Insurance Australia Limited v HIH Casualty & General Insurance Limited

Court of Appeal (Vic)|2007-10-18|Before: CHERNOV, ASHLEY and REDLICH JJA

Insurance - Third party liability policy issued by appellant - Protection extending to liability of contractors and sub-contractors of insured - Third party liability policy held by sub-contractor in his own right - Latter policy issued by HIH - Incident giving rise to claim against sub-contractor for property damage - Payment by HIH of some legal costs of sub-contractor - Subsequent failure of HIH - Judgment for third parties against sub-contractor - Payment of 90 percent of judgment sum and costs by HIH Claims Support Ltd (HCSL) - Whether payment by HCSL relieved appellant of liability to indemnify sub-contractor - Whether HCSL an insurer - Whether payment by HCSL made pursuant to a contract of insurance - Whether amounts paid by HCSL indemnification of sub-contractor - Whether amounts paid by HCSL should otherwise be taken into account in relieving appellant of liability to indemnify sub-contractor - Whether HIH entitled to equitable contribution from appellant in respect of costs paid by HIH before its failure.

2 The facts pertinent to this appeal are set out in his Honour's reasons and there is no need to restate them here. It is sufficient to note that, on 11 November 2002, judgment was entered in the Supreme Court of New South Wales in favour of Screenco Pty Ltd ("Screenco") against the second respondent ("Steele") and R L Dew for breach of contract in the sum of $1,461,045 arising from the fall in March 1998 of a large video screen caused by the collapse of part of the scaffolding that had been erected by Steele. R L Dew obtained judgment for an indemnity against Steele on a cross-claim.

3 Steele was insured in relation to his business by the first respondent ("HIH") which failed in 2001 and was wound up. Prior to its collapse, HIH had accepted Steele's claim under its policy and paid approximately $80,000 towards his legal costs incurred in the New South Wales proceeding.

4 The New South Wales judgment was essentially satisfied, as to 90 percent, by HIH Claims Support Ltd ("HCSL"), which administered a fund created by the Federal Government to assist those who were insured with HIH but whom the failed insurer was unable to indemnify. To obtain such payment, Steele offered HCSL, as he was required to do by the scheme, an assignment of his rights under the HIH policy and his rights against any person in connection with the event in question. The documentation that evidenced the scheme essentially said that acceptance of the offer would be constituted by the payment of a benefit under the scheme. In the event, the offer was accepted by HCSL and the payment in question was made accordingly.

5 Steele also had the benefit of cover of a policy ("the SGIC policy") issued by the appellant, which was then known as SGIC General Insurance Ltd. That policy covered the event in question. After HCSL satisfied the New South Wales judgment as I have described by the payment of 90 percent of it (together with 90 percent of the costs) to Screenco, two claims were made on the appellant by reference to the SGIC policy. The first was by HIH for equitable contribution in respect of its costs to which reference has been made. The second claim was made by Steele who sought to be indemnified in respect of damages and costs awarded against him in the New South Wales proceedings in favour of Screenco.

6 The appellant first argued that it was not liable for either of those claims because the SGIC policy did not apply to the circumstances of the case by reason of the operation of at least one of three exclusion clauses in the policy. In any event, said the appellant, Steele had no right of indemnity under the policy given that, effectively, he suffered no loss given that the New South Wales judgment has been satisfied by HCSL (as to 90 percent).

7 The trial judge concluded that the exclusion clauses on which the appellant relied were not applicable and, therefore, the policy applied so that, in the circumstances, the appellant was, at the very least, liable to make equitable contribution to HIH in respect of its costs to the extent of 50 percent. His Honour made a declaration to that effect. The conclusion by the trial judge that the exclusion clauses had no operation is challenged on appeal, but I consider that this claim must fail because, for the reasons given by Ashley JA, they did not operate in the prevailing circumstances such as to remove the liability of the appellant under the policy.

8 The appellant's argument that Steele was not entitled to be paid again under the SGIC policy because he had already been indemnified by the HCSL payment was also rejected by the judge. Contrary to the appellant's claim, his Honour considered that the agreement between HCSL and Steele was not a contract of insurance such as to cause HCSL to become his insurer. And the learned primary judge was also of the view that the HCSL payment did not constitute an indemnity such as to disentitle Steele from claiming under the SGIC policy. The judge concluded that, properly characterised, the HCSL payment was an ex gratia benefit provided by the Commonwealth Government to alleviate, in certain circumstances, financial distress caused by the collapse of HIH. The payment, said his Honour, resembled payments such as social security payments, bushfire relief and the like and was not an indemnity. Consequently, his Honour made a declaration to the effect that Steele was entitled to be indemnified under the SGIC policy and ordered that there be judgment for him against the appellant in the sum of $1,890,711.

9 In my view, however, Steele has no right to payment under the SGIC policy because he has been indemnified in respect of the same risk by the HCSL payment. It is clear enough, I think, that, once HCSL accepted Steele's offer to assign his relevant rights to it by effectively paying 90 percent of the New South Wales judgment debt and costs, an enforceable contract came into existence between the two parties. For practical purposes, that contract was executed at the time of its formation - Steele received the benefit of the payments, and HCSL acquired the rights formerly vested in Steele which it could enforce notwithstanding that the assignment of those rights was an equitable assignment, given that it was made for valuable consideration. And it is probably the case that the contract cannot be properly characterised as a contract of insurance as was concluded by the learned trial judge and Ashley JA. But this point does not have to be resolved in this appeal because I think that, essentially for the reasons given by Ashley JA, the payment by HCSL was not akin to an ex gratia payment of the kind referred to by the learned primary judge. It was intended to indemnify Steele in respect of the New South Wales judgment. And the payment had that consequence; once it was made, the relevant liability of Steele to the judgment creditor was correspondingly discharged. In other words, it rendered him correspondingly harmless in respect of the claim made against him by Screenco.[1] Hence, he was not entitled to be paid again in respect of the same risk under the SGIC policy.

10 I mention for completeness two matters. First, as Ashley JA explains, it was**

not claimed by Steele in the appeal that he was entitled to an indemnity from SGIC in respect of that part of the judgment sum and costs that was not paid by HCSL, namely, the remaining 10 percent. The second is that, principally for the reasons given by his Honour, I would refuse SGIC leave to amend its notice of appeal as it sought to do during the hearing of the appeal. In any event, given the above conclusions, the amendment would have no practical effect.

11 In the circumstances, as I have said, I would allow the appeal to the extent of setting aside his Honour's declaration and judgment made on 26 August 2005 against SGIC in favour of Steele.

**12 This appeal raises two broad questions. First, is the appellant, Insurance Australia Ltd, formerly SGIC General Insurance Ltd, ("SGIC") liable to indemnify Ronald Steele ("Steele"), pursuant to a Contract Works Material Damage and Third Party Liability Policy, against his liability arising out of an incident which occurred at Albert Park on 3 March 1998? Second, is the appellant liable to make equitable contribution to HIH Casualty & General Insurance Limited (in liquidation) ("HIH") in respect of indemnity provided by HIH to Steele, pursuant to a policy of insurance ("the HIH policy") underwritten by World Marine & General Insurance Pty Ltd, a company in the HIH Group, arising out of that incident?

13 There are two aspects to the first question. Stated as sub-questions, they are as follows. First, is the appellant relieved from any obligation to indemnify Steele under the SGIC policy because payment was made by HIH Claims Support Ltd ("HCSL") in discharge of the major part of liability established in favour of several parties against Steele? Second, if the SGIC policy must otherwise respond, is SGIC's liability to indemnify Steele, and to make equitable contribution to HIH, relieved by operation of an exclusion clause?

14 A judge in the Trial Division resolved each aspect of the first question, and in turn the two broad questions, adversely to SGIC. He did so for reasons to which I shall later refer.

15 In 1998, Screenco Pty Ltd ("Screenco") contracted with the Australian Grand Prix Corporation ("The Corporation") to erect a large video screen at Albert Park, for use in connection with the 1998 Australian Grand Prix. Screenco retained R L Dew & Co Pty Ltd ("Dew") to erect scaffolding which would support the screen. Dew subcontracted that work to Steele, who traded as Dragon Scaffoldings.

16 Steele and his employees did the work on 2 and 3 March 1998. By the afternoon of 3 March they had erected the necessary scaffolding, which included a horizontally mounted beam from which the screen was to be suspended. All that remained for them to do was to place tarpaulins over the scaffolding. The tarpaulins were essentially to serve an aesthetic purpose. It was put to Steele in cross-examination that "It's just for cosmetic purposes, really, isn't it?" He replied "That's basically what it is, yes". But the tarpaulins would also have provided the screen and operating equipment with limited protection from any wind or rain. The tarpaulins had not been erected because safety harnesses had not been available for use by Steele's workers. WorkCover officials had ordered that the job not be done absent availability (and use) of safety harnesses.

17 After Steele and his men had left the site, Screenco employees elevated the screen, and suspended it from the beam. But the beam was not strong enough. It bent. The screen fell to the ground and was effectively destroyed.

18 Steele held liability insurance, including public liability cover, under the HIH policy. It can shortly be said that the circumstances of the incident in which the screen was damaged were such as called upon the HIH policy to respond. Of that policy, more later.

19 Subject to its limitations, exclusions, terms and conditions, Steele also had the benefit, at relevant times, of cover given by the SGIC policy. Although the policy was procured by the Corporation, it insured, inter alia, contractors and sub-contractors of the Corporation. Of this policy, also, more later.**

**20 In 1999, Screenco brought a proceeding against Dew and Steele in the Supreme Court of NSW, claiming damages in consequence of the damage to the screen. Steele brought a cross-claim against the company which had supplied him with the scaffolding components, Highrise Group Pty Ltd ("Highrise").

21 Steele called on the HIH Policy in connection with the NSW proceeding. HIH accepted that the policy responded and began to undertake defence of the claim. It engaged solicitors, and paid them $80,684.03 ("the HIH costs"). Then, on 27 August 2001, HIH was placed into liquidation.

22 Thereafter, Steele applied for assistance from HCSL, a not-for-profit company set up by the insurance industry to administer the $640 million HIH Claims Support Scheme ("the Scheme"), which had been established by the Commonwealth Government to assist certain persons disadvantaged by the collapse of HIH.

23 HCSL responded to Steele's application for assistance by issuing an "Eligibility Confirmation Certificate", and by retaining solicitors on his behalf in the NSW proceeding.

24 The solicitors - they were the solicitors originally engaged by HIH to act for Steele - were unsuccessful in their defence of the Screenco claim on his behalf. On 11 November 2002 Screenco obtained judgment against Dew and Steele in the NSW proceeding in an amount of $1,461,045 plus costs to be taxed. In contribution proceedings between Dew and Steele, the latter was held liable to contribute 100 percent, and to pay Dew's taxed costs. Steele's cross-claim against Highrise failed, and Steele was ordered to pay its taxed costs.

25 On 13 December 2002 the insurer appointed by HCSL to manage Steele's defence of the NSW proceeding, QBE Management Services Pty Ltd ("QBE"), paid 90 percent of the judgment debt - that is, $1,314,941.61 - to Screenco's solicitors. Later on, it paid 90 percent of the costs of Screenco and Highrise. Such payments, of course, were funded by the Scheme. Payment of those moneys represented acceptance by HCSL of an "offer to assign rights" which Steele had signed when he applied for assistance.[2] Of that offer, more later.

26 Steele was apparently impecunious. For that reason, the balance of the judgment in favour of Screenco was in fact paid by Dew's insurer, likewise the balance of Screenco's costs. Ninety percent of Dew's costs were paid by the Scheme. Dew, having account of Steele's financial position, took no step to recover from him the balance of the judgment amount, or its own costs. The same can be said of Highrise in respect of the balance of its costs; and the same again can be said of solicitors who acted for Steele. None of this is to say that any of Steele's creditors[3] gave up pursuing their entitlement against him for all time; although it is relevantly the fact that at time of trial, and apparently still when the matter was before this Court, that Steele had not paid Dew the balance of the judgment sum and its costs, nor the balance of Highrise's costs.**

**27 On 15 June 2000, long before resolution of the NSW proceeding, HIH[4] and Steele commenced a proceeding in the Supreme Court of Victoria against SGIC. HIH claimed equitable contribution against SGIC, on the basis that it and SGIC were liability insurers of Steele for the same risk, in respect of which risk, it asserted, it had provided policy indemnity to Steele. There was, HIH claimed, double insurance. The relevant risk was Steele's prospective liability to Screenco and other parties in the NSW proceeding.

28 In the Victorian proceeding, HIH claimed contribution only in respect of the HIH costs.

29 For his part, Steele claimed - I am now referring to the statement of claim in its original form - that if he had any liability to Screenco or Dew in the NSW proceeding, it was a liability for which he was entitled to be indemnified by SGIC under the SGIC policy. It was pleaded that SGIC was liable in equity to make contribution to HIH in such sum as was just and equitable. Asserted as a percentage, it was alleged that it was just and equitable that each of HIH and SGIC pay 50 percent of any sum for which Steele should become liable.

30 But, it was pleaded, SGIC had wrongly refused indemnity; and so it was that the plaintiffs claimed a declaration that SGIC was liable to make contribution in respect of any sum for which Steele might be held liable.

31 By the time that the Victorian proceeding came to trial, events had moved on. The NSW proceeding had come to an end.[5]

32 I should refer to aspects of the Third Further Amended Statement of Claim, which was current at trial. It pleaded:

• The fact of the judgment for Screenco in the NSW proceeding.

• The payment by Steele of $1,314,941.01 to Screenco ("the Screenco payment").

• Steele's continuing liability to Screenco and Dew.

• The incurring by Steele of costs in respect of the NSW proceeding.

• SGIC's liability in equity to make contribution to HIH in respect of the amount paid.**

That ". . . Steele's liability to Screenco and R L Dew by the judgment in the NSW Proceedings and the part satisfaction of it . . . is a liability and/or a payment which Steele is legally obliged to pay by way of compensation for, amongst other things, property damage as a result of an occurrence in respect of which Steele is entitled to be indemnified by SGIC under the Policy, whether at common law or pursuant to s. 48 of the Insurance Contracts Act 1984 (Cth)."

• An agreement between Steele and HCSL ("the assignment agreement") by which Steele assigned his rights under the HIH policy to HCSL, which agreement was pleaded as follows:**

"Further and alternatively by an agreement made in or about 10 July 2001, following the liquidation of HIH, Steele agreed with HIH Claims Support Limited ABN 92 096 857 635 ("HCSL") to assign to HCSL his rights under the HIH Policy ("the HCSL Agreement").

(i) application form issued by HCSL entitled 'Offer to Assign your policy holder rights' which contain conditions and obligations ('application form');

(ii) document entitled 'Notes for Applicants' issued by HCSL which accompanied the application form;

(iii) document entitled 'Offer to Assign your rights as a policy holder' signed by the second plaintiff on 10 July 2001;

(iv) copy document entitled 'Eligibility Confirmation Certificate' dated 30 August 2001 and signed on 31 August 2001; and

(v) copy letter from QBE management Services Pty Ltd to the second plaintiff dated 10 October 2001."

"Steele assigned to HCSL any rights, howsoever arising, which he might have or obtain against any person or organization other than the HIH insurer, in connection with the matters which might have given rise to his need to make a claim under the HIH policy.

HCSL agreed to pay a benefit under the HIH Claims Support Scheme to, or on behalf of, Steele."[6]

**• That the Screenco payments had been made pursuant to the assignment agreement.

• That the matters alleged by Steele against SGIC were rights of the kind which had been assigned.

• That the assignment agreement was "a contract of indemnity".

• That Steele had, in equity, assigned the benefit of the proceeding to HCSL.

33 In the event, HIH sought a declaration that SGIC was liable to make contribution to it in respect of the HIH costs; whilst Steele sought a declaration that SGIC was liable to indemnify him -**

"In respect of all sums in respect of which [he] has paid (or which have been paid by HCSL on his behalf) or has been held liable to pay to [Screenco and/or Dew in the NSW proceeding], or otherwise by reason of the incident".

Steele sought judgment, also, for the amount of the Screenco payments and his own costs of defending the NSW proceeding.

**34 Pausing, Steele's claim at the outset had been for a declaration of SGIC's liability to indemnify him in respect of any liability which he might incur in the NSW proceeding; and for a declaration that SGIC was liable to make contribution, together with HIH, towards any sum for which he might be held liable in that proceeding. That claim, if successful, would have resulted in SGIC being liable to contribute towards any damages and costs (including Steele's own costs) - the claim being for a 50 percent contribution.

35 But at trial, the NSW proceeding having concluded, moneys having been paid and some moneys remaining unpaid,[7] Steele sought a declaration of SGIC's liability to indemnify him in respect of all such amounts; and an order for payment to him of such amounts as had been paid. In aid of those claims, Steele alleged that the payments had been made by him, and that he remained liable for the amounts outstanding. He also pleaded that, having assigned to HCSL such rights as he might have had against SGIC, he had in equity assigned the benefit of the proceeding to HCSL.

36 The success of Steele's claim, as will be seen, depended upon characterising the payments made by HCSL as not being an indemnification of Steele; or at least as being payments of a kind which must have been ignored in a claim by Steele against SGIC. The practical consequence of the claim thus formulated, if successful, was that SGIC - which on this hypothesis was liable to indemnify Steele just as HIH had been so liable - would have a right to seek contribution from HIH; that is, by the uncertain and lengthy course of proving in the liquidation.

37 In its defence to the initial statement of claim, SGIC denied that Steele was entitled to indemnity under the SGIC Policy in the event that he had any liability to Screenco or Dew. It relied on a number of exclusions in the policy. In reliance on those exclusions, it denied both its liability to make contribution in respect of the HIH costs, and that it had wrongly refused to indemnify Steele.

38 I turn to the SGIC defence current at trial. By that document, SGIC relevantly:

• Admitted, in substance, that the HIH Policy obligated HIH to indemnify Steele in relation to liability arising from the incident.

• Denied that Steele had made the Screenco payment.

• Did not admit that Steele remained liable on the unsatisfied part of the NSW judgment, including the costs of Screenco and Dew.

• Alleged that all liabilities to pay Steele's costs had been incurred only by one or more of HIH, QBE and HCSL.

• Denied that Steele's liability to Screenco and Dew, and the payments made, called on the SGIC Policy.

• Denied that it was liable to contribute to the payment of the HIH costs.

• Did not admit the making of the assignment agreement.

• Did not admit the pleaded terms of the assignment agreement.

• Admitted that HCSL had paid the amounts earlier said to have been paid by Steele, but not that it had done so pursuant to the assignment agreement.

• Did not admit that the matters alleged by Steele against SGIC fell within a term of the assignment agreement.

• Denied that the assignment agreement was a contract of indemnity.

• Denied that Steele had, in equity, assigned HCSL the benefit of the proceeding; and pleaded that any assignment was one made in law.

• Pleaded that QBE, as agent of HCSL, had made the Screenco payment; this extinguishing, to the amount paid, Steele's liability to Screenco and Dew.

"In such circumstances, to the extent of the settlement payment, there exists no liability in Steele to be indemnified under the policy."

"Steele has assigned all his rights and benefits under the Policy to HCSL or to a related entity and accordingly has no rights to claim thereunder."

"For SGIC to pay Steele any sum claimed in this proceeding would be to unjustly enrich Steele in that he has suffered no loss for which he should be indemnified or compensated."

Relied upon exclusion clauses (b), (h), and (m) of the SGIC Policy.

**39 Pausing, the defence current at trial denied that the SGIC Policy must respond to the incident, calling upon exclusions (b), (h) and (m). If SGIC made good its contention that any one of those exclusions applied then, if no provisions of the Insurance Contracts Act 1984 (Cth) ("the Act") could be successfully relied upon by Steele, HIH's claim for contribution in respect of the HIH costs must fail, as must the claim made by Steele.

40 The validity of Steele's claim was also challenged on other bases. SGIC pleaded that an entity other than Steele had made the payments to Screenco, this extinguishing his liability to that company to the extent of the payment. Accordingly, Steele was to that extent not under a liability which called for indemnification. Again, it was pleaded, Steele had assigned any relevant rights - that is, against SGIC - to HCSL or a related entity. So he had no right to seek indemnification. Further, Steele having suffered no loss, he would be unjustly enriched if he was indemnified in the amounts claimed.

41 I should mention a further aspect of the pleadings. They contained an oddity in light of the way in which the parties conducted the trial and the appeal. The plaintiffs pleaded that the assignment agreement was a contract of indemnity. SGIC denied it. The parties adopted exactly the opposite positions at trial, and on the appeal.

42 I turn to the conduct of the trial. It did not altogether coincide with the pleadings.

43 The HIH costs claim was defended by SGIC on the basis that the SGIC policy did not respond to Steele's liability in the NSW proceeding by reason of one or more of the three exclusion clauses. But it was accepted that clause (h) should be understood to be an exclusion different in content to the exclusion as literally expressed; and the learned judge so approached it. His Honour concluded that HIH was entitled to equitable contribution of $40,342.01. In this appeal, as I have noted earlier, SGIC relies upon only one of those exclusions, namely exclusion (h).

44 The Steele claim was also defended on the footing that one or more exclusion clauses applied. Again, the learned judge held that none of them applied. Again, on this appeal, SGIC relies only on exclusion (h).

45 Further at trial, SGIC maintained that the claim to indemnity from SGIC must fail because Steele had already been indemnified by another insurer - that is, HCSL; and in any event because what had been paid was an indemnity, and Steele had no right to be indemnified twice.

46 The way in which SGIC advanced its case at trial led the learned judge to focus upon the question whether HCSL and/or the Scheme was an insurer - which question he answered in the negative; and the further question whether what had been paid on Steele's behalf should in any event be characterised as an indemnity - which question he also answered in the negative.

47 The learned judge mentioned, but only briefly, the assignment agreement. He said that one right which Steele had assigned was his right to indemnity under the SGIC Policy; and "(n)o notice of that Assignment having been given to [SGIC], [HCSL] is entitled to sue in Steele's name to enforce the claim for indemnity under the [SGIC] Policy". His Honour went on:**

"It is no answer for the defendant to assert that because Screenco has been paid by [HCSL] and other parties have had their costs met there is no liability in Steele which it is required to indemnify. Nor is it an answer to say that [HCSL] is confined to seeking equitable contribution as a co-insurer from it by suing in its own name. It may be that upon meeting Steele's claim the defendant has a right to prove in the liquidation of HIH for equitable contribution as a co-insurer but that question is not now before the Court."

**48 The first part of the passage just cited might have related to the pleaded defence that Steele had assigned any relevant rights; and to the unstated corollary that he could not sue for indemnification in respect of moneys paid. But his Honour's reasons, read in full, do not suggest that any such argument was advanced.

49 The latter part of the passage addressed a matter not squarely raised by the defence. It focussed upon the argument - rejected by his Honour - that HCSL should be characterised as a co-insurer.

50 All in all, his Honour's reasons strongly suggest that, the operation of the exclusion provisions aside, the debate had to do with whether HCSL should be characterised as an insurer, whether the assignment agreement was a contract of indemnity insurance, and whether amounts paid on Steele's behalf in any event constituted an indemnity.

51 Having rejected SGIC's arguments, including its reliance on the exclusion clauses, it followed that his Honour should make the declaration sought by Steele, and give judgment in Steele's favour for a money sum, each of which he did.

52 I should mention again another issue disposed of at trial. His Honour held that Steele should not be able to recover in respect of the unpaid balance of his own costs. That finding is not the subject of cross-appeal.

53 SGIC sought to rely upon eight grounds of appeal. Later, I will set them out verbatim. For the present, it is enough to say that one related to the judge's finding that exclusion (h) in the SGIC Policy had no application, that six related to his Honour's conclusion that Steele's claim was not foreclosed for one reason or another, and that the eighth was a proposed added ground - by which SGIC sought leave to raise arguments not advanced at trial in defence of the claim in respect of the HIH costs. The Court heard argument upon the substance of that ground and reserved its decision on the application for leave to rely upon it.**

The HIH Policy, the Scheme, and the SGIC Policy

54 In order to understand the issues raised on the appeal, it is necessary to say something about the HIH Policy, the Scheme, and the SGIC Policy.

**55 The HIH Policy, renewed for the period 3 September 1997 to 3 September 1998, was of the general liability type. By clause 1, subject to the terms, conditions and exclusions of each section of the policy, and the policy as a whole, the underwriter agreed to indemnify Steele against its liability to pay compensation, including costs and expenses, in respect of liability arising in the course of the conduct of Steele's business, and as defined by each insuring section of the policy.

56 By section 1 of the policy, Steele was indemnified, in accordance with clause 1, and subject to a presently irrelevant exception, in respect of injury and/or damage occurring during the period of insurance. Damage was defined by clause 1(b) to mean "loss of or damage to tangible property including the loss of use thereof resulting therefrom".

57 Clause 11 of the policy set out general exclusions. Clause 11.10 limited indemnity in the event that there was another policy which more specifically provided liability cover in respect of the event the subject of the claim. That clause was not invoked by HIH. Neither was it said by the parties to be of any significance.

58 In the event, it was not in dispute that Steele was entitled to the provision of indemnity under the HIH Policy if Steele was liable for the incident in which the screen was damaged. Indeed, up until the time of the collapse of HIH, that insurer undertook Steele's defence of the NSW proceeding.**

**59 The Commonwealth established the HIH Claims Support Scheme in respect of certain claims made under policies issued by companies in the HIH group. In July 2001 it appropriated $640 million from consolidated revenue; and, at about that time, it appointed HCSL to administer the Scheme.

"The only legislative basis for the HIH Support Scheme appears to be a one line Act of the Commonwealth Parliament appropriating the $640 million from consolidated revenue. There is no statutory description of the nature of the support fund, the rights and liabilities of claimants upon it or even any criteria for determining eligibility for assistance."

It was not submitted in this Court that this description of the legislation was other than accurate.

**61 No oral evidence was adduced at trial as to the structure of the fund established by the Scheme, or as to the way it operated. Relatively few documents were put into evidence. Some were Commonwealth documents; others were documents created by HCSL. It is necessary to describe the content of those documents, beginning with a Commonwealth document headed "Notes for applicants" ("the Notes").

62 Before embarking on that task, I should mention that the learned judge seems not to have been provided with all the documents which were apt to disclose the set-up and operation of the Scheme, and the interrelationship of the parties to it. See Balangarri Aboriginal Corp (in liq) v Cleanthous and anor.[8] If I am correct in what I have just said, then a proceeding with potentially broader ramifications was determined at first instance, and will be determined by this Court, on an incomplete and possibly misleading factual basis.

63 Be that as may, I go to the Notes. They provided that a person qualified to apply for the Scheme if such person was a policy holder or insured who had a claim under an insurance policy issued by a company in the HIH group, and if such person was, inter alia, an "Australian Small Business Proprietor". That term was defined.

64 The Notes defined the companies in the HIH group, and provided that the claim must relate to an event which occurred before 11 June 2001. In the case of "claims made" insurance, the claim must have been made, or a circumstance notified to the insurer, before that date.

65 The Notes said this: "As the Scheme is funded by taxpayers, a means test applies to restrict the Scheme to cases of genuine hardship." The means test particularly applied in the case of claims by individuals.

66 The reach of the Scheme was also diminished by a series of exceptions. So a person who was not an "Australian Citizen" or an "Australian Permanent Resident" as defined did not qualify for assistance. Likewise if the applicant's business was not a small business as defined. Likewise if the claim fell into any one of a number of specified categories - compulsory third-party, workers' compensation, builders' warranty, or compulsory professional indemnity insurance for legal practitioners.

67 The Notes said that the Scheme would pay 100 percent of the amount which the insurer would have been obliged to pay under the relevant policy for certain types of claim; and that -**

"For other types of claim to which the Scheme applies, it will meet 90 percent of the amount which the insurer would have been obliged to pay under the relevant policy. The policy holder must pay any excess and all other terms, conditions and limits of the policy still apply."

**68 The Notes made it clear that the claimant would have to pay not only 10 percent of any court judgment or settlement amount, but also 10 percent of the costs incurred in investigating and defending any claim.

"The Scheme does not provide you with a replacement insurance policy. You should seek alternative cover immediately if your insurance cover is still with an HIH company".

**70 The Notes provided that a claimant should make an application for assistance. Eligibility was in the first instance to be decided by HCSL. There was provision, it was said, for both internal and external review of a decision by HCSL to refuse assistance.

71 The Notes effectively ended with the following highlighted statement:**

"The Scheme may be withdrawn or criteria for eligibility altered at any time without notice".

72 I next refer to a Commonwealth document entitled "Application for assistance". That document set out a pro forma which was to be completed by an applicant and forwarded to HCSL. It referred the reader to the Notes. It also said this:

"In return for assistance under the Scheme, you will be required to assign your rights under the policy against your insurer, along with any legal rights you may have against any one else relating to your claim under the policy, to HCS Ltd. For more information, please refer to the explanatory Notes detailed in the Offer to Assign your Policyholder Rights."

**73 The application form itself required the provision of material apt to disclose whether the circumstances of the applicant and the claim were such as to attract the operation of the Scheme as it had been described in the Notes.

74 I go the Commonwealth document entitled "Offer to Assign your Policyholder Rights". This four page document contained three pages of "Conditions and Obligations", and a one page pro forma offer to assign rights.

75 According to the text of the conditions and obligations, the applicant was currently an unsecured creditor of the HIH group. That was likely to yield the applicant, in the long term, less than 50 cents in the dollar.

"The Commonwealth Government has agreed that, in certain cases, and subject to the limitations of the HIH Claims Support Scheme, it will provide the benefit that would have been provided by HIH under an insurance policy."

77 It said that if an applicant filled in the form, such applicant would be -

Your rights under your policy of insurance against the HIH company which issued it; and
Any rights which you may have against other persons or organisations in connection with your claim under that policy.

You will also be undertaking to provide all reasonable assistance and co-operation to HCS Ltd and other parties."

**78 The document then set out what was meant by the provision of reasonable assistance and co-operation. In essence it meant that the applicant must co-operate with HCSL, fully comply with the terms of the HIH policy and agree to continue to perform and observe all the obligations, conditions and provisions of the policy, as though HCSL was the insurer which issued it.

79 The document informed the applicant that if HCSL accepted the offer of assignment of rights, it would mean that HCSL would pay the applicant -**

"at least 90 percent of the amount that would have been provided by the HIH insurer under your insurance policy."

but that the applicant would no longer have a right to recovering any funds from HIH when it was eventually liquidated, nor any right to pursue rights which the applicant might have against any other persons or organisations in connection with the claim under the policy.

80 The document was explicit in describing how it was that an offeror would know if HCSL had accepted the offer made:

"The only method which HCS Limited may use to accept your offer is payment of a benefit under the Scheme. Where the benefit consists of a series of payments relating to one claim, the first payment of the series constitutes acceptance by HCS Limited of this offer."

**81 The document also provided that if the HCSL accepted the offer, but the applicant did not comply with the requirements of the Scheme or the undertaking to provide all reasonable assistance and co-operation, then HCSL might in its absolute discretion withdraw the provision of further assistance under the Scheme or set a limit on the total amount which would be paid under the Scheme.

82 By the pro forma offer to assign, the offeror offered to assign rights of the kinds which I have earlier described, on the terms, conditions and obligations advised, "(i)n return for the payment of a benefit under the Scheme."

83 I turn to two documents which emanated from HCSL. The first of them appears to have been downloaded from the internet. HCSL described itself this way:**

"HCS is not an insurance company, nor is it affiliated with any member of the HIH group. It is a not-for-profit company established by the insurance industry to administer the Commonwealth Government's HIH Claims Support Scheme".

84 Concerning assistance, the document said this:

"When we have your application for eligibility, we will be able to determine whether you are eligible for assistance under the Scheme. The Commonwealth Government has determined the assistance to be provided to individuals and small businesses and has issued eligibility criteria for access to the Scheme. Click here for eligibility criteria.

Once we have confirmed that you are eligible under the HIH Claims Support Scheme, we will forward your application to one of the participating insurance companies, where your insurance claim will be assessed according to the terms and conditions of your policy."

85 The document stated that "the application for eligibility package" contained notes for applicants, an application for assistance, a statutory declaration for small business proprietors and an offer to assign policyholder rights. Concerning the last-mentioned, it said:

"This is the most important form to complete and include in your application package. Without it, your application cannot be processed. Please ensure that it is fully completed, signed and affixed with a company seal (if required under your company's constitution)."

**86 I turn to an HCSL document headed "HIH Claims Support Scheme"; and sub-headed "Notes for Australian small business proprietors (June 2002)." Despite the date of the document, it appears not to have been in debate that it was relevant in the circumstances of this case.

87 Much of what the document said repeated the content of the Notes to which I referred a little earlier. Beyond that, it described the Scheme as "a discretionary, administrative scheme funded by the Commonwealth"; and it stated that "The Commonwealth may vary the terms of the Scheme, suspend the Scheme or withdraw the Scheme at any time."

88 Apparently appended to this document was a pro forma statutory declaration which was to be completed by an Australian small business proprietor.

89 So much for the generic documents pertaining to the Scheme. So far as I can see, there was not put into evidence any application for assistance signed by Steele, nor any statutory declaration. But it was agreed between the parties that Steele had applied for assistance under the Scheme. Further, offers to assign rights dated 10 July 2001 and 31 October 2001 were put in evidence. The latter corrected the relevant policy number.

90 An application for assistance having been made, Steele was assessed as eligible for assistance on the footing that, when entitlement to indemnify was confirmed, the Scheme would pay 90 percent of the amount which would have been paid by HIH under the terms of the HIH policy.**

**91 The SGIC Policy was dated 12 April 1995. It was described as a "Contract Works Material Damage and Third-Party Legal Liability Policy".

92 The Schedule to the Policy described "The Insured" as, inter alia, the Australian Grand Prix Corporation and "Contractors and Sub-contractors for their respective rights and Interests."

93 "Construction operations" were defined by the Schedule as, inter alia, "All Works (within the meaning ascribed to that term under Section 28 of the Australian Grand Prix Act 1994) undertaken by the Australian Grand Prix Corporation (or its Contractors, Sub-Contractors ...)."[9]

94 The "Construction Period" was defined by the Schedule to commence on 31 January 1995 and terminate on 30 June 1996, save that it might be extended by agreement between the Insured and the Insurers.

95 Insurance was provided under three sections of the policy: Section A, Material Damage; Section B, Defects Liability; Section C, Legal Liability. Limits were set under the different sections, and there was an excess.

96 The "Period of Insurance" in respect of Sections A and C was from 31 January 1995 to 30 June 1996. The period of insurance in respect of Section B was described this way:**

"Commencing on the date of the issue of a Certificate of Practical Completion under any contract for the undertaking of work forming part of the Works and continuing for a period of 12 months in respect of such contract ('maintenance period')."

97 There was a separate insuring clause in respect of each section of the policy. I need only set out relevant parts of the insuring clause for Section C:

"The Insurers hereby agree, subject to the limitations terms and conditions hereinafter mentioned, that they will:

(a) Pay on behalf of the Insured all sums which the Insured shall become legally obliged to pay by way of compensation for -

as a result of an Occurrence happening anywhere in Australia during the period of this insurance in connection with the Construction Operations detailed in the Schedule:

(b) Defend in the name of and on behalf of the Insured any claim or suit against the Insured to recover damages on account of such ... Property Damage ... :

(2) all expenses incurred by or with the permission of Insurers for investigation, negotiation and defence of claims and suits; ... "

**98 "Occurrence" was defined to mean an event which during the Policy Period unexpectedly or unintentionally caused, inter alia, property damage.

99 "Property Damage" was defined to mean, inter alia:**

"(a) physical damage to or destruction of tangible property which occurs during the period of insurance including loss of use thereof at any time resulting therefrom."

100 There were exclusions specifically applicable to Section C of the policy. One of those exclusions was as follows:

"(h) Property Damage to any property which forms part of the Works prior to the issue of the Certificate of Practical Completion".

101 The policy contained a clause dealing with Determination of Liability and Insolvency, which said this in part:

"No action shall lie against the Insurers unless the Insured shall have fully complied with the terms of this Insurance, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the Claimant and the Insurers".

**102 The policy was given extended operation by Endorsement No 4 to the policy, approved by SGIC and dated 6 February 1998. By that endorsement the period of insurance was stated to commence on 30 June 1997 and end on 30 June 1998.[10]

103 The Endorsement defined "Construction Operations" somewhat more broadly than that term had been defined in the original policy.

104 The insuring clauses were set out in short form. In respect of Section C, the Endorsement said this:**

"Legal liability to third parties for ... Damage to Property as a result of an occurrence happening in connection with a business as defined in the Policy".

105 The Endorsement contained special conditions. The second of them said this:

"The Principal to provide Insurers with copies of Certificates of Practical Completion and Final Certificates under all contracts for the Works."

106 The Endorsement was issued subject otherwise to the terms, conditions and limitations of the policy.

**107 I have already described the issues which were agitated at trial, and the way in which the learned judge resolved them. But I think it is desirable to supplement that description to some extent.

108 As I have said, the learned judge rejected the argument that any of the exclusions in the SGIC Policy applied. Having regard to the way in which the matter proceeded in this Court, it is only necessary to refer to what his Honour said about exclusion (h). Thus:**

"It is accepted by all parties that no Certificate of Practical Completion was ever issued in respect of the scaffolding which collapsed. Nor did any of the parties to the contracts which led to its erection ever expect such a certificate to be issued. It was not contemplated by the contract between the Australia Grand Prix Corporation and Screenco, nor that between Screenco and R L Dew, nor that between R L Dew and Steele. Indeed the evidence before the Court was that it was not normal practice for Certificates of Practical Completion to be issued for any work carried out in respect of the Grand Prix. ... the Chief Executive Officer of the Australian Grand Prix Corporation gave evidence that the practice of the Corporation with respect to works being undertaken for it was to ascertain that the works were complete and functioning. It did not issue Certificates of Practical Completion nor would anyone on its behalf."

**109 The learned judge observed that the term "Practical Completion" was not defined by the policy. SGIC, he said, accepted that to give any meaning to the exclusion at all it must be given "a common sense meaning". It argued that Steele had not completed his contract and that, as the works were not complete, the exclusion applied.

110 His Honour noted that the plaintiffs argued that the clause could not "be given a reasonable construction capable of giving effect to the intention of the contracting parties." Given its literal meaning, as no Certificate of Practical Completion was ever likely to be issued, the existence of the clause would exclude every possible claim. This would destroy the policy, and so could not have been the intention of the parties to it.

"At the time this accident occurred the structure which collapsed was, for all practical purposes, complete. It lacked only a tarpaulin covering which added nothing to its structure or integrity, its capacity to carry out the function for which it was erected or anything else other than its aesthetic appearance. Mr Potter, of Screenco, considered that it was complete. It was suitable, so far as he could see, for the erection of the ... screen and the lack of a tarpaulin did not effect that operation.

Accepting the defendant's contention that the clause should be given a common sense meaning that meaning must be that it operates not until completion of works under a relevant contract but until practical completion of those works. The word 'practical' must be given a meaning. Completion of a contract means full and final completion. In Morgan v S S Constructions Pty Ltd [1967] VicRp 17; [1967] VR 149 the Full Court of this Court distinguished 'completion' from 'substantial completion'. 'Practical completion' must be dissimilarly distinguished here. On the facts in this case Mr Steele's contract to erect the scaffolding which later collapsed was practically complete at the time the accident occurred. The clause, accordingly has no operation in this case.

It may be, of course, that the clause is, as the plaintiffs contend, void for uncertainty. Indeed, not only is it possibly uncertain with respect to the question of Certificates of Practical Completion but it is very difficult to give a sensible meaning to the opening words of the clause which refer to 'The Works' in the context of this policy and its Endorsements. However, having regard to the defendants' argument and the evidence to which reference has been made, there is no need to examine these questions further."

**112 Concerning the issues whether the Scheme was an insurer and whether the agreement between it and Steele constituted an insurance policy pursuant to which indemnity had been given, his Honour said "if it is an insurer who has provided an indemnity pursuant to the policy, the principles expounded in Sydney Turf Club v Crowley [1971] 1 NSWLR 724 would appear to be applicable." But his Honour held that, "it could not be concluded that [the Scheme or HCSL] was an insurer."

113 The threads of his conclusion were these: first, it is an essential element of insurance that there be an obligation to indemnify in respect of the risk of an adverse event which may or may not occur. Second, the insured must be contracting "for the certainty of payment in specified circumstances, not simply for the certainty of proper consideration being given to his claim that a discretion to make a payment in those events should be exercised in his favour."[11] Third, in the present case the offer to assign rights made by Steele was expressed to be "in return for the payment of a benefit under the Scheme". No premium was payable, and no event was being insured against. Fourth, the language of the application, the Eligibility Confirmation Certificate and the terms of the QBE letter of 10 October 2001 spoke only of Steele being "eligible for assistance". Those matters, together with the discretionary nature of the fund, and the way in which it was set up, led to conclusions that the Scheme was not an insurer, and that whatever was paid to or on Steele's behalf was not an indemnity "but rather a merciful benefit or subvention of the Commonwealth Government". Fifth, there was no uncertain event which might or might not occur with respect to Steele's relationship with HCSL. It was not the case that "the uncertain event being incurred against was the result of the trial". The critical event had already occurred. It was not uncertain whether it would or would not occur. A submission for SGIC that the uncertain event being insured against was the result of the trial in the NSW proceeding should be rejected because, as soon as assistance was granted, the Scheme began to make payment of Steele's legal expenses.

114 In the event, his Honour concluded, neither the Scheme nor HCSL was an insurer. Still less was either of them an insurer insuring the same risk as SGIC.

115 The learned trial judge addressed the further argument advanced for SGIC that even if there had been no insurance contract between Steele and the Scheme, nevertheless an indemnity had been provided to him. His Honour rejected that argument because he concluded that the payments made to or on behalf of Steele were not indemnities but "benefits provided by the Commonwealth Government in alleviation of financial distress caused by the catastrophic insolvency of HIH".

116 I should expand upon only one further aspect of his Honour's reasons. Having rejected SGIC's submission that any of the exclusions in the SGIC Policy applied, it followed that HIH was entitled to contribution in respect of the HIH costs. Argument having centred upon the question whether the SGIC Policy responded in the circumstances, there appears to have been no issue as to the extent of the contribution which should be ordered. HIH contended for a 50 percent contribution, and his Honour made an order to that effect.

"1. That his Honour erred in fact and in law in finding that, for the purpose of exclusion clause 3(h) of section C of the policy insurance issued by the appellant (then called SGIC General Insurance Ltd) to Australian Grand Prix Corporation ("the policy') the contract under which the second respondent ("Steele") was to erect the scaffolding the subject of the proceeding was practically complete at the time of the accident the subject of the proceeding.

1A. That his Honour erred in fact and in law in finding that the first respondent was entitled to recover the sum of $40,342.01 as equitable contribution from the appellant:

(a) in circumstances where there remained to be established the totality of rights of contribution between those parties; and

(b) without reference to the totality of such rights.

2. That his Honour erred in fact and in law in finding that the payments made by HCSL in respect of liabilities in Steele established in the NSW proceeding did not preclude a claim by Steele under the policy for indemnity in respect of the same liabilities.
3. That His Honour erred in fact and in law in failing to find that because Screenco Pty Ltd had been paid by HCSL and because other parties had their costs met in the NSW proceeding there was no liability in Steele which the appellant was required to indemnify.
4. That His Honour erred in fact and in law in finding that the agreement between Steele and HCSL was not an agreement of insurance.
5. That His Honour erred in fact and in law in finding that there was no uncertain event which might or might not occur with respect to Steele's relationship with HCSL when that event was the establishing of a liability in Steele to pay damages or provide other relief in the NSW proceeding.
6. That His Honour erred in fact and in law in finding that HCSL did not insure Steele in respect of the same risk as that insured by the appellant.
7. That His Honour erred in fact and in law in finding that the payments made by HCSL to or on behalf of parties in the NSW proceeding were not made by way of indemnity of liabilities established in Steele in the NSW proceeding."

**117 In resolving the appeal, I should first deal with exclusion 3(h) of the SGIC policy. I have set it out at [100]. Argument concerning that exclusion was not at the forefront of SGIC's argument. Nonetheless, if the attack on the conclusion reached by the learned trial judge was made out, it would mean that the appeal must, without more, succeed - both against Steele and HIH.

118 The trial was conducted on the basis, in effect, that the exclusion fell for consideration as if the words "the issue of the certificate of" were pencilled out; that is, so that the clause would operate to exclude property damage which occurred prior to practical completion in fact. The parties were content so to approach the matter on the appeal, although Steele and HIH also sought to support the favourable conclusion at trial in reliance upon the actual language of the clause, and what they submitted were the consequences of that language.

119 The appellant contended, on the footing that the clause should be considered as if it dealt with the fact of practical completion, that the judge below was wrong to have concluded that the damage was done before practical completion. The term "practical completion", counsel submitted, is a term of art in building contracts. It means completion of all the work agreed to be performed.[12] Whether the relevant contract was that between the Corporation and Screenco - which SGIC contended was the case - or between Dew and Steele, the contract was not practically completed when the screen was damaged. At least, Steele had not erected the tarpaulins. The judge had erred, counsel submitted, because he had equated "practical completion" with "substantial completion".

120 Counsel for the respondents submitted that SGIC was attempting to challenge a finding of fact in circumstances where the judge had not misdirected himself as to the meaning of "practical completion". Such completion is for the purpose of allowing the employer to take possession of the works to use them as intended.[13] In the present case, counsel submitted, the evidence was that Screenco had itself decided that the scaffold was so completed. It had taken possession of the scaffold in order to erect the screen, as part of its contractual obligation to the Corporation. It had done so, by its Mr Potter and other workmen, even before Steele and his men, having been told by a WorkCover inspector to put up the tarpaulins using a cherry-picker, had left the site for the day.

121 Before addressing the competing arguments in point of principle, this may be said: counsel for the respondents was correct in submitting that, despite the tarpaulins not having been erected, Screenco had taken over the scaffold before the incident occurred. The Screenco production manager, Mr Potter, gave evidence that, "absolutely", the structure was then in an appropriate state to erect the screen - although that evidence, obviously enough, was not directed to what proved to be the inadequate strength of the "I" beam. The witness said also that the tarpaulins would have added nothing "structural integrity wise".

122 In my opinion, the learned trial judge did not misdirect himself with respect to the term "practical completion". He was invited to deal with exclusion (h) on the basis that it could not be given literal application - that is, because the overall contractual regime at the Grand Prix made no use of "certificates of practical completion". Further, the term "practical completion" was not defined by the SGIC policy, and his Honour was invited by counsel to give the clause a "common sense meaning". That was not the same as submitting that the term should be given the technical meaning which might it bear under a construction contract; a fortiori under such a contract which defined the term.

123 In the event, it is not surprising that his Honour, seeking to give meaning to the adjective "practical", treated it as comprehending, in the circumstances of the case, a situation in which all the structural work which Steele was to perform was in fact complete; that being the perception of the contractor to which, at a remove, Steele was sub-contracting. So to construe the meaning of "practical" was not to equate it with "substantial".

124 I should add three matters. First, if the term "practical completion" should have been construed as if it appeared in a construction contract, it does not follow that a result favourable to SGIC would have eventuated. The observations of Williams J, as his Honour then was, in Murphy Corporation,[14] if applied to the present case, well justified the conclusion of the learned trial judge. Jarvis & Sons, also relied upon by the respondents, would very likely lead to the same conclusion. In the Ukrainian Association case, relied on by SGIC, there was a contractual definition of "practical completion".[15] The passage in the reasons for judgment of Pullin J relied upon by SGIC[16] carries the matter no further. It does not conflict with what was said by Williams J in Murphy Corporation, nor with the passage in the reasons of Salmon LJ in Jarvis & Sons cited by Williams J. Again, the passage from Halsbury's Laws of Australia[17] upon which the appellant relied did not, in my opinion, assist it.

125 Second, in my opinion the relevant contract was the contract between Dew and Steele, not the contract between the Corporation and Screenco. The trial was conducted, as appears from his Honour's reasons for judgment at [27], on that basis. The suggestion that it was otherwise was only made on the appeal; and it was not much pursued.

126 Third, I have not found it necessary to deal with the respondents' submissions that -**

At a glance

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Judgment (335 paragraphs)

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Cases Cited (12)