Plaintiff v Defendants [2007] VSC 158 | Case summary

Plaintiff v Defendants [2007] VSC 158 | Case summary | Zoe

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Introduction

1 This is a case about two insurance policies. One policy is the policy agreed to by the plaintiff, Flexirent Capital Pty Ltd ("Flexirent"). The other is the policy agreed to by the underwriters, represented in this proceeding by the eighth defendant, St Paul Travellers Syndicate Management Ltd ("the underwriters"). The two policies broadly speaking address the same risk but their terms differ in a number of critical respects.

2 Flexirent is an equipment financier. It offers finance to persons purchasing or leasing electronic and other business equipment from retailers. The relevant risk is the risk that that equipment will be stolen or accidentally damaged whilst under finance or lease arrangements.

3 The terms of the policy agreed to by Flexirent were negotiated between officers of Flexirent and the third defendant, Timothy John McKenzie. Mr McKenzie was the managing director of the first defendant, EBS Consulting Pty Ltd ("EBS"), and was also associated with the second defendant, Prudential Surety Pty Ltd ("Prudential") and with the fifth defendant, Richard Ian Brooks. The fourth defendant, Anne Eliza McKenzie, is Mr McKenzie's wife.

4 The terms of the policy agreed to by the underwriters were also negotiated by Mr McKenzie. These negotiations were between him and the sixth defendant, Newman Martin & Buchan Ltd ("NMB"), which is an accredited insurance broker with Lloyd's of London ("Lloyd's"). The seventh defendant, Asia Mideast Insurance and Reinsurance Pty Ltd ("AMIR") is a related company of NMB.

5 With the exception of a contribution claim made by NMB against EBS, the trial of the proceeding before me only concerned claims made by Flexirent against NMB and the underwriters, and claims for contribution and breach of warranty of authority arising out of those claims between Flexirent, NMB and the underwriters. EBS appeared for a time during the trial to defend the contribution claim made against it by NMB but did not appear after the third day. It led no evidence and it made no submissions.

6 Flexirent and the underwriters implicitly, and NMB explicitly, conducted the trial on the basis that Mr McKenzie had perpetrated a fraud. On the evidence before me, Mr McKenzie did mislead Flexirent in relation to the terms of the policy agreed to by the underwriters, and did mislead NMB and the underwriters in relation to the terms of the policy agreed to by Flexirent. One consequence of the respective parties being misled in this manner was that Mr McKenzie and entities associated with him obtained, at least for a time, significant financial benefits. Most obviously, the premium Flexirent agreed to pay, and which it did pay to EBS, was considerably less than the premium the underwriters agreed to accept, and which EBS passed on to them through AMIR and NMB. On the other hand, the risk which the underwriters agreed to insure was significantly narrower and less advantageous to Flexirent than that which Flexirent negotiated with Mr McKenzie.

7 Out of these circumstances Flexirent makes two primary claims. First, it says that the policy agreed with the underwriters was agreed by Mr McKenzie without authority and that Flexirent is entitled to return of the premium which it paid insofar as that premium was passed on to the underwriters or retained by NMB.[1] It makes this claim against the underwriters in relation to the money they received, and against NMB in relation to the money it received.

8 The second claim it makes is a negligence claim against NMB.[2]

9 Flexirent makes an alternative claim upon the assumption that its primary claims are rejected and it is held to be bound to the policy agreed to by the underwriters, concerning certain unmet claims under that policy.[3] This claim is not disputed by the underwriters who have not paid the outstanding claims because of Flexirent's assertion that the policy they agreed to is not binding on it.

10 Otherwise, the claims made by Flexirent in the third amended statement of claim were not pursued before me.

11 NMB and the underwriters, in substance, meet the claim for money had and received on the basis that EBS and Mr McKenzie had apparent or ostensible authority to enter into, or to authorise NMB to place, the policy agreed to by the underwriters.

12 As to the negligence claim, NMB denies it owed a duty of care to Flexirent, denies it breached its duty if any was owed, and says that Flexirent has failed to established any relevant damage. It also alleges that Flexirent was guilty of contributory negligence.

Sequence of Events

Background and initial dealings

13 Flexirent's business is principally the financing by rental arrangements of electronic and other equipment to consumers and small businesses. Generally, the amounts it finances in this way are less than $10,000 for periods of two to four years. In around 1997 Flexirent commenced to offer its customers an extended warranty, referred to as "FEW" (Flexirent Extended Warranty), and an equipment protection plan, referred to as "EPP". Under the EPP, Flexirent agreed to meet the cost of repairing or replacing equipment in the event it was lost or stolen or accidentally damaged. Flexirent charged 5% of the monthly rental payment for the EPP. One of the terms of the EPP was that the client was to pay Flexirent a $220 claim processing fee when submitting a claim.

14 Flexirent's executive chairman and majority shareholder is Mr Andrew Abercrombie. He was chief executive of Flexirent between December 1991 and July 2003.

15 Flexirent's commercial relationship with EBS and its managing director, Mr McKenzie, commenced in about 1998. The FEW program was underwritten by an insurer and EBS was contracted by that insurer to provide a claims handling service. EBS's performance of this service was satisfactory, and in 2001 Flexirent contracted with EBS for it to provide a claims handling service for the EPP. The terms of that engagement were set out in a letter from Mr McKenzie to Mr Abercrombie dated 21 June 2001. Under this engagement EBS was entitled to invoice Flexirent $65 for every claim received and submitted. EBS agreed to develop a claims recording database, and, in its capacity as the claims handling agent, EBS gained direct access to Flexirent's computer records of its contracts. As a result EBS was in a position to accumulate information about, and knowledge of, Flexirent's EPP claims profile.

16 In about 1999 or 2000 Flexirent began investigating the possibility of "securitising" its rental receivables.

17 What was proposed in relation to securitisation was, in substance, that Flexirent would raise funds in capital markets by the issue of notes secured by the revenue which Flexirent obtained under its rental agreements. Flexirent's relevant officers saw that such a program could only be successful if the debt had a satisfactory credit rating from rating agencies such as Standard & Poor's.

18 The EPP was an issue that needed to be addressed in this context, and Mr McKenzie and EBS became involved in that consideration.

19 In 2002 Mr Abercrombie and an entity he described as a "venture firm" named Colonial First State Private Equity ("CFS") negotiated the acquisition of shares in Flexirent from Mr David Berkman, who was a substantial shareholder and was, and remains, a director. As a result of this acquisition a representative of CFS, Mr Rajiv Darwhan, joined the board of Flexirent. Mr Darwhan was concerned that there was inadequate provision in the accounts for future claims under the EPP. These concerns also prompted a consideration of the position of the EPP and of the possibility of having Flexirent's exposure under the EPP underwritten.

20 In January 2003 Mr Steven Tunks was a divisional director in the non-marine division of NMB based in London. By an email dated 20 January 2003 Mr McKenzie contacted him advising that he had been referred to him by Lloyd's general representative in Australia. The email, which Mr McKenzie purportedly wrote on behalf of Prudential not EBS, advised that Prudential specialised in arranging insurance for equipment that was subject to finance most of which was computer, IT, or home/office equipment. The email advised that Prudential's "current underwriter" had decided not to continue to write "multi year deals in the local market" and that they were accordingly seeking alternative arrangements. The inquiry was not specifically referable to Flexirent, although Flexirent was named as one of two "main clients".

21 In an email of 6 February 2003 to Mr Abercrombie, Mr McKenzie advised as follows:

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39 On 29 July 2003 Mr Tunks sent an email to Mr McKenzie in which he sought further details of losses and premium figures, and in which he sent to Mr McKenzie contact details for Mr Adel Dawood of AMIR, an Australian based entity partly owned by NMB's parent company. NMB engaged AMIR to carry out due diligence on EBS and later AMIR acted as an intermediary for the purpose of collecting and dealing with Flexirent's premium payments.

40 Mr Dawood met with Mr McKenzie, who he described as being from IT AssetCare, and with Mr Brooks, who he described as being from Prudential, on 31 July 2003. According to Mr Dawood's report of that meeting to Mr Tunks, he told Mr McKenzie and Mr Brooks that Lloyd's would not "front" for Hollard, and they then agreed that NMB should place a "straightforward facility in Lloyd's". Mr Dawood's email also reported that the total asset figure financed by Flexirent was $A94,905,151.78 and again referred to a proposed premium of 2.5%. The asset figure is the same as the 2002/03 year figure in the table Mr Tunks had already been sent.

41 In an email of 1 August 2003 Mr McKenzie advised Mr Dawood that IT AssetCare was a registered business name of EBS, and gave him both the total number of claims and the average cost of claims for the 2000/2001, 2001/2002 and 2002/2003 years. Mr Dawood forwarded that information to Mr Tunks.

42 By an email of 4 August 2003 Mr McKenzie advised Mr Horsburgh at Flexirent that agreement had been reached in principle to underwrite the EPP with Lloyd's. He advised that the original proposal remained "exactly the same, just the underwriter changes from Hollard to Lloyd's."

43 It will be recalled that the original "idea" put to Flexirent by Mr McKenzie was for a premium, paid in advance for the term of a contract, equal to 4.5% of asset value.

44 Mr Horsburgh replied to Mr McKenzie's 4 August email indicating his approval ("that's great & thank you") and advising that he assumed Soc Gen and Standard & Poor's would be happy with Lloyd's.

45 On 2 August 2003 Mr Tunks at NMB emailed to Mr McKenzie the queries which he had concerning the proposal and which were the subject of the notes he had prepared (as earlier referred to), and Mr McKenzie responded to these queries by an email of 4 August 2003. In his response Mr McKenzie gave Mr Tunks a description of the EPP scheme and the existing claims procedures (which he could do because he was the claims administrator), and gave him details as to the number of loans outstanding, the amount of the individual loans, and their duration. No evidence was led as to the source of this information and no suggestion was made that the material provided was inaccurate. It will be recalled that EBS had access to Flexirent's computer records in its capacity as claims administrator. Mr McKenzie also forwarded details of the claims frequency, comparing the number of claims with the number of contracts and calculating a rate of claims per contract, and forwarded to Mr Tunks a copy of a service administration agreement (not the one with Flexirent but one with Capital Finance said to be the same).

46 In relation to the issue of payment of the premium and "transparency", Mr Tunks raised a query in these terms:

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52 In relation to premium, the slip noted that total monthly assets on risk were estimated at $A95,000,000 and provided for a minimum and deposit premium of $A831,250 with the premium to be adjusted monthly at 0.2917% of total monthly assets on risk.

53 Two matters of importance are to be noted in relation to this draft slip. First, the cover is for losses occurring in a 12 month period. It is not cover for the term of each relevant contract. Thus, it is an annual losses occurring policy, not a multi-year policy as was proposed in Mr McKenzie's proposal of July 2003 and which was what Flexirent was looking for. Secondly, the premium was calculated on 3.5% of total assets on risk, with 25% payable as a deposit premium and with further monthly payments.

54 On 5 August 2003 Mr McKenzie emailed Mr Horsburgh asking when Flexirent wanted Lloyd's to assume the risk and suggesting the policy could be backdated to 1 August.

55 In early August 2003 Mr McKenzie discussed the proposed insurance with Mr Horsburgh and Mr Abercrombie, and then confirmed the discussions in an email of 6 August 2003. As set out in that email, the insurance cover Flexirent wished to pursue had two separate components. The first, which Mr McKenzie recorded that he was to arrange subject to the approval of Soc Gen, was cover (backdated to 1 August 2003) which would "enable us to underwrite the EPP program for all equipment financed during August, and the future". The second component was cover for "all contracts with EPP which have been written by Flexirent prior to 1 August 2003". In relation to these contracts Mr McKenzie sought information from Flexirent, including the contract inception date, the contract term, and the contract value, and advised that he would then "provide" Flexirent with "the total cost to underwrite the current book of business".

56 There is obvious disconformity between the cover which Flexirent was discussing with Mr McKenzie and the cover set out in the draft slip which Mr Tunks had forwarded to Mr McKenzie. The cover in Mr Tunks' draft slip was of contracts both before and after August 2003 but only for losses occurring in a 12 month period commencing on 5 August 2003. The cover that Mr McKenzie was discussing with Mr Horsburgh and Mr Abercrombie was cover for the life of each particular finance contract, and the components of that cover were divided between contracts entered into before August 2003 and contracts thereafter.

57 In an email of 6 August 2003 Mr Tunks advised Mr McKenzie that the underwriters needed to know more about EBS given that "EBS will [be] handling the premiums and managing the claims". The information which Mr Tunks requested was information as to EBS's own insurance cover and EBS's audited financial statements. Mr Tunks experienced considerable delay in obtaining this information, and had to repeat requests for it a number of times, but eventually he obtained information which appeared to satisfy him.

58 Mr Tunks introduced the proposal (as he understood it) to Mr Mark Green, who was then an employee of the eighth defendant ("St Paul's") and was writing business on behalf of a syndicate of underwriters referred to as Cassidy Davis Syndicate 5820 ("Cassidy Davis"). Mr Mark Green and another employee of St Paul's, Mr Martyn Headdey, were the persons who dealt with Mr Tunks, and with Mr McKenzie, on behalf of the underwriters.

59 By an email of 7 August 2003 Mr Tunks forwarded to Mr Green at St Paul's data concerning claims in relation to Flexirent, and it appears from an email of his of 8 August 2003 that the underwriters were also given data concerning total assets on risk.

60 By an email of 7 August 2003 Mr McKenzie forwarded to Mr Tunks details of the interest rates changed by Flexirent.

61 On 7 August 2003 Mr Tunks had a telephone conversation with Mr McKenzie. Mr Tunks' evidence in his witness statement was that in this conversation Mr McKenzie "confirmed" that Flexirent would pay the premium directly to NMB or to an account nominated by the underwriters.

62 On 13 August 2003 Mr McKenzie sent an email to Mr Tunks advising him that Mr McKenzie had sent Flexirent a policy wording naming Hollard as underwriter. He advised Mr Tunks that he had told Flexirent that the policy would remain the same and he asked whether it was possible to get a copy of the wording on appropriate "paper" so that he could print it out and forward it to Flexirent.

63 At this time Mr Tunks obtained some independent advice in relation to compliance with Australian regulations, and on 14 August 2003 he advised Mr McKenzie that Cassidy Davis were looking to lead off the insurance "with 25-35% line" at the 3.5% premium rate. On the same day Mr Tunks had a telephone conversation with Mr McKenzie in which Mr McKenzie told him, amongst other things, that currently 18% of the equipment financed by Flexirent was portable.

64 Mr Tunks took the draft slip, which he had prepared and forwarded to Mr McKenzie on 5 August 2003, to Cassidy Davis who noted on the slip their intention to lead the risk with a 35% line subject to a number of conditions. Cassidy Davis made this notation on 20 August 2003 and thereafter in August and September 2003 a number of other syndicates indicated their interest at specified percentages by notations on the draft slip. There were some amendments made to the draft slip but for present purposes it is sufficient to note that the description of the cover and of the premium remained the same.

65 On 21 August 2003 Mr Dawood at AMIR sent an email to Mr Tunks indicating that Mr McKenzie wanted the premium to be paid from Flexirent to Prudential who would then pay it on. Mr Tunks did not agree to this and wrote the word "no" next to that section of the email.

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66 By an email of 21 August 2003 Mr Tunks advised Mr Green at St Paul's that he would redraft the wording of the proposed policy "as it currently shows Hollards as the insurer". The policy wording originally drafted by Mr McKenzie was the basis upon which Mr Tunks began preparing the wording of the policy to be agreed by the underwriters.

67 Meanwhile in Australia, Mr Horsburgh and Mr Abercrombie at Flexirent were primarily concerned in their dealings with Mr McKenzie with an issue of which NMB and the underwriters in London were, and were to remain, entirely ignorant. These dealings concerned the basis upon which the assets as at 1 August 2003 should be valued. It is unnecessary to set out the detail of the negotiations on this issue. They were complex and extensive. They were not passed on to NMB or the underwriters in London by Mr McKenzie. Eventually, Mr McKenzie on the one hand and Mr Horsburgh and Mr Abercrombie on the other agreed upon a formula for valuation of the assets to which the supposed premium of 4.5% was to be applied. When the calculations were done in early September Mr Horsburgh reached a figure of $2,585,785.25 and Mr McKenzie calculated $2,601,428.95. In an email of 2 September 2003 Mr McKenzie advised Mr Horsburgh: "We're happy to go with your figure."

68 Mr Abercrombie prepared a note to his fellow directors summarising what he believed to be the position in relation to the proposed insurance as at early September 2003. The note included a summary of the proposed underwriting indicating a "base premium rate" of 4.5% of asset value and advising that the "cover is for the contract life of the asset". The note advised that the premium payable on the existing portfolio in accordance with the formula negotiated was $2,585,785.25, being Mr Horsburgh's calculation which Mr McKenzie had accepted.

69 One issue which Mr Tunks raised with Mr McKenzie in this period concerned details of Flexirent's lending criteria. By an email of 4 September 2003 Mr McKenzie purported to pass on to Mr Tunks a reply he said he had obtained from Flexirent on this issue which was essentially unresponsive and which requested further information about why it was required. Mr Tunks' response was by an email of 5 September 2003 in which he explained why it was that the underwriters were interested in Flexirent's lending criteria and then stated:

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87 On the issue of coverage for the term of each finance contract, Mr McKenzie attempted to convince Mr Tunks that the terms of cover (particularly as to premium increase and cancellation) would adequately safeguard the underwriters. Mr Tunks drafted a revised slip reflecting cover for the term of each finance contract in relation to all losses occurring after a specified date which he took to Cassidy Davis and to others to see whether they were prepared to provide cover on those terms.

88 By an email of 7 October 2003 Mr McKenzie advised Mr Tunks that he would not agree to a direct meeting between Mr Tunks and Flexirent. He justified this on the basis that Flexirent was EBS' client and that until there was full agreement a meeting between NMB and Flexirent should not occur. It is not difficult to understand now why Mr McKenzie might not have wanted there to be a meeting between NMB and Flexirent. Mr Tunks visited Australia in October and did not attempt to meet with the relevant officers of Flexirent. Mr McKenzie used Mr Tunks' impending visit in communications with Flexirent in an endeavour to prompt them to make a decision.

89 Mr Tunks met with Mr McKenzie and Mr Brooks and others on about 16 October 2003 at EBS's office in Ringwood. A number of matters were discussed, including the Flexirent proposal. Prior to the meeting Mr Tunks made a list of issues he needed to raise, one of which was "will need Flexi sign off". In his cross-examination Mr Tunks agreed that this was one of the things he wanted to discuss concerning the Flexirent policy, that it was a point he raised with Mr McKenzie at the meeting, and that the requirement for Flexirent to "sign off" was not withdrawn.

90 The Flexirent policy was not the only issue which was the subject of dealings between Mr Tunks on behalf of NMB and Mr McKenzie on behalf of EBS. They were discussing the possibility of similar schemes being put in place under the IT AssetCare banner and were also considering the possibility of forming a joint venture to pursue business initiatives of this nature in Australia.

91 On 24 October 2003 Mr Horsburgh prepared a note recording that the quoted premium on new business had been further reduced from 4.25% of assets on risk to 3.75%. It is not clear how this reduction came about but as the premium being quoted by the underwriters at that time was still 3.5%, and was unrelated to any distinction between new or existing business, it being on a losses occurring basis, I conclude that this was another reduction made unilaterally by Mr McKenzie in an endeavour to prompt Flexirent to commit to the proposal. The explanation for the reduction given in the note itself was as follows:

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98 This advice was misleading. Flexirent had indicated in principle acceptance of premiums above 3.5%.

99 Cassidy Davis advised Mr Tunks that they would not agree to cover the risk on the basis of a 3.5% premium applicable to the entire period of each contract, rather than on an annual basis, by an email of 14 December 2003. Mr Tunks then attempted to interest other syndicates, including the Kiln Syndicate, and Mr McKenzie attempted to give Mr Tunks information which would enable him to persuade Cassidy Davis to change their view. By the end of 2003 Mr Tunks had reached the conclusion that there was a consensus within the syndicates that there was no appetite to write the risk on a "multi-year" basis and he said in his evidence that he told Mr McKenzie of this result of his inquiries.

100 Flexirent's interest in the proposal, which had never died, was, in the words of Mr Horsburgh, "revived" in December 2003. At that time Flexirent was awaiting advice from its solicitors, Mallesons, on whether the EPP product might be a "financial product" under the Financial Services Reform Act 2001 (Cw) which could result in a position where Flexirent was in breach.

101 At this time Mr Horsburgh undertook a detailed comparison of the terms of the EPP and the terms of what he believed was the proposed underwriting policy which he forwarded to Mr McKenzie. In response Mr McKenzie advised: "Should you decide to underwrite the program with us we will settle all claims on the basis of existing EPP terms and conditions for a period of three months".

102 At the end of December 2003 Mr McKenzie arranged to meet Mr Tunks in London during the week beginning 19 January 2004.

Dealings in 2004 prior to the 1 March 2004 confirmation letter

103 Mr Tunks met Mr McKenzie and Mr Brooks in London on 19 January 2004. On 23 January 2004 Mr McKenzie and Mr Brooks met representatives of Cassidy Davis, and during the course of the visit there were other meetings with underwriting syndicates.

104 Mr Green had prepared an analysis of the Flexirent proposal (as he understood it) prior to 19 January 2004. That analysis suggested that Flexirent had originally agreed to annual cover for a premium of 3.5% of "total insured value (TSI)". The analysis then suggested that Flexirent had "decided to change the deal" and wanted the underwriters to accept 3.5% on the basis it would cover a period of up to four years. The analysis continued:

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Mallesons' advice is not in evidence.

109 The various options were then canvassed. The recommended proposal was that Flexirent should modify the terms and conditions of the EPP and "insure Flexirent's risk with a rated general insurer".

110 By an email of 27 January 2004 from Mr Tunks to Mr McKenzie, Mr Tunks indicated that he would draft up what would "hopefully" be the final slip and present it to Cassidy Davis the next day. He advised that he also needed Flexirent's claims and asset value figures up to 31 December 2003. Mr McKenzie then dealt with Mr Horsburgh to compile that information. In an email of 28 January 2004 he told Mr Horsburgh: "Lloyds have requested an update on asset/risk values and claims data". Mr Horsburgh set out the asset data in an email of 30 January 2004 to Mr McKenzie. In the course of these dealings there was another instance of the unusual circumstance where Mr McKenzie forwarded to Mr Tunks emails to and from Mr Horsburgh.

111 In an email of 30 January 2004 Mr Horsburgh asked Mr McKenzie to confirm that the "3.75% of asset value quoted by Lloyd's is the same on all contracts regardless of term". Mr McKenzie replied "Yes, up to four years". It is impossible to avoid the conclusion that this was a deliberate and calculated deception of Mr Horsburgh by Mr McKenzie. It is deceptive both in confirming that 3.75% of asset value was "quoted by Lloyd's" when that was not Lloyd's quote at all, and in confirming that it was the same on all contracts regardless of terms when Lloyd's were proposing an annual policy on a losses occurring basis.

112 On 3 February 2004 Mr Tunks sent an email to Mr McKenzie to which he attached a copy of the slip and a covering letter. The covering letter was addressed to Mr McKenzie ("Dear Tim") and was dated 2 February 2004. It was on NMB letterhead and it purported to set out a deadline stipulated by the underwriters of 1 March 2004. The letter referred to an attached copy slip and made reference to changes which had been made in that slip.

113 The attached slip changed some aspects of the earlier slip which had been forwarded to McKenzie twice but which had never been on forwarded to Flexirent. The earlier slips had referred to a Master insurance policy and this reference to "Master" was deleted from the attached slip. The cover described in the attached slip was still a 12 month cover for losses occurring but the commencement date was now 1 January 2004. The 25% minimum deposit premium was now $A1,137,500, but the monthly premium was still at the rate of 0.2917% (being an annual rate of 3.5%). The attached slip also provided that the total assets on risk were not to exceed $A200,000,000, and that portable equipment was not to exceed 25% of the total asset value. It will be recalled that Mr McKenzie had advised Mr Tunks the current proportion was 18%.

114 By an email of 3 February 2004 Mr Tunks sent Mr McKenzie a different version of the covering letter. This version included an additional paragraph which stated that pushing for further concessions "would scupper the deal". Mr Tunks in his evidence indicated that this letter was an alternative to the earlier one.

115 By an email of 4 February 2004 Mr McKenzie sent to Mr Horsburgh at Flexirent an NMB letter purportedly received by him. This version was different to both of the versions which Mr Tunks had forwarded to Mr McKenzie. On the evidence before me I conclude that Mr McKenzie created this version himself. It contains passages from each of the versions forwarded by Mr Tunks but it deletes reference to any attached slip or to any changes made in an attached slip. It is not difficult to understand why Mr McKenzie did this. Flexirent's officers had not seen the earlier slips, and if they had been shown the slip Mr Tunks forwarded on 3 February 2004 they would have realised that both the premium and the cover provided for were significantly different to what they believed had been negotiated. The email under cover of which Mr McKenzie forwarded to Flexirent the purported letter from NMB was addressed to Mr Horsburgh and relevantly read:

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127 At 4.23 pm on Thursday 26 February 2004 Mr McKenzie sent Mr Evans an email attaching a pdf document described as "Lloyd's slip". The attached slip had a "policy period" from 4.00 pm March 1st 2004 to 4.00 pm March 1st 2005 and specified the premium as being 3.75% of the original equipment price.

128 In the context of the terms of the master policy which Mr Evans had negotiated, the reference to a policy period was not necessarily inconsistent with Flexirent's requirement that cover be for the term of each relevant finance contract. It was more superfluous than inconsistent.

129 The slip attached to the email of 26 February 2004 was not a genuine slip. On the evidence before me I conclude that it was concocted by Mr McKenzie.

130 Certain aspects of the slip forwarded by Mr McKenzie to Mr Evans at 4.23 pm on 26 February were not in accordance with what had been agreed with Mr Evans, and ten minutes later, at 4.33, pm Mr McKenzie sent him a revised slip with a number of changes. The changes were to the geographical limits; the total assets on risk, which were said not to exceed $A200,000,000 in the first slip and not to exceed $A400,000,000 in the second; and a statement that portable equipment would not exceed 25% of total asset value in the first slip was changed to 50% in the second slip.

131 On the next day, Friday 27 February 2004, Mr Tunks forwarded to Mr McKenzie a copy of an amended slip and policy wording. The cover under this slip and policy wording was for losses occurring between 1 March 2004 and 1 March 2005, and the premium payable was a minimum and deposit premium of $1,214,838 monthly adjusted at the rate of 0.2917% of total monthly assets on risk.

132 The position had now been reached where each of Flexirent on the one hand and NMB and the Lloyd's underwriters on the other believed they had substantially reached agreement upon the terms of the policy after their respective dealings with Mr McKenzie. The terms differed in a number of respects but the most fundamental differences were as to the coverage and the premium.

133 In early March 2004 Mr Evans raised the issue with Mr McKenzie of why the slip he had been sent included any policy period. He pointed out that given the terms of the policy as negotiated the idea of a policy period was not really relevant and he requested its removal. Mr McKenzie responded agreeing that the policy period was not relevant and advising:

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140 Mr Evans had a further exchange of emails with Mr Abercrombie as a result of which Mr Abercrombie sent Mr Evans a signed copy of the confirmation letter by fax, which Mr Evans then forwarded immediately to Mr McKenzie.

141 Mr McKenzie forwarded a letter to Mr Tunks at NMB by electronic fax on 3 March 2004. The notation on the document suggests that it was faxed at approximately 8.00 pm on Wednesday 3 March 2004.

142 The document forwarded by Mr McKenzie to Mr Tunks by electronic fax was not the same as the document drafted by Mr Evans on 1 March 2004 and was not the same as the document signed by Mr Abercrombie, faxed back to Mr Evans, and forwarded on to Mr McKenzie on 4 March 2004. The reference to the amount of the premium ($2,063,608.87) which was contained in the letter drafted by Mr Evans and signed by Mr Abercrombie did not appear in the version sent by electronic fax to NMB by Mr McKenzie. In the circumstances I conclude that Mr McKenzie deleted the reference to that figure. The figure would have alerted the underwriters and NMB to the difference between the premium Mr McKenzie had negotiated with Flexirent and the premium Mr McKenzie had negotiated with NMB and the underwriters.

143 The true letter of 1 March 2004, as signed by Mr Abercrombie on 4 March 2004 and forwarded to Mr McKenzie by Mr Evans that day, is, on Flexirent's case, the sole basis for the actual authority held by EBS to give instructions to place an insurance policy on Flexirent's behalf. But Flexirent also places reliance upon the false version of the letter sent by Mr McKenzie to NMB in two respects. First, Flexirent relies on the fact the false letter is unsigned. Secondly, the false letter expressly refers to, and, it is said, alerts NMB and the underwriters to, the fact that Mr McKenzie's authority was limited in that it was to establish a Master Insurance Policy upon the terms which had been discussed and agreed with Mr Evans.

144 Mr Tunks forwarded the letter which Mr McKenzie had faxed to him on to Cassidy Davis undercover of an email. Mr Green and Mr Headdey were in fact in Australia at that time and, whilst Mr Green indicated that it was possible that he saw a copy of the letter whilst in Australia, he thought it more likely that he saw it when he returned to London.

145 In the absence of Mr Green and Mr Headdey, another officer, Mr Domenic Sale, responded to Mr Tunks' provision of the confirmation letter by an email asking whether there was a signed copy. Mr Tunks responded on 5 March 2004 advising:

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153 In March Mr Evans finalised what he believed was the final Lloyd's slip with Mr McKenzie. He specifically requested from Mr McKenzie a Lloyd's slip which excluded reference to a period, and he received a slip with the period removed under cover of an email of 24 March 2004 from Mr McKenzie. The slip so forwarded was the same as the one Mr McKenzie had previously forwarded except that the provisions concerning the period were removed. Mr Tunks gave evidence, which I accept, that the slips provided to Mr Evans by Mr McKenzie were not documents created by NMB or Lloyd's and were "clearly incorrect".

154 Mr Evans forwarded to Mr McKenzie what Flexirent considered to be the final policy documents including the policy wording and the new slip, which Mr McKenzie had forwarded to Mr Evans, under cover of an email of 29 March 2004.

155 Meanwhile in London Mr Tunks finalised the underwriting between 19 March and 24 March. Before me all parties submitted that the contract with the underwriters (if there was one) was formed at this point.

April to June 2004 - Further payments and finalising the terms with Lloyd's

156 In the period April to June 2004 Mr McKenzie forwarded to Flexirent invoices, similar in form to the one he had forwarded in March 2004, in relation to the monthly payments. Under the terms in fact agreed by the underwriters no monthly payments were due during this period. Flexirent paid the premiums in the same manner as it had made payment on 16 March 2004.

157 There was then a protracted period during which the terms of the Lloyd's policy were finalised with the underwriters. The wording was eventually finalised in early July 2004. Mr Tunks initialled a final confirmation of the policy wording. In his oral evidence he agreed that he did so without confirmation from Mr McKenzie or anyone else that the wording was in order. On 10 May 2004 Mr Tunks had advised Mr McKenzie by email that Flexirent would need to sign off on the final wording, but that was never done.

158 Mr Abercrombie's evidence was that he is now aware that the policy actually issued by the underwriters differed in a number of respects from the proposed insurance which was the subject of Mr Evans' communications with him on 1 March 2004. The aspect of the policy to which he particularly referred in this respect was that the policy as issued by Lloyd's did not provide coverage for the equipment for the life of the relevant rental contract. Mr Abercrombie's evidence was that as this would not have met Flexirent's needs under the securitisation program he would not have permitted Flexirent to enter into the policy as issued by Lloyd's or any other policy on similar terms. I accept Mr Abercrombie's evidence on these issues. It is consistent with the context in which the issue arose and is consistent with the conduct of the Flexirent officers' throughout the transaction.

McKenzie exposed

159 In July 2004 uncertainty and confusion emerged in relation to Mr McKenzie's position at EBS. In July 2004 Mr Brooks took over dealings concerning the Flexirent insurance. On 2 August 2004 Cassidy Davis advised Mr Tunks that they were concerned about Mr McKenzie and EBS and had appointed an organisation named CTC Services to perform an audit of EBS. On 5 August 2004 Cassidy Davis set out their concerns in a facsimile transmission to EBS. The fax stated that it had come to their attention that "various allegations" had been made against Mr McKenzie, and information as to his position was sought as a matter of urgency. It advised of the appointment of CTC Services.

160 The disconformity between the terms agreed to by Flexirent and the terms agreed to by the underwriters was exposed in late August 2004 when Mr Horsburgh and Mr Evans met with Mr Tunks and Mr Tunks provided to Mr Evans the insurance policy that Lloyd's had issued.

161 By a letter of 27 September 2004 (misdated 2003) to NMB and to the Lloyd's underwriters' general representative in Australia Flexirent's solicitors set out what was said to be four material differences between the policy Flexirent had agreed upon and the policy Lloyd's had issued. The letter asserted that there had been "no meeting of minds between Flexirent and Lloyd's of London", and sought a refund of all premiums paid.

162 The underwriters met claims for losses occurring up to 31 July 2004. Before me they accepted their liability to meet outstanding claims if Flexirent's claim that it is not bound by the policy is rejected.

[84]

As Peter McWilliam had neither actual nor ostensible authority the company was not bound.

182 If Bruce McWilliam junior had actually authorised Peter McWilliam then, the Court held, he would have been exercising his ostensible authority provided the third party believed the authority was being exercised by Bruce through Peter.[26]

183 The "Raffaella"[27] concerned a guarantee signed by a person who was the manager of the documentary credits department of a small trading bank whereby that bank guaranteed performance by its customer of a trading obligation owed to a third party. The manager in question had no actual authority to sign the guarantee. The person to whom the guarantee was given relied upon the usual authority of a person in the manager's position, as to which expert evidence was called, and also relied upon a variety of circumstances surrounding the transaction including the office arrangements which the manager had, which the contractor saw when he visited the manager to obtain the guarantee, and the knowledge which the manager displayed of the detail of the customer's affairs in general and of this particular transaction.

184 The Court of Appeal held that the bank was bound by the guarantee. Browne-Wilkinson LJ and Kerr LJ, in separate judgments, reached this conclusion relying upon the evidence led concerning the position which the manager held and upon the surrounding circumstances including the detailed knowledge which the manager displayed of the customer's affairs in general and of this transaction in particular. They emphasised the importance of considering the principal's conduct "as a whole".[28] Lawton LJ reached the same conclusion relying upon the usual authority of a person in the position held.

185 Another case particularly relied upon by Flexirent before me was Armagas Ltd v Mundogas SA[29].

186 Armagas concerned a fraudulent conspiracy, involving an agent of each of the contracting parties, to have the principals enter into a three year charterparty. The case raised issues of ostensible authority, deceit and bribery.

187 For present purposes the aspect of the case which is significant is this. In Armagas the party seeking to enforce the contract knew that the dishonest agent for the other party had to obtain the express approval of his superiors before he could commit his principal to the charterparty. The dishonest agent asserted that he had this approval when in fact he did not.

188 The Court of Appeal held that in these circumstances Russo-Chinese Bank applied and the dishonest agent accordingly had no ostensible authority to enter into the charterparty.[30] In the House of Lords Lord Keith of Kinkel, with whom the other law lords agreed, upheld this conclusion.[31] In both the Court of Appeal and in the House of Lords it was held that what the third party really relied upon was the agent's own assertion that he had the express approval which the third party knew he required.[32]

189 One of the judges in the Court of Appeal, Stevenson LJ, expressly referred to the suggestion in Crabtree Vickers that the representation of authority might be made by the agent in circumstances where the principal's conduct, by a prior course of dealing or by putting the agent in a position or by allowing him to act in a position, meant that it could be inferred that the agent's representation of authority in himself was correct. In relation to this suggestion in Crabtree Vickers Stevenson LJ observed:

[88]

194 The Court held it would be unjust to permit the bank to depart from a reasonable assumption which the third party had made, and upon which it had relied, because that assumption had been induced by the conduct of the bank ... "in placing [the relevant manager] in a position which equipped her to deal with the letters of indemnity as requested by Pacific".[36] In this connection the Court referred to the form and contents of the document itself, to the stamp of the bank which she attached to it, to the organisational structure of the bank in Sydney whereby the manager in question was the person who dealt with the relevant request and who communicated the bank's response, and to the fact that the relevant manager was placed in a position to sign and stamp the relevant document and to dispatch it "without any internal check upon their final form and, in particular, without any qualification or limitation of the capacity in which the bank was participating in the transaction".[37]

195 Pacific Carriers re-enforces what was said in Crabtree Vickers as to the circumstances in which an agent's assertion of his or her own authority might, in the particular facts, constitute a representation by the principal. The decision also, it seems to me, reveals that the possible ambit of the factual situations where such a representation might be found extends to a circumstance where the principal has failed to take proper safeguards.

196 The final case to which I will refer in this context is another case particularly relied upon by Flexirent, Essington Investments Pty Ltd & Ors v Regency Property Group Limited & Anor.[38]

197 It is necessary to set out the facts in a little detail. The case arose as a result of the conduct of an "intermediary" between two property developers. The intermediary was a Mr Drummond. A company in the Essington group purchased a development property and was looking to on sell it. Mr Drummond was an independent property consultant introduced to the Essington director primarily responsible for the matter. Mr Drummond in turn introduced the proposal to Regency Property Pty Ltd, a company associated with a Mr Johns. A draft agreement was prepared jointly by the solicitor for the Essington companies, by a legally qualified consultant who advised Regency, and by Mr Drummond. This document went through a number of drafts. Eventually, Mr Drummond took the document to Mr Johns, the director of the prospective purchaser, Regency. According to evidence accepted by the trial judge, Mr Johns was told that Mr Drummond wished him to sign the document by way of demonstrating to Essington that Regency was interested in continuing negotiations. Mr Johns signed the document and gave it to Drummond and, according to evidence that was accepted by the trial judge, made it clear to Mr Drummond that he was not to forward the document to Essington although he could show it to them. On 24 April 2003 Mr Drummond made it clear to the relevant Essington director that he held the executed document but that he was not in a position to release it. On 28 April he faxed the document to Essington without a covering letter. The relevant Essington director signed the document and returned it by facsimile transmission to Mr Drummond. Essington thereafter maintained that there was a concluded contract, and that was the subject matter of the proceeding.

198 The proceeding was heard at first instance in the New South Wales Supreme Court by McDougall J.[39] It was then the subject of an appeal to the New South Wales Court of Appeal[40] and was the subject of an unsuccessful application for special leave to appeal to the High Court.[41] The Essington companies alleged both actual and apparent authority. They failed on both counts. In relation to the issue of apparent authority the judgments at first instance and on appeal reveal three different approaches.

199 The first approach is that taken by the trial judge and by Sheller JA on appeal. On this approach the Essington companies failed because the relevant Essington director knew on 24 April 2003 that the decision whether to "release" the agreement signed by Mr Johns was not one that Mr Drummond was authorised to make himself. On this approach, Essington needed to be able to point to something which had occurred between 24 April and 28 April and which constituted a representation made by Regency, not by Mr Drummond, that the release of the document was authorised. Mr Drummond was not an agent of a kind whose usual authority could extend to an exchange of contracts and, the trial judge observed, until Mr Drummond was given the signed agreement by Mr Johns, it was doubtful whether he was Regency's agent at all. Under this approach, reliance was placed upon the decision in Russo-Chinese Bank, the analysis being that the Essington companies knew Mr Drummond's authority was limited and that if, without enquiry, they relied upon him having authority to do that which they knew he needed authority to do, "they did so at their peril". Under this approach, particular emphasis was also placed upon the evidence of the relevant Essington director that he had assumed from the fact that he received the faxed document that Mr Drummond had instructions to release it and that "it wasn't for me to question whether he had instructions or not". This was characterised as indicating that, in truth, reliance was being placed upon a representation emanating from the agent himself and not from the principal.

200 The second approach was that taken by Hodgson JA in the Court of Appeal. Hodgson JA considered the critical issue to be whether the principal, Regency, had made a representation by silence, by arming Mr Drummond with the document and failing to take steps to prevent him from using it, in such a way as to amount to a representation that the document could be released with contractual effect if and when Regency gave consent and that such consent had in fact been given. On the facts of the case, Hodgson JA found that Mr Johns, the Regency director, had not permitted representations to that effect to be made in the relevant sense. In this context he considered it to be very significant that what was forwarded to Essington was a facsimile copy and not the original document. This analysis was criticised by counsel for the Essington companies on the special leave application and was characterised as being, upon analysis, the sole reason why Essington's appeal had failed.

201 The third approach was that adopted by McColl JA who dissented in the Court of Appeal and found in favour of the Essington companies. McColl JA approached the matter on the basis that what was required was an assessment of Regency's conduct as a whole, and in that respect particularly relied upon Pacific Carriers. McColl JA took the view that Mr Johns did permit Mr Drummond to make representations to the effect that the document could be released with contractual effect if and when Regency consented, and also that such consent had been given. McColl JA said:

[94]

(a) Apparent authority operates as an estoppel preventing a principal from asserting that the principal is not bound by a contract where the principal has held the agent out as having authority.

(b) The holding out may be of a general character, arising for example out of an office or position in which the principal places the agent, or it may be specific to a particular transaction. The holding out may take the form of the setting up of an organisation or structure which presents to outsiders an appearance of authority in the agent.

(c) The holding out must be conduct by the principal, not the agent. A third party cannot rely upon the agent's own representation as to authority. But this does not mean that the agent's conduct is to be ignored. The principal may hold out the agent as having authority by permitting the agent to act in a certain way or to make representations about himself or herself, or the principal may hold the agent out by equipping or arming the agent with a document or thing which enables the agent to assert authority with the hallmark of authenticity.

(d) The holding out may also result from permitting an agent to act in a certain manner, or by equipping or arming the agent, or by a failure to take proper safeguards against misrepresentation by the agent.

(e) The principal's conduct is to be assessed as a whole and in its totality.

(f) The apparent strictness of the approach in Russo-Chinese Bank and in Armagas in relation to the known existence of a limitation upon the agent's authority must be read in the light of the High Court's emphasis in Pacific Carriers upon the need to consider the totality of the principal's conduct, and in the light of the High Court's analysis in Crabtree Vickers and in Pacific Carriers of the circumstances in which an agent's assertion of authority may, in the particular context, be a representation or holding out by the principal. As the decision in Essington well demonstrates, the issue is to be resolved upon an analysis of the particular facts of each case. In a particular case a known limitation upon an agent's authority might prevent an estoppel from arising. It seems to me that that would not invariably be the case, as it is necessary to assess the whole of the principal's conduct in the particular circumstances, and, in particular circumstances, a holding out may exist which it would be inequitable to allow the principal to resile from, notwithstanding the existence of a known limitation upon the agent's authority.

[97]

(a) EBS was at all relevant times Flexirent's duly appointed claims manager for the EPP program. Flexirent had appointed EBS as such in 2001. In this capacity EBS had detailed information in relation to EPP claims data. It used that data for the purpose of pursuing the possibility of insurance for the EPP program with underwriters at Lloyd's.

(b) Whilst many of Mr McKenzie's dealings with NMB and the underwriters were unauthorised and outside his actual authority (even leaving aside the over-arching improper purpose), on occasions Mr McKenzie did pass on to NMB genuine communications which had emanated from Flexirent and Flexirent intended that he should do so in that Flexirent responded to requests from Mr McKenzie which its officers were told had emanated from London (see for example para 110 above).

(c) Flexirent knew that EBS was dealing with NMB and knew that NMB was a Lloyd's broker. Mr Horsburgh knew of the existence of NMB by at least 19 September 2003 and knew that NMB was dealing with Lloyd's underwriters by at least 24 October 2003. He also knew, in his own words, that it was "through" a Lloyd's broker that cover was being negotiated. If he had turned his mind to the matter, with proper advice, he could only have concluded that those dealings must be dealings by NMB with the underwriters as the agent of Flexirent in circumstances where all of the instructions were coming from Mr McKenzie alone.

(d) Flexirent never sought to impose restrictions or inhibitions upon Mr McKenzie's dealings with NMB and the underwriters.

(e) Flexirent put both the draft 1 March confirmation letter, which Mr McKenzie then altered and forwarded to London, and the true signed 1 March confirmation letter, which Mr McKenzie did not forward on, into the hands of Mr McKenzie. Flexirent knew the purpose of this letter was transmission to London.

(f) EBS provided to NMB and the underwriters, in a timely manner, full and accurate details of Flexirent's business insofar as it was relevant to the proposed insurance. In this regard I refer to:

[98]

(i) the proposal in July 2003 which had details of the assets on risk and claims data [see para 37 above];

(ii) the details of the assets provided on 31 July 2003 [see para 40 above];

(iii) the details of the claims provided on 1 August 2003 [see para 41 above];

(iv) the details of the EPP scheme and the claims procedure, the loan numbers, the loan amounts, the loan durations and the claims frequency provided on 4 August 2003 [see para 45 above];

(v) the details of the claims and assets provided to underwriters on 7 and 8 August 2003 [see para 59 above];

(vi) the details of the interest rates charged by Flexirent provided on 7 August 2003 [see para 60 above];

(vii) the details of the percentage of assets that were portable provided on 14 August 2003 [see para 63 above];

(viii) the detailed calculation of the existing book of Flexirent assets provided on 27 October 2003 [see para 93 above];

(ix) the updated asset and claims figures provided in January 2004 [see para 110 above];

(x) the list of all contracts with EPP as at 31 January 2004 supplied to Mr McKenzie by Mr Horsburgh in February 2004 [see para 121 above];

(xi) the fact Mr Horsburgh and Mr Tunks used the same base data for their respective final premium calculations [see para 125-6 above];

(xii) the updated contracts and claims data provided on 9 March 2004 [see para 146 above].

208 There was no suggestion in the material or in the submissions before me that any of the data Mr McKenzie supplied to London was not genuine Flexirent data. Mr Horsburgh actively participated in the compilation of the data in January 2004 and that participation was revealed to NMB by the passing on of genuine communications from Mr Horsburgh (items (ix) and (x) above). When it came time for the final premium calculations to be done both Mr Horsburgh and Mr Tunks were using the same data (item (xi) above). My conclusion is that Flexirent permitted EBS to use an extensive amount of data about Flexirent's business in its dealings with NMB and the underwriters. On any view, Flexirent put EBS into a position where it could use the data in that way.

209 The insurance context is important. Typically, an insurance broker is the agent of the insured.[44] Brokers at Lloyd's, due to the manner in which the Lloyd's market is conducted, are almost inevitably and invariably agents of the insured.[45] Whilst Flexirent's officers may have had a limited appreciation of this position, particularly given the way Mr McKenzie presented EBS's role to them, there was no reason why NMB and the underwriters were not entitled to assume, and I find that they did assume, that EBS was acting in the typical role of an insurance broker or agent seeking insurance at Lloyd's. Flexirent's officers, at least for much of the relevant period, seemed to consider that EBS was an intermediary attempting to bring two parties together, or even that EBS was the agent of the underwriters. It is important that the assumption upon which NMB and the underwriters proceeded was in accordance with the usual legal characterisation of the relationship.

210 On the other hand, Flexirent's conduct must be assessed having regard to the following considerations:

[102]

No signed confirmation was ever obtained by NMB or the underwriters from Flexirent.

212 Further, despite initial resistance, NMB eventually acquiesced in (in relation to the payment of the minium and deposit premium), and then agreed to (in relation to subsequent payments), EBS collecting the premium from Flexirent.

213 My conclusion is that Flexirent did hold out EBS as having authority to engage NMB to place the policy at Lloyd's which was in fact placed. This is an instance, as referred to in Crabtree Vickers, where the person with apparent authority, EBS, has actually authorised a further agent, NMB, to make the contract. The underwriters have assumed that NMB was exercising EBS's authority.

214 I find that NMB and the underwriters did rely on Flexirent's conduct. It led them to assume EBS was authorised to engage NMB to place the policy which it did.

215 I have reached the conclusion that Flexirent did hold EBS out in the relevant sense because Flexirent put EBS into a position whereby it could assert authority with the hallmark of authenticity.

216 It asserted its authority through the altered 1 March confirmation letter, which Flexirent had put into Mr McKenzie's hands.

217 More importantly, EBS asserted its authority in circumstances where it was Flexirent's EPP claims manager and against a background of complex dealings over an extended period of time. A substantial and important component of those dealings was the provision of extensive data concerning Flexirent. The provision of this data was permitted by Flexirent, or, at the least, Flexirent placed EBS in a position where it could use the data as it did. Flexirent enabled EBS, by the position in which Flexirent placed it and by the data Flexirent permitted it to use, to display a most detailed and accurate knowledge of Flexirent's business in general, and of the EPP program and the proposed insurance in particular.

218 Whilst it is true that Mr McKenzie deliberately kept NMB and the underwriters on the one hand and Flexirent on the other apart, and that he presented EBS's role in an ambiguous manner to Flexirent, Flexirent did enable him, and did permit him, to use data and to display knowledge which only a person with extensive access to information about Flexirent's business could possess.

219 Whilst it is true that NMB and the underwriters wanted signed confirmation from Flexirent and that they then gave up on obtaining a signed version of the 1 March confirmation letter, in the circumstances I accept Mr Green's explanation that the desire for confirmation was a desire for confirmation of Flexirent's commitment rather than for confirmation of EBS's authority, and that once the deposit premium was received the need for a demonstration of that commitment had been overtaken by events.

220 The dealings with the premium are not significant in the context because the relevant contract was formed between 19 and 24 March. In any event, the issue was not whether the premium should be paid through an agent of the insured, but through which agent or agents of the insured it should be paid, as on any view it would pass through NMB's hands before reaching the underwriters.

221 If the strict approach to known limitations upon authority as set out in Russo-Chinese Bank and Armagas were applied, then that would be an obstacle to a conclusion in favour of NMB and the underwriters. It seems to me, however, that in Australia, whilst that factor remains relevant, it is only one factor to be assessed in considering the totality of the principal's conduct. It also seems to me that High Court authority requires the recognition in Australia of a more expansive approach to the circumstances in which a principal will be found to have held out an agent to have authority based upon assertions by the agent, in the particular context, than is perhaps recognised in those UK decisions.

222 It is always difficult in cases such as this where a decision must be made as to who is to bear a loss between parties who are both innocent of the wrongdoing which is the true cause of the problem. It seems to me that here Flexirent did hold EBS out as an agent with authority to engage NMB to place the policy which it did and that NMB and the underwriters acted in reliance upon that holding out. In the circumstances Flexirent is bound to the policy which the underwriters issued.

Negligence

Duty of care

223 It is most important to identify the precise duty contended for. The duty pleaded by Flexirent against NMB is a duty to take reasonable care not to cause economic loss to Flexirent by entering into a contract which was binding on Flexirent but was not a contract authorised and approved by Flexirent.[46]

224 If Flexirent is not bound by the Lloyd's policy the issue of negligence does not arise. If Flexirent is bound by the policy (as I have found it to be), it is so bound because, as a result of its own conduct, it is estopped from contending as against the underwriters that EBS did not have authority to engage NMB to place the Lloyd's policy.

225 Flexirent did not submit that a duty of the kind it contends for has previously been found to have existed in this specific context or in any closely analogous context. It submitted that the duty sought to be imposed was, however, a "straightforward application of what are, now, relatively settled principles as to the circumstances in which the Court will find a duty of care with respect to pure economic loss".[47]

226 In cases where a duty is contended for in circumstances where it has not previously been found to exist it is important that the duty asserted is coherent with other applicable principles of law. As the High Court has recently explained in Sullivan v Moody[48]:

Plaintiff v Defendants

At a glance

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