P & S Kauter Investments Pty Ltd v Arch Underwriting at Lloyds Ltd

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The appellants are members or self-managed superannuation funds of four family groups who received financial planning advice from Moylan Retirement Solutions Pty Ltd (MRS) and its principal, Mr Christopher Moylan. Acting on Mr Moylan's advice, between 2006 and 2009 they made various investments in projects or entities in which Mr Moylan had financial interests by making unsecured loans to Moylan Investments Group Pty Ltd (MIG), a company of which Mr Moylan was the sole director and shareholder. Additionally, moneys of some of the appellants were misapplied and treated by MRS as funds available to MIG instead of being used as instructed, to purchase shares or to make deposits with Macquarie Bank. No payments of interest, repayments of principal, dividends or distributions were received in respect of any of these investments after late 2009, and MIG was wound up in September 2010. MRS was deregistered in August 2014. Under Corporations Act 2001 (Cth), s 601AG, the appellants sued MRS' professional indemnity insurers directly to recover the indemnity payable in respect of MRS' liability to them for negligent financial advice, misleading and deceptive conduct and breach of fiduciary duties. The appellants alleged that MRS was indemnified against those liabilities under one or the other of two insurance policies, one current from 5 February 2012 to 5 February 2013 (the 2012/2013 policy) and the other for the following period to 5 February 2014 (the 2013/2014 policy). In January 2013, whilst seeking to renew the 2012/2013 policy, MRS had purported to notify the insurers that a "small number of clients" had made property investments that "have to date been unable to repay those funds in total" and that there was "a chance of a claim ... in relation to any loss that may be incurred". The primary judge held that the 2012/2013 policy did not respond because no "claim" had been made against MRS before May 2013, and MRS' purported notification in January 2013 of facts that "might give rise to a claim" did not engage Insurance Contracts Act 1984 (Cth), s 40(3) because the notification was not of "facts" but of "bare possibilities" which did not point towards any particular claim. His Honour also held that MRS had made fraudulent misrepresentations and non-disclosures when seeking the renewal in January 2013, entitling the insurers to avoid the 2013/2014 policy, and separately that the insurers were entitled to reduce their liability under that policy to nil because of other non-disclosures by MRS. Finally, he held that four exclusions applied to exclude cover under the 2013/2014 policy for some or all of MRS' liability to the appellant plaintiffs. The appellants appealed. The issues in the appeal (including those raised by the respondent insurers' notice of contention) were: (i) Whether the primary judge erred in not finding that the January 2013 notification was of "facts that might give rise to a claim", with the result that the 2012/2013 policy responded to the claims made by the appellants outside the policy period; (ii) If so, whether MRS had breached its duty of disclosure under Insurance Contracts Act, s 21 in relation to the 2012/2013 policy, entitling the insurers to reduce their liability under that policy to nil under s 28(3); (iii) If not, whether the primary judge erred in finding that there had been fraudulent misrepresentations and non-disclosures by MRS entitling the insurers to avoid the 2013/2014 policy under s 28(2), or alternatively innocent non-disclosures entitling them to reduce their liability under that policy to nil; (iv) Whether one or more of the four exclusions relied on by the insurers applied to exclude cover under the policies for some or all of MRS' liability to the appellants (three of the four are relied on in relation to the 2012/2013 policy); and (v) Whether the primary judge erred in ordering that the appellant plaintiffs be jointly and severally liable for the respondent insurers' costs of all of the three proceedings brought by the appellants. Held, dismissing the appeal (Meagher JA, Bathurst CJ and Bell P agreeing): As to issue (i):

1. The question whether a fact or facts "might give rise to a claim" requires an objective assessment of the likelihood or possibility of a claim or claims. It will be sufficient to engage Insurance Contracts Act, s 40(3) that the notified facts are reasonably to be regarded as giving rise to a realistic possibility of a claim or claims, whether or not the likely claimants or the quantum of such claims are known and notwithstanding that those claims may have modest or limited prospects of success. Accordingly, the notification may be of a "problem" or an event which, in common experience, is followed by the making of claims: at [1] (Bathurst CJ), [2] (Bell P), [31]-[35] (Meagher JA). HLB Kidsons v Lloyds Underwriters [2008] EWCA Civ 1206; [2009] Lloyd's Rep IR 178 , considered. DIF III - Global Co-Investment Fund LP v DIF Capital Partners Ltd [2020] NSWCA 124; CGU Insurance Ltd v Porthouse (2008) 235 CLR 103, cited.
2. The facts notified by MRS in January 2013 did not give rise to a realistic possibility of a claim. Properly understood the notification was that should any investors suffer a loss of their invested funds, there was a "chance" that they may make a claim against MRS. The notification did not include any facts which made loss more than a potential possibility: at [1] (Bathurst CJ), [2] (Bell P), [37], [43] (Meagher JA) As to issue (ii):
3. The affidavit and oral evidence of the senior underwriter who made the decision to renew the policy for the 2012/2013 period was that had MRS disclosed that it had misapplied $790,000 of its clients moneys and treated those funds as available to MIG, he would have declined to issue the policy "on that basis alone". MRS' failure to disclose its misapplication of client moneys (being a matter required to be disclosed by Insurance Contracts Act, s 21) accordingly entitled the insurers to reduce their liability under the 2012/2013 policy to nil pursuant to s 28(3): at [1] (Bathurst CJ), [2] (Bell P), [57], [59] (Meagher JA). As to issue (iii):
4. The January 2013 notification was proffered as part of the information relevant to the renewal of the policy for the 2013/2014 period. The misrepresentations allegedly made by that notification were properly pleaded, and there was no challenge to the findings which falsified them. The statements relied on as conveying misrepresentations were not in terms statements of opinion, and there was no separate challenge to the primary judge's finding that Mr Moylan had known them to be false when made. The insurers were accordingly entitled to avoid the 2013/2014 policy for fraudulent misrepresentation: at [1] (Bathurst CJ), [2] (Bell P), [70], [73]-[81] (Meagher JA).
5. For the reasons given in relation to issue (ii), the underwriters were entitled to reduce their liability under the 2013/2014 policy to nil by reason of MRS' non-disclosure of its misapplication of client funds: at [1] (Bathurst CJ), [2] (Bell P), [82] (Meagher JA). As to issue (iv):
6. It was not necessary to consider the operation of the exclusions in either policy: at [1] (Bathurst CJ), [2] (Bell P), [60], [83] (Meagher JA). As to issue (v):

Judgment

1. BATHURST CJ: I agree with the orders proposed by Meagher JA and with his Honour's reasons.
2. BELL P: One cannot but have great sympathy for the financial losses sustained by the appellants as a result of their dealings with Moylan Retirement Solutions Pty Ltd and its principal, but the appeals must be dismissed for the reasons given by Meagher JA with which I agree.
3. MEAGHER JA: Corporations Act 2001 (Cth), s 601AG enables a person to recover from the insurer of a company that is deregistered the amount that was payable by way of indemnity to the company for its liability to that person. Relying on s 601AG, the appellants - members or self-managed superannuation funds of four family groups - sued the insurers of Moylan Retirement Solutions Pty Ltd (MRS) to recover the amount of its liability to them for investment and financial planning advice given over the five years from 30 June 2006 to 30 June 2011. The appellants alleged that MRS, deregistered on 17 August 2014, was indemnified against those liabilities under one or other of two policies of professional indemnity insurance, in each case the business insured being that of financial planning. The first policy was current from 5 February 2012 to 5 February 2013 (the 2012/2013 policy). The second provided insurance for the following period to 5 February 2014 (the 2013/2014 policy).
4. The three separate proceedings brought by the various appellants were heard together. This appeal is from the primary judge's orders dismissing each of those claims with costs: Esined No. 9 Pty Ltd v Moylan Retirement Solutions Pty Ltd (No 2) [2020] NSWSC 359. Although MRS was liable to the appellants for losses sustained as a result of its misleading or deceptive conduct, negligent advice and breaches of fiduciary duty, an indemnity in respect of those liabilities was not recoverable under either policy.
5. The primary judge held that the 2012/2013 policy did not respond because no "claim" had been made against MRS before May 2013, and the notification made in late January 2013 did not engage Insurance Contracts Act 1984 (Cth), s 40(3). Had that subsection applied, the claims subsequently made would have been treated as made during the period of the 2012/2013 policy. In that event there would have been an issue as to whether before that insurance was entered into there was a non-disclosure entitling the underwriters to reduce their liability to nil: Insurance Contracts Act, ss 21, 28(2).
6. Each of the "claims" made by the appellants against MRS was made, and notified to the underwriters, within the period of the 2013/2014 policy (Judgment [541]-[543]). However, the primary judge found that there was fraudulent non-disclosure and misrepresentation entitling the insurers to avoid that policy under s 28(2) (Judgment [597]). He separately held that there was a breach of the duty of disclosure under s 21 entitling the underwriters to reduce their liability to nil under s 28(3) (Judgment [607], [626], [651]). He also held that the insurance would not have covered MRS' liability to all or some of the appellants because of the operation of four exclusions - the fraud and dishonesty exclusion (cl 7.14(a)), the conflict of interest exclusion (cl 7.19(a)), the statement of advice exclusion (cl 5(c) of the Financial Planners Endorsement) and the unregulated loans exclusion (cl 5(d) of that endorsement).
7. The first, second and fourth respondents are the underwriters of the 2012/2013 policy, whereas those respondents and the third respondent (Liberty) are the underwriters of the 2013/2014 policy. Liberty is separately represented, reflecting its interest in upholding the finding of avoidance of the 2013/2014 policy in the event that cover under the 2012/2013 policy was not enlivened.

The issues in the appeal

1. The issues that arise in the appeal start with the appellants' primary case, which is that MRS was indemnified under the 2012/2013 policy, thereby entitling them to recover the amount of that indemnity as provided by s 601AG. The judge held MRS' total liability, exclusive of interest and costs, to be $4,630,000. If that case is rejected, the appellants maintain that MRS was entitled to be indemnified under the 2013/2014 policy.
2. At this point brief reference is necessary to the circumstances in which the 2012/2013 policy was renewed. On 15 January 2013, the principal of MRS, Mr Christopher Moylan, completed a proposal form for the 2013/2014 policy year addressed to DUAL Australia Pty Ltd (DUAL), acting as agent for the underwriters. That proposal was accompanied by a document headed "Addendum A: Financial Planners" in the form of a questionnaire seeking information about the applicant, MRS, and its clients and business. In addition, MRS completed a "Notification of claim or circumstance out of which a claim may arise". That form was signed by Mr Moylan, dated 13 January 2013, and notified "circumstances" under the 2012/2013 policy. In addition to answering the questions in that form Mr Moylan attached as Appendix A a typed form describing in four single sentence paragraphs what were said to be the "facts or circumstances that may give rise to a claim". The text of Appendix A is set out below at [41].
3. The appellants' notice of appeal and the notice of contention of the first, second and fourth respondents (as underwriters of the 2012/2013 policy) raise the following issues: 1. Whether the notification of 15 January 2013 engaged Insurance Contracts Act, s 40(3) for the purposes of the 2012/2013 policy with the result that cl 7.1(b) of the 2013/2014 policy applied, thereby excluding any claim arising from the notified facts from cover under that policy (appeal grounds 1 and 2). 2. If that notification did engage s 40(3), the following further issues arise under the 2012/2013 policy: 1. Whether there was a breach of MRS' duty of disclosure or material misrepresentation before that policy was entered into, entitling the underwriters to reduce their liability to nil under Insurance Contracts Act, s 28(3) (contention ground 1); and 2. Whether all or any of the statement of advice exclusion, unregulated loans exclusion and conflict of interest exclusion applied to exclude liability under the 2012/2013 policy for some or all of the appellants' claims against MRS (contention ground 2). 1. If the notification in (1) did not engage s 40(3), the following issues arise under the 2013/2014 policy: 1. Whether the primary judge erred in holding that this policy was voidable for fraudulent non-disclosure or misrepresentation (s 28(2)), and that the underwriters were also entitled to reduce their liability to nil (s 28(3)) for innocent non-disclosure (appeal grounds 3 to 16); 2. Whether all or any of the statement of advice exclusion (appeal grounds 25 and 26), unregulated loans exclusion (appeal grounds 37 and 38) and conflict of interest exclusion (appeal grounds 29 to 32) applied to exclude liability under the 2013/2014 policy for some or all of the appellants' claims; and 3. Whether the fraud and dishonesty exclusion applied to exclude cover for four claims made by the fourth to sixth appellants (the Mannings) against MRS (appeal grounds 33 to 36). 1. Whether, in the event that the appeal is otherwise dismissed, the primary judge erred in holding that each of the appellants was jointly and severally liable for the costs of the defendant underwriters at first instance (appeal grounds 43 and 44).
4. As to the remaining grounds of appeal, grounds 39 and 40, which challenge the primary judge's finding as to the total liability of MRS, have not been the subject of any written or oral submission. Grounds 20 to 24 are directed more generally to the primary judge's approach to the construction of the insuring clauses and the specific exclusions relied on and need not be separately addressed. In the course of oral argument, grounds 17 to 19, 27, 28, 41 and 42 were abandoned.
5. Before considering these issues, in the order in which they are formulated and arise, it is convenient to provide a summary of the investments which each of the family groups or their self-managed superannuation funds made on the advice of Mr Moylan, and thereby of MRS, as well as of Mr Moylan's interests in those various investments.

Mr Moylan's interests in the various investments

1. In 2004, Mr Moylan and a solicitor, Mr Michael Hill, incorporated and became directors and shareholders of Moylan Business Solutions Pty Ltd (MBS), which was the principal entity through which Mr Moylan provided accounting services and taxation advice to his clients. In August 2004, they also became the directors and shareholders of MRS, which provided financial advice. MRS obtained an Australian Financial Services Licence (AFSL) in January 2006, and Mr Moylan acted as an authorised financial services representative (AFSR) under that licence. In July 2006, Moylan Investments Group Pty Ltd (MIG) was incorporated. Mr Moylan was its sole director and shareholder.
2. As trustee of the Bolwarra Heights Investments Trust, MIG advanced funds to Charlestown Consulting Pty Ltd, which was in turn trustee of the Bolwarra Heights Property Trust. Charlestown Consulting was an entity controlled by Mr Hill. In August 2006, as trustee of the Bolwarra Heights Investment Trust, MIG agreed to advance $2 million to Charlestown Consulting, which was not to be repaid, and not the subject of interest payments, before 1 August 2011. The Bolwarra Heights land redevelopment was not successful. Charlestown Consulting was wound up in February 2012 and the development land sold by a mortgagee in possession in December 2013. MIG's advances to Charlestown Consulting were not secured and were not repaid. MIG had been wound up earlier, on 9 September 2010.
3. Mr Moylan and a Ms Tomkins were the directors of Wallalong Investment Holdings Pty Ltd, the trustee of the Wallalong Investment Trust. In June 2005, it contracted to purchase land at Wallalong near Port Stephens. MIG advanced funds to the Wallalong Investment Trust for that purpose, and MBS was a shareholder in Wallalong Investment Holdings. The Trust's contract to purchase the land near Port Stephens did not proceed and was eventually terminated by the vendor in May 2010. Wallalong Investment Holdings was wound up in February 2013.
4. The Hardie Estates Property Fund (renamed in July 2007 as the Regional Land Property Fund) was a unit trust holding development land. There were two groups of property developments. The first involved urban and rural residential land in Tamworth, Armidale, Grafton and Wooli Beach, and was called the "Tranche 1" group of developments. The second group, the "Tranche 2" developments, consisted of residential subdivisions in Muswellbrook, Tamworth, Wattle Ponds and Bellbird. The unit holders entitled to financial returns from the two tranches were respectively described as holding "Foundation Units" and class "A" units. Class A unit holders were entitled to quarterly interest at the rate of 15% and to receive a profit distribution on the completion of the development projects.
5. Charlestown Consulting was a Foundation Unit holder, having invested in excess of $700,000 in the Tranche 1 developments. Michael Hill was a director of Regional Land Pty Ltd, the fund manager of the property fund, and Mr Moylan was company secretary of that fund manager from June 2007. MBS also provided accounting services to the Fund. In May 2010, Bankwest Ltd appointed receivers and managers to the companies holding the title to the properties being developed in Tranche 2. In November 2010, the fund manager advised unit holders that it proposed to terminate and wind up the Fund. That notice recorded that the fund had not paid any distributions to unit holders since December 2008, that it was currently in default under its loan facilities, and that the likelihood was that the fund would not pay any further returns or repay any capital to Tranche 1 and Tranche 2 unit holders.

The investments made by each of the family groups

1. These investments were, with four exceptions, made by way of unsecured loan to MIG, either in its own right or as trustee for the Bolwarra Heights Investment Trust. The four exceptions were: loans made to the Wallalong Investment Trust; the acquisition of units in the Regional Land Property Fund, from 2005 a registered management investment scheme; an unsecured loan made to a Ms Trudy Crittle, a client of MRS; and four amounts paid by the Mannings (see further at [23] below) to MIG for the purpose of acquiring shares via the BT Wrap investment platform or being placed on deposit with Macquarie Bank.

Davey family investments

1. In the case of the Davey family, between 5 December 2006 and 4 November 2009, six advances totalling $690,000 were made by way of unsecured loans to MIG by the second appellant, Esined No. 9 Pty Ltd, as trustee for the D & S Davey Family Retirement Fund. In May and July 2007, two loans totalling $110,000 were made by Esined No. 9 to MIG as trustee for the Bolwarra Heights Investment Trust. Finally, in July 2007, Esined No. 9 purchased 300,000 class A units in the Regional Land Property Fund for $300,000.
2. MIG paid interest on the loans made to it up to about October 2009. No further interest or repayment of capital was made on those loans. Nor did Esined No. 9 receive any payments of interest after 2009 or any repayments of principal advanced to the Bolwarra Heights Investment Trust. Finally, Esined No. 9 did not receive any interest on its unit holdings in the Regional Land Property Fund after October 2009. That fund was wound up in April 2011.

Smith family investments

1. The Smith family investments were made by Esined No. 10 Pty Ltd as trustee for the P & V Smith Family Retirement Fund. Between 1 December 2006 and 26 September 2008, $890,000 was advanced by way of unsecured loans to MIG. No interest was paid on those loans after late 2009 and no part of the principal was repaid. In late September 2008 an amount of $100,000 was "invested" in the Wallalong Investment Trust without Mrs Smith's authority. It was later treated as an advance to MIG. Finally, in July 2007, Esined No 10 purchased 300,000 class A units in the Regional Land Property Fund. No interest payments, distributions or dividends were received after late 2009.

Kauter family investments

1. P & S Kauter Investments Pty Ltd as trustee for the Kauter Superannuation Fund made two investments. The first was an unsecured loan made in October 2006 to MIG as trustee of the Bolwarra Heights Investments Trust. In August 2005, the Kauter trustee purchased 150,000 class A units in the then-named Hardie Estates Property Fund. In the period to October 2009, some interest payments were received from MIG and from that fund. The trustee received no payments of interest, repayments of principal, dividends or distributions after 2009.

Manning family investments

1. The Manning family investments were made by Mr and Mrs Manning, by Jalin Pty Ltd as trustee for the Sandgate Auto Superannuation Fund, and by Mrs Manning exercising an enduring power of attorney granted by her parents, Mr and Mrs Maytom, who were elderly and living in a nursing home. Between April 2010 and December 2011, Mr and Mrs Manning made two unsecured advances to MIG totalling $155,000. Two further amounts - $215,000, which was to be invested in shares held in the BT Wrap investment platform, and $350,000, which was to be placed on deposit with Macquarie Bank - were misapplied and used as funds available to MIG. The first of those unauthorised investments was made in October 2010, and the second in March 2011. The Mannings did not become aware of these misapplications of funds until November 2012.
2. Jalin made an unsecured loan of $75,000 to MIG in March 2009 and purchased 200,000 class A units in the Regional Land Property Fund in October 2007 and a further 150,000 class A units in February 2008. It also advanced $100,000 to the Wallalong Investment Trust in September 2009, and $120,000 by way of unsecured loan to Ms Crittle in October 2006. Finally, acting for her parents, Mrs Manning paid $125,000 to MIG to be deposited with Macquarie Bank. That amount was also misapplied and treated as funds available to MIG. In May 2011, a further $100,000 was paid by Mrs Manning to MIG to be deposited into Macquarie Bank. Again, that did not occur, and the money was treated by MRS and Mr Moylan as available to MIG. Whilst some interest was received on advances made to MIG before late 2009 and in relation to the unit holdings, after 2009 no payments of interest, repayments of principal or distributions were received in respect of any of the advances or investments made by the Mannings and Jalin.

Whether the 15 January 2013 notification engaged the cover under the 2012/2013 policy (grounds 1 and 2)

1. Sub-sections 40(1) and (3) of the Insurance Contracts Act provide: (1) This section applies in relation to a contract of liability insurance the effect of which is that the insurer's liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss suffered by some other person is not given to the insurer before the expiration of the period of the insurance cover provided by the contract. ... (3) Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract.
2. The insuring clause (cl 2.1) in the general policy wording for the 2012/2013 policy, and the insuring clause in the Financial Planners endorsement to that policy, provide cover in the form of an indemnity to the insured against claims which are first made and reported to the insurers during the policy period. As such it was a "claims made and notified" policy and satisfied the language of s 40(1). In Newcastle City Council v GIO General Ltd (1997) 191 CLR 85, the High Court confirmed that s 40(3) applies to such a policy and held, overturning the decision of this Court in GIO General Ltd v Newcastle City Council (1996) 38 NSWLR 558, that it applied equally to a "claims made" policy.
3. Accordingly, upon the satisfaction of the conditions for the application of s 40(3) the underwriters of the 2012/2013 policy were not entitled to refuse to indemnify MRS in respect of any later claim arising from the notified facts, notwithstanding that the claim was made after the expiration of the period of insurance. Those conditions are that MRS had given "notice in writing to the insurer of facts that might give rise to a claim against [it]" and that it had done so "as soon as was reasonably practicable after [it] became aware of those facts but before the insurance cover provided by the contract expired". It is not contested that the second of these conditions was satisfied. The issue is whether MRS' notice was "of facts that might give rise to a claim" against MRS.
4. The preamble to the Insurance Contracts Act describes the Act as reforming and modernising "the law relating to certain contracts of insurance so that a fair balance is struck between the interests of insurers, insureds and other members of the public and so that the provisions included in such contracts, and the practices of insurers in relation to such contracts, operate fairly ...".
5. The interests of an insured that are advanced by the reform worked by s 40 are readily apparent in the following description of the process of obtaining or renewing liability insurance against "claims made" in HLB Kidsons v Lloyds Underwriters [2009] Lloyd's Rep IR 178 (Toulson LJ): [131] It is common for a proposal form for professional indemnity insurance to ask the proposer to state whether he is aware, after inquiry, of any circumstances which may (or perhaps "are likely to") give rise to a claim against the would-be insured and, if so, to provide details. Even if such a question is not asked, information about potential claims (unless trivial or their likelihood can be dismissed as remote) is likely to be material to the prospective insurer and therefore disclosable in any event. The prospective insurer is then likely to exclude cover in respect of any claims which may arise from circumstances disclosed to him prior to the policy being agreed. [132] In order to secure protection for the insured against such claims it is also standard for professional indemnity policies, which basically provide cover against the risk of claims being made against the insured during the policy year, to contain a provision enabling the risk of a later claim to attach to the policy where it arises from circumstances of which the insured becomes aware and gives notice to the insurer. It is not merely the insured's awareness of the circumstances, but his giving of notice of them to the insurer, which causes the risk to attach to the policy. (The paragraph numbering of the reported and unreported versions is not consistent. These passages appear in [2008] EWCA Civ 1206 at [130]-[131].)
6. Although his Lordship describes it as "standard" for professional indemnity policies to include a contractual notification provision, the authors of Report No 20 of the Law Reform Commission, Insurance Contracts, were concerned to protect insureds from circumstances where the market would not otherwise provide such cover, including for that class of policy. Paragraph 48 of the Summary of Recommendations to the Report (Report, p xxxiv) identified the objective sought to be achieved by what became s 40: Some forms of liability insurance (eg professional indemnity insurance) apply to claims made against the insured within the period of cover rather than to events which occurred within that period. In some cases, the contract also covers claims made after the period of insurance provided they arise out of an occurrence notified to the insurer within the period of cover. Legislation should make additional cover of this type mandatory.
7. Where there has been a notification "of facts that might give rise to a claim" within s 40(3), the insurer is not relieved of liability "in respect of the claim, when made" (emphasis added), by reason only that it was made after the expiry of the policy period. That language requires that there be a sufficient correspondence between the facts notified as likely to give rise to a claim and a claim subsequently made for the latter to be identified as "the" or a claim arising or resulting from those facts. To answer that description it is not necessary that the notified facts identify the likely claimant or claimants. The notification may be of a problem which of itself may give rise to a claim or claims by persons or entities having particular characteristics, although the quantum of such claims and the identity of the claimants may not be known at the date of notification: see DIF III - Global Co-Investment Fund LP v DIF Capital Partners Ltd [2020] NSWCA 124 at [171].
8. From the insurer's perspective, the extension of cover to include claims made after the period of insurance gives rise to the prospect of potential liabilities which may take a long period of time to resolve. The requirement that the notification be made "as soon as was reasonably practicable after the insured became aware of those facts" is concerned to provide the insurer with knowledge of claims that "might" be made shortly after the insured acquires that knowledge. That characteristic of the notified facts will enable the insurer to evaluate the potential claim or claims, or notified "problem", and provide an opportunity to take steps to avert or minimise or resolve any potential insured loss: as to which see J Rothschild Assurance Plc v Collyear [1999] 1 Lloyd's Rep IR 6 at 22 (Rix J). It also allows the insurer to "more accurately fix its reserves for future liabilities and compute future premiums": see Federal Deposit Insurance Corporation v St Paul Fire & Marine Insurance Co, 993 F.2d 155 (1993) at 158, cited by Giles CJ Comm D in Antico v CE Heath Casualty and General Insurance Ltd (1995) 8 Anz Ins Cas 61-268 at 76,003.
9. The requirement that the notification be of "facts" indicates that s 40(3) is concerned with the notification of objective matters that bear on the possibility of a claim being made, rather than matters of belief or opinion as to that possibility. Similarly, in CGU Insurance Ltd v Porthouse (2008) 235 CLR 103 at [63], the reference to "[a]ny fact, matter or circumstance" in a contractual notification provision was construed as "plainly a reference to objective matters". A fact will be one which "might give rise to a claim" if, alone or taken with other notified facts, it is "reasonably [to] be regarded" as having that character: HLB Kidsons at [142] (Toulson LJ). In other words, the characterisation of the notified facts is to be approached objectively. The reference to the possibility of a "claim", rather than of a liability, encompasses claims which may not have significant prospects of success. As such, the notified facts could include an event which, in common experience, is followed by the making of claims notwithstanding that those claims may have modest or limited prospects of success.
10. In HLB Kidsons the relevant contractual provision required notification of circumstances "which may give rise to a claim" against the insured. Toulson LJ acknowledged that the characterisation of circumstances as answering that description requires an estimation of the likelihood or possibility of a claim. His Lordship continued: [139] At one end of the spectrum, there may be cases in which an insured seeks to notify a circumstance which is too vague or remote to be reasonably capable of being regarded in itself as a matter which might give rise to a claim. This is not as unlikely as it might sound, because an insured at the end of a policy period may have an incentive to give a notification in the widest possible terms for which there may be no real justification. The insurer would be entitled to refuse to accept such a purported notification. [140] In the middle of the spectrum, there may not uncommonly be cases in which different people, possessed of the same knowledge, might reasonably form different views about whether a claim was a real possibility as distinct from a remote risk. In such cases an insurer could not reject a notification of the circumstance, but nor could an insurer complain if the insured did not give such a notification. [141] At the other end of the spectrum are cases in which any reasonable person in the insured's position would recognise a real risk of a claim.
11. However, to the extent that Toulson LJ's reasoning at [140]-[141] suggests it will be sufficient if reasonable minds might differ as to whether notified facts give rise to a realistic possibility of a claim or claims, I respectfully disagree. Section 40(3) does not contemplate that the objective question of characterisation which it poses may have more than one answer at the time the notice was given. The judgment of Rix LJ, with whom Sir Richard Buxton relevantly agreed, is not consistent with this aspect of his Lordship's reasoning: see HLB Kidsons at [72].
12. The primary judge concluded that the facts notified in Appendix A and by the answers to questions in the notification form did not engage s 40(3) because they did not identify "facts" which "might give rise to a claim". His Honour held at Judgment [538] that the notification was of no more than bare "possibilities" which did not identify any particular client, or transaction, or particular loss which might result in a claim. The appellants contend that his Honour erred in doing so. They argue that all that was required was that the notification be of facts that "point to a realistic possibility" that the claims which were ultimately made would arise from those facts, and notwithstanding that one could not identify any particular claimant, or claim, at the time of notification.
13. The facts notified, in the context of the information provided by the questionnaire to which they were attached, were not in my view such as to give rise to a claim. Rather they foreshadowed the possibility of claims if the position became that the "small number of clients" referred to suffered losses as a result of investments made on the advice of MRS over a period of four years. Critically, the notified facts do not include that any such loss had been suffered or that that was more than a potential possibility in relation to any particular client.
14. Mr Moylan's letter to his broker, which attached the completed renewal proposal and notification of circumstances, was forwarded to the underwriting agent, DUAL. Having noted that MRS only had "26 clients, of which 15 have their own self-managed superannuation fund", the letter concluded that "in relation to the potential claim, at this stage it is just a possibility and no action has been brought" (emphasis added).
15. In the proposal, Mr Moylan answered "Yes" to the question "Is the proposer aware, after inquiry, of any circumstances or incidents which may give rise to a Claim?". The form provided space for the provision of "further details". Mr Moylan provided those details by completion of the notification form. That form commences with an "Important Notice" which includes that all questions must "be answered as fully as possible".
16. Mr Moylan's answers to the questions which followed included that the "name of the Claimant or potential Claimant" was "unknown"; that the particulars of the relevant retainer or contract were "unknown - depends on likely client to bring claim"; that the work "out of which the claim arises or may arise" was performed in "2008-2011"; that there had been "no" "claim or the intimation of a claim made verbally"; that Mr Moylan first became aware of the claim or fact or circumstance which may give rise to a claim in August 2011; that the amount claimed was "unknown"; and that his "comments on the quantum of the claim and what is your estimate of your potential monetary liability" were in each case "unknown".
17. Finally, Mr Moylan answered "see attached" or "refer attached" to questions directed to (1) the "fact or circumstances that might give rise to a claim"; (2) his "comments in response ... to the fact or circumstance that might give rise to a claim"; and (3) the "details" he could provide. There followed, as Appendix A, the following four sentences and paragraphs: A small number of clients have invested/lent funds to property investments and/or companies that have to date been unable to repay those funds in total. At the time of the investment all appropriate disclosures were made and clients invested/lent funds with full knowledge of the circumstances at the time. At this stage no loss has been crystallised and no claim or complaint has been formally lodged. We wish to advise the insurance company that there is a chance of a claim against Moylan Retirement Solutions in relation to any loss that may be incurred.
18. It is necessary to focus on what it is about the notified facts which might give rise to a claim. Those facts include that a small number of clients have made investments which MRS advised or recommended, which investments "to date" have been unable to repay the invested funds "in total". It is not stated that the time for repayment of the invested funds has passed or that it is likely that the funds will not be repaid in total. The "advisory work" in relation to which it is suggested any such claim may arise is described in the questionnaire as having been undertaken between 2008 and 2011, in a business that was established in July 2005. No particular client is identified and it is not the fact that any of the "small number of clients" have "crystallised" or "incurred" any loss. Nor is it other than a "potential possibility" that in the final outcome the invested funds will not be repaid in full. Finally, not only has none of the "small number of clients" made a formal claim or complaint, but there has been no verbal claim, or even a verbal intimation of a claim.
19. Consistently with that being the position, the closing sentence of Appendix A states that the subject matter of any potential claim will be "any loss that may be incurred". In short, the notification is that should any investors suffer a loss of invested funds, there is a "chance" that they may make a claim against MRS. The notification does not include any fact which makes a loss more than a potential possibility. It does not identify any defect in the advice given or disclosures made by MRS, and indeed positively asserts that there was none. As such there was no notification of facts which "might give rise to a claim".
20. For these reasons grounds of appeal 1 and 2 should be dismissed. Section 40(3) did not apply, with the result that the 2012/2013 policy did not insure the claims subsequently made by the appellants between July 2013 and early February 2014, and the primary judge was correct to so hold.

Whether there was a breach of MRS' duty of disclosure with respect to the 2012/2013 policy (contention ground 1)

1. This issue does not strictly arise, and the primary judge did not address it, or the other defences relied on by the underwriters in the event that the 2012/2013 policy was engaged (Judgment [604]).
2. Although the rejection of grounds 1 and 2 is dispositive of the appellants' claim relying on the 2012/2013 policy, I propose to consider the first of the remaining defences relied on by the underwriters, namely that there was a breach of MRS' duty of disclosure, and in particular in respect of the following matters: ... that on and from 25 October 2010, 21 March 2011, and 23 May 2011, MRS knew that: (a) $790,000 of its clients' moneys had been deposited or invested into MIG; and (b) MIG had retained or used those moneys for a purpose other than the purpose for which MRS had been instructed to use those moneys; ...
3. Insurance Contracts Act, s 21 provides that the insured must disclose, before the relevant contract is entered into, every matter which the insured knows, or a reasonable person in the circumstances could be expected to know, to be relevant to the decision of the insurer whether to accept the risk, and if so on what terms. The underwriters pleaded that the matters shortly described above were "relevant" in the sense required by s 21(1) and that had they been disclosed they would not have agreed to issue the 2012/2013 policy. The non-disclosure of the same matters justifying relief under s 28(3) was also alleged in relation to the 2013/2014 policy.
4. The proposal for the 2012/2013 policy was dated 23 January 2012 and forwarded by email to DUAL on 25 January 2012. Mr Moylan answered in the negative the question whether he was aware of any circumstances or incident which might give rise to a claim against MRS. The proposal contained a notice describing the insured's duty to disclose matters relevant to the insurer's decision whether to accept the risk, and by signing it Mr Moylan declared that the statements and particulars in the completed form were true and that no "material facts have been misstated or suppressed".
5. When dealing with the non-disclosure defence under the 2013/2014 policy, the primary judge found that the facts set out below were known to Mr Moylan, not disclosed to the underwriters, and "highly relevant to [their] decision whether to accept the risk proposed in both the 2012/2013 proposal and the 2013/2014 proposal" (Judgment [604]). Mr Elias Karim was the senior underwriter who made the decision to renew the policy for 2012/2013 and 2013/2014 in accordance with the recommendation of a more junior underwriter, Ms Alice Hung, who did not have underwriting authority to write the cover sought. His review of the 2012 proposal and supporting materials was concluded on 31 January 2012 when he confirmed to Ms Hung that renewal could be offered on the terms sheet proposed.
6. The matters which the primary judge found were known and not disclosed were summarised in paragraphs 61(m) and (n) and 62(f) of Mr Karim's principal affidavit: (m) on or about 25 October 2010 Mr Moylan advised Graeme and Nancy Manning that they should invest $215,000.00 into their BT Wrap Account. Graeme Manning and Nancy Manning deposited the sum of $215,000.00 into MIG's account for the purpose of purchasing shares to form part of their BT Wrap Account. That never occurred. Those monies were retained by MIG and were used for its benefit. (n) between March 2011 and May 2011 Mr Moylan advised Graeme Manning (on behalf of himself and Nancy Manning) and Nancy Manning (on behalf of Roy Maytom and Joan Maytom) that they should invest a total of $575,000.00 into a Macquarie Bank Limited GMT Account. Graeme and Nancy Manning subsequently executed loan agreements with MIG and caused a total of $575,000.00 to be paid to MIG for the purpose of those monies being invested into a Macquarie Bank Limited GMT Account. That never occurred. Those monies were retained by MIG and were used for its benefit. ... (f) MIG retained monies that were deposited or invested with it by clients of MRS; i) for MIG's own benefit; and ii) contrary to instructions provided to MRS regarding the purpose for which.
7. These findings are not challenged on appeal. The evidence supporting them is that of Mr and Mrs Manning. In relation to the funds to be returned to the "BT Wrap Account", Mr Manning had a conversation with Mr Moylan in which he instructed him that the $215,000 to be repaid by his son and daughter in law was to be put "back where it came from", which between the parties was understood to be in listed securities held via the BT Wrap investment platform. In response Mr Moylan acknowledged the instruction and said, "why don't you get them to draw the cheque in favour of MIG and I'll take care of it". That was done, and the moneys were never used to acquire shares or any other investment available on that platform.
8. Roy and Joan Maytom were Mrs Manning's parents. She held an enduring power of attorney and had assumed control of their financial affairs. In March 2011, Mr Moylan recommended that their moneys be deposited with Macquarie Bank, which he described as "as secure as you can get". The total amount involved was $225,000. Mrs Manning agreed he should go ahead. At the time the investment was being documented, Mr Moylan requested a cheque drawn in favour of MIG as "Macquarie Bank only accepts investments from businesses". Mrs Manning did so, and the moneys were not deposited with Macquarie Bank.
9. At around the same time, the Mannings had sold a property at Hawks Nest. Mr Moylan advised that they should invest the proceeds ($350,000) with Macquarie Bank. Mr Manning agreed, describing it as a "big secure bank". Later, when documents were signed confirming the investment, Mr Moylan requested a cheque in favour of MIG. Mr Manning questioned him as to why, if the money was going to Macquarie Bank. Mr Moylan responded "Macquarie Bank is a commercial bank and any investment in it has to be through a business. MIG will invest your money with Macquarie Bank". It did not, instead using the money for its own purposes.
10. At a meeting in early November 2012, Mr Moylan advised Mr and Mrs Manning that the $215,000 intended to be reinvested in shares and held on the BT Wrap investment platform had been invested in the Bolwarra Heights Investment Trust, that all or part of Mrs Manning's parents' investment had also been invested in that trust, and that the $350,000 being the proceeds of sale of the Hawks Nest property had been invested "in Clarencetown". That appears to have been a reference to a property development project located in Clarence Town (Judgment [332], [338]), about which there is little evidence.
11. At [607] the primary judge held: The Court accepts that had the undisclosed matters been brought to Mr Karim's attention in both policy years, that, as Mr Karim says, he would not have recommended and DUAL would not have agreed to offer terms to MRS on the basis set out in either policy, or indeed at all. Upon proper disclosure of the undisclosed matters, this insurance proposal would never have proceeded past Mr Karim.
12. In argument in this Court, it was suggested that Mr Karim's evidence as to the relevance or materiality of the "undisclosed matters" set out in paragraphs 61 and 62 of his affidavit was to be understood as referring only to the relevance of those matters taken together rather than as addressing specific subject matter, such as the unauthorised investments dealt with above. It is not necessary to resolve this question in order to deal with the ground of contention, because it was expressly dealt with by Mr Karim in his oral evidence. That evidence, which is summarised below, is to be understood in the light of Mr Karim's statement in paragraph 64(a) of his affidavit that he regarded MRS as having provided "conflicted advice that was contrary to its clients' interests, clearly unsuitable, and in breach of its professional duties to its clients", adding that this was "especially so in relation to the investments set out at paragraphs 61(m) and (n) above, where moneys were ultimately invested in MIG contrary to the instructions provided to MRS by its clients".
13. In the course of Mr Karim's cross-examination, the primary judge raised the question as to how Mr Karim's affidavit evidence concerning the "undisclosed matters" was to be understood. Senior counsel for the first, second and fourth respondent underwriters dealt with that matter in re-examination. Mr Karim was asked to assume that Mr Moylan had disclosed to the insurers that he had told his clients that he was a director and shareholder of MIG but had not "told you that he was investing [his clients'] money contrary to [their] instructions". In response to the question whether in that event he would have "written these policies" Mr Karim said, "I would have declined the policy, declined the renewal of the policy instantly on that basis alone. I would have declined it earlier but I would have declined it". "[T]hat basis alone" is to be understood as what Mr Karim was in terms asked to assume had not been disclosed, namely that Mr Moylan was investing his clients' money contrary to instructions. So much is apparent from Mr Karim's cross-examination, in which he did not accept that he "would have written that policy in 2012 regardless of whether or not [the matters referred to in his affidavit] had been disclosed" because "the fact that [Mr Moylan] was misleading his clients about where he was putting their funds" was "pretty relevant to me as the insurer" and "cause for a declinature".
14. That evidence of Mr Karim with respect to the relevance or materiality of those matters was also consistent with the evidence given by the underwriting expert called in the appellants' case, Mr Kelly. Mr Kelly was asked to assume that "a client disclosed to you as an underwriter that he had been using clients' money for unauthorised investments in entities in which the financial planner himself had a personal interest". The question he was to address was whether he would "underwrite that risk". He answered, "No ... I'd certainly do more research on it, but the answer is probably not, I wouldn't write that". That answer is not surprising, having regard to the moral risk or hazard associated with such conduct by a financial planner dealing with fairly unsophisticated investors.
15. It follows that contention ground 1 should be upheld in relation to the non-disclosure of MRS and MIG's misapplication of significant sums by using its clients' moneys to make unauthorised investments in entities in which Mr Moylan had a financial interest. That financial interest was held via MIG, which was trustee of the unit trust in which the moneys were invested, as well as a unit holder in the property trust to which those invested moneys were then advanced. Had the 2012/2013 policy responded to the claims made after February 2013, the liability of the underwriters under the 2012/2013 policy would have been reduced to nil under s 28(3) of the Insurance Contracts Act.
16. This conclusion makes it unnecessary to consider contention ground 2, which would arise only if the appellants were otherwise entitled to an indemnity under the 2012/2013 policy. Accordingly, I have not addressed issue 2(b) as identified at [10] above.

Whether the underwriters were entitled to avoid the 2013/2014 policy for fraudulent non-disclosure or misrepresentation (appeal grounds 3 to 16)

1. As the primary judge records (Judgment [563]-[565], [598]) the underwriters made two arguments as to non-disclosure and misrepresentation concerning the 2013/2014 policy. The first was that there had been a fraudulent failure to comply with MRS' duty of disclosure (engaging Insurance Contracts Act, ss 26(2) and 28(1)(a) and (2)) and a misrepresentation that was made fraudulently (engaging s 26(2) and s 28(1)(b) and (2)), each entitling the underwriters to avoid that contract of insurance. The second, relying on substantially the same material, was that there had been an innocent non-disclosure and misrepresentation entitling them to reduce their liability under the 2013/2014 policy to nil (ss 28(1) and (3)). His Honour upheld each of those arguments (Judgment [597], [651]). The second argument included (Judgment [604]-[607]) that there had been an innocent breach of the duty of disclosure with respect to the matter involving the misapplication of funds invested by Mr and Mrs Manning, which is dealt with above.
2. The primary judge described the fraudulent misrepresentation allegations as the "2013 notification form misrepresentations" because the representations were said to have been made by the "Proposal and Appendix" submitted by the placing broker, NAS Insurance Brokers, on 15 January 2013 (Judgment [566]). His Honour then referred to the fraudulent non-disclosure allegations as addressing two discrete subjects, the "MIG non-disclosures" and the "approved product list non-disclosures".
3. The "MIG non-disclosures" were summarised as being (Judgment [568]): Mr Moylan was a director and shareholder of MIG; significant amounts of MRS' funds under management had been invested in MIG at his recommendation; MIG did not possess sufficient funds to pay interest on the loans made to it by clients of MRS as and when those payments fell due; Mr Moylan knew that MIG and its assets were illiquid and were under significant distress and were of questionable value; but, he nevertheless continued to recommend to clients of MRS that they provide loans to MIG. MIG continued to pay interest on loans made to it by clients of MRS until about October 2009 but only until then. These are referred to in these reasons as "the MIG non-disclosures".
4. In relation to the renewal for the 2013/2014 period, MRS provided the underwriters with a "2013 MRS approved product list containing van Eyk Research AAA rated products". None of those products included the investments made by the appellants. The "approved product list non-disclosures" to which his Honour refers describe the failure to disclose the "MIG, the Regional Land Property Fund, the Wallalong Investment Trust, or the Bolwarra Heights Investment Trust products" in which the appellants and other clients of MRS invested (Judgment [569]).
5. Although the pleaded fraudulent non-disclosures included the misapplication of the funds of Mr and Mrs Manning and Mrs Manning's parents, that subject is not dealt with by the primary judge in his consideration of the "MIG non-disclosures" and the "approved product list non-disclosures". However, it remains relevant to the innocent non-disclosure argument which the underwriters made concerning the 2013/2014 policy.
6. With respect to the allegations of fraud, it is convenient first to consider the appellants' challenge to his Honour's conclusion that the "2013 notification form misrepresentations" were made and fraudulent. Grounds of appeal 11 and 12 purport to address his Honour's findings as to these "fraudulent misrepresentations". However, they do not engage with his Honour's analysis at Judgment [579]-[591]. Ground 11 contends that the primary judge erred in holding that "by lodging the 2013 Proposal and failing to disclose" the identity of the investment products, and Mr Moylan's interests in those products, MRS had fraudulently misrepresented facts relevant to the risk proposed. Ground 12 contends that the primary judge should have held that neither of those matters was a matter relevant to the proposed insurance, and accordingly not capable of being a misrepresentation within s 26(2).
7. In the appellants' written submissions in chief grounds 11 and 12 are not in terms supported. Those submissions accept that the misrepresentations alleged arise principally from Appendix A to the notification form. The appellants' position in response to these misrepresentations emerges most clearly in their written submissions in reply, which contend that the notification form did not form part of the renewal proposal submitted in February 2013 and accordingly "was not directed to nor did it contain any information regarding the risk that MRS sought to [have] underwritten by the 2013 policy". On that basis it is said that the notification was not to be regarded as containing or making any statements or representations concerning the risk which was the subject of the renewal. Rather, the purpose of the notice is said to have been much narrower, namely to notify of facts that might give rise to a claim which if made would be covered by the 2012/2013 policy. The written submission continues: The 2013 Notice, was not directed to nor did it contain any information regarding the risk that MRS sought to be underwritten by the 2013 Proposal. The risks and the information relevant and material to that risk were therefore to be assessed by reference to the 2013 Proposal alone and not by incorporating the 2013 Notice as part of that proposal. To approach the 2013 Notice as part of the 2013 Proposal led the Trial Judge to not only apply the wrong tests as to whether the 2013 Notice satisfied s.40(3), but to rely "principally" on the 2013 Notice to support each of the findings that MRS, by its agent, Moylan, had fraudulently failed to disclose material facts, and/or made fraudulent misrepresentations, thereby permitting the First to Fourth Respondents to void the 2013/2014 Policy.
8. The remaining appeal grounds potentially relevant to this subject (grounds 3 to 10 and 13 to 16) address the primary judge's holdings that there were fraudulent non-disclosures with respect to the "MIG non-disclosures" and "approved product list non-disclosures". Those grounds contend (1) that disclosure of the relevant investment products, their "financial status" and Mr Moylan's interests in relation to those products was not required because of the specific and limited questions addressed to those subjects in the 2012 and 2013 proposals (grounds 3, 4 and 5); (2) that the "financial status" of the investment products in which clients of MRS had invested was not material or relevant and required to be disclosed (grounds 6, 7 and 8); and (3) that the identity of the relevant investment products was disclosed and the underwriters did not pursue inquiries as to Mr Moylan's interests in those products or their financial status, with the result that there was no fraudulent or innocent non-disclosure in relation to the 2013/2014 policy (grounds 9, 10 and 14) or any innocent non-disclosure in relation to the 2012/2013 policy (grounds 13, 15 and 16). With respect to these latter two groups of grounds the appellants rely on (1) disclosure by the production to the underwriters of documents describing MRS' business and the assets of its clients, which were said to indicate that they were engaging in "high risk" or "direct property" investments; and (2) answers in the 2012 and 2013 proposals which refer to MRS' "other select products", a term to be understood by reference to a "compliance audit" document also produced to the underwriters which in turn identified MRS' "unlisted products" as including "Lineburners, Bolwarra, MIG, Wellington, Macquarie, Pacific First".
9. It is not necessary to address these grounds or his Honour's analysis of the "MIG non-disclosures" and "approved product list non-disclosures" in disposing of the appeal against the holding that there was fraudulent misrepresentation entitling the underwriters to avoid the 2013/2014 policy. That issue may be disposed of by consideration only of the "2013 notification form misrepresentations".
10. The submission that this notification was not proffered or to be considered as part of the information relevant to the renewal of the policy for the period 2013/2014 is not supported by the form of the documents submitted to DUAL or by what occurred as between the broker and that underwriting agent.
11. The broker's email to DUAL attached the "duly completed renewal proposal" and "a potential claims notification" and requested that the underwriter "consider this information and confirm your terms". The proposal form contained 13 sections, each consisting of a series of numbered questions. Section 2 ("General Information") question 3 inquired whether the proposer was aware "of any circumstance or incident, which may give rise to a claim". That question was answered "Yes". There followed in the printed form the words "If YES, please provide further details". No details were included in the proposal. However, the notification provides those further details and accompanied the proposal. Section 7 contains the declaration of the proposer. It includes a statement that "should any of the information given by us alter between the date of this proposal and the inception date of the insurance" the undersigned will give immediate notice thereof. Finally, the declaration also secures the proposer's agreement that the "proposal together with any other information supplied by us shall form the basis of any contract of insurance". Whilst Insurance Contracts Act, s 24 prevents a "basis" clause from having effect as a warranty (Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606 at 614-616), this statement nevertheless made clear that the information provided (in this context including the notification) was to be taken into account in determining whether to renew, and if so on what terms.
12. Having correctly concluded that the notification form was part of the materials placed before the underwriters for the purpose of renewing the 2013/2014 policy, and that it specifically provided "further details" in relation to the affirmative answer to question 3 in section 2, the primary judge proceeded between Judgment [579] and [585] to deal with five statements or representations, four of them in Appendix A to the notification and the fifth in Mr Moylan's covering letter of 15 January 2013. The last representation (addressed in Judgment [585]) was not pleaded and accordingly should not have been considered and relied on.
13. In oral argument it was also submitted that one of the four misrepresentations found by the primary judge to be made by Appendix A (that dealt with in Judgment [579]) was not pleaded. That submission was not made by the appellants' written submissions in chief or in reply and is not the subject of any ground of appeal. So far as the pleadings are concerned, the defences of the first, second and fourth respondents allege that by making "the representations set out in the Proposal and Appendix A MRS made fraudulent misrepresentations to the Defendants". There do not appear to have been any particulars sought or provided as to those misrepresentations. Instead the argument, it would seem, proceeded by reference to Liberty's pleading in response to each of the appellants' claims. That pleading described the fraudulent misrepresentations as those "identified in paragraphs 163J and 191 above".
14. Two misrepresentations are identified in para 163J(c). The first is directed to the second paragraph of Appendix A (see [41] above) and pleads and relies on the misapplication of the funds of Mr and Mrs Manning as falsifying the statement that each investment was made "with full knowledge of the circumstances at the time" (see particular C to para 163J(c)(i)). That misrepresentation is dealt with by the primary judge at Judgment [580]. The second misrepresentation, that "no loss has crystallised and no claim or complaint has been formally lodged", is identified in para 163J(c)(ii) and dealt with by the primary judge at Judgment [582]. Para 191 separately alleges that the statements made in each of the four paragraphs of Appendix A did not accurately state each of the three matters in para 187 as known to Mr Moylan, which had the consequence that each of those statements in Appendix A constituted a ""misrepresentation for the purposes of s 26 of the Insurance Contracts Act". The matters pleaded in para 187(b) and (c) falsify aspects of the statements made in the first and third paragraphs of Appendix A. It follows that, contrary to the appellants' submission, each of the four misrepresentations found to have been made by Appendix A was pleaded.
15. Two further matters were put in oral argument. First, it was suggested that whilst Liberty had sufficiently particularised its allegation of fraudulent misrepresentation, the remaining underwriters had not. This produced no unfairness because the appellant plaintiffs treated the relevant pleading to be addressed as that of Liberty and proceeded to do so. Furthermore, the transcript suggests that in relation to the fraudulent misrepresentation defence, senior counsel for Liberty handed up a document which identified the statements said to be fraudulent and the evidentiary references relied on as establishing that those matters were false and fraudulent. Secondly, it was suggested that the statements in Appendix A were not of facts but rather of opinions which had to be falsified by evidence that the opinions were not held or that there were no reasonable grounds for holding them. This argument was not made to the primary judge. The statements in the first three paragraphs of Appendix A are in terms statements of fact and were correctly dealt with on that basis. The statement in the fourth paragraph is in terms an opinion as to the likelihood or prospect of a claim being made. However, that statement was not relied on as containing any misrepresentation.
16. It remains to consider the findings concerning the four alleged misrepresentations in the first three paragraphs of Appendix A. The primary judge held that Mr Moylan was aware that each of the statements was false in the respects his Honour identified and that he "dishonestly concealed the true facts" because "he had reason to believe he would not obtain further insurance, if he had disclosed the true facts to underwriters" (Judgment [586], [596]). It is implicit in this last finding that Mr Moylan believed the statements he was making were relevant to the underwriters' decision to renew the policy (s 26(2)).
17. In relation to the first paragraph of Appendix A (see above at [38]), the primary judge found that the words "unable to repay those funds in total" implied that only some part of the moneys due to the clients had not been repaid. He found that statement to be "actively misleading" and to convey a half-truth. That conclusion is not challenged. Nor are the findings made to support it, namely "that no interest had been paid to most of the clients since late 2009 (but some a little later); and, that none of the principal advanced by the clients had been repaid". By the time of the notification "the gross amount not repaid to all [appellants] was close to the $4.636 million claimed plus some years of accrued unpaid interest, at rates of between 9% and 13.5%" (Judgment [579]).
18. As to the second paragraph, his Honour found that the statements "at the time of the investment all appropriate disclosures were made" and that "clients invested/lent funds with full knowledge of the circumstances at the time" were also "misleading". The findings as to the disclosures made and as to the appellant investors' knowledge of the circumstances are described as those "elucidated elsewhere in these reasons: they cover undisclosed conflicts of interest of Mr Moylan and MRS in recommending these particular investments, undisclosed financial risks (including pre-existing financial defaults) associated with the investments being recommended, and the undisclosed misapplication of funds to destinations other than those authorised by the [appellants]" (Judgment [580]). None of those findings is challenged in the appeal. The "undisclosed misapplication of funds" includes the unauthorised investment of moneys of Mr and Mrs Manning.
19. The third misrepresentation is at the commencement of the third paragraph, being that "at this stage no loss has been crystallised" (Judgment [582]). The primary judge found that by January 2013 "every one of the entities that had 'been unable to repay those funds' to the [appellants] was in liquidation, or assessed objectively, [offered] no realistic prospect of repayment to the [appellants]". That finding is not challenged. MIG, to which advances of $3.316 million had been made, had been wound up 15 months earlier without having repaid any principal or outstanding interest since late 2009. The Regional Land Property Fund, in which investments of $1.1 million had been made, had ceased paying the required coupon rate of interest in October 2009 and was wound up in June 2012. The manager of that fund had advised in November 2010 that unit holders would not receive any further payments of interest or repayments of capital.
20. Finally, the statement in the last part of the third paragraph that "no claim or complaint had been formally lodged" was a half-truth which omitted that by late 2012, "Mr Moylan had engaged for months in increasingly acrimonious discussions with the Mannings in particular, who were seeking repayment of their capital and interest. But he also had more limited, but nevertheless firm, discussions with each of the Daveys, the Smiths, and the Kauters, who were complaining about the same subject" (Judgment [584]). Again, neither his Honour's conclusion nor the underlying findings supporting it are challenged.
21. These findings justified the conclusion that fraudulent misrepresentations were made in relation to the 2013/2014 policy entitling the underwriters to avoid that policy as they did. The challenge to that conclusion, and the grounds relied on to support that challenge, are rejected.
22. There remains the question whether the underwriters were also entitled to reduce their liability under the 2013/2014 policy for innocent non-disclosure with respect to the misapplication of the moneys of Mr and Mrs Manning. I have already dealt with that issue in relation to the 2012/2013 policy (see above at [45]-[59]). For the same reasons there was also an innocent non-disclosure with respect to the later policy, entitling the underwriters to reduce their liability to nil.
23. This conclusion makes it unnecessary to consider the remaining issues with respect to the application of the 2013/2014 policy (being those identified as issues 3(b) and (c) in [10] above).

Whether error in ordering that appellants be jointly and severally liable for costs of underwriters (appeal grounds 43 and 44)

1. The primary judge ordered that the plaintiffs in the three proceedings should be jointly and severally liable for the underwriters' costs. From the outset the three matters were dealt with together. They were heard together and evidence in one proceeding was evidence in the others. The plaintiffs were represented by the same lawyers in the three proceedings, as were the underwriters (with Liberty separately represented). Although the pleadings of each family group varied in relation to their individual circumstances and claims, with minor exceptions they raised closely related, if not common, issues of fact and law. In these circumstances his Honour considered that the plaintiffs in each proceeding should be jointly and severally liable for the costs of the underwriters in the three proceedings (Esined No. 9 Pty Ltd v Moylan Retirement Solutions Pty Ltd (No 3) [2020] NSWSC 930).
2. The appeal from that exercise of the court's discretionary costs power must identify House v The King (1936) 55 CLR 499; [1936] HCA 40 error on the part of the primary judge.
3. In their short written submission in support of these grounds, the appellants contend: For [them] to be jointly liable for the [underwriters'] costs as found by the Trial Judge at [39] ... there had to be a finding of "acting in concert" of which there was no evidence. In the absence of evidence that [they] "acted in concert" no joint liability for costs arose. In finding to the contrary the Trial Judge erred.
4. Relying on the difference between the respective liabilities of joint tortfeasors and several tortfeasors (as explained in Thompson v ACT Television Pty Ltd (1996) 186 CLR 524 at 580-581), the appellants contend that because they did not act in concert in causing the underwriters to incur all of their defence costs, they should not be treated as jointly liable for those costs.
5. The question for the primary judge was whether in each of the three proceedings which were heard together the plaintiffs should separately be ordered to pay the insurers' costs in so far as those costs were incurred in defending that plaintiff's claim, or whether some other order should be made.
6. Although the appellant plaintiffs' claims against MRS were for separate investments made at different times, much of the evidence of MRS' conduct in relation to each was relevant the claims of the other plaintiffs, both because it involved the conduct of Mr Moylan and because it involved the same investments. The remaining issues of fact and law with respect to the liability of MRS and the liability of the underwriters were common, or at least closely related. The primary judge is not shown to have erred in proceeding on the basis that most of the preparatory costs incurred by the underwriters after December 2015, from which time the proceedings were case managed together, and the costs of the final hearing, related to issues common to all of the plaintiffs, and for that reason were recoverable as such from each of the appellant plaintiffs.
7. That being the position, the alternative order would have been that the plaintiffs be jointly and severally liable for the defendants' costs incurred in defending common issues or in the case management of the three matters, and that the defendant underwriters' additional costs incurred solely with respect to the claim brought by one or other of the plaintiffs be paid by that plaintiff. Those costs were likely to be insubstantial when compared to the common costs and his Honour is not shown to have erred in also proceeding on the basis that they were likely to be in a similar order as between the plaintiffs in each proceeding and the underwriters. In the circumstances no error is apparent in his order that the appellants as plaintiffs should be jointly and severally liable for the defendant underwriters' costs of the proceedings. That order also avoids the need for any costs assessment directed to isolating and identifying the common costs, which on any view were to be shared.

Conclusion

1. In the result, the appeal must be dismissed with costs.

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