Brian Jenkins v Mercantile Mutual Insurance Limited [1987] ACTSC 11 (4 March 1987)

SUPREME COURT OF THE ACT

BRIAN JENKINS v. MERCANTILE MUTUAL INSURANCE LIMITED
S.C. No. 1675 of 1983
Insurance

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Kelly J.(1)

CATCHWORDS

Insurance - Law Reform (Miscellaneous Provisions) Ordinance 1955 - Ss.25 and 26 - Application for leave to proceed against insurer - Applicant having recovered judgment against company allegedly insured by respondent against risk in respect of which judgment recovered - Matters to be considered.

Lissenden v. Yorkshire Nominees Pty. Ltd. (in Liquidation) & Ors. (1984) 3 NSWLR 138

Andjelkovic v. A.F.G. Insurances Ltd. (1980) 31 ACTR 17

HEARING

CANBERRA
4:3:1987

ORDER

The applicant be granted leave pursuant to s.26 of the Law Reform (Miscellaneous Provisions) Ordinance 1955 to proceed against the respondent in its capacity as alleged insurer of Red Hill (Yarralumla) Constructions Pty. Limited (In Liquidation) in respect of judgment entered against that company on 26 September 1983.

Costs of this application be costs in the proceedings to be taken.

DECISION

This is an application under ss.25 and 26 of the Law Reform (Miscellaneous Provisions) Ordinance 1955 (the Ordinance).

2. The relevant parts of those sections are as follows:-

"25.(1) If a person (in this Part referred to

as 'the insured') has, whether before or
after the commencement of this Ordinance,
entered into a contract of insurance by which
he is indemnified against liability to pay
any damages or compensation, the amount of
his liability is, on the happening of the
event giving rise to the claim for damages or
compensation, and notwithstanding that the
amount of the liability may not then have
been determined, a charge on all insurance
moneys that are or may become payable in
respect of that liability.

(2) If, on the happening of the event giving
rise to the claim for damages or
compensation, the insured (being a
corporation) is being wound up, or if any
subsequent winding-up of the insured (being a
corporation) is deemed to have commenced not
later than the happening of that event, the
provisions of sub-section (1) of this section
apply notwithstanding the winding-up."

"26.(3) Except where the provisions of
sub-section (2) of the last preceding section
apply, no such action shall be commenced in
any court except with the leave of that
court, and leave shall not be granted 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."

3. On 8 January 1979, in proceedings in this Court numbered S.C. 1979 of 1977, Brian Jenkins (the applicant) recovered interlocutory judgment against Red Hill (Yarralumla) Constructions Pty. Ltd. (in Liquidation) (the company) for damages for negligence to be assessed. On 26 September 1983, judgment for $238,177.75 was entered against the company in favour of the applicant.

4. The applicant now seeks to establish that the company entered into a contract of insurance with Mercantile Mutual Insurance Company Limited (the insurer) by which it was indemnified against liability to pay the amount of the judgment.

5. The company was the successor of a partnership consisting of A Botta, V. Belmonte and P. Maiuto trading together as Red Hill (Yarralumla) Construction. The partnership entered into a contract of insurance with the insurer by which it was indemnified against any legal liability to pay compensation in respect of, inter alia, bodily injury occurring during the period of insurance as a result of an accident happening in connection with its business of drainage contractors. That policy was signed originally on 12 January 1970.

6. A renewal notice in respect of a public risk policy was sent, not to the partnership, but to Red Hill (Yarralumla) Constructions P/L in respect of the period 29 August 1974 to 29 August 1975. Counsel for the insurer conceded that, apart from a technical argument, it was not in dispute that a public risk policy, No.17LD058595, was in existence in May 1975. However, the technicality concerned the change in description of the insured from a partnership to a corporate addressee. In his submissions he said that the issuing of the renewal notice might estop the insurer from denying the existence of a policy in favour of the company but it did not go further and establish the existence of a contract of insurance between a company, by which I assume he intended the company, and the insurer. In his submissions he added:-

"Whilst certainly the company could say in
court, if it were seeking to enforce the
policy, 'You've led us, to our detriment, to
the belief that a policy of insurance was in
existence between your insurance company and
our company and on the basis of your
representations we did not obtain a second
policy in the name of the company'. That is
an evidentiary estoppel and it does not . . .
create a policy of insurance. . . . the
sending of the renewal notice to a body in a
corporate description (sic), whilst it may
operate as an estoppel, does not of itself
result in a contract of insurance being in
existence between the company and the
insurer."

7. As to this question of whether the policy was in existence or not, I proceed on the material before me, including concessions made by counsel for the insurer. It may be that the insurer has an argument to be brought forward in the appropriate way and at the appropriate time that the prima facie existence of a relevant policy does not in the end demonstrate the existence in fact of a policy indemnifying the company against the risk in question. But I accept at this stage that there was such a policy in existence at the relevant time.

8. A further submission, described by counsel for the insurer as "secondary", related to the effect of limitations legislation. A statute of limitations is always to be pleaded as a special matter. Order 23, r.9 of the Rules of the Court. It may be that the applicant's case against the insurer is statute-barred but consideration may have to be given, if the statute is pleaded, to any application for an extension of time under the Limitation Ordinance 1985. The question was not really raised by counsel in his submission. He said, inter alia, referring to the submission, "this may be a submission more appropriately made if the applicant were given leave to proceed". In the circumstances I think it unnecessary to deal with the submission further at this stage.

9. Section 26(3) of the Ordinance or its equivalent has been considered on a number of occasions. A detailed discussion of its construction appears in the judgment of Mahoney JA in Lissenden v. Yorkshire Nominees Pty. Ltd. (in Liquidation) & Ors. (1984) 3 NSWLR 138 at pp 142-3, a decision of the Court of Appeal of New South Wales. His Honour considered that there were three possible alternative meanings to be attributed to the words:-

"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 . . . necessary to
establish that the insurer is so entitled to
disclaim, have been taken".

10. His Honour considered the first possibility, which he rejected (it was apparently not advanced by the appellant), to be that the Court must be satisfied, in the sense of being in a position to make a final judicial determination, that upon the facts of the case an insurer against whom an application under the equivalent of s.25 of the Ordinance is made is relevantly entitled to disclaim liability under the policy. As his Honour pointed out, it would be superfluous to require then that proceedings "necessary to establish that the insurer is so entitled to disclaim" had been taken. The second construction advanced proceeded on the view that the Court cannot "be satisfied that the insurer is entitled to disclaim" if the insured has merely an arguable case that the insurer is not so entitled. It would follow that if the insured were able to establish an arguable case that the insurer is liable the insurer would not be entitled to disclaim. Leave ought therefore to be granted.

11. The third alternative was dealt with by Mahoney JA as follows:-

"The third alternative referred to was that
the first matter requires that the Court be
satisfied that, in effect, the terms of the
contract of insurance provide that, in
certain events, the insurer is entitled to
disclaim liability. On this alternative
construction, the Court will merely look to
the terms of the contract of insurance to see
whether it provides for a disclaimer of
liability: the Court will not be required to
be satisfied that, on the facts of the
instant case, the facts are such that a right
had accrued to the insurer to disclaim or
even if there is an arguable case, that such
a right has or has not accrued."

12. Giving further consideration to the third alternative his Honour said that it allowed

"the words 'satisfied that the insurer is
entitled under the terms of the contract of
insurance to disclaim liability' to be given
their ordinary meaning. But it may be
thought to meet difficulties accommodating
the words 'is so entitled to disclaim' later
in the sentence: that which is to be
established by the relevant proceedings is
that, on the facts and the terms of the
policy, the insurer is 'entitled to disclaim'
in the sense of having a positive right to
disclaim; and, if this be so, then 'entitled'
as so understood is a somewhat different
meaning from 'entitled' in the first matter
and the word 'so' emphasises this
difficulty."

13. His Honour indicated that were it not for authority he would have been inclined to adopt the third alternative but as I understand his reasons for judgment, considered authority dictated adoption of the second. I respectfully agree that the second alternative should be followed but with great respect it seems to me that it is to be preferred as a matter of construction. It would be an extraordinary policy of insurance which did not provide amongst its conditions and exceptions and exclusions at least one term which permitted the insurer to disclaim liability on the happening of certain events. If s.26(3) is to be taken to mean that it requires only a statement in the policy of insurance that a disclaimer may be allowed in certain events it is difficult to understand why it was necessary to enact the provision at all. Something further must be required. That something further is, in my opinion, a set of facts from which it would appear that the insurer is entitled to disclaim liability. Such facts may establish that the policy has no relevance to the circumstances in question. See, for example, Andjelkovic v. A.F.G. Insurances Ltd. (1980) 31 ACTR 17, reversed [1981] FCA 104; (1981) 54 FLR 398. (An appeal to the High Court was dismissed [1981] FCA 104; (1982) 58 ALJR 52.)

14. Again the insurer may establish facts from which it is clear that, even though the policy prima facie indemnifies against the liability in question, the insured has lost his right to indemnity. Provided proceedings have been taken by the insurer to establish its right to disclaim, leave ought not to be granted.

15. In Andjelkovic's case it was established on the evidence that the liability for the accident out of which the applicant's claim arose was simply not covered by the policy in question. The right of the insurer to disclaim for any other reason therefore did not fall to be considered. It is for this reason, in my opinion, that the Full Court of the Federal Court of Australia said, at p 402:-

"We consider that the respondent did not show
that she had any case or even one that could
be said to be arguable. The evidence before
the Court did not permit any serious argument
that the injury which took place was within
the terms of the policy. In our opinion,
once that conclusion is reached, the only
appropriate course is for leave to be
refused."

But the Court had earlier said, at p 400:-

"Section 26(3) commands the court not to
grant leave in certain circumstances. It is
not easy to decide precisely what is embraced
in the words which describe the circumstances
where the court is not to grant leave. In
our opinion the court has a general power to
grant leave in all cases which do not fall
within the provision that it shall not grant
leave and in which it is made to appear by
evidence available in the application that
there is an arguable case of liability
against the insured, being a liability
against which the insured is indemnified by a
contract of insurance in force at the time of
the happening of the event said to give rise
to the claim. We accept the relevant test
proposed by the respondent which is really
the test formulated by the primary judge,
namely, has the respondent presented a case
which is at least arguable?"

16. The passage from the judgment of the Federal Court just quoted is obiter but it seems to me, with great respect, that I should follow it.

17. I turn to consider whether there is an arguable case against the insurer, noting that it has commenced proceedings to establish that it is entitled to disclaim liability.

18. Counsel for the insurer submitted that the insurer was entitled to disclaim liability if there was no notice of the injury giving rise to the liability. Condition 1 of the Mercantile Mutual Policy required that

"notice in writing shall be given as soon as
possible to the company of . . . every
occurrence . . . in respect of which there may
arise liability under the policy . . . such
notice shall be given by the insured . . ."

19. It is to be noted that evidence was tendered indicating that notice was given to the liquidator (see Annexure "A" to the affidavit of Alfonsas Stanton, sworn 14 August 1986). However, although the insurer seemed to wish to make an issue of due notice of the accident, there was no material before me that any notice required by the policy had not been given.

20. In my opinion it is for the insurer to raise the question of notice by an appropriate pleading or by sufficient evidence at this stage to warrant the dismissal of the application for leave, if that be the correct result of the alleged failure to give notice. Baker v. Provident Accident & White Cross Insurance Co. Ltd. (1939) 2 All ER 690 at p 697 and Coburn v. Travelers' Ins. Co. (1887) 145 Massachusetts Reports 227. Those cases seem to establish that the insurer bears the onus of proof in this regard. On the material before me the insurer has not discharged any such onus, certainly not to a degree which would warrant the refusal of leave to the applicant to proceed.

21. In all the circumstances I think leave should be granted.