Supreme Court New South Wales Medium Neutral Citation: Bank of Queensland Ltd v AIG Australia Ltd [2018] NSWSC 1689 Hearing dates: 8-10 October 2018 Decision date: 06 November 2018 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Loss for which defendant insurers are liable arises from multiple "Claims" Catchwords: BANKING AND FINANCE – banker and customer relationship – money market deposit accounts – deposits recommended by financial planner – financial planner alleged to have engaged in Ponzi Scheme – monies in accounts misappropriated – monies allegedly withdrawn without mandate – monies allegedly withdrawn with knowledge of fraud INSURANCE – liability insurance – aggregation clause – proper construction – how many "Claims" made in representative proceedings – whether loss for which insurers are liable arises from one "Claim" or multiple "Claims" – unifying factor – how many "Wrongful Acts" – whether there was a "series of related" Wrongful Acts – whether the wrongful acts "unrelated" – whether plaintiff's claim under policy subject to one or to multiple retentions Legislation Cited: Federal Court of Australia Act 1976 (Cth) Limitation of Actions Act 1974 (Qld) Cases Cited: AIG Europe Ltd v Woodman [2017] UKSC 18; (2017) Lloyd's Rep IR 209 American Automobile Insurance Co v Grimes 2004 US Dist LEXIS 1696 Attorney-General v Cohen [1937] 1 KB 478; [1973] 1 All ER 27 Barnes v Addy (1874) LR 9 Ch App 244 Cameron v National Mutual Life Association of Australasia Ltd (No 2) [1992] 1 Qd R 133 Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2001] 1 All ER (Comm) 13 Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] 4 All ER 43; [2003] UKHL 48 Morgan, in the matter of Brighton Hall Securities Pty Ltd (in liq) [2013] FCA 970 Ritchie v Woodward (Executor of the Estate of the late Brian Patrick Woodward); Rujo Pty Ltd v Woodward (Executor of the Estate of the late Brian Patrick Woodward); Barona Group Pty Ltd v Woodward (Executor of the Estate of the late Brian Patrick Woodward) [2016] NSWSC 1715 SMA Solar Technology AG v Beyond Building Systems Pty Ltd (No 5) [2012] FCA 1483 Wileypark Pty Ltd v AMP Ltd [2018] FCAFC 143 Texts Cited: D K Derrington and R S Ashton, The Law of Liability Insurance (3rd ed, 2013, Lexis Nexis Butterworths) Category: Principal judgment Parties: Bank of Queensland Limited (Plaintiff) AIG Australia Limited (First Defendant) Zurich Australian Insurance Limited (Second Defendant) Catlin Australia Pty Ltd (Third Defendant) Representation: Counsel: S M Nixon SC with J J Hutton (Plaintiff) M A Jones SC with M F Newton (First Defendant) D L Williams SC with R D Glover (Third Defendant) Solicitors: Jones Day (Plaintiff) Lander & Rogers (First Defendant) Colin Biggers & Paisley (Second Defendant) Wotton + Kearney (Third Defendant) File Number(s): SC 2018/64914 Judgment 1. Bank of Queensland Ltd seeks indemnity under a Civil Liability Insurance Policy issued by the defendants on 10 September 2012. The Bank seeks the "Loss" and "Defence Costs" it incurred in defending and then settling proceedings ("the Representative Proceedings") brought against it and its agent DDH Graham Ltd under Pt IVA of the Federal Court of Australia Act 1976 (Cth) ("the FCA Act") by Petersen Superannuation Fund Pty Ltd. The Bank paid $6 million to settle the proceedings. 2. The first defendant, AIG Australia Ltd, is the lead insurer under the policy and is liable for 37.5 per cent of the insured loss. The third defendant, Catlin Australia Pty Ltd is liable for 25 per cent of the insured loss. The Bank has settled with the remaining defendant, Zurich Australian Insurance Ltd, which was liable for the remaining 37.5 per cent of the insured loss. 3. The Policy provides that the Bank must pay a "Retention" or deductible of $2 million for "each and every Claim" and that the insurers only shall be liable for the amount of "Loss" and "Defence Costs" arising "from a Claim" in excess of that amount. 4. The question is whether the loss for which the insurers are liable arises from a single "Claim" as defined in the Policy (in which case only one Retention applies) or from multiple "Claims" (in which case multiple Retentions apply so that, for all practical purposes, the insurers have no liability to make any payment to the Bank). Decision 1. There were multiple "Claims". The Bank must bear multiple Retentions. Background 1. From 1998 the Bank offered customers a financial product known as a "Money Market Deposit Account". The parties referred to these products as "MMDAs". Relevantly to this case, the Bank offered that product between March 2004 and January 2013. 2. By an agreement dated 30 June 1998 the Bank appointed DDH as its agent to promote, process deposits to, and operate and administer MMDAs. 3. It was a term of that agreement that DDH "have charge of and responsibility for the conduct, operation and administration of [the MMDAs] on behalf of and as agent for the Bank". 4. Each account holder nominated a person as an authorised signatory; commonly the financial planner to whom DDH had promoted the MMDAs. 5. Once such financial planner was Sherwin Financial Planners Pty Ltd ("SFP"), which operated under the direction and control of its director, Mr Bradley Sherwin. 6. Administrators were appointed to SFP on 24 January 2013. It went into liquidation on 27 February 2013. 7. Between 10 March 2004 and 24 January 2013 SFP acted as financial advisor to Petersen and to at least 191 other "Group Members" as defined in the Representative Proceedings. It advised those Group Members to deposit funds in a MMDA. In the Representative Proceedings, Petersen claimed that it and the Group Members were unable to recover the funds deposited to their MMDAs and that, in effect, SFP was operating a "Ponzi" scheme and had misappropriated those funds. 8. The contract that those Group Members entered with the Bank (or alternatively with both the Bank and DDH) comprised an application form and the terms set out in Product Disclosure Statements published by the Bank from time to time. 9. Each of those Product Disclosure Statements included the following: "5.8 The relationship between banker and customer … (a) Terms implied into the contract between banker and customer Following are some of the terms that are implied into the contract between a bank and its customer in addition to those in your contract for your Account, unless the terms and conditions of the particular Account state otherwise: (i) Our duties: … ● Conform with your mandate – due to the debtor/creditor nature of your relationship with us, we are bound to conform strictly with your mandate which may be issued in the form of a cheque or some other written order including a passbook or withdrawal slip. Unless otherwise agreed, we are specifically obliged to repay an amount on demand at the branch where the account is located. ● Question a valid mandate – while we are subject to the primary duty to repay on demand an amount due to you, this is conditional upon our duty to question a request for payment. We will do this in circumstances which raise a serious or real possibility that fraud is being committed on the account." 1. Petersen commenced the Representative Proceedings on 11 March 2016. 2. The allegations made by Petersen in the Representative Proceedings found their final articulation in the Further Amended Statement of Claim ("FASOC") filed on 12 October 2017. 3. In the FASOC Group Members were defined to be parties that: 1. were advised by SFP, or one or more of its directors, officers, agents or employees, to deposit funds in a MMDA; 2. entered into a contract with the Bank and DDH, or alternatively with the Bank, in respect of a MMDA between 10 March 2004 and 24 January 2013 (called in the FASOC "the Relevant Period"); 3. authorised a director, officer, employee or agent of SFP, or SFP itself, to act as an authorised signatory in respect of that MMDA; 4. deposited funds in the MMDA; and 5. have been unable to recover some or more of the funds so deposited. 1. I will return to the detail of the allegations made in the FASOC. 2. On 6 October 2017 Yates J ordered that: 1. the parties to the Representative Proceedings attend a mediation by 31 January 2018; 2. Group Members who wished to participate in the distribution of any amount agreed in settlement of the proceedings must register by completing a specified "Class Member Registration Form" by 14 December 2017; and 3. pursuant to s 33ZF of the FCA Act any group member who by 14 December 2017 did not register or opt out of the Representative Proceedings would not be entitled to receive a distribution from any settlement of the proceedings. 1. The latter order was, in effect, a "class closing" order. 2. 192 group members (including Petersen) completed a Class Member Registration Form. 3. The matter settled at the mediation on the basis that each of the Bank and DDH pay Petersen (on its own behalf and on behalf of the other 191 Group Members that signed a Class Member Registration Form) $6 million; a total of $12 million. 4. The legal representatives of the parties executed Heads of Agreement on 26 February 2018 and a Deed of Settlement on 28 May 2018 documenting the settlement. 5. Murphy J approved the settlement pursuant to ss 33V and 33ZF of the FCA Act on 30 May 2018. 6. The settlement was in respect of all of the claims made in the Representative Proceedings. The Policy 1. The insuring clause in the Policy is in these terms: "The Insurer shall pay on behalf of each Insured all Loss and Defence Costs resulting from any Claim first made during the Policy Period for any Wrongful Act." (Emphasis in original.) 1. Clause 2.2 provided: "2 Definitions … 2.2 Claim means: (i) any suit or proceeding, including any civil proceeding, third party proceeding counter claim or arbitration proceeding, brought by any person against an Insured for monetary damages or other relief, including non-pecuniary relief; (ii) any verbal or written demand from any person that it is the intention of the person to hold and insured responsible for the results of any specified Wrongful Act; (iii) any criminal proceedings brought against an Insured regarding any specified Wrongful Act of an Insured. For the purposes of this policy all Claims arising out of, based upon or attributable to one or a series of related Wrongful Acts shall be considered to be a single Claim; conversely where a Claim involves more than one unrelated Wrongful Act, each unrelated Wrongful Act shall constitute a separate Claim." (Emphasis in original.) 1. Clause 2.20 provided: "2 Definitions … 2.20 Wrongful Act means any (i) act or error or breach of duty or omission or conduct (including misleading or deceptive conduct) committed or attempted or allegedly committed or attempted by or of the Insured; or (ii) any act of error or breach of duty or omission or conduct (including misleading or deceptive conduct) committed or attempted or allegedly committed or attempted by or on behalf of another person for which the Insured is legally liable: in the actual or alleged provision of, or actual or alleged failure to provide, Professional Services. Without limiting its scope, Wrongful Act includes; (a) breach of contract for the provision of Professional Services (notwithstanding Exclusion 3.2); … (e) breach of trust or fiduciary duty; …". (Emphasis in original.) 1. Clause 6.4 provided: "6 General Conditions … 6.4 Retention The Insurer shall only be liable for the amount of Loss and Defence Costs arising from a Claim which is in excess of the greater of the Retention specified in the schedule. The Retention shall be borne by the Insured and shall remain uninsured, with regard to all Loss and Defence Costs for which the Insured shall be liable." (Emphasis in original.) 1. The item specified for "Retention" in the policy schedule was "$2,000,000 each and every Claim". The claims made in the Representative Proceedings 1. The insuring clause in the policy provided for indemnity in relation to loss resulting from any "Claim" for any "Wrongful Act". 2. This directs attention to the allegations made by Petersen on its own behalf and on behalf of Group Members in the FASOC. Terms of the contract 1. Petersen alleged that it was an express term of the contract between the Bank and holders of an MMDA that: 1. withdrawals could only be made from an MMDA by instructions in writing (as provided for in the application form for the MMDA), by telephone or by facsimile from the account holder or its duly appointed "Authorised Signatory", or at branches of the Bank (upon the Bank being provided with written instructions from the account holder or Authorised Signatory); and 2. that the Bank was not permitted to act on instructions from an account holder or from an Authorised Signatory received by email. 1. Petersen also alleged, relying on the matters set forth in the Product Disclosure Statements (see [14] above), that it was an express, or alternatively an implied term of the contract that the Bank was required to question and not to act on a valid or purportedly valid withdrawal instruction in circumstances which raised a serious or real possibility that fraud was being committed in respect of an MMDA. I will refer to this as the "Mandate Challenge Term". SFP's fraudulent practice 1. Petersen alleged that from a time unknown to Petersen, but commencing by February 2010 at the latest (but particularised as occurring as early as April 2005) SFP "had developed a practice of using funds deposited in MMDAs by SFP's clients…without authority, and for its own purposes, including to create the false appearance that the Sherwin Investment Companies were paying returns to investors on their genuine business performance (being a scheme equivalent to a 'Ponzi Scheme')". 2. Petersen alleged that SFP did this by giving instructions with a specified series of characteristics. I shall refer to these as the "Suspicious Instructions". 3. Petersen alleged that once DDH received Suspicious Instructions, it knew or ought reasonably to have known that: 1. there was a serious or real possibility that fraud was being committed in respect of the MMDAs the subject of the Suspicious Instructions, and also; 2. SFP was committing fraud in respect of one or more of the other MMDAs; that is beyond those themselves the subject of the Suspicious Instructions. 1. I will call this DDH's "Knowledge of the Fraud". 2. Petersen alleged that Knowledge of the Fraud was to be imputed to the Bank. Breach of contract claim – implementing SFP instructions 1. Petersen alleged that once the Bank acquired Knowledge of the Fraud, it was contractually obliged "to question, and to not give effect to" (which in these proceedings is agreed meant "not without question give effect to"): 1. any Suspicious Instructions; and 2. "any other instructions received from SFP…with respect to withdrawals from MMDAs". 1. Petersen alleged that in breach the Mandate Challenge Term, the Bank failed to question and implemented: 1. the Suspicious Instructions; and 2. "all instructions received from SFP" after receipt of the Suspicious Instructions. Knowing assistance 1. Petersen alleged that: 1. by engaging in the fraudulent practice to which I have referred, SFP dishonestly and fraudulently acted in breach of its fiduciary obligations to the MMDA holders; 2. DDH knew that SFP had provided it with the Suspicious Instructions; 3. DDH had knowledge of that breach of fiduciary obligations of the kind required by the second limb of Barnes v Addy (1874) LR 9 Ch App 244; and that therefore DDH knowingly assisted SFP in its breaches of fiduciary duty. 1. Petersen alleged that the Bank was "legally responsible" for DDH's actions and thus itself knowingly assisted SFP in its breach of fiduciary obligations. Breach of contract – email instructions 1. Petersen alleged that in breach of its mandate, DDH implemented withdrawal instructions notwithstanding that they were received via email from SFP. Breach of contract – unauthorised withdrawals 1. Finally Petersen alleged that in breach of its mandate, the Bank purported to debit some MMDAs in response to instructions from persons not authorised by the account holder to give those instructions. The structure and role of the aggregation clause Two limbs: aggregation and disaggregation 1. The chaussette (to adopt the language of Perram J in SMA Solar Technology AG v Beyond Building Systems Pty Ltd (No 5) [2012] FCA 1483 at [79]) to the definition of "Claim" contains both an aggregation clause and what the parties described as a "disaggregation" clause. 2. The aggregation clause is in the first limb of the chaussette. 3. It applies here if the correct conclusion is that multiple "Claims" have been made against the Bank. 4. The aggregation clause is introduced with words of causation: it applies to "Claims arising out of, based upon or attributable to one or a series of related Wrongful Acts". The effect of the aggregation clause is that in those circumstances, each of the Claims "shall be considered to be a single Claim". 5. The disaggregation clause is in the second limb of the chaussette. It applies to any "Claim" made against the Bank and provides that if that Claim "involves" more than one "unrelated" Wrongful Act then "each unrelated Wrongful Act shall constitute a separate Claim". Unifying factor: "Wrongful Acts" 1. Aggregation clauses operate by identifying a unifying factor. 2. In Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2001] 1 All ER (Comm) 13 Moore-Bick J said at [24] that the purpose of an aggregation clause is: "…to enable two or more separate losses covered by the policy to be treated as a single loss for deductible or other purposes when they are linked by a unifying factor of some kind." 1. In the same case, but in the House of Lords, Lord Hoffmann approved this passage (Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] 4 All ER 43; [2003] UKHL 48 at [15]). 2. In Ritchie v Woodward (Executor of the Estate of the late Brian Patrick Woodward); Rujo Pty Ltd v Woodward (Executor of the Estate of the late Brian Patrick Woodward); Barona Group Pty Ltd v Woodward (Executor of the Estate of the late Brian Patrick Woodward) [2016] NSWSC 1715, Emmett AJA put the matter this way at [568] (citing Lord Hoffmann in Lloyds TSB): "The purpose of an aggregation clause is to enable two or more separate losses covered by a policy to be treated as a single loss for certain purposes, so long as they are linked by a unifying factor of some kind. In order to determine at what level the unifying factor is to be determined, it is necessary to consider the words used in the particular clause." 1. The unifying factor chosen by the parties in this case is a "Wrongful Act"; as opposed to, for instance, loss or a source or cause of loss. Aggregation/disaggregation clause operates only after the "Claim/Claims" question determined 1. The Bank submitted that cll 2.2(i) to (iii) in the definition of "Claim" are concerned with the "form" in which the "claim" is made; and that the aggregation/disaggregation clause deals with the "substance" of whether the form of that "claim" or those "claims" is to be considered one "Claim" or more than "Claim" for the purpose of the policy. 2. In effect, the Bank submitted that the aggregation/disaggregation clause represents the entire agreement between the parties as to the manner in which, in the particular circumstances to hand, the number of "Claims" is to be determined. 3. I do not accept that submission. 4. In my opinion, the natural reading of the words the parties have chosen is that they intended that the determination of the number of Claims made first requires consideration of the definitions in each of (here) cll 2.2(i) and (ii). 5. The clause says that "Claim" "means" one of the matters referred to in cl 2.2(i) to (iii). Those represent, in substance, the definition of "Claim" for the purpose of the policy. 6. The form of the aggregation/disaggregation clause bespeaks an assumption that an earlier determination has been made of how many "Claims" have been brought against the insured. 7. Thus it caters in the first limb for the possibility that a number of "Claims" have been made which arise out of a "series of related Wrongful Acts" (hence the reference to "all Claims" in the first limb). 8. It also caters in the second limb for the possibility that a "Claim" has, or multiple "Claims" have, been made involving "more than one unrelated Wrongful Act". 9. Either limb assumes that, subject to its operation, the number of "Claims" is known; determined in accordance with cll 2.2(i)-(iii). 10. The role of the aggregation/disaggregation clause is to make a subsequent determination of how many "Claims" that "Claim" or those "Claims" are "considered" to have been made for the purposes of the policy. One "Claim" or multiple "Claims" 1. The Representative Proceedings constituted a "suit or proceeding" brought against "an Insured [the Bank] for monetary damages" under the definition of "Claim" at cl 2.2(i). 2. Petersen "brought" the Representative Proceedings. 3. What divides the parties is whether the Group Members also "brought" the Representative Proceedings, and whether it follows that the proceedings constituted multiple "Claims" made by each Group Member. 4. There was only one "suit or proceeding". 5. It was "brought by" Petersen on its own behalf and also on behalf of the Group Members. 6. In Wileypark Pty Ltd v AMP Ltd [2018] FCAFC 143 Beach J said: "Now it is not in doubt that a representative applicant under Part IVA represents and brings claims on behalf of group members. And even though a group member is not a party, nevertheless his claim is treated as having been made and brought on his behalf by the representative applicant at the time the representative proceedings were commenced". (See also Allsop CJ at [14] and Middleton J at [60].) 1. Thus, in the opening paragraph of the FASOC, Petersen stated that it brought the proceedings "on its own behalf and on behalf of" the Group Members. Consistently with that, Petersen alleged in the FASOC that by reason of the various breaches pleaded it "and Group Members" suffered loss and damage. In the final paragraph of the FASOC both Petersen "and Group Members" sought the relief claimed in the Originating Application. 2. Further, the Representative Proceedings were "brought by" all the Group Members that Petersen represented. 3. It is in the nature of representative proceedings that the unnamed represented parties, as well as the named represented party, bring the claims made in the proceeding. 4. In Cameron v National Mutual Life Association of Australasia Ltd (No 2) [1992] 1 Qd R 133 the Full Court of the Supreme Court of Queensland held that, for the purpose of considering whether proceedings had been "brought" within the relevant limitation period, unnamed represented parties "brought" the proceedings. McPherson SPJ said at [137] that "the plaintiffs, both those named and those represented but not named, brought this action when the writ was sealed". 5. In Morgan, in the matter of Brighton Hall Securities Pty Ltd (in liq) [2013] FCA 970, McKerracher J said at [74] and [75]: "It seems to me that the whole essence of the representative claim is that there are multiple claims before the court. The character of each claim is not changed by the proceeding which embraces it. The representative proceeding is simply designed to facilitate an efficient and cost-effective way to resolve multiple individual claims. Those claims, being made in a proceeding in court, constitute proceedings. Although the second limb of the definition of "claim" refers to civil proceedings which are brought by a third party for recovery of compensation or damages in respect of breach of professional duty, if a person sues, amongst other things, on behalf of another in a representative proceeding, even if the group member is not named, that unnamed group member nevertheless has brought proceedings." 1. Thus, by the Representative Proceedings, each of the represented applicant, Petersen, and each Group Member, "brought" a claim against the Bank. 2. But it does not follow, in my opinion, that the "suit or proceeding" constituted by the Representative Proceedings, constituted more than one "Claim" for the purposes of cl 2.2(i) of the policy. 3. Clause 2.2(i) defines "Claim" to mean any "suit or proceeding" brought by "any person". The parties must have intended "any" suit or proceeding to mean "any one" suit or proceeding. 4. A suit or proceeding brought by "any person" is apt to include a suit or proceeding brought by more than one "person". That is this case. 5. But the definition of "Claim" is not expressed in terms of the number of (small "c") "claims" made in the "suit or proceeding". The definition directs attention to the "suit or proceeding" itself; or, if there were more than such suits or proceedings, to those suits or proceedings. 6. Here, there was but one "suit or proceeding". It constitutes only one "Claim", notwithstanding the fact that it is "brought by" multiple parties and includes "claims" by each of those parties. 7. The language used by the parties in cl 2.2(i) reveals their intention that if one or more suits or proceedings are brought against the Bank, the question of how many "Claims" exist (before the operation of the aggregation/disaggregation clause) is to be determined by cl 2.2(i). 8. Thus, I do not accept the insurers' submission that each "claim" made by Petersen and each Group Member in the FASOC also constituted a "written demand" from each of them for the purposes of cl 2.2(ii) of the definition of Claim. The claims within the FASOC do not constitute separate "Claims" for the purposes of the policy. 9. However, I do accept the insurers' submission that each Class Member Registration Form completed by Group Members (see [19(b)]) constituted a separate "Claim" under cl 2.2(ii). 10. The forms did not, in terms, assert an intention to hold the Bank responsible for the results of a Wrongful Act. But they were completed as a step in the Representative Proceedings for the purposes of participating in any settlement of the Representative Proceedings. Each person completing a Class Member Registration Form was described as the "Claimant". The forms contained, under the heading "Claimant's Alleged Loss" a statement of the amount that the "Claimant" has "been unable to recover from [its] MMDA". One form actually referred to the amount the "Claimant" was "claiming". 11. The forms set out the amount that each Group Member claimed to be entitled to from the Bank (and DDH) and for which they intended to hold the Bank and DDH responsible by seeking to participate in any settlement. 12. For those reasons, my conclusion is that there was a "Claim" constituted by the Representative Proceedings, and 192 "Claims" constituted by each of the Class Member Registration Forms. The number of "Claims" made for the purposes of cll 2.2(i) and (ii) not determinative of the result 1. For the reasons I set out below, even if this conclusion is wrong and the Class Member Registration Forms do not themselves constitute "Claims", such that there is therefore only one "Claim", the operation of the disaggregation clause is to constitute that one "Claim" multiple separate "Claims". This is because of my conclusions as to the nature and of, and relationship between, the "Wrongful Acts". 2. I now turn to those matters. "For" what "Wrongful Act" or "Wrongful Acts" were the "Claims" made? 1. By the insuring clause, the Bank was entitled to indemnity for its Loss and Defence Costs resulting from any claim "for any Wrongful Act". 2. The matter for consideration is whether the "Claims" made against the Bank were "for" one Wrongful Act or "for" multiple Wrongful Acts. 3. The basis for the "Claims" was articulated in the FASOC. 4. The Bank submitted that only one Wrongful Act is alleged in the FASOC. That is that, having received the Suspicious Instructions from March 2010 and with Knowledge of the Fraud, it continued to effect, without question, withdrawal instructions from SFP; conversely, that it did not cease to give effect without question to those withdrawal instructions. 5. This is certainly one of the categories of Wrongful Acts alleged in the FASOC. 6. I summarised it at [35] and [39] above. 7. However, that allegation is particularised by reference to specific withdrawals made from MMDAs. 8. It is each such withdrawal that is impugned by the FASOC. Each is alleged to be a Wrongful Act. 9. The Bank's continued giving effect to SFP's instructions without question is the reason (or at least one reason) why those withdrawals constituted Wrongful Acts. It was the contractual breach that led to those Wrongful Acts. It was the cause of the Wrongful Acts. 10. But the Wrongful Acts themselves are the purported withdrawals of funds from each of the MMDAs. 11. In the case of Petersen, each withdrawal was alleged to be wrongful because it was made in breach of the Mandate Challenge Term. Some of those same withdrawals were also Wrongful Acts because they were made following an email instruction or an instruction by persons who were not authorised signatories. Those withdrawals may well have been Wrongful Acts also because they represented an occasion on which DDH (for which the Bank was allegedly "legally responsible") knowingly assisted SFP's fraudulent design. Unauthorised Withdrawals 1. But some of the Wrongful Acts alleged in the FASOC were withdrawals made by the Bank prior to it acquiring Knowledge of the Fraud. 2. Those withdrawals are alleged to be Wrongful Acts because the Bank acted beyond mandate, in that they were effected in response to instructions by email or by an unauthorised person; and not because the Bank had Knowledge of the Fraud. 3. I will refer to these withdrawals as the "Unauthorised Withdrawals". 4. In the Representative Proceedings, Petersen alleged that throughout the Relevant Period, the Bank made Unauthorised Withdrawals from the MMDAs of Group Members. Can Unauthorised Withdrawals made prior to 10 March 2010 be "put to one side"? 1. The Bank submitted that Unauthorised Withdrawals made prior to 10 March 2010, that is more than six years prior to the commencement of the representative proceedings, could be "ignored" or "put to one side" for the purposes of considering the issues arising in these proceedings. 2. The Bank submitted this is because: 1. the particulars provided in the Representative Proceedings made clear that no claim was made for such Unauthorised Withdrawals; and 2. in any event such claims were brought beyond the six year limitation period specified in the Limitation of Actions Act 1974 (Qld), were in fact statute barred and "were not in substance being pressed, and were not reflected in the final settlement". No claim made concerning Unauthorised Withdrawals? 1. As to the first of those points, the Bank pointed to the particulars in the FASOC concerning the Unauthorised Withdrawals and to the fact that the earliest withdrawal so particularised was on 11 March 2010 (within the six year period). 2. But that is so because the request for particulars was addressed to the withdrawal instructions in respect to Petersen's account; not the accounts of Group Members generally. 3. The request for particulars read: "As to paragraph 72 of the [FASOC], please provide particulars (rather than simply providing dates) of each instance in which the Applicant [i.e. Petersen] claims that DDH implemented withdrawal instructions received from SFP with respect to its account". (Emphasis added.) 1. The first deposit made by Petersen to its MMDA was made on 8 March 2010. The first withdrawals were made on 11 and 12 March 2010. There is no question that those withdrawals were made within six years of the commencement of the Representative Proceedings. 2. But the claim made in the FASOC was that, in relation to Group Members generally, Unauthorised Withdrawals had been made from MMDAs throughout the Relevant Period; that is from 10 March 2004 to 24 January 2013. Implementation of the settlement 1. In its Amended Defence in the Representative Proceedings, the Bank pleaded that any claim arising from pre 14 [sic: 10] March 2010 withdrawals was statute barred. 2. In the Heads of Agreement the Bank agreed, subject to Court approval under s 33V of the FCA Act, to pay $6 million "in full and final settlement" of the Representative Proceedings. 3. The settlement of the Representative Proceedings was listed before Murphy J on 25 May 2010 for approval. 4. During the course of that hearing Murphy J expressed concern that none of the Group Members had been told that their claims may be "excluded" by reason of being statute barred. His Honour suggested those parties be given "a second right to opt out". 5. In response, counsel appearing for the Bank (Mr Nixon SC, who appeared with Mr Hutton for the Bank before me) said: "MR NIXON: The short submission about that, you Honour, is this; is that the respondents agreed a global settlement of all group member claims. The respondents didn't have any stipulation that the money only be divided between those who have claims from March 2010 onwards. The respondents, of course, who have pleaded [a] limitation defence and relied on that strenuously at mediation, but there was no stipulation that earlier group members be excluded. The first we learnt that this was planned in the distribution was some – I believe in April [2000] – in April when it was mentioned for the first time. So, your Honour, the fact is, is that, from the respondent's position, there was a registration process. We agreed a settlement sum to be shared amongst all those who are registered group members. If there is an issue regarding the fact of exclusion now of claims pre-March 2010, then that's an issue that should be fixed by an adjustment to the distribution rather than allowing people to opt out and allowing those people to pursue claims, which we understood would be covered by the amount that we were paying for settlement." (Emphasis added.) 1. And later: "MR NIXON: Well, you Honour, the question is whether the settlement is fair for the group members, then there's also a question about whether the proposed distribution is fair as between the group members. In our submission, your Honour decides that the settlement is fair as between the respondent and the group members. It's a separate issue, your Honour, whether the settlement distribution is fair as between group members, and it would be our submission that the settlement is fair as between the respondents and the entire pool of group members. And, as I said, you Honour, it's no part of a submission we make that those pre-March 2010 should be excluded from a distribution. We've never said that that should be the effect to the settlement distributions scheme. We've said that we have promised to pay, as in the group – as stated in the heads of agreement, a sum in settlement of all the group member claims to be shared between the registered group members. That's what we understood the position to be. HIS HONOUR: But adamantly maintaining that they don't have any rights prior to the date in March 2010. MR NIXON: Now, that was a – I won't deny it, your Honour – that was a powerful factor in the quantum of offers that our clients would countenance, because, of course, that was our position, that no matter what is achieved and even if you're entirely successful at a hearing, this limitation issue will cut the amount of damages to a certain amount." (Emphasis added.) 1. Mr Nixon made clear that, subject to Court approval, the Bank considered it had settled all claims in the Representative Proceedings, whether statute barred (as the Bank contended some were) or not; and without any stipulation or condition as to how the proceeds or the settlement were to be divided. 2. Later, after the Court had closed to enable his Honour to consider confidential material, the following exchange took place between his Honour and Mr Jeffares, who appeared as "objector": "MR JEFFARES: All I can really say is the support group and all the people affected before that date are – they're…happy and they now, as I understand it, have no recourse against Bank of Queensland, even though they've got nothing now that they can't sue them. HIS HONOUR: Yes, that is the effect. That's a result which in part flows from the class closure orders and in part flows from my becoming satisfied on the basis of opinions – an opinion provided to the court, not as an advocate but as an officer of the court, a candid opinion as to merit, that there is no prospect that any person that suffered a loss before 10 March 2010 can recover against the Bank of Queensland or DDH." (Emphasis added.) 1. Evidently, the material made available to Murphy J on a confidential basis satisfied his Honour that, as the Bank had pleaded, Group Members whose claims were based on withdrawals from MMDAs prior to 10 March 2010 were statute barred. 2. But by the Deed of Settlement and Release, Petersen, the Bank, DDH and their legal representatives agreed to "resolve the Proceedings". Each of the Bank and DDH agreed to pay Petersen $6 million. In exchange the Bank obtained the benefit of a release in the following terms: "[Petersen], on its own behalf and on behalf of all Group Members, releases and forever discharges the [Bank] and its Related Parties from any Claims that [Petersen] or the Group Members now have, at any time had, or may have or, but for this Deed, could or might have had arising out of, relating to or in any way in connection with or incidental to the Proceeding or its subject matter (or any part of the Proceeding or its subject matter)". 1. That clause makes clear that the settlement was for all claims made in the Representative Proceedings; whether statute barred or not. 2. It is true that those implementing the settlement did not contemplate distributing any part of the proceeds of the settlement to Group Members from whose MMDAs withdrawals had been made prior to 10 March 2010. 3. Thus, on 30 May 2018 there was filed in the Federal Court a "Settlement Distribution Scheme" which defined the "Limitation Date" as 10 March 2010. "MMDA Losses" were defined by reference to withdrawals made after the Limitation Date. 4. The Settlement Distribution Scheme thus recorded that the settlement funds would not be distributed to Group Members whose complaint related to withdrawals prior to 10 March 2010. Murphy J approved the Settlement Distribution Scheme on 30 May 2018. 5. On 11 July 2018 Murphy J also approved a "Notice to Group Members Regarding Limitation Periods" which stated that Group Members would not receive a distribution from the settlement for losses suffered before 10 March 2010 because any breach of contract claim arising before 10 March 2010 was out of time. The Notice also provided that the limitation period likely applied to any claim for knowing assistance arising prior to 10 March 2010. 6. However, the fact remains that the amount the Bank agreed to contribute to the settlement, and thus its "Loss" for policy purposes, was in respect of all claims and without stipulation as to how it was to be distributed. Consequence for policy response 1. There was debate before me as to whether it was correct to conclude that the "Claims" made in the Representative Proceedings for Unauthorised Withdrawals prior to 10 March 2010 were statute barred. 2. I do not find it necessary to reach any conclusion about that matter. 3. That is because, assuming such claims were statute barred, those Unauthorised Acts were nonetheless "Wrongful Acts" for the purpose of the policy. They represented occasions when the Bank, without its customer's authority, purported to debit the customer's account. These were, for the purposes of the definition of Wrongful Act, occasions of "error" committed by the Bank. 4. For the purpose of the insuring clause, the Claims made against the Bank in relation to these Unauthorised Withdrawals were Claims "for" each of those Wrongful Acts. 5. The "Loss" and "Defence Costs" incurred by the Bank "resulted" from such Claims, as well as from Claims which were not statute barred. 6. The Bank agreed to pay the $6 million to settle all of the Claims in the Representative Proceedings. That is what the settlement documents say. Mr Nixon told Murphy J that the Bank did not stipulate that the settlement was only for Claims it accepted had been made in time. Murphy J approved the settlement on that basis. 7. The Bank incurred Defence Costs resisting all of the Claims made in the Representative Proceedings; including any that were statute barred. 8. The Bank submitted that "the allegations in relation to pre 10 March 2010 withdrawals did not cause [it] to incur Defence Costs and Loss in excess of $2 million" (emphasis in original) and that therefore the pre 10 March 2010 Claims could disregarded. 9. But that is not the question. Claims under the policy are aggregated by "Wrongful Acts", not Loss. The question is how those Claims are to be aggregated with the other Claims, and whether the result is that all Claims are to be "considered to be a single Claim". 10. The question then is whether the Bank incurred any Loss and Defence Costs in respect of "a Claim" made "for" any Wrongful Act so characterised. In that event, for "each and every" such Claim the insurers are liable for only the amount in excess of $2 million. 11. For those reasons, the Wrongful Acts the subject of the Claims for pre 10 March 2010 withdrawals from MMDAs cannot "be put to one side". 12. There were multiple Wrongful Acts. 13. As I have concluded that there were multiple "Claims", the next stage of enquiry is whether the Claims arose out of, were based on or attributable to "a series of related" Wrongful Acts. Was there a "series of related" Wrongful Acts? 1. The authorities emphasise the need to give careful attention to the precise words used by the parties in the aggregation clause in question. 2. I have not been directed to an authority that considers an aggregation clause with precisely the same wording as the clause here. 3. However a number of general propositions emerge from the authorities. Series 1. For events to be in a "series" they must: 1. in a "sufficient degree" be "similar in nature" (per Stephen J in Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 21); 2. have more than "mere contiguity of time or place"; and share an "integral relationship" (per Greene LJ in Attorney-General v Cohen [1937] 1 KB 478; [1973] 1 All ER 27 at 490); and 3. be in "temporal succession" and "be one of a kind or have some characteristics in common" (per Emmett AJA in Ritchie at [587]). Related 1. In order for Claims to be aggregated under this policy, the Wrongful Acts must not only be in a "series". They must be part of a series of "related" Wrongful Acts. 2. In Lloyds TSB v Lloyds Bank Group, their Lordships were concerned with an aggregation clause which referred to a "related series" of acts or omissions; albeit in the context of the clause earlier referring to a "series" of third party claims resulting in that "related series" of acts or omissions. Their Lordship concluded that the particular clause in question aggregated claims only if the "related series" of acts or omissions "together resulted in all the claims". This is an understandable result in light of the words used in the clause. 3. I see no reason to read the aggregation clause in this case that way. 4. In AIG Europe Ltd v Woodman [2017] UKSC 18; (2017) Lloyd's Rep IR 209, their Lordships were dealing with an aggregation clause which referred to "similar acts or omissions in a series of related matters or transactions". 5. Their Lordships held that the word "related" in the phrase "a series of related matters or transactions" did "not bear the same connotation as in the phrase 'related series of acts or omissions' (with which the House of Lords was concerned in the Lloyds TSB case)". 6. Their Lordships observed that in the phrase "series of related matters or transactions" at [19]: "Use of the word 'related' implies that there must be some interconnection between the matters or transactions, or in other words that they must in some way fit together"; and that, at [22]: "Determining whether transactions are related is therefore an acutely fact sensitive exercise". 1. The Bank drew attention to United States authorities dealing with aggregation clauses in which it has been held that claims are "related" if there is a "logical or causal connection" between them: American Automobile Insurance Co v Grimes 2004 US Dist LEXIS 1696 at [6]-[7]. 2. Citing Lloyds, D K Derrington and R S Ashton in The Law of Liability Insurance (3rd ed, 2013, Lexis Nexis Butterworths) suggest "there must be a unifying factor or common cause no more remote than the act or omission that actually constituted the cause of action" (at [8.486]-[8.488]). Series of related Wrongful Acts 1. In this case, the Wrongful Acts are various purported withdrawals made from the MMDA. 2. Those withdrawals occurred throughout the "Relevant Period". 3. Each withdrawal was: 1. of funds from a MMDA owned by a client of SFP; 2. made on the purported instructions from SFP; 3. made on instructions which were not authorised by the account owner, or, although authorised, should not have been acted on; 4. made in the course of the fraud practised by SFP; and 5. implemented by the Bank in breach of its contractual duties to the owner of the MMDA; either acting beyond mandate; or acting within mandate but in circumstances where it should not have acted. 1. To this extent, each of the wrongful acts is "similar in nature" and has "some characteristics in common". 2. But each was a separate act, made on a different occasion, from a different MMDA, causing loss to different parties and in response to different and separate purported instructions. 3. Some of the withdrawals could be seen as "related" in the sense that they were interconnected and "fitted together" because they were implemented from the same email instruction. 4. For example on 13 July 2012 the following email was sent by Mr Sherwin to DDH: "Team, Please arrange the following: 1. Transfer from [Customer A] to Wickham [a Sherwin entity] in the amount of $35,000 2. Transfer from [Customer B] to Wickham… in the amount of $30,000 3. Transfer from [Customer C] to Wickham… in the amount of $35,000 4. Transfer from [Customer D] to Wickham… in the amount of $40,000 5. Transfer from Wickham… to [Customer E] in the amount of $140,000 (pls use ref: incorrect transfer) Thanks, Ben." 1. The withdrawals effected pursuant to this instruction might be seen as a "series of related" transactions. Funds were purportedly transferred, virtually simultaneously, from Customers A, B, C and D to Wickham, and then from Wickham to Customer E. There is a logical and causal relationship between these transactions. 2. But not all of the impugned withdrawals can be said to share such a logical or causal relationship. They may share a common factor in that they occurred within the broader fraudulent scheme perpetuated by SFP. But this is a factor more remote than the Wrongful Act required by the Policy. The overarching fraudulent practice is not the "level" at which the unifying factor is to be determined (see [54]). 3. The withdrawals alleged in the FASOC were said to be 'wrongful' (although that expression was not used in the FASOC) for different reasons. 4. Some withdrawals were alleged to be unauthorised, and thus beyond mandate (see [14] above) because they were made in response to instructions by email. 5. Some were alleged to be unauthorised, and thus beyond mandate because they were made on instructions from persons who were not Authorised Signatories. 6. Some were withdrawals within mandate, in the sense that they were not in response to an email or on instructions from an Unauthorised Signatory, but were the subject of Suspicious Instructions, and so should have been questioned. 7. Some were withdrawals within mandate, not the subject of Suspicious Instructions, but made after the Bank acquired Knowledge of the Fraud. 8. I do not see how the transactions have a "sufficient degree" of similarity nor an "integral relationship" such as to constitute them a "series" of transactions, nor the necessary "causal" or "logical" "interconnection" to constitute them being a "series of related" wrongful acts. 9. The mere fact of their occurrence within the broader, more remote scheme of a fraudulent practice is not sufficient to aggregate the Claims. The same result follows assuming multiple "Claims" 1. Further, if I am incorrect in my finding that there are multiple "Claims", and that the correct conclusion is that there is only one "Claim" for the purposes of the Policy, the same result obtains by reason of application of the disaggregation clause. 2. For the same reason that the withdrawals are not "a series of related Wrongful Acts", they are each "unrelated" to the other. The "Claim" would thus "involve more than one unrelated Wrongful Act". 3. I understand it not to be disputed that there would, on this hypothesis, be at least three such unrelated Wrongful Acts, so that the multiplicity of retentions applicable would deny the Bank any entitlement under the policy. Conclusion 1. Multiple "Claims" have been made against the Bank. Those Claims do not arise out of, nor are they based on or are attributable to, a series of related Wrongful Acts. Multiple retentions apply. 2. I invite the parties to confer and agree on the orders necessary to reflect these reasons. ********** 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: 06 November 2018