BBX Holdings Pty Ltd v American Home Assurance Co

[2007] NSWSC 549

CITATION:	BBX Holdings Ltd v American Home Assurance Company [2007] NSWSC 549
HEARING DATE(S):	18/05/07
JUDGMENT DATE :	18 May 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	18 May 2007
DECISION:	1.Order that the originating process be dismissed; 2. order that the plaintiff pay the defendant's costs.
CATCHWORDS:	CORPORATIONS – Winding up – Statutory demand – Application for order setting aside – Whether genuine dispute as to quantum of debt shown – Debt arising under cancelled contract of insurance – Where clause in policy provides that insurer to retain “customary short rate proportion of the premium” and policy cancelled by insured – Question of what proportion of annual premium to be paid for the period during which policy in force – Question of whether there is a genuine dispute can be decided as a matter of law where question arises on the construction of the contract and does not depend upon conflicting evidence requiring findings of fact – Held that no genuine dispute as a matter of law – Order that originating process be dismissed. - CONTRACTS – General contractual principles – Construction and interpretation of contracts.
LEGISLATION CITED:	Corporations Act 2001 (Cth)
CASES CITED:	Lane, Walker, Rudkin Ltd v Yorkshire Insurance Co Ltd [1928] NZLR 77 K C T Sutton, Insurance Law in Australia, 3rd ed (1999) Sydney, LBC Information Services Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 Lifestyle Retirement Projects No 2 Pty Ltd v Parisi Homes Pty Ltd [2005] NSWSC 705; (2006) 22 BCL 31
PARTIES:	BBX Holdings Ltd v American Home Assurance Company
FILE NUMBER(S):	SC 4714/06
COUNSEL:	Plaintiff: J Hassett (solr) Defendant: A J McInerney
SOLICITORS:	Plaintiff: Hassett Dixon Solicitors & Attorneys Defendant: Lee & Lyons

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

WHITE J

Friday, 18 May 2007

4714/06 BBX Holdings Ltd v American Home Assurance Company

JUDGMENT

1 HIS HONOUR: This is an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand. On or about 8 August 2006, the defendant served a statutory demand addressed to the plaintiff claiming the sum of $38,441.17. The description of the debt was as follows:

“Pursuant to directors' and officers' liability insurance policy 113015 issued in respect of the period 11 May 2005 to 11 May 2006, the premium of $16,200 plus stamp duty and GST was payable by the company to the creditor. On 26 August 2005 the company requested that the policy be cancelled. Pursuant to the terms of the policy, the creditor was entitled to payment of the short rate proportion of the premium in respect of the period 11 May 2005 to 26 August 2005. This proportion of the premium totals $38,441.17 as follows: ...”

There then followed the statement of amounts for premium, stamp duty and GST.

2 There is no dispute that the directors' and officers' liability insurance policy was entered into. Nor is there a dispute as to its terms. Nor is there a dispute that the policy was for the period described in the statutory demand. There is no dispute as to the amount of annual premium payable. There is no dispute that the policy was cancelled on 26 August 2005.

3 The policy was in force for a period of 107 days between 11 May and 26 August 2005. The debt claimed in the statutory demand was an amount of 48 per cent of the annual premium. Had a pro rata proportion of the annual premium been charged, the debt payable including stamp duty and GST would have been $23,328.93. A cheque for this amount was proffered by the plaintiff on 16 May 2007.

4 The relevant term of the policy provided:

"The policy holder may cancel this policy by providing written notice to the insurer in which case the insurer shall retain the customary short rate proportion of the premium. The insurer may cancel this policy in the manner permitted by law and shall be entitled to retain the pro rata proportion of the premium ..."

5 The issue in these proceedings is whether there is a genuine question to be tried as to whether the expression "the customary short rate proportion of the premium" means the pro rata proportion of the annual premium as the plaintiff contends, or whether it means the proportion of the annual premium which the insurer customarily charges as its "short rate" for policies of that kind which are in force for the short time corresponding with the period the plaintiff’s policy was in force.

6 Framing the question this way excludes an alternative construction that the words mean a short rate customarily charged in the insurance industry as a proportion of the annual premium for a period being less than the term of the policy for which the insurer was on risk. I frame the question in the way I have because such an alternative construction, if it means something different from a pro rata proportion of the annual premium, was not a construction raised as a ground for disputing the debt in the plaintiff's affidavits. Nor, indeed, was it raised as such a ground in the plaintiff's written submissions. There is also no evidence that any such short rate was customarily charged in the insurance industry. (Compare Lane, Walker, Rudkin Ltd v Yorkshire Insurance Co Ltd [1928] NZLR 77).

7 The expression "customary short rate proportion of the premium" where used in the policy cannot mean a pro rata rate. The clause in which it appears distinguishes between the premium to be retained by the insurer if the policy is cancelled by the insured and the premium to be retained by the insurer if it cancels the policy. In the latter case, the premium the insurer can retain is the pro rata proportion of the premium. Clearly the former case is referring to something different from the pro rata proportion of the premium.

8 In K C T Sutton, Insurance Law in Australia, 3rd ed (1999) Sydney, LBC Information Services, para 7.12, Professor Sutton, in a section headed "Refund on Cancellation" says:

“The insured is also usually given the right to terminate the policy at any time on request in which case the insurer will retain the customary short period rate for the time during which the policy has been in force."

9 Such a short period rate is not a pro rata proportion of an annual premium, but is a rate charged for policies where the insurer is on risk for only a short period of time. It is understandable that an insurer would charge a different rate of premium if it were on risk for a period of, say, one month than it would charge if it were on risk for a period of, say, one year.

10 In the present case, the premium for the policy had not been paid, but there is no dispute that the plaintiff is required to pay the amount which the insurer would be entitled to retain under the clause if the premium had been paid.

11 In my view, the defendant is entitled under the clause to retain the amount which is its customary short rate proportion of the premium. The defendant kept a Short Rate Premium Calculation Table for policies of this description. For policies which were in force for periods of 102 to 108 days, the percentage of total premium charged as a short rate premium was 48 per cent. That was its customary short rate proportion of the premium.

12 The plaintiffs' broker gave evidence that he knew he could obtain the information as to what was the defendants' short rate proportion by making inquiry of the defendant. He says he believed that that would be the pro rata proportion. One wonders, if that were so, why an inquiry would be necessary. But on this application I will assume that that was his belief. Such a belief is irrelevant to the construction of the policy.

13 It was also argued that the policy should not be construed in such a way that the insurer had a discretion as to what premium it would charge, or could charge premium of an amount which would be unknown to the insured. In my view, that argument was misconceived. Under the policy, the defendant does not have a discretion. It can only charge according to what is its customary rate at the time of a cancellation. That is a matter of objective fact. It is a fact ascertainable on inquiry.

14 The plaintiff submitted that it need only show that a dispute as to the proper construction of the clause exists and that the grounds for that dispute were real and were not merely spurious, hypothetical, illusory or misconceived (Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452). I was referred to the oft-cited passage from the judgment of Barrett J in Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd [2002] NSWSC 411 at [23]:

“[23] The tests of ‘plausible contention requiring investigation’, ‘real and not spurious, hypothetical, illusory or misconceived’ and ‘perception of genuineness (or lack of it)’, applied in the context of a summary procedure where ‘it is not expected that the court will embark on any extended inquiry’, mean that the task faced by a company challenging a statutory demand on the ‘genuine dispute’ ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger.”

15 It was submitted for the plaintiff that in order to show the dispute was genuine, it was sufficient to show that the dispute as to the meaning of the clause was one which was arguable.

16 In Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379, Cohen J said (at 384-385):

“ Section 459H(1) refers to the court finding that there is a genuine dispute. The parties have argued this case on the issue of whether the proper construction of the agreement and the facts results in the plaintiff owing money to the defendant. The facts were not in dispute and there was thus no question of whose evidence would be accepted on a final hearing. Under the previous legislation, when there was a claim that there was a bona fide dispute on substantial grounds as to the debt claimed, the court could decide that dispute if it arose from a question of law or was of short compass. See, for example, Offshore Oil NL v Acron Pacific Ltd (1984) 2 ACLC 8.
I consider that under the provisions of the Corporations Law, the same approach can be taken. Although questions of disputed fact will not be decided on an application to set aside a statutory demand, the issue of whether there is a genuine dispute can be resolved on that application where the question arises on a short point of law or the construction of documents or agreed facts. In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785; 12 ACLC 669, McLelland CJ in Eq said that the expression ‘genuine dispute’ connotes a plausible contention requiring investigation. Where no further investigation is required, I consider that the court on an application under s 459 g may decide as a matter of law if there is a genuine dispute. The occasions when this is possible may be few, but in my view this is one of them .”

17 These observations have been adopted on a number of occasions, most recently by Campbell J in Lifestyle Retirement Projects No 2 Pty Ltd v Parisi Homes Pty Ltd [2005] NSWSC 705; (2006) 22 BCL 31 at [16]-[17]. Where the question is essentially one of construction of a contract and the question does not depend on conflicting evidence requiring findings of fact, to use the words of Cohen J in Delnorth Pty Ltd v State Bank of New South Wales, the Court can then decide "as a matter of law if there is a genuine dispute". Having regard to what I have decided is the proper construction of the relevant clause in the insurance policy, there is no genuine dispute that the plaintiff is indebted for the amount claimed in the statutory demand.

18 For these reasons, I order that the originating process be dismissed. I order that the plaintiff pay the defendant's costs.

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