Federal Court of Australia

Dural 24/7 Pty Ltd v Certain Underwriters at Lloyd’s of London [2022] FCAFC 147

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

Introduction

1    This is an appeal against a declaration made by a judge of the Court as to the meaning of a phrase in an insurance policy.

2    The applicants below (and the respondents on appeal) were (and are) Lloyd’s Underwriters subscribing to a policy (PMEL99/0100038) issued to the respondent below (and appellant before the Full Court) as insured for the period 1 January 2020 at 4pm to 1 January 2021 at 4pm. The declaration sought by, and granted to, them was as to the non-applicability of a disease extension in the policy that could be seen to ground their liability to the respondent for indemnification for business interruption under the policy.

3    The respondent carried on the business of fitness and yoga franchising. The cover under the policy included business interruption insurance. The period of insurance included much of the first year of the COVID-19 pandemic. The policy included various extensions of cover, including one (Extension 7) entitled “Murder, Suicide or Disease”, which was in the following terms:

7. Murder, Suicide or Disease

The Occurrence of any of the circumstances set out in this extension of cover shall be deemed to be Damage to Property used by You at the Situation.

a. Murder or suicide occurring at the Situation

b. the outbreak of human infectious or contagious disease occurring within a 20 kilometre radius of Your Situation; or

c. closure or evacuation of Your Business by order of a government, public or Statutory Authority consequent upon:

d. the discovery of an organism likely to result in a human infectious or contagious disease at the Situation,

e. vermin or pests at the Situation, or

f. defects in the drains or other sanitary arrangements at the Situation; or

Cover under b. and c. under this extension of cover does not apply in respect of Highly Pathogenic Avian Influenza in Humans or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908.

(Emphasis added.)

4    The relevant cover that might ground a liability to indemnify the respondent (appellant) was for disease in sub-clauses b and c. The insurers sought a declaration about the qualification and in particular the emphasised words.

5    The phrase “other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908” would, if otherwise unaffected by other parts of the policy, be insufficient to remove COVID-19 from sub-clauses b and c because COVID-19 was not declared as quarantinable under the Quarantine Act, which had been repealed in 2016: that is, before the policy incepted and before COVID-19 emerged in late 2019 and early 2020. The decision of the Court of Appeal of New South Wales in HDI Global Specialty SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296; (2020) 104 NSWLR 634 stood in the way of any argument that, without more, the reference to “diseases declared to be quarantinable under the Quarantine Act 1908” should be read as a reference to human diseases listed under the Biosecurity Act 2015 (Cth). There was, however, something more. Under the heading “Information”, and in what was not disputed to be part of the policy wording document, a clause entitled “Conformity” provided as follows:

In this Policy You will find that some items can be singular or plural, feminine or masculine. This clause is designed to correct this. Words in the singular shall include the plural and vice versa. Words importing the masculine will import the feminine and the neuter. References to ‘a person’ will also to include any individual, company, partnership, or any other legal entity. References to a statute law also includes all its amendments or replacements.

(Emphasis added.)

6    It is, of course, the last sentence of that clause that is of importance. The primary judge concluded that, because of the effect of this sentence on the construction of the policy and the qualification to Extension 7, a declaration should be made as follows:

The words “or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908” appearing in clause 7 of the Sportspack Combined Wording 11.18 forming part of the contract of insurance between Certain Underwriters at Lloyd’s of London subscribing to policy number PMEL99/0100038 and Dural 24/7 Pty Ltd bearing the policy number PMEL99/0100038 ought to be read as “or other listed human diseases under the Biosecurity Act 2015 (Cth)”.

7    Before the primary judge and before the Full Court on appeal, there was no debate about the applicable principles of construction of the policy.

The primary judge’s reasoning

8    The primary judge reasoned as follows. A reasonable business person in the position of the parties would understand the phrase “a statute law” as not a technical or legal term or term of art, but as a law that had as its source, direct or indirect, immediate or ultimate, a statute: J[39]. “Law” would be understood as some legally enforceable or recognised right, duty, status or relationship: J[40]. A “statute law” may encompass a statute as a whole or a specific provision of a statute. The relevant issue is whether the “statute law” – that is the statute as a whole or a specific provision of a statue – has been amended or replaced: J[41]. The distinction between statute and subordinate legislation or legislative or non-legislative instruments should be rejected: J[42] and J[43]. The phrase “a statute law” is a general and broad phrase concerned with laws the source of which (whether direct or indirect, immediate or ultimately) is a statute: J[43]. The proposition that the reference to “other diseases declared to be quarantinable diseases under the Quarantine Act 1908” is merely a list or thing which has a legal status derived from an executive act was rejected: J[44]. The Quarantine Proclamation is itself a statute law because it creates the legal status of the diseases and its source is the Quarantine Act, which is also a “statute law”: J[45]. The reference in clause 7 of the extensions to “other diseases declared to be quarantinable diseases under the Quarantine Act 1908” as a whole is a reference to a statute law, and not simply to the Quarantine Act. The declaration under s 13(1)(ca) of the Quarantine Act establishes the legal status of the disease: it is a law with a source in a statute. Thus the operative reference to “a statute law” for the purpose of the Conformity clause is the whole of the phrase “other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908”: J[46]. The question is whether that statute law had been amended or replaced by “other listed human diseases under the Biosecurity Act 2015 (Cth)”.

9    The primary judge then turned at J[48]–J[57] to the issue of “replacements”. Her Honour accepted “replacements” had a range of meaning from the broad (this for that) to the more narrow (like for like). Her Honour rejected the submission from the appellant that the narrow meaning should be ascribed. Her Honour saw the breadth of the words “all amendments and replacements” and greater certainty of an approach which did not require minute examination for equivalence of the two statutes as important. Her Honour rejected the argument that a broad meaning would lead to the potential for unknown changes to the policy from a materially different statute having effect. There were limited statutes referred to: the Insurance Contracts Act 1984 (Cth), the Privacy Act 1988 (Cth) and the Quarantine Act. The amendment or replacement by Parliament would apply generally and it is unlikely that arbitrary or capricious changes would occur. Rather, all references to statute law would be kept current to ensure the policy accorded with current statutory regimes.

10    The primary judge rejected the relevant applicability of her decision in Swiss Re International SE v LCA Marrickville Pty Limited (Second COVID‑19 insurance test cases) [2021] FCA 1206, upheld on appeal LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17, where the word “re-enactment” in s 61A of the Property Law Act 1958 (Vic) was construed such that the conclusion was reached that the Biosecurity Act was not a re-enactment of the Quarantine Act. At J[52], the primary judge said

… “Replacement” requires only that the new statute law operates instead of the old statute law. This inquiry focuses on three facts: (a) has the old statute law ceased to operate (if not, the issue may be one of amendment rather than replacement), (b) has the new statute law commenced operation, and (c) can it be said that the new statute law is operating instead of or in the place of the old statute law. The question in (c) calls up for consideration the subject-matter of the old statute law and the new statute law. If the subject-matter of the laws is the same or sufficiently similar in substance then it can be said that the new statute law is operating instead of or in the place of the old statute law. This will be so whether or not the new statute law deals with that subject-matter in a new and radically different manner from the old statute law.

11    Thus, her Honour recognised some examination and evaluation of these statute laws was necessary: the subject-matter of the laws should be the same or sufficiently similar in substance, even if the subject matter is dealt with differently.

12    The reference here to statute law was to “other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908”. The new statute law is “other listed diseases under the Biosecurity Act 2015 (Cth)”. Her Honour concluded that the latter operated instead of or in place of the former: J[54]–J[55]. The subject matter of the two statute laws was substantially the same: the identification of human diseases so as to enable steps to be taken by public officials to control and eradicate the identified diseases. That the two statute laws dealt with the subject differently was not material: J[55]–J[57].

13    Finally, the primary judge rejected the argument of the appellant that the reference to statute law was a reference to statute law in force at the inception of the policy, such that only amendments or replacements of statutes current at the commencements of the policy were the subject of the Conformity clause. Of course the Quarantine Act had been repealed some four years before the policy commenced. Her Honour rejected this argument because the focus of the relevant sentence in the Conformity clause was to the reference to the statute law in the policy. The three statutes were named. Further, the purpose of the sentence was to ensure references remained current from time to time. A limitation to amendments or replacements only after a particular time would limit the effectuation of that purpose: J[58].

The grounds of appeal and the submissions

14    The first ground of appeal was directed to the finding that the reference to “statute law” in the Conformity clause encompassed the expression “other diseases declared to be quarantinable under the Australian Quarantine Act 1908”, and was not limited to the Act itself: the reference being to the Quarantine Act.

15    First, the language does not, it was submitted, identify a statute law, but a list of diseases or a factual state of affairs.

16    Secondly, the Quarantine Act, though repealed, continued to be relevant. Though it was not in force, its form identified a list of diseases that had been declared and for which cover was not excluded (cf Wonkana at [124]–[130] per Hammerschlag J). The use of the word “includes” in the Conformity clause assists in this regard.

17    Thirdly, it was submitted that the reference to the Quarantine Act was not in a context cognate with the other statutory references in the policy which can be seen as laws: J[29]. The duty of disclosure and the right of cancellation are laws. The paragraphs in the qualification to Extension 7 contains a list of diseases.

18    Fourthly, the primary judge’s reasoning was burdened with complexity and technicality inconsistent with what a reasonable business person would have understood.

19    Fifthly, the approach taken to its logical conclusion approaches absurdity.

20    The qualification to the disease extension should, it was submitted, be read simply by reference to the Act of Parliament; and, giving relevant weight to the word “includes” in the Conformity clause should be understood as follows:

Cover under b and c under this extension of cover does not apply in respect of Highly Pathogenic Avian Influenza in Humans or other diseases declared to be quarantinable under the Quarantine Act 1908 or the Biosecurity Act 2015 (Cth).

21    The only quarantinable diseases were those declared under the Quarantine Act.

22    The second ground of appeal concerns the construction of the word “replacements”. The appellant pressed the need for equivalence. The errors of the primary judge were an insufficient regard to the balance of the Conformity clause. All the other concepts deal with similar or like concepts: number, gender, entity. The purpose (“This clause is designed to correct this”) is to simplify drafting not to alter the substantive operation of the contract of insurance. This tends to a narrow or conservative view of “replacements”, not a broad one. Even if the purpose is to ensure references to statutes are current (J[49]), the appellant submitted that this supported a narrow construction of equivalent statutes: like the equivalence in number, gender and entity, which did not potentially change the bargain of the parties.

23    The certainty the subject of concern by her Honour (J[48] and J[53]) was better achieved, it was submitted, by an equivalent replacement, not by one that potentially changed the bargain radically.

24    The word “all” was neutral: it did not mean “all kinds of” but every replacement (that was equivalent).

25    The third ground of appeal concerned the asserted prospective operation of the clause. The reasonable business person would not, it was submitted, read this as referable to historical replacements. Amendments would be prospective: a reference to a statute would be to the statute as amended to the date of inception. The reasonable business person would not assume the need for retrospective correction of the policy; but provision was being made for future changes.

26    The respondent supported the construction and approach and reasoning of the primary judge.

Consideration and resolution

27    The Conformity clause is concerned with the construction and interpretation of the policy. On its face, it is not intended to be a clause directed to the substance of coverage, though, of course, it may affect the limits of cover by the processes of construction and interpretation. The first five sentences provide for simplification of drafting and clarity of expression. The sixth sentence plainly (from its words) is directed to keeping the wording of the policy current.

28    The fact that the Conformity clause, including the sixth sentence, is concerned with construction and interpretation is important. The sixth sentence is not found in a vacuum. It is directed to the three Acts that are mentioned in the policy and to their places and contexts in the policy; that is, it is directed to the matters with which the parts of the policy deal that mention them. The reference to the duty of disclosure in the Insurance Contracts Act on page 4 of the policy is not just a reference to the Act and its name generally, but rather it is a reference to the content of the duty of disclosure within the Act: the law of disclosure. Likewise, the reference to the right of the insurers to cancel the policy within the timeframes in the Insurance Contracts Act on page 67 of the policy is not just a reference to the Act and its name generally, but rather it is a reference to the content of the right of cancellation under that Act: the law concerning cancellation. These are references to statute law: the Insurance Contracts Act, the duty of disclosure and the right of cancellation under it. There is also a reference to the Privacy Act and its amendments on page 8 of the policy, but that serves only an information purpose; it has no operative effect.

29    The appellant submits that the reference to the Quarantine Act is only a reference to that Act and to a list of diseases, the subject of the declaration. There is some force to that proposition, albeit it is a fine point. The list, however, is, as the primary judge said, a list of diseases that have been the subject of declarations pursuant to the Quarantine Act, giving the diseases a legal status under law, with important consequences. One consequence for the parties in this policy was the effect on the insured’s cover. There is some incongruity in calling a list of diseases a law as the primary judge did. However, as is clear from her Honour’s reasons, the context of the enquiry is not one of theoretical jurisprudence; it is a question of construction and interpretation of a clause in an insurance policy seeking to keep current the references to a statute in a part of the policy that uses the operation of the statute law in question to be the factum that limits an extension of cover. The statute gave certain diseases a status in law of being quarantinable which status removed such diseases from the agreed cover provided by the extension. The reference to the Quarantine Act is a reference to this: to the declaration of diseases as quarantinable as being diseases not included in the extension. The reference to the statute law is a reference to a statute and that part of the statute that brings some diseases under Commonwealth government control for the safety of the nation. Amendments to or replacements of the Quarantine Act includes relevantly, the amendment to, or replacement of, the Quarantine Act, or such part of it that fulfils or effects the same or equivalent function: the identification of diseases for Commonwealth government control for the safety of the nation. The Biosecurity Act plainly, in everyday parlance, replaced the Quarantine Act. Relevantly, for the operation of this part of the policy, the reference to the Quarantine Act and its declaration of diseases as quarantinable was replaced by the listing of human diseases under the Biosecurity Act.

30    The Biosecurity Act and the Quarantine Act have their important differences: see the discussion of the primary judge in Swiss Re: at [169]. But the purpose of examining the two Acts is to keep the policy, and, specifically, the qualification and scope of Extension 7, up to date. Whilst different methods were employed in the two statutes in identifying relevant diseases, the fundamental relevant aim of both the Quarantine Act and the Biosecurity Act for the identification and declaring or listing of diseases is to protect the Australian community from serious diseases requiring the exercise of Commonwealth, and not just State or Territory power.

31    One reading of the qualification to Disease Extension 7 read with the Conformity clause, recognising the presence of the word “includes”, would be:

Cover under b and c under this extension of cover does not apply in respect of Highly Pathogenic Avian Influenza in Humans or other diseases declared to be quarantinable under the Australian Quarantine Act 1908 or listed diseases under the Biosecurity Act 2015 (Cth).

32    The above reading of the qualification gives emphasis to the word “includes” and adds (or, includes) the phraseology from the Biosecurity Act in addition to the reference to the Quarantine Act. That continuing contractual role for the repealed Act and the list of diseases under it may be seen to sit uncomfortably with the reasoning that the one Act replaced the other. Also, the conclusion that the long-repealed list of diseases under the Quarantine Act is maintained in Extension 7 after the addition of the list of diseases under the Biosecurity Act pursuant to the operation of the Conformity clause sits uncomfortably with the purpose of the Conformity clause being to maintain the currency of the policy wording.

33    Another way of reading the Conformity clause and the qualification to Extension 7 is to give a meaning to the Conformity clause and the word “includes” that leads to the conclusion that the words “diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908” were at the inception of cover, conformably with the altered legislative landscape, replaced by “listed human diseases under the Biosecurity Act 2015 (Cth)”. In this way, because the replacement has taken place before inception of cover and there is no operative list of quarantinable diseases under a repealed statute, the Conformity clause operates to read out such irrelevancy and include the contractual equivalent in the replacing statute, thus keeping the policy wording current.

34    In different circumstances, where the Conformity clause was operating in a legislative landscape that was altered (by the replacing statute) during the currency of the policy there may be no reading out of the reference to the Quarantine Act as it was relevant and current for part of the policy period during which the insurers were on risk. In such circumstances, the Conformity clause would operate to keep the policy wording current by a reference to both lists, under both Acts.

35    It may also be necessary in another case to have regard to the terms of the repealing or amending statute for any continuing relevance of it.

36    The difference between the two approaches does not affect the result of this case. In these circumstances, to decide between them would only be relevant to a variation to the declaration made by the primary judge that is immaterial to the substantive result. The differences may, however, be of relevance to another insured and insurer in another context. On balance we favour the latter, more subtle, operation of the Conformity clause, which would lead to the order that the appeal be dismissed. That conclusion, so expressed, would leave the issue open for a more considered decision in another case in which the difference between the two approaches mattered.

37    Finally, the way we have approached the construction of the Conformity clause and the qualification to Extension 7 may be seen not to be based on characterising, as the primary judge did, the words “other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908” as a statute law, separately from the “Australian Quarantine Act 1908”. It does, however, reflect the substance of the primary judge’s reasoning that the operation of the sixth sentence of the Conformity clause is to be understood by reference to the importance of the legal status of the diseases in question by operation of the Quarantine Act in respect to the content of the provision to which the statute is directed and with which it engages, to which the Conformity clause is directed.

38    Thus, we would reject the arguments underpinning the first ground of appeal to the effect that the Conformity clause does not mean that the limitation on Extension 7 includes human diseases listed under the Biosecurity Act.

39    We would reject the second ground of appeal. We do not consider the matter to be determined by asking whether there is a wide or narrow construction of the word “replacements”. The statute law replaced has a particular context in the policy: certain diseases that attract Commonwealth power do not fall within the extension. If the statute law (the Quarantine Act) is amended or replaced and the same or substantially similar subject is dealt with, such will be included in the policy. The notion of substantive equivalence is catered for by the fact that the relevant statute law and the relevant part of it is that to which the relevant provision of the policy is directed. This means that the Conformity clause does not, or is unlikely to, lead to the nature of risk for which the premium is paid being open for radical variation.

40    We would also reject the third ground of the appeal. There is no textual or contextual ground to conclude that the “replacements” is limited to the repeal of statutes in force at the date of inception of the policy. The words are general and are in aid of a general purpose: the maintenance of currency of the policy wording.

41    The appeal should be dismissed. It was agreed between the parties that in these circumstances there should be no order as to costs.

Associate:

Dated:    31 August 2022