The insuring clause
158In order to construe the insuring clause the words of the definition of "Insured's Business" had to be read into the operative text of the Policy: see Halford v Price (at 26 - 27) per Dixon CJ; Gibb v Commissioner of Taxation (Cth) [1966] HCA 74; (1966) 118 CLR 628 (at 635) per Barwick CJ, McTiernan and Taylor JJ; Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216 (at [103]) per McHugh J; Gilmore v AMP General Insurance Co Ltd (1996) 67 SASR 387 (at 391) per Cox J.
159However that approach did not, as the primary judge, in my view, correctly held (at [66]), render the label "Insured's Business" irrelevant to the construction of the insuring clause. As her Honour said the label was part of the context in which the insuring clause was to be construed: K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012) Thomson Reuters (Professional) Australia Limited (at [5.11]). Secondly, words used as labels, as Lord Hoffman explained in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 (at [17]), are "usually chosen as a distillation of the meaning or purpose of a concept intended to be more precisely stated in the definition." In such cases the language of the defined expression may help to elucidate ambiguities in the definition or other parts of the agreement. In the sense last referred to, the definition operates by way of explanation rather than synonymous expansion: see Sydney Local Health Network v QY [2011] NSWCA 412 (at [49] per Campbell JA.
160It is necessary to have regard to the structure of the insuring clause, including its importation of the definition clause.
161In so far as is relevant, the definition clause uses two verbs, "means" and "includes", each with different connotations. Generally, "the adoption of the definitional structure 'means and includes' indicates an exhaustive explanation of the content of the term which is the subject of the definition, and conveys the idea both of enlargement and exclusion": BHP Billiton Iron Ore Pty Ltd v National Competition Council [2008] HCA 45; (2008) 236 CLR 145 (at [32]) per Gummow, Kirby, Hayne, Heydon, Crennan and Kiefel JJ. Thus, an exhaustive definition "indicat[es] that its object is the whole of its subject" whereas a non-exhaustive definition enlarges "what otherwise are the contents of the class which has been so identified": Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd (1995) 56 FCR 236 (at 266 - 267) per Gummow J.
162The sense in which either expression is used cannot be determined mechanically, but must depend upon "the true construction of the entire provision in which the word appears": Y.Z. Finance Co Pty Ltd v Cummings [1964] HCA 12; (1964) 109 CLR 395 (at 402) per Kitto J.
163Critically, however, as is made apparent by the use of the exhaustive "means" at the outset of the clause, the primary meaning of the "Insured's Business" is "Scuba Diving". Although in the definition of "Scuba Diving" the word "means" is immediately followed by the word "principally", that does not deprive the word "means" of its exhaustive effect in relation to "scuba diving". Rather, "principally" clearly qualifies "incorporating", recognising the drafting difficulty of identifying every activity which might be encompassed by scuba diving.
164The matters of inclusion which follow "means" fall into two categories. The first, in the first sentence, are bracketed both by the initial reference to "Scuba Diving" and the closing words "recreational scuba diving". It is tolerably apparent that that sentence is intended to incorporate activities which might be regarded as directly or incidentally (in the sense referred to at [166]) related to scuba diving.
165In the second sentence the words "includes" and "relating to" have an enlarging effect in the sense previously referred to. Thus, many of the activities in the second sentence do not readily, if at all, fall within the class constituted by the ordinary understanding of "scuba diving" or related activities, for example "bird watching, guided tours of Island when not diving, jungle and/or bush walking, ... whale watching ...[and] beach games". However as the qualification to "guided tours" indicates, all are activities which the definition contemplates may be undertaken as part of a scuba diving business.
166Furthermore, the purport of the non-exhaustive words "principally", "including" and "includes", in my view, is that the insuring clause does not contain a finite list of activities covered by the Policy. The Policy would cover activities that are incidental to "scuba diving" or the other activities expressly referred to in the definition, albeit that such incidental activities are not found in the definition, as long as they are consistent with the "essential nature" of the business: see Watts v Perry [1972] 1 NSWLR 73 (at 82) per Asprey JA (Jacobs JA agreeing); Transfield Services (Australia) Pty Ltd v Hall; Hall v QBE Insurance (Australia) Pty Ltd [2008] NSWCA 294; (2008) 75 NSWLR 12 (at [178] - [179]) per Campbell JA.
167Thus, I would not accept, with respect, the first sense in which the primary judge construed the insuring clause (at [66]), namely that "the activity must be in some way related to recreational scuba diving", if by that finding her Honour contemplated that the activity which gave rise to the claim had to have been in some manner related to recreational scuba diving in the strict sense of that term.
168Accordingly, it is not to point that sightseeing is not specifically referred to in the insuring clause. It is, in my view, an activity which could be regarded as incidental to "scuba diving" or the other activities expressly referred to in the definition such as "tours of reef by glass bottom boats (under 12 metres), transportations of people from one island to another, bird watching, guided tours of island when not diving, jungle and/or bush walking, fishing, underwater photography and/or video [and] whale watching". It is a larger question, and one which on the facts and my conclusion in relation to the second question it is unnecessary to decide, whether a sightseeing expedition such as that Mr Todd undertook on the day in question would fall within the incidental class. It may suffice, for example, if the sightseeing trip was undertaken for business purposes and the business asset, Dive One, was used for the expedition. However, on her Honour's findings, that is not what occurred.
169Going to the second construction issue, her Honour was correct, in my view, in concluding (at [66]) that the activity which gave rise to the claim had to be "in connection with the Insured's Business".
170The phrase "in connection with" in the insuring clause is a relational term, whose operation will depend upon the context in which it appears: R v Khazaal [2012] HCA 26; (2012) 86 ALJR 884 (at [31]) per French CJ; see also in Kostas v HIA Insurance Services Pty Ltd [2010] HCA 32; (2010) 241 CLR 390 ("Kostas") (at [24]) per French CJ. It is a "'prepositional phrase' of indefinite content" (Kostas at [24]), but may be said to be of considerable width, satisfied by a link or an association summed-up in the phrase "having to do with": Elkateb v Lawindi (1997) 42 NSWLR 396 (at 402) per Giles CJ Comm D; see also Derrington & Ashton (at [3-122]).
171Nevertheless, while the words "may have a very wide operation they do not usually carry the widest possible ambit, for they are subject to the context in which they are used, to the words with which they are associated and to the object or purpose of the statutory provision in which they appear": Hatfield v Health Insurance Commission (1987) 15 FCR 487 (at 491) per Davies J; referred to with approval by Spigelman CJ (with whom Grove and Sully JJ agreed) in R v Orcher [1999] NSWCCA 356; (1999) 48 NSWLR 273 (at [31]).
172The question that remains in a particular case is what kind of relationship will suffice to establish the connection contemplated by the statute: Taciak v Commissioner of Australian Federal Police (1995) 59 FCR 285 (at 295) per Sackville J. However, the relationship must be relevant, so that "usually a remote connection would not suffice"; the "sufficiency of the connection or association will be a matter for judgment which will depend, among other things, upon the subject matter of the enquiry, the legislative history, and the facts of the case": HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 553 (at [35]) per Hill J (Stone and Allsop JJ agreeing).
173As the primary judge accepted (at [53]), and the parties did not controvert, statements made about the meaning of the phrase "in connection with" in a statutory context, also apply to the interpretation of commercial contracts: see Thomas v State of New South Wales [2008] NSWCA 316 (at [19] - [21]) per Campbell JA; Fraser v The Irish Restaurant & Bar Company Pty Ltd [2008] QCA 270 (at [43]) per Muir JA.
174The relational words "in connection with" also operate to widen the ambit of the cover beyond the activities expressly referred to in the insuring clause while, at the same time, requiring, as the primary judge found, that an activity must have a connection with the insured's business before it comes within the terms of the Policy.
175As I have said, the primary judge accepted the interpretation of the insuring clause for which Liberty contended. In summarising Liberty's submissions, her Honour recorded (at [49], see [65] above) the matters of background knowledge it relied upon as relevant to the question of construction. Her Honour did not explicitly take those matters into consideration, although to have done so is consistent with her conclusion that the activity the subject of the claim had to be "in connection with the Insured's Business".
176The matters of background knowledge were relevant to understanding the commercial circumstances the Policy addressed and the objects it was intended to secure, at least to the extent that they may be regarded as knowledge common to both parties to the policy: see Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45 (at [10]) per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ; Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 (at 352) per Mason J (Stephen and Wilson JJ agreeing). However, it is not apparent that Dive Two would have had knowledge of the matters of background knowledge Liberty relied upon. Further, even though it knew the Policy was arranged through PADI for its members to cover claims arising out of its business activities, as I explain later in these reasons when dealing with Horsell's liability, it was wrongly advised as to the ambit of the Policy's cover. I would not accordingly take the matters of background knowledge Liberty relied upon at trial into account in determining the ambit of the insuring clause.
177However absent those matters of background knowledge, and taken in the context of the Policy as a whole, the relationship contemplated by the words "in connection with" is at least that the activity which gives rise to the claim made against the insured must, at least, have to do with the insured's business.
178On the primary judge's findings of fact, the trip in which the plaintiff was injured bore no such connection. It is not to point, as both Mr Donaldson and Dr Birch argued, that the trip was of the sort Dive Two could have engaged in as part of its business or that an asset of the business was used and one of its employees was engaged on the trip. Mr Todd was not engaged in any function associated with Dive Two's business at the time of the trip. The mere fact he was using Dive One did not convert a social engagement into a business activity: cf RAA-GIO Insurance Ltd v O'Halloran; Australian Kitchen Industries Pty Ltd v O'Halloran [2007] SASC 245; (2007) 98 SASR 123 (at [30]) per Duggan J (Nyland and Kelly JJ agreeing); special leave refused: RAA-GIO Insurance Ltd v O'Halloran [2007] HCATrans 688.