For reasons given in section 4.2.3, in my opinion s.54 cannot help the Permanent companies on this aspect of the case, except to overcome any deficiency in the immediacy of notification of circumstances that might give rise to a claim.

I held in section 5.1.3 that the retroactive clause applied to exclude FAI's liability only if the Permanent companies were aware of circumstances that might give rise to a claim concerning No.1 O'Connell Street, and were aware that those circumstances might give rise to a claim, prior to 1st October 1990. It follows that the retroactive clause cannot assist FAI on this aspect.

Even if the correct date should be 1st October 1991, rather than 1st October 1990, I would reach the same result; or at least I would do so unless the Permanent companies knew there were circumstances that might give rise to a claim when it received the first of the unit holders' letters on 30th September 1990. I do not think the Permanent companies knew this until the discussion involving Mr. Church on 14th October 1990.

If the retroactive clause had the effect of excluding liability for something which was in substance a non-disclosure, then I think s.33 would in any event prevent the retroactive clause excluding liability.

As noted earlier, the plaintiffs submitted that FAI knew or ought to have known, before agreeing to the thirty-day extension, that a proposal had been submitted to the lead underwriter of the primary layer and that the lead underwriter had required further information concerning property trusts; that FAI had agreed to the extension without making any enquiry as to the contents of the proposal or the further information; and that FAI thereby waived compliance with the duty of disclosure in respect of such matters.

It seems to me arguable that those circumstances could amount to waiver in relation to matters actually disclosed in the proposal or otherwise to the lead underwriter of the primary layer. However, I do not think it could amount to waiver in respect of matters not disclosed to the lead underwriter of the primary layer; and accordingly, if I had found non-disclosure in relation to the No.1 O'Connell Street circumstances, I would not have upheld a defence of waiver.

9. NON-DISCLOSURE AND MISREPRESENTATION CONCERNING NON-INCLUSION OF FAI

As noted in section 2.6, FAI claimed it was entitled to refuse indemnity because facts known to the Permanent companies prior to 1st October 1991, concerning the Permanent companies' intention not to invite FAI to quote for professional indemnity insurance for the 1991-1992 year, were matters relevant to the decision of the insurer whether to accept the risk, and if so on what terms, and were either known to be relevant by the Permanent companies or were such that a reasonable person could be expected to know them to be relevant; and because there was failure to disclose these matters and/or misrepresentation concerning them.

I have set out earlier the relevant parts of FAI's defence.

9.1 Submissions on Section 21, Misrepresentation, and Fraud

Although FAI bore the onus on this point, I will set out first the Permanent companies detailed submissions, because FAI's submissions in chief were very brief. Mr. Gee simply submitted that it was plainly relevant to FAI's decision that other participants in the 1990-1991 insurance program had been invited to quote for the 1991-1992 program, but FAI had been deliberately left out. It was plainly known to Sedgwick Australia, and in particular to Messrs. Daly and Welsh, that this was a matter relevant to FAI's decision; and they had deliberately withheld it, in order to ensure that the insurance was granted. This amounted to fraud. Furthermore, the effect of Mr. Welsh's conversation with Mr. Hunter was to convey to Mr. Hunter that FAI would be invited to quote for the 1991-1992 program, so that there was misrepresentation as well as non-disclosure. What Sedgwick Australia did was within the scope of its authority; and accordingly its actions and its knowledge should be attributed to the Permanent companies.

Mr. Coles submitted that it would be surprising if the intentions of an insured as to whether or not it was going to use a particular insurer would be relevant to an assessment of risk and would need to be disclosed. The Permanent companies themselves did not in fact know that the topic of re-engagement of FAI had the slightest significance: its witnesses so swore, and they were not cross-examined on this. It had to be remembered that the Permanent companies were not aware of the problems in the relationship between Sedgwick and FAI, that extensions were not unusual, and that FAI acceded very readily to the extension, and never raised any issue about any relevant matter. Having regard to its relationship with Sedgwick and the way it had sagged in ratings of insurers and was losing clients, FAI could not have assumed that it would be invited to renew the Permanent companies' insurance. Even when FAI found out it was not to be invited to renew, it still went ahead and accepted the premium and, when it heard about the claim, made a reserve to cover it.

The Act in its language distinguishes between entering into a contract of insurance and accepting the risk: see s.11(9), s.21(1). The case of Pan Atlantic Insurance v. Pine Top (1995) 1 App.Cas. 501, at 530-41, gave a wide definition of materiality, as not requiring that a matter be decisive in the decision of the insurer; but still did not suggest that anything could be material which did not relate to the risk itself. See also Bradford v. Symondson (1881) 7 QBD 456, at 464; In re George and the Goldsmiths General Burglary Insurance Association Ltd. (1899) 1 QB 595, at 611. Section 21 did not in any event apply to matters relevant to the terms on which the risk was accepted, unless they were relevant to the decision whether to accept the risk at all.

If it were submitted that the length of the term of the insurance was relevant, at least to the terms on which the risk was accepted, in that much higher premiums were charged for very short-term insurance, this was not a matter relevant to the risk but rather was a factor reflecting proportionately higher administration costs for short-term insurance. In any case, it was clear that that aspect of the matter was not in the least relevant to FAI's decision: Mr. Hunter and Mr. McIver did not even claim to have adverted to it, but rather claimed that, had FAI known that it was not being invited to participate in the following year's insurance, it would simply have refused the extension outright. Their evidence was in any event given with hindsight, and would not satisfy the Court that FAI would in fact have refused the extension.

Matters relevant to the decision of an insurer whether to accept the risk should not extend to idiosyncrasies of particular insurers, such as an emotional reaction to not being invited to participate in continuing insurance. Furthermore, it should not be interpreted so as to require an insured to disclose its bargaining position, such as its budget for the relevant insurance, or the competing quotes which it had obtained.

In any event, no decision to replace FAI, as alleged in particulars 22.29 and 22.30 of the Statement of Claim, had been made prior to late October or early November.

There was no misrepresentation. Mr. Welsh, in his conversation with Mr. Hunter, did not withhold anything or say anything so as to convey something he did not believe. He understood Mr. Daly's instruction to him to be careful as merely indicating that he should not lead Mr. Hunter to believe either that FAI was to be invited or was not to be invited to renew the insurance. Mr. Hunter did not raise the topic, so there was no occasion for Mr. Welsh to say anything about it. Mr. Hunter's reference to what should happen if renewal material was to be sent in fact indicated that FAI did not have a settled belief that it was to receive renewal material. There was no duty on Mr. Welsh to say anything to Mr. Hunter on this matter, nor did Mr. Welsh say anything which implied the false position. Mr. Hunter did not suggest that any statement had misled him, merely that he did not believe that FAI would have been asked for the extension unless the Permanent companies had intended to offer renewal to FAI. That was not sufficient to amount to a misrepresentation: see Kahlbetzer v. Cincotta (1982) NSWConvR 55-105 at 56,804-5.

In any case, by reason of s.26(2), there could be no misrepresentation, unless there was a statement which the person making it knew, or a reasonable person would know, to have been relevant to the decision of the insurer whether to accept the risk and if so, on what terms. For reasons given earlier, this statement was not relevant; and in any event, the suspicion of Mr. Daly and Mr. Welsh that it could affect FAI's decision was insufficient to amount to knowledge. FAI never told Sedgwick Australia or Mr. Daly or Mr. Welsh that it was relevant. An opinion or suspicion is not enough for knowledge: see Anderson v. The Pacific Fire & Marine Insurance Co. (1872) 7 LRCP 65 at 69; Blackley v. National Mutual Life Association of Australasia (1972) NZLR 1038 at 1047.

Even if Sedgwick Australia or Mr. Daly or Mr. Welsh knew that this matter was relevant, the Permanent companies did not; and knowledge should not be imputed to them. Sections 21 and 26 dealt with the knowledge of the insured and the knowledge of the person making the representation, and there is no relevant provision in the Insurance Contracts Act about imputing knowledge; so one needs to consider the general law. Not all knowledge of an agent is imputed to the principal: see Blackburn Low & Co. v.Thomas Vigors (1887) 12 App.Cas. 531 at 542-3, 537, 540-1; Blackburn Low & Co. v. Haslam (1888) 21 QBD 144; P.C.W. Syndicates v. P.C.W Reinsurers (1996) 1 AllER 774. Knowledge which an agent gains in the course of carrying out the agency may be attributed to the principal (see Ayoub); and knowledge concerning a particular piece of property held by an agent given full authority to manage that property may be attributed to the principal (see Lindsay). However, any knowledge which Sedgwick Australia or Mr. Daly or Mr. Welsh had about the relevance of not inviting FAI to participate in future insurance was not gained in the course of exercise of the agency, nor did it relate to property or business managed by the agent; and so would not be attributed to the Permanent companies. Nor was this a case like Macquarie Bank where the principal had left the agent to do whatever he liked in relation to the arranging of insurance. In this case, Mr. Ham of the Permanent companies was involved in arranging the insurance, he did not know these matters were relevant, and his belief and that of other officers of the Permanent companies should not be overridden by any contrary belief by the agent.

Mr. Gee submitted that the distinction sought to be drawn between matters relevant to the risk on the one hand, and commercial considerations on the other, was extremely artificial; and was not supported by the decision in Pine Top.

The evidence of Mr. Hunter and Mr. McIver was clear: if they had been told that FAI was not being invited to participate in the following year's insurance, they would not have granted the extension; and that evidence was not challenged in cross-examination. Mr. Welsh knew that he had conformed to Mr. Daly's earlier request not to send the renewal material to FAI; he knew that the normal course of events was that FAI would be sent that material, along with the other insurers; and he knew that this was expected by Mr. Hunter. He had a problem withholding the information from Mr. Hunter, and knew that what he did was capable of misleading. Mr. Welsh knew why Mr. Daly had told him to be careful, and knew that if he had disclosed the true position, FAI might not grant the extension. Even if Mr. Welsh, who was very inexperienced in 1991, did not know that this matter was relevant, Mr. Daly certainly did.

This knowledge should be imputed to the Permanent companies. Sedgwick Australia had been employed to use its general knowledge acquired in its practice, and Permanent had left it to Sedgwick Australia to arrange the extension; and accordingly, the case was governed by the Macquarie Bank decision.

In the written submissions for the plaintiffs, it was submitted that particulars 22.29 and 22.30 of the Defence were not in fact true, in that the plaintiffs had not, prior to 1st October 1991, decided that FAI was to be replaced as an insurer of the Permanent companies. It was further submitted that particulars 22.31 and 22.32 of the Defence were not in fact true, because the plaintiffs had not, prior to 30th September 1991, authorised their broker to refrain from involving the defendant in participation of the renewal for the period 1st October 1991 to 30th September 1992; nor had they instructed or asked or authorised their broker to continue to refrain from seeking involvement of the defendant in the 1991/1992 renewal.

In my opinion, the true position is that the Permanent companies had, prior to 30th September 1991, decided that quotes should be obtained from insurers other than FAI, which should then be considered before any approach was made to FAI, and had through Sedgwick Australia actually set about doing this; the Permanent companies contemplated that, so long as the quotes from other insurers were satisfactory, then FAI would not be invited to participate; and their broker, Sedgwick Australia, had been instructed accordingly. In my opinion, it is not therefore strictly correct to say that the plaintiffs had, prior to 30th September 1991, decided that FAI was to be replaced as an insurer of the plaintiffs. It may be that the matters I have found proved are sufficiently within the ambit of particulars 22.29 and 22.30; but in any event, in my opinion, the matters I have found are clearly within particulars 22.31 and 22.32.

The matters as I have found them were known to the Permanent companies, through Mr. Ham, who was the officer of the Permanent companies responsible for arranging insurance. They were also known to Mr. Daly and Mr. Welsh of Sedgwick Australia. I will later be considering the extent to which their knowledge can be attributed to the Permanent companies.

I accept that these matters were not known to be relevant by any employee or officer of the Permanent companies; so the crucial questions are whether they were known to be relevant by Mr. Daly or Mr. Welsh, and if so whether this knowledge is to be attributed to the Permanent companies.

9.3.1 Whether Matters Known To Be Relevant By Mr. Daly and Mr. Welsh

Mr. Welsh agreed that he knew that the normal course of business was for existing Australian underwriters to be asked to renew; and that it was probable that an underwriter being asked for an extension, who was told that he was not to be asked to renew the following year, would refuse the extension.

Mr. Daly agreed in cross-examination that the fact that an underwriter was not to be asked to participate in the following year's insurance was relevant to the underwriter's decision whether to grant an extension and if so on what terms: an underwriter not being asked to participate might be willing to offer a form of extension, but was likely to set terms that were different or special because it was not being asked to renew. In re-examination, he said his belief was that this matter was not relevant to an underwriter's accepting and underwriting the risk, but was relevant in that the premium might be varied or made dependent on what happens after an extension. (It is in fact clear on the evidence that insurers generally require higher rates of premium for a short period of insurance, in order to cover the greater proportional overheads; but that extensions to existing policies are generally granted for short periods on much more favourable terms than for short periods standing alone.)

Mr. Daly also agreed that he believed that if he told Mr. Hunter that FAI was not being invited to participate, it was likely that Mr. Hunter would not agree to a thirty-day extension; and that his telling Mr. Welsh to be careful when speaking to Mr. Hunter was sufficient to convey to Mr. Welsh that he should not volunteer that FAI were not being invited.

Although Mr. Coles submitted that this evidence does not relate at all to the true position, namely that the only decision was to obtain quotes from insurers excluding FAI and to accept them if they were satisfactory, in my opinion this distinction is too fine. So in my opinion the evidence justifies the conclusion that Mr. Daly and Mr. Welsh believed that, if they had disclosed to FAI the matters referred to in section 9.2, it was likely that the thirty-day extension would not have been granted. I accept the evidence of Mr. Hunter and Mr. McIver that the extension would not in fact have been granted; with the result that, if these matters had been disclosed, they certainly would have been relevant to FAI's decision whether or not to grant the extension. Mr. Daly and Mr. Welsh believed the matters were relevant in this sense; and as I have said, that belief was true. With some hesitation, I think the belief was held with sufficient assurance to amount to knowledge.

However, Mr. Coles contended that this still was not within s.21 of the Insurance Contracts Act, because (1) the matters were not relevant to the assessment of the risk as such; (2) even if they could be relevant to the terms on which a hypothetical insurer would have accepted the risk, this relevance was not adverted to by Mr. Daly or Mr. Welsh; and (3) in any event, this relevance would not have been relevant to FAI's decision, which would have been to react emotionally and reject the insurance entirely. In support of this proposition, Mr. Coles submitted that it could not be relevant and disclosable that an insured had approved a budget for a particular insurance, or that it had competing quotes in specified amounts, even though these matters could well be relevant to the terms on which an insurer offered insurance. Similarly, it was not relevant that an insured had bargained away a right to reimbursement for loss from third parties, thus affecting the insurer's right of subrogation: see Guthrie House v. Cornhill Insurance (1982) 2 ANZ Ins.Cas. 60-466.

In my opinion, there should not be drawn for the purposes of s.21 a sharp distinction between matters relevant to the assessment of the risk, and purely commercial considerations. I think this is too fine a distinction, and I think that s.21 does apply to matters which are relevant in a commercial sense to the terms on which an insurer is prepared to give insurance. Accordingly, if an insurer would require higher pro rata premiums for a short period of insurance, in order to cover the greater proportional overheads in relation to such a policy, then that in my opinion is a matter relevant to the terms on which the insurer is prepared to grant insurance. Another reason why I think this suggested distinction should be rejected is that otherwise s.26 could amount to a charter to lie on commercial matters. It would appear that, on Mr. Coles' submissions, an insured could deliberately lie about its intention to ask for a quote for future insurance, or about its subrogation position: on his submissions, the Permanent companies could have deliberately lied to FAI by saying that they intended to ask FAI to participate, knowing that this would induce FAI to grant the extension, yet this would not have been a misrepresentation within s.26, because it would not be relevant to FAI's decision whether to accept the risk and if so on what terms; and it could not have been otherwise relied on as misleading conduct, because of s.33.

However, there is another distinction which I think has some support from the Guthrie House decision. Section 21(1) requires disclosure of every matter known to the insured (or to a reasonable person) "to be a matter relevant" to the insurer's decision; but does not in terms require disclosure of every matter which, if volunteered, would be known to be relevant to the insurer's decision.

It could be that, if an insured had volunteered that it had a budget for insurance of $10,000.00 and that the only competing quotes it had obtained were for $15,000.00, then an insurer which quoted $5,000.00 for the insurance would not have done so; and that these matters were known to the insured. However, if the distinction I have suggested is a valid one, the budget and competing quotes would not be relevant to the decision if they were not disclosed, because the questions of the insured's budget and competing quotes would not have been factors in the insurer's actual decision. The insurer would have made no assumption about these matters, nor would it have made any assumption that they would have been disclosed by the insured. By contrast, anything relevant to the risk itself would be relevant whether disclosed or not, because the insurer would make a decision on the basis that the insured had disclosed everything relevant to the risk known to the insured.

The case of Guthrie House was a decision concerning the general law duty of disclosure, so it is not directly applicable to s.21, and in any event, I express no view on its correctness. However, that case did distinguish Tate & Sons v. Hyslop (1885) 15 QBD 368, a case in which the insured had not disclosed the terms of a contract limiting the liability of a third party for the loss insured against, and thus affecting the insurer's right of subrogation. In Tate & Sons v. Hyslop, this was held to be material, because the insurers had given notice that they would charge different rates according as to whether or not liability was limited. In those circumstances, the limitation of the liability of third parties was material; whereas in Guthrie House, where the insurers had not given such notice, a limitation of the liability of third parties was held not be material. Guthrie House could be explained on the basis that insurers did not in fact take into account whether or not subrogation was limited in deciding whether to enter into an insurance contract or deciding the terms on which insurance was given, even though this matter, if known, could be relevant to the actuarial calculation of premiums which an insurer needed to charge.

On this basis, a statement actually made about that kind of matter could be relevant under s.26(2) even if, had the statement not been made, the matter itself would not have been relevant under s.21. Thus, if an insured stated that it had competing quotes at $500.00, and that it would give insurance business to the insurer if the insurer matched these quotes, whereas in truth it only had competing quotes for $1,500.00, that statement could be relevant under s.26(2) and thus be a misrepresentation, even though, if nothing had been said, the existence of competing quotes would not have been relevant under s.21.

The evidence in the present case indicates that, in the absence of a wider relationship between the insurer and the insured, an insurance for a term of one month would generally involve much higher rates than insurance for one year. However, an extension for a short period such as one month is sometimes sought from and granted by existing insurers; and in such cases, the extension is generally granted either pro rata or pro rata plus a percentage (20% in this case), perhaps with provision that if there is a claim a full year's premium will be paid, and/or a provision that if the insurance is not renewed the premium will be charged at short-rate terms. This is done as something of a favour to the insured (because short-rate terms would be very much higher), generally on the basis of the business relationship and/or on the assumption that the insurer will be given the opportunity to continue that relationship.

In my opinion, where an extension of this kind is sought, the prospect that the insurer would be asked to quote for a renewal would, for a hypothetical reasonable insurer, be relevant to whether the extension is granted and if so on what terms, whether specifically raised or not. Generally, a decision whether or not to grant such an extension would not be made without advertence to the possibility that renewal would be sought, or at least an assumption that renewal would be sought. This does not, of course, mean that an extension would only be granted if there was to be a renewal: in the present case, AMP granted an extension, even though it had indicated that it was not interested in continuing the insurance. However, in my opinion, it does mean that the prospect of renewal is relevant, whether or not the issue of renewal is explicitly raised or not. It seems to me that whether this relevance is because, if the insurer was told there was to be no renewal sought, it would disinterestedly calculate higher short-term rates, or because it would in that event emotionally refuse the extension altogether, is not to the point.

In giving their reasons why they would have refused the extension, Mr. Hunter and Mr. McIver adverted to such things as the bad relations between FAI and the Sedgwick organisation, the sentiment that if FAI was not good enough for insurance for the ensuing year why was it good enough for a one month extension, and a belief that there is a tendency for relatively more claims to be made in an extension period. These considerations were attacked as unreasonable and emotional. However, even if these considerations are somewhat subjective and emotional, I do not consider them to be entirely unreasonable. And in any event, this attack does not touch the point that in asking for a short extension, an insured is trading on its business relationship with the insurer, so that it is relevant to the grant of the extension that the insured is intending to sever that relationship; and that since an insurer asked for an extension would assume that the extension is sought on the basis of the business relationship, an intention to sever the relationship is relevant even if the matter is not expressly raised.

In that sense, in my opinion, Messrs. Daly and Welsh believed the matter in question to be relevant to FAI's decision, and this belief was true. In my opinion also, this belief was held with sufficient assurance to amount to knowledge.

9.3.2 Whether the Knowledge of Mr. Daly and Mr. Welsh is to be Attributed to the Plaintiffs

I accept Mr. Coles' submission that not all knowledge of an agent is to be attributed to the principal. I accept that, if a matter comes to the notice of an agent in another transaction, and is not adverted to in connection with the transaction in question, then normally that knowledge will not be attributed to the principal: see Blackburn Low & Co. v. Thomas Vigors (1887) 12 App.Cas. 531. Furthermore, knowledge that an agent is acting in fraud of the principal will normally not be attributed to the principal: In Re Hampshire Land Co. (1896) 2 Ch. 743 at 749; and cf. Deutsche Ruckversicherung Aktiengersellschaft Insurance Co. Ltd. v. Walbrook (1995) 1 Ll.LR 153, P.C.W. Syndicates v. P.C.W. Reinsurers (1996) AllER 774.

However, there are a number of categories of knowledge which are attributed to principals.

The case of Lindsay is authority for the proposition that, in relation to the insurance of a particular piece of property, the knowledge concerning that property of a person to whom the management of the property is delegated is attributed to the principal. In my opinion, that is reasonable, because an insured seeking insurance, and having a duty of disclosure, would be bound to enquire from a person to whom it had delegated the management of the property to be informed of matters concerning the property that could be relevant to insurance. So the manager's knowledge of matters concerning the property would be attributed to the insured; although I doubt that the manager's knowledge of relevance of these matters would be so attributed: I think the duty of the insured would be to ask the right questions to get information from the manager about the property, but not to ask or rely on the views of the manager as to the relevance of these matters to the insurer.

The cases of Ayoub and Macquarie Bank are authority for the proposition that, if an insured leaves it to an agent to obtain insurance and to discharge the insured's duty of disclosure, then the knowledge of the agent, both of matters and of their relevance, is to be attributed to the insured.

There may be further questions that arise in an intermediate position, where the insured itself undertakes to discharge a duty of disclosure, but also uses an agent such as a broker. In that case, the broker may have a duty to pass on its knowledge to the insured, in which case the insured would be attributed with knowledge which the broker should have passed on. That knowledge would include knowledge obtained in the very transaction, it may include knowledge which has been specifically adverted to by the broker in the course of the same transaction, and it may include knowledge which the agent has been engaged to obtain and/or use. In this situation, there may be a problem where the knowledge and beliefs of the insured itself, and those of the agent, are contradictory: cf. Brambles Holdings Ltd. v. Carey (1976) 15 SASR 270; Re Chisum Services Pty. Ltd. (1982) 1 ACLC 292.

In the present case, it seems to me that the Permanent companies did themselves undertake to discharge the duty of disclosure in relation to renewing insurance for the 1991-1992 year, so that in relation to that matter there could be this problem of combining contradictory knowledge or beliefs of different persons. However, in relation to the obtaining of the thirty-day extension, this matter was left entirely to Sedgwick Australia, and fulfilment of the associated duty of disclosure was left entirely to Sedgwick Australia. In those circumstances, I think authorities such as the Macquarie Bank case require me to hold that Sedgwick Australia's knowledge, including Mr. Daly's and Mr. Welsh's knowledge of relevance, is to be attributed to the Permanent companies.

It follows that, in my opinion, in respect of the matters substantially alleged in particulars 22.31 and 22.32 of the Defence, a breach of s.21 by the Permanent companies is made out.

9.4 Misrepresentation, Fraud, and Utmost Good Faith

I accept that, when he agreed to grant the thirty-day extension, Mr. Hunter believed that FAI would be invited to participate in the renewal for 1991-1992; that is, that the Permanent companies and Sedgwick Australia intended to invite FAI to quote renewal terms. If this was impliedly asserted to Mr. Hunter by what Mr. Welsh said and did not say, then this would be a misrepresentation.

What Mr. Welsh actually said was that the London underwriters were considering the terms on which insurance would be renewed, so that the Permanent companies needed a month's extension; and this was true. Mr. Welsh also asked FAI to join in the extension; and this was a request, not a representation. Mr. Welsh knew that the Permanent companies and Sedgwick Australia did not at that time intend to invite FAI to quote for renewal terms, unless satisfactory terms could not be obtained from other insurers; and Mr. Welsh was careful not to convey this to Mr. Hunter, because of a concern that if he did so, FAI would not grant the extension. But he was also trying to be careful not to give the false impression that FAI would be invited to quote.

I accept that Mr. Hunter took what Mr. Welsh did say as indicating that the Permanent companies and Sedgwick Australia intended to invite FAI to quote for renewal. In my opinion, the crucial question is whether this was just a conclusion that Mr. Hunter arrived at, or was something that was actually asserted by implication in what was said to him.

On the whole, taking into account the circumstance that extensions of this kind are normally granted in the context of a continuing relationship, as something of a favour predicated on the continuing relationship, I think what was said was enough to assert to Mr. Hunter that FAI was to be invited to quote renewal terms. However, I do not think that Mr. Welsh intended to assert this to Mr. Hunter; so that while what was said was, in my opinion, enough to constitute a misrepresentation, I am not satisfied that it was enough to base a finding that the misrepresentation was fraudulent.

I have said that, while what Mr. Welsh said to Mr. Hunter was enough to amount to a misrepresentation, I do not think an intention has been shown sufficient to justify a finding that the misrepresentation was fraudulent.

On the other hand, in relation to non-disclosure, it could be said that Mr. Daly and Mr. Welsh knew certain matters, knew them to be relevant to FAI's decision, and deliberately withheld them in order to ensure that FAI made a favourable decision; and there is authority that that is enough for fraud in relation to non-disclosure. However, it seems to me that would be a harsh finding in circumstances where, in my opinion, Mr. Daly and Mr. Welsh believed that there was no duty to disclose the Permanent companies' commercial intentions. I have found that these matters were disclosable under s.21 only after making a decision which I have found very difficult, and which I have reached after some weeks of reflection. Mr. Daly and Mr. Welsh had to make a quick decision in a difficult situation. I do not think either Mr. Daly or Mr. Welsh are dishonest persons; and I think they did what they thought appropriate when they had to make a quick decision in a difficult situation. I am not prepared to find that the non-disclosure was fraudulent.

In any event, there will be no difference in the result on the No.1 O'Connell Street claim whether I find fraud or not. In my opinion, FAI would not have granted the extension at all if there had been the disclosure required by s.21, and the effect of s.28(3) is then that FAI's liability is reduced to nil, or possibly to the return of the premium.

Of course, the question of any possible liability of Sedgwick Australia to the Permanent companies is not before me. I note however that, if the relevant matter had been disclosed and if FAI had refused insurance, it may be that no-one else would have covered FAI's share of the insurance for the thirty-day extension. That possibility is highlighted by the circumstance that, because of the non-inclusion of FAI in the 1991-1992 insurance, the Permanent companies were in fact not fully insured for some time after the thirty-day extension finished on 30th October 1991.

I do not think the requirement of utmost good faith would affect this matter one way or the other.

9.5 Sections 28, 31 and 54

I have already found, as a fact, that FAI would not have granted the thirty-day extension had it been told that the Permanent companies had decided that quotes should be obtained from insurers other than FAI, which should be considered before any approach was made to FAI; and that it was contemplated that, so long as the quotes from other insurers were satisfactory, FAI would not be invited to participate. The effect of s.28(3) is that FAI is entitled to be placed in the position it would have been in if the non-disclosure and misrepresentation had not occurred; so that its liability is reduced to the amount of the premium it received for the thirty-day extension. I do not think the plaintiffs can be assisted by s.31 of the Insurance Contracts Act; and I think it also follows from my earlier discussions of s.54 that they are not assisted by this section either.

As noted earlier, the plaintiffs say that by 11th November 1991, FAI knew that the plaintiffs had decided not to invite FAI to quote for the 1991-1992 year; that FAI made no enquiry as to when or why this decision was made; that in January 1992 FAI accepted the premium for the thirty-day extension; and that FAI thereby elected to affirm the extension.

However, in circumstances where FAI did not know, even then, that in substance the decision not to invite FAI to renew had been made before the extension was negotiated, and where FAI did not know that a notification had been made under the thirty-day extension, I do not think that this could amount to affirmation or election. A subsequent decision by the Permanent companies not to invite FAI to renew would not itself be a ground for avoiding the thirty-day extension.

It follows from my earlier discussion that defences relating to the notification point, and relating to non-disclosure and misrepresentation concerning No.1 O'Connell Street, fail in relation to the Target Fund claim, as they did in relation to the No.1 O'Connell Street claim. Accordingly, the remaining live issue concerning the Target Fund claim concerns whether FAI's layer of the multi-layer policy is reached.

In my opinion, the major difficulty which the plaintiff companies face in this matter is that, on the basis of the previous discussion, FAI was entitled have its liability reduced to what it would have been if there had not been a non-disclosure or misrepresentation, that is, in view of my findings, if FAI had not granted the thirty-day extension. In this respect, it may be no different from the situation which would have obtained had I found that FAI was entitled to avoid the thirty-day extension for fraud, and had done so. The penetration of FAI's layer under the twelve-month policy, under which it would be liable, could only occur by reason of a claim made during the thirty-day extension granted by the other insurers; that is, a claim falling outside the period for which FAI (on this hypothesis) granted insurance. Could FAI's twelve-month policy be engaged, when the primary layer is exhausted only by a claim made outside that twelve-month period?

For FAI, it was submitted that FAI's first excess layer can only be reached if the claim or claims which exhaust the $5 million primary layer are a claim or claims made during FAI's period of insurance of the first excess layer. This was confirmed by the terms of FAI's first excess layer placing slip for the twelve months ended 30th September 1991, which provided that the period of insurance was "1 October to 30 September 1991 both days inclusive", and that the limit of indemnity was: "$10 million any one claim and in aggregate for all claims during the period of insurance including costs and expenses IN EXCESS OF $5 million any one claim and in aggregate for all claims during the period of insurance including costs and expenses". The Target Fund claim was the only claim during the period of insurance, and it did not exceed $5 million.

For the Permanent companies, it was accepted that, at least if FAI was entitled to avoid the thirty-day extension and did so, and if the No.1 O'Connell Street claim did not fall within the twelve month insurance, any sum spent on the No.1 O'Connell Street claim must be disregarded. However, it was contended that this left FAI liable for 35% of $119,116.91, that is $41,690.92.

In the event, I have not found fraud, so I have not found that FAI was entitled to avoid the thirty-day extension. However, I have found that, but for non-disclosure and misrepresentation, FA would not have granted the thirty-day extension; and thus that it is entitled to be placed in the position in which it would have been if it had not granted that extension.

If FAI had not granted the extension, it would not have received the premium for it, and it would not have contracted for insurance beyond the twelve month period 1st October 1990 to 30th September 1991. In those circumstances, in my opinion, its excess layer would be reached only by virtue of the claims made within that twelve month period, and not by virtue of claims made within an extended period granted by insurers on the primary layer but not (on this hypothesis) by FAI.

However, assuming the correctness of figures given in paragraph 84 of the affidavit of Mr. Daly of 7th June 1996, it would appear that payments of $5,119,116.91 have been made in respect of the Target Fund claim. Unless FAI can satisfy me of some error in those figures, it would follow that it is liable, as submitted by the Permanent companies, to pay $41,690.92 in respect of that claim.

In the result, all defences of FAI have failed except one; but that defence has been sufficient to defeat substantially the claim of the Permanent companies, apart from an amount equal to the premium paid to FAI for the thirty-day extension, and a sum of a little over $40,000.00.

1. It was relevant to FAI's decision to accept the risk of the thirty-day extension of insurance from 1st October 1991, on the terms on which it did, that the Permanent companies had decided to obtain quotes for the following insurance year from insurers excluding FAI and had actually set about doing so; and that they had decided to seek insurance from FAI only if satisfactory quotes could not be obtained from insurers excluding FAI.

2. Sedgwick Australia through Messrs. Daly and Welsh knew these matters, and knew them to be relevant to FAI's decision.

3. Since the Permanent companies left the organisation of the extension entirely to Sedgwick Australia, Sedgwick Australia's knowledge is to be attributed to the Permanent companies.

5. The effect of Mr. Welsh's communication to Mr. Hunter on or about 27th September 1991 was to represent that FAI was to be asked to quote for insurance for the following year.

6. Had the non-disclosure and misrepresentation not occurred, FAI would not have granted the thirty-day extension.

7. I am not satisfied that fraud has been established.

8. The Permanent companies' claim in respect of No.1 O'Connell Street was made during the thirty-day extension, and is covered if at all only by the thirty-day extension.

9. Under s.28(3) of the Insurance Contracts Act, the liability of FAI in respect of the No.1 O'Connell Street claim is reduced to the amount of the premium FAI received for the thirty-day extension.

10. The claim in respect of the Target Fund was made during the twelve months insurance from 1st October 1990 to 30th September 1991, and FAI is liable to pay just over $40,000.00 in respect of that claim.