Plaintiffs v Defendant [2006] VSC 507 | Case summary

Plaintiffs v Defendant [2006] VSC 507 | Case summary | Zoe

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1 Between early 1998 and September 2000 the defendant, a corporation incorporated pursuant to the laws of the State of Victoria and wholly owned by AXA Asia Pacific Holdings Limited ('AXA'), issued policies of life insurance known as the "Prosperity Bond".

2 In about July 1998 a Dr Peter Keller and the defendant negotiated special terms ('special terms') to be incorporated into the Prosperity Bond policies issued to investors whose investment was to be managed by Keller. Keller was a New South Wales dentist who was also a principal of an investment company, Coneview Pty Ltd ('Coneview').

3 The plaintiffs allege that they were introduced to the defendant by Coneview and were informed by Keller, as agent of the defendant (or alternatively by Keller's agent, one David Taylor), of the special terms of the Prosperity Bond which had been agreed between Keller and the defendant.

4 Each of the plaintiffs invested in a Prosperity Bond policy or policies. The first plaintiff entered into a policy on 30 June 2000 paying a premium of approximately $5,000,000, and paying a further premium of $500,000 in respect of the policy on 29 December 2000. The second plaintiff entered into a policy on 11 September 2000 paying a premium of $5,000,000. The third and fourth plaintiffs entered into three such policies between 18 April 2000 and 1 August 2000 paying premiums which in aggregate, after allowing for withdrawals, amount to approximately $600,000.

5 The plaintiffs allege the special terms gave them the right to make arbitrage profits for the life of the policy and that the defendant wrongfully denies that the special terms confer such benefits. Each of their contracts has been repudiated. The plaintiffs seek damages, which, on one calculation in the plaintiffs' particulars, may exceed three hundred million dollars.

THE PROSPERITY BOND

Standard terms

6 Policies issued by the defendant in respect of prosperity bond investments were "life policies" within the meaning of s.9(1) of the Life Insurance Act 1995 (Cth).

7 The policy provided that all Prosperity Bond investment portfolios available at the commencing date were Prosperity Bond Market-Linked portfolios. The assets of those portfolios were held in the defendant's No. 5 Statutory Fund (section 3.1). The Market-Linked portfolios were divided into parts of equal value called Units which were used to keep track of the policyholders' entitlements under the policy. There were a number of portfolios including a "Cash" portfolio and a "Secure" portfolio. The latter contained Australian shares, a small percentage of international shares and fixed interest securities, the unit price being affected by the daily movement in the All Ordinaries Index. The policy expressly provided that changes in market value of the investments in the portfolios were to be reflected in the unit prices which rose or fell as a result. A policyholder was permitted to switch investment portfolios by transferring amounts between any of the Prosperity Bond investment portfolios at any time (section 3.3a). Adjustment to the number of units would be made using unit prices as at the date to which the request for transfer applied (section 3.3b), the unit price being a price which would be declared on a daily basis but which might be declared more or less frequently (section 3.2e).

8 The written terms of each of the plaintiffs' policies provided that the policyholder had flexibility to make adjustments to the policy to pay an additional premium, subject to the defendant's express agreement; and to switch investment portfolios or to withdraw cash by means of a full or partial surrender (section 1.1). Section 1.8 of the policy states:

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Special Terms

The plaintiffs' case

9 All of the plaintiffs allege that they were promised and understood that they had the right to give notice of intention to complete an unlimited number of switches between the Cash and Secure portfolios in three working days' time using the unit price on the day of the notice and the right to cancel such notices inside that period ("three day option").[1] The plaintiffs also allege that they were promised and understood the defendant would be obliged to and would in the future, use historical pricing for Prosperity Bond unit prices ('historical pricing'). The plaintiffs allege that either or both the three day option and the obligation of the defendant to use historical pricing gave the plaintiffs the ability to engage in arbitrage. They contend that by virtue of the three day option or historical pricing, the latter giving them the benefit of hindsight as to daily movements in market prices, they could make profits by switching between the Cash and Secure portfolios to take advantage of capital gains or to avoid losses. The plaintiffs say that the special terms or "intelligent strategy" allowed arbitrage profits to be made which by definition is risk free and a function of price variation and duration.

10 The plaintiffs allege that the special terms of the policies were partly in writing and partly oral. Insofar as they were in writing, they contend they are to be found partly in clause 1.8 of each plaintiff's policy, in a letter forwarded to Keller by the defendant on 21 June 1999 ('the June 1999 letter'), in a document entitled "Investors in Prosperity Bonds introduced by Coneview Pty Limited" which was annexed to each policy entered into by the plaintiffs ('the no advice letter') and in a document entitled "Investors in Prosperity Bonds introduced by Coneview Pty Limited - Special Agreements" annexed to each policy entered into by the plaintiffs ('the undertakings letter'). Insofar as the terms were oral, they are said to have been communicated to the plaintiffs by Keller or Taylor as agents of the defendant. The plaintiffs also seek rectification of clause 1.8 of the policy.

11 The plaintiffs further allege that the defendant is estopped from pursuing its interpretation of the special terms and from denying the express and implied terms pleaded by the plaintiffs. The plaintiffs also plead that there were misrepresentations by the defendant contrary to s.52 of the Trade Practices Act 1974 (Cth) ('TPA') and negligent misstatement by the defendant relating to the three day option.

The defendant's case

12 The defendant denies that the June 1999 letter, the undertakings letter or the no advice letter contained terms forming any part of the policy issued to the plaintiffs and submit that the terms of the policy are to be found entirely within each policy issued to the plaintiffs. The defendant disputes the existence of any oral terms or that the said Keller or Taylor were agents of the defendant.

13 The defendant submits that clause 1.8 must be read as part of a life policy within the meaning of the Life Insurance Act 1995 (Cth) ('LIA') and says it is an "investment linked contract" within the meaning of the LIA. The defendant challenges the plaintiffs' alleged entitlement to make substantial risk-free arbitrage profits for the remainder of their life pursuant to the special term because they were conferred neither a contractual right to take advantage of hindsight or foreknowledge in switching between portfolios (historical pricing claim), or a right to have unit prices move in the same manner as they would have moved if no switching had occurred, (three day option claim). The defendant pleaded that on the proper interpretation of the special term, switches may not be made for the purpose of obtaining returns to the investor which do not arise from changes in the value of underlying assets during the period whilst the investor holds the portfolio. Alternatively it submits that this is an implied term.[2] It denies that it made any representation that can support a claim of negligent misstatement or a breach of s.52 of the TPA.

Alleged breach of special terms

14 The plaintiffs allege that from 16 October 2000 the defendant completed switches between the Cash and Secure portfolios using the unit price on the day after the date on which the notice of intention to switch had been given rather than the price declared by the defendant at the time the notice of intention to switch was given. They allege that the defendant (since 30 October 2000) had completed switches and refused to process cancellations of instructions to switch given to it by the plaintiffs within three working days of the giving of notice of intention to switch. They claim that since 17 October 2000 the defendant had failed to make available current unit prices for the Cash and Secure portfolios, and had changed from an historic to a forward unit pricing system. They further allege that from that date the defendant had reduced the number of units on issue in the Cash and Secure portfolios without the consent of the plaintiffs so as to prevent the plaintiffs from utilising the special terms to make arbitrage profits. It is said the defendant failed to contribute to the Statutory Fund No. 5 or to the Cash and Secure portfolios so as to avoid a dilution in unit prices of units in those portfolios consequent upon a switch by the plaintiffs in accordance with their special terms. The plaintiffs also allege that the defendant had refused to accept additional premiums on existing policies after 30 September 2000.

15 The plaintiffs allege that by reason of the defendant's breaches of the special terms of the prosperity bonds they have suffered loss or damage. Alternatively they allege that the defendant has evinced an intention not to be bound by the special terms of the prosperity bonds and has repudiated each of the plaintiff's contracts with the defendant. The plaintiffs allege that they have accepted the defendant's repudiation and claim damages as a result thereof.

16 The defendant says that from 16 October 2000 it followed the practice of calculating and determining the unit prices for the Cash and Secure portfolios applicable for each business day at the end of that business day. It alleges that prior to 1 November 2000 Keller never purported to give a notice of intention to switch between portfolios pursuant to clause 1.8 of the policy. It alleges that no request to switch required it to carry out the switch at some time in the future. As to the requests to switch made in October 2000 the defendant says that it processed the transfer of funds from one portfolio to the other as soon as practicable after the request was given. As to the requests made to cancel a switch during October 2000 it admits that it refused to cancel such switch as the switch had already been completed prior to the request to cancel being made. It had not elected to exercise its right to delay completion of the transfer for up to three working days. The defendant admitted that it had segregated the assets underlying the policies belonging to the plaintiffs from assets underlying the policies belonging to other prosperity bond holders and that from 16 February 2001 the only units on issue in the prosperity bond Cash portfolio were units allocated to Coneview investors, including the plaintiffs. Between 14 February 2001 and 24 October 2001 there were no units on issue in the prosperity bond Secure portfolio other than units allocated to Keller in respect of his policy and after 25 October those units were removed. The defendant says it was entitled to take those actions and was not required to seek the consent of the plaintiffs. It denies that it was under any obligation to contribute to the Statutory Fund No. 5 or to the Cash and Secure portfolios so as to avoid a dilution in unit prices of units in those portfolios. It denied that it was under any obligation to accept additional premiums proposed by the plaintiffs on their existing policies after 30 September 2000 or at all. It denied that it was in breach of the special terms or that it had repudiated each of the plaintiffs contracts. Further, the defendant alleges that the plaintiffs' policies remained on foot and that the plaintiffs were not entitled to damages in respect of anticipated future losses.

17 The plaintiffs and the defendant by counterclaim each seek declarations as to the special terms of the prosperity bonds and their meaning. The plaintiffs, in the alternative, seek rectification of clause 1.8 of each of their policies by the removal of the words "prior to completion of the portfolio switch or withdrawal transaction".

Trial history

18 At the commencement of the trial on 31 October 2003, the plaintiffs were granted leave to file a further amended Statement of Claim and consequential orders were made for the filing of a further amended defence and an amended reply. Proceedings were adjourned until 6 November 2003 to enable the parties to prepare the amendments to what were already very extensive and complex pleadings. Upon resumption, counsel for the plaintiffs requested and was granted further time in which to file an amended reply. The plaintiffs' opening addresses commenced and continued until 10 November 2003. The plaintiffs foreshadowed that they would seek leave to make further changes to the Statement of Claim and orders were made for the filing of further amended pleadings. The hearing was further adjourned until 17 November 2003 to enable the parties to complete the further amendments to pleadings and to file objections to the contents of witness statements. Because of the number and apparent complexity of the issues, counsel for the defendant was permitted an opening address upon resumption of the hearing on 17 November 2003. The plaintiffs commenced to call evidence on 19 November 2003. It was by then apparent that the hearing would take far longer than the time normally allowed for a case in the Commercial List and that at the earliest, the hearing of the evidence would not be completed until the end of the legal year. Because of court commitments I was not available to continue the hearing in first term of the following year. Armed with this knowledge the parties concluded the calling of evidence on 17 December.

19 During the hearing of the evidence and closing submissions I utilised a "real time" transcript. This enabled me to extensively highlight and annotate the evidence as it was given and the arguments as they were advanced. Annotation of the transcript enabled me to link the evidence and the arguments to the various legal and factual issues in the trial. In particular, I was able to make contemporaneous annotations to the evidence which bore upon the credibility of witnesses in relation to questions of fact which were in dispute. Although I retained a clear impression of the small number of witnesses whose credit was really in issue, this process enabled me to record my assessment of their evidence as it was given.

20 On 19 December, the last sitting day of the calendar year, the plaintiff was given leave to file a third amended statement of claim and the defendant, leave to file a third further amended defence and counter-claim. The plaintiffs had also made substantial amendments to their already very extensive reply.[3] A timetable was fixed for the filing of written submissions. Although limits were placed on the length of the initial written submissions and replies, much to my subsequent regret, I made no order limiting the size or length of footnotes and did not preclude the filing of supplementary submissions or schedules. The extensive footnotes, supplementary submissions and the schedules of various errors alleged by the parties to be contained in the written or oral submissions of the other party, and the replies to those allegations, very substantially added to the material that I was required to consider for the purpose of preparing this judgment. The writing of the judgment was further complicated by the request of the parties, to which I had acceded, that they file their written submissions at the same time. This meant each parties' written submissions were not responsive to the submissions of the other party. Closing addresses commenced on 28 March 2004. After permitting the parties five days of oral argument on which sitting hours were extended, the oral submissions were still not completed. On 2 April 2004 the hearing was adjourned because of other court commitments. During the following week both parties notified the Court that in preference to advancing further oral arguments, the parties would provide the Court with further written submissions and various schedules. These were filed in May 2004. Following numerous requests made during and after the trial, the parties, some months after the closing argument, finally provided an agreed chronology of facts that were not in dispute. Further written submissions were filed with the Court in June 2004. The trial had thus extended over a period of some eight months.

Delay in delivering reasons

21 At the conclusion of oral submissions the parties were informed that there would be a substantial delay before I was able to deliver a judgment due to other court commitments. In addition to other judgments that were entitled to priority, I was involved in a trial that took almost the whole of 2005. As a consequence I was unable to give the present judgment the attention it required.

22 Because of the unfortunate delay in the delivery of these reasons I have felt obliged to set out the relevant evidence, the parties' arguments and my process of reasoning which has led to the conclusions which I have reached, in a more comprehensive fashion than would have otherwise been necessary.[4] The task of meeting these obligations was made more challenging because of the multiplicity of issues in the trial which were all very extensively explored by the parties.[5] Counsel for each of the parties on more than one occasion emphasised the complexity of their submissions and the difficulties that would be posed for the Court in writing a judgment.[6] It has not been possible, nor was it necessary, to refer to or address every argument that has been raised. Fortunately, there were relatively few questions of credit which called for resolution despite the size and complexity of the case; but I considered it desirable to deal with those issues more extensively than would otherwise be the case.

Submissions of the parties

23 The parties' written submissions (including those that were not filed pursuant to any order), and large schedules alleging inaccuracies in the other party's written and oral submissions, errors in the other party's schedule of errors and replies to the errors in the other party's schedule of errors, covered in excess of 500 pages. The submissions of the parties included extensive references to authorities, often in most detailed footnotes. When referring to a party's submission I have generally recorded, in a footnote, the authority cited by that party which supports that party's argument.

24 There was substantial repetition of arguments by each of the parties when dealing with each new issue. Often, the nature of the new issue made that unavoidable. In referring in my reasons to the parties' arguments, I have endeavoured to minimise the degree of repetition without doing injustice to the submissions advanced

FACTUAL SETTING**[7]**

25 From 1998 to October 2000, the defendant was using historical pricing for its Prosperity Bond product and was treating its use of historical pricing as confidential. The defendant also published daily unit prices in the morning. There was a direct correlation between the day's unit price and the previous day's closing market index. As at June 1988, and thereafter, standard Prosperity Bonds were a "slow selling" product line.

26 Gregory Andrews was employed by the National Mutual Life Association of Australasia Ltd ("NMLA") between September 1987 and October 2000. He held various positions until July 1997, when he became a Product Specialist in the Investment Products Department at 447 Collins Street. In that position he reported to Mark Yesberg for work which included the maintenance of product features and the product development to maintain NMLA's competitive market position.

27 Paul Mandalidis was a Dealership Manager with the defendant and was the defendant's Financial Planning State Manager for NSW and the ACT. Although a principal witness in the Coneview Pty Limited proceedings heard in New South Wales, Mr Mandalidis did not give evidence in these proceedings.

28 On 12 June 1998 following a meeting with Peter Keller, Brian Beazley (an authorised insurance agent working on a commission basis with NMLA) and Brian Fitzpatrick, (who also worked for NMLA) sent a memorandum to Paul Mandalidis and Greg Andrews concerning "Mr Peter Keller's 'Investment Club' Proposal."[8] The memorandum stated as follows:

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54 By late 1999 or early 2000 Yesberg had seen the no advice letter. He had read it and had seen nothing wrong with the reference to clause 1.8 which contained the primary special term.[47] According to Yesberg the intention of the no advice letter was to confirm that the person entering into the agreement had undertaken their own due diligence.[48] The defendant relies upon the letter in answer to the plaintiffs' allegations that Keller and Taylor in their capacity as agents for the defendant had made representations about the meaning of the special terms.

55 In relation to the "No Advice" term of the policy Beazley considered that this meant that each party to the contract was to 'look after themselves'. He thought it was a matter between the defendant and the investors, and was nothing to do with himself.[49]

56 By the end of September 1999 at the request of Beazley, Andrews prepared an amended form of standard policy document incorporating special terms.[50]

57 On 19 October 1999 a facsimile was sent from Beazley to Taylor attaching an early version of the Undertakings letter.[51] On the same day a facsimile from Beazley was sent to Andrews similarly attaching an early version of undertakings letter.[52]

58 In late October 1999, discussions took place between Beazley and Taylor, regarding amendments to the policy document as well as other matters. [53] On 28 October 1999 a facsimile was sent from Beazley to Taylor attaching the draft letters and draft Prosperity Bond policy document.[54] On 29 October 1999 discussions again took place between Beazley and Taylor concerning the documents faxed the previous day. On 2 November 1999 a letter was sent from Taylor to Beazley in relation to the new policies and their drafting.[55] On 3 November 1999 a facsimile from Beazley was sent to Andrews seeking approval of the attached undertakings letter.[56] On the same day Taylor returned the undertakings letter to Beazley with Taylor's handwritten amendments.[57] The defendant alleges the policy and undertakings letter in this form contained the special terms as finally settled.

59 In an e-mail dated 9 November 1999, from Spanu to Andrews in relation to "New movement required urgently - for Investor Club", Ms Bennett requests "Please advise progress of new movement to waive switching fees and protection charge as clients have already used up their 2 free switches in the new policies."[58]

60 On 10 November 1999 a letter from Taylor to Tyne re "Investment opportunity - managed insurance bonds", enclosed the Information Memorandum prepared by Coneview ('the CIM'). The letter,[59] but not the draft Information Memorandum attached to that letter, was tendered. A document entitled "Managed Investment Bonds - Information Memorandum" prepared by Coneview January 2000 was part of the Court Book.[60] I am unable to say whether the Information Memorandum supplied as part of the Court Book is substantially different to the draft attached to the letter. The CIM prepared by Coneview Pty Limited dated January 2000 stated in part as follows:

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67 In December 1999, Tyne contacted Taylor requesting documentation relating to Taylor's investment.

68 By the end of 1999 Andrews was aware of frequent switching by Keller on one of Keller's policies.[69] He subsequently learned that switching was occurring in relation to all policies. Mr Andrews discussed this with Yesberg in the course of preparing a draft December Business Review Specification. [70] Mr Beazley knew that Keller was switching on behalf of all investors.[71]

69 On 22 December 1999, a telephone conference was held between Yesberg, Andrews, Mandalidis, Beazley, Taylor and Keller.[72] Item 1 on the agenda was "is there any objection to Brian Beazley paying trail commission direct to Coneview from my Commission payments?"[73] Mr Yesberg understood that Keller received part of the trail commission.[74]

70 In January 2000, Taylor provided Tyne with documentation. According to Tyne, he read the June 1999 letter, and the CIM carefully. He also read the 30 November 1999 facsimile. He skim read the Customer Information Brochure.[75]

71 Across the first quarter of 2000, Tyne and Tom Oates (a former solicitor at Mallesons, and now investment banker together with Tyne and Hawkins) had several conversations in relation to the Prosperity Bonds.[76] In late January 2000, Hawkins and Tyne spoke about due diligence. Hawkins and Tom Oates also spoke in relation to the investment. Tyne delivered documentation to Hawkins.[77]

72 In February 2000 Andrews left the Investment Products Department of the defendant and moved to work on a GST team. In Andrews' absence the matter was handled by Yesberg who was given Andrews' folder which included the ANZ monthly summaries.[78] The Business Requirement Specification was circulated for the first time in February of 2000 to various persons including Yesberg. This document identified a lot of backlogged switches and was apparently drafted in December 1999.[79]

73 By February 2000 Yesberg was suspicious of the volume of funds being invested.[80] On 7 February 2000, the first cancellation was requested by Keller.[81] In mid-February 2000, Yesberg met with Ms Alexiou of the defendant's legal department to find out whether there was any reason for the product's popularity. Yesberg put to her that the sales into the Investor Club Prosperity Bond were much more than originally anticipated. He wanted to find out why. He was proposing a meeting with Keller, and he wanted some advice on how to approach that meeting. He wanted to know what was different about the policy and what could be done about it.[82]

74 On 16 February 2000, Tyne's first (personal) Prosperity Bond Policy No. 7554017/9 for $500,000 was issued with letters. That policy is not the subject of this proceeding, but it was subsequently rolled into the policy of the first named plaintiff.[83]

75 On 18 February 2000 a letter was sent from Taylor to Tyne enclosing documents including a copy of the Prosperity Bond Policy No 7554017/9 and the execution copy of the Investor Management Agreement.[84] He said in evidence that he read the covering letter that came with it, but he did not read the policy until October 2000.[85]

76 In relation to the first 'No Advice' letter sent to him, Tyne gave evidence that he received it, read it and noted that it embodied the provisions that he expected in relation to the Coneview special terms.[86] Paragraph 4 of the no advice letter was not exactly the same as paragraph 1.8 of the Tyne policy, with paragraph 1.8 containing the additional words "... prior to the completion of the portfolio switch or withdrawal transaction ...". Tyne gave evidence that he did not know this at the time of signing. He stated that the difference was not brought to his attention until the trial when the defendant sought to rely on it.[87]

77 With respect to the first policy undertakings letter, Tyne gave evidence that this was not shown to him or signed by him, at the time he signed the first no advice letter, but if it was shown to him, he did not notice that paragraph 4 of the first policy undertakings letter differed from paragraph 4 of the first no advice letter.[88]

78 Tyne built an economic model of the Prosperity Bond investment. In a memorandum to Hawkins dated 25 February 2000 concerning the Prosperity Bonds, he noted:

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97 Dr Keller phoned Tyne at about this time regarding the possible withdrawal of the Prosperity Bonds from 11 July 2000 for reasons stated by the defendant to be purely related to the Ralph Business Taxation Review.[122]

98 At the request of Yesberg in late June 2000, Andrew Papandony of the defendant's Actuarial Department began reviewing spreadsheets. On 24 June 2000, Tom and Paul Oates executed further applications. They signed an application for Prosperity Bond Policy No. 7556759/4 which was then forwarded to Taylor who subsequently forwarded it to Beazley. The original joint policy No. 7555177/0 remained on foot with a premium value of approximately $100,000. This policy No. 7555177/0 is still on foot and is the subject of the proceedings against the defendant.

99 On 26 June 2000 Yesberg sent an e-mail to Armour, O'Brien,[123] Shermon,[124] Rutter and Burton. Mr Yesberg raised the issue of whether the defendant's Insurance Product of the Prosperity Bond should be discontinued.[125]

100 On 30 June 2000, Prosperity Bond Policy No. 7556759/4 for $100,000 was issued to Tom and Paul Oates with letters.[126]

101 Prosperity Bond Policy No 7556812/1 for $5,500,000 was issued to the First Named Plaintiff with letters. Tyne attended the settlement meeting (as did Beazley).[127] The premium sum comprised $4.95 million advanced to ACN by the ANZ Bank and an amount of $500,000 representing the rollover of the Tyne policy purchased in February 2000. The Tyne policy was to be cancelled.[128] According to Tyne what the no advice letter meant to him was that the defendant and a prospective policyholder were to be taken to contract on an arm's length basis and accordingly that was "every man for himself."[129]

102 Ms Spanu asked Ms Sarah Wenzel to take over her duties in June 2000, providing instructions and a handover memorandum to Wenzel in so doing.[130] This was authorised by her superiors. Dr Keller took Spanu and Wenzel out to lunch and drew Spanu's attention to the no advice letter. The date of this meeting is unknown. It was possibly post June 2000.

103 At a meeting early on 4 July 2000 between Yesberg, Burton and Graham Slater (the defendant's actuary until the appointment of Kenneth Griffin from 11 September 2000), Mr Slater was advised that a problem had been found with the arbitraging and the frequency with which switches were occurring.[131] Slater said that it was his view that the defendant shareholders would have to cover the cost impact of the mismatch of assets and liabilities which had arisen as a result of the frequency of switching and the fact that the switching had not been put on to the computer system.[132] The purpose of the meeting was to bring Mr Slater up to date with the problem identified in regards to frequent switching.[133]

104 Letters issued between 6 July and 10 July 2000 from Joan Murphy, Manager AXA Customer Service Centre, to Tom Oates informing him of his portfolio balances and his Prosperity Bond balance. All letters concluded "If you have any queries or require further information, please contact your financial adviser Coneview/B Beazley ... or our Customer Service Centre."[134]

105 Tom Oates received a "July 2000 - Investor Report" from Keller setting out a detailed account history of the 7555177/0 policy (as well as the other policies, 7556759/4, 7557648/8, 7556757/8, 7556758/6) showing the Secure and Cash unit prices for each day on which Keller switched investments on their behalf, and showing a total accretion of $18,200 worth of units for all policies taken together, which he noted on the report to be (very roughly) a 30% pa return based on an investment of $750,000.[135]

106 In early July 2000, Yesberg decided that the Prosperity Bond Customer Information Brochure should be re-issued for the coming year. On 20 July 2000 an employee of the defendant, Dale McMenamin, sent an e-mail to Yesberg and Andrew Papandony. The e-mail read as follows:

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145 A facsimile was also sent from Keller to the defendant on 6 November 2000 entitled "Cancellation of notice of intention to switch to cash portfolio". Ms Wenzel took no action because the corresponding switch had not been processed.[198] Another facsimile was sent on the same day also from Keller to the defendant entitled "Notice of Intention to switch, re switch from Secure to Cash". Ms Wenzel did not process the switch because the Investment Club funds were already in Cash.[199]

146 On 7 November 2000 Tom and Paul Oates wrote to Yesberg in relation to the recently announced proposed changes to the Prosperity Bonds.[200] By way of a facsimile, also copied to Beazley, they outlined their dissatisfaction with the various unilateral changes which the defendant had implemented in relation to their policies.

147 Another facsimile was sent on 7 November 2000 from Keller to the defendant entitled "Cancellation of notice of intention to switch to cash portfolio". Ms Wenzel took no action, as the corresponding switch had not been processed.[201] On the same day a facsimile was sent also from Keller to the defendant entitled "Notice of intention to switch, re switch from Secure to Cash". Ms Wenzel did not process the switch because the Investment Club funds were already in Cash.[202]

148 On 8 November 2000, a facsimile was sent from Keller to Yesberg and Wenzel in relation to the switch and cancellation requests in late October and early November 2000.[203] On the same day a letter was sent from Tyne to O'Brien advising of certain matters and threatening legal proceedings.[204] Tyne also requested information concerning the basis and methodology of the recalculation of 30 October 2000,[205] and called Keller to discuss the issue.

149 A facsimile was sent on 30 October from Keller to the defendant entitled "Notice of intention to switch, re switch from Cash to Secure".[206] On 9 November 2000 a facsimile was sent from Wenzel to Keller confirming the switch from Cash to Secure in relation to portfolio switches requested on 8 November 2000.[207] On the same day a facsimile was also sent from Keller to Wenzel entitled "Notice of intention to switch, re switch from Secure to Cash".[208] In response to that portfolio request Wenzel sent a facsimile to Keller on 10 November 2000 confirming the switch from Cash to Secure.[209]

150 On 9 November 2000, a letter was sent from Tyne to Yesberg advising of a decision to invest a further $5 million into the ACN policy.[210] Tyne decided that the defendant's refusal to accept a further premium was not legally justified. He wrote to Yesberg advising that he wished to increase the Argot policy by $5 million. Similarly on the same day a letter was sent from Hawkins to O'Brien responding to the defendant's 30 October 2000 letter and advising that Pegela had determined to invest a further $5 million.[211]

151 On 13 November 2000, a letter was sent from O'Brien to Coneview in response to its letters of 30 October and 1 November 2000.[212] On 16 November 2000, a letter from Coneview was circulated to investors advising of the commencement of legal proceedings against the defendant and attaching the 13 November 2000 letter from O'Brien.[213]

152 A letter was sent from O'Brien to Tyne on 1 December 2000 responding to Tyne's letter of 31 October 2000 and advising that additional premiums would not be accepted.[214] Also on the same day by way of letter, O'Brien replied to Tom and Paul Oates' letter dated 7 November 2000 outlining his view that none of the documentation issued by the defendant gave an undertaking that the defendant would accept further contributions and "outlining that the adjustment to our units was necessitated by administrative errors."[215]

153 On 22 January 2001, the balance of Tyne's personal policy was transferred to the ACN policy, effective from 29 December 2000.

154 On 1 February 2001 a letter was sent from Mr Le Plastrier to Lorraine Allan of APRA in relation to the NSW Investment Club. The letter in part noted the following:

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171 The plaintiffs referred to the decision of Fuji Finance Inc v Aetna Life Insurance[242] which involved an investment linked policy of insurance that enabled the policyholder to switch the units allocated to his policy between several funds, in a manner not dissimilar to the plaintiffs' policies. I shall dwell upon those facts because the policyholders' method of making profits was identical to one of the two means of doing so relied upon by the plaintiffs.

172 The switch option entitled the policyholder to direct the insurer to convert units from an internal fund allocated to the policy to units of another fund. Switching instructions given by the early afternoon of Tuesday would be carried out at prices published on Wednesday. The insurer fixed those prices on the morning of Tuesday based upon the prevailing stock market prices in the case of United Kingdom equities and fixed interest stocks. The policyholder, who was well informed about the movement of prices on the Stock Exchange and the procedure followed by the insurer, was able to do his own calculations. By the time switching instructions were given on the Tuesday afternoon, he would know what the approximate price was that the insurer would have fixed as the value of the units in some of the funds, even though the prices struck would not be published until the following day.[243] Thus when the policyholder gave switching instructions on a Tuesday afternoon he was in effect switching at known prices which meant he could make profits and avoid losses. The policy appreciated in value at an annual average rate of 90 per cent compound so that the single premium of [sterling]50,000, in less than six years, soared in value to over [sterling]1,000,000. The insurer then changed its switching procedures and the policyholder was informed that in order to improve the equitable treatment of all policyholders, the insurer was changing the time at which the prices for units would be struck to a later time, so that the instructions given by the policyholder to switch would not be carried out by reference to values already determined. The policyholder claimed this was a repudiatory breach of contract and surrendered the policy. The surrender proceeds were paid and the policyholder commenced an action for damages at large. The insurer contended that if the policy had continued to appreciate at the same rate for the expected lifetime of the life assured, the damages could have amounted to [sterling]252,000 trillion which was the equivalent of the gross national product of the United Kingdom for four hundred and sixty thousand years. The matter came before the Vice Chancellor by way of a preliminary issue as to whether the policy was a policy of life insurance and whether as a consequence of statutory provisions it was void or unenforceable. As the policy was a policy of life insurance it was held on appeal that the proceedings could not be brought by the policyholder. Those questions are not relevant to the present proceedings. The plaintiffs refer to the fact that the Vice Chancellor expressed no concern about the potential quantum of damages involved. The Vice Chancellor observed that though the sums claimed were very substantial they could not exceed the value of the relevant funds of the company. On appeal Morritt LJ, with whom other members of the Court agreed, also stated that any damage claimed would be limited to the assets of the relevant funds.[244]

173 The case of Clarion Ltd v National Provident Institution[245] has some common features with the circumstances of the present case. For the purpose of determining a number of preliminary issues, the Court in Clarion was asked to assume the existence of a contract between Clarion, a provider of investment management services and NPI, a mutual life office. NPI offered a policy which contained a number of unitised investment funds. NPI's practice was to permit switching units from one fund to another, and to apply a system of "forward pricing" so that the switch was effected at a price calculated by reference to market prices on the day following the notice to switch. The essence of the agreement which Rimer J was asked to assume was that NPI would accept switching instructions from Clarion in late afternoon and that the switch would be calculated by reference to market prices as at 12 noon on that day. This enabled Clarion to trade on "historic pricing" under which it could switch between funds with the invaluable benefit of hindsight. It was contended by NPI that it was mistaken as to how the block switching arrangement would be used by Clarion and its likely effect. NPI did not appreciate that the arrangements would be used to enable Clarion to exercise its switching opportunities using the benefit of "historic pricing".

174 Rimer J was required to assume that Clarion was aware of NPI's mistaken understanding as to how the arrangement would be used and its likely effect. In finding that NPI's mistake was neither a mistake as to the terms of the contract or as to its subject matter, Rimer J held it was a mistake only as to the commercial advantage which the contract gave Clarion. The doctrine of mistake did not extend to the release of a party from a bad bargain. Rimer J considered it inherent in business transactions where each party bargains in his own interest and where each must look after his own interests that there will be those who will make a bad bargain and continued:

[318]

183 In _Royal Botanic Gardens and Domain Trust v South Sydney City Counci_l[267] extrinsic evidence of post contract conduct had been admitted in support of a claim for rectification. The joint judgment of Gleeson CJ and Kirby J emphasised the importance of maintaining a distinction between the evidence relevant to questions of construction and rectification, as it would be paradoxical if extrinsic evidence which was insufficient to establish a claim for rectification "could be received to produce the desired result as a matter of construction".[268]

184 A primary reason for the general exclusion of post contract conduct is that there is a real risk that a party or parties have misunderstood their legal position. The evidence of much post contract evidence is equivocal and tends to be capable of supporting both side's contentions as to the question of construction. Recourse to pre or post contract conduct, where such evidence is admitted, is for the purpose of ascertaining the presumed, rather than the actual intention of the parties.[269]

185 In the present case, a substantial body of evidence, oral and documentary, has been admitted as to the parties' subjective intentions as revealed by pre or post contract conduct. This evidence was used variously for the plaintiffs' claim for rectification; as founding an estoppel; for implying an additional term to the contract; and in supporting a variation of the contract. Although the parties recognised in principle that such evidence was not generally admissible on the question of the construction of the special terms, objections were not generally raised to the admission of such evidence because of the numerous bases upon which the evidence might arguably have been receivable.[270] Prenn v Simmonds[271] is an example of the distinction which must be drawn between evidence which has been admitted for the purpose of construction and evidence available for the purpose of rectification. That distinction was not always maintained by the parties in the course of the trial. The dangers of referring to post contract conduct were largely ignored by the parties in their closing submissions.

186 I have considered whether the evidence of post contract conduct in any way illuminated the objective framework of facts within which the agreement came into existence and the parties' presumed intention. However, the need for caution when examining the parties' conduct in pursuit of the agreement was explained by Kirby P in Hide and Skin Trading:

[320]

187 The prior negotiations between Keller/Coneview and the defendant may tend to establish objective background facts known to both parties. To the extent that they have that tendency, evidence of those negotiations is admissible for that purpose.[273] The commercial purpose of the contracts may be ascertained via a process of examining what was mutually known by the parties about the genesis of the transaction and the market in which the parties were operating.[274] Evidence of mutual conduct may be admissible as part of the factual matrix for the limited purpose of resolving ambiguities in the contract.[275]

(vii) Standard terms must be read subject to the special terms

188 It is not in dispute that as a general proposition specific terms in a contract will prevail over the general terms of the contract that deal with the same subject in the event of any inconsistency between them. The ambit of the contract should be confined to those particular clauses which are specifically completed for that transaction and to such other reasonable terms as may be included in the document as do not alter the reasonable meaning of the completed clauses.[276] Where part of the policy is printed and part is handwritten, there may be a special rule applicable to the interpretation of the policy in that handwritten words, if there is reasonable doubt, may have greater effect attributed to them than printed words. The Court would be less inclined to give effect to printed clauses which are inconsistent with that which has been obviously the particular matter of agreement expressed in writing. While the principle that standard provisions should yield to special terms dealing with the same subject matter, one of the questions that arises for determination is whether the special terms deal with the subject matter covered by those standard provisions.

(viii) The contra proferentum rule

189 The plaintiffs rely upon the principle that "the insurer must be bound to the exact language used in the contract document".[277] Ambiguity is resolved by a construction most favourable to the insured in accordance with the maxim verba fotius chartarum accipientur contra proferentum. The rule only operates where there is truly an ambiguity.[278] The basis for the rule is that the insurer normally has control of the contract, frames the policy, words the questions and makes the stipulations. The defendant submits that the principle has no application as the primary terms were not framed by the insurer but were the terms negotiated by Keller and their interpretation does not involve standard form terms prepared by the insurer.

190 A contract of insurance should be construed as a whole,[279] according to the ordinary and natural meaning of the terms used in it. The terms themselves are to be understood in their plain, ordinary and popular sense unless they have acquired a particular sense by usage of trade or unless the context shows that they must be understood in some other special or particular sense to give effect to the parties' intentions.[280]

191 Courts are now more inclined to regard the contra proferentum rule as one which should be applied in the case of ambiguity but only as a last resort.[281] In McCann v Switzerland Insurance Australia Ltd Kirby J referred to his examination of the rule in Johnson v American Home Assurance and said:

[325]

(ix) Ambiguity in a contract of adhesion is usually to be resolved in favour of the insured

194 An insurance policy, usually being a contract of adhesion provided by the insurer to the insured in printed form on a "take it or leave it" basis, is not to be construed so as to allow the insurer to escape liability by means of any ambiguity which the ingenuity of its lawyers may tease from the words of the policy. Interpretation should be in favour of lay persons dealing with a sophisticated or standard form document.[286] If liability is to be excluded in any particular circumstance, then that circumstance and the exclusion must be expressed unmistakeably and clearly otherwise the insurer will be held to the indemnity.[287] The plaintiffs rely upon this and the "contra proferentem" principle.

195 Parts of each of the plaintiff's policies do not fall within the description of "contracts of adhesion" as there were special terms which had been agreed upon. The special terms, by definition, are not in standard form. The defendant relies upon the fact that the plaintiffs, or their representatives, are highly educated and sophisticated persons who had every opportunity to examine the policy in detail. The defendant does rely upon standard terms of the plaintiffs' policies which it says are relevant to the proper construction of the special terms.

(x) Contracting parties cannot impose contractual liabilities on a non-party

196 The parties accept that the special terms are not to be construed so as to impose obligations upon non-contracting parties. The principle is unexceptionable.[288] All parties call in aid this principle in their respective construction arguments. The plaintiffs submit that the special terms oblige the defendant to contribute to the fund to avoid any diminution in the entitlement of other policyholders. The defendant submits that it is unlikely to have been the parties' objective intention that the special terms create contractual obligations upon the defendant that would prove detrimental to other policyholders.

Opinion evidence as to the ultimate issue

197 During oral argument counsel for the plaintiffs submitted that I may take into account the evidence of witnesses who were sufficiently expert and who expressed an opinion about the meaning of cl 1.8. The plaintiffs submit that insofar as the defendant seeks to have the terms construed against the background of an investment linked contract, the evidence of expert witnesses might be taken into account, particularly as to industry practice, what constituted "good practice" and the meaning of certain technical terms.[289] They submitted I should view Mr Lyon as an independent witness and that I might derive some insight from his opinion so far as his construction was based upon elements of expertise.[290]

198 The decision as to the construction of the clause is a decision which the Court must make for itself. There is a danger in allowing an expert or other witness to answer the very question which the Court is called upon to decide, even though it may be assumed that a judge sitting alone would not allow their functions to be usurped by the answer to such questions.[291] Though objection not be taken to the testimony of experts as to their opinion as to the meaning of the special term, the Court is not relieved of the responsibility of forming its own opinion on the question of construction. Evidence of a witness, whether expert or otherwise, which involves the expression of an opinion about the ultimate issue has in the past been treated as inadmissible because it usurps the function of the trier of fact[292] and because the application of a legal standard to these issues are matters for the judge.[293] The closer an expert's opinion moves to the ultimate issue, the greater the need for care in considering such testimony because the opinion will not be wholly or substantially based upon the expert's specialised knowledge or it will be irrelevant.[294]

199 I need not consider whether the pure expression of opinions about a matter of construction were properly admissible, particularly from Mr O'Brien and Mr Lyon, as I have not heard argument directed to this issue. The reasoning of witnesses and the argumentative process between counsel and the witness has enabled the Court to more readily perceive and appreciate the competing arguments as to the construction of the special term. Though I have been assisted by the evidence in exposing the facets of this ultimate question, it is not in issue between the parties that the Court is required to form and act upon its own original opinion as to the meaning of the special term.[295]

The nature of an investment linked contract within a policy of insurance

200 The special terms are to be found within the context of an investment linked contract. The parties disagree about whether a contract of this nature is intended to provide the insured with benefits that reflect as closely as possible the value of the holder's proportionate share of an identifiable pool of assets or if it does, whether that affects the proper construction of the special terms.

201 Section 14(4)(a) of the Life Insurance Act 1995 (Cth) (LIA) provides that an investment linked contract is one

[345]

207 The only reference to unit prices rising and falling is as a result of changes in market values of the underlying investments in each portfolio (cl 3.2(a)). Unit prices are calculated by dividing the value of the assets in the relevant portfolio by the number of units on issue in that portfolio (cl 4.20(i)). The unit price will be influenced in a standard termed policy by both changes in the market value of assets and the number of units on issue at any point in time. Thus if there are more units and no increase in the value of the assets the unit price will fall.

208 The defendant argues that unit pricing is a "closed system" and that any advantage gained or disadvantage suffered by reason of the timing of a switch is to be spread over all unit holders in the relevant portfolio including the plaintiffs. It says that as a result, the maximum gain the plaintiffs and other Coneview investors could make from arbitraging was an amount equal to the value of non-Coneview investors' policies. The validity of such a conclusion rests upon the objective purpose of the special terms.

209 The defendant summarises the plaintiffs' argument in the following way. The standard terms of the policy would allow for investors to make gains over a long period of time from increases in the value of assets that underlie their portfolios throughout that time. The three day option would enable them to make gains from their policies of a fundamentally different nature, being extremely short term gains by reason of changes having occurred in the value of assets underlying other investors' policies and not from any increase in the value of assets underlying their own policies. Such gains are to be funded, not by assets acquired with investment premiums, but by monetary contributions made by the defendant for the purpose of funding them. The plaintiffs in their reply take issue with this analysis and say that the terms confer a right to make gains or avoid losses which, unlike the non-Coneview investors, is not limited to rises or falls in the underlying value of the investments.

210 The defendant contends that ambiguities in contractual terms should be resolved in a manner, so far as possible, that upholds the principle of proportionality. That is, ambiguities should be resolved in a manner consistent with the fundamental nature of an investment linked contract and not in a manner that deliberately creates significant distortions.

211 The plaintiffs take issue with the proposition that an investment linked contract prevents switching from affecting the proportionate share of a policyholder in the fund, the ultimate return on investment or the present value of the policy. They dispute that any ambiguities in the contractual terms and the issue of whether terms are to be implied are to be resolved by having regard to the fundamental nature of an investment linked contract. They rely on the fact that no provisions of the LIA prescribe the terms of the contractual relationship. Section 32 of the LIA requires the life insurer to treat all policyholders equitably having regard to their contractual rights.

212 The plaintiffs contend that the units which they acquired in an investment linked portfolio, unlike units in a unit trust, were not interests in property but a chose in action, a bundle of rights, which were reflected in an account balance which was made up of a composite number of units and a unit price determined at the end of the three day period.[296] They disagree that unit pricing is a "closed system" where the only influence upon unit price is the change in the market value of assets purchased with net policyholder cash flows. The plaintiffs say the benefit of the special terms afforded them returns that were not proportional to the investor's share in a fixed pool and that the argument of a "closed system" is based upon a flawed analogy to a unit trust. They rely on s.34(5) of the LIA which declares that nothing in that Act is intended to constitute a life company a trustee of the assets of the statutory funds. They submit there is nothing in the LIA which dictates a "closed system", relying upon the testimony of Mr Lyon.[297]

213 The plaintiffs rely upon the fact that the defendant is a unitised investor in the statutory fund and that it would be open to the defendant to support a unit price by cancelling its own units in relevant portfolios.[298] The defendant in reply says that it is irrelevant that it holds units in the portfolios. It submits that whilst it may cancel units without withdrawing any funds and thus increase the unit price, that fact says and implies nothing about whether it has an obligation to do so.

214 Mr Lyon testified that the nature of the relationship of the parties is to be determined by the terms of the contract.[299] The plaintiffs point to the recognised risk of arbitrage through switching in "unit linked" businesses.[300] Mr Lyon testified that the concept of "proportionate interest" does not override the words in the contract.

215 The force of the plaintiffs' contentions are plain if the special terms are determined to be objectively at odds with the concept underlying an investment linked contract so that the notion of "proportionality" must give way. It is necessary to first construe the terms and determine the extent to which they alter the manner in which the standard term policy would otherwise operate.

216 According to the plaintiffs the policy does not require that units be "cancelled" and there is no necessity for assets to be realised when funds are switched from the departure portfolio. They say cl 3.1(c) is contrary to such a notion, as is industry practice. They rely upon Mr Lyon's unchallenged testimony that there is no direct link between an investment portfolio and any specific asset or assets of a statutory fund.[301]

217 In reply, the defendant points to cl 3.5(b), which provides that upon transfer the defendant will reduce the number of units in the appropriate portfolio. It says that while it may be true that in some circumstances it will be unnecessary for assets to be realised cl 3.5(b) provides for the appropriate amounts to be deducted from the departure portfolio. For this to occur, assets in the portfolio may have to be realised unless the portfolio already contains sufficient available cash. The defendant submits that cl 3.1(c) means only that the policyholder cannot make a claim against any particular asset. This does not alter the fact that the amount of the benefits to the policyholder under a standard term contract are directly determined by the value of the assets in the portfolio. It says that Mr Lyon's statement reflects the true position that by reason of the tiered structure of the Statutory Fund No. 5 an asset portfolio, as referred to in the Prosperity Bond policy, consists of rights measured in composite units and sector units to undifferentiated proportions of particular asset pools.

218 Mr McMenamin testified that unit prices are calculated on an approximate basis, as is clear from clauses 3.2(d), 3.2(e) and 4.20 of the policy. Clause 3.2(e) of the policy provides that although unit prices are "usually" calculated daily they "may be declared more or less frequently". The plaintiffs say that neither the policies nor the LIA permit or requir the defendant to calculate unit prices for the departure and destination portfolios immediately following a transfer. The defendant says the uniqueness of the special terms justifies it in calculating the unit prices more frequently than daily. It submits that there is nothing in the policy or in the LIA which prevents the defendant from calculating unit prices immediately following a transfer.

219 The defendant submits that the unit prices are calculated on an approximate basis as any action taken in reliance upon a valuation must necessarily be taken at some point in time after the valuation is carried out so the principle of proportionality cannot be observed with absolute accuracy. It says that whilst perfect proportionality is impossible to achieve, a standard unit pricing system strives towards such an objective.

220 Each of these arguments as to the manner in which a standard term investment linked contract operates and the effect of switching bear upon the question of construction of the special terms. It is unnecessary to express a concluded view in relation to a number of the specific arguments relating to various standard terms, and their scope and meaning. The parties must be taken to have understood that the special terms were part of an investment-linked contract, and that profits would, in a standard term Prosperity Bond, be derived from the change in market value of the underlying assets. As the LIA does not prescribe the nature of the contract that can be made, the special terms, to the extent that it was the parties' objective intention, may vary the purpose and effect of the standard terms of an investment linked contract. But the special terms are to be construed against that known background. That is not to say that ambiguities must necessarily be resolved in a manner consistent with the fundamental nature of an investment linked contract. Much will depend on the nature of the special terms and their setting within the standard terms. The concept of proportionality cannot override the words in the contract if the words in the contract objectively construed are inconsistent with that concept.

The insured's reasonable expectations

Principles

221 Throughout their submissions, the plaintiffs heavily rely upon their reasonable expectations as relevant to resolving ambiguities, implying terms and founding estoppels. They submit that the defendant's conduct must be in accordance with insurance industry practice so as to give effect to the policyholders' reasonable expectations. They submit that an insurer who wishes to avoid liability or the consequences of specially agreed terms must use clear and unequivocal language evidencing its intention to do so.

222 In the United Kingdom the expression "reasonable expectations of the policyholder" has statutory recognition, the Insurance Companies Act 1982 (UK) making specific reference to this notion. The plaintiffs refer to Equitable Life Assurance Society v Hyman[302] where the Court expressly adverted to the reasonable expectations of the policyholder. In that case, the directors of the Society calculated the final bonuses to be allocated to policyholders in a manner which was found to be contrary to the terms of the policy. The language of the article conferring the power to declare such bonuses contained no relevant express restriction on the power to do so. The critical question was whether a relevant restriction was to be implied. Lord Steyn explained that the approach of construction was to ascertain the intention to be imputed to the parties as a consequence of considering the agreement as a whole in its commercial setting. His Lordship stated that this principle of imputation is to be used sparingly and never so as to imply a term which is in conflict with the express terms of the text: "[t]he legal test for the implication of such a term is a standard of strict necessity".[303] His Lordship observed:

[351]

They submit that the concept of "reasonable expectations" underpins the ICA and the Insurance (Brokers and Agents) Act 1984 (Cth) (IBAA).

228 The defendant submits that the plaintiffs are not entitled to rely upon actuarial standard 3.03 as it was not introduced into evidence. Actuarial standard 3.03 is a standard with which every life company must comply.[308] Counsel for the defendant submitted that as the plaintiffs' expert, Mr Lyon, had not referred to or relied upon actuarial standard 3.03 during the course of his evidence, nor was it referred to in his report, the defendant had not given the standard any consideration during the course of the evidence. He submitted that the standard was not, as senior counsel for the plaintiffs had submitted, "the law of the land", and having no legislative authority would need to be properly proved.[309] The plaintiff had introduced into evidence professional standard 200 of the Institute of Actuaries, relying in particular on actuarial standard 4.5.2 (Exhibit ZZ). I deferred ruling on the admissibility of this actuarial standard.[310]

229 The status of actuarial standard 3.03 received only brief attention during the closing arguments of the parties. It was not the subject of any particular focus during the course of evidence. On one view the standard is to be employed, as it was in Equitable Life, as relevant to an insured's expectation as to the future declarations of discretionary bonuses.[311] Having regard to the conclusions which I have reached about the use which may be made of an insured's "reasonable expectations" when determining the interpretation of contentious terms of an insurance contract, I have not found it necessary to make a determination as to the status of this particular standard. In any event the inquiry as to what constitutes an insured's "reasonable expectations" or how they are to be ascertained and when they are relevant will not be advanced by reference to the standard. Whatever meaning is to be ascribed to the phrase within the standard, it does not assist me in determining how the special terms are to be interpreted.

Application of plaintiffs reasonable expectations

230 In substance, the plaintiffs submit that it is necessary to ascertain what the reasonable expectations of the plaintiffs were and to what extent the conduct of the defendant contributed to those expectations. The defendant in reply submits the plaintiffs could never have had any expectations based upon the defendant's conduct because the 3 day option was never relied upon as a basis for switching prior to the second half of October 2000. The plaintiffs say that the source of their reasonable expectations is what the defendants put out in their policy and other documentation which formed or threw light upon the special terms. The plaintiffs further submit that one must take into account that the defendant did not reserve to itself in any of the material documentation, a right to act inconsistently with those special terms. Thus a reasonable expectation is to be determined through a combination of what is said and what is not said.

231 Although it is axiomatic that contracting parties cannot proffer evidence of their actual intentions as an aid to interpretation, the plaintiffs' case, whilst at times disavowing such a purpose, repeatedly emphasised their reasonable expectations, the submissions sometimes going so far as to suggest that they may aid the construction process. Thus they argue that if there is an ambiguity in the special terms, their reasonable expectations should be taken into account in resolving the ambiguity in their favour.[312]

232 It was also submitted that the reasonable expectations of the plaintiffs which should be taken into account when considering whether the conduct of the defendant gives rise to an estoppel. The plaintiffs argue that estoppel is one of the ways by which Australian law gives effect to reasonable expectation, the doctrine being based upon assumptions created by a party from which it is unjust to depart. Thus the plaintiffs say that their claims in estoppel and misleading conduct do "some of the work of reasonable expectation."[313]

233 The plaintiffs contend that good practice as an insurer required that if there was to be any limitation in the plaintiffs' general right to arbitrage, it ought to have been reserved within the terms of the contract. Thus if an ambiguity exists as to whether the plaintiffs' right to arbitrage is limited, the plaintiffs' reasonable expectations should lead to the ambiguity being resolved in their favour.[314]

234 In reliance upon the evidence of the witnesses Griffin, O'Brien and Lyon, the plaintiffs submit, in accordance with insurance industry "good practice", that if the defendant wished to rely upon some right that affected or removed a right given by the special terms, and about which the plaintiffs had a "reasonable expectation", the defendant could not resile from such matters unless its right to do so had been clearly drawn to the plaintiffs' attention.[315]

235 The "good practice" of insurance companies to give effect to the policyholders' reasonable expectations figures prominently in the plaintiffs arguments. In their submissions they suggest that the defendant has sought to avoid the consequences of this practice by alleging through its witnesses, Yesberg and O'Brien, that Keller misled it and that Coneview investors overused their switching rights to make unreasonable profits.

236 The plaintiffs seek to rely upon their "reasonable expectations" in a variety of ways. They submit that they are relevant to the resolution of any ambiguity in the special terms, to determine the background facts or factual matrix, to imply terms, to found estoppels and to support the claim of misleading and deceptive conduct. The defendant denies that there is a doctrine of "reasonable expectations" that may be employed to resolve contractual ambiguity. It submits that the authorities cited by the plaintiffs do not support such a proposition.

237 The role of the reasonable expectations of contracting parties was emphasised by Steyn LJ in First Energy (UK) Ltd v Hungarian International Bank Ltd[316] when he said:

[353]

238 The reasonable expectations of honest commercial parties were described by Allsop J in DSE (Holdings) Pty Ltd v Intertan Inc as "the foundation of the common law... the foundation, leaving aside principles of prophylaxis, of equity and should be the foundation of how litigation is run between commercial parties."[317] Ormiston J in Vroon BV v Fosters Brewing Group Ltd[318] said that with respect to commercial transactions the court should to "strive to give effect to the expressed arrangements and expectations of those engaged in business, notwithstanding that there are areas of uncertainty and notwithstanding that particular terms have been omitted or not fully worked out."[319] Satisfaction of such objectives does not suggest or sanction an approach which would lead to the imposition or sculpturing of a body of obligations to protect the reasonable expectations of a party that had a clear subjective but uncommunicated purpose or was "the victim of the unworthy behaviour of the other."[320]

239 Mr Hayes QC, who appeared for the plaintiffs, conceded that in Australia the concept of reasonable expectations, unlike in some United States jurisdictions, cannot be utilised to re-write the terms of a contract. Mr Hayes relied upon what he described as the objective understanding of the plaintiffs, which flowed from an examination of the special terms as conveyed to the plaintiffs, which created the reasonable expectation of unlimited arbitrage opportunities.[321] He also argued the concept may be utilised to resolve an ambiguity or to determine what terms should be implied.[322] Thus he submitted that if the clause was ambiguous and on one construction the plaintiffs were given arbitraging rights, one could look to extrinsic evidence of what the plaintiffs reasonably expected to resolve the ambiguity. It was acknowledged that this would involve an exception to the normal methodology employed for the construction of ambiguous contractual terms. The defendant submitted that it was neither consistent with principle or authority that the factual matrix or background facts included, even in the context of an insurance contract, the subjective understanding of terms of the contract, uncommunicated to the other party.[323]

240 Any "reasonable expectations" of the plaintiffs will be material when considering the effects of the defendant's conduct in relation to the claims of estoppel and misleading and deceptive conduct. The plaintiffs' "reasonable expectations" may, within narrow confines, also assume a relevance within well established principles which govern the interpretation of ambiguous contractual terms or where there is a question as to the implication of terms.

241 Construction questions are not to be resolved by reference to the uncommunicated and subjective views of one of the parties.[324] This was not disputed during oral argument. The concept of "reasonable expectations" does not constitute a separate cause of action or a discrete basis upon which the plaintiffs' claims can be made out.

242 Regard to "reasonable expectations", so defined, does not involve any variation or extension of existing principles concerning the resolution of ambiguous contractual terms or the implication of necessary terms. Where there is an ambiguity in the terms of the contract, reasonable expectations arising from an objective reading of the terms, viewed against the background of facts, will be a relevant factor. Similarly, in relation to the implication of terms, the terms must be both reasonable and necessary, based upon an objective reading of the terms and the background facts. The result must be commercially sensible and one which, upon an objective view of the terms and background facts, was intended. Both at law and as a matter of good industry practice a life insurance company must avoid the creation of false expectations.

The defendant's understanding of Dr Keller's purpose in negotiating the special terms

243 Beazley, Andrews and Yesberg on behalf of the defendant and Dr Keller negotiated the special terms during the first half of 1998 and resumed and completed those negotiations in June 1999. Following the completion of those negotiations Mr Taylor discussed the terms of the undertaking letter and the final form of the policy with the defendant. For convenience I shall refer to all of these discussions as "the negotiations" unless otherwise stated. From October 1999 policies were issued which contained the special terms.

244 The defendant submits that three things are clearly established by the evidence of the negotiations. Firstly, no mention was made of historic pricing or any other manner of setting unit prices. Secondly, neither Dr Keller nor Mr Taylor made any statement about switching for the purpose of making arbitrage gains. Thirdly, no person connected with the defendant had any appreciation that Dr Keller intended to engage in arbitrage. The plaintiffs accept that there is no documentary evidence in relation to the negotiations that refer to historic pricing. They submit that that is not surprising given its secrecy and the fact that the defendant was using historic pricing at that time. The plaintiffs take issue with the defendant's second and third contentions. The plaintiffs submit that the Court ought to be reluctant to find that there was no mention of historic pricing or switching for the purpose of making arbitrage gains or that no person representing AXA appreciated that that was Dr Keller's intention.

245 Both parties advanced extensive written and oral submissions addressing the plaintiffs' claim that the defendant understood that Dr Keller had sought and obtained the special term for the purpose of making arbitrage gains through switching between portfolios. The plaintiffs submit that the Court should take into account certain "objective" circumstances which bear upon an assessment of the testimony given by the witnesses called by the defendant. The plaintiffs rely upon the APRA review of unit pricing practices and the general awareness of larger institutions that employ historic pricing that there are potential arbitrage risks induced by market movement.[325] The review makes reference to the recommendation that world best practice for scheme operators is to adopt a forward pricing basis which would avoid the dilution of scheme holders' interests.[326] The plaintiffs submit that the removal of exit and entry fees for switching, the unlimited right to switch and the use of historical pricing created the opportunity to arbitrage. They submit that the defendant's documents and its witnesses acknowledged this.[327] The no advice letter and the June 1999 letter incorporating the special term without the words "prior to completion" did not, they submit, permit the defendant to complete and conferred an obvious right to facilitate arbitraging. The defendant, with some force, submits that there is an element of circularity in the plaintiffs' argument, which relies upon the terms, properly interpreted, meaning that the purpose is to allow arbitraging; and which relies upon the purpose of the contract, namely arbitraging, as a means of determining how the terms should be interpreted.

246 The plaintiffs submit that given the large amount borrowed by the plaintiffs to make the investment it was the obvious intention that they should be able to make substantial profits and avoid losses. This argument carries the same degree of persuasion as the defendant's submission that it could not have been its intention to make substantial losses when agreeing to this term.

247 The plaintiffs' submissions do not dissuade me from the view that I formed during the course of the trial that none of the defendant's representatives involved in the negotiations said, understood or intended that the special term should confer the right upon Coneview investors to make arbitrage gains through unlimited free switches between portfolios. I am satisfied that Keller did not tell Andrews how he proposed to use unlimited free switches to protect his assets. Keller did not tell Andrews or Beazley that he intended to switch portfolios as frequently as every few days. He did not convey to them that he intended to take advantage of the defendant's unit pricing practices.[328] He told Andrews that he wished to have unlimited free switches so as to maximise his investment returns. Mr Andrews testified that he understood Dr Keller's request was for the purpose of enabling him to "drip feed" investment club funds into more risky portfolios over time. It was evident from his testimony that Andrews did not appreciate how Keller intended to maximise his return. He had not heard of arbitraging at the time of the negotiations and did not appreciate in mid 1999 that Keller was pursuing some arbitrage objective. The plaintiffs submit that Andrews must have known by the end of 1999 that Keller was switching more frequently than he had anticipated. Whether or not that be so the plaintiffs have not made out their submission that Andrews' evidence was unreliable as to the nature or content of his negotiations with Keller.

248 Mr Beazley gave a truthful account of his dealings with Keller and Taylor. At no time did they indicate to him that they wished to make arbitrage profits. The nature of Keller's investment scheme and the manner in which it was marketed made it unlikely that he would have revealed his objectives to a representative of the defendant. Mr Beazley was left with a similar understanding to Mr Andrews that the special terms would make the investment more financially attractive to Dr Keller and the investment club. The term "financially attractive" was one adopted by Beazley. Like Andrews, Beazley was not familiar with the concept of "arbitrage" and did not come to understand this method of making profits until mid 2000. He did not anticipate that Keller would engage in frequent switching.

249 The plaintiffs submit in the alternative that if it be true that Mr Beazley and Mr Andrews did not understand the import of the special term, they probably would not have understood what Dr Keller and Mr Taylor told them in mid 1998 and in mid 1999. I am not satisfied that they were told anything that put the defendant on notice as to the purpose for which the special term was sought.

250 Mr Mandalidis remained abreast of the developments in negotiations. The procedure followed by the defendant resulted in Mandalidis, Yesberg and its actuarial department sighting and approving the special term before it was agreed with Keller. Transcript of evidence of Mandilidis's testimony in the Federal Court in Sydney[329] reveals that he was not aware that Keller intended to switch frequently or that Keller could secure his capital by taking advantage of historical pricing. At the time of the negotiation Yesberg did not recognise that the special term would confer a right to arbitrage by virtue of historical pricing or as a consequence of the three day notice and the right to cancel a switch.

251 The plaintiffs say that the subjective understanding of the witnesses called by the defendant who were involved in negotiating the special terms is irrelevant. They submit that the defendant did not call a number of its senior officers who could have explained how the terms came to be agreed upon. It was not in dispute that the defendant's legal and actuarial departments would be consulted. The plaintiffs submit that to anyone financially literate the special terms were a remarkable opportunity to arbitrage, which would have been appreciated by senior personnel within the defendant company. The inference which I am invited to draw rests upon assumptions about the meaning of the terms and whether it was known Keller understood that historic pricing was a methodology that was used and would be maintained by the defendant. Each of these assumptions is a primary matter of dispute between the parties. Mandalidis thought that the investment was a "windfall" for the defendant and was anxious for the defendant to deliver the product as soon as possible.[330] There is no evidence that it was appreciated in the manner claimed by the plaintiffs and I am not satisfied that I should draw such an inference.

252 The plaintiffs do not assert and the evidence does not suggest that the plaintiffs were informed or believed that the defendant understood that a right to arbitrage was conferred by the special terms or appreciated what the cost to it would be. They recognised that the defendant did not appreciate that the terms may be utilised in the way they proposed. Tyne thought that the defendant had not costed the term. The plaintiffs appear to have proceeded on the basis the defendant would do everything in its power to alter the effect of the special terms once it came to realise how the plaintiffs and Keller were utilising the term. It was submitted on the plaintiffs' behalf that they had no reason to consider whether the defendant appreciated the arbitraging opportunity provided by the special terms and they relied upon Keller and Taylor, as the defendant's agents, who were informing them of matters which the defendant condoned.

253 In Dr Keller's "basic proposal" of 12 June 1998[331] he set out the objectives of the proposal and made a number of misleading statements. The New South Wales Investment Club was not then in existence, yet Keller informed the defendant that the members' objective was to negatively gear their investment in a high growth portfolio with a nil entry and exit fee, and with the profit being cleared out each year. The proposal made no reference to switching or arbitraging. Other documentation which came into existence during this period is consistent with the testimony of the defendant's witnesses that the negotiations with Keller were focussed upon withdrawals and the extent to which the defendant wished to reserve the right to delay them to allow for asset sales.[332] The defendant indicated its intention to preserve a right to delay the completion of the transaction. I accept that these discussions should be seen in the context of Keller's indication that the members would want to withdraw their funds shortly prior to the end of the financial year, presumably for tax reasons, and would not wish there to be a delay until the following financial year. The documentation is consistent with the focus of the parties being upon withdrawal of funds. The documentation was also consistent with the defendant's witnesses' testimony that the defendant could always complete the withdrawal immediately and was likely to do so.

254 On 31 July 1998 a version of the special terms was exchanged between Keller and the defendant.[333] It omits one crucial term which was to appear in the June 1999 letter. It provided that the defendant would waive its right to delay and contained the term in the same form as the June 1999 letter. No provision was made for the unit price to be that which applied on the day of giving notice. It was not until almost a year later that this provision appeared in the special terms. In the absence of that provision the special terms created no opportunity for arbitrage gains whether by use of historical pricing or by the so called three day option. The special terms proposed in the letter of July 1998 reflect the explanation given by Keller to the defendant for seeking to invest in the prosperity bond.

255 The defendant submitted that it was evident that Keller was proposing that the interest paid on the premiums would be claimed as a tax deduction. Counsel for the defendant submitted that the defendant was well aware that investors were not entitled to claim tax deductions for the interest on those premiums and it was for that reason that the defendant had insisted on the preparation of a "no advice" letter noting that clients would seek their own independent tax advice**.** It accepts the plaintiffs contention that it was "everyone for themselves and on a no advice basis" and for that reason that it submits that reasonable expectations should be viewed as irrelevant. It was submitted that later, when large sums of money were invested via Coneview, the defendant thought that the motive was tax-driven and wished to ensure that it would not be seen as encouraging any questionable tax scheme.[334]

256 The term that the unit price should be the price on the day of notice first appeared in the letter of 21 June 1999.[335] The evidence is not in a satisfactory state as to how that term came to be included. That form of words went from Beazley to Andrews but neither of them had any recollection of how that term came to be included or that they attached any particular importance to it. It is not disputed by the parties that I should infer that Dr Keller proposed such a term. The defendant submitted that that was entirely consistent with the parties agreeing that the defendant would reduce the period in which it could delay completing the transaction to three days and that if it did delay for any part of that period it would not use the unit price at the end of the period of the delay but would use the unit price on the first day when the notice was given. The defendant submitted this was consistent with Beazley and Andrews understanding of the effect of the term.[336] It is probably how the term was viewed by some of the defendant's representatives but that itself says nothing as to the proper construction of the term.

257 The July 1998 letter is a strong indicator that the discussion about the special terms in 1998 did not concern a right to arbitrage. The three day arbitrage right depends upon the price being the "day one" price. The contemporaneous documents tend to confirm the testimony of the defendant's witnesses that they believed that the Investment Club's objectives were to negatively gear the investment and to obtain some form of tax benefit, with the funds being withdrawn prior to the end of the financial year. This explained why there was such attention given by the defendant to the need for a no advice letter to confirm that the defendant had made no representations as to any tax benefit that might flow from such an investment.[337]

258 There is no evidence, oral or documentary, that supports the plaintiffs' contention that the defendant negotiated or agreed to the special term, with Dr Keller believing that he or the investment club members were seeking to obtain a contractual right to arbitrage. Despite the earnest repetition of this claim, it was without substance. I am satisfied that it was not until May or early June 2000 that the defendant first appreciated that Keller and the Coneview investors were making arbitrage profits as a consequence of the defendant's use of historic pricing. The evidence shows that after this time Yesberg came to believe that Keller was making use of free switches and the defendant's historic pricing system to make arbitrage profits. He did not understand or believe that the "three day option" was available or relied upon by Keller or the plaintiffs to make arbitrage gains.

259 It was evident during the course of the trial that neither Andrews or Yesberg wished to take responsibility for the special term which would have involved recognition that they were not sufficiently alert to recognise its possibility for arbitrage. Neither their testimony or any contemporaneous record satisfied me that any representative of the defendant had consciously chosen to agree to terms which would confer upon the plaintiffs an unlimited arbitrage. On this issue the highest the evidence can be put is that some of the defendant's representatives, such as Mandalidis, Andrews and Yesberg, were anxious to record that no advice had been given by the defendant about how the investment might be utilised by Coneview investors, hence the no advice letter.[338]

260 Mr Yesberg blamed Andrews for allowing Keller to negotiate the special term. There was a dispute between Andrews and Yesberg as to what documentation Andrews had passed on to Yesberg but none of the documentation, whatever its destination, revealed the purpose underlying Keller's proposed terms.

261 It was accepted by Yesberg that it was his responsibility to read the Business Review Specification that had been prepared by Andrews and circulated to him at some point prior to February 2000. Yesberg conceded that if he had carefully read the Business Review Specification, and in particular the section dealing with the "backlog of switches", he would almost certainly have realised that Keller was utilising the special terms to arbitrage. The absence of this realisation was a strong indication that he had not read or carefully read the document. Although other parts of Yesberg's testimony, to which I shall refer, warrant serious criticism, I am satisfied that Yesberg did not appreciate how Keller was utilising the special term until May 2000. His conduct until that time strongly reinforced his testimony that he could not understand why the special term was so popular, and his unsuccessful attempts to elicit further information from Keller and Taylor. He had also consulted with the legal department of the defendant in the hope that they might advise him as to what lay behind the special term. He and other representatives of the defendant suspected that the investment may be generating a tax benefit for the Coneview investors. I accept that once he became aware of it, Yesberg was opposed to the special term being utilised by Keller for the purpose of arbitraging.

262 Mr Yesberg was the subject of trenchant criticism in the plaintiffs' submissions. It was said that he had a powerful motive to be evasive in his testimony because he would look bad in the company's eyes if he in fact understood the effect of the special terms and failed to prevent their adoption. The plaintiffs point to Yesberg's reports to his superiors that Keller had misled the defendant. Mr Yesberg undoubtedly believed that he had. Yesberg was of the view that as Keller, Taylor and the plaintiffs had concealed their true purpose from the defendant in including the special terms, dilution and segregation of the plaintiffs' investment was justified. The plaintiffs contend that Yesberg pursued this course to deflect attention from his responsibility for the introduction of the special terms to Keller. As is recognised in the plaintiffs' submissions, Yesberg had a strong philosophical objection to arbitraging. Yesberg's conduct may well be explained by his strong view of Keller's conduct and his association with Coneview investors and the plaintiffs. Whether his conduct in the second half of 2000 and his subsequent testimony in explanation of it is born of a sense of responsibility for having permitted Keller to obtain the special terms, or in having allowed the plaintiffs to obtain their further policies, matters not. It is clear from his testimony and that of the other defendant's witnesses, and the contemporaneous documentation, that the arbitraging opportunity which Keller was seeking to derive from the special terms was not intended or perceived by the defendant or its representatives at the time of the negotiations or at any time prior to May 2000. The evidence of Beazley, Andrews and Yesberg, when considered in conjunction with other established facts, satisfies me that the defendant and its representatives were surprised by the revelation in 2000 that the special term was being utilised by Dr Keller for the purpose of extensive arbitraging. Neither Keller or Taylor disclosed the purpose that they were seeking to achieve by the utilisation of the special term. Despite the repeated and earnest submissions to the contrary, the evidence made it tolerably plain that the true purpose for which Keller sought these terms and the use that he and Taylor intended to make of them was concealed from the defendant. It was the very ambiguity of the terms (with their attendant difficulties in construction) that enabled Keller and Taylor's objective of making arbitrage profits through switching between portfolios, to remain hidden until some time in the year 2000. They continued to conceal their true objective when they met with Yesberg on 16 March 2000. Yesberg's stated ignorance is apparent from the memorandum which he wrote following that meeting.

263 I accept Yesberg's evidence that Keller continued to mislead the defendant at the meeting of 16 March 2000, although there is no record that he asked Keller the question why the product was so popular. The plaintiffs acknowledge that when Beazley and Andrews were negotiating with Keller during 1988 they "did not really know what was going on and passed Dr Keller's negotiations up the line to people like Mr Burton and Mr Yesberg."[339] As I have already stated no one from the defendant was aware how Keller was proposing that the special terms be used and those that testified made that clear.

264 The defendant acknowledges that cl 1.8 is badly drafted and its construction is a matter of difficulty. At times the plaintiffs also appeared to concede it was ambiguous. It was plainly capable of supporting more than one reasonable interpretation. It is likely that the inspiration for parts of the second paragraph of cl 1.8 emanated from Dr Keller, who needed a term that could be construed as supporting the making of arbitrage profits without alerting the defendant to that purpose. Thus changes were proposed to reduce the period the defendant could delay a withdrawal or switch, and that provided the unit price was to be fixed as at the date of the notice of intention to switch or withdraw funds.

265 As a consequence of Messrs Tyne and Hawkins' meeting with Keller and Taylor in mid 1999 they realised that Keller had not disclosed the purpose of the terms to the defendant and that the defendant did not appreciate how the special terms were to be utilised. The plaintiffs submit that it was not for them to say anything to the defendant. They had no duty to do so. "It was everyone for themselves on a no advice basis."[340] It is not suggested by the defendant that any of the plaintiffs themselves said anything to the defendant's representatives which misled them, or that the plaintiffs had acted unlawfully. It does not dispute that the plaintiffs acted lawfully in using the special terms to arbitrage though it challenges the morality of their conduct which it says affects the extent to which equity will come to their aid.

266 In its reply the defendant submitted that it was plain that the purpose of the meeting held on 16 March 2000 was to ascertain why the prosperity bonds had suddenly become so successful. The defendant did not appreciate that the terms were being used for arbitrage purposes.

267 The plaintiffs say the defendant was the author of its own misfortune in using historical pricing (which carried the inherent risk of arbitrage) and by agreeing to the special terms. Further, it created or materially contributed to the creation of an expectation by the plaintiffs that they enjoyed a right to make unlimited free switches

so as to profitably arbitrage. The plaintiffs submitted the defendant was bound to give effect to the full benefit of those rights.

268 It will be necessary to examine the role played by Keller and Taylor in some detail when considering the issue of agency. Keller and Taylor, who were investors in the Prosperity Bond, had negotiated and documented these terms for their own benefit as investors and because they intended, for their own gain, to encourage others to also invest. They intended to provide managerial and professional services to those investors**.**

Absence of Taylor or Keller as witnesses

269 The plaintiffs and defendant each said the other had failed to call Keller or Taylor and each said that I should more readily accept any evidence adverse to the other as a consequence of their failure to call those witnesses.[341] It was the plaintiffs' intention to call Taylor during the course of the trial. I accept the defendant's contention that Taylor should be viewed as someone who was in the plaintiffs' "camp" and who was providing ongoing professional services to a number of the plaintiffs in relation to other matters. Furthermore, Taylor's interests were aligned with those of the plaintiffs as he was both a prosperity bond holder and had introduced the plaintiffs to these investments. The plaintiffs did not call him for reasons which they advanced during the trial and which I considered to be less than compelling. Tyne had to testify that Taylor had told him on the eve of his being called to give evidence, that he did not wish to testify as he had a conflict of interest. That said, I have not found it necessary to take Taylor's absence as a witness into account in reaching any conclusion as to matters involving him. The testimony of both the plaintiffs' and defendant's witnesses and the contemporaneous documents tendered sufficiently reveal his role and understanding of the special terms. As to Keller, because of the terms upon which his litigation in the Federal Court was settled, I have not viewed the failure of any party to call him as a matter that assists me. In the light of his conduct, the role he played, and the nature of his dealings with the plaintiffs and defendant, I do not accept the suggestion that the defendant could be expected to have called him.

270 The plaintiffs attack the defendant's pleading (which they characterise as a construction argument) that the defendant, as a reasonable insurance company, would never have entered into a deal that occasioned actual or potential substantial commercial detriment to it.[342] The plaintiffs dispute the defendant acted reasonably by industry standards and point to the defendant's Group CEO Report which, in reviewing the defendant's conduct, describes it as "a story of incompetence from beginning to end" based, it seems, on a desire for volume. The report states that anyone with experience or understanding of unit linked business should be aware of the risks of arbitrage through switching. The CEO Report is said by the defendant to be an ex post facto commentary about the lack of awareness amongst the defendant's personnel of the opportunity for historic price arbitrage that the unlimited free switching term presented. It submits that the report confirms, contrary to the plaintiffs' case, that the defendant did not realise that the term provided Coneview investors with this opportunity.

271 While the court is not to relieve a party from a bad bargain because of notions of fairness or reasonableness, if the term is ambiguous, the fact that a particular interpretation will produce highly detrimental consequences for a party may bear upon the question of construction. The defendant says it does rely on the fact that it is highly unlikely that any reasonable insurer would enter into a contract that gave a policyholder an unlimited lifetime right to arbitrage as a factor relevant to construction of the special terms. This may be relevant to its assertion that it had no idea of Keller's purpose. I have not found the competing arguments as to the ways in which each party will suffer if the terms are not construed as they contend helpful in determining the objective purpose of the terms.

The competing views as to the effect of switching

272 The parties differ in their views as to the meaning of the special term and the effect that switching between portfolios would have upon the unit price of the plaintiffs' investment. It is convenient to set out the competing ways in which the parties submit the unit price should be calculated.

Example: Switch from Cash to Secure on Tuesday - day of All Ordinaries rise.

Plaintiffs' version: overnight arbitrage

Tuesday pre switch

[358]

276 Assuming the defendant knows the switch is taking place, it says that although the unit price would have risen to $10.50 if the switch had not taken place, this should not now happen. The defendant calculates the unit price on Tuesday evening having regard to the actual composition of the Secure portfolio (i.e., that it contains a disproportionately large amount of cash). Because the unit price is the value of the assets divided by the number of units, the new unit price for Wednesday would be $10.04545. If the switch had not taken place, the non-Coneview policyholders in the Secure portfolio would have had policies worth a total of $1,050,000 on Wednesday morning. The defendant says that because of the switch, their policies would now only be worth $1,004,545 (this effect is referred to as 'dilution' of the unit price). The Coneview policyholders would still make a gain on the switch, but only $45,455. The same result occurs if the switch is notified at 2.00pm and the defendant immediately uses (part of) the transferred money to purchase shares at closing prices.

The purpose of switching as explained in the Customer Information Brochure (CIB)

277 The defendant has pleaded and submits that the CIB explains the purpose of switching is to provide benefits to the investor over the medium to long term by reason of increases in the value of assets underlying the policyholder's policy. The plaintiffs point to the CIB as permitting the policyholder to transfer funds between portfolios "at any time" (page 21). They submit that the right to transfer funds at any time is not subject to any limitation, and that the reference at page 2 to switching "if your objectives change" is "permissory, not restrictive" and does not define the circumstances in which a policyholder can switch. The defendant submits that the words "any time" in cl 3.3(a) means there is no temporal restriction upon the time at which a switch may be requested. It does not qualify the purpose of switching under the policy.[343]

What is the proper construction of paragraph two of cl 1.8 of the policy?

278 The first paragraph of cl 1.8 was standard, while the second was added and is referred to by the parties as the 'special term'.

The plaintiffs' argument

279 The plaintiffs submit that the meaning of the significant words in the second paragraph are that the defendant would waive its right to delay withdrawals and switches for 30 days provided the investor gave three working days' notice of its intention to switch or withdraw, described as a notice of intention to "complete" the switch in three working days' time.[344] At trial it was submitted that the intention, of which notice is given, is to switch in three days' time (although this was not the expressed understanding of Tyne in 1999). Only one notice and only one pricing date is contemplated as the unit price will be "the price on the day when the notice is given in writing" (emphasis added). It was not contemplated that the defendant would have an option to delay a switch for three days or the right to complete the transaction within the three day period; that there be a second written notice ("one notice in writing"); that in the event of a second notice the unit price would be the price on the day of giving the second notice; that there was any distinction between "buy" and "sell" unit prices as to the time for striking unit prices in the "departure" or "destination" portfolios ("buy and sell price") or that the investor was precluded from giving a notice of intention to switch unless it had units in the departure portfolio as at the date of such notice ("short selling"). As none of the contemporaneous documents or the oral evidence suggests that these matters were considered, the plaintiffs submit that the parties could not have objectively intended that any of them be part of the special terms.

280 As the special terms were negotiated as variations to a small number of the standard terms and were to operate within the context of a policy containing all of the other standard terms, a proposition in these broad terms cannot be sustained.

The defendant's arguments

281 The defendant submits that the true interpretation of cl 1.8 is that upon it being given written notice of the policyholder's intention to make a cash withdrawal or transfer between portfolios, the defendant would waive its right to delay the withdrawal or transfer for up to 30 days and in lieu thereof the defendant had a right to delay any such withdrawal or transfer for up to three working days. In the event that the defendant exercised its right to delay any withdrawal or transfer for up to three working days, the policyholder could cancel the withdrawal or transfer at any time prior to the completion of the withdrawal or transfer by the defendant. In the event that the policyholder did not cancel the withdrawal or transfer prior to the completion thereof by the defendant, the defendant would complete the withdrawal or transfer using the unit price determined by the defendant for the day when the notice was given in writing.[345] The plaintiffs needed to give only one notice. Alternatively if two were required, the second had to be in writing and the price would be the price on the day of that notice. There was no right to short sell. The switch involved the transactions: one from the departure portfolio and the other from the destination portfolio, and different unit prices applied to each.

"Three working days' notice"

282 The plaintiffs say that the notice is one of an intention to switch in three working days and that it would be inconsistent for the defendant to have a right to complete in the meantime unless the defendant was notified to the contrary. For the defendant to complete the switch inside three working days would, they say, fail to give effect to the plaintiffs' intention.

283 The plaintiffs say that the unambiguous meaning of the term is evidenced by the understanding of various persons. Tyne understood that the clause conferred a right to unlimited switches which the plaintiffs could cancel if they advised "not later than three days from the switch date".[346] Oates recorded in an email to Taylor that there was a "three day cooling off period".[347] Mardon Hunt wrote to the ANZ describing the right of the manager to revoke the request within three days.[348] The plaintiffs submit that Keller conveyed the same message in the CIM.

284 Keller's statement during the course of the negotiations that the special terms were required to preserve his client's capital was a background circumstance which, it was submitted by the plaintiffs, supports a construction of the term which enables the Coneview investors to take advantage of market volatility to give a notice to switch or to cancel a switch during the three day period. The explanation offered, if it is to be viewed as a background circumstance, did nothing to reveal his real investment purpose or the use of the special term as creating a three day option, which would permit an opportunity to arbitrage. This argument is without any substance.

Nature of the notice

285 A notice may require the recipient to perform an act within a specified period such as a defined number of working days.[349]

286 The defendant contends that the notice is one of an immediate intention to switch and the defendant is able to complete at any time within three days. If the notice were to switch in three days a further act would be required.

287 Mr Brett QC gave the example of a utility company that gives a consumer notice that unless a bill is paid within 10 days, power will be disconnected. In that case the utility company is intending that it will not turn the power off until the end of the 10 day period. A contrasting example is that of a landlord who gives a tenant one month's notice to quit. The landlord imposes a requirement for the tenant to be out of the premises by the end of the month. It is the tenant who is required to act on the notice and who may quit the premises at any time within the month. The usefulness of this analogy is challenged by the plaintiffs who submit that the notice given by the plaintiffs is only to switch in three days and is not a requirement to do anything immediately.

288 The plaintiffs say such a construction requires words to be read into cl 1.8 and would deny them their reasonable expectations. The plaintiffs further submit that the words "prior to completion of the portfolio switch or withdrawal transaction" mean prior to carrying out the investor's intentions to switch in three working days' time. They submit that the right to cancel the notice is a right to cancel in three days from the notice.[350] They submit that in the absence of such limiting words an investor could cancel a switch without restriction inside the three working day period and could cancel a switch beyond that period if the defendant still had not completed it. They say that in its terms and subject to mutual agreement, cl 1.8 means that every switch, no matter how it was worded could not be completed for three days and the plaintiffs could not change their minds inside three days.[351] This written and oral submission contradicted the plaintiffs' primary claim made elsewhere in their written and oral submissions that the term gave the plaintiffs a right to cancel within the three day period.

289 The defendant submits that by providing that no penalty will be involved if, "prior to the completion of the portfolio switch or withdrawal", the investor changes their mind, it is clear that the switch may be completed within the three day period. These words provide strong support for the defendant's interpretation, and are inconsistent with the plaintiffs' construction of the clause.

290 I reject the plaintiffs' argument that the first paragraph of clause 1.8 had no role to play in the construction of paragraph two or that it was a random choice that Andrews had inserted the second paragraph following the first. The waiver of the period of delay referred to in paragraph two is a reference to the period specified in paragraph one. Keller specifically sought such a waiver, albeit in the context of withdrawals.

291 Clause 3.3(e) reserves to the defendant the right to make a charge for switching of 0.5 of a percent of any amount transferred between investment portfolios. The special terms resulted in the addition of a further sentence which provided that switching charges would be waived for portfolio switches between the Cash and Secure portfolios. Clause 2.2(e) gave the defendant some protection against historic pricing arbitrage because it permitted the defendant to calculate the price immediately prior to midnight and to apply that price to the transaction. Clause 2.2(e) would have had to be altered, the defendant submits, to confer upon the plaintiffs a contractual right to historic arbitrage. The defendant says the first paragraph of cl 1.8, by providing the insurer time to realise assets, would defeat any arbitrage because the unit price applicable was that at the end of the period of delay. The amendment to cl 1.8 provided the plaintiffs with a benefit in that the delay was reduced from 30 to three days. The plaintiffs' construction argument amounts to an assertion, which carries with it difficulties in construction, that the second paragraph is not a conditional but an absolute waiver of its right to delay at all and confers on the policyholder a three day period in which they can change their mind.

292 Counsel for the plaintiffs submitted that the first paragraph of clause 1.8 was not included in the no advice letter or the June 1999 letter. The plaintiffs submit that as the no advice letter contained the words of clause 1.8 without the words "prior to completion of the portfolio switch or withdrawal transaction" ('the impugned words') it was not the intention of the defendant to change the meaning of cl 1.8 by the insertion of the impugned words. It is submitted for the plaintiffs that the evidence is to the effect that cl 1.8 was intended to replicate the June 1999 letter and the no advice letter. The additional words were not intended to alter the meaning of the clause as referred to in the June 1999 or no advice letters. They submit the onus of proof rests upon the defendant to establish otherwise. The plaintiffs say the impugned words are the only unclear words in cl 1.8. They rely upon the evidence of Andrews, who they say was responsible for the insertion of these additional words, and who said at one point in his cross-examination that these words added a new condition which was inconsistent with the special terms and it was not his intention that it be so.[352] The evidence of Andrews is said by the plaintiffs to fall within the recognised exception to the principle that extrinsic evidence cannot be introduced to explain the meaning of contractual terms. Where the words are ambiguous or make no sense or conflict with other words in the same document the plaintiffs submit that extrinsic evidence such as that of Mr Andrews can be introduced, and rely upon Bank of New Zealand v Simpson as illustrative of this principle.[353] In so construing the limiting words "prior to the completion" the plaintiffs argue that principles of contract law require that any ambiguity should be resolved against the defendant who has inserted the phrase and is relying upon it.

293 If the plaintiffs' argument is to be accepted, it would mean that the impugned words should be ignored if they alter the meaning that would otherwise be given to the special term. This contention must be rejected. Assuming without deciding that evidence of this type is admissible to explain the meaning of the impugned words, the evidence of Andrews and Beazley does not assist the plaintiffs. It was to the effect that they considered that the defendant's right to complete the transaction within the period specified had been preserved.[354] They thought the clause, with or without the impugned words, was intended to permit the defendant to complete the switch within three days. Unless the contract should be rectified, the impugned words form part of the special term and their meaning, together with the other words in the clause, must be considered.

294 The plaintiffs submit that those of the defendant's witnesses who were asked, were of the opinion that if the words "prior to the completion of the portfolio switch or withdrawal transaction" were omitted, cl 1.8 gave the plaintiffs a three day option to cancel.[355] Counsel for the plaintiff referred to the testimony of O'Brien, Yesberg, Beazley and Griffin. The accuracy of this submission was subjected to subsequent scrutiny by counsel for both the defendant and the plaintiffs in a regrettably extensive further written schedule, more akin to a submission, addressing alleged errors and misstatements of evidence during the plaintiffs' oral closing submissions.[356]

295 Whilst it was acknowledged on a number of occasions during the course of oral argument that the opinions expressed by these and other witnesses during the trial related to a matter of law, namely the proper construction to be given to the clause, it was also said that their understanding at the time the term was agreed upon was relevant as a background circumstance.

296 The knowledge and understanding of those of the defendant's witnesses who dealt with Keller or the plaintiffs during 1998 to 2000 was also relevant to other causes of action relied upon by the plaintiffs. It will be necessary to make reference to their testimony later in this judgment. For present purposes it suffices to observe that a careful reading of their testimony shows that none of them at any material time believed that the defendant did not have a right to complete the transaction within the three day period after the notice to switch had been given.[357] The precise question was not the subject of any consideration by representatives of the defendant until some time after they became aware that Keller was cancelling notices to switch.[358]

The insertion of the words "prior to completion"

297 Andrews' testimony does not assist the plaintiffs' argument. He understood the defendant's right to delay withdrawals or switches in paragraph one of cl 1.8 gave the defendant time to rearrange its assets. Based on his recollections and his reference to contemporaneous records, Andrews said that what the defendant agreed to was that it would use its right to delay withdrawals and switches from 30 days to three days[359] and that the defendant could complete the transaction within that three day period. He said that his attention at that time was upon withdrawals rather than switches though he agreed the term applied to both. His understanding was that Keller and the investment club were seeking flexibility to be able to expand their portfolios from the Cash and Secure portfolios into higher returning portfolios and needed the capacity to withdraw all their money without having to wait up to 30 days.[360] This was his understanding of Keller's purpose as conveyed to him by Beazley. It was clear from Andrews' testimony that he knew nothing of the capacity to make profit via arbitraging and had not understood the special term to have been introduced for such a purpose.

298 Andrews could not recall who had introduced the additional words "prior to the completion of the portfolio switch or withdrawal transaction". He thought those additional words reflected his understanding of the defendant's right to complete the transaction within the three day period. He had always understood the defendant to have the right to complete a transaction immediately.[361] In re-examination, over objection, he gave an answer which was inconsistent with his prior testimony. He expressed the opinion that the additional words changed the arrangement by conferring on the plaintiffs a right to undo a transaction which had already been completed by the defendant.[362] The answer made little sense. Counsel for the plaintiffs renewed his objection to this line of re-examination and it was not further pursued.

299 It does not appear to be in dispute that the facsimile of early September 1999 sent by Andrews to Taylor and Beazley contained a sample of the policy document with changes to the standard policy marked with asterisks.[363] Under the heading "special agreements" were a number of undertakings by the defendant which included the following:

[360]

That undertaking is then repeated in identical terms in a draft of cl 1.8 with an asterisk adjacent to it. Clause 1.8 in the policies of each of the plaintiffs is in identical terms. Subsequently, on 3 November 1999, Beazley advised Andrews that Taylor had approved the undertakings letter which contained cl 5 in the same form. It was initially asserted both in written and oral submissions that there was no evidence that these documents were in fact sent to Taylor or that he was aware of their content. I was invited to infer that Taylor had not received them because Taylor and Keller continued to rely upon the no advice letter and the content of the CIM.[364] No challenge was made to the testimony of Beazley that these documents were sent to Taylor or that he subsequently had discussions with Taylor as to their content. No challenge was made to Beazley's testimony that a draft of the undertakings letter was viewed and amended by Taylor.[365] Nor was Andrews' testimony as to his knowledge of Beazley's communication with Taylor with respect to these matters challenged.[366]

300 Thus the defendant rightly contested the plaintiffs' assertion that no-one drew the form of the second paragraph of cl 1.8 to Taylor's attention. The defendant also relies on the fact that each of the plaintiffs received the undertakings letter which contained cl 5 of the special agreements as well as a copy of their policy.

301 If extrinsic evidence is admissible, as the plaintiffs contend, it is clear from Andrews' evidence that the second paragraph was intended to reduce from 30 days to three the defendant's right to delay completing a transaction and that the additional words reflected that understanding.

302 The defendant points to the fact that wherever a change in the standard terms of the policy was to be made, the standard term was not altered but the qualification appeared in a further paragraph added to the policy. This course was followed in relation to cl 1.8 and it was similarly followed in relation to cl 3.2, which in the standard policy provided that the assets charge would not exceed 6 per cent of the portfolio net value in any calendar year. A further clause was added to the policy to reflect the special term that the defendant had agreed it would not increase the asset charge to greater than 2.5 per cent per annum.

303 The defendant points to the confidentiality agreements made with Coneview and which each of the plaintiffs executed in which they agreed to keep confidential the information which Keller would impart to them about the investment proposal. The defendant submits that this agreement is an indicia of the intention of the Coneview investors, and the plaintiffs in particular, to exploit the defendant, knowing if the investment opportunity became known to the defendant it would take action to remove the beneficial features of the investment. Counsel for the defendant conceded during closing argument that this hypothesis is only one of a number that is open. The confidentiality agreement does not provide a sound basis upon which to draw such an inference.

The notice to switch was to take effect on the day of the notice

304 Clause 1.8 did not confer a right to switch but only a right to delay carrying out a switch. Clause 3 provided that a policyholder may switch and it provided that no fee would be paid. The defendant says that when Keller, for the plaintiffs gave notice of an intention to switch, they were exercising their rights under cl 3 and that under cl 1.8 the defendant reduced the period in which it could delay completing the switch from 30 to three days. It was a notification of a present intention to effect a withdrawal or switch.

305 There are references in the Coneview Information Memorandum (CIM)[367] and in documentation brought into existence by representatives of the plaintiffs that it was their contemporaneous understanding of the special term that switches took effect on the day that notice was given and at the price on that day.[368] The defendant's representatives Beazley and Andrews held the same view. A memorandum by Tom Oates suggests that the notice was to switch on day one.[369] Mr Tyne sets out his belief in his memorandum that a switch would take effect on the day of the notice at the current price, which was effectively retroactive by one day because it was yesterday's price. This is similar to the content of the CIM in which it is recorded that the manager may cancel without penalty any election previously made to switch or withdraw.[370] The view expressed in the CIM and by Tyne and Oates was consistent with the manner in which Keller switched from one portfolio to the other between July 1999 and October 2000. The procedure always followed was that Keller made an oral request to switch and the switch was carried out and confirmed on the same or the next day. This was consistent with the switching being conducted upon the basis that the notice was to switch immediately. The plaintiffs' arguments at trial as to the objective meaning of the term "notice" and the date upon which the switch was to be effected, were inconsistent with the parties' contemporaneous understanding. It was also acknowledged to be inconsistent with the procedure followed by Keller and Spanu, that procedure being described by the plaintiffs' counsel as a variation of the special terms.[371]

Alleged Detriment to defendant

306 In answer to the plaintiffs' contention that the defendant was focused on short term gains from having a large injection of capital and was incompetent when it came to negotiating the terms, the defendant says that even if those facts were true, it was never intended that the Coneview investors be able to arbitrage for the remainder of their lives. It submits that the clause is ambiguous and that the Court may take into account the consequences of construing the clause in a particular way. It submits that if the plaintiffs' construction were adopted it would result in a $150M liability by the defendant to the plaintiffs and a total liability to the Coneview investors of $2.8 billion,[372] with the total fees which the defendant could be expected to have earned from those policies in the order of $1.8M. It was submitted that the Court should avoid such a construction, which would cause such a disproportionate and absurd commercial detriment to a party.

Communicated understanding of purpose

307 Counsel for the defendant submitted that in trying to interpret the contract according to what reasonable people intended the words to mean, one does not, as the plaintiffs suggest, assume that the purpose was to give an arbitrage benefit to the plaintiffs. It acknowledged that during the course of the negotiations each of the parties were seeking to agree upon the term for entirely different purposes. The defendant submitted that you may only take into account such intentions of the parties as were communicated to the other. It submits that a communicated understanding of the purpose occurred during the negotiations between Keller and the defendant's representatives but that there were no further background circumstances which emerged when the plaintiffs became involved. It says the plaintiffs relied upon Keller's agreement with the defendant. The no advice letter expressly adverted to terms as they had been agreed with the manager (Coneview). The defendant said that as there had been no use of cl 1.8 between July 1999 and September 2000, nothing had been added to the factual matrix and there had been no discussion between the plaintiffs and the defendant about the purpose of the special terms.

308 It was recognised by the parties that paragraph two of cl 1.8 was a unique clause borne out of negotiations between Keller and officers of the defendant. The second paragraph states that the defendant was waiving its right to delay either switches or withdrawals for 30 days. I accept that the representatives of the defendant who were engaged in negotiations with Keller were focused upon the withdrawal of cash rather than the switches between portfolios. The proviso of three working days' notice of intention to switch or withdraw gave both the defendant and the plaintiffs a benefit. The second paragraph of cl 1.8 conferred upon the policyholder the right to unlimited free switches.[373] It also reduced the period by which the defendant could delay such a withdrawal or a switch to three days. According to the plaintiffs, it removed the defendant's right to delay the switch. These concessions were valuable rights in themselves.

309 In oral submissions counsel for the plaintiffs agreed that neither party may have understood the purpose which the other was seeking to derive from the way in which the term was worded.[374] It was accepted that the two paragraphs of cl 1.8 were linked with the condition in paragraph two providing the basis upon which the defendant was prepared to waive its right in paragraph one to delay withdrawals and switches. This oral submission contradicted the written submissions that the defendant understood Keller's purpose and that there was no connection between the paragraphs. The linkage between the paragraphs had been initiated by Keller who had stipulated that he was not prepared to allow the defendant the right to have 30 days to complete a withdrawal. Dr Keller no doubt attached great significance to other parts of the clause,[375] such as the provision that the unit price be the price on the day of the notice, and that the investor be able to change their mind without penalty.

310 The second paragraph provided that the first paragraph was not to operate in certain circumstances. Provision was made in the second paragraph that the unit price would be the unit price at the commencement of the transaction when the notice was given. The reduction of thirty days to three for the withdrawal and switches was a matter of importance to both Keller and the defendant. From the defendant's viewpoint it was thought to give it enough time to perform the switch or withdrawal whilst from Keller's viewpoint it was thought to give him enough of a window of opportunity to arbitrage.

311 The plaintiffs rely upon the explanation proffered by Keller to the defendant's representatives at the time that the special term was negotiated that the term was required to enable his client's capital to be preserved. Thus the plaintiffs argue that their ability to change their mind and cancel a notice was a background fact which should be taken into account in determining the meaning of the term.[376]

312 I have found that Keller and Taylor did not reveal their purpose during the negotiations. Viewed in the most favourable light from Keller and Taylor's perspective, the evidence introduced in the trial concerning the negotiations was that the negotiating parties focussed upon their own needs and not those of the other party. Counsel for the plaintiffs accepted during the course of oral argument that this was "the objective probability."[377] Nevertheless the plaintiffs submitted that the defendant's failure to call Mr Joslin, Mr Burton, Mr Slater or someone from its legal department gave rise to an inference that the defendant, at some level of its hierarchy, had an understanding that the effect of the special terms was to confer a right to arbitrage.

313 It was said on behalf of the plaintiffs that though the term was not clear, the fact that it was difficult to construe did not mean that it was truly ambiguous. Properly interpreted it meant that the transaction, of which they had given notice on day one, was effected on the third day when the unit price was calculated in accordance with the term and units allocated to the plaintiffs. This is an artificial construction which does not reflect the parties' objective intention or the understanding that they held at the material time.

Common intention

314 In the event that I viewed paragraph two as containing some ambiguity, counsel for the plaintiffs submitted that in looking at the background to the transaction to determine the objective meaning of the terms, the Court could take into account the understanding and intention of Keller and the defendant which the plaintiffs submit was a common intention.[378]

315 It was said that as the defendant knew the way the terms were being represented to and understood by the plaintiffs, there was a common intention against which to measure the meaning of the words.[379] The evidence does not support such a contention. The defendant at no material time understood that Keller, Taylor or the plaintiffs viewed cl 1.8 as conferring a three day option. The defendant did not understand there to be any restriction upon when it could complete the switch. Nor am I satisfied that any of the plaintiffs viewed the notice as a notice to switch in three days from the giving of the notice.

Process of switching - time to complete

316 During the course of oral submissions it was conceded by counsel for the plaintiffs that if, pursuant to a notice, the defendant withdrew cash and paid it to the policyholder within three days of the notice of intention to do so, it would be an absurd construction of cl 1.8 if the policyholder could change its mind after the withdrawal had been completed. Yet counsel submitted that in relation to a notice to switch, the defendant would not be entitled to complete the switch until the conclusion of the three working days, so as to preserve the plaintiffs' contractual right to change their mind within the three working days. The argument assumes this was the intention of the special term. If the special term was to be so construed, the window of opportunity of three working days would have to apply to both switches and withdrawals.

317 The plaintiffs rely upon the procedure that is followed when a switch occurs and point to the evidence of their expert, Mr Lyon, who testified that a switch involves a number of steps which take more than a day. His evidence was that on the company being advised that a switch is required, an operator would enter the information about the switch on the computer. If the switch calls for a backdated price, that information would go onto the system. The system would make the mechanical ledger changes resulting from the switch using the unit prices relevant to that switch. The aggregate transactions arising from the day's trading would be notified to the liability fund manager who would determine how the company would respond to the transactions that had taken place. The net effect of all of those transactions would require a determination of whether it was necessary to buy or sell assets and that would be communicated to the investment or fund manager charged with managing the assets. Mr Lyon anticipated that it would be at least the next day after the switch was notified before the asset transactions were undertaken.

318 By cl 3.5(a) and (b) of the policy, the defendant says that it is made clear that switches are effected by transferring amounts and cancelling and creating units. Clause 3.3(b) shows that in the course of the switch there is a transfer of an amount of money and a correspondent adjustment to the number of units in the portfolios. It says that the evidence in relation to the role of money in the transaction to which the plaintiffs refer, including the testimony of Mr Lyon, reflects the fact that the monetary transactions are effected by journal entries rather than by withdrawals and deposits in bank accounts. It submits that it is irrelevant whether it is in fact necessary to withdraw funds from one account and deposit them in another or whether it is necessary to realise assets in order to meet cash obligations involved in a switch. The units quantify, in monetary terms, a policyholder's entitlements, with cl 3.3(a) referring to switches being made by "transferring amounts," not swapping units.

319 There is a difference between the act of recording the transaction and the switch of funds being affected. The plaintiffs argue that if the words "prior to the completion of the portfolio switch" refers to the procedure that the defendant embarks upon, then the time in which the arbitrage can occur has been extended because the completion may not take place until the expiration of the three day period has expired. Thus the plaintiffs submit that those words either "were not meant to add anything, or were a confusion and should be struck out".[380] They submit it made more sense to simply have a guillotine of three working days, enabling one to measure the window of opportunity of the right to arbitrage. If it is measured in terms of completion, only the defendant would know when it had actually completed the switch. The contrary argument was that the defendant has waived its right to take up to 30 days to complete the switch or withdrawal and undertook to do so within 3 days. The plaintiffs could change their mind without penalty so long as the withdrawal or switch had not been completed - the defendant being obliged to complete it within three working days of the notice being given.

320 The consequence of a switch taking more than a day is, they say, that it gives rise to a literally unarguable right to arbitrage. The plaintiffs submit it supports their reasoning that cl 1.8 is to be viewed objectively as conferring a right to arbitrage[381] and that such a special term will prevail over the general provisions of the policy and may be used in resolving any ambiguity in the special term.[382]

321 The defendant relies upon cl 2.2(e) of the policy as permitting it, in any event, to defer switches until midnight. The plaintiffs argue that the clause is a standard clause and must give way to the objective purpose of the special terms, which is to permit the plaintiffs to have unlimited free switching within the three day period.[383] Alternatively they argue that if the words "prior to completion" have altered the meaning of cl 1.8, it is to replace the concept of a three working day period with a completion process that at least takes longer than a day.

322 The defendant disputes that Mr Lyon's testimony supports the conclusion that the plaintiffs would always have an opportunity to arbitrage because it would take the defendant more than a day to complete a transaction. It submitted that Lyon's testimony was only of a general nature and was not directed to the manner in which the defendant went about completing a transaction. It submitted that the plaintiffs should not be permitted in any event to rely upon this argument as it had not been pleaded. I accept that it was not part of their case at the time Lyon gave that evidence. The defendant said that had it been part of the plaintiffs' claim, the defendant would have cross-examined Lyon about that testimony. It points to the testimony of McMenamin that, following a request to switch, the fund manager is notified so that they can immediately commence to borrow and sell assets. The switch is processed overnight so that by commencement of business the following day the switch has been completed.[384] That evidence was not challenged. The defendant submits that the switch is completed at the point when units in the departure portfolio are cancelled and units in the arrival portfolio are created. If the price at which the switch is carried out is the price applicable to the assets in that portfolio at the time of the transaction, there is no arbitrage opportunity.[385] Furthermore it says that even if an opportunity to arbitrage arose as a consequence of the time taken to effect a transaction, it was not suggested that it is relevant to the question of how cl 1.8 should be construed. I make no finding as to whether a switch can be completed prior to the commencement of business on the day following the giving of notice. I do not consider that the resolution of this question is necessary or bears upon the construction of the special term. If the plaintiffs are correct, an arbitrage opportunity may arise even if the defendant's construction of cl 1.8 is preferred.

323 The plaintiffs' case is that cl 1.8 gives the benefit of the three working days to the investor. They submit that if the intention were to retain the right of the defendant to delay a switch or withdrawal, substitution of three days for thirty days could easily have been expressed in a variety of ways within the second paragraph, or the first paragraph could have been amended from thirty to three days. I do not find this argument persuasive. The variation to cl 1.8 was first raised in correspondence between Keller and the defendant's representatives and related not only to a reduction of days from thirty to three, but addressed the giving of notice, the unit price when the notice was given and the right of the investor to change their mind without penalty. Each of these matters is related and all were addressed in the second paragraph.

324 It was not until 1999 that the words were inserted in cl 1.8 that the unit price was the price at the date that the notice was given in writing. The plaintiffs argue that without those words the unit price was to be determined by reference to cl 3.3(b) of the policy which provided that "the unit price is at the date at which your request for transfer applies". That was the standard clause and the plaintiffs submitted that the words inserted in 1999 confirmed what 3.3(b) already provided. This argument appears to overlook the plaintiffs' contention that the notice is a notice to effect a switch in three working days time.

325 The plaintiffs submitted in oral argument that cl 1.8 in its final form deprived Coneview investors of the right to make a request of the defendant to switch immediately. They submitted that cl 1.8 on its proper construction meant that every switch, no matter how it was worded, could not be completed for three days unless the parties by agreement abridged the time for doing so. The plaintiffs maintain that if they have an intention to switch for three days, that remains their intention until they convey otherwise. If the defendant were entitled to complete during those three days it would not be giving effect to the plaintiffs' intention.[386] The plaintiffs' argument was that the second paragraph of cl 1.8 provided the only means by which Coneview investors could withdraw or switch. Counsel argued that this was to be achieved by giving notice of intention in three working days to do so. Such an interpretation, it was acknowledged, rendered the first paragraph of cl 1.8 redundant. It also meant that the switch date was the third day.[387] I do not agree that clause 1.8 should be so interpreted. Where the plaintiffs give notice pursuant to clause 1.8, the switch or withdrawal date is, in my view, the date of the notice. If the notice is not given pursuant to paragraph two, the switch or withdrawal must be completed in accordance with paragraph one of cl 1.8.

326 The plaintiffs submit that the clause omits to provide the defendant with any right to delay completion. They say there is no ambiguity and the omission to give the defendant a right to delay is decisive. The plaintiffs point to the fact that cl 1.8 does not say that the defendant has up to three days to complete the switch. The defendant points to the fact that it does not say the investor has three days within which it can change its mind.

327 Given the large amounts of borrowed funds which the plaintiffs were investing, it was submitted that the objective intention of the parties could not have been that the plaintiffs' rights would depend upon the arbitrary decision of the defendant as to when the transaction would be completed. I find this argument as unpersuasive as the defendant's contention that it would never have agreed to allow such large sums to be invested to make arbitrage profits. The parties' wisdom or foolishness in agreeing to such terms does not usefully advance the question of construction.

328 In their pleadings the plaintiffs rely upon an implied term that the defendant would not complete any switch within three working days from the day upon which notice of intention to switch or withdraw was given, and would give effect to any notice of a decision to cancel a switch or withdrawal provided that such notice was given within three working days of giving notice of intention to switch or withdraw.[388] That pleading does not sit easily with some of the plaintiffs' submissions, which I have already noted where it was said that with or without the words "prior to completion" the special term meant that the defendant could not complete the switch or withdrawal and the plaintiffs could not cancel their intention to switch or withdraw before the expiration of the three working days from the day on which the plaintiffs had given notice of their intention to switch or withdraw. That was not how the parties at that time viewed the effect of the notice. That submission is also difficult to reconcile with the plaintiffs' pleadings that between February and October 2000 the defendant received oral notices of intention to switch from Keller, that it confirmed by fax that it had processed the switch (generally within a day) and sometimes, within the three working days received instructions to cancel the switch and confirmed in writing that it had processed the cancellation.[389]

Short selling

329 The right to short sell was a powerful reason, the plaintiffs argue, for not construing the notice to switch as an immediate switch with a right by the defendant to delay effecting the transaction for up to three days.

330 The defendant pleads that it is an express or implied term that the plaintiffs are not permitted to "short-sell" by giving notice of intention to switch units from one portfolio to another unless they actually hold units in the departure portfolio at the time the notice of intention is given.[390] It says that upon the proper construction of cl 1.8, the notice given is one to switch immediately and not in three days' time, hence the units must be in the departure portfolio at the time notice is given. It further argues that cl 1.8 cannot be interpreted to confer upon the plaintiffs a right to switch units in a portfolio which are not held by the plaintiffs in that portfolio at the time that they give the notice. If the purpose of the three day notice is to enable the defendant to have an opportunity to prepare to make the switch, it can only do so if the units already exist in the portfolio. If the clause were to be construed so that the defendant was required to carry out switches on two successive days, the defendant would be deprived of the benefit of the three day notice. If the clause was construed as permitting short selling it would further divorce the gains to which the plaintiffs claim entitlement from the performance of any asset pool.

331 In reply the plaintiffs say that there is no evidence to support the claim that the purpose of a three day notice period was to give the defendant an opportunity to prepare to make a switch. The plaintiffs say that as the purpose of the three day notice was to facilitate an arbitrage (by gains being made independently of the value of underlying assets), the giving of a notice period to switch from a portfolio in which there are no units presently held is unremarkable.

332 The plaintiffs submit that the unambiguous effect of the second paragraph of cl 1.8 is that a notice to switch can be given so long as the units would be in the departure portfolio in three days' time. They submit that there is no limitation expressed in the special term which would require units to be present in the departure portfolio at the time the notice of intention to switch is given. The special term conferred the right upon the plaintiffs to give notice of intention to complete a switch in three working days' time. Because of the practice followed by Dr Keller and Ms Spanu, which the plaintiffs describe as a variation of the special term, the notice to switch was treated as an immediate switch but with a right to cancel within three days. Counsel submitted it took short selling out of the equation.[391] An analogy was drawn to writing a cheque payable in two days' time or a contract to sell goods by which you promise to deliver goods not yet in your possession.

333 The plaintiffs say that the principle of reasonable expectation applies to make it incumbent upon an insurer, in accordance with good practice, to reserve such a limitation on the otherwise general right to arbitrage.

334 They argue that a right held by the defendant to complete the transaction at any time within the three days would constitute a major impediment to short selling, and hence to the exercise of the plaintiffs' arbitrage rights, because at the time of giving notice they would never know when the transaction would be completed. Hence it was submitted that the clause should be construed so that this substantial right to arbitrage was not impeded.

335 Alternatively the defendant says such a term should be implied. It points to the plaintiffs' intention, reflected in a memorandum by Mr Tom Oates that the plaintiffs could "blindly switch, say, every three days, cancelling the last switch if prices were not heading in the right direction during those three days"[392] which reveals, it submitted, that the policyholder has no intention to switch at all. The defendant submitted that not even Oates was suggesting that you could switch more often than every three days. It claims that contrary to the plaintiffs' suggestion, it did not occur to them at the time that they could give notices every day in opposite directions and at some subsequent time cancel one or more of them. This would effectively only give the defendant one day to prepare for the second or subsequent notices to switch.[393] The defendant submitted that the simulated switches made by Keller in 2001 highlighted the absence of any real intention to switch at the time the notice was given.

336 The defendant submitted that during the period that there were "simulated switch notices" in May and June 2001[394] there was no real intent to switch. Mr Brett QC, who appeared with Mr Gleeson and Mr Bennet for the defendant, illustrated his point by an example which disregards the knowledge of historical pricing. On day one Keller gave notice to move from the Cash to the Secure portfolio when the price in the Secure portfolio was $1 a unit. On the second day he examined whether the All Ordinaries Index had moved up and if it had he would have bought units at $1. He ascertained that by the end of the second day the price would be $1.10. He then gave a notice to switch back to the Cash Portfolio and thus locked them in again from $1 to $1.10. If on the second day it had been observed that the All Ordinaries Index moved down so as to reduce the Secure unit price from $1 to 90 cents, the notice to switch given on the first day would be cancelled to avoid buying the unit at $1, knowing it would drop to 90 cents on the second day. Thus it was submitted that Keller, on behalf of the policyholders, did not have an actual intention to switch to the Secure units the following day at the time that he gave notice. It was submitted that once there was no longer a historic pricing regime Keller could not have had an intention to switch at the time that he gave notice. Mr Brett argued such a course is inconsistent with the interpretation the plaintiffs seek to attach to the word "intention".

337 In order for the three day option to function as the plaintiffs contend, at the commencement of the three day period they could not, the defendant says, have had a positive intention to switch at the end of that period. The defendant argues that at the commencement of the period the plaintiffs could have, at the most, a "conditional intention" to switch if and only if unit price movements made a switch desirable. Thus the defendant argues the plaintiffs' case is that cl 1.8 entitles them to make risk free gains in perpetuity by giving a notice that is false on its face. I do not agree that the plaintiffs could not have the necessary intention. This argument cannot be sustained. The plaintiffs' argument that they could give notices to switch in opposite directions each successive day and cancel such notices after they had been in operation for varying periods of time of up to three days is another matter. It does bring into question their intention. The defendant rightly submits that where the plaintiffs gave successive notices of intention to switch, without having cancelled the previous one, no intent would exist with respect to the subsequent notices at the time they were given.

338 The requirement of a real intention was relevant both to the defendant's argument as to how cl 1.8 should be construed and to its argument that even if the plaintiffs' construction was correct, there was an implied term that units must exist in the departure portfolio at the time the notice is given.

339 The plaintiffs say such an implied term runs contrary to the arbitrage purpose of the special terms. They argue that as they have an unlimited right to switch and three days in which to cancel a notice of intention to switch, such an implied term would be inconsistent with those express terms. They submit that the implied term fails to distinguish between the giving of a notice of intention and the completion of a switch. They accept that immediately before completion of a switch, the plaintiffs must hold units the subject of the switch in the departure portfolio, but that is entirely different to requiring that units be held in that portfolio on the date of giving notice of intention to switch. They submit that one can agree today to sell in three days' time what one does not own today but will own in three days time. That may be so if the notice was to sell in three days' time.

Buy and sell price

340 It is the contention of the defendant that a switch involves two transactions - units are sold in the departure portfolio and are purchased in the destination portfolio. Different unit prices apply to each of the portfolios. The defendant argues that the language used in cl 1.8 recognises these facts.

341 The defendant alleges in the alternative that the special term provides that only the "sell" price applicable to the withdrawal or switch is the price on the day of the notice of intention to switch or withdraw, while the "buy" price applicable is the price on the day that the transaction is carried out.[395]

342 The clause draws no express distinction between the unit prices in the "destination" or "departure" portfolios. The plaintiffs say that the switch is a single transaction involving the exchange of units in one portfolio for units in a different portfolio. They submit it is not a composite transaction involving the conversion of units in one portfolio into a sum of money and the exchange of that money for units in a different portfolio. They submit that the evidence of various witnesses and the defendant's own description of a switch reveals that it is a single transaction and not one involving an application of money.[396] The plaintiffs submit that there is no basis for the defendant's contention that the sell price for the units is to be struck on the day the notice is given by the investor and the buy price is to be struck on the date that the switch is effected, namely in three days. They submit that the language "the price on the day when the notice" contemplates only one "single unit pricing event". The plaintiffs point to the fact that the policy contains no provision to the effect that a reference to the singular includes the plural or vice versa. They say there is no justification for reading the reference to price in the singular in the second paragraph as a plural.

343 The defendant disputes the assertion that there is a "single unit pricing event" and says that cl 1.8 contemplates two prices are involved by the use of the phrase "unit price(s)" which appears in the first paragraph at cl 1.8. The defendant points to the first paragraph of cl 1.8 which, it submits, reveals the clear intention that the switch prices - plural - should apply to both the buy price and the sell price. The defendant submits that it is significant that in the second paragraph of cl 1.8 the price is referred to in the singular.

344 The price in the second paragraph in my view means the sell price. The paragraph applies to both withdrawals and switches and in the case of the withdrawal there is only a sell price. It would be odd for the price to refer to a sell price in the case of a withdrawal and a buy price in the case of a switch. The defendant's construction is more in harmony with the nature of the transaction being effected. The whole of cl 1.8 is concerned with a transaction with involves the conversion of a large number of units into a large amount of money, not the conversion of cash into units so that the reasonable construction of the word 'price' is the sell price when units are converted into cash. Such a construction still produces a benefit for the policyholder who may sell units in the Secure portfolio when the assets underlying that portfolio commence to fall but before the price of the units have fallen.

One notice - in writing

345 In the alternative to its primary argument the defendant has pleaded that the special term required the giving of two notices, the first being a notice of intention to switch or withdraw and the second being a written notice to proceed, and that the unit prices applicable to the transaction were those on the day of the written notice to proceed.[397]

346 Neither party as part of their primary submission said that two notices were required. The defendant says that if the plaintiffs' construction were right that the initial notice was a notice of an intention to switch in three days' time then a further notice must be given.[398]

347 The plaintiffs argue that only one written notice is contemplated by the paragraph and were it otherwise, a reference to a second notice necessary for a switch to be completed could readily have been included. To construe the clause by requiring a second notice involves reading additional words into the paragraph which works effectively without them. It was submitted that it was the notice of intention to switch in three days' time which was to be in writing. It was submitted that the reference to "the notice" in the third line is a reference to the notice in the second line.

348 The plaintiffs submit that only one notice is required and it need not be in writing (because by the practice that was followed between Keller and the defendant, oral notices were accepted as sufficient) and the time of the first notice determines the unit price. Even if a second notice were required, it is the first notice which determines the unit price. Treating the date of any second notice as the date which determines the unit price would remove the arbitrage opportunity and thus involves the contention that cl 1.8 was never intended to convey an arbitrage opportunity. Counsel for the plaintiffs submits such a construction is tortured, contrary to the understanding expressed in the CIM, contrary to an objective reasonable view of the clause, and is a 'result driven' construction. The CIM referred to the price at the time of the notice but did not require it to be in writing. That, it is submitted, was the common basis upon which the parties contracted and if there is any ambiguity it is to be resolved by reference to that common intention.

349 The plaintiffs point to the fact that when the clause was first drafted on 20 July 1998 the words "the price on the day when the notice was given in writing" did not appear but the price was that which prevailed at the time of the request.[399] It was always recognised to be an arbitrage clause.

350 The defendant submits that if the plaintiffs' construction is right, they would be giving notice that in three days' time they intend to do something and would then have to give a further notice requesting that the defendant at the end of the three days effect the transaction by acting upon their intention. In those circumstances it would be the second notice that would have to be in writing and the time of that notice would determine the unit price. Until the second notice was received the defendant would have no mandate to do anything.

351 The defendant contends that upon its proper construction cl 1.8 requires only one notice in writing but that if two notices are required, that is, a notice of intention and a notice to proceed, the location in the clause of the words "in writing" reveals that it is the second notice, that is the notice to proceed, which must be in writing. The defendant submits that the contractual requirement of written notice appears in each of the plaintiff's policies and in the other documents which the plaintiffs contend have contractual force,[400] and it is untenable for the plaintiffs to allege that there is no express requirement that notices be in writing.[401] The parties all agree by way of primary submission that only one notice is contemplated. That is, in my opinion, the correct construction of paragraph two. It is the notice of intention to switch or withdraw which should be in writing.

352 In the alternative to it being an express term, the defendant alleges that a term is to be implied that the unit price is the price on the day when written notice is given.[402] The implication is said to arise from the express terms of the policies, ordinary custom and usage in the industry, the provisions of the LIA and ICA, and in order to give business efficacy to the policies. If I were wrong in my conclusion that there is an express term requiring one notice, no implied term arises. No custom or usage was proved that an insurer was not obliged or entitled to switch funds between portfolios unless a policyholder provided it with a written notice. No evidence was called which established that it was notorious, uniform, certain, and reasonable within the life insurance industry.[403] There was evidence that it was not uncommon for managed investments to use back dated unit prices.[404]

Implied terms as to the three day option alleged by plaintiffs

[363]

354 The implied terms here relied upon are said to arise as a matter of presumed or imputed intention. The case for an implied term rested upon cl 1.8 containing the three day option which the plaintiffs allege. The question is whether the implication of a term is necessary to give business efficacy to the contract.[406] Such a term is implied to prevent "the enjoyment of the rights conferred by the contract [being] rendered nugatory, worthless or perhaps ... seriously undermined, the notion of necessity being central to the rationale for such an implication".[407] The parties have proceeded upon the basis that the terms to be implied should satisfy the five criteria enunciated by the majority of the Privy Council in the well known and oft cited passage in BP Refinery (Westernport) Pty Ltd v Shire of Hastings.[408]

355 The plaintiffs say that these terms are implicit in the written contract and the course of dealing between the plaintiffs and defendant.[409] They rely upon the principle that these terms are what the parties to the contract would most likely have agreed had they considered the point.[410] If the term is obvious, fair, clear, not contradictory to other express terms and necessary to give business efficacy to the contract because the other terms would be unworkable without it, the conditions for implication set out in BP Refinery are satisfied and the term should be implied.

356 An element of the alleged implied term is that the plaintiffs have the right to give oral notices of the intention to switch or the cancellation of the switch. That contention may readily be disposed of. An oral notice term is not necessary in order to give business efficacy to the contract. Indeed the plaintiffs in their written submission accept that a written notice could be given if necessary.[411]

357 During oral submissions counsel for the plaintiffs argued that the implied term would complement their interpretation of cl 1.8. If the clause is to be interpreted as giving the opportunity to Coneview investors to cancel within a three day period and if the objective view of the clause was to provide an arbitrage opportunity, the plaintiffs submit such terms will readily be implied. The plaintiffs argue that to give "business efficacy" to the plaintiffs' special terms, the terms should be implied that the defendant could only complete a switch at the expiration of the three days' notice and that the defendant would give effect to any notice to cancel a switch or a withdrawal provided that the notice of cancellation was given within three working days of the giving of the notice of intention to switch or withdraw. The case for the plaintiffs is that these terms "go without saying"[412] as the expression of intention in paragraph two of cl 1.8 would become meaningless if, within the three working days, the plaintiff could not change their minds or the defendant could, if it wished, complete the transaction. They contend there is nothing in cl 1.8 that contains any restriction upon the plaintiffs changing their minds or entitling the defendant to complete the transaction within the three working days. Thus the plaintiffs argue that the objective purpose of the special terms explicitly facilitated arbitraging. The plaintiffs also rely upon the statements made by Keller and Taylor to Tyne and Hawkins that the plaintiffs could cancel their notice of intention to switch within three days, and the failure of Keller or Taylor to say that the defendant could complete the switch within three days.[413] The plaintiffs say that the defendant's arguments ignore the fact that the special terms were objectively intended by the parties to permit arbitrage and that this was the natural meaning and effect of the special term. Thus the term is to be implied by law to facilitate performance so as to achieve the contractual objective. Counsel relied upon the decision in Equitable Life where, it was submitted, the Court implied a term to give effect to the reasonable expectations of the parties.

358 The plaintiffs also rely upon the course of conduct prior to and at the time that the plaintiffs invested which showed that the defendant accepted oral notices of intention to switch and subsequently accepted oral notices cancelling such instructions given within three working days of receipt of the initial notice.[414] The terms are to be implied, they say, from the conduct of the parties between the date of the Tyne policy and the date that each plaintiff entered into its policy.[415] The defendant denies that the conduct of the parties provides a ground for the implication of the term.

359 The matters pleaded by the plaintiffs[416] do not constitute a course of conduct which would support the implication of the alleged terms. Assuming for present purposes that it was a course of dealing between the parties rather than Keller and the defendant, the conduct was of an equivocal nature which did not advance either of the party's positions as to the correct construction of cl 1.8 or the implication of terms. Nor can that prior course of dealings support the importation of any term or condition into the plaintiffs' policies with the defendant.[417]

360 In the alternative, the plaintiffs submitted that even if upon the proper construction of the clause there was no restriction upon the defendant proceeding to complete the switch within the three day period, a term to that effect should be implied.[418]

361 The defendant submits that neither of the alleged implied terms satisfy the legal requirements for the implication of such terms. It submits that Courts should be slow to imply a term where the contract is detailed and comprehensive.[419] It says that unless the proper construction of cl 1.8 is that the defendant is permitted to carry out switches within three days, the alleged implied terms would not arise for consideration. Then the implied terms would prohibit this.[420] The defendant says there is no scope for these implied terms which would be inconsistent with the express terms. [421]

362 In the alternative, the defendant submits that even if the plaintiffs' construction is to be preferred, the plaintiffs cannot satisfy the legal requirements for the implication of such a term. The defendant also submits that the terms do not fulfil the business efficacy requirement as the policies can work effectively without the implication of such terms.[422] It further contends the term is not so obvious that it goes without saying.[423] It submits the defendant's witnesses did not contemplate such a provision,[424] and there is no evidence that any of the plaintiffs gave any thought to when a switch would be carried out. It submits that the oral and documentary testimony of the plaintiffs' understanding shows, as was the case, that it was assumed that any request for a switch was carried out immediately and not after a delay of three days.

363 The defendant argues that to imply such a term is neither reasonable nor equitable because it will operate to favour the plaintiffs and expose the defendant to financial risk and commercial detriment.[425] The defendant further argues that the term is particularly unreasonable given the plaintiffs' knowledge that other companies had moved to avoid arbitrage activity. The plaintiffs would be unquestionably advantaged if there was a term implied that the defendant could not complete the switch until after the expiration of three working days and that the policyholder could cancel a switch within that time. That such a term would provide a great benefit to the plaintiffs would not of itself be a sufficient reason for implying it.[426] As the contractual term propounded by the plaintiffs would then operate in a "partisan fashion,"[427] such a term would not then be reasonable, equitable or so obvious that it went without saying.[428]

Implied terms as to the three day option alleged by defendant

364 The defendant in the alternative to its construction argument pleads implied terms of the policies. It alleges that in the event that a policyholder gives a written notice of their intention to make a cash withdrawal or transfer between portfolios there is an implied term that the defendant is not obliged to refrain from completing the withdrawal or transfer until the expiry of three working days. It alleges the implication arises for the following reasons: because the delay period referred to in both the first and second paragraphs of cl 1.8 is the defendant's right to delay; the clause only applies to amounts in excess of $100,000; the clauses of the plaintiffs' policies provide benefits for the holder which reflect the performance and current value of the assets which underlie their investment; the right to transfer between investment portfolios is expressed in the CIB to be a right to be exercised if the policyholders' objectives change; the prosperity bond is an investment linked contract within the meaning of s.14 (4) of the LIA; the consistency of the implied term with the underlying purpose and nature of the contract, s.32 of the LIA and s.13 of the ICA; the purpose of cl 1.8 was to enable the defendant to have sufficient time to acquire or dispose of assets in an orderly fashion; the pre-contractual negotiations in respect of the amendments of cl 1.8 occurred in relation to the delaying of withdrawals and not portfolio switches and the unlikelihood that the defendant or any reasonable life insurer would agree to cl 1.8 having the effect contended for by the plaintiffs, which would produce substantial commercial detriment to it and other holders of prosperity bonds in the absence of the existence of the implied term.[429]

365 The plaintiffs say that such a term should not be implied as cl 1.8 refers to a waiver of the defendant's right to delay and to the plaintiffs' right to give notice of intention to switch in three days' time; that there is no necessary relation between the first and second parts of cl 1.8, the first part alone referring to transfers of amounts in excess of $100,000 whilst the second sets out the special term; the standard clauses in the policy must be read subject to the special terms which objectively provide the ability to arbitrage, as the special terms removed fees which in the standard policy eliminated any incentive to engage in arbitrage thereby creating the reasonable expectation that arbitrage would occur; the CIB was not concerned with special terms and in particular switches which were unlimited and free; the fact that it was an investment linked contract is meaningless and does not affect the plaintiffs' entitlements and that if industry practice is relevant the defendant is obliged to make good any losses caused by arbitraging; s.32 of the LIA prohibits discrimination against a group of policyholders and the defendant must give priority to the interests of owners of policies; s.13 of the ICA is irrelevant to the implication of a term given the express terms provided that switches were free and unlimited and the pre-contractual negotiations repeatedly made reference to the delaying of switches and not withdrawals.[430]

Conclusion

366 Earlier in these reasons I have dealt with the canons of construction in interpreting insurance and commercial contracts. I do not intend to make further reference to the large number of submissions that were advanced but will state my conclusions in the light of those extensive submissions. I have already expressed my view about a number of matters in the course of examining various arguments.

367 I have considered the meaning and effect of the whole of cl 1.8, within the setting of the entirety of the policy. It is plain that the parties intended to vary the terms of the standard prosperity bond by the introduction of the special terms. I am satisfied on the basis of the background circumstances that may be taken into account, and the textual setting and the language employed, that those terms were not intended to alter the essential nature of an investment linked contract.

368 The words "gives three working days notice of intention to switch or withdraw" support at least two meanings. The meaning of "notice" calls for consideration of the other phrases in the clause including the waiver by the defendant of its right to delay, the investor's ability to change their mind "prior to the completion" of the switch or withdrawal and the question of the day upon which the switch is intended to take effect. Reference to the background circumstances also illustrates the ambiguity of the clause.

369 The purpose of the first paragraph of cl 1.8 was to give the defendant sufficient time to prepare for the switch or withdrawal of units valued at more than $100,000. It permitted the defendant to delay carrying out the transaction where the defendant considered it necessary.

370 On its proper construction, the second paragraph contains a waiver by the defendant of its right to delay for up to 30 days and reduces the period of delay to three days.

371 The giving of three working days' notice of its intention to switch or withdraw pursuant to cl 1.8 requires the defendant to carry out the switch and is a notice of the plaintiffs' intention to switch on the day of the notice, the unit price being the price on the day when the notice is given. It is not a notice that the switch or withdrawal should occur at the end of the period. The policyholder in giving such a notice intends the switch to be effective from the date of the notice.[431]

372 Even if there were no presumption against surplusage,[432] I reject the contention that the words "prior to the completion" can be disregarded as a matter of construction.[433] They are not in conflict with any other words. The words mean that the defendant may "complete" within the three day period. The plaintiffs placed a strained and unrealistic interpretation on these words. The defendant is given a right to delay for up to three working days, with the plaintiffs having the right to cancel their notice of intention at any time within those three working days provided the defendant has not in the meantime completed the withdrawal or switch. There are no words within the clause which demand a different interpretation.

373 This interpretation is consistent with the waiver being conditional and reflects the fact that the plaintiffs are limited to investing only in relatively liquid portfolios, namely the Cash and Secure portfolios. It is consistent with the presumed intention of the investor to have the investments in the desired portfolios as soon as possible. By contrast to the plaintiffs' interpretation, such a construction does not do any violence to the basic nature of an investment-linked contract (which is a relevant background circumstance).

374 When a notice to switch is given pursuant to cl 1.8, the date of the switch is the date upon which the notice is given. The plaintiffs' contentions as to the right to short sell therefore cannot be sustained. The policyholder must have units in the departure portfolio at the time the notice is given. The second and any subsequent notice given at a time when the first notice has not been cancelled is not a notice of an intention to switch at the time the notice is given.

375 Each party's claim as to the need to imply terms rested upon the interpretation which they place on the special term. The arguments which they advanced in support of their construction of cl 1.8 were repeated in support of the need to imply terms. As I have concluded that the defendant's construction of cl 1.8 is correct, the plaintiffs' argument as to implied terms must fail. Such terms would be inconsistent with the express terms and are unnecessary to give business efficacy to the contract. The defendant's claim as to implied terms would fail for similar reasons, were the plaintiffs' interpretation of cl 1.8 correct.

What, if any, express contractual obligations (whether written or oral), did the defendant undertake to the plaintiffs about the 3 day option other than as expressed in the second paragraph of cl 1.8 of the policy?

376 The plaintiffs claim that the term which confers upon them the right to give notice of intention to complete a switch between the Cash and Secure portfolio in three working days' time and the right to cancel such a notice inside that period was not only expressed in the policy document but in the June 1999 letter**,** the no advice letter and the undertakings letter and was also partly oral and constituted by conversations between Keller, Taylor, Tyne and Hawkins.[434] The defendant denies that any of these letters formed part of the plaintiffs' policies or constituted any of the contractual documents. Insofar as the plaintiffs allege that there were oral terms, the defendant denied that Keller or Taylor were the defendant's agents or that the defendant or its alleged agents informed the second, third or fourth plaintiffs of the said terms.[435]

Express terms that were partly written

377 If the three day option is not the unambiguous construction of cl 18 and if the three day option promise is not the proper construction of the clause having regard to the objectively ascertained purpose of the special terms, the plaintiffs say that the special terms are contained in the no advice letter, the June 1999 letter and the CIM all of which formed part of the plaintiffs' contracts and which prevail over cl 1.8 of the policy if it is inconsistent.[436]

378 Counsel for the plaintiffs suggested in oral submissions that the CIM was part of the contractual documents and reflected the intention that the special term was to confer upon Coneview investors a right to arbitrage. In the CIM, Keller described the three working days' notice as "three working days to cancel a previous election". They say the intended meaning of the clause is set out by Keller and Taylor in the CIM which makes no reference to the words "prior to completion".

379 The plaintiffs have not pleaded that the CIM is part of the contractual documents,[437] nor was there any evidence that any of the plaintiffs viewed the CIM as a contractual document. The CIM was never intended to be a contractual document.

380 The principles are not in dispute that a further statement, whether written or oral, may be construed as a term of the written and signed contract if that intention can be inferred from the circumstances,[438] and that extrinsic evidence may be used to explain words or phrases as well as technical terms which are ambiguous or which, taken literally, make no sense or conflict with others in the same document.

381 The plaintiffs pleaded that the special terms which it had been agreed would be incorporated into the policies were set out in the June 1999 letter, the no advice letter and the undertakings letter.[439] The defendant denied that any of the letters contain terms which formed part of the policy and provided particulars in support of its pleading to that effect.[440] Despite the pleadings addressing the question whether the three letters formed part of the contractual documentation, counsel for the defendant suggested at the commencement of the trial that little would turn upon this issue. The wording of the policy and the undertakings letter are for present purposes identical. The only material difference between them and the June 1999 letter and the no advice letter is that the latter documents do not contain the phrase "prior to completion of the portfolio switch or withdrawal transaction" (the impugned words).

382 The June 1999 letter was signed by Beazley as the defendant's authorised representative and relevantly set out the issues that had been resolved and agreed to by Andrews as the product manager for National Mutual. The no advice letter stated that "the following items relating to the prosperity bond have been agreed with the manager". The plaintiffs say that both letters were framed in promissory language.

383 The defendant submits that the no advice letter is merely an advice to policy owners rather than an agreement. The defendant says that item 6 of the no advice letter is couched in general and non-promissory language stating that it "will provide a separate policy for each investor".

384 The no advice letter and the June 1999 letter were on the defendant's letterhead and were provided contemporaneously with the investment. They were signed and received before the plaintiffs received their policies. The plaintiffs submit that as they were received first in time they prevail over any inconsistent wording in cl 1.8.

385 It is said on the defendant's behalf that the June 1999 letter is addressed only to Keller and does not purport to be contractual in nature. It is also alleged that the letter does not emanate from the defendant but from a related company. The defendant advances similar contentions with respect to the no advice letter. As to the no advice letter the defendant says its purpose was to make clear to prospective investors that the defendant was not to be taken as having provided any advice to Coneview and that the investor invests on the basis that they have not received any such advice. The no advice letter advises that the following special terms have been agreed upon but the letter does not, the defendant says, purport to be an agreement between the parties. The defendant's case is that the plaintiffs and it, at all material times, intended that their agreement (including an agreement as to the special terms) would be embodied in an investment-linked policy issued under the LIA. The defendant says that the policy is the sole repository of the contractual terms between the defendant and each plaintiff.

386 Although the letters emanated from National Mutual Financial Planning Limited, the pleadings and the trial were conducted on the basis that there was no material difference between it and the defendant. It is clear that the related company was the defendant's agent and that its conduct was adopted and ratified by the defendant.

387 Each of the plaintiffs applied for their policy by executing an application form. It is not in doubt that each understood that the prosperity bonds to be issued by the defendant were insurance policies. The defendant submits that the June 1999 letter and the no advice letter are incomplete and do not purport to be anything more than statements about some of the terms of the policies that are to be issued. The application forms came from the defendant's CIB and contained the following words:

[365]

388 The defendant submits that the arrangements between each plaintiff and the defendant were to be completed by the paying of a premium by the investor and the issuing of a policy by the defendant. Each policy contained an annexure which set out the terms of the policy. The plaintiffs knew that they were to be issued with policies which would contain contractual terms.[441] The defendant submits that Taylor, upon whom the plaintiffs relied, spent considerable time considering the terms that were to be included in the policy document and the undertakings letters. Even after the conclusion of oral submissions, there was disputation between the parties (reflected in the extensive schedules of alleged inaccuracies in each party's written and oral submissions) as to the effect of Beazley's evidence and the extent of Taylor's involvement. Based both upon Beazley's testimony and the contemporaneous records, it is evident that Taylor played a role in determining the form and content of the no advice and undertakings letters.[442]

389 The plaintiffs rely upon the evidence of Beazley that the June 1999 letter was a formal document which was intended to create legal relations.[443] They say the wording of paragraph 4 of the no advice letter was approved by the defendant.[444] The plaintiffs say that the undertakings letter was solely for internal purposes and for the ANZ Bank, and was not intended to alter the nature of the bargain between the investor and the defendant. As the policy was not given to investors when they invested, the plaintiffs say that they focussed on the no advice letter which recorded the terms as agreed. The plaintiffs point to the LIA which they submit recognises that the term "policy" extends beyond formal policy documents to include other documents which record the terms of the contract between insurer and insured.

390 The plaintiffs rely upon the testimony of Mr O'Brien who thought that the documents sent to the plaintiffs contemporaneous with the making of the investment was contractual. Mr O'Brien stated that life insurance practice is to treat all documents sent to the policyholder, more or less contemporaneously with the making of the investment, as contractual.[445] In his opinion the undertakings letter and the Customer Information Brochure (CIB) were contractual documents. But the ex post facto opinion expressed by Mr O'Brien does not constitute part of the matrix of objective facts nor was it a relevant admission.[446]

391 The plaintiffs rely upon the letter of 20 July 1998[447] which neither contains the phrase "the unit price will be the price on the day when the notice is given in writing" or the impugned words. The June 1999 letter refers to the unit price as on the day when the notice is given in writing but does not contain the impugned words.

392 Mr Beazley had no recollection of how the words "and the unit price will be the price on the day when the notice is given in writing"[448] or the words "prior to completion" came to be inserted in cl 1.8 or the undertakings letter. The parties did not dispute that Keller was the likely source of the phrase dealing with the unit price.

393 Counsel for the plaintiffs attacked the defendant's submission that the plaintiffs were not interested in the three day option at the time they entered into contractual arrangements with the defendant. Counsel submitted such a contention was contrary to the content of the CIM, to what Keller and Taylor told each of the plaintiffs, to the memorandum made by Oates in which he expressed his view about historic pricing and the importance of the three day option, and to the testimony of Tyne.

394 Counsel for the plaintiffs objected to the defendant putting its case in closing argument in a manner contrary to the way it had examined the plaintiffs' witnesses. He submitted that it was only now being put that the plaintiffs were not focussed upon the three day option but upon the arbitraging opportunity which would flow from the defendant's historic pricing practice. There is merit in this contention. Counsel relied upon the rule in Browne v Dunn and submitted that it was not open to the defendant to now rely upon such an argument as the plaintiffs had not been cross-examined to that effect. He similarly objected to submissions now being advanced that the plaintiffs understood that Keller had misled and exploited the defendant yet such allegations, he submitted, had not been squarely raised with the plaintiffs. As to the latter issue, the extent to which the plaintiffs understood that Keller had misled the defendant and was not acting in the defendant's interests and the extent to which the plaintiffs relied upon any statements made by Keller were important factual issues explored during the course of the trial which were, in my view, sufficiently raised in cross-examination and in the pleadings. Assuming that the rule had not been observed in either instance, the defendant would not be precluded from relying upon evidence not put to the plaintiffs or their representatives or from relying on inferences to be drawn from such evidence. A failure to put such matters to the plaintiffs or their representatives may bear upon the weight to be attached to such evidence or the inferences that flow there from.[449] To the extent that these submissions had substance, counsel for the plaintiffs appeared ultimately to accept that they will bear upon the weight that I should attach to the defendant's closing arguments rather than to its right to put its case that way.

395 The June 1999 letter did not form part of the contractual documents between the plaintiffs and the defendant. Its form and content does not evidence an intention on the part of the parties to be legally bound by it. The language is conditional and prospective. It does not purport to be a promise from Beazley. I consider, having regard to their purpose, form and content, that the no advice letter and the undertakings letter were intended to be contractual documents.

396 The contractual status of the impugned words is further considered in dealing with the plaintiffs' claim for rectification. If the impugned words do form part of the special term, the contention that they should be ignored as adding nothing to its meaning must be rejected. So must the argument that the words create an inconsistency and that the form of the no advice letter or the June 1999 letter should prevail. The presence of the impugned words in two of the contractual documents does not create an inconsistency between the policy, the undertakings letter and the no advice letter. Even if there were an inconsistency, none of the letters were intended to or should prevail over the policy. The policy was understood by the parties to be the principal contractual document. I am satisfied that each of the plaintiffs so viewed the policy despite some less than persuasive evidence which suggested a contrary position. The impugned words are not to be viewed as surplusage and disregarded.

397 The term, as expressed in those letters, even without the impugned words, reduces the period for which the defendant may delay a withdrawal or switch from 30 days to three but does not oblige the defendant to delay at all. The plaintiffs are still dependent upon their construction of the word "notice" to contend that the defendant cannot complete before the expiration of three working days.

Express terms that were partly oral

398 The plaintiffs allege that the three day option promise was also made orally to them by Keller and Taylor in the course of two conversations. The plaintiffs allege that in the last quarter of 1999 Hawkins and Tyne had a conversation with Taylor, the agent of Keller. Approximately two weeks later Hawkins and Tyne met with Keller and Taylor. In late 1999 or early 2000 Tyne informed Tom Oates of the substance of what Keller and Taylor had informed him and shortly thereafter Tom Oates informed Paul Oates of the substance of what Tyne had informed him.[450] The defendant alleges that the second, third and fourth named plaintiffs were not informed by the defendant or any alleged agent of the defendant of the special terms.[451] The content of important parts of these conversations was a matter of dispute. It is convenient to set out the account of Tyne and Hawkins as to the initial meetings with Keller and Taylor.

The initial meeting between Tyne, Hawkins and Taylor (the first meeting)

399 I first turn to the evidence in chief of Tyne who thought that his initial conversation with Taylor was in mid to late 1999. He testified that Taylor said that a friend of his had arranged an investment opportunity with a large insurance company. In exchange for a large volume of business which his friend said would flow to the insurance company, the company had offered special terms for the investment. Taylor said his friend had engaged him as a partner at Mallesons to represent him. Tyne said he was told that if the investment earnings in the policy were re-invested over a 10 year period before they were withdrawn, the earnings would be tax free. He said that Taylor described the investment as a premium investment product where, in addition to the initial premium, the policyholder could make top up investments of up to 125 per cent of the previous year's investment. Taylor had said that the investment bonds were segregated into portfolios and that the average investor could switch between the portfolios but at a cost which made switching prohibitive. Taylor said that his friend had negotiated concessions that the switching would be free and unlimited and would be conducted at known prices. Tyne testified that Taylor said "that a switch could be cancelled, retrospectively undone, inside three days". He said Taylor told him these concessions were only available in respect to a portfolio that was effectively invested in cash, and another portfolio that was invested in cash (fixed interest) and around 30 per cent invested in equities. Taylor had said that he and his friend and some other people had been using these advantages to engage in an active switching arbitrage strategy and had made yields of around 20 per cent per annum. Taylor said that these special terms were all documented and that he had been personally involved in negotiating the documentation of these terms and that he had personally invested in the product on the strength of the terms as had several other partners in Mallesons. When asked by his counsel whether Taylor had said anything about "a cooling off period", Tyne said that when Taylor used the words "cooling off period", he thought the words "cancelled inside a three day period" meant the same thing.

400 Hawkins also testified as to the initial conversation between himself, Tyne and Taylor. He said that Taylor told them that a friend and colleague of his had developed an exciting investment opportunity which involved insurance bonds. Taylor said that his friend had negotiated some special concessions with a major insurance company which was such that the rates of return would be substantially more attractive than on a traditional product. He said that these special concessions had been granted in consideration of Keller arranging for a certain significant level of investment. Taylor was not prepared to disclose who the insurance company was and said that was a matter for Keller. The minimum investment required was $10,000,000. Taylor explained to them that the insurance bonds were to be invested in one of two funds. The first was the cash fund, the assets of which were just income securities with extremely stable returns. The second fund was a secure fund or portfolio with a significant investment in fixed income security and a substantial investment in the order of 33 per cent in equities. Its rate of return was far more volatile. Hawkins said that Taylor told them that the insurance company had agreed that investors introduced by Keller would have the right to make an unlimited number of switches between the two funds and that those switches would be free of any charges. Taylor also told them that the investor had three days in which to cancel the switches and the price at which the switches were made would always be the price which was the closing price of the previous day's market. Taylor said the projected rate of return was 20 per cent and that his role would be to document the transaction. Taylor confirmed an enquiry from Tyne that the returns from insurance bonds were tax free after being retained for a minimum period of 10 years. He said Taylor had explained that the theoretical duration of the investment was the date of the death of the last insured so that the terms were probably very long. In response to a question from Tyne, Taylor had confirmed that the terms had been documented and that the investment had been working. He told them the minimum level of investment was half a million dollars but that Keller had to raise a minimum $10,000,000 so more substantial investments were desired.[452] Taylor told them that the product was being offered with a capital guarantee which was an amount equal to 90 per cent of the value of the insurance policy. He said Taylor told them that the ANZ Bank had indicated a willingness to finance with a capital guarantee of up to 90 per cent and thus the investments could be readily financed.

401 Correspondence then passed between Taylor and Tyne and Hawkins in July 1999. It was proposed that a meeting take place with Keller at which the detail of the investment proposal would be disclosed to Hawkins and Tyne. They were to sign a confidentiality agreement[453] which they did. A meeting with Keller then took place.

Meeting between Keller, Taylor, Tyne and Hawkins (the second meeting)

402 Tyne testified that Keller told them he was the arranger and promulgator of the investment and that the only way to access the special terms was through him. He said that he was representing the product to investors with the knowledge and support of AXA and that this was the first time that AXA/National Mutual's name was mentioned. Taylor reaffirmed his role as a partner of Mallesons and that the firm was acting as the legal representatives of Keller and his private company Coneview, through which the investment was to be arranged.

403 Keller confirmed that he had negotiated special terms with AXA on the basis that he had to introduce at least $10,000,000 worth of new business founded on the special terms. According to Tyne, Keller said the special terms were the capacity to switch between the Cash and the Secure portfolios. That was the first time that either of those portfolios had been identified by name. Keller told them he had the right to switch an unlimited number of times free of charge between the Cash and Secure portfolios. Keller said that a switch could be cancelled inside of three days of giving the notice to switch. He said that it was part of his administrative arrangements with AXA that he would also know the price at which a switch was to be effected because AXA published the day's price by reference to the market movements that occurred on the previous day. Tyne also said that Keller told them that because investors would be switching with hindsight, there was not much prospect of making a bad switch but that in any case, the investor could look at the unit price on the following day and if it had not moved in accordance with expectations, the investor could cancel that switch inside of three days. Dr Keller was asked whether that was how the contract was being administered with AXA and he confirmed that it was and that he had been switching and cancelling switches on that basis.

404 Tyne then added that he wanted to clarify the point with Keller that the investor would definitely know the price at which switches were to be effected and Keller confirmed that was the case. He told them that when the switches were cancelled they were being retrospectively undone at the price at which they were effectively done. Mr Tyne said that Dr Keller "was very astute to pin that down".[454] Keller told him that so long as they held the bond for a minimum of 10 years and reinvested all of the earnings, the redemption on maturity would be a tax free investment. Keller told him that investors would pay him a management fee that was referable to the performance of this investment, relative to the standard prosperity bond. AXA was also paying him a trail commission in consideration for him introducing the business to them. Keller told them that the investments had been returning about 20 per cent per annum. Asked by them what was in it for AXA, Keller responded that AXA's entire focus for the transaction was the volume of funds under management and that there were commercial advantages to AXA in having a greater volume of funds under management, both tangible in the form of upfront and continuing management fees, and intangible in the form of their status in the agent market. Keller said that each investor would have their own policies with AXA and he was just acting as an intermediary to that end. According to Tyne, Keller further said that in contra distinction to the special terms, the average AXA policyholder was only entitled to two free switches, no cooling off period and no right to cancel the switch that had been advised. Tyne said that Keller referred to the average AXA policy for larger switches and that AXA had the right to delay the processing of the switch for up to 30 days. When that switch was processed it would be processed at the unit prices that prevailed at the end of that period of delay. He said he had negotiated that those entitled to special terms would have the unit price advised on the day of the switch. Keller said he would normally access the unit price by 10.00 am but sometimes not until noon.

405 Hawkins described the opportunity as a "classic information arbitrage" and Keller said that it was. Tyne said that he asked Keller whether AXA was conducting the administration of the policies consistent with the special terms that he had mentioned and Keller said that they were. He said that they were effecting switches at the prices that he expected and that cancellations were being effected at the prices the switches were done at. Keller told Tyne that if they switched from Cash to Secure and the next day the unit price had dropped unexpectedly the switch was undone or another switch was done at the same price as the original switch "so as to put us back into exactly the same position as if we had never done the original switch". Keller said that he hoped to raise a minimum of $10,000,000 in order to obtain the benefit of the special terms.

406 Hawkins also testified as to the subsequent meeting with Keller, Taylor and Tyne which he said occurred some two weeks after he had spoken with Taylor. Keller disclosed that the insurance company involved was AXA. He told them he had been authorised by AXA to market the prosperity bonds to various investors. Hawkins said that Keller told them he was an agent of AXA for that purpose. Keller said he would also manage the investment on their behalf and received a fee from AXA in the form of a trail commission. Keller told them that the concessions which AXA had agreed to were that there were to be unlimited free switches between the Cash and Secure portfolios. Hawkins said that Keller outlined the nature of those portfolios in the same terms that Taylor had stated at the previous meeting. Keller also told them that they had the capacity to cancel switches within three days, and they would always know the price at which the switch was made (which was a reflection of the closing day's price). Hawkins asked Keller what was in it for AXA. He replied that AXA was motivated by getting a large volume of funds under management, the receipt of fees from those funds and kudos from having a large number of funds under management. Hawkins said he commented that it sounded typical of AXA to be focussing on volume and fees without a great deal of thought as to the long term. Hawkins was further asked by his counsel what Keller had said about the timing of the pricing on the day of a notice of switch. He responded that Keller had said "we would always know the price on the day that we switch." Keller mentioned that the price was set on the morning and was published on the website, the former being one of the special terms he had negotiated. That price reflected the closing price of the markets on the previous day.[455] Hawkins thought that he or perhaps Tyne had asked whether the investment was being administered consistent with the special terms. He thought Taylor confirmed that they were.

407 On 28 July 1999 Keller executed a confidentiality undertaking in which he claimed that Tyne and Hawkins had developed a concept of commercial value which he would keep confidential. The concept was defined as a refinement of the proposal discussed at a meeting between Tyne, Hawkins, Taylor and Keller on 28 July 1999. The proposal was defined as one put to him by Tyne and Hawkins in a document entitled "Truemont Investment Trust No 1. - Information Memorandum". It was amended to state that investors will invest directly in NMLA prosperity bonds rather than via the medium of a trust.[456] Neither Tyne or Hawkins had any recollection of the Truemont Investment Trust No. 1 concept and could shed no light upon this matter.

408 I accept Beazley's evidence that during the course of the negotiations Keller had spoken of a unit trust as the medium for the investment. On 19 August 1999 Taylor wrote to Beazley attaching a form of the no advice letter in which the heading "investors in the Truemont Investment Trust No. 1 Unit Trust" was amended to read "investors in prosperity bonds introduced by Coneview Pty Limited". The Truemont Trust was associated with Keller. On 22 October 1999 Keller wrote to Beazley advising that Truemont Pty Limited wished to cancel its prosperity bond policy and asked that the deposit which had been paid be forwarded to Taylor at Mallesons Stephens Jaques.[457]

409 Counsel for the plaintiffs acknowledged that if I accept the testimony of Tyne and Hawkins that they knew nothing of the Truemont Unit Trust, the content of these documents would not reflect well on Keller.[458] The evidence of Tyne and Hawkins as to this proposal was unsatisfactory in a number of respects. They made no reference to any discussion as to whether the investment should be via a unit trust or by individual investors. They could not explain why it was suggested that they had developed the proposal.

410 The plaintiffs contend that Keller was the defendant's agent and that oral promises were made in these conversations which bind the defendant. The defendant denies that Keller was its agent. It further submits that I should not act upon the accounts given by Tyne and Hawkins as to what Keller and Taylor said. The defendant points out that whatever the Court is to make of these matters, neither Tyne or Hawkins suggests that Keller mentioned any notice of intention to switch or that the switch was not to be carried out for three days. Although Tyne said that Keller told them the switch could be cancelled inside of three days of giving the notice to switch and that when the switches were cancelled they were being retrospectively undone, Tyne was in error in so testifying as Keller had cancelled no switches during 1999. Hawkins said that Keller had told them that they would have the capacity to cancel those switches within three days.

411 Assuming Tyne and Hawkins accurately recounted those conversations, the notice was referred to as a notice to switch on the day the request was made. The defendant relies on the fact that neither Tyne or Hawkins suggest that Keller or Taylor told them that the defendant had agreed that Coneview investors could make arbitrage gains, whether by way of daily switches relying upon the defendant's historic pricing methodology or by three day notices and cancellation of such notices.

412 The plaintiffs submit that the defendant's argument confuses the question of the terms of the contract with the utility of those terms. They say it matters not whether the defendant agreed that they could arbitrage so long as the defendant agreed that the plaintiffs could use those terms for their benefit. The plaintiffs assert that Keller, Taylor, Tyne and Hawkins all understood the commercial intent of the special terms.[459] Each of them considered that those terms gave them the possibility to make arbitrage gains.

413 The plaintiffs do not rely upon any other representations made by Keller or Taylor as to either form of arbitrage. Neither Tom nor Paul Oates had any direct contact with Keller. Tyne gave evidence of a further conversation with Taylor in the second half of January 2000 in which they discussed historic pricing. There was reference to the ability to cancel switches that were not favourable. Tyne said that Taylor told him on 14 February 2000 that Keller had told him that he recorded the switches and cancellations but AXA did not. Tom Oates sent an email to Taylor on 17 March 2000 and discussed it with him by telephone. Taylor confirmed that there was an arbitrage based on historic pricing. The email referred to a "cooling off period" but it was not discussed. It is not alleged that these further conversations contain any part of the special terms.

414 Unlike the representations as to historical pricing, the plaintiffs do not say that there was any representation made in the first or second meeting that supplemented the express terms.[460] Both Tyne and Hawkins considered the documents[461] embodied the three day option.[462] Mr Tyne's testimony reaffirmed the view he expressed in his memorandum of 25 February 2000.[463] Neither did Hawkins suggest that any representations added anything to the terms reflected in the documents.[464]

415 The conversations between Messrs Tyne and Hawkins, Keller and Taylor add nothing to what appears in the written special terms. They were not viewed by Tyne and Hawkins as promissory. The evidence demonstrates that no representations were made and the plaintiffs have not submitted that any specific oral representation was made by Keller or Taylor to the effect that the defendant was not permitted to complete a switch within three days. In support of their estoppel claim, the plaintiffs in their written reply did suggest that Keller or Taylor told them that "they had the right to give notice to switch which would be completed in three days' time unless they cancelled it."[465] Neither Tyne or Hawkins gave such evidence. No evidence was adduced that there was any representation made by Keller or Taylor in these meetings that the defendant was precluded from completing a switch for the expiration of three working days after notice had been given. The account in the particulars to paragraph 7 of the further amended statement of claim is silent as to this matter.

416 There are a number of aspects of the account given by Tyne and Hawkins upon which I am not prepared to act. It will be necessary to further analyse the accounts given by them of the first and second meeting when dealing with the issue of historic pricing, Keller's authority to speak on the defendant's behalf and the correct characterisation of his statements. The defendant submits in the alternative that if Keller made any representation which went beyond the written special terms, the plaintiffs did not rely upon and could not reasonably have relied upon what Keller said. I shall return to the question of reliance in dealing with the question of whether Keller was acting as the defendant's agent.

Evidence of switching and cancelling

417 Dr Keller made his first switch in July 1999 and made numerous switches until October 2000, all of which were requested orally. Switches were not expressed to be switches in three days' time and it appears that Keller did not use the word "intention" to switch when requesting a switch. They were all made orally rather than in writing but this was a procedure the defendant was prepared to follow. Spanu testified that the arrangement was followed because it was convenient for Keller but would not dispute that she may have told Beazley that she may have told Keller it would be better if Keller gave her switch instructions orally.

418 The defendant confirmed switches by fax and those confirmations almost always were given within three days of being requested and frequently on the same day as the notice. The confirmations refer to the switches as having been carried out.

419 The cancellations, of which there were 13, were also oral and were confirmed by fax. Confirmation referred to the switch having been cancelled. The first cancellation requested by Keller was on 7 February 2000, nine days before Tyne's first policy was issued.

420 The defendant submits that the statements of Tyne and Hawkins as to what Keller said as to cancellations having occurred were incredible as there had in fact been no cancellations at the time of these conversations. The defendant also criticises Tyne's account of his conversation with Keller on 14 February 2000 where it is alleged that Keller referred to "cancellations" in the plural.

421 It does not appear that the plaintiffs at any material time had any knowledge of whether the switches and cancellations were requested orally or in writing. It is not suggested that they knew of the form of the notification to switch being given by Keller to the defendant. They were unaware as to whether it was a "notice of intention to switch" and whether any notice was oral or in writing. Such evidence as there is of what the plaintiffs knew about switches suggests that all they believed was that a switch, when notified, was carried out by the defendant more or less immediately. The plaintiffs say it is irrelevant whether the plaintiffs knew the form or content of the notice which Keller gave to switch or cancel. Like any other investor the plaintiffs' interest was confined to what rights were conferred by the special term and what returns they received on their investment.

Rectification of cl 1.8

422 In addition or alternatively to their reliance upon the express and implied terms of the prosperity bond, the plaintiffs also allege that Coneview and Keller and the defendant by paragraph 4 of the terms of the June 1999 letter agreed as follows:

[369]

425 The plaintiffs seek rectification of cl 1.8 and paragraph 5 of the undertakings letter by the deletion from the impugned words "prior to the completion of the portfolio switch or withdrawal transaction".

426 The defendant denies that the June 1999 letter, the undertakings letter or the no advice letter contained terms which formed any part of the policies issued to the plaintiffs. The defendant denies that it was the intention of Coneview or Keller that the policy document or the undertakings letter be in the form of paragraph 4 of the June 1999 letter. It also contends that the intention alleged to have been held by them in mid 1999 is irrelevant to the question of rectification of the policies entered into between each of the plaintiffs and the defendant.[467] It disputes the claim that the policy or undertakings letter were not intended to contain the impugned words.

Principles

427 Rectification may be sought on the basis that a document fails to express the antecedent agreement or the common intention of the parties to the contract being sued upon.[468] The plaintiffs' claim appears to rest either on the basis that there was a concluded antecedent agreement which by mistake was not carried into effect in the policy and undertakings letter, or that there is disconformity between the terms of the policy and the undertakings letter and what was the common intention of the parties at the time the same were executed. It is not necessary that the plaintiffs establish a concluded antecedent contract,[469] but there must be a "want of correspondence between the form of the document (that is, in the words actually used) and the common intention of the parties at the time when the document is executed."[470] The common mistake of the parties which produces the disconformity may either be as to the words which have been employed in the document or, in some circumstances, as to the meaning or effect of those words.[471]

428 The plaintiffs characterise the defendant's argument as amounting to a claim of mistake of fact or law; that it did not intend that the policy have the effect contended for by the plaintiffs. The argument was said to be that rectification does not extend to such a case where the parties are mistaken about the meaning or effect of words deliberately chosen.[472] I understood the plaintiffs to be contending that the defendant's argument was to answer in law to their claim for rectification. A common mistake as to the meaning or effect of words chosen was not raised in the extensive pleadings of any party nor have the parties conducted the trial on that basis. There is no claim of unilateral mistake before the Court.[473] The law remains in an unsettled state as to circumstances in which rectification may be granted for mistake of law (as to meaning or effect) rather than mistake of fact.[474]

429 The relevant principle has been set out in a passage from Dr Spry's The Principles of Equitable Remedies[475] in the following terms:

[371]

430 Although the matter is not free from controversy, I think the better view is that it is unnecessary that the common intention be demonstrated by some accord communicated between the parties.[476] However, there must be evidence of each party's intention which establishes that the intention was a common and continuing one. It will not be sufficient to establish the unilateral intent of one party.[477] The plaintiffs must by "convincing proof" establish that the written contract does not embody the intention of the parties.[478] The proof of such common intention must be compelling, clear and unambiguous.[479] The evidence must be such as to enable the hypothesis to be rebutted that the policy is the complete and final record of the contract between the parties.[480] Not only must the plaintiffs show that the written instrument does not represent the parties' common intention but they must positively demonstrate what their common intention was.[481] Windeyer J in Foyster v Green[482] thought that the requirement that there be a "cogent and compelling or clear and convincing proof of the mistake and of the true agreement" required the party seeking rectification to "bring forward all the evidence which it is possible to bring forward to support his claim".[483] Such relief is available only where it is demonstrated with clarity that the parties had a sufficiently precise common intent to which effect can be given without making a contract for the parties.[484]

The parties' arguments

431 The plaintiffs pleaded that the intent of Keller was that the policy and undertakings letter conform with the content of the June 1999 letter. Such an intent was never communicated. This allegation was difficult to maintain as Keller had given an explanation to the defendant for why the special term was sought which did not reflect his true purpose or reveal his desire as to the effect of the special term. The plaintiffs' submission somewhat loosely moved between the intent of Keller and the defendant and "the parties'" intent. In their written submission the plaintiffs argued that the parties intended that cl 1.8 was to be consistent with cl 4 of the no advice letter. The plaintiffs submitted that the evidence shows that the parties intended the policy and accompanying documents to reflect the June 1999 letter and no advice letter. They submit that there was a prior agreement reached as to the terms of the contract and that the parties erroneously recorded the impugned words in cl 1.8 and in the undertakings letter. They submit that it is objectively apparent from the words and conduct of the defendant and Keller that each placed the same construction on the June 1999 letter and shared a common intention which was wrongly recorded in the policy or the undertakings letter by the inclusion of the impugned words.

432 As to the intention of the defendant's representatives, they submit that Beazley regarded the June 1999 letter as a document intending to create legal relations and that he drafted the no advice letter which was intended to mean the same thing as the June 1999 letter. The plaintiffs further submit that the no advice letter contained cl 4 and continued to be distributed to and signed by Coneview investors after cl 1.8 was changed. They say that Beazley asked Andrews to combine cl 4 of the no advice letter with cl 1.8 so as to incorporate the terms of the no advice letter into the policy document and that Andrews intended to replicate cl 4 of the no advice letter in cl 1.8 and not to alter it. They submit that it was highly probable that the impugned words were not added by Andrews and that he did not know who the author of those words was.[485] This evidence they submit leads to the conclusion that the parties did not intend to change the meaning of cl 1.8 by the inclusion of the impugned words. If the inclusion of those words changed the meaning of cl 1.8 it was a common mistake.

Dealings between Keller and the defendant

433 The plaintiffs also argue that the switches made by Dr Keller with the defendant were only consistent with the intention that the special term did not contain the impugned words. The defendant submits that no conclusion can be drawn as to Keller's intention regarding the wording of the policy from his dealings with Spanu concerning cancellation of switches. I have already referred to the dealings between Keller and the defendant which, on the most favourable view from the plaintiffs' perspective, were equivocal in nature. They throw no light on the understanding of the parties as to the meaning of the special term which can assist the plaintiffs. Keller's conduct was consistent with the view that the defendant could complete the switch before the expiration of three days. If he thought that he had a right to cancel the switch within three days and the defendant could not in the meantime complete it, he did not communicate this to the defendant. There was nothing to suggest that he had given that issue any consideration at all prior to October 2000. It was not until 1 November 2000 that Keller wrote to the defendant expressing the view that there was no difference in substance between effecting switches upon oral or written instructions from Coneview and cancellations within three days thereafter and giving three days' written notice of intention to switch as provided for in cl 1.8 with a right to cancel prior to the completion of the switch.[486] On 30 October Keller had advised the defendant that it was not entitled to complete a switch until the expiry of the period of the notice which was three working days. Counsel for the plaintiffs rightly observed that by this time Keller had presumably taken legal advice "because the balloon had gone up". These statements by Keller provide no insight as to his intent or understanding in relation to the impugned words in the policy or undertakings letter at the time the agreement was made. It can say nothing as to the intent of the plaintiffs.

434 Assuming his intention at the time of making the contract is relevant, his subsequent administration of the investment on behalf of Coneview investors does not advance the plaintiffs' case as to his intention at the time of making the contract.

435 A great deal of evidence has been led of statements made by Keller and Taylor at various times after their agreement with the defendant in 1999. The evidence was admissible and relevant to a number of the plaintiffs' claims and was not therefore the subject of objection. I have already referred to the limited circumstances in which the subsequent conduct of parties may bear upon the existence and meaning of terms of the contract. Any consideration of post contract conduct of the parties must be undertaken recognising "there is a real risk that the parties misunderstood their legal position,"[487] or may have made self-serving assertions as to their preferred outcome. I need not stay to decide the extent to which such evidence was admissible on the question of Keller or the plaintiffs' intent in relation to the impugned terms.[488] The submissions advanced on the plaintiffs' behalf have not caused me to alter the view that I expressed during the course of the trial that the course of dealings between Keller and the defendant in the first half of 2000 does not advance the plaintiffs' case as to the intent or understanding which Keller had concerning cl 1.8, the pleaded "three day option" and in particular the impugned words.

Plaintiffs commenced proceeding on the contract in its unrectified form

436 The defendant pleaded that the plaintiffs are not entitled to rectification by reason of the fact that they initially issued proceeding relying upon cl 1.8 and the undertakings letter and the special terms in their unrectified form. The rectification claim was not included in any statement of claim until 2003. It had already been amended in late 2002. Rogers J in Market Terminal Pty Ltd v Dominion Insurance Co of Australia[489] considered there to be no principle that precluded a party from seeking rectification because they attempted to sue under a contract in its unrectified form. His Honour regarded the contrary view to be in conflict with the philosophy which underlies the doctrine of rectification and of amendment of pleadings.[490] The defendant submitted that Market Terminal was distinguishable as the plaintiffs here pleaded the express term, and went further than merely making a claim on the unrectified policy.

437 In Muriti v Prendergast[491] White J considered a number of authorities where late claims were made for rectification after the parties had commenced proceedings on the agreement.[492] That analysis demonstrates that rectification proceedings will not be barred because they are commenced after proceedings have already commenced seeking to construe or enforce the agreement.

438 There is no principle or discretionary factor which should lead me to bar the plaintiffs from seeking such relief. Their failure to raise the matter at an earlier time may tell against the plaintiffs' assertions that the impugned words were not intended to be within cl 1.8 and the undertaking letters.[493] As the evidence of the parties' intention is plain, resort to such a consideration has not been necessary.

Rectification affecting third parties

439 The defendant has also pleaded that rectification should be refused as the rights of third parties, namely other prosperity bond holders, would be affected if the impugned words were removed.[494] The defendant particularised this contention, alleging that cl 1.8, if rectified, would be used by the plaintiffs to repeatedly switch funds between portfolios to take advantage of market movements so as to increase unit holdings for the plaintiffs which would potentially affect the right of other prosperity bond holders to benefit from the increases in the value of the assets underlying the investment portfolio in which they held units. The argument that an order for rectification would affect third parties received little attention in the written or oral submissions.

440 The Court has a discretion to refuse a claim for rectification where it may be unjust to a contracting party or where it would directly affect the rights of a third party. The consequences which may flow from the plaintiffs' construction of cl 1.8 and the rights and obligations of the defendant towards Coneview investors and other policyholders in the prosperity bonds are matters in issue. If rectification were ordered, the course of dealings between the plaintiffs and the defendant pursuant to their policies could indirectly affect the contractual entitlements of the non-Coneview investors although for various reasons discussed later in this judgment I think it a very unlikely outcome. The fact that the right of non-Coneview investors could possibly be affected in the event that the plaintiffs are found to be entitled to conduct themselves in accordance with their interpretation of cl 1.8 does not provide a basis upon which rectification should be refused. The non-Coneview investors have contractual and other remedies in the event that their rights are infringed as a consequence of the manner in which the parties may conduct themselves.

Antecedent agreement between Keller and defendant

441 The defendant submits that the antecedent agreement which is pleaded by the plaintiffs was one between the defendant and Coneview or Keller. The defendant submits that as Coneview and Keller are not parties to the policies sought to be rectified, the allegation that they had an antecedent agreement with the defendant or that there was a common intention between them is irrelevant and the claim made by the plaintiffs is misconceived.

442 In reply the plaintiffs say that in the context of a contract which the defendant entered into in identical terms with each Coneview investor (including the plaintiffs), this argument is flawed as the evidence demonstrates that both the defendant and Keller intended cl 1.8 to reflect the no advice letter. They submit that given the terms of settlement of the Federal Court proceedings between the defendant and Keller it was incumbent upon the defendant to call him on this issue. As there has been an adversarial relationship between Keller and the defendant since at least November 2000, it submits that is a sufficient explanation for the defendant not calling him.[495] It says as the plaintiffs bore the evidentiary onus of establishing a common intention, it was for them to call him if they wished to discharge their burden of proof.[496] As I have already stated, I would draw no adverse inference against any party because of Keller's absence as a witness.

Dr Keller's and Mr Taylor's intentions - negotiations with the defendant between August and November 1999

443 The plaintiffs rely upon the CIM[497] which describes the effect of cl 1.8 in these terms: "We will give you up to three working days to cancel a previous election". In oral submissions counsel said this was the way that Keller explained cl 1.8 to the plaintiffs.[498] The plaintiffs say he informed them that in practice this was the way it operated. I have made findings that Keller did not cancel any switches in 1999 and did not tell the plaintiffs that in 1999. The defendant submits that the CIM undermines the plaintiffs' rectification case as Keller recorded in the document that Coneview investors have "up to" three working days to cancel a previous election to switch which is consistent with the inclusion of the impugned words.[499] I have not found the arguments based upon the CIM to be of great assistance in determining the intention of the plaintiffs and the defendant.

444 The plaintiffs say that it should be concluded from their evidence, and from the CIM which summarises the no advice letter, and Keller's reliance upon the no advice letter, that he clearly intended cl 1.8 to reflect the no advice letter.

445 If Keller's intention is relevant, there is no evidence that there was any discussion between him and any representative of the defendant or between him and any of the plaintiffs as to whether the special terms were to include the impugned words or whether the defendant had a right to complete the transaction within the three day period.

446 The evidence does not reveal what role Taylor played in the settling of the June 1999 letter or the no advice letter although he made amendments to the no advice letter to reflect the fact that the investments were no longer being made through the vehicle of the Truemont trust.[500]

447 In August 1999 Taylor advised Beazley that the no advice letter required amendment because it incorrectly referred to the Truemont Investment Trust. Taylor said that he would send Beazley a fax containing proposed changes to the letter. Beazley received a fax dated 19 August 1999 from Taylor which attached the no advice letter with handwritten amendments deleting the reference to the "Truemont Investment Trust Number 1 Unit Trust".[501]

448 Although I have briefly referred to the circumstances in which the words "prior to completion" came to be inserted, it is now necessary to examine the matter more closely having regard to the plaintiffs' contention that it did not accord with the common intention of the parties. In October 1999 Beazley informed Taylor that the defendant was proposing to incorporate some but not all of the terms contained in the no advice letter into the policy. He told Taylor that he would fax him a copy of the proposed policy document and would also sign a copy of the no advice letter.

449 On 28 October 1999 Beazley received a fax from Andrews attaching a number of documents including a sample of the proposed policy document, a draft letter to the ANZ Bank and a draft introductory letter from Yesberg to the new policyholder. That letter referred to the defendant reserving its right to delay switches of large amounts and to delay the payment of withdrawals of large amounts for up to 30 days.[502] The title page to the sample prosperity bond contained an "important note" and set out five clauses described as the "special agreements". The five clauses under the important note became clauses, in the same form, in the undertakings letter. Clause 5 contained the impugned words. It was in the same form as paragraph 2 of cl 1.8. The clauses, including cl 5 in the important note and cl 1.8 of the sample policy, had been asterisked by Andrews for the attention of Taylor. Beazley faxed Taylor the entirety of the fax which he had received from Andrews including the header page to the fax, addressing the documents to Beazley and Taylor and noting that they contained a sample of the policy document for him to see, with the changes marked with an asterisk.[503] On the following day Taylor and Beazley had telephone conversations concerning the draft documents which Beazley had faxed him the previous day. Taylor stated that he thought the "important note" on the title page of the draft policy was inappropriate because the ANZ Bank may not be a lender to the policyholder for the entire duration of the policy. Taylor suggested that if an acknowledgment was necessary for the defendant and the bank it should be given separately from the policy document itself.[504]

450 On or about 2 November 1999 Beazley sent Taylor a draft of what is now referred to as the undertakings letter. This incorporated the five clauses in what had been the "important note" on the title page of the policy document. Taylor spoke with Beazley on the morning of 3 November 1999,[505] and on the same day forwarded to Beazley a draft of the undertakings letter containing the impugned words with some minor handwritten amendments.[506] Beazley then made those amendments to the document and on the same day sent a facsimile to Andrews noting that Taylor had approved the undertakings letter and enclosed it for Andrews and Yesberg's attention.[507]

451 Taylor expressed his concern to Beazley that the initial investment club policies had been issued with standard form policy documents.[508] The form of the policy document was the subject of communication between Taylor and the defendant on numerous subsequent occasions.[509] It thereafter contained paragraph 2 in its final form.

452 On 2 November 1999 Taylor wrote to Beazley enclosing applications for prosperity bonds. Taylor expressly noted that in respect of each new policy he assumed that it would be issued minus the "important note" section from the "title page" of each policy and that Beazley would forward to him for signature, the letter of acknowledgment from each policyholder which would contain the points presently covered in the "important note". He also observed that the covering letter which was to be issued in conjunction with each policy contained in the second paragraph under the heading "Flexibility", the words "and AXA Australia reserves the right to delay the switch of large amounts for up to 30 days." Taylor stated that that should be omitted since it was inconsistent with cl 1.8 of the policy document.[510]

453 No evidence was adduced, whether oral or documentary, indicating that Taylor or Keller complained or commented to the defendant about the existence of the impugned words in the policy in its final and settled form or the existence of those impugned words in the undertakings letter. This is inconsistent with Coneview or Keller holding the requisite intention.

454 The defendant says that the intention of Keller is encapsulated in the documents which were extensively reviewed by Taylor who was then acting on behalf of Keller and Coneview. Counsel for the plaintiffs initially submitted in closing that upon their examination of the documentary evidence, there was no evidence that the documents were sent to Taylor. Counsel for the plaintiffs stated that if they had been sent to Taylor it would be unbelievable to suggest that he could have received them and not noticed their content. I agree. Thus I was initially invited to conclude he had not received them. The evidence, primarily from Beazley, shows that Taylor paid attention to the form of the undertakings letter and that he made handwritten amendments to the draft undertakings letter[511] and received the draft policy with cl 1.8 asterisked in its final form and his attention was drawn to the asterisked items. Beazley was not challenged as to his evidence, perhaps because of the erroneous view held at the time of Beazley's cross-examination, that there was no evidence that the documents were sent to or received by Taylor.[512] During further oral submissions it was conceded on the plaintiffs' behalf that there was evidence from Beazley that supported the conclusion that Taylor was aware of these changes.[513] It is unlikely that they were not drawn to Keller's attention. The role played by Keller and Taylor in the preparation of the documents supports the conclusion that cl 1.8 and the undertakings letter in their current unrectified form express the contractual intention held by Keller rather than the June 1999 letter or the no advice letter.

455 It must be remembered that Keller and Taylor were promoters and beneficiaries of the special terms. Any statement that they made about their intent or understanding as to the special terms after the agreement with the defendant was concluded must be viewed with caution. Mindful that Keller and Taylor have not been represented in these proceedings it will suffice to state that I am quite unpersuaded that either of them were mistaken about the final form of cl 1.8 or the undertakings letter.

The defendant's intention

456 Based upon the evidence of Beazley and Andrews and the documents which passed between Yesberg, Andrews, Beazley and Taylor, I am satisfied that the representatives of the defendant involved in the negotiations intended that the impugned words should be included in the policy document and in the undertakings letter. Andrews could not rule out the possibility that he had included the impugned words. The contemporaneous documents which showed his involvement were not put to him. He could not recall whether or not it was his deliberate intention to do so. Andrews' recollections were poor. It is not possible to say whether the impugned words originated with him or with a superior. He said that the impugned words reflected his understanding of the defendant's rights, namely that the defendant could process a transaction before the expiration of the three days. He viewed the three day period as concerned wholly with the defendant's right to delay completing the transaction. The impugned words were communicated via Andrews to Beazley and thence to Taylor. Those words reflected the views of Andrews and Beazley that the defendant could carry out the transaction within the three day period. The contemporaneous records show that Andrews believed that the defendant was entitled to complete, and would complete withdrawals immediately.[514]

457 In addition to the evidence of Beazley to which I have already referred, he testified that it was his intention that cl 1.8 give the defendant the right to delay a switch or withdrawal for three days "if we felt so inclined" and that the defendant could carry out a switch at any time within the three days.[515] It was his contemporaneous understanding that a switch could be cancelled only if the switch had not been processed.[516]

458 I am satisfied that the defendant intended the impugned words to be included in cl 1.8 and the undertakings letter. The plaintiffs have failed to discharge the high standard of proof required before rectification will be granted that the defendant held the necessary intention.

The plaintiffs' intention

459 Based upon the testimony of Hawkins and Tyne, the defendant has submitted that Taylor advised Hawkins and Tyne in relation to the Coneview proposal and that they thought he was acting in their interests.[517] The defendant refers to a line of authority to the effect that where a party has been advised by skilled lawyers in respect of the contents of a formal legal document "the assumption is very strong in such a case that the instrument does represent their real intention".[518] Where parties have engaged in protracted negotiations and have been assisted by solicitors and have then executed an apparently comprehensive agreement, it will be taken to represent the intentions of the parties unless the contrary is established by convincing proof.[519]

460 The plaintiffs submit that the defendant has overstated the nature of the relationship between Hawkins and Tyne and Taylor. They say the evidence shows Taylor was only acting as their lawyer in relation to unrelated matters. There is no dispute that he was acting on Keller's behalf.

461 The plaintiffs gave no direct evidence that they held the intention that the words of the June 1999 letter would be embodied in the policy document and undertakings letter to the exclusion of the impugned words. The defendant relies upon Sun State Airlines (Qld) Pty Ltd v First Chicago Australia Securities Ltd,[520] where Giles J observed that the principal witness for the party seeking rectification would be expected to assert the relevant intention. It submits that in the absence of such evidence the Court ought not to draw any inference favourable to the plaintiffs and relies upon Commercial Union Assurance Company of Australia Ltd v Ferrcom.[521]

462 The defendant submits that none of the plaintiffs held the intention that the June 1999 letter would be incorporated into the policy document or undertakings letter. The defendant's submission is directed to the plaintiffs' pleading that each of the plaintiffs invested in the prosperity bonds in the belief that they contained the relevant clause from the June 1999 letter.[522] The defendant in its written submissions made extensive reference to the evidence in support of this proposition.[523] In reply it was said on behalf of the plaintiffs that their testimony was to the effect that they believed that the June 1999 letter constituted part of the policy but was a separate document.[524] Assuming this to be a fair characterisation of their testimony, there was no evidence from any plaintiff to the effect that they did not intend the impugned words to be part of the policy. The contemporaneous documents written by Tom Oates and Paul Oates expressed no surprise or concern as to the presence of the impugned words in the policy document.[525]

463 The plaintiffs have failed to displace the hypothesis arising from the express term of the policy, that there was a common intention as to the language which was to be used in the special term which did not include the impugned words. The evidence persuades me that it is highly likely that the defendant, Taylor and Keller intended that cl 1.8 and the undertakings letter include the impugned words. The plaintiffs have not demonstrated that they had a different intention.

464 As the issue of a mistake as to its meaning or effect has also been raised in the course of submissions, I should state for completeness that the plaintiffs have also failed to displace the hypothesis that it was the common intention of the parties that the effect of the special term was that the defendant was precluded from completing a switch or withdrawal until the expiration of three days after notice had been given by the policyholder. The evidence makes plain that the defendant's employees' belief and intent was that the special term reserved to the defendant the right to complete a withdrawal or switch within three days following receipt of the notice from the policyholder.

AGENCY

465 It was pleaded that Keller and/or Coneview "agreed with the plaintiffs the special terms and implied terms relating to the three day option with the full knowledge and authority of the defendant."

466 The express term alleged to contain the three day option is pleaded by the plaintiffs as partly oral and constituted by the promise to that effect made by Keller and Taylor in the first and second meeting.[526] As pleaded and as the case was presented these terms, whether expressed in writing or oral, were the same. The plaintiffs plead that Keller and Coneview were the agent of the defendant and had authority to agree to the express terms and to some implied terms.[527] The implied terms pleaded were those I have already referred to.[528]

467 The plaintiffs rely upon the fact that the CIM, prepared by Coneview/Keller, describes the terms of the investment in substantially the same way as the no advice letter. They submit that the defendant had constructive knowledge of the CIM and deemed knowledge of the CIM as a consequence of Keller being the "deemed agent" of the defendant under the IABA.

The plaintiffs' case

468 The plaintiffs allege that by virtue of actual, ostensible or deemed agency, Keller and/or Coneview were at all material times the defendant's agent and had authority "to agree" to the special terms. They say the defendant is bound by the fact that Keller and Taylor promised them that they had the right to the three day option - to give notice of intention to complete an unlimited number of switches between the Cash and Secure portfolios in three working days' time and the right to cancel such notices inside that period. They allege that this promise was made orally and was contained in the CIM.[529] They submit that Keller and Taylor were the defendant's agents at common law in that they were expressly authorised by the defendant to cause investments to be made in prosperity bonds for the objective purpose of arbitraging with implied or ostensible authority to promise that the defendant would use historical pricing and not complete switches inside three days. Alternatively the plaintiffs say that such promises were made by Keller and Taylor as deemed agents of the defendant pursuant to the "intermediaries" deeming provisions of the Insurance (Brokers and Agents) Act ("IBAA").

469 The plaintiffs submit that Keller was the agent of the defendant to represent to prospective investors the terms of the prosperity bond. They say that is what the CIM did and it was what Yesberg presumed Keller was doing. They point to the June 1999 letter and the no advice letter which they submit was in the language which Andrews and Beazley understood was being used to introduce Coneview investors to the defendant. It was further submitted that by virtue of common law agency, deemed agency and the defendant's constructive knowledge of the contents of the CIM, the knowledge of what Keller was doing and the content of the CIM must be attributed to the defendant. They submit that Keller's knowledge of the course of dealings with the defendant is to be attributed to the defendant, as are the promises made by Keller that the plaintiffs have a right to historic pricing and the right to cancel a switch within three days.

The defendant's case

470 The defendant denies that Keller or Coneview was its agent pursuant to any actual or ostensible authority. It says that they were agents of the plaintiffs for the purposes of and incidental to the management and administration of the plaintiffs' policies.[530] It alleges that the plaintiffs were aware or should have been aware that the policies did not contain those terms[531] and that neither Keller or Coneview was authorised by the defendant to procure investors in prosperity bonds on the special terms pleaded. It relies on the fact that Keller or Coneview required the plaintiffs to keep the documents that they received confidential. It alleges that the plaintiffs were aware that the construction of the special terms alleged by them had the potential to cause substantial detriment to the defendant, that Keller/Coneview had concealed this from the defendant and that it was likely that the defendant would close the product if it became aware of the substantial detriment alleged.[532] The defendant denies that Keller/Coneview was authorised by it to procure investors on the basis of the special term, that it was not aware that Keller/Coneview was procuring investors on the basis of the special terms and that any representations made by them to investors as to the availability of arbitrage gains were not made with the knowledge or authority of the defendant.[533] It says that in any event it was neither the defendant or its alleged agents which procured the investments by the second, third and fourth plaintiffs on the special terms alleged.[534] It further says that the issuing of the polices and the undertakings letter were inconsistent with the ostensible authority alleged as these documents contained terms different from the special terms pleaded. It denies that the course of dealings between Keller and itself during the first half of 2000 support the allegation of ostensible authority.[535] The defendant alleges that the plaintiffs knew or ought to have known that Keller/Coneview was not acting in the defendant's best interests.[536] It denies that any of the plaintiffs relied upon any alleged representation that Keller and/or Coneview had authority to act on its behalf and had authority to agree to the special terms pleaded.

471 It was evident from the defendant's pleadings that it was being alleged that the plaintiffs knew that Keller had concealed the purpose of the special terms from the defendant and the fact that its intended use would produce a potential detriment to the defendant,[537] and that the plaintiffs knew or ought to have known that Keller/Coneview were "not acting in the best interests of the defendant".[538] The defendant also extensively pleaded that Keller was not acting with its authority,[539] that Keller's alleged agency was inconsistent with his concealment from the defendant of the CIM, the investor management agreement, and the potential detriment to the defendant from arbitraging.[540]

472 Keller's concealment of his intentions in relation to the prosperity bonds was the subject of evidence by Beazley and Andrews. There was a contemporaneous record of the defendant's belief that Keller had concealed facts and mislead the defendant contained in Yesberg's report of the meeting of 16 March 2000.[541] Although the plaintiffs point to a number of passages in the evidence of Beazley and Andrews as to their understanding of the purpose of the terms which Keller negotiated with them, as I have found, neither of them had any understanding that Keller/Coneview could use the special terms for the purpose of making arbitrage profits[542] or in particular that they conferred any right to arbitrage by switching and cancelling switches within three days. In the "schedule of errors in the plaintiffs' oral closing submissions" it is asserted that Yesberg gave evidence that he understood that there was a three day option which conferred a right to arbitrage. I am satisfied that he did not at any material time understand that to be so.

(i) Actual Authority

The plaintiffs allege that Keller and/or Coneview was the common law agent of the defendant and an insurance intermediary within the meaning of the IBAA and was authorised by the defendant to procure investors to invest in its prosperity bonds on the express and implied terms pleaded relating to the three day option.[543]

473 In support of their contention that Keller and Taylor were the defendant's agents at common law, counsel for the plaintiffs cited Bowden v London Assurance Co[544] and relied upon the proposition that persons employed by an insurance company to solicit proposals for insurance are generally the company's agents. Neither Keller nor Coneview were employed by the defendant, nor does the evidence sustain the assertion that they were engaged to solicit a proposal for insurance. No evidence suggests that the defendant actually authorised Keller or Coneview to act as its agent. Keller and Coneview were not engaged to represent or bind the defendant legally in dealing with investors in the investment club.[545] The evidence from witnesses called by the defendant makes clear that no such actual authority was conferred upon Keller or Coneview.[546]

Principles

474 The relationship of principal and agent may arise where there is a state of facts upon which the law imposes the consequences which result from agency.[547] Actual authority may be implied from the conduct of the parties and the circumstances of the case.[548] Extrinsic evidence is admissible to establish both the conduct of the parties and the circumstances of the case in order to determine what were the terms of the agency relationship.[549] The principal need not consent to the relationship of principal and agent for it to arise. The plaintiffs submit that agency is to be implied from the no advice and undertakings letters and the conduct of Keller and the defendant.

Implied actual authority

475 The plaintiffs' case is that the agency is to be implied as a consequence of the fact that the defendant was aware that Coneview and Keller were selling the Coneview prosperity bonds on the terms that they had negotiated. The plaintiffs argue that the defendant was aware that Keller and Coneview were actively marketing a version of the bonds that Coneview had negotiated with the defendant. They point to the no advice and undertakings letters which refer to the fact that the defendant had agreed with Coneview about the matters recorded therein. They submit that the defendant's silence whilst Keller and Coneview so conducted themselves with prospective investors constituted a representation.

476 Applications were made via Coneview to the defendant for prosperity bonds. The defendant approved the applications and signed the policies. No trail commission was paid by the defendant to Coneview or Keller. Cheques for the investors' premiums were deposited directly to the defendant's bank account, not to that of Coneview or Keller. Each of these matters is said by the defendant to tell against the relationship of principal and agent. In answer, the plaintiffs submit that it would not be normal for an agent to sign a policy, the defendant was aware that Beazley, who was the defendant's authorised agent, was rebating fifty per cent of his trail commission to Keller, the no advice letter stated that the defendant knew and agreed to the sharing of the trail commission between Beazley and Coneview and that an insurance broker, generally an agent of the insurer, would normally forward premiums to the insurer.

477 The role played by Keller in negotiating the special terms with the defendant was said by it to be inconsistent with the fundamental tenets of agency explained by Megaw LJ in Anglo-African Merchants Ltd v Bayley,[550] namely the duties to act in the best interests of the principal and to avoid conflicts of interest. Dr Keller's lack of candour and frankness with the defendant was said by the defendant to be so inconsistent with agency duties that it provided a strong basis for the inference that Keller did not consider himself to be AXA's agent. Contrary to the plaintiffs' submission, I consider there to be ample evidence that Coneview and Keller were less than frank in their dealings with the defendant. However, the fact that Coneview or Keller did not conduct themselves in the manner expected of an agent and may not have regarded themselves as the defendant's agent is only one factor which may bear upon whether such a relationship existed.

478 The plaintiffs by their pleadings alleged that by the antecedent agreement reached between Keller and the defendant as to the special terms that would be incorporated into prosperity bond policies issued to investors introduced by Keller, and the fact that the plaintiffs were introduced to the defendant's prosperity bonds by Coneview and were "informed by Keller or his agent Mr Taylor" of the special terms available for investors in prosperity bonds who invested through Coneview, the agency relationship should be implied.[551] The plaintiffs allege that agency is also to be implied from the fact that the policies issued by the defendant to each plaintiff incorporated the terms contained in the June 1999 letter.[552] The plaintiffs rely upon the fact that the special terms of the prosperity bond were only available to those investors who were introduced to it via Coneview/Keller[553] and allege the investors could never have entered into the prosperity bond unless Coneview was the defendant's agent. Why as a matter of fact or law that should be so was not the subject of elucidation nor does the incorporation into the plaintiffs' policies of terms contained in the June 1999 letter assist the plaintiffs' allegation as to agency.

479 The defendant equally relies upon the role played by Keller in negotiating the special terms. It submits that the nature of those negotiations and the conduct of Keller in those negotiations was inconsistent with the obligations of an agent, as was Coneview/Keller's ongoing management role and the manner in which they were rewarded for that role. The defendant relies upon the fact that there were extensive negotiations between Coneview/Keller and the defendant as to the content of the special terms which were to be offered to Coneview investors. While the fact of such negotiations does not negate the relationship of principal and agent, their content may do so. The nature of those negotiations in which Coneview/Keller obtained special terms from the defendant and the subsequent issue of the policies to the plaintiffs with the undertakings letter and the no advice letter is said to be inconsistent with the claim of agency. The no advice letter stipulated that each person investing in the defendant's prosperity bond, by virtue of their arrangement with the manager Coneview, were required to acknowledge that the defendant had provided no advice on investment to the manager and that the investment in the defendant's prosperity bond was at the investor's choice.

480 The defendant submits that Keller was dealing with prospective investors on his own behalf. It points to the very facts pleaded in the plaintiffs' statement of claim that each of the plaintiffs was "introduced to the defendant" as consistent with Coneview and Keller acting in their own right for the purpose of increasing their profits from management fees.

481 The plaintiffs argue that nothing turns on the fact that Keller benefited as more insurance policies were issued. They submit that if Keller was not the defendant's agent for all aspects of the transaction, he was a joint promoter of the special terms prosperity bond who could not promote the terms unless he was the defendant's agent. Dr Keller had obtained the special terms for use, at least as it was initially stated, for members of the NSW Investment Club. His promotion of the terms does not make him the defendant's agent.

482 The defendant says that Keller and Coneview were at all material times the agents of the plaintiffs. It points to the fact that each plaintiff, prior to entering into his or its policy, received a copy of the CIM which attached a draft investor management agreement and which stated that the investor was required to keep confidential the terms of the agreement or any information acquired under it, and was required to execute a confidentiality agreement in favour of Coneview prior to receiving information from Coneview about the prosperity bonds[554] as being consistent with Coneview or Keller being the plaintiffs' agent.

483 The sharing of trail commission is relied upon by the plaintiffs as an indicium of agency. The declaration to prospective investors in various documents as to the sharing of the trail commission does not carry with it the consequence that Keller or Coneview was the defendant's agent.[555]

484 In Custom Credit v Lynch the respondent purchased a caravan from a company incorporated by Mr Cheap who arranged finance for the respondent to purchase the caravan through the appellant, Custom Credit. The tribunal at first instance found that Mr Cheap was the agent of Custom Credit at common law. Marks J, with whom Fullagar and Ormiston JJ agreed, found that Mr Cheap was not the agent of the finance company. His Honour observed:

[374]

485 Both the plaintiffs and the defendant rely upon the content of the CIM and the no advice letter and the fact that the defendant issued policies to each plaintiff which annexed to them the no advice letter and the undertakings letter.[557] This does not advance the plaintiffs' claim of actual agency.

486 The plaintiffs also rely upon the course of dealings between Keller/Coneview and the defendant in the administration of switches and cancellation of switches during the first half of 2000.[558] The request made by Keller to switch or cancel switches was made on behalf of Coneview, as the manager of the plaintiffs' and other Coneview investor's investments with the defendant. They were so understood by the defendant. It should not be overlooked that each of the requests made by Keller to switch or cancel was also made in his own right or on behalf of Coneview as an investor in the prosperity bond. The plaintiffs, in their written reply, submit that the defendant's connivance and acquiescence in Coneview's management of the switching on behalf of the plaintiffs and other investors was highly probative of the agency relationship. I do not regard that course of dealings between Keller and the defendant as advancing the plaintiffs' argument as to agency.

487 The plaintiffs allege that Keller and/or Coneview "agreed with them" the special terms of the prosperity bonds and that Keller and/or Coneview did so with full knowledge and authority of the defendant.[559] The defendant joined issue with these allegations by, inter alia, denying that Keller and/or Coneview agreed with the plaintiffs the special terms pleaded. The extensive pleadings by the parties on the question of agency focussed upon the allegations that Keller and/or Coneview had authority to so agree and the plaintiffs' reliance upon that authority. Little was said in the written or oral submissions about the primary allegation that Keller and/or Coneview "agreed" the terms with the plaintiffs. It is plain from the evidence submitted during the trial that the plaintiffs did not reach any agreement with Keller or Coneview concerning the special terms or the prosperity bond. The plaintiffs' agreement was with the defendant.

488 The contention cannot be sustained that an actual authority is to be implied from the conduct of Keller and the defendant and the surrounding circumstances.[560]

(ii) Ostensible agency

The plaintiffs allege that the defendant by its conduct in issuing the policies and by its course of dealings in administering switches and cancellations effected by Coneview on behalf of the plaintiffs, represented to the plaintiffs that Keller and/or Coneview was its agent and had authority to agree to the express and implied special terms.

489 The plaintiffs plead that on the faith of the representations that Keller and/or Coneview was the defendant's agent and had authority to agree to the special terms, they invested in the prosperity bonds.[561]

Keller marketing the product

490 It is the plaintiffs' case that the defendant knew by 2000 that Keller was marketing the special terms on the basis that they gave Coneview investors a right to arbitrage through cancelling notices to switch within three working days and historic pricing.

491 Counsel for the plaintiffs in oral submissions advanced the following argument. Whatever may have initially been the limits on Keller's agency, by 2000 he was undoubtedly authorised to do the very things that he was doing and armed with that knowledge, the defendant remained silent. They had authorised Keller to sell the special terms and to hand out the no advice letter, the June 1999 letter and the undertakings letter. At the least, Keller had the ostensible authority to make the statements that he did as they would be within the reasonable contemplation of the defendant.[562] By 8 June, at a time before the plaintiffs had invested, the defendant understood that Keller was stating to potential Coneview investors that he had negotiated a right to historic pricing and a right to cancel notices in three days pursuant to his actual or ostensible authority to make such representations. To the extent that the defendant may not have known precisely what Keller was saying to prospective Coneview investors, the defendant had constructive knowledge because it failed to make any inquiries of Keller as to how he was marketing the product or what was contained in the CIM. Counsel drew upon the concept of inferred actual knowledge or constructive notice as discussed by Tadgell JA in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd.[563]

Principles

492 The scope of any ostensible authority is to be assessed by reference to the representations of authority made by the principal.[564] The foundation of ostensible authority is estoppel.[565] In Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd Browne-Wilkinson LJ said:[566]

[376]

493 The apparent or ostensible authority rests upon a representation made by the principal that the agent has authority to enter into a contract of a kind within the scope of the apparent authority. The principal may, by words or conduct, represent or permit it to be represented that the agent has authority to act on his behalf. The representation may either be express or implied from a course of dealings[567] or it may arise from conduct which permitted the agent to act in some way in the conduct of the principal's business.[568] Any express representation that the agent had authority cannot come from the agent but must be made by the principal, or by the principal's previous course of dealing with the agent or by putting the agent in a position or by allowing him to act in a position from which it can be inferred that the agent's actual representation of authority in himself is correct.[569]

494 The defendant relies upon the principle as established in a line of authority that an agent who acts in furtherance of their own interests may negative any actual authority and put the third party on notice as regards apparent authority.[570] An agent will not bind their principal by a contract which, although ostensibly made on the principal's behalf, is to the knowledge of the other contracting party made for the agent's own benefit.[571]

495 Notwithstanding the phraseology in parts of the plaintiffs' pleading that the agent "agreed the terms", the plaintiffs' case is not that the agent entered into the contract with them but that the agent made representations on the defendant's behalf which became part of the special terms. The ambit of the agent's authority is relevant where a representation is said to be made by the agent. If the circumstances demonstrate to the other contracting party that the agent has no authority to make the representation, the principal will not be bound. If the agent acts in their own interests and not in those of the principal and a person dealing with the agent knows the actual facts, the principal will not be bound.[572]

496 The plaintiffs bear the onus of establishing ostensible authority.[573] It is for the plaintiffs to establish that the defendant represented or permitted it to be represented that Keller and/or Coneview had authority "to agree" the terms pleaded and that the plaintiffs on the faith of the representations invested in the prosperity bonds. Although it is specifically pleaded in relation to authority that Keller and/or Coneview had authority "to agree" to the special terms and that the plaintiffs, on the face of the representation that they had such authority, invested in the prosperity bonds,[574] the evidence, as I have stated, does not support the conclusion that Keller or Coneview agreed with the plaintiffs as to the special terms. The plaintiffs' agreement was with the defendant. But the trial has been conducted, without objection, as though the representations were made with ostensible authority and I shall deal with the issue on that basis. The failure to amend the pleadings does not preclude the case being decided on this basis.[575]

497 In substance, the plaintiffs allege that the defendant allowed Coneview to market the investment, allowed it to make use of the special terms to arbitrage against the defendant before it issued the policies to the plaintiffs, allowed Coneview's name to appear on the no advice letter and the undertakings letter, agreed that Coneview would share in the trail commission flowing from policies issued by the defendant to investors introduced by Coneview and thereby represented to the plaintiffs that Keller and Coneview were authorised to act as its agents. Tyne, Hawkins and Tom Oates each gave evidence that they relied upon the no advice letters in deciding to invest in the prosperity bonds.[576]

498 I do not consider that any of these matters constitute a "holding out" from which it can be said that Keller or Coneview had ostensible authority to agree to special terms.[577] These matters were relied upon in support of the claim of actual authority. The defendant's issuing of the policies with the letters annexed does not support the plaintiffs' contention. Neither does the course of dealings by the defendant and its representatives with Keller in giving effect to requests for switches or cancellations constitute a form of representation that Keller was the defendant's agent. It is not clear whether it is said to be the general course of dealings or some particular acts of the defendant's representatives that constitute the representations. The defendant says that Spanu and Wenzel were two very junior staff members of the defendant and submitted that their conduct cannot give rise to ostensible authority and rely upon a number of authorities including Savill v Chase Holdings Ltd.[578] In my view, their conduct in giving effect to Keller's request for switches and cancellation of switches, for himself or as the representative of Coneview investors, was in general authorised by their superiors. I find that such general conduct was the conduct of the defendant but none of it has been identified as conduct which could properly be characterised as a "holding out" that Keller was the defendant's agent.

499 The statements contained in the CIM and the statements made by Keller and Taylor were said by the plaintiffs to constitute a holding out that Keller was the agent of the defendant.[579] Hawkins, but not Tyne, testified that Keller stated that he was the agent of the defendant. I have serious reservations that Keller so expressed himself and little doubt that he did not so regard himself. Assuming that he made the utterance alleged, it cannot constitute a holding out by the defendant. Tom Oates testified that he understood Coneview and Keller to be the defendant's agents. Oates accepted that there were no written materials that stated that Keller or Coneview were the agents of the defendant. Any suggestive statement to that effect contained in the CIM or made by Keller or Taylor are statements made by the putative agent, not the principal, and do not constitute representations upon which ostensible authority can rest.[580] Mr Taylor's alleged statement that he was Keller's solicitor falls into the same category. The plaintiffs in their pleading alleged that Taylor's statement was made at the second meeting with Tyne and Hawkins[581] but the evidence of Hawkins and Tyne does not make this out.[582]

500 The plaintiffs submit that the defendant had "constructive knowledge" of the matters contained in the CIM and the declarations made by Coneview/Keller or Taylor. The CIM was not alleged to be a contractual document in the pleadings. The defendant says it was misled by Keller as to its content. Furthermore if Keller was acting in a manner contrary to the interests of the defendant and the plaintiffs or their representatives were aware or should have been aware of that fact, then Keller/Coneview's knowledge of the CIM could not be imputed to the defendant. It will be necessary to consider the content of the CIM and its importance to the plaintiffs' case hereafter. The suggestion by Tom Oates that the defendant had provided a copy of the CIM was established to be without foundation.[583] The plaintiffs have failed to establish that the defendant had constructive knowledge of its contents or that any declaration, if it was made by Coneview or Keller, constituted a representation as to their authority or was relied upon by the plaintiffs.

The plaintiffs' reliance upon any representation giving rise to ostensible authority

501 In answer to the plaintiffs' claim that they invested on the face of the representations giving rise to ostensible authority, the defendant submits that the plaintiffs have failed to establish that they reasonably relied upon any representation that Coneview or Keller had authority to agree the special terms pleaded. It is necessary for the plaintiffs to establish that they reasonably relied upon such representations.[584] The defendant submits that the evidence is to the contrary effect.

502 The plaintiffs would be precluded from invoking the doctrine of ostensible authority if they knew or should be taken to have known that Coneview/Keller lacked authority, were acting in their own interests contrary to the defendant's best interests and had concealed relevant matters from the defendant.[585]

503 In considering whether there was reasonable reliance by the plaintiffs the Court may take into account the plaintiffs' level of knowledge of the investment product, their business experience,[586] and their knowledge of Keller's negotiation of the policy terms and his ongoing management role in relation to the policies. The defendant says these matters support the conclusion that any asserted reliance by the plaintiffs upon representations as to ostensible authority were unreasonable.[587]

504 The plaintiffs submit that the objective facts which existed at the time of these representations explain why the plaintiffs had no reason to doubt Keller's authority. The plaintiffs invested because they were told arbitrage gains could be made of the type that had already been made by earlier Coneview investors.[588] They understood that the defendant intended to induce further investors to make investments because of its desire for greater funds under management.

505 As to Tyne's alleged lack of reasonable reliance, the defendant points to his memorandum of 25 February 2000 which, it is submitted, indicated his awareness that Keller had his own and the investors, but not the defendant's, best interests at heart. It submitted that his oral evidence was consistent with the view expressed in the memorandum.[589]

506 Counsel for the plaintiffs submitted that Tyne's memorandum simply noted Keller's concern that the defendant might change the rules in the future and that the statement by Keller was no more than an inducement to Tyne and Hawkins to invest now before the product changed. That statement alone would not provide a basis upon which Tyne and Hawkins ought to have appreciated that Keller was not acting in the defendant's interests.

507 According to the Tyne memo Keller went further. He told them that the defendant had no appreciation of the trading history of the Coneview investors who had already had the benefit of the special terms and that it did not appreciate the value of the arbitrage. He expressed concern that once the defendant had a program that tracked the trading history of Coneview investors there may be change. Keller emphasised that the defendant was contractually bound to continue these terms with current investors but was concerned that they may not offer those terms in the future.

508 In his testimony, Tyne thought the analogy appropriate of the plaintiffs, Keller and himself all being in the same canoe rowing against the defendant.[590] Counsel for the plaintiffs submitted that his analogy could apply to every insurance agent who wished to maximise their commission by writing business. Tyne explained in re-examination that he was speaking of whether it was reasonable for him to take at face value what Taylor and Keller said. In substance he viewed Taylor and Keller as having the same interest as the plaintiffs.[591] The defendant also relies upon Tyne's testimony that he could not imagine what might have motivated Keller to alert the defendant to the investors' trading histories, given the profits which Keller was making out of prosperity bonds.

509 The defendant also relies upon Tyne's testimony that he understood the financial consequences of the terms and that the defendant would attempt to protect itself from those consequences. This, counsel for the plaintiffs submits, amounted to no more than an expectation that the defendant, once it knew it had made a bad bargain, would seek to ameliorate the cost of that bargain. According to both Tyne and Hawkins Keller had informed them that the defendant was focussed on the short term benefit of volume driven funds management and not on the longer term implications of the bargain.

510 The defendant further submitted that Tyne must have been suspicious as to Keller's authority by reason of the strict confidentiality regime which he erected. The defendant says that was only for the purpose of concealing information from the defendant. It was said on the plaintiffs' behalf, relying upon the testimony of Beazley, that the defendant knew of the confidentiality regime from 16 March 2000. There was some equivocal testimony from Beazley that the defendant had received a memorandum which was given to Coneview investors by Keller.[592] The evidence does not enable me to conclude, as counsel for the plaintiffs submitted, that the defendant knew that the regime was designed to ensure that no-one else was able to market the prosperity bonds and cut into Coneview's profit.[593] The knowledge of the defendant has no bearing upon the plaintiffs' knowledge of Keller's confidentiality regime.

511 Tyne and Hawkins both asked Keller and Taylor whether the special terms which Keller said he had negotiated with the defendant were reflected in the documentation and in the manner in which the investment was being administered. Tyne also said that he felt the need to cross check the information given to him by Keller with the defendant. As to these matters the plaintiffs submit that this was prudence on their part and did not reflect any lack of reliance upon Keller.

512 As to Hawkins alleged lack of reasonable reliance, the defendant points to Hawkins' receipt of the Tyne memorandum of 25 February 2000 which drew attention to the defendant's lack of appreciation of the manner in which Keller had already utilised and was proposing to utilise the special terms. It was said on Hawkins' behalf that he did not rely on the Tyne memorandum but waited to see whether the investment was working in the way in which Keller and Taylor had informed him.

513 Hawkins did not consider that there was any divergence of interest between himself and Keller/Coneview with regard to their relationship with AXA. He accepted that he and Keller had a common interest.[594] He relied upon and trusted Taylor. Messrs Tyne and Hawkins testified that they understood Taylor to be the solicitor acting for Coneview and Keller. The parties relied upon the same submissions as they did with respect to Tyne.

514 The defendant says Hawkins, like Tyne, must have been suspicious as to Keller's authority by reason of the confidentiality regime. Tyne and Hawkins both testified that at the outset of their first meeting with Keller, he told them that he had negotiated concessions with the defendant personally and that the defendant would not offer such concessions except in relation to policies arranged by him. The defendant says that from Keller and Coneview's perspective, the confidentiality requirements were necessary to protect Coneview against both the risk that the information would be publicly disseminated and that it not come to the attention of the defendant and that is how the plaintiffs would have perceived it. The plaintiffs submit that the confidentiality requirements were to protect Coneview and not to conceal things from the defendant. At the meeting of 16 March 2000 in which the defendant sought information from Keller concerning the manner in which he was promoting and marketing the concept, Mr Yesberg's note records that the information was sought for the defendant's "compliance benefit" and "not so that AXA can replicate the concept and market to the general public." The plaintiffs rely upon this note as supporting the submission that the confidentiality requirements were to protect Coneview, not to conceal things from the defendant. What the memorandum tends to suggest is that Keller had no agreement with the defendant that he alone could market these special terms, yet he told Messrs Hawkins and Tyne that he had an exclusive right to do so. The plaintiffs were not at this meeting. I accept the plaintiffs' submission that the existence of such a regime does not by itself give rise to a doubt as to reasonable reliance. The defendant also relies on the fact that Mr Hawkins was alive to the potential detriment that would be caused to the defendant from the special terms. Counsel for the plaintiffs submitted that this does not bear upon whether Keller was the defendant's agent and that it was Mr Hawkins' expectation that once the defendant realised that he had made a bad bargain it would try to remedy the situation.

515 As to Paul Oates' alleged lack of reasonable reliance the defendant submits that he made it clear that he was only interested in relying upon the defendant and drew a dichotomy in his mind between the defendant and Coneview/Keller. It was submitted that Paul Oates appeared to be unaware of the concept of agency and what it entailed. As reliance is concerned with his state of mind arising from the alleged representations it is irrelevant whether or not he understood the concept.

516 Paul Oates gave no evidence of any representations upon which he relied in relation to agency but as he and Tom Oates held joint policies it would be sufficient if one or other of them had the necessary state of mind. As to Tom Oates' alleged lack of reasonable reliance the defendant submits that Tom Oates must have been suspicious about the Coneview confidentiality regime. He signed such an agreement prior to receiving information from Coneview.[595]

517 Tom Oates testified that letters that he received dated 10 July 2000 from Joan Murphy, the manager of the customer service centre of the defendant, confirmed that the unit prices that Keller was quoting in his July report were the same as the ones that the defendant was using. Oates went on to say that those letters reinforced his belief that Keller and Coneview were the defendant's agents and that the switches being carried out on his behalf were being done with the full knowledge and understanding of the defendant. The letter instructed him that if he had any queries or required further information, he could contact his "financial adviser" Coneview/Beazley. The defendant submits that his purported reliance upon these letters was a "self serving reconstruction".[596] The plaintiffs submit that the fact that Tom Oates called the customer service centre to check the unit price that had been used on various days was a prudent practice which did not indicate a lack of reliance. Counsel for the plaintiffs submitted that it was preposterous for the defendant to suggest that Tom Oates had "fabricated" his reliance upon this letter. It was also submitted that the defendant had failed to challenge Tom Oates as to his evidence. In my view the matter was sufficiently raised with Mr Oates. Having regard to the content of the letter and other aspects of his testimony to which reference will later be made, I am not satisfied that the letter led Mr Oates to form the belief, at that time, that Keller or Coneview was the defendant's agent. Calling the author of the letters would not have addressed the issue of Mr Oates' reliance at the time he received the letters.

518 It was submitted on behalf of the plaintiffs that there was a contemporaneous record of the fact that the plaintiffs relied upon Keller and Taylor's conduct. They point to the account and record of Mr Yesberg that when he spoke to Messrs Hawkins and Tyne on 16 October 2000 they told him what they alleged Keller had said and that they relied upon him. They point also to Tyne's memorandum of 25 February, Tom Oates' written advice to Taylor, and Hawkins' report to the Pegela Board.

519 It was submitted by the defendant that any action taken by any of the plaintiffs in purported reliance upon representations by Coneview/Keller were not reasonable given the acknowledgment contained in the no advice letters signed by each of them. In answer the plaintiffs say that the no advice letter acknowledged that no advice had been given in relation to the suitability of the investment, but the defendant could not rely upon the letter to justify it not fulfilling its promises or representations.

The agency was not acted/relied upon

520 The defendant submits that the plaintiffs did not take any relevant action in reliance upon the alleged agency of Coneview/Keller. It argues that none of them altered their position as a result of reliance upon the ostensible agency. It was submitted in the case of Tyne, and Tom and Paul Oates, that their evidence demonstrated that they were not relying upon any representation as to Coneview/Keller's authority in entering into the policies. The defendant submits that Tyne had already determined to enter into his policy by the time he saw the no advice letter concerning the sharing of trail commissions.[597] It points to the evidence of Tom Oates to the effect that Coneview/Keller's agency was not a matter of significance to him at the time he entered his policies and that he disavowed having relied upon Keller. It says both he and Paul Oates stressed the difference between documents signed by the defendant and documents signed by Keller.

521 The plaintiffs submit that it is plain from the objective facts that they would not have invested at all if the representations had not been made to them as alleged, that it is not necessary that the representation be the only matter relied upon to enter into the transaction and that reliance upon a representation continues until the party enters into a transaction unless there is compelling evidence to the contrary. The plaintiffs submitted there was no contrary evidence. They submit that the defendant has not fairly summarised the evidence of Tom and Paul Oates who were reassured by the

knowledge that a corporation of the substance of the defendant was behind the investment. That, they submit, does not negate their reliance upon Coneview/Keller.

Mr Taylor's position

522 The defendant submits that insofar as the plaintiffs took any action in reliance upon Taylor, they did so because he was a familiar and trusted friend and solicitor of some of the plaintiffs with whom they felt comfortable.[598] The defendant submits that Taylor's conduct towards Tyne and Hawkins was consistent with him acting as their own solicitor and friend. Taylor was at that time the senior partner at Mallesons acting for Tyne and Hawkins and a company with which they were associated, and he was dealing with them on a weekly basis. The plaintiffs submit that it was because he was a solicitor whom the plaintiffs knew well and respected that they were prepared to rely upon him as Keller/Coneview's agent. Tyne and Hawkins both recognised that Taylor was Keller's solicitor.

Statutory 'deemed' Agency

523 The plaintiffs allege that as Coneview and Keller arranged the relevant investment by each plaintiff in the defendant's prosperity bonds, by s.12 of the IBAA Coneview and Keller are deemed as between the defendant and each of the plaintiffs, to be the agent of the defendant.[599]

[385]

526 It is not in issue that the contracts and policies entered into by the plaintiffs with the defendant were "contracts of insurance". The plaintiffs say that the acts of Coneview, Keller and Taylor are deemed to be the acts of the agent of the defendant and the defendant is bound by the special terms pleaded as they had authority to agree the terms.

527 The defendant submits the plaintiffs have never pleaded that Taylor was the defendant's deemed agent under the IBAA and they cannot now put their case on that basis. It submits that the plaintiffs' pleading was to the effect that Taylor was Coneview's agent. Counsel for the plaintiffs had made clear, however, during the course of his opening that the plaintiffs would seek to establish that Taylor was the defendant's agent because he was the agent for the insurance intermediary, Coneview/Keller.[600] I would allow the plaintiffs to pursue this allegation. Although the plaintiffs in their written final submissions relied upon the deeming provision to submit that Taylor was the defendant's agent,[601] the defendant rightly submits that Taylor does not fall within the definition of "insurance intermediary."[602] They now submit that Taylor is a deemed agent of the insurer by virtue of s.11(1)(h) of the IBAA as he is a sub-agent appointed by the principal agent (Coneview/Keller).

528 The plaintiffs submit that Keller received "reward" for arranging the prosperity bonds and that Taylor received remuneration, at least from Keller. They submit that the definition under the IBAA does not require that the reward be from the insurer. Thus the plaintiffs submit that the IBAA deems Keller and Taylor to be the defendant's agents for all relevant purposes. They submit that the requirements of s 11 are met as the conduct of Coneview/Keller and Taylor was conduct upon which the plaintiffs relied in good faith and upon which, in the circumstances, the plaintiffs could reasonably be expected to have relied.[603]

529 The defendant pleads that the IBAA has been repealed by s.3 and Schedule 1 of the Financial Services Reform (Consequential Provisions) Act (Cth) 2001 and says it cannot be relied upon by the plaintiffs.[604] It submits that as the entire Act was repealed on 11 March 2002,[605] the defendant falls within item 6 of Table 1430 of the Corporations Act. It relies upon the transitional provisions of the Corporations Act which provide that the IBAA will continue to apply only until 19 November 2003.[606]

Deeming provision - whether repeal of substantive right

530 The defendant submits that s.12, being a deeming provision, does not confer substantive rights and relies upon R v Habib and Visvikis.[607] That decision says nothing as to the characterisation of a deeming provision. The case concerns the effect of the repeal of the Narcotic and Psychotropic Drugs Act 1934 (SA) and the consequential revocation of the regulations made under the old Act. That Act provided that a person who knowingly had in his possession more than a prescribed quantity of any drug was deemed to have that drug in his possession for the purpose of trading in the drug unless the contrary was proved. The regulations set out what constituted a prescribed quantity of drugs. The defendant was charged with an offence alleged to have occurred prior to the repeal of the Act. Johnson J found that s.16 of the Acts Interpretation Act 1915 (SA) saved both the Act and the Regulations. His Honour referred in passing to the common law principle that substantive rights are, as a general rule not statutorily altered retrospectively whilst procedural rights are altered retrospectively and that the provisions of the Acts Interpretation Act gave effect to that common law principle.

531 The defendant then asserts that s.12 of IBAA conferred only a procedural right which no longer existed following its repeal and relied upon Hucks v Slann[608] and Yrttiiaho v Public Curator (Queensland).[609] In reply, the plaintiffs asserted that it was wrong to contend that the provisions conferred procedural and not substantive rights. The relevant conduct occurred before the repeal of the Act and the plaintiffs' rights had accrued.

532 Both parties made bare assertions as to how the right should be characterised but advanced no argument in support of their competing contentions. Neither party submitted that the transitional provisions affected the question as to how the right should be characterised. By s.8(c) of the Acts Interpretation Act 1901 (Cth) the repeal shall not affect any right which has accrued under the Act repealed. This accords with the common law position.[610] The Commonwealth Act does not expressly cover the repeal of provisions which deal with the "status" or "capacity" of a person or thing (which are matters expressly addressed in the Interpretation Acts of some States).

533 Section 12 if the IBAA imposes the status of "agent of the insurer" upon both the insurance intermediary and the insurer. In my opinion, by so doing it creates a right in the insured or intending insured to treat the acts of the insurance intermediary as those of the insurer. It is a substantive right. If it accrued prior to the repeal of the statute it would, according to common law principles and s.8 of the Acts Interpretation Act 1901 (Cth) be preserved. As to s.11, the defendant did not suggest that it did not confer substantive rights. It plainly does so.

534 The defendant submits that even if ss.11 and 12 continue to apply neither Coneview/Keller nor Taylor is an "insurance intermediary" within the meaning of s.9 as they did not act as an agent. They rely upon the submissions advanced against the plaintiffs' contention that Coneview/Keller or Taylor had actual or ostensible authority. Thus it submits that s.12 can have no application.

535 The defendant further submits that the plaintiffs must satisfy the requirements of s.11(1) of the IBAA, and that they are unable to satisfy the requirements of s.11 as they did not rely upon the conduct of Coneview/Keller in good faith and that a person in their position could not reasonably be expected to have relied upon that conduct. Each party relies upon the submissions made in respect of actual and ostensible agency as bearing upon whether Keller acted as agent and whether the plaintiffs could reasonably be expected to have relied upon Keller or Taylor and whether they did so in good faith. The defendant repeated its submissions in relation to the issue of ostensible authority. It submitted that the plaintiffs could not establish that there was actual reliance upon either of the alleged agents or that it was reasonable or in good faith.[611] The plaintiffs say in reply that there is no evidence to support the allegation that they did not rely upon the conduct of Coneview/Keller in good faith or that their reliance was unreasonable.

Conclusion

536 The plaintiffs' contention that Keller or Taylor had implied actual or ostensible authority to agree to terms or make representations which would bind the defendant is not made out. None of the matters relied upon by the plaintiffs establish that the defendant had actual or constructive knowledge sufficient to support an implied actual authority. No conduct has been identified that satisfies me there was a "holding out" that they were the defendant's agents. Neither Coneview, Keller or Taylor acted as the agent for the defendant or plaintiffs in arranging insurance. If, contrary to that view, they, or any of them, were an agent or a "deemed agent" under the IBAA, the plaintiffs certainly did not view them as the defendant's agent. They did not treat anything Keller, Coneview or Taylor said or did as conduct by a representative of the defendant. It would have been unreasonable of them to have done so. They did not place reliance on what they said or did as the representative of the defendant. They were viewed as acting in the interests of the plaintiffs and themselves and contrary to the interests of the defendant.

537 During the course of the evidence I formed the strong opinion that none of the plaintiffs or their representatives had regarded Keller, Coneview or Taylor as the defendant's agent during 1999 or 2000 and that, having regard to their knowledge of Keller's role in negotiating the special terms, his subsequent dealings with the defendant and the lack of knowledge by the defendant as to Keller's purpose in obtaining those terms and the use being made of them, it would have been unreasonable of them to so view or rely on them. The written and oral submissions have reinforced that conclusion. Thus, even if Keller, Coneview or Taylor had made a promise as to the three day option, it was not viewed as such by the plaintiffs and was not relied upon.

Ratification of terms if Keller or Coneview lacked authority

538 Ratification of an agent's unauthorised acts may render a principal liable where there have been clear acts of adoption, approval or acquiescence by a principal who has full

knowledge of the relevant facts.[612] The burden is on the plaintiffs to show on the balance of probabilities that the principal had knowledge of all of the relevant facts.[613]

539 The plaintiffs allege that the defendant by its conduct in issuing the policies to the plaintiffs and by its course of dealings with Keller and other Coneview investors during the first half of the year 2000, impliedly ratified the pleaded special terms including the implied terms agreed by Keller or Coneview.[614] The plaintiffs rely upon the particulars which were pleaded in support of their allegation that the agency relationship between Keller and/or Coneview and the defendant was to be implied.[615] Those particulars relate to the alleged agreement between the defendant and Keller in July 1998.[616] The information provided by Keller or Taylor to the plaintiffs about the defendant's prosperity bonds,[617] the information memorandum which Keller provided to potential Coneview investors,[618] and the conduct of the defendant during the first half of the year 2000, prior to the time that the plaintiffs entered into their policies with the defendant[619] are not matters which support the implied ratification pleaded.

540 Despite their pleadings, it was not the plaintiffs' case that Keller or Coneview entered into an agreement with the plaintiffs as to the special terms of the prosperity bond. They rely upon the alleged promises made by Keller and Taylor during the two meetings with Tyne and Hawkins. As I have said, no objection was raised by the defendant at trial to the plaintiffs' case being put on a basis that appeared to be different to their pleadings. I should therefore determine this issue on the way the parties fought the case at trial.[620] For this purpose, I assume, contrary to my conclusion, that a promise as to the three day option was made.

541 To establish that the defendant had the requisite "full knowledge" of the material circumstances, the plaintiffs must establish that the defendant was aware that Keller and/or Coneview made such promises; that is to say, were representing or marketing the special terms as pleaded.

542 The defendant denies that it ratified the special terms pleaded by the plaintiffs. It says that it was not the defendant or its alleged agents which procured the investments by the second, third and fourth named plaintiffs on the special terms alleged.[621] It says that its conduct in issuing the policies, the undertakings letter and the no advice letter was inconsistent with the alleged ratification insofar as the policies and those letters contained terms different from those pleaded.[622] The plaintiffs' statement of claim was amended a number of times during 2003 to plead additional terms. In the relevant period of 1999 or 2000 the defendant did not treat Coneview or Keller as authorised to market the prosperity bonds in the terms alleged by the plaintiffs nor was it aware that they were doing so. Beazley, Andrews and Yesberg testified to that effect in their evidence in chief.[623] Counsel for the plaintiffs suggested that the cross-examination of these witnesses undermined this. In a schedule filed with the Court after the conclusion of oral submissions, attention was drawn to various passages in their cross-examination. These were only peripheral to the matter presently in issue. Although the passages in each of these witness's statements had been drafted by the legal representatives of the defendant and were expressed in similar terms, I had no reason to doubt the account given by them, which was to the effect that nothing had come to their attention that suggested that Keller or Coneview were marketing the prosperity bond on the terms alleged by the plaintiffs.

543 The plaintiffs submit that by mid 2000 the defendant must have been aware that Keller was marketing the bonds with the terms alleged by the plaintiffs, as the defendant was by then considering what steps it could take to prevent arbitraging by the Coneview investors. Keller, on behalf of the Coneview investors, had been able to engage in arbitrage activity. It was submitted that by issuing policies to the plaintiffs containing identical terms to those previously issued to Coneview investors the defendant ratified Coneview's representations and agency. This argument is unsound. The defendant's conduct confirmed its willingness to continue to issue prosperity bonds on the terms contained within the policy. The issuing of the plaintiffs' policies, assuming that circumstance to be known by the defendant, does not demonstrate that the defendant was or should have been aware that Keller was marketing the prosperity bonds on the terms alleged by the plaintiffs. In particular, it did not mean that the defendant acquiesced in Coneview/Keller representing to the plaintiffs that the policies contained terms which were not found in the policies or other contractual documents.

544 The plaintiffs placed particular reliance upon the defendant's conduct as communicated to the relevant group of investors between June 2000 and at least 11 September 2000, which they submit was completely unequivocal.[624] The plaintiffs rely upon the course of dealings between the defendant and Keller during the first half of 2000 and in particular the authority of Ms Spanu and Ms Wenzel to administer the investment club's business and to respond to Keller's requests to switch from one portfolio to another.

545 Ms Wenzel calculated account balances which were checked by the defendant's actuarial department. Account balances were sent to the ANZ Bank which showed returns in the order of 16% per annum generated by Coneview investors who had borrowed from the ANZ Bank to finance their investment. The account balances calculated by Ms Spanu and Mr Andrews for Keller's/Coneview policies showed that there had been frequent switches.[625] The plaintiffs submit that these documents show an extraordinary amount of switching. Documentation passing between Ms Spanu and Mr Andrews evidences the problems in recording and processing the number of switches undertaken by Keller. The defendant's flexiplan computer system was unable to cope with any more than two free switches. Protection fees had to be credited back to these policies. A draft business requirement specification document of February 2000 acknowledged the defendant's inability to complete portfolio switches as requested.[626]

546 The knowledge of Beazley, Andrews, Yesberg, O'Brien, Spanu and Wenzel gained by them in the course of these transactions in which they were engaged on behalf of the defendant was the knowledge of the defendant company. It was their duty to communicate their knowledge to the defendant company.[627] It was knowledge acquired in the course of carrying out their duties.[628] Their duty was to report to different officers according to the nature of the information they acquired.[629] The statements and conduct of Yesberg as the product manager of investment products were authorised because he was a person who plainly had delegated authority from the board of directors to delegate such authority and his actions would ordinarily be within the powers of a product manager.[630] The defendant had actual or constructive notice of the information which these officers and its agents acquired.

547 The defendant says that the course of dealings between the defendant and Keller prior to the plaintiffs entering their policies cannot constitute ratification and that such conduct does not evidence or otherwise reflect the existence of the alleged terms.[631] The defendant says that there is no evidence from which it should be inferred that Keller was purporting to switch pursuant to cl 1.8. I do not agree. Keller showed the defendant's representative the no advice letter when authority was sought for his cancellation of switches. A prosperity bond investor who did not have the benefit of the special terms was only entitled to two free switches in a calendar year. Ms Spanu and Ms Wenzel recognised that this requirement did not apply to Keller as he was requesting a switch pursuant to the special terms which he had been granted. Ms Spanu and Ms Wenzel clearly had authority to administer the business of Keller/Coneview and were authorised to respond to Keller's instructions.[632]

548 The plaintiffs argue that such conduct in the course of such dealings involved an unequivocal adoption or approval of the terms alleged by the plaintiffs. The defendant submits that the plaintiffs have not demonstrated that it had been permitting the cancelling of switches pursuant to cl 1.8. But it was not until after 27 October 2000 that it was suggested by Keller, that a cancellation of switch could be made after it had been completed by the defendant or that the defendant could not complete the switch until the expiration of the three days following the giving of notice which was a notice to switch in three days' time.[633] Until then a notice was treated as a notice to switch on the day it was given.

549 In my view none of this conduct supports the conclusion that the defendant ratified the special terms as alleged by the plaintiffs. The conduct of Keller/Coneview and the defendant cannot be described as an unequivocal demonstration that the defendant adopted, approved or acquiesced in the terms alleged by the plaintiffs.[634] Neither Ms Spanu or Ms Wenzel did anything which would constitute ratification of the terms as alleged by the plaintiffs. The conduct of the defendant and Keller does not demonstrate that Keller or the defendant acted as though the prosperity bonds contained the terms alleged by the plaintiffs.[635]

550 I am not satisfied that at the time of the alleged ratification, the defendant had a full knowledge of all of the material facts and circumstances pertaining to the alleged acts of Keller or Coneview. It could not therefore make an informed decision as to ratification.[636] Put at its highest for the plaintiffs, the conduct relied upon is equivocal and does not constitute ratification of the acts alleged.

Estoppel, variation, election, misleading and deceptive conduct and negligent misstatement

What conduct of the defendant is relevant to the interpretation of cl 1.8 or the promises allegedly made by the defendant to the plaintiffs about the three day option and what consequences, if any, by way of estoppel, variation, election, misleading and deceptive conduct and the like result from such conduct?

551 This question was formulated by the parties as an issue that they would address in their written and oral submissions. The question is intended to cover the following claims made by the plaintiffs:

[387]

552 It is convenient to deal with each of these claims at the same time as the parties have done in their written and oral submissions and examine the defendant's conduct said to support them. Each of these claims is also made in relation to historic pricing, and were the subject of separate argument by the parties and are dealt with later in these reasons.

Variation - election - waiver

553 The plaintiffs rely upon the principle that a contract variation can occur in an informal way. A party's conduct can demonstrate acceptance of a variation suggested by the other party. The plaintiffs referred to Commonwealth v Crothall Hospital Services (Aust.) Ltd.[643] They rely on the proposition that a contracting party whose conduct induces the other party to believe that the contract between them has been modified, may be estopped from denying that it has been so varied. A contracting party may by its conduct indicate that a particular contractual right will not be enforced and may be taken to have waived that right.[644] The plaintiffs, relying upon Immer (No. 145) Pty Ltd v The United Church in Australia Property Trust (NSW),[645] further submit that the defendant, confronted with two mutually exclusive courses of action, made a choice in June 2000 and continued to offer policies on the same terms. They submit that the conduct of the defendant was unequivocal and consistent only with the exercise of one of the two sets of rights open to it. They contend that the defendant communicated its election to the plaintiffs in clear and unequivocal terms. By choosing to offer the policies on the same terms, the plaintiffs submit that the defendant chose not to communicate to prospective investors any warning of its "review" process which would ultimately disable Coneview investors from the ability to arbitrage. Thus the plaintiffs submit that the only possible legal conclusion which accords with fairness and the reasonable expectations of the plaintiffs is that the defendant, in relation to all new policies issued by it, elected to be bound by and affirmed the special terms as they had been given effect to in practice in its dealings with Coneview/Keller over the previous.12 months.

554 The plaintiffs allege that the defendant and themselves agreed to vary the policies so as to replace the terms pleaded by the defendant with those pleaded by the plaintiffs and say that the variation is to be implied by the conduct of themselves and the defendant. They plead that the variation is supported by consideration being "each party's entry into the policies and the exchange of the letters" or the course of conduct of the defendant.[646] The variation is said to have occurred when each plaintiff entered into the policies or alternatively upon the commencement of that course of conduct.

555 As to the pleading of consideration, the defendant submits that the course of conduct alleged by the plaintiffs did not involve either party doing anything beyond that which the contract contemplated. A party's fulfilment of obligations which it already owes, it was submitted, cannot constitute consideration.[647] It further submitted that consideration for variation of the contract cannot be the party's entry into the very same contract.

556 The defendant in answer to the variation claim says that the plaintiffs have identified no evidence which suggests that they or Keller proposed any variation to the special terms or conducted themselves so as to suggest that they construed the terms in that way or that the defendant had conducted itself so as to demonstrate that an existing contractual right would not be enforced. It submits that the conduct alleged in the plaintiffs' reply[648] is conduct consistent with the defendant's construction of the special terms. The defendant also submitted that as the course of conduct pleaded is said to have commenced on 16 February 2000, and continued until the plaintiffs entered into their policies, it could not constitute a variation at all because there was at that time no pre-existing contract susceptible of variation. I agree for these reasons that the variation alleged in paragraph 11 of the plaintiffs' reply is not made out.

557 The plaintiffs' argument based upon election is also misconceived. The determination by the defendant to enter into a contractual arrangement with each of the plaintiffs by issuing policies containing the same special terms as those previously offered to Coneview investors, involved no election as to what those policies meant or what the defendant was obliged to do in relation to the three day option. That course did not involve any abandonment or "sterilisation of a legal right".[649] The proper construction of the special terms is not to be determined by the defendant's subsequent conduct, which is inadmissible for that purpose.

558 There is a further decisive consideration. I have already observed that the alleged conduct of the defendant[650] does not advance the plaintiffs' case. It was not conduct that could be characterised as mutually exclusive of another course of action.[651] That conduct does not support the contention that fairness or the reasonable expectations of the plaintiffs (assuming that to be a relevant consideration) dictate that the defendant elected to allow the plaintiffs three days in which to cancel a notice of intention to switch and that the defendant would not complete the switch prior to that time. The procedure followed did not suggest that the defendant waited three days before completing the switch or that Keller/Coneview expected it to wait three days.

Estoppel

559 The plaintiffs contend that the defendant should be estopped from denying that the special terms contained the three day option, should not be permitted to complete switches within the three day period, should be estopped from denying the plaintiffs' right to make risk free profits by switching between the cash and secure portfolios by means of the right to cancel a switch within three days of requesting a switch and should be estopped from requiring that notices to switch made pursuant to cl 1.8 be in writing.[652]

560 The plaintiffs say that based upon their reliance on the representations and assumptions induced by the defendant, they suffered detriment as they borrowed moneys to make the investments, paid management fees to Coneview and gave up other investment opportunities. They rely upon the principle that the law of estoppel gives protection from the harm that would flow from a change of position if the assumption were deserted.[653] The plaintiffs contend that if they do not have the contractual rights which they assumed, their assumptions should be made good for the life of the policy or alternatively for at least a period of 10 years, such period being the minimum policy term reasonably contemplated by the parties. They contend that there were representations of existing fact and promissory statements which the plaintiffs relied upon.

561 The plaintiffs submit that it is not open to the defendant to say that no company in its right mind would intend objectively that the plaintiffs should have the right to arbitrage where it was known that was the very thing being done. Counsel for the plaintiffs acknowledge that if the promise that they sought to enforce was merely "we may arbitrage", that promise would probably not be sufficiently certain or complete. Thus the promise must be "we may arbitrage by a three-day option."

562 The plaintiffs allege that the defendant knew they assumed that the special terms included the three day option. The plaintiffs plead that the estoppel arises because of the content of the June 1999 letter, the no advice letter, the undertakings letter, and the CIM, all of which the plaintiffs relied upon to assume that the special terms included the three day option.[654] They say it encouraged the plaintiffs to continue to hold this assumption by following the course of conduct which it did with Keller/Coneview and failed to inform the plaintiffs at any material time that the special terms did not include the three day option as alleged by the plaintiffs, or that the conduct of Keller was not in accordance with the special terms.[655] The estoppel is put on the further or alternative basis that the defendant knew or ought reasonably to have known prior to the plaintiffs investing in their prosperity bonds that the special terms gave them the ability to make risk free profits by switching between the Cash and Secure portfolios, and that there was a real risk that the plaintiffs would assume that the special terms permitted them to do so.[656] The defendant failed to inform the plaintiffs prior to them investing in the prosperity bonds that it had determined to take whatever steps were necessary to prevent them from making such risk free profits and failed to inform the plaintiffs of its intention to do so, or that it held the view that on the true interpretation of the special terms the plaintiffs were not permitted to do so.[657]

Principles

563 The plaintiffs plead a number of different estoppels and said in oral argument that they relied on estoppel by convention, promissory estoppel and "expectation estoppel".[658] The submissions of both parties largely ignored any differences between the different forms of estoppel, advancing general argument as though, as was suggested in the judgment of Mason CJ in Commonwealth of Australia v Verwayen,[659] there is but one doctrine of estoppel, its overarching principles being common to all of the estoppels claimed by the plaintiffs.

564 Equity will come to the relief of a party who acts to their detriment on the basis of an assumption where the other party has played such a part in the adoption of the assumption that it would be unjust if that party were able to ignore it.[660] In the seminal judgment of Dixon J in Thompson v Palmer[661] the object of estoppel in pais was described as the prevention of an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption were adhered to, would operate to the others' detriment. Dixon J referred to various circumstances in which a party may be required to abide by the assumption. It may have formed the "conventional" basis upon which the parties entered into contractual relations, or because, knowing the mistake the other laboured under, that party refrained from correcting the other when it was their duty to do so or because a party's imprudence, when care was required, was a cause of the other party adopting the assumption or because a representation was made upon which the other party founded the assumption.[662] The plaintiffs rely upon the first two bases and also allege that there was a want of care on the part of the defendant that supports their claim for damages.

565 Estoppel by convention is founded upon the conduct of relations between the parties on the basis of agreed or assumed facts.[663] The agreement need not be overt, as the conduct of the parties may reveal that they must have agreed or assumed the facts upon which the conduct is based. The agreement may be inferred where a party remains silent if that silence was understood to be an acceptance of the state of affairs.[664] It is now accepted that estoppels may concern assumptions of fact or law.[665]

[389]

Estoppel may be used to fulfil "expectation interest" unless "expectation relief" exceeds that which can be justified by the requirements of conscientious conduct.[667] The evolution of equitable estoppel illustrates the maxim that "equity will not suffer a wrong to be without a remedy".

567 The plaintiffs call upon equity to act upon the legitimate expectation of the plaintiffs that the defendant would continue to administer the contracts in accordance with the defendant's interpretation of the special terms as evidenced by its conduct prior to September 2000. Counsel for the plaintiffs referred to Flinn v Flinn[668] for the principle that equity will enforce the legitimate expectation of a party that it would have the rights promised, notwithstanding that no contractual promise was made, in reliance upon which it acts to its detriment.

The plaintiffs' arguments

568 The plaintiffs' estoppel claim in relation to the three day option is extensively set out in their reply.[669] Many of the arguments have already been addressed in determining earlier questions. The plaintiffs say that an estoppel arises because of the following circumstances. The defendant, knowing that the special terms permitted the ability to make arbitrage profits, wished to increase its funds under management and did not fully cost the arbitrage profits which would flow from providing the plaintiffs with an unlimited right to switch at no cost with a right to cancel a request to switch within three days of such an instruction. The defendant, though aware of the frequent switching by Coneview investors by late 1999 and the returns being made on their investments, accepted the plaintiffs' premiums without informing them or Keller that the special terms could not be used for the purpose of making arbitrage profits. Although the defendant by June 2000 knew all relevant facts and had determined on the strategy to prevent the arbitrage by whatever means it could, it failed to inform or warn Keller, Taylor or the plaintiffs that it was taking steps to eliminate the ability to arbitrage. Each of the plaintiffs entered the investment on the assumption that the defendant would not complete switches within three days of an instruction to switch. None of the plaintiffs would have invested had they been told that the defendant had such a right. If the defendant has a right to complete within three days, the plaintiffs say that it has, by its conduct, led them to believe that it would not enforce such rights, that its conduct was deliberate and that it would be inequitable to allow it to enforce those rights. The plaintiffs rely upon the well known passage from Lord Cairns' judgment in Hughes v Metropolitan Railway Co[670] referred to by Dawson J in Foran v Wight[671]. The plaintiffs' assumptions were induced by the contractual documents, Keller and Taylor's representations, the defendant's conduct in permitting Keller to exclusively market the special terms, the course of conduct followed by Keller and the defendant in administering the Conveview policies and the defendant's concealment from the plaintiffs, between June and September, of its proposed action to prevent the making of such arbitrage profits. The plaintiffs rely on the fact that Coneview, on behalf of each of them, and the defendant effected switches and cancellations from the time each of them invested until 16 October 2000.[672] They allege that the defendant knew that the plaintiffs were relying upon the letters, what Keller and Taylor had told them and the contents of the CIM and had made the assumption that the policy contained the three day option but the defendant failed to inform them that their policies did not contain the three day option. They claimed that the defendant encouraged them to continue the assumption by its course of conduct with Coneview/Keller, by the provision to Keller of confirmation notices and by its failure to tell the plaintiffs that the defendant did not believe their policies contained the three day option terms. On this basis the plaintiffs submit that it would be unconscionable for the defendant to contend, and it should be estopped from contending, that their policies did not contain the three day option.

569 The plaintiffs says it is immaterial to their claim in estoppel that they entered into the prosperity bonds on a "no advice" basis. They submit that it meant no more than an acknowledgement that the parties were at arm's length. There is no rule of law, they submit, that estoppel will not lie where parties are at arm's length, nor is there any rule that estoppel is limited to circumstances where one of the parties is "vulnerable". The no advice letter stipulates that a party, by signing the letter, acknowledged that the defendant "provided no advice on this investment to manager". The acknowledgement is relevant, in my view, to the plaintiffs' claim that they assumed facts as a consequence of the representations of Keller/Coneview and relied upon those representations made as the defendant's agent.

570 The case for the plaintiffs thus rests, in part, upon the claim that the defendant represented that the plaintiffs would have the right to give notice of intention to complete a switch in three working days' time and the right to cancel such notice inside that period.[673] They say that the defendant knew that they had been informed by its agent, Coneview/Keller, that their policies contained the three day option. They say that such representations were made directly and through Keller and Taylor so as to estop the defendant from otherwise contending. They submitted that it would have been obvious to the defendant, or should have been, that Keller and Taylor would continue to inform prospective investors of the magnitude of the gains to be made by investing in the prosperity bonds. It was incumbent upon the defendant to advise the plaintiffs and instruct Keller that he was to warn prospective investors that the defendant intended to change its arrangements to prevent arbitraging. Hence the plaintiffs say that the defendant realised or should have realised that prospective investors would accept what Keller was saying unless the defendant informed them otherwise. They submit that reliance cannot be a serious issue. It is plain, they say, that they would never have invested at all if they had known of the steps which the defendant intended to take.

571 The plaintiffs claimed the representation that the special term provided the three day option was stated orally by one or other of Keller and Taylor to Tyne, Hawkins and Tom Oates. The plaintiffs submit it would have been unreasonable for any of the plaintiffs to have bypassed Keller and Taylor and asked officers for the defendant whether the arbitrage activity "was all above board". The plaintiffs submit that it is a likely conjecture that had the plaintiffs inquired of Beazley as to such a matter, his response would have been entirely consistent with Keller's and Taylor's representations.

572 The plaintiffs point in particular to the removal of switching and other fees as something which occasioned the adoption by them of the assumption that the three day option was part of the contract. They say Yesberg recognised that a right to cancel unfavourable switches would provide the opportunity to arbitrage and that knowledge of the frequency of switches would be significant. Yesberg had agreed with the benefit of hindsight, that the special terms permitted Coneview policyholders to actively arbitrage. They relied upon the evidence of Yesberg that if he had known that cl. 1.8 gave the investor the right to switch and cancel, given the frequency of the switches, the fact of the arbitrage would have been obvious to him. Mandalidis and other employees of the defendant understood by May 2000 that an object of the special terms was to facilitate arbitraging. These admissions by the defendant's representatives evidence, the plaintiffs say, the purpose of the special terms. They submit that it does not matter when the defendant reached that conclusion because the purpose of the special terms is to be determined objectively. They rely upon the defendant's practice, at all material times, of allowing cancellations to switches within three days of the notice of intention to switch. They rely upon the defendant's failure to ask Keller at the meeting of 16 March 2000 how profits were being made by the Coneview investors or for a copy of the CIM. They submit that it was within the defendant's power to demand access to the CIM or refuse to issue further policies containing the special terms. They submit that following that meeting it was recorded that the defendant harboured real suspicions that Keller had not provided them with the full story, but the defendant did not make further inquiries or re-analyse the commercial implications of the special terms. The plaintiffs submit that it was either remarkable incompetence or a pre-existing full knowledge of all of the relevant facts, the latter being more likely, which explained the failure by the defendant to make very basic inquiries as to how the special terms were being utilised. The plaintiffs rely upon the testimony of Mr Lyon that the special terms were "an open ended invitation to material loss."[674] They submit that any person with actuarial experience would reach such a conclusion. They rely upon the defendant's Group CEO Report which noted, inter alia, that "anyone with experience or understanding of unit-linked business should be aware of the risks of arbitrage through switching."[675] Counsel for the plaintiffs drew attention to s.116 of the Life Insurance Act 1995 (Cth) which provides that new products should be fully costed by the company. Neither Beazley or Yesberg had heard of this provision and the defendant's chief actuary, Mr Slater, was not consulted beforehand. The plaintiffs submitted that he would have been as scathing as Mr Lyon in his testimony about the special terms of the prosperity bond which provided such an opportunity to arbitrage at the cost of the company.

573 The plaintiffs rely upon other facts as demonstrating the objective purpose of the special terms. They submit that there had been consistent oral cancellations within three days of notices of intention to switch and these cancellations were confirmed in writing by Ms Spanu. They rely upon the opinions expressed by representatives of the defendant.[676] Keller and Taylor understood that the object of the special terms was to arbitrage and that is how they explained the terms to the plaintiffs' representatives. They submit that if the defendant knew that Coneview investors were obtaining bank loans to pay their premiums and were paying management fees to Keller and protection fees to the defendant, standard returns on the prosperity bonds would have resulted in Coneview investors incurring losses. Thus it was submitted that the defendant knew or ought to have known that by unlimited free switching and the three day cancellation period it was creating the opportunity to arbitrage.

574 Although the plaintiffs, in oral submissions, contended that Yesberg well understood in the period June to September 2000, that Keller was representing to Coneview investors that the special terms facilitated arbitraging through the three day option,[677] it has not been established that Yesberg had any indication that Keller or Coneview investors construed the special terms as conferring a right to arbitrage by way of the three day option.

575 The plaintiffs rely on the defendant's "deemed, actual and constructive knowledge of the terms of the Coneview Information Memorandum". Although the CIM was not a contractual document relied upon by the plaintiffs, they submit that Keller's knowledge of its content, as the agent of the defendant, became the defendant's knowledge. They submit that the defendant should not be permitted to rely upon the argument that Keller was acting against the interests of the defendant because such a case was not pleaded or put to the plaintiffs' witnesses and the defendant did not call Keller to give him an opportunity to answer its allegation. The defendant was put on notice as to the content of the CIM because it was referred to on 16 March 2000 but failed to enquire as to its content or to demand its production. Thus, the plaintiffs submit that the defendant was put on notice of its content and rely upon the equitable doctrine of constructive notice as discussed by Tadgell JA in Macquarie Bank Ltd v 64th Throne Pty Ltd.[678] That doctrine coincides with the common law concept of inferred knowledge. They submit that the defendant's officers, most notably Yesberg, wilfully shut his eyes or recklessly failed to inquire about the reason why the prosperity bonds were proving popular and how large the investment return was. They submit that the knowledge of such officers was the knowledge of the defendant.[679] They submit that because of the defendant's silence, the plaintiffs could reasonably assume that the prosperity bonds would continue to operate on the same basis as they had up until that time and that the returns made by other investors would continue to be made. Each of the plaintiffs, it was said, made such assumptions. Whilst Mr Tyne anticipated that the defendant would make lawful changes once the cost of the special terms had been appreciated, neither he nor any of the plaintiffs could have assumed the defendant would rewrite the contract or undermine it. It was anticipated that the defendant might cease to offer such advantageous terms to new investors.

576 Upon these facts the plaintiffs submit that the test enunciated in Waltons Stores has been satisfied. The facts show that the defendant either intentionally induced or encouraged reliance by the plaintiffs or that it had knowledge of the plaintiffs' reliance. They submit that an objective test should be applied as it is in other areas of unconscionability and that it is no defence for the defendant to say that it did not know or intend that the plaintiffs would assume that the prosperity bonds would continue to be administered in the way they previously had been. They submit that the defendant ought to have realised - and a reasonable person in the position of the defendant would have realised - that there would be reliance.

577 The plaintiffs call in aid the statutory provisions of the TPA, the Corporations Act 2001 (Cth) (CA) and the Australian Securities and Investments Commission Act 1989 (Cth) (ASICA) which provide that the state of mind of a director, servant or agent of a body corporate engaged within the scope of that person's actual or apparent authority will be the state of mind of the body corporate.[680] The effect of these statutory provisions is to also treat the conduct of such persons as that of the body corporate. The plaintiffs thus submit that the knowledge, intentions and conduct of Yesberg, the defendant's other officers, and its agents Keller and Taylor are to be treated as that of the defendant for the purposes of the plaintiffs' claim of misleading and deceptive conduct.

Negligent misstatement

578 The plaintiffs rely upon the tortious remedy of damages for negligent misstatement submitting that the defendant was under a duty to speak.[681] The test for whether a duty of care exists in relation to negligent misstatement is that described in San Sebastian Pty Ltd v The Minister.[682] The plaintiffs submit that the negligent misstatements made by the defendant caused the plaintiffs' loss and that their reliance upon those statements was foreseeable and reasonable. They submit that the defendant's silence made the positive representation by it or its actual or deemed agents, Keller and Taylor, false. They say the defendant must have intended that there be reliance upon the representations that the special terms of the prosperity bonds would continue to be administered for the life of each policy in the way in which they had previously been administered. They submit that the defendant must have known that in the absence of a qualifying communication from it, that the plaintiffs would assume the existing state of affairs would continue. The plaintiffs' reliance was reasonably foreseeable. The defendant chose not to inform all investors after June 2000 when it was determining how to end Coneview's capacity to use the special terms to arbitrage. They submit that it is not necessary that the negligent misstatement be the sole inducement contributing to the formation of the contract. The conclusion is inescapable, they submit, that they relied upon the defendant's representations.

579 The plaintiffs also rely upon the proposition that where a representation is true when made but the maker changes his mind before a contract is formed, he is under a duty to correct his earlier representation so as not to mislead the other party.[683] The representation is viewed as a "continuing representation in reality and not merely by construction of law."[684] The maker of the representation is under an imperative duty to communicate to the other party the alteration in those circumstances.

580 In their reply, the plaintiffs claimed that there was an unambiguous representation by Keller and Taylor to the plaintiffs "that they had the right to give notice to switch which would be completed in three days' time unless they cancelled it." I have already stated my finding that the evidence does not support this assertion. Tyne and Hawkins did not testify that Keller or Taylor made any reference to when the defendant was entitled to complete the switch. Such a representation would have been inconsistent with the terms of cl 1.8. The plaintiffs say, if the defendant has completed the switch, it could no longer be cancelled, save by some indulgence being granted by the defendant and their right to arbitrage is lost. The accounts given by Tyne and Hawkins of their conversations with Keller and Taylor make no reference to a "notice" to switch or the "cancellation" of such a notice. The evidence of the two meetings upon which I am prepared to act shows that the switch date was understood by Keller, Taylor, Tyne and Hawkins to be the date upon which the notice was given, and nothing was said as to the date upon which the defendant could complete the switch.

581 Mr Tyne in his memorandum of February 2000 said to Hawkins "these terms effectively allow one to arbitrage ..." and "I have no doubt (and nor does David Taylor) that legally the above conclusion (i.e. trading with hindsight) is supported by the documentation."[685] Tyne described Taylor's remarks to him about historical pricing as the expression of his legal opinion.[686] They did not represent that the defendant had agreed or intended that investors could trade with hindsight (that is, make unlimited risk free arbitrage profits) or that the defendant did not have a right to complete a switch within three working days after the switch date or that there was no qualification to the investors' right to change their mind. I am not satisfied that, prior to any of the plaintiffs entering into their policies, they understood Taylor and Keller to do any more than convey their view of the effect of the special terms and inform them as to what Keller was said to have told representatives of the defendant as to his need to know the unit price at the time of the switch.

582 The plaintiffs submit that neither Keller nor Taylor would have said that the right to cancel was lost if the defendant completed within three days. They submit that neither of them believed that was the case. They say that Taylor and Keller "could not possibly have believed that, given the terms which they represented to the plaintiffs."[687]

583 Throughout the trial and in their closing submissions the plaintiffs consistently argued that Taylor and Keller would not deliberately have misrepresented the effect of the special terms. Such a submission is untenable. Taylor and Keller would or should have recognised that cl 1.8 in its final form was to that effect. The explanation for their failure to discuss this with Tyne and Hawkins may lie elsewhere. If Keller or Taylor was responsible for the Truemont document,[688] and Tyne and Hawkins were truthful in claiming that they knew nothing about it, I cannot exclude as a reasonable possibility that Keller or Taylor would be prepared to make other misrepresentations. The submission was also unsustainable that there was no evidence from any person who negotiated the special terms on behalf of the defendant that they believed that the defendant had such a right. The evidence of Beazley and Andrews to which I have already referred was to the contrary effect.[689]

584 The defendant denies that it made any representation to the plaintiffs containing the three day option. It contends that whatever Keller or Taylor may have said to the plaintiffs, it was not a clear and unambiguous representation to the effect of the three day option. There was no evidence that Keller or Taylor said that the defendant was precluded from completing a switch within the three day period. No promissory representation as to the three day option was made to, or relied upon by, the plaintiffs.

585 As already stated, I am satisfied that a notice of intention to switch was treated by Keller and the defendant as a notice by Keller on behalf of the Coneview investors of an intention to switch on the day that the notice was given. The conversations between Keller, Taylor, Tyne and Hawkins in mid 1999 proceeded on the understanding that the day of the switch was the day that the notice was given. It is plain that the plaintiffs and their representatives did not treat the notice as reflecting an intention to make a switch three days after the giving of the notice. This interpretation does not sit comfortably with the language of cl 1.8 or the manner in which switches were effected in the course of dealings between Keller/Coneview and the defendant. At no material time prior to October 2000 did any of the parties or Keller or Taylor appear to express this view. The plaintiffs asserted this interpretation of cl 1.8 at the trial because it would support the conclusion that the defendant could not complete the switch before the day on which it was intended to take place.

586 In support of this estoppel the plaintiffs again refer to the objective purpose of the special terms. They submit that Keller would not have agreed to a term which destroyed the three day option and which, in the absence of historical pricing, would destroy the benefit of the special terms. The plaintiffs ask whether it is likely that Keller or they would have agreed to the special terms had they been told that the defendant had a right to complete within three days. Little is to be gained from any speculation as to what Keller or the plaintiffs may have done had the defendant communicated its view that the plaintiffs' capacity to arbitrage by way of the three day option could be curtailed by the defendant completing the switch within the three day period. On the defendant's construction of the special term relating to the three day option, which I have concluded is correct, it conferred a limited right to arbitrage. An arbitrage profit could be made whenever a switch was cancelled prior to the defendant's completion of the switch. So long as the defendant maintained an historic pricing system, the plaintiffs and Keller/Coneview could utilise the special term to make arbitrage profits. To the extent that Keller and Taylor's intent or belief is relevant to the estoppel claimed, it is likely that they were conscious of these benefits and recognised that the circumstances in which the defendant would complete a switch could depend upon a number of factors.

587 The manner in which the defendant carried out switches and provided confirmation notices to Keller were, the defendant submits, inconsistent with the three day option. The defendant would confirm that the switch had been carried out immediately upon receiving notification. There was no suggestion that there had been or would be a delay of three days. The notification of cancellations suggested that a switch that had been previously carried out would be undone. No evidence was given on behalf of the plaintiffs that any of them had any knowledge of when, within the three day period, a notified switch was completed by the defendant, or that they had even considered that issue.

588 The plaintiffs argue that it does not matter that none of them knew precisely how Keller was effecting each switch. They submit that they were not concerned whether Keller was giving oral or written notice as it was obvious the defendant had been giving effect to such notices. They say that it was the fact that the defendant was, by its conduct, holding out and representing that what Keller was doing was in accordance with the operation of the special terms. But such a course cannot found an estoppel unless the plaintiffs knew what that course was. It was not suggested that the knowledge or reliance of Keller over the course of dealings prior to the time when the plaintiffs invested could be attributed to the plaintiffs. Hawkins and Tyne were mistaken in their evidence that Keller or Taylor had told them in mid 1999 that he was cancelling switches. Whenever it was that the plaintiffs were first told by Keller that he had cancelled switches, I am not satisfied that the plaintiffs knew or made any assumptions about the circumstances in which such cancellations occurred. The plaintiffs would not have anticipated a need to cancel switches as they had carefully examined the correlation between market movements and unit price movements and were satisfied that the defendant was using historic pricing. The submission of the plaintiffs in reply that it would not be surprising that they had not been told anything about when a notified switch would be carried out and that it was immaterial if the defendant carried out a switch for its own internal administration purposes before the expiry of three days, provided it does not preclude the cancellation right,[690] demonstrates that the plaintiffs' alleged assumptions do not rest upon any knowledge or belief about the course of dealings between the defendant and Keller but upon their interpretation of cl 1.8.

589 The plaintiffs' reference to the fact that the defendant carried out switches by way of book entries recorded on a spreadsheet separate from its main computer system similarly fails to advance the argument that the course of dealings between Keller and the defendant can support an estoppel. The parties dispute the extent to which the defendant's officers knew that the switches were being recorded in this manner. The references to the Tillinghous survey[691] and the defendant's response to that survey[692], whilst demonstrating that the defendant was aware that the integration of its unit pricing system with its policy, administration and accounting systems depended upon a combination of electronic and manual interfaces, provides no support for the plaintiffs' contention that the defendant, by its course of conduct with Keller, had encouraged their assumption with respect to the three day option.

590 I have found no evidence to persuade me that any of the defendant's representatives had any knowledge or understanding that Keller or the plaintiffs interpreted the special term as conferring upon them a three day option to cancel the notification of a switch. The course of conduct of Keller and the defendant confirms that the notice of intention to switch related to a switch on the day the notice was given, and was given effect by the defendant at that time or shortly thereafter by the manual recording of the switch. The plaintiffs submit that if the defendant had such a right it neither exercised it nor communicated its alleged right to exercise it until October 2000.[693] I have already noted that the issue of whether the special term conferred or precluded such a right was not raised by either party with the other prior to October 2000. Prior to that time neither Keller nor the plaintiffs had said or done anything which suggested that they so interpreted the special term. That is to say, they did not communicate a belief that they had three days within which to cancel a switch and that the defendant did not have a right to complete the switch until after the expiration of that period. Further, no evidence leads to the conclusion that the defendant believed that its normal right to complete a switch or withdrawal within the time specified in cl 1.8 had been removed. The course of conduct between Keller and the defendant was not inconsistent with such a belief or the existence of that right. That course of conduct does not assist the plaintiffs' contention that the defendant was not entitled to complete the transaction until the expiration of three working days and was obliged to give effect to any cancellation of the switch within those three working days. Keller's knowledge of how the defendant was processing the notices of intention to switch shows that he understood the defendant was unlikely to discover the frequency and cost of his switching for some time.

591 It was Tyne's belief that the defendant did not recognise the significance of the concessions which Keller had extracted from the defendant and that future investors would have to accept the terms precisely as written because any attempt to re-negotiate might alert the defendant and cause it to withdraw the special terms altogether. He was aware that there was no opportunity to re-negotiate.[694] The defendant submits that Tyne's belief that the contractual terms could not be changed is inconsistent with a claim that he relied upon extra-contractual terms represented by Taylor and Keller. The defendant points to Tyne's memorandum to Hawkins of 25 February 2000 in which he recommended investment in the prosperity bond. It says he referred only to the documentation as embodying the arbitrage opportunity and made no reference to the conversations with Keller and Taylor some eight months earlier or the course of conduct of Keller and the defendant as relevant to the three day option. In their reply the plaintiffs submit that Tyne and Hawkins could not be expected to have had an understanding of the defendant's internal processes for recording and giving effect to switches. How the defendant internally administered the special terms was said to be of no interest to the plaintiffs,[695] but if that is so, it only serves to demonstrate that they did not rely upon the course of dealing to form any view about the three day option.

592 Hawkins, like Tyne, had also satisfied himself that the documents reflected the special terms. It was some eight months after Tyne invested in a prosperity bond in his own name that Hawkins made his investment. In the interim Tyne forwarded to him a number of the contractual documents including the policy. Hawkins acknowledged in his evidence that he had particular regard, inter alia, to cl 1.8 of the policy. He waited until September 2000 to invest to satisfy himself that the investment would provide the anticipated returns. Like Tyne, he referred a number of times during the course of his testimony to the representations made by Keller and his reliance upon them. As in the case of Tyne, such contemporaneous records as exist and his statements to others, such as the directors of Pegela, did nothing to alter my view that neither he or Tyne regarded the observation of Keller or Taylor as constituting a representation or that neither were induced to make an assumption of fact or law concerning the three day option in reliance upon any such representation or as a consequence of the course of conduct of Keller and the defendant.

593 The plaintiffs, Tom and Paul Oates, had no contact with Keller or Taylor and they did not purport to rely upon any course of conduct between Keller and the defendant. Each appeared to rely upon the contractual documents,[696] Paul Oates principally relying upon the recommendations of Tom Oates.[697] It will be necessary to further refer to the question of reliance by the plaintiffs when dealing with the issue of historic pricing.

594 Much of the conduct of the defendant, which the plaintiffs contend occasioned the adoption by them of the assumption concerning the three day option, does not amount to encouragement.[698] Most of the conduct alleged relates to the issue of historic pricing and not to the three day option. As the plaintiffs did not rely upon Keller as the agent of the defendant, it is plain that it was not until some time after each of the plaintiffs had invested in the prosperity bond, that the argument first came to the defendant's attention, that Keller or the plaintiffs wished to construe the special terms as giving rise to a three day option which facilitated the opportunity to make arbitrage profits.

595 By May/June 2000 the defendant understood that the special terms provided the plaintiffs with an opportunity to arbitrage as a consequence of the defendant's use of an historic pricing system. Between 7 February 2000 and 5 October 2000 there were 13 occasions when Keller cancelled an instruction to switch.[699] Although both Tyne and Hawkins testified that they were told by Keller at the time of the representations that switches had been cancelled in accordance with the special term, it is plain that he did not do so at that time. I do not regard their evidence as deliberately false but it was the result of their obvious re-construction of the events in the most favourable light. Their reconstruction of the conversations at the first and second meeting was for this and other reasons unconvincing and in part, unreliable. I remain unpersuaded that the plaintiffs were told at any material time prior to entering into their policies that cancellations were being carried out within three days or at all. Whilst the defendant maintained its historic pricing system neither Keller nor the plaintiffs had cause to resort to the three day option as a mechanism for making arbitrage profits. The returns being made on the investment were not as a consequence of the cancellation of notices to switch. If any responsible officer of the defendant had knowledge of the infrequent occasions when Keller cancelled an instruction to switch between February and October 2000, it has not been established that the defendant thereby encouraged or induced an assumption by the plaintiffs that the special term relating to the three day option could be utilised in that manner to arbitrage. In relation to the three day option, the plaintiffs have not adduced any persuasive evidence that it was apparent to the defendant that Coneview or Keller had or would inform prospective investors in the prosperity bonds that there were arbitrage gains to be made from the use of the three day option alleged to lie within the special terms. It was not an issue to which the defendant had been alerted. Inquiry of Keller would not have resulted in the alleged three day option being disclosed. No compelling basis exists upon which I should infer that the defendant had knowledge, actual or constructive, that Keller or the plaintiffs believed that there was a three day option that afforded opportunity to make arbitrage profits.

596 In the context of the plaintiffs' estoppel claim, the defendant points to the requirement that the assumption which the plaintiffs form must be reasonable. It relies upon the extra curial observations of Lord Steyn that the expectations that the law protects are those "which satisfy an objective criterion of reasonableness" having regard to "community values" and the standards of "ordinary right thinking people".[700] Lord Nicholls of Birkenhead in his own extra curial observations considered that the question "what would a reasonable person in the position of the parties understand was the meaning to words were intended to convey ?" gives effect to what Lord Steyn had felicitously described as "the reasonable expectations of honest people".[701] His Lordship acknowledged that such a meaning is artificial in the sense that it will not necessarily correspond with the meaning actually intended by the maker or with the meaning actually understood by the reader.

597 The defendant submits that the plaintiffs did not in fact make the assumptions alleged and if they did, it was not reasonable for them to have made such assumptions or held such expectations.

598 There was evidence that more than once, the question was asked of Keller or Taylor "what was in it" for the defendant. Tyne and Hawkins testified that they received the explanation that the defendant was driven by a desire to increase the size of funds under its management and was only focussed on the short term. The testimony that they believed the defendant was willing to expose itself to substantial financial detriment because of the "kudos" in the market place of obtaining substantial funds was quite unpersuasive. The contention of the plaintiffs that the defendant was fully aware of the fact that it was granting terms which would permit life long risk free arbitrage profits on very substantial investments, and that it was prepared to do so for short term market gains was not based upon any convincing evidence. Neither Keller or Taylor suggested to the plaintiffs that the defendant was aware that the terms conferred such rights or that it realised they would be so utilised. Each of the plaintiffs or their representatives had substantial commercial expertise, some with a particular knowledge of the insurance industry. Each recognised that a company such as the defendant would be resistant to the creation of opportunities for investors to make arbitrage profits. I was left in no doubt that each of the plaintiffs understood that Keller and Taylor had managed to negotiate and settle the special terms without revealing their true purpose to the defendant in seeking these terms.[702]

599 Any reliance by the plaintiffs upon the representations allegedly made by Keller or Taylor must be reasonable.[703] If, contrary to my findings, Keller or Taylor invited any of the plaintiffs to make assumptions that the defendant had agreed with Keller and would agree with the plaintiffs to terms that permitted the switching and cancelling of switches within three working days of the notice to switch to enable the making of risk free arbitrage profits, reliance upon such an assumption was unreasonable. I do not accept that Tyne and Hawkins regarded Keller and Taylor as authorised by the defendant to advance such a proposition. I am satisfied that they understood Keller and Taylor to be informing them of how they and not the defendant considered the terms which Keller had obtained might be interpreted and utilised and that the defendant was unaware of their intentions.

600 Each of the plaintiffs said they placed reliance upon the representation rather than the contractual documents. Such a representation should have been viewed as inconsistent with the express terms of cl.1.8. Tyne and Hawkins both had a lengthy period in which to consider the special term as set out in cl 1.8 of the policy before they made the investments the subject of these proceedings. The defendant submits that if it were true that they did not carefully read the contractual documents and in particular cl 1.8, and so were not aware of its precise terms, their conduct bordered on the negligent and was unreasonable.[704] I do not accept that they were unaware of the terms of paragraph two of cl 1.8.

601 Any knowledge which Keller or Coneview did have should not be imputed to the defendant for the reasons I have already expressed when dealing with the issue of agency. Keller was not viewed as acting as the defendant's representative but as someone consciously acting contrary to the interests of the defendant. It was apparent to the plaintiffs that he was so doing.[705]

602 The plaintiffs were aware that the defendant would take whatever steps it could to protect itself against arbitraging. They were aware of the potential detriment of the terms to the defendant. Absent an established contractual right to risk free arbitrage profits for the life time of the policyholder, the plaintiffs were not entitled to hold a reasonable expectation that they could exercise the three day option to cause very substantial financial loss to the defendant upon the basis of a representation, if it had been made in such circumstances.

603 The conversations between Tyne, Hawkins, Taylor and Keller took place in July 1999. By their pleadings the plaintiffs alleged that they were at that time "informed" by Keller or Taylor of the special terms.[706] I put to one side the alternate pleading that Keller and/or Coneview were authorised by the defendant and "agreed with the plaintiffs the terms of the prosperity bond."[707] Taylor and Keller informed Tyne and Hawkins in the conversations of July 1999 that Keller had negotiated and obtained certain concessions from the defendant in relation to the prosperity bond. Those concessions were documented. Taylor and Keller informed them of the effect of the terms which Keller and the defendant had agreed upon. Neither Keller or Taylor were then, or at any later time, purporting to reach an agreement with the plaintiffs as to the special terms, nor were they making any representation as to any contractual terms which the plaintiffs might obtain from the defendant. Although both Tyne and Hawkins in their testimony repeatedly and sometimes unresponsively spoke of the representations made by Keller and Taylor, their accounts of what they were told and what they subsequently said to each other or to other persons, reflected their understanding that both Taylor and Keller were expressing their views about the factual and legal conclusions which flowed from the special terms which Keller had agreed upon with the defendant. No promissory representation was made by Keller or Taylor to Tyne and Hawkins that the defendant had agreed to or understood the factual or legal conclusions relating to the three day option which Keller and Taylor said were the consequence of the documented special terms. They were not viewed as the representatives of the defendant or as making any promise on its behalf. I am not satisfied that there was any representation which gave rise to any assumption in relation to the three day option which can support a claim in estoppel. Even if what Taylor and Keller told Tyne and Hawkins were to be construed as a representation as to the meaning and effect which the defendant would give the special terms, the plaintiffs have not demonstrated that they adopted or adhered to any assumption in reliance upon the alleged representation concerning the three day option. Each of the plaintiffs or their representatives acted upon the basis that it was the documents that embodied the three day option term. None of the documents said to be contractual by any of the parties refer to any prohibition upon the defendant completing a switch within the three day period. The proper construction of cl 1.8 and the undertakings letter does not support the "three day option".

604 The plaintiffs have failed to make out a claim in estoppel based upon the course of conduct between the defendant and Keller. That conduct was, on the most favourable view for the plaintiffs, equivocal. Furthermore, I am not satisfied that the plaintiffs were aware that such conduct had been taking place or that they reasonably relied upon its continuation when entering into their policies.

Estoppel - notice in writing

605 In their reply the plaintiffs plead that the defendant should be estopped from contending that the special terms require a written notice in relation to a switch made pursuant to cl 1.8. The plaintiffs plead that the defendant has never required the notice to be in writing or contended that the oral instruction to switch did not constitute a notice of intention to switch pursuant to cl 1.8.[708]

606 The evidence of Spanu and Wenzel was that Keller would give them an oral instruction to switch between the two portfolios. No indication was given that the switch was to be delayed or that it was to occur in the future. Within the three day period, generally the same or the following day, a confirmation was sent to Keller that the switch had been processed. It was, as Spanu testified, normal practice for the defendant to take switch requests over the telephone. If, as the plaintiffs contend, Keller was acting pursuant to cl 1.8, he raised no complaint that his requests to switch were processed by the defendant almost immediately.

607 It was said by the plaintiffs that there was a common assumption between Keller and Spanu/Wenzel that oral notices would suffice. The plaintiffs argue that it was the defendant's standard practice and that oral notices were mutually beneficial. The effect of Spanu's evidence was that the defendant would accept oral instructions from a client to switch as it was generally more convenient for the client than the giving of written notice. The plaintiffs rely upon Spanu's testimony that it could be that she said to Beazley that she had told Keller that it would be better for him to give switch instructions orally.[709] It was not her testimony that it was beneficial or convenient for the defendant. The plaintiffs accept that neither Spanu nor Wenzel demonstrated any familiarity with the specific requirements of cl 1.8. In the event that something turns on this question I would not find that the parties have abandoned insistence on a written notice.

608 The process followed by Keller and the defendant does not establish that the defendant should be estopped from requiring that the notice of intention to switch be in writing in compliance with cl 1.8. The contractual letters upon which the plaintiffs said they relied all expressly state that a written notice is required. It was not suggested by any of the plaintiffs or their representatives that Keller or Taylor told them that notices could be oral or that there was no requirement to give notices in writing. Furthermore, the wording of the CIM is consistent with the requirement of a written notice. None of the plaintiffs who testified as to the issue had any knowledge as to whether Keller was giving a written or oral notice when he requested a switch.[710] There was neither knowledge of nor reliance on the procedure followed by the plaintiffs. Consequently, the plaintiffs must also fail in their contention that the defendant knew of such reliance. No obligation arose for the defendant to inform the plaintiffs or Coneview that oral instructions were insufficient to constitute a notice of intention to switch. The plaintiffs' estoppel claim in this regard also fails.

Conclusion as to Three Day Option

609 The plaintiffs were not entitled to rectification as they have failed to establish that any of the parties held the intention necessary to make out a common intention.

610 Where the plaintiffs notified the defendant of an intention to switch, the defendant could complete the instruction to switch at any time within three working days of the notice being given. It was a notice to switch that took effect on the day of the notice. No oral promise was made to the plaintiffs by Keller or Taylor that the defendant could not complete the switch prior to the expiration of the three working days.

611 The plaintiffs did not assume that they had a contractual right to cancel a switch at any time within three working days as a consequence of any representation made by Keller or Taylor. It would have been unreasonable to rely upon anything said by Keller or Taylor as enlarging the contractual obligations of the defendant.

612 At no material time did Keller or the plaintiffs reveal to the defendant that they believed the special terms precluded the defendant from completing a switch within three working days of an instruction to switch or that it was their intention to cancel switches within three working days so as to make risk free arbitrage profits.

613 No conduct of the defendant or Keller and Taylor could support the plaintiffs' claim in estoppel. The defendant made no variation to the contract nor did it elect to abandon its rights under the special terms. The defendant is entitled to require notification in writing, there being no variation or estoppel that precludes reliance upon that right.

614 The plaintiffs have not established that it was their expectation that the three day promise was a term of the contract or that such an expectation was reasonable. The defendant did not induce the plaintiffs directly or through Keller and Taylor to hold the reasonable expectation that the three day option was a term of the plaintiffs' contracts.

615 The plaintiffs have failed to establish that the defendant's conduct was misleading and deceptive or that any statement was negligently made.

616 Consequently, the enforcement of its contractual right to complete a switch within three working days does not constitute a failure by the defendant to act in the utmost good faith in breach of any common law principle or the Insurance Contracts Act. Accordingly, pursuant to cl 1.8, the defendant is entitled to require notification in writing.[711]

HISTORICAL PRICING

617 The plaintiffs in closing argument put their claims arising out of the defendant's use of historic pricing on the following bases: [712]

1. The defendant used historical pricing, and had for as long as anybody could ascertain.

2. The plaintiffs were given the contractual right to unlimited free switches between the Cash and Secure portfolios.

3. The intention of the contract was to allow the plaintiffs to arbitrage.

4. The combination of that right, together with historic pricing, gave rise to a valuable arbitrage opportunity.

5. The defendant through its agents promised the term.

6. The defendant's conduct constituted a variation, election or acquiescence in the historical pricing term.

7. The reasonable expectation created in the plaintiffs by the course of dealings between the defendant and Keller and the failure of the defendant to spell out a reservation of right or intention to move from historic to forward pricing, would cause the Court to readily infer an implied term to complete the bargain in circumstances where the conduct of the insurer has caused or contributed to that reasonable expectation.

8. If there is neither an express or implied term the plaintiffs say that the facts support the conventional estoppel. The parties have both proceeded, measured objectively, on the common assumption that historic pricing will continue to be used by the defendant. If the parties are taken to have agreed to the cl 1.8 three-day option, it is even more likely they intended to continue with historic pricing.

9. The plaintiffs rely upon estoppel based upon representation and the right to minimum equity or damages for misleading conduct because the plaintiffs would not have entered into the contract without that right.

618 Historical pricing was not a written term of the policy or of any of the other contractual documents upon which the plaintiffs rely. The plaintiffs plead that there was the following express oral term of the prosperity bonds:

[391]

619 The oral term as pleaded was constituted by the conversations in the first meeting of mid 1999 between Taylor, Tyne and Hawkins, and the second meeting between Keller, Taylor, Tyne and Hawkins,[714] a further conversation between Tyne and Taylor in January 2000 and a conversation between Tom Oates and Taylor in about March 2000.[715] The plaintiffs also plead that it was an implied term that the unit prices in the cash and secure portfolios would be calculated on an historical basis. They say the term was to be implied from cls 2.2(e), 3.3(a) and 4.20 of the plaintiffs' policies and from the defendant's practice, known to the plaintiffs, of publishing unit prices on an historic basis.[716] Alternatively, the plaintiffs allege that the defendant knew from at least June 2000 that the plaintiffs assumed that they had the contractual right to have the unit prices calculated on an historical basis and the defendant encouraged that assumption and thereby varied the special terms or waived or abandoned any contractual right that it had to the contrary.[717] Alternatively, the plaintiffs allege that the defendant is estopped from contending that the plaintiffs are not permitted to make arbitrage gains and that the defendant is estopped from taking any step to change from historic to forward pricing as a consequence of it representing directly or through Keller or Taylor that it was a term that they would use historic pricing or that it was their intention to do so knowing that the plaintiffs relied upon such an assumption.[718]

620 Approaching the question of what a reasonable onlooker may have intended by the special term, the defendant submits that it makes no provision for historic price arbitraging and the plaintiffs never thought that it did. Although the plaintiffs were given an unlimited right to free switches, the defendant retained its right to wait until the end of the day to fix the unit price and to declare the unit price as often as it wished during the course of the day.[719]

621 The fact that historical pricing was not expressly promised in any of the contractual documents was said by the plaintiffs to be because the use of historical pricing was "confidential".[720] It was not in issue that the defendant's pricing system was confidential.[721]

622 Tom Oates' evidence was to the effect that Taylor had told him that the defendant was using historical pricing and that it was committed to continuing to do so. Although he had recorded in a personal memorandum in November 2001 that it was a "legitimate administration" of the prosperity bonds for the defendant to use a forward pricing basis[722] he testified there was no discrepancy between these two accounts as the memorandum was explicable on the basis that with his life insurance background he had written the memorandum from an insurance company perspective.

623 The Court was invited to accept the evidence of Tom Oates that Taylor had told him that the right to historical pricing had not been reduced to writing because the defendant wished to keep the fact that it used historical pricing confidential. I do not know whether this was intended to suggest that the defendant revealed its method of pricing to Keller or Taylor. There was no other evidence which suggested that it had done so. It was not put to any witness for the defendant that it had done so.

624 It was submitted that as a consequence of what Taylor told them, the plaintiffs reasonably believed that "confidentiality" was why the historical pricing promise was not contained in the various contractual documents. That belief was sufficient to rebut the presumption that the written documents contained all the relevant terms of the plaintiffs' contract with the defendant and entitled the plaintiff to rely upon extrinsic evidence to establish the historical pricing terms. As Keller and Taylor were the defendant's agents, the plaintiffs submitted that their knowledge was the defendant's. Hence the defendant did not reasonably believe that the written contract was the exclusive record of the contract.

The evidence that the defendant had agreed to use historical pricing

625 As to the plaintiffs' claim that Keller and Taylor made an oral promise that the plaintiffs would have the right to use historical pricing, the plaintiffs rely primarily upon what Tyne and Hawkins allege they were told by Keller and Taylor in their accounts which I have set out in dealing with the three day option. Tyne, Hawkins and Tom Oates each testified that Keller and Taylor promised that the contracts would contain that right and the defendant's obligation to use historical pricing.[723] The plaintiffs in substance submit that Keller and Taylor said that they had negotiated such a special term and were authorised to offer it to prospective Coneview investors. In dealing with the three day option, I have already made reference to some unsatisfactory features of the accounts given by Tyne and Hawkins of their conversations with Keller and Taylor which I shall not repeat.

626 The plaintiffs rely upon the observable fact that the defendant was utilising historic pricing and had permitted Coneview investors to switch between the secure and cash portfolios until the end of September 2000. The defendant had therefore permitted Coneview investors to arbitrage. The plaintiffs rely on the absence of any evidence that the defendant warned the plaintiffs or Keller that it reserved the right to switch to forward pricing.

627 The plaintiffs rely upon the testimony of Tyne, Hawkins and Tom Oates that they held an expectation that the defendant was obliged to continue to use historical pricing and that the defendant contributed to that expectation directly and through Keller and Taylor.

628 Each of the plaintiffs testified that they relied upon what Keller and Taylor told them. They knew and trusted Taylor.[724] The plaintiffs, from the receipt of account balances from the defendant, and their own inquiries into their cash flow calculations through the defendant's web site, satisfied themselves that the defendant was using an historical pricing system and that the Coneview investment was being administered as Keller and Taylor alleged. Their reliance upon Keller and Taylor is relevant to the plaintiffs' claims in estoppel, negligent misstatement and misleading and deceptive conduct.

629 The accounts given by Tyne and Hawkins of the first and second meeting have been referred to in detail earlier in these reasons. Tyne, Hawkins and Tom Oates gave evidence that they relied upon what Keller and Taylor had told them. Tyne said that he relied upon everything Keller and Taylor told him[725] and in particular that the arrangements between Keller and the defendant included the right to historic pricing.[726] He said he considered the defendant was contractually committed to historic pricing.[727] Tyne also analysed the secure unit price movements published by the defendant and compared them with the movements in the All Ordinaries index. Hawkins based his recommendation to the board of Pegela upon what he said he had been told by Taylor and Keller and the rate of return demonstrated by Tyne's investment prior to him investing.[728] He said he also relied upon Taylor's assurance that the documentation reflected the special terms. He said he relied upon the content of the CIM.[729] Tom Oates said he believed that the defendant was committed to historic pricing as a consequence of what Taylor told him in March 2000.[730] He said he relied upon the defendant's practice of utilising historic pricing which he ascertained from his own investigations and analysis, the reference to the defendant's web site, the CIM[731] and the CIB.[732] Paul Oates said he relied heavily upon Tom Oates but also upon the content of the CIM.[733]

630 The defendant submits that the evidence does not warrant the conclusion that Keller or Taylor represented to Tyne and Hawkins that the defendant agreed to use historic pricing for the duration of the policies or that Taylor confirmed this in a conversation with Tyne in January 2000 or that Taylor confirmed it in a conversation with Tom Oates in March 2000. The credibility of the accounts of Tyne, Hawkins and Oates was put in issue by the defendant, particularly in relation to their claim that they were told that the defendant had agreed to the use of historical pricing as a special term of a prosperity bond.

631 Both Tyne and Hawkins testified that they alone prepared their witness statements independently of each other. Although they were called upon to give viva voce evidence as to these conversations, substantial portions of their account of the conversations as set out in their witness statements were referred to during the course of the trial.[734] Some paragraphs of their statements touching upon these conversations were admitted in full into evidence. It was apparent from a perusal of various contentious paragraphs in each of their statements that they could not have come into existence independently of each other. The defendant submits that their account as to material issues was the subject of collaboration. In their reply the plaintiffs submit that even if this were so, the significant parts of their accounts in their statements remained quite different.

632 During the course of their evidence it became apparent that Tyne and Hawkins' accounts of their conversation with Taylor at the first meeting[735], their accounts of their conversation with Keller and Taylor at the second meeting[736], the assumptions of fact which each of them asserted they relied upon[737] and their accounts as to the issue of agency and the documents relevant thereto[738] revealed some commonality of authorship between them. This was described by the defendant as "transparent collusion".[739] It may be that one of their accounts was initially independently prepared and that the other used that account in the preparation of his own. If that is the explanation, it was not acknowledged by either Tyne or Hawkins nor did either concede that his account to that extent was not an independent one. The defendant submitted that the explanations that the plaintiffs had given were unconvincing, evasive and incredible. It submitted that the Court should find that their accounts lacked independence and were the consequence of common reconstruction arrived at with a view to advancing the plaintiffs' case. I consider there is force in this submission. There were also passages of Tom Oates' witness statement that bore the same features. He was prepared to concede during the course of his evidence that he must have had access to some one else's document to explain the similarity of contents of parts of his statement.

633 The plaintiffs refer to Tyne's evidence that the plaintiffs' previous solicitors, Verekers, had asked him in 2001 to prepare a narrative of his conversations. They submit that whilst there were some similarities between the plaintiffs' accounts of these conversations, there was a plausible explanation for those similarities. Further, they submit it was noteworthy that there was no relevant similarity on any material matter. The plaintiffs say that the common language that appeared in the plaintiffs' witnesses' statements has been sufficiently explained and led nowhere. They say the defendant failed to adequately challenge Tyne, Hawkins or Oates as to their account of these conversations. The cross-examination of Tyne and Hawkins made it plain that the reliability and credibility of their accounts had been put in issue.

634 The plaintiffs submit that Taylor's statements to Tyne were clearly promissory because they were intended to induce him to invest in the prosperity bonds. The plaintiffs contend that Tyne's account was clear and convincing and showed that he plainly understood Taylor to be the defendant's agent.

635 The manner in which Tyne, Hawkins and Tom Oates testified and the substance of their evidence in this regard affected my assessment of their credibility and the weight that I should attach to their evidence. They each recognised that their claim that historical pricing was a term of the prosperity bond rested upon their assertions as to what Keller and Taylor had told them.

636 There were other unsatisfactory features of their testimony. Tyne and Hawkins both testified in evidence in chief that Taylor had said things to them about the price at which the switch would be conducted. No reference was made to this in either of their witness statements dealing with the first meeting with Taylor. Neither of them had suggested in their statements that Taylor had said anything about historical pricing or the price at which switches were to be made.[740] Further, their accounts in evidence in chief as to what Taylor did say about this matter at the first meeting differed. Hawkins testified that he had overlooked the fact that he had not included in his witness statement that Taylor discussed historic pricing at the first meeting.[741] Paragraph 7 of the further amended statement of claim, though purporting to set out the special terms referred to by Keller and Taylor in the first and second meeting, makes no reference to historical pricing. It first appears in the plaintiffs' pleadings in paragraph 10 (aa) and particular (1a) thereto which deal with the express term.

637 As to the second meeting, Tyne said in evidence in chief that Keller had told them that part of his "administrative arrangements" with the defendant were that he would know the price at which a switch was to be effected because the defendant published a price on a day by reference to the market movements the previous day. Tyne repeated in his testimony that Keller had made it clear that his arrangement with the defendant was that he would always know the price at which a switch was to be effected. Tyne's account in evidence in chief differed significantly from the account set out in his witness statement which was subsequently admitted into evidence.[742] According to Tyne's witness statement, Keller had said that the defendant published each day's unit price in the morning and that he had told the defendant "that we had to know the prices at which we could switch before switching." He did not say that Keller had said he had reached some arrangement with the defendant.

638 Hawkins gave evidence in chief which differed from Tyne as to what was said at the first meeting. He said that Keller had told them that they would always know the price at which the switch was made which was a reflection of the closing day's price and that the price was set on the morning and was published on the defendant's web site. He testified that Keller told them that it was a special term that the price was set on the morning. He said that price reflected the closing price of the market on the previous day.[743] Hawkins' testimony was inconsistent with his witness statement which made no reference to a representation by Keller as to historical pricing.[744]

639 The defendant submitted that the accounts of Tyne, Hawkins and Tom Oates were unreliable. They purported to give extraordinarily detailed accounts of conversations which occurred four and a half years ago without the benefit of any contemporaneous record. The defendant submitted that they could not assist the Court by recalling the circumstances of the preparation of their witness statements only six to 12 months before they gave evidence. It said that it was apparent that crucial parts of their statements were the product of collaboration despite their initial denials that was so. As to the second meeting the defendant submits that the testimony of Tyne and Hawkins was extremely unreliable. It submitted that the discrepancies in the accounts given by Tyne and Hawkins of their conversations with Keller and Taylor, including their acknowledgements of errors that they had made and the changes in their testimony, demonstrated their unreliability. It points to the documentation concerning the Truemont Trust, to which I have already referred, and submits that Tyne and Hawkins could not explain how documents came into existence which suggested that they had played a substantial role in the marketing and inception of the investment club concept. It relies upon the false assertions that Keller and Taylor had informed them at the time of this meeting that switches and cancellations had already occurred and returns of 20% were already being earned. The defendant submitted that Tyne was forced to water down his previously unequivocal evidence as a result.

640 The defendant points to the communications between the plaintiffs and the defendant, both written and oral, and says that at no time did the plaintiffs suggest that Keller had made an oral promise or representation about the contractual terms. It submitted that this claim was a recent invention.[745] The plaintiffs in response say that the evidence shows that as a consequence of what Keller told them, the plaintiffs always thought that the defendant had committed itself to historical pricing. Further, Counsel for the plaintiffs argued that it was not open to the defendant to suggest recent invention having regard to the way the trial was conducted.[746]

641 According to Tyne's witness statement, Taylor told him in a subsequent conversation that Keller could generally access the unit prices by 10.00 a.m. and the price was in effect yesterday's calculation. When Tyne asked him whether the defendant was committed to that pricing system, (a curious question, if Keller and Taylor told him at the second meeting that there was such an arrangement) Taylor said:

[395]

642 Tyne's account, which the defendant objects to as hearsay on hearsay, shows that Taylor was conveying to him Keller's expressed desire to the defendant rather than an agreement by the defendant and that Taylor's statements to Tyne were not promises or representations.

643 The defendant submits that it is evident that Tyne did not treat Taylor as the defendant's agent during this conversation and that Tyne gave differing accounts of what Taylor told him.[749]

644 In evidence in chief Tom Oates testified that he had a telephone conversation with Taylor after he had sent Taylor an email raising certain questions in March 2000. As with other witnesses, any controversial conversations contained within his witness statement were not read into evidence and he was required to give viva voce evidence of those conversations. Ultimately, various parts of what he said in his witness statement about these conversations found its way into evidence. The substance of his evidence was to the effect that he raised with Taylor that Tyne had said that the arbitrage between the defendant's unit price and the external market based upon the defendant's use of historical pricing was not documented. Taylor confirmed that it was not documented as the defendant treated it as something the defendant did not want the public to know about. Taylor told him that the policies were administered on an historic pricing basis and that Keller had requested that the defendant administer the policy that way so that he knew the unit price that he was switching at. Oates said that Taylor told him that historical pricing was the practice employed by the defendant and that was confirmed by the defendant on inquiry by Keller. It was submitted on Oates' behalf that the representation was intended to be promissory and to reassure him that the defendant intended to continue to use historic pricing for the life of the policy.

645 Oates subsequently spoke to Tyne and told him that the defendant was using historical pricing and that Taylor confirmed that it was an administrative matter and that the defendant was unlikely to change that system. Oates testified that Tyne responded that as he understood it, the defendant had actually confirmed that it would administer the policies on an historical basis when speaking to Keller. Tyne told him he thought it unlikely that the defendant would change the way they administered the funds given that it can be quite hard to change those sorts of things and stated that he thought the defendant had undertaken to keep administering the policies that way for Keller because Keller wanted the unit price on the day that he instructed them to switch.

646 The defendant submitted that Oates gave differing accounts of what Taylor told him, most of which fell short of establishing the representation alleged. In his witness statement Oates stated that Taylor said the following:

[399]

650 It was submitted on his behalf that nothing turned upon this memorandum prepared by Oates after the defendant had switched to forward pricing. It was not prepared with legal advice. His explanation that he was wearing his "life insurance company hat" when he wrote this memorandum for his own purposes was unpersuasive. I consider his memorandum properly reflected his understanding that historical pricing was not a special term.

651 The plaintiffs submit that the defendant has pointed to only minor inconsistencies between evidence of the various plaintiffs as to these representations and they are to be expected given the passage of time and that the absence of documents corroborating their accounts is of no consequence. Tyne and Oates were legally trained, intelligent men who in providing a detailed recollection of conversations of four years ago were recalling matters that would have then been important to them.

652 The defendant also submits that as the plaintiffs signed an application form for each policy seeking insurance "on the conditions set out in the prosperity bond policy", a conclusion that the policy contained additional oral terms is precluded. The defendant, in reliance upon Gates v City Mutual Life Assurance Society Ltd, submits that any utterance by Keller or Taylor was not contractual in character and in any event could not be treated as a promise because it was inconsistent with the main contract. The defendant submits that such an oral term is inconsistent with cl 4.20 of the policy. It relies upon Cannon Real Estate Pty Ltd v Hubble[754] in support of the proposition that an oral assurance, inconsistent with a written document, should not be taken to have been part of the agreement between the parties.

653 In the meeting of 29 August 2000 between Keller, Taylor and Yesberg, in response to Keller's statement that he needed to know the unit price before he switched, Yesberg said that could be arranged. The plaintiffs submit that the defendant thereby impliedly represented that it was obliged to and would continue to use historical pricing. Yesberg said this at a time when he knew that the defendant intended to move to forward pricing to stop the Coneview investors making the use of unlimited free switches to arbitrage. The plaintiffs submit that Yesberg impliedly admitted this when he said that the defendant could provide unit prices before 10.00 a.m. If a switch notice has to be notified by 10.00 a.m. and the policyholder must know the unit price applicable to the switch before that time, it follows that the unit price must be an historic price.

654 Yesberg's statement was not an admission as to the interpretation of the policies.[755] It was not an admission as to a term of a contract.

655 The plaintiffs rely upon the defendant's conduct up to 11 September 2000, including Yesberg's statement on 29 August, as consistent only with the defendant accepting that the obligation existed to publish historic unit prices in a timely fashion to facilitate the right of Coneview investors to make unlimited free switches. They say that neither then nor at any other material time did a representative of the defendant tell Keller or Taylor that Coneview investors had no right to use historic pricing or to arbitrage. In answer, the defendant referred to a line of authority for the proposition that its subsequent conduct cannot be used to interpret the policies.[756] It submitted that nothing upon which the plaintiffs relied upon could be said to foreclose the possibility that the defendant would act differently in the future.

656 The defendant submits that if, as Tyne testified, he did not read the policy at all, and Hawkins only skimmed it, it is audacious of them to assert that they were not warned of the possibility that the defendant might switch to forward pricing when the policy term expressly provided that it could do so. It submits that the plaintiffs' attempts to confirm the truth of what they had been told by analysis and inquiry and the plaintiffs' submission that they did so because they were sophisticated investors investing large sums of money, reinforced the proposition that it was implausible that they relied upon the oral statements of Keller and Taylor. Whether the plaintiffs relied upon what they were told by Keller or Taylor was the subject of extensive argument by the defendant in dealing with the plaintiffs' estoppel claim.

657 The parties again made submissions on the issue as to who should have called Keller and Taylor. The defendant, with some force, has submitted that it was fanciful for the plaintiffs to suggest that it should have called them. All the known circumstances suggested that Taylor was in the plaintiffs' camp. The probabilities were that both he and Keller were hostile to the defendant. Each party argued that Taylor could have explained what occurred at the early meetings. He would have also had to explain the origin of a number of the contemporaneous documents produced by Mallesons on subpoena.[757] As to these documents the plaintiffs submit that the evidence does not show that Hawkins or Tyne played any role in marketing the investment club concept. I do not find that the absence of Keller and Taylor as witnesses assists me in the resolution of any issue arising from the plaintiffs' dealings with Keller or Taylor.

658 The defendant took the point that Hawkins was not a director of Pegela and that even if he relied upon representations made by Keller or Taylor, the board of directors of Pegela did not. The defendant submitted the following:

[401]

659 It was submitted on behalf of the second plaintiff that as Hawkins had given evidence that there was not a single occasion on which the directors of Pegela did not accept his recommendations, it should be concluded that the representations were thus relied upon by the board. The plaintiffs also submitted that the evidence established that Hawkins was a person in accordance with whose instructions or wishes the directors were accustomed to act. He would therefore qualify as a shadow director under the definition in s.9 of the Corporations Act. The defendant submitted that the evidence did not support the conclusion that Hawkins was a shadow director. It submitted that the definition in s.9 of the Corporations Act was not satisfied, Hawkins having described himself as the primary investment adviser to the trustee. It submitted that the evidence indicated only that Hawkins provided advice and that he did not "direct" or "instruct" the directors and that they exercised their own discretion.[760]

660 I accept that the Board was accustomed to acting upon Hawkins' advice and recommendations. Whether Pegela relied upon the alleged representations rests upon the findings as to the nature and substance of what Hawkins was told by Keller and Taylor, whether it was promissory, whether Hawkins relied upon it and whether it was reasonable of him to do so.

Conclusions

661 The contractual documents upon which the plaintiffs rely do not assist its claim that historic pricing was a special term as they are silent as to historic pricing, as is the CIM.[761] The plaintiffs have not established that Keller or Taylor represented that the defendant had agreed it would calculate unit prices on a historical basis.

662 I found the testimony that suggested Keller or Taylor made a promissory representation as to historical pricing to Tyne, Hawkins and Tom Oates unconvincing. Whatever was said in these conversations by Keller or Taylor as to historical pricing or the defendant's understanding of Keller's need for a unit price at the time of switching, it was not promissory and had no contractual force.[762]

663 The parties refer to and repeat the arguments they advanced in relation to agency. None of the evidence called on the plaintiffs' behalf has led me to conclude that the plaintiffs viewed Keller or Taylor as the defendant's representatives, or as authorised to make any representation on its behalf, or as making a promise as to historical pricing which would bind the defendant. The plaintiffs did not rely upon Keller and Taylor as acting as the defendant's agents. The defendant cannot be imputed with the knowledge of Keller and Taylor even if they were acting as the defendant's agents because they were consciously acting against the interests of the defendant. The plaintiffs have not established that they relied upon any oral representation made by Keller or Taylor as to historic pricing or that any such reliance was reasonable.

664 There was no conduct of the defendant that establishes that it admitted that historical pricing was a special term or that it impliedly promised that it was so. Assuming that any of its subsequent conduct may be examined to assist in the determination or interpretation of the oral term, such conduct was not unequivocally consistent with the alleged oral term.

Implied terms as to historical pricing

665 In the alternative, the plaintiffs allege that there were two implied terms which give rise to the right to historical pricing. First, it was pleaded by the plaintiffs that there was an implied term of their policies that the defendant -

[405]

This term is alleged to be implied from cls 2.2(e), 3.2(a) and 4.20 of each of the plaintiffs' policies and from the defendant's practice of publishing unit prices on an historic basis,[767] which was known to the plaintiffs.

667 In support of these pleadings the plaintiffs submit that the defendant implicitly promised to use historical pricing by continuing to use it when it knew that Coneview investors were making use of its historical pricing practice to arbitrage and by its knowledge that such a fact was likely to be offered by Keller/Coneview to future investors as a reason to invest.

668 All parties drew upon their submissions as to the objective purposes of the special terms in advancing arguments as to what terms should be implied. The plaintiffs relied upon the evidence of Tyne and Hawkins and that of Yesberg that it is the opportunity created by unlimited free switching and the use of historical pricing and/or the three day cancellation period that provides the arbitraging opportunity.[768] Their argument largely depends upon the plaintiffs' construction of the special terms, being that they were intended to facilitate arbitraging opportunities. The plaintiffs submit that all of the indicia point to the inclusion of historical pricing as an implied term. In particular, as it is a policy for the life of the insured, there is every reason to imply that for the life of the policy, the defendant would employ historic pricing.

669 The plaintiffs rely upon cl 2.2(e) of the policy as consistent only with the use of historical pricing. They rely upon Mr Lyon's opinion to that effect.[769] There would be no purpose, they submit, in delaying the application of money until midnight and striking a unit price at the end of the period of delay in a forward pricing regime. The plaintiffs argue that the defendant also impliedly promised to use historical pricing in not stating in the policy or accompanying documents that it reserved the right to move to forward pricing.

Publication of daily price

670 The implied term that would require the defendant to calculate and publish daily unit prices is said to arise as a matter of imputed intention to give business efficacy to the contract.[770] The plaintiffs submit that such an implied term is obvious and necessary because the other terms would be unworkable without it. They rely upon cl 3.3(a) which confers the right to unlimited free switches for which a unit price would be required. They point to cl 1.8 and the reference to the "price on the day" and the covering letter to the plaintiffs' policies which states that the plaintiffs could switch "at any time", hence a unit price must be available daily. Clause 3.2(e) refers to unit prices being "usually declared on a daily basis". The implied term has three components: daily calculation, daily publication and timely publication. The defendant submits that the plaintiffs need to establish all three elements in order to engage in historic pricing arbitrage but only the first for three day arbitrage. It submits that the plaintiffs are unable to satisfy the test for ad hoc implication set out in BP Refinery. It submits that the plaintiffs have conceded that the daily publication of unit prices is "convenient" but "not essential"[771] and that prior knowledge of a unit price is a mere "benefit".[772] Thus the defendant submits that the implied term fails to satisfy the business efficacy test.

671 The defendant challenges the assertion is by that a switch cannot be made unless a unit price has been published. Clauses 1.8 and 2.2(e) make it apparent, it submits, that a switch may be made without the investor knowing the unit price which would be applied.

672 The plaintiffs rely upon the statements made by Keller and Taylor to Tyne, Hawkins and Tom Oates that switches were to be undertaken at known prices.[773] As to these statements, the defendant says that even if Keller and Taylor were the defendant's agents and even if they made the statements as alleged, neither of which is established by the evidence, such statements are only relevant in the context of an express term but are not relevant to an implied term.[774]

673 The plaintiffs allege that it is the custom for life companies to calculate and declare unit prices on a daily basis.[775] The defendant disputes the plaintiffs' right to rely upon custom as a basis for the implication of the term that the defendant must publish a daily price. This basis was not pleaded or particularised in the statement of claim. The defendant challenges the assertion that it is the "usual industry practice" and submits that the APRA document does not support such a proposition. The defendant invokes the principle that for an implied term to rest on custom and usage, the custom must be so well known and acquiesced in that everyone making the contract in that situation can reasonably be presumed to have imported that term into the contract. It must also be consistent with the express terms of the agreement.[776]

674 The plaintiffs rely upon their reasonable expectations, the benefit to the investor of knowing the unit price before giving notice of intention to switch, the defendant's practice of making daily morning publications of unit prices on its website and telephone service which were checked by Tyne and Oates and conveyed to the other plaintiffs, and Yesberg's statement on 29 August 2000 that it could be arranged that Keller be informed of the unit price before the 10.00 a.m. deadline. The plaintiffs submit that to give business efficacy to the provision that the unit price will be the price on the day of the notice, there needs to be a price on each day, given the contractual right to unlimited switches and the fact that the covering letter stated that the plaintiffs could switch at any time.

675 The defendant submits that the bald reference to the plaintiffs' "reasonable expectations" does not assist the plaintiffs and refers to its arguments as to the limited manner in which reasonable expectations are to operate within a contractual setting. The evidence of Yesberg, upon which the plaintiffs rely, is not relevant in construing the policies. The defendant submits that Yesberg's statement on 29 August 2000 is irrelevant. As to the defendant's practice of publishing daily prices, it submits such conduct does not provide a basis upon which a term may be implied as to do so would breach the prohibition upon using subsequent conduct to construe a contract. It submits the principle upon which the plaintiffs rely is only relevant where there are a series of similar contracts previously entered into by the parties.[777]

676 Courts will generally be slow to imply a term where the contract is detailed and comprehensive.[778] The implied term as to daily publication is inconsistent with the policy's express terms[779] and in particular cl 1.8. In my opinion the implied term is unnecessary as the objective purpose of cl 1.8 is not to provide an opportunity to arbitrage through the use of historical pricing or the three day option. It is not needed "in order to make the agreement work, or conversely, in order to avoid an unworkable situation"[780] and nor does it fulfil the business efficacy requirement. It is unnecessary to determine the party's contentions as to the meaning of each standard clause, their inter-relationship and their compatibility with the alleged purpose of the special terms.

Implied Term identical to express oral term

677 The second alleged implied term mirrors the express oral term that unit prices would be calculated on an historical basis. The plaintiffs argue as follows: there has to be a unit price to make switches between the cash and secure portfolios. Once such a price is calculated, a party acting in good faith would publish it and not to do so would be a breach of s.13 of the ICA. Clause 3.2(e) requires the unit prices to be usually declared on a daily basis and if they were not more often than not declared on a daily basis, they would not be "usually" declared daily and the clause would be breached. The investor would want to know at the time of investing what the defendant did as a matter of practice. Thus the plaintiffs submit that the implied term is so obvious it goes without saying and satisfies the "officious bystander" principle in BP Refinery. The defendant says the term is not so obvious that it goes without saying and relies upon the testimony of Yesberg and Andrews.[781]

678 The investor must have a unit price in order to be able to switch at any time in accordance with cl 3.3(a) and there must be a unit price calculated and declared at which the switch will be effected. The plaintiffs submit that cl 2.2(e) implies the use of historical pricing. The plaintiffs' rely upon Mr Lyon's opinion that cl 2.2(e) is a strong indicator of historical pricing and says[782] the defendant's practice of using and publishing historical pricing, the objective purpose of the special terms to facilitate arbitraging, the plaintiffs' reasonable expectations and the defendant's duty to act in the utmost good faith support the implication of the term.

679 The defendant takes issue with the proposition that the policy or cl 2.2(e) in particular constitutes a clear and unambiguous representation that historic pricing would be used. It submitted that the effect of Mr Lyon's testimony was that cl 2.2(e) had the appearance and effect of forward pricing though he preferred to call it "deferred historic pricing". The defendant submits that the use of cl 2.2(e) indisputably prevents historic pricing arbitrage.

680 Clause 4.20 is relied upon by the defendant. It states that the defendant may calculate unit prices by adjusting the benchmark unit price "as we deem appropriate to take account of any fluctuations in the market value of the investments of the portfolio." The defendant submits that the content of the CIB also makes that clear.[783] The plaintiffs dispute that there is any inconsistency between the implied term as to historic pricing and cl 4.20.

681 The defendant submits that the word "usual" in cl 3.2(e) of the plaintiffs' policies is apt to refer to daily publication occurring in ordinary circumstances, so that where the circumstances are unusual, as in a case where millions of dollars are being shifted between portfolios in order to arbitrage, the defendant would be justified in invoking cl 3.2(e). The defendant repeats its submission that it is unnecessary for the policyholder to have a knowledge of a unit price in order to carry out unlimited free switches. The defendant's practice of using and publishing historic prices is subsequent conduct which may not be used to construe the policies. It submits that the reference to the plaintiffs' "reasonable expectations" and the asserted objective purpose of the policies does not advance the plaintiffs' argument as to the implication of the term.

682 The defendant submits that the term is neither reasonable nor equitable because it operates to favour the plaintiffs.[784] It submits the term will not be implied because it inhibits its legitimate commercial considerations,[785] imposes financial risk on it,[786] and would result in commercial disadvantage to AXA.[787] It submits the term is particularly unreasonable given the plaintiffs' knowledge that other companies had moved to forward pricing to avoid arbitrage activity. It submits that prior conduct of the defendant does not provide a proper legal basis for implying the term.

683 In response to these contentions the plaintiffs submitted that the question of disadvantage to one party or the other as a consequence of the implication of a term is not the test. They submit that the proper approach is to determine the objective purpose of the contract from the express terms and consider what implied terms flow by necessary consequence or which are necessary to give business efficacy to the contract.

684 The second alleged term also fails the test in BP Refinery for the same reasons that the first cannot be implied. None of the express terms upon which the plaintiffs rely constitute an unequivocal and plain statement that historical pricing would be used. The term is unnecessary to give business efficacy to the policies. Many life companies moved to forward pricing over time. In my view clauses 3.2(e), 2.2(e) and 4.20 of the policy documents do not require the implication of the promise alleged.

Estoppel,Variation, Waiver or Abandonment, Reasonable Expectations, Misleading and Deceptive Conduct, or Negligent Misstatement

What, if any, reasonable expectations did the plaintiffs hold as to AXA continuing to use historic pricing and what is the consequence, if any, of such expectations?

685 The question was formulated by the parties as the issue that would be addressed in their written and oral submissions on the basis that neither the letters or policy provided to the plaintiffs prior to investing in their prosperity bonds, the content of the CIM or the statements made to them by Keller and Taylor as set out in the particulars to paragraph 7 of the further amended statement of claim, included an express or implied term that the plaintiffs had a right to historical pricing or that the defendant would continue to use historical pricing.

686 A representation may be sufficient to found an estoppel though it be insufficiently precise to give rise to a contractual promise. A representation will be sufficiently clear and unambiguous if it carries a meaning which it was reasonable for the representee to rely upon.[788] The representation may be implied by words used or from the failure to speak where the representor's conduct created a duty to do so.[789]

687 There are two categories of estoppel asserted by the plaintiffs which rest upon the defendant's alleged representations and conduct. Some facts are common to both categories. First, the plaintiffs rely upon the estoppel arising from the defendant's knowledge that Keller and Taylor were informing potential Coneview investors of the special term, by the defendant's conduct in the course of its dealings with Keller until 16 October 2000, its knowledge that the plaintiffs relied upon what Keller and Taylor informed them and its failure to inform them that the represented special terms were not part of the contract.

688 The plaintiffs rest this estoppel upon the assertion that they assumed that their policy contained a term requiring the continuation of historical pricing.[790] In support of this assertion, the plaintiffs say that they relied upon the letters, the CIM, what Keller informed them as to the policy terms, and were encouraged to continue the assumption as a result of the course of dealing between Keller and the defendant and by the failure of the defendant to tell them that it did not believe the letters or policies contained an historical pricing term.[791]

689 The second category of estoppel pleaded by the plaintiffs[792] rests upon their assumption that the defendant would continue to use historical pricing and the failure of the defendant to advise the plaintiffs that it did not intend to continue using historical pricing, though it was aware that the plaintiffs had made such an assumption.[793] The plaintiffs say that if the defendant had the right to move away from historic pricing, it should not be permitted to rely upon such a right where it would be unconscionable to do so.[794]

690 The plaintiffs rely upon the proposition that where the representations and conduct of a party plays such a role in the creation of the other party's state of mind leading to adverse reliance, it would be unconscionable to allow the first party to resile from the assumptions which it encouraged.[795] The requirements of equitable estoppel would be satisfied if there is an assumption by the party seeking the estoppel that a particular legal relationship would exist in the future and that the other party is not free to withdraw from that expected legal relationship.[796]

691 In support of the second estoppel the plaintiffs allege that, at the latest by early June 2000 and prior to any of them investing in their prosperity bonds, the defendant knew or ought reasonably to have known that the special terms gave Coneview investors the ability to make risk-free profits by switching between the cash and secure portfolios with the benefit of historic pricing.[797] They allege that the defendant knew that Coneview investors had been making returns well in excess of those available to investors in its prosperity bonds who did not have the benefit of the special terms, by the use of the special terms and the defendant's use of a historic pricing system.[798] They allege that the defendant knew or ought reasonably to have known that Coneview/Keller and Taylor had been representing to potential investors that by reason of the special terms and its historic unit pricing system, those returns would be available to investors.[799] The plaintiffs allege that the defendant knew or ought to have known that unless it informed potential investors otherwise, there was a real risk that investors investing in its prosperity bonds after early June 2000 would assume that they had the ability to make risk-free profits by reason of the special terms and by reason of the defendant's use of historic pricing.[800] The plaintiffs allege that by early June 2000, the defendant had determined to take whatever steps it thought necessary to prevent existing and prospective Coneview investors from making risk-free profits by switching between the cash and secure portfolios and intended to change its unit pricing methodology to forward pricing.[801] They allege that the defendant failed to inform them prior to investing that it had determined to take steps to change to forward pricing or that in its view the special terms or implied terms of the policies did not permit the plaintiffs to make risk-free arbitrage profits by switching between portfolios.[802] The plaintiffs allege that at the time they invested they assumed that the special terms permitted them to do so and the failure of the defendant to inform them to the contrary or inform them of its intention to move to forward pricing encouraged their assumptions.[803] The plaintiffs allege that the defendant should be estopped from contending that it is entitled to change its unit pricing system from an historical to a forward pricing system or that it is entitled to take any steps that prevent the plaintiffs from making risk-free profits by switching between the cash and secure portfolios.[804] The plaintiffs say that each of them had a legitimate expectation that the unit price would be calculated on an historical basis even if there were not the express and implied terms to that effect.[805]

692 As with the three day option, the plaintiffs further or alternatively allege that if the proper interpretation of the policies is that there was no contractual right to historical pricing (as the defendant alleges), the defendant agreed to vary the terms of the policy. The variation is to be implied or inferred from the defendant's conduct.[806] Alternatively the plaintiffs allege that the defendant waived or abandoned any right it had to move away from historical pricing.[807] They also maintain that the defendant's conduct was misleading and deceptive contrary to s.52 of the TPA[808] or that the representations made by the defendant and its agents were made negligently.[809]

The plaintiffs' argument

693 The plaintiffs argue that the defendant encouraged an assumption by the Coneview investors, including themselves, that historic pricing would continue to be used by the defendant and that the special terms could be used for the purpose of arbitrage. The plaintiffs say this conclusion flows from the following facts. The defendant knew that the use of historic pricing carried with it an inherent risk that arbitrage could occur and that switching and other fees existed to discourage arbitrage. If frequent switches were made pursuant to the right to make unlimited free switches and the investor had access to historical pricing the opportunity to actively arbitrage was present.[810] The plaintiffs rely upon Yesberg's testimony that he regarded the knowledge of the frequency of switches as significant.[811] Yesberg knew by May 2000 that Coneview policyholders were actively arbitraging. Mr Mandalidis knew by that time that Coneview investors were using historical pricing to make arbitrage gains.[812] By agreeing to remove switching and other relevant fees the defendant created the opportunity and reasonable expectation that arbitrage could occur. This was acknowledged in a memorandum by the defendant's chief actuary in October 2000.[813] Prior to the plaintiffs entering into their policies the defendant became aware that Coneview investors were making arbitrage profits by these means. The defendant continued to publish daily historical unit prices. It calculated account balances for various Coneview investors which were checked by its actuarial department and sent to the ANZ Bank. The defendant was aware of the frequency with which switches were being made between portfolios. The defendant should be fixed with knowledge of the frequency of the switches and the fact that they were being made by Keller on behalf of all Coneview investors. The defendant had both actual and constructive notice of the assumptions upon which the plaintiffs relied, as its servants or agents had such notice.[814]

694 The plaintiffs further say that the defendant failed to ask Keller at the meeting of 16 March 2000 how profits were being made and did not seek a copy of the CIM. It did not make further enquiries or analyse the commercial implications of the special term because it knew that those terms were being used in conjunction with the right to historic pricing to make arbitrage profits. The plaintiffs submit that Yesberg wilfully or recklessly failed to enquire why the prosperity bonds were proving popular and rely upon the principle expressed in English and Scottish Mercantile Investment Co Ltd v Brunton[815] as to a constructive notice or inferred knowledge.

695 For the purposes of the misleading and deceptive conduct claims the plaintiffs rely upon the provisions of the TPA, CA and ASICA, as they did in relation to the three day option, to attribute the conduct, knowledge and intention of Yesberg and other of the defendant's officers and its agents, including Keller and Taylor, to the defendant.[816] The plaintiffs submit that anyone with experience or understanding of unit linked business should have been aware of the risks of arbitrage through switching.[817] The defendant, having learned that arbitrage profits were being made by Coneview investors by the use of historical pricing, failed to inform or warn Keller, Taylor or potential investors, including the plaintiffs, that it was intending to take steps to eliminate or curb the ability to arbitrage. The plaintiffs would not have invested had they been so informed. No adequate explanation was offered by Yesberg or the defendant as to why it accepted substantial investments after June 2000 without warning those new investors of the changes it was intending to introduce which would undermine the basis upon which the investments were made.[818] Armed with such knowledge the defendant had a duty to speak. It knew that each of the plaintiffs would reasonably assume that the prosperity bonds would continue to operate on the same basis as they had been up until that time and that the returns made by other investors up until that time would continue to be made. These facts demonstrated that the defendant either intentionally induced or encouraged reliance by the plaintiffs or that it had knowledge of the plaintiffs' reliance, either of which satisfied the test in Waltons Stores.[819] It is no answer for the defendant to contend that it did not know or intend that prospective investors would assume that the prosperity bonds would continue to be administered in the way they had been. Applying an objective test as to unconscionability,[820] a reasonable person in the position of the defendant would have realised that there would be such reliance.

696 Each of the plaintiffs relied upon the defendant's representations by conduct, silence and the statements made by its actual and deemed agents that it would continue to administer the special terms of the prosperity bonds in the manner in which they had done so previously. They submit that it was obvious to the defendant, and would have been obvious to any reasonable person, that Keller and Taylor could be expected to continue informing prospective investors of the nature of the gains to be made by the use of the special terms in conjunction with historical pricing. Their reliance on the existing state of affairs was entirely reasonable. The defendant knew, and any reasonable person would have known, that they were making such assumptions.

697 The plaintiffs say they have suffered detriment from their reliance on the representations and assumptions, induced by the defendant, that it would continue to use historic pricing. They borrowed moneys to make the investments, paid management fees to Coneview and had given up other investment opportunities. They are entitled to protection from the detriment or harm that would flow from a change of position if the assumptions were deserted.[821] It would be unconscionable to permit the defendant to depart from the assumption made by the plaintiffs and allow the defendant to move to forward pricing.

698 The defendant contends that the plaintiffs' submissions in relation to the defendant's conduct, which include an allegation of a lack of good faith, do not match the plaintiffs' pleadings. It submits that the plaintiffs' case rested upon allegations that the representations which constituted the alleged misleading and deceptive conduct were that the defendant and Keller had agreed on special terms that the defendant intended to continue to use historical pricing. It submits that the plaintiffs' submissions seek to change the nature of the representations to a general representation that Coneview investors could use historical pricing. It refers to the plaintiffs' written submissions that the plaintiffs had a reasonable expectation that the defendant would continue to conduct itself as it had over the previous year[822] which suggested that the plaintiffs are relying upon an allegation of representation by conduct as well as the written and oral representations alleged in their statement of claim. It says this change to what was pleaded[823] masks the deficiency in the evidence in establishing the allegations as pleaded. I do not accept that the plaintiffs' case has changed. The plaintiffs' case did not rest solely upon the alleged representations made by Keller or Taylor. The trial was also conducted upon the basis that the plaintiffs relied upon the conduct of the defendant in fostering their assumption as to its continued use of historical pricing.

699 As to the alleged representation by conduct, the defendant in its reply submitted that though it did for a period of time use historical pricing it made no representation that it would continue to do so. It refers to the fact that Tyne, Hawkins and Tom Oates were aware that institutions change their pricing practices to avoid the very behaviour which the plaintiffs seek to maintain. Thus the defendant argues that there can have been no reasonable reliance by the plaintiffs on the continuation of historical pricing. It submits that the evidence demonstrates that the plaintiffs knew that the defendant had given no binding permanent commitment to historical pricing. It submits that the advice which Tyne and Tom Oates received from Taylor was clearly his expression of an opinion based on his interpretation of the documents and was inconsistent with there being any commitment beyond what was in the documents. The defendant says that the plaintiffs had no reasonable expectations and had at most a hope that historical pricing would continue to be used and an understanding that the defendant was entitled to change to a different form of pricing.

700 The plaintiffs also argue that the defendant knew that they thought the defendant would continue to use historic pricing because the defendant had been doing so until then. It never spelt out that it would move to forward pricing. The defendant did not say it reserved the right to move away from historic pricing to forward pricing. Thus it was to be estopped from resiling from that assumption. It created in the plaintiffs' minds the reasonable expectation that they would be able to arbitrage through the continued use of historic pricing. In those circumstances, measured against what a reasonable insurer would do (good practice would be to have spelt it out, so Hawkins or Tyne would have no room for argument, that historic pricing was only there at the complete discretion of the defendant), the defendant was fixed by the consequence of what it conveyed. The plaintiff says the combination of what the defendant knew to be the plaintiffs' expectations, what had not been said by way of qualification or reservation and what was not corrected, provided the basis for an estoppel.

The defendant's knowledge of arbitraging - effect of special terms and historical pricing

701 By the end of June 2000 the defendant had resolved that it would not continue to use historical pricing to enable Coneview investors and future investors such as the plaintiffs to make arbitrage profits by use of the special terms. Yesberg had decided that arbitrage was "immoral", a risk free rort and a "manipulation", and the volume of switches of which he was aware by 8 June 2000 was "horrifying".[824] Mr Yesberg had determined to stop arbitraging because it was a practice "no insurance company would tolerate".[825] He did not convey this view to potential Coneview investors.

702 It is plain, both from what Yesberg admitted in the course of his testimony and from what can reasonably be inferred from his knowledge and conduct, that he understood that future Coneview investors would invest in the prosperity bond on the assumption that they could make arbitrage profits as a consequence of the defendant using historical pricing. He gave no satisfactory explanation for why he permitted the defendant to continue to issue policies containing the special terms after he became aware of this form of arbitrage.

703 By the time the first plaintiff invested in its policy on 30 June 2000, Yesberg was aware that there had been substantial increases in investors' entitlements and had some understanding of the size of the profits being made. By the end of May 2000 he had learned that there was a serious issue with the amount of switching by Coneview investors. By early June, Yesberg had formed the view that Keller had knowledge of and had been exploiting the defendant's historical pricing practice so that he was in effect trading between the cash and secure portfolios with the benefit of hindsight.[826]

704 In his witness statement, Yesberg said that by early July he had formed the view that the defendant would take steps to prevent arbitraging when "[it] had worked out what the size of the problem was and what exact steps could be taken". Yesberg was satisfied that Keller had deliberately concealed from him and the defendant his and the Coneview investors' intentions to arbitrage because it knew that the defendant would act to stop the arbitraging once it found out what was going on.

705 Yesberg had formed the view by early June that Coneview investors did not have a right to utilise historical pricing when they made their switches.[827] He assumed that Keller was telling potential investors that they would be able to have access to historical pricing.[828] It was plain that neither Keller or Taylor or Yesberg confronted each other directly about this issue. He did not then tell Keller and Taylor or any potential investors that they had no right to historical pricing. He justified this because neither Keller or Taylor asserted that they had a right to historical pricing.[829] Yesberg could not recall if he had ever said to Keller or Taylor that they had no right to the use of historical pricing[830] but there was no evidence from any source that he did prior to the plaintiffs making their investments. Although he met with them on 29 August, knowing that Coneview investors were utilising historical pricing to arbitrage, he did not tell them that. Rather, he said that the defendant would set prices by 10 o'clock in the morning.

706 He testified that he obliquely attempted to correct the false impression which Keller and Taylor were conveying by telling them on 30 August that the return that they would receive in the future would be commensurate with the risk they were taking.[831]

707 Yesberg testified that he did not turn his mind to whether future investors might be misled if he did not advise Keller and Taylor that the defendant would not continue to use historical pricing.[832] I do not accept that was so. Yesberg's testimony was, in parts, not easy to reconcile. At one stage he asserted that he did not turn his mind to whether Keller and Taylor would encourage potential investors to assume that historical pricing would be used. Subsequently, he stated that it would be fair to say that he must have turned his mind to the fact that potential investors were being told about these features of the special terms.[833] He knew that Keller was exploiting the defendant's unit pricing methodology in approaching potential investors.

708 The defendant admits that from approximately mid-August 2000 it intended to introduce a requirement for transactions with prosperity bonds to be requested prior to 10 am and that from approximately late September it intended to use forward pricing for prosperity bond transactions for reasons that included preventing the making of arbitrage gains by the Coneview policy holders.[834]

709 Yesberg took no step to close down the prosperity bond until at least 11 September and during that time a further $120M was invested in prosperity bonds. He signed each policy that went out to a policyholder knowing full-well that they were probably being told by Coneview that they could utilise historical pricing.[835]

710 By September 11 when the second named plaintiff invested $5 million, the plaintiffs say that the defendant knew everything about the way in which the plaintiffs viewed the special terms. It had done the costing, was aware of the cancellations and it knew about the arbitraging and it had decided to close the scheme down. They submit that by September 11, on any view, the defendant, knowing everything as to how Keller/Coneview had conducted the investment, took $5 million from Hawkins, thinking that it would force him to cancel his policy almost immediately because it was going to make the terms so unattractive. It did not intend to give him any of the rights they knew Keller had been representing.

711 As the plaintiffs' case was that there was an express term that the defendant was obliged to use historical pricing as a consequence of the representations made by Keller and Taylor to the plaintiffs, that representation formed part of the basis for the plaintiffs' first estoppel claim.[836] The testimony of Tyne, Hawkins and Oates was, in part, that they were told and understood that the defendant had agreed to the use of historical pricing. They submitted that Keller and Taylor made promissory statements to that effect and as they were the defendant's common law and deemed agents, the defendant had actual or imputed knowledge that the plaintiffs had been told this and were relying upon this commitment. The plaintiffs say that by accepting their investments with this actual or imputed knowledge the defendant, under principles of misrepresentation and estoppel by conduct, was bound by the statements made by Keller and Taylor. I am not satisfied, as I have already stated, that Keller or Taylor made any promissory statement in the terms alleged or that the plaintiffs viewed them as making any representation which bound the defendant.

The defendant's argument

712 The plaintiffs seek to rely upon the particulars of the alleged oral term[837] which is not actually pleaded in connection with their estoppel claim. The particulars of the oral representation - which were added to the statement of claim relatively late, are not referred to in the particulars of the estoppel claim although they both purport to refer to the same conversations.[838] The particulars to paragraph 7 of the statement of claim are silent as to any historic pricing term. The defendant relies upon the observations of Mansfield J in Tirango Nominees Pty Ltd v Dairyvale Foods Ltd[839] as to the significance of the amendments to the statement of claim. It submits there was no clear and unambiguous representation incapable of any other meaning made by Keller or Taylor, citing Olga Investments Pty Ltd v Citipower Ltd[840] and Foran v Wight[841]. The defendant submits that no representations were made by Keller or Taylor and that whatever was said was, in any event, insufficiently clear and unambiguous to found an estoppel. It is not in issue that the conduct relied upon to found the estoppel must be clear and unambiguous.[842]

713 As to the course of conduct between Keller and the defendant, the defendant submits that the defendant's carrying out of switches on a historic pricing basis is not consistent only with the existence of the historic pricing term and submits, in any event, that acts carried out by the defendant in respect of other investors' policies would be insufficient to found an estoppel.[843]

Reliance by plaintiffs

714 In response to the estoppel claim, the defendant submits that the plaintiffs did not adopt or adhere to the alleged assumption in reliance upon the alleged representations. The reliance argument may have been more appropriately placed under the question of whether Kellor and Taylor, as the defendant's agents, made an oral promise upon which the plaintiffs relied. The defendant's arguments denying reliance by the plaintiffs were advanced on the assumption that a promissory representation as to the oral term was made. Having found that no such oral promise was made, it is still necessary to consider what was said by Keller and Taylor about the defendant's use of historical pricing and the extent to which it contributed to any assumptions made by the plaintiffs. It was not challenged that Keller and Taylor did make statements to Tyne, Hawkins and Oates about the defendant's use of historical pricing and Keller's expressed need to know the unit price at the time of the switch.

715 In relation to Tyne, the defendant made the following submissions. It says that he was of the view that a number of the documents embodied the alleged representations as to the three day option but they were silent as to the historic pricing term. His desire to have the special terms in writing was inconsistent with his asserted reliance. He was told that the contractual terms could not be changed and it was not open to him to allege reliance upon extra contractual terms. He did not rely upon the representations because he believed that arbitrage profits could be made even without historic pricing. His asserted reliance was inconsistent with his concern to perform his own analysis to ascertain that historic pricing was being used. He was aware that other institutions had moved to forward pricing to prevent arbitrage. He knew that to the extent that a commitment to historic pricing was not part of the contract, it was likely that the defendant would seek to depart from it. His letter of complaint to Yesberg[844] referred only to the documents and past administrative practices but not to any oral representations. Similarly, his memorandum of 25 February 2000 to Hawkins described the arbitrage opportunity as being contained in the documents but made no reference to oral representations. He did not satisfactorily explain the similarities in his and Hawkins' statements. For these reasons, it submits I should not be satisfied that Tyne relied upon the alleged representations by Keller or Taylor or anything that Keller or Taylor said about the defendant's use of historical pricing.

716 The defendant made the following submissions in support of its contention that Mr Hawkins did not rely upon any alleged representations by Keller or Taylor as to historic pricing. He does not appear to have considered the policy terms to have been contained in oral representations. He was apparently satisfied that the documents reflected the special terms and the absence of any reference to the historic pricing term within them demonstrates that he did not rely upon Keller and Taylor's representations. The importance which he attached to the documentation of the terms was inconsistent with his asserted reliance upon the representations. His account of his meeting with the Pegela directors does not record him having told them of the representations. His evidence indicated that any representations were of little or no significance in motivating his recommendation to the directors. His view that an independent inquiry was necessary was inconsistent with reliance upon the representations. His reliance case was undermined by his difficulty in understanding the passages in his own witness statement in relation to reliance and the obvious similarities between the reliance sections of his and Tyne's statements.

717 The defendant advanced the following argument as to why it should be found that Tom Oates did not rely upon the alleged representation. He was well aware that other institutions had moved from historic to forward pricing to protect themselves against arbitrage. Although he believed the defendant was unlikely to do so, he had discussed the possibility that the defendant would change to historic pricing. His lack of reliance was apparent from several equivocal passages of his oral evidence. He expressly disavowed reliance upon Keller who he believed to have a poor reputation. He conceded that his reliance upon Taylor was based upon Taylor's account of what Keller had said to Taylor. His desire to ensure that things were in writing and to make his own enquiries was inconsistent with reliance upon oral representations. He conceded that his memorandum,[845] in which he recorded that the defendant could legitimately administer the bonds using forward pricing, contained no reference to the alleged representations. His explanation for the content of this document was lame and seriously harmed his credibility. His handwritten note in the customer information brochure[846] and the approach he took when reading that brochure sits uneasily with his alleged reliance upon the representations. He gave evidence of his belief that the no advice letter methodically set out each and every concession. As the letter contained no reference to the historic pricing term, it evidences the fact that he did not rely upon the representations of Keller or Taylor. Both he and his brother, in a letter to Yesberg of 7 November 2000,[847] complained of various changes proposed by the defendant but made no reference to the change from historic to forward pricing. His increased confidence and comfort, which he said he derived from the letters of Joan Murphy of 6 and 10 July 2000, was inconsistent with his email to Taylor of 25 July 2000.[848] His asserted confidence and comfort was inexplicable given that the "Joan Murphy letters" confirmed just two switches on the smallest Oates policy but failed to confirm any switches on the larger policy. The "Joan Murphy letters" could not be relevant to his entry into any of the policies, contrary to his evidence, as the letters were not received until 25 July 2000 and his application form for the policy was dated 23 July 2000. Based upon these assertions, the defendant submitted that Tom Oates did not rely upon the representations to make the assumption alleged.

718 As to Paul Oates, the defendant submitted that he did not give any evidence of having relied upon oral representations from Keller/Coneview or Taylor and appeared to have relied upon a cursory perusal of the documents and Tom Oates' recommendations. His understanding that investors had been making 20 percent returns through the use of the three day notice provision rather than overnight arbitrage, detracts from any suggestion that he relied upon representations as to historic pricing. These arguments were taken into account in reaching the conclusion that Keller and Taylor made no oral promise. Whatever representation may have been made, the plaintiffs did not view them as binding the defendant. There was no reliance upon the alleged representation. That does not conclude the inquiry as to what assumptions the plaintiffs made as a consequence of Keller and Taylor's representations and the conduct of the defendant.

Whether reliance was unreasonable

719 Even if the plaintiffs relied upon any alleged representations, the defendant submits that they did so unreasonably for the following reasons. They recognised the potential for arbitrage profits to be made and believed the deal was too good to be true. Tom Oates and Tyne in particular were aware of action taken by other companies to guard against arbitrage. The plaintiffs all ascertained that there was no contractual term expressly dealing with historic pricing. The plaintiffs were told that historic pricing was confidential and that the defendant did not want it to become common knowledge. The plaintiffs were told that the defendant was not prepared to change the written terms of the policy and gave active consideration to the possibility that historic pricing would be departed from. The plaintiffs failed to make reasonable enquiries of the defendant despite the asserted importance of historic pricing to them. Despite the opportunities available to Tyne, Hawkins and Tom Oates, they gave no plausible explanation for failing to make enquiries of the defendant. The inference should be drawn that the plaintiffs' failure to enquire revealed a concern that they would tip the defendant off about the manner in which they were contemplating utilising the special terms in conjunction with the defendant's method of pricing.

720 The plaintiffs ask rhetorically how the defendant could be "tipped-off" about that which it already knew by June 2000? They submit that Yesberg must have known, as a consequence of the meeting of 16 March 2000, that the purpose of the special terms was to utilise them in conjunction with the defendant's continued use of historical pricing. The plaintiffs submit that it is clear from Yesberg's conduct that even if he had been told how Keller was using the special terms he would not have informed prospective Coneview investors of his and the defendant's intentions to cease using historical pricing.[849]

721 None of the plaintiffs were involved in the negotiation of the special terms. They submit that, having regard to what they were told by Keller and Taylor and given that the defendant's conduct was only consistent with there being a historic pricing term, there was no reason on their part to make an enquiry of the defendant itself. They complain that it was not put to any of the plaintiffs in cross-examination that they did not speak to anyone "in a position of authority" lest they tip-off the defendant as to how they were intending to use the special terms. Thus, it was submitted that applying the rule in Browne v Dunn, the defendant cannot now submit that they ought to have done so. These arguments are of little substance. Each of the parties well understood throughout the trial the substantial and justified criticism that each could advance in relation to the other's conduct. It was always the defendant's case that Keller and Taylor had misrepresented their purpose in seeking and negotiating the special terms. They had never revealed that it was their intention to make arbitrage profits by moving the invested funds between the portfolios on a frequent basis. The defendant's case was that the plaintiffs knew that the defendant had not been informed and did not understand that the special terms were to be used in either of the ways alleged to make arbitrage profits. It was always the plaintiffs' case that the defendant knew and understood that the special terms were to be utilised to make arbitrage profits in the two ways alleged. It was the plaintiffs' case that by the time they invested, the defendant understood the intended use of the special terms and the defendant had resolved to prevent Coneview investors from making arbitrage profits by moving to forward pricing and by other means. The defendant deliberately refrained from disclosing its intention to the plaintiffs or Keller and Taylor before they invested. Whether a party's case was fully put to each witness called by the other party, I need not stay to consider, because the way each party put its case as to these matters was clearly understood throughout the trial.

722 The defendant repeated the argument advanced in relation to the three day option, that the alleged failure of the plaintiffs as experienced, intelligent and wealthy businessmen to read the policies and their willingness to rely upon oral representations in respect of multimillion dollar policies bordered on the negligent and was unreasonable. The defendant submitted that as it was unreasonable of the plaintiffs to rely upon any such representations, they cannot found the estoppel claimed. [850]

723 Even if there were representations upon which the plaintiffs reasonably relied, the defendant submits, for the following reasons, it did not know of the plaintiffs' reliance. The policies and the CIM were silent as to historic pricing. It says knowledge cannot be inferred from the defendant entering into the new policies nor from any alleged "constructive knowledge" of the contents of the CIM. The course of conduct between Keller and the defendant was not necessarily consistent with the existence of the historic pricing term. Even if Keller and Taylor were the defendant's agents, there was no evidence as to what they knew of the plaintiffs' assumptions and that the evidence is in fact inconsistent with Keller or Taylor having any knowledge of such assumptions.

724 The defendant submits that any knowledge held by Keller or Taylor cannot be imputed to the defendant as they were consciously acting contrary to the defendant's interests.[851] It was said in reply by the plaintiffs that it was never put to any of them that they knew that Keller was acting in breach of his fiduciary duties to the defendant in advancing his own personal interests. I have already stated that the issue of whether Keller's interests coincided with those of the plaintiffs or whether Keller was acting in the defendant's interests was a prominent issue throughout the evidence of the plaintiffs. Tyne regarded Keller's interests as coinciding with his and contrary to those of the defendant and described Keller as an independent manager.[852]

725 The plaintiffs again submitted that in order to demonstrate that Keller was acting against the defendant's interests, it was incumbent upon it to call him. This submission should be rejected. It was evident by the commencement of the evidence that the defendant was alleging that the conduct of Keller and the plaintiffs constituted some form of equitable fraud. It was, as I have found, clear that Keller had misled the defendant when explaining the purpose for which he sought the special terms. For the reasons I have already expressed it was not incumbent upon the defendant to call Keller. The plaintiffs had ample opportunity to deal with the allegation which was known from the outset, that the defendant had been misled by Keller and Taylor as to the purpose of the special terms.

726 The question whether the defendant had any forewarning from Keller or Taylor that Coneview intended to use the special terms to make arbitrage profits was very much in issue as was the knowledge of the plaintiffs as to whether the defendant so understood the purpose of the special terms. The plaintiffs gave differing accounts of that understanding. Tyne testified that he did not know whether the defendant understood that the special terms conferred a right to arbitrage at all.[853] He believed the defendant did not appreciate the economic consequences of the terms. By contrast, Hawkins stated that he believed the defendant knew the special terms conferred a right to arbitrage.

727 The parties' submissions focussed upon the plaintiffs' understanding at the time they dealt with Keller and Taylor in 1999 and early 2000 rather than their knowledge and belief at the time they invested. Tyne had received investor reports during the first half of 2000 relating to the Tyne policy which showed yields which equated to between 19% and 21% per annum from switching by Keller/Coneview.[854] Tyne subsequently received a report from William Mercer of June 17 that stated that the defendant had verified his portfolio balance. Hawkins relied upon the investment reports of the Argot Unit Trust and Tyne in concluding that the defendant was administering the investment on the basis that had been represented by Keller, namely that it would produce arbitrage profits.[855] Similarly Tom Oates received oral reports from Tyne and written reports from Mercer confirming returns in the order of 24% on his April investment.[856] He believed that the defendant had now been administering Coneview investments for 15 months with returns of at least 20%. He believed the defendant was aware of how the investment was operating.[857]

728 I am satisfied that by the time each plaintiff invested, they knew or assumed that the defendant understood that the special terms were being employed to arbitrage as a consequence of the manner in which the Coneview investments were being conducted.

Unconscionable conduct

729 The defendant relies upon the underlying basis of equitable estoppel in denying that it engaged in unconscionable conduct.[858] The defendant contends that unconscionable conduct would commonly involve the use of or insistence upon a legal entitlement "to take advantage of another's special vulnerability or misadventure" in a way that is "unreasonable and oppressive to an extent that affronts ordinary minimum standards of fair dealing".[859] The defendant submitted that its conduct cannot be so characterised having regard to the plaintiffs experience, intelligence and wealth, combined with the fact that they were claiming hundreds of millions of dollars in super-profits.

730 The defendant asserts that the plaintiffs engaged in a course of conduct with Keller which was designed to exploit the defendant's product in a manner for which it was not designed and in circumstances where they must have known that the defendant was not fully aware of what was occurring. It says the plaintiffs should be denied equitable relief as their investment was made with the knowledge that Keller had concealed the purposes of the special term from the defendant and that they invested with the intention of exploiting the defendant's position. The plaintiffs knew, it submits, that the defendant's alleged agent was deliberately acting in breach of his fiduciary duties in order to advance his own personal financial interests. The defendant places particular reliance upon the memorandum from Tyne to Hawkins of 25 February 2000.[860] It submits that equity should be reluctant to assist the plaintiffs in circumstances where they were knowing parties to another's deliberate subversion of the party against whom they seek relief. It relies upon the equitable principle expressed in Barnes v Addy.[861]

Plaintiffs' conduct

731 A plaintiff may still seek equitable relief when it has been guilty of unmeritorious or immoral conduct unless that conduct has "an immediate and necessary relation to the equity sued for".[862] An intention to over-reach or to deceive will not result in the denial of equitable relief unless the right relied upon and which equity is asked to protect has come into existence or been induced by such unconscionable conduct.[863] It may be accepted that there is a connection between the conduct of the plaintiffs, who did not disclose or request that it should be a term of the contract that the defendant continue to use historical pricing, and any assumption created by the defendant that it would continue to do so or at least would not exercise its right not to do so. But the plaintiffs' conduct is not in any way relied upon to support the equity. Any assumption induced by the defendant did not rest upon the conduct of the plaintiffs.

MISLEADING AND DECEPTIVE CONDUCT - NEGLIGENT MISSTATEMENT

732 In oral submissions counsel for the plaintiffs noted that it was unnecessary to plead equitable fraud, as the plaintiffs' claim under the TPA covered the same ground without the need to establish the mental element.[864] The plaintiffs submit that the defendant must be taken to have misled the plaintiffs as that was the defendant's object. They submit that in the context of a case where the defendant had set about to deliberately induce the plaintiffs to hold a particular viewpoint, it is for the defendant to persuade the Court that the plaintiffs did not rely upon that which the defendant set out to achieve.

733 The plaintiffs rely upon the representations made to them by the defendant and its agents and by the defendant's conduct as contributing to their reasonable expectations that the defendant was committed to using historical pricing for prosperity bond unit prices and as founding the further claims of negligent misstatement and misleading and deceptive conduct. It is convenient to deal with them at the same time.[865]

734 A party who negotiates at arms' length in a commercial situation will often be aware that it has a knowledge of matters which, if known by the other pary, may cause that party to take a different negotiating position. In Lam v Ausintel Investments Aust Pty Ltd[866] Gleeson CJ stated that "this does not in itself impose any obligation on the first party to bring the information to the attention of the other party, and failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice." Nettle JA in CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd[867] referred to the following passage from Poseidon Ltd v Adelaide Petroleum NL[868] in which Burchett J stated:

[407]

Section 52 focuses upon the effect of the defendant's conduct and representations which have the potential to mislead and deceive the plaintiffs.

735 The plaintiffs allege that, in entering into their respective policies, the defendant, in trade or commerce, represented that it intended to use historical pricing to fix the value of the units.[870] The plaintiffs allege that from at least 8 June 2000 the defendant did not intend to continue to use historic pricing and was under a duty to disclose that intention and breached its duty by not doing so.[871] They allege that the representation that the defendant would continue to use historic pricing and the failure to disclose its intentions constituted misleading and deceptive conduct in contravention of s.52 of the TPA.[872] They also allege that the representations were made negligently.[873]

736 The plaintiffs rely upon s.51A of the TPA, which provides that a representation made by a corporation with respect to any future matter, where the corporation does not have reasonable grounds for making the representation, shall be taken to be misleading and the corporation, unless it adduces evidence to the contrary, shall be deemed not to have had reasonable grounds for making the representation.[874]

737 The defendant submits that by reason of s.51AF of the TPA, s.52 had no application because the matters alleged involved the "supply of financial services".[875] In reply, the plaintiffs denied that the matters alleged involved the supply of "financial services" but, if they did, relied upon the provisions of ASICA and the CA which they submitted applied to misleading and deceptive conduct in relation to financial services.[876] It was not disputed that the law that has developed in relation to s.52 and related provisions of the TPA was applicable to s.12DA of the ASICA and s.1041H of the Corporations Act. The parties made substantial amendment to their pleadings in the first few days of the trial to cover these matters but in closing oral argument little attention was given to whether the claim of misleading and deceptive conduct rested upon the TPA, ASICA or the Corporations Act.

738 The defendant acknowledges that the plaintiffs' allegations as to negligent misstatement or a breach of s.52 of the TPA are founded upon essentially the same factual matters as those which form the basis for their claims as to oral policy terms and estoppel. It submits that the plaintiffs have failed to establish that the alleged representations were made or that they reasonably relied upon them.

739 The plaintiffs rely upon the principle that where a claim under the TPA involves silence or a failure to speak, it is not necessary to establish a duty of disclosure at common law or in equity.[877] The question is whether in all the circumstances "constituted by omissions, statements or silence, there has been conduct which is likely to be misleading or deceptive".[878]

Failure to speak

740 "Silence" which may be actionable may loosely fall into one of the following categories: where there is a duty to disclose; where something is said or done which, without more, communicates only a half truth; and where there is at least a reasonable expectation that silence will be broken in the circumstances.[879] For silence to be actionable it must be deliberate, that is to say the party must be aware that it is likely that the other party is labouring under a material misapprehension but determines to say nothing.[880] Neither in law or equity will mere silence avoid a contract where there is no legal obligation to divulge. But silence may constitute conduct which is misleading or deceptive in terms of s.52 though in law there was no duty to speak.[881]

741 Whether a party's departure from an assumption would be unconscionable calls for an examination of the conduct of the allegedly estopped party. One category of case which would make it so is where that party "knew that the other party laboured under the assumption and refrained from correcting him when it was his duty in conscience to do so."[882] The party's duty to speak rests upon its knowledge of the mistaken assumption made by the other and is informed by notions of unconscionability. A duty in conscience can arise to correct a false assumption.[883] Liability for misleading and deceptive conduct by silence under the TPA does not require a duty to speak but calls for an objective assessment of the relevant circumstances to determine whether conduct was misleading or deceptive. Whilst common law and equitable principles may be relevant in assessing whether a contravention of s.52 of the TPA has occurred, they are not determinative. Conduct that is misleading or deceptive may not always involve misrepresentation. The effect of any silence or inaction, and whether it is in contravention of s.52, must be deduced from an examination of the context in which such action or inaction occurred.[884] Silence may be the element which renders the conduct misleading or deceptive upon an objective analysis of all of the circumstances.[885]

742 Each of the plaintiffs say they had a reasonable expectation that the defendant would continue to administer the prosperity bonds in the same way in which it had with other Coneview investment club members over the previous year. They submit that the defendant's silence, and its holding out of Keller, Coneview and Taylor as its agents, made it entirely reasonable for them to have that expectation and to rely on what they were told by those persons. By its failure to speak when it had a duty to do so, they submit the defendant misled each of the plaintiffs into assuming that historical pricing would continue for the life of each policy. They submit that the defendant's deemed agents, Keller and Taylor, represented to them that the defendant was using historical pricing and that they would have the right to oblige the defendant to use it.

743 The plaintiffs submit that the defendant, by its silence, represented to each of the plaintiffs that they could make arbitrage profits by the use of the special terms utilising historical pricing. They submit that the representations were with respect to a future matter and that given Yesberg's knowledge by June 2000 - before any of the plaintiffs invested - the defendant did not have reasonable grounds for making that representation. They submit that no evidence was adduced showing that the defendant had any reasonable grounds for the making of such a representation as to a future matter. Yesberg, they submit, could not explain why he did not inform prospective investors of the deliberate steps which were put in train from June 2000 to bring about an end to this profitable method of arbitrage. They also rely upon the deeming provisions in s 51A(ii).

744 The plaintiffs further submit that the express and implied representations from the defendant's silence and the representations made by Keller and Taylor were all intended to and were likely to induce the plaintiffs to invest.[886] They submit it was reasonable to rely on what Keller said as he had negotiated the special terms with the defendant and managed the investments for the other Coneview investors. He had done nothing to cause the plaintiffs to distrust him. It was reasonable for the plaintiffs to rely on what Taylor said about the special terms as he was known to the plaintiffs and was a commercial solicitor with a major law firm.

745 To support their claim that there was an oral term, the plaintiffs relied principally upon the alleged representations of Keller and Taylor that it was a special term of the an agreement with defendant that it would continue using historical pricing. I have found, inter alia, that the plaintiffs did not regard what Keller and Taylor said as promissory, but it is also the plaintiffs case that Keller and Taylor told Tyne and Hawkins, more than once, that Keller had made clear to the defendant that he needed to know the unit price on the day that the notice to switch was given. I accept that Keller and Taylor made statements to that effect in their meetings with Tyne and Hawkins. I think it is likely that the defendant was so informed. This constituted part of the defendant's and the plaintiffs' knowledge at the time that the plaintiffs invested. No attempt was made to challenge the factual foundation for such an inference.

746 The plaintiffs rely upon the same representations and conduct to support their claim for negligent misstatement. They submit, as they did in relation to the three day option, that mere silence may not constitute a misrepresentation but it will do so where the silence distorts a positive representation or where a contract requires utmost good faith. They rely upon the fact that the defendant must have known that in the absence of a qualifying communication from it, investors would assume that the defendant would continue to use historical pricing to fix the value of units. Reliance by the plaintiffs was reasonably foreseeable. I have previously discussed, in dealing with the three day option, the duty of a party who has made a representation to communicate to the other party to whom the representation has been made, any alteration of relevant circumstances.

747 The plaintiffs advance the following argument. The duty to speak arose because the defendant had actual or constructive knowledge of what the plaintiffs had been told, both because Keller was its actual or deemed agent and because the only reasonable inference that could be drawn from all of the circumstances was that Keller was telling prospective Coneview investors, such as the plaintiffs, that arbitrage profits could be made as a consequence of the terms that he had negotiated with the defendant in conjunction with the defendant's use of historic pricing. Mr Yesberg had turned his mind to the probability that Keller was representing to potential Coneview investors that there was a right to make arbitrage profits from these special terms, but did not know precisely what representations he was making. The plaintiffs say that it is enough that the defendant knew that the plaintiffs entered into these contracts believing that they had a right to make arbitrage profits from these special terms, and at the time that the defendant did so it had the intention to cut off whatever avenues were available for them to do so.[887] As the objective interpretation of the wording was, at least arguably, as the plaintiffs contend, it was plain that the plaintiffs invested, negatively geared and payed management and protection fees in the expectation that they would get such benefits. For these reasons the defendant cannot be excused from the obligation to speak.[888]

748 The fact that the plaintiffs may have thought there was a three day option arbitrage or performed their own analysis of how the defendant was fixing the unit price (which confirmed that it was using historic pricing), does not mean that the plaintiffs did not rely upon the representations or conduct of the defendant or assume that the defendant would continue to utilise historic pricing to enable them to make arbitrage profits. They understood that it was not recorded as a special term in any of the documentation. The plaintiffs in their written reply say that "given the known risk of arbitrage with such pricing, it would never have appeared there anyway". It was not surprising that the plaintiffs would conduct their own enquiries before investing substantial amounts of money and incurring borrowing costs and management fees. The plaintiffs regarded the continued use of historic pricing by the defendant as a critical matter. Their own researches confirmed that the defendant used historic pricing. They were satisfied that the Coneview investment was being administered as Keller had told them it was. Historical pricing was being used. Initially they did not know whether the defendant appreciated how the historic pricing was being utilised in conjunction with the special terms.

Defendant's knowledge of assumptions made by plaintiffs as to historical pricing

749 It is necessary for the plaintiffs to establish that the defendant knew or ought to have known that they assumed that the defendant was committed to historical pricing. No duty could otherwise arise.

750 As to the defendant's knowledge and understanding of the effect of the terms, the plaintiffs rely upon the rule in Jones v Dunkel and say the inference should be drawn that none of the following people could have assisted the defendant's argument that it did not know the terms conferred a right to a three day arbitrage. They did not call the Product Actuary, Mr Burton, even though there was clear evidence that he had been consulted.[889] The evidence from Mr Lyon was that any actuary would have viewed the terms as an open invitation to material loss.[890] The plaintiffs invite an inference to be drawn from the defendant's failure to call its actuary, Mr Graham Slater, who was consulted by Mr Yesberg in about July. The plaintiffs argue that the actuarial experts whom the defendant consulted must have understood the effect of the no advice and June 1999 letters**,** the three day option and the use of historical pricing in conjunction with the terms. The plaintiffs also say that the defendant failed to call Mr Owen, who on the evidence was the person responsible for the defendant's volume driven approach as reflected in the CEO's report of October 16th. It failed to call Mr Shermon, the other director involved in the consultations to close down the prosperity bond.

751 The plaintiffs rely on Gaunt v Great Boulder Mines for the proposition that estoppel may be based on common assumptions encouraged by quite general conduct. The plaintiffs say Yesberg intended to do what he could to take this advantage away. The defendant knew of the likely impact of what it planned to do on the right to arbitrage. The plaintiffs say that is more than enough to give it the right to relief by way of the estoppels or claims based upon misrepresentations. The plaintiffs submit that I should not accept Yesberg's evidence, which they describe as obfuscatory, that he did not understand that cl 1.8 gave a right to arbitrage separate from historical pricing. He admitted that he had read the no advice letter,[891] which gives an obvious right to cancel. He knew that the Coneview investors had the right to and were making frequent switches between portfolios. He went to the Product Actuary and APRA.[892] They say Yesberg knew of Keller's representations regarding rights conveyed by the special terms and it was disingenuous of him to say he did not understand how the terms were being offered. The plaintiffs say the court should test Yesberg's denial that he knew how cl.1.8 might be utilised in the context that he knew that the unlimited right to switch together with the use of historical pricing gave investors an enormous economic opportunity.[893] They say that if the defendant knew that the special terms were being represented as giving the right to arbitrage, and it had a fair idea of what it was that was being said, even if it did not know every nuance, it knew enough by that alone. They submit that to these facts must be added the deemed knowledge acquired through Keller/Taylor and the failure of the defendant to call them, or any of its senior people, including the actuaries.

752 The conduct of Yesberg between March and September demonstrates that he was suspicious of the investment from March 2000 although he made no further enquiries about the reason for its popularity. By 8 June he was aware that the special terms were being used in conjunction with historical pricing to make arbitrage profits and he was seeking ways of stopping the "risk free rort". Between June and September further premiums were accepted from prospective Coneview investors including the plaintiffs.

753 Each plaintiff entered into the investment assuming they would make arbitrage returns comparable to those which had been made earlier by Taylor, Keller and Coneview investors. They assumed that the defendant would continue to use historic pricing. Those assumptions were induced by what Keller and Taylor told them as to the defendant's use of historic pricing, the knowledge that the defendant was aware that Keller would need to know the unit price at the time of a switch, the defendant's conduct in permitting the investment to be administered in that way, in permitting Keller to market the special terms knowing that it would be suggested that arbitrage profits could continue to be made in this way, and the defendant's deliberate concealment from investors between June and September of its proposed actions.

754 The plaintiffs contend that if historic pricing was not a term of the contract the defendant had, by its conduct, led the plaintiff to suppose that the defendant would not seek to enforce its rights under the contract to move away from historic pricing.[894] The defendant played such a part in the adoption of the assumptions made by the plaintiff that it would be unjust and oppressive if the defendant were permitted to depart from it.

755 The defendant's knowledge of the plaintiffs' assumption was unambiguous. The defendant knew the new investors, including the plaintiffs, were investing because Keller had been exploiting the defendant's use of historic pricing to arbitrage and make good returns. It knew that Keller, on the plaintiffs' behalf, would continue to require the price on the day a notice to switch was given I am satisfied that the defendant and the plaintiffs knew of these matters prior to the time that the plaintiffs invested. By then these facts were apparent and known to all concerned.

756 The plaintiffs submitted in their reply that the defendant was content for the arbitrage to occur because of the increased funds under management and the flow on benefits that it brought. They submit that the defendant only decided to stop issuing new policies when it decided that the business was not as profitable as it had hoped. They submitted in reply that the Court should conclude, from the defendant's failure to call evidence of the alleged unprofitability of the business, that the business was not so disadvantageous to it as it now claimed. The plaintiffs submitted that the defendant gained not just from fee income but from its ranking as a fund manager. They pointed to evidence that the defendant's goal in 2000 was to increase the amount of funds under management and improve its perception in the marketplace by business analysts and stockbrokers.[895]

757 The plaintiffs point to the fact that the defendant took no active steps to stop the arbitrage of the Coneview investors for some three months after, by its own admission, it learned of how the Coneview investors were utilising the special terms. Its inaction, it was said, showed the defendant attached little importance to the arbitrage until it became apparent to it that the business had become marginal or unprofitable. In answer, the defendant in a schedule filed after closing submissions drew attention to the evidence of Yesberg that the annual fee income earned by the defendant on all of the Coneview policies was approximately $1.98M and that in the event that the plaintiffs' calculation of their entitlements was correct, the total cost to the defendant of the Coneview policies would be some $2.8B.[896] The plaintiffs submit that this evidence was irrelevant and unreliable. They submitted that were Yesberg's evidence credible, the defendant would have tendered documentary evidence to support it.

Conclusion

758 Amongst the factors which militate against the defendant being permitted to resile from the assumption that it would continue to use historic pricing are two matters upon which the plaintiffs placed considerable emphasis. First it was said that the defendant created the reasonable expectation that they would be able to arbitrage through the continued use of historic pricing. Second, the failure to inform the plaintiffs that it did not intend to continue using historic pricing was contrary to good practice when measured against what a reasonable insurer would have done. It was rightly contended that the defendant must bear the consequences of the combination of what it conveyed and failed to correct.[897] This was a case where the defendant was "lying by" and lulled the plaintiffs into the belief that it would not take any step to discontinue the use of historic pricing.[898]

759 The evidence left no room for doubt that the defendant was aware that the plaintiffs were proceeding upon the assumption that the defendant would continue to use historic pricing. The failure of the defendant to communicate to the plaintiffs that it did not intend to do so was in my view, unconscionable. I would conclude, even without the testimony of Yesberg and the admissions in his contemporaneous records, that the defendant knew and ought to have known that the plaintiffs were investing upon that assumption.[899] The defendant knew that the plaintiffs would be encouraged by its conduct to invest in the prosperity bonds on the basis that it would continue to use historic pricing. Keller was to be the manager of these new investments. It knew of his desire to have the unit price on the day of the switch. By the time the plaintiffs made their investments, the defendant knew or ought to have known that potential Coneview investors, who were introduced to the special terms by Keller, would be told that and would believe that the defendant would continue to use historical pricing and would be given the price on the day of the switch. It also knew or should have known that potential investors such as the plaintiffs were likely to be aware that it had continued to use historical pricing since Keller had commenced to manage the Coneview investors investments and would expect to be able to make the same returns. It knew that such investors, including the plaintiffs, would be aware that Keller had made frequent switches between the cash and the secure portfolios to make arbitrage profits as a consequence of the defendant's continued use of historic pricing.

760 The plaintiffs assumed, with good reason, based upon the information with which they had been provided by Keller and Taylor and the manner in which the defendant had conducted itself in administering the prosperity bonds, that the defendant would continue to use historic pricing. The defendant, knowing that the plaintiffs were intending to invest upon such an assumption, contrary to good conscience, refrained from informing the plaintiffs that it was not intending to do so. Such conduct gives rise to an equity sufficient to support an estoppel.

761 In my view the explanation for the defendant's conduct in accepting the plaintiffs' and other substantial investments was tolerably clear. Yesberg did not think that the special terms conferred upon the plaintiffs any enforceable right to make arbitrage profits. He did not believe that the defendant had any obligation to continue to use historical pricing. He was not aware that the plaintiffs and Keller considered that the special terms conferred a three day option to arbitrage. As Yesberg's evidence and the contemporaneous documents demonstrate, he considered that the defendant could take legitimate steps to bring the Coneview investors' capacity to arbitrage to an end. While obtaining the benefit of substantial further investment, the view which he held, and the defendant adopted, was that as Keller and the plaintiffs and other Coneview investors had not expressly required historical pricing to be a term of the prosperity bond and had not openly stated to the defendant that they assumed that the defendant would continue to use historical pricing to value units, the defendant was under no obligation to tell them that their assumption was wrong or that it would not continue to do so or that it was intending to move to a different method of valuation.

762 The defendant's conduct was unconscionable. Independently of any duty that it owed at law or any equity which may be raised in favour of the plaintiffs, it had an obligation under s.52 to disclose its intention to the plaintiffs and in failing to do so its conduct was false and misleading. The defendant knew and ought to have known that the plaintiffs were acting upon the assumption that the defendant would administer their contracts in the same manner as it had administered the other Coneview investors' policies, that it knew that they were investing upon the basis that it would continue to use historic pricing and that if it were not intending to do so it would inform them of its intentions. It had a duty in conscience to correct the false assumption upon which the plaintiffs were intending to invest and which gives rise to an estoppel. The plaintiffs' claim under s.52 of the TPA is also made out as the defendant's conduct was false and misleading.

DILUTION

763 I have found that there were no express or implied terms conferring upon the plaintiffs a right to historical pricing or the three day option. The plaintiffs have made out their estoppel claim as to the defendant's use of historic pricing and their claim under the TPA. If the special term was to be construed as the plaintiffs contend, it would be necessary to resolve questions as to dilution and segregation raised by the parties. These questions would also have to be addressed, but may not be answered in the same way, if the minimum equity flowing from an estoppel entitled the plaintiffs to the continuing benefit of historical pricing. As evidence was led by the parties in relation to these issues, some of it controversial, my assessment of that evidence should be recorded. The plaintiffs also submit that by virtue of cl 1.8, the plaintiffs still had the ability to arbitrage overnight even if the defendant were permitted to complete within the three day period and there was no historical pricing promise. This submission rests upon the notion that it would take the defendant more than one day to complete a switch so that the plaintiffs would still have the opportunity to give notice of their intention to switch and to cancel the switch before the defendant has completed it.[900] What benefits, if any, flowed if such a factual and legal conclusion is correct were questions deferred to the hearing on damages. For all of those reasons, and in deference to the parties' endeavours, I should deal with their substantial written and oral submissions on these issues.

764 Assuming the plaintiffs have a right to arbitrage, whatever its source, the plaintiffs say that the "no dilution" right is necessary because if they do not have it, their profits would not be as high as those earned up until October 2000 and would continually diminish as the value of the non-Coneview investors' policies was eroded. The difference in value of the unit price where dilution is permitted to take effect, is illustrated in the tables set out earlier in these reasons, which reflect the parties' competing views as to the effect of switching upon the unit price.

765 Dilution of the unit price will occur when further units are added to the portfolio without a corresponding addition of funds to maintain the unit price. As the Coneview investors comprised the overwhelming majority of both the cash and secure portfolios, the small amount that did not relate to Coneview policies would soon be entirely consumed, preventing the Coneview investors from continuing to make profits unless some "non dilution" right or "top up" right is to be implied. If the special terms permitted them to make arbitrage profits, the plaintiffs allege that the defendant breached the special terms by failing to contribute to the statutory fund and/or the Secure and Cash portfolios so as to avoid a dilution of the unit price consequent upon a switch.[901] The plaintiffs argue that to allow dilution is inconsistent with the objective intention of the special terms. The defendant contends that the special terms do not reveal an intention that the plaintiffs should be entitled to make large arbitrage gains in perpetuity by action to protect the Coneview investors' unit price from the effects of dilution. The defendant submits that dilution is no more than the natural result of calculating unit prices in the manner expressly provided for by the policy.

766 In the United States it has become increasingly widely known that mutual funds, which operate on a similar basis to an investment linked contract, often calculate their net asset values using stale prices which causes their daily returns to be predictable, enabling those who trade on that predictability to earn returns in excess of 20 per cent. Due to arbitrageurs trading at stale prices, the value of the units held by long term shareholders in those funds is diluted.[902] Such active trading has a meaningful economic impact on the returns of passive non-trading fund participants.[903] Fund Managers in the United States recognise the importance of limiting the number of exchanges that can be made within a fund especially if they suspect "market timing" activity.

767 The defendant claims that the prosperity bonds are administered as a "pooled arrangement" where the only inputs are premiums and the only outputs are withdrawals. In this "closed system", unit prices are "self correcting".[904] The defendant submits that the value of the assets is the result of a defined process and as the number of units on issue is a known fact, by a process of elimination the "self correcting" item is the unit price. The defendant says that as the plaintiffs' switching strategy results in an increase in the number of units held by them, without a commensurate increase in the value of the assets in the fund, the unit price must diminish accordingly. In the absence of segregation of Coneview and non-Coneview investors' funds, the diminution in the unit price would be experienced by Coneview and non-Coneview investors alike. It accepts that non-Coneview investors must be protected from such an outcome.

768 To diminish the unit price of non-Coneview investors would be contrary to undertakings given by the defendant to APRA and would, the plaintiffs submit, be contrary to the principle that a contract cannot impose a burden on a third party (the non-Coneview investors) and would mean that the defendant had deliberately acted in breach of its contracts with them. As any of these outcomes are unlawful, the plaintiffs submit that dilution necessarily requires segregation of the Coneview investors' units from non-Coneview investors' units.

769 The defendant denies that it is obliged to top-up the funds in a portfolio to avoid unit prices being diluted by the plaintiffs' arbitrage switching.[905] It submits that it is entitled to segregate the Coneview investors by isolating their group of policies from other investors. It alleges that it has segregated the plaintiffs' and other Coneview policies so that the diluting effect of the unit pricing provisions of the policies means that in the future, switching will not be as profitable for the plaintiffs as it appeared to be in the past.[906]

770 The plaintiffs contend that there can be no segregation as there is no term of the contract or statutory provision which authorises it and that segregation is prohibited by s.46 of the LIA. The plaintiffs also say that dilution or segregation would be contrary to ss.13 and 37 of the ICA. To rely on it would not be acting in the utmost good faith and would be contrary to ss.13 and 14 of the ICA as the defendant would be relying on an "unusual term" that was not disclosed to the plaintiffs in writing before they entered into the contracts with the defendant.

771 The plaintiffs also allege that the defendant has waived or abandoned any rights that the defendant alleges it has by reason of the conduct upon which the plaintiffs rely in support of their estoppel claim.[907] The plaintiffs further allege that the defendant's construction of the policy terms would be inconsistent with a range of objective background facts known to the defendant, including the fact that the defendant did not inform the plaintiffs about dilution or the notion of a finite fund.[908] The terms of the CIB and the standard prosperity bond cannot, the plaintiffs argue, be relied upon in support of the dilution argument. They argue that, as those terms are silent as to this circumstance, they cannot be used to circumscribe the rights of the plaintiffs as contained in the special terms. The special terms changed the use of switching from a strategic decision to be undertaken infrequently to one that provided a means of arbitraging. The dilution argument was raised by the defendant in the last quarter of 2000. The plaintiffs submit that no one viewing the matter independently could have reasonably thought that such a strategy, introduced to save the defendant from having to meet the costs of arbitraging gains, was justified.

772 The plaintiffs plead that it would be unconscionable for the defendant to contend that their policies did not contain an implied "top up" term by reason of the fact that the plaintiffs assumed that the term was contained in their policies, the assumption being induced by the defendant whose conduct in relation to switches and cancellations is consistent only with the existence of the "top up" term. The plaintiffs rely upon their reasonable expectation induced by what the defendant and its agents did and did not say. The defendant had not reserved the right to dilute or segregate so that the defendant is to be estopped from so contending. Alternatively, if the defendant were permitted to dilute and segregate, they say the special terms would be rendered illusory, contrary to the plaintiffs' reasonable expectations induced by the defendant, so that its conduct was misleading and deceptive giving rise to relief under s 87 of the TPA and sounding in damages.

773 The plaintiffs allege that on the proper construction of cls 3.2(a), 4.20(i) and (ii) and the other terms of each policy, they are entitled to have their benefits determined without a limitation by reason of the value of assets in the Statutory Fund No. 5 or the value of the assets of the cash or secure portfolios or as a consequence of any dilution of the unit prices of their units in those portfolios because of the increased number of units to which the plaintiffs are entitled by reason of switching between the portfolios in accordance with the special terms.[909]

774 The defendant argues that the words of cl 3.2(a) are clear, that the unit price will rise and fall in a manner which reflects the value of the assets in the portfolio from time to time, and that by virtue of cl 4.20 the unit price is to be determined by dividing the value of the assets in the portfolio by the number of units on issue. Clause 3.2(b) provides that the portfolio net value will be determined at least once every calendar month but could be determined daily or more frequently than daily. Clause 3.5 deals with portfolio cash flows and provides, inter alia, that transfers into portfolios are added to the appropriate portfolios and corresponding new units are created in those portfolios using the appropriate unit prices. Transfers to other portfolios reduce the number of units in the appropriate portfolios and corresponding amounts are deducted from those portfolios using the appropriate unit prices. Thus the defendant submits that such transfers affect the quantum of assets in the relevant asset pool so that where an arbitrage based switch is effected, this must have an affect on the unit prices.

775 Because switching at back-dated prices (that is the price on the date that the notice to switch was given) will result in the unit prices being different after the switch, from the price they would have been if the switch had never taken place, the defendant submits that dilution is no more or less than the result of applying the terms of the policy which relate to the calculation of the unit price. It is the plaintiffs who seek the intervention of the Court in relation to dilution and seek the implication of a term that the defendant is bound to "top up" the relevant pools of assets to prevent dilution. It submits that the plaintiffs' argument as to the process by which dilution might be avoided is a complex one and there could be no confidence that each of the parties are addressing precisely the same thing when they use the term "dilution". It submits that the plaintiffs' claim that by segregating and diluting, it is in breach of the terms of the policy is plainly unsustainable.

776 The plaintiffs submit that their construction of the terms of the policy is to be preferred because the defendant's construction of cl 4.20(1) is inconsistent with cl 3.2(a) which does not contemplate that any other factor, bar changes in market values of the investments, reflects in the unit price. The plaintiffs rely on the fact that cl 3.2(a) does not say that switches can affect the unit price or that a change in the number of units on issue reflects in the unit price. They rely on the relationship between changes in market values and changes in unit price as described by the use of the word "reflects". They say the use of this word implies a precise correlation between changes in asset value and changes in unit price. The plaintiffs submit that their construction argument endorses that correlation whilst the defendant's argument does not.

777 The defendant submits that there is no inconsistency between its construction of cl 4.20(i) and cl 3.2(a). It submits that dilution occurs precisely because the market value of the investments that are in the portfolio after the switch are insufficient to support a higher unit price.

778 The plaintiffs argue that if the Court required the defendant to contribute to the statutory fund each time a plaintiffs' switch was completed so as to maintain the unit price before and after the transaction, the funds contributed would be invested and would become "investments then underlying the portfolio" as contemplated by cl 4.13. Clause 3.5 does not limit the life company from contributing to a portfolio to maintain the unit price. It permits certain cash flows and supplementary protection units to be added to the portfolio. The cl 4.20(i) valuation could still be undertaken each month but the investments underlying the portfolio would include those purchased with funds contributed by the defendant and not policyholders. The resulting "hard price" would not be diluted and so cl 3.2(a) would be complied with. This would also satisfy the requirements of paragraph 4.5.2 of the Actuarial Standard PS 200.[910]

779 The plaintiffs referred to the evidence of various witnesses who they submitted recognised that the plaintiffs' construction, which obliged the defendant to contribute to the fund, enabled the clauses in the policy and good actuarial practice to be given effect in their individual terms and in harmony together.[911]

780 The plaintiffs' argument that the policy requires the defendant to contribute to avoid dilution rested on these further contentions. The portfolio value (cl 4.13) is simply the aggregate value of all investments underlying the portfolio. They submit that if the defendant was required to meet its obligation to the plaintiffs by contributing to the fund, it is clear that the obligation to contribute cash would itself constitute an asset of the fund. That asset should be taken into account when undertaking the "hard pricing" contemplated by cl 4.20(i). Clause 4.20(i) provides a mechanism for deriving a "hard price" by realigning the unit prices to actual market values. It provides the base point for the calculation of a new series of unit prices.[912] The "hard price" does not become the "unit price" declared under cl 3.2(e). The plaintiffs submit that cl 4.20(i) is no more than a machinery provision which does not confer any substantive rights. Unit transactions are never actually undertaken at the cl 4.20(i) derived "hard price".[913] The defendant's attempt to read cl 4.20(i) as conferring the right to dilute unit prices is contrary to cl 3.2(a) and relies upon an 'unusual term' which is prohibited by s.37 of the LIA. No clause restricts the class of assets valued in the "hard pricing" exercise to those assets purchased with policyholders' premiums. There is no reason to read such a restriction into the clause yet the defendant's construction is dependant upon such a reading. If such a restriction is not imported into the wording, the argument against the defendant contributing to the fund to prevent dilution can no longer be sustained. The defendant was more than a mere operator of the asset pool concerned with allocating investment risk and returns amongst participants in accordance with defined rules. The defendant held the units in the statutory fund so it could support a unit price by cancelling its own units or contributing to the fund.[914] The defendant had obligations which might require it to contribute to the fund. If policyholders took up the protection option and the defendant was required to meet it, the practice was for the defendant to contribute money to the pool in order to support the unit price. There is no difference in principle between the situation where the defendant must contribute to the pool of assets to meet its obligations to a protected policyholder and where it must do so to meet its obligations under the special terms. In both cases the terms agreed by the defendant will unfairly impact on policyholders unless the defendant contributes to the pool. This analogy is fatal to the defendant's dilution argument and relies upon the testimony of Mr Lyon.[915]

781 The defendant acknowledges that it could support a particular unit price by cancelling its own units or contributing to the fund but I see no basis for the conclusion that it is obliged to do so. It would be necessary to imply terms in order to create such an obligation. The defendant submits the analogy with a policyholder who has taken up the protection option is fundamentally flawed. The protection option places a clear obligation on the defendant to contribute in certain circumstances. The special terms do not, in the absence of any implication of a term such as the plaintiffs seek. The defendant submits that Mr Lyon's opinion rests upon his faulty and irrelevant interpretation of cl 1.8 as providing the right to arbitrage and requiring an interpretation of the standard terms that does not override that purpose.

782 Both parties referred at length to the evidence of Mr O'Brien and his opinion as to the right of the defendant to permit dilution.[916] There was something for both parties in his extensive cross-examination. He was asked to make various assumptions before his opinion was sought. Like other evidence of "expert" witnesses, I found his cross examination helpful in understanding the nature of the issues and the competing views that were open. Ultimately it remained a matter for the court to determine what constituted "good practice" and whether dilution was permitted.

783 Mr O'Brien drew upon the analogy of a unit trust in describing the pooled asset arrangement as a "closed system". The plaintiffs submit that analogy was fundamentally flawed as the policyholders, unlike unit holders in a unit trust, do not have a proprietary interest in the assets of a statutory fund. Clauses 3.1 and 3.2(a) of the policy and s 34 of the LIA make clear, the plaintiffs submit, that the policyholders do not hold any interest in the assets of the statutory fund. The defendant submits that Mr O'Brien's opinion, being on a matter of law which the court must decide, was irrelevant. It submitted the "closed system" analysis does not depend upon an analogy to a unit trust but rests upon the fact that policyholders' benefits are determined by the amounts that policyholders have contributed to the asset pool.[917]

784 Both parties recognised that industry practice would necessarily be of limited value given the unique nature of the special terms.[918] As prosperity bonds were a life insurance product containing a large investment component, the plaintiffs refer to good insurance practice where relevant and submit that it includes giving effect to policyholders' reasonable expectations. Mr Lyon testified that the defendant was obliged, as a matter of good practice, to recognise reasonable expectations which it had created in the plaintiffs by what was said and what was not said.[919] Based upon good practice and the objectives of the LIA, the plaintiffs submit that the defendant could only dilute the plaintiffs' entitlements or segregate or move to forward pricing if that was clearly spelt out in the contractual documents. The plaintiffs rely upon "good practice" and the recognition of reasonable expectations to resolve ambiguities in the contract and to imply terms to complete the contract whilst aware that they cannot contradict its terms. Testifying as to good industry practice, Mr O'Brien expressed the opinion that if the plaintiffs were merely exercising their contractual right to arbitrage, the defendant could not dilute their entitlements.[920]

785 The plaintiffs rely upon the proposition that the insurer cannot discriminate against a group of policyholders. They submit that as a matter of good practice, the defendant cannot ignore the rights and expectations of or discriminate against the Coneview investors. Thus, they argue, to avoid an adverse economic impact on other policyholders, the defendant (and therefore its shareholders) had to meet the costs of the plaintiffs successful arbitraging.

786 Save for the limited manner in which Mr Lyon's testimony as to industry practice may have been utilised in aid of construction, his opinion and those of other witnesses as to the interpretation of the special terms were recognised by the parties to be irrelevant as they concerned questions of law in relation to the construction of the unique special terms.[921]

787 Mr Lyon's evidence that there should be no dilution of the unit price because this would detrimentally affect the plaintiffs' entitlements, rested upon his construction of the special terms as conferring upon the plaintiffs the entitlement to what Mr Lyon described as "back dated switches" (the effect of the three day option as he interpreted the special terms). This led to his conclusion that the back dating cost should result in an injection of shareholder funds by the defendant.[922] It was Mr Lyon's testimony that the plaintiffs' entitlement to the back dated switch should not be diluted by the mechanics of the unit pricing system. In his opinion the defendant had an obligation under the contract to contribute to the policyholder's pool as the plaintiffs' entitlement to the back dated switch would otherwise be diluted by the mechanics of the defendant's unit pricing system.[923] It was Mr Lyon's evidence that there were situations in which the terms of a policy specifically or by necessary implication required the insurer to make contributions to the asset pool. Those situations arose were where there was a specific contractual obligation to do so or where there had been an operator error.[924]

788 The defendant submits that the processing of back dated switches in accordance with cl 1.8 does not involve operator error and on the plaintiffs' construction it is what the contract requires. The defendant submits that on the plaintiffs' construction, the special terms produce a distortion of the unit prices, and the plaintiffs cannot have no complain when those distortions occur.

789 The defendant relied upon Mr Lyon's testimony that if back dating did not affect those policyholders without special terms and was carried out in a manner consistent with the terms of the policies being switched, there was no problem.[925] The defendant says that the substance of his evidence was that the pool of assets valued to determine a "hard" unit price consisted only of the premiums paid by investors plus earnings from the investments made with money less what that had been paid to policyholders as benefits and included nothing else, assuming no contractual obligation existed on the share holders to contribute.[926]

790 Mr Lyon did not say that the defendant could only dilute or segregate if such a term was expressed in the policy. The defendant submits that the substance of his testimony was that segregation was entirely appropriate and should be carried through to whatever level of the fund was necessary to ensure that the activities of one group of investors did not affect another with different policy terms.[927]

791 Good actuarial practice as set out in paragraph 5.4.2 of PS 200, the plaintiffs argue, requires the maintenance of the unit price before and after a switch. They rely upon the testimony of Mr O'Brien who said that, as a matter of good practice, the unit price should be the same before and after a switch.[928] Hence the plaintiffs argue that if the defendant were required to meet its contractual obligations to the plaintiffs by making a corresponding contribution to the fund upon the completion of each switch, the unit price before and after each switch would be maintained, but if the dilution argument were accepted, the unit price after "hard pricing" would diminish significantly. Paragraph 5.4.2. of PS 200 is said by the defendant to have no application in the present circumstances. It submits that paragraph only applies to reports made under s.116 of the LIA, prior to policies containing particular terms being issued.

792 The plaintiffs argue that the terms of the policy should be construed so as to be consistent with the special terms and the objective of arbitraging. The benefit of the special terms would be lost entirely if the dilution argument succeeded.[929] On the defendant's construction of cl 4.20(1) it would not apply to the present contract, where arbitrage would result in increased unit entitlements without any corresponding increase in fund asset values. Similarly, the plaintiffs argue that their construction is consistent with the reasonable expectation of the parties while the defendant's is not. It is submitted that none of the plaintiffs would have invested had they been informed that their increase in units, which resulted from the exercise of their rights, automatically resulted in a corresponding dilution in the value of their units. To so administer the bonds would, it was submitted, be contrary to the reasonable expectations of the policyholder and good life company practice.[930]

Implied terms as to dilution

793 The plaintiffs allege that it was an implied term of the policy that the defendant would "maintain sufficient units on issue in the Secure portfolio and the Cash portfolio to enable the plaintiffs ... to conduct switches and cancellations ... profitably."[931] This term is said to be necessary to give business efficacy to the policies express terms and to ensure that the plaintiffs receive the benefit of their contracts.

794 The plaintiffs submitted that the defendant's shareholders would benefit at the expense of the Coneview investors if there is no obligation to prevent dilution. They say there is no corresponding diminution in shareholders' funds or assets, because the shareholders do not contribute. They point to the fact that the defendant received $180 million in premiums, collected up-front fees and would then by dilution prevent the plaintiffs getting the benefit of their arbitraging. The plaintiffs say that cannot be right as a matter of contract law and is immoral.

795 Alternatively, the plaintiffs allege that if dilution would otherwise occur, then it was an implied term of each plaintiff's policy that the defendant would make a contribution of funds sufficient to avoid any such dilution (the "top up" term).[932] The "top up" term is said to be necessary to give business efficacy to the special terms of the plaintiffs' policies which facilitate arbitraging by the plaintiffs, otherwise unit prices would fall. Such a result would mean that the defendant would be preferring its interests to those of policyholders contrary to ss.32 and 48 of the LIA and cl 4.5 of Professional Standard 200 because other policyholders would potentially bear the burden of the defendant's contracts with the plaintiffs.

796 The "top up" term is also necessary, the plaintiffs allege, because otherwise the plaintiffs might increase their number of units whilst the corresponding decrease in the unit prices resulting from dilution would make that increase worthless. They submit that the "top up" term ought to be implied because of cl 3.2(a) and cl 4.20 of their policies.[933]

797 The plaintiffs submit that the proper construction of cl 3.2(a) precludes the possibility that switching activity will impact upon unit prices and confirms unambiguously that unit prices only change with changes in the market value of the underlying investments.[934]

798 The plaintiffs seek to rely upon the opinion of a number of senior employees of the defendant as to the defendant's obligations.[935] I have explained why much opinion evidence found its way into the trial without specific objection. The relevance of most opinion evidence was not the subject of argument. Admissibility to one side, the defendant submits that the expressions of opinion as to the defendant's obligations related to the gains that the Coneview investors had made from switching that had already been carried out. The opinions did not relate to the interpretation of the special terms or the defendant's obligations into the future.

799 The defendant argues that to imply an obligation to "top up" and maintain sufficient units in the portfolio involves an unwarranted extension of the principle in Butt v McDonald[936] "that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract."[937]

800 The defendant submits that the duty to cooperate[938] does not require the defendant to do any more than preserve the benefit of the contract. It submits that if the unit prices are diluted, the profitability of switches will be less than if the defendant is obliged to maintain unit prices at an artificial level but the policies will not be worthless. Thus, it submits that the term is not necessary to preserve the benefit of the contract. Secondly, it submits that the duty to cooperate must be assessed by reference to what is reasonable in the circumstances. The requirement of reasonableness permits a party to act so as to avoid commercial detriment to itself.[939]

801 The alleged implied terms are said by the defendant to be inconsistent with the express terms of the policies which provide for gains or losses to be made in consequence of changes in the value of the assets underlying the investors' policies. It is fundamentally inconsistent with the nature of the policies for them to provide for benefits that are artificially high by reason of contributions to the fund by the insurer. Finally, it submits that the term "dilution in unit prices" is not capable of clear expression and the quantification of the required "contribution" is unspecified. These facts tell against the implication of a term.

802 Counsel for the defendant submitted in oral argument that even if the plaintiffs had made out their construction of cl 1.8, they contracted ex-hypothesi, for the three day option right. The plaintiffs thought that a certain result followed but they did not contract for that right. Other terms of the contract expressly provide for how the unit price was to be determined. The defendant submitted that the plaintiffs effectively seek a term that says that the unit price should be calculated so as to give them the right to make 20% profit, rather than the terms specified in the contract. Neither cl 1.8 or any other provision conferred upon the plaintiffs the right to make 20% per annum compounding profits for the rest of their lives. It was submitted that it was impermissible for the plaintiffs to obtain implied terms for the purpose of producing a particular result for which they had not expressly contracted.[940] No particular return from the application of the special terms was ever stipulated. The provisions as to unit pricing within the policy did not mean that the plaintiffs would get no return if they could use the special terms as they contended. The defendant submitted that the return they could obtain would depend on how they used their right and how many other policyholders were in the same portfolio. Counsel referred to examples 1A and 1B of the defendant's example[941] and the testimony of Mrs Hoare which showed that, assuming there were other non-Coneview policyholders in the portfolio, the plaintiffs would make arbitrage - type returns higher than those made by a policyholder who just invested in one portfolio, but the returns would not be as high as those the plaintiffs are seeking.[942] The plaintiffs did not obtain a term which provided that the unit price they would receive would be for a switch where there were other unit holders already in that portfolio. They obtained no term which specified the gain to which they were entitled.[943]

803 The plaintiffs say that there is nothing in the "purpose of an investment linked contract" argument. They say the benefit of the contract was not to make unlimited switches which had the result that the net value of the plaintiffs' entitlements remained unchanged or only rose marginally. None of the plaintiffs would have invested if that were so. They submit that it is pure conjecture that topping up would impose an extraordinary burden on the defendant as no evidence was called in support of that contention.

804 The damages claimed by the plaintiffs provide some indication of the amount by which the defendant would be required to "top up" the portfolios over the life of the policy. I have referred to the competing arguments of the parties as to the evidence given by Yesberg as to the fee income earned by the defendant and the estimate of the cost of the Coneview policies to the defendant. Whatever direct or indirect benefits the defendant would derive from the Coneview investors, it would be required to contribute a very substantial sum to maintain the value of the units.

805 The implied term requiring no dilution is said by the plaintiffs to satisfy all the tests in BP Refinery. Without it, the gains by the plaintiffs would be limited to the assets in the pool. They say the special terms would be rendered illusory because they would derive no greater return than an ordinary investor. The plaintiffs say the contract is relevantly unworkable without the special term, the implication of which is reasonable and equitable. They submit that there is no inconsistency between the implied and express terms of the policies. They submit the defendant erroneously confuses the reference in cl 3.2(a) to "unit prices" with "gains". The latter do not depend only on fluctuations in the value of the underlying investments.

Conclusion

806 Assuming that cl 1.8 on its proper construction creates a three day option or the defendant was obliged to continue using historical pricing or both, dilution would not render the special terms illusory because it makes the plaintiffs' policies less economically attractive by reason of the fact that they have borrowed most of their premiums. Benefits remain in the special terms though they are substantially lower than the plaintiffs anticipated.

807 The contract is silent as to the nature of the return that is to be derived from the prosperity bond with special terms. No identifiable contractual entitlement will be lost if dilution takes place. It would not therefore be contrary to "good practice".

808 The provisions of the policy, in particular, cls 3.2(a) and 4.20 do not give rise to some inconsistency if dilution is permitted. If the correct construction of the special terms permits the plaintiffs to arbitrage, there is no inconsistency with that right for the defendant to utilise the pricing mechanism contained in cl 4.20, which would produce dilution because an increased number of units would be used to arrive at the unit price. Neither clause, in my view, precludes dilution of the unit price if cl 1.8, whether alone or in conjunction with the use of historic pricing, enables the making of an arbitrage profit. Such a construction would not be inconsistent with the arbitrage opportunity created. The fact that the special term creates an opportunity to arbitrage does not require the unit pricing mechanism to be interpreted or applied in a different manner. The class of assets to which cl 4.20 can apply is not restricted to those purchased with investor's premiums but that does not give rise to an obligation by the defendant to contribute to the pool to maintain unit prices.

809 As to the alleged implied terms I do not regard it as reasonable to require the defendant to "top up" the portfolios, as this would impose an extraordinary burden on it, not for the purpose of preserving the benefit of the contracts, but to give the plaintiffs the return they hoped for. There is difficulty in identifying with any degree of certainty the terms which upon which the parties would have settled.[944] The language of the term proposed is uncertain. It is not a term that is so obvious that it "goes without saying".

810 Applying the tests identified in BP Refinery, the policy works without such alleged terms. The special terms regarding historic pricing and the three day option would be workable notwithstanding dilution and segregation; they are merely less profitable than the plaintiffs hoped. It would be neither reasonable nor equitable that the defendant would be required to make regular contributions to the assets in the portfolios in order to maintain a particular level of unit price.

Section 14 - Insurance Contract Act - Reliance on unusual term - Section 13 - duty to act in utmost good faith

811 Part II of the Insurance Contracts Act 1984 (ICA) is entitled "The duty of the utmost good faith". Section 13 provides:

[417]

817 The plaintiffs rely upon s.37 in this way. They say that the defendant, knowing that the plaintiffs' policies had for some time been administered without any dilution, would be to rely upon an "unusual" term of the plaintiffs' policies which is prohibited as such reliance had not been brought to the plaintiffs' attention before they entered into their policies. The plaintiffs submit s.37 is but a statutory application of a code that honourable life insurance companies are bound to observe and that to rely on a usual unit pricing term in an unusual way is no less a breach of that section than relying on an unusual provision. They thus submit that if there was a clause in the policy that produced such an outcome, it was obliged to draw that to the attention of the potential policyholder and as it did not do so it cannot rely on such a clause.

818 The defendant challenges the plaintiffs' assertion that dilution will in any way breach the provisions of the ICA. It submitted that the terms of the policy regarding the setting of unit prices were not "unusual" as they were in every prosperity bond since they were first issued. Those terms had been disclosed to all policyholders in the policy documents and in the CIB. It says the unit pricing term is not an unusual term but, according to the evidence, is typical of the way units are priced.

819 The "unusual term" and s.37 argument now raised was not pleaded, and it was not the subject of oral argument. Dilution and segregation in the context of these special terms does not, in my opinion, breach the duty of utmost good faith. Even if the special terms conferred an opportunity to arbitrage, the defendant would not be seeking to prevent the performance of the contract or withholding benefits if it was exercising a right to dilute or segregate that exists under the policy. It does not involve reliance upon any unusual term or call for some special notification to the policyholder.

SEGREGATION

820 This term is used to describe the separation of the assets of the Coneview investors from other assets in the statutory No. 5 fund even though the defendant continued to own and manage those assets. The defendant admits that it reduced the number of units in the Cash and Secure portfolios by segregation of the Coneview investors' investments and says that it was entitled to take that action.[945]

821 Since February 2001 the investments of Coneview investors, including the plaintiffs, have been segregated.[946] This was said by the plaintiffs to be a fall-back position for the defendant if it failed in its construction arguments as to the meaning of the special terms.[947] Counsel for the plaintiffs describe this as a "sneaky and unlawful way" of avoiding the consequences of the special terms.[948] It was necessary for the defendant to segregate the Coneview investors' investments because the defendant could not permit dilution which would effect the unit values of both Coneview and non-Coneview investors if their investments were in the same portfolio.[949] A threshold question was thus whether segregation was permissible, and if it was, whether the defendant could permit dilution to the value of the Coneview investors' units. The plaintiffs submitted that if the Coneview investors had a right to arbitrage, segregation was a wrongful removal of the consequent benefit of arbitraging and if they did not have such a right, then segregation was unnecessary.

822 The plaintiffs allege that on the proper construction of their policies they are entitled to have their benefits determined without limitation by reason of the value of the assets in the statutory fund and/or the Cash or secure portfolios.[950] They allege that the defendant breached this term by reducing the number of units on issue in the Cash and Secure portfolios (segregation) so as to prevent the plaintiff from utilising the special terms to make arbitrage profits.[951]

823 The claim that segregation involves a change to the statutory fund is disputed by the defendant. It submits the plaintiffs' assets are still held in statutory fund No.5 as are the assets referable to all other prosperity bond holders. It disclaimed that segregation was a "fall back position" and that its purpose was to protect other policyholders. It is the plaintiffs who seek to apply a term to prevent it.

824 There was no specific clause in the policy which provided for segregation. Segregation would not fall within any of the subclauses (i)-(iv) of cl 1.1. The plaintiffs submitted that cl 1.1 could provide no contractual basis for doing so as it conferred rights upon the policyholder only and did not permit the defendant to make substantive changes.

825 Segregation without the consent of a policyholder was not an industry practice.[952] The plaintiffs relied upon the testimony of Mr Lyon that segregation was only acceptable where it did not detrimentally affect policyholders or where it was fully disclosed to the policyholder at or before the point of sale. It was his opinion that where a policyholder had special terms, such as those given to the plaintiffs, the life company would have to disclose to the policyholder that it reserved the right to segregate.[953]

826 The plaintiffs argued that segregation could not be justified by legislation. The plaintiffs argue that the concept of segregation sits uncomfortably with the statutory regime of the LIA that the assets of a statutory fund should all be available to meet the claims of all creditors including all policyholders. The plaintiffs submit that the legislative purpose for requiring that assets be held in a statutory fund is to ensure that policyholders are not completely unsecured creditors of the life company.[954] They argue that a change in the way the assets are held is a fundamental change to the statutory fund that is inconsistent with and contrary to s.187. They submitted that it was contrary to ss.46 and 52 of the LIA to change a statutory fund without the approval of APRA. Mr O'Brien did not consider the segregation of assets of one group of policyholders from another within a statutory fund as attracting the operation of ss.46 or 52.[955]

[418]

827 The plaintiffs argue that segregation is also contrary to the investment mandate for the secure portfolio as, every time the plaintiffs switched, the defendant would hold their portfolio in Cash only, denying the plaintiffs any gain which would otherwise have accrued if they had originally been in the Secure portfolio, which the defendant had represented would be invested predominantly in fixed interest securities and cash with a moderate exposure to equity investments.[956] The defendant says that the possibility that it may, if the plaintiffs request a switch from Secure to Cash, immediately convert all the assets in the secure portfolio into Cash in preparation for the switch, is doing no more than preparing for the switch which is what cl 1.8 contemplates. It referred to the testimony of Mr Lyon to that effect.[957] This argument does not involve the question of segregation.

828 It is contended for the plaintiffs that s.13 of the ICA prohibits segregation since it involves a failure on the part of the defendant to act in the utmost good faith towards the plaintiffs. Segregation to protect the interest of other policyholders would not mitigate the defendant's obligations towards the plaintiffs. The plaintiffs submit that segregation of their investment was undertaken to protect the defendant by reducing the defendant's cost of its undertaking to APRA that other policyholders would not be prejudiced by the plaintiffs' switching, and by reducing the extent to which the defendant must top up the statutory number 5 fund. The plaintiffs submit the defendant was not acting in the utmost good faith towards them.

829 As to the defendant's undertaking to APRA, the defendant submits that this is not a matter upon which the plaintiffs can rely. It has satisfied its undertaking to APRA by separating the non-Coneview investors from the Coneview investors. Non-Coneview investors have not suffered any detriment and none have objected to the separation of the policyholders. The defendant submits that even without segregation, it would be open to it to compensate non-Coneview investors for losses they may suffer as a result of arbitrage activity by others in any manner that the defendant and those investors find satisfactory.

830 It is common ground that there is no specific contractual condition that makes reference to segregation. Funds of all policyholders are held in the statutory fund number 5. Policyholders who have units in different portfolios have their assets segregated from each other. That is necessarily the case and there is nothing in the policies that precludes it. The defendant submitted that it is standard practice to segregate policyholders whose policies have different terms and conditions where those terms and conditions may impact upon each other and relied upon Mr Lyon's testimony as to the reasonableness of segregation in the circumstances. It pointed to his evidence that the plaintiffs had unique policy terms and conditions and that it would be unfair to allow them to be used in a way which would cause detriment to other prosperity bond holders who did not have such terms and conditions. He testified that it would be good practice to treat them separately by making two pools out of one.[958]

831 Mr Lyon's testimony that the defendant could not permit dilution or embark on segregation was criticised by the defendant on the ground that it was predicated on the incorrect assumption that the special terms conferred the arbitrage rights claimed by the plaintiffs. Thus he opined that neither dilution or segregation could be permitted as it would be contrary to the plaintiffs' reasonable expectations. The defendant submitted that Mr Lyon was not qualified to give such an opinion and it was of no assistance to the Court.

832 The defendant's explanation that it segregated to protect other policyholders is said by the plaintiffs to be disingenuous and misconceived. The defendant was required to act in the interests of Coneview investors and other policyholders as separate groups. The plaintiffs contend that to protect the Coneview investors' interests, the defendant had to contribute funds to avoid the special terms becoming illusory. Its interests therefore conflicted with the Coneview investors' interests and s.48 of the LIA required the defendant to prefer the Coneview investors' interests to its own, and section 32 required it to treat the plaintiffs fairly having regard to the fact that they had negotiated benefits which were not available to other policyholders. They submit that the object of the LIA is to ensure that investors are treated fairly having regard to their particular contractual terms. They rely upon the testimony of Mr Griffin to that effect[959] and submit that it was also the tenor of Mr Lyon's evidence.

833 I accept that segregation has been undertaken to ensure that non-Coneview investors were not unfairly treated as dilution would occur as a consequence of the method of trading of Coneview investors. The defendant may segregate the Coneview investors' investments from those of other investors. There is no term of the contract that precludes segregation. To do so is not contrary to the provisions of the LIA or ICA. Segregation is entirely consistent with s.32 of the LIA as it was employed to protect other policyholders from harmful consequences.[960] Section 32 is not to be interpreted so as to provide benefits to the plaintiffs for which their policies do not provide.

Estoppels to prevent dilution and segregation

834 The plaintiffs say the right to arbitrage was established because of the mutual conduct of the parties. The defendant's knowledge of the way Prosperity Bonds, through Coneview, were being marketed is said by the plaintiffs to go to the reasonable expectations of the plaintiffs, and leads into matters of estoppel. They claim that Mr Yesberg well understood, in the period June to September 2000, that Keller was representing to Coneview investors that the special terms he had negotiated facilitated arbitraging through either historic pricing or the three-day option. They rely on the defendant's alleged deemed knowledge and constructive knowledge of the terms of the CIM. They argue that it was put on notice of its existence and failed to enquire as to its contents or demand its production. They refer to Macquarie Bank Limited v 64th Throne Pty Ltd and they argue that as the defendant knew that the terms were being used to arbitrage by Coneview investors and the consequence of successful arbitraging is more units, the defendant cannot then allow more units to result in a lower unit price and no benefit.

835 The plaintiffs say they invested with a reasonable expectation, induced by the defendant's failure to reserve the right to dilute or segregate, so that it is to be estopped from asserting such rights.[961] They argue that the defendant encouraged or induced reliance on an assumption by the Coneview investors, including the plaintiffs, that there would be no dilution of unit prices resulting from the plaintiffs' increased unit entitlements arising from the arbitrage. They rely on the fact that the defendant's publication of daily historical unit prices did not reflect any dilution of unit prices as a result of the switching activity of Keller and the Coneview investors. The account balances of Coneview investors, which were checked by its actuarial department and sent to the ANZ bank, were consistent with the plaintiffs' assumption as to the meaning and effect of the special terms. The correspondence of the defendant with Tom Oates confirmed a number of switches and resultant balances, none of which referred to or incorporated any dilution of unit prices on account of switching activity. They rely upon the defendant's failure to inform them or Keller or Taylor that it intended to take steps to eliminate the ability to arbitrage and intentionally induced or encouraged reliance by the plaintiffs on the assumption that the prosperity bonds would continue to be administered, after the plaintiffs invested, in the way in which they had beforehand. The plaintiffs say they relied upon the defendant's representations by conduct, its silence and on the statements of its agents that it would continue to use historic pricing and permit arbitrage without dilution of the unit price. The plaintiffs have suffered a detriment as a consequence, and accordingly, they submit that the defendant should be estopped from permitting unit prices to be diluted as a consequence of switches.

836 In considering Mr Lyon's evidence I have been mindful of the criticism raised by the plaintiffs that the defendant has discarded those aspects of Mr Lyon's testimony which it submits were inadmissible and has been selective about the answers upon which it relies.[962] Counsel for the plaintiffs placed great emphasis upon the testimony of Mr Lyon as to the reasonable expectations which flowed from the special terms. It was submitted that if the defendant wanted to rely upon provisions which permitted dilution or segregation or a move toward forward pricing or a reading of cl 1.8 so that it required two notices, the defendant was obliged to spell such matters out to the plaintiffs. That, it was said, was a matter of invariable good life insurance practice.[963]

837 The plaintiffs say that the Court may use their reasonable expectations so as to more readily imply terms or resolve ambiguities against allowing dilution.[964] Thus the plaintiffs argue that if the defendant's construction of cl 4.20 is correct, they should be precluded from relying upon it.

838 In oral submissions, counsel for the plaintiffs argued that if, contrary to their case, findings are made: that Keller misled the defendant, and it did not understand the way in which Keller was going to achieve the arbitrage rights; that the plaintiffs were aware of what Keller did and are also to be treated as having misled the defendant in the same way; the plaintiffs contend that the principles of reasonable expectations would still apply to matters like dilution and segregation because the defendant had chosen not to seek relief by way of rectification or mistake, and has foreclosed itself from any such analysis.

839 The defendant relies upon the arguments it advanced against the plaintiffs' principal claim in estoppel and further submits the plaintiffs have failed to establish that it is to estopped from denying that non-dilution and top up are terms of each of the plaintiffs' policies. As to reliance, the defendant submits that none of the plaintiffs made reference in their witness statements to making any assumption that unit prices would not be calculated in the manner provided for by the policy, or that the defendant would make a payment to the statutory fund every time the plaintiffs made a switch. Although Tyne and Hawkins, in their almost identical claims in their witness statements, said that they relied upon the assumption that the defendant would maintain the Cash and Secure portfolios in the manner in which they were described in the customer information brochure,[965] that meant no more than that there would be portfolios with the type of asset composition maintained. Neither of the Oates brothers refer to any assumption about "topping up" when listing the matters they relied upon in their witness statements. The defendant says nothing it said or did could have encouraged a belief that it would ensure a certain number of units would remain in a portfolio. The defendant never had the capacity to compel investors to invest or remain in a particular portfolio. It relies on the evidence that in fact there were very few investors other than Coneview investors in the Secure portfolio.

840 The defendant argues there was nothing in the course of dealings between the defendant and Keller, prior to the plaintiffs investing in their policies, that encouraged the plaintiffs to make the assumption that the defendant was obliged to take steps to ensure that dilution did not occur. There was no evidence that the plaintiffs in fact believed that the defendant was "topping up". Tyne's memorandum of 25 February 2000 recorded his recognition that the defendant had no appreciation of the economic consequences of the switching. Keller and Taylor knew it was not doing so. The defendant submits that had it been making regular contributions to the fund to maintain unit prices it would well and truly have appreciated the consequences of arbitrage. The plaintiffs knew it did not appreciate the cost. It points to the evidence that it was the inability of the defendant's computer system to cope with the free switches to which the Coneview investors were entitled which resulted in the unit prices remaining unaffected by the Coneview investors frequent switching. Tyne in his memorandum revealed his awareness that the defendant's computer system was deficient in this regard. The defendant submits that the inability of its computer system to cope with the free switches caused it to engage in a kind of segregation, in that it administered those policies differently from those of other prosperity bond holders. The defendant repeated its submission that the plaintiffs are not entitled to rely upon the conduct of the defendant in respect of other investors' policies, prior to each plaintiff entering into its policy, to found an estoppel in relation to the plaintiffs' contracts.

841 As life industry practice largely mirrors common law and equitable principles which govern the plaintiffs' rights against the defendant, the plaintiffs argue that the defendant's manner of administering its assets through unitisation and how it programmed its computer are irrelevant factors as they were not made a term of the contract and were not an objectively known background fact. Further, they submit that the defendant's computer programme could have been programmed to pass back dating costs onto shareholders or onto policyholders.[966]

842 Even if the plaintiffs made the assumptions alleged, the defendant argues that they were unreasonable. It submitted the portfolios are described and maintained so that an investor can obtain the benefit of having his funds invested in certain types of assets. An investor who has no units in the portfolio cannot complain if the portfolio happens to be empty of assets so long as his funds, once switched into that portfolio, are invested in assets of the relevant type.

843 The plaintiffs' contention that the defendant should maintain sufficient units on issue in the Secure and Cash portfolios does not require the defendant to compel policyholders to invest in or remain in a particular portfolio as the defendant itself holds units in each of the portfolios. The plaintiffs submit that the defendant can maintain or acquire sufficient units in the Secure portfolio and the Cash portfolio to ensure that there is no diminution in the value of the plaintiffs' units.

844 The defendant submitted that the plaintiffs' estoppel claim must fail because equity does not lend its assistance for the purpose of enabling one party to a contract to obtain huge financial benefits from another. It submitted that equity's function is to prevent injury and the plaintiffs have suffered no injury.

Conclusion

845 The defendant had a right to permit dilution but for the reasons stated in dealing with the plaintiffs' primary estoppel claim, it had by its conduct led the plaintiffs to believe that it would not enforce such rights. On a day when there was an increase in the unit price, fixed on an historical basis (by reference to the movement in the previous day's market), the unit price increase reflected the full grid and not the diluted effect of the increase in value of the underlying assets. This was the manner in which the Coneview investments were administered. The defendant knew or ought to have known by the time the plaintiffs invested that this was how Keller/Coneview would be representing the benefit of the special term and that potential investors who followed the movement of the unit would make such an assumption. It played such a part in the adoption of the assumption that it would be unjust and oppressive if the defendant were permitted to depart from it.[967] The defendant had a duty to speak if it intended by dilution and segregation of the plaintiffs' investments to reduce the plaintiffs' expected profits from arbitrage through the use of its historical pricing. The defendant did not spell out that it reserved the right to take away the benefit of successful arbitraging by diluting the entitlement through the division of a finite fund with the increased number of units so that the entitlement was inexorably diluted. The failure to reserve the right to so dilute was a breach of the defendant's duty to speak. It was required in conscience to correct the false assumption upon which the plaintiffs were intending to invest which gives rise to an estoppel. Its conduct was also misleading and deceptive in breach of s.52 TPA.

846 The plaintiffs seek various declarations, a number of which relate to unit prices.[968] The defendant submits that what the plaintiffs are asking is that the Court re-write the provisions of the policy about unit prices.

ADDITIONAL INVESTMENTS

847 The plaintiffs allege that they could make additional investments on the same special terms as the original investment by paying additional premiums. They submit that the term was in writing and was contained in the covering letter and in cl 1.1(i) of each plaintiff's policy which, read with the covering letter, gave the defendant's consent as referred to in cl 1.1(i).[969]

848 The defendant admits that it was its practice to issue the policy with a covering letter which contained the sentence: "Your new prosperity bond allows you to make additions to your policy at any time". It further admits that cl 1.1 of each of the policies entered into by the plaintiffs provided that "You may pay an additional premium, subject to our express agreement".

849 The defendant alleges that the plaintiffs had neither received or read the covering letter prior to their entry into each of their policies and it denies that the covering letter contained terms which formed part of any policy issued to the plaintiffs.[970]

850 In addition to the covering letter and the terms of the policy, the plaintiffs point to the content of the CIB[971] which states the policyholder may make additional payments but makes no reference to the need for the defendant's consent. They rely also on the CIM, which they assert is part of the contract between the parties, which provides that an additional managed investment may be made but makes no reference to the defendant's approval. The plaintiffs say these documents constitute the defendant's agreement or make an independent promise to that effect and that this term or promise was specific to Coneview investors and prevails over any inconsistency with standard cl 1.1(i).

851 The reasonable expectations of the plaintiffs was also relied upon in oral submissions. It was said that the conduct of the defendant in providing the covering letter and the CIB and the content of the CIM raised the plaintiffs' expectations that they had a right to make additional premium payments without the defendant's express agreement. Counsel also suggested that it was the subject of an oral promise by Keller. Though it was not so pleaded, it was submitted that the promise, together with the covering letter and the CIB and CIM, gave rise to a contractual obligation and expectation that the plaintiffs could make additional payments without the consent of the defendant. It was earnestly submitted that it was fundamental to the decision of Tyne and Hawkins to invest that they were promised the right to make additional payments.

852 When the defendant announced in September 2000 that additional premiums would not be accepted, Yesberg had not considered the wording of the covering letter and was not aware of any difference between it and the provisions of the policy.[972] The plaintiff alleges this typifies the defendant's approach to the rights of Coneview investors and suggests that any legal advice that the defendant sought was very selective.

853 Tyne and Hawkins said that they read and relied upon the covering letter, the CIB and the CIM. The plaintiffs did not plead, even after substantial amendments, that the CIB or the CIM were contractual documents containing terms of the contract. Much of their evidence on reliance was contested by the defendant. This claim being a contractual one, it is unnecessary to establish the plaintiffs' reliance.

854 The plaintiffs reiterate that the policy was a "contract of adhesion" and that based on the contra proferentem rule, the limiting words "subject to our express agreement" should be construed against the defendant, and the plaintiffs' unfettered right to make additional contributions set out in the other contractual documents should be upheld. The defendant submits that the doctrine of contra proferentem is not available to the plaintiffs as the contract was extensively negotiated and the words cannot be regarded as those of the defendant so as to invoke the doctrine. It says that in any event it can only assist the party in the event of ambiguity and relies upon Darlington Futures Ltd v Delco Australia Pty Ltd.[973] It says there is nothing ambiguous about the words "subject to our express agreement".

855 The plaintiffs further contend it would be a breach of the utmost good faith and in contravention of ss.13 and 14 of the ICA for the defendant to rely upon the limiting words in cl 1.1 because it is now unhappy with the bargain it made with the plaintiffs.

856 The effect of cl 1.1 (i) is to reserve to the insurer the right to decline receipt of further investments. The covering letter states that there is no temporal restriction on further permissible investments. There is in my view no inconsistency between the covering letter and the terms of the policy. The covering letter does not expressly contradict the terms of the policy document by saying that the policyholder can make additional premium payments without the need for the defendant's consent. Neither does the CIM (although it is not a contractual document). The insurer may decline to accept further investments but not because of the time at which they are made.

857 The covering letter makes no reference at all to the defendant's consent. It does not deal with many aspects of the parties' contractual entitlements. The covering letter's purpose is to enclose the policy document and states that the policy should be kept in a safe place. The policy does not include the covering letter which comprises the front page and the page which follows it, the schedule and an annexure. One would not expect the covering letter to a policy to exhaustively describe the rights and obligations of the parties to the policy. A reasonable person would regard the policy covering letter as doing no more than touching on some parts of the policy. The policyholder must look to the policy itself for a description of the parties' rights and obligations.

858 The defendant has submitted that if there is an inconsistency between the policy and the covering letter, the terms of the policy should prevail. It submits the covering letter does not purport to contain contractual terms. I agree with its contention. If the sentence upon which the plaintiffs rely in the covering letter were to prevail, the contract would permit the plaintiffs an unfettered right to make an unrestricted number of further investments, each of unlimited amount. It would mean that the defendant was powerless to prevent further investments regardless of the amount. A construction of the words used by the parties which leads to an absurd or repugnant outcome should be avoided. A right to unlimited further investments of unlimited amounts is a construction which should be avoided.[974]

DUTY TO ACT WITH UTMOST GOOD FAITH

859 Each of the parties alleges that the conduct of the other and their construction of the special terms is contrary to the general notions of fairness under the LIA and the duty to act with utmost good faith under s.13 of ICA.[975]

860 Section 13 requires each party to act towards the other "in respect of any matter arising under or in relation to the contract" with the utmost good faith. That requirement has usually been recognised in connection with the duty of disclosure but its ambit extends to other aspects of the insurance relationship.[976] It gives quality to the content of the relationship between insured and insurer, requiring each to discharge their contractual obligations in accordance with a standard. Thus an insurer must have regard to "more than its own interests when exercising its rights and powers under the contract".[977] But the duty is not to operate so as to restrict conduct which is reasonably taken and which is designed to promote the legitimate interests of a party.[978] The obligation of good faith does not require altruism or that a party must act without regard to their own interests.[979]

861 The implied duty supplements the contractual obligations to preclude certain conduct. Stapleton and Webb equate good faith with unconscionability.[980] It restrains the deliberate pursuit of self-interest where it is judged unconscionable. Finn considers there is a demarcation between good faith, unconscionability and fiduciary law, the difference lying in the extent to which a party is entitled to have regard to his or her own self-interest in a transaction.[981] On this analysis, conduct which is unconscionable will by definition involve a breach of the implied term whilst non-compliance with the good faith standard will not always involve unconscionable conduct.

862 The implied duty to act with utmost good faith is to aid and further the terms of the agreement ensuring that the parties perform the substantive terms of their bargain. Buchanan JA in Esso Australia Resources Pty Ltd v Southern Pacific Petroleum N/L[982] adverted to the misuse of the implied obligation where its application results in a fetter upon the exercise of a party's contractual rights or powers in promotion of that party's legitimate interests.[983] These observations were directed to the argument that an implied term of good faith arose as a legal incident of commercial contracts but they are relevant also to the duty created by s.13 of the ICA. Prevention of the performance of the contract or withholding its benefits[984] or the furtherance of an ulterior purpose to that for which a right or power has been conferred have been recognised as breaches of the obligation.[985]

863 The duty of utmost good faith is "both fundamental and paramount in an insurance contract."[986] Some commentators describe it as encompassing notions of fairness, reasonableness and community standards of decency and fair dealing.[987] Professor Lűcke in his Essays on Contract states:

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868 In summary, the duty of utmost good faith is relied upon by the parties in the following manner. The plaintiffs say it would be a breach of the defendant's duty of utmost good faith to deny the plaintiffs the ability to use the special terms to make arbitrage gains;[999] the defendant's construction and implied term allegations are contrary to the provisions of the LIA which prohibit the defendant from imposing the burden on other policyholders or the plaintiffs[1000] and the administration of the prosperity bonds by the defendant was in breach of the implied term that it would act with the utmost good faith toward the plaintiff and its implied obligation to give the plaintiffs the benefit of the contract.[1001] The defendant says the plaintiffs are not entitled to rely upon the terms of the policies for the purpose of repeated switching and cancellation to take advantage of market movements and increase their unit holdings because to do so would be to fail to act with the utmost good faith towards it.[1002] In reply the plaintiffs say that the good faith obligations only apply to the insurable risk of any insurance contract and not to any investment component or investment risk.[1003] They say the defendant knew or ought to have known that the plaintiffs would engage in arbitrage and therefore they cannot be in breach of the duty of good faith by doing so.[1004]

Lack of good faith by the plaintiffs

869 The defendant argues that the plaintiffs cannot have the benefit of the special terms even if they confer the arbitrage opportunities alleged, as reliance upon such contractual provisions would involve a failure to act in utmost good faith. I doubt that the duty may be used to prevent the legitimate exercise of contractual rights. The law and equity provides adequate means to protect a party from dealings which are unconscionable and unfair. As the point has not been raised, I shall deal with the defendant's contentions on the basis upon which the parties have argued the issue.

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would constitute a failure to act with utmost good faith as required by the ICA.

Distinction between insurable risk and investment component

871 It is not disputed by the parties that the contracts should be viewed as policies of insurance and that the duty of utmost good faith applies. Although the plaintiffs alleged an unqualified implied duty of utmost good faith was a term of the prosperity bonds issued by the defendant to each plaintiff,[1005] and that the manner in which the defendant administered the investment was in breach of the express and implied terms,[1006] by amendments made to its reply at the commencement of the trial, the plaintiffs alleged that the obligation of utmost good faith was applicable only to the insurable risk of any insurance contract and did not apply to any investment component or any investment risk of such contract.[1007] The plaintiffs argue that though the prosperity bonds contain a provision which states that they are contracts of life insurance within the meaning of the LIA and ICA, they are substantially investment products, not risk products. They say investments were made to make gains and not to gain life insurance although there were certain benefits which flowed from the fact that the bonds were insurance products. They submit that ss.13 and 14 of the ICA must be construed as applying to the risk insured, being the death of the last of the lives insured and refer to Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq).[1008]

872 The argument as to whether the duty applies to the investment component of the contract received very limited attention in the submissions of the parties. The distinction which the plaintiffs seek to draw must be rejected. The ICA does not make a distinction between the insurable risk and the investment component or the investment risk of such a contract.[1009] A contract of life insurance under the ICA means a contract that constitutes a life policy within the meaning of the LIA.[1010] A life policy under the LIA includes a contract that constitutes an investment-linked contract.[1011] Sections.13 and 14 of the ICA apply to such contracts.

873 The defendant relies upon the word "utmost" as requiring the highest degree of good faith[1012] and submits that the duty must prevent an insured from engaging in the "artful, premeditated and strategic use of contractual terms to make very large profits which necessarily result in the insurer suffering a very large ongoing loss."[1013]

874 As the special terms were on a "no advice" basis, neither party was obliged to enquire of the other as to their intentions with respect to the product. The investor, by acknowledging that they entered into the policy on a "no advice" basis, was disclaiming the receipt of positive advice as to the commercial wisdom of entering into the investment policy. The insurer was not, by obtaining the "no advice" acknowledgement, waving its rights in relation to the construction of the special terms or the application of the implied duty.

875 The defendant argues that the nature of the contract claimed by the plaintiffs and their knowledge that the defendant did not intend the policies to operate in the manner for which they contend, rendered reliance on the contractual provisions a failure to act with the utmost good faith.

876 As the contract was an investment - linked life insurance policy within the meaning of s.14 (4) of the LIA, the principal object of the contract was to be "the provision of benefits calculated by reference to units the value of which is related to the market value of a specified class or group of assets". The defendant submits that the plaintiffs were aware that unitisation was a means by which the performance of the underlying assets would be reflected in the performance of the investors' unit holdings.[1014] The defendant argues that it was not providing a mini stock market which was available for trading by an investment manager playing market fluctuations and margins on an almost daily basis let alone trading with a benefit of fore knowledge. The defendant submits that the strict and unintended application of those terms as the plaintiffs contend would render the contract unrecognisable as an investment-linked life insurance policy.

877 The plaintiffs in answer say that such an approach seeks to depict the duty as a gloss on the objective purpose of the special terms which would prevent their exercise as objectively intended. They submit that based upon the defendant's argument, there would be no room for any permissible level of switching to facilitate arbitrage so that the duty as the defendant would apply it cannot be reconciled with any exercise at all of the special terms. They say there is no room for an obligation of utmost good faith in the context of the special terms which provided an unrestricted right to arbitrage. They argue that the special terms created a reasonable expectation in the policyholder that they could profit by arbitraging. The plaintiffs reject the notion that they "snapped up a bargain" and are caught by the obligation. They rely on the fact that the terms had been negotiated well before they invested and that the terms had been available for a substantial period of time. The removal of the switching fees opened a way for arbitraging to occur. If that was the objective intention of the special terms it would be untenable for investors who invested very substantial funds and were expressly given unlimited switching and cancellation rights between portfolios to be precluded from switching unless their objectives changed. If that was so, the defendant would have obtained very substantial investments, ostensibly by offering rights not available to ordinary investors, but which in fact offered no greater ability to switch. The plaintiffs say that in that circumstance a clear case of unjust enrichment would be made out.

878 The defendant says the spirit of the bargain involves at a minimum that the contract retain its fundamental character as an investment-linked life insurance contract. The scope of the implied duty will depend in part upon the nature of the expressed terms agreed upon and the rule of construction that an implied term cannot contradict an express term. The plaintiffs say if the special terms are to be construed as permitting unlimited free switching for the purpose of making arbitrage profits, the pursuit of those rights, in the absence of a knowledge by the party seeking to enforce those rights, that the other party did not know or understand that the terms could be so utilised, would not evade the spirit of the bargain. If there has been a failure to act with utmost good faith in the present case, and assuming the duty can be used in the fashion claimed, it must rest upon the plaintiffs' knowledge as to the defendant's subjective intention and understanding of the special terms.

Duty of disclosure

879 According to the plaintiffs, their alleged breach of the implied duty to act with the utmost good faith was said to be their failure to disclose to the defendant their intention to exercise their rights under the special terms in a particular way. They submit that s.12 of the ICA limits an insured's duty to act in the utmost good faith to the duty of disclosure under s.21 of the ICA and rely upon Advance (NSW) Insurance Agencies Pty Ltd v Matthews[1015] and CIC Insurance Ltd v Barwon Region Water Authority.[1016] They say section 13 does not place a higher duty on an insured for disclosure than the requirements in Part IV.[1017] They submit that the prosperity bond proposal called for no disclosure as to the intended use of the special terms and none of the plaintiffs were ever asked by the defendant about their intended use. They submit that they were under no duty to disclose their intention to the defendant and rely on the fact that by the time they invested in the prosperity bonds their intention was or ought to have been known by the defendant and its agents. Thus there was no failure to disclose and no element of dishonesty in the plaintiffs' conduct.

880 The defendant contends that the commercial advantage which the plaintiffs seek to obtain is so extraordinary that standards of fairness and reasonableness dictate that they should only be permitted if the term was negotiated in an open and candid manner, if the effect of the term was readily apparent to both parties and if the clauses were clear and unambiguous. It submits that none of this occurred.[1018] It says that the plaintiffs' conduct is the "paradigm case of a party to an insurance contract 'snapping up a bargain'." It submits that the plaintiffs expected to achieve a return that was approximately triple that which the underlying assets had been achieving and that the plaintiffs knew or suspected or should have known that the defendant did not appreciate this.

881 The essence of the defendant's contention is not non-disclosure but that an investment-linked life insurance contract should not be exploited for risk free arbitrage. Issues of disclosure in a broad sense will frequently arise when the duty of utmost good faith is invoked in relation to what is said to be inappropriate reliance on contractual provisions. The reference to disclosure as an issue does not mean that s.12 applies to oust the operation of s.14. If the plaintiffs' contention were correct it would always render an insured immune from the operation of s.14. That is not an outcome that was intended by the legislature. The conduct upon which the defendant relies and which is said to constitute a breach of s.13 is not conduct embraced by or limited to the duty of disclosure under s.21 of the ICA. The element of "honesty" should not be construed narrowly for the purpose of determining whether there has been a breach of the implied duty. Conduct which falls short of fraud may constitute a breach of the duty which requires a party to refrain from unfair dealing which involves a lack of honesty.

Plaintiffs' knowledge of the defendant's lack of awareness

882 The argument oft repeated during the course of the trial that the defendant granted these concessions conscious of the benefits that would accrue to Coneview investors, in exchange for the direct and indirect benefits that would flow from increased funds under management, was never persuasive. As I have already stated, at the time the special terms were agreed with Keller, the defendant did not interpret the special terms in the manner claimed by the plaintiffs nor did it appreciate that on one view of the special terms, arbitrage profits, greatly in excess of the return for a standard bond, could be obtained from the use of the special terms.

883 In examining the plaintiffs' knowledge both parties focussed on the period 1999 to early 2000. [1019] The defendant relies upon Tyne's memorandum of 25 February 2000 to Hawkins in which he noted that the defendant did not fully appreciate "the economic consequences of these terms" as showing that he was "snapping up a bargain". Tyne sought to qualify what he said in his memorandum by saying that he was satisfied at the time that the defendant was motivated to get more funds under management and did not know what value they put on "intangibles" or a thing like "lead table rankings".[1020] The defendant submitted that his testimony was inconsistent with his memorandum and that he knew, as did Hawkins, that the defendant had only some of the information that was necessary to fully understand the effect of the terms. Hawkins denied that he shared Tyne's view that the defendant had misapprehended the economic consequences of the special terms. He stated that the defendant would find the terms it had offered to be unprofitable on a long term basis and thought it was a "lousy deal for shareholders".[1021] Hence the defendant argues that by his own admission he was aware he was snapping up a bargain at the expense of the insurer.

884 Tom Oates had a close working relationship with Tyne. The defendant submits there were inconsistencies in his testimony which demonstrated that he did not want to reveal he had been conscious of the inevitable loss the defendant would suffer from his arbitraging. He said he did not realise that when he entered into the policy, the defendant would have to make a substantial contribution to the return in order for him to achieve a return of 20%.[1022] He had turned his mind to the fact that the defendant had agreed to the concessions which would confer returns considerably in excess of the standard investment,[1023] and that there would be an "amount of investment return leakage". Paul Oates relied significantly on his brother's advice. The defendant submits he was infected with his brother's awareness of the defendant's lack of knowledge about the consequences of the special term and knew that there was a 14% gap between what he had to achieve and what the standard prosperity bond was achieving. He was aware that there were many millions of dollars being invested by Coneview investors. The defendant submits his evidence as to how he reconciled that with his belief that the defendant knew that the special terms had the effect of giving Coneview investors the benefit of hindsight was unsatisfactory and should be rejected.[1024] The defendant submits that his testimony that he positively considered that the defendant entered into the deal in order to achieve funds under management was implausible and is explicable because he knew he could not reveal that he was aware that the defendant did not fully understand the nature or effect of the terms.

885 I have found that Keller mislead the defendant as to the purpose of the special terms. The documentary evidence upon which the plaintiffs rely does not advance their contention that he did not conceal his objectives from the defendant.[1025] Even if Keller was deceitful, the plaintiffs argue that the evidence does not establish that they were aware that the defendant had been mislead or did not fully appreciate the nature and effect of the concessions which Keller had obtained. Much for the reasons already given, that submission cannot be sustained. I found the testimony called on behalf of the plaintiffs provided strong confirmation of the fact that each of them recognised, from what Taylor and Keller told them in 1999 and early 2000, that the defendant had not been told the purpose for which Keller had obtained the concessions and did not, at least until early 2000, understand how they might be utilised to make arbitrage profits.

886 To determine whether the plaintiffs were in breach of the implied term it is their knowledge at the time of the contracting which is material. By mid 2000 it was inevitable that the plaintiffs thought, as was the fact, that the defendant understood Keller's purpose in seeking the concessions which he obtained. At the time they invested they believed that the defendant understood that the special term created an opportunity to arbitrage. Their belief that the defendant was prepared to be bound by such terms, knowing the ultimate objective was to make arbitrage profits by the movement of the investment between portfolios, removes any element of dishonesty from their conduct.

The defendant's knowledge of the plaintiffs' intentions in relation to the special terms

887 The plaintiffs say that even if their conduct was capable in law of constituting a failure to act in the utmost good faith toward the defendant, they say the fact that the defendant knew that the special terms were being utilised by Keller and Coneview investors to make arbitrage profits and that the plaintiffs intended to do so at the time that they invested in their prosperity bonds meant that no question of lack of utmost good faith could arise. The defendant's knowledge has been addressed at some length in dealing with the plaintiffs' claims in estoppel in relation to the three day option and historical pricing. The plaintiffs submit that ss.13 and 14 of the ICA can have no relevant operation given the defendant's knowledge immediately prior to the plaintiffs' investments. The plaintiffs rely upon the fact that the defendant knew that Keller had repeatedly switched between the Cash and Secure portfolios and by doing so had made returns which substantially exceeded the returns available, had the money remained in the Cash or Secure portfolios. It knew that the plaintiffs were investing on the basis that their investments would be managed by Keller in a similar manner to those of other Coneview investors and that it was intended to frequently switch funds to take advantage of market movements and the defendant's use of historical pricing. The defendant chose nonetheless to issue policies with the same special terms to the plaintiffs. They say that by analogy with s.21(2)(b) of the ICA, which provides that an insured is not under a duty to disclose a matter which the insurer knows or in the ordinary course of the insurer's business an insurer ought to know, the implied duty has no scope for operation.

888 By the time the plaintiffs invested, the defendant knew that the special terms provided the unlimited right to switch and to make arbitrage profits by virtue of the knowledge that the defendant was using historic pricing. The defendant in its written reply draws attention to the fact that the plaintiffs' submissions, which list the matters allegedly known by the defendant prior to the plaintiffs entering into their policies, do not contend that the defendant knew about cancellations. The defendant's previous understanding as to the nature and effect of the concessions granted was overtaken by its knowledge, primarily gained through Yesberg, as to how Coneview and future potential investors including the plaintiffs, were proposing to utilise the special terms. I reached those conclusions, which were not the subject of challenge in submissions, on the basis of the contemporaneous documents and the evidence of Yesberg. The plaintiffs' references to Keller having informed the defendant's representatives, Beazley and Andrews, of his desire to maintain the dollar value of his investment so that there was never any risk of the capital going backwards and to maximize returns by taking advantage of market fluctuations, says nothing about his intention to make arbitrage profits. The plaintiffs' contention that such a conclusion was also to be drawn from the testimony and conduct of Beazley, Andrew and Mandalidis was not made out. I rejected similar contentions in dealing with the plaintiffs' primary claims in estoppel.

889 The defendant says its state of knowledge at the time the plaintiffs invested was not such as to excuse the plaintiffs' breach of their implied duty to act with utmost good faith. Although Yesberg knew in late May or early June 2000 that Coneview investors had been engaging in frequent switching, he did not know about cancellations prior to the plaintiffs entering into their policies. Even if Yesberg was aware by mid 2000 that there had been cancellations, the defendant submits that the handful of cancellations that had occurred were not carried out in accordance with the terms of cl 1.8 and could not be described as systematic so as to give rise to any reasonable suspicion on the part of the defendant that cancellations would be used as the vehicle for large scale arbitrage activity.[1026] I understood the defendant's submission to mean that it never became aware at any material time of the plaintiffs' intention to utilise the three day option as a means of making arbitrage profits.

890 The defendant further argues that its conduct in the face of such knowledge as it is found to have had was not the conduct of an insurer who knew the potential risks and yet knowingly and willingly continued to accept policies which permitted arbitrage. It seeks to explain its "inaction" in the period June to September 2000 as the consequence of its uncertainty as to how to resolve the problem and Yesberg's "very human and understandable worry at his involvement in what was rapidly developing as a very major problem for his employer".[1027] I am unable to accept the contention that the defendant's conduct should be viewed as inaction or as reflecting uncertainty on its part as to how to solve the problem it discovered. The defendant was under no obligation to issue further policies to prospective Coneview investors. It appears that Yesberg made the decision to continue issuing new policies.[1028] It was plain from his testimony and his conduct as evidenced by contemporaneous records, that he believed Keller was utilising the special terms in conjunction with the defendant's use of historic pricing to make arbitrage profits. I have found that Yesberg did not believe that the defendant was under any contractual obligation to continue to use historic pricing. He justified his proposed course on the basis that as Keller and the plaintiffs had not disclosed their purpose and had not contracted that the defendant continue to use historic pricing, he did not regard the defendant as obliged to inform Keller or the plaintiffs that it was not intending to continue to do so. As already stated, this conduct was unconscionable and gives rise to the plaintiffs' claim that the defendant failed to act with the utmost good faith.

891 Finally, the defendant submits that a breach of the duty of utmost good faith remains a breach regardless of whether the victim knows that it is suffering or is about to suffer such a breach. It submits the availability of s.14 should be measured by reference to the culpability of the party seeking to rely upon the contractual provision and not by reference to the state of mind of the parties seeking to resist such reliance.

892 Assuming without deciding that a breach of the duty to act with utmost good faith can result in a denial of the benefits of a term of the contract, a relevant consideration will be the knowledge and conduct of the party who seeks to invoke the duty. No authority was cited in support of the defendant's assertion that its knowledge of the ramifications of the special terms cannot excuse any breach of duty by the plaintiffs. A contracting party's knowledge of the other party's undisclosed intent may go to the question of whether there has been a breach of the implied duty, or to the remedy for breach.

893 Yesberg had said in his 8 June memo that he found the quantity of switches to be "horrifying" and recognised that the Coneview investors were switching every second or third day. That signalled to him "that they have worked out how we do our unit pricing (i.e. in arrears) and are taking full advantage of this. . . . Let's consider a change in process which is water tight enough that they can't arbitrage against us". By the time it entered into contractual arrangements with the plaintiffs, it well understood that the plaintiffs were proposing to utilise the terms for purposes which it had not intended when granting Keller the concessions. The defendant, having been appraised of the purpose of the special terms and having thereafter entered into contracts with each of the plaintiffs upon those terms, can claim no unfairness in the dealings. It understood the nature of the bargain.

894 The defendant's knowledge precludes relief which would deny to the plaintiffs the benefit of the terms were they to confer a right to arbitrage.

Lack of good faith by the defendant

895 The plaintiffs rely on the duty of utmost good faith in support of an allegation that the defendant should be precluded from relying upon any construction of the express or implied terms of the policies which has the effect of denying to the plaintiffs the ability to utilise the special terms to make gains in the way in which Coneview investors made those gains between August 1999 and October 2000.[1029] The plaintiffs specifically rely upon the defendant's alleged breach of the duty in relation to the questions of segregation and dilution. I have addressed the plaintiffs' arguments in dealing with those issues.

896 Having regard to my findings of fact as to the defendant's unconscionable conduct and my conclusions in relation to the plaintiffs' primary estoppel claims or the estoppel claim in relation to dilution and segregation, it is unnecessary to further consider the plaintiffs' allegation that the defendant was in breach of its implied duty to act with utmost good faith towards them.

DAMAGES

Damages in lieu of specific performance

897 At the time of the plaintiffs' opening, the plaintiffs' pleading was that the contract was still on foot. The plaintiffs did not allege repudiation but they sought damages for breaches of contract including damages into the future for loss of bargain.[1030] Counsel stated that the plaintiffs' primary claim was damages and in the alternative specific performance.[1031] After an adjournment of some days the court was informed that amendments would be made to the statement of claim. The plaintiffs would allege that there had been a breach of contract to date, and damages would be sought in relation to those breaches. The plaintiffs would also seek damages for the duration of the contract. Those damages would be in lieu of specific performance as specific performance would rarely be granted in relation to a contract which raised so many complex issues.

898 Subsequently, after the amendments were made to the statement of claim, counsel reiterated that the plaintiffs sought damages for past breaches of contract, damages in lieu of specific performance and alternatively damages based upon an acceptance of the defendant's repudiation.[1032]

899 Both in opening and closing their cases the plaintiffs made plain that they were seeking damages in lieu of specific performance as their primary claim. They submitted throughout the trial that specific performance was not an appropriate remedy having regard to "the many layers of sophistication"[1033] of the contract with a "minefield of technicalities"[1034] with "adversaries of this kind" that would require constant court supervision over a long period of time. The defendant at all times said that it was willing and able to administer the contract in accordance with the meaning of the terms, as determined by the court.

Breach of contract - acceptance of repudiation or affirmation of contract

900 If, contrary to my primary findings, the defendant was in breach of express or implied terms of the prosperity bonds, the plaintiffs allege that the defendant's conduct in breach of those terms evinced an intention not to be bound by the special terms and so repudiated each of the plaintiffs' contracts with it.[1035] The defendant denies that it repudiated any of the plaintiffs' contracts and says further that the plaintiffs elected to affirm their policies or alternatively waived any right to accept the defendant's repudiation.[1036]

901 Counsel in opening stated that the plaintiffs' conduct did not bind them to one form of relief or another. It was said that there had been no unequivocal election by the plaintiffs to affirm the contract following the defendant's repudiation of it.

902 After an adjournment counsel also announced that the plaintiffs proposed to allege that the defendant's conduct was repudiatary, on the basis that it demonstrated something more than a genuine disagreement as to the meaning of the special terms, and that the repudiation had been accepted.[1037]

903 The plaintiffs have now pleaded that they accept the defendant's repudiation.[1038] According to their counsel, they elected during the course of the trial to accept the defendant's alleged repudiation when it became demonstratively clear that the defendant's conduct was based on a wholesale breach of faith.[1039] The defendant submitted that the amendment to the pleading, made at the close of Mr Hawkins' evidence-in-chief, came at a time when the plaintiffs had learned nothing more about the defendant's conduct that they did not already know before the trial commenced. It submits that the plaintiffs knew all they needed to know at the time that they were advised by Verekers that the defendant's conduct constituted repudiation and they chose to affirm rather than rescind their contracts.

Election to affirm or terminate

904 A right of election will arise when a contracting party has a right to terminate a contract for breach or repudiation and the right to insist on the performance of the contract.[1040] It is only when faced with such a choice that a person is required to elect which of the mutually exclusive courses of action he or she wishes to take.[1041] The election must be demonstrated by an unequivocal act through words or conduct.[1042] An election will generally be manifested by the subsequent exercise of rights under the contract but there is no overriding principle of law that an act done under the contract will always communicate the decision to affirm regardless of the surrounding circumstances. [1043].

905 The defendant maintains that the plaintiffs elected to affirm the policies, whether or not the defendant had repudiated them. It relies upon correspondence from Tyne and Hawkins to the defendant which was expressed in terms said to be consistent with their policies remaining on foot.[1044] It relies on the fact that the plaintiffs instituted proceedings for specific performance of the policies in March 2002 but did not allege repudiation or acceptance thereof. It points to the fact that the plaintiffs did not amend their statement of claim to plead repudiation after the defendant's solicitors had stated in their letter of December 2000 that the plaintiffs could not seek "loss of bargain" damages while the policies were still on foot.[1045]

906 Tyne testified that the content of the Verekers letter was never drawn to his attention, in particular the observation that the plaintiffs could not seek both damages for loss of the future benefits of the contract and specific performance of that contract, nor could they seek damages in circumstances where the contract was still on foot. That issue was not raised with him and he did not think it was necessary for him to make a decision one way or the other about the continuation of the contract.[1046]

907 The plaintiffs submit that they did not elect to terminate the contracts or to affirm them. They were not confronted with two mutually exclusive courses of action between which they were obliged as a matter of fairness to make a choice.[1047] They made no unequivocal communication to the defendant to either effect. They submit they did nothing inconsistent with the exercise of a right to terminate the contract on the basis of the defendant's conduct, nor did they communicate any unequivocal election to affirm the contract so as to lose their right to rescission.[1048]

908 In my view, the plaintiffs made no election to affirm the prosperity bond contracts according to the defendant's construction of the special terms. No such intention can be attributed to the plaintiffs by their conduct since October 2000.

Acceptance of repudiation in pleadings

909 The defendant submits that the plaintiffs cannot now change their minds and purport to terminate the policies and sue for damages and relies upon Poort v Development Underwriting (Vic) Pty Ltd (No 2)[1049] Zucker v Straightlace Pty Ltd;[1050] Champtaloup v Thomas;[1051] Miller v Barrellan (Holdings) Pty Ltd.[1052] It submits that if the contracts have not been terminated and are still on foot the plaintiffs are not entitled to loss of bargain or expectation damages. Nor would they be entitled to equitable damages in lieu of specific performance.[1053] Implicit in the defendant's argument was the suggestion that it was these factors which compelled the plaintiffs to belatedly allege that the contracts had been rescinded.

910 The defendant submitted that if the policies were repudiated, the plaintiffs' purported acceptance of the repudiation in their pleadings is not sufficient to constitute acceptance. This submission must be rejected. I do not agree that the authorities upon which the defendant relied in its written submissions[1054] stand in the way of a plaintiffs, who in the same pleading seek specific performance and in the alternative, plead acceptance of a purported repudiation. The judgment of Sholl J in Bosaid v Andry explains why such a course remains open to a contracting party. That is not to say that a party's conduct after the acts of repudiation may not preclude that party from accepting the repudiation.[1055]

Whether genuine dispute or repudiation

911 Repudiation will not readily be inferred[1056] where a party acts in accordance with its bona fide interpretation of the contractual terms.[1057] A party may still be willing to perform the contract according to its tenor, subject to an authoritative exposition, but persistence in an untenable construction will ordinarily be regarded as repudiatory.[1058]

912 The plaintiffs submitted that the court should find that the defendant did not pursue a bona fide argument in advancing its rights in relation to the issues of dilution and segregation. It was submitted that the defendant was motivated by an improper desire to ensure that the plaintiffs did not get the benefit of their bargain. They submitted that the defendant's conduct was unreasonable, contrary to good practice and impermissible having regard to its obligations as an insurer under the ICA. It was said that the defendant's approach to dilution and segregation was immoral, capricious and unreasonable and that it should be inferred from the arguments which it advanced that it had no intention to allow the plaintiffs the benefit of their terms.[1059] It was submitted that if the conduct of the defendant, viewed objectively, demonstrated an unwillingness to be bound by the contract, repudiation would be established.[1060]

913 New administrative requirements were introduced by the defendant in December 2001. It wrote to the plaintiffs and other Coneview policyholders advising them that if they wished to request a switch on any day, they would have to do so before 2pm. They were advised that the units had been placed in the Cash portfolio as at 16 October 2001. The defendant relies upon that letter as an indication of its willingness to administer the policies in accordance with their terms as the defendant interpreted them.

914 A corollary of the proposition that where there is a bona fide dispute the court will be less ready to find repudiation is that the greater the doubt which attends the meaning of the term, the less likely it will be that the court should find that the party's conduct constitutes repudiation. If a party has advanced a view of the contract which is so unreasonable that it can be concluded that the party did not genuinely entertain the view that the contract should be so interpreted or implemented, this may lead to the inference that the party did not intend to be bound by the contract as agreed. The conduct may then constitute repudiation.

915 The defendant relies upon observations made by counsel for the plaintiffs that the plaintiffs appeared to believe there was a bona fide dispute as to interpretation rather than repudiation.[1061] In written submissions the plaintiffs stated that there was no unequivocal communication of the defendant's intention to no longer be bound by the terms of the contract[1062] which the defendant says was a concession that the defendant's conduct was insufficient to amount to repudiation. In their written reply and oral argument the plaintiffs re-asserted what they had pleaded, that the defendant's conduct was fundamentally inconsistent with the objective of the special terms and did constitute a repudiation by the defendant.

916 There was no unequivocal communication by the defendant of an intention not to be bound by the terms of the contract. The defendant indicated by its communications and conduct that it had a different interpretation of the special terms. It made plain that it would abide by an authoritative interpretation of the policies.[1063]

917 However reprehensible the defendant's failure to inform the plaintiffs that it did not intend to continue to utilise historic pricing, the evidence does not warrant the conclusion that the defendant or its representatives advanced views as to the meaning of the special terms that were not bona fide and reasonably held views. I am also unable to accept the contention that what emerged during the course of the trial demonstrated to the plaintiffs that the defendant's conduct was not the consequence of a genuine disagreement about the meaning of the special terms. The conduct of the defendant and its reasons for so acting were well known to the plaintiffs and their legal representatives long before the commencement of the trial.

918 I am equally unpersuaded that the plaintiffs by word or action ever evinced an intention to accept that the special terms bore the meanings ascribed to them by the defendant. They similarly maintained a bona fide view as to the construction of the special terms.

MINIMUM EQUITY

919 The question of the quantum of any damages to which the plaintiffs are entitled has been deferred until after liability has been determined. The plaintiffs rely only upon breaches of the special terms as giving rise to their claim for damages.[1064] The plaintiffs do not allege that any implied term was one of the "special terms" of the prosperity bonds.[1065]

920 The defendant sought to resist orders for damages at common law or in equity based upon breaches of the special terms. It argued that if there was jurisdiction to award damages, the court should exercise its discretion against doing so by reference to hardship and fairness principles.[1066] It submitted that the plaintiffs' behaviour was lacking in candour and truthfulness and, to the plaintiffs' knowledge, the defendant misunderstood the effect of the policies. Upon the plaintiffs' construction of the special terms, if the plaintiffs were to have conferred upon them the benefits that they sought, the consideration for the policies was grossly inadequate. It also relies upon the testimony of the plaintiffs and submits that they misled the court about the preparation of their statements.[1067] It submits that for those reasons the plaintiffs' behaviour was unconscionable.

921 The plaintiffs were not entitled to recover expectation or loss of bargain damages for breach of contract while the policies were still on foot.[1068] Termination of a contract is a necessary condition for the recovery of expectation or loss of bargain damages. [1069] There can be no breach for loss of bargain following repudiation until that repudiation is accepted. From that time the contract may be viewed as terminated and damages may be calculated from that date.[1070]

922 Although the plaintiffs claimed specific performance in the alternative, their primary claim was one for damages, on one of three bases: first, that specific performance was an inappropriate remedy having regard to the complexities of the contract, the difficulties that might be associated with its enforcement and the adversarial approach of the parties. Had the defendant been in breach of the terms of the contract, I would agree that specific performance was not the appropriate remedy. There being no breach, damages in lieu of specific performance was not a remedy available to the plaintiffs. Damages for rescission, being the second way in which the plaintiffs sought such relief, was also a remedy unavailable because there was no breach, repudiation or termination of the contract. Third, the plaintiffs seek such relief on the basis of the breach of s.52 of the TPA and on the basis that the estoppel which they have made out requires the making good of the assumption through an award of damages.

923 The plaintiffs have established that the defendant knew that they were labouring under the false belief that it would continue to employ historic pricing to fix the value of units each day and failed to correct the plaintiffs' belief when it was its duty to do so. The defendant by its conduct induced or encouraged their reliance and had knowledge of their reliance, either of which would satisfy the test as stated by Brennan J in Waltons Stores.[1071] I am satisfied that the defendant had both actual and constructive knowledge of the plaintiffs' reliance. As the defendant had played such a part in the plaintiffs' adoption of the assumption, it would be unfair or unjust if it were left free to ignore it.[1072] The plaintiffs have acted to their detriment on the basis of this assumption. The plaintiffs have established that they suffered detrimental reliance as they borrowed monies to make the investments, and paid management fees to Coneview.

924 The plaintiffs assert that they also abandoned other investment opportunities. The plaintiffs say they could not have obtained similar returns by investing elsewhere - these were unique terms. The plaintiffs chose to leave their monies in the prosperity bonds and keep the contracts on foot. They acknowledge that they were concerned that "had they terminated their policies before trial, that conduct may have had implications for their rights".[1073] They submit that this evidence satisfies the requirement that they have suffered a material disadvantage or detriment.[1074]

925 The defendant submitted that if the plaintiffs were entitled to loss of bargain damages, they had failed to mitigate their loss because they chose to forego other investment opportunities which they asserted were available to them and kept their money in the Cash portfolio of the prosperity bonds. It submitted that it was unreasonable for the plaintiffs to have continued to incur a loss by reason of their loan servicing costs by leaving their money in prosperity bonds as there was nothing to prevent them from withdrawing their funds and discharging their loans without penalty.[1075] This is an issue that must be deferred for later consideration.

926 The defendant's primary argument was that it did not have an obligation to tell the plaintiffs that it was intending to change a practice which was not the subject of any contractual obligation.[1076] It says that having regard to the type of benefits which the plaintiffs seek, equity should not intervene. Alternatively, if equity does intervene, it should be on the basis that the defendant would not be entitled to change its administrative practice without first giving reasonable notice - equity does not say that the defendant can never change its practice during the rest of the lives insured.[1077]

Should equity provide relief?

927 The defendant submitted that however critical one can be of the defendant's conduct in a number of respects, the plaintiffs' conduct was so unconscientious that equity should not come to their assistance.[1078] The defendant says the following findings should be made which disentitle the plaintiffs from relief. The plaintiffs, in conjunction with Keller, pursued the course of exploiting the defendant's product in a manner for which it was not designed and in circumstances where it appreciated the defendant was not fully aware of how the special terms might be utilised. In early 2000 the plaintiffs were aware that the defendant did not have a computer programme that tracked the Coneview investors' trading history. The plaintiffs were aware that Keller had not told the defendant certain things which would be of detriment to the defendant and would have affected its intentions to enter into further contractual arrangements. They did not believe that the defendant yet understood that the existing Coneview investors and potential investors such as themselves were intending to utilise the special terms to make arbitrage profits.

928 Counsel for the defendant acknowledged that by June 2000 the defendant knew that Coneview investors were taking advantage of the defendant's administrative practice of historic pricing in order to arbitrage by using the special terms. The defendant intended to prevent that but it took it some four to five months before it changed that practice. It says that the plaintiffs on the other hand at all material times before entering into the contracts believed that the defendant was unaware that the special terms were being utilised in conjunction with their historic pricing to make arbitrage profits. The plaintiffs did not know that the defendant had discovered how the special terms were being used. The defendant placed reliance upon the fact that the plaintiffs at the time of contracting still believed that the defendant was not aware of how the special terms were being utilised and its consequences.[1079]

929 The argument of the defendant was that the plaintiffs recognised that Keller was pursuing his and Coneview investors' financial interests contrary to the interests of the defendant. The plaintiffs knew that if they received the benefit of the special terms and the defendant continued to use historical pricing, the contracts were capable of causing very substantial detriment to the defendant. Although the plaintiffs had suffered some tiny detriment as they had borrowed money, they were always able to withdraw the money that they had put into their policies whenever they wished. Mr Brett submitted that the plaintiffs were claiming they suffered a detriment because they were not being allowed to exploit the defendant. In those circumstances the plaintiffs were acting unconscientiously and it could not be said that the defendant's conduct was unconscionable if it responded by saying that it would not allow itself to be exploited.

930 It was further submitted that it was fallacious for the plaintiffs to argue that because the defendant had acted so badly, it should be punished. The defendant relied upon the proposition that estoppel is not to be used to penalise a party but to protect a party of whom advantage has been taken.[1080]

931 It was conceded on the defendant's behalf that its conduct in allowing the plaintiffs to invest in the prosperity bond upon an understanding that the defendant would use historic pricing when, at the time of the investment, the defendant was not intending to do so, "was a very bad thing." Nevertheless the plaintiffs, it was submitted, should not be viewed as victims because they have lost nothing.[1081] They could recover their investment when they wished. It was submitted the plaintiffs were not seeking protection from victimisation but were seeking the court's assistance to victimise the defendant. It says that the court should not ignore the circumstance that the failure to speak of its intention was induced by the plaintiffs concealment of their true purpose.

932 Where a contracting party conceals from the other that it intends to utilise the terms of the contract in conjunction with other administrative arrangements as a means of profiting from the contract and, prior to entering into the contract, the other party discovers that intention and conceals from that party that it intends to change its administrative arrangements to ensure that party will not make money by that means, the defendant submits that equity should not assist either party.[1082]

933 The plaintiffs denied that they took advantage of the defendant. They submitted that Keller concealed nothing and that they neither concealed anything nor knew that anything had been concealed from the defendant. They submit that each of the plaintiffs invested only after the defendant knew what it claims Keller concealed from it. They deny that there was any unconscionable conduct on their part. They say that there was no fraudulent or misleading conduct on their part which may have caused the defendant to make the representation that it did and it would not be conscientious of the defendant to be able to depart from the assumption which they adopted.[1083] As to the memorandum of Tyne of 25 February 2000 in which the belief was expressed that the defendant had not properly costed the special terms, they submit that by the time they invested the defendant knew that for itself. They submit that they do not seek equity's assistance with unclean hands. There was no inequitable conduct on their part. They argue that for equity to deny its assistance there would have to be conduct on their part which had "an immediate and necessary relation to the equity sued for".[1084]

Expectation relief - whether disproportionate

934 In oral submissions, counsel for the plaintiffs amplified their written submissions, explaining that the plaintiffs relied upon conventional estoppel, promissory estoppel and "expectation" estoppel as discussed in Giumelli v Giumelli.[1085] Counsel submitted that having regard to the defendant's deliberate conduct, the minimum equity ought to be for the life of the policy and that the minimum equity required that they be given the benefit of the bargain which the defendant intended to enter into. It was said that the minimum equity was to give effect to the expectation, for the life of the contract, having regard to the defendant's equitably fraudulent conduct. They also submitted that if the defendant is only required to make good their assumptions for a reasonable period, the evidence points to a period of 10 years as being the minimum period consistent with avoiding detriment to the plaintiffs. No explanation was provided for the selection of a 10 year period. I assume that it was chosen because of the evidence that the investment would be tax free if it was retained for a minimum of 10 years.[1086]

935 The defendant submits that an order requiring it to continue to make good the plaintiffs' assumptions, thereby enabling them to continue making extraordinary profits, would be entirely disproportionate to any detriment suffered by them and inconsistent with the authorities. In support of its submission that the relief granted should be in accordance with the "minimum equity" principle the defendants refer to Verwayen;[1087] Birstar Pty Ltd v The Proprietors "Ocean Breeze" Building Units Plan No. 4745;[1088] SEA Foof International Pty Ltd v Lam;[1089] Mobil Oil Australia Ltd v Wellcome International Pty Ltd;[1090] AXA Trustees Ltd v Ergun;[1091] Southcap Pty Ltd v Lend Lease Financial Planning Ltd;[1092] and Murphy v Overton Investments Pty Ltd.[1093]

936 The question that must be determined is whether the plaintiffs, as they contend, should have their expectation interest protected or whether, as the defendant contends, expectation relief would exceed what can be justified by the requirements of conscientious conduct[1094] and that the plaintiffs should receive the "minimum equity to do justice".[1095] One must determine whether the defendant is required to make good the representation or whether the equity will be satisfied without its enforcement.[1096]

937 The plaintiffs submit that the defendant should be precluded from departing from the assumed state of affairs and rely upon various passages from the judgments in Verwayen.[1097] They submit that the defendant's unconscientious conduct warrants relief which will preclude it from departing from the assumption which it induced. In Verwayen, McHugh J spoke of whether the detriment could be paid for or whether it could be avoided by enforcing the promise.

938 The differing judgments in Verwayen have been the subject of careful judicial analysis and commentary which I shall not revisit.[1098] In Commonwealth v Clark[1099] Ormiston JA, after an analysis of each of the judgments, concluded that each of the judgments stated:

[433]

941 Counsel for the defendant sought to distinguish cases such as Giumelli and Verwayen as cases where the plaintiff would have suffered a substantial detriment if the assumption was not made good. It was submitted, correctly in my view, that estoppel was not to be used to secure future benefits for the same reason that damages for misleading and deceptive conduct do not encompass expectation profits. But the detriment need not consist of the expenditure of money or other quantifiable financial detriment.

942 Many circumstances in which the detriment suffered called for the assumption to be made good were considered in Giumelli. In Giumelli the High Court found that the reasoning in Verwayen did not foreclose the granting of a constructive trust and that equity could intervene to provide relief against the expectation induced by a non contractual promise. Where proprietary rights are involved a party may enforce their interest in the subject property by relief in equity.[1104] In Flinn v Flinn[1105] Brooking JA referred to Giumelli as establishing that in cases of proprietary estoppel it may be said that prima facie, departure from the assumed state of affairs is contrary to the requirements of conscientious conduct and whether departure is to be permitted will depend upon all the circumstances of the case.[1106]

943 Young CJ in Henderson v Myles (No 2)[1107] extensively reviewed authority, particularly those concerned with proprietary estoppel, which bore upon when the minimum equity called for a party to fulfil the assumption or expectation. That analysis suggests that there is a clear distinction to be drawn between proprietary estoppel cases which frequently led to the fulfilment of the expectation[1108] and other cases where "the Australian preference is not to fulfil the plaintiff's expectation but to analyse what is the detriment suffered by the plaintiff from doing acts and things which he or she might not otherwise have done because of the promise."[1109]

944 In Pearson v Williams[1110] Ashley J, drawing upon the language of Scarman LJ in Crabb v Arun District Council,[1111] observed that the Court "should approach the matter cautiously, in order to achieve the "minimum equity to do justice to the plaintiff" and further observing that "the court is not precluded from requiring the party estopped to make good the assumption."[1112] In Anaconda Nickel Ltd v Edensor Nominees Pty Ltd and Gutnick[1113] the detriment suffered by the promisee, of the loss of an opportunity to rescue an ailing associated company, and the foregoing of any other remedy to meet that company's deteriorating position on the basis of an assumption that the promisor had created that it would acquire the associated company, required as the minimum equity to do justice that the promisor be held to its promise.[1114] Similarly, in New Zealand Pelt Export Company Ltd v Trade Indemnity New Zealand Ltd[1115] the Court of Appeal found, on the basis of an assumption induced by the respondent, that the appellant had placed itself in a position which would be productive of significant disadvantage if the respondent were permitted to assert that the sales made by the appellant to a third party were not an 'insured debt' within the meaning of the appellant's policy with the respondent. Nettle JA concluded that the minimum equity required that the respondent be held to the assumption and that such a result would not be disproportionate to the detriment which the appellant would otherwise suffer.[1116]

945 In Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd[1117] it was said that the principles of equitable estoppel were intended "to relieve against the detriment suffered and not to make good an expectation."[1118] In moulding a decree it was observed in Mobil that a court of conscience should go no further than was necessary to prevent unconscionable conduct and that a court of equity would only require the promise or expectation to be fulfilled if that was the only way in which the equity could be satisfied.[1119] The court approved the trial judge's conclusions that to award the franchisees the benefit of the alleged promise would be disproportionate to the detriment in fact suffered by each franchisee.[1120] The principle as stated in Verwayen , Giumelli and Mobil Oil led Campbell J in Vella v Wah Lai Investment (Australia)[1121] to state

[441]

Reasonable notice

948 If the court were minded to make an order requiring the defendant to make good the plaintiffs' assumptions, the defendant submits that it should only be required to do so until the expiry of a reasonable period of notice and refers to Verwayen;[1127] Forbes v Australian Yachting Federation Inc;[1128] Central London Property Trust Ltd v High Trees House Ltd;[1129] Emmanuel Ayodeji Ajayi v R T Briscoe (Nigeria) Ltd;[1130] Novacal Australia Pty Ltd v Macquarie Generation;[1131] and Murphy v Overton Investments Pty Ltd.[1132]

949 The defendant submits that the plaintiffs were given reasonable notice in October 2000 that any assumption which they had made in relation to the continuation of historic pricing was no longer valid. It relies upon the testimony of Yesberg and his file note of 18 October 2000 in which he discussed with Tyne, Hawkins and Tom Oates the change to unit pricing.[1133] The defendant argues that there is no evidence which suggests, and there was no reason to believe, that the plaintiffs would have been unable to redeem their policies and repay their loans upon notice from the defendant that it would no longer be administering their policies on an historic pricing basis. It submits that the evidence supported this conclusion and referred to the evidence of Tyne and Hawkins.[1134]

950 In July 2001 the defendant made an offer of settlement to the plaintiffs and other Coneview policyholders offering them their account balance as at 16 October 2000, which included all gains made up to that time plus a return of 15.9% on that amount from 17 October to 30 June 2001.[1135] Senior counsel for the defendant was to describe this offer as compensation equivalent to the defendant having given them reasonable notice of its intention to make changes.[1136]

Conclusion

951 The plaintiffs' conduct was not so unconscientious that equity should refuse its assistance. Their conduct, of which the defendant complains, did not have the necessary relationship to the equity sued for. By the time they invested, the purpose of the special terms was obviously apparent to all parties.

952 This is not a case in which it is appropriate to preclude the defendant from departing from the plaintiffs' assumed state of affairs. To frame the relief on such a basis "would be inequitably harsh" and "would otherwise exceed what could be justified by the requirements of conscientious conduct."[1137] The plaintiffs have the right and have always had the right to have their investment returned in full. They may be entitled to be compensated for such costs as they reasonably incurred in borrowing and maintaining their investment until such time as they were given reasonable notice of the defendant's intention to discontinue its use of historical pricing. They may also make out a right to compensation for the payment of management fees to Coneview until the expiration of such time. They may also make out a claim that they would have made other investments or entered into other contracts had they not been induced to invest in the defendant's prosperity bonds. If they are able to establish such a claim they may be awarded such damages as they can establish arising from such a loss of opportunity.[1138] That is the minimum equity needed to avoid the plaintiffs' detriment.

953 The expectation profits or loss of bargain which would flow from the fulfilment of the plaintiffs' assumption of a right to make arbitrage profits for the life of the policies is not a detriment for which equity should provide relief. If, contrary to my view, the loss of bargain should be treated as a detriment, discretionary considerations militate against the granting of equitable relief for the loss of expected profits. The defendant has identified a number of factors which would make it inequitable and oppressive were such relief to be granted. The nature and the quantum of the plaintiffs' claim and their conduct makes it wholly inappropriate that they should have the benefit of the assumption either for the life of the policy or the specified lesser period of ten years claimed. The defendant's unconscionable conduct does not require it to be bound to give effect to the assumption after the giving of reasonable notice that it no longer intended to act as the plaintiffs assumed. The minimum equity to avoid the detriment does not call for the enforcement of the assumption.

954 The plaintiffs are entitled to an award of damages as the minimum equity arising from the defendant's unconscionable conduct or for its misleading and deceptive conduct under the TPA.

Orders

955 On 13 April 2006 I delivered to the parties an unrevised version of these reasons. Some months later, Counsel for the plaintiffs and Counsel for the defendant, with reservation, foreshadowed that they would seek orders so that an appeal could be instituted prior to the completion of the trial as to damage. The parties were advised that until the plaintiffs provided proper particulars of damage so that an assessment could be made of the nature and likely duration of the damages trial, I would not contemplate making orders to facilitate an appeal on the question of liability.

956 A further substantial period of time elapsed before the parties returned to Court. The plaintiffs' particulars of damage were still in a less than satisfactory state and the parties had been unable to agree as to the orders which should be made. The parties were given the opportunity to file written submissions. A number of further hearings were conducted and further oral submissions made which dealt with the orders which should be made. The plaintiffs' particulars of damage were amended. Difficulties in finalising the matter were not assisted by the parties' tendency to change their positions with respect the question of the appropriate orders. Finally, on 15 December 2006, the following orders were pronounced:

[454]

It is declared that the second paragraph of clause 1.8 of the Prosperity Bond policies entered into by the plaintiffs, on its proper construction, provides that:

(a)

upon being given written notice of the policy holder's intention to transfer or switch their entitlements between portfolios (referred to hereinafter as a "switch"), or make a cash withdrawal, involving units valued at more than $100,000, the defendant waives its right to delay for up to 30 days any cash withdrawal or switch involving units valued at more than $100,000;

(b)

the notice referred to in paragraph (a) is a notice of the policyholder's intention that the withdrawal or switch be effected on the day of the notice or as soon as possible thereafter;

(c)

where such notice is given, in lieu of its right to delay for up to 30 days, the defendant has a right to delay any such withdrawal or switch for up to three working days;

(d)

in the event that the defendant exercises its right to delay any such withdrawal or switch for up to three working days, the policy holder may cancel the withdrawal or switch at any time prior to the completion of the withdrawal or switch by the defendant; and

(e)

in the event that the policy holder does not cancel the withdrawal or switch prior to the completion thereof by the defendant, the defendant will complete the withdrawal or switch using the unit prices determined in accordance with order 6 of these orders.

It is declared that clause 1.8 of the Prosperity Bond policies entered into by the plaintiffs, on its proper construction, provides that:

(a)

in the case of a withdrawal or switch where notice is given pursuant to clause 1.8, the reference to "unit price" in the second sentence of the second paragraph of clause 1.8 is a reference only to the "sell" price of the units in the portfolio from which funds are to be switched or from which funds are to be withdrawn (the "departure portfolio");

(b)

in the case of a switch where notice is given pursuant to clause 1.8, the defendant is entitled to calculate the "buy" price of the units in the portfolio into which funds are to be switched, on the day on which the switch is completed.

It is declared that the terms of the Prosperity Bond policies entered into by the plaintiffs, on their proper construction, do not require the defendant to calculate prices for units issued in respect of the portfolios maintained by the defendant in respect of Prosperity Bond policies on an historical basis.

It is declared that clause 3.3 of the Prosperity Bond policies entered into by the plaintiffs, on its proper construction, does not permit a notice of intention to switch units from one portfolio to another to be given unless the policy holder holds units in the departure portfolio at the time the notice of intention is given.

It is declared that the terms of the Prosperity Bond policies entered into by the plaintiffs, on their proper construction, do not require the defendant to contribute to Statutory Fund No 5 or the Secure and Cash portfolios or either of them so as to prevent changes in the numbers of units issued in respect of those portfolios to cause the prices of units in those portfolios to rise or fall, being changes brought about in consequence of switches of units between those portfolios requested by or on behalf of the plaintiffs.

It is declared that the terms of the Prosperity Bond policies entered into by the plaintiffs, on their proper construction, permit the defendant to reduce the number of units on issue in the Cash and Secure portfolios by cancelling units in those portfolios held by policyholders other than the plaintiffs and segregating the assets underlying the policies entered into by the plaintiffs from the assets underlying policies entered into by other investors in Prosperity Bonds.

It is declared that the terms of the Prosperity Bond policies entered into by the plaintiffs, on their proper construction, provide that the defendant has the right to decline to accept further investments.

Order that the defendant's counterclaim be otherwise dismissed.

[455]

[1] Introduction to plaintiffs' written submissions, para 1.

[2] FAD para 10F, 10G - the plaintiffs say such implied terms are inconsistent with the right to arbitrage and their reasonable expectations.

[3] The defence in its final form was 64 pages and the reply 34 pages.

[4] Hadid v Redpath [2001] NSWCA 416; Cobham v Frett [2000] UKPC 49; [2001] 1 WLR 1775; R v Maxwell [1999] NSWSC 1085; Moylan v NutraSweet Co [2000] NSWCA 337.

[5] For example, some of the arguments as to the proper construction of parts of the standard terms.

[6] See for example T3135, 3446.

[7] The following facts are largely undisputed. Where the evidence was controversial I have referred to it as the evidence given by the witness.

[8] CB 185-186 and 3577-3578.

[9] CB 211-212.

[10] T 1365.

[11] T 2201.

[12] CB 194.

[13] Witness statement of Brian Beazley; CB 194.

[14] Witness statement of Greg Andrews.

[15] T 2202-3.

[16] T 2208 and 2212.

[17] Exhibit LL at 636, T 1435-6.

[18] CB 191-193.

[19] CB 200-202.

[20] Ibid.

[21] CB 204.

[22] CB 208-210.

[23] CB 1634.

[24] CB 213-214.

[25] T 2243 and 2245-2249.

[26] CB 215.

[27] CB 216 and 3045-3046.

[28] CB 213-214.

[29] CB 217-218.

[30] T 1489.

[31] CB 2993-2994 and 3048-3049.

[32] CB 219-220.

[33] CB 219.

[34] CB 3068-3087.

[35] T 173.

[36] See Exhibit H.

[37] T 557 and 595-596.

[38] CB 248.

[39] Ibid.

[40] CB 249.

[41] Exhibit F at [10-11] and T 561 and 595-596. Exhibit O at [12, 14, 15, and 20] and T 803-805, 823, 833-834 and 893.

[42] Exhibit I.

[43] T 593, 597, 602, 693, 740, 748, 1432, 1485, 1486 and 3389.

[44] T 806-807; 593-594, 597, 599 and 740.

[45] T 1411 and 1495-1497.

[46] CB 257.

[47] T 1764-1765.

[48] T 1763-1764.

[49] T 1345-1346 and 1534-1535.

[50] CB 292-311.

[51] CB at 280-282.

[52] CB 3573-3575.

[53] Witness statement of Brian Beazley.

[54] CB 289-310.

[55] CB 3195-3196.

[56] CB 320-321.

[57] CB 3194.

[58] CB 340.

[59] Exhibit J.

[60] CB 452.

[61] CB 453.

[62] CB 454.

[63] CB 455.

[64] CB 457.

[65] CB 458.

[66] Exhibit QQ(xiii).

[67] T 1656-1659.

[68] CB 350.

[69] T 2270.

[70] Exhibit UU - Version 1, draft of Business Review Specification.

[71] T 2271.

[72] Exhibit TT.

[73] Ibid.

[74] T 1721.

[75] T 568.

[76] T 571-572; 575-578; 662-664 (Tyne) and 956-962 (Tom Oates).

[77] T 657-671 (Tyne) and 808-809 and 834-835 (Hawkins).

[78] T 2271.

[79] Exhibit UU; T 1775-1777.

[80] T 1718-1719.

[81] CB 3609.

[82] T 1770.

[83] CB 431-448.

[84] Exhibit L.

[85] CB 932-946.

[86] CB 947.

[87] T 700 and 750.

[88] CB 948.

[89] CB 485.

[90] T 730-731.

[91] CB 361-369; T 957.

[92] CB 494-497; T 1391-1395 and 1717-1723.

[93] CB 494-497.

[94] CB 495.

[95] CB 495-496.

[96] CB 497.

[97] CB 494-497.

[98] CB 496; T 1507-1508 and 1829.

[99] CB 357-358.

[100] CB 452-483.

[101] CB 344-358.

[102] CB 3309-3310. See also witness statement of Beazley at [54] and Yesberg at [21].

[103] CB 512-518.

[104] T 809-818.

[105] T 778.

[106] T 814-817.

[107] CB 521.

[108] See Exhibit R at [32].

[109] CB 583.

[110] CB 583.

[111] Ibid.

[112] T 1779 and 1842.

[113] T 1739; 1842; 1845; and 1774-1775.

[114] T 1517.

[115] CB 587.

[116] Ibid.

[117] CB 588.

[118] CB 644-645.

[119] CB 645.

[120] Exhibit SS and T 1854-1856 and 1978.

[121] CB 652.

[122] T 582-583.

[123] Chief Investment Officer and National Marketing Manager (the defendant).

[124] General Manager for Marketing Retail products (the defendant).

[125] CB 3765.

[126] CB 812-828.

[127] T 585.

[128] Exhibit F; CB 912-931.

[129] T 758.

[130] CB 2978-2980 and 3743-3745. See also witness statements of Spanu at [25] and Wenzel at [4].

[131] T 2047.

[132] T 2014-2015 and 2047-2066.

[133] CB 2177.

[134] CB 1077-1081.

[135] CB 1060-1063.

[136] CB 1076-1082.

[137] CB 1083; 3628-3633.

[138] CB 1113-1114.

[139] T 2088.

[140] CB 1162-1163.

[141] CB 1162.

[142] CB 1162-1163.

[143] CB 1162.

[144] CB 1164-1165.

[145] T 734.

[146] CB 1166.

[147] Ibid.

[148] CB 1172.

[149] Exhibit V.

[150] CB 1227.

[151] T 3251.

[152] CB 3370-3371.

[153] CB 3362.

[154] CB 1473-1475.

[155] Ibid.

[156] CB 3634-3638.

[157] CB 1217-1221.

[158] CB 1362.

[159] CB 1377-1378.

[160] CB 1378.

[161] CB 1377.

[162] T 1842.

[163] CB 1363.

[164] CB 1363.

[165] CB 1364.

[166] CB 1377.

[167] CB 1379.

[168] CB 1379.

[169] CB 1379.

[170] CB 1382.

[171] CB 1384.

[172] CB 1402.

[173] Exhibit CCC.

[174] Exhibit CCC.

[175] Exhibit CCC.

[176] CB 1401.

[177] CB 1410-1411. See also witness statement of Yesberg at [60] and T 738-739 (Tyne) and T 937-940 (Hawkins).

[178] CB 1410.

[179] CB 1410.

[180] Ibid.

[181] Ibid.

[182] CB 1411.

[183] Ibid.

[184] CB 3415-3422.

[185] CB 312-313.

[186] CB 312-314.

[187] CB 1422.

[188] CB 1427-1433.

[189] CB 1430.

[190] CB 1471.

[191] CB 2485.

[192] CB 1477-1480.

[193] CB 2935.

[194] CB 2128.

[195] CB 2129.

[196] CB 3656-3657.

[197] CB 1487.

[198] CB 2130.

[199] CB 2131.

[200] CB 1492.

[201] CB 2132.

[202] CB 2133.

[203] CB 1496.

[204] CB 1499-1500.

[205] Ibid.

[206] CB 2134.

[207] CB 2396.

[208] CB 3481.

[209] CB 2937.

[210] CB 1497.

[211] CB 1509.

[212] CB 3491-3494.

[213] CB 1520-1527.

[214] CB 1532.

[215] CB 1534-1535.

[216] CB 1634-1635.

[217] CB 1654.

[218] Ibid.

[219] CB 1660.

[220] Exhibit JJJ.

[221] Exhibit M.

[222] Ibid.

[223] CB 1684.

[224] CB 1683.

[225] CB 1711-1733.

[226] Exhibit X.

[227] CB 3560-3561 and 3681-3682.

[228] T 2631 and 2647.

[229] Exhibit N at 3.

[230] Para 10(a) of the further amended statement of claim (FASOC) filed pursuant to leave granted 19 December 2003.

[231] FASOC 10(b).

[232] FASOC 10(c).

[233] FASOC 10(d) and see also the rectification pleading at paragraphs 11(a) to 11(e).

[234] FASOC 19(e).

[235] Para 10A(a), Third Further Amended Defence (TFAD) filed pursuant to leave granted 19 December 2003.

[236] TFAD para 10A(b).

[237] TFAD 10A(c).

[238] TFAD 10A(d).

[239] TFAD 10C, 10D.

[240] Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489 at 514 per Brennan J; Campbell Discount Co Ltd v Bridge [1962] AC 600 at 626 per Lord Radcliffe; Gleeson CJ, "Innovations in Contract: an Australian Analysis" in The Frontiers of Liability Vol 2 (1994) P Birks (Ed), 113 at 114.

[241] [1948] HCA 20; (1948) 76 CLR 646 at 649.

[242] [1997] 1 Ch 173.

[243] This method of pricing is referred to in this judgment as "historical pricing".

[244] [1997] 1 Ch 173 at 181.

[245] [2000] 2 All ER 265.

[246] At 281-282.

[247] Lewison_, The Interpretation of Contracts,_ at [1.06] - [1.07] (2nd Ed); Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 at 299; Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] VicRp 99; [1992] 2 VR 732 at 740-1.

[248] Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201; Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-4; Minchillo v Ford Motor Company of Australia [1995] VicRp 78; [1995] 2 VR 594 at 609.

[249] Chitty on Contracts (28th Ed), Vol 1_,_ at [12-075]; Big River Timbers Pty Ltd v Stewart (1999) BPR 16,605 at [16].

[250] Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109 per Gibbs J; TCN Channel 9 v Hayden Enterprises (1989) 16 NSWLR 130 at 146 per Hope JA (with whom Meagher JA agreed); Lewis Construction (Engineering) Pty Ltd v Southern Electric Authority of Queensland (1976) 50 ALJR 769, 11 ALR 305; Stillwell Trucks Pty Ltd v Nectar Brook Investments Pty Ltd [1993] FCA 646; (1993) 115 ALR 294, 10 ACSR 615; Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 at 299 per Santow J; Hide and Skin Trading, supra at 313-314; Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003] NSWSC 874 at [72] per Einstein J.

[251] Hardy Wine Company Ltd v Janevruss Pty Ltd [2006] VSCA 28 at [11] per Callaway JA.

[252] Hide & Skin Trading, supra at 313-314; Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676 at 682 per Lord Diplock (with whom Lords Scarman, Roskill, Brandon of Oakbrook and Brightman agreed); Wickman Machine Tool Sales Ltd v Schuler AG [1973] UKHL 2; [1974] AC 235 at 251 per Lord Reed; Kilkerrin Investments Pty Ltd v Yiu Ying Mei Pty Ltd (2001) Q Conv R 54-551 at [27]-[28] per Muir J.

[253] [2001] HCA 70; (2001) 185 ALR 152 at 155.

[254] [1997] UKHL 28; [1998] 1 WLR 896 at 912; [1997] UKHL 28; [1998] 1 All ER 98 at 114.

[255] CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232 at [9] per Nettle JA, with whom Batt and Vincent JJA agreed; Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd; [1990] VicRp 74; [1990] VR 834 at 840; Dovuro Pty Ltd v Wilkins [2000] FCA 1902; (2000) 105 FCR 476 at 491.

[256] McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at 589; Seddon and Elinghaus, Cheshire and Fifoot's Law of Contract (8th ed, 2002) (hereafter 'Cheshire and Fifoot') at 402.

[257] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40] per curiam.

[258] Dong v Monkiro Pty Ltd [2005] NSWSC 749 at [88] per Hall J.

[259] All State Explorations v LV Beaconsfield Gold N/L [1999] NSWSC 832 at [42] per Santow J.

[260] Alex Kay Pty Ltd v GN Acceptance Corporation [1963] VicRp 66; [1963] VR 458 at 463 per Sholl J; Suncorp Metway Insurance Ltd v Landridge Pty Ltd [2005] VSCA 223; (2005) 12 VR 290 at 293 per Buchanan JA.

[261] Ibid at 296 (footnotes omitted).

[262] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352 per Mason J; DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 429 per Stephen, Mason and Jacobs JJ; ANZ Banking Group Ltd v Compagnie D'Assurances Maritimes Aeriennes Et Terrestres [1996] VicRp 40; [1996] 1 VR 561 at 565 - 566 per Hayne J.

[263] FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; (1993) 2 VR 343; Ryan v Textile Clothing and Footwear Union of Australia [1996] VicRp 67; (1996) 2 VR 235 at 237-8 and 261-2 per Hayne JA;; Collins Hill Group Pty Ltd v Trollope Silverwood and Beck Pty Ltd [2002] VSCA 205 at [44] per Ormiston JA, with whom Batt JA agreed; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153; CH Magill v National Australia Bank Ltd [2001] NSWCA 221; Seven Network (Operations) Ltd v TCN Channel 9 Pty Ltd [2005] FCAFC 144; [2005] 146 FCR 183 at [83] per Finkelstein J. See also Howtrac Rentals Pty Ltd v Thiess Contractors (NZ) Ltd [2000] VSC 415 at [207]; A_rthurson v State of Victoria_ [2001] VSC 244; Sports Vision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 at 116 per Bryson J.

[264] Seven Network v TCN 9 [2005] FCAFC 144; [2005] 146 FCR 183 at [83] per Finkelstein J.

[265] (1976) 1 WLR 989.

[266] At 997.

[267] [2002] HCA 5; (2002) 186 ALR 289.

[268] At [108]. See also the Right Honourable Lord Nicholls of Birkenhead, "My Kingdom for a Horse: The meaning of words", 121 Law Quarterly Review , October 2005, where his Lordship refers to "the ploy of counsel placing evidence of pre-contract negotiations before the trial judge on a rectification claim in the hope of consciously or sub-consciously affecting the judge's thinking on questions of construction."

[269] Howtrac Rentals Pty Ltd v Thiess Contractors NZ Ltd [2000] VSC 415 at [179]- [181] per Gillard J; Codelfa, supra per Mason J at 353.

[270] T 1083.

[271] (1971) 1 WLR 1381.

[272] Supra at 315-6.

[273] Codelfa per Mason J at 352; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 186 ALR 289 at [10] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ.

[274] Reardon Smith Line Ltd v Hansen-Tangem [1976] WLR 989 per Lord Wilberforce at 995-6, Codelfa per Mason J at 352-3.

[275] White v Australian and New Zealand Theatres Ltd [1943] HCA 6; (1943) 67 CLR 266; Boranga v Flintoff (1997) 19 WAR 1 at 6; Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290 at 304-312; Codelfa at 307-8; Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 per Priestley JA at 328.

[276] Mason A and Gageler SJ "The Contract" in Finn P.D (Ed), Essays on Contract (Sydney: LBC 1987) 1 at 11; and Sutton, Insurance Law in Australia (3rd Ed) LBC 1999 at 766.

[277] Sutton, Insurance Law in Australia at 755

[278] British Traders Insurance Co Ltd v James [1968] NZLR 1157 at 1162 per North P; AF & G Robinson v Evans Bros Pty Ltd [1969] VicRp 110; [1969] VR 885 at 895 per Starke J.

[279] Farmers Co-Op Ltd v National Benefit Assurance Co Ltd (1922) Lloyd's Rep 530 at 533 per Atkin LJ.

[280] Robertson and Thomson v French [1803] EngR 639; (1803) 102 ER 779 at 781; Halford v Price [1960] HCA 38; (1960) 105 CLR 23 at 29 per Dickson CJ; Australian Casualty Co Ltd v Federico [1986] HCA 32; (1986) 160 CLR 513 at 520-1 per Gibbs CJ.

[281] Johnson v American Home Assurance Co [1998] HCA 14; (1998) 192 CLR 266 at 274-275 [19] per Kirby J; McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at 600 - 603; Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 78 ALJR 907 at 922-3; Willkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522; Rich v CGU Insurance Ltd [2005] HCA 16; (2005) 214 ALR 370.

[282] Supra at 602 (footnotes omitted).

[283] [2005] HCA 17; (2005) 221 CLR 522 at [51].

[284] [2005] HCA 16; (2005) 214 ALR 370.

[285] At [25] (footnotes omitted). See also Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd [2005] FCAFC 49; (2005) 218 ALR 1 at [61].

[286] Botany Fork & Crane Hire Pty Ltd v New Zealand Insurance Co Ltd (1993) 44 FCR 27; Burke v State Bank of New South Wales (1994) 37 NSWLR 53 at 72; Cheshire & Fifoot at 407.

[287] Hammer Waste Pty Ltd v QBE American Tile Mutual Ltd [2002] NSWSC 1006.

[288] Cheshire & Fifoot at 278.

[289] T 3041.

[290] T 3039-40.

[291] Cross on Evidence (Aust Ed) at [29105].

[292] Makita (Aust) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 at [87] per Heydon JA.

[293] Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (A firm) [1997] 1 Ch 384 at 402.

[294] R v GK [2001] NSWCCA 413; (2001) 53 NSWLR 317 at 326-7; Adler v ASIC [2003] NSWCA 131; (2003) 46 ACSR 504 at [622]; Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No. 6) (1996) 137 ALR 138 at 142 per Lindgren J; ASIC v Vines [2003] NSWSC 1095.

[295] Ancher Mortlock Murray & Woolley Pty Ltd v Hooker Homes Pty Ltd [1971] 2 NSWLR 278 at 286 where Street J adopted such an approach to expert testimony in a suit for breach of copyright; Australian Competition and Consumer Commission v Lux Pty Ltd [2003] FCA 89 at [16] per Nicholson J; Brand v Digi-Tech (Aust) Ltd [2002] NSWSC 996.

[296] TFAD para 16C(a)-(d).

[297] Section L6 plaintiffs' written submissions, T 3038.

[298] O'Brien 2361-4; McMennamin 2653, Lyon 2772.

[299] T 2702, T 2710-1.

[300] AXA Group CEO Report, CB 1419.

[301] Exhibit 000 para 5.18.

[302] [2000] UKHL 39; (2000) 3 WLR 529, [2002] 1 AC 48.

[303] [2000] UKHL 39; (2000) 3 WLR 529 at 539.

[304] At 541.

[305] At 542.

[306] Fuji Finance Inc v Aetna Life Insurance Co Ltd (1996) 4 All ER 608; Maye v Colonial Mutual Life Assurance Society Limited [1924] HCA 26; (1924) 35 CLR 14; Cornish v The Accident Insurance Company (1889) 23 QBD 453; Joel v Law Union and Crown Insurance Company [1908] 2 KB 863; Blow v Guardian Assurance (1922) 22 SR (NSW) 154; Royal Insurance v Coleman (1906) NZLR 526.

[307] 35F. 3d at 382, 386 (9th Cir 1994); Gaunt v John Hancock Mutual Life Insurance Co 160F. 2d at 599; Keaton, "Insurance Law Rights at Variance with Policy Provisions" (1970) 83 Harvard Law Review 961-967.

[308] Ibid s.72.

[309] It was submitted the document was not admissible under Division 6 of Part 3 of the Evidence Act - in particular s.77.

[310] T 3386, T 3501.

[311] AS s 8.1.

[312] T 2959.

[313] T 3359.

[314] T 3062, T 3359.

[315] T 2958, T 3351.

[316] [1993] 2 Lloyd's Reps 194 at 196.

[317] [2004] FCA 1251 at [18].

[318] [1994] VicRp 53; [1994] 2 VR 32.

[319] At 67.

[320] Evans Deakin Pty Ltd v Sebel Furniture Ltd [2003] FCA 171 at [492] per Allsop J.

[321] T 3525-6.

[322] T 3355.

[323] T 3525-6.

[324] Cf para 10A, 16D plaintiffs' reply.

[325] Exhibit 000 Annexure 4 p 2.

[326] Exhibit 000 Annexure 5 IFSA Standard Number 8 p10.

[327] Exhibit CCC - Group CEO Report CB 1419-22; Griffin T 2479, O'Brien T 2358.

[328] Exhibit XXX paras 11 and 17; Exhibit FF para 24.

[329] Exhibit UUU T 532.

[330] AXA Enhancement Process Concept Document CB 315-319.

[331] CB 185.

[332] CB 211, 191, 194, 196, 208.

[333] CB 208-9.

[334] T 3148-9.

[335] T 213-4.

[336] T 3154.

[337] T 3148-9.

[338] See Exhibit QQ(v).

[339] Plaintiffs' written submission section N para 5.

[340] Ibid.

[341] T 2950, T 3515.

[342] Para 10A TFAD.

[343] Para 10A(c) TFAD.

[344] Para A.1 plaintiffs' submissions.

[345] TFAD para 10A.

[346] CB 485 - Memorandum 25 February 2000.

[347] CB 357 - email 17 March 2000.

[348] CB 260 - 1 September 1999.

[349] See for example Delta Vale Properties Ltd v Mills (1990) 2 All ER 176; Hankey v Clavering [1942] 2 KB 326; Allam & Co v Europa Poster Services [1968] 1 All ER 826.

[350] Para A1, written submissions, and T 2974.

[351] T 2974-5.

[352] T 2261; T 2280. Alternatively, the plaintiffs rely upon this evidence in support of their claim for rectification.

[353] [1900] AC 182.

[354] The nature of their evidence is considered more fully in dealing with the plaintiffs' claim for rectification by the removal of the impugned words.

[355] T 3084-5, 3399-3400.

[356] Page 19-23.

[357] O'Brien at 2355, cf at 2357-8.

[358] Beazley thought that this was at the time that the Coneview investors units were recalculated and wrongly thought in his testimony that that was in May or June 2000: T 1541, T 1551.

[359] T 2233-4, T 2261.

[360] T 2239.

[361] T 2238.

[362] T 2281.

[363] CB 294, 295, 296 and 300.

[364] T 3392.

[365] Exhibit FF para 42-46, CB 289, CB 322-339, CB 3194.

[366] T 2268.

[367] CB 370-399.

[368] Memorandum from Tyne to Hawkins dated 25 February CB 484.

[369] CB 3746.

[370] CB 458.

[371] T 3054.

[372] It says that figure is arrived at by taking the figure that the plaintiffs claim they are entitled to and multiplying it proportionately by the total number of Coneview policies.

[373] Fund Managers in the United States recognise the importance of limiting the number of exchanges that can be made within a fund especially if they suspect market timing activity.

[374] T 3059.

[375] T 3059-60.

[376] T 3430-1.

[377] T 3067.

[378] T 3072.

[379] T 3414.

[380] T 2982-3.

[381] T 2985, T 3109, T 3342.

[382] T 3108.

[383] T 2983-4.

[384] CB 1510-1.

[385] T 3523.

[386] T 3088.

[387] T 2975.

[388] FASOC para 11.

[389] FASOC para 12.

[390] FAD para 16J, 16K, 16L.

[391] T 3054, T 3062.

[392] CB 3746.

[393] T 3310-1.

[394] CB pp 2293-2302 - from 31 May 2001 to 7 June 2001 there were nine separate notices of intention to switch and cancellations of switches.

[395] FAD para 10E.

[396] CB 349; Andrews 2214; Hoare T 2552; Vanderfeen T 2579.

[397] FAD para 10C.

[398] T 3307.

[399] Clause 3.3(b).

[400] June 1999 letter, para 4; no advice letter para 4; undertaking letter para 4. The defendant's case is that these letters are not part of the investor's policies and are of no contractual force.

[401] See FASOC paras 10(6), 10(c), 10(e).

[402] TFAD para 10 D (b).

[403] Majeau Carrying Co Pty Ltd v Coastal Rutile [1973] HCA 22; (1973) 129 CLR 48 at 61.

[404] Lion T2445.

[405] FASOC para 11(e) and (f).

[406] Hawkins v Clayton (1988) 164 CLR 539 at 569-573; Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 345-6; Byrne & Frew v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 448-453; Etna v Arif [1999] VSCA 99; [1999] 2 VR 353 at [48]; Arthurson v State of Victoria [2001] VSC 244 per Gillard J at [257]- [310].

[407] Breen v Williams (1996) 186 CLR 71 at 103 per Gaudron and McHugh JJ.

[408] (1977) 180 CLR 266 at 283; See also Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 347; Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622 at 636; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 605-606.

[409] Davis and Seddon at 7.4.22.

[410] Codelfa Constructions supra at 346, 355, 374.

[411] Para A10.

[412] The plaintiffs' final submissions para 10.

[413] This was not said to be a representation that amounted to a term.

[414] FASOC para 12.

[415] FASOC para 11, para 12.

[416] Para 12.

[417] DJ Hill & Co Pty Ltd v Walter Wright Pty Ltd [1971] VicRp 92; [1971] VR 749 at 754.

[418] T 3462-3.

[419] Codelfa Constructions supra at 346 per Mason J.

[420] Ikin v The Danish Club "Dannebrog" Inc [2001] VSCA 123 at [17] per Brooking, Batt and Buchanan JJA.

[421] Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 605-6.

[422] See Re Ronim Pty Ltd [1998] QCA 444; [1999] 2 Qd R 172 at 180; Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 257-8.

[423] Cheshire & Fifoot at [10.58], [10.61].

[424] Exhibit SS para 12, Exhibit XX para 22.

[425] See Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 442-3 per McHugh and Gummow JJ; Secured Income Real Estate (Australia) Pty Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 605 per Mason J; Dallhold Investments v Gold Resources Australia (1991) 31 FCR 587 at 597 per Gummow J; Peters American Delicacy Co Limited v Champion (1928_)_ [1928] HCA 27; 41 CLR 316 at 324; National Mutual Life Association of Australasia Ltd v Chris Poulson Insurance Agencies Pty Ltd (No. 5) (Unreported, TASSC, Slicer J, 8 April 1998).

[426] Secured Income, supra at 605 per Mason J.

[427] Byrne v Australian Airlines Ltd, supra at 442.

[428] State Bank of New South Wales Ltd v Currabubula Holdings Pty Ltd [2001] NSWCA 47; (2001) 51 NSWLR 399.

[429] Particulars (a) - (k) TFAD para 10B.

[430] Plaintiffs' written submission, section G para 13.

[431] Although it does not bear upon the question of construction, this was the understanding of Tyne as reflected in his contemporaneous records and his testimony, Oates T and the defendant's representatives.

[432] Big River Timbers Pty Ltd v Stewart (1999) 9 BPR 16,605 at 16,606; GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited [2003] FCA 688; (2003) 201 ALR 55.

[433] The plaintiffs' claim for rectification is addressed later in these reasons.

[434] Para 10(a) - (e) FASOC.

[435] Para 10, 10(aa), 13A-L, 7(b) - (f) of the TFAD.

[436] Plaintiffs' written submissions, section A, Introduction para 2(c).

[437] Para 10 FASOC.

[438] Davies, Seddon & Masel (eds), Laws of Australia: Contract (Lawbook, 2002) at [7.4.17], [7.4.21], Gardiner v Grigg (1938) 38 SR (NSW) 524.

[439] Para 6 FASOC, para 10 FASOC.

[440] TFAD para 10(f).

[441] Exhibit F para 8, Exhibit O para 11.

[442] This issue is examined under the plaintiffs' claim for rectification.

[443] T 1440.

[444] T 1489.

[445] T 2376.

[446] FAI Traders Insurance Company Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343 at 351; Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 at 119-120.

[447] CB 201-2. It is not pleaded as a contractual document.

[448] Exhibit FF para 22.

[449] Allied Pastoral Holdings Pty Ltd v FCT [1983] 1 NSWLR 1; Bulstrode v Trimble [1970] VicRp 104; [1970] VR 840 at 846; R v McDowell [1997] 1 VR 473 at 482; White Industries (Qld) Pty Ltd v Flower and Hart [1998] FCA 806; (1998) 156 ALR 169 at 216-9; Flower and Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 87 FCR 134 at 147.

[450] FASOC para 7(b).

[451] TFAD para 7. Mr Tyne gave evidence of these conversations at T 560-570 - Evidence in Chief, Mr Hawkins T 804-810 Evidence in Chief.

[452] T 802.

[453] Exhibit H.

[454] T 564.

[455] T 805.

[456] Exhibit I.

[457] CB 287.

[458] T 3389.

[459] The plaintiffs' written reply, para 36.

[460] FASOC, para 10

[461] The policy; the June 1999 letter**,** the no advice letter.

[462] Tyne 569, 657-8.

[463] CB 485.

[464] T 894-5, 903, 906.

[465] Plaintiffs' reply, para 68.

[466] FASOC para 11A.

[467] TFAD 11B.

[468] Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336; Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447.

[469] Ibid.

[470] Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] VSCA 2; [2001] 3 VR 526 at [39] per Phillips JA.

[471] Club Cape Schanck supra per Tadgell JA at 530; per Phillips JA at 540; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 340 per Scheller JA, at 345 per McLelland AJA; Mander Pty Ltd v Clements [2005] WASCA 67; (2005) 30 WAR 46; Oates Properties Pty Ltd & Ors v Commissioner of State Revenue [2003] NSWSC 596; Hudson Investment Group Limited v Australian Hardboards Limited & Ors [2005] NSWSC 716.

[472] Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co. Ltd [1919] HCA 18; (1919) 26 CLR 410 at 451; Issa v Berisha [1981] 1 NSWLR 261 at 264 per Powell J.

[473] Leibler v Air New Zealand (No. 2) [1999] 1 VR 1.

[474] Commissioner of Stamp Duties (New South Wales) v Carlenka Pty Ltd (1995) 41 NSWLR 329; Oates Properties Pty Ltd & Ors v Commissioner of State Revenue [2003] NSWSC 596 at [16]- [37]; Meagher, Gummow and Lehane Equity: Doctrines and Remedies (4th Ed, 2002) at [26-060]-[26-070].

[475] 5th Edition (1997), p 610 (referred to with approval in Club Cape Schanck Resort, supra at 530 per Tadgell JA, at 540 per Phillips JA).

[476] Pukallus v Cameron supra at 452 per Wilson J.

[477] Slee v Warke [1949] HCA 57; (1949) 86 CLR 271 at 281 per Rich, Dixon and Williams JJ; Pukallus v Cameron at 452 per Wilson J, 456 per Brennan J; Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238 at 249 per Hope JA; Victoria Gardens Developments Pty Ltd v Commissioner of State Revenue (1999) ATC 4683 at [168] per Gillard J.

[478] Pukallus v Cameron per Wilson J at 452 and Brennan J at 456; Maralinga, supra per Mason J at 350.

[479] Pukallus v Cameron at 452 per Wilson J; Victoria Gardens Developments Pty Ltd v Commissioner of State Revenue (1999) 99 ATC 4683 at [162] per Gillard J_: Foyster v Green_ [2000] NSWSC 189 at [15] per Windeyer J; New South Wales Medical Defence Union v Transport Industries Insurance Co (1986) 6 NSWLR 740 at 753 per Clarke J; Joscelyne v Nissen [1970] 2 QB 86 at 98 per Russell LJ.

[480] Farmers Mutual Insurance Ltd v QBE Insurance International Ltd [1993] 3 NZLR 305 at 314 per Barker J.

[481] Crane v Hegeman-Harris Co Inc (1939) 1 All ER 662 at 669 per Simonds J; Slee v Warke [1949] HCA 57; (1949) 86 CLR 271 at 281; Pukallus v Cameron Supra at 452; Club Cape Schanck Resort Co Limited supra at 531.

[482] [2000] NSWSC 189.

[483] Ibid at [15].

[484] Muriti v Prendergast [2005] NSWSC 281 at [130]- [135] per White J.

[485] Plaintiffs' written submission para 24.

[486] CB 1477-8.

[487] Arthurson & Ors v State of Victoria [2001] VSC 244 at [286] per Gillard J.

[488] See FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 VR 343 at 350 per Brooking J; Ryan v Textile Clothing and Footwear Union Australia & Ors [1996] VicRp 67; [1996] 2 VR 235 at 237-8, 261-2.

[489] [1982] 1 NSWLR 105.

[490] Supra at 109.

[491] [2005] NSWSC 281.

[492] Crane v Hegeman-Harris Co Inc (1939) 4 All ER 68; Caird v Moss (1886) 33 Ch D 22; Nulty Securities Ltd v Carpenter (Unreported, NSWSC, McLelland CJ 10 December 1996); Market Terminal at [166]-[169].

[493] Tirango Nominees Pty Ltd v Dairy Vale Foods Ltd [1999] FCA 1299 at [14] and [103].

[494] FASOC 11G.

[495] See Francis v South Sydney District Rugby League Football Club Ltd [2002] FCA 1306 at [151].

[496] Tucker v Bennett (1887) 38 Ch D 1 at 9; Australian Gypsum Ltd v Hume Steel Ltd [1930] HCA 38; (1930) 45 CLR 54.

[497] Paragraph (f) page 6.

[498] T 2978.

[499] CB 376 para (f).

[500] Beazley Exhibit FF para 30-33.

[501] Exhibit FF para 31.

[502] CB 294-5.

[503] CB 289-310.

[504] Beazley Exhibit FF para 43.

[505] CB 322.

[506] CB 3194.

[507] CB 320-1, Beazley Exhibit FF para 45-6.

[508] Beazley Exhibit FF para 34.

[509] Exhibit FF para 54, CB 494-7, 583, 3195-6, 3309.

[510] CB 3195-6.

[511] Beazley statement filed and amended 27 November 2003 Exhibit FF para 43, para 45; CB 3194-3196.

[512] T 3392-3.

[513] Plaintiffs' written submission para 25; plaintiffs' reply para 66; T 3457.

[514] CB 196.

[515] T 1551; Sydney Transcript LL 653-4.

[516] T1527, T 1535-8.

[517] See defendant's written submission para 100.

[518] Crane v Hegeman-Harris Co Inc (1939) 1 All ER 662 at 664-5 per Simonds J; Australian Gypsum Ltd v Hume Steel Ltd [1930] HCA 38; (1930) 45 CLR 54 at 66-7; GPI Leisure Corporation Ltd v Herdsman Investments Pty Ltd (1990) 9 BPR 17461 at 464 per Young J.

[519] Leibler v Air New Zealand Limited (No. 2) [1991] VicRp 1; [1991] 1 VR 1 at [38], [49], [73].

[520] (Unreported, NSWSC, Giles J, 2 April 1997) at 14.

[521] (1991) 22 NSWLR 389 at 418-9 per Handley JA.

[522] FASOC para 11(c).

[523] Defendant's written submission para 110 footnote 193. In a schedule of inaccuracies to the defendant's written submissions the plaintiffs take issue with the assertion contained in para 110.

[524] Plaintiffs' reply para 66 - the transcript references cited do not appear to support this proposition.

[525] CB 3746-7, 3658.

[526] FASOC 10(b, (d) and (e).

[527] FASOC para 13B, para 13G - no submissions were addressed to the conceptual difficulty arising from the pleading that the implied terms were the subject of agreement between the agent and the plaintiffs.

[528] FASOC para 11(e) and (f).

[529] Plaintiffs' written submission, A(d).

[530] TFAD para 13S(a)-(c).

[531] TFAD para 13A(a)-(d).

[532] TFAD para 13A(f).

[533] TFAD para 13B.

[534] TFAD para 13A(g), (h), para 7(b)-(g).

[535] TFAD para 13I, para 13K.

[536] TFAD para 13K.

[537] SFAD para 13A(f).

[538] SFAD para 13K.

[539] SFAD para 13A-13L.

[540] SFAD para 13D.

[541] CB 496.

[542] See Schedule of Errors in plaintiffs' oral closing submissions, pp 3-4.

[543] FASOC para 13A.

[544] [1892] 2 QB 534.

[545] GE Dal Pont Law of Agency (2001) at [4.4]; Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 132 per Clarke and Cripps JJA.

[546] Beazley Exhibit FF para[65]-[67]; Yesberg Exhibit SS para [84]-[86], Andrews Exhibit XX para [43-5].

[547] Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 at 587 per Lord Wilberforce; FMB Reynolds, Bowstead on Agency (15th Ed., 1985) p 42.

[548] Cousens v Grayridge Pty Ltd [2000] VSCA 96 at [4]- [7] per Charles and Chernov JJA and the cases therein discussed.

[549] Cousens v Gray Ridge at [6].

[550] [1970] 1 QB 311 at 323-4.

[551] FASOC para 13A - particulars (a) and (b).

[552] FASOC para 13A - particular (c).

[553] FASOC para 13A - particular (d).

[554] TFAD para 13A(e).

[555] [1993] VicRp 86; [1993] 2 VR 469 at 486-7 per Marks J (with whom Fullagar and Ormiston JJ agreed).

[556] Ibid at 485-6.

[557] FASOC para 13A(e), (f), (g); TFAD para 13A - (e), (f), 13D.

[558] FASOC para 13A - particular (h), para 12.

[559] FASOC para 13B.

[560] FASOC para 7(b).

[561] FASOC para 13D, 13E, 13F.

[562] T 3418-26

[563] [1998] 3 VR 133.

[564] FMB Reynolds Bowstead & Reynolds on Agency (17th Ed. 2001) at [8-013]; Dal Pont, Law of Agency, (2001) at [20.22].

[565] Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503 per Diplock LJ; Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising Co Pty Ltd [1975] HCA 49; (1975) 133 CLR 72 at 78; EFM Pty Ltd v N.Z. Steel (Australia) Pty Ltd [1998] VSC 194 at [84].

[566] [1985] 2 Lloyd's Rep 36 at 41.

[567] Bowstead on Agency (15th Ed) at 284.

[568] EFM Pty Ltd, supra at [86].

[569] Crabtree-Vickers [1975] HCA 49; (1975) 133 CLR 72 at 78.

[570] Combulk Pty Ltd v TNT Management Pty Ltd [1992] FCA 342; (1992) 37 FCR 45 at 53ff, and the cases therein referred to; Powercor Australia Ltd v Pacific Power [1999] VSC 110 at [1234].

[571] Lysaght Brothers & Co Ltd v Falk (1905) 2 CLR 421; Combulk Pty Ltd v TNT Management Pty Ltd [1993] FCA 89; (1993) 41 FCR 59 at 66-67.

[572] Lysaght Brothers & Co Ltd v Falk, supra per Griffith CJ at 430-1; O'Connor J at 439; Bowstead on Agency at 303; Combulk Pty Ltd, supra at 66-67.

[573] Hoare v McCarthy [1916] HCA 65; (1916) 22 CLR 296 at 303 per Griffith CJ, 305 per Isaacs J; Geissler v Accro Motors Pty Ltd (1955) 73 WN (NSW) 31 at 33 per Roper CJ in Eq Herron & Clancy JJ.

[574] FASOC para 13D, 13E, 13FF, 13F and 13G.

[575] Steutel v Kimple Pty Ltd [2005] VSCA 312 at [39] per Nettle JA

[576] Tyne - Exhibit F para 18, 56(g); Hawkins - Exhibit O para 30(d)(iii); P Oates - Exhibit R para 24.

[577] Freeman and Lockyear v Buckhurst Park Properties (Magnal) Ltd (1964) 2 QB 480 at 503 per Diplock LJ; EFM Pty Ltd v New Zealand Steel (Australia) Pty Ltd [1998] VSC 194 at [83] per Chernov J.

[578] [1988] NZCA 113; [1989] 1 NZLR 257 at 274 per Tipping J; Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd [1975] HCA 49; (1975) 133 CLR 72 at 80 per Gibbs, Mason and Jacobs JJ and Powercor Australia Ltd v Pacific Power [1999] VSC 110 at [1230] per Gillard J.

[579] The defendant's written submission - para 10 footnotes 34-41.

[580] Freeman and Lockyear v Buckhurst Park Properties, supra at 505 per Diplock LJ; Cousens v Grayridge Pty Ltd [2000] VSCA 96 para [45] per Batt JA; Geissler v Accro Motors Supra at 32 per Roper CJ; Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd [1975] VicRp 59; [1975] VR 607 at 615 per Lush J - approved by the High Court [1975] HCA 49; (1975) 133 CLR 72 at 78 per Gibbs, Mason and Jacobs JJ.

[581] FASOC para 13AA.

[582] A comparison of the paragraphs of Tyne and Hawkins' statements and their testimony at T 558, 562 and 803-5 leaves the evidence in an unsatisfactory state.

[583] CB 344 - 350, T 992.

[584] Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd [1985] 2 Lloyd's Rep 36 at 41 per Browne-Wilkinson LJ; Prospect Industries v Anscor Pty Ltd [2003] QSC 296 at [73] per Philippides J.

[585] Lysaght Bros v Falk Supra; Powercor Supra; Alliance Acceptance Co Ltd v Oakley (1988) 48 SASR 337 at 348 per Johnston J; Alliance and Leicester v Hamptons; Edgestop Ltd [1993] 1 WLR 1462 at 1480 per Mummery J.

[586] GE Dal Pont, Law of Agency (2002) at [20.35].

[587] Equiticorp Finance Ltd v Bank of New Zealand (1993) 32 NSWLR 50 at 132 per Clarke and Cripps JJA.

[588] The plaintiffs rely on a memorandum of Yesberg of 18 October 2000 recording Mr Hawkins' view of the importance of the representations and his decision to invest: CB 1410.

[589] CB 484-6; T 679-680.

[590] T 670, 679-81.

[591] T 757.

[592] T 1391; CB 464 - Investor Management Agreement clause 10.3 which refers to a confidentiality obligation upon investors.

[593] As to the ambit of the confidentiality regime see the defendant's written submission para 16(iv).

[594] T 896-8, T 944.

[595] T 956, CB 3615-21.

[596] Exhibit R para 42, T 1033.

[597] Exhibit F para 18.

[598] Defendant's submission part 1 para 20.

[599] FASOC Para 13FF.

[600] SFAR T 42, T 46.

[601] Section E para 2.

[602] The defendant's written reply para 33.

[603] Para 8AA.

[604] TFAD para 13A.

[605] Section 3 and item 245 of Schedule 1 to the FSR Act.

[606] Corporations Act ss.1431(1)(b), 1432(1); Exhibit XXX being the Australian Financial Services Licence granted under s.913B of the Corporations Act.

[607] (1986) 44 SASR 413.

[608] Hucks v Slann (1980) 24 SASR 535 at 541-2 per Cox J.

[609] [1971] HCA 29; (1971) 125 CLR 228 at 246 per Gibbs J (with whom Menzies, Windeyer and Walsh JJ agreed).

[610] Esber v Commonwealth [1992] HCA 20; (1992) 174 CLR 430 at 445; Pearce & Geddes - Statutory Interpretation in Australia (5th Ed, 2001) at [6.9].

[611] T 518. See Manufacturers Mutual Insurance Ltd v John H Boardman Insurance Brokers Pty Ltd [1994] HCA 16; (1994) 179 CLR 650 at 662.

[612] Taylor v Smith [1926] HCA 16; (1926) 38 CLR 48 at 59 per Higgins J, at 60 per Rich J; Hamilton Panel Works v Thomas [1963] NZLR 771 at 774 per Woodhouse J; Sinclair v Hudson (1995) 9 BPR 16,269 at 262-3 per Windeyer J; Marsh v Joseph [1897] 1 Ch 213 at 246-247; Brockway v Pando [2000] WASCA 192; (2000) 22 WAR 405 at 433.

[613] Lithgoe v Vernon [1860] EngR 373; (1860) 5 H&N 180; Gunn v Roberts (1874) LR 9 CP 331 at 335 per Brett J; Marsh v Joseph at 246-7 per Russell LCJ; Brockway v Pando ibid.

[614] FASOC para 13C.

[615] FASOC para 13A.

[616] FASCOC para 13A(a).

[617] FASOC para 13A(b).

[618] FASOC para 13A(e).

[619] FASOC para 13A(h).

[620] Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 286-7 per Mason CJ and Gaudron J, 288 per Brennan J, at 293 per Dawson J; Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658 at 664 per Murphy, Wilson, Brennan, Deane and Dawson JJ; Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491.

[621] TFAD para 13H(a), para 7(b) - (g).

[622] TFAD para 13H(b), (c).

[623] Beazley Exhibit FF para 65, Yesberg Exhibit SS para 84, Andrews Exhibit XX para 43.

[624] This appears to be the conduct referred to in the FASOC para 12.

[625] Exhibit QQ(xvi) and (ix).

[626] Exhibit QQ (xvii).

[627] Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 658.

[628] El Ajou v Dollar Land Holdings Ltd [1993] 3 All ER 717.

[629] Re Chisum Services Pty Ltd (1982) 7 ACLR 641 at 650 per Wootten J.

[630] Fraser Henleins Pty Ltd v Cody [1945] HCA 49; (1945) 70 CLR 100.

[631] TFAD para 13H(e), (f).

[632] CB 219-220, 3743-3745; Spanu - T 1557.

[633] CB 2874-5, 2924, 1423.

[634] Petersen v Moloney [1951] HCA 57; (1951) 84 CLR 91 at 101 per Dixon, Fullagar and Kitto JJ; McLachlan-Troup v Peters [1983] VicRp 5; [1983] 1 VR 53 at 59 per Beach J; New Era Installations Pty Ltd v Don Mathieson & Staff Glass Pty Ltd [1999] FCA 475; (1999) 31 ACSR 53 at 65 per Katz J; BHP Trading Asia Ltd v Oceaname Shipping Ltd (1996) 67 FCR 211 at 222 per Hill J.

[635] See Defendant's final submissions as to some of the alternative bases upon which the conduct may be explained. Part 1 para 25.

[636] TFAD para 13H(g).

[637] FASOC paras 11F - 11L.

[638] FASOC para 11N.

[639] Second Further Amended Reply (SFAR) paras 6 - 6I.

[640] SFAR para 6J.

[641] SFAR para 11.

[642] SFAR para 12.

[643] [1981] FCA 117; (1981) 36 ALR 567.

[644] Cheshire and Fifoot at 964.

[645] [1993] HCA 27; (1992-3) 182 CLR 26.

[646] FASOC para 12.

[647] The defendant referred to Cheshire and Fifoot at [4.32].

[648] SFAR paras 6, 11.

[649] The Commonwealth v Verwayen (1990) 170 CLR 394 at 421; Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634; Immer (No. 145) supra.

[650] FASOC para 12.

[651] Immer (No 145), supra.

[652] SFAR para 6(h), 6I.

[653] Grundt v Great Boulder Pty Goldmines Ltd [1937] HCA 58; (1937) 59 CLR 641 at 674.

[654] SFAR para 6.

[655] SFAR para 6(f), (g).

[656] SFAR para 6D.

[657] SFAR para 6(e), (f), (g).

[658] See Gray v National Crime Authority [2003] NSWSC 111 at [154] per Austin J, who refers to estoppel by encouragement and acquiescence.

[659] Verwayen, supra at 413.

[660] Grundt v Great Boulder Pty Goldmines Ltd [1937] HCA 58; (1937) 59 CLR 641; Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 at 547 per Dixon J; Waltons Stores, supra.

[661] [1933] HCA 61; (1933) 49 CLR 507 at 547

[662] ibid at 547

[663] Con-stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226 at 244 per Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ_._

[664] Con-Stan Industries; Santos & ors v Delhi Petroleum Pty Ltd [2002] SASC 272

[665] Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 435 per Deane J; Caboche v Ramsay (1994) 119 ALR 215 at 238 per Gummow J; Santos v Delhi Petroleum supra at [489]; Riseda Nominees Pty Ltd v St Vincent's Hospital [1998] 2 VR 70 at 77per Callaway JA with whom Brooking and Kenny JA agreed; Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 399.

[666] Ibid at 425.

[667] Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at 121-5 per Gleeson CJ, McHugh, Gummow and Callinan JJ.

[668] [1999] VSCA 109; [1999] 3 VR 712

[669] SFAR para 6.

[670] (1877) 2 App Cas 439 at 448

[671] supra, at 449.

[672] FASOC para 12.

[673] Plaintiffs' written submissions A.1, A.2(f).

[674] T.2865

[675] CB 1419-22.

[676] Griffin T.2477-2480.

[677] T 2950-2951.

[678] [1998] 3 VR 133 at 145

[679] David Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 583 per Brennan, Deane, Gaudron and McHugh JJ.

[680] TPA, s.84; ASICA, s.12GH.

[681] Waltons Stores supra, per Brennan J at 427.

[682] [1986] HCA 68; (1986) 162 CLR 340 at 355.

[683] Jones v Dumbrell [1981] VicRp 21; [1981] VR 199; Hughes Aircraft Systems International v Air Services Australia [1997] FCA 558; (1997) 146 ALR 1.

[684] Jones v Dumbrell, supra, per Smith J at 203.

[685] CB 484.

[686] T 667,669

[687] See the Schedule of Errors in the plaintiffs' reply submissions, para 69 p.43.

[688] Taylor was responsible for drafting somedocuments concerned with Truemont.

[689] Plaintiffs' written reply in the "Schedule of Errors in the Plaintiffs' Reply Submissions" - para 69 p.26 are not relevant to the evidence of Beazley and Andrews as to the view they held.

[690] Plaintiffs written reply, para 70.

[691] Exhibit TTT.

[692] Exhibit SSS.

[693] Plaintiffs' written reply, para 69.

[694] T 669

[695] SFAR para 72.

[696] Tom Oates - para 24(e).

[697] T.1198, 1224.

[698] Plaintiffs' written submission, para 15.

[699] FASOC para 12(iii).

[700] Johan Steyn, "Contract Law: Fulfilling the Reasonable Expectations of Honest Men" (1997) 113 Law Quarterly Review 433 at 434.

[701] October 2005 Vol 121 LQR at 580.

[702] The making of risk free arbitrage profits in this type of investment setting have for some time been strongly disapproved in the United States where it has consistently been recognised as an immoral form of commercial activity.

[703] Waltons, supra, at 397 per Mason CJ and Wilson J, 462 per Gaudron J; Australian Securities Commission v Marlborough Goldmines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 506-7 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ; Murphy v Overton Investments Pty Ltd [2001] FCA 500; (2001) 112 FCR 182 paras [63], [68]. per Branson J.

[704] Tyne T.650, 667, Hawkins T.847, 904.

[705] JC Houghton & Co v Nothard, Lowe and Wills [1928] AC 1 at 14-15 per Viscount Dunedin with whom Lord Atkinson agreed, 18-19 per Viscount Sumner, at 33 per Lord Carson.

[706] FASOC para 7, SFAR para 6(c).

[707] FASOC para 13A, para 13B.

[708] SFAR para 6(e), (f), (h), para 7(b), (c).

[709] Spanu T 1557-8; Schedule of errors in plaintiffs' reply submissions, Section B, para 35, p 19, para 53, p 24.

[710] Defendant's written submission para 69, p.26.

[711] The circumstances in which the implied term may operate are considered more fully later in this judgment.

[456]

[713] FASOC para 10(aa).

[714] As to the detail of those conversations see para 399-406 under the "three day option".

[715] FASOC para 10(f)(ia).

[716] FASOC para 11(aa), particular (ii).

[717] SFAR para 11, 12.

[718] SFAR paras 6, 6A-6I.

[719] Clause 2.2(e), 3.2(e).

[720] Plaintiffs' written submission, section F, para 1.

[721] Oates T.959, 1032. Yesberg T 1739, Andrews T 2188, Exhibit CCC.

[722] CB 3746-8, T.1095, 1100, 1112.

[723] Tyne, Exhibit S, paras 54-56; Hawkins, Exhibit O, para 28; T. Oates, Exhibit R, para 23.

[724] Plaintiffs' written submission Part K, p.58, paras 11-12.

[725] T 570, 575.

[726] T 630-633.

[727] T 649, 668, 671, 673-4, 730-1.

[728] T 817.

[729] T 942.

[730] T 1030, 1032, 1041.

[731] T 1060.

[732] T 1060.

[733] T 1192-3, 1198, 1224.

[734] The plaintiffs' "Schedule of Inaccuracies in the defendant's submissions" identified passages in the defendants closing submissions where reference was made to paragraphs of witness statements that were not admitted into evidence. Although I doubt that precludes the court from having regard to them for the purpose of "credit" issues, I have not done so.

[735] Exhibit F, para 8, Exhibit O, para 11

[736] Exhibit F, para 11, Exhibit O para 12

[737] Exhibit F, paras 25-27, 54-56, Exhibit O, paras 28-30

[738] Exhibit F, paras 18-19, Exhibit O, paras 18-20

[739] T 3541.

[740] Exhibit F, para 8, T.560-570, Exhibit O, para 11, T.804-810.

[741] T 827.

[742] Exhibit F, para 11.

[743] T 805.

[744] Exhibit O, para 12.

[745] T 3257.

[746] T 3470-1.

[747] Exhibit F, para 15, p.19.

[748] Exhibit F, para 15, p.19.

[749] Exhibit F, para 15, Exhibit G, para 21.1(d); T.573, 667.

[750] Exhibit R, para 16 referred to in evidence T.1097-8.

[751] T 1097.

[752] T 1096-1098.

[753] CB 3746-7, T.1095-6.

[754] [2000] VSCA 116 at [23].

[755] FAI Trader's Insurance Co Ltd v Savoy Plaza Pty Lt supra at 351; Sports Vision Australia Pty Ltd v Tallglen Pty Ltd, supra at 119-20.

[756] In its written submission the defendant referred to Ryan v Textile Clothing and Footwear Union of Australia at 238, 261-2; FAI Trader's Insurance Co Ltd v Savoy Plaza Pty Ltd at 346-350, 353- 354; Posgold (Big Bell) Pty Ltd v Placer (Western Australia) Pty Ltd (1999) 21 WAR 350 at 362-3; Magill v National Australia Bank Ltd [2001] NSWCA 221; (2001) Aust Contract R. 90-131 at [50]- [51].

[757] Defendant's written reply, para 154, fn 94.

[758] See Societe Generale de Paris v Tramways Union Co (1884) 14 QBD 424 at 438, 443, 450.

[759] T 810.

[760] See Australian Securities Commission v AS Nominees Ltd [1995] FCA 1663; (1995) 133 ALR 1 at 52.

[761] The plaintiffs do not plead that the CIM was part of the contractual documents or that it contained misrepresentations. See para 6 SFAR.

[762] See Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 61-2 per Gibbs CJ, 120 per Deane J; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 5 per Gibbs CJ, 10-11 per Mason, Wilson and Dawson JJ.

[763] FASOC para 11(a).

[764] FASOC para 10

[765] FASOC para 12.

[766] FASOC para 11(aa).

[767] FASOC para 11, Particulars sub-para (ii).

[768] Plaintiffs' written submission, Part H, para 8.

[769] Exhibit 000 para 4.4(f).

[770] These principles are discussed in dealing with the implied terms as to the three day option.

[771] Part A, para 11 plaintiffs' written submissions

[772] Plaintiffs' written submissions para 6(h).

[773] Plaintiffs' written submission G(e).

[774] Cheshire & Fifoot supra pp.447-8.

[775] Exhibit 000, annexure 4.

[776] See Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1985) 160 CLR 226 at 236-237.

[777] The defendant refers to DJ Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VicRp 92; [1971] VR 749.

[778] Codelfa, supra at 346 per Mason J.

[779] See Ikin v The Danish Club "Dannebrog" Inc [2001] VSCA 123 at [17] per Brooking, Batt and Buchanan JJA.

[780] BP Refinery, supra, at 292; Codelfa at 346 per Mason J; Re Ronim Pty Ltd [1998] QCA 444; [1999] 2 Qd R 172 at 180 per de Jersey CJ, Pinkus and Thomas JJA; Renard Constructions (ME) Pty Ltd v Minister for Public Works supra at 257-8.

[781] Yesberg, Exhibit SS para 12; Andrews, Exhibit SS para 22.

[782] Exhibit 000 paras 4.33, 5.56.

[783] CB 240.

[784] It relies upon Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410 at 442-3 per McHugh and Gummow JJ; Secured Income Real Estate (Australia) Pty Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 605 per Mason J; and Dallhold Investments v Gold Resources (1991) 31 FCR 339 at 597 per Gummow J.

[785] Saad v TWT Ltd (Unreported, NSWCA 29 May 1998, Priestley, Handley and Powell JJA).

[786] State Bank of New South Wales Ltd v Currabubula Holdings Pty Ltd (2001) NSWCA 47 at [64] per Giles JA (with whom Heydon JA and Ipp AJA agreed).

[787] Peters American Delicacy Co Ltd v Champion (1928_)_ [1928] HCA 27; 41 CLR 316 at 324 per Knox CJ, Isaacs and Gavin Duffy JJ; National Mutual Life Association of Australasia Ltd v Chris Poulson Insurance Agencies Pty Ltd (No 5) [1998] TASSC 31 at 20 per Slicer J.

[788] Galaxidis v Galaxidis [2004] NSWCA 111 at [93].

[789] Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 438-439.

[790] SFAR para 6(f) - the basis for that assumption is not to be found within para 6.

[791] SFAR para 6.

[792] Which is contained in paragraphs 6A-6I of their reply.

[793] Grundt v Great Boulder Pty Goldmines Ltd [1937] HCA 58; (1937) 59 CLR 641; Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 at 547 per Dixon J; Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387; Kellow-Falkiner Motors Pty Ltd v Nimorakiotakis [2001] ANZ ConvR 230 at [31]-[32] per Charles JA (with whom Ormiston and Buchannan JJA agreed); Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 at 512-513 per Lockhart, Lindgren and Camberlin JJ.

[794] For a recent discussion of this principle see Aussie Invest Corp Pty Ltd v Pulcesia Pty Ltd [2005] VSC 362; (2005) 13 VR 168 per Dodds Streeton J- as to whether vendor's exercise of right to terminate was unconscientious.

[458]

387 at 428-429; Commonwealth v Verwayen (1990) 170 CLR 394 at 445; Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 506; Standard Chartered Bank Australia Ltd v Bank of China (1991) 23 NSWLR 164 at 180; State of New South Wales v R.T. & Y.E. Falls Investments Pty Ltd [2003] NSWCA 54; (2003) 57 NSWLR 1 at [17] per Spiegleman CJ.

[796] Waltons Stores (Interstate) Ltd v Maher supra per Brennan J at 428-9.

[797] SFAR para 6A.

[798] SFAR para 6B.

[799] SFAR para 6C.

[800] SFAR para 6D.

[801] SFAR para 6E.

[802] SFAR para 6F.

[803] SFAR para 6G, H.

[804] SFAR para 6I.

[805] SFAR para 6L.

[806] SFAR para 11.

[807] SFAR para 12.

[808] SFAR para 11L.

[809] SFAR para 11N.

[810] Yesberg, T 1844.

[811] Yesberg, T 1780, 1842.

[812] T 1503.

[813] Exhibit CCC.

[814] Plaintiffs' written submissions, Section H, para. 23-32; Sargent v ASL Developments Ltd, supra, at 659; David Krakowski v Eurolynx Properties Ltd, supra, at 583.

[815] [1892] 2 QB 700 at 708 per Lord Esher MR. See also Macquarie Bank Ltd v 64th Throne Pty Ltd supra.

[816] Plaintiff's written submissions, s 8, para 31-32.

[817] Lyon, T2865, Group C CEO Report, CB 1419-22.

[818] Yesberg, T1837; NSW proceedings, T1043.

[819] Supra at 423 and 429 per Brennan J.

[820] Cheshire & Fifoot, supra at 74.

[821] Grundt v Great Boulder Pty Goldmines Ltd [1937] HCA 58; (1937) 59 CLR 641 at 674.

[822] Plaintiffs' written submissions Section I, para 4, p 46.

[823] FASOC para 11F.

[824] Yesberg T 1846, 1905-07, 1976, 1978-81.

[825] Yesberg T 1978.

[826] Exhibit SS para 28.

[827] T 1852-3.

[828] T 1854.

[829] T 1852-3.

[830] Ibid.

[831] T 1857.

[832] T 1855.

[833] T 1856.

[834] TFAD para 11GA(e)(i)(ii).

[835] Ibid.

[836] No point was taken that this representation was not expressly relied upon in paragraph 6 of the plaintiffs' reply.

[837] FASOC para 10(ia).

[838] FASOC para 7, SFAR para 6.

[839] [1999] FCA 1299 at [13] and [103].

[840] [1998] 3 VR 485 at 499 per Charles JA (with whom Ormiston and Callaway JJA agreed).

[841] [1989] HCA 51; (1989) 168 CLR 385 at 410-411 per Mason CJ.

[842] Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 435-6. See also the discussion by Derrington J in Bond University Ltd v Limgold Pty Ltd [1997] QSC 227, BC9706881 at 208-220.

[843] The defendant refers to Hooker Corporation Ltd v The Commonwealth (1986) 85 FLR 55 at 62 per Kelly J.

[844] CB 485.

[845] CB 3746.

[846] CB 240.

[847] CB 1492.

[848] Exhibit U, Taylor's reply and his subsequent faxing of the letters to Taylor.

[849] Plaintiffs' written reply, para 88, p 25.

[850] The defendant referred to Waltons Stores (Interstate) Ltd v Maher supra at 397 per Mason CJ and Wilson J, 462 per Gaudron J; Australian Securities Commission v Marlborough Goldmines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 506-7 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ; and Murphy v Overton Investments Pty Ltd [2001] FCA 500; (2001) 112 FCR 182 at [63] and [68] per Branson J.

[851] See defendant's written submissions part 3, para 23, p 56.

[852] T 670, 679, 681.

[853] T 685.

[854] Ex F para 35-8

[855] Ex O para 28

[856] Ex R para 26-7

[857] Ex R para 35

[858] Waltons Stores, supra, at 404-5 per Mason CJ and Wilson J, 419 per Brennan J, 453 per Deane J; Verwayen, supra, at 453-4 per Dawson J; Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1989) 16 NSWLR 582 at 584-5 per Kirby P, 610 per Priestley JA; Forbes v Australian Yachting Federation Inc (1996) 131 FLR 241 at 287 per Santow J.

[859] Verwayen, supra, at 441 per Deane J.

[860] CB 484-6.

[861] (1874) LR 9 Ch App 244 at 251-2; Meagher, Gummow and Lehane, Equity: Doctrines and Remedies supra at [41-110].

[862] Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318 at 319 per Lord Chief Baron Eyre.

[863] Meyers v Casey [1913] HCA 50; 1913 17 CLR 90 at 123-4 per Isaacs J; Anaconda Nickel Ltd v Edensor Nominees Pty Ltd [2004] VSCA 167 at [35]-[38] per Buchanan JA.

[864] T 295960.

[865] FASOC, para 11F-Q.

[866] (1989) 97 FLR 458 at 475.

[867] [2004] VSCA 232 at [31], [33]

[868] [1991] FCA 663; (1991) 105 ALR 25.

[869] At 26.

[870] FASOC, para 11F(a) and (b).

[871] FASOC, para 11H, 11G.

[872] FASOC, para 11J-11L.

[873] FASOC, para 11N.

[874] Section 51A(i), (ii).

[875] TFAD, para 11LA.

[876] SFAR, para 6N - s.12DA of the ASICA, s 1041H of the CA; GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Ltd [2001] FCA 1761; (2001) 117 FCR 23. See plaintiffs' final submissions s I paras [[8]-[9].

[877] Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31 at 40 per Gummow J.

[878] Demagogue supra at 41; General Newspapers Pty Ltd v Telstra Corporation ([1993] FCA 473; 1993) 45 FCR 164; Zaknic Pty Ltd v Svelte Corporation Pty Ltd (1996) ATPR (Digest) 46-159 per Lehane J.

[879] Warner v Elders Rural Finance Ltd [1993] FCA 117; (1993) 41 FCR 399; Wilkinson v Feldworth Financial Services Pty Ltd & Ors (1998) 29 ACSR 642 at 747 per Rolfe J.

[880] Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477; Spedley Securities Ltd (In liquidation) v Bank of New Zealand (1991) ATPR 41-143; Farrow Mortgage Services Pty Ltd (In liq) v Edgar (1992) ATPR (Digest) 46-096 at 53,371 and 53,374.

[881] Smith v Hughes (1871) LR 6 QB 597 at 604; W Scott Fell & Co Ltd v Lloyd [1906] HCA 79; (1906) 4 CLR 572; Rhone-Poulenc Agrochimie Sam, supra per Bowen CJ at 487; Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571.

[882] New Zealand Pelt Export Co Ltd v Trade Indemnity New Zealand [2004] VSCA 163 at [96] per Nettle JA, with whom Ormiston JA and Hansen AJA agreed.

[883] Verwayen supra at 444 per Deane J; Macquaire Bank Ltd v Lin [2005] QSC 221; Sigma Pharmaceuticals Pty Ltd v Nuc-One Enterprises Pty Ltd [1998] VSC 204 at [198]- [204] per Gillard J; Waring v Ellis [2005] NSWSC 467 at 58 per Young CJ in Eq.

[884] Butcher v Lachlan Elder Reality Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 at [109] per Gleeson CJ, Hayne and Heydon JJ.

[885] Zinc Corporation Pty Ltd v Pasminco Australia Ltd [2005] VSC 62 per Dodds-Streeton J at [178] - [181]; Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31 at 32 per Black CJ; Metalcorp Recyclers Pty Ltd v Metal Manufacturers Ltd [2003] NSWCA 213 at [14].

[886] Gould v Vaggelas [1984] HCA 68; (1985) 157 CLR 215 at 236 per Wilson J.

[459]

[888] T 3013-4.

[889] CB 1634 - letter to APRA, 1 February 2001.

[890] T 2865.

[891] Yesberg T.1764,1768, 1774 -5, 1738.

[892] Yesberg T.1740-2.

[893] T1738-41.

[894] Hughes v The Metropolitan Railway Co, supra; Foran v Wight, supra.

[895] Schedule to "errors in plaintiffs' reply submissions" Section B, para 90, p 28.

[896] SS para 91.

[897] T 3008.

[898] Cf Romanos v Pentagold [2003] HCA 58; (2003) 77 ALJR 1882 at [26] per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ.

[899] As to constructive knowledge see New Zealand Pelt Export Company Ltd v Trade Indemnity New Zealand Ltd [2004] VSCA 163 at [98] -[99] per Nettle JA.

[900] See plaintiffs' written submission Section A para 11, and T3440-3444.

[901] FASOC, para 14(e).

[902] See for example United States District Court District of Massachusetts v Scott & Kamshadd (Unreported, 28 October 2003 - Action No 03-12082-EFH); Erik Zitzewitz, "Who Cares about Shareholders? Arbitrage - Proofing Mutual Funds" (2003) 19(2) Journal of Law, Economics and Organisation 245.

[903] Jason Greene & Charles Hodges, "The Dilution Impact of Daily Fund Flows on Open-End Mutual Funds" (2003) 65 (1)Journal of Financial Economics 131 at 149.

[904] O'Brien T 2308, T 2316.

[905] TFAD, para 14(e).

[906] TFAD, para 16-16G.

[907] SFAR, para 12.

[908] SFAR, para 16(viii).

[909] FASOC, para 11AA.

[910] Lyon T 2832-3, O'Brien T 2446.

[911] Plaintiffs' written submissions, section N, para 9.

[912] McMenamin T 2654.

[913] McMenamin T 2675.

[914] O'Brien T 2361, T 2365.

[915] T 2828.

[916] See the "Schedule of Errors in the plaintiffs' oral closing submissions" p 25 - 30, T 2303 - 2315, T2451.

[917] Lyon T 2826-28.

[918] Yesberg T 1739-42, T2100-01; O'Brien T 2311; Lyon T2710-2.

[919] T 2812.

[920] T 2302.

[921] O'Brien T 2298; see discussion at T2677 - 2686.

[922] T 2802-2819.

[923] T 3346.

[924] T 2802 - 6.

[925] T 2819.

[926] T 282628.

[927] T 2838-40, T2847

[928] T 2302.

[929] O'Brien T 2317, T 2320.

[930] O'Brien T 2451, Lyon T 2849.

[931] SFAR, para 11(h).

[932] FASOC, para 11AB.

[933] Plaintiffs' written submissions - Section G para 11

[934] FASOC, para 11AB.

[935] Plaintiffs' written submission p 67, para 11.

[936] (1896) 7 QLJR 68.

[937] Ibid at 70-71; Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 at para [36] per Gleeson CJ, Gummow, Kirby and Hayne JJ.

[938] It is so described in Cheshire & Fifoot at [10.41]-[10.42].

[939] See McIntosh Hamson Hoare Govett v Pinnacle Properties [1995] QCA 156; National Mutual Life Association of Australasia Ltd v Chris Poulson Insurance Agencies Pty Ltd [1998] TASSC 31, [1999] TASSC 40; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607-8.

[940] T 3548.

[941] Para 272-276.

[942] T 3550.

[943] T 3555-6.

[944] State Bank of New South Wales Ltd v Currabubula Holdings Pty ltd (2001) NSWLR 399 at [59] per Giles, Heydon and Ipp JJA.

[945] SFAD, para 14(d).

[946] PF AD para 16A.

[947] CB 1648-9, 164.

[948] Plaintiffs' written submission Section O, para 6.

[949] T 3485-6.

[950] FASOC, para 11AA.

[951] FASOC, para 14(d).

[952] O'Brien T 2345.

[953] Lyon T 2735, T 2884-6.

[954] See s 187.

[955] T 2343-4.

[956] Exhibit E pp 229, 323.

[957] Defendant's reply submission, s O para 197.

[958] Lyon T2807 - 8, 2839 - 40.

[959] T 2522 - 3.

[960] Griffin T2529, T2536.

[961] FASOC para 11, SFAR para 6, Plaintiffs' written submission s A para 20, s E para 15 - 20.

[962] T 3347.

[963] T3350.

[964] T 3450-1

[965] Exhibit F para 25 (c), Exhibit O para 29.

[966] Plaintiffs' written submissions s N para 9.

[967] Verwayen, supra per Dean J at 444.

[968] The form of any declaration was to be left until after all findings of fact were made. T 3489.

[969] FASOC para 10(f), particular (iii)

[970] TFAD para 10(f), particular (e)

[971] Exhibit E, CD223

[972] Yesberg T 1990-1

[973] [1986] HCA 82; (1986) 161 CLR 500 at 510.

[974] Watson v Phipps (1985) 63 ALR 321, 324.

[975] TFAD paras 10A particular (g), 10D particular (i), 10C particular (g), 10D, 17, 18; FASOC para 11(b) particular (iii); SFAR paras 6J, 6K, 13, 17. The relevant provisions have been set out earlier in these reasons.

[976] Australian Law Reform Commission, "Insurance Contracts", Report No. 20 (1982); Distillers Co. Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3; (1974) 130 CLR 1 per Stephen J at 23.

[977] Distillers per Stephen J at 31.

[978] South Sydney District Rugby League Football Club Ltd v News Ltd supra per Finn J

[979] Australian Cooperative Foods Ltd v Norco Cooperative Ltd [1999] NSWSC 274; (1999) 46 NSWLR 267 at 283 per Bryson J

[980] Stapleton "Good Faith in Private Law" (1999) Current Legal Problems 1 at 7; Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 265; Chesire & Fifoot at [10.44].

[981] Finn, "The Fiduciary Principle" in TG Youdan (Ed), Equity, Fiduciaries and Trusts (1989) 3.

[982] [2005] VSCA 228.

[983] See also Hoppers Crossing Club Limited v Tattersalls Gaming Pty Ltd [2005] VSC 114 at [22]- [25] per Kaye J.

[984] Far Horizons v McDonalds Australia [2000] VSC 310 at [120] per Byrne J.

[985] Alcatel Australia Ltd v Scarcella [1998] 44 NSWLR 349 at 369 per Challer JA.

[986] Porter v GIO Australia Ltd [2003] NSWSC 668; (2003) 12 ANZ Ins Cas 61-573, per McClellan J.

[987] K Sutton, Insurance Law in Australia, (3rd ed, 1999) 158; Lűcke, "Good Faith and Contractual Performance" in Essays on Contract (Finn, ed., 1987) pp 155, 160 et seq; Hawke, "Utmost Good Faith - What does it really mean?" (1994) 6 Insurance Law Journal 91 et seq.

[988] Ibid.

[989] [2000] FCA 1541; (2000) 177 ALR 611 at [426].

[990] Vermeulen v SIMU Mutual Insurance Association (1997) 4 ANZ Ins Cas 60-812

[991] [1998] VSCA 77; [1999] 1 VR 683.

[992] (1996) 130 FLR 97.

[993] CIC Insurance Ltd v Barwon at 699.

[994] Supra at 112.

[995] Moss v Sun Alliance Australia Ltd (1990) 55 SASR 145 per Bollen J; Gutteridge v Commonwealth of Australia (Unreported, Supreme Court of Queensland, Ambrose J, 25 June 1993); AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCA FC 185 per Moore J at [10]-[11]; Emit J at [89].

[996] Esso Australia Resources Pty Ltd v Southern Pacific Petroleum N/L [2005] VSCA 228 at [2] per Warren CJ.

[997] Cameron Macintosh Pty Ltd v CE Heath Underwriting and Insurance (Aust) Pty Ltd (Unreported Supreme Court of Victoria, Ormiston J 25 September 1991); Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2001] UKHL 1; [2001] 2 WLR 170.

[998] Carter v Boehm (1766) 3 BURR. 1905 at 1909.

[999] SFAR para 6 J.

[1000] SFAR para 6 K.

[1001] SFAR para 10 (b), 10 (c).

[1002] TFAD para 17, para 18.

[1003] SFAR para 13 (0) - (d).

[1004] SFAR para 13 (c) - (f).

[1005] FASOC para 11 (b) - particular (iii).

[1006] FASOC para 14 and 15.

[1007] SFAR para 6 J, 13 (v).

[1008] [2003] HCA 25; (2003) 214 CLR 514.

[1009] See s 10(1) of the ICA.

[1010] Section 11.

[1011] Section 9(1)(g).

[1012] Sheldon v Sun Alliance Australia Ltd (1989) 53 SASR 97 at 149 per Bollen J.

[1013] Defendant's written submissions part 6, para 3.

[1014] Tyne T 577, Oates T 965-6.

[1015] [1989] HCA 22; (1989) 166 CLR 606.

[1016] [1998] VSCA 77; [1999] 1 VR 683.

[1017] Ibid at 699 per Ormiston JA.

[1018] Defendant's written submission part 6, para 8 footnote 384.

[1019] CB 484-6.

[1020] T 565, T 677-8.

[1021] T 831, 868.

[1022] T 1106. The parties dispute whether this evidence suggests that he thought the defendant would have to contribute 14%.

[1023] T 1112.

[1024] T 1226-1230.

[1025] Plaintiffs' written reply para 113 and further response in the "Schedule of errors in the plaintiffs' written reply," pages 33-34.

[1026] There had been three cancellations prior to the Oates/April policy; a further five cancellations prior to the Oates/June and ACN policies; one further cancellation prior to the Oates/August policy and two further cancellations prior to the Pegela/September policy.

[1027] Defendant's submissions Part V1 para 19 (2).

[1028] Exhibit SS para 34.

[1029] SFAR para 6 J and 10.

[1030] T150-152.

[1031] T146.

[1032] T 948.

[1033] T 247.

[1034] T 3496.

[1035] FASOC para 15A.

[1036] TFAD para 15B.

[1037] T 244-255.

[1038] FASOC para 15B.

[1039] T 3490-1.

[1040] Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 655.

[1041] Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 at 41.

[1042] Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41; United Australia Ltd v Baclays Bank Ltd [1941] AC 1 at 30.

[1043] Champtaloup v Thomas [1976] 2 NSWLR 264 at 269 per Glass JA.

[1044] CB 1384, 1497, 1509. See Turner v Labafox International Pty Ltd [1974] HCA 41; (1974) 131 CLR 660 at 670 per Mason J, at 663-4 and Stephens J at 664.

[1045] Exhibit N; E Jones & W Goodhart, Specific Performance, (2nd Ed 1996) p 13; Ogle v Conboyuro Investments [1976] HCA 21; (1976) 136 CLR 444 at 459 per Gibbs, Mason and Jacobs JJ.

[1046] T726.

[1047] Immer (No 145) Pty Ltd supra at 41.

[1048] Zucker v Straightlace Pty Ltd (1986) 11 NSWLR 87 at 95 per Young J.

[1049] [1977] VicRp 52; [1977] VR 454 at 459 per Stark, Lush and Kaye JJ.

[1050] Supra at 93 per Young J.

[1051] [1976] 2 NSWLR 264 at 274-5.

[1052] (1982) 2 BPR 9543 at 9549 per Hope JA.

[1053] T 3566-7.

[1054] Bosaid v Andry [1963] VicRp 67; [1963] VR 465 at 486 per Scholl J; Conroy v Lowndes [1958] Qd R 375 at 381 per Philp J; Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444 at 461 per Gibbs Mason and Jacobs JJ; Kennedy v Hill (1999) 205 LSJS 261 at [196] - [201] per Lander J with whom Mullighan and Martin JJ agreed.

[1055] Such a view accords with the opinion expressed by Young CJ in Eq in Zucker v Straightlace Pty Ltd, supra at 93.

[1056] Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 633 per Wilson J; Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd [1997] NSWSC 473; (1997) 42 NSWLR 462 at 479 per Gleeson CJ, Handley JA and Brownie AJA; Tenth Dancote Pty Ltd v Pyramid Building Society (in liq) (Unreported, Supreme Court of Victoria, Court of Appeal, 7 May 1997) at 3 per Callaway JA, with whom Winneke P and Hedigan AJA agreed.

[1057] DTR Nominees supra at 432-3 per Stephen, Mason and Jacobs JJ; Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594 at 611 per Mason J (with whom Murphy and Aicken JJ agreed); IGA Distribution Pty Ltd v King and Taylor Pty Ltd [2002] VSC 440 at [133] -[134] per Nettle J; Kyrwood v Drinkwater [2000] NSWCA 126 at [141] per Powell JA (with whom Meagher JA agreed) Tenth Dancote Pty Ltd v Pyramid Building Society (in liq) (Unreported, Supreme Court of Victoria, 22 November 1995) at 42 per Eames J; Satellite Estate Pty Ltd v Jacquet (1968) 71 SR (NSW) 126 at 149 per Asprey JA (with whom Wallace P agreed); Trawl Industries v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 358; Dainford Ltd v Smith [1985] HCA 23; (1985) 155 CLR 342 at 366 per Brennan J.

[1058] Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144 at 152; Chitty on Contracts Vol 1 para 25-018 (28th Ed).

[1059] T 3494.

[1060] DTR Nominees supra.

[1061] T 949.

[1062] Plumor Pty Ltd v Handley (1996) 41 NSWLR 30 at 39.

[1063] Exhibit N - letter from defendant to plaintiffs' solicitors December 2002; Defendant's opening submissions.

[1064] FASOC para 14, 15.

[1065] FASOC para 11.

[1066] See Spry Equitable Remedies (5th Ed 1997) pages 638 and 645.

[1067] See Defendant's written reply, para 211.

[1068] Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 at 260-1 per Mason CJ, 273 per Gaudron J; Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 at 31 per Mason J; Esanda Finance Corporation Ltd v Plessnig [1989] HCA 7; (1989) 166 CLR 131 at 143 - 4 per Brennan J; Morris v Robert Jones Investments Ltd [1994] 2 NZLR 275 at 277 per Hardie Boys J, 290 per Gallen J; Ronnoc Finance v Spectrum Network Systems Ltd (1997) 45 NSWLR 624 at 632 - 635 per Santow J.

[1069] Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 at 260-1 per Mason CJ, with whom Deane, Dawson and Toohey JJ agreed.

[1070] Ronnoc Finance v Spectrum Network Systems (1997) 45 NSWLR 624 at 636.

[1071] Supra, at 428-429.

[1072] Thompson v Palmer supra; Grundt v Great Boulder Pty Goldmines Ltd supra; Waltons Stores supra; Giumelli supra.

[1073] Written submission Section 5 para 6 p 75.

[1074] Cheshire & Fifoot at [2.15].

[1075] Tyne T741, Hawkins T916, Oates CB 3626. See Burns v Man Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653 at 660, 668-9.

[1076] T3223.

[1077] T3224-5.

[1078] T3213.

[1079] T3221-2.

[1080] T3219.

[1081] T 3220.

[1082] T3190.

[1083] See Official Trustee in Bankruptcy v Tooheys (1993) 29 NSWLR 641; Austotel Pty Ltd v Franklins Self Serve Pty Ltd supra at 584-5 per Kirby P, 610 per Priestly JA.

[1084] Official Trustee in Bankruptcy v Tooheys supra at 650.

[1085] T3120.

[1086] Beazley T1366, T Oates 968, 1061; Hawkins T801; Tyne T565.

[1087] Supra at 413, 415-7 per Mason CJ 487 per Gaudron J, 429 to 430 per Brennan J, 441-2 per Deane J, 454 per Dawson J, 475 per Toohey J and 500-1 per McHugh J; Waltons Stores supra at 404-5 per Mason CJ and Wilson J, 419, 426-7 per Brennan J.

[1088] [1997] 1 Qd R 117 at 128 per Macrossan CJ (with whom Thomas J agreed).

[1089] (1998) 16 ACLC 552 per Cooper J.

[1090] (1998) 81 FCR 475 at 516 per Lockhart, Lindgren and Tamberlin JJ.

[1091] {2000] NSW SC 872 at para 19 per Harrison M.

[1092] (1997) Q Conv R 54-494 per Thomas J.

[1093] Supra at 203 per Bransen J.

[1094] Giumelli supra at 121-5 per Gleeson CJ Mc Hugh, Gummow and Callinan JJ

[1095] Crabb v Arun District Council [1976] Ch 179 at 198; Verwayen supra.

[1096] See - Equity Doctrine and Remedies supra paras [17-050], [17-130]; Cheshire and Fifoot para [2.9].

[1097] At 412 per Mason CJ; at 443-4 per Deane J.

[1098] Giumelli supra at [42]-[47]; Cheshire & Fifoot Law p 71; Equity Doctrines and Remedies, supra at [17-130].

[1099] [1994] VicRp 66; [1994] 2 VR 333 at 369 to 381.

[1100] Ibid at 376.

[1101] [1937] HCA 58; (1937) 59 CLR 641 at 674-675.

[1102] [1994] VicRp 66; [1994] 2 VR 333 at 377.

[1103] Verwayen at 429 per Brennan J.

[1104] Ramsden v Dyson (1866) LR 1 HL 129; Dillwyn v Llewelyn [1862] EngR 908; (1862) 45 ER 1285; Plimmer v Mayor of Wellington (1884) LR 9 App Cas 699; Olsson v Dyson (1969) 120 CLR 365 at 378-379 per Kitto J.

[1105] [1999] VSCA 109; 1999 3 VR 712.

[1106] At [119].

[1107] [2005] NSWSC 867

[1108] Supra at [89].

[1109] Supra at [72].

[1110] [2001] VSC 509 at [72]-[75] per Ashley J.

[1111] [1976] Ch 179 at 198.

[1112] Supra at [74]; Wright v Commonwealth of Australia [2005] VSC 200.

[1113] [2004] VSCA 167; (2004) 50 ACSR 679.

[1114] Ibid at [39]-[44] per Buchanan JA, with whom Eames JA and Coldrey AJA agreed.

[1115] [2004] VSCA 163; (2004) 13 ANZ Ins Cas 61-626.

[1116] Supra at 106.

[1117] (1998) 81 FCR 475.

[1118] Ibid at 238.

[1119] Ibid at 239.

[1120] An application for special leave to appeal was refused by the High Court there being insufficient reason to doubt the correctness of the orders made by the Full Court.

[1121] [2004] NSWSC 748 at [169].

[1122] Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 at para [34], [38] per McHugh, Hayne and Callinan JJ.

[1123] Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 14-15 per Mason, Wilson and Dawson JJ; Marks v GIO Australia Holdings Ltd supra per Gaudron J at [12] and Gummow J at [110].

[1124] Supra at [48].

[1125] [2001] HCA 52; (2001) 206 CLR 459 at 502 at [132] (citations omitted).

[1126] Ibid, para [162].

[1127] Supra at 436, 442 per Deane J.

[1128] (1996) 131 FLR 241 at 289 per Santow J.

[1129] [1947] 1 KB 130 at 136 per Denning J.

[1130] [1964] 3 All ER 556 (Privy Council).

[1131] [1999] NSW SC 929 at [70]- [72] per Bergin J.

[1132] Supra at 203 per Bransen J, and at 208 per R D Nicholson J.

[1133] CB 1410-11.

[1134] Tyne T741, Hawkins T916, 929.

[1135] CB 1683.

[1136] 3263.

[1137] Sarkis v Deputy Commissioner of Taxation (2005) 59 ATR 33 at [37] per Nettle JA.

[1138] Henville v Walker (2001) 206 CLR 457; Sellars v Adelaide Petroleum [1994] HCA 4; (1994) 179 CLR 332.

Plaintiffs v Defendant

At a glance

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Before

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Judgment (459 paragraphs)

Parties

Legislation Cited (24)

Cases Cited (152)