20 The central question arising upon the current application must be addressed separately in relation to each policy. I shall begin with the professional indemnity policy.
Assessment of the position under the professional indemnity policy
21 QBE's central contentions in relation to the professional indemnity policy are that:
(a) the policy does not cover any claim against Quantum arising directly or indirectly based upon, attributable to, or in consequence of an actual or alleged act, error or omission in respect of any financial or investment product not listed on the approved product list of Quantum;
(b) the Mezzanine Company promissory notes were not included on Quantum's approved product list; and
(c) the plaintiffs' pleaded claims against Quantum (including the proposed amendments), are all within the product list exclusion.
22 This raises two questions: first, the construction of the product list exclusion (contained in the Financial Planners Endorsement) in the professional indemnity policy schedule, which states that there is no cover in respect of claims in specified circumstances; and second, the factual question whether the Mezzanine Company promissory notes were included on the approved product list of Quantum.
23 As to the second of these matters, a list said to be the relevant approved product list of Quantum has been put into evidence. There is no suggestion that it is not what it purports to be. The list does not contain reference to promissory notes of the Mezzanine Companies. The court should therefore proceed on the basis that the second question is answered in the negative. Attention must therefore be given to the first question and the construction of the product list exclusion.
24 The plaintiffs say that the product list exclusion might not operate to exclude the plaintiffs' claims against Quantum because Mr Chen was arguably not an "Insured" (it is accepted that Quantum itself was an "Insured - indeed, that it was a "Named Insured").
25 The argument that Mr Chen was not an "Insured" centres upon the clause 7.12(a) definition of that term. Under that definition, a person who was an "Authorised Representative" of Quantum (the "Named Insured") was included in the "Insured" designation, "but only in respect of work performed while an Authorised Representative of the Named Insured". It follows, the plaintiffs say, that if Mr Chen (an admitted Authorised Representative of Quantum) was, at the time of his activities the subject of the proceedings, not performing work as Quantum's Authorised Representative (because the activities - or "work" - lay beyond the scope of his authority), he was not brought by clause 7.12(a) within the "Insured" definition. That being so, the plaintiffs say, there is an arguable case that the product list exclusion in the professional indemnity policy does not apply to liability of Quantum on account of the relevant activities of Mr Chen.
26 I accept that there is, at the factual level, a question whether the activities of Mr Chen in relation to promissory notes of the Mezzanine Companies were within the scope of his authority as an Authorised Representative of Quantum. The answer to that question will be relevant to whether he was an "Insured" under clause 7.12(a).
27 If, as the plaintiffs contend in arguing that Mr Chen was not an "Insured", all relevant acts, errors and omissions were acts, errors and omissions of Mr Chen but, in terms of clause 7.12(a), did not form part of or relevantly relate to "work performed while an Authorised Representative of" Quantum, liability of Quantum may not be established. If that is so, there will be nothing to which the policy is responsive.
28 This analysis might hold good according to general principles of agency and vicarious responsibility. But it breaks down when one has regard to the statutory scheme. In the draft statement of claim, the following appears:
"In the premises, during the AR Periods [i.e, particular periods specified in the document], Quantum was responsible, as between itself and the Plaintiffs and Group members who:
(a) received financial product advice from Mr Chen;
(b) could reasonably be expected to rely upon such services; and
(c) on which they in fact relied in good faith,
for Mr Chen's conduct, pursuant to s 917B of the Corporations Act."
29 Section 917B of the Corporations Act is in these terms:
"If the representative is the representative of only one financial services licensee, the licensee is responsible, as between the licensee and the client, for the conduct of the representative, whether or not the representative's conduct is within authority ." [emphasis added]
30 This section appears in Division 6 of Part 7.6 the scope of which is stated in s 917A(1):
"This Division applies to any conduct of a representative of a financial services licensee:
(a) that relates to the provision of a financial service; and
(b) on which a third person (the client ) could reasonably be expected to rely; and
(c) on which the client in fact relied in good faith."
31 Section 917E is in these terms:
"The responsibility of a financial services licensee under this Division extends so as to make the licensee liable to the client in respect of any loss or damage suffered by the client as a result of the representative's conduct."
32 Section 917D excepts from s 917B responsibility for conduct of a representative that was beyond the scope of the representative's authority if there was clear disclosure to the client of that fact.
33 The concluding words of s 917B make it clear that, subject to the possibility raised by s 917D, Quantum will, for the purposes of relevant statutory provisions, be responsible for relevant conduct of Mr Chen even if Mr Chen was, at the time, on a "frolic of his own".
34 The liability in respect of which indemnity would be sought under the professional indemnity policy - being the liability established in the proceedings - would be a liability of Quantum. It is Quantum that is, by the proceedings, subjected to a claim concerning "an actual or alleged act, error or omission in respect of" the Mezzanine Company promissory notes. On that basis, there is no apparent reason why the product list exclusion cannot be invoked, whether or not Mr Chen was himself an "Insured". The focus of the product list exclusion is not upon the person who performed or committed the "actual or alleged act, error or omission". It is upon the person against whom the "Claim" is brought. That, in the present context, is Quantum, not Mr Chen.
35 The matter just mentioned is, in my opinion, fatal to any contention that the product list exclusion does not apply. Once it is accepted that, whether or not Mr Chen was an Insured, Quantum was clearly an Insured and that the plaintiffs are proceeding against Quantum alone, the situation is one in which there is a "Claim" (in the clause 7.3 sense: see item 7 at paragraph [18] above) against the "Insured" (Quantum) "arising directly or indirectly based on, attributable to, or in consequence of an actual or alleged act, error or omission" (being an act, error or omission of Mr Chen for which, as between Quantum and its relevant client, Quantum is, by s 917B, responsible even if Mr Chen was not acting within authority) "in respect of a financial or investment product" (Mezzanine Company promissory notes) which, at the time of the act, error or omission, was not on Quantum's approved product list.
36 In relation to the professional indemnity policy, I accept the submissions of Mr F Gleeson SC on behalf of QBE that there is no arguable basis for contending that the product list exclusion is inoperative or inapplicable. That being so, the conclusion must be that there is no arguable basis for contending that the professional indemnity policy provides indemnity for Quantum in respect of the matters alleged against it in these proceedings.
Assessment of the position under the financial institutions policy
37 I turn now to the financial institutions policy. The two questions relevant to whether that policy arguably responds in the present case are, first, whether the claims of the plaintiffs and other members of the class against Quantum are within the description "as a result of a breach of professional duty in the conduct of the Financial Service" (with the "Financial Service" being understood as "Funds Management, Finance Broking, Securities Dealing"); and, second, if so, whether the financial planning endorsement applies to those claims.
38 As to the first of these matters, the plaintiffs say that the financial institutions policy should be presumed to have been concluded in the context of a mutual acknowledgment of the scheme of Chapter 7 of the Corporations Act under which financial services may be provided either by a licensee itself or by it authorised representatives. On that footing, it is said, it is arguable, in the sense relevant to the present application, that "Financial Services", for the purposes of the financial institutions policy, extend to services of the relevant kind provided by an authorised representative. I accept that that is an arguable proposition.
39 Of the three components of "Financial Services" specified in the definition, only "Securities Dealing" (an expression not defined by the financial institutions policy) is potentially applicable to the present circumstances. If resort is again had to Corporations Act concepts, the expression "Securities Dealing" might be understood to be "dealing", in the sense emerging from s 766C, in or with that species of "financial products" which is within s 764A(1)(a), being "a security" as defined by s 761A. Again, this may be accepted as arguable.
40 An issue then arises as to whether promissory notes issued or made by the Mezzanine Companies are "securities" within the s 761A definition. The plaintiffs acknowledge that promissory notes created and made by other Westpoint Group companies in circumstances similar to those involving the Mezzanine Companies have been held not to be "securities" within the Corporations Act definition: Emu Brewery Mezzanine Ltd v Australian Securities and Investments Commission [2006] WASCA 105; (2006) 32 WAR 204; Re York Street Mezzanine Pty Ltd [2007] FCA 922; (2007) 162 FCR 358. It may well be that the promissory notes involved in this case are likewise not within the statutory definition. But that would not be determinative, given that the expression "securities" is used in a contract of insurance in relation to which the statutory scheme may provide no more than guidance. In addition, much will depend on the form and content of the particular notes. The proposition that the present circumstances involve "Securities Dealing" in a more general sense remains arguable.
41 QBE contends, however, that the financial institutions policy must be read together with the professional indemnity policy and that, when this is done, "Financial Planning" can be seen to be within the province of the professional indemnity policy and beyond the province of the financial institutions policy. Both policies provide cover in respect of the same period (31 May 2005 to 31 May 2006). The financial institutions policy, having regard to item 6 of its schedule (see item 6 at paragraph [19] above), extends to "Funds Management, Finance Broking, Securities Dealing"; and by force of the financial planning exclusion (see item 8 at paragraph [19] above), it does not provide cover relevantly related to "the provision … of any advice usually provided by a Financial Planner". The professional indemnity policy, on the other hand, expressly covers "Financial Planning" (see item 3 at paragraph [18] above). That being so, it is argued, the two policies taken together show an intention on the part of Quantum and QBE (being the only parties to each policy) that insurance cover for "the provision … of any advice usually provided by a Financial Planner" in the relevant period is to be provided by the professional indemnity policy above.
42 I do not think that any conclusion to this effect can be drawn from the terms of the policy documents alone. To the extent that questions of construction of the commercial contracts arise, it may well be necessary to have regard to extrinsic evidence showing "the facts which the negotiating parties had in their mind" and "the objective framework of facts within which the contract came into existence; and the parties presumed intentions in this setting": Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at CLR 350 and CLR 352 per Mason J. Questions of that kind are not suitable to be determined upon an inquiry such as the present.
43 I proceed therefore to consider the independent operation of the financial planning exclusion, read simply as part of the financial institutions policy. The first step is to look at the claims the plaintiffs make in the proceedings: see paragraphs [13] to [16] above. The several alleged statutory contraventions of Mr Chen should be considered separately, remembering that the plaintiffs seek to sheet home to Quantum, as Mr Chen's principal, responsibility for those alleged contraventions.
44 The plaintiffs claim that Mr Chen contravened s 941B of the Corporations Act. That section (omitting its footnotes) is as follows:
"(1) An authorised representative (the providing entity ) of a financial services licensee (the authorising licensee ), or of 2 or more financial services licensees (the authorising licensees ), must give a person a Financial Services Guide in accordance with this Division if the providing entity, as a representative of the authorising licensee, or one or more of the authorising licensees, provides a financial service to the person (the client ) as a retail client.