Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Prosperity Advisers Pty Limited v Secure Enterprises Pty Limited t/a Strathearn Insurance Brokers [2012] NSWCA 192
• Hearing dates: 9 May 2012
• Decision date: 25 June 2012
• Before: Macfarlan JA at 1; Barrett JA at 2; Tobias AJA at 3

Decision

Appeal dismissed with costs.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: APPEAL - insurance broker's advice to insured concerning insurance policy - whether the primary judge was in error in finding that the appellant had not suffered any relevant loss as a consequence of the respondent's wrongdoing - whether primary judge erred in finding that the appellant did not have a substantial prospect of acquiring a policy with the requisite protection - whether evidence that a more advantageous policy would be available and accepted - whether the primary judge made a number of factual errors in relation to conclusion that no such evidence.; DAMAGES - whether the appellant was entitled to recover damages to compensate it for that lost opportunity - principles applicable to assessment of damages for a lost chance.; COSTS - indemnity costs - whether there was a genuine offer of compromise.
• Legislation Cited: Trade Practice Act 1974; Uniform Civil Procedure Rules
• Cases Cited: Baiyai Pty Limited v Guy [2009] NSWCA 65; Barakat and others v Bazdarova [2012] NSWCA 140; Bennette v Cohen [2009] NSWCA 162; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64; Daniels v Anderson (1995) 37 NSWLR 438; Dean v Stockland Property Management (No 2) [2010] NSWCA 141; Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1; Heenan v DiSisto [2008] NSWCA 25; (2008) 13 BPR 25213; Hobartville Studd Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358; McCrohon v Harith [2010] NSWCA 67; Malec v J C Hutton Pty Limited [1990] HCA 20; (1990) 169 CLR 638; Miwa Pty Limited v Siantan Properties Pty Limited (No 2) [2011] NSWCA 344; Prosperity Advisers Pty Ltd & Anor v Secure Enterprises Pty Ltd t/as Strathearn Insurance Brokers Pty Ltd [2011] NSWSC 35; Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332; Tabet v Gett [2010] HCA 12; (2010) 240 CLR 537; Uniting Church Property Trust v Takacs (No 2) [2008] NSWCA 172
• Category: Principal judgment
• Parties: PROSPERITY ADVISERS PTY LIMITED (subject to a Deed of Company Arrangement) (ACN 099 036 361) (first appellant); PROSPERITY ADVISERS (NEWCASTLE) PTY LIMITED (ACN 146 592 752) (second appellant); SECURE ENTERPRISES PTY LIMITED t/as Strathearn Insurance Brokers (ACN 060 973 908) (respondent)
• Representation: Counsel: P J Brereton SC/ V E Whittaker (appellants); D B Studdy SC/ A P Lo Surdo SC (respondent); Solicitors: Gilbert + Tobin (appellants); Kennedys (Australasia) Pty Ltd (respondent)
• File Number(s): 2007/266547

Decision under appeal

• Citation: Prosperity Advisers Pty Ltd & Anor v Secure Enterprises Pty Ltd t/as Strathearn Insurance Brokers Pty Ltd [2011] NSWSC 35
• Date of Decision: 2011-02-11 00:00:00
• Before: Ball J
• File Number(s): 2007/266547

Judgment

1 MACFARLAN JA: I agree with Tobias AJA.

2 BARRETT JA: I agree with Tobias AJA.

3 TOBIAS AJA: On 11 February 2011 the primary judge, Ball J, dismissed proceedings instituted by the appellants against the respondent (Strathearn) in which it was alleged that they suffered loss as a consequence of the Strathearn's negligence, breach of contract and misleading and/or deceptive conduct in contravention of s 52 of the Trade Practice Act 1974: Prosperity Advisers Pty Ltd & Anor v Secure Enterprises Pty Ltd t/as Strathearn Insurance Brokers Pty Ltd [2011] NSWSC 35. Although his Honour found that each of those causes of action was established, the proceedings were dismissed on the basis that the first appellant (Prosperity) had not suffered any loss as a consequence of Strathearn's breaches. The appellants now appeal to this Court against his Honour's dismissal of the proceedings, the primary issue being whether his Honour was in error in finding that Prosperity had not suffered any relevant loss.

4 When ordering that the proceedings be dismissed the primary judge also ordered that the appellants pay Strathearn's costs of the proceedings. However, he foreshadowed that an application might be made for indemnity costs as a consequence whereof he gave the parties leave to seek a variation of the costs order he had made. Indemnity costs were in fact sought by Strathearn and on 4 March 2011 his Honour ordered that the appellants should pay Strathearn's costs of the proceedings on an indemnity basis as and from 29 July 2009 (the costs judgment). The appellants also appeal that order.

The background facts

5 Although the substantive issue in the appeal relates to the question of damages, in order to determine that issue it is necessary to recite the relevant historical facts including those leading to his Honour's findings on liability.

6 Prosperity carried on the business of providing accounting and financial planning services to clients. In mid-January 2005 on the instructions of Mr Michael Hughes, Prosperity's Director of Financial Services, its Financial Controller, Mr Tony Wagstaff, contacted Ms Nicole Dennis of Strathearn, an insurance broker based in Western Australia, to ascertain whether it could arrange professional indemnity insurance on Prosperity's behalf. Prior to contacting Strathearn, Prosperity had used a broker based in Newcastle, Markey Insurance Brokers (Markey) to arrange its professional indemnity insurance and Markey in turn, had placed Prosperity's cover through Willis Australia Limited (Willis), an international firm which provided a range of insurance products and services. At the time Prosperity approached Strathearn, it had professional indemnity cover with Allianz. The Allianz' policy was due to expire on 11 February 2005 although it was extended until 25 February 2005.

7 At about the same time that Prosperity approached Strathearn, it also requested Markey to attempt to arrange professional indemnity insurance to take effect on expiration of the Allianz policy. Of critical significance to his Honour's findings with respect to the issue of loss, was a fax dated 16 February 2005 (the Willis fax) which Willis sent to Markey (and which Markey passed on to Prosperity) setting out the results of the enquiries it had made of potential professional indemnity insurers on Markey's behalf. The fax enclosed a quotation from Allianz and then, relevantly, was in the following terms:

"To ensure that we obtained the most competitive terms from the insurance market, we requested the following underwriters to quote on the insured's business.

Underwriters	Response
Dexta Corporation	Unable to assist due to the high percentage of investment advice.
Liberty International Underwriters	Awaiting their response.
Assetinsure	Unable to assist due to the high percentage of investment advice.
CGU Insurance	Unable to assist due to the fee size of the entity.
Resource Underwriting	Unable to assist due to the fee size of the entity.
QBE Insurance	Before they can consider providing terms, QBE required a financial planners addendum to be completed.
Macquarie Underwriting	Awaiting their response.
ACE Insurance	Unable to assist due to financial planning activities.
Vero Insurance	Unable to assist due to the insured's occupation and operating environment.
AIG Insurance	Verbally approached - Initial terms too high.

This years [sic] renewal terms from Allianz has seen the premium increase of 10%. Please note that fee income increased by 32%. The minimum excess for this risk due to the fees will now be $50,000 each and very [sic] claim except for those activities were [sic] an excess of $80,000 applies."

8 The Allianz' quotation attached to the Willis fax proposed a deductible of $80,000 for each and every claim in the case of various activities of Prosperity including its financial planning activities. The premium quoted, excluding government charges, was $132,000 for a Limit of Indemnity of $5 million any one claim and $15 million in the aggregate but $10 million in the aggregate in respect of investment advice and financial planning activities. It is apparent that Allianz' quotation was unacceptable to Prosperity as a consequence whereof it pursued its requirements with Strathearn.

9 On 23 February 2005 Mr Stephen Hughes, a senior accounts executive with Strathearn, wrote to Mr Michael Hughes to whom Mr Wagstaff reported, outlining five options that Strathearn had identified. Three of those options were with QBE Insurance Australia Limited (QBE) and two were with a combination of ACE Asia Pacific Limited (ACE) (with respect of Prosperity's accounting services) and AIG Insurance Limited (AIG) (with respect to its financial planning services). The three options offered by QBE differed as to the limit of indemnity, the excess or deductible, and the premium. Strathearn recommended Option 2 which offered cover for both Prosperity's accounting and financial planning services at a premium (excluding government charges) of $98,230 (for both services), a limit of indemnity for claims arising out of the provision of financial planning services of $2 million any one claim and $6 million in the aggregate and on excess or deductible of $40,000 each and every claim.

10 Although not referred to by the primary judge in his reasons, Strathearn's letter required Prosperity to note that should it select Options 4 or 5 provided by AIG for financial planning services, then that insurer, before it would confirm its terms, required certain information in relation to mezzanine debt investments. AIG required information as to what types of clients were recommended for that type of investment; what would be the portion of their overall portfolio; what would be the average investment amount in those schemes and what advice would be provided in relation to those schemes. The relevance of AIG's queries with respect to mezzanine debt investments will become apparent below.

11 The QBE quotation was given on the basis of its standard Civil Liability Wording with a number of amendments. Prosperity had not seen a copy of QBE's standard terms and conditions and did not do so until well after the policy was taken out. However, Strathearn provided Prosperity with a copy of a quotation dated 18 February 2005 which QBE had provided to Strathearn and which had formed the basis of Strathearn's letter of 23 February 2005. That quotation proposed certain amendments to various standard clauses of which that to cl 6.7(b) is presently relevant.

12 Clause 6.7(a) of QBE's standard terms provided as follows:

"All causally connected or interrelated acts, errors or omissions shall jointly constitute a single act, error or omission under this Policy."

13 Under the heading "Application of the Deductible" the quotation proposed that cl 6.7(b) of the standard terms be deleted and replaced with the following:

"Where a single act, error or omission gives rise to more than one Claim, all such Claim(s) shall jointly constitute one Claim under the Policy. A separate Deductible will apply in respect of each and every party to such Claim(s) that makes a demand to the Insured for compensation. The aggregate deductible for any single act, error or omission shall not exceed $120,000."

14 Clause 6.7(b) of the standard terms (the clause to be replaced) provided:

"Where a single act, error or omission gives rise to more than one Claim, all such Claim(s) shall jointly constitute one Claim under the Policy, and only one Deductible shall be applicable in respect of such Claim. Furthermore, if there is an Aggregate Limit of Indemnity, only one Limit of Indemnity will be applicable in respect of such Claim."

15 At [7] of his reasons, his Honour noted two points with respect to the provisions of cl 6.7. The first was that the effect of the standard form of cl 6.7 was to aggregate claims made against the insured so that multiple claims arising from causally connected or interrelated acts, errors or omissions would be treated as one claim for the purpose of applying the deductible and the limit of indemnity. The second was that the effect of the amendment to cl 6.7(b) was to impose a separate deductible in respect of each claim by a different person or entity up to a maximum of three. The reason the maximum is three is that the deductible per party to a claim is $40,000 so that the maximum aggregate deductible was $120,000. As his Honour observed, in this manner the revised cl 6.7(b) narrowed the circumstances in which claims would be aggregated for the purpose of the deductible. In other words, the new cl 6.7(b) favoured the insurer when compared to the standard terms of that provision.

16 When Mr Michael Hughes received Strahearn's letter of 23 February 2005 he became concerned about how the deductible applied in respect of multiple claims arising from a single failed investment product recommended by Prosperity to its clients and, in particular, whether under the terms of the QBE policy those claims would be aggregated and treated as one claim for the purposes of the deductible. On 24 February 2005, Mr Michael Hughes telephoned Mr Stephen Hughes and put to him a hypothetical example in the following terms in relation to the application of the deductible:

"If I say 100 clients had an investment in a particular product of say $40,000 and it went bad and we were found to be negligent in advice, would this be seen to be one claim or 100 claims?"

Mr Michael Hughes said that Mr Stephen Hughes responded in the following terms:

"Under the QBE policy, the example you have given would be treated as one claim not separate individual claims"

17 There was a dispute between the Messrs Hughes as to precisely what was said in the course of this conversation but the primary judge accepted the version of Mr Michael Hughes and, given the issue on the appeal, it is unnecessary to detail his Honour's reasons for doing so. As a consequence of Mr Stephen Hughes' response to Mr Michael Hughes' question, Prosperity accepted Strathearn's advice and on 24 February 2005 instructed it to accept Option 2 offered by QBE - which is what Strathearn did. The policy took effect at 4pm the following day, 25 February 2005 (the Policy).

18 At this point it becomes relevant to refer to mezzanine debt investments as it was the failure of three of those investments into which Prosperity had advised a number of clients to invest, that sparked the present litigation.

19 Prosperity was only covered in relation to claims arising from investments on an approved list. Three of the investments included on that list were in funds established by subsidiaries of the Westpoint Group known as Mount Street Mezzanine Pty Limited, Bayshore Mezzanine Pty Limited and York Street Mezzanine Pty Limited. Each of those investment products took the form of unsecured promissory notes issued in respect of specific real estate developments being undertaken by the Westpoint Group. Investments of that type were often described as "mezzanine finance investments" or "mezzanine debt investments". In all approximately 155 to 165 of Prosperity's clients invested in one or more of the three Westpoint products on Prosperity's recommendation. Those investors suffered substantial losses when the Westpoint Group collapsed in the second half of 2005.

20 On 10 January 2006 Prosperity gave notice to QBE of potential claims arising from the Westpoint collapse. In June 2006, two clients commenced proceedings against Prosperity and subsequently Slater & Gordon wrote to Prosperity's clients inviting them to join in a class action against it. As his Honour noted, not surprisingly the claims or threatened claims were put in various ways. Some investors complained that Prosperity had failed to research adequately the Westpoint investments. Many complained that it was negligent in recommending the investments having regard to the investors' particular needs.

21 As a consequence of the differences in the manner in which Prosperity's clients advanced their claims, on or about 26 May 2006 QBE's solicitors notified Prosperity's solicitors that it was their view that cl 6.7 of the Policy did not apply to aggregate the vast majority of the claims that were made or threatened in the particular circumstances of the case. Accordingly, it was asserted that an excess or deductible applied in respect of many, if not all, of the individual claims that were threatened or which had been brought against Prosperity. As his Honour observed at [11] of his reasons, this was because many of the claims were based on an allegation that Prosperity was negligent in recommending the investments to individual clients having regard to their particular needs and it therefore could not be said that negligent advice tailored to a particular client's needs was "causally connected or interrelated" (as required by cl 6.7(a)) to negligent advice given to another client on the basis of that client's needs. It followed according to QBE's solicitors, that cl 6.7(a) did not aggregate the different acts, errors and omissions into one and that consequently the claims arose out of different acts, errors or omissions and so were not aggregated under cl 6.7(b).

22 QBE's solicitors did, however, acknowledge that the issue could not finally be resolved until the claims succeeded and their true basis was determined. Prosperity's solicitors denied that a separate deductible applied to each claim brought by a client in respect of a particular Westpoint investment and there was considerable correspondence between the solicitors in relation to the issue. The total amount claimed against Prosperity by its clients was approximately $17 million and, according to QBE's solicitors, the total of the deductibles to be borne or to be paid by Prosperity was in the order of $2.5 million.

23 Ultimately, Prosperity reached a settlement with QBE. Under its terms QBE contributed $4.25 million (out of a maximum limit of liability of $6 million) and Prosperity contributed $800,000 to a pool to be used to pay legal costs and to be divided among Prosperity's clients in settlement of their claims. There were other conditions of the settlement which were met, the details of which are not presently relevant.

24 In the proceedings before the primary judge, Prosperity sued Strathearn for its contribution to the settlement pool less one deductible of $40,000 or three deductibles of $120,000. On the hearing of the appeal Prosperity accepted that any damages awarded to it would need to reflect three deductibles of $40,000 each or $120,000 in total. Accordingly, the maximum damages to which Prosperity asserted that it was entitled was $800,000 less $120,000, or $680,000.

25 In effect Prosperity's complaint was that Mr Stephen Hughes had failed to inform Mr Michael Hughes in their conversation of 24 February 2005 that depending on the circumstances, the claims of the 100 hypothetical clients referred to in the conversation might arise out of different acts, errors or omissions which would not be aggregated into one claim with the payment of only one, or at the most, three deductibles. It therefore alleged that if it had received accurate advice in relation to the operation of the aggregation clause (cl 6.7) of the Policy, it would have obtained or negotiated to obtain different policy wording either with QBE or some other professional indemnity insurer, with the result that the claims it faced would have been aggregated so that only one, or at the most three, deductibles were payable. In these circumstances, it would only have been required to pay a maximum of $120,000 into the pool and not $800,000.

26 On 3 December 2010, Prosperity, which was in administration at the time, purported to assign all its rights in the causes of action asserted by it in the proceedings to the second appellant. There was a challenge to the validity of that assignment which was resolved by the primary judge in favour of the appellants. Accordingly, it was accepted that if Prosperity was found to have suffered a loss in respect of which damages were assessed, there should be judgment in the relevant amount in favour of the second appellant.

The nature of Prosperity's case advanced before the primary judge

27 Four broad issues were raised before the primary judge. The first was whether there had been a breach of contract or negligence on the part of Strathearn or whether the advice given to Mr Michael Hughes on 24 February 2005 amounted to misleading or deceptive conduct. The second was whether the settlement entered into with QBE was reasonable. The third was whether Prosperity was entitled to assign its claim to the second appellant. All three issues were determined in favour of Prosperity. It is the fourth issue with which this appeal is concerned. At [15] his Honour described it as follows:

"(b) ... did Prosperity suffer loss as a consequence of the breach of duty or by reason of the breach? This issue itself raises two questions. One is whether Prosperity could have obtained a policy which aggregated the Westpoint claims or whether it lost the opportunity to do so. The other is whether it was liable to make payments in respect of the deductibles that it did."

28 At [27] of his reasons the primary judge noted that although Prosperity's primary position was that it could have obtained insurance for the same premium but which imposed only one deductible of $40,000 in respect of claims for losses (whether related or not) from the failure of any one product, it could not identify any policy that had those characteristics. In reality, therefore, its case was that it lost the opportunity to obtain such a policy and that it was entitled to recover damages to compensate it for that lost opportunity in accordance with the principles adumbrated by the High Court in Malec v J C Hutton Pty Limited [1990] HCA 20; (1990) 169 CLR 638; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 and Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332.

29 As I have noted, Prosperity did not suggest that had it been aware of the true position with respect to the effect of cl 6.7 of the Policy, it would have been able to obtain a policy from QBE with an aggregation clause which gave it the protection it sought. However it did assert that it could have obtained a policy that only imposed one deductible in relation to all claims arising from a particular failed investment (whether or not they arose out of causally related acts, errors or omissions) from three insurers who, at the relevant time, were said to be in the professional indemnity insurance market and who were providing cover for financial planners. The first was Dexta Corporation Pty Limited (Dexta). The second was from a company called Dual and a third from a Lloyds syndicate.

30 At [29] of his reasons the primary judge remarked that Prosperity characterised its lost chance in two ways. The first was that if Mr Stephen Hughes had given a correct answer to Mr Michael Hughes' hypothetical, Prosperity would have instructed Strathearn to obtain a policy that only imposed one deductible in relation to all claims arising from a particular failed investment and that there was a substantial prospect (or better) of it obtaining such a policy from at least Dexta, Dual or Lloyds. If that contention was not accepted, Prosperity's alternative case was that there was a substantial prospect (or better) that it would have obtained insurance from Dexta on its standard terms which would not have entitled it to take the same position in relation to the application of the deductible as had QBE. The relevant claims aggregation provision in the standard Dexta policy as at February 2005 was cl 2.4 which provided as follows:

"2.4 Claims aggregation

2 4.1 All acts, errors or omissions shall be regarded as one act, error or omission, unless they are totally unrelated.

2 4.2 All Claims arising from one act, error or omission shall be regarded as one Claim."

31 It was submitted that when cl 2.4.1 of the Dexta policy was compared with cl 6.7(a) of the QBE policy, the former would have been more favourable to Prosperity because of the requirement that aggregation would only not occur if the relevant acts, errors or omissions were "totally unrelated" (my emphasis) whereas cl 6.7(a) of the QBE policy would deny aggregation if the relevant acts, errors or omissions were only partly unconnected or unrelated.

32 The primary judge did not need to resolve this issue of construction for he found (at [35]) on the basis of the Willis' fax that Dexta had declined cover to Prosperity and there was no evidence that it would have changed its mind if approached to do so by Strathearn.

33 At [32] his Honour noted that Prosperity did not assert that there was any "off the shelf" policy available to financial planners in the professional indemnity market in 2005 that had the effect sought by it. Furthermore, it was common ground that no such policy containing such a clause had been negotiated in that market. Nevertheless his Honour does record that as part of its alternative case Prosperity submitted that, from a practical point of view, the Dexta policy "came close". However, although not referred to by his Honour, it is relevant to note that there was no evidence and no submission before his Honour which would suggest that had Mr Stephen Hughes given a correct answer to Mr Michael Hughes' hypothetical, the latter would have been prepared to accept the wording of cl 2.4 of the standard Dexta policy as being sufficiently close to satisfying Prosperity's requirements as to the protection it was seeking.

34 The primary judge then set out what he understood to be Prosperity's "primary case", namely, that Strathearn would have been able to negotiate an amendment or endorsement to the standard terms of an insurer's existing policy to incorporate an aggregation clause of the type that it sought, namely, one that meant that the answer to Mr Michael Hughes' hypothetical question would invariably have been that only one deductible (or a maximum of three) would apply per investment product.

Mr Gottlieb's evidence

35 Prosperity based its "primary case" on the evidence of Mr Michael Gottlieb, a specialist insurance risk broker. It is therefore necessary to refer in some detail to his evidence. Mr Gottlieb was a director of Mega Capital Pty Limited (Mega Capital). Mega Capital, according to Mr Gottlieb, was one of the largest providers of insurance broking services to the financial planning industry in Australia. Approximately 70 per cent of Mega Capital's insurance broking business related to professional indemnity insurance and approximately 25 per cent of its clients were financial planners. He had worked as a specialist insurance risk broker since 2002 and in that role had been actively involved in negotiating professional indemnity insurance contracts for many businesses including those providing financial planning services.

36 In his affidavit sworn 15 December 2009 (his first affidavit) Mr Gottlieb noted that insurers generally offer a "standard" set of contractual terms and conditions which, subject to contrary agreement, apply in respect of their various insurance products. However, in some circumstances an insurer will be willing to negotiate an amendment to those terms and conditions. Whether or not an insurer would be so willing depended upon a number of factors including the number of insurers in a particular market and the level of demand for a particular kind of insurance product. Where there was an over-supply of insurers in a particular market (relative to the number of entities seeking insurance products in that market) and a consistent demand for a particular insurance product, insurers were generally more willing to negotiate their terms and conditions. Such a market is referred to as a "soft market" and such a market prevailed in February 2005.

37 That market continued until 2007, having peaked in early 2005. At that time the insurers offering professional indemnity insurance products to financial planners in Australia were QBE, Dexta, AIG, Allianz, CGU Insurance Limited (CGU) and some Lloyds syndicates. Mr Gottlieb did not in his first affidavit include Dual amongst the insurers that he identified as being in the relevant market as at February 2005. The professional indemnity insurance market for financial planners began to harden around 2006 with the corporate collapse of the Westpoint Group in late 2005 and continued to harden particularly after the collapse of the Basis Capital Fund in 2007.

38 Mr Gottlieb's evidence relevant to the issue in the present case was stated in par 15 of his first affidavit which I set out in full:

"15 During the soft market between 2004 and 2007, it was my experience that insurance companies where [sic] generally willing to negotiate, and in some cases make substantial concessions with respect to both the premiums under insurance contracts entered into with financial planners and the terms and conditions contained within those contracts. For example, between 2004 and 2007, Mega Capital negotiated the following improvements in the terms and conditions of professional indemnity insurance cover provided by Liberty International Underwriters and Dexta Corporation Pty Ltd to one of Mega Capital's financial planner clients:

a. 2005 - Substantial improvement to the deductible clause, being a clause which provides that the insured will bear the 'first' portion of any insurance claim and, additionally, deletion of an exclusion clause relating to tax advice;

b. 2006 - Insurance cover broadened to cover the licensee in circumstances where an advisor acts outside of their authority;

c. 2007 - Broader cover for vicarious liability for the licensee in certain circumstances including a failure to disclose commissions and acting without licensee. Introduction of incoming run-off cover for certain authorised representatives (replacing the need to obtain separate run-off cover for services provided via another licensee).

More generally, it was not uncommon to negotiate a 30% reduction in the premium for professional indemnity insurance cover for our financial planner clients."

39 Two observations may be made with respect to this evidence. First, the opening sentence of the paragraph is, other than with respect to premiums, expressed in terms of generality so far as the willingness of insurers in the relevant market to make "substantial concessions" with respect to the standard terms and conditions of their policies.

40 The second is that the three examples he then gives do not include amendments or improvements to a standard claims aggregation clause. Given his understanding of the issues in the proceedings, had Mr Gottlieb been able to negotiate, or been aware of anyone who had negotiated, an aggregation clause which provided the type of protection sought by Prosperity (and which, I would infer, would have been sought by all financial planners who recommended that their clients invest in a particular product), one would have expected him to have included the fact among the examples he listed. The fact that he did not enables the inference to be drawn that between 2004 and 2007 he had not negotiated such a clause, at least successfully.

41 Mr Gottlieb swore a further affidavit on 21 January 2011 (his second affidavit). In that affidavit he expanded on par 15 of his first affidavit. At par 7 he stated that he had been asked to outline the factors which in his opinion and experience affected the preparedness of insurers in the professional indemnity market for financial planners during the period 2004 to 2007

"to negotiate over a policy wording to include an aggregation clause that had the effect of providing for one deductible for claims arising out of the failure of a particular mezzanine financial product that they had advised clients to invest in."

42 Mr Gottlieb then referred to the generally "soft" conditions prevailing at the relevant time. He then deposed as follows:

"10 Another factor was the absence of any substantial concern on the part of the insurance providers over mezzanine finance products or about Westpoint in particular. As at early 2005 in the Australian professional indemnity market for financial planners and/or accountants that included a financial planning exposure were Dexta, QBE, Allianz, Macquarie Underwriting and AIG. I placed business through each of these insurers at the time and they did not raise with me then any concern concerning mezzanine debt schemes generally or Westpoint in particular and nor was I advised from any other source of any such concern.

11 Another factor was the absence of any particular concern on the part of the insurance providers to impose multiple deductibles upon their insurers for related claims. As at early 2005 the standard form insurance policies for the professional indemnity insurers contained different forms of wording for aggregation clauses. In my discussions with insurers at the time no concern was ever raised with me concerning aggregation clauses and nor was I advised from any other source of any such concern."

43 I interpose the following observations with respect to the foregoing evidence. First, Mr Gottlieb makes no reference in par 10 to Dual as being in the relevant market at the time although at par 17 he asserted that he dealt with Dual, a professional indemnity insurer, prior to and during 2005. However, the admissible evidence went no further than that bare assertion. Secondly, he now included Macquarie Underwriting as being in the market. This company was referred to in the Willis fax of 16 February 2005 it being noted that Willis was "awaiting their response". No evidence was tendered as to whether that underwriter in fact responded.

44 Thirdly, Mr Gottlieb conceded in cross-examination (at Black 113V-114D and 114J) that AIG had an issue or a concern about mezzanine finance products insofar as financial planners were concerned. That concession was made in the light of his being shown a fax from AIG to Mr Stephen Hughes of Strathearn dated 8 February 2005 offering cover to Prosperity in the amount of $1.5 million any one claim and $3 million in the aggregate with a sub-limit of $500,000 in the aggregate "to apply to all Mezzanine Debt Related Claims".

45 I have already referred at [30] above to Dexta's standard aggregation clause. That of Allianz was in the following terms (cl 4.4):

"For the purpose of this clause, all claims were claims that arise from any one act, error or omission, or series of related acts, errors or omissions are deemed to constitute one claim."

46 Macquarie Underwriting's aggregation clause as at 2005 was as follows:

"MULTIPLE CLAIMS

5.4 For the purposes of determining the Sum Insured available for Claims covered by this policy, all Claims which arise from acts, errors, or omissions which are the same or related to each other, will be regarded as one Claim.

For the purposes of determining the Excess applicable to Claims covered by this policy:

· all Claims which arise from acts, errors or omissions which are the same or related to each other, will be regarded as separate Claims;

· where a Claim is made by more than, one claimant, each claimant shall be regarded as having made a separate Claim."

47 AIG's standard provisions dealing with the issue of aggregation as at 2005 were cll 2.5 and 2.24 which relevantly provided:

"2.5 ...

Any Claim or Claims arising out of, based upon or attributable to a Single Breach of Duty constitutes a single Claim ...

2.24 Single Breach of Duty means a Breach of Duty or any causally connected Breaches of Duty affecting one or more than one person or entity."

48 Notwithstanding that Mr Gottlieb had dealt with Dual prior to and during 2005, that insurer's standard professional indemnity policy wording contained the following clauses:

"Section 6: DEFINITIONS

in the POLICY:

6.1 CLAIM means any civil proceeding brought by a third party against the INSURED for compensation. All CLAIMS arising from the same breach of professional duty, regardless of the number of claimants or CLAIMS filed, shall be considered a single CLAIM for the purposes of the POLICY."

49 However, the Dual policy also contained the following further provision:

"10.2 Deductible

...

(f) For the purposes of determining the DEDUCTIBLE applicable to CLAIMS covered by the POLICY:

1. All CLAIMS which arise from acts, errors or omissions which are the same or related to each other will be regarded as separate CLAIMS:

2. Where a CLAIM is made by more than one claimant, each claimant shall be regarded as having made a separate CLAIM."

How these two provisions fit together was not the subject of evidence or submissions. Whether they would provide the protection sought by Prosperity or something close to it, must be at least debatable.

50 It was not suggested by Mr Gottlieb that any of those aggregation clauses had the effect of providing for one deductible for claims arising out of the failure of particular mezzanine financial product in which an insured financial planner had advised its clients to invest or that otherwise any of those standard clauses would have satisfied Mr Michael Hughes' query to Mr Stephen Hughes.

51 Mr Gottlieb's evidence in his second affidavit then continued as follows:

"12 I have been asked my opinion as to whether, based on my experience and knowledge as to the circumstances prevailing in the professional indemnity insurance market for financial planners as at early 2005, Prosperity could have obtained cover that included an aggregation clause that had the effect of providing for one deductible for claims arising out of the failure of a particular mezzanine financial product that they advised clients to invest in.

13 In answering this question I am assuming that the relevant insurer was being asked to provide cover in response to the completed proposal form which is to be found at pages 2 to 27 of exhibit MH1 [see Blue 1/288-313] to the affidavit of Michael Anthony Hughes sworn 18 April 2008.

14 I have set out above the factors affecting the preparedness of professional indemnity insurers in early 2005 to negotiate over the form of their aggregation clause: the market was soft, the accounting side of Prosperity's business would have appeared attractive.

15 In my experience, it is not at all unusual for brokers to negotiate terms with respect to professional indemnity policies which are different from the standard terms proposed by insurers. Such negotiation is a fundamental component of the services provided by a broker In my experience insurers are cognizant of the differences between various businesses' insurance needs and are prepared to liaise with brokers with a view to writing a policy which meets both the insured's concerns and the insurer's risk profile. Further, should the circumstances necessitate it, such negotiation can occur relatively quickly - that is, in a matter of days rather than weeks If this is not possible, generally insurers will be willing to provide and extensions to the current policy until the issues have been resolved.

16 As stated, one of the main professional indemnity insurers that I dealt with prior to and during 2005 was Dexta. Dexta were keen in early 2005 to bid for business and were willing to negotiate over a number of conditions. ... In my dealings with Dexta I found their premiums to be competitive with those of QBE ..."

52 Three observations may be made with respect to the above evidence. First, so far as par 14 is concerned, it would appear that Mr Gottlieb was suggesting that professional indemnity insurers might negotiate over the form of their aggregation clause in respect of the accounting side of an insured's business but not necessarily its financial planning side. In any event, as at 2005 he was apparently unable to point to any insurer who had in fact been prepared to negotiate the terms of its standard aggregation clause with respect to financial planning cover which would have the effect of providing for one deductible for claims arising out of the failure of a particular mezzanine financial product or any other product in which the insured had advised its clients to invest.

53 Secondly, the first sentence of par 15 does not, in my view, advance the matter so far as the willingness of an insurer to amend its standard aggregation clause to meet the requirements of a financial planner such as Prosperity. Thirdly, with respect to Mr Gottlieb's assertion in par 16 that Dexta was keen in early 2005 to bid for business or willing to negotiate over a number of conditions, two problems arise. The first is that Mr Gottlieb's assertion is couched in generalities and could apply to any standard condition of many in Dexta's policy and not necessarily cl 6.7. Secondly, as his Honour found, Dexta, according to the Willis fax, was

"unable to assist due to the high percentage of investment advice"

54 With respect to this last mentioned point, the Court was directed to Prosperity's completed proposal forms dated 3 February 2005 (and referred to by Mr Gottlieb at par 13 of his second affidavit recorded at [51] above) to found the submission that approximately 90 per cent of Prosperity's estimated gross income/fees for the financial year ending 30 June 2005 was sourced from its financial planning services. It is convenient to deal with this submission at this point. There were two proposal forms dated 3 February 2005 completed by Prosperity and, it seems to be accepted, provided by Willis to the ten underwriters referred to in the Willis fax. The first related to Prosperity's business or accounting services. It stated that the estimate of the amount of gross income/fees from those activities for the then current financial year was $3.6 million.

55 The second proposal form related to Prosperity's financial planning business. It revealed that the percentage of Prosperity's activities involving margin lending was less than five per cent and the percentage of its activities involving tax effective investments was five per cent with nil life insurance broking. As the estimate of its fees for the financial year then current was $5.95 million, it was deduced by the respondent that at least 90 per cent of that fee income would be due to its other financial planning activities. It was submitted that the high percentage of investment advice which was the reason attributable by Dexta for its denial of cover was sourced from this proposal form.

56 However, it is probably more accurate to take the estimated fee income disclosed in both proposals ($3.6 million and $5.95 million) and aggregate them and then determine the percentage referrable to Prosperity's investment advice services. The total is $9.55 million of which at least $5.355 million or 56 per cent of total income could be said to relate to those services. This could still be described as a high percentage of Prosperity's business being investment advice. Although unknown to Dexta, Mr Michael Hughes' evidence (at Blue 1/7F) in this context was that

"Prosperity's business largely involved advising clients in respect of financial products which, if they failed, could potentially result in multiple claims being made against Prosperity by its clients."

57 Relevant to Dexta's response to Willis is Mr Gottlieb's cross-examination at Black 116D-G. He there agreed that as at 16 February 2005 what was available to Prosperity by way of professional indemnity insurance with respect to financial planning appeared to be "very limited". Further, he agreed that based upon the Willis fax including the fact that AIG had imposed a limit of liability of $500,000 on mezzanine finance products or claims arising out of those products, Prosperity would have been seen as a "complex professional indemnity risk".

58 At Black 119J-U and 120B-F the following exchange occurred relevant to the present issue of negotiability:

"Q. In early 2005, Mr Gottlieb, to ascertain whether insurers may have been prepared to negotiate the terms of their standard policies, you would need to know a number of things, wouldn't you? You just can't make a bold assertion that insurers are prepared to negotiate per se, can you?

A. Correct.

Q. And you would accept, wouldn't you, that an insurer, if it was going to conduct negotiations about its standard wording in a policy, for instance concerning a financial planning client, would want to have detailed information concerning the nature and risks involved in that particular business?

A. Yes.

Q. And it is just the sort of thing that AIG was concerned to get more information about as you saw in one of the pieces of correspondence, correct?

A. Correct.

Q. You would accept that from your experience the wording in an insurance policy is very important for both parties, both the insurer and the insured?

A. Correct.

Q. And the alteration of wording in a policy is not something normally that an insurer does without giving very careful consideration in your experience to those proposed changes, correct?

A. Correct.

...

Q. And the change in wording that may take place in an insurance policy could, you would accept, affect the insurer's own position regarding its underlying reinsurance arrangements it may have in place, correct?

A. Correct.

Q. And that could have potentially significant ramifications for that particular insurer if it was to make changes?

A. Correct. "

Prosperity's insurance cover after 2005

59 Strathearn arranged professional indemnity insurance cover with Dexta for Prosperity's financial planning business for the 2006/2007 year. The policy covered the period 14 April 2006 to 14 April 2007. The limit of liability was $5 million per claim with an aggregate liability of $10 million and a deductible of $40,000. The policy was issued on 3 May 2006 at a premium (excluding government charges) of $125,440. It was in Dexta's standard form there being no amendment to clause 2.4. However, it contained an endorsement which became known as the Westpoint Exclusion which was in the following terms:

"Westpoint Exclusion

We shall not be liable under this policy to provide indemnity in respect of any Claim against the Insured directly or indirectly arising from any mezzanine finance investments and / or any advice regarding investments related to Westpoint Corporation Pty Ltd ABN 81 009 395 751 or any group, subsidiary or related company of Westpoint Corporation Pty Ltd."

60 A separate policy with Dexta was entered into for Prosperity's accounting services. It provided for the same limit of indemnity and deductible as the financial planning policy but at a premium (excluding government charges) of only $58,300. It was also endorsed with the Westpoint Exclusion. Accordingly, the total premium payable by Prosperity for coverage of both its accounting and financial planning services was $183,740. This may be contrasted with the QBE premium for the 2005/2006 year of $98,230.

61 There can be no doubt the Westpoint Exclusion was endorsed by Dexta on the policies as a consequence of the collapse of the Westpoint Group in the second half of 2005. Mr Gottlieb's evidence was that in his dealings with Dexta he found their premiums to be competitive with those of QBE. This evidence is difficult to accept given Dexta's premium for the 2006/2007 year of $183,740 with the Westpoint Exclusion when compared to QBE's premium for the 2005/2006 year of $98,230 without a Westpoint Exclusion. In this respect there could be little doubt that that exclusion effected a significant reduction in Prosperity's risk profile, as it excluded cover with respect to what I would infer to have been a substantial financial product in which Prosperity was recommending its clients to invest.

62 As I have already noted, in early 2007 Mega Capital replaced Strathearn as Prosperity's insurance broker. Mr Gottlieb then brokered the renewal of Prosperity's professional indemnity insurance policy for the 2007/2008 year with Dexta. In so doing he obtained from Dexta as a general endorsement to the policy an aggregation clause which provided as follows:

"General Endorsement - Aggregation Clause

a) All causally connected or interrelated acts, errors or omissions cause shall jointly constitute a single act error or omission for this Policy

b) where a single act, error or omission gives rise to more than one Claim, all such Claims shall jointly constitute one Claim under the Policy and only one deductible shall be applicable in respect of such Claim.

Clarification of Aggregation:

Where similar advice has been provided in respect of one product we shall consider this to be single act, error or omission and will apply one deductible."

63 There was no evidence either from Mr Gottlieb or, for that matter, any representative of Dexta, which provided an explanation as to why Dexta was prepared to agree to the "Clarification of Aggregation" clause. However, the policy was endorsed with the Westpoint Exclusion although it was in slightly different terms to that which was endorsed on the 2006/2007 policy in that in lieu of the words "any mezzanine finance investments" was substituted the words "any promissory note investments". Otherwise the two exclusions were in the same terms. But as the primary judge himself noted at [9] of his reasons, mezzanine debt investments took the form of unsecured promissory notes. It is arguable that the change of wording in the 2007/2008 Westpoint Exclusion to "promissory note investments" was intended to operate more widely than the words "mezzanine finance investments" in the Westpoint Exclusion endorsed on the 2006/2007 policy. However, there was no evidence one way or the other on this point.

The applicable legal principles

64 The assessment of damages based on the loss of a chance has been the subject of a number of judicial expositions. They are concerned with the proper approach to both past and future hypothetical events. The relevant starting point in this discussion is the judgments of the High Court in Malec and, in particular, the passage from the joint reasons of Deane, Gaudron and McHugh JJ at 642-643 (with which Brennan and Dawson JJ agreed). After referring to the fact that a common law court determines on the balance of probabilities whether an event has occurred, so that with respect to events which have or have not occurred, damages are assessed on an all or nothing approach, their Honours considered that the approach of the court is different in the case of an event which it is alleged would or would not have occurred or might or might not yet occur. The joint judgment continued at 643:

The future may be predicted and the hypothetical may be conjectured. But questions as to the future or hypothetical effect of physical injury or degeneration are not commonly susceptible of scientific demonstration or proof. If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high - 99.9 per cent - or very low - 0.1 per cent. But unless the chance is so low as to be regarded as speculative - say less than 1 per cent - or so high as to be practically certain - say over 99 per cent - the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability. The adjustment may increase or decrease the amount of damages otherwise to be awarded." [Emphasis added]

65 Malec was a personal injury case. The leading authority in the High Court in a commercial context is Sellars where the passage from the joint judgment of Deane, Gaudron and McHugh JJ in Malec was cited with approval at 350 by Mason CJ, Dawson, Toohey and Gaudron JJ. Sellars was a case involving a contravention of s 52 of the Trade Practices Act 1974 (Cth) and a claim for damages under s 82 of that Act.

66 In the course of their reasons the plurality referred to the decision of the High Court in Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1 which was also a case involving ss 52(1) and 82(1) of the Trade Practices Act. Although Gates was distinguished in Sellars, it may be said to have some relevance to the facts of the present case.

67 In Gates the appellant had entered into a policy of insurance induced by a misrepresentation that it would entitle him to benefits if he were totally disabled from following his occupation as a builder. In fact the policy entitled him only to benefits if he was disabled from following any occupation, so that he was not entitled to benefits when disabled only from following his occupation as a builder. The High Court held that if the appellant had been able to establish that he could and would have entered into a policy of insurance containing a disability clause of the kind represented to him had it not been for his reliance on the representation, he might have been awarded damages equal to the benefits that would have been payable under that policy, less the premiums paid or payable. Having failed to establish that matter, the appellant was not entitled to damages on that account.

68 In Sellars at 352, the plurality observed that Gates was not a decision on the question then under consideration. This was because

"[t]here was no evidence as to what the appellant would have done had he known that the respondent insurance company did not offer insurance on the terms he wanted; nor was there any evidence that insurance was available on those terms elsewhere. Consequently there was no evidence to show that there was a chance of making alternative arrangements for insurance ..."

I shall return to the no evidence point below as it seems to me to have some resonance with the present case: see [32] above.

69 After consideration of a number of other authorities, the plurality in Sellars then continued (at 355) in the following terms:

"... we consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s 52(1), should be ascertained by reference to the Court's assessment of the prospects of success of that opportunity had it been pursued. The principle recognised in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation to confining the principle to cases of any particular kind.

On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities." [Italics in original]

It is to be noted that their Honours emphasised the requirement that the loss of the relevant commercial opportunity must have "some" value, not being a negligible value.

70 Brennan J also commented in Sellars on the High Court's decision in Gates. At 362 his Honour observed that Gates

"shows that, for the purposes of s 82(1) of the Act, the loss of a mere opportunity to acquire a benefit is not in itself a loss, but the loss of a benefit will be such a loss if the plaintiff proves that he could and would have taken the opportunity and that the benefit would then have been yielded." [Emphasis added]

71 After considering a number of authorities his Honour then observed (at 364):

"As a matter of common experience, opportunities to acquire commercial benefits are frequently valuable in themselves, not only when they will probably fructify in a financial return but also when they offer a substantial prospect of a financial return ... Provided an opportunity offers a substantial, and not merely speculative, prospect of acquiring a benefit that the plaintiff sought to acquire or avoiding a detriment that the plaintiff sought to avoid, the opportunity can be held to be valuable. And, if an opportunity is valuable, the loss of that opportunity is truly 'loss' or 'damage' for the purposes of s 82(1) of the Act and for the purposes of the law of torts." [italics in original]

72 At 368 Brennan J further remarked as follows:

"Although the issue of a loss caused by the defendant's conduct must be established on the balance of probabilities, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered. Proof on the balance of probabilities has no part to play in the evaluation of such hypotheses or possibilities: evaluation is a matter of informed estimation. However, where the amount of the loss depends on the happening or non-happening of some event, it is unnecessary to speculate on the possibility that it might have happened and it is impermissible to do so. A plaintiff seeking to prove the amount of a loss does not obtain the right to argue for a possibility by refraining from adducing evidence of the fact. Nor, in my opinion, is it necessary or permissible to speculate on the prospects that a court might have awarded a pecuniary sum to a plaintiff who has lost a cause of action."

73 In my opinion, the following propositions may be deduced from the above passages from Sellars as relevant to the present case:

(a) Prosperity must prove on the balance of probabilities that it has sustained some loss or damage although in a case such as the present, it may do so by demonstrating that, on the evidence, Strathearn's conduct caused the loss of a commercial opportunity which had some value which was not negligible;

(b) Thus there must be evidence as to what Prosperity would have done had it known that the QBE policy did not offer cover on the terms it wanted and, further, that cover was or at least may have been available on those terms elsewhere;

(c) Upon the assumption that Prosperity proved that had it known that the QBE policy would not provide it with the cover it sought, it would have proceeded through its broker into the market to seek such cover, it must still prove as a matter of probability or possibility that such cover would have been available and provided to it at a price and on terms which it was prepared to pay and accept; in other words, it must elicit evidence as to the value of the chance which it alleges it lost as a result of Strathearn's conduct;

(d) It is thus impermissible, in the absence of evidence, to speculate on the possibility that such cover would have been obtainable; rather, the evidence must establish that there was a substantial, and not merely a speculative, prospect of its availability. Prosperity cannot merely argue for a possibility by refraining from adducing evidence to support the probability or possibility that the cover sought was not only available but could be obtained on acceptable terms.

74 The authorities to which I have referred were the subject of detailed consideration by this Court in Daniels v Anderson (1995) 37 NSWLR 438 in the joint judgment of Clarke and Sheller JJA. At 529 their Honours noted that Gates had been considered in Sellars but had been distinguished

"because the plaintiff, who asserted that he had been induced by misrepresentation to enter into a policy of insurance which did not provide the benefits he sought, failed to lead any evidence to show what he would have done had he known that the respondent insurance company did not offer insurance on the terms he wanted, nor evidence that insurance was available on those terms elsewhere"

Their Honours then cited the passage from the judgment of Brennan J commenting upon Gates which I have recorded at [70] above.

75 Their Honours then remarked (at 530) that the issue of causation should be approached upon the basis of proof upon the balance of probabilities, with the qualification that an assessment of whether the chance which is said to have been lost had a value is to be made upon the possibilities or probabilities of the case. Accordingly, it was appropriate to consider initially the question whether a chance was lost as a consequence of the breaches of duty alleged, and in the event that an affirmative answer was given to that question, to defer consideration of the value issue to be dealt with in determining whether, and if so what, damages were payable.

76 At 564 their Honours noted that how the directors of the plaintiff would have acted was, in the absence of evidence, so uncertain as to be incapable of evaluation. Any attempt to determine the possibility that they would or might have acted in a particular manner was

"so fraught with uncertainty as to constitute nothing more than speculation"

77 Tabet v Gett [2010] HCA 12; (2010) 240 CLR 537 was a personal injury medical negligence case involving the loss of chance of a better medical outcome. However, at [124] Kiefel J, with whom Hayne and Bell JJ on the one hand and Crennan J on the other agreed, remarked as follows:

"What cases in contract, such as the Commonwealth v Amann Aviation Pty Ltd and Sellars v Adelaide Petroleum NL, have in common is that the commercial interest lost may readily be seen to be of value itself. The same cannot be said of a chance of a better medical outcome or a person's interest in it. ... And in Sellars v Adelaide Petroleum NL Brennan J observed that, '[a]s a matter of common experience, opportunities to acquire commercial benefits are frequently valuable in themselves'. So long as an opportunity provides a substantial and not merely a speculative prospect of acquiring a benefit, it can be regarded as of value and therefore loss or damage." [Emphasis added, footnote references omitted]

78 In this Court the relevant authorities were recently discussed by Giles JA, with whom Mason P and Matthews AJA agreed, in Heenan v DiSisto [2008] NSWCA 25; (2008) 13 BPR 25213 at [28] - [32]. At [28] in particular his Honour observed (omitting citations) that

"the damages are assessed according to the degree of probability that the events would have occurred, provided the probability is not so low as to be speculative or so high as to be practically certain: Malec v J C Hutton Pty Limited. As was stated with particular reference to commercial transactions in Sellars v Adelaide Petroleum NL, 'damages for deprivation of a commercial opportunity ... should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued.'"

79 Finally, in McCrohon v Harith [2010] NSWCA 67 McColl JA, with whom Campbell JA and Handley AJA agreed, reviewed the relevant authorities at [96] to [99]. At [98] her Honour, citing Malec at 643 and Sellars at 349, relevantly observed:

"In such cases, the court approaches the hypothetical situation in terms of the degree of probability of it occurring. The court does not require the plaintiff to demonstrate that, to use the present case as a model, there was a 51% chance of the respondents briefing Queensland solicitors if they had been properly advised. Rather the court takes the chance of that having happened into account even if it falls below 50%, as long as it is not "so low as to be regarded as speculative"." [Emphasis added]

The primary judge's findings on whether Prosperity suffered any loss as a consequence of Strathearn's conduct

80 Having referred to the relevant authorities which I have discussed above, and having observed (at [32]) that Prosperity's primary case was that Strathearn would have been able to negotiate an amendment or endorsement to the standard terms of an insurer's existing policy to incorporate an aggregation clause of the type that it sought and which involved the application of only one deductible, the primary judge noted at [33] that Prosperity did not assert that it would have been able to negotiate such an amendment either with QBE or Allianz. At [34] his Honour noted that Prosperity relied heavily on the evidence of Mr Gottlieb the effect of which was that the insurance market for financial planners softened in 2004 and 2005; that insurance companies were willing to negotiate the terms of their policies and that he personally had successfully negotiated improvements in the terms and conditions of professional indemnity insurance policies for clients who provided financial planning services during the period 2005 to 2007, particularly with Dexta, Dual and Lloyds. His Honour then noted Mr Gottlieb's evidence that he had successfully negotiated an amendment to Dexta's standard form aggregation clause with Prosperity so that for the 2007/2008 year it was in a form that had been sought by Prosperity in 2005.

81 The primary judge's findings with respect to this issue are to be found at [35] and [36] of his reasons which it is appropriate to set out in full:

"[35] In my opinion, little weight can be put on Mr Gottlieb's evidence. Dexta was one of the insurers approached by Willis on behalf of Markey to provide cover to Prosperity in the 2005-06 year. The evidence is that Dexta declined to provide cover "due to the high percentage of investment advice". Mr Beech-Jones says that I should discount that evidence because there was no evidence concerning the basis on which Willis approached Dexta or the relationship between Willis and Dexta. He says that instead I should place weight on the fact that in the following year Dexta did provide cover to Prosperity and did so again in the 2007-08 year on terms that involved an amendment to Dexta's standard form aggregation clause. I do not accept that submission. Willis is a well known insurance broker. There is no reason to suppose that Dexta declined to provide cover because of the way the risk was presented or because it was presented by Willis. In my opinion, the best evidence of what Dexta's attitude would have been if it had been approached by Strathearn shortly after 24 February 2005 is the attitude it conveyed to Willis when it was approached by it a short time earlier. It is true that Dexta was prepared to provide cover to Prosperity the following year. However, it is noteworthy that that cover was offered on the basis of the following exclusion:

We shall not be liable to provide indemnity in respect of any Claim against the Insured directly or indirectly arising from any mezzanine finance investments and/or any advice regarding investments related to Westpoint Corporation Pty Ltd ABN 80 009 395 751 or any group, subsidiary or related company of Westpoint Corporation Pty Ltd.

A similar endorsement was included in the 2007-08 policy provided by Dexta, although the exclusion was expressed to be in respect of "promissory note investments" rather than "mezzanine finance investments". If an exclusion in respect of mezzanine finance investments or promissory note investments had been accepted by Prosperity in 2005, it would have had no cover in respect of the Westpoint claims irrespective of the terms of aggregation clause. There is nothing to suggest that it could have obtained cover from Dexta on any other terms at that time. The evidence in relation to the approach by Willis is to the contrary.

[36] The position in relation to Dual and Lloyd's is no different. There is no evidence of whether Dual or one or more Lloyd's syndicates would have offered Prosperity cover in 2005 and there is no evidence of what premium they might have charged, what deductible they might have imposed or the limits of cover they might have been prepared to offer. The evidence of the difficulties Willis had of obtaining cover from other insurers suggests that it would not have been easy for Prosperity to obtain cover from Dual or Lloyd's on any terms. Nor is there any evidence that justifies Mr Gottlieb's view that it would have been possible to negotiate the terms of the aggregation clause. The fact that he was able to do so with Dexta two years later in the circumstances where the policy contained an exclusion in respect of promissory note investments says nothing about what may have been possible with other insurers at a different time absent such an exclusion. That is particularly so having regard to the time available. On Prosperity's case, once it was informed of the position under the QBE policy on 24 February 2005, it would have asked Strathearn to locate alternative insurers. Assuming that could have been done, it would then have been necessary to try to negotiate the terms of their aggregation clause. In the meantime, Allianz's policy was due to expire on 25 February 2005. I accept Mr Beech-Jones's submission that it was likely to have been possible to negotiate a further short extension to that policy. However, no evidence was presented from which I would be prepared to infer that Allianz would have been prepared to grant a sufficiently long extension on terms acceptable to Prosperity to permit that to happen, assuming it could happen. In my opinion, any possibility of Prosperity getting the cover that it wanted was merely speculative."

82 At [37] his Honour said:

"The same is true of Mr Beech-Jones's alternative case. That case depends on Dexta agreeing shortly after 24 February 2005 to insure Prosperity on its standard terms. For the reasons I have given, I do not accept that there was a substantial prospect of that happening."

The alternative case to which his Honour was referring was the submission of Mr Beech-Jones (at Black 170) that had it not been possible to obtain a policy from Dexta, Dual or Lloyds containing the aggregation clause sought, and Strathearn had informed Prosperity that they had tried to do so but had been unsuccessful, the inevitable likelihood was that Prosperity would have taken the standard Dexta policy as it contained an aggregation clause which came closest to that sought. However, as I noted at [33] above there was no evidence from Mr Michael Hughes to support any such submission. This aspect of Prosperity's case is therefore analogous to the "no evidence" finding in Gates. Furthermore, it was an aspect of its alternative case which Prosperity was required to prove on the balance of probabilities as it related directly to the issue of causation which turned on what Prosperity would have done, rather than the determination of the value of a lost chance: Sellars at 353, 368.

Prosperity's submissions on the appeal and their resolution

83 Prosperity submitted that the primary judge erred in three fundamental respects. First, his Honour failed to identify the chance or opportunity lost by Prosperity to instruct Strathearn to re-enter the market to negotiate with underwriters so as to obtain the wording of the aggregation clause it sought or to obtain a policy on terms as close to that wording as could be achieved, being that offered by Dexta. Secondly, even if his Honour did correctly identify the relevant lost opportunity, he failed to assess whether there was a one per cent or more chance of Prosperity securing the cover it sought in the market considered as a whole; his Honour therefore erred in concluding at [35] and [36] of his reasons that the chances of Prosperity entering into the desired policy with any relevant insurer was speculative if by that finding he intended to convey that there was less than a one per cent chance of such a policy being offered by at least one insurer. Thirdly, even if his Honour correctly identified the chance lost and applied the correct test to ascertain the value of that lost chance, he made a number of factual errors which led to the erroneous conclusion that Prosperity did not have a substantial prospect of acquiring a policy with the requisite protection.

The first error

84 Prosperity accepted that the authorities supported the proposition that in order for it to recover damages for loss of a chance it must establish on the balance of probabilities first, that Strathearn's breaches caused a chance to be lost and, secondly, that that chance had some value (which was not negligible) according to its prospects of success had negotiations with other insurers in the relevant market been pursued. Once these questions were answered in Prosperity's favour, the actual value of the lost opportunity was to be ascertained by reference to the degree of probabilities or possibilities: Sellars at 355. There was no issue as to the correctness of these propositions.

85 It is true that Prosperity advanced its case at trial upon the basis that as a consequence of Strathearn's breaches, it lost the opportunity to seek the policy it required from the relevant market. However, I do not accept the submission that the primary judge failed to identify the lost chance as being the lost opportunity to actually obtain the policy of the requisite type. His Honour made it clear (at [29] and [32]) first, that Prosperity's primary case was that it would have been able to negotiate an amendment or endorsement to the standard terms of an insurer's existing policy to incorporate an aggregation clause of the type that it sought and, secondly, that it was probable or possible that such negotiations may have been successful. His Honour was conscious of the relevant principles and of the requirement for Prosperity to establish that it would have had "a substantial prospect of acquiring" a policy of the requisite type: Sellars at 368. In my opinion, the first error of the primary judge asserted by Prosperity cannot be sustained.

The second error

86 At [36] of his reasons the primary judge found that there was no evidence that justified Mr Gottlieb's view that it would have been possible to negotiate the terms of the aggregation clause Prosperity required either with Dexta, Dual or Lloyds. His conclusion was that any possibility of Prosperity obtaining the cover it wanted was merely speculative.

87 Prosperity placed considerable reliance upon the passage from the joint judgment of Deane, Gaudron and McHugh JJ in Malec which I have recorded at [64] above to support the proposition that a chance is so low as to be regarded as speculative only if it is less than one per cent. However, in my opinion this would be a misunderstanding of what their Honours were saying. Certainly they regarded a chance as being speculative if it was less than one per cent but they were not in my view laying down some form of standard (one per cent) or benchmark above which a lost chance would not be speculative. Prosperity accepted that this was so.

88 Whether or not a lost chance has some value which is more than just speculative involves an evaluative judgment based on all the circumstances and, in particular, the evidence elicited to support the proposition that the prospects of the chance coming to fruition was sufficient to enable a positive rational assessment of it to be made. It must be remembered that essentially Prosperity's case was that Strathearn could have successfully negotiated with either Dexta, Dual or Lloyds. In particular, its primary submission was that it could have successfully negotiated with Dexta given that Strathearn had obtained professional indemnity cover from Dexta for the 2006/2007 year. Strathearn had approached Dexta for cover for that year as QBE had indicated that it was leaving the relevant market in early 2006.

89 Prosperity's case with respect to Dexta was that because Strathearn was able to effect cover with Dexta for the 2006/2007 year and Mr Gottlieb was able to do so for the following year including an aggregation clause which met the requirements of Prosperity with respect to multiple claims arising out of the failure of a single product, it followed that had Strathearn negotiated with Dexta in February 2005 it would have achieved the same result as it did the following year.

90 The primary judge rejected this argument for the reasons set out at [35]: see [81] above. He was not prepared to place any relevant weight on Mr Gottlieb's evidence that at the relevant time he was able to negotiate amendments to the terms and conditions of standard form policies. That finding is understandable given, first, the generality of Mr Gottlieb's evidence; secondly, the accepted fact that Prosperity did not and could not assert that there was any policy available in 2005 that had an aggregation clause of the type that it sought; and, thirdly, that the examples of the occasions when Mr Gottlieb was able to negotiate an amendment to standard terms and conditions which he identified at par 15 of his first affidavit were revealing in that they did not include any amendment to a standard aggregation clause.

91 The fact remains that Dexta was approached by Willis and declined to provide cover "due to the high percentage of investment advice" which it perceived Prosperity to be providing as part of its financial planning business. His Honour considered that Dexta's response to Willis in early February 2005 and conveyed in the Willis fax was the best evidence of its attitude had it been approached by Strathearn shortly after 24 February. In my opinion this was a finding which was clearly open.

92 Although Mr Stephen Hughes of Strathearn conceded in cross-examination that in 2005 he had successfully obtained professional indemnity cover for financial planners from Dexta, nevertheless his evidence (at Black 105K) was that it was

"all based on offer and acceptance, so they may well have declined some submissions and quoted others."

The evidence established that Prosperity's proposal was one of those which Dexta had declined. This may not be surprising given the concession by Mr Gottlieb (at Black 117U) that in February 2005 Prosperity would have been seen as a complex professional indemnity risk.

93 With respect to the submission based on the professional indemnity cover provided by Dexta via Strathearn for 2006/2007 and via Mr Gottlieb for 2007/2008, in my opinion it was open to his Honour, whilst taking those factors into account, to take the view that they did not throw any relevant light on what Dexta may have done if approached by Strathearn in February 2005 having already declined to provide cover when approached by Willis. This was because each of the policies issued for the 2006/2007 and 2007/2008 years was endorsed with the Westpoint Exclusion. In my view that clearly changed the risk profile of Prosperity compared to what it was in February 2005. Nevertheless Prosperity submitted that at that time insurers other than AIG were not concerned with mezzanine debt investments. However, there was no evidence one way or the other from which it could be determined that Dexta was not concerned about such investments. Even if it is accepted that they were not concerned with such investments in February 2005, that fact makes no difference to the inescapable evidence that it declined to offer cover to Prosperity when approached by Willis.

94 For the foregoing reasons, I would reject so much of the second error asserted by Prosperity with respect to the primary judge's findings at [35] and [36] of his reasons.

95 The second error identified by Prosperity also asserted a failure of his Honour to correctly apply the test for valuing the loss of a chance. It submitted that adopting the meaning of "speculative" articulated in Malec at 643, his Honour's finding that the possibility of Prosperity achieving the cover it sought was merely speculative amounted to a finding that it had a less than one per cent chance of a policy of the desired kind being offered by any one insurer.

96 I have already commented at [87] above upon the inappropriateness of adopting what was said in Malec as providing some form of standard above which a lost chance must be regarded as other than speculative. In the present case there were objective facts such as the contents of the Willis fax with respect, in particular, to Dexta to which the primary judge was entitled to give determinative weight: cf Baiyai Pty Limited v Guy [2009] NSWCA 65 at [56] per Handley AJA (Beazley and Giles JJA agreeing). On the other hand, there was no evidence, direct or indirect, from Mr Michael Hughes or any one else in Prosperity's camp as to whether it would have accepted the standard aggregation clause in the Dexta policy as at February 2005 had Dexta been prepared to offer cover on those terms. However as Dexta was not so prepared it was open to his Honour to find that any further negotiation with Dexta would have been pointless.

97 Prosperity then submitted that the primary judge failed to consider the factual matrix as a whole and should have formed a broad assessment about the likelihood of Prosperity securing cover on the terms it sought or on more favourable terms than those offered by QBE. In my view his Honour considered the totality of the factual evidence. However, he was not prepared to place any weight on the general assertions of Mr Gottlieb in the light of the objective factual material, particularly that relating to Dexta. In these circumstances, in my opinion the criticism of his Honour's approach cannot be sustained.

98 It is true that the Court must make a rational assessment of the value of any lost opportunity. Such an assessment must be made in the light of the evidence and not simply as a matter of guess-work or conjecture which is in conflict with evidence which is otherwise found to be acceptable. In this context Prosperity submitted (at Orange 44) that it could not have been reasonably expected to have adduced evidence from a series of underwriters about whether they would have underwritten a policy on the terms sought by Prosperity had they been approached to do so by Strathearn in February 2005. Given Prosperity's primary reliance upon Dexta and, in particular, upon the fact that Dexta provided professional indemnity cover to Prosperity for the 2006/2007 and 2007/2008 years, I see no reason why it could not have been reasonably expected to have adduced evidence at least from that organisation.

99 However, no point was taken at trial by Strathearn that Prosperity had failed to call evidence from a representative of Dexta. Notwithstanding Prosperity's submission on the appeal to which I have referred, it would be inappropriate to adopt a Jones v Dunkel type inference based on that failure if only because there was no evidence from which it could be inferred that Dexta was at the time of the hearing at first instance Prosperity's professional indemnity insurer. It is sufficient, therefore, to simply observe that apart from the objective fact that Dexta provided cover for the years referred to, there was no other positive evidence to support Prosperity's case that there was a chance which was more than speculative that Dexta would, had it been approached by Strathearn, have changed its mind from what it had informed Willis and agreed to provide professional indemnity cover to Prosperity for the 2005/2006 year at least on the terms of its standard policy.

100 There is one further matter that justifies mention. Even if there was a chance that Dexta may have offered cover to Prosperity notwithstanding that it had informed Willis that it declined to do so, there is a real question as to the terms upon which it would have been prepared to, in effect, change its mind. For instance, would it have agreed to provide cover but at an increased premium? If so, would Prosperity have been prepared to pay it? On the first question there was no evidence. On the second there was.

101 Thus in response to an email from Nicole Dennis of Strathearn dated 16 February 2005, Mr Wagstaff of Prosperity emailed (at Blue 2/694):

"I have reviewed our current policy and each of the exclusions below are included in similar words as an endorsement. Certainly some of these endorsements were not required by QBE (say) we would regard their product as superior. Frankly though, we are at least as concerned about the premium cost than the quality of cover as, with the checks and balances we have in place, we do not believe we have great exposure to large claims." [Emphasis added]

102 Mr Waggstaff's email made it clear that Prosperity was concerned about the cost of premiums. As objective evidence, it militates strongly against Prosperity's submission recorded at [82] above that it would inevitably have accepted cover from Dexta even on its standard terms.

103 For the foregoing reasons, I am unable to accept that the primary judge erred in the second respect alleged.

The third error

104 Prosperity asserted that as a consequence of a number of errors of fact, the primary judge erred in finding that there was no substantial prospect of Prosperity being offered a policy on the terms it sought. Prosperity's statement of disputed factual findings (purportedly filed pursuant to UCPR r 51.36(2)), may be summarised as follows together with my comments thereon:

(a) Error: The primary judge gave insufficient weight to the fact that its current insurance broker, Mega Capital (Mr Gottlieb), placed Prosperity's professional indemnity insurance for the 2007/2008 policy year with an aggregation clause of the nature of that sought by Prosperity for the 2005/2006 year.

Comment: His Honour dealt with this argument at [35] of his reasons. He discounted the weight to be attached to Mr Gottlieb's evidence first, because Dexta in February 2005 had expressly declined cover when it was sought by Willis "due to the high percentage of investment advice" and secondly, due to the inclusion of the Westpoint Exclusion which, inferentially, significantly changed Prosperity's risk profile. In my view, therefore it was open to the primary judge to discount the weight to be given to the matter relied on.

(b) Error: The primary judge placed undue emphasis on the fact that the Dexta policy for the 2007/2008 year negotiated with Mr Gottlieb contained the Westpoint Exclusion which, had it applied to the 2005/2006 policy year, would have resulted in Prosperity having no cover in respect of the Westpoint claims irrespective of the terms of the aggregation clause.

Comment: In my view there is no merit in this submission as his Honour was simply stating the obvious.

(c) Error: As at February 2005 the Westpoint collapse had not occurred. Apart from AIG, the evidence of Mr Gottlieb was that there was no substantial concern on the part of insurers with regard to mezzanine finance products as at February 2005. Furthermore, there was no evidence sufficient to found a conclusion that the amendment to Dexta's aggregation clause negotiated by Mr Gottlieb for the 2007/2008 policy year was in any way linked to the exclusion of cover for promissory note investments. Mr Gottlieb was not asked whether there was any link and, therefore, it was not open to the primary judge to infer that there was.

Comment:

• In the passage from the cross-examination of Mr Gottlieb which I have recorded at [58] above, he acknowledged that an insurer negotiating to amend its standard policy wording with respect to a financial planning client would want to have detailed information concerning the nature and the risks involved in that client's business. It was a matter of common knowledge that the attitude of an insurer not only to negotiations to amend one or more of its standard terms and conditions but also whether or not to provide cover, was very much dependent, amongst other things, upon the proposed insured's risk profile.
• The evidence in the present case (referred to by the primary judge at [9] and [11] of his reasons) was that approximately 155 to 165 clients of Prosperity invested in one or more of the three Westpoint mezzanine debt products which Prosperity recommended. Those investors suffered large losses when the Westpoint Group collapsed to the extent that the total amount claimed against Prosperity by those clients was approximately $17 million. In these circumstances, it was open to his Honour to infer that the reason why Dexta, having declined to provide cover to the 2005/2006 year, was prepared to do so for the two following years was because of the inclusion of the Westpoint Exclusion which, by its very nature, would have changed, perhaps radically, Prosperity's risk profile.
• In my view, Prosperity's submission that there was no evidence of any link between the amendment to the aggregation clause negotiated by Mr Gottlieb on the one hand and the Westpoint Exclusion on the other, is contrary to commercial commonsense. Furthermore, if Prosperity wished to negative that link, the onus lay upon it to do so by calling appropriate evidence. It did not do so.

(d) Error: The primary judge ignored the fact that the amendment to the aggregation clause negotiated by Mr Gottlieb for the 2007/2008 year was subsequently incorporated into the Dexta standard policy wording which standard policy did not contain the Westpoint Exclusion.

Comment:

• It is true that the primary judge did not refer to Dexta's 2007/2008 standard policy wording. It is also true that clause 2.3 of Dexta's 2008/2009 standard policy contained a provision to the effect that where a financial product failed and that failure resulted in more than one Claim, the Limit of Liability and Deductible would apply as if there was one Claim.
• However, I would not accept Prosperity's submission that there was no Westpoint Exclusion associated with the 2008/2009 Dexta policy. It is true that there was no such exclusion clause included in its standard terms and conditions but that is not surprising. In the 2006/2007 and 2007/2008 policies, the Westpoint Exclusion was a special endorsement to the particular policies which were issued to Prosperity in respect of those years. Accordingly, there was no basis upon which it could be found, given the inclusion of the Westpoint Exclusion in the 2006/2007 and 2007/2008 policies, that such an exclusion clause would not have been endorsed upon a Dexta policy issued to financial planners with respect to the 2008/2009 year.
• Commercial commonsense would indicate that, given the acceptance by Dexta of the change to its claims aggregation clause in its standard 2008/2009 policy, the inclusion of a Westpoint Exclusion as an endorsement to such a policy issued to financial planners would have been inevitable absent a substantial increase in premium to cover the risk if such an exclusion clause was not so endorsed or unless mezzanine finance or promissory note investments had ceased to be part of the relevant insured's business.

(e) Error: The fact that Mr Gottlieb was able to negotiate for the 2007/2008 year an aggregation clause with Dexta of the type sought by Prosperity in 2005 in what he referred to as a hardened market at that time supported the inference that Dexta was not against the type of aggregation clause sought by Prosperity for the 2005/2006 year. Further, the preparedness of Dexta to include such an aggregation clause after the collapse of the Westpoint Group was a strong objective indicator of the likelihood of it accepting such a risk prior to that collapse.

Comment:

• The primary judge rejected that submission and in my view it was open to him to do so for the reasons that he gave at [35]. The established fact was that Dexta declined cover when asked by Willis to quote on Prosperity's proposal "due to a high percentage of investment advice". In his evidence in chief Mr Gottlieb was asked whether in his dealings with Dexta (presumably in 2005) it had ever declined to provide cover to financial planners because of the high percentage of investment advice. His response was: "Not that I recall. They provided, they were one of the markets for financial planners so while they, they would have therefore provided quotes to financial planners that had 100 percent advice, that's what they do."
• The difficulty with this evidence is that it is contrary to the fact, relied upon by the primary judge, that Dexta, when asked by Willis to quote on Prosperity's business, declined to do so. The evidence before the primary judge included a blank copy of Dexta's proposal form as well as its Financial Planner's Addendum. Paragraph 4 of the latter required the applicant to indicate the percentage breakdown of its gross income (both fees and commissions) between five different activities of which one was "Financial Planning".
• Paragraph 5 requested advice as to the percentage of the client's investments according to "the following breakdown" which listed nine specific forms of investments, the tenth being "Other (please provide full details)". It was accepted that none of the nine identified investments included mezzanine debt investments. In its proposal form, Question 13(a) required the proposer to describe the precise nature of its activities or business. Paragraph 13(b) required the proposer to list the categories of activities or business described in Question 13(a) and to indicate the approximate percentage of its income derived from each category.
• Had Prosperity been required to complete those forms in February 2005 it no doubt would have been required to list under Question 13(b) the percentage of its income derived from the provision of investment advice. An email from Mr Wagstaff to Messrs McKeown and Michael Hughes dated 11 February 2005 enclosed the offer from Allianz to renew Prosperity's professional indemnity insurance for the 2005/2006 year. Mr Wagstaff stated that Markeys (its then broker) advised that they had put Prosperity's proposal to seven underwriters but only Allianz had come back with an offer. The summary of the terms of that offer (Allianz having been Prosperity's professional indemnity insurer for the previous two years), revealed that the declared turnover for the ensuing 12 months the subject to the proposal was $9.55 million and that the excess or deductible for "investment advice" was $80,000.
• Given the evidence of Mr Michael Hughes at Blue 1/7E-G, to which I have referred at [56] above, the inference is available that, indeed, the provision of investment advice comprised a high percentage of Prosperity's financial planning services. The number of clients (155 to 165) which it advised to invest in the three Westpoint mezzanine debt syndicates would bear this out. In the foregoing circumstances the primary judge was in my view entitled to take Dexta's inability to assist due to the high percentage of investment advice, at face value and to conclude that the chance of Prosperity being offered cover by Dexta with the aggregation clause it required was "merely speculative".

(f) Error: There was no basis upon which the Willis fax summarising the responses of the ten underwriters including Dexta should have been accepted as a definitive indication of the likelihood of Strathearn, or another broker, being able to negotiate cover on the terms sought by Prosperity. An attempt was thus made during oral argument to support the proposition that the responses set out in that fax may not have been accurate. This attack was based upon the response of CGU that it was "unable to assist due to the fee size of the entity". At Blue 1/318 there is an email from the underwriter at CGU to Strathearn dated 4 February 2005 with respect to providing cover to Prosperity. The email states: "We regret to advise that we are not able to provide terms in this instance as the risk falls outside of our underwriting guidelines. This is mainly due to proposer not complying with the Securitor Approved Products as well the high volume of claims notifications".

Comment:

• The proposal form dated 3 February 2005 completed by Prosperity with respect to the financial planning side of its business gave a negative answer to the question whether it complied with the requirement that the products it recommended were Securitor Approved Products and gave a current estimate of gross income/fees of $5.95 million an amount which was not inconsiderable. Notwithstanding the email of 4 February, it cannot be said that the reason attributed by Willis to CGU in the Willis fax for declining to quote was false or even unreliable. In any event, the CGU email cannot of itself throw doubt on the response attributed to Dexta in the Willis fax as it finds independent support in the evidence to which reference has been made.
• In my opinion, therefore, there was no reason why, and no evidence which supported the proposition that, the primary judge should not have taken the responses in the Willis' fax at face value.

(g) Error: The primary judge ignored the following additional evidence which supported the proposition that Prosperity's chance of securing cover on the terms it sought from the market for the 2005/2006 policy year was at least one per cent:

• Mr Stephen Hughes (of Strathearn) gave evidence under cross-examination that he only approached QBE, AIG and CGU for professional indemnity insurance quotations on behalf of Prosperity relevant for the 2005/2006 year and did not approach Dexta, Dual, Allianz, Lloyds or Macquarie Underwriting. However Willis did approach those underwriters other than Dual and Lloyds but without success. Mr Gottlieb at par 17 of his second affidavit simply asserted that Dual was another professional indemnity insurer with which he had dealt prior to and during 2005. A copy of the standard Dual policy was in evidence and it contained the following clause under the heading "Deductible":

10.2(f) For the purposes of determining the DEDUCTIBLE applicable to CLAIMS covered by the POLICY:

1. All CLAIMS which arise from acts, errors or omissions which are the same or related to each other will be regarded as separate Claims;

2. Where a Claim is made by more than one claimant, each claimant shall be regarded as having made a separate CLAIM."

Comment:

• Such a clause would not necessarily have been to Prosperity's liking. When limited to the definition of "Claim" (see [48] above) it gave rise to an ambiguity which may have provided it with less cover than the other standard aggregation clauses or their equivalent in the other policies to which I have referred. There was also in evidence Dual's Financial Planning Principals Group Addendum 2005. Section 5(b) listed a number of client investments none of which, apparently, would have covered mezzanine debt investments. However, the evidence relating to Dual simply went no further than that to which I have referred. In these circumstances, as with Lloyds, it was clearly open to his Honour to find (at [36]) that the evidence of the difficulties Willis had of obtaining cover from other insurers suggested that it would not have been easy for Prosperity to obtain cover from Dual or Lloyds on any terms.
• Reference was then made to the evidence of Mr Stephen Hughes that from time to time he did negotiate specific amendments to an insurer's standard policies for his clients including for financial planners. The point is then made that no attempt was made by Mr Hughes to negotiate on behalf of Prosperity. I do not consider that this advances Prosperity's case.
• Emphasis was placed upon the fact that Mr Gottlieb was a director of one of the largest providers of insurance broking services to the financial planning industry in Australia and that approximately 25 percent of his clients were financial planners. It was then asserted that his evidence was that between 2004 and 2007 insurance companies were generally willing to negotiate, and in some cases make substantial concessions, with respect to both the premiums payable under insurance contracts entered into with financial planners and the terms and conditions contained within those contracts. Reliance was placed upon par 15 of Mr Gottlieb's first affidavit which I have recorded at [38] above. Ultimately, however, reliance was simply placed upon Mr Gottlieb's opinion that he personally negotiated with insurers so as to obtain improvements to policy cover for financial planners as at February 2005. Again, in my view that fact does not advance Prosperity's case with respect to those insurers which Willis had approached and, in particular, Dexta upon which Prosperity placed its primary reliance as being the insurer most likely to have offered the cover that it sought.

(h) Error: The primary judge failed to take sufficient account of the significance to Prosperity of the inclusion of an appropriate aggregation clause. His Honour acknowledged (at [33]) that the issue of the effect of the aggregation clause was of obvious importance to Prosperity but then so was price an important factor. It was submitted that the objective circumstances supported the inference that Prosperity was likely to pay an additional premium so as to secure the cover it sought.

Comment:

• There was no evidence to support this submission. In particular, there was no evidence from either Mr Michael Hughes or Mr McKeown who gave evidence on behalf of Prosperity that they would have countenanced a higher premium of any significance in order to obtain the cover it sought. The only evidence is that in the email of Mr Wagstaff to which I have referred at [101] above and, as observed at [102] above, it militates against Prosperity's contention.
• Further, as I have already noted, there were no policy wordings available in the professional indemnity insurance market for financial planners in February 2005 that provided for one deductible for unconnected acts of negligence or where the act of negligence was the provision of financial advice to 100 or more clients in relation to the one failed investment. If Prosperity was to obtain such a cover it would require an insurer to amend its standard aggregation clause or its equivalent.
• It would be proper to infer that providing such an amendment would come at a price. So much was acknowledged by Mr Gottlieb in the following exchange (at Black 117E-J):

"Q. You are not able to give any assistance to the Court as to whether there was any insurer as at March 2006 other than Dexta who had been prepared to quote on PI insurance for Prosperity, you just don't know, do you?

A. There were a few markets at the time who would provide quotes to accountants and financial planners or one or the other. I can name some of them for you. Whether they would have provided cover at the time I am not sure and I guess, you know, I kind of have the view in those situations there is a price for a risk and therefore sometimes some insurers who wouldn't quote something may quote it because the stress, they can get the price and conditions that they want."

• If the risk to the insurer is increased, commercial commonsense dictates that that will come at a price. There was no evidence that Prosperity was prepared to accept such a price. Accordingly, the submission that Prosperity was likely to pay an additional premium so as to secure the cover it sought is unsupported by any evidence and, given that it was price sensitive, if anything the evidence points the other way.

105 I have not referred to the evidence of Mr Ellison, the expert called on behalf of Strathearn. The primary judge did not refer to his evidence, no doubt on the basis that he was not prepared to give any relevant weight to that of Mr Gottlieb. Accordingly, the evidence of Mr Ellison took the matter no further. I take the same view. For the reasons I have given, in my opinion none of the submissions advanced by Prosperity can be sustained. No error on the part of the primary judge has therefore been demonstrated. There was more than sufficient evidence to warrant his Honour's conclusion that the possibility of Prosperity obtaining the cover it sought was so low as to be no more than speculative. The matters upon which Prosperity relies to undermine this conclusion were not supported by any evidence and what evidence there was, particularly in relation to Dexta, supported the primary judge's conclusions.

106 It follows in my opinion that Prosperity's challenge to the primary judge's finding that it sustained no loss with respect to any of the causes of action upon which it sued Strathearn must fail.

Prosperity's appeal with respect to indemnity costs

107 In the costs judgment his Honour dealt with the issue of indemnity costs. On 28 July 2009 Strathearn offered to compromise Prosperity's claim by offering the amount of $10,000 plus costs to be agreed or assessed. As his Honour noted at [2] of that judgment, there was no dispute that the offer complied with the requirements of UCPR r 20.26. Nor was there any dispute that Strathearn did better than the offer. Accordingly, Strathearn was entitled pursuant to UCPR r 42.15(2)(b) to its costs on an indemnity basis from the day after the offer was made "unless the court otherwise orders".

108 The only basis upon which it was asserted that the court should otherwise order was if his Honour was of the view that Strathearn's offer was not a genuine offer of compromise: Uniting Church Property Trust v Takacs (No 2) [2008] NSWCA 172 at [10]-[15]; Dean v Stockland Property Management (No 2) [2010] NSWCA 141 at [14]; Miwa Pty Limited v Siantan Properties Pty Limited (No 2) [2011] NSWCA 344 at [9]; Barakat and others v Bazdarova [2012] NSWCA 140 at [51(e)].

109 The foregoing authorities establish that a genuine offer of compromise must involve "a real and genuine element of compromise". In particular, the offer must not be derisory requiring, in effect, capitulation by the party to whom it is addressed. However, it may be modest but still contain a real element of compromise.

110 The maximum potential liability of Strathearn was, as now accepted by Prosperity, $680,000. In determining whether an offer of $10,000 involved an element of compromise it was appropriate for his Honour to take into account, as he did at [10] of the costs judgment, that Prosperity's claim was weak particularly because it could not point to the existence in the market at the relevant time of a policy that would have provided the cover it sought.

111 On the hearing of the appeal Prosperity relied solely upon its written submissions with respect to the issue of indemnity costs and did not seek to add to them in oral argument. In those submissions it merely repeated its contention that the offer was not a genuine offer of compromise in that Strathearn had not really given something away: Hobartville Studd Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358 at 368; Bennette v Cohen [2009] NSWCA 162 at [28]. However Hobartville involved a successful plaintiff with a strong case not making in any real sense a discount for its claim for relief. In the present case Prosperity's claim was weak. Its claim was based on a lost opportunity or chance which, by its very nature, was unlikely to have resulted, even if it had succeeded, in Prosperity obtaining judgment for the full amount of its claim. In fact on the hearing of the appeal, it sought only one-half of its claim, namely, $340,000. One percent of that figure is $3,400. The offer of compromise of $10,000 is roughly equivalent to a three percent chance of Prosperity achieving the outcome it desired. In offering the amount of $10,000, in my view Strathearn, given the strength of its case in the light of the evidence, did give something away. It follows that its offer was relevantly genuine.

112 Accordingly, I would reject Prosperity's challenge to the primary judge's order for indemnity costs.

Conclusion

113 In my view each of the challenges by Prosperity to the primary judge's findings have failed. I would therefore propose that the appeal be dismissed with costs.

**********

Decision last updated: 27 June 2012