Regal Pearl v Zurich Australian Insurance

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11173 of 2003 Regal Pearl Pty Ltd v Zurich Australian Insurance Limited

JUDGMENT 1 MASTER: At the relevant time, the plaintiff owned and operated a restaurant known as the China Bowl Restaurant. Subsequent to or about 11 May 1997, a number of customers complained of suffering personal injury by contracting hepatitis following the consumption of Burmese prawns at the restaurant. 2 The importer of the prawns was Great Ocean Products Pty Ltd (Great Ocean). Great Ocean sold the prawns to a wholesaler Tai Kwan Seafood Pty Ltd (Tai Kwan). Tai Kwan sold the prawns to the plaintiff. 3 There were proceedings in the District Court. The defendants were the plaintiff, Great Ocean and Tai Kwan. The customers recovered as against the plaintiff but failed as against the other two defendants. The plaintiff was held to be liable both under the Sale of Goods Act 1923 and in negligence. 4 The plaintiff prosecuted a Cross-Claim against both Great Ocean and Tai Kwan. The plaintiff failed as against both cross-defendants. 5 It appealed to the Court of Appeal. The appeal brought against Great Ocean was unsuccessful. The appeal brought against Tai Kwan was successful. It succeeded on the basis of breach of s 19 of the Sale of Goods Act 1923 and the plaintiff was held to be entitled to complete indemnity (the Judgment). 6 The plaintiff has applied to the High Court for leave to appeal in respect of the dismissal of its appeal against Great Ocean. Tai Kwan has not challenged what was done by the Court of Appeal. 7 It is common ground that at the relevant time, Tai Kwan had on foot a valid policy with the defendant (Exhibit A). The cover provided by the policy falls into two parts. Part A deals with general liability. Part B deals with products liability. For present purposes, the court is only concerned with Part B. 8 The cover provisions of Part B say inter alia;- "………………………We will pay for all amounts up to this Limit of Liability that an Insured Person becomes legally liable to pay in compensation for: 1. Personal Injury;………. ……………………………………….."

The policy contains exclusions that apply to Part A and Part B. The exclusions provide that "This Cover Section does not cover:" inter alia:- "………………………………………….. 12. CONTRACTUAL LIABILITY Liability for Personal Injury or Property Damage that is accepted by any Insured Person Under any contract, warranty or agreement requiring: (a) insurance to be effected on any property not owned by the Insured Person; (b) the acceptance of any liability, except liability that would have existed even if the contract accepting the liability did not exist; or (c) the waiving or limitation of the Insured Persons rights of recovery against another party; provided that this Exclusion shall not apply to liability assumed under an Incidental Contract; …………………………………………." 9 On 15 May 2003, the plaintiff filed a Summons in this Court. It seeks relief pursuant to s 6 (4) of the Law Reform (Miscellaneous Provisions) Act 1946 (the Act). The Summons is supported by an affidavit sworn by Jan Willem Van de Poll. 10 For present purposes the relevant provisions of s 6 are as follows:- "(1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.

(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.

(5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.

……………………………….." 11 There was evidence which suggests that Tai Kwan lacks the means to satisfy the Judgment. It is not suggested by the defendant that there is an available common law defendant. 12 The only issues agitated between the parties turn on questions of the proper construction of the policy itself. 13 Subject to what has been described as the prescription, the section confers a discretionary power to grant leave. It is a power that is exercised having regard to the relevant circumstances of the particular case before the court. The plaintiff bears the onus of demonstrating that it is entitled to the grant of leave (Leighton Contractors v AMP General Insurance [2003] NSWSC 839). 14 The prescriptive words appear at the end of subs (4). The words provide that leave shall not be granted in any case inter alia where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability. 15 The section has been referred to as a filter. It is sometimes said that it suffices to show that there is an arguable case for liability of the insurer under the policy. The insurer may join issue on this question and seek to positively establish its entitlement to disclaim. 16 This is what is sought to be done by the defendant in this case. It founds its efforts on what it says to be the proper construction of the policy.

17 There are two questions of construction. Firstly, the defendant says that what the plaintiff seeks to recover does not fall within the cover provided by Part B. Secondly, it is said that if it does fall within that cover, it is excluded by the provisions of cl 12 (c). 18 Both counsel have provided the court with written submissions. These submissions have been supplemented by oral argument. The court has been taken to numerous authorities. For present purposes it is unnecessary to expressly refer either to all of the cited authorities or to all of the matters ventilated during argument. 19 Before proceeding to the principal matters ventilated, perhaps I should expressly mention just a few of the cases (including State Government Insurance Office (Qld) v Crittenden (1966) 117 CLR 412; Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd (2001) 53 NSWLR 626 and Allianz Australia Ltd v Wentworthville Real Estate Pty Ltd & 2 Ors [2004] NSWCA 100). 20 I now return to the first of those two questions. It is one in respect of which there has been considerable reference to case law. There are decisions concerning policies using the words "for Personal Injury" or the like. However, the context has differed from what is presently before the court. In the cases consideration has been given to the characterisation of the liability. The cases show that when the word "for" appears in such a collocation of words it should be given a wide construction. 21 The starting point is that a charge can only arise under the section if the insured has entered into a contract of insurance by which it is indemnified against the liability created by the Judgment. 22 It is said by the defendant that Tai Kwan has not become liable to pay compensation for personal injury. Rather, it is said that the Judgment obtained against Tai Kwan is one founded in contract for economic losses and is in the nature of an indemnity. It was further said that this case was distinguishable from those cases where a more expansive view had been taken because of legislative context. 23 The plaintiff rejects this approach as being inter alia too narrow and defeating the commercial purpose of the policy. It says that Tai Kwan has a liability for personal injury (for injuries to the customers of the plaintiff). 24 The plaintiff relies on authority for the propositions that a policy must be read as a whole, in its commercial setting, in such a way as to fulfil and not restrain its commercial purpose and where appropriate to do so against the insurer. 25 The policy was prepared by the insurer to provide cover that was referrable to the business carried on by Tai Kwan (which was a wholesaler). It may be that if the narrower construction propounded by the defendant was adopted it could leave the policy with but a limited scope for operation and defeat its intended commercial purpose. 26 It is common ground that if the plaintiff succeeds in demonstrating that there is arguably a contract of insurance by which it is indemnified against the liability established by the Judgment, the court should not proceed further and determine the contentious points of construction. 27 After considering the terminology of the cover provisions of the policy and the arguments advanced on behalf of the parties, I have come to the view that, whilst there may be force in the approach propounded by the defendant, I am satisfied that there is an arguable case that the policy does indemnify against such liability. 28 The second of the questions concerns the exclusion provisions. For present purposes, the court is only concerned with cl 12 (c). 29 This exclusion applies to liability for personal injury that is accepted by the insured under any contract, warranty or agreement requiring the waiving or limitation of the insured's right to recovery against another party. 30 The defendant relies on material comprised within Exhibit 1. The material consists of invoices issued by Great Ocean to Tai Kwan relating to the prawns. The invoices come with terms and conditions which contain exclusion provisions and an indemnity. The defendant takes the view that the terms and conditions see Tai Kwan surrendering any rights that it might have had against Great Ocean. In so doing it is said that there has been an acceptance in the relevant sense and that the defendant's rights of subrogation have thereby gone. The material was admitted subject to relevance. 31 The exclusion applies only where certain criteria has been met. There has to be a liability for personal injury. There has to be an acceptance of the liability by the insured. The acceptance has to take place under a contract, warranty or agreement which requires the waiving or limitation of the insured's rights of recovery against another party. 32 There is little authority to assist the construction task. There is a decision which deals with a provision similar to cl 12 (b) (Karenlee Nominees Pty Ltd v ACN 004 312 234 Ltd (1994) 8 ANZ Ins Cas 61 - 236). It addresses the question of the meaning to be given to the word "accepted". There is no assistance as to the scope of the words "another party". 33 In the present case, prior to the disposition of the litigation in the District Court, the defendant had declined to indemnify Tai Kwan under the policy. Thereafter, Tai Kwan litigated the question of liability and the liability now had under the Judgment was determined by the court. 34 The defendant looks only to the contractual arrangements made between Great Ocean and Tai Kwan to support its construction that the exclusion provisions have application. 35 In opposition to what is put by the defendant, the plaintiff disputes that the contractual arrangements made with Great Ocean can bring about an acceptance. 36 It seems to me that the plaintiff has an arguable case on this question. I consider that there is a real issue as to whether or not inter alia that Great Ocean can be treated as "another party" in the sense required by the provisions. 37 In the particular circumstances of this case, I am satisfied that the plaintiff has discharged the requisite onus. Accordingly, leave is granted pursuant to s 6 of the Act to commence an action against the defendant. The defendant is to pay the costs of the Summons. The Exhibits may be returned.

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