Smart v AAI Ltd

In the case of Smart v AAI Limited, the plaintiffs sought recourse against the defendant insurer for the actions of a deregistered company that had carried on business as a finance broker. The plaintiffs had entered into a transaction promoted by the general manager of the deregistered company, who had induced them to lend funds to business clients. However, the general manager had misappropriated the funds and never intended to lend them to the clients. The plaintiffs established that the deregistered company was liable for breach of contract and false and misleading conduct contrary to former section 52 of the Trade Practices Act 1974 (Cth).

The legal issues before the court were whether the deregistered company’s liability to the plaintiffs was covered by the insurance policy and whether the deregistered company’s liability arose from the conduct of “Professional Services” as defined in the policy. The court found that the deregistered company’s liability to the plaintiffs was not covered by the policy because the liability arose from the dishonest or fraudulent acts of the deregistered company within the dishonesty exclusion clause. The court also found that the liability arose from acts outside the normal course of the “Professional Services” as defined in the policy. The court held that the exclusion clause was not exempted because of the acts of the general manager, who was not an employee but acted as part owner.

The proceedings were dismissed, and the liability of the deregistered company to the plaintiffs was not covered by the policy. The court found that the plaintiffs had not established a claim for compensation made upon the deregistered company within the policy period. The court also found that the deregistered company’s liability and the plaintiffs’ claim resulted from the conduct of “Professional Services” as defined in the policy. However, the court held that the defendant insurer had established that the liability of the deregistered company was assumed outside the normal course of the “Professional Services” as defined in the policy. The court found that the liability of the deregistered company arose from dishonest or fraudulent acts within the dishonesty exclusion clause, and the exclusion clause was not exempted because of the acts of the general manager, who was not an employee but acted as part owner.