Austcorp Project No 20 Pty Ltd v LM Investment Management Ltd, in the matter of Bellpac Pty Ltd

Counsel for the Second Defendant: The Second Defendant did not appear

Counsel for the Third Defendants: The Third Defendant did not appear

Counsel for the Fifth and Seventh Defendants: Mr J E Marshall SC with Mr D H Mitchell

Solicitor for the Fifth and Seventh Defendants: Moray & Agnew Lawyers

Counsel for the Sixth Defendant: The Sixth Defendant did not appear

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 186 of 2013

IN THE MATTER OF BELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 BETWEEN: AUSTCORP PROJECT NO 20 PTY LTD ACN 111 470 726

COMPROMISE CREDITORS MANAGEMENT PTY LIMITED ACN 122 143 220

AND: LM INVESTMENT MANAGEMENT LTD ACN 077 208 461

TREVOR POGROSKI AND GRAHAM KILLER IN THEIR CAPACITIES AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF BELLPAC PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017

AMLIN CORPORATE MEMBER LIMITED (UK COMPANY NO 02969411) TRADING AS AMLIN SYNDICATE 2001 AT LLOYD'S

DUAL AUSTRALIA PTY LTD ON BEHALF OF ARCH SYNDICATE 2012

MARKEL CAPITAL LIMITED (UK COMPANY NO 03114572) TRADING AS MARKEL SYNDICATE 3000 AT LLOYD'S AND THE CHANNEL SYNDICATE LLP (UK COMPANY NO OC359898 TRADING AS CHANNEL SYNDICATE 2015 AT LLOYD'S

JUDGE: JACOBSON J DATE OF ORDER: 10 FEBRUARY 2014 WHERE MADE: SYDNEY

THE COURT:

1. Declares that subject to the determination of the issue of material non-disclosure (and any other insurance issues properly raised by the Fifth, Sixth and Seventh Defendants), the filing of the Commercial List Response in matter 299479 of 2010 in the Commercial List of the Supreme Court of New South Wales, does not have the consequence that the Fifth to Seventh Defendants are not obliged to indemnify the First Defendant in relation to any claim for indemnity it might make in respect of the allegations made by the Plaintiffs in this proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 186 of 2013

IN THE MATTER OF BELLPAC PTY LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017 BETWEEN: AUSTCORP PROJECT NO 20 PTY LTD ACN 111 470 726

COMPROMISE CREDITORS MANAGEMENT PTY LIMITED ACN 122 143 220

AND: LM INVESTMENT MANAGEMENT LTD ACN 077 208 461

TREVOR POGROSKI AND GRAHAM KILLER IN THEIR CAPACITIES AS JOINT AND SEVERAL RECEIVERS AND MANAGERS OF BELLPAC PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) ACN 101 713 017

AMLIN CORPORATE MEMBER LIMITED (UK COMPANY NO 02969411) TRADING AS AMLIN SYNDICATE 2001 AT LLOYD'S

DUAL AUSTRALIA PTY LTD ON BEHALF OF ARCH SYNDICATE 2012

MARKEL CAPITAL LIMITED (UK COMPANY NO 03114572) TRADING AS MARKEL SYNDICATE 3000 AT LLOYD'S AND THE CHANNEL SYNDICATE LLP (UK COMPANY NO OC359898 TRADING AS CHANNEL SYNDICATE 2015 AT LLOYD'S

JUDGE: JACOBSON J DATE: 10 February 2014 PLACE: SYDNEY

Introduction 1 On 8 November 2013 I gave leave to the Plaintiffs to join as defendants to this proceeding the professional indemnity insurers (the Insurers) of the First Defendant (LM). I did so upon condition that there be determined as a separate question, on a final basis, the issues of construction which arose on the joinder application: see Austcorp Project No 20 Pty Ltd v LM Investment Management Ltd, in the matter of Bellpac Pty Ltd (receivers and managers appointed) (in liq) [2013] FCA 883 ("Austcorp No 1"). 2 The separate question, as agreed between the Plaintiffs and the Insurers, is recorded in the orders which I made on 20 November 2013. The effect of the separate question is to raise for determination the proper construction of the insuring clause in the contracts of insurance between LM and the Insurers. 3 The construction issues arise because the Insurers contend that the "Claim" now asserted by the Plaintiffs against LM was first made by Mr Alfred Wong in a Commercial List Response filed in the year prior to the "Period of Insurance" in the policies issued by the Insurers. Thus, the Insurers contend that the claim was not first made during the Period of Insurance and the policies would not respond in the event that the Plaintiffs succeed against LM in this proceeding. 4 However, the Plaintiffs contend that the Commercial List Response was not a "Claim", as defined in the policies. Alternatively, the Plaintiffs contend that even if it was, it was not the same Claim that is now made under the policies of insurance. 5 The essential question therefore concerns the relationship between the "Claim" made by Mr Wong in the Commercial List Response and the "Claim" advanced by the Plaintiffs in this proceeding. In particular, a central issue is whether the "Loss" suffered by LM, in the event that the Plaintiffs succeed against it, arises from the Claim made against LM in the Commercial List Response. 6 I described the similarities and differences between the Commercial List Response and the present proceeding in Austcorp (No 1) at [36] ff. It is not necessary to repeat what I said. 7 I also set out in Austcorp (No 1) at [21] the relevant clauses from the policy issued by one of the Insurers, Amlin Corporate Member Ltd. It was not suggested during the hearing of the separate question that there is any substantial difference between the terms of that policy and those issued by the other Insurers. Indeed, the argument proceeded upon the basis of that policy wording.

The policies 8 I will set out again, for convenience, the insuring clause and the relevant definitions of the Amlin policy. 9 The insuring clause is as follows: In return for Your payment of the premium and subject to the Combined Aggregate Limit We shall indemnify You as follows: 1. Fund and Investment Manager Professional Civil Liability for any amount up to the Limit of Liability stated in Item 3 of the Schedule in respect of Loss and Defence Costs and Expenses arising from any Claim for any civil liability first made against You during the Period of Insurance and arising out or in connection with a Wrongful Act. The term "Claim" is defined as follows: Claim shall mean: (a) any written demand or civil, regulatory or arbitration proceeding (including proceedings before the Financial Ombudsman Service Limited) or Investigation made against You for compensation or damages alleging a Wrongful Act and/or; (b) any suit, civil or third party proceedings, counter-claim or arbitration proceeding brought against You alleging a Wrongful Act … The term "Wrongful Act" is defined as follows: Wrongful Act shall mean: (a) In respect of insuring Clause 1.1, any wrongful actual or alleged act, error, omission, misstatement, misleading statement, breach of duty or trust by You or anyone for whom the Company or a Fund has a civil liability whilst performing or failure to perform [in] connection with Advisory Services and arising from the ordinary conduct of Your Professional Business. Wrongful Act shall not include any actual or alleged act, error, omission, misstatement, misleading statement, breach of duty or trust: (a) that occurred, or which is alleged to have occurred, before the Retroactive Date stated in the Schedule; (b) committed deliberately or recklessly by You or, in the event that it was so committed by anyone else, it was condoned by You. The term "Loss" is defined to mean: Investigation Costs and Defence Costs and Expenses, awards of damages (including but not limited to Compensation Orders and punitive and exemplary damages), costs or settlements agreed with the Insurer for which You are legally liable resulting from a claim… (Emphasis in original.)

Issue 1 - whether the Response constitutes a Claim 10 It was common ground that only para (b) of the definition of Claim is relevant. The substantial argument between the parties is whether the Commercial List Response constitutes a counter-claim within that paragraph of the definition. 11 The meaning of the word Claim, and the integers of the definition of that word in the policies, is a question of construction of the policies. Previous decisions as to the meaning of the same word used in different policies are of limited assistance: Murphy v Swinbank [1999] NSWSC 934 at [490] (Einstein J); McCarthy v St Paul International Insurance Co Ltd (2007) 157 FCR 402 at [74]-[77] (Allsop J). 12 It seems to me to follow that the question of whether the Commercial List Response is a counter-claim does not turn upon the ordinary meaning of a counter-claim as explained in the authorities to which I was taken. Rather, it turns upon whether the Commercial List Response would have responded to the policies as a particular defined species of Claim that falls within the insuring clause. 13 In my opinion, there are three principal reasons why the Commercial List Response would not have responded to the policies in this way. 14 First, the insuring clause grants indemnity against Loss and Defence Costs and Expenses arising from a claim. Thus, for a counter-claim to be the type of Claim which falls under the policies it must be one which sounds in Loss and gives rise to Defence Costs and Expenses. 15 There is some circularity in the definitions because Loss includes Defence Costs and Expenses. But of particular importance is that Loss is defined relevantly as awards of damages, including Compensation Orders for which LM is legally liable resulting from a claim. 16 Here, the Commercial List Response did not claim damages. Nor did it claim compensation for which LM would have been liable if Mr Wong had succeeded. Instead, the Commercial List Response relied upon LM's knowing involvement in the Second Defendant, PTAL's alleged breaches of duty to discharge Mr Wong from his liability to LM under the guarantee. 17 It is true that the Commercial List Response also alleged that the breaches of duty gave rise to a claim for equitable compensation which could be set off against Mr Wong's liability under the guarantee so as to reduce his liability to a nil amount. But this was not a compensation order for which LM would have been legally liable resulting from the Commercial List Response. 18 Senior Counsel for the Insurers submitted that, by contrast with para (a) of the definition of Claim, para (b) does not expressly require that the counter-claim be for compensation or damages. However, this argument overlooks the fact that the type of counter-claim which falls within the definition must be one to which the insuring clause responds. 19 It is the insuring clause which is critical. The definitions must be read in light of that clause. When this is done it is clear in my opinion that only counter-claims which make a Claim for Loss respond to the policies. Thus, even though para (b) of the definition of Claim does not expressly refer to a claim for compensation or damages, that paragraph, when read in its full context, does not encapsulate any counter-claim, but only those which claim damages or compensation for which LM would be liable. 20 Counsel for the Insurers also sought to support their argument by referring to a Canadian authority which they located through their diligent researches. That authority is Myers v Simcoe & Erie General Insurance Co (1994) 18 OR (3d) 475, which was affirmed on appeal: Myers v Simcoe & Erie General Insurance Co (1994) 115 DLR (4th) 607 (Ontario Court of Appeal). 21 In Myers it was held that a defence which asserted a set-off, consisting of a claim of professional negligence in answer to a claim by an architect for professional fees, was a civil suit to which the insurance policy responded. 22 That decision supports the proposition that a defence which makes positive allegations that are said to give rise to a set-off against a claim made by an insured against the defendant, may constitute a claim. See also Derrington, The Law of Liability Insurance (3rd ed, LexisNexis Butterworths, 2013) at [8-285]. 23 However, in my opinion Myers turns on its own facts and does not support the Insurers' submission in the present case that the Commercial List Response is a counter-claim falling within the terms of the policies. This because, as I have said, in the present case the counter-claim must be one which makes a Claim for Loss as defined in the policies. 24 The second reason why in my opinion the Commercial List Response is not a counter-claim within para (b) of the definition of Claim is that it is not one which is "brought against" LM. 25 A defence, such as the Commercial List Response which asserts a set-off, does not seem to me to be one which is brought against the insured in the ordinary sense in which those words are used to qualify the nature of the proceeding that constitutes a Claim. 26 Third, the insuring clause insures against Defence Costs and Expenses. This term is defined in the policies to mean the reasonable legal costs and expenses incurred in connection with the investigation, defence or settlement of a Claim. 27 There was some debate between the parties as to whether one could defend or settle a defence, that is to say the Commercial List Response. But the short answer is that the costs must be insured in meeting a Claim. As I have been at pains to stress, the Commercial List Response does not involve a Claim for Loss within the terms of the policies.

Issue 2 - Claim first made 28 Even if I am wrong in the answer which I have given to the first issue, it seems to me that the Claim which is made in the present proceeding was not first made in the Commercial List Response. This is because the Claim that was made by Mr Wong in the Commercial List Response is not the same Claim as that which is now made against LM in this proceeding. 29 It is true that the similarity, if not substantial identity, of the matrix of facts which give rise to the allegations in each set of proceedings, demonstrates that the "claims" arise out of the same Wrongful Act. 30 However, it seems to me that the emphasis placed by the Insurers on this proposition conflates the Wrongful Act with the Claim. This, with respect to the Insurers' argument, demonstrates the essential error in their submissions. 31 A claim is not to be identified with a cause of action: Murphy v Swinbank at [492]; Thorman v New Hampshire Insurance Co (UK) Ltd and Home Insurance Co [1988] 1 Lloyd's Rep 7 at 15. This is the sense in which the word "Claim" is to be approached in the present case. 32 Whether or not a given set of factual allegations amounts to one claim or a series of separate claims depends upon the facts of each case and the context in which the question is to be decided: Murphy v Swinbank at [493]; Thorman v New Hampshire at 16. 33 Where there are separate and distinct causes of action leading to separate and distinct heads of loss and damage, then ordinarily there will be separate claims: Murphy v Swinbank at [494]. 34 That seems to me to be the position in this case because the Loss (if any) that was asserted by Mr Wong in the Commercial List Response is not the same Loss as is now asserted by the Plaintiffs. 35 This is because, as I have said above, the Claim that was made by Mr Wong in the Commercial List Response was to be discharged from his liability under LM's guarantee or to have his Claim extinguished. That is a different Claim from the Claim which is now made for equitable compensation arising from the breaches of duty involved in the alleged sale of the land at undervalue. 36 The Claim in each case is different both because of the nature of the Claim itself and the Loss which is asserted. The fact that the Commercial List Response was filed by a different party from the Plaintiffs is also an indication that the Claims are different.

Conclusion 37 It follows that I answer the preliminary question in favour of the Plaintiffs. However, the issue of construction which I have determined does not finally determine all issues between the Plaintiffs and the Insurers. 38 In particular, an issue between those parties which has yet to be determined is the issue of non-disclosure. 39 I would therefore qualify my answer to the question stated in para 2(a) of the Orders of 20 November 2013 as follows: "Subject to the determination of the issue of material non-disclosure (and any other insurance issues properly raised by the Insurers), the filing of the Commercial List Response in matter 299479 of 2010 in the Commercial List of the Supreme Court of New South Wales, does not have the consequence that the Fifth to Seventh Defendants are not obliged to indemnify the First Defendant in relation to any claim for indemnity it might make in respect of the allegations made by the Plaintiffs in this proceeding." 40 I will order that the Insurers pay the costs of the determination of the preliminary question and the costs of the interlocutory application for joinder. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.