AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185 | Case summary

Federal Court of Australia (Full Court)|1993-06-25|Before: Ambrose J, Emmett J, Gyles JJ, Moore J

MOORE J 1 I have had the benefit of reading the reasons for judgment of Emmett J in a draft form. I agree with those reasons and the orders his Honour proposes. I simply wish to add some further observations about s 13 of the Insurance Contracts Act 1984 (Cth) in amplification of what Emmett J has said at [85] and following. 2 Section 13 implies in a contract of insurance a provision requiring each party to the contract to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. The learned primary Judge dealt with the issue of whether there had been a breach of this obligation in the following passage from his reasons (at [75] and [76]): 3.5 Breach of the obligation of utmost good faith It is said that each time CGU "failed to provide indemnity within the time period and after the provision of the information, in respect of each claim contemplated by the Protocol, CGU repudiated liability under the policy in respect of that claim". AMPFP submits that these failures constituted breaches of CGU's implied duty of utmost good faith imposed by s 13 of the Insurance Contracts Act and therefore constituted breaches of the Policies in respect of every settled claim. An allegation of breach of the duty of utmost good faith requires proof of some want of honesty: CIC Insurance Ltd v Barwon Region Water Authority [1939] 1 VR 683 at 699. Fairness would require that any such allegation be put to the CGU witnesses. This did not happen. The substance and effect of their evidence was that they did not regard the Protocol as imposing any obligation of any sort on CGU . This belief was not challenged. 3 In my opinion, breach of the duty arising under s 13 would not always require proof of want of honesty and did not in this case. Before discussing the authority the learned primary Judge cited, it is convenient to refer to an earlier judgment of the Full Court of the Supreme Court of Western Australia in Kelly v New Zealand Insurance Co Ltd (1996) 130 FLR 97. That matter concerned a claim made by an insured against the insurer who had refused to indemnify him. The insured was an antique dealer who had effected building and contents insurance for his home in which he kept items of value. The home was burgled and items were stolen which the insured claimed were valued at more than $200,000. The policy contained limits on the amounts recoverable in relation to classes of property unless the specific articles of property in any class were identified in a list provided to the insurer. No such list had ever been provided. 4 In the case of Kelly, one ground on which the insured sought to recover was that the insurer had breached its duty of good faith because it knew the insured's house was full of antiques and other expensive items, had accepted an increase in premium in the year of the burglary but had not adequately explained to the insured the consequences of failing to provide a list of items. The trial judge and also the Full Court rejected this argument. The leading judgment was given by Owen J (with whom Kennedy and Steytler JJ agreed). When discussing the contents of the duty to act in good faith, Owen J said at 111: At common law contracts of insurance are described as contracts uberrimae fidei or contracts of good faith. The precise definition of the term good faith depends on the legal context in which it is used. In the context of insurance, Sutton in Insurance Law in Australia says that the phrase "... basically encompasses notions of fairness, reasonableness and community standards of decency and fair dealing." In the New Zealand High Court decision of Vermeulen v SIMU Mutual Insurance Association (1987) 4 ANZ Ins Cas 60-812 the duty of good faith was described as having the essential element of honesty. His Honour went on to observe: By virtue of s12 of the Act the duty in s13 is an over-riding duty which must not to be limited or restricted in any way. The duty of good faith does not require that the parties make further disclosure after the contract has been entered into. 5 In the case of Kelly, there was evidence that the insurer had told the insured about the limits of the policy and had repeatedly asked for a list. The trial judge found that the insured probably, but without justification, thought that the insurer would not rely on the strict terms of the policy. Owen J noted, however, that the insurer's reliance on the provisions limiting liability for classes of property did not indicate lack of good faith. His Honour concluded at 112: For all of these reasons there was no dishonest, capricious or unreasonable conduct by the respondent. It is not necessary for a party to point to conduct of any particular degree of seriousness in order to establish a breach of the duty. In this case there is nothing that can be sheeted home to the respondent that could be said to offend "the essential element of honesty" that is at the heart of the good faith principle. (emphasis added) I should note that the judgment of the High Court of New Zealand cited in the first quoted passage from the reasons of Owen J, concerned a situation where the insured consumed alcohol shortly before driving and crashing his car. The insured indicated in a claim form that he had drunk no intoxicating liquor but otherwise candidly told an investigating assessor acting for the insurer that he had consumed alcohol. Hardie Boys J of the High Court of New Zealand rejected an argument that the insured had not acted with the utmost good faith because the insured's failure to disclose the consumption of alcohol in the claim form had not involved dishonesty on his part. 6 The authority referred to by the primary Judge in this matter, CIC Insurance v Barwon Region Water Authority (1998) 147 FLR 353, addressed whether the insured's failure to disclose to the insurer certain structures on the property the subject of an "all risks property insurance policy", established a want of utmost good faith. Again, it was a case of non‑disclosure. The insurer contended that the failure to disclose the structures constituted a breach of s 13. The leading judgment was given by Ormiston JA (with whom Phillips and Kenny JJA agreed). His Honour said at 369: …the requirement for good faith in the sense described in ss 12, 13 and 14 has been held to connote an element of honesty, however widely that duty should otherwise be construed … That some lack of honesty had for this purpose to be proved was held to be a requirement of the section by the Western Australian Full Court in Kelly v New Zealand Insurance Co Ltd (1996) 9 ANZ Ins Cas 76,506, in which it was stated that the duty had or required "the essential element of honesty": per Owen J (with whom Kennedy and Steytler JJ concurred) (at 76,519-76,520), being a decision of an intermediate court of appeal on the meaning of a Commonwealth statute. Even if I were to think such a conclusion wrong, it is not appropriate for this Court to reach a different interpretation of the section. His Honour said (at [45]) that even if he was wrong as to the requirement of dishonesty, the trial judge had concluded (a conclusion Ormiston JA appeared to adopt) that there had been no failure to act fairly and reasonably, or contrary to community standards of decency and fair dealing. 7 These authorities establish that in a case when an insurer claims that the insured has breached the duty imposed by s 13 by failing to disclose relevant information, that failure does not constitute a breach of the duty unless there is some dishonesty attending the non‑disclosure. They do not establish, in a case such as the present, that there can be no breach of the statutory duty by an insurer unless the insurer acts in a way that can be said to be dishonest. 8 Indeed, there are cases broadly analogous to the present where it has been decided that there was a breach of the statutory duty when an insurer failed to make a decision promptly about whether it would provide indemnity. In Moss v Sun Alliance Australia Ltd (1990) 6 ANZ Insurance Cases 60-967, a business was destroyed by a fire. The insured claimed under the policy of insurance. A dispute arose with the insurer in relation to the amount payable. The insurer made no payment. Bollen J said at 76,431, after setting out the terms of s 13: The defendant has not paid money which it should have paid. Mr. Swan [counsel for the plaintiff/insured] says that prompt admission of liability to meet a sound claim for indemnity and prompt payment is required of an insurer by virtue of its obligation to act with the utmost good faith towards its insured. I agree. The defendant here, says Mr. Swan, did not so behave. It is therefore in breach of its contract of its obligation to act with the utmost good faith of a term in its contract with the plaintiffs. It delayed for an unreasonably long time in admitting liability and in withholding, even until now payment. . . . The correspondence and cross-examination of the plaintiffs establishes that the reason for delay is the waiting by the defendant for a fire report and later for a police report. The delay was mainly caused by the waiting for a police report. . . . His Honour continued at 76,432: He [counsel for the defendant/insurer] did not submit that the fact that details in full were not received until 30 September 1988 or thereabouts means that it was reasonable for the defendant not to have paid before receipt of that letter. I think that he was right not to have so suggested. The assessors acting for the defendant were on the job on the day after the fire. They had the means of gathering information. The plaintiffs did not know what to expect of the defendant as the weeks and months passed before receipt of the letter saying that indemnity would be met. . . . I think that it is no answer in the face of the long and continuing delay to say that it was reasonably waiting for a police report. I do not think the long wait was reasonable. I have no doubt that the defendant was waiting for that report and that was what prevented it from admitting liability and seeking details and getting about paying. I recognise too, as the plaintiffs agree, that a police officer or police officers in a country town were slow in preparing papers for the coroner. But the assessor could and should, in my opinion, quite quickly have found that the plaintiffs had a true and sound claim for indemnity. 9 The effect of Moss v Sun Alliance Australia Ltd was considered in Gutteridge v Commonwealth of Australia (unreported, Supreme Court of Queensland, Ambrose J, 25 June 1993), where an insurer had declined to make a decision with respect to the applicants' claim for indemnity upon the destruction of their home. Ambrose J stated that to act in good faith certainly required one to act honestly. His Honour noted: While the respondent might not fail to act "in good faith" if it acted honestly although in a blundering or careless fashion, the failure of the respondent to make and communicate within a reasonable time a decision of acceptance or rejection of the applicants' claim for indemnity by reason of negligence or unjustified and unwarrantable suspicion as to the bona fides of the applicants' claims, may constitute a failure on the part of the respondent to act towards the applicants "with the utmost good faith" in dealing with their claim…Acting with "utmost good faith" must involve more than merely acting honestly, otherwise no effect is given to the word "utmost". 10 His Honour noted that if the insurer's failure to communicate a response to the claim in time was motivated by a purpose other than the honest rejection of the applicants' claim then that would certainly involve a failure to act "with the utmost good faith" in dealing with that claim. His Honour cited the above passages from Moss v Sun Alliance Australia Ltd and said the case was authority for the proposition that: failure to make a timely decision to accept or reject an insured's claim for indemnity under a policy can amount to a failure to act towards the insured with the utmost good faith as required by s. 13 of the Act, even if the failure results not from an attempt to achieve an ulterior purpose, but results merely from a failure to proceed reasonably promptly when all relevant material is, or ought be, at hand sufficient to enable a decision on the claim to be made and communicated to the insured. 11 In the present case and for the reasons given by Emmett J, the conduct of CGU Insurance Limited could constitute a breach of the statutory duty. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.

VICTORIA DISTRICT REGISTRY VID 1422 OF 2004

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT EMMETT J THE CORPORATIONS LAW AND AMP THE INSURANCE POLICIES PAL AND HORWARTH AMP'S DEMANDS TO CGU FOR INDEMNITY THE PROCEEDING THE PLEADINGS THE CONCLUSIONS OF THE PRIMARY JUDGE THE APPEAL EFFECT OF THE PROTOCOL Estoppel Utmost Good Faith Conclusion Concerning the Effect of the Protocol SETTLEMENT BEFORE BREACH OF INSURANCE POLICIES WAS CGU IN BREACH REASONABLENESS OF SETTLEMENTS RELEVANCE OF SECTION 819(4) OF THE LAW INVESTIGATION AND LEGAL COSTS DECLARATIONS THE CROSS APPEAL CONCLUSION 12 This appeal concerns the rights of the appellant, AMP Financial Planning Pty Ltd ('AMP'), under insurance contracts entered into with the respondent, CGU Insurance Limited ('CGU'). At relevant times, AMP carried on business as a finance, investment and insurance advisor, licensed security dealer and mortgage originator ('the Professional Business Practice'). The insurance contracts provided for insurance cover in respect of certain types of civil liability incurred by AMP in the conduct of the Professional Business Practice. AMP has made payments totalling in excess of $3,000,000 in settlement of demands made against it by persons who made investments on the basis of advice given by individuals who were representatives of AMP in connection with the Professional Business Practice. AMP claims to be entitled, under the insurance contracts, to be reimbursed by CGU in respect of those payments. A judge of the Court rejected AMP's claims. AMP now appeals to the Full Court from the orders of the primary judge. CGU has cross-appealed in respect of the costs order made by the primary judge.

THE CORPORATIONS LAW AND AMP 13 Chapter 7 of the Corporations Law of New South Wales ('the Law') was concerned generally with securities. Part 7.3 of Chapter 7 was concerned with participants in the securities industry. Provision was made for the grant of a licence to carry on business as an investment adviser. Division 3 of Part 7.3 was concerned with the regulation of persons who act as representatives of investment advisers. Under s 807, a natural person was prohibited from doing an act as a representative of an investment adviser unless the investment adviser was the holder of a licence and the person held a proper authority from the investment adviser. The holder of a proper authority was described as a representative of the investment adviser. Division 4 dealt with liability of principals for their representatives' conduct. 14 Division 5 of Part 7.3 was concerned with the exclusion of certain persons from the securities industry. Power was conferred upon the Australian Securities and Investment Commission ('the Commission') to revoke licences. In particular, under s 826(1)(j), the Commission could revoke a licence if the Commission had reason to believe that the licensee had not performed efficiently, honestly and fairly the duties of a holder of an investment adviser's licence. In addition, under s 827(1), where the Commission was empowered to revoke a licence, the Commissioner could, if it thought it desirable to do so, suspend the licence. 15 At relevant times, AMP was a licensed investment adviser under the Law. In the course of the Professional Business Practice, as a licensed investment adviser, AMP provided financial planning advice to retail clients through a network of individuals who held proper authorities from AMP. The authorisations of such representatives by AMP allowed the representatives to give advice and recommendations on AMP's behalf in respect of investment in financial products. However, representatives were authorised to provide advice only about financial products on an approved products list published from time to time by AMP. Further, any particular representative was authorised to provide advice only about the particular financial products on the approved products list in respect of which that representative had been accredited to advise.

THE INSURANCE POLICIES 16 On 19 February 1999, AMP and CGU entered into a professional risks insurance contract ('the 1999 Policy'). The period of cover under the 1999 Policy was from 28 February 1999 to 28 February 2000. On 22 February 2000, AMP and CGU entered into a further professional risks insurance contract ('the 2000 Policy'), for the period from 28 February 2000 to 28 February 2001. The terms of the 1999 Policy and the 2000 Policy (together 'the Insurance Policies') are relevantly identical and the same questions arise in relation to demands made against AMP during both periods of insurance. 17 By clause 3.1 of the Insurance Policies, CGU agreed to provide cover for Claims (as defined) for Civil Liability (as defined) arising from the conduct of the Professional Business Practice, so long as certain prerequisites were satisfied in relation to the timing of the Claims. Special Condition 4 of the Insurance Policies was in the following terms: '…it is hereby declared and agreed that [AMP] shall be indemnified in accordance with the terms, conditions, exceptions and limitations on this Policy in respect of its liability as a principal and licensed securities dealer for acts or omission of its authorised representatives, but only on the basis that CGU… retain the rights of subrogation against the authorised representatives.' 18 By clause 3.2 of the Insurance Policies, it was stated that cover was to be provided in respect of any of the following types of Civil Liability Claim arising in the conduct of the Professional Business Practice: '(a) Breach of duty (including a duty of confidentiality).

(c) Loss of or damage to Documents which were in the Insured's physical custody or control at the time of loss or damage.

(d) Dishonest, fraudulent, criminal or malicious acts or omissions by an Employee or Principal of the Insured (but there is no cover to that Employee or Principal for these Claims).

(e) Infringement of any patent, copyright, design or trademark.

(f) Breaches of the Trade Practices Act 1974 or similar Fair Trading legislation enacted throughout Australia (but not for criminal liability).' 19 Clause 3.3 of the Insurance Policies was as follows: '3.3 Claim investigation costs [CGU] also pay… Claim Investigation Costs. [CGU] only pay these, however, if either: (a) [CGU] incur them; or (b) [AMP] incurs them after first obtaining [CGU's] agreement in writing and the costs and expenses are in [CGU's] view reasonable.' 20 Under clause 12.1 of the Insurance Policies, 'Civil Liability' was defined as: 'Liability for the damages, costs and expenses which a civil court orders [AMP] to pay on a Claim (as opposed to criminal liability or penalties)…' The term 'Claim' was defined under clause 12.2 in the following terms: 'Any originating process (in a legal proceeding or arbitration), cross claim or counter claim or third party or similar notice claiming compensation against and served on [AMP].' 21 Section 7 of the Insurance Policies contained the following provisions: '7.1 [AMP] must tell [CGU] in writing about a Claim or loss as soon as possible and while this Policy is in force… 7.2 [AMP] must:

(a) diligently do, and allow to be done, everything reasonably practicable to avoid or lessen [AMP's] liability or loss in relation to a Claim;

(b) immediately give [CGU] all the help and information that [CGU] reasonably require to:

(ii) Work out [CGU's] liability under this Policy. … 7.5 …

(a) take over and defend or settle any Claim in [AMP's] name; and

(b) Claim in [AMP's] name, any right [AMP] may have for contribution or indemnity. 7.6 …

without first obtaining [CGU's] consent in writing.

If [CGU's] prior consent is not obtained, the [AMP's] right to cover under this Policy may be affected.'

PAL AND HORWARTH 22 Mr Ashok Pal and Mr Anthony Howarth, who conducted a financial advisory business through the medium of Macquarie Advisory Group Pty Ltd ('MAG'), were representatives of AMP for the purposes of Chapter 7 of the Law in that, at various times, each of them held a proper authority from AMP. At various times they also held proper authorities from Hillross Pty Ltd ('Hillross'), a related company of AMP. 23 In May 1999, officers of Hillross discovered that Pal and Howarth had traded outside their proper authorities and in a manner contrary to representatives agreements entered into between Hillross, on the one hand, and Pal and Howarth, on the other. After receiving notification of those circumstances from Hillross, the Commission conducted examinations of Pal, Howarth and associated persons and obtained an order for the winding up of MAG. 24 It subsequently became apparent that Pal and Howarth had recommended investments to clients during the period when they also held proper authorities from AMP. Accordingly, on 16 December 1999, AMP notified CGU that it had become aware of matters that might give rise to Claims (as defined) under the 1999 Policy. On 5 September 2000, AMP gave further notification to CGU that it had become aware of matters that might give rise to Claims (as defined) under the 2000 Policy. 25 In early February 2001, the Commission requested a meeting with AMP and a meeting took place on 14 February 2001. At that meeting, a representative from the Commission told AMP that the Commission was concerned about delay in compensating investors for losses arising from the conduct of Pal and Howarth, given that the problems had been discovered in May 1999. The Commission's representative told AMP that the Commission considered that, pursuant to s 826(1)(j) of the Law, the responsibility of AMP, and Hillross, was to handle all demands made by investors in an efficient, fair and timely manner and that their obligations to investors should override any insurance concerns. AMP was told that, if compensation was properly payable to investors, there should be no discounting of valid claims and investors should not be required to follow a procedure that required court proceedings if such proceedings were unnecessary. The Commission's representative said that the process of dealing with investor demands needed to be improved so that investors could be informed of the time period within which matters would be resolved, the evidence required to review their demands and the name of the person who would deal with them.

AMP'S DEMANDS TO CGU FOR INDEMNITY 26 Following the meeting with the Commission, AMP and Hillross prepared a plan for the investigation of demands by investors in the light of the comments made by the Commission. On 1 March 2001, AMP's solicitors, Minter Ellison, wrote to CGU's then solicitors, Ebsworth & Ebsworth, enclosing a folder of material in relation to AMP's 'claim for indemnity for loss arising from the activities' of Pal and Howarth. The letter said that dispatch of the material had been delayed in order to enable a report on the outcome of the meeting with the Commission on 14 February 2001. The letter of 1 March 2001 relevantly said: '…the relationship between [AMP] and [the Commission] is critical to [AMP's] business. [The Commission] expects that securities licensees will conduct their business in a way which gives effect to their obligation to ensure that investors are adequately compensated for losses that arise from the wrong doings of securities representatives.' The letter summarised the position of the Commission and said that, in order to protect its licence and business reputation, AMP would give effect to the Commission's views when dealing with investor claims. 27 The folder of material included a history of Pal and Howarth, together with a copy of the contents of files maintained by AMP relating to Pal and Howarth. The folder also included a summary of the investments that had given rise to demands for compensation by investors and a summary of the demands received to date that might give rise to a liability on the part of AMP. Finally, the material included a report on how liability of AMP to investors would arise. By way of example, a draft liability report, prepared in relation to specific demands made by Bajada Retirement Fund ('Bajada'), was included in the material. 28 The letter of 1 March 2001 went on to say: 'When it is clear from the facts that advice was given or an investment made, at a time when Pal or Howarth, as the case may be, was authorised to act for more than one licensed securities dealer, notice will be issued to the other dealer seeking equal contribution. However, Consistent with [the Commission's] requirements, contribution will not hold up resolution of a claim by [AMP] in any case. The proposed procedure for the handling of claims… is presently being revised to reflect [the Commission's] comments made at the 14 February 2001 meeting. These proposed procedures will be supplied to you when they have been finalised.' 29 On 26 March 2001, Minter Ellison wrote again to Ebsworth & Ebsworth, enclosing a document entitled 'Proposed Procedure for the Management of Claims' ('the Protocol'). The letter also enclosed notification reports in relation to those demands by investors of which AMP was aware at that time. The letter ended as follows: 'We look forward to receiving, as soon as possible, confirmation that your client will indemnify [AMP] in respect of its liability arising out of the conduct of Pal and Howarth.' 30 The Protocol has considerable significance in the proceeding. Clause 3 of the Protocol said as follows: '[AMP] proposes that the following protocol be adopted for each complaint that is received by [AMP], whether direct or via Hillross:

(a) receive claim and provide a notification report to CGU;

(b) place Pal and Howarth on notice of claim as well as any other licensees that provided Pal or Howarth with a proper authority during the period of the investor's claim;

(d) prepare a report setting out [AMP's] legal liability and recommendations on the claim, considering factors such as investor risk profile, risk of investment and knowledge of that risk ('liability report') (see tab 9 of the folder);

(e) obtain instructions from CGU in relation to settling or defending the claim within 14 days of provision of the liability report;

(f) if settling: prepare settlement deed, including full releases, confidentiality and any assignments of interests and associated causes of action (see tab 10 of the folder);

(g) if defending: prepare defence material for trial.' 31 On 6 April 2001, Ebsworth & Ebsworth responded to the letter of 26 March 2001, relevantly saying: 'We understand the requirements of [AMP's] internal and external complaints resolution procedures and have sought instructions from our client in respect of indemnity. Pending indemnity your client should continue to act as a prudent uninsured.' [Emphasis added] On 11 May 2001, Ebsworth & Ebsworth wrote again to Minter Ellison relevantly saying: '…we are instructed by CGU… to agree in principal [sic] to the protocol for the handling of claims provided to us under cover of your letter dated 26 March 2001. In accordance with the protocol our client will consider your client's claim for indemnity on an investor by investor basis consequent upon receipt of your summary document. Upon receipt of your summary document we shall arrange to attend your office and inspect the relevant primary documents which it is submitted evidence the claim and comprise the basis of liability. Thereafter we shall advise our client's instructions in respect of the particular investor. …' [Emphasis added] 32 On 7 June 2001, Minter Ellison wrote to Ebsworth & Ebsworth, enclosing a draft copy of the proposed deed of settlement in respect of the demand made by Bajada. The letter of 7 June 2001 went on, relevantly, to say: 'You were provided with the liability report in respect of the Bajada Retirement Fund's claim on 26 March 2001. You have since indicated that CGU accepts liability in principle subject to examining the documents in support of each claim. We have since provided you with all the documents submitted by the claimants in support of their claim. [The Commission] has indicated to our client that settlement of claims ought not to be delayed due to the requirements of insurers. Accordingly, if we do not receive confirmation as requested above within 14 days of the date of this letter our client will settle this claim without the involvement of CGU. Our client will, however, expect CGU to reimburse it for the full amount of the settlement sum. Upon doing so our client will be willing to assign any assignments it takes from the claimants to CGU.' 33 Minter Ellison wrote again on 25 June 2001, making similar assertions in respect of the demand by Bajada. On 9 July 2001, similar letters were sent by Minter Ellison in relation to demands by other investors. 34 Ebsworth & Ebsworth responded on 12 July 2001, relevantly saying: '… whilst our client has no difficulties with the claim protocol as noted in our letter of 11 May it has not yet determined to confer indemnity upon your client. Frankly it is interested to understand why it is that the directors (or their insurers) are not being required to meet the claims and why it appears that [AMP] has not pursued GIO Insurance for a decision on their liability. We would be grateful for your advice on precisely at what stage your client's negotiations with GIO Insurance have reached and if GIO Insurance has denied liability whether you believe such denial is sustainable.' [Emphasis added] It appears that MAG was a party to an insurance contract with GIO Insurance. 35 On 1 August 2001, Minter Ellison wrote again to Ebsworth & Ebsworth. After referring to earlier correspondence and expressing disappointment that there had been no response to their letters concerning demands by various investors, the letter said: 'Due to our client's responsibilities under its dealers licence (which we have previously pointed out to you) to the claimants and the expectations of [the Commission], our client is obliged to go ahead with the settlements with these claimants. We enclose copies of the settlement deeds that our client proposes to use [AMP] expects reimbursement from CGU in accordance with the terms of the above policy. Upon reimbursement, if CGU wishes, [AMP] is willing to assign any assignment it takes from the claimants to CGU.' On 8 August 2001, Ebsworth & Ebsworth wrote to Minter Ellison, saying: 'We confirm that your client should continue to act as a prudent uninsured in respect of the subject claim.' [Emphasis added] 36 In August 2001, the retainer of Ebsworth & Ebsworth was terminated because of a conflict of interest. Solomon & Associates were appointed in their stead. On 19 September 2001, Minter Ellison wrote to Solomon & Associates. After referring to a meeting between Ebsworth & Ebsworth and Minter Ellison on 26 July 2001, at which an issue was raised concerning the liability of AMP to an investor in circumstances where the investor was not aware of the connection between Pal or Howarth and AMP, the letter to Solomon & Associates said: 'Your client… appeared to consider that in this situation the principal would not be liable to the claimant. [AMP] suggested that if your client's view of viability was based on legal advice which differed from our advice, that fact has (sic) best be disclosed to us straight away. From [CGU's] response, we have taken it that Ebsworths have not given advice which differs from our view concerning liability under section 819. As is evidenced from the liability reports already sent to you (and Ebsworths) our experience in dealing with investors is that the majority of them have the clear view that they were dealing with MAG, or in some cases Macquarie Bank. That is, that Pal and Howarth were acting as representatives of MAG. For the majority, the association with [AMP] has only come to light after the event. In our view, the effect of section 819 of the Corporations Act is to make [AMP] liable to such investors, even where investors do not know of [AMP], provided they reasonably believed that Pal or Howarth were acting for 'some person', such as MAG.' 37 An analysis of how Minter Ellison viewed the operation of s 819 of the Law was attached to the letter. Solomon & Associates were invited to let Minter Ellison know whether they disagreed with Minter Ellison's view of s 819. There was no response from Solomon & Associates. 38 On 5 October 2001, a meeting took place between Minter Ellison, on the one hand, and Solomon & Associates and representatives of CGU on the other hand. At the meeting Minter Ellison made a presentation on the demands that had been made on it by various investors in respect of the conduct of Pal and Howarth. Following the meeting, Minter Ellison wrote to Solomon & Associates on 24 October 2001 commenting on the following issues: '1 Claims for which [Solomon & Associates] have not received any documents;

2 Access to the section 19 transcripts of various MAG… personnel;

3 Consideration of potential tax advantages to the claimants;

4 Advice of Alan Archibald QC on the issue of liability.' 39 Thereafter, Minter Ellison continued to write to Solomon & Associates in relation to demands by various investors, enclosing copies of proposed settlement deeds. In particular, on 5 October 2001, Minter Ellison wrote to Solomon & Associates enclosing a spreadsheet that summarised the amounts in respect of which demands had been received from investors. It showed that some demands had been rejected, some deferred and some paid. The letter ended by saying: 'Until CGU makes a decision on indemnity under the policy, our client will continue to act in good faith as a prudent uninsured, consistently with its obligations under the policy and its dealer's licence, to keep its exposure (financial, regulatory or to its reputation) to a minimum.' [Emphasis added] 40 Minter Ellison wrote to Solomon & Associates several times after 24 October 2001, informing them of proposed settlements in respect of demands by various investors. In each case, Minter Ellison said that AMP expected reimbursement from CGU in accordance with the terms of the Insurance Policies. There was no response from Solomon & Associates or CGU. 41 In March 2002, Solomon & Associates ceased practice and CGU then retained Ms Nicole Wearne of Middletons. On 5 April 2002, Minter Ellison wrote to Middletons saying: 'We note that your client has yet to confirm with our client whether indemnity under its policy will be granted. While we understand that you have only recently received instructions in this matter, we note that we met with CGU's solicitors first in late 2000, then again with CGU's solicitors and CGU approximately 1 year ago, and again with CGU's (second) solicitors and CGU late last year. At all times, our client has been willing to discuss this matter with CGU and its solicitors, and to provide any documents requested. We believe that we have complied, at all times, with requests for documents. If you believe that further documents need to be provided, please indicate which documents you require and we will attempt to find them. …' 42 Middletons replied on 8 April 2002, saying, relevantly: 'We are instructed that our client continues to reserve its rights with respect to its liability to indemnify under the professional indemnity insurance policy issued to your client. … …your firm has acted for both [AMP] and [Hillross] throughout the claims administration process… There is a clear conflict of interest in your firm acting for both potential defendants to any claim by the third party clients. Our client insists that your firm immediately ceases to act for [AMP] and [Hillross] and that independent solicitors be appointed to administer any claims made against that entity. … As you firm is aware our client has obtained Senior Counsel's advice on the liability of [AMP] to clients of [MAG]. Counsel's advice is that your firm's interpretation of the Corporations Law is incorrect and accordingly in many cases no liability to a third party claimant exists. We confirm your… verbal advice… that [AMP] has obtained releases and paid monies to investor clients of MAG. It is our view that to the extent the payments relate to any claim covered by the policy that the insured has breached the no admission or settlement condition set out in clause 7.6 of the policy. Our client believes that the procedure adopted by the insured to resolve disputes with clients of MAG may be in breach of condition 7.2 of the policy and in breach of the obligations imposed on the insured by Section 13 of the Insurance Contracts Act 1984 as amended. … However our client is prepared to consider the insured's claim for indemnity arising from claims made by the client's of MAG on an individual basis. In the circumstances we have been instructed to review each client file to assess any liability on the part of the insured to the claimants for which it is entitled to be indemnified. In order for us to do this we seek that the insured provide us with a list setting out the name of every client of MAG where [AMP] considers that a claim for indemnity exists. We have on file numerous lists of clients some of which duplicate names on earlier notices and some of which are stand alone lists. … As stated our client believes that your office should not continue to act for [AMP]… On a without prejudice and reserved rights basis our client is prepared to take over conduct of all outstanding claims with our office acting for the insured.' 43 Minter Ellison replied to Middletons on 23 May 2002, recounting the communications between the parties since November 2000 and enclosing a consolidated schedule of all investors in relation to whose demands AMP sought indemnity under the Insurance Policies. Middletons responded on 20 June 2002. Their letter stated that CGU held the view that, in many cases, no liability on the part of AMP existed to investors who were clients of MAG. Reference was made to advice obtained from Mr Alan Archibald QC, but privilege was claimed in respect of the advice. No reason was provided as to why AMP had no liability to investors. The letter ended by setting out certain further information that was required. The letter said that that information was required as a 'bear [sic] minimum'. 44 Ms Wearne subsequently moved to Deacons, who thereupon commenced to act for CGU in relation to the Insurance Policies. On 31 December 2002, Minter Ellison wrote to Deacons. After referring to the earlier correspondence, Minter Ellison asked CGU to confirm in writing, no later than 14 January 2003: (a) whether CGU admits that the Insurance Policies apply to the demands made against AMP relating to Pal's activities that were detailed in an enclosed table; (b) whether CGU proposes to conduct negotiations and any legal proceedings in respect of any of the demands that remained unresolved.

There was no response to the letter because, unbeknownst to AMP and Minter Ellison, CGU had written directly to AMP on 14 November 2002. The letter was addressed to AMP's brokers but, for some reason, it was not received by either AMP or Minter Ellison. 45 By the letter of 14 November 2002, CGU declined indemnity in respect of the demands made by clients of MAG and Pal. Enclosed with the letter were three schedules, A, B and C, describing the demands made against AMP, of which CGU had received notification. In relation to the demands listed in schedule A, CGU maintained that no legal liability existed on the part of AMP to the relevant investors. The letter said: 'We are advised that Minter Ellison's legal opinion on the operation of section 819 is flawed and not supported by case law. We are also advised that for [AMP] to be liable under section 819, what is required on the part of the claimant is actual belief that Pal's conduct in providing advice was performed in connection with [AMP's] business. Moreover the investors' belief must be reasonably held. It is clear that none of the Schedule A investors held a belief that Pal acted on behalf of [AMP] at the time that the advice was provided or the investment made.' It is highly significant that no mention was made of s 819(4), to which reference will be made later. 46 In relation to the demands described in schedule B and schedule C, CGU intimated that it required further information. Those demands are not presently relevant. 47 Minter Ellison wrote to Deacons on 22 January 2003, referring to the letter of 14 November 2002 from CGU to AMP. In relation to the demands in schedule A, Minter Ellison requested that a copy of the opinion of Mr Archibald QC be provided to them and intimated that AMP believed that CGU should review its decision regarding indemnity for the demands listed in schedule A. 48 On 28 March 2003, CGU wrote to AMP again. After referring to additional documentation that had been forwarded by Minter Ellison to Deacons, the letter said: 'We regret to advise that the additional documents do not contain any information that alters the basis of [AMP's] claim. We maintain our original decision to deny indemnity on the basis that [AMP] is not legally liable for the acts of Mr Pal in recommending unauthorised investments… We enclose a copy of the most recent advice received from Mr Archibald SC and Mr Settle of counsel. You will see that their advice confirms our view that no legal liability exists on the part of [AMP] to the claimant investors.' The opinion enclosed with the letter makes no mention of s 819(4). The significance of that omission will become apparent in due course.

THE PROCEEDING 49 AMP commenced a proceeding in the Court on 13 June 2003. In its further amended statement of claim filed on 22 April 2004 ('the Statement of Claim'), AMP made various allegations under several heads, as follows:

Breach of the Insurance Policies.
Estoppel against denial of indemnity under the Insurance Policies.
Australian Securities and Investments Commission Act 1989 (Cth) ('the ASIC Act') and the Fair Trading Act 1999 (VIC) ('the Fair Trading Act').
Section 13 of the Insurance Contracts Act 1984 (Cth) ('the Insurance Contracts Act'). 50 It is desirable to set out in some detail the allegations made in the pleadings, since arguments have been advanced on both sides suggesting departure from the pleadings. Each party insists that the proceeding should be decided on the pleadings.

THE PLEADINGS 51 The allegations of breach of the Insurance Policies in the Statement of Claim can be summarised as follows: (1) By the Insurance Policies, CGU agreed to indemnify AMP for liabilities arising from the conduct of AMP's professional business practice, in respect of which demands were made against AMP during the relevant, period of insurance. (2) AMP notified CGU, pursuant to the Insurance Policies, that it had become aware of matters that may give rise to liabilities that AMP may have incurred arising from the activities of Pal and Horwarth. (3) On or about 26 March 2001, AMP provided the Protocol to CGU as a proposal for the handling of demands against AMP in respect of such liabilities. (4) On or about 11 May 2001, CGU represented to AMP ('the Protocol Representation') that it agreed in principle to the Protocol and, in accordance with the Protocol, would, within 14 days of provision of a liability report in respect of each investor demand, consider AMP's claim for indemnity in respect of such demand and communicate with AMP in relation to settling or defending such demand. (5) In accordance with the Protocol, and in reliance on the Protocol Representation, AMP requested CGU to provide it with instructions pursuant to the Protocol in relation to each of the investor demands set out in the Schedule to the Statement of Claim ('the S.C. Schedule'). (6) Contrary to the Protocol Representation, CGU did not respond to the request for instructions or otherwise communicate to AMP its instructions, whether to settle or defend any of the investor demands. (7) On each occasion on which AMP sent CGU a request for instructions, AMP informed CGU that, if CGU did not communicate its instructions in accordance with the Protocol, AMP would be obliged to settle the demand and it thereafter did so in relation to the investor demands described in the S.C. Schedule. (8) Pursuant to the Insurance Policies, CGU is liable to indemnify AMP in respect of each of the investor demands described in the S.C. Schedule. (9) CGU has wrongfully, and in breach of the Insurance Policies, denied indemnity under the Insurance Policies to AMP in relation to those investor demands. (10) By reason of CGU's denial of indemnity, in breach of the Insurance Policies, AMP has suffered, and will continue to suffer, loss and damage. 52 Thus, in the Statement of Claim, AMP asserts that CGU had wrongfully, and in breach of the Insurance Policies, denied indemnity in relation to the investor demands described in the S.C. Schedule. On a strict reading of the terms of the Insurance Policies, however, such an assertion could not succeed. That is because the obligation of CGU under clause 3.1 is to provide cover for 'Claims for Civil Liability'. As indicated above, a 'Claim' involves any original process (in a legal proceeding) or arbitration, cross-claim, or counter-claim, or third party, or similar notice claiming compensation, against AMP. There has not been any legal proceeding or arbitration commenced against AMP in respect of any of the investor demands. Each of the demands in question was settled by AMP before such a step was taken. Further, as also indicated above, Civil Liability is defined in the Insurance Policies as liability that a civil court orders AMP to pay on a Claim. A fortiori, there was no Civil Liability on the part of AMP in the sense defined. Finally, under clause 7.6 of the Insurance Policies, there was a prohibition on AMP admitting liability for, or settling, any Claim without first obtaining CGU's consent in writing. AMP settled demands by investors without any express written consent. 53 Against the possibility that those provisions might be relied upon by CGU in answer to AMP's claim for damages for breach of the Insurance Policies, the Statement of Claim pleaded estoppels, which might be summarised as follows: (1) As a result of CGU making the Protocol Representation, AMP was induced by CGU to believe that: (1.1) CGU was aware of and accepted AMP's obligations and intention to deal with the investor demands prudently and in an efficient, honest and fair manner; (1.2) CGU would provide its instructions either to settle or defend an investor demand within 14 days of the provision by AMP of a liability report in accordance with the Protocol; (1.3) if CGU failed to respond to AMP's request for instructions, AMP might reasonably proceed to settle the investor demand notified under the Protocol as it was legally and commercially compelled to do; (1.4) by so settling, AMP would not adversely affect its rights to obtain indemnity under the Insurance Policies. (2) Acting upon those beliefs, and in reliance on the Protocol Representation and the absence of any objection or suggestion by CGU that the beliefs were unreasonable, unjustifiable or wrong, AMP settled the investor demands described in the S.C. Schedule. (3) Those settlements were reasonable. (4) It would be unconscionable now, and therefore CGU is unable, to deny indemnity to AMP under the Insurance Policies in respect of those investor demands. (5) CGU is estopped from denying indemnity to AMP under the Insurance Policies in respect of those investor demands. 54 CGU's defence to the pleading of the estoppels in the Statement of Claim is significant in terms of the issues raised by the appeal. The relevant paragraphs of CGU's defence can be summarised as follows: (1) By the letter of 11 May 2001 from Ebsworth and Ebsworth, CGU agreed in principle to the Protocol and agreed to consider AMP's claim for indemnity on an investor by investor basis consequent upon receipt of documents from Minter Ellison. (2) The handling of investor demands pursuant to the Protocol was unconnected with the question of entitlement to indemnity under the Insurance Policies. (3) By settling demands by investors described in the S.C. Schedule, without receiving, from CGU, instructions either to settle or defend those demands, AMP has not adversely affected its rights, if any, to obtain indemnity under the Insurance Policies, because CGU does not resist the claim for indemnity on the ground that: (3.1) none of the investors had instituted proceedings of any kind against AMP and, therefore, there was no Claim (as defined) for Civil Liability (as defined) such as would enliven the cover provided by the Insurance Policies; and (3.5) contrary to clause 7.6 of each of the Insurance Policies, AMP has settled the demands by the investors identified in the S.C. Schedule without first obtaining the written consent of CGU. Thus, the defence of CGU effectively removed any question that might arise from the terms of clauses 7.6, 12.1 or 12.2 of the Insurance Policies. 55 Nevertheless, CGU denied that it was liable to pay anything to AMP in respect of the investor demands that AMP had settled. The essence of AMP's claim in the Statement of Claim was its allegation that CGU is liable to indemnify AMP in respect of all investor demands described in the S.C. Schedule. CGU's answer to that allegation was complex. First, it simply denied the allegation. CGU sought to draw a distinction between the entitlement of AMP to cover under the Insurance Policies, on the one hand, and the manner in which AMP might establish its right to cover in any particular case, on the other hand. 56 That is to say, CGU accepted that it could not deny cover on the ground that:

No Claim (as defined) had been served on AMP by any investor.
No civil court had ordered AMP to pay damages, costs or expenses to any investor on a Claim (as defined). · AMP had settled investor demands without CGU's prior consent in writing.

However, as will be seen, CGU takes the stance that it was still necessary for AMP to establish that it had a liability to investors referred to in the S.C. Schedule whose demands AMP had settled. CGU maintained that its denial of the allegation, that it was liable to indemnify AMP in respect of those demands, clearly put in issue the question of whether AMP had any liability to those investors and, if so, whether the liability was one to which the Insurance Policies responded. That would entail AMP establishing, as against CGU, by admissible evidence, that AMP had a legal liability to the investors. Thus, AMP would need to conduct, as against CGU, the case that each investor would have conducted against AMP if AMP had not settled that investor's demand. That would include calling, in AMP's case against CGU, all of the evidence that the investor would have had to call in the investor's case against AMP. AMP's answer to that question is that CGU is estopped from taking that stance. 57 CGU also pleaded a number of specific and independent defences to AMP's allegation that CGU was liable to indemnify AMP, which may be summarised as follows: (1) CGU is not liable, pursuant to the Insurance Policies, to indemnify AMP in respect of payments already made. (1.1) The liability reports prepared by Minter Ellison in respect of each of the investor demands identified in the S.C. Schedule advise that, by reason of the provisions of ss 817, 818 and/or 819 of the Law, AMP was liable in respect of alleged wrongful conduct of Pal and Howarth. (1.2) CGU does not admit that Pal or Howarth engaged in any wrongful conduct in relation to any of the investors so identified. (1.3) In the case of each of those investors, AMP had no liability arising under ss 817, 818 or 819 of the Law in respect of any alleged wrongful conduct of Pal or Howarth. (1.4) In the absence of any liability arising under ss 817, 818 or 819 of the Law, AMP was not under any legal obligation to make any payment to the investors. (2) If AMP were prima facie liable, pursuant to s 819(2) of the Law, in respect of alleged wrongful conduct of either or both of Pal and Howarth: (2.1) AMP has conducted the business of a licensed securities dealer pursuant to a licence granted under s 784 of the Law. (2.2) Each of Pal and Howarth held proper authorities for AMP and, accordingly, was a representative of AMP within s 819(1)(a) of the Law and was employed by, or acted for, or by arrangement with, MAG, in connection with a securities business or investment advice business carried on by MAG and, accordingly, was a representative of MAG within the terms of s 819(1)(a) of the Law. (2.3) If, during their respective periods as holders of proper authority issued by AMP, Pal and Howarth advised investors, each of whom was a client of MAG, to invest in securities that were not authorised by the terms of the authority granted by AMP ('the Conduct') and such investors invested in such securities because each of them believed, reasonably and in good faith, that Pal or Howarth had engaged in the conduct on behalf of some person and in connection with the securities business or investment advice business carried on by that person, then each of Pal and Howarth engaged in the conduct: (2.3.1) in connection with the securities business or investment advice business carried on by MAG; (2.3.2) while each of them was a securities representative of MAG; (2.3.3) as employee, or agent of, or otherwise on behalf of, on account of, or for the benefit of, MAG; and (2.3.4) otherwise than in the course of work of a kind ordinarily done by accountants, clerks or cashiers; and, accordingly, within the terms of s 819(4) of the Law, each of Pal and Howarth engaged in the conduct as a representative of MAG and ss 819(2) and 819(3) of the Law do not apply to AMP. (3) If AMP has or had a liability to any or all of the investors identified in the S.C. Schedule, or the Insurance Policies provide indemnity in respect of payments made by AMP to settle demands by those investors founded on allegations of Civil Liability of a type covered by the Insurance Policies, then the Civil Liability alleged against AMP by each of the investors was of a nature that was not covered by the terms of the Insurance Policies and, accordingly, did not attract any indemnity pursuant to the Insurance Policies because the nature of the liability on the part of AMP is of a kind that is not comprehended by the insurance cover provided by clause 3.2 of the Insurance Policies. (4) If the Civil Liability alleged against AMP by each of the investors identified in the S.C. Schedule was of a nature that was covered by the terms of the Insurance Policies, CGU is not liable to indemnify AMP in respect of the payments made, on the ground that the demands by investors did not arise in the conduct of AMP's professional business practice (as defined) and the demands do not otherwise fall within the provisions of special condition 4 of the Insurance Policies. (5) If CGU is otherwise obliged, pursuant to one or other of the Insurance Policies, to indemnify AMP in respect of each of the investor demands identified in the S.C. Schedule, such liability is excluded by the provisions of clause 6.3(e) of the Insurance Policies on the basis that each of the investor demands arose from a business not conducted for or on behalf of AMP, but from the business conducted for or on behalf of MAG. 58 CGU maintains that the issues thrown up by its defence required AMP to establish that it had a liability to each of the investors described in the S.C. Schedule, and that that liability was one to which the Insurance Policies responded. Those issues would also involve questions of the construction of s 819 of the Law and of clause 3.2 of the Insurance Policies. The issues would also entail evidence as to the circumstances in which investors made the investments that gave rise to their demands against AMP. That in turn would involve examination of the relationship between investors, on the one hand, and Pal, Howarth or MAG, on the other. 59 CGU, quite properly, conceded that it was not open to it to rely upon the strict terms of clauses 7.6, 12.1 and 12.2 of the Insurance Policies. However, whatever criticism might be directed to CGU and its solicitors for dilatoriness in giving a response to AMP's claim to be indemnified in respect of the demands made against it by investors, there could never be any doubt that CGU had not admitted that the Insurance Policies responded to any of the demands made against AMP. Rather, it repeatedly exhorted AMP to act as a prudent uninsured. 60 That is to say, CGU made it unequivocally clear to AMP that it was not accepting liability to reimburse AMP for any demands from investors that AMP might chose to settle, either in full or by way of compromise. It was clear that CGU did not concede that AMP had a liability to such investors and did not concede that, if AMP did have a liability to the investors, it was a liability to which the Insurance Policies responded. CGU expressly pleaded the bases upon which it said that AMP had no liability to investors and that, if AMP had any such liability, it was a liability to which the Insurance Policies did not respond. 61 In its conduct of the proceeding before the primary judge, AMP simply made no attempt to prove that it had a liability in respect of the demands by investors described in the S.C. Schedule. It expressly eschewed any attempt to demonstrate that it actually had a liability to any of the investors described in the S.C. Schedule. Rather, AMP sought simply to establish that, acting as a prudent uninsured, its settlement of the demands by investors was reasonable in all of the circumstances. It also referred to s 13 of the Insurance Contracts Act in aid of its position. 62 Section 13 of the Insurance Contracts Act provides that a contract of insurance is a contract based on the utmost good faith and there is implied, in such a contract, a provision requiring each party to act towards the other party, in respect of any matter arising under, or in relation to the contract, with the utmost good faith. AMP sought to rely on a breach of such an implied provision of the Insurance Policies. As will be demonstrated, there were two aspects of AMP's reliance on s 13. 63 AMP's claims in the Statement of Claim under s 13 may be summarised as follows: (1) Pursuant to s 13 of the Insurance Contracts Act, CGU owed to AMP a duty to act towards it with the utmost good faith in respect of any matter arising under or in relation to the Insurance Policies. (2) CGU made the Protocol Representation. (3) Contrary to the Protocol Representation, CGU did not respond to requests for instructions or otherwise communicate to AMP its instructions whether to settle or defend any of the investor demands shown in S.C. Schedule. (4) CGU has denied indemnity under the Insurance Policies in relation to those demands. (5) As a result of the Protocol Representation, AMP was induced to believe that: (5.1) if CGU failed to respond to AMP's requests for instructions, AMP might reasonably proceed to settle the relevant investor demand as it was legally and commercially compelled to do; and (5.2) by so settling, AMP would not adversely affect its rights to obtain indemnity under the Insurance Policies in respect of such demands. (6) Acting upon that belief, in reliance on the Protocol Representation and in reliance on the absence of any objection or suggestion by CGU that the beliefs were unreasonable, unjustified or wrong, AMP settled the demands identified in the S.C. Schedule. (7) There was a breach by CGU of the duty of utmost good faith owed by it to AMP in that: (7.1) CGU failed to comply with the Protocol; (7.2) CGU failed to make, or to communicate to AMP, its decision in relation to indemnity in relation to any of the investor demands within 14 days of receipt of a liability report in respect of that demand; (7.3) CGU failed to make, or to communicate to AMP, its decisions in relation to indemnity in relation to any of the investor demands within a reasonable time; (7.4) CGU wrongfully denied indemnity in relation to the investor demands after having behaved in the manner alleged; (7.5) CGU failed to communicate to AMP, prior to 14 November 2002, that it might do any of the things alleged in the above paragraphs. 64 The Statement of Claim makes no express allegation of any loss or damage as a consequence or result of the alleged breach of the obligation implied by s 13 of the Insurance Contracts Act. For example, it might have been possible to allege that, in relation to any given demand described in the S.C. Schedule, CGU was in breach of its duty of utmost good faith by failing to communicate to AMP, within a reasonable time, a decision in relation to indemnity in respect of such a demand, and that, in order to mitigate damage to its reputation, AMP settled such demand on reasonable terms. On that basis, it might have been possible to allege that AMP suffered loss by reason of CGU's breach, being the amount paid in order to settle the demands. 65 In its written submissions to the primary judge, AMP outlined such a case. In those submissions, AMP alleged that there were breaches of the Insurance Policies on the part of CGU by reason of its failure to notify its decision on indemnity in respect of any particular demand within a reasonable timeframe. AMP submitted that each time CGU failed to provide indemnity, within the time period after the provision of the information in respect of each demand contemplated by the Protocol, there was a breach of CGU's implied obligation of utmost good faith and therefore there was a breach of the Insurance Policies in respect of every settled demand. Accordingly, so it was said, if the Court were satisfied that AMP had settled demands reasonably, CGU was liable for AMP's loss, being the amount paid by taking those steps that were reasonable in order to mitigate its loss and avoid litigation by the investors. CGU countered those submissions by saying that the Statement of Claim simply does not make any such allegations.

THE CONCLUSIONS OF THE PRIMARY JUDGE 66 Rather than deal with the issues in terms of the pleadings as such, the primary judge formulated a number of questions for determination. His Honour proceeded on the basis that those questions were the issues thrown up by the pleadings. The questions and the answers given by the primary judge, as presently relevant, were as follows: 1. Must AMP establish by admissible evidence, and not merely by proof of the settlements, that it was legally liable to the investors with whom it reached settlements?

Settlement between AMP and an investor does not answer the description of Claims for Civil Liability within the meaning of the Insurance Policies. In an action on an insurance policy, the occurrence of the insured event must be proved by admissible evidence, as must every element in any other cause of action. All that had been proved by AMP was that it believed it was, or might be, liable to investors. 2. Is CGU liable in damages for AMP's payouts on the settlements (assuming them to be reasonable) when the settlements were made before any breach of the Insurance Policies by CGU?

An insured under an indemnity policy can only recover the amount of a settlement with a third party claimant where the settlement has been made after a breach of the contract of insurance by the insurer. Repudiation by the insurer is a critical element. The breach alleged by AMP in the Statement of Claim did not occur until, at the earliest, 14 November 2002, which was after AMP had made payments to 47 investors. AMP cannot recover, by way of damages, the amounts paid out before any breach occurred. 3. If yes to 1 and no to 2, can AMP avoid that result by reason of its having, with CGU's knowledge, paid the investors under the settlements pursuant to the Protocol, on the basis of:

3.1 AMP could not rely on an estoppel because there was no relevant reliance by AMP. Up until receipt of the letter of 14 November 2002, AMP recognised that CGU had neither admitted nor denied liability to indemnify under the Insurance Policies. CGU made it clear that AMP was to be no worse off in respect of its rights (if any) under the Insurance Policies by negotiating with investors and entering into settlements. Further, AMP had not shown any detriment because CGU's defence makes it clear that it did not deny AMP's claim for indemnity on the basis of clauses 12.1, 12.2 and 7.6. Accordingly, AMP is no worse off, vis a vis its policy rights (if any), by having entered into settlements with investors. 3.2 An allegation of breach of the duty of utmost good faith requires proof of some want of honesty. There was no want of honesty on the part of CGU and, therefore, there was no failure to act toward AMP with the utmost good faith. 4. Did AMP have any liability to the investors under ss 817, 818 or 819 of the Law in respect of any alleged wrongful conduct of Pal or Howarth?

In relation to investments made by investors, the conduct of Pal and Howarth was not 'in connection with' any securities business or investment advice business of AMP. It was therefore unlikely that AMP could be made liable under s 817. The critical provision was s 819 and CGU did not argue for the non application of s 819. Rather CGU submitted that AMP could have relied on the exculpatory provision in s 819(4). 5. If yes to 4, in any proceedings by investors, could AMP have relied on s 819(4) of the Law to avoid liability under s 819(2)?

In assessing the potential liability of AMP in a hypothetical and notional action, the possible defences that AMP might raise are plainly relevant. Sections 819(4) would apply where an indemnifying principal is a party because it has been joined as a third party. The policy behind s 819(4) is to mitigate, to some extent, the draconian rigour of s 819, which creates liability whether or not the wrong doer was the agent of the indemnifying principal and whether or not the client had even heard of the indemnifying principal in relation to the impugned conduct. At least where the real principal is before the Court, it is reasonable that the real principal alone should bear the burden. Section 819(4) has that effect. 6. Were the settlements reasonable?

The settlements were not reasonable. The whole process was so dominated by pressure from the Commission that it was impossible to conclude that the settlements would have been reached in the agreed amounts, or indeed at all, had that pressure not existed. Apart from the question of process, the settlements were also unreasonable because they failed to take into account the availability of the s 819(4) defence, which seemed not to have been considered by AMP at all. 7. Were there Civil Liability Claims by investors within the terms of clause 3.2 of the Insurance Policies?

Negligence, as a legal cause of action, necessarily involves breach by the defendant of a duty owed to the plaintiff. Under ss 817 or 819, investors sought to make AMP liable under what might be termed a vicarious responsibility imposed by statute. The demands by investors against AMP, therefore, could properly be characterised as being for breach of duty. 8. Did any liability that AMP might have had to investors arise in the course of the Professional Business Practice?

The obvious purpose of special condition 4 of the Insurance Policies was to provide indemnity for the kind of liability that AMP might incur by way of statutory extension of common law principles of agency. By conducting the kind of business that AMP was conducting, it was going to be exposed to liability for the acts of others in circumstances where common law liability would not attach. It would be a very uncommercial construction of the Insurance Policies to limit the liability to that which might exist at common law. 9. Were the demands of the investors excluded from indemnity by clause 6.3(e) of the Insurance Policies?

Special condition 4 was designed to make it clear that a particular feature of AMP's business was covered. To the extent that there was conflict between clause 6.3(e) and special condition 4, the latter prevailed. 10. Would any liability under the Insurance Policies include AMP's investigation costs and legal costs?

AMP claimed as part of its damages the time cost of its employees and expenses such as travel and accommodation incurred for internal investigation of the demands by investors. AMP also claimed legal costs paid to its solicitors. There was no prior written agreement between CGU and AMP concerning the costs in question so as to entitle AMP to indemnity in respect of costs. 11. Should there be a declaration that CGU is obliged to indemnify AMP under the Insurance Policies in respect of unpaid and future demands by other investors? The declaration sought by AMP was hypothetical and it was therefore inappropriate to grant declarations in respect of demands that have not been paid by AMP. 67 In the light of those conclusions, his Honour dismissed AMP's proceeding. However, because three of the questions concerning the effect of the Insurance Policies had been answered favourably to AMP, his Honour ordered that AMP pay only 90% of CGU's costs.

THE APPEAL 68 AMP formulated seven issues for determination on the appeal as follows: 1. What was the effect in law of CGU agreeing in principle to the Protocol, instructing AMP to act as a prudent uninsured before any investor demands were settled and standing by whilst settlements occurred in accordance with the Protocol? 2. Was AMP required to prove breach by CGU of the Insurance Policies before settlement of investor demands in order to render CGU liable to indemnify AMP under the Insurance Policies? 3. Did CGU commit a breach of the Insurance Policies before settlement by AMP of investors demands? 4. Were the settlements of investors demands by AMP reasonable? 5. Does the possible application of s 819(4) of the Law to demands by investors have any relevance prior to the settlement of the demands? 6. Is AMP entitled to recover its investigation and legal costs in relation to investor demands? 7. Is AMP entitled to a declaration that investor demands fall within the ensuring clauses of the Insurance Policies? 69 It is convenient to address each of those issues separately, although there is a degree of interdependence between certain of the issues, as will become apparent.

EFFECT OF THE PROTOCOL 70 As a general rule, a contract breaker must be taken to have reasonably contemplated that its breach may force the innocent party into litigation with third parties and that the innocent party may conclude that it is in its best interest to compromise the third party's claim (Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at [33]). Where an insured, having been put in the position of having to take all steps in connection with action brought against it at its own risk, is entitled to recover, as damages, such sums as the insured paid to settle those actions, so long as it shows that it acted reasonably in making the settlement (Edwards v Insurance Office of Australia Ltd (1933) 34 SR(NSW) 88 at 98). The primary judge therefore accepted that, if there was a breach by CGU of the Insurance Policies, AMP could recover, as damages, the amount of any reasonable settlement that it had entered into following that breach. 71 However, the primary judge observed that, under the language of the Insurance Policies, CGU had no obligation to indemnify AMP except in respect of a Claim (as defined) for a liability for damages which a civil court orders AMP to pay on such a Claim. Since no Claim (as defined) was made in respect of any of the demands described in the S.C. Schedule and, a fortiori, no order was made by any civil court in respect of those demands, no obligation had arisen on the part of CGU to communicate to AMP a decision in relation to indemnity in relation to any of those demands. His Honour concluded, therefore, that there had been no breach by AMP prior to the settlement by AMP of the demands made by investors. Accordingly, in his Honour's view, it was necessary for AMP to establish by admissible evidence that it had liabilities to investors to which the Insurance Policies respond. 72 AMP says that the conclusion that there was no breach prior to settlement is answered by the estoppel pleaded by it. AMP contended that, as a result of CGU's conduct, in accepting the Protocol in principle and standing by while AMP settled the demands of investors, AMP assumed that CGU would abide by the provisions of the Protocol and that, if CGU failed to give instructions either to settle or defend a particular demand in accordance with the Protocol, AMP might reasonably settle the demand without adversely affecting its rights to indemnity under the Insurance Policies. AMP said that it relied on that assumption in settling the demands and it would be now unconscientious for CGU to depart from that assumption. AMP says that its rights to indemnity should not be dependent upon proving that it had a liability to the investors whose demands it paid. 73 Alternatively, AMP says that, to adopt such a stance involved a contravention of the provision implied by s 13 of the Insurance Contracts Act requiring CGU to act towards AMP, in relation to the Insurance Policies, with the utmost good faith. Having agreed to act in accordance with the Protocol, knowing of the claims and liabilities AMP faced and its legal obligations as a licensed securities dealer, and having stood by without objection whilst AMP managed and settled demands by investors, in accordance with the Protocol, CGU's stance in the proceeding, on the basis that the settlements occurred before there was a breach of the Insurance Policies by CGU, of requiring AMP to prove by admissible evidence that it had a liability to investors, constituted a failure by CGU to act towards AMP, in relation to the Insurance Policies, with the utmost good faith.

Estoppel 74 The primary judge disposed of the estoppel alleged by AMP on the basis that there was no relevant reliance by AMP. His Honour found that, up until receipt of the letter of 14 November 2002, AMP recognised that CGU had neither admitted nor denied liability to indemnify AMP under the Insurance Policies. The most senior responsible person at AMP who gave evidence was Mr Stephen Tudjman, a legal practitioner. Mr Tudjman accepted that, until receipt of the letter of 14 November 2002, there was no denial of liability by CGU and that he was acting on the basis that the Insurance Policies were on foot up until that time. 75 His Honour found that AMP had no belief that CGU had accepted liability. On the contrary, it was apparent to AMP that CGU had not, up until that time, made up its mind. His Honour found, therefore, that AMP had entered into the settlements and paid investors because AMP considered the settlements were desirable in its own interest and not in reliance upon any commitment or promise or representation by CGU that it would indemnify or reimburse AMP in respect of payments made pursuant to the settlements. 76 His Honour concluded that, by telling AMP to act as a prudent uninsured, CGU was saying that AMP was to act as though it were uninsured, but as a prudent person would, faced with the demands by investors. A prudent person in that situation would, amongst other things, take legal advice and have lawyers, or other suitable persons, investigate and verify the factual basis of the demands and, where appropriate, negotiate a settlement. AMP does not quarrel with that conclusion but says that that is precisely what it did. 77 Further, the primary judge found that AMP had not acted to its detriment in reliance upon any belief induced by CGU's conduct. His Honour referred to CGU's pleading that it would not refuse indemnity on the basis that AMP had entered into settlements without CGU's prior written consent or that there had been no Claim (as defined) leading to an order by a civil court. His Honour concluded that AMP was no worse off vis-ŕ-vis its rights under the Insurance Policies, if any, by having entered into the settlements with investors. 78 AMP contended on appeal that his Honour misapprehended the basis of the estoppel pleaded by it. AMP says that, in reliance upon the assumption, induced by CGU, that it would not be required to prove by admissible evidence that it had a liability to each investor with whom it reached a settlement, it acted to its detriment by settling with those investors. The detriment is that AMP can no longer require any of those investors to prove its case against AMP. AMP says that the concession made by CGU, that it would not rely on the absence of a Claim (as defined) or the absence of an order of a civil court, is quite illusory if, in order to obtain reimbursement from CGU under the Insurance Policies, it is incumbent upon AMP to conduct, as against CGU, the case that each investor, but for the settlement, would have had to conduct against AMP. 79 By settling an investor's demand, AMP may well have changed its position to its detriment in a significant way. Previously, it was in a position to require an investor who had made a demand to commence a Claim (as defined). AMP could then have called on CGU to defend the Claim (as defined) brought by that investor and meet any order made by a civil court. Alternatively, if CGU did not defend the Claim (as defined), and AMP was ordered to pay damages to an investor, AMP could call upon CGU to indemnify AMP in respect of its liability under that order. However, CGU now says that AMP must call all of the evidence that would have been tendered against it by an investor prosecuting a Claim (as defined) and then tender that evidence against CGU. 80 Following the settlement, of course, that would not ordinarily be a simple task. There would be nothing to induce an investor to participate in litigation in the outcome of which the investor had no interest whatsoever. Clearly, following the settlement of any demand by an investor, AMP was in a worse position, as against CGU, than it was in relation to the demand by that investor prior to settlement. As a practical matter, by settling, AMP may have lost the opportunity of having the investor prove that AMP had a liability to it. 81 In the Statement of Claim, AMP alleged that it made the assumption that, by settling, it would not adversely affect its rights to obtain indemnity under the Insurance Policies. AMP says, in effect, that it was induced to assume that it would not be required to establish by admissible evidence that it was legally liable to the investors. If it were required to establish by admissible evidence that it was legally liable to each of the investors with whom it settled, it has adversely affected its capacity to obtain indemnity from CGU. If AMP's assumption was induced by CGU, it would be unconscionable for CGU to depart from that assumption by insisting upon AMP establishing by admissible evidence that it was legally liable to each investor. 82 His Honour did not make a finding in relation to the assumption and detriment for which AMP contends. That is to say, his Honour made no finding as to whether, in reliance upon the assumption referred to above, AMP entered into any settlement with an investor and made no finding as to whether, from a practical point of view, AMP put it beyond its power to establish by admissible evidence that it was legally liable to that investor. 83 A possible reason for his Honour's omission to make such findings is that the pleadings do not raise such questions in explicit terms. The Statement of Claim simply says that AMP assumed that, by settling demands by investors, it would not adversely affect its rights to obtain indemnity. CGU says that the fact that by settling with an investor, AMP may have made it difficult for itself to prove that it had a liability to that investor, is not relevant to AMP's right to obtain indemnity. Rather, it is relevant to the handling of investor demands. 84 However, that answer by CGU clearly puts in issue the question of whether AMP would be required to prove its liability to investors. CGU says that AMP has no right to indemnity under the Insurance Policies in respect of an amount paid to an investor unless it proves, by admissible evidence, that it had a liability to that investor. It is no longer possible for AMP to wait for service of a Claim (as defined) and call upon CGU to defend it. Its right to indemnity has clearly been affected by each settlement. The contention advanced by AMP is within the pleadings.

Utmost Good Faith 85 AMP relies on the provision to be implied by s 13 of the Insurance Contracts Act in two respects. First, AMP asserts that, prior to settlement with any particular investor, CGU was in breach of that implied provision with respect to the demand made by that investor. In addition, however, AMP also asserts that, in all the circumstances, it was a failure to act with the utmost good faith in relation to the Insurance Policies for CGU to take the stance in the proceeding that AMP was required to establish by admissible evidence that it was legally liable to any investor whose demand has been settled. 86 The primary juge found that there was no failure to act with the utmost good faith because AMP had not established that there was a want of honesty on the part of CGU. His Honour considered that an allegation of breach of the duty of utmost good faith required proof of some want of honesty and that fairness would require that any such allegation be put to CGU witnesses. No such allegation was put to the CGU witnesses, the substance and effect of whose evidence was that they did not regard the Protocol as imposing any obligation of any sort on CGU. 87 While a want of honesty will constitute a failure to act with the utmost good faith, want of honesty is not necessary in order to establish a failure to act with the utmost good faith in the context of a contract of insurance. The notion of acting in good faith entails acting with honesty and propriety. Lack of propriety does not necessarily entail lack of honesty. Further, the concept of utmost good faith involves something more than mere good faith. 88 The concept of utmost good faith, or uberrima fides, has always been present in the law of insurance. For example, the general law has always imposed upon a proponent for insurance an obligation to disclose to the insurer, whether asked or not, all facts that a prudent insurer would reasonably consider material to the decision whether to undertake the insurance at all and, if so, on what terms and at what premium - Khoury v Government Insurance Office of New South Wales (1984) 165 CLR 622. The failure to make such disclosure does not necessarily entail a lack of honesty. However, it is an instance of failing to show utmost good faith. 89 The precise content of the concept of utmost good faith depends on the legal context in which it is used. In the context of insurance, the phrase encompasses notions of fairness, reasonableness and community standards of decency and fair dealing. While dishonest conduct will constitute a breach of the duty of utmost good faith, so will capricious or unreasonable conduct. While an essential element of honesty may be at the head of the concept of utmost good faith, dishonesty is not a prerequisite for a breach of the duty (see, for example, Kelly v New Zealand Insurance Ltd (1996) 130 FLR 97 at 111-112). 90 A failure to make a prompt admission of liability to meet a sound claim for indemnity and to make payment promptly may be a failure to act with the utmost good faith on the part of an insurer. Of course, where the insurer is awaiting details that are necessary for the making of a decision whether to accept liability to indemnify or to determine the quantum of its liability, the position would be different (see Moss v Sun Alliance Australia Ltd (1990) 6 ANZ Insurance Cases 60-967, page 76431). A failure by an insurer to make and communicate within a reasonable time a decision of acceptance or rejection of a claim for indemnity, by reason of negligence or unjustified and unwarrantable suspicion as to the bona fides of the claim by the insured, may constitute a failure on the part of the insurer to act towards the insured with the utmost good faith in dealing with the claim. 91 Putting it another way, acting with utmost good faith involves more than merely acting honestly: Otherwise, the word utmost would have no effect. Failure to make a timely decision to accept or reject a claim by an insured for indemnity under a policy can amount to a failure to act towards the insured with the utmost good faith, even if the failure results not from an attempt to achieve an ulterior purpose but results merely from a failure to proceed reasonably promptly when all relevant material is at hand, sufficient to enable a decision on the claim to be made and communicated to the insured (see, for example, Gutteridge v Commonwealth of Australia, unreported, Supreme Court of Queensland, Ambrose J, 25 June 1993). 92 There does not appear to be any doubt that those witnesses who gave evidence for CGU were cross examined as to the failure to respond to AMP's requests for instructions, pursuant to the Protocol, as to whether it should defend or settle demands made by investors. The Statement of Claim made quite clear that AMP asserted that there was a failure on the part of CGU to act with the utmost good faith. Its case as to what constituted such a failure was quite clear. There does not appear to have been unfairness to any CGU witness. Notwithstanding AMP's failure to assert dishonesty as against a particular witness in the course of cross examination, it was open to his Honour to make a judgment as to whether the conduct of CGU over many months exhibited a failure to act with the utmost good faith in relation to AMP's claim to be entitled to indemnity under the Insurance Policies. Having regard to the way in which the want of utmost good faith is put in this aspect of AMP's case, there was nothing more to put to witnesses. 93 The second respect in which AMP calls in aid the implied provision is CGU's approach in the conduct of the proceeding. AMP says that CGU's stance, that it was incumbent upon AMP to establish, by admissible evidence, that AMP was liable to each investor with whom it settled, was a failure to act with the utmost good faith. That stance would involve a failure to act with the utmost good faith in relation to the Insurance Policies if it were established that the alleged assumption on the part of AMP was induced by the conduct of CGU. As indicated above, his Honour made no finding on that question. If there were a finding to that effect, it would be a failure to act with the utmost good faith to depart from that assumption by taking the stance that CGU took at the hearing of the proceeding, of requiring AMP to prove by admissible evidence that it was liable to the investors with whom it reached a settlement.

Conclusion Concerning the Effect of the Protocol 94 The primary judge adopted an erroneous approach to the first, second and third questions that his Honour formulated and answered. Ordinarily, it may well be correct to say that an insured, seeking indemnity in respect of a liability to a third person, must establish, by admissible evidence, that it is liable to that third person. Normally, that would be done by requiring the insurer to assume the defence of a proceeding brought by the third party. Alternatively, if the insurer declined to defend, the insured could either defend and seek indemnity if judgment were entered against it, or settle on reasonable terms and seek reimbursement in respect of the amount paid pursuant to the settlement. 95 His Honour erred in failing to make a finding as to whether AMP was induced, by CGU's conduct, to assume that it would not be required to establish, by admissible evidence, that it had a liability to the investors whose demands it settled and, if so, whether it settled the investor demands in reliance upon that assumption. His Honour did not address the relevant questions of reliance and detriment and was in error in failing to make a finding as to those matters.

SETTLEMENT BEFORE BREACH OF INSURANCE POLICIES 96 In a sense, this is also a false issue. This is not a case where the insured simply settled a claim and then sought indemnity under an insurance contract. Whether or not an insured is entitled to indemnity in particular circumstances will depend upon the terms of the cover afforded by the contract of insurance. In the present case, the language of clause 3.2 of the Insurance Policies makes it clear that cover is to be provided in respect of a liability that a civil court has ordered AMP to pay. In ordinary circumstances, AMP would not be entitled to settle a demand by a third person and be entitled to be reimbursed in respect of that amount unless all the prerequisites of the Insurances Policies were satisfied. However, the issues in the proceeding are such that there is no general principle that would have application in the present case.

WAS CGU IN BREACH? 97 His Honour considered that, since it was not suggested that the Protocol operated as a contractual variation of the Insurance Policies, it was not a repudiation of any liability under the Insurance Policies for CGU to decline to yield to the 14 day demand. However, AMP says, in effect, that the requirement to act with the utmost good faith required CGU to communicate to AMP, within 14 days, or alternatively within a reasonable time, of AMP notifying CGU of circumstances that might give rise to a Claim (as defined) for Civil Liability (as defined), a decision as to whether CGU intended to indemnify AMP in relation to any such Claim (as defined) for Civil Liability (as defined). AMP says that there was a breach by CGU of that requirement by CGU's failure to respond in any way, other than to exhort AMP to act as a prudent uninsured. Whether CGU was in breach of such a requirement depends in part upon the scheme of the Insurance Policies. It is therefore necessary to say something more about that scheme. 98 Section 7 of the Insurance Policies deals with 'Investigation, Defence and Settlement of Claims'. Under clause 7.1, AMP must tell CGU in writing about a Claim (as defined) as soon as possible. Clause 7.2 provides that AMP must do everything reasonably practicable to avoid or lessen its liability in relation to a Claim (as defined) and to give CGU all the help and information that it reasonably requires to defend the Claim (as defined). Under clause 7.5, CGU can take over and defend or settle any Claim in AMP's name and make any claim in AMP's name for any right AMP may have for contribution or indemnity. 99 Clause 7.3 provides that when CGU receives notification of a 'fact or circumstance which may give rise to a Claim' that would be covered under the Insurance Policies, it can take whatever action it considers appropriate to protect its position. Further, clause 7.9 provides that any money CGU pays to settle 'anything which might give rise to a Claim' (as defined) is taken to be a payment to settle a Claim (as defined) and a payment for the purpose of calculating the total of all Claims (as defined) under the Insurance Policies. 100 Those provisions clearly assume that CGU may become involved in a demand upon AMP before a Claim (as defined) is actually served on AMP. However, while the Insurance Policies refer to notification of 'a fact or circumstance which may give rise to a Claim', there is no express obligation imposed upon AMP to notify facts or circumstances that may give rise to a Claim. Rather, the literal terms of the Insurance Policies assume that nothing need be done until a Claim (as defined) is served on AMP. 101 Section 7 must be considered in the light of Section 6, which deals with 'What is not covered'. Clause 6.1 provides that CGU does not cover 'Known Claims' and 'Claims… arising from a Known Circumstance'. The term 'Known Circumstance' is defined as: 'Any fact, situation or circumstance which: (a) [AMP] knew before this Policy began; or (b) a reasonable person in [AMP's] professional position would have thought, before this Policy began, might result in someone making a Claim against [AMP] in respect of a liability, the subject of this Policy.' There is no definition of 'Known Claim'. 102 The provisions of clause 6.1 could have serious consequences for AMP where, for example, AMP became aware, during the currency of one of the Insurance Policies, of a fact, situation or circumstance that might result in someone making a Claim (as defined) against AMP in respect of a liability to which the Insurance Policy would respond. Under clause 3.1, the cover provided by CGU extends only to Claims (as defined) made against AMP while the Insurance Policy is in force. Thus, if, before a period of insurance under the Insurance Policies began, AMP had become aware of a fact, situation or circumstance that might result in someone making a Claim (as defined), the Claim would not be covered by Insurance Policies. On the other hand, it would not be covered by an Insurance Policy in the terms of the Insurance Policies that may have been current at the time of becoming aware of the fact, situation or circumstance. That is because clause 3.1 responds only to Claims (as defined), being something served on AMP. 103 Those circumstances are ameliorated to some extent by the operation of clause 3.5. Clause 3.5 provides that, notwithstanding clause 6.1, CGU will cover AMP for any Claim (as defined) otherwise covered by the Insurance Policy arising from a Known Circumstance, so long as the following prerequisites are satisfied: (a) CGU was the professional liability insurer of AMP when AMP first knew of the relevant Known Circumstance; and (b) CGU continued without interruption to be AMP's professional liability insurer up until the Insurance Policy came into effect; and (c) if CGU had been notified by AMP of the Known Circumstance when AMP first knew of it, AMP would have been covered under the Insurance Policy in force at that time and AMP would otherwise be covered under the current Insurance Policy; and (d) the Claim (as defined) has not previously been notified to CGU by any other insurer. 104 Nevertheless, there would still be some exposure for AMP under the terms of the Insurance Policies if AMP did not renew an Insurance Policy on its expiry. If AMP becomes aware, during the period of the insurance, of facts, situations or circumstances that might result in someone making a Claim (as defined), or a demand that does not satisfy the term Claim (as defined) is made on AMP during the period of insurance, but no Claim (as defined) is served on AMP during the period of insurance, AMP would have no cover. That potential difficulty, together with the provisions of clauses 7.3 and 7.9, which clearly recognise the possibility that CGU will settle demands made against AMP before a Claim (as defined) is served on AMP, suggest that CGU would not be acting with the utmost good faith in circumstances where it is notified of facts that might result in someone making a Claim (as defined) and which AMP is under a commercial compulsion to deal with, if CGU simply ignored a proposal by AMP to settle a demand made on it. 105 Settlement of such a demand on reasonable terms would clearly be in the interest of CGU. Even if the demand, being one properly made, were paid in full, that would avoid the incurring of costs, which would ultimately be borne by CGU, if a claim is served. 106 It is necessary to have regard to each demand on AMP that was notified to CGU in order to determine whether CGU exhibited the utmost good faith in dealing with AMP's claim to be indemnified in respect of that demand. For the purposes of the appeal, it is convenient to look at the first demand notified to CGU, being that made by Bajada. 107 Under cover of a letter of 26 March 2001, Minter Ellison forwarded to Ebsworth & Ebsworth the final liability report in respect of that demand, saying: 'Please provide your client's authority to make a settlement offer to the Bajada Retirement Fund in the sum of $22,664.36 within 14 days of the date of this letter. If we have not heard from you within that period [AMP] shall, acting in as a prudent insured (as you have previously advised it to do), make the settlement offer to the Bajada Retirement Fund.' 108 Minter Ellison wrote to Ebsworth & Ebsworth again on 10 April 2001. In that letter, Minter Ellison referred to a telephone conversation between Minter Ellison and Ebsworth & Ebsworth, in which Minter Ellison were informed that CGU would be unlikely to respond with a decision on indemnity before May 2001. Minter Ellison said they had been informed that, in the meantime, AMP should act as a 'prudent uninsured'. Minter Ellison's letter then said: 'Accordingly our client has made a settlement offer to the Bajada Retirement Fund. The amount offered in respect of [AMP's] liability is $22,664.36, in accordance with the liability report which we have previously sent to you. The settlement offer is conditional upon the claimants executing a deed of settlement. A draft of the deed, submitted subject to our client's instructions, is enclosed.' The letter requested confirmation of CGU's approval of the deed of settlement and whether CGU would pay the settlement sum. 109 On 11 May 2001, Ebsworth & Ebsworth wrote to Minter Ellison referring, inter alia, to receipt of various notifications over the course of the past few weeks. The letter then said: 'It appears as though only the Bajada Retirement Fund has progressed to the stage of offers being made. In that regard we shall arrange to inspect the relevant documents in respect of that particular investor and thereafter advise our clients agreement or otherwise to your client's settlement. We assume, in accordance with your letter of 26 March 2001, that an offer has been made. We await your advice as to the progress of settlement of that particular investment by return.' That letter suggests that its author had not read Minter Ellison's letter of 10 April 2001. In any event, on 7 June 2001, Minter Ellison wrote again to Ebsworth & Ebsworth relevantly saying: 'The trustees of the Bajada Retirement Fund have accepted [AMP's] terms of settlement including a settlement sum of $22,664.36 in respect of the Hibiscus Spas Debenture investment. We enclose a draft copy of the Deed of Settlement between the trustees of the Bajada Retirement Fund, [AMP] and CGU. Please confirm as soon as possible: 1. That CGU agrees to indemnify [AMP] in respect of the claim made by the Bajada Retirement Fund; 2. That CGU agrees to the terms of the settlement deed; and 3. That CGU agrees to provide a cheque in respect of the settlement sum of $22,664.36 payable to the trustees of the Bajada Retirement Fund… You are provided with the liability report in respect of the Bajada Retirement Fund's claim on 26 March 2001. You have since indicated that CGU accepts liability in principle subject to examining the documents in support of each claim. We have since provided you with all the documents submitted by the claimants in support of their claim. [The Commission] has indicated to our client that settlement of claims ought not to be delayed due to the requirements of insurers. Accordingly, if we do not receive the confirmation as requested above within 14 days of the date of this letter our client will settle this claim without the involvement of CGU. Our client will, however, expect CGU to reimburse it for the full amount of the settlement sum. Upon doing so our client will be willing to assign any assignments it takes from the claimants to CGU. Should you have any questions please telephone…' 110 On 25 June 2001, Minter Ellison wrote again to Ebsworth & Ebsworth. After referring to the letter of 7 June 2001 and expressing disappointment that they had received no response, the letter then relevantly said: 'Whilst we understand that CGU has accepted indemnity under the above policy in relation to the Pal & Howarth claims in principle, it reserved the right to consider each claim on an individual basis. We provided full details of the Bajada Retirement Fund claim almost three months ago. In our view, CGU has unreasonably delayed providing confirmation of indemnity or instructions to [AMP] to complete settlement. Due to our client's responsibilities under its dealers licence to the claimants and the expectations of [the Commission], our client is obliged to go ahead with settlement with these claimants. We enclose a copy of the settlement deed that our client proposes to use. [AMP] expects reimbursement from CGU in accordance with the terms of the above policy. Upon reimbursement, if CGU wishes, [AMP] is willing to assign any assignments it takes from the claimants to CGU. Should you have any queries please telephone…' There was no response from Ebsworth & Ebsworth or from CGU. The demand by Bajada was settled on the terms of the proposed deed of settlement and the sum of $22,664.36 was paid on 10 September 2001. 111 Putting aside the question of whether CGU was under any obligation prior to the service on AMP of a Claim (as defined), the attitude of CGU to the Bajada settlement proposal is hardly the epitome of acting with the utmost good faith towards AMP. CGU was expressly informed of the pressures upon AMP from the Commission. Nevertheless, CGU completely ignored AMP's repeated requests for confirmation as to whether it would indemnify AMP in respect of the demand made by Bajada. 112 CGU's attitude is tantamount to saying that AMP should await the service of a Claim (as defined) and then call upon CGU to indemnify it in respect of that Claim. Taking that course, in circumstances where CGU did not formally deny that AMP had a liability to Bajada and CGU had all of the information that it had asked for in relation to Bajada's demand, would expose AMP to further costs and to the difficulties with the Commission that it had foreshadowed to CGU as a possible consequence of delay in meeting justified investor demands. 113 As at September 2001, there was no suggestion by CGU that it did not have sufficient information concerning the Bajada demand to make a decision as to whether or not it was satisfied that AMP had a liability to which the Insurance Policies responded. In circumstances where CGU had accepted the Protocol in principle, knew that AMP was under pressure from the Commission to resolve genuine demands expeditiously and had been given ample opportunity to comment on the proposed settlement with Bajada, to refuse steadfastly, over a substantial period of time, to state its position as to the proposed settlement, was capable of constituting a failure to act with the utmost good faith in relation to the demand made by Bajada. 114 It was open to the primary judge to find that, having accepted the Protocol in principle, CGU demonstrated a total want of utmost good faith in refusing to say one way or the other whether it accepted that AMP had a liability to Bajada to which the Insurance Policies responded. To ignore AMP's requests, without any explanation or justification, whether or not a want of honesty, was capable of constituting a failure to act with propriety. It was capable of constituting a failure to act with utmost good faith. 115 The primary judge did not examine those issues in relation to any of the demands that were settled. It may well be that there was a breach of the Insurance Policies by reason of a failure to act with the utmost good faith. It was an error to hold simply that there was no want of honesty and therefore, no failure to act with the utmost good faith in relation to the demands.

REASONABLENESS OF SETTLEMENTS 116 Since the primary judge concluded that there was no breach of the Insurance Policies and no want of utmost good faith on the part of CGU, the question of whether the settlements by AMP were reasonable was, in his Honour's view, irrelevant. Nevertheless, his Honour made findings on that question. There were two bases on which his Honour concluded that the settlements were not reasonable. The first was a concern about the process by which the settlements were made. The second concerned the failure by AMP to consider the possible application of s 819(4) of the Law. 117 His Honour began by observing that reasonableness is to be judged by an objective standard. The fact that legal advice was received, which recommended settlement, while relevant, is not conclusive and the onus of proving reasonableness was on AMP. However, his Honour also considered that the settlements must be reasonable from the point of view of CGU, in the sense that they must be based on a reasonable assessment of the risk faced by AMP if the investors demands were to proceed to trial and judgment and CGU were liable to provide indemnity. Thus, his Honour observed that factors personal to AMP, such as fear of the adverse publicity of a trial, might reasonably influence AMP, but were not proper to be taken into account in determining the reasonableness of a settlement as between AMP and CGU. 118 As his Honour said, the question of whether a settlement was reasonable is to be determined according to an objective standard. CGU's position was irrelevant, since the question must be assessed from the point of view of an uninsured recipient of the relevant demand. Further, the circumstances of that recipient are relevant to the question of reasonableness. The harm to a defendant that is likely to be suffered by reason of adverse publicity attaching to the defence of a good demand is relevant from an objective point of view. 119 His Honour found that the desire to placate the Commission was 'the major factor motivating' AMP in entering into the settlements. His Honour considered that, while that was perfectly understandable and commendable, as between AMP and the Commission, it was not relevant to the assessment of the demands for which CGU might become liable for indemnity under the Insurance Policies. CGU's obligations under the Insurance Policies did not extend to providing indemnity against payments that AMP might make, however reasonably, to comply with the demands of regulators or to preserve its business reputation. 120 If by those observations, his Honour was saying that a settlement would not be reasonable, when judged by an objective standard, if it were entered into on terms that were designed to do more than compensate an investor for the value of the investor's demand, assessed by reference only to its prospects of success, that would be unexceptionable. For example, if it were the fact that AMP paid amounts in settlement of demands made by investors that were without substance and such payments were made to placate the Commission in circumstances where the Commission was making unjustifiable or unreasonable demands, it might be possible to conclude that the amount paid was not reasonable judged by an objective standard. However, that is not a finding that his Honour made in this case. 121 The primary judge considered that, for the reasons advanced by CGU, which his Honour summarised, the whole process relating to the settlement of demands by investors was so dominated by pressure from the Commission that his Honour was unable to conclude that the settlements would have been reached in the agreed amounts, or indeed at all, had the pressure not existed. It is necessary to examine each of the reasons advanced by CGU. 122 First CGU relied on the fact that the actual decision maker within AMP, its managing director, Mr Greg Kirk, was not called and there was no evidence identifying the matters or documents that he considered. However, Mr Tudjman, AMP's in-house counsel with responsibility for the management of the matter, gave evidence. Mr Tudjman said that he had full authority to enter into the settlements on behalf of AMP and was the relevant decision maker. That assertion was not challenged and there was ample material before the primary judge as to the matters and documents taken into consideration by AMP in deciding to settle each demand. Some 12 volumes of material evidencing the investigations carried out by AMP in relation to investor demands were tendered and were in evidence before the primary judge, although his Honour did not refer to any of them in his reasons. It would be necessary to have regard to the material in relation to each demand before it could be possible to reach a conclusion as to whether the settlement of that demand was reasonable. 123 Secondly, CGU said that there was a conflict of interest for Minter Ellison to act for both AMP and Hillross, in circumstances where the insurer of Hillross was insolvent. The conflict appears to be that there would be a temptation for Minter Ellison to recommend a settlement by AMP of a demand that should have been met by Hillross. However, his Honour made no finding on that question. The only witness to whom such a suggestion was put denied it. CGU was at all times plainly aware that Minter Ellison were acting for both Hillross and AMP. AMP asserted that the claims that were settled by AMP related to investments made by Pal on behalf of investors at times when Pal held a proper authority from AMP and not Hillross. His Honour gave no further explanation as to how this reason leads to the conclusion any particular settlement was unreasonable. 124 Thirdly, CGU said that the investigations were one-sided because Pal and Howarth were not interviewed. However, no such complaint was made by CGU prior to any settlement. The primary judge did not refer to any of the investigation materials that were in evidence before him. That material demonstrated that Pal and Howarth had been interviewed by Hillross and that they were also extensively examined and investigated by the Commission under its statutory powers. Minter Ellison obtained access to the transcripts of the examinations by the Commission. It would have been necessary for CGU to apply to the Commission for access to that material, but it had not made any attempt to seek access before October 2001. 125 The fourth and fifth reasons advanced by CGU are related and were summarised by the primary judge as follows: '…the driving force between the entire process of investigating, managing and paying Investor claims was the pressure imposed by [the Commission] for swift satisfaction of investor complaints. Between May 1999 (when complaints first surfaced) and January 2001, almost nothing had been done by [AMP] to deal with those complaints. The meeting held on 14 February 2001 with representatives from [the Commission] dramatically altered the stance adopted by [AMP]. Thereafter, there was an ever-present fear that [the Commission] might revoke the dealer licence held by [AMP]. In the meeting on 14 February 2001, the representatives of [the Commission] were adamant that [AMP] ought ensure that its own obligations to the client investors should override any concern about its insurance cover; [the Commission] stated that the position of the insurer should be irrelevant in the eyes of [AMP]. [AMP] knew that it had to proceed with management of the investor claims consistently with such views and it did so. Promptly, a plan was prepared and that was expressly designed to give effect to the requirements of [the Commission] and was designed to ensure that 'the bulk of claims should be resolved within the three months'. This plan was designed without any communication with CGU. The first step in implementing the plan - writing letters to investors - was also implemented without CGU having any opportunity to have an input… The requirements of [the Commission] extended to the precise manner in which investors should be compensated. According to Mr David Heyworth,… who led the investigation on behalf of… [AMP], [the Commission] required, in "very strong terms", that all clients be compensated with replacement of capital, reasonable interest and costs. The attitude adopted by [AMP] was that, consistently with the requirements of [the Commission], the claims should be settled and the question of recovery from "other parties" (including CGU) could wait until later. Throughout the process, [AMP] was adamant that it would not seek to negotiate less than full compensation for claimants.' 126 His Honour considered that the reasoning that led AMP to make the settlements in the way that it did was not to reach a compromise based on an assessment of the prospects of success of the demands by investors, but to satisfy the demands of the Commission. His Honour considered that AMP was told explicitly by the Commission to ignore the interests of CGU and it did so. His Honour considered that AMP failed to give proper weight to the interests of CGU. For the reasons already given above, that was an erroneous approach. CGU's position was irrelevant. 127 The primary judge made no positive finding that the 'pressure from'the Commission had any effect on the fact of any settlement or on the quantum of any settlement. The most that his Honour found was that he was unable to conclude that the settlements would have been reached in the agreed amounts, or indeed at all, without pressure from the Commission. However, his Honour did not embark upon the task of assessing the reasonableness of the settlements in the light of the reasoning that led Minter Ellison to recommend any particular settlement. Even if AMP settled a demand by an investor because it was concerned that failure to do so might have an impact on its licence and because of pressure from the Commissioner, it by no means follows that such settlement was unreasonable from an objective point of view. His Honour did not make that enquiry. 128 His Honour considered, nevertheless, that the settlement could fail the reasonableness test because of flaws in the process by which it was reached, quite apart from an assessment of the settlement sum against the predicted result of litigation. While his Honour found that the reasoning that led AMP to make the settlements was to satisfy the demands of the Commission, rather than to reach a compromise based on an assessment of the prospects of success of the demands, his Honour did so without examining the material that was before AMP in relation to any particular settlement. That material, of course had been examined by Minter Ellison and was the subject of a liability report in relation to each of the investor demands. His Honour did not, in his reasons, indicate that any consideration had been given to that material. 129 Sixthly, CGU said that AMP deliberately hastened settlements so as to make as many as possible before CGU reached a decision on indemnity. His Honour also found that Mr Tudjman, the officer of AMP responsible for the settlements, took the view that AMP wanted to settle as many demands as it could before CGU 'did something that had the potential to conflict with the Commission's view'. His Honour concluded that it was a fair inference that it suited AMP that CGU were 'dragging their feet' on the question of indemnity. It was said that there were a total of 23 instances in which, on the same day that CGU's solicitors were informed that a particular investor was making a demand against AMP, Minter Ellison forwarded the liability report relevant to that investor and informed CGU's solicitors that AMP proposed to make an offer of settlement in accordance with the liability report in 14 days. That, of course, was precisely what the Protocol contemplated. CGU had agreed in principle to the Protocol by May 2001 and AMP thereafter implemented it according to its terms. It was open to CGU to undertake the defence of any demand at any time after it had been notified of the demand by AMP. CGU, of course, did nothing. 130 The seventh matter put by CGU was that, in 34 cases, AMP paid more than 100 per cent of the amount demanded by the relevant investor, although it was accepted that mostly the excess over the demand was constituted by interest. His Honour did not analyse the evidence in relation to any particular demand. His Honour made no finding that any particular settlement was for an amount greater than the amount for which AMP might have a legal liability. There was material before his Honour from which it could be concluded that investors could have succeeded in recovering interest at a higher rate than that allowed by AMP in the settlements. 131 His Honour observed that, in deciding whether a settlement is reasonable 'the reasoning is important'. His Honour referred to observations made by Hayne J in Unity Insurance. However, in the passage cited by the primary judge, Hayne J was referring to the reasoning that supported the legal advice given and adopted in reaching a settlement. The passage is as follows (Unity Insurance at [129]): 'Whether the compromise of a claim was reasonable must be judged objectively, not subjectively. Thus whether a party to litigation has received advice to settle may be important in deciding whether that person's conduct in settling the case was reasonable but, standing alone, the fact that a litigant was advised to settle at a particular figure reveals little or nothing about whether the settlement reached was reasonable. This is not to say that evidence may not be led that such advice was given and adopted; it may. But evidence of that kind does not conclude the issue. What will usually be much more important is the reasoning that supported the advice that was given for that will ordinarily reveal why it was thought reasonable to compromise the claim as it was.' 132 Applying those principles, it would have been necessary, absent a finding of bad faith, which his Honour did not make, for his Honour to examine at least the liability reports prepared by Minter Ellison in relation to each of the investors demands. 133 It may be that AMP was influenced by pressure from the Commission to deal with investors' demands promptly and expeditiously. It may be also that AMP was anxious to reach a settlement of such demands quickly and before investors commenced proceedings that would constitute a Claim (as defined) under the Insurance Policies. However, it by no means follows that, because investors' demands were dealt with expeditiously under pressure from the Commission, any of the settlements of the demands was unreasonable, judged objectively. That requires, at least, an examination of the reasoning that led to the advice upon which the settlements were based. 134 By way of example, the first investor demand settled by AMP might be examined. Under cover of their letter of 1 March 2001, Minter Ellison forwarded a folder of material as indicated above. Included in that material was a draft liability report prepared in relation to a demand against AMP made by Bajada. 135 The final report on liability enclosed with Minter Ellison's letter of 26 March 2001 showed that the demand by Bajada was for $44,094, being $30,000 invested by Bajada, together with interest and legal costs. The Bajada demand related to two investments, one in Hibiscus and the other in MPF. Section 1 of the liability report relevantly provided as follows: '1. Summary and Recommendation 1.1 Investments and quantum … 1.2 The prospects of a successful claim by Bajada RF against [AMP] in respect of the Hibiscus debenture investment are high. There is clear liability in respect of this investment under section 819 Corporations Law and perhaps also section 817 (see paragraph 7.2 below for more detail). 1.3 [AMP] may be able to escape liability in respect of the MPF investment under the Corporations Law as it appears that the advice was given, and the investment made, after [AMP's] proper authority to Pal had ceased (see paragraph 7.3 below for more detail). Recommendation 1.4 We recommend that [AMP] provide instructions to offer Bajada RF $22,664.36 (see paragraph 8 below for more detail). 1.5 Under the terms of settlement, [AMP] should obtain from the Bajada RF: (a) assignments of the Bajada RF's interest in the Hibiscus debenture as well as any causes of action available to Bajada RF relating to the Hibiscus debenture against Pal, the administrator of Hibiscus, directors of Hibiscus, the liquidator of MAG, the directors of MAG and any other third party in relation to the alleged Hibiscus debenture investment; (b) a release from Bajada RF against all claims against [AMP]…; and (c) a confidentiality undertaking.' 136 There then followed further commentary under the following headings: '2. Investor Profile 3. Adviser 4. Alleged investments for which compensation is sought 5. Proper authorities held during relevant period 6. Evidence of investments 7. Liability 7.1 Bases of liability of adviser to investor in respect of Hibiscus debenture and MPF 7.2 Liability of [AMP] to investor in respect of Hibiscus debenture 7.3 Liability of [AMP] to investor in respect of MPF 8. Quantum 8.1 Hibiscus Debenture 8.2 MPF 8.3 Legal Costs 8.4 Total Quantum 8.5 [AMP's] Legal Costs.' The material under the heading 'Liability' is set out in Schedule 1 to these reasons. 137 No suggestion was made by CGU in the course of the hearing that there was some flaw in the reasoning contained in Section 7 of the liability report, except to the extent that there was a failure to advert to the possible defence under s 819(4) of the Law. That question will be revisited below. 138 The primary judge gave no consideration to the reasoning contained in Section 7 of the liability report for Bajada. Nor did his Honour give any consideration to similar reports in relation to all of the other demands by investors that have been settled. It follows that his Honour's conclusion, that the settlements of the demands by AMP were not reasonable, should not stand. Whether they were reasonable or not requires an examination of the material indicated.

RELEVANCE OF SECTION 819(4) OF THE LAW 139 The final reason advanced by CGU was AMP's failure to take account of the provisions of s 819(4) of the Law as an answer to demands by investors. His Honour considered that, apart from the question of process, the settlements were unreasonable because they failed to take into account the possible effect and availability to AMP of a defence under s 819(4) of the Law. His Honour found that AMP had not considered at all the possibility of a defence, under that provision, to the demands by the investors. 140 Section 819 applies, for example, where:

at a time when a person (the representative) is a representative of another person (the indemnifying principal), the representative engages in particular conduct;
another person (the client) does a particular act because the client believes, in good faith, that the representative engaged in that conduct on behalf of some person (the assumed principal), whether or not identified, in connection with a securities business carried on by the assumed principal; and
it is reasonable to expect that a person in the client's circumstances would so believe and would do that act because of that belief; whether or not that conduct is within the scope of the representative's employment by any person. 141 Under s 819(2), for the purposes of a proceeding in a court, as between the indemnifying principal and the client, the indemnifying principal is liable in respect of that conduct in the same manner and to the same extent as if the indemnifying principal had engaged in it. Under s 819(3), the indemnifying principal is liable to pay damages to the client in respect of any loss or damage that the client suffers as a result of doing the act in question. 142 However, s 819(4) provides that ss 819(2) and 819(3) do not apply for the purposes of a proceeding in a court if:
there are two or more indemnifying principals;
two or more of them are parties (indemnifying parties) to the proceeding;
it is proved, for the purposes of the proceeding, that the representative engaged in the conduct in question as a representative of an identified person who is one of the indemnifying parties. 143 The precise way in which s 819 operates is not entirely straight forward. The extent to which it extends ordinary principles of agency is not totally clear. Its effect has recently been the subject of consideration in the Supreme Court of Victoria (see Newman v Financial Wisdom Ltd [2004] VSC 216 and Financial Wisdom Ltd v Newman [2005] VSCA 110) where there was judicial disagreement as to its effect. 144 His Honour did not consider whether, in the circumstances of a demand by any particular investor, s 819(4) had any application. It is significant that no mention of s 819(4) was made by CGU in any of the correspondence; more particularly no mention was made of it in the opinion of Mr Archibald QC. His Honour's reasoning appears to have been that, simply because AMP did not turn its attention to s 819(4) at all, it was unreasonable to settle each of the 63 demands made by investors. His Honour did not examine, for example, the particular circumstances of the Bajada demand to see whether there was any basis for the application of s 819(4) to that demand. 145 CGU did not dispute that AMP may have a liability under s 819(2) or s 819(3). Before deciding that it was unreasonable not to have considered the possible application of s 819(4) to a demand against AMP by an investor, because of the involvement of MAG as an indemnifying principal, it would be necessary to examine the material relied on by AMP as to the relationship between Pal and Howarth, on the one hand, and MAG, on the other, and to speculate as to whether MAG and AMP would both be parties to a proceeding in a court. The primary judge did not undertake that task in relation to any investor demand.

INVESTIGATION AND LEGAL COSTS 146 AMP contends that the investigation costs and legal costs that it incurred is recoverable from CGU as damages for breach of the Insurance Policies. To the extent that AMP was able to establish that investigation costs and legal costs were incurred as a consequence of some breach of the Insurance Policies, which would not have been incurred had CGU performed its obligations under the insurance Policies, AMP may be entitled to recover the amount of those costs as damages. However, AMP does not appear to have made any attempt to demonstrate that particular costs were incurred as a consequence of some breach, which would not have been incurred but for that breach. The costs appear to relate to investigation of the claims and preparation of the reports to CGU. None of those costs were incurred by reason of any breach. Those costs would have been incurred even if CGU immediately accepted that AMP had a liability to the investors and agreed to pay the amounts of the settlements. There was no error on the part of the primary judge in concluding that the investigation costs and legal costs were not the subject of cover under the Insurance Policies.

DECLARATIONS 147 This issue is inextricably tied up with the cross-appeal, and it is appropriate to deal with it in dealing with the cross appeal.

THE CROSS APPEAL 148 The primary judge answered four questions concerning the construction of the Insurance Policies. His Honour did so over the objection of CGU. Questions 7, 8 and 9 were answered favourably to AMP and question 10 was answered favourably to CGU. As a consequence, his Honour ordered that CGU should recover only 90 per cent of its costs of the proceeding. CGU has filed a cross appeal from that order. 149 There was no appeal by AMP from the refusal of the primary judge to make declarations in terms of questions 7, 8, 9 and 10. The only complaint in the Notice of Appeal is that his Honour erred in denying AMP's claim for declarations that it was entitled to indemnity under the Insurance Policies in respect of the demands made against it. There would be no utility in making a declaration in those terms. Either AMP is entitled to judgment in the amount claimed, or it is not. 150 While it may be appropriate for a Court to grant declaratory relief in circumstances where there is a dispute between insurer and insured as to whether a contract of liability insurance responds to a particular liability of the insured, it is only appropriate to do so where the liability can be identified in concrete terms. That is to say, where a demand is formulated against an insured and the insured seeks a determination as to whether an insurer is liable, under a particular insurance contract, to indemnify the insured in respect of that demand, declaratory relief as to that question will be appropriate. 151 AMP, at no stage, claimed specific declarations as to its entitlement to indemnity in respect of specific demands by investors. There could be some utility in making a declaration as to AMP's entitlement to be indemnified in respect of a specific investor demand, where there was a dispute as to whether the Insurance Policies respond to such demand. That would be of utility only in relation to a demand that has not yet been settled and in respect of which there is at least some possibility that a Claim (as defined) will be made in the future. That is to say, if, for example, AMP were served with a Claim (as defined), and CGU failed to accept that it was liable under one of the Insurance Policies to indemnify AMP in respect of that Claim if it resulted in Civil Liability (as defined), there would be considerable utility in resolving questions as to whether Insurance Policies responded to that Claim (as defined). However, that is not the present case. 152 The primary judge did not resolve the questions by reference to specific demands by individual investors. Rather, his Honour dealt with the questions in the abstract. Further, his Honour declined to make any declarations as a consequence of the resolution of the questions. There would be a risk that, in dealing with the questions as his Honour did, and formulating an order for costs on the basis of the determination of the questions, an issue estoppel would might arise as between AMP and CGU, notwithstanding the absence of declarations. The preferable course, after the determination of the question of whether CGU was liable to reimburse AMP, would have been to decline to consider the subsidiary or ancillary questions as to the construction of the Insurance Policies in relation to purely hypothetical demands. 153 However, this question arises, of course, only if AMP fails in its appeal. For the reason indicated, AMP succeeds in the appeal.

CONCLUSION 154 The appeal should be upheld and the orders made by the primary judge should be set aside. The matter should be remitted to the primary judge for further consideration, in the light of these reasons, of the following questions in relation to each of the investor demands referred to in the S.C. Schedule:

whether AMP was induced by CGU's conduct to assume that, if it settled that demand on reasonable terms, it would not be required to establish by admissible evidence that it was legally liable to that investor in order to be reimbursed by CGU for the amount paid pursuant to such settlement;
if so, whether AMP settled that demand in reliance upon that assumption;
whether, in the light of the answers to those questions, CGU is estopped from asserting that, or it would be a want of utmost good faith for CGU to assert that, AMP is required to establish by admissible evidence that it was legally liable to that investor;
whether AMP settled that demand on reasonable terms. 155 The question of the costs at first instance would depend upon the outcome of that further consideration in relation to each investor demand. The parties wish to make submissions as to the costs of the appeal and there should be no order as to those costs at this stage. SCHEDULE 1

Liability 7.1 Bases of liability of adviser to investor in respect of Hibiscus debenture and MPF (a) Section 849 of the Corporations Law In our view, Pal has breached section 849 of the Corporations Law. At the time of Bajada RF's investments in Hibiscus and MPF Pal was a director of Hibiscus and MPF, and MAG personnel were involved in the day to day running of Hibiscus' business. Pal was a shareholder of MAG. In our view, all of these matters ought to have been disclosed to Bajada RF. Bajada RF claims that these interests were not disclosed and we have seen no evidence of disclosure at the time of the Hibiscus debenture and MPF investments. In our view, Bajada RF would be able to establish non-disclosure. (b) Section 851 of the Corporations Law ('Know your client' rule) In our view, Pal has breached section 851 of the Corporations Law. From the information we have gathered about Hibiscus (see Hibiscus summary) it is difficult to imagine that Hibiscus would have been an appropriate investment for any but the most speculative investor. Bajada RF does not appear to fit into this category. From December 1997 Hibiscus was in serious financial difficulty, with suspicions about its financial viability being raised earlier. Bajada RF made their investments in November 1997 and January 1998. It is difficult to imagine how any recommendation to invest in Hibiscus could have been made if this information was (or ought to have been) known to Pal (or his associates, MAG and Howarth). (c) Other causes of action Bajada RF claim that Pal represented that an investment in Hibiscus would be sound and secure. In our view this amounts to conduct which is misleading and deceptive or likely to mislead or deceive, contrary to sections 995 and 999 of the Corporations Law. Pal made offers to invest in a securities product where there was no prospectus and in our view contravened section 1018 (as then in force) of the Corporations Law. Pal's conduct is also likely to give rise to causes of action in negligence and misrepresentation. 7.2 Liability [AMP] to investor in respect of Hibiscus debenture (a) Yes, probably under section 819 Corporations Law and perhaps under section 817 Corporations Law and agency. (b) Bases of liability of [AMP] to investor: (i) The investment was made during the period of the [AMP] proper authority to Pal. Section 817 of the Corporations Law (ii) We have seen no evidence to prove conclusively that Pal was not acting in connection with [AMP's] securities business. Although it appears that Bajada did not know of Pal's relationship specifically with [AMP], we know that Bajada believed that Pal was an AMP agent because of the large number of AMP certificates on the walls of Pal's office. This may be sufficient for a finding of liability under section 817 of the Corporations Law. Section 819 of the Corporations Law (iii) All letters to Bajada RF were on MAG letterhead with no mention of [AMP]. This may support an inference that Bajada RF believed that Pal was acting as a MAG representative - ie in connection with MAG's (unlicensed) securities' business, not as a [AMP] representative. However, Bajada believed that Pal acted on behalf of some principal's securities business, AMP. That is sufficient to make [AMP] liable under section 819 of the Corporations Law, unless there is evidence to prove that the belief was unreasonable or reliance on that belief was unreasonable. We have seen no evidence to prove that unreasonableness. In our view, [AMP] will be liable under section 819 of the Corporations Law. Agency (iv) Liability in agency may depend on whether Bajada RF knew of Pal's relationship with [AMP]. It appears that they did not know of the specific AMPFP connection but were aware of the AMP connection. This may be sufficient for a finding of liability in agency. 7.3 Liability of [AMP] to investor in respect of MPF (a) Corporations Law [AMP] may be able to escape liability in respect of the MPF investment under the Corporations Law as it appears that the advice was given, and the investment made after AMPFP's proper authority to Pal had ceased. The investment appears to have been made on 7 January 1998, whereas the [AMP] proper authority ended on 2 December 1997. (b) Agency Liability in agency may depend on whether Bajada RF knew of Pal's association with [AMP]. It appears that they believed that Pal was acting as an AMP agent and did not know of the specific [AMP] connection. However, this may be sufficient for a finding of liability in agency in respect of this investment. I certify that the preceding one hundred and forty-four (144) numbered paragraphs and schedule are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

VICTORIA DISTRICT REGISTRY VID 1422 OF 2004

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

GYLES J 156 I have had the advantage of reading the reasons of Emmett J in draft. Those comprehensive reasons, taken together with the judgment under appeal (AMP Financial Planning Pty Ltd v CGU Insurance Limited (2004) 139 FCR 223), relieve me of the necessity of setting out the issues, how they arise and details of the proceeding to date. I am thus able to express my own opinion relatively succinctly. I would dismiss the appeal, although my reasoning departs to some extent from that of the primary judge, Heerey J. 157 This case is another illustration of the problem confronting a party faced by demands prior to action from a number of claimants alleging wrong doing for which the party may be responsible where the party has the benefit of an insurance policy of indemnity against legal liability. In the present case, the indemnity is against liability for damages ordered to be paid and 'claim' is defined to mean originating process in a legal proceeding or an arbitration or a similar notice. The insurer need do nothing until such a claim is received and, even then, can choose not to intervene in the conduct of the litigation. The indemnity operates upon the ultimate liability. The policy conditions are usually such that an insured will lose cover by making admissions or by settling a claim prior to judgment without consent, provided that the insurer is not in breach. An insured who wishes to unilaterally accept liability, in whole or in part, simply cannot do so without imperilling insurance cover. (See, generally, Derrington and Ashton, The Law of Liability Insurance, 2nd edn, LexisNexis Australia, 2005, 8‑288-8‑305.) 158 At first blush, this evokes sympathy for the insured and seems to be against the public interest as encouraging litigation. However, that approach can mislead. The contract of insurance for which the premium is received only indemnifies against established legal liability. There may be reasons aside from the legal merits why an insured may wish to meet claims made prior to action, in whole or part, without forcing the claimant or claimants to litigation. An insured business confronted with a claim by a good customer; a claim by a family member or friend against an insured; an insured church that receives a claim from a parishioner; an insured that is subject to external pressures such as a media campaign to settle are examples. An insurer against liability is not bound to fund or subsidise a meeting of demands to give effect to such considerations which are extraneous to the contract of insurance for which the premium has been paid and received. 159 The dilemma faced by the appellant, AMP Financial Planning Pty Ltd (AMP), in the present case was acute. Quite apart from potential damage to its reputation, it was under heavy pressure from the statutory regulator Australian Securities and Investments Commission (ASIC) to meet the demands by investors (with a perceived risk to its licences) but no 'claims' within the meaning of the policies had been made. In the event, the respondent insurer, CGU Insurance Limited (CGU), significantly alleviated AMP's dilemma by unilaterally waiving several of the contractual provisions that inhibited AMP from dealing directly with claimants prior to 'claims' having been made. However, as pointed out by the primary judge, CGU did not accept liability in relation to all or any demands and went to some pains to make that clear to AMP. CGU never resiled from that position. 160 AMP's case depends entirely upon it being established that the dealings between the parties gave rise to an obligation to indemnify it on the part of CGU in circumstances not provided for by the contract of insurance. It is contended for AMP that the arrangements described as 'the protocol' had the effect that CGU is estopped from denying liability for settlements arrived at where AMP had complied with the protocol in relation to the claim settled without objection by CGU. In my opinion, the primary judge was correct to reject that contention. It is arguable that the initial protocol arrangements gave some credence to that argument. However, it was quite apparent long before any settlement payment was made that CGU was not accepting liability by virtue of compliance with the proposed procedure and, in particular, was not consenting to any individual settlement on that account. Heerey J was correct in rejecting the argument that CGU was bound to indemnify in relation to any payment made simply because the protocol had been observed by AMP without specific objection by CGU. 161 On the other hand, contrary to the finding of Heerey J, in my opinion, it is clear that CGU could not conscientiously deny that AMP was entitled to act as a prudent uninsured. It repeatedly said so. AMP was entitled to rely upon that assurance. It follows that CGU is estopped from denying liability to indemnify AMP for any payment pursuant to a settlement reached accordingly, notwithstanding any policy conditions to the contrary. Whether it did in fact act as a prudent uninsured in making the payments is another and, in my opinion, the main, issue. If it did so, it would have acted to its detriment. There would be a clear case of estoppel - whether by representation (Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387) or convention (Con‑Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226, 244; Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175, 185; MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39). It follows that CGU's argument, accepted by the primary judge, that AMP could not settle and claim indemnity unless CGU were in breach of the contract of insurance, is not of any consequence in the present circumstances in view of the unequivocal representation by CGU that AMP could act as a prudent uninsured. To act as a prudent uninsured is, for relevant present purposes and leaving aside onus, similar to the position of an insured denied cover in breach of contract. A prudent uninsured might arrive at an objectively reasonable settlement in the light of its potential liability and pay accordingly. 162 Before turning to examine what I regard as the main issue, I should say that, in my opinion, the appeal by AMP to the duty of utmost good faith now reflected in s 13 of the Insurance Contracts Act 1984 (Cth) is misplaced. No authority was cited for the proposition that this duty can be utilised to vary the insurance contract by imposing extra obligations to indemnify upon the insurer. In the absence of a claim as defined in the policies, CGU was quite entitled to await developments without being called upon to do more. Acquiescence by CGU in a procedure proposed by AMP outside the contract did not enliven any additional duty of utmost good faith. Furthermore, an appeal to utmost good faith by AMP is somewhat bold. The effect of Heerey J's findings was that AMP was not prepared to let the contractual process take its normal course but was manoeuvring events to serve its commercial purpose of satisfying ASIC whilst preserving, as best it could, its rights against CGU. 163 It follows that, in my opinion, the primary judge should have held that AMP was entitled to act as a prudent uninsured in dealing with the demands made upon it. However, the primary judge went on to consider whether the settlements were objectively reasonable. As I have said, in my opinion, that is similar to the question as to whether AMP acted as a prudent uninsured although there may be a difference as to onus. A prudent uninsured with a real risk of potential liability would enter into a reasonable settlement, judged objectively, taking into account a proper assessment of that risk. The decision of the High Court in Unity Insurance Brokers Pty Limited v Rocco Pezzana Pty Limited (1998) 192 CLR 603, to which the primary judge referred on this point, is a guide to the test to be applied (see, particularly, Hayne J at [129]-[146]). However, the considerations referred to in the well-known passage from the speech of Lord Macmillan in Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 at 506 (reproduced in the extract set out by McHugh J at [36] in Unity Insurance) would not apply in AMP's favour here. AMP has the onus of establishing that the settlements were reasonable. Thus, the real issue is whether Heerey J was wrong in holding that it had not established that the settlements were objectively reasonable. I should add that, in my opinion, there is no merit in the submission on behalf of CGU that AMP could only establish reasonableness by calling the primary evidence that would have been called if each claim had been litigated against AMP. The issue is to be judged by that which was available to AMP as a reasonable uninsured at the time. It was either sufficient or not (cf Brennan CJ in Unity Insurance at [7], Hayne J at [130]). 164 There was criticism on behalf of AMP of the primary judge's use of subjective material in relation to this question and particularly, but not only, the effect of pressure from ASIC upon AMP's decisions. The test is objective. The question is whether a prudent uninsured would have entered into the settlements which were entered into, not whether it would have gone through the process that AMP went through. The process may be relevant but is in no sense decisive one way or the other for reasons sufficiently explained in Unity Insurance (per Brennan CJ at [6], McHugh J at [35] and Hayne J at [129]-[135]). I agree that the objective reasonableness of the settlements is not necessarily destroyed simply because AMP bowed to pressure from ASIC. ASIC could have been entirely correct as to the liability of AMP for the payments in question. 165 AMP also criticised reference by the primary judge to the settlement having to be reasonable in the interests of CGU. In this context, I take that statement as being a shorthand reference to the fact that AMP, when considering settlement, could only have regard to the merits of the claim if litigated and could not have regard to commercial considerations of its own that might intrude upon the decision in the manner explained by Chesterman J in CA & MEC McInally Nominees Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2001)188 ALR 439; (2001) 166 FLR 271 at [61]-[64]. That is sound in principle and in accordance with authority. (Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 per Menzies J at 9-10, Stephen J at 32-33; Broadlands Properties Ltd v Guardian Assurance Co Ltd (1984) 3 ANZ Insurance Cases 60-552 at 78, 324). 166 I am inclined to agree with the submission for AMP that the blanket acceptance of CGU's criticisms of the process by the primary judge was not justified. Some of the points made by CGU are debateable at best. 167 However, leaving process aside, Heerey J found that the settlements were not shown to be objectively reasonable when the proper operation of s 819(4) of the Corporations Law is considered. That is the fundamental issue. 168 The backdrop to this issue is that the conduct of the persons that led to the potential liability of AMP had nothing to do with the business of AMP. The only relevant link was that one of the individuals concerned happened to be an AMP representative at the time. It is therefore obvious that there would be a live issue as to whether there would be any liability of AMP for the conduct in question if the claims were litigated. On the face of it, applying ordinary principles of vicarious liability or agency, it would be quite unlikely that AMP would be responsible. Hence the reference to the important but complex provisions of Div 4 Pt 7.3 (including s 819) of the Corporations Law. 169 Those provisions are plainly intended to extend ordinary agency principles. No reference was made to any authority on those provisions which existed at the time when the decisions to settle were made. Since then, the only consideration of them to which we were referred (apart from the judgment under appeal) is in the Victorian Supreme Court case of Newman v Financial Wisdom Ltd[2004] VSC 216 (at first instance) and Financial Wisdom Ltd v Newman[2005] VSCA 110 (on appeal). Those judgments reveal some of the obscurities in the provisions and expose significant differences of opinion between the trial judge and the Court of Appeal. Interestingly, the Court of Appeal agreed with the reasoning of Heerey J in the instant case, at least in one respect, and described it as 'surely reasoned' ((2005) 54 ACSR 143 at [27], [34], [35]). 170 For my part, I have no confidence that the ultimate effect of Div 4 Pt 7.3 of the Corporations Law will be settled without consideration of its provisions at appellate level in various concrete factual situations. For example, notwithstanding the prima facie view of the primary judge and an apparent concession on the part of CGU, I am by no means clear that the opinion of Mr Archibald QC and Mr Settle as to the operation of s 819(1)(b)(ii) would ultimately be held to be wrong. Heerey J took a particular view as to the likely effect of s 819(4) in the present circumstances that, if correct, would be a complete answer to each of the potential claims. That view was necessarily tentative because of the incomplete evidence. In my opinion, there is much to be said for it and it certainly is not clearly wrong. 171 A relatively unexplored set of statutory provisions of uncertain operation was critical to a finding that AMP was liable. There was no precise and tested evidence as to the relevant facts available to AMP at the time of the settlements. In my opinion, in those circumstances, a prudent uninsured would not have settled numerous claims on the footing of deemed statutory responsibility on uncertain facts prior to litigation even having been commenced. In my opinion, such an uninsured would wait upon proceedings being instituted and would test the position in order that there could be a full opportunity to ascertain the facts and the law, at least unless offered a substantial discount on the amounts demanded. That testing might or might not be limited to one or more test cases and might or might not involve pursuing a case or cases to judgment. The premature settlements here meant that those decisions were not made. 172 It follows that AMP did not act as a prudent uninsured as it was invited to do and so does not bring itself within the invitation from which CGU would be estopped from departing. It cannot establish liability by that route. As the matters were settled before any 'claim' within the policies were made, there can be no liability via the policies. 173 In my opinion, Heerey J was not in error in holding that AMP was not entitled to recover its investigation and legal costs. No 'claim' had been received and there was no breach of the insurance contract at the time the costs were incurred. It may be arguable that a prudent uninsured would incur such costs, although there was no express arrangement to that effect. However, those costs were incurred in connection with the 'protocol' and the settlements in relation to which AMP did not act as a prudent uninsured. 174 The last issue of substance on the appeal is the refusal by Heerey J in the supplementary judgment (AMP Financial Planning Pty Ltd v CGU Insurance Limited (No 2) [2004] FCA 1397) to make a declaration of liability to indemnify following the findings made by him at [108]-[120] of the principal judgment. The issue arises in relation to demands by investors that have not been paid by AMP. The findings in question reject various bases upon which it was contended by CGU that it would not be bound to indemnify AMP in respect of those demands because of the proper construction of the contracts of insurance. The primary judge declined to make the declaration sought on the ground that it would be hypothetical as AMP had not been found liable for the amounts in question. 175 The relief sought was: 'Declare that the applicant is indemnified by the respondent in respect of the unpaid claims pursuant to the insurance policies the subject of this proceeding.' 176 CGU by cross-appeal challenges the findings in question. In my opinion, even if the findings stand, the primary judge did not err in declining to make the declaration. The declaration purports to be a final declaration as to liability. That is not appropriate. The favourable findings only dealt with certain arguments that stood in the way of liability if correct. The favourable findings rejected those arguments, but did not establish liability. In those circumstances, the declaration sought was inappropriate. It is not necessary to enter upon the question as to the circumstances in which it might be appropriate to make a limited declaration of right concerning the operation of a policy of indemnity prior to the primary liability being established. I would also leave for later consideration, if necessary, the correctness of the view of Heerey J that his findings would constitute issue estoppels. 177 The appeal should be dismissed with costs.

CROSS-APPEAL 178 The cross-appeal is moot in view of the outcome of the appeal. The cross-appeal relates to the order for costs, namely, that AMP pay 90 per cent of CGU's costs. Two issues are raised by CGU. The first is that there should have been no reduction to 90 per cent. The second is that costs should have been ordered on a solicitor and client basis from 1 September 2004 onwards because of the refusal of an alleged Calderbank offer. 179 The reduction of costs to 90 per cent was based upon findings by Heerey J favourable to AMP as to some discrete arguments as to construction of the policies (designated as Issues 7, 8 and 9). CGU submits that Heerey J was wrong as to each issue and was wrong to dispose of the issues on a final basis as they were hypothetical. 180 The relevant findings are a source of difficulty. AMP's case was that it was entitled to an order of indemnity. It bore the onus of establishing all the elements of that cause of action. It failed to do so. None of the issues dealt with by the findings involved a positive case put forward by CGU. They responded to arguments put forward as reasons why AMP could not succeed. No separate questions were isolated in any formal manner. Such issues as were raised in the pleadings were raised conditionally. Limited declarations of right were never sought. The primary judge was correct in making no general declaration of right. I would not have thought it appropriate to reduce costs on account of such arguments. However, the question of costs is very much a matter for the primary judge and, assuming his views on the issues are correct, no error in principle is shown. As I am in dissent, and the orders for costs are to be disturbed in any event, I am disinclined to address what amount to hypothetical questions as to the correctness of the findings. 181 The same may be said of the issue arising out of the so-called Calderbank offer. It is academic in view of the fate of this appeal. Furthermore, the issue is somewhat controversial (eg Baygol Pty Ltd v Foamex Polystyrene Pty Ltd [2005] FCA 1089). The primary judge did not address it and so there are no findings or analysis of the relevant authorities. I am not inclined to deal with that issue in the particular circumstances of the case.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Associate: Dated: 2 September 2005 Counsel for the Appellant: NJ O'Bryan SC, PD Crutchfield

Counsel for the Respondent: AJ Meyers QC, CM Caleo

Fair Trading Act 1999(Vic)

AMP Financial Planning Pty Ltd v CGU Insurance Ltd

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