Abstract

Article

Advance of Costs despite Denial of Cover for Claim

In Evolution Precast Systems Pty Ltd v Chubb Insurance Australia Limited [2020] FCA 1690 it was held, unsurprisingly, that when the promise as to indemnity for costs was limited to the insured’s liability for Compensation indemnifiable under the Policy, and the insurer relied on an exclusion, in the absence of any provision for the advance of costs in the event of dispute until its determination, the insurer could not be required to do so. This was a different issue from the requirement of the insurer to provide indemnity as and when the insured’s liability for costs were incurred, or to pay them whether the claim against the insured would be successful: these issues were both premised on the cover’s accepted application to the claim. The provision would be in contrast with a well known express provision for the advance of costs despite the insurer’s challenge to cover of the claim and its associated provision for reimbursement if in the end the claim were not covered.

 

Reference to ‘Amendment’ – Repeal and Replacement of Legislation

If the words of a provision refer to a state of affairs consequent on an action taken under an Act and subsequent amendments, the words, ‘and subsequent amendments’, do not encompass replacement legislation. The word “amendments” when used with reference to a specific Act refers to legislative changes made to that Act. In their ordinary meaning, the words are unambiguous, and ordinary principles of contractual construction would not permit of their being stretched to the extent of meaning any successor legislation, which might be different in relevant respects. Risley v Gough [1953] Tas SR 78 at 79; Attorney-General of Western Australia v Marquet [2003] HCA 67; (2003) 217 CLR 545 at 564 [46]; [2003] HCA 67. The result would have been otherwise if the language had also referred to the Act’s successor, a method which is sometimes used. The Acts Interpretation Act 1901 (Cth) has no application  because it concerns statutory rather than contractual, construction, and as the issue is the meaning of the reference to an Act in the terms of a contract, the Acts Interpretation Act did not purport to apply to it. HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296

Construction to Correct Mistake

Despite that the parties were mutually mistaken as to a circumstance, their agreement concerning it does not mean that their language reflected any mistake in the expression of their intention,  and it would be irrelevant to its construction. Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70; QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166. The natural and ordinary meaning of their words may produce an uncommercial result but it may not involve an absurdity through absence of possible effectiveness sufficient to justify a departure from their ordiinary meaning if the provision still has a sensible, if limited, operation in respect of the matter. Suspicion of mistake is insufficient.

The court must give effect to their intention as expressed by ascertaining the meaning of the words actually used. Inland Revenue Commissioners v Raphael [1935] AC 96 at 142. It must be objectively ascertained by reference to what a reasonable person in the position of the parties: Australian Casualty Co Ltd v Federico (1986) 160 CLR 513; [1986] HCA 32 would have understood them to convey: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40]; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] because their agreed legal rights and obligations turn upon what their words and conduct would reasonably be understood to convey: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55 at [34]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35; Gissing v Gissing [1970] UKHL 3; [1971] AC 886 at 906; Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 502.

The language is construed according to its natural and ordinary meaning: Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 at 510-511. The inquiry will start, and usually finish with that. To force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made. This is an illegitimate role for a court. Charter Reinsurance Co Ltd v Fagan [1997] AC 313 per Lord Mustill.  The Court does not substitute, by way of construction, its own commercial judgment for that of the parties. The Court also does not weigh the importance of conditions which the parties have put into their contracts: see Bowes v Chaleyer [1923] HCA 15; (1923) 32 CLR 159 at 191; [1923] VicLawRp 26; [1923] VLR 295. Where it is unambiguous, the language cannot be ignored simply to reach an apparently more commercially convenient result: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109; [1973] HCA 36; HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296.

The principle of correction does not apply when the parties wrote what they in fact intended because they mutually misunderstood the true situation. The process of construction may be used to correct a mistake by the parties only if the language is literally inconsistent with the parties’ objective intention as ascertained through the ordinary principles of construction. Such inconsistency does not necessarily follow merely because their intention was formed and expressed on the basis of an incorrect assumption. Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53; Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009] UKHL 38.

In ordinary communication, mistakes in the use of language may occur, but because  contracts are formal documents, courts do not readily accept that mistakes have been made in their drafting: Chartbrook Ltd v Persimmon Homes Ltd (supra). Nevertheless, it is recognised that this will occasionally occur, and their correction by interpretation is part of interpreting a contract in order to find as closely as possible the parties intended meaning: KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336 at 1351; Chartbrook at [23]. But this can be ascertained only objectively, in accordance with principle. If that reveals that its literal meaning differs from the intended meaning, the latter prevails. Wilson v Wilson (1854) 10 ER 811 at 823.

This ordinarily requires that the literal meaning of the language is absurd or the presence of a palpable or obvious or clear mistake, and that the parties’ objective intention is clear: Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 426-427; [1956] HCA 53; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11; Bache v Proctor (1780) 99 ER 247; 1 Dougl 384 (Buller J); Wilson v Wilson at ER 822, 823; KPMG v Network Rail; Chartbrook at [22]-[24]; Mainteck Services Pty Ltd v Stein Heurtey SA (2015) 89 NSWLR 633; [2014] NSWCA 184 at [119]- [120]; Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770; [2010] EWCA Civ 1429. If absurdity is required, something opposed to reason is the standard: Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297. Such dissonance would follow from the determination of the parties’ objective intention as contrary to the literal sense of their language, but it will not lightly be concluded that imperfections, infelicities and ambiguities of language predicate a mistake, rather than reflect commercial negotiation: Seymour Whyte (supra) at [10], citing Chartbrook at [23]. Overall, the goal is the ascertainment of the parties’ objective intention through the application of ordinary principles of construction, for which these criteria are merely part of reasoning to a conclusion that a mistake in expression had taken place.

In construing an expression, the court cannot have regard to a fact within  which was unknown to the parties, including matters of law,  which are part of the surrounding circumstances knowledge of which should not be treated differently from knowledge of other circumstances: QBE v Vasic at [35]; Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561; [2016] NSWCA 370 at [95]; Rabin v Gerson Berger Association Ltd [1986] 1 WLR 526 at 539. In England, this is extended to. circumstances  knowledge of which was reasonably available by the parties are consistent with the principles set out at [27] above: cf Arnold v Britton [2015] AC 1619; [2015] UKSC 36 at [15], [21]; Wood v Capita Insurance Services Ltd [2017] AC 1173; [2017] UKSC 24 at [10], [28], the difference of which from Australian law is discussed in HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296. Knowledge of notorious facts will be presumed. Codelfa at 352

As what a party knew is not the same thing as what a party had in mind, the hypothetical reasonable person in the position of the parties may be taken to know of things that go beyond what they thought to be important or those to which they subjectively adverted: QBE v Vasic at [35]; Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 997. What the parties may safely be taken to have known about the law will depend on their legal sophistication and assistance, and the significance of the matters of law relevant to their agreement: Maggbury at [11]; Zhang at [98]; Phillips v Rafiq [2007] EWCA Civ 74; [2007] 1 WLR 1351 at [25].

Conceptual errors may be corrected by construction: Seymour Whyte, but this means that misdescriptions and misnomers may be corrected despite any conceptual consequences. McHugh Holdings Pty Ltd v Newtown Colonial Hotel (2008) 73 NSWLR 53; [2008] NSWSC 542; National Australia Bank Ltd v Clowes [2013] NSWCA 179. It does nnot extend to the correction of a defect arising from a mistaken belief. Fitzgerald v Masters. (1956) 95 CLR 420; [1956] HCA 53 The intention behinf the literal meaning must be objectively discernible from the language itself, so correction by construction is limited to errors of expression, of the language, but not necessarily to mistakes evident on the face of the contract. Chartbrook at [25].

If the provisions of the contract correctly express the intention they objectively disclose, there is no ground for correction though what was agreed was the result of a common mistaken assumption.  As a matter of general principle, the certainty which is important to contractswould be in considerable jeopardyif a party could change its terms on the basis if the fact, albeid valid, that the parties were mistaken as to a fact which would have been significant to their agreeement The Court has no power to correct it to reflect what might or even would have been agreed, had the parties not assumed an incorrect fact.

The use of construction to correct a mistake is not equitablerectification in equity, and depends absurdity rather than ambiguity so that it may apply even when the language is unambiguous. It is not to be used just because its literal meaning leads to an inconvenient or unjust but not absurd result or merely to give a provision an operation which to the Court might make more commercial sense. Wilson v Wilson; (1854) 10 ER 811; Fitzgerald v Masters (1956) 95 CLR 420 at 437; [1956] HCA 53; Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25; Noon v Bondi Beach Astra Retirement Village Pty Ltd [2010] NSWCA 202; Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297; National Australia Bank Ltd v Clowes [2013] NSWCA 179; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11; HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296.

Evidence of Surrounding Circumstances

To construe its ordinary meaning, the Court must consider the circumstances which the document addresses, and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [22]; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [15], [16]; Mt Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47], which requires it to know and have regard to its commercial purpose and object. That requires knowledge of its surrounding circumstances known to the parties, that is, its genesis, background, context, and the market in which the parties were operating. Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 995-996; Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 23 at 348. The surrounding circumstances may include the existing state of the law. Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896 at 912; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70.

Evidence of surrounding circumstances is admissible if the language is ambiguous or susceptible of more than one meaning, but not to contradict its plain meaning. However, ambiguity is not the only precondition to admissibility. Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [65]- [85]. This focuses attention on the words used, but not at the expense of ascertaining what the parties agreed.

Facts existing when the contract was made are usually not admissable unless they were known to both parties, but knowledge of notorious facts which would reasonably have been available to the parties will be presumed.  This is not constructive notice, which implies a degree of enquiry by reference to some external standard. QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 at [35]; HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296.

Standard Form

If a standard form wording is introduced by a product disclosure statement in a conversational and plain English style, sets out the details of what is and is not covered, making it clear that words with special meanings have been defined. and invites the prospective insured to read it carefully, this is consistent with the insurer’s proposing and accepting that the language means what it conveys as a matter of contemporary language in the context of the whole policy. Australian Casualty Co at 525; HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296.

Presumption against Surplusage

There is a presumption against a word’s being treated as mere surplusage and of no effect, but it is weakened by the notorious want of drafting precision in insurance policies, particularly as to matters of that kind.  The presumption may not be strong (Big River Timbers Pty Ltd v Stewart [1999] NSWCA 34 at [16]), and may not justify giving an associated expression a meaning which it does not reasonably bear. HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296.

Contra Proferentem

The contra proferentem rule provides that any ambiguity ofa provision provided by the insurer should be construed favourably to the insured: Halford v Price (1960) 105 CLR 23 at 30; [1960] HCA 38; Darlington Futures at 510; Johnson v American Home Assurance (1998) 192 CLR 266 at 275, [1998] HCA 14; McCann at [74] because the drafting party is in the best position to look after its own interests, and could do so by clear words. It is limited to removing a doubt, and not to create one, or magnify an ambiguity: Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453. It is is now generally regarded as a doctrine of last resort, but it continues to have a role to play in standard form contracts because they are not negotiated between the parties so that the relevant surrounding circumstances are less likely to assist with the meaning of their words. And the rule complements the principle that standard form contracts should be interpreted from the point of view of the offeree.

The principle continues to have some limited vitality: Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] UKHL 12; [2004] 1 AC 715 at [144]; Dairy Containers Ltd v Tasman Orient Line CV [2004] UKPC 22; [2005] 1 WLR 215 at [12]; Kawarau Village Holdings Ltd v Ho [2018] 1 NZLR 378; [2017] NZSC 150 at [171]–[173]; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [74]; HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296.

Absurdity

Because an expression in a commercial contract must be read in a commercial sense, in that context absurdity requires more than an absence of commercial good sense. It requires commercial nonsense to the point where it is obvious that the parties did not mean what they said and obvious what they meant to say. The dividing line may not always be bright, particularly if the language is not incoherent and the provision still has work to do. HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296.

Construction of Exclusions

There is no special rule applies of construction of exclusions in contracts of insurance, but ordinary rules may lead to a narrow construction: Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500; Allianz Australia Insurance Ltd v Inglis [2016] WASCA 25 at [25]; Impact Funding Solutions Ltd v AIG Europe Insurance Ltd [2016] 3 WLR 1422; [2016] UKSC 57 at [7]; HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296.

Product Liability –Exclusion as to Recall or Replacement

Where in respect of a General and Products Liability Insurance Policy, products are contaminated and there was an unacceptable risk that associated are potentially contaminated, and the insured does not inform the claimant of any basis upon which it could be reliably determined that the contamination was limited in scope to some identified batch or batches of the products, an exclusion as to  the cost of or damages claimed in relation to the withdrawal, recall, inspection, repair, replacement or loss of use of the products or any property of which they form a part, if such products or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein will be engaged. Its operation should not be confined to direct costs or expenses of or associated with the recall. Siegwerk Australia Pty Ltd v Nuplex Industries (Australia) Pty Ltd and QBE Insurance (Australia) Ltd v Nuplex Industries (Australia) Pty Ltd  [2013] FCAFC 130, 305 ALR 412  46; Entyce Food Ingredients Pty Ltd v CGU Insurance Limited [2020] VSC 757. For the effect of the exclusion in a different form and in a different context, see Foodpro National Inc v General Accident Assurance Co of Canada (1986) 33 DLR (4^th) 427; affd Foodpro International Inc v General Accident & Assurance Co of Canada 1988 63 OR (2d) 288. Such a construction would not be uncommercial because as a disincentive to recalling dangerous or suspect goods from the market nor would it render the cover illusory.

The recall of products or any property of which they form part is only one of the specified events or circumstances relevant to engage the clause. The words, ‘Liability for the cost of or damages claimed in relation to ...’, unambiguously operate in respect of both costs or expenses and also damages, as well as recall or withdrawal. The language distinguishes between claims for the costs of the various specified events and circumstances, and claims for damages in relation to the same specified events and circumstances.

A known contamination may be a defect and deficiency in the products or the property of which they formed part. In each case it is necessary to consider and construe the terms in the context of the relevant facts and circumstances. A contaminated product in the market or waiting to be put into the market and intended for human consumption would be defective or deficient because it is not fit for human consumption by reason of their contamination and present a health risk to consumers. If they are withdrawn from the market because some are known to have been contaminated and others are suspected and were at risk of being so, they will have been withdrawn from the market because of a known or suspected defect and deficiency. The clause does not require it to be inherent. Entyce Food Ingredients Pty Ltd v CGU Insurance Limited [2020] VSC 757.

Exclusion for Property Damage to the Products

 

In respect of an exclusion for property damage to the Products where such damage is attributable to a defect in them or to their harmful nature or unsuitability, other than those repaired, serviced or treated by the insured after they were originally sold, supplied or distributed, but restricted to the defective or harmful or unsuitable part of the product not being to property pamage to the remainder of such product or products, the ordinary meaning will be given to damage to goods and the notion of property damage, including a physical alteration or change, including contamination or a reasonable suspicion of it, not necessarily permanent or irreparable, which impairs their value or usefulness: Ranicar v Frigmobile Pty Ltd [1983] TASRp 13; (1983) 2 ANZIC I 60-525 and is usually defined to include loss of use of tangible property which has not been physically injured, damaged or destroyed provided such loss of use is caused by an occurrence, including any defect in a product or its harmful nature or unsuitability. Entyce Food Ingredients Pty Ltd v CGU Insurance Limited [2020] VSC 757.

Exclusions – Substance of Claim

For the application of an exclusion, neither the actual facts nor the particular formulation of the claim are determinative. It is the true nature of the claim that must be considered.  Entyce Food Ingredients Pty Ltd v CGU Insurance Limited [2020] VSC 757