HIH Casualty & General Insurance Australia Ltd v DellaVedova

Federal Court of Australia|1999-04-15|Before: Cooper J, John J, Mansfield JJ

THE COURT: 1 This is an appeal from a judgment of a judge of this Court (Cooper J) declaring the respondents to be entitled to be indemnified by the appellants under a contract of insurance described as "Accountants' Professional Indemnity Insurance Certificate of Insurance" ("the Certificate") in which the appellants were the insurers and the respondents "the Assured". The period of insurance under the Certificate was from 1 January 1994 to 31 December 1994. The insurance risk was underwritten by the first appellant as to 90 per cent and by the second appellant as to 10 per cent. 2 The insurance provided under the Certificate was a standard contract of insurance offered by insurance underwriters through insurance brokers Minet Professional Services Limited ("Minet") as a scheme of professional indemnity insurance described as the "Minet Accountants' Group Scheme" ("the scheme"). The scheme was available to members of organisations formed by, and for, persons practising the profession of accountancy. Under the scheme, an insured was indemnified against loss arising from claims made to the insured and notified to the insurer within the period of insurance It was immaterial that the event giving rise to the claim may have occurred prior to the commencement of the period of insurance. 3 The respondents were the partners of a firm DellaVedova Hollands Beard & Co("the firm") which conducted an accountancy practice at Canberra until 30 June 1993. On 1 July 1993 two new partnerships, DellaVedova Beard & Co and Hollands & Partners commenced business. The new partnerships divided, and succeeded to, the business carried on by the firm. The partners of DellaVedova Beard & Co were DellaVedova and Beard. It is to be assumed that Hollands was a partner of Hollands & Partners. It is not clear what insurance arrangements were made by the respective partnerships upon formation. 4 Under the Certificate, the term "the Assured" included "predecessors in business" of DellaVedova Beard & Co. No issue was raised before his Honour that the Certificate did not extend cover to Hollands as a partner of the firm. 5 The firm had been insured under the scheme for the year 1 January 1993 to 31 December 1993. Under the certificate issued to the firm for that year the insurers were the appellants and Switzerland General Insurance Co Ltd ("Switzerland General"). The proportionate risk underwritten by each insurer was the first appellant 90 per cent, second appellant 5 per cent, and Switzerland General 5 per cent. 6 According to a notation on the standard proposal form distributed by Minet as the agent of insurers, the scheme commenced in 1973. The notation stated that the "standard policy form" complied with "Professional Indemnity Insurance requirements necessary for the issue of a Public Practice Certificate". 7 It has been recognised for many years that it is in the public interest that practitioners of professions such as accountancy be covered by insurance in respect of the conduct of their practices. A professional obligation to effect such insurance has followed and in some professions the obligation is enforced by statute. It may be assumed that it was an object of the scheme that the "standard policy form" would meet such an obligation and the public interest. Construction of the terms of a policy issued under the scheme would have regard to that object of the scheme. (See: Australian Breeders Co-operative Society Ltd v Jones; Done v Jones; King v Jones; Jones v Mortgage Acceptance Nominees Ltd; Jones v C E Heath Casualty & General Insurance Ltd (1997) 150 ALR 488 per Lee J at 563.) 8 In August 1992, the firm was instructed by a corporation ("the client") engaged in "licensing" a delicatessen business, to provide to a proposed "licensee" a cash flow projection for a proposed "licensed" outlet in a shopping centre at Goulburn. The firm first received instructions from the client in May 1992. The instructions delivered to the firm by the client included material relating to the "licence" proposal prepared by accountants previously instructed by the client, and trading figures prepared by the client. By a letter dated 28 August 1992 the firm provided to the proposed "licensee" information described as a brief background and history of "the business" and a projected cash flow for the twelve month period October 1992 to September 1993. That information was compiled from the information provided by the client. 9 In October 1992, the "licensee" concluded an agreement with the client and began trading as "Top Slice Deli". 10 By a letter dated 17 June 1993, the firm received the following communication from solicitors instructed by the "licensee":

"Dear Sirs, RE: J D & F J HAYNES & TOP SLICE DELI PTY LIMITED We act for Mr & Mrs Haynes who are the Licensees of Top Slice Deli Pty Limited in respect of the business carried on at Shop 33 Argyle Mall Shopping Centre Goulburn. We enclose a photostat copy of a Projected Cash Flow Analysis prepared for our clients prior to them entering into the Lease of the premises and the Licence Agreement with your client. Our client believes that the claims made in the Cash Flow Analysis may not be justified and accordingly we would be obliged if you would supply us with all documents, comparative figures or other information which are or have been in your possession, control or power upon which the Projected Cash Flow Analysis was based and prepared for the 12 months period October 1992 to September 1993 was complied [sic] for J & F Haynes trading as Top Slice Deli at the Argyle Mall Shopping Centre Goulburn. We look forward to receiving this information within 7 days and in the absence of its receipt within that time we are instructed to make an application to the Federal Court of Australia for Discovery pursuant to Rule 15A of the Federal Court Rules for the purpose of ascertaining whether our clients do have a Cause of Action. Yours faithfully," 11 The firm contacted solicitors instructed by the client, Romano & Co, to ask what the letter meant and whether the firm was to provide the information requested. Romano & Co gave authority for the information to be supplied On 24 June 1993, the firm replied to the "licensee's" solicitors as follows:

"Dear Sirs, Re: TOP SLICE DELI SYSTEMS PTY LIMITED We refer to your letter of 17 June in which you requested certain information regarding the cashflow projections prepared for the proposed business operation to be carried out at Shop 33, Argyle Mall Shopping Centre, Goulburn. With reference to the estimated projected cashflow we wish to point out that this was based on actual operating results for current Top Slice Deli outlets in the ACT. This was pointed out in our letter of 28 August 1992. For your information we also enclose the other assumptions made in preparing that cashflow. We trust this is satisfactory for your purposes. Yours faithfully," 12 On 29 June 1993 the "licensee's" solicitors wrote again to the firm: "Dear Sirs, RE: HAYNES & TOP SLICE DELI SYSTEMS PTY LIMITED We acknowledge receipt of your letter of 24th June 1993 and the statement of assumptions. We would be obliged if you would supply us with the actual operating results for current Top Slice Deli outlets in the ACT upon which our clients' Cash Flow analysis was based and also a list of all the Top Slice Deli outlets in the ACT. Our clients' financial situation is deteriorating at a very rapid rate. If we do not receive the information sort [sic] within 7 days we will commence proceedings pursuant to Rule 15A of the Federal Court Rules. Yours faithfully," 13 After the firm was dissolved on 30 June 1993 the client became a client of DellaVedova Beard & Co. On 8 July 1993 DellaVedova Beard & Co contacted Romano & Co in respect of the above letter. It was agreed that Romano & Co would respond to the letter. DellaVedova Beard & Co forwarded to Romano & Co material held by the firm relevant to the request made by the "licensee's" solicitors. 14 No further communication was received by DellaVedova Beard & Co from the "licensee's"solicitors. On 23 September 1993 Romano & Co forwarded to DellaVedova Beard & Co, by facsimile transmission, a document purporting to be a copy of a consent order. The document read as follows:

HAYNES v TOP SLICE DELI PTY LTD SHORT MINUTES OF CONSENT ORDER By consent the Court Orders that : 1. On or before 8 October 1993 each respondent make discovery to the applicants of all documents which are or have been in its or his possession, custody or power relating to any budget or actual trading results for the period 1 July 1991 to 14 October 1992 in respect of: (a) The Top Slice Deli stores located at Belconnen Mall ACT, City Markets ACT, Erindale ACT and Cooleman Court ACT; (b) any other Top Slice Deli outlet operated by Top Slice Deli Pty Ltd or Top Slice Deli Systems Pty Ltd or operated pursuant to any franchise of either company; 2. Costs of this application be reserved. C P Comans G Turner Counsel for the applicants Counsel for the respondents 15 September 1993 3. Listed for direction on 11 February 1994 at 9.30 before Sheppard J. 4. Liberty to apply on 7 days notice." [Items 3 and 4 were handwritten additions] 15 At the same time, Romano & Co instructed DellaVedova Beard & Co to write to the "licensee's" solicitors and advise them that the documents sought to be inspected would be available for inspection at the offices of DellaVedova Beard & Co. 16 On 7 October 1993, DellaVedova Beard & Co wrote to the "licensee's" solicitors as follows:

"Dear Sirs, Re: TOP SLICE DELI PTY LIMITED We have been requested by Mr John Memmolo of Romano & Co, Solicitors to provide you with details of information available pursuant to your recent requested [sic] regarding the Top Slice Deli operations. This information is available at our office for you to inspect as of 8 October 1993. Yours faithfully," 17 The documents available for inspection were set out as a Schedule attached to the letter in the following form: "SCHEDULE 1 Information available for inspection regarding the books and records of Top Slice Deli Pty Limited. (1) Deposit books, cheque books, bank statements relating to the trading operations of Top Slice Deli outlets located at Belconnen, Civic and Cooleman Court; (2) A copy of the Financial Statements of Top Slice Deli Pty Ltd for the year ended 30 June 1992; (3) A copy of the Income Tax Return for Top Slice Deli Pty Ltd for the year ended 30 June 1992; (4) A letter directed to Mr John Memmolo of Romano & Co setting out information regarding Top Slice Deli outlets as to: (a) Schedule of Gross Monthly turnover, and Door Count Numbers for the financial year July 1992 to June 1993; (b) A schedule of Door Counts for the City Markets Outlet for 1992 and 1993; (c) Details of growth prospects and trading area of the Argyle Mall; (d) Traffic Counts for both the Goulburn and City Markets Outlets; (e) Trading figures for the Cut Price Deli operation prior to any renovations being undertaken at the Argyle Mall. (5) Monthly trading results for the Top Slice Deli outlets as prepared by the company for July, August, September and October 1992." 18 There was no evidence before his Honour that inspection of documents at the premises of DellaVedova Beard & Co was carried out by the "licensee's" solicitors or by the "licensee"on or after 8 October 1993. 19 On 1 December 1993, by completing a Minet proposal form, DellaVedova Beard & Co applied for insurance under the scheme in respect of the period 1 January 1994 to 31 December 1994. 20 Question 9 of the proposal read: "9 Are any of the Partners/Principals, after enquiry, aware of any circumstance which may give rise to a claim against the Firm or their predecessors in business or any of the present or former Partners of Consultants; If so, please give full particulars." 21 The question was answered "No". 22 The Certificate issued in response to the proposal stated that the "particulars and statements" contained in the proposal were considered to be incorporated in the Certificate. 23 On 14 February 1994, proceedings were served on the respondents in which the "licensee" claimed damages from the respondents for loss it had suffered by reason of misleading or deceptive conduct by the firm in the provision of the projected cash flows for the proposed Goulburn outlet. The respondents gave prompt notice of the claim to Minet. In due course the respondents successfully defended the proceedings brought against them. They incurred legal fees and disbursements in doing so, the quantum of which was agreed in these proceedings at $67,004.70. The respondents sought indemnification from the appellants in respect of that sum. The claim was rejected. The respondents commenced proceedings against the appellants seeking an order that they be indemnified under the Certificate. In their defence, the appellants pleaded that if the respondents had suffered loss they were aware of the circumstances or occurrences out of which the loss arose at the commencement of the period of insurance. The appellants further alleged that in breach of a duty of disclosure under s 21 of the Insurance Contracts Act 1984 (Cth) ("the ICA"), the respondents had failed to disclose circumstances which had arisen prior to renewal of the policy which may have given rise to a claim. The appellants also alleged that by reason of the respondents being aware of the circumstances which ought to have been disclosed under s 21 of the ICA, the answer provided by the respondents to Question 9 of the proposal form was false. 24 His Honour held that the appellants failed on each of those issues and that the respondents were entitled to be indemnified under the Certificate in the amount claimed. 25 The appellants appealed from each of those findings. 26 In several respects the issues raised before his Honour may be thought to be unnecessary for determination given that the appellants were the respondents' insurers under the 1993 certificate. 27 First, if, as the appellants contend they should have, the respondents had answered Question 9 of the proposal by referring to the correspondence received from the "licensee's" solicitors and, by reason of that answer, the terms of cl 2 of the Certificate had denied cover to the respondents in respect of any claim made against them by the "licensee" in the period of insurance, it would have been plainly arguable that the notification of circumstances for the purpose of the Certificate was also notice by the respondents to Minet, as agent of the insurers under the 1993 certificate, of circumstances under general condition cl 4(b) of that certificate and that the appellants were bound to indemnify the respondents under the certificate. 28 Alternatively, if it were contended by the insurers under the 1993 certificate that the respondents had chosen not to exercise the right to extend the cover of the certificate under cl 4(b) of the certificate by advising the insurers of those circumstances, such an omission would be one to which s 54(1) of the ICA would apply with the result that the insurers could not refuse to indemnify the respondents under the certificate. (See: Drayton v Martin (1996) 67 FCR 1.) As Dawson, Toohey, Gaudron, Gummow JJstated in Antico v Heath Fielding Australia Pty Limited (1997) 188 CLR 652 at 669-670:

"Section 54 does not postulate a liability of the insurer to pay a claim which has been made. Rather, it takes as its starting point the existence of a claim and a contract the effect of which is that the insurer may refuse to pay the claim. The section directs attention to the reason founding the refusal, namely a particular act or omission on the part "of the insured or of some other person". The term "act", when used in s 54, includes a reference to an omission (s 54(6)(a)). Section 54(1) used the phrase "by reason of some act of the insured or of some other person". It does not specify the act or omission of the insured as being a failure to discharge an obligation owed by the insured to the insurer. The legislation is expressed in broad terms and, on its face, there is no reason why the omission of the insured may not be a failure to exercise a right, choice or liberty which the insured enjoys under the contract of insurance. In any event, the act or omission may be that of a third party, "some other person", who is unlikely to be a party to the contract of insurance in question. Submissions by the respondent which were contrary to the above construction of s 54(1) and which apparently were based upon the reasoning of the New South Wales Court of Appeal in FAI General Insurance Co v Perry (1993) 30 NSWLR 89 at 93, 107 should be rejected." 29 Counsel for the appellants submitted that facts determined by his Honour did not rest upon impressions formed by his Honour from the observation of the witnesses and, therefore, could be redetermined by this Court. Counsel referred to Warren v Coombes (1979) 142 CLR 531. An appeal from the judgment of a judge of this Court is not a hearing de novo, nor a retrial on the record, in which facts are determined anew. The statement in Warren v Coombes that an appellate court will not shrink from giving effect to its own conclusion so that the proper inference is drawn from undisputed facts, or facts established by findings of the trial judge, assumes that it has been established that the inference drawn by the trial judge was the cause of error in the judgment and that there is an obligation on the appellate court to correct the error. 30 As this Court said in News Limited v Australian Rugby Football League Ltd (1996) 139 ALR 193 at 202:

"This does not mean that an appellate court will necessarily interfere simply because it would not have been inclined to reach the same conclusions as the trial judge. The position was explained by Beaumont and Lee JJ in Minister for Immigration, Local Government and Ethnic Affairs v Hamsher (1992) 35 FCR 359 at 368-9:

The material upon which his Honour made his findings consisted of documents, affidavits and uncontested oral testimony. This court is as well placed as his Honour to draw inferences from that material: see Warren v Coombes (1979) 143 CLR 531.

Section 27 of the Federal Court of Australia Act 1976 (Cth) provides as follows:

'In an appeal, the Court shall have regard to the evidence given in the proceedings out of which the appeal arose, and has power to draw inferences of fact and, in its discretion, to receive further evidence, which evidence may be taken on affidavit, by oral examination before the Court or a Judge or otherwise in accordance with section 46.'

However, the hearing of an appeal in this Court is neither a trial de novo nor a trial of the case afresh on the record (Duralla Pty Ltd v Plant (1984) 2 FCR 342) and the court is not obliged to proceed to make new findings of fact on all relevant issues and discharge the judgment appealed from if those findings differ from those of the trial judge and do not support the judgment. The court must be satisfied that the judgment of the trial judge is erroneous and it may be so satisfied if it reaches the conclusion that the trial judge failed to draw inferences that should have been drawn from the facts established by the evidence. The court is unlikely to be so satisfied if all that is shown is that the trial judge made a choice between competing inferences, being a choice the court may not have been inclined to make but not a choice the trial judge should not have made. Where the majority judgment in Warren v Coombes (supra) (at 552-553) states that an appellate court must not shrink from giving effect to its own conclusion, it is speaking of a conclusion that the decision of the trial judge is wrong and that it should be corrected. (See also Edwards v Noble (1971) 125 CLR 296, per Barwick CJ (at 304), per Menzies J (at 308-309) and per Walsh J (at 318-319).)" 31 As will be discussed later in these reasons, a conclusion as to what knowledge a reasonable person could be expected to gain from particular circumstances may well involve a choice between competing inferences and provide no warrant for an appeal court to interfere with the judgment of the trial judge. 32 We approach this appeal in accordance with those principles. The scope of the insuring clause 33 The Certificate is a "claims made" policy. 34 Clause 2 of the Certificate is in the following terms:

"On the terms and conditions herein contained the Insurers shall Indemnify the Assured up to an amount not exceeding the Sum Insured and Related Costs against all loss to the Assured (including claimants' costs) whensoever occurring arising from any claim or claims first made against the Assured during the Period of Insurance and reported to the Insurers during such period, in respect of any description of civil liability whatsoever incurred in connection with the Practice other than loss arising out of any circumstance or occurrence [which] has been notified under any other insurance attaching prior to the inception of this Certificate of Insurance, or of which the Assured was aware at the commencement of the Period of Insurance. …" 35 The appellants submit that there is no obligation to indemnify under that clause because the expense incurred in defending the "licensee's" claim arose out of a circumstance or occurrence of which the respondents were aware at 1 January 1994. 36 The learned trial judge observed that the risk insured is the loss arising from any claim first made and reported during the period of insurance, so that the qualification commencing with the words "other than" in that insuring clause relates to the claim made and reported, rather than to the events giving rise to the claim when made. That is plainly correct. It is not in issue that the claim against the respondents was made on 14 February 1994 when the proceedings were served on them. 37 The consequence is that the qualification must also be directed to identifying whether the particular circumstances exclude the entitlement to indemnity in respect of that claim. One aspect of the qualification is that a 'circumstance or occurrence' of a claim or potential claim has already been notified under an earlier insurance policy. That does not arise. The other aspect of the qualification is that relied upon by the appellants: a circumstance or occurrence of which the respondents were aware at 1 January 1994. 38 We agree with the learned trial judge that the expression "… loss arising out of any circumstance or occurrence … of which (the respondents) were aware"at 1 January 1994 must relate to awareness of the prospect of the claim made and notified, rather than to the events themselves giving rise to the claim. If it were otherwise, the respondents would be ineligible for insurance merely by being aware of a circumstance or occurrence which ultimately resulted in a claim without any reason to anticipate that claim. It is necessary to adopt that meaning to give sense to the first leg of the qualification: a circumstance or occurrence will only have been notified under an earlier policy because it gives rise to or may give rise to the prospect of a claim under the policy. In the absence of some awareness of the prospect of a claim, there could be nothing about which to give notice. So much was accepted by the appellants. 39 The appellants' real complaint was that, on the material which was available to the respondents by 1 December 1993 when they completed the proposal, and up to 31 December 1993, the respondents were aware of a circumstance or occurrence of such a nature as should then have been notified to their then insurer. That is said to be awareness of "circumstances suggesting that a claim may be made and a loss may arise". It is then contended that the receipt of the correspondence referred to above, namely the letters of 17 and 29 June 1993, and the provision on 23 September 1993 of what appears as consent orders for preliminary discovery between the "licensee" and the client, would have made it obvious to any reasonable person in the position of the respondents that a claim may be made against them. 40 They contend that that knowledge or awareness on the part of the respondents is sufficient to activate the second limb of the qualification to cl 2 of the Certificate, so as to disentitle the respondents from indemnity under the Certificate. They rely upon the observations of Hodgson CJ in Equ. in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 153 ALR 529 at 567-568 in the following terms:

"The policy gives insurance against liability for breach of duty, and is a claims-made policy. If any breach of duty by the insured has occurred and damage resulted, and if a claim is subsequently brought, then ipso facto there must at the time of the occurrence have been circumstances which might give rise to a claim; and it is likely that the insured would have known of these circumstances at the time, although not have known that they might give rise to a claim. In my opinion, the retroactive clause should be interpreted as applying only if the insured knows the circumstances as circumstances which might give rise to a claim, because otherwise the clause would have the unreasonable effect of excluding many or even most circumstances that were purportedly insured against." 41 It is convenient to accept the contention that, on the correct construction of the qualification in cl 2 of the Certificate, it raises the question whether the respondents were aware of circumstances which might give rise to a claim so as to have obliged their earlier disclosure. On the critical findings of fact, we agree with the conclusions of the learned trial judge. However, we do not wish to be taken necessarily as endorsing that construction. There may be reasons why, in certain circumstances, an insured's awareness of facts which may give rise to a claim but which do not amount to the assertion of a right against the insured (cp. Walton v National Employers' Mutual General Insurance Association Ltd (1973) 2 NSWLR 73 at 82; Dwyer v Long [1992] 58 SASR 102 at 108) may not be notified to the insurer: see eg per Gleeson CJ in FAI General Insurance Company Ltd v Perry (1993) 30 NSWLR 89 at 93 and per Giles CJ in Antico v C E Heath Casualty & General Insurance Ltd (1995) 8 ANZInsCas 61-268 at 75,999 - 76,004. It may be arguable that the qualification relates to some more positive state of knowledge or awareness on the part of an insured about the existence or prospect of a claim against that insured than that contended for. However, it is not necessary to explore that issue further because we do not consider that the material relied upon by the appellants constitutes notice of facts which might give rise to a claim against the respondents. 42 Until service of the proceedings upon the respondents on 14 February 1994, no claim against them had been asserted. The three communications relied upon by the appellants did not assert any right or entitlement on the part of the "licensee" against the respondents. 43 The letter of 17 June 1993 did not allege any breach of duty or improper conduct on the part of the respondents. It simply sought information upon which a cash flow projection prepared by the respondents had been based. They had prepared that cash flow projection from information provided to them by the client. That letter raised the question whether the claims in the cash flow projection were justified, but it did not suggest that any proceedings were in prospect against the respondents. At that point, the inquiry was for the purpose of ascertaining whether the licensee might have a cause of action. It did not assert that, even if a cause of action were identified, it could or would be against the respondents. As the learned trial judge said, that letter did no more than put the respondents on notice that the cash flow projection was being investigated. The response of the respondents by letter of 24 June 1993 providing the information sought is consistent with the view that, at that point, they did not anticipate a claim against them. 44 The letter of 29 June 1993 was also a request for information. It also contained no allegations of breach of duty or of improper or inadequate work on the part of the respondents, and did not convey the prospect of a claim being made against them. That request was passed to the client's solicitors for response. 45 The third communication said by the appellants to have significance is the receipt on 24 September 1993 by the respondents from the client's solicitors of the order for discovery made on 15 September 1993 apparently as between the "licensee" and the client. It contained the request that the respondents make available for inspection documents of the client. The respondents had played no part in identifying or listing the documents to be produced. They had not been involved in whatever communications followed the "licensee's" letter to them of 29 June 1993; by arrangement with the client's solicitors, that was to have been undertaken by those solicitors. Clearly, by that stage, the "licensee" had instituted some form of proceedings against the client. There was no suggestion then, or until 14 February 1994, that the respondents were, or might become, parties to that action. Their involvement was to make available the client's documents for inspection. 46 Our conclusions reflect those of the learned trial judge. In our judgment, on that material, there were no facts of which the respondents were aware which exposed or may have exposed them to a civil liability to the "licensee", and no facts alleged to them by the "licensee" which if true may have exposed them to such a liability. The "licensee's" proceedings were not against them. At best for the appellants, the respondents were aware that the cash flow projection prepared by them from material provided by the client was being, or had been, investigated to determine whether that projection was justified and that thereafter proceedings had been instituted against the client, but not the respondents. 47 We do not conclude that that state of awareness by the respondents constituted, on their part, an awareness of circumstances which might give rise to a claim against them. 48 Consequently, this ground of appeal fails. Breach of Duty of Disclosure 49 Section 21(1) of the Insurance Contracts Act 1984 (Cth) provides: "Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that: (a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or (b) a reasonable person in the circumstances could be expected to know to be a matter so relevant." 50 The appellants pleaded that the respondents failed to disclose to them, in breach of s 21, "the allegations made against" them in the two letters referred to of 17 and 29 June 1993, and the "circumstances arising from" the consent order for preliminary discovery apparently made on 15 September 1993. 51 The learned trial judge regarded the word "circumstance" in s 21(1)(b) to be synonymous with the expression "circumstances or occurrence" in the insuring clause in the Certificate, and the word "circumstance" in question 9 of the proposal. He said:

"Each is a causally relevant fact or circumstance which will, or has the potential to, generate a claim for civil liability. It is some mishap or default which exposes or has the capacity to expose the [insured] to civil liability to a third party."

52 He concluded, by the same process of reasoning as he adopted in relation to the question whether that material resulted in the particular risk being uninsured, that there was in the circumstances no duty of disclosure of that material. Having considered the evidence of the appellants, his Honour also concluded that if the appellants had been notified by the respondents of the material identified in the defence before the Certificate was issued, the appellants would nevertheless have gone on risk and would have issued the Certificate in the same terms and for the same premium. They would, however, then have been in a position to rely upon cl 2 of the Certificate to deny liability to indemnify the respondents in respect of the particular loss. (It was not necessary for his Honour to decide the question, but he observed that it is probable that such notice would have served to activate an entitlement to indemnity in respect of that loss under the 1993 policy then in force.) In that way, that is by requiring notification so as to be able to exclude particular claims from being covered under the Certificate, the information was a matter relevant to the appellants' decision whether to accept the proposal for insurance and if so upon what terms. However, his Honour also accepted the respondents' evidence that they did not know that to be the case, and he concluded with respect to subs (1)(b) that the material was not itself of such a character that a reasonable person in the respondents' position could be expected to have had that knowledge. Thus, he found, no breach of the duty of disclosure imposed by s 21 had been made out. 53 The appellants' dispute that overall conclusion, but they focussed their attack principally on the conclusion that s 21(1)(b) did not apply to oblige the respondents to disclose the material referred to. 54 The first respondent John DellaVedova gave evidence that the respondents did not know that the circumstances as pleaded were material to the appellants in deciding to accept the risk, or the terms on which they would do so. The learned trial judge accepted that evidence. It was plainly appropriate for the appellants to accept that finding, in the light of the benefit to the trial judge in having seen and heard him give his evidence. 55 As to the test which s 21(1)(b) imposes, the trial judge said:

"In any event, the context of the notice [contained within the proposal] and the proposal as a whole would direct a reasonable accountant in the position of the [respondents] to believe that the relevant circumstances for disclosure were the known or alleged facts constituting an act, omission, error, breach of duty or obligation exposing the [respondents] to an actual or potential claim. The particularised circumstances without more were insufficient to expect a reasonable accountant in the position of the [respondents] to know that those circumstances were relevant to the [appellants'] decision to accept the risk." 56 The appellants accept that that formulation of the relevant question was a proper one. They contend that his Honour's conclusion was erroneous. 57 We agree with the conclusion of the trial judge. Our views about the import of the material relied upon by the appellants is set out above. In our judgment, a reasonable accountant in the circumstances would not consider the material a matter relevant to the appellants' decision to accept the risk or the terms of such risk. It does not indicate, in the overall context, the prospect of a claim against the respondents even though it clearly signalled first the possibility of a claim at least against the client, and then by the discovery consent order the likelihood of proceedings against the client (but not against the respondents). The respondents knew what they had done, and had no reason to suspect that they had done their work badly. There was no suggestion to that effect. The information on which the cash flow projection was based had been supplied by the client. So far as the material relied upon suggests the prospect of a claim, a reasonable accountant in the respondents' position would understand that what was being addressed was the possible inaccuracy or incompleteness of that foundational material. From the end of June 1993, they had heard no more until, in September 1993, they were asked to provide certain documents for inspection in proceedings to which they were not parties. It is unclear whether that inspection took place, but other than that, they had heard nothing more until they were served with the proceedings on 14 February 1994. 58 Consequently, we do not accept the primary contention of the appellants that the particular material indicated to a reasonable accountant in the respondents' position "quite plainly that a claim may be made" against the respondents, or that it was of importance to an insurer in considering whether to provide the Certificate and if so on what terms that the correspondence received be notified to it. The misrepresentation claim 59 The appellants' third contention was that the learned trial judge had erred in rejecting the defence based upon an alleged misrepresentation in the answer to question 9 of the proposal. The question and answer are set out above. 60 The learned trial judge concluded that the material in issue did not constitute "circumstances which may give rise to a claim" under the Certificate, so that the answer to question 9 was not inaccurate. His Honour's reasons were the same as those for which he rejected the argument based upon s 21 of the Insurance Contracts Act 1984. 61 The appellants submit that that approach was erroneous, because it necessarily equates the expression "circumstances" in question 9 of the proposal with the scope of the insuring clause under cl 2 of the Certificate, in particular that part of the qualification considered above. They then contend that the enquiry in question 9 is directed to "circumstances as distinct from actual claims", and so to whether there is a realistic possibility rather than a certainty of a claim which emerges from the circumstances, whether or not the insured considers the potential claim is soundly based. 62 We do not accept that the learned trial judge did treat the expressions in question 9 of the proposal and in cl 2 of the Certificate as co-terminous. His Honour did not say so. In any event, as we have discussed above, we have concluded that his Honour did not construe the particular words of cl 2 of the Certificate as requiring the formal assertion or "certainty" of a claim to activate the qualification. On the contrary, his Honour expressly found that until proceedings were served upon them on 14 February 1994, they were not aware that the licensee might make a claim against them or that their preparation of the cash flow projection might give rise to such a claim against them. We have also concluded that on the proper construction of cl 2 of the Certificate, as his Honour also found, the material relied upon by the appellants did not give rise to the prospect of a claim against the respondents so as to disentitle them from coverage under the Certificate. Whether or not the concepts of "circumstances" in question 9 of the proposal and of "circumstances or occurrences" in cl 2 of the Certificate are co-terminous, the conclusion as to the information conveyed by the material relied upon and its significance to the respondents also leads to the conclusion, on this point, that the respondents did not inaccurately provide their answer to question 9. Conclusion 63 In our view, the appeal should be dismissed with costs. I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate: Dated: 15 April 1999 Counsel for the Appellants: Mr S R Donaldson

Solicitors for the Respondents: Snedden Hall & Gallop

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