Underewriters at Lloyds Evidenced by Contract No 680113200 and to the Companies referred to in Schedule A Hereto & Ors v Comino

[1993] HCATrans 220

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S29 of 1993

B e t w e e n -

UNDERWRITERS AT LLOYDS
EVIDENCED BY CONTRACT
NO. 680113200 AND TO THE
COMPANIES REFERRED TO IN

SCHEDULE "A" HERETO

UNDERWRITERS AT LLOYDS
EVIDENCED BY CONTRACT
NO. 680111400 AND TO THE
COMPANIES REFERRED TO IN

SCHEDULE "B" HERETO

Applicants

and

CHARLES THEO COMINO,
AGATHOCLES AGATHOCLEOUS

CONSTANTINE and SPERO

PITSIKAS, VAN COONEY and

JEFFREY STUART DUNN

First Respondents

NICHOLAS PETER MANETTAS

Second Respondent

Lloyds	1	9/8/93
MASON CJ GAUDRON J McHUGH J

NICHOLAS JOHN WALL

Third Respondent

JAMES GEORGE CARALIS

Fourth Respondent

GOVERNMENT INSURANCE OFFICE OF

NEW SOUTH WALES

Fifth Respondent

Application for special leave

to appeal

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 9 AUGUST 1993, AT 9.51 AM

Copyright in the High Court of Australia

MR C.G. GEE,~= May it please the Court, I appear with my

learned friend, MR P.F. LINEY, for the applicants.

(instructed by Colin Biggers & Paisley)

MR D.F. JACKSON, OC: If the Court pleases, I appear with my

learned friend, MR P.J. FINCH, for the first

respondents. (instructed by James A. Moustacas &

Co and Harris & Co)

MR G.A. RICH: If the Court pleases, I appear for the

fifth respondent. (instructed by Cowley Hearne)

MASON CJ: There is no appearance for the second, third and

fourth respondents?

MR GEE: Yes, I have been asked, Your Honours, to mention

that as we seek no relief against those respondents

they are not appearing, but they have asked me to

indicate that no question of discourtesy to the

Court arises in those circumstances, and I happily

do so.

Secondly, Your Honours, could I seek

the leave of Your Honours to rely upon a further

short affidavit on the question of the general

importance of the matter. The affidavit has been

served upon our learned friends last week and, if

Your Honours will give leave, I hand up the

original and copies thereof. It is the affidavit

of Peter John Moran, made 4 August 1993. Shall I

read the affidavit, Your Honour?

MASON CJ:	We can read it for ourselves, Mr Gee.
MR GEE:	If Your Honour pleases. Your Honours, the appeal
arises because, in our respectful submission, the

Lloyds 2 9/8/93

Court of Appeal erred in its approach to the

problems thrown up by the exclusion in the policy.

MASON CJ:  You might direct your submissions, in the first

instance, to why the Court of Appeal was wrong.

MR GEE: If Your Honour pleases. In my respectful

submission, that breaks itself into two categories.

The first is to look at the reasoning which was

adopted by His Honour Mr Justice Mahoney with which

His Honour Mr Justice Cripps agreed without further elaboration, and on the other hand, to look at the

approach taken by His Honour Mr Justice Sheller.

The critical reasoning, in our respectful

submission, which requires the conclusion, with

respect, that error occurred at that level is in

His Honour Mr Justice Mahoney's judgment, page 103,

beginning at line 30. After briefly setting out

the facts and the relationship between the acts of

dishonesty and the ultimate event that made

Mr Manettas liable, that is, his entry into a legal

instrument of guarantee, His Honour said, in his

opinion the:

relationship between the default and the

liability -

by "default", we understand that he meant,

Your Honours, the failures of the solicitor and the dishonest conduct:

though in one sense causal, is not causal in
the sense intended by the words "brought about

by" in the exclusion clause. It is, I think,

an over-simplification to say that "brought

about by" intends a "causa causans" causal

relationship and that the one which, as his

Honour pointed out, existed between these

defaults and the liability was, at best, the

relationship of "causa sine qua non".	But
that distinction assists, I believe, in

understanding the nature of the relationship

intended by "brought about by". The phrase

looks to what actually brought about the

liability, in negligence, tort or otherwise,

to Mr Manettas.

If I could just interrupt myself there,

Your Honours. If one focuses on what we

respectively submit is the proper target, namely,

that the Act causing the loss, and in turn the
liability of the solicitors, was the entry by the

guarantor into the legal instrument, without which,

of course, there could have been no liability,

then, on what His Honour said at that line, we

would respectively submit the insurers ought to

Lloyds 9/8/93

have succeeded, because if you look at what

actually brought about the liability, to use

His Honour's phrase, you are focusing, we submit,

on the entry into the legal instrument.

Questions as to how the liability of the

solicitors arose are questions related to why that

event occurred, and the answer to those questions
is, among other things, that the very instrument

that brought about the liability in the guarantor

was itself the subject of the dishonesties in a

very causal sense.

GAUDRON J: Quite a different causal sense, were they not?

What you are really saying is, something along the

lines, "If this had happened it would, in fact,

have prevented something else happening," which is

really quite a different sense of causation.

MR GEE: Well, Your Honour, with great respect, precisely

the same can be said of the basis upon which the

solicitors were held liable to the guarantor,

namely, that if they had clarified their

instructions, the loss would not have occurred.

There is no difference in principle, in our

respectful submission, between two negatives here.

One is the negative in the sense of failure to

clarify instructions, the other is the negative in

the failure to explain and dishonestly to certify

that explanation had taken place. They are in

character the same - - -

GAUDRON J: But is not the real failure, well, the failure

to obtain proper instructions, yes, and drawing up

a document that was not consistent with what would

have been instructed.

MR GEE:  Yes. Your Honour, for the purposes of my

submissions, I accept, as I must, that that is the

starting point, but what the Court went on to do

was then to say - - -

GAUDRON J: Well, was there any duty of the solicitor to

Mr Manettas asserted over and above that particular

aspect in the pleadings? We do not have them.

MR GEE:	No, but with great respect, Your Honour, the
question was not to look at every element of the
ambit of duty of the solicitor to Mr Manettas. The
question here was given negligence, given a legal
liability in the solicitor, which triggered the
policy, we were then moving on to the next stage of inquiry, namely, that trigger having occurred, is
there something which we look at to see that the
indemnity, which would otherwise flow, is not in
this case to flow, so that we move on - - -

Lloyds 4 9/8/93

GAUDRON J: With great respect, I do not see how you do move

on without identifying the duty, and the loss,

which flows from the breach of duty.

MR GEE: Well, Your Honour, the loss flowed, as I have

respectively tried to submit, from the fact that

the guarantor entered into an instrument which

ultimately made him liable in law. There is no

getting away from the fact, and we do not shrink

from the fact, that one of the causative elements

in that act having taken place is negligence in the

sense of failure to clarify instructions. But, the

court below, with respect, treated that as being

the end of the inquiry, and artificially then

excluded from the vital next stage, namely, has

something occurred which prevents the consequence

that would otherwise flow, namely, the indemnity
that the policy offered, and excluded that from the

area of consideration.

McHUGH J: But if there had been no false attestation, if

there had been no false certification, if there had

been no false representation, there would still

have been a liability under the policy.

MR GEE: Well, yes, Your Honour, but that is only a way of saying, with great respect, that the policy would

have been triggered, and we would not be examining

the exclusion clause and asking what its operation

was if we were not, at least, at that stage. We

can take that as a given and, in any event, the

court below appears, with respect, not to have
considered the question of whether general

causative notions, such as were laid down by the

Court in March's case, were equally applicable to

the inquiry that was involved in what we are really

focusing on here, which is what is the effect of

the exclusion in the policy, not what brought about

the liability of the solicitors to the guarantor,

and that, with respect, is where the problem has

arisen in that the focus being on negligence, there

was a tendency to put an equally causative set of

events, the dishonesties, of each of which it could
equally be said that if they had not taken place,
the damage would not have occurred, for the reasons

explained by the trial judge, Your Honours.

Then, the result was that in respect of a

policy which was clearly intended to cover just

about every kind of liability that might fall upon

a solicitor except a liability brought about by

dishonesty on his part, the solicitor has come to

enjoy full indemnity because he happens to be able

view, in our respective submission, they are not different - - -

to show that he was negligent as well as dishonest. point of

Lloyds 9/8/93

GAUDRON J: Well, they are not different, you say that, but

that really is what was held against you in the

Court of Appeal, that they are different, and they

are different causative factors.	They involve
different notions of causation.

MR GEE:	Each, Your Honour, with respect, is an example of
something that if things had been different - if
the solicitor had clarified his instructions, on
the one hand, or if he had properly certified and
not dishonestly certified about explanation - then,
in either of those events the result would have
been the same, namely, that something would have
impeded the transaction which brought about the
loss, and that is why I am submitting, with great respect, that there is, ultimately, no difference - - -

GAUDRON J: But, there is a positive aspect in the drawing

of the document in disregard of what the

instructions would have been.

MR GEE:	Can that equally not be said, Your Honour, I ask
this with respect, in the positive process of
affirming two things that were not right. One,
that the attestation had taken place in the
presence of the witness and, secondly, that the
guarantor had received the proper explanation. One
can reverse the coin either way, in my respectful
submission, and if one is focusing, Your Honours, on any particular element in the judgment below
where, what we would respectfully submit, a
distinction without a difference occurred it is to
be found in the judgment of page 104, lines 40 and
following where Mr Justice Mahoney indicated that:

Examples may be distinguished: there are

distinctions ..... between ..... examples and the

present case .... But the example illustrates

the difference between that which brings about

a result and that which, if it had occurred,

would have prevented the result being brought

about. It is sufficient to recognize that

there are defaults which, had they not

occurred, might have resulted in the

transaction not taking place, ..... which do

not, in the relevant sense, fall within the
causal relationship of "brought about by".

And we would respectfully submit that in that

passage His Honour has set up a non-existent

distinction from the causal point of view between

an affirmative cause and a negative cause, and it

is easy to give examples of matters where, if

something had occurred it would have prevented a

result which, as a matter of English, you would

ordinarily describe as bringing about a result, of

Lloyds 6 9/8/93

which the obvious example would be, if I were to

drive into the back of a vehicle in the street, the

reason why I had not done so is that I failed to

put my brakes on. Had I done so, the loss would

not have occurred. But, if you were asking the

question, "What brought about that accident?" The

answer would be, "Gee did not put his brakes on,"

or "Gee had not looked," or "Gee did not take some

step that would have prevented the event." So

that one can not say, in our respectful submission,

that the mere fact that you can find a positive
versus a negative causal relationship means that

you ignore one and give full efficacy to the other.

Further, Your Honours, could I rely on

the - - -

GAUDRON J: But, that is precisely what you assert can be

done under your policy, is it not: that you could

ignore one, you could ignore the failure to take

instructions?

MR GEE: With great respect, on the contrary, Your Honour.

There is no question of ignoring the failure to

take instructions - - -

GAUDRON J:	The failure to clarify -
MR GEE:	To clarify instructions -

GAUDRON J: Yes, but you do rely entirely, you say do you

not, that you can rely on the dishonesty to escape

liability altogether, and to that extent you can

rely on one and ignore the other?

MR GEE:	There is no question of ignoring one, with great
respect, Your Honour, the process is, we would
respectfully submit, a little different. The one,
the failure to take instructions, etc cetera, I
will assume against myself, triggers the policy; so
be it. Something has to, something gets us to the
point where we are asking ourselves the next
question down the line, and the next question down the line revolves around the operation of the exclusion, and importantly, what happened here was
that, as a result of the decision below, the policy
is now to be regarded, in its operation, as
excising artificially, we would respectfully
submit, from those events which can fall within the
exclusion, those which can merely be given a
negative character and, with great respect, that
cannot be right. There are many examples of things being brought about by causes of a negative nature.

GAUDRON J:  But it is somewhat more than that. The causes

of the negative nature that fall within your

exemption go to what the GIO would have done, not

Lloyds 7 9/8/93

to the liability of the client, not to the

liability of Mr Manettas. The liability, which is

what gives rise to the damage, comes from the

document which he executed, not from the dishonest

certification.

MR GEE:  Yes, Your Honour.

GAUDRON J: Well, that is the difference between the two

matters, is it not?

MR GEE: Well, if I may say so with great respect,

Your Honour, our starting point is Your Honour's

starting point, that the act that brings about the

loss is, indeed, the document, and it is the very

document that contains the acts of dishonesty

which, had they not taken place, would themselves,

His Honour found, have prevented entry into that

very legal instrument. How can one - sorry, I will

withdraw that. In my respectful submission, one

can therefore not ignore the dishonesties as one of

the causative processes. Could I just go back a

step in the judgment that we are considering, if I

may, Your Honour, to the same page, 104, just at

the top of the page, after referring to the failure

of the solicitor to clarify his instructions,

Justice Mahoney said:

Once that failure occurred and the transaction was carried to completion on the basis of his mistake as to his instructions, the liability to Mr Manettas arose. The defaults relied on

by Lawcover, viz, the attestation default and

the certification default, played no part in
the arising of that liability. In that sense, the liability was not "brought about by" those

defaults.

Now that, I expect, Your Honour, is another view of

what we submit is the very artificial and limited

way in which the matter was approached, and it will

be noted that the stages that we submit that are

necessary, namely, seeing that the policy was triggered and then asking questions about the exclusion, was not involved here and, indeed, you

could go this far, in our respectful submission,

that in just the same sense as His Honour was

referring to here, the liability itself was not

brought about by the negligence, it was brought

about by the documents, and so we go back to,

essentially, the same position.

The matter can be elaborated a little further, in our respectful submission, Your Honours. Could

I ask Your Honours to consider, first of all,

Parramatta City Council v Lutz, (1988)

12 NSWLR 293, if I may hand up copies,

Lloyds 8 9/8/93

Your Honours. The passage to which I wish to refer

is in fact in the judgment of Your Honour Mr Justice McHugh, then sitting in the Court of

Appeal, the passage beginning at 334. This being

the case in which the council negligently failed to

heed warnings and failed to demolish a building

which, in due course, caught fire and damaged the

plaintiff's adjoining property. I will not read

the whole of the passage under the subheading

"Causation", but could I take Your Honours to the

passage which appears at the top of page 335, where

Your Honour said:

As a matter of commonsense, a failure to

act is regarded as a cause of harm when "but

for" that failure the harm would have been

averted. This is particularly so when the

harm-causing activity occurs after the failure

to act. If a clerk fails to lock the bank

vault and a security guard fails to notice the

vault is unlocked, both omissions are causes

of any subsequent theft. The case might be

otherwise if the thief had sophisticated

safebreaking equipment and would have got the

money in any event.

Now, first could I say, hastily, that nothing in

that, with respect, is to the contrary of what the

Court has said in March's case, appreciating, and I

do, that, of course, in that latter case,

Your Honour Mr Justice McHugh took a slightly

different way.

McHUGH J: That is an euphemistic way of describing the

difference between myself and the majority.

MASON CJ:  An unacceptable way, is a more accurate

description, Mr Gee.

MCHUGH J: Only as a matter of

MR GEE:  Your Honours, when you are in the firing line you

look for euphemism.

Now, what I am seeking to put, Your Honours,

is that that, in a nutshell, is the sort of thing

that we are seeking to put here. When Your Honour

instanced the clerk failing to do something and the

security guard failing to do something and noted

that "both omissions are causes of any subsequent

theft", Your Honour was, essentially, summarizing

or illustrating the kind of concept that we are

seeking to put forward here, that it is no answer

to the problem that has arisen here simply to say
the solicitor was negligent and that is the end of

the matter. Let us grant that the solicitor was,

that is the finding against us, you still have to

Lloyds 9 9/8/93

make at least one absolutely crucial inquiry

thereafter which was not undertaken below.

McHUGH J: It is a question of this policy, is it not?

MR GEE: 

Yes.

McHUGH J: 

The courts have tended to approach questions of

causation, particularly under policies of
insurances, as requiring you to select the cause or
the dominant cause - - -

MASON CJ: 

The effective cause.

McHUGH J: 

- - - the effective cause.

MR GEE: All of those things are so, Your Honours, and it

may very well be the case that hidden in this

judgment is precisely that point of principle also

as to whether, in the approach to a policy of this

nature, in the light of March v Stramare, it is

still the law here that that occasionally

artificial search for the single or dominant cause

in the insurance context is to be maintained and

that point of principle, in our respectful

submission, certainly arises, although, admittedly,

not out of the express approach of the Court of

Appeal. Indeed, submissions along the lines that

Your Honour has just mentioned were put below but,

as it turned out, the judgments, as they revealed

themselves, did not come to grips with that point

at all because they did not approach the matter in

that way.

We would respectfully submit that you can just

as easily and just as convincingly find a point of

true general importance in that question as in the

one that we seek to ventilate, namely, that there

has been an artificial shutting out from legitimate

causative ambits of relevant matters simply because

they are clothed with a negative causal character.

So that we would certainly submit, with respect,

that the time of the Court in considering the

matter, if leave were granted, would not be

confined to any narrow inquiry and we would

respectfully submit that the matter is most

certainly not without importance.

Could I just deal with one other matter,

Your Honours. The judgment of His Honour

Mr Justice Sheller proceeded along somewhat

different lines and he gave his judgment at

pages 111 and 112 of the application book. He,

first of all, summarized the policy and said, at

page 112, that:

Lloyds 10 9/8/93

In brief the question here is whether the dishonest or fraudulent act of the Assured

brought about the Assured's civil liability to
Mr Manettas. Clearly such liability was
brought about by the negligence of the

Assured. But, as I understand the argument,

it is urged that but for the dishonest or

fraudulent act of the Assured the transactions

would not have proceeded between Mr Manettas

and the Government Insurance Office and hence

there would have been no civil liability.

If I could just interrupt myself there for a

moment, Your Honours. It was not a question of

argument that "but for the dishonest or fraudulent

act the transactions would not have proceeded",

that was a finding of fact of His Honour below

which, for all practical purposes, was not

disturbed. It will be found at page 45 of the

application book.

But then His Honour, Mr Justice Sheller, went

on:

Even if this be so, to adopt the language of

Hope and Priestley JJA in Barnes v Hay (1988)

12 NSWLR 337 and 339, the dishonest or

fraudulent act was, in my opinion, not

sufficiently connected with the Assured's

civil liability to Mr Manettas to be regarded,

within the meaning of the exclusion, as

bringing it about.

Now, that is not elaborated and one can only

conclude, with respect, Your Honours, that an

unexplained value judgment, rather than a process

of reasoning, has been brought to bear.

Indeed, if I could just ask the Court to

notice Barnes v Hay, (1988) 12 NSWLR 337, this was

the case in which a tenant did not receive advice

from some solicitors that he ought to get into a

registered lease of some premises before a transfer

of the freehold to a purchaser occurred, and after

the transfer had occurred, conduct by the purchaser

took place in such a way as very much to damage his

business. Although it was clear that the cause of
the damage to his business was the conduct of the

purchaser, the question was whether the solicitor's

failure to advise that the tenant should try to

obtain a registered lease before the transfer took
place was, indeed, held to be a causative event and

the results of the reasoning will be found at pages

340 and 341 in the judgment of Justices Hope and

Priestley and in the longer judgment of

Mr Justice Mahoney will be found at page 351 and

following, and without going through the judgments

Lloyds 11 9/8/93

in detail, Your Honours, what we would wish to put

is that if His Honour had, indeed, approached the

matter as it was done in Barnes v Hay, rather than

adopting a phrase from that case, that the case

rather compelled the conclusion to the contrary of

that which was arrived at by His Honour, in the

sense that you could easily point to external

damage as causative, that is, the conduct of the
purchaser, but there was no difficulty in

describing as causative conduct which, on the

judgment below in this case, has been consigned to

the basket of collateral.

It is not easy to see, with respect, how you

can have collateral causation; something is either

causative or it is not, and we have given our
reasons for submitting why the dishonesty is within

the causal framework of "brought about by". There

is, sub silentio, very obviously an important

question of whether March has general application

to the more specialized questions of the search for

the single cause, so to speak, in insurance

questions. And, for those reasons, in our

respectful submission, this is a proper case for

leave to appeal.

MASON CJ:  The Court need not trouble counsel for the

respondents.

In the view of the Court, the decision of the

Court of Appeal is not attended with sufficient

doubt to justify the grant of special leave to

appeal. The application is therefore refused.

MR JACKSON:  I ask for costs of the application,

Your Honour.

MASON CJ: Yes. It is not opposed, Mr Gee?

MR GEE:	I have nothing to say, Your Honour.
MASON CJ: The application is refused with costs.

AT 10.21 AM THE MATTER WAS ADJOURNED SINE DIE

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