OZ Minerals Holdings Pty Ltd v AIG Australia Ltd [2015] VSCA 346

2 The judge applied orthodox principles of contractual interpretation in treating the words actually used as embodying the parties' intention and in giving those words their ordinary and natural meaning in the context of the contract as a whole.

3 The respective reasons of Robson AJA and Kyrou JA, which I have had the advantage of reading in draft, and with which I agree, explain comprehensively why his Honour was correct to reject the construction advanced by the applicants.

4 Finally, I respectfully agree with what Kyrou JA has written about 'objectively justifiable commercial rationale'.

5 I have had the benefit of reading the judgment of Robson AJA in draft and agree with the order proposed by his Honour substantially for the reasons that he gives. I wish to add some brief reasons of my own as to why the appeal should be dismissed.

6 I gratefully adopt Robson AJA's summary of the facts, the relevant provisions of the policy, the reasons of the primary judge and the submissions of the parties. I also adopt his Honour's abbreviations and definitions.

7 A consideration of the nature of D & O insurance provides a useful context for assessing the competing arguments on the proper construction of the exclusion clause the subject of this proceeding.

8 D & O insurance is a specialist form of insurance with many unique features. Those features arise from the fact that the primary insureds are directors and officers

(collectively 'directors') of companies who, in the performance of their functions, are subject to a wide range of onerous common law and statutory duties and face a large array of potential claims giving rise to civil and criminal liability for breaching those duties. Directors may incur civil liability for damages or civil penalties to a multiplicity of claimants, including their company, a fellow director, a shareholder, employee, creditor or customer of the company or a regulator. The liability can involve many millions of dollars.

9 Due to the broad scope of the liabilities to which directors are potentially subject, the wide range of potential claimants and the scale of the financial exposure, it is not surprising that D & O policies contain a large number of exclusions. The subject matter of the exclusions may be defined by reference to matters such as the type of liability incurred by a director, the cause of the liability, the time at which - or the place in which - the Wrongful Act giving rise to the liability occurred, or the identity of the claimant.

10 The nature and breadth of the exclusions in a D & O policy are likely to be informed by the insurer's prior exposure to particular claims and its underwriting philosophy and risk appetite. An exclusion may be inserted as a standard exclusion in all D & O policies of the insurer due to general underwriting considerations or as a special exclusion in a policy of a particular company due to factors peculiar to that company. An exclusion may also be inserted because a reinsurer insists on it based on the reinsurer's own claims experience, underwriting philosophy and risk appetite.

11 Some exclusions are considered 'standard' because they appear in the D & O policies of many insurers even though their wording may vary. Other exclusions may be less uniform across the range of D & O policies available in the insurance market. Further, an exclusion in a particular company's D & O policy may be specially drafted to deal with the company's peculiar circumstances. It follows that there can be significant differences in the nature, scope and wording of exclusions in D & O policies.

12 A decision by an insurer to insert a particular exclusion in its D & O policy and the insurer's choice of language to delineate the scope of the exclusion may be informed by a multiplicity of commercial considerations. Where, based on well publicised empirical evidence, it is generally accepted within the business community that a particular risk has a high degree of probability and a large potential monetary exposure, the commercial rationale for an exclusion for that risk will be readily apparent. However, it cannot necessarily be assumed from the fact that an exclusion in the D & O policies of different insurers deals with the same subject-matter that all of the insurers were actuated by exactly the same commercial considerations in inserting the exclusion in their policies.

13 An insurer may choose to exclude cover for a particular risk even though other insurers provide cover for it and the commercial rationale for the exclusion is not obvious. The exclusion may simply reflect an underwriting decision made by the insurer (or its reinsurers) that it will not provide cover for particular losses or for claims made by particular individuals associated with the company. As long as the wording of the exclusion in its natural meaning clearly reflects such an underwriting decision, the insurer is not required to demonstrate that the exclusion has an objectively justifiable commercial rationale before it can rely upon it. This is because the task of the Court is to give effect to the plain language used by the parties.

14 In the present case, the policy follows the usual format of a D & O policy. The main policy document contains an insuring clause, extensions, exclusions, conditions and a schedule. That document is supplemented by a large number of endorsements which contain additional extensions, exclusions and conditions.

15 The insuring clause adopts the familiar approach of providing cover for 'Claims first made against an Insured during the Policy Period ... and notified to the Insurer as soon as practicable during the Policy Period'. The insuring clause goes on to impose an obligation on the insurer to 'pay the Loss of each Insured Person arising from a Claim against such Insured Person'. The definition of 'Claim' makes it clear that, with two exceptions, the Claims for which cover is provided must be 'for a specified Wrongful Act'. In essence, the definition of 'Loss' refers to monetary liabilities incurred by directors. Accordingly, the insuring clause relevantly provides cover for monetary liabilities of directors arising from Claims made against them during the Policy Period for a specified Wrongful Act and which are notified to the Insurer during that period.

16 In broad terms, the exclusions in the policy can be categorised as follows:

(a) exclusions based on the type of liability ('Pollution' exclusion; 'Bodily Injury & Property Damage' exclusion; 'Prospectus Liability - Outside Entity' exclusion);

(b) exclusions based on the cause of the liability ('Insolvency - Outside Entity' exclusion; 'Executive Accident Protection' exclusion);

(c) exclusions based on the time at which the Wrongful Act was committed ('Run-Off' exclusion; 'Retroactive Date' exclusion);

(d) exclusions based on the place where the liability was incurred ('USA/Canada Exclusion - Outside Entity' exclusion);

(e) exclusions based on the identity of the claimant ('Consensual Claim' exclusion; 'Insured v Insured' exclusion; 'Recovery Against Employees' exclusion; 'Major Shareholder and Board Position' exclusion; 'Major Shareholder Exclusion - Total - Outside Entity' exclusion);

(f) exclusions based on the nature of the director's conduct ('Conduct' exclusion);

(g) exclusions based on the nature of the breach of duty by the director ('ERISA' exclusion; 'Professional Services' exclusion); and

(h) exclusions relating to pre-existing claims ('Known or Prior' exclusion; 'Contingent Liability' exclusion).

17 The exclusion clause - which is headed 'Major Shareholder and Board Position Exclusion' - is in an endorsement rather than in the main policy document. This means that the Insurer made a decision to add the exclusion to the policy wording, presumably on the basis that it considered that the exclusion was appropriate to the circumstances of Zinifex Limited.

18 The exclusion clause falls into category (e) at [16] above. It states that the Insurer is not liable for 'any Claim brought by any past or present shareholder ... who had or has' the two specified attributes. Read grammatically and in a common sense manner, it excludes cover for any Claim brought by any past shareholder who had the two specified attributes and any Claim brought by a present shareholder who has or had the two specified attributes.

19 Both at trial and on the appeal, there were extensive submissions on the point or points in time at which a past or present shareholder must have the attributes specified in the exclusion clause. In my opinion, there is no single or fixed point in time for determining whether the terms of the exclusion are satisfied. The determining criterion is whether, at any time relevant to the issue of policy coverage, the terms of the exclusion are satisfied.

20 In the case of a past shareholder, when a Claim is made, the question is whether, at a time relevant to the issue of coverage under the policy, the claimant was a shareholder who had the specified attributes. That time will invariably be the time of the alleged Wrongful Act, as any other time would not be relevant to policy coverage. This is because, in the absence of an allegation of a Wrongful Act against the director seeking cover, there cannot be any Loss which qualifies for indemnity under the policy.[1] Moreover, a person who is a past shareholder at the time the Claim is made cannot, by definition, have the specified attributes at that time.

21 In the case of a present shareholder, when a Claim is made, the question is whether, at a time relevant to the issue of coverage under the policy, the claimant is a shareholder who has or had the specified attributes. That time includes:

(a) the time when the Claim is made because of the use of the present tense in the exclusion clause and also because the making of a Claim is a precondition to policy coverage under the insuring clause; and

(b) the time of the alleged Wrongful Act because a person who is a shareholder at the time the Claim is made could have had the specified attributes at the time of the alleged Wrongful Act irrespective of whether he or she still has them at the time the Claim is made.

22 Both at trial and on the appeal, the applicants relied upon other provisions of the policy with multiple temporal references which, according to them, informed the construction of the exclusion clause. Those provisions provided little assistance in the construction of the exclusion clause for two reasons. First, linguistic consistency was not one of the hallmarks of the policy. Secondly, the other provisions must be considered in their individual context which differs from that of the exclusion clause. This includes definitions which must be applied throughout the policy and not just for the purposes of the exclusion clause. Two examples are the definition of 'Insured Person', which uses the phrase 'any natural person who was, is or during the Policy Period becomes' a director, and the 'Outside Directorships' endorsement, which amends the 'Outside Directorships' extension to provide that 'Insured Person' includes 'any representative of any Company who is or was appointed as a director ... of an Outside Entity at the specific request or approval of any Company'. As policy coverage depends on the making of a Claim alleging a Wrongful Act,[2] the only point in time that the issue of policy coverage will arise for a person in his or her capacity as a past or present director is the time of the Wrongful Act that is alleged in the Claim that is brought against him or her. However, that is not the only logical point in time for the purposes of the exclusion clause.

23 In the present case, at the time when the Claim against the applicants was made by Oxiana Limited, that company was a present shareholder of Zinifex Limited and had Oxiana Limited, that company was a present shareholder of Zinifex

Limited and had the attributes specified in the exclusion clause. Once that conclusion is reached, the Insurer is entitled to the benefit of the exclusion clause - construed in the manner set out at [21] above - without having to establish that there are any particular objectively demonstrable risks to which the exclusion clause - construed in that manner - is directed. In any event, I am satisfied, for the reasons given by the primary judge and Robson AJA that there are such objectively demonstrable risks.

24 This application for leave to appeal concerns the construction of an exclusion clause in an insurance policy. The applicants are insured under the policy. A claim in legal proceedings has been made against the applicants and they seek to be indemnified under the policy. The Insurer has denied liability, asserting an exclusion clause in the policy has been enlivened that excuses the Insurer from liability.

25 By an originating motion, the applicants sought a declaration that the exclusion clause did not apply to their claims under the policy and that they were entitled to an indemnity under the policy. The trial judge dismissed their application. The applicants seek leave to appeal. The application was heard as if leave were granted.

26 The sole issue on the hearing of the application was whether, on its proper construction, the exclusion clause has been enlivened. The facts are not in dispute. For the reasons given below, his Honour was correct to conclude that the exclusion clause has been enlivened and that the applicants are not entitled to be indemnified under the policy. I would grant leave to appeal but dismiss the appeal. Background to claim.

27 For convenience where applicable I will use the terms as defined in the policy.

28 The first applicant, OZ Minerals Holdings Limited, is a mining company that was previously known as Zinifex Limited. On or about 24 April 2008, Zinifex Limited took out a policy of insurance entitled 'D&O Gold Directors & Officers Liability Insurance Policy' with American Home Assurance Company trading as AIG Australia. The second to fifth applicants are three former directors of Zinifex Limited, which was a public company at the time the policy was taken out, and Mr Barnes the then chief financial officer of Zinifex Limited.

29 On or about 1 March 2011, the rights and obligations of the Insurer were transferred to the respondent under the name Chartis Australia Insurance Limited by way of a scheme under the Insurance Act 1973 (Cth). On or about 18 February 2014, the respondent changed its name from Chartis Australia Insurance Limited to AIG Australia Limited.

30 On 3 March 2008, Oxiana Limited and Zinifex Limited announced that they had entered into an agreement to merge their businesses. The merger was to be effected by a scheme of arrangement whereby Oxiana Limited would acquire all the issued shares in Zinifex Limited and the shareholders of Zinifex Limited would be issued shares in Oxiana Limited.

31 As is usual in such a scheme, the scheme was proposed by Zinifex Limited as all the shares of the shareholders in Zinifex Limited were to be acquired by Oxiana Limited under the terms of the scheme. As is required under the Corporations Act 2001 (Cth) ('Corporations Act'), on or about 12 May 2008, Zinifex Limited prepared and filed with ASIC an explanatory memorandum for the scheme (also known as the scheme booklet) which was sent to all the shareholders of Zinifex Limited, after Zinifex Limited obtained an order of the Court for the calling of meetings of its shareholders to consider and, if thought fit, approve the scheme.

32 After the necessary meetings were held and the shareholders of Zinifex Limited voted in favour of the scheme, the scheme was approved by this Court on 20 June 2008. At that point, Zinifex Limited became a wholly owned subsidiary of Oxiana Limited. As a result of the scheme, Oxiana Limited was renamed OZ Minerals Limited and Zinifex Limited was renamed OZ Minerals Holdings Limited and, subsequently, Oz Minerals Pty Limited. To avoid confusion, I will refer to the companies by their previous names.

33 Since 1 July 2008, Oxiana Limited and Zinifex Limited have operated as one consolidated group and prepared and reported accounts as a consolidated entity on the basis that Oxiana Limited has, throughout that period, wholly owned and controlled Zinifex Limited and has the power to govern its financial and operating policies.

34 On or about 24 February 2014, Tobias Mitic commenced group proceedings in the Federal Court of Australia against Oxiana Limited, alleging a breach of continuous disclosure obligations under the Corporations Act and misleading or deceptive conduct in respect of the merger between Zinifex Limited and Oxiana Limited. Mitic's claims are, inter alia, based on the contents of the scheme booklet published by Zinifex Limited prior to the scheme being approved.

35 Most of the alleged non-disclosures or misrepresentations went to the business affairs of Oxiana Limited, which had been reviewed by the Zinifex Limited officers and then included or not included, as the case may be, in the scheme booklet.

36 On or about 19 June 2014, Oxiana Limited commenced third party contribution proceedings against each of the applicants (including Oxiana Limited's wholly-owned subsidiary, Zinifex Limited), seeking amongst other things, contribution, indemnity and other relief from the applicants, in the event that Oxiana Limited was found liable to Mitic, and the group members, in the group proceeding. The contribution proceeding was subsequently transferred to the Federal Court of Australia.

37 In the statement of claim in the contribution proceeding, Oxiana Limited alleged that Larkin, Pritchard, Knight and Barnes were each members of a Zinifex Limited committee (described as a due diligence committee) that was to ensure, as far as was possible, that the scheme booklet was not misleading or deceptive or likely to mislead or deceive and that there were no material omissions of information in the scheme booklet.

38 Oxiana Limited alleges against the applicants (including its wholly-owned subsidiary, Zinifex Limited) that Mr Mitic claims in the proceedings against Oxiana Limited that misleading or deceptive representations were made by Oxiana Limited in or by the scheme booklet. In substance, Oxiana Limited alleges that by the second to fifth respondents' involvement in, inter alia, the preparation of the scheme booklet, each of them was involved in the contraventions alleged by Mitic in the group proceeding against Oxiana Limited and that each of them is liable to Mitic and the group members for loss and damage. Oxiana Limited also alleges that Zinifex Limited, the first applicant (and its wholly-owned subsidiary), represented that the scheme booklet contained all information that was relevant to the making of a decision by a shareholder of Zinifex Limited whether or not to agree to the scheme and thus engaged in wrongful conduct in the issuing of the scheme booklet.

39 The Policy Period was initially from 31 March 2008 to 31 March 2009. The alleged Wrongful Act of the applicants occurred within the Policy Period, shortly before 20 June 2008 (when the scheme to merge the businesses of Oxiana Limited and Zinifex Limited was approved) but after 3 March 2008, when Oxiana Limited and Zinifex Limited announced that they had entered into an agreement to merge their businesses.

40 The trial judge found that the principal purpose of the policy was to provide directors and officers liability insurance, with an extension to cover Zinifex Limited for defined Securities Claims. His Honour found that the policy maintained a clear distinction throughout between the two kinds of cover provided. The directors and officers liability extended to claims for a broad range of Wrongful Acts. On the other hand, the cover provided to Zinifex Limited is limited to Wrongful Acts giving rise to Securities Claims.

41 At the time the policy was issued, it covered Claims made against Insured Persons in respect of defined Wrongful Acts committed or allegedly committed after 1 September 2002 and notified during the Policy Period. The policy provided, however, that if a merger such as the one in this case occurred during the Policy Period, then the policy would be automatically amended to apply only to Wrongful Acts occurring prior to the effective time of the merger. Following the implementation of the merger, the policy was amended by the addition of two endorsements dated 28 July 2008:

(1) A 'Run-Off Exclusion' which provided that the Insurer would not be liable in connection with any claim in respect of a Wrongful Act committed or allegedly committed after 20 June 2008 (the 'run-off exclusion'). (The 20 June 2008 being the date the merger of Zinifex Limited and Oxiana Limited was approved by the court.)

(2) A 'Discovery Period Endorsement' under which, in consideration of a further premium of $600,000, the Insurer agreed to extend the 'Discovery Period' from the existing policy period ending on 31 March 2009 to the period from 20 June 2008 to 20 June 2015 (the 'Discovery Period extension').

42 The effect of the Run-Off Exclusion and the Discovery Period extension was to extend the period during which Claims covered by the policy could be made until 20 June 2015, but to limit the cover to Wrongful Acts committed between 1 September 2002 and 20 June 2008 (the 'cover period'). Accordingly, the policy provided cover for Wrongful Acts committed or allegedly committed in the course of the merger process if they otherwise fell within the terms of the policy and were not specifically excluded.

43 It was common ground between the parties that each of the applicants is an 'Insured' under the policies. Further, it is common ground that the contribution claims were made and notified to the Insurer within the time provided for the making of claims under the policy and that the contribution proceeding was a Claim within the terms of the policy, save for the exclusion clause as set out.

44 The exclusion clause was the third endorsement to the policy. It was effective from 31 March 2008 and formed part of the policy. The endorsement provided:

MAJOR SHAREHOLDER AND BOARD POSITION EXCLUSION

In consideration of the Premium, the policy is amended as follows:

Exclusion: the following Exclusion is added to the policy:

The Insurer shall not be liable to make any payment under this policy in connection with any Claim brought by any past or present shareholder or stockholder who had or has:

(i) direct or indirect ownership of or control over 15% [or] more of the voting shares and rights of the Company or of any Subsidiary; and

(ii) a representative individual or individuals holding a board position(s) with the Company.

ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED[3]

45 The parties agree that neither of the two conditions (i) and (ii) for the engagement of the exclusion clause was satisfied before 20 June 2008 (the date the scheme was approved). The parties also agree that Oxiana Limited has satisfied the first condition (i) on 20 June 2008, as it has since that time been the sole shareholder of Zinifex Limited. Accordingly, it is not in dispute that the first condition was also satisfied at the time the contribution Claim was brought by Oxiana Limited against Zinifex Limited and the relevant officers. As noted below, his Honour concluded that, on the evidence, the second condition was satisfied at the time of the Claim. These conditions will be referred to as the 'attributes' later in these reasons.

46 All the wrongful conduct alleged against Zinifex Limited and the officers is alleged to have occurred before 20 June 2008 (the date of the court approval for the scheme of arrangement).

47 The applicants contend that the trial judge erred in finding that on the proper construction of the exclusion clause, the Insurer was entitled to deny liability under the policy to the applicants.

48 The trial judge held that the Insurer had proved that the second condition in the exclusion clause was satisfied at the time the Claim was brought.

(a) prior to 20 June 2008, neither of the two conditions for the operation of the exclusion clause was satisfied; and

(b) at the time the contribution claims were brought, both conditions for the operation of the exclusion clause were satisfied.

50 The trial judge described the issues between the parties as follows:

The central issue for determination concerns the point or points in time at which a claimant is to be assessed against the conditions in the exclusion clause. In summary, the plaintiffs contend that the exclusion clause is only intended to exclude Claims by claimants who satisfy the conditions at the time of the alleged Wrongful Acts giving rise to the contribution claims, in this case before 20 June 2008. They contend that it makes no commercial sense for the exclusion clause to require an assessment of the claimant against the conditions in the exclusion clause at the time a Claim is brought. The Insurer contends that the words of the exclusion clause unambiguously disclose an intention that it should operate at both the time of the alleged Wrongful Acts and the time the contribution claims were brought.[4]

51 The exclusion clause includes reference to words and terms which are defined in the policy. Accordingly, his Honour said that in order to construe the exclusion clause in the context of the policy as a whole, it is necessary to refer to some of the defined terms as follows:

(1) 'Claim' is defined to include:

(i) any written demand or civil, criminal, administrative, regulatory or arbitration proceeding seeking compensation or other legal remedy ... for a specified Wrongful Act ...

[including] any Securities Claim ... but only with respect to [the extended cover to [Zinifex Limited] and its Subsidiaries].

(2) 'Company' is defined to include [Zinifex Limited] and any 'Subsidiary'.

(3) 'Insured' is defined to include [Zinifex Limited], its Subsidiaries and any 'Insured Person'.

(4) 'Insured Person' is defined to include directors and officers of [Zinifex Limited] or its Subsidiaries.

(5) 'Subsidiary' [which includes a 'New Subsidiary' as defined] is defined in the following terms:

(i) any entity in which the Policyholder, either directly or indirectly through one or more entities:

(a) controls the composition of the board of directors;

(b) controls more than half of the shareholder voting power; or

(c) holds more than half of the issued share capital; or

(ii) any joint venture or entity over which the Policyholder exercises effective management and control;

on or before the inception of the Policy Period.

'Subsidiary' cover only applies to Wrongful Acts committed or allegedly committed while an entity was or is a Subsidiary of the Policyholder.

(6) 'New Subsidiary' is defined to include any entity which becomes a Subsidiary during the Policy Period.

(7) 'Wrongful Act' is defined in broad terms to include: (i) actual or alleged wrongful acts or omissions by Insured Persons acting on behalf of [Zinifex Limited] ; and (ii) actual or alleged wrongful acts or omissions of [Zinifex Limited] or a Subsidiary 'but solely in respect of a Securities Claim.'

52 The learned judge then set out the relevant principles of law to be applied in construing a contract. The parties agree that the learned judge correctly identified the relevant principles. His Honour said: [5]

This requires the Court to consider what reasonable persons in the position of the parties would have understood the words to mean by reference to the text of the agreement, the surrounding circumstances known to the parties and the purpose or object of the transaction.[6] In interpreting the words and resolving any ambiguity, the Court should proceed in a common sense and non-technical way and give the agreement a commercially sensible construction.[7] The Court should have regard to all of the words used in the agreement 'so as to render them all harmonious with one another'[8] and to ensure the 'congruent operation of the various components as a whole.'[9]

As this case involves the interpretation of an exclusion clause, the principles stated in Darlington Futures Ltd v Delco Australia Pty Ltd apply.[10] In that case, the High Court stated that:

the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in the case of ambiguity.[11]

The Court does not strain to find ambiguity in exclusion clauses.[12] It is only appropriate to apply the contra proferentem principle when ambiguity remains after applying accepted principles of contractual interpretation.[13]

In giving contracts a businesslike interpretation, the Court approaches the task on the assumption that the parties intended to produce a commercial result and, accordingly, a commercial contract is to be construed so as to avoid 'making commercial nonsense or working commercial inconvenience.'[14] Accordingly, if an exclusion clause is reasonably open to two competing constructions, the preferred construction is the one that avoids capricious, unreasonable, inconvenient or unjust consequences.[15]

As the Insurer emphasises, however, the task of interpreting a contractual term, including an exclusion clause, begins with the words. If they are unambiguous and do not give rise to commercial nonsense or commercial inconvenience, the Court must give effect to them, notwithstanding that it may be guessed or suspected that the parties intended something different.[16] As to whether a proffered construction of a term produces commercial nonsense or inconvenience, the Court must, in accordance with the objective approach to interpretation of contracts, assess those matters by reference to what persons in the position of the parties would have reasonably understood at the time the contract was made.

53 The learned judge addressed the Insurer's construction of the exclusion clause as follows. The Insurer's argument was that the policy is a 'claims made policy'. The Insurer's obligation to indemnify is only triggered by the making of a Claim within the Policy Period as extended by the Discovery Period extension.

54 The Insurer contended that such a policy was to be distinguished from an 'occurrence based' policy, under which an insurer is obliged to provide indemnity for defined events occurring within a particular period, whenever the claim for insurance cover in respect of that event is made. Accordingly, the Insurer contended that a Wrongful Act is not a sufficient trigger for indemnity under the policy. There must be both a Wrongful Act within the cover period and a Claim made in respect of the relevant acts within the Policy Period or the Discovery Period.

55 The Insurer contended that the conditions for the operation of the exclusion clause unambiguously apply to the time of both events - the Wrongful Act and the Claim. The Insurer contended that the claims made structure of the policy explained the use of the past and present tenses in the exclusion clause.

56 Accordingly, the Insurer said that the present tense words - 'present shareholder ... who has' - were obviously intended to apply to the time the relevant Claim is brought. As to the past tense words - 'past shareholder ... who had' - the Insurer accepted that, construed in a businesslike manner, these words could not have been intended to have their literal meaning, under which they would apply to any time before the policy was made. The Insurer agreed with the applicants that these words were intended to apply to the time of the alleged Wrongful Act giving rise to the Claim.

57 The Insurer contended that such a construction accorded with business common sense, because the holder of more than 15 per cent of the Company's shares with a board representative may have had the capacity to exert some influence over the Wrongful Act giving rise to the Claim.

58 The Insurer contended that there is no commercial nonsense or inconvenience attaching to its construction of the present tense words which could justify the Court departing from the unambiguous meaning of the words. The Insurer contended that it was objectively reasonable for it to seek to protect itself against the following risks:

(1) The risk that a claimant shareholder with a representative on the Zinifex Limited board may, at the time a Claim is brought, have the capacity to influence Zinifex Limited's defence of the Claim. In such circumstances, Zinifex Limited may have no commercial interest in defending the Claim, especially in instances where the claimant owns all of Zinifex Limited's shares, as here, and the insurance proceeds could be used to benefit the corporate group to which Zinifex Limited belongs. In such circumstances, Zinifex Limited could benefit from the establishment of a claim against it and the consequent payment by the Insurer of Loss arising from an indemnified Claim.

(2) The risk that a claimant shareholder with a board representative would have access to information about Zinifex Limited's internal workings, or other confidential information such as the terms and amount of cover under the policy, which could provide the claimant with a forensic advantage that an arms-length claimant would not enjoy. The Insurer's concern about the risk of misuse of Zinifex Limited's confidential information was apparent from one of the General Provisions in the policy, which obliged any Insured to make reasonable efforts not to disclose the existence of the policy or its terms, with limited exceptions.

(3) The risk that in a contribution claim (such as the present) Zinifex Limited and a claimant shareholder may co-operate to maximise the culpability of Zinifex Limited and its insured directors and officers and minimise that of the claimant, so as to maximise the amount of the Loss to be indemnified by the Insurer.

59 The learned judge then addressed the applicants' construction of the exemption clause as follows.[17]

60 The applicants contended that the objective purpose of the policy was to provide cover to the Insured for Defence Costs and Loss arising from Wrongful Acts. The fact that cover under the policy was limited to Claims first made within the Policy Period or the Discovery Period was merely an additional condition of cover. The 'claims made' nature of the policy did not alter its essential purpose and the exclusion clause should accordingly be construed with that purpose in mind.

61 Second, the applicants contended that the exclusion clause was ambiguous as to the time at which it was intended to operate.

62 The learned judge said that in respect of the past tense words, the parties agreed that the literal meaning makes no commercial sense and must be rejected to give those words a businesslike interpretation. The parties agreed that the past tense words are not directed to the shareholding position at any time in the past (the literal meaning), but only to the time of the relevant Wrongful Act which was the subject of the Claim.

63 As to the present tense words, the applicants contended that their literal meaning was directed at the commencement of the Policy Period (31 March 2008) or the date the policy was issued (24 April 2008). That literal meaning made no commercial sense either, as it was unrelated to the time of a relevant Wrongful Act or the making of a Claim. Accordingly, the parties' intention as to the time at which those words were intended to apply raises another question of contractual interpretation, to be assessed in a businesslike manner in accordance with the above principles.

64 Third, the applicants contended that a reasonably open interpretation of the exclusion clause was that it referred to both former and continuing major shareholders who had the requisite shareholding and board representation at the time of the Wrongful Act. The applicants contended that, sensibly construed in light of the agreed position that the past tense words refer to the time of the alleged Wrongful Act, the present tense words do no more than make it clear that the conditions for the operation of the exclusion clause apply also to a major shareholder at the time of the Wrongful Act who continues to be a major shareholder.

65 The learned judge referred to the applicants' written submissions before him in which the applicants contended that this grammatical construction was reasonably open because:

First, it is consistent with the words 'past or present shareholder ... who had or has'. Sensibly construed, those words respectively refer to (1) an entity which was a major shareholder of the [Company] at the time of Wrongful Act but no longer is (i.e., a past shareholder who had the relevant ownership interest and board representation) or (2) an entity which was at the time of the Wrongful Act, and still is, a major shareholder of the [Company] (i.e., a present shareholder who still has the relevant ownership interest and board representation). So construed, the [exemption] covers former and continuing major shareholders who had the requisite shareholding and board representation at the time of the Wrongful Act.

On this reading of those words, their purpose is merely to clarify, for the avoidance of doubt, that a claimant cannot escape operation of the exclusion by bringing a claim after (perhaps some time after) they ceased to be a major shareholder if they had the requisite status at the time of the Wrongful Act the subject of the claim. These words put that circumstance beyond doubt.

66 The learned judge said that these submissions focused on reading 'has' as 'still has', but did not address the express use of the word 'present' in the present tense words. So, according to the argument, the present tense words should read: 'any ... present shareholder ... who ... [still] has'.[18]

67 The next step in the applicants' argument was that this grammatical construction was consistent with the other terms of the policy. To that end, the applicants reproduced the exclusion clause importing the definitions of the terms used in the clause which were defined elsewhere in the policy, as follows:[19]

The insurer shall not be liable to make any payment under this policy in connection with any written demand or civil proceeding seeking compensation or other legal remedy for a specified Wrongful Act, being an alleged breach of duty, misleading statement or omission done:

(a) by a natural person who was, is or, during the Policy Period becomes a director of the Company; or

**(b) by the Company itself in respect of a Securities Claim (including a contravention of s 674 of the Corporations Act) - **

where such demand or proceeding is brought by any past or present shareholder or stockholder who had or has:

(i) direct or indirect ownership of or control over 15% [or] more of the voting shares or rights of the Company, or any entity which was a subsidiary of the Company on or before the inception of the policy year commencing 31 March 2008 or in which the Company obtains sufficient shares or control that it becomes a New Subsidiary during that year, but in the latter case cover only applies in respect of Wrongful Acts allegedly committed while that entity was or is a Subsidiary of the Company; and

(ii) a representative individual or individuals holding a board position(s) with the Company[20]

68 The applicants relied on the italicised words in the above re-write. The applicants contended that those words were speaking historically and, in common with the exclusion clause, used the present tense 'is' to refer to the status of an Insured at the time of the alleged Wrongful Act. In other words, consistent with the applicants' interpretation of the present tense words - 'Claim brought by any ... present shareholder ... who ... [still] has' - the italicised reference to 'is' should be read as a reference to a person or entity that 'still is'.

69 The next contention of the applicants was that the commercial purpose of the policy, combined with the introductory words to the section of the policy concerning exclusions, demonstrated that 'the hinge upon which the exclusions apply' was the Wrongful Act which is the subject of the relevant Claim. The introductory words to the exclusions are in the following terms:

The Insurer shall not be liable to make any payment under this policy in connection with any Claim arising out of, based upon or attributable to: ...

70 The applicants contended that the emphasised words had no relevance to the time at which a Claim was made, but only to the circumstances giving rise to the Wrongful Act.

71 The applicants' fourth contention was that interpreting the exclusion clause as referring to the time of the relevant Wrongful Act was consistent with authority concerning the time at which the application of exclusion clauses in insurance policies was to be assessed.

72 They placed reliance on Mobbs v Powell,[21] a decision of Gillard J concerning an exclusion clause in a motor vehicle insurance policy. In that case, the exclusion clause provided that the policy did not cover the insured for liability caused while the motor vehicle was being driven by any person with the consent of the insured if the driver was not duly authorised under all relevant laws, bylaws and regulations to be driving such vehicle for the purpose for which it was being used. The insured vehicle was a commercial vehicle. The person driving with the consent of the insured held a special licence to drive that particular kind of vehicle. However, at the time of the accident, the vehicle was carrying a load exceeding the legislated maximum height that could be carried without a special permit first being obtained. The insured argued that it was sufficient, in order to avoid the operation of the exclusion clause, that the driver was licensed to drive the relevant kind of vehicle at the time of the accident. Gillard J described this argument as attaching a wide purpose to the authorisation requirement in the exclusion clause. The Insurer contended that a wide authority to drive the vehicle was insufficient, because there was no authority for the driver to drive it for the purpose for which it was being used at the time of the accident, namely to convey an over-height load without a permit. Gillard J referred to this as the narrow purpose.

73 Gillard J preferred the narrow purpose, because the exclusion clause was intended to apply to the use to which the vehicle was being put at the time of the accident giving rise to liability. His Honour rejected the argument that there was ambiguity in the exclusion clause and continued:

The liability on the insurer is to indemnify the insured against certain events which must have a temporal relationship to the policy. There must be an event which gives rise to a liability. It is in respect of this liability that the exclusion attaches. Accordingly, the exclusion also must have a temporal ingredient. In this case ... the Court will be bound to find that the vehicle was being used to transport a load for which it was not duly authorised by a formal permit ... or other relevant authority to carry. So the person in using the vehicle in this way was not duly authorised under all relevant laws to be driving the vehicle for the purpose it was then being used. Accordingly, I have reached the conclusion that the driver ... was not duly authorised to be driving the vehicle for the prescribed purpose.[22]

74 The applicants contended that their interpretation, which involved giving the exclusion clause a temporal connection to the Wrongful Acts giving rise to the contribution claims, was consistent with Gillard J's reasoning in Mobbs.

75 Fifth, the applicants relied on the run-off exclusion, which established a 'temporal end-point' for the Wrongful Acts giving rise to claims under the policy. They contended that the run-off exclusion was consistent with the focus of the policy being to provide cover for Wrongful Acts during the cover period only - when Oxiana Limited did not have control or influence over Zinifex Limited.

76 Sixth, the applicants rejected the Insurer's contentions concerning the reasonableness of its suggested commercial rationale for applying the exclusion clause to the time at which the relevant Claim is made.

77 The learned judge said[23] that the commercial rationale put forward by the Insurer could fairly be summarised as an intention to diminish the risks of: (1) co-operation between the claimant shareholder and the Insured against whom the Claim was made; and (2) misuse of the Company's confidential information to the claimant's forensic advantage. The applicants contended that the Insurer's suggested risks were far removed from the commercial purpose of the policy as a whole and were, in some respects, specious.

78 In summary, as the learned trial judge sets out at [39] of his judgment, the applicants contended that the suggested risks:

(1) did not reflect the express terms of the exclusion clause, but were instead directed to only one of the many circumstances in which it may operate if the Insurer's construction was accepted;

(2) emphasised the secondary purpose of the policy (to provide cover to Zinifex Limited for Securities Claims) and not its primary purpose (to provide cover to the Zinifex Limited directors and officers for Wrongful Acts);

(3) required words to be read into the exclusion clause;

(4) would lead to unfair and capricious outcomes in many circumstances; and

(5) were in any event addressed by other exclusions in the policy.

79 The trial judge preferred the Insurer's construction. He said that it was grammatical, it accorded with the structure of the policy (which requires two events, not one, to establish liability for Loss) and that the suggested commercial rationale was objectively reasonable.

80 His Honour said that the applicants' construction was contrary to authority, because it required a strained approach to find ambiguity in the exclusion clause. He said that it was also ungrammatical and inconsistent with the policy's structure.

81 As to the applicants' first contention, he accepted that the primary purpose of the policy was to provide cover to the Insured for Wrongful Acts. However, he rejected the contention that the 'claims made' structure of the policy reflected merely an additional condition for cover. His Honour found that it was an essential condition precedent to cover, and its existence was consistent with the use of the past and present tenses in the exclusion clause.

82 As to the second contention, his Honour accepted that the past tense words in the exclusion clause should not be read literally and should be interpreted in the agreed manner, as applying only at the time of the alleged Wrongful Act underlying the Claim.

83 He did not accept, however, the applicants' suggested literal meaning of the present tense words. In the context of the structure of the policy as a whole, his Honour said that the present tense words were clearly directed to the time when a Claim is brought.

84 As to the third contention, his Honour found that the applicants' suggested construction - involving reading 'has' as 'still has' - was not grammatical. He said that it did not address the express use of the word 'present' in the present tense words. He said that the proposed inclusion of the word 'still' would create incoherence with the word 'present'.

85 The judge also rejected the applicants' reliance on the re-write of the exclusion clause which, incorporating paraphrased definitions, the applicants contended demonstrated that the present tense ('is'), when utilised in the exclusion, refers to historical matters.

86 His Honour did not accept that the first use of the present tense 'is' - a person who was, is or, during the Policy Period, becomes - speaks historically. In that instance, he said that the word was used in its literal sense, so that the definition as a whole referred to a director of Zinifex Limited who was a director before the inception of the policy, who is a director at the date of the policy (24 April 2008) or at the commencement of the Policy Period (31 March 2008), or who becomes a director during the Policy Period.

87 His Honour said that the second use of the present tense word 'is' - 'while that entity was or is a Subsidiary of [Zinifex Limited]' - presented some difficulty. His Honour said that the clumsiness in that drafting was not, however, a sufficient basis to read all of the present tense words in the exclusion clause as being intended to include only past events.

88 He said that the inclusion of both the past and present tense - was and is - appeared to be mere surplusage in the context of the preceding words and the structure of the incorporated definition of Subsidiary. His Honour said that that definition differed materially from the exclusion clause, where the alternative tenses 'had or has' were clearly tied to the words 'past or present', thereby signalling a requirement that the conditions in the clause be considered at two separate points in time.

89 His Honour said that the applicants' reliance upon the introductory words to the section of the policy concerning exclusions was, in his opinion, misplaced. His Honour said that the exclusion clause contained its own introductory words: 'The Insurer shall not be liable to make any payment under this Policy in connection with any Claim brought ...'.

90 His Honour said that applying the introductory words to the exclusion clause would lead to unnecessary repetition. He said that the two sets of prefatory words could not be reconciled - one set referred to the subject matter of a Claim, the other referred to the characteristics of a claimant. Finally, as a matter of the policy's structure, his Honour held that there was another exclusion clause which was self-contained and did not draw upon the introductory words for its meaning, namely, the exclusion for bodily injury and property damage.

91 As to the fourth contention, his Honour said that the decision in Mobbs was inconclusive. He said that that case concerned an 'occurrence based' policy where there was a single temporal element. The application of the exclusion clause in that case to the time of the insured event giving rise to liability did not establish any general principle that exclusion clauses in insurance policies must be construed as applying only at the time of the event causing the loss which engages the policy. He said that each case would depend on the words of the relevant exclusion clause, construed in the context of the policy as a whole.

92 His Honour said that in this case, there were clearly two relevant events, each of which must occur in order for the Insurer to be liable to indemnify - both a Wrongful Act and a Claim. He said that the decision in Mobbs was consistent with applying the exclusion clause at the time of both events if the language permits (as, his Honour held, it does here).

93 As to the fifth contention, his Honour did not accept that the run-off exclusion assisted the applicants' contention. He said that it did no more than supply the temporal end-point for the Wrongful Acts which may give rise to cover if the relevant Claim was made during the extended Discovery Period. His Honour said that it said nothing about the point or points in time at which the exclusion clause operates.

94 As to the sixth contention, his Honour did not accept the applicants' contention that the commercial rationale put forward by the Insurer for its construction should be rejected as commercial nonsense because there were other clauses dealing with the suggested risks. He said that those other clauses, including the Consensual Claims exclusion, the general provision as to Confidentiality, the first Outside Entity exclusion and the Conduct exclusion, all demonstrated, to varying degrees, an express intention to protect the Insurer from the risks of co-operation and misuse of Zinifex Limited's confidential information in connection with any Claim. His Honour said that these were not objectively fanciful risks.

95 His Honour said that these express provisions supported, rather than detracted from, the Insurer's suggested commercial rationale. His Honour held that the fact that the minimum percentage shareholding may be thought to be low in most circumstances, and that it might be thought to be unlikely to give the claimant shareholder any material influence over Zinifex Limited if there was only one representative director, was not to the point. He said that a rational commercial risk having been identified, it was for the parties to agree on the level of that risk to be accepted by the Insurer.

96 His Honour accepted[24] that the second Outside Entity exclusion appeared to lack any sensible commercial purpose, as it contained no specified level of shareholding or board representation requirements. He found, however, that in the case of the exclusion clause, those requirements were present and provided protection for objectively reasonable commercial risks.

97 In support of their contention that there is no rational commercial purpose for applying the exclusion clause at the time of the Claim, the applicants put to his Honour the example of a Claim against a past director, who they contend would have no reason to assist the claimant, simply because it is a shareholder with a board representative.

98 His Honour accepted that the risk of co-operation with the claimant was negligible in such a case. He said that there remained, however, a risk of misuse of Zinifex Limited's confidential information by the claimant or its board representative.

99 I have set out the learned judge's reasons at some length, as the issues he addresses reflect the arguments raised on the appeal. I agree with his Honour's reasons, but will nevertheless add some of my observations below.

100 The applicants' proposed grounds of appeal are as follows:

(1) His Honour erred in his construction of the exclusion clause.

(a) His Honour erred in concluding in para 53 of his judgment that the applicants' construction requires a strained approach to find ambiguity and is ungrammatical and inconsistent with the policy's structure.

(b) His Honour erred in concluding in para 55 of his judgment that the 'claims made' structure of the policy supports the proposed construction of the policy propounded by the respondent.

(c) His Honour erred in concluding in para 56 of his judgment that so much of the phrase 'any Claim brought by any past or present shareholder or stockholder who had or has ... ' as comprises the use of the present tense words ('present shareholder ... who ... has') must be construed literally as relating to the time when a claim is made, whereas the past tense words, ('past ... shareholder ... who had') cannot be read literally and must instead be read as applying only at the time of the Wrongful Act.

(d) His Honour erred in concluding in para 57 of his judgment that a construction that reads 'has' as 'still has' (ie 'past or present shareholder who had at the time of the Wrongful Act and still has') is not grammatical and does not address the express use of the word 'present' in the exclusion.

(e) His Honour erred in concluding in paras 32, 58 and 59 of his judgment that the word 'is', when used in defined terms that are incorporated into the Exclusion so as to refer to:

(i) '... a natural person who was, is or, during the Policy Period becomes ...'; and

(ii) 'a New Subsidiary ... while that entity was or is a Subsidiary of the Company ...',

(f) His Honour erred in concluding in para 63 of his judgment that other clauses in the policy provide support for the respondent's rationale for the exclusion clause.

(g) His Honour erred at paras 63 to 67 of his judgment in preferring the respondent's commercial rationale and concluding that it was sufficient that the respondent had identified a rational commercial risk that may apply in some but not other circumstances where the exclusion is engaged.

101 The applicants submit that on its proper construction the exclusion clause is only enlivened when, at the time of the Wrongful Act, the claimant had the relevant attributes. The applicants contend that the verb 'has' should be construed, in the context of the clause, as a claimant who 'had and still has' the relevant attributes. The applicants submit that the exclusion is not engaged if the claimant currently has the relevant attributes but did not have them at the time of the Wrongful Act. As discussed above, it is not in dispute that the claimant did not have the relevant attributes at the time of the Wrongful Act but did have them at the time of the Claim and when the applicants sought to be indemnified under the policy.

102 The applicants submit that this construction is supported by case law, the purpose of the exclusion and a proper analysis of the full wording of the exclusion clause, as follows.

103 The applicants submit that the trial judge correctly found that the principal purpose of the policy was the directors' and officers' cover.

104 Thus, the applicants contend, the fact that the principal purpose of the policy was to provide cover to the directors and officers was a significant element in the interpretation process of the exclusion clause. The applicants referred to the decision of the High Court in Darlington Futures Ltd v Delco Australia Pty Ltd,[25] where the Court said:

These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.[26]

105 The applicants also referred to Major Engineering Pty Ltd v CGU Insurance Ltd,[27] where the Court of Appeal said that 'it is necessary to identify the risks covered by the policy and therefore the purpose of the policy' in construing an exemption clause.[28]

106 The applicants submitted that the general principles relating to the construction of contracts by considering the purpose of the agreement were sharpened by insurance cases, insofar as they directed attention to the fact that the exclusion clause is aimed at eliminating liability that would arise in relation to the risks that are covered.

107 In Mobbs, Gillard J considered an exemption clause in a motor car insurance policy. Gillard J emphasised the temporal connection between the exclusion clause and the risk insured. His Honour said:

The policy imposes a liability on the insurer and provides an exclusion therefrom. The liability on the insurer is to indemnify the insured in certain events which must have a temporal relationship to the policy. There must be an event which gives rise to a liability. It is in respect of this liability that the exclusion attaches.[29]

108 The applicants contended that the exclusion in that case was aimed at reducing or eliminating the liability to extend cover in respect of wrongful acts during the specified period and had nothing effectively to do with the additional condition, that claims be lodged within a certain period.

109 In this case, the liability only arose in respect of actions up to 20 June 2008, when the merger was accomplished. Further, Oxiana Limited did not acquire its interest in Zinifex Limited until after the liability period had ceased.

110 The applicants contend that it was illogical to apply the exclusion conditions beyond the period when exposure to liability ceased on 20 June 2008.

111 The applicants accepted that the exclusion clause deals with the identity of the claimant; that is, the person making the claim against the applicants. The applicants submitted that the purpose of the exclusion was to exclude claims where the claimant had some influence over the occurrence of the Wrongful Acts. Thus the exclusion clause was dealing with the identity of the claimant at the time of the Wrongful Acts.

112 The applicants said that the exemption clause should not be construed as being engaged by the identity of the claimant when the claim was made against the insured parties, as there is no rational reason why the identity of the claimant would be relevant to the risk insured. Those actions had occurred in the past.

113 The applicants said that the Insurer's proposition that the concern related to the conduct of the proceedings is completely different from the concern about influencing the Wrongful Acts. The applicants submitted that the Insurer's proposition was fanciful and merely put forward to thwart its liability to cover the applicants.

114 During argument, counsel for the applicants was asked why it was necessary to apply any dates or time limits, and why the Insurer could not merely have sought to exclude cover where a claim was made by a person that had a certain identity. Thus, the issue was purely the identity of the claimant.

115 The applicants said that the primary purpose of the policy was to provide cover to directors and officers who were directors at a past time in respect of their actions when they were directors.

116 The submission for the applicants was that there was only one relevant time for assessing a claimant against the exclusion clause, that being the time at which the Wrongful Acts occurred. As became clear in argument, however, that proposition is simply incompatible with the language of the exclusion. As was pointed out to counsel for the applicants, if that were indeed the only relevant time, then the clause could have achieved its objective merely by using the word 'had'. Counsel for the applicants conceded that this was so.

117 Counsel for the applicants accepted that, on his argument, the only thing that mattered was possession of the attributes at the time of the Wrongful Acts. Since it was common ground that the word 'had' referred to that time, it followed that - whether the claimant was a present or past shareholder - the disqualifying condition was the possession of the attributes at that time. In short, on this argument, there was no possible explanation for the deliberate inclusion of the words 'or has'. As the applicants themselves note in their written submissions, it is an important rule of construction that every word in a contract should be given meaning and not simply ignored.[30]

118 Counsel's answer to this took at least two forms. First, it was said, the word 'has' was to be read as meaning 'had and still has'. In this sense, it was contended, the word 'has' was intended to establish a condition of continuity, and to exclude a Claim by a shareholder which had the attributes at the time of the Wrongful Acts and continued to have them at the time of the Claim.

119 When pressed, however, counsel was unable to explain what the relevance was of the shareholder's present (continuing) possession of the attributes. As he had already acknowledged, the only thing that mattered was the past possession of the attributes - at the time of the Wrongful Acts. It is not at all clear that the parties would have understood the clause to mean that the exclusion was enlivened only when it could be demonstrated that the relevant 15 per cent shareholding threshold (and the other attributes) were possessed at all relevant times between the Wrongful Act and the 'present'. Yet, this is the effect of reading 'had and still has' into the clause.

120 Worse still, counsel for the applicants was wholly unable to explain the following anomaly. On his argument, the exclusion would apply to a Claim by a present shareholder which had the attributes at the time of the Wrongful Acts and continued to have them at the time of the Claim. It would not, however, operate to exclude a Claim brought by a present shareholder which had had the attributes at the time of the Wrongful Acts but which had ceased to have them - because of a reduction in its shareholding - by the time of the claim (although as noted below, the applicants appeared, at one point, to consider that the 'still has' terminology in the clause would also cover such present shareholders who were not major shareholders).

121 Counsel could suggest no commercial rationale for distinguishing between present shareholders on that basis. In particular, nothing in his argument could explain why the selling down of the shareholding after the occurrence of the Wrongful Acts should make a difference to whether or not the subsequent Claim was excluded. This is truly to be regarded as an absurd result, telling very strongly against the interpretation.

122 It is apparent from the applicants' written submissions in the court below that the applicants considered that their reading of the clause, as implying the word 'still' before 'has', addressed the need for the exclusion clause to cover not only (as described in the paragraphs above) any 'present' shareholder who had been and still is a major shareholder but also a present continuing shareholder that has ceased to be a major shareholder:

First, it is consistent with the words 'past or present shareholder ... who had or has'. Sensibly construed, those words respectively refer to (1) an entity which was a major shareholder of the [Company] at the time of Wrongful Act but no longer is (i.e., a past shareholder who had the relevant ownership interest and board representation) or (2) an entity which was at the time of the Wrongful Act, and still is, a major shareholder of the [Company] (i.e., a present shareholder who still has the relevant ownership interest and board representation). So construed, the [exemption] covers former and continuing major shareholders who had the requisite shareholding and board representation at the time of the Wrongful Act.

On this reading of those words, their purpose is merely to clarify, for the avoidance of doubt, that a claimant cannot escape operation of the exclusion by bringing a claim after (perhaps some time after) they ceased to be a major shareholder if they had the requisite status at the time of the Wrongful Act the subject of the claim. These words put that circumstance beyond doubt.[31]

123 The applicants, therefore, appeared to rely on two inconsistent positions to explain the need to imply 'still' has before 'has'. This confusion might have arisen from the fact that, as noted above, there is little to justify the need for the clause to address the continuity of the 'present' shareholders' holding in any event. As noted above, the language of 'still has' proffered by the applicants does not sensibly cover a present shareholder who was, but is no longer, a major shareholder.

124 The applicants' alternative explanations for the inclusion of the term 'has' (interpreted as 'still has') are unsatisfactory.

125 But there is a more fundamental point. It is simply not open to read the word 'has' in the way contended for. To do so would be to rewrite the clause. The word 'has' has a straightforward meaning and, as set out above, when given that meaning the entire clause has a sensible operation.

126 The last of the applicants' arguments was that the words 'or has' were mere surplusage. For the reasons I have already given, that submission may be rejected out of hand. (It is truly a 'last resort' argument!).

127 The applicants contend that all of the exclusion clauses in the policy are prefaced by the words in the policy 'shall not be liable to make any payment under this policy in connection with any Claim arising out of, or based upon or attributable to ...' followed by reference to conduct or the Wrongful Act. Thus, the applicants contend, the exclusions are directed to circumstances temporally related to the Wrongful Acts.

128 The applicants also refer to the coverage clause in the policy. The applicants say that there are two conditions. First, that the Claim against the insured is made during the Policy Period. The second condition is that the Insurer is to pay the Loss arising from a Claim. Inserting the definition of Claim, it can be seen the claim is in respect of a specified Wrongful Act. These clauses all direct attention to the commission of the Wrongful Act which, the applicants say, is the foundation of the claim.

129 The applicants also submit that the loss clause also drives one to the occurrence of the Wrongful Act as being the centrepiece of the policy.

130 The learned trial judge said in response to these contentions that the exclusion clause contains its own introductory words: 'The Insurer shall not be liable to make any payment under this Policy in connection with any Claim brought ....'. The trial judge said that applying the introductory words to the exclusion clause would lead to unnecessary repetition. I agree.

131 The applicants also contended that their interpretation of the exclusion clause is supported by expanding the defined terms to include their definition. The applicants submitted that the procedure of rewriting the operative words was adopted by Dixon J in construing an insurance policy in Halford v Price.[32]

132 When that is done, the exclusion clause reads as set out at [65] above. The applicants submit that in the first section, where the exclusion states "by a person who was, is or, during the Policy Period becomes a director of the Company", the verb 'is' is used, but is used in the sense of 'still is'.

133 In respect of the second section, where the verb 'has' precedes paras (i) and (ii), the applicants contend that 'has' is used to refer to a subsidiary, which historically became a subsidiary during the year ended 31 March 2009 that satisfied the status requirements set out in pars (i) and (ii) and continues to be a subsidiary, that satisfies the status requirements set out in paras (i) and (ii).

134 The applicants submit that both 'has' and 'is' contextually are used in the sense of 'still has' and 'still is'. The applicants refer to how the trial judge dealt with the use of the present tense 'is' in both (a) and (ii). His Honour said:

I also reject the plaintiffs' reliance on the re-write of the exclusion clause which, incorporating paraphrased definitions, the plaintiffs contend demonstrates that the present tense ('is'), when utilised in the exclusion, refers to historical matters. First, I do not accept that the first use of the present tense 'is' - a person who was, is or, during the Policy Period becomes - speaks historically. In that instance, the word is used in its literal sense, so that the definition as a whole refers to a director of the Company who was a director before the inception of the policy, who is a director at the date of the policy (24 April 2008) or at the commencement of the Policy Period (31 March 2008), or who becomes a director during the Policy Period.

The second use of the present tense word 'is' - 'while that entity was or is a Subsidiary of the Company' - presents some difficulty. The clumsiness in that drafting is not, however, a sufficient basis to read all of the present tense words in the exclusion clause as being intended to include only past events. The inclusion of both the past and present tense - was and is - appears to be mere surplusage in the context of the preceding words and the structure of the incorporated definition of Subsidiary. That definition differs materially from the exclusion clause, where the alternative tenses 'had or has' are clearly tied to the words 'past or present', thereby signalling a requirement that the conditions in the clause be considered at two separate points in time.[33]

135 The applicants submit the learned trial judge failed to perceive that it is not only the word 'is' that is used in the sense 'still is', but it is also the word 'has' that, every time it is used in respect of the relevant classes of subsidiary, must be used in the sense of 'still has'. That is said to bear directly upon the meaning the trial judge gave to the present tense word 'has'.

136 The applicants contend that, when read contextually, the use of the present tense words is designed to ensure that continuing shareholders or continuing subsidiaries are within the exclusion clause, without losing the requirement that they must have had that status at the time of the Wrongful Act as well.

137 The applicants submit that under the coverage clause, claims made and loss suffered, are all directed to the occurrence of Wrongful Acts by the insured person in the person's capacity as a director.

138 I do not perceive any error in the trial judge's observations on the version of the exclusion clause expanded in the terms of the defined words. In particular, I agree that inclusion of the past and present tense in para (ii) 'was and is' merely refers to a status of the entity while the Wrongful Acts were allegedly committed. I agree that the word 'is' is mere surplusage.

139 The applicants submitted that if the exclusion clause had merely referred to a 'past or present shareholder who had' the defined attributes, there may have been perceived to be a risk that such a description did not include a present shareholder who had and still has the defined attributes. That is, the word 'has' is included merely to clarify the identity of a shareholder that met the historical requirement in having the defined attribute at the time of the Wrongful Act.

140 The clause could do the work that the applicants contend it was designed to do without including the verb 'has'. The clause could have read 'past or present shareholder who had'. That would pick up either a past or present shareholder who had the defined attribute at the time of the Wrongful Act.

141 The inclusion of 'has' substantially alters the meaning of the clause as it also asks whether the present shareholder has the defined attributes (without implicitly prescribing that they should have possessed those attributes in the past).

142 The applicants submit that there is a temporal cadence to the clause; that is, a past shareholder who had and a present shareholder who has. The applicants submit that the only sensible contextual meaning is to read that as being a reference to a shareholder who continues to hold the shareholding they held at the time of the Wrongful Act.

143 The starting point to resolve this application, of course, is the language of the exclusion clause itself. As the applicants submitted, the words must be construed in the context of the policy as a whole, and having regard to the nature and purpose of the cover provided.

144 The language is, nevertheless, relatively straightforward and is capable of being given a sensible operation, having regard both to context and purpose.

145 Stripped to its essentials, the clause was clearly intended to exclude liability with respect to a class of claims defined not by reference to the nature of the claim but by reference to the identity (and attributes) of the claimant. The relevant attributes are those specified in the sub-paragraphs of the clause, namely:

(i) direct or indirect ownership of or control over 15 per cent [or] more of the voting shares or rights of Zinifex Limited or of any Subsidiary; and

(ii) a representative individual or individuals holding a board position(s) with Zinifex Limited.

146 The attributes specified define the character of the excluded claimant. That is, they make clear that the exclusion is directed at claims brought by substantial shareholders who, both through the size of their shareholding and through their representation on the Board, are in a position to influence the conduct of the affairs of Zinifex Limited as the policy holder.

147 As suggested to counsel for the applicant, this is an 'intrinsic' guide to construction. The attributes shed light on the purpose of the exclusion. The attributes define a very distinctive relationship between a shareholder and a company, a relationship not enjoyed by ordinary shareholders. The distinctiveness of that relationship - and the power which the substantial shareholder has - provide a clear rationale for an exclusion directed at claims by such shareholders.

148 The key phrase in the exclusion clause is the following:

any Claim brought by any past or present shareholder ... who had or has [the attributes].

149 The use of the phrase 'had or has' shows, unambiguously, that the parties to the contract had in mind two different points in time and intended that the possession of the attributes at either of those points could operate to engage the exclusion.

150 It is also unambiguously clear, moreover, that one of the relevant points in time is in the past, while the other is in the present. The word 'had' means 'had at a relevant time in the past', while 'has' means 'has contemporaneously with some relevant current event'.

151 It is equally clear that 'present shareholder' means a shareholder currently on the share register of the company, while 'past shareholder' means a shareholder which formerly was, but is no longer, on the share register of the company.

152 Counsel for the applicants submitted at one point that the term 'past shareholder' could include a present shareholder who had, in the past, had the attributes but no longer had them. This submission is untenable and should be rejected.

153 The parties agreed that the word 'had' referred to whether the claimant had the attributes at the time of the Wrongful Acts. It was also agreed by the parties that the claimant did not have the attributes at that time.

154 The applicants' position is simply that the clause on its proper construction reads as follows:

any Claim brought by any past or present shareholder ... who had or [still] has [the attributes].

155 Such a construction would mean that if the shareholder did not have the attributes at the time of the Wrongful Acts (although the claimant may have them now), then the exclusion would not be enlivened.

156 All the submissions put by the applicants both below and before this Court were said to support this construction. The main ground was that 'has' was inserted to remove any doubt that a claim brought by a present shareholder who had (at the time of the Wrongful Acts) and still has the attributes, would enliven the exclusion clause.

157 As the trial judge found, such a submission overlooks the fact that the exclusion clause expressly does that work without the need to insert the word 'has' through the reference to 'any past or present shareholder'. If the word 'has' was deleted, the clause would relevantly read 'any past or present shareholder who had [the attributes]'. Such a clause would capture a present shareholder who had the attributes at the time of the Wrongful Act 'and still has' the attributes. There would be no need to insert the word 'has' to remove the doubt that the applicants suggest would be otherwise present.

158 Obviously the word 'has' was inserted for a different reason. It is clear that it was inserted so as to enliven the exclusion clause if the claimant is a shareholder who presently 'has' the prescribed attributes.

159 The exclusion clause does not make grammatical sense if 'any past shareholder' or 'any present shareholder' is applied to each of 'had' or 'has'. It is not sensible to speak of any past shareholder that 'has'. Clearly, 'any past shareholder' applies to 'had' and 'any present shareholder' applies to 'has'.

160 The natural symmetry of the exclusion clause is that the exclusion clause may be enlivened where the claimant had the attributes in the past and also when the claimant has the attributes in the present. To construe the exclusion clause as the applicants would have it would ignore the clear and unambiguous meaning of the clause that it could be enlivened in two time periods, the past and the present.

161 As mentioned above, the parties agreed that on its proper construction the 'had' test applied to the time of the Wrongful Acts. The trial judge noted that the Insurer agreed that the words 'past shareholder ... who had' in the exclusion clause were not intended to have their literal meaning.[34] The trial judge said that 'such a construction accords with business common sense, because the holder of more than 15 per cent of the Company's shares with a board representative may have the capacity to exert some influence over the Wrongful Acts giving rise to the claim.'[35]

162 At the trial the Insurer contended that the present tense test applied to the time the relevant Claim was brought. The trial judge accepted that construction, based on the fact that liability under the policy depended upon both a Wrongful Act and a Claim made against the insured in respect of that Wrongful Act.

163 It was suggested during the hearing that the clause may not be limited to the time of those two events. Such an interpretation would only widen the ambit of the exclusion clause and the exclusion clause would still be enlivened by the events that have happened. In my view, it is not necessary to decide that issue to resolve the application for leave to appeal. I find for the reasons given (including the reasons of the trial judge) above that the exclusion clause was enlivened and the Insurer was entitled to deny liability as it did.

164 I would grant leave to appeal and dismiss the appeal.

[1] This analysis leaves out of consideration the two exceptions to the requirement of a Wrongful Act in the definition of 'Claim'. See [15] above.

[2] See [15], [20] and n 1 above.