Bank of Queensland Ltd v Chartis Australia Insurance Ltd [2013] QCA 183

The application of the principles of construction in this case

[63] The bank has failed to establish that the primary judge erred in the findings reached in sub-paragraphs 74(b), (c), and (d) of the reasons for judgment. Those matters and the language of the insuring clause (which was uncontroversial and addressed in sub-paragraph 74(a)) supported the construction that "if cl 3.9 applies to a Claim for Loss, and the insurer denies indemnity for the Claim, the insurer is not obliged to pay Defence Costs".[25]

[64] The issue then is whether that construction should have been favoured over the competing construction, which essentially relied on the absence of any reference to Defence Costs in the opening words of cl 3.

[65] In construing the policy as a whole it is appropriate to:

(a) have regard to cl 6.6 and conclude that it contemplates that a denial of indemnity on the basis of an exclusion, such as cl 3.9, affects the payment of Defence Costs;

(b) observe that the opening words of cl 3, viewed in isolation, support the bank's construction;

(c) note that otherwise the policy tends to treat liability to pay "Loss and Defence Costs" under the insuring clause as subject to the same provisions in the policy, rather than deal with a liability to pay Loss and a liability to pay Defence Costs differently;

(d) seek to resolve the inconsistency between a literal reading of cl 3 and other provisions of the policy;

(e) have regard to the subject matter of the policy, which in essence is insurance against liability for the bank's professional services and the costs of defending claims that asserted such a liability; and

(f) give the policy a businesslike interpretation, and, in choosing between competing constructions prefer the construction that avoids an unlikely commercial result.

[66] The bank's literal interpretation of cl 3 gives rise to apparently unintended and absurd consequences. It requires the insurer to pay the costs of defending claims that clearly fall outside the terms of cover because the damages and other relief they claim are excluded by cl 3. Such a literal interpretation of cl 3 with such absurd consequences might be avoided in favour of an interpretation which supplied the words "or Defence Costs" after "Loss" in the opening words of cl 3. This is because "words may be supplied, omitted or corrected in order to avoid absurdity or inconsistency".[26]

[67] The bank submits the primary judge erred in failing to construe the policy contra proferentem in order to resolve the tension which was found to exist between cl 3 and cl 6.6 of the policy. I do not agree.

[68] As to the construction of the exclusion clause itself, on one view, there was no ambiguity in the clause itself, and, as the primary judge found, the opening words of cl 3 favoured the bank's construction. On this view, there was no real need to resort to the contra proferentem rule in construing cl 3 since its literal meaning was against Chartis' construction.

[69] Such a literal interpretation of cl 3, however, gave rise to an inconsistency with cl 6.6, and was not justified when, in accordance with the principles of construction, the clause was read in light of the contract as a whole. The inconsistency between a literal interpretation of cl 3 and cl 6.6, the context in which cl 3 appeared, the text of the remainder of the policy (particularly the insuring clause) and the policy's subject matter gave rise to a construction that competed with the bank's literal interpretation of cl 3. This competing view interprets cl 3 as qualifying the liability to pay Loss and Defence Costs, not simply a liability to pay for Loss.

[70] The policy being open to two constructions, the preferred construction was one that avoids capricious, unreasonable, inconvenient, or unjust consequences. This was the construction preferred by the primary judge.

[71] The primary judge applied principles of construction to the proper interpretation of cl 3 in its context. Any ambiguity was resolved and no basis remained to apply the contra proferentem rule which applies "only when, having applied all other aids to construction, ambiguity remains".[27]

[72] Ground of appeal (d), which concerns the contra proferentem rule, is not established.

[73] The bank has failed to establish any of its grounds of appeal. I would:

1. Grant leave to further amend the notice of appeal to delete sub-paragraph 3(a) and insert in its place:

"(a) a declaration that, upon the proper construction of the Policy, the clause 3.9 exclusion does not apply to Defence Costs, as that term is defined in the Policy."

1. Grant leave to the appellant to rely upon the affidavit of Russell Redsell sworn 20 May 2013.
2. Dismiss the appeal.
3. Order the appellant to pay the respondent's costs of and incidental to the appeal to be assessed on the standard basis.

[1] BOQ Ltd v Chartis Aust Insurance Ltd [2012] QSC 319 at [40].

[3] [1999] HCA 9; (1999) 198 CLR 334.

[4] BOQ Ltd v Chartis Aust Insurance Ltd [2012] QSC 319 at [73].

[6] McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579, 589 [22]; Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, 528 - 529 [15].

[7] Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900, 2911 [29] - [30].

[8] Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109.

[9] [1956] HCA 53; (1956) 95 CLR 420, 426-427; National Australia Bank Ltd v Clowes [2013] NSWCA 179 at [38].

[10] Westpac Banking Corporation v Tanzone Pty Ltd (2000) 9 BPR 17,521; [2000] NSWCA 25 at [19] - [21]; Adams v Lambert (2006) 228 CLR 409, 417 [21].

[11] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 437; Noon v Bondi Beach Astra Retirement Village Pty Ltd [2010] NSWCA 202 at [46].

[12] Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109.

[14] Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900, 2908 [21].

[15] Johnson v American Home Assurance Company (1998) 192 CLR 266, 274-275; McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579, 602.

[16] G L Nederland (Asia) Pty Ltd v Expertise Events Pty Ltd [1999] NSWCA 62 at [27].

[17] [1986] HCA 82; (1986) 161 CLR 500, 510.

[18] Johnson v American Home Assurance Company (1998) 192 CLR 266; Carter JW, Contract Law in Australia 6th ed, LexisNexis, Chatswood, 2012 at [14-03]-[14-04].

[19] Western Australian Bank v Royal Insurance Co [1908] HCA 11; (1908) 5 CLR 533, 554; Johnson v American Home Assurance Company (1998) 192 CLR 266, 274- 275.

[20] AMP Fire & General Insurance Co Ltd v Maros Construction Co (Qld) Pty Ltd [1968] QWN 11.

[21] [2010] HCA 37; (2010) 242 CLR 336, 344 [29].

[22] McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579, 589 [22]; McCarthy v St Paul International Insurance [2007] FCAFC 28; (2007) 157 FCR 402, 425 [69].

[23] BOQ Ltd v Chartis Aust Insurance Ltd [2012] QSC 319 at [74(c)].

[24] Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, 533 [34].

[25] BOQ Ltd v Chartis Aust Insurance Ltd [2012] QSC 319 at [74].

[26] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426-427.

[27] G L Nederland (Asia) Pty Ltd v Expertise Events Pty Ltd [1999] NSWCA 62 at [27].