BETWEEN : SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD

BETWEEN : SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD

BETWEEN : SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : ZURICH AUSTRALIAN INSURANCE LIMITED v METALS & MINERALS INSURANCE PTE LTD [2007] WASC 62

File No : CIV 1679 of 2002, CIV 2243 of 2003, CIV 1277 of 2003

Contract - Illegality - Provision in contract rendered void by statute - Whether whole of clause rendered void or only that part of it with the effect which engages the statute - Whether severance permissible

Estoppel - Estoppel per rem judicatem - Cause of action estoppel - Merger of cause of action in judgment - Turns on own facts

Insurance - Double insurance - Contribution between co-insurers of same risk - Subrogation - Whether payment of contribution by one insurer to another insurer gives contributing co-insurer a right of subrogation to claims of the insured

Insurance - Duty of utmost good faith - Scope of duty in a case of double insurance - Whether precludes one insurer from claiming contribution from a co-insurer of the same risk on the basis that that might lead to claim for indemnity by co-insurer against insured - Turns on own facts

Insurance - Indemnity insurance - Double indemnity - Whether payment in discharge of indemnified party's liability by one indemnifying party discharged liability of other indemnifying party - Whether one liability primary and one secondary

Insurance - Indemnity insurance - Double insurance - Other insurance clauses - Whether void by operation of s 45(1) of the Insurance Contracts Act 1984 (Cth) - Whether whole of clause avoided or whether severance possible - Proper construction of s 45 - Whether clause saved by s 45(2)

Statutes - Section rendering void a provision in contract with certain effect - Whether section to be construed as rendering void such provision entirely or only insofar as the provision has the relevant effect - Whether statute excludes severance

Insurance Contracts Act 1984 (Cth) s 13, s 45

Appeal and cross-appeal in CACV 101 upheld on severance ground

Second Respondent : Mr J E Maconachie QC & Mr G C Richards

AFG Insurances Ltd v City of Brighton [1972] HCA 70; (1972) 126 CLR 655

Albion Insurance Co Ltd v Government Insurance Office of New South Wales Ltd [1969] HCA 55; (1969) 121 CLR 342

Australian Casualty Co Ltd v Federico [1986] HCA 32; (1986) 160 CLR 513

Austress-PSC Pty Ltd v Zurich Australian Insurance Ltd (Unreported, QDC, 1 May 1992)

Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] UKHL 7; [1999] 1 AC 221

Bialkower v Acohs Pty Ltd (1998) 83 FCR 1

British Traders' Insurance Co Ltd v Monson [1964] HCA 24; (1964) 111 CLR 86

Brooker v Friend & Brooker [2006] NSWCA 385

Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282

Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333

Caledonia North Sea Ltd v Norton (No 2) Ltd [2002] UKHL 4; [2002] 1 All ER (Comm) 321

Castellain v Preston (1883) 11 QBD 380

CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36; (2007) 81 ALJR 1551

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384

Commercial & General Insurance Co Ltd v General Insurance Office (NSW) (1973) 129 CLR 374

Dering v Earl of Winchelsea (1787) 1 Cox 318, 29 ER 1184

Duke Group Ltd v Pilmer (No 2) [2000] SASC 418; (2000) 78 SASR 216

Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89

Halliday v High Performance Personnel Pty Ltd [1993] HCA 13; (1993) 113 ALR 637

HIH Casualty & General Insurance Ltd v Pluim Constructions Pty Ltd [2000] NSWCA 281; (2000) 11 ANZ Ins Cas 61-477

Humphries v The Proprietors 'Surfers Palms North' Group Titles Plan 1955 [1994] HCA 21; (1994) 179 CLR 597

Insurance Commission (WA) v Kightly [2005] WASCA 154; (2005) 30 WAR 380

John Edwards & Co v Motor Union Insurance Co Ltd [1922] 2 KB 249

Kelly v New Zealand Insurance Co Ltd (1996) 130 FLR 97

Linsley v Petrie [1998] 1 VR 427

Lord Napier & Ettrick v Hunter [1993] AC 713

McFarlane v Daniell (1938) 38 SR (NSW) 337

Morganite Ceramic Fibres Pty Ltd v Sola Basic Australia Ltd (1988) 5 ANZ Ins Cas 60-883

Network Ten Pty Ltd v TCN Channel Nine Pty Ltd [2004] HCA 14; (2004) 218 CLR 273

Nominal Defendant v GLG Australia Pty Ltd [2006] HCA 11; (2006) 228 CLR 529

Page v Scottish Insurance Corporation (1929) 140 LT 571

Rap Industries Pty Ltd v Royal Insurance Australia Ltd (1988) 5 ANZ Ins Cas 60-876

Re TH Knitwear (Wholesale) Ltd [1988] 2 WLR 276

Renehan v Leeuwin Ocean Adventure Foundation Ltd [2006] NTSC 4; (2006) 17 NTLR 83

Ruaro v Ferrari [2007] FCA 2022

Santos Ltd v American Home Assurance Co (1986) 4 ANZ Ins Cas 60-795

Simpson v Thompson (1877) 3 App Cas 279

Sky Channel Pty Ltd v Tszyu [2000] NSWSC 838

Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASCA 408; (2000) 23 WAR 291

SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516

State Government Insurance Office (Queensland) v Brisbane Stevedoring Pty Ltd [1969] HCA 59; (1969) 123 CLR 228

Stratti v Stratti [2000] NSWCA 358; (2000) 50 NSWLR 324

Sydney Turf Club v Crowley [1972] HCA 25; (1972) 126 CLR 420

Sydney Turf Club v Crowley [1971] 1 NSWLR 724

The Distillers Company Biochemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3; (1974) 130 CLR 1

Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391

Trade Practices Commission v Manfal Pty Ltd (No 3) Pty Ltd [1991] FCA 650; (1991) 33 FCR 382

Transport Accident Commission v CMT Construction of Metropolitan Tunnels [1988] HCA 46; (1988) 165 CLR 436

Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd [2005] WASCA 106; (2005) 30 WAR 290

Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2007] WASC 62

1 MARTIN CJ: I agree with Beech AJA. However, I will shortly express in my own words the essential reason why, in my opinion, these appeals should be allowed.

2 Section 45(1) of the Insurance Contracts Act 1984 (Cth) (the Act) provides:

(1) Where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void.

3 The trial judge held that the words 'has entered into some other contract of insurance' only included contracts into which the insured had entered as a contracting party, and did not extend to insurance contracts under which the insured person had the benefit of cover without being a party to the contract (Zurich Australian Insurance Ltd v Metals & Minerals Insurance Pte Ltd [2007] WASC 62 [142]). The conclusion of the trial judge is consistent with the language of the section, and the scheme of the Act, in which a distinction is drawn between persons who are parties to contracts of insurance, and persons who have the benefit of cover provided by a contract to which they are not a party (see, for example, s 48). None of the parties to these appeals challenged this aspect of the construction of s 45 of the Act by the trial judge.

4 The trial judge also held that the underlying insurance clause in the policy which Metals & Minerals Insurance Pte Ltd (MMI) issued to Hamersley Iron Pty Ltd (Hamersley) limited the cover provided by MMI in the event that a risk which would otherwise have been covered under that policy was a risk in respect of which Hamersley was entitled to indemnity under either:

(a) a contract of insurance entered into by Hamersley; or

(b) a contract of insurance not entered into by Hamersley, but in respect of which Hamersley was entitled to the benefit of indemnity.

5 Further, the trial judge held that the Zurich Australian Insurance Ltd (Zurich) policy entered into by Speno Rail Maintenance Australia Pty Ltd (Speno) was a policy of the latter kind - that is, a policy under which Hamersley was entitled to the benefit of indemnity but in respect of which it was not a contracting party (Zurich Australian Insurance Ltd [142]).

6 The view taken by the trial judge in respect of the construction and effect of these aspects of the policies of insurance was not challenged by any party to these appeals.

7 It follows from these unchallenged conclusions of the trial judge, that a critical question in the proceedings was the effect which s 45(1) of the Act had upon the ambit of cover provided by MMI to Hamersley, and in particular, whether the section operated to avoid that portion of the underlying insurance clause in the MMI policy which would limit the cover provided under that policy because of Hamersley's entitlement to indemnity under the policy effected by Speno.

8 The effect of s 45(1) of the Act is to render void a 'provision' which has the stipulated effect. Under the unchallenged construction of the section adopted by the trial judge, a 'provision' will only have the stipulated effect if it limits cover by reference to a contract of insurance into which the insured has entered, in the sense of being a contract to which the insured is a party. Accordingly, the section is to be construed on the basis that it is the objective of the legislature to only avoid provisions in insurance contracts which have that effect, and not upon the basis that it was the objective of the legislature to achieve some wider objective. Against that context, it seems to me to be clear that the word 'provision' in s 45(1), means that part of the terms of a contract of insurance which would have the stipulated effect unless avoided. It would be inconsistent with the assumed objective of the legislature, and therefore contrary to established principles of statutory construction, to give the section any wider ambit of operation.

9 Further, it would not be consistent with the apparent legislative objective to construe the section in a way which would elevate form over substance. So, the 'provision' which is avoided by the section is that part of the terms of the contract of insurance which have the stipulated effect, as a matter of substance, and not necessarily the entirety of the clause or clauses in which the 'provision' is contained.

10 It follows that the 'provision' of the MMI policy which is avoided by the operation of s 45(1) of the Act is that part of the underlying insurance clause in that policy which has the effect of defining the ambit of cover provided under that policy by reference to contracts of insurance into which Hamersley has entered, in the sense that Hamersley is a party to

those contracts. That part of the underlying insurance clause which defines the ambit of cover provided under the MMI policy by reference to contracts of insurance which have not been entered into by Hamersley, in the sense that Hamersley is not a party to that contract, but under which Hamersley is entitled to the benefit of indemnity, is not a 'provision' which is avoided by the operation of s 45(1) of the Act.

11 In some cases it may be impossible to sever that part of the terms of an insurance contract which is avoided by the operation of s 45(1) of the Act, from that part of the terms of the contract which is not impugned by the section. However, this is not such a case. The trial judge's conclusion to the effect that the underlying insurance clause applies to two separate and discrete classes of policy makes the identification of that part of the clause which is avoided by the operation of s 45(1), and that part of the clause which remains valid, a simple and straightforward task. There is nothing in the principles of law relating to the severance of invalid portions of a contract which precludes that part of the underlying insurance clause which is not avoided by s 45(1) remaining in force.

12 For these reasons, in my opinion, the trial judge should have concluded that the underlying insurance clause in the MMI policy was effective to exclude MMI's liability to provide indemnity to Hamersley in the circumstances of this case because that part of the clause which limited the ambit of cover by reference to Hamersley's entitlement to indemnity under contracts of insurance to which it was not a party was not avoided by the operation of s 45(1) of the Act. The trial judge should therefore have concluded that Zurich had no entitlement as subrogee to claim indemnity from MMI on behalf of Hamersley. Further, as the trial judge should have held that MMI had no obligations to Hamersley, and therefore no obligations to Zurich, there was no foundation for MMI's claim against Speno. Accordingly, each of these appeals should be allowed and appropriate orders made restoring the parties to their proper positions.

13 McLURE JA: I have had the advantage of reading the reasons for judgment of the Chief Justice and Beech AJA. I agree with them for the reasons they give that Speno's and MMI's appeals in the Zurich Contribution Action succeed on the severance ground. I agree with Beech AJA that the remaining grounds in that Action relating to the construction of s 45 of the Insurance Contracts Act 1984 (Cth) (the Act) should be dismissed. However, I propose to state my own reasons on the construction questions. I also agree with Beech AJA for the reasons he

gives that Speno's appeals in the MMI Subrogation Action and the Speno Strikeout Application should be upheld.

Construction of s 45 of the Act

14 Section 45 of the Act provides:

(1) Where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void.

(2) Subsection (1) does not apply in relation to a contract that provides insurance cover in respect of some or all of so much of a loss as is not covered by a contract of insurance that is specified in the first-mentioned contract.

15 The background to the enactment of s 45 of the Act is detailed in the reasons of Beech AJA and not repeated here. Further, I adopt the definitions used by Beech AJA in his reasons.

16 For analytical purposes it is helpful to break down the requirements of s 45(1). A provision is void if it:

(a) is included in a contract of general insurance (the general insurance contract);

(b) has the effect of limiting or excluding the liability of the insurer under the general insurance contract;

(c) has the effect referred to in (b) by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law (the other insurance contract).

17 There is some controversy as to the nature of the necessary connection between the 'effect' in (b) and the other insurance contract in (c). That controversy does not arise for determination in this case. I will refer to the requirement in (c) as the 'connection requirement'.

18 Speno and MMI contend in essence that on the proper construction of s 45(1), a provision in a contract of general insurance is void only if the actual liability for an insured event has been limited or excluded by reason that the insured had entered into some other contract of insurance. By that they mean an insured event must have occurred for which (it being a liability policy) a claim (or its equivalent) has been made so that the effect on liability under the policy had crystallized. This was described by the parties as 'the actual liability construction'. Zurich contended that the effect of the provision is to be determined as a matter of construction of the provision with the consequence that s 45(1) deals with the potential not actual liability of the insurer (the potential liability construction).

19 The consequence of the construction contended for by Speno and MMI is explained as follows. The underlying insurance clause in the Hamersley Policy with MMI excluded the liability of MMI, not because MMI had entered into some other contract of insurance, but because Hamersley was a third party beneficiary under the Speno Policy with Zurich. The unchallenged finding of the trial judge was that s 45(1) only applies where the insured is a party to some other contract of insurance. As MMI's actual liability to Hamersley had been excluded but not by a contract of insurance to which it was a party, the underlying insurance provision as a whole is valid (not void). If the underlying insurance provision in the Hamersley Policy is valid, there is no coordinate liability and Zurich's contribution claim against MMI must fail.

20 For the purposes of the record it should be noted that there was no issue between the parties as to whether the connection requirement was satisfied in this case in which the relevant limitation or exclusion only arose in the event of the insured having been indemnified under some other contract of insurance.

21 Speno and MMI rely on the language of s 45(1) for their 'actual liability' construction. They contend that the statutory expressions 'has the effect of limiting or excluding the liability of the insurer' and 'has entered into some other contract of insurance' are in the past tense. The use of the past tense together with the words 'effect' and 'the liability' are said to have the consequence that the time for determining invalidity is after the occurrence of all the events necessary to crystallise any liability. If not read in that way, it is said the connection requirement in s 45(1) would have to be confined to other insurance contracts entered into before the general insurance contract.

22 The language of s 45(1) does not support the 'actual liability' construction. The key to that conclusion is the meaning of the term 'liability' in its statutory context. Ordinarily, 'liability' means an obligation that a person is bound to perform. A liability may be absolute or conditional (contingent). An insurer's contractual liability to an insured comes into existence upon entry into the insurance contract. However, the insurer's contractual liability to pay (indemnify) the insured is conditional upon the happening of future events, such as, for example, an insured event for which a claim is made during the period of the insurance. If any contrast is relevant, it would be between absolute and conditional liability not actual or potential liability (or indeed effect). However, neither contrast is relevant. Section 45(1) requires that the relevant effect be to the 'liability ... under the contract'. In a section that renders a contractual provision void, that expression can only be intended as a reference to the scope of the contractual liability (absolute and conditional) of the insurer which is determined as a matter of construction.

23 The expression 'the effect' is intended to be a reference to a provision which, either in its terms or in its operation satisfies the requirements in (b) and (c) above. A provision which has the effect of excluding liability for failure to give notice of other insurance is within the latter category.

24 The unchallenged finding of the trial judge is that the other insurance contract(s) referred to in the connection requirement may be entered into before or after entry into the general insurance contract. In that event, s 45(1) is to be construed to mean 'has, whether before or after entering into the contract of general insurance, entered into some other contract of insurance'. That construction is neutral and does not itself justify or require the 'actual liability' construction of s 45(1).

25 Any ambiguity in the language of s 45(1) is resolved by the unusual and unexpected consequences of the 'actual liability' approach. Ordinarily, the question whether a contractual provision is void for breaching a statutory prohibition is a consequence of the scope of the contractual provision which is determined as a matter of construction as at the date of entry into the contract. That is, the validity of a contractual provision is ordinarily determined by the full scope of its potential factual application. In this way, validity can be determined at any time whether or not the contractual liability is absolute or conditional. This is the case notwithstanding that a contractual insurance provision will often only assume importance where there is an occurrence (and, if necessary, a claim) which would, absent the 'other insurance' provision, convert the insurer's contingent liability into unconditional liability.

26 The construction contended for by Speno and MMI would mean that although a provision in its terms and effect breached the statutory prohibition, the provision would not be void unless and until unconditional liability in respect of an actual occurrence had been limited or excluded as a consequence of the insured having become a party to some other insurance contract. Very clear language would be required before construing a statute as intending a form of conditional invalidity of this nature.

27 In summary, s 45(1) renders a provision of a general insurance contract void if, on its proper construction, the provision has the effect of limiting or excluding the scope of the liability of the insurer under the contract by reason that the insured has, whether before or after entry into the general insurance contract, entered into some other contract of insurance. I would dismiss appeal ground 2 and cross-appeal ground 1.

28 I also agree with Beech AJA that the other contracts of insurance referred to in the underlying insurance clause in the Hamersley Policy are not 'specified' for the purpose of s 45(2) of the Act.

29 The language of s 45(2) is consistent with the intention that it applies to a 'true excess liability policy ... to cover the insured's liability over and above that covered by another insurance which is specifically identified in the excess policy' (Australian Law Reform Commission, Insurance Contracts, Report 20 (1982) (ALRC Report) [290]). In order to understand the purpose of the requirement that the other contract of insurance be specified and the degree of specificity required, it is necessary to understand what is meant by a 'true' excess policy. As a starting point, I take 'excess insurance' to mean insurance in addition to primary insurance which is first in order of liability for loss; an excess policy applies only after the predetermined amount of the primary cover is exhausted: see Derrington DK and Ashton KS, The Law of Liability Insurance (2nd ed, 2005) [9.78]. A primary policy and an excess policy insure different risks so there is no overlapping or co-extensive insurance by an insured with different insurers. Thus, excess insurance is not within the mischief to which the prohibition in s 45(1) is directed although it falls within its literal meaning.

30 There are different types of excess policies. They include where a primary policy converts to an excess policy if there is other insurance covering the same risk or limits the liability of the insurer to any amount by which the loss exceeds the amount recovered or recoverable from any other insurer. The ALRC Report notes [281] that policies of this nature convert to an excess policy without appropriate reduction in the premium. In such cases the scope of the liability is conditional on the mere existence or potential existence of another overlapping policy (or policies) with the identity of the other insurance and its content only becoming relevant after an insured event has occurred. It is clear that policies in this category are not regarded as a 'true excess policy'. It seems the legislative intention is

that an excess policy to which s 45(2) applies must contain sufficient information as to be able to identify a specific primary policy to which the excess policy is intended by the parties at the time of entry into the excess policy, to be secondary. It is not sufficient that unspecified other insurance contracts may be capable of being identified by extrinsic evidence as a matter of fact from time to time. I would dismiss appeal ground 3 and cross-appeal ground 2.

31 Although it may be feasible for equity to permit subrogation in circumstances newly before it (Meagher RP et al, Equity, Doctrines and Remedies (4th ed, 2002) [9-265]). I am not persuaded this would be an appropriate case for such an extension if Zurich had been successful in its contribution claim.

32 Zurich had denied liability to indemnify Hamersley under the Speno Policy. That being the case, the underlying insurance clause in the Hamersley Policy did not apply until Zurich had satisfied the judgment in Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASCA 408. If MMI had indemnified Hamersley for its liability to Nolan, MMI would have had a right of subrogation against Speno and a right of contribution from Zurich in the event of any shortfall from Speno. In the absence of evidence to the contrary, it can be inferred that MMI was aware of the terms of the Speno Policy, including Zurich's waiver of its right of subrogation against Speno. MMI's failure to indemnify Hamersley before Zurich satisfied the judgment against it is a significant contributing factor to the situation in which MMI would have found itself if Zurich's contribution claim had been successful.

33 These three appeals raise a number of insurance law issues.

34 The first respondent (MMI) and the second respondent (Zurich) are insurance companies. The appellant (Speno) operates as a rail grinding contractor. The third respondent (Hamersley) mines, manufactures, transports and loads iron ore.

35 Speno and Hamersley entered into a contract (the Hamersley-Speno Contract) for Speno to provide services to Hamersley. Clause 37 of the Hamersley-Speno Contract provided for Speno to be solely liable for, and to indemnify Hamersley against, common law liability for personal injury

to Speno's employees engaged in contract works and any liability arising from the performance of the works. Clause 38 required Speno to arrange liability insurance to cover Hamersley's interest as a principal.

36 Pursuant to cl 38, Speno obtained a general liability insurance policy (the Speno Policy) issued by Zurich. Under the Speno Policy, Speno was identified in the schedule as the Insured. However, the policy contained an extended definition of 'Insured' in cl 5 which, when read with the endorsement, included Hamersley as an insured.

37 Mr Shaun Nolan and Mr Damien Oatway were employees of Speno. While working for Speno under the Hamersley-Speno Contract, they were injured through the negligence of Hamersley.

38 Oatway settled his claim against Hamersley, so did not institute proceedings.

39 Nolan successfully sued Hamersley in the District Court of Western Australia. In that action, Hamersley successfully claimed an indemnity for its liability to Nolan from each of Speno and Zurich. After judgment there was an appeal to the Full Court of Western Australia; Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASCA 408; (2000) 23 WAR 291 (Speno v Hamersley (2000)).

40 The result after the appeal may be summarised as follows. Speno was held liable to indemnify Hamersley under cl 37 of the Hamersley-Speno Contract. Zurich was held liable to indemnify Hamersley under the Speno Policy. Zurich was held not to be liable to indemnify Speno under the Speno Policy, as the policy issued by Zurich excluded liability for personal injuries suffered in the course of employment of a person in the service of the insured. Further, Zurich was held not to be entitled to a contribution from Speno because the liabilities of Zurich and Speno were not coordinate: Speno's contractual liability under cl 37 was a primary liability; Zurich's liability as insurer was secondary.

41 Hamersley was also insured under a combined liability insurance policy (the Hamersley Policy) with MMI. The Hamersley Policy had an 'underlying insurance clause' which I will set out later.

42 Hamersley did not make any claim against MMI on the Hamersley Policy in respect of Oatway or Nolan's claims.

43 After the appeal, Zurich paid Nolan's damages and interest, Oatway's settlement sum, and the legal costs of the trial and the appeal in the Nolan action. These sums totalled $1,259,969.07.

44 After payment of these amounts, Zurich commenced an action (CIV 1679 of 2002) claiming contribution from MMI (the Zurich Contribution Action).

45 In response to the Zurich Contribution Action, MMI commenced an action against Speno (CIV 2243 of 2003). MMI claimed that if it was found to be obliged to pay contribution to Zurich, it was entitled to rights said to be held by Hamersley against Speno, to the extent of MMI's obligation to contribute (the MMI Subrogation Action).

46 MMI also caused a writ of fi fa in the name of Hamersley to be issued against Speno. In CIV 1277 of 2003 Speno applied to strike out that writ (the Speno Strikeout Application).

47 The three actions were heard together before a trial judge in the Supreme Court. Zurich was successful in the Zurich Contribution Action and MMI was successful in both the MMI Subrogation Action and the Speno Strikeout Application.

48 These three actions are the subject matter of this appeal.

49 Speno appeals against the trial judge's decision in each action. MMI has cross-appealed against the judgment in the Zurich Contribution Action. Grounds 1 to 6 in Speno's appeal, and grounds 1 to 3 of MMI's cross-appeal, challenge the judgment in favour of Zurich in the Zurich Contribution Action. Grounds 7 and 8 of Speno's appeal relate to the MMI Subrogation Action; ground 9 relates to the Speno Strikeout Application.

50 I will deal first with the appeal as it relates to the Zurich Contribution Action, and then deal with the other two actions together.

51 In the Zurich Contribution Action, Zurich claimed against MMI for contribution on the basis that Hamersley was doubly insured (under the Speno Policy and the Hamersley Policy). Zurich invoked the general equitable right of contribution between co-insurers of the same risk (Albion Insurance Co Ltd v Government Insurance Office of New South Wales Ltd [1969] HCA 55; (1969) 121 CLR 342, 345 - 346).

52 In its defence, MMI relied on the underlying insurance clause in the Hamersley Policy as meaning that there was no double insurance. The underlying insurance clause was in the following terms:

Underlying Insurance

Underwriters acknowledge that it is customary for the Insured to effect, or for other parties (including joint venture partners, contractors and the like) to effect, on behalf of the Insured, insurance coverage specific to a particular project, agreement or risk.

In the event of the Insured being indemnified under such other Insurance effected by or on behalf of the Insured (not being an Insurance specifically effected as Insurance excess of this Policy) in respect of a Claim for which Indemnity is available under this Policy, such other Insurance hereinafter referred to as Underlying Insurance, the Insurance afforded by this Policy shall be Excess Insurance over the applicable Limit of Indemnity of the Underlying Insurance but subject always to the terms and conditions of this Policy.

In the event of cancellation of the Underlying Insurance or reduction or exhaustion of the Limits of Indemnity thereunder, this Policy shall:

(i) in the event of reduction pay the excess of the reduced underlying limit

(ii) in the event of cancellation or exhaustion continue in force as underlying insurance

but subject always to the terms and Conditions of this Policy.

53 In reply, Zurich pleaded that the underlying insurance clause was void by operation of s 45(1) of the Insurance Contracts Act 1984 (Cth).

54 Section 45 of the Insurance Contracts Act is in the following terms:

(1) Where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void.

(2) Subsection (1) does not apply in relation to a contract that provides insurance cover in respect of some or all of so much of a loss as is not covered by a contract of insurance that is specified in the first mentioned contract.

55 The trial judge found that the underlying insurance clause in the Hamersley Policy was void by the operation of s 45(1), and was not saved by s 45(2). Accordingly it could not be relied upon by MMI .

56 Those conclusions are the subject of grounds 1 to 4 of Speno's appeal and grounds 1 to 3 of MMI's cross-appeal.

57 MMI also defended the Zurich Contribution Action on the ground that the relief sought by Zurich was not available in equity. In support of that defence, MMI relied on the following matters:

1. Speno was liable under the judgment in the Nolan action by virtue of the indemnity clause (cl 37) in the Hamersley-Speno Contract;
2. The Speno Policy included a clause under which Zurich waived any rights of subrogation it had against Speno, and under which Zurich could not be subrogated to Hamersley's rights against Speno;
3. MMI was entitled to be subrogated to Hamersley's rights against Speno, and enforce against Speno an indemnity equalling any contribution MMI was ordered to make to Zurich; and
4. Zurich's claim against MMI therefore involved a circumvention of the effect of Zurich's agreement to waive its rights of subrogation against Speno.

58 The trial judge held that these matters did not give rise to an equitable bar to contribution. Grounds 5 and 6 of Speno's appeal challenge that conclusion.

59 Her Honour determined that the appropriate method for calculation of the contribution was the independent actual liability method. There is no challenge to that aspect of her Honour's decision.

60 I commence with the s 45 issues (grounds 1 to 4) before dealing with grounds 5 and 6. I turn to the reasons of the learned trial judge on the s 45 issues.

Trial judge's reasons on s 45 issues

61 Her Honour's reasons may be summarised as follows:

(a) on its proper construction, the effect of the underlying insurance clause is that the Hamersley Policy operates as an excess policy in two circumstances: first, where Hamersley has itself effected or entered into another insurance policy covering the same risk; and secondly, where another insurance policy covering the same area of risk has been effected by another party on behalf of Hamersley. The second category covers the situation where a third party organises insurance cover naming Hamersley as a beneficiary of the policy [139];

(b) on a proper construction of s 45(1), an insured 'has entered into' other insurance only when the insured is itself a party to the other insurance policy, not when the insured is merely a beneficiary of a policy taken out by a third party. Consequently, insofar as the underlying insurance clause relates to the second category described above, it does not engage s 45(1) because, in relation to that second category, the clause would not relate to a situation where 'the insured [Hamersley] had entered into another contract of insurance' [142];

(c) insofar as the clause relates to the first category, it engages s 45(1) and is rendered void [131], [136], [137] and [143];

(d) (by implication) whether a provision in a contract of general insurance has the effect referred to in s 45(1) is to be assessed by reference to the effect the provision has on its proper construction, rather than by reference to its actual effect, when a claim is made, in the events that have happened [131];

(e) s 45 renders the whole of the underlying insurance clause void, not only that part of it (that covers the first category) that engages s 45 [143]; and

(f) the underlying insurance clause in the Hamersley policy did not sufficiently specify the other insurance contract for it to be saved by s 45(2) [165], [168].

62 In making the findings summarised in subparagraphs (b), (d) and (e), her Honour followed the decision of Robin DCJ in Austress-PSC Pty Ltd v Zurich Australian Insurance Ltd (Unreported, QDC, 1 May 1992).

63 The findings summarised in paragraphs (a), (b) and (c) are not challenged by any party. By ground 2, Speno challenges the construction of s 45 adopted in paragraph (d). By ground 3 Speno challenges the conclusion in paragraph (e). By ground 4 Speno challenges the finding in paragraph (f). By its cross-appeal, MMI also challenges the findings that are challenged by Speno, on corresponding grounds.

64 All parties conducted the appeal on the basis that if s 45 did not render the underlying insurance provision wholly void, there was no double insurance and thus Zurich's contribution action would fail. Accordingly, success by Speno on any one of grounds 2, 3 or 4 would be sufficient for Speno to succeed in overturning the judgment in favour of Zurich.

65 Ground 1 of Speno's appeal invited a somewhat different reading of the trial judge's reasons from the summary I have set out. In particular, by ground 1 Speno contends that the trial judge did not make the finding summarised in subparagraph (d) above. However, in oral submissions senior counsel for Speno accepted that, in order to succeed in its appeal, Speno would have to succeed on one of the questions of law raised by its grounds 2, 3 and 4 (which correspond respectively with grounds 1, 2 and 3 of MMI's cross-appeal). Thus I turn immediately to those grounds.

66 Grounds 2, 3 and 4 all involve, to some degree, questions of construction of s 45. It is convenient to begin with a consideration of the object and purpose of s 45.

The object and purpose of s 45

67 The Insurance Contracts Act resulted from recommendations made by the Australian Law Reform Commission Report No 20 of 1982 (the ALRC Report). The draft legislation appended to the ALRC Report included a provision in terms identical to s 45.

68 Counsel for MMI submitted that regard should not be had to the ALRC Report in interpreting s 45. I do not accept that submission, for two reasons.

69 First, in my opinion s 45(1) is ambiguous, at least in the respect raised by ground 2. That being so, regard may be had to the ALRC Report pursuant to s 15AB of the Acts Interpretation Act 1901 (Cth).

70 Secondly, apart from s 15AB the court can have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, 408; Network Ten Pty Ltd v TCN Channel Nine Pty Ltd [2004] HCA 14; (2004) 218 CLR 273 [11].

71 Nonetheless, it is not to be overlooked that it is the text of the legislation, not any relevant secondary material, that is of paramount significance: Nominal Defendant v GLG Australia Pty Ltd [2006] HCA 11; (2006) 228 CLR 529 [22], [80], [82] - [84].

72 Chapter 11 of the ALRC Report dealt with issues arising from overlapping or coextensive insurance by an insured with different insurers. Paragraphs 279 - 281 were relevantly in the following terms:

1. The existence of overlapping or coextensive insurance by the insured with different insurers is a common occurrence. In many cases, it is accidental:
   • In order to increase the amount of his cover, an insured may take out a second policy with a different insurer.
   • An insured may take out two policies without realising that, in respect of certain risks, he is covered by each.
   • An insured who wishes to change insurers may neglect to cancel prior insurance or may be unable to effect cancellation.
   • A third party, in ignorance of existing insurance, may take out insurance on the insured's behalf.

In other cases, the insured intends to take out overlapping or coextensive insurance. He may do so in order to protect himself against the risk of the insolvency of the first insurer. Alternatively, his motive may be to make a profit out of insurance, contrary to the principle of indemnity. The occurrence of coextensive or overlapping insurance with different insurers in respect of the same risk is important for two main reasons. First, the terms of one or both contracts may require the insured to notify the existence of 'other insurance' or may modify or exclude the insurer's liability in the event of other insurance. Secondly, when a loss occurs which is covered by more than one contract, double insurance is said to exist. In that event, each of the insurers is entitled to contribution from the other in respect of the loss. This chapter is concerned with the various problems which may arise in each of those contexts.

Other Insurance

Requirements to Notify

1. There are two main types of policy provision dealing with other insurance. The first imposes on the insured an obligation to notify the insurer of existing or subsequent insurances covering the same risk. Its apparent aim is to detect possible fraud and to facilitate contribution between insurers. Whether it operates in respect of incidentally overlapping insurance depends on construction of the particular term. In some cases, the obligation is imposed directly. In other cases, it is imposed indirectly by a term which excludes liability in the event of other insurance which has not been notified by the insured and consented to by the insurer. Breach of such an obligation entitles the insurer to deny liability. In the event of a loss, the insured suffers to the extent that the second insurance is inadequate.

1. The second main type of policy provision dealing with other insurance imposes no obligation on the insured. Instead, it simply excludes or qualifies the liability of the insurer in the event of other insurance. Its apparent aim is to avoid or limit the operation of the principle of contribution. Provisions of this type fall into three main classes. The first class covers provisions which purport to exclude liability altogether in the event of other insurance. The insured's sole recourse is to the other insurer. The second comprises provisions which limit the insurer's liability to a rateable proportion of the loss. In that event, the insured must bring two actions. Even then, he may suffer an overall loss if the other insurance is insufficient or if the claim against the other insurer is defective. The third class covers provisions which limit the liability of the insurer to any amount by which the loss exceeds the amount recovered or recoverable from the other insurer. Such a provision converts a policy into an excess policy without appropriate reduction in the premium. If the other insurance is insufficient to cover a loss, the insured has to make claims against both insurers. If the claim against the other insurer is defective for some reason, the insured may be entitled to recover from the first insurer notwithstanding the other insurance clause. The application of each of these provisions may be further complicated by the existence of similar or contrasting provisions in the second policy and even the coexistence, within the one policy, of apparently conflicting 'other insurance' clauses. (footnotes omitted)

73 The report discussed the authorities dealing with the interaction of various 'other insurance' provisions in policies, describing the authorities as 'difficult to follow and impossible to reconcile'. The Commission then recommended as follows:

289. The Commission is concerned with the effect of 'other insurance' clauses on the interests of the insured. Insureds are detrimentally affected by uncertainty over the effects of individual provisions and combinations of different provisions. More important is the fact that some 'other insurance' clauses have the effect of limiting the insurer's liability to its insured. In such a case, the insured's protection may be compromised or lost. While they affect the interests of insureds in this manner, 'other insurance' clauses have little independent value for insurers. To the extent that they are intended as a protection against fraud, they are ineffective. At most, such a clause might operate as a disincentive to claiming the same loss twice under different policies. The same effect could be achieved by a clear warning to the insured that he is entitled to claim, under the policy concerned and under any other insurance, no more than his actual loss. To the extent that 'other insurance' clauses are designed to ensure that an insurer becomes aware of the existence of other insurance so that it may claim contribution in the event of a loss, the same aim could be achieved by asking appropriate questions in the proposal and claim forms. A request in the proposal form for details of other insurance would also give the insurer the opportunity of assessing any significant degree of over-insurance and deciding whether to accept the proposal. There is no substantial justification for any of the various types of 'other insurance' clause. As they may cause the insured's reasonable expectations to be defeated, all forms of 'other insurance' provisions should be rendered ineffective. If more than one insurance is in effect in respect of the same risk, the insured should be entitled to recover the whole of his loss from any one of the insurers, which should then be entitled to obtain contribution from the others.

290. It should be emphasised that these recommendations would have no effect on layered policies in the field of co-insurance where each policy is for a discrete range of the total risk and where no overlaps occurs. In addition, two exceptions should be made to the recommendation in the preceding paragraph. First, it should be made clear that the issue of a true excess liability policy to cover the insured's liability over and above that covered by another insurance which is specifically identified in the excess policy is not affected. Secondly, insurers should be able to restrict the scope of the cover afforded by a policy in order to exclude liability which is also covered by an insurance (whether or not then in existence) which is made compulsory by statute, such as workers compensation insurance or motor vehicle third party insurance.

74 The explanatory memorandum to the Bill that became the Insurance Contracts Act recited some of the matters referred to in par 279 of the ALRC Report. It summarised the proposed law in what became s 45. Paragraph 147 of the explanatory memorandum described the rationale of the section in the following terms:

147. Rationale - Judicial interpretation of provisions in insurance contracts relating to other insurance have caused uncertainties with regard to particular provisions and combinations of different provisions. The fact that, as the law stands, an insured may recover nothing or only part of his loss is not balanced by any gains to the insurer:

• the provisions do not reduce the possibility that an insured may have fraudulent intentions in covering the same loss - at most they may warn him against claiming the same loss twice but a similar result would be achieved by including a warning to that effect in the proposal;
• to the extent that an insurer wishes to be more aware of other insurance so that he may claim contribution from the other insurer, he may do so by asking for details in the proposal and claim forms; and
• a requirement that the insured give details of other insurance in the proposal form would also enable the insurer to consider whether there is any significant degree of over-insurance and, consequently, whether he should accept the risk.

75 Paragraph 148 of the explanatory memorandum referred to the ALRC Report in various respects:

148. Where two or more contracts of insurance provide cover in respect of the same loss insurers will be able to claim contribution from one another in respect of the loss (ALRC par 289). It is appropriate that an insurer should be able to exclude liability which is also covered by compulsory insurance eg workers' compensation or third party insurance. It is also appropriate that he can exclude liability where the policy is a genuine excess policy (ALRC par 290).

76 The ALRC Report and the explanatory memorandum seem to me to reveal the following thinking as underlying s 45.

77 First, 'other insurance' provisions create significant uncertainty for insureds and defeat the reasonable expectations of insureds that they were covered with a particular insurer. Such clauses do not give rise to sufficient countervailing benefits to insurers, as would justify the detriment to insureds, because there are other suitable means for insurers to protect their legitimate interests which might be thought to justify such clauses: ALRC Report [289], explanatory memorandum [147].

78 Secondly, s 45 is aimed at both types of provisions dealing with other insurance described in the ALRC Report [280] - [281].

79 Thirdly, an insurer should be permitted to exclude liability where the policy is a genuine or true excess policy: explanatory memorandum [148]; ALRC Report [290]. A genuine excess policy covers the insured's liability over and above that covered by another insurance specifically identified in the excess policy: ALRC Report [290]. A genuine or true excess policy is to be contrasted with the third class of other insurance provision described in the ALRC Report [281], the latter being an 'excess policy without appropriate reduction in the premium'. Further, it was not intended that the recommended change would affect layered policies where each policy is for a discrete range of the total risk and where no overlap occurs: ALRC Report [290].

Appeal ground 2; cross-appeal ground 1: Actual or potential effect?

80 These grounds raise an issue as to the proper construction of s 45(1). The issue may be summarised in the following way. Section 45(1) is engaged by a provision which has a certain effect (namely, the effect of limiting or excluding the liability of the insurer ...). The question is whether the effect of the relevant provision is to be determined by reference only to the proper construction of the provision (as Zurich contends), or whether it is to be assessed at the time the claim is made by reference to the actual effect of the provision in the events that have happened (as Speno and MMI contend). The parties refer to these constructions as respectively the 'potential liability' and 'actual liability' approaches. I would prefer to term them 'potential effect' and 'actual effect'.

81 For the reasons that follow, in my opinion, s 45 should be construed as directing attention to the 'potential effect' on its proper construction of an 'other insurance' clause, not its 'actual effect' in the events that have occurred.

82 As I have said, Robin DCJ in Austress-PSC adopted the potential effect approach. That approach is also supported in Sutton K, Insurance Law In Australia (3rd ed, 1999) [12.22].

83 Speno and MMI submit that the actual effect approach is supported by the language of s 45(1). They emphasise that the section is framed in the past tense and refers to a provision that 'has the effect of limiting or excluding' rather than 'limits or excludes'. They also contend that the expression 'by reason that' connotes a factual connection of causation, thereby supporting the actual effect approach.

84 I do not consider that the grammatical and textual considerations relied upon by Speno and MMI support the actual effect construction.

85 Speno and MMI submit that, given the use of the past tense, the actual effect approach gives the section a wide operation as it enables the section to apply where the insured enters into another contract of insurance after it has entered into the contract that includes the other insurance clause. Speno and MMI submit that, by contrast, a potential effect approach would mean that the section would only apply where the insured entered into another contract of insurance prior to entering into the contract containing the other insurance clause. In that regard, they point out that the section does not refer to or include the words 'or may enter into'.

86 I do not accept that submission. On my reading of s 45(1), the focus of the inquiry is on the effect of the provision in the contract of general insurance. If, and only if, the effect of that provision is to limit or exclude the insurer's liability on the ground that the insured has entered into some other contract of insurance, the provision will be void. In that regard, if an 'other insurance' provision in the contract of general insurance has the effect that where, at the time that a claim arises, the insured has entered into another insurance contract, the section will be engaged. It does not matter whether that other insurance contract was entered into before or after the contract of general insurance. I agree with the trial judge's observations to this effect at [102].

87 The reference in s 45 to a provision that 'has the effect of limiting or excluding' rather than 'limits or excludes' does not seem to me to support the actual effect construction of s 45. As Zurich submits, the 'effect' of a provision is an apt form of expressing what appears from the terms of the provision on its true construction. Moreover, the reference to a provision that 'has the effect of ...' is apt to capture notice provisions of the kind referred to in the ALRC Report [280], as well as capturing the second type of clause described in [281]. As I have said, I think that the ALRC Report reveals that both types of clause were intended to be rendered void by s 45.

88 The causal connection inherent in the words 'by reason' seems to me to be a neutral factor in the choice between the actual effect and potential effect approaches. Whichever approach is taken, the question will need to be determined whether the relevant provision has the effect of limiting or excluding 'by reason that ...'. On the potential effect construction, that question is determined by reference to the effect of the clause on its proper construction. On the actual effect construction, it is determined by reference to the events that have happened.

89 On the potential effect approach, the validity of a provision in a contract of general insurance is determined by reference to the proper construction of the provision. Consequently, it is capable of being ascertained immediately. Moreover, the answer to the question of whether the provision is valid will not vary according to subsequent circumstances. By contrast, on the actual effect approach, the validity of the provision cannot be finally determined at any given point in time prior to when a particular claim is made. It is only when a claim is made that the assessment can finally be made, for the purposes of that claim, of whether the provision has the relevant effect. The latter seems to me to be a less desirable outcome, and one that is less likely to have been intended by the legislature.

Appeal ground 3; Cross-appeal ground 2: Should the two parts of the underlying insurance clause have been severed?

91 As I have said, her Honour found and it is not challenged, that the underlying insurance clause operated in two circumstances: first, where Hamersley itself had effected another insurance policy and, secondly, where a third party had effected another insurance policy covering the same risk and Hamersley was named as a beneficiary of that policy. Her Honour also found that s 45(1) is not engaged by a clause which operates in the latter circumstance. That finding is also not challenged.

92 By these grounds, Speno and MMI contend that the trial judge erred in failing to sever the offending part of the underlying insurance clause so as to permit the clause to continue to operate in respect of insurance effected by a third party on behalf of Hamersley.

93 In concluding, in effect, that severance was not permissible, her Honour followed the conclusion and reasoning of Robin DCJ in Austress-PSC that the whole of the relevant provision is rendered void by s 45(1), not just the offending element of it. The reason for that conclusion was that s 45 makes the 'provision' void and, in this case, the provision is the underlying insurance clause.

94 Zurich supports the approach taken by the trial judge, emphasising that s 45(1) renders the relevant 'provision' void. Further, Zurich submits that the trial judge's construction of s 45(1) as not permitting severance was one that was more likely to promote the purpose of s 45.

95 The first question is whether, as the trial judge found and as Zurich submits, the language of s 45 reveals an intention to exclude severance. Section 45(1) renders void a provision that has the stipulated effect. In doing so, is s 45(1) to be read as rendering void the entirety of a clause which has the stipulated effect, or rendering void that clause only insofar as it has the relevant effect?

96 A literal reading of s 45(1) might be said to support the former meaning. The section says that 'the provision' is void; it does not say the provision is void 'to that extent' or anything similar. That was the approach of the trial judge and of Robin DCJ in Autress-PSC, referring to the 'precise wording' of s 45(1).

97 However, I do not think that s 45(1) is to be read as excluding severance. The literal reading just mentioned may be avoided in either of two ways. The first is to construe the word 'provision' as a reference to the substance and effect of one or more clauses of the contract, rather than to the clause itself. The second is to read the section as saying that the provision is, to the extent that it has the stipulated effect, void. That, in my opinion, is warranted by consideration of the purpose of the section and of the consequences of the literal meaning.

98 The interpretation invited by Zurich would mean that the legislation could produce some strange outcomes, in circumstances where the other insurance clause also dealt with other matters in addition to having the effect referred to in s 45.

99 Moreover, there are other sections in the Insurance Contracts Act (ss 38, 43, 52 and 53) and many sections of other Acts which provide that a provision in a contract that has a stipulated effect is void. If Zurich's argument is accepted, all of these sections would operate in respect of the whole of the provision in question. That would exclude severance in respect of a contractual clause which has effects other than the stipulated effect. Apart from Austress-PSC, Zurich cited, and I have found, no other case to support such a reading of a statute in a similar form (that is, a section which provides that a provision in a contract with a stipulated effect is void). To the contrary, there is authority against Zurich's argument.

100 Section 68(1) of the Trade Practices Act 1974 (Cth) is an example of a statute that provides that a provision in a contract that has a stipulated effect is void. That section provides:

Application of provisions not to be excluded or modified

(1) Any term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) that purports to exclude, restrict or modify or has the effect of excluding, restricting or modifying:

(a) the application of all or any of the provisions of this Division;

(b) the exercise of a right conferred by such a provision;

(c) any liability of the corporation for breach of a condition or warranty implied by such a provision; or

(d) the application of section 75A ;

101 In Ruaro v Ferrari [2007] FCA 2022, Emmett J held that s 68 renders a term of a contract void only to the extent that it purports to do or has the effect of doing the things described in s 68. It does not render a term that has that effect void for all purposes: [52], [85]. A similar approach seems to be inherent in what was said by Mildren J in Renehan v Leeuwin Ocean Adventure Foundation Ltd [2006] NTSC 4; (2006) 17 NTLR 83 [81].

102 The same view of the effect of s 68 seems to me to be implicit in Qantas Airways Ltd v Aravco Ltd (1996) 185 CLR 43. In that case, cl 4 of the contract between Qantas and Aravco provided that Aravco agreed, regardless of any negligence on the part of Qantas, to release and indemnify Qantas against various liabilities. Qantas was sued by the owner of an aircraft for Qantas' negligence. Qantas joined Aravco and cross-claimed under the indemnity. The High Court held that the indemnity did not have any of the effects referred to in s 68, and so was not rendered void by that section. In so holding, the court emphasised that Qantas had sued on the indemnity, and that obtaining that indemnity did not affect Qantas' liability to Aravco for breach of the warranty implied by s 74 of the Trade Practices Act. For present purposes what is significant is that, as Mahoney AP pointed out in the Court of Appeal, it was clear that part of cl 4 (namely the release) did fall within s 68. Consistently with that, the High Court recorded Qantas' concession that, if Aravco had sued for breach of the warranty implied by s 74, by reason of s 68 cl 4 would not have been a defence (48).

103 Thus, in my opinion, the approach of the High Court is consistent with the view that s 68 avoids a clause only to the extent that the clause falls within the description in s 68, and not entirely and for all purposes. Section 68 rendered void the release element of cl 4, but the indemnity element of the clause was given effect to.

104 Further, in my opinion, the purpose of s 45 is achieved by rendering a provision void to the extent and only to the extent that it has the effect stipulated in s 45(1).

105 I do not think that an intention to exclude severance can be justified by reference to the purpose and object of the section. The evident purpose of s 45 is to avoid the disadvantages to an insured of other insurance clauses, given the perception that such clauses do not provide significant benefits to an insurer. However, that policy has been implemented only to the extent reflected in s 45. Section 45(1) affects other insurance clauses only when they relate to a policy 'entered into' by the insured. On the trial judge's construction of s 45, accepted by the parties in the appeal as correct, s 45 does not extend to provisions respecting insurance entered into by a third party on behalf of the insurer or naming the insurer as a beneficiary. In those circumstances, the purpose or object of s 45 does not provide any justification for declining to sever the underlying insurance clause, in a case such as this, on the basis that prohibiting other insurance clauses relating to third party insurance does advance the general purpose of s 45.

106 For these reasons, I do not accept that the language of s 45 reveals an intention to exclude severance.

107 That construction of s 45(1) does not mean that severance will always be possible. The second step in determining whether severance is available involves the application of the principles respecting when severance is permissible in a contractual context. In identifying those principles, it is to be noticed that s 45(1) renders a provision of a contract void, it does not make the contract or the provision illegal.

108 A promise partly void but not illegal is capable of being enforced to the extent to which it is severable and valid: McFarlane v Daniell (1938) 38 SR (NSW) 337, 347; Humphries v The Proprietors 'Surfers Palms North' Group Titles Plan 1955 [1994] HCA 21; (1994) 179 CLR 597, 604 - 605.

109 The test for severability is that severance of a contractual term that is void by reason of public policy or statute is permissible if the elimination of the invalid promises changes the extent only but not the kind of the contract: McFarlane v Daniell (345); Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391, 410 - 411; SST Consulting Services Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516, [41] - [48].

110 I accept MMI's submissions that, when this test is applied, the underlying insurance clause can permissibly be severed without affecting the meaning of what remains after severance, in the following way:

Underlying Insurance

Underwriters acknowledge that it is customary for the Insured to effect or for other parties (including joint venture partners, contractors and the like) to effect, on behalf of the Insured, insurance coverage specific to a particular project, agreement or risk.

In the event of the Insured being indemnified under such other Insurance effected by or on behalf of the Insured (not being an Insurance specifically effected as Insurance excess of this Policy) in respect of a Claim for which Indemnity is available under this Policy, such other Insurance hereinafter referred to as Underlying Insurance, the Insurance afforded by this Policy shall be Excess Insurance over the applicable Limit of Indemnity of the Underlying Insurance but subject always to the terms and conditions of this Policy.

111 For these reasons, ground 3 of Speno's appeal and ground 2 of MMI's cross-appeal succeed. When the underlying insurance clause is severed in the way set out above, the result of its operation in the events that have happened is, the parties all accepted, that there was no double insurance. The consequence of that is that Zurich's action against MMI for contribution must fail.

112 That is sufficient to dispose of the appeal, but as all issues were fully argued and for the sake of completeness, I will deal with the other grounds of appeal.

Appeal ground 4: Cross-appeal ground 3; Was the Speno policy 'specified' in the Hamersley policy for the purposes of s 45(2)?

113 At trial and on appeal MMI and Speno contended that paragraphs 1 and 2 of the underlying insurance clause, when read together in the circumstances of the case, 'specified' the Hamersley policy for the purposes of s 45(2).

114 Speno and MMI submit that the words 'such other insurance', in the second paragraph of the underlying insurance clause, are a reference to the class or classes of policies described in the first paragraph of the clause. I accept that proposition. The first paragraph of the clause defines a class or classes of policy (namely policies which are 'specific to a particular project, agreement or risk') which are effected by the insured, Hamersley, or by a party with whom the insured has contractual relations in any insurance contract that names Hamersley as a beneficiary.

115 At the hearing of the appeal there was some discussion of the scope of policies 'specific to a particular ... risk.' On one reading, that might capture almost all forms of insurance. However MMI submitted that, in context, the reference to risk should be read as a subset of a particular project or agreement, ie a particular risk within a particular project or agreement. I am content to assume, favourably to MMI and Speno, that the clause is to be read in this way.

116 Speno and MMI submitted to the trial judge, and submit to this court, that the definition of the class of policy or policies in the first paragraph of the underlying insurance clause was sufficient to mean that that class or classes of policies had been 'specified' for the purposes of s 45(2), having regard to:

(a) the many (22) insured under the Hamersley Policy;

(c) the immense business interests operated by the individual insureds;

(d) the specific acknowledgment that it was customary for the various insured, or for other parties on their behalf, to effect insurance coverage specific to a particular project, agreement or risk; and

(e) the burden involved in listing each policy providing underlying insurance in relation to each project, agreement or risk, of each of the insured.

117 The trial judge did not accept that submission. In my opinion, her Honour was correct in so concluding, essentially for the reasons which her Honour gave.

118 Her Honour's reasons in relation to s 45(2) may be summarised as follows:

(a) in deciding whether a policy has been specified within the meaning of s 45(2), account must be taken of the purpose of s 45: [147], [165];

(b) a policy of insurance need not be individually identified by name, but may sufficiently be specified by class: [147], [156] and [165];

(c) to engage s 45(2) it is necessary to specify the other policy or policies in such a way as to make it clearly understood which policy or group of policies are being referred to and to make the purpose of such policy or policies known. The specification must make it clear that the policy under consideration was intended to be a true excess of liability insurance contract in the circumstances: [155];

(d) as to MMI and Speno's submission that the number of primary insured in the policy, the nature and size of their businesses, the scope of territorial application and various other matters made it impracticable, if not impossible, to identify by name, number, insurer or some other more specific way those other insurance contracts, those matters are the very factors which require a greater level of specificity than what is set out in the underlying insurance clause in order for the relevant policy to be 'specified' for the purpose of s 45(2): [162], [164] and [167]; and

(e) considering the purpose of s 45(2), and bearing in mind that the requirement that the other insurance policy be specified is designed to ensure that the relevant clause is a 'true excess' clause, the underlying insurance clause did not sufficiently specify the other insurance contract for it to be saved by s 45(2): [165] and [169].

119 Her Honour made detailed reference to the decision of the New South Wales Court of Appeal in HIH Casualty & General Insurance Ltd v Pluim Constructions Pty Ltd [2000] NSWCA 281; (2000) 11 ANZ Ins Cas 61-477. In that case, condition 7 of the HIH Policy was in the following terms:

PRINCIPAL-ARRANGED INSURANCE

In the event of the named Insured entering into an agreement with any other party (who for the purpose of this clause is called 'the Principal') pursuant to which the Principal has agreed to provide a policy of insurance which is intended to indemnify the named Insured for any liability arising out of the performance of the Works then the Company(ies) will (subject to the terms and conditions of this Policy) only indemnify the names Insured for such liability not covered by the policy of insurance provided by the Principal.

Mason P, with whom Handley JA and Foster AJA agreed in this respect, held that the language of condition 7 was too general and not of sufficient specificity to satisfy s 45(2).

120 Mason P made reference to the ALRC Report and explanatory memorandum to which I have already referred. Paragraph 148 of the explanatory memorandum refers to par 290 of the ALRC Report, stating that it is appropriate that an insurer be able to exclude liability where the policy is a genuine excess policy. Paragraph 290 of the ALRC Report states that an exception is to be made in respect of 'a true excess liability policy to cover the insured's liability over and above that covered by another insurance which is specifically identified in the excess policy'. (emphasis added) As I have said, in the ALRC Report, layered policies were distinguished from genuine excess policies; see [290].

121 Mason P surveyed the academic literature as to the meaning of the word 'specified' in s 45(2). Sutton suggests that the other contract need not be precisely named, but it must be sufficiently described so as to be capable of identification (982). Sutton says that the requirement of specification makes it clear that only true excess liability policies are intended to be exempted. Kelly DS and Ball ML, Insurance Legislation Manual (3rd ed, 1995) 132, suggests that specified means that the actual contract must be identified in the excess policy; otherwise the excess policy would not be a true excess policy. Derrington DK and Ashton RS, The Law of Liability Insurance (1990) 378, takes a narrower view suggesting that in order to be specified the other policy must be specifically named.

122 Mason P also cited with approval the decision of Robin DCJ in Austress-PSC to the effect that s 45(2) was:

[T]o be construed as requiring reference to 'other insurance' to be specific, as opposed to a description in general words capable of extending to the other insurance, if the provision under examination is to survive being struck down by subs(1). It seems to me the underlying notion is that the insured and the insurer have tailored their own bargain to take account of the impact of other contracts [43].

123 Mason P stated that the policy of s 45(1) suggested that the exception in s 45(2) should be construed narrowly: [44]. I respectfully agree with that proposition.

124 Mason P concluded that condition 7 of the HIH Policy could not be read as specifying a contract of insurance (such as the one in question in the present case). His Honour's reasons for that conclusion were as follows:

Here there was no identification of any particular policy with any particular insurer. The type of insurance which the proprietor was obliged to take out was described in the building contract in terms of the broadest generality and with no reference to conditions or exclusions. The HIH policy is not in form or substance a type of layered insurance or excess insurance. The fact that 'a policy of insurance' would be 'principal-arranged' only emphasises its futurity, contingency and lack of relevant specificity. In the context of condition 7, 'a policy of insurance' means any policy of insurance. This is the antithesis of 'a ... specified contract' within s45(2) [45].

125 Whether other insurance has been sufficiently 'specified' is to be approached by reference to the apparent rationale of s 45(2). According to the ALRC Report, where the other insurance is specifically identified so that the policy is a true excess liability policy, the avoiding of the other insurance provision should not apply. The reasons for the general avoiding of such other insurance provisions are those set out in para 289 of the ALRC Report. In essence, such provisions may cause an insured's reasonable expectations to be defeated. Where the other insurance is specifically identified, the reasonable expectations of the insured will not be defeated.

126 The ALRC Report contrasted a genuine excess policy with forms of 'other insurance' provisions that limit the liability of the insurer to any amount by which the loss exceeds the amount recoverable from the other insurer (being the third class mentioned in para 281 of the report). The contrast was that the latter form of other insurance provision was an 'excess policy without appropriate reduction in the premium'. That provides support for the statement of Robin DCJ in Austress-PSC, cited with approval by Mason P in HIH v Pluim, that the notion underlying s 45(2) is that the parties have tailored their bargain to take account of the impact of the other insurance.

127 I agree with McLure JA [30] that in order that an excess policy be 'specified' for the purposes of s 45(2), the specification must contain sufficient information to enable the identification of a specific primary policy to which the excess policy is intended to be secondary.

128 Viewed in that light, the reference to 'other insurance' in the underlying insurance clause in the Hamersley policy seems to me to fall well short of amounting to a specification of the Speno policy for the purposes of s 45(2).

129 MMI and Speno submitted that what is sufficient specification should be determined so as to reflect the parties' intentions, having regard to the surrounding circumstances and context. MMI supported that submission with a reference to Australian Casualty Co Ltd v Federico [1986] HCA 32; (1986) 160 CLR 513, 525. The observation of the court in Federico was, in my opinion, directed to a question of a different character. There, the court was concerned with the proper construction of an insurance policy. Here, the question is whether what is set out in a clause amounts to something being 'specified' for the purpose of s 45(2). Thus the primary focus of the question is on the language and policy of the legislation, rather than the intentions of the parties.

130 Further, there is, in my opinion, force in Zurich's submission that the fact that in particular circumstances it may be onerous or impossible for greater specificity to be given in an other insurance clause is not a ground for watering down the requirement of specification. If the other insurance is not sufficiently specifically identified, the policy will not be a true excess policy as intended in the ALRC Report and the explanatory memorandum. An inability or failure to adequately specify a policy for the purposes of s 45(2) means that the general rule in s 45(1) will apply. That will result in both insurers being liable to the insured, for whose benefit s 45 was inserted, with certainty and security. The insurer who indemnifies will be able to claim contribution from the other insurer.

131 For these reasons, I would dismiss ground 4 of Speno's appeal and ground 3 of MMI's cross-appeal.

132 I turn to grounds 5 and 6 of Speno's appeal in the Zurich Contribution Action.

Grounds 5 and 6: 'equitable bar to contribution' defence

133 At trial MMI raised certain matters in its defence (set out at [57] of these reasons) as meaning that the relief sought by Zurich should be declined. At trial, and in Speno's written submissions, these matters were referred to by the shorthand 'equitable bar to the contribution claim'. However, as senior counsel for Speno acknowledged, these matters rely on an alleged breach of s 13 of the Insurance Contracts Act, rather than matters which, strictly speaking, give rise directly to a defence in equity. Nonetheless, all parties agreed that the point was to be dealt with on its merits.

134 At trial, and on appeal, Speno had the carriage of these arguments. Speno was permitted to intervene to put arguments in support of MMI's plea on the ground that if the contribution claim by Zurich against MMI succeeded, Speno was exposed to a claim, by way of subrogation, by MMI against it.

135 The starting point for Speno's argument is that the Speno Policy contained a clause by which Zurich waived its rights of subrogations against Speno, and therefore cannot be subrogated to Hamersley's rights against Speno. The trial judge accepted that proposition [177]. That finding is not challenged.

136 Next, Speno argues that MMI is entitled to subrogate to Hamersley's rights under the contractual indemnity in the Hamersley-Speno Contract against Speno under the judgment in the Nolan action. That would enable MMI to enforce against Speno an indemnity equal to any contribution ordered to be made by MMI to Zurich.

137 Speno contends that if Zurich were to succeed in its contribution claim against MMI, that would create the possibility that MMI could exercise its rights of subrogation to Hamersley's rights against Speno. That, the submission continues, would mean that Zurich's claim for a contribution would indirectly achieve what it could not directly achieve against Speno (given the waiver of the subrogation clause) namely it would compel Speno to pay a sum of money to Zurich in respect of the damages awarded to Nolan.

138 In those circumstances, the claim by Zurich for contribution against MMI is said to be a breach by Zurich of its duty of the utmost good faith, under s 13 of the Insurance Contracts Act, owed to Speno.

139 The trial judge rejected that defence to Zurich's claim [170] - [301]. Her Honour did so for a number of reasons.

140 First, her Honour found that, on a proper construction of the cross liability clause, there were separate policies and therefore separate contracts between Zurich and Speno and between Zurich and Hamersley. Her Honour drew support for that conclusion from the reasons for judgment of Wheeler J in Speno v Hamersley (2000).

141 The trial judge's conclusion in that respect is challenged by ground 5.

142 Secondly, s 13 of the Insurance Contracts Act implies in a contract of insurance a provision requiring each party to act towards the other party, in respect of any matter arising under or 'in relation to' the contract, with the utmost good faith. Her Honour was not persuaded that the right to seek contribution, after the obligation to indemnify has been fulfilled, was 'in relation to' the contract [285].

143 Thirdly, her Honour was not satisfied that the seeking of contribution by Zurich involved any breach of the duty of good faith in that the effect of which Speno was complaining would be the result of the exercise by another insurer, namely MMI, of its right of subrogation [299].

144 Finally, her Honour considered that the duty of the utmost good faith required Zurich to act honestly and fairly and that that in turn involved considering the interests of Speno, but did not require Zurich to subjugate its interests to those of Speno. Speno submitted to the trial judge, as it submits to this court, that the only way in which Zurich could act with the utmost good faith was by not pursuing the contribution claim. Her Honour was not persuaded that the duty of good faith required Zurich to refrain from seeking contribution [289], [290], [300].

The merits of ground 5: were there separate contracts of insurance?

145 The trial judge's finding that there were separate contracts of insurance was based upon the cross liability clause in the Speno Policy. That clause was cl 14 of the standard conditions and was in the following terms:

For the purpose of this Policy each of the parties comprising the Insured shall be considered as a separate legal entity and the word 'Insured' shall apply to each party as if a separate policy had been issued to each of the said parties but nothing herein contained shall operate to increase the Company's Limits of Liability stated in the Schedule.

Zurich submits that the trial judge gave effect to cl 14 by construing the policy 'as if a separate policy had been issued to each of the parties'.

146 However, what cl 14 directs is how the word Insured is to apply to each party, rather than how the policy is to be construed generally. It states that the word Insured shall apply to each party as if a separate policy had been issued to each. Thus cl 14 controls the way in which the word Insured applies to each party. It does not seem to me to control the broader question of whether, for the purpose of identifying the contract of insurance for the purpose of s 13 of the Insurance Contracts Act, the policy is to be construed as involving a number of separate contracts or a single contract.

147 The evident purpose of the cross-liability clause should be taken into account in determining whether that clause had the effect found by the trial judge. In cl 5 of the definitions section of the Speno Policy, 'Insured' is defined in a way that means a number of different entities were within the definition of 'the Insured', including Hamersley. The word 'Insured' is used in numerous places in the policy. The cross-liability clause governs the way in which the word 'Insured' is to be read, throughout the policy, given that a number of different entities are within the definition of 'Insured'. The cross-liability clause provides a degree of protection to each insured from the consequences of conduct of another insured (subject to the effect of standard condition 11). The apparent purpose of the cross-liability clause does not seem to me to support giving that clause the effect found by the trial judge.

148 Further, in my respectful opinion, Wheeler J's analysis in Speno v Hamersley (2000) [141] - [153] was directed to a different question. In that case the question was whether the cross-liability clause meant that the reference in an exclusion clause to a person in the service of 'the Insured' was to be read, in relation to a claim by Hamersley, as a reference to an employee of Hamersley or an employee of Speno. That does not seem to me to have involved any conclusion that there were separate contracts of insurance between Speno and Zurich and between Hamersley and Zurich.

149 For these reasons, I would uphold ground 5. However, that is only the first step in Speno and MMI's contentions on the 'equitable bar' defence. Speno and MMI must succeed on ground 6 in order for the 'equitable bar' defence to defeat the Zurich Contribution Action.

Ground 6: is the Zurich Contribution Action a breach of the duty of the utmost good faith?

150 Given the width of the expression 'in relation to' in s 13, there is, I think, merit in Speno's submission that Zurich's claim for contribution from MMI was 'in relation to' the Speno Policy. It is true that the claim for contribution does not arise under the policy. However, the contribution claim only arises because Zurich indemnified Hamersley under the policy made with Speno.

151 However, it remains for Speno to demonstrate that the making of the Zurich Contribution Claim involves a breach by Zurich of its duty of the utmost good faith.

152 Honesty is a necessary but not sufficient element of compliance with the duty of the utmost good faith: CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36; (2007) 81 ALJR 1551 [15], [130] - [132], [257]; Kelly v New Zealand Insurance Co Ltd (1996) 130 FLR 97, 111 - 112; Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd [2005] WASCA 106; (2005) 30 WAR 290 [67].

153 It has been said that the duty of the utmost good faith 'encompasses notions of fairness, reasonableness and community standards of decency and fair dealing': Sutton [3.7]; Kelly v New Zealand Insurance Co Ltd (111).

154 Generally at least, a breach of the duty of good faith will entail dishonesty, caprice or unreasonableness: Kelly v New Zealand Insurance Co Ltd (112); CGU v AMP [131].

155 The duty of the utmost good faith may require the insurer to have regard to the interests of the insured in exercising a power or discretion: The Distillers Company Biochemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3; (1974) 130 CLR 1, 31; CGU v AMP [15]; Linsley v Petrie [1998] 1 VR 427, 440.

156 There may be room for doubt as to whether the duty of utmost good faith would endure after an insurer has indemnified and paid an insured: see, by way of analogy, Wiltrading [66], [75]. However, it is not necessary to determine that point. Assuming the duty of good faith endured, I do not consider that it required Zurich to refrain from seeking contribution from MMI.

157 Speno's submissions emphasise that under the Speno Policy, Zurich agreed to indemnify Speno and Hamersley for liability for personal injuries to persons arising under the business conducted by Speno, and that Zurich also agreed that it would waive any right of subrogation and thus would not pursue any right Hamersley might possess against Speno. Speno submits that this means that Zurich, in effect, promised Speno that Speno would not be directly or indirectly liable to pay any amount on account of a claim by a person such as Nolan against Hamersley arising out of the conduct of Speno's business. For the reasons that follow, I do not consider this final step can be taken.

158 It is, I think, instructive to restate in summary form the contractual scheme. Clause 37 of the Hamersley-Speno Contract provided for Speno to be solely liable for, and to indemnify Hamersley against, common law liability for personal injuries to Speno's employees engaged in contract works and arising from the performance of the contract works. Clause 38 required Speno to arrange liability insurance to include Hamersley's interest as principal. The Speno Policy insured Speno for its liability in various respects, and insured Hamersley in respect of its liability for personal injury in stipulated circumstances. Importantly, the Speno Policy did not insure Speno for its liability to indemnify Hamersley under cl 37 of the Hamersley-Speno Contract.

159 The injuries of Nolan and Oatway were not caused by any fault of Speno. Thus, Speno did not make any claim against Zurich on the Speno Policy. Consequently, in the circumstances of this case, the waiver of subrogation clause was not engaged.

160 By the waiver of subrogation clause, Zurich agreed to waive any right of subrogation and thus not to pursue any right Hamersley might possess against Speno. Speno invites a conclusion that that clause demonstrates an 'underlying intention' that Zurich would not make Speno directly or indirectly liable to pay any amount on account of a claim by an employee of Speno against Hamersley arising out of the conduct of Speno's business. Speno accepts that such a conclusion does not arise on a proper construction of the waiver of subrogation clause, and also accepts that there is no implied term to the effect relied upon by Speno. Rather, Speno says that the waiver of subrogation clause reveals the 'underlying intention'. To my mind, that involves reading too much into the waiver of subrogation clause.

161 In my opinion, given the contractual scheme as I have outlined it, the waiver of subrogation clause falls well short of supporting a conclusion that the parties' underlying intention was to the effect contended by Speno.

162 The dicta of Wheeler J (Malcolm CJ agreeing [24]) in Speno v Hamersley (2000) [160] provides, by parity of reasoning, an obstacle to Speno's argument in this case. In Speno v Hamersley (2000) the trial judge rejected Zurich's claim to contribution from Speno on two grounds: first, the liabilities were not coordinate; secondly, it was inconsistent with equity and the insurer's duty of good faith for the insurer (Hamersley) to recover contribution from its own insured (Speno) when Speno had paid the policy premium. Her Honour said, by way of obiter dicta, that it was unclear why recovery by Zurich from Speno would be inconsistent with equity and the insurer's duty of good faith.

163 Further, I am not persuaded that the duty of good faith would require Zurich to subjugate its interest to those of Speno by not pursuing the claim for contribution against MMI.

165 For the reasons I have given, Speno's appeal and MMI's cross-appeal against the trial judge's decision in favour of Zurich in the Zurich Contribution Action should be upheld on the severance ground, and otherwise dismissed.

166 That conclusion means that, strictly speaking, it might not be thought necessary to determine the MMI Subrogation Action, in that MMI is not liable to Zurich. Nonetheless, as the matter was fully argued and for the sake of completeness, I will proceed to determine the issues arising in the MMI Subrogation Action and the Speno Strikeout Application.

The MMI Subrogation Action and the Speno Strikeout Application

167 As the same issues arise in these matters, they were dealt with together by the trial judge. I will do the same.

168 In the MMI Subrogation Action MMI sought a declaration that it was entitled to exercise its rights of subrogation, in Hamersley's name, against Speno, to recover the whole of MMI's liability to Zurich. MMI also sought a declaration that it was entitled to execute, to the extent necessary, the writ of fi fa issued in the Nolan action against Speno.

169 MMI's action relied on the indemnity in cl 37 of the Hamersley-Speno Contract. MMI says that Hamersley was entitled to sue Speno on cl 37 in respect of its liability under the judgment given in the Nolan Action, and that MMI can subrogate to Hamersley's rights in this respect.

170 Speno defended the MMI Subrogation Action by reference to the judgment given in the Nolan action after the appeal. That judgment (the 2000 Judgment) in its final form included orders that:

1. the defendant [Hamersley] pay the plaintiff [Nolan] the sum of $813,381.00;
2. the third party [Speno] and the fourth party [Zurich] indemnify the defendant [Hamersley] in respect of the judgment sum.

171 Speno pleaded that Hamersley's cause of action for an indemnity from Speno merged in the 2000 Judgment. Speno contended that payment by Zurich of the amount specified in the 2000 Judgment meant that Hamersley had been fully indemnified by Zurich in respect of its liability to Nolan under the judgment. That, Speno contended, meant that the obligation of Speno to indemnify Hamersley under the 2000 Judgment had been discharged. As I will develop, whether that is so seems to me to be a critical issue in the MMI Subrogation Action. Speno submits that because Hamersley had no remaining liability to Nolan, Hamersley consequently had no remaining right to claim indemnity against Speno pursuant to the 2000 Judgment.

172 In Speno Rail v Hamersley (2000) Speno's obligation of contractual indemnity was characterised by the Full Court as a primary obligation, and the obligation of Zurich as insurer a secondary obligation. That conclusion was reached in the course of deciding that the liabilities were not coordinate, so that Zurich had no right of contribution in equity from Speno. See [24], [93], [167] - [168].

173 The trial judge's reasoning in upholding MMI's Subrogation Action may be summarised as follows:

(a) the obligation of Speno to indemnify Hamersley, and the obligation of Zurich to indemnify Hamersley, were two distinct obligations;

(b) the Full Court determined that Speno's obligation was primary and Zurich's obligation secondary;

(c) Zurich's obligation of indemnity had been satisfied, but Speno's obligation of indemnity had not been satisfied [372], [420(6)];

(d) notwithstanding payment by Zurich, Speno continues to be primarily liable to indemnify Hamersley [375];

(e) while it may be accepted that Hamersley's rights of indemnity against Speno merged in the 2000 Judgment, the form of the order was not decisive of the rights of the parties. Regard must also be had to the reasons for decision underlying the judgment [377];

(This point is of significance because the form of the judgment does not in any way expressly make the liability of Speno primary and the liability of Zurich secondary.)

(f) a writ of fi fa may not be issued in respect of a satisfied judgment, however the judgment for indemnity against Speno has not been satisfied [384]; and

(g) a full indemnity from one insurer precludes the insured from seeking an indemnity from another insurer. However, that principle is not engaged when an insured seeks an indemnity from a party who was not an insurer but had a primary liability, arising in contract, to indemnify the insured [407], [408], [420].

174 Speno challenges the trial judge's finding that MMI was entitled to exercise rights of subrogation in Hamersley's name against Speno to recover the whole of MMI's liability to contribute to Zurich. Speno relies on two grounds. The first (ground 7) denies that MMI has, or upon payment of contribution to Zurich would obtain, any right of subrogation. The second ground (ground 8) contends that if, contrary to ground 7, MMI has a right of subrogation, Hamersley has no rights against Speno because Hamersley's rights merged in the 2000 Judgment and that judgment has been satisfied.

Ground 7: Does MMI have a right of subrogation?

176 This ground raises a contention not pleaded and not put in submissions to the trial judge. However, it is a question of law on which no evidence might have been led at trial which could have affected the outcome. MMI did not object to the court determining ground 7 on its merits.

177 Ground 7 contends that the trial judge should have found that subrogation was not available to MMI because MMI had not and would not fully indemnify Hamersley in respect of the relevant claims.

178 The doctrine of subrogation in indemnity insurance was described by Steytler P in Insurance Commission (WA) v Kightly [2005] WASCA 154; (2005) 30 WAR 380 [26] in the following terms (omitting reference to authority):

The doctrine of subrogation is founded upon equitable principles. It prevents the insured from making a double recovery, once from the insurer and once from the tortfeasor (in a tort case) in circumstances in which the insurer has undertaken to indemnify the insured against actual financial loss. It does that by giving two rights to the insurer. First, it gives to the insurer the right to require the insured to pursue any remedy available against the tortfeasor for the benefit of the insurer. Second, it gives to the insurer the right to recover from the insured any benefit received by the insured in diminution or extinction of the loss against which the insured has been indemnified. Brett LJ in Castellain v Preston (1883) 11 QBD 380 at 388 described the doctrine in the following way:

[A]s between the underwriter and the assured the underwriter is entitled to the advantage of every right of the assured, whether such right consists in contract, fulfilled or unfulfilled, or in remedy for tort capable of being insisted on or already insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable, which can be or has been exercised or has accrued, and whether such right could or could not be enforced by the insurer in the name of the assured by the exercise or acquiring of which right or condition the loss against which the assured is insured, can be, or has been diminished.

179 Ground 7 raises a question of general principle. Where there is double insurance, and insurer one indemnifies the insured and insurer two subsequently pays contribution to the first insurer, is insurer two entitled to be subrogated to the insured's rights against a third party?

180 Counsel did not refer the court to any authorities which consider that specific question. My research has not revealed any cases directed specifically to that question.

181 The doctrine of subrogation in the context of indemnity insurance has been recognised for more than 200 years. So has the doctrine of contribution between co-insurers in a case of double insurance. In those circumstances the absence of any case which recognises a right of subrogation, in cases of double insurance, in favour of an insurer (the contributing co-insurer) who makes a contribution to the other insurer (the indemnifying insurer) after the other insurer indemnified the insured, might be thought to tell against the existence of such a right. Moreover, none of the texts I have examined says anything to support or suggest the existence of such a right.

182 There is a formidable body of judicial statements, not made in the specific context of double insurance, to the effect that the payment or offering of a full indemnity by an insurer, at least to the full extent covered by the policy, is a pre-condition to the exercise by the insurer of a right of subrogation. That position is supported in numerous of the leading texts.

183 In State Government Insurance Office (Queensland) v Brisbane Stevedoring Pty Ltd [1969] HCA 59; (1969) 123 CLR 228, 240 - 241, Barwick CJ (Windeyer J agreeing) said as follows:

It is settled law that an insurer who has paid the amount of a loss under a policy of indemnity is entitled to the benefit of all the rights of the insured in the subject matter of the loss and by subrogation may enforce them. This right of subrogation is inherent in the contract of indemnity. It has been put that it exists as a contingent right from the inception of the insurance. For my part, with respect, I do not find the description 'contingent right' appropriate and satisfying. The right of subrogation as it seems to me does not depend for its existence as a right upon the occurrence of a loss under the policy. Its exercise is of course dependent upon the payment of the loss but as a right it exists from the moment of the making of the contract of indemnity. (emphasis added)

184 In AFG Insurances Ltd v City of Brighton [1972] HCA 70; (1972) 126 CLR 655, 663, Mason J (McTiernan and Menzies JJ agreeing) said that the doctrine of subrogation 'comes into operation when the insurer meets his liability under the policy by making payment to the insured in respect of his loss', and is then entitled to the relevant rights of the insured. The court stated that 'unless and until the insurer makes good the loss, the doctrine has no application'.

185 Halliday v High Performance Personnel Pty Ltd [1993] HCA 13; (1993) 113 ALR 637 concerned a right of subrogation under a clause in the insurance contract. In contrasting the position under the contractual clause with general law subrogation, Mason CJ stated that 'at common law no right of subrogation arises until the insured has incurred a loss and the insurer has in fact indemnified the insured for the loss' (640).

186 In Linsley v Petrie (440) Hayne JA said that 'the exercise of the right of subrogation is dependent on the insurer having indemnified its insured'.

187 In Simpson v Thompson (1877) 3 App Cas 279, 284 Lord Cairns LC said that where one person has agreed to indemnify another:

...he will, on making good the indemnity, be entitled to succeed to all the ways and means by which the person indemnified might have protected himself against or reimbursed himself for the loss. (emphasis added)

188 That passage was cited with approval by Bowen LJ in the seminal case of Castellain v Preston (1883) 11 QBD 380, 401 - 402, in a passage in turn cited with approval by Steytler P (Wheeler and Roberts-Smith JJA agreeing) in Insurance Commission v Kightly [27].

189 In Castellain (389) Brett LJ stated that an insurer 'cannot be subrogated into a right of action until he has paid the sum insured and made good the loss'.

190 That statement was referred to in dicta in Lord Napier & Ettrick v Hunter [1993] AC 713 with evident approval; see 734 (Lord Templeman, with whom the other Lords agreed), and 746 (Lord Jauncey of Tullichettle, Lord Goff of Chieveley and Lord Browne-Wilkinson agreeing).

191 In Page v Scottish Insurance Corporation (1929) 140 LT 571 Scrutton LJ held that an insurer has no right of subrogation unless and until it has fully indemnified the insured under the policy. In that case the insurer admitted liability to the insured in relation to a loss arising from a collision involving the insured's car. The insurer sought to exercise the insured's right of action against a third party which the insurer claimed was responsible for the collision. At the time the insurer commenced the action, the insurer had not admitted liability to the insured in relation to a claim made against the insured by that third party. The court held that the insurer was not entitled to exercise the insured's rights by way of subrogation. Scrutton LJ found that the insurer did not have a right of subrogation until it had satisfied all the claims arising under the policy in respect of the accident.

192 There are other statements to the same effect. See, for example, John Edwards & Co v Motor Union Insurance Co Ltd [1922] 2 KB 249, 253 - 254; and Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333, 339 (Lord Blackburn).

193 In Santos Ltd v American Home Assurance Co (1986) 4 ANZ Ins Cas 60-795, 74,873 - 74,877 the insured sued their insurers who denied that the insured had suffered loss against which the insured was entitled to be indemnified by the insurers. The insurers filed a counterclaim seeking a declaration that if (as they denied) the insured had suffered loss and were entitled to be indemnified, the insured's loss was caused by the negligence or breach of contract of third parties. White J struck out the insurers' counterclaim. One of the grounds for striking out the counterclaim was that the insurers had not paid or agreed to pay a full indemnity to the insured and that until that occurred they were not entitled to be subrogated to the insureds' rights against the third party.

194 See also, to like effect, Rap Industries Pty Ltd v Royal Insurance Australia Ltd (1988) 5 ANZ Ins Cas 60-876, 75,518 - 75,519.

195 Numerous texts contain unequivocal statements to the effect that an insurer must have paid (or agreed to pay) the whole of its liability to indemnify under the insurance policy before it can exercise a right of subrogation. See Meagher RP, Heydon JD and Leeming MJ, Meagher, Gummow & Lehane's Equity Doctrines and Remedies (4th ed, 2002) [9-160], [9-185], [9-195]; Sutton [16.8] - [16.9], [16.1]; MacGillivray On Insurance Law (9th ed, 1997) [22-2], [22-24], [22-27]; Kelly & Ball, Principles Of Insurance Law [9.0090]; Derham SR, Subrogation In Insurance Law (1985) 49-51; Goff & Jones, The Law Of Restitution (7th ed, 2007) [3-030], [3-032] - [3-033]; Mitchell C, The Law Of Subrogation (1994) 67, 69; Halsbury's Laws of Australia, vol 15, [235-970]; The Laws of Australia, vol 22, [22.1.243]. Where the insurance policy provides less than a complete indemnity for the loss, there are competing views on whether, after full payment under the policy, the insurer is entitled to exercise a right of subrogation.

196 Thus there is a consistent stream of authority to the effect that an insurer can exercise its right of subrogation only when it has paid, or agreed to pay the full extent of its liability under the insurance policy. That position invites consideration of the question of why that may be so, which in turn invites attention to the rationale of the doctrine of subrogation in the context of indemnity insurance.

197 It has often been said that the purpose of the doctrine of subrogation in indemnity insurance is to avoid double recovery by an insured. This was said in Castellain (387), by Mason J in AFG Insurances Ltd (663) and, in effect, by Wilson, Dawson, Toohey and Gaudron JJ in Transport Accident Commission v CMT Construction of Metropolitan Tunnels [1988] HCA 46; (1988) 165 CLR 436, 442; applied by Steytler P in Kightly [48]. That is how the position is stated in Sutton [16.2] and in Meagher, Gummow & Lehane [9-185]. In Kightly [26], Steytler P said that the doctrine 'prevents the insured from making a double recovery'.

198 The avoidance of double recovery might not be thought to provide a satisfactory explanation of the whole of the doctrine of subrogation. As Steytler P said in Kightly [26], the doctrine of subrogation gives two rights to the insurer. First, it gives the insurer the right to require the insured to pursue any remedy available against a third person for the benefit of the insurer. Secondly, it gives to the insurer the right to recover from the insured any benefit received by the insured in diminution or extinction of the loss against which the insured has been indemnified by the insurer. (The first right is referred to by Mitchell as 'simple subrogation'. The use of the label 'subrogation' to describe the second right has been criticised: see Mitchell (69 - 74); Meagher, Gummow & Lehane [9-165]; and British Traders' Insurance Co Ltd v Monson [1964] HCA 24; (1964) 111 CLR 86, 94.)

199 On the face of it, giving the insurer the second of these rights would, itself, seem to be sufficient to avoid double recovery on the part of an insured.

200 Nonetheless, the cases have emphasised the avoidance of double recovery as the central rationale of the doctrine of subrogation, including the first right.

201 Giving an insurer a right to subrogate to an action may be seen as having a primary purpose of better avoiding double recovery by an insured and a secondary purpose of avoiding any unjustified discharge, by reason of the insurance, of the third party's liabilities: Meagher, Gummow & Lehane [9-070], [9-260]; Mitchell (74 - 77).

202 If, however, the insured would not have sued the third party, regardless of whether he or she were insured, for example, because of family or employer-employee relationships with the third party, the first right of subrogation is not necessary for either of these purposes. Yet as Derham points out (29 - 30), the insurer's right of subrogation to an action is not influenced by whether the insured would (in fact) have declined to sue on any right of action. Thus the right of subrogation may also be seen as having an element of protecting the interests of the insurer.

203 In Castellain (401 - 402), cited by Steytler P in Kightly [27], Bowen LJ described subrogation as a corollary of indemnity. Goff & Jones [3-030] suggest that the basis of subrogation in indemnity insurance is the fundamental rule that a contract of indemnity means that an insured shall be fully indemnified but no more (referring to Castellain). See also Transport Accident Commission v CMT (442).

204 Goff & Jones state that 'as a corollary of the insurer's duty of indemnity, he is entitled, when he has indemnified the [insured] against the loss insured, to [exercise the right of subrogation]' [3-030]. Sutton says that indemnity and subrogation are bound up and complementary [16.4].

205 In Napier v Hunter (744) Lord Goff stated that subrogation gives effect to the underlying nature of a contract of insurance as giving an indemnity but no more than an indemnity, saying that the purpose of the doctrine is to give effect to the principle of indemnity embodied in the insurance contract. (See also 746, Lord Jauncey of Tullichettle).

206 The notion of subrogation as a corollary of indemnity provides some explanation for the requirement of full indemnification prior to the exercise of a right of subrogation.

207 There have been judicial and academic statements that the right of subrogation is a remedy against unjust enrichment. Some of these are referred to by Steytler P in Kightly [48]; see also Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] UKHL 7; [1999] 1 AC 221. However, there are many statements in the cases about the purpose and rationale of subrogation in the specific context of indemnity insurance. Some of those are referred to above. Of course, double recovery by the insured is readily seen as a form of unjust enrichment. For present purposes, I do not think that separate analysis by reference to the genus of unjust enrichment is of assistance in determining the issue. Rather, the question is to be approached by reference to the principles espoused in the authorities on subrogation in indemnity insurance, to which I have referred. In any event (as is pointed out in Meagher, Gummow & Lehane) Goff & Jones [3-006] acknowledge the difficulty of identifying and utilising the notion of unjust enrichment in questions of subrogation, given that questions of subrogation by definition involve multilateral rather than bilateral relations. Moreover, unjust enrichment is not a 'definitive legal principle according to its own terms': Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [151].

208 I return to the question of general principle. Where there is double insurance, does the contributing co-insurer, who pays contribution to the indemnifying insurer, obtain a right of subrogation to the insured's rights against a third party?

209 At least three possible impediments may be identified to an affirmative answer to that question. First, the contributing co-insurer (MMI) has not paid the full indemnity under its policy of insurance. Secondly, payment by the contributing co-insurer was not made to the insured in satisfaction of the indemnity, but to the contributing insurer, by way of contribution. Thirdly, the indemnifying insurer (Zurich) paid the full amount of the indemnity and thereby itself obtained a right of subrogation.

210 As was submitted by MMI, it would, in the abstract, be possible to fashion the principles of subrogation in a way that overcame these apparent difficulties. Subrogation could be permitted pro tanto to the extent of the payment of contribution. The contribution made by the contributing co-insurer could be treated as the equivalent of a payment to the insured under the insurance policy. The two insurers could each be given rights of subrogation, to the extent of their respective contributions, to be enjoyed jointly. (Some practical problems as to how that would work may arise, although, to my mind, such problems would not, of themselves, be decisive.)

211 However, for the reasons that follow, I am not persuaded that the doctrine of subrogation permits, or should be extended so as to permit, subrogation by an insurer who makes a payment of a contribution to another insurer when the other insurer has indemnified the insured. Rather, in my opinion, the insured who indemnifies has the exclusive right of subrogation in a case of double insurance.

212 MMI submits that there is authority that where there has been a partial indemnity the insurer is able to pursue, pro tanto, a claim by subrogation. The only insurance case referred to by MMI in support of this submission is the decision of Smart J in Morganite Ceramic Fibres Pty Ltd v Sola Basic Australia Ltd (1988) 5 ANZ Ins Cas 60-883, 75-617, 75-623. In that case the plaintiff's insurer exercised its right of subrogation and sued the seller of machinery purchased by the plaintiff. The defendant claimed that it had agreed with the plaintiff that the defendant would accept the return of the unit and refund the sums paid in satisfaction and discharge of the plaintiff's causes of action. In giving judgment for the plaintiff, Smart J held that on the correct construction of what had occurred the defendant's plea of accord and satisfaction failed. He went on to find that if, contrary to that view, the release had been binding as against the insured, the release did not bind the insurer because the defendant knew that payments had been made by the insurer to the insured and knew of the insurer's rights of subrogation. In the course of his reasons, Smart J referred to a statement by Slade LJ in Re TH Knitwear (Wholesale) Ltd [1988] 2 WLR 276, 285 that a third party may be subrogated pro tanto in the case of part payment, and that it was impossible to conceive of exactly the same right being vested simultaneously in both the creditor and the person claiming subrogation. Smart J expressed his agreement with that proposition.

213 What was said by Smart J in relation to the subrogation issue was clearly obiter. His decision was based upon a construction issue, as the final paragraph of his Honour's reasons makes clear. Moreover, there was an appeal from his Honour's decision. In the Court of Appeal the majority dismissed the appeal on the ground that the trial judge was correct on the construction issue and expressed no opinion in relation to the subrogation issue. Meagher JA dissented. He came to a contrary view on the construction issue. His Honour described the reasoning of Smart J on the subrogation issue as 'fundamentally misconceived' for a number of reasons, one of which was that the right of subrogation does not arise until the insurer pays the insured in full.

214 There is, as I have said, a substantial body of authority to the effect that payment or agreement by an insurer of a full indemnity, at least to the extent covered by the policy, is a pre-condition to the exercise by the insurer of a right of subrogation. That authority, supported by statements in numerous of the leading texts, is inconsistent with the recognition of a pro tanto claim of subrogation upon partial payment of an indemnity.

215 Next, MMI submits that once it pays its contribution to Zurich, MMI will have provided a full indemnity to Hamersley in that it will have paid 'the full amount due under the Hamersley policy based on principles of double insurance'. Contribution under the principles of double insurance, MMI's submission continues, achieves a distribution of the indemnity, referring to Commercial & General Insurance Co Ltd v General Insurance Office (NSW) (1973) 129 CLR 374, 380.

216 I do not accept that submission. Contribution achieves a distribution of the indemnity as between insurers. That, in my opinion, is what was said in the passage in Commercial & General Insurance relied on by MMI. Distribution of the burden of the indemnity as between the insurers is not to be equated with the position as between insurer and insured. As against the insured Hamersley, MMI has not paid the full amount of its liability under the Hamersley Policy.

217 Further, MMI's submissions in this regard do not seem to me to accord with the principles underlying the concepts of subrogation and contribution. In a case of double insurance payment by one insurer discharges the liability of both insurers: Albion Insurance Co Ltd (345 - 346, 350 - 351); Sydney Turf Club v Crowley [1971] 1 NSWLR 724, 730, 734 - 735. That gives rise to the right of contribution in favour of the insurer who indemnified the insured, against the other insurer. Contribution is an adjustment of the equities between the two parties who were equally liable to indemnify the insured. It can be said that the payment of contribution arises by reference to or by reason of the indemnity, but it is not a payment of the indemnification.

218 In Caledonia North Sea Ltd v Norton (No 2) Ltd [2002] UKHL 4; [2002] 1 All ER (Comm) 321 [92] Lord Hoffman said as follows:

It is certainly a general principle...that a person who has more than one claim to indemnity is not entitled to be paid more than once. But there are different ways of giving effect to this principle. One is to say that the person who has paid is entitled to be subrogated to the rights against the other person liable. The other is to say that one payment discharges the liability. The authorities show that the law ordinarily adopts the first solution when the liability of the person who paid is secondary to the liability of the other party liable. It adopts the second solution when the liability of the party who paid was primary or the liabilities are equal and coordinate.

219 This passage of Lord Hoffman's speech was also relied upon by MMI in relation to ground 8. I will return to it in that context. For present purposes, the point of relevance is that the two forms of solution identified by Lord Hoffman seem to me to be put forward as alternatives. In other words, in cases of double indemnity there is either an entitlement to subrogation, or payment by one discharges the liability of both indemnifying parties (and thereby gives rise to rights of contribution), but not both. That, in my opinion, reflects the position.

220 Counsel for MMI pointed out that a consequence of denial of a right of subrogation in favour of a co-insurer who subsequently paid contribution to the indemnifying insurer would be that, in cases of double insurance, the insurer who paid first would have an exclusive right of subrogation. I accept that that is the consequence of my conclusion. Which insurer pays first may well be influenced and, in some cases, determined by the policy which the insured chooses to seek to enforce. MMI submitted that for the insurer's right of subrogation to depend on which policy the insured chooses to enforce first 'cannot be right'. The submissions did not identify with any particularity why such a consequence must be rejected.

221 I am not satisfied that giving an exclusive right of subrogation, in a case of double insurance, to the insurer who indemnifies will generally be productive of injustice or otherwise give rise to outcomes which should call into question the refusal to recognise a right of subrogation of a contributing co-insurer. Upon the exercise of a right of subrogation by the indemnifying insurer, any benefits that insurer receives will need to be brought to account in determining the burden of the insurers' shared liability. It is that burden which is to be shared equitably for the purposes of contribution.

222 Where, as in this case, one insurer has agreed to waive its rights of subrogation against one or more parties, and that insurer indemnifies, the insurer will be precluded from bringing any subrogated right of action against those parties. Where co-insurers know of the existence of double insurance, it is open to the insurers to take this into account in determining which insurer indemnifies the insured. In any event, the consequences arising from the presence in one insurance policy of a waiver of subrogation clause is not something which, to my mind, calls into question the correctness of the rule as to which insurer is entitled to a right of subrogation.

223 If the ability to exercise a right of subrogation is in the circumstances of particular importance to an insurer, it is open to that insurer, at least when it knows there is double insurance, to pay on the indemnity early so as to obtain the right of subrogation.

224 The extension of a right of subrogation to a contributing co-insurer cannot be justified by the core purpose of the doctrine - the avoidance of double recovery by the insured. That purpose is achieved by the right of subrogation held by the insurer who indemnified. It would not be advanced by also giving a right of subrogation to a co-insurer who subsequently paid contribution to the indemnifying insurer.

225 The notion of subrogation as a corollary of indemnity explains the essential requirement of full indemnification by an insurer before the right of subrogation can be exercised. It does not support the extension of the right to the contributing co-insurer.

226 For these reasons, in my opinion payment of a contribution will not give MMI a right of subrogation. Accordingly, I would uphold ground 7.

227 That conclusion is sufficient for Speno to succeed in overturning the trial judge's decision in the MMI Subrogation Action. However, for the sake of completeness, I turn to ground 8.

Ground 8: Does Hamersley have any rights against Speno?

228 In essence, Speno's contentions are as follows:

(a) Hamersley's rights of indemnity against Speno merged in the 2000 Judgment;

(b) the terms of the 2000 Judgment are such that each of Speno and Zurich was liable to indemnify Hamersley, and that neither was primarily or secondarily liable;

(c) payment by Zurich of Hamersley's liability under the 2000 Judgment to Nolan, discharged both Zurich's obligation to indemnify Hamersley and Speno's obligation to indemnify Hamersley;

(d) accordingly, Hamersley has no remaining rights against Speno in respect of the indemnity; and

(e) to permit Hamersley to claim upon its indemnity against Speno would infringe the prohibition on a person who is entitled to two or more indemnities not being permitted to enforce more than one of them.

229 MMI's answer to this ground of appeal is that the liabilities of Speno and Zurich are not equal and coordinate because, as found by the Full Court in Speno v Hamersley (2000), Speno's liability is primary and Zurich's is secondary. For that reason, MMI submits, payment by Zurich under the Speno Policy did not discharge the judgment against Speno. Moreover, because Speno is primarily liable, this is not a case of indemnity twice over.

230 For the reasons which follow, I accept Speno's contentions.

231 There was little or no controversy as to the relevant general principles of law. The issues centred on the application of those principles to the circumstances of this case.

232 Sydney Turf Club v Crowley was (it was held) a case of double insurance. One insurer had indemnified the insured and then sued, by way of subrogation in the name of the insured, another insurer for an indemnity. In rejecting the claim, Jacobs JA made the following statement of principle (references to authority omitted):

A public liability policy and employer's liability policy are essentially insurances of indemnity. That being so any insured can recover no more than the amount required to indemnify him. If he has recovered the whole of the loss from one insurer then it is a defence at law to another insurer so to allege. Contribution in equity between insurers is a separate problem which is of no concern to us in the present case.

The legal defence that the insured has already been indemnified is only available when the insured seeks to be indemnified in the [strict] sense twice over. The insured may sue at law any person who is liable to make good to him the damage which he has suffered and in respect of which he is insured whether that liability arises from tort or from contract. If the insured has already been indemnified by his insurer then the insurer is subrogated to the insured's right against the party primarily liable in contract or in tort for the amount of the damage. There is, however, no subrogation in the strict sense when there is double insurance. At the most there is in equity contribution (730).

233 In the same case, Mason JA, who agreed with Jacobs JA, said as follows:

In truth there was no relevant right in the appellant to which the Government Insurance Office could become subrogated. Once the insured was paid in full by that insurer, the insured had no cause of action which he could enforce against the Jockey Club on its policy either for his own benefit or for the benefit of the other insurer. The Government Insurance Office could, in an action in its name, recover a pro rata contribution from the Jockey Club as an insurer against the same risk under the doctrine of contribution, but that is not the present proceeding. The present action has its origin in a failure to distinguish between the doctrine of subrogation and that of contribution. As it is put in Preston and Colinvaux, The law of Insurance, 2nd ed, at p 135: 'Subrogation ensures that the assured shall receive no more than an indemnity; contribution ensures that the insurers shall not directly suffer injustice inter se because of that rule' (734 - 735).

234 MMI's submissions focused attention on the phrase 'indemnified in the strict sense' in the principles stated by Jacobs JA. MMI correctly pointed out that Jacobs JA drew a distinction between that category of case, on the one hand, and cases where the insured sued a person who was liable to make good the damage suffered by the insured, whether that liability arises from tort or from contract. In the latter category, but not the former, the insurer is entitled to be subrogated to the insured's rights against the party primarily liable in contract or in tort. The question is which category the liabilities of Speno and Zurich to Hamersley fall into.

235 An appeal to the High Court (on grounds not presently relevant) was dismissed: Sydney Turf Club v Crowley [1972] HCA 25; (1972) 126 CLR 420. Barwick CJ referred to 'the well established principle that in a case where there are two promises of indemnity in respect of the same liability the promisee can only recover once and not twice' (423 - 424).

236 The notion of an 'indemnity in the strict sense' is not restricted to indemnity by way of insurance. That is made clear by the decision of the New South Wales Court of Appeal in Stratti v Stratti [2000] NSWCA 358; (2000) 50 NSWLR 324. In that case, the appellant and respondent were partners. The appellant had (relevantly) two rights of indemnity in respect of his liability to a third party arising from a car accident. One right of indemnity was under an insurance policy; the other arose from his partnership with the respondent which provided a right of indemnity under s 24(2) of the Partnership Act 1892 (NSW). The appellant sought a contribution from the respondent arising from his claimed right of indemnity against the partnership. The court held that the right of indemnity against the partnership was not enforceable because indemnity had already been provided under the insurance policy.

237 Fitzgerald JA (Meagher and Beazley JJA agreeing) said as follows:

The doctrine of subrogation therefore does not permit the enforcement of a right of indemnity which is not otherwise enforceable. Since the enforcement of a second indemnity would be unjust irrespective of whether it was enforced by the person entitled to the indemnities on his or her own behalf or on behalf of another person who was liable to provide an indemnity, a person who is entitled to two or more indemnities is not permitted to enforce more than one of them. That is the 'well established principle' referred to by Barwick CJ in Sydney Turf Club v Crowley (at 423 - 424). When a person is entitled to more than one indemnity, the rights and obligations of the persons who are obliged to provide indemnity are adjusted directly between them, without the need or right for either to use the name of the person indemnified against the other.

...

In Sydney Turf Club v Crowley (at 730B-C), Jacobs JA limited the material principle to indemnities 'in the strict sense'. That limitation was appropriate to exclude rights which are treated as entitlements to indemnity such as the right of one tortfeasor to recover damages for breach of contract from another tortfeasor in the full amount of the former's liability to a plaintiff: see Redken Laboratories (Australia) Pty Ltd v Docker [2000] NSWCA 100 at [66]. The appellant's argument did not demonstrate, and I cannot discern, any reason why a partner's right to an indemnity under s 24(2) of the Partnership Act is not properly characterised as an indemnity 'in the strict sense' or any other reason why the 'well established principle' referred to by Barwick CJ in Sydney Turf Club v Crowley (at 423 - 424) should not apply in the present circumstances [19], [21].

238 I also refer to the statement in Caledonia North Sea [92], set out earlier in these reasons.

239 When these principles are applied to the present case, two questions seem to me to arise. The questions are closely related. Did payment by Zurich discharge Speno's liability to indemnify? Was Speno's liability to indemnify primary while Zurich's liability was secondary?

240 MMI submitted that Zurich's liability was secondary and Speno's primary, supporting that proposition by reference to the reasons of the Full Court in Speno v Hamersley (2000). That reflected the approach of the trial judge in the MMI Subrogation Action. If that characterisation of the respective liabilities to indemnify is accepted, the principles stated above would seem to mean that payment by Zurich did not discharge Speno's obligation to indemnify Hamersley.

241 That in turn invites attention to whether the characterisation by the Full Court of the respective indemnity obligations as primary and secondary survived after the entry of judgment in the Nolan Action (after the appeal). I do not think that it did. The reasons for that conclusion are as follows.

242 Once judgment is entered in respect of a cause of action, the cause of action is merged in the judgment of the court and ceases to exist apart from the judgment: Handley KR_, Spencer Bower, Turner & Handley,_ Res Judicata (3rd ed, 1996) [393].

243 There are cases that support the view that in determining whether payment by one person liable under a judgment discharges the liability of another person liable under the judgment, it is the judgment, not the underlying rights which had founded the judgment, to which attention is to be directed: Trade Practices Commission v Manfal Pty Ltd (No 3) Pty Ltd [1991] FCA 650; (1991) 33 FCR 382, 387; Sky Channel Pty Ltd v Tszyu [2000] NSWSC 838 [35] - [36]; Duke Group Ltd v Pilmer (No 2) [2000] SASC 418; (2000) 78 SASR 216 [27].

244 Consequently, in my opinion, the question of whether payment by Zurich discharged Speno's obligation to indemnify Hamersley is to be answered by reference to the judgment entered in the action, not by reference to an analysis of the character of the causes of action which gave rise to the obligations of each of Zurich and Speno to indemnify Hamersley.

245 There is nothing in the 2000 Judgment which gives a different character to the respective liabilities of each of Speno and Zurich to indemnify Hamersley. In particular, one liability is not primary and the other secondary. Each party is simply liable to indemnify Hamersley.

246 It is convenient to restate the form of the 2000 Judgment. Paragraph 1 required Hamersley to pay Nolan a stipulated sum. Paragraph 2 required each of Speno and Zurich to indemnify Hamersley in respect of that judgment sum. When Zurich paid the judgment sum to Nolan, it discharged Hamersley's liability to Nolan for the judgment sum. It also thereby discharged Zurich's liability to indemnify Hamersley in respect of Hamersley's liability for the judgment sum. Because Hamersley's liability in respect of the judgment sum was discharged, in my opinion, Speno's liability to indemnify Hamersley in respect of the judgment sum was also discharged. An obligation to indemnify party A in respect of a stipulated liability cannot be greater than the liability in respect of which the indemnity is given. Once the liability of party A has been extinguished, any obligation to indemnify party A in respect of that liability is also extinguished (subject to a contrary provision in the judgment which is the source of the liability to indemnify).

247 Support for the proposition that payment by one co-obligor discharges another co-obligor in respect of a several liability may be found in other spheres where the right of contribution between co-obligors arises. The basis of the right of contribution is that discharge by one obligor of its obligation discharges the obligation of the co-obligor: Albion Insurance Co Ltd (350 - 351); Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282, [14], [38], [41]. A right of contribution can arise between sureties whether they are jointly bound, jointly and severally bound, or severally bound by the same or different instruments: Dering v Earl of Winchelsea (1787) 1 Cox 318, 29 ER 1184; Brooker v Friend & Brooker [2006] NSWCA 385 [35]; Bialkower v Acohs Pty Ltd (1998) 83 FCR 1; Meagher Gummow & Lehane [10-130]. It follows that payment by a co-obligor under a several obligation with another person can discharge the other person's obligation.

249 For the reasons I have given, in my opinion, Speno is entitled to succeed on its appeal in respect of the MMI Subrogation Action. Consequently, the judgment of the trial judge should be set aside and judgment should be entered in favour of Speno.

250 The parties were agreed that the results of the MMI Subrogation Action also governed the Speno Strikeout Application. Accordingly, ground 9 succeeds and the judgment in favour of MMI should be set aside.

251 In the Zurich Contribution Action, Speno's and MMI's appeals succeed on the severance ground and otherwise fail. Speno's appeals in each of the MMI Subrogation Action and the Speno Strikeout Application should be upheld.

252 I would hear from the parties as to the appropriate form of orders and as to costs.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD -v- METALS & MINERALS INSURANCE PTE LTD [2009] WASCA 31 (S)

BETWEEN : SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD

BETWEEN : SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD

BETWEEN : SPENO RAIL MAINTENANCE AUSTRALIA PTY LTD

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : ZURICH AUSTRALIAN INSURANCE LIMITED v METALS & MINERALS INSURANCE PTE LTD [2007] WASC 62

File No : CIV 1679 of 2002, CIV 2243 of 2003, CIV 1277 of 2003

Costs - Appropriate orders for costs of trials and of the appeal - Costs of an intervener - Turns on own facts

City of Burnside v Attorney-General of South Australia [1994] SASC 5136; (1994) 63 SASR 65

Liverpool City Council v Weir (1984) 58 ALJR 213

Re State Administration Tribunal; Ex parte McCourt [2007] WASCA 125; (2007) 34 WAR 342

1 JUDGMENT OF THE COURT: On 6 February 2009 the Court of Appeal delivered reasons on this appeal. Three actions were the subject of the appeal. The actions were tried together. The actions are referred to as the Zurich Contribution Action, the MMI Subrogation Action and the Speno Strikeout Application. Appeals against the judgment in these three actions were instituted. The three appeals were consolidated.

2 The substantive orders flowing from the reasons of the court are not in controversy. The appeal in each of CACV 101 of 2007 (relating to the Zurich Contribution Action), CACV 102 of 2007 (relating to the MMI Subrogation Action) and CACV 103 of 2007 (relating to the Speno Strikeout Application) should be allowed. The cross-appeal in CACV 101 of 2007 should also be allowed. The orders made by the trial judge in each action should be set aside. In the Zurich Contribution Action and the MMI Subrogation Action, the action should be dismissed. In the Speno Strikeout Application it should be ordered that the writ of fieri facias issued by Hamersley out of the District Court on 20 January 2003 be struck out.

3 There are issues between the parties as to the costs of the trial in each action, and as to the costs of the appeal. The parties have filed written submissions in relation to costs.

4 We will deal with the costs of the trial of each action before turning to the costs of the appeal.

5 Speno submits that Zurich should pay MMI and Speno's costs of the action (with a certificate for second counsel). MMI agrees with that submission. Zurich accepts that it should pay MMI's costs of the action. However, Zurich submits that it should not be ordered to pay Speno's costs as an intervener in the action. Zurich points out, correctly, that MMI was anyway running the point on which MMI and Speno ultimately succeeded, namely the severance point. Zurich also points out that Speno ran a number of other unsuccessful arguments.

6 In response to this submission, Speno contends that it should have its costs on the basis that costs follow the event.

7 An intervener (unlike a party) will ordinarily be allowed only to support or oppose a position contended for by one of the parties to the proceedings, and will not be permitted to expand the issues to be decided: Re State Administration Tribunal; Ex parte McCourt [2007] WASCA 125; (2007) 34 WAR 342 [41]. In that sense, an intervener takes the action as he or she finds it.

8 The position of an intervener in relation to costs was considered in some detail by Debelle J in City of Burnside v Attorney-General of South Australia [1994] SASC 5136; (1994) 63 SASR 65, 67 - 68. His Honour concluded that in the probate and admiralty jurisdiction, and at general law, as a general rule an intervener was not awarded separate costs even if successful. A successful intervener would be entitled to his or her costs only if the intervention was necessary to protect his or her rights, as would be the case if no party contended for the position adopted (successfully) by the intervener.

9 In Liverpool City Council v Weir (1984) 58 ALJR 213, 216 the High Court (Gibbs CJ, Murphy, Wilson, Deane and Dawson JJ) observed that an intervener cannot expect, as of course, that the unsuccessful party to the litigation in which he has intervened should bear the extra burden of his costs, even if the intervention was well-intentioned and proved to be of assistance to the court.

11 In this case, as Zurich submits, MMI and Hamersley contended for validity of the underlying insurance clause on the ground of severance. Thus it was not necessary, in the relevant sense, for Speno to intervene to protect its interest in upholding the validity of that clause.

12 For these reasons we would not order that Zurich pay Speno's costs as an intervener.

13 Speno submits in the alternative that MMI ought to pay Speno's costs of the Zurich Contribution Action. That is because, the submission continues, by the MMI Subrogation Action MMI sought to burden Speno with any liability imposed on MMI by the Zurich Contribution Action. We do not accept that that affords a proper basis to order MMI to pay Speno's costs of the Zurich Contribution Action. Speno elected to intervene in that action. It could have chosen to allow MMI to advance the arguments in opposition to Zurich's claim. In our opinion, it is just that Speno bears its own costs in the Zurich Contribution Action.

14 For these reasons we would make no order as to Speno's costs of the Zurich Contribution Action.

15 Speno seeks an order that MMI pay Speno's costs of the MMI Subrogation Action. MMI opposes that order, submitting that there should be no order as to the costs of the MMI Subrogation Action. That conclusion is said to be supported by the fact that it was the bringing of the contribution proceedings by Zurich which led to the occasion for MMI's Subrogation Action. That leads, MMI submits, as a matter of fairness to a conclusion that MMI and Speno should each bear their own costs.

16 Alternatively, MMI submits that if an order that MMI pay Speno's costs is made, it should be coupled with an order that Zurich pay MMI's costs and the costs of Speno which MMI is ordered to pay. That is because, the submission continues, the MMI Subrogation Action was so intimately connected with the Zurich Contribution Action that, having failed in the latter action, Zurich should pay all of the costs incurred by both parties in the MMI Subrogation Action.

17 We do not accept either of these submissions by MMI. As between Speno and MMI, it is just that MMI pay Speno's costs of the action. MMI made the claim against Speno in the MMI Subrogation Action. The result of the court's reasons in this appeal is that MMI has been found to have no rights against Speno.

18 The reasons for failure of the MMI Subrogation Action are independent of the failure of the Zurich Contribution Action. For that reason, Zurich should not pay MMI's costs of the MMI Subrogation Action, or MMI's liability to Speno for Speno's costs in that action.

19 For these reasons, the costs order proposed by Speno should be made, that is that MMI pay Speno's costs of the MMI Subrogation Action.

20 Speno seeks an order that Hamersley pay Speno's costs of the application.

21 Hamersley opposes that order on the same basis as it opposes Speno's proposed cost orders in relation to the MMI Subrogation Action. For corresponding reasons to those given in relation to that action, Speno's proposed cost order should be made in the Speno Strikeout Application.

22 Speno succeeded in its appeals in relation to all three actions. It is not in dispute that Speno should have its costs of the three appeals. There is a dispute however, between Zurich on the one hand and MMI and Hamersley on the other hand, as to who should pay Speno's costs and as to liability for costs between those parties.

23 The approach invited by Speno is as follows. In substance, the appeal may be seen to have had two elements which occupied roughly equal time. The first was the Zurich Contribution Action; the second was the appeal in relation to the other two matters before the court. Speno submits, and Zurich accepts, that Zurich should pay that part of Speno and MMI's costs of the appeal that relate to the Zurich Contribution Action. Speno suggests 50% be allocated to that action. Zurich does not oppose that allocation.

24 Speno submits that its costs of the appeal relating to the other two matters should be paid by MMI and Hamersley.

25 Zurich supports the costs orders in relation to the other two matters proposed by Speno.

26 MMI and Hamersley oppose Speno's proposed orders. MMI and Hamersley contend that because the failure of Zurich's claim for contribution on the severance ground was, in effect, determinative of all three appeals, Zurich should be ordered to pay the whole of Speno's, MMI's and Hamersley's costs of all of the appeals and of MMI's cross-appeal. Alternatively, MMI and Hamersley submit that if they are ordered to pay Speno's costs of the appeal as it relates to the MMI Subrogation Action and the Speno Strikeout Application, Zurich should be ordered to pay MMI and Hamersley's costs of all of the appeals and MMI's cross-appeal, as well as the costs which MMI and Hamersley is ordered to pay to Speno. That submission is made on the same basis as their submissions as to the costs of the MMI Subrogation Action and the Speno Strikeout Application. For the reasons already given, we do not accept those submissions. MMI and Hamersley failed in the appeals relating to these actions on grounds that were independent of the failure of the Zurich Contribution Action.

27 MMI submits that the court should not apportion the costs of the appeal as between the different actions, suggesting that that should be left to the taxing officer. It seems to us to be appropriate for the court, having had the benefit of hearing and determining the appeals, to apportion the costs.

28 The parties are in agreement that orders for the repayment of moneys paid pursuant to the judgments in the actions the subject of this appeal should be made.

29 For the reasons given, we make the following orders:

1. The appeals in CACV 101 of 2007, CACV 102 of 2007 and CACV 103 of 2007 be allowed.
2. The cross appeal in CACV 101 of 2007 be allowed.
3. The judgments of Johnson J in CIV 1679 of 2002 entered on 31 May 2007 and 14 August 2007 be set aside and in lieu thereof judgment be entered as follows:

1. The action be dismissed; 2. The plaintiff pay the defendant's costs of the action to be taxed;

1. The defendant be granted a certificate for second counsel;

1. There be no order as to the costs of the intervener (Speno Rail Maintenance Australia Pty Ltd).
2. The judgment of Johnson J in CIV 2243 of 2003 entered on 31 May 2007 be set aside and in lieu thereof judgment be entered as follows:

1. The action be dismissed; 2. The plaintiff pay the defendant's costs of the action to be taxed;

1. The defendant be granted a certificate for second counsel.
2. The orders of Johnson J in CIV 1277 of 2003 entered on 31 May 2007 and 14 August 2007 be set aside and in lieu thereof it be ordered that:

1. The writ of fieri facias issued by the defendant out of the District Court on 20 January 2003 be struck out; 2. The defendant pay the third party's costs of the application, including any reserved costs;

1. The third party be granted a certificate for second counsel.
2. The third respondent repay to the appellant the sum of $872,195.20 plus interest of $86,443.83 to 6 February 2009, plus interest at the rate of 6% per annum on the sum of $872,195.20 from 7 February 2009 until payment.
3. The second respondent repay to the third respondent the sum of $872,195.20 plus interest of $86,300.46 to 6 February 2009, plus interest at the rate of 6% per annum on the sum of $872,195.20 from 7 February 2009 until payment.
4. The second respondent pay 50%, and the first and third respondents jointly and severally pay 50%, of the appellant's costs of the appeals in CACV 101 of 2007, CACV 102 of 2007, CACV 103 of 2007 and the consolidated appeals, to be taxed as one bill.
5. The second respondent pay the first respondent's costs of the cross appeal to be taxed.