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Federal Court of Australia - Full Court Decisions |
Last Updated: 4 May 2007
FEDERAL COURT OF AUSTRALIA
Macquarie Underwriting Pty Ltd v Permanent Custodians Limited [2007] FCAFC 60
INSURANCE - Exercise of discretion in joinder of insurer
– whether arguable insured had a claim - necessary to have arguable case
of
liability and arguable case of indemnity.
AGENCY - whether
party is insurer – whether proper to be added as
insurers.
A.F.G. Insurances Ltd. v Andjelkovic [1981] FCA 104; (1981) 54 FLR
398 followed and applied
Andjelkovic v AFG Insurances Ltd (1980) 47
FLR 348 explained
Antico v Heath Fielding Australia Pty Ltd [1997] HCA 35;
(1997) 188 CLR 652 referred to
Bailey v New South Wales Medical
Defence Union Limited [1995] HCA 28; (1995) 184 CLR 399 applied
East End Real
Estate v C E Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400
referred to
FAI General Insurance Co Ltd v Australian Hospital Care Pty
Ltd [2001] HCA 38; (2001) 204 CLR 641 referred to
FAI Insurance Co v Perry
(1993) 30 NSWLR 89 referred to
Fishwives Pty Ltd v FAI General
Insurance Co Ltd (2002) 12 ANZ Ins Cas 61-515 followed
Oswald v
Bailey (1987) 11 NSWLR 715 referred to
Pech v Tilgals (1994) 94
ATC 4206 referred to
Permanent Trustee of Australia Ltd v FAI
General Insurance Co Ltd (1998) 153 ALR 529 referred to
State of
New South Wales v AXA Insurance Australia Ltd [2002] NSWCA 63; (2002) 54 NSWLR 409 referred
to
Travel Compensation Fund v FAI General Insurance Co Ltd [1999] FCA 1214 referred to
Tzaidas v Child [2004] NSWCA 252; (2004) 61 NSWLR 18 referred
to
MACQUARIE
UNDERWRITING PTY LTD AND SVB SYNDICATES LIMITED v PERMANENT CUSTODIANS LIMITED
(ACN 001 426 384), ARMA PTY LIMITED (ACN
010 889 899) AND NEIL TEVES
NSD 1335 OF 2006
ALLSOP, GRAHAM AND BUCHANAN
JJ
3 MAY 2007
SYDNEY
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AND:
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THE COURT ORDERS THAT:
1. The appeal be allowed in part.
2. Order 1 made on 4 July 2006 granting leave to Permanent Custodians Limited to join Macquarie Underwriting Pty Limited and SVB Syndicates Ltd as additional respondents to proceeding NSD 1758/2004 be varied by limiting that leave to an action seeking to enforce a charge on insurance moneys under a contract of insurance effective between 26 July 2004 and 26 July 2005 being policy number 103004401796 signed for and on behalf of Macquarie Underwriting Pty Limited.
3. The parties file submissions on the question of costs before the primary
judge and of the appeal within 14 days.
Note: Settlement and entry of
orders is dealt with in Order 36 of the Federal Court Rules.
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
|
|
BETWEEN:
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MACQUARIE UNDERWRITING PTY LTD
First Appellant SVB SYNDICATES LIMITED Second Appellant |
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AND:
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PERMANENT CUSTODIANS LIMITED (ACN 001 426 384)
First Respondent ARMA PTY LIMITED (ACN 010 889 899) Second Respondent NEIL TEVES Third Respondent |
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JUDGES:
|
ALLSOP, GRAHAM AND BUCHANAN JJ
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DATE:
|
3 MAY 2007
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|
PLACE:
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SYDNEY
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REASONS FOR JUDGMENT
ALLSOP AND BUCHANAN JJ:
1 Macquarie Underwriting Pty Ltd (Macquarie) and SVB Syndicates Limited (SVB) (collectively the appellants) are, respectively, an underwriting agent and a corporate vehicle for combining the underwriting members of two syndicates of Lloyds.
2 Their appeal seeks to overturn the exercise of a discretion by a Judge of this Court who granted leave to join them as additional respondents to proceedings commenced against a valuation company and one of its valuers (who are the second and third respondents to this appeal). The orders and judgment under appeal were made and was delivered on 4 July 2006 (Permanent Custodians Limited v ARMA Pty Limited (No 2) [2006] FCA 847). The judgment of 4 July 2006, in large part, reflected reasons in an earlier judgment of 29 May 2006 (Permanent Custodians Limited v ARMA Pty Limited [2006] FCA 640). Both judgments, read together, provide the reasons for the orders for joinder, made on 4 July 2006. Leave to appeal was given by a Judge exercising the appellate jurisdiction of the Court on 28 September 2006 (Macquarie Underwriting Pty Ltd v Permanent Custodians Limited [2006] FCA 1291).
3 For reasons which will appear, we have concluded that the appeal should be allowed in part.
4 The proceeding was commenced by the first respondent to the appeal, Permanent Custodians Limited (PCL). PCL provided finance, secured by mortgage, for the purchase of two lots in a development located at Oyster Court, Trinity Beach in Queensland. The purchaser of the properties defaulted and they were sold by PCL under a power of sale, but for less than the amount of the loan which had been advanced. The amount of the shortfall pleaded is $155,000 to which interest and other, as yet unquantified, costs would need to be added should PCL succeed in its action.
5 The proceedings were commenced by application filed in this Court on 29 November 2004 against the valuation company, ARMA Pty Limited (ARMA), which traded as Cairns Regional Valuers, and Mr Neil Teves who signed the two valuations in his capacity as a registered valuer. PCL, alleging causes of action under the Trade Practices Act 1975 (Cth), pleaded against them that PCL had, as the respondents should have known it would, relied upon the valuations for the purpose of providing loans and had suffered loss as a result. About 12 months later, PCL filed a notice of motion seeking to add Macquarie and SVB as respondents to the proceedings.
6 No issue was agitated before the primary judge or on appeal that the case against the insureds, ARMA and Mr Teves was not arguable.
7 The motion relied upon s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the LR(MP) Act), picked up and made applicable as surrogate federal law by the Judiciary Act 1903 (Cth), s 79. Section 6 of the LR(MP) Act provides relevantly as follows:
(1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person’s liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.
(2) ...
(3) ...
(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:
Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.
8 It was alleged by PCL that ARMA and Mr Teves are entitled to the protection of one or both of two professional indemnity policies (the first policy and the second policy) which were in effect, according to their terms, from 26 July 2003 to 26 July 2004 and from 26 July 2004 to 26 July 2005, respectively.
9 The effect of s 6 of the LR(MP) Act (if the necessary conditions are satisfied) is to create a charge on the insurance moneys that may become payable under one or both of the policies as a result of the shortfall and other losses alleged by PCL and to permit PCL to commence proceedings against the insurer as if the proceedings were against the insured, subject to the leave of the Court being obtained.
10 The principles upon which the grant of leave should be approached were set out by the Full Court of this Court in AFG Insurances Ltd v Andjelkovic [1981] FCA 104; (1981) 54 FLR 398 at 400 in dealing with a relevantly identical Ordinance of the Australian Capital Territory. The Court there said as follows:
Section 26(3) commands the court not to grant leave in certain circumstances. It is not easy to decide precisely what is embraced in the words which describe the circumstances where the court is not to grant leave. In our opinion the court has a general power to grant leave in all cases which do not fall within the provision that it shall not grant leave and in which it is made to appear by evidence available in the application that there is an arguable case of liability against the insured, being a liability against which the insured is indemnified by a contract of insurance in force at the time of the happening of the event said to give rise to the claim. We accept the relevant test proposed by the respondent which is really the test formulated by the primary judge, namely, has the respondent presented a case which is at least arguable?
11 This was applied by the Full Court in Travel Compensation Fund v FAI General Insurance Co Ltd [1999] FCA 1214 at [2] dealing with s 6 of the LR(MP) Act.
12 This approach has been followed by the New South Wales Court of Appeal in Oswald v Bailey (1987) 11 NSWLR 715 at 734; State of New South Wales v AXA Insurance Australia Ltd [2002] NSWCA 63; (2002) 54 NSWLR 409 at 412; Fishwives Pty Ltd v FAI General Insurance Co Ltd (2002) 12 ANZ Ins Cas 61-515 at p 75,998; and Tzaidas v Child [2004] NSWCA 252; (2004) 61 NSWLR 18 at 25 [21].
13 The primary judge referred to the reasons of Blackburn CJ in Andjelkovic v AFG Insurances Ltd (1980) 47 FLR 348, who was the primary judge reversed by the Full Court. Nevertheless, as can be seen from the last passage quoted above from the Full Court, Blackburn CJ’s expression of principle was assimilated within the Full Court’s expression of principle. At [5] of his judgment of 29 May 2006, the primary judge stated the following:
...If the claim is reasonably arguable in the sense that it ‘could be seriously put’ (Andjelkovic v AFG Insurances Ltd (1980) 47 FLR 348 at 356 per Blackburn CJ, the context whereof involved an issue as to statutory or alternatively contractual interpretation), then leave should be granted to join the Insurers, or at least that Insurer resident in Australia being of course Macquarie, notwithstanding its purported agency status, so that the issue as to availability of the statutory remedy referrable to the prevailing circumstances may be subsequently resolved at a final hearing of the proceedings. The parties further agreed that for the purposes of the present interlocutory application of PCL, the following general principles apply:
(i) an action pursuant to section 6 of the LR Act cannot be commenced of course without the leave of the Court, and whilst some specific circumstances may be identified as operative against the grant of leave, any grant of leave or otherwise falls ultimately within the statutory discretion thereby vested in the Court; and
(ii) the Court will not grant leave to commence proceedings in circumstances where on the basis of the material placed before the Court, the claim of an applicant for the statutory indemnity sought is not reasonably arguable.
14 For present purposes that statement of principle (to which the primary judge was directed by the parties) can be seen to be conformable with the principle laid down by the Full Court in AFG Insurances Ltd v Andjelkovic 54 FLR at 400.
15 The relevant question on appeal was, therefore, whether the primary judge erred in answering the question whether, by reference to evidence available in the application, it was arguable that the insured had a claim under the relevant policies.
The background facts
16 The valuations upon which PCL says it relied were dated 22 May 2003. The alleged default which led to PCL exercising its power of sale over the two properties occurred during the period of the first policy. Mr Teves was advised by letters dated 23 April 2004 and 13 May 2004 from the mortgagee and its solicitors, respectively, of the likelihood of a shortfall upon the mortgagee sale of the properties and that action against him would be taken to recover any such shortfall.
17 ARMA also received a letter dated 13 May 2004 from the mortgagee’s solicitors in similar terms to the second letter to Mr Teves. The last three paragraphs of this letter to Mr Teves and ARMA read as follows:
It appears your valuations significantly overvalued the properties, such that our client may suffer a shortfall upon sale of the properties.
We have been instructed to take action to recover any shortfall from you.
Kindly let us have details of your professional indemnity insurer and confirm they have been notified that circumstances have arisen that may give rise to a claim against you.
18 It does not appear that any action was taken by Mr Teves or ARMA to advise the insurers of the circumstances thereby notified to them prior to the expiry date of the first policy, 26 July 2004. The proposal for the second policy was dated 28 June 2004 and was signed by Mrs Vivian Teves, Mr Teves’ wife, who identified herself as the sole partner/principal/director of ARMA. The proposal contained a representation that no partner, principal, director or employee of ARMA was aware of circumstances that might result in claims against it. It is not necessary for present purposes to explore what rights or remedies this representation might create for the benefit of the insurers, because in the present proceedings they disclaim any reliance upon non-disclosure of the events and circumstances which subsequently generated a claim by ARMA for indemnity under the policy in respect of the shortfall alleged by PCL.
19 The facts and circumstances giving rise to the claim were apparently first notified to Macquarie by letter dated 27 August 2004. Liability under both policies was denied by letter dated 25 October 2004. There were initially three grounds for rejecting the claim. The first was that no indemnity was available under the first policy because the relevant facts, although known, were not notified during the term of that policy. The second was that Mr Teves was not a named valuer under the first policy and so his valuation work was not covered under that policy. The third ground related to the second policy. It was that the second policy, pursuant to the terms of the cover described by it, did not extend to the circumstances which generated the claim for indemnity.
20 At the hearing of the appeal the first ground was not argued: see s 54 of the Insurance Contracts Act 1984 (Cth) and the cases referred to at [28] below. The other two contentions were maintained.
The second policy and the claim in respect thereof
21 It is convenient to deal initially with the scope of the second policy. Each of the policies makes a distinction between a ‘Claim’ and ‘claim’. A ‘Claim’ is defined, in substance, to be a legal process. A ‘claim’ is defined to include the ‘assertion of a right or entitlement to compensation, damages or other legal relief’, ‘an assertion, allegation or complaint of a breach of professional duty’ and ‘an assertion, allegation or complaint of any act or omission causing or potentially causing loss or damage’. The definition of ‘claim’ is non-exclusive and other matters are also referred to which it is not relevant to discuss.
22 The policies covered ‘Claims’ made against ARMA and reported to the insurer during the ‘insurance period’. Clause 1.1 provided:
1.1 We will cover You for any Claim, first made against You and reported to Us during the Insurance Period, for breach of professional duty by You in the conduct of the Business by You.
(emphasis of defined terms omitted)
23 The scope of the second policy therefore prima facie extended, subject to any later qualification or restriction, to a ‘Claim’ made, as occurred, during the period of that policy.
24 However, by cl 4.1 the second policy excluded cover for certain ‘Claims’ or ‘claims’ of nominated character. The exclusion is set out, relevantly in the following terms:
4.1 We will not cover You for any Claim or claim:
• first made, threatened or intimated against or to You prior to the Insurance Period; or
• ...
• ...
• arising from circumstances of which You were aware prior to the Insurance period and which You, or a person in Your position, ought reasonably to have realised to be circumstances which might result in a Claim or claim.
(emphasis of defined terms omitted)
25 The appellants contend that the contents of, and circumstances revealed by, the letters to which we referred earlier have the consequence that the second policy has no application, because the insurance contract embodied in the second policy does not extend to the circumstances giving rise to the claim for indemnity. The clear words of the contract itself, it is argued, exclude those circumstances from coverage.
26 As mentioned earlier the appellants emphasise that their point of construction does not involve, nor turn upon, the allegation or notion of non-disclosure. That is an important circumstance in the appellants’ argument and equally important for an evaluation of PCL’s rejoinder. Despite the appellants’ stated position, PCL contends that the exclusion provisions in cl 4.1 are, in substance, non-disclosure provisions and PCL relies upon s 33 of the Insurance Contracts Act which is in the following terms:
The provisions of this Division are exclusive of any right that the insurer has otherwise than under this Act in respect of a failure by the insured to disclose a matter to the insurer before the contract was entered into and in respect of a misrepresentation or incorrect statement.
27 The effect of s 33 is to limit remedies for non-disclosure and misrepresentation to those provided by the Insurance Contracts Act itself. Of particular relevance is s 28 which, whilst permitting avoidance of an insurance contract in the event of a fraudulent non-disclosure or misrepresentation, otherwise limits the protection of an insurer’s interests to reduction of the claim ‘to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made’ (s 28(3)). It is now clear on the authorities that this reduction can, if the evidence permits the conclusion, be to zero.
28 PCL contends that in substance, the attempt at the definition of coverage cannot withstand the effect of s 33. In our view, this contention is arguable. In another context, s 54 of the Insurance Contracts Act, the fitting into the scheme of that Act of claims-made policies caused significant difficulty for a number of years: see East End Real Estate v C E Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400; FAI Insurance Co v Perry (1993) 30 NSWLR 89; Antico v Heath Fielding Australia Pty Ltd [1997] HCA 35; (1997) 188 CLR 652; and FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641. These difficulties arose from a desire of insurers to identify the notification of a claim within a policy period as an essential attribute of insurance cover, and not as a contractual condition of the policy regulating required conduct of the insured. The debate about cl 4.1 of the second policy and s 33 is not entirely dissimilar. In cl 4.1 the insurers are attempting to exclude from cover matters which would otherwise be disclosable. The aim may be readily seen to be definitional, but it is arguable that s 33 is engaged. That is not a final conclusion. One way of dealing with the application would be to decide this question, in effect, finally. It is unnecessary to discuss the procedural consideration that would be involved in taking this course as we do not think that it would be appropriate to decide that question in the light of the extent of argument (or lack of it) undertaken on the appeal on the issue. Neither first instance decision referred to (Permanent Trustee of Australia Ltd v FAI General Insurance Co Ltd (1998) 153 ALR 529 at 589 or Pech v Tilgals (1994) 94 ATC 4206) is determinative. The primary judge did not err in failing to give the latter case overwhelming preference as the appellants submitted he should have done. There were criticisms of his Honour’s reasoning in this respect. It was an interlocutory procedural judgment. The extent of his Honours consideration was adequate. The point is arguable. Leave should therefore be given on the second policy.
The first policy
29 The contention advanced on the appeal by the appellants as to the first policy is that Mr Teves is not a valuer to whose work the first policy applies because that policy is expressed only to apply to the work of valuers named in the policy.
30 This raises a question of construction of a clause of an endorsement to the first policy which states that there was no cover in a nominated list of circumstances. One of those circumstances was in cl 1.8 and was expressed in the following terms:
1.8 arises from Valuations undertaken or signed by any person not named in the SPECIAL CONDITIONS of the Schedule.
[emphasis in original]
31 It was common ground that Mr Teves who undertook and signed the valuation was not named in the special conditions of the schedule.
32 PCL, however, persuaded the primary judge of a sufficient degree of arguability of the proposition that cl 1 of the endorsement should be read with the eight circumstances as cumulative: that is, that all eight factors had to exist for the cover not to extend. We think that construction to be untenable and not arguable. We have set out the clause in an attachment to these reasons. Whilst there may be some debate about whether some elements of cl 1.2 are conjunctive or disjunctive, we do not think it to be open to argument as a matter of construction that cl 1 requires satisfaction of every factor before removing a valuation from cover or that cl 1.8 is not a separate and free-standing element in its own right. Thus, we cannot agree with the primary judge that cl 1.8 of the relevant endorsement arguably did not apply because of a conjunctive construction.
33 PCL had two, related, fall-back positions. It was asserted that Mr Teves had been involved in the business for a number of years (originally it was claimed he was a director) and that there was a basis to claim some species of rectification or to rely on s 13 or s 14 of the Insurance Contracts Act.
34 A notable feature of the Insurance Contracts Act is that it establishes a regime to ameliorate the strict application of contract law to insurance contracts. One area in which that is accomplished has already been referred to: Part 4 of that Act – Disclosures and Misrepresentations. This Part codifies an insured’s duty of disclosure and provides exclusive remedies for non-disclosure and misrepresentation. Another important statement of legal rights and obligations is to be found in Part 2 of the Act – The Duty of The Utmost Good Faith. Sections 13 and 14 of the Act, which are in Part 2, provide as follows:
13 The duty of the utmost good faith
A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith.
14 Parties not to rely on provisions except in the utmost good faith
(1) If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision.
(2) Subsection (1) does not limit the operation of section 13.
(3) In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in section 37 or otherwise.
35 PCL certainly asserted in argument that the failure of the first policy to name Mr Teves as a valuer to whose work the policy applied was a feature of the policy upon which the appellants may not rely without revealing an absence of good faith.
36 Despite being given the opportunity by the primary judge to lead evidence to support the initial assertion that Mr Teves’ was a director of ARMA, there was ultimately no evidence to that effect before the primary judge (and none on the appeal) nor was there any other evidence which would found an arguable claim for rectification of the policy between the insureds and the insurer in that or any other respect. We leave to one side any difficulty in PCL relying upon the availability of that equitable remedy between third parties. Likewise, there was no evidence that would found a claim under either s 13 or s 14 of the Insurance Contracts Act.
37 In [34] of the judgment of 29 May 2006 the primary judge said the following:
PCL asserted that the purpose of ARMA in obtaining professional indemnity insurance from Macquarie was inferentially to acquire cover in respect of valuations conducted in the course of its business, and PCL informed the Court, seemingly without objection, that Mr Teves had been at all relevant times both a company director and a shareholder of ARMA. Upon that apparent footing of Mr Teves’ involvement in ARMA to the extent of being a director and shareholder, PCL contended that ‘given Mr Teves’ position at ARMA, it is improbable in the extreme that his name was omitted from the schedule otherwise than by mistake or oversight’. However the Insurers drew attention to the circumstance that there had been no evidence tendered as to Mr Teves’ role or association with ARMA at the time of commencement of the first policy. It would be inappropriate nevertheless to permit the present proceedings to be by interlocutory strike-out by reason largely of an apparent oversight on the part of PCL to have attended to such an evidentiary formality. One difficulty for PCL, so the Insurers contended in any event, was that no evidence had been provided to enable the Court to determine whether s 14 of the IC Act operates to preclude the proposed respondents from relying on such a mistake or oversight, being evidence for the purpose of proceedings for rectification of the first policy. Nevertheless it would be an unsatisfactory approach on my part to the resolution of the present interlocutory application to uphold the same in circumstances where there had emerged an apparency of a potentially viable basis for rectification of the first policy, albeit that such an evidently available course had not yet been formally commenced.
38 The absence of evidence about these issues was further illuminated in [3] of the primary judge’s reasons of 4 July 2006, which was in the following terms:
Subsequently on 20 June 2006, two issues were further debated by the parties arising directly or indirectly out of matters recorded in those reasons, one being the circumstance that according to Australian Securities & Investment Commission (‘ASIC’) records, Mr Teves was not formally disclosed as a director of ARMA in relation to the period from July 2001 to July 2004, notwithstanding that he had been earlier recorded as a director of ARMA since 15 December 1988, and ARMA bears all the indicia implicitly of a private family company. His wife, Vivienne Teves (‘Mrs Teves’), was recorded by ASIC as having been a director at least during that controversial period of three years, though she was apparently replaced by Mr Teves at the time of his re-appointment subsequently in July 2004. Mrs Teves had been in fact recorded in ASIC’s records as a director of ARMA as early as 22 October 1990, and as remaining thus continuously in that office at all material times thereafter. Despite apparent attempts made by PCL’s solicitors to obtain copies of ARMA’s corporate returns and other documents filed with the Commission, no further official records have been further obtained by PCL’s solicitors in relation to Mr Teves’ formal appointments to any office in relation to ARMA during that interval of time. Nevertheless there was admitted on the pleadings by ARMA the circumstance that Mr Teves was a registered valuer who had undertaken valuations on behalf of ARMA ‘at all material times’. As I recorded at [7] of my earlier reasons for judgment, Mr Teves apparently signed the valuations on behalf of ARMA which are presently in issue, by implication as author thereof.
39 As we would read the primary judge’s reasons, influenced as his Honour was by the view (erroneous in our opinion) of the arguability of the point on the conjunctive construction of clause 1 of the endorsement to the first policy, the primary judge did not find this lack of material to support an argument based on s 13 or s 14 of the Insurance Contracts Act or a derivative rectification claim to be fatal. We, however, do. As we earlier indicated, the relevant questions are whether, on the evidence and material advanced on the application, there is an arguable case that the policy responded either by reason of its proper construction or because reliance by the insured on the words of the policy would be contrary to the common intention of the parties to the policy or would be to exhibit a lack of good faith. There was no arguable construction of the present terms of the first policy in our view to permit recovery in circumstances where cl 1.8 of the endorsement to the policy applied. There was no evidence brought forward to support the assertions of rectification and lack of good faith. It is insufficient for PCL to make assertions without a foundation in the evidence and then seek leave on the basis that such claims were a matter for trial.
40 For these reasons we would not give leave to commence an action to enforce an asserted charge over insurance moneys from the first policy.
41 A question arises which was not the subject of debate – that is whether our view on the correctness of the primary judge’s conclusion on one policy affects the view to which we have otherwise come on the other policy. In other words, since we agree that leave should be given in relation to the second policy, does that permit leave to be given in relation to the first policy, notwithstanding the views that we have expressed. The answer to that question is, no. Section 6 is concerned with a charge over "insurance moneys" by reference to claims on policies of insurance. The leave question should be looked at policy by policy.
The agency argument
42 One other argument of the appellants needs to be dealt with. The appellants contended that the policies disclose that it was acting only as agent for the ‘Security’ which was described in general terms in the policy. Thus, it was said, Macquarie should not have been permitted to be joined. The insuring clauses provide as follows:
1.1 We will cover You for any Claim, first made against You and reported to Us during the Insurance Period, for breach of professional duty by You in the conduct of the Business by You.
1.2 We will also cover You for the costs and expenses incurred in the defence, settlement or investigation of that Claim.
43 Clause 6.13 provides:
‘Us and We means: Macquarie Underwriting Pty. Limited on behalf the Security.’
44 Clause 6.11 provides:
Security means: certain Underwriters at Lloyds, each of whom (including their executors and administrators) is only liable for their share of any Claim, loss, liability or expense payable by this policy. Details of each syndicate and its share can be obtained from Macquarie Underwriting Pty Limited.
(emphasis has been omitted in each case)
45 The ‘Security’ was identified in a letter from the solicitors for Macquarie dated 12 December 2005 as ‘SVB Syndicates Limited. This is split on a 50/50 basis between the underwriting members of Lloyds Syndicate 1007 and the underwriting members of Lloyds Syndicate 2147’.
46 There were, however, a number of indications that Macquarie contracted with ARMA not only as agent for the ‘Security’ but also in its own right. They include the language in the insuring clauses and also the notices which were given to ARMA pursuant to the Insurance Contracts Act which, by that Act, are required to be given by an insurer (see for example ss 22 and 37). In the circumstances, we are of the view that it is arguable that Macquarie is an insurer in its own right and hence properly made a party to the proceedings, if it is otherwise proper to grant leave to add the insurers to the proceedings, as we have indicated that in our view it is in relation to the second policy.
47 It is not entirely clear what utility joinder under the second policy will be to PCL, even if it is correct in its contentions about s 33 of the Insurance Contracts Act, given the facts and the operation of Part IV of that Act concerning non-disclosure. That, however, is a matter for it and its advisers to consider.
48 Given our views, we would hear the parties on costs, but would be inclined to order that each party pay its own costs of the application before the primary judge and of the appeal.
49 We would therefore make the following orders:
1. The appeal be allowed in part.
2. Order 1 made on 4 July 2006 granting leave to Permanent Custodians Limited to join Macquarie Underwriting Pty Limited and SVB Syndicates Ltd as additional respondents to proceeding NSD 1758/2004 be varied by limiting that leave to an action seeking to enforce a charge on insurance moneys under a contract of insurance effective between 26 July 2004 and 26 July 2005 being policy number 103004401796 signed for and on behalf of Macquarie Underwriting Pty Limited.
3. The parties file submissions on the question of costs before the primary judge and of the appeal within 14 days.
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IN THE FEDERAL COURT OF AUSTRALIA
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NEW SOUTH WALES DISTRICT REGISTRY
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NSD 1335 OF 2006
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ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF
AUSTRALIA
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BETWEEN:
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MACQUARIE UNDERWRITING PTY LTD
First Appellant SVB SYNDICATES LIMITED Second Appellant |
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AND:
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PERMANENT CUSTODIANS LIMITED (ACN 001 426 384)
First Respondent ARMA PTY LIMITED (ACN 010 889 899) Second Respondent NEIL TEVES Third Respondent |
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JUDGES:
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ALLSOP, GRAHAM AND BUCHANAN JJ
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DATE:
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3 MAY 2007
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PLACE:
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SYDNEY
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REASONS FOR JUDGMENT
GRAHAM J
50 This is an appeal from an interlocutory judgment of the Court constituted by a single Judge brought pursuant to leave granted on 29 September 2006.
51 On 4 July 2006 an order was made by the primary judge granting leave to the first respondent to join the appellants as additional respondents to the proceedings. That relief had been sought pursuant to an Amended Notice of Motion filed in Court on 15 December 2005. Following a hearing of the Amended Motion on 22 December 2005 and 24 February 2006, the primary judge handed down reasons on 29 May 2006 which resulted in an order being made that the making of final orders on the Amended Notice of Motion be stood over for 21 days with liberty to apply in the meantime on two days’ notice. Directions were given for certain matters to be attended to by the parties following which the primary judge delivered further short reasons for judgment on 4 July 2006 on the basis of which the order granting leave to the first respondent to join the appellants as additional respondents to the proceedings was made.
52 The order in question was made pursuant to s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (‘the LR(MP) Act’).
53 Section 6 of the LR(MP) Act fell within Part 4 of that Act, which dealt with ‘Attachment of insurance moneys’. The section relevantly provided:
‘6(1) If any person (hereinafter in this Part referred to as the insured) has ... entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person’s liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.
(2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding-up.
...
(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:
Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.
(5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.
...
(7) No insurer shall be liable under this Part for any greater sum than that fixed by the contract of insurance between the insurer and the insured.
...’
54 Section 6 of the LR(MP) Act was the subject of detailed consideration by McHugh and Gummow JJ in Bailey v New South Wales Medical Defence Union Limited (‘Bailey’) [1995] HCA 28; (1995) 184 CLR 399 at 445 – 450.
55 In relation to the proper construction of s 6, Brennan CJ, Deane and Dawson JJ said at 415:
‘... it is appropriate that we express our agreement with McHugh and Gummow JJ upon the effect of that provision.’
56 At 446 McHugh and Gummow JJ said:
‘... what s 6 achieves is the creation of a new right with an associated remedy to enforce it .... The section does so by sweeping up distinctions in the general law between legal and equitable assignments of whole or part of presently existing or future choses in action and between cases where value is required or inessential. By its own force, the statute, in circumstances where it applies, creates, on the happening of the event giving rise to the claim for damages or compensation, a charge on all insurance moneys which are then payable in respect of the liability against which the insured is indemnified and on all such insurance moneys that may become payable in respect of that liability.’
57 At 449 their Honours said:
‘The phrase in s 6(1), "insurance moneys that ... may become payable", is apt to deal with the situation where, whilst the charge has descended, there is as yet no sum which could be identified as presently payable by the insurer to the insured. In such a case, the statutory charge operates, by loose analogy to an agreement for a charge on after-acquired property, upon such moneys as and when they do become payable. ...’
58 Dealing specifically with the last sentence of the proviso to s 6(4) of the LR(MP) Act, McHugh and Gummow JJ said at 448:
‘This provision is not directing the court that leave be denied only in a case where it is satisfied both of entitlement to disclaim liability and that necessary steps have been taken to establish entitlement to do so. Leave may be refused in other cases but must be refused in these cases. What the sentence does suggest is that, if there is an entitlement to disclaim, there may be no moneys which are or may become payable in respect of the liability of the insurer to the insured and thus nothing upon which the charge specified in s 6(1) can operate.’
(emphasis added)
59 The general discretion conferred on the court to grant or refuse leave to commence an action under s 6(4) of the LR(MP) Act is not diminished by the mandatory requirement that leave should not be granted in the circumstances identified in the last sentence of the proviso. As McHugh and Gummow JJ observed at 447:
‘[i]n most circumstances, the action cannot be commenced save with leave of the court.’
Their Honours proceeded to identify four protections afforded to an insurer. At 447 they said:
‘... the position of the insurer is guarded in several ways against the consequences of exposure to the direct action by the claimant created by s 6. First, there is the leave requirement. ...’
60 In considering whether leave should be granted under s 6(4) of the LR(MP) Act it is important to note that leave to commence an action against an insurer is not required if, generally speaking, the insured, being a corporation, is being wound up at the time of the happening of the event giving rise to the claim for damages or compensation against the insured. This suggests that one relevant consideration on an application for leave will be the likely capacity of any insured to meet a claim for damages or compensation brought against it without the necessity of recourse to its insurer.
61 The principles enunciated by McHugh and Gummow JJ in Bailey were applied by Mason P, with whom Meagher and Handley JJA agreed, in Fishwives Pty Ltd v FAI General Insurance Co Ltd (2002) 12 ANZ Insurance Cases 75,991 at [44]-[46].
62 When the Amended Notice of Motion was before the primary judge the parties were in agreement that an action could not be brought against the insurer without the leave of the court, any grant of leave or otherwise falling ultimately within the statutory discretion vested in the court by s 6 of the LR(MP) Act. The parties were further in agreement that a Court would not grant leave where, on the basis of the material before the Court, the claim for the statutory indemnity sought was not reasonably arguable (Permanent Custodians Limited v ARMA Pty Limited [2006] FCA 640 at [5]).
63 The parties’ agreement in relation to these matters is consistent with the relevant authorities. In A.F.G. Insurances Ltd. v Andjelkovic [1981] FCA 104; (1981) 54 FLR 398 a Full Court, comprising Franki, McGregor and Kelly JJ had to consider the Australian Capital Territory’s comparable provision to s 6 of the LR(MP) Act, being s 26 of the Law Reform (Miscellaneous Provisions) Ordinance 1955 (ACT).
64 In that case, counsel for the respondent argued that the respondent was entitled to leave if she could show a prima facie case of liability which equated to a ‘seriously arguable case’. Counsel conceded that, if the incident took place outside the terms of the policy, the respondent was not entitled to leave. In that context the Full Court accepted that the relevant test was whether the respondent had presented a case which was at least arguable. Their Honours said at 400:
‘In our opinion the court has a general power to grant leave in all cases ... in which it is made to appear by evidence available in the application that there is an arguable case of liability against the insured, being a liability against which the insured is indemnified by a contract of insurance in force at the time of the happening of the event said to give rise to the claim.’
65 It is clear that the court considered that it was necessary for there to be an arguable case of liability against the insured and also an arguable case of entitlement to indemnity under the relevant contract of insurance. (See also Tzaidas v Child [2004] NSWCA 252; (2004) 61 NSWLR 18 at [21]).
Background facts
66 By an Application filed 29 November 2004 the first respondent claimed relief against the second and third respondents to the appeal pursuant to ss 52, 53A, 82 and 87 of the Trade Practices Act 1974 (Cth) (‘the Act’).
67 In an Amended Statement of Claim filed 6 July 2006 the first respondent contended that on or about 22 May 2003 the second respondent issued two valuations of properties located at Trinity Beach in Queensland for mortgage purposes. It is said that the third respondent signed the valuations as a registered valuer.
68 The first respondent alleges that in issuing the valuations the second respondent engaged in conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive within the meaning of s 52 of the Act and further constituted a false or misleading representation concerning the nature of an interest in land and/or the characteristics of land in contravention of s 53A of the Act.
69 The first respondent alleges that in reliance upon the valuations it lent $598,000 to one Brett Andrew Robinson. The first respondent claims that Mr Robinson defaulted under the mortgage taken by it to secure repayment of the loan, whereupon it sold the properties in question by contracts dated 27 May 2004 in exercise of its power of sale, thereby suffering a shortfall upon the sale of the properties for which it holds the second and third respondents liable.
70 On or about 8 August 2003 the first appellant issued a professional indemnity policy to the second respondent trading as ‘Cairns Regional Valuers’. That policy provided cover in respect of the insurance period from 4.00 pm on 26 July 2003 to 4.00 pm on 26 July 2004 (‘the first policy’).
71 On 23 July 2004 the first appellant issued a professional indemnity policy to the second respondent trading as ‘Cairns Regional Valuers’ in respect of the insurance period from 4:00 pm on 26 July 2004 to 4:00 pm on 26 July 2005 (‘the second policy’).
72 The appellants contend that the first policy was constituted by a series of documents recorded on some 33 pages and that the second policy was constituted by certain documents recorded on some 32 pages.
At [20] in his reasons for judgment of 29 May 2006, the primary judge observed that the first respondent’s case for leave under s 6 of the LR(MP) Act was primarily put on the basis of the second policy.
73 The component documents making up the first policy would appear to be a schedule signed for and on behalf of the first appellant identifying a policy number, the name and address and nature of the business of the insured, the insurance period, the sum insured and the relevant excess and three ‘optional provisions’ recording 26 July 2001 as the ‘Retroactive Date’, providing that the premium would be ‘As agreed’ and providing ‘Special Conditions’. The Special Conditions were indicated as:
‘– Standard PI Endorsement (as attached)
– Valuers – Australia Endorsement (as attached)
– Named valuer:
– Terrence (sic) Stewart’
74 The second document forming part of the first policy was a one page schedule of the first appellant entitled ‘STANDARD PI ENDORSEMENT’ signed for and on behalf of the first appellant and dated 8 August 2003.
75 The third document forming part of the first policy was a schedule containing an endorsement issued by the first appellant entitled ‘VALUERS – AUSTRALIA’. It is recorded on three pages. It relevantly provided:
‘The following endorsement applies to this policy:
1.0 We will not cover You for any Claim which:
1.1 is payable under any fund established by any statutory or professional body;
1.2 arises from Valuations other than Valuations where:
1.2.1 the Responsible Valuer is a registered or licensed valuer.
1.2.2 the Responsible Valuer has carried out an external and internal inspection of the property and all improvements ...
...
1.2.3 You have taken and retained clear and accurate records of the valuation ...
1.2.4 the Valuation contains a statement to the following effect:
...
1.2.5 the Valuation contains a third party disclaimer to the following effect:
...
1.3 arises from Valuations undertaken by You if you are also acting as an agent for the sale of the property concerned.
...
1.5 arises from conveyancing work.
1.6 arises from Valuations in connection with solicitor’s mortgage funds, solicitor’s mortgage schemes or solicitor’s mortgage lending.
1.7 arises from Valuations undertaken or signed by Brian Smith.
1.8 arises from Valuations undertaken or signed by any person not named in the SPECIAL CONDITIONS of the Schedule [i.e. any person other than Terrence (sic) Stewart]’
76 The endorsement contained in paragraph 1.0 was followed by definitions of ‘Responsible Valuer’ and ‘Valuation(s)’.
77 The fourth document forming part of the first policy was a declaration signed by Vivienne J Teves as a director of Cairns Regional Valuers on 6 August 2003 on a form bearing the heading ‘Macquarie Underwriting’. Amongst other things the declaration recorded that Mrs Teves was not aware of any claims or circumstances that could result in claims against Cairns Regional Valuers or its predecessors in business, or any present or former Partner, Principal, Director or employee of the business.
78 The fifth document forming part of the first policy was an 11 page document headed with the name of the first appellant and sub-headed firstly ‘PROFESSIONAL INDEMNITY INSURANCE PROPOSAL (Miscellaneous Risks)’ and secondly ‘NOTICE TO THE PROPOSED INSURED (Pursuant to the provisions of the Insurance Contracts Act 1984)’. The first two pages of the document appear to answer the description of a ‘NOTICE TO THE PROPOSED INSURED’ with the balance of the document constituting a professional indemnity insurance proposal of the second respondent signed by Vivienne J Teves and dated 15 July 2003.
79 The sixth document forming part of the first policy was a 2 page ‘Valuer’s Addendum’ signed, so it would seem, by Vivienne Teves and dated 15 July 2003, to which a three page form of valuation of Terence J Stewart dated 27 June 2003 was attached.
80 The seventh document forming part of the first policy was an 11 page document bearing the heading ‘MACQUARIE UNDERWRITING’ followed by the first appellant’s name and then the words ‘PROFESSIONAL INDEMNITY INSURANCE’.
81 The component documents making up the second policy would appear to be a schedule signed for and on behalf of the first appellant identifying a policy number, the name and address of the business of the insured, the insurance period, the sum insured and the relevant excess and three ‘optional provisions’ recording 26 July 2001 as the ‘RETROACTIVE DATE’, providing that the premium would be ‘As agreed’ and providing ‘SPECIAL CONDITIONS’. The Special Conditions were indicated as follows:
‘1. Standard PI Endorsement (as attached)
2. Valuers – Australia Endorsement (as attached)
3. Named Valuers:
- Neil Teves
- Paul Lowis
- John Wake
- Terrence (sic) Stewart, but only in relation to valuations done prior to the Insurance Period.’
82 The second document forming part of the second policy was a one page schedule of the first appellant entitled ‘STANDARD PI ENDORSEMENT’ signed for an on behalf of the first appellant and dated 23 July 2004.
83 The third document forming part of the second policy was a schedule containing an endorsement issued by the first appellant entitled ‘VALUERS – AUSTRALIA’. It is recorded on three pages. Relevantly it contained provisions similar to those set out in the third document forming part of the first policy (see [75] above). However, in relation to clause 1.8 of the endorsement, in the second policy it will be observed that ‘any person not named in the SPECIAL CONDITIONS of the Schedule’ would mean any person other than Neil Teves, Paul Lowis, John Wake and, in relation to valuations done prior to 4.00 pm on 26 July 2004, Terrence (sic) Stewart.
84 The VALUERS – AUSTRALIA endorsement was followed once again by definitions of ‘Responsible Valuer’ and ‘Valuation(s)’.
85 The fourth document forming part of the second policy was a 12 page document headed with the name of the first appellant and sub-headed firstly ‘PROFESSIONAL INDEMNITY INSURANCE PROPOSAL (Miscellaneous Risks)’ and secondly, ‘NOTICE TO THE PROPOSED INSURED (Pursuant to the provisions of the Insurance Contracts Act 1984)’. The first two pages of the document appear to answer the description of a ‘NOTICE TO THE PROPOSED INSURED’ with the balance of the document constituting a professional indemnity insurance proposal of the second respondent signed by Vivienne J Teves as a director and dated 28 June 2004.
86 The fifth document forming part of the second policy was a two page ‘VALUER’S ADDENDUM’ signed by Vivienne J Teves and dated 28 June 2004 to which was attached a two page document under the heading ‘Cairns Regional Valuers’ which contained two clauses apparently included in standard valuations headed ‘20.0 DEFINITIONS’ and ‘21.0 LIMITATIONS’.
87 The sixth document forming part of the second policy was an 11 page document bearing the heading ‘MACQUARIE UNDERWRITING’ followed by the name of the first appellant and then the words ‘PROFESSIONAL INDEMNITY INSURANCE’.
88 In each of the first and second policies clause 1.1 of the ‘INSURING CLAUSES’ provided:
‘1.1 We will cover You for any Claim, first made against You and reported to Us during the Insurance Period, for breach of professional duty by You in the conduct of the Business by You.’
89 That part of the policies which contained the ‘INSURING CLAUSES’ differentiated between a ‘Claim’ and a ‘claim’. In clause 6.2 of the ‘DEFINITIONS’, ‘Claim’ was defined to mean:
‘any writ, statement of claim, summons, application or other originating legal or arbitral process, cross-claim, counter-claim or third or similar party notice served upon You.’
90 In clause 6.16 of the ‘DEFINITIONS’, ‘You’ was defined to mean:
‘● any party named in the Schedule against "NAME"; and
● any person who is during the Insurance Period a principal, partner, director or employee of the above but only when acting on behalf of the Business.’
91 In the first policy the ‘NAME’ of the insured was shown as ‘Cairns Regional Valuers, Arma Pty Ltd t/as’.
92 In the second policy the ‘NAME’ of the insured was shown as ‘ARMA Pty Ltd T/as Cairns Regional Valuers’.
93 In each policy the ‘BUSINESS’ was shown as ‘Valuers’.
94 In clause 6.13 of the ‘DEFINITIONS’, ‘Us’ and ‘We’ were defined to mean:
‘Macquarie Underwriting Pty. Limited on behalf the Security.’
95 In clause 6.11 of the ‘DEFINITIONS’, ‘Security’ was defined to mean:
‘certain Underwriters at Lloyds, each of whom (including their executors and administrators) is only liable for their share of any Claim, loss, liability or expense payable by this policy. Details of each syndicate and its share can be obtained from Macquarie Underwriting Pty Limited.’
By letter dated 12 December 2005 from the solicitors for the appellants to the solicitors for the first respondent, the relevant underwriters were identified as follows:
‘We are instructed that the Security in respect of the professional indemnity insurance policies held by Arma Pty Ltd from 26 July 2003 to 26 July 2004 and from 26 July 2004 to 26 July 2005 is SVB Syndicates Ltd [the second appellant]. This is split on a 50/50 basis between the underwriting members of Lloyds syndicate 1007 and the underwriting members of Lloyds syndicate 2147.’
96 In each policy clause 4.1 under the heading ‘EXCLUSIONS’ was as follows:
‘We will not cover You for any Claim or claim:
• first made, threatened or intimated against or to You prior to the Insurance Period; or
• arising from any matter disclosed or notified to Us or any other insurer prior to the Insurance Period as being either a Claim or claim, or circumstances which might result in a Claim or claim; or
• arising from any litigation or Inquiry that was in progress or pending prior to the Insurance Period; or
• arising from circumstances of which You were aware prior to the Insurance Period and which You, or a person in Your position, ought reasonably to have realised to be circumstances which might result in a Claim or claim.
For the purposes of Exclusion 4.1 a "claim" includes, but is not limited to:
• a demand for compensation or damages; or
• an assertion of a right or entitlement to compensation, damages or other legal relief; or
• an assertion, allegation or complaint of a breach of professional duty;
• an assertion, allegation or complaint of any act or omission causing or potentially causing loss or damage; or
• an intention to seek compensation, damages or other legal relief.’
97 Other parts of the policies give rise to confusion in relation to what is meant by the word ‘claim’ however expressed. In the ‘NOTICE TO THE PROPOSED INSURED (Pursuant to the provisions of the Insurance Contracts Act 1984)’ the first appellant said under the heading ‘CLAIMS MADE POLICY’:
‘This proposal is for a "claims made" policy of insurance. This means that the policy covers you for claims made against you and notified to the insurer during the period of cover. This policy (subject to its continuity provisions) does not provide cover in relation to:
• events that occurred prior to the retroactive date of the policy (if such a date is specified)
• claims made after the expiry of the period of cover even though the event giving rise to the claim may have occurred during the period of cover
• claims notified or arising out of facts or circumstances notified (or which ought reasonably to have been notified) under any previous policy
• claims made, threatened or intimated against you prior to the commencement of the period of cover
• facts or circumstances of which you first became aware prior to the period of cover, and which you knew or ought reasonably to have known had the potential to give rise to a claim under this policy
• claims arising out of circumstances noted on the proposal form for the current period of cover or on any previous proposal form.
However, where you give notice in writing to the insurer of any facts that might give rise to a claim against you as soon as reasonably practicable after you become aware of those facts but before the expiry of the period of cover, the policy will, subject to the terms and conditions, cover you notwithstanding that a claim is only made after the expiry of the period of cover.’
98 By a letter dated 23 April 2004 to the third respondent, he was alerted to a potential shortfall upon the realisation of the mortgaged properties for which, if it eventuated, he would be held responsible.
99 By letters to each of the second and third respondents dated 13 May 2004, they were alerted or further alerted to a potential shortfall upon the realisation of the mortgaged properties for which, if it eventuated, they would be held responsible.
100 The first appellant contends that the first notification of facts and circumstances, which could result in a claim against it, was given to it by a letter dated 27 August 2004.
The exercise of the s 6(4) discretion
101 From the above, it may be seen that:
(a) The valuations signed by the third respondent, to which the first respondent has taken exception, were given on or about 22 May 2003 i.e. a couple of months before the commencement of the insurance period under the first policy, but well after the retroactive date of 26 July 2001;
(b) The happening of the event giving rise to the first respondent’s claim for damages or compensation against the second and third respondents would appear to have been the entry by the first respondent into the contracts for sale of the two properties on 27 May 2004, but this was not canvassed in argument before the Court as presently constituted. This happening occurred during the insurance period under the first policy, but before the contract of insurance constituting the second policy was made.
(c) The proceedings in which damages or compensation were claimed by the first respondent against the second and third respondents in respect of the May 2003 valuations were commenced on 29 November 2004 during the insurance period under the second policy. The first forewarning of an insurance claim against the appellants in respect of such a claim was said to have been received by the first appellant on or about 27 August 2004 i.e. during the currency of the second policy.
102 Notwithstanding the extended definition of the word "You" in the policies, I, like Allsop and Buchanan JJ, whose reasons for judgment in draft I have had the benefit of reading, cannot see how, on the evidence before the primary judge, it could be said that there was an arguable case of entitlement to indemnity in the second and/or third respondents under the first policy. Under clause 1.8 of the VALUERS – AUSTRALIA endorsement, cover was not provided for any claims arising from valuations undertaken or signed by any person other than Mr Stewart.
103 However, an arguable case of entitlement to indemnity can be made under the second policy. Under clause 1.8 of the VALUERS – AUSTRALIA endorsement in that policy valuations undertaken or signed by the third respondent were not excluded from cover.
104 Given the observations of McHugh and Gummow JJ in Bailey as recorded at [56] – [57] above, it is arguable that, notwithstanding the non-existence of the second policy as at 27 May 2004, nevertheless the statutory charge, for which s 6(1) of the LR(MP) Act provided, operated upon insurance moneys that may become payable under the second policy, as a ‘claims made’ policy, as and when they did become payable.
105 Like Allsop and Buchanan JJ, I am of the opinion that the appeal should be allowed in part. Subject to the above observations, I agree with their Honours’ reasoning, especially at [23] – [46] inclusive and also with the orders which they propose.
106 It was open to the learned primary judge to exercise his discretion as he did in respect of the second policy. Needless to say, a finding, on this appeal from his Honour’s interlocutory decision to grant leave under s 6(4) of the LR(MP) Act, that there is an arguable case of entitlement to indemnity under the second policy will not affect the ultimate outcome of the matter following a trial and detailed argument in relation to the whole of the evidence and the impact of the various provisions in the Insurance Contracts Act 1984 (Cth) upon the question of liability in the matter.
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I certify that the preceding fifty-seven (57) numbered paragraphs are a
true copy of the Reasons for Judgment herein of the Honourable
Justice
Graham.
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Associate:
Dated: 3 May 2007
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Solicitor for the Appellant:
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Counsel for the First Respondent:
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Solicitor for the First Respondent:
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Date of Hearing:
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Date of Judgment:
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