Reported Decision : 102 LGERA 102 New South Wales Court of Appeal CITATION : Government Insurance Office of New South Wales v Council of the City of Penrith [1999] NSWCA 42 FILE NUMBER(S) : CA 40581/97 HEARING DATE(S) : 03/11/98 JUDGMENT DATE : 9 March 1999 PARTIES : Government Insurance Office of New South Wales v Council of the City of Penrith JUDGMENT OF : Mason P at 1; Powell JA at 10; Beazley JA at 31 LOWER COURT JURISDICTION : District Court LOWER COURT FILE NUMBER(S) : 5582/97 LOWER COURT JUDICIAL OFFICER : Viney DCJ COUNSEL : A J Meagher SC / M A Jones (Appellant) D Davies (Respondent) SOLICITORS : Dunhill Madden Butler (Appellant) Phillips Fox (Respondent) CATCHWORDS : Insurance; policy of insurance for professional negligence; where negligent misstatement made by Council; whether statment made in "professional capacity" within the meaning of the policy; Negligence; professional negligence; where Council made negligent misstatement with respect to land; meaning of "professional"; Interpretation; principles of construction; insurance policies; relevance of facts which give rise tothe claim; relevance of background against which policy was entered into. Local Government Act (NSW) 1919 ACTS CITED : Real Property Act (NSW) 1900 Insurance Contracts Act (Cth) 1984 GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558 FAI General Insurance Co Limited v Gold Coast City Council (1992) 81 LGERA 374 Chemetics International Limited v Commercial Union Assurance Co of Canada (1984) 11 DLR (4th) 754 Hazlewood v Travellers Indemnity Group Company of Canada [1979] 2 WWR 271 CASES CITED: West Wake Price & Co v Ching [1956] 2 Ll LR 618 Australia & New Zealand Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Ll LR 241 Walton v National Employers' Mutual General Insurance Association Ltd [1973] 2 NSWLR 73 Investors Compensation Scheme Limited v West Bromich Building Society [1998] 1 WLR 896 L Shaddock & Associates Pty Limited v Council of the City of Parramatta (1981) 150 CLR 225 DECISION : Appeal Allowed THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40581/97 DC 5582/97 MASON P POWELL JA BEAZLEY JA Tuesday, 9 March 1999 GOVERNMENT INSURANCE OFFICE OF NEW SOUTH WALES v COUNCIL OF THE CITY OF PENRITH JUDGMENT 1. MASON P: I have the advantage of reading in draft form the judgments of Powell JA and Beazley JA. 2. In my view the appeal should be upheld. I agree with the reasons of Powell JA, adding the following remarks. 3. The relevant insurance cover is that of the respondent Council. That cover is limited to claims which (in Powell JA's summary) are: for breach of professional duty; the alleged breach taking the form of some negligent act, error or omission; on the part of some employee of, or person elected to, the Council; which negligent act, error or omission occurred in the conduct of any part, or parts of the activities of the Council which could be described as involving provision of a professional service or professional services. 4. The case was conducted at trial on the basis that the Council was liable (in the sum of $65,000) on each of the two grounds pleaded in the Cross Claim, ie wrongful lodgment/maintenance of the caveat and negligence. The former ground does not engage the policy, for the reasons given by Powell JA. 5. The putative negligence was pleaded in paras 13-18 of the Cross Claim. It consisted of the response on 27 July 1981 to the letter of 22 June 1981. The particulars (para 18) asserted failure to advise that the Council (a) claimed title to the land and/or (b) claimed an interest in the land as owner in fee simple pursuant to s398 of the Local Government Act 1919. 6. The pleader did not identify which agent or agents were responsible for the negligent advice embodied in the letter. Moreover, the case at trial was conducted on the basis that it did not matter which agent or agents were involved or what was the precise cause of the letter of 27 July 1981 being misleading or incomplete in the manner asserted. This is made clear by the trial judge's summary of the matter at issue: The question then is whether the activities of the Town Clerk, Town Planner and others in the putting together the information and the notification to Mitora that the Council did not require the land for any purpose and would not object etc, amounts to professional conduct under the insurance policy. 7. It may be accepted that Town Clerks, Town Planners and others involved in engineering and planning matters for a Council perform professional services. But not everyone involved in assisting these officers perform professional services. And not everything done by these officers themselves is a professional service or could be said to have been done "in the conduct of … business dependent wholly or mainly on personal qualifications conducted … on behalf of [the Council] in a professional capacity". 8. Viney DCJ concluded in effect that (all of) the officers involved in putting together the information in the letter were acting "professionally" in the sense discussed by Kirby P in GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558 at 568. I would not draw this inference from the exiguous matters proved. The issue of identifying the agent or agents involved and the nature of their negligence was left unexplored at the trial. It may conceivably have been the case that the information in the letter was wrong because of a poor communication system amongst non-professional employees. 9. The mere provision of information is not itself a professional service. It is true that the letter containing the putatively negligent advice was signed by the Town Clerk one of whose (professional) duties was to gather information carefully for the purpose of formal communications on behalf of the Council. But it was not established that breach of this duty was the cause of the negligent advice, a fortiori the loss embodied in the compendious Terms of Settlement. 10. POWELL JA: I have read in draft the Judgment which has been prepared by Beazley JA, but I regret that I am unable to agree with her Honour's conclusions. 11. The first question for determination is whether either of the claims which were made by Mitora Pty. Limited ("Mitora") and which were compromised by the Respondent ("the Council") was a claim which fell within the indemnifying clause in the policy. The second question is whether, if one only of the claims is within the insuring clause in the policy, the Council has established that the sum for which the Council compromised the claims made by Mitora was paid in respect of a claim against which the Council was entitled to be indemnified. 12. It is to be recalled that the Cross-Claim which was lodged by Mitora in the proceedings in the Equity Division sought, first, damages (compensation for pecuniary loss pursuant to the provisions of s.98 (now s.74P) of the Real Property Act 1900) for lodging the caveat against Mitora's primary application without reasonable cause - the amount of the damages then being estimated at $961,790.00 - and for damages - estimated in the same amount - for negligent misrepresentation, the relevant misrepresentation being particularised as that contained in the Town Clerk's letter of 27 July 1981, the substance of which is set out on p.4 of Beazley JA's Judgment. 13. So far as the caveat is concerned, it is to be noted that this was filed pursuant to a resolution of the Council, and following advice given to the Council by its then solicitors. The subsequent commencement of the proceedings in the Equity Division to establish title to the disputed land was also done pursuant to a resolution of the Council following advice given to the Council by its then solicitors. 14. So far as the second matter is concerned, it is to be noted, first, that Mitora both entered into a contract to purchase the subject land and had authorised the lodging of a development application some 2 months prior to its solicitor's first letter to the Council; second, that it is clear that, prior to its solicitor's first letter to the Council, Mitora was, at the least, contemplating making a primary application (in reliance upon the provisions of s.14 (as amended by s.28P(2)(a)) of the Real Property Act 1900) upon completion of the purchase and the issue of a qualified certificate of title; third, that prior to that time - indeed, in all probability prior to its entering into the contract to purchase - Mitora's solicitors had carried out an investigation as to the title to the subject land; fourth, that the Council's first responses to the letter from Mitora's solicitors was "that, as far as (the Council had) been able to ascertain the land … (had) not been valued or rated since at least 1950, the property being considered to be a public laneway"; and, finally, that the Town Clerk's letter of 27th July 1981 was, not a letter giving Mitora advice - that, clearly enough, had already been given to it by its solicitors, who, even then threatened an action for damage "if Council sustains (sic) a wrongful claim to possession (sic)" - as to the title to the subject land. 15. So far as is relevant, the indemnifying clause in the policy indemnified the Council "against any claim … for breach of professional duty … by reason of any negligent act error or omission … committed or alleged to have been committed on the part of any person employed by the (Council) or any (of those) elected to the Council … in the conduct of any business dependent wholly or mainly on personal qualifications conducted by or on behalf of the (Council) in a professional capacity …" 16. It seems to me that, in order that it be held entitled to indemnity in the present case, it was incumbent upon the Council to demonstrate that the claims made by Mitora in its Cross-Claim were claims: for breach of professional duty; the alleged breach taking the form of some negligent act, error, or omission; on the part of some employee of, or person elected to, the Council; which negligent act, error or omission occurred in the conduct of any part, or parts, of the activities of the Council which could be described as involving provision of a professional service or professional services. 17. It seems to me that by no stretch of the imagination could it be said that Mitora's claim in respect of the Council's action in causing the caveat to be filed fell within the indemnifying clause in the policy. In this regard, it is sufficient to note that this action was not an action taken by some employee of, or by some person elected to, the Council, but was an action taken by the Council itself, pursuant to a resolution of the members of the Council, which resolution, as I have previously noted, was passed following advice given to the Council by its then solicitors. Nor could the Council's action in this respect be characterised as an action taken in the conduct of any business conducted by the Council in a professional capacity. 18. Nor, in my view, can it be said that Mitora's claim based on the Town Clerk's letter fell within the indemnifying clause in the policy - it could do so only if the terms of that letter represented a negligent act, error or omission constituting a breach of professional duty in the conduct of a business conducted by the Council in a professional capacity. 19. The provision of information as to what may, or may not, be ascertained from Council's records is not, without more, the provision of a professional service; nor is it made so by reason of the fact that the person providing the information may have some form of professional qualification (see, for example, FAI General Insurance Co. Limited v. Gold Coast City Council (1992) 81 LGERA 374, 375-375; 7 ANZ Ins. Cas. 61-153; GIO General Limited v. Newcastle City Council (1996) 38 NSWLR 558, 568 per Kirby P - although overruled by the High Court ((1997) 191 CLR 85) on the question of the operation of s.40 of the Insurance Contracts Act 1984 (Cth) the decision of this Court on this aspect of the matter was not in dispute). 20. The distinction to be drawn between the nature of the advice or service provided - which is the critical question - and the professional or other qualifications of the person providing that advice or service - which, in a particular case, may be irrelevant - may be illustrated by a reference to some of the authorities. 21. Chemetics International Limited v. Commercial Union Assurance Co. of Canada ((1984) 11 DLR (4th) 754), a decision of the British Columbia Court of Appeal involved an exclusion in a liability insurance policy in respect of "liability … caused … by … errors or omissions in the rendering of professional services". The insured was held liable for damage to a customer to which the insured had supplied equipment and material for a plant. The insurer sought to show that liability must have been based upon the insured's failure to provide proper operating instructions in a manual which had been drawn up by a professional engineer. It was held that the failure to give proper instructions was not an error or omission in the rendering of professional services within the meaning of the policy, and the fact that the employee who drew up the manual happened to have professional qualifications was irrelevant. 22. Hazlewood v. Travellers Indemnity Company of Canada ([1979] 2 WWR 271) another decision of the British Columbia Court of Appeal related to an attempt by a barrister and solicitor to recover under a liability policy which indemnified him in respect of damages which he was held liable to pay "arsing out of the performance of professional services for others in his capacity as a lawyer". It having been held that the practitioner had guaranteed that the funds which were given to him to invest - but which were ultimately lost - would yield a high return, it was held that the practitioner's liability arose out of the guarantee and not because of the provision of professional services, so that he was not entitled to recover under the policy. 23. (See also Derrington & Ashton: The Law of Liability Insurance (1990) 564-566; Jess: The Insurance of Professional Negligence Risks: Law and Practice 2 Ed (1989 194.) 24. In the present case, what Mitora sought from the Council was, not advice, of a professional nature, as to the title to some old system land - it is clear that prior to April 1981 advice as to title had already been sought from, and given by, its solicitors - but, in the first instance, information as to what was contained in the Council's records, and, later, information as to the Council's future intentions in relation to the land. Neither request, when complied with, in my view, involved the Council in providing any professional service to Mitora, and, even if the information were given negligently, that, in my view, gave rise to no breach of professional duty on the part of any employee of, or person elected to, the Council towards Mitora. 25. Even if it were to be held that Mitora's claim based upon the Town Clerk's letter of 27 July 1981 was a claim which fell within the insuring clause in the policy the Council, in my view, failed to demonstrate that the sum of $65,000.00 which it agreed to pay Mitora was paid in respect of that claim. The Terms of Settlement (BAB 10-11) of the proceedings in the Equity Division, after providing (inter alia) for the dismissal of Mitora's Cross-Claim against the Council, there being no order as to costs, and after recording the Council's agreement to pay Mitora the sum of $65,000.00 - the purpose of that payment not being identified - continued: The Defendant/First Cross-Claimant Mitora Pty. Limited releases the Plaintiff/First Cross Defendant Council of the City of Penrith from all actions, claims, demands and suits however arising out of or with respect to: the subject matter of these proceedings; and the lodgment of the Caveat and Development Application referred to in paragraphs 7 and 11(a) (sic) of the First Cross Claim." 26. In my opinion, the following Orders should be made. 27. ORDER that the appeal be upheld. 28. ORDER that the Judgment entered in the District Court in favour of the Respondent be set aside. 29. IN LIEU THEREOF ORDER that Judgment be entered in favour of the Appellant. 30. ORDER that the Respondent pay the Appellant's costs of the appeal and of the proceedings in the District Court but if qualified have a certificate under the Suitor's Fund 1951. 31. BEAZLEY JA: This is an appeal from a decision of Viney DCJ in which his Honour held that the Government Insurance Office (GIO) was liable under a Policy of Insurance against Professional Liability to indemnify the respondent (the Council) in respect of a claim made upon the Council by a third party, Mitora Pty Limited (Mitora), for alleged negligent misstatement in respect of its claim to the title of land which Mitora had purchased. 32. The sole issue on the appeal was whether the claim against the Council was covered by the terms of the Policy. The respondent had alternatively sought indemnity in respect of the lodgment of a caveat over the land. The trial judge found it unnecessary to determine that issue. The respondent has filed a notice of contention in relation to that matter. Circumstances Surrounding Mitora's Claim Against the Council 33. In early 1981, Mitora purchased land known as 47-49 Henry Street Penrith, together with land described as a "lane 10.06 metres wide" (the laneway). The land was purchased subject to council approval of a development application. The proposal was for a major retail development of 39-49 Henry Street. A development application dated 12 March 1981, made on behalf of Mitora and the owners of the adjoining property 39-45 Henry Street, was lodged with the Council on 15 April 1981. 34. By letter dated 21 April 1981, Mitora's solicitors wrote to the Council in respect of the ownership of the laneway which was included in Mitora's purchase. The solicitors advised the Council that the land was under old system title and that the laneway was described as "a lane" in the earliest documents of title. The solicitors pointed out that, apparently, the land had never been dedicated to the public and that Mitora had evidence that for a period of at least 30 years the area had been fenced and used by the owners of 49 Henry Street. They advised the Council that Mitora wished to obtain possessory title of the lane. To assist them in making that application the solicitors stated that they required a letter from Council stating: Whether the land is shown in Council's records as being reserved for a public laneway. Whether the land has been rated for the past 30 years. Who is shown in Council's records, over the past 30 years, as being the owners of the land. Are any rates outstanding in respect of the land." 35. By letter dated 7 May 1981, the Council, under the hand of the Deputy Town Clerk responded, relevantly: "It is advised that, as far as this office has been able to ascertain the land shown edged in red on the plan attached to your letter [of 21 April 1981] has not been valued or rated since at least 1950, the property being considered to be a public laneway." 36. Mitora's solicitors responded to Council's advice by a further letter dated 21 May 1981. In that letter they pointed out that Mitora had evidence that the land had been fully fenced and privately used for at least 40 years and that there had been no entry by the public during that time. It was also noted that the Council had never made a claim to the land, notwithstanding the fact that it had been completely enclosed during that period. The solicitors then asked: "It would appear from our searches that the land was never conducted for public use and in these circumstances we would ask whether Council proposes to make a claim for adverse possession against the owners of the land". 37. There followed some telephone communication between the solicitors and Council. On 22 June 1981, the solicitors again wrote to Council, referring to the information in their possession in relation to the land and asserting that "there would seem to be little doubt that possessory title vests in the current purchaser". They again advised of Mitora's anxiety to obtain a primary application in respect of the land, including the laneway, and threatened Council that any wrongful claim to possession would result in a claim by Mitora for "substantial damages". Their letter concluded: "In these circumstances we would ask that Council note the evidence and confirm that it will not make a claim for possessory title of the subject land." 38. The Council contacted its own solicitors and referred its correspondence with Mitora's solicitors to them for advice. The Town Clerk also informed the Council's city engineer and chief town planner that Mitora wished to make application for possessory title to the laneway and requested advice as to whether either Department of Council "has any need of this 'Laneway'". 39. By letter dated 27 July 1981, the Council, under the hand of the Town Clerk advised Mitora's solicitors in the following terms: "I now wish to advise that Council does not require the subject laneway for any engineering or town planning purposes and we will not object to you making application for possessory title of this laneway. I also wish to advise that we will be seeking to have this area of land included in any valuation of land with which it is consolidated so that it may be ratable (sic) in the future." 40. Mitora lodged its primary application on 6 August 1981. The application attached the Council's letter of 27 July 1981. 41. As events turned out, the Council did not approve the development application because the owners of part of the land included in the application had not consented. That land included the laneway and also land to the rear of numbers 47 and 49 Henry Street being Lots C and D on the plan lodged in support of the application. In relation to the laneway the Council, under the hand of the Town Clerk, advised the architects appointed to lodge and deal with the development application that: "Council's records indicate that the 'lane 10.06 wide' is owned by the heirs of John MacHenry Junior (now deceased)… The terms of Interim Development Order No. 76 - City of Penrith … require that any application to carry out interim development be accompanied by the consent in writing of the owner." 42. The Council advised that it was therefore unable to determine the development application until the ownership situation was resolved. 43. By early November 1981, the Council had resolved to raise no objection to the proposed development and was prepared to issue a development consent "when ownership of the land subject of the application has been satisfactorily established and owner's (sic) authority provided …". The dispute as to ownership at that point was in respect of Lots C and D (being the land at the rear of numbers 47 and 49 Henry Street). 44. However, from 11 November 1981 matters began to take a different tack. On that date, the Town Clerk wrote to the Council's solicitors in relation to the laneway, seeking to discuss the matter "once you have considered [Council's file in relation to the sale of this laneway]". 45. It appears that between 11 November and 16 November, Council received advice from its solicitors that the ownership of the laneway might be vested in it pursuant to s 398 (now repealed) of the Local Government Act 1919 (NSW). That section provided: "Where in the subdivision of any land, there has been provision made for a drainage reserve (whether by agreement between the owner and the Council or between the Vendor and any Purchaser, or by the marking on any Plan exhibited to the public or lodged with the Registrar-General of words indicating the reservation of land for drainage) the land so provided for a drainage reserve is hereby vested in the Council in fee simple for drainage purposes." 46. The Council so advised Mitora's solicitors by telephone on 16 November 1981. Mitora's solicitors responded quickly by letter dated 17 November 1981, setting out the reasons why it alleged Council's contention was not well based. 47. By letter dated 18 November 1981, the Council's solicitors provided a letter of advice to Council in respect of its possible title to the land under s 398, noting their doubts as to whether the section would "have operated to vest the drain in Council in fee simple for drainage purposes" because no plan of subdivision was lodged with the relevant Roll Plan. They also noted "we would also think that there is some doubt that the notation of 'drain' on the Plan constitutes 'provision made for a drainage reserve …' as required by that Section.". 48. On 30 November 1981, the Council's solicitors gave a more complete advice in relation to the Council's possible ownership of the land under s 398. They advanced little in this letter to substantiate any title in Council to the land, but advised that the Council ought to assert title under s 398 and lodge a caveat against Mitora's primary application. The Council did so. 49. By letter of the same date, the Council's solicitors advised Mitora's solicitors of the Council's claim to the laneway under s 398 and of the Council's intention to lodge a caveat. 50. Council's minutes adopted on 3 December 1981 record that Council resolved it would consent as owner of the disputed laneway to the development application subject to the conditions which it had adopted at an earlier meeting and noting that "upon Council proving ownership the Council intends to treat any possession of the subject property by [Mitora] or any other person as a trespass and to exercise such rights over the property as may be consistent with Council's ownership". They further resolved to lodge the caveat against the primary application. The caveat was duly lodged, the Council claiming an estate or interest "[a]s owner in fee simple pursuant to section 398 of the Local Government Act 1919". In accordance with the requirements of the Real Property Act 1900 (NSW), the Council commenced proceedings in the Supreme Court against Mitora seeking a declaration as to its title. Some time later, on 27 September 1983, Mitora cross-claimed. The terms of the cross-claim are important to the matter at issue in these proceedings. Before turning to the cross-claim, however, reference should be made to events prior to the lodgment of the cross-claim. On 26 April 1983, Mitora's solicitors wrote to the Council's solicitors, stating: "[W]e draw your attention to the fact that after giving proper consideration to the facts, your client had furnished a letter confirming that it had no interest in the land. We were never sure as to what subsequently caused it to change its mind." 51. Correspondence ensued between the Council and Mitora in relation to the legal disputes between them. Eventually, the summons proceedings relating to the caveat were discontinued and the caveat withdrawn. Mitora however, continued to assert that it had a claim in damages for wrongful lodgment of the caveat. On 19 August 1983, Mitora wrote to the Council setting out the terms upon which Mitora would be prepared to settle its damages claim against the Council. Importantly, for present purposes, in that letter, Mitora its Council's claim as being one for "wrongful lodgment of the caveat and the negligent giving of advice". This claim was reflected in paragraphs 13, 14, 18 and 19 of the cross-claim, filed approximately a month after this letter. Those paragraphs alleged: … on or about the 22nd June 1981 the Cross Claimant requested the Cross Defendant to advise it whether it claimed any interest in the land. Particulars The request was in writing and was made by the Cross Claimant's Solicitors Messrs. Parry Ware & company to the Cross Defendant by letter dated 22nd June 1981. In answer to the said enquiry the Cross Defendant represented to the Cross Claimant that it did not require the land for any purpose and would not object to the cross-claim making an application for possessory title of the land. Particulars The representation was in writing and was made in a letter from the Cross Defendant to Messrs. Parry Ware & Company dated 27th July 1981. … In breach of the said duty as aforesaid the Cross Defendant was guilty of negligence in making the said representation. Particulars of Negligence Failing to advise that the Cross Defendant claimed title to the land. Failing to advise that the Cross Defendant claimed an interest in the land as owner in fee simple pursuant to Section 398 of the Local Government Act, 1919. The said representation made by the Cross Defendant was false, inaccurate and misleading. Particulars The Cross Defendant claimed title to the land The Cross Defendant claimed an interest in the land as owner in fee simple pursuant to Section 398 of the Local Government Act, 1919." 52. The Council referred the cross-claim to the GIO, its insurer. However, on 29 December 1983, the GIO declined to indemnify the Council, on the basis that Council had committed certain breaches of the policy. Council subsequently settled the cross-claim for $65,000 and commenced these proceedings against the GIO by way of Summons in the Commercial Division of the Supreme Court. The proceedings were subsequently transferred to the District Court. Prior to the hearing of the action, the GIO abandoned any reliance upon breach of the terms of the policy. The sole issue was whether Mitora's claim against the Council fell within the insuring clause in the policy so as to contractually require the GIO to indemnify the Council in respect of the cost of meeting the claim. That remains the issue on the appeal. 53. Before turning to the terms of the policy, three further matters should be dealt with. During the hearing of the appeal there was some discussion initiated by the Court as to whether the evidence to which the court was taken established negligence. However, as the matter was argued below on the basis that there the Council's statement in the letter of 27 July 1981 was a negligent misstatement, the matter should proceed on that basis on the appeal. The GIO did not contend otherwise. Indeed, senior counsel for the GIO accepted that the GIO was constrained to argue its appeal on the basis that the Council was negligent. 54. The second matter is whether the GIO had made a legally binding admission that Mitora's claim fell within the insuring clause. Senior counsel relied upon a document dated 1983 which appears to be an internal GIO document, relating to this claim. That document includes the following information: "indemnity status Y accepted … coverage verification C cmp verifd claim status A accepted" 55. In my opinion, there being no evidence that this information was conveyed to the Council, it is not available to it as an admission. 56. The third matter relates to the reference, in the Council's letter of 27 July 1981 that it would not object to Mitora's application for possessory title. Strictly, Mitora was not making any application for possessory title. Rather it proposed to make a primary application in respect of the land, including the laneway to bring the land under the provisions of the Real Property Act: see s 14. Section 14 permits persons claiming an estate in possession to make a primary application. Mitora, of course, was asserting it had possessory title to the laneway. It is implicit in Mitora'a approaches to the Council that it wanted to be sure that when it did make its primary application, the Council did not "block" that application by asserting that it had title to the laneway. Terms of the Policy 57. The precise words of the policy are essential to the determination of the question whether Mitora's claim fell within the terms of the policy. The relevant clauses stated: "WHEREAS the Local Authority named in the Schedule herein carrying on business under the firm and style stated in the said Schedule (hereinafter called the Insured) which expression shall include the aforesaid Insured and any person in the direct employ of the Insured or who may at any time and from time to time during the subsistence of this Insurance be a Mayor, President, Alderman, or Councillor elected to the Council of the Insured and the Insured having made to the GOVERNMENT INSURANCE OF NEW SOUTH WALES (hereinafter called the Office) a written proposal bearing the date stated in the said Schedule and containing particulars and statements which it is hereby agreed is the basis of this contract and is to be considered as incorporated herein and have paid the Premium stated in the said Schedule. NOW THE OFFICE HEREBY AGREES, subject to the terms, conditions and exceptions contained herein or endorsed hereon, to indemnify the Insured, against any claim or claims for breach of professional duty which may be made against the Insured during the period set forth in the said Schedule by reason of any negligent act, error, or omission, whenever or wherever the same was or may have been committed or alleged to have been committed, on the part of any person employed by the Insured or any Mayor, President, Alderman or Councillor now or hereafter elected to the Council of the Insured during the subsistence of this Insurance, in the conduct of any business dependent wholly or mainly on personal qualifications conducted by or on behalf of the Insured in a professional capacity and in the issue of Certificates as empowered by the Local Government Act 1919 or any other Statutory Provision." (emphasis added). 58. There were extensions to the policy for libel and slander, fraud and dishonesty, loss of documents and for actions against the insured resulting from the employment of professional consultants. The schedule to the policy specified that the business of the insured as a Local Government Corporation. Principles Governing the Construction of the Policy 59. There was no real dispute between the parties as to the proper approach to the construction of insurance policies: see West Wake Price & Co v Ching [1956] 2 Ll LR 618; Australia & New Zealand Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Ll LR 241; Walton v National Employers' Mutual General Insurance Association Ltd [1973] 2 NSWLR 73; Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896. Two principles are relevant for present purposes. The first is that in determining what the "claim" is, for the purposes of determining whether it falls within the indemnity provisions of the policy, it is necessary to focus upon "the facts which give rise to the claim and not by the form in which the claim is asserted": ANZ Bank Limited v Colonial & Eagle Wharves Limited at 255. The second is that it is relevant to have regard to the background against which the policy was entered into in determining whether a claim fell within its terms: ICS Limited v West Bromwich Building Society at 912-913. Senior counsel further submitted that the significant background against which this policy of insurance was issued in this case was the High Court's decision in L Shaddock & Associates Pty Limited v Council of the City of Parramatta (1981) 150 CLR 225. He submitted that it was clear from the decision in that case that councils were liable for the sorts of inquiry made in Shaddock and councils sought insurance cover for precisely that sort of liability, which was regarded as "professional". He submitted that this was apparent from certain of the evidence and the final part of the insurance clause. The evidence relied upon was correspondence between GIO and the Council in early 1982. In that correspondence the Council wrote to GIO and sought confirmation that the policy: "extends or covers the belowmentioned occurrence: - That the policy covers all of Council's staff regardless of qualifications …" 60. The GIO responded on 2 March 1982 stating: "… it is confirmed that the policy indemnifies all Council employees (whether qualified or not), Council itself as a corporate body, the Mayor, President, Aldermen and Councillors. The number of qualified employees (together with elected Councillors) merely form the basis of our premium calculation." 61. In my view, this does not advance the respondent's case. In so far as the correspondence has any relevance it does no more than confirm what was expressed in the terms of the insuring clause itself. "Professional duty" and "business conducted…in a professional capacity" 62. At trial, senior counsel for the GIO had relied upon a narrow view of the meaning of "professional services" within the terms of a professional indemnity policy taken by the Court of Appeal of the Supreme Court of Queensland in FAI General Insurance Co Limited v Gold Coast City Council (1992) 7 ANZ Ins Cas 61-153. That case concerned a claim made by the Gold Coast City Council on its insurance in respect of a negligent misstatement made by one of its servants. The negligent misstatement was to the effect that a water main was buried in a trench at a specified depth and distance from the boundary of land upon which the claimant was proposing to erect a warehouse. The information conveyed was inaccurate, the trench being both closer to the boundary and deeper than advised, with the consequence that the foundation of the claimant's building subsided. The court noted that there was no evidence as to any professional qualification on the part of the Council officer conveying the information. To the extent that it could be deduced from the evidence he was an inquiry officer. Their Honours' stated at 77-812: "The definition of risk and the measure of the obligation to indemnify in a professional indemnity policy in terms of breach of professional duty in the conduct of the practice of Municipal Authority requires that effect be given to the word 'professional'. It is not every breach of duty in the course of the conduct of the 'practice' or 'business' of 'Municipal Authority' which will be a breach of professional duty. The meaning of 'professional' will, of course, vary with context. 'Professional', however, connotes 'pertaining or appropriate to a profession', 'engaged in one of the learned professions'." 63. Their Honours concluded: "In the present case the Respondent's servant did no more than convey factual information which was incorrect and upon which it may be accepted that a professional judgment was exercised by those responsible for the design of the Plaintiff's building. That, however, did not impart any 'professional' component to the Respondent's duty to provide correct information in the circumstances." 64. In my opinion, that is far too narrow an approach and does not accord with modern day notions and commercial practice in relation to professional indemnity policies, as Kirby P so clearly pointed out in GIO General Limited v Newcastle City Council (1996) 38 NSWLR 558. The clause in the policy in that case was in the following terms: "GIO will pay to or on behalf of the insured all sums for which the insured shall become legally liable to pay by way of compensation ... in respect of: … Professional Liability A claim or claims made against the insured during the Period of Insurance arising out of any negligent act, error or omission committed or alleged to have been committed, by the insured in the conduct of the insured's business as specified in the Schedule." 65. The circumstances giving rise to the claim on the policy was the Newcastle earthquake in December 1989. Some of the persons killed and injured were, at the time of the earthquake, in premises owned and occupied by the Newcastle Workers Cooperative Club Limited. That club was sued by the families of persons killed and by persons injured. The club in turn brought proceedings against the Council. The matter in issue was whether the club's claim against the Council fell within the professional liability clause of the Council's insurance policy. 66. There had been two separate proceedings in the Supreme Court in relation to the claim against the Council, one of which was heard by Bainton J, the other by O'Keefe CJ Comm D. Each had held that the various inspection and approval tasks required of the Council (the negligent performance of which was relied upon by the Workers Club), were carried out in fulfilment of its statutory duties and functions. Each had also held that the carrying out of these statutory duties did not constitute the provision of professional service or advice, the two being mutually exclusive. These decisions were overturned on appeal. Kirby P stated at 568: "With respect, I cannot agree with the primary judges upon this view. The mere fact that the liability of the respondent is grounded in statute, rather than any common law duty, is not determinative of whether the relevant activities are properly characterised as 'professional'. The relevant activities conducted by the respondent must be examined to see whether, in their nature, they are properly characterised as 'professional'. The source of the respondent's duties to perform the activities, although a relevant circumstance, is not definitive. For the same reason, it does not necessarily matter whether the officers of the respondent who were alleged to have given faulty advice and service were professionally qualified engineers: see also FAI General Insurance Co v Gold Coast City Council (1992) 81 LGERA 374 at 375-377 … The question is, is the type of service which was provided properly characterised as 'professional service'. The term 'professional' in the context of professional indemnity insurance today is very broad. This is evidenced by the very large range of policies which are written for such insurance … The term involves, in the context of a policy written for a local government authority, no more than advice and services of a skilful character according to an established discipline: see Commissioners of Inland Revenue v Maxse [1919] 1 KB 647 at 657; Carr v Inland Revenue Commissioners [1944] 2 All ER 163 at 166-167." 67. His Honour considered at 568: "The examination and analysis of building proposals with a view to granting consent is properly characterised as a provision of a service of a skilful character according to a discipline." Was Mitora's Claim One Which Required the GIO to Indemnify the Council Under the Terms of the Policy? 68. The trial judge posed the question for determination as being: "The question then is whether the activities of the Town Clerk, Town Planner and others in the putting together the information and the notification to Mitora that the Council did not require the land for any purpose and would not object etc, amounts to professional conduct under the insurance policy." 69. His Honour resolved this issue in favour of the Council, finding: "… these officers had qualifications for the jobs they were doing. … The information was gathered in connection with a Development Application for this land. The establishment of ownership of the land is a crucial component of the many requirements for Council approval of such applications. … the provision of the information … was 'advice and services of a skilful character according to an established discipline'." 70. The submission of senior counsel for the GIO at trial had been that the "misstatement" by the town clerk "that Council does not require the subject laneway for any engineering or town planning purposes and we will not object to you making application for possessory title of this laneway" was not made in the course of giving advice or services of a skilful character according to an established discipline. It was just giving information. On appeal, senior counsel for the GIO submitted that the claim was not in respect of a negligent act committed in the course of a professional duty. It was a statement made by a putative landowner as to its intentions with respect to claiming title. 71. It is important, as the GIO submitted, to properly categorise the substance of the negligent act or omission. In my opinion, there was a two-fold representation made in the Council's letter of 27 July 1981. The first part was as to the Council's requirements in respect of the land relating to drainage and town planning. The second was in relation to the position the Council would take in relation to Mitora's primary application in respect of the land including the laneway. 72. The first part of the representation was one made in the course of the Council's statutory function as the local authority for the area, relating as it did to drainage and town planning. Those functions were part of the business of the Council and involved the exercise of skill in the disciplines of engineering and town planning, rendering the representation one made in the course "of the conduct of [a] business dependent wholly or mainly on personal qualifications conducted … in a professional capacity". 73. The enquiries of the town planner and the city engineer were made by the town clerk. The town clerk held a number of personal qualifications. They included a Certificate as Town, Shire or County Clerk, under the Local Government Act 1919 (NSW) and membership of the Australian Institute of Management, the International City Management Association and the Institute of Municipal Management. His position as Town Clerk involved responsibility as: "Chief Administrative Officer for all aspects of finance and administration implementing Council policies and decisions and day to day operations in accordance with Ordinance 2 Local Government Act, 1919" 74. Even a cursory examination of the provisions of the Local Government Act (the LGA) reveals the wide administrative powers and functions of a local council. In the first place, pursuant to s 11 the respondent Council is constituted as a city, as opposed to a muncipality or shire. Secondly, the Council was required, by the combined operation of s 11(4) and s 88 to appoint a properly certificated town clerk. Thirdly, the Council had the control and management within the city boundaries of such diverse matters as public roads: Pt IX; public health, safety and convenience: Pt X; building regulation: Pt XI; town planning: Pt XII; and public recreation Pt XIII; being some of the significant and obvious functions of a local council, and extending to such other matters as impounding: Pt XVIII; noxious plants: Pt XXII and noxious animals: Pt XXIIA. Pt XXV regulated the Council's powers in relation to the acquisition of land. The Council was empowered to acquire land, including by compulsory acquisition, for the purpose of the Act, or to enable the proceeds of land to be used to defray expenses incurred in acquiring land for the purposes of the Act. This brief summary demonstrates, in my opinion, that the administration of the Council, which would necessarily include the co-ordination of these various functions, involved "service of a skilful character according to a discipline" and thus fell within the meaning of "professional" in the insurance policy. 75. I have referred to Council's powers to acquire land. This was not, of course, a case of the Council seeking to acquire land. The assumption made, at the time the representation was made, was that the Council may have had possessory title to the laneway. As part of the process of determining whether or not the Council would or should assert that title, the town clerk made enquires to ascertain whether the laneway was needed for either of two possible purposes or functions of the Council: town planning or drainage. This was a small parcel of land, which, if it was to be claimed by the Council, would, most likely, only be claimed for such purposes. It had no other utility. The enquiries of the town clerk, in his capacity as senior administrative officer, were directed to determining whether the council so required the land. Whilst it is not expressly stated, it is implicit in the letter of 27 July that the reason the Council advised it would not object to the application for "possessory" title was because it had no need of the laneway for local government purposes. 76. The town clerk also advised Mitora in the letter that the Council would seek to have the laneway included in the rateable value of any consolidated title. The Council's rating functions were governed by Pt V11 Div 2 of the Local Government Act. Clearly, if the land was to be ratable, the Council would not be claiming title to it. In my opinion, in making enquiries of the town planner and the city engineer and advising of the Council's intention in respect of ownership and rating of the land, the town clerk was engaging in an activity which was an integral part of the administration of the Council. It has also to be borne in mind that the town clerk was doing so in the context that Mitora was making its primary application as part of an overall plan to purchase a number of blocks of land, consolidate title and redevelop the land, for which it required development consent by the Council. In this context, the Council's role cannot be characterised as merely expressing its intentions as a putative landowner. 77. For these reasons I am of the opinion that the second part of the representation was also advice given in a professional capacity within the meaning of the policy. 78. Accordingly, in my opinion, the appeal should be dismissed with costs. 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