Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd's London Subscribing to Policy Number B0507N16FA15350

[2021] FCA 19

FEDERAL COURT OF AUSTRALIA

Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd’s London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19   

File number:

NSD 733 of 2020

Judgment of:

LEE J

Date of judgment:

28 January 2021

Catchwords:

INSURANCE – directors and officers’ liability insurance – four policies of insurance – amount of cover for “Entity Securities Liability Optional Extension” (“Side C cover”) – whether Side C cover sub-limited to primary policy – whether policies should be rectified – whether up to $50 million in Side C cover – Lloyd’s insurance market – no expert evidence – principles applicable to construction and rectification of insurance policies – policies represent bundle of contracts between insured and insurers

CONTRACTS – construction of policies of insurance –interaction between primary and excess policies – distinction between construction and rectification – must not subconsciously allow evidence of parties’ actual intentions to affect questions of interpretation and construction – no ambiguity – no resort to extrinsic material  

EQUITY – rectification – consideration of relevant principles – standard of proof – policies represent bundle of contracts between the insured and insurer – impact of rectification on third party rights – inability to rectify primary policy to automatically affect excess policies – brokers – attribution of knowledge – common intention to be proved between broker and each insurer – volumes of contemporaneous material – common intention found between broker and some insurers – whether partial relief should be granted – equity should prevent unconscientious departure from true accord – form of rectification – focus on ascertaining the substance of intention

EVIDENCE – circumstantial evidence – principles applicable to inferential reasoning – volumes of contemporaneous material – no witnesses called – adverse inferences – consideration of Blatch v Archer (1774) 1 Cowp 63 and Jones v Dunkel (1959) 101 CLR 298
REPRESENTATVE PROCEEDINGS – two class actions – settlement reached – policies of insurance only asset of value – settlement approval application – application adjourned – whether insured amount inadvertently incorrect – proceeding commenced against insurers

Legislation:

Corporations Act 2001 (Cth) s 237

Evidence Act 1995 (Cth) ss 140, 144

Federal Court of Australia Act 1976 (Cth) s 33V

Cases cited:

American Airlines Inc v Hope [1974] 2 Lloyd’s Rep 301

Australian Broadcasting Corporation v Chau Chak Wing [2019] FCAFC 125; (2019) 271 FCR 632

Australian Casualty Co Ltd v Federico (1985) 160 CLR 513

Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345

Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1

Axon v Axon (1937) 59 CLR 395

Blatch v Archer (1774) 1 Cowp 63

Boyle v Wiseman (1855) 156 ER 598

Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1

Briginshaw v Briginshaw (1938) 60 CLR 336

Brit UW Ltd v F & B Trenchless Solutions Ltd [2016] Lloyd’s Rep IR 68

Burke v LFOT Pty Limited [2002] HCA 17; (2002) 209 CLR 282

Chapmans Limited v Australian Stock Exchange Limited (1996) 67 FCR 402

CMG Equity Investments Pty Ltd v Australia and New Zealand Banking GroupLtd [2008] FCA 455; (2008) 65 ACSR 650

Codelfa Construction Pty Ltd v State Rail Authorityof New South Wales (1982) 149 CLR 337

Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226

Craddock Brothers v Hunt [1923] 2 Ch 136

Crane v Hegeman-Harris Co Inc[1939] 1 All ER 662

Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68

Drake Insurance Plc v McDonald [2005] EWHC 3287 (Ch)

Dunlop Haywards (DHL) Ltd v Erinaceeous Insurance Services Ltd [2009] Lloyd’s Rep IR 149

Eagle Star Insurance Co Ltd v Spratt [1971] 2 Lloyd’s Rep 116

Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 14; (2014) 251 CLR 640

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471

Fowler v Fowler (1859) 4 De G & J 250

Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603

Galea v Bagtrans Pty Limited [2010] NSWCA 350

General Reinsurance Corporation v Forsakringsaktiebolaget Fennia Patria [1983] QB 856

Girlock (Sales) Pty Ltd v Hurrell (1982) 149 CLR 155

Halford v Price (1960) 105 CLR 23

Hall (Inspectorof Taxes) v Lorimer [1992] 1 WLR 939

Harris v Smith [2008] NSWSC 545; (2008) 14 BPR 26,223

Hawksford Trustees Jersey Ltd v Stella Global UK Ltd [2012] EWCA Civ 55

Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572

Hung v Warner, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) [2013] FCAFC 48

Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets [2020] FCA 1493

Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2005] NSWCA 280; (2005) ATC 4,986

Insurance Commissioner v Joyce (1948) 77 CLR 39

Jana Pty Ltd (atf Azizi Family Trust) v Ezistipdemo Pty Ltd [2017] NSWSC 1135

Jones v Dunkel (1959) 101 CLR 298

Joscelyne v Nissen [1970] 2 QB 86

Julian Praet et Cie S/A v HG Poland Ltd [1960] 1 Lloyds Rep 416

Kennedy v De Trafford [1897] AC 180

Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361

Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1

Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336

Marley v Rawlings [2015] AC 129

Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141

Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2) [2015] NSWCA 119

McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579

Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104

Muriti v Prendergast [2005] NSWSC 281

NIML Ltd v MAN Financial Australia Ltd [2006] VSCA 128; (2006) 15 VR 156

North & South Trust Co v Berkeley [1971] 1 All ER 980

O’Donnell v Reichard [1975] VR 916

Payne v Parker (1976) 1 NSWLR 191

Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 153 ALR 529

Perpetual Ltd v Myer Pty Ltd [2018] VSC 2

Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98

Pukallus v Cameron (1982) 180 CLR 447

QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166

Queenfield Pty Ltd v Gordon Finance PtyLtd [2020] VSCA 282

Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603

Scott v Davis [2000] HCA 52; (2000) 204 CLR 333

Seymour Whyte Constructions Pty Ltd v Oswald Bros Pty Ltd (in liq) [2019] NSWCA 11; (2019) 99 NSWLR 317

Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85

Slee v Warke (1949) 86 CLR 271

Sprackling v Sprackling [2008] EWHC 2696 (Ch)

Thomas Bates and Son Ltd v Wyndhams (Lingerie) Ltd [1981] 1 WLR 505

Touche Ross v Baker [1992] 2 Lloyd’s Law Rep 207

Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125

Weatherbeeta Limited v Hammersmith Nominees Pty Ltd [2019] VSC 559

WorkPac Pty Ltd v Rossato [2020] FCAFC 84; (2020) 378 ALR 585

XL Insurance Co SE v BNY Trust Company of Australia Limited [2019] NSWCA 215

Texts cited:

Birds J, Lynch B and Milnes S, MacGillivray on Insurance Law (Sweet & Maxwell, 14^th ed, 2019)

Dal Pont G E, Law of Agency (LexisNexis Butterworths, 3^rd ed, 2014)

Derrington D K and Ashton R S, The Law of Liability Insurance (LexisNexis Butterworths, 3^rd ed, 2013)

Henley C and Kemp S, The Law of Insurance Broking (Sweet & Maxwell, 3^rd ed, 2016)

Heydon J D, Cross on Evidence (LexisNexis Butterworths, 10^th ed, 2015)

Hodge D, Rectification: The Modern Law and Practice Governing Claims for Rectification for Mistake (Thomson Reuters, 2010)

Lord Nicholls of Birkenhead, ‘My Kingdom for a Horse: The Meaning of Words’ (2005) 121 (Oct) Law Quarterly Review 577

Division:

General Division

Registry:

New South Wales

National Practice Area:

Commercial and Corporations

Sub-area:

Commercial Contracts, Banking, Finance and Insurance

Number of paragraphs:

404

Date of hearing:

11 August 2020; 18 September 2020

Counsel for the Applicants:

Mr W A D Edwards with Mr A H Edwards

Solicitor for the Applicants:

Piper Alderman

Counsel for the First and Third Respondent:

Mr M Jones SC with Mr E Ball

Solicitor for the First and Third Respondent:

Wotton & Kearney

Counsel for the Second Respondent:

Mr M R Elliott SC with Mr R J Pietriche

Solicitor for the Second Respondent:

Colin Biggers & Paisley

Solicitor for the Fourth Respondent:

The fourth respondents filed a submitting notice save as to costs

ORDERS

NSD 733 of 2020

BETWEEN:

QUINTIS LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 092 200 854)

First Applicant

EXCEL TEXEL PTY LTD (ACN 082 642 742) (AS TRUSTEE FOR THE MANDEX FAMILY TRUST)

Second Applicant

MR GEOFFREY PETER DAVIS

Third Applicant

MR GEOFFREY WILLIAM DAVIS

Fourth Applicant

AND:

CERTAIN UNDERWRITERS AT LLOYD'S LONDON SUBSCRIBING TO POLICY NUMBER B0507N16FA15350

First Respondent

CERTAIN UNDERWRITERS AT LLOYD'S LONDON SUBSCRIBING TO POLICY NUMBER B0507N16FA15360

Second Respondent

CERTAIN UNDERWRITERS AT LLOYD'S LONDON SUBSCRIBING TO POLICY NUMBER B0507N16FA15370

Third Respondent

CERTAIN UNDERWRITERS AT LLOYD'S LONDON SUBSCRIBING TO POLICY NUMBER B0507N16FA15380

Fourth Respondent

ORDER MADE BY:	LEE J
DATE OF ORDER:	28 JANUARY 2021

THE COURT ORDERS THAT:

1.By 3 February 2021, Quintis is file, serve and provide to the Associate to Justice Lee any written submissions limited to four pages in length on the issues of relief and costs.

2.By 10 February 2021, the Relevant Insurers are to file, serve and provide to the Associate to Justice Lee any written submissions limited to four pages in length on the issues of relief and costs.

3.By 12 February 2021, Quintis is to file, serve and provide to the Associate to Justice Lee any written submissions in reply limited to two pages in length.

4.If a party wishes to be heard orally on the issues of relief and costs, that party is to notify the Associate to Justice Lee no later than 4pm on 16 February 2021 (and if there is no such notification any outstanding issues as to relief and costs will be determined on the papers).   

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

A        INTRODUCTION	[1]
B        THE RELEVANT ACTORS AND THE POLICIES	[6]
C        PROCEDURAL MATTERS	[17]
C.1  Amended Originating Application	[17]
D        PLACING INSURANCE AT LLOYD’S	[28]
E        CONSTRUCTION CLAIM	[33]
E.1  Relevant Legal Principles	[34]
E.2  Contentions Advanced	[38]
E.2.1      Construction Contention	[44]
E.2.2      Ambiguity Contention	[61]
Contra proferentum	[64]
E.3  Conclusion	[66]
F         RECTIFICATION CLAIM	[67]
F.1   Relevant Legal Principles	[69]
F.1.1      General principles of rectification	[70]
F.1.2      Proof necessary for rectification	[74]
F.2   Preliminary Issues	[78]
F.2.1      What is the common intention alleged?	[80]
F.2.2      Which documents need to be rectified?	[81]
The Follow Form Argument	[82]
F.2.3      Whose intention is relevant?	[90]
F.3   The Evidence as a Whole and the Principles Applicable to Inferential Reasoning	[99]
F.3.1      The evidence as a whole	[100]
F.3.2      The principles applicable to inferential reasoning	[104]
F.4   Evidence of Intention	[108]
F.4.1      Background evidence	[109]
F.4.2      May 2016 Presentation	[124]
F.4.3      Initial engagement of Price Forbes by PSC	[131]
F.4.4      Negotiations with the Relevant Insurers	[138]
F.4.5      Formalising the placement	[208]
F.4.6      Subsequent events and evidence of post-contractual conduct	[220]
Legal Principles	[221]
Evidence of post-contractual conduct	[223]
F.5   The Principles Applicable to Inferential Reasoning Continued	[250]
F.5.1      Blatch v Archer and Jones v Dunkel	[251]
F.5.2      Jones v Dunkel and the current facts	[258]
Price Forbes	[262]
The Relevant Insurers	[264]
F.6   Was there a common Side C Coverage Intention?	[270]
F.6.1      Background evidence	[273]
F.6.2      Price Forbes	[282]
F.6.3      The Relevant Insurers	[309]
The 2016-17 Primary	[310]
I          Antares	[310]
II        Channel	[320]
III       Everest	[328]
2016-17 1XS	[337]
IV       Argo	[337]
V        QBE	[349]
VI       CNA	[355]
2016-17 2XS	[356]
VII     Probitas	[357]
VIII     Barbican	[366]
IX       Vibe	[371]
X        ANV	[384]
F.6.4      Conclusions on common intention	[388]
F.7   Was the Side C Coverage Intention commonly held?	[391]
G        RELIEF	[393]

LEE J:

A        INTRODUCTION

1. The background to this proceeding is an unusual one. Its genesis is an application for approval of a conditional settlement of two class actions (NSD 1983 of 2017 and NSD 862 of 2018) brought on behalf of persons who acquired shares in a sandalwood plantation investment company, being the first applicant in this proceeding (Quintis). The class action applicants and group members alleged that Quintis, and others, engaged in conduct in contravention of various statutory norms causing loss and damage for which they seek compensation. For present purposes, further details of the class action claims are immaterial.

2. Quintis is subject to a deed of company arrangement, and it became evident to those acting for the applicants in the class actions that the only asset of any value held by Quintis was the proceeds of any responsive insurance policy. Following a mediation, an “in principle” settlement agreement was struck; however, prior to the hearing of the settlement approval application, it emerged that representations made during the course of the class actions by the solicitors for Quintis as to the relevant insured amount might have been inadvertently incorrect. When that became apparent to Mr Lawrance, counsel for Quintis in the class actions, he ensured that documents were disclosed, which illuminated the true position. That course, if I may say so, was in the best traditions of the Bar and prevented the settlement approval application proceeding on a false (or at least potentially false) basis.

3. In any event, following this revelation, compulsory process was issued seeking production of documents relating to the true position. Following production, this proceeding was commenced in July 2020, and leave was subsequently granted pursuant to s 237 of the Corporations Act 2001 (Cth) for relief to be sought on behalf of Quintis.

4. The assertion of the applicants in the class actions (and now Quintis) is that Quintis carried Investment Managers Insurance (IMI) policies for the period 30 September 2016 to 31 March 2018 and those policies provided up to $100 million in coverage for directors and officers’ (D&O) liability. It is contended that the common commercial intent when these policies came into existence was for Quintis to have up to $50 million in what is conventionally called “Side C” cover, by way of an “Entity Securities Liability optional extension” (so-called because the base coverage did not include such cover). That intention is now said to be reflected in the proper construction of those polices (Construction Claim), but in the event the mutual intention of the parties miscarried in the drafting of the instruments recording the paction, then it is said the policies need to be rectified to reflect the true accord (Rectification Claim). However, the position of Quintis’ underwriters is that Quintis’ Construction Claim is misconceived (and there is only $10 million in Side C cover) and the equity of rectification is unavailable.  This is despite the fact that it is not in dispute, and the documentary record makes pellucid, that Quintis and its Australian broker intended to secure up to $50 million in Side C cover.

5. The following reasons are set out in the following structure:

   ·Part B will outline the relevant actors and the policies;

   ·Part C will deal with the procedural issues concerning Quintis’ amended originating application and the clarification of the relief sought;

   ·Part D will outline a number of principles agreed by the parties applicable to the placement of insurance in the Lloyd’s of London (Lloyd’s) market;

   ·Part E will address the Construction Claim;

   ·Part F will, regrettably at some length, address the Rectification Claim, including setting out the evidentiary record and making findings in relation to any contested facts in issue; and

   ·Part G will address the question of relief.

   B        THE RELEVANT ACTORS AND THE POLICIES

6. It is first convenient to set out the relevant actors and the policies.

7. Quintis was listed on the Australian Securities Exchange (ASX) and engaged in the business of cultivating and selling Indian sandalwood and products derived from Indian sandalwood.

8. AR (WA) Pty Ltd t/as PSC Insurance Brokers Perth (PSC) was Quintis’ Australian insurance broker. Ms Sarah Purdy was an Account Executive, and Ms Caroline Jackman was the Principal (Corporate and Agribusiness).

9. Price Forbes & Partners Ltd (Price Forbes) was a London-based insurance brokerage firm through which PSC arranged Quintis’ 2016-17 IMI in the Lloyd’s insurance market. Mr Shaun Butler was a Director and Mr Adrian Fox was Head of Financial Products.

10. The present respondents comprise the various Lloyd’s underwriting syndicates subscribing to the following policies:

    (1)a Policy Schedule identified as policy number B0507N16FA15350 and Munich Re Financial & Professional Risks Policy 09/14 policy wording (2016-17 Primary, the subscribing syndicates being the first respondent (Primary Insurers));

    (2)a first excess layer policy identified as policy number B0507N16FA15360 (2016-17 1XS, the subscribing syndicates being the second respondent); and

    (3)a second excess layer policy identified as policy number B0507N16FA15370 (2016-17 2XS, the subscribing syndicates being the third respondent).

    (the policies collectively, 2016-17 Policies; the 2016-17 1XS and 2016-17 2XS collectively, Excess Policies; the respondents collectively, Relevant Insurers; the second and third respondents collectively, Excess Insurers).

11. There was also a third excess layer policy identified as policy number B0507N16FA15380 (2016-17 3XS). The underwriters of that policy have filed a submitting appearance in this proceeding; the reason being that in May 2017, those underwriters executed a retrospective endorsement excluding any liability for Side C cover (see [224]).

12. It is also convenient, for reasons that will become evident, to outline the policies comprising Quintis’ 2015-16 insurance programme as relevant to the current proceeding:

    (1)a Policy Schedule identified as policy number PGLAUP1011178 and Munich Re Financial & Professional Risks Policy 09/14 policy wording (2015-16 Primary);

    (2)a first excess layer policy identified as policy number FLD-368431 (2015-16 1XS);

    (3)two second excess layer policies identified as policy number CFD212004A15 and policy number 50000/27/2015/0009 (2015-16 2XS);

    (4)a third excess layer policy identified as policy number 05CH010390 (2015-16 3XS); and

    (5)a fourth excess layer policy identified as policy number B0507N15T2300 (2015-16 4XS) (it appears that in the Court Book and some parts of the parties’ written submissions that this was referred to as a third excess layer policy – however, in oral submissions and as makes intuitive sense, this policy was referred to as a fourth excess layer policy in respect of the D&O component of the 2015-16 insurance tower).

    (the policies collectively, 2015-16 Policies).

1. The syndicates comprising the Relevant Insurers to the 2016-17 Policies, and their level of participation at the D&O layer of each of the 2016-17 Policies, is summarised in the following table:

2. The participation levels for the 2016-17 2XS are not whole numbers because the policy was oversubscribed (i.e. over 100%) and the indicated participations were written down proportionately in accordance with the subscription terms.

3. The “slip leaders” for each of the policies were:

   (1)Antares for the 2016-17 Primary;

   (2)Argo for the 2016-17 1XS; and

   (3)Channel for the 2016-17 2XS.

4. Diagrammatically, the relevant actors to the 2016-17 Primary, 2016-17 1XS and 2016-17 2XS can be identified as follows:

   C        PROCEDURAL MATTERS

   C.1     Amended Originating Application

5. On 10 August 2020, the day before the proceeding was listed for hearing, Quintis served on the Relevant Insurers a proposed amended originating application (Amended Application) to include the following (as underlined) in its claim for declarations and rectification relating to the 2016-17 Policies:

   Details of claim

   The Applicant claims:

   1.   A declaration that Quintis Ltd is entitled to rectification of policy number B0507N16FA15350 issued by the First Respondent for the period 30 September 2016 to 31 October 2017 (Policy) and, to the extent necessary, policy number B0507N16FA15360 issued by the Second Respondent (1^st Excess) and policy number B0507N16FA15370 (2^nd Excess) issued by the Third Respondent to the extent they incorporate the terms of the Policy, such that:

   a.   the words “4.9 Entity Securities Liability $10,000,000” are deleted, and in lieu thereof the words “4.9 Entity Securities Liability Included” or “4.9 Entity Securities Liability $50,000,000” are inserted at page 2 of the Policy Schedule; and

   b.   the words “4.9 Entity Securities Liability AUD $10,000,000” are deleted, and in lieu thereof the words “4.9 Entity Securities Liability Included” or “4.9 Entity Securities Liability AUD $50,000,000” are inserted at page 2 of the Market Reform Contract annexed to the Policy.

   2.   An order that the Policy and, to the extent necessary, the 1st Excess and 2nd Excess to the extent they incorporate the terms of the Policy, be rectified such that:

   a.   the words “4.9 Entity Securities Liability $10,000,000” are deleted, and in lieu thereof the words “4.9 Entity Securities Liability Included” or “4.9 Entity Securities Liability $50,000,000” are inserted at page 2 of the Policy Schedule; and

   b.   the words “4.9 Entity Securities Liability AUD $10,000,000” are deleted, and in lieu thereof the words “4.9 Entity Securities Liability Included” or “4.9 Entity Securities Liability AUD $50,000,000” are inserted at page 2 of the Market Reform Contract annexed to the Policy.

   3.   An order that a copy of Order 2 be endorsed on the Policy (including any copy of the Policy attached to the 1st Excess or 2nd Excess if such documents exist) and, to the extent necessary, the 1^st Excess and 2^nd Excess.

6. The reason for the proposed amendment arose out of arguments identified by the Relevant Insurers in their submissions served a few days earlier, being: (1) the assertion that rectification of the 2016-17 Primary has no effect on the “follow” Excess Polices; and (2) that the Excess Insurers sought to position themselves as strangers to the relief sought, such that they would be prejudiced by any extension of its consequences to them.

7. Leave to file the Amended Application was opposed by the Excess Insurers on the basis that the Excess Insurers had prepared their defence on the basis that their subjective intent was not in issue, they had not interviewed relevant witnesses, and the proposed amendment would therefore cause them prejudice.

8. The Excess Insures asserted that rectification of the Excess Policies was not sought on the basis of a “deliberate forensic choice” and pointed to the remarks of Mr Edwards, counsel for Quintis, in response to the following query I raised at a case management hearing on 13 July 2020 (at T5.5–12):

   HIS HONOUR: … So rectification is only sought in respect of the policy issued by the first respondent …

   MR EDWARDS: Yes. I mean, there’s a real question about whether all these other second layers and whatnot actually need to have active part because their policies follow form against that one. I mean, I understand they have an interest because they will get exposed quicker or slower, depending upon the answer. But, really, it’s not a case where we have to make out 30 rectification slips.

9. However, on the application to amend, an affidavit sworn by the solicitor on record for Quintis, Mr del Gallego, was read.  He gave the following unchallenged evidence:

   … During the course of the 13 July CMH, Mr Pietriche submitted in relation to the nature of the case, “we would expect that the applicants would need to demonstrate the case of rectification by having regard to documents visa-vis each of the syndicates involved. And where there at [sic] least 10 syndicates involved in the underwriting of this particular policy and where there are three separate parties, effectively, on the respondents side, we would expect that, in order for the applicants to make out their case as well as for each of the respondents to properly respond, that is a process that will necessarily take some time.” (T4:29-36)

   I understood Mr Pietriche to be submitting that the Second Respondent’s position was that its characterisation of the forensic contest was that there was a factual dispute in contest as to the subjective intention of all the insurers. Mr Ball did not make any substantive submissions during the 13 July CMH, and I took from his silence and Mr Pietriche’s reference to that being a difficult exercise where [sic] “where there at least 10 syndicates involved in the underwriting of this particular policy” (T4:31) that this was the common position of the Respondents.

   (Emphasis added, underline in original).

10. It was uncontroversial that at all times the case advanced by Quintis was that it had up to $50 million in Side C cover. Quintis did not initially consider that this would involve rectification of the Excess Policies as well as the 2016-17 Primary. However, given the unchallenged evidence of the solicitor with carriage of Quintis’ case, supported by the remarks of Mr Edwards both written and orally, I rejected the notion that some form of “deliberate forensic choice” was made. The reality is that despite the point taken by the Excess Insurers, at all times prior to the exchange of submissions in advance of the hearing, there was simply an asymmetry in the views taken by those advising the parties as to what was necessary in order to obtain utile relief.  Given the requirement for the Court to facilitate the just resolution of disputes, I granted leave for Quintis to file and rely on the Amended Application.

11. This leave was granted notwithstanding I accept this course occasioned some prejudice to the Excess Insurers.  To alleviate any prejudice, it seemed to me the appropriate course was for the hearing to be adjourned, for Quintis to file points of claim and thereafter there be a joinder of issue, particularly in relation to any equitable defences that may be called in aid by the Excess Insurers.  Importantly, I also proposed a timetable for the filing of additional affidavit material and submissions, with the hearing to be reconvened on a date to be fixed.

12. Counsel for Quintis conceded that this course was, given the circumstances, the most suitable even though the vacation of the hearing would likely have adverse costs consequences. Notwithstanding this, the Relevant Insurers opposed any adjournment. The alternative proposed by Mr Jones SC, counsel for the first and third respondents, was that given there had been no opportunity to call witnesses and that the third respondent was prepared to run a defence on the documentary material filed to date, I should proceed to hear the case, with the express caveat that I would not make any adverse inferences against the Excess Insurers for their inability to call any witnesses. The second respondent endorsed this course. Indeed, counsel for both the second and third respondents, after I sought assurances, stated that they were in a position to meet the case advanced against them, that they wished to adduce no further evidence, that there were no additional documents to be discovered and despite the amendment, they were happy to proceed.

13. In those circumstances, and given that Quintis had only been given leave to file the Amended Application at the hearing, on balance it seemed to me consistent with the overarching purpose, and in particular with the need to facilitate the resolution of this dispute as quickly and inexpensively as possible, that the hearing proceed.  No doubt if the evidence had concluded within the time initially allocated for the hearing, any inference that would otherwise have been available to be drawn by reason of the Excess Insurers not calling witnesses, would have been met with the response that there was a reasonable excuse not to call witnesses who, up until the time of the amendment, had not been considered material.

14. In any event, any discussion concerning prejudice or making limited enquires because of an alleged lack of understanding as to how Quintis was to run its case, ended up disappearing. That is because, when it became clear that the proceeding would run over the one day which had been allocated, I made orders to the effect that, inter alia, the Relevant Insurers file and serve any affidavit evidence upon which they proposed to rely in relation to the relief sought in the Amended Application (on the basis that given leave to amend was allowed, they were automatically entitled to reopen their evidence at the hearing, and read any further affidavit material they wished to read).

15. As it happened, the hearing was adjourned part heard to 18 September 2020. Although I deal below comprehensively with the evidential position, I should note here that apart from an affidavit relating to the verification of the list of documents produced by the first and third respondents, no additional affidavit material was relied upon, nor were any witnesses called. Given this, and the importance of inferences in this case to determining issues of intention, one might think it is unsurprising the Relevant Insurers did what they could to have the matter heard and resolved on the basis that no adverse inferences arising from the absence of witnesses could be drawn.

    D        PLACING INSURANCE AT LLOYD’S

16. With an understanding of the relevant actors, polices and the relief sought in mind, it is now appropriate to turn to the substance of Quintis’ claims. Before doing so, it is useful to canvass some largely uncontroversial aspects regarding the way in which Lloyd’s operates and how the current facts fit within that contemporary market practice. That is because such an understanding of the commercial context informs how a number of relevant issues should be approached.

17. No expert evidence was adduced in relation to the operation of the Lloyd’s market. Nor are such matters, to the extent they are factual, common knowledge allowing s 144 of the Evidence Act 1995 (Cth) (EA) to be engaged. As a consequence, and because it seemed to me the commercial context was of importance, prior to the second day of the hearing, my Associate sent the parties a document which (based on the submissions of the Relevant Insurers and my understanding of relevant cases), outlined the following principles applicable to placing insurance at Lloyd’s and how they apply in the present circumstances.  The parties accepted the accuracy of this document.  Although the initial list of principles sent to the parties included some additional matters, the following are those points which ended up being pertinent to the current proceeding:

    (1)insurance placed with Lloyd’s must be undertaken through the agency of a broker who is registered to place business in the Lloyd’s market: see Julian Praet et Cie S/A v HG Poland Ltd [1960] 1 Lloyds Rep 416 (at 416–7 per Morris LJ); North & South Trust Co v Berkeley [1971] 1 All ER 980 (at 982 per Donaldson J); Brit UW Ltd v F & B Trenchless Solutions Ltd [2016] Lloyd’s Rep IR 68 (at [165] per Carr J); Birds J, Lynch B and Milnes S, MacGillivray on Insurance Law (Sweet & Maxwell, 14^th ed, 2019) (at [37-008]–[37-009]); Henley C and Kemp S, The Law of Insurance Broking (Sweet & Maxwell, 3^rd ed, 2016) (at [12-003]–[12-004]) (Henley and Kemp);

    (2)there were two brokers intervening between the insured (Quintis) and the underwriters (the Relevant Insurers), being the “producing broker”, PSC (in direct contact with Quintis) and the “placing broker”, Price Forbes (in direct contact with the Relevant Insurers), who is the designated “Lloyd’s broker”;

    (3)PSC and Price Forbes are both agents of the insured, however, it was Price Forbes as the placing broker who was the contracting agent (to use that term at a high level of generality) of Quintis at Lloyd’s: American Airlines Inc v Hope [1974] 2 Lloyd’s Rep 301 (at 304 per Lord Diplock, with whom Lord Wilberforce, Viscount Dilhorne, Lord Simon of Glaisdale and Lord Kilbrandon agreed);

    (4)it is common that a placing broker will seek out a market “leader’” to endorse the “slip” as part of marketing efforts to attract other potential insurers and that although the traditional “slip” (as distinct from the separate policy document) is now a thing of the past (having been replaced by the Market Reform Contract (MRC)), the term “slip” is still widely used in the market to refer to an MRC (for example, a “quote slip”, as used in the present circumstances, commonly refers to a draft MRC used to negotiate the contract with underwriters (terms that I will use interchangeably in these reasons)): Henley & Kemp (at [12–008]) (I should note that this point was not expressly conceded by Quintis, but is clearly consistent with the entire documentary record);

    (5)the slip method of placing insurance, by signing the MRC and stating the proportion of the risk that the underwriter is prepared to subscribe results in the conclusion of separate contracts between the insured and each subscriber of the slip: see General Reinsurance Corporation v Forsakringsaktiebolaget Fennia Patria [1983] QB 856 (at 864 per Kerr LJ, with whom Slade and Oliver LLJ agreed); Eagle Star Insurance Co Ltd v Spratt [1971] 2 Lloyd’s Rep 116 (at 124 per Lord Denning MR);

    (6)the severability of each contract of insurance between the insured on the one hand and the individual subscribing underwriters is consistent with the autonomy of each underwriter: see Touche Ross v Baker [1992] 2 Lloyd’s Law Rep 207 (at 210 per Lord Mustill, with whom Lords Templeman, Jauncey of Tullichettle, Brown-Wilkinson and Slynn of Haldey agreed); and

    (7)hence, while there may only be one primary policy and three excess polices, there are in fact nineteen separate contracts reflected by the 2016-17 Policies (although the 2016-17 3XS is not relevant to the Rectification Claim, and some underwriters subscribed at multiple levels of the tower).

18. It is worth noting that by the end of the case it was common ground that the 2016-17 Policies reflected a bundle of contracts and importantly, in response to a question posed by me, the parties accepted, as a matter of principle, that if common intention was proved in relation to only some underwriters, some relief may be available in relation to the separate contracts with the Relevant Insurers found to have held the relevant common intention.

19. It is convenient here to deal with the further issue as to when the contracts between Quintis and the Relevant Insurers were formed. It is apparent that a Firm Order Noted (FON) was sought and provided by email from all Relevant Insurers and an MRC in full form was also subsequently signed by each Relevant Insurer in days following. The first and third respondents stated in their written submissions that:

    The reason as to why [Price Forbes] took the course of seeking an email ‘FON’ as well as obtaining signature on the complete MRC is a matter of speculation. It ultimately does not matter much what the reason was. Both the ‘FON’ confirmation and the signing of the complete MRC occurred relatively contemporaneously.

20. Quintis advanced its submissions on the basis that there was a continuum of intention culminating in the accord being reached at the time of the FON. This was presumably because, as will be discussed below, the excess policy terms were only attached to the complete MRC when it was signed. The second respondent submitted that it was preferable to treat the signing of the complete MRC as the time of formation, given that this is the instrument sought to be rectified. While the reasoning in Dunlop Haywards (DHL) Ltd v Erinaceeous Insurance Services Ltd [2009] Lloyd’s Rep IR 149 recognises that formation can occur at the time of the FON or the signing of a complete MRC, I do not think that an examination of the exact moment of formation is fruitful. That is because these actions occurred relatively contemporaneously and, while I accept that there is not in evidence any correspondence of the excess policy terms prior to the signing of the complete MRC, for reasons that will become evident, I do not think this materially alters any findings I am going to make. In any event, no party made any detailed submissions on the issue of formation to persuade me to conclude either way.

    E        CONSTRUCTION CLAIM

21. Contrary to the way in which Quintis framed its case, it is appropriate to the deal with the Construction Claim before the Rectification Claim. This is because the equity would be unnecessary if the legal position was determined in favour of Quintis. It might be thought telling as to the merits of Quintis’ Construction Claim that it was only addressed briefly at the end of their submissions and as an alternative to the Rectification Claim.

    E.1     Relevant Legal Principles

22. I recently set out the principles relating to the construction and rectification of insurance contracts in Icon Co (NSW) Pty Ltd v Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets [2020] FCA 1493. I do not propose to repeat those principles at length here. It is only necessary to emphasise three important propositions.

23. First, it is trite that the process of construing insurance contracts is governed by ordinary principles of contractual interpretation: Australian Casualty Co Ltd v Federico (1985) 160 CLR 513 (at 520 per Gibbs CJ); McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 (at 589 [22] per Gleeson CJ). A clause in an insurance policy must be considered in the context of the policy as a whole, and the policy must be set in its surrounding circumstances or factual matrix, including, if excess policies are involved, the broad scheme of insurance cover intended to provide layers of insurance against the same risk: Derrington D K and Ashton R S, The Law of Liability Insurance (LexisNexis Butterworths, 3^rd ed, 2013) (at 422 [3–64]); see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 (at 116 [46] per French CJ, Nettle and Gordon JJ). This principle is not limited to instruments between the same parties: see McVeigh v National Australia Bank Ltd [2000] FCA 187; (2000) 278 ALR 429 (at 438–40 [30]–[34] per Finkelstein J, and at 447–51 [67]–[77] per Kenny J).

24. Secondly, as Mason ACJ, Murphy and Deane JJ notably remarked in Taylor v Johnson (1983) 151 CLR 422 (at 429) the objective theory of contract is “in command of the field”. As one would expect, the bulk of the evidence adduced by Quintis was directed to the subjective intention of the parties, and although this is central to the Rectification Claim, it must be put out of mind when having regard to the Construction Claim: see Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85 (at 95 [18] per French CJ); Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 (at 655 [261] per Campbell JA, with whom Tobias JA relevantly agreed).

1. Thirdly, surrounding circumstances known to the parties is one of the elements required to be considered in the construction exercise. However, resort to evidence of those circumstances is confined. The classic authority for that proposition is the “true rule” as stated by Mason J (Stephen and Wilson JJ concurring) in Codelfa Construction Pty Ltd v State Rail Authorityof New South Wales (1982) 149 CLR 337, which does not require further elaboration. Despite debate in the authorities, for the reasons I recently set out in Icon (at [55]–[60]), I adhere to the view that the “true rule” remains as Mason J stated it in Codelfa. I therefore proceed on the basis that it is only permissible for me to have regard to extrinsic material going to surrounding circumstances if, as Quintis contends, there exists ambiguity in the 2016-17 Policies.

   E.2     Contentions Advanced

2. Quintis’ Construction Claim can be summarised by reference to the following two contentions: (a) on its proper construction, the 2016-17 Primary does not impose a “sub-limit” on Entity Securities Liability, but the reference to “4.9 Entity Securities Liability AUD $10,000,000” is a reference to the corresponding Limit of Liability for Section 1B coverage taken on by the Primary Insurers (Construction Contention); and (b) alternatively, the 2016-17 Primary is ambiguous and ought be resolved against the Relevant Insurers in accordance with the contra proferentem rule (Ambiguity Contention). I deal with each of these contentions in turn below.

3. It is noteworthy that Quintis’ submissions on the Construction Claim were prefaced by the proposition that “all relevant participants in Quintis’ 2015-16 insurance program were of the view that Quintis was insured for $50m of Entity Securities Liability”. To paraphrase the words of Lord Nicholls of Birkenhead, and with no intended disrespect, I must be alive to the ploy of counsel placing evidence of the parties actual intentions before the Court on a rectification claim in the hope of consciously or subconsciously affecting the Court’s thinking on questions of interpretation and construction: see Lord Nicholls of Birkenhead, ‘My Kingdom for a Horse: The Meaning of Words’ (2005) 121 (Oct) Law Quarterly Review 577 (at 578).

4. It is next convenient to set out the relevant terms of 2016-17 Primary Schedule:

5. It is also convenient to set out the provisions of the 2016-17 Primary relevant to the Construction Claim, which are as follows:

   4 SECTION 4: EXTENSIONS TO SECTION 1B (DIRECTORS & OFFICERS LIABILITY)

   Subject to all the terms, conditions and exclusions, including all definitions of the Policy, the Insurer further agrees to extend cover provided under Section 1B of the Policy as follows:

   4.1      Additional Limit of Liability for Insured Persons

   Notwithstanding subclauses 8.14(a) and (b) of this Policy, the Insurer will pay for any Insured Person under Insuring Clause 1.3, the Sub-Limit of Liability stated in the Schedule, in addition to the Limit of Liability applicable to Section 1B (Directors & Officers Liability), provided that each of:

   (a)the Limit of Liability applicable to Section 1B (Directors & Officers Liability);

   (b)any other directors and officers liability policy which covers the Insured Person; and

   (c)all other indemnification available to the Insured Person

   has been exhausted.

   This extension is not automatic and will only apply if it is specifically included in the Schedule.

   This extension does not provide any cover to the Insured Organisation.

   …

   4.9      Entity Securities Liability

   The Insurer will pay on behalf of the Insured Organisation the liability and associated Defence Costs which the Insured Organisation is legally liable to pay as a result of a Securities Claim alleging a Wrongful Act first made the Insured Organisation, and notified to the Insurer, during the Period of Insurance.

   This extension is not automatic and will only apply if it is specifically included in the Schedule.

   The maximum amount payable by the Insurer under this extension is the applicable Sub-Limit of Liability specified in the Schedule. This sub-limit is part of and not in addition to the Limit of Liability.

   …

   8SECTION 8: CONDITIONS APPLICABLE TO ALL COVER SECTIONS

   …

   8.14     Limit of Liability

   (a) The maximum amount payable by the Insurer under each of Sections 1A, 1B and 1C of the Policy (and their associated Extensions) is the applicable Limit of Liability.

   (b)The Limit of Liability is inclusive of any Defence Costs, Sub-Limits of Liability and any other amounts insured under each part of the Policy but does not include costs incurred by the Insurer in determining whether the relevant part of the Policy provides insurance to the Insured.

   (c)     Aggregate Limit of Liability

   The total aggregate limit of the Insurers’ liability under all of Sections 1A, 1B and 1C of the Policy (and their associated extensions) is the Aggregate Limit of Liability. The Aggregate Limit of Liability is inclusive of any Defence Costs, Sub-Limits of Liability and any other amounts insured under the Policy.

   (d)If any amounts insured under the Policy are covered under one or more parts of the Policy, then the maximum amount payable by the Insurer will be the highest of the applicable Limits of Liability or Sub-Limits of Liability and the Excess will be the applicable Excess for the Insuring Clause or Extension to which that Limit of Liability or Sub-Limit of Liability applies.

   (Emphasis in original to signify defined terms).

6. The “Limit of Liability” is defined in the Definitions section of the 2016-17 Primary as:

   Limit of Liability means the limit of liability stated in the Schedule and referred to in clause 8.14 of the Policy.

   (Emphasis in original to signify defined terms).

7. Lastly, I should set out the following provisions contained in the Excess Policies (which for all relevant purposes are identical):

   EXCESS LIABILITY INSURANCE

   In consideration of the payment of premium and subject to the terms of this Policy, Insurers agree with the Insured that:

   Section 1 - Insuring Section

   1.   Insurers shall provide the Insured with insurance coverage for claims first made against the Insured during the Policy Period in excess of the Primary Insurance and in excess of any Underlying Insurance. Insurance coverage hereunder will apply in conformance with the terms, conditions, endorsements, limitations and warranties of the Primary Insurance and any Underlying Insurance except as otherwise stated in this Policy.

   …

   Section 4 - Depletion of Primary Insurance and Underlying Insurance

   …

   4.4In the event that the Primary Insurance or any Underlying Insurance specifically provides for a sub-limit of liability it is agreed that:

   (a)where such sub-limit of liability is totally exhausted solely as a result of payment of losses under the Primary Insurance or any Underlying Insurance, then this Policy shall not provide any coverage in respect of such sub-limit of liability; or

   (b)where such sub-limit of liability is partially exhausted solely as a result of payment of losses under the Primary Insurance or any Underlying Insurance, then this Policy shall continue for subsequent losses that would be subject to such sub-limit of liability provided that the amount payable hereunder shall not exceed the balance of the amount remaining under such sub-limit of liability and shall otherwise be part of and not in addition to the Limit of Liability.

   (Emphasis in original to signify defined terms).

   E.2.1   Construction Contention

8. Quintis located its Construction Contention in the factual matrix culminating in the execution of the 2015-16 Policies. It was said this was a matter of significance to Quintis not only because of the level of cover available to it, but because it was an aspect of a comprehensive insurance review conducted by PSC in April 2015 in response to the “extremely low levels” of D&O insurance held by Quintis at that time. Indeed, Quintis asserted that it is clear that the 2016-17 Policies “just adopted the policy wording of the 2015-16 Policies without much particular thought”. For the reasons outlined above, this evidence of surrounding circumstances would only become relevant to the construction exercise if I were to find ambiguity in the 2016-17 Primary. Furthermore, before canvassing Quintis’ Construction Contention, it is necessary to address its submissions as to the purported formatting errors in the 2016-17 Primary, namely: (a) that the last paragraph under cl 4.9 is in fact a continuation of cl 4.9; and (b) that the sub-heading “Optional Extensions” should not be indented under the sub-heading “Sub-Limits of Liability”, but should sit as its own, separate sub-heading. I accept the former is a formatting error, but the same is not true of the latter.

9. As noted above, the core of Quintis’ construction contention was that, on its proper construction, the reference to “4.9 Entity Securities Liability AUD $10,000,000” is simply a reference to the corresponding Limit of Lability for Section 1B coverage taken on by the Primary Insurers. The argument proceeded along the following lines.

10. The significance of the distinction between the sub-headings “Sub-Limits of Liability” and “Optional Extensions” is that each of the clauses under “Sub-Limits of Liability” is automatic, in that they do not have to be specified as being included or not included. By contrast, each of the clauses under the heading “Optional Extensions” (cll 2.20 (which it was agreed should read cl 2.19), 4.1 and 4.9) are expressed to “only apply if ... specifically included in the Schedule”. One of those extensions – cl 2.19 – is not susceptible to a sub-limit at all. Hence, while cll 4.1 and 4.9 permit the identification of a sub-limit, a sub-limit is not required, as these are extensions to heads of primary cover under Section 1B, which, in any event, is subject to a Limit of Liability. This also formed the foundation for Quintis’ contention that those items contained under the heading “Optional Extensions” are not solely concerned with “Sub-Limits of Liability”, but rather noted the existence of any relevant Optional Extension.

11. Moreover, Quintis distinguished cl 4.1 from cl 4.9. In cl 4.1 there is a reference to “the sublimit of liability”, whereas in cl 4.9 reference is made to “the applicable sublimit of liability”. Quintis asserted that the term applicable is capable of being read as “if any”, reinforcing that cl 4.9 does not mandate that a sublimit must be specified, but that a sublimit may be specified, and if so specified, then that sublimit would be described as the “applicable” sublimit. Quintis argued that this is supported by the fact that the figure of $2 million attached to cl 4.1 includes, by express language, a “Sub-Limit of Liability” and the figure of $10 million attached to cl 4.9 does not. Hence viewing the Schedule as a whole, “[o]ne would think that if [cl 4.9] was intended to be sub-limited, it would say so expressly as is the case with the cl 4.1 extension”.

12. It was upon this foundation that Quintis argued the “unadorned figure” of $10 million attached to the term “Entity Securities Liability” could be regarded as doing no more than simply restating the Limit of Liability for Section 1B cover under the 2016-17 Primary, or at the least, there exists ambiguity in the 2016-17 Primary. Indeed, it was said looked at purely from the perspective of the Primary Insurer, it would be curious if the 2016-17 Primary expressed a “sub-limit” equal to its Limit of Liability for the very same Section of cover. That is, it would not be expected that the amount of $10 million would be specified in the 2016-17 Primary as a “sub-limit” of any Limit of Liability of the same amount. Quintis argued that this construction is supported by the commercial difficulty created by the alternative finding that a sub-limit must be specified. Quintis submitted that if it is true that: (a) cl 4.9 requires there to be a sub-limit applied to Entity Securities Liability; and (b) the effect of cl 8.14 is that the sub-limit must be an amount equal to or less than the Limit of Liability for Section 1B cover under the 2016-17 Primary, reading the 2016-17 Primary together with the Excess Policies would mean that no insurance arrangement involving the further term cl 4.4 could ever provide cover greater than $10 million in respect of Entity Securities Liability. Quintis asserted this was an “implausible construction … that would place considerable limits on the commercial freedom of the parties to make arrangements as to cover under what appear to be standard form terms”.

13. Despite Quintis saying everything it could, its Construction Contention cannot be sustained when the terms of the 2016-17 Primary and Excess Policies are properly considered.

14. Section 4 of the 2016-17 Primary (of which cl 4.9 forms part) recognises, by virtue of its chapeau, that the extensions set out in that section are “provided under Section 1B of the Policy”. Further, cl 4.9, after describing the nature of the cover available under the Entity Securities Liability Optional Extension, provides that “[t]he maximum amount payable by the Insurer under this extension is the applicable Sub-Limit of Liability specified in the Schedule” and “[t]his sub-limit is part of and not in addition to the Limit of Liability”. Hence, the nomination of a figure alongside “Entity Securities Liability” is a nomination for the purposes of being a sub-limited term, which is to be part of and not in addition to the Limit of Liability.

15. This is supported by the fact that the “Limit of Liability” is defined as the “limit stated in the Schedule and referred to in clause 8.14 of the policy”. The 2016-17 Primary Schedule provides that the Limit of Liability for Section 1B cover is $10 million in the aggregate and cl 8.14 states that “[t]he Limit of Liability is inclusive of any Defence Costs, Sub-Limits of Liability and any other amounts insured under each part of the Policy”. Hence, cl 8.14 underscores what cl 4.9 already makes plain, namely that the Entity Securities Liability sub-limit is part of and not in addition to the $10 million Limit of Liability for Section 1B cover. This conclusion is sound regardless of whether I found that the heading “Optional Extensions” is erroneously indented under the heading “Sub-Limits of Liability”.

16. Nor does an examination of the Excess Policies assist Quintis. It is a commonly accepted principle of contractual construction that a clause such as cl 1 of the Excess Policies has the effect of incorporating the relevant terms from the one contract into another, except as stated otherwise: Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 153 ALR 529 (at 560 per Hodgson CJ in Eq). Where this occurs, the incorporated terms become terms of the subject contract itself; the fact that those terms are not restated or reproduced in full in the contract is of no moment: see, eg, Weatherbeeta Limited v Hammersmith Nominees Pty Ltd [2019] VSC 559 (at [133] per Connock J); WorkPac Pty Ltd v Rossato [2020] FCAFC 84; (2020) 378 ALR 585 (at [363]–[364] per White J). It is noteworthy that while the term “Primary Insurance” is defined in cl 2.5 of the Excess Policies as the “policy identified as such in Item 4 of the Schedule”, there is in fact no Schedule attached to the Excess Policies. Instead, there is a document titled “Risk Details” as the first page of the MRC, which includes the condition “Full Follow Form As attached Primary Policy Number B0507N16FA15350”. It is clear (as Quintis accepted and as would make sense (D1, T49.37–44)), that the reference to “Primary Insurance” in cl 1 is a reference to the “Primary Policy Number” referred to in this condition, which is the 2016-17 Primary.

17. Thus, by virtue of cl 1, one of the terms incorporated into the Excess Policies from the 2016-17 Primary was cover in respect of Entity Securities Liability with a sub-limit of $10 million. Importantly, cl 4.4 further clarifies that incorporation, by limiting the cover extended by that term only to the uneroded portion of the $10 million Entity Securities Liability sub-limit and only on the basis that the sub-limit is part of and not in addition to the Limit of Liability of the Excess Policies. Hence, if it is the case that the sub-limit is not exhausted under the 2016-17 Primary because of, for instance, payment of defence costs or claims under cl 1.3, cover continues under the 2016-17 1XS, but only to that limited extent. Furthermore, while it is not entirely relevant to the Construction Claim, it is also clear that the reference to “Limit of Liability” in the Excess Policies, which is defined in cl 2.3 as the “amount stated in item 3 of the Schedule”, is the Limit of Liability stated on the first page of the MRC.

18. These reasons are sufficient to dispose of Quintis’ Construction Claim. However, for completeness, I will continue to deal four particular submissions advanced.

19. First, Quintis’ submission regarding the nomination of a figure contemplated by cl 4.9 being optional not mandatory, does not deal with the express words employed by the parties in a prudent businesslike way. The relevant sentence of cl 4.9 contains two elements: (a) it addresses a topic (the maximum amount payable); and (b) it identifies where to find that amount (the Schedule). In the commercial context of an insurance contract, where limitations on coverage are of key concern to the parties, the suggestion that the parties took the trouble to introduce a topic, but are taken to have agreed that they intended that the Schedule may not address such a topic, does not commend attraction. A more businesslike construction would be to read the sentence as requiring a mandatory nomination in the Schedule if the cover is taken up, so that the precise limits of that cover are expressly dealt with. That the parties, objectively, are to be taken as having intended such an outcome is further evident by reference to the final sentence of cl 4.9, which commences “This sub-limit” – a reference to the “sub-limit” described in the preceding sentence. Indeed, the clause does not state that if there is an applicable sub-limit specified in the Schedule, then the maximum amount the insurer is liable for is the amount there specified. Related to this, I am unpersuaded by Quintis’ submission that it is “implausible” to read the reference to $10 million as a sub-limit as this would mean that no insurance arrangement involving the excess term cl 4.4 could ever provide cover greater than $10 million in respect of Entity Securities Liability. While I do accept such a construction is limiting (in the sense that the Excess Polices only provide cover for the uneroded portion of the sub-limit), that does not mean that it is commercially unsound, let alone implausible.

20. Secondly, two reasons may explain the different terminology used in cll 4.1 and 4.9: (a) both clauses are in different forms, which may itself explains a choice of different words; and (b) the entry for cl 4.1 needed to achieve more than that required for cl 4.9. In the case of cl 4.9, all that was required was the nomination of a figure for the clause to operate on its terms. By way of contrast, the cl 4.1 entry not only dealt with nomination of a figure, but the modification of the scope of cover provided. This is evident when one has regard to the terms of cl 4.1, which describe an available extension for persons within the class of “Insured Person” for the purposes of cl 1.3. The definition of “Insured Person” is broader than “Non-Executive Directors”, which is referenced in the Schedule alongside cl 4.1. Functionally, the reference in the Schedule thus limits the scope of the persons to which the extension is to relate. By doing so, the Schedule also nominates the number as a sub-limit so that there is no confusion as to the coverage for that sub-class overall.

21. Indeed, even if one was to view this reference to a sub-limit as hard to reconcile with the fact that the same is not provided next to Entity Securities Liability, I do not think that such a reference creates ambiguity in the plain words of cll 4.9 and 8.14. That might have been the case if there were a number of nominations in the same form as cl 4.1, but this is simply one example, which in my view, can be justified. I am not of the view that Quintis’ comparative analysis of cl 4.1 introduces ambiguity into the terms of the 2016-17 Primary or supports the overall submission that Entity Securities Liability is not sub-limited.

1. Thirdly, Quintis’ construction of the 2016-17 Primary necessarily requires the Court to conclude that the parties intended to nominate a figure that was objectively unnecessary since the contract already provided for a Limit of Liability for Section 1B cover, which controlled that section and all extensions to it (including cl 4.9).  As was noted in Chapmans Limited v Australian Stock Exchange Limited (1996) 67 FCR 402 (at 411 per Lockhart and Hill JJ), “[a] court will strain against interpreting a contract so that a particular clause is nugatory of ineffective, particularly if a meaning can be given to it consonant with the other provisions in a contract.” Nor is there any justification for the finding that the nomination of a figure in the Schedule is redundant: see XL Insurance Co SE v BNY Trust Company of Australia Limited [2019] NSWCA 215 (at [72] per Gleeson JA, with whom Bell P agreed). Indeed, such a submission neglects the words of cl 4.9, which refers to nomination of a sub-limit and does not refer to the nomination of a Limit of Liability.

2. Fourthly, I reject the submission that since the figure of $10 million for Entity Securities Liability is the same as the Limit of Liability for Section 1B cover, this is somehow suggestive of error which means one ought not treat the former figure as a sub-limit. Not only would this involve a construction of the 2016-17 Primary that is contrary to the express terms of cll 4.9 and 8.14, but there is nothing unusual about the sub-limit being the same as the limit for the section of cover (it would simply mean that the whole of the Limit of Liability could be applied to meeting a cl 4.9 liability). That position is even less surprising here, due to the existence of excess layer terms. Indeed, the operation of cl 4.4 of the Excess Policies proceeds on the existence of a sub-limit in the 2016-17 Primary: where the Section 1B cover Limit of Liability under the 2016-17 Primary is exhausted as a result of payments not made under cl 4.9, cl 4.4 of the Excess Policies provides that the unexhausted portion of the sub-limit continues into the Excess Policies, provided again that the remaining amount of the sub-limit shall be “part of and not in addition to the Limit of Liability” of the Excess Policies.

3. For the above reasons, the Construction Contention must be rejected.

   E.2.2   Ambiguity Contention

4. Alternatively, Quintis argued that there exists ambiguity in the 2016-17 Primary, which ought be resolved by “recourse to events, circumstances and matters external to the terms of the 2016-17 [Primary], so as to identify the actual intentions of the parties”. For the above reasons, I do not accept that there is ambiguity in the 2016-17 Primary, making it unnecessary to look to extrinsic material, including the background of Quintis’ recent “comprehensive insurance review”.

5. Even if ambiguity were to be identified, I reject that it would lead to a different construction of the 2016-17 Policies. It is well established that if one is permitted to have resort to extrinsic material, evidence of surrounding circumstances is only admissible if it is known to the parties: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 14; (2014) 251 CLR 640 (at 656–7 [35] per French CJ, Hayne, Crennan and Kiefel JJ); Codelfa (at 352 per Mason J), the rationale for which was explained by Allsop P (as the Chief Justice then was) in QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 (at [22], with whom Giles and Macfarlan JJA agreed). Such evidence is also not admissible to support the subjective intention or expectations of the parties: see Ryledar (at 655–6 [262]–[265] per Campbell JA, with whom Mason P and Tobias JA agreed).

6. The reason I emphasise these points is that it was Quintis’ submission that any ambiguity in the 2016-17 Policies ought be resolved by reference to the fact that Quintis had the commercial object of seeking to preserve its expiring amount of cover, that the 2016-17 Primary relevantly adopted the wording of the 2015-16 Primary, and importantly, that the policy wording was understood by Quintis, PSC and the expiring insurers to provide for up to $50 million is Side C cover. Furthermore, Quintis submitted that the evidence leading up to placement of the 2016-17 Policies demonstrates that such a “commercial object” was shared by Quintis and the Relevant Insurers. The difficulty with these submissions is twofold: (a) only four of the Relevant Insurers to the 2016-17 Polices provided insurance under the 2015-16 Policies, and even then, none of those insurers provided Side C cover (see [122])); and (b) this once again elides the distinction in the material sought to be relied upon by Quintis in its Construction Claim to that in its Rectification Claim. Quintis submitted in writing, in little more than a sentence, that the evidence relevant to its Rectification Claim was substitutable as extrinsic material in support of its Construction Claim. I shall not repeat the reasons for why that approach is misconceived. The fact is the evidence does not reveal that the parties objectively intended to provide Side C cover of up to $50 million and that this was not sub-limited. Hence, even if there was ambiguity in the 2016-17 Policies, I am not satisfied that the admission of the extrinsic material identified would alter the conclusion I have reached.

   Contra proferentum

7. Quintis also submitted that in the event there was ambiguity, “it is an ambiguity in the real sense that ought to be resolved against [the Relevant Insurers] in accordance with the contra proferentem rule”.

8. Even if I was to accept that the Relevant Insurers were the proferens in the transaction (a questionable submission given that the insurance policies were drafted and presented by Price Forbes to the Relevant Insurers: cf Halford v Price (1960) 105 CLR 23 (at 30 per Dixon CJ with whom Menzies J agreed and at 34 per Fullagar J)), the contra proferentem rule is but one of a number of rules of contractual construction.  Although it was traditionally the case that the contra proferentem rule applied strongly in insurance contracts, the rule is one of last resort, to apply only when ambiguity remains after all other avenues of construction have been exhausted. That view accords with the established position that the process of construing insurance contracts is governed by ordinary principles of contractual interpretation. Hence, even if there was ambiguity in the contract, I am not of the view that the contra proferentem rule assists Quintis. 

   E.3     Conclusion

9. It follows that on their proper construction, the instruments recording the 2016-17 Policies did not provide Side C cover of up to $50 million.

   F         RECTIFICATION CLAIM

10. It is then necessary to wade into the brume of the Rectification Claim advanced by Quintis. Given the length of the reasons which are dedicated to resolving this claim, it is useful to first set out how this section of the judgment will be structured:

    ·Part F.1 will first set out the general principles applicable to a claim for rectification and the standard of proof necessary to succeed in such a claim;

    ·Part F.2 will articulate three preliminary issues, namely (a) the specific common intention to be established; (b) the documents that need to be rectified; and (c) whose intention is relevant to the rectification of those documents;

    ·Part F.3 will make general comments about the evidentiary record and the principles applicable to inferential reasoning;

    ·Part F.4 will detail the documentary record by way of chronology, including outlining how the parties intend to use each document in support of their case (by approaching the evidence in this way, one is able to understand and contextualise the inferences the Court is being asked to draw);

    ·Part F.5 will expand upon the principles applicable to inferential reasoning by reference to the “rules” in Blatch v Archer (1774) 1 Cowp 63 and Jones v Dunkel (1959) 101 CLR 298;

    ·Part F.6 will make findings as to the intention of Price Forbes and each of the Relevant Insurers, drawing on the evidentiary record outlined in Part F.4 and the submissions made by the parties; and

    ·Part F.7 will examine whether the relevant intention was commonly held by any of the parties.

11. Prior to setting out the relevant legal principles, considering the evidence and making relevant findings, it is appropriate to commence the journey by setting out Quintis’ articulation of its alleged equity. Quintis seeks a declaration (along with an order giving effect to such a declaration to be endorsed on the 2016-17 Policies) that is entitled to rectification of the 2016-17 Primary, and to the extent that the Excess Policies incorporate the terms of the 2016-17 Primary, the Excess Policies, such that:

    (1)the words “4.9 Entity Securities Liability $10,000,000” are deleted, and in lieu thereof the words “4.9 Entity Securities Liability Included” or “4.9 Entity Securities Liability $50,000,000” are inserted at page 2 of the 2016-17 Primary Schedule; and

    (2)the words “4.9 Entity Securities Liability AUD $10,000,000” are deleted, and in lieu thereof the words “4.9 Entity Securities Liability Included” or “4.9 Entity Securities Liability AUD $50,000,000” are inserted at page two of the MRC annexed to the 2016-17 Primary.

    F.1      Relevant Legal Principles

12. The principles relevant to the equitable remedy of rectification were not in dispute. I recently set them out at length in Icon (at [111]–[118]). A summary follows.

    F.1.1   General principles of rectification

13. The purpose of the equitable remedy is to make a contractual instrument “conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately”: Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 (at 350 per Mason J). Its rationale has been said to be the avoidance of an unconscientious departure from the common intention of the parties to an agreement: Franklins Pty Ltd v Metcash Trading Pty Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 (at 710 [444] per Campbell JA, with whom Allsop P and Giles JA agreed); Ryledar (at 667 [315] per Campbell JA, with whom Mason P and Tobias JA agreed); Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2) [2015] NSWCA 119 (at [57] per Gleeson JA, with whom Meagher JA and Sackville AJA agreed).

14. In Simic (at 117 [103]–[104]), Gageler, Nettle and Gordon JJ summarised the elements of rectification in the following way:

    Rectification is an equitable remedy, the purpose of which is to make a written instrument “conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately”. For relief by rectification, it must be demonstrated that, at the time of the execution of the written instrument sought to be rectified, there was an “agreement” between the parties in the sense that the parties had a “common intention”, and that the written instrument was to conform to that agreement. Critically, it must also be demonstrated that the written instrument does not reflect the “agreement” because of a common mistake. Unless those elements are established, the “hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties” cannot be displaced.

    The issue may be approached by asking – what was the actual or true common intention of the parties?

    (Citations omitted).

15. As to the ascertainment of that common intention, it is useful to draw on the observations of Tobias JA in Ryledar (at 642 [182]–[186]), cited with approval in Simic (at 117 [104] n 113)):

    First, the common intention which must be established by clear and convincing proof to justify rectification must be the actual or true common intention of the parties. Second, evidence of that intention may be ascertained not only from the external or outward expressions of the parties manifested by their objective words or conduct but also from evidence of their subjective states of mind.

    Third, where, for instance, the correspondence between and/or conduct of the parties establishes a positive lack of an “objective” common intention, then that evidence must be taken in conjunction with the evidence (if any) of their subjective states of mind to determine whether the necessary common intention has been established. …

    Fourth, in Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 31, it was held by Tipping J that a party subsequently acting as if the instrument stood in the form into which it is sought to be rectified was strong evidence of that party’s intention at the time to execute the instrument in its rectified form. Such conduct is obviously of significance but, depending on other evidence, if any, is not necessarily conclusive although in the absence of any such evidence it may be.

    Fifth, it follows that where the correspondence and/or conduct positively establishes the necessary common intention, then assertions by the party opposing rectification of his or her subjective state of mind which is inconsistent with that party’s outward manifestation of his or her intention, being unexpressed and uncommunicated, is unlikely to trump his or her expressed intention. But this is because that party is unlikely to be believed.

    Sixth, where … the outward expression of the parties’ common intention is at best inconclusive, then establishing that the subjective states of mind of the parties evinces the relevant common intention becomes critical if the necessary standard of proof to support an order for rectification is to be achieved.

    (Emphasis added).

16. Furthermore, in Ryledar, Campbell JA (with whom Tobias JA and Mason P agreed) discussed whether an “outward expression of accord” is necessary for the grant of relief by way of rectification (an issue considered, but not decided, by Kiefel J in Simic (at 103 [43]–[45], with whom French CJ agreed) and by Wilson J in Maralinga (at 452, with whom Gibbs CJ agreed)), concluding that an outward expression need not be by words that say in substance “this is my intention”, but rectification still requires disclosure of some form. This accords with what now appears to be a resolution of this issue by the High Court in Simic (at 117 [104] per Gageler, Nettle and Gordon JJ) that “[t]here is no requirement for communication of that common intention by express statement, but it must at least be the parties’ actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party”.

    F.1.2   Proof necessary for rectification

17. As to the establishment of that common intention, the evidence necessary to discharge the onus needs to be convincing: see Fowler v Fowler (1859) 4 De G & J 250 (at 265 per Lord Chelmsford), cited with approval in Maralinga (at 449 per Mason J, with whom Menzies J agreed), Pukallus v Cameron (1982) 180 CLR 447 (at 457 per Brennan J) and Simic (at 102 [41] per Kiefel J, with whom French CJ agreed). Another formulation is that “clear and convincing proof” is necessary: Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 (at 345 per McLelland AJA); Franklins (at 712 [451] per Campbell JA, with whom Allsop P and Giles JA agreed); Ryledar (at 638 [161] per Campbell JA, with whom Mason P and Tobias JA agreed); Joscelyne v Nissen [1970] 2 QB 86 (at 98 per Russell, Sachs and Phillimore LJJ). Elsewhere, it has been said that “it is not sufficient to show that the written instrument does not represent their common intention unless positively also one can show what their common intention was”: Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98 (at [117] per Whelan, Niall and Hargrave JJA), citing with approval the remarks of Simonds J in Crane v Hegeman-Harris Co Inc[1939] 1 All ER 662 (at 665), which were themselves cited with approval in Slee v Warke (1949) 86 CLR 271 (at 281 per Rich, Dixon and Williams JJ). This insistence on clear proof reflects an ancient concern to not undermine the integrity of written agreements: Seymour Whyte Constructions Pty Ltd v Oswald Bros Pty Ltd (in liq) [2019] NSWCA 11; (2019) 99 NSWLR 317 (at 323 [13] per Leeming JA),

18. Furthermore, as I noted in Icon (at [116]–[118]), these observations must be viewed in the light of the mandatory considerations in s 140(2) of the EA, including the nature of the subject matter of the proceeding; namely, the unlikelihood that commercial persons would have formed a common intention which was not reflected in the agreement which they deliberately reduced to writing. Such inherent unlikelihood can be seen as a reflection of what Mason J termed the “hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties”:  Maralinga (at 350), quoted with approval in Simic (at 117 [103] per Gageler, Nettle and Gordon JJ); see also Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 (at 483 [33] per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ). Indeed, as Brightman LJ observed in Thomas Bates and Son Ltd v Wyndhams (Lingerie) Ltd [1981] 1 WLR 505 (at 521), “[i]t is not, I think, the standard of proof which is high, so differing from the normal civil standard, but the evidential requirement needed to counteract the inherent probability that the written instrument truly represents the parties’ intention because it is a document signed by the parties.”

19. In Franklins, Campbell JA echoed these considerations when he explained (at 713 [459]) that great care is required in making factual findings of common intention. The reasons include issues of policy, such as the practical importance and social institution of making contracts in writing, of people ordinarily being able to rely upon documents that are apparently regular, meaning what they say, and of the danger associated with imposing on a party a contract which they did not make.

20. The reason why I have dwelled so heavily on these statements of principle is because, as will become clear, the evidence adduced is largely circumstantial. That means that close attention needs to be paid to the question of onus and, in particular, the faithful application of s 140 of the EA.

    F.2      Preliminary Issues

21. As can be gleaned from these principles, three preliminary issues of central importance arise for determination in Quintis’ Rectification Claim:

    (1)what is the specific common intention contended to have existed between the parties?;

    (2)which documents need to be rectified to give effect to this common intention?; and

    (3)who must it be proven held that common intention?

22. It is only once these preliminary questions have been addressed that one can turn to examine the evidence relating to intention.

    F.2.1   What is the common intention alleged?

23. Quintis’ case is that the parties intended to execute the 2016-17 Policies on the basis that Side C cover was not subject to a sub-limit of $10 million, but was in fact equal to the Limit of Liability for Section 1B cover provided for by each of the 2016-17 Primary, the 2016-17 1XS and the 2016-17 2XS, meaning that the 2016-17 Policies collectively provided Side C cover of up to $50 million. I will refer to this purported intention as the Side C Coverage Intention.

    F.2.2   Which documents need to be rectified?

24. Quintis submitted that its Rectification Claim could succeed in two alternative ways: (a) the primary argument advanced was that only the 2016-17 Primary needs to be rectified given that the Excess Policies contain the term  “CONDITIONS: Full Follow Form As attached Primary Policy Number B0507N16FA15350” (Follow Form Argument); or (b) in the event that the primary submission is incorrect, each of the Excess Policies must also be rectified to the extent necessary.

    The Follow Form Argument

25. Quintis’ foundation for the assertion that only the 2016-17 Primary needs to be rectified is that conceptually, rectification, if ordered, is “to be read as if it had been originally drawn in its rectified form”: citing Craddock Brothers v Hunt [1923] 2 Ch 136 (at 151 per Lord Sterndale MR). Alternatively stated, if the Excess Policies “Follow Form” up to $50 million for Section 1B cover, an order for rectification of the 2016-17 Primary has an “automatic” effect on the Excess Policies. It was said that this conclusion is supported by the fact that the 2016-17 Primary was not physically attached to the Excess Policies as the above term contemplates, meaning that the 2016-17 Primary should not be considered as some static version of a notionally attached document, but a “living” construct (that is, the actual paction reached between the parties, not the instrument purporting to record it).

1. However, even if Mr Wren did have the Antares quote, two things are clear from this exchange: first, Mr Wren is operating on the basis that Quintis’ insurance programme is following the expiring form; and secondly, Mr Wren’s email demonstrates a thorough engagement with the structure diagram of the expiring programme. This is confirmed by the fact that Mr Wren is replying directly to the email of Mr Butler forwarding the structure diagram. In fact, Mr Jones accepted that “what [Mr Wren] does is he provides a split quote consistent with the boxes in the structure chart he was given”: D2, T75.16–7.

2. The Relevant Insurers submitted that, even if Mr Wren was quoting on the basis of the structure diagram, the indications he provided were in vain, given that they were ultimately rejected by Quintis. Implicit in this submission was that this exchange should be discounted for the purpose of ascertaining whether Vibe held the Side C Coverage Intention. I reject that submission. Although Mr Wren’s quotes were rejected, his intention at that time adds something to the overall picture as to the continuing intention of Vibe up to the date of execution of the 2016-17 Policies.

3. The evidence relevant to Vibe remerges in an exchange of emails between Mr Butler and Mr Wren on 5 September 2016 (see [182]). I have discussed these emails above in relation to Price Forbes (see [300]). In Mr Wren’s reply he stated “following on our conversation we would be pleased to offer support of 10% on the PI/D&O 30m xs 20m layer and a 10% on the top 50m xs 50m D&O layer”. As this demonstrates, Mr Wren not only subscribed to the 2016-17 3XS, but also to the already full 2016-17 2XS (causing the risk undertaken by each of the other underwriters to the 2016-17 2XS to be proportionally written down). The most interesting aspect of this reply, however, is that it highlights a conversation between emails. Given the directed purpose of this exchange, it seems likely Mr Wren and Mr Butler would have discussed Vibe’s subscription options, and more specifically, which layers provided what cover and the relevant terms. This naturally follows from the fact that Mr Butler had made specific reference to sides A, B and C in his email to Mr Wren, and that the prior evidence reveals Mr Wren was operating on the basis of the structure diagram. This conclusion is easier to reach given that there is no reasonable explanation proved as to why Mr Wren could not give evidence as to his conversation with Mr Butler.

4. When Vibe formally subscribed to the 2016-17 programme is unclear. The Relevant Insurers submitted that this did not occur until after the reweighting, given that the terms of Mr Butler’s email on 10 September 2016 indicate that Vibe was not considered as part of the “market” of subscribers yet, and the indication to “agree” for the first time to the structure as revised. That submission is questionable, particularly given that later in that email it is said that “[a]ll on the second layer have agreed just need you to do the same”. In any event, even if I was to accept the Relevant Insurers’ characterisation, this does not mean that the intention formed up until this point should be disregarded.

5. Turning to the reweighting more specifically, while I outlined above that the level of satisfaction necessary for the Rectification Claim is not reached where the reweighting spreadsheet is the only evidence supporting the Side C Coverage Intention, the position in relation to Vibe does not fall within this category. That is because the evidence reveals that up until the reweighting: (a) Mr Wren provided an initial quote on the basis of the structure diagram, which made it clear there was up to $50 million in Side C cover; and (b) Mr Wren provided the revised quote in response to an email outlining that the excess layers provided Side C cover. Given these findings, in the absence of other evidence, I consider that Mr Wren, in assenting to the reweighting spreadsheet, was acting consistently with the notion there was up to $50 million in Side C cover provided by the 2016-17 Policies.

6. One factor has caused me to pause before concluding that Vibe held the Side C Coverage Intention. That is if both the email from Mr Butler and the reweighting spreadsheet could be taken to indicate there was also Side C cover provided by the 2016-17 3XS, how should I be satisfied as to the accuracy of Vibe’s intention?  While the onus always remains with Quintis, two factors allow me to resolve any concerns in this regard: (a) the retrospective endorsement which provided that Side C liability was not covered by the 2016-17 3XS is consistent with Vibe holding the Side C Coverage Intention and demonstrates a realisation by the underwriters to the 2016-17 3XS that there was no express exclusion of Side C cover from their policy; and (b) in any event, even if Vibe was acting on the intention that full Side C cover was provided by the 2016-17 3XS up until the time of the retrospective endorsement, that does not negate the finding that Vibe was also acting on the intention to provide full Side C cover at the 2016-17 2XS level. Once again, these conclusions are fortified by the fact that Mr Wren could have been called to dispel these inferences, which are reasonably available on the evidence.

7. I should note that there is no mention in evidence of when Vibe saw the Antares or Channel quotes. The verified document list states that these were in Vibe’s possession on or before 12 September 2016. However, there is no evidence Vibe placed reliance on the terms of these documents.

8. The post contractual documents in relation to Vibe are relatively neutral (see [241]–[243]). The internal document recording Side C cover of “only … up to 15M” is consistent with neither Quintis’ nor the Relevant Insurers’ case, and in my view, is clearly a mistake. While the Relevant Insurers placed emphasis on the term “only” to assert that the figure meant to be recorded was in fact $10 million, the use of the term “only” could equally refer to the fact that Side C cover was “only” equal to a portion of the total D&O cover or that it did not extend into the other layers Vibe had subscribed, namely the 2016-17 3XS.

9. Similarly, the screen shot of the Vibe internal pricing document, which, given the chronology, is sometime in September 2017, is of little assistance. That is because Vibe was also a subscriber to the 2016-17 3XS, which only covered Sides A and B, indicating good reason why some calculations might have been done on such a basis. Similarly, it may have been that Vibe was assessing whether to extend Side C cover in the 2017 period given the developments in the claim against Quintis. In any event, no representative of Vibe was called to explain these notes.

10. Given the above reasoning, and conscious of the state of satisfaction needed, I conclude Vibe held the Side C Coverage Intention.

    X               ANV

11. ANV occupies a position similar to that of CNA, in that there was minimal evidence adduced in relation to its involvement in the 2016-17 renewal of Quintis’ IMI. This meant that Quintis was left to rely largely on inferences it submits should be drawn based on the proven facts in relation to the other Relevant Insurers.

12. While it is true that ANV was a participant in Quintis’ 2015-16 insurance programme and attended the Insurer Update Presentation, as I have outlined above, this is not determinative.

13. The only other document in evidence between Price Forbes and ANV is an email chain from Mr Fox to Mr Davies of ANV on 26 August 2016 attaching the Antares and Channel quotes and providing a broad outline of the layers (see [123]–[124], [126]). While there is mention of an indication to “talk through the deal”, I am unable to infer that it was explained to Mr Davies, and he formed his intention to be bound on the basis, that there was $50 million in Side C cover, rather than the terms of the quote sheets that were presented to him.

14. I am not satisfied that ANV held the Side C Coverage Intention.

    F.6.4   Conclusions on common intention

15. I have found that Price Forbes, Argo and Vibe held the Side C Coverage Intention as at the time of entry into the 2016-17 Policies. These findings have been arrived at conscious of the cautions in the authorities and by standing back, viewing the mosaic of evidence in relation to each participant contextually and as a whole.

16. The conclusion that Argo and Vibe held the Side C Coverage Intention might be thought to be unsurprising given Argo and Vibe were the only two Relevant Insurers who were actually forwarded the email from Ms Purdy of 16 August 2016 (others were sent attachments to this email), along with the email containing with the structure diagram of the expiring programme. Together, these emails made clear that the aim of Quintis’ renewal was, at the least, to maintain the limits of cover provided for by the expiring programme and that such cover included up to $50 million of Side C cover. This initial communication, considered together with the chain of evidence for each of these insurers and the inferences I have drawn, allows me to reach my conclusion that they held the Side C Coverage Intention.

17. This conclusion is even less surprising when one appreciates that the important but missing witnesses, Mr Robertson and Mr Wren, were the key contacts for Argo and Vibe respectively throughout the whole placement process in 2016 and the whole extension negotiations in 2017 – there was no patchwork of human actors involved with these Relevant Insurers and their intention is clearly the intention to be attributed to their respective syndicates.

    F.7      Was the Side C Coverage Intention commonly held?

18. As I stated above, although the common intention must be “communicated” between the parties, it is not a requirement that that intention be expressly stated: Simic (at 117 [104], per Gageler, Nettle and Gordon). Although lengthy, passage in Campbell JA’s reasons in Franklins (at 660 [281]) is to be emphasised in this respect:

    In my view, when that intention relates to the terms upon which they will contract with each other, it is still necessary for them to know enough of each other’s intentions for it to be said that there is a common intention. They might come to know of each other’s intentions in this way through those intentions being directly stated, or they might come to know of them through the various other means by which one person’s intention can become known to another person. Those means can sometimes involve a process of conscious and deliberate inference. Those means can sometimes involve simply perceiving a gestalt in a series of events. Those means can depend to some extent on the people involved sharing a common understanding of how particular bodies of knowledge or markets or social institutions they are operating in work – the experienced surgeon, or the experienced chess player, can sometimes see what another surgeon, or chess player, is seeking to do, in a way that an inexperienced person cannot. What matters for present purposes is that for a negotiating party to perform actions or say words from which the other party can gather his or her intention is itself a form of communication. Negotiation of any contract takes place in a context in which various facts are known or assumed by the negotiating parties. Sometimes, for example, if a contract is negotiated in a context where there are well understood business practices and conventions, and nothing is said about those practices and conventions not applying, it can be legitimate to conclude that both parties to the contract intended to act in accordance with those practices and conventions, even if they did not expressly communicate to each other that they intended to act in accordance with those practices and conventions. This view of what is needed before an intention is a common intention, accords, it seems to me, with the Australian case law since Joscelyne.

    (Emphasis added).

19. The documentary record does not reveal an “express statement” between Price Forbes and Argo or Vibe as to the precise nature of Side C cover provided for by the 2016-17 Policies. However, giving weight to Campbell JA’s remarks, I am of the view that the suite of documents that passed between Price Forbes and Argo and Price Forbes and Vibe, along with the inferences I have drawn based on those documents, allow me to conclude that the common intention was held between Price Forbes and these insurers.

    G        RELIEF

20. It is then necessary to turn to the question of relief.

21. In Franklins, Campbell JA (at 711 [446], with whom Allsop P and Giles JA agreed) set out the relevant principles as to the form of a remedy for rectification as follows:

    The remedy that is granted is, as with all equity’s remedies, one that will seek to undo, so far as is in practice possible, the departure, that the litigation has shown to exist, from equity’s standards of conscientious behaviour. The way this is achieved, when a remedy of rectification is granted, is by rewriting the contract so that it no longer departs from the common intention of the parties. The rewriting is done in a quite literal sense — the proper form of order identifies the precise words of the contract that are to be struck out, the precise words that are to be inserted, and where those words are to be inserted. As well the order usually (but not always — for example, Wilson v Registrar-General (NSW) [2004] NSWSC 1220; (2004) 12 BPR 22,667 at [13]–[14]) involves calling in the original document and actually endorsing the order on the instrument that is to be rectified. In that way the executed contractual document is no longer able to be a potential source of error and confusion, by appearing to state legal relations that in truth are not as the document says.

    (Some citations omitted).

22. I outlined above the form of relief Quintis seeks (see [68]). However, that form of relief was premised upon all parties being found to have held the Side C Coverage Intention. Two issues therefore arise given the conclusions I have reached: (a) whether the Rectification Claim can succeed given my findings; and (b) if so, how should equity respond.

23. The answer to the former of these questions is simple. Both parties accepted that consistently with each of the 2016-17 Policies in fact representing a bundle of separate contracts between the insured and each Relevant Insurer, it was possible for the Rectification Claim to succeed against some of the Relevant Insurers but not others. However, the answer to the latter of these question is more complex. While both parties accepted that the Rectification Claim could succeed in theory, given the case was presented in a binary fashion, no detailed submissions were provided as to the calibration of relief in the present circumstances.   

24. Quintis did make the submission that the original order for rectification could simply be supplemented by the insertion of appropriate further language under the “Conditions” of the 2016-17 Primary, although no details were given as to what that language should read. In any event, given the proper construction of the 2016-17 Policies, both alternative forms of relief sought by Quintis would lead to incoherence in the policies before any additional language could be supplemented as a “condition”. The reason for this is that since I have found cl 4.9 mandates the provision of a sub-limit, simply replacing the term “4.9 Entity Securities Liability $10,000,000” with “4.9 Entity Securities Liability $50,000,000”, would mean there exists a sub-limit that significantly exceeds not only the relevant aggregate Limit of Liability for Section 1B cover but also the Aggregate Limit of Liability for the 2016-17 Primary at large. Furthermore, since on its proper construction the 2016-17 Primary Limit of Liability is inclusive of sub-limits, and cl 4.4 of the Excess Polices only extends cover to the uneroded portion of the sub-limit (again, on the basis that the sub-limit is part of and not in addition to the limit of liability of the Excess Policies), this would mean that the proposed change would not result in any additional cover actually being provided. Similarly, to replace the term “4.9 Entity Securities Liability $10,000,000” with “4.9 Entity Securities Liability Included” would mean that one would be absent as to the amount of the operable limit payable by each insurer for the Entity Securities Liability extension.

25. However, should the fact that Quintis has not yet articulated the precise form in which it says the 2016-17 Policies ought be rectified mean that it should be denied relief? I do not think so.

26. In Fowler v Fowler (at 265), Lord Chelmsford said that “[i]t is clear that a person who seeks to rectify a deed upon the ground of mistake … must be able to show exactly and precisely the form to which the deed ought to be brought.” However, as is explained in Hodge D, Rectification: The Modern Law and Practice Governing Claims for Rectification for Mistake (Thomson Reuters, 2010) (at 232 [3–91]), this statement does not reflect the modern approach of the courts to claims for rectification. Indeed, as was put by Simonds J in Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 (at 669 per Simonds J), approved on appeal in Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68 (at 72 per Sir Wilfrid Greene MR, with whom Clauson and Goddard LJJ agreed):

    It is, of course, true that, for the purposes of rectification, one must find that which was specifically intended, but the exact form of words in which the common intention is to be framed appears to me to be immaterial as long as in substance and in detail [the parties’] intention is to be ascertained.

27. See also Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1 (at 27–8 [71]–[73] per Kenny JA, with whom Winneke P and Phillips JA substantially agreed at 5 [11]); Muriti v Prendergast [2005] NSWSC 281 (at [132]–[137] per White J); Queenfield Pty Ltd v Gordon Finance PtyLtd [2020] VSCA 282 (at [80]–[87] per McLeish, Niall and Sifris JJA).

28. This focus on substance over form is also evident in the reasoning of Campbell JA in Franklins (at 711 [450]):

    Crafting a remedy in rectification involves close attention to the words of the document. However, in the prior step of making a finding about a common intention, for the purpose of a rectification order, it is important that the court not confine itself to a narrow focus on particular words of the document. It is the document as a whole that is rectified, and the point of the exercise is that, once rectified, the document will not be contrary to the common intention of the parties to the document.

29. It would be at odds with equity’s flexibility to relieve against unconscientious departure from an accord to conclude a bargain existed that is not reflected in a written instrument, but deny an equitable remedy on the basis that the precise form of relief reflecting the conclusions reached in this judgment was not articulated in the Amended Application.

30. The appropriate course is for each party to provide submissions on the specific question of relief in the light of these reasons and, except in circumstances where the parties wish to be heard orally, that such a question be determined on the papers.  Further, given the mixed result, the parties should also provide submissions on the issue of costs.

31. Finally, I should mention a matter raised by the second respondent in their written submissions. It was said that Quintis has not contended that if an order for rectification was made it would result in any insurer having to pay any sum to settle the class actions in excess of the sum that would have to be paid absent rectification. It was further said that if such a contention was to be made it would have had to have been advanced in this case, to enable the Relevant Insurers to defend such a claim on the basis of delay and change in position. The difficulty with this submission is that pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth), the settlement is conditional upon Court approval. Without deciding the merits of such a s 33V application, I find difficult to see how the Court could approve a settlement when the conditional settlement deal was informed by a mistaken view as to the true position as to insurance. Any present deal with the insurers must, I assume, have been conditional on settlement of the class actions being approved. If I have not understood or fully appreciated this submission of the second respondent (which was not articulated orally), they should explain it further in the supplementary written submissions.

I certify that the preceding four hundred and four (404) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee.

Associate:

Dated:       28 January 2021