The submissions before the Magistrate and the Magistrate's decision
14 There were three uncontested findings of fact made by the Magistrate. They are firstly, that the driver of the vehicle was not licensed or legally authorised to drive the vehicle as he was not licensed and had not been licensed since 1997 (the accidence occurred in 2003); secondly, the driver was affected by intoxicating liquor such that his capacity to control the vehicle was to any extent diminished (his PCA reading was 0.12); and finally, the driver had unreasonably left the scene following the accident.
15 Counsel for Mr King submitted that firstly, on the face of the clause he was entitled to recover, as it was common ground that the vehicle was damaged; and that secondly, the exclusion clause did not operate to exclude liability because the driver was not authorised to drive the motor vehicle and if the exclusion clause is properly construed, it does not extend to circumstances where the driver of the vehicle was not authorised to drive it.
16 Before the Magistrate, Counsel for Mr King also submitted that the exclusion clause could not mean what it says because the result of such an interpretation would be so surprising, startling, ridiculous, preposterous and astonishing that such a construction must fail. Mr King contended, for example, that if the vehicle had been stolen and then written off by a drunken person, that the exclusion clause would exclude liability to pay the owner under the insurance contract. At the hearing of this appeal a further example was provided. That is, if the owner is attending a picnic and a person who has consumed alcohol and who is known to the owner drives the car without the owner's permission, likewise the exclusion clause would exclude liability to pay the owner under the insurance contract. These results he contended were absurd.
17 The Magistrate's reasoning in relation to the exclusion clause is set out in [7] to [9] which read:
"7. The plaintiff argues that the exclusion clause ought be read as being limited to circumstances where the insured person authorises the use by the drunken or unlicensed person. To support this contention the plaintiff argues that it is ambiguous and that the contra proferentem rule applies. I reject this contention. There is no ambiguity in the clause. It is abundantly clear and sweeping. There is no doubt as to the meaning of the clause. It may be unfair, it may be surprising and astonishing, but these do not trigger the cases relating to ambiguity or clouded meaning such as Houghton v Trafalgar Insurance [1954] 1 QB 247, Budget Stationary Supplies v National Australia Bank (Unrep NSWSC BC9604518) and other referred to in the plaintiff's submissions at 3.13 to 3.18. This is indeed a case where, as Lord Denning put it with respect to another exclusion clause, the insurer has made the words "clear beyond the possibility of misunderstanding" - White v Warwick [1953] 1 WLR 1285.
8. The plaintiff also relies on cases where the courts have amended contracts so that they avoid an absurdity. Principally, by way of modern Australian cases, they rely on Westpac v Tanzone [2000] NSWCA 25. In that case the literal interpretation of a contract saw rent payable by Westpac rise exponentially to a ridiculous figure, due to an obvious "mistake by the draftsperson" (at 34). "The mistake produces an absurdity" (at 37). Words were added to the contract by the court for the purposes of interpreting the contract to ameliorate the obvious mistake and thus properly reflect the intention of the parties to be assessed objectively from the whole context of the lease.
9. However unreasonable the plaintiff contends the results of the operation of the exclusion clause, it is not in my view absurd in the circumstances of this case , nor is it the result of an error in drafting. To use the example of a vehicle stolen by a drunk is a different factual situation altogether. The vehicle in the present case was not stolen, and no claim for theft has or could be made out. If a drunken person stole a vehicle, and an insurance claim was rejected based on the theft clauses, then reliance on the exclusion clause could be absurd - that would need to be decide on the facts of that case, and presumably on a careful analysis of the theft provisions. Here the son lent the vehicle."
18 The Magistrate concluded at [15]:
"Over many years, the cases have made it clear that an ambiguity or absurdity is required before an exclusion clause will be "read out" of a contract of this type. Accordingly, as it is my view that the exclusion clause is neither absurd nor ambiguous the first defence is established, that the exclusion clause applies. The Plaintiff has failed to establish that there has been a breach of the contract by failing to pay the insurance claim."
19 The starting point in my analysis, I think, is a passage in Australian Casualty Co Limited v Federico [1986] 160 CLR 513 at 520, where the High Court (per Gibbs J) stated:
"The ordinary rules of interpretation apply to a policy of insurance. As in the case of any other commercial contract, a court may depart from the strictly literal meaning of a particular expression to place upon it an alternative construction which is more reasonable and more in accord with the probable intention of the parties if the words will bear that construction: McCowan v Baine [1891] AC 401 at 403; see also MacGillivray & Parkington, op cit, at pp 436, 437 (paras 1037, 1039) and 66 ALR 99 at 103 and Sutton, Insurance Law in Australia and New Zealand (1980) p 294, para 8.45. Further "the trend is, if anything, to adopt a liberal interpretation in favour of the assured, so far as the ordinary and natural meaning of the words used by the insurers permits this to be done": Halsbury 4th ed, vol 25, para 594, note 1, cited in Mount Albert City Council v New Zealand Municipalities Co-operative Insurance Co Ltd (62)."
20 Both parties referred to Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25 at [19] to [23] where the Court of Appeal stated:
"19 On the construction question, Westpac repeated the submission it had put to the trial judge, that Tanzone's construction led to absurd results and that clause 2.02 should be construed to avoid the absurdity. Windeyer J accepted the legal proposition upon which the submission was based. He said:
"The question is whether these words [ie of clause 2.02] lead to an absurd result looking at the situation in 1985. If they do then they should be construed so as to avoid the absurdity by supplying omitting or correcting words."