MAM Mortgages Limited v Dascam Pty Ltd trading as Cameron Bros
[2000] QSC 288
•31 August 2000
SUPREME COURT OF QUEENSLAND
CITATION: MAM Mortgages Limited v Dascam Pty Ltd trading as Cameron Bros & Ors [2000] QSC 288 PARTIES: MAM MORTGAGES LIMITED (IN LIQUIDATION)
(plaintiff)
vDASCAM PTY LTD (ACN 010 758 335) trading as
CAMERON BROS (a firm)
RICHARD WILLIAM CAMERON and DAVID ALAN STUART CAMERSON and WAVERLEY JOHN CAMERON as executors and trustees of the estate of JOHN WALLACE CAMERON
(first defendant)
DAVID ALAN STUART CAMERON
(second defendant)
HIH CASUALTY AND GENERAL INSURANCE LTD
(ACN 008 482 291)
(third party)FILE NO/S: S 1562 of 1999 DIVISION: Trial Division DELIVERED ON: 31 August 2000 DELIVERED AT: Brisbane HEARING DATE: 30 May 2000 JUDGE: Douglas J ORDER: Richard Cameron and John Wallace Cameron are not entitled to indemnity under the policy entitled “Professional Indemnity Insurance Policy for Members of the Real Estate Institute of Australia” and numbered RESI/90/1097. CATCHWORDS: INSURANCE – GENERAL – POLICIES OF INSURANCE – CONSTRUCTION – Professional Indemnity Insurance – whether partners carrying on business of real estate agents and valuers entitled to indemnity – policy included “run-off” cover in respect of claims made after cessation of business – whether retirement of equity partners constituted cessation of business – whether omission to complete renewal declaration was an omission to do something required by the policy.
Insurance Contracts Act 1984 s 54
Partnership Act 1891 s 29(1)Australian Breeders Co-operative Society v Jones (1997) 150 ALR 488 at 563
HIH Casualty & General Insurance v Della Vedova [1999] FCA 456 at para 7
Hope v Bathurst City Council (1980) 14 CLR 1 at 8
Hughes v Chubb (1987) 10 NSWR 325 at 333 0COUNSEL: G A Thompson SC with A N Duffy for the first defendant
P D McMurdo QC with P T Taylor for the third partySOLICITORS: Tutt & Quinlan Solicitors for the first defendant
Gadens Lawyers for the third party
DOUGLAS J: From on or about 1 January 1988 until 30 June 1991 a partnership comprising John Wallace Cameron, Richard William Cameron and Dascam Pty Ltd carried on the business of real estate agents and valuers under the name “Cameron Bros”.
David Alan Stuart Cameron (“David Cameron”) is the son of John Wallace Cameron and is a director of Dascam Pty Ltd (“Dascam”).
The partnership was dissolved by the retirement of John Wallace Cameron and Richard Cameron (“the Camerons”) on 30 June 1991 and thereafter Dascam has carried on the business of real estate agent and valuer under the same business name.
John Wallace Cameron died on 1 August 1996. David Cameron and Waverley John Cameron are executors and trustees of the estate of John Wallace Cameron.
By a professional indemnity insurance policy entitled “Professional Indemnity Insurance Policy for Members of the Real Estate Institute of Australia” and numbered RESI/90/1097, HIH (“the insurer”) agreed to indemnify the Partnership against any claims for breach of professional duty as, inter alia, valuers, which were first made against the partnership during the period 30 June 1990 to 30 June 1991. The policy and certificate of insurance are annexed to the Statement of Facts and marked “A” and “B” respectively.
The policy contained a special extension granting run-off cover in the following terms:
“10. RUN-OFF COVER
In the event of the insured ceasing to carry on the business as described herein, Underwriters will grant free run-off cover in respect to claims made after the date of cessation of business which relate to instances which occurred during the currency of the Policy.
It is however understood and agreed that this Special Extension of cover shall only be granted in the following circumstances:
(a)where notification of cessation of business has been provided to Underwriters’ representatives, Steeves Lumley Pty. Ltd. within twenty-eight days of cessation of business or the expiration of the current period of insurance, whichever is the latter;
(b)the insured completing and forwarding to Underwriters’ representatives a renewal declaration each twelve months after notification of cessation of business has been given, specifically stating whether any claims have been made or that the insured is aware of any circumstances upon which a claim may be made against it;
(c)the insured giving to Underwriters’ representatives immediate notification of any claim made or circumstances upon which a claim may be made against it; and
(d)the present Underwriters continuing as the professional indemnity insurer of the Real Estate Institute of Australia.”
On 23 February 1996 MAM Mortgages Limited (in liquidation) commenced the present action. Melbourne Asset Management Nominees Pty Ltd was later joined as a plaintiff.
So far as presently material, in the Further Amended Statement of Claim, the plaintiffs allege that the first defendant and the second defendant (David Cameron) breached a duty of care owed to the plaintiff in undertaking valuations of three properties in November 1990. The properties comprised:
(a) the Commercial Hotel at 71 Eight Avenue, Home Hill;
(b) the Ballimore Avocado Farm (also known as Teddington Grove) at Stutz’s Road, Tionana; and
(c) an industrial property at 24 Mica Street, Carole Park.
Messrs Corbett and Jackson (on behalf of the owners of the properties) engaged Cameron Bros to make the valuations. The plaintiffs allege that they relied upon the valuations in lending money, secured by the properties, to companies associated with Messrs Corbett and Jackson.
Each of the valuations were made by David Cameron.
It may be assumed for the present purposes that in making the valuations, David Cameron failed to exercise reasonable skill and care.
WHO OR WHAT IS THE “INSURED” AND RUN-OFF COVER
The “insured” was defined to mean “… any company, individual or the partners of a Firm as named in the Certificate of Insurance …”. The certificate named the insured as “J W Cameron, R W Cameron and Dascam Pty Ltd t/as Cameron Bros” and named then insured’s business as “Real Estate Agents”.
Provision for the change in the constitution of the firm “Cameron Bros” was made by cl 5 of the policy which was headed “Incoming and Outgoing Partners and Directors”. By cl 5, it was agreed that the expression “the insured” would include “any former Partners or Directors who have been named in the original or subsequent proposal forms”. Clause 5 provided:
“(a)The Policy shall cover any claim first made during the period of insurance against any person who is or becomes during the period of insurance a partner, director or principal of the insured for breach of professional duty by any act, error or omission on the part of that person or that person’s partners, co-directors or employees in the conduct of the same profession as the insured’s profession before that person joined the insured.”
Each of Richard Cameron and John Wallace Cameron
(a) between 1988 and 30 June 1991 was a partner of the firm and was named as a partner in the Certificate of Insurance in respect of the 1990-1991 policy; and
(b) was an “insured” within the definition of that term in the policy.
The insurer contends that the Camerons continued to carry on the business as described in the policy after 1 July 1991. In particular in relation to Richard Cameron, the insurer contends that after the partnership was dissolved he continued to perform substantially the same work and to provide the same service to Cameron Bros as he did prior to 30 June 1991. It contends that the evident intention of the policy, by the definition of the insured by reference to the firm name, and by cl 5 in its provision for incoming and outgoing partners, was to insure the persons constituting “Cameron Bros” during the relevant period of insurance, together with the former partners. It further contends that the policy specifically contemplated that changes in the precise identifies of those who made up “Cameron Bros” would not affect the continuing cover provided by the policy.
On the other hand, it is contended that the retirement of the Camerons determined the partnership: Partnership Act 1891 s 29(1). It is further contended that from 1 July 1991 Dascam Pty Ltd carried on business under the name “Cameron Bros”, and that although conducted in the same name and from the same premises as the previous partnership, it was not the same business. It is said that the business carried on by the partnership ceased to be carried on and that after Dascam commenced to carry on business it was the sole legal owner of the assets and the undertaking of the business.
I find that from 30 June 1991 the Camerons ceased carrying on as partners, the business described in the policy, and became employees of Dascam as part time consultants remunerated on the PAYE basis. They had no financial interests in the assets or income of Dascam and neither owned shares in Dascam. Neither of the Camerons were carrying on the business after they ceased as partners; see Hughes v Chubb (1987) 10 NSWR 325 at 333 and Hope v Bathurst City Council (1980) 14 CLR 1 at 8. However the “business” continued.
Within 28 days of the cessation of business the Camerons gave notice of that fact, and an amended Certificate of Insurance correcting the insured’s name to Dascam was issued on 9 July 1991.
The above discussion is necessary because of the fact that the policy provided for “run-off cover”. The question for me to decide is whether cl 10 was engaged by the retirement of the Camerons as equity partners. It is common ground that neither of them forwarded to Steeves Lumley (the agent of the insurer) “a renewal declaration each 12 months after notification of cessation of business has been given specifically stating whether any claims have been made or that the insured is aware of any circumstances upon which a claim may be made against it”.
The primary obligation of the insurer is to indemnify in respect of events which occurred during the period of the 1990-1991 policy. By cl 10 the insurer agreed that it “will grant free run-off cover in respect to claims made after the date of the cessation of business which relate to instances which occurred during the currency of the policy”.
I am of the view that the intention of the policy was to insure the persons constituting “Cameron Bros” during the relevant period of insurance, together with the former partners. As submitted, “it specifically contemplated that changes in the precise identity of those who made up “Cameron Bros” would not affect the continuing cover provided by the policy”. However, the provision for “run-off” cover contemplated the circumstances where Cameron Bros itself ceased business. It did not address the situation where some of the members of the firm ceased to be partners. It provided for a situation where, when such a business was wound up, cover would be provided for “instances which occurred during the currency of the policy”. Cameron Bros still exists (relevantly) and the cover provided by the 1990-1991 policy continues. Accordingly I find that the “run-off cover” provisions of the policy were not triggered by the retirement of the Camerons as equity partners on and from 1 July 1991. It therefore follows that even if they had submitted renewal declarations to the insurer’s agent, run-off cover would not have been available to them. As I said, Richard Cameron remained an employee of the firm; a member of the RAIQ; and remained as a registered “general auctioneer” and “real estate agent employed as a salesman” until 1999.
Should I be incorrect in my view, I am further of the view that the policy required the Camerons to effect renewal year by year or by, in other words, successive contracts of insurance on a yearly basis. Clause 10(b) of the policy gives an option to the insured to effect that cover, year by year, by completing a renewal declaration for the relevant year of renewal. A reason for the yearly renewal declaration could well be that the insurer would require notification of any claims so as to make proper provision for them. The policy contemplated notice by a renewal declaration would be given annually. In my opinion, s 54 of the Insurance Contracts Act 1984 does not come to the Camerons’ aid because their omission to complete renewal declarations, year by year, was not in any case an omission to do something required by the 1990 policy. It was an omission to effect insurance year by year by new contracts of insurance.
DISHONESTY OF DAVID CAMERON
I am to assume for the purpose of this application that David Cameron was dishonest in the respects alleged in paragraph 10 of the defence of the insurer to the third party’s statement of claim of Richard Cameron. This conduct relates to earlier valuations of the same properties made by David Cameron in May 1989 which are not the subject of any claim against the defendants. Further, I am asked to assume that the Camerons had no knowledge of the matters alleged in paragraph 10 of the defence and that the assumed dishonesty was not disclosed to the insurer prior to the commencement of the 1990-1991 policy.
The insurer says that had the assumed dishonesty been disclosed it would have refused to offer cover to the partnership under the 1990-1991 policy for any acts, errors or omissions of the second defendant and would have reinstated as a term of the 1990-1991 policy the maximum sum insured limit of $1,000,000.
The policy materially provided:
“DISHONESTY
It is agreed and declared that the Policy is extended to indemnify the insured in respect of claims for damages made against them for breach of Professional duty arising out of or contributed to by the dishonest, fraudulent, criminal or malicious conduct of employees, Directors or partners of the insured. Provided that the Policy shall not provide indemnity to any person committing or condoning such dishonest, fraudulent, criminal or malicious act …”
The policy went on:
“PROPOSAL COMPLETION WAIVER CLAUSE
Notwithstanding the provisions of Exclusion 5 this Policy will protect the interests of innocent members of the Insured (other than in the case of sole traders) in that the Underwriters will not void the Policy because of the failure of a person guilty of dishonesty of any description to disclose such dishonesty on the proposal form being the basis of this contract.”
The policy was in a standard form used throughout Australia to provide indemnity to real estate agents. The object of such a scheme includes meeting the public interest that real estate agents be covered by effective insurance. Consequently, construction of the terms of a policy issued under such a scheme should have regard to that object; see Australian Breeders Co-operative Society v Jones (1997) 150 ALR 488 at 563 and HIH Casualty & General Insurance v Della Vedova [1999] FCA 456 at para 7.
One of the agreed facts relevant to this issue was:
“27.Had the dishonesty assumed in paragraph 20 hereof been disclosed to HIH, HIH would have refused to offer cover to the partnership under the 1990 policy for any acts, errors or omission of the second defendant and would have reinstated as a term of the 1990 policy the maximum sum insured limit of $1,000,000.”
In my view the “Proposal Completion Waiver Clause” protects a non fraudulent partner from what otherwise would be the effect of the dishonesty of David Cameron in the 1989 valuations, and the non disclosure of it, insofar as that would involve the avoidance of the policy as a whole. On the facts agreed for this hearing, and in particular paragraph 27 (set out above), the result of the non disclosure would have been that the 1990 policy would have issued, but not in terms which would have provided insurance for this claim, being a claim made arising from a valuation made by David Cameron. In making this finding I am aware of the arguments put by the Camerons’ counsel in particular in paragraphs 38 to 50 of the outline of submissions for Richard Cameron.
It follows that the “Proposal Completion Waiver Clause” does not operate in this case. I have already found that the run-off cover would not insure the non fraudulent partners. The consequence is that the Camerons are not entitled to indemnity in respect of any valuation made by David Cameron; this being as a consequence of the non disclosure of his fraudulent valuations in 1989.
FINANCE INVESTMENT ACTIVITIES
The Insurer contends “that the plaintiff’s claim arose out of or was in connection with the provision of finance by one or other of the plaintiffs, of funds contributed by private mortgage investors”. This fact is disputed.
The contention is made because of policy Exclusion 8 which reads:
“8.Any claim arising out of or caused by or in connection with Finance Investment activities or in connection with work carried out as Agent of a Building Society (but not when engaged or retained by a Building Society).”
The term “Finance Investment Activities” is not defined. I accept the submission on behalf of the Camerons that Exclusion 8 is plainly referable to the activities described in Special Extension 7 “Financial Institution Extension”. In that context, the term refers to the insured introducing or arranging lenders or borrowers – the “activities” being those of the insured. The words are not apt to describe the situation where the insured is engaged as a valuer by the owner of a property to prepare a valuation for mortgage purposes.
SETTLEMENT AGREEMENT
I have been asked to decide whether a Settlement Agreement between Richard William Cameron and the plaintiffs dated 7 February 2000 is valid. Counsel for the insurer submits that there is at least a potential prejudice to the insurer from this settlement which may ultimately entitle the insurer to refuse to pay the claim. The potential prejudice has been outlined in correspondence between the solicitors for the insurer and the solicitors for Richard Cameron. It is said that there is also a further issue as to whether the terms of settlement preclude Richard Cameron from recovering indemnity at all. It is said that the determination of any issues on this application should be without prejudice to the outcome on those issues. In view of that I feel it is unnecessary to determine the effect of that Settlement Agreement at this time.
MEMBERSHIP OF AN AFFILIATED ORGANISAITON OF THE REAL ESTATE INSTITUTE OF AUSTRALIA
This only applied to John Wallace Cameron. The policy contains an exclusion in respect of “any claim made after a date upon which the insured has had membership cancelled or is no longer a member of an Affiliated Organisation of the Real Estate Institute of Australia.”
It is unclear when he ceased to be a member of the REIQ and there is no evidence that his membership was cancelled. Also it is submitted that the term “Affiliated Organisation” is meaningless. I accept the submission that if that description means the REIQ, the omission to keep up membership after retirement is an omission curable by s 54 of the Insurance Contracts Act. It is an omission occurring after the contract was entered into and was not an omission capable of causing or contributing to any loss.
It follows then that Richard Cameron and John Wallace Cameron are not entitled to indemnity under the policy.
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