JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: TOKIO MARINE & NICHIDO FIRE INSURANCE CO LTD -v- HANS BO KRISTIAN HOLGERSSON trading as HOLGERSSONS COMPLETE HOME SERVICE [2019] WASCA 114
CORAM: BUSS P
BEECH JA
PRITCHARD JA
HEARD: 8 APRIL 2019
DELIVERED : 8 AUGUST 2019
FILE NO/S: CACV 56 of 2018
BETWEEN: TOKIO MARINE & NICHIDO FIRE INSURANCE CO LTD
Appellant
AND
HANS BO KRISTIAN HOLGERSSON trading as HOLGERSSONS COMPLETE HOME SERVICE
First Respondent
FREDERICK WILLIAM MCMURRAY
JENNIFER GRACE MCMURRAY
Second Respondents
AIG INSURANCE AUSTRALIA LTD
Third Respondent
RUSSELL BRESLAND
BRESLAND CONSULTANTS PTY LTD
Fourth Respondents
MOSMAN BAY CONSTRUCTION PTY LTD
Fifth Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: CHANEY J
Citation: MCMURRAY v AIG INSURANCE AUSTRALIA LTD [2018] WASC 144
File Number : CIV 2962 of 2016
Catchwords:
Contract - Construction of contracts in writing - Contract of insurance - Whether and in what circumstances a written part of a contract should be construed so as to be superfluous - Where contract comprises more than one document - Manner in which tension or inconsistency between different documents comprising parts of a contract is to be resolved
Insurance - Contract of insurance - Proper construction of contract of insurance - Contract comprising a standard policy wording and a schedule - Interaction of, and resolution of tension or conflict between, the policy wording and the schedule - Whether phrase in schedule apparently defining who is the insured should be construed as superfluous - Whether such phrase is to be seen as an obvious error - Whether policy wording is inconsistent with provision to a non-contracting party of cover given to those defined in policy wording as 'You' - Where policy wording provides different cover for those defined as 'You' and those defined as 'Named Insured' - Where 'Named Insured' may include contractors and subcontractors, subject to certain conditions being met - Whether naming as insured of all principals, contractors and subcontractors is so incoherent with the policy wording or produces such uncommercial consequences as to reveal that it is an obvious error
Legislation:
Nil
Result:
Application for extension of time granted
Appeal dismissed
Category: B
Representation:
Counsel:
| Appellant | : | M Jones SC & J A Thornton |
| First Respondent | : | M H Zilko SC & B A Winburn-Clarke |
| Second Respondents | : | G R Hancy |
| Third Respondent | : | No Appearance |
| Fourth Respondents | : | No Appearance |
| Fifth Respondent | : | No Appearance |
Solicitors:
| Appellant | : | Clyde & Co (Perth Office) |
| First Respondent | : | SRB Legal |
| Second Respondents | : | Solomon Brothers |
| Third Respondent | : | No Appearance |
| Fourth Respondents | : | No Appearance |
| Fifth Respondent | : | No Appearance |
Case(s) referred to in decision(s):
Adams v Lambert [2006] HCA 10; (2006) 228 CLR 409
Arbuthnott v Fagan [1995] CLC 1396
Australian Aboriginal Congress Inc v CGU Insurance Ltd [2009] NTCA 1
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Black Box Control Pty Ltd v TerraVision [2016] WASCA 219
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402
Co-operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257
CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123
Dainford Ltd v Smith [1985] HCA 23; (1985) 155 CLR 342
Dodds v Kennedy [No 2] [2011] WASCA 131; (2011) 42 WAR 16
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287
Glynn v Margetson & Co [1893] AC 351
Guardian Assurance Co Ltd v Underwood Constructions Pty Ltd (1974) 48 ALJR 307
Gwyn v Neath Canal Navigation Co (1868) LR 3 Ex 209
Hume Steel Ltd v Attorney‑General (Vic) [1927] HCA 24; (1927) 39 CLR 455
Life Insurance Company of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60
Minister for Immigration and Border Protection v SZVFW [2018] HCA 30; (2018) 92 ALJR 713
Montclare v Metlife Insurance Ltd [2016] VSCA 336; (2016) 344 ALR 685
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 15; (2015) 256 CLR 104
Norwich Union Life Assurance Society v British Railways Board (1987) 2 EGLR 137
Olympic Holdings Pty Ltd v Winslow Corporation Pty Ltd (in liq) [2008] WASCA 80; (2008) 36 WAR 342
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127
Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11
Simic v New South Wales Land Housing Corporation [2016] HCA 47; (2016) 260 CLR 85
Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107
Watson v Phipps (1986) 60 ALJR 1
Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380
JUDGMENT OF THE COURT:
Introduction
The fifth respondent (Mosman Bay) is a builder. It was insured in relation to its building activities under a construction and legal liability policy issued by the appellant (Tokio). The second respondents (the McMurrays) engaged Mosman Bay to renovate their home. Mosman Bay engaged the first respondent (Holgersson) as a subcontractor to do painting works on the McMurrays' house.
A fire very substantially damaged the McMurrays' house during the renovations. The McMurrays claimed against, among others, Tokio. After granting indemnity to Mosman Bay, in the exercise of its rights of subrogation, Tokio required Mosman Bay to maintain proceedings against Holgersson.
The primary judge ordered and determined a preliminary question as to whether, on its proper construction, Holgersson was an insured under the insurance policy between Mosman Bay and Tokio.[1] The primary judge found that Holgersson was so insured.
[1] McMurray v AIG Insurance Australia Ltd [2018] WASC 144 (primary reasons).
Tokio appeals against that determination on five grounds, challenging the primary judge's ultimate conclusion and alleging various errors in the reasons leading to that conclusion.
An application for an extension of time within which to appeal was referred to the hearing of the appeal.[2] The delay of one day in service of the notice of appeal has been satisfactorily explained.[3] We would grant the extension.
[2] Order of Murphy JA, 10 July 2018.
[3] Affidavit of Jade Macukat dated 5 July 2018 [9] - [11].
Background facts
The background facts were not, and are not, in dispute.[4]
[4] Unless otherwise indicated, the following background facts are taken from the statement of agreed facts set out at primary reasons [13].
In or about February 2015, the McMurrays entered into an oral contract with Mosman Bay for it to undertake renovation works at their property in Mosman Park.[5]
[5] WAB 98.
Mosman Bay submitted to Tokio a proposal dated 20 May 2015 to obtain an annual projects and legal liability insurance policy for those renovation works (the Proposal).[6] Tokio issued Mosman Bay such a policy for the period of 1 June 2015 to 1 June 2016 (the Tokio Policy). The signed copy of the policy schedule for the Tokio Policy (the Schedule) is dated 20 May 2015.
[6] GAB 97 - 106.
The renovation works commenced in May 2015. Mosman Bay subcontracted interior painting works to Holgersson on or around 26 October 2015.[7] It was not a term of the subcontract that Mosman Bay obtain insurance cover for the benefit of Holgersson.
[7] In the primary proceedings there is a dispute as to whether the interior painting works were jointly subcontracted to Holgersson, and Mark Simpson or a company operated by him known as Simmos Improvements Pty Ltd. The judge's decision on the preliminary question did not resolve this dispute.
On 16 January 2016, during the period when the renovation works, including the interior painting, were being carried out, a fire broke out at the McMurrays' property. It caused substantial damage to the property.
Procedural history
The McMurrays brought proceedings against:
(1)the third respondent (AIG), as the insurer of the house;
(2)the fourth respondent, being insurance brokers who arranged the insurance with AIG; and
(3)Tokio, claiming that the Tokio Policy contained an extension by which Tokio provided property insurance to all principals of Mosman Bay for contract works carried out by Mosman Bay.[8]
[8] Primary reasons [2] - [4].
AIG brought third party proceedings, pursuant to contended rights of subrogation to the McMurrays' claims, against Mosman Bay and Tokio.[9]
[9] Primary reasons [6].
Mosman Bay commenced fourth party proceedings against Holgersson, alleging that he was responsible for the fire.[10] Tokio purported to require Mosman Bay to maintain these proceedings pursuant to rights of subrogation that it claimed it had under the Tokio Policy.[11]
[10] Primary reasons [8].
[11] Primary reasons [8].
Holgersson contended that he was an insured under the Tokio Policy, and that its terms prevented Tokio from requiring Mosman Bay to sue him.[12] Accordingly, Holgersson applied to have the primary judge deal with two preliminary questions as to the proper construction of the Tokio Policy.[13] The parties ultimately agreed that it was necessary only to determine one of the preliminary questions, which is outlined at [28] below.[14] The parties also agreed that that question would be answered solely by reference to the Policy wording of the Tokio Policy (the Policy Wording), the Schedule, the certificate of currency of the Tokio Policy and the Proposal.[15]
[12] By reason of the 'Subrogation waiver' condition set out at [26] below.
[13] Primary reasons [8].
[14] Primary reasons [10].
[15] Primary reasons [13] - [14].
The primary judge's decision on the preliminary question is the subject of this appeal.
It is convenient to outline the relevant terms of the Tokio Policy before turning to the primary judge's reasons.
The terms of the Tokio Policy
The Tokio Policy is entitled 'Annual Projects Construction and Legal Liability Insurance Policy'.[16] The primary judge found that it comprises the Policy Wording, being a 24 page standard form document, together with the Schedule, a one page document entitled 'policy schedule', and a certificate of currency.[17] Although that finding is not directly challenged, Tokio submits that the certificate of currency is not a contractual document;[18] that position was also adopted by the respondents. On appeal, all parties proceeded on the basis that the Tokio Policy comprised the Policy Wording and the Schedule. We proceed on that basis.
[16] Primary reasons [17]; GAB 72.
[17] Primary reasons [17]. See GAB 70 - 96.
[18] Appellant's submissions [22](c).
Two pages, immediately following a table of contents, comprise a section entitled 'Important Notices'.[19] Some of the notices, relevantly, provide:[20]
Your Duty of Disclosure
Before You enter into a contract of general insurance with Us, You have a duty, under the Insurance Contracts Act 1984, to disclose to Us every matter that You know, or could reasonably be expected to know, is relevant to Our decision whether to accept the risk of the insurance and, if so, on what terms.
…
Non-Disclosure
If You fail to comply with your duty of disclosure, We may be entitled to reduce Our liability under the contract in respect of a claim or may cancel the contract. (emphasis added)
[19] GAB 74 - 75.
[20] GAB 74.
On the immediately following page, under the first heading, 'Annual Projects Construction and Legal Liability Insurance', the Policy Wording provides, among other things:[21]
The Company and You are identified and referred to in the Policy and the Schedule.
You having paid, or agreed to pay, to Us, the premium shown in the Schedule for the Policy Period or a premium as advised by Us as applying to any subsequent period, We will provide insurance against the risks described in each Section, subject to the Terms, Conditions, Exclusions and Endorsements of this Policy. (emphasis added)
[21] Primary reasons [17]; GAB 76.
Under its next heading, 'General', the Policy Wording contains a number of definitions applicable to its Sections 1 and 2, which deal with 'Property Damage Cover' and 'Legal Liability', respectively.[22] Relevantly, those definitions include:[23]
[22] Primary reasons [19]; GAB 76 - 78.
[23] Primary reasons [21], [24], [25]; GAB 76, 77, 78.
4Contract shall mean the contract or agreement between any of the Named Insured(s) under 14 a), b) and c), which gives rise to the Contract Works, and includes any sub-contract or sub‑contract agreement entered into pursuant to such contract or agreement.
5Contract Works shall mean the cost of labour and all the materials incorporated in, or to be incorporated in the Project and included within the estimated construction value at the commencement of the Project.
…
14.Named Insured shall mean:
a)You.
b)Your personal; representatives
c)Additional Insured(s):
(a)any principal; or
(b)the head contractor; or
(c)the project manager; or
(d)all contractors and sub-contractors but excluding manufacturers and suppliers.
not being You but being a legal entity with whom You have entered into a Contract and provided their interests are required to be insured jointly by You, and then only to the extent required by the terms set out in the Contract, and only in respect of work performed as a part of the Project.
d)Any officers, committees or members of Your canteen, sports, social and welfare organisations and any member of Your fire, first aid, medical or ambulance services whilst acting in their capacity as such and in respect of activities associated with the Project, and acting performed within the scope of their duties in their respective capacity.
e)Any legal identity identified by name in the Schedule as having a financial, legal, or equitable interest in the Project, but only in respect of the insurance provided under Section 1 and only to the extent of such financial, legal, or equitable interest.
The Named Insured(s) as outlined above shall represent the entire group as described unless otherwise specified in the Schedule.
…
18Project means the construction project described in the Schedule.
…
25We, Us, Our, Company shall mean [Tokio].
26You, Your, Insured means the Person(s) or legal entity named in the Schedule. (emphasis added)
Section 1 provides for Property Damage Cover. Clauses A, B and C provide as follows:[24]
[24] Primary reasons [22]; GAB 78 - 79.
A.Construction Period Cover
We will indemnify You for Damage to the Contract Works and other Insured Items as specified in the Schedule from any cause, not excluded, occurring at the Project site as set out in the Schedule during the Construction Period including materials, components and equipment to be incorporated in the Insured Project, whilst in storage or in transit within the Commonwealth of Australia.
B.Commissioning Period Cover
Where a commissioning period is required by the Contract conditions we will indemnify the Named Insured against damage caused by Breakdown of any of the items the subject of this condition and which
(a)arise out of the performance of the commissioning
(b)occur and are discovered during the commissioning period.
C.Defects Liability Period Cover
Where a Defects Liability Period is required by the Standard Contract conditions, we will indemnify the Named Insured for damage to, the Contract Works from any cause, not hereafter excluded, and which:
(a)manifests itself during the Defects Liability Period; and
(b)originates from:
(i)a cause (unless excluded) occurring and arising out of the Contract Works carried out by the Named Insured during the Construction Period and at the Project Site; or
(ii)any cause (unless excluded) occurring and arising out of the course of operations carried out by the Named Insured on the Project Site in complying with the requirements of the Defects liability clause or the Maintenance Period clause in the Standard Contract.
The insurance shall cease to attach to the whole or any separable portion of the Contract Works following cessation of the Defects Liability Period. (emphasis added)
The Schedule identifies the Project Site by its street address in Mosman Park, being the McMurrays' address.[25]
[25] GAB 71.
Section 1 contains a 'Limitation' in the following terms:[26]
The maximum amount of our liability will not exceed the Sum(s) Insured for each Insured Item as stated in the Schedule, less the application of any Deductible.
[26] GAB 81.
Section 2 provides for Legal Liability Cover. Clause 1 of Section 2 is the central liability provision with which the preliminary question was concerned. It states:[27]
[27] Primary reasons [26]; GAB 83.
1.What We Cover
We agree (subject to the terms, Claims Conditions, General Conditions, Exclusions, Definitions and Limits of Liability incorporated herein) to pay to You or on Your behalf all amounts You shall become legally liable to pay as compensation in respect of:
1.1Personal Injury; and/or
1.2Property Damage; and/or
1.3Advertising Injury;
Happening during the Policy Period within the Geographical Limits and caused by or arising out of an Occurrence in connection with the Project. (emphasis added)
As noted at [20] above, 'You, Your, Insured' is defined, in respect of Sections 1 and 2, to mean 'the Person(s) or legal entity named in the Schedule' (emphasis added). The Schedule, relevantly, states:[28]
INSURED:Mosman Bay Construction Pty Ltd
and all Principals, Contractors, and Sub-Contractors.
Despite their capitalisation in the Policy Schedule, the terms 'Principals', 'Contractors' and 'Sub-Contractors' are not defined in the Tokio Policy.[29] The critical issue at trial and on appeal is the meaning of, and effect of, the phrase 'and all Principals, Contractors, and Sub‑Contractors' (the Schedule phrase).
[28] Primary reasons [19]; GAB 71.
[29] Primary reasons [20].
Clause 3 of Section 2 provides:[30]
[30] GAB 83.
3.Limits of Liability and Deductibles
Subject to clause 2 above (pages 10-11) and clause 4 below:
3.1The Limit of Liability specified in the Schedule represents the maximum amount which We shall be liable to pay in respect of any one claim or series of claims for General Liability arising out of any one Occurrence.
3.2The Limit of Liability specified in the Schedule represents the maximum amount which We shall be liable to pay in respect of any one claim or series of claims, and in the aggregate during any one Policy Period, for Products Liability.
The applicable Limit of Liability will not be reduced by the amount of any Deductible payable by You.
The Schedule specifies, among other limits, a 'Public Liability' limit of $20,000,000 for '[a]ny one Occurrence Unlimited in the aggregate', and a 'Products Liability' limit of $20,000,000 for '[a]ny one Occurrence and in the aggregate'.[31]
[31] GAB 71.
Conditions applicable to Section 2 include the following:[32]
[32] Primary reasons [27], [28], [29]; GAB 90.
3.Cross Liabilities
This insurance extends to indemnify:
3.1Each of the parties comprising the Named Insured; and
3.2Each of the Insured(s) hereunder, separately in the same manner and to a like extent as though policies had been issued in their separate names.
In particular, but without limiting the foregoing, this insurance shall indemnify each of the parties described in clauses 3.1 and 3.3 [sic - 3.2] in respect of claims made by any other of such parties.
Provided always that:
3.4Each of such parties shall be separately subject to the terms, Claims Conditions, General Conditions, Exclusions and Definitions of this Policy in the same manner and to a like extent as though separate policies had been issued; and
3.5in no case shall the amount payable by Us in respect of any one claim or series of claims arising out of any one Occurrence or in the aggregate, as the case may be, exceed the applicable Limit of Liability as specified in the Schedule.
4.Non-Imputation
Where this insurance is arranged in the joint names of more than one Insured, as described in Definition 14, it is hereby declared and agreed that:
4.1Each Insured shall be covered as if it made its own proposal for this insurance.
4.2Any declaration, statement or representation made in any proposal shall be construed as a separate declaration, statement or representation by each Insured.
4.3Any knowledge possessed by any Insured shall not be imputed to the other Insured(s).
5.Subrogation and allocation of the proceeds of recoveries
Subject to Condition 6 'Subrogation waiver', any corporation, organisation or person claiming under this insurance shall, at Our request and at Our expense, do and concur in doing and permit to be done all such acts and things that may be necessary or may reasonably be required by Us for the purpose of enforcing any rights and remedies, or of obtaining relief of indemnity from any other organisation(s) or person(s), to which We shall be or would become entitled upon Us paying for or indemnifying You in respect of legal liability under this insurance.
If the Insurer makes any recovery as a result of such action, the Insured may only recover from the Insurer any amount by which the amount recovered by the Insurer exceeded the amount paid to the Insured by the Insurer in relation to the loss.
6.Subrogation waiver
Notwithstanding Condition 5 We hereby agree to waive our rights of subrogation under this Policy against:
6.1Each of the parties described under Definition 14.
6.2Any corporation, organisation or person which or who owns or controls the majority of the capital stock of any corporation or organisation to which or to whom protection is afforded under this Policy.
Where such corporation, organisation or person is protected from liability insured against hereunder by any other policy of indemnity or insurance, Our right of subrogation is not waived to the extent and up to the amount of such other policy. (emphasis added)
General Conditions applicable to each of Sections 1 and 2 include the following:[33]
[33] Primary reasons [30], [31]; GAB 91 - 93.
1.Your Duty
Our liability is conditional upon:
a)Payment of the premium. We will not pay any claim until You have paid the premium.
b)Notification of changes. Notification as soon as possible by You to Us, of any change materially varying any of the facts or circumstances existing at the commencement of this Policy, or subsequent extension in time of this Policy.
c)Observance of Policy Terms. The observance of the terms of the Policy by You and by any other person entitled to indemnity under this Policy.
…
8.Cancellation
(a)Under Section 60 of the Insurance Contracts Act 1984, We may cancel this Policy at any time by giving notice in writing to You of the date from which cancellation is to take effect, where You have:
(i)failed to comply with Your duty of utmost good faith; or
(ii)failed to comply with Your duty of disclosure at the time when the Policy, was entered into, varied, altered, or renewed; or
(iii)made a misrepresentation to Us during the negotiations for this Policy, but before We agreed to issue this Policy; or
(iv)failed to comply with a provision of the Policy; or
(v)failed to pay the Premium for the Policy; or
(vi)made a fraudulent claim under this Policy, or any other contract of insurance (whether with Us or another insurer) that provided cover during any part of the Policy Period of this Policy; or
(vii)failed to comply with a requirement in this Policy that You notify Us of an act or omission which occurred after this Policy was entered into; or
(viii)failed to notify Us of any specific act or omission or such a notification as is required under the terms of this insurance Policy.
…
(c)You may cancel this Policy at any time by notifying Us in writing.
(d)After cancellation, We will refund the premium for the time remaining on the Policy, less any non-refundable duties, unless You have made a fraudulent claim.
…
10.Joint Insurance
A claim made by any one of the people or entities named as the Insured in the Schedule is a claim made by all of the people or entities named as the Insured. Similarly, any statement, act or omission made by any person or entity named as the Insured in the Schedule is assumed to be made by all people or entities named as the Insured.
…
13.Contractors and Sub-contractors insurances
You must ensure that all contractors and sub-contractors to be included within the Named Insured carry a current Public Liability Policy with a minimum Limit of Liability of $10,000,000. (emphasis added)
Primary reasons
The preliminary question for determination was:[34]
(1)Does the [Tokio Policy] provide legal liability insurance cover for Property Damage under cl 1 of section 2 to Holgersson?
[34] Primary reasons [8](1).
The critical question was whether 'You', in the 'Legal Liability' insuring clause, cl 1 of Section 2, included Holgersson as a subcontractor of Mosman Bay. Only if it did was Tokio liable to indemnify Holgersson for 'Property Damage'.
The primary judge found that the Tokio Policy did provide such cover to Holgersson.[35] In so finding, his Honour accepted Holgersson's contention (supported by the McMurrays)[36] that, broadly speaking, he was insured pursuant to the Tokio Policy because:[37]
(1)he was a subcontractor to Mosman Bay;
(2)therefore, he fell within the class of persons 'named' as Insured in the Schedule: 'all Principals, Contractors, and Sub‑Contractors'; and
(3)being so 'named' in the Schedule, he came within definition 26 of 'You' in the Policy Wording.
In coming to that conclusion, the primary judge reasoned as follows.
[35] Primary reasons [53].
[36] Primary reasons [36].
[37] Primary reasons [32].
The primary judge identified, as the primary issue for resolution, the relationship between the definition of 'You' in the Policy Wording and the description of the Insured in the Schedule.[38]
[38] Primary reasons [44].
The primary judge found that, both being defined in item 26 of the definitions applicable to Sections 1 and 2, 'You' and 'Insured' bear the same meaning and are interchangeable.[39] His Honour observed that the Schedule uses the expression 'Insured', which it identifies as Mosman Bay and all Principals, Contractors and Sub-Contractors.[40]
[39] Primary reasons [44].
[40] Primary reasons [44].
The primary judge rejected Tokio's contention that 'named' in definition 26 of 'You, Your, Insured' in the Policy Wording indicates a clear intention to precisely identify who falls within that definition and necessarily means named by proper noun.[41] His Honour stated:[42]
In my view, it is artificial to construe the word 'named' in the definition of 'You' and 'Insured' as meaning named by proper noun. There can be no doubt, because the words are clear, that a reasonable business person reading the … Schedule description of the Insured would understand the policy to extend to all principals, contractors and sub-contractors regardless of whether their particular name was specified. That construction is also supported by the introductory words of the Tokio Policy which read 'the Company and You are identified and referred to in the Policy and the Schedule' (emphasis added [by the primary judge]). All contractors and sub-contractors are referred to in the Schedule.
[41] Primary reasons [37], [44].
[42] Primary reasons [48].
His Honour identified that the difficulty with Tokio's contended construction was that it failed to give meaning to the inclusion of the words 'and all Principals, Contractors, and Sub-Contractors' in the Schedule.[43]
[43] Primary reasons [45].
The primary judge observed that Condition 3.2 applicable to Section 2, set out at [26] above, contemplates more than one 'Insured' and coverage for each, as though separate policies had been issued to them.[44] His Honour rejected Tokio's submissions that the Schedule must be read subject to the terms of the Policy Wording such that the 'Insured' should be read as 'Principals, Contractors and Sub‑Contractors to the extent that they may be covered by this policy'.[45] In his Honour's view, the definition of 'You' and 'Insured' depended, for its content, on the provisions of the Schedule.[46] Further, his Honour considered that Tokio's submission ignored the presence of the word 'all' where it appears before 'Principals, Contractors and Sub‑Contractors' in the Schedule.[47]
[44] Primary reasons [46].
[45] Primary reasons [47].
[46] Primary reasons [47].
[47] Primary reasons [47].
Tokio had emphasised that the extension of the definition of 'Named Insured' in par c) applies, relevantly, to subcontractors 'not being You but being a legal entity with whom You have entered into a contract and provided their interests are required to be insured jointly by You, and then only to the extent required by the terms set out in the Contract, and only in respect of the work performed as part of the Project.'[48] The primary judge accepted that, as Tokio had contended,[49] including all principals, contractors and subcontractors in the meaning of 'You' appeared to render par c) of the definition of 'Named Insured' unnecessary.[50] However, his Honour did not consider this to be a reason to qualify the description of the insured in the Schedule or to give that description any meaning other than its plain meaning.[51] His Honour observed that '[t]here are numerous provisions in the boiler plate provisions of the Tokio Policy that plainly have no application to the project to which the insurance relates'.[52] His Honour gave several examples of this, including the provision for some categories of persons in par d) of the definition of 'Named Insured'.[53] His Honour concluded:[54]
That the specific extension of coverage to all principals, contractors and sub-contractors might render certain provisions of the policy terms unnecessary or redundant is not a reason to limit that express and specific description of the Insured. The Schedule is a document drawn specifically to deal with the particular insurance contract. (emphasis added)
The italicised finding is challenged by ground 2.
[48] Primary reasons [38].
[49] Primary reasons [38].
[50] Primary reasons [49].
[51] Primary reasons [49].
[52] Primary reasons [49].
[53] Primary reasons [49].
[54] Primary reasons [49].
The primary judge accepted that, as an insurance policy, the Tokio Policy should be given a business-like interpretation, requiring attention to the commercial objects it was intended to secure.[55] However, his Honour did not accept Tokio's contentions that the interpretation Holgersson advanced was not a commercial interpretation.[56] Rather, his Honour accepted Holgersson's submission that the commercial purpose of the type of project insurance undertaken by Mosman Bay aligned with the following comments in Petrofina (UK) Ltd v Magnaload Ltd:[57]
In the case of a building or engineering contract, where numerous different sub-contractors may be engaged, there can be no doubt about the convenience from everybody's point of view, including, I would think, the insurers, of allowing the head contractor to take out a single policy covering the whole risk, that is to say covering all contractors and sub-contractors in respect of loss of or damage to the entire contract works. Otherwise each sub-contractor would be compelled to take out his own separate policy. This would mean, at the very least, extra paperwork; at worst it could lead to overlapping claims and cross-claims in the event of an accident. Furthermore, … the cost of insuring his liability might, in the case of a small sub-contractor, be uneconomic. The premium might be out of all proportion to the value of the sub-contract. If the sub-contractor had to insure his liability in respect of the entire works, he might well have to decline the contract.
The judge noted that this passage had been approved by this court's predecessor in Co‑operative Bulk Handling Ltd v Jennings Industries Ltd[58] and Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd[59].[60] His Honour further accepted that this, or a similar, commercial rationale underlay the High Court decision of Trident General Insurance Co Ltd v McNiece Bros Pty Ltd.[61] His Honour concluded:[62]
Having reviewed those cases, I do not consider that any difference in the nature of the policies considered in each of the cases leads to the conclusion that that underlying rationale is inapplicable in the present case. I therefore reject Tokio's contention that the interpretation advanced by Holgersson is not a commercial interpretation of the Tokio Policy either because it was only Mosman Bay which paid the premium or because all contractors and sub-contractors were not known at the time the policy was taken out.
This aspect of the primary judge's reasoning is challenged in ground 4.
[55] Primary reasons [42] - [43].
[56] Primary reasons [51]; see also primary reasons [39] - [40].
[57] Primary reasons [33], citing Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127, 136.
[58] Co-operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257, 269.
[59] Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380 [389].
[60] Primary reasons [51].
[61] Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 [124], [172].
[62] Primary reasons [51].
The primary judge also accepted that the terms of the Tokio Policy were to be determined by what a reasonable business person would have understood those terms to mean, which required consideration, among other things, of the surrounding circumstances known to the parties.[63] His Honour noted Tokio's reliance, to some degree, on the contents of the Proposal.[64] His Honour stated:[65]
Although reference is made in the Tokio Policy to the insured's duty of disclosure, nothing in the Tokio Policy purports to incorporate the [P]roposal into the Tokio Policy. The [P]roposal is of no assistance in construing the words used in the Tokio Policy, including the Schedule.
This treatment of the Proposal is challenged in ground 1.
[63] Primary reasons [43], citing Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35].
[64] Primary reasons [52].
[65] Primary reasons [52].
Grounds of appeal
There are five grounds of appeal.
Ground 5 contends that, broadly speaking, by reason of the errors alleged in grounds 1 - 4, and in failing to properly construe 'named' in the definition of 'You' so as to require identification by proper noun, the primary judge erred in construing the Tokio Policy in a manner that meant Holgersson was an insured under cl 1 of Section 2.
Grounds 1 - 4 allege the following errors of law of the primary judge in reasoning to the conclusion that the definition of 'You' included Holgersson as a subcontractor of Mosman Bay:
(1)treating, as irrelevant, the objective surrounding circumstance that the Proposal nominated no party other than Mosman Bay as insured;
(2)finding, in the absence of any evidence in support, that the Schedule was drawn specifically to deal with the particular insurance contract;
(3)failing to consider the Tokio Policy as a whole, in particular, the Policy Wording's:
(a)allocation of risk between 'You', and the 'Named Insured'; and
(b)association of 'You' with the particular identified contracting party, known at the time of contracting; and
(4)in treating, as an underlying rationale relevant to construction, the perceived commercial convenience of having all participants in a construction project insured under the property cover.
Tokio's submissions
Tokio's primary contention is that on a proper construction of the Tokio Policy, the words of the Schedule phrase, 'and all Principals, Contractors, and Sub-Contractors', in the stipulation of 'Insured' in the Schedule, should be treated as having no content or operation.[66] In oral argument, Tokio clarified that it invites this conclusion via two pathways.[67]
[66] Appellant's submissions [75](f)(i); appeal ts 38.
[67] Appeal ts 35 - 36, 37 - 38.
By the first of these two pathways, the Schedule phrase is redundant because, for the reasons outlined in [44](1) below, it does not amount to 'naming' those parties in the Schedule within the meaning of, and for the purposes of, the Policy Wording definition 26 of 'You, Your, Insured'.[68] By the second pathway, even if the Schedule phrase does amount to such a 'naming', its inclusion is so antithetical to the terms of the Policy Wording that it must be considered an error.[69]
[68] Appellant's submissions [70] - [75]; appeal ts 35, 37 - 38; see also appellant's submissions [16].
[69] Appellant's submissions [75](f)(i); appeal ts 38. The appellant observes that the parties agree that there is error in the Schedule in at least one respect, see appellant's submissions [34]; appeal ts 31.
Tokio points to the following considerations in support of the first pathway to its primary contention, and to those in (2) ‑ (6) in support of its second pathway:
(1)Definition 26 of 'You, Your, Insured' refers to a Person or legal entity named in the Schedule.[70] A person is named in the Schedule for the purposes of definition 26 if, and only if, they are identified by name, that is by a proper noun, in the Schedule.[71] Only Mosman Bay is named in the Schedule.[72] This construction of 'named' in definition 26 is consistent with 'You' in the Policy Wording referring to the contracting party, as contended for at (5) below, because contracting parties can be, and appropriately are, identified by proper noun.[73] Construing 'named' in this manner avoids the need, explained in (5) below, to construe 'You' differentially in the liability insuring clause in Section 2, as against various other parts of the Policy Wording.[74] It is also consistent with, and supported by, the general distinction the Policy Wording draws between 'naming', being necessarily by proper noun, and descriptions or references.[75] In this respect:
[70] Appellant's submissions [71]; appeal ts 37.
[71] Appellant's submissions [73], [75]; appeal ts 14, 35, 38.
[72] Ground 5; appellant's submissions [15], [71] - [75]; appeal ts 14, 35, 38.
[73] Appellant's submissions [75](c), appeal ts 29 - 30.
[74] Appellant's submissions [75](c), appeal ts 29 - 30.
[75] Appellant's submissions [75](b).
(a)Conditions 3 ('Cross-Liability'), 4 ('Non-imputation') and 6 ('Subrogation Waiver') to Section 2 draw a distinction between the 'described' entities in the definition of 'Named Insured', such as 'principal', 'contractors' and 'sub-contractors', and the 'named' entities for whom insurance is arranged.[76] '[N]amed', in definition 26, should be construed to accord with the concept of naming in these clauses in order to effect consistency of that concept throughout the Tokio Policy.[77]
[76] Appellant's submissions [54](a), (b), (c), [55](b); appeal ts 24 - 25.
[77] Appellant's submissions [55](b).
(b)In the section headed 'Annual Projects Construction and Legal Liability Insurance', the phrase 'The Company and You are identified and referred to in the Policy and the Schedule' (emphasis added) is to be read as conveying that 'identified' and 'referred to' have different meanings. '[I]dentified' means identification by name, consistently with the notion in par e) of the definition of 'Named Insured' of being 'identified by name'.[78] Contrary to the primary judge's approach, the words 'identified and referred to' are to be read conjunctively such that only Mosman Bay fits that description: it is identified (by record of its name in the Schedule as 'Insured') and referred to (in the Policy Wording).[79]
[78] Appellant's submissions [44], fn 10.
[79] Appellant's submissions [44]; appeal ts 21 - 22, 30.
(2)In effect, by making publicly available its Policy Wording, Tokio puts forward to prospective customers an invitation to treat to enter into an insurance contract on the terms of the Policy Wording.[80] The Proposal sought insurance for Mosman Bay.[81] It did not suggest or request insurance for any additional party.[82] The Proposal sought insurance on the terms of the Policy Wording, requiring confirmation by the proposed insured that these have been read.[83] The form stated that there was authority to contract for each person included in the application.[84] The response to that aspect of the form did not suggest any authority to contract on behalf of any person apart from Mosman Bay.[85] Nothing in the Proposal involves any nomination of the words 'and all Principals, Contractors, and Sub‑Contractors' and there is no evidence that any variation was sought.[86] The lack of reference in the Proposal supports the inference that those words were not sought.[87] The Proposal is inconsistent with an intention that 'You' be anyone other than Mosman Bay.[88] Rather, the Proposal shows that the parties' object was to contract on the basis of the Policy Wording, without amendment, with only Mosman Bay as the Insured.[89] Contrary to the primary judge's finding at [38] above, regard should be had to the Proposal as a surrounding circumstance revealing that object, despite it not being incorporated into the Tokio Policy.[90]
[80] Appeal ts 4, 10.
[81] Appellant's submissions [26](c), [26](d); appeal ts 12.
[82] Appellant's submissions [26](d); appeal ts 12.
[83] Appellant's submissions [26](g), [26](h), [27]; appeal ts 4, 9 - 11.
[84] Appellant's submissions [26](h); appeal ts 9 - 10, 30.
[85] Appellant's submissions [27]; appeal ts 9 - 11, 30.
[86] Appellant's submissions [32]; appeal ts 11 - 12, 32.
[87] Appellant's submissions [32], [75](a); appeal ts 32.
[88] Appellant's submissions [28], [75](a).
[89] Appellant's submissions [75](a); appeal ts 4, 6, 7 - 8 ‑ 9, 13, 30, 38.
[90] Ground 1; appellant's submissions [28], [75](a); appeal ts 5 - 6.
(3)There is no evidence to support a conclusion that the words 'and all Principals, Contractors, and Sub‑Contractors' in the Schedule were drawn specifically by the parties to deal with this particular insurance contract.[91] To the extent that the primary judge found otherwise, his Honour was in error.[92] In light of this, neither the Schedule nor Policy Wording has precedence or primacy over the other.[93] Rather, the two documents speak together and must be read together.[94] In particular, the terms of the Schedule do not provide cover and the Schedule cannot operate without the Policy Wording; the Policy Wording picks up aspects of the Schedule by reference.[95]
[91] Ground 2; Appellant's submissions [29] - [35], [75](a); appeal ts 6 - 7, 31 - 32.
[92] Ground 2; Appellant's submissions [29] - [35], [75](a); appeal ts 6 - 7, 32.
[93] Appeal ts 7, 35.
[94] Appellant's submissions [11]; appeal ts 7, 31, 35.
[95] Appeal ts 8, 30 - 31, 37.
(4)In the manner set out in (a) - (f) immediately below, the Policy Wording carefully distinguishes between 'You' and 'Named Insured', providing cover on different and more confined terms and conditions for the 'Named Insured'.[96] The judge's broad definition of 'You' should be inserted into other provisions in the Policy Wording to test the consequences of that construction.[97] When that is done, it can be seen that the judge's construction of 'You' substantially alters the Policy Wording's 'careful allocation of risk' without any request for variation or evidence of premium adjustment.[98]
[96] Appellant's submissions [37], [75](d); appeal ts 29.
[97] Appellant's submissions [20], [37].
[98] Ground 3; appellant's submissions [37], [47] - [56]; appeal ts 4, 5, 29, 37.
(a)Section 1, relating to 'Property Damage Cover', contains three different insuring clauses relating to cover for different entities, namely:
(i)provision of indemnity, broadly unconstrained by cause, to 'You' by 'Construction Period Cover' for, among other things, Damage to the Contract Works;
(ii)limited provision of indemnity to the 'Named Insured' by:
(A)'Commissioning Period Cover' restricted to breakdown of specified items associated with commissioning; and
(B)'Defects Liability Period Cover' restricted to damage to the Contract Works manifesting during that period and which originates from a cause associated with their activities or originates in the course of operations they carried out.[99]
[99] Appellant's submissions [47] - [51]; appeal ts 14 - 16, 29.
If 'You' were to include 'all Principals, Contractors, and Sub‑Contractors' it would render redundant these clauses limiting coverage to 'Construction Period Cover' and 'Defects Liability Period Cover'.[100]
[100] Appellant's submissions [52].
(b)Clause 3 of the 'Cross-liability' Condition applicable to Section 2 proceeds on the basis that the 'Named Insured' are not 'named' in the Schedule, creating a mechanism for them to come within cl 1 of Section 2, and obtain Legal Liability Cover, by assuming that each 'Named Insured' has a policy issued in its own name.[101] This mirrors the division of coverage between 'You' and 'Named Insured' found in the insuring clauses in Section 1 relating to Property Damage Cover.[102] Further, if 'You' were to be taken to include 'all Principals, Contractors, and Sub‑Contractors', thereby providing full cover to such parties, this extension of liability cover to such parties would not be required because, by implication, they could not be sued on a subrogated basis by others interested in the property.[103] The act of inclusion in the Schedule would mean that the careful risk allocation inherent in the liability section is abandoned.[104]
[101] Appellant's submissions [54](a); appeal ts 18 - 20.
[102] Appellant's submissions [55](a).
[103] Appellant's submissions [56].
[104] Appellant's submissions [56]; appeal ts 37.
(c)Under Policy Wording definition 14 c), principals, contractors and subcontractors fall within the definition of 'Named Insured' only to the extent that 'You' has a contract with them requiring 'You' to jointly insure their interests.[105] That gives 'You' the commercial benefit of control over who is covered under the Tokio Policy and, thus, who is able to erode the maximum liability under it.[106] Construing 'You' to include 'all Principals, Contractors, and Sub‑Contractors' results in 'You' losing that commercial benefit.[107]
[105] Appellant's submissions [49], [50], [55](a), [75](d); appeal ts 4, 15.
[106] Appeal ts 5, 15, 29.
[107] Appellant's submissions [52], [75](d); appeal ts 5, 15, 33 - 34, 37.
(d)General Condition 13 ('Contractors and Sub-contractors insurances') presupposes that 'You' is different from a contractor or subcontractor who is a 'Named Insured'.[108] Having regard to the 'Cross-liability' and 'Subrogation waiver' Conditions applicable to Section 2, General Condition 13 exists to create a right of contribution through double insurance, which right is removed if 'You' is taken to include 'all … Contractors, and Sub-Contractors'.[109] The clause would not make sense if 'You' includes 'all … Contractors, and Sub‑Contractors'.[110]
[108] Appellant's submissions [62].
[109] Appellant's submissions [62], [75](d).
[110] Appeal ts 26.
(e)Under cl 6.1 of the 'Subrogation waiver' Condition applicable to Section 2, Tokio waives its rights of subrogation against 'Named Insured' except to the extent that they are covered by separate insurance.[111] In the following ways, construing 'You' as including 'all Principals, Contractors, and Sub-Contractors' removes or impairs rights of subrogation reserved to Tokio under cl 6.1:
[111] Appellant's submissions [54](c).
(i)As 'Named Insured' would have full Property Damage Cover, they could not have liability exposure meaning, in effect, that they could not be sued on a subrogated basis.[112]
[112] Appellant's submissions [56], [75](d); appeal ts 26, 28.
(ii)If 'Named Insured' were not covered by the Tokio Policy, for example by virtue of a condition or exclusion, reserved rights of subrogation Tokio would have against contractors and subcontractors would be lost; this is because, if contractors and subcontractors are 'You', they are not 'Named Insured' and, consequently, 'You' is not obliged, under General Condition 13, to ensure that they hold separate insurance.[113]
[113] Appellant's submissions [75](d); appeal ts 25 - 26, 27 - 28.
(f)Construing 'You' as comprising 'all Principals, Contractors, and Sub-Contractors' extends the category of 'Named Insured' under Policy Wording definition 14 c) to parties with no contractual relationship with the contracting party, Mosman Bay, for example, sub-subcontractors.[114]
[114] Appellant's submissions [64], [75](d).
(5)In the Policy Wording, 'You' is to be read as a reference only to the contracting party, here Mosman Bay.[115] This is evidenced by the following clauses of the Policy Wording:
(a)The 'Important Notices' section of the Policy Wording is directed to compliance with the statutory obligation imposed by s 21 and s 22 of the Insurance Contracts Act for an insurer to inform an insured of their duty of disclosure; therefore, the use of 'You' in that section of the Policy Wording is directed to, and must be limited to, the contracting party.[116] As none of the contractors or subcontractors were known at the time of contracting,[117] none could be contracting parties.[118] Moreover, 'You', in this context, could not be intended to include non‑contracting third party beneficiaries, of the kind contemplated by the Insurance Contracts Act, because obligations of disclosure and notice of that kind could not sensibly operate in respect of such an unidentified class.[119]
(b)The section headed 'Annual Projects Construction and Legal Liability Insurance' associates an obligation to pay the insurance premium with the party described as 'You', making it nonsensical for 'You' to include unidentified third party beneficiaries who could not become so obliged.[120] Having regard to the statutory language in respect of third party beneficiaries, consistently with (1)(b) above, the reference to 'You' being 'identified and referred to' supports construing 'You' as the contracting party.[121]
(c)General Conditions 1 ('Your Duty') and 6 ('Premium adjustment') associate premium payment with 'You' and impose obligations on 'You', such as to notify of material change.[122]
(d)General Condition 8 ('Cancellation') specifically refers to s 60 of the Insurance Contracts Act, such section being concerned with the contracting party.[123] Further, 'You' cannot extend to non-contracting parties, because such parties' omissions cannot be intended to give rise to a right to cancellation by which a contracting party could lose all their contractual rights.[124] Also, 'You' cannot be read as referring to anyone other than the contracting party because of provision for the premium to be refunded to 'You' in the event of cancellation.[125]
Construing 'all Principals, Contractors, and Sub-Contractors' as 'You' in cl 1 of Section 2 requires a meaning to be attributed to 'You' in that clause which is different from its meaning in the clauses of the Policy Wording outlined in (5)(a) - (d) above.[126] Construing 'You' in this differential manner is particularly unattractive given the distinction described at (4) above.[127]
(6)The judge's reliance on a perceived rationale of the commercial convenience of having all participants on the construction project insured under the same insurance policy was misplaced for two reasons.[128] First, the issue of construction should, instead, be resolved by reference to the Policy Wording, rather than general conceptions of commercial convenience;[129] the Policy Wording reveals the distinction outlined in (4) above.[130] Secondly, any commercial convenience of the kind referred to is capable of being accommodated in an alternative way through the liability section of the Policy concerning a 'Named Insured'.[131]
[115] Ground 3; appellant's submissions [38] - [46], [57] - [61], [75](c); appeal ts 4, 20, 29, 35.
[116] Appellant's submissions [38] - [40]; appeal ts 21.
[117] Appellant's submissions [41], relying on primary reasons [51].
[118] Appellant's submissions [41].
[119] Appellant's submissions [42]; appeal ts 21.
[120] Appellant's submissions [45] - [46]; appeal ts 21.
[121] Appellant's submissions [44], fn 9; appeal ts 22.
[122] Appellant's submissions [57] - [60]; appeal ts 21.
[123] Appellant's submissions [61].
[124] Appellant's submissions [61]; appeal ts 21.
[125] Appeal ts 82 - 83.
[126] Appellant's submissions [75](c); appeal ts 21, 36.
[127] Appeal ts 29.
[128] Ground 4; appellant's submissions [65] - [69]; appeal ts 16 - 17, 29.
[129] Appellant's submissions [67]; appeal ts 17, 29.
[130] Appellant's submissions [67].
[131] Appellant's submissions [68], [75](e); appeal ts 29.
In the alternative to its primary contention outlined in [42] above, Tokio contends that the matters outlined in [44](2) - (6) above (or, perhaps, some of them, although which were not specified) sustain a construction of the Schedule phrase as a shorthand reference to principals, contractors and subcontractors only insofar as they fall within the class of 'Named Insured' set out in Policy Wording definition 14 c).[132] Tokio accepts that this renders the Schedule phrase surplusage but submits that this is a not uncommon outcome in the assemblage of multiple documents.[133]
[132] Appellant's submissions [75](f)(ii); appeal ts 13 - 14, 38 - 39.
[133] Appellant's submissions [75](f)(ii).
In the further alternative, Tokio contends that the Schedule phrase should be construed so as to refer only to such principals, contractors and subcontractors as existed at the date of entry into the Tokio Policy.[134] Tokio relies on its submission at [44](5) above that 'You' refers to the contracting party.[135] Tokio also appears to rely on its submission that the Proposal required the authority of all parties included in the application and there could be no authority for an unidentified party.[136] On this construction, Holgersson would not be 'You' as he was not a subcontractor of Mosman Bay at the time of entry into the Tokio Policy.[137]
[134] Appeal ts 38.
[135] Appeal ts 38.
[136] See appellant's submissions [41](a); appeal ts 30.
[137] Appeal ts 38; see also appellant's submissions [70].
Disposition
Introduction
Grounds 1 - 4 assert particular errors in aspects of the judge's reasoning to his conclusion on the construction question. It is not necessary to separately determine the merits of each of those criticisms. Beyond showing that a different construction is to be preferred, on an appeal concerned with a question of construction, an appellant need not show specific error. Because an instrument has only one true construction, the task of this court in an appeal concerning the construction of an instrument is to determine for itself the correct construction of the instrument.[138] For that reason, it is not necessary to engage with Tokio's contentions in ground 4 outlined at [44](6) above, which amount to an allegation of error and not a positive reason for preferring Tokio's construction(s).
[138] Life Insurance Company of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60, 78 - 79; Minister for Immigration and Border Protection v SZVFW [2018] HCA 30; (2018) 92 ALJR 713 [154]; Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80 [172].
It is not in issue between the parties that:
(1)The parties contracted in a legal environment in which it is possible to effectually specify or refer, whether by name or otherwise, to a non‑party as having the benefit of cover under a contract of insurance.[139]
(2)The only parties to the Tokio Policy are Tokio and Mosman Bay. The question is whether the reference in the Schedule phrase to 'all Principals, Contractors, and Sub‑Contractors' makes those persons or entities third party beneficiaries entitled to 'You' cover under the Tokio Policy.
[139] Insurance Contracts Act 1984 (Cth), s 48, s 11 definition of 'third party beneficiary'.
For the reasons that follow, we do not accept any of the constructions of the Schedule phrase advanced by Tokio. Our preferred construction is as follows:
(1)Subject to (3), by the Schedule phrase, read with Policy Wording definition 26, all principals, contractors and subcontractors are within the definition of 'Insured' and, thus, within the definition of 'You'.
(2)In particular, all principals, contractors and subcontractors have 'You' cover under cl 1 of Section 2 of the Tokio Policy providing Legal Liability Cover.
(3)In some other parts of the Policy Wording, the specific context indicates that 'You' is to be read as restricted to Mosman Bay as the contracting party.
Our reasons may be broadly summarised as follows:
(1)While no more than a starting point, the court is generally reluctant to construe a contract in a manner that renders a provision or part of the contract superfluous.
(2)In the case of a contract comprising a pre‑printed set of terms and terms drawn for the specific contract, that reluctance carries more weight in construing a provision of the latter kind. The Schedule phrase is of this latter character.
(3)In the process of construction, the court will be justified in omitting words, or treating them as superfluous:
(a)if, and to the extent that, when regard is had to the contract as a whole, the inclusion of those words can be seen as an obvious error; or
(b)if those words are inconsistent with, or repugnant to, the objective intention revealed by the contract as a whole.
(4)On a proper construction of the Policy Wording, it is open to parties to an insurance contract, of which the Policy Wording is a component, to name a non‑contracting party as 'Insured', and thereby to provide that non‑contracting party with 'You' cover. In other words, so naming a non‑contracting party cannot be seen as an obvious error or as repugnant to the Tokio Policy as a whole or to the Policy Wording.
(5)The naming of 'all Principals, Contractors, and Sub-Contractors' as 'Insured' under the Tokio Policy does not produce consequences so uncommercial, and is not so incoherent with the Policy Wording as a whole, as to demonstrate that it is an obvious mistake to which effect should not be given.
(6)In the Tokio Policy, by the Schedule phrase, all principals, contractors and subcontractors were 'named in the Schedule' within the meaning of definition 26.
Construction of contracts: legal principles
The general principles, applicable to the construction of contracts in writing, emerging from decisions of the High Court were outlined by this court in Black Box Control Pty Ltd v TerraVision Pty Ltd[140] as follows:
[140] Black Box Control Pty Ltd v TerraVision [2016] WASCA 219 [42].
(1)The process of construction is objective. The meaning of the terms of an instrument is to be determined by what a reasonable person would have understood the terms to mean.
(2)The construction of a contract involves determination of the meaning of the words of the contract by reference to its text, context and purpose.
(3)The commercial purpose or objects sought to be secured by the contract will often be apparent from a consideration of the provisions of the contract read as a whole. Extrinsic evidence may nevertheless assist in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding of the genesis of the transaction, its background, the context and the market in which the parties are operating.
(4)Extrinsic evidence may also assist in determining the proper construction where there is a constructional choice, although … the question of whether matters external to a contract can be resorted to in order to identify the existence of the constructional choice [has not been determined].
(5)If an expression in a contract is unambiguous and susceptible of only one meaning, evidence of surrounding circumstances cannot be adduced to contradict its plain meaning.
(6)To the extent that a contract, document or statutory provision is referred to, expressly or impliedly, in an instrument, that contract, document or statutory provision can be considered in construing the instrument, without any need for ambiguity or uncertainty of meaning.
(7)There are important limits on the extent to which evidence of surrounding circumstances (when admissible) can influence the proper construction of an instrument. Reliance on surrounding circumstances must be tempered by loyalty to the text of the instrument. Reference to background facts is not a licence to ignore or rewrite the text.The search is for the meaning of what the parties said in the instrument, not what the parties meant to say.
(8)There are also limits on the kind of evidence which is admissible as background to the construction of a contract, and the purposes for which it is admissible. Insofar as such evidence establishes objective background facts known to the parties or the genesis, purpose or objective of the relevant transaction, it is admissible. Insofar as it consists of statements and actions of the parties reflecting their actual intentions and expectations it is inadmissible. Such statements reveal the terms of the contract which the parties intended or hoped to make, and which are superseded by, or merged into, the contract.
(9)An instrument should be construed so as to avoid it making commercial nonsense or giving rise to commercial inconvenience.However, it must be borne in mind that business common sense may be a topic on which minds may differ.
(10)An instrument should be construed as a whole. A construction that makes the various parts of an instrument harmonious is preferable.If possible, each part of an instrument should be construed so as to have some operation.
(11)Definitions do not have substantive effect. A definition is not to be construed in isolation from the operative provision(s) in which the defined term is used. Rather, the operative provision is ordinarily to be read by inserting the definition into it. (footnotes omitted)
In light of Tokio's contentions that the Schedule phrase should be construed as, in effect, surplusage, the tenth point warrants some elucidation.
In Chapmans Ltd v Australian Stock Exchange Ltd,[141] Lockhart and Hill JJ said, in a passage approved in many subsequent cases, as follows:
It is an elementary proposition that a contract will be read as a whole giving weight to all clauses of it, where possible, in an endeavour to give effect to the intention of the parties as reflected in the language which they have used. A court will strain against interpreting a contract so that a particular clause in it is nugatory or ineffective, particularly if a meaning can be given to it consonant with other provisions in a contract.
[141] Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402, 411.
In George 218 Pty Ltd v Bank of Queensland Ltd [No 2],[142] this court recognised:
[I]t is a basic principle of construction that an instrument should be read as a whole, giving weight to all its clauses where possible, and that a court will strain against interpreting it so that a particular clause is rendered nugatory or ineffective (Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402, 411; Australia and New Zealand Banking Group Ltd v Manasseh [2016] WASCA 41 [237]; Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401; (2013) 97 ACSR 183 [30]; Hayne v Cummings (1864) 16 CBNS 421; (1864) 143 ER 1191, 427). It may be accepted that the scope for the operation of this principle may be more limited in some types of contract than others. It may, for example, have less scope for operation in contracts exhibiting what Lord Hoffmann described as a 'torrential style of drafting' (Norwich Union Life Assurance Society v British Railways Board (1987) 2 EGLR 137, 138), where the drafting technique is an impediment to the search for internal coherence and consistency in the instrument. The principle may also have less scope for operation where the contract is evidently the product of a series of ad hoc additions or variations over a lengthy period of time, again making the search for coherence and consistency elusive. Such features were, at least in earlier times, not uncommon in some conveyancing, leasing, shipping and insurance documentation (cf Kim Lewison & David Hughes, The Interpretation of Contracts in Australia (Lawbook, 2012) [7.03]). (emphasis added)
[142] George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287 [88].
Like any canon of construction, this precept is a starting point, or preference, not an absolute rule.[143]
[143] CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123 [131].
As the above passage of George 218 v Bank of Queensland recognises, one category of situations in which this principle gives way to other considerations is in documents employing a 'torrential style of drafting', often with the evident intention of going to some lengths to ensure that nothing is left out of the general concept or situation intended to be covered. In other words, repetition and a degree of redundancy is, in such situations, to be understood as a consequence of an overwhelming desire to avoid leaving any loopholes.[144] The present case is not within such a category of situations.
[144] See, for example, Norwich Union Life Assurance Society v British Railways Board (1987) 2 EGLR 137, 138; Arbuthnott v Fagan [1995] CLC 1396, 1399, 1404; Central Australian Aboriginal Congress Inc v CGU Insurance Ltd [2009] NTCA 1 [47].
Tokio also invokes statements in cases that the presumption against surplusage is of little weight in a commercial contract 'made up of a jumble of ill-assorted documents'.[145] To our minds, the Tokio Policy is not of this character. It comprises two documents which, for the reasons and in the manner explained below and at [49] and [50] above, can and should be read together.
[145] Appellant's submissions [75](f)(i); appeal ts 38, referring to Guardian Assurance Co Ltd v Underwood Constructions Pty Ltd (1974) 48 ALJR 307, 308; Montclare v Metlife Insurance Ltd [2016] VSCA 336; (2016) 344 ALR 685 [4].
Further, words, even entire provisions, can be rejected or treated as superfluous if they are inconsistent with, or repugnant to, the objective intention or primary purpose revealed by consideration of the instrument as a whole.[146] While Tokio's submissions were not explicitly couched in such terms, Tokio submits that this notion applies, in respect of the Schedule phrase, to the present case.
[146] Gwyn v Neath Canal Navigation Co (1868) LR 3 Ex 209, 215; Glynn v Margetson & Co [1893] AC 351, 357; Dainford Ltd v Smith [1985] HCA 23; (1985) 155 CLR 342, 364; Dodds v Kennedy [No 2] [2011] WASCA 131; (2011) 42 WAR 16 [28], [62].
The weight to be given to the preference, for giving meaning and effect to all words used, will depend upon a consideration of all the terms of the contract, and the relevant background context facts. Recent examples in which this preference has given way to other considerations include CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2][147] and Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd.[148]
[147] CPB Contractors v JKC Australia LNG [No 2] [131].
[148] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544 [15], [44], this being a case in which, on either of the competing constructions, some provision of the instrument was redundant.
It is convenient to next explain why, bearing in mind the nature of the task of construction, in our view, the terms of the Proposal, and the matters relied on by Tokio in [44](2) above, provide very little assistance in construing the Tokio Policy, including the Schedule phrase.
The relevance of the Proposal to the task of construction
In its submissions in support of ground 1, detailed at [44](2) above, Tokio invites reasoning along the following lines:
(1)The Proposal sought insurance for Mosman Bay and not for any additional party. It did not nominate the words 'all Principals, Contractors, and Sub‑Contractors'.
(2)There is no evidence that any variation was sought. The lack of reference to 'all Principals, Contractors, and Sub‑Contractors' in the Proposal supports the inference that those words, of the Schedule phrase, were not sought.
(3)Thus, the parties' object was to contract on the basis of the Policy Wording, without amendment, with only Mosman Bay as the insured.
(4)This object, alone or together with other matters outlined at [44] above, means that the Schedule phrase may be seen as having been included by mistake, and the Tokio Policy construed accordingly.
In our opinion, while reasoning in this manner might well be appropriate in considering a claim for rectification, it is not an appropriate or available mode of reasoning for the process of construction. An instrument is not to be construed by tracing through the communications or negotiations preceding its making with a view to ascertaining which such communications led to inclusion, within it, of the clause or phrase the construction of which is in issue. The process of construction involves the search for the meaning of what the parties said in the instrument, not a search for what the parties meant to say.[149] The distinction is founded on the objective theory of contract, which was explained by Heydon and Crennan JJ in Byrnes v Kendle[150] in the following terms:
Contractual construction depends on finding the meaning of the language of the contract - the intention which the parties expressed, not the subjective intentions which they may have had, but did not express. A contract means what a reasonable person having all the background knowledge of the 'surrounding circumstances' available to the parties would have understood them to be using the language in the contract to mean. But evidence of pre-contractual negotiations between the parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of 'surrounding circumstances'. And in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd this Court said:
'It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe.'
One reason why the examination of surrounding circumstances in order to decide what the words mean does not permit examination of pre‑contractual negotiations is that the latter material is often appealed to purely to show what the words were intended to mean, which is impermissible. The rejected argument in Chartbrook v Persimmon Homes Ltd was that all pre-contractual negotiations should be examined, not just those pointing to surrounding circumstances in the mutual contemplation of the parties. The argument purported to accept that contractual construction was an objective process, and that evidence of what one party intended should not be admissible. But other parts of the argument undercut that approach. Mr Christopher Nugee QC submitted: 'The question is not what the words meant but what these parties meant ... Letting in the negotiations gives the court the best chance of ascertaining what the parties meant.' It would have been revolutionary to have accepted that argument. (original emphasis; footnotes omitted)
[149] Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109; Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 [98] ‑ [99]; Black Box [42](7).
[150] Byrnes v Kendle [98] ‑ [99].
Further, Tokio's submissions invite the identification of the object of the Tokio Policy solely or primarily by reference to the Proposal and other matters extraneous to the contract itself. That is not the proper approach to identification of the object of a contract. The purpose or object of a contract is to be inferred from the express and implied terms of the contract, together with any admissible evidence of surrounding circumstances.[151] The object to be secured by the contract will often be apparent from a consideration of the provisions of the contract read as a whole. Nevertheless, extrinsic evidence may assist in identifying the commercial purpose or object of the contract where that task is facilitated by an understanding of the genesis of the transaction, its background, the context and the market in which the parties are operating.[152] The object of the Tokio Policy is not to be ascertained solely or primarily by reference to the Proposal, and any other communications prior to entry into the Tokio Policy, and without reference to its provision by which 'Insured' is apparently defined in the Schedule to mean Mosman Bay and all principals, contractors and subcontractors.
[151] Olympic Holdings Pty Ltd v Winslow Corporation Pty Ltd (in liq) [2008] WASCA 80; (2008) 36 WAR 342 [41].
[152] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [22]; Electricity Generation Corporation v Woodside Energy [35]; MountBruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 15; (2015) 256 CLR 104 [49], [108]; Simic vNew South Wales Land Housing Corporation [2016] HCA 47; (2016) 260 CLR 85 [78]; Black Box [42](3).
Insofar as Tokio propounds a construction to the effect that the inclusion of the Schedule phrase must be viewed as a mistake, that conclusion must be reached by a process of construction, as distinct from rectification. As Leeming JA, with whom Payne and White JJA agreed, explained in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq),[153] in undertaking the process of construction by reference to an alleged error, it is important to mark the boundary between construction and rectification. There is, his Honour suggested, a world of difference between the two.[154] His Honour elaborated:[155]
The requirements of ex facie absurdity or inconsistency and clarity as to what the parties must be taken to have intended ensure that rectification by construction remains an aspect of determining the objectively manifested legal meaning of contractual words, and accommodates the truth that sometimes, even in a formal legal document, the parties will make mistakes which are nonetheless readily identified and corrected. On the other hand, rectification in equity turns on the discrepancy between the written instrument and a separately proven contrary common intention, which was intended to have been incorporated into the instrument, such that it is unconscientious for a party to insist on performance in accordance with the written instrument. Rectification in equity is a departure - albeit one which is narrowly circumscribed by the insistence on cogent proof - from the objective theory of contract.
[153] Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11 [6] ‑ [10].
[154] Seymour Whyte [15].
[155] Seymour Whyte [15].
Bearing these matters in mind, in our view, on a question of construction, as distinct from rectification, it is not open to reason along the lines set out at [60] above, or along the following lines, which, in effect, Tokio invites in respect of its primary contention. First, the Proposal seeks insurance for Tokio, and for no other party. Secondly, there is no evidence of any communication subsequent to the Proposal in which insurance for additional parties is sought. Thirdly, it is to be inferred that there was no such further communication. Consequently, the reference to 'all Principals, Contractors, and Sub‑Contractors' in the Schedule may be seen as having been included by mistake, and construed accordingly.
Further, in the process of construction, the Proposal is not to be treated as having a status equal to the contractual documents. A meaning of the Tokio Policy is not to be rejected on the basis that it is inconsistent with the Proposal.[156]
[156] Compare appellant's submissions [28].
For these reasons, the task of construction should be undertaken by reference to the text of the Tokio Policy, of which the Proposal is not a part, and by reference to the available meanings of the text. In that process, account may be taken of the mutually known fact that the Proposal referred only to Mosman Bay in setting out the 'Name of Insured'.[157] However, to our minds, that background fact is of little assistance in the construction exercise.
The relationship between the Schedule and the Policy Wording
[157] See GAB 97; Black Box [42](4), see [51] above.
We accept, as Tokio submits,[158] that the Schedule and the Policy Wording must be read together, and that the Schedule does not provide for insurance, or for other terms, in isolation from the Policy Wording. The two documents work together, and must be read in that light.
[158] See [44](3) above.
Contrary to Tokio's submissions in support of ground 2, outlined at [44](3) above, the judge did not find that the Schedule phrase was drawn specifically by the parties to deal with the particular insurance contract. What the judge said was expressed by reference to the Schedule, not to the phrase 'all Principals, Contractors, and Sub‑Contractors'. In effect, the judge said no more than that the Schedule, unlike the Policy Wording, is a document created specifically for this particular insurance contract. That observation, with which we agree, must be borne in mind in evaluating whether, when the Tokio Policy is read as a whole, the Schedule phrase is to be seen as having no content or operation or, otherwise, as an obvious error. Because, unlike the Policy Wording, the Schedule was evidently created specifically for this particular contract, we would more readily read a provision of the Schedule as having the effect that a particular provision of the Policy Wording has no room to operate, than we would read a provision of the Policy Wording as meaning that a particular provision of the Schedule has no scope for operation. See, for example, [87](d) below.
This approach finds some support in cases, including insurance cases, in which it is said that, where pre‑printed terms are in conflict with terms in writing, generally speaking, greater weight will be given to the latter.[159] What is said in those cases is not directly applicable, and does not apply with the same force, given that (1) the provenance of, and process by which, the content of the Schedule was generated is not the subject of direct evidence or any agreed facts; and (2) the limited factual material before the court does not provide a secure foundation for the drawing of an inference in that regard. Nevertheless, we are of the view summarised in the preceding paragraph.
The second pathway to Tokio's primary contention
[159] See, for example, Dodds v Kennedy [No 2] [2011] WASCA 131; (2011) 42 WAR 16 [25] and cases there cited. See also Hume Steel Ltd v Attorney‑General (Vic) [1927] HCA 24; (1927) 39 CLR 455, 462 - 463, 465.
Although it is not Tokio's preferred pathway to its primary contention, it is convenient to turn next to Tokio's second pathway. We do so by considering the force of the considerations summarised in [44](4) and [44](5) in a hypothetical context where a person or entity, other than the contracting party, is named in the Schedule by being identified by proper noun. In other words, bearing in mind what we have already said in respect of [44](2), (3) and (6) above, we turn to assess Tokio's primary contention, bringing to bear the combined force of the considerations in [44](4) and (5). The matters in [44](1) are not relevant to that exercise; they relate only to the question, relevant to Tokio's first pathway, of whether, by the Schedule phrase, the parties described within it are 'named'.
Tokio puts this second pathway in two ways: one general and the other particular to the Schedule phrase. The matters in [44](5) are said to support a general conclusion - that under the Policy Wording a non-contracting party can never be You and so can never have You cover. The matters in [44](4) are said to support the conclusion that the Schedule phrase, with its reference to 'all Principals, Contractors, and Sub-Contractors', is so incoherent with the Policy Wording, or produces such uncommercial consequences, that it must be considered an obvious error.
It is convenient to begin with the matters in [44](5).
Under the Policy Wording, can a non‑contracting party be provided with 'You' cover?
Tokio's contentions summarised in [44](5) above amount, in substance, to the following propositions:
(1)On a proper construction of the Policy Wording:
(a)'You' and 'Insured' are coextensive;
(b)'You' is, and can only be, a reference to a contracting party;
(c)'You' cover can be provided only to a contracting party; and
(d)a non‑contracting party can only obtain 'Named Insured' cover.
(2)Consequently, to the extent that a schedule, including the Schedule in the Tokio Policy, names a non‑party as 'Insured', it reveals an obvious error to which no effect can or should be given, or it is otherwise inconsistent with, or repugnant to, the objective intention and purpose revealed by the contract as a whole, including the Policy Wording.
To our minds, these contentions present a binary constructional choice: on a proper construction of the Policy Wording, either, as Tokio asserts, a non‑contracting party cannot, by being named as an 'Insured', be a 'You' within the meaning of the contract and obtain 'You' cover, or no such limitation is revealed.
In our view, no such limitation exists. For the reasons that follow, on its proper construction, the Policy Wording is not so clearly inconsistent with the naming of a non‑contracting party as 'Insured' to mean that a provision in a schedule, including the Schedule, which so names a non‑contracting party can be discounted as an obvious error, or can be seen as repugnant to the Policy Wording.
There is no doubt that, in the process of construction of an instrument, a court may correct an obvious error. As Dixon CJ and Fullagar J said in Fitzgerald v Masters,[160] '[w]ords may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.' See also Adams v Lambert[161] and Watson v Phipps.[162]
[160] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426 - 427.
[161] Adams v Lambert [2006] HCA 10; (2006) 228 CLR 409 [21].
[162] Watson v Phipps (1986) 60 ALJR 1, 3.
The position was recently explained by Leeming JA, with whom Payne and White JJA agreed, in Seymour Whyte Constructions v Ostwald Bros[163] as follows:
[163] Seymour Whyte Constructions v Ostwald Bros [6] ‑ [10].
At common law, if the error is clear, and it is also clear what a reasonable person would have understood the parties to have meant, then the mistake may be corrected as a matter of construction. This is old law. Lord St Leonards said in Wilson v Wilson (1854) 5 HL Cas 40 at 66-67; 10 ER 811 at 822:
'Now it is a great mistake if it is supposed that even a Court of Law cannot correct a mistake, or error, on the face of an instrument: there is no magic in words. If you find a clear mistake, and it admits of no other construction, a Court of Law, as well as a Court of Equity, without impugning any doctrine about correcting those things which can only be shown by parol evidence to be mistakes - without, I say, going into those cases at all, both Courts of Law and of Equity may correct an obvious mistake on the face of an instrument without the slightest difficulty.'
Examples may be found in linguistic errors, such as 'inconsistent' being read as 'consistent' in Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53, or conceptual errors, such as 'lessor' being read as 'lessee' in McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 53; [2008] NSWSC 542. The language of a contract is not read like a computer program, such that any slip is fatal.
Two conditions are necessary in order to correct the contractual language in this manner: (a) that the literal meaning of the contractual words is an absurdity and (b) that it is self-evident what the objective intention is to be taken to have been: see Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [117]-[119], approving National Australia Bank Ltd v Clowes [2013] NSWCA 179; 8 BFRA 600, where it was stated at [34]:
'Where both those elements are present ... ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning.'
Likewise, in the United Kingdom, the court must be satisfied both as to the mistake and the nature of the correction: Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429; [2011] 1 WLR 770 at [21] (Lord Neuberger); Arnold v Britton [2015] AC 1619; [2015] UKSC 36 at [78] (Lord Hodge).
The court must be satisfied of those matters to a high level of conviction. To use the language of Dixon CJ and Fullagar J in Fitzgerald v Masters at 426-427, it must be 'clearly necessary in order to avoid absurdity or inconsistency'. As this Court said in Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297 at [18], the test of absurdity is not easily satisfied. Any question of absurdity or inconsistency must be identified according to established principles, by reference to the text of the agreement as understood in its factual and legal context: Wyllie v TarrisonPty Ltd [2007] NSWCA 184 at [46]; Newey v Westpac Banking Corporation[2014] NSWCA 319 at [85]. Courts which are asked to delete, insert or rewrite part of a contract because of what is said to be an obvious error should bear steadily in mind that imperfections and infelicities and ambiguities in contractual language commonly reflect the give and take of negotiations, or the parties' appreciation that some obscurities are incapable of resolution. As Lord Hoffmann explained, the court does 'not readily accept that people have made mistakes in formal documents': Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38 at [23].
As can be seen from these passages, in the process of construction, the test for identification of an error in the parties' language is a stringent one of clear necessity so as to avoid absurdity. For the reasons below, we do not think that that stringent test is met in the present case.
In our view, the Policy Wording permits identification in the Schedule, by proper noun, of a non‑contracting party as 'Insured'. In the case of the Schedule, the evident purpose and effect of such designation in the Tokio Policy is to extend the meaning and ambit of the 'Insured' beyond Mosman Bay. More generally, the evident purpose of identification, by proper noun, of a non-contracting party as 'Insured' is to extend the ambit of the 'Insured' to the non-contracting party so designated. The following considerations support a conclusion that the identification by name of a person or entity in the Schedule as 'Insured', whether or not a non-contracting party, thereby correspondingly extends the meaning and ambit of 'You' in the insuring clauses, or at least in the legal liability insuring clause, namely cl 1 of Section 2.
First, the language and structure of definition 26 convey that 'You' and 'Insured' are coextensive, as those terms are defined together, by a single definition.
Secondly, the insuring clauses in the Tokio Policy provide cover to 'You' and cover to 'Named Insured' only. No insuring clause is expressed to provide cover to the 'Insured', if and insofar as the 'Insured' were to be distinguished from 'You'.
Thirdly, while the 'Insured' is a defined term, the identification of a person or entity as the 'Insured' suggests, as a matter of ordinary language, and bearing in mind the purpose of an insurance contract, that a person or entity within the definition is insured under the contract.
Fourthly, when regard is had to the Policy Wording and to the scheme of the contract as a whole, naming a person or legal entity in the Schedule as 'Insured' has no apparent purpose or effect if it does not provide them with 'You' cover. As we have observed, no insuring clause is expressed to provide cover to the 'Insured'. Being named in the Schedule is not necessary in order to obtain, and does not give rise to, 'Named Insured' cover, subject to an immaterial exception.[164]
[164] The exception arises in paragraph e) of definition 14 by which a legal entity identified by name in the Schedule as having a financial, legal or equitable interest in the Project is thereby a 'Named Insured', but only in respect of property insurance under Section 1 and only to the extent of that interest.
Fifthly, Condition 3 ('Cross Liabilities') applicable to Section 2 points to the conclusion that the naming of a person or entity in the Schedule as 'Insured' has the effect of providing that person or entity with 'You' legal liability cover under Section 2. Condition 3 makes separate provision concerning parties comprising the 'Named Insured' and each of the 'Insured'. By Condition 3, 'this insurance', namely the legal liability insurance under Section 2, extends to indemnify each of the 'Insured' separately in the same manner and to a like extent as though policies had been issued in their separate names. Consequently, if a party is one of the 'Insured', that party has in effect a policy, in their own name, by which the party has 'You' legal liability cover.
Sixthly, General Condition 10 ('Joint Insurance') applicable to Sections 1 and 2 contemplates that a person or entity named as the 'Insured' in the Schedule is entitled to make a claim; in other words, such a person or entity has cover.
In considering whether the provision of cover for a non‑contracting party 'You' is inconsistent with the Policy Wording, we begin with the matters summarised in [44](5) above. We accept, as do the respondents,[165] that in some provisions of the Policy Wording the word 'You' must be read as confined to the contracting party. The provisions concerning disclosure, payment of premium, and cancellation are examples of this. In these respects, and to this extent, the generality of the extended reach of 'Insured' and 'You', brought about by naming in the Schedule a non‑contracting party as 'Insured', is, by a process of construction, qualified. To this extent, the identity between the terms 'You' and 'Insured' is also qualified, in that 'Insured' has the same meaning as 'You' in the insuring clauses, but not in the clauses where 'You' is confined to the contracting party. However, to our minds, the need for this qualification does not, alone, or with the matters summarised in [44](4), sustain the conclusion, invited by Tokio, of intractable inconsistency, such as would justify giving the naming of a non‑contracting party as 'Insured' no effect. Nor, in our view, does it preclude a construction by which the naming in the Schedule of non‑contracting parties as 'Insured' has the effect outlined in [79] above.
Is the naming of 'all Principals, Contractors, and Sub-Contractors' as Insured under the Tokio Policy an obvious error?
[165] ts 46 - 49, 56, 68 - 70, 81.
We turn to the matters summarised at [44](4) above. In summary, in our view, those matters do not sustain a conclusion that naming 'all Principals, Contractors, and Sub-Contractors' as 'Insured' is an obvious mistake to which no effect should be given; that is, those matters do not demonstrate the consequences of 'all Principals, Contractors, and Sub‑Contractors' in the Tokio Policy having 'You' cover to be so uncommercial, or to produce such incoherence with the Policy Wording, as to sustain that conclusion. Dealing with each matter in [44](4) above in turn:
(a)It is true, as Tokio emphasises, that the Policy Wording provides different forms of cover to 'You' and to 'Named Insured'. In our view, it is open to the parties to select which form of cover is to be provided to particular persons or entities, by the identification of the 'Insured' through naming in the Schedule. In other words, we do not accept that the Policy Wording's provision of Named Insured cover precludes parties from contracting to provide You cover to any persons who or entities which would, or might, but for such provision, constitute Named Insured.
(b)Insofar as Tokio's contentions in (4)(b) emphasise the division of coverage between 'You' and 'Named Insured', our observations concerning (a) apply again. Further, we do not accept that any implied exclusion of subrogation controls the construction of clauses as to the scope of cover. Liability cover is not, by its nature or its terms, restricted to liability to others within the class of principals, contractors or subcontractors. For example, liability might arise to the owner of a neighbouring property.
(c)To the extent that the operation of definition 14 c) of 'Named Insured' provides a commercial benefit to Mosman Bay, it was open to Mosman Bay, as it is for any contracting party, to agree with the insurer a wider and unconditional coverage for some or all of its contractors and subcontractors. In other words, we do not accept that insofar as definition 14 c) requires Named Insured to have a contractual arrangement with You, that provision precludes parties from contracting to provide persons or legal entities who may fall within definition 14 c) with You cover.
(d)General Condition 13 is concerned only with contractors and subcontractors who are to be included within the 'Named Insured'. Such contractors and subcontractors are those within par c) of the definition of 'Named Insured', who, by that definition, are contractors and subcontractors 'not being You'. General Condition 13, thus, has no application to contractors and subcontractors who fall within the definition of 'You'. The fact that the incorporation of all contractors and subcontractors within the ambit of 'You' leaves no practical room for operation of General Condition 13 does not justify ignoring, or treating as an obvious mistake, the clear language of the Schedule phrase.
(e)We repeat what we have said as to the second point made at (b) above.
(f)In this contention, Tokio assumes, without demonstrating, a particular construction of the term 'Sub‑Contractors' in the Schedule phrase. In any event, even if that construction were accepted, it carries little weight in the overall construction exercise.
Conclusion on the second pathway to Tokio's primary contention
For these reasons, we are not persuaded that the Policy Wording compels a conclusion that the naming in the Schedule of a non‑contracting party as 'Insured' can be characterised as an obvious mistake to which no effect is to be given or as repugnant to the intention revealed by the Policy Wording or the contract as a whole. While the Policy Wording evidently contemplates, as the ordinary case, that a contracting party (or parties) will wholly constitute 'You' and the 'Insured', the Policy Wording does not demand that this must necessarily and exhaustively be the case. Effect can properly be given to the stipulation of a non‑contracting party as 'Insured' in the Schedule, by construing the contract as providing 'You' cover to any such additional party. We are not persuaded that the Policy Wording is to be read as necessarily confining non‑contracting parties, who are intended beneficiaries of the contract, to 'Named Insured' cover.
Nor, for the reasons in [87], are we persuaded that the matters in [44](4) justify reading the Schedule phrase as not operating in its terms and as being of no effect. In other words, we do not accept that those matters demonstrate the consequences of 'all Principals, Contractors, and Sub‑Contractors' in the Tokio Policy having 'You' cover to be so uncommercial, or to produce such incoherence with the Policy Wording, as to sustain that conclusion.
Thus, we do not accept Tokio's second pathway to its primary contention. In so concluding, we have considered the combined force of the matters in [44](4) and [44](5). Proceeding on the basis that the reference in the Schedule to 'all Principals, Contractors, and Sub‑Contractors' amounts to their being named in the Schedule, we are not persuaded, by the matters in [44](2), (4) and (5) above or otherwise, that this naming can, as a matter of construction, be seen as an obvious mistake to which no effect should be given, or as repugnant to the contract as a whole.
That brings us to the question of whether, in the Tokio Policy, by the Schedule phrase, all principals, contractors and subcontractors were 'named' in the Schedule within the meaning of definition 26.
The first pathway to Tokio's primary contention: Were 'all Principals, Contractors, and Sub‑Contractors' 'named' in the Schedule?
The word 'named' in definition 26 presents a constructional choice. As already noted, Tokio invites a narrow construction, by which a person or entity is 'named' only if identified in the Schedule by name, in other words, by proper noun. The judge adopted, and the respondents contend for, a broader construction under which a person or entity may also be 'named' by reference to membership of an identified class stipulated in the Schedule.
As already noted,[166] Tokio relies on its contentions at [44](5) in support of its construction of 'named'. To our minds, Tokio's contentions in [44](5) provide support for Tokio's construction of 'named' if, but only if, the contentions summarised at [44](5) are accepted. Acceptance of Tokio's contention that only a contracting party can be provided with 'You' cover would support Tokio's narrow construction of 'named', since contracting parties would be expected to be, and would necessarily be, identified by proper noun in the Schedule. However, as already explained, we do not accept Tokio's contention that only a contracting party can have 'You' cover. That being so, in our view, for the reasons immediately below, the matters in [44](5) do not assist in the constructional choice to be made concerning the meaning and ambit of the word 'named' in definition 26.
[166] See [44](1) above.
It is true that, in the case of this particular Schedule, or other schedules identifying a non-contracting party as Insured, Tokio's narrow construction of 'named' could avoid the need to construe 'You' differentially. However, Tokio's submissions in [44](5) are founded on various features of the Policy Wording, not upon the particular content of the Schedule to the Tokio Policy. They are directed to the contention that the terms of the Policy Wording prohibit, generally, parties from contracting so as to provide, in any schedule to the Policy Wording, for 'You' to include a non-contracting party. To the extent that the matters in [44](5) inform the meaning to be attributed to the word 'named' in the Policy Wording, the force of those matters is not tied to the particular content of the Schedule. That being so, adoption of Tokio's construction of 'named' does not, contrary to Tokio's submissions,[167] necessarily avoid the need to construe 'You' differentially in the terms of the Policy Wording. While it would do so in a case such as the present, in other cases, in which a non-contracting party were identified by proper noun in a schedule as Insured, the need for a differential reading of 'You' would, nevertheless, arise. In such a case, the non-contracting party identified by proper noun would be 'named' within Tokio's narrow construction of that word, but certain clauses of the Policy Wording would still be required to be read as either including or excluding that non-contracting party.
[167] Appellant's submissions [75](c).
In any event, to our minds the avoidance of the need for a differential meaning of 'You' in this contract does not justify attributing to the phrase 'named in the Schedule' the narrow meaning invited by Tokio, thereby rendering the Schedule phrase of no effect.
To the extent that Tokio points to the matters in [44](4) in support of its construction of 'named', the same is true of those matters. We repeat what is said at [85] above. As to the matters at [44](2) above, we repeat what is said at [66] above.
For the following reasons, we do not accept Tokio's narrow construction of 'named' in definition 26 within the Tokio Policy - that a person or entity is 'named' only if identified by proper noun - and would adopt the construction in [102] below.
First, the word 'named' can be used, in its ordinary and natural sense, as synonymous with 'specified', 'mentioned', 'designated' or 'described'. The word is not confined, in its meaning and application, to identification by proper name (that is, for example, to identification by a person's given name(s) or surname or a legal entity's company or business name). Persons and legal entities can be 'named' if they are specified, mentioned, designated or described by class, without the use of proper names.
Secondly, the Policy Wording uses the phrase 'identified by name' in definition 14, while using the term 'named' in definition 26. It is not ordinarily to be expected that, by these different terms, the Policy Wording (and the Tokio Policy) means the same thing.
Thirdly, in construing the Tokio Policy as a whole, the ascertainment of whether a person or legal entity is 'named' in the Schedule requires attention to the contents of the Schedule. In this case, next to the term 'Insured', the Schedule stipulates 'Mosman Bay Construction Pty Ltd and all Principals, Contractors, and Sub‑Contractors'. Thus, the words 'and all Principals, Contractors, and Sub‑Contractors' are set out in reference to, and in apparent definition of, the word 'Insured'. The evident purpose of the inclusion of those words is to expand the meaning of the term 'Insured' beyond Mosman Bay; in other words, to 'name' those principals, contractors and subcontractors as 'Insured' for the purpose, and within the meaning of, definition 26. There is no apparent purpose in a reference to, or identification of, a person as an 'Insured', if not to constitute the naming of that person as an 'Insured'. If a person is thereby not 'named', such a reference would have no significance or consequence under the Policy Wording.
Fourthly, Tokio's narrow construction of 'named' renders the Schedule phrase redundant.
For these reasons, the preferable and proper construction of the Tokio Policy as a whole is that a person or legal entity will be 'named' in the Schedule, within the meaning of definition 26, if the person or legal entity is specified, mentioned, designated or described in the Schedule as an 'Insured', including specified, mentioned, designated or described by class, without the use of proper names. Persons and legal entities who were or became principals, contractors and subcontractors of Mosman Bay in connection with the project described in the Schedule during the policy period were 'named' in the Schedule, within the meaning of definition 26, in that they were specified, mentioned, designated or described by class in the Schedule by reference to Mosman Bay and the project.
Tokio's submissions outlined in [44](1) above do not sustain a contrary conclusion. In particular:
(a)Construing 'named' throughout the Tokio Policy as a reference to entities for whom insurance is arranged is consistent with construing 'named' as encompassing the reference to a person or entity stipulated as Insured in the Schedule.
(b)Tokio's reliance on the conjunctive meaning of 'and' in the phrase 'identified and referred to' does not assist it. We do not accept that 'identified' means identified only by name. 'You' is identified in the Schedule in that those within the ambit of 'You' are named in the Schedule.
For these reasons, we do not accept Tokio's first pathway to its primary contention by which the Schedule phrase is to be construed as having no content or operation.
Tokio's alternative contentions
Tokio's alternative contentions can be dealt with more briefly.
Tokio's first alternative contention is that the Schedule phrase is a shorthand reference to 'Principals, Contractors, and Sub‑Contractors' only insofar as they fall within the definition of the class of 'Named Insured' set out in definition 14 c). This construction faces a number of obstacles which, taken together, compel its rejection.
First, the Schedule phrase appears in connection with, and in apparent definition of, 'Insured', not in reference to 'Named Insured'; being a 'Named Insured' does not make the person or entity an 'Insured'.
Secondly, as the primary judge observed, this construction does not accommodate the word 'all' in the Schedule phrase.
Thirdly, in substance, this construction gives no operation or effect to the Schedule phrase.
Tokio's second alternative contention is that the Schedule phrase should be construed to refer only to such persons or entities within its description as existed at the date of entry into the Tokio Policy. This construction runs directly into the word 'all' in the Schedule phrase. The essential foundation of this alternative construction is Tokio's contention that 'You' necessarily refers to a contracting party, so that only an identifiable and identified person or entity can be named as an 'Insured' and, thus, 'You'. Our earlier rejection of that contention removes the foundation for this alternative construction. It has no other foothold in the text or context of the Tokio Policy.
Conclusion
For these reasons, we would make the following orders:
1.The appellant's application for an extension of time within which to appeal is granted.
2.The appeal is dismissed.
We would hear from the parties as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LW
Associate to the Honourable Justice Beech8 AUGUST 2019
- AGLC
- Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson trading as Holgerssons Complete Home Service [2019] WASCA 114
- Case
- [2019] WASCA 114
- Decision Date
CaseChat Overview and Summary
The legal issues before the court included determining how to properly construe a contract that comprises multiple documents and resolving any tension or inconsistency between these documents. Specifically, the court had to decide whether the phrase in the schedule defining who was insured should be treated as superfluous or an error, and whether this was inconsistent with the policy wording that provided different coverage for those defined as 'You' and those defined as 'Named Insured'. Another key issue was whether the naming of all principals, contractors, and subcontractors in the schedule was so incoherent with the policy wording or produced such uncommercial consequences as to reveal that it was an obvious error.
The court examined the proper construction of the insurance contract, considering the surrounding circumstances known to the parties, and whether the Proposal form submitted by Holgersson should have been incorporated into the policy. The primary judge held that the Proposal was not part of the policy and could not be used to construe the terms of the insurance contract. The insurer argued that the schedule's phrase should be treated as having no content or operation, either because it did not name the parties within the meaning of the policy wording or because its inclusion was antithetical to the terms of the policy wording. The court ultimately decided that Holgersson was an insured party under the policy, rejecting the insurer's arguments regarding the construction of the contract. The decision highlighted the importance of interpreting insurance contracts in a manner consistent with what a reasonable businessperson would have understood, considering the surrounding circumstances.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
The primary judge also accepted that the terms of the Tokio Policy were to be determined by what a reasonable business person would have understood those terms to mean, which required consideration, among other things, of the surrounding circumstances known to the parties.[63] His Honour noted Tokio's reliance, to some degree, on the contents of the Proposal.[64] His Honour stated:[65]Although reference is made in the Tokio Policy to the insured's duty of disclosure, nothing in the Tokio Policy purports to incorporate the [P]roposal into the Tokio Policy. The [P]roposal is of no assistance in construing the words used in the Tokio Policy, including the Schedule.This treatment of the Proposal is challenged in ground 1.[63] Primary reasons [43], citing Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35].[64] Primary reasons [52].[65] Primary reasons [52]. There are five grounds of appeal. Ground 5 contends that, broadly speaking, by reason of the errors alleged in grounds 1 - 4, and in failing to properly construe 'named' in the definition of 'You' so as to require identification by proper noun, the primary judge erred in construing the Tokio Policy in a manner that meant Holgersson was an insured under cl 1 of Section 2. Grounds 1 - 4 allege the following errors of law of the primary judge in reasoning to the conclusion that the definition of 'You' included Holgersson as a subcontractor of Mosman Bay:(1)treating, as irrelevant, the objective surrounding circumstance that the Proposal nominated no party other than Mosman Bay as insured;(2)finding, in the absence of any evidence in support, that the Schedule was drawn specifically to deal with the particular insurance contract; (3)failing to consider the Tokio Policy as a whole, in particular, the Policy Wording's:(a)allocation of risk between 'You', and the 'Named Insured'; and(b)association of 'You' with the particular identified contracting party, known at the time of contracting; and(4)in treating, as an underlying rationale relevant to construction, the perceived commercial convenience of having all participants in a construction project insured under the property cover. Tokio's primary contention is that on a proper construction of the Tokio Policy, the words of the Schedule phrase, 'and all Principals, Contractors, and Sub-Contractors', in the stipulation of 'Insured' in the Schedule, should be treated as having no content or operation.[66] In oral argument, Tokio clarified that it invites this conclusion via two pathways.[67][66] Appellant's submissions [75](f)(i); appeal ts 38.[67] Appeal ts 35 - 36, 37 - 38. By the first of these two pathways, the Schedule phrase is redundant because, for the reasons outlined in [44](1) below, it does not amount to 'naming' those parties in the Schedule within the meaning of, and for the purposes of, the Policy Wording definition 26 of 'You, Your, Insured'.[68] By the second pathway, even if the Schedule phrase does amount to such a 'naming', its inclusion is so antithetical to the terms of the Policy Wording that it must be considered an error.[69] [68] Appellant's submissions [70] - [75]; appeal ts 35, 37 - 38; see also appellant's submissions [16].[69] Appellant's submissions [75](f)(i); appeal ts 38. The appellant observes that the parties agree that there is error in the Schedule in at least one respect, see appellant's submissions [34]; appeal ts 31.