NIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KirBY P, MAHONEY and HANDLEY JJA 24 May 1994, 22 December 1994 [1994] NSWCA 365 INSURANCE — insurers' duty of utmost good faith — lawyers retained by insurer conduct proceedings — possible conflict of interest and duty not drawn to notice of insured — whether estoppel by representation — held: There is. LEGAL PRACTITIONERS — conflict of interest of duty — solicitors retained by insurer- duty to scrutinise and alert insured as to any possible limitation of indemnity provided. ESTOPPEL- conventional estoppel — estoppel by representation — insurer conducts legal proceedings — held: estopped from denial of indemnity. INSURANCE — employers' indemnity — workers' compensation extension — claim by worker against occupier of building in respect of injury received when he falls in lift — fall accepted to be the consequence of the occupier's negligence — occupier joins employer as third party claiming indemnity — indemnity claimed is based upon (a) joint liability of employer and occupier as joint tortfeasors; and (b) provisions of a lease affording occupier complete indemnity by contract in respect of claims of injury to employees of employer — trial judge (Madgwick DCJ) finds in favour of worker against occupier but in favour of occupier against employer under terms of lease — insurer denies indemnity under workers' compensation policy on ground that the employer's liability rests solely on contract to which the insurance did not respond — primary judge (Windeyer J) rejects claims based upon (i) terms of policy; (ii) estoppel; and (iii) election by insurer to provide indemnity by conducting employer's defence INSURANCE — duties of insurer — duty of utmost good faith — reciprocal duty of insurer and insured — limited liability of insurer under policy of indemnity — insurer exercises right to take over defence of insured — fails until during trial to bring to insured's notice relevant limitation of indemnity and risk, in the pleadings and relevant facts that insured will be exclusively liable to meet claim without indemnity — possible conflict of interest and duty of insurer's retained solicitors — failure to bring conflict to notice of insured LEGAL PRACTITIONERS — conflict of interest and duty — obligation to avoid — duty of frankness to client — legal representatives retained by insurer — failure to alert insured of conflicting claims against it under one only of which the insurer would be liable to indemnify the insured — duty of candour and good faith by insurer to insured ESTOPPEL — conventional estoppel — estoppel by representation — insurer conducts legal proceedings WORDS AND PHRASES — "iability independently of the Act" Held: 2 UNREPORTED JUDGMENTS (1) The claims for liability of the insurer based upon the terms of the extended coverage of the workers' compensation policy issued by it to the employer were rightly dismissed by the primary judge; (2) Although the estoppel relevant to the facts may more properly have been one of conventional estoppel, the representational estoppel alleged was made out and detriment to the employer was shown in the failure of the insurer earlier to alert the insured employer of the risk that its indemnity would not extend to the employer in the circumstances which ensued; (3) The claim based upon election did not require to be determined. Austral Standard Cables Pty Ltd v Walker Nominees Pty Ltd (1992) NSW Conv R55, 630 (CA) referred to; (4) Appeal allowed and declaration made that insurer was liable to indemnify the employer on the basis of estoppel. Held: Insurer liable to insured not on the basis of policy but on the basis of representational estoppel. Held: Insurer liable to insured on the basis of estoppel by representation - detriment proved is deprivation of opportunity to withdraw proceedings or negotiate favourable settlement. Held: estopped from denial of indemnity. Hansen v Marco Engineering (Aust) Pty Ltd [1948] VLR 198 (SC); CE Heath Underwriting Pty Ltd v Campbell [1992] 1 VR 386 (CA) considered. Workers Compensation Act 1987. ORDERS 1. Appeal allowed; 2. Set aside the judgment of Windeyer J; 3. In lieu thereof, declare that the plaintiff Nigel Watts Fashion Agencies Pty Ltd is entitled to indemnity from the defendant GIO General Ltd in respect of a judgment of $37,274 and costs ordered by his Honour Judge Madgwick in the District Court proceedings number 791 of 1992 between Nigel Kevin Watts and John Shorter Pty Ltd; 4. Order that the respondent pay to John Shorter Pty Ltd the judgment of $37,274 and costs ordered by his Honour Judge Madgwick in the said proceedings; 5. Order that the defendant pay the costs of the proceedings in the Equity Division; and 6. Order that the respondent pay the costs of the appeal but have, if otherwise so qualified, in respect thereof, a certificate under the Suitors' Fund Act 1951. Kirby P This appeal from the Equity Division of the Supreme Court (Windeyer J)concerns an aspect of the duty of good faith owed by an insurer to an insured. It is well known that the insured owes to the insurer a duty to act in the utmost good faith (uberrimae fidei). The reciprocal duty, which is also a feature of insurance contracts, is less well appreciated, as the facts of the present case demonstrate. AN INSURER DEFENDS PROCEEDINGS FOR AN INSURED GIO General Ltd (the insurer) issued a workers' compensation policy in the ordinary form to the appellant, Nigel Watts Fashion Agencies Pty Ltd (the employer). By its policy, the insurer promised to pay compensation for which the employer was liable under the Workers Compensation Act 1987. The policy had the extension usual at the relevant time: "\.. Or to pay any other amount in respect of [the Employer's] liability independently of the Act for any injury to any such person THEN, and in every such case, the insurer shall indemnify the Employer against all such sums for which the Employer shall be so liable..." The employer carried on its business in a building in the city of Sydney owned and occupied by John Shorter Pty Ltd (the occupier). The employer leased certain premises on the fifth floor of the occupier's building. It provided stairs and elevators to permit access to the leased premises. URJ NIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD (Kirby P) 3 Mr Nigel Watts (the worker) was an employee of the employer. He was also an officer of the employer and apparently its principal. In some of the documentation he was described as a "partner". In the course, and for the purposes, of his employment he required daily access to the premises leased by the employer in the occupier's building. On 17 May 1991 at about 7.45 pm he was injured when he was getting into an elevator on the fifth floor of the building. It seems that the elevator stopped at a point several centimetres higher than the floor landing. The worker stumbled as he entered the elevator. He fell heavily striking his head on a wall. He was 71 years of age at the time of this accident. As a result of his fall he fractured his hip. Some "impressive hardware" was inserted in the hip to give him a measure of stability. His recovery was impeded by an unrelated but debilitating condition of prostate cancer which has required extensive chemotherapy. The worker recovered benefits from his employer under the Workers Compensation Act. However, he then sued the occupier in the District Court claiming damages at common law for negligence. The occupier, in turn, issued a third party notice joining the employer as third party to the worker's proceedings. By the third party notice, the occupier alleged an entitlement to a complete indemnity or, in the alternative, contribution pursuant to s5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946. It based this claim upon two grounds: 1. The breach by the employer, as third party, of the duty which it owned to the worker to provide him with a proper and safe place of work and safe access to and egress from such place of work; and 2. The express terms of the lease between the occupier and the employer. THE PRIMARY JUDGE UPHOLDS THE WORKER'S CLAIM AND THE CLAIM FOR INDEMNITY The proceedings came before Madgwick DCJ. His Honour found negligence on the part of the occupier. This finding is not now in dispute. He also found that the worker was entitled to damages on the basis of the occupier's negligence. This finding is likewise not challenged. However, Madgwick DCJ found that the occupier had proved contributory negligence on the part of the worker. Accordingly, he reduced the damages by 15 per cent for that purpose. The total damages judgment was found in the sum of $43,146. When 15 per cent was deducted, and interest of $600 was allowed on past economic damages, that left a judgment for the worker against the occupier in the sum of $37,274. That judgment was not the subject of appeal. Madgwick DCJ then turned to the third party claim. He found that the employer was not in breach of the duty of care which it owed to the worker as its employee. However, he held that the employer was obliged to indemnify the occupier upon the terms of the lease by which the employer was permitted to occupy the leased area of the fifth floor of the occupier's building. That lease contained the following rather draconian provision: "5. The Lessee further covenants with the Lessor as follows: (cc) INDEMNITY The Lessee will and does hereby indemnify the lessor from and against all actions claims demands losses damages costs and expenses for which the lessor shall or may be or become liable in respect of or arising from: (i)... (ii)... 4 UNREPORTED JUDGMENTS (iii) Loss damage or injury from any cause whatsoever to... person caused or contributed to by the use of the demised premises or the building by the Lessee or any servant invitee agent subtenant or other person as aforesaid; (iv) Loss damage or injury from any cause whatsoever to... person within or without the demised premises or the Building occasioned or contributed to by any act omission neglect breach or default of the Lessee or any servant invitee agent contractor or subcontractor subtenant or other person as aforesaid. " The "building" referred to in para(iv) is defined in the interpretation clause (CL8): "(d) "he "Building" (where the demised premises do not comprise the whole of the structures on the land described in the Lease) shall mean where appropriate the structure and curtilage of which the demised premises form part.": This is an exceptionally widely drawn indemnity. It purports to shift to the employer all liability for any injury to the person of an employee ("a servant") including any employee who suffered loss damage or injury from any cause whatsoever to his person caused or contributed to by the use of the occupier's premises or building. Madgwick DCJ held that it was clear that the employer was obliged to indemnity the occupier under the lease in respect of the amount of the judgment which the worker recovered against the occupier. Accordingly, he gave judgment in the third party claim against the employer. There was no appeal by the employer from this judgment which therefore stands. The occupier sought to recover from the employer the amount of the judgment which it had paid to the worker. The employer claimed indemnity from the insurer in respect of that judgment. The insurer denied indemnity. The occupier, meanwhile, took steps seeking to wind up the employer for non-payment of the judgment in the third party proceedings. This led to proceedings in the Equity Division for an injunction to restrain the winding up of the employer until the resolution of the employer's claim against the insurer. The injunction was granted. The winding up proceeding therefore lies in abeyance pending the resolution of the employer's claim against the insurer. Windeyer J at first instance dismissed the employer's claim for indemnity. From his Honour's order of dismissal, the employer has appealed to this Court. It rests its claim upon three bases - contract, election and estoppel: 1. The promise of the extended term contained in the workers' compensation policy; 2. The fact that the insurer, which took over the defence of the employer's interests in the third party proceedings, by its conduct of the employer's defence, had elected to indemnify the employer as its insured; and 3. The fact that the insurer was, in the facts and circumstances proved, estopped from denying indemnity to the employer having (as it was alleged) represented that it would provide indemnity. Upon the basis of that promise, it was argued the employer acted to its detriment. THE POLICY DOES NOT IN ITS TERMS PROVIDE INDEMNITY The first argument of the employer can quite readily be dismissed. It was put to the Court with proper diffidence and brevity by counsel for the employer. The argument was that the extended terms of the promise "to pay any other amount in respect of [the employer's] liability independently of the Act for any injury to [a worker]" was wide enough to cover the liability in respect of the injury to the worker in respect of which the employer was liable as third party. URJ NIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD (Kirby P) 5 This claim must be rejected. The phrase in the policy is of long standing. Its purpose is plain. It is to provide indemnity to an employer for common law liability to a worker qua worker. It is not to provide indemnity to the employer in respect of every other way in which the employer might be liable to other persons, as by a promise in a contract of lease. The judgment against the employer as third party rested entirely upon the employer's contractual liability under the lease. It was based on the exceptional provisions of that document. The workers' compensation policy issued by the insurer to the employer did not respond to such a liability. For the employer it was put that the outcome might not have been the "aspiration" of the drafter of the workers' compensation policy but liability arose nevertheless from the words actually used in the policy which would be construed in favour of the insured. I do not agree. So to hold would extend unreasonably, and beyond its purpose, the indemnity provided by the insurer under the workers' compensation policy. The employer, alternatively, argued that an insured, reading the document in circumstances analogous to the one in which the present insured found itself, could easily be lulled into a false confidence that the insurer which had taken over the defence of the proceedings would indemnify it in respect of the liability independently of the Workers Compensation Act, such as the occupier asserted in its third party notice addressed to the employer. This might be a consideration relevant to the case framed in terms of estoppel. But it cannot be permitted to distort the plain language of the insurance policy, understood in the light of its purpose. The first basis of challenge to the decision of Windeyer J must therefore be rejected. THE CLAIM OF ESTOPPEL AT FIRST INSTANCE It is convenient to deal next with the employer's claim that the insurer was estopped, in the circumstances, from denying indemnity for the liability found against it in the third party proceedings. The workers' compensation policy issued by the insurer to the employer contained the usual provision in respect of the defence of proceedings: "4. The Insurer shall in respect of anything indemnified under this policy, including the bringing, defending, enforcing or settling of legal proceedings for the benefit of the Insurer, be entitled to use the name of the Employer. The Employer shall give all necessary information and assistance and forward all documents to enable the Insurer to settle or resist any claim as the Insurer may think fit. " The occupier filed its third party claim against ie employer on 9 October 1992. On 13 October 1992, it caused its solicitors to send a letter to ie employer serving the third party notice. The sealed copy of the notice was served on ie worker's solicitors on 15 October 1992. The following day they caused copy of the notice to be sent to counsel advising the worker seeking advice on behalf of the employer. Because of the comparatively small size of the employer and the role of the worker as an officer and principal of the company, this course of conduct is unsurprising. On 16 October 1992, counsel for the worker advised that the third party notice should be sent to the workers' compensation insurer of the employer. Again, this was sensible and reasonable advice given that the first basis of claim in the third party notice was stated to be upon the footing that the employer and the occupier 6 UNREPORTED JUDGMENTS were joint tortfeasors, in that the employer was liable to the worker on the basis of its negligence (presumably in failing to provide him with a safe place of and egress from work). On 27 October 1992, pursuant to this advice, the third party notice was sent by the employer to the insurer with instructions to file a defence. The letter said: "We note that the Government Insurance Office is the third party's workers' compensation insurer and accordingly a defence to the third party notice should be filed as a matter of urgency... [It] should be filed by 12 November 1992. Please attend to this matter as a matter of urgency." I reproduce the terms of this letter as the insurer sought to take comfort from them. On 4 February 1993 a defence to the third party notice was filed on behalf of the insurer in the name of the employer. It was filed by solicitors retained by the insurer. The solicitors did not (nor did the insurer) then draw to the attention of the employer, as the insured, the limit of the insurer's indemnity as relevant to, the dual basis upon which the third party notice claimed indemnity or contribution. Nor did the insurer or its solicitors warn the employer of the risk that the employer would be denied indemnity if the basis of recovery against it were ultimately held to be the second claim (framed in terms of the contract of lease) and not the first claim (framed in terms of liability in negligence as a joint tortfeasor). Before Windeyer J, the estoppel relied upon for the employer was an estoppel by representation. No case was presented that the facts lent themselves to classification as an instance of conventional estoppel, ie one arising from two parties proceeding upon a common assumption accepted by both and subsequently shown to have been wrong. The reality of the present case would appear to be that neither party, nor any of those acting for them, turned their attention to the problem which is now presented. At least none did until virtually the very last moment. Only then did the problem loom up as an unexpected iceberg in a dark litigious sea. Had only the parties turned their attention to the pleading of the third party notice and the terms of the insurance policy, comparing one to the other, the correct course would have been obvious. After all, the problem presented was not entirely unique to the field of insurance. It is by no means unknown for insurance policies to provide limitations which expose the insured to the risk of an obligation itself to find part of any judgment recovered. In such circumstances, it is usual (the insurer exercising the right provided by the policy to take over the defence in the name of the insured) to consult most closely with the insured or its separate legal advisers to ensure that the separate position of the insured and insurer are taken into account in the conduct of the litigation. The insurer's legal representatives may, by the contract, have the carriage of the proceedings. But that entitlement does not absolve them from their duties as legal practitioners acting in a particular interest. Nor does it absolve the insurer of the obligation of good faith to the insured and specifically the obligation to avoid the giving of instructions to the solicitors which would involve a conflict of interest and duty. Proper lawyerly attention to the terms of the third party notice and a reflection upon the extremely wide language of the indemnity provided in paraS(cc) of the lease, would have driven those retained on behalf of the employer by the insurer had they been alert to warn the employer of the risks which it ran in the third party proceedings. It seems clear enough that this was not done. The problem which lay in waiting for the judgment of Madgwick DCJ in the third party URJ NIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD (Kirby P) 7 proceedings was simply not noticed until the trial. Only then did counsel for the employer focus his attention on the issue. Only then did he alert counsel for the worker about the risk which was run. That risk was a real one. It was of considerable importance to the worker. If, in fact, the occupier could effectively recover a complete indemnity from the employer, the judgment in favour of the worker would eventually have to come out of the company in which the worker is a director and the effective principal. In short, the worker's judgment would come, in whole or (as I would infer) in large part, out of the worker's own pocket. The Court is not in these proceedings looking at the matter in terms of the obligations of the legal practitioners who acted for the employer, taking their instructions from the insurer. They are not parties to the present proceedings. They have not been heard in respect of any accusations of default on their part. Accordingly, it is inappropriate to make any finding of default against them. It is arguable that the legal representatives retained by the insurer were faced with an actual or potential conflict of interest and duty. It was in the interests of the insurer that the litigation be conducted so that, if it went against the insured employer, it did so on the lease point and not on the joint tortfeasor point. But it was the duty of the representatives of the employer, as such, to achieve the opposite result. The problem which arose in the instant case appears to have come about because those legal representatives who were retained by the insurer to act for the insured employer failed to bring the potential conflict to the employer's notice. At least they did not do so in a timely way. The problem was only really addressed when the trial was underway. It seems virtually inescapable that the true interpretation of the facts is that the legal representatives did not at first notice the problem which arose. But it would have been plain had they turned their attention to the third party notice, the terms of the lease and the limited indemnity provided by their client insurer to their nominal client, the insured employer. The case seems more suitable to be dealt with as one of a conventional estoppel. However, it was not so presented in the Equity Division. Although the matter proceeded without pleadings, it is important for this Court to ensure against any procedural unfairness which might come from an attempt to recast the matter on appeal - presenting in effect a new case: one different from that tried. Normally, a party will be held to the manner in which it presents its case before the primary judge. If there is any possibility of procedural unfairness in recasting the case on appeal, such a course must be denied by the appellate court. See Coulton and Ors v Holcombe and Ors (1986) 162 CLR 1, 7f. In the circumstances of this case, I think it is safer to hold the parties to the manner in which the case was presented before Windeyer J. I would not be inclined to reconsider the case in terms of the duty of the solicitors or a conventional estoppel not pleaded, particularised or fought. I therefore turn to a consideration of the basis upon which the employer contended at trial that it was entitled to recover against the insurer, viz upon the basis of estoppel by representation. THE REPRESENTATIONAL ESTOPPEL In order to make out a representational estoppel, it is necessary for the party asserting it to establish, relevantly, that its reliance upon a representation made to it has occasioned it to suffer detriment. However, it is sufficient, in proving detriment, for the representee to establish that its reliance caused it to lose a real chance of avoiding the detriment which has ensued. See Austral Standard Cables Pty Ltd v Walker Nominees Pty Ltd [1992] NSW Conv R55, 630 (CA), 59589. 8 UNREPORTED JUDGMENTS The employer's case was the insurer, by its conduct, represented to the employer that it would indemnify the employer with respect to the entirety of the claim made against the employer in the third party proceedings brought by the occupier. Such representation, it was argued, caused the employer to act to its detriment. Thereby, it suffered loss. Upon that footing, even if the insurer were not bound by the terms of the policy to indemnify the employer, it was obliged to do so because it was now estopped from denying the obligation to indemnify. The employer relied upon three considerations to establish the relevant detriment. They were: 1. The consent which the insurer instructed its solicitors on behalf of the employer to give to pay the occupier's costs of defending the worker's proceedings on a solicitor and client basis and to indemnify the occupier in respect of the costs which it was obliged to pay to the worker pursuant to the judgment in his favour in the action. For reasons which it is not necessary to elaborate, the representatives of the employer before Madgwick DCJ, presumably taking their instructions from the insurer, consented to such orders; 2. In pursuing the proceedings in the way they did up to the trial and in failing to alert the employer, as the insured, concerning the risk which it was running, it is said that the employer lost a real chance of persuading the worker to discontinue his proceedings against the occupier (which was entitled to the complete indemnity under the lease) and instead to pursue the entitlements which the worker had against the employer under the Workers Compensation Act. In respect of the last mentioned entitlements, the insurer would be obliged to indemnify the employer. This, so it was said, represented a benefit to the insurer, secured as a result of the course of conduct which was followed. Although a benefit need not be shown (and fraud was not alleged) it was urged that this was the counterpart to the detriment which the employer had suffered from the representation held out, until the last moment, that the insurer would indemnify the employer in the third party proceedings; and 3. By the course which was followed, the employer also lost a chance of negotiating a settlement which would have secured a contribution by the insurer to a complete settlement which would dispose of the insurer's potential workers' compensation liability. FINDINGS BY THE PRIMARY JUDGE Windeyer J rejected these arguments for an estoppel. He heard evidence from counsel who had appeared before Madgwick DCJ on behalf of the worker and the employer. There was a difference between them in their recollection of the alert which had been sounded by counsel for the employer at the trial. Windeyer J preferred the recollection of counsel for the employer. This involved his saving to counsel for the worker, words to the effect: "As I see this case, I do not think there is any evidence of negligence on the part of the company. The only risk, as it seems to me, is that the company will be liable on the indemnity in the lease to the landlord.... If the company is not negligent and is liable on the indemnity then the GIO may well have to decline to indemnify the company. I have taken instructions this morning and have been told to convey this. I can do this by speaking to Mr Watts direct as the managing director of the company but because you are appearing for him I thought it appropriate for me to raise the matter with you so that you may take it up with him.... I do not know what his insurance position is. It may well be that he has some public risk or other insurance that would cover this situation... I will leave it to you to take the matter up with him." URJ NIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD (Kirby P) 9 This was a proper warning. But it was given most belatedly. As I have said, it should have been a matter considered when the solicitors retained by the insurer first examined the extent of their client's obligation to indemnify the employer in respect of the matters pleaded in the third party notice. After considering the facts from the standpoint of his preference for the evidence of counsel for the insurer/employer, Windeyer J accepted that, in some cases, an insurer, undertaking a defence for the insured, will be estopped from denying indemnity to an insured. However, he concluded that in this case the insurer had not made a representation to the insured that it was liable to indemnify it in respect of the WHOLE of the claim. The conduct of the defence was authorised by the action of the employer, as insured, in forwarding the third party notice to the insurer. The insurer was obliged to accept the obligation to undertake the defence. One at least of the bases upon which the third party notice made its claim against the employer was in terms of the allegedly tortious conduct for which the insurer was undoubtedly liable to indemnify it. Furthermore, under the Rules of the District Court, only one party may appear in a single interest. His Honour went on: "T do not consider there was such a representation.... The GIO did what it was asked to do and entitled to do, it conducted a defence. No doubt it could and probably should have advised the company that it was not entitled to indemnity under the policy in respect of all claims in the third party notice but I do not consider failure to do so amounted to a representation that cover was available... The estoppel claim made here... fails." The employer challenges this conclusion upon the three bases which I have mentioned. REPRESENTATION AND DETRIMENT ARE ESTABLISHED. With respect to Windeyer J, it is my view that a relevant representation by the insurer was established on the facts accepted by his Honour. Detriment, in the sense at least of loss of opportunity, was made out. The duty of good faith which the insurer owed to the insured obliged it to be candid in its dealings with the employer, as insured. Cf Gibson v Parkes District Hospital (1991) 26 NSWLR 9 (SC), 17f. It required it, in the circumstances of this case, to make clear to the insured: * the limit of the obligation; * the differential liability of the insured; and * the risk which the insured thereby ran in respect of which it might need to secure its own separate advice. Cf Distillers Company Biochemical (Australia) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1, 14; Carter v Boehem (1766) 3 Burr 1905, 1909; Spencer, Bower, Turner and Sutton Actionable Non-Disclosure, 2nd ed, 101. This was not a case where the insurer was entitled to remain silent. At least it was not entitled to do so if the product of the silence was a relevant detriment to the insured. I consider that the representation made was unequivocal - it was that indemnity would be provided. It remained so until after the insured had suffered loss. Cf Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 428f; The Commonwealth of Australia v Verwayen (199) 170 CLR 394, 422, 502. In my view there was relevant detriment. I pass over the consent to the order for costs. Much more relevant to the whole conduct of the proceedings was the loss of the real chance that the worker would have been persuaded by the employer (whose principal he was) - being alert to the risks presented by the claim for indemnity in the lease - of the wisdom of abandoning the common law 10 UNREPORTED JUDGMENTS rights and pursuing his rights under the Workers Compensation Act or settling both together. It was suggested that the worker's rights were chimerical. I cannot agree. The worker had suffered a serious injury to his hip. At the least that injury gave rise to a potential claim under s66 and s67 of the Workers Compensation Act 1987. By pursuit of the common law claim the worker stood to lose that entitlement. Had he been alerted to the risk of what ensued, he might well have been persuaded to avoid the hollow victory achieved in the District Court and to pursue, instead, his entitlements under the Workers Compensation Act. Even more clear is the fact that, in the way the proceedings were conducted, the employer lost the opportunity of negotiating a settlement which would have secured a real contribution by the insurer to the total payment to the worker which avoided the Phyrric victory which, in the circumstances, eventuated. Negotiations did, in fact, occur between the occupier and the employer through their solicitors. Of course, those negotiations were effectively between the occupier and the insurer, not the employer itself. As appears from the correspondence, the occupier was prepared to settle the third party claim upon the basis that the insurer contributed $10,000 to a settlement by "leaving in" $10,000 of the $12,198 workers' compensation payments which would otherwise have to be repaid following judgment in favour of the worker. The solicitor retained by the insurer indicated that there would be a reduction of the claim for repayment of workers' compensation benefits. But this was only to the extent that the insurer received $7,500 in recoupment. Had the employer been alerted to its true position of considerable peril by reason of the terms of the lease, it takes little imagination to realise that it would have sought to protect its own separate position vis-a-vis the insurer. Instead, it lost that opportunity. It thereby suffered detriment which could not then be repaired. That detriment arose from the false expectation into which the employer had been lulled. This was an expectation, almost to the last minute, that the insurer was representing the entirety of the interests of the employer in the third party proceedings. Cf Hansen v Marco Engineering (Aust) Pty Ltd [1948] VLR 198 (SC), 211. Only at the very end did counsel, nominally appearing for the employer (but actually retained by the insurer), realise, and express, the risk which the employer ran from the limits of the indemnity provided by the insurer's policy. It is the lesson of this case that where there are such differential and alternative claims, they must be brought to the notice of the insured immediately and now at the heel of the litigious hunt. CONCLUSIONS AND ORDERS The foregoing conclusion relieves me of the obligation to deal with the other way in which the employer presented its case, viz on the footing of an election. I am not convinced that that case was made out or that Windeyer J erred in his conclusion on this issue. My reasons are similar to those now expressed by Handley JA. However, I refrain from resolving this point finally as it is unnecessary for my orders. In the result, I would set aside Windeyer J's orders upon the footing that, contrary to his Honour' s inclination, the employer made out its claim in estoppel. I would therefore propose the following orders: 1. Appeal allowed; 2. Set aside the judgment of Windeyer J; URNIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD (Mahoney JA) 11 3. In lieu thereof, declare that the plaintiff Nigel Watts Fashion Agencies Pty Ltd is entitled to indemnity from the defendant GIO General Ltd in respect of a judgment of $37,274 and costs ordered by his Honour Judge Madgwick in the District Court proceedings number 791 of 1992 between Nigel Kevin Watts and John Shorter Pty Ltd; 4. Order that the respondent pay to John Shorter Pty Ltd the judgment of $37,274 and costs ordered by his Honour Judge Madgwick in the said proceedings; 5. Order that the defendant pay the costs of the proceedings in the Equity Division; and 6. Order that the respondent pay the costs of the appeal but have, if otherwise so qualified, in respect thereof, a certificate under the Suitors' Fund Act 1951. Mahoney JA In this proceeding the plaintiff seeks a declaration that its worker's compensation insurer, the second defendant, is obliged to indemnify it in respect of moneys payable by it to the first defendant. Mr Nigel Watts was the managing director and the substantial shareholder in Nigel Watts Fashion Agencies Pty Ltd ("the employer'). The employer leased offices on the fifth floor of a building. The lessor to it was John Shorter Pty Ltd ("the lessor'). On 17 May 1991 Mr Watts went to enter the lift in the building. The lift was not stopped precisely at floor level. As the result he fell and suffered injuries. Mr Watts did not sue the- employer. He received worker's compensation payments from the employer's workers' compensation insurer, GIO General Ltd ("GIO"). Mr Watts sued the lessor, claiming that the fact that the floor of the lift was not correctly aligned with the fifth floor resulted from the negligence of the defendant and was a breach of its duty as occupier of the building. The lessor claimed that, if it was liable to Mr Watts, it should have a contribution or indemnity from the employer. Its claim was based on two contentions: that the employer was liable to Mr Watts for the relevant injuries as a tort feasor and that, by virtue of the Law Reform (Miscellaneous) Provisions Act 1946, it was liable to make a contribution or provide an indemnity for the damages; and (alternatively) that by the terms of the lease given by the lessor to the employer, the employer was obliged to indemnify the lessor for any damages payable to Mr Watts. Mr Watts sued the lessor in the District Court. The lessor served a third party notice on the employer, and that notice specified the two bases of its claim. The solicitors for the employer were Gye Perkes and Stone. They were also the solicitors for Mr Watts. The third party notice was sent to the employer. Evidently it was given to such solicitors. The solicitors were acting for Mr Watts in the District Court litigation. The solicitors wrote a letter to: "Workers Compensation Department, Government Insurance Office of New South Wales" in the following terms: "RE: NIGEL KEVIN WATTS v JOHN SHORTER PTY LTD RE: NIGEL WATTS FASHION AGENCIES PTY Ltd - THIRD PARTY RE: WORKERS COMPENSATION POLICY NO. W257045 We refer to the above matter and advise we act for the Plaintiff Mr Nigel Kevin Watts. Mr Watts is a partner in the Third Party joined by the Defendant in these proceedings Nigel Watts Fashion Agencies Pty Ltd We enclose a letter from the Defendant's solicitors Messrs Moray and Agnew dated 13 October 1992 enclosing by way of service the Third Party Notice addressed to Nigel Watts Fashion Agencies Pty Ltd We note that the Government Insurance Office is the Third Party's workers compensation insurer 12 UNREPORTED JUDGMENTS and accordingly a defence to the Third Party Notice should be filed as a matter of urgency. We are advised by Mr Watts that the letter and Third Party Notice enclosed were served by security post and were received on 14 October 1992. Accordingly the defence to the Third Party Notice should be filed by 12 November 1992. Please attend to this matter as a matter of urgency." GIO appointed PW Turk and Associates its solicitors in the matter and those solicitors filed a defence to the third party claim. (There were subsequent parties in the District Court proceeding but it is not necessary to pursue that aspect of the matter). On 17 March 1993 Mr Watts' claim was heard in the District Court. On 22 March 1993 Madgwick DCJ gave judgment for the plaintiff Mr Watts against the lessor. On the third party claim his Honour found for the lessor against the employer on the lease claim and gave judgment effectively indemnifying the lessor in respect of ie amount to be paid to Mr Watts. Upon the claim that the employer was liable to Mr Watts as a tort feasor, his Honour found for the employer. Accordingly, the liability of the employer to indemnify the lessor was, in the judgment, based only upon the lease basis. Following judgment, the employer requested GIO to indemnify it against its liability to the lessor. GIO indicated that, in its opinion, it was not liable to do so and refused the employer's claim. Its contention was that under the workers compensation insurance policy no indemnity was given in respect of liability arising upon the leasehold basis. The employer therefore brought the present proceeding against GIO. On 4 November 1993, Windeyer J held that the employer was not entitled to an indemnity under the insurance policy. The employer has appealed to this Court against his Honour's judgment. No appeal was brought against the judgment of Madgwick DCJ. This proceeding has, before this Court being dealt with upon the basis that the findings made by Madgwick DCJ bind the present parties in respect of the matters here relevant. The contrary has not been argued. Mr Emmett QC, for the employer, submitted that the employer was entitled to an order against GIO on any of three bases: the construction of the policy; estoppel; and the election of GIO to accept liability under the policy. 1. THE CONSTRUCTION OF THE POLICY: The policy is one in common form issued in respect of workers compensation liability and common law liability in respect of the employer's "liability independently of the Act for any injury to" the injured worker. The relevant portion of the policy provides: "... the Employer shall be liable to pay compensation under the Act to or in respect of any person who is or is deemed by the Act to be a worker of such Employer, or to pay any other amount in respect of his liability independently of the Act for any injury to any such person, THEN, and in every such case the Insurer will indemnify the Employer against all such sums for which the Employer shall be so liable...". Mr Garling, for GIO, has submitted that the judgment in question creates a liability to pay an amount which is not "for any injury to any such person"; the amount is not in respect of his liability for any injury to Mr Watts but in respect of the employer's promise, embodied in the lease, to indemnify the lessor against liability arising from (as pleaded in this case) the lessor's negligent injury to Mr Watts. URNIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD (Mahoney JA) 13 The term "for" is, of course, one which has a wide operation: see Robert G Nall Ltd v Federal Commissioner of Taxation (1937) 57 CLR 695 at 711. The extent of it in each case is to be determined by the context in which it is used. I do not think that the employer's liability in the present case, though arising because Mr Watts was injured, is a liability "for" that injury. It is, in the relevant sense, a liability arising under the indemnity which, by the terms of the lease, was contracted to be given. I agree with the conclusion of Kirby P on this aspect of the matter. 2. ESTOPPEL: The estoppel advanced for the employer is, in substance, that GIO represented to the employer that it would accept liability under the policy if the outcome of the litigation was against the employer. I agree with Kirby P that this is substantially the basis of estoppel which remained open to the employer. I confess to finding difficulty with this estoppel. The difficulty arises from the position occupied by the solicitor and counsel appointed by GIO to act for the employer in the litigation. At some stage, both knew that the insurer was reserving its right to renounce the policy obligations if the litigation went against the employer on the "lease" claim. Ordinarily, the knowledge of the solicitor and counsel of this fact would be imputed to the employer. If imputed as actual knowledge, the result would be that the employer knew that the substance of the suggested representation was either not made or not true. Accordingly, it could not rely upon the suggested estoppel. I have had the benefit of the observations of Kirby P. As his Honour's judgment suggests, it is by no means clear at what point the solicitor and counsel appointed for the employer became aware of the fact that GIO had adverted to this aspect of the matter or had reserved its rights in that regard. All that is known is that, at some time during the course of the proceeding itself, they must have been aware of it because of what counsel said to the counsel appearing for the plaintiff. The effect of what has been said for the employer in support of the estoppel is, as I understand it, that the representation was made and that, by the time of the conversation between counsel, the employer had acted upon it to its detriment in a way which could not then be repaired. On this basis, it is said, it was no longer open to GIO to refuse to adhere to the representation it had made. It is not clear that the suggested representation was made. What the employer was given to understand depends, of course, essentially upon the particular circumstances of this case. In the end, I think the better view of the facts is that taken in this regard by Kirby P. I shall accept that what was done by GIO gave the employer to understand that if the litigation went against it, GIO would provide the appropriate indemnity. On this basis, the argument for the employer is to the effect that it became aware of GIO's attitude when it was too late for it to alter its position, and therefore GIO is estopped from departing from its representation. Again, the matter depends essentially upon the facts. The mere fact that an insurer appoints solicitor and counsel to conduct litigation for the insured does not produce such a representation or estoppel. In the present case, the facts went further. Workers compensation had been paid to the plaintiff by GIO as the employer's insurer. GIO may be inferred to have known the circumstances of the case. It may be that in the context it would know that the employer had left the matter in its hands and that it would assume that, if the litigation went against it, GIO would provide the anticipated indemnity. With 14 UNREPORTED JUDGMENTS some doubt, I am content to accept the conclusion of Kirby P in this regard. In these circumstances it is not necessary to review the decisions to which counsel have referred the Court. 3. ELECTION: Upon my acceptance of the conclusions of Kirby P in relation to estoppel, it is not necessary to consider this matter. It is sufficient to indicate that I am not convinced that the matter turns upon the doctrine of estoppel. I agree with the orders proposed by Kirby P. Handley JA In this appeal I have had the advantage of reading the reasons for judgment of Kirby P and Mahoney JA in draft form. They have set out the relevant facts and the history of these proceedings. I agree with my brethren that the employer's claim based on the terms of the common law extension in the compulsory Workers' Compensation policy fails. There is no need for me to add anything on that issue but I will do so on the issues of election and estoppel by representation. ELECTION My brethren have not found it necessary to decide this question but in my opinion it is without substance. The doctrine, in its application to contracts of insurance, prevents an insurer from adopting inconsistent positions under the same policy. An insurer receiving a claim who is entitled to avoid the policy or reject the claim for breach of condition must make an election. In the first case the insurer must either affirm or avoid the policy and in the second it must waive the breach and accept the claim or rely on the breach and reject it. If, having the requisite knowledge of the facts, it asserts rights which would only exist if the policy was in force and covered the claim it will be taken to have elected to treat the policy as valid and applicable to the claim. See Yorkshire Insurance v Craine [1922] 2 AC 541, Khoury v GIO (1984) 165 CLR 622 at 633 and Reid v Campbell Wallis Moule (1990) VR 869 per Tadgell J at 868-869, 872-875 and the cases there cited. This decision was reversed on other grounds which do not affect his Honour's conclusions on the present point. See (1992) 1 VR 386. The third party proceedings by the landlord were based on two distinct claims, one of which fell within the Workers' Compensation policy, while the other did not. The District Court, unlike the Compensation Court, has no power under its Act and rules to allow separate legal representation for the same party in a single proceeding where there are underlying conflicts of interest created by insurance arrangements. The GIO was therefore entitled to take over the conduct of the third party proceedings. In doing so it was relying on the policy, and when it later sought to deny liability to indemnify the appellant it was still relying on the policy. It did not adopt inconsistent positions with respect to the policy. The position was comparable with that which applies where an insured is sued for more than the amount of the cover. In such a case the insurer is entitled to take over the conduct of the proceedings without losing the benefit of its limitation of liability. See Hansen v Marco Engineering (1948) VLR 198 at 210. In my opinion therefore the GIO was not bound by election from disputing its liability to indemnify the employer. ESTOPPEL BY REPRESENTATION The appellant's principal contention was that the GIO was prevented or estopped by its conduct from denying its liability to indemnify the appellant. The solicitors for Mr Watts, acting as agents for the insured, sent the third party notice to the GIO under cover of the letter quoted in the other judgments. Condition 4 bound the insured to do this. URUIIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD (Handley JA) 15 The GIO was entitled under Condition 4 to take over the conduct of the third party proceedings because they included a claim for contribution under the Law Reform (Miscellaneous Provisions) Act 1946 based on the insured's liability in tort to its worker, Mr Watts. However the GIO was in a position of some delicacy. It was liable to indemnify the insured against any judgment for contribution but not for any judgment based on the lease. It had already paid compensation and medical expenses totalling $12,198. Under s151Z(1)(b) of the Workers' Compensation Act 1987 it would be entitled to reimbursement from any judgment recovered by Mr Watts from the landlord. It seems that, subject to subs(4), the whole of the compensation would be recoverable from Mr Watts without any abatement because of his contributory negligence. The position was otherwise prior to the 1987 Act. See Law Reform (Miscellaneous Provisions) Act 1965 s10(1)(c), s10(1)(d), and s10(1)(e), and GIO v CE McDonald (NSW) Pty Ltd (1991) 25 NSWLR 492. When common law rights against employers were abolished in 1987 s10 was amended to ensure that workers who recovered damages from third parties reduced for their contributory negligence only had to repay the same proportion of their compensation. See s10(1)(d). However that section was not amended when common law rights against employers were restored by the Workers' Compensation (Amendment) Act 1989 It is not clear that s68 of the Interpretation Act 1987 enables the reference in s10(1)(d) of the 1965 Act to s150 of the Workers' Compensation Act 1987 to be read as a reference to s151Z(1)(b) inserted in 1989. However on any view the worker was bound to repay at least 85 per cent of the compensation from the damages recovered from the landlord. If the landlord was not entitled to contribution but was entitled to indemnity under the lease the insured would end up paying the whole of Mr Watts' damages and all the costs of the proceedings but the GIO would be reimbursed for at least 85 per cent and possibly 100 per cent of the compensation it had paid. The insured would therefore lose the practical benefit of its policy in relation to this claim. Mr Watts who owned 80 per cent of the shares in the insured would thus end up paying 80 per cent of his damages, and the costs of the District Court proceedings. If the insured was not liable or only liable for contribution Mr Watts would be entitled to damages and costs which would be paid by the landlord and possibly the GIO. As events turned out Mr Watts would have been better off had he discontinued his District Court proceedings. By doing so he could have retained the compensation he had already received. He also probably had rights to lump sum compensation under s66 and s67 of the Workers' Compensation Act 1987 which he could have pursued in the Compensation Court. These rights would be lost if and when he recovered damages from the landlord. See s151Z(1)(c). The insured was not alerted to these risks until after the judgment. As Kirby P has stated it would not be proper for this Court to say anything about the position of the solicitors then acting for the insured. However the judgment produced the worst possible result for Mr Watts and the insured. The third party notice was sent to the GIO on 27 October 1992. Settlement negotiations took place early in March 1993 and then ceased. The hearing before Madgwick DCJ commenced on 17 March. Windeyer J found that on the second or third day of the trial counsel for the insured, briefed by the solicitors taking their instructions from the GIO, raised with counsel for Mr Watts the possibility that the insured may only be liable to the landlord under the lease, and in that event the GIO "may well decline to indemnify the company". He left it to Mr 16 UNREPORTED JUDGMENTS Watts' counsel to speak to Mr Watts. Windeyer J found that notice to Mr Watts' counsel was not "in any way notice to the company". I will consider later the question raised by Mahoney JA as to whether the knowledge of the solicitor and counsel acting for the insured on the instructions of the GIO should be imputed to the insured. In any event it seems to me that disclosure to the insured at that time would have come far too late. Such disclosure should have been made at the latest when the settlement negotiations commenced. The third party notice was a statement of third party claim. Paral and para2 pleaded formalities. Para3 pleaded the lease, para4, para5, para6 and para7 pleaded the claim for contribution under the 1946 Act, and para8, para9, paral0 and paral! pleaded the claims under the lease. The notice included a claim for "a complete indemnity". The solicitors instructed by the GIO filed and served notice of grounds of defence on 8 February 1993. The third party notice should have alerted the solicitors to the contractual claims and caused them to obtain a copy of the lease. Whoever prepared the grounds of defence should have read the relevant clause. The GIO and the legal advisers it instructed knew that its interest arose under a workers' compensation policy. The letter of 27 October 1992 enclosing the third party notice was addressed to the GIO's workers' compensation department and quoted the policy number. ParaS and para6 of the grounds of defence raised issues under s151Z(1)(d) and s151Z(2) of the Workers' Compensation Act. The policy was that prescribed by the Workers' Compensation (General) Reg1987 but that continued with only formal modifications the prescribed form of policy under the 1926 Act. It covers the insured against liability under the Act and for many years has included what is commonly referred to as "the common law extension". The general effect of this extension is well understood. On that understanding it does not cover liability under a contractual indemnity such as that contained in the lease. The insured does not merely rely on the GIO's silence as an implied representation. An estoppel by silence can only arise where a legally enforceable duty to speak is owed to the party relying on the estoppel. See Morgate Mercantile Co Ltd v Twitchings [1977] AC 890, and Thomas Australia Wholesale v Marac Finance Australia (1985) 3 NSWLR 452. It also relies on the GIO's conduct of the third party proceedings from 27 October 1992 until 24 March 1993 when final orders were made. The GIO was in complete control of the litigation and acted as if the proceedings and settlement negotiations were of no concern to the insured. Ever since Pickard v Sears [1837] 6 Ad and E 469 (112 ER 179) it has been clear that an estoppel can be created where one person "by his words or conduct" causes another to believe the existence of a certain state of things and to act on that belief. In Greenwood v Martins Bank [1933] AC 51 at 57 Lord Tomlin referred to the need for "a representation or conduct amounting to a representation". The basis for estoppel by conduct has recently been extensively re-examined by the High Court in a series of decisions. See Waltons Stores v Maher (1988) 164 CLR 387 at 398, 413, 445, 449, 450, 451, 452, and 453, Foran v Wight (1989) 168 CLR 385 at 411,434-436, 457; and Commonwealth v Verwayen (1990) 170 CLR 394 at 409-413, 415, 443-446, 453-454 and 480-481. URMIIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD (Handley JA) 17 The estoppel relied on would preclude the GIO from disputing its liability to indemnify the insured. It could be expressed an estoppel against denying that the insured was liable to indemnify the landlord under the 1946 Act. It would be better expressed as an estoppel against denying the assumption that the policy covered all the claims in the third party notice. An assumption of this nature can support an estoppel. As long ago as 1912 Isaacs J said in Ferrier v Stewart (1912) 15 CLR 32 at 44 that: "\.. a person's conduct has reference to an existing fact, if a given state of things is taken as the assumed basis on which another is induced to act." More recently in Waltons Stores v Maher at 452 Deane J said: "The doctrine of estoppel by conduct must now be accepted as applying to preclude departure from a represented or assumed future state of affairs in at least some categories of case." Then, in Commonwealth v Verwayen Deane J said at 445: "Tn some cases, the estoppel may operate to fashion an assumed state of affairs which will found relief... which gives effect to the assumption itself (eg where the defendant in an action for a declaration of trust is estopped from denying the existence of the trust)." In the same case Dawson J said at 454: The result of an estoppel at common law was... to preclude the party estopped from denying the assumption upon which the other party acted to his detriment. It followed that the party who acted to his detriment was,..., given the benefit of the assumption.... an estoppel in equity may not entitle the party raising it to the full benefit of the assumption upon which he relied.... To avoid the detriment may, however, require that the party estopped make good the assumption. The relationship between insured and insurer is an unusual one. Under the general law each owes the other a duty to act with the utmost good faith. In most classes of insurance this duty is now to be found in Pt2 of the Insurance Contracts Act 1984 (C' wlth) operating of its own force or as adopted by State law. See, for example, Insurance (Application of Laws) Act 1986 (NSW). S9(1)(e) of the Insurance Contracts Act provides that that Act does not apply to workers' compensation insurance. The present case is therefore governed by the general law. It is well known that the insured is under this duty when proposing for insurance. The duty continues after contract for other purposes. These include disclosure of information under a warranty relating to war risks and additional premium (The Litsion Pride (1985) 1 Lloyds R 437 at 507-512), and the making of claims. Thus fraudulent claims result in a forfeiture of benefits (Britton v Royal Insurance Co [1866] 4 F and F 905 (176 ER 843) and NZ Insurance v Forbes (1988) 5 ANZ Ins Cases 75449 (NZCA) and the insured is bound to supply full information in connection with any claim (Leon v Casey [1932] 2 KB 576 at 579-580, 582, and Trans Pacific v Grand Union (1989) 6 ANZ Ins Cas 76252 at 76272-76273 (SCNSW Giles J)). Compare NSW Medical Defence Union v Transport Industries Insurance (1985) 4 NSWLR 107. The insurer owes the same duty to the insured and this also continues after contract. See Banque Keyser v Skandia [1990] 1 QB 665 at 769-770 (CA), Bank of Nova Scotia v Hellenic Mutual [1990] 1 QB 818 at 888-890 (CA), and Gibson v Parkes District Hospital (1991) 26 NSWLR 9 at 34-35. The insurer thus owes an obligation of good faith in the management of litigation conducted pursuant to rights given by the policy. In Groom v Crocker [1939] 1 KB 194 at 203 Greene MR said with reference to such a situation: "The effect... is,..., to give to the 18 UNREPORTED JUDGMENTS insurers the right to decide upon the proper tactics to pursue in the conduct of the action, provided that they do so in what they bona fide consider to be the common interest of themselves and their assured." Similarly, Scott LJ said at 223: "... the Society were given... an absolute right to control their assured's defence; but the scope of this right was... subject to certain implied... limitations. It was not one which they would be entitled to exercise arbitrarily. They were bound to exercise a real discretion upon each question as it arose in the conduct of the defence, making each decision after due consideration of the circumstances of the particular case; not, of course, consulting the wishes of the assured as if he were an uninsured person, but taking their decisions with their minds on the facts of the particular allegations made against him, whilst not forgetting their own rights arising from... the policy." This question was also considered by Stephen J in The Distillers Company v Ajax Insurance (1974) 130 CLR 1 at 29, 31 where he said: "Where conflicts of interest arise as between an insured and an insurer,..., the insurer must exercise its powers under the policy with due regard for the interests of the insured... an insurer must act in good faith towards the insured and must have regard to his interests both in the defence of actions against the insured and in their settlement." Hansen v Marco Engineering (1948) VLR 198 illustrates the operation of an estoppel against an insurer arising from its conduct of litigation which precluded it from relying on an exclusion clause. The insurer had exercised a right to settle the claim which would only exist on the basis of a certain assumption and the Judge held that it would be unjust to permit the insurer to depart from that assumption (210). At 211 Fullagar J said: "... 1t could be said that the insurer did not intend the insured to act upon any assumption. But it asserted a right, and the insured, because it believed itself to be regarded as indemnified, acquiesced in the assertion of that right. That in my opinion is sufficient. In the third place it could be said that nothing done by the insurer induced the insured to do or abstain from doing anything. BUT THE INSURER IN EFFECT INVITED THE INSURED TO LEAVE THE WHOLE MATTER OF HANSEN'S CLAIM TO ITS DISCRETION, AND THE INSURED ACCEPTED THE INVITATION." (emphasis supplied) The Judge held that the insured had acted to its detriment because it had been "deprived of an opportunity to do better... The insured was entitled, if it was not indemnified, to see what it could do for itself." It is this aspect of the decision which has attracted subsequent criticism. See MacGillivray and Parkington on Insurance Law 8th ed. 1988 at 896-899. However, in my respectful opinion, the criticism relates to the finding of fact rather than to the Judge's statement of principle. Hansen's Case was disapproved in Soole v Royal Insurance [1971] 2 Lloyds R332 by Shaw J in dicta on the basis that there could be no "claim" covered by a liability policy until after judgment or settlement; that the conduct of the proceedings by the insurer was equivocal; that any representation was one of law; and that the insured must have been aware of the terms of the policy. The first ground has since been rejected by the Appeal Division of the Supreme Court of Victoria in C E Heath Underwriting v Campbell (1992) 1 VR 386 at 394 and, with respect, I agree with the Appeal Division. The view that the conduct of the proceedings by the insurer was equivocal depended on Shaw J's conclusion that there was no claim within the policy until its validity had been determined by URMIIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD (Handley JA) 19 judgment or settlement. If that is not the case then the insurer's conduct in taking over the proceedings is not equivocal. The third point was that any implied representation was one of law. In my respectful opinion that has no validity for the reasons given by Jessel MR in Eaglesfield u Marquis of Londonderry [1875] 4 Ch D 693 at 702-703 especially at 702 where His Lordship said: "\.. a misrepresentation of law is this: when you state the facts, and state a conclusion of law, so as to distinguish between facts and law... but when you state that as a fact which no doubt involves, as most facts do, a conclusion of law, that is still a statement of fact and not a statement of law." Shaw J's final reason was that the insured "must" have been aware of the terms of the policy. There could be no detrimental reliance if the insured was consciously aware of the terms of the policy but Fullagar J made no such finding. If His Lordship meant that the insured had the means of knowledge then, with respect, the statement is irrelevant because estoppels are not defeated because the party acting to his detriment had the means of knowing the truth. Hansen's Case and the later authorities in which it has been discussed were fully considered by the Court of Appeal for the Northern Territory in Territory Insurance Office v Adlington (1992) 7 ANZ Ins Cas 77,776, 109 FLR 124. The appellant conducted proceedings brought against the respondent between May 1985 and January 1987 and then withdrew. The trial did not take place until June 1991. The trial judge was not satisfied that the insured had suffered any specific or identifiable pecuniary loss, but held that Hansen's Case was authority for the proposition that detriment was established because the insured had been deprived for a time of the opportunity of doing better. The detriment relied upon was therefore only a theoretical possibility. With respect, I agree with the Court of Appeal that Hansen's Case is not authority for the proposition that a real detriment, in the sense explained by Dixon J in Thompson v Palmer (1933) 49 CLR 507 at 547, is not an essential element in estoppel. It is clear that detrimental reliance was not established in Adlington's Case and the finding that it was established in Hansen's Case is debatable. Nevertheless, as the Court of Appeal recognised, the loss of a real chance is sufficient. This must be right since damages can be awarded for such a loss (Chapman v Hicks [1911] 2 KB 786 and Sellars v Adelaide Petroleum (1994) 179 CLR 332) and the point was actually decided in Foran v Wight (1989) 168 CLR 385 at 413, 431-432, 436-437, and 454 followed by this Court in Austral Standard Cables v Walker Nominees (1992) NSW Conv R59 582. If these are the relevant principles, then it is clear that this insured will suffer a real detriment if the GIO is permitted to depart from the assumption it induced. There can be no doubt that the insured lost "a real chance" of achieving a better result in the settlement negotiations than it ultimately suffered as a result of the judgment. On 9 March 1993 the landlord's solicitors indicated to the solicitors acting for the insured on the instructions of the GIO that the proceedings could be settled if the GIO would contribute $10,000. This involved the GIO receiving a payback of $2,198 from its workers' compensation payments. The GIO insisted on a payback of $7,500. The parties were only $5,302 apart. If the insured had been advised of the negotiations and that it was not insured against liability under the lease it may well have agreed to contribute this amount to achieve an overall settlement. It would have been most unwise for it not to do so. It may also have been able to negotiate a higher contribution from the GIO in the light of the potential liability for lump sum payments to Mr Watts under s66 and s67. In my opinion, therefore, all the ingredients for an estoppel were present in this case. 20 UNREPORTED JUDGMENTS The duty of the insurer in the conduct of litigation against the insured where there is a conflict of interest in the circumstances of the present case created a duty to speak, that is to consult the insured. To adapt the language of Fullagar J in Hansen at 211 the GIO "in effect invited the insured to leave the whole matter to its discretion", inducing an assumption by the insured that it was fully indemnified, and the GIO never said or did anything to correct that assumption until it was too late. Mahoney JA has referred to the possibility that the insured may not be able to establish detrimental reliance because the knowledge of the legal advisers then acting on the instructions of the GIO could be imputed to it. In my opinion, imputed knowledge cannot be relied upon to establish performance of a duty to speak or a duty to correct an assumption induced by one's conduct. See generally Moodie v Cox [1917] 2 Ch 71. Moreover, the legal advisers instructed by the GIO only acted in the fullest sense for both insurer and insured where they had "common interests". See Groome v Crocker at 203. The parties had conflicting, not common, interests with respect to the insured's liability under the lease and the legal advisers had no authority to compromise that claim at the expense of the insured without its actual instructions. There are difficulties in the operation of the doctrine of imputed knowledge in cases where an agent is acting for two principals in the same transaction. The solicitors acting on the instructions of the GIO did not communicate with their nominal client until after judgment. Whatever may have been their duty to the insured, they were in fact acting at the relevant times for the GIO, and the knowledge they acquired was not acquired in any practical sense for or in the service of the insured. See North and South Co v Berkeley [1971] 1 WLR 470 at 484-486. In such circumstances, it seems to me that knowledge so acquired should not be imputed to the other principal. Compare Bowstead on Agency 15th ed. 1985 at 412-414. In my opinion, therefore, the appeal should be allowed and orders made as proposed by Kirby P. 1. Appeal allowed; 2. Set aside the judgment of Windeyer J; 3. In lieu thereof, declare that the plaintiff Nigel Watts Fashion Agencies Pty Ltd is entitled to indemnity from the defendant GIO General Ltd in respect of a judgment of $37,274 and costs ordered by his Honour Judge Madgwick in the District Court proceedings number 791 of 1992 between Nigel Kevin Watts and John Shorter Pty Ltd; 4. Order that the respondent pay to John Shorter Pty Ltd the judgment of $37,274 and costs ordered by his Honour Judge Madgwick in the said proceedings; 5. Order that the defendant pay the costs of the proceedings in the Equity Division; and 6. Order that the respondent pay the costs of the appeal but have, if otherwise so qualified, in respect thereof, a certificate under the Suitors' Fund Act 1951. Counsel for the Appellant: AR Emmett QC/DP O' Dowd Instructed by: Gye Perkes and Stone URUIIGEL WATTS FASHION AGENCIES PTY LTD v GIO GENERAL LTD (Handley JA) 21 Counsel for the Respondent: PR Garling Instructed by: Phillips Fox