R B Woodroffe P/L v National Credit Insurance (Brokers) P/L

R B WOODROFFE PTY LTD, WOODROFFE ROOFING PTY LTD, WOODROFFE SHEETMETAL PTY LTD
and WOODROFFE SCAFFOLDING SERVICES PTY LTD v. NATIONAL CREDIT INSURANCE
(BROKERS) PTY LTD and JAMES ROBERT MANNING
No. SG95 of 1993
FED No. 847/94
Number of pages - 24
Negligence

COURT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
HILL J

CATCHWORDS

Negligence - no principle discussed.

HEARING

ADELAIDE, 12-14, 17 and 18 October 1994
#DATE 14:11:1994, SYDNEY

Counsel and Solicitors BRM Hayes QC with DP Rydon
for Applicants: instructed by Johnson Winter and Slattery

Counsel and Solicitors CSE Swan instructed by
for Respondents: Proud and Company

ORDER

THE COURT ORDERS THAT:

1. Applicants within six days of this judgment bring in short minutes of order to give effect to these reasons.

2. Applicants and respondents within seven days file and serve written submissions as to costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

HILL J R B Woodroffe Pty Ltd, Woodroffe Roofing Pty Ltd, Woodroffe Sheetmetal Pty Ltd and Woodroffe Scaffolding Services Pty Ltd ("the Woodroffe companies"), the applicants in the present proceedings, are all companies incorporated in South Australia. Each is involved in the building industry. R B Woodroffe Pty Ltd is an administrative company which collects debts, pays accounts and prepares the payroll for the other companies. Woodroffe Roofing Pty Ltd manufactures, sells and installs skylights. Woodroffe Sheetmetal Pty Ltd manufactures and sells metal building products in the form of corrugated iron, purlins and products formed from coiled steel. Woodroffe Metal Processing Pty Ltd manufactures precision metal products to specifications of customers. Woodroffe Scaffolding Services hires, erects and sells aluminium scaffolding.

At times relevant to the present proceeding there were two other companies in the Woodroffe companies' group which should be mentioned, Alulite Pty Limited, which did not trade with the public and J G Windows Pty Limited ("JGW"), a company based in Western Australia which manufactured and sold aluminium windows and doors.
National Credit Insurance (Brokers) Pty Limited, ("NCI") the first respondent, carries on business as insurance brokers, arranging, inter alia, contracts for credit insurance between its clients and insurance companies. Mr Manning, the second respondent, was the joint managing director of NCI.
Each of the Woodroffe companies, as well as Alulite Pty Ltd and JGW, had, in the 1992 calendar year and earlier, been insured with Trade Indemnity Australia Limited ("Trade Indemnity"), an insurance company specialising in trade credit insurance. NCI was the broker for the Woodroffe companies in arranging such insurance. The dispute between the parties arises out the fact that no trade credit insurance policy covering the Woodroffe companies was in force in the period 1 January 1993 to 31 December 1993, the 1992 policy having expired at the end of that year. During the 1993 year when no cover was in force the Woodroffe companies incurred what it claims to be bad debts in respect of which they would have been entitled to be indemnified in part had a policy been in place. The debts in question total $420,479.63.
The further amended statement of claim (amended by leave during the course of the proceedings) alleges breach by NCI of s.52 of the Trade Practices Act (1974) (Cth) ("the Act") and seeks, inter alia, damages under s.82 of the Act. In the alternative the Woodroffe companies allege to the effect that NCI was in breach of a duty of care to them in failing to advise that temporary cover, which had been arranged with Trade Indemnity, was due to expire unless the Woodroffe companies no later than 8 February 1993 entered into a policy with Trade Indemnity. In the result the Woodroffe companies claim damages in negligence. The claim against Mr Manning relies upon s.75B of the Act but is pleaded in the alternative in negligence and damages for misleading and deceptive conduct engaged in by Mr Manning in breach of s.56 of the Fair Trading Act 1987 (SA).
In the course of evidence, which was taken over five days, the Court was taken in considerable detail over the events which extended from November 1992 to April 1993 relevant to the attempted renewal of the policy for the 1993 year. While this was no doubt necessary, particularly on the critical question of credit, the issue between the parties on the question of liability for negligence (the submissions did not seek to differentiate between the claims against NCI and Mr Manning) emerged as a simple one, namely, whether on the afternoon of 8 February 1993 a meeting took place between Mr Manning and Mr Detmold (the managing director of each of the Woodroffe companies) at which Mr Manning advised Mr Detmold that cover would lapse unless the terms offered by Trade Indemnity were accepted on that day. For this reason I do not propose to set out in detail the minutiae of negotiations explored in evidence which inevitably involved marginal variations in testimony all of which can be attributed to the normal difficulties of recollection. None of these matters ultimately bears upon the critical issue of fact or reflects upon the credit of the participants.
For some years (since at least 1988) the Woodroffe companies had arranged trade credit insurance using NCI as brokers through Trade Indemnity. From time to time cover had been extended to permit negotiations for renewal to take place, usually by a formal extension of the policy. These extensions had been negotiated by NCI.
There had been in 1991 three companies prepared to write trade credit insurance, Mortgage Guarantee Insurance Company of Australia Limited ("MGICA"), Sun Alliance Insurance Limited ("Sun Alliance") and Trade Indemnity. By the end of 1992, however, MGICA had vacated the field. The remaining two companies offered similar, although not identical, cover.
On 30 November 1992 Mr Manning and Mr Carlier (the account executive of NCI responsible for the business of the Woodroffe companies) met with Mr Sfreddo, the company secretary of the Woodroffe companies, and a Ms Lane, their credit controller, in Mr Sfreddo's office. Shortly before, Mr Carlier had received from Trade Indemnity an indication of the terms upon which Trade Indemnity would insure for the coming year. These terms were put forward subject to nothing of an adverse nature occurring prior to the expiry of the 1992 policy. They assumed a turnover of $28 million, covered a percentage insured of 80% with the sum of $10,000 as "own loss - an each and every of". This meant that, in respect of debts insured which were not recovered by the Woodroffe companies, the first $10,000 of each loss was to be borne by the Woodroffe companies and the indemnity was only in respect of 80% of the balance.
The indicated terms recognised terms of payment of open credit for 30 days from the end of the month of delivery of goods and a further period of up to 60 days with the consent of the insurer. The document estimated the new premium to be $120,400, an administration charge of $11,000 and indicated that stamp duty would be 8% of premium. These proposed terms differed from those applicable in the 1992 year in that the insured percentage of that policy was 80% subject to (as opposed to in addition to) a minimum retention of $10,000.
Mr Sfreddo took notes of the meeting and I accept without reservation the contents of those notes. However, his recollection of matters outside those notes appears hazy. The detail of what happened at the meeting is not crucial. It is obvious that the impending renewal was discussed at the 30 November meeting. A renewal form was given to Mr Sfreddo for completion and completed, but for the item of expected turnover for the 1993 calendar year which Mr Sfreddo had not yet calculated. There was discussion as to how this was to be calculated and Mr Sfreddo agreed to telephone the figure through to Mr Carlier. It took him until 16 December to do so when he estimated the turnover figure to be $28 million, the same as the preceding year.
The likely terms for a 1993 policy were discussed. The NCI representatives used the Trade Indemnity notice of indication as the basis for this discussion, although the document does not appear to have been shown to Mr Sfreddo. Mr Sfreddo was told that the likely premium would be $140,000, a figure which presumably reflects the indicated premium plus stamp duty and perhaps the administration charge. It is agreed between the parties that the actual premium (and related charges for the year) would have been $141,032.00.
Mr Sfreddo did not recollect any discussion about matters such as an excess payable by the Woodroffe companies in the event of a claim or "deductibles". His recollection was that he was told that the renewal terms would not be substantially different from those prevailing in the 1992 year. In this I think he was mistaken. Mr Manning's evidence, confirmed by Mr Carlier, was that Mr Sfreddo was taken through the difference between the previous policy and the proposed renewal terms and that Mr Manning made some calculations on note paper of the mathematical effect of the difference, leaving with Mr Sfreddo these calculations. According to Mr Manning's evidence Mr Sfreddo expressed disappointment that there was no reduction in the premium as, in his view, the companies' claim record was good, there had been no claims in respect of the 1992 year and indeed the Woodroffe companies had received a commendation from Trade Indemnity in September 1992 for "...excellence in Credit Management and responsible approach to the use of Credit insurance".
According to Mr Manning, Mr Sfreddo said that he would find it difficult to support a renewal if no discount in the rate were forthcoming. Mr Manning says that he replied that, under the conditions of the day and having regard to the claims history of the Woodroffe companies, to hold the rate was particularly well done. I accept this evidence. Mr Manning left with Mr Sfreddo a computer print out of the claims experience of the Woodroffe companies, which illustrated that the claims experience was not quite as Mr Sfreddo saw it, other than the good year in 1992.
Mr Manning said also that there was discussion by Mr Sfreddo of the attitude of the Board to these terms. At relevant times the Board of the holding company, then called Bastion Corporation Limited, a publicly listed company, comprised six members. Three of these were also directors of Hills Industries Limited ("Hills"), another publicly listed company. As part of a restructure of Bastion Corporation, share options had been granted to Hills which were exercisable on or before 30 June 1993. Hills itself had no external trade credit insurance, having made arrangements with a "captive insurance company" overseas, and was thereby effectively a self-insurer. Mr Sfreddo, according to Mr Manning, said words to the effect that he was sure Mr Manning was aware of this situation, and indeed so he was. I am prepared to accept Mr Manning's evidence on these matters. To some extent his account was corroborated by Mr Carlier.
After Mr Sfreddo provided the turnover figure to enable the proposal form to be sent to Trade Indemnity, Mr Manning spoke to Mr Lee of Trade Indemnity, the executive of that company responsible for the Woodroffe companies account. Also at some times involved in events was a Mr Lucky, an underwriter manager of Trade Indemnity, who gave evidence. Mr Lee, in the course of this conversation with Mr Manning, expressed the view that the indicated terms were appropriate, having regard to the nature of the business in which the Woodroffe companies were involved and the overall loss ratio. He pointed out that it had been intended to change the excess provisions in the Woodroffe companies' 1992 policy but, as a result of an oversight, this had not happened.
On 22 December Mr Manning spoke to Mr Sfreddo. There was to be a Board meeting on that day and Mr Sfreddo had not yet received formal confirmation of the terms of renewal. Mr Manning undertook to ensure that the companies were "held covered" until the end of January. It is relevant at this point to note the difference between an "extension of cover" and "held covered". An extension involved the insurer agreeing to extend an existing cover, usually for a premium for a stated period. Whatever happens an insured is covered for the period of the extension. Where the insurer agrees to hold the insured covered, however, no separate premium is charged and the cover is conditional upon the insured entering into a new contract of insurance on terms offered. If that new contract is not entered into, the insured is effectively not covered at all. Mr Sfreddo kept a short note of this conversation, indicating that the companies were to be held covered until 31 January 1993. The note referred to "re-negotiating rates".
Thereafter Mr Carlier, at Mr Manning's request, wrote to Trade Indemnity requesting agreement:

"... that this policy will be held covered pending receipt of the renewal instructions or either a formal extension of the current policy for a month ending 31st January 1993."

Mr Carlier also contacted Sun Alliance for an alternative quote.
Trade Indemnity, while refusing the extension, agreed to hold the Woodroffe companies covered until 15 January 1993 noting that there was to be a Board meeting on 11 January.
On 14 January 1993 Mr Manning and Mr Carlier again met with Mr Sfreddo at the Woodroffe companies' premises. The main purpose of the meeting was to discuss a particular customer of the Woodroffe companies. The matter of renewal was also discussed, together with the possibility that Trade Indemnity would consider reverting to the terms of the 1992 policy with a minimum retention of $10,000 if the Woodroffe companies forewent the possibility of making claims in respect of the 1992 year. Mr Manning counselled against this course. Mr Manning also mentioned negotiations with Sun Alliance, saying that that company would not consider insuring the debt of Ceiling and Roofing Products ("CandR"), the largest customer of the Woodroffe companies. Mr Sfreddo advised that the next Board meeting of the Woodroffe companies was scheduled for 26 January and that documentation setting out the terms of Trade Indemnity's proposed cover and that of Sun Alliance would need to be available by 25 January for preparation of the Board papers. Curiously, nothing was said by Mr Manning or Mr Carlier about the fact that the held cover position was to expire the next day. Nor does it appear that either Mr Manning or Mr Carlier made any request to Trade Indemnity at that time to extend the held covered position until after the 26 January meeting. However, Trade Indemnity were advised that a Board meeting was to be held on that day. There were also discussions with Mr Lee and Mr Lucky on terms, the details of which are immaterial.
Late in the afternoon of 25 January Mr Manning and Mr Carlier delivered NCI's presentation on trade credit insurance to Mr Sfreddo. That presentation included a summary of the renewal terms negotiated with Trade Indemnity and alternatives for consideration offered by Sun Alliance. Mr Manning discussed the alternatives with Mr Sfreddo.
The Board meeting was held on 26 January. The minutes of the meeting, under the heading of "Credit Insurance", read:

"Renewal forms were discussed and this matter held-over until next meeting and one month's extension of existing policy to be sought."

At the meeting Mr Sfreddo explained the change in terms from the 1992 policy and stated that this, in effect, represented an increased cost from the 1992 terms. The Chairman sought suggestions of what could be done to mitigate that cost increase. Mr Detmold reported that it was likely that JGW would be sold. That company had had a bad credit history and it was for that reason that he had recommended to the Board that an extension be sought for two months (not one as the minute suggested). This would permit negotiations for a policy which would take account of the fact that JGW had been disposed of and the overall credit risk to the Woodroffe companies diminished. I accept that the minute records the period of one month by mistake and that the resolution in fact was to seek an extension for two months. Mr Manning says, and I accept him, that he was strongly in support of ensuring that credit insurance was continued and pushed that position before the Board.
Meanwhile, on 26 January Mr Lucky confirmed by facsimile transmission a conversation with Mr Manning the day before that Trade Indemnity held its existing offer of:

"1. EandE $10,000 with premium rate at 0.43% or

2. M/R $20,000 " " " 0.43% or

3. M/R $10,000 " " " 0.43% subject to the guarantee no liability is to attach to the 1992 policy year. Should neither of the above be accepted today, our offer will be withdrawn and we will re-quote under the 1993 underwriting guidelines."

The first two of these terms Mr Manning saw as a "joke". The third was the proposal discussed with Mr Sfreddo. The reference to the 1993 underwriting guidelines was a reference to a documented series of guidelines issued by Trade Indemnity which would have produced more onerous terms for the Woodroffe companies.
Mr Manning, on 26 January, wrote to Mr Lee telling him that terms had been submitted to the Woodroffe companies' Board meeting that day and that the decision would not be available until 27 January. He advised that he would be in Brisbane the next day, would make contact then and advise the outcome.
Mr Detmold rang Mr Manning on 27 January and reported the outcome of the meeting. Mr Detmold spoke of the JGW situation and advised Mr Manning that he had been requested to establish with Mr Manning a further extension of two months until the end of March to resolve the JGW situation, to see whether there were any claims in the 1992 year and to give the Board more time to digest the proposed terms of the 1993 policy. Mr Manning replied that such an extension was not an unreasonable request and that he would contract Trade Indemnity to ascertain their attitude to that request. According to Mr Detmold, he said to Mr Manning, "let me know if you have got a problem".
Mr Manning then called Mr Lee and conveyed to him what Mr Detmold had said of JGW and the reasons for the extension. Mr Lee said that he would review the position. Mr Manning said that he assumed that the held covered position would remain. Mr Lee is said to have agreed to this and indicated that he would come back to Mr Manning.
That day Mr Lucky sent a facsimile message to Mr Manning's Queensland office as follows:

"As discussed we will respond to your verbal requests as follow:

1. 3 mth extension - regret unable to accede.

2. 3 mth policy - regret unable to accede.

3. 12 mth policy with the ability to renegotiate at 31.3.93. We will offer the insured this one major concession. However, with one important note. And that is the period of the policy is not negotiable. The various terms ie. deductibles, premium etc are. This means that should both parties be unable to satisfactorily renegotiate terms for the remaining 9 months of the policy, the original terms will remain binding."

This fax was not received by Mr Manning in Brisbane. On Friday 29 January Mr Manning flew to Melbourne where he went to a meeting held by Trade Indemnity to discuss the gravity of that company's changed 1993 guidelines. There he saw Mr Lucky who mentioned the fax. Mr Lucky summarised its contents, which Mr Manning then arranged to have sent to him in Melbourne. That evening Mr Manning flew home and was taken ill with pneumonia. Monday 1 February 1993 was a public holiday in Adelaide.
On 2 February 1992 Mr Lucky forwarded a fax to Mr Manning at his Adelaide office. It read:

"We don't need to remind you that it has now been over a month since this policy expired, after many extensions.

We now advise that the policy has lapsed and that all terms offered to date have been withdrawn as the policy has now been formally terminated. In passing, we are surprised this insured passed up a fairly good concession thus preventing the harder terms under the 1993 guidelines considering their poor performance of the past, reflecting the vulnerability of the industry they are in.

Would you please convey the above to the insured without delay."

This facsimile transmission, in some way or other, reached Mr Manning at home. He called Mr Lucky, expressed his displeasure at the fax and told Mr Lucky he was ill. He said that he needed time to contact Mr Detmold "to convey these matters". He said that he should be able to make such contact by a nominated date, which according to Mr Manning was 4 February. Mr Lucky acceded to Mr Manning's request and agreed that the Woodroffe companies would stay held covered until that date.
According to Mr Manning he then rang Mr Detmold. His evidence is that he told Mr Detmold that he had to see him "on this matter" by 4 February. Mr Detmold said that this was impossible. His daughter had had a serious accident and was in hospital in jeopardy of losing her hand. According to Mr Manning, they then agreed to meet on Monday 8 February late in the afternoon, between 3.30pm and 4.00pm, as it was Mr Detmold's practice to visit his daughter in hospital and that he would be back from hospital by then. Mr Manning says that he then rang Mr Lucky telling him of the proposed meeting on the 8 February and Mr Lucky verbally confirmed that Trade Indemnity would "extend" cover to 8 February. According to Mr Manning he made a note on the letter which he faxed to Trade Indemnity "to ensure that he had a record of that conversation".
Mr Lucky had little recollection of these events. He said that he could not recall ever seeing the fax with Mr Manning's note on it and it was not produced by Trade Indemnity with its file, although I was told from the bar table that a copy (said to have been from the file) was provided by a firm of solicitors. He agreed that he had been told that Mr Manning would see him (apparently Mr Lucky) again on 8 February when he would get a decision out of the Woodroffe companies and that cover had been extended to 8 February. Initially he spoke of one conversation and then two as a result of being advised by Mr Manning that there had been a delay. Ultimately he conceded that he could not remember whether the date of 8 February had been talked about in the first or second conversation. Without wanting to be critical of Mr Lucky, I could not conclude on his evidence that there were two conversations as Mr Manning deposes.
Mr Manning appears to have made no entry in his diary of an appointment with Mr Detmold for the afternoon of 8 February.
According to Mr Detmold's evidence, Mr Detmold rang Mr Manning at his office on 2 February 1993 when he learned that he was home ill. They had not spoken since the 27 January telephone conversation. According to Mr Detmold, Mr Manning later returned the call. Mr Manning told Mr Detmold that he was ill with pneumonia. There had been previous discussions between Mr Manning and Mr Detmold about G and N Fencing Pty Ltd ("GandN") a customer of the Woodroffe companies. According to Mr Detmold, Mr Detmold had promised to follow up with GandN to get financial information which Mr Manning wanted. He had been advised that a Mr Gibbs of GandN would be prepared to bring that information to a meeting of Mr Manning and Mr Detmold which Mr Detmold had suggested should be held early the next week. Mr Detmold says that he suggested Monday 8 February 1993 at 10.00am.
Mr Manning does not deny that the Monday morning meeting was arranged, although he says that he has no recollection of arranging it with Mr Detmold. He agreed that his recollection of the week commencing 1 February 1993 was "amiss" because he was ill.
There is no dispute that a meeting was held on Monday morning at the Woodroffe companies' premises commencing at 10.00am. Present were Mr Detmold, Mr Manning, Mr Gibbs, Mr Poulton (a sales manager of the Woodroffe companies) and Ms Lane. The sole topic of that meeting was the financial position of GandN in the light of the reduction by Trade Indemnity of the credit insurance limit on that company's indebtedness to Nil from $50,000. No mention at all was made by Mr Manning at that meeting of the fact that, unless the Woodroffe companies immediately accepted the Trade Indemnity terms, cover would cease that day.
At the close of the meeting Mr Detmold showed Mr Manning the door and they engaged in some conversation. According to Mr Detmold he said to Mr Manning that things were looking good in Perth (referring presumably to the proposed sale of JGW) and that Mr Manning had replied that he did not think that he could get any better terms for the Woodroffe companies. Mr Manning agreed that he went to the door with Mr Detmold and that they spoke of the worry that children cause parents. According to Mr Manning, Mr Detmold replied that the situation with his daughter appeared to have improved a little. In fact it seems to have been the case that Mr Detmold's daughter had by then been released from hospital, although there is no direct evidence to this effect.
Mr Manning then says, and it is denied by Mr Detmold, that Mr Manning returned to see Mr Detmold that afternoon. No one else is said to have been present at this meeting. The Boardroom and entrance to the premises are visible from the offices of Ms Lane but her evidence is that she did not see Mr Manning. She had no specific recollection seeing Mr Detmold that afternoon although she always saw him between 3.00pm and 4.00pm on a daily basis about transferring funds.
Mr Manning's account in chief of the meeting he says was held with Mr Detmold on the afternoon of 8 February 1993 was as follows:

"I said to Mr Detmold that it was important that they came to a decision. I said to him that Trade Indemnity would not extend the policy or give a three month policy. I said to him that they would review the terms and conditions of the policy as at 31 March. I said to him that I believed that was not an unreasonable position for them to take. I also said to him that the terms that we had on offer were all we were going to get from them and I did say to him that I had been in Melbourne on 29 January, that I had met with Alan Freeman and Uta Lucky and that their position was much changed from the Trade Indemnity that we had known. Mr Detmold became reasonably agitated at that comment and said to me that he felt that Trade Indemnity's attitude was somewhat standoverish. He said to me he was concerned with the turnaround time in limit decisions. He was concerned that he was paying premium often not getting what he would consider a fair and reasonable level of cover and was reasonably critical of Trade Indemnity."

After further discussion Mr Detmold is supposed to have said that 90 percent of the Board was against taking credit insurance, that a number of Board members were not happy that NCI was doing the work but that he had supported NCI in front of the Board. There was discussion of the Sun Alliance alternative. Mr Detmold is alleged to have said that he was not concerned that CandR were not covered under that alternative because of the long-standing loyalty which CandR had shown to the Woodroffe companies. Mr Manning then says that he asked for instructions to renew, that Mr Detmold was upset and that finally Mr Manning said:

"I am left with no alternative but to warn you that these are the terms. I cannot change them. There is no further area of negotiation. Please take them."

Mr Manning says Mr Detmold replied: "I am not interested in those terms."

Mr Manning then says that he told Mr Detmold that he would restart negotiations for "catastrophe credit insurance", being insurance on less favourable terms having a lesser premium. It is unnecessary to discuss the precise nature of this insurance. Mr Manning says that he had pointed out to Mr Detmold that he did not necessarily think that the business of the Woodroffe companies was well suited to catastrophe cover.
On 11 February 1993 Mr Manning wrote to Mr Lucky a letter in the following terms:

"We have discussed the renewal terms with R B Woodroffe Pty Ltd and are advised by their Managing Director, Mr Philip Detmold that a number of the Directors are particularly concerned at the use of Credit Insurance. Please remember that the majority of the Directors on the Board at Woodroffe are now Hills Industries Ltd Board Members who have looked at Credit Insurance on a number of occasions and chose not to proceed. Detmold is very much of the opinion that he would like to proceed with Credit Insurance however, we need to reconsider the forms offered at this time. I am recommending to you that we contemplate a more catastrophe style cover with a Threshold of say $75,000 with an Each and Every of $10,000.

This in fact will reduce the insurable turnover to something in the order of $8,000,000. The Credit Management of the Insured has increased dramatically with Detmold taking personal interest in his debtors and I think this is significantly evidenced by the no claim year just passed.

Whilst I acknowledge this is protracting this time, it is better this than no cover at all and I ask you to generously consider alternative terms at this time.

I look forward to discussing this matter with you further as it would be disappointing to lose this long standing client. It is imperative that we provide Detmold with a sound alternative that he can strongly support before his Board." Mr Lucky replied on 15 February as follows: "R B Woodroffe "Claims History" clearly illustrated the high level of commitment and support we have provided over the past decade. And of late, notwithstanding our responsibility under the 1993 Underwriting Guidelines, for which we have virtually turned a blind eye to, we have conceded to extend cover based on terms that would be unacceptable for this policy in this trade. In fact, based on R B Woodroffe's performance alone, an invitation for renewal may not have occurred.

Jim, we cannot stress the importance of my facsimile of 26 January, specifically the 2nd to last paragraph and more to the point the 2nd to last paragraph of my facsimile of 2nd February. This is supported and clearly explained in Ben Lee's memorandum dated 21 December, 1992, to Sean Carlier, particularly the 4th paragraph and the summary of the Claims versus the Premium. We have given R B Woodroffe many opportunities to take advantage of the concessions offered and we can only reiterate that we are stunned to say the least, that they have not taken it. A lot of valuable time and resources has been utilized on this case and we cannot afford to protract it any further.

As stipulated in my facsimile of 26 January, 1993 should neither terms offered be accepted on the same day we will re-quote under the 1993 Underwriting Guidelines, which in this instance, we are not able to offer the terms you have proposed.

The 1992 policy has been formally terminated and we would advise that we would review terms on the basis of an AFL only otherwise, we regret that we are not prepared to offer terms at all. We shall await R B Woodroffe's decision before we pursue this any further."

There was little relevant contact between NCI and the Woodroffe companies until 4 March 1993. Prior to that day, however, there was a Board meeting of Bastion Corporation held on 22 February 1993. Under the heading "Credit Insurance", the minutes record:

"Reported:

Insurance had been extended to 31. 3. 93 and now awaiting proposal from NCI (Brokers) Pty. Ltd. Credit Insurance discussed generally and decided to consider alternative to arrangements. P. J. Donnelly suggested that it may be possible to arrange catastrophe cover through Hills Industries Limited - This would require Bastion to provide parameters for cover sought and then Hills Industries Limited setting a rate. May take 3 - 4 months before a proposal could be put to the Board.

P. C. Detmold suggested a cautious approach should the Company expand its operations interstate, particularly if the Company entered the Queensland market and that the Company should maintain arrangements with NCI (Brokers) Pty. Ltd enabling access to their files. Furthermore the Company should enhance its credit application form, and 'Romalpa' Clause."

In his evidence Mr Detmold elaborated on what he had said at the meeting. He had discussed the JGW proposed sale, the position of CandR as a major debtor and expansion opportunities in Queensland, the last two of which he had put forward as pointing to the need for continued insurance through NCI. His account was corroborated by Mr Sfreddo.
On 4 March 1993 Mr Manning had sought to make contact with Mr Detmold on the subject of GandN. Mr Detmold asked Mr Sfreddo to return the call and to follow up the insurance renewal. Accordingly Mr Sfreddo spoke to Mr Manning on 5 March. The conversation appears to have been relatively brief, or at least came to an abrupt end. According to Mr Manning the conversation for a short time centred on CandR and what was said to be an intensity of rumours concerning the financial stability of that company. He says that he then said that he was concerned that the Woodroffe companies get cover in place urgently. Both participants agree that Mr Sfreddo then enquired about the insurance cover and was told by Mr Manning that the cover had run out. Mr Sfreddo came up with an expletive and the words:

"... Philip isn't going to be too pleased about this. You know what Philip's like Jim." To this, according to Mr Sfreddo, Mr Manning had responded: "Yes, I know what Philip's like, but I tried to tell Philip that cover had run out."

Mr Sfreddo then sought out Mr Detmold and told him of the conversation with Mr Manning. He said, according to his evidence, that he had said to Mr Detmold:

"Philip are you aware that we haven't any insurance cover?"

Mr Detmold replied:

"No, that's not right, we do have insurance cover. Jim, must have made a mistake."

Mr Detmold was somewhat upset and probably expressed himself in rather more colourful language than this, although to the same effect. At the same time he spoke to Ms Lane and told her the news that the companies were no longer insured.
Mr Detmold then rang Trade Indemnity and ultimately spoke to Mr Lee on a speaker phone so that Mr Sfreddo was able to overhear the conversation. There is some difference in the two accounts, although not of substance. Mr Detmold told Mr Lee of his belief that cover had been extended until the end of March and was told that cover had run out. Mr Manning says, and I accept that he said, there had been a breakdown of communications. After some further, and on Mr Detmold's part, rather emotional discussions Mr Detmold asked for Mr Freeman's telephone number. Mr Freeman was Mr Lee's superior. When Mr Lee would not give the number Mr Detmold asked Mr Lee to arrange for Mr Freeman to ring him back. In fact he did not do so.
Mr Detmold then rang Mr Manning. According to Mr Detmold this conversation took place on 7 March, a Sunday. Mr Manning says that it took place on 5 March, the Friday evening. On whatever date, Mr Detmold referred to Mr Sfreddo's conversation with Mr Manning and repeated his surprise having regard to the fact that he had understood that the Woodroffe companies were insured until the end of March. Mr Detmold told Mr Manning that he had spoken to Mr Lee, was awaiting a call from Mr Freeman, that the situation was extremely serious, asked why Mr Manning had not told him and what had gone wrong with his communications with Trade Indemnity. Mr Detmold told Mr Manning that he had advised his Board that there had been an extension until 31 March. Mr Manning assured Mr Detmold that this was not the case. Mr Manning had little recollection of the conversation, save that Mr Detmold asked that a meeting be arranged for Monday morning. According to Mr Detmold, Mr Manning said that Mr Lee was a bit of a problem and that he thought that he could still get the policy reinstated. I accept Mr Detmold's account of this. Agreement was certainly reached on a meeting first thing Monday morning.
In the meantime Mr Manning had spoken with his joint managing director, Mr Box, who had been contacted by Mr Lee. Mr Lee had told him that Mr Detmold was upset.
A meeting was held as arranged on Monday 8 March. Present were Mr Box, Mr Manning, Mr Detmold and Mr Sfreddo. According to Mr Manning's account, Mr Detmold expressed that he was upset at the situation. Mr Box had then replied saying that cover had ceased and that NCI had presented terms. Mr Detmold said that he still believed Mr Manning had organised an extension of cover. Mr Manning had replied by saying that they had met on 8 February and that he had informed Mr Detmold that unless the terms on offer were accepted, NCI would have to start again as if the Woodroffe companies were a new client and that he would have to give the answer to Trade Indemnity to ensure continuity of cover.
Mr Detmold's account was somewhat different. He said that he commenced by outlining his understanding that cover was in place until the end of March and repeated the conversations of Friday 5 March between Mr Sfreddo and Mr Manning and his conversation with Mr Lee who had told him that the policy had never been renewed and that he had made it clear through letters and facsimiles to NCI on a number of occasions towards the end of January that the offer had to be accepted. According to Mr Detmold, Mr Manning replied that he always thought that he could get the insurance reinstated and that Mr Lee was "the nigger in the woodpile". Mr Detmold says that he would put the matter to the Board immediately if negotiations could be reopened, even if it were necessary to accept the terms immediately. Mr Box had then said that he would be able to talk to people higher up in the Trade Indemnity organisation and suggested that a letter be written immediately because he was sure that if the Woodroffe companies accepted the terms of the policy outlined in January they would be able to get the policy reinstated.

Although Mr Sfreddo made some notes of the conversation, they do not greatly assist in resolving the conflict in testimony. The notes indicate that Mr Manning said that the underwriter was running out of patience, that someone (whether the underwriter or the Woodroffe companies is not stated) was not prepared to insure and that if the Woodroffe companies had accepted the terms, Trade Indemnity was prepared to hold cover. It seems clear, however, that there were allegations and counter-allegations and that all agreed to the preparation of a letter to Trade Indemnity in which the Woodroffe companies would agree to confirm that no claims would be made in respect of the 1992 year. Notes made by Mr Box refer to the matter not having been "resolved because of some confusion". The notes refer to "Uta's letter 2/2 relapsing held over as Jim sick with pneumonia." These are probably notes which Mr Box made to assist him in preparing the letter to Trade Indemnity, rather than an admission on the part of NCI.
Mr Box prepared a draft as arranged, addressed to Mr Freeman. It read:

"We write to you with reference to the above policy which was due to expire on the 31st of December and wish to resolve rather awkward circumstances which we find presently exist. Renewal terms based on holding last year's premium rate but changing the own loss from a Minimum Retention to an Each and Every had finally been negotiated early in January and we had informed your Melbourne Underwriting staff that the renewal terms were to be discussed at a Board Meeting originally scheduled for the 26th of January.

Unfortunately, the Board did not gratefully receive the renewal terns offered and felt that as they had had a completely claims free year in the last 12 months that we needed to re-negotiate alternatives for further consideration. Jim Manning has been in discussion with Ben Lee and Uta Lucky on this matter and whilst there is a note in our file from Uta dated the 2nd of February advising that the original renewal terms would not be held open any longer, this issue was subsequently discussed with Uta and Jim who was at home at the time with pneumonia and Uta gave us the opportunity to re-negotiate terms which would see renewal with effect from the 1st of January on the basis however that the original renewal terms would be a minimum starting point and we were to then consider either a 2 tiered Threshold and Excess alternative and an Aggregate First Loss alternative.

Jim wrote to Uta on the 11th of February on the basis of a 2 tier alternative and unfortunately Uta has had some difficulty in seeing the effectiveness of this style of policy and declined to offer terms but we would like to perhaps re-visit this matter. We have since then also been informed that one of the underlying reasons for a delay in accepting renewal terms is that our client is quite close to finalizing the sale of their Window business in Perth. This information is conveyed to you in complete confidence as it has been disclosed to us on this basis, Woodroffe being a publicly listed company, would not wish the market to be aware of the impending sale of the business which is yet to be finalized. In addition, we have also been informed that within the very near future, it is anticipated that Woodroffe will acquire a business based in Queensland with an insurable turnover of $15,000,000.

Philip Detmold from Woodroffe had been intending to delay finalization of renewal terms on the basis that these issues would resolve quite shortly but he now understands that there is no point in delaying a decision on the renewal of their policy and we have had to clearly again re-state the normal circumstances which exist regarding the inability to arrange cover notes and hold cover agreements in Credit Insurance. We have however been under the clear understanding from Uta that if we were able to achieve successful conclusions to Aggregate First Loss or 2 tiered alternatives then renewal would be effective from the 1st of January. Unfortunately, we have had considerable difficulty in finalizing our negotiations with your Melbourne Underwriting unit and as we speak, we are in fact still awaiting their Aggregate First Loss quotation with additional supporting information provided late last week regarding the impact of the removal of JG Windows. We have only been able to discuss the issue of the removal of JG Windows within the last two weeks.

We are now fairly confident that if we can hold your original Whole Turnover renewal terms, we should be in a position to receive our clients acceptance now within the next few days. However Philip Detmold would still like to personally discuss with you his concerns regarding the premium rate structures and lack of flexibilities which we have encountered and more particularly because of our strong and close association with his Company, he wishes to discuss with you the perhaps unnecessary pressure that that relationship has been placed under due to some confusion and difficulties which have been encountered in finalizing this matter.

Woodroffe are prepared to sign a formal undertaking that there will be no claims submitted to Trade Indemnity regarding the 1992 underwriting year and when this was further confirmed directly with Ben Lee through a telephone conversation which Philip Detmold initiated on Friday afternoon, Ben indicated that there was the potential that on this basis a reduction of the original renewal terms would be considered. Jim has discussed this issue in the past with Ben and we have been led to believe that an effective premium rate of 0.38% (renewal terms of 0.43%) could be achieved but when indicating this to Philip Detmold some weeks ago, he had felt that these would still not be acceptable to the Board. We have had a very successful meeting this morning re-stating the nature of Trade Indemnity's underwriting concerns and past loss ratios etc., and feel that if we are able to again now offer an effective premium rate of 0.38% or better we should be able to achieve renewal. Because however, this will need to be effective from the 1st of January and the JG Windows sale could be finalized by the 31st of March, we would ask that you please base your Minimum Annual Premium on $25,000,000 whilst maintaining the Estimated Annual Turnover of $28,000,000. It is anticipated that if the purchase of the business in Queensland occurs within the next 6 months, this will be either endorsed to the policy but may in fact be better underwritten as a separate linked policy. Could you please urgently review this matter and advise us of the maintenance of renewal terms or as an alternative, could we please ask yet again for a formal extension of this policy to the 31st of March under previous terms and conditions where again our client will confirm that there has not been, and will not be any losses for the 1992 year.

A formal extension with an appropriate extra premium for the 3 month period will provide us all with the time necessary to consider Aggregate First Loss and other alternatives and Philip Detmold would also like to meet with you personally when in Adelaide on the 30th of March as this will also provide an ideal forum to discuss the options available for the forthcoming year if in fact we have arranged the extension and not been able to now achieve renewal on the terms initially offered. We must highlight that by removing JG Windows, we are in fact significantly reducing the nature of the risk. JG only accounts for approximately $3,000,000 in insurable turnover however there is an underwritten limit for Suco Pty Ltd (Summit Constructions) of $350,000 which will be removed and perhaps more importantly an underwritten limit of $150,000 for Collier Constructions which will also be removed. One way or another, these will no longer be required perhaps with effect from the 1st of April subject to the sale being finalized by this date. When removing the JG Windows policy from our clients overall claims history, Trade Indemnity's loss ratio for the remaining business for the last 2 years represents a loss ratio of only 60%. However, the claims that have been incurred in the last 2 years were from a Contracting Division which the Woodroffes have closed and this is reflected in the improved underwriting performance in the last 12 months. We are certain that a meeting with Philip Detmold at Woodroffe when you are in Adelaide will give you a much more comfortable understanding of this risk as it remains and we have had great difficulty in getting this message understood by your Melbourne Underwriters over what has proven to be a very frustrating and extended series of negotiations. Upon receipt of this note, could you please contact Jim Manning urgently as Philip Detmold would like to speak with you personally by phone this afternoon to discuss a number of the salient issues."

Presumably the letter was sent. Certainly there were discussions with Trade Indemnity which put an offer in a fax dated 11 March 1993. On receipt of that offer Mr Manning rang Mr Lucky, who had written it, told him that changes to the terms were "ludicrous" and that they were so unacceptable to him that he did not even wish to present them to the Woodroffe companies. There were later discussions between Mr Manning and Mr Sfreddo and with Trade Indemnity, but no satisfactory resolution of the situation could be achieved with Trade Indemnity which refused to reinstate cover on the terms initially offered. It is unnecessary to make findings in respect of these later discussions. Suffice it to say that the Woodroffe companies were not covered by Trade Indemnity for any part of 1993. According to the evidence no cover was arranged for the Woodroffe companies for the 1994 year either.
It is in the light of the direct conflict of evidence between Mr Detmold and Mr Manning that I am called upon to decide whether the second meeting on 8 February between Mr Detmold and Mr Manning did take place as Mr Manning deposes.
Both Mr Manning and Mr Detmold have something to lose by acceding to the story of the other.
Mr Manning is a broker of some standing. His professional reputation will undoubtedly suffer in the event of a finding that he did not advise Mr Detmold that cover would cease on 8 February. It was not disputed that as broker he was under a duty of care so to advise Mr Detmold and that failure so to do would constitute a breach of that duty.
Mr Detmold is managing director of a public company and to find that Mr Detmold had the conversation with Mr Manning but later advised the Board that cover had in fact been renewed until 31 March, would be to find that he had deliberately lied to the Board and was clearly in breach of his directorial duties.
Senior counsel for the Woodroffe companies submitted that I should reject Mr Manning's evidence for a number of reasons. Reference was made to inconsistencies between Mr Manning's oral testimony and the defence which had been originally filed and in respect of which there was some cross-examination. I place little weight on these inconsistencies having regard to the way, lamentably, in practice defences are prepared.
A stronger point was the lack of notes or entries supporting the conversation said to have taken place in the afternoon of 8 February and the fact that Mr Manning was not seen on the premises by Ms Lane.
Counsel for NCI submitted that I should not accept Mr Detmold's evidence pointing to what was said to be the likelihood that such a meeting had taken place and the extraordinary circumstance if it had not.
I find that it is more probable than not that no second meeting took place on 8 February and accept the evidence of Mr Detmold. I do so for two interrelated reasons. First, I have had the opportunity of seeing both Mr Detmold and Mr Manning in the witness box. I found Mr Detmold to be an impressive witness, no doubt forceful of expression in the appropriate circumstances and perhaps aggressive. I think that, subject to the usual vagaries of recollection, he is a witness of truth and I accept his evidence that no meeting occurred. Second, it is clear, as Mr Manning conceded, that the events of the previous week were not clear in his mind as a result of his illness. I find it, however, very unlikely that Mr Manning would arrange, or at least participate in the arranging of, a meeting with Mr Detmold for the morning of 8 February on a matter of much lesser significance without advising him of the ultimatum which Mr Lucky had given and then attend such a meeting on matters concerning the insurance and make no reference at all to the much more serious matter which he said was to be left to the meeting in the afternoon.
Mr Detmold's actions were all consistent with his not having been told. He clearly reported to the Board that an extension had been granted to 31 March and although this was not accurate, it is an impression which would be clearly gained if an extension had been sought and he had heard nothing from Mr Manning thereafter. Mr Manning had clearly been in the habit of arranging extensions without difficulty and does not always appear to have had them documented. No extension had ever been refused. Mr Detmold was clearly shocked to learn from Mr Sfreddo of the cancellation of cover and his actions and reactions at that time are inconsistent with his having been told by Mr Manning that cover would be withdrawn unless there was acceptance by 8 February.
I was less impressed with Mr Manning. Rather than answer questions he was asked, he embarked, despite warnings from the bench, on self-justifications of the case he wished to put forward. He was clearly a good salesman and sought to sell his case from the witness box. On the critical point I would not accept his evidence. I have thought carefully about the question why Mr Manning, having received Mr Lucky's facsimile of 2 February and obtained the hold covered position until 8 February, might not have told Mr Detmold. There are two, possibly related, explanations. First, there is little doubt that in the first few days, at least, he was ill with pneumonia. More importantly, however, I think that Mr Manning was at all times confident that if the terms were accepted, and perhaps the 1992 claims foregone, the insurance would be reinstated. In other words, I do not think he took too seriously, until it was too late, the deadline of 8 February.
I should perhaps add that Mr Manning's own evidence to some extent supports the finding that only one meeting took place on 8 February, knowing that the terms had to be accepted and that acceptance communicated to Trade Indemnity by 8 February. The meeting arranged, so he says, with Mr Detmold was only scheduled to take place on that afternoon of the day and clearly Mr Detmold would need at least to have communicated with the chairman and perhaps other members of the Board before accepting those terms. Comments said to have been made by Mr Manning at the meeting of 8 March, to the effect that he was always sure that the initial terms offered could be reinstated, which I find were made, support this interpretation.
Perhaps the strongest objective evidence in favour of the submissions for NCI is the letter Mr Manning wrote to Mr Lucky on 11 February, the text of which is set out earlier in this judgment. The fact that the letter seeks to explore alternative forms of insurance, particularly catastrophe insurance, following what is said to be a discussion with Mr Detmold, supports to some extent Mr Manning's testimony. So does the reference in the letter to this being better than "no cover at all".
On the other hand, the letter can be read as relating to the earlier instructions given by Mr Detmold to investigate alternatives to the terms still on offer. Indeed that appears to have been the interpretation given to it by Mr Lucky in his reply of 15 February, also set out earlier.
I should mention also, in favour of accepting Mr Manning's testimony, the fact that, from the first time that he spoke to Mr Sfreddo advising him that the policy had lapsed he maintained that he had told Mr Detmold this.
I have taken all these matters into account, but, for the reasons I have set out earlier, I find it more probable than not that no meeting took place with the consequence that Mr Manning, and through him NCI, were in breach of a duty of care to the Woodroffe companies to advise them that cover would lapse unless the terms put by Trade Indemnity were accepted by 8 February.
However, that leaves two issues to be decided. The first is whether the applicants have shown that they would, had they been notified of the Mr Lucky's ultimatum, have accepted the terms proposed by Trade Indemnity which, it is agreed between the parties, are the terms set out in the documentation discussed at the Board meeting of 26 January 1993.
Counsel for NCI pointed to the view that the Board had taken the view at the end of January that the Trade Indemnity terms were unattractive, that the Hills' directors might be thought to have opposed renewal on these terms and that, even on Mr Detmold's evidence, some members of the Board were concerned and giving attention to alternatives. Reference was made to the fact that no insurance had in fact been taken out in 1993 and 1994. Indeed in the latter year no quotation had even been called for. It may be interpolated that once Hills exercised its options over shares in the public company, the group was financially strengthened which, presumably, made such insurance less attractive. I do not think that the possibility of these options being exercised was a factor which could be taken into account in February as that apparently occurred only later in June. It was suggested that the companies would have supported CandR come what may, although it is not clear why that is a factor which points to the Woodroffe companies not accepting insurance.
I am, however, satisfied that the Woodroffe companies would have accepted the terms rather than remain uninsured, for two reasons. First, my impression of Mr Detmold, who was clearly in favour of such insurance, at least when the Woodroffe companies were not financially strong, is that if necessary he would probably have got his way with the Board. However, it is not necessary to rely upon this. The fact is that once Mr Detmold knew that the companies were uninsured he was prepared to accept the terms (if nothing better could be negotiated) and to put this in writing in the letter to Trade Indemnity sent by Mr Box, the draft of which was dated 8 March and which is repeated above. I can only assume that letter was written with the authority of the Board or, if not, that Mr Detmold believed that he had authority to commit the company if necessary.

That leaves the remaining issue of damages. The advisers to the parties are to be congratulated for agreeing certain figures and reducing my task to consider some matters of principle, agreeing as to the consequences of alternative outcomes. There are effectively two matters of principle. The first concerns the application of condition 4(a) of the policy which it is agreed would have issued had the Woodroffe companies been insured. The second concerns the debts of CandR. It is submitted by the respondents that, having regard to the performance of CandR as a debtor and in the state of the information that was held by Trade Indemnity at the time concerning the financial stability of that company, Trade Indemnity as insurer would, had a policy issued, have reduced the cover of CandR debts to nil, with the result that no claims could have been made in respect of sales to CandR after February 1993 or, in the alternative, after March 1993.
There is, in my view, on the facts, no answer which the Woodroffe companies can make to the first of these matters. Condition 4(a), which sets out exclusions from cover, provides relevantly:

"Goods delivered to an INSURED BUYER at a time when a debt or any part of a debt owing by that INSURED BUYER (but excluding a debt relating to documented disputes or documented queries) is outstanding beyond the due date (meaning the postponed due date where applicable) are excluded from the scope of the POLICY and no liability shall attach to TRADE INDEMNITY in respect of such deliveries."

The relevant facts are agreed between the parties. In the period between 1 March 1993 and 4 March 1993 there were amounts outstanding in respect of trading with CandR which were overdue 60 days or more from the end of the month in which deliveries had been made to CandR. The postponed due date referred to in the condition was, the parties agree, the end of February. Literally, therefore, any accounts for goods delivered in the month of March would, so long as the amounts owing at the end of February remained unpaid, be excluded from the scope of the policy. The Woodroffe companies did their banking on the fifth day of each month. The parties accept that the Woodroffe companies have not shown payment of CandR accounts until the date of banking. A corresponding situation arises for the period 1 to 4 April 1993. The consequence on a literal view of the condition is (and the parties are agreed as to the mathematics) debts of $66,319.22 are excluded from cover.
The answer of senior counsel for the Woodroffe companies was to submit, valiantly, that the intention of the policy in its commercial setting was that once payment of outstanding accounts was made, the risk in respect of accounts for deliveries made while the accounts were overdue was retrospectively removed. No other provision of the policy was relied upon as requiring this result and there is certainly nothing in the wording of condition 4(a) that suggests it. There is nothing unlikely about the parties intending that accounts for goods delivered while debtors were overdue beyond an approved limit were not covered because, once a debtor allowed accounts to fall overdue beyond the agreed time, that is prima facie evidence of financial difficulties, evidence which is not remedied by virtue of the fact that overdue accounts are paid subsequently. I do not accept the submission of the applicants.
The final matter is a little more complicated. Sales to CandR in December 1992 amounted to $41,810.10. Accounts for these transactions were not settled by CandR until 5 March 1993, outside the 60 day permitted period. Sales to CandR in January 1993 were $26,354.60. Accounts for these transactions were not settled until 5 April 1993. By the end of March and early into April an amount of approximately $210,000 was owing by CandR, excluding ongoing trading in April. Trade Indemnity had been keeping watch on CandR; not only did it insure the Woodroffe companies, but also other clients. John Lysaghts Limited and CSR Limited were covered in respect of CandR as a debtor. An inquiry had been made by Trade Indemnity of CandR's bankers on 15 March concerning the ability of CandR to pay $300,000 on demand, which was answered by the bank saying that CandR had been:

"Clients of this bank since '84. Company well established in the building and construction industry and considered a good business risk."

However, on 29 April 1993 the records of Trade Indemnity noted that a receiver and manager was about to be appointed, an event which in fact occurred on 1 July 1993.
Mr Lucky, who was not the person directly responsible for the account of the Woodroffe companies and would not have made decisions about debtor limits in the 1993 year had the Woodroffe companies then been insured, was questioned as to whether he would have reduced to nil cover for subsequent CandR trading with the Woodroffe companies in these circumstances and, if so, when. That at least is what was intended to be asked, although what in fact was asked was perhaps not quite as clear as it may have been.
Mr Lucky said that in reviewing the cover that may be available for debts of a particular entity he would take into account a number of factors; how serious the "overdue" was, the loss ratio, the insured percentage, the claims ratio and matters of that kind. If he had considered the details set out above, but without reference to the results of the enquires made of CandR bankers, he said that he would have had serious concern and would "possibly withdraw cover". When the comments in the previous quotation were shown to him he said that he would have also taken them into account:

"We'd have to weigh it up and make a decision which way we are going to go."

He agreed he would have had to take into account the policy performance of the Woodroffe companies but did not recall how good or bad that was. He agreed that the size of the total indebtedness was of relevance, but would need to know the entire history of all debts. His evidence in chief on this matter concluded at this point.
It is submitted for the respondents that, on this evidence I should treat the CandR debts in March and April as uninsured on the basis that the applicant has not shown that the CandR debtors would not have been excluded from cover had a policy been in fact issued by Trade Indemnity for the 1993 year. There is some unreality in the way the submission was made, particularly as it was said that I should, if not accepting this absolute submission, make some discount (how and in respect of what evidence was not explained) for the possibility that Trade Indemnity might have reduced, either at the beginning of March or at the beginning of April, the cover extending to CandR trading so that some part of the ultimate bad debts of CandR to the Woodroffe companies would have been uninsured.
It is clear that the applicants have the overall burden of proof. Having shown that they had, as a result of the negligence of the respondents, been deprived of the ability to insure for the 1993 year on the terms offered by Trade Indemnity, which they would have accepted, it is said that they had to show that Trade Indemnity would not have reduced the cover to nil in respect of the CandR debts, a discretion which Trade Indemnity clearly had under the policy. The evidence of Mr Lucky adds nothing to the undoubted fact that Trade Indemnity had a discretion. At best, he says, without reference to the favourable report of CandR's bankers in mid March, that cover might have been withdrawn. He expresses no opinion at all as to what was likely to happen if regard had been had to that report.
Clearly, if the tactical onus shifted to the respondents to show on the balance of probability that cover would be withdrawn, they have not discharged that onus. At best they have shown the obvious, that cover might have been withdrawn if all the circumstances warranted it. However, I think, having regard to Mr Lucky's movement back from "might have been withdrawn" when not having his attention drawn to the banker's report to "we'd have to weigh it up" after his attention was so drawn, I am prepared to conclude on the balance of probabilities that on the evidence Trade Indemnity would not have withdrawn cover over trading with CandR for February or March. I am thus relieved of the impossible task of seeking to find some arbitrary discount to allow for the possibility of withdrawal of cover. A suggestion that cover was not withdrawn from other clients of Trade Indemnity put to Mr Lucky can not really help the applicants' case because, even if it were true, the companies in question were obviously different in size, patterns of trading, and presumably also claims experience, all matters which Mr Lucky says had to be taken into account.
It is agreed between the parties that if I find, as I have, the applicants are entitled to judgment against the respondents in the sum of $76,294.04 together with interest. The parties are further agreed that I should make no decision as to costs without further written submissions after the parties have had the opportunity to consider my reasons. I would accordingly direct counsel for the applicants within six days to bring in short minutes of order to give effect to these reasons, particularly by calculating the interest which should accrue to the date of entering judgment. I would indicate that I would propose to enter judgment seven days from the date of delivering these reasons. Each side should within seven days file and serve written submissions dealing with costs, forwarding a copy of these submissions to my Associate.

[1994] FCA 847

14 NOVEMBER 1994