Epsilon Insurance Broking Services Pty Ltd v Liberty Managing Agency Limited

1. The parties liaise with the chambers of the Chief Justice to organise a date for hearing. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ALLSOP CJ: 1 In this matter in the Insurance List, the insured, Ditchfield Contracting Pty Ltd (Ditchfield) contracted with Newcastle City Council to carry out works at a waste management centre. Ditchfield obtained a combined business liability insurance policy with the applicant that covered the period 31 July 2016 to 31 July 2017 and 31 July 2017 to 31 July 2018 (the Epsilon policy), and a management liability insurance policy with the respondents that covered the period 31 July 2016 to 31 July 2017 (the DUAL policy). 2 On 3 September 2016, a diesel spill occurred at the waste management centre and Ditchfield incurred costs conducting mitigation works, despite which some environmental and property damage was nevertheless sustained. The NSW Environmental Protection Agency (EPA) commenced a prosecution against Ditchfield for that damage. 3 The applicant has extended cover under the Epsilon policy to Ditchfield for the losses incurred in carrying out mitigation works, but declined to extend cover for the EPA prosecution. The respondents have extended cover under the DUAL policy to Ditchfield with respect to defence costs arising out of the EPA prosecution. 4 The applicant seeks declaratory relief that Ditchfield is entitled to be indemnified by the respondents in respect of losses and expenses incurred by the mitigation works and that the applicant is entitled to a 50% contribution from the respondents for losses and expenses already indemnified by the applicant. 5 At the first case management hearing of this matter on 11 February 2019, I raised with the parties the question of Court's jurisdiction to hear this matter, the suit being one essentially for contribution between insurers. I made orders for the applicant to provide a short submission on that point. 6 I made orders at a subsequent case management hearing on 8 April 2019 for the parties to provide full submissions on the response of both policies and the right of contribution, together with any further remarks that they wished to make as to the jurisdiction question. Those orders envisaged that the matter would be set down for hearing, subject to the jurisdiction question being determined favourably on the papers. 7 In its short submission to the Court, the applicant contends that the Court has jurisdiction by reason of s 39B(1A)(c) of the Judiciary Act 1903 (Cth) as a matter arising under a law made by the Parliament because the construction issues relate to the position and liability of an insurer to the putative insured and the applicant is thereby seeking to vindicate Ditchfield's rights under the Insurance Contracts Act 1984 (Cth) against the respondents. The applicant relies on Felton v Mulligan [1971] HCA 39; 124 CLR 367 at 374-375, 388, 403 and 408, and Australian Solar Mesh Sales Pty Limited v Anderson [2000] FCA 864; 101 FCR 1 at 5-6 [11] in support of the proposition that federal jurisdiction is enlivened if a question of Commonwealth law is to be determined as a step along the way of vindicating the position of a party. 8 The respondents add two further points: first, that, whether or not the applicant itself identifies a non-colourable issue under s 54 of the Insurance Contracts Act 1984 (Cth), the response of the DUAL policy in relation to any claim arising from the diesel spill necessarily depends on the operation of s 54(1); and secondly, that the applicant's argument in support of its claimed entitlement to equitable contribution impliedly depends on s 54(1) being engaged. For those reasons, the respondents also submit that the present case may be seen as a matter arising under a law of the Parliament. 9 In its reply submissions, the applicant accepts that if the response of the DUAL policy is conditional on Ditchfield's notification during the period of insurance of a claim or investigation, the operation of s 54(1) of the Insurance Contracts Act 1984 (Cth) is engaged by Ditchfield's failure to notify of an investigation within the meaning of the DUAL policy. 10 The general principles of federal jurisdiction and the jurisdiction of this Court were recently outlined in Rana v Google Inc [2017] FCAFC 156; 254 FCR 1 at [15]-[22], with the following discussion at [18] being of particular relevance here: A matter will "arise under" a law of the Parliament in a number of ways. These include cases where a cause of action is created by a Commonwealth statute; where a Commonwealth statute is relied upon as establishing a right to be vindicated; where a Commonwealth statute is the source of a defence that is asserted; where the subject matter of the controversy owes its existence to Commonwealth legislation - that is where the claim is in respect of or over a right which owes its existence to federal law; where it is necessary to decide whether a right or duty based on a Commonwealth statute exists even where that has not been pleaded by the parties, or where a federal issue is raised on the pleadings but it is unnecessary to decide: see generally R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett [1945] HCA 50; 70 CLR 141 at 154; Felton v Mulligan [1971] HCA 39; 124 CLR 367 at 374, 388, 403; Moorgate Tobacco Co Ltd v Philip Morris Ltd [1980] HCA 32; 145 CLR 457 at 476; LNC Industries Ltd v BMW (Aust) Ltd [1983] HCA 31; 151 CLR 575 at 581-582; Re McJannet; Ex parte Australian Workers' Union of Employees, Queensland [1997] HCA 40; 189 CLR 654 at 656-657; CGU Insurance Ltd v Blakeley [2016] HCA 2; 327 ALR 564; Australian Solar Mesh Sales Pty Ltd v Anderson [2000] FCA 864; 101 FCR 1 at 7-8...There is a difference, however, between a matter "arising under" a law of the Parliament and a matter that merely involves the interpretation of a federal law (and which will not on its own attract federal jurisdiction): see Felton 124 CLR at 374, 408-409, 416. 11 Section 54(1) of the Insurance Contracts Act 1984 (Cth) is in the following terms: Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act. 12 In this case, the two proposed questions for determination are as follows: 1. Does Combined Business Liability Insurance policy numbered AWB0105BU provide cover for steps the 'Insured' takes to prevent, mitigate or rectify 'Property Damage' arising or continuing out of an 'Occurrence'? 2. Does Management Liability insurance policy numbered P_ML/0/125948/16/H-9 provide cover for the steps taken by the 'Insured' referred to in question 1? 13 The answers to these questions affect Ditchfield's rights and entitlements under the respective policies, and s 54(1) of the Insurance Contracts Act 1984 (Cth), to recover with respect to the losses and expenses it incurred through conducting the mitigation works. As the source of Ditchfield's rights is claimed under the provision, what is at issue is not simply the interpretation of s 54(1) in some incidental fashion. Further, the matter concerns whether the applicant can rely on s 54(1) to ground its claimed entitlement to equitable contribution, the operation of which provision creates liabilities to the insured in spite of any contractual right under the DUAL policy for the respondents to refuse to pay a claim. 14 I am therefore satisfied that the Court also has jurisdiction to hear all other aspects of the case. It is uncontroversial that once a matter is within federal jurisdiction, the entire matter is within federal jurisdiction: Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1; 204 CLR 559 at 571 [7]; Rana v Google Inc [2017] FCAFC 156; 254 FCR 1 at [20]. 15 The parties should liaise with chambers to fix a date for hearing of those construction questions, pursuant to Order 4 of the orders of the Court made on 8 April 2019. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop.