VicProp OC Pty Ltd v AIG Australia Limited
[2025] VCC 83
•12 February 2025
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised (Not) Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-22-05651
| VicProp OC Pty Ltd (as trustee for the VicProp OC Unit Trust) (trading as Melb OC) (ACN 606 358 909) and | First plaintiff |
| ACN 163 625 750 Pty Ltd | Second plaintiff |
| v | |
| AIG Australia Limited (ACN 004 727 753) | First defendant |
| and | |
| Allianz Australia Insurance Limited (ACN 000 122 850) | Second defendant |
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JUDGE: | HIS HONOUR JUDGE WISE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 & 4 February 2025 | |
DATE OF JUDGMENT: | 12 February 2025 | |
CASE MAY BE CITED AS: | VicProp OC Pty Ltd & Anor v AIG Australia Limited & Anor | |
MEDIUM NEUTRAL CITATION: | [2025] VCC 83 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT LAW – Indemnity Insurance
Catchwords: Interpretation of insurance policy – construction of professional liability insurance policy insuring Owners Corporation manager - obligation to indemnify - third party liability - meaning of “claim” - meaning of “professional business” - nature of compensatory relief – nature of restitutionary relief - “claims made” policy - claims made by third parties against an insured.
Legislation Cited: Owners Corporation Act 2006 (Vic); Owners Corporation Regulations 2007 (Vic).
Cases Cited:HDI Global Specialty SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR; Swiss Re International SE v LCA Marrickville Pty Ltd (2021) 394 ALR 461; Star Entertainment Group Ltd v Chubb Insurance Australia Ltd (2022) 400 ALR 25; Haseldine v Hosken [1933] 1 KB 822; Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706; Walton v National Employers’ Mutual General Insurance Association Ltd [1973] 2 NSWLR 73; West Wake Price & Co v Ching [1956] 1 WLR 45; APD Technology v Maximo Developments [2022] FCAFC 141; Smart v AAI Ltd [2015] NSWSC 392; Kantfield Pty Ltd v Lockwood [2003] VSC 420; Attree Pty Ltd v Certain Underwriters at Lloyds of London [2024] FCA 1408; Kyriackou v ACE Insurance Ltd [2013] VSCA 150; Toomey v Scolaro’s Concrete Constructions Pty Ltd (No 5) [2002] VSC 48; GIO General t/as GIO Australia Limited v Newcastle City Council (1996) 38 NSWLR 558; Chubb Insurance Company of Australia Ltd v Robinson (2016) 239 FCR 300; Haseldine v Hosken [1933] 1 KB 822; Suncorp Metway Insurance Ltd v Landridge Pty Ltd (t/as LJ Hooker Ltd Hampton Park) (2005) 12 VR 290.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Barber KC with Mr D Briggs. | Tisher Liner FC Law Pty Ltd |
| For the Second Defendant | Mr W Thomas with Ms A Armstrong. | Moray & Agnew |
CONTENTS
Introduction
The Insurance Policy
VCAT Proceedings
Issues for Determination
Principles applicable to the construction of liability insurance policies
Concessions about some of the claims the subject of the claimed indemnity
Question 2(a) Did the Counterclaim and Proceeding 2635 seek compensatory relief against the Plaintiffs? Characterising the claims made.
The claim for return of unauthorised transactions
Claim for breach of s 41 of the OC Act
Claims for loss in the nature of interest and for the costs associated with the retention of records
Question 2(b) Did the Counterclaim and Proceeding 2635 arise from any actual or alleged breach of professional duty by the First Plaintiff?
Question 2(c) Was the First Plaintiff a lawful manager of the relevant Owners Corporations and did it owe a professional duty to the OCs?
Conclusion and orders
HIS HONOUR:
Introduction
1The plaintiffs were engaged in the business of providing strata management services to owners’ corporations. The second plaintiff (ACN 163) was engaged to provide their services to four owners’ corporations (OCs).[1] By an abortive restructure in 2017, ACN 163 attempted to assign the benefit of the management contracts to the first plaintiff (VicProp). The assignment failed. Notwithstanding this, VicProp provided their services to the OCs for about 2 years from 2017.
[1] The claims by ACN 163 have little role to play in the hearing of this preliminary question: see paragraph 36 below.
2In June and July 2019, VicProp made 4 transfers to itself out of the OCs bank accounts in purported payment of its management fees. When the parties came into dispute, VCAT ordered the sum of $368,632.4 (being the remains of the proceeds of those transfers still in the possession of VicProp) to be held in VicProp’s solicitor’s trust account (the fund) pending any written agreement or further order from the tribunal.
3On 11 July 2019, the OCs obtained a declaration from VCAT that VicProp had never been lawfully appointed manager of the OCs. VCAT also declared that this did not mean that VicProp was not entitled to reasonable remuneration for whatever management services it did provide.
4The OCs made various claims against VicProp by way of a counterclaim and a fresh proceeding in VCAT.
5At relevant times, VicProp held a professional indemnity policy (policy) with the second defendant (Allianz).
6VicProp lodged a claim with Allianz in respect of the claims made against it in VCAT by the OCs, on the basis that they were covered by the indemnity provided under the policy. Allianz denied indemnity.
7By this proceeding VicProp seeks, amongst other relief, a declaration that it is entitled to indemnity from Allianz under the policy.
8A separate question was set down for trial as follows:
Were the claims made against the plaintiffs by way of the Counterclaim in Proceeding 1594 and/or in Proceeding 2635 (referred to in paragraphs 15, 16 and 17 of the Further Amended Statement of Claim dated 25 May 2023 (FASOC)), or any of them, claims for which the second defendant was obliged to indemnify the plaintiffs pursuant to the terms of the Allianz Contract (as defined in paragraph 10 of the FASOC)?
9No oral evidence was led at trial, the matter proceeding on an agreed bundle of documents in a Court Book.
10For the reasons which follow the answer to the separate question is – Yes.
The Insurance Policy
11VicProp was insured by Allianz under the policy for the period from 10 May 2019 to 10 May 2020. The insurance package comprised a certificate of insurance, policy schedule and policy wording.
12Relevantly, clause 1.1 of the policy indemnified VicProp against the following:
1.1 General
We agree to indemnify you against all civil liability arising from any claim that is first made against you during the period of cover in respect of your conduct of the professional business.
13The policy defined “claim” in clause 60(a) as:
(a) Claim means:
(i) The receipt by you of any written or oral demand for compensation made by a third party against you;
(ii) Any writ, statement of claim, summons, application or other originating legal or arbitral process, cross-claim, counterclaim or third or similar party notice served upon you which seeks compensatory relief made by a third party against you
....
in respect of any actual or alleged breach of professional duty.
14Clause 60(k) defined “professional business” as:
(k) Professional business means:
(a) Residential and Commercial Strata Management including;
· General accounting
· Budgeting
· Invoicing of levies/service charges
· Arrears collections
· Financial reporting
· Contract management
· Meeting preparation
· Communication with property stakeholders
· Coordination of maintenance tasks
· Enforcement of rules/by-laws
· Issuance of notices, orders and certificates
· General secretarial tasks
· Referral Services where you provide the contact details, recommend or arrange for or refer a third party to performs [sic] services or works on behalf of the Insured and are held liable for the acts or omissions of that third party.
...
Professional business does not mean:
(a)construction,
(b)workmanship,
(c)installation,
(d)erection,
(e)maintenance,
(f)physical alteration of buildings, goods or property performed by you or by any person or entity acting under your control or under contract with you.
VCAT Proceedings
15The background and status of VCAT proceedings between VicProp and the OCs is complex and need not be set out in full.
16There are three main proceedings.
(a) Proceeding OC1005/2019 (Proceeding 1005), in which two lot owners of a property in Richmond purportedly managed by VicProp, sought injunctions on the basis that VicProp was not the duly appointed manager of the OCs.
(b) Proceeding OC1594/2019 (Proceeding 1594), in which VicProp commenced proceedings against the OCs seeking to preserve its position in relation to the OCs. This was met by a counterclaim by the OCs, seeking repayment of certain fees paid to VicProp and damages (Counterclaim).
(c) Proceeding OC2635/2019 (Proceeding 2635), in which the OCs’ Counterclaim was filed as a fresh proceeding, claiming that VicProp had paid itself fees to which it was not entitled.
17On 27 June 2019, VCAT made orders in Proceeding 1594 that the sum of $368,632.40 be held in VicProp’s solicitors’ trust account pending either written agreement between VicProp and the OC or further order.
18On 11 July 2019, Senior Member A Vassie declared in Proceeding 1594 (and in related Proceeding 1005) that VicProp was not the lawful manager of all or any of the OCs as at 1 April 2019 and relevantly also that:
... that answer does not mean that Vicprop OC Pty Ltd is not entitled to reasonable remuneration for whatever management services it has provided to any or all of [the OCs] (Brazenor Declaration).[2]
[2] On 7 August 2019, VCAT delivered reasons for orders made in Brazenor v Vicprop OC Pty Ltd (Owners Corporation) [2019] VCAT 1152.
19On 19 July 2019, parties to Proceeding 1005 reached a settlement. On the same day, VCAT made orders in Proceeding 1594 that, inter alia, any counterclaim made by the OCs be made by fresh proceedings.
20On 26 July 2019, VicProp notified Allianz of a claim or of facts which might give rise to a claim.
21On 13 August 2019, the OCs filed the Counterclaim which alleged the following against VicProp:[3]
(a) In breach of the management contracts, VicProp deducted funds from the OCs’ administrative accounts, which were in excess of the management fees budgeted for that year;
(b) VicProp did not seek, nor did the OCs grant, approval for these transactions;
(c) Further, VicProp beached s 41 of the Owners Corporation Act 2006 (Vic) (OC Act) in that it deducted sums from the maintenance fund account when it was not authorised to do so; and
(d) Further or alternatively, VicProp breached fiduciary duties owed to the OCs by charging fees and disbursements as if it were the lawful manager, instead of charging a reasonable remuneration for work done and materials supplied.[4]
[3] ACN 163 was not a party to that proceeding.
[4] This claim was not pursued in Proceeding 2635.
22On 5 February 2020, the OCs commenced Proceeding 2635 filing Points of Claim (POC) in which the following allegations were pleaded against VicProp and ACN 163:[5]
(a) VicProp, while purporting to act as the OCs manager despite never having authorisation to do so (misuse of funds):
(i)paid itself amounts, purportedly as management fees, from the bank accounts of the OCs, in circumstances where it did not have authority to do so and was only entitled to be paid the reasonable value of the services it provided. The OCs alleged that the amounts exceeded the reasonable value of the services, such that VicProp was liable to the OCs for the difference (unauthorised transactions by VicProp to itself);
(ii)paid itself management fees partly from the maintenance fund of the OCs, in breach of s 41 of the OC Act, which VicProp was liable to repay (s 41 breach).
[5] These articulations were refinements of the claims as pleaded in the Counterclaim. Amended Points of Claim were also later filed, however the parties addressed the POC in oral argument.
(b) VicProp had wrongfully retained records that it was required to deliver to the OCs under s 127 of the OC Act, which failure required additional costs to be expended by the OCs (wrongful retention of records).
(c) The OCs had suffered wrongful depletion of their funds, by reason of being unable to pay for goods and services when required and were forced to secure funding at cost rather than using their own funds (loss in the nature of interest).
23On 18 February 2020, Allianz formally declined to indemnify VicProp. This position was confirmed by Allianz on 11 March 2020 and on 20 September 2020.
24On 30 April 2024, VicProp and ACN 163 filed a Further Amended Points of Claim in Proceeding 1594. On 29 July 2024, the OCs filed Points of Defence to the Further Amended Points of Claim in Proceeding 1594. On 9 September 2024, VicProp and ACN 163 filed a Reply to the Points of Defence to the Further Amended Points of Claim in Proceeding 1594.
25Proceeding 2635 settled on 4 December 2024.
26VicProp and ACN 163 commenced this proceeding against the first defendant and Allianz on 23 December 2022. The claim against the first defendant was settled on 22 May 2024.
Issues for Determination
27The parties agreed the following List of Issues for determination:
1. Were the claims made against the plaintiffs by way of the Counterclaim in Proceeding 1594 and/or in Proceeding 2635 (referred to in paragraphs 15, 16 and 17 of the Further Amended Statement of Claim dated 25 May 2023 (FASOC)), or any of them, claims for which the second defendant was obliged to indemnify the plaintiffs pursuant to the terms of the Allianz Contract (as defined in paragraph 10 of the FASOC)?
2. In answering Question 1:
(a)did the Counterclaim and Proceeding 2635 seek compensatory relief against the Plaintiffs?
(b)did the Counterclaim and Proceeding 2635 arise from any actual or alleged breach of professional duty by the First Plaintiff?
(c)was the First Plaintiff a lawful manager of the relevant Owners Corporations and did it owe a professional duty to the OCs?
28In order to answer the questions posed by these issues it is necessary first to construe the policy of insurance to determine the cover that it provided. It is then necessary to properly characterise the claims made by the OCs against VicProp. Finally it is then necessary to determine whether the claims so characterised fall within the insuring clause in the Policy.
29In framing the issues as they have the parties have helpfully directed attention to the issues of whether the claims made by the OCs are claims for “compensatory relief” arising from any actual or alleged “breach of professional duty”.
Principles applicable to the construction of liability insurance policies
30Both parties made submissions about the principles to be applied in construing a policy of liability insurance.[6] Although couched somewhat differently, I do not discern any disagreement of substance between them about the principles to be applied. For that reason I will not set out those principles in detail here. Suffice to say that:
[6] Plaintiff’s Written Submissions dated 30 January 2025 (PWS) [18] – [25] and Second Defendant’s Written Submission dated 30 January 2025 (DWS) [20].
(a) as a commercial contract, the meaning of terms in an insurance policy must be applied as they would be understood by a reasonable business person in the position of the insured;[7]
[7] HDI Global Specialty SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634, 639 [18]-[21] and 642 [35] (Meagher JA and Ball J); Swiss Re International SE v LCA Marrickville Pty Ltd (2021) 394 ALR 461, 473-474 [27]-[28] (Jagot J); Star Entertainment Group Ltd v Chubb Insurance Australia Ltd (2022) 400 ALR 25, 29 [13] (Moshinsky, Derrington and Colvin JJ).
(b) a policy of liability insurance is intended to cover an insured, in conducting its professional business for clients, for liability they incur to a third party if they make a mistake or fail to do something they should have done;[8]
[8] Haseldine v Hosken [1933] 1 KB 822 at 837 per Greer LJ 1.
(c) “claims made” policies of liability insurance direct attention to the claim made by a third party against the insured and are understood as follows:
“… the core of a “claims made” policy is a promise by the insurer to the insured that it will indemnify the insured for any claim that is made by a third party against the insured within the duration of the policy, no matter, subject to the provisions in relation to the time within which notice must be given, when the defined event affecting the third party occurred. ... It has been said that “the essence of a ‘claims made’ policy is that the insured’s right to an indemnity arises on the submission to him of a claim by a third party”.[9]
[9] Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706 at 718, Mason P observed (Spigelman CJ and Handley JA agreeing).
(d) to similar effect the authors of Sutton on Insurance Law write:
“A third party liability policy will include a reference to a claim by a third party against the insured as one of the factors or elements which will give rise to the insured's right of indemnity against the insurer. … In a “claims made basis” insurance the third party claim is an element and [is] the insured event or contingency”.[10]
[10] Enright & Merkin, Sutton on Insurance Law (4ed, Lawbook Co, 2015) at [23.280].
(e) the authors of Sutton on Insurance Law also note that it is important to distinguish between the substance of the claim brought against the insured from the cause of action in which the claim is framed:
In general, a claim is the sum sought in proceedings brought against the insured for breach of duty and not the underlying causes of action constituting the proceedings, so that the liability per claim means the liability for breach of duty flowing from a particular act.[11]
(f) A “claim” is the object sought to be achieved by the party making the claim. The grounds for the claim or the cause of action which support it can give it colour and character, but are not to be equated with the claim itself.[12]
(g) in Walton v National Employers’ Mutual General Insurance Association Ltd,[13] Bowen JA said:
In my opinion the word ‘claim’ is here used in its primary sense of a demand for something as due, an assertion of a right to something. It imports the assertion, demand or challenge of something as a right.
[11] Sutton at [16.940].
[12] West Wake Price & Co v Ching [1956] 1 WLR 45 at 55 and 57.
[13] [1973] 2 NSWLR 73 at 82.
(h) in characterising a claim for the purposes of deciding whether it falls within the insuring clause, where the claim has been settled rather than having been determined by a court or tribunal, it is necessary to characterise the nature of the liability that might have been established had the facts asserted by the third party been found proven.[14]
[14] APD Technology v Maximo Developments [2022] FCAFC 141, [192]-[193], [217], [223]; Smart v AAI Ltd [2015] NSWSC 392, [179] (Beech-Jones J).
Concessions about some of the claims the subject of the claimed indemnity
31Both parties made significant concessions in the course of oral argument that go some way to answering the issues in dispute.
32First, Mr Barber KC (who appeared with Mr Briggs of counsel for VicProp) conceded that the claims made by the OCs in paragraphs 9 – 14 of the POC and 19 – 25 of the Counterclaim are more properly characterised as restitutionary claims than claims for compensatory damages. Under those circumstances they cannot be claims for the purposes of the insuring clause thus attracting indemnity under the policy.
33This means that VicProp only maintains its claim for indemnity in respect of the other 3 claims advanced by the OCs in paragraphs 20 – 28 of the POC.
34Second, although Mr Barber KC addressed me in some detail about the nature of the indemnity under the policy for defence costs, he and Mr Thomas ultimately agreed that I was not required to answer any of the issues by reference to that indemnity.
35Third, Mr Thomas (who appeared with Ms Armstrong for Allianz) conceded that 2 of the claims made by the OCs were properly characterised as being in the nature of claims for compensatory damages. Those were:
(a) the claims made for loss and damage occasioned by the wrongful depletion of the OCs funds set out in paragraphs 23 – 24 of the POC and 45(b) of the Counterclaim; and
(b) the claim for damages associated with the alleged wrongful retention of records set out in paragraphs 25 – 28 of the POC.
36In making that concession he did not also concede that both of those claims arose in respect of the conduct of a professional business by VicProp, and that remains a matter of dispute.
37Although Mr Barber KC did not expressly concede this, I understood the parties’ arguments to be principally, if not wholly, directed to the claims for indemnity in respect of VicProp and not ACN 163. For that reason the claims made against ACN 163 may be put aside.
Question 2(a) Did the Counterclaim and Proceeding 2635 seek compensatory relief against the Plaintiffs? Characterising the claims made.
38It will be recalled that the insuring clause provides indemnity in respect of civil liability arising from any “claim” made against the insured and “claim” directs attention to a “demand for compensation” or a process by which a third party “seeks compensatory relief”.
39Allianz submitted that the appropriate repository of the claims made by the OCs was the POC dated 5 February 2020. It submitted that the articulation of the claims in that document were a refinement of the OCs’ Counterclaim. Therefore they submitted that the Counterclaim could be put aside.
40VicProp submitted that both the POC and the Counterclaim ought be considered.
41Bearing in mind that it is the substance of the claims made that must be characterised rather than the manner in which they are articulated by way of cause of action or otherwise, I tend to think that the further refined version articulated in the POC are the best repository. However, I will also take into account the Counterclaim in characterising the claims.
42The parties were in dispute as to whether the claims made by the OCs sought a remedy in restitution (which would not attract the indemnity) or was a claim for compensatory damages (which would).
43A claim for compensation has been held to mean “a claim for pecuniary redress for some actionable wrong. An obligation in contract or otherwise to pay a sum in a certain event is not properly to be seen as an obligation to compensate; it is an obligation to perform the contract.”[15]
[15] Kantfield Pty Ltd v Lockwood [2003] VSC 420 at [12].
44Derrington J in Attree Pty Ltd v Certain Underwriters at Lloyds of London[16] cited this passage with approval and then made the following observations (with which I respectfully agree):
[16] [2024] FCA 1408.
8This passage was subsequently considered in in Kyriackou v ACE Insurance Ltd [2013] VSCA 150 [51] – [52], where Harper JA (with whom Tate JA agreed) observed:
51Kantfield is ... authority for the proposition, with which I respectfully agree, that a claim for civil damages or civil compensation does not include a claim in debt. Like reasoning points equally strongly to the conclusion that nor does such a claim encompass a claim for restitution, or for a civil penalty. …
52Aggrieved persons may have claims of various kinds – for example, in restitution, or debt, or damages – or some combination of these (the terms ‘damages’ and 'compensation' are synonymous). But a claim for damages requires a breach of a duty or obligation and would therefore exclude claims for restitution or debt. Thus, in the present case the available evidence suggests that, if any claims were to be made by aggrieved investors, they would likely be for the return of borrowed funds, or to enforce contractual rights – in other words, for restitution of money had and received, or for a debt due or payable under contract – neither of which would constitute payment of compensation or damages. Such claims fall outside the insuring clause (clause 1.1) of the professional indemnity policy with which these proceedings are concerned.
(Footnotes omitted).
9The foregoing authorities have been subsequently applied for the proposition that the words “damages” and “compensation” when used in the context of policies of liability insurance are referable to claims for pecuniary redress in response to actionable wrongs: see APD Technology Pty Ltd v v Maximo Developments Pty Ltd [2021] FCA 678 678 [181] – [184], and on appeal, APD Technology Pty Ltd v Maximo Developments Pty Ltd [2022] FCAFC 141 [181] [188], [188], [218].
10The distinction between awards of damages arising from a wrongful act and the effective payment of restitution or fulfilment of an antecedent obligation was eruditely articulated in Desmond Derrington and Ronald Ashton, The Law of Liability Insurance (LexisNexis Butterworths, 3rd ed, 2013) 1189 [8-130]:
Since the essence of liability insurance is indemnity against loss, if there is no loss, there is no call for indemnity. Consequently, for example, the insured’s liability to pay a contract debt voluntarily incurred or an obligation contractually undertaken by the insured for which there has presumably been good consideration, does not involve the insured in any net loss; and in such cases if there is some loss, the nature of the insured's liability is not that of the kind to which the policy applies, and it is immaterial on what on cause of action the claim is made against the insured. …
The primary reason is that the insured suffers no loss by reason of the incurring of the liability because consideration will have been received for the obligation to pay, and there is consequently no loss from that source, even if the contract itself led to a loss because of its imprudence. …
(Footnotes omitted).
11.A little later (at 1190 [8-310]), the learned authors say:
Damages are intended to provide the victim with monetary compensation for an injury to the person, property or reputation, while restitution is intended to return to the victim the specific money or property taken or, it is suggested, wrongfully withheld contrary to the insured's contractual or similar obligations. For example, wrongfully withheld wages that have been appropriated to the employee’s entitlement, but not paid, are the employee's property of the employee to whom they are owed and the insured who withholds them may be said to cause harm to that person's property, but this only demonstrates the artificiality of the reasoning of this kind when attention is directed to the form of the insured’s liability in in a technical sense rather than whether the insurer (sic) would suffer loss by making the payment. …
(Footnotes omitted).
45The principle therefore requires attention to whether the claim made against the insured is for the return of something wrongfully taken or withheld from the third party, in which case the claim will in substance be for restitution or debt. If it is in substance a claim for recompense in the sense of putting the claimant in the position it would have been in, as far as money can do, had the wrong not been done, then it will be compensatory.
The claim for return of unauthorised transactions
46I have already noted that Mr Barber KC conceded that the claim by the OCs in paragraphs 9 – 14 of the POC and 19 – 25 of the Counterclaim is restitutionary in nature.
47Nevertheless, I will now consider the nature of that claim, as it bears on the true nature of the second claim made by the OCs against VicProp.
48The first claim (as articulated in the POC) concerned the wrongful transfer from the OCs’ bank account to VicProp of 4 payments purportedly in satisfaction of VicProp’s management fees. The claim seeks an account from VicProp for the amount transferred in excess of the sum that it is ultimately found to be lawfully entitled to be paid. The claim asserts a charge over such of those payments as were then held in the solicitor’s trust account and payment of the relevant amount out of that fund.
49The claim (as articulated in the Counterclaim) springs off the same factual substratum, pleads that by reason of that conduct the OCs have suffered loss and damage and seeks repayment out of the solicitors trust account of specified amounts.
50In this way it can be seen that the claim made by the OCs is that sums of money were withdrawn from its bank account and wrongfully paid to VicProp. It seeks to have the relevant sums returned to it. The essence of the claim is that VicProp took from the OCs monies to which it was not entitled and is obliged to return that money to the OCs. To the extent that VicProp has benefited from those funds it is obliged to make restitution to the OCs.
51Recalling that “the essence of liability insurance is indemnity against loss, if there is no loss, there is no call for indemnity …”,[17] in returning any sum to which it was not entitled VicProp cannot be seen to have suffered any loss to which the policy is required to respond.
[17] Desmond Derrington and Ronald Ashton, The Law of Liability Insurance (LexisNexis Butterworths, 3rd ed, 2013) 1189 [8-130] – quoted at 43 above.
52The concession made by Mr Barber KC was plainly rightly made.
Claim for breach of s 41 of the OC Act
53The second claim made by the OCs against VicProp centred on a subset of the payments that were the subject of the first claim. The parties were agreed that some of the transfers out of the OCs bank accounts were drawn out of funds set aside for maintenance on the managed properties. Under s 41 of the OC Act the funds set aside for maintenance “must be used for the implementation of the maintenance plan” approved by the owners corporation.
54VicProp submitted that the claim made by the OCs in respect of the maintenance fund was founded on a breach of the duty said to be implicitly found in s 41, not to use those fund for any other purpose.
55In the POC, the OCs sought, amongst other things, repayment of such of the transfers as were paid out of the maintenance fund. They also sought damages.
56In the Counterclaim, amongst other things, the OCs claimed orders for the repayment of certain sums of money out of the trust account. They also sought orders under s 165(1)(c) of the OC Act which provides that VCAT can make orders in an owners corporation dispute for payment of a sum of money by way of damages and by way of restitution.
57VicProp submitted that in both proceedings the substance of this claim made by the OCs was a claim for damages. I do not agree. It seems to me that the substance of the claim is the same as that of the first claim. The OCs say that VicProp transferred money belonging to them that was earmarked for maintenance. They now want that money returned.
58Given that the transactions made out of the maintenance account were a subset of the transactions that Mr Barber KC has conceded are restitutionary in nature, it is difficult to see how the fact that a statutory cause action might lie in respect of a subset of them, gives the claim any different character to that of the whole of the transfers. To so hold would be to elevate the cause of action above the true substance of the claim.
59In any event, I do note that under s 165(1)(c) of the OC Act, one of the orders that VCAT might make is to order payment of money as restitution. In that way, it does not assist VicProp to focus on the pleaded cause of action. The true claim here is for restitution.
60Finally, I would repeat my comments at paragraph 51. In the end, if VicProp were ordered to repay the sums withdrawn out of the maintenance fund to which it was not entitled, it will have suffered no loss.
Claims for loss in the nature of interest and for the costs associated with the retention of records
61As noted above at paragraphs 35, Allianz has conceded that these claims are compensatory in nature and thus, for these claims, it only remains to determine whether the claims arose out VicProp’s conduct of the professional business (as defined). I will deal with this latter aspect next.
Question 2(b) Did the Counterclaim and Proceeding 2635 arise from any actual or alleged breach of professional duty by the First Plaintiff?
62It will be recalled that the insuring clause ties the obligation to insure to “civil liability arising from any claim … in respect of your conduct of the professional business”. The expression “professional business” is then defined in terms that are set out at paragraph 14 above. The word “claim” is defined to mean a demand for compensation or compensatory relief “in respect of any alleged or actual breach of professional duty.”
63Allianz submitted that the claims made by the OCs do not arise out of conduct done by VicProp in its “professional business” or “in breach of professional duty” for 2 reasons.[18]
[18] Although Allianz’s written submissions deal with ACN 163 under this heading, it is not apparent that any real reliance was placed on its conduct. The real emphasis in argument was on the conduct of VicProp.
64First, it submits that the claims are made in respect of an allegation that VicProp paid itself fees to which it was not entitled “because it was not validly appointed or authorised to pay itself those fees.” It submits that the expressions “professional business” and “professional duty” in the insurance contract “refer[s] to conduct carried out in the insured’s capacity as an authorised professional”.[19] It submits that having regard to the Brazenor decision that as VicProp was not the lawfully appointed manager of the OCs, VicProp “could not have performed any conduct of the professional business nor breached any professional duties, because it was not acting in a professional capacity as OC manager. It was not performing any of the listed functions in the policy nor any other function as a manager.”[20]
[19] DWS at [43] [44(a)].
[20] DWS at [49].
65Mr Thomas for Allianz only faintly pressed this in oral argument.
66I reject this submission. Allianz’s submission seeks to read into the insurance policy the words “duly authorised” or “lawfully engaged” or “lawfully contracted” or some other such expression, which words do not appear in the policy.
67The submission also fails to advert to the entirety of the declaration made by VCAT in the Brazenor decision. The relevant words of that declaration read as follows:
... that answer does not mean that Vicprop OC Pty Ltd is not entitled to reasonable remuneration for whatever management services it has provided to any or all of [the OCs]
68That declaration in Brazenor implicitly suggests that VicProp has provided some management services to the OCs. While couched in negative language, it also suggests that, notwithstanding that it was not authorised under the OC Act, VicProp is entitled to some payment for the services that it did provide. That payment is “reasonable remuneration” rather than the contractual rates or fees set out in the management contracts that ACN 163 attempted to assign to VicProp.
69Indeed at the hearing in VCAT leading to the Brazenor declaration, counsel for the OCs expressly conceded that VicProp was entitled to receive reasonable remuneration for the management services that it had provided despite not having been the lawfully appointed manager.
70Under those circumstances, giving the terms of the policy the meaning that would have been understood by a reasonable business person in the position of the insured, I can see no reason why the expression “professional business” and “professional duty” should be limited to “authorised” or “lawfully contracted” OC managers in the way Allianz submits. The purpose of the policy was to insure VicProp against “civil liability arising from any claim” it may incur to third parties when carrying out “the professional business” it was engaged in for reward. Allianz appears to accept that as a matter of law VicProp is entitled to payment of reasonable remuneration for the property management services that it did provide.[21] The policy’s purpose does not appear to be limited in the way Allianz submits. Had the insurer sought to limit the cover to civil liability arising from any claim in respect of the conduct of the professional business by the insured when duly authorised and lawfully appointed in compliance with the OC Act it could have done so.
[21] See for example at TS142.18-24 where it is implicitly accepted that the OCs obligation to return funds is in excess of “reasonable remuneration”; and TS123.26-27 where Counsel for Allianz accepted that VCAT had found that VicProp was entitled to reasonable remuneration; further TS127.4-12.
71Allianz also submitted that a reasonable professional strata manager would be aware of the provisions of the OC Act requiring a strata manager to be registered and to hold an instrument or contract of appointment. So much may be accepted. But that strata manager should equally be taken to have been aware that, in the absence of those matters, if it did carry out strata management work as part of its business, it would be entitled to be paid reasonable remuneration as was conceded by the OCs and implicitly acknowledged in the Brazenor declaration, and which position Allianz appears to accept.[22] The submission at the commencement of this paragraph does not support Allianz’s construction of “professional business” and “professional duty”.
[22] Ibid.
72Secondly, Allianz submits that the conduct of rendering invoices and collecting payment is not a professional service or performance of a professional duty.[23] It submits that the policy requires a sufficient connection between the claims and the professional business carried out by VicProp which was described in the policy as “Residential and Commercial Strata Management”. It says that, having regard to the inclusive list of tasks set out in the policy definition of the professional business (set out in paragraph 14 above), the conduct the subject of the claim, being the payment to itself of management fees out of the OCs bank accounts, is not a professional activity within the meaning of the policy.
[23] DWS at [43] [44(b)], [54] – [62].
73Allianz submits that the courts have applied two different approaches, one narrow and the other broader, to determining whether the activity the subject of the claim falls within the professional activities of the insured.
74The narrower approach is exemplified by Toomey v Scolaro’s Concrete Constructions Pty Ltd (No 5)[24] in which the court noted that the term “professional” was very broad. The court determined that it should focus on the particular activities of the employee concerned which gave rise to the claimed liability. At [59] Eames J said:
“… Actions of an entirely unprofessional kind by an employee, which take place in a professional organisation, might nonetheless be held to have arisen in a professional capacity, and likewise, in an organisation which would be regarded as engaged in in industrial and not professional pursuits, the activities of an employee at any given moment might well be characterised as constituting a professional service sufficient to demonstrate that liability of the employer arose by breach of duty in a professional capacity.”
[24] [2002] VSC 48, [60] (Eames J), relying on Kirby P in GIO General t/as GIO Australia Limited v Newcastle City Council (1996) 38 NSWLR 558, 568-9.
75The broader approach focuses on the overall activity of the insured and is exemplified by Kyriackou in which Harper JA said:[25]
“… whether a breach of duty answers the description of a breach of a professional duty depends upon characterisation of the overall activity in the context of which the breach occurs, and is not answered by concentrating on the specific task which has not been performed or badly performed so as to give rise to liability.”
[25] Kyriackou at [71], at [85] citing with approval Buchanan JA in Suncorp Metway Insurance Ltd v Landridge Pty Ltd (t/as LJ Hooker Ltd Hampton Park) (2005) 12 VR 290 at [16].
76I have already described and characterised the claims for unauthorised transactions and the breach of s 41 of the OC Act. In essence they concern the payment by VicProp of its own management fees out of the OCs bank accounts.
77It must be recalled that VicProp has conceded that its claim for unauthorised transactions is restitutionary in character and thus does not need to be considered at this juncture. Its remaining 3 claims do need to be considered on this question.
78It is unnecessary for me to decide whether the narrow or broader approach is to be preferred, because in this case I am of the opinion that the conduct giving rise to those 3 claims falls well within the words of the definition of “professional business” in the policy. This is because the definition of “professional business” in this case includes a long inclusive list of tasks undertaken by the insured in its strata management business. This non-exhaustive list gives colour and meaning to the expression “professional business” that it would not have, absent that list.
79It is evident from that list that the OCs expected VicProp to perform most or all of the tasks that the OCs were expected to do. In carrying out these activities, in the ordinary course, one would expect the OCs to incur liabilities which had to be paid. Considering the enumerated tasks to be performed, it was also likely that VicProp would have access to the OCs bank accounts to receive and deposit monies receivable by the OC, and to pay accounts payable by the OCs. For example, the tasks included “invoicing of levies/service charges”, “arrears collection” and “contract management”. There was also a catchall category of activity “general secretarial tasks”.
80I also note that the standard form Contract of Appointment – Owners Corporation Manager made pursuant to s 119 of the OC Act and the Owners Corporation Regulations 2007 (Vic) and Owners Corporation Rules – an example of which I was taken to in evidence, includes as part of the services to be provided by the OCs “establish and operate a bank account in the name of the Owners Corporation …” and “pay invoices and insurance premiums on behalf of the Owners Corporation…”
81When considering the standard form contract and the list of tasks as a whole, and bearing in mind that the list is inclusive and not exhaustive, ordinary business people in the position of the insured would have understood that the payment by VicProp of invoices received by the OCs was included within the definition of its professional business.
82I consider therefore that VicProp’s operation of the OCs’ bank account to pay accounts payable was encompassed within the definition of the insured’s professional business. The claim in respect of unauthorised transactions and for breach of s 41 of the OC Act is thus within the scope of the insured’s professional business.
83Because of this finding, it is unnecessary for me to delve further into the issue of whether the specific task of rendering and paying VicProp’s invoices involved sufficient skill to be considered “professional”. Even on the narrow approach referred to above, I would have been inclined to the view that it was. Determining what to invoice, how to do so, the narration to be provided in the invoice, ensuring that the items invoiced for and that the rates to be applied conform to the contract entitlement all require skill. Similarly the operation of a bank account on behalf of another is a matter which one would expect would carry responsibility, trust and skill.
84As to the claim for loss in the nature of interest, this arises as a consequence of the claims for unauthorised transactions and s 41 of the OC Act. To the extent that it is parasitic upon those claims, it attracts the same analysis and conclusion.
85The claim for wrongful retention of records attracts the same conclusion but needs some elaboration. This claim is based on the fact that there were some 385 members of the relevant OCs each of whom had to be communicated with by those who took over the management of the OCs after this dispute arose. It is alleged that the failure of VicProp to have handed over the relevant records meant that the OCs incurred additional cost associated with obtaining the relevant information.
86Two of the enumerated tasks which the parties agreed were encompassed within the definition of “professional business” were “communication with property stakeholders” and “general secretarial tasks”. Ordinary business people in the position of the insured would have understood that encompassed within those categories of activity, VicProp would have been required to maintain and hand over to the OCs when required all relevant business records. This is enough for me to find that this claim arises out of an alleged breach of a professional duty.
87Because of this finding it is unnecessary for me to consider further whether the specific task of maintaining proper records and making proper reporting involved sufficient skill to be considered “professional”. Again, even on the narrow approach referred to above, I would have been inclined to the view that it was. Court decisions are replete with instances of parties proving themselves unable to maintain proper records and reports. It takes little judicial imagination to conclude that the maintenance of proper records and reporting for reward involves sufficient skill to be considered professional.
88It should not be thought that, when considering what a reasonable strata manager in the place of the insured would have understood by the policy words, I have failed to advert to the fact that there was in place no contract between the OCs and VicProp. Given that VicProp in fact performed the activities of a manager, albeit without having been properly appointed, I consider that the same constructional considerations should be applied as if there had been a contract in place for two reasons. First, as far as VicProp was aware, the assignment to it by ACN 163 had been properly done at the time. Therefore in considering what a reasonably informed strata manager in the place of the insured understood by the policy, consideration should be on the basis that a contract was in place. Secondly, even if that is wrong and the construction should be on the basis that there was no contract in place, given that VicProp was to carry out its functions in the normal course of its activities, I consider that it would have expected its tasks to have been the same as though a contract had been in place. Therefore, its understanding of the policy terms would have been the same as if a contract were in place.
89Mr Thomas submitted that the activity concerned must be done for the benefit of the client and not for the professional’s own benefit. He relied on Chubb Insurance Company of Australia Ltd v Robinson[26] and submitted:
“…the preparation of a statutory declaration by an officer of the contractor in support of a progress claim submitted to a third party was not something done “in the rendering of any professional services to a third party” – it wasn’t rendering a service because it was no more than the compilation of factual material in the contractor’s own interests to assist it in obtaining a contractual payment.”[27]
[26] (2016) 239 FCR 300, 319-20, [86], 334 [163] (Foster, Robertson and Davies JJ).
[27] I note that Chubb concerned the construction of an exclusion clause and care is required when transposing the reasoning to the construction of an insuring clause.
90I do not think that this case assists. In Chubb, the activity of the insured’s employee – making a statutory declaration for the purposes of supporting a progress claim to be submitted for payment – was not an activity for which the insured was actually engaged. It was engaged to provide project management services. Invoicing for those services was not in terms a service for which the client was paying it to perform. By contrast, in this case the comprehensive list of tasks inclusively enumerated as the strata management services to be provided, when properly construed, certainly included receiving and paying invoices for the strata management services provided by VicProp. The receipt of those services (including receiving and payment of VicProp’s invoices) was a benefit to the OCs and was not solely done for the benefit of VicProp.
91In supporting the argument that the activity concerned had to be in service of the client, Mr Thomas relied on Haseldine v Hosken[28] in which a solicitor claimed on his liability policy in respect of a damages claim brought against him by a former client. The claim arose out of an agreement between the solicitor and the client that in the event of an action being successful or being settled, the solicitor should be paid a fixed percentage of the amount awarded. That agreement was an illegal champertous arrangement and after the action failed, the client sued the solicitor.
[28] [1933] 1 KB 822.
92The Court of Appeal held that the indemnity policy was not intended to insure the solicitor in respect of claim arising out of conduct that he had engaged in, not for the benefit of his client, but rather for his own benefit alone. The Court also placed considerable emphasis on the criminal nature of champerty and emphasised that a policy to provide indemnity to a solicitor against the consequences of a champertous arrangement would be void as against public policy.
93The benefit to be obtained by the solicitor alone in the champertous arrangement in Haseldine is of quite a different character to the benefit to VicProp of having its fees paid out of the OCs bank accounts in return for the management services provided. As I have found above, I consider that the OCs had a concomitant benefit with VicProp in having the services provided, including the payment of VicProp’s fees.
94I also note that the insuring clause in Haseldine required that the damage arise from a neglect, omission or error of the solicitor “in his professional capacity as a solicitor”. The Court noted that the conduct of the solicitor in entering into the agreement was in the nature of a speculative investment rather than the conduct of a solicitor in his professional capacity.
95Again, this is quite different to the case before me. The rendering and payment of fees incurred by the OCs fell within the enumerated list of activities (when properly construed) agreed to fall within the definition of professional business of VicProp.
96Finally, Mr Thomas sought to characterise the conduct of VicProp in invoicing and paying its fees out of the OCs’ bank accounts as its own “entrepreneurial or commercial activity”. It should be apparent from the foregoing that I reject that characterisation. Upon the proper construction of the policy (as I have explained above) as if a contract had been in place, the OCs agreed to engage and pay a strata management company to carry on its affairs. It is plain that they authorised VicProp to operate their bank accounts including to pay properly incurred debts and fees. That such a fee was paid by VicProp to itself was part of the execution of the activities that it was engaged to do.
Question 2(c) Was the First Plaintiff a lawful manager of the relevant Owners Corporations and did it owe a professional duty to the OCs?
97It was not seriously contended by either party that VicProp was appointed manager of the OCs in compliance with the requirements of the OC Act. To that extent it may be said that VicProp was not “a lawful manager” of the OCs.
98However, to the extent that VicProp in fact carried out the functions of a manager of the OCs as if it had been so appointed, as a matter of law it would owe to the OCs similar duties to take reasonable care in the execution of those functions as if it had been so appointed.[29] The scope of these duties is very much informed by the fact that there is a standard form contract of appointment mandated by the OC Act. Under those circumstances, even though there was no contract between them, by reason of the fact that VicProp undertook the functions of the manager of the OCs and is entitled to reasonable remuneration for having done so, it owed a professional duty to the OCs when carrying out those functions.
Conclusion and orders
[29] Suncorp at [17] – [21]; Hill v Van Erp (1997) 188 CLR 159.
99In conclusion I would answer the preliminary question as follows:
1. Were the claims made against the plaintiffs by way of the Counterclaim in Proceeding 1594 and/or in Proceeding 2635 (referred to in paragraphs 15, 16 and 17 of the Further Amended Statement of Claim dated 25 May 2023 (FASOC)), or any of them, claims for which the second defendant was obliged to indemnify the plaintiffs pursuant to the terms of the Allianz Contract (as defined in paragraph 10 of the FASOC)?
Answer: Yes, in respect of:
(a) the claim for loss in the nature of interest; and
(b) the claim for costs associated with the retention of records.
No, in respect of:
(c)the claim for unauthorised transactions; and
(d)the claim for breach of s 41 of the OC Act.
2. In respect of the Issues identified by the parties, I provide the following answers.
In answering Question 1:
(a)did the Counterclaim and Proceeding 2635 seek compensatory relief against the Plaintiffs?
(i)In respect of the claim for unauthorised transactions – by reason of the concession made by the second defendant
Answer: No.
(ii)In respect of the claim for breach of s 41 of the OC Act
Answer: No.
(iii)In respect of the claim for loss in the nature of interest – by reason of the concession made by the second defendant
Answer: Yes.
(iv)In respect of the claim for costs associated with the retention of records – by reason of the concession made by the second defendant
Answer: Yes.
(b)did the Counterclaim and Proceeding 2635 arise from any actual or alleged breach of professional duty by the First Plaintiff?
Answer: Yes.
(c)was the First Plaintiff a lawful manager of the relevant Owners Corporations and did it owe a professional duty to the OCs?
Answer: the First Plaintiff was not a lawful manager of OCs. However to the extent that the First Plaintiff carried out the functions of a manager of the OCs and was entitled to reasonable remuneration, it owed a professional duty to them.
100I will make orders in terms of the answers I have provided to the Preliminary Question.
101I will hear the parties on the question of costs. The parties should submit to my chambers a Minute of Proposed Orders for the resolution of the question of costs within 14 days of today’s date.
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Certificate
I certify that these 28 pages are a true copy of the judgment of His Honour Judge Wise delivered on 12 February 2025.
Dated: 12 February 2025
Stephanie Slade
Associate to His Honour Judge Wise.
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