Australia: International Round Up

Last Updated: 24 October 2008
Article by Samantha Kelly

Markel International Insurance Co Ltd v Surety Guarantee Consultants Ltd and others [2008] EWHC 1135 (Com)

Markel International Insurance Co Ltd, QBE Insurance (Europe) Limited and Amalfi Underwriting Limited (collectively the Claimants), brought proceedings in England's High Court against Surety Guarantee Consultants Ltd (SGC) and its former directors and employees. The claims related to surety bonds written by SGC that exceeded limits set out in a binding authority and management agreement (the Agreements) held by the Claimants with SGC. The Claimants alleged they were exposed to greater liabilities than agreed to, resulting in SCG obtaining excess premium payments. Fraud and dishonesty by the employees was also alleged.

In handing down its judgment on 3 June 2008, the Court held the Agreements on the surety bonds written by SGC had clear limits that SGC had breached, enabling secret profits to be made at the expense of the Claimants. The Court also found that there was an inescapable inference that the bonds were overwritten in order to defraud the Claimants by making secret profits, and that SGC had misstated the amount of the Claimant's exposure.

The Court further ruled that SGC violated its fiduciary duty through writing the unauthorised bonds and, in addition, the employees were found to have breached their fiduciary duty by conspiring to obtain secret profits which gave rise to a liability in tort. Consequently, all defendants had to account for the secret profits to the extent of loss incurred by the Claimants.

In respect of a defendant director of SGC, the Court held it probable the director had suspicions regarding the legitimacy of SGC's business but failed to pursue any investigations into the matter. The Court ruled the director could not have honestly believed that signing the bonds in excess of daily limits was justified, and that the director's failure to ask questions of other directors amounted to deliberately 'closing his eyes' to the danger of signing the bonds. Such conduct exposed the Claimants to a greater liability than was agreed. The recklessness of the director as to the Claimant's interests amounted to a breach of the director's fiduciary duty, as the director had dishonestly assisted and enabled SCG to breach its fiduciary duty in making secret profits.

In assessing the effect of the Agreements, the Court found that a relationship of trust and confidence was established based on the existence of personal names listed in the schedules of the Agreements. Thus, the directors had duties as fiduciary to the companies because of the trust and confidence placed upon them. Consequently, the directors who procured a breach of the Agreements were found liable in tort.


Where company directors and employees are involved in making secret profits in circumstances where such practice is found to constitute a breach of their fiduciary duty, each director will be held liable to account for the full extent of those profits. Directors and employees must be wary of deliberately 'closing their eyes' to the practice of overwriting bonds as this may constitute a breach of their fiduciary duty. Further, it is clear that a mere inference as to the overwriting of surety bonds may be sufficient in satisfying a court that a company had violated its fiduciary duty. In these circumstances directors and employees are at risk of being found liable for knowingly assisting their employer company in breaching fiduciary duty.

Ramco Ltd and Resource Industries v Weller Rusels & Laws Insurance Brokers Ltd LTL [2008] (unreported)

Ramco Ltd (Ramco) and Resource Industries Ltd (RIL) (collectively, the Claimants) traded in surplus army stock under agreements with the Ministry of Defence (the MoD Agreement) and a South African businessman, Mr Murray (the Murray Agreement). The Claimants brought proceedings in England's High Court against International Insurance Company of Hanover (the Underwriters) for losses incurred in 2001 due to fire damage to the stock. The Claimants sought their legal costs in the action against the Underwriters. RIL made a separate claim for the value of the stock that would have been recoverable against the Underwriters had it obtained effective insurance cover. Judgment was handed down in June 2008.

Ramco succeeded against the Underwriters, however, RIL failed. Ramco and RIL subsequently pursued a claim against Weller Russels & Laws Insurance Brokers Ltd (the Broker) alleging the Broker obtained a policy that was inappropriate for the purposes for which it was obtained. The Claimants asserted the Broker breached its contractual and tortious duty to exercise reasonable skill and care by procuring an inappropriate policy. In addition it was claimed the Broker failed to investigate the nature of the Claimant's business, thus, undermining the advice given as to appropriate cover. Specifically, it was alleged the procurement of one particular policy over the wording of another gave rise to inadequate cover, causing loss to the Claimants.

The Court held the events leading up to the Broker's decision on the cover, adequately informed the Broker of the need to undertake further investigations regarding the nature of the MoD and Murray Agreements. The particular words 'held by the Insured in trust for which the Insured is responsible' in the policy effectively restricted the Claimants' recovery in instances where the Claimants had no legal liability for loss. It was also held that the Broker was under an obligation to investigate the terms on which the goods were held by the Claimant before recommending any particular policy. Had such investigations been undertaken, it would have been clear that adequate provision for cover had not been obtained. Consequently, a breach of duty on the part of the Broker was found for adopting the wording of one policy in place of the wording of another policy, and the proceedings against the Broker were upheld.


It is clear that breaches of agreed limits regarding a company's exposure set out in surety bond agreements by overwriting bonds to obtain secret profits, may amount to a breach of fiduciary duty. Further, where employees conspire to obtain secret profits, this may similarly amount to a breach of fiduciary duty in circumstances where a relationship of personal trust and confidence on the part of the employees has been established. Potentially, where employees fail to investigate any suspicions they hold as to the legitimacy of their employers' business dealings, the Court may find that the employee assisted in their employer's breach of fiduciary duty. Accordingly, employees may be required to account for any profit gained.

Clearly, a broker may be held liable in contract and or tort for failing to exercise reasonable skill and care in circumstances where a policy is inappropriate for the purposes for which it is obtained. It is therefore necessary for brokers to investigate the nature of the insured's business thereby maximising the scope of advice given to the insured prior to the provision of a policy. It is also necessary for brokers to be aware of the events leading up to the provision of a policy which may indicate a need to undertake further investigations on the insured's business in general and, in particular, the terms of related agreements.

JP Morgan Chase Bank v Springwell Navigation Corporate [2008] EWHC 1186

Springwell Navigation Corporation (Springwell) was an investment company run by a large Greek shipping fleet family. Throughout the 1990s, Springwell invested heavily in emerging market bonds exceeding US$700 million and during this time, JP Morgan Chase Bank (JP Morgan) acquired Springwell's portfolio of emerging market investments.

In an action extending over many years, Springwell brought a counter-claim against JP Morgan in England's High Court for an alleged failure to provide proper advice regarding emerging market investments. The counterclaim also alleged that JP Morgan dishonestly sold certain investments to Springwell that it knew to be unsuitable.

Springwell asserted JP Morgan had assumed the role of an adviser and, consequently, had a duty to advise Springwell on the appropriateness of its investments and provide ongoing advice on the overall balance of Springwell's portfolio. JP Morgan denied the existence of an advisory relationship based on numerous disclaimers and limitations of liability contained in contractual documentation relating to the transactions.

The key issues facing the Court were whether JP Morgan owed a contractual and/or tortious duty of care to Springwell to provide advice on appropriate investments and the extent of any such duty.

In handing down its judgment on 27 May 2008, the Court found that the duty of JP Morgan did not extend to providing investment advice, nor did it entail a responsibility to select investments or monitor Springwell's portfolio. Springwell was held to be ultimately responsible for its own investment decisions as Springwell was a sophisticated investor that previously dealt successfully in emerging markets. Further, the Court ruled that Springwell was also aware of the risks involved in such transactions. Other considerations held to be relevant included the lack of discussion between the parties regarding investment objectives and the fact that JP Morgan had not issued an advisory agreement or any portfolio statements to Springwell despite being contrary to standard practice. Further, the contractual terms governing the relationship between the parties precluded a duty to advise. In addition, it was evident that Springwell understood the risks involved and did not rely on the advice of JP Morgan in making its decisions.

An allegation of misrepresentation on the part of JP Morgan was on the basis that the effectiveness of the contractual disclaimers meant JP Morgan had not made any actual representations. Therefore, the claim for breach of fiduciary duty was rejected as no advisory relationship existed and, as a result, no fiduciary duty was owed.


This case highlights the factors Courts may take into account in determining the advisory duties that are owed by banks. Such factors may include the sophistication of the bank's customers, the relevant contractual framework, the active role played by the bank and the associated regulatory background. This case indicates that Claimants may face difficulties in asserting the existence of an advisory duty or responsibility for investment decisions in circumstances where it is inconsistent with the relevant contractual disclaimers and terms.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.