Judge finds insufficient evidence of intention to displace written agreements in insurance case

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This was an insurance case which arose in the context of a shareholder class action, and in somewhat unusual circumstances. The underlying proceeding is a shareholder class action against Quintis Ltd (Quintis) (which is subject to a deed of company arrangement). Following, and in reliance upon, representations made by Quintis’ legal representatives that its ‘Side C’ insurance cover applicable to the claims was limited to $10 million, the parties agreed to a proposed settlement of the proceeding (which was, of course, subject to the Court’s approval under s 33V of the Federal Court of Australia Act 1976 (Cth)). However, on the morning of the settlement approval hearing, Quintis’ legal representatives, quite properly, informed the applicants’ legal representatives and the Court that there may be some legitimate questions as to whether, in fact, their previous representations as to the extent of Quintis’ ‘Side C’ insurance cover were (inadvertently) inaccurate.

As a result of that revelation:

• the settlement approval hearing did not proceed; and
• the applicants subsequently sought, and were granted, leave pursuant to s 237 of the Corporations Act 2001 (Cth) to commence and prosecute, on behalf of and in the name of Quintis, a proceeding against Quintis’ insurers to determine the true extent of Quintis’ ‘Side C’ insurance cover.

The uncertainty as to the extent of Quintis’ ‘Side C’ insurance cover arose, in part, because:

• in the previous insurance period, Quintis’ ‘Side C’ insurance cover was $50 million, and there was nothing to indicate that it had intended to reduce that insurance cover in the relevant insurance period (indeed, it was not in dispute that Quintis and its insurance broker had intended to maintain that level of cover in the relevant insurance period); and
• there were multiple layers of insurance, involving numerous different insurers, and it was not entirely clear whether particular aspects of the primary layer were intended to be picked up and included in the subsequent layers.

Thus, in this proceeding, the applicants (in the name of Quintis) sought:

• a declaration that, on the proper construction of the insurance policies, Quintis’ ‘Side C’ insurance cover was $50 million, rather than $10 million (Construction Argument); or
• alternatively, an order that the insurance policies be rectified so as to provide for Quintis’ ‘Side C’ insurance cover to be $50 million, rather than $10 million (Rectification Argument).

At first instance (Quintis Ltd (subject to deed of company arrangement) v Certain Underwriters at Lloyd’s London Subscribing to Policy Number B0507N16FA15350 (2021) 385 ALR 639; [2021] FCA 19) Lee J:

• rejected the Construction Argument; and
• upheld the Rectification Argument, but only in relation to two of the insurers in the various layers.

Those two insurers appealed the finding on the Rectification Argument. There was no appeal from his Honour’s finding on the Construction Argument.

As the hearing at first instance was conducted entirely on the basis of documentary evidence, with no viva voce evidence (and therefore no credit findings involved), it was open to the Full Court to reach its own conclusions on the basis of that evidence. After conducting a detailed review of the evidence, the Full Court unanimously concluded that:

• there was no ‘common intention’ between the parties sufficient to displace the written agreements, and their integrity as the written instruments, governing the contractual relationship between the parties (at [17]);
• specifically, the evidence was insufficient to demonstrate that any of the relevant parties held the alleged ‘Side C Coverage Intention’, and his Honour had erred in finding otherwise (at [141], [205], [232]); and
• accordingly, the appeal should be allowed (with the consequence that Quintis’ ‘Side C’ insurance cover was indeed limited to $10 million).

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

Federal Court of Australia, Allsop CJ, Middleton and Yates JJ,
19 May 2022

Appellants’ Solicitors: Wotton & Kearney, Colin Biggers & Paisley
Respondent’s Solicitors: Piper Alderman
Respondent’s Funder: N/A

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