AIG Australia Limited v Bank of Queensland Limited & Anor; Catlin Australia Pty Ltd v Bank of Queensland Limited & Anor

[2020] HCATrans 18

[2020] HCATrans 018

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S264 of 2019

B e t w e e n -

AIG AUSTRALIA LIMITED ABN 93 004 727 753 ACN 004 727 753

Applicant

and

BANK OF QUEENSLAND LIMITED ACN 009 656 740

First Respondent

CATLIN AUSTRALIA PTY LTD ABN 64 108 319 786

Second Respondent

Office of the Registry
  Sydney  No S265 of 2019

B e t w e e n -

CATLIN AUSTRALIA PTY LTD ABN 64 108 319 786

Applicant

and

BANK OF QUEENSLAND LIMITED ACN 009 656 740

First Respondent

AIG AUSTRALIA LIMITED ABN 93 004 727 753 ACN 004 727 753

Second Respondent

Applications for special leave to appeal

KEANE J
NETTLE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 FEBRUARY 2020, AT 10.55 AM

Copyright in the High Court of Australia

____________________

MR M.A. JONES, SC:   If your Honours please, I appear for AIG with MR M.F. NEWTON.  (instructed by Lander & Rogers Lawyers)

MR D.L. WILLIAMS, SC:   May it please the Court, I appear with my learned friend, MR R.D. GLOVER, for Catlin in each matter.  (instructed by Wotton + Kearney)

MR N.C. HUTLEY, SC:   If your Honours please, I appear with my learned friend, MR J.J. HUTTON, for Bank of Queensland Limited in each application.  (instructed by Jones Day)

KEANE J:   Mr Jones, I take it that you and Mr Williams will each address as before Mr Hutley.

MR JONES:   Yes, your Honour. 

KEANE J:   Very well.

MR JONES:   Your Honours, a key commercial aspect of all claims‑made policies of insurance is the operation of deductible and indemnity limits to the covered claim.  A commercial tool used in the negotiation of those types of policies is, of course, an aggregation provision.  An aggregation provision operates between two or more claims to be the one for the purposes of either deductible or indemnity limits, or both.

Lord Hobhouse observed in Lloyds TSB something that Lord Mustill had also picked up earlier in Axa Reinsurance v Field that these types of clauses as aggregation clauses have tended to gravitate around fairly well‑established forms.  There is some variation but they are fairly well‑established forms.

KEANE J:   But their operation does depend, in each case, upon their terms.

MR JONES:   Of course they do, of course they do.  It is plainly desirable, however, that these well‑established forms have a stable meaning as possible to assist the participants in the insurance market to make informed commercial choices when entering into contractual relations.  A decision of this Court in this case will provide a valuable form of general guidance to an audience well beyond the parties to this litigation who consider entering into contracts using a fairly common related acts type of clause.  In this particular case, there were multiple claims and no claim for any customer came anywhere near the policy deductible of $2 million. 

GORDON J:   Is that the question?

MR JONES:   No.

GORDON J:   No.

MR JONES:   No.  I am just advising what the underlying case is about.  The aggregation clause was in terms:  “The claims arose out of or were based on, or attributable to, one or a series of related wrongful acts”.  Now, the Bank maintained an “all or nothing” argument at the trial and was held to that argument on appeal.  It maintained that every claim by every customer that concerned an impugned withdrawal over a nine‑year period could be aggregated under a related acts clause.  It did not contend for any lesser basis for aggregation. 

The practicalities of this were that the Bank needed to establish, for example, a withdrawal in year one bearing relevant relationship to a withdrawal in year nine.  The Bank could not do this by reference to any physical aspect of the withdrawals themselves.  It has always been common ground in this case – and there has, accordingly, never been any challenge to the primary judge’s finding – that each withdrawal was a separate act made on a different occasion from a different account causing loss to different parties in response to different and separate forwarded instructions.  The instructions were different in form, time and details.  Each plaintiff or group member had a separate contract with the Bank.

The trial judge found there was no wholesale interconnection between the withdrawals.  Against this background of physical difference and lack of interconnection, the key reason that the Court of Appeal found relationship between each of the withdrawals over a nine‑year period can be seen in four paragraphs of those reasons.  If your Honours go to the application book, the Chief Justice’s reasons at are application book, page 56, paragraphs 27 and 28.  There are two key aspects of those paragraphs.  First, the finding in paragraph 27 of:

similarity in the circumstances –

The reasons do not tell what the similarity he is referring to is.  Secondly, the finding in paragraph 28 is that each breach was identical:

namely, making the payment with knowledge of the fraudulent activities of the financial planner.

This concept of knowledge, referred to there, is not explicitly explained in the Chief Justice’s reasons but he agrees with Justice Macfarlan’s reasons at application book 50, paragraph 2, and it is in Justice Macfarlan’s reasons that we find this concept explained. 

There are two key paragraphs in Justice Macfarlan’s reasons.  At paragraph 39, in application book, page 60, at the foot of the page, your Honours will see there the definition of “the Knowledge of Fraud”, right at the foot of the page.  Whilst this is not a pleaded concept in the pleading itself it is a label to summarise an aspect of the pleaded case.

Justice Macfarlan describes the pleaded case as including that the Bank’s agent was on notice of fraud.  This picks up the cascading basis for notice pleaded in the actual pleading of actual knowledge – which, of course, is a fact of pleading – and constructive knowledge which, we submit, is no more than a legal construct identifying material circumstances at a point in time upon which legal responsibility may be imposed.

The key paragraph concerning relationship in the judgment is at paragraph 103, on page 79 of the application book.  The key finding is in the penultimate sentence where his Honour records, “all” withdrawals were:

made by BOQ with Knowledge of the Fraud –

that is, each falls within the definition label that his Honour had identified earlier.  So, similar to the Chief Justice, this is a characterisation of an element of breach at a sufficient level of abstraction to be expressed as a common description – knowledge of fraud – covering the entire diversity of bases described notice over the entire nine‑year period. 

The Court of Appeal’s finding that knowledge of the fraud was alleged in relation to each withdrawal is not something we challenge.  That is the pleading point my learned friend speaks about.  We do not challenge that is the way to interpret the pleading.  What we do seek to challenge is the use of that label, at its level of abstraction, as an appropriate basis to determine the aggregation question under this particular policy wording.

The reason it was not appropriate is because, as we have mentioned, knowledge of the fraud encompasses both actual and constructive knowledge, being different things, quite apart from the fact that both of those forms of alleged notice also rationally carry with them considerable variation in facts over a nine‑year period.

KEANE J:   Yes.  But if one goes back to page 56 and the paragraphs that immediately precede the paragraphs 27 and 28 in the reasons of the Chief Justice to which you took us, paragraphs 25 and 26:

Each claim against the appellant was based on its vicarious liability for the acts of its agent . . . 

Further, each claim was attributable to a Wrongful Act –

bearing in mind that we are concerned with the phrase “a series of related Wrongful Acts” -

by the agent in paying money out of the claimant’s individual “Money Market Deposit Account” to the client’s financial planner . . . with knowledge that the financial planner was using the funds received in a fraudulent Ponzi scheme.

MR JONES:   Yes.

KEANE J:   So, it is not quite as abstract as might be suggested by some of those paragraphs that you have just read us.

MR JONES:   Your Honour, the concept of knowledge that is picked up in that paragraph is the same concept of knowledge that I have been speaking about.

KEANE J:   Right – but knowledge of use, or knowledge of receipt, in the course of the Ponzi scheme that is being operated by the agent.

MR JONES:   It is broader than a Ponzi scheme.  But that is not a material matter because it is actually described in the pleading as “fraudulent activity of the agent” and it talks more generally then and it says includes a Ponzi scheme but that is neither here nor there.

NETTLE J:   But the finding is that the connecting link is knowledge of the use in the Ponzi scheme. 

MR JONES:   Knowledge?

NETTLE J:   It is a precise finding, limited to the Ponzi scheme.

MR JONES:   That does not get my learned friend home because he needs aggregation against all withdrawals.  The pleaded allegations do not go as far as to say all withdrawals were facilitating, retrospectively looking at it, a Ponzi scheme.

NETTLE J:   That seems to be what the court has found at paragraph 103 – whether or not it is pleaded.

MR JONES:   I think – that is not the pleading itself.  Your Honour, that is not a finding of fact.  The pleading is there.  That is simply a general characterisation of the way the Chief Justice was describing the knowledge concept – which is actual or constructive knowledge over a nine‑year period. 

Now, our point is when your Honours think about the question of notice over that nine‑year period, the best way to consider the prospect of variation in the circumstances that might impose responsibility on this notice idea is to consider the withdrawal in year one and what the circumstances might have been then, and a withdrawal nine years later and what the circumstances might have been then.  It is common ground that the things known to the Bank’s agent could not be the same over time.    

GORDON J:   On page 112, and onwards, the respondent sets out in summary the way in which it says the argument was put and pleaded.  What is wrong with that analysis?  This is to meet your contention that it does not get them home.

MR JONES:   There is nothing wrong with that description but it masks the issue about knowledge of the fraud.  This is the issue.  Essentially, our point is this.  Characterisation of knowledge at the level of abstraction chosen by the Court of Appeal treats the knowledge as the same for all

withdrawals when any real analysis of its pleaded content for any particular withdrawal affecting a particular customer must involve difference in variety. 

The result was that the court, by using this label at the level of abstraction it did, found relationship between all of the withdrawals, at best through facts that are similar.  Effectively holding that acts are related to each other because they are similar is quite inconsistent with the authorities we have referred to in writing. 

The use of an abstracted concept to satisfy relationship, we submit, has two effects.  The first is that it diverts attention away from the acts themselves, which is where the House of Lords in Lloyds TSB said the focus must be in the clause of this kind.  Secondly, it obscures the variation and difference and creates a mechanism for this form of clause to operate as broadly as the chosen abstraction in circumstances where, in the words of Lord Hobhouse, “no words of equivalent strength have been chosen by the parties” such as “source” or “cause” and other generally wide words or even the modified similar acts clause in Woodman itself that could justify that conclusion.  That potential for breadth is not reconcilable with the leading English authorities addressing related acts in clauses of this type, as we have summarised in writing.

Your Honours, a grant of special leave will – apart from correcting that error in using that level of abstraction – enable this Court to facilitate an obvious commercial objective in advancing the cause of stability of general meaning and application of this common kind of expression in this area of discourse.  

In terms of the reference to the pleading, that is referred to in Justice Macfarlan’s judgment in a schedule.  Your Honours will see, at page 86 of the application book, paragraph 46, the pleading and the reference to the “Ponzi scheme” there.  As I said, whilst there is a reference to including some transactions to create the false appearance equivalent to a Ponzi scheme, that is not the entirety of the allegation. 

Your Honours will see in 48, on the next page, the split between actual and constructive knowledge, which I do not understand is in contention.  At 65 at page 89 of the application book, in terms of the knowing assistance case, again a split between actual and constructive knowledge.  If your Honours please.

KEANE J:   Mr Williams.

MR WILLIAMS:   Your Honours, aggregation clauses give rise to particular difficulties of construction.  That matter was noted by the Chief Justice in the Court below at paragraph 1, where his Honour said:

As is evident from the diversity of views of judges who have considered various clauses of this nature, such claims give rise to particular difficulties of construction –

The House of Lords, the English Supreme Court and the English Court of Appeal have developed a body of construction principles and an approach to the analysis of aggregation clauses.  That settled approach commences by the proper identification of the unifying factor for the purposes of an aggregation clause.  In that respect, the English cases involve more than a mere application of general principles of construction to a particular clause.  One can see, in the Chief Justice’s judgment at paragraph 9, page 51, a reference to the approach – the overall approach adopted by the English Courts.

The first aspect of the English approach to the construction of such clauses commences with the correct identification of the unifying factor for aggregation purposes and the level at which it operates.  That is particularly apparent from Lloyds TSB which we have referred to in our written submissions.  Lord Hoffmann, at [17] in that case, noted that:

The choice of language by which the parties designate the unifying factor in an aggregation clause is thus of critical importance and can be expected to be the subject of careful negotiation –

Lord Hobhouse noted that the choice is very important, reflecting the cost of obtaining insurance cover.

Secondly, the English approach involves a construction of the surrounding words such that they do not operate to undermine the initial selection of the unifying factor.  In the House of Lords in Lloyds TSB, Lord Hoffmann expressed that concept in somewhat colourful language at times.  For example, in paragraph [25], the other language should not be used to stand the clause upon its head or “allowing the tail to wag the dog”.  Lord Hobhouse adopted a similar approach, though using different language, at [29] and [51] to [52] of that judgment.

The third aspect – and associated with the second – is that the English approach specifically involves an interpretation of words such as “related” and “series” consistent with a selection of the unifying factor such that the choice of unifying factor is not undermined by the surrounding words.  In an international insurance market, the desirability of having an approach involving comity between the English and Australian courts is obvious.  As AIG has noted in 27 to 28 of its written submissions, the Court of Appeal in New South Wales has recently referred to that concept in the Globe Church Incorporated Case. 

This special leave application raises the question of whether the English approach to the construction of aggregation clauses should be accepted into Australia, that issue not having been determined in this Court.  The issues raised by the application involve questions of public importance in that, first, aggregation clauses which adopt language of a similar nature to that used in this policy are prevalent in policies of insurance, both in the Australian and the international marketplaces, operating to regulate both limits and deductibles.

Secondly, the application raises questions as to the application of the reasoning of the House of Lords in Lloyds TSB as to aggregation clauses generally.  Thirdly, the application requires a consideration of the divergence of views expressed in Lloyds TSB between Lord Hoffmann at [28], and Lord Hobhouse at [46] and the effect of the balance of the members of the House of Lords agreeing with both of them. 

Your Honours will have seen in the Chief Justice’s judgment at 17 to 19 in the application book, at 53 to 54, his Honour making reference to those somewhat divergent views and his Honour the Chief Justice adopting Lord Hobhouse’s approach, saying that it is to some extent analogous to with the present situation.

The application also requires consideration of the divergence of views of Justice Menzies and Justices Stephen and Gibbs, as his Honour then was, in Distillers as to the concept of a series.  That discussion occurred in the context of an aggregation clause containing a source or cause unifying factor.  The applicant will contend that Justice Menzies’ dissenting view ought to be followed in the case of an acts or omissions unifying factor aggregation clause.

One matter that would arise on this appeal, if special leave were to be granted, would be the question of whether the reasonable business person test, i.e. what a reasonable business person would have understood the relevant terms to mean, is adequate to deal with the types of construction issues that arise in these cases and the approach that ‑ ‑ ‑

GORDON J:   Do you mean by that insurances cases?

MR WILLIAMS:   Yes.  Insurance cases, particularly – I am talking about particularly to deal with the aggregation clauses in the context in which they have been analysed in Lloyds TSB and other cases.

NETTLE J:   What would the test be if it were not the reasonable business person? 

MR WILLIAMS:   Whether one describes it in terms of “test” or “approach”, we would submit that the approach that is adopted is first identifying the unifying factor.

NETTLE J:   I have that much. 

MR WILLIAMS:   Yes.

NETTLE J:   But when you are down to the bottom and you are deciding which way to go, why would it not be the reasonable business person?

MR WILLIAMS:   It depends on whether that seemed to be consistent with an approach that says once there is a unifying factor chosen – when one gets to words like “related” and “series” and the like – whether one approaches the interpretation of such words with a predisposition not to undermine the underlying unifying factor that has been selected or whether one just says “related” is a ‑ ‑ ‑

GORDON J:   It seems to fly in the face of the earlier principles you put about taking the words, parties, negotiation ‑ ‑ ‑

MR WILLIAMS:   Certainly.  It is a question of whether that test is adequate to deal with the approach as it has been described.  The Court of Appeal in this case seems to have accepted part of the English approach – at least by first attempting to identify the unifying factor – though, as I will explain shortly, not entirely satisfactorily.  Further, the Court of Appeal has not adopted the second part of the approach of the English Courts, namely, it has construed the surrounding words in such a way that they change the fundamental choice that has been made in the unifying factor.  What I mean by that is the unifying factor in this case was a choice of an acts or omissions‑type unifying factor, rather than a source or cause‑type factor.

KEANE J:   Why do you keep saying “acts or omissions”?  The language is “a series of related wrongful acts”.

MR WILLIAMS:   I am going to come to the issue of “wrongful” – coupled with the concept of “acts” and what it adds in the context of this case.  I will do that now, in fact.

GORDON J:   But “wrongful act” is defined to include conduct – committed or attempted ‑ ‑ ‑

MR WILLIAMS:   Certainly.  But what the concept of “wrongful act” and its definition is doing in this case is like in any other policy pointing to the causal wrongful act that gives rise to the liability to pay the other party for which insurance is, therefore, attracted under an insuring clause.  What most of these clauses do when they talk about an “act” or “omission”, they are talking about not any act or omission, they are talking about the one that has been causative in the particular case.

GORDON J:   But that is what – I think I asked Mr Jones this – what is set out in the respondent’s submissions, by reference to the pleading and the identification or what they said was the connector – he did not seem to take issue of that – just said the characterisation is wrong.  Do you adopt the same approach?

MR WILLIAMS:   I do, but we put the matter somewhat differently.

GORDON J:   All right.

MR WILLIAMS:   We put it in this way.  When one is looking at the initial choice of the unifying factor, one ordinarily sees either a source or cause‑type approach or an act or omission‑type approach.  Here we have what is described as a wrongful act.  But when one looks at the definition, all that really means is it is the causative act that has given rise to the obligation to pay under the policy in the first place, which is then the focus of the aggregation clause. 

We submit that applying the approach adopted by the English courts, one would not read the word “wrongful” with “act” as turning the focus on “act” into instead a focus on a cause or source for the connecting factor.  That is an error, we say, in the way in which the first step was analysed because, at least in Justice Macfarlan’s judgment, he seems to have approached it as if it was analogous to a causal unifying factor.  One gets that from paragraphs 102 and 103 of the judgment.  That is to be found at page 79.  Your Honours will see at 102, his Honour commences by saying that:

The aggregation clause . . . is not an explicitly cause‑based clause –

and then goes on to say:

Nor however is it, as the clause in Lloyds TSB was found to be, devoid of an indication as to the connecting factor that would make the Insured’s acts “related” –

Then he goes on to say that the identification of the connecting factor is in the use of the reference to “Wrongful acts”.  What he is actually pointing to, particularly, is the word “wrongful”, when one gets down to paragraph 103.

So, what has happened is that by reference to the use of the word “wrongful”, he is analysing – his Honour is analysing this as if it was a caused‑based unifying factor.  We submit that that is an error in approach.  This starts from the proposition that it is an act‑based unifying factor.  The reference to “wrongful” is merely the label in the definition that takes us to the types of causative acts that give rise to the claim for indemnity in the first place.

NETTLE J:   Is that to say that he has erred by asking himself is the wrongfulness in each case connected by the Ponzi scheme, rather than asking are the acts in each case connected by the Ponzi scheme?

MR WILLIAMS:   Precisely.  Related rather than connected, but yes.  

NETTLE J:   There is certainly a distinction.  What is the difference at the end of the day?  They are both connected by the Ponzi?

MR WILLIAMS:   The difference is that the acts have to be connected, not the state of mind with which the acts are performed.  What this requires is an analysis of the act that has been undertaken and to see whether the act is related or all of the acts are interrelated in the way that they need to be before aggregation can occur.

NETTLE J:   So, one is looking at the physical properties of the act rather than the intention with which it is committed?

MR WILLIAMS:   Indeed.

GORDON J:   But is that not the way it is pleaded – even if that is right?  That is why I took you to paragraph 19.  It is pleaded on the basis that one looks at the physical acts and the argument put against you, as I read it, was those acts were connected by the Ponzi scheme and it was only by putting all the physical acts together that the Bank was said to have had the requisite knowledge and they were, therefore, connected and related in that way.

MR WILLIAMS:   What is being held in 102 and 103 is the fact that the acts occurred with the same knowledge – or similar knowledge – is sufficient to satisfy the unifying factor.  In other words, it is the knowledge rather than the act upon which ‑ ‑ ‑

GORDON J:   The knowledge came from the acts.

MR WILLIAMS:   If the knowledge came from the acts, the acts cannot have all been done with the same knowledge.  That is particularly apparent in relation to the way in which this is ‑ ‑ ‑

GORDON J:   Not every instruction, I think, is pleaded as to being picked up – that is the way it is put.  As I understand, there is a point in time at which the knowledge arose, as I will read the ‑ ‑ ‑

MR WILLIAMS:   Yes.

GORDON J:   It is not alleged that every instruction received from the agent was to be a suspicious instruction.  But there were sufficient over time to give rise to the knowledge.

MR WILLIAMS:   Yes, and what about all the acts that occurred prior to the time where there was sufficient to give to the knowledge?  They cannot be infected with the same degree of knowledge and cannot be related in the same way even on the respondent’s case. 

NETTLE J:   Mr Williams, just to go to 103, in the analysis.

MR WILLIAMS:   Yes.

NETTLE J:   What is said to connect them, the physical acts are part of the Ponzi scheme which is known by the Bank. 

MR WILLIAMS:   What is said to be - it is the acts engaged in with knowledge of the fraud as the unifying factor.  So, the focus that has been placed upon the unifying factor is the knowledge.

NETTLE J:   You dropped out the important part.  The acts engaged in as part of the Ponzi scheme ‑ ‑ ‑

MR WILLIAMS:   Yes.

NETTLE J:    ‑ ‑ ‑the fact of which is known to the Bank. 

MR WILLIAMS:   With knowledge of the fraud, yes.

NETTLE J:   Yes.

MR WILLIAMS:   But it is the knowledge of the fraud that is being identified as the feature that makes them related for the purposes of the aggregation clause.  We submit that that turns on its head an act‑based unifying factor and turns it into a cause‑based unifying factor.  It is looking at the state of mind with which the activity is occurring rather than the fact of the activity itself – that act or omission itself. 

Of course, in this case, the acts and omissions are very diverse and they are over a long period of time.  The particular acts and omissions with which we are concerned – can I ask your Honours to go to the primary judge’s finding at 158, at page 32 of the application book?  Your Honours will see that at 158:

each was a separate act, made on a different occasion, from a different MMDA, causing loss to different parties and in response to different and separate purported instructions.

Your Honours will see in the Court of Appeal that Justice Macfarlan, at 86, that is application book, 74, picks up the insurer’s submissions to like effect – page 74 at paragraph 86:

the Insurers submitted that there was no “series of related Wrongful Acts” because the Wrongful Acts were “individual withdrawals from the multiple individuals’ accounts pursuant to multiple instructions that differed in nature, form and time”.

That is over the nine‑year period.  We make the point – which I just raised ‑ ‑ ‑

KEANE J:   But is not the point that for the Ponzi scheme, the later victims feed the former victims.  That is the connection.  The nature of the scheme is such that there is a connection between victims – is an inherent aspect of the scheme of which the Bank has knowledge.

MR WILLIAMS:   What needs to be related is the individual acts that are described as the “wrongful acts”, not the knowledge that is invested in the Bank over the period of the ‑ ‑ ‑

KEANE J:   Does not the knowledge serve to enable one to identify that it is a series we are talking about?  There is a scheme that involves, necessarily or inherently, a number of victims and the knowledge of the scheme enables one to identify the wrongful acts as being part of a series informed by the same intention.

MR WILLIAMS:   We would submit not, because first of all your Honour is now focusing, I think, on the word “series”.  There is divergence of views as to what that might mean.  So far as Justice Menzies is concerned that would mean something that has a particular order to it – not the type of nine‑year acts and omissions with which we are concerned here.  We would wish to contend for that meaning of the word “series” if special leave was to

be granted because at the moment the concept of “series” has been defined out of existence and I mean that ‑ ‑ ‑

KEANE J:   To emphasise the long time period is simply to observe that in some cases Ponzi schemes are more successful than in others.  But it is not to deny the possibility of identifying the victims of the scheme as being victims of a series of wrongful acts that are connected.

MR WILLIAMS:   We would submit that the proper approach to the construction of this clause is a focus on the acts.  I appreciate that your Honour is putting to me a feature of the knowledge with which the scheme is held to operate.  But we would submit that when one is interpreting a clause such as this, one has to be careful not to turn the acts or omissions unifying factor on its head so as to, in effect, treat it as a causal source unifying factor.  That is the approach that the English Courts have adopted and that is the approach that we would wish to argue for should special leave be granted.  If the Court pleases.

KEANE J:   Thank you, Mr Williams.  Yes, Mr Hutley.

MR HUTLEY:   The first point which has to be realised when approaching the Court of Appeal’s judgment and this case is the assessment for compliance or non‑compliance – the application of the aggregation lies in allegation, not an establishment of fact because the aggregation takes place in the context of a settlement and therefore all one has to look at is the pleading.

GORDON J:   I asked both – that is what is set out in paragraph 19 of your response.

MR HUTLEY:   Yes.  That is where one starts.

GORDON J:   To which they do not take issue.

MR HUTLEY:   We understand that is common ground and that leads to the fundamental problem with this particular application.  The allegation was that in respect of all claims, that is payments away, they were done as part of a Ponzi scheme of which the Bank had notice, knowledge.  We had an alternate case, as you would have, to deal with a case at the hearing, of constructive notice.  But in allegation, it alleges that every payment from the first away to the last was made by the Bank with actual notice of the Ponzi scheme, through their agent.

Now, no one suggests, à la The Life of Brian, or is it the Holy Grail, that “I got better”, therefore it is an allegation that the Bank, in respect of every payment, had the knowledge it had at the time of the first payment.  So to say - once one has accepted, as is not disputed, that the pleading point, which went otherwise before the trial judge, went as happened in the Court of Appeal, that, we say, is an allegation that every wrong claim on the Bank is a claim which is related to the extent of being substantive, identical, as the Chief Justice said, because you are alleging that the payment was made with the very same state of knowledge that you had at the beginning.

True it is that you may have had that knowledge augmented, but if I am told, if I am a bank and I am told that I am paying under a Ponzi scheme on Monday, and I am told again on Thursday I could run the case against the Bank, because - on the basis I am told on Monday.  The fact that I was told on Monday will be relevant to the payment which was made on Thursday. 

That is what determined this case.  That is why it made the case - whether one, and I am not going to go through the House of Lords, Supreme Court judgments about approaches to construction - I will come to that in a moment, but not in detail.  But whatever interesting questions there may be, theoretically, in respect of aggregation clauses, once you accept that central proposition, which is not contested, that is the end of it, because they have to be a series, that is, they are payments in respect of a Ponzi scheme, of related wrongful acts, the wrongful act being the Bank paying away with actual knowledge that they are paying away clients’ money into a Ponzi scheme.

That state of knowledge subsisted from the first payment to the end.  If that is not a series of related wrongful acts, it is hard to imagine what one is, because it is not the case, as in TSB, where, because of the parenthetic words in the speech of Lord Hoffmann, the series of acts have to be the source of all causes of action - they have abandoned that one series of act giving rise to all claims, so it has to be a series of related wrongful acts, and wrongful acts, as your Honours have been taken to the definition, obviously include, in effect, amalgams of events giving rise to a claim. 

That is perfectly fine, and the wrong here, with respect to each payment, was that the Bank, with knowledge - and so this distinction between act and state of mind is without substance - the wrongful act is the payment away by the Bank with actual knowledge, being the same actual knowledge from the beginning, of each payment.  That is why we were successful ‑ ‑ ‑

GORDON J:   Of the Ponzi scheme?

MR HUTLEY:   Of the Ponzi scheme.  That is why, in the paragraphs - and your Honours can see that finding, and your Honours have been taken to paragraphs 77 and 84 in the judgment of Justice Macfarlan and his findings in paragraphs 80 to 84, reasons for that finding with respect to the pleading.  Now, that was agreed in by the Chief Justice at paragraph 28 of the Chief Justice’s reasoning. 

Therefore we say there is no arguable case, even taking their case at its highest, that we are not within it, unless they say the wrongful acts has to be the same wrongful act in the sense of just one collocation of events for each claim, which they abandoned and therefore that this has be a series of related - and if you have the same knowledge throughout, it is the classic variety, together with, as your Honour Justice Keane observes, a series of acts - when one is dealing with a Ponzi scheme they depend upon a series of acts. 

A Ponzi scheme does not exist.  It is designed to, and only works in the concept of a series of acts.  So that is the Ponzi scheme.  The related - they are related in state of knowledge, payment away by the Bank with state of knowledge, and they are wrongful for those very reasons.  That is the case and that is what the Court of Appeal found, and I am not going to take - your Honours have been taken to paragraphs 102 and 103 in the judgment of Justice Macfarlan, which of course was agreed to by Justice White at paragraph 120, and that is exactly what his Honour is saying, and his Honour is correct.

That is why, with respect, my learned friend, Mr Jones, tries to, in effect, change the knowledge factor to being an amalgam of constructive knowledge and actual knowledge at different points of time along the sequence.  But that is what ‑ they do not challenge the pleading finding.  It is that pleading finding which ends this case because - and that is an implicit acceptance that if actual - if knowledge is a continuum across the matter that is the end of the case.

That is what their Honours have found and their Honours were correct to have found and, frankly, the construction of this pleading is a matter which would not entertain the High Court.  It has been determined by three judges at the Court of Appeal.  It is not challenged on the special leave application and in the absence of that the point we say is wholly wrong.

Now, our learned friends in their written submissions, in effect, flirt with a concept of “sameness” being required of the wrongful acts.  That suffers from the precise problem that it does not say “sameness”.  It says “related”, and if they wanted to say “sameness” they would not have put “related”.  In any event, “sameness” is an obscure term.  If they have to be wholly identical other than the fact of time, well, there will never be an aggregation, because there will always be some change of some variety, somebody read a document which said A, somebody read a document which said B, and so it goes.  

Now, that would be an absurd construction, so we say that can go nowhere.  But it is interesting that the Chief Justice, at paragraph 28, at application book 57, described these events as identical and, in substance, they were identical.  At their pith, the wrongs were identical, once you accept they are done with actual knowledge.

GORDON J:   Well, that is, in a sense, exactly what Justice Macfarlan is saying at 103 in the first sentence.

MR HUTLEY:   Quite.  But that is actually just using the word “precisely” in what’s a name.  Now, the third point, my learned friends, as I understand, wish to say that this Court should discover some new principle, not get rid of, as it were, the business‑like interpretation, I think as maybe the reasonable mean insurer might be advanced.

Your Honours, firstly this Court in McCann v Switzerland Insurance 203 CLR 59 at paragraph 22 – and I am not going to take your Honours now to that – the statement of Chief Justice Gleeson which was specifically approved by the entire Court in CGU Insurance Limited v Porthouse 235 CLR 103 at paragraph 43 said that insurance contracts are to be construed, surprisingly, as commercial contracts to be given a business‑like construction.

Now, they would need leave of this Court to in effect say that that statement of principle which they did not challenge in the Court of Appeal and never challenged and have been in place for now 20 years, has to get some gloss, the precise metes and bounds of which one does not know, which are to be attributed to these things called aggregation clauses which as the cases show all are phrased in somewhat unique and idiosyncratic terms which are no doubt the subject of bargaining between probably brokers and insurers, and we all know what those bargains imagine end up with, with people in effect, et cetera. 

So there will be no independent principle and this question of levels of abstraction, that is just conventional approach to construction which if your Honours look at what Justice Macfarlan and the Chief Justice did, is exactly that.  They in effect sought to give meaning to the entire collocations of words, giving obviously central focus to the concept of “wrongful act” which is in effect the integrating or collectivising factor or however it is expressed and, even if there is an approach, it is no approach which is unique to insurance policies.  It is the approach one takes to every complex commercial contract of trying to understand what it means and

there is no set methodology, in our respectful submission, nor could there be because they are each unique. 

So therefore, for those reasons, we submit there is really no general principle of law will come for your Honours’ consideration.  The prospects of success are, in our respectful submission, nil because the common approach to the pleading renders no matter what approach to the construction you arrive at this involved a series of related wrongful acts.  Those are our submissions, if the Court please.

KEANE J:   Any reply, Mr Williams?

MR WILLIAMS:   We do not in this case seek to overturn the settled principles of construction to which my friend has adverted.  What we seek to do is to have them accommodate the approach that is adopted in the English courts.  That does not necessarily – it does not mean it needs to be overturned; it just means that there needs to be acknowledgement, we would submit, that these clauses are approached in a particular way by those who are responsible for drafting them and they have a particular meaning that may not be apparent to the man in the street, reasonable or otherwise.  So we do not seek to overturn any fundamental principle.

What we do say is that – and I do not think I need to labour this – we do say that there has been a wrongful focus on the word “wrongful” in this case as providing the unifying factor rather than a description of the phrase “wrongful act” which is a focus on the causal wrongful Act.  Those are our submissions.

KEANE J:   Yes, Mr Jones.

MR JONES:   Your Honours, the problem with undue focus on the Ponzi scheme itself is that it is not pleaded to cover all withdrawals, as I have taken your Honours to already.  They need all of the withdrawals to be related in some way to make out their aggregation case.  It was an “all or nothing” case.  The trial judge made a finding that he was not satisfied that there was interconnection between all withdrawals.  That was not challenged on appeal.  So there has to be something beyond that to create the relationship.

The Ponzi scheme itself, of course, for the subset it may relate to, is a source or cause, not the wrongful act itself.  The wrongful act itself is paying a sum of money at a particular point in time in response to an instruction at that point in time.  The circumstances need to be considered at that point in time.

The cascading allegation in the pleading was knew or ought to have known, that is knew or did not know, but the circumstances imposed responsibility on you.  They are differences, and that difference flows through the entire nine‑year period.  There is no pleading anywhere that the same state of knowledge as a fact was held from the beginning to the end.  That is not pleaded.

Mr Hutley said if you told something on day one, then logically that could apply some days later.  We would accept that, but that would allow some form of small aggregation perhaps.  That is not the case that was put below.  The aggregation has to require logical connection between day one and year nine.  That is what the problem is because over that vast period of time, there has to be variation on the circumstances that impose responsibility on the Bank for each of those withdrawals.

Now, this is the problem because once the finding is made by the Court of Appeal that allows for actual or constructive knowledge to run from day one to year nine, which we accept, whilst that puts Mr Hutley’s client in the game for the purposes of complete aggregation because he needs that, the problem that gives rise to is a separate problem, that is how do you get to a circumstance where you can relate all of those withdrawals and that is where we come back to our point that the Court of Appeal has only done so through the abstracted level they have gone to and we say that is inappropriate for the purposes of determining relationship.  If your Honours please.

KEANE J:   These applications do not raise a distinct issue of principle of general importance and, in any event, the appeals foreshadowed by the applications do not enjoy sufficient prospects of success to warrant the grant of special leave to appeal.  The applications will be refused with costs.

MR JONES:   If the Court pleases.

MR WILLIAMS:   If the Court pleases.

AT 11.48 AM THE MATTERS WRE CONCLUDED