Prepaid Services Pty Ltd & Ors v Atradius Credit Insurance NV

The decision of the primary judge 7In his judgment delivered on 7 June 2012 the primary judge (McDougall J) upheld Atradius' defences and dismissed the appellants' claim: Prepaid Services v Atradius [2012] NSWSC 608. 8It is convenient to refer at this point to the alleged misrepresentations and non-disclosures. The answers to the questions in the proposal said to give rise to the misrepresentations were summarised by the primary judge at [138] in the following terms: "Taking them in the order in which they appear in the form, the first is the answer that BXP "has traded 7-10 days from due date on occasion". The second is the statement that the difficulties in payment delays experienced were "in reducing payment terms from 28 days to 21 days". The third is the answer "no" to the question concerning, among other things, "a payment plan"." (emphasis added) It will be necessary to consider in more detail the circumstances in which these answers were given. However, it can be noted at the outset that the appellants admitted that the third answer was wrong. 9The primary judge held that the answers to the first and third questions were wrong and concluded that Mr McQuade was recklessly indifferent as to the truth of those answers. Therefore, those misrepresentations were fraudulent: [176], [178]. That entitled Atradius to avoid the policy under s 28(2) of the Insurance Contracts Act 1984 (Cth) (the Act), as it had purported to do on 30 September 2010: [270]. His Honour also held that the answer to the second question was wrong, but not fraudulent: [177]. 10Atradius' alternative case to avoidance for fraudulent misrepresentation was that it was entitled to reduce its liability to nil in reliance on s 28(3) of the Act. The primary judge only addressed that case in relation to the misrepresentation arising from the answer to the third question concerning the absence of payment plans. His Honour held that had Atradius known the true position (that there were three payment plans, one negotiated in November 2005, one made in mid to late 2006 and the third agreed in late February 2007) it would not have issued the policy when it did: [240]. He concluded that if the representation in relation to the payment plans was made but not fraudulent, Atradius was entitled to reduce its liability to nil: [270]. 11The four matters which it was alleged the appellants fraudulently or innocently failed to disclose were summarised by the primary judge at [3] in the following terms: "4 ... a. BXP was (and for at least two years before entry into the Policy) consistently unable to pay its debts when they fell due; b. BXP consistently failed to pay debts on time and frequently had overdue debts exceeding $5 million; c. BXP had a working capital hole that could not be fixed by more borrowings; d. the plaintiffs regarded the situation as "very serious" and "dicey"." 12His Honour held that the first two of these matters were not disclosed: [179]. Although he did not make findings in such terms, it is common ground that the effect of his findings at [187], [189], [191], [205]-[209] is that these two matters were known or ought to have been known to Atradius in the ordinary course of its business, and accordingly, by s 21(2)(c) of the Act, were not required to be disclosed. As to the third and fourth of these matters, his Honour held that they were not required to be disclosed because they were opinions formed by the appellants based on underlying material (specifically, financial records of BXP) which was known or available to Atradius: [180], [181]. The primary judge also queried whether the fourth matter (concerning the opinion that the situation was "very serious" and "dicey") was required to be disclosed under s 21(1) of the Act. He did not decide that question: [181]. 13Finally, the primary judge upheld Atradius' defence to the separate claim made by Optus Mobile. He held that by the closing words of Item 6 the dealings between Optus Mobile and BXP which were insured were those which required that payment be made on or before 30 days from the date of invoice. The contractual dealings between Optus Mobile and BXP were not on those terms and accordingly were not insured: [85]-[86]. The primary judge also rejected Optus Mobile's argument that s 54 of the Act prevented Atradius from refusing to pay its claim by reason of its act in contracting on terms outside that description: [92]. 14In summary, the primary judge concluded: (1)That Atradius was entitled to avoid the policy under s 28(2) for fraudulent misrepresentations made by the answers to the first and third questions. (2)That, if those representations were not fraudulent, Atradius was nevertheless entitled to reduce its liability to nil under s 28(3) by reason of the misrepresentation made by the answer to the third question. (3)That there was no breach of any duty of disclosure in relation to the four matters relied upon because each of those matters was known or ought to have been known to Atradius. Accordingly, by s 21(2)(c), none of those matters was required to be disclosed. (4)That Optus Mobile was not entitled to an indemnity because the obligations in respect of which BXP defaulted were not obligations arising under the supply contract insured under the policy. Section 54 did not prevent Atradius from refusing to indemnify on that basis.

The issues in the appeal 15The issues raised by the notice of appeal and Atradius' notice of contention are: (1)Whether the primary judge erred in holding that the misrepresentations made by the answers to the first and third questions were fraudulent. There is a subsidiary issue as to whether the primary judge gave adequate reasons for that conclusion (grounds of appeal 1 and 2). (2)Whether, if those misrepresentations were not fraudulent - (a)the primary judge erred in concluding that by reason of the misrepresentation made by the answer to the third question Atradius was entitled under s 28(3) to reduce its liability to nil and whether, if the primary judge did not so conclude, he should have done on the basis of Mr Magee's evidence as to what might have happened if there had been no misrepresentation about the payment plans (ground of appeal 5 and contention 3); (b)the answers to the first and second questions were "obviously incomplete" within the meaning of s 27 of the Act with the result that they could not give rise to misrepresentations (ground of appeal 4); (c)the primary judge should have concluded that by reason of misrepresentations made by the answers to the three questions, Atradius was entitled under s 28(3) to reduce its liability to nil (contention 2). (3)Whether the primary judge should have held that the appellants fraudulently or otherwise did not disclose the third and fourth of the matters relied upon (that BXP had a "working capital hole" and that the situation was "very serious" and "dicey") and whether the primary judge erred in holding that those matters were or ought to have been known to Atradius within s 21(2)(c) of the Act (contention 1). (4)Whether the primary judge erred in concluding that payment defaults by BXP were not insured because they did not occur under a supply contract which required payment on or within 30 days from date of invoice; and whether the primary judge erred in holding that s 54 was not available to relieve against any act or omission of Optus Mobile in supplying under a contract which did not answer that description (grounds of appeal 6 and 7). 16It is convenient to address these issues in the order in which they appear above. It is not necessary to address ground of appeal 3 because Atradius accepts that the primary judge's findings (at [187], [189], [191] and [205]-[209]) are to be read as being that it knew of the first two matters said not to have been disclosed (see [11] above) and, for that reason, that the appellant had no duty to disclose those matters because of s 21(2)(c) of the Act.

Did the primary judge err in holding that two of the misrepresentations were fraudulent? (grounds of appeal 1 and 2)

The relevant facts 17The sequence of events leading to the submission of the signed proposal by the broker to Atradius on 22 August 2007 is not controversial. It is recorded by the primary judge at [128]-[136]. The broker, Mr Anderson, prepared and sent a draft proposal to Mr McQuade on 5 July 2007. That draft contained answers to the first three questions in the proposal which appeared under the heading "Your experience with the buyer", a reference to BXP. On 21 August 2007 Mr McQuade met with Mr Anderson, who provided him with a revised draft proposal containing the same answers to those three questions. Mr McQuade made handwritten changes on that revised draft and gave it to Mr Anderson. 18The primary judge set out at [133] the form of that draft with Mr McQuade's handwritten changes, which are identified by underlining. The form of [133] set out below includes additional underlining to take account of handwritten changes which had been made by Mr McQuade but which were not accurately identified in that paragraph of the judgment below. It also includes, in bold, numbers which identify the first three questions and answers. That numbering does not appear in the draft proposal. 19 "[133] I set out section 3 of the revised proposal form. The material that is underlined was written on the proposal form by Mr McQuade at the meeting of 21 August 2007: 3. Your experience with the buyer (1) What is your previous experience with this buyer, including total sales, highest outstanding balances, credit terms, due dates of cleared funds? Highest outstanding balance = $27M (PPs) $5m (Virgin) $6M (Optus) (Approx) Credit Terms now 21 days with weekly settlement Customers has not been 7 days from due date VMA Terms, Optus terms (2) Have you ever experienced any difficulties in certification procedures or payment delays in dealings with this buyer? If so, please provide details. No, up to 7-10 days on occasion (3) Have you ever extended or rescheduled a due date or changed the terms of payment after shipment to this buyer, or put this buyer on a payment plan? If so, please provide details. No Yes, in bringing terms from 28-21 days Do you sell to any related companies which are related to the buyer? If so, which ones? No Do you have other exposures to this buyer which are separate from the contract to be insured? If so, for what amount? If these other exposures are insured or otherwise secured, please provide details. No Have you ever purchased credit insurance before on this buyer? If so, please name the insurance provided and state whether any claims were made. No" 20At the time of this meeting on 21 August 2007, Mr McQuade was seeking to have the credit insurance commence from 1 August 2007. On 22 August Mr Anderson sent an electronic copy of a further draft of the proposal to Mr McQuade, updated to reflect what had been discussed with him. Mr McQuade read that draft and made a number of further changes to it. At the trial those changes were subjected to close analysis. The primary judge concluded in relation to them: "[134] It seems to be common ground that, in all, he [Mr McQuade] made 83 changes. Many of those changes related to parts of the form other than section 3; but he made 11 changes in all to section 3. Most of the changes generally, and all but one in relation to section 3, were what Mr McQuade described as "formatting". Specifically, he converted the answers to each question to italics, so that they could be distinguished from the question. The only change of substance was to insert the words "seven days Virgin" in relation to Credit Terms." 21The version of section 3 as formatted and checked by Mr McQuade is set out by the primary judge at [135]. I have underlined, in the version of the paragraph extracted below, the only change of substance made by Mr McQuade. I have also numbered in bold the three critical questions. "[135] As corrected (or formatted) by Mr McQuade, section 3 read as follows: 3. Your experience with the buyer (1) What is your previous experience with this buyer, including total sales, highest outstanding balances, credit terms, due dates, and dates of cleared funds? Highest outstanding balance = $27M Prepaid, $5M Virgin, $6M Optus Approx Credit Terms 21 days with weekly settlement for Prepaid and Optus, 7 days Virgin Customers has traded 7-10 days from due date on occasion (2) Have you experienced any difficulties in certification procedures or payment delays in dealing with this buyer? If so, please provide details. Yes - in reducing payment terms from 28 days to 21 days (3) Have you ever extended or rescheduled a due date or changed the terms of payment after shipment to this buyer, or put this buyer on a payment plan? If so, please provide details. No Do you have other exposures to this buyer which are separate from the contract to be insured? If so, for what amount? If these other exposures are insured or otherwise secured, please provide details. No Have you ever purchased credit insurance before on this buyer? If so, please name the insurance provider and state whether any claims were made. No" 22After making those changes Mr McQuade printed out the revised proposal, signed it and returned it to Mr Anderson. 23What can immediately be observed is that in taking account of Mr McQuade's handwritten changes Mr Anderson did the following. In the answer to question 1 he deleted the words "Customers has not been 7 days from due date" and inserted "Customers has traded 7-10 days from due date on occasion", using the handwritten answer which Mr McQuade had included as his revised answer to question 2. In the answer to question 2 Mr Anderson deleted the draft answer and inserted Mr McQuade's handwritten answer given to question 3. Finally, in the answer to question 3 Mr Anderson left it as "No" and did not incorporate Mr McQuade's handwritten answer which would have commenced "Yes". Thus, the handwritten answers proposed by Mr McQuade were transposed. The most significant consequence of this was that a negative answer was given to question 3 instead of an affirmative answer with the additional words as proposed. 24It is convenient to note three further matters at this point. The evidence demonstrated that at least in the period from August 2006 to August 2007 Mr McQuade, as commercial manager, had direct and regular involvement in the management of the BXP account. Email communications to which he was a party indicated that during this period there were regular meetings of executives within PPS, as well as between those executives and officers of BXP, concerning the management of BXP's account and its financial position. 25Secondly, expert evidence was led of an analysis of BXP's payment history with PPS in the period from 29 June 2006 to 24 August 2007. The primary judge set out a summary of the uncontested results of that analysis at [147]: "(1) on average, BXP paid 8.5 days late. (2) of some 626 invoices listed, about 70% were paid late. (3) about one-third of those late invoices were 11 or more days late. (4) of the invoices that fell within the 1 to 10 day range, most were paid 10 days late. (5) 55% of all the invoices examined were paid 10 or more days late." 26Finally, the evidence also established that on three occasions between 2005 and 2007 PPS had negotiated a "payment plan" with BXP. The primary judge's findings as to the detail of those plans at [154]-[158] are not contested. The first was negotiated in November 2005, the second was made in mid to late 2006 and the third was proposed in February 2007. The primary judge concluded at [158]: "Thus, there were three "payment plans". One - the last - was complied with. One was not. One - the first - was not, at least to the letter; but I think it is fair to say that there was substantial compliance."

The primary judge's reasoning 27By its defence Atradius pleaded that the appellants had, by the answers to questions 1 and 3 in the proposal, misrepresented that BXP "had traded 7-10 days from the due date on occasion" and that they "had not extended, rescheduled the due date, changed the terms of payment after shipment of e-vouchers to BXP or ever put BXP on a payment plan". Each misrepresentation was alleged to have been made deliberately by Mr McQuade either "knowing it to be untrue or without belief in its truth" or "recklessly, by not caring whether it was true or false", and with the intention that it should be acted on. By their reply the appellants denied that the answer to question 1 was false, admitted that the answer to question 3 was false and denied that either was fraudulent. 28The primary judge dealt with the issue as to whether there were fraudulent misrepresentations as follows. He first addressed the answers given to the three questions. The statement "customers has traded 7-10 days from due date on occasion" was responsive to the first question but incorrect. The evidence established that there were many occasions on which BXP had traded more than 7-10 days late and very few on which it had not: [146]. The answer to the second question was ambiguous, and certainly incorrect if it was understood as saying that there had ever been 28 day payment terms: [151]. The answer to the third question was, and was acknowledged to be, incorrect: [152]. 29The primary judge then considered Mr McQuade's evidence as to the circumstances in which his handwritten changes had been wrongly transposed in the final answers to the relevant questions. He accepted Mr McQuade's evidence that he had intended to respond to the second and third questions in accordance with his handwritten changes: [160], [161]. That finding is to be understood as being with respect to Mr McQuade's intention at the time the proposal was completed and signed. 30In considering whether Mr McQuade knowingly gave false answers, the primary judge made three observations as to Mr McQuade's conduct in completing and checking the answers in the proposal. The first was that it was "very difficult to understand" how Mr McQuade could have failed to notice the transposition errors when checking and signing the final version of the proposal, even if he was only addressing that version for typos, spelling mistakes and "formatting": [162]. The second was that it was "difficult to accept" that Mr McQuade could have thought it proper to check the format, but not the substance, of the final proposal, given that he was aware that Mr Anderson's earlier draft answers had been inadequate: [166]. The third was that no one with Mr McQuade's knowledge of BXP's trading history could have thought it "proper" to describe the habit of late payment as being "on occasion" so as to convey that payment "7-10 days from the due date" was the exception rather than the rule: [165]. This last observation, unlike the earlier ones, is directed to an answer which was based upon one of Mr McQuade's handwritten answers that, on the respondent's case, was and would have remained, incorrect irrespective of whether the subsequent transposition of answers had occurred. 31Notwithstanding these observations, the primary judge concluded at [167] in relation to the allegations of knowing misrepresentation: "[167] I do not find that Mr McQuade signed the proposal form knowing it to be false in any respect, or that he did so intending thereby to mislead and deceive Atradius." There was debate before this Court as to how his Honour's earlier observation at [165] was to be treated in the light of this conclusion, which is that he was not satisfied that Mr McQuade knowingly gave false answers. It is not a finding that Mr McQuade had an honest belief as to the truth of those answers. 32His Honour then considered what in his view followed from that conclusion, namely that if Mr McQuade "did not sign the document knowing that it was wrong", he "signed it without checking it carefully": [169]. Addressing the respondent's alternative case, his Honour formulated the "real question" as being: "[170] ... whether Mr McQuade was reckless in the way that he checked, printed and signed the proposal form." 33That formulation does not in terms direct attention to Mr McQuade's state of mind or as to whether Mr McQuade was "reckless" in his earlier drafting of the handwritten answers included in the completed proposal. However, his Honour's consideration of this question does extend, in one respect, to that earlier conduct. 34The primary judge concluded that the "proposal form was wrong, and recklessly so" and gave five reasons for doing so: [176]. Those reasons are considered in more detail below. His Honour then restated his conclusion as being that the misrepresentations arising from the first and third answers were made "in each case with reckless indifference to its truth or otherwise, and thus fraudulent": [178]. Although his Honour was not required to address the second answer he did so and did not make the same finding. He considered that it was ambiguous, and as such could not properly be characterised as one made with "reckless indifference to its truth": [177]. This reason for treating that misrepresentation differently, because of its ambiguity, assumes that Mr McQuade could have had an honest belief in its truth in one of the senses in which it was able to be understood. Such an assumption would not be consistent with Mr McQuade's state of mind being that he did not care, and was indifferent to, whether the answers generally were true, and irrespective of how they were to be understood.

The argument 35The appellants submit that the primary judge misdirected himself as to what was necessary to justify a finding of fraud based upon reckless indifference. He had to be satisfied that Mr McQuade had no honest belief in the truth of the answers as he intended and believed that they would be given and understood. It was not enough that he was shown to have acted carelessly, or even in a grossly negligent manner. At the time he completed and returned the proposal his state of mind had to be shown to have been one of conscious indifference as to the truth or falsity of the relevant statements made by it. Although the primary judge's conclusion is expressed in terms of reckless indifference to truth, his Honour did not address whether Mr McQuade was consciously indifferent to the truth of the relevant answers. Nor did he make any finding as to Mr McQuade not having any honest belief in their truth. 36The respondent submits that the primary judge did not misstate or misapply the relevant test. Fraud consisting of reckless indifference to truth was pleaded. As the primary judge's conclusions (at [177], [178]) make clear, he addressed whether Mr McQuade was recklessly indifferent to the truth or otherwise of the two answers. He was not required to be satisfied that Mr McQuade knew that there was a substantial prospect that those answers were false. Any reliance by the appellants on the decision of the Full Court of the Federal Court in LED Technologies Pty Ltd v Roadvision Pty Ltd [2012] FCAFC 3; 199 FCR 204 at [54] to suggest otherwise was misplaced. The conclusion that Mr McQuade was recklessly indifferent as to the truth of the answers was, or necessarily involved, a finding as to the absence of an honest belief in their truth. 37In addition to submitting that the primary judge had not addressed whether Mr McQuade was consciously indifferent to the truth of the answers, the appellants submitted that such a finding was not open. This was said to be so because although a case of reckless indifference was clearly pleaded, it was not directly put to Mr McQuade in cross-examination. For that reason it was said this Court must, in the exercise of its powers under s 75A(6) and (10) of the Supreme Court Act 1970, dismiss the respondent's claim that it was entitled to avoid the insurance for fraudulent misrepresentation. In response, Atradius contends that if this Court holds that the primary judge misapplied the law on the question of reckless indifference but finds that such a case was sufficiently put to Mr McQuade, the appropriate order would be to remit that issue for a new trial before a judge other than the primary judge.

Discussion 38The principles as to what must be proved to establish fraud were stated by Lord Herschell in Derry v Peek (1889) 14 App Cas 337 at 374 in the following terms: "... [F]raud is proved when it is shewn that a false representation is being made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief." 39For fraudulent misrepresentation to be made out it must be established that the representor had no honest belief in the truth of the representation in the sense in which the representor intended it to be understood: John McGrath Motors (Canberra) Pty Ltd v Applebee [1964] HCA 1; 110 CLR 656 at 659-660 (Kitto, Taylor and Owen JJ); Krakowski v Eurolynx Properties Ltd [1995] HCA 68; 183 CLR 563 at 578-579 (Brennan, Deane, Gaudron and McHugh JJ). In Forrest v Australian Securities and Investments Commission [2012] HCA 39; 86 ALJR 1183 at [22] (French CJ, Gummow, Hayne and Kiefel JJ) it was emphasised that a false statement "made through carelessness and without reasonable grounds for believing it to be true, may be evidence of fraud but does not necessarily amount to fraud". 40As Lord Herschell observed at 374, the formulation in Derry v Peek covers the whole ground because someone who knowingly represents what is false obviously has no honest belief, and someone who is indifferent to whether a representation is true or false can have no honest belief as to its truth. Being reckless or indifferent as to the truth of something describes a state of mind or consciousness: Angus v Clifford [1891] 2 Ch 449 at 471 (Bowen LJ); Le Lievre v Gould [1893] 1 QB 491 at 500-501 (Bowen LJ); Banditt v The Queen [2005] HCA 80; 224 CLR 262 at [2] (Gummow, Hayne and Heydon JJ); Fidock v Legal Profession Complaints Committee [2013] WASCA 108 at [93]-[97] (Martin CJ, Newnes and Murphy JJA). The fact of that indifference is the basis for the conclusion as to the absence of any real belief, which is a finding as to the relevant person's state of mind: Banditt v The Queen at [2]. 41The correctness and applicability of these statements of principle is not, and could not be, contradicted by the decision of the Full Court of the Federal Court in LED Technologies v Roadvision Pty Ltd. The issue in that appeal was whether the respondent, in acquiring LED lamps from a manufacturer who had also manufactured lamps for the appellant, had knowingly induced or procured a breach of contract by that manufacturer. That question turned on whether the respondent knew that the manufacturer had used pre-existing moulds (previously used to manufacture lamps for the appellant) to make moulds for it. The trial judge held that the respondent did not have knowledge which would justify that conclusion. Besanko J (Mansfield and Flick JJ agreeing) said at [54] that such knowledge might be established "if the facts show affirmatively that the alleged tortfeasor, faced with knowledge of at least a substantial prospect of a breach, proceeded not caring whether or not a breach would occur". In a claim for knowing inducement of a breach of contract, it was necessary to establish knowledge of a substantial prospect of breach in order to justify the inference of intentional interference which was said to arise. It does not follow from that reference to the need to establish such knowledge in that context that it was also necessary in this case for the respondent to establish knowledge on the part of Mr McQuade of a substantial prospect that the answers were not true in order to establish reckless indifference. The appellants do not rely upon this decision for that proposition, or as contradicting or qualifying any of the principles referred to earlier. 42The misrepresentations made by the first and third answers were that BXP had only traded 7 to 10 days beyond its trading terms "on occasion" and that it had never been put on a payment plan. Those statements were included in the answers to those questions because Mr Anderson had transposed Mr McQuade's handwritten answers in the draft version of the proposal produced on 22 August 2007. Had the first and third questions been answered as intended by Mr McQuade, the misrepresentation relied upon as arising from the answer to the third question would not have been made in the terms alleged because of the answer "Yes" in relation to payment plans. However, there would have continued to be a misrepresentation as to "payment delays" of up to "7-10 days on occasion", which would have been in answer to question 2 rather than question 1. 43Mr McQuade's evidence was that, at the time that handwritten answer was given, he believed that "over the preceding 18 months BXP had paid on time on occasion and had paid late on occasion" (affidavit 22/12/10, para 60(b); Blue 4/1826-1827). In cross-examination he said that his handwritten answers on the proposal form represented his "understanding" at the relevant time based on his having been looking at BXP's account for some 18 months (Tcpt 5/3/12; Black 371, 372). 44In cross-examination Mr McQuade agreed that he had not taken steps to confirm that his "general feeling" was correct (Tcpt 5/3/12; Black 373). In relation to his not noticing the transposition of the answers, the primary judge accepted his evidence that he had little or no recollection of reading and checking the version of the proposal received from Mr Anderson on 22 August 2007: [169]. Mr McQuade agreed that he could not have done so carefully (Tcpt 5/3/12; Black 374). It was put to him that the probability was that he had not read the relevant questions and answers at all. Consistent with his earlier answer, Mr McQuade did not deny that possibility and responded that he "certainly didn't give them enough care" (Tcpt 5/3/12; Black 375). 45Mr McQuade rejected the suggestion that he did not take his role in signing and certifying the answers in the proposal "particularly seriously" (Tcpt 5/3/12; Black 377). He maintained that the explanation for his failure to pick up the transposition error was that he was not "careful enough at this point" (Tcpt 5/3/12; Black 378). The cross-examiner then put to him that there was "another explanation" for what he had done, namely that he had deliberately signed the form "knowing that it contained inaccurate and indeed false answers". Mr McQuade denied that that was the position (Tcpt 5/3/12; Black 378). The primary judge accepted that denial: [167]. 46The cross-examiner did not suggest that there was any further explanation for Mr McQuade's failures to check BXP's payment history before giving the "7-10 days on occasion" answer and to notice the transposition errors when checking the final version of the proposal. The relevant further explanation would have been that those failures could not be explained by mere, or even gross, carelessness but rather reflected the fact that he did not care, before and at the time that he signed the proposal, whether the answers in it were correct or not. 47Although the primary judge's ultimate conclusion is expressed in terms of "reckless indifference" to the truth of the relevant answers, his Honour does not in his reasons justifying that conclusion identify as being a necessary part of the relevant inquiry whether Mr McQuade was indifferent to the truth of the answers in the proposal. Nor does his Honour make any separate finding that this was or must have been Mr McQuade's state of mind at the relevant time. 48At [170] the relevant question is described in terms of whether Mr McQuade was "reckless in the way that he checked, printed and signed the proposal form". Five reasons are then identified as justifying the conclusion that he was. The first three of those reasons identify matters by reference to which it may be concluded that Mr McQuade's conduct, measured objectively, was careless in significant respects. Mr Anderson had, in the past, generated documents which were incorrect. Mr McQuade's usual procedure was to check a document such as the proposal carefully before signing it, and the document was an important one requiring that its substance, as well as its form, be attended to: [171]-[173]. 49The fourth reason is not directed to the manner in which Mr McQuade checked, printed and signed the proposal. It is directed to his failure "to make proper checks as to BXP's payment history" in circumstances where BXP was regarded as an "unsatisfactory customer" and the risk of default on its part was the reason for taking out the credit insurance. In that context "to answer a question as to payment history without undertaking, or causing to be undertaken, detailed investigations" is described as "an entirely inadequate and hence entirely inappropriate course to follow": [174]. The reference to those inquiries being "inadequate" is more consistent with a conclusion that they were not sufficient when measured objectively against the circumstances. It is less clear what "inappropriate" is intended to convey in this context. It certainly emphasises that the investigations were not sufficient or well-adapted to the circumstances. It does not, however, constitute a finding of indifference as to the truth of the answers. The fifth reason identified is that Mr McQuade's knowledge that his superiors within the SingTel Optus Group were keen to have the credit insurance placed "may have contributed to an excessive laxness in checking the draft": [175]. The reference to excessive laxness is not a finding of reckless indifference and assuming Mr McQuade appreciated the consequence of giving incorrect answers, such indifference would not have been consistent with a desire to place effective credit insurance. 50The primary judge made findings which were relevant to Mr McQuade's state of mind. He accepted Mr McQuade's evidence that he intended to answer the questions other than as they finally appeared: [161]. That finding was, at least in relation to the payment plan answer given to question 3, consistent with his having an honest belief in its truth. The primary judge also found that Mr McQuade had given the handwritten answer as to BXP's payment history "from his memory of recent trading experience": [164]. That finding involved the acceptance of Mr McQuade's evidence in cross-examination (Tcpt 5/3/12; Black 371, 372) and was consistent with his having some basis for a belief as to the truth of that answer. Finally, the primary judge was not satisfied that Mr McQuade signed the proposal knowing that it was false in any respect: [167], [169]. It follows from that finding that his Honour was not satisfied that Mr McQuade had at the time he gave the handwritten answers, and when he completed and signed the proposal, a complete or accurate memory of BXP's trading history. If Mr McQuade had such a memory, his Honour would have concluded, consistently with his observation at [165], and contrary to his conclusion at [167], that Mr McQuade must have appreciated that, by conveying the impression that late payment had only occurred "on occasion", the payment history answer was false. 51In the end, three matters lead me to conclude that his Honour has erred in failing to address whether Mr McQuade was consciously indifferent to the truth of the relevant answers. The first is that the formulation of the relevant question, and the five reasons given in support of the conclusion, are concerned with an objective assessment of Mr McQuade's conduct as careless, excessively lax and, indeed, reckless. In accordance with the statement in Forrest referred to above, those objective considerations are evidence of Mr McQuade not caring that the answers may not be true, but are not determinative of that question. The primary judge gave no consideration in his reasons to the ultimate question, which was whether Mr McQuade was consciously indifferent to the truth of the answers given. The second is that in addressing that question it would have been necessary for the primary judge to consider his earlier findings as to Mr McQuade's intention and state of mind in participating in the completion of the proposal form. Two of those findings are consistent with Mr McQuade caring that the answers were correct. There is one further matter. His Honour's different treatment of the misrepresentation arising from the second answer, because of its ambiguity, acknowledges that Mr McQuade could have had an honest belief as to its truth. That being the position is not consistent with his Honour having addressed and made a general finding of reckless indifference in relation to the completion of the proposal. 52It follows in my opinion that the primary judge's conclusion as to there having been fraudulent misrepresentation must be set aside. In different circumstances that would require that there be an order for a new trial in relation to that question because there otherwise would be a substantial miscarriage of justice (Uniform Civil Procedure Rules 2005, r 51.53). The determination of that question would depend to a significant extent upon an assessment of the credibility of Mr McQuade. For that reason it would not have been open to this Court to decide the question for itself: Fox v Percy [2003] HCA 22; 214 CLR 118 at [23]; Waterways Authority v Fitzgibbon [2005] HCA 57; 79 ALJR 1816 at [133] (Hayne J); Hare v Harmer [2009] NSWCA 68 at [47] (Sackville AJA, Macfarlan JA and Handley AJA agreeing). See also Alchin v Daley [2009] NSWCA 418; Hall v van der Poel [2009] NSWCA 436; New South Wales v Hathaway [2010] NSWCA 184. 53However, the appellants contend that the primary judge's conclusion was not reasonably open because it had not directly been put to Mr McQuade that he was indifferent to the truth or otherwise of the relevant answers. Accordingly they submit that there was only one answer to the question which would otherwise have been remitted. The appellants rely upon the application of the rule of practice and conduct articulated by Lord Herschell in Browne v Dunn (1893) 6 R 67 (HL). 54That rule ordinarily requires that if a party contends that a particular characterisation should be placed on a witness' conduct, the witness should be given the opportunity to deal with that contention: Browne v Dunn at 70-71; Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219 at 224-229 (Glass JA, Reynolds JA agreeing); Bale v Mills [2011] NSWCA 226; 81 NSWLR 498 at [42]-[48] (Allsop P, Giles JA and Tobias AJA). In relation to the making and pressing of allegations of fraud, the position was stated succinctly by McHugh, Kirby and Callinan JJ in Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (In Liq) [2003] HCA 25; 214 CLR 514 at [38] with respect to whether a finding of fraudulent non-disclosure was open. It was said that "[a]n allegation of fraud should be clearly and distinctly pleaded and put. This one was not." Although it is not necessary to give a witness the opportunity to deal with an allegation that particular conduct was fraudulent if the position is "so manifest that it is not necessary to waste time in putting questions upon it", that is not this case: Seymour at 225 (Glass JA). 55Here, the respondent's alternative case in fraud was that the representations were made "recklessly, by not caring whether [they were] true or false". In response to that pleaded case, Mr McQuade's evidence was that he had intended to answer the questions in accordance with his handwritten answers and that those answers were based upon his understanding at the relevant time. In cross-examination he accepted that he must not have read the proposal carefully but denied that he had not taken his signing and certifying role particularly seriously. He maintained that he was not "careful enough". It was directly put to him that "another explanation" for his conduct was that he was dishonest and that he had signed the proposal knowing that it contained false answers. Mr McQuade denied that characterisation of his conduct. The cross-examiner did not put as a further possible explanation the alternative case as pleaded, namely that Mr McQuade did not care whether the answers were true or not. That proposition should have been put so as to give Mr McQuade the opportunity to deal with it, especially in the light of his other evidence as to his state of mind. In the absence of that occurring it was not open to the primary judge to make a finding of fraud based upon conscious indifference: Permanent Trustee at [38]; Kuhl v Zurich Financial Services [2011] HCA 11; 243 CLR 361 at [71]-[72] (Heydon, Crennan and Bell JJ). 56In these circumstances the respondent's claim that it was entitled to avoid the contract of insurance under s 28(2) for fraudulent misrepresentation should be dismissed. This conclusion makes it unnecessary to address ground of appeal 2 (inadequate reasons), which is only pressed in the event that ground 1 is rejected.

Did the primary judge err in holding that Atradius was entitled to reduce its liability to nil? (grounds of appeal 4 and 5 and contentions 2 and 3)

The primary judge's findings 57The primary judge held that misrepresentations were made by the answers to each of questions 1 and 2: esp at [146], [150], [151]. It was not in issue that the answer to question 3 was a misrepresentation. The primary judge also held that Atradius would not have acted any differently if the misrepresentations arising from the first and second questions had not been made because it knew what the true position was in relation to the subject matter of each of those representations. That is the effect of his Honour's findings at [187]-[189] and [205]-[208]. None of those findings is challenged on appeal. Atradius had access to and had analysed BXP's management accounts as at April 2007. Those accounts showed that it was trading well over 7 to 10 days late and that the extent of payment delays was highly unlikely to have been happening merely "on occasion": [187]. On that basis, his Honour held that Atradius "was well aware of the true state of affairs in relation to the [sic] BXP's payment history": [205]. The primary judge also held that Atradius had information which showed that the contractual payment terms for PPS were 21 days, not 28 days, so that the answer to the second question could not have been interpreted or relied upon as referring to reducing the contractual terms of payments from 28 to 21 days: [189]. In the light of these findings it was only necessary for his Honour to address the operation of s 28(3) with respect to the misrepresentation made by the answer to the third question: [209], [240].

The argument 58Notwithstanding these unchallenged findings, by its contention 2 Atradius puts two arguments. First, it says that s 21(2)(c) of the Act had no application to the three pleaded misrepresentations and that the primary judge's observation at [191] to the contrary is wrong. The appellants concede the correctness of that proposition. They submit, however, that the effect of the primary judge's findings referred to above in relation to the answers to the first and second questions remains that Atradius was not entitled to a remedy under s 28(3) with respect to those misrepresentations because it was aware of the true position in relation to each of them. The respondent does not seriously contest this submission and it should be accepted. 59The second argument which Atradius puts by contention 2 is that the question whether it was entitled to reduce its liability under s 28(3) should have been addressed on the basis that it had known the true position in relation to the three misrepresentations considered together. It is suggested that the primary judge's findings in relation to the third misrepresentation "can be further supported" when the first two misrepresentations are also taken into account. No submissions are made as to why that is. The primary judge found that the true position in relation to the first two representations was known to Atradius. He then considered what might have happened if it had known the true position in relation to the third misrepresentation. He did not err in proceeding on that basis. 60This conclusion means that it is unnecessary to deal with ground of appeal 4, which concerns the application of s 27 of the Act in relation to the answers to the first two questions. The appellants argue that no misrepresentations were made by those answers because they were "obviously incomplete". 61I will nevertheless deal with that argument and then address the question whether the primary judge erred in concluding that Atradius was entitled, on the basis of the misrepresentation made by the third answer, to reduce its liability to nil.

The application of s 27 62Sections 21(3) and 27 of the Act provide: "21(3) Where a person: (a) failed to answer; or (b) gave an obviously incomplete or irrelevant answer to; a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter." "27 A person shall not be taken to have made a misrepresentation by reason only that the person failed to answer a question included in a proposal form or gave an obviously incomplete or irrelevant answer to such a question." 63The appellants argue that parts of the answers to the first and second questions were "obviously incomplete" because officers of Atradius (specifically Mr Choo and members of the local credit committee whose role is described in [73] below) were aware of facts that showed those answers to give a less than full and accurate account of the subject matter to which they were directed. For that reason it was said that they were plainly incomplete. 64This argument misunderstands the scope and operation of s 27. It also wrongly proceeds upon the basis that whether an answer is "obviously incomplete", as that expression is used in this context, is to be determined taking into account the knowledge of the insurer to whom the answer is directed. 65Under the common law the meaning conveyed by the answer to a question in a proposal, and whether that answer is incomplete, is determined objectively by reference to its "fair and reasonable" construction. The question and answer must be considered together to ascertain the effect of the answer given or statement made; the question by reference to what a reasonable proponent would fairly have understood it to mean and the answer by reference to what that reasonable person would fairly have understood it to convey to the insurer: Condogianis v Guardian Assurance Co Ltd (1921) 29 CLR 341 at 344-345 (Privy Council); Saunders v Queensland Insurance Co Ltd [1931] HCA 42; 45 CLR 557 at 566-567; Deaves v CML Fire and General Insurance Co Ltd [1979] HCA 12; 143 CLR 24 at 46-47, 61, 69. 66Applying those principles, an incomplete or partial answer to a question in a proposal could be construed as a negative answer to the relevant question if that was the obvious or irresistible inference which arose in the context: London Assurance v Mansel (1879) 11 Ch D 363 at 370 (Jessell MR); Roberts v Avon Insurance Co Ltd [1956] 2 Lloyd's Rep 240 at 249 (Barry J). In that event the incomplete or partial answer would result in the making of a representation or statement in the terms of the inferred negative answer. The proposal or contract might also contain a provision to the effect that any failure to answer a question or part of a question is to be taken to be an answer in the negative: see, for example, the proposals in Saunders at 559; and Deaves at 46. 67In the absence of an inferred negative answer and absent the operation of any such contractual provision, the issue of a policy without further inquiry in the face of an unanswered or incompletely answered question could constitute a waiver by the insurer of "the want or imperfection in the answer": Saunders at 563; Phoenix Life Insurance Co v Raddin 120 US 183 (1887); Roberts v Avon Insurance Co at 249; cf Claude R Ogden and Co Pty Ltd v Reliance Fire Sprinklers Co Pty Ltd [1973] 2 NSWLR 7 at 27 (Macfarlan J), which was taken by the Law Reform Commission in its Report No 20 Insurance Contracts (1982) at para 164 to suggest that "rarely, if ever, will the insurer be taken to have waived disclosure by not making further inquiry in relation to the want of, or imperfection in, an answer to a question in a proposal form." 68That suggestion and these principles and authorities are discussed in Report No 20 at paras 162-165 and 184. The respects in which these principles were considered to be unsatisfactory in their application and to require reform were identified in paragraph 184 of that Report and cll 82-84 of the Explanatory Memorandum to the Insurance Contracts Bill 1983. There were two particular matters to which the draft clauses of that Bill, which were in the same terms as ss 21(3) and 27, were directed. The first was contractual terms and stipulations which had the effect that a failure to answer a question was deemed to be an answer in the negative. They were said to lead to "uncertainty and confusion particularly in relation to questions which are not obviously susceptible of a negative answer". The second was that if the insurer had failed to pursue "unanswered or obviously incompletely answered questions contained in a proposal form" it should bear the onus of making further inquiries and for that reason should be deemed to have waived the duty of disclosure in the absence of such inquiries. 69Section 27 describes a circumstance in which a person is to be taken not to have made a "misrepresentation". In this context a misrepresentation is the making of a statement which is untrue: see s 26(1). The critical words in s 27 are the words "by reason only". They make clear that the provision is directed to misrepresentations which arise solely because there has been either a failure to answer or an obviously incomplete or irrelevant answer given. Such misrepresentations would include those made by a negative answer which is inferred only from the fact of the incomplete or partial answer as well as those which result from a contractual term having that effect. Understood in this way s 27 can have no application to the misrepresentations relied upon by the respondent. Those misrepresentations are said to arise from parts of the answers given to the first and second questions. Neither is said to arise solely from the fact that those answers were obviously incomplete or irrelevant. For this reason the appellants' argument must be rejected. It also must be rejected because it depends upon the relevant answers being "obviously incomplete" other than as a result of their construction in accordance with the principles referred to above. The operation of those principles in determining whether a misrepresentation has been made may have been modified by ss 23 and 26. It has not, however, been modified for the purpose of applying s 27.

The application of s 28(3) 70Section 28(3) of the Act provides: "28(3) If the insurer is not entitled to avoid the contract ... the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made. 71This provision requires an inquiry as to the position the insurer would have been in if the relevant misrepresentation had not been made. It is the same as would be made if the insurer was claiming damages for misrepresentation in the amount by which it seeks to have the insured's claim reduced. Accordingly, it must establish on the balance of probabilities what it says its position would have been if the misrepresentation had not occurred. That is so notwithstanding that the hypothesis upon which the reduction of liability is based is not an historical fact. By its defence Atradius claimed it was entitled to reduce its liability to nil because it would not have entered into any policy which would have covered all or part of the appellants' claim. Accordingly, it was necessary for the primary judge to determine whether Atradius had established on the balance of probabilities that it would not have issued a policy to the appellants which would have provided any insurance of the BXP defaults. 72Before considering how the primary judge addressed that question, it is necessary to say something about the structure of the underwriting business of Atradius. Credit insurance may be written in respect of one, some or all of the customers to whom an insured extends credit. The insurance of one customer ("single buyer" insurance) was undertaken within Atradius' special products division. The underwriting of that insurance involved two strands - "credit underwriting" and "policy underwriting". The former was concerned only with the financial assessment of the creditworthiness of the buyer, in this case BXP. The latter was concerned with the assessment of the overall risk, taking into account the proposed insured's credit management policies and trading history with that buyer, and with the settling of the terms of the policy and premium: [196]. 73The credit analysis of BXP was undertaken by Atradius' Sydney office because that company traded in Australia. A "buyer owner" was assigned to BXP. Its ongoing financial position was monitored by that officer and the local credit committee or "LCC". Mr Choo was the designated "buyer owner" for BXP. The LCC's responsibilities included specifying the credit insurance limit or "RL" for each buyer. The RL was the maximum amount of insurance that could be written by Atradius on a worldwide basis to cover the obligations of that buyer. In the case of BXP that limit was fixed at A$30m. 74Before credit insurance could be issued, approval from a duly authorised underwriter in each of the credit and policy underwriting strands was required. Ms Shaw was the senior policy underwriter in the Australian special products division. She did not, however, have sufficient authority to approve the insurance of BXP with an RL of A$30m. She had to obtain the approval of her superior in Atradius' London office, Ms Johnson. Mr Athaide was the senior credit underwriter in the special products division in Australia. He also did not have sufficient authority to approve the insurance of BXP. That authority had to be given by Mr Magee who was a senior manager in Atradius' Cardiff office. 75The primary judge addressed what would have happened within Atradius had it been informed, contrary to the answer to the third question, that there had been three payment plans (see [10] above). He concluded in relation to Ms Shaw, who reviewed the proposal before the policy was entered into: "[226] I conclude, based on my overall acceptance of Ms Shaw's evidence that: (1) had the proposal form made the disclosures that should have been made (for the form to be accurate and truthful) in relation to payment plans, Ms Shaw would have noticed them; and (2) in those circumstances, Ms Shaw would not have signed off on the issue of a policy, but would have contacted Ms Johnson to see if the information that, hypothetically, had been disclosed made any difference to the policy underwriting approval that had been given." 76In relation to Ms Johnson, his Honour found: "[232] ... I accept this aspect of Ms Johnson's evidence, and conclude based on it that had the correct position in relation to payment plans been disclosed, she would have either revoked or in effect suspended the policy underwriting approval that she thought that she had been given. Putting the matter in terms of Ms Shaw's evidence, I am satisfied if a correct answer had been given in relation to payment plans: (1) as I have said, Ms Shaw would have noticed this and referred it to Ms Johnson; and (2) upon that referral, Ms Johnson would have made sure that the policy did not issue at least until the matter had been more thoroughly been [sic] investigated." 77The primary judge continued: "[233] The second conclusion draws attention to the fact that, as the evidence ultimately demonstrated, final responsibility for a decision would have rested with Mr Magee. That is because the information that should have been (but was not) disclosed was relevant to the credit underwriting process in particular, and Mr Magee was for present purposes the senior person, having the relevant authority to approve (or to withhold approval)." 78His Honour accepted Mr Magee's affidavit evidence that if the material and information concerning the negotiation and existence of the payment plans had been disclosed to him he would not have underwritten the policy unless he was "absolutely satisfied" of one or other of the following: "[235] ... (a) there were reasons to explain why Prepaid had put Bill Express on payment plans that were unconnected with the financial position or [sic] Bill Express; or (b) the issue which caused Prepaid to enter into the payment plans with Bill Express had been finally resolved and were very unlikely to recur; and (c) the customer had improved their internal credit control procedures to spot potential payment problems as early as possible so that these could be dealt with in the most effective way possible. " 79The primary judge expressed his conclusion in the following terms: "[240] In all the circumstances, I am satisfied, and conclude, that if correct answers had been given in relation to the question asking for details of payment plans, Atradius would not have issued the policy when it did. I conclude further that in this respect Atradius did rely on the answers that were in fact given, in deciding to issue the policy." 80He then went on to observe: "[242] What might have happened, if the correct answers had been given, is a matter of speculation. I incline to the view that, as Mr Magee said, a policy might have been issued (on unspecified terms and at an unspecified premium rate) had there been given an explanation, satisfactory to Mr Magee, of the payment plan issue. But since the evidence and submissions did not cover that point, it is unnecessary to go further." 81In his statement of his overall conclusions the primary judge also noted: "[270] ... [I]f that non-disclosure were not fraudulent, Atradius would be entitled to reduce its liability under the policy to nil. In that hypothetical situation, there is no evidence of any other, lesser, remedy that might be appropriate (see at [242] above)." 82His Honour's finding (at [240]) that Atradius would not have issued the policy is qualified by the words "when it did". Furthermore, the observation as to "[w]hat might have happened, if the correct answers had been given" in [242] is to be understood, in the light of [240], as a reference to what "else" might have happened other than that Atradius would not have issued the policy when it did. The "point" which it is said the evidence and submissions did not cover is to be understood as being what might have happened if Mr Magee had been given an explanation which satisfied him of one or other of the matters referred to in his affidavit evidence. 83The appellants say that the result of these findings, and in particular the statement that what might have happened was "a matter of speculation", is that the primary judge could not have been satisfied on the probabilities that Atradius would not have issued a policy. In response Atradius says that in [242] his Honour is to be understood as finding that there was no hypothetical explanation suggested by the appellants which would have been satisfactory to Mr Magee. Mr Magee's evidence was that the explanations which the appellants put forward, by the evidence of Mr Naven and Mr McQuade and in the cross-examination of Mr Magee, would not have persuaded him to approve the policy. If the primary judge is not to be understood as having made that finding, it is contended that he should have and, for that reason, that his conclusion at [270] should be upheld. These arguments make it necessary to consider the evidence with respect to these matters. 84The appellants' evidentiary case addressed the first of the matters about which Mr Magee had said it would be necessary to be "absolutely satisfied" about before he approved the issue of any policy. Mr Naven, who was general manager of credit management at Optus, gave evidence as to an analysis which he believed he would have prepared as to the creditworthiness of BXP had he been asked to do so for use in negotiations with Atradius in August 2007 (affidavit 21/5/10, paras 10-38; Blue 4/1806-1815). Mr McQuade also gave short evidence as to what he would have said in the same context concerning his views as to BXP's creditworthiness (affidavit 21/12/10, para 66; Blue 4/1829). 85Atradius led evidence in response. Ms Shaw said that she would have referred that analysis and those observations to Mr Athaide, Mr Magee and Ms Johnson. She would not have recommended that Atradius proceed with the policy and would not have issued the policy unless she obtained express instructions from Mr Magee and Ms Johnson to do so (affidavit 6/5/11, paras 46-55; Blue 4/1911-1912). No challenge was made to that evidence in cross-examination. 86Ms Johnson said that if she had received the additional information she would have forwarded it to Mr Magee for comment. She also said that in exercising her underwriting judgment, the analysis and observations of Mr Naven and Mr McQuade would not have led her to conclude that the policy should be approved (affidavit 2/11/10, paras 37-46; Blue 4/1869-1871). In cross-examination she was asked to make certain favourable assumptions as to Mr Magee's response to the additional information. On those assumptions she gave qualified answers suggesting that she may have agreed with Mr Magee if his view was to accept the risk (esp Tcpt 29/2/12; Black 203-205). 87In Mr Magee's affidavit evidence addressing the further analysis and observations of Mr Naven and Mr McQuade, he said they would not have persuaded him to approve the policy (affidavit 7/4/11, paras 36-42; Blue 4/1892-1896). He was cross-examined about the further assessments and inquiries which would have had to have been undertaken if the appellants had provided further information to Atradius of the kind addressed by those analyses and observations (Tcpt 1/3/12; Black 274-275). The point of that cross-examination was to suggest that such inquiries and assessments would have been undertaken by several persons including Mr Choo and Mr Athaide as well as Mr Magee. The cross-examiner did not directly challenge Mr Magee's evidence that the analyses of Mr Naven and Mr McQuade would not have persuaded him to approve the policy. Instead it was suggested that he would have taken into account the views of others. 88He was also shown a document (Ex PX23; Blue 4/1927-1928) which he was asked to assume was "an accurate summary of the information that you didn't have at the time" (Tcpt 1/3/12; Black 275). The cross-examiner then directed questions to the procedure by which additional information such as that might have been considered. In the course of that questioning Mr Magee identified respects in which the matters dealt with by that document would have given rise to further inquiries directed to Optus concerning the nature and effectiveness of its credit management policies. He also said they may have led to inquiries directed to BXP. For example, in relation to the assumptions in that document concerning the second payment plan, Mr Magee said (Tcpt 1/3/12; Black 285): "Q: Would it be a matter where you might want Mr Choo to speak to Bill Express, the people who had direct knowledge of what was going on with their funding and the cash inside in order to get some overall appreciation of what this told you about the nature of Bill Express as a buyer? Would you want to do that? A: I would want Mr Athaide and Joe Shaw to meet with the broker and Optus, from the customer's perspective, to find out why they were taking these steps and what the history was around this. And from the outcome of that you would then want and I would probably with some increased level of concern you now have, I would probably asked Mr Athaide to go to the meeting as well as Mr Choo." That last reference is to be understood as being to a meeting with BXP. The cross-examiner did not suggest what the outcome of those inquiries and any subsequent assessments of the information provided might have been. 89In re-examination Mr Magee was asked to make further assumptions concerning the information in Ex PX23. The first was that the information in it would have been provided shortly before the policy in fact issued. Mr Magee said in that event "we would not have issued the policy on that date and we would have to go to Optus to get full and detailed explanation and then carried it through" (Tcpt 1/3/12; Black 299). He was also shown the Optus Mobile/PPS email dated 20 December 2006 (Blue 1/379) which was referred to in paragraph 9 of Ex PX23. Making the assumption that there was a margin reduction and letter of demand issued as foreshadowed by that letter, Mr Magee said (Tcpt 1/3/12; Black 300): "A: I think it's more likely we would not have spoken to Optus, we would not have taken this policy on. Q: Why do you say that? A: Having read this email it is clear that this is a debt, this is a company where Optus has severe concerns about, it's trying everything it can to manage its relationship and it's not working and so the credit insurance is its fall back and that's not the type of policy we would write or a type of risk we would take on." 90Mr Magee was also shown a copy of the letter dated 22 February 2007 (Blue 1/438) referred to in paragraph 12 of Ex PX23. He was asked to assume that he had been given a copy of that letter or was otherwise told of its terms. He gave the following evidence (Tcpt 1/3/12; Black 301): "Q: Does that change any of the answers you gave this afternoon? A: Yes, this would be much more worrisome on Bill Express and I think we would be seeking to go and visit Bill Express as opposed to Mr Choo who did a telephone discussion. So I believe we would have asked more senior underwriters to go out and visit to find out the nature of this restructure because we were all heavily exposed to CCH at the time." 91This evidence is relevant to whether, on the balance of probabilities, Atradius would not have issued a policy. Whilst the appellants had the evidentiary burden of establishing that they would have provided further information which sought to explain the position in relation to the payment plans, the onus of proving on the probabilities that such a policy would not have issued remained on the respondent. Whether that burden had been discharged required consideration of the evidence referred to above. The primary judge has not done that. I do not read his Honour's observation at [242] as a finding that the probabilities were that no satisfactory explanation would have been forthcoming and resulted in the issue of a policy. His Honour's statement that what might have happened "is a matter of speculation" is inconsistent with the making of such a finding. 92The conclusion that the respondent was entitled to reduce its liability to nil should be set aside. As that question will involve the further consideration of the evidence of witnesses about whom the primary judge made credit findings, it should not be determined by this Court. The relevant authorities are referred to in [52] above. The appellants submit that the retrial should be before a judge other than the primary judge because it may require an assessment of Mr McQuade's credit, in circumstances where his Honour has already addressed that subject, albeit in the context of dealing with the fraud allegations. I do not agree that it is likely to involve such an assessment. The retrial should be before the primary judge. It will require reconsideration of what might have happened, including on the hypothesis that further information had been provided to Atradius. The primary judge has not addressed that question taking into account the evidence referred to above. In that respect the position is similar to that in Tomasetti v Brailey [2012] NSWCA 399 at [64] (Macfarlan JA, McColl and Campbell JJA agreeing). The primary judge is not to be asked to reconsider an issue that has already been decided. He is being asked to complete a task that remains incomplete. Furthermore, in the way the trial was conducted Mr McQuade's hypothetical participation in the provision of further information was peripheral at best and there was no real challenge to his evidence on that subject (which in any event consisted of only one paragraph of an affidavit). It is not suggested that the need to consider the evidence of Mr Magee, of whom the primary judge made favourable observations as to his credit, is a reason that the retrial should not occur before his Honour. 93The remaining issue is whether the rehearing should be undertaken on the evidence which was adduced at the first trial, as the appellants contend. In my view such a condition should be imposed. Neither party should be able to use the advantage of the first trial and the appeal to adopt a different strategy in relation to the calling of witnesses and leading of evidence, particularly where the further evidence is limited to only one question and earlier decisions about the calling of witnesses may have been influenced by the presence of other issues. The primary judge should have a discretion to allow further evidence but only if it is warranted on special grounds and does not involve a departure from the way in which the first trial was conducted. It is not necessary to impose a further condition, as suggested by the respondent, that the primary judge should proceed in accordance with the findings made at [192] to [240]. It is sufficient to note that the primary judge made those findings and that none of them has been challenged on appeal. The primary judge must be free to revisit those findings in the event that his Honour's reconsideration of the question which has been remitted requires that he do so.

Did the primary judge err in not holding that there was fraudulent or innocent non-disclosure? (contention 1)

The argument 94The alleged non-disclosures argued before the primary judge were formulated in issue 4, which is set out by the primary judge at [3] and extracted in [11] above. Only two of those non-disclosures are pressed on appeal. They are that "BXP had a working capital hole that could not be fixed by more borrowings" and that "the plaintiffs regarded the situation as 'very serious' and 'dicey'. By contention 1 Atradius says that the judgment should be upheld on the basis that each of these matters was required to be disclosed and that the appellants' failure to do so was either fraudulent or innocent. 95Several questions arise in relation to this contention. Atradius relies on the primary judge's finding that officers of PPS or the other appellants held such opinions. It contends that the fact that they were held was a relevant matter required to be disclosed by s 21(1) of the Act. Atradius also contends that it did not hold or know that those opinions were held and ought not to have held or known that they were held. Although it had access to BXP's April 2007 management accounts, the opinions held by the appellants were not based solely on an analysis of BXP's financial records. They were based upon their superior knowledge of BXP's business and financial position. That knowledge included BXP's unsatisfactory trading history, the matters raised in their continuing discussions with BXP and their knowledge of its attempts to refinance its business. Specifically, Atradius says that the opinion that BXP's financial position was "very serious" and "dicey" was based upon accumulated knowledge of BXP's unacceptable trading history; and that whilst it may have had access to accounts which showed that BXP had a significant "working capital hole", it did not know that it "could not be fixed by borrowings" because that matter was based on knowledge of BXP's refinancing proposals which it did not have. 96The appellants challenge the primary judge's finding that they knew or believed that BXP had a working capital hole which "could not be fixed by more borrowings": cf [180]. They submit that the evidence did not support that finding. They also submit that there was no duty of disclosure in relation to the opinion or belief that the situation was "very serious" and "dicey". To the extent that such an opinion was held, it did not continue to be held at the time the insurance was entered into. When held it was not known to be a matter relevant to the respondent's decision or one which a reasonable person in the circumstances could be expected to have known was so relevant. 97Before addressing these arguments it is necessary first to say something about the relevant provisions of the Act and then to consider the evidence concerning the opinions or beliefs of the appellants.

The duty of disclosure 98The duty of disclosure under s 21(1) is a duty to disclose what is known to the insured "before the relevant contract of insurance is entered into". That is the time when the contract is made (s 11(9)), in this case 24 August 2007. The duty is to disclose every "matter that is known" which the insured also "knows to be a matter relevant" or which a reasonable person could be expected to know to be a matter relevant to the insurer. That relevance must either be to the decision of the insurer as to whether to "accept the risk" or as to the terms on which it will do so. The word "knows" means more than believes or suspects or even strongly suspects: Permanent Trustee at [30] (McHugh, Kirby and Callinan JJ). In this context "matter" describes anything which is known to the insured which also is known to be relevant, or that could be expected to be known to be relevant, in each case in the respects described above. This requirement directs attention to the state of mind of a reasonable person in the circumstances of the insured and protects the insurer against inadequate disclosure by an insured who is unreasonable, idiosyncratic or obtuse: CGU Insurance Ltd v Porthouse [2008] HCA 30; 235 CLR 103 at [52], [53] (Gummow, Kirby, Heydon, Crennan and Kiefel JJ). 99The fact that an opinion is held is something that may be known and an insurer may be influenced in its decision to accept a risk, or as to the terms on which it will do so, by the fact that an opinion is held. That is so irrespective of whether the opinion is held by the insured or by a third party, as for example might be the case with a medical opinion concerning the insured. Under the common law such opinions are capable of constituting material facts required to be disclosed: The British Equitable Insurance Company v The Great Western Railway Company (1869) 38 LJ Ch 314; Khoury v Government Insurance Office of New South Wales [1984] HCA 55; 165 CLR 622 at 632-633. In ordinary language a "matter" includes an opinion. 100Whether an opinion is relevant to the insurer's decision to accept the risk or as to the terms on which it will do so, will depend, among other things, upon the subject matter of the opinion, the identity of the person holding it, the facts or premises upon which it is based and whether those facts or premises are true or believed by the insurer to be true. An opinion, previously relevant, may cease to be so if the circumstances to which it relates change or if it ceases to be held. This last consideration directs attention to the time at which any failure to comply with the duty of disclosure is to be assessed. That time is when the contract is made: see, for example, Prime Forme Cutting Pty Ltd v Baltica General Insurance Co Ltd (1991) 6 ANZ Insurance Cases 61-028 (Tadgell J); Summerton v SGIC Life Ltd (1999) 10 ANZ Insurance Cases 90-102 (Doyle CJ). In this respect, the position under the Act is the same as under the common law: see Canning v Farquhar (1886) 16 QBD 727 at 732 (Lord Esher MR); Brotherton v Aseguradora Colseguros SA (No 2) [2003] Lloyd's Rep IR 746 at [18] (Mance LJ, Ward and Buxton LJJ agreeing). If an opinion ceases to be held before the insurance contract is made it may, by reason of that fact, cease to be relevant. Or the fact that it was once held or recently held may be sufficient for it to continue to be relevant. In Khoury, the opinion was held at the time the proposal was made and continued to be held at the time the contract was entered into: at 631, 634. The question of relevance to the decision of the insurer is a question of fact in relation to which the insurer bears the onus.

The relevant evidence 101The finding of the primary judge which is challenged by the appellants is that officers of PPS or the appellants were aware that BXP had a working capital hole and were of the view that it could not be fixed by more borrowings: [180]. The appellants say that the evidence did not justify the second limb of that finding. In my view that submission is correct. The relevant evidence is mainly documentary. 102On 29 June 2007 BXP defaulted in the payment of an amount of $6m which was due to be paid to PPS on that day. That fact was the subject of email communications between Mr McQuade, Ms Low, the chief financial officer of SingTel Optus and Mr Naven. On 29 June 2007 at 3.33pm Mr Naven sent an email to Ms Low. That email referred to the payment default and to information received from BXP concerning their "awaiting funding from a refinancing initiative they are currently undertaking". The email advised that Mr Naven and Mr McQuade had obtained details of that initiative and were reviewing those details "to determine if there are any indications of financial distress or an ongoing cashflow issue". The "refinancing initiative" referred to was a proposal that CCH Europe would provide financial assistance to BXP. At 3.35pm on the same day Mr Naven sent a further email to Ms Low referring to a discussion he had with Mr Wilson who had "asked that I look at all options including any opportunity to acquire bill express [sic] given their Net Assets are around the same amount as they owe us". Ms Low responded to those emails at 4.49pm in the following terms: "very serious situation. And dicey - we really need to be careful. Frankly, I don't think buying them out is even an option." (emphasis added) 103A copy of Ms Low's email was sent to Mr O'Sullivan, the chief executive of Optus. He inquired as to why the amount owed had "grown so high" and said "(i)f we feel it is at risk, let's discuss actions to secure our position". Mr McQuade was asked to draft a response to that request. That response was sent at 6.04pm on 29 June and included the following: "The $24m amount represents 4 weeks billing for Bill Express. During the course of June they have slipped behind payments by 1 week. Bill Express openly admitted to having a working capital hole for which they have been seeking funding over the past few months. I stressed the importance of being in terms at month end but they have failed to do this. In communication they have provided a letter from CCH Europe signed by a director on the Board indicating that they would pay the outstanding amounts $11.8m ($4.8m Optus and $7m PPS) next week. ... It appears that they have negotiated a large trade facility with CCH ($80m) insured by QBE." (emphasis added) 104On 4 July 2007 Mr McQuade received an email from BXP answering various questions which he had raised in a conversation. Those questions related to the CCH Europe facility, the progress of an "equity/private placement" raising which BXP was pursuing and queries as to its balance sheet. Mr McQuade forwarded that email to Mr Naven. On 6 July Mr Naven forwarded an email to Ms Low following an assessment which he had undertaken of BXP's position. That email included the following: "I have done some analysis to determine the state of Bill Express and their capacity to keep paying into the future ... To put your mind at rest, my judgment says that they are not in immediate danger of collapse. Following are some of the reasons for this conclusion, and also some of the more negative aspects that mean we should continue to monitor their progress closely. ... In summary I think they have the capacity to pay in the short to medium term, but we should continue to monitor their funding arrangements and the success of their growth strategy." (emphasis added) 105Mr Naven was cross-examined on the content of this email. He described the reference to the "short term" as being up to 12 months and the medium term as being between 1 and 5 years (Tcpt 5/3/12; Black 390). Mr Naven also accepted the cross-examiner's proposition that what he was saying in that email was that his opinion was "that there had been a cashflow problem, whatever its cause, and that it had been fixed because they had raised some capital, in particular from CCH" (Tcpt 5/3/12; Black 389). The cross-examiner did not suggest that that was not Mr Naven's opinion at that time. Ms Low responded to that email on 8 July 2007. Her response did not take issue with any of the conclusions in Mr Naven's assessment. It observed that "(t)heir slow payments affect our cashflows. Please can u make sure the committed payments are in".

There was no non-disclosure 106This evidence does not establish in relation to the first matter concerning the working capital hole that Mr McQuade or any other senior officer of the appellants believed that it could not be fixed by more borrowings. Furthermore, Mr Naven's evidence was that by 8 July 2007 any cashflow problem that had existed had been fixed in the short to medium term. In the light of that evidence the primary judge erred in finding that officers of the appellants were at any time of the view that any such problem could not be fixed by more borrowings. His Honour also erred in proceeding upon the basis that the appellants continued to hold that opinion at the time the contract was entered into. For these reasons his Honour should have held in relation to the first matter which it was said ought to have been disclosed, that it was not a matter known at the time the contract was entered into. The respondent's case was not that the appellants held a different opinion at some earlier point in time and that the fact of that earlier opinion remained relevant to its decision to accept the risk or as to the terms on which it would do so. 107In relation to the second matter concerning Ms Low's opinion, the position is the same. Whatever Ms Low's earlier opinion may have been, by 8 July 2007 she had the benefit of Mr Naven's assessment, which was that any cashflow problem had been resolved, that BXP was not in immediate danger of collapse and that it had the capacity to pay. That assessment, and Ms Low's response, prevent a finding that she still regarded the situation as "very serious" and "dicey". 108The respondent's non-disclosure case in relation to the third and fourth of the matters relied upon fails at the outset. Those matters either were not made out or were not known to the appellants. For that reason the primary judge's conclusion that there was no breach of any duty of disclosure should be upheld. This makes it unnecessary to address the other issues raised by this contention. It is sufficient to record that I agree with the primary judge's conclusion that they had it been established that those matters were known to the appellants, the unchallenged findings of the primary judge at [205] - [208] justified the conclusion that were also known to Atradius and would not have caused it to act any differently in relation to the issue of the policy.

Was Optus Mobile entitled to an indemnity in respect of its claim? (grounds of appeal 6 and 7)

The arguments of the parties 109The primary judge held that the payment defaults by BXP under its contract or contracts with Optus Mobile were not insured because the policy only insured defaults under a contract which required BXP to pay up to 30 days from the date of invoice. The contract or contracts under which the payment defaults occurred did not answer that description. Optus Mobile argues on appeal that, for the purpose of determining whether a default was insured, the description of the contract under which the default arose did not include that characteristic. The primary judge also rejected Optus Mobile's argument that s 54 prevented Atradius from refusing to pay its claim by reason of its acts in supplying e-vouchers to BXP under a contract or contracts which required payment more than 30 days from invoice. These arguments raise issues as to the construction and effect of the contract of insurance.

The relevant provisions of the proposal and policy 110The policy was issued on 24 August 2007. By that time Atradius had been provided with a copy of the Sub-agency agreement to which PPS, Optus Mobile, Optus Internet and BXP were parties. That agreement provided that BXP was required to pay "within 21 days of the date of the invoice ... or within such other period as agreed" (cl 11.5). Atradius had also been provided with a copy of the Electronic Voucher Distribution Agreement between Virgin Mobile and BXP. It provided for payment of each invoice issued by Virgin Mobile "within 7 days of receipt of the relevant Invoice" (cl 7.2). No document evidencing any agreement between Optus Mobile and BXP was provided to the insurer. 111The signed proposal was dated 22 August 2007. It identified the companies applying for insurance as: "Prepaid Services Pty Ltd Including Optus Mobile Pty Ltd & Virgin Mobile (Australia) Pty Ltd" and the Buyer in respect of which they were seeking cover as BXP. In answer to questions as to "your previous experience with this Buyer", the appellants had responded in relation to "highest outstanding balances": "Highest outstanding balance = $27M Prepaid, $5M Virgin, $6M Optus Approx." and in relation to "credit terms": "21 days with weekly settlement for Prepaid and Optus, 7 days Virgin". 112Sections 4 and 5 of the proposal contained questions under the headings "Background of the Contract/Bond" and "Particulars of the Contract". In the answers given, reference was made to the "Sub Agency Agreement Supplied" and to the "Contract supplied". A copy of the Sub-agency agreement was attached to or provided with the completed proposal. The letter from the appellants' broker to Atradius which enclosed the completed proposal also included a copy of the Virgin Mobile agreement. The policy recited that it was issued in reliance upon the statements made in the proposal and the policy provided that the proposal was a "part" of the policy. 113The policy is divided into seven Parts. It describes itself as Credit Insurance, "Single Buyer (Revolving Shipments, No Pre-Credit)". The reference to revolving shipments in this context should be understood as being to shipments made to the single buyer under a long term supply contract. By the Insuring Agreement in Part I, Atradius agreed to indemnify the appellants "for the Insured Percentage of the amount of the Insured's Loss ... caused directly by any act or occurrence set forth in the Causes of Loss occurring during the Policy Period ...". The Causes of Loss are set out in Part II. The relevant cause relied upon by Optus Mobile is a Payment Default which is defined in Part II, cl 2 as follows: "The failure of the Buyer, under the terms of the Contract, to pay any invoiced payment obligations to the Insured in the Contract Currency on Due Date ..." 114The following definitions in Part III are relevant: "C. Contract means the agreement between the Insured and the Buyer identified in Item 6 of the Declarations. "D. Contract Currency means the currency ... which the Buyer is obligated to pay and deliver to the Insured under the terms and conditions of the Contract ... G. Due Date means the date payment is required to be made by the Buyer to the Insured under the terms of the Contract, provided that this date(s) falls within the Policy Period. ... R. Loss means: 1. The Gross Invoice Value of goods shipped including interest, as specified in the Contract, if any, accrued and unpaid to the Due Date;" ... X. Goods Insured means those goods listed in Item 16 of the Declarations and described more fully in the Contract." 115The document headed "Declarations" would, in other forms of insurance, be described as a policy schedule. It identifies the insured, the policy period, the buyer and matters such as the limits of liability and deductibles. 116Item 1 of the Declarations describes the insured as PPS, Optus Mobile and Virgin Mobile. Item 6 is in the following terms: "Contract(s): Sub Agency Agreement between (i) Pre Paid service Pty Ltd, Optus Mobile Pty Ltd, Optus Internet and Bill Express Ltd; (ii) Optus Mobile Pty Ltd and Bill Express; and (iii) Virgin Mobile Australia and Bill Express; for open account sales of Goods Insured up to twenty-eight (28) days from date of invoice." On 14 March 2008, Item 6 was amended by an endorsement so as to refer, in its closing words, to "open account sales of Goods Insured up to thirty (30) days from date of invoice". 117Item 16 describes the "Goods Insured" as: "Recharge vouchers (e-Vouchers) containing prepaid mobile airtime prepaid internet airtime and prepaid calling card airtime." 118There are two other provisions of the contract which are relevant. They are warranties C and E in Part V. By warranty C, the appellants agreed not to "change or amend the Contract on file" unless otherwise agreed to in writing. By warranty E, the appellants agreed: "That it will establish and maintain an indebtedness valid and legally enforceable in the Buyer's Country, which shall be evidenced by a written Contract, written loan agreement, debt instrument or any combination thereof, that the Contract provided by the Insured on file with the Company is a true copy which embodies all terms and conditions, that the Contract is in full force and effect at the commencement of the Policy Period and that it has complied with all the terms and conditions of the Contract;" 119What is immediately apparent is that there was no "written Contract" provided to the respondent which evidenced any separate agreement between Optus Mobile and BXP. At the same time, the answers in the proposal indicated that there were regular sales of e-vouchers being made by Optus Mobile to BXP. The only information provided as to the terms and conditions of the contract or contracts under which that was occurring was that the credit terms were "21 days with weekly settlement". It is accepted that this was to be understood as meaning 21 days from invoice with weekly settlement.

The reasoning of the primary judge 120Atradius argued that Optus Mobile had not established that any failure of BXP to pay any invoiced payment obligation arose under a Contract described in Item 6 of the Declarations. Whether that was so depended upon the construction of Item 6 and the evidence as to the contract or contracts under which the sales from Optus Mobile to BXP were made. The primary judge upheld Atradius' defence on two alternative bases. Each involved a different construction and application of the language of Item 6. The first was that the description of the contract between Optus Mobile and BXP included the opening and closing words in Item 6 which, as amended, described a contract for supply "on the terms of, or terms referrable to, the sub-agency agreement" up to 30 days from date of invoice: [69], [70]. In addressing whether the payment defaults occurred under such a contract or contracts, the primary judge observed that there was "to put it mildly, a lack of evidence as to the contractual basis" upon which Optus Mobile supplied to BXP: [14]. He concluded that "such evidence as there is suggests a significant disconformity between the terms of supply direct and the terms of the sub-agency agreement": [80]. In particular, the trading terms were not 21 days from invoice, as provided for by that agreement, but 30 days from statement: [73]. This meant that payment could be due up to 60 days or so from invoice. The alternative construction was that the description of the contract only included the closing words "for open account sales of Goods Insured up to twenty-eight (28) days from invoice": [84]. The contractual dealings between Optus Mobile and BXP also did not answer that description: [86].

Were BXP's payment defaults to Optus Mobile insured? 121On appeal, it was agreed that Item 6 was to be construed on the basis that only the words "(ii) Optus Mobile Pty Ltd and Bill Express" and the closing words contained the description of the relevant Contract. Optus Mobile accepts that the purpose of Item 6 was to identify the contract to which the insurance applied and says that this was done by the words "(ii) Optus Mobile Pty Ltd and Bill Express", which are to be read as referring to whatever was the actual contract under which Optus Mobile supplied e-vouchers to BXP. To the extent that the closing words "up to twenty-eight (28) days from date of invoice" were inconsistent with the terms of that actual contract, they should be ignored as an inaccurate description of what had already been referred to. This was said to follow from an application of the falsa demonstratio principle. 122The principal risk that the policy insured was a payment default by the nominated single buyer, BXP. That event was defined as a failure under the terms of a specific agreement to pay an invoiced payment obligation within the time required by that agreement. That failure had to occur during the policy period. Accordingly, it was essential to the operation of the cover that the agreement or agreements for supply, which was or were to be the subject of the insurance, be identified. In relation to Optus Mobile, the agreement is described by language which names the parties to it, its subject matter - the sale of Goods Insured, which is a reference to the goods listed in Item 16 - and its credit terms, which were "up to twenty-eight (28) days from date of invoice". In the completed proposal it was stated that the credit terms applying between Optus Mobile and BXP were "21 days with weekly settlement". That answer was reasonably understood as referring to the credit terms applying under the then current agreement for supply. The description in Item 6 included an agreement for supply of e-vouchers to BXP on those terms. 123This being the position, Optus Mobile's reliance upon the falsa demonstratio principle is misplaced. That principle will apply where a written contract or other instrument contains a description which is adequate and sufficient to ascertain a particular subject matter with certainty. In that event, other inaccurate descriptions of that subject matter may be rejected. For example, in Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC 133 the words "This bill of lading" were treated as if they read "This charterparty". That principle does not apply in the circumstances of this case. Here there is no other description, either in the policy or the proposal, of the agreement between Optus Mobile and BXP which is to be the subject of the credit insurance which would justify the rejection of the description in the closing words of Item 6 as an accurate description of the contract which was to be covered by the insurance. On the contrary, the parties adopted a description which accorded with the description of the credit terms in the answer in the proposal. That answer was represented to be correct and it was agreed that it would form part of the policy. In the light of that answer, there is no basis for concluding that the description in Item 6 was intended to refer to a contract, whether existing or otherwise, which did not have that characteristic, and for that reason, to reject that part of the description. 124The primary judge was correct to conclude that the closing words of Item 6 were a part of the description of the agreement for supply of e-vouchers between Optus Mobile and BXP which was the subject of the credit insurance. The losses in respect of which Optus Mobile seeks to be indemnified did not arise as a result of any failure of BXP to pay any invoiced payment obligation arising under an agreement answering that description. Subject to the possible application of s 54 of the Act, the primary judge was correct to conclude that Atradius was entitled to refuse to pay Optus Mobile's claim because those losses were not within the terms of the Insuring Agreement in Part I of the policy.

Is Atradius prevented from refusing to pay Optus Mobile's claim by the application of s 54? 125Section 54 of the Act relevantly provides: "54(1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act." (2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim. (3) Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act. ... (6) A reference in this section to an act includes a reference to: (a) an omission; and (b) an act or omission that has the effect of altering the state or condition of the subject matter of the contract or of allowing the state or condition of that subject matter to alter." 126Optus Mobile argues that the effect of the contract of insurance is that Atradius may not refuse to pay its claim by reason of its acts, engaged in after the policy was issued, either in contracting with BXP for the supply of e-vouchers on credit terms which were not within the description in Item 6 or in supplying on the terms of such a contract. Atradius does not argue that these acts fall within the class of acts described in s 54(2): none is said to be an act that "could reasonably be regarded as being capable of causing or contributing to [the] loss in respect of which the insurance cover was provided". Accordingly, it is only necessary to consider the operation of s 54(1) in relation to those acts: Ferrcom Pty Ltd v Commercial Union Assurance Co of Australia Ltd [1993] HCA 5; 176 CLR 332 at 339-340 (Brennan, Deane, Dawson, Gaudron and McHugh JJ) and Antico v Heath Fielding Australia Pty Ltd [1997] HCA 35; 188 CLR 652 at 670 (Dawson, Toohey, Gaudron and Gummow JJ). Relying upon s 54(1), Optus Mobile says that Atradius may not refuse to pay its claim by reason only of those acts. 127In response, Atradius says that the subject matter of the insurance was losses suffered resulting from payment defaults of the single buyer, BXP, and that the event or circumstance which engaged its obligation to indemnify was the failure during the policy period of BXP to pay an invoiced payment obligation under the contract identified in Item 6. The payment defaults giving rise to the losses for which Optus Mobile claims to be indemnified do not answer that description, and accordingly were not covered by the policy. Section 54(1) has no application because the reason for its refusal to indemnify is not some act or omission of the insured or of some other person. 128The leading decision on the operation of s 54 is FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38; 204 CLR 641. That case concerned the operation of s 54 in relation to a professional indemnity policy of insurance that contained a provision (condition 3) which entitled the insured to notify the insurer during the policy period of any occurrence which may subsequently give rise to a claim and deemed any third party claim subsequently made, arising out of the circumstance notified, to have been made during the policy period. The insured became aware of an occurrence during the policy period but did not notify the insurer of it during that period. A claim was subsequently made arising out of that occurrence but outside the period of cover. The Court (McHugh, Gummow, Kirby and Hayne JJ; Gleeson CJ dissenting) held that the failure by the insured to give immediate notice of that occurrence during the policy period was an omission to which s 54(1) applied. The essence of the reasoning of the plurality (McHugh, Gummow and Hayne JJ) is at [39]-[43]. It was observed at [39] that close "attention must be given to the elements with which s 54 deals: the effect of the contract of insurance between the parties; the "claim" which the insured has made; and the reason for the insurer's refusal to pay that claim". 129The plurality judgment continued: "[40] Section 54 directs attention to the effect of the contract of insurance on the claim on the insurer which the insured has in fact made. It is not concerned with some other claim which the insured might have made at some other time or in respect of some other event or circumstance. It requires the precise identification of the event or circumstance in respect of which the insured claims payment or indemnity from the insurer. .... [41] ... Section 54 does not permit, let alone require, the reformulation of the claim which the insured has made. It operates to prevent an insurer relying on certain acts or omissions to refuse to pay that particular claim. In other words, the actual claim made by the insured is one of the premises from which consideration of the application of s 54 must proceed. The section does not operate to relieve the insured of restrictions or limitations that are inherent in that claim. [42] The restrictions that are inherent within a claim vary according to the type of insurance in issue. Under an "occurrence" based contract, no claim can be made under the contract unless the event insured against takes place during the period of cover. Under a "claims made and notified" policy, if no demand is made by a third party upon the insured during the period of insurance, any claim that may subsequently be made by the insured on the insurer (that is, the claim to which s 54 refers) would necessarily acknowledge that indemnity is sought in relation to a demand not of a type covered by the policy (because not within the temporal limits that identify those demands in relation to which indemnity must be given)." 130The effect of the contract of insurance must be determined as a matter of construction, unconstrained by distinctions between provisions which define the scope of cover and conditions or exclusions which affect the entitlement of an insured to claim. It is not controversial that s 54 is concerned with the effect of the contract as a matter of substance: East End Real Estate Pty Ltd v CE Heath Casualty & General Insurance Ltd (1991) 25 NSWLR 400 at 403-404 (Gleeson CJ), cited with approval in Antico at 660, 668-669 and Australian Hospital Care at [35], [50]. It is necessary to consider the effect of the contract in the way in which it responds to the claim actually made by the insured. It is at this point that difficulties may arise in applying s 54(1) in circumstances where it is said by the insured that the act or omission is the reason why the insured's claim is not with respect to a risk or event covered by the policy. 131The facts in East End and in Greentree v FAI General Insurance Co Ltd (1998) 44 NSWLR 706 provide examples of such circumstances. In East End the third party demand was made but not notified in the policy period. The effect of the insurance was that a third party demand was covered if made and notified in that period. The insured's claim was not covered because the demand was not notified. That was an omission. The insurer's entitlement to refuse arose by reason only of that omission: East End per Mahoney JA at 407. However, as the plurality point out in Australian Hospital Care, it does not follow that s 54 prevents the insurer from refusing to pay a claim which is not in respect of the risk insured by the policy. 132An argument to that effect was advanced by the insured in Greentree where the third party demand was not made (or notified) in the policy period. The relevant omission was said to be that of the third party in not making a demand in the relevant period. It was argued that had the omission not occurred the insured's claim would have been within the terms of cover. The flaw in that argument is addressed by the plurality in the paragraphs set out above. Section 54 provides that the insurer may not refuse to pay the claim "by reason only of" the relevant act or omission. That was the position in East End, where the claim was in respect of an event of the kind insured (a third party demand made in the policy period): Australian Hospital Care at [45]. However, s 54 does not permit or require the reformulation of the insured's claim so that it includes elements or characteristics which it is said would have been present but for the relevant act or omission. If that claim is not, as was the position in Greentree, in respect of an insured event, s 54(1) does not apply. The reason the insurer could refuse the claim was that the policy did not respond to a third party demand not made in the policy period: at [44]. 133The respects in which the insured's claim does not have the characteristics of the event of the kind insured are referred to by the plurality in Australian Hospital Care as "restrictions or limitations" inherent in that claim. Section 54 does not "relieve" the insured of those restrictions or limitations: [41]. The plurality (at [41], [42]) describe that event as "the event insured against" and as "an event of the type contemplated by the contract" and note that it will vary according to "the type of insurance in issue". 134That event may be an accident which results in personal injury or property damage; or the happening of that injury or damage; or the making of a demand against the insured by a third party; or the happening of an occurrence or circumstance which may give rise to such a demand; or the insured's becoming aware of such an occurrence or circumstance. These descriptions of themselves are not sufficiently specific to define the event covered by a particular type of policy. The accident will have to be of a particular kind, or arise out of or in the course of a specified activity. The injury or damage will usually have to happen in the course of or in connection with a particular activity. The third party demand is usually described as arising out of or in connection with the conduct of a particular business or professional activity. The same may be said of an occurrence or circumstance which may give rise to a claim. 135The way in which the provisions of the policy describe and define that event or risk will vary between different types of policy, and sometimes between policies which provide the same type of cover. It is here that matters of form are not to dictate the outcome when considering the effect of the contract: East End at 403-404. It nevertheless remains necessary, in addressing that effect, to have regard to the nature of the risk and subject matter insured as well as the commercial or other context in which the insurance is written, to the extent that evidence of that kind is admissible on that question of construction. 136In Australian Hospital Care, the significant point of difference between the plurality and Gleeson CJ was in the characterisation of the effect of the contract and the identification of the event insured. Gleeson CJ considered that the effect of the contract was to indemnify against third party claims made, or potential claims notified, during the policy period: [11]. The plurality considered that the effect of the contract, particularly by reason of condition 3, was to indemnify against any claim, or occurrence likely to give rise to a claim, of which the insured became aware during the policy period, and irrespective of whether that occurrence was notified during that period: [23], [43]. Kirby J also considered that to be the effect of the contract: [59], [60]. The actual claim made by the insured was for an indemnity against liability for an occurrence of which the insured first became aware during the period of cover. If the effect of the contract was as Gleeson CJ considered it to be, the claim made by the insured did not involve an insured event because no third party claim had been made or potential claim notified during the policy period. The reason for refusal of the insured's claim would not have been an act or omission of the insured and s 54(1) would not have applied. The effect of the contract as characterised by the plurality led to the opposite conclusion: [46]. 137The principles enunciated in Australian Hospital Care have been considered by the Queensland Court of Appeal (Chesterman JA, Holmes and White JJA agreeing) in Johnson v Triple C Furniture & Electrical Pty Ltd [2010] QCA 282; [2012] 2 Qd R 337 and by the Western Australian Court of Appeal (McLure P, Pullin and Murphy JJA) in Maxwell v Highway Hauliers Pty Ltd [2013] WASCA 115. Each of these decisions addresses, as a step in the process of applying s 54, the need to identify any "restrictions or limitations" inherent in the actual claim to an indemnity, by reference to the characteristics of the event or circumstance to which the policy responds: Johnson v Triple C at [77]-[79]; Maxwell v Highway Hauliers at [71], [73], [75] (McLure P), [114] (Pullin JA) and [131] (Murphy JA). 138In Maxwell v Highway Hauliers the policy insured property damage to nominated trucks and trailers of the insured, occurring during the period of insurance. The insurer relied upon an exclusion in respect of damage caused whilst the vehicle was being driven by a person who did not hold a particular driver test qualification. It argued that the effect of the contract was only to insure vehicles driven by qualified drivers. That argument was rejected. McLure P considered at [73] that the description of the event covered "arguably [extended] to, but no further than, the occurrence of the type of event itself (being property damage to an insured vehicle) within the period of insurance". Murphy JA also considered at [143] that having regard to the essential character of the risk or type of cover provided for, as a matter of substance, the event or risk insured did not include as part of its description that at the time of any accident the driver had to hold the relevant test qualification. Pullin JA reached the same conclusion at [114], [115]. 139In Johnson v Triple C the policy indemnified the owner of an aircraft against legal liability for accidental bodily injury to passengers whilst they were on board the aircraft. An exclusion provided that the policy did not apply whilst the aircraft was, to the knowledge of the insured, being operated in breach of Civil Aviation Safety Authority regulations. The insurer alleged that at the time of the accident the aircraft was being flown by a pilot who had not completed a necessary aeroplane flight review which was required under Regulation 5.81 of the Civil Aviation Regulations 1988 (Cth). The insurer argued that s 54(1) did not apply because the fact that the pilot had not satisfactorily completed that review was not a relevant "omission". Chesterman JA upheld that argument: [72]. His Honour also considered whether s 54 would otherwise have applied. He concluded that the effect of the contract was only to insure the aircraft whilst it was operated by a pilot with the necessary qualification: esp at [72], [82], [83]. In other words, the description of the insured event included that it was being operated by a pilot with that qualification. For that reason he held that s 54(1) did not apply because the insurer's refusal of the claim was not by reason of any act or omission. 140In so describing the insured event, Chesterman JA took into account the operation of an exclusion which had the effect of suspending cover during the existence of a state of affairs resulting from the failure of a third party, the pilot, to obtain or maintain a qualification. In my respectful opinion, in doing so his Honour proceeded other than in accordance with the principles and approach stated in Australian Hospital Care and applied in Maxwell v Highway Hauliers. Taking the operation of such an exclusion into account when identifying the risk insured would mean that s 54 would not address unsatisfactory aspects of the common law which it was intended to reform. Reference to Report No 20 and the Explanatory Memorandum shows that s 54 was intended to prevent reliance upon temporal exclusions, such as those considered in these two cases, as well as other provisions which operated, because of an act or omission occurring after the insurance was entered into, to suspend cover or entitle the insurer to deny a claim irrespective of whether the insurer had suffered any prejudice as a result: Law Reform Commission Report No 20, esp paras 217, 229 and Appendix A, cl 54, notes 3 and 4; and Explanatory Memorandum, paras 177 to 182. 141With these principles and observations in mind it is necessary to consider the circumstances of the present case. The policy indemnifies Optus Mobile and each of the other appellants in respect of losses resulting from the failure of BXP to meet particular payment obligations during the policy period. Those payment obligations must arise, in relation to each of the insured, under a contract identified in Item 6 of the Declarations. Optus Mobile's claim is to an indemnity for losses resulting from payment failures by BXP under a contract which does not answer that description. 142Optus Mobile formulates the relevant act as being the supply of e-vouchers to BXP under a contract or contracts which did not answer the description in Item 6. Because s 54 does not relieve it of the requirement that the payment failures arise under a contract to which the policy applies, Optus Mobile argues that the effect of the insurance is to indemnify against payment defaults of BXP in relation to the supply of e-vouchers. It says that the description of that event does not include reference to the credit terms on which that supply occurs. If it does include that description, Optus Mobile's position is the same as that of the insured in Greentree, where the claim was not in respect of an insured event. 143The event against which the single buyer credit insurance provides an indemnity is the failure of that buyer to meet a payment obligation under, and by the time required by, a specified contract. The policy wording assumes that contract will be one under which there will be ongoing supply over a period of time rather than on one particular occasion. It therefore was necessary for the parties to agree upon that contract. The only characteristics of the Optus Mobile contract that were advised to Atradius before the policy was issued were the names of the parties to it, the subject matter of supply and the credit terms upon which supply was to occur. In the absence of the provision by Optus Mobile of any other means of identifying more precisely the supply contract to which the policy was to apply, the parties adopted the description in Item 6. That description was based upon the statements in the proposal which were taken to form part of the contract. This being the position, there is no basis for disregarding the agreement of the parties as to the description of the relevant contract on the basis that to do otherwise would be to prefer form over substance. 144In the language of s 54(1), the effect of the policy is that Atradius may refuse to pay Optus Mobile's claim because it is in respect of a payment default which is not covered by the policy. The reason for Atradius' refusal to indemnify Optus Mobile is not its act in contracting with BXP on different terms. The primary judge correctly concluded that s 54 did not apply to prevent Atradius from refusing to pay that claim.

Conclusion 145The appellants have been successful on three of the four issues dealt with. Whether that outcome will result in their ultimate success in the proceedings depends upon the outcome of the further hearing of the s 28(3) issue. Whilst the costs of the original proceedings and of the retrial should be in the discretion of the primary judge, the costs of the appeal should reflect the appellants' success on the two principal issues in the appeal, namely the fraud and s 28(3) issues. For that reason I consider that the respondent should pay 65 per cent of the appellants' costs of the appeal. 146Accordingly, the orders which I propose are: (1)Appeal allowed in part. (2)Judgment and order for costs of the Court below set aside. (3)Proceedings remitted to the Equity Division for further hearing before McDougall J to determine the issue whether the respondent was entitled to reduce its liability to nil under s 28(3) of the Insurance Contracts Act 1984 (Cth) by reason of the appellants' misrepresentation with respect to the payment plans, that retrial to be on the basis of the existing evidence and any further evidence that the primary judge considers is warranted on special grounds and after taking into account the reasons of this Court. (4)Appeal otherwise dismissed. (5)Costs of the original proceedings before McDougall J and of the proceedings on any retrial be determined by his Honour on the final disposition of the proceeding. (6)Respondent pay 65 per cent of the appellants' costs of the appeal. 147EMMETT JA: The question in this appeal is whether Atradius is liable under a policy of trade credit insurance to indemnify PPS, Optus Mobile and Virgin Mobile in respect of losses suffered by them as a consequence of the failure of BXP to meet payment obligations to them. Atradius purported to avoid the policy under s 28(2) of the Insurance Contracts Act 1984 (Cth) on the basis of alleged fraudulent misrepresentations made by PPS, Optus Mobile and Virgin Mobile in the proposal that led to the policy being entered into. 148PPS, Optus Mobile and Virgin Mobile brought a proceeding in the Equity Division of the Court seeking orders that Atradius indemnify them under the policy. The trial judge dismissed the claims. His Honour held that:

• Atradius was entitled to avoid the policy by reason of fraudulent misrepresentations made by PPS, Optus Mobile and Virgin Mobile.
• If the representations were not fraudulent, Atradius was entitled to reduce its liability to nil under s 28(3) of the Insurance Contracts Act.
• There was no breach of any duty of disclosure on the part of PPS, Optus Mobile and Virgin Mobile, as alleged by Atradius.
• Optus Mobile, in any event, was not entitled to an indemnity under the policy because the obligations in respect of which BXP defaulted were not covered by the insuring provisions of the policy and s 54 of the Insurance Contracts Act did not prevent Atradius from refusing indemnity. 149I have had the advantage of reading in draft form the proposed reasons of Meagher JA. I agree with his Honour's conclusions and the reasons for those conclusions. In particular, I agree with his Honour's conclusion that the claim by Atradius that it was entitled to avoid the policy under s 28(2) for fraudulent misrepresentation should be rejected. I also agree that there was no fraudulent or innocent non-disclosure on the part of PPS, Optus Mobile and Virgin Mobile. 150In relation to the question of the entitlement of Atradius to reduce its liability to nil under s 28(3) of the Insurance Contracts Act, I agree with the conclusion of Meagher JA that the primary judge erred in his conclusion on that question. The question of whether Atradius is entitled to reduce its liability to nil should be referred back to the primary judge for further consideration. That consideration should be on the basis indicated by Meagher JA. 151Finally, I agree with Meagher JA that the primary judge did not err in concluding that the loss claimed by Optus Mobile does not fall within the insuring provisions of the policy. Section 54 of the Insurance Contracts Act does not operate to prevent Atradius from denying liability to Optus Mobile on that ground. 152I agree with the orders proposed by Meagher JA.

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