Abstract

Article

 

Company and Directors and Officers Insurance

 

Exclusions as to Issue, Sale, or Transfer of any Securities

 

Where the insurer promises to indemnify the insured against relevant liability, subject to an exclusion in respect of any matter arising out of, based upon, attributable to an offer made for the issue, sale, or transfer of any Securities in a Disclosure Document or any written or verbal representations in connection with such Disclosure Document, which is defined as any prospectus, information memorandum, registration statement or similar document whether or not it has been or is required to be filed or registered with the relevant authority, and the issue is the scope of the words, any matter arising out of, based upon, attributable to, as they have an active effect, such as causal, the exclusion will be engaged only if the insured’s liability is caused by, based on, or attributable to the specified features of securities dealing.  Murray Goulburn Co-operative Co. Limited v AIG Australia Limited [2021] FCA 288.

 

Equity Interests

An “equity” means a beneficial interest in an asset. And an “asset” in turn has been defined in the Oxford Dictionary of Finance and Banking (6th edition, 2018), as including “any object, tangible or intangible, that is of value to its possessor” and in the Oxford English Dictionary (online) as including “an item of value owned; spec. an item on a balance sheet representing the value of a resource, right, item of property, etc., placed under an appropriate heading”.As the expression, equity interests, is commonly understood, it means a beneficial interest in an asset, including a company or trust. Each unit gives the unitholder a beneficial interest in the assets of the trust entitling payment of distributions. The term. unit trust. in its ordinary meaning requires the trust to be divided into units, so that a unit trust exists where the beneficial interest in the trust fund is divided into units as discrete parcels of rights, each unit, like shares in a company,  being capable of being dealt with as an item of commerce. Elecnet (Aust) Pty Ltd (as trustee for Electrical Industry Severance Scheme) v Commissioner of Taxation of Commonwealth of Australia [2016] HCA 51; (2016) 259 CLR 73. But whereas a unit comprises a beneficial interest in the trust estate, a share, though an asset, does not confer a beneficial interest in the company’s assets. Units re usually securities within the meaning of the Corporations Act S 92(1)(c). If they are listed, and trading in them commenced on the ASX, they will have been ED securities by operation of ss 111AE(1A) and 111AFA(1) respectively of the Corporations Act. They are also “quoted ED securities” by force of s 111AM. The legislative framework is important context and informs the meaning of security. I is mtconfined to the amount of equity that a person holds in a business. Murray Goulburn Co-operative Co. Limited v AIG Australia Limited [2021] FCA 288

The matter must be the cause of action, for example, misrepresentation or failure to disclose material information causing loss to the claimant, against the insured which causes it loss, so the issue is whether the cause of action arose out of, or was based upon or attributable to the matters identified, that is, say, any written or verbal representations in connection with such Disclosure Document. If the misrepresentation or failure to disclose material information which caused loss to the claimant were to have arisen out of, or been based upon or attributable to the Disclosure Document, the nexus will have been satisfied.

 

It is always necessary to identify not only the factors which the nexus joins, but also their respective roles towards each other. In the example, it would not be engaged if the relevant representations on which the claimant incurred loss arose out of or were based on or attributable to only something antecedent to the misrepresentation or failure to disclose material information in the Disclosure Document.

 

The words “directly or indirectly arising out of, based upon, attributable to or in consequence of” postulate a causal relationship between the subject matter of the clauses and the “Loss” the subject of the claim for indemnity. The words require that there be some causal connection between the “Loss” the subject of the claim for indemnity and the specified matters, but the required nexus is less than a direct or proximate relationship as required by the words “caused by”. XL Insurance Co SE v BNY Trust Company of Australia Limited (2019) 20 ANZ Insurance Cases 62-211 at [62]. It may be asked whether ‘based upon’ or ‘attributable to’ always require causal factors.
 

 

Exclusions as to any matter arising out of, based upon, attributable to a specified Product Disclosure statement or Prospectus.

 

Again, the cause of action according to its factual substance in the pleadings must arise out or be based on or attributable to a specified Product Disclosure statement or Prospectus. It is not enough if they are merely contextually incidental and do not have the necessary influence on the conduct which incurs the insured’s liability.

 

Exclusions as to Third Party Professional Services.

 

This exclusion may be limited as to the recipients if the professional services provided. Murray Goulburn Co-operative Co. Limited v AIG Australia Limited [2021] FCA 288.

 

 

Condition

 

Retroactive Date

 

For a claims made policy, a retroactive date, if any, is the date from which coverage extends back to provide cover for liability arising from wrongful acts of an insured occurring prior to the inception of the policy. Murray Goulburn Co-operative Co. Limited v AIG Australia Limited [2021] FCA 288.

Construction

 

Subjective beliefs or understandings of the parties as to their rights and liabilities do not govern their contractual relations, but what a reasonable person in the position of the other party would have had from each party’s words and conduct. That is taken to have been their common intention. It is usually necessary to refer to the text, the surrounding circumstances known to the parties, and the purpose and object of the transaction. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40].

A policy must be construed as a whole, and as at the date it was entered into. Its language in its ordinary meaning has primacy, but in its context rather than a vacuum. A commercial policy is not construed narrowly or pedantically but is given a businesslike interpretation, which includes reference to the commercial circumstances which it addresses, its commercial and social purpose in the context of the surrounding circumstances, including the market or commercial context in which the parties are operating,. To assist in identifying its commercial purpose, regard may be had to its contextual framework. Reference to social purpose, where relevant, recognises that in some circumstances a policy, as a commercial document, may have some influence on the organisation of society through the rights and obligations it creates. Congruence of its various components is to be preferred where possible. Onley v Catlin Syndicate Ltd as the Underwriting Member of Lloyd’s Syndicate 2003 [2018] FCAFC 119; (2018) 360 ALR 92 at [33]; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603; Todd v Alterra at Lloyd’s Ltd [2016] FCAFC 15; (2016) 239 FCR 12 at [42] and [44].

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Surrounding Circumstances

To analyse the text only by dictionary meanings, as distinct from mandatory defined terms in the policy, is wrong. Ambiguity may be ascertainable only after the context has been applied, for  it may reveal ambiguity that is not otherwise apparent from the text. But it is not admissible to contradict the language of the contract when it has a plain meaning. There is a view that evidence of surrounding circumstances is admissible first to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning, and if so it may be used to assess whether there is but one, and if not, it may assist in resolving the imprecision. Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104. Plain meaning is a conclusion Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 310 ALR 113 at [79]; Murray Goulburn Co-operative Co. Limited v AIG Australia Limited [2021] FCA 288. This is more attractive though it is somewhat at odds with the unitary process of construction formulated in Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900 at [21] and adopted in Arnold v Britton [2015] AC 1619 at [76] and [77].

 

Commercial purpose

Commercial purpose should not to be taken too far. Better is a balanced approach that is neither uncompromisingly literal nor unswervingly purposive. Arbuthnott v Fagan [1996] LRLR 135; Charter Reinsurance Company Ltd v Fagan [1997] AC 313 at 350. A construction that avoids capricious or unreasonable consequences is to be preferred where the words of the policy permit: Onley (supra) at [33]). The apparent literal meaning of words used may be discarded if it would result in an absurdity or want of commercial common sense. But there is a note of caution. As Lord Neuberger said in Arnold at [17] to [20]. But commercial common sense, which is not to be invoked retrospectively, and surrounding circumstances should not displace the importance of the language of the text, for the parties have control over its language and they will usually have focused on its issue when agreeing its language. That a literal or natural contractual arrangement will appear to have been very imprudent or to have had unfortunate results for one party does not justify departure from it. The process is of construction identifies what the parties have agreed rather than what the court thinks that they should have agreed. Commercial common sense is relevant only to the extent of how the language would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the contract date. As for centrally relevant words, the less clear or poorly drafted they are, the more readily may there be a departure from their natural meaning, and vice versa. The court does not search for or construct drafting ambiguity in order to depart from natural meaning. Murray Goulburn Co-operative Co Limited v AIG Australia Limited [2021] FCA 288.

Use of Revenue Statutes

The construction of language from revenue statutes usually hs little application in an insurance context. Murray Goulburn Co-operative Co Limited v AIG Australia Limited [2021] FCA 288.

Exclusions

The onus of proof concerning the application of the exclusion rests with the insurer (AIG Australia Limited v Kaboko Mining Limited [2019] FCAFC 96; (2019) 20 ANZ Insurance Cases 62-205 at [42]. The interpretation of an exclusion clause is to be determined by construing it according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 at 510. Though the contra proferentem rule shold be used only with care, especially if there has evidently been some negotiation, if there are two genuinely available alternatives preference should be given to one that limits rather than expands the exclusion. Dalby Bio-Refinery Ltd v Allianz Australia Insurance Limited [2019] FCAFC 85 at [32]. The context includes the specific risk that the policy is designed to cover, so, if reasonably possible, construction of an exclusion will usually avoid inappropriate circumscription of that cover. Chubb Insurance Company of Australia Ltd v Robinson [2016] FCAFC 17; (2016) 239 FCR 300 at [149] or which would have the effect of substantially defeating the indemnity granted by the policy.

Murray Goulburn Co-operative Co Limited v AIG Australia Limited [2021] FCA 288

 

Singular and Plural

The use of the singular includes the plural, particularly if the general provisions of the policy say so. Murray Goulburn Co-operative Co Limited v AIG Australia Limited [2021] FCA 288