In the decision of Mason v Cashel Financial Services Pty Limited [2021] NSWSC 201 delivered on 9 March 2021, the Supreme Court of NSW confirmed that an indemnity in a contract between an AFSL holder and its authorised representative, entitled the AFSL to recover an insurance excess and deductible incurred to settle a claim brought by a third-party investor arising from the conduct of the representative.
The licence holder, Cashel, and the authorised representative, Mr Mason, were sued by an investor alleging poor advice by Mr Mason giving rise to a loss.
Cashel's insurer indemnified Cashel and Mr Mason for that loss, and settled the investor's claim by a confidential Deed - in which liability was denied, but a settlement payment was made without prejudice.
Cashel, however, was obliged to pay an insurance deductible/excess of $50,000 in settlement of that claim.
Cashel sought recovery of the $50,000 from Mr Mason as a Loss arising from a transaction carried out by him as an authorised representative, caused by his negligent act or omission. The claim was made pursuant to an indemnity in the Authorised Representative Agreement between Cashel and Mr Mason and his company.
Mr Mason brought a number of defences to the claim, including that the nature of the indemnity should be read narrowly and only relate to fees and expenses of the particular transaction, such as commissions and trails - and not any insurance deductible. The Supreme Court disagreed and found that the indemnity was broad enough to cover this insurance deductible.
Mr Mason argued that the terms of the settlement deed with the investor, in which liability was denied, estopped Cashel from asserting Mr Mason was negligent. The Court rejected this argument, and found that the Deed did not amount to an estoppel or supersede the terms of the Authorised Representative Agreement. It was open to Cashel to assert, and lead evidence of Mr Mason's breach.
Mr Mason also argued that whilst he had signed the Authorised Representative Agreement, and he had a separate company which contracted with Cashel, he was in fact an employee of Cashel, and entitled to an indemnity from Cashel under the Employees Liability Act 1991.
The Court, when considering the facts, rejected this argument out of hand.
The decision is pleasing in that it makes clear what has been known for a long time: that a properly drafted indemnity gives a clear right to license holders to recover far reaching losses arising from the negligence and omissions of authorised representatives. Insofar as the indemnities in the contract are clearly drafted and are not ambiguous, they will be given their full force and effect.
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