Allianz Australia Insurance Limited & Ors v General Cologne Re Australia Limited

Supreme Court of NSW|2003-02-18|Before: McClellan J, Clellan J

Reported Decision : (2003) 12 ANZ Insurance Cases 61-564

CITATION : Allianz Australia Insurance Limited & Ors v General Cologne Re Australia Limited [2003] NSWSC 144 HEARING DATE(S) : 17-18 February 2003 JUDGMENT DATE : 13 March 2003

JURISDICTION: Equity Division Commercial List JUDGMENT OF : McClellan J DECISION : Summons dismissed

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50128/01 ALLIANZ AUSTRALIA INSURANCE LIMITED & ORS v GENERAL COLOGNE RE AUSTRALIA LIMITED JUDGMENT 1 HIS HONOUR: During the period 31 December 1989 to 31 December 1990 the Solicitors' Liability Committee ("the Committee") provided professional indemnity insurance to solicitors in Victoria. A solicitor in that State, as in other States in Australia, was required by statute to carry such insurance. 2 The Committee, as is usual, determined to obtain reinsurance for part of the risk it was carrying. For the relevant period the Committee made two arrangements by way of reinsurance with the third plaintiff, Switzerland General Insurance Company Limited ("SGI"). The first arrangement was for "per claim excess of loss protection" which provided the Committee with reinsurance cover for up to $400,000, including costs, per claim paid by the Committee where the claim against the Committee exceeded $200,000. The first $200,000 of any claim was retained by the Committee 3 The second arrangement was for "limited aggregate loss protection" and provided the Committee with reinsurance cover for up to $2,000,000 for all claims, when the aggregate loss of all claims paid by the Committee for the period of risk exceeded $10,000,000. This aggregate loss would be the accumulation of the amounts up to $200,000 retained by the Committee together with any amount, which could only be legal costs, in excess of $600,000. 4 SGI in turn effected reinsurance of its risk with the defendant which was then known as Reinsurance Company of Australasia Ltd. The amount reinsured, in relation to aggregate loss protection, as described in the Facultative Certificate issued on the 7 February 1990, was "$1,000,000 any one claim and in all/$2,000,000 any one claim and in all [in excess of] $10,000,000 any one claim and in all". The meaning of this clause is one of the matters in dispute in these proceedings. The respective reinsurance agreements were renewed for the calendar year 1991. 5 There is a second dispute. As part of a reorganisation of its business, SGI decided to "domesticate" its Australian insurance interests. It executed a deed of assignment in favour of its Australian subsidiary Switzerland Insurance Australia Limited. That company has since changed its name to Allianz Australia (Run Off) Limited, the second plaintiff. In December 2001 following a further corporate re-organisation, Allianz (Run Off) executed a further deed of assignment to Allianz Australia Insurance Limited. When the various assignments were challenged by the defendants a further deed, to which all of the plaintiffs are parties, was executed. 6 The second issue in these proceedings requires the court to determine whether the first or third assignments are effective. Because of the conclusion I have reached in relation to the construction issue I understand that the financial consequences which follow render the assignment issue of no practical utility to the parties. However, the matter was fully argued and it is appropriate that I express my view about it. The construction issue 7 For reasons which I shall explain, I am satisfied that there is some difficulty in construing the relevant reinsurance contract. Accordingly, pre-contractual conduct may be admitted and utilised in resolving the difficulties (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347-352; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153). 8 It appears that the possibility of SGI obtaining the relevant reinsurance from the defendant was first raised on 13 October 1989. A conversation was followed by a facsimile from SGI which was in the following terms. "Subject: Solicitors Liability Committee Excess P.I. Insurance

Brian, As discussed earlier today, attached please find claims information in relation to the captioned. The SLC programme is a self-insurance fund of $500,000 (this became $600,000 in the following year) any one event and in the aggregate in respect of all claims recorded/reported during the Period of Insurance, which runs January 1 to December 31. We provided reinsurance of $300,000 in excess of $200,000 in addition to an aggregate stop loss cover of $2 m xs $10M during the Period of Insurance. We would be obliged to receive your assistance with quotes on the aggregate stop loss for limits of:- (a) $1.0m pro part $1m xs $10m (b) $1.0m pro part $2m xs $10m (c) $1.5m pro part $2m xs $10m Unless inconvenient, we would like to visit Tuesday, 17.10.1989 to discuss further, with a view to obtaining your terms by Friday 20.10.1989. 9 The executive of the defendant with responsibility for the negotiations with SGI was Mr Woolcock. He met with Messrs McKenzie and Urry of SGI on 19 October. He made a written note of the matters discussed which was tendered in evidence. This note is important in resolving the dispute. 10 Mr Woolcock records that the reinsurance required is "an aggregate stop loss protection in respect of the Committee's $200,000 only." He also records that he quoted in relation to "aggregate claims incurred by the Law Committee in respect of their retained $200,000." His evidence as to the content of the discussion is consistent with his note. 11 Another matter discussed at the time was whether SGI required provision for reinstatement of the Sum Insured in the event of claims during the course of the contract. Mr Woolcock notes that it was not required by SGI and confirms by his note that he quoted on the basis of "no reinstatement." 12 The quotation was confirmed in writing using the defendant's standard form for facultative reinsurance. It provided: "We have pleasure in confirming our facultative reinsurance quotation as follows: Original Insurance: Solicitors Liability Committee Class of Insurance: Professional Indemnity - Excess Interest Reinsured: Legal Liability arising out of any negligent act, error or omission in a professional capacity of Solicitors. As per Original Wording. Special Conditions as (a) Excluding: re-instatement of Per Reverse & Including Sum Insured. (b) In respect of aggregated claims in respect of S L C's $200,000 any one claim retention. Original Policy Limits : Various Situation: Australia Occupation : - Reinsurance Required : 1. $1,000,000 any one claim and in all/$2,000,000 any one claim and in all XS $11,000,000 any one claim and in all. OR 2. $1,000,000 any one claim and in all XS $10,000,000 any one claim and in all. Quote Effective from : 19 October, 1989 Recoa's Quote : 1. $37,500 Nett 2. $45,000 Nett. Subject to terms and conditions of original policy." 13 A Cover Note was issued on 11 December 1989. It contained special conditions which are of no relevance. The Interest Reinsured was stated to be: "COVER NOTE INTEREST REINSURED Legal Liability arising out of any negligent act, error or omission in a professional capacity of Solicitors as per original wording. a) Excluding: reinstatement of Sum Insured. b) In respect of aggregated claims in respect of SLC's $200,000 any one claim retention. 14 The Amount Reinsured was recorded as: AMOUNT REINSURED $1,000,000 any one claim and in all/$2,000,000 any one claim and in all XS $10,000,000 any one claim and in all." 15 The Facultative Certificate was issued on 7 February 1990. It provided: "Original Insured Solicitors Liability Committee Amount Reinsured $1,000,000 any one claim and in all/$2,000,000 any one claim and in all XS $10,000,000 any one claim and in all. Interest Covered Legal Liability arising out of any negligent act, error or omission in a professional capacity of Solicitors as per original wording. a) Excluding: reinstatement of Sum insured. b) In respect of aggregated claims in respect of S L C's $200,000 any one claim retention. Situation Anywhere in Australia Being a reinsurance of the ceding Company's Policy No. 30- UND 0060148 and subject to the terms and conditions thereof and settlement thereunder in the event of loss." 16 Before the Facultative Certificate was issued the defendant received a copy of the Committee's contract with solicitors. Under the Insuring Clause the Committee's contract provided: "2. Insuring Clauses (a) The Insurer shall indemnify the Assured against any civil liability in connection with the Practice - (i) in respect of which a claim is first made against the firm during the period of insurance; or (ii) arising out of any circumstances notified by the Assured to the Insurer within the period of insurance. (b) The liability of the Insurer under this contract together with its contracts with others liable shall not exceed in total in respect of each such claim and claimant's costs the Sum Insured above and in addition all costs and expenses incurred with the Insurer's consent (which consent is not to be unreasonably withheld ) in the defence or settlement of any such claim provided that if a payment in excess of the said Sum Insured is made to dispose of any such claim the Insurer's liability for any such costs and expenses so incurred shall be limited to such proportion thereof as the said Sum Insured bears to the amount of the payment so made. (c) All claims whether made against one or more Assured arising from the same act or omission or from the same or substantially the same facts shall be regarded as one claim." (Emphasis added) 17 The level of insurance provided by the Committee to solicitors for the year 1990 was $600,000, an increase from $500,000 in previous years. However as Insuring clause 2(b) makes plain this sum could be exceeded if the amount of costs and expenses together with the primary obligation exceeded this amount. Costs and expenses were indemnified to an unlimited amount. 18 The reinsurance agreement for Limited Aggregate Loss Protection - between the Committee and SGI was not available to the defendant until after 7 February 1990. This was also the position with respect to the reinsurance agreement for the Claim Excess of Loss Protection. The operative provision of each agreement is Article 4. The agreement in relation to Aggregate Loss Protection contains the following: "ARTICLE 4 Should the ultimate nett costs of incurred claims made against Contracts of Insurance (as referred to in Article 1) for which the reinsured is liable exceed Aust $10,000,000 then the reinsurer will pay to the reinsured the amount by which the ultimate nett cost of incurred claims exceed Aust $10,000,000. The maximum liability of the reinsurer under this Agreement is Aust $2,000,000. The term ultimate nett cost of incurred claims shall mean. (i) The aggregate of all sums actually paid in indemnifying the original assureds or firms for claims under Contracts of Insurance issued by the reinsured including all costs and expenses incurred with the reinsured's consent in the defence or settlement of any such claim but not including any administrative expenses of the reinsured. Less (ii) The aggregate sum of all recoveries of the whatever nature. Less (iii) Recoveries from all other reinsurance effected by the reinsured or original assureds or firms relating to the covers described in Article 1. (Emphasis added) 19 Article 4 of the agreement in relation to "Per Claim Excess of Loss Protection" is in the following terms: "ARTICLE 4 The reinsurer will in respect of any one claim indemnify the reinsured for any amounts in excess of Aust $200,000 (which figure is inclusive of all costs and expenses incurred with the reinsured's consent in the defence or settlement of any such claim but does not include any administrative expenses of the reinsured) which the reinsured becomes liable to pay by virtue of any one claim under a Contract of Insurance as referred to in Article 1. The maximum liability of the reimbursement to be made by the reinsurer to the reinsured in respect of any one claim will be Aust $400,000 (which figure is inclusive of all costs and expenses incurred with the reinsured's consent in the defence or settlement of any such claim but does not include any administrative expenses of the reinsured)." (Emphasis added) 20 The plaintiffs contend that the correct understanding of the facultative certificate has the consequence that the defendant is liable to SGI or its assigns in the event that claims on the Committee exceed $10 million, inclusive of costs, which can be comprised of individual claims, each less than $200,000, together with any amount by which any individual claim exceeds $600,000 inclusive of costs. As it happens, one at least of the relevant claims did exceed $600,000 because substantial legal costs were incurred in defending one solicitor. Of course, SGI was also liable for $400,000 of the claim under the "per claim" agreement. 21 The plaintiffs' argument has the following steps:

(a) The practices of insurers and reinsurers are well known to each other and it could be expected that the defendant would have anticipated that the agreement between SGI and the Committee obliged SGI to indemnify the Committee in respect of its obligations, including the cost of defending any claim.

(b) Because the facultative certificate expressly refers to Policy No 30 UND 0060148 and provides that insurance is "subject to the terms and conditions thereof and settlement thereunder in the event of loss" the agreement between SGI and the defendant should be understood to operate subject to all of the same terms and conditions.

(c) The reference in the Special Conditions of the letter of 1 November 1989, incorporated within the "Interest Reinsured" in the Cover Note issued on 11 December 1989 and in the "Interest Covered" section of the Facultative Certificate, to "(b) In respect of aggregated claims in respect of the Committee's $200,000 any one claim", should be understood as part of a general and incomplete description, of the agreement for reinsurance. Because it was merely a shorthand description, the true nature of the reinsurance should be understood as including a liability calculated by reference to any claim for $200,000 and in addition any amount of costs which might cause the total of any one claim to exceed $600,000.

(d) It is further submitted that the question is: (a) whether SGI wanted 50% cover for what it had underwritten and accompanied that request with a short description of the general commercial effect of its aggregate insurance where the wording was a matter of public record; or (b) whether SGI specifically only wanted cover for slivers up to $200,000 aggregating to the $10 million.

(e) Reinsurers are and ought be taken to be familiar with the general policies of schemes such as the Committee where they are prepared to underwrite such policies. The policy wording is a matter of public record and publicly available. It was supplied to the defendant with the ultimate proposal, before the Facultative Certificate was issued.

(f) The short description given of the commercial effect ought not to be characterised as an exhaustive description or warranty as to the whole effect of the Committee's wording.

(g) The approach of the defendant converts a summary description of the risk into a warranty and then by repeating the description in the quote treats (b) as if it were an exclusion to the liability underwritten on the original wording. That is not a correct approach.

(h) On another analysis, if one assumes that the defendant did understand the full concept of the underlying wording, could it fairly be said that the defendant was only intending to cover something less than what SGI had provide to the Committee? If the defendant was prepared to assume the content of the Committee wording is it appropriate that an objective bystander would think that the defendant was only prepared to provide cover in accordance with the short description?

(i) The words of (b) are not words of limitation or exclusion. The words "in respect of" are descriptive, not words of maximum liability.

(j) The criticism by the defendant that (b) has no meaning according to the plaintiffs applies equally to the whole of the words leading into (b) including (a). That demonstrates the words were truly to be a short description.

(k) The word "claim" where it appears throughout the slip refers to amounts which could compromise the aggregate excess. That is clear from the whole of the words referring to $1 million, $2 million and $10 million. It is not a "claim" by SGI on the defendant. 22 The defendant's argument has the following steps:

(a) If the reinsurance cover to be provided by the defendant was for all of the monies retained by the Committee (as the plaintiffs contend) then, first, clause (b) need not have been included and, second, the reference to the Committee's $200,000 any one claim retention need not have been included. The plaintiffs' contention requires the words generally of clause 2(b) and the words concerning the $200,000 any one claim retention to be effectively ignored or excluded.

(b) The contract issued by the defendant to SGI contained two pre-printed "Special Conditions". Clause 2 provided: "All loss settlements made by [SGI] provided they are within the terms, conditions and limit(s) of the original policy(ies) and within the terms conditions and within the terms, conditions and limit(s) of this reinsurance shall be binding upon [the defendant]." That clause does not contradict the operation of clause (b), because the clause contemplates that loss must be within the terms of the reinsurance policy issued by the defendant. Clause 2, notwithstanding that it is a pre-printed clause, contemplated, at least, that the reinsurance cover provided by the defendant would or could differ from the reinsurance cover provided by the cedant company to others.

(c) The words: "Being a reinsurance of the ceding Company's Policy No 30 UND 0060148 and subject to the terms and conditions thereof and settlement thereunder in the event of loss" appearing as pre-printed words do not contradict that operation because clause (b) as a written clause prevails: see, for example, Lewison, The Interpretation of Contracts, 2nd Ed, para 8.10.

(d) The factual matrix is consistent with the construction of clause (b) advanced by the defendant. In particular, the wording of clause (b) derives from the conversations between the parties because at the time the cover note was issued (which used the same clause (b) wording) the defendant had not been provided with any underlying policy documentation and the understanding of those arrangements and the type of cover sought for those arrangements must, as a matter of logic, have emanated from SGI.

(e) The construction advanced by the plaintiffs gives no work and no effect to clause (b). In particular, it gives no work and no effect to the words: "SLC's $200,000 any one claim retention". If no work was intended to be done by those words, the words need not have been included. Further, the construction advanced by the plaintiffs implicitly seeks to make good a presumption of "back-to-back" cover, either as a factual matter or by a process of construction of the policy, but there is no evidence of such a presumption nor is such a presumption a canon of construction: see, for example, AXA Reinsurance v Field [1916] 1 WLR 1026 per Lord Mustill at 1033-1035. Decision 23 The difficulty in construing the Facultative Certificate arises from the lack of clarity which emerges from the juxtaposition of the Amount Reinsured, ("$1,000,000 any one claim etc"), interest covered, ("$200,000 any one claim retention") and the reference to the terms and conditions of the "ceding company's policy". Informed by an understanding of the relevant factual matrix the position is clear: see Codelfa Construction Pty Ltd at 347-352; Brambles Holdings Ltd; Brooks v NSW Grains Board & Ors (unreported) NSWSC 1049. 24 SGI requested cover for a part of its aggregate stop loss cover. SGI's facsimile of 13 October stated that it provided to the Committee "reinsurance of $300,000 in excess of $200,000 in addition to an aggregate stop loss cover of $2m xs $10 m" No mention was made of legal costs. 25 At the meeting of 19 October the request was made for cover "in respect of the Committee's $200,000 only - excess of $10 million in aggregate." There was no suggestion at this time that any part of the liability of SGI for losses in excess of $500,000, (later $600,000) due to legal costs was to be reinsured. The request is plain. The aggregate loss was defined by reference to the first $200,000 retained by the Committee. The defendant had no knowledge of any potential liability of the Committee beyond this amount and I see no reason for it to assume that the situation was otherwise. 26 Both the amount of cover and the fact that there was to be no reinstatement were recorded by Mr Woolcock and expressly noted as "quoted." It is accordingly logical that these matters came to be requested as conditions of the ultimate agreement. 27 I am in no doubt that the reference "as per original wording" in the "Interest Covered" section of the certificate is a reference to the circumstances from which a claim can arise and says nothing about the quantum reinsured. Quantum is dealt with by (a) and (b). The former ensures that the Sum Insured cannot be reinstated and the latter defines the manner of the aggregation which is to occur by reference to the Committee's $200,000 retention. 28 As it happens, because of the structure of its arrangements with SGI, the Committee retained the first $200,000 of any claim which included any costs. In addition, if the total claim including costs exceeded $600,000, the Committee was liable for any amount beyond $600,000. However, subclause (b) makes plain that the defendant's liability could only derive from the $200,000 any one claim retention by the Committee. Reinsurance was neither sought nor provided for any part by which a claim exceeded $600,000. 29 The reference to any one claim in respect of $1,000,000 under the heading "Amount Reinsured", is not inconsistent with the construction of the contract which I prefer. The effect of the clause dealing with the "Amount Reinsured" is that before a claim is made there will either be an accumulation of claims, each of $200,000, which as a practical matter leads to one claim of up to $1 million, or, there will be a number of separate lesser claims. In any event the claim referred to is a claim under the Facultative Certificate. The claim referred to in the "Amount Reinsured" is any claim made on the Committee in respect of the first $200,000 amount which it retained. 30 I understand that the construction I prefer has the consequence that the plaintiffs are not entitled to judgment in any money sum irrespective of the position in relation to the assignment and the summons should be dismissed. However, the assignment issue has been fully argued and I should briefly consider it. The assignment issue 31 The defendant submits that Allianz Australia Insurance Limited is not entitled to bring this action because there has been no valid assignment to it of the contract of reinsurance between the defendant and SGI. 32 The plaintiffs rely on three successive assignments: s Firstly, a deed dated 1 April 1992 ("1992 Deed") which purported to assign to Allianz Australia Insurance Limited the whole of the interest of Allianz (Run Off) in all policies of insurance in respect of SGI's Australian business. s Secondly, a deed dated 12 December 2001 which purported to assign to Allianz Australia Insurance Limited the whole of the interest of Allianz (Run Off) in all policies of insurance, including policies the subject of the assignment of 1 April 1992; and s Thirdly, a deed dated 28 June 2002 ("2002 Deed"), which purported to assign to Allianz Australia Insurance Limited any interest of SGI or Allianz (Run Off) which may have remained with SGI or Allianz (Run Off) in respect of the contract of reinsurance evidenced by policy no 3/47054/BH. The 1992 Assignment 33 The 1992 Deed expressed the intention of the parties as follows: "A. The Assignor and the Assignee are both authorised under the Insurance Act 1973 (Commonwealth) as amended (the "Act") to carry on insurance business as defined in the Act (which definition is adopted for the purpose of this Deed) in Australia. B. The Assignor desires to cease to carry on insurance business in Australia and wishes for that purpose to assign the whole of its interest under all contracts of insurance in respect of insurance business carried on by it in Australia (the "Contracts) to the Assignee." 34 The operative provisions relevantly include: "1.1 The Assignor hereby assigns absolutely to the Assignee the whole of its interest under the Contracts, by way of absolute assignment as described in section 36 of the Act, on and from the date hereof [emphasis added] .

1.2 In consideration of the Assignee agreeing to accept such assignment, the Assignor hereby agrees to pay the Assignees the sum of $155,161.695.

2.1 The Assignee hereby accepts the assignment and shall hereafter discharge all the obligations of the insurer with respect to such Contracts whether such claims arise with respect to events or matters prior to, on or after the date hereof, and the Assignee shall fully indemnify and keep indemnified the Assignor in respect of all such claims and liabilities.

3.1 The parties acknowledge that this assignment has been made for the purposes of enabling the Assignor to have its authority under the Act revoked, for the reason that it has ceased to carry on insurance business in Australia, and that this assignment operates and is intended to operate as an absolute assignment under sub-sections 39(8) and (9) of the [ Insurance Act 1973 ]." Defendant's submissions 35 The defendant contends that the purported assignments are ineffective. The essential elements of the submissions are as follows: a) The 1992 Deed did not, upon its proper construction, assign the contract of reinsurance which was the subject of these proceedings. b) At the time the 1992 Deed was executed, there was no chose in action which could be assigned, legally or equitably, because SGI had no current liability to enable any payment to the Committee. It is submitted that SGI thus had no rights capable of being assigned at the time of the 1992 Deed. c) There could not be an equitable assignment of the potential benefit of the contract of reinsurance because at the time the 1992 Deed was executed, any benefit pursuant to the contract of reinsurance, being a chose in action or otherwise, was future property which was not assigned for valuable consideration, or constituted a bare right of action which is not assignable at either law or equity. d) If there did exist a chose in action capable of being assigned, then the purported assignment was ineffective because it did not comply with the requirement of notice contained in s 12 of the Conveyancing Act 1919 (NSW). e) The only permissible method of conferring the benefit of the contract of reinsurance was by novation, made with the defendant's consent. f) Because the payments due to the Committee were later paid by Allianz (Run Off), SGI has never had liability or obligation to pay the Committee, has sustained no loss and is not entitled to seek indemnity from the defendant. The subject matter of the assignment 36 The subject matter of the Assignment was the 'whole of [SGI's] interest under the Contracts'. The defendant's submission that the 1992 Deed did not purport to assign contracts of reinsurance is apparently based on the definition in recital B of 'Contracts' as "contracts of insurance in respect of insurance business carried on by [the Assignor] in Australia." However, the Deed adopts the definition of 'insurance business' contained in the Act, which is: "the business of undertaking liability, by way of insurance ( including reinsurance ), in respect of any loss or damage, including liability to pay damages or compensation, contingent upon the happening of a specified event, and includes any business incidental to insurance business as so defined…[emphasis added]" 37 It is clear that the statutory intention was to include contracts of reinsurance as part of 'insurance business'. Accordingly the assignment of the Contracts was intended to include an assignment of all interests arising under SGI's contracts of reinsurance. Was the interest under the reinsurance contract assignable? 38 SGI had no existing legal right to claim under the reinsurance contract in 1992; all it had was a potential future chose in action, a 'mere expectancy': Norman v Federal Commissioner of Taxation (1963) 109 CLR 9. This is not a case where it was certain that a sum was to become payable in the future pursuant to an existing contract or other legal obligation. No sum would become payable unless and until the aggregate of the claims exceeded $10 million. 39 A future chose in action, such as that under the reinsurance contract in question, cannot be assigned at law. However, equity may enforce an agreement to assign future property, if valuable consideration is given: "In equity a would-be present assignment of something to be acquired in the future is, when made for value, construed as an agreement to assign the thing when it is acquired. A court of equity will ensure that the would-be assignor performs this agreement, his conscience being bound by the consideration. The purported assignee thus gets an equitable interest in the property immediately the legal ownership of it is acquired by the assignor, assuming it to have been sufficiently described to have been then identifiable": Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 25 per Windeyer J. 40 It follows that the defendant's submissions in relation to the 1992 Deed should be accepted and the purported assignment was ineffective. The 2002 Deed 41 The intervening deed need not be considered. However the 2002 Deed relevantly provided: "K. For avoidance of doubt and if for any reason whatsoever the 1992 assignment and the 2001 assignment have not assigned the whole of the interest, rights or benefits of SGI in the GCR reinsurance contract SGI, Allianz Run Off and AAIL have agreed to execute this further deed." 42 Under the operative clauses of the 2002 Deed, both SGI and Allianz (Run Off), "to the extent that [they] … retain any interest, right or benefit under the GCR reinsurance contract, … assign absolutely to AAIL the whole of any such interest, right and benefit including all right, title or benefit which would or might enable AAIL to bring a claim against GCR in respect of the GCR reinsurance contract." 43 The defendant's submission in relation to the 2002 Deed is that the 1992 Deed was effective to assign SGI's obligations to the Committee so that when a claim materialised, as SGI no longer had any obligation, it had nothing left to assign. However, the plaintiff submitted that it is impossible to assign a contractual liability. The textbooks say that the plaintiff's proposition is axiomatic. In Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (Butterworths, 2002) the rule is expressed as follows: "The only way in which a contractual obligation may be transferred from one person to the other is by a novation, that is, by a further agreement between the parties to the original contract and the party who is to assume the obligation." (at [6-460]) 44 A party to a contract may arrange to have his obligations 'vicariously performed', but cannot transfer the obligation itself. The rationale for this principle was expressed by Collins MR in Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668: "It is, I think, clear that neither at law nor in equity could the burden of a contract be shifted off the shoulders of a contractor on to those of another without the consent of the contractee. A debtor cannot relieve himself of his liability to his creditor by assigning the burden of the obligation to somebody else; this can only be brought about by the consent of all three, and involves the release of the original debtor." 45 The defendant accepted that, as a general proposition, it is not possible to assign the detriment of a contract. However, it submitted that this doctrine did not operate in relation to the assignment of contracts of insurance for the purposes of s 36 of the Insurance Act 1973 as it existed at the time of the 1992 Assignment. Section 36 relates to the control by APRA over corporations which carry on an insurance business, and says: "Cancellation of authority (1) Where a body corporate requests, by notice in writing given to APRA, that the authority to carry on insurance business granted to it under this part be revoked and APRA is satisfied that the body corporate has no liabilities in respect of insurance business carried on by it in Australia, APRA may, by notice in writing given to the body corporate, revoke the authority. (2) Where APRA believes that a body corporate has not commenced to carry on insurance business in Australia within the period of 12 months after it was granted an authority under this Part, APRA may give notice in writing to the body corporate that, unless it satisfies APRA, within 1 month after the notice is given, that it has commenced to carry on insurance business in Australia, the authority will be revoked. (3) Where APRA is satisfied that a body corporate authorized under this Part to carry on insurance business has not, during the preceding period of 12 months, carried on insurance business in Australia and has not had, during that period, liabilities in respect of insurance business carried on by it in Australia, APRA may give notice in writing to the body corporate that, unless it satisfies APRA, within 1 month after the notice is given, that, during that period, it has carried on such business or had such liabilities, the authority will be revoked. (4) Where a body corporate to which a notice is given under subsection (2) or (3) does not, within the period of 1 month after the notice is given, satisfy APRA with respect to the matters mentioned in the notice, APRA shall inform the Treasurer accordingly and the Treasurer may, after having considered the information, by notice in writing given to the body corporate, revoke the authority granted to it under this Part. (5) The revocation of an authority takes effect from and including the day after the day on which the notice under subsection (1) or (4) is given to the body corporate. (6) Where an authority is revoked under this section, APRA shall cause notice of the revocation to be published in the Gazette . (7) Part VI applies to: (a) a refusal under subsection (1) to revoke an authority; or (b) the revocation of an authority under subsection (4). (8) A reference in this section to a body corporate having no liabilities in respect of insurance business carried on by it in Australia shall be read as including a reference to a body corporate that has assigned the whole of its interests under all contracts of insurance in respect of insurance business carried on by it in Australia to another body corporate authorized under this Act to carry on insurance business. (9) In subsection (8): assignment means an absolute assignment, but does not include an equitable assignment. interests includes rights and benefits." 46 The defendant submits that the clear purpose of s 36 is to transfer liabilities from one company to a satisfactory recipient company so that the first company can cease carrying on business as an insurer and have its authority to do so revoked, while the rights of policy-holders are protected. It was pointed out that the assignment of interests contemplated by s 36(8) is an "absolute assignment". The defendant submits that this must include the assignment of all liabilities of the assigning corporation. 47 It was further submitted that, if it is accepted that liabilities under a contract of insurance could not be assigned, although the approved assignee would meet the liabilities of the assignor, ultimate liability would rest with the assignor. This, is it said, would be inconsistent with the intention of the section, which is that insurance companies whose licences are to be revoked are to be quit of all legal obligations to policy-holders. 48 It is true that the general rule that contractual burdens cannot be assigned sits uneasily with s 36. There is no previous decision on this question and the second reading speeches are of little assistance. 49 The defendant accepts that its submission that liabilities can be assigned under s 36 would constitute a significant departure from the accepted law. It is of course possible that specific legislation could override the general principle (see Justine Kirby, 'Assignments and Transfers of Contractual Duties: Integrating Theory and Practice' (2000) 31 VUWLR 317). However, s 36 does not provide for the transfer of contractual liabilities, but is concerned with the possibility of the revocation of authority once it is established that an insurance company has no liabilities. 50 In my opinion s 36 should not be construed in a manner which conflicts with the accepted law. The section should be understood so that APRA may act provided it is satisfied that the relevant obligation will be met. This may be achieved by an arrangement under which the "assignee" accepts absolutely all obligations of the assignor. However the obligation to the insured remains with the "assignor". 51 The effect would be that SGI did not, by the 1992 Deed, divest itself of the obligations it owed to the Committee. Accordingly, SGI retained the right to claim under the reinsurance contract and could assign that right to Allianz Australia Insurance Limited. It did this by way of the 2002 Deed. 52 The defendant submitted that special rules and restrictions should exist for the transfer of rights and liabilities under contracts of reinsurance. It was submitted that a novation should be required for the transfer of a contract of reinsurance so that a reinsurer may always 'know who it is dealing with', and will avoid, for example, finding itself dealing with an insurer with a less than desirable credit rating. 53 Whether special rules should exist in relation to assignment of policies of insurance has been considered in the context of motor vehicle insurance (see Peters v General Accident and Life Insurance Co (1937) 4 All ER 628). Whether they should exist in relation to reinsurance is a matter for consideration by the legislature. Notice 54 It is the contention of the defendant that there was no notice given of the assignments in 1992, 2001 and 2002 and that the assignments must fail. Section 12 of the Conveyancing Act 1919(NSW) requires "express notice in writing" to the party affected. However, notice of the assignment in 2002 was given by letter dated 28 June 2002. The defendant's submission should rejected. Conclusion 55 Accordingly the plaintiff's summons must be dismissed. The parties are to bring in short minutes. Costs may be argued. **********

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