William A.J. Higgs PhD
Law for Biomedical Engineers – a snapshot of liability issues USYD 2020This is a presentation I delivered to the undergraduate biomedical engineers are Sydney University. The topic of the presentation is the ‘Law for Biomedical Engineers – a snapshot of liability issues’ and it summarises the scope of liability of biomedical engineers in practice.
As the policy is a commercial contract, the Court should, in construing it, “ask what a reasonable businessperson would have understood [the relevant] terms to mean”: Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 (Electricity Generation) at [35].
The task is an objective one; it involves identifying the imputed intention of the parties, by reference to the contractual text construed in the light of its context and purpose: Electricity Generation at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 (Mount Bruce) at [46]-[51] and [108]-[109]; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]-[75]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47; (2016) 91 ALJR 108 at [18].
Importantly, in their joint judgment in Mount Bruce, French CJ, Nettle and Gordon JJ said (at [48]) that: Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. (Footnote omitted)
Their Honours also emphasised that “context” may be discerned from the entire text of the contract in question: at [46].
The applicable principles are as follows:
There was also no issue about the principles which govern the resolution of what lies in issue as to the proper construction of the endorsement to this insurance policy.
Where an insurance company prepares the document, it is bound to make its meaning as clear as possible: Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305; [1920] HCA 64. “A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial 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].
The meaning of commercial documents must be determined objectively, their construction being determined by what a reasonable person in the position of the parties would have understood them to mean, which requires consideration both of the text of the documents and also the surrounding circumstances: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [22].
If there is ambiguity, resort can also be had to the surrounding circumstances known to the parties: Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 at 352; [1982] HCA 24.
The interpretation of an exclusion clause “is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.”: Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510 [1986] HCA 82.
Where two meanings are open, “it is proper to adopt that meaning that will avoid consequences that appear irrational and unjust”: Public Transport Commission of New South Wales v J Murray-More (NSW) Pty Ltd (1975) 132 CLR 336 at 350; [1975] HCA 28. Further, in the event of ambiguity it is proper to give a construction “that would avoid irrational consequences that it is unlikely that the parties intended”: Distillers Co Bio-chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 11; [1974] HCA 3.
A court may also depart from the “strictly literal meaning of a particular expression to place upon it an alternative construction which is more reasonable and more in accord with the probable intention of the parties if the words will bear that construction.”: Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520; [1986] HCA 32.
The contra proferentem rule is one of last resort, however, applying only when ambiguity remains after all other avenues of construction have been exhausted: Beefeater Sales International Pty Ltd v MIS Funding No 1 Pty Ltd [2016] NSWCA 217.
From
Accounting for profits
In Consul Development Pty Ltd v DPC Estates Pty Ltd, in a passage accepted as authoritative by both sides in the present case, Gibbs J said that:
a person who knowingly participates in a breach of fiduciary duty is liable to account to the person to whom the duty was owed for any benefit he has received as a result of such participation.
So described, the liability to account and to disgorge benefits encompasses “any benefit” received by the knowing participant in a breach of fiduciary duty “as a result of” that participation. The benefit of a business connection is such a benefit. Foresters’ submission fails to come to grips at all with the fact that the benefit that Foresters stood to gain, and in fact acquired, from its participation in the various acts of disloyalty by Woff and Corby was not sporadic deposits from retail customers; it was the business connections of Lifeplan and FPM.
Quantification
Once it has been determined that a benefit or advantage has been caused by the acts of knowing assistance, there remains the question of quantification of the benefit to be disgorged. While it is true that equity will not require an errant fiduciary or a participant in a breach of fiduciary duty to account for an advantage which the breach of fiduciary duty has not caused or to which it has not sufficiently contributed, where causation is sufficiently established the onus is upon the errant fiduciary or participant to show that he or she should not account for the full value of the advantage. That onus is not discharged by mere conjecture or supposition giving the benefit of the doubt to a proven wrongdoer. The requirement of proof conforms with the obligation of a party charged with a breach of fiduciary duty to show why the full value of an advantage obtained in a situation of conflict of duty should not be disgorged.
There are two ways in which the wrongdoer might discharge that onus and reduce the extent of the liability to disgorge profits. The first way, which can involve notorious difficulties in attribution of costs, is by proving his or her entitlement to an allowance for costs incurred, and labour and skill employed. No issue of an allowance arises, or was relied upon, in this appeal because it was accepted that the expenses included in the discounted cash flow included an amount for the work and effort of Woff and Corby.
The second way, which was the focus of this appeal, is by demonstrating that the benefit or advantage is beyond the scope of the liability for which the wrongdoer should account for profits. A wrongdoer might prove that some profit or benefit is beyond the scope of liability for which he or she should account if the profit or benefit has no reasonable connection with the wrongdoing. For example, in Frank Music Corporation v Metro-Goldwyn-Mayer Inc, the Ninth Circuit Court of Appeals accepted that a copyright infringement by MGM Grand Hotel Inc in a performance at the MGM Grand Hotel entitled the plaintiffs to the profits directly from the performance. It also entitled the plaintiffs to a proportion of indirect profits, including from the consequential increase in hotel room bookings which were held to have a “sufficient nexus” with the performance. But the direct profit from the performance to be disgorged was limited to 9% because the copyright infringement comprised only the substantial part of Act IV in a 10-act performance. Nor did it entitle the plaintiffs to any profits made by the liable parent company, Metro-Goldwyn-Mayer Inc, as a result of “the advertising value” of the hotel.
No precise test has been prescribed for determining when it will be inequitable to account for a benefit on the basis that it has no reasonable connection with wrongdoing. Nor is there any need for such a test. All of the circumstances must be considered, including the nature of the conduct. It is pertinent here that the profits were from deliberate and dishonest conduct, and were those desired to be achieved.
Mingling trust funds and onus (from [2018] NSWSC 1987)
It is a well-established doctrine in this court, that if a trustee or agent mixes and confuses the property which he holds in a fiduciary character with his own property, so as that they cannot be separated with perfect accuracy, he is liable for the whole.
The words in that passage “so as that they cannot be separated with perfect accuracy” are an essential part of the Vice-Chancellor’s proposition, and indeed of the principle of Lupton v White. If a trustee mixes trust assets with his own, the onus is on the trustee to distinguish the separate assets, and to the extent that he fails to do so they belong to the trust.
The rule in equity is to the same effect, as Sir William Page Wood V-C observed in Frith v Cartland: “if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own”.
Because Mr Chincotta paid various sums of money not derived from Heperu into the Westpac accounts, Allsop P held at [112] that the funds in that account were a mixture of trust funds and personal funds of the effective defaulting fiduciary, Mr Chincotta. Trust money that passes through a mixed fund can be traced into an asset that is still in existence when a court considers the matter. This arises through application of the principle that a defaulting trustee who withdraws from a mixed fund and dissipates the withdrawal is presumed to have dissipated his own money. Thus, it was open to Heperu to trace the trust funds from the mixed fund into any asset that had been purchased from the mixed fund: Scott v Scott (1963) 109 CLR 649 at 664. Further, if a withdrawal from the mixed fund was used to discharge a mortgage over real estate, tracing into that real estate could be effected by reason of Heperu being subrogated to the proprietary right of the mortgagee whose mortgage was paid out: Boscawen v Bajwa [1996] 1 WLR 328 at 340-1; Heperu v Belle at [135].
An interesting decision of the NSW Court of Appeal on the topic of recognition of a novel duty or care.
Ibrahimi v Commonwealth of Australia [2018] NSWCA 321
The Court of Appeal has dismissed an appeal from Mr Ibrahimi, representing a class of persons, against the Commonwealth of Australia concerning an alleged breach of duty of care owed to the plaintiffs during the shipwrecking of the boat on which they were travelling, SIEV 221, off the coast of Christmas Island in December 2010.
The Court (Payne JA, Meagher JA and Simpson AJA agreeing) (consistent with the primary finding at first instance) held that any alleged duty could not arise under the established categories of duty. Rather, any duty would have to arise as a novel duty of care, in which case the application of the salient features test is the correct approach.
On the facts of he case, there was no relevant reliance by the group members on the Commonwealth which would give rise to the relevant vulnerability, nor did the Commonwealth have control over the risk to the the group members in the relevant sense. In addition, there is no expectation placed on public authorities, of which the Commonwealth was one, of general reliance: that an entity will properly perform its public or private function.
It is important to note that this particular case dealt with potential harms flowing from omissions by a public authority, not from positive acts by such public authority. These aspects operate to mitigate against imposing a duty of care of a novel kind.
Finally, a $2 coin to the primary judge, on a difficult legal issue and emotionally charged issue, who was correct to reject case brought by Mr Ibrahimi.
See for a list of the barrister blogs
From: Muriniti; Newell v Lawcover Insurance Pty Ltd (No 2) [2018] NSWCA 311 beginning at [39]
Legal principles
The principles governing the construction of insurance policies are well established and were not in dispute. In McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65, Gleeson CJ stated, at [22]:
“A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.” (footnotes omitted)
This statement was cited with approval by the High Court in Wilkie v Gordian Runoff (2005) 221 CLR 522; [2005] HCA 17 at [15], the Court adding, at [16]:
“In construing the policy, as with other instruments, preference is given to a construction supplying a congruent operation to the various components of the whole.” (footnote omitted)
In Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561; [2016] NSWCA 370 Leeming JA observed, at [86]:
“Where there is more than one available legal meaning, a court looks at the text, context and purpose, with a view to determining which potential meaning best accords with those considerations. Sometimes, text, context and purpose all point in the same direction, and all support the same conclusion as to the legal meaning of the contractual provision; that was the case in Victoria v Tatts Group Ltd (2016) 328 ALR 564; [2016] HCA 5 at [51] and [75]. Sometimes, as here, text, context and purpose point in different directions. But it remains necessary to assess the potentially available legal meanings against those matters.”
Leeming JA found the observations of Mance LJ in Gan Insurance Co v Tai Ping Insurance Co Ltd (No 2) [2001] EWCA Civ 1047; [2001] 2 All ER (Comm) 299 of assistance where there is a constructional choice as to the proper meaning of a contract or a term of a contract. In Gan Insurance Co v Tai Ping Insurance Co Ltd (No 2), the concern was with a clause which had at least two possible meanings. Mance LJ stated, at [16]:
“… In these circumstances, it is especially important to undertake the exercise on which the judge declined to embark, that is to consider the implications of each interpretation. In my opinion, a court when construing any document should always have an eye to the consequences of a particular construction, even if they often only serve as a check on an obvious meaning or a restraint upon adoption of a conceivable but unbusinesslike meaning.”
This passage was unanimously approved by the United Kingdom Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; [2011] UKSC 50; at [26]. See also the observations to the same effect in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36 per Gibbs J at 109, upon which the primary judge relied:
“It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another.”
We’ve already examined the historical distinction between a deed poll and an deed inter-parties. But here is another!
Whereas a deed poll, made by one party only, had a shaved or “polled” edge, an indenture, which was a deed to which two or more persons are parties and which evidenced some act, bargain, contract, conveyance, covenant or agreement between them other than the mere consent to join in expressing the same active intention (i.e. the joint and several guarantors example above), was a deed with serrated or indented (hence the term “indenture”) edges so that each party had a similar deed with the two parts being supposed to fit together as a sort of a tally.
Oh, one more thing, so as not to confuse. In the United States they call what we call a ‘trust deed’, an indenture.
The difference between a deed poll and a deed inter partes is absolutely crucial because of the difference as to who may enforce the deed in question.
It is clear that any person named or sufficiently indicated in a deed poll may sue to enforce any obligation undertaken in that deed poll in his favour despite the fact that he is, by definition, not a party to the deed poll and has not executed the deed poll.
By contrast however a person cannot sue on a covenant made in his favour which is contained in a deed inter partes unless he is a party (and named as a party) to the relevant deed. Even if a third party executes a deed inter partes he cannot sue on it unless he is named as a party to the deed. The only way in which a person who is not a party to a deed inter partes can enforce a covenant in his favour contained in that deed is to come within one of the exceptions to the Doctrine of Privity e.g. he would be able to enforce the covenant if he was able to show that there was a completely constituted trust of the covenant in his favour.
Consequently it is vital where you are preparing a deed poll which is to be enforceable by third parties that you do not use language which suggests that there is more than one party to the deed and that it is a deed inter partes. For example avoid phrases such as “this deed is made between”. Conversely, if you are preparing a deed inter parties, make sure that any person who you wish to be able to enforce the deed is named as a party (unless one of the named parties is to be a trustee of the benefit of the deed for a third party beneficiary).
The other historical distinction was between a deed poll and an indenture. Whereas a deed poll, made by one party only, had a shaved or “polled” edge, an indenture, which was a deed to which two or more persons are parties and which evidenced some act, bargain, contract, conveyance, covenant or agreement between them other than the mere consent to join in expressing the same active intention (i.e. the joint and several guarantors example above), was a deed with serrated or indented (hence the term “indenture”) edges so that each party had a similar deed with the two parts being supposed to fit together as a sort of a tally.
The practice of indenting originated in early times when deeds were short; often a deed between parties would be written out two or more times (according to the number of parties) on a single sheet of parchment which was then divided by cutting it with an irregular edge so that each part could be fitted into the other to demonstrate its authenticity.
At first this rule was very strict and a deed executed before 1845 was not an indenture unless it was actually indented, even though it was stated to be an indenture. However in 1845 legislation in the UK was passed providing that a deed between parties has the effect of an indenture even though the parchment on which it is written was not actually indented.
Consequently for all practical purposes the term “indenture” is now a thing of the past and the only real important differentiation nowadays is between deed polls and deeds inter partes.