Littlewood v Resource Underwriting P/L & Anor

Local Courts (Civil Claims) Act 1970 (NSW) - s 69 LEGISLATION CITED : Supreme Court Rules 1970 - Part 51B r 6(2)(a)

Allen v Kerr & Anor (1995) Aust Torts Reports 81-354 Azzopardi v Tasman UEB Industries Ltd (1985) 5 NSWLR 139 Bateman v Evans [2004] NSWSC 626 Carr v Neill [1999] NSWSC 1263 CASES CITED : Devries v Australian National Railways Commission (1993) 177 CLR 472 Gregory v Fearn 1953 1 WLR 974 National Vulcan Engineering Insurance Group Ltd v Pentax Pty Ltd t/as Lif-Rig & Anor [2004] NSWCA 218 R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588

Byron James Littlewood (Plaintiff PARTIES : Resource Underwriting Pty Ltd & CGU Insurance Limited (Defendants)

Mr G R Graham (Plaintiff) COUNSEL : Mr D S Weinberger (Defendants)

Hallam & Littlewood (Plaintiff) SOLICITORS : McCabe Terrill Lawyers (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11500/2004 - BYRON JAMES LITTLEWOOD v RESOURCE UNDERWRITING PTY LTD and CGU INSURANCE LIMITED

JUDGMENT (Appeal decision of Local Court Magistrate - insurance - indemnity) 1 MASTER: By summons filed 24 May 2004 the plaintiff seeks firstly, an order pursuant to Part 51B r 6(2)(a) of the Supreme Court Rules 1970 extending the time for institution of this appeal to such date as the court may determine, not earlier than the date of filing of this summons; secondly, a declaration that the determination of Magistrate Morahan dated 16 March 2004 is erroneous in point of law; thirdly, an order that, in substitution for the orders made by the learned Magistrate, the defendants indemnify the plaintiff against all liability (including costs) of the plaintiff pursuant to the said determination and judgment. The plaintiff is Byron James Littlewood. The defendants are Resource Underwriting Pty Ltd and CGU Insurance Limited. 2 In the Local Court the plaintiff was Kelvin Matthew Parker. The first defendant was Bradley James Oldfield, Glen Troy Oldfield and Wayne John Oldfield formerly trading as WBG Developments Pty Ltd (WBGD). The second defendant was Byron James Littlewood, Joseph Stanley Misiaszek, Winsome Gail Misiaszek and Ben Prohoroff trading as Hunter Tax Services. The first third party was Bradley James Oldfield, Glen Troy Oldfield and Wayne Oldfield. The second third party was Resource Underwriting Pacific Pty Ltd and CGU Insurance Ltd. 3 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 69(2) of the Local Courts (Civil Claims) Act 1970 (NSW) permits a party who is dissatisfied with a judgment as being erroneous in point of law to appeal to this court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354 and Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156 and two more recent cases, namely Carr v Neill [1999] NSWSC 1263 and R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082. It cannot be said that the Magistrate acted on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. Section 69(4) of the Act provides that the court may determine an appeal by either (a) setting the judgment or order aside or (b) by varying the terms of the judgment or order or (c) by setting the judgment or order aside and remitting the matter for determination in accordance with the court's directions or (d) by dismissing the appeal.

Grounds of appeal and notice of contention 4 The plaintiff appeals part only of the decision of Morahan LCM dated 16 March 2004. In the Local Court, Kelvin Matthew Parker (hereinafter referred to as "Parker") obtained judgment against the plaintiff in the sum of $25,000.00, together with interest and costs, on a cause of action for negligent advice. The plaintiff sought by third party proceedings against the defendants' indemnity pursuant to the provisions of a professional indemnity insurance policy. The learned Magistrate entered judgment for the defendants on the third party issue. In finding for the defendants on the third party issue, the learned Magistrate held that the plaintiff had a "related interest", as defined in the policy, in the scheme or investment in relation to which the advice had been given, so as to entitle the defendants to the benefit of an exclusion clause. 5 The grounds of appeal are that the Magistrate erred in law in firstly, in the construction of the exclusion clause; secondly, in the construction of the definitions of "related interest" and "interest" in the policy; thirdly, by holding that the plaintiff held a related interest, within the meaning of the policy, in the investment by reason only that the plaintiff: (i) was a creditor of the company to which money was advanced pursuant to the advice found to have been given; (ii) was to receive $50,000.00 on successful completion of the development in which the company was engaged; and (iii) felt under pressure from the company to find further investors to avoid collapse of the development. Finally, that the Magistrate erred in failing to hold that to bring themselves within the exclusion clause, the defendants had to establish that the plaintiff had a "beneficial" interest in the assets of the company to which money was advanced pursuant to the advice found to have been given. 6 In the notice of contention, the defendant stated that the Magistrate erred in failing to find that the claim made by Mr Parker against the plaintiff did not arise out of the plaintiff's professional business as defined by the Australian Life/Miscellaneous Agents Professional Indemnity Policy issued for the period from 31 May 1999 to 31 May 2000.

Extension of time to file a notice of appeal 7 The judgment was delivered on 16 March 2004. The time for the commencement of the appeal expired on 14 April 2004. The plaintiff's solicitor and counsel briefed were acting under the misapprehension that the appeal ought to have been commenced by 21 April 2004. For reasons which are not clear, the appeal was incompetently commenced on 3 May 2004. 8 The court has a discretion to extend time for the institution of this appeal. The defendant did not contend that it was prejudiced in any way. However, the defendant contended that the discretion ought to be exercised against the plaintiff because the appeal lacks merit and is doomed to fail - see Bateman v Evans [2004] NSWSC 626; and an adequate explanation for this delay has not be provided. It is my view there is an adequate explanation for this delay. It is my view that an extension of time to lodge the appeal should be granted.

Local Court proceedings 9 On 26 February 2004 Mr Parker commenced proceedings seeking to recover from the plaintiff the amount of $25,000.00 being the refund of monies the former invested with the plaintiff, plus interest pursuant to a mortgage and statutory interest. 10 Mr Parker had gone to the plaintiff for financial advice on how to invest $25,000.00 that the former had inherited. The learned Magistrate made the following findings of fact: "(1) The plaintiff [Parker] sought investment advice from Mr Littlewood who held himself out to be competent and qualified in this field. (2) That as an inducement, Mr Littlewood stated to the plaintiff that he had invested $100,000 of his own money in the development of the first defendant, and that his son and his brother had also invested. (3) That he [Mr Littlewood] was to receive a $50,000 fee on the successful completion of the development. (4) That Mr Littlewood felt that he was under pressure from the first defendant to find further investors in the development to avoid its collapse. (5) That he [Littlewood] did not advise the plaintiff [Parker] of other possible investment options. (6) That he knew that this development was in financial difficulty at the time he suggested to the plaintiff that he invest with the first defendant. (7) That he knew that by offering the plaintiff an interest rate of 15% over 3 months, it was clearly a high risk investment and he did not disclose this to the plaintiff. (8) That as the financial advisor to the plaintiff, he should have disclosed this. (9) That following non payment of interest pursuant to the terms of the loan, Mr Littlewood then prevaricated and delayed telling the plaintiff the true situation in relation to the financial affairs of the first defendant of which he was clearly aware. (10) That Mr Littlewood further induced the plaintiff to invest in the first defendant's development by misrepresenting to him that his investment would be secure by signing the so called 'mortgage' referred to these (sic) proceedings. (11) That Mr Littlewood was negligent in not using a 'mortgage' document that was capable of registration. (12) That Mr Littlewood never intended to register this so called 'mortgage' knowing full well that by the lack of registration, it offered no security to the plaintiff as regards his investment irrespective of the fact that it was not in registrable form. (13) That Mr Littlewood was negligent in not getting legal advice about the validity of the so called 'mortgage' document he induced the plaintiff to sign. (14) That Mr Littlewood was also very closely involved in the management of the financial side of the first defendant's development which he did not disclose to the plaintiff. (15) That Mr Littlewood thus had a 'related interest' in the development of the first defendant." 11 Not surprisingly, the Magistrate held that Mr Littlewood was negligent in the way he misrepresented to Mr Parker the nature of his investment in the development of the first defendant and should be held liable. Mr Littlewood had an insurance policy with Resource Underwriting Pacific Pty Limited ACN 051 374 228 and claimed indemnity under the policy by way of third party notice [see Ex A]. The findings that are most important to the indemnity issue are that Mr Littlewood stated to Mr Parker that he [Littlewood] had invested $100,000.00 of his own money in the development of Bradley James Oldfield, Glen Troy Oldfield, Wayne John Oldfield formerly trading as WBG Indmenity Development Pty Ltd and that he [Littlewood] was to receive $50,000.00 on the successful completion of the development. 12 The Magistrate's reasoning and decision in relation to this issue read: "In relation to the third party action by Mr Littlewood seeking indemnity from his insurers, Mr Weinberger, counsel for the Second Third Party, submitted that his client was entitled to deny liability on four grounds: 1. That pursuant to the indorsement at the back of the policy, Mr Littlewood must be an agent or sub-agent of an insurance company or an assurance company and he is not. 2. That the debt in this matter did not arise in the professional business of the insured in that Mr Parker was simply a fellow investor and no fee was charged. 3. That Mr Littlewood was not licensed to offer advice in the manner he did. 4. That pursuant to the exclusions set out in paragraph 2(h) of the policy, the underwriters are not required to indemnify an assured in respect of any claim made against them 'arising from investment, or any advice, inducement or recommendation to invest, or indorsement or opinion favouring investment, in any fund, scheme, arrangement or entity in which there is or was at any relevant time a Related Interest unless shareholdings in public listed company.' In my opinion it is not necessary to canvas (sic) grounds 1, 2 and 3 above in detail for clearly, Mr Littlewood had a "related interest" in the first defendant at the time he offered advice to the plaintiff as to where he should invest and for this reason the Second Third Party is entitled to avoid liability under the contract of insurance. …" 13 It is now necessary to reproduce some of the clauses in the insurance policy. Under the heading "Exclusions" the policy reads: " EXCLUSIONS The Underwriters shall not indemnify the Assured in respect of any claim made against them … (h) arising from investment, or any advice, inducement or recommendation to invest, or endorsement or opinion favouring investment, in any fund, scheme, arrangement or entity in which there is or was at any relevant time a Related interest unless shareholdings in public listed companies; …" 14 In the definition section: "' Related Interest ' means any interest beneficially held by or on behalf of any one or more of - (a) The Assured or any spouse or child of the Assured ; (b) Any firm or company in which an interest is beneficially held by or on behalf of the Assured ' Interest ' means any share, shareholding, entitlement or other financial interest." 15 It is common ground that the insurer bore the onus of proving that exclusion (h) operated. Littlewood submitted that a properly construed exclusion (h) should be held to read: "that the claim made arose from investment, or any advice to invest in any…entity in which, there is, or was at any relevant time, any share, shareholding, entitlement or other financial interest beneficially held by the Plaintiff." 16 Littlewood referred to the Collins English Dictionary (2001) definition of the word "beneficially" as being "2 (law) entitling a person to receive the profits or proceeds of property: a beneficial interest in land." 17 Littlewood submitted that the essential words of exclusion (h) are: "investment" (here a mortgage loan) "in any entity" (here WBG Developments Pty Limited ACN 080766356) "in which" (here the related interest must be in WBG Developments Pty Limited) "there is or was " (accordingly any future events are relevant for the purpose of exclusion (h) "a share, or a shareholding, or an entitlement, or other financial interest, except shareholdings in public listed companies." 18 Littlewood submitted that these words should be construed to be restricted to interest in the nature of "ownership" and that at the highest Littlewood was a creditor of WBGD. According to Littlewood this interpretation flows either as a matter of simple construction, or by application of ejusdem generis rule [see Gregory v Fearn 1953 1 WLR 974] or by application of the contra proferentem rule [see National Vulcan Engineering Insurance Group Ltd v Pentax Pty Ltd t/as Lif-Rig & Anor [2004] NSWCA 218]. I do not read the provision that way. "Related interest" is defined to include "other financial interest". Exclusion (h) cannot be read so that "related interest" means only a financial interest which is in the nature of ownership such as shareholdings. If that be the case, there would be no need to refer to public listed companies as being exempted. 19 The Magistrate found that Littlewood told Parker that he had invested $100,000.00 of his own money in the development of WBG Development Pty Ltd. The Magistrate also found that Littlewood would receive profits of proceeds of property had the project been completed. Littlewood's investment of $100,000.00 in the development of WBG is a financial interest beneficially held by him and as such falls within the definition of "related interest". It is the policy document which defines the exclusions from indemnity. Thus Resource Underwriting is not obliged to indemnify Littlewood under the terms of the insurance policy.

Notice of contention 20 The Magistrate made a finding that Mr Littlewood held himself out to be competent and qualified in giving investment advice. The onus was upon Littlewood to satisfy the court that the claim arose out of Littlewood's professional business. 21 Professional business under the policy is defined as: "Professional Business of the Assured" shall mean acting as:- (a) An agent and/or sub-agent (or former agent an/or sub-agent) of any insurance and/or assurance company and/or health benefits company and/or mutual fund and/or mutual society and/or friendly society, including any subsidiary thereof. For the purposes of part (a) of this definition, an agent or sub-agent means a person (not being an insurance broker) who for reward and as an agent or sub-agent of the one or more insurers or assurers (or any other entity described in the preceding paragraph) arranges, inter alia, contracts of insurance or assurance AND who has an agreement in writing with the aforesaid entities to arrange contracts of insurance or assurance as agent for such entity/entities, and (b) A General Insurance agent or sub-agent and/or an Insurance/Assurance/Superannuation Consultant/Adviser (independently of (a) above and/or a licensed securities dealer and/or licensed dealer's representative and/or property authorised dealer's representative and/or building society agent and/or mortgage broker/originator/consultant and/or unit trust broker and/or finance broker/consultant and/or investment adviser and/or investment representative and as per Corporation Law and/or agent for the taking of Will Instructions. PROVIDED THAT not less than 60% (sixty percent) of the Assured's income in the financial year immediately prior to the date of the application for insurance was derived from activities described in (a) above, whether for fee, commission or not. Insurance/Assurance/Superannuation Consultant/Advisor includes acting as an adviser to or agent for an insured or intending insured for the purposes of placement of insurance contracts through a registered broker. This part of the definition includes circumstances in which there is an agency agreement in place between the Assured and the insurance broker through whom any such insurance contracts are placed." 22 There was insufficient evidence to establish that the claim arose out of Littelwood's professional business. Thus, the Magistrate could have held that the insurer was not obliged to indemnify Littlewood under the policy. 23 There is no error of law. The appeal fails. The order of Magistrate Morahan dated 16 March 2004 is affirmed. The appeal is dismissed. The summons filed 24 May 2004 is dismissed. 24 Costs are discretionary. Costs usually follow the event. The plaintiff is to pay the defendants' costs as agreed or assessed.

(1) The order of Magistrate Morahan dated 16 March 2004 is affirmed.

(4) The plaintiff is to pay the defendants' costs as agreed or assessed. **********

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