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Published 14 November 2019
The decision arose from a claim for indemnity by the Bank of Queensland (BOQ) under a civil liability insurance policy in relation to a representative proceeding (or class action) brought against it.
Part IV of the Federal Court of Australia Act 1976 (Cth) provides that a representative proceeding may be commenced where:
The representative proceeding was commenced by the Petersen Superannuation Fund Pty Ltd on its own behalf and on behalf of at least 191 others (Group Members). The Group Members alleged a third party had used the funds in the Group Members’ BOQ accounts without authority, in order to conduct a “Ponzi scheme”. They alleged that, on receiving various withdrawal instructions that gave effect to the scheme, BOQ knew, or ought reasonably to have known, that there was a serious possibility of fraud being conducted on their accounts or that a fraud was being committed.
BOQ settled the representative proceeding with the Group Members for the sum of $6 million.
BOQ sought indemnity under the policy for its share of the settlement sum and defence costs subject to a single $2 million deductible.
The case turned on the following provision in the policy:
“2.2 Claim means:
(i) any suit or proceeding…
(ii) any verbal or written demand from any person that it is the intention of the person to hold an insured responsible for the results of any specified Wrongful Act...
For the purposes of this policy all Claims arising out of, based upon or attributable to one or a series of related Wrongful Acts shall be considered to be a single Claim, conversely where a Claim involves more than one unrelated Wrongful Act, each unrelated Wrongful Act shall constitute a separate claim”.
Insurers contended that BOQ’s loss arose from multiple Claims (one for each Group Member) which did not aggregate. Accordingly, the insurers applied a deductible of $2 million to each Claim with the effective that no single Claim exceeded the deductible.
In the NSW Supreme Court, Stevenson J found in favour of the insurers. His Honour held that:
The majority in the Court of Appeal held that the representative proceeding constituted multiple claims under the policy.
The Court concluded that a separate Wrongful Act occurred each time a request for withdrawal was acted upon by BOQ meaning there were multiple Wrongful Acts.
The Court followed the approach to aggregation clauses established in Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd by identifying a “unifying factor”. That unifying factor was BOQ’s knowledge of the fraud such that the relevant Wrongful Acts were “related” for the purposes of the aggregation clause. His Honour held that the word “series” added little, if anything, to the concept of relatedness of the Wrongful Acts.
Critically, the majority judgment placed significance on the fact that the representative proceeding was only permitted, and only occurred, because of the common questions that arose in connection with each of the Group Members’ claims and which enabled them to utilise the relevant legislative class action provisions. In this case, BOQ’s knowledge of the fraud – the unifying factor and the relevant Wrongful Act – was specifically identified as an issue common to the claims of all Group Members.
The application of an aggregation provision remains a very fact specific and inherently unpredictable exercise.
However, the appeal decision suggests that a typical ‘related wrongful acts’ aggregation provisions will almost inevitably lead to aggregation in a representative proceeding if it is properly brought. At least on the current reasoning of the Court of Appeal in NSW, this is so because the commonality of issues of fact and law required in order to take advantage of the legislative provisions permitting class actions is likely to establish a sufficient relationship between the wrongful acts giving rise to group members’ claims.
Notably, leave to appeal to the High Court has been sought meaning the issue has not yet been finally determined.
Olugbenga Dansu, Jack Reynolds