Akai V. People's Insurance Notes

Akai v. People’s Insurance

Facts

The People's Insurance Company Limited ("People's Insurance") is incorporated in the Republic of Singapore. Akai Pty Limited ("Akai") is incorporated in New South Wales and is a wholly-owned subsidiary of Akai Electric Co Limited which is incorporated in Japan. Akai carries on business in Australia and, to a lesser extent, New Zealand. It has its head office in New South Wales.

In mid-1991, People's Insurance issued to Akai a policy of insurance ("the Policy") under which People's Insurance undertook to indemnify Akai for loss suffered by Akai by reason of non-payment of moneys due and owing to Akai by those to whom goods had been supplied by it on credit.

Akai later claimed indemnity under the Policy in respect of losses sustained by Akai consequent upon the failure of Norman Ross Homeworks Pty Limited ("Norman Ross"), a company which had operated retail stores in which Akai products were sold to the public.

Proceedings by Akai in NSW: On 5 March 1993, Akai commenced an action in the Supreme Court of New South Wales, Commercial Division. Akai sought a declaration that People's Insurance was liable to indemnify it under the Policy for loss suffered by Akai in respect of moneys owed to it by Norman Ross, being moneys the non-payment of which was insured under the Policy. Judgment was sought for Akai in the sum of $1,292,184.98, with interest. On 21 June 1993, People's Insurance responded with a motion seeking a stay of that proceeding. Clause 9 of Art VI of the Policy ("Clause 9") is of prime importance for this appeal, which arises out of the motion of 21 June 1993. Clause 9 is headed "Governing Law" and states:

"This policy shall be governed by the laws of England. Any dispute arising from this policy shall be referred to the Courts of England."

The Insurance Contracts Act 1984 (Cth): It is designed to restrict the circumstances in which the insurer may refuse to pay a claim, and does so by in some cases allowing the insurer to reduce the amount of the claim against it. If the act or omission which otherwise would entitle the insurer to refuse to pay a claim is of a type which could reasonably be regarded as being capable of causing or contributing to a loss covered by the insurance, the insurer may refuse to pay the claim (s 54(2)) unless the insured can prove that in the particular case the act or omission did not cause the loss (s 54(3)) or only caused a part of the loss (s 54(4)).

Section 8 is the critical provision, given the terms of cl 9 of the Policy which select English law and the English courts. Section 8 states:

(1) Subject to section 9, the application of this Act extends to contracts of insurance and proposed contracts of insurance the proper law of which is or would be the law of a State or the law of a Territory in which this Act applies or to which this Act extends.

(2) For the purposes of subsection (1), where the proper law of a contract or proposed contract would, but for an express provision to the contrary included or to be included in the contract or in some other contract, be the law of a State or of a Territory in which this Act applies or to which this Act extends, then, notwithstanding that provision, the proper law of the contract is the law of that State or Territory.

The central question here was whether the Insurance Contracts Act is applicable in these circumstances to the dispute between the parties.

Holding

Section 8 of the Act is intended to prevent evasion

“It would mean that provisions enacted as salutory reforms might be set at nought by the simple expedient adopted in the present case of inserting in an agreement a stipulation that validity should be a matter for the law of some other country.” It is to that concern that the relevant provisions of the Act are directed. The passage in the Report to which we have referred makes this plain. The terms of the Act evince a legislative scheme or purpose to accept as the localising or connecting factor with Australia the proper law of the contract of insurance, but only in a limited sense. That is to say, the Act is to extend to contracts the proper law of which is the law of a State or Territory, ascertained by the objective test....

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