Restraint of trade clauses, sometimes referred to as “restrictive covenants”, prohibit or restrain employees or contractors (“workers”) from engaging in certain conduct after they end their engagement with your business. They operate to protect your business interests, namely your confidential information, intellectual property, and client list. Restraint clauses are an important provision in all workplace agreements to ensure your business interest and goodwill are adequately protected.
However, it is important to note that restraint of trade clauses are presumed to be invalid and unenforceable unless they can be shown to be genuinely necessary to protect your business’s commercial interests. They cannot simply be used to protect your business against competition in the market. As such, business owners must ensure such clauses are carefully drafted to avoid a finding that the restraint of trade provision is unenforceable against the worker.
Types of Restraint Clauses
There are three primary restraint clauses that are commonly found in workplace agreements:
Requirements for Restraint of Trade Clauses
Whilst restraint of trade clauses offer significant protection of your business interests and goodwill, it is important to note that the restraints must be fair and reasonable. As stated in the leading High Court decision of Buckley v Tutty (1971) 125 CLR 353, the Courts will generally find a restraint of trade clause to be invalid and unenforceable if it is contrary to public policy and unreasonably interferes with the worker’s right to provide their labour to the public:
“unreasonable restraints are unenforceable as it is contrary to public welfare that a person should be unreasonably prevented from earning a living in whichever lawful way he chooses and that the public should be unlawfully deprived of his services.”
To ensure that a restraint of trade clause is reasonable and valid, it must protect your legitimate business interests, and go no further than is reasonably necessary to do so.
Legitimate Interests
It has long been upheld since the 1916 decision in Herbert Morris Ltd v Saxelby [1916] AC 688 that protecting your business against the unauthorised use and disclosure of confidential information and customer connections is a legitimate and protectable business interest.
Additionally, it has traditionally been upheld, as found by the Court in Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717, that safeguarding the maintenance and stability of your business’s workforce is a legitimate and protectable business interest.
No further than reasonably necessary
In determining whether a restraint of trade clause goes no further than is reasonably necessary, the Court will consider the scope of the clause and the restraints it imposes on the worker. The factors that will be considered include, but are not limited to:
Key Takeaways
Restraint of trade clauses are an effective way to protect your business’s interests, however, it is vital that these clauses are carefully drafted to prevent a Court from finding that they are unreasonable and unenforceable.
Workplace agreements should be reviewed on a regular basis to ensure they accurately detail your worker’s position duties and that any restraints go no further than reasonably necessary to protect the legitimate interests of your business. It is important to seek legal advice on the reasonableness and validity of your business’s restraint clauses to sufficiently protect your business’s interests and goodwill from any adverse conduct by your ex-workers.
Contact the Workplace Law Team at Chamberlains Law Firm for any questions and concerns.
With the various high-profile cases recently broadcasted surrounding the underpayment of employee’s wages and entitlements, the Fair Work Ombudsman is employing a greater focus on non-compliant businesses.
Although unintentional in most cases, underpaying employees is a serious breach of Australian workplace laws and industrial instruments and can lead to the imposition of significant penalties, as well as the risk of reputational damage to your business.
It is important to understand your obligations concerning accurately paying your employees, as small mistakes can have large consequences. Ultimately, the failure to identify an underpayment issue can give rise to underpayment claims from employees and the potential for your business to be subject to further investigations by the Fair Work Ombudsman.
To avoid non-compliance, we have summarised the common mistakes that employers make that result in underpayments, and how to prevent them.
Small errors, serious ramifications
Misunderstanding your legal obligations
With the various industrial instruments that apply to employees and the frequency of changes to the law, employers can lack knowledge of, or simply be unaware of their obligations towards their employees under the Fair Work Act 2009 (Cth) (FWA), the applicable Modern Award or an Enterprise Agreement. This may result in the misapplication of relevant workplace laws and regulations and a failure to meet those obligations.
Payroll issues
Using outdated payroll technology, under-investing in resources, or foregoing regular reviews of your payroll systems can cause issues to be overlooked.
Incorrect classification of employees
There are several Modern Awards currently in operation, with many more being established each year. Employers often experience difficulty in accurately classifying an employee, or in circumstances where an employee is correctly classified at the commencement of their employment, as the employee’s role changes, the Modern Award that initially applied changes, or as a more relevant Modern Award comes into the fold, the employee may eventually become incorrectly classified.
Failing to keep note of annual wage increases
The Fair Work Commission reviews the National Minimum Wage and rates of pay set out in the existing Modern Awards each year. Wage increases following the Commission’s review generally take effect from July 1 of that year. As such, the 2020-21 Annual Wage Review conducted by the Fair Work Commission which instituted a wage increase of 2.5% is applicable from 1 July 2021.
Annualised salaries Failing to keep accurate records
Failing to keep and maintain accurate records of the hours employees have worked, including hours of overtime and relevant penalty rates, or taking note of the age of junior employees may result in employers overlooking an employee’s entitlement to pay increases and can also lead to breaches of employer obligations under the FWA surrounding the requirement to make and keep employment records.
What is at risk
The Fair Work Ombudsman takes a very grim view of non-compliance. Even if an employer discovers the underpayment soon after the fact, promptly rectifies it, and self-reports to the Fair Work Ombudsman, the Fair Work Ombudsman may still determine that the employer is liable for penalties for breaching the relevant workplace laws.
In addition to penalties, failure to accurately pay the minimum rates of pay and entitlements can lead to public embarrassment for an employer. This was the case in Compass Group (Australia) Pty Ltd T/A ESS; Compass Group Healthcare Hospitality Services Pty Ltd T/A Medirest (Australia) Pty Ltd [2019] FWC 6186 where the employer, Compass Group, was publicly criticised for neglecting to understand the roles and duties performed by its employees resulting in the incorrect application of the Hospitality Industry (General) Award when the Health Professional and Support Services Award was more appropriate.
Time to review your payroll process
More often than not, underpaying employees is the result of simple errors or a lack of understanding or interpretation of the applicable industrial instruments.
With the ever-changing nature of the law, it is important that you stay up to date with changes to minimum wages and entitlements to ensure you are fulfilling all your obligations as an employer. Additionally, employers should regularly review, update and configure payroll processes and employment records to avoid non-compliance.
A review of your payroll process and employment records is best conducted as a combined effort involving your business’s internal payroll department and a team of employment law experts. If you are unsure whether you are classifying or paying your employees correctly or lack an understanding of your obligations under the various industrial instruments it is imperative that you seek legal advice.
Contact the Workplace Law Team at Chamberlains Law Firm for any questions and concerns.
An ill or injured employee may be unable to attend work for a period of time, need to reduce their hours of work or responsibilities, or can no longer perform their tasks to the same standard as previously. This places employers in a very difficult position as employers can feel pressured to retain an ill or injured employee despite the employee being unable to return to their pre-illness/pre-injury position.
Terminating an employee can be difficult without these added complexities, however, provided certain obligations have been satisfied, employers are able to lawfully terminate an ill or injured employee. In such circumstances, it is incumbent on employers to exercise great care when terminating an ill or injured employee as there are significant risks associated with getting it wrong.
Pursuant to the Fair Work Act 2009 (Cth) (FWA) an employer must not dismiss an employee because the employee is temporarily absent from work due to an illness or injury. Temporary absence has been defined as a three-month period, either consecutively or a series of absences totalling three months over a twelve-month period.
However, requirements under each state and territory’s Workers Compensation Laws provide for additional time periods during which an employer is prohibited from terminating an employee. In NSW an employer cannot legally terminate an employee for a period of six months (or the length of any accident pay in the employee’s award or agreement) after the employee becomes unfit for work due to a work-related injury.
As such, the obligations placed on the employer differ depending on whether the illness or absence is work-related.
When making the decision to terminate an ill or injured employee after the protected period of absence has passed, an employer must consider whether the employee, despite their injury, is able to perform the inherent requirements of their position presently and into the foreseeable future. This requires evidence from the employee’s treating medical practitioner, or from an independent medical examination.
An employer may consider termination if such evidence suggests that the employee:
Employers considering terminating an ill or injured employee must ensure that supporting medical evidence provides the medical practitioner’s opinion as to whether the employee has the capacity to perform the inherent requirement of their pre-injury/pre-illness position. Employers must also ensure that such supporting medical evidence is current and available to be relied on.
Supporting medical evidence can be obtained, with the employee’s consent, from the employee’s treating medical practitioner. Alternatively, if the employer is reasonably satisfied that there is an existence of circumstances justifying the need for a medical examination, an employer may consider directing the employee to undergo an independent medical examination. However, in directing an employee to undergo a medical examination, employers will need to be satisfied that factors and circumstances exist which make such a direction lawful and reasonable.
It is incumbent on employers to provide the medical practitioner with the inherent requirements of the employee’s pre-illness/pre-injury position so that an informed assessment can be made. The supporting medical evidence should focus on the employee’s ability to undertake the inherent requirements of their pre-illness/pre-injury position and whether any reasonable adjustments or accommodations could be made to assist the ill or injured employee’s return to their pre-injury/pre-illness position.
The Disability Discrimination Act 1992 (Cth) (DDA) prohibits discrimination based on a mental or physical disability. As such, before making the decision to terminate an ill or injured employee, an employer should consider whether any reasonable adjustments or accommodations can be made to the employee’s role, or whether any accommodations can be made in the workplace to facilitate the employee’s continued employment in their role. This is an important consideration on the part of employers to mitigate the risk of a claim by the ill or injured employee that they have been discriminated against on the basis of disability.
The Courts have found that the requirements of the DDA make it necessary for the employer to make reasonable adjustments designed to facilitate the ill or injured employees return to their pre-illness/pre-injury position. Such reasonable adjustments may include offering the employee:
An employer considering termination of an ill or injured employee must still comply with their obligations under the FWA, including notifying the employee of the reasons for the consideration to terminate the employee, the medical evidence being relied upon, and providing the employee with an opportunity to respond.
Ultimately, an employer can validly terminate an ill or injured employee, however, there are various considerations that must be had by the employer, both at present and into the foreseeable future.
Dismissing an ill or injured employee gives rise to a storm of legal obligations with the risks of getting it wrong including claims of unfair dismissal, adverse action, discrimination, and breach of privacy. An employer’s understanding of their rights and obligations when dealing with ill or injured employees is imperative to mitigating those risks. As such, employers should seek legal advice when they are considering whether to terminate an ill or injured employee so that employers are informed of the risks and can develop a comprehensive strategy that complies with the current legal requirements.
Contact Chamberlains Law Firm for any questions and concerns, speak with our Workplace Law Team today.
Janice Rosemary Stocovaz v On Tai Fung [2007] NSWCA 199
Facts
Ms Stocovaz purchased a Mercedes Benz E200 for the sum of $95,563. This vehicle was purchased on finance pursuant to a Hire Purchase Agreement. A few weeks after the purchase, Ms Stocovaz’s vehicle collided with another vehicle driven by Mr Fung.
Following the collision Ms Stocovaz took her vehicle to a repairer which estimated the repairs at $14,197.67 plus GST and this amount was duly paid by Allianz, her insurer. Allianz then claimed the amount from Mr Fung which resulted in the commencement of the proceedings.
The Court ordered judgment for Ms Stocovaz against Mr Fung in the sum of $14,197.67 plus GST.
Issues
The Supreme Court of New South Wales heard the matter and considered the following issues:
Judgment
The Supreme Court ultimately held that Ms Stocovaz was entitled to damages from Mr Fung for the actual cost of repairs. However, the Court ultimately held that although the cost of repairs were not fair and reasonable, they were extravagant and ought to be reduced.
With respect to the second issue, the Court held that the method of assessing the cost of repairs falls on the question as to whether the cost of repairs were reasonable, both that the work must be necessary and the charges must not be extravagant. This test was applied in The Pacatolus (1856) Swab 173, and it was found in that case that costs of repairs were excessive as they were not rendered necessary by the collision.
The issue of whether the costs of repairs are indeed extravagant were further considered in Darbishire v Warran [1963] All ER 310, where the Court measured the extravagance of repairs and whether the plaintiff acted reasonably in claiming for the amount:
“The plaintiff is not under any actual obligation to adopt the cheaper method: if he wishes to adopt the more expensive method, he is at liberty to do so and by doing so he commits no wrong against the defendant or anyone else. The true meaning is that the plaintiff is not entitled to charge the defendant by way of damages with any greater sum than that which he reasonably needs to expend for the purpose of making good the loss. In short, he is fully entitled to be as extravagant as he pleases, but not at the expense of the defendant.”
The Supreme Court concluded that the costs of repairs were extravagant. This resulted in an appeal brought by Ms Stocovaz to the New South Wales Court of Appeal.
The Court ultimately refused the appeal and held that the term “extravagant” means something which is clearly outside the range rather than something which is within the scope of commercially available prices.
Impact of Decision
This decision reaffirmed that an individual or corporation is permitted to accept cost of repairs which are extravagant or unreasonable, but not at the expense of the defendant and the amount of repairs ought to be reduced to ensure that a fair and reasonable figure is compensated by a wrongdoer.
The Court confirmed that the term ‘extravagant’ and ‘unreasonable’ are interchangeable terms and a person claiming an amount for costs of repairs must not claim for more than the actual cost of those repairs and that cost must not go beyond prudence, be excessively high or exorbitant.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
The Insurance Council of Australia Board has implemented changes to the new 2020 General Insurance Code of Practice. The Code was rewritten following the impact of Covid-19 and aims to enhance the rights and expectations of customers across Australia. Although the Code is a national industry code, its effects are felt in each jurisdiction because insurers operating in NSW, QLD, the ACT and WA are signatories. The new Code places a higher threshold on insurers and increases their obligations under the Insurance Contracts Act 1984 (Cth).
The standards in the Code apply to the relationship between insurers and insured customers, including expectations around claims handling, complaint procedures and the strict timeframes within which insurers must reach decisions.
The Code is intended to positively influence all aspects of general insurance. Across Australia, the Code requires that once relevant information is provided, an insurer must make a claims decision within 10 business days of receiving that information.
Insurers must make a final decision within 4 months of receiving a claim. If they do not meet this timeframe, they must inform the insured of the complaints process and consider whether the duty of utmost good faith has been breached.
These requirements apply consistently in NSW, QLD, the ACT and WA.
The Code provides enhanced protections for individuals who are experiencing financial hardship. These protections apply nationally and include the following:
Where a person qualifies for hardship support, an insurer may:
These obligations apply in the same way in NSW, QLD, the ACT and WA.
The Code is national, but the way it interacts with each jurisdiction can vary slightly because of local processes and regulatory environments. The key differences are summarised here.
| Jurisdiction | Application of the Code | Local Effect |
| NSW | Applies to all signatory insurers operating in NSW | Strengthens rights for NSW policyholders and aligns with existing consumer protections |
| QLD | Applies to all signatory insurers operating in QLD | Significant impact on Queensland insureds, especially regarding timeframes and complaint requirements |
| ACT | Applies to all signatory insurers operating in the ACT | Enhances protections for Canberra policyholders, especially after Covid-19 interruptions |
| WA | Applies to all signatory insurers operating in WA | Reinforces obligations in a jurisdiction with large regional communities and unique insurance challenges |
The Code formally launched in early 2020. All signatories were required to be fully compliant with the Code by 1 July 2021. It now represents the industry benchmark for insurer behaviour and customer protection across Australia.
The Code continues to guide the general insurance industry in meeting community expectations, particularly in the aftermath of Covid-19 and the ongoing unpredictability of life.
If you have any questions or concerns about your rights under the Code or need help with an insurance dispute, please contact Chamberlains and speak to one of our insurance law experts today.
A common way of apportioning risk in a contract for goods or services is for the parties to exclude/restrict their liability to one another should one party default under the contract.
Suppliers are unable to exclude their liability for breaches of consumer guarantees. Under Australian Consumer Law, consumer guarantees ensure that when you buy products and services, they come with automatic guarantees that they will work and do what you asked for.
Notably, in a business-to-business relationship, a party can in some circumstances limit its liability to the other.
In order to do this, it’s important to use clear language when drafting clauses that intend to limit or exclude liability. To avoid clauses that can be considered ambiguous or unclear, it is in the interest of the party who is seeking to avoid liability to spell out the exact areas of liability being limited or excluded.
This may include a supplier clearly outlining that it will not be taking responsibility for particular activities e.g. not being liable for failings in third party networks or systems or for verifying a purchaser’s specifications.
When parties intend to exclude liability for more serious risks including negligence or repudiation of a contract, the clauses should specifically state the liability for those matters are excluded.
Too often contracts include general wording such as “all liability is excluded” and this will generally not, extend so far as to apply to limit tor exclude liability for negligence or repudiation.
If it is found that a clause is ambiguous or unclear, a Court will construe it against the party that is seeking to rely upon the clause.
With respect to excluding or limiting liability in franchising agreements, this is governed by the Franchising Code of Conduct. Section 3.1 of the Code provides that agreements between franchisors and franchisees must not contain any releases or waivers with respect to general liability towards the franchisee.
If, and when, a party engages in misleading or deceptive conduct to entice another party to enter into a contract, and this amounts to a breach of the Australian Consumer Law, any limitations or exclusions of liability sought to be relied upon will likely be unenforceable at law.
General considerations when considering exclusions/limitations of liability
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
Federal Court of Australia deems insurer acted unfairly in the cancellation of an insurance policy and subsequent demands made for payment.
Australian Securities and Investments Commission v TAL Life Limited (No 2) [2021] FCA 193 involved a 39 year old self-employed healthcare worker who had lodged a claim under her income protection policy in January 2014 after she was diagnosed with cancer. The policy with TAL Life Limited (TAL) included a cover of $5,000 per month.
The claim was accepted. TAL then investigated their insured’s medical history, a process also known as “retrospective underwriting”, and found she had a history of depression between 2007 and 2009 which had not been included in her claim for income protection insurance. In the lodgement of her claim, the insured had completed an extensive claim form whereby she provided medical, hospital and pathology reports with respect to her condition of cervical cancer.
Upon review of the new medical documentation, TAL proceeded to reject the claim, circumvented the policy, and told the insured that she had acted without good faith in the lodgement of the claim.
In rejecting the claim, TAL failed to provide the insured with any opportunity to explain why certain parts of her medical history were not disclosed as part of the application. TAL further failed to make further enquiries with the insured’s medical practitioners about the insured’s mental health. Such investigations would have enabled TAL to assess whether her previous diagnosis of depression would have been a relevant factor in considering the risk of insuring the claimant.
Furthermore, TAL had threatened to recover the sum of $24,000.00, representing payments that had been made under the income protection policy.
By TAL accusing its insured of having acted without good faith, threatening to recover funds paid under the policy, the limited investigation that led to the decision to cancel the policy and the lack of engagement with the insured to provide her with an opportunity to address the concerns surrounding the claim, Chief Justice Allsop held that TAL had breached its duty to act with the utmost good faith as its dealings, in this instance, lacked “decency and fairness”.
His Honour further noted:
“Policies of this kind providing income protection are very important to the economic and human wellbeing of people. The legislation is, after all, about human and commercial conduct, relationships and activity. How an insurer conducts itself in its claim handling may be said to be part of the benefits for which an insured pays.”
His Honour further concluded:
”It is, however, perhaps important to recognise that the assessment of the propriety of how TAL conducted itself is to be undertaken recognising that the Second Insured was not just a contracting party (viewed in a disembodied way) with rights and obligations in law, but a person to whom, and to whose financial security, the policy was important. Such considerations do not, of themselves, create separate legal rights, but they inform the context and circumstances by reference to which standards of behaviour, set by Parliament, expected of participants in commerce, in particular here, insurance, are to be judged.”
This case stands as a reminder that consumers place trust in their respective insurers to preserve their interest and this relationship relies on the engrained principle of the duty of utmost good faith. This long-standing principle does not just refer to acts of dishonesty or engaging in false or misleading conduct, but also includes circumstances where an insurer fails to meet wider community expectations of decency and fairness.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
Watt v Shepherd (No 2) [2021] FCA 826
When entering into a franchise agreement, it is crucial that parties ensure that any representations made can be made good in accordance with the agreement. The matter of Watt v Shepherd (No 2) [2021] FCA 826 demonstrates the effect of making misleading and deceptive representations to induce individuals to enter into a franchise agreement.
Background
The First Applicant, Mr Watt operated a pharmacy business comprising of nine retail pharmacies (Watt Group). He also provided the guiding mind and will for the head office for the Watt Group through the Second Applicant who was the trustee of the Snowy Mountains Service Unit Trust (SMSUT). The Second Applicant also provided subleases of premises used in the operations of five pharmacies.
On about April 2016, the First and Second Respondents contacted Mr Watt and proposed that interests associated with them would purchase the Watt group head office operations and be operated by the Fourth Respondent (SPG).
The First and Second Respondents made representations to Mr Watt to induce him to in and proceed with the franchising business and to influence all of the 15 pharmacies to which SMSUT provided head office and other services to become franchisees of SPG including but not limited to:
On or about 14 December 2016, Mr Watt and the other proprietors of the individual pharmacies within the Watt Group agreed to participate in the franchising structure executed the franchise agreements to give it effect (the Franchise Agreements).
The Franchise Agreements contained a schedule that provided for the franchise fees that were to be payable by the franchisees. The Respondents knew at relevant times that those fees were not affordable or financially sustainable for the individual pharmacies and that their participation in the franchising structure would not result in financial benefit to those pharmacies unless there was a substantial reduction in those fees.
From about June 2017, Mr Watt made requests to the respondents to reduce the fees payable by the franchisees, to make good the representations that this would occur by that time and that the individual pharmacies would achieve the promised benefits.
Mr Watt, on behalf of all of the Applicants, requested that the respondents cooperate in dismantling the franchising structure to reinstate the status quo as it had existed prior to them entering into it.
The Respondents did not:
The Applicants based their claims upon the Respondent’s contraventions of ss 18 and 21 of the Australian Consumer Law (ACL), s 51ACB of the Competition and Consumer Act 2010 (CCA) and the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (the Code).
Decision
Rares J found that the Representations were:
He held that SPG had not complied with the Code because it had not:
Accordingly, the Fourth Respondent was in breach of s 51ACB of the CCA.
Orders
The Franchise Agreements were declared void and the Third Respondent was ordered to do all things necessary on its part to be done to:
There be a judgment against each of the respondents for damages to be assessed.
Comment
The key takeaway from this matter is that, by:
**Assisted by: Nicole Jackson**
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The duty of utmost good faith (known as Uberrima Fides) requires essential elements of ‘honesty’, ‘good faith’ and ‘integrity’. It is an obligation placed on certain groups to ensure that they are held to a higher duty than that which is reasonably expected with community standards. This duty ensures that parties to a contract for insurance are prevented from relying on certain provisions if relying on such would result in a breach of the duty of utmost good faith.
This is a reciprocal duty which ensures that both an insurer as well as an insured maintain respective duties of utmost good faith. This duty was espoused in the authorities of Carter v Boehm (1766) 3 Burr 1905 and Boulton v Holder Brothers (1904) KB 784 and has been incorporated in the Insurance Contracts Act 1984 (Cth) (“IC Act“) under section 13 which requires that any party to a contract for insurance must:
“act toward the other party, in respect of any matter rising under or in relation to, with the
utmost good faith.”
Interestingly, the duty is not defined within the IC Act and there is no complete or determinative definition of the duty. The Courts, however, have made various comments surrounding the duty, suggesting that it is one that ensures that anything deemed ‘unfair’ or ‘unreasonable’ is in contravention of such a duty.
The High Court of Australia in CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36 has revealed interesting insight into the manner in which the Court deals with the duty to act in utmost good faith. The High Court considered that this duty is a mutual one between both the insured and the insurer and equates such a duty to the equitable duty to “come with clean hands”. The High Court provided that breach of such a duty does not necessarily require proof of dishonesty, but may extend to delays in making a decision on an insurance claim.
The duty of utmost good faith has been one that has been difficult to define, however, the High Court has assisted in offering some guidance on the extent of such a duty and how easily it can be breached. Accordingly, the effect of this decision was that both the insurer and the insured must be cautious and vigilant in its conduct to ensure that it fulfils its duty of utmost good faith and ensures that proper accord is given in ensuring the claims are assessed in a timely manner, with accord to good faith and with utmost integrity.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
Trajkovski v Commonwealth Insurance Ltd (No. 2) [2020] NSWDC 694
In a recent decision of the District Court of NSW, the Court considered whether confusion or misinformation amounted to fraud pursuant to section 56(1) of the Insurance Contract Act 1984 (Cth).
Background
The proceedings arose from a contract for insurance entered into between the plaintiff, Mr Trajkovski, and the defendant, Commonwealth Insurance Ltd, whereby the insured was provided with a home and contents insurance package.
The plaintiff had been an enthusiastic collector of jewellery and alleged that his apartment was broken into on 3 September 2013. The plaintiff notified the police immediately and informed them that various items of jewellery had been stolen. The plaintiff informed police that the perpetrator created a hole in the ceiling of an apartment block to gain access to his apartment. Shortly after the event, the plaintiff lodged a claim on his insurance policy and sought losses from his insurer at the time, Commonwealth Insurance Ltd, for the aggregate amount of $323,600.00.
On around 10 December 2013, the Insurer refused the claim on the grounds that it was fraudulent and that the plaintiff had provided fraudulent statements and information in connection with the manner in which the theft occurred. As a result of such claims, the insurer invoked its rights under s56(1) and s60(1)(e) of the Insurance Contracts Act 1984 (Cth), which notes that where a claim is made fraudulently the insurer may refuse payment and may cancel the contract of insurance.
As a direct result of the decision made by Commonwealth Insurance Ltd, the plaintiff commenced proceedings against it on the basis that the insurer had breached its contract of insurance.
Questions considered by the Court
The first question to be determined by the Court was whether the alleged theft occurred in the manner covered by the policy of insurance and whether the policy extended coverage to such an insured event.
In order to consider these questions and whether the plaintiff made its claim to induce the insurer to accept the claim and make payment, the Court said it would first consider the policy entered into between the parties.
There was no dispute that the insurer was to cover for loss and damage resulting from theft, however, the insurer made submissions that an exception to a claim for theft existed. That exception is that if the loss or damage caused is intentional or is committed with reckless disregard for the consequences by the insured, it may refuse a claim and indeed cancel a policy on the basis that the insurer would be able to invoke its rights under s60(1)(e) of the Insurance Contracts Act 1984 (Cth).
Findings
In determining whether the theft occurred, the Court considered whether on a balance of probabilities it was likely that the intruder would have entered from the front door as opposed to the roof cavity. The Court determine that it was unlikely that the theft would have occurred from the roof cavity.
The Court noted that a finding of fraud requires a high standard of proof. The Court noted that the plaintiff’s evidence was not helpful and his recollection was quite poor. Notwithstanding this, the Court determined that it could not establish any fraud on part of the plaintiff and the defence pursuant to section 56(1) Insurance Contracts Act 1984 (Cth) would fail.
If an insurer wishes to invoke s56 on the basis of fraudulent statements, the statements must be fraudulent and the purpose for making such a statement must be done with the fraudulent purpose of inducing the insurer to pay a claim. The Court determined that inaccurate statements made, although indicative of a lack of credibility, cannot be deemed as fraudulent.
The Court ultimately concluded that fraud was not an element in these factual circumstances. Nevertheless, the Court found in favour of the defendant on the basis that it was unlikely that a theft occurred.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.