Littlewood v Resource Underwriting Pty Ltd

[2006] NSWCA 62

New South Wales

Court of Appeal

CITATION:	Littlewood v Resource Underwriting Pty Ltd & Anor [2006] NSWCA 62
HEARING DATE(S):	24 March 2006
JUDGMENT DATE:	24 March 2006
JUDGMENT OF:	Handley JA at 17, 19; Giles JA at 1,; Ipp JA at 18
EX TEMPORE JUDGMENT DATE:	03/24/2006
DECISION:	Leave to appeal granted. Appeal dismissed with costs. The notice of appeal filed purportedly as of right should stand as the notice of appeal and the necessity to pay any further filing fee should be dispensed with.
CATCHWORDS:	Professional indemnity insurance - breach of duty by investment adviser - advice to invest in a third party's development - adviser had himself invested - was to receive fee of $50,000 and interest on his investment upon successful completion of development - whether had "entitlement or other financial interest" in "fund scheme arrangement or entity" in which he advised investment, within exclusion in policy - purpose to exclude cover when advice given in position of conflict - had entitlement or other financial interest in scheme being the development. ND
LEGISLATION CITED:	Local Courts (Civil Claims) Act 1970
PARTIES:	Byron James Littlewood - Claimant Resource Underwriting Pty Ltd and GCU Insurance Limited - Opponents
FILE NUMBER(S):	CA 40683/05
COUNSEL:	G R Graham - Claimant D S Weinberger - Opponents
SOLICITORS:	Hallam & Littlewood, Cessnock - Claimant McCabe Terrill - Opponents
LOWER COURT JURISDICTION:	Supreme Court - Common Law Division
LOWER COURT FILE NUMBER(S):	CL 11500/04
LOWER COURT JUDICIAL OFFICER:	Harrison AsJ - 16 February 2005

CA 40683/05
SC 11500/05

HANDLEY JA
GILES JA
IPP JA

Date

LITTLEWOOD v RESOURCE UNDERWRITING PTY LTD & ANOR

Judgment

1 GILES JA: In proceedings in the Local Court it was held that the claimant had negligently advised Mr Kelvin Parker to invest money in a development project of WBG Developments Pty Ltd (“WGB”). Judgment was given against the claimant for $25,000 plus interest and costs. By a third party notice the claimant sought indemnity from the opponents under a policy of professional indemnity insurance (“the Policy”). The learned Magistrate held that he was not entitled to indemnity. The claimant exercised his right of appeal to the Supreme Court for error in point of law, see Local Courts (Civil Claims) Act 1970, since repealed, s 69. Harrison AsJ dismissed the appeal, upholding the basis of the Magistrate’s decision and also accepting an alternative basis for that decision put forward under a notice of contention.

2 This is an application for leave to appeal from the decision of Harrison AsJ, and for an extension of time within which to make that application. It has been heard on full submissions, so that if leave be granted it will be unnecessary to return for another hearing.

3 The claimant was employed as a financial adviser, and on becoming aware of this Mr Parker approached him for advice. Mr Parker was advised that he should invest his money in a building development at Wallsend then under construction by WBG. He invested $25,000, at an interest rate of fifteen per cent for the first three months, on the purported security of a mortgage prepared by the claimant. In the findings of the Magistrate -

· The claimant did not advise Mr Parker of other possible investment options.

· The claimant knew that the development was in financial difficulty at the time he suggested the investment to Mr Parker but did not disclose this.

· The claimant felt that he was under pressure from WBG to find further investors in the development to avoid its collapse.

· The claimant knew from the interest rate that it was a high risk investment but did not disclose this.

· The claimant represented to Mr Parker that his investment would be secure by signing the mortgage but the mortgage was not in registrable form and it was not registered. The claimant never intended to register the mortgage and knew that it offered no security.

· The claimant had invested $100,000 of his own money in the development.

· The claimant was to receive a $50,000 fee on the successful completion of the development and interest on his $100,000.

4 It is not surprising that the Magistrate held that the claimant was liable to Mr Parker.

5 The policy was a claims made and notified policy under which the opponents agreed to indemnify the “Assured”, of whom the claimant was one, for breach of duty “in the Professional Business of the Assured”. Whether there was a business of the claimant meeting the definition of Professional Business of the Assured was in issue, and Harrison AsJ found against the claimant on that question under the notice of contention. The ground of appeal on the question was not developed but it does not matter because I consider that her Honour’s decision upholding the basis of the Magistrate’s decision was correct.

6 The Magistrate rested his decision on Exclusion (h) in the Policy, which read -

“ Exclusions
The Underwriters shall not indemnify the Assured in respect of any claim made against them
…
(h) arising from investment, or any advice, inducement or recommendation to invest, or endorsement or opinion favouring investment, in any fund, scheme, arrangement, or entity in which there is or was at any relevant time a Related Interest unless shareholdings in public listed companies;
… “

7 In the definitions in the Policy -

“’Related Interest’ means any interest beneficially held by or on behalf of any one or more of -
(a) The Assured or any spouse or child of the assured;
(b) Any firm or company in which an interest is beneficially held by or on behalf of the Assured.”
“‘Interest’ means any share, shareholding, entitlement or other financial interest”.

8 The Magistrate held that the claimant had a Related Interest in WBG at the time he offered advice to Mr Parker. Harrison AsJ held that the claimant’s investment of $100,000 “in the development of WBG” was a financial interest beneficially held by him. Her Honour seems to have focussed on the scheme rather than the entity.

9 The general purpose of the exclusion is clear, to exclude indemnity where the Assured gave investment advice in a position of conflict. That does not bring a narrow view of an entitlement or other financial interest, and those words are broad. In my opinion, the claimant plainly had a Related Interest. Whether or not he had an entitlement or other financial interest in the entity WBG, he had an entitlement or other financial interest in the scheme constituted by WBG’s development. He had himself invested $100,000 in the development, and was to receive $50,000 and interest on the $100,000 on its successful completion. He had an entitlement to recover the $100,000 and to receive the $50,000 in interest, bound up in the success of the development, and the $50,000 at least would come on successful completion of the development and meant a financial interest in it.

10 The claimant’s submissions to the contrary were as follows.

11 In his written submissions the claimant submitted that the Magistrate had said in his reasons that there was a Related Interest “in the First Defendant”, and that the first defendant in the proceedings in the Local Court was named as “Bradley James Oldfield, Glen Troy Oldfield, Wayne John Oldfield formerly trading as WBG Developments Pty Ltd”; he suggested that there had not been a holding that the claimant had a Related Interest in WBG. It is plain from the Magistrate’s reasons that by the First Defendant he meant WBG, including from a reference to the First Defendant going into administration. That submission fell into the class of those which should not have been put, but in any event the related interest in the scheme, as held by Harrison AsJ, was sufficient.

12 The claimant also submitted that there was no finding as to who was to pay the $50,000. That sum was obviously to come from the successful development, which is sufficient for present purposes. The substantive submission was that an Interest as defined called for some kind of proprietary interest, in support of which it was said that entitlement and financial interest should be read ejusdem generis with shareholding; textually that the words “unless shareholdings in public listed companies” in Exclusion (h) indicated something in the nature of shares; and that a simple relationship of creditor would, where many investment advisers were remunerated by a commission paid by recipients of invested funds, rob the Policy of cover for investment advisers. He further submitted that his position should be regarded as that of a future contingent creditor, and that in that position he did not have a relevant entitlement or other financial interest.

13 I do not think there is a class in the definition of Interest enlivening the ejusdem generis principle; on the contrary, the latter words are clearly of a different and much wider import than share and shareholding, and should be given their natural meaning. Nor in my view does the qualification in Exclusion (h) in relation to shareholdings in public listed companies have any confining effect on the definition of Interest. What the effect of the exclusion will be on investment advisers is a matter to be ascertained from the words of the Policy, and it is neither necessary nor appropriate to expound the application of those words in other circumstances.

14 The essential submission for the claimant was that being a creditor was not enough to amount to an entitlement or other financial interest. I do not think that being a creditor is as a matter of principle excluded from the definition of Interest, although it may be a matter of judgment whether in particular circumstances the debt due is sufficient within some version of the de minimis principle that there is a relevant entitlement or financial interest. For the purposes of decision of this case, it is necessary and sufficient to ask whether within their natural meaning the claimant had an entitlement or other financial interest in a fund, scheme, arrangement or entity, and for the reasons I have given in my opinion he did. At least as to the $100,000 the claimant was more than a future contingent creditor, but in any event futurity and contingency do not, in my view, negate entitlement or a financial interest for the purposes of the Policy.

15 The claimant initially appealed of right, and belatedly applied for leave to appeal. It was not suggested in the opponents’ written submissions that they had been prejudiced by the delay, and an extension of time to file the summons filed on 25 August 2005 should be granted. Not because there is any substance in the claimant’s submissions, but because of importance in investment advisers appreciating their exposure in circumstances such as those of the claimant, in my opinion leave to appeal should be granted, but the appeal should be dismissed with costs.

GILES JA: Mr Graham, is it correct that a filing fee on the original notice of appeal was paid and remains paid?

GRAHAM: Yes, that’s correct your Honour.

16 GILES JA: In that event I would add to those orders an order that the notice of appeal filed purportedly as of right should stand as the notice of appeal and the necessity to pay any further filing fee should be dispensed with.

17 HANDLEY JA: I agree.

18 IPP JA: I agree.

19 HANDLEY JA: The orders of the Court will be as announced by Giles JA.

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