Supreme Court New South Wales Medium Neutral Citation: Tower Australia Limited v Pacific National Pty Limited & Ors [2012] NSWSC 1594 Hearing dates: 13 December 2012 Decision date: 17 December 2012 Jurisdiction: Equity Division Before: White J Decision: Refer to paras [61]-[64] of judgment. Catchwords: INSURANCE - whether there was mutual assent to variation of premium rates - no question of principle Legislation Cited: Civil Procedure Act (2005) Cases Cited: Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 Category: Principal judgment Parties: Tower Australia Ltd (Plaintiff) Pacific National Pty Limited (1st Defendant) Asciano Services Pty Limited (formerly Pacific National (ACT) Limited) (2nd Defendant) Pacific National (NSW) Pty Limited (3rd Defendant Representation: Counsel: P H Greenwood SC with C N Bova (Plaintiff) T Blackburn SC with I Griscti (Defendants) Solicitors: HWL Ebsworth Lawyers (Plaintiff) Dibbs Barker (Defendants) File Number(s): 2011/10765 Judgment 1HIS HONOUR: From 1 November 2002 until 31 December 2009 the defendants, to whom from time to time I will refer collectively as Pacific National, held a policy called a Group Salary Continuance Insurance Policy with the plaintiff. This policy provided disability benefits to employees of the defendants. It was the defendants' intention that the premiums for the policy would be funded by deductions from the employees' wages. 2The issue in this case is whether the premium rate from 1 February 2006 to 2 April 2009 was 0.528 per cent or 0.754 per cent of the insured benefits. 3When the policy commenced on 1 November 2002 the premium rate was 0.528 per cent of insured benefits. The policy was renewable annually, but could be terminated by the defendants at any time. The policy provided for disability benefits of 75 per cent of the employees' declared earned income up to a certain level. 4For the first three years of the policy and for three months thereafter, benefits for a disabled employee were available up to $108,000 per annum without the need for a medical report that was satisfactory to the insurer. This level of $108,000 of annual benefit was called the Automatic Acceptance Level. 5Clause 3.30 of the policy provided that, "Premiums are calculated in accordance with the Rate Basis as show in the Schedule." The schedule attached to the policy stated that the Rate Basis was 0.528 per cent of Insured Benefit. The policy contained a "Rate Guarantee" that, subject to an immaterial qualification, the premium would not be changed for the first three years of the policy. "Schedule" was defined as follows: "'Schedule' means the latter of: (a) the schedule attached to this Policy; or (b) the schedule relating to this Policy most recently issued by us; and in either case, as varied or endorsed by us from time to time." 6Clause 3.37 of the policy provided: "Following the expiration of the Rate Guarantee Period, as specified in the Schedule, we reserve the right to vary the premium rates and policy terms and conditions." 7Clause 3.42 provided: "We will issue notices at the address specified in the Schedule as the Registered Address for Notices." 8The address specified in the schedule as the Registered Address for Notices was Pacific National's office in Macquarie Street, Parramatta. 9The defendants appointed an insurance broker, Marsh Pty Limited ("Marsh"), as their agent to deal with the plaintiff in relation to the policy. 10On 27 October 2005 the plaintiff, then called PrefSure Life Limited, wrote to Mr Robert Brown of Marsh noting that the premium rate guarantee expired on 1 November 2005. The plaintiff offered a three-month extension on the existing rates, but said that the previous three years' base rates for this type of cover had altered significantly in recognition of degrading global experience trends. The plaintiff attached to its email of 27 October 2005 a revised summary of terms which were offered beyond 1 February 2006. The terms so offered were contained in a schedule entitled, "Group Salary Continuance Quotation Summary." The offered terms included a premium rate of 0.858 per cent of the benefit. Other terms included that maximum annual benefit per insured person would be $252,000 per annum (down from $300,000) and an unchanged Automatic Acceptance Limit of $108,000 per annum. 11On 15 November 2005 Marsh advised Mr Colin Buncle, the payroll manager of Pacific National, that the existing rates were due to expire on 31 January 2006, and that Marsh would be approaching the market on Pacific National's behalf to ensure that it enjoyed the most competitive rates. Marsh required information in relation to all of the employees to be covered by the policy. 12On 20 December 2005, Marsh requested better terms from the plaintiff. It asked that the maximum benefit be retained at $25,000 per month, or $300,000 per year. Marsh also said that having received 1 November 2005 data from Pacific National, there were now 470 employees enrolled in the plan, compared with 327 in the previous year. Marsh asked the plaintiff to revisit its new premium rate of 0.85 per cent of insured benefit. 13On 23 December 2005 the plaintiff provided a new quotation. It agreed to provide cover for Pacific National's CEO of $300,000 per annum, but said otherwise the maximum available benefit would be $252,000 per annum. It reduced its offered premium rate to 0.754 per cent of insured benefit. 14Mr Brown of Marsh responded on the same day saying, "Rates do still look better, still 43 per cent increase though!" Mr Brown asked for an increase in the Automatic Acceptance Limit from $9,000 per month to $12,000 per month. On 13 January 2006, the plaintiff advised that it was willing to offer an Automatic Acceptance Limit of $10,000 per month. 15On 31 January 2006 Mr Brown of Marsh advised the plaintiff that MLC had offered a marginally cheaper premium rate. Mr Brown asked: "Can you confirm if you wish to revise your rate, or if you would like me to submit the rates to the client as is. To confirm, MLC have also managed to match the $10,000 AAL, however they were not able to match PrefSure's maximum benefit." 16There was no evidence of the plaintiff's response to this email. It can be inferred that the plaintiff did not advise that it wished to revise its offered premium rate. 17On 1 February 2006 Marsh provided a report to Pacific National as to its options. It appears from that report that Marsh had approached ten insurers. Five were able to submit terms for Pacific National Group's Salary Continuance Policy. MLC offered a premium rate of 0.752 per cent of insured benefit, which was slightly lower than the plaintiff's offered premium rate of 0.754 per cent. 18In its report Marsh compared the terms offered by different insurers. Marsh recommended that Pacific National continue to insure with the plaintiff. Marsh said that should Pacific National accept its recommendation, all that was required was written confirmation by email, fax or a company letterhead. Marsh said if Pacific National wished to cancel the existing policy, written advice to Marsh was required. It did not suggest that there was scope for further negotiation. 19There was no evidence of any written advice from Pacific National either accepting the plaintiff's proposal as recommended by Marsh, or advising of its wish to cancel the policy. Nonetheless, the policy with Pacific National continued on foot. 20There is no direct evidence of Marsh's expressly informing an employee of the plaintiff that Pacific National had agreed to continue the policy on the terms quoted by the plaintiff. For the reasons which follow, the defendants' assent to those terms can be inferred and was communicated to the plaintiff through the conduct of the defendants and its agent, Marsh, by keeping the policy on foot. 21On 13 March 2006, Mr Brown of Marsh wrote to Mr Buncle and to a Ms Judy Adams of Pacific National. Mr Buncle was the Payroll Manager and Ms Adams had the position of Senior Human Resources Adviser. It appears from Mr Brown's email of 13 March 2006, which referred to his discussion with Mr Buncle the previous week, that there were some 54 employees who had been automatically included in the policy, but who had not been charged premiums due to a "glitch in the system", that is, in Pacific National's payroll system. Marsh provided a draft letter to be provided to employees. 22The draft letter, which Mr Brown of Marsh provided to Pacific National, stated: "Currently this is insured with PrefSure Life Limited (PrefSure), and is paid at a rate of $.0754% of insured benefit. Until now, and due to an oversight by the Pacific National payroll system, this benefit has been paid on your behalf by Pacific National. With effect from 1 November 2006, responsibility for these premiums will be passed on to you in order to correspond with other employees. The rate for this insurance will remain at $0.754% of insured benefit until 1 November 2008. You can work out your monthly contribution rate effective 1 November 2006 as follows: ($Your Annual Salary x 75%) x $0.754% = Annual Contribution (Divide by 12 for monthly deduction)". 23On 21 March 2006, in a letter to Marsh the plaintiff confirmed advice received from Marsh that ten named employees had joined the plan. The plaintiff noted that they were eligible for benefits up to the Automatic Acceptance Limit of $120,000 per annum. That limit was only available under the renewed terms quoted by the plaintiff for renewal of the policy from 1 February 2006. 24The actual premium payable by the defendants for any twelve-month period could not be known until after the period had expired. The premium depended on the number of employees insured, their salaries, and whether they were employed and were insured for the whole or part of the year. Therefore, the defendants paid a deposit premium at the start of the year that was an estimate and was subject to later adjustment. 25On 10 November 2005 the plaintiff had sought a deposit premium of $119,338.13 for the coming year, that is, with respect to the 2005 to 2006 period. In February 2006, the defendants paid a deposit premium of $67,078.62. The defendants paid a further deposit premium of $100,000 on 30 November 2006 with respect to the period from 1 November 2006 to 31 October 2007. 26On 19 September 2006, the plaintiff wrote to Marsh concerning the annual review of the policy due on 1 November 2006. The plaintiff requested a list of "in force members", a notification of those who had joined and those who had left the plan and the dates of their having done so. Prior to this, on 10 August 2006, Marsh had written to the plaintiff enclosing a notification from Mr Buncle that, due to an error on the part of Pacific National, a number of employees had not become members, although they would have liked to have been members. On 25 August 2006 the plaintiff advised that those individuals could join on a nominated future date. These are all instances in which both parties continued the policy. Indeed, it is not in dispute that the policy continued. 27On 29 November 2006, Mr Buncle sent to Marsh a listing of the employees enrolled in the plan, their remuneration and other details. The listing provided by Mr Buncle to Marsh included the amounts of contributions deducted per month from each employee's salary. Although not explained in the schedule, the deductions made by Pacific National were at 0.528 percent of 75 percent of each employee's monthly salary adjusted for stamp duty. Initially it was submitted for Pacific National that this listing was provided to the plaintiff. However, that was not so. Marsh reformatted the data and forwarded the data as reformatted to the plaintiff. In formatting the data, Marsh deleted the column showing the contributions deducted for each employee. Instead, it calculated a premium based on 0.858 per cent of actual benefit. In due course, this was corrected by the plaintiff. 28On 14 November 2007 the plaintiff advised Marsh that it had completed its annual review of the policy for the period from 1 November 2005 to 31 October 2006. The premium payable was calculated to be $181,205.42 net of stamp duty. The documents submitted by the plaintiff showed how this was calculated and showed that it was calculated at 0.754 per cent of insured benefit. 29On 10 June 2008 the plaintiff provided its review for the period from 1 November 2006 to 31 October 2007. Again, it provided a listing showing each employee covered by the plan and the amount of that employee's available benefit. Again, the listing showed how the premium was calculated, namely, at 0.754 per cent of insured benefit. The total premium net of stamp duty for that year was $247,953.34. 30On 20 October 2008 Mr Iordanidis of Marsh wrote to Ms Wickert of the plaintiff as follows: "Further to our telephone conversation, please find attached copy of the e-mail from Stuart Rowe to Nicky in relation to the V/Line Passenger Pty Ltd GSC Insurance policy. In relation to the Pacific National rate guarantee, please be advised the rates were extended by 3 months from 01/11/2005 to 31/01/2006, with the new rate effective 01/02/2006. In view of this, please confirm that the rate expiry is 31/01/2009. Should you have any queries or require further information, please feel free to contact me." 31On 26 February 2009, the plaintiff sent to Marsh its annual review and calculation of premium for the period 1 November 2007 to 31 October 2008. This again showed the premium as having been calculated at 0.754 per cent of insured benefit. Mr Iordanidis wrote to the plaintiff on 2 April 2009 advising that Marsh agreed with the costings. At the same time Marsh forwarded the costings to Pacific National advising that it had audited the calculations and agreed with the premiums requested. 32On 23 April 2009, a Mr Guy Lamond of the second defendant, Asciano, sent an email to Mr Iordanidis stating: "Was the increase in rate communicated to Pacific National? We seem to be still using .365% so we still have under-recovered premiums from employees meaning PN has to foot the bill." 33Mr Iordanidis replied on the same day saying that, "The increase in the rate was communicated to Pacific National in 2006, when a re-tender of the policy was completed." That statement was true. 34The defendants' complaint is about their own administrative errors. It is quite clear that on 1 February 2006 Pacific National was advised of the premium rate that would be charged by the plaintiff from 1 February 2006 if Pacific National maintained its plan with the plaintiff, which it did. 35The defendants point to the absence of any express direct evidence that they accepted the plaintiff's quotation of 23 December 2005, as modified on 13 January 2006. Counsel for the defendants relied on clause 3.30 of the policy that provides that premiums are calculated in accordance with the Rate Basis shown in the Schedule. 36Counsel submitted that if the Rate Basis were to be changed, a new Schedule would have to be issued showing the varied rate. No new Schedule was issued until 9 March 2009 when the plaintiff sent Marsh a policy endorsement stating that with effect from 1 November 2005 (sic), the policy schedule was endorsed with a statement that "Unit Rate Basis was 0.754% of insured benefit". Counsel submitted that this could not be done retrospectively. 37I accept that there was no schedule relating to the policy issued by the plaintiff within the meaning of paragraph (b) of the definition of "Schedule" prior to 9 March 2009. But the definition of "Schedule" includes the schedule attached to the policy "as varied ... by us from time to time." 38There is a unilateral power of variation in clause 3.37 of the policy, although as a matter of practicality any variation would have to be consensual as the defendants could terminate the policy at any time. Nonetheless, the schedule was varied by agreement evidenced by the plaintiff's quotation and the subsequent conduct of the parties by which they accepted that the policy remained on foot. 39As counsel for the plaintiff submitted, the defendants knew that the plaintiff had not offered to renew the policy from 1 February 2006 on the existing premium rate, but only on the terms offered in the quotation. The parties' subsequent conduct, including that of the defendants' agent, Marsh, manifested a mutual assent to the terms proposed by the plaintiff (Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [71]-[79]). 40The policy does not preclude there being a variation of the premium rate in this way. There was no term requiring the insurer to notify the varied rate by a notice sent to the defendants' office specified in the policy as the address for service of notices. 41Counsel for the defendants submitted that an important part of the objective matrix of facts in which the policy was made was that the defendants would fund the premium by deducting contributions from employees. I do not agree that this was part of the objective matrix, but it makes no difference whether it was or was not. 42So far as appears, it would be a matter of indifference to the plaintiff whether the defendants provided the plan as a benefit to its employees to be funded by the employees themselves or by their employer. But, even if it were known to both parties that the defendants' intention was that the premiums would be funded by the employees themselves, that says nothing about the formalities that would be required to vary the premium rate. Such a fact would indicate that the plaintiff could not vary the rates unilaterally and without notice, but it did not do so. 43The defendants through their agent, Marsh, and through their employees, Mr Buncle and Ms Adams, knew of the proposed terms and accepted them. Although there is no evidence of an express written or oral acceptance, there was at least an implied acceptance of the terms, such acceptance being implied from the conduct of the defendants and Marsh through the steps taken to continue the policy. 44I do not accept the defendants' submission that the plaintiff and Marsh remained in a state of negotiation. It is true that the defendants did not immediately accept the plaintiff's proposed terms, but I can infer that they did so by no later than 13 March 2006. In any event, the terms were accepted by conduct by no later than 21 March 2006 when the plaintiff acted on the defendants' request to enrol the ten new members referred to in the plaintiff's letter of that date with an Automatic Acceptance Limit of $120,000 per annum. That was only available on the new quoted terms. 45Hence, I conclude that the Schedule was varied by the plaintiff with the consent manifested by conduct of the defendants, and that the premium rate payable under the schedule as so varied from 1 February 2006 was 0.754 per cent of the insured benefit. 46It is unnecessary to consider other issues that were raised concerning estoppel or the right of the plaintiff unilaterally to vary the rate. 47Ultimately, there was no dispute that if the defendants were liable to pay the premium at the rate of .754 per cent of insured benefit from 1 February 2006 that the total amount of unpaid premium was $410,024.63. 48The plaintiff is entitled to interest on the unpaid premium pursuant to s 100 of the Civil Procedure Act (2005). Interest is only claimed as from 27 May 2010. Subject to confirmation of the arithmetic being provided, prejudgment interest up to today totals $97,120.17. If that arithmetic is correct, judgment will be given for the plaintiff in the sum of $507,154.80 inclusive of prejudgment interest pursuant to s 100 of the Civil Procedure Act. 49I am told that the calculation is incorrect and that the prejudgment interest up to today is $97,090.18. 50Accordingly, there will be judgment for the plaintiff in the sum of $507,124.81. I give judgment accordingly. [Parties address on costs.] 51The prima facie rule is that costs follow the event and the defendant should pay the plaintiff's costs on the ordinary basis. There is nothing that counsel for the defendants can put for a more favourable position from the defendants' point of view on costs. 52The plaintiff tendered two offers of compromise. The first is dated 2 May 2011, in which the plaintiff offered to compromise the claim with the defendants on terms that there be judgment for the plaintiff in the sum of $429,339.23 plus costs as agreed or assessed. The parties are agreed that at the date of this offer, the amount to which the plaintiff would have been entitled had judgment been given at that time is in the order of about $450,000 inclusive of prejudgment interest. The difficulty with that offer is that it is for a sum plus costs as agreed or assessed. 53The second offer of compromise dated 23 December 2011 is an offer for compromise of the claim on the basis that there be judgment for the plaintiff against the defendants in the sum of $400,000. The offer stated that it was exclusive of costs, such that r 42.13A of the Uniform Civil Procedure Rules is intended to apply. 54This judgment is being given on the first day of vacation and the parties are not in a position immediately to argue the question which is the subject of conflicting authority as to whether or not the offer of compromise of 2 May 2011 was an offer exclusive of costs within the meaning of the rules. 55The plaintiff seeks an order for indemnity costs pursuant to the second offer of compromise, such costs to be payable from 23 December 2011 with liberty to the plaintiff to file a notice of motion pursuant to r 36.163A within 14 days for variation of that order to seek that indemnity costs be payable from 2 May 2011. If the plaintiff pursued that course, it is envisaged that I would direct provision of written submissions on both sides in relation to the question of whether the first offer of compromise was exclusive of costs within the meaning of the rules, having regard to the authorities by which I am bound. I think I should proceed in that way. 56Accordingly, I will simply deal in this part of the judgment with the claim for indemnity costs from 23 December 2011. It is not disputed that the offer of compromise of that date was made in accordance with the rules. Nor can it be disputed that the offer contained a significant element of compromise. 57It is submitted for the defendants that the Court should nonetheless make "an order otherwise." This is so for two reasons. The first is that at the time the offer of compromise was served, the defendants had brought a cross-claim against Marsh. That cross-claim was subsequently compromised. I do not know the terms on which it was compromised. It was submitted for the defendants that they would have been placed in an invidious position, had they accepted the offer, as they would have been forced in their cross-claim against Marsh to have proved that they were liable to pay the amount of at least $400,000 to the defendants. 58I do not consider that this is a sufficient reason for making a contrary order. Having regard to the position consistently taken by Marsh in correspondence to which I have referred, Marsh could not realistically have asserted that the defendants were not liable for the premium claimed. In any event, the defendants could clearly have established that the payment of $400,000 was a reasonable compromise of the plaintiff's claim. 59The allegations of breach against Marsh were essentially that Marsh failed to notify the defendants of a proposed variation to the policy terms, including premium calculation and failed to obtain instructions from the defendants in relation to those matters. I do not think the compromise of the plaintiff's claim would materially have affected the pursuit of that cross-claim. 60The other ground upon which it is submitted that "an order otherwise" should be made was that at the relevant times the parties affidavit evidence had not been served. As counsel for the defendants accepted, at the end of the day the oral evidence played little role in the litigation. The plaintiff's claim and the defendants' arguments were essentially based upon the documents. I do consider this to be a sufficient reason to make an order otherwise. 61For these reasons I make the following further orders. In terms of the short minutes of order, I substitute the date of 23 December in paragraph 2, and 24 December in paragraph 3. 62I then add four: I give liberty to the plaintiff to file and serve a notice of motion within 14 days seeking a variation of orders two and three to provide for the payment of costs on the indemnity basis from 3 May 2011. 63If such a notice of motion is filed, I direct that it be returnable before me on 12 February 2013 at 9.30am. If such a notice of motion and affidavit in support is filed, I order that the parties exchange and provide to my Associate written submissions by Thursday 7 February 2013. 1. Give judgment for the plaintiff in the amount of $507,124.81. 2. Order that the defendants pay the plaintiff's costs on the ordinary basis up to and including 23 December 2011. 3. Order that the defendants pay the plaintiff's costs on the indemnity basis from and including 24 December 2011. 4. Give liberty to the plaintiff to file and serve a notice of motion and affidavit in support within fourteen days seeking a variation of orders 2 and 3 to provide for the payment of costs on the indemnity basis from 3 May 2011. 5. If such notice of motion is filed, I direct that it be returnable before me on 12 February 2013 at 9.30am. 6. If such notice of motion is filed, I order the parties exchange and provide to my Associate written submissions by 7 February 2013. 64I give judgment and make those orders accordingly. 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. Decision last updated: 30 January 2013