QBE Insurance Australia Ltd v Vasic

LEGISLATION CITED: Supreme Court Act 1970 (NSW) s 45

Bank of Credit and Commerce International SA v Ali [2001] UKHL 8; [2002] 1 AC 251 Charrington & Co Ltd v Wooder [1914] AC 71 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337 DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; 138 CLR 423 Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 Franklins Pty Ltd v Metcash Trading Limited [2009] NSWCA 407; 264 ALR 15 Hvalfangerselskapet Polaris Aktieselskap Ltd v Unilever Ltd (1933) 39 Com Cas 1 CASES CITED: Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 International Air Transport Association v Ansett Australian Holdings Ltd [2008] HCA 3; 234 CLR 151 Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; 76 ALJR 436 The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 Zhu v Treasurer of New South Wales [2004] HCA 56; 218 CLR 530

QBE Insurance Australia Limited (First Appellant) PARTIES: Mercantile Mutual Insurance (Australia) Limited (Second Appellant) Josslyn Vasic (First Respondent) Charles Fairey (Second Respondent)

COUNSEL: Mr MT McCulloch SC (Appellants) Mr L King SC, Mr R Hanlon (Respondents)

SOLICITORS: A R Connolly & Company (Appellants) David Legal (Respondents)

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT MEDIUM NEUTRAL CITATION: El Hayek v Vasic [2010] NSWSC 634

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2006/266976

ALLSOP P GILES JA MACFARLAN JA

Thursday 15 July 2010 QBE INSURANCE AUSTRALIA LTD v VASIC

Headnote [This headnote is not part of the reasons.]

The Court heard the application for leave to appeal and the appeal concurrently on 24 June 2010, concerning answers given to separate questions by a judge of the Common Law Division. The questions had been posed to ascertain whether the appellant was liable to indemnify the defendants in proceedings (Ms Vasic and Mr Fairey) ("the insureds") under the relevant insurance policy ("the QBE policy").

The proceedings concerned a claim by Mr El Hayek ("the plaintiff") against the insureds seeking damages for injuries caused by a fire on the insureds' property when he was accompanying his father, a licensed shooter, on an overnight hunting excursion.

The coverage clause in question indemnified the insureds "for legal liability to third parties for bodily injury and/or property damage caused by an occurrence in connection with the insureds' activity of allowing licensed shooters on their properties for the purpose of hunting only".

The primary judge found that upon the true construction of the QBE policy, the insureds were entitled to indemnity in respect of the plaintiff's claim. The appellant contended that the primary judge misunderstood the policy wording and failed to have regard to four documents as extrinsic material, including the proposal and policy wording of an insurance policy previously taken out by the insureds, and the statement of an insurance broker as to the aim and genesis of the QBE policy.

Held, granting leave and dismissing the appeal (per Allsop P, Giles and Macfarlan JJA agreeing):

(i) The primary judge was correct in rejecting the extrinsic material in the interpretation of the QBE policy. The surrounding circumstances attributed to a reasonable person in the situation of the contracting parties is to be understood by reference to what the parties knew in the context of their mutual dealings.

Franklins Pty Ltd v Metcash Trading Limited [2009] NSWCA 407; 264 ALR 15; The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111 affirmed; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337 discussed and followed.

(ii) The coverage clause covered the insureds for liability for different types of injury and damage caused by an occurrence which must have a connection with a certain activity. The occurrence that occurred was in connection with that activity because, as was known to the insureds, the plaintiff's father was a licensed shooter who came on the property for the purpose of hunting, and the connection was not broken by the fact that he was accompanied by his son.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2006/266976

ALLSOP P GILES JA MACFARLAN JA

Thursday 15 July 2010 QBE INSURANCE AUSTRALIA LTD v VASIC Judgment 1 ALLSOP P: On 24 June the Court made orders granting QBE Insurance (Australia) Limited ("QBE") and Mercantile Mutual Insurance (Australia) Limited ("MMI") leave to appeal from the answers given to separate questions by a judge of the Common Law Division (Garling J), an order that the appellant file a notice of appeal within 14 days and dismissing the appeal with costs. The questions had been posed in order to ascertain the responsibility, or not, of QBE and MMI to the defendants in proceedings, Ms Vasic and Mr Fairey, under a policy of insurance issued by QBE and MMI (the "QBE policy"), covering them and 36 other groups of property owners. 2 The proceedings concerned a claim by Ahmed El Hayek (the plaintiff) against Ms Vasic and Mr Fairey seeking damages for injuries suffered by him after he was badly burned in the early hours of 4 July 2003 in a fire in shearers' quarters on the defendants' property, Mulga Creek Station, Byrock, past Bourke in western New South Wales. The defendants claimed under the policy in question. QBE and MMI denied liability. They were joined to the proceedings by way of cross-claim. After the commencement of the hearing, and over the opposition of QBE and MMI, an order was made by the primary judge for the separate determination of issues concerned with the QBE and MMI policy and its coverage. These questions were: "(1) What document or documents constituted the [QBE Policy]; (2) Whether, upon the true construction of the [QBE Policy], the Cross Claimants are entitled as against [the Insurers] to indemnity in respect of the plaintiff's claim and to indemnity in respect of the costs of the cross claimants reasonably incurred in defending the plaintiff's claim; and

(3) Whether the Cross Claimants were in breach of condition 4.10(b) of the [QBE Policy]. If so, what consequence or consequences flow from such breach."

3 Facts were agreed and documents were tendered on the separate issues. The primary judge dealt with the separate issues in a clear, careful and prompt judgment on 15 June 2010 (being the Tuesday, after the hearing on Thursday and Friday 10 and 11 June). The answers to the separate questions and consequential orders were as follows: "(1) The QBE policy is comprised of the documents Exhibits XC1, XC2 and XC3; (2) Upon the true construction of the QBE policy, the Cross Claimants are entitled as against the Insurers: (a) to indemnity in respect of the plaintiff's claim; and (b) to payment of their costs of the cross claim reasonably incurred in defending the plaintiff's claim;

(3) The Cross Claimants were not in breach of condition 4.10(b) of the QBE policy; (4) Order the Insurers to pay the costs of the cross defendants of the separate issue and the cross claim. Reserve to the Cross Claimants leave to apply in relation to the costs that they be paid on some basis other than on the party/party basis." 4 No complaint was made on appeal about the answers to questions (1) and (3). Thus the policy was agreed to be comprised of:

(b) Ex XC2: Adjustment note issued by the underwriting agent Concord Underwriting Agency (in some corporate form); and

(c) Ex XC3: Closing advice from SSAA Insurance Brokers Pty Limited ("SSAA") to MMI. 5 It is convenient, as I indicated at the hearing on 24 June, to give the parties relatively brief reasons primarily by reference to the primary judge's reasons. Section 45 of the Supreme Court Act 1970 (NSW) permits short form reasons in dismissing an appeal if the Court is of the unanimous opinion that the appeal does not raise any questions of general principle. This is not apt to be employed here. There is one aspect of general principle to be dealt with. Nevertheless, I can be relatively brief, in large part because of the clarity and comprehensiveness of the primary judge's reasons with which (with the exception of one matter) I agree. 6 The plaintiff's claim was described in [4]-[9] of the primary judge's reasons, as follows: "[4] The plaintiff, Ahmed El Hayek, by a Statement of Claim filed on 2 June 2006 brings proceedings claiming damages from the Cross Claimants for negligence arising out of injuries he sustained on 4 July 2003 whilst in the course of a visit to Mulga Creek Station, Byrock, a property owned by the first cross claimant, Josslyn Vasic and managed by the second cross claimant, her brother, Charles Fairey. The property was situated near Bourke in New South Wales. The plaintiff was born on 20 May 1987. He was a little over 16 at the time of his visit to the property. He visited the property in the company of his father, Ibrahim El Hayek for the purpose of hunting for feral animals.

[5] In his Statement of Claim, the plaintiff alleges that he attended the property on 3 June 2003 with his father and there made contact with the second cross claimant. He pleads that at that time an amount of money was paid to the second cross claimant for accommodation and hunting.

[6] He pleads that he was directed together with his father by the second cross claimant to the shearers quarters, namely a building located on the property which had formerly been used to accommodate shearers whilst they worked in their profession on the property.

[7] It is appropriate to set out some paragraphs of the statement of claim. It includes the following '6 In approximately December 2000, the defendants agreed to allow a group known as 'Inland Hunting' to source sporting shooters to have accommodation and use of the property for the purposes of hunting.

7 On 3 rd July 2003, the plaintiff with his father attended the property and made contact with the second defendant.

8 At that time an amount of money was paid to the second defendant for accommodation and hunting.

9 Immediately or soon thereafter, the second defendant directed the plaintiff and his father to the shearers quarters being the accommodation provided to the plaintiff and his father.

10 At or about 4.30am on 4 July 2003 the shearers quarters caught alight.

11 At that time the plaintiff was asleep in the shearers quarters.

12 As a result of the fire the plaintiff suffered severe injury, loss and damage as particularised in the Statement of Particulars filed herewith.'

[8] The plaintiff claims that the Cross Claimants were negligent in a variety of ways which caused his injuries. Of importance to the issues raised on the separate hearing is the pleading of negligence in which the plaintiff asserts that the Cross Claimants were negligent, in this respect, namely: '(h) failure to obtain council approval for the change of use of the shearers quarters to tourist accommodation.'

[9] The Cross Claimants filed a defence in which they dispute the claims made by the plaintiff. " 7 The parties were agreed on the following facts: "1 At all material times the first cross claimant, Josslyn Vasic, was the owner of Mulga Creek Station at Byrock, New South Wales, a property of approximately 42,000 acres.

2 At all material times the plaintiffs [sic] father was a licensed shooter.

3 At all material times the plaintiff was a minor and did not hold a shooter's licence.

4 At all material times the plaintiff resided at the address shown in his statement of claim, [number and street], Yagoona, 2199, NSW.

5 On 3 July 2003 the plaintiff attended with his father at the property referred to in the statement of claim as alleged in para 7 thereof, having driven from Sydney to do so.

6 But for the occurrence of the fire on 4 July 2003 referred to in the statement of claim (para 10) the plaintiff and his father intended to remain upon the property known as Mulga Creek Station Byrock referred to in the statement of claim (para 2) having paid to do so for the purpose of the plaintiffs [sic] father engaging in hunting upon the property accompanied by the plaintiff and using the shearers quarters for overnight accommodation." 8 The primary judge dealt with the policy documents and concluded that the relevant coverage clause was as follows (see [30] of his reasons): "… covering the Insureds for legal liability to third parties for bodily injury and/or property damage caused by an occurrence in connection with the Insured's activity of allowing licensed shooters on their properties for the purpose of hunting only." 9 No complaint was made about that conclusion. 10 After dealing with the principles of construction, the primary judge turned to the question of extrinsic materials. The complaints made on appeal were that the primary judge misunderstood the policy wording and failed to have regard to four documents as extrinsic material, described in the notice of appeal as follows: "(a) The proposal form dated 14 January 2001 (Exhibit XCM); (b) The proposal form dated 29 January 2010 in respect of Policy No. 03 RPL 2002243 issued by Wesfarmers Federation Insurance Limited in respect of the subject premises (Exhibit XCK). (c) The Policy Wording in respect of the Wesfarmers Policy for the period 21 July 2002 to 21 July 2003 including the operative clause and exclusion 8 (Exhibit XCM). (d) The statement of Robert Gregory Low dated 7 June 2010 (Exhibit XCH) which was not the subject of cross-examination." 11 As to the proposal for the policy in question, the primary judge rejected the argument that it formed part of the policy. No particular weight was put on the proposal as extrinsic material by the primary judge. There was no material error in this. The proposal described the business operations as "farming and shooting". This added little, if anything, to Concord's adjustment note (Ex XC2), that the business was "property owner only" and that cover was "in regard to the activity of allowing licensed shooters on their properties for the purpose of hunting only." 12 The second and third documents that were said to be legitimate extrinsic materials were the proposal and policy wording of a policy that Ms Vasic took out (apparently also on behalf of Mr Fairey, who was named as an insured) with Wesfarmers Federation Insurance Limited ("Wesfarmers") in 2001. Neither QBE nor MMI was aware of these documents. They were not placed before them, or their agent, Concord, during the negotiation of the policy. It was submitted, nevertheless, that they could be taken into account in construing the policy of insurance between the defendants and QBE and MMI because they showed the aim or genesis of that policy. This was so, it was submitted, because the documents revealed the gap in cover that the QBE policy was intended to fill. Most importantly, the Wesfarmers policy excluded claims for firearms, as follows: "for personal injury or damage to property caused by or arising directly or indirectly from any activity involving the use of a firearm, unless the injury or damage to property is directly caused by use of the firearm by you or by someone you have agreed to pay to use the firearm." 13 The fourth document that it was submitted should have been taken into account was a statement of a Mr Low. Mr Low was an insurance broker with a great deal of experience. At the relevant time, he was the Chief Executive of SSAA. This was a registered broker that was a wholly owned subsidiary of the Sporting Shooters Association. Notwithstanding that one of the contractual documents was a closing advice from SSAA, it was the agent of neither the defendants (the insureds) nor QBE and MMI. Nevertheless, from time to time it corresponded individually with Concord (the underwriting agent of QBE and MMI), the insureds' broker Robert Williams & Associates Pty Ltd and QBE itself. In argument on appeal, senior counsel for QBE and MMI accepted that SSAA was not an agent of either the insureds or the insurers. Rather, it promoted the use of the wording that QBE and MMI were content to adopt in providing insurance in their broadform policy to the defendants and the 36 other groups of property owners in the schedule to the Concord adjustment note. 14 The relevant part of the statement of Mr Low relied upon and said to be admissible to assist in understanding the aim and genesis of the QBE policy was as follows: "This insurance cover was one developed by me as Chief Executive of SSAA Insurance Brokers Pty Limited, as a gap cover insurance for the purpose of covering rural landowners for their liability for negligence to licensed shooters while out hunting on their properties. The policy was developed in the late 1990's, as it became apparent that some public liability policies excluded cover for incidents arising from the use of firearms on rural properties and excluded indemnity for the property owner's liability to licensed shooters. We did market research and noted that while approximately 80% of policies provided cover, that there was a gap in the market for the other policies, and that a new cover should be made available. The gap insurance was to provide cover in relation to liability to licensed shooters that is excluded from public liability policies held by persons owning or operating rural properties."

15 There was no evidence that QBE, or MMI, or the defendants, or the other property owners had any knowledge of Mr Low's development of the gap cover. 16 The primary judge dealt with these asserted pieces of extrinsic evidence in [46]-[53] of his reasons, as follows: "[46] Available Evidence: Given the necessity for mutuality of knowledge as the authorities demonstrate, not all of the material relied upon by the Insurers can be used as material demonstrating the existence of surrounding circumstances which may aid in the exercise of construction and interpretation of the QBE Policy.

[47] Both of the cross claimants are named as the joint insureds under the QBE Policy. Although strictly speaking it was only necessary for the first cross claimant to be a named insured because the second cross claimant was apparently her employed manager and would have been covered as a result of the terms of the policy, because both cross claimants were joint insureds, it is necessary for the Insurers to demonstrate the knowledge of both cross claimants for the Court to have regard to it when interpreting the terms of the QBE Policy.

[48] It is clear that there was an earlier policy of insurance and that was known to the cross claimants. The first completed proposal before the Court is dated 14 January 2001 (Exhibit XCM). Mr Fairey gave evidence that it was some time after he commenced living on the property in 1999 that he was approached to permit shooters to visit the property for that purpose. Permission was sought from his sister, Ms Vasic, who gave evidence that having received the request, initially rejecting the proposal, but subsequently accepting it, she arranged insurance with the Insurers for the property. Exhibit XCE (which came to the attention of RWA, the broker for the cross claimants) makes it plain that there is a renewal of a policy. Exhibit XCC proves that there was an earlier policy with an entirely different policy number which provided coverage for: THE INSURED'S (sic) FOR LEGAL LIABILITY TO THIRD PARTIES FOR BODILY INJURY AND/OR PROPERTY DAMAGE CAUSED BY AN OCCURRENCE IN CONNECTION WITH THE INSURED'S ACTIVITY IN ALLOWING HUNTERS ON THEIR PROPERTIES - PROPERTY OWNER COVER ONLY [49] The Insurers also rely upon the documents which became Exhibits XCK and XCL. These Exhibits relate to a policy of insurance obtained by the Cross Claimants from Wesfarmers Federation Insurance Limited ("Wesfarmers") for the period 21 July 2002 to 21 July 2003. The Insurers point to the fact that the cross claimants took out a policy with Wesfarmers ("the Wesfarmers policy"). Coverage under that policy was obtained for Farm Legal Liability, which excluded from coverage: ' … any personal injury caused by or arising directly or indirectly from any activity involving the use of a firearm' . The Insurers argue that this is a relevant surrounding circumstance as it indicates or tends to indicate that the policy issued by the Insurers was to cover a gap in the Wesfarmers' policy.

[50] I do not regard the Wesfarmers' policy as a fact which is available to be taken into account in assisting with the interpretation of the QBE policy. It is sufficient for me to reach this conclusion by pointing to the absence of any evidence proving, or tending to prove, any knowledge at all resting in either the Insurers or their broker and agent, Concord, of the existence of this policy whether the insureds were the Cross Claimants or some other insureds. Although there was some evidence, to which I refer below, of a market research exercise undertaken by SSAA Brokers, even assuming that their knowledge was that of the Insureds, there is still no evidence suggesting that the contents of the Wesfarmers policy and in particular the wording of the exclusion clause was ever in fact taken into account in preparing the QBE policy.

[51] Finally, in terms of surrounding circumstances, the Insurers rely upon the evidence contained in the statement of Mr Low. I have already dealt with those parts of the statement which describes the identities of the various participants and the arrangements by which the QBE Policy seems to have come about. I have not yet dealt with para 10 of the statement which is in these terms: [as set out at [14] above] [52] I would not be prepared to hold that the contents of para 10 of Mr Low's statement constituted a surrounding circumstance which may affect the construction of the QBE policy.

[53] Mr Low is not said by the Insurers to be their agent. I have held that I am not satisfied on the evidence that he was the agent of the Cross Claimants. Consequently, his knowledge and intentions don't satisfy the requirements of mutuality of knowledge so as to be relevant. As well, the material in para 10 of his statement is largely an expression of his subjective intention and purpose and of his own conduct. It is not material which the Court is entitled to take into account in looking at surrounding circumstances: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40]. Finally, the material to which he refers is not material which would ordinarily be known by or available to people who are not expert in the insurance field. The Cross Claimants did not fall into that category. I do not see that it would be reasonable to impute to them that specialist knowledge." 17 Turning then to the text and meaning of the coverage clause and the policy the primary judge expressed his reasons at [55]-[66], as follows:

"[55] As I have indicated earlier the text of the coverage clause is as follows: 'Covering the insureds for legal liability to third parties for bodily injury and/or property damage caused by an occurrence in connection with the insured's activity of allowing licensed shooters on their properties for the purpose of hunting only.' [56] There seems little difficulty in understanding the meaning of the initial words of the coverage clause. The landowners, the Cross Claimants, are covered for any legal liability which they may incur to third parties (being persons other than the Insurers and the landowners) for bodily injury and/or property damage caused by an occurrence. As indicated earlier, an occurrence is defined as an unintended and unexpected event from the point of view of the Cross Claimants.

[57] The injuries sustained by the plaintiff and for which he claims, arose out of an accidental fire in the sense that the building was not deliberately set alight and certainly not by the cross claimants. It is clearly an occurrence in the sense in which that word is defined. The claim by the plaintiff seeks to make the cross claimants liable by resort to a legal cause of action and it claims bodily injury. Without the coverage clause being further defined, it is clear that the QBE Policy would respond. As I understood the submissions made by the Insurers, they would accept that conclusion. But they point to the remaining words as indicating that the coverage did not extend to the plaintiff's claim.

[58] The disagreement and debate between the parties arises when considering the effect which the balance of the content of the coverage clause has when interpreting the clause as a whole, namely, '… in connection with the insured's activities of allowing licensed shooters on their properties for the purpose of hunting only.'

[59] The cross claimants submit that the words ' … in connection with ...' are well understood to be words of wide import: Derrington & Ashton, Law of Liability Insurance, 2 nd Ed, para 3-122, p 226. They further submit that this phrase is sufficient to encompass anything which is reasonably incidental to the defined activities. They submit that provided that the purpose of the plaintiff and his father being on the cross claimants' property is for '… hunting only …', then any occurrence which is directly related to the hunting, including anything reasonably incidental to the hunting, such as sleeping overnight in accommodation provided on the property, is covered.

[60] The Insurers submit that a narrow construction is warranted. They submit that the coverage does not include accommodation or any event outside the activity of hunting. They submit that the word ' … only …' after the word ' … hunting … ' is a significant word of limitation with the result that unless the occurrence is causally and temporally related to hunting, then it is not within the coverage clause.

[61] I do not accept that the submissions of the Insurers are correct. The coverage clause is not as narrow as they submit.

[62] The coverage clause concentrates on coverage of an occurrence in connection with the defined activity. It is important to note that the defined activity relates to the conduct of the cross claimants in allowing licensed shooters on their properties for the expressed purpose. It does not relate to the particular conduct or activity of the licensed shooters whilst they are on the property.

[63] In my opinion, once it is established that the licensed shooters attend the property with the subjective purpose of hunting only, then there is no reason to limit coverage by reference to the activities of the licensed shooters rather than the activity of the cross claimants in allowing them onto the property.

[64] There are a number of surrounding circumstances which support this construction. The first is the remote physical location of this property: Byrock which is 700 km north-west of Sydney, 126 km north-west of Nyngan and 121 km north-east of Cobar and the many other properties covered by the same policy: eg Nymagee which is 618 km north-west of Sydney, 130 km south-west of Nyngan and 89 km south of Cobar; Hermidale which is 623 km north-west of Sydney, 56 km south-west of Nyngan and 96km east of Cobar. These are not properties which are necessarily adjacent to towns of plentiful accommodation. It is not unreasonable to contemplate that hunters who go to remote areas for hunting will need to stay on the properties where they are hunting.

[65] The second is that hunting is an activity which can occupy many hours in a day, involve walking across country in often difficult conditions, can be conducted during both daylight and night time and being an outdoor activity is subject to the weather, be it hot, cold, wet or dry and dusty. It is an intrinsic part of such an activity that the participants will need to rest or sleep, shelter, and eat or drink. The construction advanced by the Insurers would require a moment by moment analysis of each of these activities to establish whether they are part of the activity of hunting. This does not seem to me to be a sensible or commercial approach to coverage, particularly since an insured would not necessarily have control over that broad range of activities and nor would an insured have all of that information readily available at the time of making a claim in order to substantiate a claim for indemnity.

[66] The third matter which requires attention is whether the change in wording between policies informs the construction of the coverage clause. In my opinion the change from '… allowing hunters onto the property…' to ' … allowing licensed shooters onto the property for the purpose of hunting only …' is nothing more than a clearer definition of the nature of the activity. It, without more such as the claims history which would provide some motivation to the Insurers to limit the coverage, does nothing more than more clearly define the nature of the activity. I do not accept the submissions of the Insurers that this change of wording demonstrates that the proper construction is limited in the way submitted. I accept that the word ' … only …' is a word of limitation. But it has work to do. Allowing hunters onto a property without a defined purpose would mean that visitors although having that description (hunters) could engage a variety of activities without visiting for the sole purpose of hunting as the new wording suggests."

Submissions on appeal and determination of the appeal 18 With the exception of one matter, I substantially agree with the reasons of the primary judge. The exception is that the purpose referred to in the coverage clause is that of the insureds, not of the persons coming on to the property. The balance of these reasons should be understood on this basis. 19 The submissions of QBE and MMI were divided into complaints as to the rejection of the extrinsic material and as to the construction of the text.

The extrinsic material or surrounding circumstance evidence 20 The essential submission made on behalf of QBE and MMI was that the scope of admissible material in the task of interpretation and construction (using the terms synonymously for present purposes) of a written contract was not restricted to circumstances known to both parties. It may include evidence that is said to indicate the purpose or object of the transaction, including its genesis, background, context and market, without such matters being known by the parties themselves or by both of them. Reference was made to Franklins Pty Ltd v Metcash Trading Limited [2009] NSWCA 407; 264 ALR 15 at [14] and [24] (in my reasons) and [322] and [337] (in the reasons of Campbell JA), with which Giles JA relevantly agreed at [42]-[43] and [63]. It was submitted that Macfarlan JA (with whom Young JA agreed and Sackville AJA agreed generally) in The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111 at [97]-[100] expressed the principles too narrowly when his Honour said that the relevant material must be known to the parties in the sense of actually known and not merely reasonably available to them, without being known. 21 I will say something about the reasons of Macfarlan JA in The Movie Network Channels v Optus shortly. Let me say at the outset, however, that none of the reasons in Franklins v Metcash supports the above essential submission. 22 The Wesfarmers policy was one insurance policy which one of the 37 insureds had previously taken out. It had certain exclusions. It may be that the other 36 insureds may conceivably have had similar or different policies with similar or different exclusions. There was no evidence that QBE or MMI was ever aware of the Wesfarmers policy held by Ms Vasic and Mr Fairey, or of any other policy that might have been held by any of the 36 other insureds. The Wesfarmers policy did not form any part of the genesis of the QBE policy. That a fact represents a part of the history as to why one party came to a contract does not make it admissible. The reasonable person who is hypothesised to understand the words of the contract is placed in the position of the contracting parties, or, if relevant, their agents - not one or some only of them. That requires the fundamental element of mutuality of known facts and background. To permit, under the guise of the reasonable person, background facts known only to one person to be attributed to the reasonable person would tend to re-introduce the subjective understanding of one party by permitting or requiring the contract to be interpreted by reference to one party's knowledge only. 23 This is revealed in this case by the attempt to rely on Mr Low's evidence of so-called genesis or purpose. His evidence was no more than the subjective aims and intentions of a person, not even someone representing a party.

24 Neither group of material was admissible. The primary judge was correct in this conclusion. 25 I did not intend anything in Franklins v Metcash, and my reasons and the reasons of Campbell JA in that case do not admit of any understanding, to the effect that evidence is admissible of surrounding circumstances that were not known to both parties. The surrounding circumstances, of course, include material covering the purpose and object of the transaction, including its genesis, background, context and the market (if any) in which the parties were operating. Paragraphs 14 and 24 in Franklins v Metcash should be read together. 26 The notion of what is known to the parties does not require the facts to be present to the mind and consciousness of the contracting parties at the time of contracting. But the whole construct is one that places the reasonable person, whose understanding is critical, in the mutual position that the parties were in. This involves attributing to the reasonable person what the parties knew in the context of their mutual dealings. I do not take the analysis of Macfarlan JA in The Movie Network Channel v Optus as stating a principle otherwise than in conformity with the essential elements of the binding High Court principles to which I made reference in Franklins v Metcash at [14]-[24] and to which Macfarlan JA himself referred in The Movie Network Channel v Optus. The relevant circumstances in that process are those with which the reasonable person should be attributed in order that one objectively correct meaning can be ascribed to the text. 27 Were it not for the misconceptions (if I may say so, without intending disrespect) in the submissions on behalf of QBE and MMI, I would not find it necessary to say any more. In the circumstances, however, the matter should be put beyond doubt by reference to binding High Court authority. 28 It is appropriate, first, to set out the passages from Lord Wilberforce in Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 996-997 (relevant parts of which were set out by Macfarlan JA in The Movie Network Channel v Optus at [100]). The relevant passages that have been deeply influential in Australia are as follows: "It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties to the contract, but this requirement should not be stated in too narrow a sense. When one speaks of the intention of the parties to the contract, one is speaking objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties. It is in this sense and not in the sense of constructive notice or of estopping fact that judges are found using words like 'knew or must be taken to have known' (see, for example, the well-known judgment of Brett LJ in Lewis v Great Western Railway Co (1877) 3 QBD 195.

[His Lordship then referred to Hvalfangerselskapet Polaris Aktieselskap Ltd v Unilever Ltd (1933) 39 Com Cas 1 and Charrington & Co Ltd v Wooder [1914] AC 71 and summarised the position as follows.]

… what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those facts from forming part of an objective setting in which the contract is to be construed." 29 These passages, together with the passage in the judgment of Stephen, Mason and Jacobs JJ in DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; 138 CLR 423 at 429 which referred to the "mutually known facts", were the foundations of the views of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337 at 347-353, especially at 352, where his Honour said: "Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed." 30 As Macfarlan JA pointed out in The Movie Network Channel v Optus at [99], the words "as we have seen" were clearly a reference to what Lord Wilberforce had said in Reardon Smith. What the parties knew is thus to be understood in the sense used by Lord Wilberforce and Mason J. 31 QBE and MMI relied on a passage from Lord Hoffmann's speech in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 at 912 that was cited by Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181 at 188 [11]: "the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract." 32 Emphasis was placed in argument on the words "would reasonably have been available to the parties". It was submitted that this phrase detached the enquiry about the surrounding circumstances from what the parties knew, entitling recourse to anything that was reasonable available. I do not think any such change was intended by their Honours in Maggbury. The importance of the deployment of the above passage from Investors Compensation in Maggbury was not to signal some departure of principle from Codelfa, but rather, to re-articulate the test (by way of emphasis and expression) from the (objective) intention of the parties, to the placement of the reasonable person in the position of the parties. That Gleeson CJ, Gummow and Hayne JJ were not intending to permit extrinsic material or surrounding facts wider than as described in Codelfa and Reardon Smith can be taken by their reference, in the same footnote as contained the reference to Investors Compensation, to Codelfa at 350-352 and to the speech of Lord Bingham of Cornhill in Bank of Credit and Commerce International SA v Ali [2001] UKHL 8; [2002] 1 AC 251 at 259 [8] where Lord Bingham said: "8. I consider first the proper construction of this release. In construing this provision, as any other contractual provision, the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties' relationship and all the relevant facts surrounding the transaction so far as known to the parties . To ascertain the parties' intentions the court does not of course inquire into the parties' subjective states of mind but makes an objective judgment based on the materials already identified. The general principles summarised by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913 apply in a case such as this." (emphasis added) 33 As Macfarlan JA said in The Movie Network Channel v Optus at [105], two months after Maggbury, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ in Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; 76 ALJR 436 at 445 [39] stated unequivocally that courts in Australia should follow Codelfa until otherwise stated by the High Court. Their Honours could not have understood Maggbury itself as having departed from Codelfa and as having therefore lessened, in some way, the force and authority of Reardon Smith. 34 The authority of this aspect of Codelfa as to the nature and extent of surrounding circumstances that are admissible, and the force and influence of the speech of Lord Wilberforce in Reardon Smith thereby, can be seen restated and reinforced by later authoritative High Court decisions: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at 461-462 [22] where the Court (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) referred to Codelfa at 350, Reardon Smith at 995-996 and to the warning in Royal Botanic Gardens at 445 [39]; Zhu v Treasurer of New South Wales [2004] HCA 56; 218 CLR 530 at 559 [82] (where Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ said that the "commercial purpose - the purpose of reasonable persons in the position of TOC and the plaintiff - was relevant [citing Codelfa at 351] … [which, in turn] required attention to 'the genesis of the transaction, the background, the context, the market' in which the parties were operating, as known to both parties" citing Codelfa at 350 and Reardon Smith at 995-996); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at 178-179 [38] where Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ reiterated what had been said in Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at 105-106 [25], which had stated the importance of Codelfa at 348-353, and at 179 [40] where their Honours restated the principles by reference to Pacific Carriers at 461-462; International Air Transport Association v Ansett Australian Holdings Ltd [2008] HCA 3; 234 CLR 151 at 160 [8] where Gleeson CJ referred to the commercial purpose, genesis, background and market by reference to Codelfa at 350, Reardon Smith at 995-996 and Pacific Carriers at 462 [22] and at 174 [53] where Gummow, Hayne, Heydon, Crennan and Kiefel JJ referred to the task of construction by reference to Toll at 179 [40] which had been based on the passages from Pacific Carriers at 461-462 [22]. 35 It is clear from the binding Australian authorities that the scope of the surrounding circumstances, knowledge of which is to be attributed to a reasonable person in the situation of the contracting parties (not one or some only of them), is to be understood by reference to what the parties knew in the context of their mutual dealings. As Lord Wilberforce said, this does not involve a species of constructive notice. Constructive notice implies a degree of enquiry by reference to some external standard. Just because something is available to be found does not make it relevant, if the parties did not know of it. The reasonable person may be taken to know of things that go beyond those that the parties thought to be important or those to which there was actual subjective advertence by the parties. Further, the circumstances may include such things as the legal context to the transaction, especially if a market is involved. Nevertheless, the scope of the relevant material is necessarily bounded by the objective task of the reasonable person giving meaning to the words used by the parties in the circumstances in which the contract came to be written, by reference to what the parties knew in the sense stated by Lord Wilberforce in Reardon Smith, by Mason J in Codelfa and by the the High Court in the various cases since Codelfa. This is how I read the reasons of Macfarlan JA in The Movie Network Channel v Optus, with which I agree.

The construction of the text 36 With the qualification that I have identified, I generally agree with the reasons of the learned primary judge. 37 The gravamen of the appellant's submissions was that the activity of allowing licensed shooters on the property, for the purpose of hunting only, meant that the totality of the cover was limited to licensed shooters and for the purpose of hunting only. The difficulty with this construction is that it is not what the words say. Of course, it is not appropriate to divide up individual parts of the coverage clause and ascribe meanings separately before adding the building blocks together. This is a commercial contract to be read in its totality, commercially and sensibly. 38 The coverage clause covers the insureds for liability for different types of injury and damage caused by an occurrence which must have a connection with a certain activity. The activity is that of the insureds of allowing licensed shooters on their properties for the purpose of hunting only. This is what Ms Vasic and Mr Fairey did. Their activity was to allow licensed shooters, in this case the plaintiff's father, on the property for the purpose of hunting only. The occurrence that occurred was in connection with that activity because, as was known to the insureds, the plaintiff's father came on the property for the purpose of hunting, and the connection was not broken by the fact that he was accompanied by his son. Further, as was known to the insureds, the activity included remaining on the property overnight and seeking the shelter of the shearers' quarters for that purpose. In those circumstances, which could be reasonably anticipated both at the time of the contract formation and later, the occurrence of an injury to one of the hunting party (including a non-shooting member of the party) is the very kind of thing that would fall within the notion of an occurrence in connection with allowing licensed shooters on the properties for the purpose of hunting only. 39 If the parties' intention objectively ascertained had been to limit cover to the licensed shooter only and also, in that regard, only for the activity of hunting, as was submitted, a different structure and wording would plainly be apposite. Here, in my view, the circumstances of the occurrence were plainly in connection with the activity of allowing the plaintiff's father on the property for the purpose of hunting only. 40 It was for these reasons that I joined in the orders on 24 June 2010. 41 GILES JA: I agree with Allsop P. 42 MACFARLAN JA: I agree with Allsop P. **********

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