Legal Practitioners' Liability Committee v Resource Underwiriting Pacific Pty Ltd
[2004] VSC 418
•26 October 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 5826 of 2004
| LEGAL PRACTITIONERS’ LIABILITY COMMITTEE | Plaintiff |
| V | |
| RESOURCE UNDERWRITING PACIFIC PTY LTD & DAVID MARSHALL | Defendants |
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JUDGE: | SMITH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12 October 2004 | |
DATE OF JUDGMENT: | 26 October 2004 | |
CASE MAY BE CITED AS: | LPLC v Resource Underwriting Pacific Pty Ltd & Anor. | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 418 | |
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Insurance – professional indemnity – solicitors – reported circumstances - issue of what claim or claims were notified.
Arbitration – leave to appeal – challenge to factual findings.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. Clarke | Hunt & Hunt |
| For the Defendants | Mr M. Thompson | Peter Black & Associates |
HIS HONOUR:
The application
By originating motion filed 6 May 2004, the plaintiff seeks leave of the Court pursuant to s 38 of the Commercial Arbitration Act 1994 to appeal against the award published on 8 April 2004, by John Karkar QC as arbitrator.
To succeed in this application, the plaintiff must satisfy the requirements of s 38(5) of that Act which provides as follows:
“(5)The Supreme Court shall not grant leave under sub-section (4)(b) unless it considers that –
(a)having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement and
(b) there is
(i) a manifest error of law[1] on the face of the award;
or
(ii)strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.”
[1]Energy Brix v National Logistics Co-Ordinators (2002) 5 VR 353, 368; Promenade Investments Pty Ltd v New South Wales (1992) 26 NSWLR 203, 226.
Background to the arbitration
The plaintiff (LPLC) is incorporated under the Legal Practice Act 1996. In 1998 the legal firm IFS Fairley (the insured) entered into a contract of professional indemnity insurance with LPLC for the calender year 1999. One of the clients of IFS Fairley was TWU Nominees Pty Ltd. IFS Fairley gave advice to TWU in relation to a superannuation fund. In addition to the cover provided by LPLC, IFS Fairley also obtained “top up” insurance from a Lloyds Syndicate known as Lloyds Syndicate 839. The first defendant (Resource) is and was at the time an underwriting agent acting on behalf of the Lloyds Syndicate and David Marshall is and was a representative of that syndicate.
By writ issued on 10 August 2001, TWU Nominees Pty Ltd sued IFS Fairley seeking damages for negligent advice given in or about May 1998 concerning a contemplated variation of the cover provided under a superannuation scheme to its members (referred to in the award as the “later allegation”). Subsequently, on 2 November 2001, an amended statement of claim was delivered in the proceedings between TWU Nominees Pty Ltd and IFS Fairley which added allegations of earlier breaches of duty in about June 1996 and about October 1997. The alleged negligence related to alleged failures of IFS Fairley to advise TWU Nominees Pty Ltd following a review of a draft Prudential Group life insurance policy in June 1996 and a draft member information brochure in July 1997 (referred to in the award as the “earlier allegations”). The proceedings were subsequently settled on the basis that $4,000,000 be paid by IFS Fairley to TWU Nominees Pty Ltd.
Prior to the issuing of the proceedings by TWU Nominees Pty Ltd, IFS Fairley had forwarded to LPLC under a covering letter dated 26 August 1999, a folder of documents entitled “TWU Superannuation Fund – issues arising from the insured benefits”. With the folder was a chronology and summary. The covering letter stated:
“As Managing Partner, circumstances have been brought to my attention which may lead to a possible claim against the firm and most probably the former partnership practicing as IFS Fairley.
Enclosed is a folder containing copies of all relevant materials and I refer you to the chronology and summary of the circumstances which may lead to the claim, prepared by my partner Mark Abramovich.”
Issues arose between LPLC and the Lloyds Syndicate as to the extent to which LPLC was obliged to indemnify IFS Fairley. As noted in the award the dispute was whether LPLC was liable to indemnify IFS Fairley:
“(a) For only one loss in respect of the proceeding; or
(b) For two losses in respect of the proceeding; or
(c)For more than two losses in respect of the proceeding (the dispute).”
That dispute was referred to Mr Karkar QC as arbitrator.
The award
In the award, reference was made to the history of the dispute. Relevant clauses in the policy were then identified.
It is convenient to note firstly the liability provision which was in the following terms:
“1 Civil liability
The Insurer will indemnify the Insured against any civil liability in connection with the Firm’s legal practice in respect of which a claim is first made against an insured –
(a)during the period of insurance; or
(b)during or after the period of insurance and arising from a reported circumstance.”
The award did not refer to some of the definition clauses. For convenience, I refer to all relevant definition clauses at this point. The following definitions appear to be relevant:
“42 “Circumstance”[2]
[2]Not referred to in the award.
A circumstance is an instant, occurrence, fact or matter which may or does give rise to a claim.”
43 “Claim”[3]
[3]Not referred to in the award.
A claim is a demand for, or an assertion of a right to, civil compensation or civil damages in connection with the Firm’s legal practice or an intimation of an intention to seek such compensation or damages.
58 “Reported Circumstance” [4]
[4]Referred to in the award.
A reported circumstance is a circumstance first reported by an Insured to the Insurer during the period of insurance.”
The arbitrator then referred to clauses limiting liability.
“4. “Limit of liability”
The limit of the Insurer’s liability for any one loss (including defence cost) is the sum insured specified above . . .
8. “Loss”
For the purposes of this section and the section concerning former legal practices, “loss” is the aggregate of all amounts payable by the Insurer to or on behalf of the Insured in respect of a claim or a reported circumstance including payments for defence costs, and –
(a)all claims against the Insured arising from one act or omission, one series of related acts or omissions or the same or similar act or omission in a series of related matters or transactions will be regarded as one loss;
(b)all claims against the Insured arising from one matter, transaction or retainer will be regarded as one loss;
(c)all claims against the Insured arising from the arranging of a contributory or nominee investment scheme, including the contributory or nominee mortgage, and all contributions to, withdrawals from and amendments and variations of the scheme will be regarded as one loss;
(d)all claims arising from the dishonesty or fraud of any one person or any two or more people acting in collusion will be regarded as one loss; and
(e)otherwise each claim will be regarded as a separate loss.”
The arbitrator summarised the operation of the above by stating that:
“Clauses 1 and 58 demonstrate that the Insurer’s liability to indemnify the insured is conditioned by the following elements:
(a) that there be civil liability giving rise to loss; and
(b)that the liability be in respect of a claim first made during the policy period or arising from a circumstance first reported during the policy period.
Further, clauses 4 and 8 indicate that, when the policy speaks of a loss it does so in terms of “loss in respect of a claim or a reported circumstance” for which the indemnity attaches under the policy and that absent aggregation, “each claim will be treated as a separate loss”.
He then identified the alternative submissions put forward by LPLC, a summary not challenged in these proceedings. The principal submission was stated to be that:
“. . . the circumstances of both the early allegations and the later allegations were reported to the compulsory insurer on 26 August 1999. In consequence . . . the allegations made in the proceeding constituted one claim arising from a reported circumstance giving rise to one loss.”
The alternative submission put by LPLC was described as follows:
“Even if there had been more than one claim, the claim should, by virtue of Clause 8 of the policy, be regarded as one loss.”
It is common ground that the conclusions reached by the arbitrator in relation to the principal submission, and particularly in relation to the factual issues, had the result that there was no room, if they were correct, for the operation of cl 8 and, if so, the alternative submission could not be supported. Thus, for the purpose of this application, the critical issues for decision relate to the arbitrator’s decision that the principal submission should be rejected.
As to that submission, the arbitrator noted that LPLC relied on the letter from IFS Fairley to it dated 26 August 1999, quoted above. The arbitrator placed particular emphasis on the statement in it
“I refer you to the chronology and summary of the circumstances which may lead to the claim.”
He also noted that he had examined the chronology and summary of the circumstances. Having done so he then expressed the following conclusion:
“A plain reading of the ‘chronology and summary’ demonstrates that they were concerned with the earlier allegations. No reference is made in the chronology and summary to the later allegations. Notwithstanding that some of the correspondence, amongst the voluminous bundle attached to the chronology, includes ASIC letters which referred to the later allegations, the chronology and summary do not. On the contrary, to the extent that the ASIC investigation was referred to in the chronology and summary that reference was made in the context of the ASIC investigation of the events leading to the earlier allegations. Indeed, in concluding, the author of the chronology and summary said:
‘The only exposure of the previous partnership as discussed is the possible failure to inform the trustee that existing members that TPD was removed from 1 October 1997. This covers the period from 1 October 1997 – 31 July 1998, as on 1 August 1998, TD was removed and all compulsory disablement cover ceased. All members were notified of this change.’”
He then went on to other subsequent evidence (oral and documentary) which in his view confirmed his conclusions as to what was intended in the notification given on 26 August 1999. The arbitrator then indicated that he did not accept LPLC’s submission, that the circumstances of the later allegations were reported to it on 26 August 1999. His conclusion was that they were notified to the compulsory insurer on 15 August 2001, a few days after service of the writ in the proceedings. He concluded that there were two claims that had been made against IFS Fairley.
•A claim made on 2 November 2001, when the statement of claim was amended to plead the earlier allegations, allegations reported on 26 August 1999 to LPLC, and
•a claim made on 10 August 2001 when the writ was issued concerning the later allegations which were notified to the insurer on 15 August 2001.
Returning to the questions he had been asked to decide, he stated that:
“Each of these claims gave rise, in my judgment, to a separate and distinct loss. That this is so follows clearly from the manner in which each of the claims and the losses arising therefrom were pleaded as well as from the facts that each claim related to separate instructions to, and acts of negligence by, the solicitors.”
His answer to the question in dispute was:
“Legal Practitioners’ Liability Committee was liable to indemnify IFS Fairley for two losses in respect of the proceeding.”
Application for leave to appeal
The plaintiff, LPLC, must establish a number of matters before leave can be granted under s 38(4)(b).
I will proceed in these reasons on the basis that, assuming the matters raised for the appellant constitute questions of law, their determination could substantially affect the rights of the parties to the arbitration agreement and, as a result, s 38(5)(a) would be satisfied. The critical task for the appellant, however, is to demonstrate that s 38(5)(b) is satisfied. To do that it must either establish a
• “manifest error of law on the face of the award” or
•“Strong evidence that the arbitrator . . . made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.”
The errors of law
Counsel for the plaintiff submitted that errors of law were made by the arbitrator:
(a) in construction of the policy clauses;
(b) in construction of relevant documents;
(c) in making fact findings that were not open.
There does not appear to have been any real issue before the arbitrator as to the construction of the terms of the policy. Before me counsel for the plaintiff submitted that the definition of “claim” was critical and that it was significant that the arbitrator did not include that definition in the award. I am not persuaded, however, that there was an issue as to the construction of the term “claim”. The issue before the arbitrator was the application of the terms of the policy to the facts of the case. The critical issue was the notification of circumstances. The arbitrator had to consider the evidence, in particular the relevant documents, and consider as an issue of fact, what it was that was notified in 1999 and compare that with what was claimed in the Supreme Court proceedings. To show an error of law in those circumstances, the plaintiff must establish that any findings of fact were not reasonably open. The task facing the plaintiff, therefore, is considerable.
Analysis
Counsel submitted that there was only one claim and one loss because the claim was the claim made in the writ and it concerned a civil dispute “arising from a reported circumstance”. As I understand the argument, it was put that the expression “arising out of” is a broad one. Bearing that in mind, counsel submitted that the combining of the allegations initially made in a writ and later added in the amended statement of claim gave rise to one claim and should be regarded as one “arising from” the reported circumstances.
In support of the argument that there was one claim and one loss, counsel referred to the original and amended statements of claim and drew attention to the pleading of the damages claimed. The latter does not purport expressly to allocate damages between the earlier and later allegations. Bearing in mind that different breaches of a duty at different times can theoretically result in the same damages, such claims remain arguably different claims. In addition some allocation of the damages between the claims could occur.
The earlier and later allegations involve different breaches of duty at different times and were separate and the argument that, therefore, they were different claims was a strong one. Error of law to the requisite levels cannot be established.
The second point raised for the plaintiff concerns the interpretation of the first paragraph of the letter of 26 August 1999. Counsel for the plaintiff submitted that the reference in the first paragraph to “a possible claim against the firm” was a reference to the later allegations and the reference to the former partnership a reference to the earlier allegations. It was argued that the result, therefore, was that both the later and the earlier allegations had been referred to LPLC and thus the claims made arose out of the reported circumstances.
This argument is at its strongest when the first paragraph is considered in isolation from the rest of the letter. Viewed in that way, however, it would be straining the meaning of that sentence to interpret it in the way advanced by the plaintiff. The evidence was that there had been a change of partners as at 1 August 1998. A person reading that sentence would, I suggest, interpret it as merely stating that any claim arising out of the circumstances that had been brought to the author’s attention would most probably be brought against the former partnership, although, it was possible that a claim might be brought against the later partnership in relation to those circumstances. In my view, there is no manifest error or strong evidence of error of law in the arbitrator coming to the conclusion, as he must have done, that that paragraph did not refer to the later allegations.
Counsel for LPLC also submitted that an examination of the documents in the file which accompanied the letter included documents which related to the later allegations and that as a result, there was a notification in any event to LPLC of those later allegations.
The presence of those documents created an issue for the arbitrator to resolve. That issue had to be resolved by considering those documents in the context in which they were received by LPLC. That context included the covering letter and the chronology and summary which accompanied the documents. The problem facing LPLC was that the covering letter identified the chronology and summary as setting out “the circumstances which may lead to the claim” and, there was a strong argument available to the other parties that the chronology and summary in fact referred only to the earlier allegations. The difficulties facing LPLC on this argument were such that it cannot, in my view, demonstrate that there was a manifest error of law or strong evidence of an error of law in the arbitrator’s conclusion that the documents, comprising the notification on 26 August 1999, gave notice of the earlier allegations and not the later allegations.
As to the remaining requirement that the determination of the question “may add or may be likely to add, substantially to the certainty of commercial law”, I accept that construction of the policy, it being the standard policy supplied by LPLC for legal practitioners, could satisfy the requirement. The question here, however, was merely the application of that policy and its conditions to the circumstances of this particular case. While the decision might add certainty in the sense of providing an example, it could not be said to add substantially to the certainty of commercial law.
Conclusion
For the foregoing reasons I am not persuaded that leave to appeal should be granted. The proceeding should be dismissed.
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