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- Unreported Judgment
Oakland Investments (Aust) Limited v “Certain Underwriters at Lloyds” QSC 55
SUPREME COURT OF QUEENSLAND
30 March 2011
23 November 2010
I give judgment for the plaintiff against the second defendant in the sum of $195,000.
INSURANCE – INDEMNITY INSURANCE – THE POLICY – PRINCIPLES OF CONSTRUCTION – SUMMARY JUDGMENT – where there is no relevant dispute about the facts upon which claim is made – where plaintiff seeks summary judgment in relation to parts of claim – where plaintiff seeks orders with respect to payment of money based on insurance policies – where plaintiff claims defendant refused to indemnify it with respect to claims under policies – where plaintiff asserts defendant mischaracterised payments as reductions of loan principal – where plaintiff claims defendants refused to refund mistaken overpaid premiums – where defendant filed amended defence – where amended defence omits admission made in original defence on construction of policy – where defence is subject to requirements of policy – whether the tests in r 292 Uniform Civil Procedure Rules 1999 satisfied on the facts, such that summary judgment should be given in favour of plaintiff
Uniform Civil Procedures Rules 1999, r 292
Deputy Commissioner of Taxation v Salcedo  2 Qd R 232
Spencer v Commonwealth of Australia (2010) CLR 118
R G Bain Q C, with him P Travis, for the plaintiff
K N Wilson SC for the defendants
Elliott May for the plaintiff
Lee & Lyons for the defendants
 The plaintiff seeks summary judgment against each of the defendants. Another order with respect to disclosure was also sought and was disposed of at the hearing of the application.
 The plaintiff conducts a business of lending money to property developers and to those seeking to acquire agricultural businesses and land. It was insured in respect of that business under two successive policies, “the 2006 policy” issued by the first defendant and “the 2007 policy” issued by the second defendant. Each of those policies provided for mortgage indemnity cover. The policies are relevantly identical; thus, in these reasons, when reference is made to “a policy” or “the policy” it is a reference to both policies.
The O'Neill Loan
 On or about 14 August 2006, the plaintiff entered into a loan agreement, a mortgage and a guarantee with Patricia Mary O'Neill whereby it lent O'Neill $1,631,250 to be repaid no later than 14 October 2006. The loan was not repaid on that date and the plaintiff issued a default and remedy notice. The Plaintiff alleges that the First Defendant is obliged to indemnify the Plaintiff in the sum of $252,099.79. The First Defendant admits that it is obliged to indemnify but says that the indemnity is limited to $135,465.57.
The Great South Land Loan
 On or about 2 March 2007, the plaintiff entered into agreements including a loan agreement, a mortgage and a guarantee with Great South Land Communications Pty Ltd and Carol-Anne and David Delaney. Pursuant to those agreements, the plaintiff lent Great South Land the sum of $3,250,000. That sum was to be repaid by no later than 2 July 2007. The second defendant admits that it is “an insured loan” for the purposes of the 2007 policy.
 On or about 29 June 2007, the plaintiff alleges that it granted an extension of one month to 2 August 2007 to Great South Land in exchange for payment of an additional $97,500 of interest. That amount was paid to the plaintiff on about 5 July 2007.
 On about 20 July 2007 the plaintiff granted a further extension of one month to 2 September 2007 in exchange for what it alleges was payment of an additional $97,500 of interest.
 Great South Land defaulted on the loan on 2 September 2007 and the plaintiff issued a default notice and a notice of exercise of power of sale on 20 September 2007.
The Bates Loan
 On or about 22 August 2007 the plaintiff entered into a series of agreements including a loan agreement, a mortgage and a guarantee with Larry Warren Bates and Jocelyn Wendy Bates by which it lent $2,625,000 to Mr and Mrs Bates. The loan was to be repaid by no later than 22 November 2007. Mr and Mrs Bates defaulted on the loan on 22 November 2007 and various notices under New South Wales legislation were issued by the plaintiff to them on 5 December 2007.
 In its claim against the defendants, the plaintiff seeks a number of orders with respect to the payment of money based upon those insurance policies. The proceeding arises out of the plaintiff’s claim that the defendants have refused to indemnify it with respect to claims under those policies and that the defendants have refused to refund mistaken overpaid premiums.
 In this application the plaintiff seeks summary judgment for those parts of its claim which are based on:
(a) What it asserts were mistaken overpayments of premiums to each of the defendants respectively; and
(b) What is said to be a mischaracterisation by the second defendant of the sums paid by Great South Land as reductions of loan principal, which has resulted in a refusal to indemnify the plaintiff for $195,000.
 There is no relevant dispute about the facts upon which this part of the claim is made. The resolution of the issues requires the construction of the policies and the application of those policies to the facts.
 Rule 292 of the Uniform Civil Procedure Rules (“UCPR”) provides:
“(1)A plaintiff may, at any time after a defendant files a notice of intention to defend, apply to the court under this part for judgment against the defendant.
(2)If the court is satisfied that –
(a) the defendant has no real prospect of successfully defending all or a part of the plaintiff's claim; and
(b) there is no need for a trial of the claim or the part of the claim;
the court may give judgment for the plaintiff against the defendant for all or the part of the plaintiff's claim and may make any other order the court considers appropriate.” (emphasis added)
 This rule was the subject of close consideration in Deputy Commissioner of Taxation v Salcedo where Williams JA said:
“[17} …Summary judgment will not be obtained as a matter of course and the judge determining such an application is essentially called upon to determine whether the respondent to the application has established some real prospect of succeeding at a trial; if that is established then the matter must go to trial. In my view, the observations on summary judgment made by the judges of the High Court in Fancourt v. Mercantile Credits Ltd (1983) 154 C.L.R. 87 at 99 are not incompatible with that application of r. 292 and r. 293; what is important is that in following the broad principle laid down by their Honours the test as defined by the rules is applied.”
 In dealing with the plaintiff’s application, the consideration given by the High Court to s 31A of the Federal Court Act 1976 (although the test it posits employs different language) in Spencer v Commonwealth of Australia is instructive:
“ The exercise of powers to summarily terminate proceedings must always be attended with caution. That is so whether such disposition is sought on the basis that the pleadings fail to disclose a reasonable cause of action or on the basis that the action is frivolous or vexatious or an abuse of process. The same applies where such a disposition is sought in a summary judgment application supported by evidence. As to the latter, this court in Fancourt v Mercantile Credits Ltd said:
The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.
More recently, in Batistatos v Roads and Traffic Authority (NSW) Gleeson CJ, Gummow, Hayne and Crennan JJ repeated a statement by Gaudron, McHugh, Gummow and Hayne JJ in Agar v Hyde which included the following [at ]:
 … Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.
There would seem to be little distinction between those approaches and the requirement of a “real” as distinct from “fanciful” prospect of success contemplated by s 31A. …”. (citations omitted)
Overpayment of premiums
 The plaintiff alleges that both insurance policies require it to pay a premium only until either a borrower repays a loan or a borrower defaults in the payment of the loan. In its statement of claim the plaintiff alleges that it mistakenly believed that the 2006 and 2007 insurance policies required it to pay premiums after a borrower had defaulted on a loan until such time as all of the outstanding principal amount had been recovered or the defendants had resolved the claims. The amount of $181,971.60 is alleged by the plaintiff to have been “overpaid”. The misapprehension by the plaintiff of the effect of the policy under which it acted was deposed to by David Handley, a director of the plaintiff, and was not the subject of challenge.
 The plaintiff pleads, and the defendants admitted in their original joint defence, that “the 2006 and 2007 insurance policies require the payment of premium by [the plaintiff] until either the borrower repays the loan or the borrower defaults in the payment of the loan”. Each defendant has now filed an amended defence. In those defences the admission made has been withdrawn and replaced by a pleading which refers to aspects of the particular policy and otherwise does not admit the assertion previously admitted. The plaintiff took the point that the withdrawal of the admission was done without leave and, while that is so, for the purposes of this application and in circumstances where the proper construction of the policy should be determined by the application of well accepted principles rather than admissions, I do not propose to hold the defendants to their earlier admission.
 The plaintiff argues that the obligation to pay a premium ceases when the borrower repays the loan or the borrower defaults in payment of the loan. The plaintiff advanced the argument that when the borrower defaulted under the “insured loan” further premium payments became unnecessary.
 The argument advanced by the plaintiff in its written submission is expressed rather broadly. I do not understand it to mean that all further premium payments became unnecessary once a borrower defaulted under an insured loan but rather that the proportion of the total premium payable which can be attributed to the loan made to a defaulting borrower ceases to be payable. That is consistent, at any rate, with the relevant definitions.
 More pertinently, the plaintiff submits that if the policy was to be construed so that a premium remained payable after a loss had arisen and a claim made then such a construction would lead to absurdities such as:
(a) The imposition of an obligation on the insured to pay premiums long after the policy, or any automatic runoff period, had expired;
(b) It would give the insurer a powerful disincentive to delay paying the insured’s claim and delay pursuing subrogated rights against defaulting borrowers; and
(c) It would create competing incentives for the insured to realise the secured property as soon as possible and for the insurer to delay the realisation of security property in nearly all cases.
 The submission by the defendants was less than robust. It was simply put that it was arguable (in the sense necessary to defeat a summary judgment application) that a premium remained payable at least until a valid claim became due and payable under the policy. Further, it was argued that it does not matter that alternative constructions might be open as to when the obligation to keep paying a premium ceases because, in an application such as this, the plaintiff must satisfy the court that no other construction is open.
 It was not suggested that there were any facts which needed to be found or that there were any other disputes which might require resolution at a trial.
 The policy provides:
(a) That the premium is payable monthly and, so far as is relevant for this case, is calculated as a percentage of the “outstanding principal amount” on all “insured loans”;
(b) “Outstanding principal amount” means that part of the “principal amount” actually advanced by the plaintiff to the borrower under the “insured loan” and not yet repaid;
(c) “Principal amount” in relation to any “insured loan” means the amount of principal advanced by the plaintiff, and to be advanced by the plaintiff, under that “insured loan”, excluding:
(i) Any amount advanced for the payment of interest or as provision for possible future payment of interest whether or not retained by the plaintiff for that purpose;
(ii) Any fees or charges payable to the plaintiff;
(d) “insured loan” has a lengthy definition which need not be set out as, for this part of the argument, it is not the subject of debate.
 The cover provided by the policy is as follows:
1.1Subject always to the terms of this policy, if, during the Period of Insurance and in respect of an Insured Loan, any of the following events occur:
(a) You become entitled to issue a Statutory Default Notice as a result of any Default by the Borrower under an Insured Loan; or
(b)any Mortgaged Property becomes the subject of:
(i)a notice for compulsory acquisition issued by a government or territorial authority; or
(ii)a sale by agreement with a government or territorial authority where a power of compulsory acquisition has become exercisable by such authority but has not been exercised, provided that not less than the open market value has been obtained;
and You notify Us of that Event within the Period of Insurance, then We will pay the deficit if the proceeds of any sale or the compensation monies in each case without any deduction are less than the Outstanding Debt due to You under the Insured Loan.
1.2Provided that Our obligation to pay the deficit will arise only:
(a)under clause 1.1(a), if the Default remains unremedied to the date of the sate;
(b)under clause 1. l(b), if the notice or agreement is not cancelled and does not lapse or expire; and
(c)after all Mortgaged Property securing that Insured Loan has been sold or compulsorily acquired.
1.3To avoid doubt, the date of the loss is the date of the Event described in either clause 1.1(a) or 1.l(b) as the case may be.”
 The policy further provides that conditions precedent to the defendant’s liability to meet any claim include:
1.4If any Event occurs that entitles You to issue a Statutory Default Notice (whether a monetary, non-monetary or other Default) in respect of any Insured Loan, and that Default has not been remedied, You shall:
(a)notify Us as soon as reasonably practicable but, in any event, within 60 days of the Event;
(b)if required by Us, immediately issue a Statutory Default Notice to the Borrower and demand from the Borrower all sums owing under the Insured Loan; and
(c) if required by Us, proceed to sell the Mortgaged Property.
1.5Following any notification under clause 1.4, You shall notify Us if the Default is remedied,
1.6You shall notify Us as soon as reasonably practicable but, in any event, within 60 days, of any Event under clause 1.1(b) or any event or circumstance in respect of an Insured Loan that would cause a prudent lender to doubt that the Insured Loan will be repaid on due date.
1.7You shall not give the Borrower more than 30 days to remedy any Default under an Insured Loan unless You give Us prior notice of Your intention to give the Borrower additional time to remedy and We agree. This clause does not affect Your obligation, under clause 1.4, to notify Us of any Default.
1.8If the Mortgaged Property is sold or compulsorily acquired, or compensation money is paid, following any of the Events referred to in clause 1.1 above, while the Mortgaged Property is damaged or destroyed, then the estimated cost of making good such damage or destruction shall be added to the proceeds of sale or the compensation money in calculating the deficit under clause 1.1. Those costs shall be estimated by a registered or licensed valuer to be agreed upon by You and Us or, failing agreement, appointed by the President or Chairperson for the time being of the registering or licensing body.
1.9Clauses 1.4, 1.6 and 1.7 are conditions precedent to Our liability to meet any claim by You under this section of the policy.”
 It is clear that any obligation on the part of the defendant to answer any claim made is subject to the requirements of clauses 1.1, 1.2, 1.4, 1.6 and 1.7.
 On the arguments presented to me, I am not prepared to hold that the mere default by a borrower is sufficient to relieve the plaintiff of its obligation to pay that part of the premium which relates to the particular loans the subject of the default. It is clear from clause 1.4 that there needs to be not only a default, but also that the default has not been remedied and that certain steps with respect to the issuing of identified notices have been taken.
 It may be that the plaintiff does have a case for the repayment of overpaid premiums but, on the state of the current pleading, I cannot hold that the policy excuses the payment of premiums simply upon the default of a borrower. There is a need for a trial on this point.
 On this part of the plaintiff’s claim, it has not satisfied the test in r 292 of the Uniform Civil Procedures Rules 1999.
Extension of the Great South Land loans
 As referred to above, the plaintiff extended the time for payment of the loan to Great South Land by two months upon payment, for each month, of $97,500. The plaintiff characterises that payment as the payment of an additional amount of interest. The defendant does not admit that and characterises the payment as “compensation monies” which reduced the outstanding principal. On the defendant’s characterisation, the amount owing by Great South Land to the plaintiff has been reduced by a total sum of $195,000.
 The term “compensation monies” is not defined in the policy. It is found in clause 1.1 and, when properly construed, can only relate to money received by the plaintiff as a result of the exercise of a power of compulsory acquisition which has resulted in the payment of compensation to the mortgagee. The term “compensation monies” can only be a term which refers to the events described in clause 1.1. It does not appear elsewhere in the policy.
 While the payment by Great South Land to the plaintiff of $97,500 for each extension of a month could loosely be described as compensation in consideration for the extension of time, it does not fall within the term as used in clause 1.1.
 The second defendant also argues that there is a need to investigate whether the Great South Land loan was an insured loan under the 2006 policy. This is not pleaded by the defendant. Indeed, it is admitted by the second defendant that the loan was one which was an “insured loan” for the purposes of the 2007 policy. The second defendant seeks to advance arguments, not based upon any pleading or affidavit, that there is a need to investigate whether the Great South Land loan was an insured loan under the 2006 policy and, if it was, why it was not disclosed.
 A party seeking to resist summary judgment has the opportunity to “put their best foot forward”. How this can be done will depend upon the particular circumstances, but it is not done by raising matters which have no support in either the pleadings or in any affidavit.
 The second defendant also argues that when the first payment was made, the loan was then in default. I am satisfied that that is not the case and that the payment was made before any default occurred.
 The plaintiff has, for this part of its claim, satisfied the tests in r 292 of the UCPR. I will give judgment for the plaintiff against the second defendant in the sum of $195,000.
 Directions have been sought by the plaintiff but as yet no proposal has been put forward. I will consider the issue of further directions and costs upon receiving submissions from the parties.
- Published Case Name:
Oakland Investments (Aust) Limited v “Certain Underwriters at Lloyds” & Ors
- Shortened Case Name:
Oakland Investments (Aust) Limited v “Certain Underwriters at Lloyds”
 QSC 55
30 Mar 2011