Permanent Trustee Aust Ltd & Anor v FAI General Insurance (In Liq)

[2002] HCATrans 86

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S67 of 2001

B e t w e e n -

PERMANENT TRUSTEE AUSTRALIA LIMITED

First Applicant

PERMANENT TRUSTEE COMPANY LIMITED

Second Applicant

and

FAI GENERAL INSURANCE COMPANY LIMITED (PROVISIONAL LIQUIDATORS APPOINTED)

Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 MARCH 2002, AT 9.33 AM

Copyright in the High Court of Australia

MR R.J. ELLICOTT, QC:   Your Honour, I appear with MR J.T. SVEHLA for the applicant.  (instructed by Church & Grace)

MR C.G. GEE, QC:   May it please the Court, I appear with my learned friend, MR E.G. ROMANIUK, for the respondent.  (instructed by Colin Biggers & Paisley)

GLEESON CJ:   Yes, Mr Ellicott.

MR ELLICOTT:   Your Honours, there are five questions that are raised in the application book. I think it is fair to say that the major question is the first one and that is, what is the extent of the insured’s duty of good faith disclosure under section 21 of the Insurance Contracts Act?  It is obviously of public importance because it probably affects every Australian who takes out an insurance policy over their home, et cetera.

GLEESON CJ:   Would you just state shortly how the issue arose in this case?

MR ELLICOTT:   Your Honour, it arose in this way, that my client was wanting to renew its insurance, its professional indemnity insurance, in the 1990s and the lead insurer in London said that they needed some more time to consider certain matters and to interview the Permanent Trustee Company before they could fix the premium for the following year and, as a result of that, they indicated they wanted a 30 days extension on the current policy which expired on 30 September; so they wanted an extension for October.  Now the position was that so far as the insurance agent, Sedgwick, was concerned, they knew certain things about FAI; on the other hand, Permanent Trustee Company, in its wisdom, had decided that if it could get proper rates for the following year from the market other than FAI that they probably would not renew FAI’s insurance for that following year, but, nevertheless, they said, see if you can get the extension for 30 days.

FAI was approached. FAI was not told that they probably would not get the insurance for the rest of the year and they said that under section 21 there was a duty of disclosure. It was a matter that did not go to the assessment of the risk. Quite clearly, they got a premium, as it turned out, that they asked for, based on what they assessed the risk to be. The particular matter that arose, arose during the month of October, and that related to No 1 O’Connell Street, et cetera, and your Honours may be familiar ‑ ‑ ‑

GLEESON CJ:   What was the matter?  The intention to do business in the future?

MR ELLICOTT:   Yes.  The matter was that they probably would not engage FAI beyond the end of October that year.

GLEESON CJ:   If they could get a better deal?

MR ELLICOTT:   If they could get a better deal from other people and they did not want to give it to FAI because they were starting to have concern, based on the advice they received from their insurance agent, about FAI’s position.

GLEESON CJ:   Why do we not hear what Mr Gee has to say.

MR ELLICOTT:   If your Honour pleases.

GUMMOW J:   Is there a provisional liquidator in your client or what is the position?

MR GEE:   That is the position, your Honour.  Leave to proceed has been granted by the Supreme Court on terms which is restricted to leave to proceed on this application, obviously, and on terms as to costs which appear at the tail end of our written submission, your Honours.

GUMMOW J:   Thank you.

MR GEE:   Your Honours, it is necessary to paint in a little bit more of the facts before one can come to a submission about that matter.  It was put higher than that FAI probably would not be invited to renew.  What was decided was that although a final absolute decision had not been taken to exclude FAI from the following year’s business, nevertheless what had been decided was that it would not be allowed to participate, nor invited to participate, if other quotes were satisfactory.  Now, what my learned friend has not mentioned, your Honours, is that pursuant to that the following things happened:  that Sedgwick, following its instructions, actually sent out invitations for quotation for renewal to all the then existing on‑risk insurers before the 30 September, except FAI, and the decision not to send that invitation was conscious and quite deliberate.  So far so good perhaps.

Then, as my learned friend has said, it was necessary to obtain an extension for 30 days and the men from Sedgwick, Messrs Daly and Welsh, who were charged with the task of obtaining the extension, knew, depending on exactly what is embraced in that word, but knew that if they mentioned the fact that others had been approached, but not FAI for renewal, they would not get the extension.  The matter went a little further, as your Honours may have seen from the judgment ‑ ‑ ‑

GLEESON CJ:   Does this have anything to do with the risk that was being undertaken?

MR GEE:   Obviously not directly, your Honour, but it was material to an insurer’s decision as to whether to enter into a contract to take that risk and a matter relating to that decision is just as much within the purview of the language of section 21 as is any other matter which is material.

GLEESON CJ:   That is the key question, is it not?

MR GEE:   Yes.

GUMMOW J:   Well, that is a question of general importance, I suppose.

MR GEE:   Well, your Honours, it is ‑ ‑ ‑

GUMMOW J:   You may ultimately succeed, but it does seem to be a question of importance.

MR GEE:   Your Honours, I obviously would find it hard to put conscientiously the proposition that that could not be so described, but the problem, with respect, is the nature of the particular extreme and unusual, perhaps unique, facts that would cause the matter to be, in our submission, at least, not the case in which to test the point.  The facts go a little further.  Your Honours may have seen that ‑ ‑ ‑

GUMMOW J:   There is no dispute by the way, is there, about the primary facts?

MR GEE:   I believe not, your Honour.

GUMMOW J:   No.

MR GEE:   Depending on just what issues were to go forward, and my friend has mentioned five, the precise facts could be relevant to issues that have not yet been mentioned, such as whether the court below was justified in finding fraud, for example, but leaving that aside, the fundamental facts are not in dispute.

However, there is a fact that needs to be mentioned, that cuts across your Honour’s preliminary tentative view about the matter.  In the crucial conversation between Mr Welsh on behalf of Sedgwick and the underwriter from FAI who was being asked to give the 30‑day extension, it was not just a matter of Mr Welsh simply remaining silent about whether FAI would be in next year when asking for the 30 days.  As was made clear in the discussion in the court below, in the discussion of the question of whether there was a misrepresentation, the critical additional element emerged that the actual question of renewal did arise and Mr Welsh, confronted with what the court below perceived to be his understanding that FAI had every reason to think it would be involved, remained silent.  That was held to amount to a misrepresentation and, as it finally turned out, one which was a fraudulent one within the meaning of the Act, at least.

So that, your Honours, there is the problem with the case as a vehicle that factually it includes an element which does not throw up perfectly cleanly the question of exactly what matters may or may not have to be revealed in discharge of the section 21 duty.

GLEESON CJ:   What did Justice Hodgson find on that issue?

MR GEE:   He found that there was no misrepresentation; he found that there was a non-disclosure.  I am sorry, I think I might have put that incorrectly.  Would your Honours be good enough to go to pages 115 and 116 of the application book where his Honour summarised crisply his findings.

GLEESON CJ:   Paragraph 7 on page 116.

MR GEE:   Well, 6 really, your Honour, in respect of the proposition I am putting, namely that there was the element of a misrepresentation, although a non-fraudulent one according to Justice Hodgson.

GLEESON CJ:   So, as appears from paragraph 9, he based his decision on section 28(3)  ‑ ‑ ‑

MR GEE:   Precisely.

GLEESON CJ:    ‑ ‑ ‑which is the question about the meaning of “matter”.

MR GEE:   It includes it, your Honour.

GLEESON CJ:   Yes.

MR GEE:   The submission that I am respectfully putting is this, that if I accept against myself for a moment that there is a question of importance involved in the exact ambit of what matters have to be revealed, that will not be capable of, what I might call, clean determination in this case, because it is bedevilled by the fact that there was no mere failure to mention a so-called commercial matter.  There was a misrepresentation, a sub‑debate, admittedly, about whether that was fraudulent and a misrepresentation which it was held at every level was causative in FAI issuing the policy or the extension, with the consequence, in our

submission, that even if you could say, as an abstract proposition, that a so‑called commercial matter was not necessarily caught by section 21 – that is obviously debatable – nevertheless your case would be bedevilled on final hearing by the problem of the misrepresentation that I have tried to elucidate. Now, that is I think all I can usefully put in relation to that, your Honours.

GUMMOW J:   Thank you.

GLEESON CJ:   What is the size of the appeal books in this case, Mr Ellicott?

MR ELLICOTT:   The size of them?

GLEESON CJ:   Yes.

GUMMOW J:   We go by weight.

GLEESON CJ:   We usually pause at this stage of the proceedings to try and extract some kind of concessions from people and what we are trying to protect ourselves against is a huge unnecessary volume of paper.

MR ELLICOTT:   Your Honour, as far as the scope of the duty of good faith is concerned, that is basically an issue of law.

GLEESON CJ:   Then it can be dealt with on the judgments.

MR ELLICOTT:   What is required for an insurer to be held to know a matter, is very much a matter of law; can the knowledge of an agent be imputed to the insured if required outside the agency, that is a matter of law.

GLEESON CJ:   It is probably not necessary then to have much more than the reasons for judgment in the courts below?

MR ELLICOTT:   I think it would be sufficient if ‑ I do not know if this is acceptable to the Court, that in some way any party wanting more than the judgments below should justify that position before the appeal is heard.  I have no doubt both my friend and I may want excerpts on the issue of fraud.

GLEESON CJ:   Yes.

MR ELLICOTT:   But apart from that, I would think the matters could be dealt with on the judgments.

GLEESON CJ:   There will be a grant of special leave to appeal in this matter.

MR ELLICOTT:   If your Honour pleases.

MR GEE:   May I respectfully ask, your Honour, whether that is limited in any way in relation to any of the questions?  It is simply a grant of leave, if your Honours please.  Now, could I then raise the question of what happens next.  There is no leave to proceed from the Supreme Court against the provisional liquidator, but perhaps my friend has got something to say about that.

MR ELLICOTT:   Your Honour, as I understand the position, the Supreme Court has granted leave to proceed with the application for special leave.  If that was granted, as your Honours are about to do, then we are to go back to the Supreme Court.  My understanding is that we have had to agree to pay the costs of this application in any event, so that the position beyond that, I suspect, is in the discretion of the Supreme Court as to whether they will grant leave, but it is not a matter that we would consider we would have any difficulty, the High Court having spoken.

GLEESON CJ:   No.  Your side will have the responsibility of getting the matter airborne.

MR ELLICOTT:   Yes, and that we will do, if your Honour pleases.

GLEESON CJ:   Very well.  There will be a matter of special leave to appeal in this matter.

MR GEE:   I am awfully sorry to take up one more moment of the Court’s time, but it raises this issue:  the justice in the Supreme Court who hears the application, which may be a bit of a formality in terms of leave, will also be confronted with the question of terms for that leave.  Now, it is difficult to put this without in some way hinting at being a little disrespectful, but may I take it that the Court, when it comes to hear the appeal and in the event that it succeeded, would nevertheless – how shall I put it – follow whatever costs order might have been made by a judge giving leave to proceed in the Supreme Court.

GLEESON CJ:   Well, that would be a matter for the decision of the members of the Court who actually sit on the appeal.  They may not be either of us for all I know at the moment, but, then again they may be.  So I think you will just have to leave that open.

MR GEE:   If your Honour pleases.

AT 9.51 AM THE MATTER WAS CONCLUDED