AIG Australia Ltd v Hanna

Court of Appeal (NSW)|2024-03-19|Before: Payne JA, Mitchelmore JA

Background to the proceedings in the District Court

The insurance policy

On or about 14 August 2017, Mr Hanna and AIG, through the underwriting agency MECON Insurance Pty Ltd (MECON), entered into a policy of insurance for the period 14 August 2017 to 14 November 2018 (the Policy). On 26 September 2018, the Policy was varied to increase the project value and extend the period of insurance to 14 May 2019.
Mr Hanna was the named insured, and AIG was the insurer. As part of the application that he submitted to his insurance broker, Mr Hanna provided a signed copy of the construction contract for the Project which named him as the construction manager.

The incident involving Mr Hasan

It was common ground that on 18 October 2018, there was an incident on the site involving Mr Hasan. Documents obtained from SafeWork NSW were in evidence, including a "WSMS Incident Notification Report" regarding the incident. Under the heading "Brief Description of Facts", that report stated: "Formworker fell from scaffolding on level 1 or 2, unknown at this stage, resulting in a fall of between 3-6m to ground level. No witnesses."
A series of SafeWork prohibition and improvement notices were issued to Mr Hanna, along with a fine. A SafeWork NSW "Inspectors Report", dated 19 December 2018, recorded that Mr Hanna, Mr Karl Zeiny (the director of Mr Hasan's employer), and Mr Hasan had been interviewed, and provided a summary of events that supported a fall from a similar height as recorded in the WSMS Incident Notification Report, albeit from a higher level than recorded in that report: "IP was working on level 3 formwork deck when he has fallen through a gap between the scaffold and the formwork deck. IP struck the scaffold on the way down and landed on level 1 (6m fall in total)."
The actions taken on the site after the incident included that the perimeter scaffold had been "improved to close all gaps between structure & scaffold". The taking of those actions was consistent with what was recorded in an Inspection Report dated 22 October 2018, in which a SafeWork NSW inspector observed "gaps between building & scaffold & missing deck planks on level 3".

The actions of Mr Hanna in relation to the Policy

On or about 25 August 2020, Mr Hanna made a claim for indemnity under the Policy. However, as I have noted above, in a telephone conversation between Mr Hanna and AIG's solicitor about the claim, Mr Hanna said that he had been the registered builder on the Project at the request of a friend, Mr Bechara, and that he made no financial gain on the Project. Mr Hanna confirmed this account in a statement he signed on 15 December 2020, in which he claimed that Mr Bechara controlled everything on the site.
On 14 May 2021, AIG, through MECON, sent a letter to Mr Hanna avoiding the contract of insurance, relying on ss 21 and 28 of the Insurance Contracts Act 1984 (Cth). MECON stated that Mr Hanna had made fraudulent non-disclosures regarding the Project that was insured, which (on his report) was not his project; and a further non-disclosure in circumstances where the Project was performed by an unlicensed builder. Additionally, MECON referred to the unlawful nature of the agreement between Mr Hanna and Mr Bechara pursuant to which Mr Hanna loaned Mr Bechara his building licence, on the basis of which the insurer was also entitled to avoid the contract ab initio.

Mr Hasan's claim

On 16 August 2021, Mr Hasan commenced proceedings in the District Court against Mr Hanna, seeking damages for negligence and breach of statutory duty. Mr Hasan later joined the insurer of SCS, Lloyds.
In his amended statement of claim, Mr Hasan relevantly alleged, and Mr Hanna admitted, that Mr Hanna was the builder who carried out work and had the care, control and management of the Project site at Campsie, and that he engaged SCS to erect the scaffolding on the site for the use of workers and contractors (ASOC [1], Defence [1]). Mr Hasan alleged that when he was working at the site as a formworker on 18 October 2018, he was injured when "he fell through scaffolding falling approximately 6 metres from the scaffolding on which he was standing to the ground sustaining serious injury, loss and damage" (ASOC [9]). He alleged that he sustained the injury, loss and damage as a result of Mr Hanna's negligence and/or breach of statutory duty, with Mr Hanna owing him a duty of care to act in such a manner as to avoid injury to him whilst he was working on site under Mr Hanna's control, management and supervision (ASOC [3], [10]-[12]).

Mr Hanna's cross-claim against AIG

On 4 May 2022, Mr Hanna filed the cross-claim against AIG, seeking an indemnity for Mr Hasan's claim and costs, and for damages for breach of the Policy. Mr Hanna also filed a second cross-claim against Lloyds as the insurer of SCS.
In his claim for breach of contract against AIG, Mr Hanna relevantly alleged that he was the builder of the Project, and that AIG's denial of the claim and avoidance of the Policy was wrongful and in breach of the Policy (at [18]-[19]). He sought damages equivalent to any award of compensation that he was ordered to pay Mr Hasan, as well as the costs of defending the proceedings (at [20]).
In its defence to the cross-claim filed on 12 July 2022, AIG denied that its avoidance of the Policy was wrongful and in breach of the Policy (at [18]-[19]). In further answer to the whole of the cross-claim, AIG made a series of further allegations. Those allegations included, relevantly, that Mr Hanna had made a series of misrepresentations and non-disclosures when applying for the Policy in breach of s 21 of the Insurance Contracts Act, but for which AIG would not have entered into the Policy or would not have entered into it for the same premium and on the same terms and conditions. If AIG was not entitled to avoid the Policy on the basis of one or more of those misrepresentations and non-disclosures, it alleged that it was entitled to reduce its liability under the policy to nil in circumstances where AIG would not have underwritten the policy (at [24]-[30]).
As counsel for Mr Hanna observed in oral submissions on the appeal, AIG did not advance any allegations that assumed (contrary to its primary position) that Mr Hanna was the builder. For example, AIG did not allege that even if Mr Hanna was the builder its termination of the Policy was justified by reason of the representations Mr Hanna had made to it, such that it could not be said to have wrongfully repudiated the contract at the time it terminated the Policy. Nor did it seek to rely on s 54 of the Insurance Contracts Act to reduce its liability having regard to the prejudice it suffered by reason of Mr Hanna's conduct in making representations to it (that he was not the builder) on which it relied to avoid the policy, which representations were false to his knowledge.

The consent judgment on Mr Hasan's claim and the cross-claim against Lloyds

The hearing commenced before the primary judge on 1 August 2023. The SafeWork documents to which I referred above were admitted without objection, as was an expert report of Professor Jonathan O'Brien to which I will refer below. As I noted above, on 2 August 2023 the primary judge gave judgment by consent in favour of Mr Hasan against Mr Hanna in the sum of $430,000 and an order that each party bear their own costs. AIG objected to the entry of the consent judgment, which the primary judge noted in the orders.

Progress of Mr Hanna's cross-claim against AIG

The consent judgment left only Mr Hanna's cross-claim against AIG. Her Honour ruled that the evidence that had been tendered on Mr Hasan's claim was tendered on the cross-claim. In relation to the report of Professor O'Brien, her Honour confirmed that the history of the incident on which he relied in providing his opinion was not proof of the truth of that history.
On 2 August 2023, Mr Hanna filed an amended statement of cross-claim, and on 3 August 2023, AIG filed an amended defence in which it withdrew each of the allegations it had advanced in further answer to the cross-claim (see [27] above). In articulating what remained of its case, Counsel for AIG accepted that one issue was whether Mr Hanna was the builder, and submitted that the second issue was whether Mr Hanna was liable to Mr Hasan, which he submitted was a matter that had to be proved on admissible evidence.
As I noted above, AIG did not raise any alternative claim by way of defence that was premised on accepting that Mr Hanna was the builder and that he falsely represented the contrary, leading to AIG justifiably avoiding the Policy. Counsel for AIG confirmed that it was not running a case of that kind in the following exchange with the primary judge on the question of its liability for Mr Hanna's legal costs (which was in issue below but not on the appeal): "HER HONOUR: Am I right in this, that the issue boils down to (1) was he the builder, and if the answer to that is yes then (2) what is the proper quantification of the insurance where it's a given that it must include legal costs? SLEIGHT: Yes, there is one gloss I say to that, and the gloss on it is that it's a condition of the legal costs that our consent is obtained but the consent will not be unreasonably withheld. HER HONOUR: But that doesn't actually make sense because you can't simultaneously decline insurance and constrain their legal costs. SLEIGHT: There will be argument, your Honour, that because of the conduct - and we have seen the conduct of the insured Hanna telling us a particular statement of events, it wasn't unreasonable for us to decline to pay his legal costs. HER HONOUR: But you didn't decline to pay his legal costs. You declined insurance. SLEIGHT: Yes. HER HONOUR: But that's where I'm trying to get. Is your proposition you were entitled to decline insurance because he wasn't the builder, or are you saying that you declined insurance because if he was the builder he was otherwise naughty? SLEIGHT: He was otherwise? HER HONOUR: Naughty. SLEIGHT: No, we've dropped that one. We've said he's not the builder and it's not within the scope of cover." (Emphasis added.)
Mr Hasan gave evidence on the cross-claim. In his evidence in chief, when asked what happened to him on 18 October 2018, Mr Hasan said: "So I was working normal. I was walking on the scaffolder [as transcribed], then I slipped and I fell all the way down." The evidence before the primary judge included medical reports relating to Mr Hasan's injuries, together with documents relating to a claim that Mr Hasan had made for compensation under the Workers Compensation Act 1987 (NSW).
Mr Hanna also gave evidence and was cross-examined. He maintained that he was the sole builder in charge of the Project and that he was on the site daily, managing the build and securing the site. Mr Hanna gave evidence that he had deliberately lied about his role during the telephone call with AIG's solicitor about the claim, stating "I didn't want to have anything to do with [Mr Hasan] or courts or solicitors. I didn't want to have - I just wanted to be as far away as possible from these people". Mr Hanna's evidence that he was the builder in charge of the site was corroborated by three other witnesses who regularly attended the site, along with contemporaneous records.
There were two expert engineering reports in evidence. Relevantly, Professor O'Brien, a civil and structural engineer, provided a report on the instructions of Lloyds, the insurer for SCS. In his report, dated 21 July 2023, he observed that what had occurred on the site on 18 October 2018 was "somewhat unclear", noting that there were two versions of events: "[10] In one version of events, he was attempting to step from the roof-level onto a nearby scaffold when he fell through a gap that existed between the building and the surrounding scaffold. He then dropped some 6 metres down onto a concrete slab at ground level. [11] In a second version of events, Mr Hasan stepped onto a soft plywood plank, which cracked, slid away and fell down with him. The plank was covering a 2m x 0.6m (approx.) hole." (Footnotes omitted.)
Professor O'Brien made a number of comments on what he described as "managerial aspects" on the site. In his opinion, the absence of bridging material between the formwork decking and the perimeter scaffold raised two questions: when such material should be installed if proper fall protection is to be provided, and who should install it. Professor O'Brien answered those questions on the basis of two scenarios: 1. Where the construction sequence involved the formwork deck being built up near-to an adjacent scaffold rather than the other way around: on that scenario (which Professor O'Brien considered most likely), a safety problem arises when a formworker who is operating on the deck of the formwork seeks to move between the two structures and a significant gap exists between the two, and "there emerges a clear safety obligation (on behalf of either the builder, the formworker or the scaffolder) to provide bridging decking or to fill-in any safety-gaps between the two structures". 2. Where the scaffold has been set up as an access structure with suitable stairs and was in daily use by the formworkers: on that scenario, suitable safety infills would need to be installed "(by whoever)" before the scaffold level was made active and a worker was allowed to step across from the scaffold to the deck.
Under the heading "Root cause of the incident", Professor O'Brien expressed the view that "the injury to Mr Hasan occurred as a result of a managerial failure to provide suitable safety infills between a growing structure and a previously erected perimeter scaffold structure". Professor O'Brien also remarked that in so far as Mr Hasan may have stepped on a piece of timber that had been placed across the gap, which failed to support him, such a plank "would have been installed in response to a perceived hazard after roof level had been achieved" (footnote omitted). As to who the author of the plank placement might have been, Professor O'Brien considered it unlikely that it would have been the scaffolders "since the scaffolders normally only deal with metal components or full scaffold planks".

The decision of the primary judge

Both parties accepted that it was necessary for Mr Hanna to show that he had incurred a loss to which the Policy needed to respond. They were at issue on how that was to be done. Mr Hanna submitted that it was sufficient for him to rely on the consent judgment, and to establish that the settlement was reasonable in the circumstances. AIG, on the other hand, submitted that Mr Hanna had to establish that he was liable to Mr Hasan, and that he could not do that by the consent judgment.
As I noted above, the primary judge found that Mr Hanna was the builder responsible for the performance and administration of the Project. Consistently with the propositions she had put to the parties during the hearing, her Honour also found that the Policy "should have responded to the claim; but was terminated wrongfully, albeit because of the plaintiff's [scil cross-claimant's] actions".
In circumstances where Mr Hanna had established that AIG had repudiated the Policy, the focus moved to Mr Hanna's claim for damages. Her Honour noted that although the Policy did not preclude consent judgments or settlements, cl 10.01 required AIG's consent in respect of any admission of liability (see [17] above). Mr Hanna had not obtained AIG's consent, but "nor was it available where the insurer had avoided the contract of insurance", thus depriving the requirement of consent of any force or effect for the purposes of the damages claim.
The primary judge accepted AIG's submission that Mr Hanna bore the onus to show by admissible evidence that he had incurred a liability to Mr Hasan to which the Policy should respond. However, contrary to AIG's contention, her Honour accepted Mr Hanna's submission that a consent judgment may fall within the terms of cl 5.00 of the Policy, as "all sums that you become legally liable to pay as compensation for Personal Injury". Her Honour relied in this respect on cl 10.01 of Policy, which allowed for compromise and settlement, notwithstanding that consent of the insurer was also required.
The primary judge also concluded that the settlement was objectively reasonable. Her Honour referred to Mr Hanna's submissions in this respect, which relied on the value of the claim, which was for $1 million plus costs and, by contrast, the consent judgment which was for $430,000 inclusive of costs. Her Honour stated that "[i]f that is not right, the same result follows from a consideration of the limited facts in evidence". Read in context, the "that" to which her Honour was there referring was the objective reasonableness of the settlement as a matter of quantum, with her Honour going on to find the settlement was also objectively reasonable from the perspective of Mr Hanna's liability.
As to the latter, the primary judge found that Mr Hanna was in occupation of the whole site, and was responsible for its management as well as the management and coordination of all trades and workers on the site. Referring to the evidence of Professor O'Brien, her Honour considered that if, as he opined, there was a management failure, "regardless of any contribution by the scaffolder or the formworker, responsibility for the management, co-ordination, and control of all trades as well as the site fell to Mr Hanna". Her Honour further stated: "At the very least there is substantial likelihood that [Mr Hanna] would have been found liable in negligence for what the expert called the 'managerial failure' in respect of his control and occupation of the site (and trades). On the civil standard it is (highly) likely that a verdict would have been secured against [Mr Hanna], with a low (to negligible) likelihood of success in the cross-claim against the insurer for the scaffolder (where the evidence of a slip and fall with no failure of any part of the scaffold)."
Her Honour also considered that there was a high probability that any outcome would have resulted in a judgment sum (plus costs) exceeding the sum quantified in the consent judgment "by a comfortable margin". Her Honour referred to the evidence led by Mr Hanna that: the plaintiff (Mr Hasan) sought damages exceeding $1 million plus costs; workers' compensation payments had been made of $151,172.94; and additional out-of-pocket expenses were identified as $7,331.60. Her Honour also noted that: Mr Hasan had been diagnosed with a soft tissue injury; he was born in 1980 and had limited work capacity/opportunity; and that the medico-legal opinions supported permanent work restrictions and on-going need for medical treatment and care. Mr Hasan did have a pre-existing injury, but Mr Hanna had to take Mr Hasan as he found him.
Her Honour found that if the consent judgment was not itself evidence of liability, the most likely outcome of the proceedings was a finding that Mr Hanna was liable in negligence (in his capacity as manager/occupier of the site) for damages of a sum equivalent to the WorkCover payments and out of pockets, plus sums for future economic loss and treatment, and for non-economic loss. The primary judge concluded: "[Mr Hanna] has proven the objective reasonableness of [the] settlement sum (embodied in the consent judgment), based upon a reasonable assessment of the risk faced by [Mr Hanna] in his capacity as the (first) defendant to the plaintiff's claim. In that respect, the likely length of a contested hearing (which involved a third party (the underwriter for the scaffolder) as well as the insurer and the plaintiff) with exposure to further and additional costs liabilities also is relevant."

Application for leave to amend the notice of appeal

I have noted at [8] above the critical question that AIG submitted arose on the appeal. Senior Counsel for AIG submitted that at the time of the consent judgment, the insurer was not in breach of its obligations because it had avoided the Policy on a justified basis. The position of AIG was thus analogous, he submitted, to the position of the insurer in the High Court's decision in CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1; [2007] HCA 36 ("CGU v AMP"), as an insurer that (in his words) "had not at the time wrongfully avoided the policy". He further submitted that, consistently with the reasoning in the joint judgment of Gleeson CJ and Crennan J in that case, it was not sufficient for Mr Hanna to establish proof of settlement. Rather, he also had to establish that he was liable to Mr Hasan, and the evidence before the primary judge was not capable of so establishing. Although the primary judge had found that AIG's termination was justified (in the sense that it was "the inevitable product" of Mr Hanna's actions) at the time of termination, in Senior Counsel's submission her Honour then erred in concluding that its repudiation was wrongful.
These contentions found reflection in grounds 5A to 5C of the proposed amended notice of appeal: "5A Her Honour ought to have found that the respondent was required to prove that he was liable to the plaintiff. 5B Her Honour ought to have found that [the] respondent failed to prove that he was liable to the plaintiff. 5C Her Honour erred in finding that the appellant wrongfully repudiated the contract of insurance."
Relatedly, AIG also sought to include proposed ground 5F, which challenged the primary judge's finding that the settlement was objectively reasonable. In circumstances where AIG had made no written submissions about the objective reasonableness of the settlement, let alone written submissions challenging her Honour's conclusion in that regard, Senior Counsel explained proposed ground 5F as follows: "Can I just clarify what - I'm not seeking to make any further submissions, that's a ground which supports or allows the submissions I already made this morning, which is that if we are wrong, and the respondent has cross-claimed that he's not required to prove that he was liable to the plaintiff, then the alternative argument is that because he didn't prove that he was liable to the plaintiff, the finding that the settlement was objectively reasonable was wrong. It's just a different way of putting the same factual point. It depends on what the test is."
Although it was the focus of the oral submissions, Senior Counsel accepted that AIG's reliance on the justification for its termination of the Policy at the time of termination only arose in its reply. He submitted that the argument was responsive to Mr Hanna's reliance, in his written submissions, on authorities regarding the consequences of wrongful repudiation of a policy of insurance, in terms of what the insured needed to demonstrate to establish the insurer's liability under the policy. He submitted that Mr Hanna had not relied on these authorities before the primary judge.
Although Mr Hanna may not have drawn the attention of the primary judge to the authorities on which he now relies, it is clear from the submissions that were advanced on his behalf that Mr Hanna relied on AIG having repudiated the contract as part of his argument that all he needed to do was demonstrate that: (i) the settlement was a legal liability within the terms of cl 5.00 of the Policy; and (ii) the settlement was objectively reasonable. So much is apparent from the following exchange in the course of the opening on the cross-claim: "O'NEILL [Counsel for Mr Hanna]: I think that was in some correspondence but [it] doesn't matter because as at the date of 14 May 2021, the policies are voided. SLEIGHT [Counsel for AIG]: Exactly. I think we are ad idem. O'NEILL: Yes, so that's a repudiation and once that occurs, well -- HER HONOUR: It is a repudiation if you were the builder. It is not a repudiation if you were not. O'NEILL: That is so. HER HONOUR: But then your obligations are not so much prudent insured, but a party with a claims duty to mitigate. O'NEILL: That is so. HER HONOUR: I think because you are no longer acting under the insurance policy, you are acting now as someone with a potential claim." (Emphasis added.)
AIG did not run any responsive argument that sought to draw the distinction that it now emphasises between its position at the point of settlement and its position in the event that her Honour found that Mr Hanna was the builder. It did contend that it was not sufficient for Mr Hanna to rely on the consent judgment to establish AIG's liability under the Policy, and that he had to prove that he was liable to the plaintiff. However, AIG put that point on the basis of the scope of coverage of the Policy, as opposed to putting it on the basis that its termination of the Policy was justified at the point of settlement and did not constitute a wrongful repudiation.
On more than one occasion, the primary judge raised with Counsel for AIG whether AIG was relying on such a distinction. In closing submissions, Counsel for AIG referred to Wallaby Grip Ltd v QBE Insurance (Australia) Ltd (2010) 240 CLR 444; [2010] HCA 9, describing it as a case in which the parties were in dispute as to what was the limit of indemnity under the policy and the issue was who bore the burden of establishing whether or not the loss or the risk fell within the limit of the indemnity. The primary judge sought to clarify the basis of AIG's reliance on that case: "HER HONOUR: Isn't this slightly different because of the repudiation argument? Their argument is you repudiated the contract. You didn't repudiate the contract if you weren't liable. SLEIGHT: But your Honour, strictly, of course, if we say the contract was at an end because of their conduct; yes. However the contract -- HER HONOUR: I think it's a very trivial distinction here, but it comes down, does it not, to - if this policy should respond, then you repudiated it because it should respond because he's the builder. If he's not the builder, you didn't repudiate; you terminated, and none of it matters. So the question is, they have to prove he was the builder within the relevant meaning of the clause, in order to establish that your termination was wrongful; not that you breached the contract by failing to respond. SLEIGHT: Yes, your Honour, but in assessing damages they have to show that their liability for which they claim indemnity came within the terms of the policy. In other words -- HER HONOUR: That there was a liability. SLEIGHT: The first defendant was liable to the plaintiff." (Emphasis added.)
Shortly thereafter, there was this further exchange between the primary judge and Counsel for AIG: HER HONOUR: Okay. But let us just deal with it in conceptual terms. To the extent that the reasonableness of the insurer's conduct would come into play, that would probably only be on a costs issue, because where we are here is not, 'Did the insurer act reasonably', but 'Did the insurer, when it acted, get it right'. Now on the defendant's case, the insurer got it wrong because the defendant told a fib. That is the short point of the defendant's case. That makes the insurer's conduct entirely reasonable. It creates a curious position in the repudiation stakes because the repudiation which did give rise on the defendant's case to a wrongful termination, arose out of a wrongful act by the defendant, but it does not change the fact that even if the defendant's act was wrongful, if in fact the man is the builder, the repudiation is wrong. SLEIGHT: Your Honour, what it does raise is this. That the first defendant conducted itself in a manner that the repudiation wasn't wrongful. HER HONOUR: But I think it is wrongful. I think it remains wrongful, is the problem, because there is not a basis to terminate. The reason why the insurer thinks it has got a basis, is the fault of the defendant, but that actually would become relevant, only if it is the defendant's action that repudiates the contract. SLEIGHT: I'm not sure that's correct, because the first defendant has to pave in a way, entitling my client to repudiate, and it has indulged in behaviour, in my submission, that would entitle my client to repudiate. HER HONOUR: Let us assume that is the case. That is not the way the case has been run, and that is why I have been asking on every occasion, is it the builder or not builder. This case, as I understand it, was run on the basis, 'If he is the builder, you are liable and you will' -- SLEIGHT: Yes, your Honour, because I took the view that whilst the repudiation was wrongful, if at one stage - at certain stage, the first defendant came along and said, 'It's a pack of lies. I really was the builder.' So we can't just repudiate and walk away if - what it does is justify our original conduct in repudiating the contract. HER HONOUR: It does in costs terms. It makes reasonable action that otherwise might be unreasonable, but in terms of contractual structure, we seem to have the curious position that the only breach invoked for the termination is the - is not actually a breach. You say you terminated the contract because you told us you were not - this was not your project, in essence. In essence, what you are saying is, we should never have given you any insurance in the first place because this was never an insurable project. SLEIGHT: That's what was originally said. Yes, your Honour. HER HONOUR: That is the position that remains, because what you have not run is a case that says, 'All right, we should have given it to you but your naughtiness in telling us a pack of fibs that got us to this position, now provides a separate basis to terminate the contract', because that is not the way the case was run. SLEIGHT: No, it's not, your Honour, and I took a particular view on that, that that naughtiness doesn't go on forever. That once, you know, once -- HER HONOUR: Once he says, 'No, well that was a lie and I'm back in business, then things would change'. SLEIGHT: I thought that as a - so that is not the way it's been run." (Emphasis added.)
In Superannuation & Corporate Services Pty Ltd v Turner [2020] NSWCA 246, Gleeson JA (Basten and Leeming JJA agreeing) summarised the applicable principles regarding leave to run a point not run below: "[143] … The relevant principles in this regard are clear. The High Court has repeatedly emphasised that a party is bound by the conduct of his or her case. In [University of Wollongong v Metwally (No 2)] [1985] HCA 28; (1985) 59 ALJR 481 [at 483], the plurality said … : 'Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.' [144] As explained in Water Board v Moustakas (1988) 180 CLR 491 at 497; [1988] HCA 12 if: 'all the facts [have] been established beyond controversy or where the point is one of construction or of law, then a Court of Appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied.' [(Citations omitted.)] [145] In Whisprun Pty Ltd v Dixon [2003] HCA 48; (2003) 77 ALJR 1598, the High Court said at [51]: 'It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial.' [Citations omitted.]"
In resisting the application for leave to amend to rely on ground 5C, Counsel for Mr Hanna submitted if AIG had run this point at trial, that he would have had an opportunity to lead evidence that was directed to the question of what was before or otherwise available to the insurer, at the time that it avoided the Policy, that disproved his statement to AIG that he was not the builder. That might have included evidence from Mr Hanna's insurance broker, and evidence as to the circumstances in which Mr Hanna made the signed statement in December 2020.
Having regard to the manner in which the matter was run before the primary judge, and the prejudice that Mr Hanna's Counsel identified were the matter permitted to be run now, I would refuse leave to AIG to amend the notice of appeal to include proposed ground 5C. Resolution of the issue that AIG sought to raise by that ground must await another occasion.
Counsel for Mr Hanna did not identify any prejudice in relation to the remaining proposed grounds of appeal. Although proposed grounds 5A and 5B were explained on the basis that they were integrally related to proposed ground 5C, I would grant leave to raise them on the appeal. In light of the basis on which the matter was run below those grounds, and the other proposed grounds, may be dealt with shortly.

The grounds of appeal

In its written submissions, AIG relied on the following two findings of the primary judge as alternative findings (AWS [24]-[25]): 1. As a matter of construction of cl 5.00 of the Policy, entry into the consent judgment activated AIG's liability under that clause. 2. The same result followed from a consideration of the limited facts in evidence.
On the basis of its characterisation of the second of these findings as one of legal liability, AIG submitted in writing that notwithstanding the consent judgment, whether Mr Hanna was liable to Mr Hasan was key to the proper resolution of the case, as an affirmative answer would render the issues concerning entry of the consent judgment irrelevant (AWS [29]). Accordingly, it submitted that its grounds challenging her Honour's conclusions on liability (grounds 2 to 4) should be considered first.
AIG's submission rests on a mischaracterisation of the second of the findings in [58], which was directed not to legal liability per se, but to the reasonableness of the settlement into which Mr Hanna had entered. As I have addressed in [42] above, her Honour considered whether the settlement was objectively reasonable first as a matter of quantum and then, in the alternative ("[i]f that is not right"), from the perspective of liability. The manner in which her Honour expressed the findings with which AIG took issue in grounds 2 to 4, by reference to likelihood, reflected that her Honour was determining whether the settlement was objectively reasonable, having found that AIG repudiated the Policy and that Mr Hanna accepted that repudiation.
Once the structure of the primary judge's reasons is properly understood, it is preferable to start with ground 5, by which AIG challenged her Honour's conclusion that cl 5.00 of the Policy responded to the liability that Mr Hanna assumed "and, in particular, such liability assumed by a consent judgment" (ground 5).

Construction of the Policy

Pursuant to cl 5.00 of the Policy, AIG was required to indemnify Mr Hanna "for all sums that you become legally liable to pay as compensation". AIG referred to a number of authorities that, in its submission, suggested that an insured's cause of action against an insurer usually accrues on the happening of the loss. It followed, in AIG's submission, that the insuring clause required that the policy respond to and provide cover immediately when (in this case) Mr Hanna incurred a liability to Mr Hasan, being the moment Mr Hasan suffered injury from the fall. AIG submitted that this, together with the use of the passive voice, required an interpretation of cl 5.00 by which the liability to which the policy responded was imposed by operation of law (as opposed to a liability that was assumed by agreement).
In so far as her Honour relied on cl 10.01 in support of her construction, AIG submitted that it was a condition which regulated how the insured should conduct itself after it has incurred liability to which the insuring clause responded. Accordingly, its operation was not directly relevant to the interpretation of the insuring clause. Further, and in any event, cl 10.01 was consistent with the insuring clause not responding to assumed liability because the clause prevented the insured conducting itself in a manner that would incur liability without the consent of the insurer. AIG submitted that her Honour's finding, that the Policy could not be said to have precluded consent judgments or settlements, conflated the interpretation and operation of cl 10.01 with the insuring clause in cl 5.00.
I do not accept AIG's submissions. The primary judge's construction of cl 5.00, by which, as in this case, liability that has been determined by a bona fide compromise agreement would be within the scope of the indemnity, accords with the much-cited decision in Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363 at 373 ("Norwich Union"). In Vero Insurance Ltd v Baycorp Advantage Ltd [2004] NSWCA 390; 23 ACLC 199 ("Vero Insurance"), Tobias JA (Giles and McColl JJA agreeing) considered a policy which defined "Loss" in similar terms to cl 5.00 of the Policy but which also included the words "whether determined by judgment or settlement". His Honour stated at [48]: "The definition of 'Loss' is such that, even if the words 'whether determined by judgment or settlement' were not used, the expression 'legally liable' refers to a legal liability established by judgment, arbitral award or settlement: see The Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 25-6; Cacciola v Fire & All Risk's Insurance Co Ltd (1971) 1 NSWLR 691 at 695; Costi v Rodwell (1985) VR 287 at 289."
Referring to Norwich Union and Vero Insurance in Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2018] NSWCA 100; 359 ALR 314 ("Weir Services (CA)") at [2], Meagher JA described expressions involving legal liability in liability insurance contracts as being generally understood since Lord Denning's decision in Norwich Union as "referring to liability as determined, rather than the liability asserted by a third party claimant or the underlying liability that accrues upon a legal injury". That entry into a settlement is a determination of liability that falls within the scope of cl 5.00 of the Policy properly construed was supported, as her Honour observed, by the terms of cl 10.01 of the Policy. True it is that cl 10.01 is qualified by a requirement for the insurer's consent, but that does not gainsay that its terms are consistent with a construction of the insuring clause that indemnifies against a liability as a result of a settlement. Contrary to AIG's submissions, reasoning in that manner does not conflate the interpretation and operation of the two clauses.
I note that AIG advanced ground 6 in the alternative to ground 5. In the written submissions on ground 6, AIG contended that her Honour should not have entered the consent judgment at the behest of the parties as the judgment "unilaterally" affected its rights (AWS [60]). It relied in this regard on James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53; [1998] HCA 78 ("James Hardie").
The decision in James Hardie concerned a statutory right to contribution in s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) for two categories of joint tortfeasor: (a) one who is liable for damage; and (b) one who would, if sued, be liable for that same damage. In James Hardie, after a trial involving three defendants had commenced, consent judgments were entered in favour of the plaintiff against two defendants, and in favour of the third defendant against the plaintiff. The Court, by majority, concluded that a claim by the two defendants found liable against the third defendant was no longer available under s 5(1)(c), as that defendant did not satisfy either of the categories of joint tortfeasor.
By contrast with the legal effect of the consent judgment in James Hardie, the consent judgment that the primary judge entered did not determine AIG's liability under the Policy for the sum that Mr Hanna was ordered to pay Mr Hasan. The settlement did not preclude AIG from contending that it was not liable under the Policy on the construction of cl 5.00 on which it relied, or because Mr Hanna had not proved that he was liable to Mr Hasan, or that the settlement was not objectively reasonable. Ground 6 should be dismissed.

Liability of AIG and the reasonableness of the settlement

As I noted above, by grounds 5A and 5B, AIG contended that the primary judge should have found that it was necessary for Mr Hanna to prove that he was liable to Mr Hasan, and that he had failed to do so. Grounds 2, 3 and 4 were also premised on this contention, taking issue with particular findings that her Honour made on the basis that the findings were not supported by admissible evidence.
In the face of her Honour's conclusion that AIG wrongfully repudiated the Policy, AIG's contentions were inconsistent with settled authority. In Vero Insurance at [48], Tobias JA made the following observations regarding similar circumstances (Giles and McColl JJA agreeing): "There are divergent lines of authority as to what, in such cases, the insured must prove where there has been a settlement without the insurer's consent. One line of authority favours the insured and establishes that provided the settlement is reasonable, the insurer is liable to pay the settlement sum: eg, Edwards v Insurance Office of Australia (1933) 34 SR (NSW) 88; General Omnibus Company v London General Insurance Company Ltd [1936] IR 596; Distillers at 9, 25. However the cases, which favour this approach, would seem to do so on the basis that the insurer has wrongfully repudiated liability."
In Weir Services (CA) at [57], Barrett AJA relied on certain passages in Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1; [1974] HCA 3 as authority for the proposition that in certain circumstances an insured can prove the existence and quantum of a legal liability to pay compensation by proving that it entered into a settlement agreement with the claimant that was objectively reasonable. His Honour also referred with apparent approval to the decision of the primary judge, Hammerschlag J, in Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2017] NSWSC 259 ("Weir Services"), in which his Honour held at [135] that an insured can rely on a reasonable settlement to found a claim against an insurer only if four conditions are satisfied: "(1) the insurer has wrongfully repudiated the contract; (2) the insured accepted that repudiation and brought the contract to an end; (3) the insured enters into an arrangement with a third party claimant to pay an amount in respect of a liability, to which, if found, the policy would have responded; and (4) the amount of the settlement is reasonable having regard to the relevant circumstances at the time. Relevant circumstances can include the position in which the insured finds itself as a result of the repudiation and what it might have been held liable to pay if there had been a contest leading to a judgment or arbitral award." (Emphasis added.)
As Mr Hanna submitted, and as the primary judge found, AIG had repudiated the Policy and he had accepted that repudiation. Having entered into a settlement with Mr Hasan, it was for him also to show that the amount of the settlement was reasonable having regard to the relevant circumstances which, as Hammerschlag J noted in the fourth condition, included the position in which Mr Hanna found himself and what he might have been held liable to pay if there had been a contest leading to a judgment or arbitral award. He did not need to establish that he was liable to Mr Hasan in the manner that Mr Hasan alleged in the amended statement of claim; and the primary judge did not need to be satisfied that Mr Hanna was so liable.
AIG's reliance on CGU v AMP as requiring that level of proof and correlative satisfaction was misplaced. As Mr Hanna submitted, that decision is not authority for the proposition that where an insurer has wrongfully avoided a policy an insured is required to prove by admissible evidence that it is legally liable to the third-party claimant. CGU Insurance Ltd (CGU), as the insurer, and AMP Financial Planning Pty Ltd (AMP), as the insured, were parties to a professional indemnity policy of insurance. AMP informed CGU that it had become aware of possible claims against it by persons who had received unsatisfactory financial advice from its representatives. CGU advised AMP to act as a prudent uninsured. Taking the view that it had a liability towards several investors, AMP proceeded to enter into settlements with those investors without any of them making a claim as defined under the insurance policy. After the settlements were made, CGU denied liability to indemnify the insured under the policy.
AMP sued CGU claiming, relevantly, that CGU was estopped from denying indemnity, that it had breached the duty to act with the utmost good faith implied in the contract by statute, and that the settlements were reasonable. The Full Federal Court had remitted questions to the primary judge for further consideration, the first three of which related to whether there was an estoppel or breach of duty of utmost good faith. As Gleeson CJ and Crennan J observed at [18]: "The hypothesis of the first three questions posed for reconsideration by Heerey J is that AMP did not establish by admissible evidence that it was legally liable to the investors. It was accepted in argument in this Court that the remitter is not intended to give AMP an opportunity to reopen its case, and adduce further evidence. If AMP, at the trial, had established by admissible evidence that it was legally liable to the investors, then the first three questions formulated by the Full Court would not arise. It is necessary to note why the questions arise." (Emphasis in original.)
As Mr Hanna submitted, the policy in CGU v AMP defined liability in a manner that excluded settlements with injured persons who had not yet brought legal proceedings, in contrast to the Policy in this case, which was "occurrence based". Further, and of more significance, CGU v AMP did not involve circumstances in which the insurer had denied cover or avoided the Policy. Rather, CGU had not taken a position on the question of indemnity.
In grounds 2 to 4 of the amended notice of appeal, AIG took issue with her Honour making the following findings on the admissible evidence, which findings it described as being relied on by her Honour to conclude that Mr Hanna incurred a liability to Mr Hasan to which cl 5.00 of the Policy responded: 1. at the very least there was a substantial likelihood that Mr Hanna would have been found liable in negligence for what Professor O'Brien described as a managerial failure in respect of his control and operation of the site (ground 2(a) and ground 5E); and 2. on the civil standard it was "(highly) likely" that a verdict would have been secured against Mr Hanna (ground 2(b)).
AIG took particular issue with her Honour's reliance on the expert report of Professor O'Brien, for two reasons. First, it submitted that when the report was tendered by Mr Hanna on the cross-claim against AIG, it was admitted with the restriction as to the history recorded, on which Professor O'Brien's opinion was predicated (ground 3). It also submitted that even accepting her Honour's conclusion that Mr Hanna had responsibility for the management, coordination and control of the site and all trades, it did not follow that there was a substantial likelihood that Mr Hanna would have been found liable for the "managerial failure" (ground 5D). It submitted that such a finding required evidence that any culpable failure on behalf of Mr Hanna materially contributed to Mr Hasan's fall and there was no admissible evidence to that end (ground 4).
For the reasons I have set out above, these grounds mischaracterise the inquiry that the primary judge was undertaking. When understood as an inquiry into the reasonableness of the settlement, and not an inquiry into Mr Hanna's liability per se, her Honour's approach was consistent with the inquiry on the fourth condition in Weir Services, namely, as to the circumstances at the time of Mr Hanna's entry into the settlement. As Mr Hanna submitted, the settlement was objectively reasonable for the reasons given by the primary judge, having regard to the amount in issue and: 1. Mr Hasan's evidence and the contemporaneous records indicating that he slipped on the scaffolding; 2. the reports and various notices issued following SafeWork NSW's investigation; 3. Professor O'Brien's expert report (the assumptions in which were similar to what was contained in the contemporaneous reports, regardless of any discretionary restriction as to the use of the histories in evidence); 4. the evidence of workers' compensation payments, medical expenses, and the impact of the incident on Mr Hasan's earning capacity; and 5. the upcoming hearing on liability and the costs associated with that hearing.
It follows from the above that I would dismiss grounds of appeal 2, 3, 4, 5A, 5B, 5D, 5E of the amended notice of appeal.
In relation to ground 5F of the amended notice of appeal, as I noted above at [48] this ground was an alternative way of putting AIG's argument on liability, namely, that unless Mr Hanna proved that he was liable to Mr Hasan as alleged in the amended statement of claim, the settlement could not be described as objectively reasonable. For the reasons I have addressed above I do not accept the premise of that argument.

Conclusion

I would make the following order: 1. The appeal is dismissed with costs.
GRIFFITHS AJA: I agree with Mitchelmore JA.

Amendments 24 April 2024 - In coversheet, name of appellant amended from "AIG Insurance Ltd" to "AIG Australia Ltd". DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 April 2024

HEADNOTE [This headnote is not to be read as part of the judgment] The respondent, George Hanna, was the named insured in a policy of insurance with the appellant, AIG Insurance Ltd (AIG) (the Policy). The Policy related to a construction project (the Project). Pursuant to cl 5.00 of the Policy, AIG was required to indemnify Mr Hanna "for all sums that you become legally liable to pay as compensation", subject to conditions not relevant to the appeal. Clause 10.01 provided that, unless Mr Hanna obtained AIG's prior written consent, he was not to admit liability or settle any third-party claim. In October 2018, whilst the Policy was in force, Mr Hasan, a formworker on the Project, was injured when he slipped and fell from scaffolding. In August 2020, Mr Hanna made a claim for indemnity under the Policy. In a telephone call with AIG's solicitor in relation to the incident, Mr Hanna said that although he was the registered builder on the Project, he was helping a friend who had asked him to give his builder's licence number; and it was his friend who controlled the site. Mr Hanna confirmed this information in a statement he signed in December 2020. This was inconsistent with the application submitted to his insurance broker, which included a signed copy of the construction contract naming him as the construction manager. In May 2021, AIG avoided the Policy on the basis that Mr Hanna had made fraudulent non-disclosures regarding the Project, which (on his report) was not his project; had made a further non-disclosure in circumstances where the Project was performed by an unlicensed builder; and had entered into an unlawful agreement with his friend to loan his building licence. In August 2021, Mr Hasan commenced proceedings against Mr Hanna in the District Court, seeking damages for negligence and breach of statutory duty. Mr Hanna admitted that he was the builder responsible for the Project and otherwise denied liability. On 4 May 2022, Mr Hanna also brought a cross-claim against AIG, seeking damages for what he alleged was AIG's wrongful termination of the Policy. In his cross-claim, and in his evidence, Mr Hanna asserted that he was, in fact, the builder in charge of the site, and that he had managed the build from the outset. He also gave evidence that he had deliberately not told AIG the truth in 2020. On 2 August 2023, the primary judge gave judgment by consent in favour of Mr Hasan against Mr Hanna in the sum of $430,000 and an order that each party bear their own costs. AIG objected to the entry of the consent judgment, which the primary judge noted in the orders. In giving judgment for Mr Hanna on the cross-claim, the primary judge found that Mr Hanna was the builder responsible for the performance and administration of the Project and that the Policy should have responded to Mr Hasan's claim. Thus, AIG had repudiated the Policy through its wrongful termination and Mr Hanna had no choice but to accept that fact. As to the scope of cl 5.00 of the Policy, her Honour held that the clause was activated by entry into the consent judgment per se, in circumstances where AIG's consent was not available given its avoidance of the Policy. Her Honour also determined that the settlement to which the consent judgment gave effect was objectively reasonable, based on a reasonable assessment of the risk that Mr Hanna faced as the defendant to Mr Hasan's claim. AIG's notice of appeal alleged that her Honour erred by: making findings which, it contended, were not available on the admissible evidence and were relied upon to conclude that Mr Hanna incurred a liability to Mr Hasan to which the Policy responded (numbered grounds 2 to 4); holding that cl 5.00 responded to liability assumed pursuant to a consent judgment (ground 5); and, in the alternative to ground 5, entering the consent judgment over AIG's objection (ground 6). In oral submissions, Senior Counsel for AIG said the central issue on the appeal was whether an insured, who gives false information to an insurer which then denies indemnity based on that false information, may rely on the avoidance as a basis for not having to prove the insured's liability to the third-party claimant. AIG sought leave to amend the notice of appeal to raise this point (proposed ground 5C). AIG also raised a further five grounds, alleging that the primary judge erred in: failing to find that Mr Hanna was required to prove that he was liable to Mr Hasan and that he had failed to do so (proposed grounds 5A and 5B); finding that a managerial failure in respect to a defect in the scaffolding was Mr Hanna's responsibility (proposed ground 5D) and that it was highly likely that Mr Hasan would have secured a verdict against Mr Hanna (proposed ground 5E); and finding that the settlement was objectively reasonable (proposed ground 5F). Mr Hanna resisted AIG's application for leave to rely on proposed ground 5C, submitting that the manner in which AIG now framed its challenge was not run below; and that to permit AIG to run it now would cause him prejudice. The Court held (Mitchelmore JA, Payne JA and Griffiths AJA agreeing), dismissing the appeal: As to the application for leave to amend the notice of appeal: (1) Leave to rely on proposed ground 5C is refused: [56]. The point was not run below: [51]. There would be prejudice to Mr Hanna if AIG were permitted to raise the point on appeal because, if AIG had run the point at trial, Mr Hanna would have had an opportunity to lead evidence that was directed to the question of what was before or otherwise available to the insurer at the time that it avoided the Policy, that disproved his statement to AIG that he was not the builder: [55]-[56]. (2) Leave to rely on the other proposed grounds of appeal is granted: [57]. As to ground 5: (3) On its proper construction, the scope of cl 5.00 in the Policy includes liability that has been determined by a bona fide compromise agreement: [64]. This is consistent with cl 10.01: [65]. Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363; Vero Insurance Ltd v Baycorp Advantage Ltd [2004] NSWCA 390; 23 ACLC 199; Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2018] NSWCA 100; 359 ALR 314 considered. As to ground 6: (4) The consent judgment that the primary judge entered did not unilaterally determine AIG's liability under the Policy for the sum that Mr Hanna was ordered to pay Mr Hasan. The settlement did not preclude AIG from contending that it was not liable under the Policy, on the construction of cl 5.00 on which it relied and/or because Mr Hanna had not proved that he was liable to Mr Hasan, or that the settlement was not objectively reasonable: [68]. James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53; [1998] HCA 78 distinguished. As to grounds 5A and 5B: (5) Mr Hanna did not need to establish that he was liable to Mr Hasan in the manner that Mr Hasan alleged in the amended statement of claim; and the primary judge did not need to be satisfied that Mr Hanna was so liable. Rather, it was for Mr Hanna to show that the amount of the settlement was reasonable having regard to the relevant circumstances, which included the position in which Mr Hanna found himself and what he might have been held liable to pay if there had been a contest leading to a judgment or arbitral award: [72]. Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2017] NSWSC 259 applied; Vero Insurance Ltd v Baycorp Advantage Ltd [2004] NSWCA 390; 23 ACLC 199; Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2018] NSWCA 100; 359 ALR 314 considered; CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1; [2007] HCA 36 distinguished. As to grounds 2, 3, 4, 5D and 5E: (6) These grounds mischaracterise the inquiry that the primary judge was undertaking. When understood as an inquiry into the reasonableness of the settlement, and not an inquiry into Mr Hanna's liability per se, the primary judge's approach was consistent with an inquiry into the circumstances at the time of Mr Hanna's entry into the settlement. The settlement was objectively reasonable for the reasons given by the primary judge: [78]. As to ground 5F: (7) The ground was premised on Mr Hanna needing to prove that he was liable to Mr Hasan as alleged in the amended statement of claim, which was rejected: [80].

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