Miller & Associates Insurance Broking Pty Limited v BMW Australia Finance Limited  HCA 31
This recent High Court decision centred on the issue of silence or non-disclosure as misleading and deceptive conduct for the purposes of s52 of the Trade Practices Act 1974. The decision reinforces that, unsurprisingly, the precise factual background to a transaction will be of critical importance to the viability of a s52 claim.
Consolidated Timber Holdings Limited ('Consolidated Timber') retained an insurance broker, Miller & Associates Insurance Broking Pty Limited ('Miller'), to negotiate a $3.975 million loan with a financier, BMW Australia Finance Limited ('BMW'), on its behalf. The purpose of the loan was to fund the premium for a cost-ofproduction insurance policy that Consolidated Timber desired to effect to insure itself against credit risks in connection with a plantation investment scheme ('the policy').
BMW mistakenly communicated approval of the loan (and received the first loan repayment from Consolidated Timber) before fully investigating or assessing it. It subsequently sought details of the policy from Miller, which responded by providing a certificate of insurance ('the certificate') that included a list of four properties on which plantations were operated. BMW concluded from reading the certificate that, based on the reference to the four plantation properties, the underlying insurance concerned property insurance, which is generally cancellable. The policy, being a cost-of-production policy, was in fact not cancellable.
Whether the underlying insurance was cancellable was a matter of importance to BMW, and is to premium lenders generally. Cancellable policies provide a form of security for premium lenders as, in the event of default, the lender can cancel the policy and recover the unused premium.
The cancellability of the policy in this case was not the subject of express communications between Miller and BMW.
BMW rejected the initial loan application for unrelated reasons, but invited a further application for a shorter loan term and accompanied by personal guarantees from the directors of Consolidated Timber. At that point, Miller provided a copy of the policy itself to BMW without comment as part of a bundle of documents. Consolidated Timber subsequently submitted a further loan application supported by the personal guarantees of two of its directors, which was approved by BMW.
Consolidated Timber ultimately defaulted on the loan, leaving BMW unable to recover $2.715 million of the $3.975 million borrowed. It commenced proceedings against Miller in the Victorian Supreme Court alleging, relevantly, that Miller had engaged in misleading and deceptive conduct contrary to s52 of the Trade Practices Act 1974 in:
- Supplying the certificate, which misrepresented that the underlying policy was a cancellable property policy that was capable of providing security for the proposed loan; or, alternatively
- Failing to positively inform BMW that the policy for which funding was sought was not cancellable.
The primary judge found against BMW, but it successfully appealed to the Victorian Court of Appeal. Miller then applied to the High Court for special leave to appeal.
The High Court decision
The High Court unanimously found for Miller, overturning the Victorian Court of Appeal's decision and reinstating the decision of the primary judge.
In finding that the certificate did not convey a representation that the underlying insurance was a standard property policy and / or was cancellable, the majority (Justices Heydon, Crennan and Bell) noted several features of the certificate 'that suggested that the policy was an unusual one'.
The greater focus of the decision was on the second of BMW's arguments, that Miller's failure to positively inform it that the policy to be funded was not cancellable, or to highlight that the policy wording provided to it was the policy to be funded, was misleading.
In this regard, the High Court endorsed the concept of a 'reasonable expectation of disclosure' as an approach to be taken to characterisation of conduct consisting of, or including, non-disclosure of information for the purposes of s52. In a separate judgement, Chief Justice French and Justice Kiefel expressly cited with approval the comments of Justice Gummow in the earlier Federal Court decision of Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 that 'unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist'.
Determining whether a parties' conduct was misleading or deceptive required close analysis of the circumstances and context of the subject transaction, and silence or nondisclosure is one of a number of circumstances that may need to be considered. According to the majority, the relevant circumstances in this matter were that:
- Miller and BMW were commercially sophisticated and experienced in their respective fields
- BMW failed to make reasonable inquiries following receipt of the certificate, which put it on notice that the underlying policy may be an unusual one
- There was nothing in the conduct of the parties to put Miller on notice that BMW was under a misapprehension that the policy was cancellable, or that cancellability was important to the determination of the second application. In fact, BMW's request for directors' guarantees suggested that it was not
- The policy was not a lengthy document and it was apparent, on its face, that it was not a property policy, nor cancellable.
It was not disputed that Miller knew that the cancellability of insurance was important to a premium lender's determination of a loan application. Nevertheless, in light of the factors referred to above, the majority held that:
With respect to the policy wording itself, the majority considered that 'Miller's failure to draw to BMW's attention a circumstance that the document itself disclosed was not misleading or deceptive.'
Similarly, Chief Justice French and Justice Kiefel noted that the knowledge of the person to whom the conduct is directed, and 'the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business' may be relevant in characterising conduct in commercial dealings. They concluded that:
The decision serves as a useful illustration of the approach to analysing whether silence or non-disclosure constitutes misleading or deceptive conduct for the purposes of s52, particularly in a commercial context.
Importantly, it highlights that the conduct of both transacting parties, and matters such as their specific knowledge, expertise and experience, must be identified and scrutinized when considering the merits of a s52 claim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.