John J Dellavedova, Gregory C A Hollands and John W Beard v Hih Casualty & General Insurance Limited Formerly Known As C E Heath Casualty and General Insurance Limited and Sun Alliance and Royal Insurance Australia Limited [1997] ACTSC 77 (8 October 1997)

SUPREME COURT OF THE ACT

JOHN J DELLAVEDOVA, GREGORY C A HOLLANDS and JOHN W BEARD v. HIH CASUALTY
& GENERAL INSURANCE LIMITED formerly known as C E HEATH CASUALTY AND
GENERAL INSURANCE LIMITED and SUN ALLIANCE AND ROYAL INSURANCE AUSTRALIA
LIMITED
No. SC 217 of 1995
Number of pages - 24
Insurance -
Evidence

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

COOPER J

CATCHWORDS

Insurance - Professional indemnity insurance - claims made and notified policy - refusal of indemnity on grounds of non-disclosure, misrepresentation and by operation of insurance policy - construction of certificate of insurance and proposal - whether insurer complied with its obligation to clearly inform the insured of the general nature and effect of the duty of disclosure.

Evidence - Whether evidence given was expert evidence relevant to the profession of an accountant or whether it was opinion and outside the expert's field of experience.

Words and phrases - Meaning of "circumstance or occurrence".

Insurance Contracts Act 1984 (Cth)

Insurance Contracts Regulations Reg 3

Castlemaine Perkins Limited v Queen Street Hotels Pty Ltd [1968] QdR 501

Prime Forme Cutting Pty Ltd v Baltica General Insurance Co Ltd (1991) 6 ANZ Ins Cas 61-028

Alex Kay Pty Ltd v General Motors Acceptance Corporation [1963] VR 458

Legal and General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390

Transport Industries Insurance Co Ltd v NSW Medical Defence Union Ltd (1986) 4 ANZ Ins Cas 60-736

Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99

GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558

FAI General Insurance Co Ltd v Hendry Rae & Court (1993) 115 FLR 50

Bowring v Weinert [1978] 2 NSWLR 282

Distillers Company Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Company Ltd [1974] HCA 3; (1974) 130 CLR 1

Drayton v Martin (1996) 67 FCR 1

Reid Crowther & Partners v Simcoe & Erie General Insurance (1993) 99 DLR (4th) 741 Antico v C E Heath Casualty & General Insurance Ltd (1995) 8 ANZ Ins Cas 61-268

Thorman v New Hampshire Insurance Co (UK) Ltd [1988] 1 Lloyd's Rep 7

C E Heath Underwriting and Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd [1993] HCA 21; (1993) 176 CLR 535

Bailey v New South Wales Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399

Antico v C E Heath Casualty and General Insurance Ltd (1995) 8 ANZ Ins Cas 61-268

Transport Publishing Co Pty Ltd v Literature Board of Review [1956] HCA 73; (1956) 99 CLR 111

Bugg v Day [1949] HCA 59; (1949) 79 CLR 442

Grey v Australian Motorists and General Insurance Co Pty Ltd [1976] 1 NSWLR 669 (CA) R W Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1994) 34 NSWLR 129

HEARING

CANBERRA, 28 May 1997 (hearing), 8 October 1997 (decision)

8:10:1997

Counsel for the Plaintiffs: L McCallum

Solicitors for the Plaintiffs: Snedden Hall & Gallop

Counsel for the Defendants: S Donaldson

Solicitors for the Defendants: Phillips Fox

ORDER

THE COURT DECLARES THAT the plaintiffs are entitled to an indemnity from the defendants under Certificate of Insurance Number 20938/94 dated 10 January 1994 in respect of the loss in the agreed sum of $67,004.70 incurred by the plaintiffs arising from the claim of Francis and Jacqulyn Haynes.

THE COURT ORDERS THAT:

1. Judgment be entered against the defendants in the sum of $67,004.70 together with interest thereon as provided in paragraph 2 hereof and for the costs of and incidental to the action including reserved costs, if any, to be taxed if not agreed.

2. Interest be paid at the rate of 10 per cent per annum on the sum of $67,004.70 from the last day of trial in proceedings G61 of 1994 in the New South Wales District Registry of the Federal Court of Australia until 8 October 1997 the date of judgment herein.

DECISION

COOPER J

The plaintiffs are chartered accountants. The defendants are general insurers. At all material times the defendants offered professional indemnity insurance cover under what was known as "The Minet Accountants Group Scheme". The first defendant was the lead underwriter and it conducted the business underwritten for itself and the second defendant.

On 10 January 1994, Minet Professional Services Limited ("Minet"), on behalf of the defendants, issued a Certificate of Insurance in favour of the firm DellaVedova Beard & Co and DellaVedova Beard & Co Services Pty Ltd. In consideration of the payment of the premium, the firm was granted cover against the risks specified and subject to the conditions contained in the Certificate of Insurance. The term of the cover was from 1 January 1994 to 31 December 1994, both days inclusive. The Certificate of Insurance records and purports to incorporate within it a written proposal dated 2 December 1993 lodged with the defendants prior to the grant of the cover.

The risks insured against were specified in clause 2 of the conditions attaching to the Certificate of Insurance. They were:-

"2. Insuring Clauses

On the terms and conditions herein contained the Insurers shall indemnify the Assured up to an amount not exceeding the Sum Insured and Related Costs against all loss to the Assured (including claimants' costs) whensoever occurring arising from any claim or claims first made against the Assured during the Period of Insurance and reported to the Insurers during such period, in respect of any description of civil liability whatsoever incurred in connection with the Practice other than loss arising out of any circumstance or occurrence which has been notified under any other insurance attaching prior to the inception of this Certificate of Insurance, or of which the Assured was aware at the commencement of the Period of Insurance.

Provided that: (a) For the purposes hereof all claims arising from the same act or omission, whether made against one or more Assured, shall be regarded as one claim and only one deduction of the specified excess shall be made from the aggregate amount of such claims; (b) The liability of the Insurers under this Certificate of Insurance in respect of all claims arising from the same act or omission shall not exceed the Sum Insured and Related Costs. (c) For the purposes hereof, all claims arising from audit activities shall be limited to the Sum Insured and Related Costs as stated in the Schedule during the Period of Insurance."

The General Conditions contained the following provision as to notification of claims:-

"4. General Conditions

... (b) The Assured shall give notice in writing to the Insurers as soon as practicable of any claim the subject of the Insuring Clauses hereof made during the Period of Insurance (or within 14 days following the Period of Insurance provided subsequent renewal or replacement insurance continues with the Insurers) against the Assured or of the receipt of notice from any person of any intention to make a claim against the Assured. The Assured may also give notice in writing to the Insurers of any circumstances of which the Assured is or shall become aware during the Period of Insurance which may give rise to such a claim. If notice is given to the Insurers under this paragraph any claim subsequently made (whether before or after the expiration of the Period of Insurance) pursuant to such an intention to claim or arising from circumstances so notified shall be deemed to have been made at the date when such notice was given. Upon request, the Assured shall give to the Insurers all such information and assistance as the Insurers may reasonably require."

On 7 February 1994 proceedings were filed in the Federal Court of Australia against the plaintiffs as fourth, fifth and sixth respondents. The proceedings sought damages for alleged misleading and deceptive conduct in relation to the provision of projected cash flows by the plaintiffs for a "Top Slice Deli" store to be operated at Goulburn, New South Wales by Francis and Jacqulyn Haynes. The proceedings were served on the plaintiffs on 14 February 1994.

On 16 February 1994 the firm DellaVedova Beard & Co gave notice in writing to Minet of the proceedings which notice was received on 18 February 1994.

On 23 June 1994 the defendants denied indemnity and advised Minet of their decision in the following terms:-

"We now confirm that indemnity has been denied to the insured in respect of the above claim. Our denial of indemnity is based on the following reasons:

Clear circumstances existed in the previous policy year that a claim would inevitably be pursued against the insured. The insured elected not to notify underwriters in the previous policy period and failed to note the circumstances at renewal. Therefore there was non-disclosure in the current policy year of the circumstance and an election not to pursue the matter under the previous policy year. Pursuant to the ASA scheme wording indemnity is denied in both policy years based on the decision in FAI v Perry."

On 29 June 1994 the solicitors for the defendants wrote to Mr John DellaVedova in the following terms:-

"We have been instructed by Underwriters to advise you that indemnity has been denied in relation to the claim made by Francis & Jacqulyn Haynes.

Underwriters are of the view that clear circumstances existed in the 1 January 1993 - 31 December 1993 policy year that a claim would be pursued against you. You elected not to notify Underwriters in the policy period above and failed to note the circumstances when renewing the policy in December 1993. We are instructed that had you notified the circumstances prior to the inception of your 1994 policy, those circumstances would have been specifically excluded from the cover provided. Indemnity is therefore denied."

The plaintiffs successfully defended the proceedings brought by Mr and Mrs Haynes. In doing so they expended monies in defending the action by way of legal fees, outlays and disbursements. The quantum of the loss if the defendants are obliged to indemnify the plaintiffs is agreed at $67,004.70 before the award of any interest.

By its amended defence filed 22 May 1997, the defendants alleged that if the plaintiffs suffered a loss, they were aware of the circumstances or occurrences out of which the loss arose at the commencement of the period of insurance (paragraphs 1A and 5(aa)). This plea asserts that the loss is not one arising out of a risk insured against, in that that risk is defined in such a way as to exclude losses from circumstances or occurrences of which the assured was aware.

It was further alleged that the plaintiffs, in breach of the duty of disclosure under s 21 of the Insurance Contracts Act 1984 (Cth) ("the ICA") had failed to disclose circumstances which had arisen prior to renewal of the policy which may have given rise to a claim. Those circumstances were "allegations made against the plaintiffs" in letters dated 17 June 1993 and 29 June 1993 from the solicitors for Mr and Mrs Haynes, the matters referred to in the letters, and the circumstances arising out of Federal Court proceedings and a consent order dated 15 September 1993, a copy of which was forwarded to the plaintiffs (see paragraph 6 of the amended defence).

The defendants further alleged that the plaintiffs submitted a written proposal dated 9 December 1993 which proposal was incorporated into the policy. By the answer to question 9 it was alleged that the plaintiffs falsely represented that they were not aware of any circumstances which may give rise to a claim against them. The answer was false, it was alleged, because the plaintiffs were aware of the circumstances pleaded in paragraph 6 of the amended defence which the defendants alleged ought to have been disclosed in discharge of the duty of disclosure under s 21 of the ICA (see paragraphs 6A, 6B and 6C of the amended defence).

At all material times Mr Ross Trimbole, a director of Top Slice Deli Pty Ltd ("Top Slice Deli"), that company and other companies in which Mr Trimbole was interested were clients of the plaintiffs. In August 1992, negotiations were taking place between Top Slice Deli and Mr and Mrs Haynes in relation to the granting of a franchise to Mr and Mrs Haynes to operate a "Top Slice Deli" store in Argyle Mall, Goulburn, New South Wales. In order to finance the transaction Mr and Mrs Haynes engaged a finance broker, Detemo Pty Limited ("Detemo"), to act on their behalf. On 25 August 1992 Mr Griffiths of Detemo requested information of Mr Trimbole by facsimile in the following terms:-

"Re J & F Haynes

Require 1. Figures for cash flow 2. Background & history of Top Slice Deli to support submission. 3. Is this shop trading as Top Slice?

Regards,"

The request was conveyed by Mr Trimbole to Mr John DellaVedova on behalf of the plaintiffs as accountants to Top Slice Deli. Mr DellaVedova was asked to supply the information directly to the finance broker.

On 28 August 1992 Mr DellaVedova wrote to Detemo as follows:-

"Dear Sirs,

Re TOP SLICE DELI

We have been requested by the above clients to provide you with certain information in relation to Top Slice Deli Pty Ltd., and also the proposed new outlet to be situated in the Argyle Mall in Goulburn, NSW.

The information is as follows: (a) A brief back ground and history of the business; (b) Projected cashflow for the Goulburn outlet for the 12 month period October 1992 to September 1993.

I trust the above is in accordance with your requests."

The projected cashflow referred to in the letter was headed:-

"J & F HAYNES T/A "TOP SLICE DELI" Argyle Mall, Shopping Centre, Goulburn, NSW. PROJECTED CASH FLOW ANALYSIS FOR THE 12 MONTH PERIOD OCTOBER 1992 TO SEPTEMBER 1993"

Attached to the cash flow, which was set out in spreadsheet form, was a document headed "NOTES", which read:-

"NOTES

(1) The above Cashflow Projection is based on actual operating results for current Top Slice Deli Outlets in the ACT.

The Monthly Turnover is projected on the area of the shop (77 sq metres) and the location, being a shopping mall.

(2) The Licence Fee payable is based on 6% of $15,000 per week, or 6% of Gross Weekly Turnover, whichever is the greater.

(3) Salaries and wages are calculated as 12% of Turnover. This is based on current operating outlets.

(4) Leasing costs assume the operators will elase [sic] the entire capital set-up costs of $150,000.

(5) The rent is based on an area of 77 sq metres located in the Mall at a specified rate of $450 per sq metre per annum."

Mr DellaVedova was aware that the information he supplied, including the projected cash flows, was going to be used by the finance broker on behalf of Mr and Mrs Haynes to obtain finance to acquire the franchise.

On 17 June 1993 Robert J McCarthy & Co, solicitors for Mr and Mrs Haynes, wrote to the plaintiffs in the following terms:-

"Messrs DellaVedova Hollands Beard & Co, Chartered Accountants, GPO Box 2655, CANBERRA ACT 2601

Dear Sirs,

RE: J D & F V HAYNES & TOP SLICE DELI PTY LIMITED

We act for Mr & Mrs Haynes who are the Licensees of Top Slice Deli Pty Limited in respect of the business carried on at Shop 33 Argyle Mall Shopping Centre Goulburn.

We enclose a photostat copy of a Projected Cash Flow Analysis prepared for our clients prior to them entering into the Lease of the premises and the Licence Agreement with your client.

Our client believes that the claims made in the Cash Flow Analysis may not be justified and accordingly we would be obliged if you would supply us with all documents, comparative figures or other information which are or have been in your possession, control or power upon which the Projected Cash Flow Analysis was based and prepared for the 12 months period October 1992 to September 1993 was complied [sic] for J & F Haynes trading as Top Slice Deli at the Argyle Mall Shopping Centre Goulburn.

We look forward to receiving this information within 7 days and in the absence of its receipt within that time we are instructed to make an application to the Federal Court of Australia for Discovery pursuant to Rule 15A of the Federal Court Rules for the purpose of ascertaining whether our clients do have a Cause of Action.

Yours faithfully,"

Upon receipt of the letter, Mr DellaVedova contacted Mr Memmolo of Romano & Co, Solicitors for Top Slice Deli. Mr DellaVedova said in evidence, and I accept, that he asked Mr Memmolo what the letter meant and whether he should provide the information sought. Mr Memmolo advised him to provide the information requested.

In consequence of the instructions from Mr Memmolo, Mr DellaVedova wrote on 24 June 1993 to Robert J McCarthy & Co, as follows:-

"Dear Sirs,

Re: TOP SLICE DELI SYSTEMS PTY LIMITED

We refer to your letter of 17 June in which you requested certain information regarding the cashflow projections prepared for the proposed business operation to be carried out at Shop 33, Argyle Mall Shopping Centre, Goulburn.

With reference to the estimated projected cashflow we wish to point out that this was based on actual operating results for current Top Slice Deli outlets in the ACT. This was pointed out in our letter of 28 August 1992. For your information we also enclose the other assumptions made in preparing that cashflow.

We trust this is satisfactory for your purposes.

Yours faithfully,"

Enclosed with the letter was a copy of the "NOTES" to the cash flow projections being the other assumptions made in preparing the cash flow.

On 29 June 1993 a further letter was sent by Robert J McCarthy & Co, solicitors to the plaintiffs. The letter read:-

"Dear Sirs,

RE: HAYNES & TOP SLICE DELI SYSTEMS PTY LIMITED

We acknowledge receipt of your letter of 24th June 1993 and the statement of assumptions.

We would be obliged if you would supply us with the actual operating results for current Top Slice Deli outlets in the ACT upon which our clients' Cash Flow analysis was based and also a list of all the Top Slice Deli outlets in the ACT.

Our clients' financial situation is deteriorating at a very rapid rate.

If we do not receive the information sort [sic] within 7 days we will commence proceedings pursuant to Rule 15A of the Federal Court Rules.

Yours faithfully,"

After receipt of the letter Mr DellaVedova spoke to Mr Memmolo on 8 July 1993. In respect of that conversation he said:-

"Do you recall what you discussed with him during that conversation?---Well, basically that - he told me that the applicants were becoming increasingly agitated about - the solicitors were and that they wanted all the information that we used to prepare the cash flow and any other documentation. So I proceeded to provide more detailed information as was attached - as set out in the letter which has actual turnover figures, door counts, floor area. I mean, the normal sort of information you would use in preparing a projected cash flow.

Did you, at that stage, retain Mr Memmolo to act on your behalf?---No, not at all.

Why did you contact Mr Memmolo?---Because - well this - the only reason I contacted Mr Memmolo is he is the client's solicitor and he's - - -

When you say 'the client' you mean Top Slice Deli?---Yes, exactly.

Who was also your client?---Exactly. He is the person who - I mean, any legal matters relating to the client I would contact him."

Following the discussion, Mr DellaVedova wrote to Mr Memmolo on 15 July 1993 as follows:-

"Dear Sir,

Re: TOP SLICE DELI PTY LTD

Further to our discussions of 8 July 1993 in relation to trading operations of the Goulburn Franchised Outlet I have now accumulated the information requested, and now enclose it as follows:

(1) Schedule of Gross Monthly Turnover, and Door Count Numbers for the financial year July 1992 to June 1993;

(2) A schedule of Door Counts for the City Markets Outlet for 1992 and 1993;

(3) Details of growth prospects and trading area of the Argyle Mall;

(4) Traffice [sic] Counts for both the Goulburn and City Markets Outlets;

(5) Trading figures for the Cut Price Deli operation prior to any renovations being undertaken at the Argyle Mall.

I trust this information is adequate for your purposes, and if anything further is required please contact the writer.

Yours faithfully,"

On 23 September 1993 Romano & Co forwarded to the plaintiffs by facsimile a copy of a document purporting to be a consent order. The document read:-

"HAYNES v TOP SLICE DELI PTY LTD

SHORT MINUTES OF CONSENT ORDER

By consent the Court Orders that:

1. On or before 8 October 1993 each respondent make discovery to the applicants of all documents which are or have been in its or his possession, custody or power relating to any budget or actual trading results for the period 1 July 1991 to 14 October 1992 in respect of: (a) The Top Slice Deli stores located at Belconnen Mall ACT, City Markets ACT, Erindale ACT and Cooleman Court ACT; (b) any other Top Slice Deli outlet operated by Top Slice Deli Pty Ltd or Top Slice Deli Systems Pty Ltd or operated pursuant to any franchise of either company.

2. Costs of this application be reserved.

C P Comans G Turner Counsel for the applicants Counsel for the respondents

15 September 1993

3. Listed for direction on 11 February 1994 at 9.30 before Sheppard J.

4. Liberty to apply on 7 days notice."

There is no evidence as to the nature of these proceedings in the Federal Court or of the identity of the "respondents" on whose behalf Mr Turner of counsel appeared. There is no suggestion that the plaintiffs were named respondents, and I find that the plaintiffs were not parties to the proceedings.

After receipt of the facsimile, Mr DellaVedova spoke to Mr Memmolo who advised him that Mr and Mrs Haynes wished to look at the books and records of Top Slice Deli. Mr DellaVedova gave the following evidence:-

"Did you recognise what that document was or understand what it was when you received it?---Not really. To me it was just an order to have a look at prior financials.

Prior to receiving that did you have any knowledge of any application made by the Haynes to any court?---No, not at all.

And did you understand - I withdraw that. When you received this did you form [sic] as to whether there were proceedings on foot by the Haynes?---Well, I thought that there would have been an action against Top Slice Deli, right, and that was the reason for this document.

Did you have a view when you received this document as to who the parties were to the proceedings disclosed in the document?---Yes. Well, Top Slice Deli v Haynes.

At that stage did you turn your mind to the possibility that you would receive a claim or have court proceedings commenced against you?---No, not at all.

Would you please have a look at this document which is behind tab 8? Is that a letter you sent to Robert J McCarthy & Co?---Yes, correct.

Attaching a schedule of documents which you were prepared to make available to him for inspection?---Correct.

Why did you send that letter?---Well, I was requested to do so by Mr Memmolo."

The document to which he refers is Schedule 1 to a letter written by Mr DellaVedova on 7 October 1993 to Messrs Robert J McCarthy & Co, which said:-

"Dear Sirs,

Re: TOP SLICE DELI PTY LIMITED

We have been requested by Mr John Memmolo of Romano & Co, Solicitors to provide you with details of information available pursuant to your recent requested [sic] regarding the Top Slice Deli operations.

This information is available at our office for you to inspect as of 8 October 1993.

Yours faithfully,"

Schedule 1 read:-

"SCHEDULE 1

Information available for inspection regarding the books and records of Top Slice Deli Pty Limited.

(1) Deposit books, cheque books, bank statements relating to the trading operations of Top Slice Deli outlets located at Belconnen, Civic and Cooleman Court;

(2) A copy of the Financial Statements of Top Slice Deli Pty Ltd for the year ended 30 June 1992;

(3) A copy of the Income Tax Return for Top Slice Deli Pty Ltd for the year ended 30 June 1992;

(4) A letter directed to Mr John Memmolo of Romano & Co setting out information regarding Top Slice Deli outlets as to: (a) Schedule of Gross Monthly turnover, and Door Count Numbers for the financial year July 1992 to June 1993; (b) A schedule of Door Counts for the City Markets Outlet for 1992 and 1993; (c) Details of growth prospects and trading area of the Argyle Mall; (d) Traffic Counts for both the Goulburn and City Markets Outlets; (e) Trading figures for the Cut Price Deli operation prior to any renovations being undertaken at the Argyle Mall.

(5) Monthly trading results for the Top Slice Deli outlets as prepared by the company for July, August, September and October 1992."

Under cover of a letter dated 1 December 1993 Mr DellaVedova, on behalf of the firm DellaVedova Beard & Co, being a partnership of the first and third named plaintiffs which commenced on 1 July 1993, forwarded a written proposal seeking insurance cover for the new firm and for DellaVedova Beard & Co Services Pty Ltd. The partners/principal named in answer to question 2 of the proposal, were Mr DellaVedova and Mr Beard.

Question 9 of the proposal read:-

"9 Are any of the Partners/Principals, after enquiry, aware of any circumstance which may give rise to a claim against the Firm or their predecessors in business or any of the present or former Partners or Consultants? If so, please give full particulars."

The question was answered "No".

In cross-examination Mr DellaVedova said as to the answer:-

"Now, you told my learned friend that the answer to the question in the proposal, number 9, as to whether you were aware of any circumstances which may give rise to a claim against the firm was a truthful answer?---Correct.

If you'd turned your mind at the time you completed this proposal to the correspondence that had been exchanged - to the correspondence that had been received from Mr McCarthy that I've shown you, those two letters, and the responses that had been given, and in particular to a fact that no documentary material to support projections had been produced, if you'd turned your mind to those circumstances at the time you completed this proposal you would have had to conclude, wouldn't you, that there may be a claim made here?---Absolutely not.

You thought it was a virtual impossibility?---Mm.

I suggest to you that it was clearly obvious at the time this proposal was completed by you that there may be a claim made against you based on those cash flow projections?---No, disagree."

The proposal contained on the front of it the following notices:-

"A MEMORANDUM

You must disclose to Insurers all information which is of importance to them in deciding whether to issue insurance cover to you, including any facts or conduct which might lead to a claim being made by you or by any person entitled to protection under this Certificate of Insurance. If you fail to do so, your rights to claim under the Certificate of Insurance may be affected.

If you cannot properly read or understand any part of this document please contact us BEFORE you sign it. You will be bound by the answers which you give and by the information provided by you in this proposal form. Therefore, it is in your interest to make sure that all information is correct and properly understood.

B CLAIMS MADE CONTRACT

This means the Certificate of Insurance will respond to: 1. Claims first made against you and reported to the Insurers during the period of insurance, which will be specified in the Certificate of Insurance. 2. Events of which you became aware during the period of insurance which may give rise to a future claim provided you inform the Insurers in writing as soon as practicable, within the period of insurance, of such events.

The Certificate of Insurance will NOT cover you for liability resulting from events that were matters of claim or potential claim of which you were aware before the commencement of the period of Insurance."

In cross-examination Mr DellaVedova said in respect of those notices:-

"Have a look at the first page of the accountant's proposal form, and if you have a look at paragraph A of the Memorandum, it says, 'You must disclose to your insurers all information which is of importance to the [sic] in deciding whether to issue insurance cover to you, including any facts or conduct which might lead to a claim being made by you, or by any person, and entitled to protection under this certificate of insurance'?---Mm.

You understood, when you completed the proposal, that it was your obligation to tell the insurers anything which might be - of any circumstances which might arise from the client?---Yes, most certainly.

An you understood that, from what was said under paragraph B of the proposal, that the contract was a claims made contract, and that the insurance would respond to events of which you became aware during the period of insurance, which may give rise to a claim, provided you informed the insurance [sic], as soon as practical, with it?---Yes.

So you knew that what was proposed was a policy of insurance, whereby the insurers may have to indemnify you in relation to claims, in circumstances arising during the period of insurance?---Yes.

And you knew that the purpose of the proposal was for the insurers to assess the risks which they were undertaking, by entering into such a contract?---Yes.

And for the purpose of deciding whether to insure you at all, and if so, at what premium, correct?---Correct.

And so you appreciated that anything that you were aware of which may have a bearing on the likelihood of a claim being made was of significance to them?---Correct."

It was submitted by counsel on behalf of the defendants that I should find that Mr DellaVedova was:-

(a) Aware that Mr and Mrs Haynes were from 17 June 1993 considering action against the plaintiffs based on an allegation that there was no proper basis to sustain the cash flow projections;

(b) Aware that the cash flow projections could not be sustained because Mr DellaVedova did not hand over the documents requested in the letter of 17 June 1993 or the operating results referred to in the letter of 29 June 1993;

(c) Aware, or ought to have been aware at the latest in September 1993 when he received the copy draft minutes of order, that his firm would be sued or a claim may be made against it by Mr and Mrs Haynes, because he had prepared the cash flow projections which he believed were going to be used by Mr and Mrs Haynes through their broker to obtain finance to acquire the franchise business.

In support of the third finding counsel submitted that, even if not subjectively having that knowledge or belief, I ought to find objectively that he ought to have been so aware.

I should state immediately that there was no allegation raised on the pleading that Mr DellaVedova produced a knowingly insupportable cash flow projection which he allowed to be released into circulation for use and reliance upon by some financier. Nor was it alleged that at any time relevant to the grant of insurance cover the cash flows prepared by Mr DellaVedova were not sustainable or were improperly produced by him and that he was aware of this fact. Such allegations, if not allegations of fraud, are allegations of serious misconduct analogous to fraud and must be pleaded if it was sought to raise them on trial: Castlemaine Perkins Limited v Queen Street Hotels Pty Ltd [1968] QdR 501 at 511. Further, there is nothing in the evidence to support the allegation.

Mr DellaVedova gave evidence that the material supplied by him to Detemo was based on information and cash flow prepared by the previous accountants, KPMG, and on information supplied by his client as to turnover, and prepared on the basis of the assumptions contained in the notes. This is uncontradicted and I accept it.

Next it was submitted that if Mr DellaVedova had nothing to hide he would have handed over the documents sought in the letter of 17 June 1993. This submission ignores the fact that the documents, to the extent that they were the client's documents, could not simply be handed over, nor information be given of the client's affairs without reference to the client. This Mr DellaVedova sought from the client's solicitors and he was advised to provide the information. There is no evidence that Mr Memmolo advised Mr DellaVedova to give Mr and Mrs Haynes' solicitor access to Top Slice Deli's financial records prior to the consent order of September 1993. Mr DellaVedova quite properly sought and acted in accordance with the instructions of his client's solicitor. On his evidence the material prepared and supplied in consequence of receipt of the letter of 29 June 1993 was the information required by Mr Memmolo. The material was supplied to Mr Memmolo, not to Mr and Mrs Haynes' solicitor, to be dealt with or used by Mr Memmolo as solicitor for Top Slice Deli. So too, the conduct of the plaintiffs after receiving the copy order for discovery and inspection from Romano & Co, was to act in accordance with the directions of that firm as solicitors for Top Slice Deli to make available the documentation or financial records of the client for inspection by the legal representatives of Mr and Mrs Haynes.

I find that until proceedings were filed in the Federal Court on 7 February 1994 and served on 14 February 1994, neither Mr DellaVedova nor the other plaintiffs was or were aware that Mr and Mrs Haynes intended to make a claim against the plaintiffs and did not believe that the preparation of the cash flow projections may give rise to a claim by Mr and Mrs Haynes against them for misleading and deceptive conduct. Nor does the evidence establish objectively that anything occurred in preparation of the cashflow analysis which would or could expose the plaintiffs to a potential civil liability to Mr and Mrs Haynes.

To the extent that the defendants sought a finding that the plaintiffs ought to have known that Mr and Mrs Haynes intended to sue them or make a claim, on the issue of non-disclosure such a finding of presumed knowledge is irrelevant since passage of s 21 of the ICA: Prime Forme Cutting Pty Ltd v Baltica General Insurance Co Ltd (1991) 6 ANZ Ins Cas 61-028 at 76,877. In any event, the evidence does not support such a finding.

Was the plaintiffs' loss one falling within the scope of clause 2 of the conditions attaching to the Certificate of Insurance?

The approach to be taken to the construction of the Certificate of Insurance and proposal was outlined by Sholl J in Alex Kay Pty Ltd v General Motors Acceptance Corporation [1963] VR 458 at 463 where his Honour, quoting from "Welford on Accident Insurance", said:-

" ... 'The words of the policy must, if possible, be construed liberally, so as to give effect to the intention of the parties. The object of the parties being to make a contract of insurance, any construction which defeats that object or renders the contract practically illusory is to be rejected. Hence, a literal construction leading to a result which is absurd, or otherwise manifestly contrary to the real intention of the parties, is not to be adopted, and the words used must be construed with qualifications.' ..."

Sentiments to similar effect can be found in Legal and General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 at 394; Transport Industries Insurance Co Ltd v NSW Medical Defence Union Ltd (1986) 4 ANZ Ins Cas 60-736 at 74,410.

The documents will not be construed however in such a way as "to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust": per Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109.

The obligation of the defendants under clause 2 was to indemnify the plaintiffs against loss. That loss was described as all loss to them in consequence of a claim or claims being made against them in specified circumstances. Those circumstances were:-

(a) that the claim or claims be in respect of civil liability arising from a breach of obligation arising out of professional practice as an accountant ("in respect of any description of civil liability whatsoever incurred in connection with the Practice [as defined]"); and

(b) that the claim or claims were first made against the plaintiffs and notified to the defendants during the currency of the policy.

The category of losses otherwise falling within the specified circumstances was further limited by the clause to exclude loss as described in two further circumstances.

The first is loss (ie all loss to the plaintiffs in consequence of a claim or claims being made against them) arising out of any circumstance or occurrence which has been notified under any other insurance attaching prior to the inception of the cover under the Certificate of Insurance. The second is loss (ie all loss to them in consequence of a claim or claims being made against them) arising out of any circumstance or occurrence of which the plaintiffs were aware at the commencement of the Period of Insurance (as defined).

The insurance provided by the Certificate of Insurance is liability cover in respect of claims made and notified during the currency of the insurance. It is not liability cover in respect of losses arising from occurrences occurring during the currency of the policy. Therefore, the qualification in the limitation "arising out of any circumstance or occurrence" should be read as qualifying the claim made and notified and not loss constituted by the civil liability flowing from the occurrence which gives rise to the claim.

Such a dichotomy is evident in provisos (a) and (b) to clause 2, where the occurrence, the "act or omission" is only relevant as the source of the claim or claims and not otherwise.

So understood, the specified circumstances and the further limitations operate in respect of claims for civil liability incurred in connection with the assured's professional practice as an accountant. It follows therefore that claims "arising out of any circumstance or occurrence" are claims arising out of the conduct of the assured's practice as an accountant. The circumstance or occurrence is limited to some act, omission, error, breach of duty or obligation on the part of the assured or a servant or agent of the assured which occurs, or is alleged by a third party to have occurred, in connection with the accountant's practice and which gives rise to a claim which is made and notified in the period of insurance. To be excluded by the words of limitation, the assured must be aware of the facts or alleged facts which comprise the "circumstance or occurrence" and which, if they exist, will expose the assured to a civil liability to a third party.

My view as to the proper construction of the words of limitation in this policy is consistent with the construction of the term "any circumstance or occurrence" in other liability insurance policies. Consistency of approach is desirable in the insurance market to give certainty as to the nature of the cover offered by underwriters and sought by assureds. Nevertheless, great care must be taken in having regard to the interpretation of clauses in other insurance policies because of the importance of context to the meaning of language. Bearing that caution in mind, the use of the word "occurrence" in insurance policies in the context of legal liability to third parties carries a meaning that the occurrence is causally relevant to that liability: per Sheller JA in GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558 at 572; FAI General Insurance Co Ltd v Hendry Rae & Court (1993) 115 FLR 50 at 67, 74; Bowring v Weinert [1978] 2 NSWLR 282 at 291 - 292. The context itself identifies the relevant occurrence as being the mishap rather than its consequences: Distillers Company Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Company Ltd [1974] HCA 3; (1974) 130 CLR 1 at 19.

Prior to 14 February 1994 Mr and Mrs Haynes did not directly assert any right or entitlement to damages against the plaintiffs or notify them of any intention by Mr and Mrs Haynes to seek to recover such damages against them. Nor was the substance of a claim against the plaintiffs brought home to the plaintiffs by anything done by Mr and Mrs Haynes or on their behalf: Drayton v Martin (1996) 67 FCR 1 at 24; Reid Crowther & Partners v Simcoe & Erie General Insurance (1993) 99 DLR (4th) 741 at 757. There was therefore no "claim" by Mr and Mrs Haynes against the plaintiffs within the generally adopted meaning of that term as used in liability insurance policies and as used in the proposal and the Certificate of Insurance in this case until service of the proceedings: Antico v C E Heath Casualty & General Insurance Ltd (1995) 8 ANZ Ins Cas 61-268 at 75,999; Reid Crowther & Partners v Simcoe & Erie General Insurance at 754 - 755; Thorman v New Hampshire Insurance Co (UK) Ltd [1988] 1 Lloyd's Rep 7 at 11.

The claim therefore was first made and notified in the 1994 Period of Insurance. It was a claim for civil liability incurred in connection with the accountancy practice of the plaintiffs. Unless caught by the further limitations, the claim, when made and notified, fell within the indemnity cover and the defendants were obliged to indemnify the plaintiffs unless they had available some other ground of defence.

Was the loss outside the cover by reason of the further limitation in clause 2?

The defendants in the present action did not allege, nor did they seek to prove, that the plaintiffs engaged in conduct which constituted an act, omission, error, breach of duty or obligation of which the plaintiffs were aware which exposed the plaintiffs to a civil liability to Mr and Mrs Haynes. Rather, the defendants' contention is that the receipt of the letters of 17 and 29 June 1993 and the facsimile copy of the consent order for discovery, the facts, circumstances and allegations referred to in those letters, and the existence of Federal Court proceedings were circumstances or occurrences of which the plaintiffs were aware and out of which their loss arose.

The receipt of the documents were not circumstances or occurrences which exposed the plaintiffs to a civil liability to Mr and Mrs Haynes. They are therefore not a circumstance or occurrence within the meaning of clause 2. What is of importance is the content of the documents to determine whether or not they disclose facts or allegations of fact which, if proved up, would expose the plaintiffs to a civil liability to Mr and Mrs Haynes.

The letter of 17 June 1993 makes no allegation of breach of duty or obligation on the part of the plaintiffs, nor does it allege any misconduct. The letter identifies a projected cash flow analysis and alleges that it was prepared for Mr and Mrs Haynes prior to them entering into a lease and licence agreement with Top Slice Deli. The letter records the belief of Mr and Mrs Haynes that the claims made in the projected cash flow analysis may not be justified and asks for voluntary discovery to their solicitor of the material upon which the analysis was based. In default of voluntary discovery the letter foreshadows an application to the Federal Court of Australia for discovery "for the purpose of ascertaining whether our clients do have a Cause of Action." Overall, this letter does no more than put the plaintiffs on notice that the projected cash flow analysis is being investigated to ascertain whether or not Mr and Mrs Haynes have an enforceable claim. The letter is neutral as to whom any claim may be against, in the event that Mr and Mrs Haynes decided to make a claim.

The letter of 29 June 1993 again seeks the voluntary disclosure of information and advises that, if necessary, proceedings to obtain discovery will be brought. Otherwise no allegations of misconduct or breach of duty or obligation are made against the plaintiffs.

The copy consent order forwarded on 23 September 1993 by Top Slice Deli's solicitor to the plaintiffs was not an order made in proceedings to which the plaintiffs were a party, nor was it directed to them by the court. The order in terms was one in proceedings between Mr and Mrs Haynes and Top Slice Deli and other unnamed respondents obliging each of the respondents to make discovery of the documents named in the order. The only reason the document was forwarded by Top Slice Deli's solicitor to the plaintiffs was because the latter were the accountants who had possession of the documents on behalf of their client, Top Slice Deli. The communication is nothing more than a request to make available for inspection the client's documents in order that the client may fulfil its obligations under the court order to give discovery. To the extent that the copy consent order indicated anything, it indicated that Mr and Mrs Haynes were proceeding against Top Slice Deli and the other respondents and not the plaintiffs.

As at the commencement of the Period of Insurance specified in the Certificate of Insurance there were no facts of which the plaintiffs were aware which exposed them to a civil liability to Mr and Mrs Haynes and no facts alleged by Mr and Mrs Haynes which, if true, would have exposed the plaintiffs to a liability to Mr and Mrs Haynes. At that time no claim had been brought against the plaintiffs, no notice of intention to make a claim against the plaintiffs had been given by Mr and Mrs Haynes and such proceedings as Mr and Mrs Haynes had seen fit to commence were not against the plaintiffs, but against the client. At best for the defendants, the plaintiffs were aware that the cash flow projections prepared by them and forwarded to Detemo were being investigated to ascertain whether or not the analysis was justified, in the context of proceedings against Top Slice Deli and others, not including the plaintiffs. However this, in my view, is insufficient for the purposes of the limitation in clause 2, to exclude the loss sustained by the plaintiffs.

I find that there were no circumstances or occurrences of which the plaintiffs were aware on 1 January 1994 out of which arose the claim made against the plaintiffs in the Federal Court proceedings brought by Mr and Mrs Haynes which caused the loss the plaintiffs suffered by way of legal costs and expenses incurred in successfully defending those proceedings.

The plaintiffs' loss in the agreed sum is therefore recoverable loss within the indemnity promised under clause 2, the insuring clause, of the conditions attaching to the Certificate of Insurance unless the defendants make out one of the other grounds of defence.

Has there been a breach of the plaintiffs' duty of disclosure?

An insured's duty of disclosure is now provided for in s 21 of the ICA. Section 21(1) provides:-

"21(1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that: (a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or (b) a reasonable person in the circumstances could be expected to know to be a matter so relevant."

In the instant case as each renewal was a new and separate policy of insurance, the duty of disclosure arose immediately prior to each renewal: C E Heath Underwriting and Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd [1993] HCA 21; (1993) 176 CLR 535 at 546; Bailey v New South Wales Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399 at 414.

The defendants alleged that it was a requirement for renewal of the policy of insurance and a term of it that the plaintiffs disclose any circumstances which may give rise to a claim against the plaintiffs or their predecessors in business. The circumstances which were alleged as being required to be disclosed and which were not disclosed were those particularised in paragraph 6 of the amended defence to which reference has been made earlier in these reasons.

The grounds pleaded by the defendants raise a number of issues for determination:-

(i) What meaning ought to be given to the word "circumstances" in the context of the alleged duty to disclose?

(ii) At the time for disclosure of circumstances which may give rise to a claim against the plaintiffs, did any of those circumstances exist as a matter of objective fact?: Bowring v Weinert at 289 - 290;

(iii) Do the circumstances particularised in paragraph 6 of the amended defence fall within the relevant description of "circumstances" within (i) and (ii) above?

(iv) Whether the circumstances particularised in paragraph 6 of the amended defence were a matter relevant to the decision of the defendants to accept the risk under the Certificate of Insurance, and if so, on what terms?

(v) Whether the plaintiffs knew that the particularised circumstances were relevant to the decision of the defendants to accept the risk?

(vi) If "no" to (v), whether the plaintiffs ought reasonably to have known that the particularised circumstances were relevant to the defendants' decision to accept the risk?

The first of these questions is answered by giving the word "circumstance" the same meaning as "circumstance or occurrence" appearing in the insuring clause 2 which I have dealt within the above reasons. That is a meaning confirmed by reference to the proposal form and the language and context of the disclosure notice in Notice A in the proposal.

Section 22 of the ICA required the defendants to clearly inform the plaintiffs in writing of the general nature and effect of the duty of disclosure. The defendants did not give to the plaintiffs notice in the form prescribed by Regulation 3 of the Insurance Contracts Regulations and the schedule thereto. Rather, notice was given in terms of Notice A on the proposal which is set out earlier in these reasons. The notice does not state that the subject matter to be disclosed is that which the assured knows or could be expected to know is relevant to the insurer's decision. As formulated, the notice does not inform the assured that anything other than the subjective knowledge of the assured, including knowledge of facts or conduct which might lead the plaintiffs to make a claim under the insurance cover if granted is required to be disclosed. Notice A did not differentiate between acceptance of risk and the terms upon which cover may be offered.

The proposal form described the insurance to which it related. It was a "civil legal liability policy cover" whereunder "unlimited retroactive cover is provided at no additional cost, excluding known claims or claim circumstances." It related to the conduct of the practice of a professional accountant. Notice B on the front page of the proposal clearly states:-

"The Certificate of Insurance will NOT cover you for liability resulting from events that were matters of claim or potential claim of which you were aware before the commencement of the period of insurance."

Question 8 of the proposal asks as to claims made against the plaintiffs over the past six years. This is to be contrasted with question 9 which asks as "to claim circumstances" or "matters of potential claim" in terms of the description of the cover.

In the duty of disclosure as pleaded the word "circumstance" is synonymous with "circumstances or occurrence" in clause 2, the word "event" or "events" where used in Notice B of the proposal, and the word "circumstance" in question 9 of the proposal. Each is a causally relevant fact or circumstance which will, or has the potential to, generate a claim for civil liability. It is some mishap or default which exposes or has the capacity to expose the plaintiffs to civil liability to a third party.

There were no such circumstances existing at the time the duty of disclosure arose in respect of the 1994 Certificate of Insurance. The second question should therefore be answered "no".

For the reasons which lead me to conclude that the three documents did not amount to a circumstance or occurrence within the knowledge of the plaintiffs which placed the claim outside the scope of cover, the three documents, their content and the circumstance of Federal Court proceedings against Top Slice Deli, without more, did not constitute circumstances which may give rise to a claim against the plaintiffs. The third question should therefore be answered "no".

In order to make out the requirement that the particularised circumstances were matters relevant to the decision of the insurer (the defendants) whether to accept the risk and, if so, on what terms, the defendants called evidence from Mr Gregory Brown. Mr Brown is an underwriter employed by the first defendant. He has managed the professional indemnity division of the first defendant since 1982. Since inception of the accountants scheme in 1986 he has personally made the decision as to renewals of the policies.

In his evidence-in-chief Mr Brown was shown the letters of 17 and 29 June 1993 and a copy of the consent minutes of order and asked:-

"And you're familiar with their contents?---I am.

Would you tell his Honour whether there is anything in the defendant's policy guidelines, underwriting policy guidelines, which would indicate the procedure to be adopted by an underwriter employed by the defendant in the event that the circumstances disclosed in the correspondence which I have just shown you were notified at the time of an insurance proposal being received by the defendant?"

After objection by counsel for the plaintiffs, he continued:-

"MR DONALDSON: Do you remember the question?---I do. Guideline 1.3 says, 'Any disclosure of actual claims made against a proponent or disclosure of any circumstances which might give rise to a claim must be the subject of a total exclusion of such events in the new or replacement policy the subject of rating'.

.....

And the statement of policy that you read to his Honour, was that the statement of policy at the time of the proposal for the insurance which is the subject to this claim?---Yes, that manual was produced on 1 April 1992.

Was it current at the time here?---Yes.

Were there any circumstances in which you would or may have departed from the policy statement that you read to his Honour?---No and in fact, we overcame that by - all of our standard policy wordings have the exclusion relating to that factor printed in them.

So that the policies automatically provide that any circumstances which are disclosed to the proposal will be excluded?---Yes, correct.

And at risk of being competitive [sic] - I have already asked you to look to the two letters and the short minutes of order in the bundle. If they had been disclosed in a proposal for insurance submitted in December 1993, would claims arising from those circumstances necessarily have been excluded by you?---They would have been automatically excluded by the objective clause of the policy to be issued."

There was no suggestion in his evidence-in-chief that disclosure of the three documents was a matter relevant to the decision of whether the defendants would have accepted as the risk loss to the plaintiffs from claims made in 1994 or, if so, on what terms. The inference to be drawn from his evidence is that the defendants would have treated the documents as a circumstance which might give rise to a claim and thus any loss from such a claim would be excluded from the risks insured against under the policy. That exclusion, on Mr Brown's evidence, would follow from the policy wording and not from any conscious decision to accept or not to accept the risk.

In cross-examination Mr Brown stated that if the three documents had been disclosed in 1993 before the 1993 policy expired on 31 December 1993, a claims file would have been opened and a decision made as to whether it should be accepted as a claim under the 1993 policy. If Mr Brown's evidence is accepted at face value, disclosure of the documents to satisfy the duty of disclosure under s 21(1) of the ICA would be treated as notification of circumstances under clause 4(b) of the General Conditions attached to the Certificate of Insurance for the 1993 calendar year, notwithstanding that the disclosure had not been made for that purpose, nor that there was a conscious decision of the assured to elect to exercise the right to notify.

Mr Brown was also of the view that if question 9 of the proposal which read:-

"9. Are any of the Partners/Principals, after enquiry, aware of any circumstances which may give rise to a claim against the Firm or their predecessors in business or any of the present or former Partners or Consultants?"

had been answered "yes" instead of "no" during the currency of the 1993 policy, and that in consequence the three documents had come to light, a claim file would also have been raised against the 1993 policy.

Mr Brown concluded in his cross examination as follows:-

"Do you understand the question? That in terms of the actual policy conditions, if you receive a, 'Yes', answer to question 9, as opposed to a, 'No,' answer, does that result in, as a matter of procedure, a different policy being issued? Or is it simply the case that the operation of the policy which issues excludes the events notified in answer to question 9?---Right. There's two elements here. The first is the 1994 policy, or subsequent policy, when issued, will automatically have the exclusion in it, so that issue is out. Dependent very much on what the circumstances are in our assessment of the quality of the risk, because of that assessment, would mean whether (a), we will offer renewal, or a replacement policy, that is the first issue. And (b), if we are going to do that, at what terms and premium and exclusions is another issue.

But in the present case, on the basis of the three documents we're talking about, you don't suggest, do you, that the 1994 policy would not have been issued had you known of those three matters?---No, I think in fairness a policy would have been issued but it may not have been in the same terms and conditions as the one that was issued.

Well, what terms or conditions might have been different?---Well - - -

Or sorry, would have been different?---It would depend on how we viewed the claim and I have not reviewed the claim files, I can't give you that answer. But it could simply be an increased excess or an increased premium or if we considered the procedures in the accounting firm to be so reckless as not warranting insurance we would decline insurance.

Well, you've been in this game for almost as long as I've been alive, can you say now what difference there would have been in relation to these matters notified in 1993? ---Not without reviewing the entire claim file.

Is it the case then that you're simply not in a position to give evidence in these proceedings as to any different term which would have - - -?---Precisely, there may well have been no terms changed or there could have been, I would have to review it - - -

Nor indeed as to any different premium which would have applied?---Exactly.

Well, who would be the person who would be in a position to give that evidence?---Me.

But not today?---But not today, I haven't reviewed the claim file.

Well, how long does it take you to review a - well, I mean, what would normally be involved in reviewing a claim form?---Well, a scan through it to highlight the issues that I consider to be important from an underwriting perspective.

And in the course of your preparation for giving evidence in these proceedings have you not been able to come to the view that you would come to if you undertook that task?---Wasn't an issue.

You appreciate, don't you, that if the - sorry, are you aware of the defences which have been pleaded in these proceedings?---In the original action?

No, in these proceedings? Are you aware that in these proceedings today that it is contended by you, or by the defendant, that the defendant isn't liable for the loss by reason of the failure to disclose the circumstances in - - -?---Yes, I'm aware of that, yes."

Disclosure for the purpose of obtaining 1994 cover does not necessarily, or at all, amount to notification under clause 4(b) of the 1993 insurance contract: Antico v C E Heath Casualty and General Insurance Ltd (1995) 8 ANZ Ins Cas 61-268 at 76,000 - 76,004. Upon a closer reading of Mr Brown's evidence, it goes no further than saying a claim file would have been opened and a decision made as to whether it should be accepted as a claim under the 1993 contract. This later decision would involve a decision as to whether proper notification had been given; a matter Mr Brown did not concede. Whether or not disclosure for renewal purposes would have been an effective or sufficient notification under clause 4(b) of the 1993 insurance contract is irrelevant in these proceedings. The only relevant issue is whether the circumstances particularised in paragraph 6 of the amended defence were required to be disclosed, or were material to a decision of the defendants to accept the risk.

Mr Brown asserts that there was no reason to review the claim file to determine what would have occurred from an underwriting point of view if the three documents had been disclosed. If this is a correct view of the defendants' position, then the only reasonable inference is that the defendants would have relied on the policy wording and exclusions for protection from any claim and would have accepted the risk on the same terms and same premium as are reflected in the Certificate of Insurance.

There is no reason to doubt the thrust of Mr Brown's evidence. The substance of his evidence, particularly his evidence-in-chief, was that the real matter of concern was to identify circumstances which may give rise to potential claims and record them in the proposal. In this way the defendants intended to exclude loss from a potential claim which matured into an actual claim from cover under the Certificate of Insurance. To this end the policy wording for exclusions had been brought into line with the manual and the proposal form to automatically exclude losses from such sources from cover. It is for this reason that I am satisfied that if the three documents had been disclosed to the defendants prior to the commencement of the period of insurance, the defendants would have gone on risk and would have issued the Certificate of Insurance in the same terms and for the same premium. The defendants would have done this and relied upon clause 2 or clause 6(b)(i) of the conditions attaching to the Certificate of Insurance to deny liability to indemnify the plaintiffs for the loss in issue.

The particularised circumstances in paragraph 6 of the amended defence were relevant to the defendants for the purpose of limiting the scope of the risk under the 1994 Certificate of Insurance. The purpose was to bring those circumstances within the express terms of question 9 or within the circumstances covered by clause 6(b)(i) of the contract conditions so as to exclude as many potential claims as possible within the policy coverage. The fourth question should be answered "yes".

The defendants called Mr Alexander Penklis, chartered accountant, to express an opinion as to whether a reasonable accountant in the circumstances of the assured would have been aware of circumstances which ought to have been disclosed upon renewal of the policy. Mr Penklis has close ties to insurer interests. Twenty-five to thirty percent of his practice is devoted to the preparation or investigation of insurance claims, five to ten percent as an expert witness, the balance as a chartered accountant. The evidence of this witness amounted to his construction of the correspondence, his interpretation of the obligation to make disclosure and as to the meaning of question 9 of the proposal. His report dated 12 January 1995 in paragraphs 6 and 25 purports to conclude as a statement of expert opinion that the ultimate issues of disclosure and misrepresentation in these proceedings ought to be found against the plaintiffs. The evidence was not expert evidence relevant to the profession of an accountant and was merely the expression of an opinion as to the ordinary meaning of language and the inferences he would draw from the contents of the correspondence and the fact of its receipt. This was outside his field of experience and in my view not a matter for expert evidence: Transport Publishing Co Pty Ltd v Literature Board of Review [1956] HCA 73; (1956) 99 CLR 111 at 119; Bugg v Day [1949] HCA 59; (1949) 79 CLR 442 at 462. The proper construction of the proposal, the duty of disclosure and the meaning and relevance of the correspondence are questions of law or mixed law and fact, which are properly the preserve of the court and not the subject of expert opinion: Grey v Australian Motorists and General Insurance Co Pty Ltd [1976] 1 NSWLR 669 (CA) at 675 - 676; R W Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1994) 34 NSWLR 129 at 130 - 131.

Although the ultimate issue, and common knowledge, rules were abolished by s 80 of the Evidence Act 1995 (Cth), which is applicable to proceedings in the Australian Capital Territory, evidence which is outside the relevant expertise of a witness and which is an opinion, is not admissible to prove the existence of a fact about the existence of which the opinion was expressed (s 79, Evidence Act 1995 (Cth)).

No formal objection was taken to the evidence of Mr Penklis. Nonetheless I give no weight to the opinion. The opinion is based upon a construction of the proposal and duty of disclosure which I reject. It is based upon a view of the adequacy of the plaintiffs' response to the solicitors for the defendants when investigating the plaintiffs' claim before rejection and upon an obligation to make enquiry, without ever identifying what enquiry it is alleged ought to have been made by the plaintiffs which was not made, and if made, would have disclosed that a claim was to be made by Mr and Mrs Haynes against the plaintiffs. Finally, the opinion expressed was without any knowledge of the contents of the various discussions between Mr DellaVedova and Mr Memmolo, Top Slice Deli's solicitor, and the effect of those discussions on the conduct of Mr DellaVedova. Having seen and heard Mr Penklis in the witness box, I was left with the clear impression that he had adopted the role of advocate for the defendants in the opinions he expressed.

The plaintiffs did not know that the circumstances particularised in paragraph 6 of the amended defence were material to the defendants in accepting the risk on the policy terms and conditions. The answers elicited in cross-examination of Mr DellaVedova set out above as to the components of the duty of disclosure do not constitute knowledge that the circumstances particularised were relevant to the defendants. The questions asked of the particular impact of the particularised circumstances did not result in any concession as to relevancy to the decision of the defendants to accept the risk. The fifth question is therefore answered "no".

Whether the defendants would be entitled to rely on s 21(1)(b) to establish non-disclosure, having regard to s 22(3) and the inadequacy of Notice A to bring to the attention of the plaintiffs their duty of disclosure, was not argued. In any event, the context of the notice and the proposal as a whole would direct a reasonable accountant in the position of the plaintiffs to believe that the relevant circumstances for disclosure were the known or alleged facts constituting an act, omission, error, breach of duty or obligation exposing the plaintiffs to an actual or potential claim. The particularised circumstances without more were insufficient to expect a reasonable accountant in the position of the plaintiffs to know that those circumstances were relevant to the defendants' decision to accept the risk. The sixth question is therefore answered "no".

Did the answer to question 9 of the Proposal constitute a misrepresentation on the part of the plaintiffs?

The defendants alleged that the answer to question 9 of the proposal was false because the plaintiffs were aware of the particulars pleaded in paragraph 6 of the amended defence. It was submitted that those circumstances of which Mr DellaVedova was aware, may have given rise to a claim and therefore falsified the answer.

For the same reason as I reject the argument of the defendants as to non-disclosure, I do not accept that the circumstances particularised are "circumstances which may give rise to a claim" in the sense in which that phrase is used in question 9. The words "after enquiry" in the question do not alter the meaning. The enquiry contemplated is amongst the other past or present partners in the firm, employees, predecessors in business or past or present consultants to the firm. It does not contemplate that the proposer make enquiries of third parties as to whether or not they may bring a claim. This is apparent from paragraph 3 of the declaration contained in the proposal which reads:-

"3. I have specifically enquired of all persons and companies referred to in Questions 1 and 2 and state that all answers to the questions in this proposal form are true and correct."

The existence of the matters specified in paragraph 6 of the amended defence do not falsify the answer to question 9.

Conclusion

The plaintiffs' claim to indemnity for loss arising from the claim of Mr and Mrs Haynes fell within the cover provided by clause 2 of the 1994 Certificate of Insurance.

The plaintiffs were not obliged to disclose the circumstances particularised in paragraph 6 of the amended defence. Even if those circumstances had been disclosed, coverage would have issued on the same policy conditions and for the same premium; the defendants would have relied on the policy conditions to deny liability to indemnify. The circumstances, if disclosed, would not have been sufficient to place the loss outside the scope of cover under clause 2, nor were those circumstances sufficient to bring them within the exclusion under clause 6(b)(i). The circumstances would not have required that question 9 be answered "yes".

The circumstances pleaded in paragraph 6 of the amended defence were not circumstances which may give rise to a claim against the plaintiffs and were not circumstances which the plaintiffs knew or ought to have known were relevant to the defendants' decision to grant cover.

The defence based on non-disclosure and misrepresentation fails.

Relief

The plaintiffs are entitled to a declaration that the defendants are obliged to indemnify them under the Certificate of Insurance Number 20938/94 dated 10 January 1994 in respect of the loss in the agreed sum of $67,004.70 incurred by the plaintiffs arising from the claim of Francis and Jacqulyn Haynes. The plaintiffs are therefore entitled to judgment against the defendants in the sum of $67,004.70.

The plaintiffs are entitled to interest on the loss incurred by reason of the failure of the defendants to indemnify the plaintiffs. The liability for costs and disbursements were incurred over time. Overall, the justice of the case justifies a conclusion that interest should run from the date of the last day of trial in proceedings G61 of 1994 in the New South Wales District Registry of the Federal Court of Australia on the whole of the agreed sum until the date of judgment herein at the rate of ten percent per annum.

There is no basis to depart from the usual rule that costs follow the event. Accordingly, there will be judgment for the plaintiffs against the defendants for the costs of and incidental to this action including reserved costs, if any, to be taxed if not agreed.