[29] (footnotes omitted).
On 31 August 2007 I held that QBE was required to indemnify the estate of Mr Hiotis and that the plaintiff was entitled to recover against QBE the damages awarded to him in the action against Mr Hiotis. As part of the reasoning leading to that conclusion, I held that the right to indemnity had been validly assigned to the plaintiff.
…
The plaintiff has argued that he is entitled to interest on the judgment sum of $2,823,700.00 pursuant to s 57 of the Insurance Contracts Act 1987 (Cth) (“the Act”) …
QBE submits that interest should be awarded pursuant to ss 30C and 114 of the Supreme Court Act 1935. However, if the plaintiff’s argument as to the applicability of s 57 is correct, s 57(4) would exclude an award of interest pursuant to the Supreme Court Act.
According to the argument for the plaintiff, he is “a person” within the meaning of s 57(1) to whom an insurer (QBE) is liable to pay an amount under a contract of insurance, the right having been assigned to him under the deed of assignment.
Section 57 was included in the Act as part of the recommendations of the Report of The Law Reform Commission on Insurance Contracts. It was stated in the Report that there had been complaints of delayed payments by insurance companies. It was noted that some delays occurred for which no reasonable explanation could be found. As a result, the Report recommended that a statutory obligation should be imposed on the insurers to pay interest from the date on which a claim for indemnity should reasonably have been paid.
Although the usual application of the section is in relation to cases where the insurer is liable to pay an insured, the use of the expression “a person” widens the category of those entitled to payment. It will be noted that s 57(1) applies also to the situation where an insurer is “liable to pay to a person … an amount … under this Act”. Examples of this category of persons who are entitled to payments by an insurer but who are not insured with the insurer, are to be found in ss 48, 48A, 49 and 51 of the Act. These sections employ the expression “a person” in contradistinction to “the insured”.
In my view, a person in the position of the plaintiff comes within the literal meaning of s 57(1) in that he is “a person” who is entitled to payment “under a contract of insurance”.
I am also of the view that the circumstances in the present case come within the purpose of s 57 which is to provide for interest in cases where there has been an unreasonable delay in meeting obligations under a contract of insurance. It is clear from the statutory examples of liability to parties other than the insurer referred to above that the section has a broader scope than that argued for by QBE.
In support of its argument that s 57 did not apply to the circumstances of the present case, counsel for QBE argued that the right to interest under s 57 could not be assigned.
If my interpretation of the section is correct, the plaintiff’s right to the payment of interest under s 57 arises by reason of the assignment of the right to indemnity and the fact that Mr Hiotis is liable for damages. The right is not based on an assignment of the right to interest under s 57. It occurs by reason of an assignment of rights independently of the Act, which bring the plaintiff within the description of a person who is entitled to claim interest under the section.
For these reasons I am of the view that interest on the judgment sum awarded to the plaintiff is to be determined in accordance with s 57 of the Act.
…
I have said that the default judgment was entered on 24 July 2001 for damages to be assessed. Bleby J published his judgment on 30 July 2002 when he entered judgment for the plaintiff against Hiotis in the amount previously referred to. On the same day the plaintiff’s solicitors wrote to QBE’s solicitors enclosing a copy of the judgment.
As at this date QBE had denied liability under the policy and was aware of the fact that a default judgment had been issued against its insured. QBE was further aware of the judgment sum awarded to the plaintiff. The insurer made no attempt to indemnify the estate of Hiotis which, by that stage, had vested in the Official Trustee in Bankruptcy. The rights to that indemnity were subsequently assigned to the plaintiff. In my view, it is not to the point that the assignment took place subsequently. This transferred the right to indemnity, but the obligation to indemnify existed previously. When the court gave judgment on the amount of the damages due to the plaintiff, there was no need for further investigation by QBE and it was not reasonable at this stage to withhold payment.
I will order that interest be payable for a period commencing on 31 July 2002.
…
Section 57(3) provides that the rate of interest is as prescribed by the regulations. The regulations make no reference to compound interest. In my view an award on the basis of compound interest is not available under these provisions.
Even if it is within the court’s discretion to order that compound interest be paid pursuant to s 57, I do not think any basis has been made out for such an award in this case. There is no evidence before me on this aspect. I have simply been referred to the long and difficult history of the case to the present time.

QBE contended that the default judgment, and in particular the liability to interest under that judgment, set the scope and limit of the indemnity. The plaintiff was the assignee of the whole of Mr Hiotis’ right to indemnity. It was argued that in these circumstances the plaintiff could be in no better position than the judgment debtor Mr Hiotis. It was said that by allowing interest under section 57 of the Insurance Contracts Act, the plaintiff would be put in a better position. It was further contended that any right to a payment of interest under section 57 of the Insurance Contracts Act remained with Mr Hiotis. It was a right separate and distinct from the right of indemnity. It was further contended that this was a statutory right that could not be assigned. Finally, it was argued that the Judge’s conclusion that the plaintiff came within the description of a person entitled to interest under section 57 was flawed.
QBE contended that section 57 of the Insurance Contracts Act intended, by the award of interest, to compensate a successful plaintiff for the detriment suffered by being kept out of the money to which the judgment established that the plaintiff had been entitled to all along. It does not operate to allow the plaintiff to profit by receiving an amount for interest, when it has not paid out any sum and has no liability to pay out any sum.
The plaintiff contended that the Judge was correct to conclude that the plaintiff was entitled to payment pursuant to section 57. It was said that in these circumstances, questions about the assignment and whether the right to interest could be assigned, were irrelevant. The award of interest was made to the plaintiff, not Mr Hiotis.
As the Judge pointed out, sections 48, 48A, 49 and 51 of the Insurance Contracts Act provide examples of persons who are entitled to payments by an insurer but who are not insured with the insurer. These sections employ the expression “a person”, in contradistinction to “the insured”. As a consequence of this distinction, and the use of the word “a person” in section 57, the Judge concluded that the plaintiff was entitled to claim in his own right under the section. In my view this analysis is correct. The statutory provisions demonstrate persons other than an insured are entitled to relief under section 57.
As the Judge further observed, the report of the Law Reform Commission on insurance contracts, the recommendations of which led to section 57, noted that circumstances of delayed payments by insurance companies for no good cause existed. As a result, the report recommended that interest should be paid from the date on which the claim of indemnity should reasonably have been paid. In these circumstances it was appropriate for there to be an order for interest under the Insurance Contracts Act.
As earlier observed, QBE suggested that in the circumstances the plaintiff had received a “windfall”. Under the default judgment, Mr Hiotis was only exposed to Supreme Court interest and to allow the plaintiff to recover a greater sum by way of interest pursuant to the contract of insurance would cause a material injustice.
This submission overlooks the advantage to QBE. By delaying payment and having the use of the money QBE was able to earn commercial compounding rates of interest. This was the concern of the Law Reform Commission. The evident purpose of section 56 was to remedy the consequences of delayed payments without good cause. Effect should be given to this express purpose.
The Judge was correct to award interest under the Insurance Contracts Act. This ground of appeal should be rejected.
The Notice of Contention – Election
As earlier noted, the plaintiff, by notice of contention, challenged the conclusions of the Judge with respect to the plea of election. In this respect, the Judge reasoned:[45]
In a case in which the doctrine of election is applicable it may preclude a party from exercising a legal right. The circumstances in which the doctrine will arise were explained by Mason J in Sargent v ASL Developments:[46]
A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, ie when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach – in each instance the alternative right to insist on performance creates a right of election.
In my view the short answer to the argument on election is that the rights under consideration are not inconsistent, but simply alternative avenues for challenging the plaintiff’s claim for indemnity. The rationale for common law election is that neither right or remedy may be enjoyed without the extinction of the other.[47]
This is not the present case. The defendant is entitled to argue that it can avoid the contract of insurance by reason of fraudulent misrepresentation and, if not successful, to claim that the circumstances do not come within the wording of the indemnity clause in any event.
[45] Nguyen v QBE Insurance Ltd (2007) SASC 320 at [80]-[82].
[46] Sargent v ASL Developments (1974) 131 CLR 634 at 655.
[47] Meagher, Gummow and Lehane, Equity Doctrines and Remedies (3^rd ed) at 3905.
The plaintiff submitted that what was said to be the election in the present case needed to be understood having regard to the relevant objective facts. Those facts were summarised as follows: QBE was not a party to the earlier action; QBE investigated the facts surrounding the claim through its assessors and then unequivocally represented its legal position to the Court; QBE successfully resisted becoming a party as a result of its representation to the Court; no new facts had come to the attention of QBE since the decision that it not be joined to the earlier action; QBE enjoyed the advantage of that decision, and after the earlier litigation was concluded, QBE resiled from its representations, and sought to re-litigate the issues already determined in the earlier litigation.
The plaintiff contended that these objective facts gave rise to an election of a special nature. In Kok Hoong v Leong Cheong Kweng Mines Limited,[48] the Privy Council recognised that a Court may consider it necessary in special circumstances to have resort to the general rule forbidding approbation and reprobation on the part of a litigant. The Court drew a distinction in this circumstance between estoppel and election and observed:[49]
Thus, despite the principle that limits estoppels where statutes are infringed, a litigant may be shown to have acted positively in the face of the court, making an election and procuring from it an order affecting others apart from himself, in such circumstances that the court has no option but to hold him to his conduct and refuse to start again on the basis that he has abandoned.
[48] Kok Hoong v Leong Cheong Kweng Mines Limited [1964] AC 993.
[49] Kok Hoong v Leong Cheong Kweng Mines Limited [1964] AC 993 at 1017-1018.
It was submitted that QBE unequivocally communicated its position to the Court that the policy had been avoided on the sole ground of fraudulent misrepresentation, and procured from the Court an order affecting others apart from itself. It should now, it was said, be prevented by that election from “starting again” and alleging matters contrary to those which it represented were its only ground.
It was further contended that as at the date of the hearings with respect to joinder, QBE had an option between two legal rights – the right to avoid the policy on the basis of fraudulent misrepresentation or the right to affirm it and allege that the events on 7 October 1995 did not fall within the scope of the policy. It could also have reserved its rights and defended the action on behalf of Mr Hiotis.
These submissions would suggest that the plaintiff was not contending that QBE had elected between alternative remedies, that is, mutually exclusive alternative remedies. The submission advanced on appeal explained that QBE had procured an order in the joinder proceedings by representing to the Court that the common law liabilities issues would not need to be retried. The advantage that QBE obtained was the dismissal of the application for joinder. As a result QBE was free from any involvement in the earlier proceedings. In these circumstances it was said the Court should hold QBE to this conduct.
It remained open to QBE to contend that the plaintiff had not made out a claim for indemnity under the terms of the contract of insurance. QBE did not acknowledge that a finding of common law liability necessarily led to indemnity. At trial and on appeal, QBE contended that in the circumstances legal liability within the meaning of the contract of insurance had not been made out and in particular, it had not been established that any legal liability that had been established was a result of an occurrence within the meaning of the contract. In these circumstances, it was said the Judge was correct to reject the plea that QBE was bound by an election and could not advance its defence.
On appeal QBE went so far as to submit that the plaintiff had to establish common law liability in the present proceedings; that is, it had to establish the existence of a duty of care, its breach and that any breach was causative of the plaintiff’s loss and damage. QBE then presented alternative arguments.
As earlier observed, the plaintiff established its claim for indemnity as a consequence of the default judgment and the evidence led at trial. In these circumstances it is strictly unnecessary to further consider the plaintiff’s notice of contention. However, if there were a need to consider the contention, I would conclude that QBE should be held to its conduct in the joinder proceedings and not be permitted to require the plaintiff to again establish common law liability.
Conclusion
This appeal should be dismissed.
LAYTON J:
In giving my decision in relation to this appeal, I am indebted for the reasons given by the Chief Justice and Gray J. I agree with their ultimate conclusion that the appeal should be dismissed. In doing so, I rely on their respective reasons which have led them to so conclude. Their reasoning is complementary.
The major points with which I agree are as follows.
The words “legal liability” contained in s 1 of the QBE policy should be given their ordinary meaning. These words, in their context, are neither further amplified nor restricted.
The default judgment gave rise to Mr Hiotis being “legally liable” to pay to Mr Nguyen a judgment sum assessed by Bleby J as being an amount of $2,823,700. This was a “legal liability” of Mr Hoitis to pay Mr Nguyen compensation in respect of bodily injury, within the meaning of s 1 of the QBE policy. That judgment had not been set aside by the appellant. It operated as proof of the “legal liability” of Mr Hoitis. It was not necessary for the insured to take fresh proceedings against the insurer in order to prove Mr Nguyen’s claim against the insured.
The words “occurrence” and “event” in s 1 of the QBE policy are words of broad import. In the present case the occurrence was identified by the trial judge, Duggan J, as being the failure by Mr Hiotis to intervene in the altercation so as to protect the plaintiff. This characterisation was not challenged by the appellant and was an appropriate finding on the evidence.
The meaning of the phrase “as a result of” in s 1 of the QBE policy must be looked at in the context of not only that section, but taking the policy as a whole. The phrase, in its context, should not be interpreted as requiring a causal connection in a narrow tortious sense. I refer to the reasons given by both the Chief Justice and Gray J. The policy has a commercial or business purpose, namely a contract of insurance to cover risk of the happening of specified events. Further, any ambiguity about the meaning of the phrase should, using the contra proferentem rule, be interpreted in favour of the insured.
The causal connection which is required to be established by the phrase “as a result of” appearing in s 1 of the QBE policy, is between the bodily injury suffered and an occurrence in connection with the business of the insured. This causal connection did not require consideration of the blameworthiness or otherwise of Mr Hiotis and whether his inaction caused the bodily injury to Mr Nguyen. This was included in the “legal liability” which had been established by the default judgment. Instead, the focus is on the connection between the bodily injury to Mr Nguyen and the occurrence in connection with the business of Mr Hiotis, as particularly discussed by the Chief Justice.
I further note that in this case the failure of Mr Hiotis to intervene in an altercation so as to protect the plaintiff was both the “occurrence” as well as the factual foundation for the breach of duty the subject of the default judgment. I agree with the Chief Justice that the characterisation of the occurrence by the trial judge contained within it a number of implied factual sub-sets which, when articulated, made clear the causal connection between the failure to intervene and the bodily injury to Mr Nguyen. I also agree with the reasons of Gray J, who approached the causal connection from the point of view of the necessary effect of the default judgment. This was the approach taken by the trial judge. By either approach, causal connection was satisfied on the evidence in this case.
I also agree with the reasons of Gray J in relation to the award of interest and that this ground of appeal should be rejected.
Finally, as to the notice of alternative contention, the decision by the trial judge on estoppel was not pursued. With regard to election, whilst the approach taken by Gray J in relation to approbation and reprobation has some attraction, in my view it is not necessary to decide that issue in order to reach a final conclusion on the appeal.

Past non-economic loss	60,000
Future non-economic loss	170,000
Past loss of earning capacity	142,700
Past superannuation contributions (net)	8,500
Past care	231,000
Past medical expenses	23,000
Home modifications	70,000
Future economic loss	1,000,000
Future superannuation contributions (net)	112,000
Future care	500,000
Future medical expenses	380,000
Future holiday expenses	18,500
Total Interest	2,715,700 108,000
Total	$2,823,700