Atradius Credit Insurance N.V. v Prepaid Services Pty Limited & Ors; Prepaid Services Pty Ltd v Optus Mobile Pty Ltd & Ors

[2015] HCATrans 155

[2015] HCATrans 155

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S167 of 2013

B e t w e e n -

ATRADIUS CREDIT INSURANCE N.V. ACN 099 372 595

Applicant

and

PREPAID SERVICES PTY LIMITED

First Respondent

OPTUS MOBILE PTY LIMITED

Second Respondent

VIRGIN MOBILE (AUSTRALIA) PTY LIMITED

Third Respondent

Office of the Registry
  Sydney  No S15 of 2015

B e t w e e n -

PREPAID SERVICES PTY LTD

First Applicant

OPTUS MOBILE PTY LTD

Second Applicant

VIRGIN MOBILE (AUSTRALIA) PTY LTD

Third Applicant

and

ATRADIUS CREDIT INSURANCE NV

Respondent

Applications for special leave to appeal

FRENCH CJ
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 19 JUNE 2015, AT 11.56 AM

Copyright in the High Court of Australia

____________________

MR B.W. WALKER, SC:   May it please the Court, in the first matter I appear with my learned friend, MR T.M. MEHIGAN, for the respondent and in the other I appear with him for the applicant.  (instructed by Allens Lawyers)

MR N.C. HUTLEY, SC:   If your Honours please, I appear with my learned friend, MR D.A. McLURE for the respondents in No 167 of 2013 and the applicants in No 15 of 2015.  (instructed by Minter Ellison Lawyers)

MR HUTLEY:   My learned friend and I have agreed that I will go first.

FRENCH CJ:   Well, the other matter is ‑ ‑ ‑

MR HUTLEY:   Parasitic.

FRENCH CJ:   Its viability depends upon the outcome, yes.  Yes, Mr Hutley.

MR HUTLEY:   Your Honour, the case, in our respectful submission, raises questions about the proper approach to the identification of the insurer for the purposes of 28(3), in the sense that 28(3) mandates an inquiry as to the position the insurer would have been in but for the misleading conduct.  It also raises issues which arose in the appeal because of the way in which the insurer had conducted the case as to onus of proof in the circumstances.

FRENCH CJ:   Well, your complaint is an evidential onus was effectively converted into a reverse onus.

MR HUTLEY:   Quite, and that source of the problem was because there was an inadequate identification of the insurer as an organisation containing various elements and persons who were intimately involved in the inquiry into what the insurer would have done had there not been the misleading and deceptive conduct – the misleading conduct. 

The case, in effect, as answered by both the trial judge and the Full Court, was to construct a notion of insurer being, in effect, Mr Magee, who did not reflect what the true insurer was, which was a complex interrelation of various persons all over the world who would have had an essential involvement in the decision‑making process, with the exception of Ms Shaw - or Ms Johnson, I think – Ms Shaw, not one of whom was called.

FRENCH CJ:   Does that reduce to a complaint – and I am no doubt grossly oversimplifying it that ‑ ‑ ‑

MR HUTLEY:   To my advantage, I trust?

FRENCH CJ:   ‑ ‑ ‑ the insurer failed to discharge the onus of proof in section 28(1) that Mr Magee’s evidence was insufficient for that purpose.

MR HUTLEY:   It is 28(3), I think, with respect.

FRENCH CJ:   Yes, I am sorry, yes.

MR HUTLEY: Section 28(3), yes. That was – but it is not – and my learned friend no doubt will say it is just a question of fact, there is no question of principle, et cetera, but what we say this case if not considered by this Court has mandated is really a notional inquiry into what the insurer would have done.

Here, we had – and it is important if I can take your Honours in this regard – to page 205 in the application book of 15/2015.  As your Honours will have appreciated, the case advanced by the insurer for 28(3) really rested on Mr Magee’s statement as to what he would have done.  Mr Magee was the last‑called witness on behalf of the insurer.  It was in the course of his cross‑examination that the matters which appear on 205 over to 206 were elucidated for the first time:

Q.You were heavily dependent upon the technical skills of your team to analyse the current information . . . 

A.Yes.

Q.You were not going to second guess the decision of the Australian Local Credit Committee?

That was effectively Mr Choo and Mr Athaide.  Mr Athaide had filed a statement in the case and was to be the next witness, but was not called after Mr Magee’s evidence –

Q.And, indeed, you considered them must better placed to assist this risk than you, given their knowledge of the local conditions?

A.Yes.

Q.And had any adverse information needed to be looked at after 26 July, the people you would have expected to do the task would have included Mr Athaide?

A.Yes.

Q.Mr Choo, as the buyer/owner?

Your Honours are familiar with the structure.

Q.And the Local Credit Committee?

A.And, also, Joanne Shaw as well, as the special product underwriter.

Q.And, possibly, people in Cardiff as well?

A.Yes.

Q.And what would have occurred in that situation is, some form of analysis or written report would have been provided to you for your consideration?

A.Yes.

Q.And if the Local Credit Committee of Australia remained comfortable with the risk in the light of any further information, that would have been a very significant factor in your thinking?

A.Yes.

This is important -

Q.Indeed, because you were not in the business of second guessing them, if they looked at the further adverse information and maintained the overall limit, most probably, you would have kept your decision intact as well?

That was the decision to right the risk –

Q.Now, could you go to your statement –

et cetera.  Then it goes over – there is a discussion about a matter of a rating.  If your Honours go to about 20:

Q.Thirdly, you would have wanted Mr Choo, as the buyer/owner, to update his analysis of the buyer?

A.Yes.

Q.And you would have been particularly interested in whether his risk rating of 6 out of 10 remained, or moved in an unfavourable, or favourable direction?

A.I would be more interested if it moved unfavourable [sic]?

Q.       I’m sorry . . . 

Q.If Mr Choo remained, essentially, intact around the 6 level, that would have given you considerable comfort in maintaining the decision you had made?

A.Yes.

Q.If he was in the –

et cetera, and it goes on.  Now, in our respectful submission, if one asks what the insurer would have done for 28(3), the insurer in a complex commercial organisation is its structures.  The structures which were essential to this decision‑making process are exposed completely in this cross‑examination.  Our case was you were in a position to expose those structures.  You could have called the individuals; there was no suggestion Mr Athaide was outside the court, metaphorically speaking.

There would have been, at this level, there would have been a report created for them which would have had a recommendation, and not as the Court of Appeal referred constantly just more information.  There would have been a recommendation and the insurer, who was in the position to put forward what the recommendation would have been from those individuals, and they were individuals who had confirmed cover the rating and appropriateness of writing these risks shortly before, with information which the trial judge described as showing a pretty sad position for this company BXP.

FRENCH CJ:   But not the information about the payment claims.

MR HUTLEY:   But not the information about the payment claims.  But, I have got to tell you about one other thing of importance.  Mr Magee would have required Mr Choo, Mr Athaide and Ms Shaw to go and see BXP and Optus to inquire about this.  The Court of Appeal said we should have worked out what was going to come from BXP.  We bore the onus of determining that.  Now, the reality of what should have occurred – and what would have occurred in the insurance world – would have been that this material would have come to these individuals, they would have prepared a report and it would have gone to Mr Magee.  Mr Magee, as he said, he would have probably followed it.

We do not say Mr Magee was just – he was the ultimate decision‑maker, we accept that.  But his sworn evidence - he would most probably have followed it.  To discharge their onus, in our respectful submission, they should have led evidence as to what likely was to be put before Mr Magee, so Mr Magee if he said he was going to disagree with it – I do not know if he would, since they have never done the exercise – and then, there could have been a proper investigation.  None of that took place.  Instead, what has occurred – and one goes, for example, the Court of Appeal never refers to the answer at line 40 at page 205 again.

They refer to the fact at paragraph 66, to the fact that Mr Magee was reliant on the input, but they do not deal with the fact that Mr Magee says he would most probably have relied on them, which, as an organisation since he was off in Cardiff somewhere, and these were the people in Australia, is inherently likely.  Now, they were in a position to call this material.  They chose not to.  Instead, what occurred – the Court of Appeal dealt with it – and if I could take your Honours to paragraph 71:

Contrary to Optus’ submission, it was not incumbent upon Atradius to prove each step that would have been taken within its organisation in the hypothetical circumstance that s 28(3) of the Insurance Contracts Act required to be addressed. Section 28(3) does not specify any particular mode of proof that need be adopted by the insurer.

Now, so far as it goes, that is correct.  But they still have to – they bear an onus of establishing what the insurer would have done.  With our respectful submission, the Court of Appeal – and this is the importance of the case – the Court of Appeal lost sight of the fact that we are talking about the insurer, not as, in effect, a corporation in the notional sense, not as one individual who has posited as the notional insurer, for it Mr Magee, but the insurer as a collection of standard processes and inter‑reactions. 

They have to establish that.  They may be able to establish it in many ways, but they cannot establish it, in our respectful submission, by running a case which, as appears from the cross‑examination where this point - where they simply did not address that question at all, because what would have happened only came out during the cross‑examination of the last witness.

FRENCH CJ:   In relation to Mr Magee’s affidavit statement which appears at 203, paragraph 36, was that qualified in any way by what he said in cross‑examination?  Does he resile from that at all?

MR HUTLEY:   No, your Honour, he did not, and we accept that.  He accepted instead that this evidence amounted to resiling from it.  That was an exercise undertaken as it were in a notional insuring world.  Mr Magee is in effect – as it were a hypothetical Atradius.  There was no evidence it would all come to him in this form.  What was going to come to him is some report with recommendations from individuals – for all we know were highly enthusiastic about the prospects of BXP.

There was evidence about – there was no – and I do not use that in any way facetiously, your Honour, because this is an organisation which ensures you do not get trade insurance for BHP.  You did not get trade insurance if BHP is the debtor.  You get trade insurance for organisations where people have concerns or failure, to a degree, because otherwise it is a waste of money.

Now, these people – that is, Mr Choo, Mr Athaide – had approved of this risk shortly before.  As the trial judge said, they knew more about the difficulties with this – or as much, if not more about the difficulties with this company as we did.  They were the people who were on the ground who really would have provided evidence to assist how this company really would have acted. 

Let it be assumed – and I do not - one of the points about 28(2) which is so important, it does not assume the insurer is always all wise, all knowing, all good.  It does not assume perfection.  The great amendment which has taken place – and this is the importance of this case – is to look into how the actual individuals who deal with it deal with in the real world.  They get to be looked at about who they are, what they thought about the organisation.  That is the centrality of the inquiry.

That, with our respectful submission, the Court of Appeal completely erred and went and inquired into not this insurer but the construct created by Mr McQuade’s ‑ Mr Magee’s and the insurer’s approach to answering this question before the truth came out.  The truth was the cross‑examination which I have taken you to, and the insurer took the position after that cross‑examination to call no more people - did not call Mr Athaide, standing outside the court. 

In our respectful submission – and that then involved the court in the other matters about which we have made complaint, led to the court making – involving itself in the other matters in which we…..where they effectively inverted the onus.  They turned evidentiary onuses into absolute onuses.  Can I take your Honours to that in this regard?  For example, could I take your Honours to 214 in the judgment – page 214?

FRENCH CJ:   They have set out, of course, prior to that, various uncontroversial statements about the nature of the evidentiary burden.

MR HUTLEY:   Quite.  Then, at 58, they say:

Contrary to Optus’ submission on appeal, the primary judge was in my view entitled to treat the information that would have been obtained by Atradius for the purpose of considering the significance or otherwise of the Optus/BXP payment plans as that identified by Mr Naven.  As I have said, Optus had an evidentiary onus to identify the information that it would have provided to Atradius.

Now, stopping there – we had an evidentiary onus to supply the information put forward as required by Mr Magee in the notional insuring world.  What we did not ever find out is what Mr Athaide, Mr Choo, and for that matter Ms Shaw, when sent to ask us would have wanted to see, what questions they would have wanted, what materials.  So we are firstly dealing with the notional world.

It sought to do this through Mr Naven and Mr McQuade.  I do not consider that Optus can reasonably contend that there was, or may have been, other information that Atradius might itself have obtained from BXP –

Now, it appears that we are required to lead evidence as to what Atradius would have obtained from BXP to discharge our evidentiary onus in relation to this case.  Why it lies in our hands, with respect, is not explained.  Firstly, the understanding that they were going to go and send somebody off to BXP only came in cross‑examination of Mr Magee.  It is not as if it was even their case until Mr Magee said that was what he would do in cross‑examination –

that might have impacted on Atradius’ decision.  In preparing its case, Optus had the opportunity to obtain from BXP or its former officers, whether by way of subpoena or otherwise, such information as might have been relevant.

Now, the question is - the insurer was going to send its officers – experienced Mr Choo and Mr Athaide – to BXP to get information, then analyse it, prepare a report and send a recommendation.  The Court of Appeal has found that we bear an evidentiary onus to go to BXP to get information – who knows what, from who knows who – for all one knows Mr Athaide and Mr Choo had relationships with particular individuals within BXP who were available to give evidence.  I do not know.  We do not know.  But the court in effect has said we have to do it. 

What has really occurred here is that there is a reversion in substance to a notion that the insurer can create a notional insurer; the Magee insurer.  Then, as long the Magee insurer says what he would have done, there is an evidentiary onus on my client to deal with all other aspects of it.  In our respectful submission, that is just wrong.  That is really ‑ ‑ ‑

FRENCH CJ:   It all depends critically on your characterisation of the approach taken by the Court of Appeal as one of the construction of a notional insurer.  If it is just a matter of Magee’s evidence was sufficient unto the day to discharge the onus under 28(3), that is the end of the road.  You are saying it is qualified because of what he said in relation to the other officers.

MR HUTLEY:   He said – our point is he identified who the insurer was for the purposes of the 28(3) inquiry.

FRENCH CJ:   Well, I would rather put it in the more direct interrogatory if you like – what was sufficient to discharge the onus and ‑ ‑ ‑

MR HUTLEY:   I see the orange light and your Honour is the Chief Justice.

FRENCH CJ:   For the next little while.

MR HUTLEY:   Your Honour, this is repeated, we say, at paragraph 63.  He says:

It follows that Optus’ submission that the primary judge erred in excluding from consideration “the effect of any interaction between Ms Shaw . . . That interaction could only have been of significance to support Optus’ case to the extent that it produced additional information that might have impacted on Atradius’ decision.  However, as I have said, if such –

et cetera, it goes on, again effectively saying it is for us to, as it were, establish what we could not know, namely, what this organisation would do in determining the decision which it says is how it would determine the decision.  Again, effectively, we are defeated by the construct.  I have taken your Honours to 66, and we say that 73 – it culminates in the last three lines – it says:

However, the point that his Honour made in those paragraphs was that, by reason of the evidentiary onus on Optus to identify the information that would have been available to Atradius and Optus’ attempt to discharge that onus . . . the affidavits of those witnesses should be . . . As I have held (see [59] above), this approach was correct.  It follows that there was no room for an inference that any of the subordinate officers might have been able to obtain any further relevant information to produce to Mr Magee.

That is because we have got the onus to go out and find out all possible, relevant information from third parties.  In our respectful submission, for those reasons, this is a case which does raise an important question.

FRENCH CJ:   Thank you, Mr Hutley.  Yes, Mr Walker.

MR WALKER:   Your Honours, as to the important question, I suppose one way to test that is to consider the danger of deflection from correct principle by those reading the Court of Appeal’s decision.  If one goes to application book page 211, application book page 213, considers the statements noted in paragraphs 52 and 56, respectively, there is, in our submission, no fear whatever raised that this will deflect people from the true path of the proper allocation of onus in cases under subsection 28(3).

It is simply impossible to contemplate that anybody could ever use this to say that the Court of Appeal of the Supreme Court of New South Wales has determined that there is a reversed onus.  They have not done that.  They have said what they are doing in 52 and 53.  They have explained it doctrinally in 54 and 55, and there is no alarm to be raised of a kind that might give rise to an important question. 

More importantly in our submission, there is this notion of a “notional inquiry”, to use my friend’s expression, in relation to the construct or the structures needing to be exposed in order to understand the identification of the insurer.  More particularly, we can say of this that subsection 28(3) presupposes – indeed, exists only because – after the event and a commercial dispute having arisen, one of the parties is saying had I had the information you wrongly did not give me, I would have behaved differently from the way I actually did.

Now, that is not an unknown exercise in the law - (a) it is retrospective; (b) it is in the context of a dispute; (c) it is with lawyers; (d) that makes it all artificial; and (e) of course it is hypothetical or notional in the sense evidence is not being given of what did happen, evidence is given of what would have happened, it is said, on the balance of probabilities, onus on us, had they not committed the shortcoming they did, given that Parliament had alleviated the common law so as to require us to prove in the particular case actually as my friend says, in the reality. 

Now, that is precisely what the trial judge did and what the Court of Appeal correctly detected as having been done on this point.  The notion that my learned friend is advancing is an artefact of his success in cross‑examination or his client’s success in cross‑examination where the not particularly surprising or novel revelation was produced that a senior manager would get assistance from subordinates in considering a matter, particularly in relation to a risk to be written in the Antipodes.

Now, at that point, as was argued successfully below, the spectre arises of how many strikes of the racquets in this rally that we are going to invent by way of a theatrical fiction do we play through?  You would have asked a subordinate to go off.  A subordinate would have asked somebody.  That somebody would not have been available, on maternity leave, then there would have been more, et cetera, et cetera.  How long do you play through?

Instead, the practical course was taken.  This, after all, is an insurance case, where the point has been taken about non‑disclosure and the onus is on the insurer to say this would have made a difference, had there not been that non‑disclosure.  The insurer says, through the most senior person, who on any view of it is the decision‑maker, however much assistance and reliance is to be gained from the subordinates in Australia, says this is what concerns me and that is raised in the context of a pleading, which by the deliberateness of the amendment – you can see it in the case management, recorded in the reasons – means that Mr Naven and Mr McQuade are fully apprised – indeed, this is the reason for the evidence – fully apprised of what they have to meet, and one expects, a court can expect, that the best foot is put forward.

That is the reference to “best case” that one finds at page 214, paragraph 59.  That is the best case that had been put forward to the concerns of the trial judge accepted, having seen and heard him, was what would have actuated Mr Magee.  My friend then says well, from that cross‑examination, there is this mysterious alternative other.  But the fallacy is, of course, that the fact finding – the fallacy is to suggest that the fact finding went wrong by supposing that Mr Magee’s concerns would have remained throughout whatever imagined or speculated interchange there might have been at subordinate level.  His concerns remained what he put in his affidavit and what he was tested on in cross‑examination without yielding any diminution of its force.

That means that without having to go through the utterly artificial, and we would submit unconvincing, notion of staging theatricals about who would have done what with increasing difficulties of assessing the probabilities of who would have done what, the matter raised by the non‑disclosure is at the level of underwriting decision‑making, raised in the forensic contest and it is the insurance decision‑making, the underwriting decision which is at the heart of 28(3), and the disappointed insured puts forward their best case. 

Now, unless one could suppose there was something compelling either on the facts of this case or by some innominate legal doctrine that would say that you had to take into account the possibility that subordinates would have gone off and addressed things in such a way that a totally different concern would have come to the fore, then in our submission there is nothing in this case other than completely ordinary jury question as to whether the evidence was here satisfactory to discharge the onus on the balance of probabilities given the parties’ respective access to information.  In our submission, neither the trial judge nor the Court of Appeal has put any foot wrong in that regard. 

In relation to the matter noted in paragraph 58 on page 214 at about line 20, my friend, with respect, seemed to see as the most obvious indication of an illegitimately reversed onus, one can ask this:  now, first of all, is it literally correct – yes.  Second, in terms of supplying the content of the answer to the supposed questions directed to Optus, it is absurd to suppose that Atradius has what might be called an evidentiary burden in

that regard.  It does not mean they cannot contribute to the facts and they cannot test evidence, but the notion that there is an evidentiary burden on Optus – on Atradius – notwithstanding the ultimate legal burden it plainly has on the overall question, to prove the content of Atradius’ own answers is, in our submission, ridiculous. 

It is for those reasons, in our submission, that there is no point of special leave and whatever the result of this Court’s reconsideration for the second time of the factual determination originally made at trial, there would be no light cast on an approach to subsection 28(3), and there is certainly no need to correct the non‑existent error in relation to the onus placed on the respective parties by those provisions.  May it please the Court.

FRENCH CJ:   Thank you.  Yes, Mr Hutley.

MR HUTLEY:   My learned friend says that a practical course taken – the practical course taken is to create an artificial structure which departs from the structure identified by the witness as being the structure which would have occurred.  If that is what the section mandates that is an important matter, because what my learned friend has said, in effect, is they made a – I think he said – a practical course was taken.  The practical course that seems to have been taken is to ignore what really would have occurred, as appears from the cross‑examination, and set out what would have happened as a matter of structure, but rather in effect, go around that and create the structure which we were met with and only found out the truth in cross‑examination.

Now, that shows that this is an important case, because it mandates the insurer not leading evidence as to what would have occurred, but really what the ultimate result they would like to occur in a notional exercise which may never occur.  That is basically what my learned friend said.  They took a practical decision not to lead – call the people who actually would say what they did, how they would have reported, how they would have recommended, and created a notional insurer. 

That is the problem, and that is why this is an important case, exactly why my learned friend says it.  It is concrete to 28(3) - what the insurer would have done.  In our respectful submission, that is why this is an important case.  The repetition of findings between the two courts at first instance and on appeal is to be expected because exactly the same error was made, exactly the same error. 

The case, in effect, now mandates an insurer ignoring the truth, according to my learned friend, the insurer will say I am not going to call all these people to say what might have happened, I am not going to have the

difficulty of Mr Athaide maybe having to confront the cross‑examination that he thought this company BXP was great because he believed in its future.  I can avoid that, ignore all those people, and just call the person at the top, and just give him a notional – in effect – completely unreal set of circumstances and say, what would you have done. 

That is what is called creating a notional insurer.  It is going back to the prudent insurer inquiry by another means.  In our respectful submission, my learned friend’s submissions demonstrate how important this case is, in our respectful submission.

FRENCH CJ:   Thank you, Mr Hutley. 

The substantive issues relating to fraudulent misrepresentation which were raised in the application we have not heard by Atradius have been rendered moot by the determination of the Court of Appeal in respect of which Prepaid Services seeks special leave to appeal. In that determination, the Court of Appeal held that Atradius was entitled, pursuant to section 28(3) of the Insurance Contracts Act 1984 (Cth), to reduce its liability under the contract of insurance to nil by reason of the innocent misrepresentation for which Prepaid Services was responsible. The application for special leave by Prepaid Services, in our opinion, raises no issue of general principle. The Court of Appeal has applied the statutory onus and found it satisfied on the evidence of the insurer’s officer. No error is disclosed in the discussion of the evidentiary onus. The application for special leave by Prepaid Services should be dismissed with costs.

In relation to the other application, Mr Walker, by Atradius?

MR WALKER:   It follows that it should be dismissed as well.

FRENCH CJ:   Is there a costs order associated with that?

MR HUTLEY:   I think it would follow the event, your Honour.

FRENCH CJ:   In the matter of Atradius Credit Insurance v Prepaid Services Pty Limited & Ors, the application for special leave will be dismissed with costs.

MR WALKER:   May it please the Court.

AT 12.31 PM THE MATTERS WERE CONCLUDED