In the recent decision of SP98970 v Capitol Property [2021] NSWSC 950 the Supreme Court of New South Wales considered the circumstances in which asset freezing orders will be extended.
P was an owners corporation that owned the common property in a building. P sued the developer, D, in relation to alleged defects P said were afflicting the building, and that were a breach of the Home Building Act statutory warranties.
P tried to organise site inspections of various experts to investigate and hopefully quantify the defects but COVID lockdown restrictions frustrated that
P’s pre-inspection estimate of damage was around a million dollars and, P said, that was likely to increase after inspection.
D owned Lot 2 in the building.
P’s lawyers became concerned that D might sell Lot 2 and P’s lawyers raised this issue with D’s lawyers.
Without P’s knowledge, D transferred Lot 2 to Q (a person who had a relationship with D) for a recorded price of $3.78m, but with no money changing hands.
This left D with around $900K to pay any judgment P might get in the defect proceedings.
P applied for, and got, a “freezing order” preventing Q from selling Lot 2, unless in an arm’s length transaction with the price paid to be held on terms both agreed.
At the time the order was made, D had around $635K.
The Court accepted there was a good, arguable case that the transfer of Lot 2 to Q was voidable, a transaction to defraud D’s creditors: s37A, Conveyancing Act.
At the time of the hearing Q was already restrained by freezing orders. The case we are discussing is P’s application to extend them. P sought an extension of the freezing orders to get its defect evidence on.
D and Q did not oppose an extension but sought a reduction from the full value of Lot 2 to $800K, following a deposit of $200K into a trust account, and after giving an undertaking not to deal with Lot 2 without P’s knowledge.
The Court accepted a freezing order is a drastic remedy, not to be used improperly as additional security. Because P undertook to bring s37A proceedings, with the potential to void the transfer of Lot 2 from D to Q, the Court extended the freezing order for Lot 2 (or its sale proceeds) by 4 months.
Asset protection orders can be tricky, but are a very useful way to protect your client’s rights if your client is pursuing a party who might be divesting themselves of assets.
In the recent decision of Nergl Developments v Vella [2021] NSWCA 131 the Court of Appeal had to consider the nature of an agreement reached between landowners and developers.
In 2008 and then 2010, a developer, N, entered into agreements with adjoining landowners including V to develop some land.
N commenced development and lodged caveats over land including V’s. The caveats secured obligations purportedly pursuant to the 2010 agreement.
By 2018 the initially lodged caveats were replaced by new caveat. V applied to the Court to have them removed.
In December 2018 the parties attended a mediation and negotiated a Heads of Agreement settling all disputes arising out of the agreements.
Things again stalled, however. Each party sought specific performance of the Heads of Agreement by executing certain documents, but they disagreed on what precisely was to be done.
The Court at first instance made various orders for the performance of the Heads of Agreement.
N appealed. The Court at first instance found the Heads of Agreement to be a Class 2 Masters v Cameron (1951) 91 CLR 353 document i.e. a complete record of an agreement conditional on the execution of a later formal document.
The parties agreed he execution of further documents were consideration for, not replacement of, the Heads of Agreement.
The Court of Appeal considered the practical impact of N’s challenge on this point (i.e. that there should be some new document replacing the Heads of Agreement) was obscure: even if N was correct and a new document replacing the Heads of Agreement was required, little would change practically except for the very technical issue of the form of the specific performance orders the Court would make.
There was extensive argument about whether the width of the easement was to be 16M or 21.6M, with the material such as the DA being unambiguously 16M.
N referred to possible use of buses on the road to be built, and suggested that 21.6M was required. Noting that the 16m width of road could deal with garbage trucks and the like, and that only up to 19 lots were proposed in the development, 21.6M was not found to be necessary. None of the further evidence founded an inference for departing from the 16M requirement implied in the Heads of Agreement.
N argued it was an implied term of the Heads of Agreement that a construction easement be granted.
The main purpose of the Heads of Agreement was to terminate the tripartite agreement and it was not necessary that a construction easement be implied
N’s argument for an easement for a roundabout was rejected
The costs order from the earlier proceedings was clarified to make clear it did not relate to “pre-mediation” legal costs, only costs after the Heads of Agreement was entered into.
N’s appeal was dismissed.
N’s failed appeal stands as a salutary lesson in recording any agreement reached between commercial parties as clearly and precisely as possible.
In the decision of Gearhouse BSI Pty Ltd [2021] NSWSC 98, The Supreme Court of New South Wales considered the circumstances in which it might make an order to wind up a company on the “just and equitable” basis pursuant to s461(k) of the Corporations Act 2001 (Cth).
B and G founded a company, Co, and entered into a shareholders agreement.
B and G’s intention was to cause Co to provide in-car cameras for race cars to be used in TV broadcasts of car races.
In 2015 the Co entered into an agreement with a TV broadcaster to provide the in-car camera services for a fixed term of 5 years, concluding at the end of 2020.
B and G each transferred equipment to the Co for the Co’s exclusive use. B’s was valuable, “unique” technical equipment.
On termination of the shareholders agreement, each shareholder had the right to buy back equipment from the Co at fair market value:
B commenced proceedings seeking to wind up the Co on the just and equitable basis, s461(k).
The broadcaster sought expressions of interest for the next 5 year period and the Co didn’t respond (though B’s parent company did).
After the last race in October 2020 B came to take back its equipment, but G prevented that.
B’s later requests for info about its equipment were met with no response.
Later in 2020, the broadcaster, having not named anyone else, asked the Co to provide its services for 2021.
G pressed for the Co to go ahead with the 2021 deal. B refused.
B sought confirmation G would not use B’s equipment. Instead, G sent it to racing venues in January 2021 without B’s knowledge or consent.
B wanted to buy back the camera equipment from the Co to meet its other contractual commitments.
B said the substratum of the Co’s business had failed and so it should be wound up.
G disagreed, saying the Co’s substratum was not limited to 2016 – 2020, but that it could continue (with an offer on the table).
The Court found the Co couldn’t do what it was meant to do because of the war between the shareholders, meaning the Co’s substratum failed.
Reasons included: broadcaster’s offer was a mere agreement to agree, with terms to be worked out later; the loss of trust and confidence meant the prospects of successfully continuing the Co were “so remote as to be fanciful”.
The Court found B had justifiably lost confidence in G.
The Co was solvent, and there was no prejudice to creditors of employees (there were none) if it was wound up.
Due to (i) breakdown in cooperation and trust, (ii) B’s justified loss of confidence in G, (iii) G’s improper deployment of B’s equipment, the Co’s substratum failed meaning it would be just and equitable to wind up the Co in the absence of an alternative remedy.
There being no appropriate alternative remedy (including by way of dispute resolution clauses in the shareholder agreement), the winding up orders were made.
This case illustrates the importance of getting the shareholders agreement right at the commencement of any new venture. If parties are bound to an inappropriate arrangement, then the outcome can be dire, and expensive.
The Supreme Court of NSW in Eastern Creek Holdings Pty Limited v Axis Speciality Europe Limited [2010] NSWSC 840 granted leave for proceedings to be commenced directly against an insurer, as opposed to its insured. Leave was granted pursuant to ss 4 and 5 of the Civil Liability (Third Party Claims against Insurers) Act 2017 (NSW) and, in the alternative, pursuant to section 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).
Background
On 25 December 2011, the plaintiff attended an event at a house owned by the defendant. The plaintiff fell from the property’s balcony and was rendered tetraplegic. The plaintiff commenced proceedings against the defendant alleging that his negligence had caused her injuries.
On 30 March 2011, the defendant had entered into a policy for insurance for the period 30 March 2011 to 30 March 2012. This policy covered the defendant for liability up to $20,000,000.00 arising as owner or occupier of the property.
Shortly after the incident, a claim for indemnity was made under the policy.
Proceedings were commenced on or around 17 December 2014.
The main issue before the Court was whether leave ought to be granted to join the insurer to the proceedings.
Considerations
The plaintiff carried the onus of convincing the Court that it was appropriate to pursue the defendant’s insurer in proceedings, as opposed to maintaining the proceedings as against the insured defendant.
In considering section 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946, and section 5(4) of the Civil Liability (Third Party Claims against Insurers) Act 2017 (NSW), the Court cited comments made by Hammerschlag J in Eastern Creek Holdings Pty Limited v Axis Specialty Europe Limited [2010] NSWSC 840 that in order to pursue an insurer directly under the sections the insured must show that:
Supreme Court Decision
The Court was satisfied that as the plaintiff sought damages in excess of $7,000,000.00, and the defendant had assets of less than $500,000.00, there was a real possibility that the defendant would not be able to meet a judgment debt.
The Court also considered whether the defendant’s policy responded to the incident. The insurer relied on an exception under the contract for insurance, which provided that if the accident occurred at a property that was not specified in the policy Schedule the defendant would not be covered. The Court did not accept this position and found that the policy provided coverage for any incident occurring in Australia so long as the defendant is an owner or occupier of that property.
For these reasons, the Court granted leave to the plaintiff to commence proceedings directly against the insurer.
Implications
The Court has affirmed the test for whether leave should be granted to proceed directly against an insurer. When drafting a contract for insurance, insurers must be specific in defining the circumstances upon which an insured would be covered as this may give rise to proceedings being commenced directly against the insurer.
It should also be noted that if an insured defendant is not able to meet the judgment debt, there are grounds to commence proceedings directly against their insurer.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
The Federal Court of Australia has delivered judgment in the matter of Technology Swiss Pty Ltd v AAI Limited trading as Vero Insurance [2021] FCA 95. This is an important case in considering the right of an insurer when an insured pursues a third party in relation to losses which were partially insured by the insurer.
Background
The plaintiff to these proceedings, Technology Swiss Pty Ltd (“Technology Swiss”) shipped cannons internationally to Bangkok with the agreed value of $770,095.58. The consignment was said to be insured pursuant to a marine insurance policy which had been issued by AAI Limited trading as Vero Insurance (“Vero Insurance”). The policy provided indemnity up to the limit of $500,000.00.
During the delivery of the cannons to Bangkok the items were damaged and Technology Swiss lodged an insurance claim with Vero Insurance. Indemnity was granted by Vero Insurance and a cash settlement payment was paid to Technology Swiss in the amount of $200,000.00.
Technology Swiss and Vero Insurance disputed the quantum of the total losses and were unable to reach an agreement as to the value of the cannons. Proceedings were then commenced by Technology Swiss. Vero Insurance admitted liability but disputed quantum, and sought a reduction from $770,095.58 to $200,000.00.
These proceedings were settled by execution of a Deed of Release as between Technology Swiss and Vero Insurance. An additional amount was paid to Technology Swiss in the amount of $425,000.00. The total amount granted to Technology Swiss at this point in this was $625,000.00.
Subsequent proceedings were commenced in the County Court of Victoria as between Technology Swiss and the carrier of the cannons, Famous Pacific Shipping (Vic) Pty Ltd. Technology Swiss obtained judgment in these proceedings in the amount of $863,758.70.
Swiss Technology commenced a further set of proceedings against Vero Insurance to determine how much of the $863,758.70 the insurer was entitled to.
Issues considered by the Court
The main dispute between the parties was the characterisation of the payments made by Vero Insurance. As Swiss Technology obtained judgment in the amount of $863,758.70, the question before the Court was how much the insured was obliged to reimburse its insurer.
The Court noted that in circumstances where the payment made by an insurer is categorised as a payment made to settle anticipated litigation, this alone will not give rise to a right of subrogation and accordingly an insurer will not be permitted to recover the sum of monies otherwise made in favour of the insured.
Determination
The Court ultimately determined that Vero Insurance was entitled to the amounts it had paid to Technology Swiss from the monies recovered by the insured from Famous Pacific Shipping (Vic) Pty Ltd.
The insured contended that the settlement sum received from the insurer could not be characterised as indemnity as the payment received from the insurer was classed as a payment to avoid impending litigation and not a payment under the policy. The insurer disputed this and contended that it had admitted liability for the incident and as the remaining dispute pertained to quantum, it assumed any payments granted to the insured was an indemnity under the policy.
The Court accepted this approach however indicated that insurers are required to provide express provisions within their policy to indicate whether good will payments or ex-gratia payments are to be characterised as indemnity payments.
Implications
This judgment is a reminder for insurers to ensure that express provisions are made within a contract for insurance to state clearly that settlement monies are classed as an indemnity payment and not a good will payment. Even in circumstances where a good will or ex gratia payment is made to an insured, policy provision must expressly characterise them as indemnity payments.
Insurers should be careful in the manner which their policies and deed of releases are drafted and must ensure that payments are properly characterised as indemnity payments.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
The matter of Lloyds v Pantaenius Australia Pty Ltd [2016] FCAFC 150 confirms the operation of Section 54 of the Insurance Contacts Act 1984 (Cth) in ensuring that insurers are not unduly denying insurance claims.
Background
Mr Phillips was the owner and operator of a luxury yacht. He held policies of insurance against damage to his yacht. He had one policy with Pantaenius Australia Pty Ltd for the period 4 May 2013 and 4 May 2014. He had another policy with Watkins Syndicate 0457, which covered the yacht between for the period 1 December 2012 and 1 December 2013.
On or around 22 June 2013, when both policies were active, the yacht was returning from Australia when it was struck and damaged. It was unrepairable and claims were made by Mr Phillips under both policies. Pantaenius accepted liability and effected a payment of $341,179.51 to Mr Phillips.
However, Watkins Syndicate 0457 denied the claim on the basis that cover under its policy would be suspended if the yacht left Australian waters and would only resume if the yacht had gone through Australian customs was is cleared to enter Australian waters. As the yacht had not cleared Australian customs when the damage occurred, indemnity was denied.
Determination
Foster J in the Full Court of the Federal Court of Australia held that if Watkins Syndicate 0457 intended to offer a policy that only provided cover for domestic travel, it should have been expressed within the policy. The act of leaving Australian waters was a necessary pre-condition to the suspension of the insurance policy, it cannot be accepted as an exclusion clause unless it was expressed within the policy.
The Court was satisfied that section 54(1) of the Insurance Contacts Act 1984 (Cth) applied. The Court said that as the insured’s act did not cause loss and the insurer had suffered no prejudice, the Court was satisfied that the insurer would be prevented from refusing a claim.
Implication
This case shows the consistency of the Courts in applying section 54 of the Insurance Contracts Act 1984 (Cth). Insurers must ensure that its exclusion clauses are not drafted such that the effect of the contract of insurance would be to deny claims.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
The NSW Court of Appeal considered in Belflora Pty Ltd v Vinflora Pty Ltd [2021] NSWCA 178, whether a restraint of trade would be upheld in the event partners mutually agree to be restrained in operating in each other’s market.
Background
Between January 2003 and June 2018, Mr Belcastro and Mr Uppalapti operated Belflora Australia Pty Ltd (Belflora) (as equal partners and shareholders) at the Flemington markers selling flowers imported from South America and Kenya.
Around 2018, the directors decided to split the business, including the 10 stands at the Flemington markets, and entered into a written agreement. The agreement stated that [at 8]:
| “VAMSI WHOLESALE
Kenyan flowers to be exclusive to Vinflora. Only Vamsi to speak to them. |
JOHN WHOLESALE
South American flowers to be exclusive to Belflora. Only John to speak to them. |
| The farms listed above are to be shared. They are to be sold at the same price on both stands. Vamsi can wholesale what Vinflora imports and John can wholesale what Belflora imports.
Vamsi pays for shipment clearance of flowers from Vinflora growers. John pays for shipment clearance of flowers from Belflora growers. Other things to share: Truck The reason for these agreements is so that we do not have two identical stands.” |
|
Put simply, the restraint meant that it:
The reasoning behind the restriction provision was so that they did not have “two identical stands”.
Around July 2019, Vinflora (Mr Uppalapti) started displaying South American flowers that were not supplied to it by Belflora.
The main issue that arose between the companies was whether the restraint provisions that were in the agreement were void, for being unreasonable.
Conclusion
The Court noted that the that the agreement was void as it was unreasonable restraint of trade and was contrary to the public policy. The three judges held that the restrain provision did not protect any legitimate interest of Belflora.
Bathurst CJ summarised the matter as follows:
“[30] … No justification for a blanket protection from importation from a subcontinent was offered, except that it would protect Belflora from competition. The position is exacerbated by the fact that Vinflora was not only prohibited from importing flowers from South America but was prohibited from purchasing South American flowers from anyone other than Belfora and then selling them only on a profit share basis. This goes well beyond any legitimate interest Belflora would be entitled to protect.
[31] Three things should be added. First, the fact that there were mutual restraints does not affect the position. Whilst it may have been seen by the parties as beneficial to have mutual restraints against competition, that does not mean the restraints were valid. Second, the fact that the mutual restraints were freely bargained for provides no sufficient reason for concluding that the doctrine should not apply. … Third, there was some debate in the Court below as to whether Vinflora benefited from the restraint to a greater degree than Belflora. That, in my opinion, is immaterial to the resolution of the question.”
The effect of the above was that the primary judge was correct in dismissing Belflora’s claim for an injunction to restrain Vinflora from displaying and selling South American flowers in its stores.
Implications
An agreement to provide exclusive rights or agree to restrain will more than likely to be deemed an unreasonable restraint of trade unless there is a legitimate protection of an interest. However, overcoming the public interest test will be a high bar especially when there are no trade secrets and/or confidential information and/or goodwill that is to be protected.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
Darke J has handed down his decision in First Mortgage Capital Pty Ltd v Westpac Banking Corporation Ltd [2021] NSWSC 1143, where he considered the actions of a second-tier lender in redeeming prior mortgages and set out the appropriate procedures for mortgagees to charge interest on the redeemed mortgage.
Background
On 23 April 2018, Glocal Villager International Pty Ltd (Glocal) entered into a loan agreement with First Mortgage Capital Pty Ltd (First Mortgage) for $289,915. In support of the loan agreement, Ms Zufaidah Binte Juri (Ms Juri) and Sheik Taleb Bin Sheik Husain (Mr Husain) provided a personal guarantee and mortgages to First Mortgage over properties located in:
On 10 May 2018, First Mortgage advanced the net amount of $250,000 to Ms Juri and Mr Husain, with the remaining funds being used for payment of three months interest and various fees.
It was a term of the mortgage that (clause 18.3 of the memorandum) [at 19]:
“If an Event of Default occurs, or is deemed to have occurred:
…
(h) the Lender may pay to any mortgagee of any other Encumbrance the whole or any part of the amount owing to that mortgagee and nay money so paid by the Lender will form part of the Secured Money and will be secured by this Mortgage;”
The loan was to be repaid by 30 October 2018, which Glocal failed to do.
On 28 May 2019, First Mortgage lodged caveats over properties owned by Ms Juri and Mr Husain pursuant to the terms of its loan agreement, which had pre-existing mortgages:
On 29 January 2020, First Mortgage redeemed the mortgage held by CBA over Darley and subsequently sold the property. Following this, First Mortgage redeemed Westpac’s mortgage over Albion Park Rail and sold the property.
On 25 May 2020, the solicitors for First Mortgage sent a letter to Westpac in relation to Albion Park Rail properties and stated [at 46]:
“… The Second Mortgagee’s mortgage is in default as the Mortgagor failed to repay the mortgage by the term date.
Pursuant to section 94 of the Conveyancing Act 1919 (NSW) we are instructed that the Second Mortgage intends to redeem the First Mortgagee’s mortgage.”
Around this time, Ms Juri and Mr Husain wrote to Westpac noting that the power of attorney (included in the loan agreement) granted to First Mortgage was rescinded. Westpac withdrew from the PEXA workspace with First Mortgage and was sought to “hold off” until receipt of further information prior to allowing redemption of their mortgages over Albion Park Rail properties.
On 23 October 2020, First Mortgage filed a Summons that sought orders that Westpac transfers its two registered mortgages over, respectively owned by Ms Juri and Mr Husain, over Albion Park Rail properties.
Ms Juri and Mr Husain filed a cross-claim that sought [at 5]:
“(a) the rate of interest stipulated, namely, 60% p.a. as the Higher rate and 30% p.a. as the Lower Rate; and
(b) the exercise of a power by First Mortgage under its mortgages to pay-out other mortgagees, and add the amounts so paid to the Secured Money such that interest henceforth run on those amounts as well.”
Decision
Darke J did not agree with the submissions made by Ms Juri and Mr Husain that First Mortgage’s interest rates were exorbitated for short term commercial loans. Especially when Ms Juri and Mr Husain entered the transaction with the knowledge of the interest rates and obtained legal advice prior to singing of the loan agreement.
The cross-claim alleged that First Mortgage had exercised and was intending on exercising its power under cl. 18.3(h) in order to [at 58]: “charge interest at the rate of 60% rather than the commercial rates charged by Westpac and CBA and therefore effectively acquire all of the cross-claimants’ equity in their property portfolio (on a $289,915 loan)”. Further, Ms Juri and Mr Husain stated that this conduct was contrary to the implied terms of the mortgagee’s obligations and was unsociable conduct.
The Court concluded that:
Pursuant to the Summons, the Court granted First Mortgage the right to redeem the mortgages held by Westpac over Fairy Meadow, however they were not permitted to charge the mortgagors interest at the rate of 60% p.a., rather it was to charge interest as per the terms of Westpac’s loan agreement over Fairy Meadow.
Implications
The Supreme Court of New South Wales set out clearly what a mortgagees rights are in relation to redemption of earlier mortgages and their rights in relation to charging of interest. Any lender considering redeeming any earlier mortgage should consider the implications of this case and their rights to charge interest on the redeemed mortgage(s). This decision will significantly affect the enforcement options and play into the strategy undertaken by lenders.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
Part 4 of the Civil Liability Act 2002 (NSW) (CLA) allows for a defendant to identify other concurrent wrongdoers that may have caused and/or contributed to harm suffered by a plaintiff.
Section 34(2) of the CLA defines concurrent wrongdoer as:
“… a person who is one of two or more persons whose acts of omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.”
In Bingo Holdings Pty Ltd v GC Group Company Pty Ltd [2021] NSWCA 184, the New South Wales Court of Appeal considered whether or not a defendant is able to identify a person or a category of people as concurrent wrongdoers for the purpose of Part 4 of the CLA.
Background
The plaintiff (CG Group) commenced proceedings against the defendant (Bingo) seeking damages for contamination of its recycled aggregate by Bingo between 1 June 2017 and 21 July 2017. Bingo sought leave on a couple of occasions to amend its Technology and Constructions List Response so as to plead proportionate liability pursuant to the CLA. The proposed amendments sought to identify over 700 registered owners of vehicles that delivered waste to Bingo, who it was alleged may have caused the contamination of the recycled aggregate.
Bingo submitted to the Court that it was not required to plead that any one or more of those people were a concurrent wrongdoer. Instead, Bingo alleged that it was sufficient that any of the identified parties may be a concurrent wrongdoer.
CG Group opposed the amendment application by arguing that Bingo was required to identify the person/party as a current wrongdoer.
Decision
Their Honours cited with approval:
1. Hammerschlag J in Ucak v Avante Developments Pty Ltd [2007] NSWSC 367 at [35]:
“ … that for a defendant to assert that there is a person who is a [concurrent] wrongdoer the defendant must plead the necessary elements which result in the asserted conclusion. Those elements are:
2. Henry J in The Owners – Strate Plan No 87265 v Saaib [2021] NSWSC 150 at [514]:
“ … it is essential that any defendant be required to plead the proportionate liability defence in a manner that discloses the cause of action and damage in at least as detailed a manner as would be required for any initiating process for a cause of action …”.
The Court concluded that the section 34 of the CLA does require the identification of the alleged concurrent wrongdoer and how their actions caused the loss or damage the subject claim; not merely an alleged potential wrongdoer or identifying a class of persons, who may have caused loss or damage.
Implications
If a defendant is seeking to rely on a proportionate liability defence under the CLA, it must identify each concurrent wrongdoer with precision. It is not sufficient to merely identify a class of persons who may be concurrent wrongdoers.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
AFCA looks at an insurer denying a claim for non-disclosure of an insured’s criminal record.
The complainant (the Insured) held a car insurance policy with Eric Insurance Limited (the Insurer), and lodged a claim after his car was damaged in a collision on 26 April 2020.
AFCA considered whether the insurer was entitled to deny a claim pursuant to section 21 of the Insurance Contracts Act 1984 (Cth) (the ICA). Section 21 of the ICA provides that before an insurer provides the relevant insurance, an insured has a duty to disclose information including what a reasonable person would be expected to know in the circumstances of the relevant contract of insurance. In this case, the Insurer asked the following question of the Insured as part of the disclosure process:
In the last five years have you or anyone likely to drive/ride the vehicle ever been charged or convicted of a criminal offence, including drug and alcohol related driving offences (DUI)?
The Insured responded ‘No’.
However, the Insured’s criminal history showed that he was charged with ‘possessing dangerous drugs‘ and ‘possessing utensils or pipes‘ on 5 October 2015 and 17 November 2015.
The Insured denied breaching his ICA disclosure obligations on the basis that he believed the question only related to criminal offences that related to driving.
AFCA found that although the question did ask about all criminal offences (not just driving offences) the Insurer could have done more to make this clear (e.g. by separating the relevant categories of offences). AFCA found that the phrasing of the question caused the Insured to assume that the question related to driving offences only, and that this was reasonable given the Insured was obtaining a policy of insurance for his car.
Ultimately, the Insurer failed to establish that the Insured had breached the duty of disclosure as a reasonable person in the Insured’s circumstances could only be expected to have disclosed driving criminal offences. The Insured was not charged or convicted of any driving offences in the five years prior to commencement of the Policy. Therefore, the Insured was found to have complied with the duty of disclosure outlined in section 21 of the ICA.
This is yet another example where AFCA has ruled that it was unfair for an insurer to deny a claim in circumstances where a complainant thought he was only required to disclose information relating to the type of insurance in question.
If you or someone you know have had a claim denied by an insurer, talk to one of our insurance law experts today!