Category: Legal Updates

  • No longer valid? “Prior Known Circumstances” exclusions in policies of insurance

    19 February 2025:

    The Full Court of the Federal Court recently delivered its judgment in Uniting Church in Australia Property Trust (UCPT) v Allianz Australia Insurance [2025].

    The Court ruled that Allianz Australia Insurance (Allianz) was correct to deny coverage for claims related to historical sexual abuse at Knox Grammar School (Knox). More importantly, however, the Court determined in obiter that the ‘prior known circumstances’ exclusion in policies issued by Allianz to the Uniting Church in Australia (UCA) was void by operation of s 52 of the Insurance Contracts Act 1984 (Cth) (ICA).

    Background facts

    Allianz issued insurance policies to the Uniting Church from 1999 to 2011 which were said to be responsive to claims for sexual abuse. The key issue in both the primary decision and on appeal was whether Allianz had the knowledge of investigation reports relating to potential instances of historical sexual abuse at Knox. The most significant report, commissioned by Knox in 2004, was referred to as “LKA2”.

    Although prior sexual abuse claims involving a specific teacher had been reported to and paid by Allianz, the issue at hand was whether coverage was available for claims made by other students regarding different teachers. A blanket notification of the potential for these additional claims was made in 2009, but Allianz disputed it. This was because, in 2004, Knox had commissioned LKA2, which highlighted the possibility of broader sexual abuse claims. However, the contents of LKA2 were not disclosed to the UC or Allianz at the time.

    The court needed to determine, first, whether a blanket notification was valid under section 40(3) of the ICA, which required notice to be given “… as soon as reasonably practicable after the insured became aware of those facts.” Second, if the notification was valid, the Court needed to consider whether coverage was available.

    The decision

    The Court stated that LKA2 contained “red flags” and “… drew the reader’s attention to highly questionable conduct of other staff and warned in clear terms of the prospect of further claims relating to a pattern of alleged and some sustained behaviour from the 1980s and early 1990s …“.

    In doing so, the Court determined that LKA2 “… sufficiently revealed materials which might have been reported to Allianz to trigger s40(3)” and then clarified that, had LKA2 been promptly reported under section 40(3) of the ICA when it was first commissioned, it would have ensured that coverage was available for all later claims made by former students.

    However, the Court also determined that UCA had not notified various facts and circumstances which gave rise to claims “as soon as practicable” and within the policy period at the time when it first became aware of the facts. In the absence of a valid notification for the purpose of section 40(3) of the ICA during the relevant policy period, the Court decided that Allianz was entitled to deny indemnity in respect of claims first made after it ceased to be on risk for UCPT.

    On the question of whether the prior known circumstances exclusion in the policies of insurance was valid, the court was split, with the majority holding that an exclusion was void by reason of section 52 of the ICA, which states:

    “Where a provision of a contract of insurance… proports to exclude, restrict or modify, or would, but for this subsection, have the effect of excluding, restricting or modifying, to the prejudice of a person other than the insurer, the operation of this act, the provision is void” (emphasis added).

    In lengthy reasons, the majority reasoned that “… in effect [the exclusion] transforms what is a matter of disclosure (what the [Allianz] knows that bears upon the decision by [Allianz] whether to accept the risks to be insured) into a general exclusion from cover in all instances. Its effect is to substantially exclude the application of the duty of disclosure provisions to the policy. For those reasons [the exclusion] is void by operation of s 52 [of the Act]”.

    Implications of the decision

    In the future, insurers will, it seems, no longer be able to use a prior known circumstance exclusions as the basis to deny or restrict coverage; instead, an insurer’s only recourse may be to prove a breach of an insured’s duty of disclosure.

    A fully copy of the decision in Uniting Church in Australia Property Trust (UCPT) v Allianz Australia Insurance [2025] can be accessed here.

     

  • Senator Pauline Hanson loses racial vilification case, brought against her by Senator Mehreen Faruqi

    1 December 2024:

    The Federal Court of Australia has found that, in publishing a tweet that included telling Senator Mehreen Faruqi to “piss off back to Pakistan”, Senator Pauline Hanson racially vilified Senator Faruqi.

    Background Facts

    On 9 September 2022, Senator Mehreen Faruqi published a tweet, following Queen Elizabeth II’s death, which stated:

    “Condolences to those who mourn the Queen. I cannot mourn the leader of a racist empire built on stolen lives, land and wealth of colonized people.”

    She urged for a “… Treaty with First nations, justice & repatriations for British colonies & becoming of republic.”

    In reply, Senator Pauline Hanson published the following tweet:

    “Your attitude appalls and disgusts me. When you immigrated to Australia you took every advantage of this country. You took citizenship, bought multiple homes, and a job in a parliament. It’s clear you’re not happy, so pack your bags and piss off back to Pakistan.”

    Senator Faruqi made a complaint about Senator Hanson’s tweet to the Australian Human Rights Commission; Senator Hanson declined to participate in that process. Thereafter, Senator Faruqi initiated proceedings in the Federal Court claiming Senator Hanson breached s 18C of the Racial Discrimination Act 1975 (Cth) for engaging in offensive conduct due to Senator Faruqi’s race, colour, or national or ethnic origin.

    The Legal Position and Outcome

    Section 18C of the Racial Discrimination Act 1975 (Cth) prohibits racial vilification; it provides that it is unlawful for a person to do non-private acts that (1) are reasonably likely to offend, insult, humiliate or intimidate another person or group; and (2) are done due to the race, colour, or national or ethnic origin, of the other person or people in the group.

    Stewart J of the Federal Court found that Senator Hanson had contravened section 18C of the Racial Discrimination Act 1975 (Cth) by publishing the offensive tweet, because, amongst other reasons:

    • Senator Hanson’s tweet conveyed a racist trope associated with anti-immigrant connotations, inferred that migrants were second-class citizens, and was communicated to a large audience with the possible effect of promoting or condoning similar, or worse, views – it was thereby offensive;
    • The tweet was published because of Senator Faruqi’s race, because it was directed at Muslims as much because of their race, colour, and immigrant status, as it was about their religious beliefs; and
    • Senator Hanson, despite communicating her genuine belief in her tweet, had not exercised a conscientious approach to advancing her free speech, and she therefore did not act in good faith and her tweet was not “fair comment”.

    Senator Hanson was ordered to remove her offending tweet, “pin” a note to her account recording the declaration of unlawful conduct, and pay Senator Faruqi’s legal costs.

    A copy of the Court’s decision in Faruqi v Hanson [2024] FCA 1264 can be read here. The court’s decision, refusing Senator Hanson’s application for a reduction in costs (in Faruqi v Hanson (Costs) [2024] FCA 1389), can be read here.

  • That’s a lot of beans! Heinz ordered to pay $2.25 million for contravening the Australian Consumer Law

    28 August 2018:

    Up to May 2016 Heinz sold a “Little Kids Shredz” brand of products (pictured in body of article). The products were displayed in the children’s sections of major supermarkets and sold to parents and carers of children aged 1 to 3 years.

    Justice White of the Federal Court found that Heinz had, in respect to the sale of the products, conveyed representations that were misleading or deceptive, and which thereby contravened the Australian Consumer Law.

    On 24 August Heinz was ordered to pay the Commonwealth of Australia $2.25 million by way of a penalty and, within 3 months, establish a consumer protection law compliance program, to be maintained and administered for 3 years.

    Background facts

    In addition to “nutrition information”, the packaging of the products contained the word “nutrition” and its cognates four times.

    The text on the products’ packaging stated “[o]ur range of snacks and meals encourage your toddler to independently discover the delicious taste of nutritious food. With our dedicated nutritionists who are also mums, we aim to inspire a love of nutritious food that lasts a life time” and “[o]ur wide range of snacks and meals is packed with the tasty goodness of vegetables, fruits, grains, meat and pasta to provide nutritious options for your toddler”.

    The ACCC alleged that the packaging of the products as a whole – including the repeated use of the word “nutritious” – conveyed a representation that the products contained nutritious food that was beneficial to the health of children aged 1 to 3 years.

    The ACCC also argued that the representations, if made, were false or misleading because the products were, in fact, high in sugar and kilojoules, had a low moisture content and satiety value, and had a sticky texture (which was likely to increase the risk of poor dental health).

    Heinz broadly opposed every limb of the case sought to be proved by the ACCC.

    It argued, for example, that ordinary reasonable consumers would observe and take account of the products’ “nutritional information” and an “ingredients panel” on the products’ packaging, would understand that a serve of the products contained on average 68.7% sugar, and would not have understood the word “nutritious” as conveying a representation that the products were a “nutritious food and beneficial to the health of children aged 1 to 3 years”.

    The Trial

    Heinz led expert evidence from three witnesses, and evidence from five of its employees who were involved in the development of the products and the products’ packaging, (all of whom had qualifications in nutrition and, or, dietetics).

    The ACCC led expert evidence from two witnesses, Dr Rosemary Stanton, a highly qualified nutritionist, and Professor David Manton, the Elsdon Storey Chair of Child Oral Health at the University of Melbourne.

    There was also, in evidence, internal Heinz documentation.

    An internal “comms briefing”, for example, reported, under the heading “What’s Working”, “… [t]ree symbolising strong benefits; natural, health, slow growth, freshness, healthy outdoor lifestyle (aspiring to mums who are fighting to get their kids outside); [e]arthy colouring dialing up organic cues (natural) … [t]he new pack is emotionally engaging (telling a story) and strongly delivers on natural product benefits …”.

    The decision of the Court

    Justice White was satisfied that the products’ packaging did convey the representation alleged by the ACCC, because a not insignificant number of ordinary reasonable consumers would have understood this to be the case, particularly because such consumers would likely “pass over” the nutritional information and ingredients panels on the products’ packaging (especially in a busy supermarket isle, and given that the information was displayed in the nature of “fine print”), and because many consumers would respond in a more impressionistic way to the dominant message conveyed by more prominent words and imagery.

    Justice White also found there was no logic or principle why the ACCC could not prove the falsity of a representation concerning the quality of the products by resorting to expert evidence concerning features of the products about which a consumer might have been unaware or overlooked. It was decided that it is commonly the case that features of a product which make representations about it misleading are revealed only by expert investigation or analysis.

    Regarding the expert evidence, Justice White accepted (and it seemed to be common ground between the parties), that the products contained a high level of sugar – whereby the products contained two-thirds sugar.

    Justice White concluded that the high levels of sugar in the products was not beneficial to the health of toddlers, having regard to the potential to cause dental caries, and because it was not easy to accept that consumption of a high amount of sugar could be regarded as beneficial to the health of children ages 1 to 3 years, especially given that excess weight and obesity is a significant problem among Australian children.

    Justice White found that the representations were false or misleading, in breach of the Australian Consumers Law, and that Heinz nutritionists ought to have known that a representation that a product containing approximately two-thirds sugar was beneficial to the health of children ages 1 to 3 years was false or misleading.

    Penalty and other Orders

    The ACCC sought a penalty of $10 million, whereas Heinz contended that a single penalty of $400,000 was appropriate.

    It was found that there were serious aspects to Heinz conduct and that the conduct was extensive; Justice White accepted that Heinz had made the false or misleading representations at least 1,207,560 times on every packet of the products sold.

    Yet, it was decided that whilst it would not be appropriate to fix the aggregate of penalties to be imposed on Heinz at an amount which went no further than negating the profit Heinz derived from the sale of the products, penalties totaling $10 million would be inappropriate.

    It was ordered that Heinz pay the Commonwealth of Australia $2.25 million by way of a penalty and, within 3 months, establish a consumer protection law compliance program, to be maintained and administered for 3 years.

    [1] Australian Competition and Consumer Commission v H.J. Heinz Company Australia Limited [2018] FCA 360

    [2] Australian Competition and Consumer Commission v H.J. Heinz Company Australia Limited (No 2) [2018] FCA 1286

  • Beware: Construction Contracts and Ipso Facto Insolvency Reforms

    1 July 2018:

    Where a contractor, such as a builder or sub-contractor, suffers from an event of insolvency or is actually insolvent, most standard building contracts currently grant a principal, such as an owner or head-contractor, “ipso facto” rights, such as the rights to suspend building works, call upon and enforce any security given by the contractor, and terminate the building contract.

    Insolvency reforms to take effect on 1 July 2018 will instead prevent the enforcement of ipso facto rights, to provide opportunities for insolvent companies to restructure.

    The reforms will affect a range of commercial contracts, not just construction contracts.

    The policy intent of the reforms is to maintain the continuity of a contractor’s business and the value of the business, to provide a better potential for the contractor’s business to be restructured, for example, by “trading out” of insolvency.

    The enforcement of ipso facto rights will be stayed where a right arises because a company has an administrator appointed, a managing controller is appointed to the whole or substantially the whole of the company’s assets, or a scheme of arrangement is made or announced.

    Exceptions or proposed exceptions include rights under “set-off” and “step-in” clauses and exceptions to permit a party to enforce certain rights with the consent of an administrator, receiver, scheme administrator, or the Court.

    The reforms will only apply to contracts entered into after 30 June 2018. The reforms will not apply to contracts entered into before 1 July 2018, including amendments to contracts where the underlying contract was formed before 1 July 2018.

    The result of the reforms is that principals may need to be more risk averse when doing business, including as to whom they contract with, how they exercise their contractual rights, and which contracts they utilise.

    If a principal were to purport, for example, to terminate a contract utilising a stayed right, the purported termination could open the principal up to a raft of problems, including contractual repudiation and breach of contract, termination for repudiation, and, or, a claim for contractual damages.

    Therefore, principals will need to ensure that they do not fall afoul of the reforms by, for instance, purporting to terminate a contract in reliance upon a stayed right. Principals should also start reviewing existing contracts to ensure that the contracts do not fall afoul of the reforms by, for example, containing “self-executing” ipso facto clauses.

    You can read more on The Treasury’s website at www.treasury.gov.au