Reported Decision : (2002) 12 ANZ Insurance Cases 61-539 New South Wales Court of Appeal CITATION : Abax Contracting Pty Ltd v Denarval Pty Ltd [2002] NSWCA 299 FILE NUMBER(S) : CA 40909/01 HEARING DATE(S) : 30 July 2002 JUDGMENT DATE : 26 September 2002 PARTIES : Abax Contracting Pty Ltd (A) Denarval Pty Ltd (R) JUDGMENT OF : Meagher JA at 1; Beazley JA at 2; Hodgson JA at 22 LOWER COURT JURISDICTION : District Court LOWER COURT 4032/00 FILE NUMBER(S) : LOWER COURT Christie DCJ JUDICIAL OFFICER : COUNSEL : A: M Einfeld QC/ D Campbell R: R F Margo SC/ A Spencer SOLICITORS : A: Verekers Sydney R: Holding Redlich Sydney CATCHWORDS : Insurance - euthanasia of horse - recovery under bloodstock insurance policy - insurer in liquidation - insurance broker - whether breach of warranty of authority - construction of terms of insurance policy DECISION : Appeal dismissed with costs IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40909/01 DC 4032/00 MEAGHER JA BEAZLEY JA HODGSON JA 26 September 2002 ABAX CONTRACTING PTY LIMITED (ACN 001 472 055) v DENARVAL PTY LIMITED t/as WILBURTINS FACTS ABAX Contracting Pty Limited (the appellant) owned a thoroughbred filly that was insured with HIH Casualty and General Insurance Limited (HIH) under a bloodstock insurance policy. Denarval Pty Limited (the respondent) was the appellant's insurance broker for the policy. The insurance policy covered the filly against death, with the exclusion, under cl 2 of the exclusions section of the policy (cl 2), of the intentional slaughter or euthanasia of the filly, except: a) where HIH 'raise no objection to the euthanasia' OR b) if 'in the opinion of the attending Veterinarian the prognosis for survival … is hopeless…'. On 10 January 2000 the filly was euthanased after a representative of the respondent had conveyed to the appellant that he had authority from HIH to authorise the euthanasia. The representative in fact had no such authority. HIH rejected the appellant's claim for indemnity under the policy. The appellant commenced proceedings against HIH. Before the proceedings were heard HIH was placed into provisional liquidation. The appellant then joined the respondent as a defendant to the proceedings, arguing, amongst other things, that the respondent had breached its warranty of authority. Christie DCJ dismissed the claim. The appellant argued on appeal that the two exceptions to cl 2 were mutually exclusive and that since the filly had been sick intermittently over the 2 days before it was euthanased, HIH was only liable under the policy if it had authorised the euthanasia: see subclause a). HIH was thereby entitled to refuse to indemnify under the policy. The consequent loss to the appellant arose from the respondent's wrongful representation that it had the authority of HIH to authorise the euthanasia. HELD per Beazley JA (Meagher JA and Hodgson JA agreeing) (i) There was a breach of warranty of authority by the respondent. (ii) Subclauses 2(a) and 2(b) were not mutually exclusive. (iii) The trial judge was correct in finding that as the condition of the filly became acute over a relatively short period of time, subclause 2(b) applied and the appellant was entitled to indemnity under the policy. (iv) The appellant failed to show that its loss was causally connected to the respondent's breach of warranty of authority. While it is 'probably correct to say that the claim for indemnity would have been unassailable' had it not been for the respondent's breach, it is 'not self-evident that HIH would have paid [the claim] promptly'. The 'simple and notorious' reason why the appellant has not been able to claim under its policy is that HIH is in liquidation. ORDERS That the appeal be dismissed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40909/01 DC 4032/00 MEAGHER JA BEAZLEY JA HODGSON JA 26 September 2002 ABAX CONTRACTING PTY LIMITED (ACN 001 472 055) v DENARVAL PTY LIMITED t/as WILBURTINS JUDGMENT 1 MEAGHER JA: I agree with Beazley JA. 2 BEAZLEY JA: The appellant owned a thoroughbred filly which was insured with HIH Casualty and General Insurance Limited (HIH) under a bloodstock insurance policy. The filly was euthanased in circumstances to which I will refer later in these reasons. The appellant claimed and HIH denied indemnity under the policy. The appellant commenced proceedings against HIH. Before those proceedings were heard, HIH was placed into provisional liquidation. At that point, the appellant joined the respondent, who was its insurance broker, as a defendant to the proceedings, claiming it had breached its warranty of authority, it was negligent, had engaged in misleading and deceptive conduct and had acted in breach of contract. The claim against the respondent was dismissed by Christie DCJ. The appellant appeals against his Honour's order, principally upon the basis that his Honour misconstrued cl 2 of the exclusion section of the policy (the construction issue). 3 The relevant facts are within a narrow compass. The filly was born on 9 August 1998. On 7 January 2000 the horse was sold at the "Magic Millions Sales" on the Gold Coast for $130,000. On the day after the sale, the filly, whilst still under the care of the appellant, had a colic attack but appeared to recover. She had another attack on the afternoon of 9 January and was treated by a veterinary surgeon, Dr Roberts. The filly was then moved to a stud at Beaudesert and was treated by another veterinary surgeon. There were discussions at this time between the appellant and the purchaser to the effect that the purchaser could cancel the sale if it wished. The purchaser originally deferred any decision but eventually cancelled the sale at about 8am on 10 January. 4 On 10 January the filly was transferred to a veterinary clinic and was treated by a third veterinary surgeon, Dr Lovell. The filly remained under treatment during the course of that day. Mr Baxter, of the appellant company, arrived at the clinic at about 4.30pm that day. He was told by Dr Lovell that the filly had: "severe endotoxic shock probably resulting from colitis. The horse has almost no chance of survival in her present physiological condition. It is too late to expect any reasonable chance of recovery. My recommendation is to put the horse down immediately on humane grounds." 5 Mr Baxter indicated that he would need to speak to the insurer. At about 5.30pm he telephoned Mr Willis, with whom he had dealings on behalf of the respondent. Mr Willis contacted Mr Stein, also of the respondent, and Mr Stein in turn rang Mr Baxter. Mr Baxter told Mr Stein that the filly was deteriorating fast and needed to be put down and requested that Mr Stein speak to the vet. Dr Lovell advised Mr Stein "the horse needs to be put down". Mr Stein told Mr Baxter that he would call him back in a few minutes. He did so and advised Mr Baxter "you have my authority to put down the filly". Having received that apparent authorisation, Mr Baxter instructed Dr Lovell to euthanase the horse, which took place at 6.15pm. 6 Dr Lovell prepared a post-mortem report in which he concluded that the filly had been suffering from acute necrotising entero-colitis with secondary peritionitis. There was no dispute at the hearing that Dr Lovell's opinion was well based and that the filly did need to be put down. 7 Prior to speaking to Mr Willis on the afternoon of 10 January, Mr Baxter had briefly mentioned to him, in a conversation the previous evening in a foyer of a hotel, that the filly was ill. He also informed Mr Willis that there was a possibility that the sale would be cancelled. It was clear on the evidence that Mr Baxter was not particularly concerned if the sale did not go ahead. Shortly after 8am on 10 January, Mr Baxter notified Mr Willis that the sale had been cancelled and that he wished the insurance cover to continue. Mr Willis replied "no worries mate". The Insurance Policy 8 The appellant's policy with HIH was a bloodstock insurance policy which covered the filly against death. The intentional slaughter of the horse was excluded except in the circumstances specified in cl 2 of the exclusion provisions of the policy. They provided: "YOU ARE NOT INSURED IF THE DEATH … OF YOUR HORSE ARISES DIRECTLY OR INDIRECTLY FROM ANY OF THE FOLLOWING EVENTS: … 2. The intentional slaughter (euthanasia) of Your Horse except in the following circumstances: (a) If You, or the attending Veterinarian, notify Us prior to the euthanasia of Your Horse and We confirm to the attending Veterinarian that We raise no objection to the euthanasia of Your Horse OR (b) If in the opinion of the attending Veterinarian the prognosis for survival of Your Horse is hopeless, it is not possible to provide effective pain relief, and immediate euthanasia is justified on humane grounds. Provided that in all such cases You immediately provide Us with a written report from the attending Veterinarian which must include the results of a post-mortem examination." 9 The policy also contained the following conditions: "1. Notification If Your Horse sustains an injury or contracts a sickness or disease which threatens the well being of Your Horse You or Your representative must notify Us within twenty four (24) hours. You must allow access by Our nominated Veterinarian to Your Horse and the treating Veterinarian, and provide such information as We may reasonably require including progress reports on the condition of Your Horse. … 5. Conflicting Veterinary Opinion If there is conflicting opinion between a Veterinarian representing You and a Veterinarian representing Us, then subject to agreement between You and Us, the conflict may be resolved in the following manner. Each Veterinarian shall appoint a further Veterinarian. The two so appointed shall appoint a third to form a panel of five. The majority decision of this panel shall be final and binding on all parties. The cost of this panel shall be divided equally between You and Us." 10 Mr Stein was not HIH's agent and during the course of the trial, the respondent accepted that Mr Stein had no authority to authorise the euthanasia of the horse. The respondent informed the trial judge that in that circumstance it was: "content for the court to deal with the matter on the basis that at 5.30pm on Monday [10 January], Mr Stein purported to authorise Dr Lovell to euthanase the filly and asked Dr Lovell to prepare a post-mortem report and forward it to him." The Construction Issue 11 His Honour found that: "by the time any approval was to have been sought for the euthanasia the survival of the filly was hopeless and it was not possible to provide effective pain relief and the circumstances as revealed to Willis and Stein were circumstances that would fall squarely within para 2(b) of the exclusion clause in the policy" 12 The appellant contends that this finding was based upon an erroneous construction of the policy. It submitted that subparagraphs (a) and (b) of cl 2 were mutually exclusive and provided alternate bases for the operation of the exception to the exclusion of claims for loss arising from death by euthanasia. It was said that subpara (a) applied where there was a disease or illness of gradual onset which permitted notification, whereas subpara (b) addressed the circumstance of an emergency, for example, where a horse breaks a leg during a race and must be put down at the racetrack. If subpara (a) operated, it was likely that condition 1 would also be called into play. Likewise, it gave room for condition 5 to operate in appropriate circumstances. 13 The appellant submitted, therefore, that in the circumstances of this case, with the filly having been ill from 9 January, cl 2(a) governed the appellant's obligations and entitlements under the policy, not cl 2(b). It followed on this argument that HIH's entitlement to refuse indemnity arose directly because the filly's death occurred in circumstances to which the policy did not extend cover because the appellant had not given notice to HIH and obtained its approval under cl 2(a) as it should have done. In this regard, the appellant submitted that the critical event which gave rise to its loss was Mr Stein's wrongful representation that he had the authority of HIH to authorise the euthanasia because it had acted on that authority in euthanasing the filly. 14 An argument by senior counsel for the respondent that the representation could not be interpreted as a representation that Mr Stein had the authority of HIH must be rejected. The transcript records the extent of the concession made by the respondent which is to the effect I have just stated. No notice of contention has been filed. It follows, therefore, that the case is to be determined on the basis asserted by the appellant, namely that there was a breach of warranty of authority by the respondent. The question is, what flows from that? 15 The appellant argues that because it acted on the respondent's purported authority, it was deprived of its ability to successfully claim under the policy because it had failed to give notice as required by cl 2(a). Integral to this submission was that cl 2 subparagraphs (a) and (b) are mutually exclusive and, given that the filly had been sick since 9 January, the case fell within cl 2(a) so that cl 2(b) had no application. 16 There are, in my opinion, two answers to the appellant's submission. In the first place I do not agree that the appellant's construction of cl 2 is correct. Clause 2(a) and (b) undoubtedly operate in each of the circumstances postulated by the appellant. However, there is nothing in cl 2, when considered on its own, nor in the context of the policy as a whole, which requires a construction that paras (a) and (b) are mutually exclusive. Further, such a construction could operate to defeat clearly legitimate claims. This case provides an example. Whilst it would have given much greater comfort to the appellant to have the consent of HIH to the proposed euthanasia, the exception would not operate to defeat a claim provided its terms were fulfilled. In this case they were. 17 Secondly, even if the appellant is correct as to the construction of the policy, I am of the opinion that this case was governed by subcl (b). It is apparent from the evidence that colic is not necessarily a life threatening condition. It is also clear on the facts as found that the condition which caused the veterinarian to reach the opinion that the filly should be euthanased became acute over a relatively short period of time such as to give rise to an entitlement to indemnity under cl 2(b). 18 That being so, the question arises why has the appellant not been able to claim under its policy? The reason is simple and notorious. HIH is in liquidation. That having occurred, the appellant did not attempt to pursue its claim against HIH and sought relief against the respondent. The appellant's case is that but for the respondent's breach of warranty of authority, its claim for indemnity under the policy would have been unassailable and would have been paid promptly. So far as is known in this case, it is probably correct to say that the claim for indemnity would have been unassailable. I say 'probably' because HIH had raised a number of defences to the claim, some of which had no connection with a failure to give notice under cl 2(a). The second proposition is not self-evident and there was no evidence to support it. In those circumstances, I am of the opinion that the appellant has failed to show that its loss was causally connected to the respondent's breach of warranty of authority. 19 This conclusion makes it unnecessary to consider the other arguments raised by the appellant, and I do not propose to deal with them. The appellant's case was never argued on the basis that it had lost a chance of recovery from HIH because of the appellant's wrongful representation. Counsel for the appellant conceded that if his construction of cl 2 was not accepted by the Court the appellant's case must fail. In my opinion, that construction is not correct and for the reasons I have given, the appeal should be dismissed. 20 I should also add that I agree with the additional comments of Hodgson JA which I have read in draft. 21 Accordingly, I would propose that the appeal be dismissed with costs. 22 HODGSON JA: I agree with the order proposed by Beazley JA, and generally with her reasons. I would add the following further comments. 23 Mr Einfeld submitted that cl 2(b) of the exclusion provisions of the policy should not be construed as capable of applying in a case where an intention to euthanase a horse was formed when, consistently with humane treatment of the horse, there was time to give notice under cl 2(a) and obtain the insurer's concurrence, because that would mean that the insured could refrain from giving notice and then, when the horse's condition had further deteriorated to the point where the requirements of cl 2(b) were satisfied, euthanase the horse and recover under the policy. 24 There is some force in that submission; but it requires the implication of a qualification in cl 2(b), and I do not think that this implication is justified. There are at least two powerful considerations the other way. 25 First, it would produce an unreasonable result in any case where notice was given under cl 2(a), but the insurer raised an objection to the euthanasia of the horse, the mechanism for resolving conflicting opinions in condition 5 of the policy was proceeding, and the passage of time led to a situation where, in the (correct) opinion of the insured's veterinarian, the requirements of cl 2(b) were satisfied. In those circumstances, Mr Einfeld's interpretation would give the insured the choice of prolonging the horse's life inhumanely or losing insurance cover. 26 Second, it would be productive of much uncertainty. For example, take a case where non-urgent euthanasia was considered justified, but before notice was given, the condition of the horse changed markedly so that the requirements of cl 2(b) were satisfied. On Mr Einfeld's interpretation, there would be a difficult question whether the insured would lose cover because notice had not been given in a window when it was possible to give it, or whether the marked change in the horse's condition would mean that the qualification implied into cl 2(b) did not apply. 27 The interpretation would also be productive of uncertainty in the circumstances of this case. There is a real question whether the intention to euthanase was formed at a time when it would have been possible to give notice and obtain consent before a cl 2(b) situation had arisen. I think the better view is that it was not; but having regard to my opinion on the construction issue, it is not necessary to decide this. 28 To make good the insured's claim against the respondent/broker, it was necessary to show that the non-payment of the claim by the insurer was due to the broker's conduct in purporting to authorise the euthanasia. In my opinion, this faces two insuperable obstacles. 29 First, the evidence did not justify a conclusion that, but for the broker's conduct, the insured would have, inhumanely, permitted the horse to continue to suffer until such time as the insurer's consent was in fact obtained. 30 Second, the evidence did not justify a conclusion that the non-payment of the insured's claim prior to the collapse of the insurer was caused by the broker's conduct. On the facts as found by the primary judge and on the true construction of the policy, the insurer had no good defence to the claim. In the pleaded defence it filed in the insured's proceedings, the insurer raised several ground of defence, none of which relied on the interpretation of cl 2 advocated by Mr Einfeld. It cannot be more than speculation as to whether, but for the broker's conduct, the outcome would have been more favourable to the insured. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.