State of NSW v Australian Family Assurance Ltd

[2003] NSWSC 203

Reported Decision: (2003) 12 ANZ Insurance Cases 61-562

Supreme Court

CITATION:	State of NSW v Australian Family Assurance Ltd [2003] NSWSC 203
HEARING DATE(S):	18 March 2003
JUDGMENT DATE:	18 March 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Judgment for the Defendant.
CATCHWORDS:	RES JUDICATA - ISSUE ESTOPPEL - PRIVY - INSURANCE - Plaintiff claims Defendant insurer bound by issue estoppel arising from judgment in proceedings to which Defendant not a party - whether an insurer who does admit liability under a policy and does not take over defence of proceedings is a "privy" for purpose of doctrine of res judicata or "Anshun estoppel". - HELD: Defendant neither a "privy" to the earlier proceedings nor "Anshun estopped".
CASES CITED:	- Blair & Perpetual Trustee Co Ltd v Curran (Adam's Will) (1939) 62 CLR 464 - Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 - Spencer Bower, Turner and Handley: "The Doctrine of Res Judicata" (3rd Ed, 1996, paragraph 231)
PARTIES :	State of New South Wales - Plaintiff Australian Family Assurance Limited - First Defendant Triton Underwriting Insurance Agency Pty Ltd - Second Defendant
FILE NUMBER(S):	SC 4800/99
COUNSEL:	M.W. Anderson - Plaintiff D.J. Fagan SC - Defendants
SOLICITORS:	I.V. Knight, Crown Solicitor - Plaintiff Carneys Lawyers - Defendants

Ex tempore

1    The Plaintiff (“the State”) sues the First Defendant (“the Insurer”) upon a contract of insurance in which the State is not named as an insured. The State says, however, that a judgment in proceedings in the District Court, to which the Insurer was not a party, creates an issue estoppel or an Anshun estoppel whereby the Insurer cannot now deny that, on the true construction of the policy, the State was named as an insured.

2    Alternatively, if there is no issue estoppel, the State contends that on the true construction of the policy it is indeed named as an insured. No cause of action is formulated in the Statement of Claim against the Second Defendant, which was the insurance broker in the relevant transaction. The State has conceded that it is proceeding only against the Insurer. Accordingly, it will not be necessary for me to deal with any claim made by the State against the Second Defendant.

3    The facts are not in dispute and may be stated shortly. By a contract dated 1 January 1997, the Principal of South Bathurst Public School, on behalf of the State, granted to Bathurst Physical Culture Club (“the Club”) authority to use certain parts of the school for the teaching of physical culture (“the Community Use Agreement”). Clause 5 of that Agreement provided:

“ Indemnity

5. The community user must be covered by a broadform contractual third party liability policy that indemnifies the State against all actions, suits, claims, demands, proceedings, losses, damages, compensation, costs (including solicitor and client costs), in respect of:

– any personal injury occurring on the premises or on school grounds used to enter or leave the premises, or

– damage to the equipment or any other property of the State or any other person or corporate body, arising directly or indirectly from the use of the premises or equipment by the community user.”

Clause 6(ii) of the Agreement provided:
ii The community user has taken out and shall maintain broadform contractual third party liability insurance coverage of at least $2 million with the State of New South Wales as an additional named insured and subject to a cross liability clause, with a company approved by the State. (Complete all details below.)
Name of Insurer: Family Assurance Ltd
Policy Number: 600094
Date of Expiry: 31/3/98”
4    Purportedly in compliance with these clauses, a policy of insurance was taken out on behalf of the Club with the Insurer for the period 31 March 1997 to 31 March 1998. The relevant provisions of that policy are as follows.

The insuring clauses relevantly provide:


“ COVERAGE

We will pay to You or on Your behalf all amounts which You shall become legally liable to pay for compensation

in respect of Personal Injury or Property Damage,
which happens during the Period of Insurance, and
is caused by an Occurrence in connection with the Business.
…
In addition to the Limits of Liability stated in the Schedule, We will:

``1. Defend any suit against You claiming any amounts for Personal Injury or Property Damage and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; and We may investigate, negotiate and settle any claim or suit as We deem expedient; but We shall not be obligated to pay any claim or judgement or to defend any suit after Our Limit of Liability has been exhausted by payment of judgements or settlements;
…”

Personal injury is defined as:

“ bodily injury, death, sickness, disease, disability, shock, fright, mental anguish and mental injury;

false arrest, false imprisonment, wrongful eviction, wrongful detention, malicious prosecution and humiliation;

libel, slander, defamation of character or invasion of right of privacy; and

assault and battery not committed by or at Your direction unless committed for the purpose of preventing or eliminating danger to persons or property.”

The Exclusion clauses included the following:
“We shall not be liable for claims in respect of:
…
3. Contracts and Agreements


Liability assumed by You under any contract or agreement except to the extent that such liability would have been implied by law.

Exclusion 3 shall not apply to:

(a) the written contracts specified in the Schedule [there are none] ;
…
(c) liability assumed by You under any lease or agreement of real or personal property;”

Under “Cross Liability” appears

“Where You are comprised of more than one person or entity, each shall be considered as a separate legal entity.

The words You and Your shall apply to each person or entity as if a separate policy had been issued to each.”

“You/Your” is relevantly defined to mean:

“… each of the following, to the extent set forth below:

(a) the named Insured in the Schedule;
…”
5    The schedule to the policy was as follows:

“Insured
BJP Physical Culture Clubs & Edith Parsons School of Physical Culture at&from Anywhere in Australia

Policy Details
Policy Number: BL 16512/98
Period of Insurance: 31.03.97 to 31.03.98
4pm local standard time at the respective place where the property/ liability insured is located
Transaction Type: - New Cover
Broker : Australia Family Assurance Ltd

INTRODUCTION

THIS IS TO CERTIFY that in accordance with authorisation granted under Contract to the undersigned by certain Underwriters whose names are said Underwriters are hereby bound each for his own part and not one for another, their Heirs Executors and Administrators, to insure in accordance with the terms and conditions contained herein or endorsed hereon.

Activities:	Physical Culture Clubs	2000
Situation No: 1	at&from Anywhere in Australia
Bathurst Physical Culture Club on schedule	BROADFORM LIABILITY
BROADFORM LIABILITY
- Broadform Liability	$5,000,000
- Products Liability	$5,000,000
ENDORSEMENTS:	Nil
Excess	- Personal Injury	$250 Each & Every Claim
- Property Damage	$250 Each & Every Claim
State:	NSW New South Wales

6    A certificate of currency in respect of a policy showed, in so far as is relevant:

NAME OF INSURED:	BJP PHYSICAL CULTURE CLUBS
NAME OF CLUB:	Bathurst Physical Culture Club Inc.

7    On 9 April 1997, a Mrs Walsh fell on the school premises while picking up her daughter from a physical culture class conducted by the Club. She sustained injury and sued both the State as owner of the school premises and the Club for negligence. The State and the Club filed Defences denying liability, and the State filed a Cross Claim against the Club claiming damages or breach of the Community Use Agreement in failing to procure a policy of insurance in which the State was named as an additional insured.

8    The proceedings came on for hearing before Cooper DCJ on 8 March 1999. Mrs Walsh compromised with the Club but not with the State. On 16 March 1999, his Honour delivered judgment in which he found that the State had breached its duty of care to Mrs Walsh and awarded her damages of $78,121.60.

9    His Honour then dealt with the Cross Claim by the State against the Club. His Honour found that the Club was not in breach of Clauses 5 and 6 of the Community Use Agreement because the State was also indemnified under the policy of insurance. His Honour’s reasons were as follows:

“The activities in the schedule are described as physical culture clubs. The situation is anywhere in Australia. Written in ink is “Bathurst Physical [Culture] Club on Schedule” and there is an initial. Then there is what is described as broadform liability and the broadform liability is $5,000,000, the product’s liability is $5,000,000. Excesses are set out and then down the bottom appear the words, “state NSW: New South Wales.” The insurers are described. The premium totals, including the stamp duty, a little under $15,000. This schedule makes it clear that this policy covers a group of clubs comprising individual clubs which conduct physical culture clubs throughout Australia.

The evidence of Mr Parker [the principal of the South Bathurst Public School] is that the form of agreement between the State and community users, Exhibit 2, is a standard form for all State schools in New South Wales. On the balance of probabilities, I am satisfied that this would have been brought, by the principal club in Sydney, to the knowledge of its brokers and that the brokers negotiating the insurance would have known of the obligation under that form of agreement and would have known that, under it, the State of New South Wales had to be covered by the policy.

In the light of this I am satisfied that the insured named in the schedule are the groups of clubs, each member of which obtains the benefits of the policy. One of such members is stated to be the Bathurst Physical Culture Club, and, in addition, there is also an indemnity granted where required to the State of New South Wales.”

His Honour therefore dismissed the State’s Cross Claim against the Club.


10    The State did not appeal from that judgment. However, it then sought indemnity from the Insurer on the grounds that the policy indemnified the State in respect of Mrs Walsh’s judgment against it, or else on the ground that the Insurer was estopped by the judgment from denying that the policy indemnified the State. The Insurer declined liability.

11    The State contends that although the Insurer was not a party to the District Court proceedings it is nevertheless bound by an issue estoppel by the judgment on the Cross Claim because the Insurer was a privy of one of the parties to that Cross Claim, namely the Club. Accordingly, the State relies upon the principle enunciated in the often quoted passage from the judgment of Dixon J in Blair & Perpetual Trustee Co Ltd v Curran (Adam’s Will) (1939) 62 CLR 464, at 531-532:

“A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or restrained or that rights be declared. The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.

Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. In the phraseology of Coleridge J. in R. v. Inhabitants of the Township of Hartington Middle Quarter [(1855) 4 E&B 780, at 794], the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous.”

12    Mr Anderson, who appears on behalf of the State, concedes that there is no evidence that the Insurer accepted liability under the policy in respect of Mrs Walsh’s claim against the Club, or that it conducted the Club’s defence either of Mrs Walsh’s claim or of the State’s Cross Claim against the Club. He concedes that there is no evidence that the Insurer took any part in the District Court proceedings at all. It is, therefore, purely a matter of speculation whether the Insurer admitted that the policy responded to Mrs Walsh’s claim and conducted the Club’s defence, or whether it disclaimed liability and left the Club to its own resources. In these circumstances, I am unable to accept a submission that the Insurer was a privy of the Club and, therefore, bound by an issue estoppel arising from the judgment on the Cross Claim. My reasons are as follows.

13    The meaning of “privy” for the purpose of the doctrine of res judicata or issue estoppel is authoritatively set out in paragraph 231 of Spencer Bower, Turner and Handley The Doctrine of Res Judicata (3rd Ed, 1996) as follows:

“Privies include any person who succeeds to the rights or liabilities of the party upon death or insolvency, or who is otherwise identified in estate or interest. It is essential that the party to be estopped by privity must have some kind of interest, legal or beneficial, in the previous litigation or its subject matter. Privity was described by the US Supreme Court as a mutual or successive relationship to the same right of property, although this cannot be exhaustive. Hence assignees will be bound as privies of the assignor.

Privity is not established by proof of curiosity or concern in the litigation, or ‘some interest in the outcome’ …
…
To be bound by privity of interest the privy must claim under, through, or on behalf of, the party bound.”

14    In my view, the Insurer meets none of these qualifications. It is not shown to have had any relevant interest in the Cross Claim which gave rise to the judgment said to found the estoppel. The Insurer had not insured the Club under the policy for any liability for breach of contract such as was alleged against the Club. It had insured the Club only in respect of “personal injury” and “property damage”, as defined. Accordingly, the Insurer had no interest in common with the Club, or indeed at all, in the fate of the Cross Claim.

15    Indeed, the Insurer’s “interest” in the Cross Claim, if one can call it that, was directly opposed to the interests of the Club. It was in the interest of the Club to claim by way of defence to the Cross Claim, as it did, that the policy did indeed indemnify the State so that the Club was not in breach of the Community Use Agreement. However, if the Insurer had been involved in the Cross Claim in any way it would have been in the interests of the Insurer to maintain that the policy did not indemnify the Sate in respect of the judgment which had been secured against it by Mrs Walsh.

16    For these reasons, I conclude that the Insurer is not bound by any issue estoppel as to the construction of the policy.

17    I now turn to whether an Anshun estoppel binds the Insurer. An Anshun estoppel depends upon a finding that a matter relied upon by a party in a second proceeding was so relevant to the subject matter of a first proceeding to which that party was also a party, that it would have been unreasonable not to have relied upon it in the first proceeding: see Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, at 602. It follows that there can be no Anshun estoppel against a party in a second proceeding if that party was not a party to the first proceeding or had in some way the conduct of that first proceeding.

18    For the reasons that I have given, the Insurer was neither a party to the first proceeding, namely the District Court proceeding, nor can it in any way be said to have had the conduct of that proceeding on behalf of the Club so far as the evidence reveals. For that reason, I am of the view that no Anshun estoppel binds the Insurer in the present proceedings.

19    Finally, I turn to the question of construction of the policy. With the greatest respect to Cooper DCJ, I confess that I am unable to follow his Honour’s reasons for concluding that the State is named in the policy as an insured. The definition of “You” , i.e. the insured, states clearly that the insured is “the named Insured in the Schedule” . That indicates that the person or body named as “the Insured” in the Schedule is to be the insured under the policy.

20    The Schedule does not name the State as an insured. There is a part of the Schedule under which the “Insured” is identified but the State does not appear there. For that matter, neither does the State appear in the Certificate of Currency against the item “name of insured” .

21    The State’s argument depends upon the inclusion of the words “State: NSW New South Wales” at the very foot of the Schedule to the policy, apparently unconnected with anything else. In my view it is impossible, as a matter of construction, to draw the conclusion that these words were included to signify that the State was to be an insured under the policy. The words are capable of signifying merely that the policy was written in the State of New South Wales. Further, there is no evidence referred to in the judgment as to what transpired between the Club and its insurance brokers which can support the inference which Cooper DCJ draws as to the knowledge of the brokers and as to the consequences thereof. Even if such an inference could be drawn, I do not understand how, as a matter of construction of the policy, it could have the consequences at which his Honour arrived.

22    For these reasons, I conclude that the policy on its true construction does not indemnify the State. In the result, therefore, there will be a verdict for the Defendants on the Amended Statement of Claim.

23    I order that the Plaintiff pay the Defendants’ costs of the proceedings. I order that the exhibits may be returned.

– oOo –

Last Modified: 03/27/2003