The Second Contention
142 Dr Darshn's Second Contention can be summarised as follows: by the communications between MDL and Avant, Dr Darshn (by his agent, MDL) notified Avant in writing of facts which might give rise to claims against him in the TCI Proceeding such that s 40(3) of the Insurance Contracts Act operates to prevent Avant from denying liability under the 2017-18 and/or 2018-19 Avant policies.
143 Section 40(3) of the Insurance Contracts Act is relevant to a number of Dr Darshn's contentions in this proceeding. Although the focus is on s 40(3), it is convenient to set out the section in full:
40 Certain contracts of liability insurance
(1) This section applies in relation to a contract of liability insurance the effect of which is that the insurer's liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss suffered by some other person is not given to the insurer before the expiration of the period of the insurance cover provided by the contract.
(2) The insurer shall, before the contract is entered into:
(a) clearly inform the insured in writing of the effect of subsection (3); and
(b) if the contract does not provide insurance cover in relation to events that occurred before the contract was entered into, clearly inform the insured in writing that the contract does not provide such cover.
Penalty: 300 penalty units.
(3) Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract.
144 It is convenient to refer to some general principles applicable to s 40(3) before turning to the parties' submissions in relation to Dr Darshn's Second Contention.
145 In Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 (Newcastle), in the context of s 40 of the Insurance Contracts Act, Brennan CJ stated (at 93):
The Act alters the balance of interests to ensure a fair operation of the relationships between insurers, insureds and other members of the public. It does so chiefly by statutory modification of contractual relations.
146 In the same case, Toohey, Gaudron and Gummow JJ at 99-100 explained the background to s 40 by reference to the explanatory memorandum to the Insurance Contracts Bill 1984 (Cth) and the Australian Law Reform Commission (ALRC) report, Insurance Contracts (Report No 20, 1982). Their Honours stated (at 102-103) that certain expressions used in s 40(1) were "not to be construed narrowly or with undue technicality", and that s 40(2) casts an obligation upon the insurer "in aid of remedial measures passed for the protection of those dealing with insurers".
147 In Antico v CE Heath Casualty & General Insurance Ltd (1996) 38 NSWLR 681 (Antico (NSWCA)), an insured sought indemnity under a directors' and officers' legal expense policy in respect of legal expenses he incurred in defending legal proceedings brought against him as a director. The cross-appeal raised an issue concerning s 40(3) of the Insurance Contracts Act. In relation to that part of the case, a majority (Priestley and Powell JJA, Kirby P dissenting) held that the cross-appeal should be dismissed (see at 712 per Priestley JA and Powell JA, at 710 per Kirby P). The majority affirmed the reasoning of Giles CJ Comm D at first instance for concluding that a letter of 5 September 1990 to CE Heath Casualty and General Insurance Ltd (CE Heath) enclosing a number of documents including a letter of 29 June 1990 was not a sufficient notification to CE Heath for the purposes of s 40(3). In the judgment at first instance, in connection with this issue, Giles CJ Comm D stated that, in his view, "more was required than the incidental conveying of information" by the inclusion of the letter of 29 June 1990 in the documents provided to CE Heath in connection with proposals for other insurance: see Antico v CE Heath Casualty Insurance Ltd (1995) 8 ANZ Ins Cases ¶61-268 (Antico (first instance)) at 76,004. That statement may be taken to have been approved by the majority in the Court of Appeal.
148 Although Kirby P was in dissent on the cross-appeal in Antico (NSWCA), this reflected a difference as to the application of the legislation to the facts of the case, rather than a difference of principle. In the course of Kirby P's judgment, he stated at (at 698):
Intention, whether determined on a subjective or objective basis, is not a requirement of s 40(3) of the Act. The words of the section do not indicate the existence of any such condition. The section reads: "where the insured gave notice ...." It does not say, as it might have if the legislature had so intended, "where the insured, specifically and intentionally, gave notice". In Travelers Indemnity Co v Booker 657 F Supp 280 (1987) at 287 (United States District Court, District of Columbia), Green J said that:
"... intent is irrelevant to the question of whether the firm gave adequate notice of its claims - just as intent to notify does not compensate for the deficiencies of inadequate notice, a lack of intent would not violate otherwise valid notice."
I agree with that statement. Such an opinion is also harmonious with the general policy behind the Act. A requirement that an insured demonstrate an intention to rely on s 40(3) of the Act, for example, would increase both the complexities faced by insured parties, and the number of costly legal disputes. The Court should avoid such a gloss.
149 The majority did not (expressly or implicitly) differ from Kirby P in relation to the above statement of principle. I do not consider the above statement of principle to be affected by Kirby P's dissent in the case. In my view, the above statement accords with the text, context and purpose of s 40(3).
150 In Esined No 9 Pty Limited v Moylan Retirement Solutions Pty Ltd (No 2) (2020) 353 FLR 1 (Esined), Slattery J stated at [534]:
For s 40(3) to operate to extend time to notify a claim, there must be a recognisable correspondence between "facts that might give rise to a claim" given in writing to the insurer within the insurance period and "the claim, when made".
151 His Honour referred at [539] to the importance of the focus within s 40(3) upon notification of "facts that might give rise to a claim" and that merely to identify circumstances in vague terms is quite insufficient.
152 Dr Darshn's submissions in relation to his second contention can be summarised as follows:
(a) MDL acted for both Dr Darshn and Avant in relation to the Scotford Proceeding and the Summers-Hall Proceeding. From March 2018 to May 2019 (while Dr Darshn was covered by Avant), MDL regularly communicated with both Avant and Dr Darshn concerning the Scotford Proceeding and (from March 2019) the Summers-Hall Proceeding.
(b) By those communications, MDL gave notice in writing to Avant of facts giving rise to the possibility that Dr Darshn would be joined as a defendant to the TCI Proceeding and exposed to group member claims.
(c) The MDL communications were more than a mere "incidental conveying of information" (see Antico (NSWCA) at 691, 712) or a generic notification (cf Esined at [521]-[522], [534]-[539], [554]). They were notifications given to Avant in its capacity as Dr Darshn's insurer in respect of a particular insurance policy he held with them (Antico (NSWCA) at 699). There is a "recognisable correspondence" between the notifications given by MDL (most prominently of Dr Darshn's possible exposure to the claims of group members described in the TCI Proceeding statement of claim) and the claims later made against Dr Darshn in that proceeding (by the group members so identified).
(d) It is not in dispute that Dr Darshn and MDL were in a solicitor/client relationship; nor can it be disputed that therefore a fiduciary relationship arose in which MDL was authorised to act on behalf of Dr Darshn, including to affect his legal relations with third parties: Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1 at [6177]-[6185]; Westpac Banking Corporation v Bell Group (in liq) (No 3) (2012) 44 WAR 1 at [2217]-[2225]. In particular, MDL was appointed to "act on [Dr Darshn's] behalf" and was recognised by Avant to be acting in that capacity. Avant was in turn accustomed to receiving notifications from MDL as to matters affecting Dr Darshn, including his instructions on factual matters. MDL was thus Dr Darshn's agent and Avant recognised MDL's authority to convey information on his behalf.
(e) The fact that MDL may have given such notifications in its capacity as solicitor for both Avant and Dr Darshn does not negate MDL's role as Dr Darshn's agent and representative for the purposes of s 40(3). Moreover, MDL's intention in notifying the relevant facts is not relevant to the question of whether proper notice as contemplated by s 40(3) has been provided: Antico (NSWCA) at 698-699, 712. MDL gave Avant notice, while it was on risk, of a specified risk concerning a named insured (Ms Scotford) arising from clearly identified facts and circumstances. The identity of the potential group members to whose claims Dr Darshn might be exposed was sufficiently described in the TCI Proceeding statement of claim in accordance with the requirements of s 161 of the Civil Procedure Act: see Ethicon Sàrl v Gill (2018) 264 FCR 394 at [24]-[25]; Dillon v RBS Group (Australia) Pty Ltd (2017) 252 FCR 150 at [50].
(f) The very risk notified is the one that later emerged and for which the insured now seeks cover. This is the precise scenario in which s 40(3) was intended to operate.
153 Avant's submissions in response can be summarised as follows:
(a) The retainer of MDL was limited to each of the matters in respect of which MDL were retained by Avant to act on behalf of Dr Darshn. MDL was not retained to act generally for Dr Darshn. Each of the two retainers were in relation to separate "claims": those of Ms Scotford and of Ms Summers-Hall.
(b) The correspondence passing between MDL and Avant in respect of each of the two retainers could not act as some omnibus notice by Dr Darshn of facts that might give rise to a claim for the purposes of s 40(3). The notice cannot be incidental: Antico (NSWCA) at 690-691, 698-699, 712.
(c) Section 40(3) could not be, and was not, engaged in circumstances where claims had in fact been made against Dr Darshn by Ms Scotford and Ms Summers-Hall. The section simply had no work to do. The only claims that could be the subject of an earlier notification of facts (for the purposes of s 40(3)) were facts comprised in the claims in fact made by each of Ms Scotford and Ms Summers-Hall by the commencement and service of their respective statements of claim.
(d) The mention of a possible amendment of the TCI Proceeding to join Dr Darshn is not to the point; it would be the same claim so far as Ms Scotford was concerned. Her proceeding would be stayed until the group proceeding ran its course, thus illustrating the operation of ss 168-170 of the Civil Procedure Act.
154 I will first consider whether MDL's communications to Avant gave notice in writing to the insurer of "facts that might give rise to a claim", within the meaning of s 40(3). I will then consider whether any such notice was given by the insured, as required by s 40(3). The latter issue requires a consideration of whether, in making the communications, MDL were acting on Dr Darshn's behalf.
155 As indicated above, the first issue is whether MDL's communications to Avant "gave notice in writing to the insurer of facts that might give rise to a claim against the insured" within the meaning of s 40(3). The key communications made by MDL to Avant have been described in the "Factual findings" section of these reasons: see [67]-[74] and [105]-[107] above. I note in particular the following aspects of the MDL correspondence:
(a) On 4 February 2019, MDL sent an email to Avant that referred in some detail to the TCI Proceeding and provided a copy of the judgment of Garling J in that proceeding dated 4 December 2018. The email from YPOL that was forwarded to Avant identified that Ms Scotford was presently a member of the class in the TCI Proceeding and that there was a substantial overlap between the TCI Proceeding and the Scotford Proceeding.
(b) The attached judgment of Garling J provided a summary of the TCI Proceeding, including the nature of the proceeding, the parties, the causes of action and the common questions.
(c) On 7 February 2019, MDL sent an email to Avant that referred to the possibility of Dr Darshn being joined to the class action if Ms Scotford decided to discontinue the Scotford Proceeding.
(d) The email also referred to the similarity of issues in dispute as between the TCI Proceeding and the Scotford Proceeding.
(e) On 22 May 2019, MDL sent an email to Avant that stated that the TCI entities that were defendants to the TCI Proceeding had been denied indemnity by their insurers and were in liquidation. The email also stated that the liquidators of the TCI entities had advised that they did not have the funds to satisfy any judgment that may be awarded against the TCI entities in the TCI Proceeding.
156 As set out above, the correspondence from MDL to Avant described the nature of the TCI Proceeding and the causes of action and common questions in that proceeding. It was clearly apparent that many of the causes of action were open to being deployed against the TCI surgeons (such as Dr Darshn) as well as the TCI entities. It was also apparent that, in circumstances where the TCI entities had been denied cover by their insurers and were in liquidation, and the liquidators had said they did not have sufficient funds to satisfy any judgment against them, it was possible, if not likely, that the surgeons who had practised at TCI clinics and performed the relevant BAS would be joined as defendants to the TCI Proceeding.
157 In my view, the MDL correspondence, viewed collectively, gave notice in writing to Avant of facts that might give rise to a claim against Dr Darshn, namely potential claims by the plaintiffs and group members in the class action upon whom Dr Darshn had performed BAS, with the claims being substantially similar to the claims already made in the TCI Proceeding. While the correspondence was sent to Avant in connection with the Scotford Proceeding and, in the case of the last email, the Summers-Hall Proceeding, the interaction between those proceedings and the TCI Proceeding and the nature and scope of the TCI Proceeding featured prominently in the correspondence. Moreover, the facts set out in the correspondence conveyed the possibility, if not the likelihood, that the TCI surgeons would be joined as defendants to the TCI Proceeding. This is not a case where the communications merely incidentally conveyed the relevant information: cf Antico (first instance) at 76,004. Here, the relevant information was the central focus of the communications.
158 To the extent that the relevant facts were conveyed in several communications, I do not consider it necessary for the purposes of s 40(3) that notice be given in a single document. Further, as discussed above, it is not necessary that the giver of the notice have an intention to give notice of facts that might give rise to a claim under s 40(3).
159 There is, here, a "recognisable correspondence" (cf Esined at [534]) between the "facts that might give rise to a claim" and the "the claim, when made". The MDL correspondence set out facts that might give rise to a claim, namely potential claims by the plaintiffs and group members in the TCI Proceeding upon whom Dr Darshn had performed BAS, with the claims being substantially similar to the existing claims in that proceeding. The claim, when made, was brought by Ms Sanchez against Dr Darshn in the TCI Proceeding and was substantially similar to the claims already made in the proceeding.
160 For these reasons, I consider that MDL's correspondence "gave notice in writing to the insurer of facts that might give rise to a claim against the insured" within the meaning of s 40(3).
161 I now turn to address whether the notice in writing was given by the insured, as required by s 40(3). As indicated above, this requires a consideration of whether, in making the communications, MDL were acting on Dr Darshn's behalf. It seems plain to me that the requirement of s 40(3) that the insured give the notice in writing may be satisfied by another person, an agent, doing so on the insured's behalf. The question is whether, on the facts of the present case, in making the relevant communications, MDL was acting on Dr Darshn's behalf, such that it can be said that the communications were made by the insured for the purposes of s 40(3).
162 Although the issue arises in the context of s 40(3), it is helpful to have regard to general principles of agency - in particular, those concerned with implied actual authority - in answering the question. In Dal Pont, GE, Law of Agency (LexisNexis Butterworths, 3rd ed, 2014), implied actual authority is described in the following way at [8.2]:
Implied authority is commonly subdivided into three classes: incidental authority, usual authority and customary authority. 'Incidental authority' is said to encompass the authority necessarily or normally incidental to the terms of the express authority. It therefore involves a process of construction, namely an inquiry into whether the terms of the agency necessarily confer upon the agent the implied authority to do the act in question. This is contrasted with 'usual authority', which is the type of authority that a person in the position or status of the agent in question would usually have. 'Customary authority' is sourced from the market in which the agent operates on the principal's behalf; the agent has implied authority to act according to the usages and customs of that market. Yet it must be understood that the distinction between these classes is inexact.
(Footnotes omitted.)
163 A further form of implied actual authority is referred to in the same text at [8.3]:
It is also possible that a course of dealing between principal and agent may extend the agent's authority. This is also a form of implied authority, although it does not necessarily fit comfortably in the threefold classification noted above.
(Footnotes omitted.)
164 The implied actual authority of lawyers is specifically discussed at [8.25]-[8.31]. It is stated at [8.25]:
The terms of the retainer agreement usually dictate, in general terms, the scope of the lawyer's representation and this will, in turn, determine the scope of the lawyer's authority as an agent of the client. Within the confines of the retainer, the agency relationship between lawyer and client carries with it the implied authority to do all such things incidental to the object of the representation. Hence, so far as implied authority is concerned, the task is to determine whether, given the object(s) of the representation, it could reasonably be said that the lawyer had authority to engage in the conduct in question without prior consultation and consent from the client.
(Footnotes omitted.)
165 These principles offer a guide for the purposes of considering whether, in making the relevant communications, MDL was acting on Dr Darshn's behalf.
166 In the "Factual findings" section of these reasons, I have set out the communications that were in evidence regarding the retainers of MDL in relation to the Scotford Proceeding and the Summers-Hall Proceeding. In relation to the Scotford Proceeding, the letter from Avant to Dr Darshn (see [59] above) stated that Avant had "instructed [MDL] to act on your behalf in this matter". It also stated that Avant "will conduct the claim on your behalf" and that "Avant is responsible for the management of the claim". Further, the email from MDL to Dr Darshn (see [60] above) stated that MDL had been appointed by Avant "to represent you in … these proceedings". In relation to the Summers-Hall Proceeding, the letter from Avant to Dr Darshn (see [103] above) was relevantly in substantially the same terms as the letter relating to the Scotford Proceeding.
167 It is also relevant to have regard to some of the terms of the Avant insurance policies, which provide part of the context for the retainers of MDL in relation to the Scotford and Summers-Hall Proceedings. The relevant policy terms are set out in [46] above. I note the following:
(a) Under the heading "Conduct of claims or requests for indemnity", it is stated: "You [the insured] agree that we [the insurer] have the conduct of a claim … covered under this policy including its … defence".
(b) Under the heading "We will appoint the lawyer or other person", it is stated:
We [the insurer] will appoint the lawyer or other person to provide services to us for the benefit of you [the insured]. When we appoint the lawyer or other person, we do so in our own capacity and not as an agent for you.
The lawyer or other person appointed by us supplies services to us [the insurer] and not to you [the insured] for the purposes of the Goods and Services Tax (GST). We are entitled to claim a GST input tax credit on services supplied by the lawyer or other person.
I note that, although the above term states that the "lawyer … supplies services to us [the insurer] and not to you [the insured]" for GST purposes, it does not say that the lawyer supplies services to the insurer and not the insured for all purposes. Indeed, that would be inconsistent with MDL acting on Dr Darshn's behalf in relation to the Scotford and Summers-Hall Proceedings.
(c) Under the heading "We do not accept responsibility for the lawyer or other person", it is stated:
We [the insurer] do not accept any responsibility for anything done or not done by the lawyer or other person. He or she is not our agent or employee. We make no representation of any kind about the lawyer's or other person's ability.
(d) Under the heading "You must cooperate", it is stated:
You [the insured] further agree to waive any claim for legal professional privilege or confidentiality to the extent only that the privilege or confidentiality would otherwise prevent the lawyer from disclosing information to us [the insurer]. The lawyer will keep us properly informed on all relevant matters.
168 Having regard to the above, I find that the firm, MDL, was engaged to act as the solicitors for Dr Darshn in relation to the Scotford Proceeding and the Summers-Hall Proceeding. The retainer established an agency relationship as between Dr Darshn and MDL. The existence of a lawyer-client relationship between MDL and Dr Darshn is underlined by the following term of the policy: "You [the insured] further agree to waive any claim for legal professional privilege or confidentiality to the extent only that the privilege or confidentiality would otherwise prevent the lawyer from disclosing information to us [the insurer]." The scope of MDL's retainer extended to doing all things necessary for, or incidental to, the conduct of the proceeding on Dr Darshn's behalf. Further, pursuant to the provisions of the policy, Dr Darshn agreed that Avant would have the "conduct" of the proceeding (that is, it would be responsible for making decisions as to the conduct of the litigation) and that MDL would keep Avant properly informed on all relevant matters. By virtue of those arrangements, there was also a lawyer-client relationship between MDL and Avant, and MDL provided advice (as well as information) to Avant in relation to the conduct of the proceedings.
169 In the circumstances, I would characterise the relevant communications as having been sent by MDL on Dr Darshn's behalf. MDL was the firm of solicitors acting for Dr Darshn in relation to the Scotford Proceeding and the Summers-Hall Proceeding. The sending of the communications was within the scope of MDL's authority to act on Dr Darshn's behalf in relation to the proceedings because the communications related to those proceedings and were sent in the course of MDL's retainer as the solicitors acting for Dr Darshn in the proceedings. The communications were necessary for, or at least incidental to, MDL's retainer to act on Dr Darshn's behalf in connection with the proceedings. It is true that there was also a lawyer-client relationship between MDL and Avant, and the communications could be characterised as the provision of information or advice to Avant for the purposes of its management of the proceedings. While the communications may have that character, I would nevertheless characterise them as having been sent on Dr Darshn's behalf for the purposes of s 40(3), for the reasons given above.
170 Accordingly, in my view, in making the relevant communications, MDL was acting on Dr Darshn's behalf. I therefore conclude that the notice in writing was given by the insured as required by s 40(3).
171 There does not appear to be any issue regarding the requirement of s 40(3) that the notice be given "as soon as was reasonably practicable after the insured became aware of [the relevant] facts". In any event, I find that this requirement is satisfied, on the basis that MDL's knowledge of the relevant facts is to be treated as Dr Darshn's knowledge, and the facts were notified as soon as reasonably practicable after Dr Darshn (through MDL) became aware of them.
172 For the above reasons, I conclude that s 40(3) operates in the present case, with the effect that the insurer (Avant) is not relieved of liability under the 2018-19 Avant policy in respect of Ms Sanchez's claim against Dr Darshn in the TCI Proceeding, by reason only that it was made after the expiration of the period of insurance cover provided by the policy.
173 It follows from the above that Dr Darshn is entitled to cover under the 2018-19 Avant policy in respect of Ms Sanchez's claim in the TCI Proceeding, and the legal defence costs associated with defending her claim in the proceeding (which, at the present time at least, equates to his legal defence costs associated with defending the proceeding generally). Dr Darshn's Second Contention is, therefore, substantially made out. I do not consider it necessary or appropriate to determine, at this time, whether Dr Darshn will be entitled to coverage under the policy with respect to non-party group members within the Darshn Sub-Group. It is more appropriate, in my view, to determine that question if and when any such group members come forward and indicate that they wish to participate in the proceeding (for example, by providing particulars of their personal loss and damage). It may well be the case that the reasoning set out above regarding Ms Sanchez's claim would apply equally to the claims of such group members; but that is something that can be determined, if necessary, at the point in time when such group members come forward.