(e) as at 30 June 2001 H & C had a loss provision of $60,481.
14 Mr Took said also -
"26. Each and every circumstance outlined in paragraph 24 above would also have influenced QBE in determining whether to issue the First On Demand Guarantee and the Second On Demand Guarantee.
27. If QBE had known that H & C employed a person who had a previous conviction for fraud as the manager of its York Street Branch, then QBE would not have issued the First On Demand Guarantee and the Second On Demand Guarantee in favour of TCF.
28. If QBE had been made aware of the financial circumstances of H & C as at 22 August 2001, and made aware of the information contained in the Financial Statements, those circumstances would have influenced the plaintiff's decision to accept the risk of providing the First On Demand Guarantee and the Second On Demand Guarantee to the TCF. In those circumstances, the First On Demand Guarantee and the Second On Demand Guarantee would not have been provided."
15 Mr Took's cross-examination left this evidence intact. There was no contrary evidence as to what matters were material to the respondent's decision to issue an on-demand guarantee.
16 The judge said that the appellant promised, for consideration, "to indemnify [the respondent] in the event of loss suffered by it by reason of the guarantee having been issued on reliance upon an untruthful declaration". The nub of her reasons was -
"[The appellant] had an obligation to disclose information of which he was made aware by the registration form he signed on 22 August 2001. Mr Took gave evidence that he had been aware the first defendant employed a person as a branch manager who had a prior conviction for fraud [the respondent] would not have issued an 'on demand' guarantee nor would such guarantees have been issued had he been aware of [H & C's] financial circumstances as at 22 August 2001. From the financial statements it seems [H & C] was trading at a loss in June 2000 and June 2001 and there was also a large loan to Mr Chan which appears to be the company's largest asset. As at August 2001 [the appellant] was aware of ongoing investigations by TCF as to [H & C's] financial viability.
I am satisfied [the appellant] was aware of all those matters and that in such circumstances the signing by him of the registration form and its declaration in his capacity as a director of [H & C] was untruthful with at least two material non disclosures being the financial viability of [H & C] and the fact of Benny Chan's employment in a position of trust and his fraud conviction."
17 The judge accordingly held that the appellant "breached his declaration".
18 Implicit in the judge's decision was that " circumstances … which might influence you and/or your principals' acceptance of the risk" in para (c) of the declaration meant either circumstances which objectively might influence the respondent's acceptance of the risk or circumstances which subjectively to the respondent might influence its acceptance of the risk; and that one or other of these was made out because, on the evidence of Mr Took, the circumstances in question would have influenced the respondent's acceptance of the risk by causing it to decline to issue the on demand guarantee. The untruthfulness to which the judge referred was because the appellant was aware that H & C employed as a branch manager a person who had a prior conviction for fraud and was aware of H & C's financial circumstances.
19 The appellant submitted that this was an incorrect construction of the registration form, and that on its proper construction para (c) of the declaration referred to circumstances which subjectively to the appellant might influence the respondent's acceptance of the risk; in short, that it should be understood as a declaration that the appellant was not aware of any undisclosed circumstances which he was aware might influence the respondent's acceptance of the risk.
20 The appellant gave evidence. If that were the correct construction of para (c), questions might be expected directed to his awareness at the time of whether Mr Chan's managerial position and conviction for fraud, and whether H & C's financial position including its significant indebtedness to Mr Chan, might influence the respondent's acceptance of the risk. He gave no such evidence in chief. Counsel for the respondent attempted to ask the appellant whether he understood at the time that the fact that Mr Chan had been convicted of fraud might influence whether or not the respondent would grant a guarantee to H & C. Objection as to form was taken to the questions, and they were rejected. It is not easy to see why they were rejected, but cross-examination on awareness of circumstances which might influence the respondent's acceptance of the risk was not further attempted. There was no cross-appeal complaining of the rejection of the questions.
21 In the result, the appellant submitted, on the construction of para (c) for which he contended there was no evidence that the declaration in that paragraph had been breached.
22 Reference to untruthfulness is, with respect, unhelpful. The question is whether on the proper construction of para (c) the declaration was breached. "Breach" was not used in its normal sense, but clearly enough meant that what was declared was not at the time correct (paras (a), (b), (c) and (e)) as well as was not thereafter carried out (para (d)).
23 The submissions for the appellant came down to the following. The registration form gave no indication to the declarant as to what might influence the respondent's acceptance of the risk. The material under "Your Duty of Disclosure" did not do so, because the on-demand guarantee was not a contract of general insurance. From notation of a TCF file number on the registration form, the declarant would have known that the respondent had access to another source of information when deciding whether or not to accept the risk. In those circumstances, para (c) should not be construed so as to require the declarant to commit, on pain of liability if the declarant was incorrect, to something which the declarant was not necessarily in a position to know, objective materiality or non-materiality to acceptance of the risk; still less to materiality or non-materiality subjective to the respondent. It was enough that the declarant correctly asserted the declarant's state of mind as to non-materiality. This, it was suggested, was supported by what appeared under "Procedures", which treated issue of the guarantee as all but automatic in response to the application.
24 I do not think the last suggestion is of significance; clearly there was occasion for the respondent to decide whether or not to issue the guarantee, even if an adverse decision was not spelled out as a possible step in the procedure. There is force in the other submissions, but in my opinion they should not prevail.
25 The respondent was not being asked to enter into a contract of general insurance, but it was being asked to issue an on demand guarantee which TCF could and no doubt would call upon if the travel agent failed to account for money entrusted to it. The respondent had a keen interest in matters material to whether it would be called upon to pay under the guarantee, including the travel agent's governance and financial position, akin to that of an insurer entering into a contract of insurance. This would have been obvious to the declarant, and the purpose of paras (a), (b) and (c) of the declaration was to respond to the respondent's interest and provide recourse if the response was incorrect.
26 The inappropriate material under "Your Duty of Disclosure" was not explained, but underlined the respondent's interest and that, as was apparent from para (c) of the declaration, the declarant was to disclose to the respondent circumstances of which the declarant was aware which might influence acceptance of the risk. On the natural reading of para (c), the non-awareness was of circumstances of a particular description, the description having an objective meaning (" … which might influence …"). Paragraph (c) did not express non-awareness of circumstances whose description included awareness of their materiality to acceptance of the risk.
27 It would not be a practical construction of para (c) to tie the disclosure to the declarant's state of mind as to materiality. That would give an advantage to the obtuse declarant or the declarant who gave no thought to what might be material to acceptance of the risk. A construction giving sensible commercial operation to the declaration, in accordance with its purpose, should be preferred if properly available.
28 In contract law generally a contracting party is not uncommonly committed to an objective standard although not necessarily in a position to know its application. In insurance law an insured's duty of disclosure extends to a matter that a reasonable person in the circumstances would be expected to know to be a matter relevant to the insurer's decision whether to accept the risk and, if so, on what terms, see Insurance Contracts Act 1984 s 21(1). Paragraph (c) does not describe the circumstances by the standard of the reasonable declarant's knowledge of their materiality, but it expresses that the declarant is not aware of undisclosed circumstances which objectively, on the standard of the reasonable person in the position of the respondent, might influence the respondent's acceptance of the risk.
29 Questions could arise as to circumstances of common knowledge or circumstances already known to the respondent. They did not arise in the present case, and where breach of the declaration is involved would be answered by causal considerations.
30 The judge did not expressly find that H & C"s employment of Mr Chan as a branch manager and his conviction for fraud, or H & C's financial circumstances, objectively might have influenced the respondent's acceptance of the risk. In my view she did so impliedly, but there can be no doubt that the first of these circumstances, at the least, was within para (c) as I have construed it. There was breach of the declaration, because the appellant was aware of that circumstance and what was declared was not at the time correct.
31 It is not necessary to consider leave to rely on breach of para (a) of the declaration. In my opinion, the appeal should be dismissed with costs.
32 BRYSON JA: Mr Teoh, second defendant in the District Court, appeals from judgment for $109,381.37 given by her Honour Judge Ashford in the District Court at Sydney on 28 October 2005 in favour of QBE Insurance (Australia) Ltd (QBE) the respondent, plaintiff in the District Court. QBE issued an "on demand guarantee" dated 3 November 2001 for $87,000 and a second on demand guarantee for $128,000 on 21 January 2002. These obliged QBE to make payment on demand to Travel Compensation Fund (TCF) and were part of arrangements made to satisfy TCF of the financial responsibility of H&C International Pty Ltd (H&C), a company controlled by Mr Teoh which carried on travel agency business. TCF had an obligation to pay claims to customers whose travel arrangements had not been properly conducted by travel agents, and required to be satisfied of the financial responsibility of travel agents before it gave them licences. There were several ways in which TCF might be so satisfied, but if TCF was not satisfied that a travel agent had sufficient resources of its own it was common for TCF to accept a guarantee of this kind. QBE had a well-established and regular course of business in issuing such guarantees on payment on fees.
33 If QBE incurred a loss under a guarantee it would, as a matter of course, be entitled to have the loss made good by the travel agent. QBE also commonly required an indemnity by a director or partner of the travel agent. Mr Teoh gave QBE an indemnity, and QBE's claim was based on it.
34 TCF received claims relating to the business of H&C, and called up the guarantee for $128,000. QBE paid that amount to TCF, and later received a refund of the balance after TCF had paid claims out of the $128,000. QBE sued H&C, and also Mr Teoh, and claimed the net amount after the refund, together with interest, including interest on the higher amount until the refund was made. QBE discontinued the proceedings against H&C, but pressed its claim against Mr Teoh, at a hearing of three days in May 2005.
35 The indemnity and contractual promise which Mr Teoh gave to QBE is set out in the registration form which performed the functions of an application by H&C to QBE for issue of a guarantee to TCF and also of an agreement by Mr Teoh personally as a director of H&C to indemnify QBE. Decision turns on the construction of this document and not on insurance law or on general doctrines of law. After a number of particulars relating to the guarantee, the form contains a passage, mainly in print but completed in handwriting, which relates to Mr Teoh's indemnity. This passage is: (Black 1/54)
"I B.S. Teoh (Print Full Name) being a director/partner/sole trader of H&C Pty Ltd the applicant hereby declare that
a) I have no reason to doubt that the Applicant would be able to comply with its obligations
b) To the best of my knowledge, information and belief and after due careful enquiry, the information contained herein is correct
c) I am not aware of any circumstances which I have not disclosed to you which might influence you and/or your principals' acceptance of the risk
d) In the event of you issuing the Guarantee applied for the Applicant will, during the period of your principal's liability upon your request, immediately make available to you and allow you to examine or take copies of any accounts or other documents in its possession relating to its own and any Holding and/or Subsidiary Company's financial affairs.
e) I am duly authorised by the Applicant to complete this form on its behalf and to make this declaration on its and my behalf
i) I hereby agree personally to indemnify you and your principals against actions, proceedings, claims and demands which may be brought against your or your principals and all liabilities, losses, damages, costs and expenses of whatsoever nature which you or your principals may suffer, incur or sustain through a breach of this declaration."