Abstract

Article

Rectification

The principles relating to the construction and rectification of insurance contracts are discussed in Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets [2020] FCA 1493. Three important propositions were noted in Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd's London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19, which identified and applied the other principles discussed below.

First, the construion of insurance contracts is governed by ordinary principles of contractual interpretation: Australian Casualty Co Ltd v Federico (1985) 160 CLR 513; McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579. An expression in an insurance policy must be considered in the context of the policy as a whole, and in the surrounding circumstances or factual matrix, including, if excess policies are involved, the broad scheme of insurance cover intended to provide layers of insurance against the same risk: Derrington D K and Ashton R S, The Law of Liability Insurance (LexisNexis Butterworths, 3^rd ed, 2013) (at 422 [3–64]); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104. This principle is not limited to instruments between the same parties: see McVeigh v National Australia Bank Ltd [2000] FCA 187; (2000) 278 ALR 429 at 438–40  and at 447–51.

Secondly, the objective theory of contract is “in command of the field”: Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 (at 429). The subjective intention of the parties may be central to rectification, butit is completely irrelevant to construction: Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603. The court must beware of counsel’s placing evidence of the parties actual intentions before it on a rectification claim consciously or subconsciously in the hope of affecting the Court’s thinking on questions of construction: Lord Nicholls of Birkenhead, ‘My Kingdom for a Horse: The Meaning of Words’ (2005) 121 (Oct) Law Quarterly Review 577 (at 578).

Thirdly, surrounding circumstances known to the parties is to be considered in construction, but evidence of them is confined. It is permissible to have regard to extrinsic material going to surrounding circumstances only if there is ambiguity. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets [2020] FCA 1493, and only if it is known to all parties: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 14; (2014) 251 CLR 640 (at 656–7 [35] per); Codelfa (at 352); QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 (at [22). It is not admissible to support subjective intention or expectations: Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 ( [262]–[265]).

 

 

 

 

 

The purpose of the equitable remedy of ratifiction is to have an instrument of the parties conform to their true agreement where by common mistake the writing fails to do so accurately: Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336. Its rationale is to avoid an unconscientious departure from their common intention. As with all equity’s remedies, it will undo, so far as possible, a departure, from conscientious behaviour by rewriting the contract so that it no longer departs from the common intention of the parties. This identifies the words of the contract that are to be struck out, those that are to be inserted, and where. As well the order usually, but not always, Wilson v Registrar-General (NSW) [2004] NSWSC 1220, will call in the original document and endorse the order on the instrument.
 Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 (at 710; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at 667; Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2) [2015] NSWCA 119 (at [57].

It must be clearly and convincingly proved that at the time of the execution of the written instrument, the parties agreed, with a common intention with which the written instrument was to conform, and that it does not do so because of common mistake. Fowler v Fowler [1859] ER 598; Maralinga (at 449); Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447 (at 457; Simic at 102; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329; Franklins (at 712 [451]; Ryledar at 638 [161]; Joscelyne v Nissen [1970] 2 QB 86, reflecting the longstanding deep respect for the integrity of written agreements: Seymour Whyte Constructions Pty Ltd v Oswald Bros Pty Ltd (in liq) [2019] NSWCA 11; (2019) 99 NSWLR 317, The court must be certain that there has been a mistake and that it is such as should be corrected. The evidence need not be all one way or without conflict, but there must, be such a preponderance, as will satisfy the courtr v Shortall (1842) 2 Dr & War 363 (at 371, Franklins (at 713–4 [454].

To establish a common intention sufficient to support the remedy, it is necessary for the parties to know enough of each other’s intentions for them to be common. This might come about through direct statements or through the various other means by which this happens. They can sometimes involve conscious and deliberate inference, or simply perceiving a form in a series of events from sharing a common understanding. Actions or words during negotiations in a context, such as business practices and conventions, in which various facts are known or assumed by the negotiating parties from which the other party can infer an intention are a form of communication. Franklins at 660.

The actual or true common intention of the parties, evidence of which may include external expressions of the parties in their objective words or conduct and their subjective states of mind.  f correspondence between them or their conduct manifests a want of an objective common intention, then that too must be taken into account to determine whether they had the necessary common intention. If a party,particularly the respondent to the application, subsequently acted as if the instrument stood in the rectified form, it could be strong evidence of that party’s original intention to execute the instrument in that form, but, it is not necessarily conclusive though in the absence of any contrary evidence it may be so. Westland Savings Bank v Hancock [1987] 2 NZLR 21. If it is ordered, rectification is to be read as if it had been originally drawn in its rectified form: Craddock Brothers v Hunt [1923] 2 Ch 136 (at 151

If the correspondence and/or conduct positively establishes the necessary common intention, the respondent’s assertions of a subjective state of mind inconsistent with such outward manifestation, being unexpressed and uncommunicated, would not prevail over the expressed intention. If the outward expression of the common intention is inconclusive, the subjective states of mind evincing the common intention must be established.An outward explicit expression of accord is not necessary Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336  (at 452, , but rectification still requires at least disclosure of some form of the parties’ actual intentions, manifested objectively by their words or actions, and must be correspondingly held by them. Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85. in addition to proving that the written instrument does not represent their common intention it is also necessary to prove positively the coontent of their common intention: Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98 (at [117]; Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662; Slee v Warke [1949] HCA 57; (1949) 86 CLR 271.

 

Further the mandatory considerations of the relevant sections of the Evidence Act, require attention to the nature of the subject matter of the proceeding, which includes the improbability that commercial paarties would form a common intention which woould not be reflected in an agreement which they deliberately evidenced in writing. Maralinga(at 350; Simic at 117 [103]; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 (at 483); Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603; Thomas Bates and Son Ltd v Wyndhams (Lingerie) Ltd [1980] EWCA Civ 3; [1981] 1 WLR 505 at 521. This is accentuated if the evidence adduced is largely circumstantial. Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd's London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19.zzz

While what was specifically intended must be determined before rectification may be granted, the exact form of words is not necessary if the substance and detail of the parties’] intention is ascertained. Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662, approved on appeal in Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68; Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1; Muriti v Prendergast [2005] NSWSC 281 (at [132]–[137]; Queenfield Pty Ltd v Gordon Finance Pty Ltd [2020] VSCA 282 (at [80]–[87]. Substance will prevail over form. Franklins (at 711 [450]):

If there had been delay, change of position, or prejudice to the rights or interests of  a bona fide third party who has relied on the written contract resulting from an order for rectification, that may operate strongly against it or it may justify terms on the order to minimise it. Marley v Rawlings [2014] UKSC 2; [2015] AC 129 (at 148 [40]; Seymour Whyte (at 324 [16]–[17]) not only when a bona fide purchaser for value has acquired a later equitable interest without notice of the right to rectify (Harris v Smith [2008] NSWSC 545), but even when third party rights are at risk: CMG Equity Investments Pty Ltd v Australia and New Zealand Banking Group Ltd [2008] FCA 455; (2008) 65 ACSR 650. Thus, if Excess Insures have acted in reliance on a primary policy in its unrectified form and would suffer detriment if the primary were rectified, rectification of the primary in a way that automatically” impacts upon the operation of the Excess Policy may be refused.

If the insured engages a broker to negotiate the termsof the pollicy,difficulty may be encountered as to the identity of the party in that camp whose intention is relevant. No word is more commonly and constantly abused than the word, “agent”.” Kennedy v De Trafford  [1897] AC 180. In a commercial context, it is an authority in one person to create legal relations between his principal and a third party. Scott v Davis [2000] HCA 52; (2000) 204 CLR 333 (at 408 [227]. Generally speaking, a broker is the agent of the insured, not the insurer: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226.

So when such an agent is authorised to commit the principal to a transaction and the agent’s state of mind is relevant to it, the acts and state of mind of the agent are thoose of the principal. Blackburn Low & Company v Vigors  (1887) 12 App Cas 531, Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd (2001) 50 NSWLR 679  reversed on other grounds: (2003) 214 CLR 514 but approving of the statement that when an agent acts within his authority with the knowledge and question present to his mind, the principal should be bound by that knowledge, however acquired. The same principle governs the intention of the agent. Thus, where the agent acts with a particular intention within his authority, that intention is attributed to the principal. Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2005] NSWCA 280,but only if he acts as a decision maker, rather than a person conducting a mere negotiation: Perpetual Ltd v Myer Pty Ltd [2018] VSC 2 at [106], upheld on appeal in Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98; Hawksford Trustees Jersey Ltd v Stella Global UK Ltd [2012] EWCA Civ 55. If he iauthorised to enter into a transaction in which his own knowledge is material, it may be attributed to the principal: NIML Ltd v MAN Financial Australia Ltd [2006] VSCA 128; (2006) 15 VR 156.

 

There are occasions in which he may be an agent to know, such as when he is retained because the principal expects that his knowledge will be of benefit to the principal in the transaction, such as knowledge acquired in the insurance market to obtain more favourable terms than the insured could secure for himself. In principle, it does not absolve the broker from liability to the insured for negligence if it can be proved that the loss suffered was caused by his tortious conduct: See Dal Pont G E, Law of Agency (LexisNexis Butterworths, 3^rd ed, 2014) (at 564 [22.29]).

If the relvent policies formed a bundle of contracts and if there were common intention in relation to only some insurers, some relief may be available in relation to their separate contracts. Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd's London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19,

The principles applicable to inferential reasoning

When the law requires proof of any fact, the tribunal of fact must feel an actual persuasion of its occurrence or existence before it can be found. Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 361. A party who bears the onus will fail unless the evidence establishes a reasonable satisfaction on the preponderance of probabilities sufficient to sustain the relevant issue. Axon v Axon [1937] HCA 80; (1937) 59 CLR 395 at 403. And the facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied. Jones v Dunkel[1959] HCA 8; (1959) 101 CLR 298 at 305.

If there is no direct evidence of a fact, it is not possible to be entirely satisfied of the true state of affairs Girlock (Sales) Pty Ltd v Hurrell [1982] HCA 15; (1982) 149 CLR 155 at 169, but in such a case, the law does not require proof to that degree. Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 at 141,and, a party may advance circumstantial evidence which, collectively viewed, can provide a sufficient basis for inferring the fact to be proved. Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1: There may be many hypotheses which the evidence does not positively exclude but in a civil the court is concerned with probabilities rather than possibilities, with a need for proof only of circumstances raising a more probable inference which is reasonable and definite, more than conflicting inferences of equal degrees of probability leading to a mere matter of conjecture, though short of certainty. Evidence of post-contractual conduct may be admissible Jana Pty Ltd (atf Azizi Family Trust) v Ezistipdemo Pty Ltd [2017] NSWSC 1135 at [87]; Ryledar (at 642 [184]:

If a responding party subsequently acts as if the instrument stood in the form into which it is sought to be rectified, it is was strong evidence of his intention at the time to execute the instrument in its rectified form but it is not necessarily conclusive. Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 31. And standing by itself, it might not ordinarily amount to the strong and clear evidence which is required in cases of rectification. “[t]he dangers of reading back from subsequent events to assess intention at a prior stage are well known”. Drake Insurance Plc v McDonald [2005] EWHC 3287 (Ch) at [35]; ; Sprackling v Sprackling [2008] EWHC 2696 (Ch) (at [73])  Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at 616.

 

Circumstantial Evidence

Whether a probable inference can be drawn depends on the combined weight of all the relevant established facts, rather than on each sequential and in isolated one: Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141 at [75]. The combined force of its components is the essence of a circumstantial case, and proof of some may be affected by others: Chamberlain v The Queen (No 2) [1984] HCA 7; (1984) 153 CLR 521 at 535. The facts ultimately to be proven are those that are in issue, and not necessarily all the circumstantial facts themselves. Australian Broadcasting Corporation v Chau Chak Wing [2019] FCAFC 125; (2019) 271 FCR 632 at 674.   The probative force may be cumulative, rather than the degree of probability of each item of evidence separately.” Shepherd v The Queen [1990] HCA 56; (1990) 170 CLR 573. It may be necessary to view the totality of evidence “from a distance, making an informed, considered, qualitative appreciation of the whole: Hall (Inspector of Taxes) v Lorimer [1992] 1 WLR 939 (at 944), Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125  at 141.

Evidence is to be weighed according to the proof which one side had the power to adduce and the other had the power to contradict. Blatch v Archer [1774] EngR 2 In deciding issues of fact on the civil standard of proof, the Court is concerned not only with probabilities on the limited material available, but also whether that limited material is an appropriate basis on which to reach a reasonable decision: Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572. It is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a matter, and the extent to which they have done so.

Jones v Dunkel

An extrapolation of this is the rule in Jones v Dunkel (at 308, which reflects plain common sense, that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference, not that evidence not called by a party would have been adverse to the party, but that it would not have assisted the party’s case. That is particularly so where it is the party which is the uncalled witness. That may also permit the court to have greater confidence in drawing any inference unfavourable to that party if the uncalled witness appears to be in a position to cast light on whether the inference should be drawn. Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 at 412–13; Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 at 385.

In other words, a party’s  failure by to deny or explain facts despite having the power to explain or deny them gives colour to other evidence against him. Boyle v Wiseman [1855] EngR 110; (1855) 156 ER 598, and if circumstances are proved indicating a conclusion and the only party who can give direct evidence of them does not do so, a court is entitled to draw a suitable inferenc.: Insurance Commissioner v Joyce [1948] HCA 17; (1948) 77 CLR 39; Longmuir at 131. This reasoning extends to the tendering of documents: Jones v Dunkel (at 320–1; Burke v LFOT Pty Limited [2002] HCA 17; (2002) 209 CLR 282 (at [134]; Galea v Bagtrans Pty Limited [2010] NSWCA 350. But Importantly, it cannot fill gaps in evidence or to use intuition instead of ratiocination or to convert conjecture and suspicion into inference: Jones v Dunkel at 305–6 or reverse the burden of proof. And if the party’s case is otherwise proved, the inference does not detract from the proof, nor lead to a discounting of the evidence actually called. Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205; Hellicar (supra) at 413–4. Blatch v Archer is wider than Jones v Dunkel. Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 at 93, but it does not justify approaching inferential reasoning other than according to Jones v Dunkel. Hellicar at 441. Blatch v Archer expresses an overarching conception; the particular application of apperas in the reasoning in Jones v Dunkel.

Jones v Dunkel cannot be applied to the non-calling of a witness unless.the missing witness would be expected to be called by one party rather than the other, his evidence would elucidate a particular matter, and his absence is unexplained. Speaking in terms of the first of these conditions, Glass JA said (at 202). ... it may be applied when it would be natural for one party to produce the witness, or the witness would be expected to be available to one party rather than the other, or where the circumstances excuse one party from calling the witness, but require the other party to call him, or where he might be regarded as in the camp of one party, so as to make it unrealistic for the other party to call him, or where the witness’ knowledge may be regarded as the knowledge of one party rather than the other, or where his absence should be regarded as adverse to the case of one party rather than the other. The higher the missing witness stands in the confidence of one party, the more is  his knowledge available to that party rather than to the other. Payne v Parker (1976) 1 NSWLR 191; O’Donnell v Reichard  [1975] VR 916; Powell at 576; Hung v Warner, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] FCAFC 48.

 

Incorporation

Unless it  is stated otherwise, a clause such as is sometimes found in Excess policies may have the effect of incorporating relevant terms from one contract into another,: Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 153 ALR 529. Then, the incorporated terms become its own terms and that they are not restated in full does not dimnish their  effectiveness Weatherbeeta Limited v Hammersmith Nominees Pty Ltd [2019] VSC 559 (at [133]); WorkPac Pty Ltd v Rossato [2020] FCAFC 84; (2020) 378 ALR 585 (at [363]–[364]).

Ineffectiveness

The court leans against a construction which has the effect that a provision is redundant, nugatory of ineffective, particularly if a meaning consonant with the other provisions in a contract can reasonably be found. Chapmans Limited v Australian Stock Exchange Limited ; XL Insurance Co SE v BNY Trust Company of Australia Limited [2019] NSWCA 215 (at [72].

 

The contra proferentem rule

If the policy is drafted and presented by the insured’sbroker to the insurer, the contra proferentem rule cannot apply against the insurer: cf Halford v Price (1960) 105 CLR 23 (at 30,  34). In any case, it is only one of the rules of contractual construction and is one of last resort after all other avenues have been exhausted.

Principles of Operations in the LloydsMarket

In Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd's London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19, the principles in relation to the operation of the Lloyd’s market were set out, with authorities cited.