Manren Limited v Royal and Sun Alliance Insurance Australia Limited [2003] VSCA 59

Court of Appeal (Vic)|2003-05-27|Before: CALLAWAY, BATT and CHERNOV, JJ.A.

Insurance - Policy - Construction - Definition of "The Business" referring to schedule - Relevant part of schedule left blank - Identification of business from proposal and other documents - Whether injury happened in connection with business so identified - Proper approach to construction of commercial contracts, including insurance policies - Exclusion for claims "arising out of any breach of a duty owed in a professional capacity" - Unnecessary and undesirable to decide whether exclusion applied.

In the early morning of Saturday 2nd March 1996 a young man called Cameron Toomey fell over a balustrade, landed on his head on concrete stairs below and suffered crippling injuries. He sued ten defendants in the Supreme Court. His claim against the fifth defendant was compromised. On 29th August 2001 judgment was given in his favour against the other nine defendants, one of whom was the present appellant, then called Hudson Conway Management Ltd. The appellant claimed indemnity from the respondent under a policy of insurance. That case was heard in February 2002 and on 7th March 2002 the learned judge, who had also been the trial judge in the original proceeding, dismissed the appellant's claim. It is from that order that the present appeal is brought.

The balustrade formed part of a building known as "Balmoral Apartments" in Hawthorn. Davidson Hughes Estate Pty. Ltd. ("Davidson Hughes") was the owner and developer during the construction of the building. Both the appellant and Davidson Hughes were wholly-owned subsidiaries of Hudson Conway Ltd. ("Hudson Conway"). In the original proceeding the appellant was found to be the agent of Davidson Hughes and was held liable to Mr Toomey on the basis that one of its employees, Robert James, the appellant's site representative, was made aware of the fact that the balustrade was not built to the height required by the building code but told the builder to leave it at the height it was.[1]

For the appellant to succeed in its claim for indemnity, it had to bring itself within the words of clause 1 of section A of the policy. They provide, among other things, that the respondent "will indemnify the Persons Insured in respect of all sums which they shall become legally liable to pay as compensation for ... [p]ersonal injury ... happening ... as a result of an Occurrence and in connection with the Business".[2] It is common ground that the appellant is one of the "Persons Insured" and that what befell Mr Toomey was "an Occurrence" within the meaning of the policy. It was the words "and in connection with the Business" which, his Honour held, were not satisfied.

The judge also considered an exclusion on which the respondent relied. The exclusion was for "claims arising out of any breach of a duty owed in a professional capacity by any of the Persons Insured". His Honour held that the exclusion did not apply. The respondent contends that he was in error in that regard and has filed a notice of contention to the effect that, even if the words "and in connection with the Business" were satisfied, the order made dismissing the appellant's claim was correct because the exclusion should have been held to apply.

The insurance policy resulted from a proposal made by Hudson Conway on 24th December 1991. The policy was renewed from time to time and there were replacement schedules dated 18th November 1995 and 16th January 1996.[3]

The definition of "Persons Insured" in the policy takes the form "'Persons Insured' shall mean" followed by six numbered sub-paragraphs. Sub-paragraph 1.1 refers to "the Policyholder named in the Schedule and all subsidiary companies (now or hereafter constituted) whose place of incorporation is within Australia or its external territories". The definition of "The Business" reads:

"'The Business' shall mean that described in the Schedule and shall also include 1. the provision of its own canteen sports social and child care facilities or welfare organisations, and its own fire first aid medical and ambulance services, by the Policyholder. 2. private work undertaken by any Employee for any director partner or senior executive of the Policyholder. 3. the ownership or occupation of, the carrying out of repairs maintenance alterations or additions to, or the demolition of, the Policyholder's premises to which this Policy applies. 4. the deeming of Person Insured 1.1 to be a manufacturer of Products by operation of a law of Australia or its external territories."

In each of the replacement schedules of 18th November 1995 and 16th January 1996 there was provision to write in a description of the business. There was a side heading "The Business" opposite which the description would have been written. Had it been written, it would have concluded with the words, printed on the schedule, "and no other for the purpose of this insurance". In both schedules the space was left blank. What then was "the Business" with which there had to be a connection within the meaning of clause 1 of section A of the policy?

The respondent submitted, and the judge reluctantly accepted, that, no description of "The Business" having been written in the schedule,[4] the only relevant business to which the policy applied was that defined in sub-paragraph 3 of the definition of "The Business". In other words, the only relevant business was "the ownership or occupation of ... the Policyholder's premises to which this Policy applies".[5] As the injury did not happen in connection with[6] the ownership or occupation of premises by the appellant, its claim against the respondent failed.

Hudson Conway's business is not limited to the ownership and occupation of property. It is also engaged, and the appellant was engaged, in the business of property development and construction. Mr James's conduct took place in connection with that business. Davidson Hughes owned the property and the appellant was the project manager. Mr Young's primary submission on the hearing of the appeal was that, the description of "The Business" in the schedule having been left blank, "the Business" in the policy meant either the business described in the proposal or the business in fact carried on by the insured. On either basis, he submitted, it would include property development and construction.

His alternative submission was that, even if the policy were construed as the judge construed it, Mr James's conduct could be shown to be in connection with the ownership or occupation of premises by a member of the Hudson Conway group, Davidson Hughes, and that that was sufficient.

In their written outline of submissions counsel for the appellant cited cases that support what may be called, although the expression has been deprecated, a purposive construction[7] of commercial contracts, including insurance policies.[8] Reliance was also placed on the following passage in the judgment of Sugerman, J. in Caltex Oil (Aust.) Pty. Ltd. v. Alderton[9]:

"A blank left in an instrument generally renders meaningless the portion of the instrument in which it appears. But this may leave the instrument as one which is capable of being carried into effect and enforced, disregarding the meaningless provision, just as may happen where some inessential provision of a contract is so vague and uncertain as to be incapable of any precise meaning..."

In oral argument emphasis was placed on the factual matrix in which the contract of insurance was made and the admissibility of extrinsic evidence to identify its subject matter.[10]

I agree that no narrow or pedantic approach is to be taken in the construction of commercial contracts, including insurance policies. On the contrary, they are to be construed in a fashion that accords with common sense, facilitates commerce, contains costs and secures public confidence in the courts. In the case of many commercial contracts, it should be possible for parties in dispute to go to their solicitors (not even to counsel) and receive the same advice. The best example is, perhaps, charterparties. The main clauses of standard charterparties have an accepted meaning. Each side receives the same advice, not speculation that an adventurous argument may succeed with an innovative judge.

Considerations of that kind (I emphasize that the last words are not directed to Mr Young's argument) led me at first to think that the view taken by the learned judge was obviously right as a matter of common sense and the natural meaning of words; that most lawyers would advise their clients accordingly; and that this Court should unhesitatingly uphold such a construction. I had in mind, in other words, that a solicitor reading the definition and noticing that there was no description in the schedule would conclude, sensibly and in accordance with the statement of Sugerman, J., that the relevant part of the schedule was to be disregarded or that, in the definition of "The Business", the words "that described in the Schedule" meant "that described in the Schedule, if any".

The difficulty with that solution, and the reason why in the end I have not adopted it, is that it ignores the structure of the definition of "The Business".[11] That expression means the business described in the schedule. It also includes four specified matters. The first two are plainly of a subsidiary character. Whilst that may not be true of the third and fourth, they are nevertheless examples of particular sources of liability, as against the general topic of liability to pay compensation for personal injury and damage to property to which the policy relates. The primary meaning of "The Business" is that described in the schedule. The four specified matters are only included. Moreover, the words of the policy are "shall also include": the four specified matters are included in addition to the business described in the schedule.

There are two other ways in which that point may be explained. The first is to emphasize that the definition does not say that "The Business" means 1. the business described in the schedule; 2. the provision of the facilities, organizations and services referred to in sub-paragraph 1; 3. private work; 4. the ownership or occupation, or repair and so forth, of premises; and 5. manufacturer's liability. If it did, one of the five topics could be excised, leaving the other four as what "The Business" means. There would be no question of elevating a subsidiary point that had merely been included. The second way is to ask what the position would have been if the four inclusions had been omitted and the definition had said simply that "The Business" means that described in the schedule. Putting rectification to one side, the choice would then have been between saying that there was no contract at all and determining its subject matter from other documents or surrounding circumstances.

It is convenient at this point to say that, in these reasons, I have put rectification to one side. One of Mr McArthur's arguments was that the appellant's submissions amounted to saying that the schedule ought to be rectified. That argument was not advanced below. The parties were content to approach the problem as one of construction. They had, after all, agreed on a contract of insurance, premiums had been paid and other claims for indemnity had been met. The difference between them was the correct identification of "The Business" in relation to which the policy applied. The conclusion I have reached makes it unnecessary to consider the rectification argument further.

Mr McArthur submitted that reference to the schedule and to the proposal showed that the construction of the policy adopted below gave effect to the objective intention of the parties. That intention was, he said, that, although the Hudson Conway group carried on a business wider than the ownership and occupation of property, it was only risks in connection with such ownership or occupation to which this policy was to apply. In other words, the parties intended the definition to be read as the learned judge did. The difficulty is that that submission, too, elevates a subsidiary provision, sub-paragraph 3, to a prominence that is inconsistent with the express language of the contract. "The Business" is not defined to mean any of the matters specified in sub-paragraphs 1 to 4 but only to include them. The contract announces in plain language that "The Business" is the business described in the schedule. Mr McArthur's submission, in the form in which it was advanced to support the construction adopted below, distorts the definition.

That is not, however, the end of the matter. Mr Young submitted that, notwithstanding the blank space in the schedule, one could ascertain that "The Business" was, or included, the business of property development and construction in the course of which Mr James's conduct took place. It could be seen, from admissible evidence, counsel said, that the risk insured against extended to that business. He invited us to turn to the schedule, the proposal and the closing instructions passing between Hudson Conway and its brokers[12] to answer the question at the end of [7] above. I agree that that is what we should do but, in my opinion, Mr McArthur's submissions show that, whatever Hudson Conway may have subjectively intended, objectively "the Business" means the business of owning and occupying property.

The schedule identifies the policyholder as Hudson Conway and the premises as 311 Glenferrie Road, Malvern, where its head office was situated. The premises are said to be occupied as "Property owners - office buildings". Liability is described as "Section A - Public Liability".[13] There is a notation reading "Endorsement effective 06/07/1995 including additional situations". Two such additional situations are then listed.

The proposal form required various questions to be answered and boxes to be filled in:

* The first four questions related to the details of the proposer. The fourth question asked for a full description of its business or occupation "including all subsidiaries". The answer typed in the relevant box was "Property investment, development, construction", but, as Mr McArthur said, that answer is not directed to the risk but to the description of the person applying for the cover. It is as if a group of doctors applying for public liability insurance in respect of the premises they occupy described their occupation as "general practitioners".

* The next group of questions concerned "Property Owner's Liability". The proposer was asked to state "details of premises owned but not occupied by you or vacant". There followed questions about rental income, passenger lifts, escalators, car parks and swimming pools. Two of the answers referred to an attachment consisting of a "Summary of Buildings Owned", a "Summary of Buildings Vendor Financed" and appendices relating to shopping centres.

* The limit of indemnity was fixed at $50 million and, moving on to a group of questions headed "Products", the expression "N/A" was typed in, because products liability insurance was not being sought.

* Under the heading "Contractual Liability" the proposer was asked whether it required the insurance to be extended "to include liability arising out of any obligations you have assumed under any contracts or agreements including hold harmless or indemnification agreements". The answer "Yes" was given and, in response to a request for details, "Various future building contracts or other contracts entered into which may obligate the group" was typed in.

* Questions were then asked under the heading "General Risk Information". They began with questions about turnover and payroll and then moved on to such matters as the use of machinery and storage of chemicals and whether work was carried on away from the proposer's premises. The answer to that last question was "Yes. On various building sites, and in existing buildings". Building work was also mentioned in the answer to the question relating to use of machinery. Another answer referred to an attached "information memorandum". The memorandum disclosed that property development was a major part of the group's business, but it was in response to the question "Do you have any foreign operations/companies?" Mr McArthur submitted that the "General Risk Information" was just that, general information relating to the risk insured.

* Provision was then made for a further extension to include liability arising out of damage to property in the care, custody or control of the insured at "any sites where future management is involved".

* After other questions, to which there is no need to refer, the form concluded with an agreement that the proposal contained particulars furnished for the purpose of obtaining the insurance and an agreement to accept the respondent's policy, subject to its terms, conditions and exclusions.

The judge considered that the answers in the proposal form, including some to which I have not referred, and the attached documents showed not only that the Hudson Conway group was engaged in development and construction as well as property investment but also that Hudson Conway intended the insurance to extend to property development and construction.[14] The only reason it did not, in his Honour's view, was the failure to carry that intention forward into the policy. Both the extent of the group's business and Hudson Conway's intention had, he considered, been conveyed to the respondent.

I respectfully agree that the proposal form disclosed that the business of the group included property development and construction as well as property investment, but not that the proposal conveyed to the respondent that the insurance was to cover property development and construction. I accept Mr McArthur's submission that the information about the group's business was just descriptive of the proposer or general information relating to the risk insured and that, putting the two extensions to one side, the proposal was limited to what it describes as "Property Owner's Liability".[15] That was the risk to be insured. I do not overlook Mr Young's reliance on the inclusion in the schedule of "additional situations" and the fact that the closing instructions, if reference may be made to them, described the "situation" as "at and from any property or situation ... owned or occupied by the Insured", but there was no reference in them to the business of property development or construction.

For these reasons, in my opinion, "The Business" means the business of owning and occupying property, or possibly just its ownership, and includes the four specified matters in sub-paragraphs 1 to 4. That does not entail that the words "and no other for the purpose of this insurance" in the schedule are to be disregarded. They still apply once "the Business" that should have been written in (determined objectively from the rest of the schedule, the proposal form and the closing instructions, if reference may be made to the closing instructions) is identified. The practical result is the same as the construction adopted below.

The schedule was drafted by the respondent, but there is no such intractable ambiguity in its language as would attract the contra proferentem rule.[16] The problem is not one of ambiguity but of identifying the subject matter of the contract.

It will be recalled that Mr Young's alternative submission was that Mr James's conduct could be shown to be in connection with the ownership or occupation of premises by Davidson Hughes and that that would be sufficient. The first step in the argument was that it was common ground that "the Policyholder's premises" in sub-paragraph 3 of the definition of the "The Business" was not limited to the premises of Hudson Conway: at the very least it meant the premises of the member of the group claiming under the policy. The next step in the argument was that it was an unnecessary restriction to say that they must be the premises of the claimant: the promise was to indemnify the claimant, as a Person Insured, in respect of its liability happening in connection with a Business that included the ownership or occupation of premises by any member of the group. In support of that reading reliance was placed on such cases as Petrofina (U.K.) Ltd. v. Magnaload Ltd.[17] and Co-Operative Bulk Handling Ltd. v. Jennings Industries Ltd.[18]

I doubt that construction. I incline to the view that the inclusion of the subsidiaries simply meant that each subsidiary could rely on the policy as if it had taken out the policy itself, but I need not decide whether that is so. I accept Mr McArthur's submission that, once the risks insured against are limited to risks in connection with the ownership or occupation of property, the appellant cannot avail itself of the policy in any event, because neither the claim nor the liability to which the claim related had to do with ownership or occupation even by Davidson Hughes. The claim and the liability related to Mr James's conduct in the course of the project management activities undertaken by the appellant on the site.

It follows, in my opinion, that the appeal should be dismissed.

It is unnecessary to decide whether the respondent could have availed itself of the exclusion for "claims arising out of any breach of a duty owed in a professional capacity by any of the Persons Insured".[19] The judge expressed a view knowing that the unsuccessful party had an appeal as of right. That is no longer the position and

this is a case which turns on its facts. In those circumstances I think it not only unnecessary but undesirable to express an opinion on a point of much wider application. I was, for example, attracted to the argument that the exclusion could not apply because the duty owed by Mr James or the appellant to Mr Toomey was quite distinct from any professional duty he or it may have owed to the building owner, but Mr McArthur persuaded me that that analysis was at least debatable and, more importantly, that the construction of the exclusion impacts on other cases, notonly where an exclusion is relied on but also where the promise of indemnity is expressed by reference to a breach of duty owed in a professional capacity.[20]

I agree with Callaway, J.A. The indemnity afforded to the companies in the Hudson Conway group by the policy as interpreted by his Honour was not nugatory even though it did not extend to the relevant, and perhaps principal, business conducted by the appellant.

I also agree with Callaway, J.A. For the reasons given by his Honour, the term "the Business" in clause 1 of section A of the policy means the business of owning and occupying property. Since neither the conduct of Mr. James nor the injury was connected with the ownership or occupation of the premises in question, the policy did not operate to indemnify the appellant in respect of Mr. Toomey's claim against it. Consequently, the appeal should be dismissed.

[1] It should have been 1,000 millimetres high. Its height was only 950 millimetres.

[2] There was also a claim under clause 2 of section A, for costs and expenses incurred, but it depended on the appellant's first bringing itself within the words that I have quoted.

[3] It is the latter schedule that is directly relevant, but it was conceded that the policy continued to apply in relation to any property listed in the former schedule.

[4] See fn. 3 above. Except where otherwise indicated, I refer to the schedule dated 16th January 1996.

[5] No distinction was drawn in argument between "the Policyholder" and one of the "Persons Insured". I assume, without deciding, that that approach was correct in this case.

[6] A question was raised in the course of argument as to what antecedent word the words "and in connection with the Business" attach, but it was not suggested that anything turned on it.

[7] Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191 at 201D.

[8] Reference was made to Calder v. Batavia Sea & Fire Insurance Co. Ltd. [1932] S.A.S.R. 46 at 56-57; Fraser v. B.N. Furman (Productions) Ltd. [1967] 3 All E.R. 57 at 60; DTR Nominees Pty. Ltd. v. Mona Homes Pty. Ltd. [1978] HCA 12; (1978) 138 C.L.R. 423 at 429 and Johnson v. American Home Assurance Co. [1998] HCA 14; (1998) 192 C.L.R. 266 at [19].

[10] Reference was made, among other cases, to Coldefa Construction Pty. Ltd. v. State Rail Authority (N.S.W.) [1982] HCA 24; (1982) 149 C.L.R. 337 at 347-353; Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1997] UKHL 28; [1998] 1 W.L.R. 896 at 912-913; Schenker & Co. (Australia) Pty. Ltd. v. Maplas Equipment and Services Pty. Ltd. [1990] VicRp 74; [1990] V.R. 834 at 837 and 840-841; Q.B.E. Insurance Co. Ltd. v. Dean (1985) 3 ANZ Insurance Cases 60-658; Manufacturers' Mutual Insurance Ltd. v. Withers (1988) 5 ANZ Insurance Cases 60-853; and B. & B. Constructions (Australia) Pty. Ltd. v. Brian A. Cheeseman & Associates Pty. Ltd. (1994) 35 N.S.W.L.R. 227.

[11] The judge may have been deflected from this point by the concession recorded at [26] of his Honour's reasons: see Toomey v. Scolaro's Concrete Constructions Pty Ltd & Ors (No. 5) [2002] VSC 48.

[12] The judge said that they were forwarded to the respondent: Toomey v. Scolaro's Concrete Constructions Pty Ltd & Ors (No. 5) at [7].

[13] The first page of the policy, disregarding its cover, which was left blank, showed that it could have included a section B relating to products liability, but it did not.

[14] Toomey v. Scolaro's Concrete Constructions Pty Ltd & Ors (No. 5) at [11]-[18].

[15] There may be a question whether occupation is included in "Property Owner's Liability" or picked up only by sub-paragraph 3, but the answer would not affect the decision in this case.

[16] Reference was made to Maye v. Colonial Mutual Life Assurance Society Ltd. [1924] HCA 26; (1924) 35 C.L.R. 14 at 22 and Halford v. Price [1960] HCA 38; (1960) 105 C.L.R. 23 at 30 and 34. See also Guardian Assurance Co. Ltd. [1919] HCA 33; (1919) 26 C.L.R. 231 at 235-236.

[20] For example, if those words are narrowly construed, would a solicitor be covered if a beneficiary sued the solicitor in a Hawkins v. Clayton case? The answer may be "Yes, because two concurrent professional duties are owed, one to the client and the other to the beneficiary." Attention might also need to be given to the effect of the words "arising out of".

At a glance

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Judgment (61 paragraphs)

Parties