Ashmere Cove Pty Ltd v Beekink

WESTERN AUSTRALIA DISTRICT REGISTRY WAD 305 OF 2006

GERALDINE GRAY IN HER CAPACITY AS EXECUTOR FOR THE LATE CONSTANCE PHYLLIS JAMES

GIOVANNI MAURIZIO CARRELLO (LIQUIDATOR) OF KNIGHTSBRIDGE MANAGED FUNDS LIMITED (IN LIQ)

REASONS FOR JUDGMENT ON APPLICANTS' MOTION TO JOIN FIFTH RESPONDENT'S INSURERS Introduction 1 Investors in a registered management scheme commenced proceedings against the former directors of the company which was the responsible entity for the scheme. They also seek leave to proceed against the company which is now in liquidation. The company was covered by a Professional Indemnity Insurance Policy during the relevant period and gave notice to its insurers of the claims against it. The insurers have declined to provide indemnity relying upon an exclusion clause in the policy. The liquidator of the company is not prepared to contest the insurers' refusal to indemnify. The applicant investors now seek to join the insurers as respondents and to seek a declaration that they are liable to indemnify the company. That joinder is opposed largely on the basis that a declaration obtained by the applicant investors against the insurers would not legally prevent the insurers from contesting any claim for indemnity by the liquidator following a judgment against the company. For the reasons that follow, I propose to allow the insurers to be joined. As a consequence, I will also order in the related application in WAD 307 of 2006 that the applicants have leave to proceed against the company. Factual and procedural background 2 Peter Cornelius Beekink, Hersh Solomon Majteles and Gregory Phillip Gaunt are former directors of Knightsbridge Managed Funds Ltd (KMF), formerly known as Australian Managed Funds Ltd. KMF is in liquidation. On 27 October 2006 former investors in a scheme said to have been managed by KMF commenced proceedings against the three former directors, KMF itself and the liquidator of KMF (subsequently discontinued as against the liquidator). Three days later, an application was filed in this Court seeking the leave of the Court under s 471B of the Corporations Act 2001 (Cth) (the Act) to begin and proceed with the action against KMF. Altogether there are eleven applicants, some of whom are corporations and some of whom are natural persons. 3 In a substituted statement of claim, filed 20 February 2007, it is alleged that from 22 December 1999 KMF was the responsible entity for the Clifton Partners Finance Mortgage Scheme (the Scheme), a registered management scheme under ch 5C of the former Corporations Law. The Scheme involved making loans secured by mortgages over property and otherwise on terms and conditions specified by KMF from time to time. It is alleged that KMF appointed Knightsbridge Pty Ltd, which was formerly Clifton Partners Pty Ltd, as the custodian of the assets of the Scheme within the meaning of a Constitution and Compliance Plan lodged by KMF with the Australian Securities and Investments Commission (ASIC) under Ch 5C. Knightsbridge Pty Ltd was to act as KMF's agent in the management of the Scheme, the origination of loans and in ensuring compliance with the terms of any prospectus issued by KMF. It was also required to comply with the lawful directions of KMF and ensure compliance with the requirements of the Corporations Law. Knightsbridge is still referred to in the pleading as Clifton Partners and will be so described in these reasons. 4 According to the substituted statement of claim, KMF had various duties. It was required to exercise the care and diligence of a reasonable person in KMF's position. It had to act in the best interests of members of the Scheme and to comply with the Compliance Plan. Duties of the directors were also pleaded. These are duties of care and diligence, to act in the best interests of the members of the Scheme and to take reasonable steps to ensure compliance with the Corporations Law and the Compliance Plan. Section 601FD of the Corporations Law is pleaded. The applicants also say that the directors had a common law duty of care to potential investors in the Scheme to ensure that they did not suffer economic loss. 5 The first to fifth applicants say that on 14 February 2000 they were owed sums amounting to $650,000, forming part of an overall sum of $850,000 advanced to Fieldmont Holdings Pty Ltd (Fieldmont). The remaining lender is not an applicant. The applicants say the original loan was to have been repaid on or about 30 November 2000 and secured by a second registered mortgage over land owned by Fieldmont. They say that Clifton Partners recommended in February 2000 that they roll the existing loan over into an increased loan of $1.1 million secured by a new second mortgage over the land in their favour and in favour of new investors providing the additional advance. This letter is said to have been an offer for subscription of securities of a corporation and, alternatively, an invitation to subscribe for securities within the meaning of s 1018 of the Corporations Law. KMF is said to have failed to lodge a prospectus in relation to the securities and to have contravened s 1018. 6 Various representations are said to have been conveyed by Clifton Partners in its letter of 14 February 2000 to the first to fifth applicants. The representations are said to have related to the value of the land to be secured, the amount secured under the first registered mortgage, the Loan to Valuation ratio, the amount that would continue to be owed under the first registered mortgage and the absence of any reason to believe that it would be greater than $2.2 million. They are said to have been false and the basis of that falsity is pleaded. 7 Clifton Partners also allegedly failed to inform the applicants that at the date of the offer, Fieldmont intended to increase the amount owing under the first registered mortgage to $2.7 million effective from the end of February 2000. Clifton Partners is said to have known that Fieldmont was, or had been, in default of its obligation to pay interest pursuant to a loan from the National Australia Bank. It allegedly failed to inform the applicants of those matters. The first to fifth applicants say that Clifton Partners engaged in conduct which was misleading or deceptive, contrary to s 995(2) of the Corporations Law and that they are entitled to recover loss or damage caused by that conduct. The remaining applicants plead misleading or deceptive conduct in respect of successive prospectuses issued on 11 February 2000, 13 March 2000, 11 May 2000 and 15 May 2000. 8 The substituted statement of claim also alleges breaches by the directors of duties imposed on them by s 601FD of the Corporations Law. These relate to failure to provide or cause KMF to provide adequate training to staff members of Clifton Partners to ensure that they understood the requirements of the Corporations Law and the Compliance Plan. They are also said to have failed to monitor or review or cause KMF to monitor or review Clifton Partners' compliance systems. They failed to check or failed to cause KMF to check compliance by Clifton Partners with the Corporations Law and the Compliance Plan. They allegedly authorised Clifton Partners to originate loans and make offers for subscriptions or invitations to subscribe for interests in the Scheme without reference to them and to have signed various prospectuses without reference to them. Other breaches of s 601FD are alleged, including particular breaches of that section by Mr Beekink, the first respondent. Each of the directors is also said to have been negligent in breach of his common law duties of care. 9 The first to fifth applicants say that each of the original investors, including themselves, discharged their existing second registered mortgage over the land and agreed to take an interest in the new registered mortgage securing $1.1 million. They say they did so in reliance upon the representations conveyed by the Clifton Partners' letter of 14 February 2000 and as a result of the breaches of the directors' duties. They say that by reason of those matters, they were not repaid their respective outstanding advances towards the original loan. They claim compensation under various provisions of the Corporations Law as it was in force prior to 1 March 2000 and, alternatively, under the corresponding provisions of the Act, they also claim damages and interest. 10 On 30 March 2007, I dismissed a motion filed by the first to third respondents seeking to strike out the substituted statement of claim in relation to causes of action pleaded by the first to fifth applicants. 11 On 16 April 2007, the applicants filed a motion seeking the joinder of KMF's insurers, Employers Reinsurance Corporation and Suncorp Metway Insurance Ltd (the Insurers). They also filed a minute of a proposed amended application and proposed amended substituted statement of claim naming the Insurers as sixth and seventh respondents respectively. The joinder is opposed by the Insurers. Written submissions were filed in relation to the motion and in the related application (in WAD 307/2006) for leave to proceed against KMF. Counsel for the applicants accepted that there was no point in seeking leave to proceed against KMF in the event that the joinder motion was dismissed and accepted that if that were the case the application for leave to proceed should be dismissed. Oral argument on the motion for joinder of the Insurers proceeded on 28 August 2007. The position of KMF's insurers 12 Affidavit evidence was filed in the application for leave to proceed against KMF which was relevant to and relied upon by the applicants in the joinder motion. 13 On 21 November 2006, Dwyer Durack the solicitors for the applicants wrote to the solicitors for KMF's liquidator and asked for copies of documents indicating that KMF was insured. On 12 December 2006 the solicitors for KMF, Christensen Vaughan, wrote back advising that the liquidator had located records. It appeared that KMF held a professional indemnity policy which expired on 17 December 2000. Notice of a potential claim in respect of Fieldmont was given to the underwriter on 17 and 18 December 2000. The solicitors advised that there was no indication that indemnity was granted as a result of that notification. The liquidator had informed the underwriter of the existence of the current proceedings and requested the underwriter's advice as to indemnity. The solicitors indicated that the liquidator lacked funds to contest any denial of indemnity by the underwriter. 14 The liquidator, Giovanni Carrello, had been appointed administrator of KMF on 20 February 2001 and was appointed administrator of a Deed of Company Arrangement on 15 June 2001. Following the termination of that deed he became liquidator of KMF on 8 October 2002. He said, in an affidavit sworn on 16 January 2007, that there were no funds available in the liquidation of KMF to meet the costs of the application for leave to proceed or these substantive proceedings or to pay any award of damages which might eventually be made in favour of the applicants. He exhibited copies of statements of receipts and payments which he had lodged with ASIC in relation to KMF. He added that KMF has no assets. Its business was essentially the management of registered and unregistered managed investment schemes. 15 On 13 December 2006 Mr Carrello had received a copy of an email from the Claims Manager of the underwriter, Dexta Corporation Pty Ltd (Dexta). The Claims Manager said that she was aware that Dexta had received several years before numerous papers in relation to Knightsbridge managed funds. She was not aware whether any of them could support a notification of claim or circumstance under the 1999-2000 policy in relation to the current proceedings. 16 Mr Carrello said KMF lacked funds to contest any denial of indemnity on the part of Dexta. The insurers were identified as the proposed sixth and seventh respondents. Allens Arthur Robinson the solicitors for the underwriters, Dexta, wrote to the liquidator on 23 January 2007 saying: Our client is considering whether the Insured is indemnified in respect of the above claim. We will contact you further as soon as possible in that regard. You should continue to act as a prudent uninsured unless advised to the contrary. 17 On 6 March 2007 the Insurers' solicitors wrote to the solicitors for the liquidator confirming that their clients were denying indemnity. They relied upon an exclusion clause in the policy relating to any claim made against the insured directly or indirectly arising out of the non-repayment of any loan which was originated or managed by the insured. They rejected submissions which had been made on behalf of the liquidator that the exclusion clause did not apply. It seems from the letter written by the Insurers' solicitors that the liquidator's solicitors had contended that the Insurers' interpretation of the exclusion clause deprived the policy of any effect. 18 The Insurers' solicitors also referred to cl 3.3(c) of the policy which contained an exclusion in respect of dishonest or reckless acts directly or indirectly arising from any actual or alleged conduct with a reckless disregard for the consequences thereof. They said that Mr Beekink of KMF had authorised Clifton Partners to sign documents that KMF had not reviewed and permitted documents to be sent to investors without them ever having been read by the insured. If the insured had acted in a similar manner in respect of the loan the subject of the claim the exclusion contained in cl 3.3(c) of the policy would apply. Further investigations would need to be made. The solicitors then said: However, as indemnity is denied on other grounds, the Insurer is not currently relying on this clause, but reserves its rights to do so. 19 Following the hearing on 28 August 2007 the solicitors for the applicants communicated with the solicitors for the liquidator inquiring whether the liquidator would agree to cross-claim against the Insurers if the applicants gave him an unconditional undertaking to indemnify him as to any court ordered costs made against him or against KMF in the cross-claim. The offer of indemnity was rejected. I note that the offer did not extend to the liquidator's costs of bringing such an action. The proposed claim against the sixth and seventh respondents 20 On 13 April 2007 the applicants filed minutes of a proposed amended application and a proposed amended substituted statement of claim setting out the pleading and relief claimed against the Insurers if they were to be joined. The additional pleading is contained in [152] to [157] inclusive of the proposed amended substituted statement of claim. The applicants would allege that by a policy of insurance in writing dated 18 February 2000 the Insurers by their agent, Dexta, agreed, in consideration of the payment of the premium of $12,500 per annum, to provide indemnity to KMF subject to the terms of the policy. 21 The proposed pleading would then set out relevant express terms of the policy. The applicants would say that the Insurers agreed to indemnify KMF up to a limit of $5 million in respect of claims first made against KMF during the period of insurance defined to mean "4pm on 17 December 1999 to 4pm on 17 December 2001" and notified to the Insurers during that period. The nature of the claims insured were claims "… arising from KMF's civil liability for breach of professional duty arising from any act, error or omission wherever or whenever committed or allegedly committed by KMF in the conduct of its business of responsible entity". Clause 1.1 of the policy was cited. 22 The applicants also allege that the insurance policy covered KMF's legal liability for any act, error or omission committed by KMF in the conduct of its business of responsible entity by reason of any unintentional breach of the Trade Practices Act 1974 (Cth) (the TPA), the Fair Trading Act 1987 (NSW), the Fair Trading Act 1985 (Victoria) or similar legislation enacted by any State or Territory of Australia (cl 1.2.3). Reference was also made to the notice requirements of the policy. 23 Paragraphs 154 to 157 of the proposed pleading would then read as follows: 154. The applicants' claims the subject of these proceedings are deemed, by virtue of clause 5.2 of the Policy, to be a Claim, or alternatively Claims, within the meaning of the Policy, made during the period of insurance. … 155. The Applicants' claims herein arose from KMF's civil liability for breach of professional duty arising from acts, errors or omissions committed by KMF in the conduct of its business of responsible entity within the meaning of clause 1.1 of the Policy. 156. Further and in the alternative, the Applicants' claims herein arose from KMF's legal liability for acts, errors or omissions committed by KMF in the conduct of its business of responsible entity, being unintentional, misleading or deceptive conduct contrary to s 728(1)(a) and 995(2) of the former Corporations Law as pleaded in paragraphs 44, 45, 61(a), 76, 95 and 111 herein, such provisions being legislation enacted by any State or Territory of Australia similar to the Trade Practices Act, the Fair Trading Act 1987(NSW) or the Fair Trading Act 1985 (Victoria) within the meaning of clause 1.2.3 of the Policy. 157. In the premises, the Sixth and Seventh Respondents are liable to indemnify KMF against the "Claim Costs" (as defined in the Policy) with respect to the claims of the Applicants, up to the limit of $5 million. 24 The relief proposed to be claimed against the Insurers in the substituted application is a declaration in the following terms: A declaration that the Sixth and Seventh Respondents are liable and obliged to indemnify the Fifth Respondent against the "Claim Costs" (as defined in the Policy) with respect to the claims of the Applicants herein up to the limit of $5 million in consequence of judgment being entered against the Fifth Respondent in these proceedings. The insurance policy 25 The insurance policy names "Employers Reinsurance Corporation" and "Suncorp Metway Insurance Limited" as the Insurers. It is entitled "Miscellaneous Professional Indemnity Insurance Policy". The insured is identified in a schedule to the policy as "Australian Managed Funds Limited". It is now known as KMF. Its professional business is described as "Responsible entity". The period of insurance is "From 4pm 17th December 1999 To 4pm 17 December 2001". The limit of liability is $5 million. Employers Reinsurance carries 35% of the risk and Suncorp Metway carries 65%. 26 The insuring clauses appear in s 1 of the policy and include the following: 1.1 Breach of professional duty We agree to indemnify You up to the Limit of Liability for the Claim Costs of a Claim first made against You during the Period of Insurance and notified to Us during the Period of Insurance arising from Your civil liability for breach of professional duty arising from any act, error or omission wherever or whenever committed or allegedly committed by You in the conduct of the Professional Business. 1.2 Additional insuring clauses We agree to indemnify You for the Claim Costs of a Claim first made against You during the Period of Insurance and notified to Us during the Period of Insurance arising from Your legal liability for any act, error or omission wherever or whenever committed or allegedly committed by You in the conduct of the Professional Business by reason of any: … There are then set out the three heads of liability covered by the additional insuring clauses. The first relates to defamation (cl 1.2.1). The second relates to unintentional infringement of intellectual property rights (cl 1.2.2). The third relates to the TPA and covers: 1.2.3 Trade Practices Act Unintentional breach of the Trade Practices Act 1974 (Commonwealth), the Fair Trading Act 1987 (NSW), the Fair Trading Act 1985 (Victoria), or similar legislation enacted by any state or territory of Australia PROVIDED THAT there is no indemnity under this clause for any Claim arising from any actual or alleged breach of the penal or criminal provisions of any of those statutes. Our aggregate liability for all Claims under this clause shall not exceed the Limit of Liability. 27 Exclusion clauses are set out in s 3 of the policy. Clause 3.3 is relevant. The relevant parts read: There is no indemnity for any Claim made against You, or any claim by You for indemnity under this Policy: … 3.3 Dishonest or reckless acts directly or indirectly arising from any actual or alleged: (a) dishonest, fraudulent, criminal or malicious act; (b) wilful breach of any statute, contract or duty; or (c) conduct with a reckless disregard for the consequences thereof; 28 Section 6 contains definitions. The term "Claim" is defined as follows: 6.2 Claim "Claim" shall mean the receipt by You of a demand for compensation made by a third party against You. It may take the form of: (a) any writ, statement of claim, summons, application or other originating legal or arbitral process, cross claim, counterclaim or third party or similar party notice; (b) any other form of written notice; or (c) verbal notice. … 6.4 Claim Costs "Claim Costs" shall mean the amount paid or payable to the party that has made the Claim against you, to dispose of the Claim. It includes any judgment or settlement amount, interest on that amount, and the claimant's costs. 29 There were a number of endorsements attached to the policy. These included personal injury and property damage exclusions. Under the heading "Other Exclusion" the following appeared: There is no indemnity for any Claim made against You, or any claim by You for indemnity under this Policy directly or indirectly arising out of:

1. work performed for or on behalf of Philips Fox Solicitors, 2) the non repayment of any loan which was originated or managed by You. The rules relating to joinder 30 The rules of Court invoked by the applicants in this case are O 6 rr 2, 4 and/or 8. They provide as follows: 2 Two or more persons may be joined as applicants or respondents in any proceeding - (a) where - (i) if a separate proceeding were brought by or against each of them, as the case may be, some common question of law or of fact would arise in all the proceedings; and (ii) all rights to relief claimed in the proceeding (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or (b) where the Court gives leave so to do. … 4(1) The Court may grant leave under rule 2 before or after the joinder and may grant leave under sub-rule 3(2) before or after the non-joinder. 4(2) An applicant may apply for leave under rule 2 or sub-rule 3(2) either before or after the filing of his originating process and may apply without serving notice of the motion on any person on whom the application has not been served. … 8(1) Where a person who is not a party - (a) ought to have been joined as a party; or (b) is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceeding may be effectually and completely determined and adjudicated upon, The Court may order that the person be added as a party and make orders for the further conduct of the proceeding. Statutory framework - priority of third parties to insurance monies in a winding up 31 The Corporations Act provides in s 562: (1) Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556. (2) If the liability of the insurer to the company is less than the liability of the company to the third party, subsection (1) does not limit the rights of the third party in respect of the balance. (3) This section has effect notwithstanding any agreement to the contrary. Statutory framework - Federal Court of Australia Act 1976 (Cth) 32 Sections 21, 22 and 23 of the Federal Court of Australia Act 1976 (Cth) provide: 21(1) The Court may, in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is or could be claimed. 21(2) A suit is not open to objection on the ground that a declaratory order only is sought.

22. The Court shall, in every matter before the Court, grant, either absolutely or on such terms and conditions as the Court thinks just, all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him or her in the matter, so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of proceedings concerning any of those matters avoided.
23. The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate. Statutory framework - Insurance Contracts Act 1984 (Cth) 33 Section 51 of the Insurance Contracts Act 1984 (Cth) provides for the rights of third parties to recover against an insurer: (1) Where: (a) the insured under a contract of liability insurance is liable in damages to a person (in this section called the third party); (b) the insured has died or cannot, after reasonable enquiry, be found; and (c) the contract provides insurance cover in respect of the liability; the third party may recover from the insurer an amount equal to the insurer's liability under the contract in respect of the insured's liability in damages. (2) A payment under subsection (1) is a discharge, to the extent of the payment, in respect of: (a) the insurer's liability under the contract; and (b) the liability of the insured or of the insured's legal personal representative to the third party. (3) This section does not affect any right that the third party has in respect of the insured's liability, being a right under some other law of the Commonwealth or under a law of a State or Territory. Whether joinder should be ordered 34 The applicants assert causes of action against the insured company, KMF. It may be assumed that, subject to the grant of leave to proceed against the company, their causes of action would have a reasonable prospect of success. But KMF has no money. It may be assumed that it has a legal right to claim against the Insurers. That right may or may not be of any value as the Insurers may have a good defence to it. But it is only through a successful claim against the Insurers that KMF would be able to meet any judgment against it in favour of the applicants. KMF's liquidator has no interest in pursuing any claim against the Insurers even if indemnified against an adverse costs order by the applicants. Nor does he have the funds to defend the action against KMF if leave to bring such an action were to be granted. 35 It is not disputed that the applicants, if they obtained a judgment against KMF, could not recover directly against the Insurers under s 51 of the Insurance Contracts Act. Counsel for the Insurers accepts that this Court has power to join her clients for the purposes of the relief sought against them by the applicants. Her opposition to the joinder was on discretionary grounds. It is helpful to review some of the relevant case law. 36 The applicants assert no legal right or any cause of action against the Insurers. But the want of a legal right or a cause of action is not a bar to the grant of declaratory relief. It is, nevertheless, necessary that declaratory relief be sought in respect of a real question that is not abstract or hypothetical. It must be directed to the determination of a legal controversy. Moreover the party seeking the relief must have a real interest in raising it: Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 139 ALR 663 per Lockhart J (Spender and Cooper JJ concurring) and authorities there cited. 37 The Full Court of the Supreme Court of South Australia took that general approach to a factual situation similar to the present in JN Taylor Holdings Ltd (In Liquidation) v Alan Bond (1993) 59 SASR 432. Plaintiff companies in liquidation sued three of their former directors alleging breaches of duty. The directors were insured in respect of any wrongful act committed in their capacity as directors. One of them was bankrupt and the other two had left the country. The trustee in bankruptcy had agreed to assign to the plaintiff companies the bankrupt defendant's right to indemnity under the policy subject to the consent of the insurer. The insurer denied liability to indemnify the directors. The plaintiffs sought leave to join the insurer as an additional defendant seeking a declaration that the insurer was obliged to indemnify the directors in respect of any judgment in favour of the plaintiff companies arising out of any wrongful act within the terms of the policy. On appeal the Full Court ordered the joinder of the insurers. Special leave to appeal against the decision was refused by the High Court. 38 Before referring to the judgment it should be noted that s 117 of the Bankruptcy Act 1966 (Cth) had some relevance to it. It is similar in its operation to s 562 of the Act. It provides: (1) Where: (a) a bankrupt is or was insured under a contract of insurance against liabilities to third parties; and (b) a liability against which he is or was so insured has been incurred (whether before or after he became a bankrupt), the right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall, if the liability has not already been satisfied, be paid in full forthwith to the third party to whom it has been incurred. (2) Subsection (1) does not limit the rights of the third party in respect of any balance due to him after the payment referred to in that subsection has been made. (3) This section applies notwithstanding any agreement to the contrary, whether entered into before or after the commencement of this Act. 39 King CJ who wrote the principal judgment with which Prior and Perry JJ agreed, said of s 117 (at 437): By virtue of that section, if the trustee in bankruptcy were to obtain payment of moneys from the insurer in consequence of a judgment against the defendant directors, those moneys would not be divisible among the creditors but would be payable to the plaintiffs. In order to obtain satisfaction in that way, it might be necessary for the plaintiffs to make the non-bankrupt directors bankrupt and, having provided a proper indemnity for costs to the trustee in bankruptcy, to institute and prosecute in the trustee's name an action against the insurer. 40 King CJ referred in his judgment to s 31 of the Supreme Court Act 1935, which is similar in form and the same in substance as s 21 of the Federal Court Act. He enunciated the following propositions about the grant of declaratory relief:

Associate: Dated: 11 September 2007 Counsel for the Applicants: Mr MD Cuerden Solicitor for the Applicants: Dwyer Durack

Counsel for the Fifth Respondent: Mr GD Cobby Solicitor for the Fifth Respondent: Christensen Vaughan Counsel for the Sixth and Seventh Respondents: Ms PE Cahill Counsel for the Sixth and Seventh Respondents: Allens Arthur Robinson

Date of Hearing: 28 August 2007 Date of Judgment: 11 September 2007