Hakea Holdings Pty Ltd v Neon Underwriting Limited for and on behalf of the Underwriting Members of Lloyds Syndicate 2468

Federal Court of Australia (Full Court)|2023-03-10|Before: Jackman JJ

Introduction 77 This is an appeal from the judgment of Yates J in the matter of Hakea Holdings Pty Ltd v McGrath (No 2) [2022] FCA 995. The learned primary judge found that Mr McGrath was liable to Hakea Holdings Pty Ltd (Hakea) for breach of his duty as a director of Hakea under s 180(1) of the Corporations Act 2001 (Cth). Mr McGrath is not a party to the appeal and there is no appeal from that finding. 78 Mr McGrath was insured under a Directors and Officers Liability Insurance Policy for the period 23 January 2016 to 23 January 2017 (Policy), held by Hakea and underwritten by Neon Underwriting Limited for and on behalf of the underwriting members of Lloyds Syndicate 2468 (Neon). Neon was the active defendant in the Court below. The primary judge rejected Hakea's claim that Mr McGrath was entitled to be indemnified under the policy in relation to his liability. The learned primary judge found that Neon was entitled to rely on an exclusion clause in the policy, and the present appeal is brought from the primary judge's conclusion that that exclusion applies. The Policy is a 'claims made' policy of the nature described in FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641 at [64]-[68]. Salient factual findings made by the primary judge 79 As there is no appeal against any of the factual findings by the primary judge, and the appeal raises questions concerning the proper construction of the Policy, I summarise briefly the factual findings made at first instance. 80 In addition to being a director of Hakea, Mr McGrath was also the sole director, shareholder, secretary and general manager of Denham Constructions Pty Ltd (Denham). On 12 October 2012, Denham entered into a contract with Hakea to design and construct a residential aged care facility on property owned by Hakea in Hamlyn Terrace in New South Wales (Building Contract). The Building Contract was a lump sum contract, and Denham could claim payment by progress claims as and when progress certificates were issued by the Superintendent. Denham was obliged to ensure that the work reached practical completion by a specified date, which was subsequently extended. 81 Clause 39.11 of the Building Contract provided relevantly that if a party informs the other in writing that the party is insolvent or is financially unable to proceed with the contract, then the Principal may, without giving notice to show cause, exercise a contractual right to take out of Denham's hands the whole or part of the work remaining to be completed and suspend payment under the contract. The Building Contract also gave Hakea a right of termination of the contract if Denham committed a substantial breach and Hakea had given Denham a notice to show cause why Hakea should not exercise that right. 82 In late 2013, Denham commenced construction work on the project. By October 2014 the work was not progressing as quickly as had been anticipated. Unbeknown to Hakea, on 30 October 2014 Denham defaulted on a payment arrangement it had made with the Australian Taxation Office (ATO), which required it to pay $300,000 as a part payment to extinguish its then tax debt. In December 2014, the ATO proposed a further plan for instalment payments from Denham to meet its tax debt, which was then $939,199.56. On 20 March 2015, the ATO gave a statutory garnishee notice to Australia and New Zealand Banking Group Limited (ANZ) requiring it to deduct money to the value of $890,114.61 from any account held by Denham with ANZ and to pay that money to the Commissioner of Taxation. Three days later, Denham transferred all its employees to a related company. In late March 2015, Denham made a further payment offer to the ATO, but that offer was rejected by the ATO on 13 April 2015. On 20 April 2015, Denham raised an invoice on Hakea for a progress claim requesting payment into Denham's account with Commonwealth Bank of Australia, which the primary judge found was a request made to avoid the consequences of the statutory garnishee notice given to ANZ. 83 On 4 May 2015, the Deputy Commissioner of Taxation issued a demand to Denham under s 459E of the Corporations Act for the amount of $1,812,615.05. In the period 6 May 2015 to 20 November 2015, thirteen further statutory demands were issued on Denham by other creditors. 84 Throughout May 2015, the Chairman of Hakea, Mr Pardy, was becoming concerned about the delay to the progress of the project. Correspondence then ensued between Mr Pardy and Mr McGrath in which Mr McGrath sought to explain the delays in the project, but Mr McGrath's response on 21 May 2015 made no reference to Denham's financial difficulties at the time, including the fact that the ATO's statutory demand had been made. 85 On 30 July 2015, a meeting took place between Mr Pardy and Mr McGrath and others, which the primary judge said was attended by Mr McGrath on behalf of Denham. Mr McGrath sought to explain the delays to the project by reference to disputes with subcontractors which he said had now been resolved and said that a revised date for practical completion of 17 November 2015 could be met. 86 On 27 August 2015, Mr McGrath attended a meeting of Hakea's directors and said that Denham would meet the current program and Hakea should be able to commence its fit out by 30 October 2015. 87 By October 2015, there was minimal activity on the site and by early November 2015, all substantive work on the project had ceased. At a meeting on 5 November 2015, between representatives of Hakea and Denham, the representatives from Denham (which did not include Mr McGrath) disclosed, for the first time, that Denham had liquidity problems. In a later telephone conversation, Mr McGrath said to Mr Pardy that he had resolved the liquidity issues. 88 On 1 December 2015, Hakea issued a notice to show cause under the Building Contract, and that notice stated that Hakea had formed the view that Denham was no longer ready, willing and able to perform the building contract. Denham failed to show cause to the satisfaction of Hakea, and on 10 December 2015 Hakea issued a letter of termination under the building contract and terminated the contract. 89 Given the time of year, it was difficult for Hakea to contact builders to discuss working on the project. However, in the latter part of January 2016, Hakea engaged an alternative builder to complete the contract, and the project reached practical completion on 30 June 2016. 90 On 1 September 2016 the Supreme Court made an order that Denham be wound up. 91 The primary judge concluded that Denham was in severe financial distress as at 21 May 2015 and that Mr McGrath knew that fact. Further, the primary judge found that this financial distress was the substantial reason why work on the project was not progressing as quickly as it should have been. His Honour also concluded that, as at 21 May 2015, Denham was not in a financial position to complete the building work by 1 September 2015 (the then agreed date for practical completion) or in the reasonably foreseeable future, despite representations made by Mr McGrath to the contrary. His Honour found that, in terms of cl 39.11 of the building contract, Denham was, at that time, financially unable to proceed with the contract. The learned primary judge concluded that Mr McGrath knew the true state of Denham's severe financial distress as at 21 May 2015 and its inability, at that time, to complete the project in a timely fashion. 92 The primary judge went on to find that Mr McGrath deliberately did not disclose these facts to Hakea at that, or any later, time: at [184]. His Honour observed that, of all the directors of Hakea, Mr McGrath was uniquely placed to know Denham's financial position and its ability, from that perspective, to undertake and complete the work it was required to perform under the building contract. His Honour found that the fact that, as at 21 May 2015, Denham was suffering severe financial distress and unable to complete the project in a timely fashion was fundamentally important information which it was essential for Hakea to know. 93 Importantly, the learned primary judge found that there was no reason why Mr McGrath would not have disclosed this information to Hakea apart from, firstly, an awareness on his part, that such disclosure would jeopardise the continuation of the Building Contract and, secondly, a desire to keep that contract on foot in the hope that, somehow, Denham's financial circumstances would improve sufficiently to enable it, eventually, to complete the project: at [185]. His Honour found that Mr McGrath, as an experienced builder undertaking large projects of this kind, must have appreciated the real possibility that, if this information was disclosed, Hakea would look to the Building Contract and take such steps as were available to it to either terminate the contract or replace Denham as the builder. 94 His Honour concluded that, as a director of Hakea, Mr McGrath breached the duty imposed on him by s 180(1) of the Corporations Act by not disclosing, on or after 21 May 2015, that Denham was in severe financial distress and unable to complete the project in a timely fashion: at [186]. Section 180(1) provides that: A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. 95 The learned primary judge then found that, had Mr McGrath disclosed Denham's severe financial distress as at 21 May 2015 and its inability, at that time, to complete the project in a timely fashion, Hakea's Directors, on taking legal advice on Hakea's rights under the Building Contract, would have proceeded to take out of Denham's hands the remaining work to be performed. His Honour was satisfied that the directors would have acted promptly in this regard and that it was likely that a replacement builder would have been appointed within about one month (by about 22 June 2015) and that the project would have been completed within approximately six months thereafter (by about 22 December 2015): at [192]. It was accepted by Neon that Hakea had suffered loss as a result of Mr McGrath's breach of duty.

Relevant clauses in the Policy 96 The policy wording commences with the following statement appearing under the heading 'Management Liability Insurance Policy': This is a 'claims-made' insurance which covers only Claims notified to the Underwriters during the Period of Insurance … 97 The relevant insuring clause is: In consideration of the payment of the premium … and in reliance on the statements made and information contained within the Proposal Form and subject to the terms and conditions of this Insurance and after the exhaustion of all other indemnification available to the Directors or Officers or the Employees or the Company from any other source including any other policy of insurance, the Underwriters will: 1) Insuring Clauses a) Directors' and Officers' Liability pay on behalf of any Director or Officer Loss (other than Loss payable under any other Insuring Clause) arising from any Claim first made against them during the Period of Insurance or, if applicable, during the Discovery Period as specified in 4) Extensions b), and notified to the Underwriters in accordance with Section 6), Claims Conditions a), for any Wrongful Act committed by them in the capacity as a Director or Officer;… 98 Relevantly, the word Claim is defined as follows: a written notice received by a Director or Officer (or the Company in the case of Insuring Clauses c), d) or e) if applicable) for a demand for compensation or other relief from any party in respect of any actual or alleged Wrongful Act or Employment Wrongful Act or Fiduciary Wrongful Act;… 99 Relevantly, the word Loss is defined as follows: such sums which the Directors or Officers (or the Company in the case of Insuring Clauses c), d) or e)) are legally liable to pay as compensatory damages for any Wrongful Act, incurred by the Directors or Officers in connection with a Claim; … 100 Relevantly, the words Wrongful Act are defined as follows: any actual or alleged error, misstatement, misleading statement, omission, neglect, libel, slander, breach of duty, breach of trust or breach of warranty of authority by the Directors or Officers in the discharge of their duties as Directors or Officers or any matter claimed against them solely by reason of their being Directors or Officers of the Company. 101 The relevant exclusion clause appears in cl 5(a)(ii) as follows: The Underwriters shall not be liable for Loss in connection with any Claim: (a) based upon, consequent upon, by reason of, arising out of, arising from, directly or indirectly resulting from, attributable to, in any way involving or in connection with any: … (ii) 1) Director or Officer gaining any personal profit or advantage or receiving any remuneration to which he or she was not or is not legally entitled; 2) Director or Officer committing any dishonest or fraudulent act or omission or any wilful violation of law; provided that this exclusion shall only apply if such profit or advantage or remuneration or act or omission or wilful violation is established by admission or by a final and non-appealable adjudication in any proceedings or court or a tribunal …

Principles of construction 102 There was no significant dispute on appeal as to the applicable principles of construction. 103 The insuring clause and any exclusion clause must be read together in a harmonious way so that due effect is given to both, and the right conferred by the former is not negated or rendered nugatory by the construction adopted for the latter: Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2018] NSWCA 100; (2018) 359 ALR 314 at [54]; Woodlawn Capital Pty Ltd v Motor Vehicles Insurance Ltd [2016] NSWCA 28; (2016) 111 ACSR 377 at [133]; Impact Funding Solutions Ltd v AIG Europe Insurance Ltd [2016] UKSC 57; [2017] AC 73 at [7]; and see generally LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17; (2022) 290 FCR 435 at [56]-[57]. 104 In relation to the construction of exclusion clauses, such a clause is to be construed according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving weight to the context in which the clause appears including the nature and object of the contract and, where appropriate, construing the clause contra proferentem in case of ambiguity: Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510. That approach was held to be applicable to the construction of an exclusion clause in a contract of insurance in Selected Seeds Pty Ltd v QBEMM Pty Ltd [2010] HCA 37; (2010) 242 CLR 336 at [29]. 105 As to the contra proferentem rule, the rule is to be applied only as a last resort after the orthodox process of construction has failed to resolve an ambiguity; it is not a rule which may be applied to resolve 'any ambiguity': LCA Marrickville at [83]-[102], in which Derrington and Colvin JJ (with whom Moshinsky J agreed) thoroughly reviewed the authorities on the point.

The reasoning of the primary judge on the exclusion clause 106 The learned primary judge referred to the fundamental principle of English and Australian insurance law that, when determining whether a policy responds, the manner in which the claimant formulates its case against the insured is not determinative of the rights and liabilities of the parties to the insurance policy. Rather, the claim must be characterised as a matter of substance by its underlying facts and not the form in which the claimant has chosen to propound it: West Wake Price & Co v Ching [1957] 1 WLR 45 at 55 (Devlin J); Quintano v BW Rose Pty Ltd [2008] NSWSC 793 at [9] (Brereton J). That is a principle which applies equally to the application of the insuring clause and to any exclusion clause, and it is not in contest in this appeal. 107 His Honour found that there was a commonality of interest between Denham and Mr McGrath personally, observing that Denham was Mr McGrath's vehicle through which the benefit of the Building Contract was obtained and realised, and that as its sole director and shareholder, Mr McGrath had complete control over Denham. His Honour referred to Denham being Mr McGrath's creature: at [279]. His Honour reasoned that, as Mr McGrath's creature, Denham's interests and Mr McGrath's interests were one and the same in seeing the contract remain on foot. While the building contract remained on foot Denham was able to generate revenue from it, and Mr McGrath had complete control over that revenue because he had complete control over Denham. His Honour was satisfied that, by virtue of the control he exercised, Mr McGrath used Denham's funds, according to his wishes as if they were funds for his personal use: at [280]. His Honour stated that the commonality of interest between Mr McGrath and Denham in seeing the Building Contract remain on foot is not inconsistent with, and does not deny, the existence of their separate legal personalities: at [281]. 108 His Honour then stated that Mr McGrath's breach of duty under s 180(1) of the Corporations Act involved, as a matter of fact, Mr McGrath preferring his personal interests over his duties to Hakea, and obtaining an improper advantage for himself and for Denham, as Hakea itself had alleged in its breach of fiduciary duty case as pleaded in the amended commercial list statement: at [284]. 109 In concluding that the terms of the exclusion cl 5(a)(ii) were satisfied, the primary judge accepted Neon's contention that by his conduct giving rise to the claim on the policy, Mr McGrath gained a personal advantage to which he was not legally entitled, in the form of the Building Contract remaining on foot, which enabled Denham to earn a revenue stream which supplemented funds under Mr McGrath's control that could be, and were, used by him to pay, amongst other things, his personal expenses: at [288]. His Honour pointed out that it was of no moment that those funds were mixed funds. It should be noted that the primary judge was not making a finding that the money paid by Hakea to Denham could be traced into the payment of Mr McGrath's personal expenses. The finding was merely that it was the mixed fund which had been supplemented by the revenue stream from the Building Contract and which was used by Mr McGrath to pay, amongst other things, his personal expenses.

Submissions by the appellant 110 Hakea confined its ground of appeal to the meaning of the words in exclusion cl 5(a)(ii) 'gaining any personal profit or advantage … to which he or she was not or is not legally entitled'. Hakea submitted that these words have not received any authoritative treatment in Australia, and drew the Court's attention to a number of insurance cases decided in the United States relating to similar language. I deal with those cases separately below. 111 As to the meaning of 'advantage', Hakea submitted that the 'advantage' must be capable of being the subject of legal entitlement and adjudication, for example a monetary receipt, ownership or use of property, contractual right, or position (such as employment). As to the primary judge's reasoning that the continuation of the Building Contract and the associated continuation of the revenue stream under that contract was a personal advantage to which Mr McGrath was not legally entitled, Hakea submitted that his Honour erred, for two reasons. First, it contended that at the time of the receipts in question, the Building Contract was on foot, and accordingly Denham was legally entitled to the continuation of the Building Contract under the terms of that contract unless and until Hakea exercised its rights to terminate or suspend the contract, which did not occur. Second, Hakea submitted that the continuation of the Building Contract was not, in any event, an advantage to Mr McGrath, as he was not a party to the Building Contract, and any funds which he received were not shown to have been received by him without legal entitlement; that is, in the form of a dividend or salary paid to him by Denham. 112 Hakea criticised the reasoning of the primary judge as proceeding on the basis that all that is required by the exclusion clause is to prove that there was an act or omission by a director giving rise to a loss, and that but for the breach of duty constituted by that act or omission the gain made by the director would not have been obtained. In Hakea's submission, it is not sufficient merely to show that but for the breach of duty the director would not have received the advantage. Hakea submitted such an approach would lead to the exclusion clause swamping the insurance clause in many, if not most, cases of breach of duty by directors or officers.

Submissions by the respondent 113 Neon contended that the expression 'any personal … advantage' is broad and that an advantage does not need to be property or money or a chose in action. Neon submitted that an 'advantage' includes any thing or situation or result that advances or benefits the director or officer. 114 Neon submitted that the relevant advantage in the present case was the Building Contract remaining on foot when it would otherwise have been terminated by Hakea, together with its associated revenue stream, referring to the primary judge's reasoning at [288] of his Honour's judgment. Neon submitted that that was something which benefited Mr McGrath personally, as well as benefiting Denham, for the reasons given by the primary judge. Neon disclaimed a case based upon the money which Mr McGrath received in his own hands as being the relevant advantage, pointing out that the primary judge had expressly not decided the case in that way. 115 Neon submitted that the findings of fact made by the primary judge established a contravention of s 182(1) of the Corporations Act, which had the effect of prohibiting Mr McGrath from seeking the advantage which he obtained. Section 182(1) provides as follows: A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. 116 Neon submitted that the advantage obtained by Mr McGrath in the present case was not an 'incidental benefit' of the breach of s 180(1) but was the very object that Mr McGrath sought to achieve by his deliberate conduct constituting that breach. Neon submitted that it was not to the point that Denham had a contractual right to be paid under the contract for so long as it remained on foot. The relevant advantage was said by Neon to be Hakea not exercising its right of termination and replacing the builder when it would have done so if Mr McGrath had not deliberately withheld essential information. 117 I note that Neon emphasised its concession that the exclusion clause applied only to intentional or deliberate conduct and not to conduct which was inadvertent. Given that the primary judge found that Mr McGrath's conduct was intentional and deliberate, and there is no challenge to that finding of fact, it is not necessary to consider whether Neon's concession was correctly made, and I express no opinion on it.

Consideration 118 In relation to the proper construction of the words 'any personal … advantage', I see no reason to confine those words more narrowly than their ordinary and natural meaning. The words are capable of applying to any matter which makes the director or officer better off or improves his or her circumstances. Relevantly to the present case, the concept of 'personal advantage' is capable of including a commercial opportunity, even though such an opportunity would not be regarded as an item of property or a contractual right or a legal status. 119 The focus of Hakea's appeal, however, is on the words 'to which he or she was not or is not legally entitled'. It is these words which Hakea submits have been ignored in the reasoning of the primary judge. 120 There is potentially a number of different ways in which the insurer might be able to establish that these words of the exclusion have been satisfied, depending upon the facts of the case. In some cases, it may be possible to establish that the profit or advantage was one to which the director or officer was not legally entitled by showing that the relevant profit or advantage was liable to be disgorged, such as by the remedy of an account of profits or a constructive trust. That approach would focus on the lack of legal entitlement to retain a benefit once it had been received, and might be appropriate, for example, where the advantage takes the form of money or other property received in breach of fiduciary duty. That approach, however, would not ordinarily be appropriate where the advantage does not take the form of a species of property, or of a right affecting property, which in the language of Lord Wilberforce in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1247-1248, requires that the subject matter is a right or interest which is identifiable by third parties, capable in its nature of assumption by third parties, and has some degree of permanence or stability. It would not ordinarily be realistic to characterise a commercial opportunity in those terms. 121 Another way of establishing the absence of legal entitlement to a personal advantage would be to focus on whether the advantage in question is one which it is against the law for a director or officer to pursue in the circumstances. It is well established that the expressions 'to gain an advantage' and to 'cause detriment' as used in s 182(1) require proof that the relevant person had the purpose of gaining an advantage or causing detriment, but do not require proof that an advantage was in fact gained or that a detriment was in fact caused: Chew v The Queen (1992) 173 CLR 626. Neon submits that, in the present case, Mr McGrath was prohibited by s 182(1) from improperly using his position as director to gain an advantage for himself or for Denham, and if there is no legal entitlement to act with such a purpose, there can be no legal entitlement to succeed in actually achieving that wrongful purpose. Success in the endeavour compounds the wrong and cannot be viewed as a matter isolated from the wrong. 122 In my opinion, Neon's argument based on s 182(1) should be accepted. There is no doubt that Mr McGrath had the purpose of improperly gaining an advantage for Denham and for himself. The primary judge made findings which are not contested in this appeal that Mr McGrath deliberately did not disclose the true state of Denham's severe financial distress and its inability to complete the project in a timely fashion because of his awareness that such disclosure would jeopardise the continuation of the Building Contract, with actual knowledge of the real possibility that disclosure would lead to termination of the contract or replacement of the builder, and out of a desire to keep the contract on foot in the hope that Denham's financial circumstances would improve sufficiently to enable it to complete the project. That was an advantage both to Denham and to Mr McGrath. As the sole shareholder of Denham, Mr McGrath would benefit from any improvement in Denham's circumstances arising out of the continuation of the contract, and as the sole director he was in a position to control the disposition of Denham's funds, including for his own personal use. 123 In terms of the language of s 182(1), the only remaining question is whether it can be said that Mr McGrath, in engaging in that conduct, used his position as director. Hakea submits that that is the integer of s 182(1) which is not established, contending that the word 'use' in s 182(1) requires that there be a positive act rather than a mere omission to act, and also requires that the positive act be in the capacity as director of the company. There does not appear to be any case which expressly deals with the meaning of 'use their position' in s 182(1). While the 'use' of position must be in the person's capacity as 'director, secretary, other officer or employee of a corporation,' it is not necessary in the present case to decide whether 'use' is confined to positive acts, as distinct from omissions. The factual findings made by the learned primary judge concerning McGrath's failure to disclose the true financial distress of Denham and its inability to perform the contract in a timely fashion involved not only omissions to speak, but also positive misrepresentations. While there may be some contest as to the capacity in which Mr McGrath was acting on some of those occasions, I have referred above to the meeting of Hakea's directors which took place on 27 August 2015 in which Mr McGrath misrepresented Denham's ability to meet the then program of works. Even if one treats that statement as a representation as to having reasonable grounds for an opinion, the primary judge's findings as to Mr McGrath's actual knowledge from 21 May 2015 undermine any suggestion that Mr McGrath had such reasonable grounds. There can be no real doubt that Mr McGrath was acting at that time as a director of Hakea, and used his position as a director in making those misrepresentations. 124 Although the learned primary judge did not expressly refer to Mr McGrath having contravened s 182(1), his Honour's findings established all the elements of that provision. The respondent did not submit that Neon's argument as to a contravention of s 182(1) was not open to it. I do not read the proviso to exclusion cl 5(a)(ii) as requiring that the 'final and non-appealable adjudication' must specify the precise provision which demonstrates the absence of legal entitlement, provided that the adjudication has, on the basis of sufficient findings of fact, concluded that the director or officer has gained a personal profit or advantage or received remuneration to which he or she is not legally entitled. 125 Even if Mr McGrath had not contravened s 182(1), and his only breach of duty was the breach found by the primary judge of s 180(1), I would still conclude that the exclusion had been satisfied. Contrary to Hakea's submissions, this is not a mere case where, but for the wrongful act, the personal advantage to the director would not have been conferred. Rather, the primary judge found at [185] that the very reason why Mr McGrath engaged in the conduct in breach of s 180(1) in not disclosing on or after 21 May 2015 that Denham was in severe financial distress and unable to complete the project in a timely fashion, was his purpose of keeping the Building Contract on foot rather than facing the risk that disclosure would jeopardise the continuation of that contract. Keeping the Building Contract on foot in turn enabled Denham to earn a revenue stream that supplemented funds under Mr McGrath's control that could be, and were, used by him to pay, amongst other things, his personal expenses. In those circumstances, the personal advantage to Mr McGrath was not merely a consequence of the wrongful conduct in a sequential chain of cause and effect, but was the very object which the wrongful conduct was intentionally designed to produce. The personal advantage here, in the particular circumstances of this case, was a fundamental and inseparable part of the factual matrix constituting the wrongful act which had led to the loss for which Hakea was claiming, in that the personal advantage was the very reason for, and purpose of, the wrongful act. It cannot be said that a director obtaining a personal advantage in this way by breaching his duties as a director gained an advantage to which he was legally entitled. 126 I am not persuaded by Hakea's argument that the construction and application of the personal profit or advantage exclusion which I have adopted in the circumstances of the present case would have the result of swamping the insuring clause and giving it little or no practical operation. Many cases of breach of directors' duties do not involve any personal benefit to the directors, particularly cases concerning the duties of due care and diligence under s 180(1). It may well be that cases involving a contravention of s 182(1) where the purpose is for the director or officer to gain an advantage personally will typically engage the exclusion, but that is no more than the consequence of the language in which the bargain struck between the parties has been expressed. 127 Hakea's argument that Denham was legally entitled to the continuation of the Building Contract under its terms until Hakea had exercised its right to terminate or suspend that contract is no answer to the operation of the exclusion clause. The exclusion clause is concerned with a director or officer gaining any personal profit or advantage to which he or she was not or is not legally entitled. It is not directed to the question of what legal entitlements might be held by other parties, such as companies controlled by that director or officer. Where the conduct of the director or officer has wrongfully conferred an advantage on such a company, which also constitutes a factual and commercial advantage to the director or officer personally, it is beside the point that the company's legal rights might have remained on foot. 128 I also reject the contention by Hakea that the continuation of the Building Contract could not be an advantage to Mr McGrath because he was not a party to that contract. The question of profit or advantage is a factual one, and there is no reason why the sole shareholder of a company which has enjoyed the continuation of such a contract and its revenue stream is not benefited as a matter of fact when the company itself has been benefited.

The United States cases 129 As I indicated above, in the absence of Australian authority concerning an exclusion clause like the present one, Hakea took the Court to a number of United States cases dealing with similar clauses. 130 In Alstrin v St Paul Mercury Insurance Co 179 F.Supp. 2d 376 (2002) allegations were made of false and misleading financial statements by a parent company which inflated the assets and earnings of one of the company's subsidiaries and caused the parent company's shareholders to vote in favour of a corporate restructuring, which spun off other valuable subsidiaries into the hands of certain of the company's directors and left the 'virtually worthless' subsidiary remaining with the parent company. An exclusion in the directors and officers insurance policy excluded claims 'arising out of, based upon or attributable to the gaining in fact of any profit or advantage to which an insured was not legally entitled'. The Court held that the allegations in relation to false or misleading disclosures by the parent company were not caught by the personal profit exclusion, despite the fact that certain of the parent company's directors had gained an advantage from the conduct. The usefulness of the case in the Australian context is very limited. In the first place, the reasoning of the Court proceeds on the basis that where any ambiguity exists in a contract of insurance, then the ambiguity is generally resolved in favour of the insured and against the insurer (see page 389). This is the point which the High Court of Australia said in Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 at [46], footnote 21 was a reason to treat United States decisions in this area with caution. I have referred above to the position in Australian law that the contra proferentem rule is to be applied only as a last resort after orthodox principles of construction have failed to resolve an ambiguity. Second, the Court's reasoning is focused on the way in which the allegations were couched in the pleading, and in particular the absence of any pleading alleging that the profit or gain was illegal (see pages 398-399). Such an approach is at odds with the principle derived from West Wake, referred to above. Third, the connecting words in the policy in Alstrin, 'arising out of, based upon, or attributable to', differ from the connecting language in the present Policy, which includes the broader words 'in any way involving, or in connection with'. 131 The conclusion in Alstrin was that the exclusion clause was not applicable to wrongful acts in relation to which a private gain might be incidental. It is not necessary to consider in the present appeal whether that would be a correct construction of the exclusion clause in the Policy, given that the relevant advantage in the present case was not merely incidental but was the very reason for, and purpose of, the wrongful act which had caused loss leading to the claim. 132 In Brown & Lacounte LLP v Westport Insurance Corporation 307 F.3d 660 (2002), the clause in question similarly provided that the policy did not apply to any claim based upon, arising out of or attributable to or directly or indirectly resulting from any insured having gained in fact any personal profit or advantage to which he or she was not legally entitled. Again, the reasoning of the Court is focused on the way in which the allegations were couched in the pleadings, and in that case there was a clear allegation that the relevant director had reaped an illegal profit. In contrast to the West Wake principle, that was treated by the Court as conclusive on the question whether the exclusion clause was satisfied, for the purpose of deciding whether the insurer had a duty to defend the proceedings. 133 In Nicholls v Zurich American Insurance Group 244 F.Supp 2d 1144 (2003), the Court found that the relevant personal profit exclusion (expressed in substantially the same terms as in Alstrin and Brown & Lacounte) was engaged where the directors and officers engaged in a sham stock transaction which enabled them to receive a substantial amount of money which investors believed was being invested in the issuing entity. While that is an unsurprising outcome, the reasoning again focuses on the way in which allegations were couched in the pleading, which, as I have discussed, is a departure from the principle applicable in Australia. 134 In Wintermute v Kansas Bankers Surety Co 630 F.3d 1063(2011), the Court held that an exclusion clause excluding liability for any claim based upon or attributable to the director gaining in fact any personal profit or advantage for which he or she was not legally entitled, was not satisfied in circumstances where the facts alleged against the insured did not unequivocally assert that the insured illegally gained a personal profit. Again, the focus is on the way in which the pleading was couched rather than the substance of the underlying facts. Further, the connecting words 'based upon or attributable to' are narrower than those used in the Policy in the present case. 135 In Jarvis Christian College v National Union Fire Insurance Company of Pittsburgh, Pennsylvania 197 F.3d 742 (1999) at 749, the Court of Appeals held, unsurprisingly, that when a corporate director or officer fraudulently diverts assets of the corporation to his or her own use, he or she is not legally entitled to the funds, and accordingly, the 'personal profit or advantage' exclusion is engaged. It should be noted that the relevant officer in that case was the 49% shareholder of the company which, as a matter of law, received the advantage, and was treated as having gained a personal advantage himself (at 748). Further, the Court rejected an argument that in order to gain an advantage in fact, one necessarily has to make a tangible profit, noting that the word 'advantage' is broader than 'profit', and includes an opportunity to make a profit (at 748-749). The Court also held (at 749) that the expression 'not legally entitled' is not synonymous with 'illegal', in that 'illegal' involves a greater degree of misconduct. 136 While I am indebted to counsel for their researches of the US case-law, I do not find the reasoning in those cases, except for Jarvis Christian College, to be of any significant utility, as they apply different principles of law to differently worded clauses. Jarvis Christian College is useful in recognising that the term 'advantage' is capable of including a commercial opportunity, and also in recognising that a 49% shareholder in a company gains an advantage when the party directly benefited is the company itself. The position of Mr McGrath as the sole shareholder in Hakea is a fortiori.

Neon's Notice of Contention: Whether a claim was first made against Hakea during the period of insurance 137 I have had the advantage of reading a draft of the judgment Colvin and Button JJ and respectfully agree with the reasons expressed by their Honours for concluding that the Notice of Contention should be dismissed.

Conclusion 138 Accordingly, the appeal should be dismissed. I agree with the orders proposed by Colvin and Button JJ in relation to written submissions on the question of costs. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.

Companies Act 1958(Vic)

Companies Act 1961(Vic)

Corporations Act 2001(Cth)ss 180, 182, 459E

up Ltd (Unreported, NSWCA, 15 November 1995) Weir Services Australia Pty Ltd v AXA Corporate Solutions Assurance [2018] NSWCA 100; (2018) 359 ALR 314 West Wake Price & Co v Ching [1957] 1 WLR 45 Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559 Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 Wintermute v Kansas Bankers Surety Co 630 F.3d 1063(2011) Woodlawn Capital Pty Ltd v Motor Vehicles Insurance Ltd [2016] NSWCA 28; (2016) 111 ACSR 377

COLVIN AND BUTTON JJ: 1 We have had the considerable benefit of reading, in draft, Jackman J's reasons concerning Hakea's Notice of Appeal. We are indebted to his Honour for setting out the background, factual findings made by the primary judge, relevant clauses in the policy, principles of construction, reasoning of the primary judge on the exclusion clause, the parties' submissions and analysis of the United States case law relied on by Hakea, and do not repeat those matters. We also use the terms defined in Jackman J's reasons, and capitalise terms defined in the policy. 2 We agree with Jackman J's analysis as to the existence of the relevant personal advantage on the part of Mr McGrath. As his Honour sets out, there is no reason to limit the scope of the words 'any personal … advantage'; the expression is sufficiently broad to embrace a commercial opportunity. It is also sufficiently broad to encompass the avoidance of a negative commercial event, such as the risk of cancellation of a contract held by a wholly owned and controlled subsidiary like Denham. Like Jackman J, we do not consider that the primary judge erred in identifying the relevant personal advantage as keeping the contract on foot: at [278], [288]. That which Mr McGrath was enabled to do - namely use Denham's funds for, inter alia, personal expenses - ought not be confused with the personal advantage which the primary judge accepted. It follows that, in our view, insofar as the appellant's arguments addressed the lack of an explanation as to why Mr McGrath was not entitled to revenues once the funds were in Denham's hands, those arguments were misdirected and do not reveal error in the primary judge's approach. 3 By its terms, the exclusion clause is only engaged where there is Loss in connection with a Claim (relevantly) in any way 'involving, or in connection with' a director gaining any personal advantage to which he or she was not or is not legally entitled, but only where the advantage has been 'established by admission or by a final and non-appealable adjudication in any proceedings or court of a tribunal'. We agree with Jackman J that, in order for the proviso concerning final adjudication to apply, it is not necessary for the finder of fact to have stated any conclusion as to the exact basis for the lack of legal entitlement, provided that the facts as found establish the existence of a personal advantage, and enable that advantage to be characterised as one with the necessary nexus to the Claim and as one to which the director was not legally entitled. This is consistent with the focus on matters of substance (as distinct from pleaded causes of action) in accordance with the principle in West Wake Price & Co v Ching [1957] 1 WLR 45. 4 While this allows for the potential to conclude, as Jackman J has, that the necessary lack of legal entitlement may be found elsewhere than in the contravention of s 180(1) of the Corporations Act 2001 (Cth) (which breach the primary judge found), we consider that the appeal ought to be resolved without reaching the further conclusion that the lack of legal entitlement is founded in a contravention of s 182(1) of the Corporations Act. As to s 180(1), once the personal advantage is identified as the advantage obtained by Mr McGrath by the continuation of the building contract, and where that advantage was obtained by Mr McGrath deliberately withholding information from Hakea in breach of his duties under s 180(1), it follows that the advantage was a personal one to which Mr McGrath was not legally entitled. 5 We turn, then, to consider whether, as Neon contended, the exclusion clause applied based on a contravention of s 182(1). 6 Section 182 provides: Use of position - civil obligations Use of position - directors, other officers and employees (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. 7 There is (perhaps surprisingly) little authority on s 182(1) and, in particular, on what is required in order to conclude that a director has 'use[d] their position' to gain a relevant advantage or cause detriment to the company. The Explanatory Memorandum accompanying the Bill introducing a predecessor provision (s 229(4)) into the Companies Act 1981 (Cth) is typically brief, but made the point that use-based prohibitions were being broadened so that the legislation not only prohibited the improper use of information acquired by virtue of an officer or employee's position, but also improper use of the officer or employee's 'position as such' (Explanatory Memorandum to the Companies Bill 1981 (Cth) at [552]). Prior to 1981, State-based companies' legislation only contained specific use of information (cf. use of position) prohibitions (see, e.g., s 107(2) of the Companies Act 1958 (Vic), followed by s 124(2) of the Companies Act 1961 (Vic)). 8 What is clear is that s 182(1) will not have been contravened unless (relevantly) the director 'use[d] their position' to gain a relevant advantage or cause detriment to the company. In setting out the relevant elements of a breach s 232(6) of the Corporations Law - which was the immediate predecessor provision to s 182(1) of the Corporations Act - the Full Court of the Supreme Court of Western Australia (McLure J, with whom Wheeler and Jenkins JJ agreed) set out the relevant elements of s 232(6) as follows in Doyle v Australian Securities and Investments Commission [2005] WASCA 17 at [72]: Thus, in order to breach s 232(6) [of the Corporations Law] the following elements have to be established: (1) the defendant was at the relevant time an officer or employee of a corporation; (2) he used his position as such officer or employee; (3) his use of his position was improper; (4) he made that improper use for the purpose of gaining, directly or indirectly, an advantage, alternatively he made that improper use for the purpose of causing detriment; (5) the advantage was either for himself or for another person, alternatively, the detriment was to the corporation. (emphasis added) An appeal against this decision was dismissed by the High Court in Doyle v Australian Securities and Investments Commission [2005] HCA 78; (2005) 227 CLR 18. 9 In concluding that there has been a contravention of s 232(6) of the Corporations Law, or s 182(1) of the current Corporations Act, it is necessary to conclude that the director, officer or employee 'used' the position he or she held as such a director, officer or employee. Lewis v Nortex Pty Ltd (in liq) [2004] NSWSC 1143 is an example of a case where the actions of a company director - having a second company he controlled issue a statutory demand on the first company, and by withdrawing a personal guarantee - were not undertaken by the director in exercising powers or carrying out his duties as a director of the company in question, even though they directly affected the first company and its operations; rather, those actions were taken in his personal capacity, or in his capacity as a director of the second company: at [189]-[191]. 10 These matters are, in our view, relevant in considering whether the primary judge's findings of fact provide a sufficient foundation for a conclusion that Mr McGrath contravened s 182(1). In particular, to explain our reservations about characterising Mr McGrath's conduct in making the statements at the board meeting on 27 August 2015 as improperly using his position as a director of Hakea, it is necessary to situate that meeting in the context of other factual findings and the way the case was put to the primary judge. 11 Mr McGrath was the sole director, shareholder, secretary and general manager of Denham, the builder which contracted with Hakea to design and complete the building project. Mr McGrath was appointed to the board of Hakea as the nominee of Hakea's financier, Stevden Properties Pty Limited (Stevden), which had a right to appoint a director pursuant to a shareholders agreement: at [22], [25]. Mr McGrath was the sole director and shareholder of Stevden. 12 As the primary judge set out in his findings of fact, the lack of progress on the site was reported by Slattery (the quantity surveyor) from October 2014. Concerns about the lack of progress were repeated thereafter in periodic progress reports. On 6 May 2015, Mr Barry (the project manager and Superintendent under the building contract) received a Notice of Delay from Denham under the building contract for a period of 94 days. The notice was issued by Denham, and stipulated a cause for delay: at [59]. Mr Pardy (Hakea's chairman and one of its directors) became increasingly concerned throughout May 2015 and sent an email to Mr McGrath regarding the revised date for practical completion on 20 May 2015: at [60]. Mr McGrath and Mr Pardy discussed the email and Mr McGrath replied by email on 21 May 2015 (but made no mention of Denham's financial difficulties): at [61]-[63]. 13 Despite an increase in activity on the site in June 2015, progress slowed again, and Mr McGrath (by email to Mr Barry on 23 July 2015, copied to Mr Pardy and others) sought a meeting to discuss the program of works and risks to the project. That meeting occurred on 30 July 2015 and was attended by Mr Pardy and another of Hakea's directors (Mr Di Losa) on behalf of Hakea: at [72]. Mr McGrath and another individual attended on behalf of Denham: at [72]. The causes of delays on the site were discussed and a revised program of works was tabled, with a date for practical completion of 17 November 2015: at [75]. The primary judge recorded, in relation to the completion date, that '[w]hen asked whether the revised date of 17 November 2015 could be met, Mr McGrath said that it could. Mr Pardy expressed his preference for a completion date of 30 October 2015': at [75]. 14 Mr McGrath then followed up on the meeting in an email to Mr Pardy on 3 August 2015. No reference was made to Denham's financial difficulties. 15 It was following those events, which involved engagement between Hakea and Denham (through Mr McGrath), that the board meeting of Hakea occurred on 27 August 2015. The primary judge's findings concerning this meeting are very limited and reflect the fact that the case run was an 'omissions' case, notwithstanding the pleading of misrepresentations and an allegation of contravention of s 182(1). In this context, the primary judge found as follows at [77]: On 27 August 2015, at a meeting of Hakea's directors, Mr McGrath said: Denham will meet the current program. Hakea should be able to commence its fit out by 30 October 2015. 16 While the primary judge did not need to further consider this meeting (for reasons just mentioned), the submissions made by Hakea refer to Mr McGrath's Commercial List Response admitting what he said that at the board meeting, but adding a caveat, namely that it was 'conditional on' receiving responses from the Superintendent to Notices of Delay. As noted, a Notice of Delay had been issued by Denham in May 2015. 17 The narrative set out by the primary judge goes on to refer to further email correspondence involving Mr McGrath, Mr Pardy and others, as well as a telephone conversation between Mr Pardy and Mr McGrath on 27 October 2015. This then culminated in Mr Pardy calling on a meeting with representatives of Denham on 5 November 2015 (at [81]), and further discussing Denham's liquidity with Mr McGrath on 11 November 2015: at [86]. 18 Two short points arise from this narrative. The first is that the meeting on 27 August 2015 occurred in the midst of an ongoing dialogue between Hakea and Denham (through Mr McGrath) concerning progress on the project. While the meeting of the board of Hakea on 27 August 2015 was clearly the occasion on which Mr McGrath made the statements in question (and which Jackman J has found constituted improper use of his position as a director of Hakea), without further findings of fact, we are not willing to conclude that those statements were made by Mr McGrath in his capacity as a director of Hakea. 19 The second is that, even if the statement was made as a director by reason that it was made by Mr McGrath during his attendance at the meeting of directors of Hakea in that capacity, the statement must also have been made for the requisite purpose of gaining an advantage for the director or someone else. By reason of the way the case was run before the primary judge, this aspect was not in view below and therefore was not the subject of factual findings. Whilst the personal advantage relied upon for the purposes of the exclusion may have been the purpose of the statement at the directors meeting on 27 August 2015 and it may have been sufficient to meet the requirements of s 182(1), those matters were not addressed before the primary judge. 20 On the current state of some of the authorities (see, e.g., Simar Transit Mixers Pty Ltd (in liq) v Baryczka (1998) 28 ACSR 238, cited in Australian Securities and Investments Commission v Adler [2002] NSWSC 171 at [458] (Santow J); and Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 57 NSWLR 559 at [157] (Hodgson, Ipp and Tobias JJA)) we do not rule out the possibility that contraventions of s 182(1) may arise from omissions (as distinct from positive acts). Nevertheless, in view of the limited findings of fact available, the lack of submissions on the point both below and on appeal, and our conclusion that the exclusion clause applies by the lack of legal entitlement arising from the contravention of s 180(1), we are not persuaded that it is necessary or appropriate to reach a view as to whether s 182(1) provides a separate basis for the application of the exclusion. 21 Given the definition of Loss, we would also reserve for another occasion consideration of whether the policy would respond at all, and how the exclusion might apply, where the remedy sought against a director is disgorgement (cf. where the claim advanced against a director seeks compensatory damages). We otherwise agree with Jackman J's analysis.

Consideration 46 We reject the contention that the primary judge erred in concluding that a Claim was made against Mr McGrath during the relevant Period of Insurance. 47 Determination of whether a Claim was made during the Period of Insurance involves applying the relevant provisions of the policy, correctly construed, to the facts of this case. Those facts were (at least on appeal) uncontroversial. The asserted email address was an operational email account. There was no malfunction of the account. Nor was there any email 'bounce back' or delivery failure notification. While the evidence was rather scant, it did show that Mr McGrath received and responded to an email sent to him at the asserted email address by Denham's liquidator within five days. There was no evidence as to when Mr McGrath became aware of, or read, the 20 January 2017 email and attached letter. 48 The policy defines a Claim as a 'written notice received' that has certain characteristics (a demand for compensation, etc.). By its specificity, the definition of Claim provides a more useful starting point for the analysis than does the requirement in the Insuring Clause that the Claim be 'made'. Where there is a written notice that satisfies the definition of Claim, a Claim will have been made. Neon did not contend otherwise. 49 The primary judge set out the relevant principles governing the construction of insurance contracts at [209]-[217] of his Honour's Reasons. No issue was taken with that summary on appeal. While repetition may make the observation trite, it is the words of the policy that are paramount. Particular terms of the policy are to be construed according to their natural and ordinary meaning, read in light of the contract as a whole, and having regard, where relevant and admissible, to surrounding circumstances within the scope of that expression in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352 (Mason J). The language used in written commercial instruments, including policies of insurance, is to be interpreted from the perspective of a reasonable businessperson in the position of the parties. 50 In the present case, no issue arises as to the role of surrounding circumstances. Both parties advanced their submissions wholly by reference to the terms of the policy, although Neon drew on what it suggested was a practice of such policies being rolled over from year to year. 51 The definition of the word 'Claim' requires that the written notice has been 'received'; it says nothing about the insured having read, let alone read and absorbed the content of, the written communication. Yet, on Neon's construction, the recipient must have been consciously aware of the content and character of the written demand in order for it to have been 'received'. Unless 'received' is construed as incorporating this element of subjective appreciation, it is difficult to know what purpose mere awareness of the existence of the written notice might serve over and above what is achieved by mere delivery of the written demand, as in the former circumstance, the insured is no more aware of what is being claimed and on what basis, than an insured who has had delivery of, but not read, a written demand. 52 In our view, when used in the policy to denote a written notice that has the characteristic of having been 'received', the natural and ordinary meaning of the word 'received' does not require more than that the written notice has been provided to the director in the sense of being put into his or her possession. It does not require that the insured have read and absorbed or understood that the written demand asserts an entitlement to compensation on a specified basis. 53 That is so notwithstanding that, when approached in the abstract, and divorced from context, the word 'received' is a word of considerable semantic breadth. Here, however, the word 'received', being the past participle of 'receive', is used to refer specifically to the status of the written notice in question. It is a tangible thing that must have been received (whether in hard copy or electronically), and not something more ephemeral, in respect of which usage of the term may have a meaning that connotes awareness and comprehension of that which is received. Further, the definition does not refer to written notice of a demand. Nor does it suggest that the term notice is being used in the sense of notification of the content of the written notice. 54 Approaching the definition of Claim in the context of the policy as a whole - including its character as a claims made and notified policy, and having regard to the notification requirements imposed by Condition 6(a) - there is simply no basis to read in (whether by implying words, or by dint of construction) a requirement that the written notice have been 'knowingly received' or 'received to the knowledge of the director'. 55 We do not accept Neon's argument that the notification provisions in Condition 6(a) tend to the contrary result. It is clear that the policy wording discloses an intention by the parties that the insurer not be liable for Claims of which it has not been notified during the Period of Insurance. The interest of an insurer in not being liable for claims, of which it had no knowledge during the period of insurance, for what may be an extended period of time, is obvious. As junior counsel for Hakea observed, insureds also benefit (through premium setting) from insurers being in a position to better assess their risk portfolio and avoid 'long-tail' risks (as also discussed by Osborn J in King v McKean & Park [2002] VSC 350; (2002) 12 ANZ Ins Cas 61-534 at [3]). As we have already noted, it was accepted that the notification of the insurers by Hakea was effective to put them on notice of the Claim. 56 Condition 6(a) obliges the insured to notify the insurer of any Claims. However, the imposition of notification obligations on the insured does not mean that the definition of Claim is to be construed so that it is confined to a written notice which actually comes to the insured's attention. In order for the insurers to be liable to indemnify Mr McGrath (subject to any exclusions), it was necessary for Hakea to establish both that a Claim was made against Mr McGrath within the stipulated period of time, and that the insurers were notified. As such, indemnity was subject to two conditions. The usual course by which the second (notification) condition will be satisfied does not dictate the construction of the term Claim in the first condition. 57 Further, Condition 6(a) provides that notification may be made to the insurers (relevantly) within 30 days of the end of the Period of Insurance. The allowance of a substantial period of time after a Claim has been made in which the insurers may be notified also, in our view, supports a construction whereby a 'Claim' may have been made at a point in time before the insured has troubled to read it. The significance of the contractual notification requirements must also be approached in light of, but is limited by, the ameliorating effect of s 54 of the Insurance Contracts Act 1984 (Cth) on any failure of an insured to notify the insurers within the required time: FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; (2001) 204 CLR 641 at [64] (Kirby J). 58 Although the insuring clause makes reference to a 'Claim first made' during the Period of Insurance, 'and notified to the Underwriters in accordance with Section 6', the contextual operation of s 54 of the Insurance Contracts Act and the allowance of the grace period for notification of the insurers pursuant to Condition 6(a) mean that the object of certainty in the practical operation of the policy is best served by certainty as to when a claim was made, not whether the claim was made and known to the insured. Rather, and as Hakea submitted, a construction of the policy which sees the basal question of whether or not a Claim was made in the Period of Insurance turn on the idiosyncratic correspondence practices and comprehension of the insured is inimical to the certainty which rational businesspeople would seek to achieve by their contract. A reasonable businessperson, aware of the evident commercial purpose to be served by the definition of Claim and the claims made character of the policy as described in the recital, would favour the objective certainty of receipt of the written claim in the sense of its delivery to the insured (a point in time likely to be able to be ascertained by objective evidence) over receipt in the sense of the content of the notice passing into the mind of the insured (a point in time dependent upon evidence of the insured's state of mind and capable of conceptual uncertainty as to precisely what must be known about the contents of the written notice). 59 For these reasons, Neon's observation that 'one cannot notify a claim of which one is not aware' does not support the contention that the primary judge erred in rejecting its argument that actual knowledge of the claim is required. 60 There is a further point to notice: the relevant insuring clause refers to a 'Claim first made' during the Period of Insurance. While the dispute before us relates to the first component of the defined term, the definition of Claim also includes 'an Inquiry which is evidenced by a notice requiring the Director or Officer to attend or to cooperate with which is first served during the Period of Insurance …'. Service does not require that the content of the notice must come to the attention of the person being served. This provides further support for a construction of the first part of the definition of 'Claim' as applying to the completion of delivery, noting again that Neon did not contend that any distinction arose between when a Claim will have been 'made' (as referred to in the Insuring Clause) and a written demand will have been 'received' (as referred to in the definition of Claim). 61 As already mentioned, Neon sought to draw some support from the general nature of the policy as a claims made and notified policy by relying on a number of cases which concerned claims made policies. However, those cases also do not assist or suggest error. As Hakea submitted, the cases in question all involved different issues in relation to policies with different wording. 62 The primary judge stated that Triden and Drayton do not stand for the proposition that a Claim was only made once Mr McGrath had read the 20 January 2017 email and its attachment, and understood that a Claim was being made against him: at [254]. Neon, rightly, did not cavil with that observation. 63 As the primary judge observed, those cases were concerned with the content of a communication and whether the communication would be understood as a 'claim', whereas, in the present case, the insurer did not contend that the email of 20 January 2017 and its attachment would not be understood as a written notice of the requisite kind, the only issue being whether it was 'made (i.e., received) within the relevant period'. We see no error in the primary judge's approach. 64 In Drayton, Sackville J referred to Triden and Sheller JA's application of observations made by the Ontario Court of Appeal in Re St Paul. In Re St Paul, a firm of solicitors had two policies of insurance, coming into force on different dates. The first (St Paul) policy insured against 'claims made or suits brought', and the later (Guardian) policy insured against 'claims made'. Writs were issued on 10 September 1970, during the currency of the St Paul policy, but not served, the underlying dispute having been settled. Guardian denied that it was under any liability in respect of the settlement moneys on the basis that the writs were issued before its policy came into force. Thorson JA (with whom Houlden JA agreed) said (at 357) that the words 'claims made' in the Guardian policy: ought to be construed in accordance with the ordinary plain meaning of those words, which, simply stated, denote a claim that 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. The claim had not been 'made' until some time after 1 January 1971, when the Guardian policy came into effect. 65 On its facts, all that Re St Paul relevantly establishes is that writs that were issued but not served did not constitute claims that had been 'made' against the insured under the terms of the Guardian policy. It says nothing of whether, on the language of the policy before us, a written notice must be read before it will have been 'received', and a Claim 'made'. Nor does the case reveal anything so fundamental about the nature of claims made and notified policies as to affect the proper construction of the language used in the policy at hand. 66 The decisions in Triden and Drayton are likewise not instructive as to the present issue. 67 The observations of Thorson JA in Re St Paul extracted above were quoted with approval by Sheller JA in Triden, whose observations were in turn referred to by Sackville J in Drayton. 68 In Triden, Sheller JA was considering whether a particular letter constituted a 'claim'. It was the content of the letter, read in the context of the common understanding of the parties, that was in issue, not whether or when the recipient of the relevant letter read it. In Drayton, Sackville J referred to the claims in a draft summons concerning the liability of Mr Martin in considering whether a claim had been made against Mr Martin. Sackville J said at 24 that '[t]he substance of the claim was brought home to Mr Martin'. In other words, it was the elucidation of the claims in the draft summons that 'brought home' the claim against Mr Martin; that conclusion did not require consideration of whether or when Mr Martin read the draft summons. Moreover, the issue relevantly at hand in Drayton was whether the contents of the covering letter by which the summons was provided meant it did not articulate a claim, but merely conveyed the exploration of rights (an argument which Sackville J rejected). 69 Neon further relied on the decision of Osborne J in King. In King, the plaintiff issued a writ against an insured barrister on 19 May 1999, but did not serve the writ until 17 May 2000, outside the policy period. Osborne J held that the mere issue of the writ during the policy period did not amount to a claim having been made against the insured at that time. His Honour cited, amongst other cases, Re St Paul, and reasoned that, in order for a claim to have been 'made' for the purposes of the claims made and notified policy, the claim must have been communicated so that it could be notified by the insured to the insurer. 70 To conclude that a claim has not been made when it has not been communicated to the insured at all (meaning that the insured could not notify the insurer) in no way supports a conclusion that a claim has not been made where the claim has been provided to the insured, but the insured does not read the communication. There is nothing in King, or Re St Paul, that supports the construction urged on us by Neon arising from the character of the policy as a claims made and notified policy. 71 Moreover, while claims made and notified policies may share key features, when described at a broad level, it is axiomatic that particular terms of any policy are to be construed according to the language used and the contractual context of that policy. Here, the terms of the policy before us define the term Claim as a written notice that has been 'received'. The policies under consideration in the cases relied on by Neon were not in the same terms. 72 In our view, the relevant terms of the policy are clear and unambiguous. The primary judge was correct to conclude that the written demand made on Mr McGrath by the email of 20 January 2017 was a Claim made by Hakea within the Period of Insurance, without the need for Hakea to prove that Mr McGrath read and absorbed it. This conclusion does not rely on recourse to the presumptions set out in the Evidence Act and it is not necessary to consider further whether the primary judge's reference to those presumptions involved error. Even if it did, any such error would not affect the outcome of this appeal. Nor does rejecting the construction for which Neon contended lead to commercially absurd or inconvenient results. Contrary to the submission Neon put, an insured is not advantaged by a construction of the policy which could see the insured lose the benefit of indemnity by reason of having failed to read correspondence. On the contrary, Neon's preferred construction would deprive the insured of indemnity even if the insurers were notified by another person (as occurred here), or s 54 of the Insurance Contracts Act applied so that the insurer could not deny indemnity based on a failure to meet contractual time stipulations for notification. 73 It is not necessary to consider the respondent's alternative argument (referred to above at [45]). The primary judge did not conclude that Mr McGrath subjectively did become aware of the email of 20 January 2017 before 4.00 pm on 23 January 2017. Rather, the primary judge's analysis rested on the conclusion that it was not necessary, in order for a Claim to exist and have been made, for the appellant to do more than show that the 20 January 2017 email was received in a functioning email mailbox controlled by Mr McGrath. 74 For these reasons, we do not uphold the Notice of Contention.

At a glance

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