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High Court of Australia |
MARJORIE JOCELYN BAILEY (as Executrix of the Estate of the late Dr Harry R
Bailey) v NEW SOUTH WALES MEDICAL DEFENCE UNION LIMITED
Matter No S200 of 1994
NEW SOUTH WALES MEDICAL DEFENCE UNION LIMITED v MAXWELL DUNCAN CRAWFORD
Matter No. S205 of 1994
F.C. 95/043
Number of pages - 49
[1995] HCA 28; (1995) 184 CLR 399
HIGH COURT OF AUSTRALIA
BRENNAN CJ(1), DEANE(1), DAWSON(1), McHUGH(2) AND GUMMOW(2) JJ
CATCHWORDS
HEARING
CANBERRA, 3-4 May and 1 June 1995ORDER
Matter No. S200 of 1994(b) Otherwise appeal dismissed.respondent's costs of the appeal to the Court of Appeal
(c) The appellant, New South Wales Medical Defence Union Ltd pay the
Matter No. S205 of 1994
1. Appeal allowed in part.of par 4 of that judgment;
2. Vary the judgment of the New South Wales Court of Appeal by
(a) substituting the sum of $312,000 for the sum of $562,000 in sub-par (1)
(b) inserting sub-par (1A) in par 4 to read:satisfaction of the order of Enderby J in No. 17289 of 1980 in the Supreme Court of New South Wales.
Declare that payment by the defendant of the said sum $312,000 be deemed
DECISION
BRENNAN CJ, DEANE AND DAWSON JJ These two appeals were heard together. The respondent in the second of them, Mr Crawford, was a patient of Dr Bailey who is deceased and whose executrix is the appellant in the first appeal. The New South Wales Medical Defence Union Ltd ("the Union") is the appellant in the second appeal and the respondent in the first appeal. The Union was at all relevant times a company limited by guarantee with a membership which was, speaking generally, confined to members of the medical profession. One of its objects was to protect, support and safeguard the character and interests of legally qualified medical practitioners. Another was to indemnify its members against claims for damages "in any wise affecting the professional character or interest" of such members. Dr Bailey was a member of the Union from 1951 until his death in 1985.
2. Mr Crawford was treated by Dr Bailey at Chelmsford Hospital in Sydney
between 1972 and 1974 and, as a result of the treatment,
suffered injuries
between December 1973 and January 1974. On 28 November 1980, Mr Crawford
commenced an action against Dr Bailey
in the Supreme Court of New South Wales
claiming damages for the injuries which he had received. He subsequently
obtained an extension
of the limitation period within which to pursue the
action. At first the Union, through its solicitors, acted for Dr Bailey in
the
conduct of his defence. Subsequently, after Dr Bailey's death and in
circumstances to which it will be necessary to refer in more
detail, the Union
terminated its assistance and instructed its solicitors to file a notice that
they ceased to act in the matter.
Mrs Bailey, as executrix of Dr Bailey's
estate, was substituted as defendant. She requested assistance from the
Union. The request
was refused on 7 November 1985. As a result the estate
cross-claimed against the Union seeking an indemnity against Mr Crawford's
claim.
3. Meanwhile, on 8 October 1985, Mr Crawford sought leave in the same
proceedings to make a claim against the Union under s 6 of
the Law Reform
(Miscellaneous Provisions) Act 1946 (NSW). At the same time, the Union sought
a declaration in those proceedings
that it was no longer an insurer within the
meaning
of s 6. By an interlocutory judgment delivered on 5 May 1986, Yeldham
J refused
both the declaration and leave to Mr Crawford to commence
proceedings under s 6. The latter decision was reversed by the Court of
Appeal on 18 September 1987 and leave was granted(1). On 28 July 1988, Mr
Crawford
commenced separate proceedings against the Union
pursuant to the
leave granted.
4. Orders were made that both sets of proceedings - the claim by Mr Crawford
against Dr Bailey's estate and his claim against the
Union - be heard
together. On 28 February 1992, Enderby J gave judgment in the first action in
favour of Mr Crawford against the
estate and in favour of the estate upon its
cross-claim against the Union. In the second action he gave judgment in
favour of Mr
Crawford against the Union under the provisions of the Law Reform
(Miscellaneous Provisions) Act.
5. Both the estate and the Union appealed against the judgments against them.
Eventually, after certain vicissitudes which need
not trouble us, the Court of
Appeal upheld the liability of Dr Bailey's estate to Mr Crawford in damages
and the liability of the
Union to indemnify the estate. It also upheld the
liability of the Union to Mr Crawford in the proceedings brought under the Law
Reform (Miscellaneous Provisions) Act.
6. No appeal is brought against the judgment in favour of Mr Crawford against
Dr Bailey's estate. These appeals therefore raise
two questions. The first
is whether the Union is liable to indemnify Dr Bailey's estate against the
damages awarded to Mr Crawford.
The second is whether the provisions of the
Law Reform (Miscellaneous Provisions) Act afford any right of recovery to Mr
Crawford
against the Union.
7. Article 57 of the Union's articles of association required the Union to
indemnify each member or the personal representative
of a deceased member
against liability for damages or costs arising from any claim against him for
any act or omission in the course
of his practice while he was a member other
than an unfinancial or unindemnified member. The amount of the indemnity in
respect
of all claims arising from any one act or omission was limited to
$100,000 or such greater sum as the regulations might provide.
Various
classes of membership were provided by Art 4, including that of an
unindemnified member who did not require indemnity for
a period. Under Art 6,
an applicant for membership of the Union was deemed to have become a member on
receipt by the Secretary of
an application for membership and upon payment of
the prescribed entrance fee and subscription. Such an applicant was entitled
to
the benefits of indemnity and assistance conferred by succeeding articles
from the date of such payment until the date of his becoming
a member or the
notification of refusal of his application for membership as the case may be.
After an application for membership
was accepted, membership, unless
terminated, was by Art 7 deemed thereafter to have been renewed for a further
period of twelve months
from the end of each calendar year unless the member
did not desire continuance of membership or the Council notified the member
that his membership would not be renewed.
8. The management of the business and the control of the Union was vested in
a Council by Art 55. The Council was empowered by
Art 10 to determine
different rates of subscription for different classes of members. Each member
was required to pay to the Union
annually in advance the subscription
determined by the Council. The Council was empowered to expel from the Union
any unfinancial
member. Unfinancial members ceased, subject to Arts 58 and
60, to be entitled to receive assistance from the Council. Under Art
15 a
member ceased to be a member of the Union if he died or was expelled and,
subject to Arts 57 to 67, forfeited all the rights
and privileges of
membership. Article 58 required the Union to indemnify a member or his
personal representative to the extent provided
for by Art 57 in the event of
the member's death.
9. Article 60 provided:
"Notwithstanding the provisions of Article 57 where theaction, proceeding, claim or demand is one in respect of which the Union shall give indemnity to a member under Article 57 and all conditions entitling such member to such indemnity have been fulfilled but before such action, proceeding, claim or demand has been finalised such member was expelled from the Union under the provisions of these Articles the Council shall have complete and absolute power and discretion to refuse to indemnify such member or his personal representative in the case of his death either wholly or in part and subject to such conditions as the Council may impose and the Council shall not be required to give reasons for decisions made by it in the exercise of its said power and discretion and any decision so made shall be final and conclusive and binding on all members as well as the member so expelled and the personal representative of such member in the event of his death and such decision shall not be the subject of any question or discussions at any general meetings of the Union." (emphasis added)
10. In 1972 the limit upon the extent of the indemnity provided by Art 57 was
increased to $250,000 in respect of a member who applied
and whose application
was accepted by the Council. The increase was effective upon payment by the
member of a surcharge. In 1973
Dr Bailey commenced payment of the surcharge
for the increased indemnity. On 1 December 1977 Art 60 was amended by
substituting
for the words "such member was expelled from the Union" the words
"such member ceased to be a member of the Union" and by a further
consequential amendment. In other words, Art 60 was by amendment made
operative upon a member ceasing to be a member (which, under
Art 15 included
the death of the member) rather than upon being expelled from membership. In
1979 the indemnity under Art 57 was
increased to $500,000 upon payment of a
surcharge. In 1980 Dr Bailey commenced payment of the surcharge.
11. On 4 November 1982 the articles of association were amended by
substituting new Arts 57 to 67. Significant for present purposes
were the new
Arts 57 and 58 and the new Arts 60 and 61. Those articles provided:
"57. The Council shall investigate all cases in whichassistance is sought from the Union by a member.
(a) by undertaking the conduct of or assisting in theconduct of or defence of any matter or proceedings whether of a strictly legal nature or otherwise and,
(b) by granting indemnity to such member in respect of anyaction, proceedings, claim or demand arising in the course of the practice of such member from an event which occurred while he was a member. ...
12. On 2 December 1982, the Council of the Union resolved to afford
assistance to Dr Bailey in respect of the claim made against
him by Mr
Crawford. Dr Bailey died on 8 September 1985. On 3 October 1985 the Council
resolved:
"1. That the assistance granted to Dr Bailey in respect ofthe claim by Mr Crawford (OR1981/8) be terminated;
13. Both the Companies Act 1961 (NSW) and the Companies (New South Wales)
Code 1981 contained familiar provisions relating to the
alteration by a
company of its articles and the effect of the memorandum and articles of
association as between the company and the
members. It is convenient to refer
only to the Companies Act 1961 because the relevant provisions of that Act
were not relevantly
different in effect from those of the Companies Code.
Section 31(1) of the Companies Act 1961 provided:
"Subject to this Act and to any conditions in its memorandum, a company may
by special resolution alter or add to its articles."
Section 33(1) provided:
"Subject to this Act the memorandum and articles shall when registered bind
the company and the members thereof to the same extent
as if they respectively
had been signed and sealed by each member and contained covenants on the part
of each member to observe all
the provisions of the memorandum and of the
articles."
14. Whilst the articles of association of a company regulate the relations of
the members amongst themselves as members and with
the company(2), they do not
preclude a member from contracting individually with the company upon terms
which may or may not be defined
by reference to the articles. Such a contract
has been called a special contract to differentiate it from the deemed
covenants to
which s 33(1) refers(3), which regulate the position of a member
as a member and not as an individual(4). Even if the terms of a
special
contract are to be determined by reference to the articles, an alteration to
those articles will not necessarily mean an
alteration to the terms of the
contract. It will depend upon the intention of the parties to the contract,
namely, the member and
the company. Thus, a special contract may import as a
term one or more of the articles upon the basis that they may be altered by
the company and an alteration of the articles in those circumstances will
alter the terms of the contract. On the other hand, a
special contract may be
concluded upon the basis of the articles but with the intention that the terms
of the contract are not to
be varied by an alteration to the articles. That
will not confine the statutory power of the company to alter its articles, but
the company in acting upon the basis of an alteration may be acting in breach
of contract. That, we think, was what Lindley MR had
in mind in Allen v Gold
Reefs of West Africa Limited(5) when, in speaking of special contracts, he
said that a "company cannot break
its contracts by altering its articles".
Put another way, a company cannot unilaterally vary its contracts by altering
its articles
unless that is the basis upon which the contract was made(6).
15. And where a special contract does import as a term one or more of the
company's articles in an alterable form, an alteration
to the articles will
have the effect of varying the contract prospectively only because, save
perhaps in extraordinary circumstances,
any other result would be inconsistent
with the intention of the parties to the contract. In Swabey v Port Darwin
Gold Mining Co(7)
the articles of the company provided for the remuneration of
the directors. A special resolution was passed reducing their remuneration
as
from a date prior to the date of the special resolution. It was held that
there was a contract between the directors and the
company upon terms as to
remuneration which were set out in the articles but subject to alteration by
an alteration to the articles.
It was held that the alteration to the
articles reduced the entitlement of the remuneration of the directors under
the contract,
but did so prospectively only. There could hardly have been an
intention that an alteration should vary the terms of the contract
to the
extent that they had already been performed by one side.
16. Swabey v Port Darwin Gold Mining Co stands in contrast with Pepe v City
and Suburban Permanent Building Society(8). In the
latter case, a member of a
building society, who had given notice of withdrawal and who, under the rules
as they then stood, became
entitled to a sum of money, was held to be deprived
of his right to that sum by an alteration to the rules before he had ceased to
be a member. In Allen v Gold Reefs of West Africa Limited(9), Lindley MR
described this decision as going "very far". However,
regardless of the view
taken of the judgment of Chitty J in Pepe v City and Suburban Permanent
Building Society, that case may be
distinguished from Swabey v Port Darwin
Gold Mining Co upon the basis that it involved no special contract between the
member and
the company, and the validity of the alteration properly fell to be
determined by "those general principles of law and equity which
are applicable
to all powers conferred on majorities and enabling them to bind
minorities"(10).
17. In Baily v British Equitable Assurance Company(11) the Court of Appeal
held that a special contract existed between a policy
holder and a mutual life
insurance company with respect to the manner in which profits were, upon the
basis of the by-laws of the
company, to be divided. The by-laws were amended,
but the Court held that a division according to the alteration would amount to
a breach of contract. Cozens-Hardy LJ in delivering the judgment of the Court
said(12):
"The rights of a shareholder in respect of his shares,except so far as they may be protected by the memorandum of association, are by statute made liable to be altered by special resolution: see Allen v Gold Reefs of West Africa.(13)
18. But the case of a contract between an outsider and the company is
entirely different, and even a shareholder must be regarded
as an outsider in
so far as he contracts with the company otherwise than in respect of his
shares. It would be dangerous to hold
that in a contract of loan or a
contract of service or a contract of insurance validly entered into by a
company there is any greater
power of variation of the rights and liabilities
of the parties than would exist if, instead of the company, the contracting
party
had been an individual. A company cannot, by altering its articles,
justify a breach of contract."
The decision of the Court of Appeal was reversed in the House of Lords(14)
upon the basis that there was no contract between the
company and the policy
holder that the company's practice in the division of profits would be
unalterable, but no doubt was cast
upon the passage from the judgment of the
Court of Appeal set out above.
19. It is clear that where the articles of a company embody a co-operative
scheme governing individual members' dealings with the
company with respect to
such matters as the marketing of the members' produce, the existence of a
contract outside the articles with
each participating member is more readily
discernible. In Heron v Port Huon Fruitgrowers' Co-operative Association
Ltd(15) there
was a co-operative scheme for the marketing by a company of
fruit grown by members of the company upon terms which were to be found
in the
company's articles. Isaacs J described the relationship between the
fruitgrowers and the company as follows(16):
"Here, as already shown, the Company is merely an agencycompany, and, though the only shareholders are to be orchardists and fruitgrowers ... yet the business of the Company is selling the fruit of individuals, and, when shareholders and 'others' employ the Company to sell their fruit, they stand in the capacity of principals, of clients, of independent contractors, and as such employers, on the same footing. The right to charge for the service is not a charge against him qua member, but qua employer. The right to receive the proceeds is not qua member, but qua employer. The fruitgrower cannot stand on both sides of the line at once, and be individually both agent and principal."
20. In Shalfoon v Cheddar Valley Co-operative Dairy Co Ltd(17) the New
Zealand Court of Appeal was concerned with a co-operative
dairy company
incorporated under the New Zealand Companies Act 1908. Salmond J
observed(18):
"It is possible, therefore, for a person, on accepting sharesfrom a company, to bind himself by an actual contract, express or implied, to accept at the same time the burden of collateral and accessory obligations purporting to be imposed upon the shareholders by a clause of the articles, even though that obligation is of such a nature that it cannot be imposed in invitos by a regulation as such. Such a contract, however, would differ in essential respects from an obligation imposed upon him by the authority of the regulations of the company as such. In the first place, a contract cannot be altered except by the mutual consent of the parties, whereas a regulation can be altered by the legislative authority of the company even as against dissenters. In the second place, a contract is personal and binds only the party who made it and his executors and administrators; whereas a regulation binds the owners of the shares for the time being, and the obligation imposed thereby is appurtenant to the shares and passes with them to every person who for the time being is the owner of them."
21. There can be no doubt that during each of the years in which Mr Crawford
suffered injury there was a contract of insurance between
the Union and Dr
Bailey. Nor, in our view, can there be any real doubt that, notwithstanding
that its terms were largely to be found
in the company's articles, the
contract was made individually with Dr Bailey as an insured and was therefore
a special or actual
contract which was distinct from the covenants which were
deemed to arise from the articles under the relevant companies legislation.
22. Not all members were covered by insurance as a result of their
membership, some members being unindemnified under Art 5. The
subscriptions
payable by members, which were not fixed by the articles but by the Council
under Art 10, differed according to the
class of membership to which they
belonged. They were payable annually and plainly included a premium for
insurance cover for a
stipulated period, namely, one year, where a member
wished to be covered. Unfinancial members were not entitled to receive
assistance
but remained subject to the liabilities of a member. Indemnity for
an increased amount was obtainable upon payment of a surcharge.
The insurance
cover commenced in accordance with Art 6 when Dr Bailey applied for membership
and before he became a member. All
of these circumstances point only in the
direction of an individual contract of insurance with a member, the terms of
which were
to be found largely, but not wholly, in the articles of the
company.
23. Subscriptions being payable annually, the insurance cover was continued
from year to year. There was, of course, no express
reference in the articles
to any contract of insurance. Hence, the articles were silent as to whether
renewal from year to year
constituted an extension of the existing cover or a
new contract. In the circumstances, the correct conclusion is that each
renewal
constituted a new contract(20). Thus in respect of each of the years
in which the treatment which caused Mr Crawford's injuries
was administered
there was a contract of insurance in existence between the Union and Dr Bailey
under which Dr Bailey was indemnified
in respect of the claims for those
injuries subsequently made by Mr Crawford.
24. There is also, we think, only one answer to the question whether, under
an individual contract of insurance such as existed
between Dr Bailey and the
Union, the terms which were imported into the contract by the relevant
articles were alterable merely by
means of an alteration to those articles.
The relevant articles specified the extent of the indemnity to be afforded to
an insured
under the contract of insurance. The whole purpose of the contract
being the purchase of cover up to a specified limit for acts
done and
omissions made during a specified period, it is hardly to be thought that the
parties to the contract intended that the
Union should be able unilaterally to
reduce the indemnity in respect of claims arising from such acts or omissions
or to refuse it
altogether, particularly after the period of the cover had
expired. An alteration to the relevant articles would, of course, affect
the
terms of any contract made after the alteration. But it cannot have been the
intention of the parties that insurance cover already
purchased upon terms
contained in the articles should be diminished by a subsequent alteration to
those articles.
25. Thus, the alteration to Art 60 in 1977 to extend the discretion of the
Council of the Union to refuse indemnity to a member
who had ceased to be a
member whether by expulsion or otherwise did not affect the terms of a
contract made upon the basis of the
article before the alteration. A
fortiori, the amendments to Arts 57, 58, 60 and 61 in 1982 were ineffective to
vary the terms of
any contract previously made upon the basis of the articles
in their unaltered form. Those amendments sought to give the Council
sole
discretion whether to grant indemnity at all and were entirely inconsistent
with the terms of a contract concluded upon the
basis of the articles as they
stood before the amendments. It follows that the attempt by the Union to vary
the terms of such a
contract by means of an alteration to its articles giving
its Council discretion to terminate any grant of assistance or indemnity
to a
member who sought assistance from the Union before 4 November 1982 was
ineffective.
26. The result is, in our view, that the Court of Appeal was correct in
upholding the liability of the Union to indemnify Dr Bailey's
estate in
respect of the claim against it. That result also provides an answer to the
question arising under s 6 of the Law Reform
(Miscellaneous Provisions) Act.
It was not argued that if, as we hold to be the case, the alterations to the
articles of the Union
were incapable of affecting the
liability of the Union
to indemnify Dr Bailey or his estate, s 6(1) of the Act did not impose a
charge
upon all insurance moneys
that were or may have become payable by the
Union in respect of the liability of Dr Bailey or his estate
to Mr Crawford.
However,
as the proper construction of s 6 appears to have given rise to
difficulty and as the matter was argued,
it is appropriate that we
express our
agreement with McHugh and Gummow JJ upon the effect of that provision.
27. An amendment to Art 57(3) in 1972 raised the maximum indemnity level
under the insurance contract between Dr Bailey and the
Union to $250,000. In
1979, the maximum was again raised, to $500,000. Dr Bailey took advantage of
each increase. But the level
of indemnity which existed between 1973 and 1974
was only $250,000. It being common ground that the insurance cover afforded
by
the Union was upon an "occurrences", rather than a "claims made", basis,
the judgment in favour of Mr Crawford against the Union
should have been
$250,000 (for the brain damage) and $62,000 (for the footdrop), totalling
$312,000.
28. On 8 December 1994, this Court granted special leave to the estate of the
late Dr Harry R Bailey to appeal against orders made
in the Court of Appeal in
favour of the Union. The appeal became Matter No S200 of 1994. The leave
granted was leave to appeal
"from part of the judgment and orders of the Court
of Appeal of New South Wales in Matters No 40134 of 92 and 40128 of 92". This
did not reflect the intention of the parties in seeking special leave or of
the Court in granting special leave. The order granting
special leave should
be amended to read: "to appeal from part of the judgment and orders of the
Court of Appeal of New South Wales
in Matter No 40127 of 92". On the same
day, this Court granted special leave to the Union to appeal against orders
made in the Court
of Appeal in favour of Mr Crawford. The appeal became
Matter No S205 of 1994. In that instance, leave was correctly granted to
appeal "from part of the judgment and orders of the Court of Appeal of the
Supreme Court of New South Wales in Matter No 40128 of
1992".
29. In these two matters, which are the matters before the Court, the
following relief should be granted:
Matter No S200 Marjorie Jocelyn Bailey (as Executrix of the
Estate of the Late Dr Harry R Bailey)Order that:
v
New South Wales Medical Defence Union Ltd
(b) Otherwise appeal dismissed.respondent's costs of the appeal to the Court of Appeal.
(c) The appellant, New South Wales Medical Defence Union Ltd, pay the
vOrder that:
Maxwell Duncan Crawford
(b) inserting sub-par (1A) in par 4 to read:$312,000 be deemed satisfaction of the order of Enderby J in Matter No 17289 of 1980 in the Supreme Court of New South Wales.
Declare that payment by the defendant of the said sum of
McHUGH AND GUMMOW JJ These appeals were heard together. Mrs Bailey is executrix of the estate of the late Dr H R Bailey ("the Estate"). Dr Bailey died on 8 September 1985. From 1951 until his death, Dr Bailey was a member of the New South Wales Medical Defence Union Limited ("the Union"), a company limited by guarantee. Mr Crawford was born in 1947. Mr Crawford claimed that, in late 1973 and early 1974, while he was Dr Bailey's patient at the Chelmsford Hospital, Sydney, he suffered injuries, including profound brain damage, by reason of treatment received from Dr Bailey. This had involved what was called "deep sleep therapy".
2. On 8 July 1992, judgment was entered in the Supreme Court of New South
Wales after the hearing by a judge of that Court (Enderby
J) of two
proceedings. They had been heard together. The first proceeding had been
commenced by Mr Crawford against Dr Bailey in
1980 and continued after his
death against the Estate. It had been instituted by Mr Crawford against Dr
Bailey after an order was
made on 17 December 1980 pursuant to s 58 of the
Limitation Act 1969 (NSW). The order extended until 25 December 1980 the
limitation period in respect of causes of action in negligence and trespass
to
the person pleaded by Mr Crawford against Dr Bailey.
3. The second proceeding was commenced in 1988 by Mr Crawford against the
Union as insurer of Dr Bailey and in reliance upon s 6 of the Law Reform
(Miscellaneous Provisions) Act 1946 (NSW) ("the Law Reform Act"). Mr Crawford
sought to enforce, by action directly
against the Union as insurer of Dr
Bailey, the charge
said to be created by
s 6 in favour of Mr Crawford on all
insurance moneys
payable by the Union in respect of the liability of Dr
Bailey
to Mr Crawford.
4. In the first proceeding, the Estate cross-claimed against the Union,
seeking indemnity in respect of the claim against the Estate.
This was on the
footing that the claim arose out of acts or omissions on the part of Dr Bailey
whilst he was a member of the Union
and that there was a contract between the
Union and Dr Bailey for indemnity by the Union in respect of such claims.
5. In the first proceeding Enderby J ordered (1) the Estate to pay Mr
Crawford damages in the sum of $586,196 and (2) the Union,
as cross-defendant,
to pay $500,000 to the Estate, as cross-claimant. In the second proceeding,
his Honour ordered the Union to
pay Mr Crawford $500,000. Payment by the
Union to Mr Crawford of that sum was deemed to be satisfaction of order (2) in
the first
proceeding. Alternatively, payment by the Union of the sum in order
(2) to the Estate was deemed to be satisfaction of the order
in the second
proceeding that the Union pay Mr Crawford. The Union would not have to pay
twice, to the Estate and to Mr Crawford.
6. Of the total damages awarded against the Estate of $586,196, the primary
judge attributed $524,196 to brain damage and schizophrenia
and $62,000 for
injury to Mr Crawford's leg. The entry of judgment against the Union for
$500,000 was a slip for $562,000. This
latter sum reflected the circumstance
that there were two relevant acts or omissions in respect of each of which
there was a limit
in liability under the insurance to $500,000. The slip was
rectified in the orders by the Court of Appeal.
7. The orders of the primary judge were entered on 8 July 1992. Earlier, on
28 February 1992, Enderby J, in the Protective Division
of the Supreme Court,
had declared Mr Crawford to be incapable of managing his affairs and ordered
that the management of his estate
be committed to the Protective Commissioner
under the Protected Estates Act 1983 (NSW).
8. The second proceeding had been instituted on 28 July 1988 by Mr Crawford,
pursuant to leave granted under s 6(4) of the Law Reform
Act, by orders of the
Court of Appeal. The Court of Appeal allowed an appeal against refusal of
such leave. Its
decision is reported(21).
The first proceeding, as we have
indicated, had been commenced in 1980 by Mr Crawford against Dr Bailey
and
continued after his
death in 1985. On notification by Dr Bailey of the action
against him by Mr Crawford, the Union had resolved
to indemnify Dr Bailey
and
had taken over the defence of the action. However, on 3 October 1985, after
his death, the Union resolved
to terminate assistance
to the Estate. It was
this turn of events which led Mr Crawford to seek and to obtain leave to
commence the
second proceeding directly
against the Union in reliance upon the
Law Reform Act.
9. From the orders made by Enderby J on 25 June 1992, the substance of which
has been set out above, appeals and cross-appeals were
brought to the Court of
Appeal and these were heard together. Three sets of reasons were delivered,
on 3 September 1993, 30 June
1994 and 23 September 1994. The first of these
is reported(22).
10. In this Court, the Union appeals against so much of the orders of the
Court of Appeal as implemented its holding that Mr Crawford
was entitled to
enforce the statutory charge under s 6 of the Law Reform Act against the
Union. The issue here turns primarily upon
the construction of s 6, a matter
in which there has been division of opinion in the Court of Appeal.
11. In the other appeal to this Court, the Estate appeals against the
allowance by the Court of Appeal of the appeal against the
orders of Enderby J
in its favour on the cross-claim against the Union. The Court of Appeal held
that the Estate was not entitled
to indemnity in respect of the claim brought
against it by Mr Crawford. The issue here turns primarily upon the
construction of
the Articles of Association of the Union as they have stood
from time to time. There is the question of whether what has been called
"a
special contract" between Dr Bailey and the Union was unaffected by certain
changes to the Articles which were relied upon to
support the refusal to the
Estate, after Dr Bailey's death in 1985, of any further assistance or
indemnity in respect of the action
by Mr Crawford which was then on foot.
The Union and its Articles of Association
12. At all material times, until 27 May 1983, the Union had authority
pursuant to the Insurance Act 1973 (Cth) to carry on insurance business. On 2
June 1983, and with effect from and including 27 May 1983, the Acting
Insurance Commissioner
revoked that authority. The revocation apparently
followed a request by the Union, pursuant to s 36(1) of that statute, that the
authority be revoked and upon the Commissioner being satisfied, within the
meaning of the sub-section,
that the Union had no liabilities
in respect of
insurance business carried on by it in Australia. The taking of these steps
followed
the passage on 4 November 1982
of amendments to the Articles of
Association. It will be necessary to refer to these amendments later
in these
reasons.
13. The Union appears to have been incorporated under the Companies Act 1899
(NSW) ("the 1899 Act"). Its Memorandum of Association
is dated 11 January
1934, that is to say, before the commencement of the Companies Act 1936 (NSW)
("the 1936 Act"). The objects specified
in the Memorandum include the taking
over as a going concern and the carrying on of the unincorporated body known
as "New South Wales
Medical Union"; the protection, support and safeguarding
of the character and interests of legally qualified medical practitioners;
and
the indemnification of members and the personal representatives of deceased
members in respect of actions, proceedings, claims
or demands made by or
against them which, in any way, affect their professional character or
interest. In the Court of Appeal, Mahoney
JA(23) described the purposes of
the Union as multiple, saying that insurance was only one of them.
14. The evidence includes the original membership card of Dr Bailey, showing
that he made application dated 22 February 1951 which
had been accepted on 8
March 1951, and that he had paid an entrance fee. The card also shows
payments by Dr Bailey of subscriptions
for the year ended December 1952 and
succeeding years. In particular, it shows that he made payments at the rate
necessary to entitle
him to the current highest indemnity cover.
15. The earliest form of the Articles which is in evidence shows them as they
stood at an unspecified date after the commencement
of the Companies Act 1961
(NSW) ("the 1961 Act") but before 7 September 1972 when the limitation of
indemnity to $100,000 was increased
to $250,000. That sum in turn was
increased on 5 April 1979 to $500,000. The document in evidence is headed:
"The Companies Act 1936The Companies Act 1961".
16. We turn to consider the Articles in this form.
17. The management of the business and control of the Union was vested in the
Council (Art 55). The Council consisted of 14 members
elected by the members,
together with such other members, not exceeding three, as might be appointed
by the Council itself (Art 36).
18. The 1899 Act (s 72), the 1936 Act (s 20), the 1961 Act (s 31) and the
Companies (New South Wales) Code ("the 1981 Act") (s 76)
all provided for the
amendment of articles of association by special resolution. Further, the 1936
Act (s 6), the 1961 Act (s 5)
and the 1981 Act (s 5) each treated as a
"company" for its purposes an existing company incorporated under a previous
corresponding
enactment.
19. In Hunt v Carrier A/asia Ltd(24), Jordan CJ referred to Shuttleworth v
Cox Brothers and Co (Maidenhead)(25) as a case of "an
agreement constituted
solely by the articles of association themselves, unsupplemented by any
external facts, and therefore inherently
and necessarily alterable in the
manner provided by the Statute". Although the proposition is put in several
ways, the substance
of the case for the Union is that the contractual rights
against it upon which the Estate relies are of this description and therefore
liable to abrogation, as it was put "retrospectively", by changes to the
Articles.
20. The opposing submission is that, although the contract incorporates
certain provisions of the Articles, it cannot be said that
the agreement for
indemnity between Dr Bailey and the Union was constituted solely by the
Articles unsupplemented by any external
facts. The result is said to be that
the basic principle against unilateral variation or abrogation of contractual
rights applied
in this case to prevent changes of the Articles having an
immediate impact upon the contract. On this approach, which it will become
apparent we accept, the interrelation between the articles and the terms of
the contract is a matter of construction of the contract
in the relevant
circumstances of the case.
21. Against that background, we turn to consider the provisions of the
Articles as to membership and the reasoning in certain decisions.
22. An applicant for membership is obliged to sign and deliver to the
Secretary an application in the form approved by the Council
of the Union; the
applicant "shall therein signify his agreement to be bound by the Memorandum
and Articles of Association of the
Union" (Art 5). Article 6 states:
"Any such applicant shall be deemed to have agreed to become a member of the
Union on receipt by the Secretary of an application
for membership in the form
or to the effect of the application referred to in Article 5 hereof signed by
the applicant. Any such
applicant (upon payment of the prescribed entrance
fee and subscription) shall be entitled to the benefits of indemnity and
assistance
conferred by Articles 57 to 67 inclusive from the date of such
payment until the date of his becoming a member or the notification
of refusal
of his application for membership as the case may be."
Articles 5 and 6 are expressed in a fashion which attracts the reasoning in a
passage from Lindley on Companies(26). A passage to
similar effect in
Palmer's Company Law(27) was adopted by Myers CJ in Eltham Co-operative Dairy
Factory Co, Ltd v Johnson(28). The
passage in Lindley was as follows:
"The articles may express the terms upon which a person maybecome a member of, or accept some office or employment from, or otherwise contract with the company, and if acted upon, an agreement between him and the company on which either party may sue may be implied partly from the ... articles, and partly from the conduct of the parties."
23. An example is In re New British Iron Company; Ex parte Beckwith(29). The
claimants had served as directors without any express
agreement for
remuneration. The articles provided that the remuneration of the board should
be an annual specified sum. The directors
successfully claimed in the
liquidation of the company arrears of fees on the footing that a contract
incorporating the terms of
the articles was to be inferred.
24. In Shalfoon v Cheddar Valley Co-operative Dairy Co Ltd(30), Salmond J
said:
"(T)here is no legal reason why the terms on which a company... proposes to contract either with strangers or with its own members should not be set out in the document known as the articles of association. In such a case, on the existence of the contract being proved aliunde in the individual instance, the articles of association can be referred to as evidence of the terms of the contract. For instance, it is not uncommon for articles of association to provide that the directors of the company shall acquire or possess a certain number of shares as a qualification for their office. Such a clause is not in itself a binding regulation imposing any enforceable obligation upon the directors to acquire such shares; but it is operative as the basis of an express or implied contract made by each director with the company when he accepts office - a contract, that is to say, that he will acquire the qualification shares prescribed by the articles. This rule is illustrated by such a case as Swabey v Port Darwin Gold Co(31). 'The articles,' said Lord Esher, 'do not themselves form the contract, but from them you get the terms upon which the director is serving.' See also In re New British Iron Co(32); Isaacs' case(33)."
25. This impression as to the operation of Arts 5 and 6 is confirmed by Arts
7, 8 and 11. Article 7 provides for submission of
each application to the
Council and for admission as a member if three-quarters of the votes cast at
the meeting of the Council at
which the application is considered are in
favour of admission of the applicant. Membership then shall be from the date
of admission
to the end of the then current financial year. Article 7
continues:
"Thereafter unless terminated pursuant to these Articlesmembership shall be deemed to have been renewed for a further period of twelve (12) months from the end of each calendar year unless the member notifies the Council prior to that date that he does not desire continuance of membership or unless not later than three (3) months prior to that date, the Council has notified the member in writing that his membership will not be renewed."
26. Article 79 empowers the Council from time to time by instrument under
seal to make regulations upon various matters including
entrance fees and
annual subscriptions and the limits of indemnity to be granted to members.
27. Each member is obliged to pay to the Union annually in advance on the
first day of January a subscription of such amount as
the Council may from
time to time determine (Art 10(1)). Any member who neglects to pay the
subscription before the first day of
February in the relevant year ipso facto
becomes an "unfinancial member", unless reasonable cause for such delay has
been shown (Art
10(2)). The Council, in its absolute discretion, by
resolution may expel from the Union any unfinancial member (Art 10(3)).
Further,
Art 10(2) states:
"Unfinancial members and unindemnified members shall subject to Articles 58
to 60 hereof cease to be entitled to receive assistance
from the Council, but
shall remain subject to the liabilities of a member."
Any member who does not require indemnity for a period may become an
unindemnified member (Art 4(1)(iii)).
28. A member who, inter alia, has been reprimanded or cautioned by a
professional tribunal or body or refuses or neglects to observe
the provisions
of the Memorandum or Articles or the regulations made under Art 79 is liable
to expulsion from the Union (Art 13).
In certain circumstances, the Council
may expel a member who is absent from New South Wales, the Australian Capital
Territory or
some other "prescribed area" for a period in excess of two years
(Art 14). Further, a member is also liable to expulsion for failure
to meet a
call upon members to contribute funds for the purposes of the Union (Arts
17-19).
29. A member may resign by notice in writing given before the end of the
current year for which the subscription has been paid (Art
12). A member also
shall cease to be a member in the circumstances detailed in Art 15(1). This
states:
"A member shall cease to be a member -(a) if he dies,
30. It is convenient now to turn to the Articles dealing with professional
indemnity for members. These commence with Art 57. This
states:
"(1) The Council shall investigate all cases in whichassistance is sought from the Union.
31. The sum of $100,000 fixed in Art 57(3) was increased to $250,000 by
regulation passed by the Council under Art 79 on 7 September
1972. The
increase applied in respect of a member who applied in writing and his
application was accepted by the Council and such
increase was effective upon
payment of the additional subscription called a "surcharge" payable in advance
on 1 January in each year.
In 1973, Dr Bailey commenced his annual payments
of the surcharge to obtain the higher indemnity limit. By further regulation
made
5 April 1979, the limit of $250,000 was increased to $500,000. In 1980,
Dr Bailey commenced annual payments of the surcharge for
that higher indemnity
limit.
32. The Estate relies upon the steps taken by Dr Bailey to obtain and retain
membership, including the making and acceptance of
payments, together with the
terms of the Articles, particularly Art 57, to support the existence of a
contract to provide indemnity
in respect of legal liability for damages or
costs arising from the claim made in 1980 by Mr Crawford arising out of acts
or omissions
by Dr Bailey in the course of his treatment of Mr Crawford in the
period 25 December 1973 to 25 January 1974.
33. We accept that submission but that is not the end of the matter. It then
becomes necessary to identify the relevant terms of
that contract and the
effect upon them of changes made to the Articles, particularly on 1 December
1977 and 4 November 1982.
34. Moreover, as it stood at the time of the events giving rise to the claim,
Art 57 was subject to qualifications found in Arts
58, 59 and 60. Article 58
dealt with the situation where the member resigned before the claim or demand
was first made or the action
or proceeding first commenced. It obliged the
Union to indemnify the member, or his personal representatives in the event of
his
death, in accordance with and to the extent provided for in Art 57.
Article 58 thus assisted the position of members. Article 59
applied where
the member was an unfinancial member or an unindemnified member at the time
when the claim or demand was first made
or the action or proceeding first
commenced. In such a situation, indemnity was nevertheless available if all
arrears of membership
and any interest or charges in respect of unpaid
membership dues were paid in full and payments thereafter were made up to the
end
of the financial year during which the action or claim was finalised.
35. Of central importance in the present case is Art 60. Before its
amendment on 1 December 1977, Art 60 conferred a discretion
upon the Council
to refuse indemnity to members who were expelled from the Union. Dr Bailey
was never expelled. Art 60 stated:
"Notwithstanding the provisions of Article 57 where the action, proceeding,
claim or demand is one in respect of which the Union
shall give indemnity to a
member under Article 57 and all conditions entitling such member to such
indemnity have been fulfilled
but before such action, proceeding, claim or
demand has been finalised such member was expelled from the Union under the
provisions
of these Articles the Council shall have complete and absolute
power and discretion to refuse to indemnify such member or his personal
representative in the case of his death either wholly or in part and subject
to such conditions as the Council may impose and the
Council shall not be
required to give reasons for decisions made by it in the exercise of its said
power and discretion and any decision
so made shall be final and conclusive
and binding on all members as well as the members so expelled and the personal
representative
of such member in the event of his death and such decision
shall not be the subject of any question or discussions at any general
meetings of the Union." (emphasis added)
36. By special resolution passed 1 December 1977, Art 60 was amended by
deleting the phrases which we have emphasised and inserting
in the first
instance the phrase "ceased to be a member" and in the second "concerned".
The effect of this was to broaden the discretion
of the Union by making it
exercisable not only in cases of expulsion but in cases where the member had
ceased to be a member for
any one or more of the other grounds set out in Art
15(1). These included par (a), the death of the member.
37. As we have indicated, the Court of Appeal dealt with the appeals to it in
three sets of reasons for judgment, the first of which
was delivered on 3
September 1993. On the last day of the hearing preceding the delivery of
those reasons, 27 November 1992, counsel
for the Union drew the attention of
the Court to the circumstance that, prior to 1977, Art 60 was limited to cases
of expulsion and
the discretion of the Council did not arise where the member
ceased to be a member for any other reason. In the reasons for judgment
subsequently delivered, there was discussion of Art 60, but only Sheller JA
referred to the article in its form before 1977, noting
that the discretion to
refuse indemnity had applied only if a member was expelled(35).
38. What then, at the time of the institution of the action by Mr Crawford
against Dr Bailey in 1980, was the extent and effect
of the incorporation of
provisions of the Articles into the contract between Dr Bailey and the Union?
The Articles and Dr Bailey's contract
39. In our view, the steps taken by Dr Bailey in acquiring and maintaining
his position as a financial member of the Union brought
about and continued a
single contract which conferred upon him entitlements to the benefits of
indemnity and assistance specified
in Art 57 and qualified by other articles.
40. The provisions of the Articles show that a vital incident of membership
of the Union was provision to financial members of indemnity
and assistance
pursuant to Arts 57-67. However, that does not mean that the relationship
between Dr Bailey and the Union is to be
characterised as if it were no more
than that between a policy holder and an insurance company which had been paid
the necessary
premium for a particular period. In particular, payment to the
Union by a member of the annual subscription avoided the consequences
which
otherwise could, but not necessarily would, flow from the member becoming an
unfinancial member. Article 10(2) is a significant
provision in this
connection. It provides that reasonable cause might be shown for delay in
payment, and that, whilst an unfinancial
member ceased "to be entitled to
receive assistance from the Council" (a phrase indicative of what otherwise
was a continuing entitlement),
cessation of entitlement was "subject to
Articles 58 to 60 hereof". Payment of the subscription was not analogous to a
renewal of
a policy of insurance resulting on each occasion in a fresh
contract of insurance(36).
41. The entitlement of Dr Bailey arose upon the occurrence of a relevant act
or omission whilst he was a member of the Union. This
included the time of his
treatment of Mr Crawford in late 1973 and early 1974. Dr Bailey's entitlement
would not have arisen if
at that time he had been an unfinancial or
unindemnified member. That would have followed from the terms of Art 57(2).
The obligation
of the Union to indemnify is in respect of liability arising
from a claim made which arises out of any act or omission done or omitted
whilst a member "other than an unfinancial or unindemnified member". If the
member was unfinancial or unindemnified when the relevant
act or omission was
done or omitted, there is thereafter no obligation to indemnify. Again, if
the act or omission was done or omitted
to be done in the United States of
America, there is no obligation to indemnify (Art 57(4)). These provisions
suggest that the gist
of the contract is concerned with "occurrences" rather
than "claims made".
42. If Dr Bailey had died before the claim had been made, the entitlement to
indemnity would have enured in favour of his personal
representatives. That
also would have been a consequence of the terms of Art 57(2). Further,
entitlement would have persisted if
Dr Bailey had resigned before action
against him had been commenced (Art 58). However, if, at the time of the
first making of the
claim or commencement of the action, Dr Bailey had been an
unfinancial member or an unindemnified member, the obligation would have
persisted only if certain conditions were met. These would have been that
repayment in full was made of all arrears of membership
and any interest or
charges in respect of unpaid membership dues and such membership dues were
thereafter paid up to the end of the
financial year during which the action or
claim was finalised (Art 59).
43. In addition, if, before the claim or action were finalised, Dr Bailey had
been expelled, then Art 60 would have conferred upon
the Council the power and
discretion to refuse indemnity to Dr Bailey or, if he had died, to refuse it
to his personal representatives
(Art 60).
44. It is not useful and may be dangerous to attach descriptive labels to
contracts which lack necessarily fixed characteristics.
However, in the
particular sense described above, the contract between the Union and Dr Bailey
may be described as one in respect
of "occurrences" rather than "claims made".
This classification commended itself to two members of the Court of
Appeal(37).
45. That is not to say that, as a matter of construction of the Articles, the
limitation to the indemnity imposed by Art 57(3) in
respect of all claims
arising from any one act or omission necessarily operated by reference to the
limit specified at the date of
the relevant occurrence, rather than at the
time of the performance of the obligation to indemnify following the making of
the claim
or institution of action. At the time of the events complained of
by Mr Crawford, the limit was $250,000. At the time of the institution
of his
action late in 1980, the regulations referred to in Art 57(3) had increased
the indemnity limit to $500,000. It will be noted
that Art 57(3) fixes upon
$100,000 or "such greater sum or sums" as may be provided by the regulations.
Thus, change is to operate
to the advantage of the indemnified party.
46. The point was dealt with as follows in the Court of Appeal by Sheller
JA(38):
"Quite clearly the limit in article 57(3) is expressed inrespect of claims. When a claim is made it is necessary to look to see what limit applies to that claim. As a matter of language, in my opinion, the limit is that applicable at the time the claim is made."
47. However, Art 57(3) is to be construed with Art 57 as a whole. In
particular, the subject of the limitation in Art 57(3) is "(t)he
indemnity
under this Article". As indicated above, the liability to provide that
indemnity is anchored to the occurrence of each
relevant act or omission
whilst the member was a financial member who had not become an unindemnified
member within the meaning of
Art 4(1)(iii). From any one such act or
omission, a plurality of claims might arise and do so over a period, with
claims being made
at different times. The significance of the phrase "in
respect of all claims arising from any one act or omission" is to indicate
that the limit specified in Art 57(3) applies to all claims which arise in
this way from any one act or omission. The amount of
the limitation is
$100,000 or such greater sum or sums as the regulations provided at the time
of the relevant act or occurrence.
48. Were the position otherwise, the monetary limit in respect of claims made
at different times but arising from the one act or
omission would be greater
or lesser, depending upon what might be the purely chance sequence in which
claims were made. Further,
the matter may be examined by reference to the
position of a member who had resigned before any claim was first made. It
would be
an odd result if that member had the benefit of the increased level
of indemnity which was in force by reason of steps taken after
resignation by
the then current members to increase that level and to raise the amount of the
annual subscription. Likewise, in
the case of a member who had died before
the claim was made against the personal representatives of that member.
49. The consequence of this is that there must be a reduction in the amounts
awarded by Enderby J to reflect the limitation of $250,000
rather than
$500,000.
50. Once the position is reached that the entitlement of Dr Bailey arose upon
the occurrence of the relevant acts or omissions,
the next question concerns
the effect thereon of subsequent changes to the Articles which would operate
adversely to his interests
by changing the incidents of his entitlement or,
indeed, abrogating it.
51. It is appropriate here to refer again to Hunt v Carrier A/asia Ltd in the
New South Wales Full Court(39) and in this Court(40).
By written agreement,
the company agreed to employ Mr Hunt as managing director and he agreed to
serve "for the term and subject
to the company's articles of association and
the provisions hereinafter contained"(41). The agreement stated that the
employment
was to continue until a specified date and also provided that the
company was to be at liberty to terminate the term on notice if
Mr Hunt
"ceases to be a director of the company"(42). Article 91 empowered the
company by extraordinary resolution to remove any
director before the
expiration of his period of office but stated that this was "(s)ubject to the
provisions of any agreement for
the time being subsisting"(43). The company,
by special resolution, amended Art 91 by deleting those words and then removed
Mr Hunt
from the board and gave due notice of termination. In the Full Court,
Jordan CJ said(44):
"The question is whether the obligations of the particular contract left it
still open to the company, upon altering its articles
so as to give itself
power to remove the plaintiff from the directorate, to exercise that power and
so dismiss him as managing director,
without thereby committing a breach of
contract. At the date when the contract was made, the only power which the
company had to
remove a director by extraordinary resolution was that
conferred by article 91, and this was expressed to be subject to the
provisions
of any agreement for the time being subsisting. ... It is true
that the contract is to employ 'subject to the articles,' but I
am of opinion
that this does not mean 'subject to a right in the company so to alter the
articles as to enable the company to free
itself from the obligations of the
contract.' ... I am of opinion, however, that the presence in article 91 of
the words which
have been deleted did not make any difference to the effect of
that article. They served as a reminder that the power conferred
by the
articles is one the exercise of which may involve the risk of committing a
breach of contract. All that their deletion has
achieved has been to remove
the reminder."
Later in his judgment, the Chief Justice said(45):
"A company has power to alter its articles by special resolution: Companies
Act, 1936, s 20. But if a company makes a contract
dehors the articles by
which it agrees expressly or impliedly not to do a particular thing, it
cannot, by altering its articles and
conferring on its board of directors or a
general meeting power to do the thing on its behalf, acquire a right to do the
thing with
impunity. No doubt the thing may be effectual if done, but it is
none the less a breach of contract".
In this Court, the bench was equally divided so that the decision of the
Supreme Court was affirmed. McTiernan J, who was in favour
of dismissing the
appeal, said(46) that it would be contradictory to imply into the contract,
expressed to be subject to the articles,
a term that the company have the
right to make Mr Hunt cease to be director at any time and in that way to
terminate his employment
as managing director.
52. In the present case, the substance of the contract was to confer upon Dr
Bailey, in the events that had allegedly happened during
his treatment of Mr
Crawford, an entitlement to indemnity in respect of the claim which might
later be made upon him. In that sense,
Dr Bailey acquired vested or accrued
rights or interests. Consistently with general principle, a power which might
be construed
so as to curtail or abrogate what otherwise would be rights or
interests in favour of one party to the contract is construed as operating
prospectively(47).
53. Accordingly, and to adapt what was said in Westralian Farmers Ltd v
Commonwealth Agricultural Service Engineers Ltd(48), changes
made to the
Articles after 1974 would operate prospectively upon the continuing contract
in relation to acts or omissions on the
part of Dr Bailey done or omitted
thereafter. But they would not operate upon past events which already had
given rise to his entitlement.
This would be true, for example, of an
amendment to Art 60 which broadened the circumstances in which in respect of
such a past
event the Council might exercise adversely the power and
discretion to refuse indemnity to the member or, in the case of death, to
the
personal representatives of the member.
54. We turn now to relate those actions by the Union which did involve such
amendments. The evidence does not disclose any protest
or objection by Dr
Bailey when those amendments were made. This absence of complaint is
consistent with an interpretation that the
changes to the articles would
operate upon the continuing contract, although in the prospective sense we
have described(49).
55. We have referred to the amendments to Art 60 made in 1977. These did have
the effect of broadening the power of the Council
to refuse indemnity.
However, as we have indicated, they were ineffective to modify so much of the
existing and continuing contract
as operated upon the then accrued entitlement
to indemnity by reason of the alleged acts or omissions in respect of Mr
Crawford.
56. On 21 April 1981, whilst the action of Mr Crawford against Dr Bailey was
on foot and the solicitors for the Union had taken
over the defence of the
case, further amendments were made to the Articles of the Union (Arts 4, 10,
57, 58, 59, 60, 61, 62 and 63).
It is not suggested by any party that these
changes are material for present purposes. However, on 4 November 1982, the
Articles
were further amended in such a fashion as to produce the result that
the Union no longer carried on insurance business within the
meaning of the
Insurance Act. The reference in Art 6 to "entitlement" of applicants, upon
payment of entrance fee and subscription,
to the benefits "of indemnity
and
assistance conferred by Arts 57 to 67" was replaced. Articles 57 to 67 were
deleted and a discretionary
regime established(50).
New Arts 57 to 61 were as
follows:
"57. The Council shall investigate all cases in whichassistance is sought from the Union by a member.
(a) by undertaking the conduct of or assisting in theconduct of or defence of any matter or proceedings whether of a strictly legal nature or otherwise and,
(b) by granting indemnity to such member in respect of anyaction, proceedings, claim or demand
arising in the course of the practice of such member from anevent which occurred while he was a member.
57. In accordance with the conclusions already expressed as to the relevant
ineffectiveness of the change to Art 60 in 1977, these
changes are to be
treated as ineffective to commute a current right to indemnity, which had been
conferred by contract created in
the course of conduct of an insurance
business, into a right in the Council, in its sole and absolute discretion, to
provide assistance
to members in certain circumstances. That conclusion is
not qualified by the presence of a new Art 61. On the construction proffered
by the Union, this would translate what had been a present entitlement to a
request for assistance. Rather, as indicated earlier,
these changes would
operate prospectively upon the continuing contract between Dr Bailey and the
Union.
58. On 2 December 1982, the Council, acting pursuant to the new Art 61,
resolved in general terms to grant assistance under the
new Articles to those
members who had previously requested assistance from the Union under the old
Art 58. The effect of this resolution
was to afford assistance to Dr Bailey
in respect of the then outstanding action brought by Mr Crawford. The conduct
of the defence
to that action continued and the carriage of it remained with
the solicitors for the Union. It was not until some three weeks after
Dr
Bailey died that the attitude of the Council changed. On 3 October 1985 the
Council resolved:
"(1) That the assistance granted to Dr Bailey in respectof the claim by Mr Crawford be terminated.
"No attempt has been made to offer any explanation for thechange and no members of Council have been called to give evidence. It is notorious, however, that by 1985 'Chelmsford' had become very well known in the media and was being given great publicity. Many ex-patients of Chelmsford were making complaints and claims similar to those of the plaintiff."
59. On 8 October 1985, Mrs Bailey, on behalf of the Estate, requested
assistance from the Union in relation to the claim by Mr Crawford.
On the
same day, Mr Crawford instituted a proceeding in the Supreme Court seeking
leave to commence action against the Union under
s 6 of the Law Reform Act.
60. On 23 October, the Union filed a motion in the action against it by Mr
Crawford seeking a declaration that it was no longer
an "insurer" within the
meaning of s 6. On 7 November, the Council resolved "that the request for
assistance by Mrs M J Bailey on
behalf of the Estate ... in respect of
the
claim by Mr Crawford be refused". Yeldham J declined to make the declaration
sought by
the Union but he also refused Mr Crawford
leave under s 6(4) of the
Law Reform Act. An appeal by Mr Crawford and cross-appeal by
the Union
produced the result that the appeal was allowed and the cross-appeal
dismissed(51).
It was after refusal by this Court
of an application by the
Union for special leave to appeal against the grant of leave to Mr Crawford
to
proceed against the Union
that, on 28 July 1988, Mr Crawford commenced the
proceeding under s 6(4).
61. On 16 August 1990, shortly before the trial together of both proceedings,
the Union resolved that "pursuant to its powers generally
and in particular
its power under Old Article 60 (it) refuses to indemnify the late Dr Bailey
and/or Mrs J Bailey, executrix of the
Estate of the late Dr Bailey in relation
to the following claims: ... Crawford".
62. The reference to "Old Article 60" is not without its difficulties.
First, if what was intended was a reference to Art 60 in
its form before the
special resolution of 1 December 1977, that article could have had no
application because it required the expulsion
of Dr Bailey, something which
never occurred. If what was intended was a reference to the power of the
Council under Art 60 as it
stood after amendment on 1 December 1977, there is
still the difficulty that such power must have ceased with the deletion of Art
60 by the special resolution passed on 4 November 1982. In so far as what was
relied upon was a power conferred by contract, but
adopting the Articles as
they stood from time to time, the deletion of Art 60 in 1982 would have
deprived the contract of the relevant
subject-matter. Because Dr Bailey had
never been expelled from membership of the Union, the power conferred upon the
Council by
Art 60 in the form it took before amendment in 1977 was never
exercisable by the Council. The 1977 amendment and subsequent deletion
of Art
60 were, as we have indicated, picked up by the contract between Dr Bailey and
the Union but only in their prospective operation.
63. Our conclusion is that the Union was obliged by the contract it had with
Dr Bailey to indemnify his estate in respect of any
legal liability for
damages or costs from the claim made by Mr Crawford. Accordingly, the Court
of Appeal should have upheld the
orders of Enderby J in this respect and the
appeal to this Court by the Estate against the Union should succeed.
64. However, we should not part with the matter without further reference to
the submissions made by the Union as to the distinction
between what was
identified as a "special contract" and a "statutory contract".
"Special contract" and "statutory contract"
65. The Union submitted that Art 57 conferred upon members "in their capacity
as members or as incidents of their membership" rights
which amounted to a
"statutory contract" between each member and the Union. However, the rights
enjoyed under this arrangement by
members would subsist only unless and until
the Articles were altered. In the present case, this occurred when Art 57 was
deleted
and entitlement was superseded by the claim to the exercise of
discretion by the Council under the new Articles.
66. In support of these propositions counsel referred to statutory provisions
producing the result that the Memorandum and Articles
of the Union had the
effect of a contract under seal between the Union and each member, and between
a member and each other member.
Section 14 of the 1899 Act was in the
following terms:
"(1) The articles of association shall be printed and shall be signed by
each subscriber in the presence of, and be attested by,
one witness at least.
(2) When registered they shall bind the company and the members thereof to
the same extent as if each member had subscribed his
name and affixed his seal
thereto, and there were in such articles contained a covenant on the part of
himself, his heirs, executors,
and administrators, to conform to all the
regulations contained in such articles subject to the provisions of this Act.
(3) All moneys payable by any member to the company, in pursuance of any of
the conditions and regulations of the company, shall
be deemed to be a
specialty debt due from such member to the company."
Section 10 thereof was a corresponding provision as to observance of the
conditions of the Memorandum of Association.
67. Provisions to the effect of s 14(3) were introduced into the companies
legislation in the United Kingdom and Australia, to set
at rest the doubt
expressed in Robinson's Executor's Case(52) that unpaid calls were simply not
specialty debts(53) and so subject
to the six year rather than 20 year
limitation period under the statute of 1623(54). However, in The Land
Mortgage Bank of Victoria
Ltd v Reid(55), Cussen J interpreted such a
provision in s 16 of the Companies Act 1890 (Vic) as applying only to moneys
payable
by a member "in his character as a member" rather than as including
moneys "payable by a person who happens to be a member".
68. Section 22 of the 1936 Act and s 33 of the 1961 Act were to the same
effect as the 1899 provisions, save that each now dealt
with both the articles
and the memorandum. In Australian Coal and Shale Employees' Federation v
Smith(56) of s 22 of the 1936 Act,
Jordan CJ said:
"The provision now contained in s 22 of the NSW CompaniesAct, 1936, that the Memorandum and Articles shall when registered bind the company and the members thereof to the same extent as if they respectively had been signed and sealed by each member and contained covenants on the part of each member to observe all the provisions of the Memorandum and Articles, which has the effect of obviating the necessity for the execution of a deed by the members of the company, first made its appearance in the English Joint Stock Companies Act of 1856, ss 9 and 10. The section does not say that the Memorandum and Articles are to operate as if they had been executed by, and had contained a similar covenant on the part of, the company; but it does say that they are to bind the company, and this should be perhaps regarded as a statutory application of the principle that a party who takes the benefit of a deed is bound by it though he does not execute it(57)".
69. Professor Sealy has observed of this legislation(58):
"(It) was enacted to cover a gap which was thought to havebeen created when the memorandum and articles replaced the deed of settlement in 1856; neither it nor all the subsequent theorising has any relevance to the present-day world".
70. In so far as the memorandum and articles, pursuant to such legislative
provision, constitute a contract between the company
and its individual
members or between the members inter se, the contract is of an unusual type.
First, the members are deemed to
have contracted on the basis that, since the
articles, and in general the memorandum, can be altered by special resolution
of the
company, the terms of the contract are variable from time to time
without agreement of both parties to that variation. Secondly,
there is no
jurisdiction in a court of Equity to rectify the articles of association even
if they do not accord with the concurrent
intention of all the signatories
thereof at the moment of signature; the articles may be amended only pursuant
to statutory authority(59).
Thirdly, the direct enforcement by a member of
rights under such a contract against the company may have to overcome
obstacles placed
in its path by the rule in Foss v Harbottle(60). Fourthly,
as Salmond J pointed out in Shalfoon v Cheddar Valley Co-operative Dairy
Co(61), whilst a contract binds those who made it and their personal
representatives, the articles in a company limited by shares
bind the owners
thereof for the time being and the obligations imposed by the deemed covenant
are appurtenant to the shares and pass
with ownership of them. Finally, the
view has been taken, not without doubt, that, in the absence of some other
statutory provision,
the effect of the decision in Houldsworth v City of
Glasgow Bank(62) is to preclude a member of a company limited by shares from
suing the company for damages for breach of contract whilst still a member and
without seeking rescission of the contract whereby
the shares were
obtained(63).
71. As Jordan CJ and Professor Sealy indicate in the above passages, the
perceived need for statutory provisions as to deemed covenants
arose in the
course of development in England of modern company law with incorporation by
registration and the displacement of earlier
forms of business organisation.
One of these organisations was conducted under a deed of settlement and with
some features of partnership
and some of trust. The term "company" may be
used to describe business associations, incorporated and unincorporated(64).
The unincorporated
joint stock company involved the use of a deed of
settlement containing covenants between the members and trustees, the effect
of
which was to oblige the trustees to refuse transfers by members of their
interests unless fresh covenants were obtained from the
transferees(65). In
this way the deed of settlement gave rise to a series of covenants binding the
members who sealed it. The Joint
Stock Companies Registration and Regulation
Act 1844 (UK)(66) adopted the existing method of formation of an
unincorporated joint
stock company by use of a deed of settlement and
superimposed incorporation as the consequence of statutory registration. As
Jordan
CJ pointed out in Australian Coal and Shale(67) in the passage set out
above, the Joint Stock Companies Act 1856 (UK)(68) introduced
the memorandum
and articles of association in place of the deed of settlement. However, the
inclusion of ss 9 and 10, the progenitors
of ss 10 and 14 of the 1899 Act and
other Australian legislation, evinced the intention, as a matter of form, to
preserve the link
with the old deed of settlement by carrying over contractual
notions to support what, in any event, would later come to be seen as
incidents of modern company law.
72. We have referred to several curiosities, if not difficulties, involved in
accommodating the contractual concepts apparently
preserved in the legislation
to other mechanisms of company law. This, in turn, led to decisions which
concentrated upon the specification
in the legislation of a deemed covenant
between the company and "the members thereof", being a deemed covenant to
observe the conditions
of the memorandum and conform to the regulations
contained in the articles.
73. Hence, there has been built up a body of authority in Australia, New
Zealand and the United Kingdom that the memorandum and
articles have no direct
contractual effect in so far as they purport to confer rights or obligations
on a member, otherwise than
in the capacity of a member. This concept is
expressed in such phrases as "qua member" and "member as such"(69). The point
is that
adumbrated by Cussen J in The Land Mortgage Bank of Victoria(70) that
the statute speaks of members whereas persons who are members
may also deal
with the company or be involved in its affairs in some further capacity as "an
outsider".
74. In addition to the special considerations applying to variation and
enforcement of the "statutory contract", the decisions of
the courts, at least
since that of Lord Cairns LC in Eley v Positive Government Security Life
Assurance Company(71), have displayed
a concern that persons becoming members
should not become bound to do something unrelated by their membership of a
company as a consequence
of a provision one would not expect to find in the
constitution of the company in question. In The Land Mortgage Bank of
Victoria(72),
Cussen J identified the primary function of the articles as
similar to that of by-laws, namely the provision of a series of enactments
to
govern the company in the administration of its affairs and to bind members in
that respect whilst they were members. Later, in
Hickman v Kent or Romney
Marsh Sheep-Breeders' Association(73), Astbury J distinguished rights which
are part of the general regulations
of the company applicable alike to all
shareholders from those provisions of articles said to create a contract
between a particular
member or members and the company.
75. This distinction has been criticised as not consistent with the earlier
English authorities(74), and as creating the difficult
distinction between a
member as a member and as an outsider(75). Nevertheless, on this appeal it
was not disputed that, where rights
are by the articles given to members in
some other capacity, reliance cannot be placed on the "statutory contract" as
the source
of contractual rights. The issue was whether Dr Bailey had been
party to such a statutory contract in respect of his policy.
76. The distinction drawn in Hickman became of added importance as business
and professional associations were organised in corporate
form. Examples
included co-operative associations of primary producers(76), groups of trade
unions(77), mutual insurance associations(78),
associations of sheep
breeders(79), and of taxi operators(80). In Australia, before and to some
extent after the enactment of the
strata title legislation, a corporate
structure was employed to apportion through the medium of the articles of
association the occupation
and enjoyment of buildings containing home units as
an alternative to co-ownership under real property law(81).
77. In some cases, where a corporation has been formed for such a special
purpose (for example, before modern trade practices legislation,
to implement
co-operative and marketing arrangements between primary producers), it has
been said that, by adopting the corporate
structure, the members must be taken
to have accepted that all their rights under the articles were the subject of
the "statutory
contract". These rights were said to extend, for example, to
the co-operative marketing arrangements. There was a deemed covenant
to
conform to all of the regulations contained in the articles, subject to the
provisions of the statute dealing with such matters
as change of the articles
by special resolution.
78. An example is the New Zealand decision of Gore Bros v Newbury Dairy
Co(82). The issue was whether the company could set-off
against a claim by a
member liquidated damages for breach of an obligation set out in the articles
to supply the company with the
whole of his milk production against payment at
a rate stated by way of liquidated damages in the event of default. The
company was
successful. Chapman J said(83):
"The subject, therefore, of the mutual rights andobligations of the company and of the shareholders qua shareholder-suppliers is intimately connected with the very purpose of the incorporation of the company; and the articles, as was clearly intended, can form and do form a contract between the company and the individual shareholder."
79. However, the broad trend of authority referred to above, particularly
since Hickman, has been to identify the subject-matter
of the "statutory
contract", so far as concerns the relations between the corporation and the
members, not as commercial rights but
as the government of the corporation and
the exercise of the constitutional powers of the corporation. Such matters as
inspection
of the register, the right to receive a share certificate, to vote,
to receive informative notice of meetings, to receive payment
of duly declared
and payable dividends, and the like, even where not specifically supported by
statutory provision, have been treated
as inherent in the relationship between
the corporation and its members(84).
80. The term "special contract" appears to have been coined by Lindley MR and
Romer LJ in Allen v Gold Reefs of West Africa, Limited(85).
The expression
has proved to be an unfortunate one. What it identifies is no more than a
contract which is not a "statutory contract".
That is to say, the expression
identifies a contract which is constituted otherwise than solely by the
articles unsupplemented by
any external facts. Once the relevant "statutory
contract" cannot be so found (which is, in our view, the position in the
present
case), then it is a question whether the evidence supports the finding
of the existence of a contract which, in truth, is ordinary
rather than
"special" in nature. Such a contract may, as this case illustrates, pick up in
a particular fashion provisions of the
articles.
81. The present case did not involve a "statutory contract" constituted
solely by the articles and unsupplemented by any external
facts. The
particular rights to indemnity upon which the Estate sues the Union could not,
consistently with Hickman(86), be described
as flowing from the general
regulations of the Union as applicable alike to all shareholders. The
attaining of the right to indemnity
had been dependent upon Dr Bailey making
the necessary application for membership and the payments which from time to
time were fixed
by the regulations as necessary for him to remain a financial
member with the appropriate level of protection. Further, and again
consistently with Hickman and the cases which have followed it, the
entitlement in Art 57 was not conferred upon members "as such".
This is so
despite the fact that, before the changes which were made in 1982 to its
constitution, the provision of malpractice insurance
may have been one of the
significant purposes sought to be achieved when the Union was incorporated.
82. In the light of these conclusions on the contract issue, as between the
Union and the Estate, the Estate should have the substance
to meet the
judgment against it in favour of Mr Crawford. The orders made by Enderby J
assist this result by providing for direct
payment by the Union to Mr
Crawford. Nevertheless, we should also deal with the alternative path pursued
by Mr Crawford, that which
led to success in the Court of Appeal. We turn
therefore to consider s 6 of the Law Reform Act.
Section 6 of the Law Reform Act
83. The ancestry of s 6 is found in New Zealand. It appears to commence with
s 42 of the Workers' Compensation Act 1908 (NZ). This
provided:
"(1) When any employer has entered into a contract with any insurer for an
indemnity in respect of any liability to pay compensation
or damages to any
worker, or to the representative or dependants of any worker, in respect of
any accident, then in the event of
the employer dying insolvent, or becoming
bankrupt, or making a composition or arrangement with his creditors, or, if
the employer
is a body corporate, in the event of that body corporate having
commenced to be wound up, the amount of that liability, whether already
determined or not, shall be a charge upon all insurance moneys which are or
may become payable in respect of that liability, or which
would be or become
payable in respect thereof had no such insolvency, bankruptcy, composition,
arrangement, or winding-up taken place.
(2) The said charge shall have priority over all other charges or claims
affecting the said insurance-moneys, and where the same
insurance-moneys are
subject to two or more charges by virtue of this Act those charges shall have
priority between themselves in
the order of the dates of the accidents out of
which the liability arose, and if two or more accidents happen to different
workers
on the same day the charges arising out of these accidents shall rank
equally between themselves.
(3) Such a charge shall be enforceable by way of an action against the
insurer by the worker or the representative or dependants
of the worker in the
same manner and in the same Court as if the action was against the employer
for compensation under this Act
or for damages, as the case may be; and in
respect of any such action, and of the judgment given therein, the parties
shall to the
extent of the charge have the same rights and liabilities, and
the Court shall have the same power, as if the action was against
the
employer.
(4) Such an action may be brought although judgment has been already
recovered against the employer for compensation or damages
in respect of the
same matter.
(5) This section does not apply when a body corporate is wound up
voluntarily merely for the purposes of reconstruction or amalgamation
with
another body corporate.
(6) Any payment made by an insurer under the contract of insurance without
actual notice of the existence of any such charge shall
to the extent of that
payment be a valid discharge to the insurer, notwithstanding anything in this
section contained.
(7) No insurer shall be liable under this section for any sum beyond the
limits fixed by the contract of insurance as between himself
and the
employer."
84. The 1908 statute was repealed by s 69 of the Workers' Compensation Act
1922 (NZ). Section 42 of the previous law was replaced
by s 48 of the 1922
Act, which was in the same terms.
85. Section 10 of the Motor-vehicles Insurance (Third-party Risks) Act 1928
(NZ) ("the 1928 Act") introduced a provision of like
nature(87). Sub-section
(1) stated:
"In the event of an owner dying insolvent or making a composition or
arrangement with his creditors, or, if the owner is a body
corporate, in the
event of proceedings being commenced for winding-up that body corporate, after
the happening of an accident giving
rise to a claim for damages in respect of
which the owner is indemnified by a contract of insurance under this Act, or
in the event
of an owner being bankrupt at the time of such accident or
thereafter becoming bankrupt, the amount of the owner's liability, whether
already determined or not, shall be a charge on all insurance-moneys which are
or may become payable in accordance with this Act
in respect of that
liability, or which would be or become payable in respect thereof had no such
insolvency, bankruptcy, composition,
arrangement, or winding-up taken place."
The balance of the section followed sub-ss (2)-(7) of s 48 of the Workers'
Compensation Act 1922 (NZ).
86. It was in this setting that general provision was then made in New
Zealand by the Law Reform Act 1936 (NZ) ("the 1936 New Zealand
Act"). Part
III thereof (ss 9, 10) was headed "Charges on Insurance-moneys payable as
Indemnity for Liability to pay Damages or
Compensation". Section 10 repealed
s 48 of the 1922 Act and s 10 of the 1928 Act. Their place was taken by s 9.
In speaking on
the Bill for the 1936 statute, the Attorney-General said(88):
"Part III simply consolidates some existing provisions, which provide that
where there is wrong perpetrated by a person who is
insured the injured person
can have a lien on the insurance-moneys. That already exists in the law in
respect of the Workers Compensation
Act, and also there are provisions in the
Motor-vehicles Insurance (Third-party Risks) Act in relation to the matter.
There was no
provision of that sort in regard to the Deaths by Accidents
Compensation Act, and instead of making a third provision the Law Draftsman
thought it better to consolidate them all and to make a general rule, which he
has done in Part III to cover all cases of that description."
Section 9(2) of the 1936 New Zealand Act dealt not only with the case of the
winding-up of a corporate insured but also with an insured
who had died
insolvent or who was bankrupt. The proviso to s 9(4) did not include the
words, later found in s 6(4) of the New South
Wales statute:
"Leave shall not be granted in any case where the court issatisfied 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."
87. As originally enacted, s 6(8) of the New South Wales statute stated:
"Nothing in this section shall affect the operation of any of the provisions
of the Workers' Compensation Act, 1926-1945, or the
Motor Vehicles (Third
Party Insurance) Act, 1942."
Section 18 of the Workers' Compensation Act 1926 (NSW) required compulsory
insurance by employers under a policy which provided that
the insurer, as well
as the employer, be directly liable to any worker insured under such policy.
Section 15 of the Motor Vehicles (Third Party) Insurance Act 1942 (NSW)
provided, in certain circumstances, for entry of judgment against the
authorised insurer in an action against the tortfeasor.
88. On the first reading of the Law Reform (Miscellaneous Provisions)
Bill(89), the Attorney-General spoke as follows of what became
s 6 of the New
South Wales Law Reform Act:
"(E)xcept in regard to workers' compensation and motorvehicles (third party) insurance, it is possible for an injured person to obtain a judgment against an insured person and yet be deprived of the fruits of that judgment, because there is nothing in the law to prevent the insured person collecting his insurance money and just disappearing. Similarly, there is nothing to prevent an insured person, when sued, going to his insurance company and releasing it from its liability to him on payment to him of a lump sum which he immediately dissipates or makes away with. ... The amendment imposes no additional liability on insurers, and will, I am confident, be accepted as just by insurance companies generally."
89. In Pattinson v General Accident, Fire, and Life Assurance Corporation,
Ltd(90), Myers CJ observed that s 9 of the 1936 New Zealand
Act imposed a
charge on the insurance-moneys in respect of the liability of the insured to
pay compensation or damages and that such
charge accrued as on the happening
of the event giving rise to the claim for damages for compensation. The point
had earlier been
made, in greater detail, by Blair J in Findlater v Public
Trustee and Queensland Insurance Co(91). His Honour construed s 10 of
the
1928 Act as follows:
"As Wiggs' negligence (he was the insured) has not yet beenestablished the amount of this charge is not fixed, but the charge though indefinite as to amount becomes fixed as soon as liability on Wiggs' part is established. Until it becomes fixed and there is only a possible liability the charge is in the nature of a floating charge liable to become fixed with its priority preserved as from the date of the accident."
90. Speaking of s 9 in National Insurance Co of New Zealand, Ltd v
Wilson(92), Johnston J said that the section imposed "on the
insurer an
obligation to keep intact the amount of its liability to the insured, whatever
it may be, so that the injured man is protected".
His Honour held that s 9(1)
did not fix the amount of the insurer's liability to the insured and
said(93):
"To find the amount one must go to the contract ofindemnity. It is true that the liability of the insured may be greater as in this case than the amount for which the insurer has indemnified him, and the total amount of the insurer's liability is made a charge on all insurance-moneys payable to him. But although the amount for which the charge can be made may exceed the insurer's liability, the liability is not measured by the charge. Subsection 7 makes sure of this, providing that no insurer shall be liable under that part of the Act for any sum beyond the limits fixed by the contract of insurance between himself and the insured. To find out, therefore, the amount payable by the insurer, resort must be had to the contract of insurance, and to it alone."
91. We should now set out the text of s 6 of the Law Reform Act:
"(1) If any person (hereinafter in this Part referred to as the insured)
has, whether before or after the commencement of this
Act, entered into a
contract of insurance by which he is indemnified against liability to pay any
damages or compensation, the amount
of his liability shall on the happening of
the event giving rise to the claim for damages or compensation, and
notwithstanding that
the amount of such liability may not then have been
determined, be a charge on all insurance moneys that are or may become payable
in respect of that liability.
(2) If, on the happening of the event giving rise to any claim for damages
or compensation as aforesaid, 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 subsection (1) shall apply notwithstanding the winding-up.
(3) Every charge created by this section shall have priority over all other
charges affecting the said insurance moneys, and where
the same insurance
moneys are subject to two or more charges by virtue of this Part those charges
shall have priority between themselves
in the order of the dates of the events
out of which the liability arose, or, if such charges arise out of events
happening on the
same date, they shall rank equally between themselves.
(4) Every such charge as aforesaid shall be enforceable by way of an action
against the insurer in the same way and in the same
court as if the action
were an action to recover damages or compensation from the insured; and in
respect of any such action and
of the judgment given therein the parties
shall, to the extent of the charge, have the same rights and liabilities, and
the court
shall have the same powers, as if the action were against the
insured:
Provided that, except where the provisions of subsection (2) apply, no such
action shall be commenced in any court except with
the leave of that court.
Leave shall not be granted in any case where the court is satisfied that the
insurer is entitled under the
terms of the contract of insurance to disclaim
liability, and that any proceedings, including arbitration proceedings,
necessary
to establish that the insurer is so entitled to disclaim, have been
taken.
(5) Such an action may be brought although judgment has been already
recovered against the insured for damages or compensation
in respect of the
same matter.
(6) Any payment made by the insurer under the contract of insurance without
actual notice of the existence of any such charge shall
to the extent of that
payment be a valid discharge to the insurer, notwithstanding anything in this
Part contained.
(7) No insurer shall be liable under this Part for any greater sum than that
fixed by the contract of insurance between himself
and the insured.
(8) Nothing in this section shall affect the operation of any of the
provisions of the Workers Compensation Act 1987 or the Motor
Vehicles (Third
Party Insurance) Act 1942."
The reference in s 6(8) to the Workers Compensation Act 1987, in lieu of to
the 1926 statute, was inserted by the Miscellaneous Acts
(Workers
Compensation) Amendment Act 1987 (NSW), s 3.
92. The construction of s 6 of the Law Reform Act has produced divisions of
opinion in the New South Wales Court of Appeal. These
are reflected not only
in the present case, but in Oswald v Bailey(94), Grimson v Aviation and
General (Underwriting)(95) and McMillan
v Mannix(96). The New South Wales
decisions, in turn, have been considered, in construing the New Zealand
legislation, by the New
Zealand Court of Appeal in FAI (NZ) General Insurance
v Blundell(97). Some of these decisions concerned limitation questions.
These
were not agitated before us. Rather, the focus of submissions was on
the proposition, advanced by the Union, that, on the proper
construction of s
6 and in light of the 1982 amendments to the Articles, in 1985 the Council had
been entitled to withdraw assistance
from the Estate. The result was said to
be that no insurance moneys are payable by the Union in respect of Dr Bailey's
liability
and no subject-matter exists upon which a charge could fix under s 6
in favour of Mr Crawford.
93. We turn then to consider the basic questions of construction of s 6 which
are raised by the case put by the Union.
The construction of s 6 of the Law Reform Act
94. That which is created by s 6(1) is given the name "charge". This invokes
an institution of the general law and suggests the
creation by force of the
statute of a security for the payment of a debt or the performance of some
other obligation(98). In such
cases, the obligation secured may be that of
the party giving the charge or a third party. The assignment of a presently
existing
legal chose in action by way of charge rather than an absolute
assignment by way of legal mortgage is well recognised. However,
in New South
Wales, this cannot be effected under s 12 of the Conveyancing Act 1919
(NSW)(99). Accordingly, the assignment by way of charge of a presently
existing chose in action is effective only in equity. Likewise,
an assignment
of part of a presently existing chose in action(100). Where the
subject-matter of the assignment is the future "fruit"
rather than the whole
or part of the presently existing "tree", value is necessary to render the
"future assignment" effective in
equity. The distinction is illustrated in a
number of decisions of this Court, most strikingly in Shepherd v Federal
Commissioner
of Taxation(101).
95. Section 6 is to be read against the background of these distinctions in
property law. However, what s 6 achieves is the creation of a new right with
an associated remedy to enforce it(102). The section does so by sweeping up
distinctions
in the general law between legal and equitable assignments of
whole or part of presently existing or future choses in action and
between
cases where value is required or inessential. By its own force, the statute,
in circumstances where it applies, creates,
on the happening of the event
giving rise to the claim for damages or compensation, a charge on all
insurance moneys which are then
payable in respect of the liability against
which the insured is indemnified and on all such insurance moneys that may
become payable
in respect of that liability.
96. That the charge arises on the happening of the event giving rise to the
claim for damages or compensation is apparent not only
from s 6(1) itself, but
from sub-ss (2) and (3). If, on the happening of that event, the insured is
being wound up, the charge arises and applies
notwithstanding the currency of
the winding up; likewise, if a later winding up is deemed to have commenced
not later than the happening
of that event, the charge nevertheless applies (s
6(2)). These provisions protect and advance the interests of the claimant.
So also does the conferring by s 6(3) of priority over all other charges
affecting the insurance moneys.
97. Where the same insurance moneys are subject to two or more charges
created by s 6, they have priority between themselves in order of the dates of
the events out of which the liability arose (s 6(3)).
98. The obligations, the performance of which s 6 seeks to secure, are not
only payment by the insurer to the insured of all insurance moneys that are or
may become payable, but also
the performance by the insured of the obligation
to pay damages or compensation to the claimant in discharge of the liability
of
the insured to the claimant.
99. This is achieved by creating in favour of the claimant a charge on all
insurance moneys that are or may become payable in respect
of the liability of
the insured to pay damages or compensation to the claimant. The liability to
pay damages may sound in a sum
which is greater (or less) than that of the
insurance moneys. That is to say, the obligation the performance of which is
secured
by the charge may be greater (or less) than the value of the security
provided by the statute.
100. Although the claimant is a stranger to the contract between the insurer
and the insured(103), the charge created by the section
is enforceable, by
reason of s 6(4), by way of an action by the claimant against the insurer.
This action is to be maintained in the same way and in the same court as
if it
were an action by the claimant to recover damages or compensation from the
insured. Moreover, in respect of that action and
of the judgment given
therein, the parties to it, the claimant and the insurer, have, to the extent
of the charge, the same rights
and liabilities and the court has the same
powers as if the action were brought by the claimant against the insured. In
most circumstances,
the action cannot be commenced save with leave of the
court.
101. The action by the claimant against the insurer may be brought even
though judgment has already been recovered by the claimant
against the insured
for damages or compensation in respect of the same matter (s 6(5)).
Nevertheless, the position of the insurer is guarded in several ways against
the consequences of exposure to the direct action by
the claimant created by s
6. First, there is the leave requirement. Secondly, as already indicated, the
insurer has the same rights against the claimant as if
the action were brought
by the claimant against the insured. Thirdly, if the contract of insurance
between the insurer and the insured
fixes the greatest sum for which the
insurer may be liable to be insured, then in the action brought by the
claimant against the
insurer the insurer shall not be liable for any greater
sum (s 6(7)). This protects the insurer in cases where the amount of the
liability of the insured to the claimant exceeds the insurance moneys.
Fourthly, any payment made by the insurer under the contract without actual
notice of the existence of the charge is, as between
the claimant and the
insurer, a valid discharge to the insurer, to the extent of the payment (s
6(6)).
102. The reference in s 6(7) to the contract of insurance is, in our view,
that contract referred to in s 6(1) by which the insured is indemnified on the
happening of the event giving rise to the claim for damages or compensation.
It is not
that contract identified in s 6(1) as varied or replaced by
unilateral or mutual action of the insurer and insured in the interval between
the happening of the event
giving rise to the claim for damages or
compensation (and thus to the charge) and some later date, such as the
recovery of judgment
in the action by the claimant to enforce the charge
against the insurer.
103. That is not to say that the contract may not, at the time the charge
arises, contain provisions conferring rights which, in
the events which have
already happened or which later happen, are exercisable by the insurer against
the insured. But those rights,
whenever exercised, draw their life from the
contract at the time when the charge descended, not from any subsequent
variation or
replacement of that contract.
104. It is now possible to come to the central issue of construction of s 6
which arises on this appeal. It is necessary first to turn to the text of the
last sentence in s 6(4). This states:
"Leave shall not be granted in any case where the court issatisfied 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."
105. This provision is not directing the court that leave be denied only in a
case where it is satisfied both of entitlement to
disclaim liability and that
necessary steps have been taken to establish entitlement to do so. Leave may
be refused in other cases
but must be refused in these cases. What the
sentence does suggest is that, if there is an entitlement to disclaim, there
may be
no moneys which are or may become payable in respect of the liability
of the insurer to the insured and thus nothing upon which the
charge specified
in s 6(1) can operate.
106. The phrase in s 6(4) is "the insurer is entitled under the terms of the
contract of insurance to disclaim liability". A clear example of such
entitlement
would be a disclaimer under the general law right to rescind for
non-disclosure(104). Another instance would be the exercise of the
right to
avoid the contract of insurance given the insurer in certain cases of
non-disclosure and misrepresentation by s 28 of the Insurance Contracts Act
1984 (Cth)(105).
107. However, the terms of s 6(4) of the Law Reform Act are apt to include
more than avoidance by reason of some vitiating factor
in the formation of the
contract
of insurance. For example, in McMillan v Mannix(106), a provision of
the policy of insurance required
the co-operation of the insured
in the event
of a claim; such co-operation was a condition precedent to liability and
breach of it
was a basis for disclaiming liability.
It was true that the
relevant event, failure to co-operate in the event of a claim, occurred
only
after, in the terms of s 6(1),
"the happening of the event giving rise to the
claim for damages or compensation". Nevertheless,
the entitlement to disclaim
liability
was conferred by the contract as it stood at the earlier date,
albeit the entitlement became
exercisable only after the happening
of a later
event. In McMillan v Mannix, the New South Wales Court of Appeal, by
majority, held,
correctly in our view, that there
were no insurance moneys
which were or might become payable in the sense of s 6(1) of the Law Reform
Act.
108. It is necessary now to return to the text of s 6(1). As we have
indicated, the charge is created, by force of the legislation,
on the
happening of the event giving rise to the claim for damages. It is expressed
to be a charge on all insurance moneys that
are payable in respect of that
liability. That clearly would cover the case where the terms of the policy and
the events that had
happened were such that it could be said that a particular
sum was payable by the insurer to the insured. In that state of affairs,
the
charge has an immediate operation upon an existing and quantified obligation
of the insurer to make payment to the insured.
However, even though all other
necessary facts and circumstances for the insured to have a present right to
receive payment may exist,
the contract of insurance may be liable to
avoidance for non-disclosure or misrepresentation. Then there can be no
moneys payable
and thus nothing upon which the charge may operate at any time.
Thus, in substance, it may be accurate to say that the charge mentioned
in s
6(1) never comes into existence.
109. The phrase in s 6(1), "insurance moneys that ... may become payable", is
apt to deal with the situation where, whilst the charge
has descended, there
is as yet no sum which could be identified as presently payable by the insurer
to the insured. In such a case,
the statutory charge operates, by loose
analogy to an agreement for a charge on after-acquired property, upon such
moneys as and
when they do become payable. However, there will be nothing in
respect of which the charge may be enforced if the moneys never become
payable
by reason of the exercise by the insurer of rights to avoid the contract or of
a vitiating factor in its formation. So also
in the case of a breach which,
pursuant to the terms of the contract(107) or the general law, entitles the
insurer to disclaim liability
and this state of affairs exists when action is
brought by the claimant under s 6(4) or, as necessary, leave is sought to
commence
that action. In all these cases, there were no insurance moneys which
were payable when the charge arose and none have become payable.
110. However, once the charge has descended on the happening of the event
giving rise to the claim for damages or compensation,
no mutual or unilateral
action of insurer or insured which is taken otherwise than under or pursuant
to the contract of insurance
or the general law as it operates upon the
contract may vary, discharge or otherwise qualify or abrogate the contract of
insurance
so as to deny to the claimant what otherwise would be the fruits of
enforcement of the charge by action taken under s 6(4) against
the insurer.
The contract of insurance is that as it stood when the charge descended. Nor,
after the charge has descended, is it
open to the insurer to rely upon a
payment made under the contract to the insured, unless the payment was made
without actual notice
of the existence of the claimant's charge (s 6(6)). In
these ways the position of the claimant is protected.
111. In the present case, in the Court of Appeal the steps taken by the Union
in 1982 and 1985 were characterised by the President(108)
as including
reconstruction by the Union of itself as a non-insurer, retrospective
abolition of the contract of insurance, retrospective
repeal of the indemnity
against liability to Dr Bailey and, as a consequence, the destruction of what
otherwise would have been "all
insurance moneys" and reduction to nil of the
"sum ... fixed by the contract of insurance" within the meaning of s 6(1).
112. However, the conclusion reached on the first branch of the case has the
consequence that the steps in question were taken unilaterally
by the Union
and not under or in pursuance of the contract of insurance between the Union
and Dr Bailey. Accordingly, they were ineffective
to deprive the charge which
had arisen in 1974 of its operation upon the insurance moneys that, under the
contract of insurance as
so construed, are payable to the Estate.
113. The charge was available for enforcement by Mr Crawford in the action
instituted under s 6(4) against the Union.
Conclusions
114. In the appeal by the Estate against the Union, No S200 of 1994, the
following orders should be made. The appeal should be
allowed. There should
be set aside the orders of the Court of Appeal which allowed appeal No
40127/92 to that Court and which set
aside orders (2), (4) and (5) in matter
17289/80 and in lieu thereof ordered that the cross-claim by the Estate
against the Union
be dismissed and that the Estate pay the costs of the Union
of that cross-claim. This Court should order that, in place of those
orders of
the Court of Appeal, orders (1) to (5) of Enderby J entered on 8 July 1992 be
restored save that in orders (2) and (5)
"$500,000" should be "$312,000".
This reflects both the finding in the Court of Appeal that $500,000 "was a
slip and did not correctly
express the decision of the primary judge", and the
conclusion reached in this Court that the applicable limit was $250,000 not
$500,000,
upon the proper construction of Art 57. Finally, the Union should
pay the costs of the Estate of the appeal to the Court of Appeal
and to this
Court.
115. In appeal No S205 of 1994, that by the Union against Mr Crawford, the
appeal should be allowed to the extent necessary to enable
an order to be made
by this Court that the sum of $312,000 be substituted for that of $562,000,
and a declaration to be made that
payment by the Union of that amount be
deemed satisfaction of the order in the other proceeding that the Union pay
the Estate the
sum of $312,000. Otherwise, the appeal should be dismissed.
The Union should pay the costs of Mr Crawford.
Footnotes
1 Oswald v Bailey (1987) 11 NSWLR 715.
2 See Australian Coal and Shale Employees' Federation v Smith (1937) 38
SR(NSW) 48 at 54-55 and now Companies (New South Wales)
Code 1981, s 78(1) and
Corporations Law, s 180(1). See also Beattie v E and F Beattie Ltd (1938) Ch
708 at 721.
3 See Allen v Gold Reefs of West Africa Limited (1900) 1 Ch 656 at 672-674.
4 See Hickman v Kent or Romney Marsh Sheep-Breeders' Association (1915) 1 Ch
881 at 899-900.
5 (1900) 1 Ch 656 at 673.
6 See Hickman v Kent or Romney Marsh Sheep-Breeders' Association (1915) 1 Ch
881 at 900.
7 (1889) 1 Megone 385.
8 (1893) 2 Ch 311.
9 (1900) 1 Ch 656 at 673.
10 See Allen v Gold Reefs of West Africa Limited (1900) 1 Ch 656 at 671;
Peters' American Delicacy Co Ltd v Heath
[1939] HCA 2; (1939) 61 CLR
457; Gambotto v WCP Ltd
[1995] HCA 12; (1995) 182 CLR 432; cf Gra-Ham Australia Pty Ltd v Perpetual Trustees WA
Limited
(1989) 1 WAR 65.
11 (1904) 1 Ch 374.
12 Baily v British Equitable Assurance Company (1904) 1 Ch 374 at 384-385.
13 (1900) 1 Ch 656.
14 British Equitable Assurance Company Limited v Baily (1906) AC 35.
15 [1922] HCA 20; (1922) 30 CLR 315.
16 Heron v Port Huon Fruitgrowers' Co-operative Association Ltd [1922] HCA 20; (1922) 30 CLR
315 at 341-342.
17 (1924) NZLR 561.
18 Shalfoon v Cheddar Valley Co-operative Dairy Co Ltd (1924) NZLR 561 at
580.
19 (1931) NZLR 216. See also Black White and Grey Cabs Ltd v Reid (1980) 1
NZLR 40.
20 See CE Heath Underwriting and Insurance (Aust) Pty Ltd v Edwards Dunlop
and Co Ltd (1993) 176 CLR 535 at 546.
21 Oswald v Bailey (1987) 11 NSWLR 715. An application by the Union seeking
special leave to appeal to this Court was refused on
19 February 1988.
22 NSW Medical Defence Union v Crawford (1993) 31 NSWLR 469.
23 (1993) 31 NSWLR 469 at 509.
24 (1938) 39 SR(NSW) 12 at 16; appeal dismissed [1939] HCA 21; (1939) 61 CLR 534.
25 (1927) 2 KB 9. See also the discussion of this case by Priestley JA in
Oswald v Bailey (1987) 11 NSWLR 715 at 740.
26 6th ed (1902) at 456.
27 13th ed (1929) at 37.
28 (1931) NZLR 216 at 244.
29 (1898) 1 Ch 324; see also In re City Equitable Fire Insurance Co (1925) Ch
407 at 520-521.
30 (1924) NZLR 561 at 579-580.
31 (1889) 1 Megone's Com Cas 385.
32 (1898) 1 Ch 324.
33 (1892) 2 Ch 158 at 167.
34 In re Standard Salt and Alkali Limited; Ex parte Lahiff (1934) SASR 168 at
171.
35 (1993) 31 NSWLR 469 at 513.
36 cf C E Heath Underwriting and Insurance (Aust) Pty Ltd v Edwards Dunlop
and Co Ltd (1993) 176 CLR 535 at 545-546.
37 (1993) 31 NSWLR 469 at 493, 535-536.
38 (1993) 31 NSWLR 469 at 536.
39 (1938) 39 SR(NSW) 12.
40 [1939] HCA 21; (1939) 61 CLR 534.
41 (1938) 39 SR(NSW) 12 at 14.
42 (1938) 39 SR(NSW) 12 at 14.
43 (1938) 39 SR(NSW) 12 at 13.
44 (1938) 39 SR(NSW) 12 at 16-17.
45 (1938) 39 SR(NSW) 12 at 18.
46 [1939] HCA 21; (1939) 61 CLR 534 at 554.
47 Swabey v Port Darwin Gold Mining Co (1889) 1 Megone's Com Cas 385;
McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48
CLR 457 at 476-477;
Westralian
Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd [1936] HCA 6; (1936) 54 CLR
361 at
380, 386; Elkhoury v Farrow Mortgage
Services Pty Ltd (in liq) [1993] FCA 264; (1993)
114 ALR 541 at 546-547; Victrawl Pty Ltd v Telstra Corporation
Limited,
unreported, High Court of
Australia, 3 October 1995
at 27-28 per Deane,
Dawson, Toohey and Gaudron JJ; cf British Equitable
Assurance Company, Limited
v Baily
(1906) AC 35.
48 [1936] HCA 6; (1936) 54 CLR 361 at 386.
49 cf Eltham Co-operative Dairy Factory Co, Ltd v Johnson (1931) NZLR 216 at
246.
50 cf Medical Defence Union Ltd v Department of Trade (1980) Ch 82.
51 (1987) 11 NSWLR 715.
52 (1856) 6 De G M and G 572 (43 ER 1356).
53 Buck v Robson (1870) LR 10 Eq 629 at 631.
54 Halsbury's Laws of England, 2nd ed, vol 20, par 824.
55 (1909) VLR 284.
56 (1937) 38 SR(NSW) 48 at 54-55; cf In re Compania de Electricidad de la
Provincia de Buenos Aires Ltd (1980) Ch 146 at 187.
57 Norton on Deeds, 2nd ed (1928) at 26.
58 Cases and Materials in Company Law, 5th ed (1992) at 96.
59 Scott v Frank F Scott (London), Ltd (1940) Ch 794.
60 [1843] EngR 478; (1843) 2 Hare 461 (67 ER 189). See Ford's Principles of Corporations Law,
7th ed (1995), pars 6.120-6.130; Drury, "The Relative
Nature of a
Shareholder's Right to Enforce the Company Contract", (1986) Cambridge Law
Journal 219 at 237-244.
61 (1924) NZLR 561 at 580.
62 (1880) 5 App Cas 317.
63 See Webb Distributors (Aust) Pty Ltd v Victoria (1993) 179 CLR 15 at
30-33.
64 In re Stanley, Tenant v Stanley (1906) 1 Ch 131 at 134.
65 Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd [1987] FCA 332; (1987) 78 ALR 193
at 229-230; Cornish and Clark, Law and Society in England
1750-1950, (1989) at
246-251; Sealy, "The Director as
Trustee", (1967) Cambridge Law Journal 83 at
84-86.
66 7 and 8 Vict c 110.
67 (1937) 38 SR(NSW) 48 at 54-55.
68 19 and 20 Vict c 47. Similar provision to ss 9 and 10 of the 1844 statute
was made by the Companies Act 1862 (UK), s 16.
69 Hickman v Kent or Romney Marsh Sheep-Breeders' Association (1915) 1 Ch
881; Heron v Port Huon Fruit-Growers' Co-operative Association
Ltd [1922] HCA 20; (1922) 30
CLR 315 at 338-340; Australian Coal and Shale (1937) 38 SR(NSW) 48 at 57;
Beattie v E and F Beattie,
Ltd (1938) Ch
708
at 721; Black, White and Grey
Cabs Limited v Gaskin (1971) NZLR 552 at 556.
70 (1909) VLR 284.
71 (1876) 1 Ex D 88.
72 (1909) VLR 284 at 288-289.
73 (1915) 1 Ch 881 at 900.
74 Gregory, "The Section 20 Contract", (1981) 44 Modern Law Review 526.
75 Drury, "The Relative Nature of a Shareholder's Right to Enforce the
Company Contract", (1986) Cambridge Law Journal 219 at 225-229;
Welling,
Corporate Law in Canada. The Governing Principles, 2nd ed (1991) at 61-64.
76 Gore Bros v Newbury Dairy Co (1919) NZLR 205; Shalfoon v Cheddar Valley
Co-Operative Dairy Co Ltd (1924) NZLR 561; Eltham Co-operative
Dairy Factory
(1931) NZLR 216; Heron v Port Huon Fruit-Growers' Co-operative Association Ltd
[1922] HCA 20; (1922) 30 CLR 315; Pakenham
Upper Fruit
Co Ltd v Crosby [1924] HCA 55; (1924) 35 CLR 386 at
400.
77 Australian Coal and Shale (1937) 38 SR(NSW) 48.
78 Lion Insurance Association v Tucker (1883) 12 QBD 176; In re Bangor and
North Wales Mutual Marine Protection Association. Baird's
Case (1899) 2 Ch
593.
79 Hickman (1915) 1 Ch 881.
80 Black, White and Grey Cabs Limited (1971) NZLR 552.
81 Crumpton v Morrine Hall Pty Ltd (1965) NSWR 240; Magill v Santina Pty Ltd
(1983) 1 NSWLR 517.
82 (1919) NZLR 205.
83 (1919) NZLR 205 at 208.
84 See Gower's Principles of Modern Company Law, 5th ed (1992) at 286; Ford's
Principles of Corporations Law, 7th ed (1995) par
6.370; Farrar's Company Law,
3rd ed (1991) at 122-127.
85 (1900) 1 Ch 656 at 673-674, 679. See the analysis of these judgments by
Priestley JA in Oswald v Bailey (1987) 11 NSWLR 715
at 737-739. This aspect
of Allen was not material in Gambotto v WCP Ltd [1995] HCA 12; (1995) 69 ALJR 266; 127 ALR
417.
86 (1915) 1 Ch 881 at 897.
87 See Findlater v Public Trustee and Queensland Insurance Co (1931) GLR
291.
88 New Zealand, Parliamentary Debates, 17 September 1936 at 237.
89 New South Wales, Legislative Assembly, Parliamentary Debates, 5 March
1946, 2nd series, vol 179 at 2456.
90 (1941) NZLR 1029 at 1039.
91 (1931) GLR 291 at 293.
92 (1941) NZLR 639 at 644.
93 (1941) NZLR 639 at 644-645.
94 (1987) 11 NSWLR 715.
95 (1991) 25 NSWLR 422.
96 (1993) 31 NSWLR 538.
97 (1994) 1 NZLR 11.
98 Handevel Pty Ltd v Comptroller of Stamps (Vict) [1985] HCA 73; (1985) 157 CLR 177 at
192.
99 Tancred v Delagoa Bay and East Africa Railway Co (1889) 23 QBD 239;
National Mutual Life Nominees Ltd v National Capital Development
Commission
(1975) 6 ACTR 1 at 4-5.
100 Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385.
101 [1965] HCA 70; (1965) 113 CLR 385.
102 See Pasmore v Oswaldtwistle Urban Council (1898) AC 387; Josephson v
Walker [1914] HCA 68; (1914) 18 CLR 691; Houston v Dewi
Thomas Pty Ltd
(1967) VR 300.
103 cf Trident General Insurance Co Ltd v McNeice Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR
107.
104 Khoury v Government Insurance Office (NSW) [1984] HCA 55; (1984) 165 CLR 622 at 635-638;
Banque Keyser SA v Skandia (UK) Insurance
(1990) 1
QB 665 at 778-781; affd
(1991) 2 AC 249 at 280.
105 Part IV, Div 3 of that statute comprises ss 28-33. Section 33 states that
the provisions of the division are exclusive of any
right that the insurer has
otherwise than under the statute in respect of a failure by the insured to
disclose a matter to the insurer
before the contract was entered into and in
respect of a misrepresentation or incorrect statement.
106 (1993) 31 NSWLR 538.
107 cf Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers
Ltd [1936] HCA 6; (1936) 54 CLR 361 at 379-380.
108 (1993) 31 NSWLR 469 at 481-482.
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