Einfeld v HIH Casualty

Thus, the primary cover was in respect of claims made during the period of insurance, irrespective of when the acts or omissions giving rise to them occurred, and excepting claims made in consequence of circumstances which may give rise to a claim of which notice had been given under any prior insurance or claims of which the plaintiffs were aware at the commencement of the period of insurance. 2 The provisos to that clause are not presently relevant and, under the heading "General Conditions", clause 4(b) provided:- "The Assured shall give notice in writing to the Insurers as soon as practicable of any claim the subject of the Insuring Clauses hereof made during the Period of Insurance (or within 14 days following the Period of Insurance provided subsequent renewal or replacement insurance continues with the Insurers) against the Assured or of the receipt of notice from any person of any intention to make a claim against the Assured. The Assured may also give notice in writing to the Insurers of any circumstances of which the Assured is or shall become aware during the Period of Insurance which may give rise to such a claim. If notice is given to the Insurers under this paragraph any claim subsequently made (whether before or after the expiration of the Period of Insurance) pursuant to such an intention to claim or arising from circumstances so notified shall be deemed to have been made at the date when such notice was given. Upon request, the Assured shall give to the Insurers all such information and assistance as the Insurers may reasonably require." 3 The policy, accordingly, was a "claims made and notified" one, the defendants insuring the plaintiffs against claims first made upon them and reported during the period of insurance and, by dint of clause 4(b), "deemed claims", such claims being deemed by reason of the plaintiffs' becoming aware during the period of insurance of any circumstances, which may give rise to a claim by a claimant upon them, of which circumstances the plaintiffs gave notice to the defendants during the period prescribed, and which circumstances were subsequently the basis of a claim upon the plaintiffs. This is an important provision for both the insurer and the insured, because upon renewal of the policy it will generally be necessary to disclose an awareness of circumstances unless notice thereof had been given, as it was in this case, such that the insurer may refuse to cover the insured in the next year in respect of a claim arising out of those circumstances. From the insured's point of view, unless cover can be obtained in respect of a claim arising out of circumstances of which it becomes aware under the current policy, it may not be able to do so when effecting subsequent insurance. 4 Exhibit A is a Statement of Agreed Facts. For present purposes it is unnecessary to state them all. From about 1980 to February 1994 the plaintiffs, and their predecessors, were retained by a real estate agency to audit its trust accounts each year as required by the Property, Stock and Business Agents Act 1941. They completed the audit for the 1992/1993 financial year on or about 30 September 1993 and, on 4 February 1994, one of the partners received a telephone call from a principal of the real estate agent advising that receivers had been appointed to it; that its affairs were being investigated; that there was a deficiency, presumably in the trust account; that he thought the plaintiffs should know; that he had given a statement to the Real Estate Services Council accepting full responsibility for the deficit of $300,000; and that the shortfall was about $350,000. 5 Some further enquiries were made and, on 7 February 1994, the plaintiffs met. It was suggested that the defendants should be notified, and consideration was given to the possible increase in future premiums if that was done. The policy was perused and the plaintiffs took legal advice and did not give notice to the defendants of the circumstances of which they had become aware. The proper inference is that this was an informed choice or election by the plaintiffs made with the benefit of legal advice. There was no submission that was not the proper inference and they did not submit that the circumstances were not such as "may give rise to such a claim". 6 On 20 September 1995, the plaintiffs were served with a Statement of Claim in which The Office of Real Estate Services, as plaintiff, sued them for negligently carrying out the audit of the real estate agent by reason of which the plaintiff alleged it had suffered damage, presumably because of the necessity to make good the deficiency. Thereafter, the plaintiffs gave notice to the defendants of the claim for the first time and, accordingly, after the relevant period of insurance, and indeed the following period of insurance, had expired. 7 On about 22 December 1995, the defendants advised the plaintiffs that they were denying indemnity under the 1993-1994 and 1994-1995 policies conformably with a letter of advice received from their solicitors, which stated:- "Our clients did not learn of these events or the Office of Real Estate Services' claim until Minet Professional Services received the Insured's letter dated 27 September 1995, the next day. Our clients therefore have no obligation to indemnify the Insured under either Certificate 20749/93 which expired on 30 June 1994 or Certificate 21522/94 which expired on 30 June 1995. Furthermore, our clients' view is that before 1 July 1995: · the Insured knew that these events and each of these events were relevant to our clients' decision whether to accept the risk and, if so, on what terms; or · a reasonable person in the circumstances could be expected to know that these events and each of these events was relevant to our clients' decision whether to accept the risk and, if so, on what terms. Our clients have instructed us that had the Insured notified them of these events or any of these events before 1 July 1995, they would have excluded from their policy commencing on 1 July 1995 (Certificate number 20753/95) all claims arising from these events or any of them."

The present claim was brought only under the policy in force from 1 July 1993 to 30 June 1994. 8 I assume that the proposal for the 1994-1995 year required, as did the proposal for the 1993-1994 year, (Exhibit 2), that the plaintiffs disclose their awareness of any circumstance which may give rise to a claim, (Question 9), in answer to which the plaintiffs failed to give notice of the presently relevant circumstances. 9 The plaintiffs cross-claimed against their former solicitors alleging, put shortly, that in the light of their advice they had not given notice to the defendants and, in paragraph 31, it was pleaded:- "In consequence of the failure of Einfeld Symonds to give written notice to the insurers within the terms of and during the currency of the policy, which was in force when the advice and the further advice was given, of the Circumstances and/or the statement and/or the letter, Einfeld Symonds are not covered in respect of the claims made against Einfeld Symonds in the Statement of Claim in these proceedings and have suffered damage." 10 The Cross-Claim was verified by the first plaintiff, paragraph 2 of the affidavit stating:- "I believe the allegations of fact in the Cross-Claim as set out above are true." 11 On 9 December 1996, the plaintiffs settled the claim brought against them by agreeing to pay $400,000 and, on 25 March 1997, they settled the Cross-Claim against their former solicitors on terms whereby they were paid $250,000 inclusive of costs. 12 Exhibit B records the following concession by the defendants:- "If the defendants are found liable to the plaintiffs' (sic) the plaintiffs and defendants have reached an agreement as to the total amount which is payable by the defendants to the plaintiffs pursuant to the 93/94 policy being the amount of $253,000. This amount takes into account all amounts paid by the plaintiffs to settle the claim less all appropriate recoveries, deals with all questions of costs incurred by the plaintiffs and takes into account the questions excesses deductibles. It is the intent of this agreement as to the amount which would be payable if the defendants are found liable that it take into account all of the issues raised by paragraphs B2 and C14 of the plaintiff's summons; the issues raised by paragraph 13 of the amended points of defence and the issue raised in the second part of paragraph 14(e) (beginning 'Alternatively ..') of the amended points of defence. The result would be that if the plaintiffs were liable there would be an order that the defendants pay to the plaintiffs the sum of $253,000. This agreement leaves the issues of liability and costs (of these proceedings to be determined by the Court)."

It appears that the word "of" has been omitted after the word "questions" in line 8, although nothing turns on that.

The parties agreed that this also left for determination the question of from when, if at all, interest was to run on that amount pursuant to s.57 of the Insurance Contracts Act 1984 (Cth), ("the Act"). 13 The salient facts can be summarised thus:- (a) The plaintiffs entered into contracts of insurance with the defendants for the periods 1 July 1993 to 30 June 1994 and 1 July 1994 to 30 June 1995. (b) The defendants agreed to indemnify the plaintiffs against any claims first made against the plaintiffs by their clients between 1 July 1993 and 30 June 1994 whenever the basis for the claim had arisen in the past provided notice was given to the defendants during the period of insurance; and against any claims made by clients of the plaintiffs against the plaintiffs after the period of insurance, which claims arose out of circumstances of which the plaintiffs became aware between 1 July 1993 and 30 June 1994, and of which circumstances notice was given to the defendants during that period, whenever such a claim was made by the client upon the plaintiffs. (c) In early February 1994 the plaintiffs became aware of circumstances, which may give rise to a claim against them. (d) The plaintiffs did not give notice to the defendants of those circumstances during the 1993-1994 insurance year; nor, in so far as it may be thought to be relevant, during the 1994-1995 year. (e) The plaintiffs gave notice of the claim made against them in September 1995 on or about 28 September 1995. (f) The defendants denied liability to pay the claim under the 1993-1994 policy as no claim was made by the plaintiffs during the period of that policy, and as they had not been given notice of the relevant circumstances during that period. They denied liability under the 1994-1995 policy for those reasons and because of the failure to disclose the circumstances when the plaintiffs applied for that year's insurance. (g) The defendants did not assert that they had suffered any prejudice by reason of the failure to give notice. The Present Proceedings 14 By a Summons filed on 9 February 1999, the plaintiffs sought a declaration that they are entitled to be indemnified by the defendants under the 1993-1994 policy for the loss they had sustained and consequential orders and relief. Under the heading "Issues Likely to Arise", it was stated:- "1. Whether the plaintiffs' failure to notify the defendants of the circumstances from which the claim arose is an omission to which s.54 of the Insurance Contracts Act, (1984) (Cth) applies such that the defendants may not refuse to indemnify the plaintiffs in respect of their loss under the policy in force in the 1993/1994 financial year. 2. Quantum of the loss." 15 The Plaintiffs' Contentions set out the matters to which I have referred and the Defence initially raised, essentially, two issues. Firstly, whether a claim had been made conformably with the policy. Secondly, whether by their Cross-Claim the plaintiffs had admitted they were not insured such that they are now precluded from asserting that they were. By an amendment to the Defence, to which I shall refer in more detail, the defendants pleaded a failure by the plaintiffs to act with the utmost good faith within the meaning of s.14(1) of the Act. 16 The matter proceeded on the basis of the Agreed Statement of Facts, certain other agreements to which I have referred and which were reached during the hearing, and my being entitled to have regard to any relevant admissions on the pleadings in these proceedings. 17 Mr Marshall accepted that if there had been a notification of the circumstances during the 1993-1994 policy year and, in September 1995, the claim had been made, the effect of the policy would have been such that the plaintiffs could have obtained cover by virtue of clause 4(b), which would have deemed the claim to have been made in the 1993-1994 insurance year and, therefore, to be within the scope of the cover. He stated that the real reason for declining indemnity was that no claim was made during the currency of that policy. 18 Judgment was reserved on 18 August 1999. On 24 August 1999, my Associate received a letter from Mr Marshall stating that he had found two further authorities and wished to prepare a short supplementary written submission in relation to them. That was filed on 1 September 1999 and, in addition to quite detailed further submissions, appended a proposed amended defence seeking to raise the allegation that because of their deliberate election not to invoke clause 4(b) the plaintiffs had failed to act with the utmost good faith within the meaning of s.14(1), such that they ought to be precluded from relying on that clause. The particulars relied on the deliberate election not to give notice; the agreed facts in paragraphs 6, 7 and 11 of Exhibit A, viz the decision to seek legal advice after the suggestion that the defendants should not be notified because of the potential impact on future premiums and the taking and acceptance of that legal advice; and the knowledge that the notification to the plaintiffs may give rise to circumstances which may, in turn, give rise to a claim on the plaintiffs. 19 On 10 September 1999 the plaintiffs furnished written submissions in response in which, inter alia, they opposed the granting of leave to amend. Because of this I re-listed the matter on 17 September 1999. Mr Einfeld stated that the plaintiffs would suffer no prejudice if leave to amend were granted having regard to the narrow factual issue, which was not in contest, on which reliance was placed, and I was requested to deal with that application, and, if I granted leave, the further substantive matter on the written submissions. I again reserved my decision. 20 As no prejudice was suggested, I think it appropriate to grant the defendants leave to amend in the form of the document annexed to Mr Marshall's written submissions of 1 September 1999, and I do so.

The Basic Submissions 21 Mr Einfeld submitted, and as I have indicated so much was not in issue, that if the plaintiffs had given notice of the circumstances during the period provided by the 1993-1994 policy and notwithstanding that the claim was not made until 27 September 1995, the defendants would have been liable to indemnify them, so long as the circumstances of which notice was given gave rise to the claim made in September 1995, which they clearly did. The only missing element, therefore, was the giving of such notice, which, he submitted, was an "omission" within the meaning of s.54(1) and (6) of the Act in consequence of which the defendants could not refuse to indemnify. 22 Mr Einfeld appreciated that this submission challenged the Court of Appeal's decision in FAI General Insurance Company Limited v Perry (1993) 30 NSWLR 89, which is indistinguishable on the facts and which is binding on me unless it has been over-ruled by a subsequent decision of the Court of Appeal, which it has not, or by a decision of the High Court. Another basis for its not being binding on me may be that it is inconsistent with subsequent decisions of other intermediate Courts of Appeal dealing with the Act, which is of national application: Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 492. 23 Mr Einfeld submitted, firstly, that the High Court's decision in Antico v Heath Fielding Australia Pty Limited (1997) 188 CLR 652 had over-ruled Perry, notwithstanding that the subsequent decision of the Court of Appeal in Greentree & Anor v FAI General Insurance Co Limited (1998) 44 NSWLR 706 held that whilst certain reasoning in Perry had been disapproved by the High Court in Antico, the result in Perry had not been over-ruled. A similar view, which was accepted by the Court of Appeal in Greentree, had been expressed by Hodgson CJinEq in Permanent Trustee Australia & Anor v FAI General Insurance Co Limited (1998) 44 NSWLR 186. He further submitted that Perry was inconsistent with the earlier decision of the Court of Appeal in East End Real Estate Pty Limited v C.E. Heath Casualty & General Insurance Limited (1991) 25 NSWLR 400, which was expressly approved by the High Court in Antico, and that it had not been followed, in relevantly indistinguishable circumstances, by the Court of Appeal of the Supreme Court of Queensland in FAI General Insurance Company Limited v Australian Hospital Care Pty Limited (9 July 1999 - unreported), which decision was consistent with that of the Full Court of the Federal Court in HIH Casualty and General Insurance Australia Limited v Dellavedova (15 April 1999 - unreported). Both cases raised the same point as Perry but came to the conclusion expressly in Australian Hospital Care, and impliedly in Dellavedova, that Perry should not be followed. Both decisions post dated Greentree, which was referred to in Australian Hospital Care. Neither Court stated that the decision in Perry or, for that matter Greentree, precluded the result reached by reason of the principles in Marlborough. I draw this inference from the failure of either to refer to Marlborough. Mr Einfeld's submission thus involved the proposition that I should not follow Perry , because it was either over-ruled by the High Court or by Australian Hospital Care and Dellavedova , and notwithstanding that the Court of Appeal has said subsequently that the result has not been over-ruled. He submitted that the decision in Greentree , relevantly for present purposes, was obiter dicta . 24 The range of the doctrine of precedent, and the duties of a trial Judge conformably with it, were forcefully pointed out by Moffitt P in Proctor v Jetway Aviation Pty Limited [1984] 1 NSWLR 166 at pp.171-174. His Honour stated, p.171, that a decision of the Court of Appeal is binding on a Judge in my position unless and until over-ruled by the High Court or the Privy Council or departed from by the Court of Appeal. He emphasised that Judges at first instance were not free to draw subtle distinctions in decisions of, or assume that certain matters had been overlooked by, the Court of Appeal, or otherwise seek to distinguish its decisions on narrow grounds or fine points. The necessity of obedience to precedent and the reason therefor were firmly stated. A further matter in relation to precedent to which regard must be had emerges from the joint judgment in Marlborough, at p.492:- "Although the considerations applying are somewhat different from those applying in the case of Commonwealth legislation, uniformity of decision in the interpretation of uniform national legislation such as the Law is a sufficiently important consideration to require that an intermediate appellate court - and all the more so a single judge - should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong."

This passage was applied in relation to the Trade Practices Act 1974 in Huntsman Chemical Company Australia Limited v International Pools Australia Limited (1995) 36 NSWLR 242. 25 I am thus left in the somewhat invidious situation where important reasoning supporting the result in Perry has been disapproved by the High Court in Antico in circumstances in which that Court has upheld the reasoning in East End, which, on one view, is at odds with that in Perry, but in circumstances where the Court of Appeal, albeit, in my view, obiter dicta, has said in Greentree that whilst the reasoning has been over-ruled, the decision has not. However, the Court of Appeal did not, so far as I can see, suggest any other reasoning which would support the majority views. Hodgson CJinEq came to the same view in Permanent Trustee. Since those decisions, two intermediate courts of appeal have declined, either expressly or impliedly, to follow Perry. The problem is exacerbated for me because my own conclusion, to which I come with the utmost respect, is that the effect of the decision in Antico was to over-rule, at least impliedly, Perry. A simple escape from this dilemma may be to say that whatever my decision there will, in all probability, be an appeal to clarify the situation. However, I consider that my obligation is to decide the case, in accordance with the law as I understand it, and anything less would be a failing in my judicial duties. Others will have to decide the correctness of my view. 26 Mr Marshall's principal submissions were, firstly, that Perry was decided correctly and that it has not been over-ruled by the decision in Antico. The submission continued that the decisions in Permanent Trustee and Greentree, particularly in the judgment of the President at p.721, in whose reasons the Chief Justice at p.707 and Handley JA at p.723 agreed subject to certain further observations their Honours made, established that in their Honours' view the result in Perry, as opposed to certain of the reasoning of the majority, had not been over-ruled by Antico. As I have said their Honours do not suggest, to my observation, alternative reasoning and, further, what was said about Perry was clearly obiter dicta as the question raised in that case could have been determined on the basis that the claims made policy, on which the insurer was sought to be made liable, could not respond to the claim, which was made long after the period of insurance had expired. Therefore no claim was made to which the policy responded and no issue arose about the insured receiving notice of circumstances likely to give rise to the claim during the period of insurance. 27 Mr Marshall submitted that the defendants' entitlement to deny liability was based on the failure of the 1993-1994 policy to respond to the claim because it was made outside the period provided for by that policy, and the refusal to pay resulted from that fact. He submitted that the plaintiffs' submission that reliance could be placed upon the deeming provision of clause 4(b) focused attention on the wrong question, the correct question being the "gravamen" of the cover. That submission picked up the words of Hodgson CJinEq in Permanent Trustee, at p.227, to which I shall return. 28 Mr Marshall submitted that s.40(3) of the Act provided, in the case where the policy was silent on this point, for the circumstances in which an insured may give notice of facts that might give rise to a claim, provided that was done as soon as was reasonably practicable after the insured became aware of those facts "but before the insurance cover provided by the contract expired", and that this made clear that notice of the circumstances had to be given during the period of insurance. Thus the section provided that the insurer is not relieved of liability under the contract in respect of the claim, when made, "by reason only that it was made after the expiration of the period of the insurance cover provided by the contract". Mr Marshall submitted that this section provided a statutory "Condition 3" or "clause 4(b)" deeming provision, and that it could not have been the intention of the legislature that s.54(1) and (6) should over-rule s.40(3) by providing that if the insured did not give the notice "before the insurance cover provided by the contract expired" by reason of an "omission", including a deliberate choice or election, the provisions of that section would be over-ruled. His further submissions focussed on this point by reference to the decisions in Newcastle City Council v GIO General Limited (1997) 191 CLR 85 and Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998) 194 CLR 355. 29 Mr Marshall also submitted that if the plaintiffs' submissions were correct the insurer would not know in which year the claim would be brought. In the present case he submitted it may have been brought in the 1994-1995 year. I do not think this is correct. The only policy which could respond to the claim would be that for the 1993-1994 year, that being the year in which awareness of the circumstances occurred. The failure to give notice, which was the omission to which s.54 may be applicable, was a failure or omission during or in respect of that period of insurance.

A Consideration Of The Submissions 30 Because of the problem I have about which principles of precedent are appropriate, it is necessary to consider the submissions in some detail. Mr Einfeld submitted that the determination of the issues depended on the proper construction of s.54 in its application to the particular facts of this case and the terms of the policy, and that had the circumstances giving rise to the claim been advised to the plaintiffs during the relevant policy year, the omission by them, although clearly an omission made in circumstances where they chose not to give notice, was none-the-less an omission to give such notice, such that s.54 denied the defendants the right not to indemnify. The submission was that that was an omission, which did not, upon a proper construction of ss.54(1) and (6), entitle the defendants to refuse to pay the claim, but rather led to a situation, if the circumstances were appropriate, whereby the amount of the plaintiffs' claim against the defendants was to be reduced by the amount that fairly represented the extent to which the defendants' interests were prejudiced as a result of it. Thus s.54, if applicable, adjusted the parties' rights by a quantification of the prejudice suffered. In the present case he noted that as the defendants conceded that there was no prejudice to them full effect could be given to the remedial provisions of s.54. However, the force of the submission is that much of the criticism that s.54 causes prejudice to insurers, in the ways suggested by Cole J in Breville Appliances Pty Limited v Ducrou (1992) 7 ANZ Ins Cas 61-125, can be deflected once it is appreciated that in so far as the failure to give notice has a prejudicial effect on the insurer that will reduce the amount the insured may recover. 31 Mr Einfeld further submitted that in a claims made and notified policy the insurer may be confronted with claims made many years after activities by the insured giving rise to them, so that any complaint that the insurer was not able to adjust its position at the end of each policy or financial year did not reflect accurately the true financial situation in which an insurer may find itself. Thus, by way of example, the 1993-1994 policy could have covered a claim made by the plaintiffs upon the defendants in the 1993-1994 insurance year in respect of a claim made by a client on the plaintiffs for negligent conduct some years earlier. That may give rise to the same or similar types of prejudice identified by Cole J, but not in circumstances where the insurer could complain or have any redress. Further, if notice of circumstances had been given, such that a claim was deemed to have been made in that year, it may never mature into a claim, or it may not do so for many years. Prima facie, one would anticipate that claims would be made within the usual limitation period of six years, but the Court has powers to extend that period at the suit of an insured claimant. On the other hand, the giving of notice has the important effect of allowing the insurer to investigate the circumstances at the earliest possible opportunity. However, Mr Einfeld's response to that would be that if the insurer was unable to do so and, in consequence, suffered loss that would be accommodated by a financial adjustment based on the prejudice occasioned. 32 Mr Einfeld recognised that the decision of the Court of Appeal in Perry governed the present case if it is still good law. His submission was that in Antico the High Court held, in the majority judgment, that Perry was wrongly decided by the disapproval of critical reasoning and, according to his submission, I should decline to follow Perry and hold that the omission to give notice of the circumstances of which the plaintiffs had become aware during the period of insurance, and which gave rise to the claim against them, was an omission which did not entitle the defendants to refuse to meet the claim. The submission continued that there was no relevant distinction between the failure to give notice of a claim, which, it was held in East End could be cured by recourse to s.54 and approved by the High Court, and a failure to give notice of circumstances, which Perry, however, held could not be cured by recourse to s.54.

33 In Permanent Trustee, at p.227, Hodgson CJinEq said:- "It seems to me that much the same applies to the lack of a claim in a claims-made policy: the gravamen of the refusal is not that someone omitted to do something, but rather that something did not happen. In my opinion, this is the true basis for the distinctions drawn in cases such as East End and FAI General Insurance Co Limited v Perry . If the reason for refusal is fairly characterised as being that someone omitted to do something, then this is an omission to which s.54 can apply; but if it is fairly characterised rather as being that something did not happen, then this is not an omission to which s.54 can apply, even if it is the case that this something would have happened if one or more persons had acted in certain ways."

His Honour was focussing on the same type of problem as arose in Greentree , viz the absence of a claim in the policy year during which the policy covered claims made, thus providing nothing to activate the policy. It was in this sense that his Honour referred to something not happening, in contradistinction to an omission. However, if a claim were made that, conformably with East End , activated the policy, subject to the giving of notice. Failure to give notice was held to be an excusable omission. In my opinion, if relevant circumstances came to the notice of the plaintiffs that would mean that something happened and, relevantly for present purposes, the omission would be the failure to notify the insurer in accordance with the policy.

34 In Greentree Mason P referred, with obvious approval, to the decision in Permanent Trustee. This was understandable as it raised essentially the same point. After a detailed consideration of the relevant authorities, including East End, his Honour concluded, at p.721, having cited the passage in the joint judgment in Antico at pp.669-670 upon which Mr Einfeld placed reliance for the proposition that Antico over-ruled Perry:- "The words used in the concluding sentence and the passages from FAI General Insurance Co Limited v Perry cited by the High Court from 30 NSWLR 89 at 93 and 107, make it plain to me that the High Court was rejecting portion of the reasoning in FAI General Insurance Co Limited v Perry , but not questioning the result in that case." 35 After a further consideration of the reasoning in Antico his Honour said, at p.722:- "It follows that Antico should not be read as over-ruling FAI General Insurance Co Limited v Perry . It certainly cannot be viewed as authority for the proposition that the terms under which insurance cover is defined in a claims made policy are irrelevant to the causation inquiry which s.54(1) mandates. While portion of Gleeson CJ's judgment in FAI General Insurance Co Limited v Perry contains reasoning relating to a choice or election by the insured, such reasoning being disapproved by the High Court in Antico , a distinction remains between terms of the policy which should rightly be seen as conditions to be satisfied by the insured, and terms which might expand the scope of the policy itself: see Clarke, 'After the Dust Settles on Antico : FAI v Perry Lives' (1997) 9 ILJ 29 at 33. It will be obvious from what I have written that I have been greatly assisted by this article. The distinction is difficult to express definitively. Ultimately, it is a question of applying the words of s.54 and the policy it expresses to the substance of the words of a particular insurance policy. Section 54 was not available to cure the omission in FAI General Insurance Co Limited v Perry , because the effect of doing so would have altered the scope of the contract of insurance in such a way that it would have been impossible for the Court to find a sufficient causal connection between the terms of the policy and the insurer's refusal to pay a particular claim. In FAI General Insurance Co Limited v Perry and Antico , the Court was at pains to identify the insured's rights existing under the contract at the time of the claim. Only when they were understood was it possible to determine whether the insurer's refusal of the claim could fairly be said to flow 'by reason of' some act (or omission) of the insured or of some other person. Some acts or omissions are simply 'non events', in the sense of having no connection with the substantive rights conferred under the policy and negotiated between the parties." 36 That, if I may say so with respect, was clearly correct in Greentree as no claim was made while the policy was current. Therefore, nothing happened to activate the policy and the policy had nothing to say about a claim made after its expiry. East End was a different case. The claim was made during the currency of the policy but notice of it was not given within the stipulated time. Non-the-less the insured was able to recover. This was not the cover the insurer had offered, but s.54 overcame that omission and, in doing so, gave cover where a claim was made within time, but notification was made after the contractually stipulated time. That was not what the parties had contracted for. In so far as the President said that some acts or omissions are simply "non events" and have no connection with substantive rights conferred under the policy, that is undoubtedly correct. But the failure to give notice does have a connection with substantive rights. In the case of a claim made or of becoming aware of circumstances which may give rise to a claim, notice must be given. If, in the first case, the failure to give notice is an "omission", as has been authoritatively determined, it seems to me that it is very strongly arguable that it also is in the second case. Indeed, in my respectful opinion, consistency would demand that approach. In each case there is a failure to give notice in circumstances where an event potentially triggering the policy has occurred and, if notice is given of that event, the policy will respond. I do not see why the nature of the event, provided it happens within the policy year, affects the consequence of the failure to give notice of it, where the omission is the failure to give notice. 37 In Perry Condition 3 was, to all intents and purposes, in the same terms as clause 4(b) and the facts are not distinguishable. Although in East End the Court, of which both Gleeson CJ and Clarke JA were members, held that a failure to give notice of a claim was an omission within the meaning of s.54, in Perry their Honours held that the failure to give notice of circumstances of which the insured became aware was not such an omission. At p.93, Gleeson CJ said:- "Here the primary cover afforded by the policy is cover against claims made and reported during the relevant period. An insured who, during the relevant period, becomes aware of an occurrence and hence the possibility of a future claim, is entitled, if he or she chooses to do so, to notify the insurer and thus extend the scope of the cover to future claims in respect of occurrences discovered and notified during the relevant period . There could be reasons why an insured would choose not to do so. The possibility of a future claim might, for a number of possible reasons, be regarded as remote. Notification might indirectly affect future premiums. When one is dealing with claims that are mere future possibilities, a decision not to elect to expand the scope of the cover to include such claims does not seem to me to constitute an omission of the kind with which s.54 is concerned . Condition 3 is intended to relieve an insured (in a way that is similar but not identical to the relief given by s.40 of the Act) against a certain practical problem that can arise in liability insurance. It does that by giving the insured a choice. The insured may choose not to follow the course made available by Condition 3. In that event I am unable to conclude that the absence of liability on the insurer is by reason of an omission on the part of the insured within the meaning of s.54 ." (My emphasis.) 38 His Honour thus held that the insured may extend the scope of the cover from claims made against it and reported during the relevant period to claims arising out of circumstances of which the insured has notice during the period of insurance, and of which circumstances the insured gives notice during that period to the insurer, which circumstances, in the absence of notice of them and subsequent claims arising from them, would not be covered by the policy. His Honour's reasoning continued on the basis that there was no obligation on the insured to give notice in the latter case, and thereby increase the scope of the cover, and that there may be reasons why the insured would choose not to do so. He considered that if the insured chose to adopt the course of not giving notice, for reasons which appealed to the insured, that would not constitute an omission, but rather an election or choice not to extend the scope of the insurance to subsequent claims arising from those circumstances. This was the reasoning set out at p.93 and it led his Honour to the critical conclusion, on the basis of which he found that s.54 did not apply. Thus, in East End, his Honour had said that as the claim had been made the insured event had occurred and the failure to give notice was an omission. In Perry the election or choice not to give notice of circumstances was a matter which precluded the operation of the policy because an insured event did not happen until the notice was given and, thereafter, a claim was made based on those circumstances, the policy not responding merely to the insured's knowledge of circumstances. This was based, at least in part, on his Honour's view that that exercise of choice precluded an event to which the policy responded coming about, and, because it was a matter of choice or election, it could not be an omission within the meaning of s.54. However, his Honour's decision was also based on the finding that the failure to give notice meant that the scope of cover was not increased as clause 4(b) provided, the primary cover, as I have said, being in respect of claims made. Independently of his Honour's views about choice or election (and there is an element of choice or election in giving notice of a claim made), his Honour's decision would stand on the basis to which I have just referred. But none-the-less the right to recover was lost, even though not the primary right, by reason of the failure to give notice, which, arguably, was an omission. To conclude otherwise could be said, if I may say so with respect, to allow form to triumph over substance. 39 At p.107, Clarke JA said:- "Despite the obvious width of the language in s.54 it operates only where the effect of the contract is that an insurer might refuse to pay a claim because of an act (omission) of the insured or some other person. As East End makes clear it does not matter whether the insurance policy achieves this effect in the definition of the cover or by the imposition of obligations the breach of which entitles the insurer to avoid the policy. Nonetheless it is essential that the contract have that effect before s.54 operates. Upon the assumption I have made for the purposes of the argument, the contract under consideration (upon the assumption that Condition 3 was not in the contract) would not have that effect. The position under the contract would simply be that the insured could claim only if the claim was made and notified within the period of the policy. In those circumstances it could not be said that the fact that the insured had not notified the existence of facts within the period constituted an act (omission) by reason of which the insurer could exercise a right under the policy to deny a claim. …. What, as it seems to me, s.54 is concerned with is the loss by an assured of a right to claim under a policy by reason of some act or omission - either of the insured or some other person. It assumes the existence of a right which by virtue of the contractual provisions is lost. But in the circumstances under discussion here there is no right which has been lost. All that has occurred is that the insured has not taken action, the effect of which would be to enable a claim to be made for which (on the stated hypothesis) the policy does not provide ." (My emphasis.)

Accordingly, it seems clear that his Honour's ratio decidendi founded upon the absence of "an omission" in circumstances where the insured had elected not to give notice, and thus not to take the "action" to the effect of which his Honour referred. It seems to me, with respect, that that reasoning is far closer to identifying that which is an "omission" for the purposes of s.54. However, it may be argued, consistently with his Honour's reasons, that becoming aware of circumstances which may possibly give rise to a claim gave rise to a right, which right was lost by virtue of the failure to comply with the contractual provision requiring the giving of notice. That approach would have been entirely consistent with East End . 40 The disapproving passage in the judgment of Dawson, Toohey, Gaudron and Gummow JJ in Antico, which follows an acceptance by their Honours of the correctness of East End, is in the following terms:- "Section 54 does not postulate a liability of the insurer to pay a claim which has been made. Rather, it takes as its starting point the existence of a claim and a contract the effect of which is that the insurer may refuse to pay the claim . The section directs attention to the reason founding the refusal, namely a particular act or omission on the part 'of the insured or of some other person'. The term 'act', when used in s.54, includes a reference to an omission (s.54(6)(a)). Section 54(1) uses the phrase 'by reason of some act of the insured or of some other person'. It does not specify the act or omission of the insured as being a failure to discharge an obligation owed by the insured to the insurer. The legislation is expressed in broad terms and, on its face, there is no reason why the omission of the insured may not be a failure to exercise a right, choice or liberty which the insured enjoys under the contract of insurance . In any event, the act or omission may be that of a third party, 'some other person', who is unlikely to be a party to the contract of insurance in question. Submissions by the respondent which were contrary to the above construction of s.54(1) and which apparently were based upon the reasoning of the New South Wales Court of Appeal in FAI General Insurance Co v Perry (26) should be rejected." (My emphasis.)

Footnote 26 refers to pp.93 and 107 of Perry , at which the reasoning of the Chief Justice and Clarke JA appears respectively. Mr Einfeld submitted that the disapproval of this reasoning necessarily meant that the conclusion on which it was founded was also disapproved and, notwithstanding that the High Court did not in terms over-rule Perry , the effect of Antico was to bring about that result. Unassisted by the decisions in Permanent Trustee and Greentree , I would have accepted this submission. In my respectful opinion, the reasoning in Perry , which failed to find favour in Antico , was the reasoning which underpinned the decisions of Gleeson CJ and Clarke JA. In Perry , Kirby P dissented, although from the point of view of the precedent effect of Perry that is not relevant. Once that reasoning was removed, and no other reasoning was shown to justify the decision, I consider, with the greatest respect, that Perry can no longer stand. 41 The view I have just expressed was applied by the Full Court of the Federal Court in Dellavedova. The policy under consideration and the relevant facts were relevantly indistinguishable from those in the present case. At paragraph 28 their Honours said:- "Alternatively, if it were contended by the insurers under the 1993 certificate that the respondents had chosen not to exercise the right to extend the cover of the certificate under clause 4(b) of the certificate by advising the insurers of those circumstances, such an omission would be one to which s.54(1) of the ICA would apply with the result that the insurers could not refuse to indemnify the respondents under the certificate."

Their Honours referred to Antico . They do not appear to have been referred to, and they did not refer to, Greentree . It is clear that they considered Antico was authority for the proposition I have quoted. 42 In Australian Hospital Care the majority, Derrington and Chesterman JJ, concluded in separate judgments that the result in Perry could not survive Antico. Pincus JA dissented. The factual circumstances and the terms of the policy were relevantly indistinguishable from the present case. Their Honours were referred to and considered Greentree. Derrington J expressed his primary conclusions in paragraphs 37-46. Chesterman J said, paragraph 30:- "The High Court approached the construction of s.54 in a way which, in my respectful opinion, makes the distinction between East End and Perry untenable. Antico decided that s.54 did apply to the insured's failure to seek consent. The policy itself provided in what circumstances the insurer could refuse consent and so the matter was remitted to the Supreme Court for a determination whether, if the failure to ask for consent was overlooked, the insurer would have been obliged to indemnify its insured." (His Honour's emphasis.)

At paragraph 35 his Honour said that the reasoning in Antico "cuts through both strands of the reasoning which supported Perry". 43 If the matter were one which I was deciding unaided by Perry, Greentree and Permanent Trustee, I would respectfully adopt, essentially, the reasoning of Chesterman J, including his Honour's observations in paragraph 51. I would do so on the basis that East End was binding on me. 44 The question is whether I can take this position. Firstly, the High Court did not state expressly in Antico that Perry was being over-ruled, and it may be thought by others that all their Honours were saying was that in so far as Gleeson CJ and Clarke JA stated what may constitute an omission, they did so too narrowly, but in circumstances where, as Mason P has said, the reasoning was disapproved but the result was not over-ruled. Secondly, other Judges of this Court, including the unanimous decision of the Court of Appeal in Greentree, have concluded that the result in Perry has not been over-ruled, albeit in Greentree the observations were obiter. Thirdly, the doctrine of precedent demands that I should follow decisions of the Court of Appeal, in so far as they have not been over-ruled by the High Court, and, in so far as they have been over-ruled by the High Court, decisions of the High Court. The present case is indistinguishable from Perry. The High Court did not say it was over-ruling the result in Perry, and the Court of Appeal in Greentree has said that the High Court did not over-rule the result in Perry. 45 However, the final question is the regard I should have to Marlborough in circumstances where:- (a) the High Court has disapproved vital reasoning in Perry; (b) the High Court has expressly approved the reasoning in East End ; (c) the Court of Appeal has accepted that disapproval, but said the decision is not affected, albeit obiter ; and (d) two other intermediate appellate Courts have since then assumed or held that Perry has been over-ruled by Antico and, in one case, notwithstanding Greentree . Those Courts did not feel constrained by Marlborough .

In all these circumstances, I consider that my duty is to conclude that Perry has been over-ruled and to follow the decisions in Dellovedova and Australian Hospital Care . The Further Defences 46 I do not consider that there is an inconsistency between ss.40 and 54. I am of the view that Mr Marshall has correctly characterised the role of s.40 in the terms to which I have referred. In my opinion, to the extent that that section provides a statutory extension to the policy there is no reason why the ameliorating provisions of s.54 cannot apply to it. 47 Further, I am of the opinion that the defence under s.14 cannot succeed. In Antico the High Court held that in so far as the exercise of an election or choice was held to be a disqualifying factor, the provisions of s.54 could none-the-less apply. Further, to imply an absence of the utmost good faith in this case would mean that the beneficial effect of s.54 would be lost. Finally, there is no suggestion that the failure to give notice in this case arose in consequence of any lack of good faith. It was an omission but, on the agreed facts, it cannot be characterised as one springing from a lack of good faith. 48 I do not consider that the statement in the Cross-Claim, which I have quoted, and any similar statements to the same effect, preclude the plaintiffs from bringing these proceedings or demand that the result of them should be that the plaintiffs fail. Mr Marshall placed emphasis upon the fact that the pleading was verified, but the verification was confined to matters of fact and, in so far as the pleading asserted an absence of insurance, that was clearly a matter of mixed fact and law. 49 In Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 Mason CJ and Brennan J said, at p.85:- "The appellant's case is that each and every present member of the Tribunal must be regarded as asserting a belief in the truth or correctness of these defences on the footing that the Tribunal is continuing to maintain the defences in the action. This submission cannot be accepted for two reasons. First, as the Defence was not verified on oath and was not required to be verified, it does not amount to an assertion of belief in the correctness of the facts pleaded. Indeed, traditional principle is that assertions in pleadings do not amount to admissions." 50 After a consideration of the case law their Honours said, at p.86:- "The suggestion that pleadings should be treated in the same way as any other form of admission fails, in our view, to take account of the function and objects of pleadings, when they are not required to be verified, in outlining the party's case and defining the issues to be tried." 51 In the present case, of course, Mr Marshall emphasised the fact that the Cross-Claim was verified. I have referred to the limited nature of the verification. In these circumstances, I do not conclude that the pleading of the Cross-Claim precludes the plaintiffs succeeding. Interest 52 There was argument as to the time from when interest should run. Mr Einfeld submitted that it should be from when the defendants had had a reasonable opportunity to consider the claim and elected not to pay it. Mr Marshall submitted that even if Perry is over-ruled it was reasonable for the defendants not to pay until that happened, as they were entitled to rely on the applicability of Perry. 53 Section 57 provides that interest is payable in accordance with that section, sub-s.2 stating that the period in respect of which interest is payable is that commencing on the day as and from which it was unreasonable for the insurer to have withheld payment of the amount and ending, in effect, when payment is made. Mr Marshall submitted that it has never been unreasonable for the defendants to refuse to make payment, because they have been entitled to rely upon the decision in Perry, in which judgment was delivered on 24 March 1993. 54 As I would understand it, if Perry is over-ruled so that the plaintiffs succeed, the legal theory is that the law always has been as stated in the decision over-ruling Perry. In most cases an insurer, which refuses to meet a claim, will rely on factual and/or legal matters, which it considers reasonably entitle it to take that stance. If the matter is litigated the Court will decide whether that position was justified. If it concludes that it was not interest will generally run from the date when the Court considers the insurer had had a reasonable time to investigate the claim and decide how it would respond to it. Thereafter, the insurer takes the risk that its view of the facts and/or law is correct. There is, perhaps, no more justification for thinking that its view of the facts will ultimately be upheld, than that its view of the law will be. The law is ever changing. Therefore, in the present case I see no reason why interest should not run from 22 December 1995 by which time the defendants had made their decision. This is consistent with the fundamental premises which underlie the payment of interest. Firstly, the insurer must have a reasonable opportunity to consider the claim. Secondly, having had that opportunity and formed a view on which it acts, the insurer takes the risk that that view may not be upheld by the Court. Thirdly, in the meantime the insurer has had the benefit of the money it is ordered to pay and the insured has been deprived of that benefit.

Matters For Concern 55 The Act is a Commonwealth Act with the stated purpose to reform and modernise the law relating to certain contracts of insurance for the purposes mentioned. It is regarded as remedial legislation. In relation to claims made and notified policies it has given rise to much litigation. Within this State East End and Perry are arguably at odds and Perry, arguably, has been over-ruled. The Full Court of the Federal Court and the Court of Appeal of Queensland have come to a view about the applicability of Antico to the result in Perry different from that expounded by the Court of Appeal in this State in Greentree. Neither the Full Court of the Federal Court nor the Queensland Court of Appeal felt constrained by the decision of the High Court in Marlborough in so concluding. 56 The consequence may be that depending on where litigation is brought on a claims made and notified policy, at least where the issue is that there was no timely notification, different results may be expected. Indeed proceedings arising in New South Wales may receive a different result if decided by the Federal Court than if decided by this Court. Insured parties practising throughout Australia may receive different results depending on the Court in which they sue or are sued. If I may say so with respect, I consider that this is most unsatisfactory state of affairs, which should be resolved as soon as possible.

Orders 57 The orders I propose are:- (a) Judgment for the plaintiffs in the sum of $253,000 on which interest will be payable from 22 December 1995 to to-day's date on the formula in the Regulations to the Act. (b) The defendants pay the plaintiffs' costs of the proceedings including the costs of the amendment to the Defence. (c) The exhibits be returned.

The parties should bring in Short Minutes of Order to give effect to these proposed orders.

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