Attree Pty Ltd v Certain Underwriters at Lloyds of London Subscribing to Policy Number P_ML/0/272375/20/L-7

Introduction

1. By these proceedings, the applicant, Attree Pty Ltd (Attree), seeks a declaration that it is entitled to indemnity under a "Management Liability" policy (the Policy) issued by the respondent, Certain Underwriters at Lloyds of London subscribing to Policy Number P_ML/0/272375/20/L-7 (the Insurer), in respect of claims made against it by existing and former employees in relation to alleged unpaid employment entitlements.
2. At all relevant times, it conducted business as a real estate agent, in the course of which it engaged the services of a number of employees. The price of their engagement was its obligation to pay them in accordance with their entitlements under their employment contracts, the Real Estate Industry Award 2010 (the Award), and the Fair Work Act 2009 (Cth) (Fair Work Act). During 2020 and 2021, Attree failed or omitted to pay several employees their full entitlements in accordance with those instruments, and those employees subsequently made claims against it in respect of those failures and omissions. Attree settled the claims by making compromise payments to the employees and, in the course of doing so, incurred substantial legal costs. It now seeks indemnity under the Policy in respect of the payments made to the employees, as well as the costs of dealing with their claims.
3. For the reasons that follow, it is not entitled to indemnity under the Policy in relation to either expenditure. In essence, the Policy does not provide any avenue for payment to Attree in respect of the shortfall in the amounts which it had been obliged to pay as the cost of engaging its employees. The payments made in settlement of their claims merely represent the fulfilment of its antecedent obligations to pay its employees their full entitlements. By making them in response to their claims, it did not suffer any "loss", because it had already agreed to pay those amounts as the consideration for the employees' services which it received. By its present claim, it seeks to put itself into a better position than it would have been in had it paid them their full entitlements in the first instance. This is not the purpose of ordinary liability insurance policies, and Attree's submissions sought to turn the Policy into a performance bond of its employment obligations.

The agreed facts and issues

1. The parties agreed upon certain facts as the substratum of the matter before the Court, as well as the issues arising for determination. It is appropriate to set out that document verbatim. It should be noted that the schedule referred to therein has not been reproduced. AGREED FACTS
2. The Applicant (Attree) is the policyholder under a Management Liability Insurance Policy, number P_ML/0/272375/20/L-7, held with the Respondent (the Policy).
3. The period of insurance under the Policy is 30 April 2020 to 30 April 2021.
4. The Policy's limit of indemnity is AUD $2,000,000 for any one claim in the aggregate during the period of insurance.
5. The dispute arises from the application of the Policy to claims made against Attree. Background to Claims against Attree
6. Between 14 September 2020 and 26 March 2021, 8 claims were brought against Attree by some of its then employees and former employees (Formal Claimants) in the Industrial Magistrates Court of Western Australia in relation to alleged breaches by Attree of the Real Estate Industry Award 2010 (Award) and the non-payment by Attree of various entitlements mandated under the Award and the Fair Work Act 2009 (Cth) (Act) (Formal FWCs).
7. The Formal FWCs were brought by the following Formal Claimants and in the following amounts: (a) Deborah Lynne Bailey: $41,142.72; (b) Harrison Bailey: $82,394.63; (c) Rodney Alan Buckland: $188,271.54; (d) Paul Williams: $246,697.22; (e) Danuta Williams: $129,536.36; (f) Mark Rutherford: $118,864.57; (g) Julie Anne Read: $18,800; and (h) Rajini Walia: $47,952.71.
8. The total of the amounts claimed under the Formal FWCs was $873,659.75. Of that sum: (a) $198,957.14 was claimed for breaches by Attree of the Award and/or the Act in relation to the Formal Claimants': (i) unpaid annual leave; (ii) long-service leave entitlements; or (iii) unpaid commissions. (Attree accepts that each of these claims is excluded under the Policy; Excluded Claims). (b) $674, 519.12 was claimed for breaches by Attree of the Award and/or the Act in relation to: (i) unlawful deductions; (ii) underpayment of minimum wages; (iii) unpaid motor vehicle; or (iv) unpaid telephone allowances. (Attree contends that these claims are covered by the Policy; the Respondent says each of these claims is not covered by the Policy (Contested Claims).
9. The Award provides for minimum wages at clause 14, requirements for commission-only employees at clause 16 and allowances (including motor vehicle and telephone allowances) at clause 18.
10. Between 1 February 2021 and 4 January 2022, Attree compromised the Formal FWCs by agreeing to pay the Formal Claimants various amounts totalling $338,300.
11. The amounts claimed in the Formal FWCs and the amounts for which each claim was compromised with the Formal Claimants are set out in the table at Schedule 1 of this Statement at rows 1 to 8.
12. Between 10 August 2020 and 30 April 2021, 4 claims were made by Claimants (Informal Claimants) against Attree by way of written demands in relation to alleged breaches of the Award and the non-payment of various entitlements mandated under the Award and the Act (Informal FWCs).
13. The Informal FWCs were brought by the following Informal Claimants and were compromised between 29 October 2020 and 31 August 2021 by Attree agreeing to pay the Informal Claimants various amounts, as set out below: (a) Julie Jones - $14,000; (b) Melanie Jane Allen - $1,653.00; (c) Steven Lipiatt - $713.00; and (d) Christine Wilcock - $3,504.59. (the sum of the above amounts being $19,870.59)
14. The Informal FWCs and the amounts for which each claim was compromised with the Informal Claimants are set out in the table at Schedule 1 of this Statement at rows 9 to 12. Attree contends that the amount paid in respect of the Informal FWCs is covered by the Policy. The Respondent says the amount of these claims is not covered by the Policy. Declinatures
15. DUAL advised Attree that the Respondent declined to indemnify Attree in relation to one or more of the Formal FWCs and Informal FWCs on: (a) 11 August 2020 (b) 12 October 2020 (c) 27 January 2021 (d) 28 June 2021; and (e) 24 March 2022.
16. As at the date of this Statement, the Respondent has not paid or agreed to indemnify Attree for any of Attree's losses incurred as result of defending the claims made by the Formal Claimants or the Informal Claimants and the payments made to them in respect of the Formal FWCs and the Informal FWCs. Defence Costs
17. Attree incurred the following costs, charges, fees and expenses in defending, investigating and settling the Formal FWCs and the Informal FWCs: (a) $124,410.50 (including GST) paid to Mason Ledger Pty Ltd; and (b) $16,500 (including GST) paid to APX Law Pty Ltd. (Defence Costs)
18. The sum of the Defence Costs is $140,910.50 (inclusive of GST).
19. As at the date of this Statement, the Respondent has not paid or agreed to indemnify Attree for any of the Defence Costs. The Policy - Insuring Clause
20. The relevant insuring clause of the Policy for the purpose of the Formal FWCs and the Informal FWCs is clause 1.2(b) of the Policy (Insuring Clause 1.2(b)). Insuring Clause 1.2(b) provides that DUAL Australia Limited (ACN 107 553 257) as agent of the Respondent (DUAL) agreed to pay on behalf of Attree: "all [Loss] on account of any [Claim] against the company for a [Wrongful Act] by the company…"
21. A reference to the "company" in the wording of the Policy is a reference to Attree as the entity specified in Item 2 in the Schedule and pursuant to clause 9.6 of the Policy.
22. Pursuant to clause 9.5 of the Policy, "claim" is defined as follows: "Claim means: (a) A civil proceeding, or written demand for compensation or damages; or (b) A criminal proceeding against an insured person commenced by summons, charge or equivalent document, including but not limited to a Court Attendance Notice; or (c) Any formal administrative or regulatory proceeding, including an arbitration, mediation, conciliation or alternative dispute resolution proceedings, alleging a wrongful act; and (d) A civil proceeding, or a written demand, by an employee for compensation or damages alleging an employment practice breach." (Claim).
23. The Formal FWCs and Informal FWCs were a civil proceeding or written demand for the purpose of clause 9.5(a) of the Policy.
24. Wrongful act is defined pursuant to clause 9.54 of the Policy as follows: "Wrongful act shall mean any alleged breach of duty, breach of trust, neglect, error, omission, misstatement, misleading statement, or other act by: (a) any insured person, individually or otherwise, solely because of their status as such and in the course of his or her duties to the company or outside entity, or (b) the company." (Wrongful Act).
25. Pursuant to clause 9.30 of the Policy "loss" is defined as follows: "Loss means, for the purpose of Insuring Clauses 1.1 and 1.2(a)-(c), damages, compensation, settlements to which we have consented, claimant costs and defence costs which a person or entity becomes legally obliged to pay on account of a claim. However, loss does not include: (a) fines or penalties (whether civil or criminal) imposed by law, punitive, aggravated, exemplary or multiple damages, or matters uninsurable under the laws governing [the Policy]; or (b) taxes; or (c) costs incurred by the company to modify any building or property, or to provide any service, in order to make such building or property, or make any service more accessible or accommodating to any disabled person; or (d) costs incurred by the company in connection with any educational, corrective, sensitivity or other programme, policy or seminar relating to any employment practice breach; or (e) any amount payable by the insured under any warranty, guarantee, debt or fees payable to a third party for good or services supplied to the insured (including but not limited to amounts which the insured is required to refund or repay; or (f) any damages ordered or settlement agreed to in connection with any dispute arising from the agreed sale or purchase agreement for a transaction; or (g) defence costs or any other cost or expense where there is no other covered loss," (Loss).
26. The deductible for each Claim under clauses 1.2(b) of the Policy is $1,000.
27. Pursuant to clause 11.5(c) of the Policy: "All claims which arise out of or are attributable to or are in any way connected with a single wrongful act or employment practice breach shall constitute a single claim for the purpose of [the Policy]. A single wrongful act or employment practice breach means all respective wrongful acts or employment practice breaches which are related or form part of a series of related conduct or form part of a course of conduct that is not entirely unconnected, different and/or unrelated".
28. The Formal FWCs and Informal FWCs arise out of or are attributable to a single Wrongful Act as defined in the Policy and therefore only one deductible of $1,000 is payable by Attree in respect to any of the Formal FWCs and Informal FWCs that are covered by the Policy. The Policy - Exclusion Clauses
29. Clause 5.1 of the Policy provides for certain exclusions that apply with respect to Insuring Clause 1.2(b). Clause 5.1 states (relevantly): "We will not cover the company for or in connection with any [Claim] against it for or in connection with: … (c) any actual or alleged contractual liability of the company whether under any express or implied contract or agreement (including but not limited to any guarantee or warranty)." But does not apply "to the extent that the company would have had such liability in the absence of such contract or agreement; or [Exclusion Clause 5.1(c)] … (f) any trading debt or business liability of the company; or [Exclusion Clause 5.1(f)] (g) any obligation, or breach of an obligation, under any law or regulation providing for paid or unpaid leave of any kind or any industrial instrument; or [Exclusion Clause 5.1(g)] (h) any employment practice breach, or any obligation pursuant to any law, regulation or industrial instrument in respect of workers' compensation, disability benefits, unemployment benefits or compensation, unemployment insurance, retirement benefits, social security benefits or any similar law, regulation or industrial instrument whatsoever…" [Exclusion Clause 5.1(h)]
30. Pursuant to clause 9.23 of the Policy and for the purposes of Exclusion Clause 5.1(g) of the Policy, Industrial Instrument is defined as follows: "Industrial Instrument means: (a) an award, collective or industrial agreement, minimum wage order or any other instrument made or authorised under statute or regulation; (b) any other collective agreement that regulates the terms and conditions of employment." The Policy - Cost Clauses
31. Clause 1.3 of the Policy provides: "Except where we deny liability under [the Policy] we agree to pay defence costs either incurred by us or incurred by the insured with our prior written consent, in respect of a [Claim] for [Loss] covered by [the Policy]." (Costs Clause 1.3).
32. Pursuant to clause 9.11 of the Policy, defence costs is defined as follows: "Defence costs means that part of [Loss] consisting of reasonable costs, charges, fees and expenses incurred with our prior written consent (such consent not to be unreasonably withheld), in defending, investigating, settling or appealing any [Claim] for [Loss] covered by [the Policy]. Defence costs does not include: a) wages, salaries, fees or costs of time or other remuneration of any insured or employees; or b) profit, costs or office overheads of any company; or c) travel costs incurred by the insured; or d) other administration costs; or e) costs and expenses in defending a [Claim] where no other [Loss] is covered by the [Policy], unless Additional Benefit 2.1 Official Investigations, Additional Benefit 2.2 Occupational Health & Safety Defence Costs, Additional Benefit 2.4 Pollution and/or Additional Benefit 2.25 Copyright Defence Costs is operative," (Costs Clause 9.11).
33. To the extent that the Respondent is liable to indemnify Attree in respect of any part of the Formal FWCs and/or Informal FWCs, pursuant to Costs Clause 1.3 and Costs Clause 9.11 of the Policy, the Respondent is liable to pay Attree for the reasonable Defence Costs associated with the covered aspects of the Formal FWCs and/or Informal FWCs, pursuant to the allocation provisions set out in clause 10.5 of the Policy. ISSUES FOR DETERMINATION Construction & Interpretation - Threshold Issue
34. Whether the settlement sums paid pursuant to the Formal FWCs and/or the Informal FWCs were within Insuring Clause 1.2(b) and, in particular: (a) whether the claims in respect of the Formal FWCs and/or the Informal FWCs were a demand "for compensation or damages" within the definition of Claim under clause 9.5 the Policy; (b) whether the claims in respect of the Formal FWCs and/or the Informal FWCs were for a "Wrongful Act" within the definition in clause 9.54 of the Policy; and (c) whether the amounts paid to the Claimants to compromise the Formal FWCs and the Informal FWCs constituted Loss within the meaning of clause 9.30 of the Policy. Construction & Interpretation - Exclusion Issues
35. To the extent that the amounts paid in respect of the Formal FWCs and the Informal FWCs are otherwise within Insuring Clause 1.2(b), whether coverage in respect of those sums is excluded because the sums were: (a) a "contractual liability" of Attree that it would not have had in the absence of each of the Claimant's contracts and therefore excluded by operation of Exclusion Clause 5.1(c); or (b) a "business liability" and thereby excluded by operation of Exclusion Clause 5.1(f); or (c) an obligation, or breach of an obligation, under any law or regulation providing for paid or unpaid leave of any kind or any Industrial Instrument and thereby excluded by operation of Exclusion Clause 5.1(g); or (d) an obligation (or breach of an obligation) under any law, regulation or Industrial Instrument in respect of workers' compensation, disability benefits, unemployment benefits or compensation, unemployment insurance, retirement benefits, social security benefits or any similar law, regulation or industrial instrument whatsoever, and thereby excluded by operation of Exclusion Clause 5.1(h).

Nature of the claims against Attree

1. As appears from the agreed facts, the claims made against Attree were in respect of its failure to pay its employees certain employment entitlements due to them under the Award and the Fair Work Act. It did not appear that Attree denied that it had not paid the employees their full entitlements, though its acknowledgment or otherwise is not relevant to the policy interpretation issue.

Principles concerning the construction of insurance policies

1. The parties did not dispute the nature of the principles applicable to the construction of policies of insurance. They have been the subject of consideration in this Court on several recent occasions and do not require repeating.

The absence of a "claim" against Attree for "compensation or damages"

1. Whilst it can be accepted that the claims made by the existing and former employees against Attree constituted a civil proceeding or a written demand within the definition of the word "claim" in cl 9.5(a) of the Policy, none were "for compensation or damages". In the context of a policy of liability insurance, that expression is inapt to refer to the payment of an existing statutory or contractual entitlement to a person whose entitlement to receive it has not been fulfilled. Such was the conclusion in Kantfield Pty Ltd v Lockwood [2003] VSC 420, where a receiver claimed on a policy of liability insurance in respect of proceedings brought by the supplier of goods for a debt incurred in the course of a receivership. There was no doubt that the debt had been incurred and that the receiver was liable for it under s 419 of the Corporations Act 2001 (Cth). As such, he did not oppose the giving of final judgment against him, and summary judgment was subsequently entered against him on the claim. In rejecting the receiver's claim for indemnity, Byrne J observed the following (at [12]) in relation to the expression "compensation or damages": … the expression in the definition of claim, "compensation or damages", shows that what is there intended is a claim for pecuniary redress for some actionable wrong. An obligation in contract or otherwise to pay a sum in a certain event is not properly to be seen as an obligation to compensate; it is an obligation to perform the contract. …
2. This passage was subsequently considered in Kyriackou v ACE Insurance Ltd [2013] VSCA 150 [51] - [52], where Harper JA (with whom Tate JA agreed) observed: 51 Kantfield is … authority for the proposition, with which I respectfully agree, that a claim for civil damages or civil compensation does not include a claim in debt. Like reasoning points equally strongly to the conclusion that nor does such a claim encompass a claim for restitution, or for a civil penalty. … 52 Aggrieved persons may have claims of various kinds - for example, in restitution, or debt, or damages - or some combination of these (the terms 'damages' and 'compensation' are synonymous). But a claim for damages requires a breach of a duty or obligation and would therefore exclude claims for restitution or debt. Thus, in the present case the available evidence suggests that, if any claims were to be made by aggrieved investors, they would likely be for the return of borrowed funds, or to enforce contractual rights - in other words, for restitution of money had and received, or for a debt due or payable under contract - neither of which would constitute payment of compensation or damages. Such claims fall outside the insuring clause (clause 1.1) of the professional indemnity policy with which these proceedings are concerned. (Footnotes omitted).
3. The foregoing authorities have been subsequently applied for the proposition that the words "damages" and "compensation" when used in the context of policies of liability insurance are referable to claims for pecuniary redress in response to actionable wrongs: see APD Technology Pty Ltd v Maximo Developments Pty Ltd [2021] FCA 678 [181] - [184], and on appeal, APD Technology Pty Ltd v Maximo Developments Pty Ltd [2022] FCAFC 141 [181] - [188], [218] (APD v Maximo).
4. The distinction between awards of damages arising from a wrongful act and the effective payment of restitution or fulfilment of an antecedent obligation was eruditely articulated in Desmond Derrington and Ronald Ashton, The Law of Liability Insurance (LexisNexis Butterworths, 3rd ed, 2013) 1189 [8-130]: Since the essence of liability insurance is indemnity against loss, if there is no loss, there is no call for indemnity. Consequently, for example, the insured's liability to pay a contract debt voluntarily incurred or an obligation contractually undertaken by the insured for which there has presumably been good consideration, does not involve the insured in any net loss; and in such cases if there is some loss, the nature of the insured's liability is not that of the kind to which the policy applies, and it is immaterial on what cause of action the claim is made against the insured. … The primary reason is that the insured suffers no loss by reason of the incurring of the liability because consideration will have been received for the obligation to pay, and there is consequently no loss from that source, even if the contract itself led to a loss because of its imprudence. … (Footnotes omitted).
5. A little later (at 1190 [8-310]), the learned authors say: Damages are intended to provide the victim with monetary compensation for an injury to the person, property or reputation, while restitution is intended to return to the victim the specific money or property taken or, it is suggested, wrongfully withheld contrary to the insured's contractual or similar obligations. For example, wrongfully withheld wages that have been appropriated to the employee's entitlement, but not paid, are the property of the employee to whom they are owed and the insured who withholds them may be said to cause harm to that person's property, but this only demonstrates the artificiality of the reasoning of this kind when attention is directed to the form of the insured's liability in a technical sense rather than whether the insurer would suffer loss by making the payment. … (Footnotes omitted).
6. The foregoing observations are fortified by the use of the word, "damages", in the definition of "claim" and not, "damage". The word "damages" should be given its legally recognised meaning, being in the nature of "pecuniary recompense given by process of law to a person for the actionable wrong that another has done to him": Bartoline Ltd v Royal & Sun Alliance Insurance plc [2007] 1 All ER (Comm) 1043, 1074 - 1075 [108] - [110], citing the definition from vol 12(1) of Halsbury's Laws (4th ed, 1998) para 802; see also Hall Brothers SS Co Ltd v Young; The Trident [1939] 1 All ER 809. As such, the expression does not include an obligation to satisfy a liability which arises outside of the court process, such as by contract or under statute. Here, the obligation to pay the employee entitlements did not arise by the process of law and the amounts claimed are not in the nature of damages. It matters not that the order of a court requiring an employer to fulfil its antecedent obligations might be characterised as "compensating" the employee for the employer's failure; the substance of the claim is not for damages, but to require the insured to pay the amount that was due.
7. This appropriately limited scope of the expression, "compensation or damages", is consistent with the nature of the Policy in this case, being one to indemnify the insured against "loss" arising on account of claims made against them. Where an insured has acquired goods or, in this case, services, but has failed to pay the required consideration, a claim against them for payment of the purchase price will not, if successful, result in the insured suffering any loss. All that will occur from a successful claim is that the insured is required to perform its antecedent obligation to pay the price for the benefit which it has obtained by receipt of the goods or services. If a policy responded to such claims, the insured would be able to obtain the goods or services without being required to pay for them. That is not the concern of liability insurance.
8. In both form and substance, the employees' claims were for the payment of amounts which Attree was obliged to pay them under the Fair Work Act or the Award as the consideration for the work which they performed. They sought specific amounts in relation to unlawful deductions made from the employees' entitlements, unpaid motor vehicle allowances, unpaid mobile phone allowances, and unpaid minimum wages. These were merely part of the price which Attree had assumed; the obligation to pay the employees for their services, and their claims for the fulfilment of those obligations involved no claim for damages or compensation. Indeed, Attree's obligation to pay the amounts claimed were in the nature of debts created by statute: Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 418 - 419, 424: and the power of the courts to grant the relief sought by the employees existed only where there was an existing entitlement to be paid: see s 545 of the Fair Work Act. Though Attree sought to rely on the powers of the courts to make remedial orders, it is pellucid that the orders which can be made are to require the employer to pay an amount which it was already bound to pay to the employee, but which it had failed to do.
9. That critical observation on the nature of loss in this case is undergirded by the definition of the word "loss" which is said "means … damages, compensation …", and, as that definition uses the word "means", it should be accepted that "means" means means. It follows that the loss which is the subject of the indemnity must be in respect of damages or compensation flowing from the claim. That does not include payments made in respect of antecedent obligations which existed prior to the occurrence of a wrongful act. So much is confirmed by the Policy's exclusions which operate generally to exclude cover in respect of a failure to perform existing obligations to make payments or to provide benefits to others.
10. The foregoing is sufficient to establish that the claims made by the employees against Attree were not "for compensation or damages" within the scope of the Policy. Commensurately, they were not claims which would occasion Attree any "loss" as contemplated by the insuring clause.
11. Attree sought to rely upon the reasons of the Full Court in APD v Maximo in support of its construction of the Policy, where the insuring clause covered "civil legal liability for any claims for compensation". There is no need to address the facts of that case in any detail. It is sufficient to note that the claim made against the insured sought, inter alia, compensation for breach of fiduciary duty and for damages for misleading or deceptive conduct (each of which was a claim for damages), and that it was held that the policy responded to the claim. There is nothing in that case which assists Attree in the present matter. There is also no need to consider the reasons of the Court at [222] to [227] and the analysis of the manner in which the claims in that case were formulated. It suffices to observe that the form of the proceeding against an insured is not decisive of whether the claim is within or outside the relevant policy. It is its substance rather than its form which will determine its nature and, importantly, whether it will give rise to "loss": Derrington and Ashton, The Law of Liability Insurance (LexisNexis Butterworths, 3rd ed, 2013) 1145 [8-285].
12. Nor does the fact that the employees' claims sought interest on the outstanding amounts transmogrify them into ones for compensation or damage. Although an order for interest to be paid on an amount ordered by the Court can have a compensatory element to it, it is ancillary to the substantive relief sought, being the repayment of a debt which was due and owing. It would be a most unexpected outcome were the Policy to exclude the substantive relief sought against the insured because it is not in the nature of damages or compensation, but respond to the obligation to pay interest on that debt.
13. In the present case, the employees' proceedings were governed by the Magistrates Court (Civil Proceedings) Act 2004 (WA) and the Industrial Magistrates Court (General Jurisdiction) Regulations 2005 (WA), which afforded the Magistrate a discretion to award pre-judgment interest in relation to Attree's retention of money belonging to its employees beyond the date on which it should have been paid to them. In such circumstances, an award of interest would deprive Attree of the benefit of the use of money which it ought to have paid to the employees and to restore the benefit to them: cf Lahoud v Lahoud [2010] NSWSC 1297 [145]; National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386, 597: and is not in the nature of damages or compensation.
14. When the issue is examined from the perspective of whether the employees' claims might occasion loss to Attree, the same result ensues. The claim for interest merely deprives Attree of the benefit which it received from the use of its employees' money which it had improperly retained. Being required to disgorge that benefit at the suit of the employees does not occasion it any "loss". For this reason as well, the claims are not within the insuring clause.
15. It follows that none of the former employees' claims that Attree pay the amounts due to the employees plus interest were for compensation or damages or nor would they result in Attree suffering any "loss".
16. It was submitted that the expression, "claim", as defined by the Policy, extended to civil actions brought against Attree, regardless of whether they were claims for compensation or damages. This was said to arise by the punctuation used in the first limb of the definition which reads: Claim means: (a) A civil proceeding, or written demand for compensation or damages; or … (Emphasis in original).
17. The existence of the comma between the words, "proceeding", and, "or", does not have the consequence that subparagraph (a) covers any civil proceeding, regardless of whether it was one for compensation or damages. It would make no business or commercial sense for the Policy to cover any civil proceeding but then limit the scope of the coverage in relation to written demands to those for "compensation or damages". Whilst, conformably with the well-recognised paucity of quality in policy drafting, the punctuation of subparagraph (a) is not grammatical, its intendment is clear. It is concerned with claims against the insured for compensation or damages, regardless of whether they were in the form of a civil action or of a written demand made prior to litigation being commenced. It is, with respect, easily concluded that the comma has not been used carefully by the drafter, but rather haphazardly and inconsistently: Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its manager NTI Ltd v Zhang (2016) 93 NSWLR 561, 576 [73], 608 [254]; Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633, 659 - 660 [105].
18. That conclusion is supported by the structure of the other subparagraphs of the definition of "claim" in cl 9.5. They each refer to some form of activity against the insured, either by a claim or written demand, a criminal proceeding, or a formal administrative or regulatory proceeding, which is then limited by the remaining words in the clause. The same drafting technique should be attributed to subparagraph (a), which would then have a sensible meaning. To adopt Attree's preferred construction would accord it an operation inconsistent with that of the related subparagraphs.
19. The adoption of Attree's construction would also render part of subparagraph (d) redundant. That clause provides: (d) A civil proceeding, or a written demand, by an employee for compensation or damages alleging an employment practice breach. (Emphasis in original).
20. If subparagraph (a) was to be construed as Attree suggested, the reference to a "civil proceeding" in subparagraph (d) would be superfluous because that would be covered by subparagraph (a). It is axiomatic that a construction which avoids that result is preferable: Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402, 411.
21. Attree's preferred construction of subparagraph (a) should be rejected, least of all because it lacks any commercial sense.

Was there a "wrongful act" by Attree?

1. Attree relied on the words "error", "omission" and "or other act" in the definition of "wrongful act" as encompassing its failures it to pay its employees their full entitlements, with the consequence, so it was said, that the employees' claims were for a "wrongful act" and within the scope of the insuring clause. On its face, that would appear to be correct. A failure by an employer to pay their employee their employment entitlements would fall within those descriptors.
2. The Insurer sought to limit the expression, "wrongful act", by the adoption of the canon of construction, noscitur a sociis. The expression as used in the Policy is defined by cl 9.54 to mean "any alleged breach of duty, breach of trust, neglect, error, omission, misstatement, misleading statement, or other act" by an insured person or the insured company. So the Insurer's submission went, the (prima facie) broad expressions of "error", "omission" and "or other act", assume a different hue when considered in their context, especially their surrounding words which include "breach of duty, breach of trust, neglect … misstatement, misleading statement". Each of these refer to an act of a nature that gives rise to a cause of action which might result in an award of damages or compensation, and they therefore limit the broader expressions such that they will have similar meanings: Ashmore Aged Care Centres Pty Ltd v Cigna Insurance Australia Ltd [1989] 1 Qd R 241.
3. For the reasons which have been referred to above, there is no need to determine the validity of this submission finally. However, the concept of a "wrongful act" is that it may give rise to an indemnifiable "claim" against the insured within the insuring clause. Such claims extend to criminal proceedings commenced against the insured, or formal administrative or regulatory proceedings. There is no reason why the types of "wrongful act" which could give rise to such proceedings should be limited in the manner asserted by the Insurer. That would unduly limit the scope of cover available to the insured in respect of those other forms of proceedings.
4. Though it is not necessary to finally determine, it is not likely that the concept of a "wrongful act" is limited in the manner suggested by the Insurer, rather, it is likely that Attree's acts or omissions in this case fell within the definition.

The "Informal Fair Work Claims"

1. As appears in the statement of agreed facts, the claims made against Attree were divided into two types. The first were called the "Formal FWCs" (or "Formal Fair Work Claims") which were claims brought against Attree in the Industrial Magistrates Court of Western Australia in relation to alleged breaches of the Award and the Fair Work Act. The nature of the claims made against Attree in those is clear. Otherwise, four claims were made by way of written demands and were broadly described as also being in relation to alleged breaches of the Award and the non-payment of various entitlements mandated under the Award and the Fair Work Act. These were referred to as the "Informal FWCs" (or "Informal Fair Work Claims").
2. Attree's initial written submissions made no mention of how these were claims for "compensation or damages", so as to fall within the scope of the definition of "claim" and thus within the insuring clause. There was nothing to indicate that they were for unlawful deductions, unpaid allowances or underpayment of minimum wages, as opposed to claims for accrual of unpaid annual leave, long service leave or unpaid commissions. This is important because it was not in issue that claims in the latter class, being ones relating to leave entitlements and commission, were not within the scope of the Policy. On the other hand, whether the claims in the former categories were within the scope of the Policy was disputed between the parties.
3. This want of evidence as to the nature of the latter claims has the result that Attree did not discharge its onus of establishing that the substance of the Informal Fair Work Claims were within the scope of the insuring clause.
4. In any event, a conclusion that the claims, as best as they can be identified, are not maintainable, is consistent with the insuring clause's covering only "loss" to the insured flowing from the claim. Such a finding would require that the claim is one which has the consequence of a court's imposing an obligation on the insured as a result of the act or omission in question. It does not include the wrongful failing to perform an antecedent obligation freely assumed and for good consideration, which, if litigated, would result only in an order that the obligation be performed, or the third party be left unharmed by its non-performance.
5. Therefore, even if the Informal Fair Work Claims were claims for unlawful deductions or underpayment of minimum wages and the like, for the reasons otherwise given, they were not claims to which the insuring clause would respond.

The effect of the exclusion clauses

1. Even if the employees' claims were within the scope of the insuring clause, they would be excluded under one or more of the Policy's exclusions. Particular reference was made to cl 5.1, the chapeau of which read: We will not cover the company for or in connection with any claim against it for or in connection with: (Emphasis in original).
2. Thereafter, it listed a number of specified circumstances in respect of which cover under the Policy was expressly excluded.
3. It might be noted here, in passing, that the effect of the repetition of the expression, "for or in connection with", has the reinforcing consequence that any defence costs cover is not triggered in relation to claims made against the insured which are within the scope of the exclusions in cl 5.1. So much is consistent with cl 1.3 of the Policy.

Clause 5.1(c) - any actual or alleged contractual liability

1. By this exclusion, liability was excluded for or in connection with any claim against Attree for or in connection with any actual or alleged contractual liability whether under any express or implied contract or agreement. Here, the employees' claims sought payment of their established entitlements arising from their employment with Attree. Whilst those entitlements have their source in the Award and the Fair Work Act, the right to receive such payments is a necessary incident of their employment contracts and that is sufficient to bring the claims within the exclusion's scope - the claims sought to be made are "in connection with" Attree's contractual obligations to its employees in the sense that, absent Attree's employment obligations to them, the Award and statutory entitlements would not exist. It might also be observed that the reading of the Policy as a whole reveals the consistency of the purpose of the parties that a failure to perform an existing contractual obligation is not to attract cover because it involves no loss and, therefore, raising no indemnity. By entering into the contract pursuant to which Attree agreed to pay the employees and provide entitlements, the obligation to pay the entitlements under the Award and the Fair Work Act attached. In this context it is to be kept in mind that the employment relationship is inherently a contractual one: Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555, 587; Broadlex Services Pty Ltd v United Workers' Union (2020) 296 IR 425, 438 [61]: and employees' entitlements are effectively their contractual entitlements.
2. Whilst it appears fairly clear that this exclusion covers the employees' demands and claims, there is no need to reach any final conclusion on this point. That is because the claims are not within the scope of the insuring clause and, as the below reasons suggest, other exclusions would appear to more directly exclude the claims made.

Clause 5.1(f) - any trading debt or business liability

1. Clause 5.1(f) excluded claims against Attree for or in connection with "any trading debt or business liability of the company". Though the expression "business liability" is not defined, it may easily be recognised as generally referring to a liability arising from or in the course of business. On its face, it could include claims for damages against the insured arising in the course of business, as well as indebtedness incurred to others in the course of business. If the broader operation of the expression was adopted, it would have the effect of obliterating or substantially reducing the policy cover, in the sense that all liabilities which are incurred by Attree in the course of its business would be excluded. That provides justification for reading the clause down to appropriately limit its operation: Baralaba Coal Company Pty Ltd v AAI Ltd trading as Vero Insurance [2024] FCA 532 [105]. On that approach, in association with the reference to any incurred indebtedness, the expression, "business liability", is limited to one of similar general nature that is distinct from a liability in a general sense which would embrace liability from wrongful acts. In this context and because of exclusion cl 5.1(c), the immediately obvious types of liability contemplated by the expression, "business liability", are those forms of transactional indebtedness incurred in the course of business which are not trading debts. It would include debts incurred other than those arising in the course of trading with other businesses, such as loans or indebtedness arising on finance facilities, debts to directors, liabilities to employees of various kinds, superannuation contributions, or liabilities to governments for or in respect of services acquired. It would also cover the obligation to recompense a customer for a payment made for a service that was not properly provided, or for goods which were defective.
2. The limitation of the expression "business liabilities" in the way identified is coherent with, on the one hand, the expression, "trading debt", and, on the other, the nature of the indemnity provided by the Policy, being for "loss" arising from liability for a "wrongful act".
3. The above construction of cll 5.1(c) and (f) does not render cl 5.1(g) and cl 5.1(h) entirely nugatory. It is possible that there might be some overlap between their operation, but that is not unexpected. As is common to policies of this type, the scope of the exclusions do not form a precise mosaic describing the excluded liabilities, but, ex abundanti cautela, rather a patchwork of descriptions each often partially covering some of the areas described by other clauses, together ultimately defining the liabilities not covered by the policy and, conversely, the liabilities that are covered.
4. Clause 5.1(g) specifically excludes liability for breaches of obligations to pay leave entitlements and cl 5.1(h) specifically excludes breaches of obligations in relation to workers' compensation, disability benefits, unemployment insurance and the like. In relation to these, there are possible arguments that they do not constitute "business liabilities" and the specific exclusion of those liabilities by the two clauses puts those matters beyond question.

Clause 5.1(g) - any obligations under industrial instruments

1. It might be observed that, in relation to liability arising from or in connection with the insured's failure to comply with its legislated obligations to employees, cl 5.1(g) is extremely wide. It excludes cover for claims relating to inter alia "any obligation, or breach of an obligation, under … any industrial instrument". As the Award is an "industrial instrument" within the meaning of cl 9.23 of the Policy, cl 5.1(g) excludes those parts of the employees' claims which relate to unpaid motor vehicle allowances, unpaid mobile telephone allowances and unpaid minimum wages. Therefore, even if it is assumed that cl 5.1(f) is narrower than identified above, the claims advanced by the employees described are nevertheless largely excluded by cl 5.1(g).

Conclusion

1. The necessary consequence is that the Policy did not respond to either the Formal Fair Work Claims or the Informal Fair Work Claims made against Attree by its employees. In the first instance, the effect on Attree of the payment of those claims would not constitute "loss" within the meaning of the Policy. Secondly, the claims were not "claims" within the meaning of cl 9.5(a) of the Policy, as they were not "for compensation or damages".
2. From that it follows that Attree is not entitled to be indemnified in respect of defence costs, as such costs must be incurred in respect of a "claim" for "loss" covered by the Policy: see cl 1.3 of the Policy.
3. Further, even if the employees' claims were within the scope of the insuring clause, they were nevertheless excluded under cl 5.1 as being in respect of Attree's contractual liabilities, business liabilities, or obligations under an industrial instrument.
4. The application for a declaration that Attree is entitled to indemnity from the insurer must be dismissed.
5. There is no reason why the applicant should not pay the respondent's costs of the application. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.