Manufacturers' Mutual Insurance Limited v John H. Boardman Insurance Brokers Pty Ltd

[1993] HCATrans 117

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S21 of 1993

B e t w e e n -

MANUFACTURERS' MUTUAL INSURANCE

LIMITED

Appellant

and

JOHN H. BOARDMAN INSURANCE

BROKERS PTY LTD

First Respondent

and

METROT PTY LIMITED

Second Respondent

MASON CJ

Manufacturers(2) 1 14/5/93

DEANE J

TOOHEY J

GAUDRON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 14 MAY 1993, AT 10.18 AM

Copyright in the High Court of Australia

MR H.D. SPERLING, QC:  May it please the Court, I appear

with my learned friend, MR J.J. GRAVES, and also with my learned friend, MR G.M. DONOVAN, for the appellant. (instructed by Dunhill Madden Butler)

MR D.F. JACKSON, QC:  May it please the Court, I appear with

my learned friend, MR M.T. McCULLOCH, for the first

respondent. (instructed by Minter Ellison Morris

Fletcher)

MASON CJ:	The second respondent's solicitor has advised the Registrar that the second respondent will not
appear and will submit to any order of the Court
save as to costs.  Yes, Mr Sperling.

MR SPERLING: If the Court pleases, there are three

questions raised in these proceedings. I might

first of all hand up a copy of my outline to

Your Honours, and the extra copies.

The three questions which arise are, first of

all, whether the decision of the Court of Appeal

should be set aside for procedural unfairness. The

second question involves the operation of
section 14(2) of the Insurance Agents and Brokers

Act 1984, and the question is whether, in the circumstances of the case that subsection operated

to make a payment of premium to the broker,

Boardman, an acceptance of an offer by the

respondent, Manufacturers Mutual, to renew the

policy.

The third question relates to a renewal notice

that was issued by the appellant, and the question

is whether, in the circumstances of the case, it

was implied by the renewal notice that the offer to

renew which it contained could be accepted by

payment of the premium to the broker.

Now, so far as the first question is

concerned, the question of procedural unfairness -

my learned friend wishes to say something,

Your Honour.

MASON CJ: Yes, Mr Jackson.

MR JACKSON:  Your Honours, we accept that the basis on which

the majority in the Court of Appeal decided the

case was an issue which was not argued before the

Court of Appeal.

MASON CJ: Thank you.

MR SPERLING: Well, Your Honours, I take it from that - and,

no doubt, if my assumption is not correct, I will

be informed by my learned friend - that it really

Manufacturers(2) 2 14/5/93

is understood that the decision of the Court of

Appeal - - -

MASON CJ:	- - - cannot be supported on that footing.
MR SPERLING:	- - - must therefore be, prima facie, set

aside, the only question being whether the result
is to be sustained on either of the two grounds
contained in my learned friend's notice of

contention. Those two grounds are then the second

and third questions that I referred to a moment
ago.

DEANE J:  Is not the second ground that on which you failed

in the Court of Appeal?

MR SPERLING:  Yes, Your Honour. As we understand it, that

is so.

DEANE J:  Then how does the procedural unfairness point have

any relevance now you have got leave to appeal?

MR SPERLING: Well, it has relevance because we say that

upon hearing argument upon the question the Court

would be of a view contrary to that of the Court of

Appeal.

DEANE J: But now you have got leave to appeal, if that were

so the appeal would be allowed anyway. I mean, if

the point was not going to be litigated in the

appeal, the procedural unfairness point might lead

to setting aside and sending it back, but now you

have got leave and the correctness of the Court of

Appeal's decision is fairly up for consideration,

does not the procedural unfairness point really

become irrelevant?

MR SPERLING: Well, I do not know if I am anticipating too

much, Your Honour, but as I would understand it my

learned friend would wish to say that the immediate

consequence of the procedural unfairness point is	that the decision of the Court of Appeal is to be	set aside. That leaves unresolved what the result
should be.

DEANE J: But in one sense that avoids the real question in

this Court. I mean, if you have procedural

unfairness in the Court of Appeal, the question for

this Court is, well, what should be done about it.

Now, if all that is involved is a straight question

of law, this Court can take two courses: one, it

can set aside the Court of Appeal's decision and

send it back to the Court of Appeal so the court

can hear argument; or alternatively, this Court can

decide the question of law. Now, if the parties

ask it to do that and the Court accedes to it, the

procedural unfairness point, which may have been

Manufacturers(2) 14/5/93

decisive in obtaining a grant of leave, simply

disappears from the case.

MR SPERLING:  I now follow what Your Honour puts to me and

I, with respect, agree with Your Honour's line of thought. It is certainly desired for our part that the question should be decided here.

DEANE J: It would, for example, be different if you wanted

to lead further evidence on the facts from which

Justice Mahoney drew an inference, but I gather

that is not so.

MR SPERLING: That is not so.

MASON CJ: That was raised with you on the special leave

application.

MR SPERLING: It was indeed.

MASON CJ:  The Court indicated that really what was going to

occur was the hearing of an appeal in which the

real substance of the case would be decided, but

the Court alerted the parties to the situation that

there may be factual material that would be

required for a determination on that footing.	I
gather that the parties are not interested in
adducing further facts.

MR SPERLING:  Your Honour's assumption is correct. If I

could go then to what I called the second question

but which now becomes the first question of

substance for determination by this Court, I would

begin, if I may, with a little history. I think

Your Honours have received a surfeit of treasures

in the last 24 hours, most of which we will not

have to burden the Court with, but Your Honours

will find in the grey folder a print of the Law

Reform Commission Report No 16. There were parts

of this report adverted to in the judgmen~ of the

trial judge, and it is for that reason that I wish

to come to it initially in order to set the

historical background of the legislation so far as

it is relevant. Your Honours will see that at

page 15 of the report - - -

MASON CJ: That is page what of the folder? I see; right at

the back.

MR SPERLING: At the very back; it is a complete print of

the report. Your Honours will find at page xv,

which is the introductory part of the report, under

the heading Insurers' Responsibility For Premiums,

if I might just read that briefly with the emphasis

where we would put it:

Manufacturers(2) 14/5/93

In one important respect, the Commission does

recommend that the insurer should be

responsible for the conduct of brokers. When

a contract of insurance has been arranged by a

broker -

and we emphasize that -

the premium is paid to him for transmission to

the insurer. The broker is, in a sense, the

agent of both insured and insurer in this

regard. Insurers do not at present always

insist upon immediate transmission of premiums

by brokers. Many of them allow considerable

periods of credit ..... While some aspects of

this practice may be reasonable -

and so on. Then in the last three lines:

The insured -

and we stress, not including an intended insured,

just the insured under a contract of insurance

arranged by a broker earlier referred to -

should not be prejudiced by arrangements of

this type. Consequently, the Commission

recommends that payment to a broker of a

premium should operate as a discharge of the

insured's debt to the insurer.

If one then comes forward to xviii, one sees

in the recommendations section, under the heading

"Responsibility for the Conduct of Brokers", in the

third point:

An insurer should be responsible for the receipt of premiums by a broker (para 51,

cl 13) .

Paragraph 51 is on page 31 at the body of the

report, under the heading Recommendations. It is

the second sentence:

Similarly, it should be made clear that the

insurer is in law responsible for receipt of

premiums by a broker. It is the insurer, not

the insured, which agrees with the broker on

credit terms and acquiesces in a broker's

temporary treatment of premium money as his

own.

And so on. This is the passage quoted by

His Honour the trial judge in the judgment. There

is a footnote 31 which is relevant, referring to

another instrument:

Manufacturers(2) 14/5/93

... any company which ... delivers ... to any

insurance broker a policy of insurance ... shall

be deemed to have authorised such broker to

receive on its behalf payment of any

premium ...

In that instance making it clear that they are talking about a situation in which there is a

concluded contract.

Lastly, if one goes to page 103 of the print,

one is now in the draft bill annexed to the report.

Clause-13, on page 103 is the forerunner of

section 14 of the statute before the Court today.

Section 13.(1) corresponds with section 14.(1) of

the legislation and it relates plainly to a

situation in which there is a concluded contract:

Where a contract of insurance is arranged by

an insurance intermediary, payment to the

insurance intermediary of moneys payable by

the insured -

Now that can only be payable under a concluded

contract. Clause 13 :ontains rio provision which is

a counterpart to section 14(2) of the statute which

was enacted. In other words, when the matter came

to the Parliament, it came to the Parliament indeed
in the form of a bill which had already
incorporated in it a new subsection (2), providing

for a situation where the premium has been received

by a broker before contract. Now the reason we

read that is simply this, that although one may

glean from this report some policy considerations

to do with the subject-matter of these proceedings,

one must read everything with the qualification

that the Australian Law Reform Commission was, in

this connection, contemplating only a situation in

which premium would be paid to a broker after a

contract of insurance had been concluded and was

not contemplating that, as a consequence of the

policy considerations which they had in mind, there

should be a provision such as 14(2) which relates

to a situation where premium is paid before a

contract of insurance is entered into.

There is one, and only one, further matter of

history by way of extrinsic materials and that is

the second reading speech on the introduction of

the bill, which Your Honours will find in the

appeal book at page 45. The explanatory memorandum

commences at page 45; the relevant passage is at

page 52, clause 14, so it now bears the number 14

rather than 13 as drafted by the Law Reform

Commission:

Manufacturers(2) 6 14/5/93

Sub-clauses 14(1) and (2) provide that an

insurer is responsible for moneys payable to
the insurer which are received from an

insured, or intending insured -

that is picking up the words of 14(2), which now

relate to a payment before contract made by an

intending insured -

by an insurance intermediary.

The point to be stressed is that an insurer is

responsible for moneys payable to the insurer.

That is, we would say, plainly intended to mean

moneys which actually become payable - either are

payable at the time of payment or become payable

under a concluded contract.

The section itself is to be found at page 15

of the appeal book in the judgment of the trial

judge and Your Honours will see the plain

distinction between subsection (1) and

subsection (2), the former dealing with premium

paid after contract, the second picking up the

situation where money is paid by an intending

insured.

The construction which we would say

subsection (2) should bear is that there must be a

payment of a particular kind, namely to an

insurance intermediary, by or on behalf of an
intending insured, in respect of a contract of
insurance to be arranged or effected by the

intermediary, and there must be a liability of a

particular kind, that is a liability of the insured

and a liability under or in respect of what is

called "the contract".

So the subsection contemplates a contract to

be arranged when a payment is made, and a contract

words, it addresses two distinct points in time. actually made when the liability arises. In other	The operation of the subsection is then, as we say
in our outline, where a payment of the relevant
kind is made and the contract later comes into
existence, the payment counts as a discharge of
liability for premium under the contract, that is,
the contract if and when it comes into existence.

Under this subsection the payment has no other

effect. In particular, it is not deemed to be a

payment to the insurer at all, let alone deemed to
be a payment to the insurer for some wider purpose

such as having the function of concluding a

contract of insurance.

Manufacturers(2) 14/5/93

The words used in the section may, in fact, be

contrasted with other phraseology in the statute.

For example, section 27(7) of the statute - I think

Your Honours probably have a print of the statute

in Court - but I can read quickly what the relevant

words are. The subject-matter of the subsection

does not matter, but having referred to a kind of

payment in 27(7), the subsection ends up by saying

that that payment by the broker to the

intermediary -

shall be taken to constitute payment of the
premium ..... to the insurer.

If the legislature had intended the subsection to have the effect contended for by the broker in these proceedings, one would have expected the

legislature to have used the words of section 27(7)

to the effect that the payment was to constitute a

payment to the insurer, at least that much. Even

then one would not concede that the section would

have had the effect of making the payment operate

to conclude a contract in circumstances where,

under common law principles, it would not otherwise

have done so.

So our submission is that the subsection does

not operate to make payment to the broker count as

payment to the insurer for the purpose of

concluding a contract.

For that view of the operation of the section

we have the support of the judgments below of

His Honour Mr Justice Mahoney in the section of his

judgment between pages 83 and 97 of the appeal

book, and the judgment of Mr Justice Clarke between

pages 101 and 107 of the appeal book.	We
respectfully adopt their reasons.	We have one

qualification that we need to make in relation to

the judgment of Mr Justice Mahoney because of its

significance in another compartment of the case,

but I should point it out now because it lies

within that part of the judgment upon which we rely for this present purpose. It is at page 87 of the

appeal book, and His Honour says at line 5 in

relation to the appellant's offer to renew the

policy:

That the offer indicated the manner in which

it could be accepted (or, at least, one of the

manners in which acceptance could be made).

That was by the payment of the premium sum. And His Honour makes a similar observation at

page 89, line 26, where His Honour said:

Manufacturers(2) 14/5/93

The result is, I think, that the offer

stipulated that it was to be accepted by

payment of the premium but not payment in a

particular manner or at a particular place.

Now, what we need to point out in that regard,

rather than let it go by unchallenged, is that

Your Honours will see - I should inform

Your Honours that Your Honours have, I think, in

the papers that have been put before Your Honours

this morning, a small bundle of documents which

come from my learned friend, but which are a bundle

of the submissions that were made at the trial and

in the Court of Appeal. My learned friend and I

have an understanding that there is no objection to

be taken from the bar table about Your Honours

looking at these materials to see the way in which

the case was conducted.

The present relevance is that - Your Honours

will see at flag 4A in the submissions made at the

trial that the present appellant, who was the first

defendant below, made it clear that the appellant

did not:

Wish to contend that the Renewal Notice was

anything other than an offer to renew -

and made a submission that:

The Renewal Notice gave rise to an offer to renew which was capable of being accepted by an insured either by payment direct to the

first defendant or by notification by the

broker to the first defendant that the offer

was accepted.

So, no question arises here about any concession

having been made by the appellant that the offer to

renew was capable of being accepted by payment a

premium left at large.	The appellant's position at
the trial and consistently to this point in time

has been that the renewal notice on its correct

construction provided for acceptance in one of two

ways, either by notification to the insurer, or by

payment of the premium to the appellant· itself.

But subject to that qualification about the

judgment of His Honour Mr Justice Mahoney, we do

respectfully adopt everything that those two judges

said in support of the construction of the

subsection for which we contend.

In order to ensure that these submissions are

not unduly fragmented, it seems to me best that I
should at this stage go to the judgment of

His Honour Mr Justice Rogers, notwithstanding that

Manufacturers(2) 9 14/5/93

it has been pronounced incorrect by the majority in

the Court of Appeal, and in a brief way to put our

argument in the way we would wish to put it to the

effect that the construction that he gave the

subsection was not correct. The main holding by

the trial judge is to be found at page 20 at

line 17 of the appeal book where His Honour said:

It seems to me, with respect, that all the

considerations which moved the Law Reform

Commission to suggest a change in the law with

respect to the receipt of moneys by brokers -

and we have already spoken of the true limited

scope of that report -

dictate an interpretation of the Act which

equates in all respects, including the making

of the contract, payment to the broker with

payment to the insurer direct.

So that is the construction that His Honour puts on

the subsection, that the parliamentary intent is to make payment to the broker, payment to the insurer, in all respects including relevantly a payment

which would have the effect of completing a

contract of insurance by acceptance of an offer.

The first thing we would say about that

reading of the subsection is that it is not that
the subsection says; the subsection says that the

effect of its operation is to operate as a

discharge of a liability when it arises and it is

nothing like so general as His Honour the trial

judge proposes. His Honour gives reasons for the

conclusion that he comes to. His first reason at

page 20 line 12 is that a strict construction would

be anomalous, and His Honour asks whether it is

intended that the insured is obliged to deal direct

with the insurer?

The answer to that is, of course, no, but it

is not an anomaly, because once the limited effect

of the subsection is recognized, the broker is then

in a position where he is obliged to conclude the

contract in some way or other, in this case by

notification of acceptance of the offer to renew or

by payment of the premium to the insurer.

The next reason given given by His Honour

appears at page 20 line 17, mixed in with the

passage that I previously read, and it is to the

effect that the same reasons as motivated the
Australian Law Reform Commission apply, otherwise

His Honour says the work of the Commission would only be half done.

Manufacturers(2) 10 14/5/93

Well, the work of the Commission was

completely done in that the objectives of the Law

Reform Commission were, as they saw them, fully achieved by their draft legislation and they have

nothing to say and had nothing to say in support of

what was added to their draft legislation by way of

payments made before contract.

The next matter that His Honour advances in

support of his construction is at page 20 line 3,

where His Honour says that:

The insurance market will only work

appropriately if payment to the

broker ..... effects a renewal -

Otherwise -

he says -

amongst other anomalous results the payment of

money on account of premium would be discharge
of a liability which has not and may never
come into existence.

Well, first of all, we say that there is nothing unworkable about the situation in the

present case, on the construction of the section

for which we contend. The offer to renew in this

case could have been accepted simply by

notification of acceptance to the appellant, and

that is entirely workable.

Further, under the construction we would give

to the section, there is no discharge of a

liability which has not or might never come into

existence. Indeed, we say the very opposite. We

say that on the correct construction of the
subsection there is no discharge of a liability

unless and until a liability comes into existence

upon the formation of a contract. The next reason given by His Honour at

page 22, line 19, where His Honour says that the
subsection:

was intended to remove the danger that an

insured may be called upon to pay premium

twice -

therefore the subsection extends, in His Honour's

view, to discharge -

a liability ..... arising contemporaneously,

with and extinguished by, the very payment.

Manufacturers(2) 11 14/5/93

We say the following things about that. First of

all, that His Honour overstates the purpose of the
subsection, which is limited to avoiding the
insured being called upon to pay the premium twice
in cases where a contract comes into existence.

The subsection has no operation in other

circumstances and to assert it does is to over-

state its purpose.

Next we would say that there is nothing

anomalous about the premium being at the insured's

risk unless and until the insurer is on the risk.

Then the policy considerations we observe certainly

change.	And lastly, the reasoning of His Honour
really begs the question.	A liability for the

premium could only arise contemporaneously with its

discharge in a case such as the present if the

payment concludes the contract. So the reasoning

really begs the question of whether the subsection

can be so construed.

Lastly, among the reasons given by His Honour

at page 22 - I think we may have said 26 in our

outline - the bottom of page 22 and over to

page 23, His Honour says that if the premium were

payable quarterly:

the plaintiff would be unprotected during the

first quarter -

but protected thereafter. Well, if there is no

concluded contract during what His Honour calls the

first quarter, we would say that is not anomalous.

The insurer does not assume the risk of the premium being mis-applied until the insurer is on the risk;

we say that is appropriate.

There is a policy consideration involved here

other than the question of whether a person seeking

insurance, or having sought insurance, might have

to pay the premium twice, and that is the policy

consideration of who should bear the risk of a

claim such as the present claim in the event of

premium being paid to a broker as in this case, and

the insurer not having, on the assumptions to be
made, received either the premium or notification

of acceptance of renewal of the policy.

One has a situation then where the broker has

received the premium and the insurer knows nothing

one way or the other as to whether it is on the

risk. In this instance there was a loss of some

hundreds of thousands of dollars. As His Honour
records in the judgment, there is no dispute

between the appellant and the broker that one or

other of them is liable for the loss. Either the

appellant is liable because of the operation of the

Manufacturers(2) 12 14/5/93

section or the second argument that is advanced

against it; or the broker is liable for the loss
by reason of having failed to transact the

insurance effectively.

It goes a little further than that and this is

relevant to the policy considerations to be borne in mind in construing the section. Section 19 of the statute provides for insurance, compulsory

insurance of brokers, and that provision is carried

into effect by regulations 3 and 3A of the

regulations made under the Act, and the Parliament

would have contemplated that that would indeed have

been carried into effect.

So in construing this legislation, if one is

to ask what would the Parliament have intended, it

is relevant to see things in the context that I

have just delineated: would the Parliament have

intended the section to operate in circumstances

such as arose in this case in such a way that the

loss should fall on an insurer who had not received

the premium and did not know he was on the risk, or

should it fall on the professional indemnity

insurer of the broker? That question should be

borne in mind as part of the policy considerations

if one is going to have recourse to policy

considerations such as whether a person proposing

for insurance might have to pay twice.

Of course, in this case there is no question of Metrot, the original plaintiff, still the

plaintiff, having to pay the premium twice. There

only ever was one payment, and the question that

arises in this case is whether the effect of that

payment is to throw the loss which ultimately

happened seven months later on to an insurer who

knew nothing about being on the risk, or upon the

professional indemnity insurer of the broker who

had, on the assumptions to be made, retained the

premium and neither accounted to the insurer, nor

notified the insurer that the renewal was accepted.

We would say that it cannot rationally have

been intended by the Parliament that whenever a
premium was paid to a broker with the intention of

insuring with a particular insurer the payment

should conclude a contract of insurance with that

insurer. The effect of that would be to deny to

insurers the right to make it a condition for

renewal of insurance that premium should be paid

directly to them.

The effect would be that in the case of

initial insurance where a proposal had been

submitted to the insurer, if the broker receives

the premium from his client while the proposal is

Manufacturers(2) 13 14/5/93

under consideration by the insurer, the receipt of

premium by the broker would be imputed to the insurer and would amount to acceptance by the

insurer of the risk.

DEANE J:	Mr Sperling, you have said a couple of times that the question is really between the insurer and the
broker's professional indemnity insurer. Is there anything in the statutory scheme that ensures that
the broker will be effectively insured?

MR SPERLING: Yes, Your Honour. There is a scheme for

compulsory insurance.

DEANE J: And what if he is not? Is it a nominal insurer,

or something?

MR SPERLING:  Your Honour, I have not tracked that through

in the regulations and I cannot tell Your Honour

that there is.	We will endeavour to look at that
in the course of the morning.	I think what we

would say in that connection is that irrespective

of the answer to Your Honour's question, the

Parliament would contemplate that the scheme would

go into effect in the manner for which it provided.

Insurance is a condition of registration, may I

say, so that it would only be in the case of

insurance having lapsed for some reason after

registration that the situation Your Honour

proposes might arise.

DEANE J: And the compulsory insurance would cover

misappropriation of money as well as negligence?

MR SPERLING:  I do not suggest that, Your Honour, but it

would cover the claim for the loss that occurred,

which is some hundreds of thousands of dollars.

Whether it would also cover the premium which was a

couple of thousand dollars, I do not know and I

would doubt. One does not expect professional

indemnity insurance to cover dishonesty.

By way of one further illustration before I

leave the point as to the anomalous result of the

trial judge's construction of the legislation, if,

for example - and this would not be an unusual

situation - a premium were paid to the broker at a

time for renewal of the policy with instructions to
the broker to shop around and see if he could do

any better before renewing with the initial insurer
and then, let us suppose, as would often be the

case, that the broker were to find that renewing

with the original insurer was as good as any other

and it were decided to go ahead with that, the

client would become an intending insured at the

moment that a decision was made to renew with the

Manufacturers(2) 14 14/5/93

original insurer, and then the section would

operate.

It cannot have been intended that the operation of the section would turn in a common

enough situation upon such an uncertain event as

the decision by the client or by the broker on his
behalf to proceed with renewal of the original

insurance rather than to go elsewhere.

If I could just give Your Honour

Mr Justice Deane a reference to the provision that

makes insurance a condition of registration and

that is section 21(1) of the Act.

We should also say that there really is no

general intention to be found in the legislation

that an occasion will never arise where a client

may have to pay twice for the same insurance.	Even
on the construction adopted by His Honour the

trial judge, if premium funds were held by a broker

at a point in time before a decision was taken to place the insurance with a particular company, if

that broker defaults, the premium is lost to the client and the client must find the·money afresh

for the same insurance as he originally intended to

take out. So it is too large a proposition to say

that one finds in this legislation an intent to

ensure that in all circumstances the public will

never have to pay twice for the same insurance.

Plainly there will be circumstances on any

construction where that will occur.

Could I go then to what I have called the

third point, which is the second question of

substance arising in these proceedings, namely

whether it was implied in the renewal notice that

the offer to renew could be accepted by payment of
the premium to the broker. Now, I should first of

all take Your Honours to the document itself and

The relevant parts of the document are that one that is to be found at page 34 of the appeal book.	sees towards the top of page 34 line 10, that this
document would have been posted to the broker to
receive it on behalf of the insured, postal address
being the broker's name and address. One sees
immediately above that notification that the policy
will expire. Then that the appellant:

will negotiate renewal -

Then -

If you require cover to continue please

forward renewal instructions before that date.

Manufacturers(2) 15 14/5/93

The next relevant part of the document is at

page 36, where at line 25 there is a cut-off slip

called "Renewal Payment Advice" and which contains

instructions:

Please detach this section and forward it with

your payment to -

the appellant, and it gives a post office box, and
on the right-hand side the name of the appellant
again appears, giving its geographical address.

Now, could we say something briefly about the reference to negotiate renewal, at the top of

page 34. As His Honour points out in the trial

judgment, section 58 of the companion legislation,

the Insurance Contracts Act, requires that the

insurer should offer to enter into negotiations for

renewal and that would appear to be this insurer's

statement, in compliance with that provision,

believing that it was necessary to pick up the

wording of the provision.

Having mentioned that, it seems to us that one

could then put that consideration to one side

because the document then goes on to specify ways

in which renewal may be effected and, as

Your Honours have seen from that submission

document to which I drew Your Honours' attention, a

copy of which, I may say, is also attached to our

outline, that it is the appellant's case that this

renewal notice constitutes an offer to renew the

insurance and that it specifies two modes by which

acceptance may be effected.

The first mode arises from the words at the top of page 34, and that is, by forwarding

instructions for renewal. The way the appellant

has said that should be construed is that all the

insured has to do is to advise the insurer that he

does wish to renew the policy.

Now, that cannot mean, in the context of a

broker acting, that the instructions are to be

given to the broker. I mean, that would involve

the broker instructing himself and that would be

absurd. So that that is one basis upon which it is

stated that the offer of renewal may be accepted.

The second appears from the tear-off slip that

I have referred to at the bottom of page 36, by way

of payment of the premium specified in the

document, and it is to be payment to the appellant

itself, so specified.

Now, the question which arises in this case is

whether, apart from those specified modes of

Manufacturers(2) 16. 14/5/93

accepting the offer of renewal, there was implicit
in the document, having regard to the circumstances

of the case, an implication that the offer could be

accepted by paying premium to the broker. That is

the question.

TOOHEY J: Mr Sperling, I am not clear why or on what basis

you accept that the forwarding of renewal

instructions is an alternative method of acceptance

of the insurer's offer. I appreciate you may be

simply making a concession against yourself.

MR SPERLING: Well, what we say has both characters. First

of all, it serves as a concession, if that be

needed, in order to support my learned friend's

case in any way. Secondly, we advance it

affirmatively as being the construction that we put

on the document and we say it arises by operation

of the words at the top of page 34 to the effect

that instructions will do, and instructions, we
would construe to mean, instructions to the insurer

to renew on the terms contained in this document.

TOOHEY J: Absent payment?

MR SPERLING: Absent payment. For example, to put this in a

commercial setting, if a broker is placing a fair

amount of business with a particular insurer and

might be reporting monthly on activity with that

company, there might be an arrangement between the

broker and the insurer that the activity report in
the nature of a bordereaux will record premium
received by the broker during the month or

acceptances that are requested on some other basis

and the arrangement may be that notification at the

end of the month to this particular insurer will

do.

TOOHEY J: Yes, I can appreciate how it can arise out of the

course of dealings. I was just confining my query to the document on its face, which presumably is a

document used whether the insurer is dealing with a

broker or an individual client.

MR SPERLING:  Your Honour is quite right, if I may say so,

to put it that way. Our case is simply that

instructions mean a communication to the appellant

that the intending insured wishes the appellant to

renew the insurance on the terms of the document.

We say that is to be found in the word

"instructions".

Mr Justice Mahoney approached this aspect of the case holding that such an implication did

arise, namely, an implication that payment of

premium to the broker would count as acceptance.

Mr Justice Cripps agreed with him -

Manufacturers(2) 17 14/5/93

Mr Justice Clarke dissenting from that approach to

the case. His Honour Mr Justice Mahoney saw the
implication arising, particularly having regard to
the context. This appears at pages 98 and 99 of
the appeal book, where His Honour refers to three

aspects of context.

The first aspect of context that His Honour

specifies, namely at page 98, line 14, is that the

course of dealings was through the broker, so that

it was to be inferred that acceptance could be

through the broker. The second item of context

appears at the bottom of page 98, namely that in

His Honour's view it would have been contemplated

that the premium, when paid, would be held by the

broker for a period of time. The third item of

context was that payment of premium was in some

general way to operate by discharging relevant

liability. That appears at page 99, line 7.

If one could first of all approach this aspect of the case on a more general level, and then come

back to His Honour's contextual reasons for

reaching the conclusion that he did, we would say

that it cannot reasonably have been understood by

the plaintiff Metrot or the broker Boardman on its

behalf that payment of the premium to the broker

would conclude a contract to renew the policy.

If the offer to renew was capable of

acceptance by payment of premium to the broker, ~s

we say it was on its correct construction, then in

that aspect the payment of premium would give rise

to what has been called a unilateral contract; in
other words, the contract would be an offer by the
insurer accepted by an act on the part of the other

party.

We have given Your Honours a reference, but I

need not take Your Honours to it, to the passage in

the 9th volume of Halsbury which refers to that
kind of contract.	The main problem with this

approach is that it results in a situation in which

the insurer comes to be on the risk without being

informed of that fact.

we would say it cannot have rationally been

understood by a person in the position of the
plaintiff or its broker that it would have been

intended by the appellant that the offer to renew

could be accepted in a way - that is by payment to

the broker and no notification to it - which put
the appellant on the risk for what might be a

period of some many months without the appellant

knowing one way or the other whether that was so.

Manufacturers(2) 18 14/5/93

The anomalies which would be inherent in such

a situation are numerous, and just to mention a

few, they would involve that in a case such as this

the insurer would be precluded from the opportunity
of either informing its reinsurers or even in

particular circumstances laying off more of the

risk than it might otherwise have done under its

general arrangements. It would be precluded from

making a properly informed valuation of its level

of exposure to particular kinds of risks in

particular areas so that it could respond to that

under its reinsurance and laying off arrangements.

It would have a receivable by way of a premium that was corning to it under a contract of insurance by

which it was bound without knowing that it could

bring that receivable to account in appraising its

solvency margin.

It would be precluded from the opportunity of

monitoring the account by inspection or otherwise.

It would be precluded from the opportunity of

cancellation under section 60 of the Insurance

Contracts Act if information came to its notice

giving it the right of cancellation against the

particular insured. So there would be a host of

considerations which, under normal circumstances,
would be the ordinary incidences of an insurer
being on the risk which the appellant would be

foregoing if it were true that by this

documentation it was conveying that an offer to

renew could be accepted by payment to the broker

without the appellant being so advised.

McHUGH J: But does any of that matter? Is not the question

how the insured would have understood the document?

MR SPERLING:  The answer to both Your Honours' questions is

yes, that it is a question of how the insured would

have understood the document, and all of that

matters because these would be considerations that

a person in the broker's position, acting as he was

on behalf of the plaintiff, would have assessed

whether it was the true intention of the appellant

that the offer to renew could be accepted in this

manner.

McHUGH J: But the offer was not addressed to the broker; it

was addressed to the insured, was it not?

MR SPERLING: Well we would say, even a person who did not

have the benefit of advice from a broker in
assessing what was truly being offered, it would be

apparent on a common sense basis that an insurance

company was not offering, as an implied mode of

accepting an offer to renew the policy, a method

which would leave the insurer ignorant of whether

or not the policy had been renewed, and we would

Manufacturers(2) 19 14/5/93

put it on that basis even if it were the lay mind,

unaided by broker advice that one was

contemplating.

McHUGH J: But prior to the decision in Norwich, even people

in the industry may well have thought that payment

to the broker would have concluded the contract.

That was the way Mr Justice Rogers so held at first

instance in Norwich.

MR SPERLING:	And, of course, he was overruled.
McHUGH J: That is right.	No doubt the decision was legally

correct, but I am not sure that it reflected the

understanding.

MR SPERLING:	But whether that is the whole story or not, of course, is questionable because one can envisage a
situation in which, as a matter of practice, payment to the broker, coupled with notification to
the insurer, might be a commercially viable method of conducting business, but it is a far cry from
that to propose that payment to the broker, with the insurer left in ignorance, is to be seen as a
viable way of doing business and therefore
something to be implied as a method·of acceptance
of an offer to renew.

MCHUGH J: It is common ground in this case, is it not, that

the broker was a general insurance broker and

therefore section 12 does not apply?

MR SPERLING: Yes, that is common ground. It is so recorded

by the trial judge as having been common ground,

Your Honour.

I should just add, in answer to Your Honour

Justice McHugh's observations, that in this

instance we do know the renewal notice was

addressed to the broker and the evidence shows that

there was a course of dealings, over previous

years, to which Mr Justice Mahoney refers and,

indeed, on which he relies, to the effect that this

was a line of business that was being transacted,

through a broker.

Accordingly, contextually, when it comes to

considering what would have been thought to be the

situation, it is a mind, Metrot's mind, in the

context of being represented by a broker who would

know the implications of one view or another of the

renewal notice.

McHUGH J: What are we to make of fact 5 under the heading,

"Nature of Dispute", at page 3?	I refer
particularly to the words:

Manufacturers(2) 20 14/5/93

The plaintiff accepted through the second

defendant an option to renew.

Are they neutral?

MR SPERLING: Only that it is common ground that in some

manner, unspecified, in the year prior to the one

in question, something was done which had the

effect of exercising the opportunity of renewing

the policy. Now, whether that was by direct

communication with the insurer, or not, the agreed

facts do not disclose, but it is certainly

conformable with the agreed facts, and consistent

with them, that the policy was renewed on that
occasion by a direct communication with the
insurer, with or without receipt of premium by the

broker, one does not know.

Could I go then to the three contextual matters that are advanced by His Honour. The first

of the matters appearing on page 98 at line 14, which is the observation by His Honour that the

course of dealings was through the broker, so that

it was inferred that on this occasion acceptance

could be through the broker, we would simply say

that a course of dealings through an agent for a

party raises no expectation that he will for some

later purpose be the agent for the other party,

which is really the effect of what is sought to be

done. Dealing through the broker is neutral for

this immediate purpose other than providing an

occasion for an inference to arise on other

grounds.

The second reason given by His Honour at the

bottom of page 98 is that it would have been

contemplated that the premium when paid would be

held by the broker for a period of time under what

His Honour calls practice and the Act. There is in

fact no evidence of practice as such in this case,

and of course the decision of this Court in

Con-Stan v Norwich Winterthur, 160 CLR 226, at 236,

makes it clear that strict proof of a trade

practice is required.

Certainly anything appearing from the Australian Law Reform Commission Report as to the

practice prior to this legislation could hardly be

treated as secure evidence of what the practice

might have become under the influence of the

legislation. So His Honour's reference to practice

is, with respect to him, unsupportable.

Under section 27 of the Act the broker, we

would say, would not necessarily hold premium money

for a period of time. That may or may not be the

case. There is nothing in section 27 which

Manufacturers(2) 21 14/5/93

precludes a broker from accounting to the insurer

promptly. There is a criminal offence if he fails permits an agreement to be made under which the
to do so at the end of the 90 day period, but he is
not precluded from doing so in the meantime.

broker may be obliged to account to the insurer
immediately. There is no evidence one way or the

other as to whether in this case that was so.

Lastly in this connection, the period of

90 days under section 27(2) runs from commencement

of the insurance, so that retention of the premium
funds depends upon the time when the premium is

paid. If the premium is not paid immediately - and

one is looking generally at the scheme now - it is

by no means assured that the broker will hold the

premium for any period of time at all.

But aside from those important qualifications,

which cut across an assumption that the broker is

going to hold the money for a significant period of

time, one can approach the question on the

assumption which His Honour makes, namely that that

will occur and that the broker will hold the money

for a period.

Well, if one examines the situation even in that context, one then has two possible ways of

looking at it. First of all, that the renewal

notice does indeed specify two methods for
acceptance, the first of which is notification to
the appellant, the second is payment of premium to

the appellant. In a situation where mere

notification of acceptance is a specified option,

there is no occasion to infer that payment of

premium to the broker was an implied further option

particularly when, without notification, the

insurer would then be left ignorant that it was on

the risk.

But even if, as Your Honour Justice Toohey may

have proposed, the renewal notice is to be

construed as specifying only one method of

acceptance, leaving open the possibility of some

other implied method, it would be unreasonable to

infer - that is, it would be unreasonable for a

person in the plaintiff's position to infer - that

the insurer intended that the payment of premium to
the broker without notification would be taken by

the appellant to be sufficient for acceptance of

its offer to renew.

The third contextual consideration mentioned

by Mr Justice Mahoney at page 99, line 7, is the appellant to be understood by Metrot:

Manufacturers(2) 22 14/5/93

that payment of the premium to the Broker

would have the operation under s 14 of

discharging relevant liability.

Well, we would have to say that there is nothing

that would have given rise to the expectation on

the part of Metrot that payment of premium to the

broker would conclude a contract of insurance by
reason of an assumption that it would discharge a

relevant liability. Indeed, for the plaintiff to

have proceeded along that line of reasoning would
have been contrary to the correct construction of

the subsection which His Honour Justice Mahoney has

himself supported in the earlier part of the

judgment, namely that there would be no warrant at

all to assume that a payment of premium to the

broker would discharge a liability at the time of

its payment that would only operate as a discharge

of liability in the event of a contract being

formed. And that, of course, takes one back to

square one as far as the construction of the

section is concerned.

MASON CJ:  Mr Sperling, there is just one thing I do not

understand. The amount paid, said to be the amount

due in respect of the premium, was $2892.35. That

appears at page 3, paragraph 8.

MR SPERLING: Yes, Your Honour.

MASON CJ: Yet, in the renewal notice at page 36 the total

due is expressed to be $2692.

MR SPERLING: Yes, Your Honour.

MASON CJ: At the foot of the page that amount as an

absolute figure, but of course further up in the

body of the document there is a reference to

$2692.35. What is the explanation for the

discrepancy?

MR SPERLING:  I do not know, Your Honour, but I will

endeavour to clarify it during the course of the

morning.

GAUDRON J: Business interruption premium, is it?

MASON CJ: Further up the page, is it, see this 200 at

line 16?

MR SPERLING: Yes, Your Honour.

MASON CJ: That figure is to be added, is it?

MR SPERLING:  No, that is $200,000 for the sum insured,

Your Honour. It may be that it was intended that

the broker would add commission and would charge

Manufacturers(2) 23 14/5/93

the client the sum mentioned on page 3.	I am
speculating.	I will make inquiries and see if I

can clarify that, Your Honour.

The last point to be made is that we would

respectfully adopt the reasons of His Honour

Mr Justice Clarke, which appear at page 108 of the

appeal book, for rejecting the approach. We would

just, before leaving the matter, point to a little

matter of mystery appearing at page 107, line 15,

in which Mr Justice Clarke says that:

In this case the insured contends that

the court should infer -

and refers to the relevant argument by way of

construction of the renewal notice. The insured,

in fact, made no submissions on the hearing of the

appeal and indeed no one did on this aspect of the

case. His Honour appears to have read a draft of

Mr Justice Mahoney's judgment, as His Honour makes

clear at the beginning of the judgment, and says he
has read it, has put two and two together, and we

see the result on page 107 which, with respect to

His Honour, is not the way it went.

Those are our submissions, if the Court

pleases.

MASON CJ: Yes, thank you Mr Sperling. Mr Jackson?

MR JACKSON:  Your Honours, may I hand to the Court a copy of

our outline of submissions. I wonder if I could

give the Court two references to something in

paragraph 2.	The references were not available at
the time the document was prepared.	Your Honours

will see in the second last line it starts,

"Submissions in Court of Appeal, paragraph 2" - it is behind tab 5 in the white book. Then the Court

of Appeal transcript which is next referred to is

behind tab 7 in the same book.

Your Honours, may I say one thing before

commencing our argument, and that is, if I may say

so, with respect, the Court of Appeal, whilst it

decided the case on a basis which had not been

argued before it also did not really deal with the

argument which we advanced before that court, which

is the first basis on which we seek to maintain the

decision of that court.

In that regard, may I say first what our

argument on that point is not, and then proceed to

say what it is. We do not seek to contend that

section 14(2) has the effect that whenever a

premium for renewal is paid to the insurance

intermediary a contract of insurance is thereby

Manufacturers(2) 24 14/5/93

concluded. It may be or it may not be. It depends

on the particular facts.

Now, Your Honours, in the particular case it was accepted that the renewal advice was an offer

capable of acceptance by payment of the premium.

Now it may be a mild question to which I will come

in a moment, about did it have to be actually paid

to the insurer at some office or not, but it was an

offer capable of acceptance by payment of the

premium. Now, Your Honours, in those

circumstances, the question which arises is the

effect of the application of section 14(2) to those

facts.

Your Honours, may I turn in just a moment to

the terms in which the contention was made that the

offer was one capable of acceptance by payment of

the premium, but may I proceed on the assumption

that that is correct for the moment. And the first

matter to notice is that if one looks at

section 14(2), it is clear that it is dealing with

contracts of insurance which have not yet come into

being. And may I, in that regard, refer

Your Honours to these words in section 14(2), "an

intending insured" - that is payment:

by or on behalf of an intending insured of

moneys in respect of a contract of insurance

to be arranged or effected by the intermediary

And Your Honours will see that the words there used

are words which are speaking in relation to a

person who is to become an insured under a

contract; and secondly, the contract is expressed

to be one which is prospectively to be arranged or

effected.

Now, Your Honours, the contrast in that

regard, with the terms of section 14(1), is stark,

because what Your Honours will see from

section 14(1) is that it refers to:

a contract of insurance -

which had been -

arranged or effected by the insurance

intermediary -

and then speaks of payments in relation to that

being a:

discharge ..... of the liability -

Manufacturers(2) 25 14/5/93

Your Honours will also have noticed from the

history of the Law Reform Commission's

investigations into the matter and its draft Act,

that it must have been appreciated at some point
that the terms of what is now section 14(1) may not

have been apt to deal with all the potential

circumstances because, in most cases, of course,

whether they be cases of renewal or cases of entry

into a new policy, one is likely to have

circumstances where moneys are paid in respect of the premium to the insurance intermediary, before the time at which the contract is effected.

If one looks again at section 14(2) one sees

that the legislature selects the fact of payment as

the relevant event and payment is expressed to be

the discharge. If one seeks to apply section 14(2)

to the present case, one has a situation where a

payment was made. The payment was made to us, that
is to an insurance intermediary. Your Honours, the

payment was made by a person who was an intending

insured and the payment was made in respect of a

contract of insurance to be effected by us. The

payment was also made in respect of a premium. So

that one sees, in the first place, that the exact

words which bring the provision into operation,

whatever that operation might be, are satisfied.

And so, Your Honours, one then comes to see

what is the legal effect of section 14(2).

Your Honours will see that it says that the making

of the payment discharged - which, if one looks at

sections 14(1) and 14(2), would seem to be the

synonym for "satisfied":

as between the insured and the insurer -

which, in the case of section 14(2), means the

persons who are to be insured and insurer under the

contract to be entered into -

any liability -

to pay the premium. Your Honours, in this case the

circumstances were such that a contract of

insurance would come into being on payment of the

premium, because that in this case was all that was

required for there to be acceptance of the offer.

Your Honours, if there had been other terms which

required agreement or satisfaction before a

contract could come into effect - and I will

mention one or two in just a moment - then payment

of the premium to the broker would not effect a

renewal.

Could I just give perhaps one example. What

might be required in a case of a policy of this

Manufacturer(2) 26 14/5/93

kind or of other similar policies might be that

before the insurer agreed to undertake the risk

under the policy or a renewal of the risk, it would

require, for example, a statutory declaration as to

other claims there had been in particular periods

that had occurred prior to - there are numerous

other conditions, Your Honours, that one can

imagine in respect of particular types of policies

that an insurer might require to be satisfied about

before it would enter into a policy in addition to

payment of premium.

In cases of that kind, the mere payment of the

premium to the broker would not of itself effect

the renewal. Your Honours, it is not, as our

learned friend's argument rather seems to assume,

with respect, our contention that it is

section 14(2) which effects renewal. Section 14(2)

does no more than say that a liability to pay a

premium is discharged. It is just that in this

case - and perhaps in many cases like it - payment

of the premium was the only event necessary to

effect renewal.

Your Honours, that is why, in our submission,

two things follow. The first is that the case is

concerned only with the operation of section 14(2)

to particular facts, and the second is that the

actual decision on those facts, in our submission,

was correct. I have referred so far only to

section 14(2) but it is apparent, in our

submission, that our contentions are submitted by

two matters, the first being the history leading to
the enactment of sections 14(1) and 14(2) and,
secondly, the terms of the Act which deal with the

way in which brokers are to deal with moneys of

this kind when they are paid to them. May I

proceed to deal with those matters and I will do so

as briefly as I can.

Now, Your Honours will have seen that the Law

Reform Commission had reported in terms that

suggested that there should be a provision of the

nature of section 13(1), and that report was, I

think, in 1980.

The Insurance Agents and Brokers Act, which is

the Act with which Your Honours are concerned, came

into force during the progress of the litigation,

to which Your Honour Justice McHugh has already
referred. That is, the litigation which resulted

ultimately in this Court's decision, in Con-Stan

Industries of Australia Pty Ltd v Norwich

Winterthur Insurance (Australia) Ltd, (1986)

160 CLR 226.

Manufacturers(2) 27 14/5/93

Your Honours, that case gave rise to the

question whether payment of a premium to a broker was a discharge of the insured's liability to the

insurer in respect of the premium. Two features,

which are material for present purposes, appear

from the decision.

The first is, that there was a difference of

view on that issue, and it was that difference

which was resolved by section 14. The second is,

that "the" or "an" economic reason lying behind

section 14 was the practice, now enshrined in the

Act, of brokers being entitled to hold on to the

premium for their own benefit, for some months,

before passing it on to the insurer.

Your Honours, may I go to that decision, and I

will do so as very briefly to demonstrate where

those aspects may be seen. Your Honours, could I

go first to the decision at first instance of

Mr Justice Rogers in the New South Wales Supreme

Court in (1981) 2 NSWLR 879.

Your Honours, the issue in the case appears

from the very short paragraph which commences the

headnote. It was, simply, that the insured had

paid the premiums to the broker, the broker had not

paid them to the insurer, the broker went into

liquidation, the insurer sued the insured for the

premiums, and the primary judge held that the

insurer was not entitled to do so.

Could I go first, Your Honours, to page 893,

at about paragraph (b), where His Honour sets out,
in the second paragraph on the page, his
conclusion. Your Honours, it sets out the

conclusion in three lines, but I mention it simply

because Your Honours will see there the use of the

expressions one sees in section 14, "discharge" and

"liability to pay premiums". Perhaps His Honour

got them from the draft Law Reform Commission Act -

Your Honours, in arriving at his conclusion,

one does not particularly know.

he made some findings as to the existence of the

practice to which I had referred, and those

findings commence at the bottom of page 885 and go

to the top of page 887. It really commences, in a

sense, in the last line on page 885. He speaks of

the very substantial unanimity of view on the
question, at the top of page 886, and then sets

out, in a number of succeeding paragraphs, the

practice. I invite Your Honours to read what

His Honour says about the practice, but may I ask

Your Honours to note particularly the first

sentence of paragraphs (c), (d), (e), (f), (g), (h)

and ( i).

Manufacturers(2) 28 14/5/93

Could I also invite Your Honours to note in

passing, as it were, paragraph (b) on page 186
because a rectification of the underlying potential
evil, as it were, noted by His Honour there appears

in section 15 of the Act, and I am going to refer

Your Honours to a number of provisions of the Act

which pick up the potential problems referred to by

His Honour.

DEANE J:  Mr Jackson, what is the difference between the

gross premium and the net premium referred to

there?

MR JACKSON:  The net premium, I think, is the premium that

the insurer would charge the insured if the insured

had come to the insurer's door. The gross premium

is the premium that includes a commission for the

broker. I think that is the case. I have not

pursued that part of it I must say.

DEANE J:  In this case, where was the broker going to get

his commission?

MR JACKSON: 

Your Honour, as we would understand it, the

difference that Your Honour the Chie£ Justice
adverted to between the two figures, one appearing
in the renewal notice and one appearing in the

agreed facts, represents the broker's commission,

our commission.  It is $200 approximately I think.

DEANE J: But the client - perhaps one should not talk from

one's own experience - never sees the amount of the

broker's commission, does he?

MR JACKSON: May, Your Honour. It varies. I would be

starting new evidence, I suspect.

DEANE J: Well, if the renewal notice here had gone direct

to the client, what amount would it have contained?

MR JACKSON:

The renewal notice was in the form that

Your Honour sees at page 34 and following.

MASON CJ:	$2692.
MR JACKSON:	Yes.
DEANE J:	So could the broker have taken his commission out

of that under the arrangement between him and the

insurer?

MR JACKSON:  The nature of the arrangement does not appear.

DEANE J: Because if he could, how could the insured have

paid the right amount to the insurer?

Manufacturers(2) 29 14/5/93

MR JACKSON:  Your Honour, I am sorry, the difficulty is the

evidence does not demonstrate what the position

was. What appears is that an amount in excess of the amount in the renewal notice was paid to us.

It is not as I understand it suggested at all that

an amount sufficient to pay the premium to the

insurer was not paid.

MASON CJ:  How does that amount come to be paid to you?

MR JACKSON: In terms of its quantification - - -

MASON CJ:	You being the broker.
MR JACKSON:	We contact the insured and say to the insured,

we have received a renewal notice for this -

MASON CJ:  $2692 - you have got to pay an extra $200.

MR JACKSON: There is nothing surprising about that,

Your Honour.

McHUGH J:  It seems to me that that is probably a

typographical error in the statement of facts

because I noticed that in Mr Justice Mahoney's

judgment at page 84, his judgment states that the

company sent a cheque for $2692.

MR JACKSON:  Your Honour, I do not know that he had any more

facts than Your Honours have.

McHUGH J: Perhaps anything said to him from the bar table.

DEANE J: It is a bit odd, or it is a bit unsatisfactory if

we are dealing with what is presumably seen as a

bit of a test case on a factual basis that is

false. I mean, if the position is that the

ordinary practice is that the insurance company

sends a renewal notice which states an amount which

allows for the broker to retain a commission, that

surely would be strongly supportive of the approach

taken by Justice Mahoney. Because otherwise the

insured would not have the faintest idea of how

much to pay, if he was going to pay direct.

MR JACKSON:  What Your Honours says is correct. The

difficulty is that the material really does not go

into the detail of it. The Act certainly assumes

the possibility, and I was going to say that there

were three - - -

DEANE J: Of course, possibly the Secret Commissions Act

should make us assume that what I am suggesting may

be the case is not the case.

MR JACKSON:  Your Honour, what I was going to say in answer

to Your Honours was - Your Honour said, how do you

Manufacturers(2) 30 14/5/93

get any commission, in effect, and I had said one

thing, Your Honour, and it was this, that it was,

as we understood it, a reason for the difference

between the amount paid to us and the amount of the
premium. That is the first thing. The second

thing is we are entitled to remunerations because -

and I am going to come to those provisions in just
a moment - the Act has preserved a situation

whereby we are entitled to keep for up to 90 days,

subject to any other arrangement with the insurer

that there may be, we are entitled to keep the

money and, in effect, as happens in this and some

other industries, get the interest on it and have

it for our own benefit during that time. And the

third possibility is, Your Honour, I suppose, if
there be some other arrangement between us and the

insurer, but it has not been necessary, in the way

in which the case was conducted, really until one does come to Mr Justice Mahoney's approach to it,

for there to be an examination of the particular

matter that Your Honour is putting to me.

Your Honour, the issue raised by Your Honour

the Chief Justice was one that we had ourselves

raised and the best answer I am able to give
Your Honour at the moment, in seeing the difference

between the figures, is one that I have given, it

is the difference, we think, is what we get for
acting as broker.

DEANE J: But if you look at (c) on page 886, which is what you are referring us to, if you are right when you

say, gross premium means the amount including the

commission, and that premium means the amount ex

the commission, it does suggest a somewhat

different course of conduct.

MR JACKSON:  Yes. Your Honour I am sorry. Your Honour

asked me what was meant there by gross and net;

well, the short answer is, I do not know, and

perhaps I overreached myself in saying that maybe

that is the difference and maybe that is the way of

describing the $200 difference here.

MASON CJ: But on your explanation that there is $200 to pay

by way of commission, what is the commission

payable for; what service provided by the broker?

MR JACKSON: Well, the services provided by the broker,

Your Honour, would be, I suppose, these: one has to

bear in mind that in the particular case the broker

has already arranged a policy, the broker would

look through the renewal notice, see that it was

apposite to the continued operation of the
insured's business, perhaps consult with the
insured about it, say, "Do you want" - as I think

happened in the previous year, "the cover raised?

Manufacturers(2) 31 14/5/93

Do you want it changed? Have you changed your

business? Have you done this, that or the other?"

That is the kind of thing, Your Honour. It is not

necessary to go into the detail of it in the

present case. That is essentially it, I suppose.

And then, one sees that the Act contemplates that

in the absence of there being different

arrangements between the insurer and the broker,

that then the understanding in the industry, an

understanding which the Act provides for, is that

the broker can hold onto the money.

MASON CJ: And the renewal notice is sent to the broker, so

that the broker is unable to discuss these matters

with the client.

MR JACKSON:  Yes. Your Honour will see at page 34, if I can

just take Your Honour to it for a moment, that the

structure of the document is this. You will see

that the postal address at about line 10 is that of

the broker. You will see that the insured is

described, then the intermediary on the same line,

line 14, is set out there. So the document is sent

to us, the broker, but in respect of a particular

insured it sets out this material, and then

Your Honour will see that it says at page 36, about

two thirds of the way down the page:

BEFORE RENEWING PLEASE -

do these things. You will see each page at the top

has the same postal address, insured and

intermediary. If one looks at the statement of the

facts at page 3, you will see in paragraph 5 the

part to which Your Honour Justice McHugh referred,

where it was said:

the first defendant offered and the plaintiff

accepted through the second defendant - Your Honour, there may be a difference of view

about precisely what that means but, as we would

understand the situation, it is intended to convey

that the insured did not itself have direct

communication with the insurer but that the

communications were conducted through us, through

the broker.

MASON CJ: Yes, in other words, that renewal notice appears

to contemplate that the insurance broker will renew

a contract on behalf of the insurer.

MR JACKSON:  Yes.

DEANE J: And if your first guess about what "gross premium"

means is correct, it implies that the insurance

Manufacturers(2) 32 14/5/93

broker will get the money and keep some for

himself.

MR JACKSON:	It depends what money one is talking about.
DEANE J:	I was looking at page 36 which says "Gross Premium

$1737". As I say, if your first intuitive response

is correct, that envisages that the broker will get

the money and deduct some for himself.

MR JACKSON:	Yes, Your Honour, I think that is right.
DEANE J:	As I say, one should not talk from one's own

experience, but years ago that was what was done as

a matter of fact.

MR JACKSON:  Your Honour, undoubtedly that is so. However,

it does not seem to have been the universal

practice. By that I mean there seem to be a number

of possible ways of dealing with it. There is an

economic background to it of course, because if one

finds new brokers going into the field, then they

are likely to offer terms perhaps different from

those who have preceded them. Your Honour, that is

why there may be a commonality but it is not

necessarily a universality.

I do not want to dwell on the renewal notice

itself. May I invite Your Honours, whilst

Your Honours have it there, to note a couple of

things about it. The part at the top of page 34,

about line 5, "WE WILL NEGOTIATE RENEWAL", the

reference to negotiation of renewal was what led to

two things. The first was what appears at page 8

in the primary judge's reasons for judgment.

Your Honours will see at line 12 through to the

bottom of that page and going over to the top of

the next page it then led His Honour to the view

which he expresses at page 17, line 10, that he had

some difficulty with the first submission because

he did not consider:	the Renewal Notice was an offer capable of
acceptance by the mere payment of the premium.
And then he goes on to set out the contention

that was advanced to take that aspect of it away.

Your Honours, from there one goes then to page 36 and Your Honours will see the observation, at

line 23, where it is expressed in this way, "BEFORE

RENEWING PLEASE" do these things.

So it contemplates that renewal is an act of

the insured by one means or another. And a third
thing is that all that is said about the method of

renewal, all that is specified about it, however

one likes to put it, is that what seems to be a

Manufacturers(2) 33 14/5/93

method of getting the money to the insurer is

provided for in the .box on the left at the bottom

of page 36 and, Your Honours, it would strain

belief to think that if a person had gone in off

the street carrying the money with them, at the

office of the insurer, that the insurer would have

said, "Please send it by post".

Your Honours, what I was going to say - if I

could just come back then to the Con-Stan case - is

this, that the issue came before the Court of

Appeal. The Court of Appeal did not set aside in

any way the findings to which I have just referred

by Mr Justice Rogers, but it took a view that they

did not justify the ultimate conclusion that the

payment to the broker was a discharge of the

insured's liability to the insurers. They differed

from His Honour on the conclusion.

Your Honours, those decisions were both given

before the Act came into force; after the Act came

into force the case came to this Court and the

majority judgment in the Court of Appeal was

confirmed. Your Honours will see - and I do not

need to take Your Honours to the case but may I just say, as a matter of reference~ at 160 CLR

234, those facts are summarized, but the decision

was not concerned with the terms of the Act and

does not refer to it.

Now, Your Honours, it is with that background

that one sees the Act doing a number of things

material for present purposes. The first is that

it resolves the situation or resolves the issue in

relation to the effect of payment to the broker by

the insured and it resolves it by sections 14(1)

and 14(2).

If one looks at section 14(1) it deals

directly with circumstances such as those in the

Con-Stan case, that is, where the policy had been

entered into, but the premium had not been paid by

the broker to the insurer. Such a case falls

directly within section 14(1).

GAUDRON J: Would it also cover the case where it has been entered to and the premium was paid before it was entered into?

MR JACKSON: In our submission, it would.

GAUDRON J: And on that basis would it mean that if on the

construction that is now advanced, section 14(2)

would really have no work to do?

MR JACKSON:  Your Honour, section 14(2) in a sense may have

been put in as an abundance of caution. What was

Manufacturers(2) 34 14/5/93

probably appreciated was that a number of possible cases - it would fall into a. number of categories,

if I could put it this way. If one takes one

class of cases, what would frequently enough

happen, one would think, would be that someone on the side of the insurer would say, "Are you going to renew the policy? Any changes?" "No." They

would say, "OK, the policy is renewed;	we will
send you the bill for the premium."	On the other

hand, that might occur by the insured arranging

that, but in such a case one has the contract but the premium has yet to be paid. Another case may

be where the insurer - and in such a case, then,
payment for the premium falls to the broker, falls

directly within 14(1).

The second class of case is where the insured,

for example, says to the broker, "I want to renew
that policy, but increase the cover to a million

dollars from $750,000." The broker says, "OK, I will see what I can do." The broker says to the

insured, "I expect the premium will be another

$2000." The insured says, "OK", and pays an amount

which would, in effect, cover the whole premium

plus the extra amount. The broker then arranges

with the insurer, and the insurer says, "The
increase to the premium will be $1800", and the
broker says, "I've got the money here." In that
case, Your Honour, the contract, if one assumes it

came into being after the date of payment of the

money, would be one where the payment already made

to the broker would effect a discharge of

liability, in our submission, in terms of

section 14(1), maybe also 14(2).

But if one comes to a situation where -

GAUDRON J: But assume it does in 14(1), is there any

situation in which if you are right about the

construction of 14(1), section 14(2) would have any

work to do? Save in the case of the kind with

which we are presently concerned, that is to say,

where the insurance has not, in fact, been

arranged.

MR JACKSON:  The answer, in our submission, is probably no.

If one were to look at section 14(1) and there were

no section 14(2), then it is very difficult to

imagine, we would submit with respect, any case in

which the Court would treat the payment of the

premium to the broker, whether the payment was made
before or after the contract was entered into, as

not being treated as a discharge of the obligation

to pay the premium as at the time that the contract

was entered into if the premium had been paid before the contract was entered into, or as a discharge of the premium as at the date it was paid

Manufacturers(2) 35 14/5/93

if the contract had earlier been entered into.	I
do not sure if I am putting that very clearly.
One looks then to see what additional operation section 14(2) could have.	What we would

submit is that it is speaking in terms of a

contract to be entered into. It uses the term

"discharge"; it attaches to the term "payment", and

the work additional to that performed by

section 14(1), which it does, we would submit, is

to cover a case like this where payment brings

about the contract because it is the acceptance of

an offer. It is difficult, we would submit, to

think of another case that might be covered by it

and not by a broad interpretation of 14(1).

Your Honours, I was dealing with the things

done by the Act in relation, as it were, to the

practices which existed. May I ask Your Honours to

note section 15. Section 15 deals with one of the

issues that Mr Justice Rogers had referred to; it

is the one referred to in paragraph (b) of his

findings, where he referred to the possible

conflict between the position of a broker who had

an agreement with a particular insurer, then acting

for the insured. But, Your Honours, then one comes

to Part III of the Act and Part III of the Act

proceeds to regulate the way in which brokers carry

on their business, including their dealings with

the money paid to them in respect of premiums.

Section 19(1) is the provision which requires

them to be registered and Your Honours have been
referred to section 19(l)(b) which sets out the

requirement for there to be insurance.

Your Honours will see, if I could answer what

Your Honour Justice Deane asked my learned friend

earlier, that it refers to insurance in respect of

prescribed liabilities. Now the liabilities which

are prescribed are, in fact, those set out in

regulation 3 of regulations which Your Honours do
not, I think, have.	They are the Insurance Agents'

and Brokers' Regulations and the relevant

regulation in its present form says this, the

following liabilities are prescribed namely,

liabilities incurred as a result of a breach of

professional duty. It is very wide, Your Honour,

one would think. Now, Your Honours will see that

regulation. It was substituted by statutory rules

No 277 1989, Regulation 4.

Your Honours, the matters ancillary to registration, as such, are dealt with in the

provisions between section 19 and section 26. When

one comes to section 26, subsection (1) requires

registered brokers to keep special accounts for the

purpose of dealing with moneys of the kind

Manufacturers(2) 36 14/5/93

presently in question. And could I invite

Your Honours to note the terms in section 26(1),

"intending insured" and "to be arranged or

effected", terms which seem to reflect section

14(2).

Your Honours, if one goes then to

section 26(4), it is the provision which allows the

registered broker to invest those moneys and the

investment of the money is to the advantage of the
broker. That that is so, Your Honour, appears from

subsection (8) and in addition to, in effect,

income, which is dealt with by subsection (8), the

broker is entitled to retain any capital increase
brought about by a realization of an investment

into which the money has been put. That is dealt

with by subsection (7), but the broker is equally

liable for any capital losses, that is

subsection (6).

The moneys paid to the broker cannot be

attached, or otherwise taken in execution - that

appears in subsection (9). The broker is allowed

to hold on to the money, Your Honours, for a
particular time - that is.dealt with by

section 27(2), and Your Honours will see

subsection (a), the moneys are, in effect, to be
paid out on the first day - I am sorry

Your Honours. Subsection (1) requires the money to be paid by the broker, and then subsection (2) says

that the broker may hold on to the money for a
time, and the time for which the broker is to hold

on to the money is provided for in subsection(2)(a)

and that is 90 days after the cover commences to

have effect, unless, if Your Honours go to

27(6)(a), some contract to the contrary has been

made.

Your Honours, the Act also gives the insurer

some protection in the event of the broker's

insolvency and may I refer to section 28(3) which

deals with the way in which moneys have to be dealt

with. But, Your Honours, the short features which

appears from these provisions, we would submit, is

that the legislature decided that the risk should

be borne as between insurer and broker, and that

the insured should not have to bear that risk.

And, Your Honours, it is emphasized by the terms of

section 14(4), provisions which make contracts to

the legislative intention, is emphasized by the

terms of section 14(4).

Now, Your Honours, what we would submit is that the particular case is one which falls

directly within the terms of subsection (2) and, in

the particular circumstances, subsection (2)

Manufacturers(2) 37 14/5/93

operated upon it and the result was that there was

a contract.

Your Honours, could I come then, before moving on to the second aspect with which we wish to deal,

to turn very briefly to the terms in which the

contention was made that the offer was an offer
capable of acceptance, as we would put it, by

payment of the premium.

Your Honour, it first appears at page 17,

line 10, and Your Honours will see the document

there set out, commencing at about line 18, and

what is said is:

"The first defendant does not wish to contend

that the Renewal Notice was anything other

than an offer to renew -

and then Your Honours will see -

and submits as follows: -

and then Your Honours will see the submission that

is made. So what is admitted, in effect, is that

the renewal notice was an offer to renew; a

submission as to its effect is then made.

The proceedings in the Court of Appeal were

ones in which there was an outline of submissions

on behalf of the present appellant. Your Honours

will see those behind tab 4A in the white covered

bundle - sorry, Your Honours, tab 5, I should have

said - and you will see the submission listed as No

2. The understanding of the Court of Appeal in relation to that submission appears from the

passage of Mr Justice Mahoney at page 85, at the
bottom of that page at about line 24, going through

the page 86 at about line 12 and, Your Honours,

that that understanding reflected the course of the

argument before the Court of Appeal is

demonstrated, we would submit, by the passages in

the Court of Appeal transcript which are behind

paragraph 7, to which we give references in our

outline of submissions.	I do not want to take
Your Honours to them in detail.	They are short

references and Your Honours will see them there set

out.

DEANE J:  Mr Jackson, I do not want to make trouble, but it

is all a bit uncomfortable. I mean, we are facing

the question now, "What would the insured

understand from this renewal notice?" I would have

thought that the practice which would be well known
to insurer, broker and possibly the insured, would

be that when the insured is employing the services

of a broker he normally never sees the renewal

Manufacturers(2) 38 14/5/93

notice and he is never intended to see the renewal
notice.

The insurer sends it to the broker, the broker looks at it, works out amounts and sends a

completely different communication to the insured,

which normally indicates not gross premium but net

premium and specifies the amount of the broker's

commission as an additional thing. It is all very

difficult to deal with the question, "What would

everybody think the insured would have understood",

and so on, in that context. Because there are not

any agreed facts, as I read them, that are contrary

to that.

MR JACKSON:  Your Honour, this is our second argument, in

effect, picking up what was done by the majority in the Court of Appeal. We submit they arrived at the

right result in doing that, but we would not

approach it with quite the enthusiasm that the

Court of Appeal did. I do not mean that

offensively, but what I am seeking to say is that

we would simply say the material that the Court of

Appeal had essentially consisted of the policy, the

renewal notices over a period, the facts alleged in

paragraph 8, the concession to which I have

referred and, in particular, the terms of the

renewal notice.

If one looked at the terms of the renewal

notice in the light of the provisions to which I

have already referred, that is for example,

sections 26 and 27, but also the third part of the

legislative environment, if I can use that

expression, namely, section 14 itself, then it was

right for the Court of Appeal to derive the view

from those matters that the insurer was offering to

renew the policy in ways that could be effected by
a payment to the insurer directly, whether it be by

post or at an office of the insurer or by a payment

to the intermediary.	We would not go beyond that.
second submission because the aspects to which I	I do not wish to say any more in relation to the
have referred cover it. Your Honours, those are
our submissions.

MASON CJ: Thank you, Mr Jackson. Yes, Mr Sperling.

MR SPERLING:  As far as the discrepancy in the figures is

concerned, I can only say that the discrepancy is

consistent with the prospect that the broker has

charged the client $200 extra by way of premium.

DEANE J: Which would mean that that gross premium in the

renewal notice does not include the commission.

Manufacturers(2) 39 14/5/93

MR SPERLING: That is correct, Your Honour. Your Honour, I

should put it differently, that the facts are

consistent with this: that the broker may have

charged his client, whether you call it a handling
charge or a brokerage fee of $200, over and above

the gross commission. That would account for the

discrepancy. It may also be the case that the

broker does deduct from what is called the "gross
premium" a further figure additional to that $200

which he retains out of the money that is paid to

him by the client.

MASON CJ: When you say it is possible, surely it is known.

Your client has standing arrangements with brokers, it must know whether this is the practice or not.

MR SPERLING: Well, Your Honour, I can tell Your Honour that

my instructions, from someone who would know, are

to the effect that it is customary that the broker

charge his client a handling fee of about $100 in

the $1000, on top of the premium that is - - -

MASON CJ:	So it would make approximately $200 in this case.
MR SPERLING:	It would. And that in addition to that it is

commonly the case that the arrangement between the

broker and a particular insurer is that he may

deduct a further amount by way of commission from

the premium specified by the insurer in the renewal

papers which, as we understand it, would have been

the case in this instance.

McHUGH J: That was the case in Norwich. I was in Norwich

in the Court of Appeal, and that was the situation.

MR SPERLING:  Your Honours, I can say what I need to say in

a few minutes, which might be convenient to the

Court.

MASON CJ: Yes, certainly.

MR SPERLING: Section 14(1) either does or does not include

a case such as the present. We would say that

section 14(1) does not include a case such as the

present, because it speaks of a premium payable

which we would construe to mean, payable at the

time of the payment. Now, construed in that way, a

premium that is paid before contract would not be

within 14(1).

GAUDRON J:  Why would you construe it that way, other than

perhaps the presence of subsection (2)?

MR SPERLING: Because, Your Honour, the word "payable", we

would say, does not comfortably accommodate "may

become payable".

Manufacturers(2) 40 14/5/93

GAUDRON J: It says, payment is a discharge in respect of

moneys payable; it is not the moneys payable you

have to look to surely, but the actual payment.

MR SPERLING:  But the moneys must be "payable", and we would

say that does not comfortably accommodate a payment

of moneys - - -

GAUDRON J: But you see, they would not be payable once the

discharge has worked; once section 14(1) has done

its work they would not be payable.

MR SPERLING: That, with respect, Your Honour, is to merge

the conditions necessary for the operation of the
section with the result of its operation, which we

would suggest, with respect, is not an appropriate

approach. One has first to identify what are the

conditions for the operation and then to say what

is the operation on those conditions. The

conditions of operation include moneys which are in

terms of the section payable, and therefore such- and-such, but it does not matter to our argument.

Even if that construction were accepted, this

case is not within subsection (1), and this case is

not within subsection (1) on that construction

because the condition is not satisfied that the

moneys either were payable at the time or ever

became payable unless one introduces into the
conditions for the operation of the section the
result of its operation, that the payment is to be

taken in some way as operating as a payment to the

insurer.

GAUDRON J:  If you are wrong on your construction of (1), is

there any work for section 14(2) to do?

MR SPERLING: If subsection (1) covers payments, both before

and after contract, there is no work for subsection

(2) to do. We would either say it does not, or it

was apprehended that it did not, or might not, and

on any construction of subsection (1) it does not

cover this case, we would say. The argument that has been presented in support of the construction

of section 14(1), we would say, runs into the

fundamental difficulty that has not been avoided,

namely, that the clearly stated function and effect

of the subsection is to make the payment, when a

contract comes into existence, a discharge of a

liability and no more.

It is not within the ordinary meaning of the

section nor anything that should be attributed to

it, having regard to its history, that it should be given an operation of doing more than discharging a

liability if and when a liability comes into

existence, namely, the effect of making a payment

Manufacturers(2) 41 14/5/93

to the broker stand for the purpose of making a

contract as a payment to the insurer.

GAUDRON J:  Mr Sperling, could I ask you in relation to

that, do you give any effect in either subsection

(1) or (2) to the words "in respect of", or are you

looking directly to moneys payable under a

contract?

MR SPERLING:	It is obviously the intent of the legislature to pick up any money which may end up being payable
to the insurer whether by way of premium or otherwise. What they would have in mind I am
afraid I cannot propose by way of premium or
otherwise.

GAUDRON J: And then "in respect of"? You see it is "in

relation to" a contract, and it is "in respect of".

MR SPERLING: There is no relevant distinction that comes to

mind, Your Honour, which would elucidate any intent from that use of different language. Both phrases,

we would suggest, really mean the same thing. They

are just words of connection that relate one -

GAUDRON J:  "In relation to" suggests that maybe you do not

have to have the contract already in existence,

whereas "under" might.

MR SPERLING: Except for this, that it speaks of "the

contract". There is no question but that
subsection (2), and subsection (1) on a liberal

construction, would relate to a situation where the

money is paid before a contract comes into

existence; that is common ground in the case. But

what is plainly envisaged by subsection (2) and may

inferentially be covered by subsection (1),

although we would not agree with that - - -

GAUDRON J: But that is what I am asking you, you see. If

you proceed on the basis that subsection (2) is intended to do something over and above what is	done by subsection (1), you can start either at
subsection (2) or subsection (1), but if you start at subsection (1), then you come to the "in
relation to" and you look to see: it is applying
even though the money is paid before the contract
comes into existence.

MR SPERLING:  If I might make clear what our position is in relation to subsection (1). We would say that

subsection (1) is intended to cover a situation

where the contract is in existence at the time that

the payment is made.

Manufacturers(2) 42 14/5/93

GAUDRON J: Yes, and I am asking you whether that submission

gives sufficient effect in subsection (1) to the

words "in relation to the contract"?

MR SPERLING: All we can say, really, Your Honour, is that

the phrase "under or in relation to the contract",

when the legislature is looking to cover any kind

of payment, or premium, or otherwise which might

have to move, under the contract, from the insured

to the insurer, at such time as the contract -

well, it might have to move pursuant to a liability
arising under the contract - it is looking to use

words of the widest import and it is looking to use

words which will ensure that any moneys paid under

an existing contract, for which the insured is

liable to the insurer, will be covered by this

provision, and the widest possible words are used.

We would say that it is very difficult to construe these words:

Payment to an insurance intermediary of moneys

payable by the insured to the insurer under or

in relation to the contract -

as applying to anything other than a contract in

existence. The subsection commences:

Where a contract of insurance is arranged or

effected by an insurance intermediary -

that is the starting point -

a contract of insurance is arranged or

effected by an insurance intermediary - The section goes on from there:

Payment to an insurance intermediary ..... of

moneys payable -

that is, payable by the insured in relation to the

contract, namely, the contract, which is arranged
or effected; operate by way of discharge of the
liability of the insured to the insurer in respect

of those moneys.

Now this, we would say, is all patently in

relation to existing contract and it is simply a

matter of the legislature having used the widest

terms to pick up every possible relevant aspect of

that situation. The problem then as we see it,

under subsection (2), that is not answered by my

learned friend's submissions, is the plain terms of

the section itself which are limited to the

operation to which we have referred.

Manufacturers(2) 43 14/5/93

Now could I just refer, and I can do so very

briefly, to my learned friend's suggestion that the

position taken by the appellant in the policy was capable of acceptance by payment of the premium, full stop, rather than by payment of the

premium to the broker. And Your Honours will see

from the written submissions that were filed, which

Your Honours will find under tab 5 of my learned

friend's bundle, in paragraph 2 it was said - and

this is in the Court of Appeal:

The renewal advice issued by the appellant was

an offer to renew the policy, that offer being

capable of acceptance by Metrot paying the

renewal premium to MMI.

So that was, in our submission, a document in the

Court of Appeal, and in Boardman's submission

document in the Court of Appeal, under tab 6, in

paragraph 2, the position taken by the appellant is

paraphrased:

it was conceded by MMI that the renewal notice

gave rise to an offer to renew which was

capable of being accepted by the insured

either by payment of the renewal premium

direct to MMI or by notification to MMI that

the offer in the renewal notice was accepted.

So Boardman's position in the Court of Appeal was

that the position taken by MMI was that the payment

had to be made to MMI itself and not merely at

large, whether to the broker or to MMI. And, of

course, a moment's thought would indicate that it

cannot conceivably have been otherwise because for

the appellant to have taken the position which is

now sought to be attributed to it would have been

to concede the whole case. Once it were conceded

that this renewal was capable of acceptance by

payment of premium either to the broker or to the

appellant, the appellant had no case at all.

I do not take the Court to the transcript

references, but having glanced at them briefly as

my learned friend made his submissions, the Court

will see, on looking at them, that there is a
mixture between explicit adherence to the

formulation which I have just read, and a little

bit of shorthand. But we do have to say that when

His Honour Justice Mahoney referred to this aspect

of the case in the passages to which my learned

friend refers - and I specified this in my argument

- His Honour was either using shorthand to

designate the position taken by the appellant or

had, with respect to him, misunderstood the

position.

Manufacturers(2) 44 14/5/93

We have one sentence only to utter in relation to the second basis of my learned friend's

submissions which relates to the implied mode of

acceptance, and this relates to paragraph 14 of his

outline. We would wish only to emphasize that the

line of reasoning proffered there necessarily

involves that the asserted implied method of

acceptance dispensed with communication of
acceptance, and a good deal is needed as a matter

of common sense to read into an offer an element

which dispenses with communication of acceptance,

and indeed a good deal more than is recited here.

We would have to say that what are asserted to

be steps in a line of reasoning leading to a

conclusion in paragraphs (a), (b) and (c) are

simply not such, and that there would have been no

rational basis upon which the plaintiff in this
case or the broker on his behalf could have thought

that impliedly the appellant was waiving the

ordinary requirement of communication as an element
in the acceptance of an offer, and that it was

content to go on to the risk without knowing one

way or the other whether that had occurred.

I will be very brief. There are just two

matters that I should point out to Your Honours, as

my learned friend Mr Graves suggests. One is, that

Con-Stan was, of course, a case which had nothing

to do with the situation envisaged by

section 14(2). It involved a case of money paid

when the contract of insurance was already in

existence. So one does not get anything from that

history which would be an aid to the construction

of section 14(2).

The second thing is that Your Honour

Justice Gaudron asked my learned friend Mr Jackson whether there was anything to illustrate the

operation of this case other than what we know of

the facts of this case. There is a decision that I

can bring to the Court's attention which is a

decision Mr Justice Grove in International

Specialist Underwriters Ltd v Heiman, (1987)

9 NSWLR 201, where His Honour was dealing with a

situation where money had been paid before contract

by way of premium and where the insurance

arrangements were subsequently completed other than

by the broker. His Honour held that in those

circumstances section 14(2) operated and in doing

so he gave section 14(2) the interpretation and

operation to which we ascribe - - -

MASON CJ:  What do you say the name of the judge was?

Manufacturers(2) 45 14/5/93

MR SPERLING: Mr Justice Grove. Could I hand up prints of

that. Those are our submissions, if the Court

pleases.

MASON CJ: Yes, Mr Jackson?

MR JACKSON:  Your Honour, may I have leave to say two

things, the first one being in relation to the case

my learned friend has just referred to, Heiman's

case.	Your Honours will see the relevant part of
it at page 204 between letters A and C.	It simply

does not touch the point with which the Court is

presently concerned, in our submission.

The second thing is merely something that I

should perhaps have mentioned to Your Honours

earlier. My learned friend referred in the white

book behind tab 6 to some submissions made on our

side in the Court of Appeal, paragraph 2. Those

submissions are in response to submissions behind

the previous tab numbers 3 and 4, which were

resiled from in the Court of Appeal and in effect

struck from the document, as Your Honours will see,

because the appellant there sought to resile, to

use the word again, from the concession that had

been made before the primary judge.

MASON CJ:  Thank you, Mr Jackson. The Court will consider

its decision in this matter and will adjourn until

10.15 am.on Tuesday next.

AT 1.01 PM THE MATTER WAS ADJOURNED SINE DIE

Manufacturers(2) 46 14/5/93