HALFORD v PRICE [1960] HCA 38; (1960) 105 CLR 23 (28 JUNE 1960)

HIGH COURT OF AUSTRALIA

HALFORD v. PRICE [1960] HCA 38; (1960) 105 CLR 23

Insurance
High Court of Australia
Dixon C.J.(1), Fullagar(2), Taylor(3), Menzies(4) and Windeyer(5) JJ. CATCHWORDS
Insurance - Solicitors' indemnity - Cover against breach of professional duty - Annual policy taken out by partnership - Policy covering claims made during the year of insurance - Claim against member of partnership for breach of professional duty occurring prior to commencement of partnership - Claim whithin indemnity - Ambiguity in language of policy - Verba chartarum fortius accipiuntur contra proferentem.

HEARING
Sydney, 1960, March 31, April 1;
Brisbane, 1960, June 28. 28:6:1960
APPEAL from the Supreme Court of New South Wales. DECISION
June 28.
The following written judgments were delivered: -
DIXON C.J. From the pleadings and the documents incorporated with them it of New South Wales, entered into partnership as from 1st February 1954 and carried on a practice as solicitors at Martin Place, Sydney. In September 1956 they effected an insurance with Lloyd's underwriters against claims for breach of professional duty. The indemnity, which was limited to 15,000 pounds, was against claims which might be made between 4 p.m. on 13th September 1956 and 4 p.m. on 13th September 1957. In the proposal for the insurance, in answer to a question whether any claims had ever been made against the firm or any of the present partners or, to the knowledge of the firm, against their predecessors in business or any past partner, the proponents said that no claim had been made but a possible one may be made against D.L. Price in respect of an alleged omission to set an action down for trial within time whilst practising on his own account. The action referred to subsequently came before this Court where it appeared that a writ had been issued on 30th November 1954 under the Compensation of Relatives Act 1897-1946 (N.S.W.) in respect of a death occurring on 19th March 1951. The Supreme Court and this Court (Fullagar J. dissenting) held that Act No. 33 of 1953 (N.S.W.), which extended the period of time within which such an action might be brought from twelve months to six years, did not operate to revive a right of action which had been barred by the expiration of twelve months from the death of the deceased person before the commencement of the amending statute: Maxwell v. Murphy [1957] HCA 7; (1957) 96 CLR 261; (1956) SR (NSW) 175 . Accordingly the plaintiff in that action had lost her right to recover compensation. The decision of this Court was given on 18th February 1957 and before 13th September 1957, the date when the year covered by the insurance expired, a claim in respect of the loss of that right was made against D.L. Price based on an allegation of negligence. To enforce the claim an action was brought against him and in that action he gave a third party notice to the person nominated by the underwriters as answerable on their behalf claiming to be indemnified against the plaintiff's claim. To Price's declaration upon the insurance under the third party notice the third party filed a plea averring that the claim against Price as defendant in the action arose by reason of a negligent act, error or omission which was committed prior to 1st February 1954 and that the contract sued upon was contained in the insurance documents which were annexed to the plea and not otherwise. To this plea the defendant Price demurred. By this means the question was raised for decision upon which the defendant Price's right of indemnity against the underwriters represented by the third party depended, namely the question whether the indemnity covered a claim made, within the year specified, against one of the insured if the claim arose by reason of a negligent act, error or omission committed before the commencement of the partnership. (at p26) 2. This question depends entirely upon the interpretation of the insurance documents. These documents consist of the proposal and an insurance certificate upon which is endorsed a copy of the indemnity and the conditions which the policy would contain if and when issued. The indemnity refers to the person or persons named in the schedule of the non-existent policy and these would be and are to be taken to be Kevin Ellis and the defendant David Lee Price. (at p26)
3. The following is the indemnity clause: "Whereas the person or persons named in the Schedule herein carrying on business under the firm and style stated in the said Schedule (hereinafter called 'the Firm' which expression shall include the aforesaid persons and any other person or persons who may at any time and from time to time during the subsistence of this Policy be a partner in the Firm or any one or more of them) have made to Us who have hereunto subscribed our names as Underwriters a written proposal bearing the date stated in the said Schedule and containing particulars and statements which it is hereby agreed are the basis of this contract and are to be considered as incorporated herein and have paid the premium stated in the said Schedule. Now we the Underwriters hereby agree, subject to the terms and conditions of this Policy, to indemnify the Firm against any claim or claims for breach of professional duty as Solicitors which may be made against them during the period set forth in the said Schedule by reason of any negligent act, error or omission, whenever or wherever the same was or may have been committed or alleged to have been committed, on the part of the Firm or their predecessors in business or any person now or heretofore employed by the Firm or their predecessors in business or hereafter to be employed by the Firm during the subsistence of this Policy, in the conduct of any business conducted by or on behalf of the Firm or their predecessors in business in their professional capacity as Solicitors." (at p26)
4. The claim of Price to be indemnified in respect of a liability arising from an act or omission occuring before the commencement of the partnership depends upon the provision enclosed in brackets. It seems clear enough and indeed it is not disputed that the words "or any one or more of them" with which that provision ends refer back to "the aforesaid persons" as well as to "any other person or persons who may at any time. . .be a partner in the Firm". Price's contention is simple enough. It is that once the injunction contained in brackets is obeyed and the references to the firm are read as including any one of the persons comprised in this description or category, his indemnity against the plaintiff's claim is made out. For he is one of them. The policy is an indemnity against claims made within the prescribed twelve months. There is no limitation of time within which the cause of action against an insured must be completed or within which the act or omission forming the primary element in the cause of action shall have occured. Having regard to the nature of a solicitor's business and the liabilities insured against, it could not be otherwise. For it may be years before a negligent act or omission is discovered or the loss ensuing from it accrues. Having adopted the period within which the claim for breach of professional duty as solicitors is made as the basis of the indemnity nothing remained but to define the description of claim in respect of which the indemnity was provided. This is done first affirmatively in broad terms and then negatively by a special exclusory clause which is not material to the case, excluding for example libel and slander and liabilities due to dishonesty, fraud, crime or malicious act or omission. As to the person or persons to be indemnified it was necessary or desirable to provide for changes by which persons left or came into the partnership and moreover to indemnify each against his own liability: for even in the case of a joint or joint and several liability of partners it may be enforced against one. There were abundant reasons therefore why the indemnity should extend to "any one or more of" the persons falling within the category. Whether it should extend to a liability of "any one" of them which had been incurred or had accrued or the primary elements of which had occured before he entered into the partnership might have been a question. But it is not a question that is answered, as I see it, by any words which would exclude it. Perhaps the question was never considered. On the other hand perhaps it was considered and it was thought better to use words covering all claims made within the period against a person within the category rather than put him to obtain a separate insurance against such of them as might arise out of acts or omissions of his before he became a partner. Moreover it would be natural for partners to desire that an incoming partner should not be subject to an unindemnified risk arising out of his practice before he entered the partnership. At all events the question as I see it depends upon tracing out the logical effect of the direction to supply the words "any one or more of them" as included within the meaning of the word "firm" and then considering whether there is any sufficient ground for implying a restraint upon the application of the words. The first step may be taken simply enough by rewriting the operative words of the indemnity so far as material with the substitution of the persons who are "included" in the expression "firm". Thus rewritten it becomes an agreement "to indemnify Kevin Ellis and David Lee Price and any other person or persons who may. . . during the subsistence of the policy be a partner in the firm of Kevin Ellis and Price or any one or more of them against any claim or claims for breach of professional duty as solicitors which may be made against them during the period set forth. . . by reason of any negligent act, error or omission whenever or wherever the same was or may have been committed or alleged to have been committed on the part of Kevin Ellis and David Lee Price and any other person or persons etc. or any one or more of them or their predecessors in business or any person now or heretofore employed by Kevin Ellis and David Lee Price or any other person or persons who may. . .during the subsistence of this policy be a partner of the firm of Kevin Ellis and Price or their predecessors in business or hereafter to be employed by them during the subsistence of the policy in the conduct of any business conducted by or on behalf of Kevin Ellis and David Lee Price or any other person or persons who etc. or any one or more of them or their predecessors in business in their professional capacity as solicitors." (at p28)
5. Now to me it seems that if this is literally and logically applied to the case of David Lee Price the proviso agrees to indemnify him against any claim for breach of professional duty as solicitor which may be made against him during the period by reason of any negligent act, error or omission whenever or wherever the same was or may have been committed on his part. So applied to him it must cover the liability which has been put in suit in the action. It may be conceded that while the words "any one . . . of them" are singular and apt to apply distributively to each person and so to David Lee Price as one person, there are plural words in the rewritten passage of which this cannot necessarily be said. There are for example the phrase "professional duty as solicitors", the pronoun "them" and the expression "in their professional capacity as solicitors". These expressions may be taken into account as part of a context from which it is sought to draw an implication confining the operation of the provision so as to exclude a liability the seeds of which had been sown before David Lee Price entered into the partnership, but the use of a plural of such a kind is not unusual to cover both a case in the singular and a case in the plural where general words or alternative references to the plural and the singular have antecedently been employed. If, for example, we said "any person or persons who are the objects of a claim" no one would regard that as a reason for excluding a claim against one person. (at p29)
6. Is there then any sufficient reason for implying a restriction of the indemnity to liabilities incurred since entering into the partnership or put another, but by no means the same, way to liabilities incurred in the character of a partner? No one doubts that the risk of claims against the partners present and future was the central subject of the insurance; it is probably true that the nature and incidents of such liabilities made it desirable if not necessary to include the liability of any one partner. Counsel for the appellant underwriters went perhaps further and said that the only reason why the words "or any one or more of them" were put in was of necessity, in view of the permutations and combinations of partners that might be liable, as distinguished from the partnership as constituted at the time of the grant of the insurance. To my mind all this is speculation; there is just as much to be said for the hypothesis that it was desired to cover all claims made within the period upon the partners and each of them for breach by them or him at any time of professional duty. But let the proposition be conceded for the purposes of argument. When a reason or even the reason why a term was adopted or inserted has been assigned nothing has been stated as to the complete ambit or application of the term that has been adopted. If it be permissible to resort to the terminology of formal logic, you have not "distributed" the proposition which you make your premise over the whole meaning or operation of the expressions adopted and to conclude that the application of the language is confined to such a case is merely to fall into the fallacy of undistributed middle. (at p29)
7. In the present case I have failed to perceive any reason why the claim made by the plaintiff against the defendant Price should fall outside the application of the indemnity construed according to the ordinary grammatical meaning of the language it employs. (at p29)
8. I do not think that the provision or the entire insurance documents contain any materials from which an implication may be made restraining the operation of the indemnity in the manner desired by the appellant underwriters. But were there any such materials I would regard it as contrary to principle to attempt to work out a restrictive implication unless the context and the subject matter supplied convincing evidence of intention. "The printed parts of a non-marine insurance policy, and usually the written parts also, are framed by the insurers, and it is their language which is going to become binding on both parties. It is therefore their business to see that precision and clarity is attained and, if they fail in this, any ambiguity is resolved by adopting the construction favourable to the assured in accordance with the maxim verba chartarum fortius accipiuntur contra proferentem." 22 Halsbury 3rd ed. p. 214. In my opinion the reasons and the conclusion of the Supreme Court are correct and the appeal should be dismissed. (at p30)
FULLAGAR J. This is an appeal from a judgment of the Full Court of the Supreme Court of New South Wales. The respondent, David Lee Price, is a solicitor. On 6th November 1957 an action was commenced against him by a former client, claiming damages for alleged negligence in his professional capacity. The respondent delivered a declaration of third party claim, by which he alleged that he was entitled to be indemnified by the appellant against the plaintiff's claim by virtue of a contract of insurance between himself and the appellant. The matter came before the Supreme Court on demurrer to a plea to the declaration of third party claim, and judgment on the demurrer was given for the respondent. The question in the case is entirely one of construction of the contract of insurance which is in writing. (at p30)
2. For some time before 1954 the respondent had been practising as a solicitor on his own account. It was during this period that the events occurred on which the plaintiff in the action bases her claim for damages for negligence, but no claim was in fact made by the plaintiff against the respondent until much later. On 1st February 1954 the respondent entered into partnership with Kevin Ellis, who also had for some years been practising as a solicitor on his own account, and the two commenced to practise under the firm name of Kevin Ellis and Price. (at p30)
3. On 10th September 1956 the partners made to the local representatives of Lloyd's (whom, for the purposes of the third party claim the appellant represents) a proposal for a "Lloyd's Professional Indemnity Policy". The sixth of a number of printed questions in the proposal form was: "Have any claims ever been made against the Firm or any of the present Partners or, to the knowledge of the Firm, against their predecessors in business or any past Partner? If so, please give full particulars." To this the partners answered: "No claim made but possible one may be made against D. L. Price in respect of an alleged omission to set an action down for trial within time whilst practising on own account." The seventh question was: "Are the Firm aware of any circumstance which may result in any claim being made against the Firm, their predecessors in business or any of the present or past Partners? If so, please give full particulars." To this the partners answered: "No - except as in para. 6." (at p31)
4. The proposal was accepted, and a contract of insurance was effected covering the period from 13th September 1956 to 13th September 1957. It is common ground that the terms of the contract are to be found in a document to which I will refer as a policy. The relevant part of the policy begins with a recital, which, so far as material, is in the following terms: "Whereas the person or persons named in the Schedule herein carrying on business under the firm and style stated in the said Schedule (hereinafter called 'the Firm' which expression shall include the aforesaid persons and any other person or persons who may at any time and from time to time during the subsistence of this Policy be a partner in the Firm or any one or more of them) have made to Us who have hereunto subscribed our names as Underwriters a written proposal." The copy of the document which is before us contains no "Schedule", but it is common ground that the opening words of the recital must be read as if the words were "Kevin Ellis and David Lee Price carrying on business under the firm and style of Kevin Ellis and Price". The operative words which follow the recital are: "Now We the Underwriters hereby agree, subject to the terms and conditions of this Policy, to indemnify the Firm against any claim or claims for breach of professional duty as Solicitors which may be made against them during the period set forth in the said Schedule by reason of any negligent act, error or omission, whenever or wherever the same was or may have been committed or alleged to have been committed, on the part of the Firm or their predecessors in business or any person now or heretofore employed by the Firm or their predecessors in business or hereafter to be employed by the Firm during the subsistence of this Policy, in the conduct of any business conducted by or on behalf of the Firm or their predecessors in business in their professional capacity as Solicitors." Again the absence of any "Schedule" is to be noted, but it is common ground that "the period set forth in the said Schedule" is to be treated as meaning the period from 13th September 1956 to 13th September 1957, which is stated elsewhere as the period during which the contract is to be in force. (at p32)
5. It is important to observe that the event upon which, if it occurs within the contract period, the liability of the insurer will arise, is not the commission of a breach of professional duty but the making of a claim against the insured for a breach of professional duty "whenever or wherever the same was or may have been committed or alleged to have been committed". During the currency of the contract period a claim was made against the respondent, Price, in respect of the alleged negligent omission which had been disclosed by the partners in their answer to the sixth question in the proposal form, and which had occurred not merely before the commencement of the contract period but before the formation of the partnership. The liability for the "omission", if it exists, is not, of course, a liability of the firm. It is no concern of Ellis: it was incurred by Price when he was practising on his own account and Ellis was practising on his own account, and it is the private concern of Price alone. Price maintains, and the appellant denies, that Price is entitled under the policy to be indemnified against any liability in respect of the claim which has been made against Price. (at p32)
6. The argument for the respondent is simple enough. By the terms of the policy the underwriters "agree to indemnify the firm" against any claim, etc. If there were nothing more in the policy that was relevant, the respondent must fail for the reason that the claim in question is not a claim against the firm. But the recital has provided what is, in effect, a definition of the expression "the firm". It refers to Ellis and Price, and says that they are "hereinafter called 'the firm'". And that expression, it says, "shall include the aforesaid persons" and any other persons who may become partners in the firm "or any one or more of them". If we import that definition into the operative part of the policy, and have regard to the fact that there are only two partners, the contract reads: "We the underwriters agree to indemnify Kevin Ellis and David Lee Price or either of them against any claim . . . which may be made against them or either of them . . . by reason of any negligent act error or omission, whenever or wherever the same may have been committed or alleged to have been committed, on the part of Kevin Ellis and David Lee Price or either of them or their predecessors in business or any person now or heretofore employed by Kevin Ellis and David Lee Price or either of them or their predecessors in business or hereafter to be employed by Kevin Ellis and David Lee Price or either of them . . . in the conduct of any business conducted by or on behalf of Kevin Ellis and David Lee Price or either of them or their predecessors in business in their professional capacity as solicitors." (at p33)
7. The agrument against this literal reading of the policy is, I think, by no means without weight. It applies - it must apply - the definition in the recital to the expression "the firm" wherever it occurs, and the result is to give an indemnity wider than is likely to have been intended. Again, the fundamental conception of the policy is that it is to indemnify a firm, and a firm is regarded by it as capable of a continuous existence - by virtue, presumably, of succession to goodwill - notwithstanding changes in its membership. It would be in accordance with this conception to read the policy as indemnifying present, past and future members of a firm in respect of things done in their capacity as members of the firm and not in respect of things done by them in the past or in the future as individual and independent persons. On this reading of the policy in the present case, since there were no "predecessors in business" of the firm of Kevin Ellis and Price, the indemnity would cover present and future members of that firm in respect of things done in their capacity as members of that firm but not in respect of things done as individual and independent persons. Nor is there any very serious difficulty in reading the policy as having this effect. It may well be said the "definition" in the recital is intended only to identify the persons who are indemnified, and that it has no bearing on the things against the consequences of which the indemnity is given. We may then read the expression "the firm", where it first occurs as meaning, in accordance with the definition, "Kevin Ellis and David Lee Price or either of them", and the words "made against them" as meaning "made against Kevin Ellis and David Lee Price or either of them - but read the expression "the firm" in the four places in which it subsequently occurs as referring only to the partnership as it is at present constituted or as it may in the future be constituted. Neither in the case of a stature nor in the case of a contract or any other instrument is there any rule of law or of construction which requires us to apply a definition where to do so would be at variance with a context or with a general intent to be gathered from the whole of the instrument. (at p33)
8. I have been inclined, on the whole, to think that the policy was not intended by the insurers to cover such a case as the present. Apart from the general considerations to which I have referred, it has not seemed to me to be likely that the insurers would intend to indemnify the respondent in the event of a claim being made against him in respect of the "omission" disclosed by the answer to the sixth question in the proposal. They would, I think, regard the matter disclosed as material to the risk in the sense that non-disclosure would have made the policy voidable, but not as constituting a risk to be insured against. But, when all is said and done, the argument for the appellant seems to me to rest on little more than a probability of intention which may be deduced after a close examination of the policy and the proposal and the circumstances. The document on which liability depends is involved and obscure and, in my opinion, ambiguous. It is the insurers' document, prepared and delivered by the insurers. It cannot, I think, be denied that it is fairly susceptible of the construction attributed to it by the respondent, and the case seems to me to be a case par excellence for the application of the contra proferentem maxim. If, when the ambiguity is resolved by the application of that maxim, we miss the real intention of the insurers, they have only themselves to blame. (at p34)
9. I am of opinion that the decision of the Supreme Court was right, and that this appeal should be dismissed. (at p34)
TAYLOR J. On 10th September 1956 the respondent and his partner, in their partnership name, made a proposal to Lloyd's brokers for insurance against claims for breach of their professional duties as solicitors. The name of the firm was stated in the proposal and the firm was said to have been established on 1st February 1954. To the question whether any claims had ever been made against any of the present partners the answer was made "No claim made but possible one may be made against D. L. Price in respect of an alleged omission to set an action down for trial within time whilst practising on own account". Following the proposal a certificate of insurance was issued covering claims made between 13th September 1956 and 13th September 1957, and thereafter, between those dates, a claim was made against the respondent in respect of the omission referred to. In an action subsequently commenced it was sought to enforce this claim whereupon the respondent, as a defendant in the action, sought a complete indemnity from the appellant, representing Lloyd's underwriters, as a third party. In his declaration, by which he sought this indemnity, the respondent alleged a promise on the part of the appellant, without qualification, to indemnify him against any claim for breach of professional duty as a solicitor which might be made against him between the dates mentioned by reason of any negligent act, error or omission whenever or wherever the same might have been committed in the conduct of any business conducted by him in his professional capacity as a solicitor. In answer to the declaration the appellant pleaded the contract verbatim and was promptly met by demurrer. The matter now comes before us on appeal from the order of the Full Court which directed judgment on the demurrer for the respondent. (at p35)
2. As will be seen the contest between the parties is whether the indemnity provided by the contract of insurance was limited to claims arising out of the conduct of the partnership business or whether it extended, inter alia, to claims made against the respondent personally in respect of breaches of professional duty committed by him prior to the formation of the partnership and whilst he was, at an earlier date, practising as a solicitor on his own account. The Full Court gave carefully considered reasons for thinking that it did so extend but upon consideration of the relevant terms of the contract I find myself forced to the contrary conclusion. (at p35)
3. Endorsed on the certificate of insurance appears what purports to be a "Copy of Lloyd's Solicitors Idemnity Policy Form U". The initial provision so endorsed recites that the proposal for insurance was made and then it proceeds to set out the extent of the cover provided. Its precise terms are of such importance in the case that it should be set out in full: "Whereas the person or persons named in the Schedule herein carrying on business under the firm and style stated in the said Schedule (hereinafter called 'the Firm' which expression shall include the aforesaid persons and any other person or persons who may at any time and from time to time during the subsistence of this Policy be a partner in the Firm or any one or more of them) have made to Us who have hereunto subscribed our names as Underwriters a written proposal bearing the date stated in the said Schedule and containing particulars and statements which it is hereby agreed are the basis of this contract and are to be considered as incorporated herein and have paid the premium stated in the said Schedule. Now we the underwriters hereby agree, subject to the terms and conditions of this Policy, to indemnify the Firm against any claim or claims for breach of professional duty as Solicitors which may be made against them during the period set forth in the said Schedule by reason of any negligent act, error or omission, whenever or wherever the same was or may have been committed or alleged to have been committed, on the part of the Firm or their predecessors in business or any person now or heretofore employed by the Firm or their predecessors in business or hereafter to be employed by the Firm during the subsistence of this Policy, in the conduct of any business conducted by or on behalf of the Firm or their predecessors in business in their professional capacity as Solicitors". The critical question in the case is, of course, the meaning and effect of the bracketed words for without them there could be little, if any, doubt that the indemnity was limited to claims made during the specified period in respect of breaches of professional duty in the carrying on of a continuing business. As appears the proposal was made by the existing members of a partnership which was said to have had its commencement on 1st February 1954 and the indemnity is given, in effect, in respect of negligent acts, errors or omissions committed on the part of the firm (or their predecessors in business) in the conduct of any business conducted by or on behalf of the firm (or their predecessors in business) in their professional capacity as solicitors. Clearly enough the clause contemplates that an existing business may find its way into the hands of successive partnerships during the period of risk and that, theretofore, it may have been carried on from time to time by earlier successive partnerships. But, according to the respondent's argument, the bracketed words have the effect of investing the indemnity provisions with a more extensive meaning. Those words, it is said, constitute a definition and assign a meaning to the expression "the Firm" which has the effect of requiring us to treat the indemnity as one given in respect of all claims made during the relevant period in respect of any breach of professional duty committed, at any time, on the part of any one of those persons who was a partner at the time of the making of the contract of insurance or who, thereafter, should become a partner during the period of risk. So understood, it is said, the provision affords an indemnity in respect of the claim which was made against the respondent. In effect, this is the view which the members of the Full Court adopted and it is, expressed in the following passage taken from their reasons: "Mr. Wallace, for the defendant, relies, principally, upon the words contained in brackets in the recital appearing on Form U. This he would have us read as an interpretation clause, defining the expression 'the Firm' wherever appearing in the indemnity clause. The indemnity clause, read with the definition, is then said to create an indemnity wide enough to comprehend the present claim. If we are entitled to apply the bracketed provision as an interpretation clause to the operative words of indemnity this result would appear to follow. For the indemnity must then be read as a promise to indemnify Mr. Ellis and Mr. Price 'or any one . . . of them' against any claim for breach of professional duty as solicitors (or as a solicitor) which may be made against them 'or any one . . . of them', during the period of insurance, by reason of any negligent act, error or omission, whenever or wherever the same was or may have been committed or alleged to have been committed, on the part of Mr. Ellis and Mr. Price 'or any one . . . of them' in the conduct of any business conducted by or on behalf of Mr. Ellis and Mr. Price, 'or any one . . . of them', in their (or his) professional capacity as solicitors (or as a solicitor)" (1960) SR (NSW), at pp 678, 679; (1959) 77 WN, at p 9 . But, in my view, and with respect to the members of the Full Court, the words of the so-called definition do not produce this result. Initially the provision which contains the bracketed words recites the making of the proposal by existing partners "carrying on business under the name and style stated in the said schedule". But since the composition of the firm carrying on that business might change during the period of the risk it was of importance to make it clear that the insurance should continue for the benefit of the partners from time to time notwithstanding any such change. So the expression "the Firm" was to "include the aforesaid persons and any other person or persons who may at any time and from time to time during the subsistence of this Policy be a partner in the Firm or any one or more of them". Then the provision purports to indemnify the firm, that is to say, the existing partners and any future partners and each of them during the relevant period. So regarded the bracketed words do not so define the expression "the Firm" as to make that expression literally synonomous with the name of any selected partner; all that is intended and accomplished is that however the firm carrying on the business initially carried on by the existing partners may be constituted during the subsistence of the contract, each of the partners shall be entitled to the benefit of the indemnity provided. On this view no justification is, I think, to be found in the provision for treating the expression "the Firm" as inflexibly interchangeable simply with "Mr. Ellis" or "Mr. Price" or with the name of some future partner. In my opinion, the sole purpose of the declaratory words was to make it clear that the expression "the Firm" was collectively to denote the partners in the firm from time to time during the subsistence of the contract. And since some or one only of the partners at any particular time might be liable for the acts of a preceding partnership which had carried on the same business it was of importance that the insurer's obligations should be expressed to be undertaken not only for the benefit of the firm but also for the benefit of each of the partners. This is, I think, the significance of the word "include" and in my view it is the sense in which the bracketed words should be understood. So understood the clause proceeds to provide an indemnity to the firm including each and every one of the partners from time to time during the subsistence of the contract. But the indemnity is not given in respect of every claim made against each individual member of the partnership as it may exist from time to time; it is confined to those claims in respect of breaches of duty "by reason of any negligent act, error or omission . . . committed on the part of the firm (or their predecessors in business) . . . in the conduct of any business conducted on behalf of the firm (or their predecessors in business) in their professional capacity as solicitors". (at p38)
4. That these words qualify the liability of the insurers is, I think, clear. It is, of course, apparent that the expression "the Firm" where it secondly appears in the bracketed words must bear its conventional significance. So must it also when one seeks to identify the "predecessors in business" of the firm as it may exist from time to time. For instance, if prior to the period of risk, the business had been carried on by a partnership constituted by A and B and later, during the period of risk, by B and C, the former partnership might appropriately be described as the predecessors in business of the latter partnership but not as the predecessors in business of either B or C independently of one another. But although the words "the Firm" where used at the outset of the indemnifying provisions must be read as including each partner with the result that B, having remained liable for the negligence of his former partner or of an employee of the former partnership, would be entitled to an indemnity, he would be so entitled not because he had been personally negligent but because the members of a partnership of which he was one and which was a predecessor in business of the existing partnership had become liable for the negligence of one of the partners or one of their employees. It seems to me that it is only on this basis that B could obtain an indemnity in such a case and there can be no doubt that it was intended that he should be covered in such a case. This view of the clause is, I think, further reinforced by the circumstance that the negligent act must have been committed "on the part" of "the predecessors in business . . . in the conduct of business conducted by such predecessors in their professional capacity as solicitors". (at p38)
5. It necessarily follows from the view expressed that the reference to predecessors in business has in one sense a limiting effect and places outside the ambit of the indemnity any claim against B in respect of professional work undertaken by him whilst a member of the earlier partnership but independently of that partnership. It is implicit in this view that the intention discoverable from the clause, consistently with the fact that its language appears to distinguish between the concept of a continuing business on the one hand and its conduct by successive partnerships on the other, is that it provides an indemnity during the period of risk to those partners from time to time against whom claims may be made in respect of negligent acts or omissions in the conduct of that business. So, although an existing partner would be entitled to an indemnity in respect of claims based upon the negligence of any member or employee of a former partnership which was a predecessor in business to the existing partnership, he would not be entitled to an indemnity in respect of his own negligent acts committed independently of his earlier partners and in the course of some other practice. Nor, a fortiori, would an incoming partner, liable in respect of the negligent acts of the members or employees of a partnership of which he had previously been a member and which was not a predecessor in business, be entitled to an indemnity. In the result, it seems to me that though there is sufficient in the reference to acts, errors or omissions of predecessors in business to extend the ambit of the indemnity to claims based on the negligence of all former members and employees of partnerships which conducted the same business, the same words operate to exclude from the indemnity claims based upon the negligent acts of any existing partner committed otherwise than in the conduct of that business. Further support for this view may be found in the anomalous situations to which the contrary view - which, for the purposes of the case, treats the expression "the Firm" as literally and inflexibly synonomous with "Mr. Price" - would give rise. "Mr. Price" could not, of course, have any predecessor in business for whose negligent acts he could be made liable but, if the indemnity be treated as providing cover in respect of his own negligent acts whenever or wherever committed, it would not cover him in respect of the negligent acts of his former partners even thoug the former partnership was a predecessor in business of the existing partnership. Moreover an indemnity would be provided in respect of claims based on his own acts of negligence committed as a member of a firm which was not a predecessor in business. Likewise, let it be supposed that a partner - A - retires from the partnership which is carrying on the business and enters into partnership with X for the purpose of carrying on another practice. On the view contended for by the respondent the indemnity would, of course, endure for the benefit of A during the subsistence of the contract but, of necessity, he would be indemnified only against the results of his own negligence and not in respect of the negligence of his new partner or of the employees of the new partnership. It is, I think, impossible to accept the view that any such results were intended to be accomplished by the words used. (at p40)
6. For the reasons which I have given I am of the opinion that the appeal should be allowed, the order of the Full Court discharged and judgment in demurrer entered for the appellant. (at p40)
MENZIES J. I agree with the Chief Justice that this appeal should be dismissed and I have nothing to add to his reasons for this conclusion. (at p40)
WINDEYER J. In my opinion the Supreme Court was right in upholding the demurrer. (at p40)
2. The question turns on the meaning to be given to the expression "the Firm" in the indemnity clause that is set out on the certificate of insurance. The word "firm" has, in contexts relevant to the present, two meanings. Each is exemplified in this clause. In its older, and to-day less usual, sense it means, according to the Oxford Dictionary: "The 'style' or name under which the business of a commercial house is transacted". This meaning - derived from the still earlier sense in which firm meant a signature, by which a writing was confirmed - appears in the opening words of the clause in question here: "whereas the person or persons named in the Schedule herein carrying on business under the firm and style stated in the said Schedule". From that use the word came to mean a partnership of two or more persons carrying on a business. Hence firm has become a collective noun, denoting the partners in a business. In that sense, still further expressly amplified, it appears in the latter parts of the clause in question. That clause expressly provides that, as used therein, "'the Firm' shall include the aforesaid persons (scil. Mr. Ellis and Mr. Price) and any other person or person who may at any time and from time to time during the subsistence of this Policy be a partner in the Firm or any one or more of them". The undertaking to indemnify "the Firm" as thus defined should, I consider, be so read as to give full scope to the amplified meaning that the clause thus attributes to that expression. The result is, in my opinion, that the decision of the Supreme Court was right. I need give no further reasons for this conclusion than to say that I fully agree in those given by the Chief Justice. (at p40)
3. It was argued that the policy was only intended to cover claims arising out of liabilities incurred, or alleged to have been incurred by the firm. And this, it was suggested, meant claims arising out of some act or omission done by one of the partners as a partner in the firm. But on examination this construction, which depends largely on the words "on the part of the firm", raises more difficulties than it solves. A firm of solicitors is not a legal entity. It may in one sense have a continuous existence, perhaps for a hundred years or more, just as any unincorporated body, whether a commercial house, a club or a regiment may have. And this existence and continuity may be real in a philosophical and historical sense. But the clause in question is concerned with claims alleging a legal liability on the part of an individual or individuals. It operates in a system of law that does not recognize partnerships as having, for legal purposes, personality or existence apart from the partners. The key to its meaning is in the words enclosed in brackets in the clause. (at p41)
ORDER
Appeal dismissed with costs.