Abstract

Whether a party is added as insured. Commercial practicality of single policy for several parties. Appeal on construction. Extrinsic evidence. Effect of negotiations and proposal on construction. Definitions. Avoidance of nugatory effect of term. Correction by construction. Writing compared with printed terms.

Article

In McMurray v AIG Insurance Australia Ltd [2018] WASC 144, affd Tokio Marine & Nichido Fire Insurance Co Ltd -v- Holgersson [2019] WASCA 114, it was found that 'named' in a definition of 'You, Your, Insured' in the printed standard form of a policy does not necessarily indicate an intention to mean named by a proper noun. The cover applied to a subcontractor notwithstanding that in the printed standard form subcontractors were referred to as insureds with the qualification, 'not being You but being a legal entity with whom You have entered into a contract and provided their interests are required to be insured jointly by You, and then only to the extent required by the terms set out in the Contract, and only in respect of the work performed as part of the Project.' This was not a reason to qualify the description of the insured in the Schedule, which is a document drawn specifically to deal with the particular insurance contract, or to give that description in its extension of coverage any meaning other than its plain meaning, particularly as many parts of the standard policy did not apply to the particular claim. That the Schedule’s specific extension of coverage to all principals, contractors and sub-contractors might render certain provisions of the policy terms redundant is not a reason to limit its description. This was considerably affected by the complex language issues of the particular policy.

Where numerous different sub-contractors may be engaged in a building or engineering contract, it is convenient for all, including the insurer, to allow the head contractor to take out a single policy covering all contractors and sub-contractors in respect of loss of or damage to the entire contract works. This affects the element of commercial practicality in the construction of this feature of such a policy: Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127, 136, Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 [124], [172], Co-operative Bulk Handling Ltd v Jennings Industries Ltd (1996) 17 WAR 257, 269;  Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380 [389]: Tokio Marine & Nichido Fire Insurance Co Ltd -v- Holgersson [2019] WASCA 114.

On an appeal on construction, it is necessary to show only that a different result is to be preferred rather than to demonstrate specific error. An instrument has only one true construction, the task of an appeal court is to determine it: Life Insurance Company of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60, 78 - 79; Minister for Immigration and Border Protection v SZVFW [2018] HCA 30; (2018) 92 ALJR 713 [154]; Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80 [172]; Tokio Marine & Nichido Fire Insurance Co Ltd -v- Holgersson [2019] WASCA 114.

Though considerable respect must be paid to the text as chosen by the parties, extrinsic evidence of background facts known to the parties may help to identify the commercial purpose where it  is clarified by the genesis of the transaction, its background, the context and the market in which the parties are operating. It may also assist in making a constructional choice, but whether it can be used to identify the existence of the constructional choice remains undetermined. It cannot include statements and actions of the parties reflecting their actual intentions and expectations. It cannot be adduced to contradict the plain meaning of an expression which is unambiguous and susceptible of only one, but if another instrument or statutory provision is referred to, expressly or impliedly, it can be considered, even in the absence of  ambiguity: Black Box Control Pty Ltd v TerraVision [2016] WASCA 219 [42]; Tokio Marine & Nichido Fire Insurance Co Ltd -v- Holgersson [2019] WASCA 114.

Because of the objective theory of contract, while pre-contractual negotiations between the parties, including the terms of a proposal whicch is not incorporated into the policy, might be relevant to rectification, it is not so for the process of construction: Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11 [6] ‑ [10], where it involves a search for the meaning of what the parties said in the instrument, not for what they meant to say: Australian Broadcasting Commission v Australasian Performing Right Association Ltd  (1973) 129 CLR 99, 109; Byrnes v Kendle (2011) 243 CLR 253 [98] ‑ [99]. But they may be admissible for the purpose of demonstrating knowledge of surrounding circumstances: Byrnes v Kendle (supra). A proposal does not have an equal status with the contract so that a meaning of the policy will be rejected because it is inconsistent with the proposal. On  the other hand, the Schedule and the Policy Wording must be read together: Tokio Marine & Nichido Fire Insurance Co Ltd -v- Holgersson [2019] WASCA 114.

A definition does not have substantive effect apart from the operative provisions in which it is used. They are read by its insertion into them: Tokio Marine & Nichido Fire Insurance Co Ltd -v- Holgersson [2019] WASCA 114.

A court will strain against a construction which causes a part of the contract to be nugatory or ineffective, particularly if can bear a compatible meaning: Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402, 411; Sigiriya Capital Pty Ltd v Scanlon [2013] NSWCA 401; (2013) 97 ACSR 183 [30];  Australia and New Zealand Banking Group Ltd v Manasseh [2016] WASCA 41 [237]; George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287 [88]; Hayne v Cummings (1864) 143 ER 1191, 427. This may have less influence if, for example, the drafting technique is an impediment to the search for internal coherence and consistencyby repetition and redundancy with the evident intention of ensuring that nothing is left out: Norwich Union Life Assurance Society v British Railways Board (1987) 2 EGLR 137; Guardian Assurance Co Ltd v Underwood Constructions Pty Ltd (1974) 48 ALJR 307, 308; Arbuthnott v Fagan [1995] CLC 1396, 1399, 1404; Central Australian Aboriginal Congress Inc v CGU Insurance Ltd [2009] NTCA 1 [47]; Montclare v Metlife Insurance Ltd [2016] VSCA 336; (2016) 344 ALR 685 [4], or where there has been a series of ad hoc variations which have the same effect, or in a commercial contract consisting of a jumble of ill-assorted documents: Guardian Assurance Co Ltd v Underwood Constructions Pty Ltd (1974) 48 ALJR 307, 308; Montclare v Metlife Insurance Ltd [2016] VSCA 336; (2016) 344 ALR 685 [4]. And even entire provisions can be rejected or treated as superfluous if they are inconsistent with or repugnant to the objective intention or the purpose revealed by the instrument as a whole: Gwyn v Neath Canal Navigation Co (1868) LR 3 Ex 209, 215; Glynn v Margetson & Co [1893] AC 351, 357; Dainford Ltd v Smith (1985) 155 CLR 342, 364; Dodds v Kennedy [No 2] (2011) 42 WAR 16 [28], [62]. The avoidance of ineffectiveness is a preference, not an absolute rule. The weight to be given to it will depend on all the terms and the relevant background context facts: CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123 [131]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; Tokio Marine & Nichido Fire Insurance Co Ltd -v- Holgersson [2019] WASCA 114

A court may generally supply, omit or correct words as a matter of construction if there is an obvious error and it is clearly necessary in order to avoid absurdity or inconsistency: Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426; Adams v Lambert (2006) 228 CLR 409 [21]; McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 53; Watson v Phipps (1986) 60 ALJR 1, 3. It is necessary that the literal meaning of the words be an absurdity and that the intended objective intention is is self-evident, that is, both the mistake and the nature of the correction: Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633;, National Australia Bank Ltd v Clowes [2013] NSWCA 179; Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429; [2011] 1 WLR 770 at [21]; Arnold v Britton [2015] AC 1619; [2015] UKSC 36 at [78]. The test of absurdity is not easily satisfied: Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297 at [18]. It must be identified by reference to the text in its factual and legal context: Wyllie v Tarrison Pty Ltd [2007] NSWCA 184 at [46]; Newey v Westpac Banking Corporation [2014] NSWCA 319 at [85]; Tokio Marine & Nichido Fire Insurance Co Ltd -v- Holgersson [2019] WASCA 114. Defects in contractual language commonly reflect the tide of negotiations or the difficulty in the resolution of some obscurities. But the court does not readily accept that parties to formal documents have made mistakes in them: Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101 at [23].

 

Generally, terms in writing are given greater weight than pre‑printed terms: Dodds v Kennedy [No 2] (2011) 42 WAR 16 [25]; Hume Steel Ltd v Attorney‑General (Vic) (1927) 39 CLR 455, 462 - 463, 465; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11 [6] ‑ [10]; Wilson v Wilson 10 ER 811 at 822.