Permanent Custodians Limited v ARMA Pty Limited

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FEDERAL COURT OF AUSTRALIA

Permanent Custodians Limited v ARMA Pty Limited [2006] FCA 640

INSURANCE – lender advanced moneys secured by mortgage of realty – lender asserted reliance in so doing on valuation of real estate valuer – borrower defaulted under mortgage – likely shortfall in loan moneys outstanding inclusive of interest after exercise of power of sale by lender – lender sought recovery of shortfall from valuer on basis of misleading and deceptive conduct – valuer held professional indemnity insurance from Australian underwriting agent for unnamed non-resident representative or nominee for individual unnamed underwriters – lender sought leave to add Australian underwriting agent and non-resident – liability to indemnity rejected upon the basis of controversial interpretation and operation of policies of indemnity in favour of valuer in relation to each of two successive years of cover – issue as to applicable annual insurance cover for two successive years – difference in wording of cover for each year – whether notice to litigate applicable to one year of indemnity or the next following year of indemnity – issues arising as to construction of successive yearly policies reasonably arguable – leave granted to lender to join in proceedings as respondents additional to valuer the Australian insurance agent and the overseas representative for the unidentified underwriters

Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 6
Trade Practices Act 1975 (Cth) ss 52 and 53A
Insurance Contracts Act 1984 (Cth) ss 14, 33 and 37

Andjelkovic v AFG Insurances Ltd (1980) 47 FLR 348 applied
Fishwives Pty Ltd v FAI General Insurance Co Ltd & Ors (2002) 12 ANZ Insurance Cases 61-515 applied
FAI General Insurance Co Limited v McSweeney ((1999) 10 ANZ Ins Cas 61-443 applied
Darlington Futures Limited v Delco Australia Proprietary Limited (1986) 161 CLR 500 referred to
Permanent Trustee Australia Limited v FAI Insurance Company Limited (1988) 153 ALR 529 cited
Pech v Tilgals (1994) 94 ATC 4206 distinguished

PERMANENT CUSTODIANS LIMITED v ARMA PTY LIMITED AND NEIL TEVES

NSD 1758 OF 2004

CONTI J
29 MAY 2006
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 1758 OF 2004

BETWEEN:

PERMANENT CUSTODIANS LIMITED
Applicant

AND:

ARMA PTY LIMITED
First Respondent

NEIL TEVES
Second Respondent

JUDGE:

CONTI J

DATE OF ORDER:

29 MAY 2006

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The making of final orders in the subject interlocutory proceedings for joinder of Macquarie Underwriting Pty Limited and/or SVB Syndicates Ltd be stood over for 21 days with liberty to apply in the meantime on two days notice.

2.The applicant to provide to Macquarie Underwriting Pty Limited and SVB Syndicates Ltd at their address for service in Australia within seven days the text of the orders it proposes for the purpose of giving effect to the reasons for judgment, including orders as to costs of the subject interlocutory proceedings, and in relation to the matter of costs supported by reasons in writing. 

3.Macquarie Underwriting Pty Limited and SVB Syndicates Ltd respond in writing within…

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Details
Case
[2006] FCA 640
Decision Date

CaseChat Overview and Summary

In the matter of Permanent Custodians Limited v ARMA Pty Limited, the applicant sought to join additional respondents to the proceedings, specifically Macquarie Underwriting Pty Limited and SVB Syndicates Ltd. The applicant, Permanent Custodians Limited (PCL), had initiated proceedings against ARMA and Mr Neil Teves, claiming damages for alleged breaches of sections 52 and 53A of the Trade Practices Act. PCL alleged that ARMA provided valuations that substantially overstated the market value of certain properties, leading to financial loss when PCL sold the properties. The case involved complex insurance policy interpretations and the potential liability of additional parties, including Macquarie and SVB, as insurers or principals behind the insurance policies.

The primary legal issues addressed by the court were whether the insurance policies excluded the claim made by PCL and whether the additional respondents should be joined to the proceedings. PCL argued that the exclusions in the insurance policies did not apply to their claim because the Insurers had not demonstrated that all conditions were met. The court also needed to determine whether there was sufficient evidence to join Macquarie and SVB as respondents, considering their potential roles as insurers or principals. The court's decision hinged on interpreting the insurance policies, understanding the relationships between the parties, and assessing the evidence provided by PCL regarding the Insurers' entitlement to disclaim liability.

The court found that the exclusions in the insurance policies were to be read conjunctively, and since the Insurers had not shown that all conditions were met, PCL's claim was not excluded. However, the identity of the Insurers remained uncertain, with Macquarie possibly acting as an agent for undisclosed principals. The court decided to stand over the making of final orders for joinder of Macquarie and SVB for 21 days, pending further submissions and evidence from PCL regarding the proposed orders and costs. The court also required PCL to provide the proposed orders and reasons to the potential respondents and gave them an opportunity to respond within seven days.

The final orders included standing over the decision on joining Macquarie and SVB for 21 days, requiring PCL to provide proposed orders and reasons for judgment to the potential respondents, and allowing the potential respondents to respond within a further seven days. This decision allowed the court to further assess the evidence and arguments before making a definitive ruling on the joinder of the additional respondents.

Orders

Orders of the court

1. The making of final orders in the subject interlocutory proceedings for joinder of Macquarie Underwriting Pty Limited and/or SVB Syndicates Ltd be stood over for 21 days with liberty to apply in the meantime on two days notice.

2. The applicant to provide to Macquarie Underwriting Pty Limited and SVB Syndicates Ltd at their address for service in Australia within seven days the text of the orders it proposes for the purpose of giving effect to the reasons for judgment, including orders as to costs of the subject interlocutory proceedings, and in relation to the matter of costs supported by reasons in writing.

3. Macquarie Underwriting Pty Limited and SVB Syndicates Ltd respond in writing within a further seven days.

Background

Background to the litigation

More recently in the context of an appeal to the Court of Appeal of the Supreme Court of New South Wales in Fishwives Pty Ltd v FAI General Insurance Co Ltd (2002) 12 ANZ Insurance Cases 61-515, Mason P (with whom Meagher and Handley JJA agreed) described the operation of the applicable principle in the following more comprehensive terms:‘47.I do not accept the appellant’s submission that the judge was bound to grant leave if there was an arguable case on the non-disclosure issue. I can readily accept that leave may be given where the Court is satisfied that there is an arguable point on the insurer’s indemnity issue. It is now established that the grant of leave to proceed against an insurer does not foreclose the insurer’s right to litigate issues going to its liability to indemnify the insured in the substantive proceedings…. But it does not follow, in my view, that a court that is positively satisfied of the insurer’s entitlement to disclaim, after issue has been joined on that matter as between the plaintiff and the insurer, must exercise the discretion in favour of the grant of leave. The court is “seized of the discretion to grant leave” (National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1996) 9 ANZ Insurance Cases 61-335 at 76,711; (1996) 138 ALR 409 at 418 per Lindgren J), but it is not driven to exercise the discretion in a particular way.’The outcome of the appeal in that case was summarised by Mason P as follows:‘48.In the present case Delaney DCJ was satisfied on the balance of probabilities that the insurer was entitled to disclaim. He was in my view entitled to reach this conclusion.’In reaching that conclusion, the Court of Appeal was presented with findings below as to facts establishing the objective falsity to answers provided in the insurance proposal form. It is the case of the Insurers on the present application of PCL for joinder of Macquarie and also SVB as additional respondents to the proceedings that I should find on the balance of probabilities that the Insurers are entitled to disclaim liability, and therefore that leave to join the Insurers should be refused. Background facts and circumstances to the proceedings PCL’s business included the provision of loans to assist the funding of the purchase of real property, the loans being usually secured by mortgage over that real property. On 22 May 2003, ARMA provided valuations for mortgage lending purposes to PCL as prospective mortgagee in respect of two adjacent freehold properties comprising Lots 15 and 20 at Nos 22-24 Oyster Court Trinity Beach in the State of Queensland. The valuations were apparently signed by Mr Teves on behalf of ARMA, though the valuations were not tendered into evidence, the view understandably taken by the parties being that the same were not material to the resolution of the present interlocutory proceedings. It is PCL’s case that in reliance on those valuations, it lent to the freehold owner Brett Robinson the sum of $598,000 secured by way of registered first mortgage over the properties, and that when the freehold owner defaulted under the mortgage, PCL exercised its power of sale as mortgagee and sold the properties, thereby sustaining a shortfall in the available proceeds of sale in relation to the moneys by then secured by PCL’s mortgage. PCL’s case was further that the valuations were provided to PCL by the respondents ARMA and Mr Teves in breach of sections 52 and 53A of the TP Act, for the reason that the valuations substantially overstated the market values of the properties and those existing respondents did not have reasonable grounds for their assessments of market value. PCL has claimed damages in the first instance against ARMA as the provider of the valuations and Mr Teves as the author of the valuations, he being allegedly also a director of ARMA, but it is apparent that recovery from ARMA and Mr Teves individually is at least dubious.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

CONTI J
PCL pointed out that there were no words of disjunction employed throughout each of the subparagraphs of paragraph 1.0, which as above appears is literally the case, and that therefore on the proper construction of the first policy, at least each of the foregoing paragraphs 1.1 to 1.8 should be read conjunctively rather than disjunctively. The ‘clearest indication’ of that interpretation advanced by PCL was said to be the circumstance that only valuations of Mr Brian Smith were specifically excluded from the first policy by paragraph 1.7 thereof (supra), and further that Terrence Stewart was (as I have earlier indicated) the only valuer named in the first policy. PCL submitted that ‘[i]f the clause was not intended to take effect conjunctively there would be no reason to include subparagraph 1.7 [and] [v]aluations by Mr Smith would go out by operation of subparagraph 1.8’, an observation which is literally correct but obviously highly controversial. Given that paragraphs 1.1 to 1.8 are to be read conjunctively, PCL contended further that since there was no suggestion made by the Insurers that all of the requirements of the subparagraphs of paragraph 1.0 of the first policy had been fulfilled, the exclusions the subject of paragraph 1.0 had no present application, and PCL had the benefit of insurance cover for the claim, even though Mr Teves was not specifically named in the schedule to the first policy.Conclusions Precisely which entity was ultimately submitted to be the insurer, from the perspective of the entities which for convenience I have referred to as the Insurers, became somewhat uncertain, counsel for the Insurers distilling the so-called ‘SVB Syndicates’, and rejecting the notion of Macquarie as the insurer. As I have already indicated, the professional indemnity arrangements in that regard are uncertain, the Insurers not having identified individually those ‘SVB Syndicate’ members, doubtless referring thereby to the so-called ‘certain Underwriters at Lloyds’. It is however reasonably arguable, based on the wording of the subject policies such as it is, that Macquarie is the insurer albeit as agent for undisclosed principals, and that in the light of what I have further recorded from apparent communications between the parties, the principal was ultimately identified as SVB. Those so-called ‘certain Underwriters at Lloyds’ have not been identified as yet to PCL, notwithstanding that the subject proceedings were commenced on 29 November 2004. I should add nevertheless that I have not thought the Insurers to have intentionally withheld from identification of the principals standing behind SVB as the relevant insurers in order to delay the resolution of the issues of existence and scope of indemnity which seemingly arise. As already explained, the case of PCL is advanced on the basis of contravention of ss 52 and 53A of the TP Act attributable to ARMA and of its corporator Mr Neil Teves. The PCL letters as to the possibility or likelihood (however the same may be construed on a final hearing) of commencement or proceedings were sent on behalf of PCL on 23 April 2004 and 13 May 2004 to Mr Teves personally, and hence were sent during the currency of the Macquarie insurance policy for the year of indemnity 26 July 2003 to 26 July 2004 (ie that which I have been referring to as the first policy). As I have earlier recorded, Mr Teves was apparently a director and shareholder of ARMA, although that circumstance appears not yet to have been formally established.

Ratio Decidendi

Legal Principle Established

Established by: CONTI J

Full text does not contain this section.