Federal Court of Australia

Allianz Australia Insurance Limited v Uniting Church in Australia Property Trust (NSW) [2025] FCAFC 8

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    Paragraphs 3 – 21 of the declarations and orders made by the primary judge on 12 April 2023 in NSD 1144 of 2019 be set aside and, in their place, it be ordered that the proceedings otherwise be dismissed.

3.    The respondent pay the appellant’s costs of the appeal.

4.    The parties are to be heard on the question of costs before the primary judge.

5.    The appellant is to file any material and submissions (limited to 5 pages) on which it relies on the question of costs before the primary judge within 14 days from the date of these orders.

6.    The respondent is to file any material and submissions (limited to 5 pages) on which it relies on the question of costs before the primary judge within 21 days from the date of these orders.

7.    The appellant is to file any material and submissions in reply (limited to 3 pages) within 28 days from the date of these orders.

8.    Subject to further order, the question of costs before the primary judge be determined on the papers.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

The nature of the appeal

1    The circumstances behind, and the arguments associated with, this appeal are of such a nature that it is desirable to provide a preliminary and fulsome introduction that will, unfortunately, result in some repetition in the explanation of the reasons for the decision. Nevertheless, it is the best approach.

2    Between 31 March 1999 and 31 March 2011, Allianz Australia Insurance Limited (Allianz) (or its predecessor, Mercantile Mutual Insurance (MMI)) issued successive policies of insurance to the Uniting Church in Australia (UCA). The UCA is not itself a legal entity, but an amalgam of a variety of numerous groups, associations, synods, assemblies, committees, councils, bodies corporate and individuals, all of which were individually covered by the policies. Amongst the bodies corporate are statutorily incorporated trusts referred to as “Property Trusts” which, for their respective geographical areas, own or hold the UCA’s property. For present purposes, they included the Uniting Church in Australia Property Trust (NSW) (UCPT), which is the respondent to the appeal.

3    Knox Grammar School (Knox) is a school within the umbrella of the UCA and, specifically, within the Synod of New South Wales. Those who were responsible for the school’s management, operation and administration, being the members of the School Council and the successive Headmasters, were also within the scope of the expression, “Insureds”, in the successive policies.

4    From about 2007, civil claims in respect of historical sexual and physical abuse were brought by numerous former Knox students or by the parents of former students. Though having no discernible part in the management, administration or operation of Knox, the UCPT responded to those claims, engaged in settlement negotiations, and resolved a number of them. It made substantial payments for those settlements and, consequently, sought indemnity from Allianz under the policies. Initially, Allianz accepted that its policies responded to the UCPT’s losses and, over time, it paid substantial sums by way of indemnification. Subsequently, it determined that, in the events which had occurred, the liability for claims arising from the sexual abuse of boys at Knox was not entitled to indemnity under its policies. It had concluded that, prior to the inception of the policies, the relevant insureds were aware of the facts or circumstances from which the claims arose with the consequence that they were beyond the policies’ cover. It further asserted that no notice of those facts or circumstances had been given during any policy period with the result being that s 40(3) of the Insurance Contracts Act 1984 (Cth) (ICA) did not operate to extend cover to subsequently made claims. In particular, it contended that, on or about 1 May 2013, it discovered, for the first time, the extent of the prior awareness on the part of the relevant insureds of facts likely to give rise to the sexual abuse claims. It therefore declined all further requests for indemnity. It has not sought, and does not seek, to recover the amounts which it has previously paid though, on its case, it had no obligation to pay them.

5    Central to the appeal is one of two investigative reports prepared by Mr Grahame Wilson, a licensed private investigator with LKA Risk Services Pty Ltd, into the possible sexual abuse of boys at Knox by a teacher, Mr Adrian Nisbett. Mr Wilson had a long employment history in educational institutions, following which he had held a government position as the director of child protection investigation, where he led a team of investigators. He clearly had expertise in the area of investigating the sexual abuse of children.

6    On 7 May 2004, he provided a report (LKA2) to the then Headmaster of Knox, Mr John Weeks. It was detailed, extensive and addressed matters that had been raised following an initial investigation undertaken by him late in the previous year, also in respect of allegations made against Mr Nisbett. Following the receipt of the initial report (LKA1) from this first investigation, Mr Weeks became aware of additional allegations relating to Mr Nisbett’s conduct in and from 1986. As a result, Mr Wilson was engaged to investigate those additional allegations.

7    It will be necessary, in due course, to refer extensively to the content of LKA2 and what it would have revealed to a reasonable reader in Mr Weeks’ position at the time. It is accepted by the UCPT that it was read by Mr Weeks in full at the time it was received. At this stage, it is sufficient to observe that it contained references to alleged incidents of inappropriate behaviour of a sexual nature towards students at Knox by Mr Nisbett as well as by a number of other teachers. It also contains information about the extent to which a former Headmaster of Knox had been aware of allegations of that type of conduct.

8    In brief, Allianz contends that on receipt of LKA2, the relevant insureds under the policies became aware of the facts from which the claims subsequently made against the school by former students could reasonably be said to have arisen. It says that none of the insureds under the policies took the opportunity provided by s 40(3) of the ICA to give it notice of LKA2 or its content to Allianz, which would have extended cover under the relevant extant policy to the claims which were subsequently made. It further contends that the former students’ claims are not within the scope of later policies because those insureds were aware of facts or circumstances which may have given rise to those claims.

9    In the proceedings below, the UCPT sought orders that it was entitled to indemnity under several of the successive policies in respect of amounts which it has paid by way of settlement of claims, and declarations that it was covered under the later policies for claims by others who had been identified as potential claimants.

10    These claims were substantially upheld. The primary judge granted declarations to the effect that Allianz is required to indemnify the UCPT for the claims arising from sexual or physical assault by former teachers of Knox. Their breadth reflects the range of the primary judge’s findings as to the notification of claims by the UCPT.

11    Allianz now appeals the primary judge’s orders and declarations. In addition to opposing the appeal, the UCPT contends, by a notice of contention, that the reasoning of the primary judge should be upheld on several additional grounds.

A need for confidentiality

12    In order to maintain a degree of confidentiality for the victims of the sexual abuse, certain anonymising cyphers were used before the primary judge. Those who had made claims were identified by using the abbreviation “TPC” (third-party claimant), and those who had been identified as potential claimants were identified using the abbreviation “PTPC” (potential third-party claimant). Some of the staff members of Knox who were alleged to be perpetrators of the abuse were identified using the abbreviation “AP” (alleged perpetrator). The same terminology is adopted in these reasons, noting that in some respects the confidentiality orders relevant to the appeal are not as broad as those of the primary judge.

The evidence before the primary judge and on appeal

13    The trial was conducted by reference to agreed documents and a statement of agreed facts. No witness gave evidence at the hearing. The reason for that was not made clear on appeal, though as many of the factual issues occurred between 15 and 20 years ago, it may be that the relevant witnesses were no longer able to give evidence or were unable to recall the circumstances satisfactorily. As matters transpired, several important contestable facts arose, and their resolution can be achieved only by drawing inferences from the documents in the voluminous record. In this respect, there being no question of the credibility of witnesses, this Court is in the same position as the primary judge to assess the value of the documentary evidence and to draw inferences. Nevertheless, as these reasons disclose, the available documentary evidence is far from complete and, in some instances, attempts to draw inferences from the smattering of facts revealed by the tendered documents can descend into little more than impermissible guesswork. This is particularly true in relation to identifying the functions and relationships of the many different relevant entities, associations, and persons within the UCA.

A central issue in the appeal

14    As the appeal progressed over four days of hearing, one matter of prominence was the precise nature of the UCPT’s position as both the respondent to the claims brought by the former students and as the claimed insured under the policies. It has been the defendant in many of the proceedings brought by former pupils and, as mentioned, it has engaged in those actions, has negotiated the settlement of many, and has paid the amounts of the settlements. Given those facts, it might come as a surprise that the effect of its submissions was that it had no involvement whatsoever in the school’s management, operation or administration, that those who did were not its agents, and that their knowledge was not attributable to it. Ultimately, on that basis, there was no legally logical basis on which it was liable to the former students for the harm inflicted upon them. It would have owed them no relevant duty, either directly or indirectly, whilst they attended Knox. Conversely, those who were liable to the students were the members of the School Council at the relevant times, and perhaps the school’s Headmasters. More broadly, the liability might have extended to the members of the Synod, though that is far from certain. In any event, for the purposes of any claim or litigation, the UCPT was presented by the UCA as the entity which was presumptively liable in respect of the claims, and it acted as the relevant defendant in the several proceedings. Its use as a form of “nominal defendant” in this fashion was permitted under the UCA’s constitution, even though the question of whether that would bind third parties is debateable, to say the least.

15    There may well have been many practical reasons for UCPT’s acceptance of the role of the relevant defendant in any claim by a former student, not in the least being that it would prevent the individual members of the School Council and the Headmasters from being directly exposed to litigation, and that the UCPT had the financial capacity to meet any liabilities so incurred. It appears that, whilst it was still prepared to cover the claims, Allianz accepted these arrangements for the purposes of dealing with them as they were made. From its perspective, the UCPT, the School Council and its members, as well as the relevant Headmasters, were all insureds under the policies, such that the identity of the defendant in any litigation was inconsequential. But this convenient fiction for that purpose cannot fix the facts in ways they are not in order to use the fiction for a different purpose entirely, that is, to render the UCPT the covered party for a liability it did not have in order to determine the issue of the insured’s pre-inception knowledge of facts which might give rise to a claim.

16    The issue presently under consideration is Allianz’s obligation to indemnify in respect of the third parties’ claims and, specifically, whether that obligation is avoided by reason of the awareness, prior to the relevant policies’ inception, of the relevant insured entities of the facts or circumstances which gave rise to the claims. At this point, the use of the UCPT as the nominal defendant in respect of the liability of one or more other persons within the UCA, and as the putative insured, becomes rather more than problematic. In order to succeed, the UCPT must establish that it was the insured that was liable in respect of a claim to which the cover applied.

17    Ultimately, its position was effectively as follows. Although neither it nor its servants or agents had any involvement in the management, administration, and operation of Knox, by the UCA’s constitution, it was entitled to substitute itself as the relevant defendant in order to be sued by anyone affected by a maladministration at the school. It further says that it was similarly entitled to claim under the policies of insurance in respect of the liability of those who were responsible for any harm caused.

18    In that latter respect, however, it further asserted that, because neither it nor its privies were aware of facts or circumstances of that maladministration which might adversely impact the policy coverage in respect of these claims, its entitlement to indemnification is unaffected. Specifically, it says that its rights are untainted by the pre-inception knowledge of those who were involved in the school’s management, administration, and operation, and who were responsible for the liabilities which arose.

19    The effect of this is that, even if the members of the School Council and the Headmasters would be precluded, by reason of their prior knowledge, from obtaining indemnity in respect of their liability for the claims, the UCPT is entitled to indemnity in respect of that same liability if it assumed responsibility for it.

20    It is apt to observe that this articulation of the UCPT’s position does not reflect the form of its submissions, but it is an accurate characterisation of their substance and effect.

The primary judge’s reasons

Overview

21    It is necessary to set out in some detail the substance of the primary judge’s reasons. In doing so it is relevant to note that the issues on appeal, whilst derived from those which were debated at first instance, were advanced with substantially different emphasis. Issues, which before the primary judge attracted relatively little attention by the parties, became the subject of greater focus on appeal. For instance, before this Court, substantial reliance was placed on the Headmaster of Knox’s receiving LKA2 on or about 7 May 2004, and its being tabled at a School Council meeting on 16 June 2004. Indeed, the Court was addressed at considerable length as to the contents of LKA2, which articulated the existence of paedophilic activity on the part of certain teachers at Knox over an extended period.

22    In the first paragraph of the primary judge’s reasons, the UCPT is identified as “the insured” in respect of claims relating to historical sex abuse at Knox. Of a fashion, that statement was not incorrect. However, as has been touched upon above, and as these reasons will demonstrate, its status as the insured for the indemnification in respect of these claims was artificial. Although being covered as an insured in respect of its liability under the 12 successive policies granted by Allianz, it was but one of the numerous legal entities and individuals within the scope of the UCA’s vast operations to whom cover was generally provided. Moreover, whilst under the UCA’s constitution, it was permitted to act as the defendant in litigation touching the Church or any agency of the Church. Absent the agreement between it and other parties, it had no legal liability for the sexual abuse of students at Knox.

23    During the appeal, the UCPT’s counsel asserted that it was its assumption of responsibility for the liability of other entities within the UCA which rendered it liable for the claims of Knox’s former students. Whilst the UCPT may have put itself forward to any potential claimants that it would stand as the proper defendant in any proceedings, that did not automatically mean that it was liable for the purposes of its own cover under the policies of insurance. On the contrary, if it had assumed responsibility for the liability of other entities within the UCA organisation, any claim it made on Allianz for indemnity would be in respect of the liability of those other entities and subject to the same limitations that affected the insureds who were, in fact, liable. That distinction was not adequately maintained before the primary judge, even though it is pivotal to the central issue in the appeal.

The substantive reasons of the primary judge

24    It is not necessary to address all the findings and considerations in the learned primary judge’s extensive and articulate reasons for judgment, as many are not relevant to the issues on appeal. Nevertheless, the inclusion of some brief consideration of them is appropriate.

25    In his exegesis setting out the background of the matter, including the structure of the UCA, his Honour addressed the nature of the UCPT. At [27], in relation to the several property trusts within the UCA, he observed that there was one in most states and territories. He said that:

27    Importantly, the property trusts are the legal entities to sue, or be sued on behalf of, the Synods or any agency of the UCA, or in relation to trust property.

26    That conclusion is, with respect, correct so far as it goes, but it is not the complete picture since the UCA’s constitution does not alter the rights of third parties. In any case in which a third party suffered injury at the hands of any of the UCA’s agencies, they may commence proceedings against the entities or persons responsible for their loss. Such persons are not bound by the UCA’s constitution to sue the UCPT. In addition, a third party who is sued by the UCPT in respect of a claim vested in one of the Church’s other entities may validly assert that no claim is maintainable against them. They are also not bound by the terms of the agreements between the members of the Church.

27    In Section B.4 of his reasons, the primary judge assayed at length the investigations which occurred from 2003 consequent upon an allegation having been made against Mr Nisbett, who was then a long serving master at the school. As has been mentioned above, though the initial investigative report, LKA1, identified some questionable behaviour by him in relation to a student, it concluded that no relevant offence had been detected; but a further report (LKA2) was commissioned into his conduct. His Honour outlined the course of that second investigation, the delivery of the report, the further allegations made against other teachers at the school, and the subsequent arrest of a number of them. Over time, many were charged with multiple offences in relation to sexual abuse of students at the school.

28    In 2006, significant claims against Knox began to emerge, and his Honour identified the occasions on which subsequent notification of claims or potential claims were given by the UCA to Allianz. From that followed his consideration of the actions commenced against Knox and the manner in which they were handled by Ms Wendy Blacker of the legal firm, Gadens, which acted on behalf of both Allianz and the UCA in respect of those actions. Her role became significant to his Honour’s conclusions.

29    Although he concluded (at [152]) that on 7 March 2007, Gadens was retained on behalf of Allianz and the UCPT, it appears that it was initially instructed to act on behalf of Allianz and “The Uniting Church in Australia”. It was not until 19 June 2007 that the UCPT was identified in the evidence as being the relevant insured for the purposes of the claims. There is, however, no evidence as to why it was substituted as the recognised insured. On the material then available to the insurer, the identity of which of the group of insureds was appropriately covered was inconsequential.

30    His Honour then considered Allianz’s agreement to indemnify in respect of several claims by third parties, followed by its subsequent declinature which occurred at or around the time that the UCPT sought to provide further details of potential claims in relation to historic sex abuse of students at the school for the purposes of s 40(3) of the ICA (which, henceforth, will simply be referred to as “s 40(3)”).

31    His Honour then considered the factual and legal issues arising for determination. The first was the timing of any engagement of s 40(3) to the policies. The issue concerned the occasion on which the UCPT gave to Allianz notice of the issues arising from LKA2. Relevantly, his Honour concluded that the solicitor, Ms Blacker, was Allianz’s agent for receiving notification of facts which might give rise to claims, that she received LKA2 in April 2007, and that this constituted sufficient notice to Allianz of the report and of its contents for the purposes of s 40(3). At the very least, at around that time she gave advice to Allianz which made some, although not detailed, mention of LKA2.

32    His Honour also concluded that, despite the contents of LKA2, the facts in it did not become significant until the first complainant, TPC1, altered the substance of his allegations in 2006 to include a claim that he had been sexually abused by Mr Nisbett. From the correspondence passing between the parties in early 2007, his Honour (at [401]) found that the existence of LKA2 and its content about Mr Nisbett’s sexually assaulting multiple students was effectively notified to Allianz. He had earlier concluded (at [391]) that when TPC1 made a complaint of sexual assault by Mr Nisbett in December 2006, LKA2 took on a different hue, with the result that, despite Knox having received the report in June 2004, it became relevant only subsequently, so that it and its contents were notified to Allianz “as soon as reasonably practicable” after the insured became aware of it for the purposes of s 40(3).

33    In this analysis, it is noticeable that the primary judge appeared to be concerned (at [395] – [398]) with the knowledge of Mr John Oldmeadow who was the Executive Director of the Board of Education of the UCA NSW Synod at the time and acting in that capacity. However, it is not immediately apparent why Mr Oldmeadow’s knowledge was relevant to any particular issue. He was not identified as a person whose knowledge was attributable to any of the particular insureds for the purposes of the operation of the policies.

34    His Honour also referred (at [396]) to a Mr Scott Driscoll as a person who was from the UCPT, though the source of that conclusion is not stated. A submission to that effect appears in the UCPT’s submissions at trial, but evidence on that issue is absent. In the course of the appeal, Mr Driscoll was identified by Mr Williams SC, counsel for the UCPT, as a member of “Uniting Resources” which was a non-legal entity that was separate and distinct from the UCPT. The material also reveals that Mr Driscoll was, at some time, the insurance manager for the NSW Synod. Ultimately, however, there was no submission that his knowledge was relevant to any issue.

35    Otherwise, his Honour held that LKA2 was shown to Ms Blacker on 10 April 2007, for the purposes of allowing her to prepare an advice on liability and quantum in relation to TPC1’s claim. Her first letter of advice was sent in June 2007, though it was finalised only in November of that year. His Honour held (at [428]) that by that time, the events which followed the making of a formal claim by TPC1, “placed the historical information in the 2004 LKA Reports and Materials in a different light”, and that the information contained in it, in the context of the events which had happened, revealed the existence of a “problem” concerning Mr Nisbett’s conduct that was inherently likely to give rise to further claims. He concluded (at [430]) that this “problem” was notified to Allianz by Ms Blacker’s letters of advice in June and November 2007.

36    Though his finding that Ms Blacker was Allianz’s agent for receiving notification of facts for the purposes of s 40(3) was not challenged on appeal, there is some tension between it and the conclusions reached in relation to the notification issue. If Ms Blacker was the agent to receive notification of facts, the notification to Allianz of LKA2 must be when the facts were revealed to her, rather than when she subsequently notified them to Allianz.

37    In his reasons, his Honour held that a “concatenation of events” followed from TPC1’s formal claim of sexual assault and that coloured the substance of LKA2, though that appeared to have occurred by the time that LKA2 was inspected by Ms Blacker in April 2007.

38    On his Honour’s approach, no further unification of facts was necessary to activate the revelatory quality of LKA2 such that the “problem” identified in it was revealed in the 2007/2008 policy period, and all subsequent relevant claims involving Mr Nisbett would be indemnified under that policy. The consequence was that whatever relevant problems were revealed by LKA2, the notice of them given in June 2007 to Allianz was as soon as reasonably practicable, despite the report having been received by the school in 2004.

39    His Honour subsequently addressed (at [444]) the issue of certain “bulk notifications” which were made by the UCPT from about March 2009. They sought to give notice of the possibility of claims against the school in relation to a large number of former students. A submission had been made that they were ineffective because the “problem” of the allegations of sexual abuse by teachers at the school had been known to the insured since the receipt of LKA2 in 2004. That was rejected for a number of reasons, including those referred to above.

40    The first was that the foundation for making the bulk notification had not arisen until the circumstances had developed in which a number of the alleged perpetrators had been arrested, and media reports of those events and the possible crimes committed had occurred. It was held (at [455]) that the notifications concerned “allegations of historical sexual abuse against multiple former students by multiple former teachers of [Knox]”, which “were of a character which, objectively understood, might give rise to claims for psychiatric injury and/or physical injury arising from physical assault, sexual assault, trespass to person, breach of fiduciary duty and negligence”; and that those matters, apparently, were not matters that the earlier known facts had revealed. His Honour also accepted (at [456]) the UCPT’s submission that, in the circumstances, the description of the likely claimants was sufficiently clear for the purposes of a notice under s 40(3), and the relevant class of potential claimants was described by reference to their characteristic of being former students of Knox. It was also held (at [459]) that the UCPT was not aware of the “problem” until the end of 2006, because the relevant facts had not come to the attention of Mr Oldmeadow until about that time or shortly afterwards. That interpretation of his Honour’s reasoning is reached by a consideration of his Honour’s reference (at [459]) to the reasons earlier set out at [391] to [401]. However, again, there was no evidence of why Mr Oldmeadow’s knowledge was attributable to the UCPT.

41    The second reason for upholding the validity of the bulk notifications was that the content of LKA2 when received in 2004 gave rise to only a “bare possibility” of a claim because, as at that time, no substantive complaint had been made. His Honour held that by itself, LKA2 did not reveal facts which might give rise to a claim.

42    These conclusions were important in the context of the appeal and give rise to two questions:

(a)    First, was the relevant insured aware of LKA2 and its contents in 2004?

(b)    Secondly, did LKA2 by itself disclose the existence of a “problem” of the sexual abuse of multiple boys at Knox by a number of teachers?

As will be seen, Allianz’s contention on the appeal is that both questions should have been answered in the affirmative.

43    In the result, his Honour held (at [464]) that for the purposes of s 40(3) in March 2009, the purported bulk notifications were efficacious to extend the operation of the policy, during the currency of which the notifications were made, to cover subsequent claims which arose from the facts and circumstances notified.

44    He then considered (at [456] – [489]) further notifications which were subsequently made in relation to a number of other teachers from the school, and a subsequent bulk notification on 31 March 2010. These become relevant in relation to the ascribing of any claims to particular policies on the assumption that it remained open to the UCPT to give notice of relevant facts in order to obtain the benefit of the extension of cover provided by s 40(3).

45    From [558] onwards, his Honour addressed the issue of the disputed operation of, inter alia, exclusion clause 7 of the policies which excluded cover in respect of known prior circumstances (Exclusion 7). In the first instance, he held that the operation of Exclusion 7 was not affected by either s 33 or s 52 of the ICA. He then addressed the question of whether the UCPT had relevant knowledge of matters or occurrences which might give rise to a claim.

46    At [600] of his reasons, he noted that Allianz had submitted that the UCPT claimed as the insured in relation to the liabilities arising from the claims made against the school by former pupils. It relied on the facts that the UCPT was the owner of all of the property including the ABN for the school, held the business name of “Knox Grammar School”, had accepted responsibility for the liability of the wrongs committed by the teachers at the school and had satisfied all claims and potential claims against Knox, and had given discovery of the school’s documents. In this context, his Honour set out part of the submissions made by Mr Potts SC on behalf of Allianz on this issue. They are referred to later in these reasons, but it is noted that specific reference was made to the UCPT’s suing Allianz “for indemnity for liabilities incurred by Knox Grammar School in operating as a school”. As it is concluded on this appeal, that was an accurate description of the UCPT’s claim as against Allianz.

47    On this issue, his Honour observed (at [601]) that the difficulty with Allianz’s submission was that the policy was a composite one which provides cover to multiple insureds who do not carry on their own business “including, among others, ‘voluntary workers’, ‘committee members’, ‘counsellors’”. He added the following at [604]:

604    In any event, as noted earlier in these reasons (at [35]), cl 4.9.1 of the Assembly Regulations provides that the UCPT is the proper defendant in any action against the UCA or its institutions. It would be within the UCPT’s own business to meet claims that it was directed to meet by the Synod in respect of any litigated matter involving the UCA or its various institutions. I am unable to see how any rule of attribution could justify, on that basis and in the context of relations with its insurer, the knowledge or awareness of representatives of KGS being imputed to the UCPT.

48    For the reasons which appear later, these conclusions should not be accepted. However, it should be immediately observed that the submissions made to his Honour on this issue were neither as refined nor developed as they were when made on the appeal. That is said without criticism of counsel: it is merely the natural consequence of the process of distillation which occurs through the trial process and the primary judge’s analysis and consideration. It is necessary only to observe that, as in the present circumstances, when one insured (A) interposes itself to assume responsibility for another insured’s (B’s) liability to a third party, and then seeks indemnity under the policy which covers them both, to the extent to which that is even possible, A must necessarily also assume or ensure the performance of B’s obligations and liabilities to both the third-party claimant and the insurer. It is inconceivable that A could successfully deny liability to the third party on the basis that it owed no duty to them, and it would be equally incongruous for it to claim that its right to indemnity, if any, was not subject to B’s obligations vis-à-vis the insurer.

49    The matter progressed before the primary judge with a focus on whether the UCPT had actual or constructive notice of the facts which might have given rise to a claim, rather than whether it was necessarily fixed with the knowledge of the insured (liable at the time to the claimant) in whose stead it sought indemnification. Nevertheless, the primary judge rejected a submission that the UCPT had admitted that the knowledge of Knox was attributable to it. That submission had relied upon the UCPT’s statements in the defences which it had filed in several actions commenced by former pupils, wherein it had admitted that it owed “a duty of care to the students attending [Knox], including the plaintiff, to take reasonable care to protect the students against foreseeable risk of injury while the students, including the plaintiff, were on [Knox]’s premises during the hours when [Knox] was open for attendance”. Allianz also submitted that the UCPT had admitted in paragraph 5(c) of a relevant defence that the Knox Headmaster “was responsible for implementing policy and the day to day management of the first defendant”. Other alleged admissions were to the effect that the UCPT was vicariously liable for the acts and omissions of the Headmaster of Knox and the staff in the course of their employment. A paragraph in the UCPT’s defence to the claim brought by TPC12 had stated:

For the purpose of this Defence only, insofar as there is any finding of liability on the part of the School as a result of the School’s acts or omissions, or the acts or omissions of others that the School is found vicariously liable for, the first defendant admits that such liability rests with the first defendant.

50    The primary judge (at [609] – [610]) rejected the above as constituting admissions by the UCPT as to the truth of the statements on the ground that they were made in a pleading and that they were issues of law. There is difficulty with that conclusion as is discussed below. For present purposes it needs to be observed only that the UCPT’s statements in its defences as to its responsibility for the conduct of the school, the Headmaster or others, were fundamental to its assumption of their liability for the third-party claims and to its claims for indemnity under the policies. Indeed, it is improbable that it might attract the liability for other entities in the UCA organisation by admitting its responsibility for their liability in respect of their breaches of duties owed to the third parties, but then deny such connections or responsibilities when seeking indemnification from the insurer for that liability.

51    His Honour also rejected (at [611] – [664]) the submission that the evidence revealed that the UCPT received LKA2 much earlier than 2007 and, perhaps as early as June 2004. This necessitated a factual inquiry into the events which had occurred over an extended period of time. The substance of Allianz’s submissions was that, given the gravity of the contents of LKA2 and the rigorous reporting procedures which the UCA had in place, including the occurrence of regular “insurance sweeps”, as well as the history at the school where the need for reporting of sexual abuse was emphasised, it could be inferred that the school’s Headmaster would have notified the relevant persons in the UCA of LKA2. The identity of the relevant recipient of information for the purposes of dealings with the insurer, was unclear. It may have been Mr Steve Piening, the UCA’s Insurance Manager, or the General Secretary of the Synod, whomever that may have been. This was ultimately rejected on the basis that, in 2009, Mr Dwane Feehely who was a member of the Property and Finance Board (also called “Uniting Resources”) and who had replaced Mr Piening, indicated that he had not then seen a copy of LKA2 and that one should be obtained. His Honour also relied on Mr Oldmeadow’s assertion that he had not, as at that time, seen the report. His Honour concluded that only Ms Blacker had seen it in 2007, and that Mr Oldmeadow and others from the UCA had not seen it until sometime later in 2009.

52    In relation to the question of the possible attribution to the UCPT of the knowledge held by the entities in the UCA agencies, his Honour observed the following at [667]:

667    From both a functional and structural perspective, having regard to that overview, it is tolerably clear that Uniting Resources was (and remains) the entity within the UCA with immediate responsibility for the obtaining of insurance on behalf of the UCA. The Uniting Resources Board is ultimately accountable to, and subject to the oversight of, the Synod: see UCA Constitution, cl 32. The general secretary of the Synod acts, in substance, as the chief executive officer of the Synod and each of the executive directors of the Boards is accountable to the general secretary: see Synod by-laws, cl N3.24.3. The Synod, in turn, is accountable only to the Assembly: UCA Constitution, cll 31, 32 and 38. None of the UCA, Assembly, the Synod, KGS or the KGS council is a legal entity having a separate legal personality.

53    It is relevant that, like the others referred to in that paragraph, Uniting Resources is also not a legal entity. It was merely a board of members which had designated responsibilities, though the identities of its constituent members from time-to-time were unclear. Further, it did not seem to be any part of either parties’ case that the knowledge of Uniting Resources was operatively relevant to the UCPT’s rights and obligations under the policy.

54    At [669] to [670], his Honour found that the description of the insured, as it appeared in the quotation slips and underwriting submissions, as well as the structure of the UCA and the relationship between the various insureds, was well known to Allianz when it accepted the risk on terms which included Condition 1 (a clause concerning the notification of claims). That structure reflected a delineation between the UCA and the UCPT on the one hand, and Knox on the other, which was reflected in the way in which Allianz, the UCA, the UCPT and Knox conducted themselves during the relevant period.

55    From this, it is apparent that his Honour considered that Knox and the UCPT were separate entities and, as his Honour stated (at [671]), there was nothing in the constituent instruments by which the entities were administered that deemed the knowledge or awareness of one to be that of another. It followed, so his Honour found (at [672]), that there was no relevant attribution of knowledge and no relationship of principal and agent operating such that the knowledge of persons at Knox could be the knowledge of the UCPT. From that conclusion, it might be thought that it was the UCPT’s knowledge that was relevant to the operation of s 40(3) or Exclusion 7 in relation to the claims for indemnity. If that were so, however, it is unfortunate that the identity of the guiding mind and will of the UCPT was not revealed. In a case which, on one view, turns on the knowledge of the UCPT at particular times, it is more than unusual that there was no evidence of the individuals whose knowledge was that of the UCPT, or could be attributed to it. That seemed to be a consequence of the manner in which the matter was argued before the primary judge.

56    In Section G of his reasons, his Honour considered the issues of estoppel, waiver, election and utmost good faith, though they were rendered moot by his earlier conclusions. In relation to these, he addressed the issues which arose from the then recent decision in Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 277 CLR 445 (Allianz v Delor Vue), which had considered each of those doctrines. He concluded (at [688] – [691]) that the effect of that decision was that the relevant matter to be addressed in the case before him was estoppel, and that an essential requirement for the successful invocation of an estoppel was the identification of relevant detriment. However, in the circumstances, his Honour determined (at [692]) not to make any findings on that issue.

57    Finally, his Honour indicated that he would make declarations in accordance with his reasons after the parties had an opportunity to make further submissions.

The primary judge’s orders

58    Subsequently, on 12 April 2023, his Honour made declarations to the effect that the UCPT was entitled to indemnity in respect of certain claims or potential claims under certain specified policies.

59    The first set of declarations related to notification of the claim made by PTPC1, concerning the sexual abuse of him and other boys in the 1970s. They are not the subject of any appeal and the possibility of that claim being made was held to have been notified during the 1999/2000 policy.

60    The second group of declarations related to the claims made by TPC1 against Mr Nisbett. His Honour declared that notice in relation to that claim was given during the 2003/2004 policy and that Allianz was liable to indemnify the UCPT in respect of TPC1’s claim.

61    In relation to claims by other students who alleged sexual abuse by Mr Nisbett, it was declared that notice was given for the purposes of s 40(3) during the 2007/2008 policy which was as soon as reasonably practicable after the UCPT became aware of them, and, as a consequence, Allianz was required to indemnify in respect of those claims, being ones made by TPC2, TPC7, TPC8, TPC9, TPC10, TPC12, TPC14, TPC20, TPC23, TPC27, TPC32, TPC34, TPC35, TPC36, TPC41, TPC45, TPC48, TPC50, TPC51 and TPC53.

62    His Honour also declared that the notification by the UCPT in 2007 covered any future claim against it by any former student in respect of loss suffered by reason of sexual misconduct of Mr Nisbett. It was further declared that Allianz was required to indemnify it in relation to any such claim made.

63    The declarations made in paragraphs 9 to 12 of his Honour’s orders were in respect of claims against the UCPT made by persons who were the victims of sexual abuse by two teachers, Mr Craig Treloar and Mr Barrie Stewart. The specifically identified claimants were TPC4, TPC5, TPC6, TPC11, TPC13, TPC15, TPC16, TPC17, TPC18, TPC19, TPC21, TPC24, TPC25, TPC26, TPC28, TPC30, TPC37, TPC38, TPC39, TPC40, TPC43, TPC44, TPC47, TPC49 and TPC52. The declarations included as yet unmade claims by others who were abused by those teachers. Allianz was found to have been notified of such claims during the 2008/2009 policy periods by correspondence and bulk notifications and was liable to indemnify in respect of all such claims.

64    The declarations made in paragraphs 13 to 16 deal similarly with claims arising from the conduct of Mr Damien Vance, Mr Roger James, Mr Bruce Barratt and other alleged perpetrators, of which there were 15 in total.

65    The primary judge made further declarations as to the efficacy of certain bulk notifications made by the UCPT. He also made certain negative declarations to the effect that Allianz was not entitled to decline to indemnify the UCPT in reliance on, inter alia, Exclusion 7 or the contents of LKA1 or LKA2.

The grounds of appeal and relevant issues

66    Six grounds appear in the notice of appeal. The first is to the effect that the primary judge erred in failing to conclude that LKA2 contained facts and circumstances likely to give rise to a claim, and from which the claims for which indemnity was sought arose.

67    The second is that his Honour erred in failing to find that the UCPT became aware of LKA2 only by on or about March 2009, and, further erred by failing to find that it knew of it in 2004 or 2006, on the basis that the knowledge of Knox was the knowledge of the UCPT, and the former was aware of the report when it was delivered, or on the basis that the UCPT independently became aware of LKA2 in those time frames.

68    A consequential ground is that his Honour failed to find that the UCPT had not notified Allianz of the matters revealed by LKA2 as soon as reasonably practicable after it became aware of them within the meaning of s 40(3), with the result that the notifications which were made were ineffective.

69    The fourth ground asserts that the primary judge erred in failing to find that the UCPT’s claims were excluded from cover under the policies by reason of Exclusion 7.

70    The fifth ground cavils with the finding that in June and November 2007, Ms Blacker gave notice to Allianz on behalf of the UCPT of facts for the purposes of s 40(3) in respect of all claims involving Mr Nisbett.

71    The final ground, which is in the alternative to grounds one to five, is that the primary judge erred in finding that the UCPT gave notice of facts and circumstances for the purpose of s 40(3) in the policy periods which he did, and that he should have found that notice was given in different policy periods.

72    The essential point of these grounds is that the UCPT became aware of LKA2 in 2004, with the dual consequence that it was unable to rely upon s 40(3) in 2007 or thereafter as any notification of it was too late and that any claims made in subsequent policy periods were beyond the scope of the relevant policy as a consequence of the insured’s prior knowledge.

73    Some of those grounds overlap to a not insignificant degree and the myriad matters which they raise can be divided into nine issues, which can broadly be summarised as follows:

(1)    What were the facts revealed by LKA2 and, to the extent that they were ones which might give rise to a claim or claims for the purpose of s 40(3), what was the extent of those claims?

(2)    Can the knowledge of Mr Weeks, as the then Headmaster of Knox, or of some other person or persons, of the facts revealed by LKA2, be attributed to the UCPT for the purposes of s 40(3)?

(3)    Did the primary judge err in failing to find, for the purposes of s 40(3), that the UCPT was aware of the contents of LKA2 in or around 2006 or 2007?

(4)    Does Allianz’s conduct, in both its dealings with the UCPT and the manner in which the trial occurred, preclude it from advancing the case which it seeks to make on appeal?

(5)    Having regard to the answers to issues 1 to 4, does LKA2 limit the scope of the UCPT’s right to indemnity under s 40(3)?

(6)    Should the primary judge have found that the information in LKA2 and the associated materials recorded a claim, fact, circumstance or occurrence that may give rise to a claim for the purposes of Exclusion 7(c)?

(7)     If the answer to issue 6 is yes, is Exclusion 7(c) void for inconsistency with the ICA?

(8)    Does s 54 of the ICA apply so as to excuse a failure to comply with the requirement in s 40(3) to notify the insurer as soon as practicable after the insured becomes aware of facts that might give rise to a claim?

(9)    Finally, if by reason of the answers to the above issues the primary judge was in error, do any of the principles of estoppel, utmost good faith, waiver or election mean that Allianz cannot rely upon any failure to notify matters in LKA2?

74    Even this taxonomy of issues does not prevent some considerable overlap between them. That is particularly so in relation to the separate operations of s 40(3) and Exclusion 7 of the policies. The issues surrounding those matters turn upon the content of LKA2 and what it revealed. In the case of s 40(3), if LKA2 revealed a fact or facts which might give rise to a claim or claims against the insured, and notice of that fact or those facts were not given to Allianz during the policy period in which the insured became aware of them, the cover will not be extended to accommodate any subsequent resulting claims.

75    Similarly, subclause (c) of Exclusion 7 excludes cover in respect of any claim which arises from any claim, fact, circumstance or occurrence of which the insured was aware, prior to the relevant policy’s inception, which might give rise to a claim. Therefore, if the claims of former students arose from the claims, facts, circumstances or occurrences in LKA2 and the insured knew of such matters in the 2004/2005 year, cover in respect of them will be excluded under subsequent policies.

76    Much turns on what was revealed by LKA2. In that respect, the UCPT conceded that it had been read from cover to cover by Knox’s former Headmaster, Mr Weeks, when it was received, although that is a natural assumption in any event. The consequence of his becoming aware of its contents and particularly whether his knowledge can be attributed to that of the UCPT is discussed below.

The policy terms

77    Before turning to a consideration of the grounds of appeal it is appropriate to set out the relevant policy terms.

78    Although the issues in this appeal are relatively generic across the 12-year period of insurance (being from 31 March 1999 to 31 March 2011), it is relevant that the policy wording differed from time to time.

79    The policies in each relevant year were entitled, “Malpractice Liability Insurance”, “Professional Indemnity Insurance”, or some variation of that. Generally, the insured was defined as, specifically, “The Uniting Church in Australia including:-” and, thereafter, reference was made to the several property trusts for the respective States or Territories, as well as other associations such as the Uniting Church Council of Mission Trust Association, the United Theological College, and the Uniting Church in Australia, National Assembly. On other occasions the additional insureds were initially identified as “The Uniting Church in Australia, Synods of” and reference was then made to the several states and to the Northern Territory.

80    In some policies there followed a general description of other entities within the scope of the word “Insureds”. On one occasion the reference read as follows:

… and including all those entities listed in the directories of The Uniting Church in Australia; Synod of Victoria and Tasmania, The Synod of New South Wales and the ACT, and the Northern Synod, and all other entities under the Uniting Church's effective management control or for which the Uniting Church is responsible and all their subsidiary and related corporations as defined in the Corporations Act 2001 (including those acquired during the Period of Insurance) for their respective rights and interests …

81    In the “Annexure A Endorsements” to the policies, cover was extended to the entities and persons who act in the performance of their duties in the businesses or activities of the Church. Though the wording of this part of the definition differed across the years, it was often in broad terms such as “constituent, related and affiliated bodies, institutions, associations or entities, now or hereafter formed by or on behalf of the Insured” as well as “educational services facilities or activities”. The extension of cover to non-legal entities is indicative of an intention to ensure cover for all persons and groups within the UCA.

82    Despite the differences as between the policies with respect to their descriptions of the insureds, they were all broad and sought to include the numerous entities, associations and persons across Australia which were within the umbrella of the UCA.

83    Each of the policies was composite and the word “Insured” was to be construed as applying to each party comprising “the Insured”, and in the same manner as if that party were the only party named as the insured. In that respect, after the extensions of the identified “Insureds” the following wording appeared:

PROVIDED THAT in relation to the foregoing

1.     Such person(s) shall comply with and be subject to the Terms, Conditions, Exceptions, Provisions and Memoranda of this Policy insofar as they can apply.

2.     Where the “Insured” is comprised of more than one party the words “the Insured” shall be considered as applying to each party comprising the Insured in the same manner as if that party were the only party named herein as the Insured.

3.     Nothing contained in this definition or Provisos 1 or 2 shall operate to increase the Company’s Limit of Liability.

(Emphasis in original).

84    There is no reason to think that, by reason of the above clause, Exclusion 7(c) would not apply individually to each of the insureds in relation to the cover afforded to them or, similarly, that s 40(3) would not apply to them to the extent to which relevant information was given to Allianz in relation to circumstances of which they became aware during a policy period. That is the natural effect of the severance clause which treats each insured as a separate insured.

85    The insuring clause in the 2005/2006 policy provided:

Allianz Australia Insurance Limited (A.C.N 000 122 850) (hereinafter called the Company) hereby agrees, subject to payment of the premium specified in the Schedule and subject to the terms of this policy, to indemnify the Insured up to the Limit of Indemnity against all sums which the Insured shall become legally liable to pay as a result of any claim or claims first made against the Insured during the Period of Insurance and notified to the Company during the period for breach of professional duty arising out of any negligence whether by way of act, error or omission on the part of the Insured, in the conduct of the Insured’s Profession as specified in the Schedule.

(Emphasis added)

86    Similarly, although the precise terms of the insuring clause differed slightly from year to year, those variations made no relevant difference for the purposes of the issues on appeal.

87    It is undoubted that the insuring clause promises indemnity with respect to each insured in respect of their personal liability “for breach of professional duty arising out of any negligence whether by act, error or omission on the part of the Insured …”. On the analysis discussed previously, subject to any feature to the contrary, this would prima facie indemnify each of the members of the School Council and the Headmasters in relation to any claims by former students founded on that insured’s breach of professional duty by that insured party. It would not, however, cover the UCPT in relation to claims on another insured such as these, based upon such a breach by another insured, for the promise is expressly limited to cover the liability of the particular insured for a breach “on the part of the Insured”.

88    The claims notification requirements of the policies over the years were usually contained in Condition 1, and though there were significant variations in relation to them, it is unfortunate that the parties tended to treat them as being somewhat generic. Helpfully, the learned primary judge set out the variations of this clause in his reasons for judgment at [59] – [62].

89    He noted that, for the 1999/2000, 2000/2001 and 2001/2002 policy periods, Condition 1 was in the following terms:

Upon the making of a claim against the Insured, or the making of any allegation or the discovery of any circumstance which indicates the possibility of a claim arising, the Insured shall notify the Company in writing immediately and shall provide to the company whatever information relating to the claim or possible claim is in the Insured’s possession.

If during the Period of Insurance the Insured becomes aware of any circumstance which may subsequently give rise to a claim against the Insured and during the Period of Insurance gives written notice to the Company of such circumstance, any claim which may subsequently be made against the Insured arising out of that circumstance shall be deemed for the purposes of this policy to have been made during the Period of Insurance.

For the purpose of this condition only, “the Insured” shall mean “the General Secretary of the Synod”.

90    In the 2002/2003 and 2003/2004 policy periods, the clause was slightly modified and read:

Upon the making of a claim against the Insured, or the making of any allegation or the discovery of any circumstance which indicates the possibility of a claim arising, the Insured shall notify the Company in writing immediately and shall provide to the Company whatever information relating to the claim or possible claim is in the Insured’s possession.

For the purpose of this condition only, “the Insured” shall mean “the General Secretary of the Synod”.

91    Conversely, in the 2004/2005 policy period, the clause was in the following terms:

Upon the making of a Claim against the Insured, the Insured shall notify the Company in writing as soon as practicable after the Claim is made and shall provide to the Company whatever information relating to the Claim that is in the Insured’s possession.

For the purposes of this clause only, “the Insured” shall mean “the General Secretary of the Synod”.

92    The clause was again modified in the following year, being the 2005/2006 policy period, where it read:

Upon the making of a claim against the Insured, the Insured shall notify the Company in writing as soon as practicable after the Claim is made but during the period of insurance and shall provide to the Company whatever information relating to the Claim that is in the Insured’s possession.

For the purposes of this clause only, “the Insured” shall mean “the General Secretary of the Synod”.

(Emphasis in original).

93    It was submitted that Condition 1 assisted the UCPT’s submission that the only knowledge relevant to the operation of s 40(3) and Exclusion 7(c) was that of the General Secretary of the Synod. That should be rejected and, indeed, it is evident on closer consideration that the opposite is true.

94    The several iterations of Condition 1 are inherently ambiguous. If read literally, they would apply only where claims were made against, or the possibility of a claim arose against, the General Secretary. On no view would that have been intended. This is an example of the poor drafting of insurance policies that has attracted courts’ criticism from time to time. It is a basic feature of a “claims made and notified” trigger of cover, associated with an extension as to possible claims, and as such, it has to be inclusive of all insureds. It is not reasonably possible to draw any implication from it that may be relevant to this matter.

95    Condition 1 might be understood to mean that, whenever a claim is made or is considered possible against any of the entities covered by the policy, it is the General Secretary of the relevant Synod who is to give Allianz notice of it. Such a provision has the advantage of the notification of claims being funnelled through the one point of contact within the particular Synod, which avoids difficulties which might arise if every insured possibly involved were to notify. This may also have been to the administrative benefit of Allianz. So much is not unexpected in the context of a composite policy which provides cover for an exceptionally large single organisation composed of a diffuse group of multiple insureds.

96    To the extent to which the clauses refer to the giving of notification of potential claims by the General Secretary in the 1999/2000 to the 2003/2004 policy periods, they confer an obvious benefit on Allianz in relation to any extension of the policy coverage under s 40(3). By limiting it to one person or office, the scope for any disputation as to whether notice had been given would be substantially diminished. There is no need to consider whether that limitation is unenforceable or ineffective by reason of its possible inconsistency with the broad wording of s 40(3).

97    Importantly, the clauses have nothing to say about the knowledge of the insureds under the policy or its attribution.

98    Despite the submissions to the contrary, until the end of the 2003/2004 policy period, they had two functions. First, they made provision for the notification of claims which were made against any of the insureds under the policy in accordance with the trigger of cover and, secondly, they made provision for the giving of notice of any potential claims as similarly provided by s 40(3). That duality was abandoned in the 2004/2005 policy, when its only function was the former. The effect of s 40(3) made the contractual extension redundant. If anything, the change in the wording of Condition 1 suggests that the parties intended the subsequent policies to operate differently, with the obligation for the notification of facts which might give rise to a claim falling on each insured or, at least, not necessarily funnelled through the General Secretary.

99    These clauses do not suggest any intention to negate the specific statement in the proviso to the definition of “the Insured”, that all of the insureds were subject to the terms, conditions and memorandum of the policy. That would include Exclusion 7, which read (subject to variations in particular years):

This Policy does not cover any Claim for any liability for or arising directly or indirectly from:

…

7.     Prior Claims & Circumstances

any Claim, fact, circumstance or occurrence;

a.     in respect of which notice has been given to the Company or any other insurer under a previous insurance policy, or

b.     disclosed or communicated to the Company in the proposal or declaration or otherwise before the commencement of the Period of Insurance, or

c.     of which the Insured is aware before the commencement of the Period of Insurance, which may give rise to a claim.

This exclusion is independent of and shall not affect the Company’s other rights regarding misrepresentation and non-disclosure;

100    This clause, and particularly subclause (c), applies to each insured and limits the scope of the coverage to which they are separately entitled under the policy. Whatever may have been the protocol for notification to the insurer of potential claims or facts which might give rise to a claim, that could not extend each insured’s cover.

Issue 1 – Facts revealed by LKA2

101    Whether a fact known by an insured has the characteristic that it is one that may give rise to a claim is necessarily determined by a consideration of it in its context. This approach was relied upon by the primary judge and after its application to the facts before him, the substance of his conclusions was that LKA2, by itself, was benign in that the facts revealed were not of a nature that might give rise to a claim. Rather, he found it was only being the subsequent making of claims against Knox by former students and the arrest of some teachers for child sexual abuse, that LKA2 acquired a different “hue”. His Honour found that this lately acquired complexion revealed the existence of a problem at the school of the sexual abuse of students by Mr Nisbett.

102    Allianz submits that no such metamorphosis of the facts contained in LKA2 was required and that, as the facts appeared in the report, they were sufficient to objectively indicate the possibility that claims might be made against one or more of the insureds under the policies of insurance by a former student or students in relation to the sexual abuse which they had suffered.

The context in which LKA2 was commissioned

103    The import of LKA2 and what it revealed needs to be assessed in the context of the production and presentation to the Headmaster of Knox of the initial report, being LKA1.

104    Its commissioning arose following a complaint made against Mr Nisbett by the mother of a former student, TPC1, on 20 November 2003 to Knox’s then Headmaster. The boy’s mother alleged that, on the last day of his attendance at Knox, Mr Nisbett had taken him to his own house for dinner and had offered him alcohol, cigarettes, and a hug. The boy, who had been in a distressed or vulnerable state at that time as the result of his parents’ separation, had returned home after the encounter with Mr Nisbett, and was somewhat traumatised by the experience.

105    The Headmaster had made a very detailed note of his conversation with the child’s mother, and immediately made contact with the Association of Independent Schools. Following that he commissioned an external investigation through LKA Risk Services Pty Ltd, of which Mr Wilson was its principal. At around this time, Mr Wilson had advised the Headmaster to contact the State Ombudsman and the Commission for Children and Young People about the complaint, which he did.

106    For the purposes of this initial investigation, Mr Wilson was able to interview only Mr Nisbett who made certain admissions about his encounter with TPC1. The report, LKA1, was delivered on 4 December 2003. In it, Mr Wilson found that Mr Nisbett’s conduct in relation to TPC1 constituted unprofessional behaviour requiring disciplinary action, but did not constitute child abuse.

107    There is a sufficiently clear inference that the Headmaster’s purpose in obtaining the report was to ascertain whether TPC1 had been sexually abused by Mr Nisbett and that was, naturally enough, also the concern of LKA1. So much is confirmed by the inclusion in the report of a section of a document from the New South Wales Ombudsman entitled, “Child Protection: Responding to Allegations of Child Abuse Against Employees”. It identified what was then, and still is, regarded as the three stages of grooming, namely:

(1)    Building trust – spending special time with the child, giving gifts, showing special favours, allowing the child to over step rules etc.

(2)    Testing of boundaries – undressing in front of the child, allowing the child to sit on the lap, talking about sex, accidental touching of genitals etc.

(3)    Engaging in sexual activity – this activity generally increases in severity over time.

108    The conduct in each stage is regarded as “grooming” where it involves a pattern of behaviour, though obviously it increases in severity through the stages.

109    Certainly, the material surrounding the commissioning of LKA1, and the report itself demonstrated a heightened awareness by Knox’s Headmaster of the possibility that some sexual abuse of students might have occurred.

110    Despite LKA1’s conclusion, the Headmaster caused it to be delivered to the UCA’s “manager, risk insurance group”, Mr Piening, who forwarded it to the UCA’s insurance broker, Marsh Insurance Brokers (Marsh), which, in turn, reported it to Allianz. Subsequently, Marsh sent two memos to Allianz about the matter and, ultimately, they were regarded by the primary judge as sufficient notification under s 40(3) that a claim may be made by TPC1. Such a claim was subsequently made by TPC1, who commenced proceedings in 2006 alleging that Mr Nisbett had sexually assaulted him on that occasion in 2003.

111    Pausing here, LKA1 had been commissioned by reason of the school’s concern that the sexual abuse of a boy might have occurred. Importantly, its receipt prompted its notification to the school’s insurer and it was accepted by the primary judge as revealing facts which might give rise to a claim for damages as a result of the occasioning of sexual abuse. Whilst that finding is not challenged, it puts into perspective the much more revealing subsequent report which was found not to have disclosed any fact from which a claim might be made.

112    In early 2004, a new Headmaster of Knox was appointed, being Mr Weeks, who, being aware of LKA1 and after being informed by senior staff of allegations or rumours of the sexual abuse of boys by Mr Nisbett dating back to the 1980s, instructed Mr Wilson to undertake a further investigation regarding all such matters.

113    From the commencement of that investigation, Mr Wilson identified that the potential victims of abuse went well beyond TPC1. He also received information indicating that there was a risk that inappropriate sexual behaviour towards boys by a number of other teachers had been occurring over many years. It was not surprising that, as between the school (Mr Piening) and its insurance broker (Mr Dennis), the risk of litigation in relation to that abuse was a topic of discussion at this time.

114    In the course of this second investigation, Mr Wilson’s attention was specifically drawn to the activities of certain other teachers, including Mr Vance, Mr Christopher Fotis and Mr Treloar. Although the investigation was not directed at those other teachers, information about them emerged incidentally. Nonetheless, on 30 March 2004, Mr Wilson sought the staff files of Mr Vance and Mr Fotis, and later sought copies of the files of Mr Treloar.

115    The investigation into Mr Nisbett’s conduct was undertaken over a period of months and, on this occasion, numerous people were interviewed including former headmasters, former and current teachers, staff at Knox and former students.

116    Mr Wilson produced his second report, LKA2, on 7 May 2004 and provided it to Mr Weeks that same day.

The content of LKA2

117    LKA2 and its associated material constituted a physically and informationally substantial document. A copy was provided to the Court in the course of the appeal. It is contained in two lever arch files of paper with printing on each side. The text of Mr Wilson’s written report is 19 pages, and much of the remainder of the documents were obtained in the course of the investigation. Importantly, they include transcripts of interviews with many people and numerous other documents.

The text of the report

118    In his report Mr Wilson notes that, at the time of his initial investigation for the purposes of LKA1, he had not been made aware of the allegations concerning Mr Nisbett’s conduct dating back to around 1986, which might have constituted grooming. He also records that he had ascertained that an investigation concerning Mr Nisbett’s conduct had been carried out in 1986 by a staff member at the school (who, for these proceedings, was given the cypher PTPC39) and, on a report’s being made to the then Headmaster, Mr Nisbett was removed from his position as a boarding house master. For reasons which are not known, he was subsequently reinstated, albeit in charge of a different house.

119    The report then summarises the evidence sourced from the several witnesses, which included the following:

(a)    Allegations made by three other students from the 1990s to a former school administrator about inappropriate conduct by Mr Nisbett.

(b)    The person referred to as PTPC39, was of no doubt that there was a pattern of his questionable behaviour towards several students, which would be characterised as grooming. He had not, however, received any allegations of sexual activity.

(c)    A former teacher at the school had knowledge of rumours from numerous students over a number of years of dubious practices of a sexual nature by Mr Nisbett, but he was not aware of any actual evidence to support them. Although he had heard these rumours regularly, he took no action because no boy came to him directly.

(d)    Another former teacher was aware of an incident involving Mr Nisbett in 1986 in a photography darkroom at the school when a boy was allegedly sexually assaulted, as well as general rumours about his conduct over a number of years.

(e)    One former boarding house master recalled an incident when Mr Nisbett had touched the belt of a boy which had made the boy uncomfortable.

(f)    A former student, who presented as a creditable witness, gave evidence of inappropriate touching by Mr Nisbett when they were in the photographic darkroom of the school.

120    In his conclusions, Mr Wilson determined that several “allegations”, that had been formulated against Mr Nisbett, had been sustained by the investigation. They included the following:

(a)    Prior to 1987, whilst Mr Nisbett was a member of the boarding staff at Ewan House, and the Boarding Master, he “favoured particular boys who were either good looking athletes or sportsmen, or who were upset such as in cases of homesickness”. Further, he “spent particular time with these boys alone and engaged in long conversations with them, sometimes in [his] room, the staffroom, Ewan House, and walking around the School”.

(b)    Prior to 1987, whilst Mr Nisbett was the Boarding Master, he invited certain boys, including a boy referred to as PTPC3, to his flat at Ewan House and spent extended periods of time there, alone with them.

(c)    Prior to 1987, whilst Mr Nisbett was the Boarding Master, at various locations including the boarding house, he had intimate conversations “with particular boys whom [he] favoured, [he] said to them words to the effect of, ‘Tell me secrets about yourself. Tell me what you like doing. Tell me what you don’t like doing. How do you get on with your parents? What do you like about your father? Do you like men? Do you have feelings for men? Are you interested in a homosexual lifestyle?’”.

(d)    Prior to 1987, whilst Mr Nisbett was the Boarding Master, he took photographs of boys and invited them to the photography darkroom to witness the development process. On one occasion, when he was in the darkroom with a boy, namely PTPC3, Mr Nisbett brushed past him in a manner that caused the boy concern which led him to report the matter to a member of staff.

(e)    During 1986, following an investigation into various matters relating to Mr Nisbett’s alleged conduct, the Headmaster, Dr Ian Paterson, removed him from his position as the Boarding Master at Ewan House.

(f)    In the period up to the early 2000s, while he was a member of the boarding staff or the House Master at Kooyong House, Mr Nisbett was often in close external physical proximity to a building where boarders resided. On one occasion, he was near a fence behind that building looking into the building, and was said to have waved at a naked boy who had just returned from the showers and taken his towel off.

(g)    During 1986, Mr Nisbett pulled a year 11 student, TPC2, into the photographic darkroom in his quarters at Ewan House, under the pretext of teaching him how to focus a photographic device similar to a microscope. He stood in front of the student with his back to him and used the device. The student was standing close behind Mr Nisbett, and his left leg was approximately in line with Mr Nisbett’s right buttock. Mr Nisbett’s right elbow came into contact with the boy’s groin. The boy thought this was an accident, but then Mr Nisbett’s elbow found its way back to his groin and rubbed his groin continuously.

121    Mr Wilson recorded that those findings had been made on the balance of probabilities, but the evidence did not reach the standard of “beyond reasonable doubt”. He also concluded that the allegations which had been made out covered each of the three stages of grooming including inappropriate sexual touching. In a summary paragraph, he stated:

The allegations placed before Mr. Nisbett were placed under the heading of behaviour which may constitute grooming in the sexual abuse context and failing to meet the professional standards expected of you as an employee. I find that there is sufficient evidence to sustain an allegation that Adrian Nisbett behaved in a way which constituted grooming in the sexual abuse context and that he failed to meet the professional standards expected of him as an employee of the Knox Grammar School. I find that the matter requires disciplinary action.

(Emphasis in original).

122    He considered certain other allegations which he concluded could not be established on the balance of probabilities. He did not find that these matters had not occurred, but merely that he was unable to locate sufficient evidence to support them to that standard. Those allegations included the following:

(a)    Prior to 1987, in his office at Knox, Mr Nisbett allowed a student to change his clothing in his presence.

(b)    Prior to 1987, while he was a member of the boarding staff at Ewan House, including being the Boarding Master, he placed his hand on a boy’s bottom whilst the boy was climbing a ladder.

(c)    Prior to 1987, he invited students into his room, including PTPC3, and showed them homosexual, pornographic, printed material.

(d)    Prior to 1987, he offered boys alcohol at Ewan House.

(e)    Prior to 1987, whilst individual students were alone in dormitories at Ewan House, he sat on their beds and had conversations with them that left them feeling very strange.

(f)    At around the same time at Ewan House, he offered boys tobacco or cigarettes.

(g)    During 1984 or 1985, while he was the Boarding Master at Ewan House, he touched the belt of a student, namely PTPC23, in a manner that caused him to discuss it with another member of the boarding staff.

(h)    In the late 1980s or early 1990s, when he was a member of the boarding staff at Kooyong House, a student was sitting on the couch in his office. He took hold of the boy’s tie and in doing so touched the boy’s genitals in a way that caused the boy to discuss the matter with another member of staff.

(i)    During the period up to the early 2000s, when he was a member of the boarding staff or the House Master at Kooyong House, on a number of occasions he entered boys’ rooms as they were getting changed after returning from the showers. On one occasion, even though a boy placed his foot against the door and said words to the effect that he was getting changed, he continued to push on the door.

(j)    During the 1980s, while in attendance at cadet camps, he spent an inordinate amount of time in the showers watching the boys.

123    For present purposes, the allegations underlying these additional matters are important. Whilst lacking sufficient proof to be accepted as fact, it is not doubted that allegations were made that the events occurred. In the context of whether they constituted notifiable facts, they derive at least some veracity from their association with the similar allegations which were established. In any event, even if physical proof was not always available to Mr Wilson, that did not mean that it would not be available to a complainant; and the issue is not knowledge of a particular fact but knowledge of circumstances pregnant with the possibility of a claim.

124    LKA2 also contained a letter to Knox dated 7 May 2004, in which Mr Wilson provided a “Supplementary Risk Assessment Report”. In it, he indicated that, had he been aware of the allegations against Mr Nisbett from the 1980s and 1990s, the risk assessment report appearing in LKA1 would have been substantially different. For that reason, he considered the findings from both investigations to arrive at an overall risk assessment in relation to all the matters investigated. It is appropriate to set out his conclusions in full. He said:

RISK ASSESSMENT

Two allegations were investigated during the 2003 investigation. The first of these allegations was:

“In 2002 after the end of Business Week, you went to the home of a year 10 student, namely [TPC1], at 7.30 p.m. one evening. With his mother’s permission you took him to your home. During the time [TPC1] was at your home you offered him alcohol, cigarettes and a hug.”

The finding in relation to this allegation was – “I find that the allegation was not one of child abuse but might constitute a breach of professional behaviour or judgement which requires further professional disciplinary action.”

At the time of the 2003 investigation I was not made aware of any earlier allegations, particularly those relating to the 1980s and 1990s that have been part of the 2004 investigation.

Had I been made aware of these previous allegations, I would have advised that these were matters that required reporting to the NSW Ombudsman and investigation.

I completed a risk assessment at the conclusion of the 2003 investigation. Had I been aware of the previous allegations and these had been investigated and the findings that I have reached in the 2004 investigation had been available, the risk assessment at the end of 2003 would have been considerably different.

In this supplementary report I have considered the allegations and findings from both the 2003 and the 2004 investigation to arrive at an overall risk assessment.

I note the similarity between the allegations from the 1980s and 1990s and the allegations relating to 2002. The elements of similarity are the offering of alcohol and cigarettes; physical contact and being alone with students in an isolated place, in the earlier allegations in Mr. Nisbett’s living quarters and Ewan House and the latter allegation at Mr. Nisbett’s home.

The similarity in the allegations, which are separated by a time period of some eighteen years, is striking and causes concern.

Other issues of concern are:

1.     That Mr. Nisbett was not made fully aware of the allegations being made against him in 1986, the findings from that investigation and the reasons why he was “removed” from Ewan House.

2.     That Mr. Nisbett being removed “from Ewan House” because of concerns about his behaviour towards students was, without any apparent direct action being taken to change his behaviour, allowed to resume a boarding position at Kooyong House with the same age group of boys who had been at Ewan House three years later.

3.     That Mr. Nisbett has continued to hold senior positions within the Knox Grammar School where he has come into daily contact with students who may have been exposed to inappropriate behaviour on his part.

4.     That no apparent action appears to have been taken in relation to the continuing damage to Mr. Nisbett’s reputation and the reputation of the Knox Grammar School over a long period of time by untested rumours apparently continuing to circulate in the school community.

5.     I attach excerpts from interviews with [PTPC14] and Adrian Nisbett relating to [TPC1] for your information and consideration. [TPC14] became particularly distressed when talking about this matter. His wife appears to have spoken to [TPC1’s mother] and may have more detailed, relevant information. You may wish to consider giving instructions for [TPC1’s mother] to be interviewed.

I draw to your attention the evidence contained in interview transcripts relating to the highly questionable conduct of a small number of staff who appear to have left Knox overnight due to concerns about their behaviour. No risks have been assessed in relation to these people as they are no longer employees, however due to the concern expressed over missing records in relation to the current investigation, it is recommended that you take steps to adequately secure all records relating to this investigation, the previous investigation and matters relating to alleged improper conduct of any other employee.

The overall risk assessment is at FOLIO 1138.

…

(Emphasis in original).

125    It might be observed that if the information caused Mr Wilson concern, it should also be thought to cause the insurer concern, not only because a claim or claims would involve it in costs even if the claims all failed, despite the weight of evidence in the civil standard of proof.

126    Regarding the risks in relation to former students, the overall risk assessment stated:

Risk to alleged victims:

Consequence: Moderate

Likelihood: Moderate

Risk rating and comment: High

There is a pattern of alleged and some sustained behaviour from the 1980s and early 1990s. All alleged victims are no longer in the school. Any injury is likely to have already occurred. There is little the school can do to control any risk to these ex-students other than to provide a hearing to them if they do approach the school with concerns.

It is possible that any breach of confidentiality in relation to the current investigation and actions stemming from it could stimulate other ex-students or students to bring forward allegations.

(Emphasis in original).

127    The risk to other students at the school was identified as being:

Risk to other students:

Consequence: Major

Likelihood: Moderate

Risk rating and comment: Extreme

The allegations from the 1980s and 1990s are indicative of grooming behaviours. The School has mitigated any risk to current students by placing Mr. Nisbett in alternative duties that reduce his contact with students and increasing supervision during the investigation. Mr. Nisbett at interview admitted to a number of behaviours that placed him in close contact with boys and are generally consistent with his role in a boarding house. He denied any inappropriate or sexual conduct. Findings of sustained allegations require appropriate action to control any risk to current students.

The risk to current students will need to be determined once the employer has determined what action if any will be taken following the investigation. Mr. Nisbett’s explanation of his lapse of judgement in relation to [TPC1] (2003 investigation) is strongly tested by the evidence from the 2004 investigation.

(Emphasis in original).

128    The risk to the school was also identified as being “Extreme”. The risk assessment concluded that the school’s reputation was at risk. It reiterated the concern that, despite Mr Nisbett’s having been removed from a boarding house in 1987 as a result of issues which were investigated in the previous year, he was subsequently placed back in charge of a boarding house, and he held other senior positions within the school that brought him into close contact with students. It opined that the school is exposed because there is no strong sense of any action being taken to limit the risk to students after the 1986 investigation. It concluded with the presaging comment that the school “may also be at risk from yet unmade claims of students or ex-students based on a perceived lack of duty of care”.

129    In the context of this matter, the warning was prophetic in its anticipation that past students coming forward with claims of abuse would motivate other past students who had suffered abuse to do the same.

130    In the context of whether the insured would reasonably conclude that a claim might be made, it is relevant that, in the course of the investigation, both Mr Weeks and Dr Paterson, the then current and former Headmasters, indicated to Mr Wilson their concern that litigation might ensue.

The transcripts included in LKA2 and other materials

131    It is fair comment that Mr Wilson’s written report focused on Mr Nisbett’s conduct and that, relative to the nature of the findings, he couched it in somewhat anaemic or, perhaps, mild and cautious, terms given the gravity of what he had discovered. Despite that, his very real concerns were reflected in his conclusions and expressed in his risk assessments. Moreover, the report itself indicates that it should be read “in full” which would include the transcripts. It is, therefore, both necessary and appropriate to assay the content of the transcripts included with LKA2 to some degree, noting that during the hearing of the appeal, the Court was taken extensively to them.

132    A perusal of the whole report, and especially the included transcripts, reveals that the range of persons possibly engaged in improper conduct towards students at the school extended beyond Mr Nisbett. For instance, a former student, TPC2, stated that a teacher, Mr Vance, had admitted to sexual activity with students and having a relationship with a student. That former student also described that the behaviour of Mr Vance towards students would meet the description of “grooming”. More significantly, he also claimed to have been sexually assaulted by Mr Nisbett, and indicated that he had heard of other students having been assaulted in the same manner.

133    The transcript of an interview with PTPC39, a former General Duties Master at the school, reveals that he had received numerous reports from students that Mr Nisbett played favourites with the boys, spent significant periods alone with some of them, had shown some boys pornography, and had been sexually touching boys. He also reported that a past student had stated that Mr Nisbett had invited him into his room where he was alone with him, had shown him pornographic homosexual material, and asked him if he was interested in the homosexual lifestyle.

134    He had also detected evidence of an escalating pattern of behaviour by Mr Nisbett over a number of years, which he described as meeting the definitions of the first and second stages of grooming. He recalled that he had heard that Mr Nisbett had invited boys into his room for extended periods, would show them pornography, and offer them alcohol and cigarettes. On his own volition, PTPC39 conducted an investigation into Mr Nisbett and, whilst he did not find any evidence of sexual assault, he recommended to the Headmaster at the time, Dr Paterson, that Mr Nisbett be removed from boarding house duties. That recommendation was made because he was satisfied that Mr Nisbett’s conduct met the definition of, at least, what would be described as the first stage of grooming. He also expressed the view that Mr Nisbett’s pattern of behaviour with boys would likely result in him engaging in sexual activity with one or some of them over time. He reached that conclusion on the basis that it would be unlikely that someone who engages in the identified conduct over an extended period would stop at mere grooming, and it would be unlikely that they would stop grooming as well. He had sufficient experience in relation to child sexual abuse to make those observations.

135    In an interview, Mr Wilson provided to Dr Paterson information about Mr Nisbett’s allowing a boy to change into gym clothes in his room whilst he was there, putting his hand on a student’s bottom whilst he was on a ladder, and touching boys while they were engaged in sport. At a subsequent interview Dr Paterson expressed concern about the risk of litigation consequent upon Mr Nisbett’s conduct. He also recalled arranging for investigations to be undertaken in relation to Mr Nisbett’s showing boys homosexual pornographic material and giving them alcohol and cigarettes.

136    During the investigation, certain school records were considered, and they included a single sheet of paper which suggested the occurrence of the sexual molestation of students in around the mid-1990s.

137    In a further interview, Dr Paterson revealed that he had summarily removed two teachers from the school overnight on separate occasions. One was Mr Vance, who had allegedly touched a boy inappropriately, and the other was Mr Fotis, also following incidents with boys. Dr Paterson had said that the incidents with these other teachers occurred sometime after 1995 or 1996, being after Mr Nisbett had been removed from his position as a boarding master.

138    During the course of the investigation, on 19 March 2004, Mr Wilson met with Mr Weeks. A file note of that meeting discloses that Mr Wilson was adopting a very conservative approach to his investigation, one that predicted a serious risk to the discovery and revelation of claims, and an intention to avoid injury for ulterior reasons associated with harm to the school’s reputation. It records that he said:

There are a number of people who may have information but there is a limit to making general enquiries and this can create unwanted attention for all concerned.

139    Mr Wilson recorded that Mr Weeks agreed with his indication of the direction he was taking with the investigation.

140    This is relevant to the context of LKA2, in that it showed that it was not intended to be a full and definitive report on all of the allegations which had been received and their full depth. On the contrary, the scope and depth of the investigation and report were to be limited and lines of investigation would be avoided lest they generate a wider interest in the matter. It was also clear that it was intended that it would be conducted in such a way as to minimise unwanted attention.

141    Another former teacher, PTPC41, also reported that Mr Nisbett had touched a boy’s genitals, watched boys who were naked after their showers, and entered their rooms when they were getting changed, even when they tried to prevent him from doing so.

142    A former Chaplain had expressed concerns as a result of hearing rumours about Mr Nisbett’s having engaged in dubious practices in the nature of improper sexual activity with students in the photographic darkroom and on cadet camps, and that he had shown an inordinate amount of interest in watching boys whilst they showered. He stated that boys had said to him that Mr Nisbett had been “touching up” or “feeling up” students and that most boarders had said such things. He also recalled being told that Mr Nisbett had been alone in his room with boys for extended periods and had shown them pornographic material.

143    It is appropriate to pause at this point to observe that, whilst this Chaplain had heard rumours about Mr Nisbett’s engaging in improper homosexual activities with students, he was unconcerned as he had “always assumed that … if anything did happen it was mutual”. It is unclear why he would believe that whatever sexual relationships Mr Nisbett could have with minors in his charge could be “mutual”, nevertheless, it suggests knowledge that such relationships had, or may have, existed with some tacit acceptance of them. Even then, having regard to the parties’ related status, it should have been known that it was not acceptable.

144    The transcript of a conversation with an administrative officer from Knox, PTPC4, reveals that Mr Wilson was told of “question marks” around the inappropriate behaviour of Mr Fotis, Mr Vance and three other teachers. He believed that the first two had left the school suddenly and, indeed, overnight following the authorities’ discovery of incidents with boys coming to light.

145    It is not feasible to traverse in detail the wide array of transcripts included as the materials connected to LKA2, but the foregoing is sufficient to reveal the nature of the knowledge and concerns held by the school’s authorities in relation to Mr Nisbett and others. Other particular allegations and facts revealed in the materials in LKA2 are addressed below.

146    The materials further included working documents showing Mr Wilson’s analysis of evidence in relation to each of the allegations raised against Mr Nisbett. He set out those parts of interviews relevant to the allegation, identified any documents on which he relied, and set out his reasons for his conclusions. He analysed each of the allegations and expressed a conclusion as to whether they were “sustained” or “not sustained”.

The primary judge’s conclusions as to what LKA2 disclosed

147    The learned primary judge’s findings in relation to LKA2 were relatively brief. At [128] of his reasons, he set out the executive summary contained in LKA2. It is not unfair to characterise that summary as somewhat tepid when compared to the information found in the body of the report and its accompanying materials.

148    Later in his reasons, his Honour observed (at [401]) that LKA2 was “concerned with allegations of sexual abuse against Nisbett concerning multiple former students” and that it identified that he had sexually assaulted two students. At [412], his Honour noted that it contains “some relatively startling information which, in the ordinary scheme of human experience, is not prone to forgetfulness”.

149    Subsequently, at [460], he observed that whilst LKA2 was indicative of a notifiable “problem”, it was of a substantially lesser type than the bulk notifications which were subsequently given by the school. It was important to him that, at the time of LKA2’s delivery, there had only been one claim made to the school (being the claims of TPC1) and that LKA2 broadly described historical rumours which had been dormant for 20 years. He noted that there was no hint that a second claim was to be made even though TPC2 had been interviewed about the abuse to which he had been subject. His Honour then characterised LKA2 as giving rise to a “bare possibility” of the making of a claim, which he held to be insufficient to qualify as a “fact” for the purposes of the issue of the timely notification as required by s 40(3). That conclusion appears to have been reached due to the absence of any corresponding contemporaneous complaint in relation to the events which had occurred.

150    For completeness, his Honour concluded that the colour of LKA2 altered in the light of TPC1’s more serious claim made in 2006/2007, and an investigation’s being commenced by the New South Wales Police into the sexual abuse of students at Knox. He added (at [461]) that such matters and the attendant publicity gave an “immediacy” to the historical complaints and, at that point, LKA2 revealed a “problem” that might give rise to a claim.

151    With great respect, for the reasons which follow, the revelations contained in LKA2 were far more significant than his Honour’s description of them. In the context in which they were explained during the appeal, the matters revealed gave rise to more than the “bare possibility” of a claim being made. It identified at least the possible existence of actual historical sexual abuse of students at the school by more than one teacher and of an environment and activities from which it might be expected that further instances of it would emerge. Indeed, the report expressly warned that such claims against the school might well be made. Whilst it may be that the subsequent making of numerous substantial claims against the school in relation to the sexual abuse of boys by a number of teachers opened the floodgates for further claims, that did not diminish the immediacy of the potential for such claims from the matters revealed by LKA2.

Did LKA2 reveal facts which might give rise to a claim?

152    The question which now arises is whether the nature of the facts revealed by LKA2 were of such a character that they were apt to be disclosed under s 40(3).

The nature of facts within the scope of s 40(3)

153    Relevantly for present purposes, ss 40(1) and (3) of the ICA provide as follows:

40     Certain contracts of liability insurance

(1)    This section applies in relation to a contract of liability insurance the effect of which is that the insurer’s liability is excluded or limited by reason that notice of a claim against the insured in respect of a loss suffered by some other person is not given to the insurer before the expiration of the period of the insurance cover provided by the contract.

…

(3)    Where the insured gave notice in writing to the insurer of facts that might give rise to a claim against the insured as soon as was reasonably practicable after the insured became aware of those facts but before the insurance cover provided by the contract expired, the insurer is not relieved of liability under the contract in respect of the claim, when made, by reason only that it was made after the expiration of the period of the insurance cover provided by the contract.

154    There is no express or implied operation of this section to the effect that the insurer’s liability is excluded or limited by reason that notice of the facts which might give rise to a claim is not given prior to the expiration of the period of cover. That consequence is a result of the policy’s operation which is recognised in s 40(1). Section 40(3) is facilitative but it is triggered only if notice is given as soon as reasonably practicable after the insured became aware of the relevant fact and within the policy period. Only then is the policy’s operation extended in relation to claims which arise from the notified facts, even if they are made after the policy’s expiration. If no such notice is given, the cover provided by the policy ceases according to its terms.

155    On the ordinary meaning of the words used in s 40(1), it would have no application to the present “claims made” policies which have no provision excluding claims by reason of the absence of the giving of a notice of a claim in the policy period. However, in Newcastle City Council v GIO General Ltd (1997) 191 CLR 85, 103 (Newcastle City Council v GIO), the High Court gave the section an expansive operation such that it applies in circumstances where a policy operates in a particular case to produce the stipulated effect. Therefore, in this matter, had notice of a claim being made been given to Allianz in the 2004/2005 policy period, that policy would have responded. As notice was not given, the effect of the policy was that liability for the claim was excluded. Therefore, the policy had the required effect as prescribed by s 40(1) though no claim had been made against any insured in the relevant period.

156    Section 40 plainly interferes with the parties’ contractual freedom and, particularly, the insurer’s right to limit its exposure to claims notified during the relevant policy period. The extension effected by the section creates uncertainty for insurers and reduces their ability to calculate the extent of any potential liability and to arrange reserves when the policy term concludes. That uncertainty is enlarged by the degree of flexibility of the expression, “facts that might give rise to a claim against the insured”. However, the authorities have thus far mitigated that uncertainty somewhat by requiring that the word “facts” in the section be limited to objective facts; that is, the “fact” must be an objectively verifiable piece of substantive data. Only information of that nature can be of any practical safety to an insurer which, on being informed of it, might take appropriate action to protect itself or to minimise any loss or damage which might arise from such potential claims. Subjective opinions or beliefs of the insured as to theoretical possibilities of future claims are not facts, and the communication of them to an insurer can serve no operative purpose in relation to s 40(3).

157    For similar reasons, whether the fact is one which might give rise to a claim requires objective assessment. Only facts which are reasonably indicative of the possibility of a claim’s being made against the insured are within the section’s scope, as an insurer can rationally act only upon notice of such facts to organise its affairs. Were it otherwise, an insured could give notice of matters that only give rise to a faint, remote or vague possibility of a claim, which would then have the effect of substantially expanding the duration of a policy’s cover to any claim which might arise in the future in respect of any of the insured’s past conduct. That was obviously not the legislative intention.

158    Similarly, the notice must be given in a timely manner and prior to the end of the policy period, which would permit the insurer to take any appropriate remedial action that might be available. A construction which is counter to the purpose of the requirement as to the timeliness of the giving of notice of the relevant fact would undermine the protection which is otherwise fairly afforded to the insurer.

The authorities

159    With those general observations in mind, it is appropriate to identify the interpretation given to s 40 by the relevant authorities. In that respect, it is fortunate that a careful analysis of it was undertaken by Meagher JA, in his Honour’s customary erudite manner, in P & S Kauter Investments Pty Ltd v Arch Underwriting at Lloyds Ltd (2021) 105 NSWLR 110 (P & S Kauter Investments). There, his Honour (with whom Bathurst CJ and Bell P agreed) relevantly held the following:

(a)    The requirement that there be a notification of “facts” indicates that s 40(3) is concerned with the notification of objective matters, rather than beliefs or opinions as to the possibility of a claim being made (at 119 – 120 [33]).

(b)    Similarly, the characterisation of a fact as one “which might give rise to a claim”, needs to be undertaken objectively, in the sense that the fact must be reasonably regarded as having that quality. For a fact to be capable of use for effective notification under s 40(3), it must be such that a “reasonable person in the insured’s position would recognise a real risk of a claim” (at 120 [34] – [35]). That assessment is made in relation to the fact taken alone or together with other notifiable facts (at 119 – 120 [33]).

(c)    The requirement that there be a possibility of a “claim”, as opposed to the possibility of a liability, means that s 40(3) encompasses claims which may not have “significant prospects of success”, or which have merely modest or limited prospects (at 119 – 120 [33]).

(d)    Facts which are likely to give rise to a claim do not include those where no loss has been suffered or where loss is a mere potential possibility (at 120 [37]). Facts which amount to only a breach of a legal standard, but without any suggestion that any third person has suffered loss or damage, do not suggest that the insured will incur liability, and are not of a nature that might give rise to a claim (at 122 [43]).

(e)    There needs to “be a sufficient correspondence between the facts notified and those which are actually made in the subsequent claim for the latter to be identified as ‘the’ claim or a claim arising or resulting from those facts” (at 119 [31]).

(f)    However, it is not necessary that the facts notify the existence of a particular claimant or claimants and it is sufficient if the notification is of a “problem” which may of itself give rise to claims by persons having particular characteristics, even if the quantum of such claims and the identity of any claimants may not be known at the date of notification (at 119 [31], citing DIF III — Global Co-Investment Fund L.P v DIF Capital Partners Limited [2020] NSWCA 124 [171] (DIF III)).

(g)    The temporal element was explained (at 119 [32]) as follows:

… The requirement that the notification be made “as soon as was reasonably practicable after the insured became aware of those facts” is concerned to provide the insurer with knowledge of claims that “might” be made shortly after the insured acquires that knowledge. That characteristic of the notified facts will enable the insurer to evaluate the potential claim or claims, or notified “problem”, and provide an opportunity to take steps to avert or minimise or resolve any potential insured loss: as to which see J Rothschild Assurance plc v Collyear [1999] 1 Lloyd’s Rep IR 6 at 22; [1998] EWHC 1205 (Comm) at [78] (Rix J). It also allows the insurer to “more accurately fix its reserves for future liabilities and compute premiums”: see Federal Deposit Insurance Corporation v St Paul Fire and Marine Insurance Co 993 F 2d 155 at 158 (1993), cited by Giles CJ Comm D in Antico v CE Heath Casualty & General Insurance Ltd (1995) 8 ANZ Insurance Cases 61-268 at 76,003.

160    The construction of s 40(3) should adopt a purposive approach as occurred in Newcastle City Council v GIO at 101; the consequence is that whether a fact was notifiable is to be determined by an “undemanding test”: see DIF III [171]. In other words, for the remedial operation of the section, it should not be read to require the insured to know all the facts from which a claim could arise, but only those at a higher level of generality, so long as at that level they bespeak of the possibility of a claim. That approach is inherent in acceptance of the proposition that, to engage the remedial benefit of s 40(3), it is sufficient for the insured to notify of “the problem” which may give rise to a claim or claims by entities with a particular characteristic: P & S Kauter Investments at 119 [31]; see also DIF III [170], where reference was made to the decision of the UK Court of Appeal in Euro Pools Plc v Royal & Sun Alliance Insurance Plc [2019] Lloyd’s Rep IR 595, 602 [39] (Euro Pools).

161    In DIF III, the New South Wales Court of Appeal articulated the principles to be applied when construing clauses in policies analogous to s 40(3), and which extended cover to subsequently made claims, but which arise out of facts of which the insured first became aware during the policy period. At [171], the Court of Appeal observed:

Those principles include: first, that the provision should be construed with a view to its commercial purpose, being to provide an extension of cover “for all claims in the future which flow from the notified circumstances”; secondly, that consistently with that purpose, a provision which refers to circumstances that “may” give rise to claims sets a “deliberately undemanding test”; thirdly, that a notification need not be limited to particular events and may be to a “problem” described in general terms if that problem of itself may give rise to a claim, and notwithstanding that the quantum and character of such claims, or the identity of claimants, may not be known at the date of notification; and fourthly, that whilst the insured necessarily has to be aware of circumstances which might reasonably be expected to produce a claim (or in this case, could reasonably be anticipated to give rise to a claim), that does not “predicate that the insured needs to know or appreciate the cause, or all the causes, of the problems which have arisen, or the consequences, or the details of the consequences, which may flow from them.”

162    The reference to the fact in question being a “problem” was considered at length in Euro Pools. There, Dame Elizabeth Gloster (with whom Hamblen and Males LJJ agreed), when considering the general principles applying to the notification extension, observed (at 602 [39(iii)]):

(iii) A notification need not be limited to particular events. It may extend to something as general as a regulatory warning about a class of business or a concern about work done by a former employee or prior entity. The insured may give a “can of worms” or “hornet’s nest” notification; ie a notification of a problem, the exact scale and consequences of which are not known. As I said in Kidsons (at first instance) at para 76 (in a passage which was not departed from or disapproved in the Court of Appeal’s decision in Kidsons at [2009] Lloyd’s Rep IR 178:

“At the end of day, it is in my view largely a question of interpretation and analysis of the document setting out the notification, in the context of the facts known to the assured, as to what precise circumstance or set of circumstances has in fact been notified to insurers. I am not therefore convinced that semantic cavilling over the precise formulation of the test assists the ultimate resolution of the problem. There may well be uncertainty at the time of notification as to what the precise problems or potential problems are; there well may be, whether known, or unknown, to the assured a ‘hornets’ nest’ which may give rise to numerous types of claims of presently unknown quantum and character at the date of the notification. Whilst in principle there is no reason why such a state of affairs should not be notified as a circumstance if the assured is aware of it, in each case the extent and ambit of the notification and the claims that are covered by such notification will depend on the particular facts and terms of the notification.”

(Emphasis omitted).

163    She then referred to two cases which exemplified the occasion on which notice of a state of affairs which may give rise to multiple claims might be given, and that the ability to do so was not hampered by the absence of knowledge of who might make the claim or the specific damage which may have been caused. In Rothschild Assurance plc v Collyear [1999] Lloyd’s Rep IR 6, it was held that it was possible to give notice of a statement by an industry regulator of its view of appropriate industry standards of practice in circumstances where the insured, who was a participant in the industry, was uncertain of the extent to which its earlier practices had complied with that standard. In that case, there was also evidence from industry wide testing of a general non-compliance with the standard expected by the regulator. These facts were held to be such as might give rise to a claim, though none of the insured’s customers had complained at the time the notice was given and there were no identified contraventions of the industry standards. Rix J held that the industry prevalence of non-compliance with the regulator’s expressed standard meant that it was at least possible that similar non-compliance had occurred in the insured’s business.

164    Dame Gloster also referred to her previous decision in HLB Kidsons (a firm) v Lloyd’s Underwriters [2009] Lloyd’s Rep IR 178, which concerned notification by a firm of tax accountants as to the efficacy of various tax avoidance products which they had provided to clients. Concerns about those products had been raised by a tax manager of the business in the Edinburgh office and were supported by the opinion of a tax counsel. The Court of Appeal concluded that the tax manager’s view that the implementation of certain products might be criticised and might give rise to claims, was a fact of which notification might be effectively given.

165    As to that latter point, confirmation that an expert opinion can be a “fact” for the purposes of s 40(3) can be found in the observations of Jackman J in MS Amlin Corporate Member Ltd v LU Simon Builders Pty Ltd [2023] FCA 581 [50] (MS Amlin). There, his Honour rejected the narrow approach adopted by Lee J at first instance in this matter, and preferred the reasoning that, “the opinion of an expert, such as a professional investigator, based on reasoned explanations and substantive evidence, may constitute a ‘fact’ for the purposes of s 40(3)”. Indeed, his Honour had earlier opined (at [48]) that the “fact that an opinion has been given by a person with appropriate expertise is itself a fact”, in the sense of one that might be provided to an insurer. In addition, his Honour added:

In circumstances where that opinion is given by a person in a position of public authority … the publication of that opinion may well be a most important fact that might itself give rise to a claim.

166    The applicability of Jackman J’s observations was challenged by the UCPT on this appeal. As a result, it is necessary to consider his Honour’s decision in slightly more detail.

167    In MS Amlin, the insured conducted a construction and management business. The question before the Court was whether it had given notice to its insurer in relation to claims which were subsequently made upon it concerning the inclusion of combustible cladding in a building which it had erected. The occurrence of cladding related fires had been given some prominence in the media and several statements about that topic had been publicly made by relevant authorities, including the building authority. Whilst it is true that his Honour identified that the publication of a report by an expert might be a circumstance that might give rise to a claim, his Honour did not restrict his conclusion to that instance. He expressly accepted that an expert’s opinion on a matter could itself be a fact for the purposes of s 40(3), and then noted that all that Meagher JA in P & S Kauter had rejected was the possibility that a bare belief or opinion to the effect that there might be a claim could amount to a fact.

168    The observations of Jackman J can be applied in the present case. There was no need for LKA2 to be published before it or its contents were capable of being facts which might give rise to a claim. The report revealed facts which had hitherto been kept private to those involved, and those facts, singularly or collectively, became facts which might give rise to the claims which were made. Similarly, Mr Wilson’s opinion as to the existence of tortious conduct by teachers at Knox against students over a prolonged period of time, is a fact likely to give rise to claims particularly because it verifies the likelihood of the claims being made. The same can be said of his opinion that claims might be made against the school. Though the publicising of a report of the occurrence of a widely committed tort might render claims based on the underlying wrongdoing more likely than if the report were not disclosed, it is not only in that circumstance that the report and its contents are relevant facts for the purpose of s 40(3).

169    Even without Mr Wilson’s view on the possibility of claims, which may not have been within the scope of his expertise, the possibility and even the likelihood of claims would have been clear to a hypothetical reasonable person. That is particularly so in light of the number of consistent detailed actual complaints, not mere rumours of diverse species of misconduct of the same genus, where there must be at least the possibility of credibility of at least some, if not all, of the complaints. That is certainly sufficient to trigger the availability of the remedy in s 40(3) and the acquisition of knowledge by the insured for the purposes of determining the scope of cover of subsequent policies.

170    The cognate issue of whether a fact is “known” was discussed by Hodgson CJ in Eq in Permanent Trustee Australia v FAI General Insurance Co Ltd (1998) 44 NSWLR 186 (Permanent Trustee v FAI), where he expressed the view that it means more than suspected or believed, and that what is required is that the matter should be the subject of a true belief held with sufficient assurance. That is not really an issue in the present case where that which was known, with its limitations and merits, was clearly set out in LKA2 and its associated materials.

171    As has been foreshadowed above, to the foregoing it can be added that the policies in this case included cover for defence costs which had the effect of expanding the nature of facts which might give rise to a claim, in the sense that, even if a suspected claim against the UCPT was thought to be not likely to succeed, the risk that the defence costs cover might be called upon would be real. It was submitted that such a conclusion would widen the notion of the concept of facts which might give rise to a claim in this case. Whilst there is much force in that submission, given the circumstances of the present matter, there is no need to consider it further.

The parties’ contentions as to the matters revealed by LKA2

Allianz’s submissions as what LKA2 revealed

172    In its written outline on appeal, Allianz identified three matters which it submitted were relevantly revealed by LKA2. The first was the existence of historical problems at Knox going back to the 1980s of allegations of the sexual abuse of boys by multiple teachers in respect of multiple victims and, in respect of which, there was inaction or inadequate action. The second was that, although there was a known problem in relation to Mr Nisbett, the investigation revealed concerns about a number of other teachers, and it may well have been that there were even more. The third was that the existence of the sexual abuse indicated that Knox did not have effective procedures to: (i) identify staff with a sexual interest in boys; (ii) keep its students safe from staff with a sexual interest in boys; (iii) facilitate and deal appropriately with allegations of sexual misconduct by staff; or (iv) take proper action in response to proven or suspected instances of sexual misconduct by staff.

173    In response to this, the UCPT complained that the facts which Allianz alleged were revealed by LKA2 had changed on appeal, such that the precise identity of the relevant facts was a “moving feast”. Whilst it is true that a consideration of the hundreds of pages of transcript in the LKA2 report itself and the associated documents revealed numerous facts which might be characterised in different ways, Allianz’s submissions on this issue have remained sufficiently constant. Its current submissions are entirely consistent with those made to the primary judge. Indeed, the matters in its written outline on appeal mirror closely those articulated in its written submissions at first instance. In any case, a party on appeal is not bound by its selection of materials or evidence on which to base its argument by those adopted below, since the subject of the appeal is to address the validity of the findings under challenge.

174    The UCPT made some suggestion that it did not have sufficient time before the primary judge to respond to Allianz’s submissions as to the facts revealed by LKA2. That too should be rejected. It had more than two months between receiving Allianz’s written submissions and the addresses made to the primary judge to consider them. It is difficult to see what, if any, prejudice it may have suffered; it certainly did not identify any.

The UCPT’s submissions as to what LKA2 revealed

175    The UCPT submitted that the primary judge was correct and that LKA2 revealed no facts which might give rise to a claim against the insureds. Its position was that the revelations in LKA2 of Mr Nisbett’s engaging in grooming behaviour for many years and, indeed, his being accused of the sexual abuse of boys, and of other teachers’ engaging in similar behaviour, were benign in relation to the question of whether claims might be made against the school. It asserted that it was not until claims were actually made, that the content of LKA2 metamorphosed into a cornucopia of information indicating a risk of the school’s being liable for claims. By this, it seemed to accept that, as at that later time, LKA2 revealed the existence of a “problem” from which claims could arise.

What the material in LKA2 revealed

176    The UCPT’s submissions on this issue cannot be accepted. LKA2 and its substantial associated materials exposed a number of facts or circumstances which may have given rise to claims for sexual abuse which were perpetrated by one of a number of teachers. On the issue of the potentiality for claims arising out of the facts revealed, the information was far from benign.

Mr Nisbett

177    The allegations against Mr Nisbett were the most substantial and serious. In summary, the following matters were clearly revealed by the report. First, his questionable behaviour to boys at Knox had been raised over decades, going back to the 1980s. That behaviour included a number of instances of inappropriate touching of boys which constituted sexual abuse.

178    Secondly, as a teacher at the school, he had engaged in a pattern of grooming boys over many years, and that included incidents of sexual molestation.

179    Thirdly, the grooming included favouring particular boys, particularly the good-looking or vulnerable.

180    Fourthly, the grooming involved their spending long periods of time alone with them in his room, and his offering them cigarettes and talking about homosexual activities.

181    Fifthly, he engaged in sexual molestation of boys in his photography darkroom and the information suggested that this occurred on multiple occasions.

182    Sixthly, he engaged in other paedophilic-like behaviour, including on one occasion his looking into a building and waving at a boy inside who was naked.