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New South Wales |
Case Name: | Richmond Valley Council v JLT Risk Solutions Pty Ltd |
Medium Neutral Citation: | [2022] NSWSC 1761 |
Hearing Date(s): | 11, 12, 13, 14, 15, 18, 19, 21, 22, 25, 26, 27, 28 and 29 October and 2, 3, 4, 9, 10, 11 and 12 November 2021 |
Date of Orders: | 19 December 2022 |
Decision Date: | 19 December 2022 |
Jurisdiction: | Equity - Commercial List |
Before: | Williams J |
Decision: | See paragraph [665] |
Catchwords: | CONTRACT – where plaintiff and defendant were parties to a deed establishing a mutual risk scheme for the pooling of local councils’ property and public liability/professional indemnity risks and the insurance of those pooled risks – where plaintiff was a local council whose risks had been pooled and insured in accordance with the deed since 2000 and defendant was the manager of the scheme – where plaintiff and each other party to the deed appointed the defendant to advise the Board of the scheme in relation to the insurance to be obtained for the pooled risks and to negotiate and place that insurance on the instructions of the Board – where that insurance was renewed annually – where annual renewal practices included the defendant seeking information from the plaintiff in relation to its property and public liability/professional indemnity risks and issuing a renewal report naming the scheme as the “recommended insurer” or “recommended provider” for the plaintiff’s property and public liability/professional indemnity cover - where renewal report and other annual renewal documentation issued by the defendant also addressed the renewal of the plaintiff’s insurance policies that were outside the scope of the scheme and in respect of which the defendant acted as the plaintiff’s insurance broker – where, at the time the defendant issued the annual renewal documentation to the plaintiff, the plaintiff was required by the deed to pay contributions to the scheme in respect of property and public liability/professional indemnity cover for the immediately forthcoming insurance year by reason of not having given the requisite period of notice of retirement from the scheme – whether the defendant acted as the plaintiff’s insurance broker in respect of property and public liability/professional indemnity cover during each annual renewal process and whether the defendant recommended to the plaintiff during each annual renewal process that the plaintiff’s property and public liability/professional indemnity cover for the immediately forthcoming insurance year should be arranged within the rubric of the scheme – whether the defendant and the plaintiff entered into a contract during each annual renewal process for the provision of such insurance broking services to the plaintiff, including an implied term requiring the defendant to exercise reasonable care and skill in providing such services – whether alleged contracts inconsistent with deed – whether alleged contracts breached – whether any such breach caused loss of opportunity for plaintiff to obtain alternative suitable property and public liability/professional indemnity insurance in the market at lower cost than its contributions to the scheme and/or loss of opportunity to negotiate or “obtain” lower contributions payable to the scheme - whether causes of action barred by application of s 14 of the Limitation Act 1969 (NSW). |
Legislation Cited: | Civil Procedure Act 2005 (NSW), ss 56-58, s 64 |
Cases Cited: | Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 |
Texts Cited: | J D Heydon, M J Leeming, P G Turner, Meagher, Gummow & Lehane’s Equity Doctrines and Remedies (5th ed, 2015) |
Category: | Principal judgment |
Parties: | Richmond Valley Council (Plaintiff) |
Representation: | Counsel: |
File Number(s): | 2018/00371447 |
Publication Restriction: | N/A |
Judgment
I INTRODUCTION
These proceedings are representative proceedings commenced under Part 10 of the Civil Procedure Act 2005 (NSW).
The plaintiff, Richmond Valley Council (RVC), is a local council constituted under the Local Government Act 1993 (NSW). RVC was formed following the amalgamation of the Casino and Richmond River areas in accordance with that Act in February 2000.
The period of time relevant to RVC’s claims in these proceedings is from 1 January 2009 to 3 December 2018 (the Relevant Period).
The defendant in these proceedings, JLT Risk Solutions Pty Ltd (JLT), was the manager of a mutual risk pool known as the NSW Local Government (Jardine Lloyd Thompson) Mutual Liability Scheme (Statewide or the Scheme) during the Relevant Period. JLT also carried on business as an insurance broker.
The Scheme was established by a deed dated 22 March 1994 (the Deed) between JLT and the local councils named in Schedule 1 to the Deed (referred to as the Members). In broad terms, the Scheme was governed by a Board of Management (the Board) which established several funds to provide protection and indemnity for Members in respect of specific classes of liability or loss (Funds), including public liability and professional indemnity (the Liability Fund or Liability Scheme) and loss and damage to property (the Property Fund or Property Scheme). Members of each fund were obliged to contribute money to the Fund. The contributions paid to each Fund were pooled and applied in accordance with the Deed, including to purchase insurance on behalf of the Members collectively. Under the Deed, each Member appointed JLT to undertake several functions, including advising the Board in relation to the insurance to be purchased in respect of each Fund and placing that insurance on the instructions of the Board.
During the Relevant Period, the Members of the Scheme included RVC and the nineteen local councils on whose behalf it brings these proceedings (the group members). RVC was a Member of the Liability Fund and the Property Fund and each group member was a Member of one or both of those Funds.
In these proceedings, RVC alleges that JLT provided insurance broking services to it and to each group member individually in each year during the Relevant Period, including services in relation to their public liability and professional indemnity insurance and their property insurance. RVC claims that, in the course of providing those services to it and to each group member, JLT recommended to each of them that their public liability and professional indemnity insurance and property insurance be placed “with Statewide”. RVC claims, that in providing those insurance broking services and making those recommendations to it and to each group member, JLT breached a duty of care owed to each of them in tort and pursuant to an implied term in broking services contracts said to have been entered into annually between JLT and RVC (and, separately, each group member). RVC also claims that JLT breached fiduciary duties allegedly to it and to each group member as their insurance broker.
Each of the alleged breaches is said to have occurred in the course of the renewal process undertaken during the period from March to June each year in respect of RVC’s insurance program and each group member’s insurance program for the forthcoming year commencing on 30 June.
RVC claims that each breach caused it and each group member to lose a valuable opportunity to obtain suitable public liability and professional indemnity insurance and property insurance independently of the Scheme at the best premium rates that were then reasonably available to them in the insurance market or, alternatively, the opportunity to negotiate a reduced level of contributions that each of them were required to pay to the Statewide Liability Fund and Property Fund. RVC claims damages for the alleged breaches of contract and general law duty of care and equitable compensation or an account of profits for the alleged breaches of fiduciary duty.
These reasons for judgment concern RVC’s case against JLT and the questions common to RVC and the group members that are to be determined pursuant to orders made on 3 September 2021.
For the reasons that follow, each of RVC’s three causes of action fails. The common questions are to be answered “no”, with the exception of questions 1 and 2 which are to be answered: “Yes, in the context of performing services for the renewal of the Primary Insurance for the Statewide Funds operated pursuant to the Deed dated 22 March 1994 establishing the NSW Local Government (Jardine Lloyd Thompson) Mutual Liability Scheme, on the instructions of the Statewide Board and in circumstances where the group members were parties to that Deed and members of one or more of those Funds and were required by the Deed to pay contributions to those Funds as determined by the Board for the forthcoming insurance year.” In coming to those conclusions, I have considered all of the parties’ extensive written and oral submissions, irrespective of whether the substance of each submission is expressly referred to in these reasons.
It is convenient to structure the balance of these reasons as follows:
Section II: Local Government
This section sets out my findings about certain budgetary and financial constraints applicable to New South Wales local councils, drawing on unchallenged aspects of the evidence of Professor Joseph Drew, Mr Nicholas Tobin and Mr Gary Murphy. These constraints form part of the context in which other evidence in these proceedings falls to be considered.
Professor Drew is an Associate Professor of Public Policy and Local Government in the Institute for Public Policy & Governance at the University of Technology, Sydney, who was called by JLT as an expert witness in these proceedings.[1]
[1] Report of Professor Joseph Drew dated 16 July 2020 (the Drew report) (EXP.JLT.002.0001_OBJ).
Mr Tobin became a member of the Statewide Board in June 1999, prior to the commencement of the Relevant Period. He remained on the Board until September 2014, holding the position of Deputy Chairman from March 2005 until December 2012 and then serving as Chairman until September 2014. During the whole of his time on the Board, Mr Tobin was Willoughby City Council’s Director of Corporate Services until December 2007 and its General Manager between December 2008 and October 2014.[2]
[2] Affidavit of Nicholas Ashley Tobin affirmed 17 June 2020 (the Tobin affidavit) (LAY.JLT.003.0001_OBJ).
During the Relevant Period, Mr Murphy was the General Manager of Lismore City Council from July 2011 to June 2018 and a member of the Statewide Board from December 2015 until June 2018.[3]
[3] Affidavit of Gary Michael Murphy sworn 16 June 2020 (the Murphy affidavit) (LAY.JLT.001.0001_OBJ).
Section III: The Scheme
This section sets out my findings about the nature of the Scheme and the manner in which it operated. Those findings are based on the provisions of the Deed, the report of Professor Pamela Hanrahan, the expert evidence of Mr Neil Donlevy, and evidence of Mr Leo Demer, Mr Naamon Eurell, Mr Adrian Jones, Mr William Warne, Mr Tobin and Mr Murphy.
Professor Hanrahan is Professor of Commercial Law and Regulation at the UNSW Business School in Sydney. JLT tendered a report of Professor Hanrahan which addressed the regulatory characterisation of mutual risk products and the relationship between the operator of a scheme for mutual risk products and members of such a scheme. Professor Hanrahan’s report was admitted on the basis that it would be read as a legal submission.[4]
[4] Report of Professor Pamela Hanrahan dated 16 July 2020 (EXP.JLT.003.0001) (the Hanrahan Report).
Mr Donlevy is an actuary with 25 years’ experience working in the area of general insurance. JLT tendered three reports of Mr Donlevy.[5]
[5] Reports of Mr Neil Donlevy dated 17 July 2020 (EXP.JLT.004.0001_tr) (the First Donlevy Report), 30 July 2020 (EXP.JLT.007.0001) (the Second Donlevy Report) and 24 August 2021 (EXP.JLT.008.0001_tr) (the Third Donlevy Report).
Mr Leo Demer was the Chief Executive Officer of JLT Australia & New Zealand during the Relevant Period. Mr Demer was not called to give evidence, but each party tendered (without opposition from the other) extracts from his affidavit served by the defendants in which Mr Demer described in broad terms the annual process involved in renewing the Primary Insurance for the Scheme’s Annual Funds.[6] Thus, the limited evidence of Mr Demer that was admitted in the proceedings is unchallenged.
[6] Affidavit of Leo Demer sworn 18 June 2020, paragraphs 209-211 (tendered as LAY.JLT.017.0001 and LAY.RVC.009.0001).
Mr Naamon Eurell has been employed by JLT since January 2010 and has held the role of the Executive Officer of Statewide since about January 2014. JLT read four affidavits of Mr Eurell.[7]
[7] Affidavits of Naamon-Israel Eurell affirmed on 18 June 2020 (LAY.JLT.005.0001_OBJ) (the First Eurell affidavit), 2 July 2020 (LAY.JLT.008.0001) (the Second Eurell affidavit), 20 April 2021 (LAY.JLT.012.0001_OBJ) (the Third Eurell affidavit) and 16 September 2021 (LAY.JLT.013.0001) (the Fourth Eurell affidavit).
Mr Adrian Jones is the National Finance Manager of the Public Sector division of JLT. Mr Jones gave evidence in relation to financial aspects of the operation of the Scheme, including the fees paid to JLT and its wholly owned subsidiary Echelon Pty Limited.[8]
[8] Affidavits of Adrian Christopher Jones sworn 17 June 2020 (LAY.JLT.002.0001_OBJ) (First Jones affidavit), 9 June 2021 (LAY.JLT.009.0001_OBJ) (Second Jones affidavit), 18 June 2021 (LAY.JLT.010.0001) (Third Jones affidavit) and 24 October 2021 (LAY.JLT.015.0001_OBJ).
Mr William Warne was a member of the Executive Team of Queanbeyan City Council, which was a Member of the Scheme. Mr Warne was a member of the Statewide Board from September 2010 to July 2019. Mr Warne was the Acting Chair of the Board from December 2014 to June 2015 and the Chair of the Board from June 2015 to July 2019.[9]
[9] Affidavit of Mr William Warne sworn 18 June 2020 (LAY.JLT.006.0001_OBJ) (the Warne affidavit), paragraphs 10-11.
Section IV: The pleaded case
This section provides a detailed summary of RVC’s claims as stated in the Third Further Amended Commercial List Statement filed on 30 June 2021, JLT’s defences to those claims as stated in the Second Further Amended Commercial List Response filed on 1 September 2021 and the common questions to be determined in these proceedings.
This section also explains my reasons for refusing an application made by RVC shortly before the commencement of the final hearing for leave to further amend its claims, and addresses several disputes that arose during the final hearing about the scope and substance of RVC’s pleaded claims.
Section V: Annual Renewals and Relevant Contemporaneous Events
This section summarises the extensive evidence concerning the annual renewal process in respect of RVC’s Statewide lines of cover during the Relevant Period, including documentary evidence and the evidence of three persons who held the position of General Manager of RVC during the Relevant Period: Mr Brian Wilkinson until March 2012,[10] Mr John Walker from March 2012 until February 2016,[11] and Mr Vaughan Macdonald from February 2016.[12]
[10] Affidavit of Brian Arthur Wilkinson sworn 20 December 2019 (LAY.RVC.008.0001_OBJ) (Wilkinson affidavit), paragraph 1.
[11] Affidavit of John Harold Walker affirmed 19 December 2019 (LAY.RVC.002.0001_OBJ) (Walker affidavit), paragraph 1.
[12] Affidavit of Vaughan Macdonald affirmed 20 December 2019 (LAY.RVC.007.0001_OBJ) (Macdonald affidavit), paragraphs 1 and 5.
The summary of the renewal process evidence also incorporates in chronological order evidence of various other matters and events relied on by RVC. Those matters emerge from contemporaneous documents, the evidence of RVC’s General Manager and former General Managers, the evidence of Mr Eurell, and the evidence of Mr Warne. Aspects of the expert evidence of Mr John Saunders and Mr Paul Ellison are also relevant to some of those matters. RVC relied on the expert evidence of Mr Saunders, who is an insurance broker and insurance consultant with more than 40 years’ experience.[13] JLT relied on the expert evidence of Mr Ellison, who has 44 years’ experience working in the insurance industry, including in the insurance broking sector.
[13] Reports of John Saunders dated 20 December 2019 (EXP.RVC.002.0001_tr_OBJ) (First Saunders Report), 5 June 2020 (EXP.RVC.003.0001_tr_OBJ) (Second Saunders Report), 21 October 2020 (EXP.RVC.006.0001_tr_OBJ) (Third Saunders Report) and 27 September 2021 (EXP.RVC.010.0001_tr_OBJ) (Fourth Saunders Report).
This section also refers to evidence concerning RVC’s insurance arrangements in the period after it retired from the Scheme with effect from 30 June 2017. RVC relies on its insurance arrangements in that period as indicating that, in previous years, cheaper liability insurance and property insurance was available to it in the insurance market independently of the Scheme and/or cheaper Scheme Contributions could have been negotiated for it.
Section VI: The Alleged Broking Services and Recommendations
This section considers the parties’ submissions and sets out my findings about whether JLT provided the broking services and made the alleged recommendations that are the key premises of each of RVC’s causes of action in these proceedings.
Section VII: The causes of action in contract and tort
This section addresses the elements of RVC’s causes of action in contract and tort, including RVC’s claims for losses of opportunity said to have been caused by JLT’s alleged breaches of contract and breaches of duty of care.
This section refers to aspects of the expert evidence of Mr John Saunders, Mr Paul Ellison, Mr Colin Fagen and Mr Neil Donlevy, who gave their oral evidence concurrently.[14] Mr Fagen was called by JLT and has extensive experience in senior management roles within insurers, including roles with QBE during the Relevant Period as CEO for Australia and New Zealand and as Group Head of Strategy and Chief Operational Officer.[15] I have introduced Mr Saunders, Mr Ellison and Mr Donlevy above.
[14] T1237-1470.
[15] Reports of Colin Fagen dated 17 July 2020 (EXP.JLT.006.0001_OBJ) (First Fagen report) and 27 August 2021 (EXP.JLT.010.001_tr_OBJ).
This section also refers to the evidence of Mr Andrew Armitstead, the Chief Executive Officer of CivicRisk Mutual Ltd,[16] and Mr David Minty, an actuary who provides services to the mutual risk pools operated by CivicRisk Mutual Ltd.[17] Both of these witnesses were called by RVC.
Section VIII: The cause of action for breach of fiduciary duties
This section addresses the elements of RVC’s causes of action for alleged breach of fiduciary duties.
Section IX: Common questions
This section sets out the answers to the common question.
Section X: Conclusion and orders
This section sets out the orders of the Court in relation to RVC’s claims.
[16] Affidavit of Andrew Armitstead sworn 19 October 2020 (LAY.RVC.006.0001_OBJ) (the Armitstead affidavit).
[17] Affidavits of David Minty sworn 16 December 2019 (LAY.RVC.001.0001_OBJ) and 16 October 2020 (LAY.RVC.004.0001).
II LOCAL GOVERNMENT
Local councils have a wide remit, including the provision of local transport infrastructure, the provision of community recreation facilities such as parks and swimming pools, and the provision of domestic waste services.[18]
[18] Drew report, paragraph 15; Murphy affidavit, paragraphs 11-12.
Local councils in New South Wales have three main sources of revenue: fees, rates and grants.[19]
[19] Drew report, paragraph 55.
There are legislative constraints on a high proportion of the fees that local councils may charge for services. There are also restrictions on the manner in which some of those fees earned may be spent by councils.[20]
[20] Drew report, paragraphs 56-61.
Increases in rates from one year to the next are constrained by the maximum percentage increase or “cap” determined by the Independent Pricing and Regulatory Tribunal (IPART). During the Relevant Period, New South Wales local council rate increases were capped at between 1.5% and 3.6% per annum. Whilst a council may apply to increase their rates by an amount greater than the cap, this is a time-consuming and expensive process that commences in about November of each year. Applications are assessed in accordance with strict criteria. A successful council will first be entitled to issue rate notices reflecting the increase on 1 August the following year. Thus, there is a time period of approximately ten months that will elapse between a council recognising a need for additional revenue and beginning to receive that revenue, assuming that its application to IPART is successful. [21]
[21] Drew report, paragraphs 62-68; Tobin affidavit, paragraph 43.
Whilst New South Wales local councils have access to federal government financial assistance grants, the manner in which those grants are allocated is not responsive to local council expenditure budget increases compared to previous years. Special purpose grants are available to local councils from the State government, but such grants are typically tied to specific infrastructure or services and are rarely made for the purpose of a council mitigating expenditure budget increases.[22]
[22] Drew report, paragraphs 65-73.
The limited ability to absorb unforeseen cost increases is a significant and challenging factor that affects local government budgeting. It is important to local councils to avoid recurring costs that fluctuate materially from one year to the next. Specifically, the ability to achieve certainty and stability of insurance costs is beneficial for the administration of a local council’s budget. Increases in those costs by a percentage greater than the rates increase cap for the corresponding year is likely to have an impact on a council’s capacity to deliver other services in its community.[23]
[23] Murphy affidavit, paragraph 25; Tobin affidavit, paragraph 44.
III THE SCHEME
Section 382 of the Local Government Act 1993 (NSW) provides that a local council must make arrangements for its adequate insurance against public liability and professional liability.
The Scheme was established in the context of increasing difficulties faced by local councils in the late 1980s and early 1990s in placing insurance with commercial insurers and underwriters in the local and overseas insurance markets.
As referred to above, the Scheme was established by Deed dated 22 March 1994 between JLT and each local council named in Schedule 1 to the Deed. Schedule 1 listed the Members in ten regional groups (the Regions). The membership of the Scheme has changed from time to time. RVC became a Member with effect from 30 June 2000.
As will be apparent from the provisions of the Deed referred to below, the Scheme is a discretionary mutual risk product, which is a managed investment scheme.[24]
[24] Hanrahan Report.
The provisions of the Deed and the salient features of the operation of the Scheme during the Relevant Period may be summarised as follows.[25]
[25] It was common ground between the parties that amendments made to the Deed from time to time during the Relevant Period are not relevant to the issues to be determined in these proceedings, save for an amendment to clause 10.3 which is referred to at [51] below. This summary of the salient provisions of the Deed has been prepared from the September 2018 version of the Deed that was tendered as exhibit JLT.026.026.5385. In these reasons, exhibits are referred to simply by their identifying number.
The Recitals to the Deed stated:
“A.Each of the Members is a body corporate constituted for an area within the meaning of the New South Wales Local Government Act 1993.
B. In order to meet their insurance obligations under the Act, the Members wish to establish a scheme for purposes of:
(a) purchasing insurance in respect of public liability (including personal injury, damage to property and products liability), professional indemnity, property and fidelity guarantee; and
(b) indemnity in respect of liability not covered by such public liability, professional indemnity, property and fidelity guarantee insurance.
C.The Members wish to engage JLT to assist in the management of the
scheme and the most efficient way of organising their insurance requirements.”Clause 2.1.1 of the Deed provided:
“Each Member agrees with JLT to enter into this deed for the purposes of:
(a) purchasing insurance in respect of public liability (including personal injury, damage to property and products liability), professional indemnity, property and fidelity guarantee;
(b) establishing a scheme to be known as the NSW Local Government (Jardine Lloyd Thompson) Mutual Liability Scheme for their indemnity in respect of Liability not covered by such public liability, professional indemnity, property and fidelity guarantee insurance;
(c) having its Claims managed and resolved; and
(d) promoting good risk management practices to minimise the occurrence and effect of Claims.”
The Scheme was governed by the Board, of which eleven representatives were elected by Members and three representatives were elected by JLT.[26] The convention adopted by Board members during the Relevant Period was that the JLT representatives on the Board attended meetings and participated in discussions but did not vote on decisions made by the Board.[27] RVC was a Member in the Northern Rivers Region. At all times during the Relevant Period, the Board included a representative appointed by the Members in that Region.
[26] Clauses 2.4.1 and 3.1 of the Deed.
[27] Tobin affidavit, paragraph 17; Murphy affidavit, paragraph 68; First Eurell affidavit, paragraph 24 (limited to evidence in respect of the period from January 2014 onwards).
Members of the Scheme were members of one or more of the Funds established by the Board. As I have already mentioned, it is the Liability Fund (also referred to as the Liability Scheme) and the Property Fund (also referred to as the Property Scheme) that are relevant to these proceedings, although RVC was also a Member of certain other Funds during the Relevant Period.[28]
[28] Clauses 14-15 of the Deed.
For each Fund, the Board established a separate Annual Fund in respect of each Fund Year (defined as each period of twelve months commencing at 4pm on 30 June).[29]
[29] Clauses 2.4.1(b), 7.1, 14-15 of the Deed; see also the definitions of Annual Fund and Fund Year.
Clause 3.3 provided:
“3.3.1 The Board of Management is authorised to manage and administer the Scheme in accordance with this deed. The Board of Management's functions include:
(a) determining, in accordance with clause 6, the Primary Insurance to be purchased by Members in respect of each Fund Year;
(b) determining, in accordance with clause 7, the initial and further Contributions to an Annual Fund for a Fund Year;
(c) determining in accordance with clause 8 the amount to be paid from an Annual Fund to a Claiming Member in respect of a Liability;
(d) determining, in accordance with clause 9.9, the amount of any surplus in an Annual Fund available for distribution to Members; and
(e) such other functions as are contemplated in this deed or are reasonably necessary to manage and administer the Scheme.
3.3.2 The Board of Management is vested with all the powers it considers necessary or desirable to carry out its functions.
3.3.3 A decision or resolution of the Board of Management on any matter which is within its authority shall bind all of the Members.”
Clause 3.4 provided:
“The Board of Management may by ordinary resolution appoint (and replace) a person or persons to carry out any of its management and administrative functions upon such terms as it determines.”
As referred to in clause 3.1(a), the Board determined levels, coverage and terms of insurance to be purchased jointly by the Members of each Annual Fund (Primary Insurance). As part of this process, a delegation of Board representatives visited London in about March or April each year where they made presentations to underwriters and discussed areas of emerging risk, any risk programs that the Board was considering offering to Members, and issues relating to the state of the insurance market. The delegation typically comprised the Chairman of the Board, the chairs of the Finance Committee and Claims and Risk Management Committee of the Board. Those delegates then reported back to the Board. JLT was responsible for negotiating and placing the Primary Insurance as determined by and on the instructions of the Board.[30]
[30] Clauses 2.4.1(a), 3.3.1(a), 6.1, 14.1 and 15.1 of the Deed; see also the definition of Primary Insurance; Tobin affidavit, paragraphs 51-59; Tobin cross-examination at T676.7-676.22; Murphy affidavit, paragraphs 72-80; Warne affidavit, paragraphs 55-70; Warne cross-examination at T734.4-736.13.
The Primary Insurance was often described in contemporaneous documents as “reinsurance”, but that description is not strictly accurate. As explained by Mr Eurell, the Primary Insurance was commercial insurance that was placed to cover the obligations under the Deed to make payments to claiming Members out of Annual Funds. The Primary Insurance covered the exposure to make such payments in excess of any risk retained by the Member (by way of an individual excess or deductible) or retained by the relevant Annual Fund in the form of a self-insured retention. During the Relevant Period, the Property Fund had a self-insured retention but the Liability Fund did not. The Property Fund’s self-insured retention was funded by Contributions paid by Members.[31]
[31] First Eurell affidavit, paragaphs 44-46; Murphy affidavit, paragraph 72.
The Board determined the total Contributions to be paid by Members in respect of each Annual Fund for each Fund Year. The Board delegated to JLT the task of determining each Member’s individual Contribution and a Call was issued to each Member to pay that Contribution.[32] In order to facilitate these determinations, each Member was required to notify JLT in writing at least one month prior to the beginning of the Fund Year of the deductible that the Member wished to apply to it for each Annual Fund.[33]
[32] Clauses 7 and 14-15 of the Deed; First Eurell affidavit, paragraphs 85, 88 and 90; Third Eurell affidavit, paragraph 21.
[33] Clause 7.2.2 of the Deed.
For the Liability Fund, the Board determined the percentage by which total Contributions were to be increased or decreased for the forthcoming year and JLT then typically increased or decreased each individual Member’s Liability Fund Contributions by that same percentage. This approach was subject to any further adjustments to reflect changes to a Member’s deductibles or other issues affecting a specific Member.[34]
[34] First Eurell affidavit, paragraph 88; Third Eurell affidavit, paragraphs 21-22; Eurell cross-examination at T898.30-899.37.
Each Member’s Contributions to the Property Fund from one year to the next were determined by applying an Industrial Special Risks (ISR) rate to the Member’s total asset value. The ISR rate is a percentage rate calculated as the number of cents per $100 charged for insurance for each asset. Each Member’s ISR rate when they first became a member of the Property Fund was calculated on the basis of their assets and their property insurance premiums immediately prior to becoming a member of the Property Fund. JLT reviewed the ISR rate for each Property Fund Member from time to time, having regard to factors such as increases in that Member’s total asset value. There was a degree of flexibility in the calculation of each individual Member’s ISR rate and Contribution to the Property Fund.[35]
[35] First Eurell affidavit, paragraph 92; Eurell cross-examination at T895.45-898.28.
From time to time, JLT undertook a “benchmarking” exercise in relation to the Liability Scheme and/or Property Scheme Contributions payable by a particular Member. This essentially involved JLT comparing the Contributions payable by the Member to Contributions payable by other Members of similar size, location and risk profile, with a view to “doing equity” between Members. This process was typically undertaken for a particular Member if they indicated dissatisfaction with the Scheme or with their Contributions or were considering retiring from the Scheme. The object of “benchmarking” for dissatisfied Members was to “do equity” between all Members of the Scheme and thereby preserve the membership of the Scheme, including the dissatisfied Member. A “benchmarking” process across all Liability Scheme Members was undertaken by JLT at the request of the Board commencing in the 2013-2014 insurance year.[36]
[36] First Eurell affidavit, paragraph s 101-109, 115-117; Eurell cross-examination at T899.39-906.1, 971.34-972.2, 1001.6-1001.21.
It was open to the Board to determine that further Contributions were required in respect of an Annual Fund, including if there would otherwise be a deficit in the Annual Fund.[37]
[37] Clauses 7.3-7.4 of the Deed.
The Board had regard to the advice and recommendations of JLT in relation to Primary Insurance and Contributions. Clause 5.1 of the Deed required JLT to advise the Board about those matters, as referred to below. For the purpose of the Board determining the level of Contributions required for each Annual Fund in each Fund Year, JLT included in the draft budget for each Annual Fund modelling of different scenarios of Contribution changes. In deciding whether to make any change to the level of Contributions, the Board considered those scenarios and also took advice from auditors and actuaries in relation to the financial position of the Funds and the value of anticipated claims.[38]
[38] Murphy affidavit, paragraph 81; Tobin affidavit, paragraphs 38-50.
As referred to above, JLT was required to issue a Call to each Member for any Contribution payable by that Member. Members were required to pay Contributions within 20 business days after the issue of a Call. JLT was obliged to take such action as required by the Board to recover unpaid Contributions from Members.[39]
[39] Clauses 7.7-7.8 of the Deed.
The Scheme had a Claims Committee comprising three representatives appointed by the Board and two representatives appointed by JLT.[40] Members were required to notify the Claims Committee of any claim, threatened claim or circumstance likely to give rise to a claim against them.[41] The Claims Committee was then required to investigate the claim, assess whether it was covered by an Annual Fund, make any appropriate claim under the relevant Primary Insurance and report to and advise the Board with respect to the claim.[42] A claim was covered if it would have been covered by the relevant Primary Insurance if the only retention under that Primary Insurance had been the deductible applicable to the individual claiming Member for the relevant cover.[43] The “Scheme wording” issued to Members replicated the wording of the policy issued by the lead insurer in the Primary Insurance arrangements for the relevant Annual Fund.[44]
[40] Clause 4.1.1 of the Deed.
[41] Clause 8.1.1 of the Deed.
[42] Clauses 8.1.2 and 8.2.1 of the Deed.
[43] Clause 8.2.1 of the Deed.
[44] First Eurell affidavit, paragraphs 45-46.
If the Board determined that a claim was covered, the defence or settlement of the third party’s claim against the Member would be managed by the Claims Committee (or JLT on behalf of the Claims Committee) and the claim would be paid out of the relevant Annual Fund in the amount determined by the Board.[45]
[45] Clauses 8.2 – 8.3 of the Deed.
Clause 5.1 of the Deed provided (emphasis added):
“Each Member appoints JLT and JLT agrees to:
(a) provide representatives to the Board of Management and the Claims Committee in accordance with this deed;
(b) advise Members in relation to loss prevention and risk minimisation techniques;
(c) to organise a budget for each Annual Fund in respect of each Fund Year (setting out the current value, the anticipated claims for payment of Liabilities, the aggregate Contributions it recommends be paid and the recommended Contribution from each Member);
(d) advise in relation to the required Contributions for any Fund Year and the amount of Contributions to be required from each Member;
(e) advise on and effect Primary Insurance on the instructions of the Board of Management;
(f) manage the handling of Claims in conjunction with the Claims Committee in accordance with clause 8; and
(g) provide budgets and reports to the Board of Management in such form and at such intervals as the Board of Management from time to time reasonably requires as to:
(i) the ability of the Annual Fund to meet actual and anticipated Liabilities for any Fund Year;
(ii) the desirability or need for further Contributions for any Fund Year;
(iii) the availability of money to distribute by way of surplus under clause 9.9; and
(iv) such other matters as the Board of Management reasonably requires.”
Clause 2.4.3 of the Deed provided:
“JLT will participate in the Scheme to provide advice and assistance in relation to all aspects of the Scheme, to manage Claims in conjunction with the Claims Committee and to arrange Primary Insurance.”
JLT was appointed as the Fund Manager to hold each Annual Fund as a separate and distinct fund in trust to be applied for the benefit of Members in accordance with the Deed and to administer and manage the Annual Funds on the terms of the Deed,[46] including paying claims out of Annual Funds in accordance with Board determinations on the advice of the Claims Committee and advising the Board of any need to make a Call on Members if an Annual Fund was insufficient to pay such claims.[47] Upon payment of a claim out of an Annual Fund, the Fund Manager was subrogated to the rights of the claiming Member to recover amounts from any other person in relation to the matters that gave rise to the claim.[48]
[46] Clauses 2.4.4, 7.1, 9.1, 14.2, 15.2 of the Deed.
[47] Clause 8.4.2 of the Deed.
[48] Clause 8.5 of the Deed.
In the event of any surplus in an Annual Fund, the Board could determine (with the agreement of the Fund Manager, which was not to be unreasonably withheld) to distribute the surplus to Members of that Fund or to retain the surplus within the Annual Fund for such purposes as determined by the Board, including to meet a potential deficiency in the Annual Fund for any subsequent year.[49]
[49] Clause 9.9 of the Deed.
Clause 9.6 of the Deed provided that a Member had no entitlement to be paid from an Annual Fund other than in accordance with the Board’s determination of a claim by the Member or a determination of the Board concerning distribution of any surplus.
Clauses 9.7 and 9.8 of the Deed required accounts to be maintained in respect of each Annual Fund and for those accounts to be audited annually.
Pursuant to clause 11.1.1 of the Deed, each Member agreed to pay JLT and the Fund Manager the fees agreed with the Board from time to time in consideration for JLT’s services to Statewide.
During the Relevant Period, JLT received management fees for its services as Scheme manager. For the Property Scheme, the management fee was 15% of total Contributions, invoiced on an annual basis subject to adjustments as they arose. For the Liability Scheme, the management fee was a fixed fee determined annually by the Board and invoiced on a monthly basis.[50]
[50] First Jones affidavit, paragraphs 19-23.
In addition to the management fees, JLT earned brokerage on the placement of Primary Insurance for the Scheme.[51] Consultancy fees were paid to JLT or its wholly owned subsidiary Echelon Pty Limited for services that the Board engaged JLT or Echelon Pty Limited to provide from time to time, including risk management services, loss adjusting services and forensic services relating to specific events.[52]
[51] First Jones affidavit, paragraph 24.
[52] First Jones affidavit, paragraphs 25-26.
Clause 10.3 of the Deed provided that a Member may retire from one or more Funds with effect from the end of a Fund Year by giving a specified period of notice in writing to the Board, JLT and the Fund Manager. The notice period was three months at all relevant times until 1 July 2013, when it was increased to 12 months. That is to say, a notice period of 12 months applied for all Fund Years ending on 30 June 2014 or later.
Clause 2.3 of the Deed relevantly provided:
“No partnership is created by this deed. Except as provided in this deed the parties’ obligations under this deed are several and no party has authority to bind another. This deed constitutes separate agreements between each Member and JLT and does not constitute any agreement between any of the Members.”
Clause 2.2 provided:
“Notwithstanding any other provision of this deed each Member undertakes for itself and its representatives on the Board of Management and Claims Committees, to act in relation to this Scheme fairly and in good faith.”
Clause 2.6.1 provided:
“JLT shall take such actions with respect to enforcement or recovery against any Member as the Board of Management directs.”
As JLT submitted, the Scheme is not an insurer. It is a contractual arrangement binding on Members and JLT that provides cover to the Members of each Fund established by the Board, underwritten by the Primary Insurance and also, in the case of the Property Fund, the self-insured retention. As Mr Eurell deposed:[53]
“The model of Statewide is to provide cover to its members as a whole. The aggregate deductible and reinsurance is worked out on a collective basis. Therefore, consideration of individual factors is less relevant to the calculation of an individual member’s contribution. For example, if a Statewide member suffers large losses in any particular year, this will not have any effect on the member’s contribution for the following year … Rather, a member’s contribution will primarily be affected by the experience of the membership as a whole, or external market forces (which themselves are somewhat diminished by the collective bargaining power of the mutual). This is reflected in the collective increase or decrease to the overall contributions as determined by the Board … because the amount the Board needs to fund Statewide is affected by the cost of reinsurance Statewide needs to purchase.
The Statewide model was established to enable councils to opt out of the insurance market by leveraging the benefits of being involved in a mutual scheme, which enabled a pooling of risks and offering those pooled risks to the insurance market, rather than councils having to approach the insurance market alone. In some instances this can mean that a council could be paying more than what might be available for that particular council from the open market in a very soft market. But in other instances (e.g. a harder insurance market), it means paying less than what might be available for a particular council in the open market, or indeed the ability to obtain cover that it otherwise would not be able to obtain on its own. If a council does not want to participate in the mutual model, and would prefer to re-enter the open market, the council can elect to retire from Statewide and enter the open market …
Open Market insurance on the other hand, involves the provision of cover for the specified risks to an individual insured on a standalone basis by considering the risk profile of the council on an individual basis. Its availability, cost and scope, is subject to fluctuations in the market and factors peculiar to the individual council.”
[53] Third Eurell affidavit, paragraphs 14-16.
RVC chose to become a Member of Statewide by acceding to the Deed on 30 June 2000. Contrary to RVC’s submission,[54] the evidence does not establish that RVC made that decision on the advice or recommendation of JLT.[55]
[54] RVC closing submissions at T1508.35-1508.45, 1594.11-1596.39.
[55] RVC relied on an internal memorandum recording the “underwriters” proposed by JLT for RVC’s 2001-2002 insurances: RIC.010.023.5060. RVC had become a Member of Statewide approximately one year earlier.
Upon becoming a Member of Statewide, RVC ceased to be an individual participant in the commercial insurance market in respect of the risks for which it was covered by the relevant Statewide Funds[56] and was bound by the Deed unless and until it retired from the Statewide Funds by giving notice in accordance with clause 10.3 of the Deed. As will be seen in Section V below, RVC gave notice of its retirement from all Funds on 6 June 2016. Until that notice took effect on 30 June 2017,[57] RVC was a Member of the Liability Fund, the Property Fund and certain other Funds within the Scheme that are not relevant to these proceedings.
[56] See Mr Eurell’s unchallenged evidence set out at [55] above.
[57] The notice period was 12 months expiring on 6 June 2017, but RVC’s cover under the Statewide Liability Scheme and Property Scheme remained in place until the end of that Fund Year on 30 June 2017.
RVC also had many other lines of insurance independently of the Scheme for risks that were not covered by its membership of any Fund within the Scheme.[58] It is convenient to refer to those insurances as the non-Statewide lines of cover to distinguish them from RVC’s Statewide lines of cover. As I have already mentioned, the relevant Statewide lines of cover for the purpose of these proceedings are property insurance and public liability and professional indemnity insurance. I shall adopt the parties’ convention of referring to public liability and professional indemnity insurance simply as liability insurance.
[58] Macdonald affidavit, paragraph 9.
Mr Donlevy reviewed the Scheme’s annual reports and analysed the performance of the Liability Fund and Property Fund during the period from 2009 to 2017.
In relation to the Liability Fund, Mr Donlevy’s analysis revealed that:[59]
(1)approximately 79% of Contributions were set to meet the costs of “reinsurance” (meaning the Primary Insurance);
(2)approximately 15% of Contributions were set to meet Liability Fund expenses (such as administration fees, claims management fees, funds management fees and risk management fees);
(3)approximately 5% of Contributions were set to meet general operating expenses of the Scheme; and
(4)total surpluses of $37 million had been generated over the period from 2009 to 2017, of which $24 million had been paid to Members as at the date of Mr Donlevy’s report as distributions of surplus (or “rebates”), meaning that 65% of the surpluses achieved had been returned to Members.
[59] First Donlevy Report, paragraph 56.
Mr Donlevy observed that Contributions to the Liability Fund had remained relatively stable in dollar terms for the 2009 to 2017 period. The surplus funds of the Liability Fund had increased over time until 2015 and had been reduced thereafter by distributions paid to Members. Mr Donlevy expressed the opinion that it is necessary for the Liability Fund to hold some “buffers” even though there is a nil self-retention for that Fund. The reasons for holding “buffers” include the need to cover risks in relation to reinsurance recoverability, given the very substantial role of reinsurance in the Liability Fund.[60]
[60] First Donlevy Report, paragraph 59.
In relation to the Property Fund during the period from 2009 to 2017, Mr Donlevy’s analysis revealed that:[61]
(1)approximately 49% of Contributions were set to meet the cost of “reinsurance” and a further 25% of Contributions were set to meet the net cost of claims up to the self-insured retention;
(2)approximately 16% of Contributions were set to meet Property Fund expenses (such as administration fees, claims management fees, funds management fees and risk management fees);
(3)approximately 3% of Contributions were set to meet general operating expenses of the Scheme; and
(4)total surpluses of $30 million had been generated by the Property Fund, of which $24 million had been paid to Members as surplus distributions (or “rebates”), meaning that 81% of the surpluses achieved had been returned to Members.
[61] First Donlevy Report, paragraph 73.
In a subsequent report, Mr Donlevy analysed information for the period from 2009 to 2019 and concluded that 72% of all accounting surplus generated by the Liability Fund and 97% of all accounting surplus generated by the Property Fund across that period had been distributed to Members. Mr Donlevy opined that the accounting surpluses did not indicate that Contributions for the Liability Fund and the Property Fund were set at a level “higher than they needed to be”.[62]
[62] Third Donlevy Report, paragraphs 54(e) and 58(c).
Mr Donlevy compared the combined commission and general expense ratios of each of the Property Fund and the Liability Fund with the same ratios for the Australian commercial property and liability insurance sectors for the period based on industry sourced from the Australian Prudential Regulation Authority for the period from 2012-2013 to 2018-2019. Mr Donlevy found that the Property Fund ratio averaged 19% of Contributions across that period compared to an average of 24% of gross premiums for the Australian commercial property insurance sector. The Liability Fund ratio averaged 23% of Contributions compared to 24% of gross premiums for the Australian liability insurance sector.[63]
[63] Third Donlevy Report, paragraphs 24-26.
RVC did not challenge Mr Donlevy’s analysis referred to above in cross-examination. Nor did RVC adduce any expert evidence contrary to Mr Donlevy’s analysis.
During the Relevant Period until it ceased to be covered by the Liability Fund on 30 June 2017, RVC paid the following Contributions and received the following rebates from the Liability Fund:[64]
[64] Second Eurell affidavit, paragraph 10.
| Liability Scheme | ||||
| Year | Deductible | Contribution | Rebate | Contribution less rebate |
| 2008-2009 | $12,500 | $335,800 | $23,982 | $311,818 |
| 2009-2010 | $12,500 | $319,010 | $14,246 | $304,764 |
| 2010-2011 | $12,500 | $319,010 | $15,675 | $303,335 |
| 2011-2012 | $12,500 | $319,010 | $17,962 | $301,048 |
| 2012-2013 | $12,500 | $330,175 | $18,949 | $311,226 |
| 2013-2014 | $12,500 | $341,400 | $15,060 | $326,340 |
| $17,092 | ||||
| 2014-2015 | $12,500 | $349,252 | $25,983* | $306,177 |
| 2015-2016 | $12,500 | $357,634 | $16,358 | $341,276 |
| 2016-2017 | $12,500 | $364,072 | - | $364,072 |
The Contributions paid by RVC to the Property Fund (adjusted at the end of each Fund Year according to any movements in RVC’s total asset value or “TAV” during the year) and the rebates paid to RVC from the Property Fund were:[65]
[65] Second Eurell affidavit, paragraph 10.
| Property Scheme | ||||||
| Year | Deductible | TAV | Contribution | Property-adj | Rebate | Contribution less rebate |
| 2008-2009 | $5,000 | $123,953,629 | $325,998 | -$31,181 | $106,729 | $188,088 |
| 2009-2010 | $5,000 | $112,111,729 | $317,001 | -$11,561 | $8,240 | $297,200 |
| 2010-2011 | $5,000 | $103,943,843 | $293,880 | $42,650 | $34,795 | $301,735 |
| 2011-2012 | $5,000 | $131,985,215 | $352,703 | $5,717 | $26,137 | $332,283 |
| 2012-2013 | $5,000 | $140,252,567 | $364,137 | -$24,490 | $10,892 | $328,755 |
| 2013-2014 | $5,000 | $121,214,034 | $315,156 | $1,153 | $- | $316,309 |
| 2014-2015 | $5,000 | $122,100,666 | $317,462 | $3,578 | $23,306 | $297,734 |
| 2015-2016 | $20,000 | $124,853,185 | $262,192 | $3,524 | $36,207* | $229,409 |
| 2016-2017 | $20,000 | $129,490,068 | $196,825 | $- | $- | $196,825 |
On 17 March 2000, the Board adopted a Code of Ethics.[66]
[66] JLT.008.005.1514.
The Introduction to the Code states:
“The Board of Management, at its June 1999 meeting, considered the issue of ethical procedures to be followed when conflicts of interest are perceived to exist with Jardines Lloyd Thompson, and/or members of the Board. Three examples of potential conflict were raised:
➢ Jardine Lloyd Thompson representing two councils that may be in conflict with each other,
➢ Jardine Lloyd Thompson representing a council when the Board has denied indemnity, and
➢ A Board member coming from a council on which indemnity has been denied.
It was considered appropriate that a Code of Ethics should be prepared to assist the Board and members of staff from Jardine Lloyd Thompson in exercising their duties and obligations. The Code should provide guidance for Board and staff members to act honestly and exercise a reasonable degree of care and diligence in carrying out their functions.”
As will be referred to later in these reasons, RVC relied on the Board’s recognition of the potential for the first two conflicts described above as evidence relevant to the proper characterisation of JLT’s role vis-à-vis local councils who were Members of Statewide.
As I have already mentioned, Mr Demer was the Chief Executive Officer of JLT Australia & New Zealand during the Relevant Period. Mr Demer’s description of the steps involved in the annual renewal of the Primary Insurances for the Statewide Funds was incorporated into RVC’s particulars of the insurance broking services that it claims JLT provided to it and to each group member with respect to their annual insurance programs, the particulars of the broking services contracts that RVC claims JLT entered into with it and with each group member annually, and the recommendations that RVC claims JLT made to it and to each group member annually to “obtain or renew” its liability and property cover “through Statewide Mutual”.[67] As will be seen in Section IV below, those alleged broking services, contracts and recommendations are the key premises underlying each of the causes of action against JLT. Mr Demer described the annual renewal process as involving the following steps:[68]
(1)in about January or February, JLT prepared budgets for each Annual Fund for consideration by the Finance Committee;
(2)in about March, JLT issued declarations to each Member detailing their risk and insurance covers due for renewal, or available to the Member, in the forthcoming year (the Insurance Declarations). The information provided by Members in the completed Insurance Declarations was provided to insurers for the purpose of placing Primary Insurance for each Annual Fund and was also used for the Scheme’s assessment of the risks to which Annual Funds were exposed, the cover required, and the costing for that cover in the forthcoming year;
(3)in late May or early June, JLT issued a renewal report to each Member which detailed the proposed risk cover program for that Member (the Renewal Reports). Members generally had 21 days within which to accept the proposal, ask questions or take other action;
(4)in about mid-June, Members provided renewal instructions to JLT in relation to the cover that the Member wished to be placed; and
(5)in about July, JLT issued a summary of cover to each Member summarising the risks for which that Member was covered (the Summary of Cover).
[67] Third Further Amended Commercial List Statement (CLS), paragraphs 9, 10 and 14.
[68] Affidavit of Leo Demer sworn 18 June 2020, paragraphs 209-211 (tendered as LAY.JLT.017.0001 and LAY.RVC.009.0001).
The annual renewal process insofar as it related to RVC is described in much greater detail in Section V of these reasons. As will be seen, the Insurance Declarations that JLT issued to RVC set out details of RVC’s Statewide lines of cover and non-Statewide lines of cover that were falling due for renewal. As indicated by Mr Demer’s description of steps 3 and 4 of the process above, RVC had choices to make in respect of its Statewide lines of cover concerning matters such as excess or deductible amounts and sub-limits of liability for various components of the property cover.
It is common ground between the parties that the form and contents of the documents that JLT issued to RVC during annual renewal processes in the Relevant Period were the same as the documents that JLT issued to group members, save for matters that were specific to each local council (such as deductibles, property values and sub-limits for certain components of the property cover).[69]
IV THE PLEADED CASE
Commercial List Statement allegations and JLT’s responses
[69] T1612.1-1612.45.
Alleged representations
RVC alleges that, by certain statements made in Renewal Reports issued to RVC and group members as part of each annual renewal process during the Relevant Period, JLT held itself out to RVC and group members as:[70]
(1)one of the largest insurance brokers in Australia and the world;
(2)possessed of the expertise to deliver the most comprehensive range of insurance and risk solution products and services available to local government authorities across Australia; and
(3)capable of ensuring that councils receive a well designed insurance programme at a competitive premium cost.
[70] CLS, paragraph 7.
JLT does not admit making the representations above to RVC or group members during the Relevant Period.[71]
[71] Second Further Amended Commercial List Response (CLR), paragraph 7.
The alleged Broking Services and Recommendations
RVC alleges that, by engaging in the annual renewal practice described by Mr Demer,[72] JLT provided insurance broking services to RVC and to each group member individually during the Relevant Period “by designing and providing advice with respect to its annual insurance programme and by placing or arranging its Property and/or Public Liability and Professional Indemnity insurance with Statewide Mutual”. The “annual insurance programme” refers to the suite of insurance cover (including liability cover and property cover) to be placed for RVC and each group member for the insurance year that was to commence on 30 June immediately following the relevant annual process. RVC relies on the Insurance Declarations, Renewal Reports, Financial Services Guides, Summary of Cover documents and the invoices for Statewide Liability and Property Scheme Contributions as evidencing and describing those alleged Broking Services. RVC’s Third Further Amended Commercial List Statement defines these services allegedly provided annually to RVC and each individual group member as the “Broking Services” and I will use the same term.[73]
[72] See [71] above.
[73] CLS, paragraph 9.
RVC further alleges that, by preparing and providing an Insurance Declaration and Renewal Report to RVC and each group member in the course of providing the alleged annual Broking Services, omitting at the same time to recommend or identify any liability insurance and/or property insurance policy, arrangement or underwriter “besides Statewide Mutual”, JLT advised or recommended to RVC and each group member that it should obtain or renew its liability insurance and/or property insurance “through Statewide Mutual”. RVC’s Third Further Amended Commercial List Statement defines this alleged annual advice or recommendation as the “Recommendations” and I will use the same term.[74] The Recommendation allegedly made during each annual renewal process was directed to the immediately forthcoming year.[75]
[74] CLS, paragraph 10.
[75] As RVC acknowledged: T1518.18-1518.38.
RVC alleges that, as a result of the alleged Recommendations, RVC and each group member “instructed or authorised” JLT during the Relevant Period to place or arrange its property and liability insurance cover with Statewide for the immediately forthcoming year by signing and returning to JLT an authorisation form and/or by paying the invoices sent by JLT in respect of liability cover and property cover for that year.[76]
[76] CLS, paragraph 11.
For reasons that will become apparent, it is relevant to note that those are the only things that RVC and each group member is alleged to have done as a result of the alleged Recommendations. For example, there is no allegation that RVC and each group member made any decision concerning their insurance program for any subsequent year.
Throughout the hearing, the parties adopted the term “individual broking relationship” to refer to the relationship that RVC alleges was created by the provision of the Broking Services and “individual broker” to refer to the alleged role of JLT within that individual broking relationship. I will adopt the terminology of individual broking relationship and individual broker to refer to the alleged role of JLT in allegedly providing the Broking Services and making the Recommendations.
JLT denies that it provided the alleged Broking Services or made the alleged Recommendations to RVC or any group member and refers to the Statewide membership of RVC and each group member during the Relevant Period and the provisions of the Deed. In particular, JLT refers to the provisions of the Deed pursuant to which the Board was responsible for governing and managing the Scheme and the majority of the Board was appointed by Members. JLT also relies on the Board’s functions under the Deed, which included determining the amount and terms of the Primary Insurance to be purchased by the Members jointly and determining the Contributions for each Annual Fund. In paragraph 9 of its Second Further Amended Commercial List Response, JLT:
“(b) says that the Plaintiff and each Group Member was a Member under the Statewide Deed at certain times during the Relevant Period;
(c) says that the Plaintiff and each Group Member was a Member under the Statewide Deed until such time as it elected to retire from the Statewide Scheme and gave notice in accordance with clause 10.3 of the Statewide Deed;
Particulars
Prior to 1 July 2013, the required period of notice for retirement was at least 3 months
From 1 July 2013, the required period of notice for retirement was at least 12 months
(d) says that the Statewide Deed recorded, and it was the fact that, each Member entered into the Statewide Scheme for the purpose of:
(i) purchasing insurance in respect of public liability (including personal injury, damage to property and products liability), professional indemnity, property and fidelity guarantee;
(ii) their indemnity in respect of Liability (as that term is defined in the Statewide Deed) not covered by such public liability, professional indemnity, property and fidelity guarantee insurance;
(iii) having their Claims Liability (as that term is defined in the Statewide Deed) managed and resolved; and promoting good risk management practices to minimise the occurrence and effect of Claims”
JLT says that each Member of the Scheme appointed JLT to advise on and effect Primary Insurance from time to time on the instructions of the Board. The insurance so effected was placed on behalf of RVC and group members (collectively with other Members of each relevant Fund) on the instructions of the Board in accordance with the Deed. The insurance was not arranged or placed “with Statewide”, which was neither an insurer nor a legal entity.[77]
[77] CLR, paragraphs 9, 11.
In paragraph 10 of the Second Further Amended Commercial List Response, JLT denies that it made the alleged Recommendations to RVC and group members. JLT repeats the matters referred to at [81]-[82] above and:[78]
“(b) says that, pursuant to the Statewide Deed, the Plaintiff and other Members appointed the Board of Management to receive advice and issue instructions to JLT for the purchase of Primary Insurance, being the insurance purchased by Members or any of them for the relevant class of risk as contemplated by the Statewide Deed from time to time;
Particulars
Statewide Deed, clauses 1.1 ("Primary Insurance"), 3.3.1 (a), 5.1 (e) and 6.1
(c) says that, pursuant to the Statewide Deed, any advice given during the Relevant Period by JLT in respect of obtaining or renewing Primary Insurance covering the Members of the Statewide Scheme was given to the Board of Management, as required by the Statewide Deed;
(d) says that JLT was not appointed, whether under the Statewide Deed or otherwise, to give advice or recommendations to the Plaintiff or any Group Member as to whether to exercise the right to retire from the Statewide Scheme”
[78] CLR, paragraph 10.
JLT says that it did act as individual broker to RVC from time to time during the Relevant Period, but only in respect of non-Statewide lines of cover.[79]
[79] CLR, paragraph 9(m).
Alleged general law duty of care
It is alleged that RVC and the group members lacked knowledge of the liability and property insurance market during the Relevant Period, including knowledge of terms and premium rates reasonably available from underwriters and insurers in that market. RVC alleges that JLT had that knowledge and, further, that JLT knew and intended that RVC and each group member would or was likely to act on the alleged Recommendations by authorising JLT to place or arrange their liability and/or property insurance with Statewide.[80] RVC alleges that, in those circumstances, JLT owed RVC and each group member a duty to exercise reasonable care and skill in providing the alleged Broking Services and making the alleged Recommendations.[81]
[80] CLS, paragraph 12(a).
[81] CLS, paragraphs 12-13.
JLT does not admit that RVC and group members lacked knowledge of the market during the Relevant Period and otherwise denies these allegations. JLT repeats its denial that it provided the alleged Broking Services or made the alleged Recommendations and says that the Members of Statewide appointed the Board to receive advice and issue instructions for the purchase of Primary Insurance in accordance with the Deed.[82]
[82] CLR, paragraphs 12-13.
In submissions, RVC contended that the alleged duty to exercise reasonable care and skill was an overarching duty that applied continuously throughout the whole of the Relevant Period.[83] That contention departs from RVC’s pleaded case of duties owed “in providing the Broking Services and making the Recommendations”, which were allegedly provided and made during each annual renewal process and were directed on each occasion to the immediately forthcoming insurance year. It is no part of RVC’s pleaded case that JLT owed a duty at any given time during the Relevant Period to exercise reasonable care and skill pertaining to RVC and each group member’s insurance programs in future years. JLT objected to any departure from RVC’s pleaded case. The matters to be determined are therefore limited to those that have been pleaded.
[83] T1541.46-1542.38.
Alleged broking services contracts and implied obligation to exercise reasonable care and skill
RVC alleges that JLT provided the alleged Broking Services and made the alleged Recommendations pursuant to “separate contracts for services” made by offer and acceptance during each annual renewal process. RVC alleged that, by issuing an Insurance Declaration and Renewal Report to RVC and to each group member, JLT made an offer to obtain or renew insurance contracts on behalf of the recipient council. RVC alleged that the offer was accepted by the recipient council signing the renewal authorisation form and paying the invoices that JLT forwarded to the council in respect of that year’s insurances.[84] RVC refers to these alleged annual contracts as the Broking Services Contracts and I will use the same term.
[84] CLS, paragraph 14.
RVC claims that the alleged Broking Services Contracts included a term implied as a matter of law that JLT would exercise reasonable care and skill in providing the Broking Services and making the Recommendations.[85]
[85] CLS, paragraph 15.
JLT denies the alleged Broking Services Contracts, and repeats its earlier denial that it provided the alleged Broking Services and made the alleged Recommendations. JLT contends that its contractual relationship with RVC and group members concerning the provision of insurance broking services relating to liability insurance and property insurance was governed by the Deed and that there is no scope for any separate contract to be implied from conduct.[86]
[86] CLR, paragraphs 14-15.
Alleged excessive Contributions
RVC alleges that the Contributions that it and each group member was required to pay during the Relevant Period in order to obtain or renew liability insurance and property insurance “through Statewide Mutual”:[87]
(1)exceeded premium rates that were reasonably available from alternative underwriters or providers in the market; or
(2)“exceeded the contribution rates that were reasonably available from or could be negotiated by JLT with Statewide Mutual”.
[87] CLS, paragraph 16.
In support of the first allegation, RVC relies on:
(1)a comparison between Contributions that it paid to the Liability Fund and the Property Fund during the 2010 to 2017 years with the premium that it paid for liability insurance and property insurance procured independently of the Scheme in the 2018 and 2019 years;
(2)the amounts that RVC contends would have been payable during the 2010 to 2017 years for liability insurance and property insurance that it could have obtained through a different mutual pool, Civic Risk Mutual, with terms of coverage that RVC contends were comparable to the terms of the coverage that it obtained through the Scheme in those years; and
(3)certain internal JLT correspondence that RVC contends demonstrates the availability of competitive rates or premiums from other providers in the market during the Relevant Period.
In support of the second allegation referred to at [91] above, RVC relies on JLT’s offer of more favourable Contribution rates to RVC and certain other Members of Statewide once those Members raised concerns about the competitiveness of the Statewide offering in late 2016 and 2017, and premiums quoted by JLT in response to a tender issued by RVC and nine other Members in late 2016 for insurance broking services and insurance coverage.
JLT denies the allegations referred to at [91] above. JLT says that the Contributions were determined by the Board on a collective basis. JLT contends that it is not possible to compare those Contributions with premiums that may have been charged by insurers for policies taken out by RVC or an individual group member, or with amounts that may have been payable by RVC or any individual group member under the Civic Risk Mutual scheme. JLT contends that there are differences between Statewide, commercial insurance products and the Civic Risk Mutual scheme that must be taken in account, including differences in principle and differences in their respective specific features. In addition, JLT says that it is not possible to compare insurance premiums charged in a particular year with Contributions charged to Statewide Members in different years without taking into account differences in commercial conditions over time.[88]
[88] CLR, paragraph 16.
Alleged breaches of general law or contractual duty of care
In paragraph 17 of the Third Further Amended Commercial List Statement, RVC alleges that JLT breached the alleged duty of care and/or the implied obligation under the alleged Broking Services Contracts. It is convenient to set out paragraph 17 in full:[89]
[89] Paragraphs 17(b)(iii) and 17(f)(iii) refer to the circumstances pleaded in paragraph 16 of the Third Further Amended Commercial List Statement, which are summarised at [91]-[93] above.
“17 In breach of the duty pleaded in paragraph 13 and/or the Implied Term pleaded in paragraph 15 above, JLT:
(a) failed to make any, or (if any) reasonable, efforts to obtain on behalf of:
(i) Richmond Valley; and(ii) each of the Group Members,
suitable Property and/or Public Liability and Professional Indemnity insurance at the best premium rates that were reasonably available to each of them in the market, including from Statewide Mutual;(b) made the Recommendations to:
(i) Richmond Valley; and
(ii) each of the Group Members,
and placed or renewed their Property and/or Public Liability and Professional Indemnity insurance with Statewide Mutual:
(iii) in the circumstances pleaded in paragraph 16 above; and
(iv) in circumstances where JLT had no reasonable grounds to believe that the contributions payable to Statewide Mutual were lower than or reasonably competitive with the premium rates that were available to Richmond Valley and each of the Group Members in the market; and/or
(v) in circumstances where JLT had no reasonable grounds to believe that the contributions paid to Statewide Mutual were lower than the contribution rates reasonably available to Richmond Valley and each of the Group Members from Statewide Mutual in respect of Property and/or Public Liability and Professional Indemnity insurance;
(c) failed to recommend or identify to:
(i) Richmond Valley; and
(ii) each of the Group Members,
any alternative underwriter or provider of suitable Property and/or Public Liability and Professional Indemnity insurance besides Statewide Mutual;
(d) did not make any, or (if any) reasonable, efforts on behalf of:
(i) Richmond Valley; and
(ii) each of the Group Members,
to:
(iii) request, solicit, negotiate or obtain from any alternative underwriter or provider of suitable Property and/or Public Liability and Professional Indemnity insurance besides Statewide Mutual a quotation, offer or terms for such insurance at lower premium rates than those payable to Statewide Mutual;
(iv) request, negotiate or obtain a reasonably available contribution from Statewide Mutual that was lower than the contribution paid by Richmond Valley and each Group Member in respect of Property and/or Public Liability and Professional Indemnity insurance;
(e) failed to request, solicit or procure, on behalf of:
(i) Richmond Valley; and
(ii) any of the Group Members,
a competitive quotation for, or offer of, suitable Property and/or Public Liability and Professional Indemnity insurance from an underwriter or provider besides Statewide Mutual; and
(f) failed to advise:
(i) Richmond Valley; and
(ii) each of the Group Members,
of:
(iii) the circumstances pleaded in paragraph 16 above; and
(iv) the fact that JLT had not requested or solicited a quotation, offer or terms for suitable Property and/or Public Liability and Professional Indemnity insurance from any alternative underwriter or provider besides Statewide Mutual;
(v) the fact that JLT had not requested or negotiated, on Richmond Valley and each Group Member’s behalf, lower contributions from Statewide Mutual for their respective Property and/or Public Liability and Professional Indemnity insurance.”
JLT denies these allegations and repeats its responses to the earlier allegations referred to above, including its denial that it provided the alleged Broking Services, entered into the alleged Broking Services Contracts and made the alleged Recommendations.[90]
[90] CLR, paragraph 17.
In submissions, RVC relied on paragraph 17(f) of its Third Further Amended Commercial List Statement as encapsulating the “bare minimum” that was required of JLT to discharge the pleaded contractual and general law duties of care. RVC submitted that the pleaded duties required JLT to at least inform it and each group member that JLT had not sought offers or terms for its liability and insurance and property insurance independently of Statewide.[91] However, the pleaded duties were to exercise reasonable care and skill in providing the alleged Broking Services and making the alleged Recommendations. As JLT submitted, those duties (if owed) could not have been discharged by JLT advising RVC that it had not performed the Broking Services in respect of liability and property insurance because it had not looked beyond Statewide for the renewal of those lines of cover. Paragraph 17(f) of the Third Further Amended Commercial List Statement is not, in truth, an allegation of breach of any pleaded duty.[92]
[91] RVC submissions at T1579.12-1579.24, 1617.24-1618.1, 1887.37-1887.47.
[92] JLT submissions at T1660.6-1660.34, 1798.38-1799.29, 1802.33-1803.9.
Even if RVC’s counterfactual scenarios referred to above had been within the scope of its pleaded case, the evidence adduced by RVC would not have established on the balance of probabilities that:
(1)suitable alternative property and/or liability insurance was available to RVC in the insurance market at any time during the Relevant Period;
(2)but for JLT’s alleged breaches of contract and duty, JLT would have negotiated or procured such alternative insurance for RVC at a lower cost than RVC’s Statewide Contributions for the corresponding year; and
(3)RVC could have taken up such alternative insurance.
RVC would have needed to prove each of those three matters on the balance of probabilities in accordance with established principles: Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18 at [38]-[41] (French CJ, Kiefel and Keane JJ); Miles v Luneburger Franchising Pty Ltd [2021] NSWCA 248 at [69] (Gleeson JA, Macfarlan JA and Simpson AJA agreeing).
In relation to the second matter, the alleged breaches in this case would not give rise to questions at the causation stage about whether any alternative insurance available to RVC in the market might have been procured by RVC without using the services of JLT. RVC relied on paragraph 17(f) of its Third Further Amended Commercial List Statement as giving rise to causation counterfactuals in which alternative insurance might have been procured without the assistance of JLT. For reasons that I have already explained, paragraph 17(f) is not an allegation of breach of any pleaded duty and is therefore irrelevant to questions of causation.[604]
[604] T1641.24-1642.37; see [97] above.
As JLT properly conceded, the established principles referred to above would not have required RVC to identify the particular insurer or insurers who would have offered such insurance to RVC in the counterfactual scenario, the precise terms on which that insurance would have been offered to RVC or the amount of any cost differential between that alternative insurance and the Statewide Contributions. Such matters relate to the quantification of the value of the alleged opportunity rather than proof of the loss of an opportunity of some value. Quantification may take into account hypotheses and possibilities that are speculative. However, the existence of the opportunity said to have been lost, and the fact that the opportunity had some value (in the sense that it was “suitable” for RVC and less costly than its Statewide Contributions) would have to be proved on the balance of probabilities.
Contrary to RVC’s submissions,[605] it would not have been sufficient for it to demonstrate that:
(1)there was competition in the insurance market;
(2)that insurers were writing policies for other councils at various times on a “patchy” and inconsistent basis during the Relevant Period; and
(3)that RVC had a non-theoretical, non-negligible chance of being offered suitable alternative insurance that was less costly than its Statewide Contributions, which offer RVC may or may not have accepted.
[605] T1610.16-1610.34, 1614.11-1614.21, 1616.14-1616.25, 1619.15-1619.21, 1622.40-1626.47, 1630.4-1630.8, 1634.23-1634.25, 1637.23-1637.29.
RVC’s evidence and its cross-examination of JLT’s witnesses was directed to:
(1)establishing competition in the market generally, including RVC’s allegations that JLT had engaged in certain anti-competitive conduct that had reduced competition in some way that RVC contended ought to count in its favour in the causation analysis or in quantifying the allegedly lost opportunities. I note that RVC did not seek to elicit evidence about the substance of those allegations from any of the expert witnesses;
(2)proving specific instances of insurers writing property and liability policies for other councils at various times;
(3)the IPG tender responses, which were indicative pricing prepared retrospectively and on the basis of fictitious and anonymised data as explained at [528]-[530] above;
(4)the premiums paid by RVC under the property and liability insurance policies brokered by Aon for the 2017-2018 year, from which RVC sought to extrapolate backwards for at least two or three years to demonstrate a non-negligible prospect of insurance being available to RVC in the market on similar terms in those earlier years; and
(5)the evidence of Mr Armitstead and Mr Minty to the effect that RVC could have obtained property and liability cover through CivicRisk and the contributions that Mr Minty estimated would have been payable by RVC as a member of CivicRisk.
The existence of competition in the insurance market generally (including competition for local government business) does not provide a proper basis for any finding to be made on the balance of probabilities about the availability of suitable insurance in that market for a particular insured at any given time. In addition to this fundamental problem, RVC’s approach flies in the face of:
(1)Mr Saunders’ expert evidence that what an insurer did for an insured in one year does not provide a basis for inferring what would have been done by that insurer in other years or inferring what that insurer would have done for any other prospective insured at any time;[606]
(2)the expert evidence of Mr Ellison characterising the outcome of the IPG tender as “general results based on a fictitious situation” and the expert evidence of Mr Saunders, who did not consider that the IPG tender provided anything more than a general indication of how the brokers responding to the tender saw the market at that time (in late 2016) based on the fictionalised data;[607]
(3)the fact Aon first brokered premiums for RVC after it ceased to be a member of Statewide and the insurance brokered by Aon does not appear to have been comparable with RVC’s earlier Statewide cover for the reasons identified at [541]-[544] above; and
(4)the evidence of Mr Armitstead that he would not have authorised CivicRisk to engage with JLT acting as a broker on behalf of a council,[608] underscored by Mr Fagen’s assessment of the evidence that terms available through CivicRisk appear to have been “reserved against JLT” and that JLT would therefore not have been able to access those terms during the Relevant Period. Similarly, Mr Saunders gave evidence that CivicRisk would have been very unlikely to quote terms to JLT because CivicRisk was a competitor to Statewide.[609]
[606] T1374.25-1375.10.
[607] See [530] above.
[608] Armitstead affidavit, paragraphs 39 and 42.
[609] Joint Expert Report, p 42.
As JLT submitted, RVC did not adduce evidence of all of the matters that an insurer would have needed to know in order to decide whether to underwrite RVC’s property and liability risks at any time during the Relevant Period. Mr Fagen gave evidence that an insurer would need to assess the risk profile of the prospective insured council, and would require information concerning matters such as the nature and scope of services provided by the council, potential exposure to perils such as bushfire, flood and cyber risk, potential exposure to large individual or catastrophic losses and potential exposure to attritional (smaller but potentially more frequent) losses.[610] In the absence of evidence about any of these matters, RVC did not even establish the starting point for determining on the balance of probabilities whether there were alternative insurance opportunities available to RVC in the market at relevant times that were lost by reason of JLT’s alleged breaches of contract and duty.
[610] First Fagen report, paragraphs 20-22 and 50-51.
For those reasons, RVC’s evidence would not have established a relevant loss of a valuable alternative insurance opportunity on the balance of probabilities even if it had been entitled to run its unpleaded causation case. It is not necessary to address RVC’s approach to the quantification of the value of that unproven opportunity, which essentially involved efforts to recreate in the form of submissions the evidence of a tender consultant who RVC elected not to call after he had participated in a joint conference and produced a joint report with the expert witnesses called by JLT.
It remains to consider the Contributions opportunity that RVC claims to have lost in each insurance year as a result of JLT’s alleged breaches of contract and duty of care during the annual renewal process undertaken for that year.
RVC has failed to establish the existence of this alleged opportunity at the time of any of the alleged breaches. The opportunity did not exist at any relevant time because, as JLT submitted, RVC was bound by the regime provided for in the Deed whereby the total Contributions for each Annual Fund were determined by the Board and the Contributions payable by RVC and each other Member were determined by JLT on delegated authority from the Board.[611] There is no pleaded allegation that the Board or JLT failed to perform those functions in accordance with the Deed. In the course of discharging its functions under the Deed, JLT did in fact review RVC’s Contributions to the Liability Fund and the Property Fund. Those reviews reduced RVC’s Property Fund Contributions but did not result in any reduction to its Liability Fund Contributions.[612] As explained at [613] above, JLT could not have acted on behalf of RVC to negotiate or obtain a reduction in its Contributions without misusing the delegated discretionary authority conferred on it by the Board.
[611] See [33]-[39] above.
[612] See [492]-[499] above.
Finally, I note that RVC made no submissions in response to JLT’s limitation defence in respect of the tort and contract claims. Had it been necessary to consider those defences, I would have accepted JLT’s submissions that those cause of action in contract accrued no later than 30 June in each year during the Relevant Period (being the date shortly after the making of the alleged Recommendation relied on as a breach of contract) and the cause of action in tort accrued on 30 June in each year (being the date on which the alleged loss of opportunity is said to have been incurred by reason of RVC’s property and liability cover being renewed within the Statewide Property and Liability Schemes). These proceedings were commenced on 3 December 2018 and I would have accepted JLT’s submission that any cause of action that accured prior to 3 December 2012 is barred by s 14(1)(a) and (b) of the Limitation Act 1969 (NSW). Accordingly, I would have held that RVC’s claims were not maintainable to the extent that they related to any insurance year prior to the 2013-2014 year that commenced on 30 June 2013.
VIII THE CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTIES
As I have explained in Section IV above, RVC alleges that JLT owed the alleged fiduciary duties “as an insurance broker providing the Broking Services and making the Recommendations”.[613] This cause of action fails in light of my findings that JLT did not provide or undertake to provide the alleged Broking Services and did not make the alleged Recommendations.
[613] CLS, paragraph 19.
Moreover, as JLT submitted, the pleaded claim for breach of fiduciary duties depends on a conflict between the interests of JLT on the one hand in receiving the fees to which it was entitled under the Deed for the services that it provided under the Deed and the interest of RVC on the other hand in obtaining suitable property and liability insurance at the best premium rates that were reasonably available to RVC in the market.[614] In truth, no such conflict existed. RVC had made the choice to take itself out of the market as an individual insured and to have its property and liability risks pooled with other group members on the express basis that JLT would place insurance for those pooled risks on the instructions of the Board. RVC was aware of the terms of the Deed that it had acceded to when it made that choice and by which it remained bound unless and until it gave the requisite period of notice under clause 10.3 of the Deed. During each annual renewal process when the breaches of fiduciary duty allegedly occurred (i.e. when the alleged Recommendations were made and RVC’s property and liability cover were renewed under the Scheme), RVC did not have an interest in alternative insurance because it was contractually obliged to renew its Statewide membership for the immediately forthcoming year. Any alternative insurance would have been surplus to RVC’s requirements. RVC did not rely on JLT to make recommendations during an annual renewal process as to whether or not RVC should continue its membership of the Statewide Property and Liability Schemes in the immediately forthcoming year.[615] By clause 11.1.1 of the Deed, RVC had expressly agreed to pay JLT such fees as may be agreed by the Board from time to time for JLT’s services under the Deed. The amounts of the fees were published in the Scheme’s annual reports, as pleaded in the Third Further Amended Commercial List Statement.
[614] CLS, paragraphs 20-22.
[615] See [623] above.
The matters referred to above are further reasons why JLT did not owe the alleged fiduciary duties that cannot be accommodated to the relationship between JLT and RVC (and each group member) established by the Deed: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 99; [1994] HCA 64; Taheri v Vitek (2014) 87 NSWLR 403; [2014] NSWCA 209 at [115] (Leeming JA, Bathurst CJ agreeing). At the same time, those matters are reasons why the alleged conflict did not exist and further reasons why the alleged breaches did not occur.
If the fiduciary duties and the alleged breaches had been established, RVC would have failed to prove the alleged lost opportunities that formed the basis of its equitable compensation claim for the reasons I have explained in Section VII above. There will be no occasion for the potential separate hearing accommodated by orders made 4 November 2021 concerning the claim for an account of profits if RVC were to succeed in establishing breach of fiduciary duties and if it then elected to pursue an account of profits rather than equitable compensation.
For completeness, I reiterate that RVC is not entitled to run the unpleaded alternative case alluded to in its closing submissions that JLT owed fiduciary duties to RVC and group members because it held itself out as an advisor and assumed an advisory role, thereby creating an expectation on the part of RVC and group members that it would act in their interests in advising them.[616] In any event, it is difficult to see how such an expectation could be reconciled with the provisions of the Deed.
[616] See [162]-[164] above.
Again, RVC made no submissions in response to JLT’s limitation defence in respect of the claims for breach of fiduciary duty. Had it been necessary to consider that defence, I would have accepted JLT’s submissions that the claims were not maintainable in respect of any insurance year prior to the 2013-2014 insurance year. In circumstances where RVC’s common law claims for damages and its equitable claims for compensation or an account rely on the same key premises that JLT provided the alleged Broking Services and made the alleged Recommendations and the loss in respect of which RVC claims equitable compensation is the same loss in respect of which it claims damages for the alleged breaches of contract and general law duty of care, equity would apply the statutory bars under ss 14(1)(a) and (b) and s 15 of the Limitation Act by analogy in the absence of circumstances rendering JLT’s reliance on the statute unconscionable: Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435; [2014] NSWCA 181 at [70] (Meagher JA, Beazley P and Emmett JA agreeing).
IX COMMON QUESTIONS
The common questions are set out at [209] above. Those questions are to be answered on the basis that the form and contents of the documents that JLT issued to RVC during annual renewal processes in the Relevant Period were the same as the documents that JLT issued to group members, save for matters that were specific to each local council (such as deductibles, property values and sub-limits for certain components of the property cover). That is common ground between the parties.[617]
[617] See [73] above.
The Renewal Report for the 2012-2013 contained statements to the effect set out in question 1: see [357] above. Other Renewal Reports did not contain statements in those terms, although they contained other statements to similar effect. RVC submitted that question 1 should be answered “yes” and JLT submitted that it should be answered “no”. In my opinion, the appropriate answer that reflects the substance of the Renewal Reports and the purpose for which and context in which they were issued as described in Sections V and VI above is: “Yes, in the context of performing services for the renewal of the Primary Insurance for the Statewide Funds operated pursuant to the Deed dated 22 March 1994 establishing the NSW Local Government (Jardine Lloyd Thompson) Mutual Liability Scheme, on the instructions of the Statewide Board and in circumstances where the group members were parties to that Deed and members of one or more of those Funds and were required by the Deed to pay contributions to those Funds as determined by the Board for the forthcoming insurance year.”
JLT submitted that question 2 should be answered with a qualified “yes”. In my opinion, question 2 should be answered in the same terms to reflect the purpose for which and context in which the Renewal Reports and Financial Services Guides were issued as described in Sections V and VI above.
The answer to question 3 is “no” for all of the reasons explained in Sections VI and VII above.
The answer to question 4 is “no” for all of the reasons explained in Sections VI and VIII above.
The answer to question 5 is “no” for the reasons explained in Section VIII above.
The answer to question 6 is “no” for the reasons explained in Section VI and VIII above. JLT did not owe the alleged fiduciary duties to RVC or group members (subject to any fact relevant to that issue that is peculiar to a particular group member).
X CONCLUSION AND ORDERS
The orders of the Court are as follows:
(1)Order that the plaintiff’s claims for relief in the Third Further Amended Commercial List Statement are dismissed.
(2)Direct the parties to bring in by 24 February 2023 an agreed minute of the orders to be made concerning the costs of the proceedings or, in the absence of agreement, each party’s minute of the costs order for which it contends and written submissions of no more than four pages in support of that costs order.
(3)Reserve the question of costs for determination on the papers.
(4)Order that the common questions are answered as follows:
(1) During the Relevant Period, did JLT hold itself out in the Renewal Reports that it issued to Richmond group members as:
(a) being one of the largest insurance brokers in Australia and the world;
(b) possessed of the expertise to deliver the most comprehensive range of insurance and risk solution products and services available to local government authorities across Australia; and/or
(c) capable of ensuring that local councils receive a well-designed insurance programme at a competitive premium cost?
A: Yes, in the context of performing services for the renewal of the Primary Insurance for the Statewide Funds operated pursuant to the Deed dated 22 March 1994 establishing the NSW Local Government (Jardine Lloyd Thompson) Mutual Liability Scheme, on the instructions of the Statewide Board and in circumstances where the group members were parties to that Deed and members of one or more of those Funds and were required by the Deed to pay contributions to those Funds as determined by the Board for the forthcoming insurance year.
(2) Did JLT hold itself out in the Renewal Reports and Financial Services Guides that it issued to Richmond and each group
member as being a subscriber to the Code of Practice of the National Insurance Brokers Association at all material times
during the Relevant Period?A: Yes, in the context of performing services for the renewal of the Primary Insurance for the Statewide Funds operated pursuant to the Deed dated 22 March 1994 establishing the NSW Local Government (Jardine Lloyd Thompson) Mutual Liability Scheme, on the instructions of the Statewide Board and in circumstances where the group members were parties to that Deed and members of one or more of those Funds and were required by the Deed to pay contributions to those Funds as determined by the Board for the forthcoming insurance year.
(3) Leaving aside any fact relevant to the issues which are peculiar to Richmond or a particular group member, during the
Relevant Period, did JLT’s conduct by:(a) issuing insurance declarations, renewal reports, summaries of insurances, financial services guides and invoices for
Property and/or Public Liability and Professional Indemnity insurance to Richmond and each group member; and(b) accepting authorisation forms and payment of those invoices from Richmond and each group member;
give rise in each case to a contract between JLT on the one hand, and the relevant local council on the other, an implied
term of which was that JLT would exercise reasonable care and skill in:(c) designing and providing advice with respect to its annual insurance programme and placing or arranging its property
and/or public liability and professional indemnity insurance through Statewide; and(d) advising or recommending that it obtain or renew their property and/or public liability and professional indemnity
insurance through Statewide?A: No.
(4) Leaving aside any fact relevant to the issues which are peculiar to Richmond or a particular group member, during the
Relevant Period, did JLT by reason of the course of conduct in doing one or more or all of:(a) issuing insurance declarations, renewal reports, summaries of insurances, financial services guides and invoices for
Property and/or Public Liability and Professional Indemnity insurance to Richmond and each group member;(b) accepting authorisation forms and payment of those invoices from Richmond and each group member;
(c) providing such assistance as it did, to Richmond and each group member to obtain protection for their property and/or
public liability and professional indemnity exposure,owe Richmond and each group member a fiduciary duty:
(d) to refrain from pursuing or advancing its own interests in circumstances where there existed a conflict, or significant
possibility of conflict, between its own interests and those of Richmond or each group member;(e) to refrain from using its position or knowledge resulting from its position as an insurance broker so as to obtain a
benefit for itself or a third party or to cause detriment to Richmond or a group member (as the case may be)?A: No.
(5) Did a conflict exist between JLT’s own financial interests in earning and continuing to earn fees and commissions, for or in
connection with, services it provided to Statewide Mutual and the interests of Richmond and each group member in obtaining
suitable property cover and/or liability and professional indemnity cover at the best premium rates that were reasonably
available to each of them in the market?A: No.
(6) Leaving aside any fact relevant to the issues which are peculiar to Richmond or a particular group member, in doing one or
more or all of:(a) issuing insurance declarations, renewal reports, summaries of insurances, financial services guides and invoices for
property and/or public liability and professional indemnity cover to Richmond and each group member;(b) accepting authorisation forms and payment of those invoices from Richmond and each group member;
(c) providing such assistance as it did, to Richmond and each group member to obtain protection for their property and/or public liability and professional indemnity exposure,
did JLT breach any fiduciary duties by:
(d) pursuing or advancing its own interests in earning or continuing to earn fees or commissions; or
(e) using its position or knowledge resulting from its position for its own financial benefit and to the detriment of Richmond
and each group member?A: No.
**********
Amendments
20 December 2022 - Coversheet amendment
- AGLC
- Richmond Valley Council v JLT Risk Solutions Pty Ltd [2022] NSWSC 1761
- Case
- [2022] NSWSC 1761
- Decision Date
CaseChat Overview and Summary
The court examined whether JLT's actions during the annual renewal process amounted to an implied contract or a duty of care for the provision of insurance broking services. The court also assessed whether any breach of such contract or duty caused RVC to miss opportunities to obtain alternative insurance at lower costs or negotiate lower contributions to the scheme. Additionally, the court addressed whether any causes of action were barred by the application of section 14 of the Limitation Act 1969 (NSW). RVC argued that JLT's recommendations to maintain the insurance within the risk scheme were made in breach of fiduciary duties, specifically the "no conflict" and "no profit" rules, and whether these actions resulted in RVC's loss of opportunity to obtain lower insurance costs. The court also considered whether the proposed pleading amendments were coherent and whether RVC was entitled to argue that JLT's recommendations were made with the intention of maximising its fees to the detriment of RVC.
The court found that JLT did not act as RVC's insurance broker or make any recommendations during the annual renewal process that conflicted with its fiduciary duties. The court held that any alleged contracts or duties of care were inconsistent with the terms of the deed, and that any breach did not cause RVC to miss opportunities to obtain lower insurance costs. The court concluded that the causes of action were barred by the application of section 14 of the Limitation Act 1969 (NSW). The court further found that the proposed pleading amendments were incoherent and refused leave to amend. The court determined that RVC's allegation that JLT made the alleged recommendations with the intention of maximising its fees amounted to an allegation of fraud, which was not properly noticed in the pleadings.
Orders
Orders of the court
Full text does not contain this section.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
As I have already mentioned, Mr Demer was the Chief Executive Officer of JLT Australia & New Zealand during the Relevant Period. Mr Demer’s description of the steps involved in the annual renewal of the Primary Insurances for the Statewide Funds was incorporated into RVC’s particulars of the insurance broking services that it claims JLT provided to it and to each group member with respect to their annual insurance programs, the particulars of the broking services contracts that RVC claims JLT entered into with it and with each group member annually, and the recommendations that RVC claims JLT made to it and to each group member annually to “obtain or renew” its liability and property cover “through Statewide Mutual”.[67] As will be seen in Section IV below, those alleged broking services, contracts and recommendations are the key premises underlying each of the causes of action against JLT. Mr Demer described the annual renewal process as involving the following steps:[68](1)in about January or February, JLT prepared budgets for each Annual Fund for consideration by the Finance Committee;(2)in about March, JLT issued declarations to each Member detailing their risk and insurance covers due for renewal, or available to the Member, in the forthcoming year (the Insurance Declarations). The information provided by Members in the completed Insurance Declarations was provided to insurers for the purpose of placing Primary Insurance for each Annual Fund and was also used for the Scheme’s assessment of the risks to which Annual Funds were exposed, the cover required, and the costing for that cover in the forthcoming year;(3)in late May or early June, JLT issued a renewal report to each Member which detailed the proposed risk cover program for that Member (the Renewal Reports). Members generally had 21 days within which to accept the proposal, ask questions or take other action;(4)in about mid-June, Members provided renewal instructions to JLT in relation to the cover that the Member wished to be placed; and(5)in about July, JLT issued a summary of cover to each Member summarising the risks for which that Member was covered (the Summary of Cover).[67] Third Further Amended Commercial List Statement (CLS), paragraphs 9, 10 and 14.[68] Affidavit of Leo Demer sworn 18 June 2020, paragraphs 209-211 (tendered as LAY.JLT.017.0001 and LAY.RVC.009.0001). The annual renewal process insofar as it related to RVC is described in much greater detail in Section V of these reasons. As will be seen, the Insurance Declarations that JLT issued to RVC set out details of RVC’s Statewide lines of cover and non-Statewide lines of cover that were falling due for renewal. As indicated by Mr Demer’s description of steps 3 and 4 of the process above, RVC had choices to make in respect of its Statewide lines of cover concerning matters such as excess or deductible amounts and sub-limits of liability for various components of the property cover. It is common ground between the parties that the form and contents of the documents that JLT issued to RVC during annual renewal processes in the Relevant Period were the same as the documents that JLT issued to group members, save for matters that were specific to each local council (such as deductibles, property values and sub-limits for certain components of the property cover).[69]