FERRCOM PTY LTD v INBUSH (NSW) PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL COLE and BEAZLEY JJA and COHEN AJA 4 December 1996, 6 December 1996 [1996] NSWCA 184 DAMAGES — causation — Giles J's finding that not established upheld. Cole JA The history of this litigation is to be found in the judgments in Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd!, Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd? and Ferrcom Pty Ltd vy Commercial Union Assurance Co of Australia Ltd3. Following the proceedings in the High Court the matter was referred back to the Court of Appeal and thence to the Commercial Division to determine whether there remained extant the issue whether Ferrcom had sustained loss as a result of the breach of duty by the broker or agent, Inbush or Mr Green (whom I shall collectively refer to as "the brokers"). Giles J held in a judgment delivered 11 May 1994 that the issue remained unresolved, that the conduct of the initial proceedings bad not disentitled the broker from maintaining the submission that Ferrcom had failed to establish it had suffered damage as a result of the breach found and further, after another hearing, that the submission should be upheld thus resulting in a verdict for the broker. In case he were held to be in error, Giles J dealt with the cross-claim by Inbush and Mr Green against C E Heath as their insurers and held that that cross-claim failed. Ferrcom has appealed against the decision of Giles J. To protect itself against the risk of that appeal being upheld, Inbush and Mr Green have appealed against the rejection of their cross-claim against C E Heath. It is necessary to address this latter appeal only in the event of Ferrcom's appeal being successful. Giles J found that in 1987 Mr Green had arranged a policy of insurance for the crane as a piece of unregistered mobile machinery. That policy covered the owner of the crane against loss from overturning. He found that Mr Green told Mr Ferrarese of Ferrcom to let him know if the vehicle was to,be registered in which event he would "fix the insurance". The mobile crane became a registered vehicle on 21 May 1987. Mr Ferrarase told Mr Green that fact and asked him to "fix up the insurance" which Mr Green said he would do. However he did not inform the then insurers, Commercial Union, of the registration of the crane. As this Court and the High Court held, that circumstance relieved Commercial Union from liability under the policy. There was thus a clear breach of the duty of care owed by the brokers to Ferrcom. The remaining question was whether it was established by Ferrcom that the proven breach caused it loss. Whether Ferrcom suffered loss caused by the breach depended upon whether, absent breach of duty, Ferrcom would have obtained a policy of insurance which gave cover against 1. (1989) 5 ANZ Insurance Cases 60-907. 2. (1991) 22 NSWLR 389. 3. (1993) 176 CLR 332. 2 UNREPORTED JUDGMENTS overturning even though the mobile crane was a registered vehicle. Giles J referred to that question as being "common ground" between the parties before him. In his initial judgment, having held that if Commercial union had been advised that the vehicle was registered it would have gone off risk by cancelling the policy, Giles J said: "Regard must also be had to what Ferrcom would have done if told by CU upon notification having been given, that CU would no longer cover the crane. There was no direct evidence of this. However, I think I can infer that Ferrcom would have asked CU for the terms on which it would cover the crane, and upon being told that it would provide cover by way of the commercial motor vehicle policy with endorsement ME35A, would have inquired as to the terms on which that endorsement would be dispensed with. Cover against loss or damage through overturning is clearly a vital aspect of the cover required for a crane, and I decline to conclude that Ferrcom would have done nothing. At that stage Ferreom may have gone to another insurer, or it may have pressed CU. What is uncertain is whether or not the inquiries made by Ferrcom of CU would have revealed to it that if h went to a broker of appropriate standing in the eyes of CU it would be able to obtain cover, at an increased premium and with an increased excess, without the endorsement, whether or not upon that being revealed to it it would have obtained cover from CU through such a broker, and whether or not in lieu of its doing so it would have obtained cover from another insurer. There were other insurers in the market, but I do not know the terms that they would have offered."4 The endorsement ME35A was an endorsement which excluded cover against loss from overturning. His Honour was discussing those matters in the context of s54 Insurance Contracts Act. In the Court of Appeal Handley JA made reference to inferences referred to by Giles J. Handley JA, having referred to Mr Ferrarese'S evidence that he believed it was a term of the lease of the mobile crane that it be insured, presumably against overturning, held that, absent tender of the lease that evidence of Mr Ferrarase could not properly support an inference that Mr Ferrarase would have rejected insurance containing an endorsement excluding liability for overturning. His Honour also referred to evidence tendered before Giles J, apparently on the first day of trial, that following the overturning accident the subject of the claim in 1987, in 1988 Ferrcom, through a different broker, had accepted insurance cover in respect of the registered mobile cranes containing an endorsement excluding cover for loss from overturning. His Honour said: "At this pom, the trial judge, correctly if I may say so, concluded that it was uncertain whether the insured would have instructed the broker who would have pressed for and obtained the reluctant assent of the appellant (CU) to the removal of the endorsement." Most importantly, Handley JA having noted the trial judge's comment that: "Cover against loss or damage through overturning is clearly a vital aspect of the cover required for a crane, and I decline to conclude that Ferrcom would have done nothing." said: "Tn my opinion the trial judge fell into error in drawing the inference that the endorsement would not have been acceptable to the insured. Counsel for the insured did not ask Mr Ferrarase about this matter either in chief or in reply and 4. (1989) 5 ANZ Insurance Cases 60-905 at 75-812. URJ FERRCOM PTY LTD v INBUSH (NSW) PTY LTD (Cole JA) 3 did not cross-examine Mr Green on the matter either. Moreover the insured did dot call any representatives of the broker to establish what view the broker would have taken and what advice it would have given Mr Ferrarase. In these circumstances I do not consider that inferences should be drawn favourable to a party whose counsel refrained from asking any question on this topic. Again h appears to me that the principles earlier referred to derived from Jones v Dunkel and the decision of the Appellate Division of the Supreme Court of New York in Milliman v Rochester Ry Co are applicable, and indeed the proper inference is to the opposite effect of that drawn by the trial judge. This conclusion is confirmed by evidence in the appellant's case concerning the insurance arrangements made by the insured before and after the casualty in relation to other registered mobile cranes. On 31 July 1987, the appellant received from the broker a proposal for fleet motor vehicle insurance. The schedule of motor vehicles which accompanied this proposal included four mobile cranes... The insured therefore did not propose for, or receive, any cover against the risk of loss or damage to such cranes but was content to protect itself only against third party property damage. It follows, of course, that the insured was not covered against the risk of damage to such cranes from overturning. Approximately a year later, 31 July 1988, the appellant received from the broker a letter requesting the renewal of the insured's commercial motor vehicle policy. Items 12 and 13 referred to in the letter for which renewed cover was requested were (two registered mobile cranes). On or about 2 November, the renewed policy issued. It provided comprehensive cover over the two cranes but subject to the endorsement. The broker did not attempt the secure the removal of the endorsement. This evidence indicates that even after the mobile crane in question had overturned at Darling Harbour in September 1997 and the appellant had rejected the insured's claim arising from that casualty, the insured and its broker were still willing to accept cover over registered mobile cranes with an endorsement excluding liability for damage by overturning." Handley JA's ultimate conclusion was: "In these circumstances, in my opinion, the Court cannot properly infer that Mr Ferrarase would have rejected insurance with that endorsement because of his knowledge or belief that such insurance would have been a breach of the insured's obligation under the lease." Kirby P made remarks of similar imports. It was against this background of clear statements by two Judges of Appeal that inferences could not be drawn on the then state of evidence that Ferrcom would have insisted upon exclusion of the endorsement negating cover for overturning, even at the cost of paying a higher premium, that the question of causation of loss came to be dealt with by Giles J. Neither party sought to call additional evidence before Giles J on the question of causation. If after registration of the mobile crane, absent breach of duty, Ferrcom would have not "ended up with cover against overturning", it could not be said the breach of duty caused the loss in any common sense way. The question thus was, as was said to be "common ground", whether that would have been the position absent breach of duty. 5. (1991) 22 NSWLR 389 at 398. 4 UNREPORTED JUDGMENTS Giles J found that Commercial Union, had it been told of the registration of the crane, would have cancelled the policy which gave cover against overturning. His Honour was of the view that undoubtedly Ferrcom would have obtained insurance, but would it have been insurance of the unregistered type which gave cover against overturning, or would it have been insurance of the registered vehicle with an endorsement excluding cover for overturning? As his Honour noted, there was no direct evidence of what the insurance would have been. This position arose because Mr Ferrarase was not called, even after the comments in the Court of Appeal to which I have referred, to give evidence that he would have required a policy without an excluding endorsement. Had he been called he would have been faced with a difficulty of seeking to explain the fact that. even after the subject accident, in 1988 he had accepted insurance through new brokers in respect of registered mobile cranes, and it seems including the repaired subject crane, as registered vehicles but containing an exclusion of liability against overturning. Absent direct evidence Ferrcom argued that it should be inferred that it would have required the obtaining of cover including cover against overturning even though this would involve payment of an additional premium in respect of each such vehicle, approximating treble the premium payable with such an exclusion. In addressing this question of inference absent direct evidence, Giles J found that not only would Commercial Union have cancelled the policy upon registration of the vehicle, but whilst Mr Green remained broker, it would not have agreed to remove the exclusionary endorsement. His Honour found that, had other specialist insurers been approached for cover including cover against overturning was available, however no detail of the terms or conditions of such policies were available, the evidence being restricted to that concerning Commercial Union. His Honour noted that there was no direct evidence either whether the broker or Ferrcom would have looked elsewhere in the market, or whether Ferrcom would have been prepared to pay the increased premium. His Honour noted the importance of insurance to Ferrcom, Mr Ferrarase's recognition of the importance of insurance, and the evidence of Mr Green that he would have told Mr Ferrarase of the need to change the policy of insurance so as to exclude the exclusionary provision, and that he would have taken steps himself to arrange appropriate cover. He also noted Mr Green's comment that he had "cocked it up". Against this, his Honour weighed the appropriate inference to be drawn from the failure of Mr Ferrarase to have sought to give evidence concerning what Ferrcom would have done, particularly against the background that Handley JA and Kirby P had made clear that inferences upon which Ferrcom sought to rely should not be drawn. He also noted that in 1988 new cover through a new broker had been obtained which did not remove the exclusionary provision. Those two factors guided his view that the inference sought to be drawn by Ferrcom that absent breach of duty by the brokers it would have obtained cover without the exlIcusionary provision, should not be drawn. In my view Giles J was correct in his conclusion for the reasons he gave. The attack on the process of reasoning mounted on appeal was on two bases only. The principal attack was that the brokers owed to Ferrcom two duties which had been breached. The first was to obtain comprehensive cover for the crane, including cover against overturning. This was not put as an assertion of a warranty of success in so doing. It was pleaded that, in both contract and tort, the brokers owed a duty to exercise all reasonable care skill and diligence in obtaining URJ FERRCOM PTY LTD v INBUSH (NSW) PTY LTD (Cohen AJA) 5 insurance which duty had been breached first by failing to notify Commercial Union of intention to register the mobile crane, and second, assuming that resulted in the termination of the existing policy which gave cover against overturning and an inability to negotiate a new cover with Commercial Union for the registered vehicle giving similar cover, failure to obtain "appropriate additional insurance". The second duty said to be breached was the failure to warn Ferrcom of the exclusion clause which would apply under the policy with Commercial Union for registered vehicles, unless renegotiated. The argument was that because the brokers had breached their duty to Ferrcom its loss was not having cover without an exlcusionary provision concerning overturning. These arguments do not really address the causation issue. If; absent breach, once the mobile crane became registered, the cover likely to be obtained excluded liability for overturning, breach of duty by the brokers did not cause loss. The position is analogous to that addressed by Clarke and Sheller JJA in Daniels and Ors v Anderson and OR¢. The appellant had the onus of showing that it suffered loss resulting from the breach of duty. If without breach of duty it would have obtained cover which contained an exclusion against overturning, as it did in 1988, then the breach of duty did not cause loss because, on overturning, the loss would have been uninsured. To escape that position it had to show, on the probabilities, that it would have had, absent breach of duty, cover which included loss from overturning. It sought to discharge that onus by relying on inferences that that was the type of cover it would have had. Absent direct evidence that Mr Ferrarase would have insisted upon such a policy, which could have been obtained at an additional cost, Giles J was not prepared to draw the inference that that is the course which the appellant would have insisted upon, particularly in circumstances where it did not adopt that course the following year, and where there was no evidence which could so easily have been called were it available, that Mr Ferrarase would both have insisted on obtaining such cover and would have been prepared to pay the additional premium. In my judgment Giles J was correct not to draw that inference, particularly in the light of the comments made by Kirby P and Handley JA that, on the then state of the evidence which remained unchanged, the inferences sought by the appellant were not available yet no endeavour was made to rectify that position by seeking to call evidence. For these reasons the appeal should be dismissed. It becomes unnecessary to consider the brokers' claim against C E Heath. I would propose the following orders: 1. Appeal dismissed. 2. Cross-claim dismissed. 3. The cross-claimant is to pay the cross-respondent's costs of the cross claim. 4. The appellant is to pay the first and second respondents' costs of the appeal, which costs are to include the costs which the first and second respondent are ordered to pay to the cross-respondents. Beazley JA I agree with Cole JA. Cohen AJA I agree with Cole JA. 1. Appeal dismissed. 6. (1995) 37 NSWLR 438 at 526-529. 6 UNREPORTED JUDGMENTS 2. Cross-claim dismissed. The cross-claimant to pay the cross-respondent's costs of the cross-claim. 4. The appellant to pay the second respondents' costs of the appeal, which 5 costs are to include the costs which the first and second respondent are ordered to pay to the cross-respondents. » Counsel for the appellant: D Higgs SC/G Waugh 10 Solicitors for the appellant: HM Symonds and Britten Counsel for the respondent: TS Hale Solicitors for the respondent: Lamrocks 15 Counsel for the cross-respondent: AJ Meagher SC/PM Morris Solicitors for the cross-respondent: Moray and Agnew