CON-STAN INDUSTRIES OF AUSTRALIA PTY. LTD. v. NORWICH WINTERTHUR INSURANCE (AUSTRALIA) LTD.

HIGH COURT OF AUSTRALIA

Gibbs C.J., Mason, Wilson, Brennan and Dawson JJ.

CON-STAN INDUSTRIES OF AUSTRALIA PTY. LTD. v. NORWICH WINTERTHUR INSURANCE (AUSTRALIA) LTD.

(1986) 160 CLR 226

11 April 1986

Contract—Insurance

Contract—Implied term—Commercial custom or usage—Business efficacy—Insurance—Broker and underwriter—Premiums paid to broker by assured but not forwarded to underwriter—Liability of assured to broker—Order for winding-up incorporated broker procured by underwriter—Election—Estoppel. Insurance—Broker—Relationship between assured and broker—Premium paid to broker but not remitted to underwriter—Liability of assured to underwriter for premium paid to broker. Insurance—Marine insurance—Broker responsible to underwriter for premium—Policy for variety of risks including loss of goods at sea— Whether marine policy—Marine Insurance Act 1909 (Cth), ss. 7, 28, 59.

Orders

Appeals dismissed with costs.

Decision

GIBBS C.J., MASON, WILSON, BRENNAN and DAWSON JJ.: The first action which is the subject of the present appeal concerns the legal relationships which existed between three companies during 1977 and 1978: an insurer - Norwich Winterthur Insurance (Australia) Limited ("Norwich"); an assured - Con-Stan Industries of Australia Pty Limited ("Con-Stan"); and an insurance broker - originally Bedford Insurances Pty Limited, but later Bedford Insurances (Australia) Pty Limited. The precise legal identity of the broker is of no importance in this case and, unless otherwise indicated, we shall refer to it generically as "Bedford". The second appeal concerns a different assured (Elastic Rail Spike Co. (Aust.) Pty Limited) but, as the issues raised are materially identical, that appeal must stand or fall with the success of the first appeal. It will therefore be convenient to confine discussion to the issues as they affect Con-Stan.

2. The principal issue arising for consideration is whether an insurer may recover outstanding premiums from an assured who has already paid them to his insurance broker, but which the broker has failed to pass on to the insurer. In contracts of marine insurance the matter is governed by s.59 of the Marine Insurance Act 1909 (Cth) which provides, in terms which are declaratory of the common law governing such contracts, that unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium. The necessary corollary is that an insurer has no recourse against the assured if the broker defaults on payment of the premium. The question that must be decided in this appeal is whether a similar principle applies to general non-maritime insurance.

3. The facts which give rise to the present appeal may be briefly stated. In 1976 Con-Stan engaged Bedford as its insurance broker to secure insurance appropriate to its general business. Pursuant to this arrangement, in late 1977 Con-Stan sought insurance through its broker for risks which included, inter alia, motor vehicles, workers' compensation and manufacturer's output. Norwich was selected as the appropriate insurer and proposals were submitted to it, which were duly accepted. The premiums due on the three resultant policies were paid in full by Con-Stan to Bedford but were not and have not since been paid by Bedford to Norwich. On 23 June 1978 Norwich presented a petition for the winding-up of Bedford Insurances Pty Limited and on 29 June 1978 presented a similar petition in relation to Bedford Insurances (Australia) Pty Limited, although it lodged no proof of debt in either case. A winding-up order was made against each company on 20 September 1978. No satisfaction having been obtained from Bedford, Norwich commenced proceedings in the Supreme Court of New South Wales for recovery of the premiums from Con-Stan. Rogers J. held, however, that an insurer generally had no recourse against an assured if the latter had already paid the premiums to his broker and found for the defendant, Con-Stan. That decision was overturned by a majority of the Court of Appeal (Glass and Mahoney JJ.A.; Hutley J.A. dissenting), and it is from that decision that Con-Stan now appeals.

4. An important aspect of the case relates to the relationship between an insurer, broker and assured in the industry generally, to which the practice of Norwich, Bedford and Con-Stan was found to conform. These matters have been set out fully in the judgment of Rogers J. in the Supreme Court of New South Wales ((1981) 2 N.S.W.L.R. 879, at pp.886-887) and it is necessary to do no more than summarize his findings. A prospective assured typically engaged a broker to seek the most appropriate cover at the best rate from a desirable insurer. Once a policy had been secured, the broker debited the assured for the amount of the gross premium, although it was entirely at the broker's discretion to determine what credit terms, if any, were to be extended to the assured with respect to payment of that premium. The insurer then debited the broker for the amount of the net premium (gross premium less broker's commission), usually allowing the broker credit which bore no necessary correspondence with that extended by the broker to the assured. Often an insurer did not require payment from the broker for several months after payment had been received from the assured, and it was accepted practice that the broker could enjoy the use of those funds in the interim. Renewal notices were sent to the broker rather than the assured and the cycle then recommenced. It is clear from these facts that, subject to the cases mentioned below in which insurers have made claims against policy-holders following default by the broker, an insurer generally had no direct contact with an assured. All dealings were done through the broker, but this is really no more than one would expect in a situation in which an agent is engaged for the very purpose of acting as an intermediary.

5. In the present case, if Bedford had been an agent of Norwich with authority to receive money on the latter's behalf, the payment by Con-Stan of its premiums to Bedford would have constituted payment to the principal. Norwich's sole recourse would then have been against Bedford for failure to account for moneys received in its capacity as agent. However, under the general principles of the law of agency, a broker is the agent of the assured, not the insurer: Anglo-African Merchants Ltd v. Bayley (1970) 1 QB 311, at pp 322-324; Re Colin Williams (Insurance) Pty Ltd (in liq.) and the Companies Act (1975) 1 NSWLR 130, at p 135; Sutton, Insurance Law in Australia and New Zealand (1980), at pp.178-179; MacGillivray &Parkington on Insurance Law (1981), 7th ed., par.817. There will be rare circumstances in which a broker may also be an agent of the insurer, but the courts will not readily infer such a relationship because a broker so placed faces a clear conflict of interest between his duty to the assured on the one hand and to the insurer on the other. An agreement entered into on 1 November 1977 between Norwich and Bedford, known as a Bordereaux Agreement, created just such a situation. The agreement authorized Bedford to extend insurance cover in Norwich's name in certain specified categories and within specified monetary limits. Bedford was required to calculate the premiums on the insurance which it accepted on behalf of Norwich and to issue debit notes to the assured. Bedford implicitly had authority to receive payment of the premium from the assured and was required to pay that premium to Norwich, after deducting its commission, within ninety days of the end of the month in which the business was transacted. Nevertheless Con-Stan cannot advance its case by relying on Bedford's authority under the agreement to receive money on behalf of Norwich because it was common ground between the parties that the insurance policies now in question do not fall within the ambit of that agreement.

6. This avenue foreclosed, Con-Stan nevertheless seeks to avoid having to pay the premiums a second time on a number of distinct grounds. It was submitted that:

(1) there is an implied term in the contract of insurance, arising by virtue of custom or usage in the industry, that a broker alone is liable to an insurer for payment of the premium, or alternatively there is an implied term that payment of the premium to a broker discharges the assured's obligation to the insurer;
(2) alternatively, similar terms should be implied to give business efficacy to the contract;
(3) one of the insurance contracts in respect of which Norwich claimed a premium is a marine policy and therefore governed by s.59 of the Marine Insurance Act;
(4) Norwich had alternative rights against the broker and the assured and that, in petitioning for the winding-up of the broker and obtaining winding-up orders, Norwich made a binding election which precludes it from now seeking to maintain an action against the assured;
(5) Norwich was barred from suing Con-Stan by reason of an estoppel which arose by convention.
CUSTOM

7. The principal submission advanced on behalf of the appellant, and the one which assumed the greatest importance both in argument before this Court and at the trial, is that there is an implied term in the contract of insurance between Con-Stan and Norwich, arising by virtue of custom in the industry, that an insurer is entitled to look only to the broker for payment of the premium. An alternative submission, which was the one accepted by Rogers J. at first instance, is that the implied term arising by custom is that payment by an assured to his broker is a good discharge of his obligation to the insurer. The two submissions clearly differ because in the former the existence of an obligation in the assured to pay the premiums to the insurer is denied, whereas in the latter it is accepted but regarded as discharged by payment to the broker. Thus an assured who made no payment of premiums to his broker would not be liable to the insurer under the primary submission, but would be if the alternative submission were accepted.

8. The circumstances in which trade custom or usage may form the basis for the implication of terms into a contract have been considered in many cases. The cases have established the following propositions:

(1) The existence of a custom or usage that will justify the implication of a term into a contract is a question of fact: Nelson v. Dahl (1879) 12 ChD 568, at p 575. The critical dependence of a finding of custom on the facts of the particular case means there is little to be gained by referring (as counsel for the appellant urged us to do) to the practices of the London marine market in the last century, notwithstanding that those practices formed the basis for the implication, in contracts of marine insurance, of a term similar to the first of the terms alternatively contended for in this case (see Power v. Butcher (1829) 10 B &C 329, at p 340; 109 ER 472, at p 476; Xenos v. Wickham (1867) LR 2 HL 296, at p 319; Universo Insurance Company of Milan v. Merchants Marine Insurance Company (1897) 2 QB 93, at pp 95-97, 99).
(2) There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract: Young v. Tockassie (1905) 2 CLR 470, at p 478; Summers v. The Commonwealth (1918) 25 CLR 144, at p 148; Majeau Carrying Co. Pty Ltd v. Coastal Rutile Ltd (1973) 129 CLR 48, at pp 60-61. In the words of Jessel M.R. in Nelson v. Dahl, at p 575, approved by Knox C.J. in Thornley v. Tilley (1925) 36 CLR 1, at p 8:

"(The custom) must be so notorious that everybody
in the trade enters into a contract with that usage
as an implied term. It must be uniform as well as
reasonable, and it must have quite as much
certainty as the written contract itself."

However, it is not necessary that the custom be universally accepted, for such a requirement would always be defeated by the denial by one litigant of the very matter that the other party seeks to prove in the proceedings.
(3) A term will not be implied into a contract on the basis of custom where it is contrary to the express terms of the agreement: Summers v. The Commonwealth, at p 148; Rosenhain v. Commonwealth Bank of Australia (1922) 31 CLR 46, at p 53. One explanation of this principle is that, in so far as it relates to written contracts, it is simply an application of the parol evidence rule, by which extrinsic evidence is generally inadmissible to add to, vary or contradict the express terms of a contract which has been reduced to writing: Bacchus Marsh Concentrated Milk Co. Ltd (in liquidation) v. Joseph Nathan &Co. Ltd (1919) 26 CLR 410, at p 427; Hoyt's Proprietary Ltd v. Spencer (1919) 27 CLR 133, at pp 143-144. A more fundamental explanation is that the presumed intention of the parties, on which the importation of the custom rests (Produce Brokers Company Limited v. Olympia Oil and Cake Company Limited (1916) 1 AC 314, at p 324; cf. Treitel, The Law of Contract (1983) 6th ed., at p 164), must yield to their actual intention as embodied in the express terms of the contract, regardless of whether the contract is written or oral.

9. It has sometimes been said that the implication of a term into a contract does not depend on the parties' intention, actual or presumed, but on broader considerations: Shell U.K. Ltd v. Lostock Garage Ltd (1976) 1 WLR 1187, at p 1196; (1977) 1 All ER 481, at p 487; Lister v. Romford Ice and Cold Storage Co. Ltd (1957) AC 555, at pp 576, 579; Liverpool City Council v. Irwin (1977) AC 239, at pp 257-258. But these statements are directed to situations in which the courts have been asked to imply terms amounting to rules of law applicable to all contracts of a particular class. The present case is of a different kind in which it may be necessary to speak of presumed intention. In matters of this kind, that phrase means no more than that the general notoriety of the custom makes it reasonable to assume that the parties contracted on the basis of the custom, and that it is therefore reasonable to import such a term into the contract.
(4) A person may be bound by a custom notwithstanding the fact that he had no knowledge of it. Historically the courts approached this question in a rather different way. It was said that, as a general rule, a person who was ignorant of the existence of a custom or usage was not bound by it. To this rule there was a qualification that a person would be presumed to know of the usage if it was of such notoriety that all persons dealing in that sphere could easily ascertain the nature and content of the custom. It would then be reasonable to impute that knowledge to a person, notwithstanding his ignorance of it (see Halsbury's Laws of England 4th ed., vol.12, pars 467-468; Jones v. Canavan (1972) 2 NSWLR 236, at p 243). In this way, the issue of notoriety discussed in (2) above came to be co-extensive with the question of imputed knowledge. The achievement of sufficient notoriety was both a necessary and sufficient condition for knowledge of a custom to be attributed to a person who was in fact unaware of it. The result is that in modern times nothing turns on the presence or absence of actual knowledge of the custom; that matter will stand or fall with the resolution of the issue of the degree of notoriety which the custom has achieved. The respondent's contention that industry practices unknown to the assured are incapable of forming the basis of an implied term of the contract cannot be sustained.

10. In order to establish a custom to the effect that a broker is alone liable to an insurer for payment of a premium on a policy of insurance, it is not sufficient to show that in the ordinary course of events the premium is paid to the insurer by the broker, nor is it sufficient to show that where a broker has failed to pay a premium the insurer makes its first demand for payment from the broker. Both circumstances are consistent with the continued liability of the assured. It is necessary to establish a clear course of conduct under which insurers do not look to the assured for payment of the premium. This may be established by proving either an absence of claims by insurers against assured, or the existence of claims directed exclusively to brokers as a practice rarely if ever departed from. Having examined the evidence of custom that was led in the present case, we do not think this requirement is satisfied. The evidence to which we shall refer shortly revealed a number of instances of insurers seeking a second payment from the assured notwithstanding that they had already paid their brokers. This evidence led Rogers J. to make the following significant findings of fact (at p.890):

"In the result, I am of the opinion that the
evidence clearly established that in 1977-1978, as
a matter of general industry practice in cases of
non-marine cover, where a broker was employed, the
underwriter invariably looked to the broker for
payment. I am, however, not prepared to find that
underwriters did so to the total exclusion of the
assured in the sense that from time to time
underwriters have had recourse to the assured in
cases where the broker had made default in payment
of premium. This recourse extended to instances
where payment had already been made by the assured
to the broker."

11. Notwithstanding these findings, his Honour was persuaded of the existence of a custom to the effect that payment of the premium to a broker discharges the assured's obligation to the insurer. In coming to that conclusion the judge appears to have relied on two considerations. The first is explained in the following passage (at pp.889-890):

"When one compares the foregoing evidence with
the figures for known insolvencies of insurance
brokers in 1970 to 1979 given in the Law Reform
Commission's report ALRC No 16, at p 61, which
shows twenty-seven failures involving a total
amount of over $7,000,000 owed in premium, it would
seem that the instances where recourse was had to
the assured are minute."

To this we would say that the accuracy of the Law Reform Commission figures was not universally accepted by the witnesses (as Rogers J. recognized at p.890); that it is not possible to say that the evidence referred to formed an insignificant proportion of the $7,000,000 in outstanding premiums because many of the witnesses who recounted instances of insurers claiming second payments from assured gave no indication of the amounts involved; and finally, even if they had been able to do so, a proportion based on the value of outstanding premiums is of far less relevance in determining the existence of a custom than the number of claims for second payment as a proportion of the number of policies in respect of which brokers defaulted on payment. The second reason which underlies his Honour's conclusion is that the law should strive to accommodate commercial practice in a way which avoids a breach of the law. It was suggested that failure to find the custom alleged would mean that a broker, in using money paid to him by an assured to his own advantage, would be in breach of his duties to the assured. Although we agree that the law should take account of commercial practice, this consideration does not establish that, by virtue of custom, an insurer may look only to a broker for payment of a premium.

12. At first instance, Mr Hoffman, a man of considerable experience in the insurance industry both as insurer and broker, was called to give evidence as to his knowledge of other cases in which an insurer sought to recover a second payment from an assured following a broker's default. He stated that prior to 1973 this was virtually unheard of but that since that date it had become "relatively common practice". Mr Wade, who had had some 29 years experience in the insurance industry in Australia, gave evidence of about a dozen cases since 1973 in which the insurance company of which he was manager sought a second payment in similar circumstances. Some of these were said to have occurred before 1977-1978. The same picture is painted by the witness Greenwood, who also said there was a number of such cases prior to 1977. It should be said that there was other evidence of second payments being sought from assured following a broker's default, but these related to instances after 1977 and thus can be of no assistance in determining whether the custom alleged could properly form the basis for the implication of a term in the contract at the time it was concluded. No adverse finding was made as to the veracity or reliability of any of these witnesses. In some of these cases the insurer received full satisfaction of its claim for a second payment of the premium, in some a compromise was reached, while in others the assured refused to make any additional payment - a response which so far as the evidence showed was only once followed up by the institution of legal proceedings.

13. In the Court of Appeal Hutley J.A. did not regard this evidence as destroying the custom alleged. He said ((1983) 1 N.S.W.L.R. 461, at p.466):

"The fact that there are occasional departures from
a uniform course of business does not prove the
non-existence of a custom - otherwise no custom
would ever be proved because those denying its
existence in the instant case could, by their own
eccentric conduct, destroy it as a legal custom.
The fact that one soldier is out of step does not
show that it is not customary for troops to march
in step on parade."

The existence of a custom sufficiently settled in its observance to found the implication of a term into a contract is very much a matter of fact and degree, but, with respect to his Honour, we do not share his view of the effect of the evidence just cited. This evidence supports the inference that, at least since 1973, it was a not uncommon view of those involved in the industry that insurers were entitled to look past the broker for payment of the premium. The fact that several assured were prepared to pay the premiums again, in whole or part, may indicate that that was a view with which they did not entirely disagree. Mr Hoffman agreed that the legal obligations of an assured have been a matter of great uncertainty for a number of years. The learned trial judge was prepared to rely on Mr Hoffman's conclusion as to accepted practice in the industry, while acknowledging that the parties involved had not addressed their minds to the legal consequences that were to be accepted as accompanying that practice. But, as Glass J.A. observed in the Court of Appeal, at p.472, a custom that falls short of involving a recognition of rights and liabilities fails to provide a firm foundation for the implication of terms in a contract.

14. In our opinion, in the light of this evidence, it is not possible to say that the custom alleged has been proved to the high standard which the law requires. It has not been shown that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract. This conclusion accords with the view of Sutton, Insurance Law in Australia and New Zealand (1980), at pp.181-182.

BUSINESS EFFICACY

15. The appellant suggested that an alternative basis on which to imply terms of the kind just described is that they are necessary to give business efficacy to the contract. For this argument to succeed, the term sought to be implied must be necessary to make the contract work and must be so obvious that it goes without saying: The Moorcock (1889) 14 PD 64, at p 68; Shirlaw v. Southern Foundries (1926) Ltd (1939) 2 KB 206, at p 227; Reigate v. Union Manufacturing Co. (Ramsbottom) (1918) 1 KB 592, at p 605; B.P. Refinery Pty Ltd v. Hastings Shire Council (1977) 52 ALJR 20, at p 26; 16 ALR 363, at p 376; Secured Income Real Estate (Australia) Ltd v. St. Martins Investments Pty Ltd (1979) 144 CLR 596, at pp 605-606; Codelfa Construction Pty Ltd v. State Rail Authority of N.S.W. (1982) 149 CLR 337, at pp 354, 404.

16. Neither of the implied terms alternatively urged by the appellant satisfy these requirements. Neither term is so obvious that both the insurer and the assured would clearly have agreed to its inclusion in the contract of insurance had they directed their minds to it at the time they concluded their bargain. This will commonly be the situation where the term sought to be implied is adverse to the interests of one of the parties, as they are adverse to the interests of the insurer here. An implication which may be regarded as obvious to one party may not be so regarded by the party detrimentally affected: Scanlan's New Neon Ltd v. Tooheys Ltd (1943) 67 CLR 169, at p 197; Treitel, The Law of Contract (1983) 6th ed., at p 159. Unless it can be said that both parties would have consented to its inclusion, a term cannot be implied. Furthermore, there is real difficulty in the proposition that either term is necessary to make the contract work. The contract is capable of sensible operation in the absence of the implied terms, and the appellant's submission amounts to little more than an assertion that the terms are necessary to make the contract work in a manner that will avoid additional liability of the assured. In the result the implication of the suggested terms is not necessary to give business efficacy to the contract.

POLICY OF MARINE INSURANCE

17. A further argument advanced by the appellant was that, whatever view is taken in contracts of general insurance, one of the policies to which this action relates is a policy of marine insurance and therefore governed by s.59(1) of the Marine Insurance Act 1909 (Cth). That subsection provides as follows:

"59(1) Unless otherwise agreed, where a marine
policy is effected on behalf of the assured by a
broker, the broker is directly responsible to the
insurer for the premium, and the insurer is
directly responsible to the assured for the amount
which may be payable in respect of losses, or in
respect of returnable premium."

As we have already mentioned, a necessary corollary of this provision is that an insurer has no recourse against the assured if the broker defaults on payment of the premium.

18. The policy in question, no. 82B70875J, is one for the insurance of Con-Stan's stock in trade from a variety of risks from 1 December 1977 until 1 December 1978. These risks are described in the proposal completed by Bedford as including "transit risk - road, rail, sea, air, parcel, post". Section 2 of the contract of insurance states that the property is insured in transit "from place and/or places in Australia to place and/or places in Australia per any means of conveyance including loading and unloading". The appellant submits that because this contract contemplates or at least includes the insurance of goods during their transit by sea, it is a marine policy within the meaning of s.59(1). It says there is no evidence that the marine risks are so trifling that they can be ignored on the de minimis principle, and it is further said that a policy which includes the insurance of marine risks is a "marine policy" and does not cease to have that character merely because it may also be characterized as a non-marine policy.

19. The term "marine policy" is not expressly defined by the Act, but it is apparent from s.28 that it is a reference to a contract of marine insurance that complies with the requirements of Pt II Div.5. As policy no. 82B70875J complies with those provisions, the question is whether that policy is a "contract of marine insurance". Section 7 defines a "contract of marine insurance" to be a contract whereby the insurer undertakes to indemnify the assured against losses incident to marine adventure. The carriage of goods by sea, which is an event encompassed by the terms of the insurance policy, is unquestionably a marine adventure (s.9). A contract which indemnifies the assured against losses incident to a marine adventure does not cease to be a contract of marine insurance because it also protects the assured against land risks which are incidental to a sea voyage (s.8(1)). But a contract indemnifying the assured against losses which are not substantially incident to marine adventure is not a contract of marine insurance (Leon v. Casey (1932) 2 KB 576, at p 590). No evidence has been led to illustrate the importance of such part of the transit risk as involved the carriage of goods by sea in the context of the whole policy. An examination of the terms of the policy indicates that it is but one small part of one section of the cover afforded. It cannot be said, therefore, that the policy, viewed in its entirety, is one which indemnifies the assured against losses that are substantially incident to marine adventure. Accordingly, the policy does not fall within the ambit of s.59 of the Act.

ELECTION

20. The appellant's next argument is that Norwich had alternative rights against the broker and the assured and that, in petitioning for the winding-up of the broker and obtaining winding-up orders, Norwich made a binding election which precludes it from now seeking to maintain an action against the assured. In this respect the appellant relies on Petersen v. Moloney (1951) 84 CLR 91, in which this Court held that where a plaintiff sues defendants in the alternative, the obtaining of a judgment against one defendant at first instance does not preclude the plaintiff from seeking a judgment against the other in lieu of the judgment obtained at first instance. The plaintiff vendor sued the purchaser for the price of the property sold and in the alternative the agent to whom the purchaser had paid the full purchase price. The plaintiff obtained judgment against the agent on the ground that he had authority to receive the purchase price. However, on appeal this Court held that he had no such authority and gave judgment instead against the purchaser. The Court (Dixon, Fullagar and Kitto JJ.) held that the judgment at first instance was not a bar to entry of judgment against the purchaser, because the plaintiff did not seek to maintain it, but sought the new judgment in its place. The Court had this to say about the principle of election (at p.102):

"The case is clearly one of alternative liability.
Either Moloney (the purchaser) or Pulbrook (the
agent) might be liable to the plaintiff, but both
could not be. In such a case a final election to
treat either as liable would preclude the plaintiff
from proceeding against the other, and it is a
well-settled general principle that, while the
commencement of an action against one of two
persons alternatively liable does not, the entry of
judgment against one of them does, constitute a
final and irrevocable election ..."

21. If we accept, for the purposes of the appellant's argument, that the present case is one of alternative liability, the filing by Norwich of a petition seeking the winding-up of Bedford could not amount to a final and irrevocable election. Nor in our opinion did the obtaining of a winding-up order on that petition constitute such an election. It is not suggested that the indebtedness of Bedford to Norwich for the amount in question was in issue or that it became the subject of a binding judicial determination. As Norwich did not lodge a proof of debt or receive a dividend in the winding-up, its position cannot be equated to that of a plaintiff who has obtained a final judgment against Bedford. Consequently the election argument must be rejected.

ESTOPPEL

22. The final question is whether the parties are bound by an estoppel by convention because their business relationships were conducted on the footing that the broker alone was liable to the insurer. If so, Norwich cannot maintain the present action. Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. The existence of an estoppel based on a convention between the parties has often been recognized: Thompson v. Palmer (1933) 49 CLR 507, at p 547; Grundt v. Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, at pp 657, 675-677; Legione v. Hateley (1983) 152 CLR 406, at pp 430-431; Amalgamated Investment &Property Co. Ltd (in liq.) v. Texas Commerce International Bank Ltd (1982) QB 84, at pp 121, 126, 130-131; Spencer Bower and Turner, Estoppel by Representation (1977) 3rd ed., at pp.157-177. But in our opinion the doctrine has no application to the present case for two reasons. First, there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship: Dabbs v. Seaman (1925) 36 CLR 538, at p 549. In the absence of proof of custom, there is no evidence that the parties adopted the alleged assumption. Secondly, just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact: Greer v. Kettle (1938) AC 156, at p 170; Spencer Bower and Turner, Estoppel by Representation (1977) 3rd ed., at pp 167-168. The state of affairs relied on by Con-Stan is that the parties conducted their business relationship on the basis that the broker was alone liable to the insurer for the premiums. That is clearly an assumption as to the legal effect of their conduct, and not an assumption of fact. The submission with respect to estoppel accordingly fails.

23. We would dismiss the appeals.