Sienkiewicz (As Trustee for the Sienkiewicz Superannuation Fund) v Salisbury Group Pty Limited - [2015] FCA 147 - FCA 2015 case summary — Zoe

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Sienkiewicz (As Trustee for the Sienkiewicz Superannuation Fund) v Salisbury Group Pty Limited

[2015] FCA 147

Federal Court of Australia|2015-03-06|Before: Robertson J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2015-03-06

Before

Robertson J

Source

Original judgment source is linked above.

Judgment (15 paragraphs)

[1]

Introduction 1 These proceedings originally comprised two claims: one by Mr and Mrs Sienkiewicz as trustees for the Sienkiewicz Retirement Fund, and one by AT Melville Pty Ltd as trustee for the AT Melville Retirement Fund. Each claim was for damages against their former financial advisers: The Salisbury Group Pty Limited (The Salisbury Group), the first respondent, and two of its authorised representatives, Mr Todd and Mr Martin, the second and third respondents respectively. The Salisbury Group had been a financial services licensee but was in liquidation. There was also a claim for declarations against the professional indemnity insurers of the first, second and third respondents, those insurers being the fourth to seventh respondents. There was also a corresponding cross-claim brought by Mr Todd against his professional indemnity insurers. 2 On the first day of the trial, the Court was informed that the applicants had settled their case against the second and third respondents, Mr Todd and Mr Martin, and would discontinue by consent their claim against the first respondent, The Salisbury Group. The applicants would also discontinue by consent their claim against the insurers. The applicants then withdrew from the proceedings leaving Mr Todd, the second respondent and cross-claimant, to continue his cross-claim against the insurers, the cross-respondents, for indemnity. The discontinuances occurred. Mr Martin had not filed a claim or cross-claim against the insurers. 3 The remaining parties, being Mr Todd and the insurers, agreed to the following facts for the purposes of the proceeding and pursuant to s 191 of the Evidence Act 1995 (Cth): Mr Todd's liability to the Applicants (excepting costs) is limited to $1,000,000, apportioned between the individual investments the subject of the proceedings in the manner set out below: to Mr and Mrs Sienkiewicz as trustees for the Sienkiewicz Retirement Fund Hervey Bay Trust $226,613 Multiplex Development and Opportunity Fund $26,190 Great Southern Plantations $14,000 Ventracor $14,000 Hastings High Yield Fund $11,000 Mariner Floating Notes $30,000 Valad Property Group - Stapled Securities $20,000 Total $341,803 to AT Melville Pty Ltd as trustee for the AT Melville Retirement Fund Hervey Bay Trust $586,187 Mariner Floating Notes $36,000 Valad Property Group - Stapled Securities $36,000 Total $658,187 4 Those parties also agreed, on the same basis, that none of the following products appeared on any Available Approved Product List (APL), defining the term "Available APL" to mean any approved product list of, applicable to, or adopted by The Salisbury Group that was produced in discovery or under subpoena in the proceeding; served in evidence by a party in the proceeding; or included in the Tender Bundle in the proceeding. a) The Hervey Bay Trust; b) Great Southern Plantations; c) Ventracor; d) Hastings High Yield Fund; e) Mariner Floating Notes; and f) Valad Property Group - Stapled Securities. It follows that, of the investments of Mr and Mrs Sienkiewicz as trustees for the Sienkiewicz Retirement Fund, only Multiplex Development and Opportunity Fund appeared on an Available APL and none of the investments made by AT Melville Pty Ltd so appeared. As to the Multiplex Development and Opportunity Fund, those parties agreed that it appeared on a number of available APLs, in the main dated from 8 December 2006 to 19 December 2008. The two exceptions were an unnamed APL of an unknown date and an unnamed APL dated 1 March 2005 to 30 June 2005. 5 The policy under which Mr Todd claimed indemnity from the insurers was the Financial Services Errors and Omissions Insurance Policy numbered WP 120250b (the Policy) covering the period 30 April 2012 to 30 April 2013. The proceedings were commenced within the Policy period. 6 The insurers agreed that the settlement between the applicants and Mr Todd at $1 million plus costs (as taxed) was a reasonable one and agreed to treat Mr Todd's liability for that settlement as a "Loss", within the meaning of the Policy (but without prejudice to the insurers' continued denial of any obligation to indemnify him). 7 The Court had earlier made an order, by consent, that the following questions be heard separately from and after the trial of all other issues in the proceedings: (a) the amount by which, if at all, the Self-Retained Aggregate of $300,000 referred to in Endorsement No. 20 of the Policy has been eroded or reduced; and (b) the quantum of any Defence Costs (as defined in clause 7.4 of the Policy) incurred by the Second Respondent/Cross-Claimant. In other words, the quantification of any monetary relief to which Mr Todd may be entitled has been deferred.

[3]

The Policy 9 The Policy contained the following. In consideration of payment of the Premium by the Insured and subject to all the terms, conditions and exclusions, including all definitions of the Policy, Underwriters agrees [sic] as follows: 1. Insuring Clauses 1.1 Professional Liability Underwriters will pay on behalf of the Insured the Loss which the Insured is legally liable to pay in respect of a Claim alleging an act, error or omission of the Insured in the performance of Professional Services. 10 By Endorsement No. 1, Definition 7.7 was deleted in its entirety and replaced with the following: In the Policy, Insured means each of the following: (a) the Named Insured and its Subsidiaries; (b) any past, present or future director, partner or employee of the Named Insured or its Subsidiaries but only whilst they are a director, partner or employee of the Named Insured or its Subsidiaries and only in relation to their performance of Professional Services: (c) any past, present or future member of a committee of the Named Insured or its Subsidiaries including any compliance, investment or audit committee but only whilst they are a member of any such committee and only in relation to the performance of their duties as committee members; and (d) in the event of the death or incapacity of any person described in paragraphs (b) and [sic] the estate, heirs, legal representatives or assigns of any such person; (e) any Authorised Representative; and (f) any Credit Representative. Authorised Representative means any person or company included on the ASIC AFS Authorised Representatives Register who has or had a written contract with the Named Insured under which the Named Insured engages the Authorised Representative to act for or on behalf of the Named Insured in the performance of Professional Services. … 11 By clause 7.7: 7.7 Insured means each of the following: (a) the Named Insured and its Subsidiaries; (b) any past, present or future director, partner or employee of the Named Insured or its Subsidiaries but only whilst they are a director, partner or employee of the Named Insured or its Subsidiaries and only in relation to their performance of Professional Services; (c) any past, present or future member of a committee of the Named Insured or its Subsidiaries including any compliance, investment or audit committee but only whilst they are a member of any such committee and only in relation to the performance of their duties as committee members; and (d) in the event of the death or incapacity of any person described in paragraphs (b) and (e) [sic], the estate, heirs, legal representatives or assigns of any such person. The "Named Insureds" were AFS Group Limited, Australian Financial Services Limited, The Salisbury Group and Strategy Portfolio Limited. 12 Endorsement No. 11, so far as relevant, was in the following terms: It is agreed between Underwriters and the Insured that Professional Services means: Financial planning encompassing advice on approved investment products and life insurance products. The provision of software programs and technical support to product suppliers. Mortgage Broking. Referring clients who are in need of Credit Products to a referral source, a Mortgage Broker or another originator in return for a commission. Coverage for such activities is limited to defence costs only for a sub limit of AUD 100,000. Writing applications for mortgage products which are then referred to an originator for a credit decision. Completing sign-offs for reverse mortgage products from CBA and St George in return for a fee. Credit Services. Managed Discretionary Account Operator services Operator of Strategy Portfolio Limited Wrap Platform 13 The relevant exclusions were in the following terms: 4. Exclusions Underwriters will not pay for any Loss, Defence Costs or any other amounts insured under the Policy for, arising out of, or in any way connected with: … 4.8 Dealings in Investments any involvement of the Insured in buying, selling or underwriting as principal for their own account or their activities as an underwriter whether or not as principal or for their own account. … 4.10 Performance Guarantee any guarantee or warranty given or allegedly given by or on behalf of the Insured in relation to the performance of any investment. 14 Clause 6.4 was referred to by the parties. It provided: 6.4 Non-Imputation For the purposes of determining the availability of cover provided under the Policy, the conduct of one Insured shall not be imputed to any other Insured, provided that cover is only provided to an Insured who is innocent of and has no prior knowledge of such conduct. 15 Definitions were set out in clause 7 of the Policy. Relevantly: In the Policy: … 7.12 Policy means this policy wording, any endorsements to it, the Schedule and the Proposal. … 7.16 Proposal means the proposal form and any other information submitted by the Insured in proposing for this insurance. 7.17 Schedule means the schedule attached to the Policy and signed by an Authorised Representative of Underwriters. 16 The insurers relied on the proposal form dated 15 February 2012, the proposer being The Salisbury Group. Against 'Approved Products' was written "Refer AFS". The proposal by AFS Group Limited and Australian Financial Services Ltd also dated 15 February had, under the heading 'Approved Products', the following: 50. Please provide by attachment a copy of the approved product listing. 51. Please provide by attachment a copy of the criteria which must be met in order for a product to be deemed as acceptable for inclusion in the Approved Product Listing. 52. Does the Proposer have an investment committee which approves the products for the listing? If "Yes", who is on the committee? The answer to question 52 was "Yes" and a committee of five named persons was identified. 53. Is external research utilised in considering products to be approved? If "Yes", please list. 54. Does the Proposer have a proprietary interest in any of the products? If "Yes", which product(s)? 55. Are products ever removed from the approved listing? 56. What action is then taken in communicating this to the Proposer's clients? The answer to question 53 was "Yes" and a list given. The answer to question 54 was "No" accompanied by a statement: "Not in any of the Funds however we do have an interest in some of the Platform." The answer to question 55 was "Yes". The answer to question 56 was "Email & the APL is published on the website". 17 The insurers also referred to the Australian Financial Services Limited Compliance & Procedures Manual. At page 50 of the September 2011 update the following was stated: 12.1 Product Research It is the responsibility of the Licensee to carry out research into the products recommended. Usually this is done by external sources as the scope of research needed to analyse the number of products on offer can be very time consuming. AFS maintains an Approved Product List (APL) for Investments and Life Insurances ("Risk") which you then choose from. Additionally, any investment product in a Strategy Portfolio Ltd Product Disclosure Statement is deemed to be on AFS's APL. It is the Representative's responsibility to ensure that he or she fully understands and can evaluate the research provided. APLs are reviewed at regular intervals. You should take care to ensure that you have the most up-to-date list available so that the products you are recommending have been fully researched and the analysis is compliant. 12.2 Alterations to the Approved List The Investment Committee of AFS has authority to determine whether to accept or reject recommendations for new and existing product assessments and make changes to the APL in accordance with the Investment Committee Charter. When the Investment Committee members agree that a change should be made to the APL, communication will be sent from head office to all AFS advisers via email and the APL will be updated. … 12.3 Approved Product List - New Products If a Representative believes that a product not on the Approved List is suitable for inclusion in a Statement of Advice, written approval must be given by the Head of Compliance. Where a client specifically requests a product that does not form part of the approved product list they must acknowledge this on the Authority to Proceed Form. A copy of this form is to be given to the client and the original maintained on the client file. 18 The insurers also referred to the APL Review by Lonsec, that is, an independent review of the Approved Product List.

[4]

Endorsement No. 002 19 Endorsement No. 002 stated an endorsement effective date of 30 April 2012, although it appears it was finally executed on 16 April 2013. It provided as follows: It is hereby agreed and understood with effect from inception that the attached endorsement is to apply to this policy: RG 126 NON-APPROVED PRODUCTS EXCLUSION It is hereby understood and agreed that Underwriters will not cover the Insured for any Loss, Defence Costs or any other amounts insured under the Policy which arise out of or are in any way connected with any representation or advice relating to any fund or product which is not approved by the Named Insured for distribution by its Authorised Representatives. This exclusion shall not apply to any representation or advice given by the Authorised Representative relating to any non-approved fund or product if such representation or advice relates directly to the switching of an investment from a non-approved fund or product to an approved fund or product and is in accordance with the guidelines and procedures of the Named Insured. … Authorised Representative means any person or company included on the ASIC AFS Authorised Representatives Register who has or had a written contract with the Named Insured under which the Named Insured engages the Authorised Representative to act for or on behalf of the Named Insured in the performance of Professional Services. This exclusion shall not apply to Australian Financial Services Ltd or AFS Group Limited. For the avoidance of doubt this exclusion does apply to The Salisbury Group Pty Ltd and Strategy Portfolio Limited 20 In relation to Endorsement No. 002 I make the following findings. 21 Mr Hugh Sprowson, the financial institutions underwriter of Alterra at Lloyds Limited, was underwriter for Alterra, the leading Lloyds syndicate. He gave affidavit evidence which was uncontested and which I accept. He was responsible for the negotiation and drafting of the Policy. 22 Ms Karen Allen of Howden Insurance Brokers Limited (Howden) was the placing broker to obtain insurance for AFS Group Limited and The Salisbury Group. She gave affidavit evidence which was uncontested and which I accept. She was the insureds' London broker. She was responsible for dealing with the London-based underwriters directly. 23 Mr Sprowson's evidence was that Alterra underwrote the Policy after being approached by Ms Allen. His evidence was that, on or about 17 January 2013, he had a conversation with Ms Allen where Ms Allen proposed the adding back in of an endorsement which appeared in the expiring Liberty policy regarding non-approved products, which, she said, was left out of the wording which was ultimately agreed. There was a series of emails between Ms Allen and Mr Sprowson. After receiving an email from Ms Allen of 30 January 2013, Mr Sprowson attended a meeting at Howden's offices. He said that one of the Howden representatives at that meeting said that the Non-Approved Products Exclusion was left out of the Policy. "It was Howden's error and we want to correct it. In our view, the Non-Approved Products Exclusion afforded an extra level of protection for AFS Group because it provided supervisory cover in respect of AFS Group's liability for the actions of their Authorised Representatives. We are concerned that this cover had been lost as a result of our error in leaving this out." Mr Sprowson next gave evidence of a telephone conversation with Ms Allen on 26 February 2013 in which he said: "Yes, we can agree to include from inception the wording the Australian Financial Services Limited and AFS Group Limited only. This is on the basis that it does not make any material alteration to the cover afforded under the policy by reason of the Insuring Clause and the definition of Professional Services. I will send you an email confirming this." Mr Sprowson then referred to Ms Allen approaching him on or about 20 March 2013 at Alterra's box in the underwriting room at Lloyds with a document which was titled Endorsement No. 002, which he reviewed, and marked a further change and then scratched the endorsement and the hand-marked change. 24 The evidence of Ms Allen was to a similar effect. She referred to a meeting on or about 31 January 2013 at Howden's offices where either she or Howden's claim manager said that Howden "want to make clear that we want to add back the exclusion to give the insured the level of cover they had under the previous policy". On or about 20 March 2013, she approached Mr Sprowson at Alterra's box at Lloyds with a document which was titled Endorsement No. 002 which, she said, contained the wording of the Non-Approved Products Exclusion to the expiring Liberty policy. She said Mr Sprowson scratched the endorsement and the hand-marked change. She then gave evidence of Endorsement No. 002 being scratched by each underwriter and exhibited a copy of it. 25 I find that the amendment of the Policy to include Endorsement No. 002 was agreed between the insureds' broker and the insurers. Thus, the amendment was negotiated and agreed as between the insured and the insurers. I consider the question of consideration below.

[7]

(i) The meaning and application of the Insuring clause - clause 1.1 of the Policy. 28 This issue centred upon the words "in the performance of Professional Services" in clause 1.1. This, in turn, depended on the meaning of Endorsement No. 11 where the words "Professional Services" were defined to mean, relevantly, "Financial planning encompassing advice on approved investment products and life insurance products". 29 Mr Todd submitted that the word "encompassing" conveyed the idea that what followed was included in, but did not fully make up, the term that preceded the word. The ordinary meaning of Endorsement No. 11 was that "advice on approved investment products and life insurance products" was a subset of "financial planning". This accorded with the purpose and objects of the Policy. The additional words, "advice on approved investment products and life insurance products" were, Mr Todd submitted, there to signify that this was a significant part of "financial planning", not to signify that this was all that was meant by "financial planning". The intention was to cover the business activities the named insureds were ordinarily engaged in. The Court should, therefore, conclude that any liability of Mr Todd arose from his performance of Professional Services as defined in the Policy. If Endorsement No. 002 was part of the Policy, there was no point to it if the insurers' construction was correct. Mr Todd submitted that the ordinary meaning of the term "financial planning" was broader than providing advice on financial products. The ordinary position that the contra proferentem rule applies against the insurer should apply here. 30 The insurers submitted that the express words of clause 1.1 made plain that the scope of the indemnity that it provided was limited by the words "in the performance of Professional Services": Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368 at [262]. Acts, errors or omissions that did not occur in the performance of Professional Services were simply not covered. 31 On their own, the insurers submitted, the words "financial planning" might describe a fairly broad range of activities but the contracting parties added the words "encompassing advice on approved investment products and life insurance products". These words were only concerned with "advice" on "products"; they said nothing at all about "financial planning" services that did not amount to giving "advice" about an investment or insurance "product". The insurers submitted that the real question was whether the phrase "encompassing advice on approved investment products and life insurance products" was or was not exhaustive of the types of investment or insurance product advice covered by the Policy. On Mr Todd's construction, advice on non-approved investment products and all forms of insurance products (not just life insurance) was covered. The insurers submitted that, by adding the words "encompassing advice on approved investment products and life insurance products" after the phrase "financial planning", the parties intended to confine or limit the scope of cover afforded for giving advice on investment or insurance products to advice given on approved investment products and life insurance products only. The word "approved" would be otiose if the parties did not intend it to operate as a limitation on cover. The insurers submitted that "encompassing" should not be read as "including" and its ordinary meaning did not convey an intention to describe the types of investment and insurance product advice that was within cover in an open-ended or non-exhaustive fashion. The balance of Endorsement No. 11 was also specific in its stipulation of the other activities that comprised "Professional Services". Because the Policy was a contract of indemnity, any remaining doubt as to the proper construction of the insuring clause should be resolved in favour of the indemnifier (insurers). The contra proferentem rule had no impact because the contract was negotiated between Howden and the insurers, both of which were in the business of insurance. 32 In my opinion, the better construction of "Professional Services" is that it means, relevantly, advice on approved investment products. The word "encompass", a verb, is defined in the Macquarie Dictionary as: "1. to form a circle about; encircle; surround. 2. to enclose; contain." More significant than the dictionary definitions, however, is, first, the consideration that financial planning would include advice on investment products and therefore the words "on approved investment products" are not words of extension. Secondly, the use of the word "approved" strongly suggests that investment products which are not "approved" do not form part of financial planning for the purposes of the Policy. 33 I do not find it necessary to consider the insurers' contract of indemnity point or to resort to rules of interpretation of last resort. In my view, it is clear that any ambiguity in the word "encompassing" should be resolved against giving it the meaning "including" because it is clear that advice on investment products and insurance products fall within the meaning of the words "financial planning", and, therefore, the limitations conveyed by the word "approved" and "life" should be given effect. 34 I therefore find that, relevantly, "Professional Services" means financial planning being advice on approved investment products.

[8]

(ii) Whether Mr Todd was an "Insured". 35 The insurers submitted that a second basis upon which advice relating to "non-approved" investment products led to a denial of cover under the policy, so far as it applied to Mr Todd, arose from the definitions of "Insured" and "Authorised Representative" in Endorsement No. 1 of the Policy. The only aspect of the definition of "Insured" that applied to Mr Todd was paragraph (e) "any Authorised Representative" as defined within Endorsement No. 1. To the extent that Mr Todd was engaged to perform or performed services that were not "Professional Services" as defined in Endorsement No. 11, he was not an "Authorised Representative" and was not one of the "Insured". The insurers submitted that the mere fact that someone was on the ASIC Register and had a contract with a Named Insured did not mean that that person was insured for everything and anything he might do. 36 The insurers submitted that this construction of the Policy cohered with the terms upon which Mr Todd was engaged as an Authorised Representative of The Salisbury Group. 37 Mr Todd submitted that the issue was not pleaded and should not be entertained. Alternatively, the insurers' argument misconstrued the definition of "Authorised Representative" in Endorsement No. 1. Mr Todd accepted that, to the extent that an Authorised Representative was not performing Professional Services, his or her acts or omissions were not within the insuring clause. 38 In my view, there is no separate ground to be considered under this issue, it being accepted by Mr Todd that to the extent that an Authorised Representative was not performing Professional Services his or her acts or omissions were not within the insuring clause. If it were necessary to decide, I would conclude that Mr Todd was an "Authorised Representative" within the meaning of Endorsement No. 1 as he was, in terms, included on the ASIC Register and was a person who had a written contract with the Named Insured under which the Named Insured engaged the Authorised Representative to act for or on behalf of the Named Insured in the performance of Professional Services. Mr Todd's status as an Authorised Representative does not, in my view, turn on whether or not he was performing Professional Services as he was engaged to act for or on behalf of the Named Insured in the performance of Professional Services.

[9]

(iii) Endorsement No. 11, relating to whether the products were approved investment products, including whether an approved product was required to be on an Approved Product List. 39 The first issue here is whether the words "approved investment products" in Endorsement No. 11 could be satisfied only by a product that was on an Approved Product List. 40 Mr Todd submitted that "approved investment products" did not necessarily mean products on an Approved Product List. Mr Todd accepted that he carried the onus of establishing that the investments the subject of the applicants' claims were "approved investment products". 41 Mr Todd submitted that there were problems with the insurers' argument that, because such lists were requested and provided with the Proposal for the Policy in 2012, Endorsement No. 11 meant that "approved investment products" meant products on an Approved Products List. The first problem was that if Approved Product List was intended, it would have been a simple matter to say so. The second problem was that approved products, and lists which collected them in a convenient place, varied over time and the Policy covered events which occurred before the Policy Period. The failure to ask for historical approved products lists weighed against the insurers' argument. Mr Todd also submitted that it did not follow from the fact that The Salisbury Group and AFS had Approved Products Lists that approved products in the Policy had to be on such a list. On the contrary, it should be inferred from the fact that an Approved Products List was not referred to in the Policy that this was not what was meant by approved products in the Policy, especially as the then current Approved Products Lists were provided with the Proposal. 42 The insurers submitted that the phrase "approved investment products" in Endorsement No. 11 was not defined by the Policy and it meant what a reasonable person in the position of the parties would have understood it to mean: Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35] and [53]. The meaning of the crucial word "approved" was supplied by documents that were not only provided to the insurers on behalf of the Insured as part of their proposal for insurance, but were given contractual status and incorporated by reference into the Policy. The insurers referred to clause 7.12 of the Policy, which I have set out above. That clause defines "Policy" to include "the Proposal". The Proposal is in turn defined by clause 7.16 to mean "the proposal form and any other information submitted by the Insured in proposing the insurance", Taken together, the documents that were submitted to the insurers as part of the proposal demonstrated, the insurers submitted, that a reasonable person in the position of the parties would understand the reference to "approved investment products" in Endorsement No. 11 to mean those investment products that were formally approved for inclusion in an Approved Product List. The insurers also referred to the evidence of Adjunct Professor McMaster that it was normal practice for Australian Financial Services Licensees to restrict their Authorised Representatives so that they can only advise clients on the investments that are included on their Approved Product List. Similar expert evidence, the insurers submitted, was found in Mr Richards' report, tendered by Mr Todd. The Dealer Agreements entered into between The Salisbury Group and Mr Martin and Mr Todd in 2002 and 2003 respectively also evidenced the same practice, as did The Salisbury Group AFS Compliance Manuals of 2003 and 2004. The insurers submitted the practice derived from the heavily regulated environment in which financial planning firms must operate, particularly ss 912A, 917B and 917C of the Corporations Act 2001 (Cth). 43 The insurers submitted that the Court should reject the submission that Approved Product Lists or practices with respect to Approved Product Lists might have been different in the period before the Policy was written and that the insurers' "failure to ask for historical approved product lists" told against the insurers' construction. 44 The insurers submitted that the correct construction of the Policy was that the products must be approved at the time the impugned conduct occurred. Clauses 1.1 and 2.3 applied to Claims alleging acts, errors, omissions or conduct "in the performance of Professional Services". If an investment product was "approved" at the time the impugned conduct occurred, it would be apt to describe that conduct as "the performance of Professional Services". It would be inapt, the insurers submitted, to say that conduct occurred "in the performance of Professional Services" if the relevant product was not approved when the services were performed. 45 In my opinion, "approved investment products" in Endorsement No. 11 meant that, to be "approved", the investment products had to be on an Approved Product List. This was the basis of the Proposal which formed part of the Policy. My conclusion also accords with the evidence of Adjunct Professor McMaster, which was not challenged. If further support for that conclusion were needed, it is provided by The Salisbury Group AFS Compliance Manuals. 46 The second issue here is whether the investment products were on an Approved Product List. The Agreed Facts on Approved Product Lists, which I have set out above at [4], above, mean that the only investment product that was on an Approved Product List was Multiplex Development and Opportunity Fund. 47 This raises the question as to whether Multiplex Development and Opportunity Fund was on an Approved Product List at the relevant time. 48 As to this question, first, I accept the submission on behalf of the insurers that the correct construction of the Policy was that the products must be approved at the time the impugned conduct occurred. I construe "Professional Services" to mean, relevantly, financial planning being advice on approved investment products where those products were on an Approved Product List at the relevant time, being when the professional service was provided. Secondly, I find that the advice in relation to the Multiplex Development and Opportunity Fund was given on 17 February 2005. I refer in this respect to the letter dated 17 February 2005 on the letterhead of The Salisbury Group, signed by Mr Todd and Mr Martin recommending as an initial investment portfolio Multiplex Development Fund, amongst others. An application form for units in the Multiplex Development and Opportunity Fund on behalf of Mr and Mrs Sienkiewicz bears the same date. Thirdly, it is not established that the Multiplex Development and Opportunity Fund appeared on an Approved Product List on 17 February 2005. I find only that the Multiplex Development and Opportunity Fund appears on an Approved Product List of an unknown date and it also appears on an unnamed Approved Product List from 1 March 2005 to 30 June 2005. The appearance of Multiplex Development and Opportunity Fund on later Approved Product Lists, the earliest being 8 December 2006, does not demonstrate that when Mr Todd provided the services on 17 February 2005 he was giving advice on a product that was then approved. 49 In my view, the evidence of Mr Euvrard that he confirmed to Mr Todd that the Hervey Bay Trust was an approved product is not to the point in light of the proper construction of Endorsement No. 11 and the parties' Agreed Facts on Approved Product Lists. I note, however, in case I am wrong as to the construction of the Policy, that I accept the evidence of Mr Todd and of Mr Euvrard that Mr Euvrard had a conversation with Mr Todd and told him that the Hervey Bay Trust was an approved product, but that written approval or a statement to that effect was not given. I do not accept the submission on behalf of the insurers that I should reject the evidence of Mr Todd and Mr Euvrard that there was an actual conversation between them in which Mr Euvrard orally "approved" the Hervey Bay Trust as an "approved product".

[10]

(iv) The meaning and application of Exclusion 4.8 which excluded liability for loss arising out of or in any way connected with any involvement of the insureds in buying selling or underwriting as principal for their own account. 50 This issue related to the Hervey Bay Trust investment only. Given my earlier conclusions, the question of the applicability of this exclusion is not necessary to answer. As the matter was fully argued, I set out my conclusions. 51 Mr Todd accepted, and I find, that he was hoping to make a profit out of the Hervey Bay Trust investment, being from the share of the residual profit after payment of costs, expenses, loans and unit holders that would come to Watson Street Investments Pty Ltd (Watson Street), the development manager, in which Mr Todd held one of the three issued shares, together with two of his colleagues, Mr Kelly and Mr Homan. Mr Todd held that share as trustee of a trust in respect of which he was both a trustee and one of the beneficiaries. Mr Todd also charged Watson Street fees for his time working on the project for that company, the development manager, and he was also entitled to charge a development fee. I also find that the purpose of the Hervey Bay Trust was to procure mezzanine finance so that Watson Street could develop the Hervey Bay property for its own profit, although to give a return to investors and the unit trust as well. I find that the scheme started with Mr Todd, Mr Kelly and Mr Homan wanting to get into property development for their own financial benefit. Mr Todd accepted that that was the ultimate result and why he got into it, although he added it was also to have an investment vehicle for investors who were interested in getting into that market as well. Mr Todd also accepted, and I find, that when he was soliciting investments into the Hervey Bay Trust he was doing so in circumstances where he was intending to make a personal profit, out of the development. I find that the Hervey Bay Trust was to operate so that unit holders would get interest and a maximum amount of $1.4 million from any development profit and that profits in excess of that figure would be for the benefit of Watson Street. I also find that when Mr Todd approached the applicants and recommended investments in, or loans to, the Hervey Bay Trust, he did so because he needed such investments or loans so as to maintain the financial position of the Hervey Bay development, which was then precarious, and thus maintain his personal financial position. 52 The insurers submitted that the relevant conduct was the "involvement" of Mr Todd and The Salisbury Group, as trustee of the Hervey Bay Trust until about March 2006, in selling units in, and procuring loans for, the Hervey Bay Trust "as principal" for their "own account". The insurers submitted that the word "principal" was put in contradistinction to the usual role of a financial planner as an agent or intermediary. The word was identified in circumstances in which the insured was not acting as an agent or intermediary, but as a person with a direct or indirect personal interest in the subject matter of a transaction and, in particular, the words "for their own account" denoted a personal profit. 53 The insurers submitted that the Hervey Bay Trust was not an investment product conceived and pursued in the interests of third-party investors but the means by which Mr Todd, amongst others, sought to finance the development of the Hervey Bay property and reap substantial financial rewards for themselves and their families. The insurers submitted that the entire Hervey Bay development was carried on by Mr Todd as a principal with a view to reaping substantial financial gains, both in the form of profits on successful completion of the project, and in the form of fees charged along the way. Mr Todd was involved in "selling" in connection with the Hervey Bay Trust. The units acquired by Mr and Mrs Sienkiewicz and Mr Melville were purchased on the recommendation and suggestion of Mr Todd. They were purchased from The Salisbury Group, as trustee of the Hervey Bay Trust until about March 2006. That Mr Todd was not himself the issuer did not mean that he was not involved in "selling" those units. It was clear that Mr Todd's involvement was "for his own account". The insurers submitted that Mr Todd was really acting on his own behalf, albeit through trusts and corporate vehicles. The word "principal" should be read as accommodating that structure and the words "for their own account" in the present case meant "for his own financial benefit". On each occasion on which Mr Todd approached the applicants and recommended investments in, or loans to, the Hervey Bay Trust he was motivated by the need to solicit such investments so as to maintain his personal financial stake in the development in circumstances where the financial position of that development was precarious. Mr Todd, the insurers submitted, was actively involved in selling the investment to the applicants so that he could fund his property development. 54 The insurers submitted that clause 4.8 used the plural such that the involvement of one insured, Mr Todd, in the sale by another insured was sufficient to engage the clause, subject to the qualification arising from clause 6.4. Clause 6.4 provided that the conduct of one insured was not to be imputed to any other insured, provided that cover was only provided to an insured who was innocent of and had no prior knowledge of such conduct. The non-imputation aspect, the insurers submitted, could not save Mr Todd because if there was selling as principal for their own account in relation to the Hervey Bay Trust, Mr Todd knew more than anybody, earlier than anybody else, about precisely what was happening. 55 Mr Todd submitted that the insurers had to establish that he was buying, selling or underwriting as principal for his own account. He was clearly not buying or underwriting when he was advising the applicants about the Hervey Bay Trust. He was not selling anything when he advised the applicants to make loans in June 2006 to the trustee of the Hervey Bay Trust. The only possible activity of Mr Todd that might fall within the exclusion was when he was advising the applicants to invest in units in the Hervey Bay Trust in December 2005 (Mr Melville), February 2006 (Mr and Mrs Sienkiewicz) and June 2006 (Mr Melville). Mr Todd was not selling units in the Hervey Bay Trust, he was advising clients to invest in it. Even if he were selling units, he could not have been selling them as principal for his own account because they were not his to sell. He never owned the property and nor did The Salisbury Group, either as trustee or otherwise, as it retired as trustee before the purchase of the Hervey Bay property was completed. Accordingly, Mr Todd submitted, he was not acting as principal or for his own account. That he was intending to work on the project and receive fees for doing so did not make him a principal for his own account, any more than he was a principal for his own account receiving commissions on investments he advised clients to enter into. 56 Mr Todd submitted that it was a large strain on the language of clause 4.8 to say that the loans by either of the applicants were in some way involvement in buying, selling or underwriting at all. In relation to both types of investments, the buying of units in the unit trust and the loans, they did not come within the clause because Mr Todd, although he was a person who was hoping to benefit from the project by way of profit, was not a principal in relation to the units that were sold to the applicants as they were sold to the applicants by the trustee of the trust. 57 Mr Todd also submitted that the clause only applied to the conduct of Mr Todd, but if it included the conduct of The Salisbury Group as trustee of the trust, that company was a principal but not for its own account. Mr Todd himself was not buying, selling or underwriting for his own account as he was not acting as a principal. 58 In my opinion, the question is whether any loss, defence costs or any other amounts insured under the Policy were for, arising out of, or in any way connected with, any involvement of the insured in selling as principal for their own account. I accept that the broad distinction is between an insured acting as an agent and an insured acting as a principal in trading for its own account, although the width of the language means the question is one of characterisation and not one of choosing between agency on the one hand, and acting as principal on the other. 59 The phrase "as principal for their own account" is a composite expression which emphasises that broad distinction. The width of the clause flows from the phrases "in any way connected with" and "any involvement … in". It follows that the exclusion would apply, in the present circumstances, at least where one of the insured was selling an investment in which he or it had an interest as principal "for their own account". 60 Although the width of the clause would cover direct or indirect involvement of the insured in, relevantly, selling, the focus must return to the words "as principal for their own account". I would not construe those words as covering selling where the insured only gained or expected to gain a financial advantage otherwise than as principal. I do not accept the insurers' submission that it is sufficient that a person or entity has a direct or indirect personal interest in the subject matter of the transaction and acts to make a personal profit or for his or its own financial benefit. In my view, that construction gives insufficient work to the words "principal for their own account". 61 In my opinion, Exclusion 4.8 does not apply.

[11]

(v) The meaning and application of Exclusion 4.10 of the Policy, which applied to any guarantee or warranty given in relation to the performance of any investment. 62 This argument related to the Hervey Bay Trust investment only. Again, given my earlier conclusions, the question of the applicability of this exclusion is not necessary to answer. As the matter was fully argued, I set out my conclusions. 63 The insurers submitted that Mr Sienkiewicz gave unchallenged evidence in support of the allegation of Mr and Mrs Sienkiewicz that in or around February or March 2006 and prior to the investment by Mr and Mrs Sienkiewicz of $200,000 in the Hervey Bay Trust, Mr Todd represented to them that if they acquired units in the Hervey Bay Trust they would receive interest on their investment of 12% per annum and an interest payment at the end of the development of 24%. That allegation was also supported by the terms of the Hervey Bay Trust Information Memorandums which similarly represented that investors would earn 12% per annum on their investments and bonus interest of 20% or 25% on completion. Mr and Mrs Sienkiewicz also alleged that in or around July 2005, Mr Todd represented to them that if they lent $100,000 to the Hervey Bay trust they would be repaid within three to four months (but no later than six months) and they would earn 12% per annum on that loan. Again, the insurers submitted, Mr Sienkiewicz gave uncontested evidence to support those allegations. Mr Todd conceded in his evidence that the contents of Mr Sienkiewicz's affidavit on this point were "probably correct". Similarly, Mr Melville alleged that in or around December 2005, Mr Todd represented to him that if he invested in the Hervey Bay trust he would receive a return of 12% per annum, with the prospect of a further 25% per annum. He gave unchallenged evidence to that effect. 64 The insurers submitted that it was apparent from the evidence that Mr Todd made representations to Mr and Mrs Sienkiewicz and to Mr Melville that they would receive at least 12% on their investments in, and loans to, the Hervey Bay Trust and possibly more. Those statements were guarantees or warranties as to the performance of the investments in question for the purposes of the Policy because, at least in respect of the 12% interest rate, they were presented as certain returns that the applicants would receive if they made the investments. 65 The insurers submitted that the evident purpose of Exclusion 4.10 was to ensure that, in providing financial planning services, the insureds did not go so far as to make representations or promises to their clients as to how a particular recommended investment would perform. 66 Mr Todd submitted there was a material difference between an investment having a fixed return, and a guarantee or warranty in relation to the performance of any investment. The Information Memorandums identified fixed rates of return but contained no guarantees or warranties as to the performance of the Hervey Bay Trust investment. On the contrary, they contained a lengthy discussion about the risks to the success of the project, which was inconsistent with them containing a guarantee or warranty as to its performance. 67 I make the following findings. I accept the evidence of Mr Sienkiewicz that Mr Todd joined in a representation to Mr Sienkiewicz that if he put $300,000 into the Hervey Bay Trust he would get 12% interest per annum plus a further 24% interest payment at the end of the development. Mr Todd also joined in a representation to Mr Sienkiewicz that he would get his money back on completion, and, if the apartment block took longer than two years to complete, Mr Sienkiewicz would keep getting his interest. I also find that in or around July 2006, Mr Todd said to Mr Sienkiewicz in relation to the Hervey Bay Trust that it needed $100,000 short-term, for three or four months, and after three or four months Mr Sienkiewicz would get his money back, and in the meantime he would get 12% interest per annum on the loan. 68 In my opinion, on the assumption that the exclusion could apply to a guarantee or warranty which was not a term of the contract, the important question is as to the context in which Mr Todd made these statements. 69 The first Information Memorandum was dated 1 December 2005 and began as follows: This investment Information Memorandum… contains important information and should be read in its entirety. Although great care has been taken to ensure the accuracy of this Information Memorandum, neither the Manager, Principle Development Company, the Trustees or any of their affiliates guarantees the performance nor [sic] success of the investment offer, the repayment of capital or any particular rate of capital or income return. Investment in property development is speculative and Investors should consider those factors carefully in the light of their personal circumstances (including their financial and taxation position). All investors are strongly advised to consult personal financial advisers whose role it is to provide appropriate investment advice, taking the individual investors [sic] investment objectives, financial situation and particular needs into consideration. … Investor's [sic] should obtain their own advice before investing under this Information Memorandum. Investors are specifically referred to the investment risks highlighted under risks in the document. Pages 9-11 outlined certain factors under the heading Investment Risks in relation to Phase I and Phase II, the purchase of the property and the development of the property, and stated: Most importantly, no one associated with this project guarantees the performance of this investment or the repayment of capital or any particular rate of return. Investors should seek independent advice before making an investment. (Emphasis in original.) 70 The second Information Memorandum, dated 13 March 2006, contained the same language, the investment risks being set out at pages 11-12 of the document. 71 The importance of the second Information Memorandum is that it was shown to Mr Sienkiewicz at some point before he decided to invest in the Hervey Bay project, perhaps at the first meeting about that project. Similarly, Mr Melville saw the 13 March 2006 Information Memorandum. His evidence was: I met with Mr Todd and Mr Martin again about the Hervey Bay development before I invested money. At some point around that time ([it] could have been at the first meeting), I saw the [13 March 2006 Information Memorandum] or some document similar to it. I looked at that document and believe I read it, but I do not recall anyone taking me through it. … I also recall being told that I would receive 12 percent return per annum and I would get a bonus of 25 percent at the end of the development. 72 Mr Todd deposed to a conversation with Mr and Mrs Sienkiewicz about the Hervey Bay Trust investment in which Mr Todd said: The investment in the Hervey Bay [sic] is an investment in a property development and, as such, has the potential to generate high returns. However, the investment is high risk by its nature and, therefore, neither the returns, or capital invested, cannot [sic] be guaranteed … Mr Sienkiewicz in his affidavit evidence denied that Mr Todd said these words or any words to the effect of them. Mrs Sienkiewicz did not take issue with that paragraph of Mr Todd's affidavit in her affidavit dated 3 September 2014, which dealt with the various paragraphs of Mr Todd's 4 June 2014 affidavit. 73 In relation to Mr Melville, Mr Todd deposed to a conversation with him in or about December 2005 to the effect that the investment in the Hervey Bay Trust was a development project and offered a high rate of potential return, but was high risk and, therefore, neither the income nor the capital investment could be guaranteed. Mr Melville in his written evidence said that Mr Todd did not say the investment was high risk and he did not say they could not guarantee interest or capital. 74 None of Mr and Mrs Sienkiewicz and Mr Melville was required for cross-examination. In his cross-examination, Mr Todd was taken to [49] of his affidavit sworn on 4 June 2014 but only for the proposition that he had told Mr Melville that he, Mr Todd, had a stake in the Hervey Bay Trust. Mr Todd was not cross-examined on [32] of his affidavit sworn on 4 June 2014. 75 I do not suggest, and it was not argued, that there is any Browne v Dunn (1893) 6 R 67 unfairness involved, given that Mr Sienkiewicz and Mr Melville each denied the conversations. 76 In these circumstances, I am not satisfied that Mr Todd made an unconditional statement in relation to the performance of the investment. In my opinion, it has not been established that Mr and Mrs Sienkiewicz or Mr Melville were not aware of a level of risk in relation to the investment. I am, therefore, not satisfied that any guarantee or warranty was given in relation to the performance of the Hervey Bay Trust investment. 77 Neither party made submissions as to the meaning or application of the words "or allegedly given" in Exclusion 4.10 and I do not consider it. 78 In my opinion, Exclusion 4.10 does not apply.

[12]

(vi) Whether Endorsement No. 002 was part of the Policy. 79 The issue is whether the Policy was amended in March or April 2013 by Endorsement No. 002, expressed to operate from 30 April 2012. The issue arises in the alternative to the proper construction of the insuring clause. Put differently, if Mr Todd's liability to the applicants does not fall within the cover promised in the insuring clause, the issue as to whether Endorsement No. 002 was part of the Policy does not arise. 80 Mr Todd submitted that Endorsement No. 002 did not vary the Policy because no consideration was given for it. Before there can be a variation to a contract which is binding in law, consideration must be given: Agricultural & Rural Finance Pty Ltd v Gardener [2008] HCA 57; (2008) 238 CLR 570 at [49], [84] and [96]. If, consistent with Mr Todd's position, Endorsement No. 002 restricted cover, then the insurers gave no consideration for it. Alternatively, if Endorsement No. 002 enlarged cover, the insureds gave no consideration for it. Either way, Endorsement No. 002 did not vary the policy, Mr Todd submitted. 81 The insurers submitted that the consideration given by the insurers and the insureds was comprised of the promise made by the insurers to henceforth indemnify the insureds as if Endorsement No. 002 had always been part of the Policy, and the promise of the insureds to accept that their rights under the Policy were modified from inception to the extent effected by Endorsement No. 002. The exchange of those valuable promises was sufficient consideration, it was submitted, to make Endorsement No. 002 binding and effective. Reference was made to Henderson v Curtis [2008] WASC 283 (Henderson) at [18] and to Chitty on Contracts vol 1, 31st edition 2012 (Chitty on Contracts) at [3-079]. The insurers submitted that at the time of the amendment the contract was not wholly performed on either side and that the parties' agreement to alter their respective rights and obligations under the contract was itself adequate consideration. 82 In further written submissions, Mr Todd submitted that whether there was consideration could not be based on the subjective views of one of the parties as that was contrary to the objective theory of contract. In every case of a variation, both parties had agreed, presumably because they thought they would benefit. The problem associated with determining the issue from one party's point of view was reinforced by the fact that Mr Sprowson's view was that Endorsement No. 002 did not enlarge cover. Endorsement No. 002 could not contain a mutual exchange of promises to vary the parties' mutual rights and obligations under the Policy because Endorsement No. 002 was an exclusion clause which could only reduce cover and an exception from an exclusion clause could not extend cover. Endorsement No. 002 did not enlarge cover so the insurers had not given any consideration. If Mr Todd's construction of "Professional Services" was correct, then Endorsement No. 002 reduced cover for all but AFS and AFS Group. If the insurers were correct as to "Professional Services", then Endorsement No. 002 had no work to do and they had given no consideration for it. Whichever construction was correct, there was no mutual exchange of promises to vary mutual rights and obligations. Endorsement No. 002 either reduced cover or had no effect on it. Mr Todd submitted that the effect of the variation was exclusively for the benefit of one party, the insurers, in reducing cover: Martech International Pty Ltd v Energy World Corp Ltd (2006) 234 ALR 265; [2006] FCA 1004 (Martech) at [142]. 83 In my opinion, it may be accepted that an agreement which varies the terms of an existing contract must be supported by consideration and consideration will not be present where a variation is exclusively for the benefit of one party so that the other has merely promised to perform an existing contractual duty: see Martech at [142]. Similarly, where parties to a contract agree to vary the time or the quantum of an unconditional obligation owed by only one of the parties, there will be no consideration for the promise by the other party to agree to that variation: see Henderson at [17]. However, the issue is not to be approached, in my opinion, by reference to whether or not in fact and in the events that have so far happened, the variation has operated to the net benefit or detriment of the insurers or the insured. With respect, I agree with what Beech J said in Henderson at [18] that where parties agree to vary some aspect of their contract, other than an unconditional obligation owed only by one party, the agreement by each party for the variation of the mutual rights and obligations of the parties will be consideration for the other party's promise. As was put in Chitty on Contracts at [3-079], the possible detriment or benefit suffices to provide consideration for the promise of each party (emphasis in original). It is plain that at least that part of Endorsement No. 002, set out at [19] above, concerning the exclusion not applying to the switching of an investment was of benefit to the insureds. I do not accept Mr Todd's submission that simply because the Endorsement was an exclusion it was not possible in any circumstances that it could operate to the benefit of the insureds. In my opinion, removing an uncertainty as to each party's position means that there was consideration for the Endorsement. It is not to the point that a court may later decide, after argument, that an exclusion in truth had the operation for which one of the parties contended. 84 In my opinion, Endorsement No. 002 was part of the Policy. Mr Todd's absence of consideration submission fails. 85 To the extent that Mr Todd submitted that Ms Allen had no authority, I reject that submission as being outside the pleadings. I rejected an application to amend following a contested interlocutory hearing on 27 November 2014.

[13]

(vii) If Endorsement No. 002 was part of the Policy, the meaning and operation of that Endorsement, including whether the loss the subject of Mr Todd's claim for indemnity arose out of or was in any way connected with "any representation or advice relating to any fund or product which is not approved by the Named Insured for distribution by its Authorised Representatives" and, again, whether an approved product was required to be on an Approved Products List. 86 This issue also arises in the alternative to the proper construction of the insuring clause. As with issue (vi), if Mr Todd's liability to the applicants does not fall within the cover promised in the insuring clause, the meaning and operation of Endorsement No. 002 does not arise. 87 Mr Todd submitted that the insurers carried the onus of establishing that Endorsement No. 002 applied. Mr Todd submitted that Endorsement No. 002 made no mention of any list and the same arguments made in relation to Endorsement No. 11 applied. Mr Todd submitted that it did not follow from the fact that The Salisbury Group and AFS had Approved Product Lists that approved products in the Policy had to be on such a list. Mr Todd submitted that Mr Euvrard gave evidence as to how the Approved Product List of The Salisbury Group operated. 88 The insurers accepted that Endorsement No. 002 was in the nature of an exclusion and that the onus was on them to establish it applied. The insurers submitted that Endorsement No. 002 was consistent with Endorsement No. 11 and its effect was similar. The language of Endorsement No. 002 put beyond doubt that the Policy did not cover any of the applicants' claims to the extent that they arose out of or were in any way connected with any representation or advice that related to any fund or product that was not "approved by the Named Insured for distribution by its Authorised Representatives". 89 In my opinion, the same considerations which applied to the construction of Endorsement No. 11, at [45]-[49] above, apply also to Endorsement No. 002. For those reasons I conclude that the product referred to in Endorsement No. 002 had to be on an Approved Product List and I further conclude that, for the same reasons as for Endorsement No. 11, none of the products in which Mr and Mrs Sienkiewicz or Mr Melville invested were on such an Approved Product List either at all or, in the case of the Multiplex Development and Opportunity Fund, at the relevant time.

[14]

(viii) Whether s 54 of the Insurance Contracts Act operated to prevent the insurer from refusing to pay the claim. 90 This issue would only arise if it were necessary to rely on Endorsement No. 002, which I have held it is not. Nevertheless, as the matter was fully argued, I set out my conclusions. 91 Mr Todd submitted that if Endorsement No. 002 was part of the Policy, the act of the insureds agreeing to it fell within s 54 of the Insurance Contracts Act such that the insurers may not rely on the Endorsement to refuse to pay the claim. Reference was made to FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641 at [20], [22] and [39]; Antico v Health Fielding Australia Pty Ltd [1997] HCA 35; (1997) 188 CLR 652 (Antico) at 669, 672-673 and 675; and Maxwell v Highway Hauliers Pty Ltd [2014] HCA 33; (2014) 88 ALJR 841 at [27]. In oral submissions, Mr Todd argued there was nothing in the words of the section which precluded the conclusion that the act referred to could be an act that caused an amendment to the policy, being an act agreeing to the amendment of the policy. The insurers argued that the effect of the Endorsement was that they may refuse to pay the claim because it applied and the products were not approved. Mr Todd submitted that, given that the contract of insurance was entered into in April or May 2012, and the relevant acts occurred in February-March 2013, the act of agreeing to the Endorsement was the act that caused the insurers to be able to refuse to pay the claim and the refusal was by reason of the effect of the contract. 92 The insurers submitted that the "act" of "agreeing to Endorsement No. 002" was not an "act of the insured or of some other person, being an act that occurred after the contract was entered into" for the purposes of s 54. In that regard, first, s 54(1) distinguished the "act" from the "contract of insurance" which has the relevant "effect". The "act" and the "contract" having that effect were not and could not be the same thing. That was made explicit by the statutory requirement that the "act" must be one that "occurred after the contract was entered into". Secondly, the Policy did not have the "effect … that the insurer may refuse to pay a claim by reason of" the insureds' conduct in agreeing to Endorsement No. 002 until that agreement was made. Until Endorsement No. 002 was agreed, the Policy did not include the endorsement and plainly did not have the "effect" that the insurers could deny a claim by reason of the insureds' "act" in agreeing to it. Again, the "act" relied upon did not occur "after the contract" having the requisite effect "was entered into". Thirdly, the words "some act of the insured or of some other person" did not capture bilateral or multilateral agreements with the insurer. Fourthly, if Mr Todd's submission were correct, it would mean that every agreed amendment to a contract of insurance that ultimately proved disadvantageous to an insured, in the sense that it enabled the insurer to deny a claim, would be avoidable by operation of s 54. That would not be justified by the language of the provision. 93 The insurers also submitted that it was apparent from [215]-[241] of the report of the Australian Law Reform Commission, Insurance Contracts Report No 20 (Tabled December 1982) (ALRC Insurance Contracts Report No 20) that the mischief which s 54 was designed to address was a perceived shortcoming of the law as it then stood, whereby insurers were able to deny indemnity whenever the insured's post-contractual conduct breached or was excluded by contractual warranties, exclusions or conditions subsequent, and could do so whether or not the insured's conduct caused or increased the loss or otherwise prejudiced the insurer. 94 In summary, the insurers submitted, s 54 addressed circumstances in which a pre-existing contractual term enabled an insurer to deny a claim by reason of the insured's post-contractual conduct. It did not preclude an insurer from relying on the insured's agreement to or variation of the terms of the contract itself. 95 In reply, Mr Todd submitted that by reason of the act of agreement, the effect of the contract of insurance (including Endorsement No. 002) was that the insurers may refuse to pay the claim. Section 54 did not require that the contract of insurance had to be in a form before the act was done that had the effect that the insurer may refuse to pay the claim. Mr Todd submitted that his argument was limited to situations where the act of an insured or of someone else retrospectively varied the policy to allow a claim to be excluded. He submitted that it would be unrealistic to expect the situation that had arisen in this case to have been discussed in the legislative history. 96 In my opinion, s 54 did not operate to prevent the insurer from refusing to pay the claim. 97 Section 54 takes as its starting point the existence of a claim and a contract the effect of which is that the insurer may refuse to pay the claim: Antico at 669 per Dawson, Toohey, Gaudron and Gummow JJ. 98 The effect of the contract of insurance as amended would be that the insurer may refuse to pay a claim but I do not accept that an agreement to vary a contract of insurance falls within the words "by reason of some act of the insured … that occurred after the contract was entered into" in s 54. The variation was by agreement of both the insurer and the insureds. It was not the effect of the contract of insurance in its original form. I accept the insurers' submission that the words "some act of the insured or of some other person" do not capture bilateral or multilateral agreements with the insurer. That construction avoids the result that, subject to the balance of s 54, an agreed amendment to a contract of insurance that ultimately proved disadvantageous to an insured would be avoidable by operation of s 54. 99 I am also not persuaded that a retrospective amendment to a contract of insurance involves an act of the insured that occurred after the contract was entered into as, on the present assumption, the unamended contract did not have the effect that the insurer may refuse to pay the claim and there was no act of the insured after the contract as amended was entered into. 100 The text and context of the section do not support the construction for which Mr Todd contends. 101 I note for completeness that the ALRC Insurance Contracts Report No 20 does not support that construction. The relevant parts of that report appear to be directed to the consequences of a failure by an insured to comply with the terms of the contract during its term.