EW Blanch Pty Ltd & Anor v Cooper & Anor

EW Blanch Pty Ltd & Anor v Cooper & Anor - [2005] NSWCA 217 - NSWCA 2005 case summary — Zoe

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The Zurich representations claim 7 Blanch was a member of an international group of companies. Its immediate parent was a Hong Kong corporation, and its ultimate holding company was a United States corporation based in Dallas. The group's activities included insurance business in Australia. Blanch wished to expand its activities in Australia. 8 The "Chief Operating Officer" of Blanch, based in Hong Kong and a director of a number of companies in the group, was Ms Carol-Anne Priest. Her responsibilities included identifying businesses for acquisition by the group, and she recommended to her superiors the purchase of the shares in Mahoney. 9 Bergin J held adversely to Blanch because she was not satisfied that Ms Priest relied on the Zurich representations. In my opinion, the claim fails at the earlier stage of whether making the statements in October 1999 was engaging in misleading or deceptive conduct. In what follows, I focus on the matters necessary to explain why that is so. 10 As its name indicated, Mahoney's business was that of an insurance broker, carried on directly and through a wholly owned subsidiary Brisbane Insurance Brokers (Qld) Pty Ltd ("BIB"). The major part of Mahoney's business was arranging compulsory third party ("CTP") and third party property damage ("TPPD") cover for taxi operators. About 56 per cent of its business was arranging CTP cover for taxi operators and about 33 per cent was arranging TPPD cover for taxi operators and other motor vehicle owners. For the taxi business Mahoney dealt particularly with a number of taxi cooperatives. It arranged about 90 per cent of the taxi CTP and TPPD cover in New South Wales. It had offices in Newcastle, Sydney, Melbourne, Adelaide and (as BIB) Brisbane, conducted business also in Western Australia and the Northern Territory, and was the national leader in arranging taxi cover. 11 Most of the cover for taxi operators in New South Wales was placed with Zurich. The arrangements between Mahoney and Zurich were informal. They were unclear, but included that Mahoney could write CTP cover on behalf of Zurich and issue the green slips. No other insurer wrote significant taxi CTP cover in New South Wales. 12 In early 1999 Blanch began discussions about acquiring Mahoney's business, and on 2 July 1999 there were signed heads of agreement between the United States corporation and Mahoney contemplating purchase by Blanch of the shares in Mahoney. Amongst other things, entry into a formal agreement was subject to Blanch conducting a due diligence investigation. 13 At about this time, a particular problem emerged between Zurich and Mahoney. On 29 June 1999 Zurich informed Mahoney that it had been proceeding on the basis that Mahoney was the appointed insurance broker of the taxi cooperatives, but that it appeared that it was not and that Zurich required demonstration of proper appointment. The correspondence and meetings progressed to the point that on 27 July 1999 Zurich told Mahoney that from 6 August 1999 it would not transact insurance business with Mahoney, and that all renewal notices would be forwarded to the taxi operators, unless Mahoney could substantiate its appointment as broker. It said as well that it would underwrite taxi insurance through any duly appointed agent or broker. 14 The evidence indicated that behind this lay a wish by Zurich to deal directly with the taxi cooperatives, cutting Mahoney out. For some time Zurich had been negotiating with the two largest cooperatives, and on 22 July 1999 it signed an agency agreement with one of them. Demonstrated appointment as broker may not have been a legal necessity, and insistence on it may have been a ruse, but it was used by Zurich as the reason to bring the existing arrangements to an end. 15 Commercial positioning was not one-sided. Blanch had been exploring other underwriters for at least TPPD taxi cover, and had been discussing with the major cooperatives formation of a "captive" insurance company, having in mind that if the purchase of the shares in Mahoney went ahead in due course Zurich might be cut out. Mr Reid of Blanch was aware of Zurich's raising of "compliance issues" with Mahoney. With Mahoney's authority, in July 1999 he met representatives of Zurich and agreed to provide copies of appointment letters. According to the minutes of the meeting, he said that he would consider placing all Queensland business with Zurich if agreement was reached on an underwriting agency agreement. It is evident that Zurich was aware that Blanch had been exploring other underwriters, and that there was some hard bargaining going on. Reinstatement of an agency agreement with Zurich was a topic, but not without doubts: Mr Reid wrote to Mr Burdis in Hong Kong that - "Zurich are playing hardball because of the Underwriting facilities I have been able to obtain outside of their office. If we are unable to write the NSW business and Mahoney have to make a new agreement with Zurich then it may not be in our best interest." 16 No doubt in order to provide copy appointment letters, Mahoney wrote to taxi cooperatives and operators asking them to sign letters appointing Mahoney as their broker. In its letter of 27 July 1999 Zurich said that this demonstrated that Mahoney had not been properly appointed. 17 According to Ms Priest, on 26 or 27 July 1999 Mr Cooper telephoned her and said that Zurich had given seven days notice "that they will no longer underwrite the CTP business". This must have been Zurich's letter of 27 July 1999. 18 On 28 July 1999 Mr Norton of Mahoney wrote to Ms Priest - "Re: DUE DILIGENCE ENQUIRIES I believe that Bob Cooper has informed you by telephone of a recent development in our Taxi Insurance portfolio, which is causing us some concern. It is important that you are aware of the facts, as we know them at present, as it seems on face value that Zurich Australian Insurance is attempting to establish Agencies with the two major Sydney based Taxi Co-operatives. This would force us to seek an alternative underwriter and to market our product direct to individual clients utilising a planned advertising campaign. It is most likely that these events would cause a reduction in premium and a consequent reduction in commission income and possibly a loss of clients, although the extent of the reduction and/or loss is difficult to accurately gauge. I have included copies of the relevant communications for you to read. What impact, if any, does this have on the proposed sale of Mahoney Insurance Brokers to E W Blanch Company." 19 The "copies of the relevant communications" were the correspondence between Zurich and Mahoney from 29 June 1999 to 13 July 1999, plus a letter from Zurich to BIB to the same effect as the letter of 29 June 1999 and two letters from Zurich to taxi cooperatives to the effect that Zurich would not deal with Mahoney and BIB without demonstration of proper appointment as broker. In circumstances she could not recall, on 27 or 28 July 1999 Ms Priest also received a copy of Zurich's letter of 27 July 1999. 20 According to Ms Priest, she telephoned each of Mr Cooper and Mr Norton and told them that the business relationship with Zurich was "crucial to this whole business", that "if Zurich is pulling out, then from what I see there is no business", and that she would check with Dallas "but I cannot see we should go further until this is fixed". She said to them that the full due diligence investigation would not proceed "[u]ntil you rectify the relationship with Zurich". 21 Discussions of formation of a captive insurance company nonetheless continued, including a meeting in mid-September between Ms Priest and a representative of a major taxi cooperative; Ms Priest's letter to him said that, with a captive insurance company in mind, "we are pursuing the acquisition of the Mahoney group. We believe this will provide us with the critical mass to develop the above approach." The due diligence investigation proceeded to the extent of a financial review by Ernst & Young. 22 Again according to Ms Priest, on about 14 October she was told by Mr Cooper that he had received another offer and that if Blanch wanted to continue negotiations it should increase the price. She said that the conversation included Mr Cooper saying, "By the way, we have almost got things sorted out with Zurich. We are getting an agency agreement in place." She replied, "That's good. You will need to confirm that to me in writing." 23 In fact Mahoney and Zurich entered into an agency agreement on 14 October 1999 ("the agency agreement"). Mahoney was authorised to write CTP cover on behalf of Zurich and issue the green slips (cl 4.1 and Schedule 3, cl 11.3(2)), for which Mahoney received commission (cl 14), and there was provision for agreed extension or amendment of the class of business Mahoney was authorised to write (cl 7.1). The agency agreement could be terminated by either party on 30 days written notice (cl 3.2), or forthwith if breach was not remedied after 14 days notice requiring that it be remedied (cl 18). 24 Relevantly to the plaintiffs' case that the Zurich representations were misleading or deceptive, the agency agreement provided by cll 11.3(2) and 16.1 respectively -

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Ms Priest replied, "That sounds great. Can you send a copy of the agreement over? I'll get in touch with Dallas and we can get it started." 28 Also on about 20 October 1999 Ms Priest received a telephone call from Mr Norton, who said, "You will be pleased to know that we now have an agency agreement signed up with Zurich. Everything is back on track and we can start the negotiation." 29 In her affidavit Ms Priest said of these statements - "I accepted the statements made to me by Messrs Cooper and Norton. When each gentleman said to me words to the effect that the relationship with Zurich was back on track, I understood he was referring both to the agreement under which Mahoneys entered into CTP insurance as agent for Zurich, and also that part of Mahoneys' business in which it arranged TPPD insurance through Zurich as the broker for taxi operators. In my experience an insurer will not appoint an insurance broker to act as its agent, and bind the insurer to insurances written by the agent, unless the insurer is satisfied by the relationship between broker and the insurer. I understood that the arrangement between Mahoneys and Zurich concerning TPPD was on an offer and acceptance basis. I understood this to be the ordinary arrangement between brokers and insurers under which the broker would negotiate with the insurer and place the client's insurance with the insurer if the terms offered were satisfactory." 30 The negotiations recommenced, and in late October 1999 further heads of agreement were signed. In explaining to her colleagues the offer for the shares Ms Priest wrote that Mahoney had picked up business in other states and "also now that the Zurich matter is fixed they have an agency agreement in place which means they are writing CTP again". 31 The due diligence investigation was revived, and on 24 December 1999 the sale agreement was executed. It was completed on the same day. As part of the due diligence Ms Priest and Mr Tim Marchand, from the internal audit department of the United States corporation, attended Mahoney's Newcastle office. Ms Priest's notes of the meeting at that office included - "Cutcher and Neale - Zurich problem - referred to fixing the problem - NOW have a Zurich Agency Agreement for the business - CTP business and is a standard broker agreement in place as well. CAP [ie Ms Priest] TO REVIEW THE AGENCY AGREEMENTS." 32 Acknowledging that it was her error, Ms Priest did not review the agency agreement; she said that she did not see it until mid-2000. 33 In their summons the plaintiffs' contentions as to the Zurich representations were - " C11 . By letter dated 28 July 1999 [Mahoney] advised [Blanch] that Zurich:

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(c) [Mahoney] and BIB were in fact not able to comply with the obligations of payment within 37 days of the commencement of the insurance policy as required by Clause 16.1 of the Agency Agreement with Zurich." 34 It was necessary that the plaintiffs establish that what was said by Mr Cooper in the conversation on about 20 October 1999 was misleading or deceptive, in which I include likely to mislead or deceive, in one or more of the respects in particulars (a), (b) and (c). 35 There was nothing misleading or deceptive in a statement that Mahoney had entered into an agency agreement with Zurich. It had done so, and the particulars of para C47 did not allege otherwise. Looking at the matters set out in para C11, in the circumstances I have described a statement that they had been fixed could not have been understood as a representation that Zurich was no longer attempting to establish agencies with two major Sydney-based taxi co-operatives, and Ms Priest was aware that it had in fact established agencies with the two cooperatives. Nor could it have been understood as a representation that evidence of proper appointment as broker of the insureds had been provided; the agency agreement meant that Mahoney could write CTP cover on behalf of Zurich, and the question of appointment as broker, used as a bargaining tactic, had fallen away. Again, the particulars of para C47 did not allege otherwise. Neither of these statements conveyed anything about the particularised default and inabilities. 36 That left the statement that Mahoney was "back on track", and the plaintiffs acknowledged in submissions in this Court that the Zurich representations came down to that statement. They also acknowledged in submissions in this Court that they could rely only on particular (c). 37 I do not think that, in the circumstances I have described, saying that the relationship with Zurich was back on track conveyed anything about the ability of Mahoney and BIB to comply with the payment obligation in cl 16.1 of the agency agreement. It was the same as saying that the matters in para C11 had been fixed, meaning that Zurich's insistence on demonstration of appointment as broker for the insureds had gone away, that Zurich would again transact business with Mahoney, and that Mahoney could again write CTP cover on behalf of Zurich. That is how the whole conversation was understood by Ms Priest, see her explanation to her colleagues that "now that the Zurich matter is fixed they have an agency agreement in place which means they are writing CTP again". In referring in her affidavit to an insurer being satisfied by the relationship between broker and the insurer, I do not think she meant more than satisfaction that a suitable agency agreement was in place. If she meant more, I do not think it was reasonably to be found in what was said. 38 The plaintiffs submitted that the statement that Mahoney was back on track was misleading or deceptive because it was a half truth, in that Mr Cooper did not tell Ms Priest that the agency agreement contained a payment obligation with which Mahoney could not comply. I do not think that, against the background of the problem between Zurich and Mahoney of which Ms Priest had been told on 28 July 1999 and which had nothing to do with meeting a payment obligation, there was any occasion for Mr Cooper to say anything to Ms Priest about the existence or ability to comply with the payment obligation in the agency agreement. 39 In any event, I do not think that it was established that Mahoney was unable to comply with the payment obligation in cl 16.1. The plaintiffs submitted that the obligation under cl 16.1 of the agency agreement was to pay to Zurich the appropriate premium even if it had not been received by Mahoney from the insured. They went to a course of correspondence between Zurich and Mahoney from the beginning of 1999, which they said showed that, under the informal arrangements and continuing under the agency agreement, there was systemic inability properly to account to Zurich for premiums which Mahoney should have collected from insureds and paid to Zurich. On the proper construction of cl 16.1 and understanding of the correspondence, however, inability to comply with cl 16.1 was not made out. 40 I have set out cl 16.1, together with cl 11.3(2), earlier in these reasons. Its construction is material also to Blanch's case on the warranties claim. 41 The plaintiffs submitted that, because CTP insurance was regarded as "cash for cover" and on the issue of a green slip the insurer was taken to have issued a policy (Motor Accidents Compensation Act 1999, ss 11(3)), and because by cl 11.3(2) a validated green slip could not be issued unless prior payment had been received, the 37 days under cl 16.1 ran from the issue of the green slip. As a result, they said, Mahoney had to pay out of its own pocket if in fact it had not received payment of the premium from the insured at the time of issuing the green slip. Mahoney had to pay the premium to Zurich within the 37 days, whenever received from the insured within the 37 days and out of its own pocket if not received from the insured. For later reference, I will call this "the plaintiffs' cl 16.1 construction". 42 The submission did not recognise the words "money paid to the Agent as premium" in cl 16.1, given force by the earlier reference to payment without deductions or offsets. Those words, and cl 16.1 as a whole, applied to all premiums, not only premiums for CTP cover, if there were extension or amendment of the class of business Mahoney was authorised to write, and cl 16.1 could not be construed only with regard to cl 11.3(2) and the issue of green slips. The badly worded clause presupposed that Mahoney had received payment from the insured, so that Mahoney's obligation under cl 16.1 was to pay to Zurich money it had been paid. It did not encompass the situation where, in breach of cl 11.3(2) if the class of business was CTP cover, Mahoney had not received payment from the insured, and the obligation went no further. If Mahoney had not received payment from the insured, it could be in breach of cl 11.3(2) and could be liable in damages to Zurich, but that was another matter. 43 It should be observed that s 27 of the (then) Insurance (Agents and Brokers) Act 1984 provided that a broker who received a premium from an insured had to pay it to the insurer within 90 days and that, if the broker did not receive the premium from the insured within the 90 days, the broker had to notify the insurer within 7 days that it had not received it. With a different period, the agency agreement was in line with the statutory scheme, and was supplemented by the statutory provision for notification. 44 The course of correspondence began with the informal arrangements, under which it was said that Mahoney had 90 day credit terms. It continued after 14 October 1999, without clear regard to cl 16.1 until February 2000. It did not make clear whether the complaints by Zurich, to some extent admitted by Mahoney, were that Mahoney had failed in timely collection of premiums from insureds or that Mahoney had failed in timely payment to Zurich of premiums it had collected, even when there was reference to cl 16.1. The plaintiffs could have called evidence of the conduct of business between Mahoney and Zurich and to explain the correspondence, but did not do so. The better view of the correspondence, in my opinion, is that any deficiency on Mahoney's part - and what obligation it infringed remained obscure - was in the timely collection of premiums, and neither Zurich nor Mahoney gave attention to the correct operation of cl 16.1. I am not satisfied that the correspondence established systemic failure to make timely payment to Zurich of premiums Mahoney had collected, or established that Mahoney was unable to (or even failed to) pay to Zurich money paid to it in respect of cover written under the authority of the agency agreement. 45 Albeit initially in connection with reliance, Bergin J also did not accept the plaintiffs' cl 16.1 construction or that Mahoney was unable to comply with the payment obligation. Speaking of particulars (b) and (c), she said - "130 It seems to me that the plaintiffs' claims in this regard are flawed. Firstly, the requirement was to pay to Zurich the money "paid" rather than "payable" to it as premium within 37 days of inception. Secondly, Priest agreed in cross-examination that there could have been no difficulty in "turning over" a cheque within that timeframe. Thirdly, the fact that a 60 days premium funding arrangement was in place does not demonstrate or prove that Mahoney was, as claimed, not financially able to pay premiums even if one assumes in the plaintiff's favour that Mahoney was required to pay money payable rather than paid. There is no evidence that, as at the date of acquisition, Mahoney was not able to "carry" such payments for the 23 day period between the 37 days requirement under the Agency Agreement and any 60 days period under a funding arrangement." 46 The plaintiffs did not make out the misleading or deceptive conduct alleged by them by reason of the Zurich representations. It is preferable to decide the Zurich representations claim on that basis, rather than leave open that Mr Cooper (and Mr Norton) may have acted in a misleading or deceptive way. It is not necessary to consider the challenge to Bergin J's finding that Ms Priest did not rely on the Zurich representations. Her Honour's reasons had good support in the evidence and were to some extent credit-based, and I should not be taken to indicate doubt as to the correctness of her finding.

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"'June 1999 Accounts' means the latest set of financial statements for each of the Sale Company and the Subsidiary for the year ended 30 June 1999". "'Net Profit Before Tax' means for any period, the net profit before tax shown in the Specified Accounts for that period and which excludes any income which is referrable to sales or new business introduced to the Sale Company or the Subsidiary by the Buyer after the Completion Date and any expenses incurred in generating this income". "'Specified Accounts' means, in respect of each period of 12 months ending 25 October in the 2 years following Completion, the audited financial statements of the Sale Company and the Subsidiary comprising the profit and loss account and statement of source and application of funds, and the balance sheet for that period. Any such profit and loss accounts are to be prepared on the same basis as the June 1999 Accounts (ie, on a cash basis, rather than on an accruals basis) notwithstanding that the Sale Company and the Subsidiary will change their accounting practices after Completion (ie, from a cash basis to an accruals basis)". 52 The sale agreement provided for a number of Buyer Covenants, including in covenant 7.1(c) - "(c) (Preparation of Specified Accounts): The Buyer will procure that the Sale Company will procure the preparation of the Specified Accounts within 60 days after 25 October for the 2 years following Completion." 53 At the end of February 2000 Zurich wrote to Mahoney amending the agency agreement, as it was apparently accepted it was entitled to do, in relation to payment of commission. On 10 April 2000 it wrote to Mahoney terminating the agency agreement for defaults by Mahoney. The defaults had been asserted in a letter dated 16 March 2000, and were substantially but not exclusively that Mahoney had not met the earlier 90 day credit terms and what was said to be 37 day credit terms under the agency agreement. Implicit in Zurich's complaint was that cl 16.1 operated in accordance with the plaintiffs' cl 16.1 construction. 54 For present purposes it does not matter whether Zurich was acting within its rights. There was a considerable impact on Mahoney's brokerage income. It tried to persuade Zurich to reinstate the agency arrangements, but without success. It searched for an alternative insurer for the taxi business, again without success. On 1 December 2000 the businesses of Mahoney and BIB were sold to OAMPS Ltd for $500,000. 55 Blanch claimed that the Actual Combined Brokerage Income ("the ACBI") for the period to 25 October 2000 was $2,982,264.47 and the ACBI for the period to 25 October 2001 was $248,351.70. On a literal application of cl 3.4 of the sale agreement, the second instalment would be reduced from $1,595,985 to $3,865.04 and the third instalment would be wiped out and Mr Cooper would have to pay to Blanch $3,413,525.92, so that overall Mr Cooper would be obliged to pay Blanch $3,409,660.88. This would be more than Blanch had paid as the first instalment and otherwise under the sale agreement. Bergin J noted that Blanch "accepted" that the sale agreement was subject to an implied term limiting the amount payable by Mr Cooper under cl 3.4 so that Blanch would not receive any more than it had paid out, and that Mr Cooper "took issue with this implication". 56 Her Honour said as to the payment claim - "164 The defendants defend this claim on two bases. The first basis is that there is no ACBI relevant to the Second or the Third Instalments because no Specified Accounts were prepared. The second basis is that the Share Sale Agreement contained implied terms by which Blanch was required to cause Mahoney to continue to trade until 25 October 2001 so that ACBI could continue to be earned over that period." 57 Her Honour upheld the defence on the first basis. As to the second basis, she held that a term was to be implied that Blanch would operate the business for the period to 25 October 2001, meaning that it would not voluntarily abandon or sell the business in that period, but was not satisfied that the evidence established that the sale was not "'voluntary' in the relevant sense" (at [211]). She said that she was "satisfied that it was a decision made for [Blanch's] and its parent's economic interests not to put any further money into the business because it was, as Priest saw it, in the process of 'dying'. It was in my view a voluntary sale". (at [212]) 58 In my opinion, her Honour was correct in upholding the defence on the first basis. It is unnecessary to consider the defence on the second basis. 59 Blanch conceded that Specified Accounts as defined in the sale agreement had not been prepared for the two periods ending on 25 October. It relied on evidence from Mr John McLennan. Bergin J summarised the evidence - "165 In March 2001, two months after the sale of Mahoney and BIB to OAMPS, Mr Burdis spoke with John Wayne McLennan, who was at that time a partner of Cutcher & Neale and the audit partner for Mahoney and BIB. Mr McLennan's affidavit evidence was that he received instructions from Mr Burdis on behalf of Blanch 'to check the calculations of the ACBI' of Mahoney and BIB. He understood that he had to determine 'on a cash basis the total brokerage income within the meaning of the ACBI for the year to 25 October 2000 and the year to 25 October 2001'. …. 166 Mr McLennan described the process he undertook in calculating the ACBI. He received from Mahoney a 'summary sheet' which 'summarised the commission and fees on a monthly basis for the period 26 October 1999 to March 2001 for Mahoney and BIB'. He then instructed a senior staff member, Mr Mowbray, to attend Mahoney's premises in Newcastle and 'agreed the summary sheet figures with the general ledgers' and 'the fee and commission report (monthly reports)' for Mahoney and BIB. That involved 'matching' the summary sheet figures to those in the ledgers and the fee and commission reports. Mr Mowbray reported to Mr McLennan that 'he had agreed 100% of the figures on the summary sheet'. 167 Mr McLennan then instructed Mr Mowbray to prepare the letter dated 12 April 2001 from Cutcher & Neale to Blanch that included the following in relation to Mahoney and BIB: We have conducted our audit of the brokerage and commission fee income for the abovenamed and submit the following: Michael v Mahoney Insurance Brokers Commission Brokerage Fees

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We note that no debtors existed at 31/3/01." 60 Mr McLennan's determination of total brokerage income stopped at 31 March 2001, presumably on the basis that the business had been sold in December 2000 and there was no brokerage income thereafter. In cross-examination he agreed with the obvious, that he had not been asked to prepare the Specified Accounts and did not know what the result would be until he had prepared them, and agreed that he did not suggest "that the exercise that you have done is the equivalent of the preparation of the [Specified Accounts]". 61 Bergin J noted that Blanch applied for a short adjournment so that Mr McLennan could give his evidence and a longer adjournment so that Specified Accounts could be prepared. She said (at [172]) - "I did not allow the longer adjournment at that time but I granted leave to the plaintiffs to seek the longer adjournment if they regarded it as necessary. I allowed the shorter adjournment and Mr McLennan was subsequently called as a witness. The plaintiffs did not take up the leave granted to make application for the longer adjournment but contented themselves with reliance upon Mr McLennan's evidence to submit that although it was not 'the complete Specified Accounts' it was 'enough of that exercise to determine reliably what the ACBI was'." 62 After summarising the submissions, including Mr Cooper's reliance on Hunter Resources Ltd v Melville (1987) 164 CLR 234, Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 and Arcos Ltd v EA Ronaasen & Son [1933] AC 470, her Honour said - "184 This commercial contract provided for payment of the purchase price in three instalments. It was only in circumstances provided for in the contract that the amount of the Second and Third Instalments could vary from those agreed and defined ($1,595,985 in each case). The clause governing the possible downward adjustment of the purchase price was in my view significant and fundamental to the Agreement between the parties. Subparagraphs (c) and (e) of clause 3.4 gave Blanch significant and fundamental protection against a reduction in income in the years to 25 October 2000 and 2001. They also exposed Cooper to a significant and fundamental risk of having to pay Blanch for that loss of income. Although the First Instalment was not subject to the formula in clause 3.4, the operation of subparagraphs (c) and (e) meant that if the income reduction was significantly greater than the amount of the Second and Third Instalments Cooper was at risk of having to pay to Blanch the whole of the money paid to him by Blanch by way of the First Instalment and indeed more, depending on the amount by which the Reductions were greater than the Instalments. 185 The plaintiffs sought to dilute the significance of the protections and risks inherent in clause 3.4 by their so-called 'acceptance' of an implied term that notwithstanding the provisions of subparagraphs (c) and (e), the amount Cooper would be required to pay Blanch was capped at the amount Blanch had paid Cooper by way of First Instalment. With what perhaps may be seen as a touch of irony, Cooper submitted that the suggested term does not satisfy the pre-requisites for the implication of such a term: BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 180 CLR 266 at 282-3; Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 405. It was submitted that the term propounded by Blanch contradicts the express terms of the contract in clause 3.4 and should therefore not be implied. I agree. 186 In my view these fundamental protections and risks were so significant that strict compliance with the provisions pursuant to which they could be realised was essential. It was only in the circumstances of such strict compliance that clause 3.4 could be triggered. Specified Accounts were not prepared and thus the ACBI could not be identified within the unambiguous and certain terms of the Agreement. Mr McLennan's evidence that until the Specified Accounts were created the "result" could not be known supports that finding. There is the further matter that Blanch now seeks to pursue contractual rights it might have had, if it had complied with the Buyers Covenant in clause 7.1(c). It chose not to comply and has given no reasonable explanation for its non-compliance. I am not satisfied that the provisions of the Share Sale Agreement permit the 'near enough is good enough' approach adopted by the plaintiffs. Clause 3.4 is not triggered and the plaintiffs' cases in this regard fail." 63 Blanch submitted on appeal that whether the production of the Specified Accounts was essential to the operation of cl 3.4 was to be determined on the proper construction of the sale agreement. It said that the balance sheet part of the defined Specified Accounts would not have provided information material to the calculation of the ACBI; that the statement of source and application of funds would have contained such information only coincidentally; and that only the profit and loss account, and even then only the income items, would have identifed brokerage income. Accordingly, it said, ascertaining on an audited basis the brokerage income figures which would have formed part of the Specified Accounts was sufficient to fulfil the purpose of the Specified Accounts in arriving at the ACBI. It said that Mr McLennan's evidence provided the figures, and that there could be greater confidence in the accuracy of the brokerage income because all figures had been checked rather than the test checking which would normally have been undertaken in an audit. 64 This submission fell short of construing the sale agreement. The definition of the ACBI was plain in referring to brokerage income "shown in the Specified Accounts", and the definition of Specified Accounts was plain in referring to the audited financial statements and expressing their content and the basis on which they were to be prepared. The Specified Accounts were also the source of the Net Profit Before Tax in arriving at any Incentive Payment. Blanch was under an obligation to cause the Specified Accounts to be prepared. The parties should not lightly be taken to have intended that their significant adjustments and obligations to pay money could be established in some other way. They could have agreed upon the preparation of truncated figures, particularly when the figures were to be for a period other than the normal accounting period and on a different basis from the normal accounting basis (the ACBI) or with adjustments (Net Profit Before Tax), but they did not do so. 65 The evidence did not exclude that the preparation of the Specified Accounts in full form involved procedures which enhanced the reliability of ascertaining brokerage income and Net Profit Before Tax. Whether or not it did so, the agreement of the parties was that adjustments would be made, and obligations to pay money would be established, following preparation of the Specified Accounts and by regard to what appeared in those accounts. It should not be forgotten that the agreed means of establishing the adjustments or obligations would not only operate in the circumstances of this case, in which Mahoney and BIB had ceased to earn brokerage income part way through one of the periods. They would be expected normally to operate where Mahoney and BIB continued to trade. Indeed, although there was no suggestion that this had happened, it could have been that Mahoney had started another business and earned brokerage income in the balance of the year to 25 October 2001. 66 The sale agreement did not provide for adjustments and obligations according to what someone said the ACBI was. It provided for adjustments and obligations according to what was shown in a particular, and wider, set of accounts which Blanch was obliged to cause to be prepared. Mr McLennan's evidence, or any other evidence in court proceedings short of the Specified Accounts, was not the agreed trigger for payment under cl 3.4, and in the absence of the Specified Accounts Blanch's claim could not succeed.

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(c) As to clause 19.3 of the Sale Warranties - As at 24 December 1999 the second plaintiff was in default [of] Clause 11.3(2) and of Clause 16.1 and Schedule 7 of the Agency Agreement. C45 In the premises the first defendant has breached the Sale Warranties under the Share Sale Agreement." (the underlinings indicate amendments - see later) 70 It was then alleged that, as a result of Mr Cooper's breach of the Sale Warranties, Blanch has suffered loss and damage of $2,631,533.30, comprising the payment of the first instalment of $1,407,026 plus other expenditure in the purchase of the shares in Mahoney and the conduct of the businesses of Mahoney and BIB. 71 It is convenient to take each of the particularised breaches in turn. Before doing so, it is necessary to go to a rather confusing history against which the reach of the particulars must be considered. There was some dispute on appeal as to the case open to Blanch, and movement in its submissions on appeal, which I will take up as I go to the particularised inaccuracies against the historical background. 72 At the commencement of the hearing before Bergin J on 24 May 2004, para C44 of the summons did not have the underlined words in the paragraph as set out above. Outlines of topics for submissions had been exchanged. The defendants' outline had relevantly asserted first, that the allegation in paras C44 and C45 was of breach of cl 16.1 "particularised by reference to the schedules attached to two facsimiles from Zurich to Mahoney dated 8 November and 23 December 1999"; secondly, that none of the policies in the schedules had been taken out after 14 October 1999 and so cl 16.1 did not apply to their premiums; and thirdly, that the schedules were of premiums not yet received by Mahoney and Mahoney's obligation under cl 16.1 was only to remit premiums it had received. This is my summary, perhaps with some additional clarity coming from hindsight, but the defendants' position was plainly enough understood to have those elements. 73 Before opening, counsel for the plaintiffs, Mr Robb QC, foreshadowed the amendments indicated by the underlining, according to the court reporter's summary in the transcript "as a result of appreciating a particular argument disclosed in the defendants' topics for submission". In the course of his opening Mr Robb said, referring to the proposed amendment - "The defendants' position appears to be that, on the proper construction of the agency agreement, it could make whatever arrangement with taxi operators it wanted to, and only if and when the taxi operators deigned to pay Mahoneys some money did this obligation on Mahoneys to pay within the 37 days arise. That is an argument for your Honour ultimately to determine. Not only is it an argument which the plaintiffs say is wrong, but not reasonably contemplated by them. It is the plaintiffs' case that the particulars to clause C44, as they stand, make it sufficiently clear that what the plaintiffs are alleging is that the amounts payable within the 37 days under clause 16.1 and schedule 7 were not paid, and the addition is, for avoidance of doubt, to make clear that the parties are at issue on the argument put here. Even without the amendment, the plaintiffs are entitled to argue, on whatever basis it was, that clause 16.1 and schedule 7 were breached. When I ultimately take your Honour to the letter of termination by Zurich, it relies on breach of 11.3.2, 16.1 and schedule 7, because, in the agreement, they are a coherent whole. In fact, the argument that if Mahoneys does not require the taxi operators to pay, then the obligation on Mahoneys to pay Zurich does not spring up, is unsound. This is what had tempted me to defer seeking to make the amendment until after I had taken your Honour through the documents. There is quite a number of documents which show the communication between Zurich and Mahoney on this issue. Those documents make it clear that from Zurich's perspective moneys became due when the CTP slips were issued. That is why Zurich continually demanded payment of many hundreds of thousands of dollars, at one stage going up to $1 million. There is a couple of other inconsequential corrections I need not trouble your Honour with. Paragraph C44 is the only subject of a substantive amendment." 74 Bergin J said - "HER HONOUR: 7.2(h) is the warranty that there is no other matter, in which the buyer would reasonably be interested, which contains any onerous or unusual provisions, between 14 October and 24 December, as I understand it. This outline of the defendants' submissions is that there is no money payable in that period, even if one applies the strict letter of the agency agreement." 75 Mr Robb replied to this - "ROBB: It is the plaintiffs' submission that the effect of the agency agreement was to catch outstanding prior outstandings [sic]. That may be a bone of contention. The prior period was 90 days. There was a very substantial amount of money that had built up outside the 90 day period. It is the plaintiffs' contention that the proper construction of the agency agreement is not to ignore all the prior money, but to foreshorten the date for payment, and that anything outstanding, as at the date of the agency agreement, crystallised." 76 Counsel for the defendants, Mr Kelly SC, opposed the amendment. He pointed out that cl 17.3 of the agency agreement provided that "[a]ny pre-existing debts between the Insurer and the Agent are not affected by this Agreement". He said that if it were necessary to go to the circumstances in which the policies listed in the schedules came about, he would be prejudiced, but that - "The case, as presently pleaded and presented, is fatally flawed. The terms of clause 16.1, of which we are supposed to have been in breach, refer to money paid to the agent as premium. Not one single item in the two lists will provide particulars of the relevant policies relates to any money paid to - quite the opposite. Each refers to an event where money was not paid to." 77 The judge raised a rather different point, saying to Mr Kelly - "HER HONOUR: You are not subject to a claim that you are in breach of this. What the amendment is seeking to do is to say that you gave a warranty that there was no other matter in which the buyer, Blanch, would be reasonably interested, which contained any onerous or unusual provision. What is being suggested, by putting in this clause 11.3(2), is that this was an onerous and an unusual provision. Apparently, by reason, the inference to be drawn from this is that Blanch was not aware of this provision prior to settlement or completion." 78 Mr Kelly said that he "[took] your Honour's point in relation to subparagraph (a), which goes back to the onerous and unusual provision allegation in C43(a)". He said that that was "but the beginning". 79 The judge suggested that if the amendment was "only a forward looking document", and Blanch was "only able to amend on the basis that this runs from 14 October", the prejudice would fall away. Mr Kelly agreed. He then said, in substance, that while Mahoney may have received premiums after 14 October 1999 and before a date 37 days prior to 24 or 23 December 1999 on which cl 16.1 could bite, Blanch had not particularised any such event. 80 The transcript then records - "HER HONOUR: Let me come back to the amendment application. Putting that point to one side about not being given any particulars about alleged breaches in that period, if the amendment is allowed on the basis that this is just part of the agreement that reliance was placed upon in any event for (a), they want to say that is onerous and you should have told them about it, and then in (c) there has to be an allegation that from 14 October 1999 you were in default of 11.3(2). You say there is no irreparable prejudice. KELLY: Provided we are given those particulars. If somebody shows us a policy in which that happened, of course we will have to investigate that policy. Perhaps my friend can make a concession that this whole reliance case is basically flawed. ROBB: I cannot answer 17.3. HER HONOUR: So, the basis on which the amendment is sought is only an amendment from 14 October 1999 forward. ROBB: Yes. So there is no misunderstanding between us, as I understand my learned friend, what he will submit, at the end of the day, is that, because there was only a month and a half between 10 October and 24 December, there were not relevant breaches of the agency agreement between those two days. There is actually enough time for 37 days to have elapsed. HER HONOUR: He concedes that. He says you have not told him where the breaches are. ROBB: Then he says, from 24 December, the first plaintiff took over the company, and whatever happened thereafter was its business. The first plaintiff puts its case in a different way. In relation to the sale warranties that are pleaded in C43, what it was not told of was the existence of these terms of the agency agreement. HER HONOUR: Did it not see it prior to: ROBB: No. It asked a number of times. The evidence is that it was not given the agency agreement, and did not know about the terms. It was not told Mahoneys had an agency agreement, which was a matter of the terms going forward, requiring cash to be received when the green slip was issued and payments to be made within 37 days, were Mahoneys had in place funding arrangements with the taxi operators, which had the result that it did not and could not reasonably expect to receive the premiums within the 37 day period. HER HONOUR: You were not told of that. ROBB: We were not told any of that. Our case is not that there was a breach of the agency agreement between 10 October and 24 December; it is that we were not told that Mahoneys had agreed to terms in the agency agreement which doomed it to be in constant dispute and default with Zurich, so that it was always at risk of having the agreement terminated for breach."

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81 After further discussion between the judge and Mr Robb, the transcript records - "HER HONOUR: At the moment, then, the amendment sought in subparagraph (a) on the basis that this must be from 14 October 1999 forward is permitted, and I allow that amendment. The amendment sought in C44(c) is permitted, subject to particulars being provided to the defendants of the alleged breaches." 82 Particulars were provided, by reference to a letter from Mahoney to Zurich dated 21 June 2000 attaching a listing of policies and premiums sent by Zurich to Mahoney with annotations which Mahoney at the time said showed "the correct states". Thirteen of the policies in the list had inception dates between 14 October 1999 and a date 37 days prior to 24 December 1999. According to the annotations, one policy had been cancelled; for two policies the premiums had been paid; for three policies the premium was "funded" which appears to have meant that the premium had not yet been paid to Mahoney; for one policy the co-operative was "to pay"; for two policies it was said they were being investigated; for another three policies there was a Delphic "Newcastle"; and for the last policy there was only "?". 83 There matters remained until the evidence closed. On 1 June 2004 Mr Robb applied to amend by adding to particular (c) to para C44, saying that the amendment was "to make the particulars conform to the evidence". The amendment was to add that as at 24 December 1999 Mahoney was "in default of the 90 day credit terms under the contract in place between [Mahoney] and Zurich before 14 October 1999", and was itself particularised by reference to correspondence which included the letters of 8 November 1999 and 23 December 1999. 84 This amendment was opposed, on the ground that Blanch had earlier confined its case to reliance on the agency agreement as foreshortening the date for payment of "prior money", and that it was now seeking to allege breach of a different contract, being whatever contract was in existence prior to the agency agreement. 85 Mr Robb sought to support the amendment, in the course of doing so saying - "It's the plaintiff's submission that the evidence that has been filed since January 2003 has made as clear as it can be that the substance of the first plaintiff's complaint was as shown in the documents. We have to accept that the principal documents which were the 23 December letter that I have just taken your Honour to and the 8 November letter referred to in the particulars in subparagraph A of paragraph C44, and we have to accept that reference has been inserted in paragraph A when it should properly be inserted in paragraph C." 86 The judge described the amendment as having nothing to do with the agency agreement the subject of particular (c), and said that it was a new case and that the defendants were entitled to assume that the evidence "went to the agency agreement and the plaintiff's claim that it was within the agency agreement that these moneys became owing". After further discussion, the application to amend was withdrawn. 87 The parties had provided written submissions to the judge, to which they then spoke. The plaintiffs' written submissions had been prepared prior to the amendment application, and clearly enough in anticipation that it would succeed. 88 The written submissions addressed the warranties claim in paras 179-193. After introductory matters, they put forward a number of facts, apparently as facts the judge was asked to find, to the effect that prior to 14 October 1999 Mahoney had been required to pay CTP premiums to Zurich within 90 days of the inception of the policies and had been in default of that requirement; that it remained in default as at 24 December 1999; that under the agency agreement premiums had to be paid within 37 days of the inception of the CTP policies and by 24 December 1999 Mahoney was in default in relation to at least the thirteen policies; that Mahoney's arrangements with its clients and administrative arrangements were such that it could not meet the 37 day payment terms for either the thirteen policies or policies written under the agency agreement; and that - "(k) Zurich had made numerous complaints to and demands of Mahoneys, but on 23 December 1999, the day before the Share Sale Agreement Zurich actually refused to issue any more CTP green slip books to Mahoneys until an amount of $721,741 had been paid to Zurich". 89 After reference to termination of the agency agreement, and saying that Blanch would not have entered into and completed the sale agreement "had it known the truth of the relationship between Mahoneys [sic] and Zurich", the written submissions continued - "187. The plaintiffs submit that the term of the agreement governing payment of premiums to Zurich - requiring payment within 90 days before 24 October 1999, and within 37 days under the written agency agreement from that date - were material terms of the agreements between Mahoneys and Zurich. As at 24 December 1999 Mahoneys was in significant default of the earlier contract. Although that contract had been replaced by the agency agreement, it remained a contract binding Mahoneys until all payments required under it had been made. Even if at 24 December 1999 Mahoneys was only in breach of the agency agreement in relation to 11 [sic] policies, it was still in breach of a material term. Mr Cooper therefore breached the Sale Warranty in clause 19.3(a). Mr Cooper warranted that Mahoneys was not in breach of a material term - not that Mahoneys had materially breached a term. What was significant to EWB was that it be told of the fact of the breach, rather than it know that the agency agreement had been breached in relation to a small number of policies. 188. Mr Cooper also breached the Sale Warranty in clause 19.2(b), because in fact Mahoneys' terms of business with its taxi operator clients involved them being given credit for a period longer than the 37 days after the inception of CTP policies in which Mahoneys had to pay the premiums to Zurich. What was important for EWB to know is that the manner in which Mahoneys carried on business with its clients - and the terms expected by the clients - put Mahoneys in a position of probable constant breach of the 37 day payment term. The breach of the warranty is not limited to failing to advise EWB that there were existing breaches in relation to 11 policies. 189. The plaintiffs submit that Mr Cooper also breached the Sale Warranty in clause 7.2(h), because the agency agreement contained a 37 days payment provision, when the industry standard was 90 days, and EWB was not advised of that fact. This was a significant breach of warranty because, as discussed above, the arrangements Mahoneys had with its taxi operator clients in relation to the provision of credit were such that Mahoneys could not expect to receive premiums from funders for 60 days or more." 90 In speaking to the written submissions, at an earlier point Mr Robb said - "Paragraphs 61 to 73 of the written submissions extract the documents going to the issue of payment and reconciliation dispute between Mahoneys and Zurich. The plaintiffs submit that even if the documents are not relevant to an allegation of a breach of a contract predating the 14 October 1999 agency agreement, they are nonetheless relevant evidence of the true state of the relationship between Zurich and Mahoneys, which has the following relevance. It is relevant to the significance of the breaches that did occur in relation to the agency agreement after 14 October. To put that another way, if the 14 October agreement was the first agency agreement, proof that there had been 11 contracts that had incepted and not been paid within the 37 day period by itself may not look particularly significant. But in the plaintiff's submission the evidence of the dispute as to non-payments prior to 14 October remains material because it demonstrates the significance of the non-payments under the new agreement. There was actually a history between the parties which had the result that continuing non-payments under the new agreement were likely to be, as proved to be the case, more potent in their consequence." 91 Specifically as to the warranties claim, Mr Robb said only - "In paragraphs 179 and following we set out our argument in relation to breach of the warranties. We must accept, and I think this is all we say, that the warranty claim is based upon breach of the written agency agreement of 14 October. I think in fact I have covered, because of questions that have been asked, what I wanted to say orally about that."

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(iii) the letter of 23 December 1999 also fell within the reference to an onerous or unusual provision, in which Blanch would be reasonably interested and material for disclosure to an intending purchaser, because it was the continuation of a course of complaint by Zurich as to Mahoney's accounting to it for premiums, and in particular because Zurich said that it "could see no option but to hold of [sic] on issuing more CTP greenslip books" until a sum in excess of $721,000 had been paid. 98 I do not think that Blanch can now rely on (iii). It is a new allegation of breach of the Sale Warranty, beyond Blanch's case before Bergin J and open to Mr Cooper to have met by talking a different course. In any event, it is difficult to see the sending of the letter or the complaint in the letter, as a matter containing an unusual or onerous provision. But (i) and (ii) are in my view within the case as it was conducted before her Honour. 99 The warranty in para 7.2 was not that there had been no matter within its subparagraphs which had not been disclosed or was not known to Blanch. It was that there had been no such matter. Prior disclosure or knowledge may have been relevant to damages, but not to breach. The judge appears to have reasoned that, if there had been prior disclosure of a matter, it could not be said that Blanch would be reasonably interested in it, and that disclosure of the existence of the agency agreement was sufficient disclosure of the 37 day period in cl 16.1. I respectfully do not find that persuasive of rejection of particular (a). 100 The alternative basis for her Honour's rejection was that Blanch particularised non-payment of the premiums for the thirteen policies, as premiums which had been received by Mahoney and not paid to Zurich, and inability to pay the premiums, but that this could not be an "'other matter' that contained unusual or onerous provisions material for disclosure" within subpara (h) and in any event it had not been shown that Mahoney had received the premiums. 101 From the historical background, Blanch had not particularised the premiums as premiums which had been received by Mahoney and not paid to Zurich. Its position had been that, on the proper construction of cl 16.1 including regard to cl 11.3(2), the premiums were payable to Zurich whether or not they had been received by Mahoney. Even if the plaintiffs' cl 16.1 construction were accepted, it is not easy to fit failure in the cl 16.1 payment obligation or inability to comply with it into the rather obscure concept of a "matter … which contains [an] onerous or unusual provision" in para 7.2(h). It does not matter, because the plaintiffs' clause 16.1 construction can not be accepted. Blanch did not prove that Mahoney had received or when it received the premiums in respect of the thirteen policies, and Blanch did not establish that Mahoney failed or was unable to pay Zurich in accordance with cl 16.1. 102 Bergin J had referred to the amendments to the particulars of para C44, although by a slip saying that the last sentence of particular (a) was added by amendment on 24 May 2004 "conditional upon the amendment being limited to the period commencing on 14 October 1999 with a requirement that the plaintiff provide to the defendant the actual alleged breaches". In fact, the amendment had been as to cl 11.3(2) of the sale agreement. Her Honour said that, with the withdrawal of the later amendment application, "the references to facsimiles of 8 November 1999 and 24 December 1999 are not relevant to any case other than alleged breaches of the Agency Agreement of 14 October 1999". Blanch submitted that the judge erred in taking its complaint as limited to the thirteen particularised breaches in isolation, rather than as part of an endemic practice of late payment of premiums. In order that an endemic practice support the materiality for disclosure to Blanch of the thirteen instances of breach of cl 16.1, the thirteen instances had first to be established. The submission does not assist Blanch. 103 However, her Honour did not address Blanch's reliance on the existence of cl 11.3(2) and 16.1 as a matter falling within para 7.2(h). It had been put forward in para 189 of the plaintiffs' written submissions, and I do not agree with Mr Cooper's submission that that part of the written submissions had been abandoned when Mr Robb said on 1 June 2004 that "the warranty claim is based upon breach of the written agency agreement of 14 October". Mr Robb was accepting failure of the amendment application, but there was no reason why the reliance on the existence of the clauses consequentially fell away - it had been brought up by the judge, and embraced by Mr Robb, on 24 May 2004, and was not dependent on Mahoney being in default of 90 day credit terms under whatever contract was in existence prior to the agency agreement. I respectfully consider that there was error in this respect. The reliance on the existence of cl 11.3(2) and 16.1 should now be considered, as modified in the submissions (i) and (ii) earlier noted. 104 As to (i), Ms Priest gave evidence that "90 days is the industry average", meaning or at least including the time for a broker to remit premiums it has received to the insurer. Section 27 of the Insurance (Agents and Brokers) Act may have reflected an accepted practice. The advantage of the long period to the broker was that it could earn interest on the money. Ms Priest's dissatisfaction with the 37 days in the agency agreement, however, was not that it reduced the period for which Mahoney could earn interest. It was because she later found out that Mahoney's arrangements with premium funders meant that, contrary to the "cash for cover" basis of CTP cover, many insureds' premiums were not paid to Mahoney until up to 60 days after inception of the policy. As a result, she said, Mahoney "could never meet the 37 day requirement". 105 Ms Priest's dissatisfaction was premised upon the plaintiffs' cl 16.1 construction. On the proper operation of cl 16.1, Mahoney was not obliged to remit premiums to Zurich until it had received them. Nonetheless, I accept that the shorter period was an unusual provision, material for disclosure to an intending buyer and in which Blanch would be reasonably interested, because it was significantly different from the industry average and with significant potential consequences for Mahoney's interest-earning even if Ms Priest was not in fact interested in it for that reason. In this respect, there was breach of the warranty in para 7.2(h). Mr Cooper submitted that it was not unusual because 37 days was stipulated in s 37(2)(a) of the Insurance (Agents and Brokers) Act as the time for a person who was not a registered insurance broker to remit premiums to the insurer, but Mahoney was a registered insurance broker. 106 As to (ii),I do not accept that, so far as cl 16.1 stipulated the 37 days it was an onerous provision within para 7.2(h). Mahoney had to pay premiums to Zurich within 37 days of receiving them. As earlier indicated, nothing in the course of correspondence established that it had had, or would have, difficulty in doing so.

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Damages 114 Bergin J touched upon damages. She said - "151 It was also submitted that the measure of damages in the contractual warranty claim is misconceived. A claim of $2,631,533.30 is made. It is submitted that the plaintiffs do not claim that any part of that amount consisted of a premium payment which had not been remitted to Zurich, which Mahoney subsequently had to pay from its own funds. The amount claimed includes the first instalment of the purchase price and an array of other expenses. The usual measure of damages of breach of contract is to place the plaintiff in the same position it would have been in if the contract had been performed: Commonwealth v Amann Aviation Pty Limited (1991) 174 CLR 64 at 80. It was submitted that if that measure is applied it produces a nil result because no such loss occurred or has been proved. I agree." 115 The submissions on appeal as to damages were not extensive, and did not greatly distinguish between the Zurich representations claim and the warranties claim or between the different breaches of the Sale Warranties. The period in cl 16.1 of the agency agreement was 37 days not 90 days. What damages flowed from that? 116 The substance of Blanch's submissions, applied to cl 16.1 being an unusual provision, was that if the agency agreement had provided for a 90 day period, it would not have entered into the sale agreement under risk of termination of the agency agreement because of "a long running delinquency in the remittance of premiums to Zurich". It said, without much elaboration, that Zurich terminated the agency agreement because of the delinquency, that the termination made Mahoney's business unviable, and that it was entitled to the $2,631,533.30 as the loss flowing from its purchase of the shares in Mahoney. 117 The substance of Mr Cooper's submissions, applied to cl 16.1 being an unusual provision, was that the collapse of Mahoney's business was nothing to do with the 90 day period, but was because Zurich implemented its long-standing wish to deal directly with the taxi co-operatives and so cut Mahoney out. 118 The damages are such sum as will put Blanch in the position in which it would have been if the warranty were correct; that is, if the period in the agency agreement were 90 days not 37 days. An immediate measure of the damages is the difference between the price paid for the shares and their true value at the time, the difference reflecting that Mahoney would earn less interest on premiums before remission to Zurich; or perhaps as much the same thing, the discounted value of the future cash flow from interest earned for an additional fifty days or so. Blanch did not put its argument on the basis that the true value of the shares was nil, because the 90 day period meant that Mahoney's business was doomed to become unviable; and its claim went further, to expenditure in the conduct of the businesses of Mahoney and BIB. It was, however, necessary for its claim that the 37 day period rather than a 90 day period was causative of the termination of the agency agreement and the failure of Mahoney's business. I do not think that was established. 119 I have referred to Zurich's wish to deal directly with the taxi cooperatives, and to its entry into agency agreements with the two largest taxi cooperatives, one in July 1999 and the other a little time thereafter. It had been taking advice from Clayton Utz in April-May 1999 upon terminating its relationship with Mahoney and dealing directly with the cooperatives consistently with the Trade Practices Act 1974. The evidence did not disclose why it entered into the agency agreement of 14 October 1999. But it did not cease its moves to cut Mahoney out. 120 Bergin J found - "94 Zurich was readying itself with Cumberland and Deluxe to establish its 'joint venture' under the then proposed name 'Transure' to market taxi insurance. It received further advice from Clayton Utz on 20 December 1999 in relation to the implications of 'cancelling' the Agency Agreement with Mahoney. That advice expressed the concern that if Zurich terminated the relationship 'so soon' after the Agency Agreement was entered into Mahoney may complain that it had acted unconscionably or that it had engaged in misleading and deceptive conduct. Clayton Utz advised that they needed to 'examine very carefully' Zurich's dealings with Mahoney in the period 1 August 1999 to 14 October 1999 and advised Zurich to look at other commercial methods to achieve its objectives 'unless of course there is some basis to terminate the Agency Agreement immediately pursuant to Article 18.1'. 95 Clayton Utz noted that Zurich would: (a) in the following 6 weeks focus on establishing 'new distribution channels for taxi insurances'; (b) not terminate the Agency Agreement with Mahoney 'at this point in time' but would revisit the issue at the end of January; and (c) in the event that Mahoney entered into an Agency Agreement with another insurer, Zurich would notify Clayton Utz and consideration would be given as to whether Zurich would be entitled to terminate the Agency Agreement." 121 On 29 February 2000 Zurich wrote to Mahoney purporting to amend the agency agreement by "revoking" its obligation to pay commission, and complaining of Mahoney's failure to meet "the 37 day credit terms" and of its use of sub-agents. The complaint of failure to meet the 37 day credit terms was the first occasion in the course of correspondence on which that period had been mentioned, and asserted that "more than $1,000,000 is overdue from last year". Plainly Zurich was claiming that premiums were payable by Mahoney although not yet received by it from the insureds, and was including within the 37 day credit terms premiums for policies written prior to 14 October 1999. 122 On 16 March 2000 Zurich wrote to Mahoney complaining of payment only of part premiums, of failure to follow the correct procedure for cancellation of insurance, and again of failure to meet credit terms. On this occasion it was recognised that the 37 day credit terms were for premiums for policies written after 14 October 1999, the credit terms for policies for premiums earlier written being said to be 90 days, but again Zurich was claiming that premiums were payable by Mahoney although not yet received by it from the insureds. Mahoney was told that the agency agreement could be terminated under cl 18 of the agency agreement if it did not remedy its default within 14 days. 123 Then came the letter of 10 April 2000 terminating the agency agreement. Zurich said that there was still $600,000 in premiums outstanding from 1999, that further premiums remained outstanding from the period from 1 January 2000, and "Pursuant to clause 18.1 Mahoneys' failure to remedy this default within the 14-day period entitles Zurich to terminate the Agency Agreement for breach. As a result, Zurich hereby terminates the Agency Agreement dated 14 October 1999, effective immediately on receipt of this letter." 124 The letter was accompanied by another letter dated 10 April 2000 relating to general insurance. Zurich said in that letter that there was "no written broker agreement between Zurich and Mahoneys", and - "Either party has the ability to terminate the current relationship. We are aware that Mahoneys already has in place alternative arrangements with another underwriter for general insurance for taxis. Zurich hereby gives Mahoneys notice that Zurich will no longer consider proposals for Zurich Taxi Products from Mahoneys. This notice is effective immediately." 125 Solicitors wrote to Zurich on behalf of Mahoney. Their letter dated 23 May 2000 included - "3. However, in late 1999 Zurich asked Mahoney's [sic] to sign an agency agreement relating to the CTP insurance part of its business which Mahoney's [sic] did (without legal advice). Zurich also altered the payment terms which had been agreed with the company and in place over many years from 90 to 37 days. (This was despite the fact that (as known to Zurich) many of the premiums were externally funded which involved delayed payment.)

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A letter of the 16th March 2000 from Mr Jon Murphy on behalf of Zurich to our clients threatened termination of the agency agreement unless some $927,813.55 was paid within 14 days. (Our client believes the timing of this letter with Zurich's establishment of Transguard is not a coincidence.)" 126 In Zurich's reply, by a letter dated 8 June 2000, it was said that later telephone conversations indicated that the most important issue for Mahoney was the agency to issue CTP cover, and - " Issues Surrounding CTP Insurance It was also clear from our discussion that your client believes that the default by Mahoneys in payment of insurance premiums for CTP resulted from the change in payment terms from 90 to 37 days in October 1999. Zurich categorically denies that suggestion." 127 The letter set out a history of matters between Zurich and Mahoney since before August 1999, and then said - "The forgoing [sic] recent history sets out very clearly why Zurich no longer wished to conduct a CTP agency with Mahoneys. It is self evident that the default on credit terms was not caused by the change in credit terms in October 1999. It should be repeated that CTP insurance is 'cash for cover' insurance. Zurich is 'on cover' from (or shortly after) the date the greenslip is issued. In any event, Zurich is 'on cover' for all the policies listed in the spreadsheets and issued by Mahoneys, but commonly did not receive premiums for lengthy periods. This has a material financial impact on the profitability of the entire portfolio. Zurich believes that Mahoneys has shown repeatedly that it cannot administer the CTP insurance as required by an agent." 128 It is evident that Zurich's termination of the agency agreement was occasioned by its wish to deal directly with the taxi cooperatives, and that so far as Zurich relied on failure by Mahoney to pay premiums within 37 days that was part only of its expressed dissatisfaction with its relationship with Mahoney. Zurich's complaint was really that, because of the external funding arrangements, Mahoney had not obtained premiums from insureds at the time of writing CTP cover, and as to premiums outstanding for that reason and for policies prior to 14 October 1999. Zurich itself said that the 37 day period rather than a 90 day period under the agency agreement was not of significance. It did not recognise the correct operation of cl 16.1, but had it done so that would not have changed. 129 In my opinion, the 37 day period rather than a 90 day period was not causative of the termination of the agency agreement, let alone the failure of Mahoney's business. Zurich would have terminated the agency agreement even if it had provided for a 90 day period.

At a glance

Court

Decision date

Before

Source

Judgment (65 paragraphs)

Parties

Cases Cited (5)

Cited By (8)