HANOVER GROUP HOLDINGS LTD V AIG INSURANCE NEW ZEALAND LTD CA101/2013 [2013] NZCA 442

HANOVER GROUP HOLDINGS LTD V AIG INSURANCE NEW ZEALAND LTD CA101/2013 [2013] NZCA 442 [30 September 2013]IN THE COURT OF APPEAL OF NEW ZEALANDCA101/2013[2013] NZCA 442BETWEEN HANOVER GROUP HOLDINGSLIMITEDAppellantAND AIG INSURANCE NEW ZEALANDLIMITEDRespondentHearing: 16 May 2013Court: O'Regan P, Arnold and Stevens JJCounsel: N S Gedye QC and J A MacGillivray for AppellantA C Challis and P L McKinnon for RespondentJudgment: 30 September 2013 at 11.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondent costs for a standard appeal on a band A basis, plus usual disbursements. We certify for two counsel.____________________________________________________________________REASONS OF THE COURT(Given by Arnold J)Introduction[1] Three companies associated with the appellant, Hanover Group Holdings Ltd (Hanover), carried on business as second tier financiers, borrowing money from members of the public and on-lending it to commercial entities. In order to raisefunds, the companies, Hanover Finance Ltd (HFL),1 United Finance Ltd (UFL) and Hanover Capital Ltd (HCL), issued prospectuses, essentially on an annual basis. Hanover had held a Directors and Officers Liability policy with the respondent, AIG Insurance New Zealand Ltd (AIG), since at least 2004.2 The policy contained an endorsement which provided some cover in respect of liability arising from claims by investors on the basis of statements in prospectuses issued by the three companies, but the cover was limited.[2] The policy was due to be renewed with effect from 1 November 2007. Because some gaps in cover had been identified, Hanover sought, through its brokers Apex General Ltd (Apex), to have the policy amended, in particular to provide more comprehensive cover in relation to prospectuses. The broker involved thought that he had achieved the additional prospectus cover, but the relevant endorsement to the renewed policy did not reflect that understanding. The discrepancy was not identified until much later, when Hanover gave notice to AIG of a potential claim in respect of a possible breach of the Fair Trading Act 1986. AIG took the view that there was no relevant cover under the renewed policy. As a consequence, Hanover issued proceedings seeking rectification of the policy and, in the alternative, alleging breach of the Fair Trading Act and claiming that AIG was estopped from denying cover.[3] Having been unsuccessful before Allan J, Hanover now appeals.3Factual background[4] Hanover's policy with AIG for the year 1 November 2006–31 October 2007 contained endorsement 8 in the following terms:4The insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured Person directly or indirectly arising out of, or in connection with:1 Formerly known as Elders Finance Ltd.2 Formerly known as Chartis Insurance New Zealand Ltd.3 Hanover Group Holdings Ltd v Chartis Insurance New Zealand Ltd [2012] NZHC 3585 [Hanover (HC)].4 Emphasis in original.(a) any public or private issue of shares, preference shares (redeemable or otherwise), debentures of whatever kind, promissory notes or any other form of negotiable or non-negotiable security for the raising of capital by equity, debt or any other means;(b) the issue of any prospectus or similar document or the making of any written or oral representation, in connection with (a) above.Notwithstanding the above, this endorsement shall only apply to:i. Initial Public Offerings;ii. Capital raisings outside of New Zealand;iii. The issuance of additional shares for listed companies;iv. Prospectus documents where the amount to be raised is over $400,000,000 and the sole or primary purpose is the acquisition of funds for the purpose of providing finance to third parties.However, this exclusion does not apply to:1. [Hanover] Finance Limited5 and its subsidiary companies in respect of Prospectus No 30 dated 30 November 2001.2. [Hanover] Finance Limited and its subsidiary companies in respect of Prospectus No 31 dated 9 December 2002.3. [Hanover] Finance Limited and its subsidiary companies in respect of Prospectus No 32 dated 27 August 2003.4. [Hanover] Finance Limited and its subsidiary companies in respect of Prospectus No 33 dated 13 December 2004.In all other respects this policy remains unaltered.The effect of this rather awkwardly worded endorsement was that Hanover had prospectus cover for offerings not exceeding $400 million6 and for the identified HFL prospectuses, whatever the amount sought to be raised, but not otherwise.[5] One of the difficulties for Hanover was that its associated companies, but particularly HFL, raised money from the public by way of annual prospectuses. Each annual prospectus replaced the one before it, so the amount raised increased over time as earlier deposits were included within the current prospectus by investors5 The endorsement refers to HFL's previous name, Elders Finance Ltd. The name change hadtaken effect on 30 September 2005 but was not picked up in the endorsement: Hanover (HC), above n 3, at [13].6 As we understand the evidence, the $400 million limit referred to the amount sought to be raised, not the amount actually raised. Thus, a prospectus seeking to raise $500 million but actually raising only $350 million would not be covered unless listed.reinvesting them. By late 2007, HFL's current prospectus showed almost $1 billion of capital-raising and UFL's prospectus showed $500 million. In addition, the HFLprospectuses specifically referred to in the endorsement were no longer current.[6] The principal discussions about the renewal of the policy took place between Mr Michael Ross, Hanover's General Manager, Finance, Mr Grant Dawson of Apex and Mr Vince Barker of AIG during October 2007, although there had been some exchanges prior to this. In particular, on 27 September 2007, Hanover and Apex had provided an underwriting submission to AIG. It noted that Hanover was to hold a Board meeting on 24 October 2007 where insurance renewal was to be discussed. The submission sought quotations by 15 October 2007. What is notable about the submission for present purposes is that, in relation to Directors and Officers Liability, a noted endorsement was prospectus cover for non-listed raisings of less than $400 million (that is, a continuation of the existing prospectus cover).[7] On 18 October 2007, AIG provided a quote to Mr Dawson for the renewed policy, due to commence on 1 November 2007. The premium quoted was $85,000 for a $20 million limit of liability. The quote noted the endorsements that would apply, including the following:Prospectus cover provided for all non-listed raisings under $400m and specifically include s cover for Elders Finance Ltd P rospectusnumbers 30–33.[8] There were then discussions and communications which Hanover alleged resulted in AIG agreeing to provide "full prospectus cover"7 on 25 October 2007. They begin with a meeting on 23 October 2007 between Messrs Barker, Dawson and Ross at which the topic of prospectus cover was discussed, at least in general terms. Following the meeting, Mr Dawson emailed Mr David Crawford, an Australian broker representing the excess layer insurers, in the following terms:One thing that needs to be made clear to the Underwriters is that the Prospectus endorsement does not provide cover for Hanover FinanceLimited's annually issued prospectus. The policy limits coverage to raisings under $400M. Hanover Finance raises funds in excess of this amount.7 That is, cover for any prospectus that could give rise to a claim throughout the policy period (1 November 2007 to 31 October 2008) whatever the date on which the prospectus was issued and whatever the maximum amount that could be raised.Coverage is provided for United Finance & FAI's prospectuses – these aresmaller brands that manage only about 20% of the Hanover Group's funds.[9] The following day (on 24 October 2007), Mr Dawson sent an email to Mr Ross at Hanover in which (among other things) he asked:In regards to the funds raised by Hanover Finance's annual prospectus –please confirm approximately the average capital raised in recent years. This will enable us to obtain pricing from AIG for coverage of the prospectuses topresent to [Hanover's] Audit & Risk Committee.[10] Mr Ross responded as follows (also on 24 October 2007):I have been discussing the D and O cover further with Gavin Scott who did the renewal last year.We are trying to understand why there is mention of Elders Finance 30 to 33. We need cover for current prospectuses.We also question what is the meaning of the $400m limit. Clearly we have way in excess of $400m in issue.Can you perhaps go back to the insurance policy documents to get a better understanding or indeed AIG/QBE.8We should discuss further Thursday morning.In his evidence, Mr Dawson said that this email was the first time that Hanover had specifically advised him that additional prospectus cover was required.[11] There were two important telephone conversations between Mr Dawson and Mr Barker of AIG on 25 October 2007. Mr Dawson made the following file note of the first conversation:Discussed with Vince [Barker] the requirement of Hanover to cover current prospectuses. He will look through his file regarding the endorsement. Agreed that terms this year reflect cover for current prospectus.It was not Mr Barker's practice to take notes of telephone conversations, so he had no note of this (or the next) telephone conversation. But he did not take issue with the accuracy of Mr Dawson's file notes.8 The excess layer under the policy was underwritten by QBE Insurance (International) Ltd.[12] Mr Dawson then obtained information from Hanover as to the likely extent of total capital-raisings in the near future and sent the following email to Mr Barker at 11.09 am:As discussed, from their last prospectus Hanover Finance Ltd raised approx $920M – they do not expect this figure to go over $1B in the near future.[13] There was then a further telephone discussion between the two men. Mr Dawson again made a brief file note immediately after the discussion. It read:25/10 – Discussed with Vince [Barker] – it was always AIG's intention tocover prospectuses issued as this is the main risk for HFL.[14] Following the two telephone discussions, Mr Dawson sent an email to Mr Crawford at 11.42 am, which read:After further discussions with the insured & AIG, it will be agreed (AIG to confirm) that all prospectuses are to be covered under the D&O policy as this is where the majority of the risk is for the client.AIG have confirmed this was always the intention of the policy & the $400m figure was a historical figure from 5 or so years ago when annual capital raisings were a lot smaller.AIG will remove this endorsement from the policy accordingly and add one noting cover for the prospectuses.Hope this doesn't affect terms for the excess layer – please let me know if you have any queries.[15] At 1.16 pm on 25 October 2007, Mr Barker sent the following email to Mr Dawson:We have been through the entirety of the file and note that in 2005 we included the last Elders Prospectus (No. 33) for additional premium. Since then we have not been asked to include any further documents (that fall outside of the current write-back provisions) which warrants additional premium. There was an option put up in early '06 for stand alone prospectus cover which went no further.As discussed the terms provided this year reflect the inclusion of the latest Hanover Finance Prospectus Document.[16] As indicated above, AIG had provided a quote to Mr Dawson for the renewed policy on 18 October 2007.9 The quote noted the following endorsement:Prospectus cover provided for all non-listed raisings under $400m and specifically includes cover for Elders Finance Ltd Prospectusnumbers 30–33.Against that, Mr Dawson made the following notation:To be removed – cover to include all prospectuses issued (non-listed).He said in evidence that he made this notation following his discussions with Mr Barker and the receipt of his confirmatory email of 25 October 2007.[17] On 26 October 2007 at 8.56 am, Mr Dawson sent an insurance review, summarising the Hanover Group's insurance position, to Mr Ross. He referred to thereview as reflecting "the local Insurers' responses to the remarket & our discussions on Prospectus Liability this week". In an attached schedule, Mr Dawson indicatedthat Hanover carried prospectus liability insurance. A previous version of the schedule had indicated that such insurance was not in place. However, there was nothing to indicate the precise extent of the prospectus cover, although no limit was expressed.[18] Also on 26 October 2007, at 3.49 pm, Mr Dawson reported to Mr Ross by email, as follows:We have obtained an Employment Disputes Liability quote, which we will discuss Monday (summary: $1M cover, $10K excess, premium $5,300)We have been seeking an "indication of price" for the Network Security cover at this stage as this is seen as low risk. Hanover can then decide if the policy is worth pursuing. This is the only one I am waiting on (will have prices for you on Monday).Prospectus cover was also being looked into and this has been covered now with AIG confirming cover under the D&O policy.[19] Following his discussions with Mr Barker, Mr Dawson prepared a comprehensive insurance renewal report for a meeting with senior Hanover representatives scheduled for 30 October 2007. In that report, Mr Dawson said:9 See [7] above.Please note the Prospectus Liability endorsement providing cover only for non-listed raisings under $400M has been removed. This was an historical endorsement that had not been updated since 2004. All non-listed prospectuses are now covered.[20] On 31 October 2007, Mr Barker emailed Mr Dawson as follows:GrantThank you for your call.I have done some digging and I don't have any idea where these other termsmay have come from which is a concern. My biggest concern is either that these terms have been desk quoted or the terms provided are inferior to the current programme.It must be stressed that this is no ordinary time for D&O for Finance Companies and we are not prepared to match inferior terms from an unknown source. We are providing very broad Prospectus Cover and full solvency cover under the D&O. Given it is the most volatile time in the FI sector for many years it should also be taken into account that AIG is the world's premier D&O insurer with an AA+ rating which certainly should not be overlooked when offering this sort of capacity.In saying this we are very keen to retain our relationship with both Apex and Hanover and continue our support on this risk. We are prepared to amend our renewal premium to $70,000 Net.[21] On 2 November 2007, Mr Barker confirmed that cover had been renewed. Mr Dawson sent AIG an expiry advice document dated 13 November 2007 which summarised the Directors and Officers Liability cover and included the following:2(g) Prospectus cover provided for non-listed raisings.He included a closing document addressed to Hanover that contained the same statement. The equivalent provision in the previous year's closing document had read:2(g) Prospectus cover provided for non-listed raisings $400m and specifically includes cover for [Hanover] Finance Ltd Prospectus numbers 30–33.As can be seen, the latter part of this sentence had been removed from the more recent closing document.[22] On 10 December 2007, Mr Dawson emailed Mr Springhall, Mr Barker'sassistant at AIG, as follows:Our Excess Layer Insurers in London will not issue certificates until theyhave viewed AIG's updated policy wording. As we have a request pendingout of Australia, are you able to send this through this week?Following are the changes from last year's schedule/wording as far as I cansee:Simon Holloway, Anthony Morgan, Stephen Auld & Colin McAlister noted as Insured Persons under this policy.Endorsement 9 – Axis Property Group Holdings Ltd changed to Hanover Property Group Holdings LtdEndorsement 8 – Removal or editing of this endorsement to reflect coverage of all prospectuses issued by Hanover & its subsidiariesThe Excess Layer Insurer also has requested that "AIG" as mentioned in the Non-Accumulation clause be amended to read "the Insurers". This can be added by endorsement if preferable.Mr Dawson copied Mr Barker in on this email.[23] On 14 December 2007, Mr Springhall responded by email in the following terms:Please find attached the 2007 policy wording for Hanover.With regard to your final bullet point below, the Non-Accumulation clause, the excess layer Insurers can add this to the policy by endorsement (on receipt and approval by AIG), but we will not amend our Non-Accumulation clause.Please don't hesitate to contact Vince or myself should you wish to discussanything.[24] The policy terms for the year commencing 1 November 2007 were attachedto Mr Springhall's email. In relation to the matters raised in Mr Dawson's10 December email:(a) The matters referred to in the first two bullet points were dealt with in the renewed policy.(b) Mr Springhall specifically addressed the matter in the fourth bullet point in his email and declined to make the amendment sought.(c) In relation to endorsement 8 in the renewed policy, it varied from the previous endorsement 8 only to the extent that an HFL Investment Statement dated 29 December 2006 and the HFL Prospectus No 35 dated 29 September 2006 were included in the list of items covered under the endorsement. It did not provide full prospectus cover.It appears that no one from Apex or Hanover considered the terms of the new endorsement 8 on receipt as no concern was raised with AIG at the time.[25] On 23 July 2008, Hanover announced that it was suspending the acceptance of new deposits and the repayment of existing deposits as part of a plan to restructure its business. The Commerce Commission launched an investigation into Hanover, on the basis that it may have breached the Fair Trading Act by making misleading representations. Hanover gave AIG notice of this, as being a circumstance which might give rise to a claim under the policy. AIG disputed cover. Hanover then issued proceedings against AIG, on the basis that:(a) the policy should be rectified so that endorsement 8 reflected the agreed position that AIG would provide full prospectus cover; and(b) in the alternative:AIG's conduct was misleading or deceptive and breached s 9 of the Fair Trading Act. It was alleged that AIG had led Mr Dawson to believe that full prospectus cover would be provided; orAIG was estopped from resiling from its promise to provide full prospectus cover for Hanover without giving Hanover notice of its intention to do so.[26] Finally, we note that when the policy was renewed towards the end of 2008,cover was explicitly extended to all of Hanover's prospectuses by making expressreference to them in the exception to endorsement 8.Basis for appeal[27] The principal ground of appeal is that the evidence establishes that AIG agreed to provide full prospectus cover on 25 October 2007. Mr Gedye QC for Hanover placed particular weight on the two telephone calls of 25 October 200710and on the text of Mr Barker's email to Mr Dawson on the same day:11As discussed the terms provided this year reflect the inclusion of the latest Hanover Finance Prospectus Document.Accordingly, the policy should be rectified to reflect the agreed position.[28] Mr Gedye submitted that the Judge's decision was not based on findings ofcredibility but rather on inferences taken from uncontested evidence and, in particular, from contemporary documents. As a result, he submitted, this Court was in as good a position as the trial Judge to undertake an assessment of the facts.[29] In the alternative, Mr Gedye argued that:(a) Mr Barker's conduct was misleading, in particular his email sent at 1.16 pm on 25 October 2007.12 Mr Barker created an expectation that AIG would provide full prospectus cover. Mr Gedye submitted that AIG was estopped from departing from the expectation which Mr Barker had created and also sought relief under the Fair Trading Act.(b) AIG knew that Hanover thought that full prospectus cover had been agreed. Mr Gedye submitted that AIG had been alerted to that by theterms of Mr Dawson's email to Mr Springhall of 10 December10 See [11] above.11 See [15] above.12 See [15] above.2007.13 Although Hanover had a reasonable expectation that it would do so, AIG did not correct this misapprehension. Mr Gedye argued that Mr Springhill's 14 December 2007 email to Mr Dawsonattaching the policy would have led a reasonable person to believe that AIG had the same view of endorsement 8 as was set out in MrDawson's 10 December 2007 email.14 Hanover also raises an estoppel in respect of that conduct and seeks relief under the Fair Trading Act.Rectification[30] There was no disagreement between the parties as to the relevant principles. Contractual interpretation is to be approached on an objective basis, from the perspective of a reasonable and properly informed observer.15 Rectification will be ordered where the parties have agreed a contractual arrangement but the terms in which the arrangement is recorded do not accurately reflect the agreed terms. Oral evidence may be given to show that the recorded terms do not reflect the true agreement between the parties. In Chartbrook Ltd v Persimmon Homes Ltd16 Lord Hoffman approved the following passage from the judgment of Peter Gibson LJ inSwainland Buildings Ltd v Freehold Properties Ltd:17The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect the common intention.13 See [22] above.14 See [23] above.15 See, for example, Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19]–[21] per Tipping J.16 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] AC 1101 at [48].17 Swainland Buildings Ltd v Freehold Properties Ltd [2002] EWCA Civ 560, [2002] 2 EGLR 71 at [33].The burden is on the party seeking rectification to show that there was a common intention which was not properly recorded. Evidence of subsequent conduct is admissible to show that the recorded terms do not reflect the agreed terms.18[31] In the present case, the witnesses were giving evidence about events that had occurred five years earlier. Understandably there were difficulties of precise recall. In those circumstances, and because the law requires an objective approach, the contemporaneous documents play a critical part in the assessment, albeit against the context provided by the oral evidence. It follows that we agree with Mr Gedye'ssubmission that we are in as good a position as the trial Judge to make an assessment.The Judge's findings[32] The basis on which Allan J rejected the rectification argument was that he was not satisfied that AIG had ever agreed to provide full prospectus cover. There had been general discussion with Mr Barker about the desirability of such cover, but a firm proposal for full prospectus cover had not been put to him on Hanover'sbehalf for AIG's acceptance. In terms of the four requirements identified by Peter Gibson LJ,19 the first was not met – there was no continuing intention that full prospectus cover would be provided.[33] In relation to the critical events on 25 October 2007, the Judge made the following findings:(a) As to Mr Dawson's file note of the first telephone call betweenhimself and Mr Barker,20 the last sentence – "Agreed that terms this year reflect cover for current prospectus" – was a reference to HFL'scurrent prospectus number 35.21 However, the reference to covering18 These propositions are discussed in John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [10.6.1]. See also John Birds, Ben Lynch and Simon Milnes MacGillivray on Insurance Law: Centenary Edition (Sweet & Maxwell, London, 2012) at [12–005]–[12–006] on evidence relevant to ascertaining parties'common intention.19 As set out at [30] above.20 See [11] above.21 Hanover (HC), above n 3, at [63]."current prospectuses" in the first sentence of the file note was a reference to Hanover's requirement for full prospectus cover.22(b) As to Mr Dawson's file note of the second telephone call,23 the Judgeaccepted that there was discussion of Hanover's need for prospectuscover on an ongoing basis.24 However, the Judge considered that the file note was equivocal, in the sense that it could be taken to refer toAIG's willingness in principle to cover prospectuses issued from time to time or could refer to an intention to cover prospectuses as and when issued in the currency of the policy.25(c) As to Mr Dawson's email to Mr Crawford,26 the Judge noted that there was a key difference between the parties as to the scope of cover.27 Mr Dawson considered that there was an agreement that AIG would automatically cover Hanover immediately on the issue of a new prospectus without any formal request. By contrast, Mr Barker considered that the agreement was that AIG was willing in principle to cover all prospectuses, but that individual requests would need to be made as required. The email was not conclusive on this point.Moreover, the Judge noted the words "(AIG to confirm)" in the firstsentence of the email and held that they indicate that there was, at that point, no concluded agreement.28(d) As to Mr Barker's email to Mr Dawson,29 the Judge considered thatthe language was "somewhat equivocal".30 The critical sentence was the following:As discussed the terms provided this year reflect the inclusion of the latest Hanover Finance Prospectus Document.22 At [66]–[67].23 See [13] above.24 Hanover (HC), above n 3, at [68].25 At [69].26 See [14] above.27 At [74].28 At [75]–[76].29 See [15] above.30 At [78].This, the Judge found, was a reference to the latest HFL prospectus, namely prospectus number 35. The Judge said:31Mr Dawson left it to Mr Barker to draft the detail of the changes Hanover was seeking. Given the comprehensive character of the amendments needed to carry into effect what Hanover wanted, it is difficult to see how Mr Dawson could have accepted the two lines of advice at the end of Mr Barker's email as sufficient confirmation of his request for complete prospectus cover.[34] The Judge summarised his views as follows:[84] Hanover bears the onus of establishing the terms of the oral contractrelied upon. In large measure it relies on Mr Dawson's file notes, his e-mailto Mr Crawford, and Mr Barker's confirmatory e-mail. In my view, thosedocuments are inconclusive, and fall far short of supporting Hanover's claimthat AIG agreed through Mr Barker that Hanover would enjoy automatic cover for all prospectuses, including those to be issued during the insuranceyear. In particular, Mr Barker's e-mail does not address Hanover's requestfor wider prospectus cover at all, save for the confirmation which I conclude refers back to Prospectus 35. It appears that Mr Dawson misconstrued that e-mail and so did not go back to Mr Barker for further advice and the confirmation he sought.Our evaluation[35] Mr Gedye submitted that the Judge had erred in taking into account the subjective views of Mr Barker rather than simply determining objectively what a reasonable observer would have believed was agreed. Mr Gedye argued that theJudge's findings were inconsistent with the weight of the evidence and produced acommercially unrealistic result.[36] On its face, endorsement 8 to the renewed policy extended the prospectus cover beyond that provided under the previous policy, but did not provide full prospectus cover.32 In order to justify rectification, Hanover carried the burden of establishing that there was an understanding between the parties that AIG would provide full prospectus cover. It appears from the contemporaneous documents that Mr Dawson thought that there was an understanding to this effect. However, his31 At [83].32 See [24(c)] above.email to Mr Crawford (sent after the two telephone discussions with Mr Barker) recorded that AIG had yet to confirm that it would provide full prospectus cover.33[37] Hanover relied on the last sentence of Mr Barker's 25 October 2007 email to Mr Dawson as confirmation.34 It read: "As discussed the terms provided this yearreflect the inclusion of the latest Hanover Finance Prospectus Document". But, asthe Judge said, that language is equivocal and is, on its face, an odd way of expressing the concept of full prospectus cover. The language is more consistent with the notion that cover for prospectuses would be agreed as they were issued (rather than automatically). This is particularly so when the sentence is considered against the background of the preceding paragraph in the email, where a case-by-case approach is recorded.[38] Mr Gedye argued that this interpretation made no commercial sense. Hesubmitted that on this interpretation, there would be no cover for HFL's newprospectus (due to be issued in December 2007) for most of the policy period. We do not agree that such an arrangement would lack commercial sense. Endorsement 8 in the renewed policy was extended to provide cover for the existing HFL prospectus, that is, number 35. An arrangement that AIG would be asked to include the next HFL prospectus when it was actually issued (against the background that AIG was likely to agree to provide such cover, possibly but not necessarily for an additional premium) is commercially realistic, particularly when viewed against the background that prospectuses issued by other Hanover companies were also covered under the endorsement. We do not accept that this is inconsistent with the statementrecorded in Mr Dawson's note of his second telephone conversation with Mr Barkeron 25 October 2007 that "it was always AIG's intention to cover prospectuses issued as this is the main risk for HFL".35 As we see it, that statement does not necessarily support an inference that full prospectus cover had been agreed (as opposed to an inference that cover would be agreed as and when further prospectuses were issued).[39] Hanover's argument that AIG had agreed to provide full prospectus cover depended crucially on the two Dawson/Barker telephone conversations and33 See [14] above.34 See [15] above.35 See [13] above.Mr Barker's subsequent email of 25 October 2007 – it was they that were said to have resulted in a concluded understanding. We do not accept that they support that inference. Like the Judge, then, we consider that Hanover has failed to meet its burden of establishing that there was an understanding that AIG would provide full prospectus cover. Accordingly, we consider that the claim for rectification must fail.Fair Trading Act and estoppel[40] In terms of liability under the Fair Trading Act, the parties were in agreement that the following principles are applicable:(a) A misrepresentation as to the terms of insurance cover on offer can amount to misleading or deceptive conduct for the purposes of s 9.36(b) The test is whether a reasonable person in the claimant's situation(with the characteristics known to the defendant or of which the defendant should have been aware) would be likely to have been misled or deceived.37 Accordingly, the characteristics of the claimant are important to the assessment.(c) A breach of s 9 may occur where there has been non-disclosure in spite of a reasonable expectation that the defendant would disclose or where there has been a failure to correct a misapprehension.38 The insurance context, with its obligations of good faith and fair dealing, is relevant in this context.39[41] While we have some reservations concerning a reasonable expectation of disclosure giving rise to a misrepresentation under the Fair Trading Act in this36 Clifton-Mogg v National Bank of New Zealand Ltd (2001) 10 TCLR 213 (HC) was cited. See also Susan Glazebrook (ed) Commercial Law in New Zealand (online looseleaf ed, Lexis Nexis) Insurance: Non-disclosure and Misstatements at [28.5.7].37 Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28] was cited.38 Tuiara v Frost & Sutcliffe (a firm) [2003] 2 NZLR 833 (HC) at [91]; and Hieber v Barfoot & Thompson Ltd (1996) 7 TCLR 301 (HC) at 313.39 For a general overview of the duty of good faith in insurance law, see Glazebrook, above n 36, at [28.1.2]; and Birds, Lynch and Milnes, above n 18, at [17–002]–[17–008].particular context,40 we are content to adopt the above propositions for present purposes.[42] Similarly, there was no dispute between the parties as to the principles applicable in relation to estoppel. It was accepted that Hanover had to establish that:41(a) AIG created or encouraged a belief or expectation that full prospectus cover would be provided through some action, representation or omission of fact.(b) Hanover reasonably held the belief or expectation and reasonably relied on it.(c) Hanover has suffered a detriment as a result of AIG resiling from the expectation which it created.(d) It would be unconscionable for AIG to depart from the belief or expectation.In some circumstances, a belief or expectation created by a failure to speak may be sufficient.42[43] Mr Gedye advanced two submissions:(a) He submitted that Mr Barker's words and conduct on 25 October2007 were misleading (when assessed against what AIG now says its position was). Mr Barker induced Mr Dawson to believe, reasonably,40 We accept, of course, that an omission to act (or inform) may constitute misleading or deceptiveconduct by virtue of the definition of "engaging in conduct" in s 2(2) of the Fair Trading Act 1986. But there are some limits to the scope of s 9 and context is critical: see, for example,Janus Nominees Ltd v Fairhall [2009] NZCA 280, [2009] 3 NZLR 757 at [41].41 Gold Star Insurance Co Ltd v Gaunt [1998] 3 NZLR 80 (CA) at 86 was cited.42 Tradax Export SA v Dorada Compania Naivera SA (The "Lutetian") [1982] 2 Lloyd's Rep 140(QB) at 157, citing Moorgate Mercantile Ltd v Twitchings [1977] AC 890 (HL) at 903 per Lord Wilberforce.that he had succeeded in negotiating full prospectus cover for Hanover.(b) He also submitted that Mr Dawson made his belief and expectation clear in his email of 10 December 2007 to Mr Springhall.43 Hanoverhad a reasonable expectation that AIG would correct its broker's obvious misapprehension. Mr Springhill's response was misleadingby omission and would have led Mr Dawson reasonably to conclude that AIG agreed with the position set out in his email in relation to endorsement 8.[44] Allan J rejected these submissions. He considered that there was no evidence that AIG was aware that either Hanover or Apex was labouring under a misapprehension about the cover which AIG was offering, nor was there any suggestion that Mr Barker was wilfully blind.44 The Judge found that what Hanover wanted and what AIG was offering were two different things and that neither partywas aware of the other's different understanding.45 Moreover, the position in relation to endorsement 8 in the renewed policy was obvious. It was not referred to in Mr Springhall's email of 14 December 2007,46 although it had been raised in MrDawson's email of 10 December 2007.47 But Mr Springhall's email attached therenewed policy, and Mr Dawson could easily have checked the wording of the endorsement. That was not a matter of any great complexity.48[45] The Judge concluded as follows:[123] To succeed in these causes of action, Hanover needed to establish that Mr Barker had led Mr Dawson to believe that there would be full prospectus cover, and that AIG had subsequently resiled from that promise without giving notice to Hanover of its intention to do so. In my view, Hanover has not established that the terms of any promise or representation by Mr Barker were as Hanover now asserts. Although there was a discussion of the desirability of full prospectus cover, Mr Dawsonacknowledged that he left the detail to Mr Barker. From AIG's point of43 See [22] above.44 Hanover (HC), above n 3, at [115].45 At [118].46 See [23] above.47 See [22] above.48 At [120]–[121].view, the detail was provided first in Mr Barker's e-mail of 25 October, and then in the policy issued on 14 December 2007.[124] Mr Dawson had an opportunity at each point to raise his on-going concerns with Mr Barker, but he did not do so. In those circumstances, I do not see how AIG can be rendered legally responsible for what occurred.[46] We agree with the Judge's assessment. We do not accept that AIG committeditself to providing full prospectus cover and then withdrew from that commitment without notice. Undoubtedly there was discussion concerning prospectus cover. But as we see the evidence, AIG did not commit itself to doing any more than in fact it did, that is, agreeing to extend cover to HFL's existing prospectus. This was against the background that it was likely to extend cover to further prospectuses as and when they were issued (although that would have been subject to appropriate notification by Hanover and possibly to discussion about additional premium).49[47] Mr Springhall's email of 14 December 2007 addressed only one of the four matters raised by Mr Dawson in his email of 10 December 2007. The matters not specifically addressed should have been checked to ensure that they had been given effect in the renewed policy. If that had been done, it would have become apparent that endorsement 8, while amended, did not go as far as Hanover wished. The matter could then have been resolved. As the Judge said, this was not a matter of any great complexity.[48] Accordingly, we do not consider that AIG's conduct was, in thecircumstances, misleading or deceptive, or raises an estoppel. Those involved in the discussions were sophisticated and knowledgeable business people, who can legitimately be expected to be alert to their interests and to record their respective positions, and any subsequent agreements, with some care and precision.49 Generally the addition of further prospectuses did not seem to involve the payment of any additional premium, but an additional premium was charged in at least one instance, that is, in the case of HFL prospectus number 33.Decision[49] The appeal is dismissed. The appellant must pay the respondent costs for a standard appeal on a band A basis, plus usual disbursements. We certify for two counsel.Solicitors:Tompkins Wake, Hamilton for AppellantMcElroys, Auckland for Respondent