Jason Nigel Gregory v Dennis Beecraft and Eastern Suburbs District Rugby League Football Club and Harbour Pacific Underwriting Management Pty Limited (Third Party) [1998] ACTSC 1 (6 February 1998)

SUPREME COURT OF THE ACT

JASON NIGEL GREGORY v. DENNIS BEECRAFT and EASTERN SUBURBS DISTRICT RUGBY LEAGUE FOOTBALL CLUB and HARBOUR PACIFIC UNDERWRITING MANAGEMENT PTY LIMITED (Third Party)
No. SC 839 of 1993
[1998] SCACT 1
Number of pages - 21
Contract - Insurance

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

MILES CJ

CATCHWORDS

Contract - insurance - alleged to be wholly in writing - imprecise allegations as to what writing in particular constitutes the contract - use of evidence of surrounding circumstances in order to identify writing.

Contract - contract in writing - limit of use of evidence of surrounding circumstances to assist in meaning of words.

Contract - contract in writing - scope of evidence of surrounding circumstances widened by defences and cross claims raising estoppel and seeking damages and rectification.

Insurance - third party liability insurance - insured's right to indemnity from insurer does not accrue until insured's liability to third party is established by judgment or agreement.

Insurance - insurance against liability for assault during Rugby League matches - liability of club for assault by member player - right of player under NSW law to indemnity from club.

Employees Liability Act 1991 (NSW)

Trade Practices Act 1974 (Cth)

Insurance Contracts Act 1984 (Cth), ss.39, 66

Lister v. Romford Ice & Cold Storage Co. Ltd. [1956] UKHL 6; (1957) AC 555

Distillers Co. Bio-Chemicals (Aust.) Pty. Ltd. v. Ajax Insurance Co Ltd. [1974] HCA 3; (1974) 130 CLR 1 at 25

Newcastle City Council v. G/O General Limited [1997] HCA 53; (1997) 72 ALJR 97

Scammell v. Ouston [1941]AC 251

Masters v. Cameron [1954] HCA 72; (1954) 91 CLR 353

Codelfa Construction Proprietary Limited v. State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352

State Rail Authority v. Health Outdoor Pty Ltd (1990) 23 NSWLR 195

Skywest Aviation Pty Ltd v. Commonwealth (1995) 126 FLR 61

Rogers v. Bugden and Another (unreported, 14 February 1990, Supreme Court of New South Wales)

HEARING

CANBERRA, 30 June, 1-4 July and 1 August 1997 (hearing), 6 February 1998 (decision)

6:2:1998

Counsel for the Plaintiff: A.F. Puckridge QC with D. Hassell

Solicitors for the Plaintiff: Pamela Coward & Associates

Counsel for the First Defendant: G.J. Lunney

Solicitors for the First Defendant: Bush Burke & Company

Counsel for the Second Defendant: R. Conti QC with S. White

Solicitors for the Second Defendant: Colin W Love & Co

Counsel for the Third Party: Abbott Tout Harper & Blain

Solicitors for the Third Party: Dr A. Bell

ORDER

THE COURT DECLARES THAT:

1. The third party is liable to indemnify the second defendant in respect of the damages that the second defendant is liable to pay to the plaintiff other than punitive or exemplary damages.

THE COURT ORDERS THAT:

1. The second defendant be at liberty to enter judgment against the third party in the cross claim brought by the third party against the second defendant.

2. Outstanding questions of costs and any other outstanding matters be stood over to a date to be fixed with the List Clerk.

DECISION

MILES CJ

OUTLINE

Plaintiff sues opposing player and club for assault during Rugby League match

Defendant player's club seeks indemnity from Rugby League insurer for damages payable to plaintiff

Background: after Rogers v. Bugden, players, clubs and Rugby League seek insurance

A contract in writing, but which writing?

Construction of the written contract: the insurer will indemnify clubs against vicarious liability for on field conduct of players

The defence of equitable estoppel and the counter-claim for rectification enlarge the area of admissibility of evidence

Pre-contractual negotiations: understandings and misunderstandings

Credibility: Mr Dick or Mr O'Shea?

Outcome: failure to prove assumptions contrary to terms of written contract

This is a claim for a declaration that the third party (Harbour Pacific) is liable to indemnify the second defendant (Easts) in respect of any damages that Easts is liable to pay to the plaintiff in proceedings brought by the plaintiff against the first defendant and against Easts.

Plaintiff sues opposing player and club for assault during Rugby League match

The plaintiff was injured in a Rugby League match played in Brisbane on 16 February 1992 when he was subjected to a high tackle by the first defendant, a player in the opposing team. He sued the first defendant for assault. He sued Easts "as employer of the first defendant" and "liable for the action of the firstnamed defendant in relation to the said tackle".

In the proceedings brought by the plaintiff against both defendants, those parties have been given leave to file terms of settlement. It is agreed among those parties that, upon the plaintiff filing a notice of discontinuance, he will pay the first defendant's costs and will be indemnified in that regard by the second defendant.

It is admitted by Easts in its defence to the plaintiffs statement of claim that the relationship between the first defendant and Easts was that of employer and employee. It is also admitted on the pleadings in the plaintiff's claim that the first defendant is entitled to be indemnified by Easts in respect of any damages recovered by the plaintiff for the alleged assault on the part of the first defendant. That agreement, or concession, implies the premise that the conduct of the first defendant in assaulting the plaintiff was not such as to take him beyond the scope of the employment envisaged by the contract of employment between him and Easts. Further, it seems to be assumed by all parties (including Harbour Pacific) that the proper law of the contract of employment between the first defendant and Easts was the law of New South Wales, and that the Employees Liability Act 1991 (NSW) (Employees Liability Act) which commenced on 30 August 1991, applies as between the first defendant and Easts notwithstanding the fact that the assault by the first defendant upon the plaintiff took place in Queensland. But for the provisions of the Employees Liability Act, there is no legal basis for Easts' admission that the first defendant is entitled to be indemnified by Easts in respect of the first defendant's liability to pay damages to the plaintiff.

Defendant player's club seeks indemnity from Rugby League insurer for damages payable to plaintiff.

Easts' third party claim dated 11 April 1996 (amended at the hearing) commences as follows (omitting formal parts):

"3. On or about 1 May 1991 the Second Defendant as insured and the Third Party as insurer entered into a policy of insurance ("the Policy").

Particulars The Policy is written and has been given policy number GPL00172 in the records of the Third Party and is for the period commencing 1 May 1991 and terminating on 1 May 1992.

4. It was a term of the Policy that the Third Party would pay to the Second Defendant all sums which the Second Defendant would become legally liable to pay by way of compensation (excluding punitive, exemplary or aggravated damages) by reason of personal injury occurring during the period of insurance and caused by any occurrence in connection with the Second Defendant's business as specified in the schedule.

Particulars The term is express and contained in the opening paragraph to the Policy.

5. The business of the Second Defendant is defined in the schedule as meaning the liability of the Second Defendant in respect of action brought by one player against another player from incidents arising during the playing of the game of rugby league.

Particulars The definition is in writing and contained in the schedule attached to the policy.

5A. The terms of the Policy alleged in paragraphs 3, 4 and 5 are incorporated within, or by reference made by (as the case may be), the following contractual documents namely:

Facsimile Transmission bearing date 1 May 1991 from Minet Australia Limited ("Minet") to the Third Party:

Facsimile Message bearing date 2 May 1991 from the Third Party to Minet:

Certificate No. GPL 00172 of the Third Party issued to Minet bearing date 8 May 1991.

6. Alternatively to paragraph 5A, the terms of the Policy alleged in paragraphs 3, 4 and 5 are incorporated within, or by reference made by (as the case may be) certain documents bearing date 8 April 1992 comprising panes 93 to 95 of Exhibit A to the proceedings, which documents were forwarded by the Third Party to Minet by letter dated 31 March 1992."

The amended defence to the third party claim filed 30 June 1997 commences as follows:

"2. As to paragraph 3 of the Third Party Claim the Third Party admits it entered into a policy of insurance with all Rugby League Football Clubs registered under the New South Wales Rugby League ("the Clubs") as an underwriting agent on behalf of insurers listed in the Schedule to the Policy.

3. The Third Party admits the operative provision of the Policy as pleaded in paragraph 4 of the Third Party Claim, but says the operation of that provision is limited by pre-contractual negotiations between the Third Party and an insurance broker acting as agent for the Clubs, in the terms set out below.

4. The Third Party admits that the business of the Second Defendant is defined in the Policy as pleaded in paragraph 5 of the Statement of Claim but says that the Policy contained an endorsement in which it was argued that the Policy was limited to the liability of the Second Defendant in respect of civil actions brought by one contracted player against another contracted player and that the cover excluded the contracted players liability in respect of any such actions."

The amended defence to the third party claim then proceeds to set out a number of allegations relating to negotiations conducted between January and May 1991. The parties to those negotiations were, on the one hand, Harbour Pacific and, on the other hand, the New South Wales Rugby League (the Rugby League) representing its own interests and also representing the interests of clubs registered with the Rugby League (the clubs). In these negotiations the Rugby League was represented by Minet Australia Limited (Minet). Minet received instructions from and reported to Insurance Exchange of Australia Group Pty Limited (IEA) (or an associated company I.E.A. Brokers Pty. Limited) which had a close connection with the Rugby League itself.

The allegations pleaded in the defence may be summarised as follows:

* (Paras 7-11) Harbour Pacific supplied a quotation to cover the Rugby League, the clubs and players, in the shared belief that the clubs could not be held vicariously liable for the actions of their players. This quotation was significantly lower than an earlier quotation to cover the Rugby League and the clubs only.

* (Para. 12) The negotiations were conducted on a common but false assumption that the players were independent contractors to, not employees of, the clubs.

* (Para. 13 in the alternative to para. 12) The negotiations were conducted on the conventional basis that the players were independent contractors to, not employees of, the clubs.

* (Paras 15-16) The insurance cover provided as a result, of the negotiations was restricted to indemnifying the clubs for liability incurred in respect of acts or omissions for which the clubs were directly liable and excluded liability for which they would otherwise have been vicariously liable by reason of the acts or omissions of players.

The defences pleaded are, in summary, two: a defence, arising out of the contract itself, denying that the words on their face mean what it is alleged they mean, and an alternative defence based on shared assumptions which form the basis of the contract. There are also alternative claims by way of cross claim for rectification of the contract (whereby the Court is asked by way of order to rewrite the contract to make the words mean what the parties intended), and for damages. There are also cross claims for damages and orders under the Trade Practices Act 1974 (Cth) (Trade Practices Act). As I understand it the cross claims under the Trade Practices Act were not pursued.

In its reply Easts denies that the operative provisions of the policy are limited by pre-contractual negotiations and asserts that the policy is "limited in scope" to certain documentary material which may be summarised as follows:

(a) facsimile transmission (fax) Minet to Harbour Pacific 1 May 1991 (the Minet fax).

(b) fax Harbour Pacific to Minet 2 May 1991 (the Harbour Pacific fax).

(c) letter with attachments 31 March 1992 Harbour Pacific to Minet (the Harbour Pacific letter).

The first two of the above documents are the same as the first two documents mentioned in para. 5A of the amended third party claim set out above. The third document mentioned in para. 5A (a certificate dated 8 May 1991) was referred to in argument as a cover note. It is convenient to so refer to it in these reasons.

The reply further admits that there were negotiations from January to May 1991 "involving the Rugby League acting on behalf of the Clubs including the Second Defendant", but denies that Minet or IEA was the agent for the Rugby League or the clubs. The reply further alleges that the premium quotations were "framed in terms of separate insurance covers which were not framed necessarily as alternatives".

The case presented on behalf of Easts at the hearing lacked clarity as to what it is that constitutes the written contract. I think that such lack is illustrative of the states of mind of the various people representing the parties at relevant times, as I propose to indicate. It is unusual in litigation that, when a party to a contract alleges in a claim under the contract that the whole of that contract is in writing, the party is not able to identify the writing except in the alternative. However, such a scenario, where a contracting party is not sure of what writing it is that constitutes the contract, is not only theoretically possible, but is likely to occur from time to time when one party in the position of a consumer is not equal in bargaining power to the other. That is not to say, however, that such is necessarily the position in the present case. Nor does it overcome the initial problem of making a threshold finding of mixed fact and law as to what writing constitutes the written contract between the parties.

I shall return to the subject of pre-contractual negotiations, but on any view of the pleadings, or the way in which the parties cast their allegations, by 8 May 1991 at the earliest, or by 31 March 1992 at the latest, the parties had entered into the contract of insurance which is the basis of the present claim by Easts against Harbour Pacific.

Background: after Rogers v. Bugden, players, clubs and Rugby League seek insurance

The decision at first instance in Rogers v. Bugden and Another (unreported, 14 February 1990, Supreme Court of New South Wales) caused concern in sporting and insurance circles in New South Wales. Although actions by individual football players against other individual football players for damages for assault had not been uncommon, and although Rugby League players in New South Wales played under contracts of employment with their respective clubs, the prospect seems not to have been contemplated previously that an injured player might sue the opposing player's club for that club's vicarious liability for a tortious assault on the part of one of its players. Furthermore, the passage of the Employees Liability Act gives an employee the right to claim indemnity from the employer in respect of the employee's liability to an injured third party for that employee's conduct so long as the employer was vicariously liable to the injured third party. The new right of the employee to claim indemnity from the employer in respect of the employee's own liability to the third party had been denied at common law: Lister v. Romford Ice & Cold Storage Co. Ltd. [1956] UKHL 6; (1957) AC 555 and see Insurance Contracts Act 1984 (Cth), s.66 (insurance Contracts Act).

The provisions of the Employees Liability Act give rise to the prospect that a player sued by an injured player would be likely to claim indemnity from the club by which the defendant player was employed. (The prospect that the injured player might sue in the ACT for an injury received during a match in Queensland may not have attracted the attention of those responsible for the New South Wales legislation.) It became apparent in late 1991 that a club could be vulnerable in damages if one of its players assaulted another player on the field. The injured player could sue the club alone, relying on the club's vicarious liability for the actions of its employed player. If the injured player sued the other player either singly, or jointly with the other player's club, the defendant player could claim indemnity from the club. The NSW Rugby League and the Players' Association set about looking for insurance to cover the liability of their members.

A contract in writing, but which writing?

The primary case presented on behalf of Easts up until the end of the hearing was that the contract was constituted by the documents set out in para.5A of the amended third party claim The alternative case as pleaded in para.6 was abandoned during final addresses, apparently on the assumption that the date on which Easts' rights to indemnity accrued was the same date on which the plaintiff's cause of action against Easts accrued, that is the date on which the plaintiff received his injury, 16 February 1992. However, in supplementary written submissions, common ground was reached that the event against which Harbour Pacific agreed to provide cover did not occur until 1 July 1997 when the liability of Easts to the plaintiff was established by agreement among the parties and manifested in terms of settlement of the plaintiff's claim. That proposition is correct as a matter of law. It follows from the decision of the High Court in Distillers Co. Bio-Chemicals (Aust.) Pty. Ltd. v. Ajax Insurance Co Ltd. [1974] HCA 3; (1974) 130 CLR 1 at 25, where it was observed that in a contract of liability insurance the right to indemnity on the part of the insured does not arise until the liability of the insured to the injured person is established by judgment, award or agreement between the insured and the third party.

The significance of the later date is that it reinstates para.6 as an alternative basis on which Easts may rely in the present. In other words, although Easts' claim is based primarily on a contract constituted by the Minet fax, the Harbour Pacific fax and the cover note of 8 May 1991, there is an alternative claim that the contract includes the Harbour Pacific letter of 31 March 1992 and the attachments to it. In any event, in its reply to the Harbour Pacific defence, Easts relies in part upon the Harbour Pacific letter and attachments in order to rebut the claims made in the defence that the terms of the contract were restricted to the "direct" or "personal" liability of clubs and excluded vicarious liability.

The amended defence filed does not deny that the contract was in writing. It simply asserts that, whatever the writing, the contractual relationship is affected by the kind of equitable estoppel known as estoppel by convention. However, Dr Bell's submission on behalf of Harbour Pacific favoured treating the contract as constituted by the writing alleged in para.6 of the third party claim, that is to say, that it included the Harbour Pacific letter Harbour Pacific of 31 March 1992 with attachments, including the so-called endorsement to which reference will be made.

Mr Conti's primary submission on behalf of Easts at the hearing on this aspect was that the contract did not include the letter of 31 March 1992 with attachments. But as I have remarked, that submission appears to have been based on the assumption that Easts' right to indemnity under the contract accrued on the day the plaintiffs right of action accrued against Easts. That assumption is now accepted to be incorrect as a matter of law, as it must be in the light of the High Court decision in the Distillers' case.

For the sake of completeness I observe that nothing was put by way of argument to suggest that the contract of insurance in this case was a "claims made" or a "claims made and notified" policy. Insurance contracts so described have been the subject of recent attention by the High Court: Newcastle City Council v. GIO General Limited [1997] HCA 53; (1997) 72 ALJR 97. Nothing seems to turn on the point. It is sufficient to say that the Harbour Pacific standard policy was restricted to providing cover in respect of liability for losses that are the subject of claims made on the insured during the policy period. The requirement in the Harbour Pacific standard policy that the insured is to give notice in writing "as soon as possible" of matters which might give rise to liability under the policy (see para.1 of "Conditions") does not appear to be a condition precedent.

In general, it is not necessary for a policy to issue in order that a contract of insurance be completed: Insurance Contracts Act, s.39. Where the insurer, to the knowledge of the insured, has a standard form of policy for insurance of the type for which cover is sought and granted, the insured will be taken, upon the making of the essentials of the contract of insurance, to have agreed to the terms of the standard policy: Scammell v. Ouston [1980] UKHL 6; [1941] AC 251, cp. Masters v. Cameron [1954] HCA 72; (1954) 91 CLR 353. There seems to be nothing in the standard cover provisions of the Insurance Contracts Act which is inconsistent with that general principle of insurance law.

The certificate of insurance numbered GPL00172 used by Harbour Pacific on 8 May 1991 was referred to by Mr Conti as a cover note. It is convenient to refer to it by that term but I do not see that it acquires any over-riding or special significance by reason of the use of that term.

Where the standard policy is issued and served upon the insured without objection taken by the insured to any of the provisions of the standard policy, there is all the more reason for accepting the standard policy as part of the contract, except insofar as there is provision in the standard policy to add to or vary the contents of the standard policy.

Harbour Pacific had a standard policy for what it called "Public and Products Liability Insurance" and Minet must be taken to have accepted the terms of that policy including the details inserted to fit the instant case as set out in the public and products liability schedule to the policy, again subject to any inconsistency with provisions in the earlier documents constituting the written contract. A copy of this policy in draft form had been sent by Harbour Pacific to Minet on 14 February 1991.

The standard policy commenced with this opening paragraph:

"The Companies will pay to or on behalf of the Insured all sums which the Insured shall become legally liable to pay by way of compensation (excluding punitive, exemplary or aggravated damages) by reason of personal injury or property damage occurring during the Period of Insurance and caused by an occurrence in connection with the Insured's business as specified in the Schedule."

Paragraph 2 of the definitions set out in the policy includes the following:

"Personal injury means

...

(e) assault and battery not committed by or at the Insured's direction unless committed for the purpose of preventing or eliminating danger to persons or property."

The term "the business" in the cover note is the business referred to in the opening paragraph of the policy and para.2 defines the personal injury which is used in the opening paragraph. The standard policy and the cover note are each dependent upon the other and, although the standard policy is not referred to directly in para.5A or para.6 in the amended third party claim (and probably should have been so referred to), I accept the submission on behalf of Easts that the cover note "purports to incorporate the standard policy".

The fourth sheet of the attachments sent with the Harbour Pacific letter of 31 March 1992 is headed "Endorsement attaching to and forming part of Policy No. GPL00172". In part it reads as follows:

"1. It is agreed that this Policy is limited to the liability of the Insured in respect of civil actions brought by one contracted player against another contracted player. For the purposes of this endorsement, a "contracted player" is a person contracted to play rugby league for one of the registered league clubs listed as a Named Insured under this Policy."

No objection was taken by Minet or anyone else on behalf of Easts as to the provisions of the documents that accompanied Harbour Pacific's letter of 31 March 1992. At that stage neither Minet nor Easts nor Harbour Pacific were aware that the plaintiff, who had received the injury on 16 February 1992 would sue for damages.

In my view, a proper interpretation of the Minet fax, the Harbour Pacific fax, the cover note and the Harbour Pacific letter of 31 March 1992 with attachments, in the light of the background of the case, leads to the conclusion that the parties intended those documents to constitute the written contract between them, and further, that the documents themselves incorporate the provisions of the standard policy. It is necessary then to construe the terms of the written documents constituting the contract as well as the standard policy.

Construction of the written contract: the insurer will indemnify clubs against vicarious liability for on field conduct of players

On the face of it, the contract in its terms, is essentially a third party liability policy in which the insurer agrees to indemnify the insured (including the Rugby League clubs) against liability incurred by a Rugby League club in respect of an action for assault brought by an injured player against another player, that other player being a member of the club concerned, so long as the assault is not committed at the direction of the insured (unless for the purpose of protection of person or property).

I see no ambiguity in the written contract regarding the liability of the club where the liability arises as a result of action brought against the club concerned by the injured player. I see no ambiguity either where the liability of the club arises in proceedings for contribution or indemnity brought by the employed player in respect of that player's liability to the assaulted player for the employed player's assault. A good deal of time and attention was taken at the hearing both by way of evidence and submission in the case presented on behalf of each party which focused on "surrounding circumstances" insofar as they proved a "factual matrix" not only for the identification of the writing that constituted the agreement but also for the meanings relied upon. However, as I have already indicated, I do not find it necessary to go beyond the facts already found and stated, to decide that there is no ambiguity in the writing sufficient to require resort to extrinsic materials, surrounding circumstances, factual matrices or anything else in order to ascertain the meaning of the words in the documents relied on in para.6 of the amended third party claim, together with the cover note the terms of the standard policy.

It would be a rare case in which some evidence of or agreement as to surrounding circumstances could be dispensed with entirely in order to resolve a dispute as to the meaning of a written agreement. I have already referred to some of the surrounding circumstances as background to the present case. It will be necessary to look at the surrounding circumstances in greater detail in relation to the claim relating to estoppel and in relation to the claim for rectification of the contract. These are quite different matters from an examination of the surrounding circumstances to the extent that they may assist in the interpretation of the contract. The limitations to be placed upon the evidentiary use of surrounding circumstances in order to interpret the written contract were made clear by Mason J (as he then was) in Codelfa Construction Proprietary Limited v. State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352:

"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. 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.

It is here that a difficulty arses with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract."

Evidence about surrounding circumstances which goes merely to show subjective intentions and expectations is, as Mason J emphasised, inadmissible to assist in interpreting the meaning of the contract. But as his Honour said (at 346), actual intention is relevant in a claim for rectification. To this I would add that the states of minds of the parties are also relevant in relation to the defence of estoppel by convention: State Rail Authority v. Health Outdoor Pty Ltd (1990) 23 NSWLR 195. The ambit of evidence admissible in relation to the defence of estoppel by convention and in relation to the counter-claim for rectification is, therefore, wider than that admissible in the claim under the contract: Skywest Aviation Pty Ltd v. Commonwealth (1995) 126 FLR 61. Hence I will postpone further reference to the evidence of pre-contractual negotiations until after I have dealt with the defence based on the words of the contract. The meaning of those words is to be ascertained from the context in which they are used, including the surrounding circumstances, but only to the extent indicated by Mason J in Codelfa.

Dr Bell's principal submission for Harbour Pacific on the meaning of the written contract is based on the terms of the endorsement. The endorsement states that "the cover provided by this policy excludes the contracted players liability in respect of any such actions". Dr Bell also relied upon the Harbour Pacific fax of 2 May 1991 which provides that "cover is limited to the liability of the registered clubs and excludes the liability of the player". It was submitted that, as a matter of language and logic, something is excluded only when otherwise it would be included. I agree that as a matter of logic that proposition may well be correct, but as a matter of language, the applicability of the proposition depends on other factors, most of which may be summed up in the word "context". It is clear enough to me that reading the documents as a whole, there is a joint intention that the insurer is liable to provide indemnity to the club when the club sustains loss by reason of the club's liability to the injured player, whether the club's liability is by way of vicarious liability for the conduct of an employed player or whether by way of a "personal" or "direct" liability for its own conduct in expressly or impliedly authorising the assault. Conversely, there is a joint intention that the club will not be entitled to such indemnity, unless and until the sort of liability just mentioned, is incurred. A consequence of the converse proposition is that the club is not entitled to indemnity simply by the accrual of a cause of action against the employed player in favour of the injured player. Those propositions flow from Distillers already referred to.

The other major submission of Dr Bell was that the term "contracted player" in the endorsement indicates on its face that the cover is intended to be restricted to liability arising from actions brought by players who are independent contractors against other players (who presumably are also independent contractors). However, I am simply unable to put that construction on the words used.

Once the point is raised, it is obvious that the relationship of employer and employee at common law can exist only by reason of a contract of employment. Absent a contract, there is no relationship of employer and employee at common law. Vicarious liability on the part of an employer for the tortious act of an employee arises only if there is a contract of employment in existence. The term "contracted player" by itself is as consistent with meaning an employee player as it is with meaning a player engaged as an independent contractor. All the rest of the written contract points to indemnity in respect of a liability on the part of the club which includes vicarious liability, that is to say, the liability of an employer for the conduct of the employee acting within the scope of the contract of employment. In the context of the contract, the term "contracted player" is not consistent with the notion of a club being liable for the conduct of independent contractors.

Further, it is abundantly clear that it was the case, and it was common knowledge in Rugby League circles that all players in New South Wales Rugby League clubs were parties to individual formal contracts with their respective clubs and that those contracts provided in the clearest terms that the relationship between the club and the player was one of employment. The New South Wales Rugby League required its players to enter into a contract with the club in a form which was approved by the Rugby League.

The contract in use at the time commenced with these words:

"1. EMPLOYER/EMPLOYEE RELATIONSHIP

The parties hereto acknowledge and agree that the relationship between them constituted or evidenced by this Agreement is one of employment with the Club being the employer and the Player being the employee."

Although, as I have said, the meaning is to be found in the words themselves, it is a necessary inference from the evidence that Rugby League players were employed by their clubs and were not engaged as independent contractors. A contract of insurance whereby the Rugby League sought indemnity for the acts of players who were independent contractors would have been an empty shell, lacking any true subject matter, simply because nobody who played Rugby League did so as an independent contractor.

The defence to the third party claim insofar as that defence is based on the contractual terms fails and I turn to the cross claims in estoppel and for rectification.

The defence of equitable estoppel and the counter-claim for rectification enlarge the area of admissibility of evidence

The significance of the surrounding circumstances, and in particular for the purposes of the present case, the pre-contractual negotiations, lies in its relevance to the defence of estoppel by convention and to the counter-claim for rectification of the contract. (It is not clear whether the matter of estoppel is relied on purely as a defence or whether it was sought to be extended to a positive cross claim, but ultimately nothing turns on the point). Insofar as the defence seeks to prove circumstances that render it unconscionable for the relying on the terms of the contract to seek their enforcement, and insofar as the counter-claim for rectification seeks to prove a common subjective intent of the parties contrary to the meaning of the contract, the range of circumstances that may be relevant is wide indeed. It includes the pre-contractual negotiations between the parties. Hence the Court cannot avoid considering the evidence as to pre-contractual negotiations and seeking to draw the necessary conclusions of fact in order to enable it to determine the issues raised in the defence of estoppel by convention and to the counter-claim for rectification.

Pre-contractual negotiations: understandings and misunderstandings

Following the Rogers v. Bugden decision, the Rugby League member clubs began considering looking for insurance cover against liability of the sort that had arisen in that case. There was a great deal of misunderstanding in the insurance community relating to what Rogers v. Bugden had decided. It is worth pausing for a moment to record the facts in that case and the precise nature of the decision.

In Rogers v. Bugden the player injured by a head-high tackle by an opposing player on 16 March 1985 commenced proceedings in the Supreme Court of New South Wales claiming both compensatory and exemplary damages for assault and naming as defendants the opposing player and the opposing player's club. On 14 December 1990 the trial judge found the assault proved and liability established against both player and club. The trial judge awarded $68,154 compensatory damages to the plaintiff but refused to grant exemplary damages against either defendant.

The matter went on appeal, but the appeal was still pending at the time of the events relevant to the present case. The concern generated by the decision at first instance was due largely to the belief (possibly correct) that it was the first occasion in which a Rugby League club (or any other sporting club) had been held responsible for the consequences of an assault perpetrated by one of its players whilst playing for the club. The belief was possibly founded on a presumption that the commission of an unlawful assault was necessarily outside the scope of the player's employment. The judgment destroyed any such presumption.

The ultimate decision of the New South Wales Court of Appeal was given on 24 September 1993 and is not directly relevant to the issues in the present case since that decision could not have formed any basis for the conduct or belief of the parties. Insofar as the recollection of witnesses may be affected by their subsequent understanding, it may be observed that the decision on appeal confirmed the trial judge's decision that the club was vicariously liable for an illegitimate tackle intended to achieve the legitimate end of stopping an opposing player. However, the Court of Appeal decided further that the trial judge was wrong in refusing to award exemplary damages against the club, because, on a proper view of the facts, the club through its coach had authorised the player to carry out a tackle which was forbidden by the rules of the game. The damages awarded against the club, but not against the player, were increased for that reason to include $7,500 exemplary damages. Both the club and the player remained jointly and severally liable for the whole of the compensatory damages.

In order to obtain appropriate insurance relating to assaults on the field, the Rugby League engaged IEA on its behalf, who in turn engaged Minet. Minet carried on business as a "wholesale" broker, that is to say, that it acted as an intermediary between, on the one hand, "retail" brokers acting for the proposed insured and, on the other hand, insurers or underwriters. Minet did not deal directly with the client seeking insurance through the retail broker, which was in this case IEA. Minet was represented by Mr John Dick.

There was also a Rugby League Players' Association which engaged a Mr Sponberg (or his company, referred to in evidence as Society and General) to act on its behalf in investigating liability insurance for the players. Mr Sponberg instructed Minet to assist in this regard. So Minet was originally instructed by IEA on behalf of the Rugby League and also by Mr Sponberg on behalf of the players.

Mr Peter O'Shea was the managing director of Harbour Pacific, an underwriter specialising in risks otherwise difficult to insure against Mr O'Shea was aware in a general sense of the Rogers v. Bugden decision. On 12 January 1990 he had provided to another broker, Alexander Stenhouse, a quotation for standard "public and products liability" insurance for the liability of NSW Rugby League players. Nothing came of that offer. On 21 December 1990 Mr O'Shea wrote to another broker, Sedgwick James, expressing interest in offering cover for players and registered clubs for "player to player action".

On 9 January 1991 IEA, independently of the Players' Association, sought and on 23 January 1991 obtained a quotation from Harbour Pacific for what was termed public liability insurance. But that was insufficient for the purposes of on field assaults. Mr Dick approached Mr O'Shea on instructions from Mr Sponberg with a view to obtaining a policy of liability insurance for rugby league players, including insurance against liability for assault. After various negotiations an underwriting slip was issued by Minet on 29 January 1991. It identified the insured as "any member of the NSW Rugby League Players Association and/or other as per wording". At this stage it appears that for practical purposes Mr Sponberg began to withdraw from the picture. Presumably it was expected that the players' interests would be protected by the insurance taken out on behalf of the clubs.

There were further discussions between Mr Dick and Mr O'Shea. The question whether cover should be extended to the clubs for their liability to injured players in opposing teams was raised but no agreement was reached, and none is alleged until 1 May 1991. In the meantime the matter of insurance cover for the liability for the clubs, as well as for the individual players, formed part of the subject matter of negotiations. A draft policy was sent by Harbour Pacific to IEA on 14 February 1991. The draft policy named the insured as "NSW Rugby League Ltd including 16 member district Rugby League Football Clubs (Winfield Cup)". A letter also dated 14 February 1991 from Harbour Pacific to Minet attaching the draft policy or a copy (or a further draft policy) stated that "vicarious liability of the clubs for all employees is included as a matter of course provided that they are carrying out their duties as employees". An endorsement on the document (it is not clear whether it was intended to be part of the standard policy or part of the particular policy being offered) stated that cover was limited to liability arising from the participation of players and referees. The endorsement implies that by this time negotiations were concerned not with cover for the players themselves but with cover for the clubs in respect of the conduct of employees, including players and referees. This implication is supported by the fact that Mr Dick for Minet was by this time seeking instructions from IEA, who represented the Rugby League and the clubs, as well as reporting back to Mr Sponberg who represented the players.

Mr Dick suggested to IEA a number of options for what was called "assault cover", including "club's vicarious liability", and "player to player liability", with differing premiums payable according to the type of cover. This matter of the amount of possible premiums was also raised by Harbour Pacific in negotiations with Minet.

Acting on information obtained from Minet, IEA made a comprehensive presentation of the various insurance "products" to a meeting of the Rugby League on 19 March 1991.

As explained to the meeting and as set out in a written submission to the Rugby League by IEA, the recommended product was for "full liability insurance" described in the submission as the "Rolls Royce of covers" and as the only product which provided cover for any award made by the Court. The product was available as one of two options described thus:

"QUOTE OPTION 1: CLUB: Providing cover for NSWRL and each Winfield Cup club and its employees including officials, coaches and trainers. (Not players)

PREMIUM: $6,500 per club (all 16 clubs to participate).

$105,000 total premium.

QUOTE OPTION 2: PLAYERS: Providing cover for individuals nominated players only and offer on per club basis, where all players must participate.

PREMIUM: $487.00 per player if less than 8 clubs participating.

$407.00 per player if between 8 and 12 clubs participating.

$338.00 per player if all clubs participating.

NB: If option 1 not taken, minimum premium for option 2 is $100,000."

The meeting of the Rugby\League decided to defer a decision until all clubs had expressed their own preferences on the options. The clubs were to assume that, whatever option was chosen, the Rugby League would pay the premium and recoup the appropriate share from each individual club. The response from the clubs was such as to lead the Rugby League to instruct IEA that it wished to insure itself and member clubs for "full liability insurance". IEA relayed these instructions to Minet and the exchange of the faxed messages, which in part constitute the contract, took place.

They were in these terms:

"FACSIMILE TRANSMISSION

TO FAX NO: COMPANY: HARBOUR PACIFIC ATTENTION: PETER O'SHEA

FROM: JOHN DICK MINET AUSTRALIA LTD NORTH SYDNEY FAX NO: 02 929 8588 TEL NO: 02 957 4711

NO. OF PAGES INCLUDING THIS: DATE: May 1, 1991

NSW RUGBY LEAGUE PUBLIC LIABILITY COVER

Further to the agreements signed in February 1991, we have pleasure in confirming that you have a firm order to cover the NSWRL, all referees and all the 16 Winfield Cup teams and their coaches against their liability for the activities of their players to a limit of A$5 million any one loss.

Assault and battery is included.

Cover is limited to civil liability only and excludes criminal compensation and the cost of defending criminal actions.

A copy of our instructions are attached.

Please confirm your acceptance by signing and returning a copy of this fax.

Thanks and Regards.

FACSIMILE MESSAGE

DATE: 02/5/91 PAGE INC. THIS PAGE (1) ATTN: JOHN DICK FAX NO: 929 8588 COMPANY: MINET AUSTRALIA FROM: PETER O'SHEA TELE: SYDNEY 957 6911 FAX: SYDNEY 9594653

SUBJECT: NSW RUGBY LEAGUE

I refer to our discussion of 1/5/91 and confirm cover bound as follows:

Wording: HPLU Public and Products Liability

Limit: $5M

Deductible: $1,000 each and every occurrence (inclusive of costs)

Annual Premium: $64,000 Net + Stamp Duty

Adjustment Rate: $4,000 Net per Club.

Cover is in respect of civil actions brought by players against other players. Cover is limited to the liability of the registered clubs and excludes the liability of the player. Cover includes assault & battery but excludes criminal compensation and the cost of defending criminal actions.

Please confirm gross premium written by return (maximum commission allowable will be 30%).

We await your further advices.

Regards,

PETER O'SHEA MANAGING DIRECTOR (JOINT)"

Following the exchange of the Minet fax of 1 May, and Harbour Pacific Fax of 2 May, Mr Dick sent a further fax to Mr O'Shea on 3 May 1991, the relevant part of which reads as follows:

"Peter, thanks your fax 2/5 - can follow up the question of Gross Premiums. I will be closing Net to you, plus stamp duty.

Secondly, with regard to Coaches, you confirm in your letter 14/2/91 that Coaches would be automatically picked up as employees of Clubs, who are named insured. Some Coaches are in fact registered companies -presume there wouldn't be any problem in naming them. Please confirm your agreement."

Mr O'Shea, on receipt of the fax, marked the first paragraph "closed net - ok" and at the end of the fax wrote "noted and allowed". I infer and find that Mr O'Shea communicated to Mr Dick his approval of the proposals, because on the same day Mr Dick sent a fax to IEA which includes the statements that "the liability of coaches... is automatically picked up when they are employed by insured clubs" and that "where the insured club contracts with a company for coaching services, Harbour Pacific have confirmed that cover will be extended to those companies ... it will be necessary to specify each company as a named insured".

There followed the issue of certificate GPL00172 dated 8 May 1991, described by Mr Conti as a cover note. It included a description of the business of the insured (NSW Rugby League Ltd.) in these terms:

"Liability of NSW Rugby League Registered Clubs in respect of actions brought by one player against another player from incidents arising during the playing of the game of Rugby League."

At that stage negotiations came to an end, both Minet and Harbour Pacific being under the impression that the contract had been concluded.

However, no document in the nature of a policy was issued at that stage. The issue of a policy appears to have been overlooked until 31 March the following year when Harbour Pacific wrote to Minet apologising for the oversight and enclosing "our wording". What was in fact enclosed consisted of four printed sheets of paper to which written or typed additions had been made. The first sheet is in the form of a memorandum noting that insurance is provided "in the manner and to the extent herein described" and purporting to be signed on 8 April 1992. (How the memorandum comes to be dated later than the letter despatching it, is not explained. I assume that the letter was held and not posted or sent until after the memorandum was signed.) The second sheet is a list of companies on whose behalf as agent and underwriter Harbour Pacific has effected the contract. The third sheet is headed "Public and Products Liability Schedule" and appears to be similar to the cover note of 8 March 1991. The fourth sheet is the endorsement to which I have already referred.

At that stage the documentation of the agreement between the parties was concluded.

Credibility: Mr Dick or Mr O'Shea?

It is necessary to decide whether Mr O'Shea's evidence that he was led by Mr Dick to believe that cover was not sought and not intended to indemnify clubs for vicarious liability for assault Gan be accepted. The onus lies on Harbour Pacific in this respect.

Mr O'Shea claimed that in the initial approach Mr Dick said that he was acting for IEA. Mr Dick denied this and claimed that he told Mr O'Shea that he was at that stage acting for Society and General (the alter-ego of Mr Sponberg) which was representing the players. Mr Dick claimed that to his knowledge IEA did not act for the players and further that he did not know at that stage that IEA was seeking cover on behalf of the Ruby League. Mr O'Shea claimed that it was this initial representation by Mr Dick that coloured the negotiations and which led him to believe that there were two distinct types of insurance that Mr Dick was seeking, one for the players themselves and the other for the Rugby League and clubs which was "separate from the other and unconnected with the liability of the players". On this aspect I prefer the evidence of Mr Dick and, in fact, on any issue where there is a conflict I prefer the evidence of Mr Dick. I hope to explain why, as demeanour seems no longer to be an acceptable basis for deciding issues of credit. Insofar as it is determinative , the demeanour of the respective witnesses contributes to my preference for the evidence of Mr Dick.

Evidence was called from a number of other persons. Their evidence needs to be weighed up against that of Mr Dick and Mr O'Shea.

Mr Barry Killham of IEA drafted the submission relating to the various insurance options which was discussed at the meeting of the Rugby League on 19 March 1991. He spoke at the meeting and told those present that the option he recommended, as offered by Harbour Pacific, would cover any club held liable for the on-field conduct of players, including assaults, and regardless of whether the League or the clubs were brought into the proceedings by the injured player as defendants and regardless of whether the liability of the clubs for the conduct of its players or coaches was considered to be vicarious or otherwise. Mr Killham had an accurate understanding that vicarious liability was incurred by a club because of the employer/employee relationship between a club and its players. I find that Mr Killham's understanding of the offer being put by Harbour Pacific was also accurate and that it was consistent with the dealings and transactions between him and Mr Dick.

Mr Greg Mitchell was an executive assistant with the NSW Rugby League. His duties included liaising with clubs about financial matters. His evidence was that at the beginning of 1991 he was aware of discussion about the effect of the trial judge's decision in Rogers v. Bugden, but he was not aware of its legal basis. On 7 February 1991 he wrote to IEA enquiring whether the Rugby League could take out insurance on behalf of the clubs in order "to cover the damages awarded against a member Club in a Court case". On 15 February 1991 IEA wrote back advising that there were two relatively new options on the insurance market. One covered legal expenses only. The other provided cover for damages and costs in a civil action, including assault and battery "brought against player and/or club".

Mr Mitchell informed Mr O'Brien of IEA that the Rugby League did not want cover for "players' personal liability", because the clubs were not prepared to meet the cost of premiums on behalf of players and because it was felt that to do so might be taken by players as acquiescence in aggressive conduct on the part of the players.

Mr Mitchell's evidence supports the inference that, through Mr O'Brien, Mr Dick was made aware that cover was not wanted for the personal liability of players.

The evidence of Mr Ronald Seabrook, chief executive of Easts, supports that of Mr Mitchell and of Mr Dick. He was aware that the players were employees of the club and knew about the concern in early 1991 that clubs were then considered liable for the on-field assaults of their players.

Mr Roy O'Brien was marketing manager for New South Wales Rugby League Insurance Finance Agency (one of the IEA companies). He was responsible with Mr Killham for the advice given to the Rugby League about the various options for insurance which were discussed at the meeting of 19 March 1991. He recommended the "Rolls Royce" of covers, otherwise described as "full liability insurance". Mr O'Brien prepared the written submission to which reference has been made. In the written submission ambiguity is introduced in the description of the two options available.

However, Mr O'Brien was not called to give evidence or furnish an affidavit. I find it unlikely on the rest of the evidence that Mr O'Brien's understanding as set out in the submission made to the Rugby League is an accurate description of the cover that was being offered by Minet. It should have been obvious to him that the Rugby League was seeking cover for the clubs who were liable for the on-field actions of players and that it was that sort of cover that Minet was offering.

There is no evidence of anything which was likely to have led Mr O'Brien to believe that the Rugby League was also seeking cover for the individual players in respect of their liability for their own conduct. There is no evidence of anything said or done by Mr Dick to give rise to the way in which the two options are described in Mr O'Brien's submission. There is no evidence that the submission was communicated to Mr Dick or that it influenced him in his negotiations with Mr O'Shea.

I accept Mr O'Shea's evidence that he believes, in retrospect, that if he had understood that the clubs could be vicariously liable for the conduct of players, then the premium quoted for the clubs' liability would have been increased to an appreciably higher level than the separate premium quoted for the players only. But what matters is not a question of Mr O'Shea's present understanding but a matter of establishing the intentions of the parties as exhibited by their conduct during the negotiations. I am not convinced that Mr O'Shea had any real notion of the distinction between vicarious liability and personal liability of the clubs in relation to the actions of the players. As it was, he admitted in cross-examination that his understanding Rogers v. Bugden "could not have been more wrong". The error was that he thought that the case decided that when a player assaulted another player, the club was liable for two-thirds of the damages and the assaulting player liable for the remaining one-third. In any event what is more to the point is not so much the nature or extent of his error in understanding Rogers v. Bugden as a failure to turn his mind to the precise nature of the cover that was being sought and offered.

I do not regard Mr O'Shea's letter to Minet of 14 February 1991 as indicative of a state of mind in which he regarded players as independent contractors. Nor am I convinced that the letter shows an intention to treat the actions of players as something for which the clubs do not bear vicarious responsibility. I think that at all relevant times from the commencement of negotiations until 8 April 1992, Mr O'Shea assumed that Minet was seeking cover on behalf of the Rugby League and its member clubs in respect of the liability of clubs for the on-field conduct of players and other employees on the field. I think that Mr O'Shea is now relying on what he has seen in the documents produced on subpoena or at trial to re-construct his state of mind at the stage of pre-contractual negotiations insofar as it was concerned then with the nature of the liability of the clubs which was to be the subject of indemnity.

In the light of the above, I accept the evidence of Mr Dick that on 8 February 1991, having received the draft signed endorsement back from Harbour Pacific duly stamped and signed, he regarded the cover which he had been seeking and which he had obtained, as wide enough to include cover for any liability incurred by a club in respect of the on-field incidents involving players whose conduct might give rise to such liability. He did not know and did not seek to ascertain whether the legal status of the players was that of employees or independent contractors, but I think that he probably assumed that they were employees. He did not know and did not seek to ascertain what effect the legal status of players had upon the liability of the club for whom they played as far as on-field conduct of the players was concerned. He simply believed that as a result of Rogers v. Bugden, assaults by players could give rise to liability on the part of the clubs and that insurance against that sort of liability had been obtained.

I also accept the evidence of Mr Dick and find that his state of mind was no different (and nothing had happened to cause it to change) at the time of or as a result of receipt of the draft policy from Harbour Pacific on 14 February 1991. Nor was it affected in the period 1 May to 8 May 1991 during the exchange of faxes and the issue of the cover note. Mr Dick ceased to play any relevant part in the relationship between Minet and Harbour Pacific thereafter. The letter of 31 March 1992 with attachments from Harbour Pacific was not brought to his attention until after proceedings were commenced.

There is in evidence an amount of documentary material relating to the issue of a further policy for the ensuing year and evidence of allied matters. But none of this, in my view, leads to a finding of any relevance.

Outcome: failure to prove assumptions contrary to terms of written contract

It follows then from these findings that it has not been proved that the parties proceeded to conclude their negotiations prior to contract upon a common assumption that cover was not being sought or to be granted in order to provide indemnity for clubs which were liable for damages for assault by a member player upon an opposing player. Nor did the parties have in mind that the indemnity for which cover was to be provided was limited to the liability of a club which arose out of breach of a "personal" duty owed by the club to the injured player, and did not extend to the vicarious liability of the club for the actions of its members on the field. Lastly, it has not been shown that there was a common assumption or intention that the parties intended that cover was to be granted to provide indemnity in respect of the actions of a player who committed an assault on the field, but who was not an employee of but an independent contractor to the club which engaged the player in such a capacity.

The second defendant is therefore entitled to be indemnified by the third party in respect of the damages that the second defendant is liable to pay to the plaintiff and a declaration will be made in those terms. The cross claim by the third party against the second defendant will be dismissed. Unless those parties wish to be heard, I propose to order that the third party pay the costs of the second defendant in the third party proceedings and in the cross claim. There is an outstanding claim for costs as between the plaintiff and the defendants. I will hear that claim and any other outstanding matters on a date to be fixed by arrangement with the List Clerk.