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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Trade Practices - interpretation s 52 - misleading or deceptive representations - insurance contracts - what amounts to misleading or deceptive representations.Trade Practices - enforcement and remedies - relief under act - whether declaratory relief available - in what circumstances declaratory relief under Trade Practices Act permitted.
Trade Practices - enforcement and remedies - relief under act - damages - difficulty of quantification - procedure to adopt.
Practice and Procedure - declaratory relief - power of federal court to make declaratory relief - relationship of Trade Practices Act and Federal Court of Australia Act.
Defamation - actions for defamation - publication of defamatory material - representations and imputations - publication to limited class of reader - assessment of level of knowledge and acumen of members of class - whether representations and imputations would be made out to the limited class.
Trade Practices Act (1974) (Cth) - ss 4K, 52, 80, 82, 86, 163A Federal Court of Australia Act (1976) - ss 21,22 23
Insurance Contracts Act (1984) (Cth) - ss 59, 60
Defamation Act (1974) (NSW) - s 22
Global Sportsman Pty Limited and Anor v Mirror Newspapers Limited and Anor [1984] FCA 180; (1982) 2 FCR 82
Farquhar v Bottom (1980) 2 NSWLR 380
Typing Centre of NSW Pty Limited v Northern Business College Limited and Ors (1989) 11 ATPR 40-943
Parkdale Custom Built Furniture Pty Limited v Puxu Pty Limited [1982] HCA 44; (1982) 149 CLR 191
Switzerland Australia Health Fund Pty Limited v Shaw and Anor (1988) 10 ATPR 40-866
Global Sportsman Pty Limited v Mirror Newspapers Limited [1984] FCA 180; (1984) 2 FCR 82
James v ANZ Banking Group Limited (1986) 64 ALR 347
Westpac Banking Corporation v Northern Metals Pty Limited (1989) 11 ATPR 40-953
Polgardy v Australia Guarantee Corporation Limited [1981] FCA 26; (1981) 52 FLR 240
Thomson Australian Holdings Pty Limited v Trade Practices Commission [1981] HCA 48; (1981) 148 CLR 150
Chaplin v Hicks (1911) 2 KB 786
Biggin and Co Limited v Permanite Limited (1951) 1 KB 422
Enzed Holdings Limited v Wynthea Pty Limited and Ors [1984] FCA 373; (1984) 57 ALR 167
Brabazon v Western Mail Limited (1985) 7 ATPR 40-549 at 46, 453
Flamingo Park Pty Limited v Dolly Dolly Creation Pty Limited (1986) 65 ALR 500
Typing Centre of NSW Pty Limited v Northern Business College Limited (1989) 11 ATPR 40-943 at 50,290
HEARING
SYDNEY Counsel for the applicant: S.D. Rares
with D.A. Caspersonn
instructed by: Tress Cocks and MaddoxCounsel for the respondent: W.H. Nicholas QC
with B.R McClintock
instructed by: Dunhill Madden Butler
ORDER
1. A declaration that the respondent made the representation set out in paragraph 4(b) of the statement of claim and that the representation was:-(a) false and untrue, and2. The judgment for the applicant in the amount of $15,000.
(b) misleading and/or likely to mislead contrary to
s 52 of the Trade Practices Act.
3. The respondent pay the applicant's costs.
Note: Settlement and entry of orders is dealt with by Order 36 of the Federal
Court Rules.
DECISION
In these proceedings the applicant is an insurance company which insures, inter alia, professional indemnity risks. The respondent is a company carrying on the business of insurance broker and is a trading or financial corporation within the meaning of paragraph 51(XX) of the Constitution of the Commonwealth of Australia and is a corporation relevantly engaged in trade or commerce within the meaning of the Trade Practices Act 1974 (the "Act"). By its application and statement of claim the applicant seeks relief against the respondent for alleged breaches of the Act occasioning it damage and also for defamation. I shall refer to the nature of these claims and also to the defences raised by the respondent in its amended statement of defence later in these reasons.2. The dispute between the parties arose in the following way. The respondent had acted for many years as the insurance broker for the Royal Australian Institute of Architects (the "Institute"). It provided to such of the members of the Institute, as so desired, a professional indemnity insurance policy in a particular form (the "RAIA policy"). A copy of this policy is Exhibit B in these proceedings. It is clear that a large number of architects were insured against professional indemnity risks under this policy. It was renewable annually in the September/October period of each year. It appears that it was available to all architects who were members of the Institute and that the premium rates were set on the basis that the underwriters for practical purposes accepted all members as policy holders irrespective of whether they were historically good or bad risks.
3. The applicant had been, itself, for some time, engaged in the provision of professional indemnity insurance. In 1989 it was desirous of increasing its business in the area of architects' professional indemnity insurance. It did so by entering into an arrangement with C.E. Heath Casualty and General Insurance Limited ("Heath") whereby the two companies, on a 50-50 basis, would underwrite a new form of professional indemnity policy for architects to be marketed on their behalf by Willis Faber Johnson and Higgins (Professional Services) Pty Limited, Insurance Brokers ("Willis Faber"). Willis Faber was to act as underwriting agent for the participating insurers and not as broker for architects seeking insurance. The details of the arrangements between the applicant, Heath and Willis Faber, are set out in documents 1 to 6 in Exhibit C. They are not presently relevant save that reference may be made to the fact that the insurance was to be referred to as the "Australian Architects Indemnity Plan" (the "Plan") and that all claims were to be handled by the applicant to whom all submissions for insurance were to be referred before a policy was provided to any architect. The submissions were to be accompanied by a relevant history of paid claims. It is also clear that premium rates were contemplated which were to be very competitive with the rates applicable to the RAIA policy. The evidence clearly indicates that these competitive rates were based on the fact that the applicant intended to be selective in the provision of cover under the Plan. It would only accept as policy holders those architects who demonstrated a satisfactory claims record. It would refuse to insure those which it would classify as bad risks.
4. The policy wording was intended to make the Plan a competitive product. It covered areas of liability, such as liability under the Act, breach of copyright, breach of confidentiality and fiduciary duty and breach of contract, which were not covered by the policy wording of the RAIA policy. This additional cover was comprehended in what was described as "the civil liability wording", of the Plan. Having armed itself, thus, with a new form of policy wording and also with relevant promotional material, the applicant, Heath, and Willis Faber, through the agency of Willis Faber commenced an aggressive marketing thrust designed to win over to its fold previous architect clients of the respondent. As the matters complained of by the applicant in these proceedings are in essence responses to the documents used by the applicant and its co-venturers in this campaign, it is necessary to make reference to them in some detail.
5. A standard letter, sent out to architects in August 1989 by Willis Faber,
read, so far as is relevant, as follows:-
"It is around this time of year that most Architects are looking at the6. What appears to have been a follow up letter was sent in September 1989 by Willis Faber which read as follows:-
renewal of their Professional Indemnity Insurance. You have probably
already been contacted by various insurance brokers offering their
services in this area.
WE CAN OFFER YOU SOMETHING THAT NO OTHER BROKER CAN
Willis Faber Johnson and Higgins (Professional Services) Pty Ltd has
arranged an exclusive Professional Indemnity scheme called the
AUSTRALIAN ARCHITECTS INDEMNITY PLAN. It offers the broadest scope of
cover ever made available to Australian architects.
The salient features of the Australian Architects Indemnity Plan include
:-
- full civil liability cover (i.e. not restricted to professional
negligence)
- breach of copyright cover
- trade practices cover
- unlimited reinstatement of the sum insured
- assistance with recovery of unpaid fees
- one policy excess per contract
- lower premiums based on real claims experience
The Australian Architects Indemnity Plan is placed with the two largest
Professional Indemnity Insurers in Australia. Willis Faber Johnson and
Higgins (Professional Services) is a major broker to the architectural
profession across Australia, and our experience and expertise in this
field is reflected in the formation of the Plan.
This letter is only the initial announcement of the Australian
Architects Indemnity Plan. We will be writing to you again within the
next two weeks to give you full details of the Plan. The Australian
Architects Indemnity Plan can only be accessed through Willis Faber
Johnson and Higgins."
"We are brokers to a substantial portfolio of Architects' Professional7. The brochure referred to in this letter was an elaborate document headed "Australian Architects Indemnity Plan". It contained, inter alia, the following material:-
Indemnity insurance. This is because over the years we have succeeded
in negotiating insurance terms and offering service which is better than
that offered by other providers. We have always maintained that
Architects' premiums were too high and did not reflect real paid claims
experience.
This year a major professional indemnity insurer offered its support to
the RAIA Scheme at the 1988 rates discounted by 40%. This offer, which
would have benefited Scheme members considerably, was rejected by the
current Scheme insurance brokers. The insurer has now combined its
resources with the other major insurer of Australia Professional
Indemnity business to support out AUSTRALIAN ARCHITECTS INDEMNITY PLAN.
The Plan policy is based on cover provided to most other industry
schemes in operation and is much broader than your current policy.
Architect have been burdened with tales of being an unattractive
Professional Indemnity risk. Our studies have shown that recent premium
increases have overtaken the real level of losses suffered by insurers.
Our insurers have acknowledged this by supporting the establishment of a
Plan which is both competitive and truly responsive to the needs of the
profession.
WE KNOW THAT YOU WILL BENEFIT GREATLY BY PARTICIPATING IN THE PLAN.
You are invited to phone the undersigned for an indication of terms and
any further details you require which are not included in the attached
brochure. Alternatively, simply forward us a copy of your RAIA proposal
form and we will supply you with written quotations, usually within
three days."
"The AUSTRALIAN ARCHITECTS INDEMNITY PLAN has been designed with the8. The brochure continued to outline other claimed advantages of the Plan. It also included a section on "Fee Recovery". It then included a section headed "What is the Cost?" which read as follows:-
assistance of a wide cross-section of practising Architects. It is in
response to many comments and criticisms voiced by the profession over
the years. It is not limited to what insurers in the past have been
willing to offer, but covers additional liability exposures that should
be insured.
ASK YOURSELF THESE QUESTIONS....
Q Under our current policy, do we have to pay the excess on every
claim made against us?
A Yes, under most policies the excess applies to each and every
claim (and some times, to each and every negligent act giving rise
to a claim).
Under our Plan, the excess is applied only once to a claim or
number of claims provided they arise out of the same contract or
project.
Q Does our Professional Indemnity policy cover other areas of
liability that we can be sued for?
A No, negligence and a breach of professional duty must be alleged
before most policies will respond.
Under The Australian Architects Indemnity Plan we provide what is
known as a `civil liability' wording. This gives you additional
protection from many other claims of a non-criminal nature such
as:
* breach of confidentiality * breach of Trade Practices Act
* breach of contract * breach of fiduciary duty and
* breach of copyright * conflicts of interest
Many of these form the basis of claims against Architects and your
current policy will not respond unless an allegation of negligence
is also made.
Q Is there a limit to the number of claims our current policy will
pay for in any one year?
A Yes, all current policies provide a maximum of one Automatic
Reinstatement. That is, twice the Sum Insured.
The Australian Architects Indemnity Plan provides unlimited
Automatic Reinstatements to ensure that you have sufficient cover
for a multitude of claims in any one year."
"You have all heard of the `horrendous claims experience' being suffered9. There followed examples of costings and resulting premiums. The brochure then went on to assert:-
by Professional Indemnity insurance. When you report a circumstance or
claim to Insurers, they apply a reserve against potential loss. However
these reserves, used by Insurers for statistics, are often far in excess
of the actual losses.
Our studies have shown that the increases over the past few years have
well and truly overtaken the real losses suffered by the Insurers and
the two Plan Insurers have acknowledged that a properly managed scheme
can be implemented with considerable premium savings."
"The plan will provide the broadest available protection for all10. The document concluded by announcing that the applicant and Heath were the joint insurers of the plan and that Willis Faber were the managers, with detailed reference to the experience of each in the industry.
architectural firms. If you have special requirements these can also be
negotiated.
You will no longer have to choose between a basic or superior policy.
All firms will have the broadest available cover at moderate cost.
One of the major advantages of the Plan is that you are assured that the
price relates to actual paid claim losses, not estimates for Insurers
reserves."
11. It further appears that architects who evinced interest in the plan were
provided with a copy of the proposed policy wording
and also a document headed
"Comparison of Cover" which compared cover provided by the plan with that
provided under the RAIA policy.
The policy wording is lengthy and I set out
hereunder only those portions which attracted criticism in the respondent's
document
which is the subject of complaint in these proceedings. They read as
follows:-
"2. This Certificate is to indemnify the Insured against legalagainst
liability for any claim or claims first made against them during
the period of cover set forth in the said Schedule and are
reported to the Company during such period in respect of any civil
liability whatsoever incurred in the course of Professional
business carries on by or on behalf of the Insured by reason of
any act, error or omission whenever and wherever the same was or
may have been committed or alleged to have been committed on the
part of:
(i) the Insured,
(ii) their predecessors in business,
(iii) any person now or heretofore employed by the Insured,
(iv) any agent or agents for whose acts, errors, or omissions in
the Insured (or his or their predecessors in business or any
person now or heretofore employed by the Insured during the
subsistence of this Certificate) is liable."
(This is the provision referred to as "the Civil Liabilities Wording".)
...
(c) Reinstatement Of The Sum Insured
In respect of any claims paid hereunder, the amounts so paid
and deducted from the Sum Insured shall be reinstated (from
the date of the Notice of Claim) as respects claims reported
by the Insured subsequent to the date of such reinstatement.
...
3. Dishonesty
The insured shall be protected, within the terms of this
Certificate for any claim upon which suit may be brought by reason
of any alleged dishonesty, mis-statement or fraud on the part of
the Insured or its partners or its employees, unless a judgment or
other final adjudication thereof adverse to the Insured shall
establish that acts of active and deliberate fraud or dishonesty
committed by any partner or partners of the Insured with actual
fraudulent or dishonest purpose and intent were material to the
cause of action so adjudicated and notwithstanding that such acts
were not disclosed within the Insured's proposal for insurance in
which event this Certificate shall only pay in excess of the full
extent of such Partner's or Partners' assets in the firm. Any
other personal assets of such Partner's or Partners' recovered by
the Insured shall inure, to the extent of the amount paid by this
Certificate, to the benefit of the Company.
...
5. Joint Ventures
This Certificate indemnifies the Insured for any legal liability
arising out of any activities in which they are engaged as a joint
venturer.
On payment of any loss hereunder, the Insured shall subrogate to
the Company his or their rights of procedure against any other
person or persons for the recovery thereof. The Company shall,
however, at the request of the Insured, waive any rights against
the Joint Venture partner, sub-consultant or contractor for whom
the Joint Venture is vicariously liable.
For the purpose of this endorsement, "Joint Venture" means an
enterprise carried on in common by the Insured with a third party
or parties (not being insured under this Certificate) in respect
of a specific project or contract.
...
8. Recovery of Fees
The Company agrees also to pay Seventy five (75) per cent of all
legal costs incurred by the Insured with the approval of the
Company in connection with the legal proceedings taken by them for
the recovery of Professional Fees due, subject to the following
conditions:
(a) No claim shall arise upon the Company under this Clause
unless and until:
(i) The Insured has instituted proceedings for recovery.
(ii) The party sued has intimated his intention to defend
the action in the grounds of his Non-Liability for the
said fees, or by way of a Counter Claim as would be
covered under the Insuring Agreement.
(iii) The Company has been advised by Competent Legal
Opinion that the said proceedings could be pursued
with the probability of success.
(b) The Company shall be advised immediately of the Insured's
intention to institute proceedings for recovery of fees and
where the action is defended the Company shall be advised of
the grounds of the defence immediately they are notified to
the Insured.
(c) Payment under this section shall not exceed Ten (10) per
cent in all of the amount of the Indemnity provided by the
Certificate or Twenty Five (25) per cent of the outstanding
fee amount whichever is the lesser.
Warranted free of any claim under this additional coverage in
respect of Professional Fees which have become due for payment
more than twelve months prior to the inception date of this
Certificate.
...
11. Individual Protection
This Certificate shall indemnify the Insured's partners and
employees in respect of advice given or services performed of
whatsoever nature in their own name and the liability of the
Insured arising from such advice or services provided always that
any fee accruing from such work shall inure to the benefit of the
Insured, or if there is no fee that such work is undertaken on
behalf of or with the approval of the Insured.
...
EXCLUSIONS
This Certificate shall not indemnify the Insured against claims
made upon the Insured:
...
(f) arising from any physical chattel manufactured, installed,
treated, assembled or processed by the Insured, or
(g) arising out of work performed for persons related to the
Insured or Companies controlled by the Insured or relatives
of the Insured or by Companies in the same group of
Companies as the Insured if such claim arises with any
direct or indirect solicitation, enticement or co-operation
of the Insured or any of the Insured's partners, co-directors
or employees.
...
CONDITIONS
5. (ii) If the Insured:
...
(d) fails to comply with a provision of this Certificate
including the provision with respect to payment of the
premium,
The Company may cancel the Certificate.
...
Notice of cancellation shall be given in writing and the
cancellation shall take effect thirty (30) days after the
date of posting the notice to the Insured's last known
address. After cancellation the Company shall refund to the
Insured the amount of premium for the unexpired term of this
Certificate.
6. At the Insured's own expense, the Insured shall provide the
Company with all information, records, statements and any other
information and attend all necessary conferences and court
appearances which the Company may require in the course of
investigating or defending the claim. The Insured shall also
co-operate with the Company in the defence of any litigation
the Insured or in the prosecution of any recovery action12. The applicant's "comparison of cover" document refers to a document being circulated on behalf of the RAIA policy and makes comments upon various points in that document. I will not set out the whole of the applicant's document but merely refer to certain passages where comparisons between the Plan and the RAIA policy are made. These are as follows:-
instigated by the Company. This is a condition precedent to the
Insured's right to indemnify for any claim.
7. The Insured shall immediately notify the Company of any material
change in the risk made by the Insured during the period of cover,
including:
(a) any merger with or acquisition of another practice or the
setting up of a branch office;
...
(c) any material change in the nature of the professional
services offered by the practice."
"- Significant Rating Discounts13. Needless to say this campaign had an effect upon architects who had been policy holders of the respondent. They made inquiries of the respondent provoked by the existence of the applicant's new scheme and the apparently favourable comparisons between it and the respondent's scheme. As a result of these inquiries the respondent became aware of the details of the promotional literature issued by Willis Faber and, indeed, received copies of it from their clients. The evidence indicated that urgent consideration was given to this material and to the making of a response to it. The result was that a document described as "Appraisal of Australian Architect Indemnity Plan" came into existence. Its main author was Mr J.R. Down who in October/November 1989 was the Regional Manager for Queensland and the Northern Territory of the respondent. The document went through drafts involving some small input from other relevant officers of the respondent. The document in its final form was sent to clients of the respondent who requested it. Whether it had a wider publication is a matter of dispute in the case to which I shall return later. This document (the "appraisal") reads as follows (with numbering of paragraphs added):-
Compare the premiums and judge for yourself.
...
- Automatic Reinstatement Now Increased Up to Three Times the Sum
Insured
The Plan automatically gives Unlimited Automatic
Reinstatement on all policies. This means that while the
sum insured applies to individual claims it is unlimited to
the aggregate.
Some professions have had this cover available for many
years.
...
- Superior and Basic Policy Options
The Plan offers a vastly superior policy at basic premiums.
...
Clearly the Australian Architects Indemnity Plan offers superior
protection and at very competitive premiums. In fact many of the
`benefits' promoted by the R.A.I.A. scheme brokers are not stated in
their specimen policy wordings. All the features of the Australian
Architects Indemnity Plan are clearly and specifically expressed in the
policy wording, a specimen copy of which is attached.
We have already discussed some of the supposed `benefits' promoted by
the R.A.I.A. scheme brokers. You should also be aware of the following
deficiencies in the R.A.I.A. scheme `Superior' policy :-
(a) Coverage for defence costs is limited to the sum insured of
the policy (in addition to damages).
The Australian Architects Indemnity Plan has no such
limitation on defence costs.
(b) Coverage for breach of professional duty is limited to
negligent acts, errors or omissions.
The Australian Architects Indemnity Plan offers coverage for
`any civil liability whatsoever incurred in the course of
the Professional Business carries on by or on behalf of the
Insured by reason of any act, error or omission'.
This `civil liability' wording offers a much broader cover
that does not require an allegation of `negligence'. Breach
of contract, breach of fiduciary duty and misrepresentation
are alternative sources of claims against architects.
(c) The Fraud and Dishonesty Extension (Section 4) does not
protect the Insured, or its innocent Directors or Partners,
from the dishonest acts of fellow Directors or Partners.
The Australian Architects Indemnity Plan extends to cover
the `innocent' parties.
(d) The R.A.I.A. policy specifically excludes claims for breach
of copyright, design or patent (General Exclusion 1(g)).
The Australian Architects Indemnity Plan specifically
includes cover for unintentional breach of copyright,
design, patent or trademark.
(e) The R.A.I.A. policy specifically excludes cover for claims
arising from the Insured performing any function as a
Project or Construction Manager (General Exclusion 1(p)),
and then introduces a very limited coverage for these
activities under Section 7 of the policy.
The Australian Architects Indemnity Plan has no such
exclusion or limitations.
In addition, the Australian Architects Indemnity Plan offers protection
in two areas not addressed by the R.A.I.A. scheme:-
(f) Trade Practices Act cover is included by way of Extension 6
of the Plan. This area is of increasing concern to all
professionals.
(g) The Plan will pay up to 75% of legal costs incurred in
recovering unpaid professional fees. Certain conditions
apply, see Extension 8."
"APPRAISAL OF AUSTRALIAN ARCHITECTS INDEMNITY PLAN14. It appears that copies of this document were sent to clients throughout October. By the beginning of November the respondent was made aware that the contents of the document were causing, as was the case, deep concern in the management level of the applicant. In this context letters were sent by the respondent to the recipients of the appraisal in early November in which it sought their "urgent confirmation that this privileged appraisal has not been copied to any other party". On 8 November 1989 the solicitors for the applicant wrote to the respondent in the following terms:-
1. Intermediary: Willis Faber Johnson and Higgins
(Professional Services) Pty. Ltd.
2. As Insurance Broker they have been actively competing for
Architects' Indemnity Policies over the past two years
utilising various Insurers. Their role with this plan is as
Underwriting Agent which means the their primary duty is to
act for the participating Insurers, whereas a Broker's only
allegiance is to his Architect client.
3. Underwriters: FAI General Insurance Co. Ltd and
C.E Heath Casualty and General Insurance Ltd.
4. These Insurers are better known as competitors rather than
as `Partners' and despite being involved in this plan at
least on of them is still actively supporting other Brokers
in competition to the Plan.
5. Certificate Wording:
Despite the adoption of a plain language format, the scope
of cover provided by the Australian Architect Indemnity Plan
Wording is in part ill-defined and in some respect almost
illusionary, a potential bonanza for the legal profession.
6. Introduction of the much lauded `Civil Liabilities Wording'
in the operative clause is presently unnecessary and a
retrograde step for the architect profession. If
universally adopted by Professional Indemnity Insurers, the
`Civil Liabilities Wording' will eventually encourage Courts
to `award damages in the absence of negligence'.
7. This would effectively remove the Architects main defence to
a Breach of Duty Claim, namely that the Architect acted
reasonably and achieved or provided the standard of service
expected from a competent member of the profession. Such
absolute liability must ultimately result in much higher
premiums.
8. Other Certificate features are :-
9. Unlimited Reinstatement of Sum Insured - This could be
impaired by cancellation provisions (refer Conditions 5 and
7).
10. Dishonesty of Principals - Despite the wording utilised in
this extension, it is debatable that cover would be readily
provided for the most common form of dishonesty by
Principals, namely that which involved `non-disclosure and
misrepresentation' by one or more of the Insured. (Refer
Exclusion (d) and Conditions 2 and 5). Further, it is
interesting to note that the dishonest Principal's financial
interest or assets in the insured practice are applied as an
additional excess in respect of such a claim. Furthermore,
the insured practice is clearly expected to actively pursue
recovery from the personal assets of the dishonest Principal
and reimburse the Insurer.
11. Joint Ventures Extension - The intended scope of cover is
unclear in that the wording does not confirm that Insurers
will provide indemnity for liability which arises against
the Insured from the activities of the Insured's Joint
Venture Partner. Furthermore, failure to advise the Insurer
of a new Joint venture could prejudice the entire
Certificate. (Refer Condition 7(c) in conjunction with
Condition 5(d)).
12. Recovery of Fees - Almost an illusionary cover as conditions
specifically applied to this extension virtually exclude the
majority of fee dispute claims. Furthermore, the maximum
legal proceedings costs payable by the Insurer is an amount
equal to 25% of the Architect's outstanding fees claim.
13. Individual Protection - Implies that `all employees' are to
be considered as joint insured with the Principals of the
practice for work undertaken for the benefit of the insured
practice. Such an extension of cover may offer improved
benefits to employees. However, if `all employees' are to
be joint insured, this means that `their non disclosure' of
pootential (sic) claim circumstances at time of Proposal
completion could prejudice the Certificate. (Refer
Condition 5(ii)).
14. Working Arrangement - Undefined - what does it mean?
15. The CERTIFICATE EXCLUSIONS are generally reasonable but two
warrant specific comment, viz., Exclusion (f) - which could
pose problems for any practice which also acts as a Builder,
Project manager, Construction Manager or Developer, and
Exclusion (g) - which although it improves an earlier FAI
Policy Exclusion must still be of concern for any practice
which also acts for relatives or has any financial interest
in a development company for which it acts as Architect.
16. Some CERTIFICATE CONDITIONS are very biased in favour of the
Insurer, for example - Condition (ii)(d) states that if the
Insured fails to comply with a provision of this Certificate
the Company may cancel the Certificate. This gives the
Insurers absolute control and a multiplicity of reasons for
cancellation. However, if Condition 5(ii)(d) is read in
conjunction with Conditions 7(a) and (c), it is readily
apparent that failure to immediately advise the Insurers of
changes to or in the practice, that is, acquisitions,
mergers, establishment of branch offices (Question : Are
site offices branches?), or any material change in the
nature of services offered by the practice are all grounds
for cancellation of the Certificate. But from what date?
17. Condition 6 relating to claims so-operation is also very
heavily biased in favour of the Insurer.
18. While notice of claims must initially be given to the
Intermediary, Willis Faber Johnson and Higgins (Professional
Services) Pty. Ltd., the Certificate does not elaborate upon
claims control or give any inkling of who will in fact
control/handle claims, the Intermediary or one or other or
both of the Insurers, or whether the Insured will be able to
confer with and be assisted by a locally based legal adviser
appointed by the Insurers or Intermediary.
19. Premiums: Terms quoted are extremely competitive to the
extent that they clearly demonstrate a lack of data base
from which to formulate appropriate rates. Despite
assertions to the contrary by the Intermediary, their rates
are based on the `false premise' that RAIA Group Scheme
claims are `over reserved' and further that RAIA premiums
reflect this `over estimating'.
20. In fact the Intermediary and their supporting Insurers are
quite wrong as evidenced by the statistical outturn of the
more than 3,000 claims recorded since the RAIA Group Scheme
was taken over by the Institute's wholly owned Brokers some
14 years ago.
21. Experience has shown that annual aggregated claim reserves
only begin to stabilise three years after initial
notification and over that period commonly increase by 100%
from the first year estimate.
22. The reality is that if rates utilised for the Australian
Architects Indemnity Plan were applied to the RAIA Group
Scheme and current claims experience was maintained, then
the participating Insurers would lose more than $5,000,000
per annum.
23. One must therefore question very seriously the potential
longevity of the Australian Architects Indemnity Plan on its
current premium rates and remember that any claims or
potential claim circumstances which are notified under the
Plan will remain the responsibility of the Plan Insurers."
(paragraph numbering added)
"We act for FAI General Insurance Company Limited one of the insurers of15. This letter was referred by the respondent to its solicitors who on 23 November 1989 responded in the following terms:
the Plan. It is the business of our client to jointly insure architects
under the Plan with C.E. Heath Casualty and General Insurance Company
Limited.
It has come to out client's notice that an article (a copy of which is
attached) criticising the Plan is being circulated by your organisation
among architects.
The article is defamatory of our client and is misleading and deceptive
and it calls upon you to desist immediately from further publication of
the article.
Our client is presently seeking advice from Senior Counsel as to whether
it will take legal proceedings in these respects."
"Your facsimile of 8 November 1989 to Mr Paul Girard of R.A.I.A.16. This litigation was then commenced on 12 December 1989 by application with an accompanying statement of claim. A defence and reply were subsequently filed. By the time the matter first came on for hearing in July 1991 an amended application, amended defence and amended reply were filed. It is convenient, at this stage to refer to these pleadings and the issues raised by them.
Insurance brokers Ltd. has been handed to us for reply.
Your client has been misinformed. No article criticising the Plan has
been circulated by out client among architects. In response to
requests, no more than six appraisals have been sent to our client's
members. The appraisal represents our client's honest opinion of the
Plan. We have advised our client that the appraisal is neither
defamatory nor misleading and deceptive.
Our attention has been drawn to both a proforma document and a number of
letters from Willis Faber Johnson and Higgins concerning the R.A.I.A.
Scheme which have been published to a number of architects. These
documents are defamatory and their publication constitutes misleading
and deceptive conduct. We request that circulation of these documents
cease forthwith."
17. The statement of claim alleged in the first place breaches of s 52 of the
Act. These consisted of representations made in or
about October and November
1989 by the respondent in trade or commerce to architects and others inquiring
about the applicant's policy.
They were said to be made by the provision of
the "appraisal" document to such persons and by informing them orally of the
whole
or part of the terms of that document. The representations alleged to
have been made in this way were:-
"(a) the Policy was so stupidly worded that it would ensure that18. Each of these representations were said to be (a) false and untrue and (b) misleading and/or deceptive and/or likely to mislead and/or deceive contrary to s 52 of the Act.
architects would be unable to defend themselves when sued by
third parties;
(b) much of the cover provided by the Policy was illusory;
(c) the rating for the Policy had been so badly calculated that
the Applicant and Heath would lose more than $5 million per
annum;
(d) the Policy was proffered by the Applicant as a confidence
trick on architects."
19. It was also alleged that by reason of the making of the representations the applicant had suffered loss and damage.
20. The statement of claim alleged "further and in the alternative" that "on
divers occasions in October and November 1989 the respondent
published the
appraisal of and concerning the applicant". The appraisal was alleged "in its
natural and ordinary meaning" to convey
the following imputations each of
which was defamatory of the applicant:-
"(a) the Applicant was a stupid insurer in that it had so badly21. By its amended application the applicant claimed a declaration that each of the representations were false and untrue and relevantly misleading and/or deceptive and/or likely to mislead or deceive. Damages and interest were also claimed in respect of the action under s 52 of the Act and for defamation.
worded the Policy as to ensure that architects would be
unable to defend themselves when sued by third parties;
(b) the Applicant was a deceitful insurer in that it had worded
the Policy so that much of the cover was illusory;
(c) the Applicant was an incompetent insurer in that it set the
rating for the Policy so badly that it and Heath would lose
over $5 million per annum;
(d) the Applicant was guilty of perpetrating a confidence trick
on architects by offering to insure them under the Policy
when it knew that the cover thereunder was in reality
negligible."
22. By its amended defence the respondent, apart from putting the applicant to proof of certain matters, denied the making of the representations or defamatory imputations and also denied damage. It also denied that the "appraisal" was capable of conveying the imputations relied upon or that they were capable of being defamatory of the applicant.
23. The statement of defence then pleads defences depending upon publication in New South Wales and in Queensland. So far as publication in New South Wales is concerned it relied upon publication (a) under qualified privilege, (b) in circumstances where the applicant was unlikely to suffer harm. It also relied upon the matter complained of amounting to comment on matters of public interest, to the comment being that of a servant or agent of the respondent and being based on proper material for comment and no other material or alternatively to some extent of proper material for comment and being an opinion which might reasonably be based on that material to the extent to which it was proper material for comment. The "comment" defence was abandoned during the trial. In so far as the "qualified privileged" defence depended upon s 22 of the Defamation Act 1974 (NSW) this defence was also abandoned. Qualified privilege at common law was, however, relied on.
24. In so far as publication occurred in Queensland the respondents said that
the matter complained of:
"(a) Was fair comment respecting a communication made to the25. These special defences relate to the relevant Queensland statutory law. The defence depending on "comment" was also abandoned during the hearing.
public;
(b) Was published in good faith for the protection of the
interest of the Respondent and/or of those to whom it was
published;
(c) Was published in good faith in answer to an enquiry made of
the Respondent relating to a subject as to which the person
by whom or on whose behalf the inquiry was made had, or was
believed, on reasonable grounds, by the Respondent to have
had, an interest in knowing the truth;
(d) Was published in good faith for the purposes of giving
information to the persons with whom the publication was
made with respect to subjects as to which those persons had
such an interest in knowing the truth as to make the conduct
of the Respondent in making the publication reasonable under
the circumstance;
(e) Was published in good faith for the purpose of giving
information to the persons to whom the publication was made
with respect to subjects as to which those persons were
believed on reasonable grounds by the Respondent to have had
such an interest in knowing the truth as to make its conduct
in making the publication reasonable under the
circumstances;
(f) Was published in good faith on the challenge of the
Applicant;
(g) Was published in good faith in order to answer or refute
some other defamatory matter published by or on behalf of
the Applicant concerning the Respondent.
26. By its amended reply the applicant alleged, in relation to the defence of qualified privilege, that the respondent was actuated by express malice in the publication of the matter complained of.
27. In relation to the defences to publication in Queensland, it asserted that the respondent was actuated by malice in the publication of the matter complained of and that the matter complained of was not published in good faith.
28. The first question to be decided, of course, is whether the appraisal document made the representations relied upon under s 52 of the Act and whether it conveyed the imputations relied upon to found the action in defamation. If the applicant does not establish these matters in its favour, its application must necessarily be dismissed. It may be noted that quite apart from the other matter raised by way of defence, there was, at all stages, a serious contest in these proceedings as to this aspect of the case.
29. I am satisfied on the evidence that the publication of the material complained of very limited in extent. Although there may have been some reference to the criticisms made in the appraisal in telephone conversations between representatives of the respondent and architect clients, I do not find myself satisfied that publication took place other than to particular architects who asked the respondent to comment upon the matters raised by the Willis Faber communications which had been sent to them. Those architects who specifically requested that the respondent comment upon the Willis Faber material were sent the "appraisal". It appears that no more than seven in number received it and that it was received in circumstances where the recipients had a positive desire to make a considered choice between the Willis Faber policy and the respondent's policy.
30. It may be noted that only one architect recipient was called in the case. He was not asked to give, nor did he volunteer, any evidence as to the representations or imputations relied on. He did not assent that he gained these impressions from a reading of the appraisal. Such evidence would have been receivable, although its absence is not critical. The Court must make up its own mind as to whether the material complained of in fact made the relevant representations and imputations (see Global Sportsman Pty Limited and Anor v Mirror Newspapers Limited and Anor [1984] FCA 180; (1982) 2 FCR 82). Nevertheless, the Court does not have before it any such evidence from members of the small and specialist group to whom the document was sent.
31. Much has been said in the reported cases as to the principles to be
applied by a Court in determining what representations and
imputations should
be held to flow from written material when published in various circumstances
to various recipients. I do not
propose to enter into any lengthy
consideration of the decisions. A most comprehensive exposition of the
leading authorities in
this case and the principles to be derived from them
was made by Hunt J., as he then was, in Farquhar v Bottom (1980) 2 NSWLR 380
at 385-6. This passage was considered by Wilcox J. in Typing Centre of NSW
Pty Limited v Northern Business College Limited and Ors
(1989) 11 ATPR 40-943
at p 50,286 where his Honour said as follows:
"In construing the advertisements, for the purpose of32. I am of the view that these statements of principle are applicable, in the present case, not only for the purpose of determining whether the imputations relied upon arise from the appraisal but also whether the representations, which are the same in substance, emerge from it. I see nothing in the authorities bearing upon this aspect of the operation of s 52 of the Act which requires a different approach. In the leading authority, Parkdale Custom Built Furniture Pty Limited v Puxu Pty Limited [1982] HCA 44; (1982) 149 CLR 191 at 199, Gibbs C.J. said:
determining whether it conveys any or all of the meanings
alleged by the applicant, I find assistance in the summary
of principles set out by Hunt J. in Farquhar v. Bottom
(1980) 2 NSWLR 380 at pp 385-386. In that passage
Hunt J. was considering the legal question whether
particular matter was capable of conveying the imputations
relied upon, not the factual question whether it did convey
those imputations. And, of course, his Honour was not
concerned with the operation of sec. 52 of the Trade
Practices Act. But I think that the principles which he
stated furnish guidance in determining, as a matter of fact,
what representations are made by the advertisements.
Omitting the case references made by Hunt J., his Honour
said:
`In deciding whether the matter complained of is
capable of conveying to the ordinary reasonable reader
the imputations relied upon by the plaintiff, I must
be guided and directed by the test of reasonableness.
I must reject any strained, or forced, or utterly
unreasonable interpretation: ... I must proceed upon
the basis that the ordinary reasonable reader is a
person of fair, average intelligence: ... who is
neither perverse: ... nor morbid or suspicious of
mind: ... nor avid for scandal: ...
This ordinary reasonable reader does not, we are told,
live in an ivory tower. He can, and does, read
between the lines, in the light of his general
knowledge and experience of worldly affairs: ... It
is important to bear in mind that the ordinary
reasonable reader is a layman, not a lawyer, and that
his capacity for implication is much greater than that
of the lawyer: ...
In what might be described as "newspaper" cases ...
further questions may arise as to the care with which
the ordinary reasonable reader would have read a
sensational article, as to the degree of analytical
attention he would apply to it; ... and as to the
degree of accuracy he might have expected of that
article ... The ordinary reasonable reader of such an
article is understandably prone to engage in a certain
amount of loose thinking: ...
The mode or manner of publication is a material fact
in determining what imputation is conveyed: ... One
assumes that the reader of a book would read it with
more care than he would a newspaper. In both the
"newspaper" and in other cases, there is also a wide
degree of latitude given to the capacity of the matter
complained of to convey particular imputations where
the words published are imprecise, ambiguous, loose,
fanciful or unusual: ...
Finally, it is not enough to say that, by some person
or another, the matter complained of might be
understood in the sense contended for by the
plaintiff. What must be considered is the sense in
which the ordinary reasonable reader would understand
it: ...'"
"Section 52 does not expressly state what persons or class33. In Switzerland Australia Health Fund Pty Limited v Shaw and Anor (1988) 10 ATPR 40-866, Woodward J. was required to consider whether a statement made in a letter relating to the operations of the applicant sent by the respondent to a number of operators of private hospitals was relevantly defamatory or misleading. His Honour said (at p 49,386):
of persons should be considered as the possible victims for
the purpose of deciding whether conduct is misleading or
deceptive or likely to mislead or deceive. It seems clear
enough that consideration must be given to the class of
consumers likely to be affected by the conduct. Although it
is true, as has often been said, that ordinarily a class of
consumers may include the inexperienced as well as the
experienced, and the gullible as well as the astute, the
section must in my opinion be regarded as contemplating the
effect of the conduct on reasonable members of the class.
The heavy burdens which the section creates cannot have been
intended to be imposed for the benefit of persons who fail
to take reasonable care of their own interests. What is
reasonable will of course depend on all the circumstances."
"I think that the test I should apply is whether the34. I think that I should take a similar approach in the present case. The publication was not made in a newspaper to readers at large. It was made to a significantly small group the members of which had sought the respondent's comments on the Willis Faber material. Although it would be reasonable to assume that there would be some variation in mental acuity and powers of perception and understanding amongst the members of the group, it would, nevertheless, be proper to accept that the readers of the appraisal would be architects, knowledgable in their profession, of a level of intelligence and acumen consistent with their membership of it, and, by virtue of their request for the material, interested in reading it with care and attention, even if not studying and analysing it with precision. I, therefore, ask myself whether such readers would reasonably derive from the respondent's appraisal the representations and imputations relied upon.
statement made by Mr Shaw could reasonably be taken in a
defamatory sense by reasonable, informed, private hospital
administrator: See Lord William Nevill v. The Fine Art and
General Insurance Co. Ltd. (1897) AC 68 at pp 72-73."
35. The representation set out in paragraph 4(a) and the corresponding imputation in paragraph 8(a) are themselves required to be construed in part before consideration can be given to whether they arise from the relevant paragraphs of the appraisal. Both contain the word "ensure". It is submitted on behalf of the respondent that the use of this word requires that the representation and the imputation be construed in a purposive manner. That is, that the respondent worded the policy "stupidly" in order to effect the result that architects would be unable to defend themselves. I am satisfied that this is not the correct way to read these portions of the statement of claim. The words should be read objectively without suggestion of purpose on the part of the respondent. In 4(a) the words "it would ensure that architects would be unable" should be read as "it would result in architects being unable". In paragraph 8(a) the words "as to ensure that architects would be unable" should be read as "to result in architects being unable". In other words, I am satisfied that the pleader was not intending to convey the meaning that the respondent intended the result. Rather, it was meant that the result had been produced through stupidity in the selection of policy wording.
36. Thus construed, do the representation and corresponding imputation arise from the matter complained of? The relevant portions of the appraisal are paragraphs 5, 6 and 7. It is not suggested by counsel for either party that any other paragraphs are relevant. For my part, I entertain some doubt whether paragraph 5 has any significant contribution to make other than to suggest in a broad way that the applicant's policy is badly worded and unclear. It is paragraphs 6 and 7, which deal directly with the "Civil Liabilities Wording", which provide the foundation for the alleged representation.
37. These two paragraphs have been roundly, and in my view correctly,
criticised in address by counsel for the applicant and also
by Mr Hoffman, a
most experienced insurance broker, who gave expert evidence on behalf of the
applicant. It is amazing that Mr Downs,
an apparently experienced insurance
broker could have produced them. It is virtually impossible to determine what
the paragraphs
are intended to mean. He was asked to give an explanation in
his evidence of the "reasoning process" which led to him "coming to
the view
... expressed in paragraphs 6 and 7". He said his "train of thought" was as
follows:
"That architects generally have a consultancy agreement38. The best that I can do to make sense of these paragraphs (and this seems to accord with a suggestion put by the respondent's counsel in cross-examination of Mr Hoffman) is to attribute to the meaning that of the cover given to architects is increased beyond liability for negligence into areas of non-negligent breach of contract, breach of Trade Practices obligations, Copyright, fiduciary duty, etc, then actions against architects in these fields would increase. This would be so because it would become known that architects were insured against liability in respect of such matters, which fact would encourage the bringing of actions which would otherwise have not been brought. This in turn would lead to higher overall premiums. No doubt, however, architects would prefer to be covered even at the risk of higher premiums than to be uninsured in respect of these potent areas of liability. The suggestion that "Courts" would thereby be eventually encouraged to award damages in the absence of negligence does not fit in with even this somewhat unlikely exposition of the meaning of the paragraphs. It appears to be utterly nonsensical.
between themselves and their client which spell out their
particular role that they are going to take on. Architects
are, in my experience, one of the few professions that
regularly provide what are termed, partial services. Now,
in providing of partial services they can either do a
complete role or a partial role, so they tend these days to
spell out with their client what their role will be. My
concern is, that an architect could incur a liability on the
basis of pure breach of contract rather than being judged to
be negligent in comparison with another member of his
profession. My concern about civil liabilities wordings are
that they tend to provide a wider form of cover - which I
acknowledge is a wider form of cover - but at the same time
they introduce potentially a wider exposure and I believe
would encourage actions to be brought in the absence of
negligence."
39. However, whatever well-deserved criticism may be heaped upon these paragraphs and upon the competence of their author, the question remains, do they reasonably give rise to the representation and imputation relied upon. In my view, it is barely possible that an impression to this effect could be given to an uninformed layman reading the paragraphs without much attention to detail. I am quite satisfied, however, that no architect of the kind I have referred to would derive either the representation or the imputation from these paragraphs. This aspect of the applicant's claim cannot, therefore, succeed.
40. It is convenient next to refer to the representation alleged in paragraph 4(c) and the corresponding imputation in paragraph 8(c). The paragraphs said to give rise to these matters are paragraphs 19 to 23 of the appraisal document. It may be noted that these paragraphs are fairly obviously intended as an answer to those portions of the Willis Faber material which asserted that the respondent's policy was "over reserved" and that this over-cautious approach was resulting in premiums being maintained at an unnecessarily high level. I am satisfied that the paragraphs would be read in that context by the architects who had sought the respondent's comments on those assertions in the Willis Faber advertising material.
41. The applicant asserts that the meaning relied upon is necessarily to be found in paragraph 22 when read with the other paragraphs and also with paragraph 2. The reader would gain from these paragraphs the defamatory assertion that the applicant's policy was so incompetently rated that it would produce for the applicant and its co-insurer a loss of more than $5 million per annum.
42. Paragraph 22 does not, of course, refer to the applicant and Heath. It refers to "the participating Insurers". The applicant argues that these words must necessarily refer to the applicant and Heath because they are, by virtue of paragraphs 2 and 3 the only "participating Insurers" referred to in the appraisal document.
43. I am quite unable to read these paragraphs in this way. Nor, in my view, would a reasonable architect reader so interpret them. There is no magic in the phrase "participating Insurers". There is no reason why an architect reading this appraisal should relate paragraph 22 to paragraphs 2 and 3 in a way that would reasonably produce the result that he regarded the "participating Insurers" referred to in paragraph 22 as being those referred to in the earlier paragraphs. The plain and rational meaning of paragraph 22 is that the insurers participating in the RAIA Group Scheme would lose more than $5 million per annum if they utilised the rates provided by the applicant's policy. Unlike other portions of the appraisal document these paragraphs constitute, in my view, a sensibly reasoned if not reasonably correct argument as to possible future difficulties to be encountered by the Willis Faber policy if its low premium structure were maintained. I am satisfied that it does not make the representation and imputation relied upon. This aspect of the applicant's claim cannot, therefore, succeed.
44. I turn to the representation alleged in paragraph 4(d) and the corresponding imputation in paragraph 8(d). It will be noted that there is not the same correspondence of wording between these two paragraphs as in the other sub-paragraphs of paragraphs 4 and 8. As the matter has been argued, however, it is clear that the "confidence trick" said to be alleged by the appraisal is that of offering cover under the policy whilst knowing that the cover "was in reality negligible".
45. These assertions are very broad and also very strong. The allegation, in each case, is that the reasonable architect reader would gain from a consideration of the whole of the appraisal document that the respondent was asserting that the applicant was a party to a fraud in offering the policy as a contract providing real cover when in fact the cover under it was negligible. There is no doubt that the appraisal is a document highly critical of aspects of the applicant's policy. It says of it that the scope of cover provided is "in parts ill-defined and in some respects almost illusionary". It raises questions as to the extent of cover actually provided in certain areas, having regard to the policy wording. It also raises serious questions as to risks of cancellation, some of which might be said to be hidden in the policy wording. It is clear, that in large part, the allegation is dependent upon and catches up the assertions in paragraphs 4(a) and (c) and 8(a) and (c), which paragraphs I have held not to be established. Paragraphs 4(d) and 8(d) can, in my opinion, be properly regarded as "catch-alls" which are themselves, in large measure, dependent upon the establishment of the allegations in the earlier paragraphs. No detailed argument was presented to me in support of the appraisal making these statements in the mind of the reasonable architect reader. I have come to the conclusion that such a reader, reading the document as a whole, would not derive from it that it was making these assertions. Accordingly this aspect of the applicant's claim must also fail.
46. I turn then to paragraphs 4(b) and 8(b) of the statement of claim. They are different in content in so far as the imputation alleged in paragraph 8(b) is one of fraudulent activity on the part of the applicant whilst it is not asserted in paragraph 4(b) that a representation is made in such specific terms. In these circumstances I find it appropriate to consider in the first place whether the appraisal makes the representation asserted in 4(b).
47. Would the reasonable architect reader gain from a reading of the appraisal that it was asserting that "much of the cover provided by the (applicant's) policy was illusory"? I have found this question far more difficult to decide. Paragraph 5 introduces the term "illusionary" saying that the wording of the applicant's policy is "in some respects almost illusionary". The term is used again in paragraph 12 where the section on Recovery of Fees in the applicant's policy is described as being "almost an illusionary cover". The word "illusionary" does not otherwise appear. The word "illusory" does not appear at all. I am, however, satisfied that the two words are synonymous. It might be said, therefore, that these two references could not reasonably convey to a reader an assertion that much of the cover was illusory.
48. Moreover, paragraph 5 could reasonably be read as a general introductory paragraph to the criticisms of the certificate wording that follow thereafter. That being so it can be read as indicating two broad categories of criticism of the cover provided by the applicant's wording. The second is the criticism already referred to. The first is that the cover in parts is "ill-defined". If this be a meaning reasonably to be attributed to paragraph 5, then a reader might well expect that the subsequent paragraphs would deal with criticisms that fell into one or the other category.
49. Leaving aside paragraphs 6 and 7, the bizarre nature of which would preclude any classification of the material contained into either category, it might well appear that subsequent paragraphs could be regarded as falling into either the "ill-defined" or the "illusionary" categories. If that were the approach that the reasonable reader were to take then it could be said that the only other category described as illusionary or illusory was that referred to in paragraph 12 namely "recovery of fees". The other areas of criticism would then be comprehended by the category of ill-definition of cover. This much wider category could have no bearing upon a representation said to derive from the whole document that "much of the cover provided was illusory". I have come to the conclusion, however, that to adopt this approach is to impose a logical form upon the appraisal document which it does not, in fact, bear and which it would not be seen to bear by the reasonable architect reader.
50. Are there other parts of the appraisal which can amount to assertion of illusory cover over and above those in which the term is actually used? It is necessary to give a meaning to the term "illusionary" in the context of insurance cover. In my opinion "illusionary" cover would be provided by policy words that give a false impression of effective cover in that the cover provided was not as it appeared, being far less in extent or significantly reduced. The question is, then, does the appraisal assert that the Plan, in respect of much of the cover offered, convey such a false impression?
51. The appraisal, having asserted that the scope of cover provided by the applicant's policy was "in some respects almost illusionary" then proceeded in paragraphs 6 and 7 to be critical of the policy's "Civil Liabilities Wording". I have already indicated that, in my view, this criticism did not amount to a representation in the terms asserted in paragraph 4(a) of the statement of claim. However, it does clearly maintain that the "Civil Liabilities Wording" despite it being "much lauded" by the applicant as one of the proffering insurers was nevertheless "presently unnecessary and a retrograde step for the architectural profession". Although the material that follows in paragraphs 6 and 7 defies logical analysis, it still, in my view, conveys an assertion that the "Civil Liabilities Wording" does not in fact provide the level of cover which it might appear to furnish. In other words there was, in some respects, an illusion of cover.
52. Again, the statement made in paragraph 9 of the appraisal, in my view, can reasonably be read as asserting that although the policy allows for unlimited reinstatements of the sum insured, this is not as beneficial to a policy holder as it might appear, because the cancellation provisions of the policy could operate significantly to impair this benefit.
53. Similarly, paragraph 10, which deals with "dishonesty of principals" can, in my opinion, be reasonably read as an assertion that the cover offered in this area was to an extent illusory. It was said to be "debatable that cover would be readily provided for the most common form of dishonesty of principals". Other portions of the paragraph suggest that the cover would be less valuable in practice to the insured than it might otherwise appear.
54. I do not consider that paragraph 11 conveys any representation that the cover in relation to joint ventures was illusory. It goes no further than asserting that the wording is unclear.
55. Paragraph 14 makes no suggestion of illusory cover but paragraphs 13, 15 and 16, whilst not dealing with cover as such all suggest that cover given by the policy may be significantly diminished by exclusions and cancellation provisions which, in some cases, are said to be very biased in favour of the insurer. I think these paragraphs amount to an assertion that cover apparently provided by the policy is not as effective as it may seem because it can fairly readily be taken away by the application against the assured of exclusion provisions which "could pose problems" in certain circumstances. It is also essential that cover can be lost by the breaching of conditions by the insured whose application is not readily apparent, but emerges only when the policy provisions are carefully scrutinised and conditions are read in conjunction with other conditions.
56. There is also the suggestion, made in paragraph 16, as to there being a doubt as to the date upon which cancellation might take effect for breach of the conditions referred to in that paragraph. The question "But from what date?" is reasonably capable, in my view, of conveying the impression to the reader that the insured might unexpectedly find himself in the position of having his policy cancelled retrospectively for breach of such a condition.
57. The suggestion in paragraph 17 is sufficiently made, in my opinion, that cover under the policy is rendered fragile by the very heavily biased condition for claims co-operation.
58. In summary, I am satisfied that the combined effect of these paragraphs is to convey to a reasonable reader that the cover offered by the policy is not as satisfactory and effective as it might seem to be because it is vulnerable, in ways which would not be readily apparent, to exclusions and conditions biased in favour of the insurer. I am satisfied that a representation is thereby sufficiently made that much of the cover is illusory.
59. I turn then to consider whether the imputation alleged in paragraph 8(b) of the statement of claim has been established. Does the appraisal document, read as a whole, convey to a reasonable architect reader that the applicant had acted in a deceitful way by deliberately wording the policy so as to produce the situation that much of the cover provided in it was illusory? I do not think that such a reader would derive from the document that its author was making such a suggestion. He would read it as being, as indeed it is, a hard-hitting criticism of the policy wording. He would read it as saying of the policy that it should not be taken, as it were, at face value but that it should be scrutinised carefully, in the areas referred to. When so scrutinised it would be seen that the cover was not as full and effective as might otherwise have been supposed. It is a large step to take to proceed from this proposition to an assertion that the policy was deliberately worded in deceitful fashion. I do not think a fair-minded reader would take this step when considering the appraisal document in a reasonably careful way. In my view, the cause of action in defamation based upon this sub-paragraph of the statement of claim must also fail.
60. In the result, all the claims in defamation fail. I am not satisfied that the imputations relied upon have been made out.
61. I turn, then, to the remaining cause of action based upon s 52 of the Act. Was the making of the representation in paragraph 4(b) relevantly misleading or deceptive conduct on the part of the respondent, and if so, has the applicant established a case for relief?
62. In the first place, I am firmly of the view, that in the circumstances in which the representation was made by the forwarding of the appraisal document to those architects who had sought the respondent's comments in relation to the Willis Faber documentation, the representation would have been perceived as an expression of opinion by the respondent rather than a statement of fact. Comment was sought in response to comment.
63. It was sought, however, as the comment of an experienced insurance broker favourably known to and relied upon by the architects seeking the comment. Accordingly the making of the comment and the expressing of the opinion carried with it the assurance that the opinion embodied in the representation was genuinely held and reasonably based. (see Global Sportsman Pty Limited v Mirror Newspapers Limited [1984] FCA 180; (1984) 2 FCR 82 at 88; James v ANZ Banking Group Limited (1986) 64 ALR 347 at 372).
64. It has been cogently put to me that the views expressed in the appraisal upon which the representation set out in paragraph 4(b) is based are so erroneous that I should hold that the author of the document, as an experienced insurance broker, could not have genuinely held them. Mr Downs has sworn that the statements made by him in the document were, at the time of his making them and at the time of his furnishing the document to architects who asked for it honestly believed by him to be correct. Other persons who furnished the document on behalf of the respondent to architects who asked for it, did so, I am satisfied, on the basis of accepting uncritically what Mr Downs had said in the document. Mr Downs was cross-examined extensively as to the genuineness of his belief and evidence was called to demonstrate that a number of the views could not have been expressed by a competent broker.
65. It is quite clear that the document was produced in circumstances where the respondent's own policy had been the subject of criticism by the applicant and of unfavourable comparison of it with the applicant's own policy. It was undoubtedly written out of the desire, at least in part, to respond to those criticisms. I am also satisfied that it was written with the object of finding and demonstrating faults in the applicant's policy. Indeed, the document is largely devoted to this purpose. Mr Downs candidly conceded that in writing the appraisal he was not seeking to be fair to the applicant's policy and that he was "trying to find every fault real or imagined" in it that he could. It appears that the appraisal document was produced by Mr Downs in a rather sporadic fashion, he giving some time to it whenever he had the time available. I am satisfied that it was an ill-considered document and one which would not have the form and content that it did if he had approached the task with fairness and thoroughness. Had he done so, some fairly elementary mistakes could have been avoided. I observed Mr Downs very carefully when he was giving his evidence. I do not think he was seek ing to mislead the Court when he claimed that he honestly believed in the accuracy of his comments at the time that he made them in the appraisal document. I am satisfied that whereas the document was largely the product of lack of reasonable care on his part, it was not the product of dishonesty.
66. The question remains, however, whether any of the comments and opinions expressed in the document and which based the representation which the document gave rise to were so unreasonable and unfounded as to be misleading or deceptive or likely to mislead or deceive within the meaning of s 52. I turn, then, to the aspects of the document relied upon by the applicant.
67. In the first place I accept the submission of the applicant that paragraphs 5, 6 and 7 of the appraisal document should reasonably be read together. So read they convey the message that the "Civil Liabilities Wording" of the applicant's policy despite its claimed benefits is in fact disadvantageous to architects. It is unnecessary, retrograde and the scope of cover provided by it almost illusionary. I am satisfied that the respondent had no rational basis for the making of such assertions. The "Civil Liabilities Wording" of the applicant's policy clearly provided a wider and more effective form of cover to architects than did a policy which insured them only against liability for negligent act or omission. It is, indeed, quite extraordinary that these comments should have been made by the respondent when it was itself, as the evidence establishes, publicising the fact, in its own promotional material, that it was about to introduce cover for architect's liability in respect of breaches of the Copyright and Trade Practices legislation. Moreover, Mr Downs had had no personal experience whatever in the operation of policy wording such as the proposed "Civil Liabilities Wording" in the applicant's policy. The comments in relation to the "Civil Liabilities Wording" cannot have been well thought out. There is an underlying idea that the expansion of the area of insurance cover may lead to higher premiums. This is tied in with nonsensical ideas about Courts being encouraged to award damages in the absence of negligence and the removal thereby of the architect's main defence. These comments, as I have found, do not give rise to the representation relied upon in paragraph 4(a), but they nevertheless add colour to the assertion which does arise that the "much lauded" wording gives only illusory cover.
68. In my view, the representation that this cover was "almost illusionary" was clearly false, misleading and deceptive, and a breach of s 52 of the Act.
69. Paragraph 9 of the appraisal document refers to the Plan provision for unlimited reinstatement of the sum insured. This provision clearly provides a superior benefit to those insuring under the Plan unless there be some good reason to the contrary. In the appraisal Mr Downs selected the reason that the benefit of this provision "could be impaired by cancellation provisions (refer Conditions 5 and 7)". The appraisal in paragraphs 11 and 16 makes reference to the joint operation of conditions 5 ii(d) and 7(a) and (c) of the Plan. I shall refer to these paragraphs later but it may be noted that the criticism made appears to be that the wording of condition 7 increases the scope for cancellation of the policy by the insurer. It is, to say the least, difficult to see why Mr Downs found it necessary to mention this matter in relation to the unlimited reinstatement provision. Conditions 5 and 7 do not have any direct relation to it. Presumably Mr Downs was seeking to make the point that however beneficial the wider reinstatement provision might be, it would not operate in favour of the insured if the policy were cancelled. As this would apply to any provision of the policy it is difficult to see why the comment was made unless on the basis that some reason, however remote, was being sought to downgrade this otherwise obvious advantage given by the Plan to the insured. The statement is cryptic and provides no explanation. It conveys the message that the reinstatement provision is not as good as it seems. The criticism is not based on reasonable grounds. It suggests that this aspect of cover has an illusory quality. I am satisfied that this was misleading and a breach of s 52 of the Act.
70. Paragraph 10 is, again, in my view, a badly thought out statement of opinion. I am quite satisfied that paragraph 3 of the Plan's wording which deals with this subject matter is not, on the face of it, intended to provide cover in the circumstances referred to in paragraph 10. In other words it has nothing to do with non-disclosure and misrepresentation made by an insured in relation to the obtaining of the policy in the first place. I consider that some architect readers would merely find this paragraph confusing. Others could reasonably gain from it that the author was asserting that the cover was simply not what it appeared to be. In other words that it was illusory. The assertion lacks any material basis. In these circumstances it constitutes a breach of s 52 of the Act.
71. Paragraph 11 of the appraisal is not the subject of complaint. However,
paragraph 12 is said by the applicant to amount to a
misleading representation
that the provision in the policy for recovery of fees provides only illusory
cover. It may be noted that
the author says of this provision that it is
"almost an illusionary cover". He elaborates on this statement by asserting
that "conditions
specifically applied to this extension virtually exclude the
majority of dispute claims". The proposition is not further explained
in the
document. However, in his evidence, Mr Downs made it clear that he was basing
this comment upon the rider to clause 8 of
the applicant's policy which dealt
with "recovery of fees". This rider read as follows:
"Warranted free of any claim under this additional coverage72. Mr Downs's point was that most of an architect's disputed fee claims would relate to fees which had become payable outside this period. Such claims tended to drag on with the result that at the time when recovery was sought through Court action they would be of such an age as to fail to qualify for the assistance of this provision. He conceded in cross-examination that if the legal proceedings for recovery were commenced towards the end of the one year period of insurance, this would have the effect of attracting cover in respect of a claim for fees which might be outstanding for a period approaching two years and that, therefore, the cover could be more extensive than he suggested in paragraph 12. Even so, it does obviously not apply in respect of claims which might have been, although of considerable size, outstanding for long periods because of dispute or negotiations. Although the use of the expression "almost illusionary" is, in the circumstances, in my view, hypercritical I have come to the conclusion, with some hesitation, that having regard to the readers to whom it was addressed, it was not relevantly misleading or deceptive. It highlighted a problem which a reader might fail to appreciate if he did not give the policy provision careful consideration.
in respect of Professional Fees which have become due for
payment more than 12 months prior to the inception date of
this certificate".
73. The next paragraph relied upon as being misleading or deceptive is paragraph 15. The main complaint made of this paragraph is that the two exclusions selected for "specific comment" in the applicant's policy wording are basically similar to exclusions of like kind in the respondent's policy. It is said on behalf of the applicant that, in these circumstances, it is unfair and misleading to make the comment without pointing out to the reader the existence of the similar exclusions in the respondent's policy. One can certainly be sympathetic to a complaint that the author has been unfair. However, it must be realised that the document does not purport to undertake a comparison between the two policies, as did the document contained in the Willis Faber material. It only purports to be a critique of the applicant's policy. Seen in this light the paragraph does no more than highlight aspects of the policy which a reader might wish to consider. It does not amount, in my view, to an assertion that only illusionary cover is being provided because of the existence of these exclusions. It is an unfair statement but it does not, in my opinion, support the applicant's claim that a breach of s 52 of the Act has occurred.
74. Paragraph 16 is the subject of major complaint by the applicant. It is said to be a "scare tactic" and to be fundamentally false and misleading. The terms "very biased" and "absolute control" are said to be likely to produce alarm in an architect reader and to suggest a sinister purpose on the part of the applicant namely that, despite the offer of favourable cover within the policy there is a hidden ability to cancel the policy for "a multiplicity of reasons". It is also said that the paragraph asserts that such cancellation can take place retrospectively. This latter contention flows from the closing query of the paragraph, "But from what date?".
75. It should be said that Mr Downs, in his evidence, emphasised that he saw some difficulty for the policy holder from the combination of conditions 5(ii)(d) and 7(a) and (c) of the Plan. The latter two provisions require that the assured notify the insurer of any merger or acquisition with another practice or the setting up of a branch office or of any material change in the nature of the professional services offered by the practice. Condition 5(ii)(d) provides that the insurer may cancel the policy if the insured fails to comply with a provision of the certificate. It is clear that Mr Downs held the view that an architect considering entering into the Plan policy should bear in mind the obligations imposed by conditions 7(a) and (c) and their potential effect upon the insurers rights of cancellation. They are, indeed, widely expressed and an architect would need to keep in mind his obligation of notification, especially in circumstances where his practice was being extended in the manner contemplated in condition 7(a) or altered in the manner contemplated in 7(c). I am satisfied that Mr Downs was genuine in his wish to bring these matters to the attention of the architects who had sought his comments.
76. However, it is quite plain that paragraph 16 goes well beyond the bringing of these matters to the architects' attention. In the first place it claims that condition 5(ii)(d) is very biased in favour of the insurer. This would suggest, in my opinion, to the architect reader, especially when read with the balance of the paragraph, that cover given on one hand by the policy might readily, on the other hand be taken away by cancellation provisions heavily in favour of the insurer which could be exercised in numerous and unexpected ways.
77. The simple truth of the matter is that the whole of condition 5(ii) merely reproduces the provisions of s 60 of the Insurance Contracts Act 1984 which gives to the insurer the right to effect cancellation in the circumstances set out in the condition. Extraordinary as it may be, I am sure that Mr Downs, although he was an insurance broker, did not consider s 60 of the Insurance Contracts Act when making the criticism in this part of paragraph 16. Be that as it may, to describe condition 5(ii)(d) as being "very biased in favour of the insurer" was objectively most misleading. It also, of course, supported the general representation that much of the cover of the policy was illusory. The making of the statement, in my view, involved a clear breach of s 52 of the Act.
78. The final words of paragraph 16 are, "But from what date?". Mr Downs acknowledged, in cross-examination, that this phrase coming when it did, could carry with it the suggestion that a failure to notify the insurer of the matters referred to and emphasised in the paragraph could lead to a retrospective cancellation of the policy. I am satisfied that it could carry this meaning notwithstanding the fact that Mr Downs did not intend it. Even if Mr Downs did not intend it to have this extreme meaning, its use indicated, as was the fact, a failure on Mr Downs's part to appreciate the provision of s 59 of the Insurance Contracts Act which makes clear provision for an insurer's rights of cancellation. Cancellation could not take effect until an insurer gave notice in writing to the insured of proposed cancellation, the notice, when give having effect to cancel the contract at 4 o'clock in the afternoon of the third business day after giving of the notice or such later time as specified in the contract of insurance. In fact the Plan provided specifically at the conclusion of Condition 5 for cancellation taking effect 30 days after the date of posting the notice to the insured's last known address. Moreover, the respondent's own policy made similar provision for cancellation.
79. Accordingly, there was no basis for the representation conveyed by this part of paragraph 16. It was misleading and in breach of s 52 of the Act.
80. In the upshot, I am quite satisfied that the representation which I have found to have been made by the respondent by the publication to the architects seeking it of the appraisal document was a relevantly misleading representation made in trade and commerce. I am satisfied, therefore, that the breach of s 52 of the Act pleadings in these proceedings has been established.
81. I turn, then, to the question of relief.
82. As I have already stated, the publication of the material conveying the representation was very limited. The cautionary letter forwarded by the respondents after complaint had been made would, in my opinion, have significantly limited the area of spread of the representation made by the appraisal document. It also appears that three of the architects who received the appraisal, notwithstanding that fact, elected to insure with the applicant. The one architect who did give evidence indicated that he had been sceptical of the Willis Faber policy because of the lower premium offered, that he was conservative by nature, and that the appraisal confirmed him in his desire to maintain continuity of insurance by remaining with the respondent's policy. He did say that, in effect, had he been aware of the misrepresentation in the appraisal he would have sought some further advice. It is not clear whether having received further advice, he would have elected to insure under the applicant's policy.
83. There was no further publication of the appraisal, after complaints had been received from Willis Faber. However, there was no acknowledgment on behalf of the respondent that the appraisal contained misrepresentations. It is clear that, even if damage to the commercial reputation of the applicant is a relevant consideration in the granting of relief, there is no evidence of any significant ongoing damage.
84. The applicant, by its application made a claim for an award of damages and interest. By its amended application it sought a declaration that the representations made in paragraph 4 of the statement of claim were (a) false and untrue, (b) misleading and/or deceptive and/or likely to mislead and/or deceive contrary to s 52 of the Trade Practices Act 1974.
85. I deal, in the first place, with the claim for a declaration. It was submitted, on behalf of the respondent, that the Court had no power to make the declaration sought. It was argued that s 163A of the Act provided the only basis for the granting of declaratory relief in proceedings brought in this Court "in relation to a matter arising under" the Act. It was submitted that the declaration sought could clearly not be granted under that section. This latter submission is undoubtedly correct (see Westpac Banking Corporation v Northern Metals Pty Limited (1989) 11 ATPR 40-953; Polgardy v Australia Guarantee Corporation Limited [1981] FCA 26; (1981) 52 FLR 240).
86. I am not satisfied, however, as to the correctness of the first
submission. Support for it was said to be found in the decision
of the High
Court in Thomson Australian Holdings Pty Limited v Trade Practices Commission
[1981] HCA 48; (1981) 148 CLR 150 where it was held that the power of this Court to grant
injunctions in relation to contraventions of the Act did not extend to
"situations
falling outside the boundaries drawn by s 80" of the Act (at 161).
That section provided the charter to this Court for the granting
of injunctive
relief in proceedings under the Act. Furthermore the provisions of ss 22 and
23 of the Federal Court of Australia
Act did not operate to extend the Court's
power to grant injunctions in this area. I do not consider that Thomson
requires that
I hold that I have no power to grant declaratory relief in the
present case. Such power is, in my view, clearly to be found in s
21 of the
Federal Court of Australia Act. This section provides:-
"21(1) The Court may, in relation to a matter in which87. Jurisdiction is conferred upon the Court in the present case by s 86(1) of the Act when read with s 82(1). The present case is clearly one where a civil proceeding has been instituted under Pt VI in a matter arising under the Act (s 86(1)), being a claim for damages by reason of conduct in contravention of s 52 (s 82(1)). In these circumstances, in my view, the Court clearly has power under s 21(1) of the Federal Court of Australia Act to make the declaration sought.
it has original jurisdiction, make binding
declarations of right, whether or not any
consequential relief is or could be claimed.
(2) A suit is not open to objection on the ground
that a declaratory order only is sought."
88. I am satisfied that the argument by way of analogy with Thomson's case does not prevent my coming to this view. Section 163A of the Act does not, I am satisfied, provide a charter for the granting of declarations in the same way as s 80 does for the granting of injunctions. The section operates only in a fairly narrow field and "was not intended to apply to civil litigation under the Consumer Protection Provisions" of the Act (per Toohey J. in Polgardy at 244). Having regard to the underlying policy of consumer protection, in Pt V of the Act it would, in my view, be inconceivable that s 163A was intended to provide the only basis for the making of declaratory orders in matters under the Act.
89. I am satisfied that whether or not the applicant be entitled to an award of damages in respect of the respondent's making of the misleading representation that I have found, it is clearly entitled to an appropriate declaration.
90. The claim for damages presents greater difficulties. It is clear that no
claim for quantifiable damage is made nor could be
made on the evidence in the
case. Reliance is, however, placed upon s 4K of the Act which provides:-
"4K. In this Act -91. It is submitted on behalf of the applicant that when this section is read with s 82(1) a legislative intention is shown that a person who suffers injury through the conduct of another person in contravention of a provision of Pt V is able to recover damages, even if they are not capable of quantification in other than a fairly speculative way (see Chaplin v Hicks (1911) 2 KB 786; Biggin and Co Limited v Permanite Limited (1951) 1 KB 422 at 438).
(a) a reference to loss or damage, other than a
reference to the amount of loss or damage,
includes a reference to injury; and
(b) a reference to the amount of any loss or damage
includes a reference to damages in respect of an
injury."
92. These and other cases were considered by the Full Court of this Court in
Enzed Holdings Limited v Wynthea Pty Limited and Ors
[1984] FCA 373; (1984) 57 ALR 167 at
182-183. After reviewing the authorities the Court said (at 183):-
"The principle is clear. If the court finds damage has93. Has any relevant injury, loss or damage been shown to have been occasioned to the applicant as a result of the respondent's breach? There is no direct evidence that any of the architects who received the appraisal were induced by it to remain with the respondent's policy rather than taking out insurance cover with the applicant through Willis Faber. The simple fact is that they were sent the appraisal and thereafter did not yield to the blandishments of the Willis Faber promotional material. The situation is not an easy one. However, having regard to the serious nature of the misleading representations that I have found to have arisen from the appraisal document, I am satisfied that there is a likelihood that some at least of the recipients were influenced against taking out insurance with the applicant by those representations.
occurred it must do its best to quantify the loss even if a
degree of speculation and guess work is involved.
Furthermore, if actual damage is suffered, the award must be
for more than nominal damages. We should add that we can
see no reason why this principle should not apply in cases
under the Trade Practices Act as well as in cases at common
law. We emphasize, however, that principle applies only
when the court finds that loss or damage has occurred. It
is not enough for a plaintiff merely to show wrongful
conduct by the defendant."
94. Furthermore, although I have held that the imputations relied upon as founding the claims for defamation in these proceedings are not established, I am of the view that the making of the representation which I have found to be established, namely that much of the cover offered in the applicant's policy wording was illusory, would cause some injury to the applicant through the unjustified belittling of its product. It could cause potential insured to adopt an unnecessarily cynical view of the effectiveness of the policy cover. It is reasonable to assume that the effect of the representation would have spread to some extent beyond the recipients of the appraisal with consequent injury to the applicant.
95. Doing the best I can on what is extremely exiguous material I think it appropriate that I award damages in the sum of $15,000. In arriving at this award I have accepted that it is open to award damages for vindication of commercial reputation under s 82 (see Brabazon v Western Mail Limited (1985) 7 ATPR 40-549 at 46,453; Flamingo Park Pty Limited v Dolly Dolly Creation Pty Limited (1986) 65 ALR 500 at 525; Typing Centre of NSW Pty Limited v Northern Business College Limited (1989) 11 ATPR 40-943 at 50,290).
96. I have also considered whether I should make some special order for costs in this matter having regard to the applicant's failure on the defamation counts. I have decided, however, on balance that the applicant is entitled to its costs in the ordinary way.
97. I therefore make the following orders:-
1. a declaration that the respondent made the representation set out
in paragraph 4(b) of the statement of claim and that the
representation was:-
(a) false and untrue, and
(b) misleading and/or likely to mislead contrary to s 52 of the
Trade Practices Act;
2. that there judgment for the applicant in the amount of $15,000;
3. that the respondent pay the applicant's costs.
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