Fai Workers' Compensation (NSW) Ltd v Barnsley Joinery Works P/L [1996] NSWSC 320 (2 August 1996)

FAI WORKERS' COMPENSATION (NSW) LTD v BARNSLEY JOINERY WORKS P/L

40817/95; DC 11532/91

Friday 2 August 1996

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

Mahoney P, Clarke JA, Handley JA

CATCHWORDS: WORKERS' COMPENSATION - AGENCY - PAYMENT AND RENEWAL NOTICE RECEIVED BY BROKER - TRANSITION BETWEEN NEW AND OLD ACTS - TRANSFER OF POLICIES BETWEEN COMPANIES WITHIN INSURANCE GROUP UPON OPERATION OF NEW ACT - WORKERS' COMPENSATION ACT 1926 - WORKERS COMPENSATION ACT 1987

EX TEMPORE/RESERVED:Ex tempore

ALLOWED/DISMISSED: Dismissed

The respondent had taken out a workers' compensation policy with Traders Prudent Insurance Company Ltd covering its liabilities to workers which expired at 4 pm on 30 June 1987. That company was licensed under the Workers' Compensation Act 1926 and was part of the FAI Group. This business was transacted through an insurance broker with which the Group maintained agency agreements. The respondent received a renewal notice in June 1987 which required a declaration as to the actual wages paid in 1986 and an estimate for 1987. The notice was completed, dated 25 June 1987, and returned to the broker with payment of the deposit premium on the renewal. It was not clear whether the notice and premium were forwarded to the insurer.

The Workers Compensation Act 1987 generally commenced at 4 pm on 30 June 1987. The 1986 insurer did not become a licensed insurer under the new Act, but the appellant, another company within the FAI Group, commenced business as its licensed insurer under the new Act at 4 pm on 30 June 1987. It was argued that by s 192 of the 1987 Act, brokers were retrospectively excluded from the industry.

HELD, dismissing the appeal: (1) In view of the accepted agency arrangements, the relevant policy of insurance covering the 1987 year was entered into on or about 25 June 1987 when the renewal notice and deposit premium were handed to the broker; (2) By reason of the agency, the payment of the premium to a broker of the FAI Group operated as a discharge of the liability of the insured under the Insurance (Agents and Brokers) Act 1984 s 14 (2); Manufacturers Mutual Insurance Ltd v John H Boardman Insurance Brokers Pty Ltd [1994] HCA 16; (1994) 179 CLR 650 distinguished; (3) The appellant stepped into the shoes of the 1986 insurer at 4 pm on 30 June 1987 as the existing policy of 25 June 1987 was assigned to it by operation of the statute: Workers Compensation Act 1987 Sch 6 Pt 15 cl 10; (4) Section 192 of the new Act was not retrospective and the new insurer was bound by payments received and contracts entered into by its predecessor.

JUDGMENT

MAHONEY P: The Court has had the benefit of the written submissions and oral argument and is in a position to give a judgment. I will ask Justice Handley to give the first judgment.

HANDLEY JA: This is an appeal from a decision of Nash DCJ in which he dismissed the appellant's claim to recover a premium from the respondent for the renewal of its workers' compensation policy, with effect from 30 June 1987.

The respondent had taken out a workers' compensation policy with Traders Prudent Insurance Company Ltd, a company in the FAI Group, which was a licensed insurer under the Workers' Compensation Act 1926 covering its liabilities to workers for the 1986 year which expired at 4 pm on 30 June 1987. This business was transacted through an insurance broker, Universal Agencies Pty Limited. All premiums in respect of that policy were paid by the respondent through the broker. No question has been raised in these proceedings in relation to any such payments.

During 1987 the FAI Group, including Traders Prudent Insurance Company Ltd maintained agency arrangements with the broker. The trial judge found that the broker was the agent for the FAI Insurance Group during that time, and implicitly he found that the broker was still the agent for the FAI Group in June 1987. It is not clear whether the appellant ever appointed the broker its agent, but in my view nothing turns on this.

The evidence of the agency arrangements between the broker and the FAI Group, including the 1987 workers' compensation insurer of the respondent, was given without objection by Mr Ferrier, the Managing Director of the broker. The respondent caused subpoenas to be issued directed to the 1986 workers' compensation insurer, which had changed its name to FAI Traders Insurance Company Ltd, requiring production of documents relating to the agency arrangements with the broker, but nothing was produced in answer to these subpoenas. This left uncontradicted and unchallenged the evidence of Mr Ferrier, the Managing Director of the broker which, as I have said, his Honour accepted.

In June 1987 the respondent received a renewal notice from its 1986 insurer through the broker. This notice required the respondent to declare the actual wages paid by it to its workers during the 1986 policy year and to declare the estimated wages which it would be paying to its workers during the 1987 policy year.

Mr DeBijl completed the renewal notice, dated it 25 June 1987 and gave it to the broker, together with two cheques drawn in favour of the broker, one for $4,000 in payment of the broker's fees, and the other for the deposit premium on the renewal of $13,754.48. Mr DeBijl had received help from the broker in completing the renewal form and in calculating the deposit premium.

The Workers Compensation Act 1987 generally commenced at 4 pm on 30 June 1987, although some provisions relating to the licensing of insurers for the purposes of the new Act commenced when the Act received Royal Assent, which was on 10 June. The 1986 workers' compensation insurer did not become a licensed insurer under the new Act. Instead the appellant, another company in the FAI Group, which was incorporated on 5 May 1987 and commenced to carry on workers' compensation insurance business at 4 pm on 30 June became its licensed insurer under the new Act.

In view of the judge's finding as to the agency arrangements between the FAI Group, including the 1986 insurer, and the broker, I would conclude that the relevant policy of insurance covering the 1987 year was entered into on or about 25 June 1987 when Mr DeBijl handed the renewal notice and the cheque for the deposit premium to the broker. As I have said, the renewal invitation came to the respondent through the broker and the course of business which had been followed in relation to the 1986 policy between the parties had involved the respondent dealing with the FAI workers' compensation insurer and making payments through the broker. In those circumstances as I have said, I conclude that the 1987 renewal was effected on or about 25 June 1987 in the manner referred to.

This is a matter of some importance because the obligation of an employer under the 1926 Act, which was continued in the new Act, was to have a new workers' compensation insurance policy in existence prior to the expiry of a former policy so that there was no gap in the insurance cover (see 1926 Act s 18(1); 1987 Act s 155(1) "maintain in force").

In these circumstances it would have been in the contemplation of all parties that employers such as the respondent would wish to have new workers' compensation insurance in existence prior to the expiry of an existing policy.

It is not clear whether the broker sent the renewal notice to the FAI Group, nor is it clear whether it ever paid the deposit premium in whole or in part. The managing director of the broker said that he had forwarded the original renewal and there is in evidence a note signed by him indicating that it had been despatched to FAI on 26 July 1987 (Appeal Book p 91). The judge was not concerned whether FAI had ever received the renewal form or the payment. In my judgment nothing turns on these matters.

The proper conclusion in my view is that a contract for workers' compensation insurance was entered into between the respondent and FAI Traders Prudent Insurance Co Ltd on or about 25 June 1987. In those circumstances s 14(2) of the Insurance (Agents and Brokers) Act 1984 provides that payment of the premium to an insurance broker operates as a discharge of the liability of the insured.

Mr Stack relied heavily on the decision in Manufacturer's Mutual Insurance Ltd v John H Boardman Insurance Brokers Pty Limited [1994] HCA 16; (1994) 179 CLR 650, where the High Court held that s 14(2) does not apply unless and until a contract of insurance is entered into between the insured and the insurer. However, for the reasons I have already expressed, that decision is distinguishable because of the findings as to the authority of the broker and the making of the contract of insurance on or about 25 June 1987.

Payment to the broker as agent for the FAI Group licensed insurer therefore operated as payment to that insurer.

The appellant commenced to operate as the licensed insurer under the 1987 Act at 4 pm on 30 June 1987. At the same time cl 10 of Pt 15 of Schedule 6 took effect. This provided:

"(1) This clause applies to policies of insurance:

(a) issued or renewed by insurers licensed under section 27 of the former Act at or after 4 p.m. on 31 December 1986; and

(b) the subject of a re-insurance agreement with the Government Insurance Office.

(2) On the commencement of Division 3 of Part 7 of this Act, policies of insurance to which this clause applies shall be assigned in accordance with the relevant re-insurance agreement to such licensed insurer under Division 3 of Part 7 of this Act as is determined by the Authority".

(3) If a former licensed insurer has a subsidiary licensed under Division 3 of Part 7 of this Act on the commencement of that Division, the policies of insurance issued or renewed by the former licensed insurer shall be assigned to that subsidiary".

Further provision was made in later sub-clauses in relation to that statutory assignment. See also cl 15.

It seems therefore that the appellant stepped into the shoes of the former licensed insurer, FAI Traders Prudent Pty Limited, at 4 pm on 30 June 1987. The existing policy made on 25 June was assigned to it by operation of the statute. It became bound by the payment to the broker and became entitled to receive payment from the broker.

Mr Stack's argument involved giving a retrospective operation to s192 of the Workers Compensation Act 1987 which was designed to exclude brokers from the industry. This section undoubtedly had the effect for which Mr Stack contended after its commencement at 4 pm on 30 June 1987. However, I entirely fail to understand how it could have any retrospective effect. The licensed insurers under the 1987 Act took over from the previous licensed insurers within the same group. As such the new insurer was necessarily bound by payments received and contracts entered into by its predecessors.

In these circumstances I conclude that the appeal fails and should be dismissed with costs.

MAHONEY P: I agree with the orders proposed by Mr Justice Handley and with his reasons. In deference to the submissions advanced by Mr Stack and in view of the circumstances of the matter, I shall add some observations of my own.

It is clear that for the year here in question, that is from 30 June 1987 to 30 June 1988, the Barnsley Company required workers' compensation insurance. This was no small matter. The material before the Court indicates that wages paid by it in a relevant year were of the order of a million dollars. It was therefore necessary for it to effect its workers' compensation insurance.

It had been dealing with the third party, described as Universal Brokers Newcastle Pty Limited. That company had been involved in business with, as it was described in the evidence, the FAI Insurance Group and his Honour found that that company, the Universal Company, was the "agent" for the FAI Insurance Group of which the plaintiff company ultimately became, at the relevant times, a member.

That finding is important in the present case. No appeal has been brought against it and it stands according to its terms. But in order to ensure that there be no misunderstanding of the matter, it is relevant to indicate that Mr Ferrier, who was a director of the Universal Company, was called in evidence and questioned about his relationship with the companies of the FAI Insurance Group. He said that he had "agency agreements" with insurers and, in particular, with "FAI and all their subsidiary companies of which there were many".

He said that he "effected some insurance" for the Barnsley Company with one of the companies of the FAI Insurance Group, Traders Prudent Insurance Company Ltd, in June 1987 and he said that that was one of the companies with which he had "an agency agreement" "through the FAI".

Upon the basis of his Honour's finding of agency, his Honour gave judgment in favour of the Barnsley Company. He did that in the following context. It is clear that workers' compensation insurance was effected by the Barnsley Company for the relevant year, 1987/1988. The premium to be paid for that insurance was originally estimated to be approximately $45,515. This appears subsequently to be recalculated to an amount of the order of approximately $39,141. The present problem arises because three payments were made by the Barnsley Company in respect of that premium. The first was paid on 25 June 1987, $13,754.48. Two other payments of $13,962.89 were paid during the relevant insurance year. The total of these payments was therefore of the order of $41,680.26. If the amount of the first payment, the payment of 25 June 1987, of $13,754.48 was be taken into account in respect of the premium, then the Barnsley Company had paid the whole of the premium and perhaps more. If it was not to be taken into account, then it had not paid the whole of the premium.

The plaintiff company, one of the members of the FAI Insurance Group, has sued the Barnsley Company for what it claims to be the balance of that premium and it is the way in which the payment of the 25 June 1987 is to be treated which is at the heart of the present matter.

Prima facie, the matter would appear to be concluded by the finding by the judge that the Universal Company to whom the payment was made in respect of the proposed insurance for the relevant 1987/1988 year was the agent of, inter alia, the plaintiff company. As I would infer, the payment was received by the Universal Company as agent for the plaintiff company, and accordingly that payment would go towards the premium whenever the premium was fixed and, as I would understand the matter, whenever the contract was actually made. But, it was submitted, this result does not follow.

Mr Stack's argument was put in a number of different ways, but essentially his submission was that the contract of insurance for the 1987/1988 year was made only after the 1987 Workers' Compensation Act came into effect on 30 June 1987 and that therefore, because of the provisions of that Act, the payment to the agent which had already been made on 25 June 1987 could not be taken into account.

In fairness to the FAI Insurance Group it is proper to say, and the judgment found, that the amount of that payment of 25 June 1987 was never passed on to the FAI Insurance Group. Apparently the Universal Company retained it. Whether that was by arrangement with the FAI Insurance Group or otherwise does not appear. No doubt it was to pass over the amount or the benefit of the amount in due course. It does not appear to have done that; reference has been made to the deed which subsequently was entered into in relation to that matter. But however that be, the fact was that the amount was received by the company and that company was the agent of the FAI Insurance Group.

In view of the importance of that finding I should add this. There should, I think, be no mistake or ambiguity as to the finding of "agency" in this regard. Sometimes the word "agent" is used in an ambiguous sense or with a special meaning: cf International Harvester Company of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Company [1958] HCA 16; (1958) 100 CLR 644. But in the present case the judge clearly formed the view that the Universal Company was the agent of the FAI Insurance Group Company to receive the monies and to do what it did in relation to the transactions here in question. That, I think, was the correct understanding. It was not in contest in argument. It was a conclusion which was open and proper for the judge to form.

In these circumstances, in my opinion the conclusion follows that the payment of 25 June 1987, having been received in the circumstances that it was, is to be treated as having been applied or debited against the premium in respect of the policy whenever, in fact, it was effected: that is, whether it was effected before or after the commencement of the 1987 Act.

I do not think that a different conclusion is open. When one has regard to the facts, it is proper to infer that the problem arises because of the manner in which FAI Insurance Group appears to have conducted its business at that time. As Handley JA has pointed out the evidence discloses that the previous insurance was with the Traders Prudent Insurance Co Ltd, one of the group companies. On 5 May 1987 the appellant company was formed and appears to have been the only company which held a licence entitling it to carry on insurance business under the 1987 Workers' Compensation Act. But the existence of the plaintiff company does not appear to have been then brought to the attention of the Barnsley Company nor, as far as the matter goes, of Mr Ferrier and the Universal Company. The first reference to the plaintiff company appears to have been made some time in August when, as his Honour pointed out, a document was forwarded to the Barnsley Company with the logo or description "FAI Insurance Group" but with the name of the plaintiff company upon the top of the document. That document refers to "renewal" in respect of the insurances. It does not appear to have been brought specifically to the attention of the Barnsley Company that the company with which it was to effect the relevant insurance was no longer the Traders Prudent Company but was to be another company in the FAI Insurance Group. In fact, when the certificate of insurance was ultimately issued under the hand of a person of the name Carla Brentwood, described as "group manager for northern New South Wales" of the FAI Insurance Group, no mention was made of the plaintiff company, reference was made merely to the FAI Insurance Group.

It is no doubt, or may well have been at the time, convenient for the FAI Insurance Group to change in this way the companies with which, in a legal sense, insurance was effected. I infer no criticism of what was done in that regard. But where an amount of money has been paid, as in the present circumstances, for the purposes of effecting insurance and (without consultation with the proposed insured) the group selects the company which is to bear the burden of the insurance and subsequently issues the policy in the name of that company without bringing the matter to the attention of the proposed insured (at least to a greater extent than is here in question), I do not think it can complain when it is held that the amount of the premium paid on 25 June 1987 is to be debited against the plaintiff company. It is to be treated as it was intended to be, as part of the insurance premium payable in respect of the relevant year.

The suggestion that the payment should not be so treated is dependent upon the statutory provisions to which Mr Stack, in his argument, has referred. The point that he takes is not cluttered with merits. It is essentially a legal point. It is sufficient, in my opinion, to indicate that whatever be the effect of the provisions of the Workers' Compensation Act 1987 in this regard, those provisions do not apply in respect of a payment that was received by the agent of the group, and in particular of the plaintiff company on or about 25 June 1987. For these additional reasons I am of the opinion that the appeal should be dismissed with costs.

CLARKE JA: I agree with the order and reasons of Mr Justice Handley.

MAHONEY P: The order of the Court is therefore that the appeal is dismissed with costs.