Abstract

Conditions and Exclusions - Onus of Proof

Direct Action - Deregistered Company - Evidence by Default Judgment - Limitations

Exclusions - Unauthorised Transactions - Conflict

Number of Claims

Construction - Deeming Provision - Strict

Construction of Statutes and Contracts - Difference

Article

Conditions and Exclusions – Onus of proof

A condition precedent necessary to the accrual of an insurer’s liability is to be contrasted with an exception to its obligation. The insured bears the onus of proving the fulfilment of the condition, and the insurer must prove that a loss falls within an exception: Wallaby Grip Ltd v QBE Insurance (Australia) Ltd (2010) 240 CLR 444 [25]; Munro, Brice & Co v War Risks Association Ltd [1918] 2 KB 78, 88; McLennan v Insurance Australia Ltd [2014] NSWCA 300 [6] - [19]: Young Investment Group Pty Ltd -v- QBE Insurance (Australia) Limited [2019] WASC 74.

Direct Action – Deregistered Company – Evidence of Default Judgment

 

Section 601AG of the Corporations Act 2001 (Cth) creates a new cause of action against an insurer to recover an amount that was payable to the deregistered company under an insurance contract. It does not arise until the company is deregistered. Any defences that the insurer may have to an action on the insurance contract are available to it against the claim, as is any defence the insured may have had to the claim against it: Fairweather Pty Ltd v QBE Insurance (Australia) Ltd [2012] WASCA 270. The elements of the cause of action are: (a) the company is deregistered; (b) at the time of its deregistration, it had a liability to the plaintiff; and (c) at the time of its deregistration, an insurance contract with the insurer covered the liability.

A default judgment constitutes a liability for these purposes. It gives rise to a civil liability for the purposes of the insuring clause of the policy and to a liability within the meaning of the section: QBE Insurance Ltd v Nguyen (2008) 100 SASR 560 [51]-[55]. The Court’s  power to enter default judgment requires it to be satisfied on the face of the statement of claim that the applicant is entitled to the relief claimed. This does not mean that an applicant must prove by evidence the claim sought to be advanced, but only that the court be satisfied on the face of the statement of claim that the applicant is entitled to the relief claimed, that is, that each element of the relevant civil wrong involved is properly and discretely pleaded in it. The facts as alleged are deemed to have been admitted, particularly so if the statement was not only proffered in the action in the pleading itself, but was relied upon by the plaintiff to establish the deemed to be admitted facts in an application for default judgment. The Court may admit limited further evidence provided it would not alter the case as pleaded.

It is a question of fact whether a statement in a pleading or analogous document constitutes an admission. The relevant circumstances will include the type of pleading or other document and the terms in which it has been expressed. A man's assertions are admissions, whether made in the course of a judicial proceeding or otherwise, and, in the former case, whether he was himself a party to such proceeding or not. It is admissible against him in any proceedings in which such fact becomes material. There is no difference whether it be made by the party sought to be affected by it, or by his agent to make it on his behalf. A party who brings forward another person for the purposes of asserting or proving some fact on his behalf, whether in a court or elsewhere, is taken to assert it himself: Richards v Morgan ; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd  (2008) 167 FCR 314, at [34]; Australian Competition and Consumer Commission v Pratt (No 3) (2009) 175 FCR 558 [72]. In the absence of evidence as to the facts stated in the pleading, direct evidence, requires, as a consequence, construction of the pleading itself may be necessary: Young Investment Group Pty Ltd -v- QBE Insurance (Australia) Limited [2019] WASC 74.

 

 

Exclusions - Unauthorised Transactions - Conflict.

In Young Investment Group Pty Ltd -v- QBE Insurance (Australia) Limited [2019] WASC 74, an action pursuant to the section brought by a third party claimant against the insurer of a company that had been deregistered seeking to recover amounts payable to it under a Financial Institutions Civil Liability Professional Indemnity Policy, the only issue was whether the policy covered the claim.

The insurer agreed to indemnify the Insured against civil liability for compensation arising from any Claim first made against the Insured during the Period of Cover and notified to QBE during the period of cover as a result of breach of professional duty in the conduct of the Financial Service. The issues involved two exclusions relating respectively to Unauthorised Transactions and Conflict.

 

An Unauthorised Transaction exclusion provided that the insurer should not be liable in respect of any Claim against any Insured in connection with (a) the Financial Service provided by the Insured or any Representative, Authorised Representative or other agent while without (i) an Australia Financial Services Licence (AFSL), including but not limited to the suspension, non-renewal, withdrawal or cessation of an AFSL, or (ii) an appropriate authorisation for the provision of the Financial Service under an AFSL without exemption from having it or an athorisation under it for the provision of the Financial Service, where it is required by law. The exclusion also applied to liability arising under a discretionalr management agreement by which the insured exercised a discretion in the investment of assets (MDA).

However, though the relevant conduct might be in breach of tortious or contractual duties, and actionable, if it cannot be said is that the person provided the particular form of service defined in the AFSL as an MDA, it does not meet the description of the exclusion.  This involves consideration of the nature of the proved conduct in relation to the meaning of the terms of the exclusion in the circumstances of the particular case.

 

The Conflict exclusion provided that the insurer should not be liable in respect of any claim directly or indirectly based upon, or attributable to or in consequence of a Conflict, which was relevantly defined to be (a) a conflict of duty and duty, where an Insured acts for a client whilst being subjected to a contrary interest, being an interest of another client; or (b) conflict of interest and duty where an Insured acts for a client whilst being subjected to a contrary interest, being a personal advantage interest. It applied only to conflicts of an 'Insured', which was defined to mean (a) the incorporated body stated in the Schedule; (b) any Subsidiary specified in the Schedule, and declared in the Proposal form as constituting the Proponent, engaged in the provision of the Financial Service in part or in whole; (c) any person who is or was (i) a Director, Officer or Employee; or (ii) a Representative, Authorised Representative or Proper Authority Holder who is or was also a Director, Officer or Employee of the incorporated bodies referred to in the definition, but only in respect of work performed while a Director, Officer or Employee of the incorporated bodies referred to.

The reference to personal advantage interest is not limited to that of natural persons. The words, whilst being subjected to, do not indicate that there must be some external inducement or pressure on the insured, that is, some other thing is subjecting the conflicted party to its conflict.

Whether the claimed loss arises out of a conflict is a question of causation. The very broad nexus, directly or indirectly based upon, or attributable to or in consequence of a Conflict, means that the relationship need not be the proximate or direct cause: Mitor Investments Pty Ltd v General Accident Fire & Life Assurance Corporation Ltd [1984] WAR 365, 370. All that is required is that there by some non-coincidental nexus between the loss claimed and the insured’s relevant Conflict, such as preferring its own interests over those of its principal: Young Investment Group Pty Ltd -v- QBE Insurance (Australia) Limited [2019] WASC 74.

Whether the losses claimed are directly or indirectly based upon, attributable to, or in consequence of the conduct is a matter of proof by the insurer on the evidence: Ibid.

That the policy mitigates an accompanying Fraud and Dishonesty exclusion by providing an extension of cover fraud and dishonesty by the Insured's agents does not mean that the Conflict exxclusion should be similarly read down. Usually, exclusions operate independently according to their own terms. That circumstances would not attract one exclusion does not mean that another cannot apply: Kiriacoulis Lines SA v Compagnie D'Assurances d'Assurances Maritime Aeriennes et Terrestres (Camat) (The Demetra K) [2002] EWCA Civ 1070; [2002] 1 Lloyd's Rep IR 795; McCarthy v St Paul International Insurance Co Ltd (2007) 157 FCR 402 [81]; Young Investment Group Pty Ltd -v- QBE Insurance (Australia) Limited (supra).

Number of Claims

If there is an issue as to the number of claims within the terms of the policy, the meaning of claim will depend upon those terms in relation to the underlying facts: McCarthy v St Paul International Insurance Co Ltd (2007) 157 FCR 402 [75]. It is said that as it is a central aspect and underlying fact of any claim that it is a claim for compensation by a third party, on its proper construction a claim for compensation by one third party against the insured must be regarded as a separate and distinct claim from one made by another third party against it.  This might seem to be contrary to the thrust of the purpose of an aggregation provision, but it is open to the paarties to clarify the point more strongly or even to use a factor other than claims as the point of engagement: Young Investment Group Pty Ltd -v- QBE Insurance (Australia) Limited (supra).

 

Construction – Deeming Provision

By their nature deeming provisions are required to be construed strictly and only for the purpose for which they are resorted to: Re Levy; Ex parte Walton (1981) 17 Ch D 746. there should be no implied extension of the express application of such a statutory fiction. Muller v Dalgety & Co Ltd (1909) 9 CLR 693; Wiest v Director of Public Prosecutions (1988) 86 ALR 464 at 485-6; FCT v Comber [1986] FCA 92; (1986) 64 ALR 451; East Finchley Pty Ltd v Federal Commissioner of Taxation [1989] FCA 481; (1989) 90 ALR 457 [478. For examplle, if a party were to be treated as if an employee for the purposes of the indemnity given to it, and for that purpose only, it would not thereby be an employee within the meaning of the Policy for all purposes, including in relation to indemnity provided to the deemed employer. It becomes a matter of construction of the language of the deeming provision, in the light of its purpose, the entire contract and the circumstances: Young Investment Group Pty Ltd -v- QBE Insurance (Australia) Limited [2019] WASC 74.

 

Construction of Statutes and Contracts - Difference

 

The construction of statutes cannot, and should not, too readily be applied to contractual construction. They are different exercises, but both involve attention to the language of the particular instrument, informed by its purpose or object: Young Investment Group Pty Ltd -v- QBE Insurance (Australia) Limited [2019] WASC 74.

 

Insured – Distributive Reading

 

In particular contexts it may be necessary to distinguish between 'the Insured' and 'an Insured', where more than one person is covered by a particular insurance contract bu there is only one contracting party. As to whether in a particular case there should be a distributive rather than extensive reading, muchwill depend on the usual rules of construction, particularly the commercial purpose of the contract: Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [75]-[81]; National Vulcan Engineering Insurance Group Ltd v Transfield Pty Ltd [2003] NSWCA 327; (2003) 59 NSWLR 119 [46]-[51]; Young Investment Group Pty Ltd -v- QBE Insurance (Australia) Limited [2019] WASC 74.