Reported Decision : (2006) 14 ANZ Insurance Cases 61-703 New South Wales Supreme Court CITATION : NSW Aboriginal Land Council v Ace Global Markets Limited and Ors [2005] NSWSC 39 HEARING DATE(S) : 24/11/04, 25/11/04 JUDGMENT DATE : 11 February 2005 JUDGMENT OF : Wood CJatCL at 1 DECISION : 1.Summons dismissed; 2. Order the Plaintiff to pay the Defendants' costs. CATCHWORDS : Application to commence proceedings under s 6 Law Reform (Miscellaneous Provisions) Act 1946 - whether negligence or misrepresentation relating to preparation of valuation - policy of insurance - issue of direct actions against insurers from claimants - whether there was no solvent or perfectly good Defendant - whether s 6 applied to a claims made and notified policy where event giving rise to damages claim occurred prior to commencement of policy - whether Defendants had entitlement to disclaim liability under policies - Trade Practices Act s 6(3)(a) - Fair Trading Act - Insurance Contracts Act 1984 (Cth) s 54. Fair Trading Act 1987 Insurance Contracts Act 1984 (Cth) s 54 LEGISLATION CITED : Law Reform (Miscellaneous Provisions) Act 1946 s 6 Trade Practices Act 1974 s 6(3)(a) Andjelkovic v AFG Insurance Limited (1980) 47 FLR 348 Bailey v NSW Medical Defence Union Ltd (1995) 69 ALJR 890 Capita Financial Group Ltd v Triden Properties Ltd NSWSC 6 September 1993 Carnie v Richmond and Ors NSWSC 9 September 1997 FAI General Insurance Co Ltd v Australian Hospital Care Pty Limited (2001) 204 CLR 641 FAI General Insurance Co Ltd v McSweeney (Judgment Part I) (1997) 73 FCR 379 FAI (NZ) Insurance Co Ltd v Blundell and Brown Ltd [1994] 1 NZLR 11 Fishwives Pty Limited V FAI General Insurance Co Ltd (2002) 12 ANZ Ins Cas 61-515 Grimson v Aviation and General (Underwriting) Agents Pty Limited (1991) 25 NSWLR 422 HTW Valuers (Central Qld) Pty Limited v Astonland Pty Ltd [2004] HCA 54 CASES CITED : Kenny and Good v MGICA (1992) Limited (1999) CLR 413 Khoury v Government Insurance Office of New South Wales (1984) 58 ALJR 502 Independent Wool Dumpers Pty Ltd v American International Underwriters (NZ) Ltd (1992) 7 ANZ Ins Cas 61-152 Manettas v Underwriters at Lloyds (1993) 7 ANZ Ins Cas 61-80 McMillan v Mannix (1993) 31 NSWLR 538 National Mutual Property Services (Australia) Pty Limited v Citibank Savings Ltd (1996) (No 4) 138 ALR 409 Oswald v Bailey (1987) 11 NSWLR 715 Schipp v Cameron (1995) 8 ANZ Ins Cas 61-256 Schipp v Cameron, Harrison & Ors [1998] NSWSC 997 Tzaidas v Child [2004] NSWCA 252 Wardley Australia Ltd v State of Western Australia (Rothwells Loan case) (1992) 175 CLR 514 New South Wales Aboriginal Land Council (P) Ace Global Markets Limited (D1) PARTIES : Euclidian Underwriting Limited (D2) John Murphy (D3) Andrew Sutcliffe (D4) FILE NUMBER(S) : SC 12899/04 I. G. Harrison SC with R. K. Eassie (Plaintiff) COUNSEL : M. J. Slattery QC with R. Pepper (Defendants) N. Dale, Slater & Gordon SOLICITORS : E. M. W. Davies, PricewaterhouseCoopers Legal LOWER COURT JURISDICTION : - 43 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION WOOD CJ at CL Friday 11 February 2005 12899/04 New South Wales Aboriginal Land Council v Ace Global Markets Limited, Euclidian Markets Limited, John Murphy, Andrew Sutcliffe JUDGMENT 1 HIS HONOUR: These are proceedings brought by summons in which the Plaintiff seeks leave, pursuant to s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 ("the Act"), to commence proceedings against the Defendants. 2 Section 6 of the Act relevantly provides: (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability. (2) … (3) … (4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken. 3 The application is opposed on three grounds, namely that: (a) The Plaintiff is precluded from claiming that there is a charge over the insurance monies because the events leading to the descent of the charge occurred prior to the policies, which were claims made and notified policies, coming into existence. (b) If the events which are alleged to give rise to a cause of action against the insured policy holder fell within the potential umbrella of cover, then, as a matter of discretion, leave should be refused because the Defendants would be entitled to disclaim liability. (c) There was insufficient evidence to show that there is not a perfectly good common law defendant available who can be sued by the Plaintiff. Facts 4 On 16 November 1998, John Curley of Herron Todd White Valuers (SA) Pty Limited, trading as John Curley and Associates National Property Consultants ("HTW"), prepared a valuation for the Port Mall Shopping and Cinema Complex at 166 St Vincent Street, Port Adelaide, South Australia ("the property"). The valuation was requested by Stonehaven Gardens Pty Limited ("Stonehaven"), the owner of the property. 5 The valuation was prepared as at 3 November 1998 and gave an "as is" current market value of $6.3M, and an "on completion" value of $8.7M. 6 On 16 March 1999, Stonehaven obtained a development approval for the construction of a cinema complex on the property. 7 Robertson Finance Pty Limited ("Robertson") placed an advertisement in the Financial Review seeking investors in registered mortgages, to which the Plaintiff responded. 8 Robertson commissioned a further valuation of the property from HTW, which was issued, on 6 April 1999 and which gave an "as is" market value of $7.5 M and an "on completion" value of $11.5M ("the valuation"). It was expressed to be "for mortgage security purposes and may be relied upon by [Robertson] and its investors". The basis for the valuation was confirmed by a letter from HTW on 9 April 1999. 9 By letter dated 27 April 1999 from Robertson, HTW was placed on notice that the valuation would be relied upon by Robertson and its investors, that an advance of $4.5M was being provided by the Howard group, and that a further $500,000 was being provided by other investors ("the Murphy group"). It was asked for confirmation that these two groups could rely on the valuation. 10 On 28 April 1999 HTW provided a letter indicating that the Murphy group could rely on the valuation. 11 On 30 April 1999 and 12 May 1999, HTW was asked to provide supplementary valuations of the property for the investors of Stonehaven. These valuations were provided repeating the figures in the valuation. 12 On 20 May 1999 Robertson submitted a loan proposal to the Plaintiff for an advance to Stonehaven of $4.5M, the purpose of which was to consolidate the existing mortgages in respect of which Stonehaven owed about $4.4M. The offer was accepted by the Plaintiff on 24 May 1999. 13 On 26 May 1999 Robertson sent a letter to HTW requiring written confirmation that the Plaintiff was entitled to rely upon the valuation report of 6 April 1999. An issue potentially exists as to whether HTW ever replied to this request, although a copy of a coversheet for the valuation suggests that Robertson did receive such confirmation. 14 On 9 June 1999, Robertson supplied an amended letter of offer increasing the amount of the loan to $4.8M. This was accepted by the Plaintiff on the same date. 15 On 23 June 1999, in reliance upon the valuation, the Plaintiff advanced $4.8M to Stonehaven, secured by a first mortgage over the property, and by a fixed floating charge over the assets and undertakings of Stonehaven. The loan was for a term of 12 months at an interest rate of 9% per annum. 16 The mortgage over the property was registered as a first mortgage, and the fixed and floating charge was registered as a first ranking charge over Stonehaven's assets and undertakings. Deeds of guarantee and indemnity were given by Moore Corporation Pty Limited, and by Mr and Mrs Moore who were directors of Stonehaven. 17 On the same day the Murphy group advanced $500,000 to Stonehaven and took, as security, a second registered mortgage over the property and a second ranking fixed and floating charge. 18 On 30 August 1999, Stonehaven defaulted in the payment of the interest that was due under the loan, and thereafter periodically defaulted until the due date, during which period further borrowings were made by Stonehaven. 19 In early 2000 (and by no later than April), Mr Curley read in the press that the nearby West Lakes Cinema Complex was proceeding, which left him with the impression that the Stonehaven project was probably not viable, and that the opportunity had been missed (as he disclosed in the statement later made to the Defendants' solicitors). 20 On 26 April 2000, HTW was asked by Stonehaven to provide a further valuation. Similar requests were made by Robertson in June and July 2000. HTW did not respond to these requests. 21 On 27 April 2000, the Plaintiff's solicitors sent a letter of demand to Stonehaven requiring payment of all overdue interest and advising that absent payment the loan would be called up. 22 On 23 June 2000, Stonehaven defaulted in its obligation to repay to the Plaintiff the principal sum advanced, and the accrued interest. 23 On 12 July 2000, formal demand was served requiring payment of $5,112,000 within 7 days, in default of which the Plaintiff stated an intention to exercise its power of sale. 24 On 7 August 2000, the Plaintiff appointed Peter Hillig of Smith Hancock accountants as Receiver and Manager of Stonehaven. He later reported to the Plaintiff (on 11 October 2000) that Stonehaven had a deficiency of assets over liabilities and that there was no equity available to the Plaintiff in the "other assets" of the company over which the fixed and floating charges had been taken, and which were the subject of registered mortgages in favour of other lenders. 25 On 31 August 2000, a valuation of the property was obtained from United Valuations and Consulting Pty Limited ("UVC") valuing the property at only $2.125M. 26 In March 2001, the Plaintiff began proceedings in the Equity Division seeking declaratory and injunctive relief against the various mortgagees of the other lands owned by Stonehaven, at Pennington, Gawler and Hackney in South Australia. The mortgages, which Stonehaven had given to the other mortgagees, had been executed after the date of the fixed and floating charge taken by the Plaintiff, and were in breach of it. A question arose as to whether these mortgagees had actual or constructive notice of the Plaintiff's security such as to defer their priority. These proceedings were later settled (in June 2001). 27 On 22 June 2001, the solicitors for the Murphy group notified HTW that they intended to sue it for negligence in relation to the valuation. An earlier letter to similar effect was sent to HTW (on 10 April 2001), but an issue exists as to whether it was ever received. 28 On 30 June 2001, investigators from the Independent Commission Against Corruption (NSW) interviewed Mr Curley in relation to the valuation. That interview was recorded, and a transcript of the tape was left with Mr Curley and later provided to the solicitor for the defendants. In the course of the interview, Mr Curley was informed of concerns relating to the valuation, and of the insolvency of Stonehaven. 29 On 15 August 2001, the Plaintiff, as mortgagee in possession, completed the sale of the property for $908,000 resulting in its recovery under the security, of $777,736.20 after payment of the agent's commission and adjustments. 30 By letter dated 17 August 2001, Mr Curley and HTW notified the Defendants' agents of the Murphy group claim (under the first policy) in which they asserted that they had first become aware of the circumstances giving rise to that claim on 17 August 2001. 31 On 18 September 2001, Stonehaven was placed into liquidation and Mark Hall of Prentice Parberry Barilla was appointed Liquidator. 32 On 25 September 2001, Mr Davies, a solicitor acting for the defendants met with Mr Curley in Adelaide to discuss the circumstances of the notification of the Murphy Group claim, upon the basis of which a draft statement was prepared, which recorded the inquiries which had been made and the methodology which had been used in preparing the November 1998 valuation, and the April 1999 valuation. 33 On 12 October 2001, the Plaintiff's solicitors notified HTW of its intention to bring proceedings against it in respect of the negligent preparation of the valuation. 34 On 29 October 2001, Mr Curley notified the Defendants' agents of the Plaintiff's claim under the second policy. 35 On 19 December 2001, Mr Davies sent a letter to Mr Curley seeking his replies to a number of questions concerning the valuation. This was followed by various reminders seeking the return of the statement and replies to the questions. 36 On 14 February 2002, the draft statement was returned to Mr Davies by Mr Curley with certain handwritten additions. Replies to the questions were also provided which included advice to the effect that while no precise dates were available, he had learned from media reports of the Westlakes Centre approval "sometime late 1999 or early 2000". The fact of that development he said would "spell the 'death knell' of the Port Adelaide Project." 37 On 27 February 2002, a further letter was sent to Mr Curley with additional questions along with a copy of the amended statement for signature. 38 On 25 March 2002, Mr Curley replied to the further questions, which included a brief reconciliation of the different answers, which he had provided in relation to his assessment of the impact of the Westlakes Centre for the Port Adelaide Project. 39 On 5 August 2002, Mr Davies advised Mr Curley that the defendants declined liability for the reason that, prior to the inception of the policy, he had been aware of circumstances which could give rise to a claim, or in the alternative a reasonable insurer would have been aware of such circumstances, in that: (i) As at 6 April 1999, he had been aware of the view that the key to the success of the development was the cinema complex, provided that there was no competing development, yet this was not stated in his valuation. (ii) In early 2000, he became aware of the approval of cinemas at Westlake Shopping Centre, and considered that this approval spelt the death knell of the Port Mall development. (iii) In late April 2000, he declined to provide a further valuation. (iv) On 8 June 2000, he had been asked to provide a further valuation by Robertson Finance, yet he had failed to respond. (v) On 13 July 200 he knew from Robertson that there were "some issues" in relation to the mortgages, that any reasonable insured in his position would understand that there had been a default under one or other of the mortgages, and that he failed to respond to the request for a valuation, at a time when he had a belief that Robertson was not aware of the impact of a competing cinema development. (vi) On 14 August 2000, he had been advised that Stonehaven had receivers appointed. 40 On 25 September 2002, sequestration orders were made against Mr and Mrs Moore, and Mr Mathews was appointed their Trustee in Bankruptcy. Proofs of debt were lodged by the Plaintiff in their estates. 41 On 5 December 2002 Mr Curley and HTW filed a cross claim in the District Court proceedings brought by the Murphy Group seeking indemnity under the first policy. A defence was filed relying on the "circumstances known clause" of the policy. 42 On 28 January 2003, the Plaintiff submitted a Proof of Debt to the Trustee in Bankruptcy of Mr and Mrs Moore. No dividend has issued in the administration of their estates. 43 On 1 July 2003, HTW was placed into Liquidation. Bruce Carter of Ferrier Hodgson was appointed to be official Liquidator. 44 On 3 November 2003, the cross claim in the District Court proceedings was struck out, and default judgment was obtained by the Murphy Group against HTW and Mr Curley. 45 On 27 April 2004, the Plaintiff submitted a Proof of Debt in the liquidation of Moore Corporation Pty Limited, one of the three guarantors of Stonehaven's borrowings. The Liquidator has advised that it has no assets. 46 On 16 September 2004, the Plaintiff's solicitor was informed by the Liquidator of HTW that there would be no dividend to creditors of the company. The Policy of Insurance Issued by the Defendant 47 HTW took out policies of insurance with the Lloyds syndicate represented by the Defendants through the Planned Professional Risks Underwriting Agency. 48 The proposal for the first policy was dated 24 August 2000 and the policy period was 6 September 2000 to 6 September 2001. The second policy was a renewal of the first policy and provided cover for the period 6 September 2001 to 6 September 2002. Renewal was declined for any subsequent period. 49 The policies were claims made and notified policies and contained the following clauses of relevance: "2.1. Underwriters shall not be liable under the Policy to provide indemnity in respect of any Claim against the Insured: Claims and Circumstances Known at Inception (a) made, threatened or initiated against the Insured prior to the Period of Insurance; (b) arising out of any circumstance(s) or occurrence(s) which could give rise to a Claim or Claims under the Policy of which the Insured was aware, or ought reasonably to have been aware, at inception of the Policy, whether notified under any other insurance policy or not; (c) arising from any matter the subject of any Claim referred to in the Insured's proposal. … Claims Notification 3.7 (a) the Insured shall give to the Underwriters notice in writing as soon as practicable during the Period of Insurance, or within twenty eight (28) days after expiry thereof, of: (i) any Claim made against any Insured; or (ii) the receipt of notice from any person or entity of their intention to make a claim against the Insured for the results of any alleged civil liability; or (iii) any circumstance of which the Insured shall become aware which may reasonably be expected to give rise to Claim being made against the Insured, giving reasons for the anticipation of such a Claim, with full particulars as to the dates and persons involved; Such notice having been given as required by 3.7(a)(ii) or 3.7(a)(ii) above, any subsequent Claim made shall be deemed to have been made during the Period of Insurance." 50 The term "Claim" is defined in clause 4.1 as: "(i) Any writ or summons or other application of any description whatsoever or cross-Claim or counter Claim issued against or served upon the Insured for any civil liability incurred or alleged in connection with the Professional Business Practice; (ii) Any written or verbal communication alleging any civil liability in connection with the Professional Business Practice communicated to the Insured." 51 It is accepted that while the policies were issued in the name of HTW, Mr Curley who was a Director of the Company, fell within the definition of an Insured Person. The Plaintiff's Causes of Action against HTW and Mr Curley 52 The Plaintiff asserts that HTW and Mr Curley would be liable to pay damages to it in relation to the short fall on the loan, upon the basis that but for the valuation, it would not have made the advance to Stonehaven. Its claims are formulated as arising from: (a) the negligent preparation of the valuation by HTW and Mr Curley; and (b) misleading and deceptive conduct on the part of HTW in breach of s 52 of the Trade Practices Act. 53 The Defendants concede, for the purposes of this application, that if the facts pleaded in the draft statement of claim were made good, and if HTW and/or Mr Curley were solvent defendants, then a claim against them would be made out, at least on a prima facie basis. They also accept that, subject to the matters in contest, the policy of insurance issued by them would respond to a claim made by the Plaintiff against their insured, that is, against both HTW and Mr Curley. The Operation of s 6(1) of the Law Reform (Miscellaneous Provisions) Act 54 It is common ground that the purpose of the leave requirement under s 6, is to protect insurers from unwarranted direct actions by claimants, who would prefer the course of suing a solvent insurer, to that of suing another party, who may or may not be able to satisfy a judgment. It permits a balance so as to preserve a suitable avenue of recourse where an insurer is available, and where action against the insured is likely to be fruitless, while also preventing defendants and insurers from entering into corrupt bargains in fraud of a potential claimant's rights: Grimson v Aviation and General (Underwriting) Agents Pty Limited (1991) 25 NSWLR 422 at 429; Oswald v Bailey (1987) 11 NSWLR 715; and Schipp v Cameron (1995) 8 ANZ Ins Cas 61-256. 55 It is also common ground that the prohibition contained in s 6(4) is mandatory, although leave may also be refused, as a matter of discretion, even if the prohibition does not apply: Tzaidas v Child [2004] NSWCA 252 at [17] per Giles JA. Has the Plaintiff shown that there is no Perfectly Good Common Law Defendant? 56 It is common ground that the Court may refuse leave unless it has been shown that there is no solvent or perfectly good Defendant which the Plaintiff could sue: Oswald v Bailey (1987) 11 NSWLR 715 per Kirby J. 57 Some evidence was called to show that attempts to locate Mr Curley in South Australia, and elsewhere, have been unsuccessful. That evidence also suggests, on a hearsay basis, that other claims have been made against him, including a claim by the Australian Tax Office as well as that leading to a default judgment for a sum in excess of $400,000 in favour of the Murphy Group. 58 The Liquidator of Stonehaven reported that Mr Curley also owed moneys to it on his loan account, and the Australian Property Institute in Adelaide has advised that it has terminated his membership and that mail addressed to him had been returned marked "return to sender". Attempts to contact him through phone numbers for subscribers with the name "J Curley", in South Australia, and in Western Australia, where he was last believed to be living, have been unsuccessful. 59 Land Title searches, which were made in relation to land in Victoria, Queensland, NSW, WA and South Australia, revealed only one property of which he was possibly a registered proprietor, being a property at 1/4 Hammere Street, Glen Waverley in the names of Marina Helen Shadforth and John Francis Curley. Whether that is the same person, and what is the extent of his interest in that property, has not been established. 60 I am satisfied, on a prima facie basis, that even if he can be located, proceedings against him to the extent of the Plaintiff's potential entitlement to damages will almost certainly be to no avail, being beyond the means of all but the most wealthy. 61 I am also persuaded that, in the circumstances of this case, including the winding up of HTW, Stonehaven, Moore Corporation, the bankruptcy of Mr and Mrs Moore, and the obvious short fall between the debt and securities available to the Plaintiff, that there is no realistic possibility of the Plaintiff recovering any portion of its loss except in the event of it having recourse to the insurance moneys. 62 In Schipp v Cameron (1995) 8 ANZ Insurance Cases 61-256, Young J (as he then was) noted that if there is some doubt in relation to the availability of a perfectly good common law Defendant, then leave ought ordinarily to be given. In the present case I have no such doubt, in the light of the inquiries which have been made, and the circumstances set out under the heading Facts. The winding up of Stonehaven obviously means that it is not available as a "perfectly good common law Defendant" and subject to the proper construction of s 6, that provision would as a consequence be engaged. 63 In the light of the fact that there clearly is a cause of action in negligence still available against Mr Curley, and in the light of my finding that he is similarly not a "perfectly good common law Defendant", it is strictly unnecessary for me to address the additional submission of the defendants, which was to the effect that a cause of action would also exist against him under the Trade Practices Act, although, as was conceded, action under the Fair Trading Act would, by now, be time barred. 64 This submission rested upon the proposition that the Act applied to Mr Curley because the HTW valuation certificate and information concerning it were posted and/or faxed. As a result, it was submitted the case would come within the reach of the Act, so far as Mr Curley is concerned, since the postal telegraphic or telephonic services power would be engaged (see s 6(3)(a) of the Trade Practices Act). It is sufficient, against the contingency of the matter going on appeal, to note that the Defendants' submissions were to the following effect: "Section 6(3)(a) extends the operation of the Act to the conduct of individuals involving the use of postal, telegraphic or telephonic services. As parliament intended the Act to have the widest application consistent with the limitations on the Commonwealth's constitutional power, the words "postal, telegraphic or telephonic services" within the provision are not limited to means of transmitting oral communications by way of telephone ( Haydon v Jackson (1988) ATPR 40-845), the sending of email ( Dataflow Computer Services Pty Ltd v Goodman (1999) 168 ALR 169), the posting of documents ( Swan v Downes (1978) 34 FLR 36) and the sending of facsimiles ( Lyric Nominees Pty Limited v Kitto , unreported, 12 September 1997, Supreme Court of Queensland)." 65 On a prima facie basis, although subject to the question whether the valuation on which the Plaintiff relied was provided by fax or post, I accept the general correctness of the submission that the postal and telegraphic power would potentially enlarge his exposure under the Trade Practices Act. I do not however consider, in the light of his conceded negligence, that it adds anything to the Defendants' case on this issue. 66 Accordingly I am not persuaded, in the light of the foregoing, that the Plaintiff has failed to establish this element, being one of the matters which it needs to address, if s 6 is to be engaged. Does s 6 apply to a claims made and notified policy where the event giving rise to the claim for damages occurs prior to the commencement of the policy? 67 A question arises in relation to whether or not s 6(1) applies to "claims made and notified" policies, such as that issued by the defendants, where the event giving rise to the claim for damages occurs prior to the inception of the policy. 68 There is a divergence on this point. Although initially the Plaintiff indicated that it accepted the Defendants' submission to the effect that the section did not apply in such a case, it later resiled from that stance. As a consequence, it is necessary for me to refer to the competing authorities, and to reach a conclusion as to which line to follow. 69 In FAI (NZ) General Insurance Co Ltd v Blundell and Brown Ltd [1994] 1 NZLR 11 Richards J said, in relation to a similar provision contained in s 9 of the Law Reform Act 1936 (NZ) (at 16): "Two elements must be present before a charge arises: the first is a contract of insurance by which the insured is indemnified against liability to pay any damages or compensation; the second is an event giving rise to a claim for such damages or compensation. In providing that the charge arises "on the happening of the event giving rise to the claim for damages or compensation" the subsection does not advert to those situations where the contract indemnified was entered into subsequent to the event giving rise to the Plaintiff's claim. No doubt that was because claims notified were not a common form of insurance practice in the contemplation of the legislators of 1936. But the subsection itself also provides that the charge is on "all insurance money, that is or may become payable in respect of the liability". It is implicit in the sub-section and in accord with the reality that the charge cannot arise unless and until there is insurance money available out of which it can be met, in short the charge arises only where there is in existence both contract of insurance indemnifying the insured and an event giving rise to the claim." 70 Robertson J similarly said (at 25): "the respondent's claim against [the insured] is in equity and no limitation period applies. The relationship between [the insured] and his insurers is in contract. The trigger point in respect of a potential liability for the Appellant is the emergence of a claim against [the insured] during the period of insurance. It would make the insurance cover of no utility if one were to interpret the provisions so that a claim notified in respect of an incident more than six years earlier (but itself not statute-barred) could not create a liability. The notification of the claim was made in this case more than six years after the event giving rise to the liability. I am not attracted by an interpretation which indicates that the remedial benefit contained in s 9 of the Law Reform Act is to have no potential for application." 71 Lindgren J in National Mutual Property Services (Australia) Pty Limited v Citibank Savings Ltd (No. 4) (1996) 138 ALR 409 stated (at 419) that it was "arguable" that s 6 of the New South Wales Act would apply to a claims made and notified policy in respect of events occurring before its inception. That view was confirmed by his Honour in FAI General Insurance Co Ltd v McSweeney (Judgment Part 1) (1997) 73 FCR 379. 72 In the first of these decisions, his Honour expressed the view that the statutory charge could be applied to a claims made and notified policy which came into existence after the event, if the charge was conceived of as partaking of the nature of a floating charge, which becomes fixed once there are moneys payable in respect of the liability in question. 73 In FAI, Lindgren J confirmed the approach which he had considered arguable in National Mutual, and declined to follow the construction which Cole J had given to the section in Capita Financial Group Ltd v Triden Properties (infra) NSWSC 6 September 1993, for the following reasons (at 415-147): "1. Unlike Cole J in Capita , I do not think that the expression "is indemnified'' speaks as at the time of the event, and therefore requires that a contract of insurance be in existence at that time. The construction that that expression speaks as at the time of adjudication by the court is at least equally open, and, in my view, it is the construction that is suggested by a natural and unforced reading of s 6(1). 2. The charge is expressed to be on, relevantly, "insurance moneys that may become payable'' in respect of the insured's liability to pay damages or compensation. In Oswald v Bailey , Kirby P considered (at 723F) that the expression "moneys that may become payable'' embraced a situation in which the precise amount of insurance moneys payable was not clear at the time of the event. In Bailey , McHugh and Gummow JJ referred (at CLR 449–50) to further "contingencies'' which might be contemplated by that expression, such as an insurer's right to avoid the contract because of a vitiating factor in its formation, or its right to disclaim liability for breach. While their Honours' observations assumed, consistently with the facts of the case before them, the existence of a contract of insurance at the time of the event, in my opinion, the expression "moneys that may become payable'' is apt also to accommodate moneys that may become payable after the subsequent entry by the wrongdoer into a claims made and notified contract of insurance. 3. The terms of s 6(1) do not expressly restrict the charge to, relevantly, moneys that may become payable under a contract of insurance in existence at the time of the event. Nor should such a limitation be held to be implied unless this is plainly required. It should not be readily implied because it is inconsistent with the policy objective which underlies the provision, namely, that of achieving the result that moneys which in fact become payable under a liability indemnity policy are made available to a claimant. It would have been a simple matter for parliament to add such words as "under the contract of insurance in existence at the time of the event giving rise to the insured's liability'' at the end of s 6(1) if the provision had been intended to have the restricted operation suggested. 4. No reason of policy has been suggested, and I can think of none, why the provision should not apply to a claims made and notified policy which comes into existence after the event. According to either of the two constructions described earlier, the charge is a "windfall'' for the claimant. It is no part of the policy which underlies the provision, that the claimant should have been aware of the existence of the contract of insurance, bargained for its existence, or dealt with the insured in reliance on its existence. The legislative policy of ensuring that the claimant will have the benefit of the moneys payable under a contract of liability indemnity insurance is better served by the second construction than by the first. The two constructions referred to earlier are both arguable, and the second should be preferred as better conforming to the purpose of the provision. 5. Section 6(7) presents no difficulty for either construction: according to the first, "the contract of insurance'' to which that section refers is that which was in existence at the time of the event; according to the second, it is that which existed during the period in which the relevant claim was made and notified. 6. Once it is accepted that the expression "moneys that may become payable'' encompasses the situation where moneys become payable pursuant to a claims made and notified policy entered into after the event, it is clear that the language of s 6(1) is always satisfied as at the time of the event, since it is always the case that the wrongdoer may, after the event, enter into a claims made and notified policy under which relevant moneys will become payable. 7. It seems to me, with respect, that the reasoning in Manettas gives an undue significance to the expression "on the happening of the [event]''. On any reckoning s 6(1) provides for a charge which comes into being on the happening of the event and continues in existence afterwards. Indeed, it is reasonable to think that in most cases, including most non-"claims made and notified'' cases, it is insurance moneys that "may become payable'' after the event rather than those that "are payable'' at the time of the event, on which the statutory charge can be expected to operate. This is because in most cases (as subss (2) and (3) of s 6 contemplate) the amount of the insured's and the insurer's liability will not be known on the happening of the event, and because the making of a claim by the insured upon the insurer for indemnity will be a condition precedent to the arising of the insurer's liability to indemnify. If s 6(1) had made explicit that which is implicit, by saying " … on and from the happening of the event …'', rather than simply " … on the happening of the event …'', the capacity of the provision to encompass claims made and notified policies subsequently entered into would, perhaps, have been clear." 74 Davies J in Jones v Mortgage Nominees (Federal Court of Australia 10 November 1995) had earlier indicated that he preferred this approach to the section, although he was not required to decide the matter on a final basis in those proceedings. 75 There is, however, a more consistent line of authority in this Court to the opposite effect. Cole J (as he then was) held in Manettas v Underwriters at Lloyds (1993) 7 ANZ Insurance Cases 61-180, and in Capita Financial Group Ltd v Triden Properties Ltd NSWSC 6 September 1993, that while s 6(1) does apply to claims made and notified policies, that is not the case where the event giving rise to the claim preceded the commencement date of the policy. 76 His Honour said in Manettas: "The argument is a simple one. The charge created by s6(1) must attach to insurance monies at the time of "the happening of the event giving rise to the claim for damages or compensation". The charge is "on all insurance monies that are or may become liable in respect of that liability". In the present instance the negligent acts or omissions of the insured solicitors occurred in 1988. The policy of insurance pursuant to which the insured solicitors claimed indemnity was a policy which came into existence in 1991. It responded to claims made and notified during the 1991-1992 financial year. Accordingly, "on the happening of the event giving rise to the claim for damages or compensation" in 1988 there were no insurance monies "that are or may become payable in respect of that liability". Thus s 6(1) can have no application to a "claims made and notified" policy, unless the event giving rise to the claim for damages or compensation occurs within the period of insurance covered by that policy so that there are, at that time, insurance monies that are or may become payable in respect of that liability. In any other circumstance there is nothing to charge because there was, at the material time, no insurance monies available to be charged. Although, as Meagher JA pointed out in Grimson at 428, the section is curiously drafted in that it "purports to grant a charge or security but not over any property", it is even more difficult to contemplate the granting of a charge at a time when the insurance policy does not exist. There is no doubt that the time at which the notional charge attaches is the time of "the happening of the event giving rise to the claim for damages". The words "on the happening of the event" deny any alternate interpretation. The Court of Appeal has held that "it is at that time and none other, that the charge attaches. The subject matter of the charge must then be determined, again at that time" (Oswald (1987) 4 ANZ Ins Cas 60-807 at p 74, 951, 1987 11 NSWLR 715 at 723 per Kirby P). Further, Samuels JA said in Oswald … 'Furthermore, it cannot be doubted, in my opinion, that since s6 establishes a charge upon "insurance monies", the effectiveness indeed the reality of the charge, must depend upon whether that subject matter exists'. If at the relevant time there is no insurance policy, there cannot be any "insurance monies". The words of s6(1) in my opinion, inevitably lead to the conclusion that s6(1) does not apply to "claims made and notified" policies where the event giving rise to the claim for damages occurs prior to the commencement of the period of the policy." 77 In Capita his Honour came to the same conclusion, observing: "No liability…arises until the cause of action of the third party is complete. A negligent act without loss creates no liability in the insured nor can it give rise to "the claim for damages" in the third party. The "happening of the event" which gives rise to "the claim for damages" by the third party on the insured must thus relate to that event which completes the cause of action and permits the making or the "giving rise to" the claim for damages upon the insured. The "claim for damages" referred to in section 6(1) must, in my view, relate to a maintainable claim for damages in the sense that there is complete cause of action." 78 In Carnie v Richmond NSWSC and Ors 9 September 1997, Dowd J made reference to the proposition accepted by the authorities (Bailey v NSW Medical Defence Union Ltd (1995) 69 ALJR 890, and Oswald v Bailey (1987) 11 NSWLR 715) that the charge arises on the happening of the event giving rise to the claim for damages or compensation, and to the nature of that charge. His Honour said: "In Findlater v Public Trustee and Queensland Insurance Co [1931] GLR 291 at 293 Blair J construed s10 of the Motor-vehicles Insurance (Third-party Risks) Act 1928, which is part of the ancestry of the current Act, as follows: 'As Wiggs' negligence (he was the insured) has not yet been established the amount of this charge is not fixed, but the charge though indefinite as to amount becomes fixed as soon as liability on Wiggs' part is established. Until it becomes fixed and there is only a possible liability the charge is in the nature of a floating charge liable to become fixed with its priority preserved as from the date of the accident'. A more recent case, referred to me by the applicant and to which I will refer again later in this judgment, is National Mutual Property Services (Australia) Pty Ltd & Ors v Citibank Savings Bank Ltd & Ors (1996) 138 ALR 409 per Lindgren J. In that matter his Honour held that the word ('charge' as used in s6(1) might refer to a floating charge which would fasten upon a particular right of indemnity upon a claim for damages or compensation coming into existence. I have some difficulty, however with his Honour's reasoning in that his Honour emphasises the fact that the 'charge' is on moneys that "may become payable" but does not seem to give sufficient weight to the words in s6(1) of the Act, the words that "the amount of his liability shall, on the happening of the event giving rise to the claim for damages or compensation." It seems to me that a charge descending on insurance moneys "on the happening of the event" can mean only at the time of the event the subject of the claim itself and insurance moneys that "may become payable" do not comfortably fit in terms of the actual words used in s6(1) with the nature of a "claims made and notified policy". … The legislative provision nominates a time at which the 'charge' attaches. As Kirby P indicated in Oswald at p724, "it is at this time that the decision must be made whether there are "insurance moneys" and whether at that date they "may become payable in respect of ..liability". It is apparent that the words "may become payable" were used with reference to insurance moneys being determined by litigation and in terms of quantum only rather than to necessarily import a flexibility as to when the charge may arise." 79 His Honour concluded: "I do not consider that the New Zealand Court of Appeal decision of FAI (NZ) General Insurance Co Ltd v Blundell & Anor constitutes a decision which is as persuasive as the clearly enunciated words used in the section as set out by Cole J in Manettas. No matter how beneficial legislation may be in intent, it is for the legislature to bring that intent to cover a new set of circumstances and not for the courts to do so, no matter how unjust the consequences of the legislative enactment may be. The fact that there has been a significant change in insurance practice would, in my view, oblige a review of s6 of the Act to bring it into alignment with the clear need to apply that legislative intent to the "claims made and notified" policies. The simply fact however is that the words used and the structure of s6(1) do not in the actual words used cover a "claims made and notified" policy and no amount of beneficial intent or appeals to justice should cause a court to stretch the meaning of the language used. Further, I do not consider that the New Zealand Court of Appeal in the judgment referred to immediately above, which does not examine the words in the way that they were examined in Manettas, is persuasive of a legislative intent to cover a form of policy that was clearly not in contemplation at the time of the enactment of the legislation. … …There is no dispute that the section is to be of beneficial import and is not to act to deprive a genuine plaintiff of relief from an insurer who may be found liable. It is similarly not disputed that the very nature of "claims made and notified" policies involves a necessary lapse of time between the occurrence giving rise to an action and the likely claim being brought to the attention of the insurer. The legislation does require further amendment in order to include "claims made and notified" policies." 80 In Schipp v Cameron (1995) 8 ANZ Ins Cas 61-256 Young J (as he then was) favoured, at the leave stage, the view which had been taken by the New Zealand Court of Appeal, which was to the effect that more weight should be placed on the words "all insurance money that is or may become payable in respect of a liability" then upon the words "on the happening of the event…be a charge on all insurance moneys", (upon which Cole J had focussed). His Honour did not, however, consider it necessary to decide the point on a leave application. 81 When the matter came on for trial (Schipp v Cameron Harrison and Ors [1998] NSWSC 997) Einstein J decided, after an extensive review of the authorities at [893], that: "in order for a s 6 statutory charge to arise there must be a contract of insurance on foot when the event giving rise to the claim for damages or compensation occurs. Only then is there property, in the form of a fund of insurance moneys to which a charge can attach…" 82 His Honour declined to follow the decisions of Lindgren J in the Federal Court. Unlike Lindgren J, his Honour considered that the decision of the High Court in Bailey pointed towards a narrower construction of the section, observing at [844]: "[844] The High Court was not required to consider the issue which is currently before the Court, that is whether or not a section 6 charge is applicable in circumstances where no contract of insurance was in existence on the happening of the event giving rise to the claim for damages. In the course of construction of section 6, however, the statement by Justices McHugh and Gummow that "the contract of insurance is that as it stood when the charge descended" assumes that a contract of insurance was required to be in existence at the relevant time. It seems to me, than, that the effect of their Honours' decision is that no charge can be created in favour of a third party if the event occurred prior to the existence of a relevant contract of insurance and, therefore, that the section has no operation in the present proceeding." 83 His Honour regarded this decision as standing in the way of accepting the approach taken by the New Zealand Court of Appeal in FAI (NZ) observing at [856]: "[856] Robertson and Richardson JJ stated that section 9 of the New Zealand Act would apply to claims made policies where the relevant event had occurred before the commencement of the policy. Their Honours reasoning cannot, however, be adopted by me because it is inconsistent with the judgment of McHugh and Gummow JJ in Bailey . Richardson J was able to conclude that section 9 of the New Zealand Law Reform Act applied, even when an event occurs before the applicable claims made policy had come into existence, by accepting that the charge only arises when the insurance policy comes into existence, which may be after the event has occurred; Roberston J, implicitly, also accepted the rationale... In the light of the High Court decision in Bailey , which held that the charge was created on the happening of the event giving rise to the claim for damages or compensation, it is not open to this Court to accept that line of reasoning in these proceedings, and for that reason, I do not find the decision persuasive." 84 His Honour was also not prepared to accept the floating charge analogy upon which Lindgren J had based his decision in McSweeney, observing at [866]: "[866] In my view, it is misleading to draw analogies between on the one hand, charges created by virtue of section 6 and on the other hand, floating charges and equitable charges. The creation of charges at law and in equity is dependent upon an existing relationship between the parties, albeit it is a relationship in which the rights of the parties may change as and when property is acquired, and an agreement between the parties which in equity may be seized upon as a basis of relief. In the case of a charge created by operation of statute, however, there is no such relationship between the parties nor, in the case of a section 6 charge, is there any agreement between the third party and the insurer which might provide the basis of relief. The entitlement of the third party is only created when a cause of action arises and the relevant defendant is indemnified against the liability alleged. In my view, a construction of the section which relies, by analogy, upon consensus or agreement between the parties is not instructive and, as it seems to me, only serves to highlight the difficulties of adopting such an approach in order to determine the operation of the charge arising pursuant to section 6 of the L aw Reform (Miscellaneous Provisions) Act ." 85 The alternative submission to the effect that s 6 created a sui generis remedy, namely a charge the description and characteristics of which were to be found only in the terms of the section, and not by reference to charges arising at common law or in equity, while accepted as a basic proposition, was not, however, considered to be of avail to the Plaintiff. His Honour said, in this regard at [872] – [875]: "872 It seems to me that McHugh and Gummow JJ [in Bailey ] have adopted the interpretive approach on which the Plaintiff relied. Their Honours held that section 6 had created a right that did not exist at common law or in equity. The statutory right provided for in section 6 is required because the law of privity of contract precludes a third party suing on the contract of insurance at common law or in equity. McHugh and Gummow JJ held that the section also created a novel remedy in respect of that right, in the sense that the conditions at law and in equity as to when a charge may arise in respect of present and future property do not apply to the statutory charge created by section 6. In reaching this conclusion their Honours relied on the terms of section 6 itself. The section 6 charge arises by force of statute and the person for whom the charge is created has a statutory right of action to enforce the charge against the insurers. McHugh and Gummow JJ did not regard the creation of the charge or its enforcement as being dependent upon principles of common law or equity, rather they inferred from the terms of the section. 873 I do not, however, understand their Honours to be saying that, in addition to removing the distinctions between the various conditions which must be met in order for a charge to attach according to existing legal principles and the time at which that will occur, the distinguishing feature of a charge, namely that it is a security interest in property had also been eradicated by statute. 874 In Oswald v Bailey , Samuels JA stated (at 732) that there must be property to which the charge can attach at the time that the relevant event occurs: "… it cannot be doubted, in my opinion, that since s 6 establishes a charge upon 'insurance moneys', the effectiveness, indeed the reality of the charge must depend upon whether that subject matter exists." 875 Nor, as it seems to me, are there any inferences which may be drawn from the words used in section 6 which suggest that the charge arises and remains inchoate until a contract of insurance comes into existence." 86 Finally, while his Honour gave consideration to the repeated cautions that the section should be given a beneficial construction, he also noted, at [887], citing Khoury v Government Insurance Office of New South Wales (1984) 58 ALJR 502 at 508, that beneficial interpretation of legislation may not distort the meaning of the words which it uses. 87 This line of authority is also consistent with the view, which was expressed by Thomas J in Independent Wool Dumpers Pty Ltd v American International Underwriters (NZ) Ltd (1992) 7 ANZ Insurance Cas 61-152 that the words "the happening of the event giving rise to the claim for damages" relate to the event which might give rise to the claim for damages for which the insured is indemnified. This decision was applied by the Court of Appeal in this State when the Capita matter came before it (Triden Properties Ltd v Capita Financial Group Ltd (1990) 30 NSWLR 403), where Sheller JA said (at 60) that the event to which s 6(1) refers "is the event which triggers the insured's right to claim an indemnity from his or her insurer". 88 I am of the view that, as unsatisfactory as it might be that a provision which was intended to have a beneficial application should necessarily be so read down, the proper course for me is to follow the consistent approach which has now been taken at first instance in this Court, where it has been necessary to decide the point. 89 The Legislature has not responded to the invitation of Dowd J to amend the provision, a recommendation which I would endorse, even though, as the defendants pointed out, there are alternative remedies available to a claimant who has difficulty in recovering a judgment award from an insured party (for example s 51 Insurance Contracts Act 1984, s 562 of the Corporations Law, and s 117 of the Bankruptcy Act). Absent appellate review or legislative intervention, or obvious error in this line of authority (as to which I am not satisfied) I consider that, in accordance with conventional practice, I should follow the decisions of Cole, Dowd and Einstein JJ, being cognate decisions of this Court. Although I was invited to defer a final decision upon this point, and to approach the question, at the leave stage, as unsettled, and as open for argument on a final hearing, I do not consider that I should accede to that submission, having regard to the decisions mentioned, and to the potential costs involved. 90 I do however add that the need for legislative reconsideration is made all the more obvious by the assumption or suspicion which was noted in FAI (NZ), and repeated in Carnie and in Schipp that, when the legislation was first drafted, the legislators had not contemplated the existence of claims made and notified policies, and by the further observation of Einstein J in Schipp at [890] as to the greatly expanded use of such policies, particularly in the area of professional indemnity insurance. When did the event triggering the right to an indemnity occur? 91 The plaintiff submitted that the "event" which triggered the right of the insured to claim an indemnity from the defendants, and gave rise to the "charge" referred to in s 6, both arose after the inception of the first policy. The defendants submitted that the relevant event occurred before policy inception. 92 Of relevance for this issue is the decision in Kenny and Good v MGICA (1992) Limited (1999) 199 CLR 413 and, in particular, the observations of Gaudron J in relation to this question. That case was one where a mortgagee, who had relied upon a valuation, received the benefit of the mortgage insurance which it had taken out with the respondent in relation to the loan. The respondent exercising its rights of subrogation, then sued the appellant valuer in negligence for an inadequate valuation. 93 Gaudron J said at [13] – [17]: "13. So far as concerns the claim in negligence, the notion that the entire loss sustained in this case is to be treated as caused by market forces assumes that the tort was complete when the loan was made. There is some basis in logic for that view because, as soon as the mortgage was taken by Permanent Custodians, it was less valuable than it would have been if the value of the property had been as stated. On that basis, however, the damages should be the difference in the value of the mortgage, not the loss that would arise in the event of a hypothetical sale on the day that the advance was made, which, in essence, is what is involved in the notion that, in this case, the entire loss is referable to market forces. Where economic loss is said to have resulted from a transaction entered into in reliance upon negligent advice or information, the approach of this Court has not been confined to looking at the immediate situation brought about by entry into the transaction. That is because, as was pointed out in Wardley Australia Ltd v Western Australia , "[w]ith economic loss, as with other forms of damage, there has to be some actual damage" and not simply "[p]rospective loss". And where a transaction involves benefits and burdens, "no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is 'worse off than if he had not entered into the transaction'." It was pointed out in Wardley that "[t]he kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected." Wardley was concerned with an action for damages for breach of s 52 of the [Trade Practices] Act. However, there is no reason in principle why the position should be any different in tort. The interest that a mortgage lender seeks to protect by obtaining a valuation of the proposed security is not simply an interest in having a margin of security over and above the mortgage debt. Rather, it is that, in the event of default, it should be able to recoup, by sale of the property, the amount owing under the mortgage. And that is also the interest of a mortgage insurer. It is the risk that recoupment might not be possible that calls the valuer's duty of care into existence. And it is the interest in recoupment that is infringed by breach of that duty. Moreover, the time that loss occurs (and hence the time when the tort is complete) is when recoupment is rendered impossible. In the case of a mortgage transaction, that will occur when it is reasonably ascertainable that sale will result in a loss. At the earliest it will be when default occurs and, at the latest, when the property is sold. Once the interest which calls the valuer's duty of care into existence is identified as the interest of the mortgage lender in recouping what is due under the mortgage in the event of default, it is simply a matter of common sense to treat the loss arising from inability to recoup as flowing from breach of that duty, except to the extent that that inability is, in law, referable to the lender's own actions or some supervening event. At least that is so where, but for the negligent valuation, there would have been no mortgage transaction at all." (Citations Omitted; Emphasis added). 94 McHugh J said at [35]: "…In my view, where a person has agreed to value property and, as a result of the agreement, a person to whom the valuer owes a duty of care has suffered loss, the proper approach is to apply the principles of contract law in assessing damages. Furthermore, that is the proper approach whether the plaintiff was a contracting party or merely a person for whose benefit the valuation was made. Speaking generally, the valuer is liable only for such losses as a reasonable person would regard as flowing naturally from the negligent valuation or which are of a kind that should have been within the valuer's contemplation…In the case of money lent on a valuation, the damages are confined to the difference between what was lent and what would have been lent on the true value of the property together with such expenses and other losses that were sufficiently likely to result from the breach of duty to make it proper to hold that they flowed naturally from the breach of duty or that they were within the reasonable contemplation of the parties to the contract or arrangement…" 95 Gummow J regarded the case (at 81) as not involving an ordinary situation, the analysis concerning which he agreed with McHugh J. His Honour continued: "the appellants furnished the valuation on the footing that an investment of trust funds to the extent of 65 per cent of the valuation would be suitable for a term of 3-5 years, the difference between the valuation and 65 per cent thereof providing a safeguard or "cushion" against losses upon enforcement of the security. The interest of MGICA was that, in the event of default, the mortgagee would have the capacity to recover the amount secured by realising its security and without calling upon the insurance. To the extent that MGICA recouped to the mortgagee the moneys secured by the mortgage, it would have an interest in the security by way of subrogation. … MGICA's risk of non-payment "crystallised" at the moment of realisation, when the relationship between the market value of the property and the moneys secured became fixed in the relevant sense. MGICA sustained an economic loss arising from the fall in the property market as a result of the valuation because the value of the property had been negligently overstated in circumstances where MGICA would not have entered into the transaction but for the valuation. The "loss" which is recoverable was sustained at the time of default and not at the time of entering into the transaction. In Rabadan v Gale , Salmon J considered a similar situation. The third defendant, the plaintiff's former solicitors, had negligently drafted a lease. They had failed to execute the plaintiff's instructions to draw a lease allowing her to undertake certain modifications to the leased dwelling. On a strike-out application, the question was whether the action was statute barred. This presented the issue, "[w]hen could the plaintiff first sue [in tort]?". Turning to the common law rule that a cause of action in tort only accrues when both the breach and damage have occurred, Salmon J determined the first moment of damage. Following Wardley , his Honour held that the loss could not have been quantified at the time of entering the lease as a contingency had yet to be fulfilled. This was the possibility that the plaintiff could have obtained consent to the modifications from her fellow lessees in the dwelling. In the present case, the contingency to be fulfilled was the state of the property market at the time of default. If the realised market value of the property had equalled or exceeded the sum secured, because the property had been sold into a buoyant property market, or, as in this case, if the property market had only slightly fallen, no recoverable "loss" would have arisen. The contingency would have fortuitously operated to the benefit of the valuer, the party at fault. Moreover, on the facts of this case, the more accurate the valuation had been, the greater the absolute margin or buffer that the valuers would have received in a falling market. MGICA had a fixed policy of lending no more than 65 per cent of the value of the property. In this way, the temporal question is resolved in a fashion which imposes on the negligent party both the benefit and the burden of the contingency. Other possible contingencies which may affect the value of the property may not reasonably be foreseen by the negligent party ] , or may be too remote from or not caused by the act of negligence. Losses arising from such contingencies would not be recoverable. The party which is not at fault should not carry the burden of a contingency when that party has no control over it, in circumstances where the contingency is not remote and is reasonably foreseeable by the party at fault and where the legal wrong, in this case careless representations, induces the faultless party to expose itself to the contingency." (Citations omitted). 96 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, it may be noted, was a case where damages were claimed under the Trade Practices Act, in respect of a loss sustained by the State of Western Australia, as a result of misleading and deceptive conduct on the part of Wardley, which had led it to grant an indemnity to a Bank against a facility which had been given by the Bank to Rothwells Limited. The majority (Mason CJ, Dawson, Gaudron and McHugh JJ) there said at 532 to 533: "…If, contrary to the view which we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred. A deferred liability may stand in a different position but there is no occasion here to discuss that matter. … The conclusion which we have reached with respect to the time when the plaintiff first suffers loss in respect of contingent loss or liability accords with the comment of Gaudron J. in Hawkins v. Clayton ((42) (1988) 164 CLR, at p 601): "(I)f the interest infringed is an interest in recouping moneys advanced it may be appropriate to fix the time of accrual of the cause of action when recoupment becomes impossible rather than at the time when the antecedent right to recoup should have come into existence, for the actual loss is sustained only when recoupment becomes impossible". (emphasis added) Gaudron J. went on to point out: "It would be too simplistic to restrict analysis of economic loss merely to a consideration of reduced value or increased liability." The conclusion which we have reached is reinforced by the general considerations to which we referred earlier. It is unjust and unreasonable to expect the plaintiff to commence proceedings before the contingency is fulfilled. If an action is commenced before that date, it will fail if the events so transpire that it becomes clear that no loss is, or will be, incurred. Moreover, the plaintiff will run the risk that damages will be estimated on a contingency basis, in which event the compensation awarded may not fully compensate the plaintiff for the loss ultimately suffered. These practical consequences which would follow from an adoption of the view for which the appellants contend outweigh the strength of the argument that the principle applicable to the cases in which the plaintiff acquires property (or a chose in action) should be extended to cases where an agreement subjects the plaintiff to a contingent loss. In such cases, it is fair and sensible to say that the plaintiff does not incur loss until the contingency is fulfilled." 97 The Plaintiff in the present case relied upon the observations of Gaudron J in Kenny v Good and of the majority in Wardley, in support of the proposition that the cause of action against the valuer, giving rise to the entitlement to an indemnity, accrued when the sale of the mortgaged property was completed. 98 Alternatively, it was submitted, the event occurred when the Receiver of Stonehaven reported on the Company's financial position, making it clear that the Plaintiff would not recoup its investment. Either date, on its case, was the date when it became reasonably ascertainable that the mortgage transaction would result in a loss, per Gaudron J in Kenny and Good, or when the contingency was fulfilled per the majority in Wardley. Each of these dates would have followed the inception of the first policy, and as a consequence, it was submitted s 6(1) was engaged. 99 The Defendants drew attention to the more recent decision of the High Court in HTW Valuers (Central Qld) Pty Limited v Astonland Pty Ltd [2004] HCA 54. That was a case with some factual similarity, in which an investor purchased a small shopping plaza in reliance upon a report from a valuer concerning the maintainability of the current rental levels. The valuer was found to be in breach of the duties created by the contract, by the law of tort in relation to negligent advice, and by s 52(1) of the Trade Practices Act, in so far as the advice had not been qualified by a caution that the effect on those rentals of a shopping centre planned for a nearby location, was uncertain. 100 The decision was principally concerned with the correct basis for the assessment of the Plaintiffs' damages. Of relevance for the present case, however, in the Defendant's submission, was the following passage in the judgment of the Court (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ): "…If the plaintiff had learned the day after entering the contract to buy the Plaza, or the day after completing that contract, that the defendant's conduct had been misleading in the sense ultimately found by the trial judge, it could have started proceedings then and there. There was unchallenged evidence from Mr Dodds that on either of those dates the plaintiff was in fact worse off as a result of the defendant's breach, since the market value was less than the price. It was not necessary to wait for nearly two years to ascertain that some loss had been suffered. The plaintiff could have found out at once that it had bought something which was worth less than that which it had agreed to pay and did pay. It could have recovered at least the difference between the price paid for, and the market value of, the Plaza. The limitation period would have begun to run. It is incorrect to treat this case as being like Wardley Australia Ltd v Western Australia , on which the trial judge relied. That case held that a risk of loss is not itself a category of loss, and that if a plaintiff enters a contract exposing it only to a contingent loss or liability, the plaintiff "sustains no actual damage until the contingency is fulfilled and the loss becomes actual". The plaintiff was not exposed to a contingent loss; it had suffered an actual loss. Nor is the present case one like Murphy v Overton Investments Pty Ltd . There the applicants had been induced to enter into a lease and incur an obligation to pay charges for outgoings. Whether the charges would rise above the level stated before the applicants entered the lease was contingent in the sense that it was not inevitable: the contingency could never eventuate unless the respondent exercised its discretion to increase the charges. There was thus a contingency hidden by the respondent's conduct which might or might not come to pass. But in this case the risk of the catastrophic effect on rent levels of the Plaza after March 1999, to which the defendant had not alerted the plaintiff, had already had an impact on the value of the Plaza by April 1997. That, on the evidence, was not the case in Murphy v Overton Investments Pty Ltd . The impact of the Beach Road Shopping Centre, unlike the contingency in Murphy v Overton Investments Pty Ltd , was not hidden and did not rest on any discretionary decision by anyone. Nor is the present case - the purchase of an asset at an over-value - similar to Henville v Walker where "land was purchased for a specific purpose and ... the development project involved not only the acquisition of the land but also the building and marketing of units". On the other hand, the difficulties with damages assessment in the present case cause it to bear some resemblance to cases where a wrong results in the immediate loss of a chance or commercial opportunity which had some value, although the process of measuring the worth of that chance or opportunity depends on estimating the significance of events which are, or may be, yet to come." 101 In reliance upon this decision the Defendants submitted that the relevant event crystallising the cause of action occurred when the loan was made, that is, 23 June 1999, since from the outset the true value of the principal security taken by the Plaintiff was significantly less than the amount of the advance. 102 Alternatively, if the observations of Gaudron J in Kenny v Good, or of the majority in Wardley were applicable in identifying the relevant date, then various alternatives were identified, each of which preceded the inception date, including the default date, the date on which Mr Curley became aware of the West Lakes Project, the date of the UCV valuation, and the date of the appointment of the Receiver to Stonehaven. 103 I am not persuaded that Astonland is determinative of the present case. What was there said was obviously relevant for a case involving a contract for the purchase of land or some other property at an overvalue where, from the outset it was possible to ascertain that a loss had been suffered. 104 In the case of a loan transaction, while it might be possible to say that, from the outset, the security was less valuable than expected, it does not inevitably follow that the transaction will result in a loss. Particularly is that the case where the loan is not repayable until a later date, or where the valuation of the property taken as security was made both on an "as is" and on an "on completion" basis, (each of which was the situation here) since there is always the possibility of later events or market forces resulting in some increase in its worth. Indeed, had the Westlakes Project not proceeded, the value of the mortgaged property could have been substantially higher. 105 In any event, in the case of a loan transaction, the borrowers' ability to repay, is not solely determined by the value of any security given. In the instant case, there was the added factor that additional security was taken over the borrower's assets by way of the fixed and floating charge, and by way of the guarantees from the Moore Corporation and from Mr and Mrs Moore. Recourse to those securities could potentially have made good any short fall arising from the sale of the mortgaged property. 106 The present case is one where there was a contingency of a loss arising from the date of that advance, but I am not persuaded that the contingency became an actuality, crystallising the cause of action, until a later time. The various possibilities for the moment of crystallisation of the cause of action giving rise to an indemnity may be identified as follows: Events Preceding the First Policy (a) The date of the valuation – 6 April 1999 (b) The date of the advance – 23 June 1999 (c) The date of the first default – 30 August 1999 (d) The date on which Mr Curley became aware of the West Lakes Project – April 2000 (e) The dates on which HTW was asked to provide further valuations but failed to respond - 26 April 2000 to July 2000 (f) The date on which the Plaintiff's solicitors made a formal demand upon Stonehaven requiring the payment of the outstanding interest instalments. - 27 April 2000 (g) The date on which the loan fell due, and on which Stonehaven fell into default. - 23 June 2000 (h) The date of formal demand for repayment of the amount advanced and of the accrued interest in default of which Stonehaven was advised of the Plaintiff's intention to exercise its power of sale. - 12 July 2000 (i) The date on which a Receiver of Stonehaven was appointed by the Plaintiff - 7 August 2000 (j) The date on which the UCV valuation of the mortgaged property at $2.12M was made, being indicative of a significant short fall on the realisation of the security. - 31 August 2000 Events following the inception of the policies (k) The date on which the Receiver of Stonehaven advised the Plaintiff of the borrower's deficiency of assets over liabilities and of the improbability of the Plaintiff recovering its loan in full. - 11 October 2000 (l) The date on which the sale of the mortgaged property was settled. - 15 August 2001 107 Following the Wardley approach, as well as that favoured by Gaudron J in Kenny and Good it appears to me that it was reasonably ascertainable by 31 August 2000 at the latest, in the light of the combination of circumstances leading up to that date, that the Plaintiff would suffer a loss on the transaction. It follows that the event giving rise to the cause of action against which the valuer was identified preceded the inception of the policies. 108 In this regard it does not appear to be relevant that the UCV valuation was not available to the Plaintiff until the Receiver's report was received. 109 Objectively, as at that date, it was both clear and objectively ascertainable that there would be a significant short fall. It was also objectively ascertainable that the remaining assets of the borrower had been secured in favour of other creditors who had priority over the Plaintiff, and that the Plaintiff would not benefit from its fixed and floating charge. 110 Upon that basis I have reached the conclusion that s 6(1) was not engaged, and that the Plaintiff's application should be dismissed. Are the Defendants entitled under the policies to disclaim liability? 111 Having regard to the conclusions reached so far, it is strictly unnecessary to determine this issue. However, against the contingency of appeal, I will briefly deal with it. 112 In substance it was submitted that the defendants were entitled under the terms of Clause 2.1 of the second policy to disclaim liability and that as a consequence leave should not be given by the Court under s 6(1): Bailey v New South Wales Medical Defence Union Ltd (supra at 448 and 499, Fishwives Pty Limited v FAI General Insurance Co Ltd (2002) 12 ANZ Ins Cas. 61-515 and McMillan v Mannix (1993) 31 NSWLR 538. 113 That arose, so it was submitted, because Mr Curley, or a reasonable person in his position, would have been aware of circumstances which "could give rise to a claim", at the time that he and HTW committed to a proposal for the second policy, yet failed to notify the defendant of that fact. Those circumstances, in the Defendants' case, included the following matters: (a) In late 1999 or 2000 Curley became aware of the approval of another cinema development in the nearby Westlakes Shopping Centre; (b) Curley's stated belief, at the time each of the valuations was prepared, that the valuation was dependant on there being no existing or planned competing cinema complexes in close proximity to the property, was never contained in any of the valuations prepared; (c) Curley has never presented any material which refutes the overwhelming inference that arises from the objective facts, that he failed to provide the supplementary valuations in 2000 because of a consciousness of the embarrassing consequences of doing so. Thus Curley must have known that he would be unable to explain the difference between the 1998/1999 valuations and any valuation he might agree to undertake in 2000, thereby exposing the glaring errors manifest in the earlier valuation; and (d) The reason given by Curley for not accepting the retainers, viz, unpaid fees, was inadequate because no request was ever made by Curley to obtain payment of the outstanding fees. 114 They were otherwise set out in Mr Davies letter to Mr Curley of 5 August 2002, referred to earlier in these reasons. 115 This raises the question whether s 54 of the Insurance Contracts Act 1984 (Cth) could be invoked by the Plaintiff, in view of the decision in the High Court in FAI General Insurance Co Ltd v Australian Hospital Care Pty Limited (2001) 204 CLR 641 and of the Court of Appeal in Tzaidas v Child (2004) 208 ALR 651. That section is in the following terms: Insurer may not refuse to pay claims in certain circumstances (1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act. (2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim. (3) Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act. (4) Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act. … (6) A reference in this section to an act includes a reference to: (a) an omission; and (b) an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter. 116 There is a threshold problem for the Plaintiff in this respect, since s 54 is directed to giving relief where the basis for disclaimer is because of "an act (or omission) that occurred after the contract (of insurance) was entered into…". The situation which here arises would not seem to fall into that category. 117 The present case is one that depends upon the terms of Clause 2.1, not upon the breach of an obligation arising during the term of the policy to notify a relevant circumstance. In this regard, I accept as correctly stating the law the Defendants' submission that the test for notification of a possible claim is an objective one, namely, whether a reasonable person would realise that the circumstances or facts might give rise to a claim and not whether the particular insured realises that they might do so: FAI General Insurance Co Ltd v McSweeney (1999) 10 ANZ Ins Cas 61-443 at 75,033 – 75,034; Fishwives Pty Ltd v FAI General Insurance Co Ltd (2002) 12 ANZ Ins Cas 61-515 at 75,997 at [35] – [38]. 118 In any event the Court retains a discretion to refuse leave where it is satisfied that the Insurer has a bona fide arguable ground for disclaiming liability: Andjelkovic v AFG Insurance Limited (1980) 47 FLR 348 at 355; and see also Tzaidas v Child at [19] – [23]. 119 In the present case, employing the test for notification, which has variously been referred to in the authorities as suggesting to a reasonable person that there was a "definite risk", or a "real possibility", or that it was "on the cards" that a claim would be made, there clearly is an arguable if not a very strong case, for disclaimer available. Apart from the circumstances outlined earlier, it was also the case that, before the inception of the second policy, HTW had been notified of the intention of the Murphy Group to sue it for negligence in relation the valuation, Mr Curley had been interviewed by ICAC investigators and informed of concerns in relation to the valuation, and Mr Curley and HTW had notified the Defendants' agents of the Murphy Group claim. 120 I am not persuaded that the Plaintiff's answer to this submission provides a complete answer. It was to the effect that the negligence or misrepresentation relied upon relates to the "as is" valuation, and as a consequence, does not depend upon any assumption which the valuer made as to the absence of any competing cinema complex development, or upon a failure to make any proper inquiries in that regard. 121 While there is force in the submission that subsequent events which, with the benefit of hindsight point to the fallibility of an earlier valuation, might not need to be notified, the facts in the present case are somewhat stronger. Here there clearly were matters of which Mr Curley was aware arising out of the ICAC interview and Murphy claim which should have placed him on notice, before inception of the second policy, of the inevitability of the Plaintiff's claim. Moreover, or more relevantly, the reasonable person in his position was not to know whether the Plaintiff would sue on the basis of the "as is", or the "on completion" aspect of the valuation. What must have been clear was the inevitability of a claim in relation to the valuation as a whole. 122 It follows that the Plaintiff's application should be dismissed. Orders 1. Summons dismissed; 2. Order the Plaintiff to pay the Defendants' costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.