Category: Contractual Interpretation

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Construing a policy of insurance

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].

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Interpretation of insurance exclusion clauses

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

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How to construe an insurance policy

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.”

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Deed poll vs deed inter-parties?

 

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.

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What is a deed inter-parties or indenture?

A deed inter-parties is a deed which expressly states that it is made between two or more named persons.

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.

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Deed of release – proper construction

It is common ground that the principles of construction of a Deed of Release flow from the decision of the High Court in Grant v John Grant & Sons Pty Ltd [1954] HCA 23; 91 CLR 112 at 123 ff.

(a) [F]irst, the common law requires general words in a release to be construed by reference to the subject-matter of the particular dispute(s) which the recitals said the parties had resolved on the terms of the deed. In this way, ‘the general words of a release should be restrained by the particular occasion’. Regard will be had to the background facts known to the parties, to the nature of the claims made (and proceedings commenced) prior to the release being executed, and the particular objective intent of the parties by whom the release is executed. The intention of the parties ascertained from this process will control the operation of general words in a release. The general words should not be permitted to subvert what the parties should be taken to have intended when the release is properly construed in its context;

(b) secondly, Equity operates to achieve an analogous result. An alleged releasor enjoys an equity ‘to have the general words of a release confined to the true purpose of the transaction ascertained from the scope of the instrument and the external circumstances.’ The ‘state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor’ will be relevant matters in this context. Equity therefore ‘permits an investigation of the circumstances, including consideration of the actual intentions of the parties, in order to determine whether enforcement of the general words of a release would be against conscience’.”

Also relevant are the observations of Pembroke J in The Owners Corporation of Strata Plan 61390 v Multiplex Corporate Agency Pty Ltd (No 2) [2012] NSWSC 322 at [22] and [30] as follows:

“The principle for which Grant v John Grant & Sons (above) stands is sometimes described more widely than is justified. It is not, and never has been, authority for the proposition that the general words of a release can only ever apply to matters then known to the parties.

…

…the joint judgment in Grant v John Grant & Sons (above) also recognised that there will always be cases where, properly characterised, the parties should be taken to have intended that the general words of a release should operate to encompass all conceivable further disputes, whether disclosed or not and whether within the knowledge of a party or both parties, or outside of it… In such a case there is no room for the application of equitable principle. The equitable principle only has a role to play when it appears from the terms or the context or other admissible evidence, that the enforcement of the legal right would, by a literal application of the general words of a release, be against conscience. It would not be against conscience if the court is satisfied that the parties intended ‘upon a particular and solemn composition for peace’ to release uncertain demands and presently unknown claims…”. [Citations omitted]

Pembroke J’s observations were endorsed by the Victoria Court of Appeal in Doggett v Commonwealth Bank of Australia [2015] VSCA 351 at [63] per Whelan JA.

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Meaning of “relating to”

In Tooheys Ltd v Commissioner of Stamp Duties (NSW) [1961] HCA 35; (1961) 105 CLR 602, Taylor J, at 620 said of that phrase:

“.. the expression … is extremely wide but it is also vague and indefinite. Clearly enough it predicates the existence of some kind of relationship but it leaves unspecified the plane upon which the relationship is to be sought and identified. That being so, all that a court can do is to endeavour to seek some precision in the context in which the expression is used.”

His Honour went on to say, at 620, that “relating to” in the context there considered was not the ‘equivalent of “referring to”‘; the relationship between two different things must be based upon some more substantial ground.
In Oceanic Life Ltd v Chief Commissioner of Stamp Duties (NSW) [1999] NSWCA 416; (1999) 168 ALR 211; 154 FLR 129 Fitzgerald JA said, at [56]:

“The width of the phrase ‘relating to’ is undoubted. Lord Macnaghten stated that ‘[t]here is no expression more general or far-reaching’: Commissioner of Inland Revenue v Maple & Co (Paris) Ltd [1908] AC 22 at 26. See also Fountain v Alexander [1982] HCA 16; (1982) 150 CLR 615 at 629; Colakovski v Australian Telecommunications Corporation [1991] FCA 152; (1991) 29 FCR 429; Secretary, Department of Foreign Affairs and Trade v Boswell [1992] FCA 321; (1992) 36 FCR 367; PMT Partners Pty Ltd (In Liq) v Australian National Parks and Wildlife Service [1995] HCA 36; (1995) 184 CLR 301 at 329-330, although the addition of the words ‘or depending on’ was presumably intended to give the combined phrase ‘relating to or depending on’ a wider operation than ‘relating to’. The difficulties of construction presented by such language have also been noted. Taylor J observed that ‘… the expression ‘relating to’ … is … vague and indefinite …’ and ‘… leaves unspecified the plane upon which the relationship is [to be] sought and identified’: Tooheys Ltd v Commissioner of Stamp Duties [1961] HCA 35; (1961) 105 CLR 602 at 620. One area of debate has been whether, in particular legislation, a relationship need or need not be ‘direct’ or ‘direct and immediate’: see, for example, Ausfield Pty Ltd v Leyland Motor Corporation of Australia Ltd (No 2) [1977] FCA 6; (1977) 14 ALR 457 at 460, 462; 30 FLR 477 at 480, 483; Re Dingjan; Ex parte Wagner [1995] HCA 16; (1995) 183 CLR 323 at 364 and 370; Joye v Beach Petroleum NL [1996] FCA 1552; (1996) 67 FCR 275 at 285; see also Perlman v Perlman [1984] HCA 4; (1984) 155 CLR 474. Overall, the position judicially adopted has been that the operation of the phrase ‘relating to’ is determined by the statutory context and purpose: Butler v Johnston [1984] FCA 118; (1984) 4 FCR 83 at 87; Hatfield v Health Insurance Commission (1987) 15 FCR 487 at 491.”

In Black’s Law Dictionary (5th ed.), the meaning of “relates to” includes “to have bearing or concern”, “to pertain” and “to bring into association with or connection”.