Prepaid Services Pty Ltd v Atradius Credit Insurance NV

In *Prepaid Services Pty Ltd v Atradius Credit Insurance NV*, the New South Wales Court of Appeal considered an appeal from a decision of the primary judge concerning a single buyer credit insurance policy. The dispute arose from allegations of misrepresentation by the insured, Prepaid Services Pty Ltd, in its proposal for insurance against defaults by a buyer. Atradius Credit Insurance NV sought to avoid liability under the policy, alleging fraudulent misrepresentations and breaches of disclosure obligations.

The Court of Appeal was required to determine several legal issues. These included whether the primary judge erred in finding that misrepresentations in the insurance proposal were fraudulent due to reckless indifference on the part of an officer of the insured. The Court also had to consider whether the insurer was entitled to reduce its liability to nil under section 28(3) of the *Insurance Contracts Act 1984* (Cth), and if the primary judge had adequately addressed this question. Further issues involved the interpretation of section 27 of the Act regarding "obviously incomplete" answers, the scope of disclosure obligations under section 21 concerning opinions on creditworthiness, and whether the policy indemnified against defaults under contracts with credit terms different from those specified in the proposal. Finally, the Court had to assess the applicability of section 54(1) of the Act in relation to the insured supplying the buyer under contracts with differing credit terms.

The Court of Appeal found that the primary judge erred in concluding that the misrepresentations were fraudulent based on reckless indifference, as the question of whether the officer was consciously indifferent to the truth of the answers had not been sufficiently addressed. Consequently, the Court held that the finding of fraud was not reasonably open on the evidence presented. Regarding the insurer's entitlement to reduce liability to nil under section 28(3), the Court determined that the primary judge had not made the necessary findings to support such a reduction, specifically whether the insurer would not have issued a policy providing any credit insurance for the buyer's defaults. The Court also found that the answers in the proposal were not "obviously incomplete" under section 27, and that the evidence did not establish that the insured held certain opinions regarding the buyer's creditworthiness at the time the contract was entered into, thus not constituting a breach of section 21. The Court further clarified that the policy's indemnity was limited to defaults under contracts with the specified credit terms, meaning section 54(1) did not prevent the insurer from refusing indemnity where the insured supplied the buyer under contracts with different terms.

The appeal was allowed in part, with the judgment and order for costs of the Court below being set aside. The proceedings were remitted to the Equity Division for further hearing before McDougall J to determine the issue under section 28(3) of the *Insurance Contracts Act 1984* (Cth). The appeal was otherwise dismissed, and the costs of the original proceedings and any retrial were to be determined by McDougall J. The respondent was ordered to pay 65 per cent of the appellants' costs of the appeal.