Federal Court of Australia

Argo Managing Agency Ltd for and on behalf of the underwriting members of Lloyds Syndicate 1200 v Quintis Ltd (subject to deed of company arrangement) [2022] FCAFC 86

Appeal from:

Quintis Ltd (subject to deed of company arrangement) v Certain Underwriters at Lloyds London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19

Quintis Ltd (subject to deed of company arrangement) v Certain Underwriters at Lloyds of London Subscribing to Policy Number B0507N16FA15350 (No 2) [2021] FCA 327

File numbers:

NSD 390 of 2021

NSD 391 of 2021

Judgment of:

ALLSOP CJ, MIDDLETON AND YATES JJ

Date of judgment:

19 May 2022

Catchwords:

INSURANCEdirectors and officers liability insurance – four policies of insurance – amount of cover for Entity Securities Liability Optional Extension (Side C cover) – whether Side C cover sub-limited to primary policy – whether policies should be rectified – whether up to $50 million in Side C cover – Lloyds insurance market –principles applicable to rectification of insurance policies – policies represent bundle of contracts between insured and insurers

EQUITY – rectification – consideration of relevant principles – standard of proof – policies represent bundle of contracts between the insured and insurer –volumes of contemporaneous material

APPEAL – whether relevant parties held a common intention – weight to be given to trial judges advantage where no witnesses and assessing inferences – principles in Aldi Foods Pty Ltd v Moroccanoil Israel Ltd (2018) 261 FCR 301 applied

Cases cited:

Aldi Foods Pty Ltd v Moroccanoil Israel Ltd (2018) 261 FCR 301

Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662

Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68

Federal Commissioner of Taxation v Glencore Investment Pty Ltd (2020) 281 FCR 219

Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603

Jones v Dunkel (1959) 101 CLR 298

Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets v Icon Co (NSW) Pty Ltd [2021] FCAFC 126; (2021) 396 ALR 193

Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyds London Subscribing to Policy Number B057N16FA15350 [2021] FCA 19

Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyds London Subscribing to Policy Number B0507N16FA15350 (No 2) [2021] FCA 327

Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85

Thomas Bates & Son Ltd v Wyndhams (Lingerie) Ltd [1981] 1 WLR 505

Division:

General Division

Registry:

New South Wales

National Practice Area:

Commercial and Corporations

Sub-area:

Commercial Contracts, Banking, Finance and Insurance

Number of paragraphs:

236

Date of hearing:

13 and 14 September 2021

Counsel for the Appellant in NSD390 of 2021:

Mr M R Elliott SC with Ms E H G Steer

Solicitor for the Appellant in NSD390 of 2021:

Colin Biggers & Paisley Pty Ltd

Counsel for the Appellant in NSD391 of 2021:

Mr M A Jones SC with Mr E Ball

Solicitor for the Appellant in NSD391 of 2021:

Wotton + Kearney

Counsel for the Respondents in NSD390 of 2021 and NSD391 of 2021:

Mr W A D Edwards with Mr A H Edwards

Solicitor for the Respondents in NSD390 of 2021 and NSD391 of 2021:

Piper Alderman

ORDERS

NSD 390 of 2021

BETWEEN:

ARGO MANAGING AGENCY LTD FOR AND ON BEHALF OF THE UNDERWRITING MEMBERS OF LLOYDS SYNDICATE 1200 (AS SUBSCRIBING UNDERWRITER TO POLICY NUMBER B0507N16FA15360)

Appellant

AND:

QUINTIS LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 092 200 854)

First Respondent

EXCEL TEXEL PTY LTD (ACN 082 642 742) (AS TRUSTEE FOR THE MANDEX FAMILY TRUST)

Second Respondent

GEOFFREY PETER DAVIS (and others named in the Schedule)

Third Respondent

order made by:

ALLSOP CJ, MIDDLETON AND YATES JJ

DATE OF ORDER:

19 May 2022

THE COURT ORDERS THAT:

1.    Within fourteen (14) days the parties file an agreed form of orders, or in default of agreement, any submissions as to the form of the appropriate orders reflecting the reasons of the Court.

2.    Subject to any further directions, the final orders of the Court will be made on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

NSD 391 of 2021

BETWEEN:

VIBE SYNDICATE MANAGEMENT LIMITED AS MANAGING AGENT FOR AND ON BEHALF OF THE UNDERWRITING MEMBERS OF LLOYDS LONDON SYNDICATE 5678 (AS SUBSCRIBING UNDERWRITERS TO POLICY NUMBER B0507N16FA15370)

Appellant

AND:

QUINTIS LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 092 200 854)

First Respondent

EXCEL TEXEL PTY LTD (ACN 082 642 742) (AS TRUSTEE FOR THE MANDEX FAMILY TRUST)

Second Respondent

GEOFFREY PETER DAVIS (and others named in the Schedule)

Third Respondent

order made by:

ALLSOP CJ, MIDDLETON AND YATES JJ

DATE OF ORDER:

19 May 2022

THE COURT ORDERS THAT:

1.    Within fourteen (14) days the parties file an agreed form of orders, or in default of agreement, any submissions as to the form of the appropriate orders reflecting the reasons of the Court.

2.    Subject to any further directions, the final orders of the Court will be made on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

1    These two appeals concern the extent of coverage available under insurance policies in favour of the first respondent, Quintis Limited (Quintis), a sandalwood plantation investment company subject to a deed of company arrangement. The claims arise in relation to two shareholder class actions where it has been alleged that Quintis and others engaged in conduct in contravention of various statutory norms causing loss and damage for which the class action applicants and group members seek compensation. A settlement in principle in respect of those proceedings has been reached but the application for settlement approval has been adjourned so as to determine the correct value of any responsive insurance policies, being the only asset of value held by Quintis.

2    In the period 30 September 2016 to 31 March 2018, Quintis carried insurance policies with various Lloyds of London (Lloyds) underwriting syndicates providing up to $100 million in coverage for directors and officers (D&O) liability. The policies that are relevant to these appeals are those that Quintis entered into in 2016, when it sought to renew its expiring insurance coverage on the Lloyds market. Quintis relevantly entered into the following policies (collectively, 2016-17 Policies):

(a)    a policy schedule identified as policy number B0507N16FA15350 and Munich Re Financial & Professional Risks Policy 09/14 policy wording (2016-17 Primary);

(b)    a first excess layer policy identified as policy number B0507N16FA15360 (2016-17 1XS); and

(c)    a second excess layer policy identified as policy number B0507N16FA15370 (2016-17 2XS).

3    There was also a third excess layer policy identified as policy number B0507N16FA15380 (2016-17 3XS) which is not the subject of any dispute.

4    It is common ground that, when entering into the 2016-17 Policies in 2016, Quintis intended the coverage layers to include $50 million in entity securities liability (Side C) cover and instructed its Australian producing broker (PSC) to this effect. Before the primary judge, Quintis claimed the 2016-17 Policies included $50 million in Side C cover. Yet after construing the 2016-17 Policies, the primary judge found that Side C cover was in fact only available under the policies up to a sub-limit of $10 million: Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyds London Subscribing to Policy Number B057N16FA15350 [2021] FCA 19 (28 January 2021) (J or January judgment) at [53], [55]-[60].

5    However, the primary judge found that this construction of the 2016-17 Policies did not reflect the intentions held by certain parties: [303], [348], [383], [392] J. The primary judge thus determined to rectify the 2016-17 1XS and 2016-17 2XS (Excess Policies) to reflect what he considered to be the common commercial intention of:

(a)    Quintis;

(b)    Quintis Lloyds placing broker (Price Forbes);

(c)    one insurer subscribing to the first excess layer 2016-17 1XS, Argo Managing Agency Ltd (Argo);

(d)    and another insurer subscribing to the second excess layer 2016-17 2XS, Vibe Syndicate Management Limited (Vibe),

that the 2016-17 Policies would collectively provide for Side C cover of up to $50 million: see [392] J; Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyds London Subscribing to Policy Number B0507N16FA15350 (No 2) [2021] FCA 327 (6 April 2021) (J2 or April judgment).

6    It is these findings as to the intention held by Price Forbes, Argo and Vibe, as well as the related decision to rectify the Excess Policies, which are the subject of the present appeals.

7    The appeals are brought by Argo and Vibe on behalf of participating syndicates in the 2016-17 1XS and 2016-17 2XS, respectively. The syndicate represented by Argo was a 50% participant in (and lead insurer for) the 2016-17 1XS, and the syndicate represented by Vibe was a 6.25% participant in the 2016-17 2XS. Argo and Vibe represent two of the four syndicates that were the respondents to proceedings in the court below (the other two syndicates being subscribed to the 2016-17 Primary and the 2016-17 3XS which were not subject to rectification orders).

8    There are, broadly, three common issues in the appeal brought by Argo (Argo Appeal) and the appeal brought by Vibe (Vibe Appeal):

(1)    whether the primary judge erred in finding that Price Forbes held the Side C Coverage Intention being the intention that Side C cover under the 2016-17 Policies was not subject to a sub-limit of $10 million but was in fact equal to the limit of liability for Section 1B cover under each of the 2016-17 Policies such that they collectively provided Side C cover of up to $50 million — at all relevant times up to the point that Argo and Vibe subscribed to the 2016-17 1XS and 2016-17 2XS;

(2)    whether the primary judge erred in finding that Argo and Vibe held the Side C Coverage Intention;

(3)    whether the primary judge erred in granting relief that is said not to reflect the subjective intentions of the parties and create a contractual structure whereby different parties to the 2016-17 1XS and 2016-17 2XS are bound by unreconciled yet interacting obligations as between the rectified and unrectified contracts, and which departs from the relief sought by Quintis in its amended originating application.

9    There was no issue before us as to the principles applicable to the grant of the equitable remedy of rectification adopted by the primary judge.

10    A convenient summary was set out in Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 by Gageler, Nettle and Gordon JJ at [103]–[104]:

[103]    Rectification is an equitable remedy, the purpose of which is to make a written instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. For relief by rectification, it must be demonstrated that, at the time of the execution of the written instrument sought to be rectified, there was an agreement between the parties in the sense that the parties had a common intention, and that the written instrument was to conform to that agreement. Critically, it must also be demonstrated that the written instrument does not reflect the agreement because of a common mistake. Unless those elements are established, the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties cannot be displaced.

[104]    The issue may be approached by asking – what was the actual or true common intention of the parties? There is no requirement for communication of that common intention by express statement, but it must at least be the parties actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party.

(Citations omitted)

11    As to the form of relief (which is the third common issue in the appeals), the observations in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 of Campbell JA (agreed with by Allsop P and Giles JA) are apposite and worth repeating here:

[431]    A striking feature of the order for rectification made in the court below is that it amends the written terms of the Supply Agreement in a way for which neither party contended at the hearing below, and which neither party supports on the appeal. For a remedy that is supposed to give effect to the common intention of the parties to be said by both parties to be erroneous is not a sufficient reason to overturn the order, but is sufficient to make one consider carefully the reasoning that led to the order.

[444]    In considering whether to grant rectification of a written contract, equity does not use any of its own principles to decide what the terms of the contract are, or how they are construed — those matters are decided solely by the common law. Rather, equity focuses on what it is unconscientious for a party to assert about the contract. The rationale is that it is unconscientious for a party to a contract to seek to apply the contract inconsistently with what he or she knows to be the common intention of the parties at the time that the written contract was entered. In other words, when a plaintiff succeeds in a claim for rectification, the plaintiff is found to have been justified in effect saying to the defendant you and I both knew, when we entered this contract, what our intention was concerning it, and you cannot in conscience now try to enforce the contract in accordance with its terms in a way that is inconsistent with our common intention.

[446]    The remedy that is granted is, as with all equitys remedies, one that will seek to undo, so far as is in practice possible, the departure, that the litigation has shown to exist, from equitys standards of conscientious behaviour. The way this is achieved, when a remedy of rectification is granted, is by rewriting the contract so that it [] no longer departs from the common intention of the parties. The rewriting is done in a quite literal sense — the proper form of order identifies the precise words of the contract that are to be struck out, the precise words that are to be inserted, and where those words are to be inserted: H W Seton, Forms of Judgments and Orders in the High Court of Justice and Court of Appeal 7th ed, vol 2 (1912) London, Stevens and Sons Ltd at 1638–1643 (Judgments and Orders). As well the order usually (but not always — for example, Wilson v Registrar-General (NSW) [2004] NSWSC 1220; (2004) 12 BPR 22,667 at [13]–[14]) involves calling in the original document and actually endorsing the order on the instrument that is to be rectified: Seton, Judgments and Orders (at 1644–1645); Re Jay-O-Bees Pty Ltd (In Liq) [2004] NSWSC 818; (2004) 50 ACSR 565 at [74]; Stock v Vining (1858) 25 Beav 235 at 235; 53 ER 626 at 627; Malmesbury v Malmesbury (sub nom Phillipson v Turner) (1862) 31 Beav 407 at 419; 54 ER 1196 at 1201; Johnson v Bragge [1901] 1 Ch 28 at 37. In that way the executed contractual document is no longer able to be a potential source of error and confusion, by appearing to state legal relations that in truth are not as the document says.

[447]    That this is the type of remedy that is granted has an effect on the sort of common intention that is relevant for rectification. The common intention of the parties has to relate to what the mutual rights and obligations of the parties will be, and has to be sufficiently well-defined and clear to be able to be stated in words that can be incorporated in a contract.

[448]    The rewriting should not do anything more than rewrite the contract to the minimum extent that is necessary for it to no longer fail to express the common subjective intention the parties had when the contract was entered. Thus, to the extent that the words of the contract cover some situation concerning which the parties had no common subjective intention, the words of the contract continue to govern that situation.

[450]    Crafting a remedy in rectification involves close attention to the words of the document. However, in the prior step of making a finding about a common intention, for the purpose of a rectification order, it is important that the court not confine itself to a narrow focus on particular words of the document. It is the document as a whole that is rectified, and the point of the exercise is that, once rectified, the document will not be contrary to the common intention of the parties to the document. Thus if a particular change to some words will result in some other words of the document operating in a different way, rectification will be justified only if that different operation of those other words is shown to be in accordance with the common intention of the parties.

12    In addition, in Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets v Icon Co (NSW) Pty Ltd [2021] FCAFC 126; (2021) 396 ALR 193 (Liberty Mutual) at [284] the Full Court stated that:

… As the primary judge made clear, this was not a rectification case in which the parties were mistaken as to the words used. If it were, there would need to be a clear common intention as to what words were intended. But it is not. It is a rectification case in which the parties were said to have a common intention as to the effect of the policy: that it could be utilised to provide contracts commencing cover up to and including the defects liability period. For Mr OReilly and Mr Burgess, this common intention was founded in a mistaken (on the hypothesis necessary for examining the rectification case) belief that condition 15 if invoked brought about that result. In these circumstances there was no requirement for there to be a common intention as to the words necessary to give effect to the common intention as to the effect of the policy. The Court must, however, determine with textual clarity the variation to the wording to give effect to the common intention: GPI Leisure Corp Limited v Herdsman Investments Pty Ltd (No 4) (1990) 9 BPR 17,461 at 17,465-6 (Young J); Muriti v Prendergast [2005] NSWSC 281 at [137] (White J); Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 at 669 (Simonds J); and Bush v National Australia Bank (1992) 35 NSWLR 390 at 407 (Hodgson J).

13    We should indicate that it is not necessary to show exactly and precisely the form to which the contract to be rectified should be brought: see eg Thomas Bates & Son Ltd v Wyndhams (Lingerie) Ltd [1981] 1 WLR 505.

14    The aim of any relief that is granted is to formulate the precise terms by which the contract is to be made so as to conform to the relevant common intention, provided the principles of granting the equitable remedy of rectification are otherwise satisfied.

15    There was also no dispute in these appeals as to the exactitude of proof needed as to the existence of the relevant common intention. In Liberty Mutual, the Full Court (Allsop CJ, Besanko and Middleton JJ) at [269] and [270] recognised that clear and convincing proof must be present.

16    It is then worth saying something briefly about the way in which the matter proceeded before the primary judge. The matter was heard over the course of two days (on 11 August 2020 and 18 September 2020) and all of the evidence was documentary. None of the parties called any witnesses, and the only affidavit filed in the proceeding related to the verification of a list of documents. The primary judge in his detailed and careful judgment set out the relevant documentation and the inferences he drew from the primary evidence before him. We are mindful of the somewhat advantaged position of a primary judge presiding over the presentation of a mosaic of evidence (see Federal Commissioner of Taxation v Glencore Investment Pty Ltd (2020) 281 FCR 219 at [150]), to which the appeal court should give appropriate respect. In these appeals we are not in a dissimilar position to the primary judge, and perhaps in a somewhat better position having regard to the analysis so well undertaken and explained by the primary judge. Nevertheless, it is necessary that the appellate court recognise that its role is the correction of error. Such may appear from a difference of view, notwithstanding the respect given to any advantage in the primary judge in presiding over the presentation of evidence in the mosaic, or from some identified error of approach. In either the aim of the appeal is the correction of error: see the discussion in Aldi Foods Pty Ltd v Moroccanoil Israel Ltd (2018) 261 FCR 301 (at [2]-[10] per Allsop CJ, at [47]-[53] per Perram J and at [169] per Markovic J; see, especially for factual questions, as here, involving no impressionistic evaluation, [47]-[49] agreed in at [2] and [169]. In this case we have come to the view that important assumptions made by the primary judge lacked sufficient evidentiary foundation, and other probabilities so outweighed inferences made by the primary judge that it can be concluded his Honours conclusion was wrong.

17    We make another preliminary observation. There is no appeal from the construction conclusion reached by the primary judge that the Side C coverage was subject to a sub-limit of $10 million. Nevertheless, it must be accepted that there may be differing views as to the proper construction of the relevant policies. Perhaps more significantly, personnel in a busy insurance market who are considering various aspects of coverage, not necessarily by the same mode of communication across the commercial world, and without the aid of ongoing legal advice, may have different understandings of the coverage being provided or sought. A general misunderstanding of the coverage being sought on the part of some participants leading up to and at the time the relevant insurance policies were entered into does not lead to a conclusion that there was a consensus amongst them as to the coverage. In fact, it would tend to the opposite conclusion. More specifically, the fact that two participants (Quintis and PSC) intended that the coverage layers included a total of $50 million Side C cover does not necessarily lead to the conclusion that other participants (Price Forbes, Argo and Vibe) held a similar or common intention. In other words, a mutual mistake or misunderstanding as to what each party intends is not sufficient to establish a common intention which could lead to the grant of the equitable remedy of rectification. In our view, this was the position that existed based upon the evidence before the primary judge, where there was no common intention sufficient to displace the written agreements and their integrity as the written instruments governing the contractual relationship between the parties. On this basis, both appeals should be allowed.

THE PRIMARY JUDGES CONSTRUCTION OF THE 2016-17 POLICIES

18    It is helpful to begin by setting out the primary judges construction of the 2016-17 Policies as they stood prior to rectification, as well as some background to the insurance programme. As we have already noted, the primary judges construction of the 2016-17 Policies is not in dispute. The following detail is informed by the background at [10]-[16], [40]-[43] J and the analysis at [44]-[60] J.

19    The 2016-17 Primary included the following schedule:

20    The 2016-17 Primary also included the following relevant provisions:

SECTION 4: EXTENSIONS TO SECTION 1B (DIRECTORS & OFFICERS LIABILITY)

Subject to all the terms, conditions and exclusions, including all definitions of the Policy, the Insurer further agrees to extend cover provided under Section 1B of the Policy as follows:

4.1 Additional Limit of Liability for Insured Persons

Notwithstanding subclauses 8.14(a) and (b) of this Policy, the Insurer will pay for any Insured Person under Insuring Clause 1.3, the Sub-Limit of Liability stated in the Schedule, in addition to the Limit of Liability applicable to Section 1B (Directors & Officers Liability), provided that each of:

(a)    the Limit of Liability applicable to Section 1B (Directors & Officers Liability);

(b)    any other directors and officers liability policy which covers the Insured Person; and

(c)     all other indemnification available to the Insured Person

has been exhausted.

This extension is not automatic and will only apply if it is specifically included in the Schedule.

This extension does not provide any cover to the Insured Organisation.

[…]

4.9 Entity Securities Liability

The Insurer will pay on behalf of the Insured Organisation the liability and associated Defence Costs which the Insured Organisation is legally liable to pay as a result of a Securities Claim alleging a Wrongful Act first made the Insured Organisation, and notified to the Insurer, during the Period of Insurance.

This extension is not automatic and will only apply if it is specifically included in the Schedule.

The maximum amount payable by the Insurer under this extension is the applicable Sub-Limit of Liability specified in the Schedule. This sub-limit is part of and not in addition to the Limit of Liability.

[…]

SECTION 8: CONDITIONS APPLICABLE TO ALL COVER SECTIONS

[…]

8.14 Limit of Liability

(a)     The maximum amount payable by the Insurer under each of Sections 1A, 1B and 1C of the Policy (and their associated extensions) is the applicable Limit of Liability.

(b)     The Limit of Liability is inclusive of any Defence Costs, Sub-Limits of Liability and any other amounts insured under each part of the Policy but does not include costs incurred by the Insurer in determining whether the relevant part of the Policy provides insurance to the Insured.

(c)    Aggregate Limit of Liability

The total aggregate limit of the Insurers liability under all of Sections 1A, 1B and 1C of the Policy (and their associated extensions) is the Aggregate Limit of Liability. The Aggregate Limit of Liability is inclusive of any Defence Costs, Sub-Limits of Liability and any other amounts insured under the Policy.

(d)    If any amounts insured under the Policy are covered under one or more parts of the Policy, then the maximum amount payable by the Insurer will be the highest of the applicable Limits of Liability or Sub-Limits of Liability and the Excess will be the applicable Excess for the Insuring Clause or Extension to which that Limit of Liability or Sub-Limit of Liability applies.

(Emphasis in original to signify defined terms).

21    It is cl 4.9 of the 2016-17 Primary (Entity Securities Liability) that provides for the Side C cover.

22    The wording at the conclusion of cl 4.9 (the maximum amount payable by the Insurer under this extension is the applicable Sub-Limit of Liability specified in the Schedule and [t]his sub-limit is part of and not in addition to the Limit of Liability (sub-limit wording)) is used on 15 separate occasions in the 2016-17 Primary: cll 2.3, 2.4, 2.8, 2.16, 2.17, 4.3, 4.4, 4.7, 4.9, 4.12, 4.14, 4.15, 6.3, 6.5 and 6.6.

23    In the Definitions section of the 2016-17 Primary:

(a)    Limit of Liability is defined as the limit of liability stated in the Schedule and referred to in clause 8.14 of the Policy (emphasis in original); and

(b)    Sub-Limit of Liability is defined as any sub-limit of liability stated in the Schedule and referred to in clause 8.14 of the Policy (emphasis in original).

24    The Excess Policies, the 2016-17 1XS and the 2016-17 2XS, then include the following provisions which are relevantly identical:

EXCESS LIABILITY INSURANCE

In consideration of the payment of premium and subject to the terms of this Policy, Insurers agree with the Insured that:

Section 1 - Insuring Section

1. Insurers shall provide the Insured with insurance coverage for claims first made against the Insured during the Policy Period in excess of the Primary Insurance and in excess of any Underlying Insurance. Insurance coverage hereunder will apply in conformance with the terms, conditions, endorsements, limitations and warranties of the Primary Insurance and any Underlying Insurance except as otherwise stated in this Policy.

[…]

Section 4 - Depletion of Primary Insurance and Underlying Insurance

[…]

4.4    In the event that the Primary Insurance or any Underlying Insurance specifically provides for a sub-limit of liability it is agreed that:

(a)    where such sub-limit of liability is totally exhausted solely as a result of payment of losses under the Primary Insurance or any Underlying Insurance, then this Policy shall not provide any coverage in respect of such sub-limit of liability; or

(b)    where such sub-limit of liability is partially exhausted solely as a result of payment of losses under the Primary Insurance or any Underlying Insurance, then this Policy shall continue for subsequent losses that would be subject to such sub-limit of liability provided that the amount payable hereunder shall not exceed the balance of the amount remaining under such sub-limit of liability and shall otherwise be part of and not in addition to the Limit of Liability.

(Emphasis in original to signify defined terms).

25    At cl 2.5 of the Excess Policies, Primary Insurance is defined as the policy identified as such in Item 4 of the Schedule. There is no schedule attached to these policies but there is a document entitled Risk Details at the front of each of the policies. The Risk Details document is not itemised and so there is no Item 4. However, next to the sub-heading Conditions it is stated Full Follow Form As attached Primary Policy Number B0507N16FA15350. And next to the sub-heading Interest it is stated As more fully defined in the PRIMARY wording and clauses attached hereon being Munich Re Financial and Professional Risks Policy 09/14 as expiry [sic] and as agreed. The reference to Primary Insurance in the excess policies is therefore to be understood as a reference to the 2016-17 Primary: see [52] J.

26    Similarly, at cl 2.3, Limit of Liability is defined as the amount stated in Item 3 of the Schedule, which is to be understood as the Limit of Liability stated on the first page of the Risk Details document: see [53] J.

27    It is worth noting that Underlying Insurance is also defined at cl 2.6 of the Excess Policies as the policy or policies identified as such in Item 5 of the Schedule. There does not appear to be any reference to any underlying insurance policy in the Risk Details document, as one might expect to find a reference to the 2016-17 1XS within the 2016-17 2XS. However, in the April judgment the primary judge accepted that the reference to Underlying Insurance in the 2016-17 1XS is a reference to the 2016-17 Primary, and in the 2016-17 2XS it is a reference to the 2016-17 1XS: see [77] J2.

28    The primary judge made the following findings in respect of the 2016-17 Primary:

(1)    the extensions set out in cl 4 of the 2016-17 Primary, including cl 4.9, are provided under Section 1B of the Policy as recognised in the chapeau to cl 4: at [50] J;

(2)    cl 4.9 falls within Section 1B: at [50] J;

(3)    the sub-limit wording in cl 4.9 means that the figure alongside Entity Securities Liability in the schedule to the 2016-17 Primary is a nomination of a sub-limit to be a part of, and not in addition to, the limit of liability that is also specified in the schedule: at [50] J;

(4)    this construction is supported by the fact that the schedule provides the Limit of Liability for Section 1B claims is $10 million in the aggregate (ie it does not contemplate aggregate Section 1B claims under the policy exceeding $10 million): at [51] J; and

(5)    it is further supported by the terms of cl 8.14 which state that the Limit of Liability is inclusive of any…Sub-Limits of Liability and any other amounts insured under each part of the Policy: at [51] J.

29    The primary judge did not accept Quintis contention that the heading Optional Extensions had been erroneously indented under the heading Sub-Limits of Liability instead of being its own sub-heading such that the reference to 4.9 Entity Securities Liability AUD $10,000,000 was to be understood as a restatement of the Limit of Liability for Section 1B cover: see [44], [51] J. Rather, the primary judge found that the words 4.9 Entity Securities Liability AUD $10,000,000 were a specification of the applicable sub-limit for Side C cover under the 2016-17 Primary.

30    Turning to the Excess Policies, the primary judge found that the effect of cl 1 in both of the 2016-17 1XS and 2016-17 2XS was to incorporate the relevant terms of the 2016-17 Primary: [51]-[52] J. This included cover in respect of entity securities liability (or Side C cover) up to a $10 million sub-limit: [53] J. The primary judge found that cl 4.4 served to clarify the incorporation of the 2016-17 Primary by limiting the cover extended to the unexhausted portion of the sub-limit and only on the basis that the sub-limit is part of, and not in addition to, the limits of liability provided for under 2016-17 1XS and 2016-17 2XS: at [53] J.

31    The primary judge pointed out that cl 4.4 proceeds on the basis of the existence of a sub-limit in the 2016-17 Primary, such that if the primary Section 1B cover is exhausted as a result of payments not made under cl 4.9, then the unexhausted portion of the sub-limit in respect of Side C cover will continue into the excess policies: at [59] J. It is helpful to illustrate this by way of example:

    if there were claims of $1million comprised of:

(a)    $6 million in other Section 1B liability (cl 4.3 asset and professional reputation protection costs, cl 4.4 bail bond premium, cl 4.13 fines and pecuniary penalties etc); and

(b)    a later claim of $5 million in cl 4.9 Side C;

    then the limit of liability for Section 1B cover under the 2016-17 Primary would be totally exhausted;

    the sub-limit of liability for Side C cover under the 2016-17 Primary would be partially exhausted ($4 million); and

    the remaining Side C claim ($1 million) would float up to the first excess layer pursuant to cl 4.4(b) of the 2016-17 1XS to be covered under that policy so long as the amount does not exceed the sub-limit under the 2016-17 Primary ($10 million) or the limit of liability for Section 1B cover under the 2016-17 1XS ($20 million in the aggregate).

32    In construing the 2016-17 Policies in this way, the primary judge rejected Quintis submissions that there was any ambiguity in the 2016-17 Primary such as to require him to look at any extrinsic material or construe the policy contra proferentem: see [61], [64] J.

33    As we have already mentioned, there was also a third excess layer, the 2016-17 3XS. As the primary judge noted, in May 2017, the underwriters to the 2016-17 3XS executed a retrospective endorsement excluding any liability for Side C cover: see [11], [224] J. The endorsement provided:

Full follow form as attached Primary Policy Number, N16FA15350 except that Section 4: Extensions to Section 18 (Directors and Officers liability) 4.9 Entity Securities Liability is NOT COVERED HEREON.

By reason of this endorsement, a Side C claim would not float up to the third excess layer. It follows that the 2016-17 3XS was of minimal relevance to the dispute about the extent of Side C cover.

SUMMARY OF PRIMARY JUDGES APPROACH TO RECTIFICATION

34    It is worth saying something briefly about the primary judges approach to rectification, even though it will be addressed in more detail below.

35    The primary judges analysis commenced by identifying the purported Side C Coverage Intention (at [80] J). As it was not in dispute that Quintis (and PSC) held the Side C Coverage Intention ([4] J), the primary judge proceeded to consider the evidence available in relation to the intentions of each insurer of the 2016-17 Policies and Price Forbes in order to assess whether any of the insurers held the Side C Coverage Intention.

36    On that question, the primary judge found as follows:

(a)    Price Forbes held the Side C Coverage intention at the time of execution of the 2016-17 Policies: [303] J;

(b)    it had not been established that any of the insurers of the 2016-17 Primary held the Side C Coverage Intention: [319], [327], [336] J;

(c)    Argo held the Side C Coverage Intention in respect of the 2016-17 1XS: at [348] J;

(d)    it had not been established that the other insurers of the 2016-17 1XS held the Side C Coverage Intention: [354], [355] J;

(e)    Vibe held the Side C Coverage Intention in respect of the 2016-17 2XS: at [383] J; and

(f)    it had not been established that the other insurers of the 2016-17 2XS held the Side C Coverage Intention: [365], [370], [387] J.

37    The primary judge thus concluded that the Side C Coverage Intention was commonly held as between Quintis, Price Forbes, Argo and Vibe: at [392] J. In this regard, it is worth noting that the content of the Side C Coverage Intention was not modified to account for the finding that it was held by only two of the insurers. It is convenient to restate that intention (as defined by the primary judge at [80] J):

…the parties intended to execute the 2016-17 Policies on the basis that Side C cover was not subject to a sub-limit of $10 million, but was in fact equal to the Limit of Liability for Section 1B cover provided for by each of the 2016-17 Primary, the 2016-17 1XS and the 2016-17 2XS, meaning that the 2016-17 Policies collectively provided Side C cover of up to $50 million.

(Emphasis added.)

The point to note is that the intention goes to the overall effect of the 2016-17 Policies. It is on this basis that the primary judge then proceeded to consider a form of rectification orders reflecting the parties (that is, Quintis, Price Forbes, Argo and Vibes) true intention.

38    In the first judgment, the primary judge identified two issues in respect of the form of relief sought by Quintis.

39    First, the primary judge noted (at [395] J) that the form of relief sought by Quintis in its amended originating application was premised upon all parties being found to have the Side C Coverage Intention: at [396] J. However, the primary judge also observed (at [396] J) that the parties had accepted that the 2016-17 Policies represented a bundle of separate contracts with each insurer and that it was possible for the rectification claim to succeed against some insurers and not others. This appeared to satisfy the primary judge that he could grant relief against Argo (as between Quintis and Argo) and Vibe (as between Quintis and Vibe) in respect of the 2016-17 1XS and the 2016-17 2XS respectively, and not the other insurers subscribed to the 2016-17 1XS or 2016-17 2XS or any of the insurers subscribed to the 2016-17 Primary.

40    Second, the primary judge found that the form of relief sought by Quintis could not be reconciled with the primary judges construction of the 2016-17 Policies: see [397] J. Quintis had proposed replacing the reference to $10 million for Side C cover in the schedule of the 2016-17 Primary with a reference to $50 million. However, as the primary judge recognised, on his construction of the policies this would mean that the sub-limit for Side C cover would exceed both the aggregate limit of liability for Section 1B cover and the 2016-17 Primary, and would not result in any additional cover under 2016-17 1XS and 2016-17 2XS, which only covered the unexhausted portion of the sub-limit as part of the aggregate limit of liability for the policies.

41    The primary judge considered whether that meant Quintis was to be denied relief, but after referring to applicable principles as to the importance of substance over form in granting rectification (at [399]-[401] J), the primary judge concluded (at [402]-[403] J):

[402]     It would be at odds with equitys flexibility to relieve against unconscientious departure from an accord to conclude a bargain existed that is not reflected in a written instrument, but deny an equitable remedy on the basis that the precise form of relief reflecting the conclusions reached in this judgment was not articulated in the Amended Application.

[403]     The appropriate course is for each party to provide submissions on the specific question of relief in the light of these reasons and, except in circumstances where the parties wish to be heard orally, that such a question be determined on the papers. Further, given the mixed result, the parties should also provide submissions on the issue of costs.

42    The parties filed further submissions on the question of relief in which Quintis proposed amendments to the 2016-17 1XS to the extent it records a contract with Argo and the 2016-17 2XS to the extent it records a contract with Vibe such that there would be cumulative sub-limits in the 2016-17 Policies of $10 million, $20 million and $20 million, and the insurers submitted that relief was not available at all: at [6], [18] J2.

43    The primary judge (at [20] J2) identified three overarching submissions by the insurers as to why relief ought not to be awarded, which were dealt with in turn.

44    First, the insurers submitted that the relief now sought by Quintis went beyond the amended originating application. The insurers pointed out that Quintis had never sought rectification of the 2016-17 1XS and 2016-17 2XS independently of the 2016-17 Primary and, in particular, had never sought rectification of cl 4.4 of those policies. However, the primary judge did not accept that the insurers had no notice of the case put against them and, in the absence of sworn evidence, did not accept the insurers would have run their case differently even if they had been made aware of the specific relief now sought from the outset: at [26], [33]-[34] J2. The primary judge also emphasised the importance of substance over form (at [28]-[31] J2) and observed that the the exact form of words in which the common intention is to be framed is immaterial as long as in substance and in detail the parties intention is to be ascertained: at [28] J2 citing Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662 (at 669 per Simonds J) approved on appeal in Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68 (at 72 per Wilfrid Greene MR, with whom Clauson and Goddard LJJ agreed).

45    Second, the primary judge addressed Vibes argument that as it was not the slip leader of the 2016-17 2XS and had only intended to support the terms agreed by the slip leader (Channel), it could not be said that Vibe intended to accept more onerous terms than Channel: [35] J2. Vibe submitted that there was a tension between the Court finding that Vibe held the Side C Coverage Intention and also finding that it intended to support the terms of the slip leader who did not have the Side C Coverage Intention: [35] J2. The primary judge did not consider this submission to be relevant to the question of relief (at [36] J2) but rejected it in any event, including because there was no logical inconsistency in having found (at [327] J) that it had not been satisfactorily established that Channel held the Side C Coverage Intention (as distinct from finding that Channel did not have the Side C Coverage Intention): see [37] J2. The primary judge also considered the relevant intention was with each of the subscribing underwriters and as such the subjective intention of Channel or Vibes offer of support was irrelevant to determining the intention of Vibe: at [38] J2.

46    Third, the primary judge turned to the submission of Argo and Vibe that to rectify the contracts as between Quintis and those parties was to transform the bargain into one that was not intended by the parties: at [40] J2. The primary judge considered the scope of equitys powers of intervention and observed that it is no place of equity to relieve a mistake in a document where this would amount to writing a new agreement for the parties: at [42] J2. However, the primary judge determined that rectification was consistent with the intention of the parties in respect of the relevant individual contracts and the bilateral rights and obligations created thereunder. His Honour reached this conclusion by finding as follows:

[48]    It is necessary to recall four important findings made in the principal judgment:

(1)    the Side C Coverage Intention is defined at J[80] in the following terms:

… the parties intended to execute the 2016-17 Policies on the basis that Side C cover was not subject to a sub-limit of $10 million, but was in fact equal to the Limit of Liability for Section 1B cover provided for by each of the 2016-17 Primary, the 2016-17 1XS and the 2016-17 2XS, meaning that the 2016-17 Policies collectively provided Side C cover of up to $50 million.

(2)    all parties accepted, consistent with what is revealed in the authorities, that the slip method of placing insurance, by signing the MRC and stating the proportion of the risk that the underwriter is prepared to subscribe, results in the conclusion of separate contracts between the insured and each subscriber of the slip (J[29(5)]);

(3)    hence, while there may only be one primary policy and three excess polices, there are in fact nineteen separate contracts reflected by the 2016-17 Policies (J[29(7)]); and

(4)    in light of these findings, it was necessary to assess the intention of each individual insurer: cf Towry Law plc v Chubb Insurance Co of Europe SA [2008] NSWSC 1352 (at [66] and [138] per McDougall J).

[49]    These findings are integral to the question of relief. That is because the common intention as defined must be understood in the context of how it applies to the specific contract between Quintis and each Relevant Insurer and the rights and obligations created by that contract. As was made clear in General Reinsurance Corporation v Forsakringsaktiebolaget Fennia Patria [1983] QB 856 (at 864 per Kerr LJ, with whom Slade and Oliver LLJ agreed), each subscribing insurer becomes bound to the extent of its proportion of the risk when it accepts its individual contract. Hence, while I have found that Argo and Vibe were operating with the intention that the layers to which they were subscribing provided Side C cover up to the Limit of Liability for Section 1B cover, and that Quintis overall insurance programme provided for $50 million in Side C Cover, the manifestation of that intention as it applied to their contract with Quintis was to provide a set proportion of cover at a specific layer.

[50]    While no party referred at length to these provisions, what I have said is consistent with what appears under in the MRC under the Security Details heading:

[…]

[51]    Indeed, I do not think that it is a precondition to the award of relief, as the second respondent suggests, to find that Argo and Vibe intended to provide Side C cover irrespective of the position of the other insurance contracts (although there is no direct evidence bearing on this question one way or another). To refuse relief on the basis that it has not been found that the other insurers to the 2016-17 Policies held the Side C Coverage Intention is to confuse the 2016-17 Policies, which record the bundle of contracts, with the individual contracts themselves, and the bilateral rights and obligations created under these contracts.

[…]

[57]    In these circumstances, I am not of the view that to order rectification in the circumstances would, on the evidence, be fashioning a bargain that the parties did not strike or giving effect to an agreement that goes beyond that which the parties intended: see Muriti (at [137] per White J). Nor is there a danger, to adopt the words of Campbell JA in Franklins (at [459]), of imposing on a party a contract which he did not make. All that rectification is doing in these circumstances is bringing the policy, as the document recording the contracts of insurance, into line with the common intention of the parties. Indeed, this is not a situation where there was in fact no common intention between the parties, a common misunderstanding, or an oversight of a particular matter: see, eg, Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd [2001] VSCA 2; (2001) 3 VR 526 (at [12] per Tadgell JA). Nor is this a case in which the Court would be supporting a doctrine of rectification pro tanto: cf KPMG v Network Rail Infrastructure Ltd [2007] EWCA Civ 363; [2008] P&CR 11 (at 199 [31]–[33] per Carnwath LJ). It is a situation in which parties entered into bilateral contracts with a common intention to provide a specific proportion of cover at a specific layer.

47    The primary judge thus determined (at [58] J2) that it would be against conscience to allow the 2016-17 Policies to stand in their current form. After rejecting various submissions by the insurers objecting to the form of relief proposed by Quintis (at [71]-[87] J2) the primary judge awarded relief in substantially the same form as that proposed by Quintis. That is, cumulative sub-limits of $10 million for the 2016-17 Primary, and $20 million for each of the 2016-17 1XS and the 2016-17 2XS.

48    It is important to appreciate two things about the operation of the policies as against Argo and Vibe, as construed and rectified by the primary judge. First, Argo and Vibe did not become liable for the entirety of the sub-limits, but rather the proportions of the sub-limits that they had subscribed to under the policies (50% of the 2016-17 1XS and 6.25% of the 2016-17 2XS, respectively). Second, cl 4.4(b) of the excess policies continued to limit liability such that the amount payable under the sub-limit could go no further than the unexhausted portion of the sub-limit of the underlying policy that had floated up.

49    The primary judge illustrated this operation of the rectified 2016-17 Policies by way of annexures to the April judgment. For example, by reference to a hypothetical scenario in which there was a Side C claim of $35 million and Side C cover under the 2016-17 Primary had already been partially exhausted, Annexure D to J2 provided as follows:

    $5 million of the claim would be covered by the unexhausted portion of the $10 million sub limit under the 2016-17 Primary;

    $10 million of the claim would be covered by Argo contributing 50% of the $20 million sub-limit under the rectified 2016-17 1XS;

    the other insurers to the 2016-17 1XS would contribute nothing as the $10 million sub-limit under the unrectified 2016-17 1XS was already exhausted;

    $0.625 million of the claim would then be covered by Vibe contributing 6.25% of the unexhausted portion of the rectified 2016-17 1XS ($10 million) that has floated up to Vibe only; and

    the other insurers to the 2016-17 2XS would contribute nothing as the $10 million sub-limit under the unrectified 2016-17 1XS was already exhausted and so nothing has floated up to them.

ISSUE 1: WHETHER PRICE FORBES HELD THE SIDE C COVERAGE INTENTION

50    The first issue is whether the primary judge erred in finding that Price Forbes held the Side C Coverage Intention at all relevant times up to the point that Argo and Vibe subscribed to the 2016-17 1XS and 2016-17 2XS. This relates to ground 3 of the Argo Appeal, and grounds 1 to 10 of the Vibe Appeal.

Grounds of appeal

51    In ground 3 of its notice of appeal, Argo contends:

The primary judge erred in reasoning to and finding that Price Forbes held the Side C Coverage at relevant times up to the point that Argo subscribed to the first excess policy.

52    In grounds 1 to 10 of its notice of appeal, Vibe contends:

1.    The trial judge having found that:

(a)    Price Forbes & Partners Ltds (Price Forbes) intention, as the placing broker for the First Respondents (Quintis) insurances at Lloyds, was the relevant intention attributed to Quintis for the purposes of the claim for rectification [Primary Judgment (PJ) 29(3)], [PJ95], [PJ97], [PJ98];

(b)    Price Forbes saw the 2015-16 Primary Wording and there was no evidence to suggest that Price Forbes saw the 2015-16 first or second excess wordings [PJ275];

(c)    there was no reason that Price Forbes would not have interpreted Side C cover to be subject to a sub-limit, and therefore implicitly that Price Forbes would have interpreted the Side C cover in the 2015-16 policy to be subject to a sub-limit [PJ275];

(d)    the 2015-16 fourth excess policy (which Price Forbes placed) included a term identical to that of cl 4.4 of the 2016-17 excess policies, meaning that Price Forbes had familiarity with the sub-limit wording, and that this wording was acceptable to Quintis [PJ275];

(e)    Price Forbes was told that Quintis was looking for continuity [PJ278], [PJ280];

(f)    Price Forbes was supplied with a draft 2016-17 Primary form by PSC Insurance brokers (PSC) [PJ296], which was a form that included the Side C sub-limit of $10m [PJ53];

(g)    Price Forbes was responsible for drawing, presenting and negotiating the terms of the policies for subscription [PJ95];

(h)    Price Forbes was responsible for adopting the expiring wording [PJ95];

(i)    the 2016-17 Primary Wording was identical in all relevant respects to the 2015-16 Primary Wording (including the term Entities Securities Liability$10,000,000) [J275], being a sub-limit of $10m [PJ53];

(j)    Price Forbes received, without objection, a draft quote signed by Argo, with a form of Short Excess Wording attached by Argo, which included a slice of the sub-limits clause similar to what appeared in the 2016-17 Excess Policies [PJ153], [PJ294];

(k)    on the proper construction of each of the primary, first excess and second excess policies, all of them provided Side C cover, however that cover was the subject of a sub-limit of $10m, which [sic] [PJ53], [PJ66]; and

(l)    Price Forbes provided a copy of the 2016-17 Primary form to PSC that had been negotiated with Antares and PSC gave no indication that there was a need to alter the way in which Side C cover was presented [PJ298],

and in the absence of Quintis calling any of the individuals then employed by Price Forbes to draw, present and negotiate the primary, first excess and second excess policies, the trial judge:

(m)    erred in finding [PJ303] to the necessary proof (as described at [PJ74]-[PJ76]) that Price Forbes held the Side C Coverage Intention (as described at [PJ80]) at relevant times up to the point that Vibe subscribed to the second excess policy; and

(n)    should have found either that:

(i)    Price Forbes did not hold the Side C Coverage intention; or alternatively,

(ii)    the evidence was not sufficient to satisfy the necessary proof (as described at [PJ74]-[PJ76]) that Price Forbes held the Side C Coverage intention.

2.    The trial judge erred in his recording of the submissions of the Responding Insurers to the effect that there was technically $50 million available in Side C cover, but given the sub-limit, only $10 million could actually be paid [PJ285], when the submissions of the Responding Insurers were those made on construction, being that each of the primary, first excess and second excess policies provided Side C coverage, but subject to the sub-limit of $10m.

3.    The trial judge erred in attributing his own interpretation of an email from Ms Purdy (of PSC) to Mr Butler (of Price Forbes) [PJ133], [PJ286] (Structure Diagram) as a basis for finding that Price Forbes was told that the commercial intent of Quintis was to maintain its current amount of cover, which included up to $50 million in Side C cover [PJ287] when:

(a)    the email was sent in response to a request for information as to the current structure programme [PJ284];

(b)    the email on its face identifies the nature of cover at various layers of the programme;

(c)    the email does not purport to record the terms of the identified cover, including any applicable sub-limits thereto.

4.    The trial judge erred in attributing to the relevant employees of Price Forbes a state of mind by reference to the Structure Diagram that they would not have apprehended Side C cover was sub-limited to $10m [PJ287] and that the expiring programme provided Side C of up to $50m [PJ290], without regard, or proper regard, to his other findings recorded at paragraphs 1(b)-(e) above.

5.    The trial judge erred in inferring that PSC communicated in discussions with Price Forbes an intention that Side C cover was intended to be for an amount up to $50m [PJ287], when there was no evidence from any participant in any such conversation that such words were spoken.

6.    The trial judge erred in finding that when Price Forbes advised PSC of its intention to use the current wording that it had actually given any consideration to the policy wording [PJ289], when there is no evidence from any employee from Price Forbes as to what it had considered prior to the sending of that communication.

7.    In considering Price Forbes intention, the trial judge erred in giving no weight to the form of the wording that had been negotiated between Antares (as primary slip leader) and Price Forbes and the absence of objection to that wording by PSC when sent to it by Price Forbes (describing it as relatively neutral) [PJ294].

8.    In considering Price Forbes intention, the trial judge erred in placing weight on the form of the reweighting spreadsheet [PJ301] when:

(a)    the spreadsheet on its face identifies the nature of cover at various layers of the programme;

(b)     the spreadsheet does not purport to record the terms of the identified cover, including any applicable sub-limits thereto,

and where he separately found that the level of satisfaction necessary for the rectification claim was not reached where the reweighting spreadsheet was the only evidence supporting the Side C coverage intention [PJ378].

9.    In considering Price Forbes intention, the trial judge erred in placing weight on the retrospective endorsement issued on 26 May 2017 [305] when that endorsement expressly referred to clause 4.6 of the primary policy, which the trial judge held provided Side C cover subject to a sub-limit of $10m [PJ53], [PJ66].

10.    In considering Price Forbes intention, the trial judge erred in placing weight on the spreadsheet circulated between Price Forbes and PSC following the September 2017 meetings [306] when:

(a)    the spreadsheet on its face identifies the nature of cover at various layers of the programme;

(b)    the spreadsheet does not purport to record the terms of the identified cover, including any applicable sub-limits thereto,

and where he separately found that the level of satisfaction necessary for the rectification claim was not reached where the reweighting spreadsheet was the only evidence supporting the Side C coverage intention [PJ378].

The evidence

53    The evidence going to Price Forbes intention can be summarised as follows:

(a)    notes in relation to a Quintis presentation delivered in London to various London underwriters in May 2016 (May 2016 Insurer Update Presentation) which was attended by Price Forbes and certain insurers;

(b)    correspondence between PSC, Price Forbes and certain insurers (Argo, Vibe and others) in August 2016 at the commencement of the negotiation process referring to the terms and structure of the proposed 2016-17 insurance programme and providing quotes; and

(c)    correspondence between PSC, Price Forbes and certain insurers between September and October 2016 finalising the terms of the 2016-17 Policies.

54    The focus in both appeals (in respect of Price Forbes intention as well as that of Argo and Vibe) is the primary judges approach to the August 2016 correspondence, and in particular a structure diagram sent by email from Ms Purdy (PSC) to Mr Butler (Price Forbes) on 16 August 2016 relating to Quintis 2015-16 insurance programme. (The structure diagram is sometimes referred to as the visual). We will come to this email in due course (at [66]) as we deal with all of the key evidence in chronological order, all of which should be understood in the context of the 2015-16 insurance programme.

The 2015-16 insurance programme

55    The evidence going to Price Forbes intention in respect of brokering the 2016-17 Policies must be understood in the context of the outgoing 2015-16 insurance programme. Quintis insurance programme in 2015-16 was comprised of the following policies (collectively, 2015-16 Policies):

(1)    a Policy Schedule identified as policy number PGLAUP1011178 and Munich Re Financial & Professional Risks Policy 09/14 policy wording (2015-16 Primary);

(2)    a first excess layer policy identified as policy number FLD-368431 (2015-16 1XS);

(3)    two second excess layer policies identified as policy number CFD212004A15 and policy number 50000/27/2015/0009 (2015-16 2XS);

(4)    a third excess layer policy identified as policy number 05CH010390 (2015-16 3XS); and

(5)    a fourth excess layer policy identified as policy number B0507N15T2300 (2015-16 4XS).

56    Four of the insurers to the 2016-17 Policies (including Argo) provided insurance under the 2015-16 Policies, specifically the 2015-16 4XS, but none of those insurers provided Side C cover: see [63], [122] J. Price Forbes was the London-based broker for the 2015-16 4XS: [275] J. The 2015-16 4XS did not provide Side C cover but it did include a term identical to that of the 2016-17 Excess Policies, which meant (as the primary judge found at [275] J) that Price Forbes had some familiarity with the sub-limit wording. As the 2015-16 4XS included the term per primary wording attached (and as the primary judge also found at [275] J), Price Forbes was also familiar with the wording of the 2015-16 Primary.

57    The primary judge did not make any specific finding as to the operation of the 2015-16 Policies, although (at [111]-[121] J) he set out details of the correspondence in relation to the 2015-16 renewal and pointed out a few notable differences in wording between the two sets of policies. We note that Quintis had claimed, in relation to the construction question before the primary judge, that ambiguity in the 2016-17 Policies ought be resolved by reference to the fact that Quintis had the commercial object of seeking to preserve its expiring amount of cover and the wording of the 2015-16 Primary was understood to provide for up to $50 million in Side C cover: see [63] J. However, as the primary judge did not find any ambiguity in the 2016-17 Policies, his Honour considered that he was not required to determine the proper construction of the 2015-16 Policies: at [121] J.

58    The primary judge made the following findings in respect of the 2015-16 Policies:

[122]    The involvement of the Lloyds syndicates (Argo, ANV, Barbican, Antares and Channel) in the 2015-16 D&O tower should be noted. These insurers covered Sides A and B (not Side C) at the fourth excess level in the amount of $40 million (excess $60 million). Of relevance, the slip leader of the 2015-16 4XS, Argo, together with the subscribing insurers, Antares and Channel, all became slip leaders for the 2016-17 Policies in the London takeover of Quintis insurance programme: Antares became the 2016-17 Primary slip leader; Argo became the 2016-17 1XS slip leader; and Channel became the 2016-17 2XS slip leader. Price Forbes also acted as the London broker for the 2015-16 4XS.

[…]

[274]     Price Forbes arranged the 2015-16 4XS, and Argo, ANV, Barbican, Antares and Channel all provided cover under such a policy. That policy did not, however, provide Side C cover. Nevertheless, Quintis placed emphasis on the fact that since the layers formed part of a larger structure and were interdependent upon each other, Price Forbes and these insurers would have been aware of that overall structure. I accept that proposition, but would caveat such awareness with the qualifier generally. That is because Side C cover was not a risk that these insurers quoted on, nor a risk that affected the way in which the policies applied to their layer of cover. It was similarly not a risk that Price Forbes would have had to contemplate in the arrangement of this policy. It is therefore unlikely that Price Forbes and these insurers would have had the same level of knowledge in relation to how Side C cover operated as they would in relation to those risks that they were actually insuring.

[275]     A number of reasons support this conclusion. First, the 2015-16 4XS (being $40 million excess $60 million for D&O cover Sides A and B) did not even sit beside the layers that provided Side C cover (there being an intermediate third excess policy (see [12])). Secondly, while I accept that Price Forbes and these insurers would have seen the 2015-16 Primary (given that the 2015-16 4XS included the term per primary wording attached), there is no evidence to suggest that Price Forbes and these insurers saw the terms of the 2015-16 1XS or 2015-16 2XS in order to demonstrate an appreciation of how those policies interacted with the 2015-16 Primary. Thirdly, and following on from the previous point, the 2015-16 Primary was identical in all relevant respects to the 2016-17 Primary (including the term Entity Securities Liability $10,000,000), meaning that even if Price Forbes and these insurers did concern themselves with Side C cover, there is no reason why they would not have interpreted Side C cover to be subject to a sub-limit. Fourthly, the 2015-16 4XS actually included a term identical to that of cl 4.4 of the 2016-17 Excess Policies, meaning, if anything, Price Forbes and these insurers had familiarity with the sub-limit wording, and that this wording was acceptable to Quintis. I am therefore inclined to treat the involvement of Price Forbes, Argo, ANV, Barbican, Antares and Channel in Quintis 2015-16 insurance programme as no more than a neutral consideration.

[276]     I should also note here Quintis submission that if the 2015-16 Primary wording was simply adopted in 2016-17, then the insurers must have had the same understanding of Side C cover as they did the previous year. That submission may have some force if it involved an insurer providing Side C cover in the expiring programme, but Argo, ANV, Barbican, Antares and Channel did not. To assert that these underwriters had the intention to provide Side C cover of up to $50 million because the underwriters providing Side C cover in the previous programme intended as much, is purely a matter of speculation.

(Emphasis added.)

May 2016 Insurer Update Presentation

59    In advance of the expiry of the 2015-16 Policies, PSC (on behalf of Quintis) commenced approaching existing insurers for renewal quotes for the 2016-17 insurance programme: [124] J. As part of this process, the May 2016 Update Presentation was delivered to various underwriters in London: see [124]-[130] J. One of the slides in the presentation titled IMI Program Structure includes the following information:

    The structure of the current IMI program was put in place at renewal last year in Sept.

    The limits placed are not likely to be increased this year.

    Participants in the program last year will be asked if they are still able to participate in the 2016-17 renewal.

    Axis Australia will not be able to participate in the program this year, and this gap is being promoted to fill, currently $10M excess of primary $10M across full program D&O, PI and Crime.

60    There is evidence of handwritten notes of representatives of insurers (including Vibe but not Argo) who were in attendance at the meeting (see [126] J). This included signed notes taken by Vibe personnel including Unchanged programme on the IMI … Looking for continuity! and that there was a [$]100 limit on D&O: see [126], [278] J.

61    Vibe points to these notes and says (consistently with the primary judges findings at [278], [280] J) that Price Forbes understood that Quintis was looking to maintain its current amount of cover and that this is relevant to the terms that Price Forbes understood Quintis was prepared to accept. That is, in order to place the 2016-17 programme, Price Forbes would be required to understand the entire 2015-16 programme (beyond the 2015-16 4XS which it had familiarity with from the previous year).

62    The primary judge made the following findings in respect of the evidence surrounding the May 2016 Insurer Update Presentation:

[277]     I turn now to the May 2016 Insurer Update Presentation. As I noted above (at [126]), I find representatives of Price Forbes, Antares, Channel, Vibe, ANV and Barbican attended. However, for the reasons that follow, I do not think I should place a great deal of reliance on the evidence surrounding the Insurer Update Presentation in making an overall assessment of whether Price Forbes and the Relevant [Insurers] held the Side C Coverage Intention.

[278]    First, the Insurer Update Presentation occurred three months prior to when Price Forbes approached the London market for quotations. Secondly, while the Insurer Update Presentation slide deck notes that the limits placed are not likely to be increased this year (see [125]), this statement is not definitive as to whether Quintis was going to maintain its current amount of cover, nor what that cover was. Indeed, there is no evidence to suggest that Side C cover was discussed. At the most, given the handwritten notes of Vibe outlining Unchanged programme on the IMI … looking for continuity and that there is a $100m limit on the D&O, it seems it was proposed Quintis was anticipating maintaining its current amount of cover and that the level of cover was explained at a high level of generality. However, even then, a reference in Vibes notes to D&O policy up to $100m is immediately followed by the text does not know until June/July time & will see what pricing looks like then, indicating an element of fluidity in the content of the 2016-17 renewal at this stage. Thirdly, this presentation was not actually part of the formal renewal process and the Underwriting Update formed only part of a broader presentation given by Quintis in relation to the companys performance, business strategy and risk appetite.

[…]

[280]    I am unable to conclude that the participants at the Insurer Update Presentation would have been told that Quintis was seeking to secure up to $50 million of Side C cover in the 2016-17 period. I do infer, however, that the representatives of Price Forbes and the Relevant Insurers would have understood that: (a) Quintis was looking for continuity; (b) the expiring programme included up to $100 million in D&O cover; and (c) the limits of cover were not likely to change. The Relevant Insurers submitted that even if I were to accept that such information was conveyed, for that evidence to have weight, it would need to carry with it an understanding that the underlying layers were not written on a sub-limited basis. I do not think that is correct. Of course, at risk of stating the obvious, the less specific the finding can be made on the evidence, the less probative it is to Quintis Rectification Claim, but that does not mean it does not form part of the overall mosaic.

(Emphasis added.)

63    We interpolate that in relation to the comment at [277] J, the primary judge did not actually say at [126] J that Price Forbes attended the May 2016 Insurer Update Presentation. There is no finding that Price Forbes did so attend. The primary judge did in his overall assessment put some weight on the matters emphasised above in his reasons as forming part of the overall mosaic. However, the primary judge also said he was not putting a great deal of reliance on the May 2016 Insurer Update Presentation. We think the primary judge was correct in this assessment, although we consider that as far as Price Forbes intention is concerned, the events surrounding the May 2016 Insurer Update Presentation should not be treated as part of the overall mosaic.

Email correspondence between Ms Purdy (PSC) and Mr Butler (Price Forbes) on 16 and 17 August 2016

64    We then move on in the chronology to August 2016. In August 2016, Price Forbes took steps to progress the renewal of the insurance programme. It was agreed that Price Forbes would approach the whole of the market for the 2016-17 insurance programme, and to that end Mr Butler of Price Forbes sought further detail in relation to the 2015-16 insurance programme.

65    Ms Purdy (PSC) sent the following email to Mr Butler (Price Forbes) dated 16 August 2016 (see [132] J):

Hi Shaun,

It was good to touch base with you last Thursday on this client and discuss how we wish to proceed with renewal this year. As discussed in the telephone conversation we already have a timeline which we need to adhere to, to ensure all board papers and presentations are kept on schedule.

As agreed the timetable should go as follows;

9th August – renewal information out to markets

12th August – client to return renewal questionnaire which has some queries on it from the current primary lead (Munich Re), but no proposal form is being completed this year.

24th August – any underwriters queries to be group complied and forwarded to client for responses.

8th Sept – all terms and program structures to be received by PSC Perth

15th Sept – PSC Perth to provide board papers to TFS for circulation

29th Sept – Board resolution and instructions

Attached to this email are the following documents which can be distributed amongst the market for quotations;

§ Current IMI program Structure and participants

§ Unaudited 9mth Financials to March 2016

§ Update on ASX announcements from May – Jun 2016

§ Annexure A – Updated Organisational Structure

§ Annexure F - ASX announcement 21 July 16 New Senior Note Secure

* Presentation from May 2016 as delivered to the London Markets – removed already with you.

The client has suggested that full and final financials may be available at the end of Aug, obviously well all know once released. Additional information requested from the client and we hope to be in receipt of this soon;

§ Details of new investor clients in the 15 16 period

§ Commentary on ongoing dispute with former employee & investor (grower) Teague Czislowski

With respect to the ASIC s912 Notice in March 2016, issued to TFS Properties Ltd TFS remark that their responses were provided and no further correspondence has been received from ASIC since.

As discussed on the phone Shaun, we would be happy for you to approach the market for the whole of the program, at present we are looking to deliver premium savings to the client, with as broad a coverage as possible.

I hope this all makes sense to you, let me know if you need anything else.

Kind Regards

Sarah Purdy

66    In response, Mr Butler requested Ms Purdy to send over the current structure program (see [133] J). Ms Purdy responded on the same day with the structure diagram as follows:

Please see below, this shows it as a visual, but the Liberty would part [sic] would need to be replaced with the other lines that filed in and are shown in the premium table I have sent over.

If you have any queries please let me know essentially we have separate towers on $100M D&O (AB) including $50M side C, PI at $50M and Crime at $20M.

67    It is not in dispute that this structure diagram or visual is a depiction of the 2015-16 programme, ie the outgoing structure ([285] J). It is convenient to address the submissions of Vibe and Argo as to the meaning (and significance) of this structure diagram. The respondents effectively supported the reasoning of the primary judge and his approach to the visual.

68    The most important point to note is the inclusion of ABC in the first three layers of the diagram. At the hearing, senior counsel for Vibe said that the references to ABC in the first three layers were not to the sections of the policies (ie Section 1B, Section 1C) but rather to the type of cover including C for entity securities liability or Side C cover:

[…] A would be a payment directly to the director, B would be company reimbursement, and C is an entity cover.

[…]

A would be the direct indemnity of the insured person. B is the company reimbursement cover, and C is the entity cover.

69    Vibe says that what this document really shows is that there is D&O Side C cover in the first three layers (as indicated by D&O (ABC)), being layers that accommodate insurance up to $50 million, and then there is no D&O Side C cover in the layers above it.

70    Both Vibe and Argo submit that the visual is a generalised pictorial seeking to illustrate the existing programme structure at a high level of generality for someone with little prior knowledge of the programme. Vibe also points out that the visual does not attempt to describe all commercial terms and, in particular, sub-limits attributable to different coverage benefits. The visual therefore assists in a rough understanding of splits but does not attempt to record the terms such as sub-limits.

71    Vibe also submits that the important point is that the person receiving this document (in this instance, Price Forbes) also has access to a wording that contains the contractual terms dealing with the bottom layer (ie the 2015-16 Primary) which include Side C cover described as an extension subject to a sub-limit. That is, as we have already mentioned, Price Forbes had available to it the expiring wording for the 2015-16 Primary because of its role in placing the 2015-16 4XS (as the primary judge found at [275] J) and so would have been able to refer to that document for the particular contractual details rather than relying on the structure diagram. As Price Forbes already had access to the expiring wording for the 2015-16 Primary, Vibe submits that it was unnecessary for Ms Purdy to send through that wording again.

72    In respect of the terms of the email, the important thing to note is the phrase including $50M side C, which the primary judge placed emphasis on in his reasons (at [285]-[287] J, which are set out below).

73    There was a further exchange of emails between PSC and Price Forbes. On 17 August 2016, Ms Purdy responded to a request from Mr Butler as to what the primary and first excess layer was paying last year. In her email, Ms Purdy stated (as recorded by the primary judge at [146] J):

Base premiums last year; Primary $390, 175, Axis $10M ex $10M $215,000

[…]

If you have a primary under consideration in London could you send over the wording?

[…]

74    Mr Butler then responded the same day (as recorded by the primary judge at [146] J):

Our initial thoughts is [sic] to use the current wording but tweak it update, add on take-off etc […]

75    Vibe submits that current wording ought to be interpreted as a reference to the 2015-16 Primary, given the primary judges finding (at [275] J) that there was no evidence to suggest that Price Forbes or the other insurers saw the terms of the 2015-16 1XS or the 2015-16 2XS.

76    On 25 August 2016, after obtaining quotes from various syndicates in the London market for the entire 2016-17 insurance programme, Mr Fox (Price Forbes) attached each of the quotes to Ms Purdy (PSC) in the following email (see [179] J):

Sarah, I refer to my earlier email today and have pleasure in attaching hereto the preliminary terms weve received from our marketing efforts in London.

We have quoted for the full DO 100,000,000/EO 50,000,000 and Crime 20,000,000 in 4 layers.

We have support for the primary – 75%/1st XS 100%/2nd XS 100% and 3rd XS a lead line (weve not pushed this yet).

The deal all hangs together as one – i.e. ARGO will be supporting an Antares lead. If the primary lead changes – say the incumbent stands up then we will need to review with ARGO and the markets on the other 2 layers.

These terms represent the best weve been able to achieve to date and are based on the EXPIRING FORM. We felt it easier to follow this as the client knows the wording.

We ill [sic] be placing this 100% in Lloyds [sic] We are continuing to market the risk and are awaiting fro [sic] several insurers to come back to us. WE [sic] do not foresee any problems in being able to fill the capacity 100% in Lloyds.

We can chat through these preliminary numbers tomorrow.

Best Regards

Adrian Fox

77    The primary judge found (at [285]-[287], [289], [295] J):

[285]    The question that arises is what does this structure diagram represent? Quintis argued that the diagram and accompanying blurb given by Ms Purdy made plain that the outgoing structure included up to $50 million in Side C cover and showcased the layer that provided this cover. The Relevant Insurers, on the other hand, attempted to downplay the diagram because Ms Purdy identified it as a visual, and because it only depicts at a general level the layers and underwriters of the expiring programme. In particular, as a visual, the structure diagram does not record any terms applicable to each layer, nor indicate any terms of limitation such as sublimits. For example, the Relevant Insurers submitted that the GLA layer (the 2015-16 Primary) included 16 sub-limits, none of which are denoted in the diagram. It was said that what should instead be extrapolated from the inelegant reference to $50M Side C and the use of the notation (ABC) in the diagram is the layers of the tower offering Side C cover (which together add up to $50 million), not the terms upon which it is offered. Indeed, the Relevant Insurers maintained throughout the course of the hearing that there was technically $50 million available in Side C cover, but given the sub-limit, only $10 million could actually be paid.

[286]     I reject the Relevant Insurers submissions. The structure diagram is the simplest graphical description of Quintis outgoing insurance programme and clearly depicts that such a programme included up to $50 million in Side C cover. This is consistent with the reference in Ms Purdys email to Quintis having separate towers on $100M D&O (AB) including $50M side C, PI at $50M and Crime at $20M (emphasis added). When read together, it would be artificial to construe this email to mean other than that the D&O layers provided Side C cover up to $50 million, particularly when what is being recorded is the limits of cover. While I accept the relevant sub-limits are not included in the diagram, such an argument cannot be deployed to contradict the plain words of $50 million of Side C cover being included in the tower; a proposition I do not find to mean there exists $10 million that might dribble through. Furthermore, in the absence of any other explanation, one must give weight to the context of the email, being a request by Mr Butler to Ms Purdy for an outline of the expiring programme after she had provided a comprehensive overview of the renewal and there had been discussions over the phone in anticipation of Price Forbes engaging the London market.

[287]    Based on this evidence, at the commencement of negotiations, I find Price Forbes was told that the commercial intent of Quintis was to maintain its current amount of cover, which included up to $50 million in Side C cover. I would also go a step further and infer, for the reasons I have outlined, that Price Forbes would not have apprehended Side C Cover was sub-limited at $10 million. I am fortified in this conclusion by the fact that the PSC Report outlined objectives for the renewal were to, inter alia, [a]chieve a reduction in premium rates; and [m]aintain the limits across the program (see [128]) (an intention I infer was communicated to Price Forbes in its discussions with PSC at the commencement of negotiations). I note that above I found the contents of the PSC Report could not support the inference of what was conveyed at the Insurer Update Presentation. The point of distinction being that here the contents of the PSC Report support the inference of what was communicated by PSC to Price Forbes at the commencement of negotiations (mid-August), at which time I am willing to infer the renewal strategy was more concretely established.

[…]

[289]    While it is true that Price Forbes decided to employ the expiring wording for the 2016-17 Primary, noting to Ms Purdy that [o]ur initial thoughts is [sic] to use the current wording but tweak it update, add on take off etc (see [146]), I do not accept that at this moment in time anyone from Price Forbes had actually given consideration to the policy wording, let alone cross checked that it adequately reflected the level of cover I infer it had been told was provided for by the expiring programme. To my mind, any broker viewing the outgoing wording would operate on the assumption that it meant what they were told it provided, particularly when there was no indication to the contrary. Indeed, as would be expected for someone seeking to replicate the outgoing level of cover, Mr Butler simply copied the expiring wording verbatim; a course he presumably saw as an efficient method of carrying out the advice of PSC. Hence, the conclusion that Price Forbes adopted the 2016-17 Primary wording on the basis that it adequately reflected the expiring programme is highly probable and realistic.

[…]

[295]    … Mr Foxs email to Ms Purdy dated 25 August 2016 (see [179]). There, Mr Fox attaches the preliminary terms received for each of the 2016-17 Policies and states [w]e have quoted for the full DO 100,000,000/EO 50,000,000 and Crime 20,000,000 in 4 layers, noting [t]hese terms represent the best weve been able to achieve and are based on the EXPIRING FORM. We felt it easier to follow this as the client knows the wording. Despite the Relevant Insurers submitting that this email demonstrates Price Forbes had purposefully adopted wording known to Quintis (seemingly on the basis that this meant Price Forbes had given independent thought to the terms of the policy), it seems to me this email supports the notion that Price Forbes was giving effect to the indications received from PSC and was acting with the intention to replicate the level of cover provided for by the expiring programme.

(Bold emphasis added.)

Email correspondence between Price Forbes and insurers in August 2016

78    We will now turn to the key correspondence between Price Forbes and the insurers in relation to quotes for the 2016-17 programme (which occurred in the period intervening the emails of 16 August 2016 and 25 August 2016) that was relied upon by the primary judge in respect of Price Forbes intention.

Emails from Mr Butler (Price Forbes) to Mr Robertson (Argo) and Mr Wren (Vibe) dated 16 August 2016

79    As the primary judge noted at [138]-[139] J, on 16 August 2016 Mr Butler (Price Forbes) subsequently forwarded Ms Purdys email with the structure diagram to Mr Wren of Vibe and Mr Robertson of Argo. The primary judge described this as the only document sent by Price Forbes to Vibe and Argo that recorded the full structure of the expiring programme with explicit reference to sides A, B and C: at [139] J.

80    Mr Butler also sent the following email to Mr Wren (see [138] J):

Hi mate please see below and attached

I will send over other info on separate emails so not to clog up your system.

Antares had quoted the primary the [sic] Primary is AUD 20,000,000 two towers of combined PI/Crime AUD 10,000,000 and D&O 10,000,000.

Their premium AUD 295,000,000

Line 50%

So if you would like to support 50% let me know.

Kind regards

Shaun

81    An email to Mr Robertson was of the same explanatory effect, although did not include that Antares had quoted the primary or the offer to support 50% of the primary: see [138] J.

82    The primary judge also recorded further material being sent by Price Forbes to Argo (at [140] J):

The documentary record reveals that Argo was also forwarded, contemporaneously, the placement slip for the 2015-16 Primary, together with a draft schedule and policy wording for the 2016-17 Primary copied from the prior year. As Mr Elliott SC, counsel for the second respondent, accepted, while this is the placement slip for the expiring programme, it has obviously been provided [to] Mr Robertson for the purposes of the list [i.e. current] placement (D2, T85.41–3). The provisions of the draft policy schedule and policy wording were identical in all relevant respects to those ultimately adopted in the 2016-17 Primary. Quintis submitted that while the placement slip and policy wording did contain the term Entity Securities Liability $10,000,000, the surrounding context of Argos negotiations with Price Forbes lends no credence to any inference that Argo considered at that time that Side C cover was sub-limited, and that the timing of these communications confirms that each must be read in conjunction. Together, it was argued that these documents indicate that Quintis was seeking a renewal of the 2015-16 Policies, on the basis that such cover included up to $50 million in Side C cover not otherwise depicted on the face of the 2015-16 Primary.

We should mention that Vibe submitted that this further material was sent to Argo, Antares (the slip leader for the 2016-17 Primary) and Vibe. We have not been able to locate the evidence supporting this submission, but it is not a matter of significance in light of our approach in these appeals.

Email in response from Mr Robertson (Argo) dated 18 August 2016

83    On 18 August 2016, Mr Robertson (Argo) sent the following email to Mr Butler (Price Forbes) (see [151] J):

Shaun

Many thanks for your email and your others on the same risk.

We can offer as follows:

AUD 10,000,000 D&O limit (A, B and C cover) in excess of a primary AUD 10,000,000 limit (Anatres [sic] or whomever) and separately

AUD 10,000,000 PI and Crime combined in excess of a primary AUD 10,000,000 limit (Anatres [sic] or whomever).

(in other words – an AUD 10 million xs AUD 10 million with 2 towers – one for D&O and one for PI/Crime) for a premium of AUD 120,000 annual.

Brokerage is 25%.

We would be able to write 100% of this.

This offer of terms is subject to 1) as per any subjectivities imposed by the primary carrier and 2) review and approval of the primary quoted coverage.

We hope this helps and await your advices in due course.

Best regards

Andrew

(Bold and underline in original.)

84    The primary judge found as follows in respect of Mr Robertsons email (at [293] J):

First, is the reference in early negotiations to Side C cover found in the email from Mr Robertson of Argo dated 18 August 2016 (see [138]). There, Mr Robertson outlines that Argo is able to offer AUD 10,000,000 D&O limit (A, B and C cover) in excess of a primary AUD 10,000,000 limit (Anatres [sic] or whomever) (emphasis in original). However, this email, like a number of communications between Price Forbes and the Relevant Insurers, is consistent with both parties case (i.e. on Quintis case that there was full Side C cover provided by the Excess Policies and on the Relevant Insurers case that there was the potential for the uneroded portion of the sub-limit to be picked up by the Excess Policies when the 2016-17 Primary Limit of Liability had otherwise been exhausted). In any event, since this email was sent from Argo, and does not appear to reflect oral discussion, I do not think it is of real significance in ascertaining Prices Forbes intention.

(Bold and underline in original.)

(We note that the cross-reference to [138] J is in error, it ought to be a cross-reference to [151] J).

Draft 2016-17 1XS signed by Argo dated 18 August 2016

85    There is also evidence of a draft quote of the 2016-17 1XS dated 18 August 2016 signed by Argo: see [153] J. The draft quote does not contain any reference to sub-limits but there is an attachment to the policy titled Short Excess Wording which includes the following in the Conditions:

3.    If by reason of the payment of any claim or claims by the Underwriters of the Underlying Policy/ies during the period of this Insurance, the amount of indemnity provided by such Underlying Policy/ies is:

(a)     Partially reduced, then this Policy shall apply in excess of the reduced amount of the Underlying Policy/ies for the remainder of the period of insurance;

(b)    Totally exhausted, then this Policy shall continue in force as Underlying Policy until expiry hereof.

Furthermore, in the event of the receivership, insolvency, or the inability or refusal by any Underlying Insurer to pay all or part of a claim, or cancellation by the Insurer of the Underlying Policy, the Assured may pay any claims otherwise payable under the Underlying Policy and such payments by the Assured shall be deemed to apply toward exhaustion of the limits of liability of the Underlying Policy for purposes of coverage under the policy. In the event a sub limit of liability exists in the Underlying Policy, any payments of claims that are subject to such sub limit shall be deemed to apply toward exhaustion of the limits of liability of the Underlying Policy for purposes of coverage under the Policy.

(Emphasis added.)

86    At [154] J, the primary judge noted that in respect of this quote the insurers had submitted that:

given the pagination difference, it should be inferred that this wording was attached to the draft quote by Argo, and that in the absence of objection to such wording by Price Forbes, one should infer that both parties were operating on the common intention as to how the sub-limit terms worked and understood that there was a sub-limit applying to all the layers going forward.

87    The primary judge then found (at [294] J):

This Short Excess Wording includes a slice of the sub-limits clause similar to what appeared in the 2016-17 Excess Policies. I accept, as the Relevant Insurers submitted, that given the pagination difference and absence of Price Forbes letterhead on the Short Excess Wording, it should be inferred that this wording was attached by Argo. However, I do not accept the Relevant Insurers submission that the absence of any objection to this wording by Price Forbes sustains the inference that Price Forbes understood that there was a sub-limit applying to all the layers going forward. Such a submission suffers from two flaws: (a) Side C cover was not the only sub-limited term (meaning that even if Side C cover was not the subject of a sub-limit, the sub-limited wording would still be necessary); and (b) this conflates two separate issues: (i) that Price Forbes understood how the sub-limit term operated; and (ii) that the reference to $10 million was intended to be a sub-limited term. I am therefore of the view that the attachment of the Short Excess Wording to the 2016-17 1XS quote by Argo is relatively neutral in ascertaining Price Forbes intention.

Emails between Mr Fox (Price Forbes) and Mr Colombera (Everest) dated 22 August 2016

88    There is also evidence of communications on 22 August 2016 between Mr Fox (Price Forbes) and Mr Christian Colombera of Everest, being a participating insurer in the 2016-17 Primary and the 2016-17 2XS.

89    On 22 August 2016, Mr Colombera emailed Mr Fox as follows (see [168] J):

Dear Adrian

Thanks for your time earlier and approach on this account. I confirm we would support the primary with 25% line (per the attached quotation), as we discussed, and also the layer AUD30m xs 20m @ AUD325,000 plus tax with a 25% line; however need to see slip to understand with there is any RI built in. Please let me know and I will confirm line size.

Brokerage 25%.

This is subject to receipt and acceptance of a NCD signed and dated as at inception, along with any other subjectivities imposed by lead markets.

I hope this assists and look forward to discussing this further with you.

Thanks & best regards

Christian

90    Attached to the email was a version of the Antares quote with the addition of the Everest stamp dated 22/08/16: [169] J. The Antares quote is a draft quote sheet prepared by Price Forbes and stamped by Antares on 17 August 2016: see [143] J. The attached policy wording to the quote was identical in all relevant respects to the wording of the 2016-17 Primary, including 4.9 Entity Securities Liability AUD $10,000,000: see [143] J.

91    The primary judge recorded the following evidence of an internal Everest document (at [170]-[171] J):

[170]    It is also worth dealing at this point with a document relied upon by the Relevant Insurers as contemporaneous underwriting notes of Everest. Of note, the relevant document contains the following terms:

UW Points

Excess no Side C

    Wording: standard IMI; Side C sub-limited to Primary (no sub-limits carried in excess layers), which is preferred.

    Strategy: Manage capacity given our small portfolio and Australian legal environment to 25% primary and circa 20% 2nd excess providing ventilation, and on basis on no Side C above Primary (other than erosion exposure), given overall favorable [sic] pricing and acceptable risk profile.

[171]    The Relevant Insurers submitted that these notes demonstrate that Everest was operating with the intention that Side C cover was sub-limited at $10 million. On the other hand, Quintis contended that this document should not be seen as probative, given its metadata reveals that while the document was created on 17 May 2016, it was last modified on 27 June 2017, and there is also no record of who created the document or that that person might reasonably be supposed to have had personal knowledge of the facts contained in the document. I will deal with this contention when considering the intention of Everest below.

92    The primary judge then found (at [299] J):

the internal Everest document is consistent with the Relevant Insurers case. That document records that there is no Side C cover above the 2016-17 Primary (other than erosion exposure) because such cover is sub-limited (see [170]) (this document is dealt with at length below (see [331]–[334])). However, in considering this document, it is not inconsistent with the other evidence pointing to a finding that Price Forbes held the Side C Coverage Intention. That is because, in the absence of any other evidence, it seems this document was based on an Everest employees subjective view of the policy wording. Indeed, an asymmetry in understanding between Everest and Price Forbes would align with the fact that Everest was not a participating insurer to the 2015-16 Policies, nor does the evidence reveal that any Everest representative attended the Insurer Update Presentation or was sent the structure diagram in negotiations. However, as noted below, this document will prove damaging in being able to reach the level of satisfaction required to conclude Everest held the Side C Coverage Intention.

93    There is more correspondence with the insurers that goes to the insurers intention (not Price Forbes). We have set this out where relevant to Argo and Vibe in respect of Issue 2.

Email correspondence between Price Forbes, PSC and the insurers in September and October 2016

94    We will now turn to the correspondence between PSC, Price Forbes and certain insurers between September and October 2016 in relation to finalising the terms of the 2016-17 Policies.

Revision process between Antares and Price Forbes in relation to policy wording in September 2016

95    At [184]-[185] J the primary judge recorded evidence of Antares and Price Forbes revising policy wording as part of the negotiation process in early September 2016, and Price Forbes reporting back to PSC:

[184]    Also on 5 September 2016, upon a request from Mr Fox, Ms Purdy of PSC sent Price Forbes a version of the expiring policy wording in word (.docx) format. Notably, the email from Mr Butler commenced as per our call this morning. The only discrepancy between this document and the version of the expiring wording attached to the Antares quote is that the continuity date changed from 14 December 2012 to 30 September 2015. By way of reply email, Mr Butler noted that he is seeing Antares tomorrow morning to iron out the wording and will revert. After a further exchange of emails, Mr Butler noted to Ms Purdy that he was available for a chat, presumably given she had requested to see how everythings settled, and stated that [w]e have all the layers sorted now and that we are just amending the wording and seeing the leader [Antares] this am.

[185]    On 7 September 2016, Mr Fox emailed Ms Purdy, attaching a clean and tracked changes version of the agreed wording, accompanied by the statement that Shaun and I suggest that we call you tomorrow to run through this. The tracked changes document reveals hand written deletions of certain clauses and amendments to particular wording. The revised policy wording was stamped agreed by Antares and dated 6 September 2016. Importantly, as the parties accepted, there were no changes to the Schedule or any clause relevant to the present dispute. That is, the agreed wording presented back to PSC was, in all relevant respects, in the same form to that Price Forbes first presented to Antares.

96    As we have already noted above, the Antares quote referred to in the above passage is a draft quote sheet prepared by Price Forbes and stamped by Antares on 17 August 2016: see [143] J. The attached policy wording to the quote was identical in all relevant respects to the wording of the 2016-17 Primary, including 4.9 Entity Securities Liability AUD $10,000,000: see [143] J.

97    In relation to this revision process, at the hearing senior counsel for Vibe drew our attention to two documents. The first is what was described as a marked-up version of the original wording from the 2015-16 Primary with highlighting and handwritten annotations to indicate what was changed in the course of this revision process. The second document was described as reflecting the end result of the first negotiation as between Price Forbes and Antares (ie with the amendments). It is not in dispute that Antares stamped, signed and wrote agreed on the document on 6 September 2016.

98    Senior counsel for Vibe drew attention to the following amendments highlighted in the first document:

(a)    the insuring clauses for Section 1A and Section 1B have been altered to replace the word indemnity with the words pay on behalf of;

(b)    in Section 1A, there are changes to the exclusions in cll 3.10 and 3.18;

(c)    in Section 1B, there are changes to the exclusions in cll 5.10, 5.15 and 5.16 (which were all deleted); and

(d)    in Section 1C, there are changes to the exclusions in cll 7.3 and 7.4.

99    Vibe submits that by those changes the broker (ie Price Forbes) secured a broader coverage than the original wording by taking out some of the exclusions and that it can be inferred that such changes would have been instigated by the broker (ie Price Forbes) not the insurer (ie Antares). Vibe submits that this revision process was another occasion for scrutiny of the document that fairly clearly describes Side C as an extension subject to a sub-limit. Vibe also submits by reference to the primary judges findings at [275] J that Price Forbes had access to the 2015-16 Policy as well as the relevant excess sub-limit cl 4.4 wording in the 2015-16 4XS (even though there was no Side C cover under that policy), and so any consideration of the Antares revision process can safely proceed on the basis that Price Forbes had in mind the excess wording that it ultimately adopted.

100    The primary judge found (at [296]-[298] J):

[296]     As will be recalled, in early September 2016, Mr Butler requested a word version of the policy from Ms Purdy for his meeting with Mr Redding of Antares to iron out the wording (see [184]). The evidence of annotations to that policy demonstrates that a detailed review had taken place by Price Forbes and Antares, revealing deletions of certain clauses and minor amendments to particular wording. The evidence also reveals that Mr Butler and Mr Fox then discussed those changes with Ms Purdy (see [185]).

[297]    It is true that when there exists a process of negotiation and those negotiations are reduced into writing, revised and reaffirmed, the Court should be less willing to accept that the contract does not reflect the intention of the parties: see, eg, Franklins (at 713 [460] per Campbell JA, with whom Allsop P and Giles JA agreed). The difficulty with applying this line of reasoning to the current facts, however, is that this is not a case where solicitors have overseen an evolution from caterpillar to butterfly, in which a mismatch of terms have been thoroughly scrutinised and skilfully transformed into an artful legal document. While I do accept that Antares and Price Forbes reviewed the policy wording and discussed the amendments, the wording that ultimately formed the 2016-17 Primary was identical in all relevant respects to that initially provided to Price Forbes by PSC.

[298]    It is too simplistic to say this process of revision somehow extinguished the Side C Coverage Intention. This is particularly the case when one appreciates that there is unlikely to have been a focus on Side C cover in the revision process. That is because Antares was subscribing at the primary level, meaning that it was only ever going to be providing Side C cover (or section 1B cover as a whole for that matter) of up to $10 million (even if this was not sub-limited). To my mind, this provides good reason for why neither party took issue with the form of Side C cover provided for by the policy wording in the revision process. This conclusion is fortified by the fact that Mr Butler emailed the revised wording and updates back to Ms Purdy who gave no indication that there was a need to alter the way in which Side C cover was presented (despite it being an agreed fact that it was operating with the Side C Coverage Intention). Further, while I do not place great weight on this factor, the absence of issue being taken with the policy wording by PSC throughout the negotiation process would be consistent with the fact it had used the exact same wording (in all relevant respects) in the previous year on the assumption that it provided for up to $50 million in Side C cover.

Email chain between Mr Butler (Price Forbes) and Mr Wren (Vibe) dated 5 September 2016

101    On 5 September 2016 Mr Butler (Price Forbes) replied to an update request from Mr Wren (Vibe) as follows (as the primary judge recorded at [181] J):

Hi mate,

[…]

Got terms as Follows:

Primary Premium 10 mio AUD 195,000 over lined

First Excess 10 mio xs 10 AUD 210,000 over lined

Second Excess 20 xs 30 AUD 325,000 over lined

Third Excess 50 xs 50 D&O only AUD 135,000 25% left

Everyone we have seen mate wants a line on it as you can imagine.

If you want some on the D&O only sides A,B,C let me know.

Kind regards

Shaun

(In the primary judges extract of the above email (at [181] J), the primary judge notes that the reference in relation to the fifth line Second Excess appears to be a typographical error and should read 30 xs 20 instead of 20 xs 30).

102    On the same day, Mr Wren responded as follows (see [182] J):

Hi Shaun

Yes, not good is it?!

Thanks for the updates on this one – following on our conversation we would be pleased to offer support of 10% on the PI/D&O 30m xs 20m layer and a 10% on the top 50m xs 50m D&O layer

I presume the leader has requested up to date NCD/NMCD prior to inception given the time between our meetings and the start of the policy (?)

Please could you also confirm details of US revenue and number of Authorised Representatives they may have

Thanks

Kind regards

Wrenny

103    The primary judge found (at [300] J):

the email chain between Mr Butler and Mr Wren of Vibe when Vibe reengages in the programme (see [181]). As will be recalled, after a request for an update by Mr Wren, Mr Butler expressly outlined the layers that Vibe could subscribe in the programme. Mr Butler indicated that [i]f you want some on the D&O only sides A,B,C let me know, to which Mr Wren relevantly responded, following on from our conversation we would be pleased to offer support of 10% on the PI/D&O 30m xs 20m layer and a 10% on the top 50m xs 50m D&O layer. While it is true that Mr Butler refers to the 2016-17 3XS being D&O only in the breakdown and indicates that if Mr Wren wants to subscribe to the D&O only sides A,B,C let me know, I do not interpret this to mean that somehow only the third excess provided Side C cover, but that this is the only layer which was not over lined, and therefore the layer which Mr Butler wanted Mr Wren to take up in order to complete the deal. This email, however, does indicate there is some confusion as to the 2016-17 3XS also providing Side C cover (a position contrary to the retrospective endorsement executed by the insurers to the 2016-17 3XS). In any event, to be describing the Excess Policies as Side C indicates that Mr Butler was at least acting consistently with the intention that Side C cover runs through the Excess Policies to their full limit of liability.

The reweighting spreadsheet sent by Mr Fox (Price Forbes) to Ms Purdy (PSC) dated 9 September 2016

104    On 9 September 2016, Mr Fox sent the following email to Ms Purdy (as recorded by the primary judge at [189] J):

Sarah, further to our call this morning weve been busy in the market trying to save TFS more money.

We were at a premium for the IMI program – DO 100/EO50/Crime 20 at a premium of 875,000. Weve not reconstructed part of the program and now have a IMI program – DO 100/EO50/Crime 20 at a premium of 775,000 (see attached spread sheet). This is a DEAL for the whole program.

As you can see from the spread sheet weve amended the First XS to a 20 xs 10 with ARGO leading. The second XS weve amended to a 20 xs 30. By doing this weve been able to make the additional 100,000 premium saving. Weve not had time today to obtain the support from the original follow market for the 30 xs 20 but to be honest we dont expect any kick back.

We need to secure a 25% capacity to the 20 xs 10 – we can do this in London.

Weve sold this to the markets such as Channel as a complete deal and would be hard pushed to lose a layer – we therefore hope that the overall premium for the London deal sells this to the client at a 775,000 Annual – a 30% discount to expiring.

We can chat through next Tuesday. In the meantime well proceed to fill the program out.

Let us know your thoughts.

Best Regards

Adrian Fox

105    The attached spreadsheet (as set out by the primary judge at [190] J and referred to as the reweighting spreadsheet) was in the following form:

106    The reweighting spreadsheet was sent by Price Forbes to other insurers and the Status column was updated over the course of the next few days: see [190]-[193], [196]-[198] J.

107    The primary judge found (at [301] J):

It will be recalled this spreadsheet included the notation 50,000,000 Excess 50,000,000 D&O A,B,C Sides alongside a reference to the 2016-17 3XS (see [190]). While the Relevant Insurers mounted a number of arguments against any weight being given to this spreadsheet, these were mainly directed to its use in ascertaining the intention of the Relevant Insurers. I will address those submissions in their appropriate context below. Quintis said that the importance of this document is that it further establishes that Price Forbes had a particular understanding of the insurance structure that it was actively marketing in London. Indeed, it was said that while this document does not mention sub-limits, since the evidence establishes that Price Forbes understood what Quintis was seeking (i.e. a renewal of its insurance with cover limits intact) and prepared the document itself, it must be inferred that it intended to refer to Side C cover of up to $50 million. I generally accept this submission. However, again, there does seem to be some confusion, as Quintis accepted, that the 2016-17 3XS also provided Side C cover.

108    Before going any further we wish to make an observation of the primary judge’s reasons at [300]-[301] J referred to above in the context of the chronology. Price Forbes was dealing with the various documentation over a six week period with ten different underwriters. We should be mindful of this in assessing Price Forbes understanding as to whether Side C cover was by way of extension on a sub-limited basis.

109    By the time referred to in [300]-[301] J the exchanges of material reflect where the stage of the placement had reached, with general layer descriptions set out. By this time, at least one excess layer insurer had put in a clause about sub-limits. It can be assumed that Price Forbes would have known of the excess wording it ultimately adopted for no other reason than it was used the previous year and it was acceptable to Quintis. Whilst Side C cover was not included at the fourth excess layer, the previous policy did include an equivalent to cl 4.4. In our view, it should be accepted that Price Forbes would have been well familiar with the significance of sub-limits. It was their own form of wording used the year before that was ultimately adopted as cl 4.4.

The placement slip sent by Ms Purdy (PSC) to Mr Butler and Mr Fox (Price Forbes) dated 29 September 2016

110    On 29 September 2016 (as recorded by the primary judge at [215] J), Ms Purdy (PSC) emailed Mr Butler and Mr Fox (Price Forbes):

Hi Gentlemen,

Please find attached our placement slip for the 13th month renewal of the IMI policy as approved by the TFS board this morning.

Attached is the NCD from the Chairman of the Board, on behalf of all board members.

Confirming Policy wording is as agreed and scratched thorough [sic] as per our emails, please provide full wording and policy number when available.

Ill leave the fun to you guys…thanks for all your support it has been greatly appreciated.

111    The placement slip, marked as Prepared by Sarah Purdy and dated September 16, includes the following:

112    It is the following wording on the third page of the placement slip that the primary judge draws attention to at [215] J:

Extensions    Additional Limit of Liability for Non Executive Directors Sub limit of Liability $2,000,000

Entity Securities Liability     $50,000,000

113    This document could point in favour of Price Forbes having the Side C Coverage Intention as there was no reference to any sub-limit. However, this document was not put to any specific underwriter. It was important to appreciate the timing of the slip so as to understand what might have been made of it by Price Forbes. It was sent on 29 September 2016 after Antares had already given a Firm Order Noted for the primary. Then there is the email correspondence between Mr Butler (Price Forbes) and Mr Steve Redding (Antares). On 27 September 2016 Mr Butler says:

Hi Steve,

Re captioned and as you are out of the office tomorrow

Can you please FON effective 30th of September 2016 all T&Cs as quoted, on Primary and all layers you have supported.

Thanks

Shaun

114     On 28 September 2016, Mr Redding responds:

Shaun,

Well done, FON duly noted effective 30/9 regards

Steve

115    As the primary judge indicates (at [31] J), FON is understood to mean Firm Order Noted.

116    The wording in the 29 September email from Ms Purdy attaching the slip (as extracted above) is to be noted: Confirming Policy wording is as agreed and scratched [through] as per our emails. By this stage the wordings have been agreed and recorded in other correspondence. The function of the attachment placing slip is as a formal confirmation after the formality of an approval had already occurred.

117    We appreciate that the primary judge found (at [302] J):

the email from Ms Purdy to Mr Butler and Mr Fox attaching the placement slip including the term Entity Securities Liability $50,000,000 (see [215]), to which Mr Butler and Mr Fox took no issue. This indicates that Price Forbes must have understood the placement slip as being consistent with the cover it had placed in the London market.

118    However, if the relevant terms had been agreed and set out in the documented record, the formal confirmation slip cannot otherwise impact on that agreement reached, with the placement slip being sent as a matter of good administrative practice.

Discussion

119    After weighing conflicting possible inferences to draw from the documentation before him, without any oral evidence, the primary judge ultimately concluded that even though some evidence was equivocal, the weight of the evidence sufficiently points to Price Forbes holding the Side C Coverage Intention at the time of execution of the 2016-17 Policies: at [303] J.

120    However, in forming this view, the primary judge made a number of errors in approach. First, when considering the intention of Price Forbes, the primary judge failed to take into account the significance of its knowledge of the expiring programme prior to 2016/2017 and the role Price Forbes had in the market. The primary judge treated the first matter as a neutral consideration ([275] J).

121    The errors arose because of an important element in the primary judges approach apparent at [289] J. Here the primary judge rejected the notion that Price Forbes had given independent thought to the terms of the policy ultimately presented to Antares and the other relevant insurers. The primary judge started from this position, and then tested this against other documentary material ([290] J). We consider this approach to be unwarranted and in error, and led to a later mischaracterisation of the documentary evidence, particularly the visual.

122    The primary judge made three assumptions at [289] J: no one from Price Forbes had given consideration to the expiring wording in the 2016-17 Policy, any broker would operate on the assumption the outgoing wording meant what they were told it provided, and Mr Butler simply copied the expiring wording verbatim (without giving it independent thought).

123    It is to be remembered no witness gave evidence before the primary judge – the evidence was entirely documentary. In our view, there was no basis to make any of the assumptions; for example, by taking permissible judicial notice or having regard to the teachings of ordinary experience or human nature. There was no evidence of general practice or behaviour that could sustain the assumptions made by the primary judge. Further, unless the assumptions made by the primary judge are adopted, the documentary evidence (putting aside the visual) suggests the construction of the 2016-17 Policies found by the primary judge did reflect the intention held by Price Forbes.

124    We have alluded to some of the following matters by reference to the findings of the primary judge. Price Forbes knew the 2015-16 Primary wording, and the 2016-17 Primary wording was identical in all relevant respects to the 2015-16 Primary wording (including the sub-limit term Entities Securities Liability $10,000,000). There is no reason that Price Forbes would not have interpreted Side C cover to be subject to a sub-limit, and the 2015-16 4XS (which Price Forbes placed) included a term identical to that of cl 4.4 of the 2016-17 excess policies. Price Forbes had familiarity with the sub-limit wording, and knew that this wording was acceptable to Quintis ([274] J). In relation to the 2016/17 programme, Price Forbes was told that Quintis was looking for continuity: see [278], [280] J.

125    The primary judge proceeded on the basis that the common method of placing risks in the Lloyds market, by using a draft Market Reform Contract (MRC) (slip), was used in this case: [29(4)-(5)] J. His Honour found that Price Forbes was responsible for drawing, presenting, and negotiating the terms of the MRCs and that in doing so it was responsible for adopting the expiring wording: [95] J. The evidence is that the draft MRCs were on Price Forbes letterhead.

126    Price Forbes was provided with the opportunity to place the entire programme for 2016/17 in the London market: [132] J. In the normal course of events, Price Forbes would have been required to understand the overall programme (which was beyond the 2015-16 4XS it had familiarity with from the previous year). Price Forbes asked PSC to send … over the current structure program: [133] J. The responding email describes the diagram in the following terms: this shows it as a visual and essentially we have separate towers on $100M D&O (AB) including $50M side C, PI at $50M and Crime at $20M: [133] J. The 16 August 2016 email ([132], [133] J) preceded Price Forbes approaching any market. The visual is the key document that the primary judge placed considerable weight upon. Whilst the primary judge looked at the surrounding documentation, his Honour placed impermissible weight on the visual (to which we will return), having concluded Price Forbes gave no independent thought to the other documentation.

127    This error was compounded because the primary judge did not properly consider in context the role of Price Forbes in the market, although he made a number of findings in this regard. Price Forbes had a relationship with a number of underwriters for the Quintis risk through the 2015-16 4XS it placed for 2015/16: [274] J. Three of those insurers became the slip leaders of the Primary (Antares), 1XS (Argo), and 2XS (Channel) for 2016/17. Before approaching any other underwriter, Price Forbes approached Antares for a primary quote, which was formalised in an MRC (on Price Forbes letterhead) on 17 August 2016: [143] J. The primary judge found that the document attached a form of primary wording that, in all relevant respects, reflected the finalised primary policy wording: [143] J. It included a Side C sub-limit of $10 million. It is apparent that Antares communicated a quotation of the premium amount prior to formally scratching the primary draft MRC on 17 August 2016, because the figure recorded on the scratch was communicated to Vibe and Argo the day before: [138] J. The primary judge found that a draft of the document scratched was presented by Price Forbes for Antares consideration: [312] J. Price Forbes produced a document for quotation that included the sub-limit.

128    At about the same time, Price Forbes approached Argo to quote as leader of the 1XS. Argo was presented with documentation upon which to quote. That was described in [140] J as including a draft schedule and policy wording (the primary judge accepted that Argo may have also received Antares primary quote: [341] J). The documents recorded the Side C sub-limit of $10 million. Argo responded with a quote signed by it on 18 August 2016. The quote attached a short form excess wording that included a sub-limit clause similar to that which appeared in the final XS wordings: [341] J. It was a wording that operated in precisely the same way as the wording used in the expiring 2015-16 4XS. Argo made two additions to the draft, including the attachment with the sub-limit clause, which was not objected to by Price Forbes.

129    Therefore, by way of documentary evidence, at least at this stage of initial engagement, Price Forbes actions were objectively consistent with it obtaining cover in the ultimate form of the cover—that is, Side C with a sub-limit.

130    It is now important to consider the visual and the context in which it was employed. Contrary to the submissions of the respondents, we consider that the visual was relied upon by the primary judge, and was an important part of his weighing of evidence and drawing inferences to reach the conclusion he did as to the Side C Coverage Intention.

131    The visual describes (in a layering sense) the overall programme. The document is accurate in describing the Primary, 1XS, and 2XS (that is the layers up to $50 million) as having Side C cover. Significantly though, the visual did not record any sub-limits.

132    However, as is apparent from the chronological description above and the findings of the primary judge, the email with the visual was not the only document received at this time by Price Forbes. The primary judge found that Price Forbes was also provided a draft 2016/17 primary form ([296] J), which he found was in a form that included a Side C sub-limit of $10 million: [53] J. This document, with sub-limit references, was in the same form that Price Forbes had seen when placing the 2015-16 4XS. In contrast to the draft wording, which included reference to 16 different sub-limits (including the Side C sub-limit), the visual recorded only a general description of the layers and nature of cover, and no terms. In itself the visual does not indicate whether Price Forbes had the intention with the proposed 2XS to provide Side C cover with or without a sub-limit.

133    It is just as likely (if not more likely) that Price Forbes used the visual for a basic understanding of the overall programme, and then used contractual documents for contractual purposes (including terms and sub-limits) when entering into separate policies.

134    As we have mentioned, Price Forbes was involved in a process of placing each of the Primary, 1XS, and 2XS (as well as other policies) over a period of approximately six weeks following the first interaction. Relevant underwriters provided FONs (Firm Order Noted) on about 30 September 2016 and scratched the MRCs in early October 2016. During that time, Price Forbes dealt with 10 different underwriters: [13] J. Dealings would not only comprise written communications but would also include oral communications. Price Forbes not only drafted the policies (including negotiating the terms of the primary), but also communicated with relevant markets in relation to the placement over six weeks. If you do not adopt the assumptions of the primary judge at [289] J, then it is more probable that Price Forbes had an intention consistent with the documents it drafted.

135    As we have indicated, whilst the respondents contend that the primary judge did not impermissibly rely on the visual, the approach of the primary judge indicates otherwise.

136    The primary judge made findings as to the actual negotiation of the primary wording between Price Forbes and Antares at [296]-[298] J. The primary judge approached the fact of negotiation by considering intention by reference to the visual: [298] J. From that perspective, the primary judge explained that Side C sub-limits may not have been a focus of the revision process, and that this was a reason that the form did not change: [298] J. However, Price Forbes did undertake a negotiation with Antares as to the precise terms of the primary, and the result was a document that contained the Side C sub-limit. Further, and more significantly, it is to be recalled that Price Forbes knew of sub-limits and the existence of clause 4.4.

137    The primary judge considered Price Forbes subsequent dealings with some underwriters and in particular its dealings with Vibe. The primary judge interpreted the communications as disclosing that Price Forbes was acting consistently with the 2XS having full Side C limits ([300] J) and the reweighting spreadsheet which was found to evince an intention in Price Forbes to obtain cover up to $50 million: [301] J. However, again those documents address the general layering. They do not address the terms (sub-limits) applicable to the layering as we have referred to before in relation to other documentation.

138    As to the placing slip, we have already alluded to its receipt by Price Forbes from PSC: [302] J. The document is dealt with at [215] J, which is a document sent by PSC to Price Forbes at the time Price Forbes had commenced the process of obtaining FONs (see [213] J). The document is the instruction to place, and this communication was a matter of formality to proceed. In light of the other documentation prior to this, the placement slip is of little significance in determining the intention of Price Forbes.

139    As to the post-contractual correspondence, two matters were relied upon by the primary judge. The first ([305] J) is an endorsement to remove Side C coverage from the 3XS (which always reflected every parties intention). This is not relevant as to whether Side C at 2XS was subject to sub-limits, and Price Forbes did not seek to vary the 2XS at that point. The second ([306] J) is referrable to the facts at [229]-[237] J, and as to what may be made of some spreadsheets which refer to D&O Sides A, B, and C for both the 1XS and 2XS. Again, the documents themselves describe layers that provided Side C cover, and not sub-limits. They did not provide any evidence which could be described as clear and convincing proof of a Side C Coverage Intention.

140    Finally, we make a comment on the failure to call a witness or witnesses from Price Forbes to explain the documentation to refute any inferences otherwise to be drawn. The primary judge was not prepared to draw an adverse inference against Quintis for its failure to call anyone from Price Forbes ([262], [263] J). In the context of a rectification suit, the applicant carried the onus of establishing the exactitude of proof required. It may be thought that in the circumstances of dealings over an extended period of time, an explanation from the placing broker of its alleged mistake would be appropriate. However, this was a case that was contested by all parties by reference to documentation, and we do not consider that it fell necessarily on any party to call a representative from Price Forbes. As the primary judge said, to place Price Forbes in either partys camp is highly artificial ([263] J). We agree. Thus, no Jones v Dunkel (1959) 101 CLR 298 inference is appropriate to be drawn; but the absence of the human dimension of a witness on a subject requiring clarity and cogency of proof lies at the feet of Quintis which bore the onus of proof, not the respondents.

141    In light of the above, we conclude that the primary judge erred in finding that Price Forbes held the Side C Coverage Intention.

ISSUE 2: WHETHER ARGO AND VIBE HELD THE SIDE C COVERAGE INTENTION

142    The second issue is whether the primary judge erred in finding that Argo and Vibe held the Side C Coverage Intention. This relates to ground 1 of the Argo Appeal, and grounds 11 to 18 of the Vibe Appeal.

Grounds of appeal

143    In ground 1 of the notice of appeal filed on 6 May 2021, Argo contends that the primary judge erred in finding that Argo held the Side C Coverage Intention by:

(a)    proceeding on the basis that emails dated 18 August 2016 and 12 October 2017 from Mr Robertson to Mr Butler constituted clear and convincing proof that the Appellant held the Side C Coverage Intention, and that this conclusion could more easily be reached because Mr Robertson did not give evidence;

(b)    framing the question arising with respect to the email of 18 August 2016 as being whether the email had been sent on the basis of the structure diagram or the policy wording, and finding as to the former;

(c)    making the findings in (a) and (b) above inconsistently with the Primary Judges earlier finding (at January Judgment [293]) that the email of 18 August 2016 was consistent with both the Appellants and the Respondents case;

(d)    not attaching any or sufficient weight to the fact that the Appellants email of 18 August 2016 attached excess wording which included a sub-limitation clause, and that the Appellant may have been sent the Antares quote;

(e)    having correctly identified that there was no evidence that the Appellant took any issue with any difference between the policy wording and the structure diagram (at January Judgment [343]), failing then to conclude that this did not support a finding that Mr Robertson had quoted on the basis of the structure diagram alone;

(f)    not finding that the email of 12 October 2017 demonstrated that, in respect of the proposed extension period of the policy, the Appellant was prepared for the Side C sub-limit not exhausted at the primary layer to be available in the extension period, but only to meet any claims related to circumstances notified prior to the extension (or alternatively, that the email could be so read such that there was not clear and convincing proof that the Appellant held the Side C Coverage Intention).

144    In grounds 11 to 18 of the notice of appeal filed on 6 May 2021, Vibe contends as follows:

11.    The trial judge having found that:

(a)    in relation to the placement insurance at Lloyds it was common for a placing broker to use a draft Market Reform Contract as part of marketing efforts to attract other potential insurers [PJ29(4)].

(b)    in relation to Vibe, at the time it provided its first communication in writing to Price Forbes, being proposed premiums on a non-binding indicative basis described on the basis of [w]ording, terms and conditions as expiry [PJ149] it had in its possession the following documents supplied by Price Forbes:

(i)    a placement slip for the 2015-16 Primary together with a draft schedule and policy wording for the 2016-17 Primary copied from the prior year [PJ373], which he separately found included reference to a sub-limit of $10m [PJ275], [PJ53]; and

(ii)     the Structure Diagram,

erred in placing weight on the fact that Vibes response mirrored the layers set out in the Structure Diagram [PJ372] [PJ374], which he found noted there was up to $50 million in Side C cover provided by the insurance tower [PJ146], [PJ372], and in doing so failed to give any weight to the [w]ording, terms and conditions as expiry in the form of the draft schedule and policy wording for the 2016-17 Primary copied from the prior year, which recorded the sub-limit of $10m.

12.    The trial judge having found that the Mr Wrens intention [sic] at the time of providing Vibes non-binding indicative quote added something to the overall picture as to the continuing intention of Vibe up to the date of execution of the 2016-17 Policies [J375]:

(a)    erred in finding that the communication supported a conclusion that Mr Wren had an intention to subscribe to cover that provided up to $50m of Side C cover without sub-limit; and

(b)    ought to have found that at the time of its provision of the quote:

(i)    Vibe did not hold the Side C Coverage intention; or alternatively

(ii)    that the evidence was not sufficient to satisfy the necessary proof (as described at [PJ74]-[PJ76]) that Vibe then held the Side C Coverage intention.

13.    In determining Vibes intention, the trial judge erred in placing apparent weight on the fact of a conversation that took place between Mr Wren and Mr Butler to infer the content of the discussion (as to which layers provided what cover and the relevant terms) to suggest that this indicated that Mr Wren was the operating on the basis of the Structure Diagram [sic] in the absence of Mr Wren being called [J376], when there was no evidence from Mr Butler as to what was said.

14.    In determining Vibes intention, the trial judge erred in placing apparent weight on an exchange of emails between Mr Butler and Mr Wren [PJ181], [PJ182] in finding that at that time Mr Wren was acting consistently with the notion that there was up to $50m in Side C cover provided by the 2016-17 Policies [PJ378], and ought to have found that the email exchange, on its terms describing layers, did not support any conclusion as to the terms of the layers, including the sub-limits applicable to them.

15.    The trial judge, having accepted the accuracy of the verified document list of Vibe that the quotes of both Antares (the primary slip leader) and Channel (the second excess slip leader) were in Vibes possession on or before 12 September 2016 [PJ380], being a date well in advance of the date that Vibe confirmed a firm order on 30 September 2016 [B950] and placing its stamp on the relevant market reform contract on 3 October 2016 [A107], erred in giving no weight to its possession of those documents at that time in its findings as to Vibes intention [PJ380].

16.    The trial judge erred in giving no weight to the Vibe Financial Institutions Control Sheet related to the contract extension, being a document that recorded D&O cover only has Side C cover up to 15m. … [PJ241], [PJ381] and ought to have found that even if the figure was not the same as the sub-limit number, was evidence inconsistent with Vibe having the Side C coverage intention.

17.    The trial judge erred in giving no weight to the Vibe internal rating spreadsheet for the contract extension (which selected a coverage option of Side A and B not the available Sides A, B and C option) [PJ242], [PJ243], [PJ382] and ought to have found that the document was evidence inconsistent with Vibe having the Side C coverage intention.

18.    The trial judge erred in not giving weight, or sufficient weight, to the evidence identified in paragraphs [11] to [17] above in finding that Vibe held the Side C coverage intention, and ought to have found that:

(a)    Vibe did not hold the Side C Coverage intention; or alternatively

(b)    the evidence was not sufficient to satisfy the necessary proof (as described at [PJ74]-[PJ76]) that Vibe then held the Side C Coverage intention.

The evidence

145    There is some overlap in the evidence going to the intentions of Argo and Vibe, and the evidence going to Price Forbes intention. The key evidence in relation to the intentions of Argo and Vibe can be summarised as follows:

(a)    correspondence between Price Forbes and Argo, and correspondence between Price Forbes and Vibe, in August 2016 at the commencement of the negotiation process referring to the terms and structure of the proposed 2016-17 insurance programme; and

(b)    correspondence between Price Forbes and Argo, and correspondence between Price Forbes and Vibe, between September and October 2016 finalising the terms of the 2016-17 Policies and negotiating an extension of the Excess Policies.

146    The focus again is on the primary judges approach to the structure diagram or visual which was sent to Argo and Vibe (as well as an email dated 12 October 2017) which is of particular significance in the primary judges findings as to Argos intention.

147    At the hearing, senior counsel for Vibe said that the key difference in the primary judges approach to Vibe and Argo as compared with the other insurers was that the documentary record was such that the primary judge found that Vibe and Argo received the visual in Ms Purdys diagram email but could not be satisfied that the others received the visual. This again demonstrates the significance the primary judge placed on the visual.

Email correspondence between Price Forbes and insurers in August 2016

148    It is helpful to return to the evidence of the email correspondence in August 2016. We have already set out above the email correspondence between Ms Purdy (PSC) and Mr Butler (Price Forbes) regarding the renewal programme, including Ms Purdys email of 16 August 2016 attaching the structure diagram visual which she provides in response to a request by Mr Butler to send over the current structure diagram.

Email correspondence between Mr Butler (Price Forbes) and Mr Wren (Vibe) dated 16 August 2016 to 18 August 2016

149    On that same day, Mr Butler (Price Forbes) forwards Ms Purdys first email in relation to the renewal timeline ([138] J) and its attachments to Mr Wren (Vibe). In his email, Mr Butler states:

Hi mate please see below and attached.

I will send over other info on separate emails so not to clog up your system.

Antares had quoted the primary the Primary is AUD 20,000,000 two towers of combined PI/Crime AUD 10,000,000 and

D&O 10,000,000.

Their premium AUD 295,000,000

Line 50%

So if you would like to support 50% let me know.

Kind regards

Shaun

150    Mr Butler subsequently forwards Ms Purdys structure diagram email to Mr Wren, describing the visual as a structure chart.

151    On 17 August 2016, Mr Wren responds to the diagram email as follows:

Shaun

Following a review of the updated information for TFS I am looking at the following non-binding indications for TFS:

I think you have obtained a great deal for the client on the primary and I would struggle to support that premium (the headcount and FUM are somewhat larger than outlined in the presentation). I am therefore looking at xs layer participation only

Thus

Crime/PI combined and D&O

AUD10m eel/c but AUD20m in the agg & AUD10m eec and in the aggregate xs primary (and underlying deductibles) @ AUD195,000

D&O only

AUD30m in all xs AUD20m in all @ AUD110,000

D&O only

AUD10m xs AUD50m @ AUD35.000

D&O only

AUD40m xs AUD60m @ AUD118,500

PI only

AUD10m in all xs AUD20m @ AUD85,000

PI only

AUD20m in all xs AUD30m @ AUD140,000

All + any applicable taxes

Brokerage 25%

Wording, terms and conditions as expiry

Subject to:

Details of US exposures (revenue derived from the same) and

Details of contractors/consultants whom the insured may have vicarious liability for

No cover given

Indication open until natural expiry

Subjectivities to be complied with prior to inception

Shaun – we have AUD7.5m capacity which I am happy to use for this entity (despite its an agri-fund!) as I have met with them and they are an excellent organisation – though would prefer to spread it across the programme if we were to utilise the full line

I am out of the office from today but have ccd in Huge and will give him an overview of this before I go (but will try to respond on email if I can)

Thanks and regards

Austin

In respect of the references to updated information and primary’” in Mr Wrens email, it is the insurers position that, given the timing of the email (being just after Antares had signed the draft quote for the 2016-17 Primary), these references indicate that Mr Wren had been provided with the Antares quote and this was the document upon which he was operating. As noted above, the Antares quote is a draft quote sheet prepared by Price Forbes and stamped by Antares on 17 August 2016: see [143] J. The attached policy wording to the quote was identical in all relevant respects to the wording of the 2016-17 Primary, including 4.9 Entity Securities Liability AUD $10,000,000.

152    Indeed, at the hearing, senior counsel for Vibe submitted that it was not realistic to consider that Mr Wrens indications in this email were only based on engagement with Ms Purdys diagram email, and submitted that providing these figures would require a review of the primary wording and the applicable sub-limited extensions. Vibe contended that the Court ought to draw an inference that Mr Wren had read the contractual material in order to inform the position set out in this email.

153    The next day, on 18 August 2016, Mr Butler replied by email stating I am trying to support you but you are massively overpriced for a company that you came to see and its a sandalwood producer: see [150] J.

Email correspondence between Mr Butler (Price Forbes) and Mr Robertson (Argo) dated 16 August 2016 to 17 August 2016

154    On 16 August 2016, Mr Butler also forwarded Ms Purdys first email to Mr Robertson (Argo), stating:

Hi mate please see below and attached.

I will send over other info on separate emails so not to clog up your system.

The Primary is AUD 20,000,000 two towers of combined PI/Crime AUD 10,000,000 and D&O 10,000,000.

Kind regards

Shaun

155    Mr Butler also forwarded Ms Purdys structure diagram email to Mr Robertson, as well as a copy of the May 2016 Update Presentation.

156    Later that night, Mr Butler sent the following email to Mr Robertson:

And Finally the slip.

Premium AUD 380,000.00

Kind regards

Shaun

157    The attachment is a placement slip marked Prepared for TFS Corporation, Prepared by Sarah Purdy and dated 29 September 2015 which is similar to the later slip dated September 16 referred to above. It includes the following:

158    At the hearing, senior counsel for Argo drew attention to certain features of this slip, including that it contains fundamental information such as the period of cover that was not included in Ms Purdys diagram email.

159    Significantly, behind this slip is a copy of the actual 2015-16 Primary, including cl 4.9 (Entity Securities Liability), the sub-limit wording at cl 4.9, and the following under the heading Sub-Limits of Liability:

160    At the hearing, senior counsel for Argo submitted it was self-evident that Ms Purdys diagram email and the detailed policy wording information are different things providing different levels of information. Argo submitted it was inherently improbable that, with Mr Robertson having all this information, when it came time for Mr Robertson to quote he would quote against the visual rather than quoting against the slip which contained all of the details of the risk he was being asked to quote against.

161    On 18 August 2016, Mr Robertson responded to Mr Butler as follows:

Shaun

Many thanks for your email and your others on the same risk.

We can offer as follows:

AUD 10,000,000 D&O limit (A, B and C cover) in excess of a primary AUD 10,000,000 limit (Anatres or whomever) [sic]

and separately

AUD 10,000,000 PI and Crime combined in excess of a primary AUD 10,000,000 limit (Anatres or whomever) [sic]

(in other words – an AUD 10 million xs AUD 10 million with 2 towers – one for D&O and one for PI/Crime)

for a premium of AUD 120,000 annual.

Brokerage is 25%.

We would be able to write 100% of this.

This offer of terms is subject to 1) as per any subjectivities imposed by the primary carrier and 2) review and approval of the primary quoted coverage.

We hope this helps and await your advices in due course.

Best regards

Andrew

162    Senior counsel for Argo said that this email was the first of two that the primary judge placed great reliance upon in concluding that Mr Robertson (and through him Argo) held the Side C Coverage Intention. Argo submitted that this email does not demonstrate, either of itself or in conjunction with anything else, clearly and cogently that Mr Robertson held that intention. Rather, Argo submits that this email, like the visual in Ms Purdys diagram email, is not instructive in terms of the details of Argos position. It is a high-level generalised statement. It does not address policy limits. The definitions of the precise extent and limits of cover were to be found in the policy documentation. The reference to (A, B and C cover) does not address the question of whether, on the one hand, Mr Robertson was referring to the potential for the unexhausted Side C cover to float up into the first excess layer or whether he was instead offering $10 million Side C cover regardless of the position at the primary layer.

Draft 2016-17 1XS signed by Argo dated 18 August 2016

163    Mr Robertson also provided a written scratch quote dated 18 August 2016. We have set this out above in relation to Price Forbes intention (referring to the primary judges findings at [153] J), but will repeat it here.

164    As we have already noted, the draft quote does not contain any reference to sub-limits but there is an attachment to the policy titled Short Excess Wording, which includes in the Conditions:

3.    If by reason of the payment of any claim or claims by the Underwriters of the Underlying Policy/ies during the period of this Insurance, the amount of indemnity provided by such Underlying Policy/ies is:

(a)     Partially reduced, then this Policy shall apply in excess of the reduced amount of the Underlying Policy/ies for the remainder of the period of insurance;

(b)    Totally exhausted, then this Policy shall continue in force as Underlying Policy until expiry hereof.

Furthermore, in the event of the receivership, insolvency, or the inability or refusal by any Underlying Insurer to pay all or part of a claim, or cancellation by the Insurer of the Underlying Policy, the Assured may pay any claims otherwise payable under the Underlying Policy and such payments by the Assured shall be deemed to apply toward exhaustion of the limits of liability of the Underlying Policy for purposes of coverage under the policy. In the event a sub limit of liability exists in the Underlying Policy, any payments of claims that are subject to such sub limit shall be deemed to apply toward exhaustion of the limits of liability of the Underlying Policy for purposes of coverage under the Policy.

(Emphasis added.)

165    At the hearing, senior counsel for Argo submitted it was unsurprising that the short term excess wording attached to the quote was similar in substance to the final form of excess wording attached to the 2016-17 1XS, because Argo had participated in the expiring program at the fourth excess layer with the same placing broker and that policy had included cl 4.4.

The primary judges findings

166    The primary judge made the following findings in respect of the above evidence as to Vibes intention (at [373]-[375] J):

[373]    The Relevant Insurers submitted I should infer that at the time of Mr Wrens reply he would have received the Antares primary and this was the basis upon which he was quoting. The reasoning advanced in support was the reference in Mr Wrens email to [f]ollowing a review of the updated information for TFS and noting that the quotes were based on wording, terms and conditions as expiry. To my mind, the reference to updated information should be read as referring to the attachments supplied in Mr Butlers earlier email. However, the fact that Mr Wren stated wording, terms and conditions as expiry is of note. That is because Mr Wren has either seen the expiring terms (which the Relevant Insurers submitted would be consistent with him being provided the Antares quote), or he is simply taking a chance. The reasonable inference based on the documentary record is that Mr Wren was sent the placement slip for the 2015-16 Primary, together with a draft schedule and policy wording for the 2016-17 Primary copied from the prior year. This would mean that Price Forbes communications to Argo and Vibe were consistent with each other.

[374]    However, even if Mr Wren did have the Antares quote, two things are clear from this exchange: first, Mr Wren is operating on the basis that Quintis insurance programme is following the expiring form; and secondly, Mr Wrens email demonstrates a thorough engagement with the structure diagram of the expiring programme. This is confirmed by the fact that Mr Wren is replying directly to the email of Mr Butler forwarding the structure diagram. In fact, Mr Jones accepted that what [Mr Wren] does is he provides a split quote consistent with the boxes in the structure chart he was given: D2, T75.16–7.

[375]    The Relevant Insurers submitted that, even if Mr Wren was quoting on the basis of the structure diagram, the indications he provided were in vain, given that they were ultimately rejected by Quintis. Implicit in this submission was that this exchange should be discounted for the purpose of ascertaining whether Vibe held the Side C Coverage Intention. I reject that submission. Although Mr Wrens quotes were rejected, his intention at that time adds something to the overall picture as to the continuing intention of Vibe up to the date of execution of the 2016-17 Policies.

167    In respect of these findings, senior counsel for Vibe submitted that the primary judges heavy reliance on Mr Wren apparently engaging with the structure diagram is misplaced, as Ms Purdys structure diagram was not the only document that Mr Wren had available to him at that time. As the primary judge found (at [373] J), Mr Wren had also been provided with the placement slip for the 2015-16 Primary, together with a draft schedule and policy wording for the 2016-17 Primary. The primary judge appears to have proceeded on an inference that Mr Wren read the diagram visual as saying something about the terms of the Side C cover, but ignored the draft contractual documents in his possession that addressed the very issue. While finding that the documents were in Mr Wrens possession, the primary judge does not consider them in his analysis of Mr Wrens intention.

168    The primary judge made the following findings in respect of this evidence as to Argos intention (at [339]-[341] J):

[339]    The initial communications between Mr Robertson and Mr Fox are of note. That is because, unlike the other Relevant Insurers (excluding Vibe), along with being sent a copy of the expiring wording (see [138]–[140]), Mr Robertson was sent the structure diagram of the expiring programme (which made clear that there was up to $50 million in Side C cover) and the email from Ms Purdy (which outlined that Quintis was, at the least, seeking to maintain its current limits of cover) (see [132]). The draft quote in evidence dated 18 August 2016 reveals Argo subscribed 100% to the 2016-17 1XS (although, in the end this reduced to 50%).

[340]    The question that arises is on what basis did Mr Robertson provide this quote: the structure diagram or the policy wording? I am inclined to conclude in favour of the former. That is because in his reply email, Mr Robertson makes express reference to being able to offer, AUD 10,000,000 D&O limit (A, B and C cover) in excess of a primary AUD 10,000,000 limit (Anatres [sic] or whomever) (emphasis in original). He also agrees to support separately AUD 10,000,000 PI and Crime combined in excess of a primary AUD 10,000,000 limit (Anatres [sic] or whomever) (emphasis in original). Indeed, what it appears Mr Robertson does is select a layer of the structure diagram (namely, the first excess) and quotes on it. I am fortified in this conclusion by the fact the structure diagram was the only document sent to Argo recording the full structure of the expiring programme with explicit reference to sides A, B and C, as also appears in Mr Robertsons email.

[341]    In making this finding, I accept that the Argo quote attached Short Excess Wording which included a sub-limitation clause similar to that which appeared in the final Excess Policies (see [153]) and that given Mr Robertsons express reference to Antares, he may have been sent the Antares quote. But these factors are not critical. As I stated above in relation to Price Forbes, and without reversing the onus, the attachment of the Short Excess Wording to the quote sheet by Argo does not translate into a finding that Argo intended Side C Cover to be sub-limited. Further, even if Mr Robertson had the Antares quote, the policy wording attached to that quote was identical in all relevant respects to that already in his possession.

(Emphasis in original)

169    We have already set out above the primary judges other findings in respect of the Short Excess Wording (at [294] J). We will repeat them here for ease of reference:

Secondly, is the draft quote signed by Argo, which attaches a form of Short Excess Wording (see [153]). This Short Excess Wording includes a slice of the sub-limits clause similar to what appeared in the 2016-17 Excess Policies. I accept, as the Relevant Insurers submitted, that given the pagination difference and absence of Price Forbes letterhead on the Short Excess Wording, it should be inferred that this wording was attached by Argo. However, I do not accept the Relevant Insurers submission that the absence of any objection to this wording by Price Forbes sustains the inference that Price Forbes understood that there was a sub-limit applying to all the layers going forward. Such a submission suffers from two flaws: (a) Side C cover was not the only sub-limited term (meaning that even if Side C cover was not the subject of a sub-limit, the sub-limited wording would still be necessary); and (b) this conflates two separate issues: (i) that Price Forbes understood how the sub-limit term operated; and (ii) that the reference to $10 million was intended to be a sub-limited term. I am therefore of the view that the attachment of the Short Excess Wording to the 2016-17 1XS quote by Argo is relatively neutral in ascertaining Price Forbes intention.

170    In respect of the primary judges findings at [339]-[341] J, senior counsel for Argo submitted that the primary judge erred in posing the question on what basis did Mr Robertson provide this quote: the structure diagram or the policy wording? (at [340] J) as though the question were a binary one admitting of one answer. Instead, Argo submitted that the structure diagram was different to the detailed policy wording, with the detailed policy wording operating to qualify and bring detail to what was a general picture painted by the diagram.

171    Argo also submitted that by concluding at ([341] J) these factors are not critical, the primary judge was failing to give the factors the weight they deserved as an important consideration to be taken into account in deciding whether the evidence viewed as a whole demonstrated in a clear and cogent way that Mr Robertson held the Side C Coverage Intention.

Email correspondence between Price Forbes and Vibe in September 2016

172    As already set out above (and as recorded by the primary judge at [181] J), on 5 September 2016, Mr Butler (Price Forbes) sent the following email in response to a request for an update from Mr Wren (Vibe):

Hi mate,

[…]

Got terms as Follows:

Primary Premium 10 mio AUD 195,000 over lined

First Excess 10 mio xs 10 AUD 210,000 over lined

Second Excess 20 xs 30 AUD 325,000 over lined

Third Excess 50 xs 50 D&O only AUD 135,000 25% left

Everyone we have seen mate wants a line on it as you can imagine.

If you want some on the D&O only sides A,B,C let me know.

Kind regards

Shaun

(In the primary judges extract of the above email (at [181] J), the primary judge notes that the reference in relation to the fifth line Second Excess appears to be a typographical error and should read 30 xs 20 instead of 20 xs 30).

173    On the same day (and as recorded by the primary judge at [182] J), Mr Wren responded as follows to confirm Vibes support for the 2016-17 2XS and 2016-17 3XS:

Hi Shaun

Yes, not good is it?!

Thanks for the updates on this one – following on our conversation we would be pleased to offer support of 10% on the PI/D&O 30m xs 20m layer and a 10% on the top 50m xs 50m D&O layer

I presume the leader has requested up to date NCD/NMCD prior to inception given the time between our meetings and the start of the policy (?)

Please could you also confirm details of US revenue and number of Authorised Representatives they may have

Thanks

Kind regards

Wrenny

174    Senior counsel for Vibe submitted that the timing of Mr Wrens reengagement is of some importance, as by that stage Price Forbes had settled the slip leaders and was proceeding to its negotiation on the final primary terms with Antares. That is, there was a substantially established market position with leaders and coinsurance support. Vibe submits that the communications refer only to layers in general and do not refer to sub-limits at all. At this point in time, Vibe says there is nothing in the evidence to support the conclusion that Mr Wren was dealing with an eye towards the structure diagram.

175    The primary judge made the following findings in respect of the evidence of re-engagement as to Vibes intention (at [300], [376] J):

[300]      As will be recalled, after a request for an update by Mr Wren, Mr Butler expressly outlined the layers that Vibe could subscribe in the programme. Mr Butler indicated that [i]f you want some on the D&O only sides A,B,C let me know, to which Mr Wren relevantly responded, following on from our conversation we would be pleased to offer support of 10% on the PI/D&O 30m xs 20m layer and a 10% on the top 50m xs 50m D&O layer. While it is true that Mr Butler refers to the 2016-17 3XS being D&O only in the breakdown and indicates that if Mr Wren wants to subscribe to the D&O only sides A,B,C let me know, I do not interpret this to mean that somehow only the third excess provided Side C cover, but that this is the only layer which was not over lined, and therefore the layer which Mr Butler wanted Mr Wren to take up in order to complete the deal. This email, however, does indicate there is some confusion as to the 2016-17 3XS also providing Side C cover (a position contrary to the retrospective endorsement executed by the insurers to the 2016-17 3XS). In any event, to be describing the Excess Policies as Side C indicates that Mr Butler was at least acting consistently with the intention that Side C cover runs through the Excess Policies to their full limit of liability.

[…]

[376]    The evidence relevant to Vibe remerges in an exchange of emails between Mr Butler and Mr Wren on 5 September 2016 (see [182]). I have discussed these emails above in relation to Price Forbes (see [300]). In Mr Wrens reply he stated following on our conversation we would be pleased to offer support of 10% on the PI/D&O 30m xs 20m layer and a 10% on the top 50m xs 50m D&O layer. As this demonstrates, Mr Wren not only subscribed to the 2016-17 3XS, but also to the already full 2016-17 2XS (causing the risk undertaken by each of the other underwriters to the 2016-17 2XS to be proportionally written down). The most interesting aspect of this reply, however, is that it highlights a conversation between emails. Given the directed purpose of this exchange, it seems likely Mr Wren and Mr Butler would have discussed Vibes subscription options, and more specifically, which layers provided what cover and the relevant terms. This naturally follows from the fact that Mr Butler had made specific reference to sides A, B and C in his email to Mr Wren, and that the prior evidence reveals Mr Wren was operating on the basis of the structure diagram. This conclusion is easier to reach given that there is no reasonable explanation proved as to why Mr Wren could not give evidence as to his conversation with Mr Butler.

Vibes possession of the final Antares and Channel quotes by 12 September 2016

176    One further piece of evidence that Vibe relies on is that it had possession of the finalised form of the market reform contract prior to providing its firm order as recorded in a sworn list of documents. At [380] J, the primary judge observed:

I should note that there is no mention in evidence of when Vibe saw the Antares or Channel quotes. The verified document list states that these were in Vibes possession on or before 12 September 2016. However, there is no evidence Vibe placed reliance on the terms of these documents.

177    Vibe submitted that even without evidence of actual reliance, the possession of the documents at that point in time only gives rise to a few limited alternatives. Either Vibe did not consider the content of these documents before committing, or did read and consider the documents. It was submitted that these possibilities should have been considered by the primary judge and on any view would lead to a failure to prove the relevant intention.

Vibes post-contractual business records

178    There was evidence of Vibes post-contractual business records. There is a document in evidence titled Financial Institutions Control Sheet dated 20 September 2017. On the third page of this document, it states:

D&O COVER ONLY HAS SIDE C COVER UP TO 15M AND ONLY THE ENTITY HAS BEEN SUED THOUGH

IT CANNOT BE RULED OUT THAT THE PLAINTIFFS COULD LATER ADD THE D&OS TO THE ACTION

WILL SEE WHAT THE LEAD COMES UP WITH BUT NEED AN ABSOLUTE SPECIFIC MATTERS

EXCLUSION ON THIS GOING FORWARD AND LARGE INCREASE IN PREMIUM

179    As the primary judge noted at [241] J, Quintis submitted that the figure of $15 million had no relationship to any of the 2016-17 Policies and if accepted to be a mistake could just as easily have meant $50 million as $10 million.

180    There was another internal undated document. It is in spreadsheet form and was described by senior counsel for Vibe at the hearing as a document relevant to the pricing of a five month extension in the next year. On the third page, headed D&O Exposure Rating, there is the following table:

181    On the fourth page, there is a screenshot of a drop down menu that shows the options available when selecting Side A and B which includes the following options: Side A, Side A and B or Side A, B and C.

182    As the primary judge noted (at [243] J), the insurers submitted it was significant that when the rating was being completed, only Sides A and B were included, which suggests that Side C cover was not considered important for rating purposes by Vibe. Senior counsel for Vibe submitted that the indication that Side C was not considered by Vibe to be an important feature does not sit comfortably with the primary judges findings of Vibes intention to write full Side C cover.

183    The primary judge made the following findings in respect of the post contractual documents (at [381]-[382] J):

[381]    The post contractual documents in relation to Vibe are relatively neutral (see [241]–[243]). The internal document recording Side C cover of only … up to 15M is consistent with neither Quintis nor the Relevant Insurers case, and in my view, is clearly a mistake. While the Relevant Insurers placed emphasis on the term only to assert that the figure meant to be recorded was in fact $10 million, the use of the term only could equally refer to the fact that Side C cover was only equal to a portion of the total D&O cover or that it did not extend into the other layers Vibe had subscribed, namely the 2016-17 3XS.

[382]    Similarly, the screen shot of the Vibe internal pricing document, which, given the chronology, is sometime in September 2017, is of little assistance. That is because Vibe was also a subscriber to the 2016-17 3XS, which only covered Sides A and B, indicating good reason why some calculations might have been done on such a basis. Similarly, it may have been that Vibe was assessing whether to extend Side C cover in the 2017 period given the developments in the claim against Quintis. In any event, no representative of Vibe was called to explain these notes.

Post-contractual email correspondence between Mr Robertson (Argo) and Mr Butler (Price Forbes) in October 2017

Email from Mr Robertson (Argo) to Mr Butler (Price Forbes) dated 12 October 2017

184    On 12 October 2017 (as recorded by the primary judge at [244] J), Argo agreed to a five month extension of the 2016-17 1XS and Mr Robertson sent the following email to Mr Butler:

Shaun

Hello there.

Many thanks for your email.

This has taken a fair bit of thought.

We hereby confirm our willingness to extend the above [the 2016-17 1XS] by 5 months (making for a policy period of 18 months) at pro-rata additional premium +10%.

In so doing, however, our excess policy would have to be amended, with effect from 31st October, 2017, such that it will not provide cover for / cease to follow the provisions of 4.9 Entity Securities Liability (Side C cover) of the primary policy. In effect, Side C cover would not apply during the 5 month extension with regard to entity securities claims that are unrelated to those matters that have been advised to us. Side C cover would be available to the extent that any claims made during the extension period are indeed related to those matters notified to us provided, of course, that policy terms and conditions so allow (I understand that you believe this is the case).

The reason for this change in cover is that if we accept that the primary policy is likely to be eroded and our layer is likely to be impaired due to the matters notified, then in extending the policy we would effectively become the primary carrier for Side C claims that are unrelated to the matters notified. We would not be willing to do this.

Even if we were to consider then I doubt we would be willing to do so at pro-rata additional premium +10%. – if we did we would effectively be the primary carrier for Side C claims for 5 months but the additional premium would be pro-rata of our excess layer premium, not a primary rate. If the policy were renewed at natural renewal date with Side C cover on our layer, then we would reattach in excess of AUD 10,000,000. The primary policy is not been renewed now, however, so we are not in that position.

I await your thoughts.

Best regards

Andrew

185    Senior counsel for Argo said that the email dated 12 October 2017 is the second email that the primary judge relied upon for the purpose of making the finding of fact adverse to Argo. Argo submitted that this email needs to be understood in the context of the request by Price Forbes to the underwriters to agree to a five month extension. Argo submitted that the period of insurance under the 2016-17 Policies ran to 31 October 2017 and in the period leading up to that date there were discussions between Price Forbes and the insurers in relation to potential claims and notification of circumstances.

Email from Quintis to the underwriters dated 22 May 2017

186    We will now consider the context of the 12 October 2017 email. On 22 May 2017, a letter was sent on behalf of Quintis to the subscribing underwriters. The letter relevantly provides as follows:

Financial & Professional Risks Policy, Quintis Limited, 30 September 2016 - 30 October 2017, Policy Number B0507N16FA15350 (Policy)

We refer to the above referenced Policy. Unless otherwise specified, capitalised terms in this letter have the same meaning as in the Policy.

This letter is sent on behalf of Quintis Limited (Quintis), the current members of the Quintis Board, and Sandalwood Properties Ltd and the Officers of Quintis. We are currently seeking to confirm Quintis authority to act on behalf of other Insureds under the Policy in relation to this and further notifications and will revert to you on this issue in due course.

This letter notifies Policy insurers of:

    a Securities Claim, pursuant to clauses 8.15 and 4.9 of the Policy; and

    various facts, matters or circumstances which might give rise to claims or investigations/inquiries against or involving Insureds which may be covered under the Policy, pursuant to clause 8.15 of the Policy and section 40(3) of the Insurance Contracts Act 1984 (Cth).

[…]

1. Securities Claim

We attach a copy of a letter received by Quintis from Bannister Law on 16 May 2017 in relation to Quintis 10 May 2017 announcement to the Australian Stock Exchange (Bannister Letter).

The Bannister Letter sets out various allegations against Quintis and other Insured Persons, concerning Quintis disclosure obligations and knowledge held by those Insured Persons in that regard.

In terms of coverage under the Policy:

    Quintis (and Mr Castella) are Insureds under the Policy;

    The Bannister Letter is a written demand by a holder of Quintis Securities in the holders capacity as an investor in Quintis, and is in relation to Quintis Securities, and therefore comprises a Securities Claim;

    Coverage is therefore triggered under extension 4.9 of the Policy.

[…]

187    In evidence was a record of a meeting held on 17 September 2017, being after a proceeding was commenced against Quintis alone on 12 September 2017, which included the following note:

Update on Current Claims

Bannister Law Class Action

Writ served 12 September 2017

Allegations

188    It is in this context that senior counsel for Argo submits Mr Robertsons email of 12 October 2017 ought to be understood. The policy position taken by Mr Robertson, as reflected in that email, is that Argo is not prepared to be on risk in respect of Side C at all during the extended period subject to a qualification in respect of matters that had already been notified. Argo submitted that this qualification reflects the statutory regime and the position that an insured would be expected to take in any event.

189    Argo noted the following paragraph of the email, which the primary judge was said to place much reliance on:

The reason for this change in cover is that if we accept that the primary policy is likely to be eroded and our layer is likely to be impaired due to the matters notified, then in extending the policy we would effectively become the primary carrier for Side C claims that are unrelated to the matters notified. We would not be willing to do this.

190    Argo submitted that this paragraph reflects a view held by Mr Robertson that the 2016-17 Primary may be eroded and thus the first layer of insurance may have been impaired due to the matters that had already been notified. It follows that Mr Robertson is not accepting that the $10 million Side C cover sub-limited at the primary layer would be exhausted. All that was known at that point in time was that one claim had very recently been filed against Quintis, but whether and to what extent the $10 million D&O cover in the 2016-17 Primary would be exhausted by the recent claim was entirely unknown. Argo submitted that Mr Robertsons evident concern is that extending the first excess layer in circumstances where the primary cover may have been exhausted would mean that there is a significant risk of a Side C cover claim floating up to the first layer, effectively making Argo the primary carrier.

Further correspondence between Mr Robertson (Argo) and Mr Butler (Price Forbes) after 12 October 2017

191    The correspondence following Mr Robertsons email of 12 October 2017 is recorded by the primary judge at [245]-[248] J):

[245]    This email came as a surprise to Mr Butler, who replied: this was not the response we were expecting and that this is quite a serious issue. Mr Robertson stated that he was happy to chat through the extension and, in probably the most compelling sentence contained in the entire court book, noted that I honestly dont think anyone has thought this through.

[246]    Despite a push from Mr Butler to extend Side C cover at an additional premium, Mr Robertson expressed his regret in being unwilling to budge. To this end, on 17 October 2017, Mr Robertson outlined the exact wording of the extension in an email to Mr Butler. Relevantly, it contained the following terms:

It is agreed that this policy is extended to expire on 31st March, 2018 at 4.00 pm Local Standard Time at the mailing address of the Insured.

It is further agreed that for the part of the Policy Period that is 31st October, 2017 to 31st March, 2018 at 4.00 pm both days Local Standard Time at the mailing address of the Insured, this Policy does not follow nor provide cover in respect of the provisions of SECTION 4: EXTENSIONS TO SECTION IB (DIRECTORS & OFFICERS LIABILITY) 4.9 Entity Securities Liability of the Primary Insurance.

It is additionally agreed, however, that the forgoing, with regard to any claim notified after 31st October, 2017 at 4.00 pm Local Standard Time at the mailing address of the Insured , [sic] shall not affect this policy to the extent that it follows and is subject to SECTION 8: CONDITIONS APPLICABLE TO ALL COVER SECTIONS 8.1 Claims Aggregation.

(Emphasis added).

[247]    On 19 October 2017, this draft endorsement wording was also sent by Mr Butler to Ms Jackman and Mr Burtenshaw of PSC, under the cover of the following email:

Caroline & Peter,

Prior to our call tomorrow Adrian & I wanted you to see the endorsement that ArgoGlobal require for the extension.

They essentially want to exclude Side C cover for the extension in respect of new side C cover (Unrelated to the class already notified)

However after conversations with Argo and our summary of the incident Argo have accepted our interpretation and he has expressed his intent is to exclude any other claims which are not related to the current class action and is aware that if another action which is related to the such action it would be covered.

Lets chat further tomorrow.

Best

Shaun & Adrian.

[248]    There is no evidence of the call that occurred between PSC and Price Forbes. An identical copy of the endorsement signed by Argo does, however, appear in evidence. The Relevant Insurers submitted that Argos email above can be understood as relating to a concern that the $10 million sub-limit for Entity Securities Liability might extend into the 2016-17 1XS if not fully satisfied under the 2016-17 Primary. Quintis, on the other hand, labelled that submission fanciful, arguing that such an explanation does not shed light on Argos concern about being the primary carrier for Side C claims that are unrelated to the matters notified (emphasis added). It was said that Argo manifestly did not want to be liable for new Entity Securities Claims against Quintis in excess of AUD $10,000,000.

The primary judges findings

192    The primary judge found as follows in respect of the 12 October 2017 email (at [346] J):

While I acknowledge that Mr Robertsons email is written in the context of a securities claim against Quintis which may engage Side C cover, and that there was the prospect of an Australian Securities and Investment Commission investigation and/or potential claims against directors, none of these factors explain Argos concern of becoming the primary carrier for Side C claims that are unrelated to the matters notified (emphasis added). Indeed, if Argo was operating with the intention that Side C cover was sub-limited at $10 million, then its position in the event of a claim would be that it is only liable for the uneroded portion of the sub-limit and any new claims would be of limited or no concern given that the sub-limit would likely be exhausted. Yet, that is not the tenor of what is conveyed by Mr Robertsons email. What is conveyed is a concern by Argo that in the event of a new securities claim, it will be liable for Side C cover in excess of $10 million. Indeed, Mr Robertson even notes that Argo would in effect be taking on a primary level risk for an excess level premium.

193    Senior counsel for Argo submitted that all Mr Robertson was in fact expressing concern about was that if the 2016-17 Primary layer had already been exhausted by D&O and Side C unrelated claims, then he would in effect be giving fresh insurance by the extension and thereby becoming (effectively) the primary layer. Argo submitted that the primary judge failed to recognise that the extent to which the sub-limit would be exhausted would depend on the weighting of the claim (eg whether it was Side C, or ASIC and directors etc).

194    Senior counsel for Argo submitted that in circumstances where the two emails (dated 18 August 2016 and 12 October 2017) did not constitute clear and cogent evidence that Mr Robertson held the Side C Coverage Intention, then the primary judge could not rely (as he did at [347] J) on the fact that Mr Robertson had not given evidence to find against Argo.

Discussion

195    The primary judge ultimately concluded (at [348] J): Assessing the evidence as a whole (including the inferences that can be drawn from the material in evidence), and notwithstanding the need for clear and convincing proof, I am satisfied that Argo did hold the Side C Coverage Intention; and (at [383] J) that Vibe held the Side C Coverage Intention.

196    We have already discussed the overall approach of the primary judge in considering the position of Price Forbes. A similar analysis applies to a consideration of the intention of Vibe (Mr Austin Wren) and Argo (Mr Andrew Robertson).

197    We first look to the position of Vibe. The primary judge considered the visual in the context of Mr Wrens state of mind because, when Mr Wren responded with indicative quotes, he did so by reference to the layering described in it: [374] J. The primary judge considered that, by engaging with the email in this way, Mr Wren would have understood that the expiring programme provided for up to $50 million in Side C cover: [378] J.

198    As we have mentioned, the visual does not contain the complete necessary information regarding the cover provided. Mr Wrens response shows that he understood what the layers were for the programme, providing his qualified indications to Price Forbes by reference to those layers (see [149] J). The visual was in fact described as a structure chart.

199    However, when Mr Wren provided his qualified indications to Price Forbes, the visual was not the only document in his possession. The only request that had been made by Price Forbes to Vibe at that time was a request for support of the primary quote of Antares: [138] J. Mr Wren was not prepared to support that quote ([147] J) but was provided a placement slip for the 2015-16 Primary, a draft schedule, and wording for the 2016-17 Primary: [373] J. Mr Wren thus had in his possession the draft contractual documents that recorded a sub-limit to Side C cover. The primary judge proceeded upon an inference that Mr Wren read the visual as saying something about the terms of Side C cover, but the draft contractual documents in his possession did address those terms.

200    The primary judge found the communications that had occurred on 18 August 2016 added something to the overall picture as to continuing intention of Vibe up to the date of execution of the 2016-17 2XS ([375] J). At that point Price Forbes progressed with other underwriters, and did not re-engage with Vibe for three weeks (on about 5 September 2016: [181] J). By that time, Price Forbes had in place leads for each of the layers and substantial following markets. The communications of reengagement ([181], [182] and [300] J) only refer to layers in general (D&O only sides A, B, C) and not sub-limits. The primary judge referred to this at [376] J, including the fact that the communications refer to a conversation. However, the visual had been superseded by this point, as there were real quoted terms and Vibe was only being considered in a support role for the 1XS and 2XS.

201    A further engagement at the request of Mr Wren occurred on 10 September 2016, which was concerned with a change in the balance of layers between the first and second excess layers ([193]-[195] J) (changing the 1XS from 10m xs 10m to 20m xs 10m and the 2XS from 30m xs 20m to 20m xs 30m). Mr Wren confirmed his lines on 12 September 2016 ([195] J). At [377] J the primary judge thought there was a lack of clarity as to when Vibe formally subscribed. The evidence, recorded by the primary judge at [217] J is that Vibe provided its FON confirmation on 30 September 2016. The 2XS MRC was stamped and signed by Vibe on 3 October 2016.

202    The primary judge at [380] J records that the verified discovery list referred to Vibes receipt of the Antares quote (for the primary which included the contracts containing the Side C sub-limit references) and the Channel quote (for the 2XS – which referred to the Antares quote) on or before 12 September 2016 – that is, on or before the day that Vibe confirmed its participation on the rebalanced 2XS, and 2-3 weeks before it formally subscribed.

203    The primary judge placed no weight on Vibes possession of the quotes in this period, which was the significant period just prior to confirmation of participation, because there was no evidence that Vibe placed reliance on them: [380] J. There was no positive evidence that Vibe did consider their content. However, even if Vibe had not actively considered the quotes, this would lead more readily to a conclusion that Vibe was prepared to support the wording of the document itself and accept the position as put to it in the quote.

204    As to the post contractual business records held by Vibe, there were two relevant ones. A financial institutions control sheet referred to at [241] J recorded Side C cover of only ... up to 15M. The primary judge read this as a clear mistake ([241], [381] J) and, since it did not support either partys construction, placed no weight on it, describing it as relatively neutral on the issue of common intention. That the document did not support either partys case does not lessen its force for the purposes of an assessment of Vibes understanding, since a mistaken understanding by Vibe is just as fatal to the rectification suit as a correct understanding. The second record was an internal spreadsheet ([242], [243] J) which recorded that the person who prepared the document had a choice of selecting from a drop down box either Side A,B,C or Side A,B, and chose the latter for rating purposes. Whilst the primary judge correctly recorded that no one was called to explain the document ([382] J), it is a document that does suggest that, for the purposes of rating the risk, Side C was not considered an important feature. Again the primary judge found the document to be relatively neutral on the issue of common intention. Nevertheless, the document is not one which supports the finding of Vibes intention to write full Side C cover.

205    In our view, on an overall weighting of the evidence, in view of the incorrect approach taken by the primary judge, the requisite standard was not reached in establishing that Vibe had a Side C Coverage Intention.

206    We now turn to the position of Argo.

207    The primary judge relied upon three matters in finding that Argo held the Side C Coverage Intention, namely:

(1)    an email dated 18 August 2016 from Mr Robertson of Argo to Mr Butler of Quintis London Market placing broker;

(2)    an email dated 12 October 2017 from Mr Robertson to Mr Butler; and

(3)    the fact that Mr Robertson of Argo did not give evidence.

The 18 August 2016 email

208    It is to be recalled that represented by PSC brokers, Quintis approached the London insurance market for the next policy period (2016/17 programme). Price Forbes, a specialist London-based broker, as agent for Quintis on instruction from PSC, invited underwriters to participate and provide pricing for the 2016/17 programme by reference to material relevant to pricing the risk, including policy terms.

209    On 16 August 2016, Mr Butler of Price Forbes sent Mr Robertson of Argo a number of emails for the purposes of enabling him to consider whether Argo would be prepared to participate, and if so, on what pricing basis.

210    The first email is described at [138] J. The second email (at [139] J) forwarded on an email that Mr Butler had received from Ms Purdy of PSC. It included the visual. As mentioned already, the visual did not purport to set out policy terms and conditions, including as to sub-limits. The third email (at [140] J), sent almost immediately after the second, attached the slip for the expiring primary policy (slip), setting out its terms and conditions, including as to sub-limits. The slip, like the primary policy schedule that was subsequently created for 2016/17 programme led by Antares, expressly provided for Side C cover as a D&O extension, sub-limited to $10 million.

211    Before Mr Robertson replied to Mr Butler on 18 August 2016, the underwriter that in due course became the slip leader on the primary policy in the 2016/17 programme (Antares) submitted its quote. That quote bears the date 17 August 2016. It was in terms which replicated the slip – including Side C cover sub-limited to $10 million.

212    In the 18 August 2016 email from Mr Robertson to Mr Butler, Mr Robertson set out a qualified quotation for Argo to underwrite the first excess layer for the 2016/17 programme. The terms of the email are set out at [151] J.

213    On the very same day Mr Robertson provided Mr Butler with a signed quotation, which expressly stated Argo would follow primary terms (with the version of the primary terms held by Argo providing for Side C cover sub-limited to $10 million), and attached short form excess wording which expressly provided for sub-limited cover in much the same way as the wording in the Argo policy: see the extract at [153] J (Argo quote).

214    In approaching his consideration of the 18 August 2016 email, the primary judge framed the question as follows: The question that arises is on what basis did Mr Robertson provide this quote: the structure diagram or the policy wording?: [340] J. In our view, again the primary judge failed to appreciate the significance of the policy wording and the scope of the visual, as we have already explained in relation to Price Forbes and Vibe.

215    As we have said, while the slip had all of the information within it in relation to the primary policy terms and conditions, and specification of sub-limits, the visual was a very basic pictorial which did not contain anything beyond broad section and aggregate limits.

216    As with Price Forbes and Vibe, the primary judge proceeded on the basis that, in formulating his quote and in pricing the risk, Mr Robertson did not have regard to information as relevant to that risk in the policy terms themselves, being information (including as to sub-limits) which was contained in the slip. However, the slip was provided to him for the purposes of formulating a quote, it contained information of a kind that one would expect an underwriter to be interested in given the nature of the document, and the Argo quote reflects a desire on Argos part to rely on sub-limits imposed at the primary level, with sub-limit information being information of the kind one would expect to find in a slip.

217    The primary judges stated reason for concluding that Mr Robertson quoted on 18 August 2016 on the basis of the visual and not the primary slip was that the email expressly offered $10 million D&O (Sides A, B and C) in excess of a primary $10 million limit.

218    Mr Robertsons email did refer to $10 million D&O cover (Sides A, B and C) in excess of a primary D&O cover of $10 million. This is to be expected given the D&O cover limit quoted for was $10 million. The mere fact that Mr Robertson did not go on to expressly refer to sub-limits in the body of the email, or expressly highlight that Side C cover was the subject of a sub-limit, does not demonstrate that he held the Side C Coverage Intention. The email and Argo quote made clear that which would go without saying, namely that the quote would operate against primary coverage terms. The primary terms information which the specialist London placing broker had actually given Mr Robertson to quote against – being at least the slip specified that Side C cover was sub-limited to $10 million, and further, Argos own quote dealt with sub-limited cover expressly through the annexed wording. An underwriter dealing with a specialist placing broker in the Lloyds market would not spell out the operation of the sub-limit terms in a headline email such as the one considered by the primary judge.

219    The primary judge considered that his view that Mr Robertson had quoted against the structure chart and not the slip was supported by the fact that the chart, but not the slip, made explicit references to sides A, B and C [policy covers], and Mr Robertson had referred to A, B and C cover in his email: [340] J. The slip did use the expression Entity Securities Liability rather than Side C, but they are well known and inter-changeable descriptions. The fact Mr Robertson used the shorthand version (ie Side C) in his email does not establish that he quoted off the visual, nor more importantly demonstrate that he did not take into account the information in the slip as to sub-limits.

220    The fact that Mr Robertson expressed himself as he did in the 18 August 2016 email and did not actually refer to the sub-limit in the body of his email and spell out the way the attached quote terms would operate against the primary terms he had been supplied with, does not demonstrate that he was not quoting against the slip and does not constitute clear and cogent evidence demonstrating that he held the Side C Coverage Intention.

The 12 October 2017 email

221    The second email the primary judge relied upon was Mr Robertsons email of 12 October 2017 to Mr Butler in relation to an extension of the policy period by five months.

222    When the issue of a five month extension arose, Mr Robertson was approached to agree to the extension. He responded in his email of 12 October 2017, set out at [244] J.

223    Prior to the expiration of the Argo policy in 2017, Quintis had notified insurers of a claim and circumstances. The evidence before the Court included, in particular, a letter dated 22 May 2017 from Quintis to underwriters which notified insurers that law firms had made allegations in relation to the conduct of Quintis and its directors in respect of disclosure obligations, and that there may later be claims against the directors and Quintis, as well as investigations and inquiries by authorities in respect of the conduct of the directors and officers of Quintis. Further notifications were given at an insurance briefing held on 17 September 2017.

224    It is important to appreciate that in October 2017 it was not known what claims or investigations would be pursued, when, or against which insureds, and how that would all play out in terms of expenditures under the primary D&O limit and the Side C sub-limit.

225    As at October 2017, the extent of the directors and Quintis exposure to litigation and associated regulatory action had not been ascertained. The notification of a claim and circumstances, made on 22 May 2017, was a wide ranging notification which was expressly sent on behalf of, and alluded to prospective claims and investigations against, the directors personally as well as Quintis. That notification expressly provided that:

(a)    various facts, matters and circumstances which might give rise to claims or investigation/inquiries against or involving Insureds which may be covered under the Policy;

(b)    a published statement made by law firm, Piper Alderman, in May 2017 raising serious questions around the conduct of the directors;

(c)    it would be reasonable to assume that [claims] could include claims by or on behalf of Quintis or Quintis shareholders against directors and/or officers and/or employees of Quintis and/or its subsidiaries in respect of a range of specified matters, including breaches of statutory and other duties owed by them;

(d)    it would be reasonable to assume [claims] could include investigations, inquiries and claims (including, but not limited to civil, criminal or administrative claims) by regulators or other official bodies including, but not limited to, ASIC, in relation to the conduct of the directors and officers of Quintis or any of its subsidiaries;

226    The primary judge erroneously read the 12 October 2017 email on the assumption that it was known or expected that the Side C sub-limit would be exhausted at the primary layer as a result of a claim against Quintis, and on the further assumption that it was known or expected that the D&O primary limit of $10 million would be exhausted as a result of that, rather than as a result of claims and investigations against directors of a kind that had been expressly foreshadowed in the above notification. In October 2017, there was no way of knowing whether the foreseeable claims and investigations against directors would be made, or what would end up happening with such claims or the claim against Quintis.

227    Further, without being influenced by hindsight bias, the email in its terms reads consistently with Side C cover being sub-limited to $10 million.

228    This reasoning of the primary judge at [346] J assumed that the whole of the $10 million of Side C cover would be exhausted by virtue of claims related to the matters notified. However, the email contemplates the first excess layer being impaired by the Side C sub-limit once the primary policy had reached its section limit. That was the circumstance which operates under the policy terms properly construed, where the primary limit is exhausted but the Side C sub-limited cover of $10 million is not, such that the uneroded Side C cover floats up to the excess layer.

229    It was foreseeable (but not known), in a context in which the matters notified expressly concerned potential claims and investigations against directors and officers as well as claims against Quintis, that a circumstance of the kind described in the 12 October 2017 email could arise as a result of the primary paying out up to the $10 million limit of its D&O cover (for investigations and claims against directors and officers having been the subject of notifications given) without exhausting the $10 million Side C sub-limit which was available for Quintis. In that scenario, the uneroded balance of the $10 million Side C sub-limit would fall to be met by Argo in the first excess layer during the extension period.

230    The 12 October 2017 email indicated Argo was prepared to extend the policy for a further period on the basis that the uneroded portion of the $10 million Side C sub-limit that could float up into the Argo policy would remain available during the extension period to meet claims related to matters notified, but not to meet new claims unrelated to the matters already notified.

231    The reference in that email to Argo effectively being put in the position of primary insurer in the extended period, were it to take a different course and provide Side C cover for new and unrelated claims in the extension period, is commercially sound. On the scenario under discussion, there would be no primary Side C cover at all for the extension period, and any new and unrelated claims made in that extension period would be directed in the first instance to Argo as the primary insurer on risk. Argo was indicating that it was not prepared to take on the risk of being the primary insurer responsible for meeting entirely new and unrelated Side C claims made in the extension period that was being requested.

232    In our view, neither the 18 August 2016 and 12 October 2017 email individually or collectively constitute clear and cogent evidence that would support a finding that, more likely than not, Argo held an intention otherwise than set out in the written policies.

The fact Mr Robertson did not give evidence

233    The third and final matter relied upon by primary judge was the fact that Mr Robertson of Argo did not give evidence: [347] J.

234    As in our view the two emails do not demonstrate with sufficient clarity and cogency that Argo held the intention contrary to the written policies, the fact that Mr Robertson did not give evidence is of no moment. As we have said, the proceeding before the primary judge was conducted by way of documentary evidence only. The emails lacked the necessary quality to support the rectification case and there was no necessity to call Mr Robertson.

ISSUE 3: RELIEF

235    The third issue goes to whether the primary judge erred in granting relief. This relates to ground 2 of the Argo Appeal, and grounds 19 to 23 of the Vibe Appeal. In light of our conclusions on issues 1 and 2, the issue on relief does not arise for determination.

DISPOSITION

236    In light of the above reasons, the appeals will be allowed and the orders of the primary judge made on 6 April 2021 will be set aside. In lieu thereof it seems appropriate the proceeding below be dismissed with costs and the costs of the appeals be borne by the respondents. However, we will order that within fourteen (14) days the parties file an agreed form of orders, or in default of agreement, any submissions as to the form of the appropriate orders reflecting the reasons of the Court. Subject to any further directions, the final orders of the Court will be made on the papers.

I certify that the preceding two hundred and thirty-six (236) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop and Justices Middleton and Yates.

Associate:

Dated:    19 May 2022

SCHEDULE OF PARTIES

NSD 390 of 2021

Respondents

Fourth Respondent:

GEOFFREY WILLIAM DAVIS

Fifth Respondent:

VIBE SYNDICATE MANAGEMENT LIMITED FOR AND ON BEHALF OF THE UNDERWRITING MEMBERS OF LLOYDS SYNDICATE 5678

NSD 391 of 2021

Respondents

Fourth Respondent:

GEOFFREY WILLIAM DAVIS

Fifth Respondent:

THE BALANCE OF CERTAIN UNDERWRITERS AT LLOYDS LONDON SUBSCRIBING TO POLICY NUMBER B0507N16FA15370