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Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited

High Court of Australia [2010] HCA 31

Overview

Consolidated Timber Holdings Ltd (CTHL) applied to BMW Australia Finance Limited for an insurance premium funding loan in relation to an insurance policy. It retained the services of a broker, Miller & Associates, to make the application. The policy in which it sought the premium loan was a 'non-cancellable cost-of-production insurance policy' issued by HIH (French CJ and Kiefel J para 1).

BMW provided the funding in the amount of $3.975 million; only $1.265 was repayed before CTHL defaulted. The balance was never repaid.

BMW sued Miller, claiming they had misled them by representing in the HIH certificate of insurance and/or failing to disclose the nature of the insurance. In particular, they alleged they were misled into believing the policy was cancellable (which would have allowed BMW to cancel the policy and recover unused premiums following default of CTHL).

The primary judge dismissed the claim. The Court of Appeal in Victoria upheld the appeal.

A further appeal was made to the High Court; the High Court unanimously upheld the appeal, finding Miller had not engaged in misleading or deceptive conduct.

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Catchwords

Trade practices – Misleading or deceptive conduct - Non-disclosure - Representation by supply of certificate of insurance and/or non-disclosure of nature of insurance - Whether provision of certificate by insurance broker to experienced premium lender misrepresented cancellability of underlying policy - Whether failure of broker to inform lender in terms that policy was non- cancellable constituted misleading or deceptive conduct.

Appeal – Powers of appellate court - Review of trial judge's findings of fact - Where finding allegedly based on mistaken understanding of agreed fact and inferences arising from it - Whether finding "glaringly improbable" or contrary to "compelling inferences".

Practice and procedure – Filing of submissions - Respondent filed submissions after hearing outside terms of leave granted - Whether permissible to file supplementary written submissions after hearing without leave.

Words and phrases – "misleading or deceptive conduct".

Trade Practices Act 1974 (Cth) – ss 4(2)(a), 4(2)(c)(i), 52.

 

Facts

Consolidated Timber Holdings Ltd (CTHL) applied to BMW Australia Finance Limited for an insurance premium funding loan in relation to an insurance policy. It retained the services of a broker, Miller & Associates, to make the application. The policy in which it sought the premium loan was a 'non-cancellable cost-of-production insurance policy' issued by HIH (French CJ and Kiefel J para 1).

BMW provided the funding in the amount of $3.975 million; only $1.265 was repayed before CTHL defaulted. The balance was never repaid.

BMW sued Miller, claiming they had misled them by representing in the certificate of insurance and/or failing to disclose the nature of the insurance. In particular, they alleged they were misled into believing the policy was cancellable (which would have allowed BMW to cancel the policy and recover unused premiums following default of CTHL).

Chief Justice French and Justice Kiefel described the claims as follows:

[2] The claim for misleading or deceptive conduct was based on a memorandum and a certificate of insurance ("the HIH certificate") provided to BMW by Miller which, it was said, conveyed the misrepresentation that the policy covered property and was assignable and cancellable. An alternative basis for the claim was that Miller had not disclosed the important fact that the policy was neither assignable nor cancellable and therefore of little use as security for the loan.

The primary judge dismissed the claim but the Court of Appeal in Victoria allowed the appeal, finding there was misleading conduct.

 

Supreme Court of Victoria

The primary judge described BMW's case in the following way (at para 66):

In essence, the complaint is that Miller & Associates represented that the underlying policy was cancellable and therefore good security for the loan or that it did not tell the lender that it was in fact a non-cancellable policy and not good security.

The primary judge found that the certificate did not convey the fact that it was cancellable - at least it created uncertainty.

The officers at BMW did not carefully analyse the document - they saw the word properties on the policy and jumped to the 'erroneous conclusion' that it related to property and from that made the further conclusion the policy was cancellable (as most property based policies are) (para 34).

His Honour concluded that BMW as the 'author of its own misfortune' (para 67).

Relevant circumstances for assessing whether non-disclosure was misleading or deceptive included the experience of Miller and BMW and awareness of each other's experience. These considerations did not help BMW.

 

Supreme Court of Victoria (Court of Appeal)

Robson AJA (with whom Neave JA agreed, found (in relation to the first limb)) that the certificate provided by Miller represented that the insurance was property insurance and rejected the primary judge's finding that the certificate was uncertain. Based on an understanding that it was property insurance, it would have been cancellable. As it was not, it was misleading.

Ashley JA focussed on non-disclosure, finding the certificate was at least ambiguous, although it did not represent the insurance was property insurance. Given Miller knew the importance of the policy being cancellable, his Honour held that it was misleading for Miller to stay silent.

 

High Court

Found unanimously for Miller on both claims.

On the issue of silence the Court considered whether there was a reasonable expectation of disclosure; unless there was mere silence will generally not be misleading.

Section 52 'does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence' (French CJ and Kiefel J para 22)

French CJ and Kiefel J

Their Honours agreed with Heydon, Crennan and Bell JJ that the appeal should be allowed - that the Court of Appeal had erred in interfering with the primary judge's finding of fact (para 4).

They specifically considered the issue of non-disclosure in the context of s 52.

Misleading or deceptive non-disclosure

Noted that for conduct to be misleading or deceptive it need not convey express or implied representations (para 15, citing Butcher v Lachlan Elder). It is sufficient if it 'leads or is likely to lead into error' (para 15).

Noted the circumstances in which silence or non-disclosure can be misleading or deceptive are various (para 16). Their Honours referred to Gummow J in Demagogue v Ramensky, where his Honour quoted French J in Kimberley NZI Finance [so French CJ is quoting himself being quoted with approval by Gummow J]:

... unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist.

Their Honours noted the 'language of reasonable expectation is not statutory' but indicates an approach that can be taken to characterising non-disclosure for purposes of s 52 (para 19) and observed:

[19] That approach may differ in its application according to whether the conduct is said to be misleading or deceptive to members of the public, or whether it arises between entities in commercial negotiations.

[20] In commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context. Silence may be a circumstance to be considered. The knowledge of the person to whom the conduct is directed may be relevant. Also relevant, as in the present case, may be the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business. The judgment which looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure as misleading or deceptive is objective. It is a practical approach to the application of the prohibition in s 52.

[21] To invoke the existence of a reasonable expectation that if a fact exists it will be disclosed is to do no more than direct attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs or high moral expectations held by one person of another which exceed the requirements of the general law and the prohibition imposed by the statute.

[footnotes omitted]

The obligation to disclose to avoid misleading conduct doe snot mean that there is a general obligation to volunteer information to others:

[21] It would no doubt be regarded as an unrealistic expectation, inconsistent with the protection of that "superior smartness in dealing" ... that people who hold things back for their own profit are to be regarded as engaging in misleading or deceptive conduct. ... But ... the bargaining process is not to be seen as a licence to deceive, ...

[22] However, as a general proposition, s 52 does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of the other party. A fortiori it does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence. Yet that appears to have been, in practical effect, the character of the obligation said to have rested upon Miller in this case.

[23] Reasonable expectation analysis is unnecessary in the case of a false representation where the undisclosed fact is the falsity of the representation. A party to precontractual negotiations who provides to another party a document containing a false representation which is not disclaimed will, in all probability, have engaged in misleading or deceptive conduct. When a document contains a statement that is true, non-disclosure of an important qualifying fact will be misleading or deceptive if the recipient would be misled, absent such disclosure, into believing that the statement was complete. In some cases it might not be necessary to invoke non-disclosure at all where a statement which is literally true, but incomplete in some material respect, conveys a false representation that it is complete.

[emphasis added]

If the certificate did not convey a representation what did the silence add? Their Honours considered that failure to volunteer information about the policy in the circumstances of this case could not be said to be misleading or deceptive.

[26] ... a copy of the policy was put in the hands of BMW, who simply did not read it.

The appeal should be allowed.

Heydon, Crennan and Bell JJ

Their Honours set out the facts, the procedural history and the claims made in detail before considering how Miller's conduct should be characterised:

The characterisation of Miller's conduct

Their Honours noted that BMP put its case in two ways:

[80] The first was that Miller's conduct in supplying the HIH certificate in response to BMW's request for details of the insurance was misleading. This case depends upon finding that the HIH certificate misrepresented that the underlying policy was a cancellable property policy that was capable of providing security for the proposed loan.

[81] The second, wider, way in which the claim of misleading conduct was put arises from Miller's failure to inform BMW, in terms, that the policy for which funding was sought was not cancellable. This was characterised in the Court of Appeal as the "contextual silence" case. It was rejected by the primary judge, but it is the basis upon which each of the members of the Court of Appeal concluded that Miller had engaged in misleading conduct.

[82] BMW's pleaded contextual silence case was that Miller knew or ought to have known that the policy was non-cancellable and that this was capable of giving its conduct in failing to disclose that fact the quality of being misleading. ... BMW's pleaded case was that it had a reasonable expectation that Miller would not supply it with the HIH certificate in response to its request for details of the insurance without disclosing that the underlying policy was non-cancellable. This case does not depend upon acceptance of BMW's primary case that the HIH certificate misrepresented that the underlying policy was a cancellable property policy. ...

Did the certificate convey a misrepresentation?

Two members of the Court of Appeal (Neave JA and Robson AJA) found that the HIH certificate conveyed that it had been issued in respect of property insurance; it appeared implicit in that finding that the policy represented, by extension, that it was cancellable.

In making the determination on this issue their Honours asked:

[85] ... The anterior question is whether objectively the HIH certificate conveyed to its intended audience, BMW, a company known by Miller to be an experienced premium lender, that it had been issued in respect of a cancellable property policy. ... [footnote omitted]

Their Honour made several points about the policy that suggested it was not a property policy - including that a five year term was 'highly unusual' and that the premium of $3.75m was unusually high for standard property insurance. In addition, although most standard property policies are cancellable, even if the certificate conveyed that this was a property policy, it was not a standard one - it was an unusual one - so it should not be inferred that it was cancellable.

Their Honours rejected the claim that the certificate conveyed a misrepresentation.

[87] BMW's claim was that Miller's conduct was misleading. The claim was based on the ground that the HIH certificate conveyed a representation that the underlying insurance was a cancellable property policy. It did not convey that representation. ...

Their Honour made several points about the policy that suggested

Was there misrepresentation by silence?

The Court noted that in the Court of Appeal Justice Ashley upheld BMW's 'silence' case. The argument was that the ambiguity in the insurance certificate combined with the importance to BMW of having a policy that was cancellable meant that it was misleading for Miller not to communicate that the policy was not cancellable.

Their Honours considered 'all the circumstances of the transaction' to assess whether silence in this case could be said to be misleading:

[91] The parties were commercially sophisticated. They were experienced in their respective fields. The transaction involved the assessment by BMW of an application to lend Miller's client $3.975 million. The only document that Miller supplied in support of the application which appeared to relate to the policy to be funded did not disclose the nature of the risks insured. But it did put BMW on notice that the underlying policy may be an unusual one. BMW made no further inquiry. BMW's failure to make reasonable inquiries would not automatically defeat its statutory claim for damages for misleading conduct. However, given the history of this transaction, it is a circumstance that is relevant to whether Miller's conduct in failing to disclose its knowledge of the policy is correctly characterised as misleading.

[His Honour ran through some of the history of discussions between the parties and continued]

[95] ... There was no foundation for the conclusion that the known importance of cancellability gave rise to a reasonable expectation, in the circumstances of this transaction, that Miller would not supply the HIH certificate in response to BMW's request without disclosing at that time or later that the policy was not cancellable.

[96] ... Miller had supplied BMW with a copy of the policy. BMW was an experienced premium lender. The policy was not a lengthy document. It was apparent that it did not insure the holders against loss or damage to property. It did not contain a cancellation clause. Miller's failure to draw to BMW's attention a circumstance that the document itself disclosed was not misleading or deceptive.

[97] The finding that Miller engaged in misleading conduct cannot be sustained.

[emphasis added]

 

 

Commentary

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