Dimitra Cassidy v Eric J Leslie

East End Real Estate Pty Limited v CE Heath Casualty and General Insurance Limited (1991) 25 NSWLR 400 HIH Casualty and General Insurance Limited v Pade [2000] NSWCA 325, (2001) 11 ANZ Ins Cases 61-481 Junemill Limited (in Liquidation) v FAI General Insurance Company Limited [1999] 2 Qd R 136 CASES CITED : Thorman v New Hampshire Insurance Co (1988) 1 Lloyds Reports 7 Transport Industries Insurance Co Ltd v NSW Medical Defence Union Limited (1986) 4 ANZ Ins Cases 60-736 Triden Properties Limited v Capita Financial Group Limited (NSWCA, 15 November 1995) Walton v National Employers' Insurance Association (1973) 2 NSWLR 72

Dimitra Cassidy as Trusteeof the Cassidy Family Trust - Plaintiff PARTIES : Eric J Leslie trading as EJM Leslie Registered Valuer No 584 - Defendant Eric J Leslie trading as EJM Leslie Registered Valuer No 584 - Cross-Claimant Calliden Limited - Cross-Defendant

COUNSEL : Mr MA Jones - Cross-Claimant Mr B McManus - Cross-Defendant

SOLICITORS : Messrs Hicksons - Cross-Claimant Messrs Hunt & Hunt - Cross-Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

2009/293237 - Dimitra CASSIDY as Trustee of the CASSIDY FAMILY TRUST v Eric J LESLIE trading as EJM LESLIE, REGISTERED VALUER No 584 & Ors

JUDGMENT 1 HIS HONOUR: Nature of Proceedings By consent of the parties the Court ordered in accordance with Pt 28 r 28.4 of the Uniform Civil Procedure Rules 2005 that the following questions relating to the cross-claim be decided separately from the principal proceedings. "Questions (i) Did the e-mail dated 11 April 2009 from Steven Gavagna constitute a "claim" within the terms of the policy? (ii) If the answer to Question (i) is "yes", is the Cross-Defendant entitled to deny indemnity to the Cross-Claimant on the basis that the claim identified in Question (i) was not notified to it within the period of insurance of the policy?" 2 This judgment relates to those questions.

Factual Background 3 The following agreed facts were placed before the Court.

(i) At all material times the cross-claimant ("Eric Leslie") was a valuer registered under the Valuers Act 2003 (NSW).

(ii) On 14 January 2008, Eric Leslie provided a valuation report addressed to the plaintiff, Dimitra Cassidy, setting out his opinion that the market value as at 13 January 2008 of a property known as Lot 102 in Deposited Plan 1098945 was $1.5 million.

(iii) The cross-defendant ("Calliden") agreed to insure Eric Leslie against legal liability as a valuer under a Calliden Professional Indemnity Valuers Scheme Insurance Policy No VAL/080067 ("the Policy") for the Period of Insurance from 21 January 2008 to 21 January 2009. A copy of the policy and its schedule were attached to the agreed statement of facts.

(iv) On 11 April 2008, Eric Leslie received an email from Steven Gavagna of Goodman Law addressed to Silvana De Cianni and Eric Leslie. A copy of that email was attached to the statement of agreed facts.

(v) Steven Gavagna is the solicitor representing the plaintiff in the proceedings and Silvana De Cianni was an employee of Capital Access Finance Pty Limited, who requested Eric Leslie to provide the valuation report referred to in (ii) above.

(vi) Eric Leslie did not notify Calliden that he had received the email referred to in (iv) above prior to 22 January 2009.

(vii) On 4 April 2009 Eric Leslie was served with the Statement of Claim filed by the plaintiff in these proceedings.

(viii) On 20 April 2009 Peter Green of Peter Green Professional Risks Pty Limited, on behalf of Eric Leslie, notified Calliden by email that the plaintiff had commenced the proceedings. 4 By way of further background, the valuation was provided in circumstances where the plaintiff loaned monies to Professional Management Services (WA) Pty Limited ("PMS") against the security of the property at Dunns Creek. The amount advanced under the mortgage was $900,000. 5 Upon default by PMS the plaintiff took possession of the property and in June 2008 entered into a contract for its sale for an amount of $1,050,000. That sale did not complete. The property was subsequently sold at public auction on 11 October 2008 for $350,000. The complaint made against the cross-claimant in the Amended Statement of Claim is that an amount of $1.5 million was "grossly in excess of the true value of the land". 6 The relevant parts of the insurance policy are: "2.1 Cover The Insurer will indemnify the Insured for legal liability arising from any Claim which is: (a) First made against the Insured during the Period of Insurance and notified to the Insurer during the Period of Insurance, and (b) For breach of professional duty in the conduct of the Business, and (c) By reason of any act, error or omission occurring on or after the commencement of the Period of Insurance or such earlier Retroactive Date. 2.2 Defence Costs The Insurer will pay Defence Costs incurred with the writer's consent of the Insurer in the investigation, defence and/or settlement of any Claim for which the Insured is entitled to be indemnified under Clause 2.1. Defence Costs are part of and not in addition to the Limit of Indemnity." 7 "Claim" in the policy is defined: "Claim (a) A writ, statement of claim, summons, application or other originating legal or arbitral process, cross-claim, counter claim or third or similar party notice served on the Insured for compensation; (b) A written assertion of a right to or a demand for compensation." 8 The email of 11 April 2008 from Steven Gavagna of Goodman Law read as follows: "Cassidy Loan to Professional Management Services (WA) Pty Limited Security: 19 Uffington Road, Dunns Creek

Silvana and Mr Leslie We advise that the property which is the subject of the Loan between Cassidy and Professional Management Services Pty Limited will be auctioned in the near future. A valuation by Eric JM Leslie was prepared for Dimitra Cassidy on 14 January 2008. Our records indicate the (sic) you arranged for the preparation of a valuation of the property to which Cassidy relied upon for the loan. That valuation may be fundamentally flawed. Two real estate agents located near the property believe the property will not sell for one third of the amount valued. Our instructions are to place you and the valuer on notice that an insurable event may occur if the property does not provide sufficient funds at auction to repay the loan. We strongly suggest that you obtain legal advice with respect to the matter. We have advised the borrowers and the guarantors that unless loan funds are paid with (sic) seven days then proceedings will commence in the NSW Supreme Court. Where a shortfall occurs in the auction of the property a claim will be made against Leslie, Capital and De Cianni. Do not ignore this email. Steven Gavagna Managing Partner Goodman Law".

Submissions 9 In relation to the first question, the cross-claimant submitted that the parties had created their own definition of "claim" which meant that the cases which dealt with the meaning of "claim" under the general law would have only limited value. The cross-claimant relied upon the second limb of the definition, i.e. that the email constituted a "written assertion of a right to compensation". 10 The cross-claimant submitted that it was clear from the terms of the email, particularly its concluding paragraphs that where there was a shortfall on sale, a claim would be made. He submitted that this statement went well beyond a mere reservation of rights and was a clear assertion of a right to compensation in the specific circumstance identified. The cross-claimant relied upon HIH Casualty and General Insurance Limited v Pade [2000] NSWCA 325, (2001) 11 ANZ Ins Cases 61-481 and the observations of Fitzgerald P in Junemill Limited (in Liquidation) v FAI General Insurance Company Limited [1999] 2 Qd R 136 to support this proposition. 11 In relation to the second question the cross-claimant noted that not only had the first limb of the insuring clause not been complied with but Condition 6.1, which required the insured to give to the insurer immediate notice in writing of any claim, had also not been complied with. The cross-claimant submitted that these reporting requirements were matters which attracted the operation of s 54 of the Insurance Contract Act 1984 (Comm). 12 The Court was referred to the following provisions of s 54. "54(1) Subject to this section where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that Act. … (6) A reference in this section to an act includes a reference to: (a) An omission; and (b) An act or omission that has the effect of altering the state or condition of the subject matter of the contract or of allowing the state or condition of that subject matter to alter." 13 The cross-claimant submitted that the decision in East End Real Estate Pty Limited v CE Heath Casualty and General Insurance Limited (1991) 25 NSWLR 400 at 403C-404D, (Gleeson CJ (with whom Clarke JA agreed)) made it clear that s 54 had operation not only in relation to conditions of cover but also in relation to acts and omissions that formed part of the insuring clause. 14 The cross-claimant submitted that in the absence of any evidence of prejudice suffered by the insurer the failure to notify had no effect upon his entitlement to indemnity. He submitted that the first question should be answered "yes" and the second question answered "no". 15 The cross-defendant conceded that the only issue before the Court was question 1. It accepted that if question 1 were answered in the affirmative, s 54 would operate so that the cross-claimant's failure to notify the cross-defendant would have no effect upon his entitlement to indemnity. 16 The cross-defendant accepted that the issue before the Court was whether the email of 11 April 2008 constituted a "written assertion of a right to compensation". The cross-defendant did not dispute that the email constituted a written assertion. It submitted that what had to be asserted was an "existing right to compensation". It submitted that the email did not contain such an assertion because the right asserted was significantly qualified and was at best a contingent one. It submitted that what was required was an assertion that the third party is at the time of the assertion so entitled or regards himself as currently so entitled. 17 The cross-defendant submitted that as of the date of the email no loss had occurred nor was there any certainty as to its future occurrence. The cross-defendant emphasised the following qualifying phrases in the email:

(i) The "valuation may be fundamentally flawed"; (ii) "An insurable event may occur"; (iii) " If the property does not provide sufficient funds at auction"; (iv) A claim will be made " where a shortfall occurs". 18 The cross-defendant submitted that the prospect of a loss was expressed in the email to be only a possibility. To read this otherwise than as a possibility, would be to divorce the words from their context. 19 In support of its submission the cross-defendant relied upon Walton v National Employers' Insurance Association (1973) 2 NSWLR 72 at 82B where Bowen JA said: "In my opinion, the word "claim" is here used in its primary sense of a demand for something as due, an assertion of the right to something. It imports the assertion, demand or challenge of something as a right." 20 The cross-defendant relied upon the decision in Triden Properties Limited v Capita Financial Group Limited (NSWCA, 15 November 1995) and the quotations from Thorman v New Hampshire Insurance Co (1988) 1 Lloyds Reports 7, Steyn J and from Transport Industries Insurance Co Ltd v NSW Medical Defence Union Limited (1986) 4 ANZ Ins Cases 60-736 therein set out. 21 The cross-defendant submitted that the factual differences between the circumstances considered in Triden and those now before the Court demonstrated the weakness in the cross-claimant's submission. It submitted that in Triden there were engineering reports setting out the alleged defects and the content of the second letter was that unless rectification steps were agreed (which would inevitably have involved the insured paying for such rectification), proceedings would be commenced following the seven day closed period. The cross-defendant submitted that these circumstances were quite different to the present where there was no statement of entitlement nor basis of claim in the email. 22 The cross-defendant relied upon Junemill Limited (in Liq) v FAI General insurance Co Ltd (1999) 2 Qd R 136. It emphasised the differences between the contents of the two letters there relied upon (which the cross-defendant said asserted negligence as already existing) and the contingent nature of the email in these proceedings. The cross-defendant emphasised that in Junemill the first letter positively asserted that grounds existed for legal proceedings as at the date of that letter. 23 The cross-defendant sought to distinguish HIH Casualty and General Insurance Limited v Pade on the basis that Mason P found that there was an assertion of a default in performance and a breach which was "already apparent" referred to in the letter to the insured. It was against that background that Mason P observed: "Nor does it matter in the circumstances that any feared loss had not been crystalised at that stage."

Consideration 24 I have concluded that the submissions of the cross-claimant should be accepted and that the first question should be answered in the affirmative and the second question in the negative. 25 The difficulty with the approach of the cross-defendant is that it is based upon cases which have considered the meaning of the word "claim" in their particular circumstances. In the policy presently under consideration, "claim" has been defined to include "a written assertion of a right to compensation". What has to be construed is not the word "claim" but the meaning of the words "a written assertion of a right to compensation". 26 Since the policy of insurance is the cross-defendant's document, there is no justification for inserting the word "existing" before the word "right" in the definition. To the extent that any ambiguity exists, the definition should be interpreted in a way which favours the cross-claimant. That is simply another way of saying that the contra proferentem rule is against the insertion of the word "existing" into the definition of "claim" in the policy. 27 It might be said that it is implicit in the word "right" that it refers to something which presently exists. I do not accept that such necessarily follows from the wording of the definition. A right in those circumstances can be contingent or conditional. Alternatively, a right can be said to exist even though its exercise is contingent on something else happening. Once again to the extent that there is any ambiguity in the use of the word "right", it should be interpreted against the cross-defendant. 28 At the heart of the cross-defendant's submissions is an elision of two concepts, i.e. "a right to make a claim" and "a right to compensation". Sheller JA in Triden pointed out the distinction between the two concepts as follows: "In Thorman v New Hampshire Insurance Co (unreported) QBD (Commercial Court) 23 December 1986, Steyn J defined "claim" in a professional indemnity policy as "the assertion by a third party against the insured of a right to some relief because of the breach of the insured of the duty referred to in the … cover"; see Note 10, para 2014 of MacGillivray and Parkington on Insurance Law, 8 th ed. The Court of Appeal although allowing the appeal, affirmed this definition; Thorman v New Hampshire Insurance Co (UK) Limited and Home Insurance Insurance Co (1988) 1 Lloyds Rep 7 at 11. The definition Mr Foster advanced is, in my respectful opinion, untenable. For one thing the claim against the insured may require the insured to expend money on rectification. I see no reason why such a claim would not fall within the policy; compare Trollope and Colls Ltd v Haydon (1977) 1 Lloyd Re 244. In Webb and Hughes v Brach (1964) 1 Lloyds Rep 465 the plaintiffs' solicitors had a policy with the defendant against loss arising from any claim or claims which might be made against them during a specified period. During that period the plaintiffs received a letter notifying a claim which alleged that they were negligent in the conduct of a retainer in that they had failed to take the proper steps under the relevant legislation to obtain a new tenancy. Sachs J at 466 said that the particular claim was manifested or made by letters written to the plaintiff alleging negligence. The expression "claims made against the insured" (emphasis added) rules out any argument that the word "claim" could refer to the right to make a claim (compare ANZ Bank Limited v Colonial and Eagle Wharves Limited (1960) 2 Lloyds Rep 241 at 255). In Transport Industries Insurance Co Ltd v NSW Medical Defence Union Ltd (1986) 4 ANZ Insurance Cases 60-736, this Court considered the meaning of the word "claims" in the context of an indemnity for sums for which the insured should have become liable to pay "in respect of claims notified" to the secretary of the insured. At 74,420 Mahoney JA said the word referred "to something in the nature of a demand on a member to satisfy a liability which he is alleged to have to a third party or, at least, an assertion or stipulation to the member that he is liable to do so". In Re St Paul Fire and Marine Insurance Co v Guardian Insurance Co of Canada (1984) 1 DLR (4 th ) 342 at 357 Thorson JA, with whose judgment Houlden JA agreed, in the Ontario Court of Appeal, said that the words "claim made" in a policy against a solicitor's liability for professional negligence "ought to be construed in accordance with the ordinary plain meaning of those words, which, simply stated, denote a claim is "made" by being notified to or otherwise brought to the attention of the person against whom it is asserted. However that is done, the essence of the making of the claim is that the substance of the claim is in fact "brought home to that person". I agree with the test propounded by Thorson JA which is consistent with what was aid in this Court and by Steyn J. In the letter of 17 January 1991 Contractors stated that it was imperative that all defects be remedied without further delay. While Contractors remained committed to "a commercial resolution of the problem with minimum cost to our respective companies", its letter continued "However you will appreciate that unless satisfactory arrangements are made for the rectification of those defects we shall be obliged to institute proceedings to protect our interests." Seven days was then given to finalise the rectification arrangements. Cole J concluded that the letter of 17 January 1991 was a claim upon Timalco within the meaning of cl 1 of the policy. He said: "Both Contractors and Timalco had the WGV report. Each knew that it asserted defects in design and construction. The letter of 17 January 1991 threatened legal action if those defects were not rectified. That was a claim against Timalco for damages for the defective design, if Timalco did not itself correct them." Read against a common understanding of Contractors and Timalco that there were alleged defects of design, the letter of 17 January was what Steyn J described as an assertion by Contractors against Timalco of a right to some relief because of the breach by the insured of the duty referred to in the cover. I agree. This ground of appeal fails."

The words "right to compensation" in the definition in this case are clearly analogous to the "right to some relief" referred to by Sheller JA. 29 The decision in Junemill is of limited value since it turned upon the definition of "claim" in the policy there under consideration. Nevertheless, the similarity of facts (it was a valuation case) makes the concluding observation by Fitzgerald P of some assistance in resolving the issue. 30 The relevant words of the letter to the insured in Junemill were: "We note that you have provided valuations in relation to a substantial number of properties comprising our client's mortgage portfolio. We have given advice to our client that in our opinion there exist a number of grounds for legal proceedings against you in relation to the valuations. The purpose of this letter is to put you on notice that in the event of our client sustaining a loss in relation to any of the mortgages comprising its mortgage portfolio and upon which you have prepared a valuation, our client intends to commence legal proceedings against you …" 31 It was in relation to that letter that Fitzgerald P said: "No amount of semantic gymnastics seems to me to lead to a conclusion that the letters from IOFF's solicitors did not assert a right to compensation from the appellant".

The right to compensation in the letter was expressed in contingent terms and it is not without significance that the words used by Fitzgerald P include part of the definition here under consideration. 32 The decision in Pade is important, not because of the particular facts which it addressed, but because of the approach followed by Mason P. His Honour when analysing the contents of the letter to the insured focused upon its substance rather than its form. It was against that background that his Honour said: "[26] … Implicit in the politely expressed formalities is the threat to hold the solicitors accountable at law for the consequences of their actions. … [27] … The gravamen of the allegation is the solicitors' failure to exercise reasonable care in retaining the security documents, leading to their release, leading to the bank mortgage obtaining priority, leading to loss of the investment. [28] In my view the letter of 24 November 1995 asserted a similar cause of action against the solicitors. It went beyond a reservation of right. Merely because it offered the solicitors a further seven days to extricate themselves or alternatively provide a satisfactory explanation did not render the letter any less a "claim" (cf Triden Properties Limited v Capita Financial Group Limited, 26 November 1995, Court of Appeal, unreported at 57-58 per Sheller JA, Junemill Limited (in Liq) v FAI General Insurance Co Limited (1997) 9 ANZ Insurance Cases Ins Cas 61-377) nor did its polite terms or the pregnant understatement of its concluding sentence. Nor does it matter in the circumstances that any feared loss had not been crystalised at that stage." 33 An analysis of the email in this case leads to the same result. The assertion "That valuation may be fundamentally flawed" is made against the background of the opinion of two local real estate agents that the property would not sell for one third of the amount of the valuation. In that context the breach of duty by the valuer had already occurred but the extent of the loss was not yet known. 34 The consequences of that breach are set out in the next two paragraphs. In the following paragraph it is stated that an insurable event might occur if the property did not provide sufficient funds at auction to repay the loan and in the final paragraph, the specific assertion is made that where such a shortfall occurs a claim will be made against the insured. Following the approach of Mason P in Pade, I have no difficulty in construing those paragraphs as a written assertion of a right to compensation, the compensation being the extent of the shortfall.

(i) Did the email dated 11 April 2008 from Steven Gavagna constitute a "claim" within the terms of the policy? - Answer "Yes".

(ii) If the answer to Question (i) is "yes", is the Cross-Defendant entitled to deny indemnity to the Cross-Claimant on the basis that the claim identified in Question (i) was not notified to it within the period of insurance of the policy? - Answer - "No".

(iii) The Cross-Defendant is to pay the Cross-Claimant's costs of the hearing of this separate question. **********

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