Toikan International Insurance Broking Pty Limited v Plasteel Windows Australia Pty Limited & Ors; Plasteel Windows Australia Pty Limited & Anor v Salamander Investment Corporation Pty Limited

[1989] HCATrans 160

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S23 of 1989

B e t w e e n -

TOIKAN INTERNATIONAL INSURANCE

BROKING PTY LIMITED

Applicant

and

PLASTEEL WINDOWS AUSTRALIA PTY LIMITED AND PLASCON INDUSTRIES

PTY LIMITED

First Respondents

and

SUN ALLIANCE AUSTRALIA LIMITED

Second Respondent

Office of the Registry

Sydney No S29 of 1989

B e t w e e n -

PLASTEEL WINDOWS AUSTRALIA PTY LIMITED AND PLASCON INDUSTRIES

PTY LIMITED

Applicants

and

Toikan

MASON CJ
DEANE J
GAUDRON J

SALAMANDER INVESTMENT CORPORATION

PTY LIMITED formerly known as

TOIKAN INTERNATIONAL INSURANCE

BROKING PTY LIMITED

First Respondent

and

SUN ALLIANCE INSURANCE LIMITED

Second Respondent

Applications for special leave to

appeal

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TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 7 AUGUST 1989, AT 10. 17 AM

Copyright in the High Court of Australia

MR C.G. GEE, QC:  May it please the Court, I appear with

my learned friend, MR N.G. REIN, for the applicant

in the first application just called. (instructed

by Minter Ellison)

MR B.W. RAYMENT, QC: May it please Your Honour~ I appear

with my learned friend, MR P.E. BLACKET, for the

Plasteel companies who are respondents in the first application and applicants in the second.

(instru.cte.chby AR Conolly & Co.)

MR G.S.C. SHELLER, QC: If the Court pleases, I appear with

my learned friend, MR J.E. MACONACHIE, for the

second respondents in each application. (instructed

by Leigh Virtue & Collins)

MASON CJ:	Yes, Mr Gee.
MR GEE:	If Your Honours please. Your Honours, the applicant

in the first application was the insurance broker,

one of two parties forming the defendants originally.

The claim against both arose out of a fire which

occurred in February 1987 at premises then occupied

by the first respondents to our application and,

perhaps for convenience, if I may, Your Honours,

I will call them the occupiers.

The occupiers were two companies who had

purchased from a receiver of five predecessors the going concern which carried on business in

the premises. The business which the occupiers

conducted at the time of the fire was, for practical

purposes, the business that had been conducted

previously in the physical sense.

The fire was the result of arson; that was

agreed at the trial. The occupants made a claim

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upon the insurer, the second respondent to our

application which party denied liability among

other bases upon the basis that there was simply

no contract of insurance between the occupants

and itself and the occupants sued my client at

first instance in negligence for having failed

to ensure that there was proper insurance in place.

MASON CJ:  We are familiar with the history of the matter

so you might come directly to the questions that

you want to adumbrate on in the appeal.

MR GEE:  If Your Honour pleases. Your Honours, the matters

that the applicant wishes, in our application,

to ventilate are three: novation, the effect of

section 48 of the INSURANCE CONTRACTS ACT and the

question of non-disclosure. The first two are

related in that if either argument succeeded it

would follow that there was a contract, subject

to such defences, of course, as might properly

be raised, of insurance as between the occupants

and the insurer.

It would follow that from my client's point

of view, if there was success on either of those

bases, there would be no need for any further

consideration of the non-disclosure question because
as brokers they would have discharged their duty

of obtaining a contract of insurance.

The novation issue, Your Honours, throws up

points which have not been fully investigated by

the Court as the application affidavit would make

clear to Your Honours. The only case in the Court

in which the question of novation in what might

be called the strict sense has been considered

in any detail was in the judgment of His Honour

Mr Justice Windeyer in OLSSON V DYSON. That,

in the result was, in any event, a dissenting judgment

and, importantly from the point of view of further

consideration by the Court of the principles of

novation, His Honour did not take the view that

that case involved a novation in the sense we would

urge, namely a change of parties, but rather a

change of the nature of the contract in that case.

The question of what consideration is necessary

for a proper novation - - -

GAUDRON J:  Would not one aspect of a proper novation be

that the insurer knew that new contractual relationships

were coming into existence?

MR GEE:  Yes, Your Honour.

GAUDRON J: That would be fundamental, would it not?

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MR GEE:  Yes, Your Honour, which, of course, throws us to

the question of the memorandum to which I assume

Your Honour refers.

GAUDRON J: It throws you even further than that, does it

not? It throws you to adverse findings of fact.

MR GEE:  The adverse findings of fact, Your Honour, are,

of course, themselves findings of law in disguise;

that is to say, they are decisions about the supposed

legal effect of the combination of the submission

of the memorandum speaking about change of name

and the issue thereafter by the insurer of an

endorsement which showed the names of the new parties.

GAUDRON J:  But is it not the case that no matter how you

frame the issue there had to have been an offer

and there had to have been an acceptance of that

offer before you got any contractual relationship;

whether the offer was made and, if made, accepted

are surely questions of fact which, if not directly

found against you, are impliedly found against

you by the reasoning in both courts, both at first

instance and in the Court of Appeal?

MR GEE:  Your Honour, with great respect, the problem is

that there has been no ultimate finding of those

critical facts. We submitted, and His Honour

Mr Justice Yeldham set it out in extenso that there

was offer, there was acceptance, there was good

consideration and there was acceptance incidentally,

in our submission, by	performance in this case,
namely issue of the endorsement.	But no court,

because of anterior rejection of the idea of novation
for other reasons has, in fact, made, in our

respectful submission, even by implicatioc, an adverse

finding on whether there was offer or acceptance.

GAUDRON J:  The adverse finding is bound up in the finding

that the insurance company did not know that a

new contractual relationship was to come into

existence; absent that knowledge, there was neither

novation nor acceptance of any offer to be found

in the memorandum although, in the Court of Appeal as I read it, it was not - that memorandum was not taken to be an offer either.

MR GEE:  Yes, Your Honour, but the fact of the matter is,

in our respectful submission, that the question of whether it could constitute an offer was not decided by any of the courts below.

GAUDRON J:	Not whether it could, whether it did?
MR GEE:	Your Honour, because the courts below, in our

respectful submission, took the position that there

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was a want of consideration and a want of discharge

of the old obligation of the five predecessors,

the ultimate question of whether it was an offer capable of acceptance was simply not decided, in

our submission. What was said was that there were

difficulties in the way of deciding ultimately

that a memorandum about change of name constituted

an offer. And there is an absence of finding,

with respect, that it did not.

GAUDRON J:  At page 47 in the decision of Mr Justice Samuels,

the very top:

Read in the most liberal way it amounts to

no more than a request to the insurer to

endorse a change of name on the policy.

I would read that as discounting or excluding its

being read as an offer which - - -

MR GEE: Your Honour, two things: first, that that statement,

as His Honour made clear at the bottom of the previous

page, was unnecessary in His Honour's decision,

His Honour having rejected the question of any

possible novation on the bases that are elucidated

on page 46; second, a statement that read in a

liberal way it was no more than a request to the

insurer to endorse a change of name on the policy

falls short of enabling a decision on the matter

because the fact is that the insurer did produce
an endorsement the legal effect of which has not

been the subject of judicial determination and,

ultimately, our submission is that it constitutes

an acceptance by performance and, therefore, there

is no adverse decision of the kind that Your Honour

postulates.

DEANE J: · Mr Gee, do you say that the insurer knew that there

had been a change of companies because

Mr Justice Samuefa says quite specifically that there is no evidence that it inferred that from

as conveying that? the memorandum and that the memorandum cannot be read

MR GEE:  Your Honour, there is no direct evidence that the

insurer knew but because the matter has never got

to the stage of determination in the way we submit
there has been no examination of the inferential

process by which the insurer might become to be fixed with knowledge. And could I just enlarge that in one small way, Your Honour: supposing

the facts were the same as they are here but the

memorandum was slightly differently worded to refer

to natural persons, "Would you please note a change
of name from C. Gee to B. Rayment. ", and the insurer

issued an endorsement to that effect. It could

hardly be said in those circumstances, Your Honour,

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that insurer was not, at least by inference, fixed

with knowledge that there was an offer forthcoming

from another party.

And if that is so, then by processes of

inference which have not been thought through in

this case because of the way courts have approached the question of new contract, so an inference might

be drawn against this insurer from the following

facts:  one, that they knew there was a receiver;

secondly, they knew there were five companies

previously trading as the insured and you could

hardly have a change of name in the crude sense

from five to two; and other matters of that kind.

These matters have not been the subject of

determination, Your Honours, but from a special

leave point of view - - -

GAUDRON J: Perhaps that is right but is it not the case

that on any view either your client or Mr Rayment's

client would have to have established a contractual
relationship that you bore an onus which it seems

from reading the papers you sought to discharge

by reference to the term of novation.

MR GEE:  That is one of the ways, Your Honour, the other

being, of course, section 48 which is the other

way of sheeting a contract home.

GAUDRON J: Section 48, yes.

MR GEE:  I am sorry, I have put that inaccurately and I will

come back to that when we come to section 48.

GAUDRON J:  Do I take it that the position is that if

section 48 does not work and novation does not work you do not claim any contract between the

occupiers and the insurer?

MR GEE:  Your Honour, there are two forms of novation but the

one that we have been primarily urging is one in

which there is a true change of parties so that

A who once contracted with Bis now contracting

with C but the other possibility which is just as live here, in our respectful submission, is

that A and B have contracted in such a way as to

confer the benefit of the contract on C which is

what His Honour Mr Justice - - -

GAUDRON J:	Who are A and Bin this case?
MR GEE:	A is the insurer throughout, Bis the old party

to the contract, C is the - - -

GAUDRON J:  On that basis there is a finding of fact against

you, is there not, in so far as Mr Justice Samuels

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said, "The old companies and the receiver had

nothing to.do with - - -"?

MR GEE:  Had nothing to do with it. Your Honour, with great

respect, there are two answers to that which

His Honour does not appear to have adverted to.

The first is that the receiver was in a sense handing

the matter over, he was, by implication, wanting
to confer such benefit of the policy, which he

did not think through, of course -such benefit

as existed in the policy upon the successor company.

The second is - - -

GAUDRON J:	The receiver was?
MR GEE:	The receiver was - well, he was washing his hands

of the policy in a sense but it existed and it

was a contractual obligation imposed upon, in effect,
him as receiver. He had to be in some way discharged

from that obligation which included inter alia,

Your Honour, further payment of premium. But the

second matter that we put is that what has been

overlooked, with respect, is that my client, the
broker, was in law and in fact acting as the agent
for both, that is, both the old and the new supposed

insured entities. And in a very factual sense,

that was the case and there is no reason why my

client, acting in that dual agency capacity, could
not have brought about the novation for which we

contend.

DEANE J:	But was that argument put, Mr Gee, one of agency?
MR GEE:	I cannot speak with sufficient confidence from
memory, Your Honour, to say whether it was or was
not.

DEANE J: It had struck me that it was not mentioned in the

ND judgments in the Court of Appeal.

MR GEE:  Yes. It is certainly not mentioned, Your Honour, and I am not able to say with confidence that it

either was or W:18. not put in the course of sul:miss ions

somewhere along the line. Put or not, in my

respectful submission, it constitutes a valid way of

looking at the question of novation such as to

overcome the difficulties that Mr Ju$tice Samuels and

the others in the court below put in the way.

Those are the points on novation, Your Honours, save that in referring to the question of premium

which,His Honour Mr Justice Samuels pointed out,

had been paid for the whole policy period, there was

a good instance, in our submission, of that notion

of release of the old obligation which novation

calls for, namely that the insurer would not be

obliged to refund the unearned premium on the old
policy, but that the new insured was taking over

the obligations.

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DEANE J:  Would you dispute that if it were not proved that

the insurer at least knew that there had been a

change of indentity that the argument on novation and

the argument on a contract by some other means must

fail?

MR GEE:	With respect, no, Your Honour, I would not adopt that.
DEANE J:	I was not suggesting you would adopt it.
MR GEE:	No.
DEANE J:	I would be grateful if you could indicate to me - - -
MR GEE:	Your Honour, one of the reasons why, in our respectful
submission, this question of novation should be looked at by the Court is for the very question of determining whether the true nature involves a genuine tripartite action in which A, in my earlier hypothesis, has to be aware of the presence of C in dealing with B, whether consideration has to flow from C, a point not
by any means at rest, or whether it is enough that A
and B conduct themselves in such a way, including
mutual release from the previous obligation, that a
benefit is, in fact, although unknown to A, given to C.
So that the matter, in our respectful submission, requires that elucidation by the Court.
DEANE J:	I still cannot see how you could get a contract by

novation or otherwise in these circumstances if the

insurer did not know that there had been a change in

identity of the companies carrying on the business.

MR GEE:	Your Honour, I am asked for a concession about the
matter and I have given my - - -
DEANE J:	I was not asking you for concession. It is just

something that is operating in my mind at present.

MR GEE:  Yes. Well, Your Honour, the other aspect of the

matter that I have not put properly, obviously, is

that as a matter of crude analysis the insurer must

be taken to have known here were two new companies supplanting five. Not only were names different

but. prima facie they were different people and this

insurer knew that a receiver was in and by inference

may well be selling assets. So that when one adds

to that the fact that in a state of evidence which

was perhaps not powerful but sufficient, the insurer

produced no evidence on the matter, there would be

a valid ground for finding - we are submitting, as

I have said, that there has been no express finding

about this - that they did know.

Your Honours, then there is the question of

section 48. I said inaccurately to one of the

members of the Bench a moment ago that the question

of section 48 involved the question of another way

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of producing a contract and I doubt if that is an

accurate -in fact, I am sure it is not an accurate

way of putting it. Section 48 is an alternative

method of obtaining recovery as distinct from

producing a contract.

Your Honours, could I just briefly take

Your Honours to section 48.	I am sorry, these
should have put in.	Your Honours, section 48

is a new notion, it would appear, in this insurance

code. There is no decision of which we are aware at

any level since the Act came into operation. It

provides, Your Honours, that:

Where a person who is not a party to

a contract of general insurance is

specified or referred to in the contract,

whether by name or otherwise, as a person

to whom the insurance cover provided by the

contract extends, that person has a right

to recover the amount of his loss from the

insurer in accordance with the contract

notwithstanding that he is not a party

to the contract.

Then subsections impose obligations on that person as

if they were an insured and give the insurer such

defences as it would otherwise have had. Now,

Your Honours, in our respectful submission, section 48

has tended simply to be pushed aside. MrJustice Samuels

rejected it in one line as being a possible basis

for recovery by the occupants under the policy -

that is at page 47, Your Hor.i.our, about point 8 - and

yet we would respectfully submit that here 1s a

case in which the occupants simply fall within the

language. We take as the starting point a rejection

of the novation argument and therefore a rejection of

the idea that in law they were a party in the way I

was seeking to put before.

Notwithstanding that absence of privity they were, on any view, in our respectful submission,	named by the insurer in its own endorsement as a	party "specified or referred to in the contract",
to take the words of the section, and what other purpose could there be but as a person to whom the insurance cover provided by the contract extends.

MASON CJ:  But it is looking to an additional person, is it

not, a person who is specified in a sense as being

entitled to the benefits of the policy apart from a

contracting party?

MR GEE:	Yes.
MASON CJ:	Well it is difficult to fit these facts into that

framework, is it not, because here these people -

the identity is put forward as a contracting party,

not put forward as a person additional to a

contracting party?

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MR GEE:	Well, only if, Your Honour, that the decision is made
against us contrary to what we sought to submit
before, that the effect of the memorandum can only
be one way, that the plain legal fact, leave the
memorandum aside, is that this policy came to name two distinct true legal entities who were, in fact,
legally different from the anterior contracting
parties, the group I have called Bin earlier
submissions.  Now, those are the facts, Your Honour.
The nicety of how the parties got there is, with
great respect, irrelevant for the purposes of
section 48. If you get there and section 48
otherwise covers you, you get the benefit thereof,
and it is, with great respect, novel and this is a
convenient and clean-cut case in which the Court should examine the extent to which parties get the benefit of section 48, in our respectful submission and, but for what we would submit, with respect, would be a premature ~ejection of the ioea that the occupants were true new entities, simply because of the terms of the memorandum, it is a point that ~ould, we submit, call out for leave.

Now, Your Honours, the other question that the broker

advances 1s the question of non-disclosure. This is, of course, quite unrelated to the question of

whether there is a contract or whether section 48

operates. The proposition that we start with is

that the broker did not get a proper contract
of insurance but that if it had done so, that is if

it had not been in breach of its obligation, the

insurer would have been under no obligation to pay

thereunder because of non-disclosure by the insured,

so that although breach as between the occupants and

the brokers might be shown, damage is not.

The non-disclosure, Your Honours, arises out

of the facts that a director of the two new entities -
that was Mr Gavin to whom Your Honours may have seen
some reference in the judgments - was aware, personally

and not by report, of various acts of industrial

sabotage which had occurred in the old business. As

I have said, Your Honours, the business continued as

before, save for a change of ownership. He was the

general manager of the old business and he was

appointed a director of both the occupant companies.

Section 21 of the INSURANCE CONTRACTS ACT,

Your Honours, in our submission, required disclosure

of those relevant matters either by the old insured

at the time of renewal in September 1986 or in

November when the change of name, as I will call it

for convenience for the submissions, occurred.

No such disclosure occurred at either time. It

was not suggested that the broker was in any way at

fault in an absence of such disclosure at either of

those times and the matters were matters that were,

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within the words of section 21, "known to the

insured"; that is to say, a director of the new

entities and the old entities themselves knew

matters that were relevant,or a reasonable person

could be expected to know were relevant.

GAUDRON J:  And what, if any, do you say is the relationship

between section 21 and section 22 in respect of

this defence you seek to raise as against the

plaintiffs?

MR GEE:	In respect of the duty of disclosure point,
Your Honour?
GAUDRON J:	You see, one could understand the operation

of section 21 in the contract of insurance situation,
but your client as a broker asked to arrange
insurance and you seek to counter liability, or

reduce liability, by reference to section 21

without having regard to section 22 and how it would

impact either on the insurer or the broker.

MR GEE:	Your Honour, the obligation of section 22 falls
upon the insurer and the starting point in the
argument is that there is a notional policy.
GAUDRON J:	In which notionally the insurer, through your

client, gave written notice of the duty to disclose.

I mean, it is very hard to fit it with the facts

of this case, Mr Gee, when the whole case arises

almost because of a decision not to disclose.

MR GEE:	Your Honour, in terms of section 22 we would submit
that it works in this way, that one is judging the
question of whether the insured, in a hypothetical
contract, would have been debarred from recovery because of non-disclosure.

(Continued on page 12)

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MR GEE (continuing):	The question, therefore, hypothetically

is, would the insurer be prevented from relying

upon non-disclosure because it, the insurer, had

failed to give a notice. Now, Your Honour, first

of all, no question of notice arose in the sense

that it was not suggested by anyone that no

notice was given and, secondly, in any event the

question of notice would fall upon a hypothetical

insurer to show that it had discharged the burden

of giving the notice. That is to say, if

Mr Rayment's clients, the hypothetical insured,

wanted to say that they were not debarred from

recovery because section 21 was put in their way,

they would have to raise the question of section 22

and they did not.

So, Your Honours, we put the proposition that

nothing in section 21 relieved the occupants of

their duty of disclosure at either of the material

times with the result that if there were a finding -
if the courts below had come to this - that there
was a failure of disclosure it would be necessary
to look at section 28 and the consequential

question of whether, and to what extent, the

insurer could have diminished its liability.

GAUDRON J:  What, exactly, is the principle of law you say

you raise in this area of non-disclosure? Can

you put it in a short, simple way for me, Mr Gee?

MR GEE:	Your Honour, I will receive the implied
criticism and try to put it as shortly as I can.
GAUDRON J:	No, there may be two or three ways and I was

just wondering - - -

MR GEE:	Yes, in respect of section 21 the critical question
from the point of view of leave is what constitutes
the insured knowing because we have the situation
where Mr Gavin was common to both; he was a general
manager of the old entities, a director of the new.
purpose of disclosure, a point which, in our
Does that fix the new with knowledge for the
respectful submission, needs consideration by the
Court? Secondly - that is on section 21.
GAUDRON J:	You will have to go even further than that in section 21 to succeed on this aspect, do you not?
You have to go much further than fixing Mr Gavin
with knowledge or fixing the company with
Mr Gavin's knowledge.
MR GEE:	Yes, we would have to show that he knew a matter, or
matters, which were relevant to the decision of the insurer or a reasonable person in his
circumstances would be expected to know it was

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relevant. Now, Your Honour, there was evidence

directly on that question, the evidence of

Mr Hadgraft which was put aside by all below on

the basis that it was irrelevant to the point.

He was the insurer's own underwriting manager - I

hope I have remembered that title correctly - who

said that if he had known the facts he would never

have written the policy.

GAUDRON J:	May I go one further?
MR GEE:	Yes, Your Honour.
GAUDRON J:	Do you not have to show that the company,

through Mr Gavin, either knew that to be a matter

relevant or that a reasonable person must be

expected to know it to be a matter relevant? It

seems to me that some of these factual issues may

not have been explored at first instance. You see,

if one looks to page 52 of the application book

in the judgment of Mr Justice Samuels,

His Honour says:

I take His Honour -

referring to Mr Justice Yeldham at first.

instance -

to have decided as a fact that the
character of the matters relied on did

not satisfy the terms of s.2l(l)(a) or (b).

MR GEE:	Well, Your Honour, the words have troubled me for the obvious reason that His Honour Mr Justice Samuels was himself a little equivocal in that statement,
"I take His Honour to have decided" that so and so.
It is perhaps a question whether the character
of matters for the purposes of section 21 is itself
a question of fact but I will side-step that for a moment. His Honour, Mr Justice Yeldham, never
decided the matter because he came to the view that
there was an absence of knowledge in the sense of
being fixed with knowledge and he decided that is obvious at page 34, Your Honour; so that although
the matters were alive and litigated, they were not the subject of decision, but that does not mean that they could not and should not be.
GAUDRON J:	You see, I read page 35 somewhat differently,

Mr Gee, when I turn over the page. I read

His Honour. Mr Justice Yeldham as deciding the

matter on the question of materiality, the oral
test of materiality, as it were and then saying,
"I do not need to consider sections 21 and

sections 28".

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MR GEE:	Yes, but he did so, with great respect, Your Honour,
on the basis  simply that the new companies
were not fixed with the old knowledge and that
emerges, with respect, from page 34. And, if that
is a valid submission, then it follows that the
question of what the reasonable person in the
circumstances would be expected to know, given that
the new companies are fixed or imprinted with Mr Gavin's knowledge is something that has not been
decided but that is not the same as saying that it
has not been in issue.  And it would be, in our
submission, wrong in principle that we could get
to the stage where all other things were shown to be satisfactorily resolved from the point of view of
our argument only to find that we cannot have an
opportunity to have it decided whether a reasonable
person in the circumstances could be expected to
know the matters. With great respect, Your Honour, I agree that we have to go further than fixing the new companies with knowledge but we do and we have. And incidentally, of course, I have failed to tell
Your Honour so far that part of the insurer's defence at trial was this non-disclosure so that they were
concerned to make it good; it was very much in issue
and very much litigated. They happened to get out
on the basis that there was no contract so that there are very important questions in our respectful
submission.
GAUDRON J:	But there are not finding of fact so that in

this area you would be asking, if you were

successful, for a rehearing - - -

MR GEE:	Well, it may be necessary, Your Honour, or it may be
that a Court of Appeal looking at the whole of the evidence would be able to make the judgment the objective iudgment,that 21(1-)(b) calls for.' And, there is n:> reason why a c:ourt of appeal would not
be just as capable of making that objective judgment
as a judg·= at first instance.
GAUDRON J:	And did nothing rise on the insurer's case as

to non-disclosure about 22? Because, you see,

section 22(3) says:

An insurer ..... may not exercise a right

..... unless that failure was fraudulent. ;

Was there an issue of fraudulent failure on the part of the occupiers?

MR GEE:	Well, I am just hesitating to answer it, Your Honour.
In this area fraud does not necessarily mean an
active, conscious, deliberate act of deception as
has been made clear in MATHEW's case, but as betwe2rc

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the in8ured and tne. supposed insur~r,

Mr Sheller's client, there was an is3t1.e as to

whether there was s·1fficien: disclosure. On that issue

it was not suggested that the insurer was denied such

righcs as it had under sections 21 ana 28 because

of a want of complic1.nCt:! wich St:!Ction 22. That L, how we put it, Your Honour. And, I am reminded, Your Honours, that in any event there is a possibility

that section 71 does not require it where

the contract was arranged by an insurance broker as

agent of the insured which is very likely,

Your Honours, why the question did not arise below.

GAUDRON J:  Yes, but section 71 does rather starkly raise

the whole question of the duty of a broker in those

circumstances before being able to rely on the

defence of non-disclosure of what you put as a

hypothetical defence.

MR GEE:	Perhaps so, Your Honour, but in a matter in which
this was litigated below the failure of the broker
in some way in respect of non-disclosure was not
suggested.  If it were to be suggested, the matter was
put thoroughly in issue and that was the time and
place to do it. If Your Honours please.
DEANE J:	Mr Gee, if you were to get leave, what orders
would you be asking for on the appeal?
MR GEE:	It would depend upon the basis on which obviously
we were granted leave because there is no single order that covers both the non-disclosure aspect of leave, if granted, and the contract section 48 -
DEANE J:	I was directing the question really to the contract
question.
MR GEE:	Yes, well, Your Honour, we would suggest that the ultimate order that would be made, assuming we made good a novation argument on appeal, or a section 48
a verdict and judgment for the broker in the
argument on appea\ is that there would have to be
proceedings.
DEANE J:	But, that would imply acceptance of the proposition
that the insurer knew that there had been a change
of identity, would it not?
MR GEE:	Well, Your Honour, that would imply that on an
appeal, if permitted to carry the argument, that the submissions that we want to put about knowledge,
imputed knowledge, or the lack of need for it, have
succeeded.  Now, I am assuming Your Honour has asked
me what the ultimate order we would ask for would be.

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DEANE J:  Well, in other words, you could only succeed in

getting what you wanted in full if you established

that somehow the insurer was liable on a contract

of insurance with a new entity which it did not

even know existed?

MR GEE:	Or, alternatively, that it is obliged to pay
under section 48 subject to its rights.
DEANE J:	I follow under section 48. And, otherwise,

what?You·would ask us to overrule what

Mr Ju.stice Samuels said at page 4 7 and send it back

or make contrary findings or what?

MR GEE:	Well, Your Honour, it would depend to some extent on whether a Court of Appeal on full review felt that
there was merit in a court below examining the question of the precise state of knowledge or lack thereof of the insurer.
MASON CJ:	Thank you. Yes, Mr Rayment, you raise, the first

two points that Mr Gee has raised.

MR RAYMENT:  Yes, Your Honour. We also seek to oppose the

grant of leave on the non-disclosure point. Could

I start there if Your Honours please?

Your Honours, Mr Justice Yeldham at page 34,

half-way down, held that the matters which were said to require disclosure were not known by the r1asteel

companies but to say he made a finding of mixed law
and fact about the circumstances in which the Plasteel
companies would be held to know what one of its

directors knew, by reason of his employment in a

prior business, conducted by other companies.

Now, that, in our respectful submission, is

enough to stop the question of disclosure from

arising if it is right. It is in accordance with

legal principle; there was no duty to either the

company by which Mr Gavin was formally employed or

to his new company to disclose the matter in the

judgment depends upon a finding that section 21

circumstances disclosed in the evidence; so his

knowledge was, in our submission, compartmentalized.

was not satisfied in this case as a matter of fact. these matters but, in any event, neither they nor

a reasonable person in their position would know,

they would require disclosure. And, that is just a

question of fact depending on the next matter stated

on page 34 that the business had changed from the old the new conducted by my clients who had no

association with the old business. So that the

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matters in question were matters of history which
had ceased and even if they are taken to have

known them it cannot be found, as Mr Justice Yeldham

held, that there was a relevant duty of disclosure.

His Honour states the test correctly on page 34 by

quoting from section 21 towards the foot of that

page. Now, that finding, in our respectful

submission, was affirmed in the Court of Appeal at

page 52 and there is no point, in our respectful

submission, requiring this Court to grant special

leave with respect to non-disclosure.

Something was added in the Court of Appeal

at page 52 which my learned friend did not refer to

about the old test of materiality. In our

respectful submission, the matter was disposed of

by about line 6 on page 52. What is added on page 52

does not seem to be consistent with section 21(1)

but does not arise, in our respectful submission,
since the matter was correctly stated by the
learned trial judge. So we would respectfully submit
there is no special leave point on the matter of

non-disclosure.

We desire to give some qualified support to my

.learned friend in_ th_e special leave application and also

to press the first and second points against my
learned friend, Mr Sheller, but we desire to ask for
a special term if special leave be granted on the

contract points. Could I seek to emphasize in this

submission, Your Honours, section 48 rather than
the novation point because in our respectful

submission it directly arises. The point, in our

submission, of section 48 is to look at the matter from
the point of view of a person who would rely on the
fact that he has insurance because of some provision
of a policy, either naming him as a person having
the benefit of it or nami~g a class of which he is
a member having the benefit of it. Those facts, of

course, are not present here. If you ignore the

position of the broker entirely what happened so far

as my clients were aware is that they paid some

premium and they got a document which indicated that they knew in respect of this business and it was

essential to them to have such insurance. This was

insurance of all of their plant and equipment.

They are the kind of persons - - -

DEANE J:	Well, Mr Rayment, you say that but can you show us
that? I would have assumed that they got a document
which indicated they were a contractual party to a
policy of insurance.
MR RAYMENT:	What happened was that there was an endorsement

of their names on the policy of insurance. There was

a document emanating from the insurer - - -

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DEANE J:	As the insured?
MR RAYMENT:	Yes, as the insured.
DEANE J:	Well, normally the insured is the contracting

party.

MR RAYMENT:	Yes, Your Honour. What section 48 depends upon is not whether he is named as a party but
whether he is, in fact, a party if one reads it
fully, Your Honours. It operates:

Where a person who is not a party to a

contract of general insurance is specified

or referred to in the contract, whether

by name or otherwise, as a person to whom

the insurance cover provided by the

contract extends

It does not say how.

GAUDRON J:  This assumes that there was a subsisting contract

as between the insurer and the original Plasteel

group of companies and that nothing had happened at

the time of the notification and endorsement

brought that contract to an end?

MR RAYMENT:	Yes.
GAUDRON J:	You see, because there are two points in the

novation really, are there no~ and you have got to

go to a subsisting contract?

MR RAYMENT:	Yes, section 48 does not arise unless the novation point be wrong.
GAUDRON J:	But, it is not only that the novation is wrong,

it is that a subsisting contract between Plasteel

group and Sun Alliance - - -

MR RAYMENT:  Remained on foot?

GAUDRON J:  Yes, remained on foot, because 48 only operates

if there is a contract.

MR RAYMENT:  Yes, that is right, and the contrary was not

suggested.

GAUDRON J:  I am just wondering if the arguments were really

put at first instance before Mr Justice Yeldham.

MR RAYMENT:  Well, this matter arose in the Court of Appeal,

section 48.

GAUDRON J:  Yes, it is not a matter that - - -

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MR RAYMENT:	Without objection.
GAUDRON J:	Well, who raised it, may I ask, your client,

or Mr Gee's?

MR RAYMENT:  We both did; Mr Justice McHugh referred to

it in the dourt.

DEANE J:  But, if the endorsement substitutes two parties

for the insured the endorsement makes quite plain

that there is no subsisting contract if those two

parties are different from the previous insured,

so the endorsement destroys your answer to

Justice Gaudron.

MR RAYMENT:  Well, no estoppel was pleaded or relied upon

in any way below. What you had, Your Honours, was

simply a document which meant to my clients that

they were now the insured persons which was held as

a matter of law not to evidence a novated contract
whereby there was a change from five companies down

to two. All of the evidence in the case really consisted of the request to the insurer to note

what was described as a change of insured's name

in circumstances where they already knew there were five insured companies with different names and the insurer did not go into the box to say what those

documents meant to him. That was really what I

wanted to add to what my learned friend, Mr Gee,

said about the novation point but here you have

a classic situation in which inferences adverse to a

party might be drawn from his failure to go into the

box to deal with them. If I can just look at it

in terms of section 48, Your Honours, the fact that

the insurer knew there were five companies within

the Plasteel group of companies from his documents

on this policy in existence from the previous years,

the fact that he called no evidence and the fact that

there was a purported insurance of my client's issued

by the insurer and paid for by the Pasteel companies,

in our respectful submission, sufficiently brings

about the operation of the literal terms of section 48,

there being no reason to read it.down in.any_wa~

since its purpose is to enable persons who are found
not to be a party to a contract, for any reason,

but yet are persons who would reasonably suppose

that they were entitled to the benefit of the

insurance to enable them to bring forward a claim.

Now, Your Honours see the way in which the matter arises, the broker has now a verdict against

it for some $2.2 million. Your Honours will have

noticed in the judgment that a difference of

opinion existed between the Court of Appeal and

Mr Justice Yeldham about an onus · question against

the broker; that matter has since been retried and

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at first instance the Supreme Court found that
the Plasteel companies discharged their onus of
showing that they took reasonable precautions.

Now, that judgment is under appeal by the broker

since there has been an action against the

insurer of the broker under section 6 of the

LAW REFORM ACT, which Mr Justice Cole recently

dismissed on a whole series of legal questions and

that judgment is under appeal to the Court of

Appeal. The evidence in the proceedings before

Mr Justice Cole that I have just referred to was

that the appeal to the Court of Appeal in this

matter, the defence of the new trial before

His Honour on the question of onus and this

application were all funded by the insurer of

the broker, notwithstanding a denial of liability.

In our respectful submission, if special

leave be granted in this case, it should be granted

upon terms that Mr Gee's client pay and provide

security for the cost of the Plasteel respondents

and for such costs as they may be ordered to pay in

the other appeal. It is, after all, a further

attempt by the broker to overcome the verdict against

it. And, Your Honours, correspondingly, if special

leave be refused, we would ask that any costs order

be directed against Mr Gee as applicant in one

matter and respondent in the other.

MASON CJ:  Yes, thank you, Mr Rayment. The Court need not

trouble you, Mr Sheller. Mr Gee, do you wish to

respond to Mr Rayment's submissions in relation to

the non-disclosure point and the suggested condition?

MR GEE:	I have no instructions on the suggested condition and
I will seek those if Your Honours think it
appropriate at some moment. But, in respect of the matters when Mr Rayment was submitting, I would only wish to put this, which is not quite in response to
something he said but rather something Your Honour
Mr Justice Deane said, namely, that if there was an effective endorsement the ground is cut away from a section 48 argument but we would respectfully submit
that correspondingly there must be a contract which can only be fitted into the legal frame of novation in any event.
MASON CJ:	This proposed appeal raises three questions which

I can identify respectively as a question concerning

novation, a second question concerning section 48 of

the INSURANCE CONTRACTS ACT and a third question

relating to non-disclosure on section 21 of that Act.

With respect to the issue concerning novation,

the findings of fact made in the courts below are
inconsistent with knowledge on the part of the

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insurer that the change of name of the insured

involved a difference in the identity of the insured.

On the basis of these findings of fact, the

conclusion reached by the Court of Appeal on the

issue of novation was correct. The conclusion

reached by the Court of Appeal on the question
arising under section 48 of the INSURANCE CONTRACTS ACT

is not atten:ledwith sufficient doubt to warrant the

grant of special leave to appeal. And the argument

based on section 21 of that Act does not raise any

question of general principle. For these reasons the

applicatiorafor special leave to appeal is refused.

MR RAYMENT:  Your Honour, we would ask for costs in my

learned friend, Mr Gee's application, and also that

the order for costs in the next matter be directed

against his client.

MASON CJ:  Mr Sheller?

MR SHELLER:  Your Honours, we would ask for costs against

the applicants in each matter.

MASON CJ:	Mr Gee?
MR GEE:	Your Honours, I cannot resist an adverse order in our
application but with great respect there is no basis
for an order that we should provide for Mr Rayment's
costs if they be ordered against him in his
application.  He elected to support it and he suffers
our fate. There is no reason, in principle, why we
should have to fund it.
MASON CJ:	The order of the Court will be, each application

is refused with costs.

AT 11.18 AM THE MATTER WAS ADJOURNED SINE DIE

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