Vero Insurance Limited v Power Technologies Pty Ltd

[2008] HCATrans 134

[2008] HCATrans 134

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S502 of 2007

B e t w e e n -

VERO INSURANCE LIMITED

Applicant

and

POWER TECHNOLOGIES  PTY LTD

Respondent

Application for special leave to appeal

GLEESON CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 7 MARCH 2008, AT 2.15 PM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR D.I. TALINTYRE, for the applicant.  (instructed by Piper Alderman Lawyers)

MR P. WEBB, QC:   May it please the Court, I appear with my learned friend, MR T.M. ROWLES, for the respondent.  (instructed by Carroll & O’Dea)

GLEESON CJ:   Yes, Mr Walker.

MR WALKER:   Your Honours, the issue we propose as a special leave point arises as follows.  Mr Barlow, having contracted mesothelioma, sued, among other people, Elcom, as it was then known, that became known as Delta, and ICAL, a local company with an English parent and vast experience in relevant engineering, in relation to those injuries.  That claim was settled.

ICAL might be regarded on the findings as being an engineering company with access, particularly in the form of its parent, to specialist knowledge concerning, among other things, the risks involved in the kind of work it performed in high temperature boiler work including the emptying of fly ash and the like.  The facts show that Mr Barlow contracted his disease by reason of asbestos exposure caused by the designed method, among other things, of maintaining the apparatus by stripping lagging and the like.

Following the settlement of what I will call the plaintiff’s claim, in the same proceedings via cross‑claim, what might be called the contribution cross‑claim, Elcom, Delta, sued ICAL for the statutory contribution, that is, as a concurrent tortfeasor.  The issue in that case did not include whether or not ICAL was negligent, that is, it was either conceded or not treated as a live issue, as one sees from the learned trial judge’s reference to that at application book page 117, paragraph 3.  The issue between the parties in the contribution proceeding was the extent of the contribution that should be made by ICAL to the liability which had largely been discharged by payment on the part of Elcom.

So far as what his Honour called causal contribution, which has to do with what might be called the physical aetiology of the disease by reference to exposure to asbestos, so-called causal contribution for want of more information from either ICAL or Elcom, his Honour held, application book 121, paragraph 15, that they should be treated half and half.  That would appear to be an arbitrary half and half on the basis that there was no better information available to distinguish between the validly material contribution of each of them.

So the issue as to the extent of financial contribution pursuant to the discretion under the Contribution Act came down to what was appropriately called by his Honour culpability.  That ended up being assessed as equal as between the generator, Elcom, and the specialist engineer, ICAL.  That conclusion is found at application book 121 and 122, paragraphs 16 to 18, to which I would now like to take your Honours, because it contains the passage which in due course became critical for the later disposition of the issue which affected my client, the insurer. 

At page 121 under the heading of “Culpability of Delta” in paragraph 16 there is a plain finding in terms that “Elcom acquired actual knowledge of the dangers of asbestos”.  There is an alternative ventured in the same sentence which is not of moment for present purposes.  At line30 or thereabouts in the same paragraph the judge characterised the culpability of Elcom as requiring to be seen in the light of what it called “its control” including over the operations of ICAL itself. 

Then he turned by way of the comparison which is at the heart of this part of the proceeding, the contribution cross claim, and the only live issue between the parties to that claim, namely, the culpability of ICAL.  Having characterised the culpability of Delta with the salient features of actual knowledge and control over ICAL his Honour turned to ICAL.  He referred to the connection with what I will call the knowledgeable parent at the beginning of paragraph 17.  At the top of page 122 comes what I suppose we must concede is the offending sentence:

It strains credibility to suppose that at the time the contracts were entered for the construction of these boilers ICAL was ignorant of the dangers posed by uncontrolled liberation of asbestos material during repair and maintenance work which would inevitably follow construction of the boilers.

Reading that, as in the Court of Appeal it was read, to mean that the judge’s credulity was strained by the suggestion, which someone either might have or did advance, that ICAL was ignorant of the dangers, to read it that way amounted, in our submission, very plainly, bearing in mind the only issue at stake and what we know about the outcome of that issue, namely, equal culpability, but that amounted to saying, I do not believe they were ignorant, which means I do not believe they did not know, which left logically only two possibilities.

One is the exact equipoise of failure of proof; they may or may not have known, I cannot tell from the evidence, or far more likely, as if it were a dichotomous situation that because I do not believe they did not know I find that they did know.

GLEESON CJ:   Where do we find this clause in the insurance contract?

MR WALKER:   It is reproduced in a number of places and, in particular, page 40 of the application book has condition 4 at line 30 and the relevant words are:

The Insured . . . shall take all reasonable precautions to prevent bodily injury –

That is a clause which raises and has raised for a long time in a relatively well settled way the obvious issues, bearing in mind that a person who is negligent by definition has not taken all reasonable precautions.  If read literally, the condition would destroy the indemnity and though the premium may not have been great in this case, it would have been a valueless policy.

So from as long ago – and I do not say this is when it was first done – from as long ago as Lord Diplock in Fraser v Furman, the relevant passage of which is reproduced at application book page 52, it has been understood that in order to give that commercial meaning such a condition which since that interpretation has been reproduced countless times and is very common, is rather dealing with the obvious need to produce, if not eliminate, the moral hazard of an insured person ceasing to take prudent precautions against injury.

GLEESON CJ:   Such as reckless disregard?

MR WALKER:   Reckless disregard.  That expression would be a good ordinary English equivalent for what Lord Diplock famously suggested, quoted at page 52 of the application book about line 20.

GLEESON CJ:   But what appears at the top of page 122 is a long way short of a finding of reckless disregard, is it not?

MR WALKER:   Yes, you need something else, namely, if we are right – large condition, necessary condition – if we are right, that read in the light of the issues, the only issue being determined in this part of the proceeding, that amounts to a finding that they were not ignorant of the dangers, that is, they knew of the dangers, then it combined with that which was plain to demonstration and is accepted and is found in the proceedings, namely, that ICAL did not take any precaution at all; there was no attempt to show, there was no evidence of, it is now established that ICAL took no precaution.

When you put the two together, namely, knowledge of the danger of asbestos and acting in such a way as to constitute no precaution at all, in our submission, bearing in mind where the onus lay on condition 4, namely, on the insured, not the insurer, when it came to ICAL to claim indemnity from us, they were facing an impossible position because they could not prove they did not know, for reasons I will come to in a moment, and they could not prove they had taken any precautions.

The two step exercise comes because the proper understanding of the clause means that the insured will satisfy the condition either by showing that the insured in fact did not know, subjective not objective, of the danger, in which case you will have avoided the operation of the condition, or alternatively if you did know that you had done something, albeit ex hypothesi negligently, but you had done something so as to disprove recklessness.  So you will not be reckless if you take some steps towards taking precautions even though you are negligent because you did not achieve the requisite standard.

That is how that condition has been interpreted in accordance with the seminal comments of Lord Diplock, then Lord Justice Diplock, reproduced at page 52 of the application book and, in particular, the emphasised expressions:

the insured, where he does recognise a danger should not deliberately court it by –

those are the important words –

taking measures which he himself knows are inadequate to avert it.

So you know of a danger, you take no precautions, in our submission, if that is where the state of findings rests, then the insured could not discharge the onus of proof in relation to condition 4.

HEYDON J:   But are there not two things?  Mr Barlow was working at one point unloading or loading trucks with some material, the asbestos dust was released at a different point.  The material at the top of page 122 – that is, assuming you are right, that it should be read as a finding that they knew of the dangers posed by uncontrolled liberation – is that not a different thing from deliberately courting danger in relation to Mr Barlow?  I mean, the people who were nearest, as it were, to the asbestos were in the line of fire, but was Mr Barlow, in the eyes of ICAL?

MR WALKER:   I am bound to submit, no, in answer to your Honour’s question.  It is important that we seek to refute that.

HEYDON J:   Yes, you would have to say that.

MR WALKER:   I have to say that.  The point your Honour has raised is taken up, as your Honours appreciate, in the insurance cross‑claim where the distinction is drawn by his Honour at first instance between awareness of the danger to people exposed and a conscious understanding of the particular or specific situation of Mr Barlow, and our answer is that there is nothing in relation to the obvious connection between the liability flowing from the law of negligence and the proper understanding of condition 4 which would require for the condition 4 purpose an obligation to prove the impossible in most cases, namely, conscious attention to the specific plight of what might be many people not in your employ who from time to time come into the physical location where your design and execution of maintenance will expose people breathing in that vicinity to the risk.

So that his Honour was, we submit, at error in moving from what I will call the general risk to the specific circumstances individual to Mr Barlow because the latter is too extreme a requirement concerning the danger.  The reasonable precautions are by definition things taken in advance and taken in advance of knowing all the permutations of physical or social circumstance which might lead other people to whom you will owe a common law duty into that danger.  It is for those reasons that we do need to assume and we seek to persuade your Honours that we would on an appeal be able to discharge the onus of persuading you that what is set out at the top of page 122 is not side stepped, as it were, by saying, but what did ICAL know consciously, subjectively, of Mr Barlow and the particular jobs he was going to do? 

What they knew of was the vicinity, what they knew of was uncontrolled liberation of asbestos dust and we submit, properly understood, what they knew clearly, as held by his Honour in the contribution proceedings so as to ground equal culpability with the person found to have actual knowledge, was the danger to people in that vicinity.

HEYDON J:   You say paragraph 29 on page 15 is where the error is to be found in Judge Curtis’ reasoning?

MR WALKER:   Yes, it is.  “The particular risk that came home”, line 10 of that page, is, in our submission, in stark contrast to what, for example, the law of negligence would require.  True, this is not just the law of negligence, but it is a condition designed to require some modicum of care in advance, that is, all reasonable precautions, before an indemnity for negligence is available from the insurer.  To require that in advance must mean that you will not know the specific circumstances of how people will come to be breathing in the vicinity affected by your spillage of dust.  After all, the facts that underlie the undisputed relationship giving rise to the duty of care owed by ICAL to Mr Barlow was their design of apparatus which, according to their design, would be operated and maintained in such a way as to expose persons in that vicinity to this danger.

It is for those reasons that, in our submission, 29 on page 15 of the application book represents an unwarranted departure from a proper reading of condition 4 which transcends this particular policy and, in particular, it represents an anomaly compared to the law of negligence, liability for which is the very subject matter of the indemnity secured by the policy.

Could I turn back to page 122.  After that difficult sentence commencing, “It strains credibility,” his Honour did go on after all to blame – a word appropriate to the culpability comparison “for failing to communicate . . . in the clearest terms, those dangers”, et cetera, a statement which is impossible to understand if it be supposed that his Honour is either finding no knowledge or declining to find knowledge.  Blaming someone ‑ ‑ ‑

HEYDON J:   You cannot pass something on unless you know it.

MR WALKER:   Quite, and this is in a context where subjective knowledge is obviously relevant because somebody may objectively be negligent but their subjective lack of knowledge may in the circumstance be the very thing which means that they do not bear the lion’s share or do not even bear an equal share with somebody who has actual knowledge.

It is for those reasons, in our submission, that when one comes to see the way in which in the insurance cross‑claim the matter was dealt with, for the reasons we have put in our written submission, his Honour departed from the finding of fact binding in the proceedings one way or the other which ought to have determined the insurance issue.

Now, there is an irony here, insurance indemnity being a very early example of how findings between others may bind a stranger to the litigation, but we do not even have that here.  The insurer here was a party to the proceeding.  In the proceeding there were two cross‑claims.  As a party to the cross‑claim, the insurance cross‑claim, we were party to the proceeding and counsel for my client actually participated in the contribution proceeding.

A finding was made in the terms to which we have drawn attention at the top of page 122 and, in our submission, in the insurance proceeding his Honour was not at liberty to decline to find again or to proceed on the basis of the previous finding of that knowledge.  If he had found that knowledge, then bearing in mind that there was no evidence of any precautions being taken at all – his Honour’s word is “any” precautions – means that the onus could not have been discharged by the insured.  Either there is recklessness

actually found or there is a failure to discharge the onus of proving that it did not exist, the onus remaining on the insured.

It is for those reasons that in the Court of Appeal, in our submission, serious error was committed, application book 43 and following, in the conclusions that their Honours drew.  Regrettably, the first instance judge, as you will see quoted, for example, at the foot of page 43, paragraph 18, line 50, used in the insurance proceedings at yet another less than direct way of referring to knowledge, he said “it was “patent that ICAL had cause to know”.  But for context of the succeeding paragraphs in those reasons one would think as a matter of English that that is equivalent to someone knowing and for good reason, the good reason being the connections with the specialised knowledge of the parent and the specialised conduct of the business which compared with Elcom and which his Honour used in the contribution proceedings as a contrast so as to produce equal contribution.  In our submission, for those reasons there is a serious point transcending the interests of these parties.

GLEESON CJ:   Thank you, Mr Walker.  We do not need to hear you, Mr Webb.

The outcome of this case in the Court of Appeal of New South Wales turned on the application to the facts and circumstances of a standard condition of an insurance policy.  The meaning of that standard condition had been settled for a long time.  The decision of the Court of Appeal was essentially factual.

The case does not raise an issue suitable to a grant of special leave to appeal and we are not persuaded that the interests of justice require it.  The application is dismissed with costs.

We will adjourn for a short time to reconstitute.

AT 2.37 PM THE MATTER WAS CONCLUDED