Heath Wines Pty Ltd v Atradius Credit Insurance NV - [2016] SADC 72

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
HEATH WINES PTY LTD v ATRADIUS CREDIT INSURANCE NV
[2016] SADC 72
Judgment of His Honour Judge Barrett
1 July 2016
INSURANCE - GENERAL - POLICIES OF INSURANCE - MISREPRESENTATION AND NON-DISCLOSURE - OTHER MATTERS
The defendant insurance company declined to allow the plaintiff wine exporter's claim under a trade credit insurance policy on three grounds, viz that the plaintiff had failed to make material disclosures in its proposals for insurance, that exclusion clauses in the contract applied and that the plaintiff had breached conditions of policy.
Held: The plaintiff did not fail to make material disclosures. The exclusion clauses do not apply. The plaintiff has not breached conditions of the policy. The defendant is liable to pay the sum insured.
Insurance Contracts Act 1984 (Cth) s 21(1), s 21(3), s 28, s 54; Broadcasting and Television Act 1942 , referred to.
CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1; Kelly v New Zealand Insurance Company (1996) 130 FLR 97; Rogers v The Legal Services Commission (1995) 64 SASR 572; McCann v Switzerland Insurance (2000) 203 CLR 579; Wallaby Group Ltd v QBE Insurance (2010) 240 CLR 444; Johnson v American Home Assurance Co (1998) 192 CLR 266; AG v Kowalski [2014)]SASC 1; Re The News Corporation Ltd and Others (1986-7) 70 ALR 419, considered.

HEATH WINES PTY LTD v ATRADIUS CREDIT INSURANCE NV
[2016] SADC 72

The plaintiff, a South Australia wine exporting company, sues the defendant, an international insurance company, for the defendant’s failure to indemnify it under the terms of two Trade Credit policies when one of its customers, a United States company called Vinocopia, defaulted paying for wines that it supplied. The plaintiff seeks to recover from the defendant the sum of $284,340.32 being the unpaid balance of monies owed to it by Vinocopia.
The defendant denies liability under the Trade Credit policies. The defendant asserts that there are three bases for denying liability. They are:
1.That the plaintiff made material non disclosures in its proposals for insurance;
2.The plaintiff’s claims come within exclusions expressed in the policies; and,
3.The plaintiff has failed to comply with essential policy terms.
The parties
The plaintiff, Heath Wines Pty Ltd, was incorporated in September 2002. It was a supplier and exporter of wine. The company carried on business as an agent for a joint venture which was set up in a Joint Venture Agreement dated 11 October 2002. There were five shareholders in the joint venture, each of whom set up for themselves a trust.
One of the shareholders, Mr John Hood, is an accountant. The four other shareholders were clients of his. Mr Hood was one of the original directors of the plaintiff and he remains one.
Mr Alan Heath is another shareholder. He is a wine consultant who was actively involved in the company’s day-to-day operations. He was a skilled salesman who spent much time selling the plaintiff’s wines in the United States and elsewhere overseas. He ceased being principally engaged as a salesman in September 2007. He took up being a salesman for Vinocopia, the plaintiff’s defaulting debtor. I will later canvas in more detail his relations with the plaintiff and Vinocopia and the circumstances of his change in employment.
Mr Stephen Thompson is a shareholder. He is a businessman whose business interests were formerly mainly in the areas of mining services. He also had a vineyard. In about 2005 he became more involved in the day-to-day running of the plaintiff’s business alongside Mr Heath. It appears that the shareholders became dissatisfied with Mr Heath’s performance as their salesman and as a result it was agreed that from about September 2007 Mr Thompson would take over Mr Heath’s duties. Mr Thompson ceased to be a director in March 2014.
Both Mr Thompson and Mr Hood gave evidence at the trial. Essentially their examination-in-chief is contained in their affidavits sworn respectively on 14 February 2016[1] and 16 February 2016.[2] Mr Heath did not give evidence.
[1] Exhibit P2.
[2] Exhibit P5.
The remaining two shareholders played no role in the day-to-day running of the plaintiff company. Neither was called as a witness. They are Mr Geoff Rischbieth, a pharmacist, and Mr Carlo Boscaini, a developer.
Vinocopia is a company registered in Minnesota, United States which imports and distributes wine. The company is a part of a larger group of companies owned by Mr John Malinski.
In about 2004 Mr Heath negotiated the sale of Heath Wines to Vinocopia. The sales to Vinocopia increased to such a point that by 2008 Vinocopia was the plaintiff’s largest customer. Mr Heath ceased being employed principally by the plaintiff in September 2007 and began working as a salesman for Vinocopia. The circumstances of that change of employment are the subject of much evidence in the trial.
The defendant is an insurance company which is the US subsidiary of a world-wide group of companies known as the Atradius Group. The registered office of the defendant is in Maryland United States.
Mr David Lloyd is the head of Claims and Special Risks – Asia Pacific, Africa, India and the Middle East. He gave evidence at the trial. His examination-in-chief is essentially contained in his affidavit sworn on 4 March 2016.[3] He is based in Sydney. A senior underwriter of the defendant, Ms Sharon Benfer, gave evidence by AVL to Maryland US. Essentially her examination-in-chief consisted of her two affidavits sworn on 30 March 2016[4] and 17 April 2016.[5]
[3]    Exhibit D20.
[4]    Exhibit D19.
[5]    Exhibit D16.
The policies
From when the plaintiff began selling wine to Vinocopia in 2004 the trading terms for payment were fifty per cent on order and fifty per cent on shipment.
When Mr Heath left the direct employment of the plaintiff in September 2007 Mr Thompson was effectively in charge of the plaintiff’s operations. In October 2007 he changed the agreed terms for payment by Vinocopia. Thereafter the terms for payment were 90 days from delivery for bottled wine and 30 days for cask wine.[6]
[6] See the exchange of correspondence Vinocopia to plaintiff 4 October 2007, Exhibit P1, Vol 1, p 236 and the plaintiff to Vinocopia 24 April 2008 Exhibit 1, Vol 1, p 249, confirming earlier discussions.
In March 2008 Mr Thompson received advice from the plaintiff’s bankers that he should take out a policy of trade credit insurance to protect against the risk of trading with overseas customers. Up until then the plaintiff had managed that risk by obtaining letters of credit. Mr Thompson contacted an insurance broker and on 28 March 2008 he completed a proposal form for trade credit insurance from the defendant.[7]
[7] Exhibit 1, Vol 1, p 251-260.
There were some questions in the proposal form which he did not answer. The plaintiff contends that section 21(3) of the Insurance Contracts Act 1984 (Cth) deems the defendant to have waived compliance with what would otherwise be the plaintiff’s obligation to disclose the information sought in such questions.
Mr Thompson attached to the proposal an aging summary, ie a summary of outstanding invoices. In the column indicating ≥ than 90 (more than 90 days outstanding) Mr Thompson wrote $5,440 in respect of Vinocopia.
It will be necessary to canvas in some detail specific aspects of the proposal document.
In response to the proposal the defendant offered trade credit insurance to the plaintiff. It did so in a letter of 8 May 2008.[8] The letter enclosed the defendant’s offer for insurance cover and a form requesting cover which was to be filled out by Mr Thompson. That form invited the plaintiff’s confirmation that it had complied with its duty of disclosure.
[8] Exhibit 1, Vol 1, p 265.
By letter of 13 May 2008[9] the defendant confirmed that it had assumed the plaintiff’s risk from 1 March to 30 June 2008. A copy of the policy was enclosed.[10] The defendant’s maximum liability was fixed at US$250,000.
[9] Exhibit 1, Vol 1, p 298.
[10] Exhibit 1, Vol 1, p302-331.
On 5 August 2008 the plaintiff sent to the defendant a proposal to renew the insurance for the financial year 2008/9.[11] Unlike the form which was filled out for the initial insurance the renewal was just one and a half pages long.
[11] Exhibit 1, Vol 1, 334-5.
In response to the renewal proposal the defendant sent the plaintiff a letter of acceptance dated 21 August 2008 enclosing a policy schedule and a policy document containing conditions.[12] The insurers limit for Vinocopia remained at $250,000.
[12] Exhibit 1, Vol 2, p 340-69.
Vinocopia’s default
The following is a schedule of invoices sent by the plaintiff to Vinocopia which, except for the payment of US$100,000 on 24 February 2009, remains unpaid.

24             Purchase Order

25             Amount US$

26             Due Date

27             1611

28             85,518.72

29             11/10/08

30             1671

31             85,518.72

32             15/11/08

33             1672

34             85,518.72

35             15/11/08

36             1772

37             42,594.72

38             06/01/09

39             1773

40             42,594.72

41             06/01/09

42             1774

43             42,594.72

44             14/02/09

45             TOTAL

46             384,340.32

47

With the reduction of $100,000 paid in February 2009, that left a balance of US$284,340.32.
On 28 May 2009 Vinocopia disputed the amount the plaintiff was claiming and asserted it owed only $132,483.64.[13]
[13] Exhibit 1, Vol 2, p 386.
Correspondence between the plaintiff, Mr Heath and Vinocopia followed. The plaintiff began corresponding with its insurance brokers and on 25 August 2009 it made a claim against its policy with the defendant.[14]
[14] Exhibit 1, Vol 2, p 433.
While the plaintiff claimed to be owed $284,340.32 its claim on the policy was for $250,000 being the maximum covered by the policy in respect of Vinocopia.
In 2011 the plaintiff sued Vinocopia in the District Court of South Australia for the amount outstanding. It sued for other sums as well. Later I will discuss the significance of those other sums.
On 28 February 2012 Master Rice delivered reasons entering judgment against Vinocopia for the outstanding debt of $284,340.32 and the other sums.[15]
[15] Exhibit 1, Vol 2, p 536.
The plaintiff has not sought to register the judgment in the United States. The defendant submits that the plaintiff’s failure to do so is a failure on its part to comply with the terms of the policy.
Issues in the trial
Is the plaintiff disentitled to insurance by the defendant because:
1.it has failed to make material disclosures in its proposals for insurance?
2.exclusion clauses in the insurance contract apply?
3.it has failed to comply with essential terms of the policy?
Is the defendant liable to pay to the plaintiff the sum insured?
Non disclosures in proposals
There are three dates upon which Mr Thompson, acting on behalf of the plaintiff, had to consider what information he should disclose to the defendant. The first date is 28 March 2008 when he filled out the first proposal. The second date was an occasion between 8 May 2008 when he received the defendant’s letter offering insurance and 13 May when the defendant confirmed the insurance. Between those dates Mr Thompson filled out and sent to the defendant the request for cover. That form had been sent to the plaintiff by the defendant for completion. It invited the plaintiff to confirm that the plaintiff had complied with its duty of disclosure.
The third date is 5 August 2008 when Mr Thompson filled out and sent to the defendant a proposal to renew the insurance for the 2008/9 financial year. So the relevant dates are in March, May and August of 2008.
The defendant’s case is that the plaintiff has failed to disclose the following matters:
1.Texas debt
2.The The Riesling debt
3.The deteriorating payment history of Vinocopia
4.The conflict between Mr Heath and the plaintiff.
Before reviewing the facts of each alleged non-disclosure I turn to the legal principles bearing on the duty to disclose in proposals for insurance. Those principles are to be gleaned from the Insurance Contracts Act 1984 (Cth) (the “Act”), the common law and the terms of the proposal itself.
Section 13 of the Act provides that both the insured and the insurer should act towards the other in the utmost good faith. It says:
A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under, or in relation to it, with the utmost good faith.
Section 21(1) deals with the insured’s duty to disclose. It says:
(1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:
(a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or
(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant, …
It can be seen that s 21(1) imports both subjective and objective criteria.
Section 26 provides for the circumstances in which what is otherwise a misrepresentation will not give rise to a right to avoid the policy. Critically it provides an exception where a reasonable person would not have believed the representation to be a misrepresentation. Section 28 provides that a policy of insurance may be voided where a misrepresentation has been made fraudulently, but it will not have this effect where the insurer would still have issued the policy. In such a case the insurer’s liability will be reduced to the extent of the loss caused by the misrepresentation.
The obligation on the insured is to make full disclosure to the insurer with the legitimate interests of the insurer in mind.[16] A lack of good faith is not to be equated with dishonesty only. The obligation has elements in common with the equitable notion of clean hands. Mere passivity may not be a sufficient discharge of the obligation. Affirmative action may be required to satisfy it.[17] The Full Court of the Federal Court has had occasion to say of s 13, the section requiring good faith, that it encompasses “notions of fairness, reasonableness and community standards of decency and fair dealing”.[18]
[16] CGU Insurance Ltd v AMP Financial Planning Pty Ltd (2007) 235 CLR 1.
[17] See Callinan and Heydon JJ in CGU Insurance Ltd v AMP Financial Planning Pty Ltd at pp 77-78.
[18] Kelly v New Zealand Insurance Company (1996) 130 FLR 97 at 111.
I identify the questions in the proposal form which the defendant says invite the plaintiff to disclose that which it failed to disclose.[19]
[19] Exhibit 1, Vol 1, p 251.
QYour current outstandings and overdues.
A  Payment terms    Amount overdue       Action taken
Vinocopia       30-90 days         $5,440                   Contacted
QYour debtor profile
A  Maximum Outstanding     Turnover        Terms
Vinocopia       $250k  $500K
Clause 11     Important notices and signatures
YOUR DUTY OF DISCLOSURE
Before you enter into a contract of general insurance with us, you have a duty, under the Insurance Contracts Act 1984, to disclose to us every matter that you know is relevant to our decision whether to accept the risk of the Insurances and, if so, on what terms.
You have the same duty to disclose those matters to us before you renew, extend, vary or reinstate a contract of general insurance.
Your duty however does not require disclosure of a matter:
·that diminishes the risk to be undertaken by us;
·that is of common knowledge;
·that we know or, in the ordinary course of business, ought to know;
·as to which compliance with your duty is waived by us.
If you fail to comply with your duty of disclosure, we may be entitled to reduce our liability under the Policy in respect of a claim or can cancel the Policy. If any misrepresentation by you if fraudulent, we may treat this Policy as if it was never effected.
Is there any additional information y0u should disclose to us to help us assess the risk?
□ Yes      □ No
If Yes, please specify:
Nothing was filled in here.
The plaintiff does not claim to have disclosed the so called Texas or Riesling debts.[20] The plaintiff says that at the three relevant times, ie March, May and August 2008, it did not regard Vinocopia as owing it money under those heads. The monies it claims from the defendant under the policy do not include those monies.
[20] I will use those descriptions even though the plaintiff denies monies were owing.
The plaintiff denies the defendant’s claim that as at the three relevant dates there was a history of deteriorating trading terms with Vinocopia. The plaintiff denies that there was a conflict in the role of Mr Heath such as should have been disclosed to the defendant.
The defendant asserts that the Texas and Riesling debts should have been disclosed in the answers to questions 8 and 9. The deteriorating trading terms with Vinocopia should have been disclosed in those two areas and possibly alongside question 11. The conflicted role of Mr Heath should have been disclosed in the area alongside question 11.
I deal with the four alleged failures to disclose.
Texas debt
For the plaintiff, Messers Thompson and Hood gave evidence on this topic as did Ms Cairns.
The plaintiff began selling wine to Vinocopia in 2004. In May 2005, at Vinocopia’s request, the plaintiff shipped wine to Texas. On arrival in Texas the wine spoiled because it was left too long in the sun. Vinocopia disputed liability to pay the plaintiff’s invoice for A$94,677.32. The plaintiff recognised that it could not recover from its insurers because the risk passed to the buyer upon landing in Texas. Mr Thompson said that the parties came to a commercial resolution of the matter. The plaintiff was anxious not to lose the custom of a potentially profitable client. The plaintiff acknowledged that Vinocopia was paying some of the marketing expenses being incurred by Mr Heath. Those expenses included airfares and accommodation. The plaintiff agreed with the defendant that it would set off those expenses against the invoice for the Texas delivery. That agreement was reached on the understanding that Vinocopia would continue to trade with the plaintiff. The agreement was never reduced to writing.
In the event Vinocopia did continue to trade with the plaintiff. By 2008 Vinocopia became the plaintiff’s largest customer.
Mr Thompson said that the marketing expenses the subject of the set off with Vinocopia were accepted by Austrade as legitimate marketing expenses for which the plaintiff had paid by way of the Texas debt set off. As at the end of the financial year 2005-6 the Texas debt no longer appeared in the plaintiff’s accounts as a debt owing by Vinocopia. The Texas debt did not resurface until 2009. It will be necessary to examine the circumstances of its resurfacing in 2009 but as at March, May and August 2008, the critical dates for the proposals, there had been no further mention of it.
The defendant submits that the forgiveness of the Texas debt by the plaintiff was always contingent upon Vinocopia continuing to trade with the plaintiff. The defendant points to the fact that the agreement to forgive the debt had never been reduced to writing. The defendant submits that the debt, even if contingent, should have been disclosed because it was liable to rise again if Vinocopia ceased to trade with the plaintiff. The basis for submitting that it was liable to rise again is that it did in fact rise again when Vinocopia contested the amounts owing in 2009. Ms Benfer, for the defendant, says that if the defendant had known about the Texas debt it would not have insured the plaintiff.

I determine this question in two stages. The first stage is to determine whether the plaintiff breached its obligation of disclosure by not revealing the Texas debt.
In my view the plaintiff did not breach its duty of disclosure. I accept Mr Thompson’s evidence that in 2008 he regarded the so called Texas debt as forgiven. Vinocopia had traded with the plaintiff for about two years between its agreement with the plaintiff and the plaintiff’s proposal to the defendant. As at 2008 Vinocopia had become the plaintiff’s largest customer. As at 2008 the plaintiff had no reason to think that that trading relationship would not continue. The debt no longer appeared on the plaintiff’s books and had not done so for about two years.
The second stage is to determine whether, despite what Ms Benfer says, it would have been reasonable for the defendant to decline insurance if the disclosure had been made. Section 128 of the Act provides that the insurer may not avoid the contract if it would have entered into it for the same premium and on the same terms even if disclosure had been made. The section says:
(1)This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into:
(a) failed to comply with the duty of disclosure; or
(b) made a misrepresentation to the insurer before the contract was entered into;
but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.
(2)If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.
I find that it would not have been reasonable for the defendant to decline insurance, absolutely, or with conditions, if the plaintiff had disclosed to the defendant what it knew of the Texas debt in 2008.
Insofar as Vinocopia refused to pay for the Texas wine it did so because the wine had spoiled and was unsaleable. There might have been arguments from both sides about who was to blame for that, but the reason for non-payment had nothing to do with Vinocopia’s credit worthiness. It was a trading dispute that might arise in any commercial context. In the event the parties fairly quickly came to a commercial resolution. It would have been quite unreasonable in my view for the defendant to have demurred about accepting the insurance proposal in 2008 if the plaintiff had made full disclosure about the Texas debt. I find that, so far as the plaintiff was concerned, throughout 2008, the Texas debt was no longer owing.
As I say the Texas debt did arise again in 2009. In fact, it was part of the District Court judgment the plaintiff obtained against the defendant. But the plaintiff is not seeking to recover that sum from the defendant in these present proceedings. I will discuss in more detail how the Texas debt came to be part of the District Court judgment when I discuss the circumstances of that judgment.
The Riesling Debt
The genesis of the Riesling debt arose in November 2007. Mr Heath had effectively ceased employment with the plaintiff in September 2007 and he began employment with Vinocopia. (I will have to discuss that question in more detail shortly).
In November 2007 Mr Heath, on behalf of Vinocopia, asked Mr Thompson to secure 5,000 cases of 2008 Clare Valley Riesling. On 30 April 2008 (ie after the first proposal, but before the confirmation in May, and before the second proposal in August) the plaintiff ordered part of the proposed consignment from O’Leary Walker in South Australia. However the plaintiff did so without receiving a purchase order for the wine from Vinocopia. In fact no such purchase order ever came from Vinocopia for that wine. The plaintiff never sent an invoice to Vinocopia for the wine. As at March, May and August 2008, no monies were actually owing by Vinocopia to the plaintiff, notwithstanding that on 30 April 2008 the plaintiff had incurred a liability to the suppliers. It is not clear how much of the Riesling ever left O’Leary Walker. Some of it must have done so because the plaintiff sold some of it. The rest of it was sold by O’Leary Walker.
Mr Thompson said that while the Riesling debt, like the Texas debt, rose up as part of the dispute between the plaintiff and Vinocopia after Vinocopia disputed the amount owing in 2009, it appears uncontradicted that the plaintiff and O’Leary Walker, between them, sold the Riesling wine so that neither was out of pocket. Despite the Riesling debt being part of the dispute between the plaintiff and Vinocopia in 2009-10, the Riesling debt was not part of the claim that the plaintiff made against Vinocopia in the District Court action. In that respect the Riesling debt is unlike the Texas debt. However, like the Texas debt, the Riesling debt is not part of the present claim against the defendant.
The defendant points to inconsistencies within the evidence of Mr Thompson on the topic of the Riesling debt. Mr Thompson said at one stage that the plaintiff had only reserved the wine from its suppliers, but documents make it clear that the suppliers sent the plaintiff an invoice on 30 April 2008. Mr Thompson said that there was never any formal purchase order from Vinocopia for the wine. While that appears to be the case, other verbal orders were treated as formal orders by Vinocopia. However none of these criticisms alters the fact that the plaintiff never sent to Vinocopia an invoice for the Riesling. As late as August 2008, Vinocopia could not be said to be overdue in paying for that wine. It had not received the wine and it had not been invoiced for it. Notwithstanding that the wine was raised by the plaintiff in its dispute with Vinocopia in 2009-10, the wine was sold by the plaintiff and its suppliers and was not part of the District Court action in 2011.[21]
[21] Exhibit D26, p 518.
As with the Texas debt I find that the plaintiff was not in breach of its obligations of disclosure in March, May or August 2008. Likewise I find, notwithstanding Ms Benfer’s evidence, that if the defendant had been fully apprised of the circumstances of the Riesling debt it would not have declined or qualified insurance for the plaintiff. I find that such a contrary contention is not reasonable.
Vinocopia’s deteriorating payment history
The defendant says that the evidence shows that Vinocopia’s payment history was deteriorating by the time of the proposal in March 2008 and that that continued to be so in May and August. That history should have been disclosed and, if disclosed, insurance would not have been offered.
The plaintiff’s bookkeeper, Ms Cairns gave evidence, in court, and by way of affidavits.[22] She gave evidence principally about the payment history of Vinocopia. In her affidavit of 17 February 2016 she said[23] that she would describe Vinocopia as a reliable customer which generally paid its accounts within trading terms or not long thereafter.
[22] Exhibit P14 and p 25.
[23] Exhibit P14, para 17.
In cross-examination her attention was drawn to a schedule of invoices between the plaintiff and Vinocopia between July 2007 and November 2008.[24] The schedule contained handwritten notes which purported to record due dates for payments and payment dates of individual invoices. Ms Cairns said she did not make those notations. Following that evidence Ms Cairns produced a further affidavit attaching a revised schedule which corrected what Ms Cairns said were several errors in the exhibited schedule. She gave further evidence following the filing of that affidavit.
[24] Exhibit 1, Vol 2, pp 254-5.
I do not understand the defendant to question Ms Cairns’ honesty or reliability as a witness. Instead criticism is made of the reliability of the records. At one point Ms Cairns conceded that some of the entries were “guesses”. I do not conclude from that evidence that Ms Cairns’ evidence, or the records, are unreliable as a general indication of Vinocopia’s payment up to August 2008. I find that Ms Cairns was at pains to provide an accurate account of Vinocopia’s record of payments and that the records themselves provide a reasonably accurate account.
I rely on an aid, marked “Aid 3” prepared by the plaintiff to summarise the payment record. Corrections were made to that aid during the hearing. Even though, as the defendant submits, there may be some differences, favourable to the plaintiff, between the aid and the record of invoices,[25] I think the aid is sufficiently indicative of Vinocopia’s payment record between June 2006 and August 2008.
[25] Exhibit P1, Vol 2 pp 554-5.
Up until an invoice sent by the plaintiff to Vinocopia dated 18 July 2007, Vinocopia had only once paid late. There had been one payment ten days overdue of an invoice dated 20 November 2006.
Thereafter, in respect of invoices dated from 18 July 2007 to 20 June 2008, all invoices were paid late. However, five of them were paid less than ten days late. There was no real pattern of deterioration. The first invoice in this group of late paid invoices is dated 18 July 2007. It was one hundred and thirty five days late, and the second to last, dated 11 July 2008 was one hundred and thirty six days late. These are undoubtedly significantly late payments. On the other hand, the very last invoice dated 20 June 2008, was paid only 9 days late. In between the two longest overdue invoices, none was over forty days. Only two were overdue for forty days.26
26 See plaintiff's Outline para 183-4.
In respect of the invoices due for payment in the period between the original proposal in March and the renewal in August, two had been paid on time and the other five were 1, 6, 18(x2) and 36 days overdue.
The trading position with Vinocopia as at 5 August 2008, the date of the renewal proposal, was not materially different. The invoices due for payment in the period between the original proposal in March and the renewal in August, two had been paid on time, and the other five were 1, 6, 18 (by 2) and 36 days overdue.[26]
[26] Plaintiff’s Outline paras 183-184.
I accept Ms Cairns’ evidence that delays in payment of that order were not unusual.
Of some significance is the question in the insurance proposal which is specifically directed to current overdue accounts. The question, number 8, is in several parts. The first three parts deal with buyers generally. They are not identified by name.
The first of the questions asks “How much - in total - do your buyers owe you?” That question was not answered, but it may be inferred that the answer to that question is to be found by adding up the figures in the third question.
The second question is “Average number of days for which payments remain outstanding beyond the due date?” No answer is given.
The third question asks “How many of this is; … (there follows columns) for Not yet due, 30 days, 60 days, 90 days and 90 days plus overdue”. Mr Thompson put in figures in each of those columns. In the column 90 days plus, Mr Thompson put $130,700.47. That figure does not appear to relate to any sums due from Vinocopia.
The next part of question eight asks the proposer to identify each overdue buyer, the time overdue and the amount that is owed.
Significantly however, the question only asks for details of accounts sixty days overdue. Mr Thompson entered $5,440 for Vinocopia. Vinocopia was the fourth largest of the six indicated. The two largest were over $60,000 each. As I understand it the defendant does not dispute the accuracy of the entry of $5,440 for Vinocopia. That amount appears to be outstanding from an invoice dated 2 September 2007 for $85,544. Of some significance, there had been three previous partial payments off that invoice. The greatest part of the payment of that invoice was the first instalment of $62,562.84 made in November 2007. So it can be seen that the amount outstanding was only a very small proportion of a much larger invoice which was substantially paid within terms.
By its question directed specifically to individual buyers, the defendant was only interested in buyers who were sixty days overdue. That cannot relieve an insured of its obligation to behave in utmost good faith in disclosing its debtors, but it can assist in answering the question about what it is reasonable to expect a proposer to disclose. It also assists in answering the question about whether it would have been reasonable for the defendant to refuse cover if it had had full access to the plaintiff’s records. In making these observations I do not overlook that question 11 recites the proposer’s duty to disclose and it seeks from the proposer such further information as the proposer believes it should disclose. As it happens, question 11 was left blank. The defendant never approached the plaintiff to complete that question.
I find that the plaintiff has not breached its disclosure obligations in respect of Vinocopia’s payment history. It is true that two invoices were overdue for quite a long time (135 and 136 days), but they were not overdue at the relevant times. There was no pattern of deteriorating payments. The defendant’s own proposal form only invited specific disclosure of debts outstanding for 60 days.
It is true that it was only shortly after the renewal proposal in August 2008 that Vinocopia stopped ordering wine from the plaintiff and stopped paying for that which it had already ordered. The first due of the unpaid invoices (leaving aside Vinocopia’s “round” payment of $100,000 in February 2009) was due on 11 October 2008, two months after the renewal proposal. It is not difficult to see, in hindsight, and with the onset of the global financial crisis in late 2008, how the defendant now sees the non-disclosure of the details of Vinocopia’s trading history as so significant.[27]
[27] See defendant’s Outline para 113.
The defendant alleges that the plaintiff’s knowledge of Vinocopia’s payment performance, combined with the changed relationship with Mr Heath, were behind the plaintiff taking out the trade credit insurance.
I do not believe the evidence bears out that assertion. The decision to take out the insurance was made at the beginning of 2008. It is true that there had been some late payments before that but there was no adverse pattern then, or even by August 2008. The accounts also show that even where full payment was made late, partial payments, sometime substantial partial payments, had been already made.[28]
[28] Exhibit 1, Vol 2, pp 204-5.
I think it was reasonable for the plaintiff to think that it need not disclose the full payment history. I also find that it would have been unreasonable for the defendant to deny insurance cover or impose conditions if the whole history had been disclosed.
Conflict in the role of Mr Heath
The defendant makes much of the roles Mr Heath played in relation to the plaintiff and Vinocopia.[29] Mr Heath had an interest in the joint venture that owns the plaintiff and he was employed by the plaintiff to sell wine for it in the United States. In about September/October 2007 he began working for Vinocopia selling wine for them. Vinocopia kept buying the plaintiff’s wines until September 2008. Wine was invoiced by the plaintiff between 28 July 2008 and 6 November 2008 and that wine was due for payment between 12 November 2008 and 13 February 2009. Those payments were not made except that there was a “rounded payment” of $100,000 which reduced what was owing. Whereas part payments were a feature of earlier invoices, there were no part payments of these invoices.
[29] See Defendant’s Outline para 72-109.
The question is what should have been disclosed by the plaintiff in relation to Mr Heath in March, May and August 2008. What was it about Mr Heath that the defendant should have been told so that they could determine whether or not to insure the plaintiff against a default by Vinocopia?
Mr Heath was one of the original shareholders. The business was originally his idea. The company was named after him. The trust set up for him was called Heath Wine Consultants Pty Ltd. Mr Heath was the “hands on” operator of the business, working out of premises in Bowden but spending a good deal of time travelling particularly to the United States, to market wines. Overwhelmingly the plaintiff’s wines were exported.
A management agreement was entered into in 2002 by which Mr Heath was engaged to work on behalf of the plaintiff. Heath’s consultancy firm was paid an annual salary of $100,000. That salary was treated as an advance on profits under the joint venture. In the plaintiff’s books the salary was entered as a loan to Heath’s consulting firm.
It appears that in 2007 the other shareholders became dissatisfied with Heath’s performance of his role. There does not appear to be any dispute that in about September 2007 Thompson took over Heath’s position. What is in some dispute is what exactly was Heath’s position thereafter, and did his position adversely affect the defendant insuring the plaintiff against default by Vinocopia. Certainly the plaintiff did not say anything to the defendant about its relationship with Heath.
The defendant’s assertion is that Mr Heath was in a conflicted situation in that he had obligations to both the plaintiff and Vinocopia. In 2008 he was a shareholder in the plaintiff and his company had a consultancy agreement with the plaintiff. He had a debt to the plaintiff arising from the characterisation of his earlier income as a loan from the plaintiff. On the other hand he was employed by Vinocopia, critically to maximise Vinocopia’s position in any dealings with the plaintiff.
The defendant asserts further that there is significance, ominous significance, in the coincidence in September 2008 of Mr Heath finally settling a dispute with the plaintiff, and Vinocopia ordering from the plaintiff, but ultimately not paying for, wine which is the subject of the present proceedings.
The defendant criticises the plaintiff’s failure to call Mr Heath as a witness. It submits I should draw inferences adverse to the plaintiff for that failure.[30] The defendant criticises Thompson and Hood and submits that documents discovered during the trial lead to the conclusion that their evidence should not be accepted.
[30] Jones v Dunkel, (1959) 101 CLR 298.
Before discussing the evidence on this topic, I identify the circumstances in which it might be said that Heath’s involvement with the plaintiff or Vinocopia would affect Vinocopia’s creditworthiness. I accept that if Mr Heath’s obligations to Vinocopia were such that he was liable to act in their interests at the expense of the plaintiff’s interests, then there was a risk Vinocopia might become unwilling or unable, to pay the plaintiff for wine it had ordered. I also accept that if Mr Heath had conflicting interests and felt some animosity towards the plaintiff he might favour Vinocopia’s position at the plaintiff’s expense. The defendant asserts both of those scenarios.
It follows that I accept that if the plaintiff was conscious of either of those scenarios between March and August 2008, it should have told the defendant about them. Also if a reasonable person in the plaintiff’s position would have been conscious of those scenarios, then the defendant should have been told.
However, I do not accept the defendant’s submissions in this regard. In my view neither of those scenarios was reasonably foreseeable in 2008. In fact I do not think that either of those scenarios eventuated at all. In coming to that conclusion I have relied largely on undisputed facts. I do not think that either Mr Thompson or Mr Hood was being dishonest or unreliable in his evidence. I think each was doing his best to accurately recall events, but the resolution of this topic comes about largely from objective facts. I do not draw any inference adverse to the plaintiff for not calling Mr Heath.

The principal reason for rejecting the defendant’s contentions is that it is not at all clear why Mr Heath would see it as being in his interests to disadvantage the plaintiff in dealings with Vinocopia. In fact it would appear very much in his interests to find a way to favour the plaintiff in any dealings. He remained a shareholder in the plaintiff. His fortunes were tied to theirs. If the plaintiff lost, he stood to lose. There is no evidence that he was other than an employee of Vinocopia.
Having said that it is true that Mr Heath’s relationship with the plaintiff was complicated in 2008. While he had changed employment from the plaintiff to Vinocopia in September 2007, there were several unresolved matters between him and the plaintiff. He had apparently not paid tax on his income derived from the plaintiff. Discussions between him and the plaintiff led to the plaintiff’s books showing him amortising that income, which by 2007 was just under $600,000, by an annual consultancy fee of just under $200,000 for three years.
Another unresolved matter related to the house in Woodville in which Mr Heath and his family lived. Mr Heath’s entitlement to live there was part of his remuneration. He wanted to secure the house for his family. All but one of the shareholders were willing to include the house in the post-2007 agreement. But one shareholder was not. It took about a year to sort out that matter. The deed incorporating the agreement was signed on 19 September 2008[31] and operated for three years from 1 July 2008. The deed terminated Heath’s earlier consultancy agreement and commenced a new one for the following three years.
[31] Exhibit 1, Vol 2, p 370.
The coincidence highlighted by the defendant is that Vinocopia issued three purchase orders for wine from the plaintiff in September 2008. Each was dated 11 September 2008 and each was for $42,594.72 worth of wine. They were the last orders made by Vinocopia for wine from the plaintiff. The invoices relating to each of those purchase orders are among those which remain unpaid by Vinocopia.
The defendant’s hypothesis is that, in an effort to secure his agreement with the plaintiff, Mr Heath placed those three orders from Vinocopia. Having secured the agreement with the plaintiff he placed no more orders. While Vinocopia made payments off earlier invoices in 2008 until the end of September, it made no payments after the end of September except for the payment of $100,000 in February 2009.
The defendant points to correspondence which shows that in December 2008 Mr Hood complained to Mr Heath that he had failed to secure orders and payments from Vinocopia. He threatened to terminate the consultancy agreement. Mr Heath responded by indicating his willingness to continue efforts on behalf of the plaintiff. Mr Hood accepted Mr Heath’s assertions and withdrew the threat to terminate the agreement.
The threat does not appear to have been renewed. In fact it appears that in 2009 the plaintiff sought to sell its business. Vinocopia was a possible purchaser. The business was not sold but, because Vinocopia was a potential purchaser, Mr Hood emailed Mr Heath in February 2009 telling him that, as he was associated with a possible purchaser, details of offers to purchase the plaintiff would not be disclosed to him. That was said in a perfectly friendly fashion and was exactly how Mr Thompson was also treated. As it happened he was associated with another company which was also a possible purchaser of the plaintiff.
The defendant points to these matters as illustrating the conflicted situation Heath was in. I accept that there was a potential for conflict but I do not accept that this had any bearing on Vinocopia’s credit worthiness in 2008.
If the plaintiff were expected to disclose details of Heath’s relationship with it and Vinocopia the only question in the proposal which might give rise to the disclosure is question 11, the one requiring any further disclosure which the plaintiff felt it should make. That question was left blank and not followed up by the defendant.
I accept that if it was reasonable to expect the plaintiff to disclose Heath’s position as a matter bearing on the risk the defendant was being asked to underwrite, then it would not matter that those specific questions did not raise the issue. Question 11 would be sufficient to call for any relevant disclosure. The plaintiff asserts that the defendant is unable to rely on any failure to disclose material where the plaintiff has left a question unanswered. The plaintiff relies on s 21(3) of the Act. That section says:
(3) Where a person:
(a) failed to answer; or
(b) gave an obviously incomplete or irrelevant answer to;
a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter.
I have determined that it was not reasonable to require the plaintiff to disclose its relationship with Mr Heath, but if I am wrong about that, then I find that in failing to follow-up the plaintiff’s not answering question 11, it has waived compliance with further disclosure. Question 11 is of some importance to an insurer. It cannot expect that each of its more specific questions will elicit all information it requires. Hence the need to pose question 11 in more general terms and to do so in the context of reminding the proposer of its duty to disclose. Section 21(3) has the effect of moving the onus of requiring disclosure on to the insurer. The proposal has the primary obligation of disclosure but the section removes the obligation if the question remains unanswered. The insurer of course may decline to accept a proposal which includes unanswered questions, but having accepted such a proposal, it waives the proposer’s compliance with its duty of disclosure.
I find that in respect of any question left unanswered by the plaintiff, the defendant has waived compliance with the need to disclose the information sought in that question. That finding relates not just to specific questions (ie question 5 and parts of question 8) but also to a question expressed in such general terms as question 11. It would have been a simple matter for the defendant to return the incomplete proposal to the plaintiff and require its completion. It did not do so. In my view it is bound by its failure to do so.
Before I leave the question of non disclosure I turn to another topic on which the defendant submits the plaintiff has made a material non disclosure. The defendant says that the plaintiff should have disclosed the company structure of the plaintiff. It should have disclosed that while the plaintiff itself was not a joint venture, the company structure behind the plaintiff was a joint venture between five members. In my view it is not reasonable to expect the plaintiff to have disclosed that structure in its proposals. That structure in no way bore on the risk that the defendant was being asked to undertake.
I refer also to the evidence of Ms Benfer generally. The plaintiff criticises her evidence say that insofar as she says that the defendant would not have insured the plaintiff if any single one of the non disclosures had been revealed. I do not find it necessary to make a submission about that submission. While Ms Benfer maintained that the position of Mr Heath, the Riesling debt and the deteriorating terms of trading would individually cause the defendant not to accept the proposal, I do not accept that evidence because I do not think it would have been reasonable to take that position. I do not think that makes Ms Benfer’s evidence unreliable. I have however found that it would have been unreasonable to decline insurance if those individual disclosures had been made.
Policy exclusions
The defendant’s case is that in addition to avoiding liability by reason of the plaintiff’s failure to disclose relevant material in its proposals, there are two respects in which the policy expressly excludes liability. They are:
1.disputed claims; and
2.associated buyers.
The policy will not cover claims where the buyer is disputing liability for the amount claimed, and it will not cover claims where the insured has control over or an interest in, the buyer or vice versa.
Disputed claims
Clause 01200b says:
Excluded causes of loss
Generally excluded losses
Cover shall not apply to:
(b) losses caused by or resulting from disputes where the buyer claims for any reason whatsoever that he is justified in withholding partial or full payment or not performing any of his obligations under the contract. The exclusion shall no longer apply as soon as and to the extent that the dispute has be resolved in your favour either amicably or by a final court judgment or final arbitration award.
The rationale for the exclusion is that the policy seeks to avoid the insurer becoming embroiled in liability disputes between the insured and its customer.
The defendant submits that even though the plaintiff has obtained a judgment against Vinocopia in this court, that judgment:
1.is merely a judgment in default of appearance by Vinocopia;
2.has not been registered in the United States; and
3.is, or will be, disputed by Vinocopia.
Each of these assertions is correct. The judgment pronounced by Master Rice on 9 March 2012 in favour of the plaintiff is in default of Vinocopia filing a defence.[32] The plaintiff has not registered the judgment in the United States despite the defendant asking it to do so. The judgment is not enforceable until it is registered in Minnesota. There is reason to think that Vinocopia might dispute the judgment if it is faced with enforcement.
[32] Exhibit 1, Vol 2, p 36-7.
Mr Thompson really concedes that Vinocopia might dispute some aspects of the judgment sum and he further concedes that there may be some merit in Vinocopia’s challenge. Mr Thompson explains that in this way. Vinocopia began defaulting on invoices that became due in October 2008. Invoices due for payment between October 2008 and 14 February 2009 were not paid. The total amount of those invoices was US$384,840.92. On 24 February 2009 Vinocopia made a round payment of US$100,000. It has not made any further payments.
In May 2009 Vinocopia corresponded with the plaintiff asserting, for the first time, that it had a set-off against the amount owing. It claimed that the set-off reduced its indebtedness to the plaintiff from $284,340.32 to about $132,000. That set-off included expenses it claimed to have paid for Heath’s marketing operations. Mr Thompson said that those purported expenses were part of the Texas debt settlement. He said that Vinocopia had chosen to revive those expenses despite the agreement that had been reached years earlier. That agreement was that the expenses were paid in return for the plaintiff forgiving the debt for the wine shipped to Texas which spoiled. Mr Thompson said that Vinocopia was unjustifiably reviving the Texas debt expenses.
Mr Thompson disputed Vinocopia’s claims in correspondence in June 2008,[33] but without any resolution. In August the plaintiff claimed against the defendant for the default. The plaintiff could only claim $250,000 being the limit imposed in respect of Vinocopia. The plaintiff did not claim against the defendant for anything but the outstanding invoices. It did not make claims for the so called Texas or Riesling debts.[34]
[33] Exhibit 1, Vol 1, Tabs 45 and 47.
[34] Exhibit P2, Thompson affidavit, paras 166-7.
There followed correspondence between the plaintiff and the defendant. In March 2010 the defendant raised with the plaintiff the exclusion in the policy relating to disputed claims. It declined to finalise the claim until the plaintiff could either produce evidence of Vinocopia’s unconditional acknowledgement of the debt or obtain a final enforceable judgment against Vinocopia in the United States.
In October 2011 the plaintiff sued Vinocopia for the outstanding invoices, the Texas debt. Mr Thompson said that in consultations with his lawyers, the plaintiff claimed the Texas debt component of the claim because it appeared that Vinocopia was reviving claims which had already been settled. He conceded that insofar as the plaintiff’s judgment related to claims other than the invoices, there would be merit in Vinocopia’s resistance to paying.
The plaintiff asserts that it has obtained final judgment. In support of that contention it cited Rogers v The Legal Services Commission.[35] I am not sure that that case is authority for that proposition. Lander J delivered the principal judgment. Cox and Prior JJ agreed. At page 596 his Honour noted, without citing authority, that it has been said that a judgment in default can give rise to a plea of res judicata, but his Honour went on to refer to authority which cast doubt on that proposition. I do not understand his Honour to have made a final decision on that point. It was not necessary to dispose of that action. However in Attorney General v Kowalski[36] Blue J did hold that res judicata applied to a judgment by consent or in default of appearance or defence. He cited as authority for that proposition Kok Hoong v Leong Cheong Kwong Mines Ltd.[37]
[35] (1995) 64 SASR 572.
[36] (2014) SASC 1 at [188].
[37] [1964] AC 993 at [1010] per Viscount Radcliffe (delivering the judgement of the Privvy Counsel).
Mr Morcombe QC accepted that the default judgment has not resolved the factual claims made by Vinocopia.[38] I think there can be no doubt that Vinocopia would dispute its liability for the Texas debt component of the judgment. It may be expected to apply to set aside those components of the judgment if it were faced with the judgment being executed. That said, Vinocopia has never disputed its liability to pay the unpaid wine invoices.
[38] T917.
I do not think it is necessary to resolve what the defendant claims is conflicting evidence between Mr Thompson and Mr Hood about why the plaintiff did not register the judgment in Minnesota. I do not necessarily see a conflict in what they said. One may have relied upon the anticipated difficulty and expense in doing so, while the other relied on legal advice that it was not necessary to do so.
The question is whether the policy required the plaintiff to register the judgment in Minnesota. The policy must be interpreted in a business-like way. Gleeson CJ in McCann v Switzerland Insurance said:[39]
A policy of insurance, even one required by statute, is a commercial contract and should be given a business-like interpretation (authority omitted). Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure (authority omitted).
[39] (2000) 203 CLR 579 at 589 [22].
The insured must prove the facts necessary to establish that a loss is covered by the insurance contract. In Wallaby Group Ltd v QBE Insurance[40] the High Court said:
The insured must prove such facts as are necessary to prove that the loss was covered by the contract (authority omitted) or as Bailhache J said in Munro Brice and Co v War Risks Association Ltd, the plaintiff must prove such facts as bring the claim within the terms of the insurer’s promise (authority omitted).
[40] (2010) 240 CLR 444 at 457 [28].
In interpreting the words of an exclusion clause in an insurance contract, Kirby J said that the court must first attempt to interpret the words before resorting to any formula, such as the contra proferentum rule. In McCann[41] ibid his Honour said:
Courts now generally regard the contra proferentum rule (as it is called) as one of last resort because it is widely accepted that it is preferable that judges should struggle with the words actually used as applied to the unique circumstances of the case and reach their own conclusions by reference to the logic of the matter, rather than by using mechanical formulae.
[41] At p 602.
Only if that attempt is unsuccessful should the court resort to the contra proferentum rule which is to the effect that the words of a document are to be construed against the party who has prepared it. Applying that rule to insurance contracts, his Honour cited the words of the High Court in Johnson v American Home Assurance Co:[42]
… it is not unreasonable for an insured to contend that, if the insurer proffers a document which is ambiguous, it and not the insured should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or a clause clarifying the promise of insurance which it is offering.
[42] (1998) 192 CLR 266 at 275 [19].
In my view the exception to the exclusion should be interpreted to mean that the exclusion does not apply because the plaintiff has obtained a final court judgment in its favour in respect of the unpaid invoices. I do not think that the words “final court judgment” are unambiguous. An order of the court is final in the sense that it gives rise to res judicata. That is so even in the case of a judgment in default of appearance or defence.[43]
[43] AG v Kowalski (2014) SASC 1 at [188].
It does not cease to be a final court judgment because another procedural step, such as registration in Minnesota, must be taken before the judgment can be executed against Vinocopia. Nor does it cease to be so because Vinocopia may appeal or apply to have the judgment set aside. I do not think that it ceases to be so even if it appears likely that if Vinocopia appealed or applied to set the judgment aside it might be partially successful.
If I am wrong about the words “final court order” being unambiguous, then I would apply the contra proferentum rule. If the defendant wished to have its exclusion clause take effect unless all appeals had been exhausted or until a judgment had been registered in the jurisdiction of the customer, then it could and should have said so.
The defendant makes a further submission that the judgment is tainted by irregularity. That arises from Mr Thompson’s concession that, insofar as the Texas debt component of the judgment is concerned, Vinocopia has some legitimate set-offs. I summarise his evidence this way. The plaintiff regarded the Texas debt dispute as resolved years earlier. It was resolved by the parties agreeing that the plaintiff would forgive Vinocopia’s obligation to pay for the spoiled wine if Vinocopia would in exchange forgive payment by the plaintiff of nominated expenses incurred by Mr Heath. Further, Vinocopia would continue trading with the plaintiff. Thereafter until 2009 nothing more was said about the Texas debt.
Insofar as Vinocopia sought to go back on that agreement and claim the Heath expenses, the plaintiff sued for the spoiled wine. The Texas debt expenses are identified separately in the Statement of Claim and separately in the judgment against Vinocopia. That part of the judgment would not be enforced if Vinocopia did not persist in its Texas debt related claims. The Texas debt part of the judgment is not part of the claim against the defendant.
In my view the judgment is not tainted by irregularity.
The plaintiff has undertaken to cooperate with the defendant in any litigation with Vinocopia.
Associated buyers exclusion
Clause 08400 reads as follows:
Excluded Buyers
Associated buyers exclusion
The policy shall not apply to amounts owed by buyers over whom you have direct or indirect control or in whom you have a direct or indirect interest, or who has such a control over or interest in you, unless we agree otherwise in writing.
The reasons for this exclusion are not difficult to understand. If an insured has control over, or an interest in a buyer, then there is the potential for corruption. On the other hand the insured, by virtue of that control or interest, has the power to enforce payment without resort to the insurer. Conversely a buyer’s control over or interest in the insured has the potential for corruption. The defence case is that the plaintiff and Vinocopia had the relevant control over or interest in the other by virtue of the role played by Mr Heath. Mr Heath had a continuing interest as a shareholder in the plaintiff and he was employed by Vinocopia. The question is whether, by reason of his relative positions. the exclusion cause is triggered.

The Federal Court had occasion to consider the meaning of control in the case of Re The News Corporation Ltd and Others.[44] The court was considering the question of whether Mr Rupert Murdoch was deemed to control News Corporation pursuant to the Broadcasting and Television Act 1942. The court decided the question concluding that control was not exclusively determined by the provisions of the Act. Bowen CJ said:
I consider the term “in a position to exercise control of a company” in s 92D(1) should be taken to mean the power to direct or restrain what the company may do on any substantial issue.
[44] (1986-7) 70 ALR 419, p 433.
Lockhart agreed with the Chief Justice but added[45]:
It is plain that questions of control, whether through voting power or financial interests, are to be determined by practical and commercial considerations rather than highly refined legalistic tests.
[45] At p 438.
Beaumont J also agreed with the Chief Justice and cited authorities to give examples of what control meant.[46] The examples his Honour gave are more relevant to that case than to this.
[46] At p 444.
The defendant submitted that Mr Heath was in a position to influence both the plaintiff and Vinocopia. It asserts he was able to order wines from the plaintiff and that included the power to stop ordering wines. It was submitted that Mr Heath placed three orders for the plaintiff’s wines in September 2008 to maximise his leverage with the plaintiff in resolving issues he had with the plaintiff over his separation. That illustrated his power over both parties. The question therefore is whether by reason of the powers that Mr Heath could exercise, the plaintiff had control in a relevant sense over, or an interest in, Vinocopia and vice versa. I deal first with the question of whether the plaintiff had control of Vinocopia. In my view the plaintiff did not have control in the relevant sense over Vinocopia. Mr Heath was employed by Vinocopia as a salesman. I do not think that his position gave the plaintiff direct or indirect control over Vinocopia on any substantial issue, to use the words of Bowen CJ. Certainly the plaintiff sought to influence Mr Heath to pay their outstanding invoices but that was to no avail. The plaintiff complained that Mr Heath had not been able to secure payment of the invoices but without result.
I turn to the converse. Did Mr Heath’s position as a shareholder in the plaintiff give Vinocopia direct or indirect control over the plaintiff? I think plainly it did not. Certainly Mr Heath had the powers of a shareholder in the plaintiff but that in my view did not give Vinocopia control of the plaintiff in any relevant sense.
I turn to the question of the meaning to be attributed to the word “interest”. Can it be said that the position of Mr Heath gave the plaintiff an interest direct or indirect in Vinocopia? I agree with the submission of the plaintiff that the word “interest” must be construed ejusdem generis with control. I do not accept that the undoubted interest that Mr Heath had in the plaintiff meant that Vinocopia had an interest in the plaintiff. Turning to the converse, did Mr Heath’s role give the plaintiff an interest in Vinocopia? Unlike Mr Heath’s undoubted interest in the plaintiff as a shareholder, neither Mr Heath nor the plaintiff had any like interest in Vinocopia.
In my view the exclusion clause is not triggered by the position occupied by Mr Heath.
Non-compliance with policy terms
Clause 201000 of the policy states as follows:
Loss Prevention and Debt Collection
Actions to minimise loss
In your dealings with buyers, you must use due care and diligence as if you were uninsured. You must take all practical measures to effect payment of the amount owing from the buyer and to prevent and minimise loss. This includes, without limitation, insuring that all rights against contract goods, buyers and third parties are properly preserved and exercised. You must also take all steps that we may require in connection with the potential or actual loss either before or after indemnification – including the institution of legal proceeding.
The defendant’s case is that the plaintiff has failed in the following ways to minimise its loss.
1.It failed sufficiently to pursue Vinocopia for the debt.
2.It failed to preserve rights against Vinocopia by not accepting the offered return of the wine.
3.It failed to recover from Mr Heath moneys erroneously paid to him by Vinocopia.
4.It failed to register its default judgment in Minnesota.
I will discuss those contentions in order, although the institution of legal proceedings against Vinocopia reduces the need to deal in detail with the first two contentions.
The defendant asserts that the plaintiff has adduced little evidence of its pursuing Vinocopia for the unpaid invoices. However Mr Thompson said that such attempts as he made to deal directly with Mr Haugen of Vinocopia were met with either silence or the resurrection of the Texas debt counterclaim. In late 2008 the plaintiff sought to put pressure on Mr Heath to use such influences he had with Vinocopia to effect payment. The plaintiff threatened to cancel its consultancy arrangement with Mr Heath but that was to no avail.
It is true that the plaintiff only instituted legal proceedings against Vinocopia for recovery after making its insurance claim against the defendant. But the failure of Vinocopia to respond to the proceedings indicates how unlikely to succeed were the earlier attempts at recovery.
The defendant criticises the plaintiff for not accepting Vinocopia’s offer to return the unsold wine. Mr Thompson pointed out that he could not see a way of marketing the wine in the US and there was no offer by Vinocopia to pay for the reshipping of the wine to Australia. The plaintiff hoped that Vinocopia would carry out its promise to remit payments as it sold the stock. While that promise was unrealised, the question is, whether, in the circumstances, the plaintiff has used due care and diligence in minimising its loss, and whether it has taken all practical measures to effect payment. In the light of the legal proceedings it took against Vinocopia, I find that the plaintiff did not fail to minimise its loss in the steps it took to recover from Vinocopia including its not accepting the return of the wine.
The defendant submits that the plaintiff should have taken steps to recover from Mr Heath the $34,000 or so which Vinocopia apparently erroneously paid him. I do not see why that is a step the plaintiff should take. The error, if error it was, lies with Vinocopia. Vinocopia has not paid that sum to its supplier, the plaintiff.
The defendant submits finally that the plaintiff has breached the terms of the contract by not registering its judgment in Minnesota. The defendant certainly asked the plaintiff to do so. Registration of the judgment is a precondition for execution. It may be, as the defendant contends, that the law of Minnesota bars recovery after the expiry of six years from the accrual of the debt.
I will not traverse again the reasons the plaintiff’s witnesses gave for not registering the judgment in Minnesota. The plaintiff has obtained its judgment in this court and it has undertaken to cooperate with the defendant in any proceedings the defendant takes against Vinocopia.
The question is whether those steps are sufficient to meet the requirements contemplated by clause 20100. The clause says:
You must take all steps that we may require … including the institution of legal proceedings. (emphasis added)
I accept the plaintiff’s submission that the ordinary meaning of the words “legal proceedings” is legal proceedings in Australian, the contract being an Australian contract. If, contrary to that interpretation, the words are ambiguous, then I would apply the contra proferentum rule and limit the ambit of the words to legal proceedings in Australia.
I do not overlook the requirement in the clause that the plaintiff take all steps that the defendant may require. Those words must be read to mean all reasonable steps in the context of a business-like approach to the contract.
I conclude that the plaintiff has not breached its obligations under clause 20100 of the contract. I do not find it necessary therefore to consider the question of whether s 54 of the Act entitles the defendant to decline to pay only that portion of a claim which is caused by the plaintiff’s breach of the contract.
Limits to the quantum of liability
The defendant submits that even if findings are made in the plaintiff’s favour in the non disclosure, policy exclusions or policy breaches grounds then the plaintiff’s claim against the defendant should still fail because the plaintiff has not adduced sufficient evidence to remove the possibility that Vinocopia is genuinely entitled to set-offs against the unpaid invoices.
I do not accept that submission. I accept the evidence of Messrs Thompson and Hood that all the set-offs claimed by Vinocopia arise from the resurrected Texas debt, and they do not affect Vinocopia’s liability for the unpaid invoices.
The defendant further submits that the plaintiff’s witnesses have been unable to identify exactly what amounts of money Vinocopia has erroneously paid Mr Heath for the wine. I accept that submission but in my view, sums erroneously paid by Vinocopia to Mr Heath are still owing by Vinocopia to the plaintiff.
Conclusions
I find that the plaintiff has established that it did not fail to makerequired disclosures in its proposal in March 2008, its confirmation in May and its renewal proposal in August.
I find that the exclusion clauses in the contract do not operate to relieve the defendant of its obligation to insure the plaintiff.
I find that the plaintiff has not breached the terms of the contract so as to entitle the defendant to decline to insure it.
I find that the defendant is liable to pay to the plaintiff the sum insured under the police, namely A$250,000.
Orders
I order that the defendant pay the plaintiff the sum of A$250,000.
I will hear the parties as to costs.

24 Purchase Order	25 Amount US$	26 Due Date
27 1611	28 85,518.72	29 11/10/08
30 1671	31 85,518.72	32 15/11/08
33 1672	34 85,518.72	35 15/11/08
36 1772	37 42,594.72	38 06/01/09
39 1773	40 42,594.72	41 06/01/09
42 1774	43 42,594.72	44 14/02/09
45 TOTAL	46 384,340.32	47