Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd

Federal Court of Australia|2010-03-08|Before: Mr P, Rares J

Counsel for the Applicant: Mr M Lee and Mr M Leighton-Daly

Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd (No 2) [2010] FCA 275 CORRIGENDUM

On the cover sheet of the judgment, "Westfarmers General Insurance Limited" has been changed to read "Wesfarmers General Insurance Limited". 2. On the orders page of the judgment, "Westfarmers General Insurance Limited" has been changed to read "Wesfarmers General Insurance Limited". 3. On the first page of the Reasons for Judgment, "Westfarmers General Insurance Limited" has been changed to read "Wesfarmers General Insurance Limited". 4. In the Reasons for Judgment wherever "Westfarmers" appears it should read "Wesfarmers".

I certify that the preceding four (4) numbered paragraphs are a true copy of the Corrigendum to Reasons for Judgment herein of the Honourable Justice Rares.

The amended application is refused. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 This is an application to amend the reply made during the course of the applicant's counsel opening the case. The case involves a claim by the insured, Sagacious Legal Pty Limited, under a policy of insurance underwritten by the respondent.

The current pleaded issues 2 The issues on the pleadings are that the claim was refused on 5 December 2008 in alleged breach of the policy, and, in defence, the insurer relied on a number of specific exclusions from liability in the terms of the policy. The claim arises from a motor vehicle accident that occurred on 16 January 2008 in which the insured's car was a write-off. It was driven at the time by the wife of the principal officer of the insured, Mrs Lana O'Shanassy. 3 The defence pleaded three principal bases for denying liability: first, that there had been a failure to meet the insured's duty of disclosure either in accordance with s 21 of the Insurance Contracts Act 1984 (Cth), or, alternatively, under the policy. The issues relevant to that matter are not the subject of the amendment application. The other two bases on which the insurer denied liability were exceptions in the policy that operated in circumstances where, first, the driver at the time of the accident was either driving under the influence of intoxicating liquor; or secondly had a blood alcohol reading in excess of the prescribed concentration of alcohol as indicated by an analysis of her breath or blood taken within two hours of the occurrence of the event giving rise to the damage. 4 In the current reply, the insured raised a legal issue as to whether or not the pleading of the prescribed concentration of alcohol exception, and the exception itself, contravene s 37(5) of the Road Transport (Safety and Traffic Management) Act 1999 (NSW). The insured in the current reply, joined issue on the insurer's reliance on the two exceptions. Namely, whether or not Mrs O'Shanassy was driving under the influence of alcohol or with the prescribed concentration of alcohol in her blood. The insurer did not object to a specific amendment being made to the reply to deny the allegation that she was, and I will allow that denial to be added to par 12 of the reply.

The controversial proposed amendments 5 The present point of contention is that for the purposes of denying the legal efficacy of the insurer's reliance on the two exceptions, the insured now seeks to add pleas based on a notation to the general exceptions, forming part of the terms of the policy, that reads: "Note: claims will be paid to the extent that there are not any relevant statutory provisions to the contrary, or where you can prove that you did not consent to the motor vehicle being driven by, or being in charge of, a person when so affected, and we agree that you had no reason to suspect that the driver was under the influence of alcohol or any drug." (emphasis added) 6 The parties have debated whether or not, for the first time today, the insured should be allowed to plead that: (1) it did not relevantly consent to the vehicle being driven by Mrs O'Shanassy when she was affected by alcohol; (2) there was no basis for the insurer to dispute that the insured had no reason to suspect that she was under the influence of alcohol when driving (which was denied) so that the two alcohol-based exceptions to the policy did not apply; and (3) the insurer was in breach of s 13 of the Act by denying the claim, or the insurer was prevented by s 14(1) of the Act from relying on either relevant exception. 7 Sections 13 and 14 provided as follows: "13 The duty of the utmost good faith A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. 14 Parties not to rely on provisions except in the utmost good faith (1) If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. (2) Subsection (1) does not limit the operation of section 13. (3) In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in section 37 or otherwise." 8 The insured accepted that it will be necessary for the insurer at least to investigate the second of these pleas with its relevant officers, one of whom has been identified. The insurer will need to call in evidence from whoever of those officers at the time it denied liability on 5 December 2008 as well as at today or during the trial, that the insurer had a basis to dispute that the insured had no reason to suspect that Mrs O'Shanassy was under the influence of alcohol or driving with a blood alcohol reading in excess of the prescribed concentration of alcohol at the time. The officer identified, a Mr Durham, is in Melbourne and today is a public holiday there.

The factual context in which the proposed allegations arise 9 These proceedings were set down for trial on 23 October 2009. During the claims investigation stage, the solicitors acting for the insurer wrote to the insured, which was a legal practice, as I understand it, on 10 June 2008. In its penultimate paragraph, the letter asserted an assumption by the solicitors for the insurer that the driver was driving the vehicle with the insured's authority, and reserved the insurer's rights to pursue recovery from the driver if that assumption were denied. On 14 July 2008, the solicitors for the insured responded to that letter by saying that the assertion in that paragraph of the earlier letter was incorrect. I think, on a fair reading, that the reference to the "assertion" was to the assumption that the driver was driving with the authority of the insured. 10 Subsequently, the insurer responded on 21 August 2008, seeking details of what was meant by the assertion being said to be incorrect. No response was received by the time the insurer's solicitor's letter of 5 December 2008 denying liability was sent. That letter set out detailed reasons for the denial, which it is not necessary to rehearse here, other than to note that the insurer relied upon Mrs O'Shanassy's having a blood alcohol level in excess of the legal limit and raised the exceptions of driving under the influence of alcohol, and driving with such a concentration of alcohol in her blood. On 24 April 2009, the insured's solicitors responded to the denial of liability and enclosed a certificate of acquittal of Mrs O'Shanassy on 19 March 2009 on a charge of driving with a mid-range prescribed concentration of alcohol on 16 January 2008. On 7 May 2009, the insurer's solicitors again sought more detail as to the capacity in which Mrs O'Shanassy was driving and whether she was doing so with the express permission and consent of the insured. No reply to this enquiry is in evidence. These proceedings were commenced on 1 June 2009.

The parties' submissions 11 It is fair to say that, until the proposed amendment was foreshadowed between counsel yesterday, no express reliance had been notified by the insured on what is now sought to be raised in the contested part of the amendment. 12 The insured argued that by joining issue with the insurer's denial of liability on the basis of the pleaded exceptions, it was clear that the insurer would be faced with having to deal with the subject matter of the notation to the general exceptions in the policy. It also argued that the only relevant factual inquiries concerned what occurred in considering the claim as at the date of the alleged breach, and, the question of whether or not there was any prejudice to the insurer based on the material that it now had access to concerning Mrs O'Shanassy's consumption of alcohol. The insured said that it would make a relevant admission that Mrs O'Shanassy had alcohol problems at the time of the accident after ascertaining precisely what might be sought by the insurer. There was some medical evidence produced in response to the orders I made on 4 March 2010 that suggested that she did have an alcohol problem, as I understand is common ground between counsel. 13 The insured next addressed the factual question raised in relation to prejudice. It characterised this as whether or not it could be said that the insurer would now have to deal with the issue of whether the insured had consented to Mrs O'Shanassy driving the vehicle at the time of the accident. There is apparently some issue as to whether she was, or may have been, an employee of the insured at the time of the accident, or at some other stage. This may or may not have provided the insured with notice of the kind that could be used as evidence from which an inference of consent might be drawn. 14 The insured also argued that the insurer has not yet lost the ability to grant indemnity, and can still do so. It argued that the provisions of ss 13 and 14(1) of the Act were attracted because, first, at the time of the denial of liability, in some way the insurer was not acting in good faith in relying upon the policy notation identifying how it should be informed about the insured's lack of consent to the vehicle being driven and the insured not having any reason to suspect that Mrs O'Shanassy was under the influence of alcohol at that time. Secondly, the insured argued that as at the time of the trial, and in all the circumstances, the inference should be drawn that the insurer's reliance upon the contractual exceptions relating to alcohol was otherwise than in good faith, and that its reliance on the provisions of the policy amounted to a failure to act in the utmost good faith. These issues under the Act have only been raised by the draft pleading now for the first time. 15 I have been informed by counsel that some 14 lay witnesses have been subpoenaed, including a number of police, emergency services officers and others from various parts of New South Wales to give evidence during the course of the trial and that two must give their evidence today. The insurer argued that if the amendment was granted, it will need to apply for an adjournment of the hearing in order to be able properly to investigate the new issues raised for trial. 16 There has been some slippage in the timetable by both parties. Initially, the insured proposed to rely upon an expert report by Professor Starmer that set out a history in which Mrs O'Shanassy told him that she had had four nips of Johnny Walker red label whisky, or perhaps more correctly, two double nips, mixed with Coca-Cola immediately before entering the vehicle after receiving a telephone call from her husband that prompted her return home from what is alleged was her playing poker machines. As I understand it this formed part of the background in which the insured seeks to have Mrs O'Shanassy's conduct viewed, because she had a gambling problem. 17 The insured answered a number of interrogatories concerning the alcohol and food intake of Mrs O'Shanassy immediately prior to the accident verified by Mr O'Shanassy, as managing director of the insured. He stated that to his knowledge, he was unable to answer himself, and after making reasonable inquiries of other agents and officers of the company, to the best of his knowledge, information and belief, he had no information enabling him to answer the interrogatories.

Consideration 18 There are obviously issues that will arise in the proceedings as to the knowledge, actual or imputed, which the insured can be said to have of Mrs O'Shanassy's condition and awareness at the time of the accident. The purpose of pleadings is to identify the material facts in issue on the basis of which each party seeks to propound its case. Under O 11 r 10 of the Federal Court Rules, pleadings, such as a reply, must specifically plead any matter of fact or point of law, for example, performance, release, any relevant statute of limitation, fraud, or in facts showing illegality that: (a) the party alleges makes a claim or defence of the opposite party not maintainable; (b) if not specifically pleaded, that might take the other party by surprise; or (c) raises issues of fact not arising out of the proceeding pleading. 19 In the proposed amendment the insured sought to rely on the matters in the notation. These provided a contractual exception from the exclusions in the policy. The exception required the insured to assume an onus of proof, if it wished to establish those matters, namely that it did not consent to a motor vehicle being driven by or being in the charge of Mrs O'Shanassy when or if she was affected by alcohol, and also to prove that the insured had no reason to suspect that the driver was under such influence. 20 I am of opinion that reading the notation as a whole, the insured had an obligation to raise with the insurer the basis on which it did not consent to Mrs O'Shanassy driving and if it wished to have the exclusion not apply to it, to prove that the insurer had no reason to suspect that she was under the influence of alcohol at the time. The notation really amounts to an exception to the exclusion. Thus, where the insurer establishes that the circumstances entitle it, as it has pleaded, to deny liability because either Mrs O'Shanassy was driving under the influence or had the prescribed concentration of alcohol in the blood at the relevant time, it would otherwise succeed in its defence. In order to meet that defence, the insured must then discharge a burden both of pleading and proving that the exception is made out, namely, that it did not consent to her driving the vehicle at the time in that condition and had no reason to suspect that she was in that condition. 21 In such a case, the ordinary course of pleading has long been that an exception to an exclusion must be pleaded in a reply or replication: The Glendarroch [1894] P 226 at 231- 232 per Lord Esher MR; Shipping Corporation of India Ltd v Gamlin Chemical Co (A/Asia) Pty Ltd (1979) 147 CLR 142 at 168 per Mason and Wilson JJ, Gibbs J and Aickin J agreeing at 149, 168 and see the discussion in CV Scheepvaartonderneming Ankergracht v Stemcor (A/Asia) Pty Ltd 160 FCR 342 at 361 [55]-[56] per Ryan and Dowsett JJ, also per myself at 413-414 [270]; cp the position in relation to a statute: Vines v Djordjevitch (1955) 91 CLR 512 at 519-520 per Dixon CJ, McTiernan, Webb, Fullagar and Kitto JJ. On the basis of the pleadings as they currently stand, I am of opinion that new issues are sought to be raised by the first two proposed amendments rely upon the notation. Those issues required specific pleading were they to be raised. 22 Likewise, the insured accepted that the issues under ss 13 and 14(1) are new. Those issues can be disposed of shortly. First, I pressed the insured to particularise how either section was attracted as at each of the date of alleged breach of contract by the insurer, namely 5 December 2008 and today. In essence, the insured argued that the insurer taking the premium and refusing to pay the claim, amounted to a breach of good faith because the insured relied upon the exception that the insured did not consent to the motor vehicle being driven by the driver. 23 I reject that argument. On the material before me, the insurer sought information as to why it ought not to have made its assumption that consent had been given to Mrs O'Shanassy, as a nominated driver of the vehicle to drive it. Those requests were met with silence, apart from the bare assertion that the insurer was incorrect to make the assumption. I see nothing that could possibly give rise to an allegation that the insurer, having asked the relevant question and being met with silence, could be said to be acting outside its obligation of the utmost good faith in relation to a matter arising in relation to the insurance policy. I cannot understand how the insured can argue that, by it refusing to give the insurer information about whether it had consented to Mrs O'Shanassy driving at the time, which could only be known by the insured, the insurer had been in breach of its obligation of good faith by continuing to rely upon the assumption it had identified. That assumption had simply been denied in circumstances where the policy contained the notation. 24 The insured argued that, at the time of its denial of the insured's assumption, Mrs O'Shanassy was the subject of a criminal charge. It referred to the fact that the charge had subsequently been dismissed, but only after the refusal of indemnity had been communicated. However, that has nothing to do with whether or not the insured gave consent to her driving the car, whether or not she was relevantly affected by alcohol. The insured should not be allowed, at this very late stage, to raise the issues under ss 13 or 14(1) in relation to the denial of liability. There is nothing in the bare facts that have been outlined to make the conduct of the insurer in relying upon the notation to the general exceptions to the policy otherwise than in accordance with its obligation of the utmost good faith. 25 The next basis upon which the insured sought to invoke ss 13 and 14(1) was to foreshadow that it might demonstrate that, at the trial, it had not consented and did not know of Mrs O'Shanassy's alcohol intake at the time she commenced to drive the vehicle, immediately prior to the accident. It argued that, in all of the circumstances, whatever they might be, at the end of the hearing, the Court could form the view that the insurer was acting outside its obligation of the utmost good faith in either maintaining its denial of liability or relying upon the notation and the exception in the policy. 26 In my opinion, an allegation of a breach of the utmost good faith by an insurer requires the pleading of particular facts which the insured must establish to make good its allegation, in order that the insurer can know the case it has to meet: cp Dare v Pulham (1982) 148 CLR 658 at 664 per Murphy, Wilson, Brennan, Deane and Dawson JJ. 27 All that the proposed amendment now pleads is the lack of consent and the lack of a reasonable basis for the insurer to dispute that the insured had reason to suspect that Mrs O'Shanassy was under the influence of alcohol or had the prescribed concentration in her blood at the time of the accident, and in those bare premises, a breach of the duty of the utmost good faith would be established. I am of opinion that that fails to meet the threshold of pleading the material facts by reference to which such conduct could be proved or be thought to identify what it was that amounted to a lack of the utmost good faith arising out of those circumstances. 28 In addition, as I think is conceded by the insured, the insurer now, during the course of the trial, would have to investigate this new issue, interview new witnesses, possibly still within its own organisation, and put evidence together to deal with that issue. 29 The insured did not lead any evidentiary basis to justify the amendment, but counsel for the insured said, and I accept, that the necessity to identify these matters distinctly in a pleading occurred to him on Saturday, 6 March, and he promptly formulated the draft which he provided to counsel for the insurer yesterday. 30 Obviously, it is desirable, in the interests of justice, that all real issues between parties to legal proceedings be determined once and for all at a trial. The insurer argued that it might be prejudiced were the exception in the notation made out because it had not brought a cross-claim against Mrs O'Shanassy in the event that she did not have the insured's consent to drive the car. I do not consider that that is a sufficient reason to refuse the amendment; after all, that outcome was always possible if the insurer somehow failed in its defence. 31 However, I am satisfied that the amendment raises issues that are significant and had not adequately been investigated prior to trial. In particular, the insured has only very recently provided to the insurer statements by Mr and Mrs O'Shanassy respectively on Wednesday and Monday last week together with on Friday last week, most of her medical records, the subject of my orders. 32 The current pleadings raise a number of important and difficult issues of insurance and general law, and require a detailed factual inquiry. I do not consider that it would be fair to grant the proposed amendments and to permit the trial to proceed today where the issues raised by them had not been considered and investigated with the thoroughness that the other issues for the trial today have been. As I indicated in my judgment, Sagacious Legal Pty Ltd v Westfarmers General Insurance Limited [2010] FCA 274, litigation in this Court has for a considerable period been conducted on the basis that parties cannot leave footprints in the sand and must lay their cards on the table promptly and early so that all the true issues are identified and can be fairly tried in due course. I consider that I would be forced to grant an adjournment to the insurer were I to permit these amendments to be made. 33 In any event, as I have indicated, I do not consider that the amendments proposed under the Act have a sufficient foundation. In the exercise of my discretion, I should not allow them to be raised now, having regard to the interruption and difficulty occasioned to the insurer by their late timing, and the lack of a proper articulation of the basis upon which the provisions are sought to be invoked. In addition, the factual inquiries that would now be raised by the amendments being made on the first day of the trial relating to the insured's reliance upon the notation appear to me to be ones that fall largely within the knowledge of the insured. This is because they depend on the state of mind of whatever relevant officer or officers of the insured, who could have given consent for Mrs O'Shanassy to drive. And, once those issues are identified, the insured now seeks to throw an onus on the insurer to investigate and identify how it may or may not have had a basis on which it might agree that the insured had no reason to suspect that Mrs O'Shanassy was under the influence of alcohol. In my opinion, on the material before me, that would cast a very large burden on the legal representatives of the insurer during the course of what is already a factually and legally complex trial to investigate an issue not previously foreshadowed at all. I do not think that they could, in justice, be required to do that during the course of the hearing. 34 If I were to adjourn this trial today, not only would there be very considerable costs thrown away in its preparation; but a large number of witnesses would be disrupted, and the hearing of factual evidence from witnesses who are, I infer, mostly independent of the parties, concerning their recollection of events already two years old, would be further delayed. The whole quality of justice is undermined by delay that affects the recollection of individuals: see too Reg. v Lawrence [1982] AC 510 at 517B-C per Lord Hailsham of St Marylebone LC. Such a delay would have been brought about by reliance upon a case which had always been open to the insured to plead if it had wished to raise it. That case would have thrown onto the insurer the need to undertake factual inquiries that had not previously been notified to it, namely, the investigation of whether or not it accepted there was no reason for the insured to suspect that Mrs O'Shanassy was under the influence of alcohol or had been driving with above the prescribed concentration of alcohol at the time of the accident. 35 The insured has had a full and proper opportunity to plead its case. Five days have been set aside for this trial. Vacating those dates today would mean that other parties who, since 23 October 2009, may have been able to have had a trial set down at some time in those dates will not have had their cases heard by the Court when they could have been. Moreover, although I accept that counsel for the insured appreciated only on the weekend that this matter ought be the subject of a specific pleading, I do not consider that that is a sufficient justification for allowing the introduction of wholly new issues at this very late stage in all the circumstances. The insured, at least in the correspondence and on the material before me, effectively has relied on the obligation of the insurer to prove that it fell within the exceptions in the policy which it pleaded in its defence filed on 9 July 2009 and were the subject of the reply filed on 12 August. 36 I have had regard to the considerations identified in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175, and in particular at 211-215 [92]-[103] per Gummow, Hayne, Crennan, Kiefel and Bell JJ. I have given consideration to the factors that both parties here are corporations, albeit that I am mindful that the insured is a small corporation, and the insurer has no interests of a personal kind in the outcome of the litigation unlike those which clearly do apply to the individuals associated with the insured. Nonetheless, I think that there are elements of non-compensable inconvenience and stress, both on the insurer's witnesses, and elements of convenience to other litigants in the Court in requiring these parties to have pleaded and articulated their cases clearly from the outset. Plainly, any reliance upon the exception to the exclusion in the policy is a matter that should have been raised a lot earlier. I do not think that I should grant this amendment in all of the circumstances.

37 I am of opinion that the disadvantage to the insurer of adjourning the trial, which I am satisfied will be necessary were I to allow these late changes in the insured's case, in all the circumstances requires me to refuse the amendment application. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Road Transport (Safety and Traffic Management) Act 1999(NSW)s 37(5)

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