Insurer Entitled to Reimbursement Under Deed of Indemnity

The court held that an insurer was entitled to reimbursement from an indemnifier under a deed of indemnity for amounts paid under performance bonds issued in favour of a third party. The decision was based on the terms of the deed and the applicable legislation.

OUTCOME: Allowed

Supreme Court New South Wales

Medium Neutral Citation: [COMPANY_1] v [NAME_2] [2022] NSWSC 1672 Hearing dates: 30 November 2022 Decision date: 08 December 2022 Jurisdiction: Equity - Commercial List Before: Ball J Decision: (1) Judgment for the plaintiffs against the defendant in the sum of $8,687,491.33; (2) The defendant to pay the plaintiff's costs of the proceedings. Catchwords: INSURANCE — Where Australia and New Zealand Banking Group Limited ([NAME_3]) issued unconditional bank guarantees in respect of construction contracts entered into by companies controlled by the defendant — Where plaintiff issued surety bonds in favour of [NAME_3] at the request of those companies — Where the surety facility had been provided by [COMPANY_4] ([NAME_4]) before the insurance business of [NAME_4] was transferred to the plaintiff pursuant to a scheme under s 17B of the Insurance Act 1973 (Cth) — Where the defendant as an [NAME_5] entered into a deed of indemnity with [NAME_4] — Where the surety bonds were called upon by [NAME_3] and paid by the plaintiff — [NAME_4]'s rights and obligations under the deed were transferred to the plaintiff as a consequence of the scheme thereby entitling it to rely on the deed to seek reimbursement from the defendant Legislation Cited: Conveyancing Act 1919 (NSW) Evidence Act 1995 (NSW) Insurance Act 1973 (Cth) Insurance Contracts Act 1984 (Cth) Cases Cited: [NAME_6] v [COMPANY_8] (1935) 53 CLR 643; [1935] HCA 49 [COMPANY_1], in the Application of [COMPANY_1] (No 2) [2017] FCA 980 Prudential Insurance Company v Inland Revenue Commissioners [1904] 2 KB 658 Seaton v Heath [1899] 1 QB 782 [NAME_9] v [NAME_10] at [COMPANY_11] (2016) 239 FCR 12; [2016] FCAFC 15 Category: Principal judgment Parties: [COMPANY_1] (Plaintiff) [NAME_2] (Defendant) Representation: Counsel: [redacted] IJ King with C Honnery (Defendant)

Solicitors: [redacted] [NAME_14] (Defendant) File Number(s): 2021/365685 Publication restriction: None

JUDGMENT

Introduction 1. In these proceedings, the plaintiff, [COMPANY_1] ([NAME_1]), seeks to recover amounts totalling $8,304,902.46 plus interest said to be payable to it by the defendant, [NAME_2], in respect of four surety bonds issued in favour of Australia and New Zealand Banking Group Limited ([NAME_3]) by [NAME_1] at the request of companies in the [COMPANY_15] (the [COMPANY_15]). The [COMPANY_15], which is now in external administration, carried on a substantial construction business. It was founded by [NAME_2] who was the sole director of many companies in the group and who directly or indirectly held the majority of the shares in the companies in the group. The surety bonds were issued in respect of unconditional bank guarantees given by [NAME_3] in respect of construction contracts entered into by [COMPANY_15] companies. It is said that [NAME_2] is liable to reimburse [NAME_1] the amounts it has paid to [NAME_3] under a deed of indemnity dated 10 December 2015 (the Deed) made between various companies in the [COMPANY_15] and [NAME_2] as "Original Indemnifiers" and [COMPANY_4] ([NAME_4]) as "Surety".

2. The principal issue in the proceedings is whether [NAME_4]'s rights and obligations under the Deed were transferred by [NAME_4] to [NAME_1] under a scheme approved by the Federal Court of Australia on 20 July 2017 by which [NAME_4]'s insurance business was transferred to [NAME_1] (the Scheme). There is also a question whether [NAME_1] suffered the loss it claims.

Background 1. By a term sheet dated 24 November 2015 made between [COMPANY_15] (a company in the [COMPANY_15]) as "Client", [NAME_2] and a number of companies in the [COMPANY_15] (including [COMPANY_15]) as "Indemnifiers" and [NAME_4] as "Surety" (the Original Term Sheet), [NAME_4] agreed to issue at the request of an [NAME_5] "Performance Bonds, Maintenance Bonds, Advance Payment Bonds, Retention Release Bonds, Off-Site Material Bonds, & Bid/Tender Bonds" up to a total value of $20,000,000.

2. The surety bond business of which the Original Term Sheet forms part was managed by [COMPANY_16] as agent for [NAME_4] pursuant to a Bond Agency Agreement dated 5 June 2013.

3. Clause 3.3 of the Bond Agency Agreement provides: Appointment and authority Subject to the terms of this Agreement, [NAME_4]: (a) appoints the Agent to arrange and issue, pursuant to a binder, Bond Business in accordance with the Underwriting Manual; and (b) appoints the Agent to provide claims handling services on behalf of [NAME_4] in relation to the Bond Business as set out in clause 4.14.

1. Under cl 4.8, [NAME_16] agrees to "collect Premiums payable to [NAME_4] in respect of contracts of Bond Business arranged by the Agent".

2. Clause 9 of the Bond Agency Agreement permits [NAME_4] to adjust [NAME_16]'s remuneration entitlements in accordance with the clause if there has been a "Material Reinsurance Change". "Material Reinsurance Change" is defined to mean "the variation (including in relation to premium, deductibles, excesses or reinsurance commission), endorsement, cancellation or non-renewal of [NAME_4]'s reinsurance arrangements in respect of the Bond Business without [NAME_4]'s consent which [NAME_4] determines in its absolute discretion will or is likely to result in [NAME_4] being unable to maintain its Target Combined Operating Ratio".

3. Under the Original Term Sheet, the maximum bond value for a single bond was $10,000,000. Various fees were payable under the Original Term Sheet including an establishment fee of $2,500, a facility fee for each bond calculated at the rate of 1.30 percent per annum charged on the face value of the bond and a bond administration fee of $250.

4. Under the heading "SECURITY DOCUMENTS", the Original Term Sheet contained the following term: Deed of Indemnity: A Deed of Indemnity is to be entered into by the Client and each other [NAME_5] in favour of the Surety. This Deed will be prepared by the Surety's lawyers.

1. Next to the heading "Nature of Facility" the Original Term Sheet stated: The Facility is an uncommitted facility. Notwithstanding any provision to the contrary, the Surety has, in its absolute discretion, the right to review each individual bond request and elect whether to issue or not issue a specific bond or bonds without giving any reason to the Client. If the Surety determines that the Client's financial or operational position has deteriorated at any time, the Surety may, in its sole discretion, vary the terms of the Facility including the fees payable in connection with the bonds issued under the Facility.

1. In accordance with the Original Term Sheet, the parties signed the Deed on 10 December 2015.

2. Clause 1.1 of the Deed provides: Unconditional indemnity [NAME_5]: (a) unconditionally and irrevocably indemnifies the Surety against all Loss; and (b) must upon demand immediately pay the Surety all Loss. 1. "Loss" is relevantly defined to include "the aggregate at any time of all payments made and liabilities incurred by the Surety under or in connection with a Bond". Clause 1.3 states that Loss, and an [NAME_5]'s obligation to indemnify and pay Loss, are not reduced or [NAME_17] by "any reinsurance or other indemnity or sharing arrangement of any nature entered into at any time by the Surety in respect of its liability under a Bond or any payment received under any such agreement or arrangement".

2. Clause 2.3 of the Deed provides for the payment of interest on unpaid amounts at the "Default Rate". "Default Rate" is defined to mean "the rate equal to the aggregate of 4% per annum plus the 30 day 'Bank Bill Swap Reference Rate' as at that time (as determined by the Surety by reference to the most recently published 30 day "Bank Bill Swap Reference Rate" in the Australian Financial Review)".

3. Clause 8.8 of the Deed provides: Surety's certificate A certificate by the Surety relating to this document or as to its opinion in relation to any matter under this document is conclusive evidence against the lndemnifier of the matters certified unless proven incorrect.

1. In January 2017, the parties signed a variation term sheet which increased the facility limit to $30,000,000 (the Amended Term Sheet). The recitals of the Amended Term Sheet relevantly record: (A) [COMPANY_15] A.C.N [PHONE] (Client) has requested [COMPANY_4] A.C.N [PHONE] (Surety) to provide a variation to the existing contract surety bond facility as provided to the Client with reference to the Term Sheet dated the 20th November 2015 and the Deed of Indemnity dated the 10th December 2015 (the Agreements). (B) The Surety offers to the Client an increase in the existing surety bond facility of AUD$20,000,000.00 (Twenty Million Australian dollars) to AUD$30,000,000 (Thirty Million Australian Dollars) (Facility) in aggregate on the terms and conditions set out in this document. This Facility is in replacement of and not in addition to the existing Facility.

1. The form of the Amended Term Sheet was to restate the terms of the Original Term Sheet and to incorporate the agreed amendments. Relevantly, next to the heading "Deed of Indemnity", the Amended Term Sheet stated "A Deed of Indemnity is to be entered into by the Client and each other [NAME_5] in favour of the Surety. This Deed will be prepared by the Surety's lawyers."

2. By an agreement entered into on 17 July 2017, [NAME_4] and a number of other insurers agreed to transfer their insurance businesses to [NAME_1]. That agreement is not in evidence. Under s 17B of the Insurance Act 1973 (Cth), the transfer could only occur under a scheme confirmed by the Federal Court. The scheme was required to set out (a) the terms of the agreement or deed under which the proposed transfer was to be carried out and (b) particulars of any other arrangements necessary to give effect to the scheme: s 17B(3).

3. Under s 17C(2) of the Insurance Act, an approved summary of the scheme was required to be given to every [NAME_17]. "[NAME_17]" is defined to mean "the holder of a policy [NAME_17] by a scheme". "Policy" is not defined. The requirement under s 17C(2) was dispensed with by the Federal Court, although an extensive notification program was ordered to bring the Scheme to the attention of [NAME_17] persons: see [COMPANY_1], in the Application of [COMPANY_1] (No 2) [2017] FCA 980 at [6] per Gleeson J.

4. Clause 2 of the Scheme in relation to [NAME_4] provides: Transfer of Business (a) On the Effective Date, [NAME_4] agrees to sell and transfer and [NAME_1] agrees to purchase and accept the transfer of all of the Business and, in particular: (i) the Insurance Contracts and the Insurance Liabilities; and (ii) the Business Assets (including, without limitation, the Reinsurance Contracts) and the Business Liabilities, from [NAME_4] in accordance with the terms of the Transfer Agreement, including all right, title, interest, benefit and powers that have arisen, or may in the future arise under any of the above. (b) The terms of the Transfer Agreement form part of this Scheme.

1. More specific provisions relating to the transfer of Insurance Contracts, Insurance Liabilities and Business Assets are set out in cls 4 and 5 of the Scheme. 2. "Business" is relevantly defined to mean: … the insurance business carried on by [NAME_4] in Australia within the meaning of the Insurance Act, including: (a) the Insurance Contracts and the Insurance Liabilities; and (b) the Business Assets and the Business Liabilities, … 1. "Business Assets" is relevantly defined to mean: … the assets of [NAME_4] used for the purposes of conducting the Business and, without limiting the foregoing, includes the following as may be applicable to the Business: (a) right, title and interest in; (i) the Reinsurance Contracts; (ii) the Business Contracts; and (iii) the Leases; (b) … … 1. "Business Contracts" is relevantly defined to mean: … the right, title and interest under any oral or written contracts, deeds and arrangements made by [NAME_4] in connection with the Business and subsisting at the Effective Date (including with distributors, authorised representatives, intermediaries and suppliers) … 1. "Insurance business" is defined in the Insurance Act to mean "the business of undertaking liability, by way of insurance (including reinsurance), in respect of any loss or damage, including liability to pay damages or compensation, contingent upon the happening of a specified event, and includes any business incidental to insurance business as so defined …".

2. Notice of the Scheme was given to the [COMPANY_15] by an email dated 27 June 2017 from [NAME_16]. The email included a notice and summary of the Scheme. Consistently with what was stated in the notice the email said: [COMPANY_16] (ABN 93 163 415 610) arranges bonds and acts as an Authorised Representative of [NAME_4] we will also become an Authorised Representative of [NAME_1] at the same time. The proposed transfer will have no impact on yourselves or the beneficiaries who hold bonds issued by [NAME_4]. The terms of bonds will not change after the transfer other than [NAME_1] becoming the insurer under each of the transferring bonds; there will be no impact on claims; and bonds will continue to operate in the same way.

1. On 20 July 2017, Gleeson J made an order that the Scheme as set in the scheme document be confirmed without modification and that it take effect at 12.01 AM on 1 August 2017. Her Honour subsequently delivered reasons for her decision to approve the Scheme. In relation to the bond business, her Honour said: [NAME_4] bond business notifications 100 In its submissions for the confirmation hearing, [NAME_1] noted that [NAME_4] underwrites certain surety bonds issued by [COMPANY_16], an entity in which [NAME_4] has a substantial interest. This line of business ("[NAME_4] bond business") will also be transferred to [NAME_1] as part of the proposed schemes. At the hearing, [NAME_18] SC submitted that evidence was not provided as to this line of business by oversight. 101 [NAME_1] made the following submissions relating to this line of business: [8.1] The Commercial Insurance ("CI") business conducted within the Australian Business Division of Insurance Australia Group Limited ("IAG") includes engineering. [COMPANY_19] ("[COMPANY_19]") is an underwriting agency in which [NAME_4] has a 50% ownership interest. In 2013, through the ownership interest in [COMPANY_19], [NAME_4] developed a long term strategic alliance with [COMPANY_19] to access the surety bond market in [COMPANY_20] ("[NAME_16]") is the underwriting agency created by this strategic alliance, in which both entities hold a 50% interest, and through which they have combined their respective expertise to offer a suite of surety bonds to the construction and engineering industry. [8.2] The arrangements between [NAME_4] and [NAME_16] are that [NAME_4] acts as underwriter of the surety bonds and has authorised [NAME_16] to issue and enforce bonds in accordance with [NAME_4]'s underwriting guidelines under a binding authority on behalf of [NAME_4] ("[NAME_4] Business"). As at 31 March 2017, the total exposure for current bonds in the [NAME_16] portfolio is $655.4 million of which $491.5 million has been ceded to reinsurers, with [NAME_4] therefore retaining $163.9 million. This represents 0.4% of the total ABD CI portfolio based on gross written premium. [8.3] While an important strategic alliance pursued by [NAME_4], the [NAME_4] Business represents only a small and incidental part of the [NAME_4] business. This is demonstrated by the proportion of the total ABD CI portfolio, as indicated in paragraph 8.2 above of this Outline, and represented in a comparison of the number of customers of each entity with [NAME_16] managing 84 customers, compared to the approximately 1.2 million [NAME_4] customers. Of the 31 key current or prospective customers of [NAME_16], 25 of these customers are current or former [NAME_4] customers which supports [NAME_4]'s strategy to complement their insurance portfolios with a full suite of products relevant to the construction and engineering Industry. [8.4] The [NAME_4] Business is also to be transferred under the [NAME_4] Scheme as it is incidental to the [NAME_4] general insurance business and APRA shares this view. (footnotes omitted) 102 No provision was made in the notification orders for drawing the [NAME_4] scheme to the attention of the bondholders. [NAME_21] noted that the bondholders are not [NAME_17] policyholders within the meaning of s 17C(2)(c) and, accordingly, they were not required to be given an approved summary of the scheme under s 17C(2). 103 Even so, on 15 June 2017, APRA approved a form of notification of the [NAME_4] scheme to the 84 bondholders. On 26 and 27 June 2017, [NAME_1] caused emails to be sent to the 84 bondholders and 15 to brokers acting for [COMPANY_16] customers sending them the form of notification approved by APRA, including the APRA-approved form of the [NAME_4] scheme.

1. On 31 July 2017, [NAME_16] sent a letter to [COMPANY_15] pursuant to s 12 of the Conveyancing Act 1919 (NSW) giving notice that [NAME_4]'s interest in the Deed and relevant term sheet would be assigned to [NAME_1] on 1 August 2017.

2. On 28 November 2017, [COMPANY_22] ([NAME_22]), an [NAME_5] under the Deed and Amended Term Sheet, requested relevantly the issue of two surety bonds of $2,700,451.23 each.

3. On the same day, [NAME_1] as Surety, [COMPANY_15] as Client and [NAME_2] and various companies in the [COMPANY_15] as Indemnifiers signed an agreement varying the term sheet (the Second Amended Term Sheet). The recitals to that agreement record: (A) [COMPANY_15] A.C.N [PHONE] (Client) has requested [COMPANY_1] A.B.N 11 [PHONE] (Surety) to provide a variation to the existing contract surety bond facility as provided to the Client with reference to the Term Sheet dated the 6th January 2017 and the Deed of Indemnity dated the 10th December 2015 (the Agreements). (B) The Surety offers to the Client a Contract surety bond facility of AUD$30,000,000.00 (Thirty Million Australian Dollars) (Facility) in aggregate on the terms and conditions set out in this document. This Facility is in replacement of and not in addition to the existing Facility. (C) By signing this document, the Client accepts the offer referred to in paragraph (B) above and agrees to comply with the terms and conditions in this document.

1. Like the Amended Term Sheet, the Second Amended Term Sheet restated the terms of the Original Term Sheet (including the obligation to enter into a "Deed of Indemnity") and included the amendments agreed between the parties.

2. On 18 December 2017, [NAME_1] issued two deeds of undertaking in favour of [NAME_3]. Each deed relevantly records in the first paragraph the following: At the request of [COMPANY_22] 96 159 614 310 (the Applicant) and in consideration of the Favouree accepting this undertaking in support of the bank guarantees outlined in the attached "Bank Guarantee Schedule" (each a Bank Guarantee), the Financial Institution c/-[COMPANY_16] 163 415 610 of Level 16, [ADDRESS], Sydney, NSW, 2000] undertakes, subject to the terms of this undertaking, to pay on demand any sum or sums which may from time to time be demanded by the Favouree in accordance with this undertaking up to a maximum aggregate sum of A$2,700,451.23 (Two Million Seven Hundred Thousand, Four Hundred and Fifty one dollars and Twenty Three cents) Australian Currency as adjusted in accordance with the terms of this undertaking (such amount as adjusted in accordance with this undertaking called the Sum). On each BG Expiry Date, the Sum will automatically decrease by an amount equal to the Face Value of the Bank Guarantee which expired on that BG Expiry Date (being the Face Value of the Bank Guarantee immediately prior to its expiry).

1. On the same day, [NAME_3] issued two bank guarantees with a maximum amount of $2,700,451.23 each in favour of [COMPANY_23] ([NAME_23]) for the due discharge of liabilities of [NAME_22] to [NAME_23] for design and construction work.

2. In May 2018, the parties executed a further term sheet variation increasing the facility limit to $40,000,000 (the Third Amended Term Sheet). Like the earlier term sheets, the Third Amended Term Sheet restated the terms of the Original Term Sheet and incorporated the agreed amendments.

3. On 6 December 2018, [NAME_22] made an application for the issue of two performance bonds in the amount of $1,452,000 each in favour of [COMPANY_24] as trustee for the [COMPANY_24] ([NAME_24]).

4. On 10 December 2018, [NAME_1] issued two deeds of undertaking in favour of [NAME_3].

5. On or about 19 December 2018, [NAME_3] issued two bank guarantees with a maximum amount payable of $1,452,000 for the due discharge of liabilities of [NAME_22] for design and construction work for [NAME_24].

6. On 29 September 2021, [NAME_24] made demands on the bank guarantees issued in its favour for the full amount of the guarantees. [NAME_3] paid those amounts and on 30 September 2021 served demands on [NAME_1] under the relevant deeds of undertaking.

7. On 5 October 2021, [NAME_23] made demands on the guarantees given to it by [NAME_3]. [NAME_3] paid those amounts and on 13 October 2021 made demands on [NAME_1] under the relevant deeds of undertaking. 8. [NAME_1] paid the amounts demanded by [NAME_3] on 13 October 2021 and 20 October 2021.

9. On 5 October 2021, [NAME_13], the solicitors for [NAME_1], made a demand on each [NAME_5] for the total amount that had been paid by [NAME_1]. They made further demands on [NAME_2] on 17 November 2021 and 14 December 2021. [NAME_2] admits that he has made no payments in respect of those demands.

The Issues 1. [NAME_2]'s primary argument in response to [NAME_1]'s claim has the following steps:

1. The business transferred by the Scheme was [NAME_4]'s insurance business; 2. "Insurance business" for the purposes of the Scheme has the meaning given to that expression by the Insurance Act — that is, the business of undertaking liability, by way of insurance (including reinsurance) in respect of any loss or damage including any business that is ancillary to that business;

3. Surety bonds are not contracts of insurance;

4. Therefore, the business of issuing surety bonds is not insurance business;

5. In order for business to be incidental to insurance business it must be ancillary to or in subordinate conjunction with that business, which the business of issuing surety bonds is not;

6. Therefore, the bond business, including the Deed, was not transferred to [NAME_1] by the Scheme.

1. During the course of oral submissions, it was also suggested that no claim could be made under the Deed because the Original Term Sheet had been replaced by the Second Amended Term Sheet and Third Amended Term Sheet. Both those term sheets, like the Amended Term Sheet, provided that "A Deed of Indemnity is to be entered into by the Client and each other [NAME_5] in favour of the Surety. This Deed will be prepared by the Surety's lawyers". No such deed was ever provided.

2. Finally, [NAME_2] submits that [NAME_1] has not proved the loss that it claims.

[NAME_2]'s arguments on liability 1. The second of [NAME_2]'s arguments is easily dealt with. The form of each amended term sheet was to restate the Original Term Sheet and incorporate the amendments that had been agreed between the parties. Once that is understood, it is apparent that the reference to a requirement to enter into a Deed of Indemnity contained in each amended term sheet is a restatement of the obligation contained in the Original Term Sheet to enter into the Deed. That obligation had been discharged by entry into the Deed. Each amended term sheet is not to be read as requiring a new deed of indemnity to be entered into by the parties. Consequently, the Deed remained on foot.

2. The real issue in the proceedings on liability as formulated by the parties was whether the Deed had been novated to [NAME_1] as a consequence of the Scheme.

3. Much of the debate in relation to that question turned on step (3) of [NAME_2]'s argument — that is, on whether surety bonds of the type issued by [NAME_4] were insurance contracts. However, two points should be made about the debate framed in those terms.

4. First, as the authorities and academic literature on the topic recognise, there is no clear distinction between insurance contracts and other types of contract which have similar characteristics, such as commercial guarantees issued for a fee and some types of warranty. As Romer LJ explained in Seaton v Heath [1899] 1 QB 782 at 792 in relation to the distinction between guarantees and contracts of insurance: But the difference between these two classes of contract does not depend upon any essential difference between the word "insurance" and the word "guarantee". There is no magic in the use of those words. The words, to a great extent, have the same meaning and effect; and many contracts, like the one in the case now before us, may with equal propriety be called contracts of insurance or contracts of guarantee. Whether the contract be one requiring 'uberrima fides' or not must depend upon its substantial character and how it came to be effected. There is no hard and fast line to be drawn between contracts of insurance and contracts of guarantee for the purpose for which I am now considering them … 1. The same can be said of the surety bonds in this case. They have many of the characteristics of a contract of insurance. In exchange for a fee, they provide for the payment of a sum of money upon the happening of a contingent event — namely, a demand by the beneficiary of the bond triggered by a demand on it. Described in that way, surety bonds meet the requirements of an insurance contract set out by Channell J in Prudential Insurance Company v Inland Revenue Commissioners [1904] 2 KB 658 at 663–4. It is true that, in this case, in contrast to most insurance contracts, the fee is not paid by the beneficiary of the contingent payment — that is, [NAME_3]. But that is not an essential feature of insurance. For example, it is common for insurance contracts to confer the benefits of the insurance on third parties who have not paid or contributed to the premium.

2. Whether the surety bonds in question in this case should be classified as insurance contracts depends on the purpose for which the question is asked: see [NAME_9] v [NAME_10] at [COMPANY_11] (2016) 239 FCR 12; [2016] FCAFC 15 at [40] per Allsop CJ and Gleeson J. It is one thing to characterise them as insurance contracts for the purposes of attracting the rights and obligations imposed on insurer and insured by the Insurance Contracts Act 1984 (Cth). It is quite another to characterise them as insurance contracts for the purposes of attracting the prudential and regulatory requirements imposed on general insurers by the Insurance Act.

3. Second, the question in this context is not whether particular contracts are properly characterised as insurance contracts. Rather, the question is whether the business of providing surety bonds should be characterised as "insurance business" within the meaning of the Insurance Act. That requires characterisation of the business, not of specific contracts. In particular, it requires examination of the question whether it can be said that the activity of issuing surety bonds for a fee could be said to have been part of [NAME_4]'s business of undertaking liability by way of insurance or part of a business that was incidental to that business for the purpose of attracting the prudential and regulatory requirements set out in the Insurance Act. The business itself involves more than simply undertaking liabilities of the necessary character. It includes every activity that is part of undertaking those liabilities, such as employing staff, leasing premises, appointing agents to conduct the business and so on.

4. There was little evidence before the Court on the precise nature of [NAME_4]'s business. One question that was raised during the course of the hearing was what weight, if any, could be given to the paragraphs of Gleeson J's judgment quoted above which provide a brief description of [NAME_4]'s surety bond business. [NAME_2] correctly submitted that to the extent that those paragraphs contain findings about the nature of that business, those findings could not be treated as evidence in this case: see Evidence Act 1995 (NSW) s 91.

5. It was suggested that the reasons for judgment could be used to interpret her Honour's orders. But the orders themselves do nothing more than approve the Scheme. They do not affect or determine the scope of the Scheme; and the fact that approval was given in the belief that the surety bond business was incidental to [NAME_4]'s insurance business does not mean that that was the effect of the orders.

6. Despite the limitations in the evidence, I am satisfied that the activity of issuing surety bonds was part of [NAME_4]'s insurance business (as defined) — that is, it was part of a business of undertaking liability by way of insurance. It is therefore unnecessary to consider the further question whether the surety bond business was incidental to the insurance business. 7. [NAME_4] was a general insurer. General insurers as part of their business often issue surety bonds and, as I have explained, surety bonds have many of the characteristics of insurance contracts. Those characteristics make it appropriate that the business of providing surety bonds by an insurer be regulated in the same way as other aspects of the insurer's insurance business. In particular, the insurer takes a relatively small sum of money (compared to its potential liability) and agrees that it will pay the beneficiary of the promise a sum of money (in this case, reflecting the beneficiary's loss) upon the happening of a contingent event. The purpose of the prudential requirements of the Insurance Act is to protect the beneficiaries of the promise (most often, policyholders) by ensuring that the insurer, having received the premium or fee, will in the future have the financial resources to meet a claim or demand on the happening of the contingent event.

Accordingly, it is appropriate to treat the business of issuing surety bonds as part of the same business that is regulated by the Act — that is, insurance business. That conclusion is reinforced by the fact that the business is operated in the same way as a typical insurance business. The business in this case was conducted through an agent operating under a binder, which is a typical way of describing an agency arrangement by which an agent can enter into insurance contracts on behalf of an insurer. It is apparent that [NAME_4] took out reinsurance in respect of its surety bond business, which is a typical mechanism by which an insurer protects itself against excessive losses arising from insurance claims. In other words, the language and substance of how the business operated was typical of a business involving the undertaking of liabilities by way of insurance.

8. The Deed was plainly entered into in connection with that part of [NAME_4]'s business that involved issuing surety bonds. Consequently, it formed part of that business. In any event, it plainly fell within the definition of "Business Contracts" since it was entered into in connection with the Business. It follows that the Deed was assigned to [NAME_1] under the Scheme.

Loss 1. [NAME_1] sought to prove the amount of its loss in three ways. First, it relied on the written demands issued to [NAME_3], [NAME_3]'s written demands under the relevant bonds and documents recording the payment or proposed payment to [NAME_3] by [NAME_1] of the amounts demanded, which total $8,304,902.46. No objection was taken to the tender of those documents. They clearly prove that [NAME_1] paid [NAME_3] $8,304,902.46 in respect of liabilities incurred by [NAME_1] under surety bonds issued at the request of an [NAME_5] under the Deed. Consequently, [NAME_2] became liable under the Deed to pay that amount plus interest. A demand was made on [NAME_2] and the other Indemnifiers for the amount owing. [NAME_2] accepts that he has paid no amount in respect of that liability. Consequently, on the basis of that evidence, the only remaining question is whether another [NAME_5] has paid the amount demanded from [NAME_2].

2. Second, [NAME_1] relies on a certificate dated 26 April 2022 issued under cl 8.8 of the Deed. [NAME_2], despite the High Court's decision in [NAME_6] v [COMPANY_8] (1935) 53 CLR 643; [1935] HCA 49 and countless decisions that have applied it, sought to advance an argument that that certificate was not admissible to prove the amount owing to [NAME_1]. It is unnecessary to consider this argument any further, since on any view the certificate does not prove the amount owing at the time of the trial.

3. Third, [NAME_1] relied on affidavit evidence given by [NAME_25]. One affidavit was sworn on 27 April 2022. In that affidavit, [NAME_25] relevantly said that she had reviewed the relevant business records of [NAME_1] and had observed that as at the date of her affidavit the debt remained due and payable. A second affidavit was sworn on 29 November 2022, the day before the hearing. In that affidavit, [NAME_25] explained that she had interrogated [NAME_1]'s financial system known as "Insure90" and that her enquiries had revealed that no amount had been paid in respect of the debt claimed from [NAME_2]. The affidavit attaches a number of screenshots from the enquiries [NAME_25] made and [NAME_25] gives an explanation of the information contained in the screenshots. [NAME_25] also includes a calculation of interest up until 30 November 2022 and gives an explanation of how that interest was calculated. Relevantly, she states that the interest rate referred to in cl 2.3 of the Deed is 4.01 percent in the case of the guarantees given to [NAME_23] and 4.0036 in the case of the guarantees given to [NAME_24]. 4. [NAME_2] objected to the evidence given in the affidavit sworn on 27 April 2022 on the basis that it was conclusory in nature and to the affidavit sworn on 29 November 2022 on the basis that it was evidence in chief that was given very late. I allowed the evidence given in the affidavit sworn on 29 November 2022. It could not seriously be suggested that [NAME_1]'s accounting system did not reliably record the amount owing to [NAME_1]. [NAME_25]'s affidavit simply attached current records which established the amounts owing to [NAME_1] at the time of the trial. It would have been necessary for [NAME_1] to give that evidence in some form or another. The effect of [NAME_25]'s evidence was that, according to [NAME_1]'s current records, none of the amount claimed by [NAME_1] had been paid by another [NAME_5]. [NAME_2] could not seriously have been prejudiced by that evidence. For that reason, I allowed it.

5. According to [NAME_25], interest owing up until 30 November 2022 is $375,293.72. Interest from that date to the date of judgment is $7,295.15, making a total of $382,588.87.

Orders 1. There is no reason why [NAME_2] should not pay [NAME_1]'s costs. 2. Accordingly, the orders of the Court are: 1. Judgment for the plaintiffs against the defendant in the sum of $8,687,491.33; 2. The defendant to pay the plaintiff's costs of the proceedings.

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