Triple C Furniture and Electrical Pty Ltd v Rural & General Insurance Limited

[2011] HCATrans 125

[2011] HCATrans 125

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B67 of 2010

B e t w e e n -

TRIPLE C FURNITURE AND ELECTRICAL PTY LTD

Applicant

and

RURAL & GENERAL INSURANCE LIMITED

First Respondent

RAE JOHNSON

Second Respondent

Application for special leave to appeal

GUMMOW J
BELL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO BRISBANE

ON FRIDAY, 13 MAY 2011, AT 11.03 AM

Copyright in the High Court of Australia

MR C.S. HARDING:   May it please the Court, I appear for the applicant.  (instructed by Eardley Motteram Lawyers)

MR G.C. NEWTON, SC:   May it please the Court, I appear for the first respondent with my learned friend, MR M.T. HICKEY.  (instructed by CLS Lawyers)

MR HARDING:   I understand there is no appearance for the second respondent.

GUMMOW J:   There is a submitting appearance for the second respondent.  Yes.

MR HARDING:  Your Honour, the applicant contends that there are two matters justifying a grant of special leave in this case. We are not seeking to advance the argument that was referred to in the outline of submissions, regarding rule 165(2) of the Uniform Civil Procedure Rules 1999 (Qld). The two issues are these. The first is whether ‑ ‑ ‑

GUMMOW J:   Just a minute - where is your draft notice of appeal?  Page 45?

MR HARDING:   Yes, your Honour.

GUMMOW J:   Which is the ground not being pressed?  It was not there anyway, was it?

MR HARDING:   It does not appear in the draft notice of appeal.  It was ‑ ‑ ‑

BELL J:   It is in your outline at 48, paragraph 2.

MR HARDING:   Yes, that is correct and at the beginning of the outline as well, your Honour, is one of the questions in respect to special leave, but that is not being pressed.

GUMMOW J:   Yes, go ahead.

MR HARDING:   The first of the matters suggesting a grant of special leave is justified is that where an insurer seeks to rely on an exclusion clause requiring the proof of a negative proposition, whether that insurer is entitled to the benefit of the principle in Blatch v Archer.  The second is if, as in this case, in a policy of insurance which drafted ‑ ‑ ‑

GUMMOW J:   Just before you get to that, Mr Harding, looking at your draft notice of appeal, ground 2 asserts error by the Court of Appeal in concluding that there had been a discharge of the onus of proving that the deceased pilot had not undergone a flight review within two years.  Does that not make this rather fact intensive?  For you to succeed in this Court you have to overcome that, have you not?

MR HARDING:   There is a factual issue.  I accept that, your Honour.  The submission of the applicant is though that the way in which the facts were applied by the Court of Appeal was done incorrectly, such that if the onus which was required, which we say was required to be discharged, was successfully discharged, then the facts would not have allowed the first respondent to succeed in relying on the exclusion in the policy.

GUMMOW J:   Say that again.

MR HARDING:   Perhaps if I could take your Honours to page 22 of the application book.  It is page 7 of the Court of Appeal’s reasons.  If I could take your Honours to paragraph [20] that sets out the exclusion clause with which we are dealing.  What it says is that the policy does not apply relevantly while:

the aircraft is operated in breach of;
…

(ii)an Appropriate Authority’s, (defined herein) ‘communications’ –

Two paragraphs down at paragraph [22] is the relevant communication, which is that:

(1)A private (aeroplane) pilot must not fly an aeroplane as pilot in command if the pilot has not, within the period of 2 years immediately before the day of the proposed flight, satisfactorily completed an aeroplane flight review.

As was accepted by the trial judge in the Court of Appeal that necessarily involves the proof of a negative proposition in that the pilot had not undertaken a flight review.  I appreciate that there are authorities discussing the onus of proof and proof of a negative is required and some of those were referred to by the Court of Appeal on page 13, including the older decision of Blatch v Archer and a more recent decision of Apollo Shower Screens.  What the applicant’s contention is is that the position where an insurer is required to prove a negative proposition so as to rely on an exclusion clause in a policy is different, was arguably different at least to the general proposition where proof of a negative is required ‑ ‑ ‑

BELL J:   Mr Harding, before we get into the legal issues that you say the application raises, can I just take up with you some of the, perhaps, less controversial aspects of the Court of Appeal’s reasoning which seem to me to turn on pure issues of fact.  If one goes to application book 26, paragraph [43] the court notes that it is significant that the deceased pilot had in his plane with him a log book.  Some reasoning in that paragraph and on the next page in paragraph [50], as I understand it, does not so much raise the issues of onus that you seek to address so much as invite a conclusion that the court considered that the primary judge, on a favourable view, had drawn a conclusion that was not open, that is looking at the onus question more favourably from your point of view I would read the Court of Appeal, on one view of the analysis of the reasoning, as concluding that this was a bridge too far.  Do you understand what I am ‑ ‑ ‑

MR HARDING:   I do, your Honour.  I appreciate your Honour’s actual position there.  What the applicant’s point is, is that if the question as to the nature of the onus is found favourably to the applicant, it is necessarily following from that that there could not have been the factual findings that the Court of Appeal made based on the evidence that was before the court and before the Court of Appeal.

BELL J:   Why is that so?  Why does it not remain that the circumstance that the deceased had a log book, the log book was for a period up to 13 November 1998, did not contain an entry concerning a flight review accepting the wife’s evidence, accepting that there was a lost log book in terms of reasoning, how do you overcome the logic of the Court of Appeal’s factual findings in that respect?

MR HARDING:   In my submission, if it is the case that it is simply on balance of probabilities that the first respondent is required to prove that he is entitled to the benefit of the exclusion clause, then certain evidence seems to have been ignored by the Court of Appeal in coming to the conclusion that it did.  I understand that your Honour says accepting the fact that there may have been a second log book, but the evidence went further than that in that there was evidence, certainly, that there was no regulatory requirement that a log book be carried in an aircraft.  But it went further to say that there was evidence called by an expert of behalf of the first respondent that it would not normally be the case that you would carry your log book in the aircraft because the problem is in cases such as this, a log book would necessarily be destroyed, or could be destroyed in an accident.

BELL J:   I think the point that the Court of Appeal was raising was this.  Regardless of the lack of regulatory requirement to carry a log book on a flight and accepting the good reasons why there should not be such a regulatory requirement, when in fact a pilot carries a log book and the log book has entries including up to a date relatively close to the date of the accident and covering the preceding two‑year period, the inference to be drawn is that that was the current log book.  That, I think, is the way the court reasoned and it seemed to me that on that basis you may have difficulty even if you succeed on your onus challenge.

MR HARDING:   Yes, I understand your Honour is right in that that is the reasoning of the Court of Appeal.  I probably cannot take my submissions on this point too much further.

BELL J:   Yes.

MR HARDING:   In relation to the second item regarding section 54 of the Insurance Contracts Act, again if I could take your Honours back to page 22 of the application book which is the exclusion clause which is relevant in the present case.  What that clause says is that this policy does not apply while the aircraft is operated in breach of the communication, with the communication being set out below.  The act for the purpose of the Insurance Contract Act would seem to be flying the aircraft without having satisfactorily completed a flying review within two years and the Court of Appeal found that in these circumstances, the applicant was not entitled to the benefit of section 54 of the Insurance Contracts Act. 

Now, I appreciate that there are a number of cases including those referred to of Antico and FAI Insurance and others, regarding the interpretation of section 54(1) of the Insurance Contracts Act, but, my understanding as to the principles to be gleaned relevantly from those cases, is that it is the substance of an insurance policy rather than - or that is more important than the form of the insurance contract.  Now, I will take your Honours to perhaps one extract from the Antico case which is on page 669 of that decision.

BELL J:   I am sorry, what page? 

MR HARDING:   Page 669 of that decision.

BELL J:   Yes.

MR HARDING:   In the first respondent’s list of authorities, it is the first case.

BELL J:   Thank you.

MR HARDING:   In that case the majority were quoting an approval from a decision of East End Real Estate v C.E. Heath and the passage to which I would refer your Honours is partway down page 669 where it is said:

It would hardly be consistent with the purposes thus described to construe the language of s 54 in such a way as to make its operation depend upon the choice that is made between various available drafting techniques.

In this case, in my submission, it seems to be what was done in that the policy was drafted, such it was said, that the policy does not apply in certain circumstances. The use of that drafting technique was found by the Court of Appeal to be sufficient to remove the operation of section 54, if one of those circumstances was found to exist. In the applicant’s submission ‑ ‑ ‑

GUMMOW J:   Just pardon us a minute - yes, Mr Harding.

MR HARDING:   Of the authorities of Antico and FAI, it is the applicant’s position that in these circumstances, on the basis of a policy which ‑ ‑ ‑

GUMMOW J:   Can I just interrupt you for a minute.  Can you just explain again how, notwithstanding paragraph [43] and following of Justice Chesterman’s reasons, you say you still have a point of the application of the Insurance Contracts Act, section 54? Paragraph [43] is about the log book.

MR HARDING:   Yes.

GUMMOW J:   Assume what I am putting to you is, I suppose - assume you cannot upset that. Do you still have a section 54 case?

MR HARDING:   Upset the finding about the existence of the ‑ ‑ ‑

GUMMOW J:   Looking at paragraph [43] on page 26. It is the log book point that Justice Bell was exploring with you. Assume you cannot upset that. Do you still have an avenue that gets you into your point to agitate section 54?

MR HARDING: I would submit that we do, your Honour. In my submission, the section 54 case is only required to be agitated by the applicant if it fails on the log book case.

BELL J:   Looking at your summary of argument, at application book 49, it is your third point.  So it is your third question.

MR HARDING:   Yes.

BELL J:   Your first question takes up the question of the conclusion that the pilot had not undergone a review and, accordingly, was not licensed within the regulatory regime.  The second point you abandoned and now you are wanting to pursue the third point, which is your 54(1) point.  Is that the position?

MR HARDING:   That is so, your Honour.  The third point, in my submission, only becomes necessary if the applicant does not succeed on the first.

BELL J:   Yes.

GUMMOW J:   That is right.  Now, what I am putting to you is assume you have bad luck with the first.  Are you still alive with the third?

MR HARDING:   In my submission, yes, your Honour, and it is only if I have, to use your Honour’s phrase, “bad luck with the first” that I would need to rely on the third.

BELL J:   Let us assume you have bad luck with the first, Mr Harding, can you just explain to us the force of your third ground?

MR HARDING:   If I could take your Honours back to page 22 of the – just going back to the terms of the policy, the third ground is this.  The exclusion says that the policy:

does NOT apply whilst the aircraft . . . is operated in breach of -

the communication. We assume that that is so. It was operated in breach of the communication. The Court of Appeal after coming to that conclusion found that there was no avenue to the applicant to avail itself of section 54 of the Insurance Contracts Act because it would seem, from the reasoning in the Court of Appeal, the manner in which the exclusion clause was drafted. It is the applicant’s submission that if the applicant does not succeed on the first argument it is entitled to rely on section 54 of the Insurance Contracts Act when one looks at that exclusion clause as a whole. There is no reason why the operation of section 54 of the Insurance Contracts Act should be excluded in these circumstances because what is effectively an exclusion to the policy is found to apply, such that if the applicant ‑ ‑ ‑

GUMMOW J:   How do you get that out of the words of 54?  How do you then get 54 to work in the way you want it to work, looking at page ‑ ‑ ‑

MR HARDING: Section 54 applies to an act or omission. We say that the act – or the act would be – on the finding of the Court of Appeal failing to undergo the flight training within two – or flying without having undergone the flight training within two years of the accident; that is the act. We say that once that act is found to have existed that is an act which comes within section 54 of the Insurance Contracts Act such as to entitle

the applicant if it is able to establish the other elements of section 54 to at least come within section 54 of the Act. The Court of Appeal ‑ ‑ ‑

BELL J:   I am sorry to interrupt you, but I just want to take up with you one aspect of the Court of Appeal’s reasoning.  Was that not to say it is not really apt to say the failure to undergo the review is the act and the court I think was pointing out the failure to pass a necessary qualification is not relevantly an act?  Is that not the essence of the court’s reasoning?

MR HARDING:   The court did say that, your Honour.  With respect, I would refer to the contents of regulation 5.81 which says that what a pilot must not do is to ‑ ‑ ‑

GUMMOW J:   Well, you say the act is the operation of the aircraft in a certain circumstance, namely, in breach of the communications.

MR HARDING:   Yes, that is so, your Honour.  I say that because that is the wording of regulation 5.81, which says that a pilot must ‑ ‑ ‑

GUMMOW J:   Which talks about whilst the aircraft is operated.  You say it is the operation with the characteristic that this is in breach of the regulatory system.

MR HARDING:   Yes, that is so, your Honour.

GUMMOW J:   You then say that gives you an act for section 54(1), is that right?

MR HARDING:   Yes, that is so, your Honour.

GUMMOW J:   All right.  I think we will hear from Mr Newton at this stage.

MR NEWTON:   Your Honour, can I deal with a secondary point and it is this. There is another factual issue which intrudes on the section 54 question and that is in relation to a matter which is not the subject of challenge and that is the question of causation which was a matter found against our opponents by the Court of Appeal.

May I direct your Honours’ attention to the notice of appeal, first - the draft notice of appeal which commences at page 45, your Honours.  Your Honours have already said that the item in paragraph 2 raises a factual matter, so I will not pursue that.  The items which are in paragraphs 4 through to 6 are all factual matters and they deal with the issue of causation which is a matter that was determined against the applicant today, your Honours.  If your Honours go to ‑ ‑ ‑

GUMMOW J:   Just a minute.  Where do they deal with the question of causation – in the Court of Appeal?

MR NEWTON:   Towards the end of the judgment, your Honour, where, for instance, if one goes to paragraph [96] on page 38 of the record. 

GUMMOW J:   Paragraph [96]?  All right, we will read that to ourselves.

MR NEWTON:   Can I introduce it with this background?  Justice Chesterman there is reaching a conclusion, having dealt with the expert evidence in relation to causation particularly the evidence to which his Honour refers in paragraph [94] at the top of the page where the witness, Crocker, who was an expert, said that:

“By not undertaking the (flight review) . . . was a direct causative factor in this accident.”

Then his Honour, in the Court of Appeal, reached the conclusion in paragraph [96] that there is only one conclusion on the question of causation.

GUMMOW J:   What is the question of causation - I do not understand ‑ ‑ ‑

MR NEWTON:   I am sorry, your Honour, section 54(3) of the Insurance Contracts Act. If one were to assume everything in my opponent’s favour in relation to the relevant Act being an act or omission to which the section applies - and, of course, we say it is not - the question of causation intrudes because section 54(3) provides that where the insurer proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim, by reason only of that act. That was a matter in respect of which ‑ ‑ ‑

GUMMOW J:   Wait a minute – the act was flying the plane.

MR NEWTON:   That depends how one approached it, but the question that was determined – what I want to say about that – the question of causation is, in fact, not disputed. It has been abandoned. It was initially raised in the draft notice of appeal and the special leave application but it is not pursued in our friend’s submissions. The Court of Appeal – it was argued as an issue at trial that the flying of the plane, which the party was prohibited from doing under the legislation which resulted in the pilot’s death and the injury to the passenger, was a matter to which section 54(3) applied and had that flight review been undertaken that would have been a loss that would have been avoided because in order to be permitted to fly one had to pass the flight review and be certified.

The point that was raised and lost by our opponents was the causation question, and that is not the subject of challenge.  In other words, the insured did not prove that no part of the loss was caused by the act of flying without a flight review having been undertaken.  The flight review process, your Honours, is designed to hone the skills of the pilot.  It is a rather exhaustive test that takes perhaps half a day, the evidence discloses, where the pilot has to submit, in this case, himself to the rigors of an instructor level pilot and undergo an examination including an oral examination and a flying examination.  It takes perhaps half a day.  The result of that is that the pilot is either certified as one who can continue to fly or not, and if he is not so certified, then he must not fly an aircraft.

The Court of Appeal found – and it is not disputed today – that there was a direct causative effect between the failure to undergo that review to hone his skills, and the damage that was caused, namely the crashing of the plane and the death of Mr Johnson and the injury to his wife.

BELL J:   Mr Newton, can I just take up with you, at page 39 paragraph [98], Justice Chesterman records that:

The respondent did not attempt to prove, as s 54(3) allows, that no part of its loss was caused by Mr Johnson’s omission to undergo a flight review.

Is that what you are directing our attention to?

MR NEWTON:   That is the conclusion, your Honour.

BELL J:   Yes.  Now, “the respondent” there is a reference to ‑ ‑ ‑

MR NEWTON:   The applicant today, your Honour.

BELL J:   Yes, so – I am sorry, go on.

MR NEWTON:   No, I interrupted your Honour.

BELL J:   No, I was just wanting to direct your attention to that.  That is the focus of this submission that you are presently making, is it?

MR NEWTON:   That is so, your Honour, and that being the consequence, whatever one might say about the reasoning, of course, in our submission the reasoning is correct.  But whatever one may say about the reasoning of the Court of Appeal, the outcome, in my submission, will be no different

because the applicant today loses on the causation question, which is not the subject of challenge.  It is not an issue before the Court today.

GUMMOW J:   Thank you.  Yes, Mr Harding, what do you say about 54(3) in paragraph [98] of the Court of Appeal, namely that your client –

did not attempt to prove . . . that no part –

et cetera.

MR HARDING:   I would say two things, your Honour.  The first is that the causation question is in issue.  It is grounds 4, 5 and 6 of the draft notice of appeal.

GUMMOW J:   Yes.

MR HARDING:   My client succeeded on the causation question before the primary judge. It did not succeed in the Court of Appeal, but it is incorrect to say that those issues are not the subject of challenge in this appeal. I accept that there will be, or need to be, a determination on the facts as to whether my client succeeds on those issues. In my submission, that flows – if my client succeeds in obtaining a grant of appeal, the grant of special leave, the grant of special leave will be as a result of, in my submission, a finding that the Court of Appeal erred in finding that section 54 of the Insurance Contracts Act did not apply at all, which is ground 3.

BELL J:   Did the court misapprehend the way the matter had been conducted?  What explains paragraph [98] in Justice Chesterman’s reasons on the submissions that you are making?

MR HARDING:   It may, perhaps, be explained by the relatively cursory manner in which the primary judge dealt with the issue under section 54 of the Insurance Contracts Act.

GUMMOW J:   Where do we see that?  Where did Justice Jones deal with that?

MR HARDING:   It is on pages 5 and 6 of the application ‑ ‑ ‑

BELL J:   At paragraph [20] his Honour ‑ ‑ ‑

MR HARDING:   Yes, paragraph [20], your Honour. 

BELL J:   In the way the matter proceeded at trial, Mr Harding, the negligence of the deceased pilot was not in issue. The primary judge found as a fact that the respondent had failed to bring itself within the exclusion and did not find it necessary to consider the section 54 point. What evidence was there at trial in relation to the causation issue, as Mr Newton puts it, with respect to section 54?

MR HARDING:   My recollection is that the evidence at trial consisted of expert evidence as to what the effect of a flight review would be.  In that regard there was certainly evidence, as my learned friend suggested, that a flight review may pick up on problems of an errant pilot.  There was evidence going the other way suggesting that a pilot who may have had some problems and undertook a flight review would easily be able to hide those problems, such that a flight review could have made no difference in the circumstances.

BELL J: If you look at application book 37, paragraph [89], Justice Chesterman notes that all of the pilots who gave expert evidence were very critical of the deceased’s flying prowess, all thought that a flight review should have identified the worst of his bad habits and encouraged him to address them. There are a number of factual findings in the Court of Appeal going to the section 54 matter, which you would have to overcome if you were to have success in this Court.

MR HARDING:   Yes, I have to accept that, your Honour.

BELL J:   What is the high point of the evidence that you say is on the other side of the coin, as it were, against that which is summarised by Justice Chesterman in the passages to which Mr Newton has taken us?

MR HARDING:   …..go to it and I am having difficulty locating it at the moment, but to the effect that, as I submitted, in undergoing a flight review a pilot whose technique is less than perfect is able to hide his failings, such that a flight review may well make no difference to the result and to the damage sustained in this case.

GUMMOW J:  The scheme of section 54, I think, is to achieve a situation whereby the insurer cannot deny liability by latching upon non‑fulfilment of condition in the policy which, as it were, is immaterial to the loss that has been sustained. So it stops adventitious seizing by insurers upon conditions that are not really in the frame of the actual loss that took place. Now, whether you say the act was the flying of the aircraft, as it seems to me, or flying the aircraft without the regulatory observance, I think you have a problem.

MR HARDING:  I cannot say anything against the fact that there will need to be a factual finding in my favour based on the evidence on which the Court of Appeal relied. I think that flows from the applicant’s reliance on section 54 that there would need to be such a factual finding. I cannot take the matter any further, your Honour.

GUMMOW J:   Thank you very much, Mr Harding. 

There are insufficient prospects of ultimate success in this appeal to warrant a grant of special leave.

Special leave is refused with costs.

MR NEWTON:   Sorry, your Honours, before your Honours adjourn, your Honours might have – in the event we were successful in resisting the application for special leave, we had forecast an additional costs order.

GUMMOW J:   No.

MR NEWTON:   I am sorry, your Honour.  If your Honours were to go to the application book at page 80 – I do not wish your Honours to change the order that you made, but we seek an additional order.  If your Honours go to page 80 at paragraph 20 your Honours will see that it introduces some correspondence which was provided by the solicitors for the applicant today to the Registry of the High Court.  That letter is at page 83 of the record, your Honours, and it leads to this position. 

The applicant today is clearly impecunious and is conducting this litigation without risk as to costs.  We sought an order and forecast that we would seek an order that extended the costs order, in the event we were successful today, to Mrs Johnson who, of course, is the other party to the litigation and who, of course, is the party who is the natural person behind the company which brings the application today.

Now, I should tell your Honours that there has been some correspondence about that yesterday.  Your Honours obviously do not have the affidavit, but there is an affidavit by Peter Axelrod sworn yesterday that was provided to ‑ ‑ ‑

GUMMOW J:   Why was it only yesterday?

MR NEWTON:   Because it is in response to correspondence we received yesterday afternoon, your Honour.  We received correspondence from the solicitors for Mrs Johnson for the first time saying that they noted that we were seeking costs against their client and can I read from their letter?  The solicitor says “I have not been formally served with any application on material in that regard.  I do not believe it’s appropriate to address that issue on a special leave application.”

Now, can I say something about that?  Mrs Johnson’s solicitors were served with the outline notifying her of the proposal to seek costs on 29 March because she was a party to the appeal and there has been no response from her solicitors until the eve of the return date today, which is the first we knew of it.  Hence, we have put in an affidavit, which I will seek your Honours’ leave to read and file - an affidavit of Peter Axelrod sworn yesterday’s date, your Honour, that puts in that ‑ ‑ ‑

GUMMOW J:   Now, just get to the point please.  What is the point?

MR NEWTON:   That we seek in addition to the ‑ ‑ ‑

GUMMOW J:   There is nothing that is less attractive to judges than being invited to rake through correspondence between solicitors ‑ ‑ ‑

MR NEWTON:   Your Honour, I am not inviting your Honours ‑ ‑ ‑

GUMMOW J:    ‑ ‑ ‑striking various postures, I can assure you.  Now, just get to the point.

MR NEWTON:   We seek to have your Honours extend the costs order to include Mrs Johnson on the basis that she is the party behind the litigation and the letter which her solicitors sent to the High Court Registry, which is at page 83 of the record, makes it clear that the applicant today has no funds.  It is being funded on a speculative basis.  We invite your Honours in the exercise of your Honours’ discretion to extend the costs order to Mrs Johnson as well.

GUMMOW J:   Well, we will see what your opponent says about that.

MR NEWTON:   Well, my opponent, of course, is the counsel for the company.

GUMMOW J:   Exactly.

MR NEWTON:   And, Mrs Johnson, it seems, will not be appearing, but she has put in a consenting appearance which reserves her right to argue in relation to costs.  Well, she is not here, so we have done all we can to bring this matter to the attention of the Court by notifying Mrs Johnson six weeks ago.  Thank you, your Honour.

GUMMOW J:   Yes, Mr Harding.  Do you want to say anything about this?

MR HARDING:   No, I do not, your Honour.  There is nothing I can really say.  I am appearing on behalf of the company only.

GUMMOW J:   I understand.  Thank you. 

We have heard what has been said but we would not vary the order we have made which would be the ordinary order that special leave is refused with costs. 

AT 11.42 AM THE MATTER WAS CONCLUDED