Reported Decision : 61 NSWLR 18 (2004) 13 ANZ Insurance Cases 61-617 New South Wales Court of Appeal CITATION : Tzaidas v Child & 3 Ors [2004] NSWCA 252 HEARING DATE(S) : 30 April 2004 JUDGMENT DATE : 27 July 2004 JUDGMENT OF : Giles JA at 1; Santow JA at 62; Campbell AJA at 145 DECISION : Leave to appeal granted. Appeal allowed. CATCHWORDS : NEGLIGENCE - negligence claim in respect of injuries sustained during and after birth at hospital - whether arguable case that the hospital, though a community hospital, was equipped to deal with anticipatable consequences of mother being carrier of haemophilia B - PROCEDURE - Whether denial of leave required under proviso s6(4) of the Law Reform (Miscellaneous Provisions) Act (NSW) ("the Act") to enforce a charge against insurance monies under policy covering negligence should stand - contractual terms of insurance did permit insurer to disclaim liability - effect of s54 of Insurance Contracts Act 1984 (C'th) on contractual right to disclaim - no proceedings extant that s54 did not preclude disclaimer - can FAI General Insurance Co Ltd v Jarvis be distinguished or followed - Consideration of whether Jarvis correctly decided - whether appellate court should be reconstituted as five judge court - Court's discretion to grant leave - leave granted under s6(4) of the Act De facto Relationships Act 1984 s20 LEGISLATION CITED : Insurance Contracts Act 1984 (C'th). s28; s54 Law Reform (Miscellaneous Provisions) Act 1946 s6 Supreme Court Act 1970 s101(2)(e) Andjelkovic v AFG Insurance Ltd (1980) 47 FLR 34 Antico v Fielding Australia Pty Ltd (1997) 146 ALR 385 Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 Bennett & Wood Ltd v Orange City Council; Board of Fire Commissioners (Third Party) (1967) 67 SR(NSW) 476 Bridges v Bridges (1944) 45 SR 164 Campbell v Mutual Life and Citizens Fire and General Insurance Co (NZ) Ltd (1971) NZLR 240 Dixon v Royal Insurance Australia Ltd (1998) 90 FLR 390 Dwyer v Kaljo (1992) 27 NSWLR 728 East End Real Estate Pty Ltd v C E Heath General Insurance Ltd (1991) 25 NSWLR 400 Evans v Marmont (1997) 42 NSWLR 70 FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641 FAI General Insurance Co Ltd v Jarvis (1999) 46 NSWLR 1 Fishwives Pty Ltd v FAI General Insurance Co Ltd (2002) ANZ Ins Cas 61-515 Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706 CASES CITED : Hellier v AMP General Insurance Ltd [2002] NSWSC 866 Kinzett v McCourt (1999) 46 NSWLR 32 Lissenden v Yorkville Nominees Pty Ltd (1984) 43 NSWLR 138 McMillan v Mannix (1993) 31 NSWLR 538 Nguyen v Nguyen (1990) 169 CLR 245 Oswald v Bailey (1987) 11 NSWLR 715 Permanent Trustee Australia v FAI General Insurance Co Ltd (1998) 44 NSWLR 186 Queensland v The Commonwealth (1977) 139 CLR 585 R v Johns (1978) 2 NSWLR 259 R v Jurisic (1998) 45 NSWLR 209 R v Henry (1999) 46 NSWLR 346 R v Mai (1992) 26 NSWLR 371 R v McEwan (1979) 2 NSWLR 926 Schipp v Cameron (1995) 8 ANZ Ins Cas 61-256 Travel Compensation Fund v FAI General Insurance Co Ltd (1999) FCA 1214 Wallace v Stanford (1995) 37 NSWLR 1 CA 40657/03 - George TZAIDAS by his tutor Vicki Tzaidas (Claimant/Appellant) Robert Peter CHILD (First Opponent/Respondent) HURSTVILLE COMMUNITY CO-OPERATIVE HOSPITAL PTY LTD (Second Opponent/Respondent) Charles M SCARF (Third Opponent/Respondent) CGU INSURANCE LIMITED (ACN 004 478 371) (Fifth Opponent/Respondent) CA 40658/03 - Vickie TZAIDAS (Claimant/Appellant) Robert Peter CHILD (First Opponent/Respondent) PARTIES : HURSTVILLE COMMUNITY CO-OPERATIVE HOSPITAL PTY LTD (Second Opponent/Respondent) Charles M SCARF (Third Opponent/Respondent) CGU INSURANCE LIMITED (ACN 004 478 371) (Fifth Opponent/Respondent) CA 40659/03 - Con TZAIDAS (Claimant/Appellant) Robert Peter CHILD (First Opponent/Respondent) HURSTVILLE COMMUNITY CO-OPERATIVE HOSPITAL PTY LTD (Second Opponent/Respondent) Charles M SCARF (Third Opponent/Respondent) CGU INSURANCE LIMITED (ACN 004 478 371) (Fifth Opponent/Respondent) FILE NUMBER(S) : CA 40657/03; CA 40658/03; CA 40659/03 P MENZIES, QC/ D ASH (Claimants/Appellants in each) COUNSEL : I HARRISON, SC/ M ASHURST (Fifth Opponent/ Respondent in each) Mention by P MENZIES,QC - submitting appearance save as to costs (First, Third Opponents/Respondents in each) Charlton Shearman Read (Claimants/Appellants in each) SOLICITORS : Colin Biggers & Paisley (Fifth Opponent/Fifth Respondent in each) Blake Dawson Waldron (First, Third Opponents/Respondents in each) LOWER COURT Supreme Court - Common Law Division JURISDICTION : LOWER COURT SC 20445/01 FILE NUMBER(S) : LOWER COURT Grove J JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40657/03 CA 40658/03 CA 40659/03 SC 20445/01 GILES JA SANTOW JA M W CAMPBELL AJA 27 JULY 2004 George TZAIDAS by his tutor Vicki Tzaidas v Robert Peter CHILD & 3 Ors Vickie TZAIDAS v Robert Peter CHILD & 3 Ors Con TZAIDAS v Robert Peter CHILD & 3 Ors Judgment 1 GILES JA: The facts are set out in detail in the reasons of Santow JA, which I have had the advantage of reading in draft. I draw upon those reasons, without unnecessary repetition, in what follows. Background 2 The plaintiffs each commenced proceedings against Hurstville Community Co-operative Hospital ("the Hospital") and other defendants, alleging that the Hospital and the other defendants had all been negligent in relation to the birth of George Tzaidas on 16 November 1996. They applied for leave to commence proceedings against (meaning join as another defendant) CGU Insurance Ltd ("CGU"), the insurer of the Hospital, pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946. 3 CGU entered into the contract of insurance under the business name of Pacific Indemnity. By the insuring clause in the policy it promised to - "1.1 Indemnify the Insured against any Claims including all legal costs and expenses for which the Insured shall become legally liable to the Claimant up to but not exceeding in the aggregate for all Claims under this Policy, the Total Sum Insured being a Claim: (1) made against the Insured during the Period of Insurance; and (2) as soon as reasonably practicable, notified in writing to Pacific Indemnity by the Insured during the Period of Insurance; and (3) arising from any actual or alleged act, error, omission or conduct wherever the same occurred subsequent to the Retroactive Date specified in Item 6.4 of the Schedule. … " 4 The Period of Insurance under the policy was from 30 June 1999 to 30 June 2000. The Retroactive Date was "without limitation of date". "Claim" was defined - "Claim" or "Claims" shall mean any writ, summons, application or other originating legal or arbitral proceedings, cross claim or counter claim or third or similar party notice claiming compensation against and served upon the Insured." 5 The cover under the policy was enlarged by its condition 4.1 - "4.1 If during the Period of Insurance, the Insured becomes aware of any fact, situation or circumstance, including any written or verbal notice of demand for compensation, that may give rise to a Claim and elects during the Period of Insurance to give notice to Pacific Indemnity of such fact, situation or circumstance shall, for the purposes of this Policy, be deemed a Claims [sic] notified to Pacific Indemnity during the currency of this Policy." 6 So far as presently material, s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 provides - "6(1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability. (2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding-up. (3) … (4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken . (5) … " 7 The plaintiffs did not make a Claim against the Hospital during the Period of Insurance. They relied on the enlargement of cover by condition 4.1 of the policy. 8 The Hospital did not give notice to CGU during the Period of Insurance of circumstances of which it had become aware that may give rise to a Claim by the plaintiffs against it. To achieve the deemed notification of a Claim under condition 4.1 the plaintiffs relied on s 54 of the Insurance Contracts Act 1984 (C'th). 9 Section 54 provides - "54(1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act. (2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim. (3) Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act. (4) Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act. (5) Where: (a) the act was necessary to protect the safety of a person or to preserve property; or (b) it was not reasonably possible for the insured or other person not to do the act; the insurer may not refuse to pay the claim by reason only of the act. (6) A reference in this section to an act includes a reference to: (a) an omission; and (b) an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter." 10 Grove J considered himself bound by the decision of this Court in FAI General Insurance Co Ltd v Jarvis (1999) 46 NSWLR 1 to hold that s 54 was irrelevant to granting leave pursuant to s 6(4). He held that CGU was entitled under the terms of the contract of insurance to disclaim liability, and therefore refused leave. He had at an early point in his reasons found that any judgment against the Hospital would probably be unsatisfied. In case he was incorrect as to FAI General Insurance Co Ltd v Jarvis, he found that there was an arguable case that the Hospital was liable to the plaintiffs in negligence, and that the Hospital was aware during the Period of Insurance of circumstances that may give rise to a Claim by the plaintiffs against it. Leave to appeal 11 His Honour's decision being interlocutory, leave to appeal was necessary (Supreme Court Act 1970, s 101(2)(e)). The plaintiffs' application for leave to appeal was heard on full submissions so that, if leave were granted, the appeal could be decided without a further hearing. 12 The plaintiffs wished to challenge on appeal the holding that s 54 was irrelevant to granting leave pursuant to s 6(4), on the grounds that FAI General Insurance Co Ltd v Jarvis was no longer good law in the light of the subsequent decision of the High Court in FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641 and that in any event it was incorrect and should be reconsidered. CGU opposed the grant of leave on the ground that the challenge had little prospects of success, and said that in any event leave pursuant to s 6(4) should have been refused because, contrary to Grove J's findings, there was not an arguable case that the Hospital was liable to the plaintiffs in negligence and the Hospital was not aware during the Period of Insurance of circumstances that may give rise to a claim against it; further, it said, s 54 could not overcome the absence of a Claim by the plaintiffs against the Hospital during the Period of Insurance. 13 Although it was technically interlocutory, the decision was of critical importance for the plaintiffs and for CGU. The standing of FAI General Insurance Co Ltd v Jarvis has been questioned, by Smart AJ in Hellier v AMP General Insurance Ltd [2002] NSWSC 866 at [35] and by Grove J in the present case [2003] NSWSC 667 at [31], although both properly regarded themselves as bound by it. Whether it is no longer good law in the light of FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd, and whether this Court should depart from its earlier decision, are better decided in a substantive appeal. In my opinion, leave to appeal should be granted. CGU should have applied for leave to cross-appeal in order to challenge Grove J's findings, but those findings should nonetheless be open to review as a condition of the grant of leave to the plaintiffs. Section 6(4): The prohibition and the general discretion 14 Section 6 of the Law Reform (Miscellaneous Provisions) Act creates "a new right with an associated remedy to enforce it" (Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 446 per McHugh and Gummow JJ). The right is the charge established by s 6(1). There is conceptual difficulty in a charge attaching at the time of the event giving rise to the claim against the insured if that time is before the contract of insurance is made, as may occur with claims made policies, and differing views have been expressed as to the application of s 6 in those circumstances. It is unnecessary to add to them, since CGU expressly disavowed reliance on the fact that any negligence in relation to the birth of George Tzaidas was in 1996 but the contract of insurance was made in 1999. The remedy is the action against the insurer authorised by s 6(4). 15 Unless at the time of the event giving rise to the claim against the insured the insured was a corporation under winding-up within s 6(2), the remedy is subject to the requirement of leave. 16 The ancestry of s 6 is described in Bailey v New South Wales Medical Defence Union Ltd at 440-44. The leave requirement was introduced in s 9 of the Law Reform Act 1936 (NZ), but without the words now found in s 6(4), "Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken". For convenience, I will refer to this as "the prohibition". The prohibition was a New South Wales addition, by an amendment in the Legislative Council explained as the Government's intention "that the insurer should be able to raise equities as between himself and the insured" and making clear "that the liability of the insurer will be only the liability he has contracted to undertake under the terms of the policy". (New South Wales Parliamentary Debates, 9 April 1946, 2nd series, vol 180, p 3177) 17 The purpose of the leave requirement had been described in various ways; for present purposes, it is sufficient that it was intended to protect insurers from unwarranted direct actions by claimants upon their insureds. The prohibition is a gloss upon the leave requirement. Leave must be refused if the prohibition is found to apply, although it may be refused in the exercise of the general discretion even if the prohibition is not found to apply. As was said by McHugh and Gummow JJ in Bailey v New South Wales Medical Defence Union Ltd at 448, their Honours' construction of s 6 having the agreement of Brennan CJ and Deane and Dawson JJ at 415 - "This provision is not directing the court that leave be denied only in a case where it is satisfied both of entitlement to disclaim liability and that necessary steps have been taken to establish entitlement to do so. Leave may be refused in other cases but must be refused in these cases." 18 For the prohibition to apply the court must be satisfied of two things: first, entitlement to disclaim liability, and secondly, taking necessary proceedings. Satisfaction as to taking necessary proceedings can not be passed over. The application for leave pursuant to s 6(4) can not amount to taking necessary proceedings, since the necessary proceedings must be something outside the application. CGU submitted that proceedings were necessary only if the insurer's entitlement to disclaim liability was not obvious. I do not think that is right. The proceedings are those "necessary to establish" the insurer's entitlement to disclaim liability (emphasis added). "Establish means what it says. The court does not decide, additionally to its satisfaction that the insurer is entitled to disclaim liability, whether or not the entitlement is obvious, and even if it did that would not establish the entitlement to disclaim liability. So long as the insurer's entitlement to disclaim liability is in issue, other proceedings are necessary to establish it. 19 Returning to satisfaction as to entitlement to disclaim liability, it is not equivalent to satisfaction that the insurer is not liable to provide indemnity. The words are "satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability" (emphasis added). As was pointed out by Blackburn CJ in Andjelkovic v AFG Insurance Ltd (1980) 47 FLR 348 at 354 they do not cover, for example, where the respondent to the application for leave contends that it was not a party to the contract of insurance. His Honour considered (ibid) that they also do not cover a contention that on its proper construction the claim against the insured is not a risk covered by the policy, and do not "exhaust the grounds on which an insurer may oppose the application for leave". The emphasised portion of the words is important to the operation of the prohibition. 20 The satisfaction as to entitlement to disclaim liability, even within its scope, must be less than a determination whether or not the insurer is liable. The insured is not a party, and the proceedings necessary to establish the insurer's entitlement to disclaim liability would be superfluous: see Andjelkovic v AFG Insurance Ltd at 355; Lissenden v Yorkville Nominees Pty Ltd (1984) 43 NSWLR 138 at 142 per Mahoney JA. In Andjelkovic v AFG Insurance Ltd at 355 it was said that it was sufficient if the court was satisfied that the insurer had a bona fide and arguable ground for disclaiming liability; whether or not this be correct, acceptance that it is arguable that the insurer is obliged to provide indemnity would normally mean that there could not be the satisfaction. 21 In the result, there is an intersection between satisfaction as to entitlement to disclaim liability, for the purposes of the prohibition, and existence of an arguable case that the insurer is obliged to provide indemnity, for the purposes of the general discretion. For the latter purpose an arguable case has come to be held sufficient for a grant of leave, see for example Oswald v Bailey (1987) 11 NSWLR 715 at 734; Dixon v Royal Insurance Australia Ltd (1998) 90 FLR 390 at 400; Travel Compensation Fund v FAI General Insurance Co Ltd (1999) FCA 1214; Fishwives Pty Ltd v FAI General Insurance Co Ltd (2002) ANZ Ins Cas 61-515 at 75,998. 22 The intersection has led to some looseness in the cases, failure clearly to distinguish between grant or refusal of leave because of the prohibition and grant or refusal of leave in the exercise of the general discretion. In few cases have other proceedings been taken – Lissenden v Yorkville Nominees Pty Ltd and Seery v John R Carr & Associates Pty Ltd (Giles J, 3 November 1995, unreported) are - and in other cases determinations that the insurer is entitled to disclaim liability, appearing to result in refusal of leave because of the prohibition, are more correctly exercises of the general discretion. 23 In the exercise of the general discretion, satisfaction that the insurer is entitled to disclaim liability will normally mean that leave should be refused, since (as McHugh and Gummow JJ described in Bailey v New South Wales Medical Defence Union Ltd at 448-50) if there is an entitlement to disclaim liability there can be no moneys payable and nothing on which the charge under s 6(1) can operate. Leave will be refused although proceedings to establish entitlement to disclaim liability have not been taken (Fishwives Pty Ltd v FAI General Insurance Co Ltd at 75,997). But the exercise of the general discretion is not confined by the prohibition, with its reference to entitlement to disclaim liability under the terms of the contract of insurance. The focus is on the outcome – if the insured is liable, what are the prospects that the insurer will be obliged to provide indemnity – and anything bearing on the outcome is relevant. Analysis of Grove J's decision 24 Grove J held, having regard to FAI General Insurance Co Ltd v Jarvis, that CGU was entitled to disclaim liability. His findings on whether there was an arguable case that the Hospital was liable to the plaintiffs in negligence, and whether the Hospital was aware during the period of insurance of circumstance that may give rise to a Claim by the plaintiffs against it, were described as alternatives with which it was strictly unnecessary to deal. The former, at least, was relevant to the exercise of the general discretion. It is plain that his Honour acted upon the prohibition. 25 However, his Honour did not address whether any proceedings necessary to establish that CGU was entitled to disclaim had been taken. I have no doubt that this was because the parties did not pay regard to that element in the prohibition. No proceedings had been taken. I do not think it could be said that proceedings were unnecessary to establish that CGU was entitled to disclaim liability, since s 54 was very much available to the Hospital in deciding, outside s 6, whether CGU was obliged to provide indemnity (see later in these reasons). In the absence of that element in the prohibition, and whether or not FAI General Insurance Co Ltd v Jarvis was correct, there was error in refusing leave in the manner his Honour did: see the preceding discussion of the prohibition and the general discretion. 26 When necessary proceedings had not been taken, his Honour was left with the exercise of the general discretion. The findings that there was an arguable case that the Hospital was liable to the plaintiffs in negligence and that any judgment against the Hospital would probably be unsatisfied weighed in favour of a grant of leave. If it was arguable that CGU was obliged to provide indemnity, according to the received understanding of s 6(4) that sufficed for a grant of leave. But if, upon the authority of FAI General Insurance Co Ltd v Jarvis, s 54 was irrelevant to granting leave pursuant to s 6(4), there was not an arguable case that CGU was obliged to provide indemnity. The finding that the Hospital was aware during the Period of Insurance of circumstances that may give rise to a claim against it was of no consequence, and refusal of leave would be an unexceptional exercise of discretion. His Honour's decision would almost certainly have been the same if he had exercised of the general discretion, and whether FAI General Insurance Co Ltd v Jarvis was correct would have been critical to it. Is FAI General Insurance Co Ltd v Jarvis no longer good law in the light of FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd ? 27 I go to the facts and reasoning in FAI General Insurance Co Ltd v Jarvis later in these reasons. The decision was squarely that s 54 is irrelevant to whether leave pursuant to s 6(4) should be granted. It was not that s 54 could not apply to the act (omission) of the insured there in question, failure to give prompt notice of an event likely to produce a claim. In FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd it was held that s 54 could apply to the act (omission) of failure to give timely notice of an occurrence which might give rise to a claim against the insured, under a deeming clause broadly similar to condition 4.1 of the policy in the present case. The decision was concerned with when s 54 could apply, not with whether it was relevant to leave under s 6(4). I do not think it negated the reasoning or result in FAI General Insurance Co Ltd v Jarvis. Should FAI General Insurance Co Ltd v Jarvis be reconsidered? 28 The plaintiffs applied for the court to reconsider FAI General Insurance Co Ltd v Jarvis if it were necessary to do so. That the plaintiffs directly challenged the correctness of the decision became clear only during the hearing, and no arrangements had been made to convene a court of five judges. Submissions were received, including supplementary written submissions, on whether the decision was incorrect and whether it should be reconsidered by the court as then constituted. 29 In Fobco Pty Ltd v Harvey (1996) 40 NSWLR 454 at 462 Beazley JA said - "This Court, though not strictly bound to follow its previous decisions, usually does so. In Bennett & Wood Ltd v Orange City Council; Board of Fire Commissioners (Third Party) (1967) 67 SR (NSW) 476; 85 WN (Pt 2) (NSW) 135, Wallace P stated (at 430; 136) that the occasions when the Court of Appeal would overturn an earlier decision should not: '... be confined intransigently to decisions which are 'manifestly' or 'demonstrably' wrong ... Giving full credit to the desirability of certainty in the law (which occasionally appears to be rather a pious aspiration) I consider that even an intermediate Court of Appeal may, on special occasions and in the absence of higher authority on the subject in hand, play its part in the development of the law and in ensuring that it keeps pace with modern conditions and modern thought and, accordingly, in an appropriate case I do not think an earlier decision of the Court (including this Court) should be allowed to stand where justice seems to require otherwise.' In Nguyen v Nguyen (1990) 169 CLR 245 at 269, where [sic] Dawson, Toohey and McHugh JJ stated: 'Where a court of appeal holds itself free to depart from an earlier decision it should do so cautiously and only where compelled to the conclusion that the earlier decision is wrong.'" 30 Her Honour gave effect to her preferred view. Of the other members of the Court, Mahoney P considered that he should follow the earlier decision in question although preferring the different view (at 458) and Priestley JA considered that no ratio could be found in the earlier decision and he could act upon his own view (at 461). 31 Prior to 1996 Jordan CJ had said in Bridges v Bridges (1944) 45 SR 164 at 172 that a considered judgment of the Full Court should not lightly be disregarded, but that there was "no principle in force in New South Wales which constrains us … to follow an earlier decision if we are satisfied it is wrong". The decisions of Davidson and Edwards JJ reflected their agreement. In Nguyen v Nguyen (1990) 169 CLR 245 the passage from the judgment of Dawson, Toohey and McHugh JJ to which Beazley JA referred was followed by, "The occasions upon which the departure from previous authority is warranted are infrequent and exceptional and pose no real threat to the doctrine of precedent and the predictability of the law: see Queensland v The Commonwealth [(1977) 139 CLR 585] per Aickin J [at pp 620 et seq]". 32 On occasions an appellate court of five judges has been constituted in this Court, for example in Evans v Marmont (1997) 42 NSWLR 70 and Kinzett v McCourt (1999) 46 NSWLR 32 (as it happens, involving s 6(4) and the vexed question of limitation periods) where there were a number of conflicting authorities including at appellate level. The Court of Criminal Appeal is also not strictly bound to follow its previous decisions, and adopts the approach taken by Jordan CJ in Bridges v Bridges and stated in Bennett & Wood Ltd v Orange City Council; Board of Fire Commissioners (Third Party) (1967) 67 SR(NSW) 476, see R v Johns (1978) 2 NSWLR 259 at 260-62; R v Mai (1992) 26 NSWLR 371 at 380-1, R v Jurisic (1998) 45 NSWLR 209 at 214. Courts of five judges have been constituted in the Court of Criminal Appeal to re-examine an earlier decision (R v Johns is an example) or for guideline judgements (R v Jurisic, R v Henry (1999) 46 NSWLR 346; and other cases). But there is no uniform practice, and courts of three judges have reconsidered earlier decisions (eg R v McEwan (1979) 2 NSWLR 926; R v Mai; see R v Jurisic at 214). 33 It may not be easy to give meaning to "manifestly" or "demonstrably", or any other epithet which may only reflect the user's regard to his or her own opinion. Even "wrong" may be measured only by who speaks last in the curial hierarchy. It is nonetheless a judge's duty to apply the law as he or she understands it, after careful consideration and with keen appreciation of the importance of certainty in the law but equal appreciation that adherence to a decision thought to be wrong can cause injustice. Matters other than perceived wrongness should be prominent in whether there should be departure from an earlier decision. 34 In the present case I have come to the view that FAI General Insurance Co Ltd v Jarvis was not correctly decided. I explain my reasons a little later. I consider that the decision should be reconsidered and not followed, because - (a) it is relatively recent, has not been endorsed in latter appellate decisions, and has been doubted; to the reservations of Smart AJ and Grove J may be added Kelly and Ball, Principles of Insurance Law , para 6-0060.15 speaking of "serious difficulties with [its] reasoning"; (b) exegesis of the operation of both s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 and s 54 has been notoriously difficult; existing certainty in their interrelationship can not be asserted with conviction; (c) perpetuation of irrelevance of s 54 to granting leave pursuant to s 6(4) will limit the remedial effect of s 54 and beneficial availability of s 6(4), both recognised in the cases; and (d) the pressures on the High Court increase the need for this Court to reconsider the decision and redirect the path of the law. 35 I do not think the President should be asked to convene a court of five judges. There are not prior conflicting decisions, or a range of outcomes. The members of the court as presently constituted agree that FAI General Insurance Co Ltd v Jarvis was not correctly decided. Reasoned explanations of the view to which we have come, rather than weight of numbers, should govern. Reconsideration of FAI General Insurance Co Ltd v Jarvis 36 In FAI General Insurance Co Ltd v Jarvis the insured was the cleaner of the store in which the claimant fell. The policy provided for indemnity against the insured's liability provided that it "occurs during the period of insurance … ", and that notice should be given forthwith on the happening of an event likely to produce a claim. The claimant fell on 16 March 1992, during the period of insurance. Notice was not given to the insurer until late May 1996. The insurer declined to provide indemnity, saying it had been prejudiced by the late notification. At first instance, the judge held that the insurer was entitled to disclaim liability unless s 54 applied but that, applying s 54, the late notification had not prejudiced the insurer. 37 The leading judgment was given by Powell JA, with whom Beazley and Stein JJA relevantly agreed. Stein JA made additional observations as to s 6(4). Santow JA has set out the key passages from the judgments dealing with the application of s 54. 38 It may be noted that Powell JA recorded (at [37]) that the insurer had submitted that it was "entitled, under the terms of the contract of insurance with its insured, to disclaim liability and that, that being so, leave to proceed against it should not be granted to [the claimant]". This reflected the prohibition, but it is clear that no proceedings had been taken to establish that the insurer was entitled to disclaim liability. His Honour's view of the relevance of s 54 was in the context of the prohibition, although he spoke generally of leave pursuant to s 6(4). No distinction was drawn between the prohibition and the general discretion. 39 The reasoning of Powell JA, with which Stein JA's additional observations were congruent, began that Bailey v New South Wales Medical Defence Union Ltd and McMillan v Mannix (1993) 31 NSWLR 538 indicated that an insured's failure to comply with a cooperation or notice condition in the policy was "notwithstanding s 54" sufficient to prevent a court granting leave pursuant to s 6(4). His Honour said that this was "not surprising" because - " … the provisions of s 6(4) are directed to the question whether leave to commence … proceedings might be granted, whereas the provisions of s 54 … clearly require the determination, at a trial, of the extent of the prejudice which an insurer may have suffered, and the determination of whether or not, in those circumstances, the act or omission of the insured which would otherwise have permitted a disclaimer of liability should be permitted to provide a defence, either in whole, or in part, to the claim made by the insured". (at [44]) 40 In McMillan v Mannix the majority held that leave pursuant to s 6(4) should be refused where, because of breach by the insured of a condition requiring cooperation in the event of a claim, the insurer was entitled to decline liability. The question was whether, the charge under s 6(1) having come into existence, the subsequent event of failure to cooperate could be relied on to resist an application for leave; it was an argument over timing. Section 54 was not mentioned in the reasons. The view of the majority was endorsed in Bailey v New South Wales Medical Defence Union Ltd at 449, described as a holding "that there were no insurance moneys which were or might become payable in the sense of s 6(1) of the Law Reform Act". 41 In Bailey v New South Wales Medical Defence Union Ltd the question was whether, the charge under s 6(1) having come into existence, the insurer's subsequent unilateral termination of any grant of indemnity, following alteration of its articles of association, could affect its obligation to indemnify. It was held that it could not, and that only action "under or pursuant to the contract of insurance or the general law as it operates upon the contract" (at 450) could detract from the insured's rights as chargee. In explaining what action could detract from the insured's rights as chargee, McHugh and Gummow JJ at 448-9 gave examples of when an insurer would be "entitled under the terms of the contract of insurance to disclaim liability". They referred to disclaimer under the common law right to rescind for non-disclosure, avoidance pursuant to s 28 of the Insurance Contracts Act for non-disclosure or misrepresentation, and the breach of the condition as to cooperation in McMillan v Mannix. There was no reference to s 54. 42 I respectfully do not see the decisions in McMillan v Mannix and Bailey v New South Wales Medical Defence Union Ltd as indicating that failure to comply with a policy condition sufficed to preclude leave pursuant to s 6(4) "notwithstanding s 54". Section 54 just did not arise. It was not raised in McMillan v Mannix to overcome the breach of the cooperation condition. Perhaps that was because in 1993 s 54 had not been recognised as having the scope it has now been given, see the progressive broadening of its application from East End Real Estate Pty Ltd v C E Heath General Insurance Ltd (1991) 25 NSWLR 409 to FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd, but the decision is not authority for something it did not decide. Section 54 was not material to the point being made in Bailey v New South Wales Medical Defence Union Ltd, which was to distinguish events under or pursuant to the contract of insurance or the general law, events which meant that there would be nothing in respect of which the charge would be enforced, from the unilateral action of the insurer. As will be seen, in my opinion what was said in Bailey v New South Wales Medical Defence Union Ltd in fact supports the relevance of s 54 to an application for leave pursuant to s 6(4). 43 Powell JA's reasoning did not depend on the authority of these cases, but rather on the explanation he then gave for what he said they indicated. Stein JA adopted the explanation, saying that the two provisions were "directed to different questions" (at [60]). I respectfully do not think it sufficient for irrelevance of s 54 to say that s 6(4) and s 54 are directed to different questions. 44 It is correct that the two provisions are directed to different matters, in that s 6(4) is concerned with leave to commence proceedings against an insurer but s 54 is concerned with when an insurer may not refuse to pay a claim. They overlap, however, because common to both is the existence and extent of the insurer's obligation to indemnify. The existence of the insurer's obligation to indemnify arises under s 6(4) in the prohibition, and its existence and extent arise under s 6(4) in the exercise of the general discretion. The existence and extent of the insurer's obligation to indemnify are the direct concern of s 54. If it must be determined whether the court is satisfied that the insurer is entitled to disclaim liability, or whether it is arguable that the insurer is obliged to provide indemnity, how can it be that the operation of s 54, upon which the existence and extent of the insurer's obligation to indemnify may turn, is irrelevant? 45 One answer may be that the prohibition refers to entitlement "under the terms of the contract of insurance", a phrase which I omitted in the proceeding paragraph, and that the operation of s 54 is outside the terms of the contract of insurance. I have earlier referred to the importance of these words in the operation of the prohibition. It is not clear that Powell JA had this in mind, but his Honour identified the question whether leave should be refused because the insurer was entitled under the terms of the contract of insurance to disclaim liability. He appears to have been dealing with the prohibition. I refer again to the discussion of the prohibition and the general discretion. If the operation of s 54 is outside the terms of the contract of insurance, it nonetheless remains relevant in the exercise of the general discretion. It would be a strange exercise of discretion to deny leave pursuant to s 6(4) because, apart from s 54, the insurer was entitled to disclaim liability, while recognising a cast-iron case for the operation of s 54 by which the insurer would be obliged to provide indemnity. At best, this is only a partial answer. 46 But I do not think that this is a good answer even for the prohibition. In the examples given in Bailey v New South Wales Medical Defence Union Ltd a broad scope was given to "entitlement under the terms of the contract of insurance to disclaim liability", encompassing rescission at common law for non-disclosure and avoidance under s 28 of the Insurance Contracts Act for nondisclosure or misrepresentation. It was not confined to an entitlement found in the words of the policy, and an entitlement "under the terms of the contract of insurance" can not sensibly exclude the operation of the general law upon the contract of insurance. The prohibition must, for example, have been meant to catch vitiation of the contract of insurance in its inception. Once regard can be had to a statutory provision operating to permit the insurer to avoid the contract of insurance, why not regard to a statutory provision operating to prevent an insurer from declining to pay under the contract of insurance? In both cases, whether the insurer is entitled to disclaim liability is found in the terms of the contract of insurance as affected, in their existence or effect, by the statutory provision. 47 Another answer, a matter which Powell and Stein JJA appear to have had in mind, may be that the operation of s 54 is for the trial and not for an application for leave pursuant to s 6(4). I respectfully do not think that is a good answer either. Section 54 requires determinations of whether the act (omission) of the insured or other person could reasonably be regarded as being capable of causing or contributing to an insured loss, or caused in whole or part the loss that gave rise to the claim (s 54(2), (3), (4)); of whether it otherwise prejudiced the insured's interests (s 54(1)); and of whether it was a necessary and unavoidable act (s 54(5)). These determinations are just as much, or as little, determinations at a trial as any other determination on which the insurer's entitlement to disclaim liability or obligation to indemnify depends, such as whether the contract of insurance may be avoided for non-disclosure or misrepresentation. They can be addressed for the purposes of granting or refusing leave under s 6(4), on whatever level of "arguably" is appropriate, equally with any other determination. 48 Thus it may be clear on the application for leave that s 54 will not operate in favour of the insured, so that the satisfaction of the prohibition is achieved. It may be clear that the insured's recovery under the contract of insurance will be diminished but not extinguished because of prejudice to the insured's interests, so that the satisfaction in the prohibition is not achieved but the extent of recovery bears upon the exercise of discretion. It may be found to be arguable that s 54 will operate in favour of the Insured. Leave may be granted or refused in the exercise of the discretion if it is thought that in the whole of the circumstances, of which the operation of s 54 is one, that is the just result. 49 With the utmost respect, therefore, I do not think s 54 is irrelevant to whether leave should be granted or refused pursuant to s 6(4). How it will operate is another matter. Mere invocation of s 54 is not an answer to an insurer's reliance on the terms of the contract of insurance. The exercise of the discretion in this case 50 One consideration in granting or refusing leave is whether the insured is available to be sued and solvent, so that "there is a perfectly good common law defendant available" (Campbell v Mutual Life and Citizens Fire and General Insurance Co (NZ) Ltd (1971) NZLR 240 at 243). Grove J's finding that any judgment against the Hospital would probably be unsatisfied was sufficient for a grant of leave if other considerations so warranted: see, for example, Oswald v Bailey at 742; Schipp v Cameron (1995) 8 ANZ Ins Cas 61-256 at 75,871-2. 51 I do not think that error has been shown in Grove J's finding that there was an arguable case that the Hospital was liable to the plaintiffs in negligence. I respectfully adopt the reasons of Santow JA in that respect. 52 The plaintiff's trigger for an act (omission) on which s 54 could operate was the Hospital's awareness during the Period of Insurance, within condition 4.1, of circumstances that may give rise to a Claim against it by the plaintiffs. I also do not think that error has been shown in Grove J's finding of awareness, and again respectfully adopt the reasons of Santow JA in that respect. 53 The Hospital's failure to give notice of the circumstances to CGU during the Period of Insurance was an act (omission) within s 54, open to consideration for its causative or prejudicial effect: FAI Insurance Ltd v Australian Hospital Care Pty Ltd. It plainly had no causative effect upon a loss within the insurance or the loss that gave rise to the plaintiff's claim (s 54(2), (3), (4)), and did not engage with necessity and unavoidability. Only s 54(1) could operate. 54 No doubt under the influence of FAI General Insurance Co Ltd v Jarvis, CGU did not present to Grove J a case of prejudice to its interests. From the transcript of the hearing before Grove J, it was clear that the plaintiffs contended that FAI General Insurance Co Ltd v Jarvis was no longer good law, so CGU had reason and the opportunity to present such a case if it wished. 55 The Hospital became aware of circumstances that may give rise to a Claim at the end of August 1999. In order to comply with condition 4.1, it was probably sufficient for the Hospital to have given notice of the circumstances to CGU during the Period of Insurance, that is, prior to 30 June 2000. CGU was told of the application for leave to commence proceedings in May 2002. It is not self-evident that CGU suffered prejudice from delay between June 2000 (or even August 1999) and May 2002 such that its liability would be reduced to nil, or reduced to a small amount. CGU could have presented a case of prejudice to its interests. No submission was made that any liability the Hospital may have to the plaintiffs was otherwise outside the cover under the policy. Subject to the matter next considered, in my opinion leave to commence proceedings against CGU should be granted. 56 CGU submitted that, even if s 54 was available to overcome the Hospital's failure to give notice of the circumstances during the Period of Insurance - " … the fact that no claim was made against [the Hospital] during the period of insurance cover means that [the Hospital] could not have successfully claimed against [CGU] even with the assistance of s 54 … ". 57 It referred to observations in Permanent Trustee Australia v FAI General Insurance Co Ltd (1998) 44 NSWLR 186 and Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706, as reviewed in FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd. 58 In Permanent Trustee Australia v FAI General Insurance Co Ltd at 227 Hodgson J suggested that the absence of a claim against the insured in a claims made and notified policy was not an omission "but rather something [that] did not happen". In Greentree v FAI General Insurance Co Ltd at 210 Spigelman CJ said that the failure of a third party to make a claim was a "'non-event' in the sense of conduct wholly external to the policy itself". In FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd at [36]-[39] McHugh, Gummow and Hayne JJ did not accept these formulations, and said that the reasoning in the two cases should be rejected although the actual decisions were correct. Their Honours focussed on the claim made by the insured upon the insurer, as distinct from the claim by the third party against the insured which they termed a demand. At [40]-[44] they said that where under a claims made and notified policy a demand had not been made within the period of insurance, the insurer's refusal of indemnity was not because of an act (omission) of the insured but "because the policy did not extend to the demand referred to in the claim for indemnity". 59 Their Honours distinguished this from the case before them. In FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd itself the policy provided that if, during the policy period, the insured became aware of an occurrence which might give rise to a claim against it and gave notice of the occurrence to the insurer, the claim subsequently made was deemed to have been made during the policy period. Their Honours again focussed on the claim made by the insured upon the insurer. It was a claim for indemnity against liability for an occurrence of which the insured first became aware during the period of insurance, the insurer's refusal of indemnity was because of an act (omission) of the insured in failing to give timely notice of the occurrence, and s 54 was engaged (at [46]). 60 Condition 4.1 in the present case is worded differently from the provision in FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd, since it provides for deemed notification of a claim rather than deemed making of a claim. The condition is ungrammatical, and does not say what "shall … be deemed a Claims notified", but the intent to extend the cover to indemnity against a claim later made arising from the circumstances of which notice is given was not in doubt. The deeming plainly went not only to notification to CGU, but also to making a Claim against the Hospital; there could not be deemed notification of a Claim during the Period of Insurance without treating the later Claim as made during the Period of Insurance. The reasoning of McHugh, Gummow and Hayne JJ in the case before them applies. The claim made by the Hospital upon CGU was a claim for indemnity against liability for circumstances of which the Hospital became aware during the Period of Insurance, and CGU's refusal of indemnity would be because of an act (omission) of the Hospital in failing to give timely notice of the circumstances. Orders 61 I agree with the orders proposed by Santow JA. 62 SANTOW JA: OVERVIEW The three matters for which leave to appeal is sought were heard together by Grove J in the Supreme Court on 22 July 2003 and decided on 25 July 2003. Essentially the appeals are against the trial judge's denial of the leave required under the proviso to s6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) ("the Act"). Leave was required to enforce a charge against insurance monies under a policy covering negligence, issued by the fifth opponent, CGU Insurance Limited in favour of the Hurstville Community Co-operative Hospital ("the Hospital"). 63 Those claims against the policy were sought to be enforced in consequence of a claim for negligence brought against the Hospital by Con Tzaidas, Vickie Tzaidas and George Tzaidas, father, mother and their child respectively. That negligence claim is in respect of injuries that George Tzaidas sustained during and after his birth at the Hospital. The Hospital is the second opponent to these leave proceedings and one of the three defendants in the underlying negligence claims. The other defendants and opponents are Dr Child, an obstetrician and Dr Scarf, a paediatrician (first and third opponents respectively) who were involved in the treatment of George in relation to his birth and its aftermath. These three opponents submitted to the orders of the Court of Appeal. The fifth opponent, CGU Insurance, the insurer, did provide submissions and argument to the Court. 64 The proviso to s6(4) of the Act relevantly provides that: "[L]eave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is entitled to disclaim, having been taken." 65 Here in the events that happened, and putting to one side the effect of legislation, the contractual terms of the contract of insurance did permit the insurer to disclaim liability. But legislation in the form of s54 of the Insurance Contract Act 1984 (Cth) would, prima facie, prevent the Insurer refusing to pay the claim where the conditions of s54 are made out. However, there is Court of Appeal authority (FAI General Insurance Co Limited v Jarvis (1999) 46 NSWLR 1) which held that the provisions of s54 were irrelevant to the question of leave to commence proceedings under s6(4) of the Act. 66 The primary question is therefore whether, assuming s54 applied to prevent disclaimer and notwithstanding Jarvis, the prohibition on granting leave under s6(4) would by reason of s54 no longer come into play. If so, that would still leave the Court with a discretion to grant or withhold leave, which this Court would then need to exercise. 67 That fairly poses the question whether Jarvis can be distinguished, or should simply not be followed, having regard to more recent High Court authority on s54. That authority is FAI General Insurance Co Limited v Australian Hospital Care (2001) 204 CLR 641. 68 If leave to appeal were granted, the fifth opponent (the insurance company) contends that the Court of Appeal would then have to determine whether the application should be refused because: (a) its submission should be accepted that no claim was made against the insured hospital within the period of the insurance cover provided by the Fourth Opponent and therefore, consistent with Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706 at 710 and Permanent Trustee v FAI (1998) 44 NSWLR 186 at 227, s54 of the Insurance Contracts Act (1984) (Cth) could not operate, or (b) the evidence adduced by the applicant did not establish a prima facie case against the insured hospital. 69 Each of the premises in (a) and (b) above were disputed by the applicant. In the end (a) could not be maintained, in light of the High Court's decision in Australian Hospital Care. That still leaves the earlier questions and (b) in contest. THE SALIENT FACTS 70 What follows is essentially uncontroversial. 71 Vickie Tzaidas (the mother) was admitted to the Hospital for childbirth shortly before midnight on 15 November 1996. The infant plaintiff George was delivered by normal vaginal delivery at about 11 am on 16 November 1996, by her obstetrician Dr Child. According to Dr Barrowclough, a doctor retained as expert by the plaintiff's lawyers, Mrs Tzaidas was a carrier for Haemophilia B (not the father, as mistakenly stated by the trial judge at [7]). Dr Barrowclough also stated that two of Mrs Tzaidas' maternal uncles and her brother were also affected. Her first child, Angelo was also affected (White Folder – Tab 10 at page 32). Dr Barrowclough posited that it was clear that this strong family history was known prior to the birth of George in 1996. 72 In the actual delivery record for George, it is noted that the baby had "Christmas Disease – Mild Haemophilia (factor IX deficiency)". 73 After the delivery both mother and child remained as in-patients at the Hospital. 74 The baby was examined daily by the Hospital staff. There is a note dated 17 November 1996 which states: "Dr Scarf has not rung back, at this stage, after being paged early in night regarding babe's admission. Dr Scarf had looked after sibling and was aware of mother's pregnancy. Dr [illegible] rung and notified of admission. Suggest notifying Dr Scarf at 8am. There are no problems at this stage." 75 Dr Barrowclough in his report, stated that this note indicated that a paediatrician was notified of the birth and that Mrs Tzaidas' history (as a carrier of haemophilia B) was known. 76 Dr Scarf a visiting medical officer (VMO) and paediatrician, recorded mild jaundice on 18 November 1996. 77 Dr Scarf saw the baby again on 20 November 1996. His notes record "mild jaundice – very active – feeds well". 78 On 21 November 1996 the baby was reported to have vomited twice. He was seen by Dr Scarf in the afternoon and blood was taken for a full blood count, liver function tests, Coombes test and serum bilirubin. An MSU was also taken. According to Dr Barrowclough's account, "the result was notified at 16.00 hours, the bilirubin being 337 with the direct, 14". On this result the baby was transferred to the Special Care Nursery for phototherapy. Vomiting continued and he was put on intravenous fluids. 79 On 22 November 1996 the note at 6.10 am records that the baby was "pale and inactive". Twenty minutes later the baby was noted to have "jerking movements of the (L) leg and (L) arm". There was rhythmic eyelid blinking and lip smacking. Dr Scarf was notified and he wanted the baby reviewed by the resident medical officer (RMO) and a CT scan to be arranged at St George Hospital after 8 am. 80 The RMO's report noted: "Baby fitting this am (L) arm and (L) leg. Fontanelle full – Pale – D W DR Scarf 1. for Valium 0.2 mgm KG 2. Cerebral CT Repeat Bloods – FBC and film – BSL Insulin – SBR" 81 The next note at 11.30 am recorded that the baby continued to convulse. Dr Scarf was notified. The scan at St George Hospital was cancelled and the baby was transferred to New Children's Hospital (NCH). A scan of the cranium demonstrated a sub-dural haematoma. Factor IX deficiency was confirmed on blood assay. 82 The claimants state that George Tzaidas suffered from and continues to suffer from, inter alia, severe brain damage, development delay and significant impairment of vision as a result of his treatment (or lack thereof) at the Hospital. HURSTVILLE COMMUNITY CO-OPERATIVE HOSPITAL 83 On 30 June 1999 the Hospital obtained professional indemnity insurance from Pacific Indemnity (i.e. CGU Insurance Ltd). 84 On 27 August 1999, the claimant's former solicitors wrote to the hospital and advised that they were acting for George Tzaidas in respect of the injuries he sustained on 16 November 1996. They also requested that a copy of his clinical records be provided to them. The letter so requesting read as follow: "RE: GEORGE TZAIDAS Address: 16 Jaffa Street FAIRFIELD WEST Born on: 16 November 1996 We wish to advise that we act for George Tzaidas. We are instructed that our client was treated by your hospital in respect of injuries sustained on 16 November 1996 and it would be appreciated if you could kindly let us have copies of all your clinical notes setting out the nature and conditions of our client's injuries, treatment given and prognosis. This request is made pursuant to the provisions of the Private Hospitals Regulations 1996 under the Private Hospital and Day Procedure Centres Act. We enclosed herewith our client's authority for such information together with our cheque for the sum of $30.00 being your fees herein. Further, we would be pleased if you could forward to us a statement of any fees incurred by our client in connection with those injuries, either paid or outstanding." 85 On 26 October 1999 the Hospital replied to the letter, declining to meet this request for the records: "Regarding your letter, reference Tzaidis, I wish to inform you that request for access to the record of baby, Tzaidis, cannot be accommodated. The hospital genuinely endeavours to grant all patients access to their records. However the hospital protocol is as follows: – The patient (or their next of kin, as stated in the patient's record) writes personally to the hospital. – Appointment is made with hospital's resident doctor to go through the notes with the patient. – The patient's doctor may veto the above process. Yours faithfully, Philippa McCaffery General Manager." 86 On 20 October 1999 Martin Green of Stockford Ltd was appointed Administrator of the Hospital. 87 On 3 November 1999, the claimant's solicitors again wrote to the Hospital seeking access to the clinical records of George Tzaidas in these terms: "RE: GEORGE TZAIDAS Address: 16 Jaffa Street, FAIRFIELD WEST NSW 2165 Born on: 16.11.96 We refer to the above named and to your letter of 20 October 1999 which stated that you could not accommodate our clients request for access to clinical records. We note that under s42 of the Private Hospitals and Day Procedure Centres Act 1988, you are required to provide a patient's representative with access to their clinical records. Furthermore under s43, you are required to provide copies of these clinical notes to the patient's representative if so requested. Under the Act you are therefore required to provide our office, as the patient's representative, with copies the clinical records. In our letter of 27 August 1999, we enclosed our client's authority to this effect. If you refuse our request for access, you must inform us of the reasons for the refusal and of any rights of appeal that may exist in relation to the refusal. We do not understand your protocol that the patient must personally write to you requesting access. Please urgently advise us of your position in this regard." 88 On 8 December 1999 the Hospital entered into a Deed of Company Arrangement and Mr Green was appointed the Deed Administrator. Evidently based on this fact the trial judge concluded as follows (at [3]): "Insofar as the plaintiff needs to show that the Hospital will be unable to satisfy any judgment against it and that action against it is probably ineffectual, counsel for the plaintiff noted that although it had now passed out of administration back into the hands of its directors "the weight of evidence suggests that it is impecunious in the relevant sense". Counsel for the insurer, who appeared to resist the motions, did not seek to dispute this statement." 89 As no notice of contention has been issued disputing that holding, it can be taken that any judgment against the insured would, without recourse to the insurance proceeds, probably be unsatisfied. 90 On 15 December 1999 the Hospital replied to the claimants in a letter denying their request for a copy of the clinical records. The trial judge noted that this letter may have indeed not been sent having regard to the opening statements in the next letter of 29 February 2000 from the solicitors. The content of these letters was: "I refer to your correspondence of 3rd November. Pleased be advised that our policy for patients wishing to access their medical record is designed to ensure the patient is provided with appropriate clinical support whilst viewing their record. This support ensures they are able to interpret and understand the record's content. The Hospital considers it has a duty to provide this service to our patients. Please be advised that the baby's mother is named as next of kin in the baby's medical record and we would allow her to access the baby's record in accordance with our policy. I trust this clarifies our position for you." and: "RE: GEORGE TZAIDAS We refer to the above named and to our letter of 3 November 1999, a copy of which is enclosed for your reference. We advise that we have not received a response from you in relation to same. We again reiterate that under s42 of the Private Hospitals and Day Procedure Centres Act 1988, you are required to provide our office, as Mr Tzaidas' representative, with copies of his clinical records. To date your office has refused and/or neglected to supply these records. We request that you urgently provide copies of these clinical records, or inform our office of your reasons for refusal. We await your early response." 91 The Hurstville Community Co-operative Hospital was, it was submitted, not a specialist obstetric hospital but a community hospital, lacking the resources that should have been available to a baby whose mother had the medical history of Vicki Tzaidas. Thus Factor IX, a treatment for George's condition, was not available at the Hospital. It was contentious as to whether Dr Scarf or a Registrar had known about George's need for Factor IX. Nonetheless it is difficult to see how, at least in the former's case, with the known family history of haemophilia, that should not have been anticipated; see report of Dr Barrowclough below and the delivery record referred to earlier. EXPERT REPORTS 92 The claimant produced the reports of two expert witnesses at the trial: Dr Barrowclough and Dr McWhirter. Dr Barrowclough concluded his summation of the birth and its immediate aftermath to the point where the baby was transferred to the New Children's Hospital as follows: "In the absence of antenatal records I have presumed that the pregnancy itself was uneventful. However, of more significance is the fact that Mrs Tzaidas' history, as a carrier of Haemophilia B, and her family history of two uncles, a brother and her first son being affected with the disease was known. Consequently, her second pregnancy would fall into the 'high risk' category – the risk being to the babe. Although her labour was not prolonged and the delivery was a vaginal and normal one thee was a potential risk of trauma to the babe as it was highly likely that he would be affected by the familial disease. In cases such as this it is essential to ensure that Factor 9 concentrate is available when labour starts. More importantly, a patient with a high-risk pregnancy as this one was, should be cared for a delivered at a Tertiary Hospital where all facilities are available. To address the matters you have raised: 1. Given that Vickie is a carrier for Haemophilia B and that her two maternal uncles, brother and first-born son are affected by haemophilia B, on the balance of probabilities (51% or more) was there a departure in the standard of care expected of the reasonably competent Obstetrician in: a. failing to arrange for Vickie to give birth to George at a Base or 'Tertiary' hospital with more appropriate birthing facilities? b. failing to ensure the availability of Factor IX and/or other appropriate blood products for the treatment of Haemophilia B, at the time of labour? a. I believe that not referring Mrs Tzaidas to a Base Hospital for management did constitute a departure from reasonable standard of care. The staff of the Base Hospital should have been made aware of this case from the beginning of the pregnancy and antenatal care could have been shared. Then suitable arrangements for the delivery and care of the babe could have been made beforehand. However, I believe when labour started she should have been admitted to the Base Hospital. b. Theoretically the availability of Factor IX concentrate should have been arranged beforehand. However, this is not rally relevant because I believe that Mrs Tzaidas should not have been cared for at a community Hospital in the first place." 93 He concluded that he believed "that the major problem from which all other problems arose was the failure to refer Mrs Tzaidas to a Base Hospital". In a later report of 6 April 2003 he answers the questions asked of him in these terms: " 1. We note that Vickie Tzaidas (mother of George) was a known carrier of Haemophilia B, her family history consisted of 2 uncles, a brother and her first son suffering from Haemophilia B Is it your opinion that following George's birth, born on 16 November 1996 Dr Child and/or the staff of the Hospital should have organised for George to be transferred to a Base Hospital or Tertiary Hospital? Please state your reasons. Mrs Tzaidas was a known carrier of Haemophilia B with a known family history. Therefore, this was a high-risk pregnancy as far as the babe was concerned. Consequently I believe that the paediatric staff of the nearest Tertiary Hospital should have been notified during the pregnancy and that the relevant Blood bank should have been notified so that Factor IX would be available. I also agree that transfer of the mother and the babe to a Tertiary Hospital should have been organised. 2. When should such a transfer have been organised? I believe that it should have been organised during the antenatal period and before Mrs Tzaidas came into labour. 3. Is it your opinion that Dr Child and/or the staff of the Hospital departed from the acceptable standards of care in failing to organise for George to be transferred to a Base or Tertiary Hospital? Please state your reasons. It was not just arranging a transfer that was important. There was a failure to arrange for Factor IX to be available and to warn the paediatrician prior to the onset of labour. I believe that this was a departure from acceptable and reasonable standards of care." 94 Dr McWhirter, the second expert witness, gave two reports, extracts from which are quoted below: "Under such circumstances, I agree with Dr Barrowclough that the delivery should have taken place in a major hospital with facilities for rapid estimation of coagulation, availability of factor IX and access to a paediatric haematologist. The failure to take such obvious precautions together with the absence of an adequate family history of the condition and the lack of consultation with a paediatric haematologist before the birth, in my opinion, constitute negligence on the part of the obstetrician." "On the morning of 22/11/96 he was noted to be pale and inactive and at 0630 he started fitting. Three doses of intravenous Valium were given. He was seen by Dr Scarf around 0830 and he diagnosed an intracranial haemorrhage and arranged immediate transfer to the New Children's Hospital. There does not appear to have been any undue delay in arranging this transfer once the provisional diagnosis of an intracranial haemorrhage was made. It would be very difficult to tell in retrospect whether the intracranial haemorrhage could have been diagnosed earlier. There is no doubt that, in view of the family history, Factor IX should have been immediately available and the lack of prior arrangements for this is disturbing." "As the potential severity of the condition in George is therefore of such importance, it is difficult to understand why there is no record of Angelo's factor IX level in the hospital records or correspondence. I have spoken to Dr A Lammi, Paediatric Haematologist at the New Children's Hospital, who has informed me that Angelo had a factor IX level of about 2%, placing him in the moderate to severe category. This information would have been available at the time of George's delivery. There does not appear to have been any consultation with the Haematology Dept. of the New Children's Hospital prior to the diagnosis of the intracranial haemorrhage. I believe that had such a consultation taken place before the delivery, the subsequent chain of events might have been very different. Haemophilia is an uncommon condition and consequently the necessary level of expertise for its proper management is available only in a few specialised centres." "It is not possible to state when the intracranial bleed began although it is likely that it began at least a day before the diagnosis was made. If the paediatrician had taken more note of the older brother's diagnosis, treatment would probably have been initiated earlier. A presumptive diagnosis of bleeding could have been made on 21/11/96 instead of the next day and treatment could have been started a day earlier. This delay probably contributed to the extent of the subdural haematoma and the consequent brain damage." "There also appears to have been a failure on the part of the paediatrician to obtain an adequate family history and he and/or the obstetrician should have consulted with the paediatric haematologist regarding appropriate management of haemophilia in the newborn. A coagulation screen and factor IX on the cord blood would have been easy to arrange and results would have been available within hours. In this case, this would have been the responsibility of the obstetrician, as the baby was apparently not referred to Dr Scarf until the age of 2 days." Disposition of Leave to Appeal and Appeal 95 I would conclude that leave to appeal should be granted. While no issue arises as to whether s6 of the Law Reform (Miscellaneous Provisions) Act is capable of applying to policies such as the instant one, there is an important question as to the application of the proviso to s6(4) of that Act in circumstances such as the present. Those circumstances include the potential application of s54 of the Insurance Contracts Act 1984 (Cth). This is in light of the recent High Court decision in FAI General Insurance Co Limited v Australian Hospital Care Pty Limited (supra), and its bearing upon the ruling in Jarvis that s54 of the Commonwealth Act is irrelevant to granting leave pursuant to s6(4). The trial judge expressed some reservation about whether Jarvis was impliedly overruled by Australian Hospital Care but concluded that "in the absence of stated disapproval or clear contradiction I would not regard such a finding as compatible with appropriate exercise of first instance jurisdiction" (at [31]). 96 Moreover, the trial judge noted that Smart AJ in Hellier & Or v AMP General Insurance Ltd [2002] NSWSC 866 (unreported 20 September 2002) expressed reservations about Jarvis but accepted that he was bound by it (at [32-5]). 97 A further matter which was not raised below but which was raised in exchange between Bench and Counsel in this appeal, is a further, cumulative requirement in s6(4) of the Act for leave being precluded. It is that "any proceedings … necessary to establish that the insurer is entitled to disclaim have been taken". That requirement was not expressly considered in Jarvis, though it is has potential relevance to its reasoning as I later explain. The respondent's contention is that in Jarvis, as in this matter, no proceedings were necessary to establish the insurer's right to disclaim. It was said to be obvious from the available evidence and the terms of the contract that failure to notify gave rise to a contractual right to disclaim. I shall return to those contentions later, which are disputed. That they are disputed affords further reason for granting leave to appeal. 98 For these reasons I would grant leave to appeal. A preliminary question was whether this Court as presently constituted should resolve the appeal itself or whether it should be re-constituted as a five-member bench, insofar as the correctness of Jarvis may fall for consideration. I say "may" because until one embarks upon the detailed consideration of the issues in the appeal, one cannot answer whether it will be necessary ultimately to decide the correctness of Jarvis. It would not be necessary if Jarvis were distinguishable or if the appeal could be determined on other grounds. However for reasons developed later, I consider that the correctness of Jarvis is directly in issue in this appeal. 99 Both questions were addressed in later written submissions. 100 It is instructive to compare Evans v Marmont (1997) 42 NSWLR 70. That was a decision of a five-member bench specially constituted for that appeal. Significantly, there were six at least conflicting authorities, some first instance but two at appellate level. They reflected the diversity of opinion in this Court on s20 of the De facto Relationships Act 1984. The principal conflicting authorities were Dwyer v Kaljo (1992) 27 NSWLR 728 and Wallace v Stanford (1995) 37 NSWLR 1, both at Court of Appeal level. The High Court refused special leave to appeal in both cases. But in the later case (S92/1995 16 April 1996), as Gleeson CJ and McLelland CJ in Eq in Evans v Marmont explained (at 72), the High Court indicated that, the question being one of construction of a New South Wales statute, the conflict of judicial opinion should be resolved by a specially constituted bench of the Court of Appeal. The Court in the present case is not confronted by any such High Court indication. 101 Moreover, recent High Court authority, Australian Hospital Care (supra), provides an occasion, in its more recent exegesis of s54, for reviewing Jarvis, a decision preceding it. Therefore while there is no indication that a five member bench should be adopted, Dawson, Toohey and McHugh JJ in Nguyen v Nguyen (1990) 169 CLR 245 emphasised the cautious approach that a court of appeal should take in departing from an earlier decision. I quote the relevant passage (omitting footnotes and detailed references): "The extent to which the Full Court of the Supreme Court of a State regards itself as free to depart from its own previous decisions must be a matter of practice for the court to determine for itself. An example of such a determination is the Practice Statement of the House of Lords in 1966: Practice Statement (Judicial Precedent) [1966] 1 WLR 1234. The arguments in favour of certainty and against rigidity have been rehearsed on numerous occasions and no purpose is to be served by repeating them here: …… It should be observed, however, that neither the Court of Appeal in New South Wales nor the Full Courts in Victoria and South Australia regard themselves as strictly bound by their previous decisions: …… There is no reason to think that the practice in Tasmania is any different, but in Transport Trading and Agency Co of WA Ltd v Smith (1906) 8 WALR 33 there was the suggestion of a contrary practice in Western Australia. In Victoria a procedure is adopted whereby a Full Bench of five or more judges is convened if a decision of a Full Court of three judges is to be reviewed: see Kidd, "Stare Decisis in Intermediate Appellate Courts", (1978) 52 Australian Law Journal 274. The Full Court of the Federal Court will depart from a previous decision if convinced that it is wrong: Chamberlain v R (1983) 72 FLR 1 at 8–9; 46 ALR 493 at 498. Where a court of appeal holds itself free to depart from an earlier decision it should do so cautiously and only when compelled to the conclusion that the earlier decision is wrong. The occasions upon which the departure from previous authority is warranted are infrequent and exceptional and pose no real threat to the doctrine of precedent and the predicability of the law: see Queensland v Commonwealth (1977) 16 ALR 487; 139 CLR 585 per Aickin J at 620 et seq." (at 268-9) 102 It must therefore be a matter for decision by this bench as constituted for the purposes of the present leave to appeal, as to whether it should be re-constituted as a five-member bench. My view is that this Court should proceed with the appeal as presently constituted. I agree with Giles JA, a draft of whose judgment I have had the advantage of reading, that the findings of Grove J should be open to review as a condition of the grant of leave to the plaintiffs, having regard to the outcome of any reconsideration of Jarvis. The insurance policy and relevant legislation 103 The Hospital, as the trial judge records, was covered in respect of specified risks under a policy of insurance in force from 30 June 1999 to 30 June 2000 with Pacific Indemnity, a business name under which the insurer traded. The indemnity available included liability for claims for compensation of the nature sought in the three actions. 104 The policy was of a type sometimes described as a "claims made and notified" or "discovery" policy, in the parlance of the insurance industry. The policy excluded acts, omissions, etc prior to the "specified retroactive date in the Schedule" but the Schedule in fact specified that "the retroactive date is without limitation". 105 Clause 4.1 of the policy was noted by the trial judge as germane to the motions before him seeking leave, as follows: "If during the Period of Insurance , the Insured becomes aware of any fact, situation or circumstance, including any written or verbal notice of demand for compensation, that may give rise to a Claims and elects during the Period of Insurance to give notice to Pacific Indemnity of such fact, situation or circumstance shall, for the purposes of this Policy , be deemed a Claims notified to Pacific Indemnity during the currency of this Policy ." 106 I turn now to the relevant provisions of the legislation, starting with s6 of the Law Reform (Miscellaneous Provisions) Act 1946. Section 6 relevantly provides as follows: "6 Amount of liability to be charge on insurance moneys payable against that liability (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability. (2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding-up. (3) Every charge created by this section shall have priority over all other charges affecting the said insurance moneys, and where the same insurance moneys are subject to two or more charges by virtue of this Part those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves. (4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken. ….(9)" 107 Section 6 creates "a new right with an associated remedy to enforce it" (Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 446 per McHugh and Gummow JJ. That right, subject to the necessary leave under s6(4) to enforce it, is by way of charge created by s6(1). Leave is precluded in the circumstances articulated in the last sentence of s6(4), essentially directed to the case where it is established by any necessary proceedings that the insurer is entitled under the terms of the insurance contract to disclaim. Absent its application, leave is subject still to a general curial discretion. I agree with Giles JA that the purpose of the leave requirement is to protect insurers from unwarranted direct actions by claimants upon their insureds. I also agree with the observations of Giles JA at [19]. 108 Section 54 of the Insurance Contracts Act 1984 (Cth) is in the following form, particularly noting sub.s1: 54 Insurer may not refuse to pay claims in certain circumstances (1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act. (2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim. (3) Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act. (4) Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act. (5) Where: (a) the act was necessary to protect the safety of a person or to preserve property; or (b) it was not reasonably possible for the insured or other person not to do the act; the insurer may not refuse to pay the claim by reason only of the act. (6) A reference in this section to an act includes a reference to: (a) an omission; and (b) an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter." 109 Section 54 of the Commonwealth Act applies to acts or omissions; s54(6). The omission here is failure to notify the insurer of "any fact situation or circumstance" that "may give rise to a Claim". This is on the basis that "the insured becomes aware" of such fact situation or circumstance. The latter is disputed on appeal. The trial judge concluded that the insured was made aware of the relevant matters by the passage of correspondence between the solicitors for George Tzaidas dated respectively 27 August 1999, 3 November 1999 and 15 December 1999, earlier quoted. 110 The trial judge's conclusion is set out at [22-3] quoted below: "[22] The solicitor's letter of 27 August 1999 did not give notice of intended claim against the hospital nor did the following exchanges. However, I am satisfied that the Hospital was aware of these circumstances. A solicitor was enquiring about injuries sustained on the day of George's birth. The request for clinical notes "setting out the nature and conditions of our client's injuries, treatment given and prognosis" could not reasonably be understood as relating to ongoing medical treatment given the emanation of the request from lawyers. Nor could it be thought that enquiry was being made in connection with some antecedent injury as it is clear there is allegation of injury on 16th November, the day of birth. The Hospital may be taken to be aware of circumstances recorded in its own notes. They reveal a manifestation of symptoms including persistent vomiting. Importantly the notes reveal the need for Factor IX was recognized (apparently by a Registrar) and the Hospital must have been aware that it had no supplies of this. The Hospital would also be aware of the circumstances in which the newborn baby was removed from its care by emergency transport and taken to the new children's hospital. [23] It is not to the point that viewed in isolation, the initial letter from solicitors might have been thought to imply contemplation of action against the medical attendants who were not employees of the Hospital. The question is whether the Hospital was aware of circumstances which may give rise to a claim against it even if jointly or severally with others, and I would answer that question in the affirmative." 111 I agree with the trial judge's conclusion. Here was a series of letters written by the solicitors for a child delivered at the Hospital. His subsequent injuries were clearly known to the Hospital. All that clause 4.1 requires in relation to the Insured is an awareness of "any fact situation or circumstance" that may give rise to what the insurance policy defines as a "claim" or "claims", meaning "any writ, summons, application or other originating legal or other arbitral proceedings … claiming compensation against and served upon the insured". The word "may" connotes a future possibility not merely illusory or of such a vague character as falling short of what clause 4.1 required. That the letters were pressing and repeated did in my view render the Insured aware in the sense required by clause 4.1. 112 Turning to s54(1) of the Commonwealth Act, prima facie that section would appear applicable. There is an omission on the part of the Insured, namely failure to notify pursuant to clause 4.1, The effect of the contract of insurance "would but for this section be that the insurer may refuse to pay a claim, either in whole or in part" by reason of that omission. Prima facie, it is difficult to see how the insurer's interests could be prejudiced as a result of that omission so as to cause the insurer's liability to be reduced, in terms of the concluding words of s54(1). Nor, prima facie, would the omission reasonably be regarded "as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract", within s54(2). 113 The salient passage from Australian Hospital Care is to be found in the joint judgment (McHugh, Gummow and Hayne JJ) at [45-6], as cited by the trial judge and quoted below: "[45] ….. if a third party had made a demand on the insured during the period of cover but, for whatever reason, the insured had not notified the insurer of the making of that demand until after the period of cover ended, it is apparent that the effect of the contract, but for s54, would be that the insurer may refuse to pay the insured's claim only by reason of the failure to notify the fact of the demand. [46] Similarly, in the present case, the claim which the insured made on FAI was for indemnity against liability for an occurrence of which the insured first became aware during the period of cover. The effect of the contract of insurance is that FAI could refuse to pay that claim by reason only of the fact that the insured did not give notice of the occurrence to it. S54, therefore, requires the conclusion that FAI may not refuse to pay the insured's claim. The effect of the contract of insurance, but for s54, would be that the insurer may refuse to pay the insured's claim by reason only of the omission of the insured to notify the occurrence which, at the time, was one which might subsequently give rise to a claim by the third party against it. That being so, the section is engaged. No prejudice to the insurer's interests was suggested." 114 The foregoing represented the outcome of third party proceedings brought in that case by the Hospital against FAI for indemnity. The present context is one where s6(4) of the Act requires leave of the court to enforce the statutory charge of the insurance monies created by s6(1). Clearly enough, the purpose of the requirement for leave is to ensure that an injured third party does not take unnecessary or inappropriate proceedings against the insurer, as when the insured is the logical defendant; Oswald v Bailey (1987) 11 NSWLR 715 at 725. But here the Hospital is subject to a deed of company arrangement. It is difficult to imagine a clearer case for granting leave, assuming the discretion to do so were not precluded. But that poses starkly the question of that preclusion in light of the reasoning in Jarvis. Does s54, notwithstanding Jarvis, have application in the present circumstances, with the consequence that the insurer is not to be taken as "entitled under the terms of the contract of insurance to disclaim liability"? Is s54 relevant to that question, or irrelevant as Jarvis holds? Suppose it be said that the application of s54(1) is still contestable, because of the possibility, even if unlikely, of loss to the insurer within the terms of sub-s(2). Does the need for further proceedings to determine this conclusively, mean that the Court could not then be satisfied in terms of the second requirement in s6(4) for leave to be precluded, namely "that any proceedings … necessary to establish that the insurer is entitled to disclaim, have been taken"? 115 In Jarvis, Powell JA wrote the principal judgment. After reviewing earlier authorities on s6, at 17 he cites, with what appears to be approval, what McHugh J and Gummow J said in Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399 at 448-50 and agreed in by Brennan CJ, Deane J and Dawson J: "This provision [s6(4)] is not directing the court that leave be denied only in a case where it is satisfied both of the entitlement to disclaim liability and that necessary steps have been taken to establish entitlement to do so. Leave may be refused in other cases but must be refused in these cases." (The quotation is more extensive than that, and I explain below its use in Jarvis .) 116 That first proposition is clearly correct. It must follow that if either of the two requirements for when leave must be refused are not satisfied, while leave may then be granted, the court retains a discretion to decline to give it. This is so even were s54 of the Commonwealth Act applicable in bringing about the result that the first of the two requirements was not satisfied. However, as I have earlier indicated, were the discretion available to be exercised, the present case clearly qualifies for its favourable exercise. 117 The next proposition from the joint judgment in Bailey (supra), quoted by Powell JA in Jarvis at 17, is significant: "What the sentence [in s6(4) stating the two requirements] does suggest is that if there is an entitlement to disclaim, there may be no moneys which are or may become payable in respect of the liability of the insurer to the insured and thus nothing upon which the charge specified in s6(1) can operate. The phrase in s6(4) is 'the insurer is entitled under the terms of the contract of insurance to disclaim liability'. A clear example of such entitlement would be a disclaimer under the general law or right to rescind for non-disclosure. Another instance would be the exercise of the right to avoid the contract of insurance given the insurer in certain cases of non-disclosure and misrepresentation by s28 of the Insurance Contracts Act 1984 (Cth)." 118 It could not be clearer that the High Court is here construing the words "the insurer is entitled under the terms of the contract of insurance to disclaim liability" not in any narrow way so as to exclude the effect of the general law or statute on the contractual terms. Rather Bailey recognises that disclaimer depends not solely on the contractual terms but on the general law and statute. This general law or statute may preclude resort to those contractual terms, so preventing disclaimer as in the case of s54. Or, as the High Court points out, the general law or statute, in the form of s28 of the Insurance Contracts Act may permit disclaimer. It may do so independently of the contractual terms (s28) or in conjunction with them. 119 Powell JA after quoting from Bailey at length, then refers to Bailey as seeming to indicate, as also the decision of the Court of Appeal in McMillan v Mannix (1993) 31 NSWLR 538 that a failure by an insured to comply with co-operation conditions is, "notwithstanding the provisions of s54 of the Insurance Contracts Act 1984 (Cth) – sufficient for the purposes of s6 of the Law Reform (Miscellaneous Provisions) Act to prevent a court granting to a plaintiff, or intending plaintiff, leave to commence proceedings against, or leave to amend existing proceeding so as to permit the making of a claim against, the relevant insurer pursuant to the provisions of s6 of the Law Reform (Miscellaneous Provisions ) Act." (at 18). 120 The earlier cited joint judgment of McHugh, Gummow and Hayne JJ in Australian Hospital Care, does make clear that s54 can apply where there is a failure to disclose during the period of cover. It would be contradictory and illogical to conclude that a comparable failure to co-operate would fall outside the remedial amplitude of s54. Such a divergent result could not be reconciled with Australian Hospital Care. Section 54 in terms of reach clearly does apply to a failure to notify the insurer. 121 But that still leaves the question of its relevance to the proviso to s6(4). It is important to recognise that, no less than s54, s6 is itself a remedial provision. It is therefore to be construed in no narrow fashion, in providing the third party claimant with the protection of a charge over insurance proceeds. That purpose would not be served by denying efficacy to such a charge by preventing its enforcement in circumstances where the insurer's contractual capacity to disclaim has, prima facie, been overridden by statute, here in the form of s54. Yet that would be the result of Jarvis, if followed. 122 Powell JA, though citing Bailey, nonetheless concluded that the provisions of s54 were irrelevant to a s6(4) leave application. This was said to be because application of s54 would still require the determination, at a (presumably later) trial, of the extent of the prejudice which an insurer may have suffered, should the insurer put this matter to proof. Meantime on the reasoning in Jarvis at the s6(4) leave stage, the contractual right to disclaim would not be overridden by s54, as its application was still contestable. To quote Powell JA again: "…..That this should be so is not entirely surprising, for the provisions of s6(4) are directed to the question whether leave to commence, or to amend, such proceedings might be granted, whereas the provisions of s54 of the Insurance Contracts Act clearly require the determination, at a trial , of the extent of the prejudice which an insurer may have suffered, and the determination of whether or not, in those circumstances, the act or omission of the insured which would otherwise have permitted a disclaimer of liability should be permitted to provide a defence, either in whole, or in part, to the claim made by the insured: see, eg, Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1993) 176 CLR 332; Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652. If this be a correct assessment of the effect of the judgment of the High Court in Bailey v NSW Medical Defence Union Ltd then it follows that the provisions of s54 of the Insurance Contracts Act are irrelevant to any consideration of the question whether or not leave to commence, or to amend, proceedings ought to be given pursuant to the provisions of s6(4) of the Law Reform (Miscellaneous Provisions) Act . If this be not so, then, by reason of the coming into force of the provisions of s54 of the Insurance Contracts Act , the proviso to s6(4) of the Law Reform (Miscellaneous Provisions) Act has long since been deprived of operation, a position for which no-one seems yet to have argued." (at 18-9) [emphasis added] 123 To this I should add the observation of Stein JA at 23: Applying McMillan v Mannix (1993) 31 NSWLR 538 and Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399, it is apparent that the provisions of s54 are irrelevant to consideration of the question of leave to commence proceedings under s6(4) of the Law Reform (Miscellaneous Provisions) Act . As Powell JA makes plain, the two provisions are directed to different questions. Section 6(4) is directed to applications for leave to commence proceedings and to whether, in such a leave application, the Court is satisfied that the insurer is entitled, under the contract of insurance, to disclaim liability. Section 54(l) of the Insurance Contracts Act is directed to a quite different question and one which may arise at a trial stage . A contrary conclusion would mean that, once the latter statute was enacted in 1984, it would have deprived s6(4) of the Law Reform (Miscellaneous Provisions) Act of much application. It follows that the insurer was entitled to disclaim liability and the appeal should be upheld." [emphasis added] 124 It is significant that neither say that the reason for the supposed irrelevancy of s54 is because, notwithstanding statute, the contract literally still does "entitle" the insurer to disclaim liability. There is no suggestion that statute in the form of s54 operates independently of the contract, upon the exercise or enjoyment of the contractual rights, but not upon the rights themselves. Such a distinction, taken by analogy from corporations law in the context of modification of shareholder class rights, would treat the insurer, absurdly, as still entitled to disclaim under the contract even though, prima facie, the statute denies that capacity. The Jarvis reasoning emphasises the insurer's capacity to put that matter to proof in a later trial, at which the insurer could invoke s54(2). 125 In considering more closely the reasoning which leads both Powell JA and Stein JA to conclude that the provisions of s54 are irrelevant to the consideration of the question of leave to commence proceedings under s6(4) of the Act, one needs to differentiate the various possible bases for that conclusion. First, there can be no basis in any supposed limitation in s54 of the Commonwealth Act; to contend that it is intrinsically incapable of applying where the disclaimer is based on a failure to co-operate or a failure to notify or some analogous failure. Those propositions are not reconcilable with the decision in Australian Hospital Care to which I have earlier made reference. 126 The second possible basis is directed to the preliminary stage of proceedings of a s6(4) application for leave compared to the distinct and (usually) later trial stage in any s54 contest. There what is in issue is possible prejudice to the insurer under s54(1) or possible loss to the insurer from the insured's act or omission under s54(2). They are the insurer's defences against the prima facie application of s54. Section 6(4) is concerned solely with leave to enforce a charge over the insurance policy proceeds, typically arising at an earlier stage than any s54 contest. 127 There are several answers to this "earlier stage" argument. First, no "trial" proceedings in relation to s54 may be necessary at all, if loss or prejudice to the insurer is not put in issue. Thus at first glance, it would be difficult to see how it could be put in issue in the present case, though it might eventually be. Section 54(1) prima facie prohibits the insurer from invoking the disclaimer provisions of the contract by refusing to pay in failure to notify cases, and like cases. Nowhere is the application of s54 predicated upon a prior "trial". Only in the event of its contested application would such a trial follow. It follows that at least in some cases, there will be no separate proceedings under s54, where the insurer does not invoke any defence to s54's application. 128 There is a further answer. Suppose instead the insurer did contest the application of s54(1). This could be by invoking the concluding words of s54(1) (prejudice to the insurer) or by invoking s54(2) and claiming a loss as a result of the insured's omission to notify. But if that occurred then for so long as that contest continued and was not resolved in favour of the insurer, this would lead to non-fulfilment of the second of the two requirements for preclusion of leave altogether. That requirement is for the Court to be satisfied that "any proceedings ….. necessary to establish that the insurer is so entitled to disclaim, have been taken". Here the insurer has a choice either (a) to accept that s54 applies, in which case disclaimer is prevented whatever the terms of the contract of insurance, or (b) to foreshadow proceedings or commence them in order to prevent s54(1) applying, most likely by invoking s54(2). That latter must result in non-fulfilment of the second requirement. Either way the cumulative requirements in the proviso to s6(4) for precluding the grant of leave would not be fulfilled. That then restores the Court's discretion to grant or withhold leave. 129 Finally, I would agree with the proposition, explained by Giles JA at [43-5], that s6(4) and s54, though concerned with distinct subject matter, do relevantly overlap. Common to both is the existence and extent of the insurer's obligation to indemnify, in the case of s6(4) by way of leave to enforce the associated charge. 130 Though there be an application under s6(4) for leave to enforce the relevant charge at the behest of the insured, the court is not required to deny such leave on the ground that the application of s54 is potentially in contest. Prima facie s54 applies, subject only to the possible application of the concluding words of s54(1) (prejudice to the insurer) or s54(2) (loss to the insurer). 131 The respondent put various arguments in favour of the Jarvis reasoning. The first of the two requirements precluding leave is that "leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability" [emphasis added]. The respondent argued that once this contractual condition is made out, there remains no "proceedings necessary to establish that the insurer is entitled to disclaim". This was said by the respondent to be so whatever statute (whether in the form of s54 or otherwise) may provide by way of statutory override. That override, if it occurs, post-dates the s6(4) leave application. On this argument the second requirement is said to be fulfilled. This is because there are no proceedings at the leave stage necessary to establish that the insurer is entitled to disclaim "under the terms of the contract of insurance", whatever statute provides. 132 However, the proposition that one looks merely at whether there is an entitlement "under the terms of the contract of insurance" to disclaim liability and disregard any future statutory preclusion does not comport with the earlier reasoning of Bailey, cited by Powell JA at 17. That reasoning clearly accepts the converse, namely that s6(4) necessarily accommodates a disclaimer under the general law or statute and thus not merely under the contract itself. The latter cannot operate independently of general law or statute. Logically, s6(4) must therefore accommodate the reciprocal of that proposition, namely that there can be an extra-contractual prohibition upon disclaimer derived from the general law or statute, and in particular by reason of s54. To quote again the critical, quoted passage from Bailey: The phrase in s6(4) is 'the insurer is entitled under the terms of the contract of insurance to disclaim liability'. A clear example of such entitlement would be a disclaimer under the general law or right to rescind for non-disclosure. Another instance would be the exercise of the right to avoid the contract of insurance given the insurer in certain cases of non-disclosure and misrepresentation by s28 of the Insurance Contracts Act 1984 (Cth)." 133 That reasoning presupposes that when s6(4) refers to the insurer being "entitled under the terms of the contract of insurance to disclaim liability" there must necessarily be taken into account not only an entitlement to do so extrinsic to the contract under general law or statute, but also a disentitlement to do so extrinsic to the contract by reason of the general law or statute. Statute clearly comprehends s54 of the Insurance Contracts Act. Section 54 cannot therefore be irrelevant as supposed in Jarvis when it comes to consider the application of the proviso to s6(4) of the Act. That later proceedings may put s54 in contest does not render s54 irrelevant at the leave stage, for the reasons I have explained. 134 Section 6 is not thereby deprived of operation by such a result. Rather its purpose as a remedial provision is thereby served. It is true that part of the proviso to s6(4) is deprived of operation by s54 as Powell JA recognised in Jarvis, However, that is the proviso which denies any discretion to grant leave. The effect of s54 is to reinstate the court's discretion under s6 to grant leave but not mandate its favourable exercise. To construe the terms of the contract of insurance in isolation from the effect of statute defeats the remedial purpose of both statutes. Form would then prevail over substance. This is when, in the case of s54, the "legislature has evinced an intention to avoid the result that the operation of s54 depends upon matters of form"; Gleeson CJ in East End Real Estate Pty Ltd v C E Heath Casualty & General Insurance (1991) 25 NSWLR 400 at 403-4, approved in Antico v Fielding Australia Pty Ltd (1997) 146 ALR 385 at 389 and 396. It would likewise deny beneficial access to the insurance fund by way of enforcement of a charge notwithstanding that the court can be satisfied that circumstances require it. This would be solely on the basis of a wholly illusory contractual capacity to disclaim – illusory because prima facie defeated by s54. 135 I consider that Jarvis failed to follow the implications of the reasoning in Bailey which it cites and failed to consider the effect of the second requirement for the proviso to s6(4) to apply. I do not believe Jarvis can be distinguished as limited to an entitlement to disclaim by reason of failure to co-operate. Following Australian Health Care, such a distinction would be untenable. For the reasons stated, and reminding myself again of the strictures in Nguyen (supra), I consider that Jarvis should not be followed. Summing up 136 I consider that, notwithstanding the decision in Jarvis, s54 of the Insurance Contracts Act has two consequences here. First, I consider that the Court could not be satisfied that the first requirement for precluding leave would be satisfied. This is because s54 would preclude the insurer under the terms of the contract of insurance from disclaiming liability for failure to notify. But to the extent that were put in issue then still the Court could not be satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability in the absence of proceedings being successfully brought by the insurer. That is because those contractual terms still face being overridden by statute (s54(1)). This is unless proceedings were taken establishing that s54 did not preclude disclaimer, either (a) because the concluding words of s54(1) apply (prejudice to the insurer from the insured's act); or (b) Sub-section (2) of s54 applies (the insured's act caused or contributed to the relevant loss). There are no such proceedings extant and no indication that either exclusion would apply. In that regard I agree with Giles JA at [53] that only s54(1) could operate. 137 But in any event it must follow that the second requirement in the proviso would not be fulfilled. In order for the insurer to escape the effect of s54 on its contractual right to disclaim, there must be the proceedings "….. necessary to establish that the insurer is so entitled to disclaim". That was a point which did not appear to be argued in Jarvis. 138 It follows therefore that the Court has a discretion to grant leave. I consider that leave should be granted in the circumstances, subject to there being an arguable case against the Hospital. It is to that final question I now turn. Arguable case on the merits against the Hospital? 139 It was attempted to be argued that any case against the Hospital was precluded by the fact that the negligence was constituted not by what the Hospital did or did not do. Rather it was because of the failure of those responsible for choosing a community hospital which was never equipped to deal with the kind of risk that the mother's condition as a carrier of haemophilia B imposed. 140 As the trial judge correctly stated, all that was required was an arguable case against the Hospital. That is a relatively modest hurdle. A reading of the quoted passages in the two experts' reports, coupled with the clinical notes to which reference is there made, clearly supported an arguable case that, had the Hospital recognised the symptoms earlier of intracranial bleeding, a better result could have been obtained. There is also the relevant question of whether the matters stated in the affidavit of Vicki Tzaidas, particularly para 11, of the child being very irritable and vomiting and twitching, were properly recorded in the clinical notes from 19 November 1996 when earlier intervention may well have produced a better result. 141 That the Hospital as a community hospital may well not have been equipped to deal with the anticipatable consequences of the mother being a carrier of haemophilia B does not negate there being an arguable case that it may have been negligent in essaying to do so. Thus the Hospital did assume the responsibility of the birth and immediate after-care, until the baby's symptoms became so alarming as to lead to the baby being taken to the New Children's Hospital. Whether the Hospital should have done this earlier, and the consequences, are for a future trial. Conclusion 142 I consider that there was and remains an arguable case on the merits against the Hospital, without considering further the strength of that case. OVERALL CONCLUSION AND ORDERS 143 I consider that there is no impediment to the granting of leave under s6(4) of the Act and that it should be granted in the circumstances. 144 Accordingly, I would consider that the leave to appeal should be granted and that the appeal should succeed. I would propose orders as follows: 1. Grant leave to appeal and direct the filing of a notice of appeal within ten days. 2. Appeal allowed. 3. Set aside the orders of Grove J made on 25 July 2003. 4. Grant leave to commence proceedings against CGU. 5. CGU to pay the plaintiffs' costs of the application for leave to commence proceedings and of the application for leave to appeal and the appeal, and to have a certificate under the Suitors Fund Act if otherwise qualified. 145 M W CAMPBELL AJA: I agree with Giles JA and Santow JA. ********* Last Modified: 08/04/2004 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.