MLC Life Limited v Navani Pty Ltd
[1996] QSC 76
•13 May 1996
IN THE SUPREME COURT
OF QUEENSLAND
No. 3721 of 1989
Brisbane
Before the Hon Justice Williams
[MLC Life Limited v. Navani Pty Ltd & Anor]
BETWEEN:
MLC LIFE LIMITED
Plaintiff
AND:NAVANI PTY LTD
First Defendant
AND:DONALD ANDREW DAVIES
Second Defendant
REASONS FOR JUDGMENT - GN WILLIAMS J
Judgment delivered 13/05/1996
CATCHWORDS CONTRACT - terms of appointment of insurance agent - s. 10 Insurance (Agents and Brokers) Act 1984 (Cwth) considered - factual issues determined on credibility.
Counsel:Sofronoff QC and G Newton for plaintiff.
Cooke QC and R Trotter for defendants.
Solicitors:Feez Ruthning for plaintiff.
James Walker for defendants.
Hearing dates: 4, 5, 6, 7, 8, 11 and 12 March 1996
IN THE SUPREME COURT
OF QUEENSLAND
Brisbane No. 3721 of 1989
[MLC Life Limited v. Navani Pty Ltd & Anor]
BETWEEN:
MLC LIFE LIMITED
Plaintiff
AND:NAVANI PTY LTD
First Defendant
AND:DONALD ANDREW DAVIES
Second Defendant
REASONS FOR JUDGMENT - GN WILLIAMS J
Judgment delivered 13/05/1996
The critical question for determination in this case is what were the terms of the agreement pursuant to which the first defendant, Navani Pty Ltd, was appointed an agent of the plaintiff, MLC Life Limited. The plaintiff alleges that the appointment was evidenced by a letter dated 1 September 1988 addressed to "Mr D Davies - DA Davies Pty Ltd" together with an enclosed document described as "Letter of Appointment". DA Davies Pty Ltd changed its name to Navani Pty Ltd.
It will be necessary to refer later to the history of the pleadings delivered by the defendants, but for present purposes it suffices to say that the trial was conducted on the basis of the last defence and counterclaim delivered 15 April 1994 in which it was alleged that there was an oral agreement reached in August 1988 by which the first defendant was authorised to market insurance policies of the plaintiff. It is then alleged that pursuant to that oral agreement the plaintiff appointed the first defendant its agent by the letter dated 1 September 1988 without any enclosures. On the defendant's case the terms and conditions in the document called "Letter of Appointment" (Exhibit 7) did not form part of the relevant agreement.
By letter dated 12 September 1989, purportedly given pursuant to cl. 20 of the "Letter of Appointment" the plaintiff terminated the agency. The plaintiff contends that such termination was valid and that in the circumstances an amount of money is owing by the first defendant to the plaintiff. The second defendant, Donald Andrew Davies, is sued because on 15 August 1988 he executed a guarantee in terms of which he was answerable and responsible for the payment of monies owing by the first defendant to the plaintiff. During the trial it was agreed that if the agency was validly terminated by the letter of 12 September 1989 the amount $425,000 was owing to the plaintiff.
On the basis that the relationship between the parties was governed by an oral agreement of August 1988, and the terms of Exhibit 7 were not relevant thereto, the defendants contended that the letter of 12 September 1989 constituted a repudiation of the relevant agreement between the parties and the first defendant claimed $10,904,045 damages for breach of contract.
The plaintiff relied primarily on documentary evidence and only called relatively brief oral evidence from DGW Holloway who at the relevant time was State Sales Manager concerned with independent agents.
The defence case relied heavily, if not entirely, on the credibility of oral evidence given by the second defendant. Generally I formed an unfavourable impression of the second defendant as a witness. His recollection of events was highly selective. When it suited his case he purported to give a verbatim account of a conversation which took place some years ago without having the assistance of any contemporaneous memorandum thereof. On the other hand he had no recollection of significant recent events which impacted on his credit. I do not propose to set out in these reasons any detailed analysis of his evidence justifying my conclusion. A reading of the transcript, particularly of his cross-examination, amply demonstrates in my view that he ought not be regarded as a reliable witness. Generally I would be prepared to act on his evidence only where there was a contemporaneous document or some other evidence supporting his contention.
Having considered all of the evidence I have no doubt that the terms of Exhibit 7 were incorporated into the agency agreement between the parties. There are a number of factors which strongly support that conclusion. Ultimately my decision is based on the combined force of all of those factors, but any one or more of them would be sufficient to justify the conclusion.
In the Amended Defence and Counterclaim of the defendants delivered 24 June 1993 there was express reliance on cl. 20 as it appears in Exhibit 7. The allegation was that there was an implied term that the plaintiff would not exercise its powers under cl. 20 unreasonably or in any way designed to frustrate the agency agreement.
Then in the Amended Defence and Counterclaim of the defendants delivered 22 September 1993 there was an allegation that "the plaintiff's standard form Terms and Conditions of Appointment as an Independent Agent was to be read as modified by the terms of the oral agreement." That allegation was repeated in the Amended Defence and Counterclaim of the defendants delivered 16 December 1993.
Those pleadings could only have been drafted if counsel had a copy of Exhibit 7 and there were instructions from the defendants to the effect that the terms thereof formed at least part of the contractual arrangements existing between the parties. There was no suggestion during the trial that the pleadings referred to were contrary to instructions. The pleadings to which reference has been made were delivered by James Walker, solicitor, who became solicitor for the defendants on 15 June 1993.
In 1988-9 Litster Mann and Ffrench were solicitors acting for the defendants and they entered into some relevant correspondence with the plaintiff in November 1988. In a letter written to the plaintiff on 23 November 1988 those solicitors put forward for consideration some modifications of the "standard Terms and Conditions of Appointment as an Independent Agent". There followed reference to specific clauses to be found in Exhibit 7 (some referred to even by number), and the suggested modifications are only intelligible if the terms of Exhibit 7 otherwise governed the relationship between the parties.
The letter of termination of 12 September 1989 specifically referred to the "Clause 20 of the letter of Appointment", and in correspondence with Litster Mann and Ffrench which ensued there was no question raised on the defendants' part as to the appropriateness of that reference.
Section 10 of the Insurance (Agents and Brokers) Act 1984 (Commonwealth) provides in effect that an insurance agent cannot hold himself out as such "unless an agreement in writing" between that agent and the insurer authorises the agent to arrange the class of insurance contracts in question. The section also prohibits an insurer from permitting an agent to hold himself out as entitled to arrange a class of contracts of insurance "unless an agreement in writing" between the insurer and the agent permits the latter to do so. Failure to comply with those provisions carries a penalty, but the validity of any contract of insurance is not affected by a contravention. Prior to August 1988 the second defendant had extensive experience as an agent acting for other insurance companies and it would be surprising if he was not aware of s. 10 in August-September 1988. In evidence he did not specifically assert that he was not aware of the provision. Clearly MLC would have been aware of the provision and the Letter of Appointment (Exhibit 7) was designed to meet that statutory requirement. In the circumstances it would be surprising if there was not a document given to the first defendant in which the terms of appointment were reduced to writing.
In the most recent defence and counterclaim the point was taken that a document in the form of Exhibit 7 was not executed either by the plaintiff or the first defendant. The letter of 1 September 1988 which purportedly enclosed the Letter of Appointment specified that "performance by you of any action as an Agent of MLC after you have received the Letter of Appointment shall be deemed to be your acceptance of the terms and conditions contained therein." The parties to a contract may agree that acceptance will be evidenced by some particular conduct, and there was clear evidence of conduct on the part of the first defendant which would constitute acceptance of the Letter of Appointment, assuming that it was duly received by the first defendant.
The legislation here only requires that the terms of the agreement be in writing; there is no requirement that either or both of the parties thereto sign a memorandum of the agreement containing those terms. I am satisfied that a document in the terms of Exhibit 7 constituted a sufficient compliance with s. 10, and I am also satisfied on the whole of the evidence that such a document was received by the first defendant. Both defendants realised that in consequence there was compliance with the statutory requirement that the terms of the agency be in writing.
It is true that the letter of 1 September 1988 was addressed to:
Mr D Davies
DA Davies Pty Ltd
Level 14
T & G Building
Queen Street
BRISBANEQLD 4000
As already noted DA Davies Pty Ltd was the former name of the first defendant. Much of the correspondence prior to 1 September 1988 from either the first or second defendant had given that address in the T & G Building; indeed the formal Application for Letter of Appointment as an Agent of MLC Life Limited dated 15 August 1988 gave that as the business address for the agency. The second defendant gave evidence, which I am prepared to accept, that around 1 September 1988 he was out of Australia. That does not mean that neither defendant, and in particular the first defendant, did not receive the letter and its enclosures. Holloway suggested in evidence that he probably handed the letter to the second defendant on some unspecified date. Given all of the evidence strongly suggesting that the defendants had possession of a Letter of Appointment, and that the letter of 1 September 1988 was received, I am satisfied that one way or another a document in the form of Exhibit 7 came into the possession of the defendants on or about 1 September 1988.
The plaintiff did not keep a copy of the Letter of Appointment forwarded to the first defendant, and the defence was unable to produce the document received or a copy thereof. There was therefore a question as to whether or not the front page of the form was completed. Whether or not it was filled out is, to my mind, beside the point. The letter of 1 September 1988 and the enclosed Letter of Appointment can be read together and if that is done then any deficiency on the front page of the Letter of Appointment is overcome. The date the agency became effective and the name of the agent are clearly ascertainable from reading those two documents.
I should also say that Exhibit 7 refers, for example, to commission being payable in accordance with Schedules of Commission attached thereto. There is no doubt that from on or about 1 September 1988 the defendants were in possession of Schedules of Commission. However it would have been possible for the second defendant to have picked up such schedules on any number of his visits to MLC offices. I do not place any reliance on the fact that the defendants were in possession of those schedules in concluding that a Letter of Appointment in the form of Exhibit 7 was received. However, the fact that the defendants had the schedules is relevant when considering conduct at later points of time during the agency.
For example, in a letter of 11 October 1988 to Partnership Pacific seeking a line of credit of $5 million the second defendant enclosed copies of those schedules. One of the schedules so enclosed was headed "Annexure to Letter of Appointment" and began with the sentence: "In accordance with Clause 10 of your Letter of Appointment, you are hereby advised that the following annexure is to be added to and read in conjunction with that Letter of Appointment". It is difficult to see how that particular document could be properly construed by the second defendant, and be understood by him to be relevant to the prospective financier, without some reference to cl. 10. That, of necessity, meant that the defendants had access to a document in the form of Exhibit 7.
Finally in this regard it should be noted that Davies in evidence conceded that he had a copy of the document in the form of Exhibit 7. His evidence (transcript 208) indicates that he is not clear how and when he came into possession of it. However he maintains that it only came into his possession after the agency was "up and running".
Having considered all of those matters I have reached the conclusion, expressed above, that the terms of Exhibit 7 were incorporated into the agency agreement at all material times between the parties.
The defence case, as advanced at trial, was that Navani was formally appointed to be an agent by the letter of 1 September 1988 (without Exhibit 7). It was argued that such letter alone constituted a sufficient compliance with s. 10 of the 1984 Act, but given my findings it is not necessary to make any ruling on that submission.
More importantly, it was argued that the terms and conditions which governed the relationship between the parties were to be found in an oral agreement reached during August. In his final address senior counsel for the defendants formulated the terms of the oral agreement contended for as follows:
Navani would sell, as agent for MLC, AGKS policies on a zero funded basis;
That the plaintiff would accept policies sold on that basis by Navani up to the limit of $5 million premium value in the first year;
The AGKS policy had a loan value of 85% of the premium paid, such entitlement vesting once the second year's premium had been paid;
Immediately on payment of the premium for the second year the insured could borrow back 100% of the second year's premium.
Other terms of the alleged oral agreement were referred to in the pleadings and in evidence, but they were subsidiary to the terms specified above. The critical issue is whether or not there was an agreement reached in August between the parties including the terms enumerated above.
I am satisfied that there were discussions, particularly in August 1988, between the second defendant and Holloway in the course of which the possibility of the second defendant, or a company under his control, being appointed an agent of the plaintiff was canvassed. I am also satisfied that in the course of those discussions reference was made to the variety of insurance policies marketed by the plaintiff and the commissions payable to agents were discussed.
There is no doubt that the second defendant discussed with Holloway, and possibly with other employees of the plaintiff, the possibility or feasibility of marketing the AGKS policy on a zero funded basis. The proposal as first formulated appears to be set out in the letter under the hand of the second defendant (on Desmond Higgs and Associates letterhead) to Holloway dated 11 August 1988. Consequent upon that and other discussions between Holloway and the second defendant, Holloway forwarded a series of memoranda dealing with that proposal to his superiors. Internal documents of the plaintiff clearly indicate that the proposal was not acceptable to senior management.
In August the first defendant sold some policies on the proposed basis, but they were not then accepted by the plaintiff.
Holloway's evidence is that in oral discussions he had with the second defendant he made known that the plaintiff was not prepared to accept the proposal of the defendants but that the plaintiff was prepared to consider an agency "based upon more orthodox and acceptable parameters". I accept Holloway's evidence in that regard.
Having regard to all of the evidence I am not satisfied that there was an oral agreement (collateral or otherwise) in the terms advanced on behalf of the defendants.
There is no doubt that after its appointment on 1 September 1988 the first defendant marketed the AGKS policy on a zero funded basis and the plaintiff was aware of that fact; the first defendant made no secret of what it was doing as the letter of 2 December 1988 from Litster Mann and Ffrench to the plaintiff indicates. It is also true that the plaintiff did not on becoming aware of what the defendants were doing put an end to the relationship; but that failure to react neither evidences nor creates a contract between the parties in the terms contended for by the defendants. Indeed all the internal documentation of the plaintiff indicates that its senior management was concerned at the way in which the defendants were marketing the policies, but no formal steps were taken to terminate the relationship until September 1989.
A consideration of the whole of the evidence clearly establishes that the policies in question were not designed by the plaintiff for sale on a zero funded basis. It was the second defendant who was responsible for developing the concept of the zero funded policy, and the AGKS policy was an ideal vehicle for use in that marketing strategy.
In order for the marketing scheme to work in the long term on the basis advocated by the defendants it was necessary for the defendants to obtain and service loan funds from credit providers. From the outset (vide letter 11 August 1988) the defendants represented to the plaintiff that a facility with a merchant bank was in place. Such a representation was made throughout the period 1 September 1988 to 12 September 1989. There were representations (for example letter 13 April 1989) that the defendants were not paying either the initial premium or interest, but that such payments were coming from "external financiers".
In October 1988 the first defendant, through a mortgage broker, Moorgate Finance Pty Ltd, sought accommodation amounting to $5 million from Mortgage Securities Limited (MSL) and Banque Nationale de Paris (BNP). It is clear that the defendants did not draw down any accommodation from either of those institutions and at no material time could it be said that financial arrangements were in place.
What is more important for present purposes is to note the workings of the scheme as indicated by the answers given by the second defendant at pp. 225-227 of the transcript. For the scheme to be viable in the long term the first defendant would have needed accommodation from a financier of the order of $15 million. The evidence does not satisfy me that the first defendant realistically had any chance of obtaining accommodation of that order, or if it did, that it had reasonable prospects of meeting its obligations with respect thereto.
The evidence establishes that in November 1988 MSL was prepared to approve in principle a loan of $5 million to the first defendant. That approval was conditional upon the defendants satisfying MSL of the matters specified in the letter of 23 November 1988. But the response of 8 December 1988 appears to have been satisfactory as later correspondence (for example, the letter from McCullough Robertson to Litster Mann and Ffrench of 4 January 1989) indicates MSL was prepared to enter into a formal loan transaction. But such a transaction was never completed. The important point to note, however, is that from at least January 1989 accommodation was available to the first defendant from MSL in the sum of $5 million.
BNP was also agreeable to providing financial accommodation but not in the sum requested. By letter dated 24 November 1988 BNP indicated it was prepared to provide a facility of $500,000 on the terms therein contained. Again the first defendant took no steps to accept that offer and make use of the accommodation offered.
Matters came to a head after the plaintiff wrote to the first defendant on 27 July 1989 demanding payment of outstanding premiums on policies sold by the first defendant. In accordance with the terms of that letter the plaintiff demanded payment of $1,097,876.45 before 4 August 1989. Up until then there had been no suggestion from the first defendant that adequate financial arrangements were not in place.
The letter of 27 July 1989 set in motion a series of curious events. On 3 August 1989 Litster Mann and Ffrench forwarded to its client, the first defendant, a letter containing the text of a proposed letter for MSL to forward to the plaintiff. The second defendant then wrote to MSL enclosing a copy of the proposed letter from MSL to the plaintiff. In turn MSL signed a letter in those terms for delivery to the plaintiff.
By that letter MSL made the $5 million facility in favour of the first defendant conditional upon the plaintiff confirming in writing that the surrender value of each policy in respect of which funding for the premium has been provided would be a minimum of 85% of the premium paid to date at any time after payment of the second annual premium. It also sought further confirmation that upon payment of the second annual premium a loan was available to the beneficiary or assignee in amount equal to one annual premium. What is extremely significant in my view is that prior to that flurry of correspondence, MSL had not attached any such requirement to its offer of finance. As all the events happened on 3 August 1989, the day before the premiums had to be paid, the clear inference is that the purpose of the letter from MSL was to create a pretext to avoid the obligation on the first defendant to pay the premiums due and to repay commissions upon the lapsing of policies.
It is also interesting to note that as at 3 August BNP was not requiring any such confirmation and there was $500,000 readily available to the first defendant from that source. There is no adequate explanation given by the first defendant for its conduct at that time. I am not prepared to conclude that some breach of contract on the part of the plaintiff created the inability on the part of the first defendant to obtain or make use of the necessary financial accommodation it needed to carry its scheme into effect.
Counsel for the defendants submitted that, whether the terms of the agency be those contained in the "Letter of Appointment" as contended for by the plaintiff or the oral terms contended for by the defendants, the plaintiff breached the terms thereof prior to termination in September 1989. The matters alleged by the defendants to constitute breaches by the plaintiff were primarily the following:
Changing the policy loan interest rates in or about February 1989;
Requiring the defendants to maintain a "spread of business" from about March 1989;
(iii)Failing to guarantee that interest rates would not vary;
Failing to guarantee that the AGKS policy had an 85% loan value on day 366 provided the second year premium was paid.
The evidence establishes that the plaintiff would not give a guarantee that interest rates would not change, and in fact adjusted interest rates on policy loans from about February 1989. The data made available by the plaintiff showing various illustrations of a particular policy referred to an "assumed annual loan interest rate of 14%". I can find nothing in any of the material which evidences any agreement by the plaintiff not to adjust interest rates throughout the life of a particular policy; nor was there any representation to that effect. Given commercial reality any such provision would be surprising and, in my view, it would have to be very explicitly established by the evidence.
I am positively satisfied that there was no representation by or on behalf of the plaintiff that the surrender value of each policy would be a minimum of 85% of premium paid to date at any time after payment of the second annual premium. Indeed if one looks at the data published by the plaintiff illustrating the position under its policies the following notation appears: "The above illustration is based on MLC's current bonus rate in capital growth bonus rates which are illustrative only and are not guaranteed." That disclaimer was regularly referred to, and on my reading of the evidence the plaintiff never departed from that position.
It is true that in discussions had between the defendants and representatives of the plaintiff leading up to the appointment of the first defendant as an agent in September 1988, and in the terms of the appointment itself, there was no statement requiring the agent to write a "spread of business". By March 1989 the first defendant was clearly concentrating almost entirely on selling AGKS policies, and for a variety of reasons that was unacceptable to the plaintiff. In consequence in March 1989 it imposed the requirement that there be a "spread of business"; that is, there was a requirement on the defendant as the plaintiff's agent to write a variety of insurance business with AGKS policies representing no more than 50% of the total business written.
Regardless of which of the competing contentions constituted the agency contract between the parties, the evidence does not satisfy me that the introduction of such a requirement in March 1989 constituted a breach by the plaintiff of its contractual obligations.
There is no doubt that by September 1989 the plaintiff was gravely concerned that the implications of the way in which the first defendant was selling AGKS products and the plaintiff had serious concerns as to the effect of a continuation of that business on its own reputation as an insurer. Many of those concerns are set out in the memorandum of 15 May 1989 from Austin, the actuary, to senior management of the plaintiff. I must say that I find the concerns expressed therein amply justified by the evidence.
Clause 20 of the "Letter of Appointment" was in these terms:
"The Agent or MLC may terminate this appointment by giving seven days' written notice and without giving any reason or may be terminate it forthwith:
(a)If the Agent infringes any of the provisions of this appointment;
or
(b)At the discretion of MLC if:
the Agent has not achieved or maintained the performance standards required from time to time by MLC; or
the Agent becomes bankrupt or insolvent; or
(iii)the Agent has been convicted of a criminal offence."
The first paragraph of the letter of 12 September 1989 from the plaintiff to the first defendant was in these terms:
"In accordance with Clause 20 of the Letter of Appointment issued to Navani Pty Ltd (formerly known as DA Davies Pty Ltd) on 1 September, 1988 we hereby given seven (7) days' notice of the termination of that appointment."
I am satisfied that the letter of 12 September 1989 constituted a valid determination pursuant to cl. 20 of the Letter of Appointment. I am further satisfied that there had been no breach by the plaintiff prior to that date of any essential term of the agreement such as would disentitle it from giving the notice which it did.
It follows that the plaintiff is entitled to the relief which it seeks including recovery of the amount of $425,000. By amendment at the outset of the trial the plaintiff also sought a declaration that the appointment of the first defendant as its independent agent was validly terminated by letter dated 12 September 1989. In the circumstances such a declaration should be made. I would allow interest at the rate of 12% per annum from the date of termination of the appointment, namely 19 September 1989, to date of judgment.
In the above circumstances it is not necessary for me to make any finding as to the quantum of the defendants' claim for damages. I would however record that on the evidence I am satisfied that the first defendant's business was doomed to fail. The first defendant could not have serviced the loan facilities of up to $15 million which were necessary if it was to operate at the level anticipated by the second defendant in his evidence. For reasons given by the plaintiff's actuary in his memo of 15 May 1989 the business could not have remained viable in the long term. I am also not satisfied that the policies were zero funded from the point of view of the life insured, as contended for by the defendants. There were significant interest payments to be met and that aspect of the transaction was not satisfactorily answered by the second defendant in his evidence. Someone had to pay, and it was inevitable that there would be a day of reckoning. There is much to support the plaintiff's contention that that day of reckoning came in early August 1989 when the first defendant was obliged to pay to the plaintiff a total in excess of $1 million.
For all of the above reasons I would make the following orders:
Declare that the appointment by the plaintiff of the first defendant as its independent agent was validly terminated by the letter dated 12 September 1989.
Give judgment for the plaintiff against both defendants for $425,000 with interest at the rate of 12% per annum from 19 September 1989 to date of judgment.
Dismiss the counterclaim of the defendants.
Order that the defendants pay the plaintiff's costs of and incidental to the action and counterclaim to be taxed.
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