Case: Council of the City of Sydney v West [1965] HCA 68 ; (1965) 114 CLR 481
Outcome: considered
application to join Allianz was made pursuant to O 6 r 2 of the Federal Court Rules , s 562 of the Corporations Act and s 6(4) of the Law Reform Act. Allianz resisted joinder on only one ground. It contended that the Policy contained an exclusion which was applicable in the present circumstances so that the claim against it would inevitably fail. The clause upon which Allianz relied was entitled "Investment Performance Exclusion" (IPE). That clause provided: We are not liable to indemnify you in respect of any claim directly or indirectly based upon, attributable to, or in consequence of: (a) depreciation (or failure to appreciate) in value of any investments, including but not limited to securities, commodities, currencies, options and futures transactions; or (b) any actual or alleged representation, advice or guarantee provided by or on your behalf as to the performance of any such investments. For the sake of clarity we agree that this exclusion does not apply to any claim arising directly out of your failure to effect a specific investment transaction pursuant to a specific instruction from a client of yours . Allianz argued that all of the losses which were claimed by the applicants were connected with a depreciation of "investments". It was submitted that a necessary step in the applicants' pleaded case was that the value of their investments had decreased from which it must follow that the losses claimed fell squarely within the terms of the exclusion. The applicants on the other hand denied that the losses which were claimed by them could all necessarily be described as "investments". Further, they submitted that the clause, properly construed, applied only to "investments" which were authorised and that the investments which had been effected by Bentley Barton and/or Mr Taylor were contrary to Mr Done's express instructions. The loss claimed from Bentley Barton is pleaded in paragraph 512 of the proposed further amended statement of claim. It says: By reason of Bentley Barton's breach of its duty of care, each of the applicants has suffered loss and damage. Particulars of loss and damage See particulars to paragraph It is important to emphasise that the Court's conclusion directed attention to the status of the investments as authorised. That approach to the question of the construction of the exclusion clause was not surprising. The same result, effectively, had been achieved in the Court's prior decision in Council of the City of Sydney v West [1965] HCA 68 ; (1965) 114 CLR 481. In this case Mr West had driven his car into the Domain car park in Sydney. He had been handed a ticket by the attendant upon entering. It contained a clause which read: 1. The Council does not accept any responsibility for the loss or damage to any vehicle or for loss of or damage to any article or thing in or upon any vehicle or for any injury to any person however such loss, damage or injury may arise or be caused. After the car was parked a rogue obtained, by deceit, a duplicate of the parking ticket for Mr West's vehicle and so armed, proceeded to drive Mr West's car to the exit where he was permitted by an attendant to drive away without further inquiry. The ticket also provided that it had to be presented for time stamping and payment before taking delivery of the vehicle. Barwick CJ and Taylor J held (at 489-490): The fact that the attendant at the exit through which the car was driven was negligent is of no consequence in the case; the act of delivery was one which was neither authorized nor permitted by the contract and in our view the appellant was not entitled to be exonerated by the exempting clause. The application of that principle to the present facts is, it seems to me, straightforward. "Investments" within the meaning of the IPE clause should be construed to mean "authorised investments". Such a construction is consonant with the final words of the clause which show clearly that the clause was not intended to cover the situation where, contrary to instructions, the insured had failed to effect a particular investment. That demonstrates that the clause is concerned to make clear that the insurers are not underwriting the insured's investment advice business. However, the clause says nothing, in my opinion, about situations where the liability of the insured is said to arise, not from the execution of instructions in relation to investments, but rather from the expenditure of client funds contrary to instructions. If it were otherwise, the exclusion would apply wherever client money was misappropriated so long as the final destination of that money was in an "investment".