RAA-GIO Insurance Limited Trading as RAA Insurance v O'Halloran & Ors

[2007] HCATrans 688

[2007] HCATrans 688

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A36 of 2007

B e t w e e n -

RAA-GIO INSURANCE LIMITED T/AS RAA INSURANCE

Applicant

and

KENT CHARLES O’HALLORAN, INTREND PTY LTD, PARTINGTON AGENCIES PTY LTD, EUDUNA FARMERS PTY LTD, BOCKSOFFICE PTY LTD, ICEBERG MEDIA PTY LTD, DIY PRODUCTS PTY LTD T/AS WALLSPAN KENTOWN, ODDLOT SHARES & SECURITIES PTY LTD, BRIDGE FINANCE AUSTRALIA PTY LTD, QBE MERCANTILE MUTUAL INSURANCE, BOCKSOFFICE PTY LTD (IN LIQUIDATION)

Respondents

Application for special leave to appeal

GLEESON CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO ADELAIDE

ON FRIDAY, 16 NOVEMBER 2007, AT 10.25 AM

Copyright in the High Court of Australia

__________________

MR J.B. SIMPKINS, SC:   If your Honours please, I appear with MR M.A. FRAYNE for the applicant.  (instructed by Lawson Smith Lawyers)

MR N.W. MORCOMBE, QC:   If your Honours please, I appear with MR D.G.M. RIGGALL for the first respondent.  (instructed by Camatta Lempens Pty Ltd)

GLEESON CJ:   Thank you, Mr Simpkins.

MR SIMPKINS:   Your Honours, this leave application concerns the proper construction of two exclusions to public liability cover provided by the applicant under its home and contents policy.  The policy is to be found in the application book at page 98.

GLEESON CJ:   It looks like a mixture of a home and contents policy and a public liability policy of some kind.

MR SIMPKINS:   Yes.  It is home and contents policy cover which includes by way of, it would seem, gratuitous extension cover for public liability.  The particular exclusions are to be found at application book page 100 and the relevant exclusions at that page appear on the left‑hand side of the page under the heading “LEGAL LIABILITY”.  There is a statement of the indemnity for public liability subject to exclusions.  Subparagraphs (a) and (d) are the relevant exclusions.

GLEESON CJ:   As far as (a) is concerned, we can eliminate ownership and possession, can we?

MR SIMPKINS:   Yes.  The only relevant question in relation to exclusion (a) is use.  Exclusion (d) concerns claims or liabilities that arise out of or in connection with, relevantly, the occupation of the insured.  The policies issued by the applicant have changed over time.  This is dealt with in some affidavits that appear in the application book.  Your Honours have an affidavit at application book page 114 that deals with the changes to the policy.  Your Honours will find at paragraphs 4.3 and 4.4 at page 115 that exclusion (d) has changed but not in a substantially material way.

So the significance of the Full Court’s decision is an ongoing significance for the current form of the policy and also for the form of policies issued over the past several years by the applicant.  Exclusion (a) was altered in or about September 2001.  This is dealt with at paragraph 4.2 of the affidavit found at application book 115 and so the actual decision of the Full Court in relation to exclusion (a) is of limited relevance, although ongoing relevance, since there would be no time bar necessarily in relation to policies that had been issued.

The position as to the number of policies on issue is dealt with in another affidavit that your Honours will find starting at application book 111.  The actual numbers are set out in paragraph 4 at application book 112.  Your Honours will see that the form of policy that includes, relevantly, exclusion (d) is a form of policy currently on issue and which over the past several years has been the subject of currently in excess of 100,000 policies annually but in earlier years still significant numbers of policies.

GLEESON CJ:   This man, late at night, took his girlfriend in to show her his office.  In what sense was he using the premises?

MR SIMPKINS:   He was in the ordinary sense of the word “use” using the premises.  The issue dealt with by the Full Court was whether the ordinary sense of the word “use” ought to be confined because it produced an outcome which was absurd.  I want to come to that but I was proposing, if your Honours would permit, to address exclusion (d) first.

GLEESON CJ:   Exclusion (d)?

MR SIMPKINS:   Yes, which is the one relating to employment.  As I have indicated and what I have said to date, exclusion (d) is in a current form of the policy on issue by my client and it has been in substantially that form for the past several years.  So the Full Court’s decision in relation to exclusion (d) has an ongoing significance in relation to all those issued policies.

GLEESON CJ:   I am sorry, you said it is the one relating to employment?

MR SIMPKINS:   It is, yes, or occupation if I am being precise, your Honour.  The Full Court dealt with exclusion (d) at application book 71 at paragraph 30 of the judgment.  Their Honours said:

Exclusion (d) requires an appropriate nexus between the subject matter of the claim made by the third party against the insured and the insured’s business profession or occupation.

Then these words are significant:

Mr O’Halloran was not engaged in the performance of any duty associated with his occupation at the time of the negligent act which caused the fire.

Those words are significant because they suggest that the view that the Full Court had was that a relevant connection could only exist if the relevant negligent act occurred during the course of employment.  We say that was an error if that is the foundation for the Full Court’s decision.  Justice Duggan continued:

The fact that he was in the building where his office was located for a purpose completely unrelated to his occupation cannot provide the necessary link between the claim and that occupation.

Accordingly, exclusion (d) was said not to apply.  So to the extent that there is reasoning of his Honour, the reasoning essentially seems to be that the negligent act, in order for it to be in connection with occupation, has to be a negligent act in the course of the performance of the employment duties or possibly, nevertheless, an act which has as an aspect of it a purpose associated with the performance of the employment duty.

The facts, as I am sure your Honours are aware, are and were before the Full Court largely uncontroversial.  Mr O’Halloran did, as your Honour the Chief Justice put to me, take a female acquaintance to the office at night.  It was his place of employment.  He got access to it through provision of a key card that was an aspect of his employment.  The question for the Full Court was, having regard to exclusion (d), whether the fire which resulted from a negligent act of carelessly extinguishing a cigarette was a fire giving rise to a liability in connection with Mr O’Halloran’s occupation.  What we contended before the Full Court was that the connection was satisfied by the fact that the negligent act occurred on the premises that Mr O’Halloran went to for the purposes of his employment in the ordinary course and he obtained access to those premises because of his employment.

Similar words to the words that appear in exclusion (d) were considered in the decision that we provided a copy of.  This is the decision of Justice Derrington in Re AMP United Insurances Limited.  The provision in that case was an aspect of the indemnity which was provided, not an aspect or exclusions to the indemnity.  The relevant wording of the indemnity provision is at page 76,640 in the left‑hand column under the heading “COVERAGE”. 

It is an indemnity, as Your Honours will see, for a variety of things in the nature of liabilities for personal injury and property damage and including the words “in connection with the Business as described in the Certificate”.  In relation to that indemnity provision, his Honour Justice Derrington said, in the right‑hand margin on the same page commencing at about point 3, it is about halfway through the first complete paragraph on that side of the page:

In paragraph 2 it is predicated that the insured employee comes within the former limitation and the scope of the cover is then defined by reference to the nature of the harm done, the territorial limit, a time limit (the policy period) for the occurrence, and a nexus of the occurrence with the business.  It is only the lastmentioned that needs attention, and then only to note that the defendant makes no suggestion that the nexus did not exist.

Can I just interpolate there what the facts in this case were.  This was a case where there was a dog attack.  The dog attack produced an injury and liability for personal injury.  The dog attack occurred not at the place of employment but at the employee’s premises, although the connection with the employment was that the person who was injured was frequenting the employee’s premises for a purpose associated with the business.  That was the factual context his Honour Justice Derrington was dealing with.  Then in the judgment, if I can continue, his Honour says in relation to the existence of a relevant nexus:

This is correct because the attack and injury occurred because and while the third party was on the insured’s land for the purpose of the employer’s business.  The very wide scope of the expression, “in connection with”, commands such a result, for harm may occur “in connection with” the insured’s activity though the act of negligence causing it may be outside it . . . It might be observed for other purposes that this nexus is not limited to a connection in time.

His Honour Justice Derrington is recognising, in the context of that indemnity provision, that the words “in connection with” are broad, that an incidental occasion like the dog attack nevertheless could be relevantly in connection with the employment.  He found it in that case because the purpose of the third party going to the employee’s premises was a purpose associated with employment.

We do not have that purpose here, I readily accept that.  We have, on the facts of the case before the Full Court, no employment purpose but we do have the fact that the relevant negligent act occurred at the place of employment, the means of access to which was obtained as a result of the conditions of employment.  The issue for the Full Court was whether, on that factual situation, the requirement for “in connection with occupation” was satisfied.

We rely upon those authorities that give very broad meaning to the words “in connection with”.  We have not extracted those authorities in our outline of argument but, for example, in the application book at page 36, in the judgment of the trial judge at paragraph 146 there is a reference to an authority Our Town FM Pty Ltd and a decision of the British Columbia Court of Appeal recognising that the “in connection with” or “connection” are broad words and include matters generally having to do with the thing to which connection is required.

If that approach was adopted to this exclusion, as we contend it ought, then the liability occasioned by the negligent act of Mr O’Halloran had something to do with the employment because the negligent act occurred at the place of employment, access being obtained as a result of the employment.  As I indicated in what I said earlier, the proper interpretation of exclusion (d) is significant for my client having regard to the number of policies it has issued.

As your Honours may have gleaned, the way in which this presented itself to the Full Court was by way of appeal from a determination of separate issues.  Damages is not something which has yet been determined, although, as we said in our summary of contentions, the claims for damages seem likely to exceed, or possibly will exceed an amount of $7 million, that being the sum that we are aware of in terms of potential quantification presently.  So the matter is financially significant.

Dealing now with the other exclusion, exclusion (a), which is the one your Honour the Chief Justice put to me, associated with the concept of use.  The Full Court’s reasoning in relation to exclusion (a) is to be found in the application book at page 69.  It extends over about a page and a half but, in our submission, the nub of the reasoning really appears in essentially two paragraphs.  These at application book page 70, firstly paragraph 22.  At paragraph 22 his Honour Justice Duggan says:

However, to invest the word “use” in the exclusion clause with this broad meaning –

and he is referring back there to the meaning set out at paragraph 21 –

would limit in an unreasonable way the scope of the cover.  The exclusion would apply in circumstances where there was no more than a tenuous connection between the accident on the one hand and the land or a building on the other.  For example, a visit to the retail premises of a third party for the purpose of shopping would suffice to provide the necessary element of use.

As we read that, that is an argument based upon what is asserted to be the commercial absurdity of giving public liability cover with one hand and then stipulating on the other hand for a number of exclusions that effectively render that provision of cover nugatory.  The error in that approach – that is an approach founded upon commercial absurdity – is that, whilst the word “use” is broad, as both of the definitions – the one at paragraph 21 and the one at paragraph 23 – indicate, it is not a concept which is without boundaries and it does require more merely than that the occurrence giving rise to the liability occur on land or occur on a building.

His Honour Justice Duggan seems to assume, for example, that if something happened on land, being a shopping centre, therefore the exclusion would be triggered.  We say that that premise that there is no limit is a misconception, it is wrong and in drawing that conclusion, their Honours fell into error.  It is true that the exclusion within this policy in the form of exclusion (a) does not appear to be an exclusion that is in regular or common use.  The meaning, however, of the word “use” may perhaps be best illustrated by those cases that deal with liability arising out of use of motor vehicles, that being an issue that regularly arises in the context of an insurer’s liability for such incidents.

It is obvious from that line of authority that there can be many things that occur in connection with or in association with a motor vehicle which will not be relevantly something connected with a use of it.  For example, it has been held that if you mishandle a gun as you take the gun out of the motor vehicle and as a result of that mishandling something happens, the mishandling of the gun is not something which arises out of the use of a vehicle.  It has been said in the context of that line of territory that a broad, practical approach is required and that there must necessarily be, even with a concept as broad as “use”, some causal link.

Why we contend that the Full Court fell into error in relation to exclusion (a) is the whole approach to construction turns upon the premise that if “use” is given a broad expression, there is no relevant content to the exclusion and no relevant content to the indemnity because they.....each other off.  We contend that to be a misconception because the term “use” has limits which, on a fact‑to‑fact basis, would need to be considered.  We therefore say that in relation to that aspect of the decision of the Full Court, it fell into error as well.

We accept that in relation to exclusion (a), it has no ongoing relevance to policies that have been issued.  It does have relevance to policies that remain on issue in relation to which there is no time bar available.  To complete the analysis, the reasoning of the Full Court beyond paragraph 22 that I took the Court to which is an argument based upon absurd outcome, Justice Duggan then went, in paragraph 24, to try and

derive some appropriate limitation on the concept of “use” and introduced notions which really are not supported by either of the two dictionary definitions at paragraphs 21 and 23 or by any process of appropriate construction.

The Court was dealing in exclusion (a) with a term that included not only the concept of “use” but the concept of ownership or possession.  Essentially what the Court did was to restrict the concept of “use” by reference to things taken to be appropriate attributes, or necessary attributes of ownership or possession.  At paragraph 24, what his Honour Justice Duggan did was to confine “use” to a circumstance in which there was something in the nature of status of land or status associated with land and confine it to something requiring a degree of control over land and, we say, quite inappropriately construed an ordinary English word which ought to have been given its appropriate meaning in the context of this policy because it did not produce an absurd outcome.  If your Honours please, those are my submissions.

GLEESON CJ:   Thank you, Mr Simpkins.  We do not need to hear you, Mr Morcombe. 

We think that there are insufficient reasons to doubt the correctness of the decision of the Full Court of the Supreme Court of South Australia to warrant a grant of special leave in this matter and the application is dismissed with costs.

MR MORECOMBE:   Your Honours, could I raise the question of costs?   In our outline we have indicated at paragraph 24 that we seek an order for indemnity costs in this matter.

GLEESON CJ:   Yes, we read that.

MR MORECOMBE:   Based on page 100 of the application book because of the terms of the policy, that under the terms of the policy my client was granted an indemnity by this insurer and it failed to honour that obligation.  As a result of that failure ‑ ‑ ‑

GLEESON CJ:   If that is a contractual right of your client ‑ ‑ ‑

MR MORECOMBE:   Yes, sir.

GLEESON CJ:   We just make an order for costs, the order we have made.  If you claim that you have a contractual right to indemnity in respect of any difference between what you recover under our order and the costs that you have incurred, you will be able to enforce that claim in contract, will you not?

MR MORECOMBE:   We would be able to enforce it for breach of the contract but as opposed to pursuant to the terms of the contract, your Honour, and that would then require my client to embark on yet another set of proceedings.

GLEESON CJ:   Is there anything else you want to say?

MR MORECOMBE:   No, your Honour.

GLEESON CJ:   The application is dismissed with costs.

AT 10.45 AM THE MATTER WAS CONCLUDED