Plaintiff v Defendant

2 The loan was brokered by the defendant Miller & Associates Insurance Broking Pty Ltd ("Miller & Associates") which was retained by Consolidated Timber as its broker and which was working in conjunction with another broker, Insurance Finance Australia Pty Ltd ("IFA"). IFA was a third party to this proceeding but this claim has been discontinued. The contest, then, was between BMW Finance and Miller & Associates. In this case I accept that, in the brokers' dealings with BMW Finance, no distinction is to be drawn between Miller & Associates and IFA; the one spoke for the other.

3 There was agreement as to quantum. The amount of the loss of BMW Finance was $2,797,691.55 including interest as at 8 March 2001.

4 In order to understand this contest I need say something about insurance premium funding loans. As the name suggests such a loan is typically obtained by a proposer for insurance seeking funds for the payment of the premium for such insurance. Typically, too, the insurance policy itself provides the security for repayment to the lender. This means that, if the borrower defaults, the lender may exercise the borrower's right to cancel the policy and to recover the premium unused. Since the value of the security lies in this right to cancel the policy, it follows that, where the policy is non-cancellable, it provides no security.

5 This security was unavailable to BMW Finance in this case because the policy was not cancellable and, further, because the insurance company which issued the policy was HIH Casualty and General Insurance Limited ("HIH"), which was unable to meet its commitments in March 2001.

6 The case put against Miller & Associates is that BMW Finance, on or about 5 October 2000, requested it to provide details of the insurance for which its client's loan was sought.[2] In response to this request, Miller & Associates on 9 October forwarded an HIH certificate of insurance for policy number 99NK28949 standing in the name of Plantation Management Corporation Ltd ("Plantation Management"). In various ways this was said to amount to a representation by Miller & Associates that the policy existed and that it was a cancellable policy, that is, it was a policy of insurance which was suitable to provide security for the loan which BMW Finance was asked to make to Consolidated Timber.[3] The representation, however it be formulated, was said to constitute misleading and deceptive conduct[4] and to have been made negligently.[5] It was also put that there existed between BMW Finance and Miller & Associates a fiduciary relationship and that, in breach of its duties as fiduciary, Miller & Associates failed to provide details of the insurance policy and to disclose all information relevant to the decision of BMW Finance in determining whether to make the loan.[6] A further cause of action was put in breach of contract.[7]

7 In 2000, the national insurance manager of BMW Finance was James Mark Reynolds. Mr Reynolds told me that he had previously been employed with the Bank of Melbourne where he came to know another employee at the bank, Mark Merton. The two men, after they left the bank, moved into the field of insurance premium loans and they remained business colleagues and friends. Mr Merton in 2000 was managing director of the broker, IFA. Mr Reynolds was assisted in this work by Cameron Robert Newton Jones, who then held the position of manager, insurance products. The premium funding department of BMW Finance, then, comprised these two men as well as an employee who was referred to simply as Joanne, who was described as an insurance consultant, and Caitlyn Warnecke, a junior trainee who had in late 2000 been with BMW Finance for no more than six months. For completeness, I mention at this stage that Mr Reynolds' immediate superior was Horst Kolo, the managing director of BMW Finance. Another director of BMW Finance who was mentioned in evidence was Alan J. Crookes. The BMW Finance premium finance department conducted business of about $300m per annum with loans varying from $1500 to $60m.

8 Mr Reynolds told me that the majority of premium loans which he made on behalf of BMW Finance were for and were secured by cancellable policies. There were, however, a minority of loans for non-cancellable policies, and in 2000 these represented about 25% of all premium loans made by BMW Finance. These non-cancellable policies were typically for workers' compensation insurance. Policies which were referred to simply as property policies were usually, but not always, cancellable. Property policies were policies where the risk was some loss of or damage to property. Alistair Raymond Mitchell, a very experienced insurance broker, told me that examples of non-cancellable property policies are policies in respect of seasonal crops, contract works or other specific contracts. He said that since a plantation was not a seasonal crop, a policy in respect of that property would normally be cancellable. Mr Reynolds said that, where a loan in respect of a non-cancellable was made, BMW Finance would protect itself against loss, presumably by satisfying itself of the borrower's credit standing and, he said, by covering the risk of borrower's default with its own credit risk insurance cover which it held, also with HIH. No additional security was taken.

9 In late September 2000 Mr Merton of IFA telephoned Mr Reynolds seeking a quotation for a premium loan of $3.975m for a client, Consolidated Timber. The loan was to be disbursed by three payments in October of 2000, 2001 and 2002, and repaid by the borrower by 30 monthly instalments. Mr Merton said that another broker, Miller & Associates, was involved in the transaction and that this was a broker who was well established overseas but was a fairly new company in Australia. He suggested that Miller & Associates might, in the future, be a source of business for BMW Finance.

10 In response to this inquiry, Mr Reynolds prepared a quotation dated 20 September 2000. The calculations upon which that quotation is based show that there were to be three draw-downs as requested, on 30 October 2000, 30 October 2001, and 30 October 2002 and that the monthly instalments were to be $143,962.50. The effective interest rate, too, is shown as 6.99%. At the foot of this quotation there is a box containing the following:

"This quotation is subject to approval and receipt of completed contract and full policy information".

11 Mr Reynolds explained the manner in which BMW Finance processed such a loan application. The lender would prepare a quotation which would be sent to the broker and, if acceptable to the client, the broker would advise. The lender would then send to the broker a loan application form which, when executed, became the loan agreement. Before the loan was made, the lender would typically require to receive an executed application form, a copy of the policy or the policy schedule or an invoice to show what was the underlying policy, and also a direct debit form for periodic withdrawals from the borrower's bank account for the payment of the instalments. Finally, the lender would expect to receive in advance the first instalment. When these documents were in hand the normal practice was for the broker to carry out the usual credit and corporate investigations and, if satisfied, the loan would be approved and the broker advised accordingly. The sum advanced would then be sent to the broker in terms of the loan agreement.

12 Following the borrower's approval of the 20 September 2000 quotation, BMW Finance on 25 September 2000 sent to the brokers a standard form letter signed by Mr Jones setting out the details of the proposed loan, and enclosing a form of loan application and a direct debit authority for execution and return. There was in the letter no request for policy details. A copy of these documents was sent to Mr Merton by fax signed by Ms Warnecke; the originals were sent by post to Miller & Associates.

13 In this letter Mr Jones describes the monthly instalments as $148,036.63. It will be noted that this is an amount different from that in the 20 September quotation. An examination of the calculations underlying the figure given by Mr Jones in the letter shows that it is based on two draw-downs, one 30 days after the loan is made and the second 30 days later. Furthermore, the effective interest rate was increased from 6.99% to 9.4%. These changes were not explored in evidence.

14 In any event, shortly thereafter, the proposed loan changed. Mr Jones prepared a second quotation dated 26 September. In this quotation, the amount of the loan remained at $3.975m, but the effective rate of interest is shown as 10.49% and the monthly instalments as $149,893.01. The BMW Finance calculations underlying this second quotation, show that the brokers' commission was increased from 1% to 2% so that it became $79,500, a figure which I was told did not include GST. This commission was payable to the brokers by BMW Finance in addition to the $3,975,000 required, but it was added to the instalments payable which then included principal, interest and commission.

15 It was accepted before me that, notwithstanding that the commission was to be paid by BMW Finance, the brokers were retained by and acted at all times as agents for Consolidated Timber. In fact, in addition to its commission, Miller & Associates was paid a success fee of $110,000 by its client, Consolidated Timber.[8] The BMW Finance quotation of 26 September and the supporting calculations also show that there were to be two draw-downs each of $1,987,500 on 30 October 2000 and 30 November 2000, as in the letter of 25 September. The words in the box at the foot of this second quotation were similar, but not identical, to those in the first quotation:

"This quotation is valid for 21 days subject to approval and receipt of completed contract and full policy information."

16 This must have been acceptable to Consolidated Timber, for, on the same day, Mr Jones sent to Miller & Associates another standard form letter setting out the details of the new loan and enclosing a loan application and a direct debit authority for execution. These, together with a cheque for $151,085.51, representing the first repayment and stamp duty, were to be returned to BMW Finance. Again, no details about the policy were requested. I mention, too, a surprising discrepancy between the details of this proposed loan and that referred to in the quotation of 26 September upon which it was based. The interest in the letter is shown as a flat rate of 10.49%. This is in fact the rate of interest described in the quotation as the effective rate of interest. The calculations confirm that the quotation is correct; the flat rate of interest is 13.13%. This may have been an oversight on the part of Mr Jones.

17 On 2 October Consolidated Timber faxed directly to BMW Finance a copy of the completed loan application with a request that the memorandum of acceptance be provided as soon as practicable. The fax concludes with this paragraph:

"We await your further comments. In the interim, should you require any further particulars please do not hesitate to contact the writer".

On the same day the executed loan application was sent by post to BMW Finance. In the application form there is printed in the box for insurance details the words "As per schedule". I infer that these words were in the document when it left BMW Finance because they are present in identical form in each of the numerous applications which were the subject of consideration at this trial and which were in evidence. There was no schedule to the application and no details of the insurance were sought or provided at that stage. It seems that the requested sum of $151,085.51 was paid on 4 October 2000 to BMW Finance by direct transfer.

18 What next happened was the first of a series of disasters that seem to have beset this transaction. Ms Warnecke, on the same day, 2 October 2000, had a conversation with Michael Norton-Smith of Consolidated Timber. I do not know what was said as neither of the participants was called. She then sent to that company what was called a 'Welcome Letter'. This is another BMW Finance standard form letter setting out the details of the approved loan. It gives the loan a number, 52830, a number which was also inserted in handwriting on the original executed loan application form. The letter commences with the following sentence:

"We would like to take the opportunity to welcome you as a valued customer of BMW Financial Services and confirm that your contract has been accepted by our office on the 30/09/2000 under the agreed payment schedule".

19 Ms Warnecke had no authority to accept the Consolidated Timber application. No person with the requisite authority within BMW Finance had investigated the loan application or approved it. Mr Jones was away on leave for a few days, and Mr Reynolds was unaware that the letter had been sent. The letter was sent as a result of what was called "an administrative error".

20 The 'Welcome Letter' was sent direct to the borrower. On 4 October Consolidated Timber forwarded a copy to its broker, Miller & Associates.

21 I interrupt this narrative to observe that Miller & Associates pleads that the sending of this letter brought into existence a binding agreement to make a loan in its terms[9]. The response of BMW Finance in its reply is simply to join issue[10]. No want of authority of Ms Warnecke is raised.

22 Mr Jones became aware of the acceptance of the loan application when he returned from leave on Wednesday 4 October. He brought the matter to the attention of his superior, Mr Reynolds. It seems that the two men then appreciated that they had a problem. In their evidence before me they appeared a little uncertain as to their understanding of the extent of this problem. They vacillated between the position that they thought that BMW Finance was legally committed to this loan and that they thought that, although no contract had been made, BMW Finance, the borrower and its brokers might have been placed in a difficult position. Whatever be their understanding, they were aware that Ms Warnecke's act and, perhaps, their insufficient supervision of her had placed BMW Finance in a delicate situation.

23 Mr Reynolds' position was the more delicate inasmuch as he had authority within BMW Finance to approve a premium loan up to a maximum of $500,000 when the policy was cancellable; and, where the policy was non-cancellable and he had the approval of BMW Finance's credit risk insurer, only up to $300,000. An application for any loan of more than $500,000 required that Mr Reynolds or Mr Jones prepare and sign an internal approval form and then obtain the signature of Mr Crookes. But, even in such a case, where the loan exceeded $1m and the policy was non-cancellable, the BMW Finance procedures required approval of the credit risk insurer and the signatures of both Mr Crookes and Mr Kolo. In the present case, where Mr Reynolds had no idea what was the nature of the policy for which the loan was sought, he was aware that he required at least the signature of Mr Crookes before approval could be given.

24 This sets the scene for what came to be the second disaster in this transaction. Mr Reynolds and Mr Jones did not bring the situation to the attention of their line manager or Mr Crookes. They decided to press on in the expectation that the problem would simply go away. Perhaps in the same expectation, they did not seek to extricate BMW Finance from the loan; they did not draw to the attention of the borrower or its brokers the fact that the letter of 2 October was a mistake and that the borrower should not presume that the loan application had been or would be accepted. Rather the contrary. The welcome letter which had been faxed to Consolidated Timber on 2 October was later sent by registered post to that company. The first instalment received from Consolidated Timber on 4 October was banked by BMW Finance, but into a suspense account.

25 As I have mentioned, the two BMW Finance managers decided to press on. They immediately set in train the inquiries which they would normally have undertaken before acceptance. These were directed to Credit Advantage Ltd and National Credit Insurance Brokers Ltd ("NCI"). The former was an internet inquiry directed to the structure of the borrower and its credit-worthiness. The response received on 4 October was a source of comfort. It disclosed that Consolidated Timber had a paid up capital of $20m and that nothing adverse was known about its credit rating.

26 The second inquiry was a little more complicated. NCI is a firm of brokers which had placed BMW Finance's own credit risk insurance cover with HIH. This cover was in fact for premium loans for non-cancellable policies only. Mr Reynolds said that he understood that this policy was in respect of non-cancellable policies only; some time earlier HIH had covered some cancellable policies as well. Mr Jones, on the other hand, said that he understood that this credit risk policy also covered loans for premiums with cancellable policies, but that in 2000 the practice of BMW Finance was not to approach it for credit risk insurance in respect of cancellable policies.

27 In any event, on 5 October 2000, Mr Jones sent to NCI a "New Limit/Limit Increase Application", seeking the approval of HIH to cover a loan to Consolidated Timber of $3.8m. It may be that Mr Jones was, in an indirect way, seeking to discover whether anything adverse was known about the borrower, as he first said, or that he was seeking the approval of the credit risk insurer in order to provide some extra security to support a loan which may have been put in place on 2 October, as he later said. It should be emphasised that, at this stage, 5 October 2000, BMW Finance still knew nothing about the policy which underlay the Consolidated Timber loan application of 2 October.

28 On the same day, 5 October 2000, Mr Jones contacted Mr Merton asking for details of the policy "either some policy or certificate or some information, an invoice". Miller & Associates responded on Monday 9 October by sending a fax enclosing a copy of the HIH certificate of insurance number 99NK28949 ("the HIH certificate"), which is central to this case. The terms of the fax to Mr Jones are as follows:

"Following a conversation between Mark Merton and yourself I enclose a copy of the Certificate of Insurance issued by HIH in respect of the insurance.

Please note that Plantation Management Corporation Limited is in the course of being acquired by [Consolidated Timber]. If required a copy of the Heads of Agreement can be provided. Contracts are currently being finalised.

Mr Reynolds said that he saw these documents when they were received. No copy of the heads of agreement was ever sought by BMW Finance. No further information in response to the invitation contained in the last sentence was ever sought.

29 The HIH certificate, which is in a form appropriate to a professional indemnity policy, discloses that the insured is indeed Plantation Management and that the policy was issued on 30 September 1999, providing cover from 16 September 1999 to 15 September 2004, a period of 60 months. The amount payable for that cover is $4,458,750, including $3,750,000 for the premium. The balance is made up of $386,250 stamp duty and $412,500 GST. At the trial, focus was directed to the type of cover and the risk insured.

30 In the HIH certificate there is a box entitled "4. Profession". Beside this title is the word "Miscellaneous". The box recites that the limit of indemnity is $12m and that this represents 100% of the whole risk. It recites, too, that there is nil excess applicable.

31 Below this box number 4, there is on the HIH certificate another box entitled "Endorsement Details". In this box there are two numbered entries. The second, which is concerned with reinsurance, is not of present concern. The first entry reads as follows:

32 The case of BMW Finance is that this fax, including the HIH certificate, was understood by Mr Reynolds and Mr Jones as indicating that the policy was one of property insurance and that it was therefore cancellable. It therefore provided good security for the loan of $3.95m which had been approved on 2 October and for a later loan in the same amount made in December 2000 in substitution for this October loan. Both Mr Reynolds and Mr Jones said that they had this understanding both when they received this fax and when they approved the December loan.

33 I interrupt the narrative to make my findings on this fundamental issue in the case. Counsel for Miller & Associates pointed to a number of features of the HIH certificate which, he said, would inevitably lead the reader to the conclusion that the cancellability of the policy was at least a matter of uncertainty. First, the form is in a number of respects one more appropriate to a liability policy rather than a property policy and, certainly not a fire policy. Second, that the 60 month term of the policy was unusual for property insurance. This was accepted by the witnesses. Third, the premium which represented $750,000 per annum, being 6.25% of the $12,000,000 limit of indemnity and 3% of the given values of the properties, is higher than would be expected of a property policy. The expert witness, Mr Mitchell, said that these rates may not be unreasonably high depending upon the precise nature of the risk.

34 I am at this point concerned, not so much as to how a prudent lender might view the HIH certificate or, indeed, what is its true interpretation. It is whether I should accept that Mr Reynolds and Mr Jones when they read the certificate on 9 October 2000 in fact read it as referring to a cancellable policy, as they said. My assessment of Mr Jones is that he is not a careful man and that he does not have a good understanding of insurance policies. The events of which the witnesses spoke are now seven years passed and there was in my view a good deal of reconstruction on the part of both of them. I do not find that either of them understood the policy to be non-cancellable. If they had thought this, it would have been high on the list of reasons given to the borrower for not proceeding with the loan in late October. I find that neither of them subjected the HIH certificate to a careful analysis; they saw the word "properties" and jumped to the erroneous conclusion that the policy concerned property. From this, they passed over the question as to what was the risk insured and made the further leap to the conclusion that the policy was cancellable. Neither of these conclusions was warranted by the terms of the document or by the practice of reasonable or prudent premium lenders. Their conclusions were driven by their keenness to put the loan in place, if at all possible, and by their generally careless attitude. In my view, had they been pressed at the time, they would have truthfully answered an inquiry as to the cancellability of the policy that the policy was an unusual one and that they could not be sure and, further, that it was probably cancellable.

35 I should add, if this be relevant, that, on a proper reading of the HIH certificate, their conclusions were in fact based upon an erroneous assumption that all property insurance is cancellable. Given the way in which the two men approached the HIH certificate and the conclusion which I find they drew from it, it is remarkable that they did not take up the offer of Mr Merton to provide further details. That they did not do so represents a further disaster which compounded what had gone before.

36 On Thursday 12 October Mr Jones spoke to Gina Meth of NCI, Adelaide, who was considering the BMW Finance application for credit risk cover. When she asked about the underlying insurance Mr Jones responded, in my view truthfully, that he was not sure, but that he had a an invoice or a certificate and, further, that the policy "could be for four properties".

37 He must have provided her with some details of this certificate because, on the following day, 13 October, she spoke again with him, telling him that she could not find the policy quoted and seeking more information. Mr Jones said he would forward something in writing, but he did not do so.

38 On 19 October NCI formally responded to the BMW Finance application of 5 October to the effect that credit risk cover would not be given. The reason provided was that HIH had already an exposure to Consolidated Timber in the sum of $12m and that it considered itself fully exposed to that company. I mention in passing that this $12m exposure was apparently that under the policy referred to in the HIH certificate.

39 It may be of significance that the NCI reasons for declining the risk did not include any assertion that they could not identify the policy, that the policy did not exist or that it was a cancellable policy. The only reason given was that the underwriter was fully exposed.

40 And so, in the last week of October 2000, this is how things stood. Consolidated Timber had, on the face of it, an agreement for a loan and an expectation of receipt of the first draw-down of $1,987,500. But this had not occurred. It was faced, too, with the obligation to pay to BMW Finance on 29 October its second instalment of $149,893.01.

41 From BMW Finance's point of view, the difficulties raised by the welcome letter of 2 October had not been addressed. Credit risk insurance was not available. Mr Jones, however, notwithstanding the lack of certitude which he confessed to Ms Meth, assumed that the policy was cancellable, so that it represented an available security. Mr Reynolds said that he shared this confidence. Both men were aware, too, of the content of the Credit Advantage report of 4 October. So what did they do?

42 They decided to decline the Consolidated Timber loan application of 2 October or to withdraw from the loan agreement, depending upon how one views the position. Mr Reynolds said that there were two reasons for his decision:

• the name of the insured on the certificate differed from the name of the borrower. This discrepancy was in fact known to him since 9 October. There is no evidence to suggest that he was then concerned about it; he did not follow it up with any inquiry about the suggested agreement under which Consolidated Timber was said to have acquired Plantation Management.

• the BMW Finance quotation dated 26 September which had been the subject of the welcome letter differed from the quotation which had been given on 20 September inasmuch as the earlier quotation provided for three draw-downs and the latter for two only.

A number of things may be said about this second reason. First, it was demonstrated that a two draw-down loan carried greater risk for the lender. But, the asserted discrepancy between the two proposed loans is in fact not correct. As I have indicated, the letter of offer of 25 September, as opposed to the quotation which preceded it, was on the basis of two draw-downs. It may be, however that this had escaped Mr Reynolds' attention. Further, it would seem that, in late September, BMW Finance was not troubled to offer a loan on the basis of two draw-downs only. My attention was not directed to any new or changed circumstance which might explain a different attitude a month later.

43 Another surprising aspect of Mr Reynolds' conduct with respect to this decision is that he did not write to the borrower or the brokers formally advising them of BMW Finance's change of position or offering any reason for it. His failure to do so may have been driven by a desire not to have such an embarrassing letter on the BMW Finance file. Moreover, he accepted that this was a decision which could cause difficulties for BMW Finance and yet, even so, he did not inform his directors.

44 Mr Jones also gave evidence as to the decision not to proceed with the loan application. He said he, too, formed the view that he would not recommend the loan. His reasons for this were the following:

• the risk to BMW Finance under the October application was different and greater than that in the September quotation. The greater risk to BMW Finance arose from the fact that there were to be two draw-downs instead of three as in the earlier quotation. This is the reason offered by Mr Reynolds which I have discussed.

• a 30 month loan carried more risks for BMW Finance than the usual 12 month loan. This was not seen in September as a matter of concern.

• NCI would not provide cover. This, too, is a surprising reason given Mr Jones' professed belief that the policy was cancellable so that it represented security for BMW Finance and, in accordance with BMW Finance's practice, it would be inappropriate to seek NCI cover for such a policy.

• the broker and the borrower were new to BMW Finance. Most of the large loans, he said were made to repeat customers. Notwithstanding that Miller & Associates had been introduced by Mr Merton, he felt uncomfortable with the loan.

45 Mr Jones said that the decision not to proceed was a joint one made between him and his superior, Mr Reynolds. But it fell to Mr Jones to communicate this decision to Consolidated Timber. In late October, Mr Norton-Smith of Consolidated Timber was in frequent contact with Mr Jones, wanting to know what was happening about the loan. Mr Jones told him to contact his broker. At this time, Mr Jones spoke to Mr Merton. He told him that BMW Finance was not proceeding with the matter and that he, Merton, should try to place the loan elsewhere. He told Mr Merton that the reason for this was that BMW Finance was not happy with the term of the loan, that there had been changes from the original quotation and that Consolidated Timber was a new company. The credit search had disclosed that Consolidated Timber had been incorporated on 31 March 1999. Mr Jones said of Mr Merton's reaction to this news that "I assume he wouldn't have been happy" but that the conversation terminated on the basis that the two parties would walk away. There was no request by either party to open negotiations for a loan on a different basis.

46 Mr Jones was unable to fix the date of this conversation. It seems likely that it was towards the end of October because the response of NCI is dated 19 October 2000 and on 31 October the BMW Finance accounts department were being asked by Mr Jones to move the payment received from Consolidated Timber on 4 October from the suspense account where it was held pending settlement of the loan. On 6 November, BMW Finance refunded to Consolidated Timber the instalment component of this payment and on 17 November the stamp duty component together with interest.

47 At this point it must have seemed to Mr Reynolds and Mr Jones that they had successfully extricated themselves from the delicate situation. The borrower appeared to have accepted that any contract was at an end. It appears from a later Credit Advantage search that, on 9 November 2000 a credit inquiry was made regarding Consolidated Timber by two premium lenders so that Consolidated Timber must have been looking elsewhere for funds. The BMW Finance managers would not now have to explain their conduct. The brokers, of course, had missed out on their commission.

48 Some time later Mr Merton once again approached Mr Reynolds with an inquiry whether there was any basis for renegotiating the transaction. Mr Reynolds said he told Mr Merton that this might be possible, but on the basis of a 10 month loan and provided that more information about the borrower was provided. Mr Reynolds fixed the date of this conversation as being some weeks prior to 7 December 2000. This was the initial contact which led to the granting of the December loan which is said to have been entered into as a consequence of the misleading conduct of Miller & Associates. An important issue in this context is as to the asserted state of mind of Mr Reynolds and Mr Jones that, when this loan was made, they believed that the underlying policy was cancellable and therefore provided good security.

49 A few days after this, a bundle of documents was delivered by mail to BMW Finance. There was no covering letter or other explanation as to its contents. I infer that it was sent by the brokers in order to provide some detailed support for the proposed loan which was then under discussion and that all parties saw it as such. The witnesses were unable to fix the date of receipt of this bundle other than to say that it was prior to 7 December, the date on which Mr Jones made a further Credit Advantage enquiry regarding Consolidated Timber and the date on which a fresh quotation was prepared and sent to Mr Merton. The documents in the bundle are the documents which appear at pp.139-192 and p.220 of the court book.

50 Any consideration of the events which follow must take into account an important fact which was brought to the attention of the two BMW Finance officers. This was that Consolidated Timber had consulted its lawyers as to its rights under the first accepted loan application of 2 October. Mr Reynolds, at least, was at this time of opinion that a contract had been entered into. It would have been apparent to Mr Reynolds and Mr Jones that, even if it should in due course appear that no binding agreement had been entered into in October, their conduct in permitting the loan to be accepted and their failure to inform their directors would be the subject of potentially embarrassing scrutiny. This provided a powerful motive for them to attempt to achieve a successful renegotiation of the loan.

51 The document at p.220 of the court book is an undated fax from Mr Merton to Mr Reynolds referring to the readiness of a named officer of the Westpac Bank at the Gold Coast to give a positive financial reference about a company which I take to be Consolidated Timber. The remaining documents in the bundle comprise financial statements and information about the financial status and expectations of Consolidated Timber and associated companies and their trading plans for the future. All of this is very positive and was understood by Mr Reynolds as demonstrating that the proposed borrower was a company of substance. There is no evidence, however, that the reference was ever checked out. The document also contains an offer to support the loan by directors' guarantees. This offer was made in response to a request by Mr Reynolds that guarantees be provided. There were in fact six directors shown on the Credit Advantage report of 7 December 2000. In due course, a guarantee was given by two of them, Richard Thomas Sheers, who became a director only on 3 November 2000, and Richard Allan Philip. This was unusual. Mr Reynolds said that guarantees were rarely taken and Mr Jones agreed. When asked why they were sought in these circumstances and, in the light of his asserted belief that the policy itself provided good security, Mr Jones said that it was "to further shore up our position".

52 The bundle also contains two insurance documents. The first is a copy of a Cost of Production Insurance Policy number 9936NK28736 issued by HIH to St George Bank Ltd and Plantation Management. This is not, on any view, a policy over property. There are two risks insured under the policy. First is the risk to Plantation Management that growers would fail to reimburse it for liabilities out of the cost of production as defined, as a result of insolvency during the period of indemnity[11]. The period of indemnity is defined in cl. 2 of the policy as 60 months from the date of advance by the bank or the date of repayment of money to the bank. The second was the bank's risk that it would suffer loss incurred by the insolvency of Plantation Management or its non-payment of sums due to the bank[12]. The policy is not cancellable, at least without the consent of the bank.

53 It was agreed before me that, notwithstanding the different policy number, this was in fact the policy referred to in the HIH certificate. It was suggested by counsel for Miller & Associates, on the basis of this, that, when Mr Reynolds and Mr Jones read it, they would have seen that the policy underlying the October loan and the December loan was not cancellable and that this represents another and powerful reason for rejecting their evidence that, on the faith of the HIH certificate, they believed the underlying policy to be cancellable.

54 Included in the bundle is also an uncompleted Miller & Associates quotation slip given in respect of a cost of production policy. The copy of this slip in the court book has certain entries blacked out. The evidence, however, satisfies me that this was done after the slip was received and read by Mr Reynolds and Mr Jones. The slip shows Consolidated Timber as an insured, together with Plantation Management and St George Bank. The proposal is for a three year policy for $10m in excess of $25m. It may be that this policy, if issued, would constitute a second layer over the policy which was included in the bundle.

55 I accept the evidence of Mr Reynolds and Mr Jones that their reading of this bundle of documents disclosed to them that the commercial prospects of Consolidated Timber were such that it represented a good credit risk, especially for a short term loan of the kind now in contemplation. Their further evidence that they treated the policy as having nothing to do with the proposed loan presents more difficulties. Mr Reynolds said that he read the policy and that he understood from it that St George Bank was involved in the policy as a co-assured and that the bank would stand ahead of BMW Finance in any queue for repayment in the event of default. Mr Jones appears to have derived the same impression from the document. It was of interest only in as much as it showed that Consolidated Timber had a link with the bank. He did not understand the document to be a copy of the underlying policy referred to in the HIH certificate.

56 I find that, when each of these BMW Finance managers received the bundle, they read the contents but they paid little regard to the policy and none at all to its detailed terms. By this time they were contemplating the preparation of a loan quotation based on the same policy as that underlying the abandoned loan of 2 October. They had, in the way I have described, erroneously satisfied themselves of the cancellability of the underlying policy for the October loan and their examination of the actual policy provided in the bundle in November was cursory. They noted that the front page showed the interest of St George Bank and they may have turned to the certificate of insurance on p. 9 of the policy where this appears again. Their brief examination of this page reassured them that it was the same policy as that referred to in the HIH certificate without noting the different policy number and the other differences which a more careful and interested reading might have disclosed. They may have seen that the policy was called a Cost of Production Policy, but I do not think that this would have meant anything to them. In short, the actual policy was of little interest to them given what had gone before and given their strong motive to make a fresh loan, if at all possible. Their principal interest in the bundle of documents lay in the financial information which it contained. Their lack of any careful attention to the policy is consistent with their conduct in many aspects of the transaction. It represents a further disaster on the road to BMW Finance's ultimate loss.

57 Accordingly, on 7 December 2000, Mr Jones prepared a fresh quotation on the basis of a single draw-down of $3.975m and 10 repayments of $421,188.65.

58 In due course, Consolidated Timber submitted a loan application dated 8 December supported by two directors' guarantees and on 12 December by a chart setting out the corporate structure of the group of which it was a member. On this document Mr Reynolds has recorded information given to him by Mr Merton that one of the four properties mentioned in the HIH certificate, that at Corowa, which represented nearly 50% of the total value of the properties shown on the HIH certificate, had been sold. This was what Mr Merton told him some time after the chart was received on 12 December. Mr Reynolds does not appear to have been troubled by this or aware of its implications upon the value of the policy as security offered to BMW Finance. On the same day, 12 December 2000, the loan application was approved by BMW Finance. This was communicated to Miller & Associates. The approval document itself is dated 14 December and signed off by Mr Jones and Mr Reynolds. Again, this is an acceptance which was well beyond the authority of these signatories. Indeed, at this stage, none of the history which I have recounted had been brought to the attention of Mr Crookes or Mr Kolo, who ought to have approved the loan. Had the terms of the loan been honoured by the borrower, it may be that the directors would never have become aware of it.

59 But this was not to be. The first repayment was deducted by the payment from the loan to Miller & Associates on 15 December. Only two further payments were made: in January and February 2001.

60 In March 2001, Consolidated Timber was unable to make the repayment then due. It sought from BMW Finance a moratorium and later, that the loan be renegotiated.

61 About this time, too, it became apparent that HIH was unable to meet its commitments. This further disaster in the transaction provides an explanation for Mr Reynolds' failure to seek to recover BMW Finance's loss by cancelling the policy and recovering the unused premium, if such course was available to him.

62 He continued, therefore, to seek to do the best he could with Consolidated Timber. In May 2001, Mr Jones, at the request of the borrower, wrote to Consolidated Timber a letter in which he stated that "As requested we have reinstated the original loan agreement signed on the 2nd of October 2000 of 30 instalments by $149,893". On that basis, it was necessary for the borrower to pay only $85,470 to cover the arrears due under the reinstated October loan. It seems that this arrangement, too, was entered into without reference to and without the authority of Mr Crookes or Mr Kolo. Consolidated Timber was unable to comply, even with this new arrangement.

63 And so, on some date late in 2001, the unhappy situation was disclosed at last to Mr Crookes and Mr Kolo. On 17 October 2001, Mr Crookes sent a letter of demand to Consolidated Timber. It was not complied with. As I have mentioned, nothing was obtained from the guarantors.

64 According to Mr Reynolds, it was at a meeting a month or two later that he first discovered that the HIH policy was non-cancellable.

65 The claim based on misleading and deceptive conduct and the other claims BMW Finance are put on the basis that it entered into the December loan in reliance upon the conduct of Miller & Associates. The conduct relied upon is the conduct of Miller & Associates in connection with its response to Mr Jones' request of 5 October 2000 for details of the underlying policy[13]. What is alleged is that this response contained a number of misrepresentations or that it was misleadingly incomplete[14].

66 In essence, the complaint is that Miller & Associates represented that the underlying policy was cancellable and therefore good security for the loan or that it did not tell the lender that it was in fact a non-cancellable policy and not good security.

67 The short answer to this representation allegation is that the HIH certificate, properly understood, did not convey the represented fact. At best, from BMW Finance's point of view, it created an uncertainty as to this. The fact that BMW Finance drew the conclusion that it did was a product of its own carelessness or wishful thinking. And in any event, by the time the loan was made in December, BMW Finance had the very policy which its officers might have read and understood or sought advice upon if they were minded. In short, BMW Finance was the author of its own misfortune.

68 The position with respect to the non-disclosed fact is similar. The question whether a failure to provide information amounts to misleading and deceptive conduct must depend upon the circumstances attending the non-disclosure. One of the circumstances here is that both the brokers and the lender were experienced in their respective fields and were known by the other to be so. Although the brokers' position might have an aspect of ambiguity, it, on behalf of its client the borrower, has a commercial interest adverse to the lender. In these circumstances, the lender either makes up its mind on the material submitted or asks for more information. Furthermore, in a case such as the present, where it asks for details of the underlying policy, it cannot be heard to complain where the broker provides a copy of the policy itself, presumably on the basis that the lender will read it and make its own assessment. And if the policy provided to the lender is inconsistent with material earlier provided, such as the HIH certificate in this case, it is for the lender to evaluate this or to seek further information.

69 I conclude that, on 12 December 2000 when the loan was approved, BMW Finance had in its possession an accurate statement of the nature of the policy upon which it made the loan. If, contrary to my finding, a fair reading of the HIH certificate in October would have led Mr Reynolds and Mr Jones to the positive conclusion that the policy was cancellable, this was dispelled by the information contained in the bundle of documents delivered in November.

70 Counsel for Miller & Associates placed considerable reliance upon the fact that there came into existence a binding contract on 2 October 2000. He contended that, since BMW Finance was bound by this contract, it cannot have suffered loss by entering into a substitute contract in December on less disadvantageous terms. Put another way, it was said that, if it was to be placed in the position which it enjoyed prior to making the December loan, BMW Finance's position must include the existence of the October loan which the December loan replaced. I am not persuaded of the correctness of this analysis. However dissatisfied Consolidated Timber might have been about the events of late October, it accepted that the 2 October loan was terminated so that it cannot be said that the December loan was a true substitution for it.

71 The other BMW Finance claims are subsidiary to the Trade Practices Act claim and they meet the same fate for similar reasons. The relationship between BMW Finance and Miller & Associates is not one which gives rise to a duty to exercise due care and skill in its dealings as broker. If for no other reason, there is no vulnerability in BMW Finance in the sense that this is a requirement of such a duty in the cases.

72 Nor are the suggested breaches of duty made out. Insofar as it is said that Miller & Associates it did not make inquiry as to the nature of the underlying policy, I proceed on the basis, as I mentioned in argument, that the broker knew the nature of the policy. A prudent broker would make it his business to have this knowledge. There is no evidence that Miller & Associates did not; it called no evidence to suggest that my inference is unwarranted. The other suggested breaches simply set out again the complaint of failing to inform BMW Finance of the insufficiency of the proffered security. I reject these allegations for reasons given.

73 Next, it is put that there existed between BMW Finance and the borrowers' broker a fiduciary duty. This cannot be correct. In a sense, they are commercial adversaries.

74 Finally, there is the claim in contract. This depends upon the fact that the broker's commission was agreed to be paid by BMW Finance. Any such agreement must be seen in the light of the fact, which was accepted before me, that the broker was retained by the borrower. This is the fundamental relationship affecting the conduct of the broker. If there is a contract between the broker and the lender as well, it cannot be taken to prevail over the other; it must be to introduce to the lender a borrower with whom a contract of loan was subsequently entered into. In any event, the suggested breaches of contract are merely repetitions of the allegations of non-disclosure which I have dealt with.

75 Accordingly, the claims of BMW Finance fail and it would follow from this that there should be judgment for the defendant.

[1] Cf Statement of claim, paragraph 25.

[7] Statement of claim, paragraphs 26, 27, 29.

[8] Statement of claim paragraph 21; defence paragraph 21.