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.