Cantone v Insurance Australia Limited

Federal Court of Australia|2022-08-31|Before: Allsop CJ

Within 28 days, the parties file agreed draft short minutes of orders to reflect these reasons and in particular the answers to the separate questions at paragraph 70, and failing agreement the parties should file and serve their competing proposed minutes of order together with brief submissions.
The matter be stood over to a date to be fixed after consultation with the associate to the Chief Justice for the making of orders or argument as to orders and any necessary further case management. The Court notes that a notice of discontinuance was filed by the Applicants on 28 June 2021 to discontinue proceedings against the Second Respondent. No orders are made against the Second Respondent. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 This proceeding concerns a claim for indemnity under three successive professional indemnity insurance policies issued by the first respondent insurer (CGU) to Worrells Solvency and Forensic Accountants (SA) Pty Ltd, now called ACN 167 247 912 Pty Ltd (Worrells SA). The claim for indemnity concerns a costs order made by this Court in proceeding SAD12/2018 brought by Adelaide Brighton Cement Limited (ABCL) against, relevantly, Mr Dominic Charles Cantone and Mr Nicholas David Cooper in their capacity as deed administrators under a Deed of Company Arrangement (DOCA) entered into by Concrete Supply Pty Ltd (in liquidation) (Concrete Supply). 2 Messrs Cantone and Cooper were registered liquidators and chartered accountants and, until 31 August 2020, were members of Worrells SA and therefore insureds under the relevant policies. The substantive relief sought by ABCL in SAD12/2018 included termination of the DOCA and that Concrete Supply be wound up in insolvency. The Points of Claim and later, Statement of Claim, in support of the relief pleaded a number of serious derelictions of duty by Mr Cantone and Mr Cooper as administrators such that, it was alleged, competent practitioners would not have recommended a DOCA, but the placement of Concrete Supply into liquidation. Messrs Cantone and Cooper actively defended the proceedings brought against Concrete Supply, as did the directors of Concrete Supply. Following success by ABCL on many of the substantive issues in dispute, ABCL sought and successfully obtained costs orders dated 9 July 2020 against Messrs Cantone and Cooper personally, as well as against the directors of Concrete Supply (the Adverse Costs Orders). Importantly, the 40% of ABCL's costs, to be paid by Messrs Cantone and Cooper, were to be paid by them without any recourse to the assets of Concrete Supply, for reasons explained in the judgment of Besanko J in Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 6) [2020] FCA 928 (the Costs Judgment). While a notice of appeal was filed in relation the Adverse Costs Orders, it was ultimately resolved by consent and the appeal discontinued. 3 On 4 August 2021, the parties, by consent, agreed to orders for the separate hearing and determination of certain preliminary questions as to the coverage of the policies with respect to the Adverse Costs Orders, referred to by the parties as Policy 1, Policy 1A and Policy 2 respectively. Each policy is similar, but not identical in wording. For the purposes of the preliminary questions on coverage, the parties filed a statement of agreed facts on 2 September 2021. 4 The preliminary questions are as follows: 1. Was the service by Adelaide Brighton Cement Limited ('ABCL') on or about 22 November 2019 of written submissions in SAD 12 of 2018, seeking an order that the Applicants in this action pay the costs of action in SAD 12 of 2018 without recourse to the assets of Concrete Supply Pty Limited ('Without Recourse Costs Application'), a Claim for Civil Liability within the meaning of those expressions in the insuring clause in Professional Indemnity policy of insurance number 02MIS1696069 for the period 1 April 2019 to 1 May 2020 ('Policy 2')? 2. If yes to 1: 2.1 Was the Without Recourse Costs Application a 'Claim first made' during the period of insurance of Policy 2 within the meaning of clause 3.1 of Policy 2? 2.2 Was the Without Recourse Costs Application a 'Claim first made' on 28 November 2018, within the meaning of clause 3.1 of Policy 2, and if so was it a Claim for Civil Liability within the meaning of those expressions in Professional Indemnity policy of insurance number C2MIS1537248 for the period 1 March 2018 to 1 April 2019 ('Policy 1A')? 2.3 Was the Without Recourse Costs Application a 'Claim first made' in the Originating Process dated 12 January 2018 in SAD 12 of 2018 ('Originating Process') within the meaning of clause 3.1 of Professional Indemnity policy of insurance number 02MIS1696069 C2MIS1408846 for the period 1 April 2017 to 1 May 2018 ('Policy 1')? 2.4 Did the Without Recourse Costs Application arise out of a 'Known Circumstance' as alleged in paragraph 25.4(b) and (c) of the Defence to Points of Claim, within the meaning of clause 4.3 of Policy 2? 2.5 If yes to question 2.3, was it a 'Known Circumstance …previously…notified' to the Respondent within the meaning of clause 4.3(v) of Policy 2? 3. Was the claim by ABCL in the Originating Process for an order for costs a Claim for Civil Liability within the meaning of those expressions in the insuring clause in Policy 1? 5 The parties were in agreement that if questions 1 and 3 were answered in the negative, this would be determinative of the proceedings. Written submissions were filed in September 2021, and oral argument occurred on 6 December 2021.

Relevant background and chronology 6 Before turning to the policies in question, it is necessary to provide a chronology of relevant events leading up to the making of the Adverse Costs Orders. Some of this factual background is critical to the determination of preliminary questions 2.1-2.5 (if they arise), including which policy would respond to the Adverse Costs Orders if question 1 is answered in the affirmative. 7 On 14 November 2017, the directors of Concrete Supply resolved to put Concrete Supply into voluntary administration on the basis that, in the directors' opinion, the company was insolvent (or was likely to become insolvent). The directors resolved to appoint Messrs Cantone and Cooper as joint and several administrators of the company, which they accepted. 8 On 17 November 2017, Mr Cantone issued an initial advice to creditors. ABCL claimed that Concrete Supply was indebted to ABCL in the amount of $12,447,842.58. 9 At a second meeting of creditors on 19 December 2017, the proof of debt of ABCL was admitted for voting purposes. A DOCA was proposed by the directors of Concrete Supply with Messrs Cantone and Cooper as deed administrators. Mr Cantone exercised a casting vote in favour of the DOCA and it was approved. ABCL voted against the approval of the DOCA. 10 On 16 January 2018, ABCL commenced proceeding SAD12/2018 in this Court against Concrete Supply. Messrs Cantone and Cooper were named as the second and third defendants respectively in their capacity as deed administrators and were served with the originating application on or about 18 January 2018. Messrs Cantone and Cooper engaged separate legal representation to Concrete Supply and its directors. It is relevant to set out the relief sought in the originating process, in particular prayer 18 for "costs", which is a source of contention between the parties: 1. Pursuant to section 440D of the Corporations Act the plaintiff have leave to begin and proceed with this proceeding against the Company. 2. Pursuant to section 75-42 of sch 2 of the Corporations Act that the resolution that the Company execute a deed of company arrangement, passed on the casting vote of second defendant, be set aside. 3. In the alternative to paragraph 2, pursuant to section 90-15 of sch 2 of the Corporations Act setting aside the second defendant's decision to exercise his casting vote in favour of the resolution that the Company execute the deed of company arrangement. 4. In the further alternative to paragraph 2, pursuant to section 445D or 447A of the Corporations Act that the deed of company arrangement executed by the Company be terminated. 5. Pursuant to section 75-43 or 90-15 of sch 2 of the Corporations Act that the proposed resolution that Company be wound up, defeated on the casting vote of the second defendant, be taken to have been passed and that Messrs Martin Lewis and David Kidman be appointed as joint liquidators. 6. In the alternative to paragraph 5, pursuant to section 447A of the Corporations Act that the Company [be] wound up and Messrs Martin Lewis and David Kidman be appointed as joint liquidators. 7. In the further alternative to paragraph 5, pursuant to section 90-15 of sch 2 of the Corporations Act that the second and third defendants be removed as external administrators of the Company and Messrs Martin Lewis and David Kidman be appointed as external administrators. 8. Pursuant to section 483 of the Corporations Act, that the second to sixth defendants deliver, convey or surrender the Company's books to the liquidators of the Company as soon as practicable. 9. A declaration that the Company owes the plaintiff $12,457,472.22; 10. A declaration that the Company failed to maintain adequate books and records in contravention of section 286 of the Corporations Act. 11. A declaration that the Company engaged in misleading or deceptive conduct or unconscionable conduct in contravention of sections 18 and 20 of the Australian Consumer Law or unconscionable conduct under the general law. 12. A declaration that the fourth to sixth defendants were involved in conduct by the Company which contravened Chapter 2 of the Australian Consumer Law within the meaning of sections 2, 236 and 237 of the Australian Consumer Law. 13. A declaration that the Company held cement which was received but not paid for, and any income generated using that cement, on trust for the plaintiff. 14. A declaration that (a) the Company breached its fiduciary duty to the plaintiff by disposing of property held on trust for the plaintiff; and (ii) [sic] the fourth to sixth defendants procured or knowingly assisted or benefited from that breach of trust by the Company. 15. Damages. 16. Equitable compensation. 17. Interest. 18. Costs. 19. Such further or other order as the Court thinks fit. 11 On or about 30 January 2018, ABCL served a Points of Claim on Messrs Cantone and Cooper. The Points of Claim are important. At [18]-[68],the Points of Claim make clear that the only prayers for relief directed to Messrs Cantone and Cooper was their removal as deed administrators. That said, serious allegations were made about their conduct as administrators in substance to the effect that competent administrators would not have put forward the DOCA. Thus, the Points of Claim (and later the Statement of Claim) asserted that the DOCA was brought into existence, at least in part, as a result of the administrators' less than competent conduct. Otherwise, the Points of Claim confirmed that the claims for damages and equitable compensation, as well as losses suffered as a result of misleading and deceptive conduct, were all directed against Concrete Supply, or the directors of Concrete Supply either directly or by way of accessorial liability for Concrete Supply's alleged breach of trust and breach of contract. 12 On 5 February 2018, Mr Raj Khatri, on behalf of Worrells SA, provided notification of the originating application and Points of Claim to Australian Indemnity Pty Limited, Worrell SA's insurance broker, which traded as Eagle Insurance Brokers (Eagle). On the same day, Eagle notified CGU. On 6 February 2018, CGU responded by requesting that a "notification of circumstances" form be completed and asking for confirmation that "at this stage no formal claim has been made against [the insured] in relation to the VA report". Eagle did not reply to CGU's request. 13 On or about 18 July 2018, ABCL served a Statement of Claim in substantially the same terms as the Points of Claim. 14 The proper characterisation of the claims made in the Points of Claim and Statement of Claim are important. The applicants focused on the claim for costs (prayer 18) and ultimately submitted that there was no real connection between the Originating Application (supported by the Points of Claim and Statement of Claim) and the reasons why Besanko J made the costs order, being the (inappropriate) active involvement in the substantive trial. This was referred to as "later generative conduct" which did not exist before it occurred in the hearing (perhaps the preparation) of the trial. CGU, on the other hand, submitted that there was a direct relationship between the order for costs that was made and the original claim for costs, as it was propounded by reference to the underlying pleadings. 15 I should say at this point that I prefer this aspect of CGU's submissions. Whilst it may have required a little teasing out or elaboration, whether by particular or pleading, a clearly available reading of the pleading is that ABCL was claiming against the applicants that if it were not for the professional default and inappropriate conduct of the applicants, the DOCA would not have been executed and so the costs of the ABCL in setting aside the DOCA were caused by the applicants and should be paid by the applicants. It is true that the claim and the underlying pleaded allegations did not advert to the basis of the claim for costs as to the question whether the applicants should have, or should be deprived of, the usual indemnity for administrators from the funds constituting the administration of the company. I will return to this question in the context of the later and more precise allegations. It is, however, appropriate to say that the seriousness of the allegations in the pleadings would, to any experienced practitioner, be sufficient to raise the question as to whether the applicants would have to pay the costs personally, in the sense that they would be denied the usual indemnity against the assets of the administration fund. 16 On or about 28 November 2018, ABCL's solicitors sent a letter (the 28 November 2018 letter) to the solicitors acting for Mr Cantone and Mr Cooper, which relevantly put them on notice that: …we understand that the administrators might have been using, or might propose to use, funds the subject of the Deed of Company Arrangement for their legal fees in resisting the liquidation of Concrete Supply. We consider that [Messrs Cantone and Cooper] will be personally liable for the cost of defending the present litigation and all remuneration taken by them in connection with this administration together with disbursements paid by them will be ordered to be restored to the company. … … if our client is successful in this action we put you on notice that we will seek an order that the plaintiff's costs be paid on an indemnity basis personally by [Cantone, Cooper and the directors of Concrete Supply]. 17 Given the terms of the letter of 29 April 2019 (see [20] below), it is appropriate to note that the above letter was referring to an obligation of Messrs Cantone and Cooper to pay their own costs out of their own assets and not the assets of Concrete Supply. The letter also foreshadowed a claim for indemnity costs to be paid personally by Messrs Cantone and Cooper. 18 As will be discussed below, there was debate between the parties as to whether the notice that ABCL would seek that the applicants pay its (ABCL's) costs on an indemnity basis and personally, was notice that ABCL would seek that there be no access by the applicants to the administration fund to recoup such costs. In the context of the full communication of the 28 November 2018 letter and of the serious allegations in the pleading, I think it is tolerably plain that the phrase "paid…personally" in that letter implicitly carries with it the proposition that there not be any access for the applicants to the company's funds by the otherwise existing indemnity by way of exoneration or recoupment. 19 The trial of all issues in SAD12/2018 was conducted in December 2018 and March and April 2019. Mr Cantone and Mr Cooper took an active part in the defence of the proceedings. 20 On or about 29 April 2019, ABCL's solicitors sent a further letter (the 29 April 2019 letter) to the solicitors acting for Mr Cantone and Mr Cooper, which contained the following, and is not dissimilar in terms to the parts of the 28 November 2018 letter, set out above: … if (as we expect will be the case) the Court ultimately makes findings of serious misconduct against [Messrs Cantone and Cooper], we are instructed to seek orders that [Messrs Cantone and Cooper] personally pay: (i) our client's costs of the proceedings; and (ii) their own costs of the proceedings, without recourse to the assets of [Concrete Supply] or the Deed Fund. 21 On 12 November 2019, Besanko J delivered judgment on the substantive claim: Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 4) [2019] FCA 1846 (the primary judgment). ABCL was partially successful on the relief sought. Importantly, Besanko J found that Concrete Supply was indebted to ABCL in the amount of $12,457,472.22, that the DOCA executed on 21 December 2017 must be terminated pursuant to s 445D of the Corporations Act 2001 (Cth), and that the resolution passed at the second meeting of creditors on 19 December 2017 resolving that Concrete Supply enter into the proposed DOCA should be set aside. 22 On or about 13 November 2019, Mr Cooper provided a copy of the primary judgment to Eagle, which was then provided by Eagle to CGU on 14 November 2019. On 15 November 2019, CGU asked Eagle, which was relayed to Mr Cooper, whether there had been a formal claim against Mr Cooper or Mr Cantone for a monetary sum. The essence of Mr Cooper's response was that there had been a claim for costs made by ABCL. 23 On 21 November 2019, Eagle informed CGU that there may be in the future a claim for costs in SAD12/2018 against Messrs Cooper and Cantone by ABCL. 24 On 22 November 2019, ABCL filed and served submissions (ABCL's Costs Submissions), which sought orders that the defendants in SAD12/2018 pay ABCL's costs of the action. In those submissions, ABCL submitted, in broad terms, that Messrs Cantone and Cooper inappropriately defended the proceedings and pressed a case that was aligned with Concrete Supply. It was submitted that a competent administrator acting in Concrete Supply's interests would have left it to the directors of Concrete Supply to defend the proceedings and would have disclaimed an active role. ABCL sought orders that Messrs Cantone and Cooper pay any costs order without recourse to the assets of Concrete Supply. A reading of ABCL's Costs Submissions reveal, however, another basis for payment of ABCL's costs by the applicants without access to the indemnity: the conduct of the applicants in the execution of the DOCA was said to be unreasonable, and disentitling of the indemnity: see in particular paragraphs 22 - 25 of ABCL's Costs Submissions. 25 On or about 27 November 2019, Mr Cooper provided a copy of ABCL's Costs Submissions to Eagle, which were then provided to CGU on 28 November 2019. The copy communicated to CGU attached an affidavit of Mr Patrick Leader-Elliot affirmed 22 November 2019 in support of the costs application by ABCL. 26 On 17 December 2019, by operation of orders made on 19 November 2019, Concrete Supply was placed into liquidation. On that day, Messrs Cantone and Cooper ceased to be either administrators or deed administrators of Concrete Supply. 27 On 6 July 2020, Besanko J delivered the Costs Judgment. Of particular relevance to this proceeding, Besanko J found that Messrs Cantone and Cooper did not act appropriately in defending the action brought by ABCL. Their involvement "went well beyond what could be considered reasonable assistance on any view" (at [166]) and it was not a proper purpose to defend the proceedings to refute what they claimed were serious and unsupported allegations with respect to their conduct (at [167]). This was the basis of his Honour's order that the applicant should be denied access to the company's funds by the indemnity to recoup and exonerate themselves. Justice Besanko did not find it necessary to found the costs orders that his Honour made against the applicants on the basis of their conduct before and at the time of execution of the DOCA. 28 Final costs orders were made on 9 July 2020, which relevantly included the following orders: 7. Subject to Order 9, [Messrs Cantone and Cooper] pay the plaintiff 40% of its costs of the proceeding on a party and party basis to be taxed in default of agreement. 8. [Messrs Cantone and Cooper's] costs of and incidental to the proceeding, including their liability under Order 7 above, be paid by them without recourse to the assets of [Concrete Supply]. 9. The total amount in costs recoverable by the plaintiff under Orders 5 and 7 is capped at 75% of its costs of the proceeding on a party and party basis. 29 The effect of these orders was that Messrs Cantone and Cooper did not have any right, including an equitable right, to be indemnified from the Concrete Supply's assets in respect of legal costs and expenses incurred in the defence of the proceedings. The claim for indemnity in this proceeding is in respect of those costs of ABCL that Messrs Cantone and Cooper were required to pay under Order 7. 30 The basis for the costs order was the way the applicants had participated in the substantive hearing. They had gone well beyond taking such steps to assist the Court, and had actively pursued the litigation in defence of their own interests, not the interests of Concrete Supply, which was separately represented. At [70], [166] - [169] of the Costs Judgement, Besanko J said the following: [70] The Concrete Supply defendants, that is, Concrete Supply and the directors, have been represented by Crawford Legal and counsel throughout the proceeding, save and except that the liquidators have acted on behalf of Concrete Supply after the stay expired. The directors gave instructions on behalf of Concrete Supply until that point. The deed administrators were represented throughout the proceeding by O'Loughlins Lawyers and counsel. They filed a Defence in which they pleaded various matters in response to ABCL's Debt Claim. They did not deny or admit the debt. They pleaded extensively to the allegations in relation to the DOCA Claim. They denied the allegations that their conduct fell below the standard of reasonable insolvency practitioners. They denied the allegation that Mr Cantone's exercise of the casting vote was flawed and they denied the allegation that the DOCA should be terminated or set aside. They did not plead to the Misleading or Deceptive Conduct Claim or the Breach of Trust Claim. The deed administrators filed affidavits and gave evidence themselves and called witnesses. They were represented throughout the trial and they made extensive submissions. This is a summary of the deed administrators' involvement in the proceeding and the substantive reasons should also be examined for an appreciation of their involvement. … [166] Dealing with the first purpose of assisting the Court by providing relevant evidence to inform the Court's decision-making, I have already referred to the remarks of Young CJ in Eq in Kirwan v Cresvale Far East…It may be accepted that deed administrators have a duty to assist the Court and that may involve putting information before the Court and incurring costs in doing so. Those costs reasonably and properly incurred may be recoverable by the deed administrators under their right of indemnity. Critically, what is reasonable assistance depends on the circumstances of the case. If in doubt as to what is reasonable assistance in any particular case, the deed administrators may make a formal application under s 90-15(3)(a) of Sch 2 of the Corporations Act for directions. In this case, the deed administrators went well beyond what could be considered reasonable assistance on any view. They were not representing Concrete Supply and yet they fully participated in the trial in the manner I have previously outlined…Concrete Supply was represented and was presenting a defence, which included expert evidence, seeking to maintain the DOCA. At no point during the proceeding were the deed administrators putting a position on behalf of Concrete Supply. That was done by Crawford Legal and the counsel they instructed. Whatever was reasonable assistance in this case, it was a great deal less than the deed administrators' actual involvement. I say "whatever was reasonable assistance in this case" because the deed administrators did not put an alternative claim in terms of their liabilities in relation to, or their costs of, the proceeding. They must be taken to have chosen not to do so. I should add that an alternative claim would not involve an exercise of starting with the existing claim and then removing certain items, but rather, a completely new and different counterfactual. [167] The other purpose advanced by the deed administrators for their involvement in the proceeding, namely, to defend serious and unsupported allegations with respect to their conduct in the course of the administration is not a proper purpose. It is true that it is not a disqualifying factor if it is merely an incident of an exercise of power for a proper purpose (Walters v Woodbridge at 509 per Jessel MR). However, in this case, there is no proper purpose to which it was an incident. [168] For the purposes of their right of indemnity, the deed administrators cannot rely on the purpose of defending serious and unsupported allegations with respect to their professional conduct in the course of the administration. I should say that even if that was a proper purpose, ABCL has another argument which has considerable force, but which I do not need to decide, that the failures on the part of the deed administrators in their investigations and in their preparation of the Second Report to Creditors outlined in summary form below are so substantial that no reasonable person in the shoes of the deed administrators would have expected funds in defending the allegations. In saying this, I acknowledge that I did not find that Mr Cantone was acting at the behest of the directors (the substantive reasons at [1368]), however, it would seem to me to be appropriate to look at the allegations in the round and many of them were allegations which I upheld. [169] My findings in the substantive reasons concerning the inadequacies in the deed administrators' investigations and the deficiencies in the Second Report to Creditors may be summarised as follows: (1) a failure to investigate Concrete Supply's debt to ABCL and the impact of the debt on Concrete Supply's accounts and on its solvency ([1244]-[1249]) and [1278]-[1289]); (2) a failure to investigate the assets of the directors (at [1317]-[1320]) (3) a failure to investigate invoices from Mantina Earthmovers and a dramatic fall in the debt owed by Mantina Earthmovers in the period shortly before the administration and a failure to assess properly the recoverability of the debt (at [1334]-[1340]); (4) incorrectly stated in the Second Report to Creditors that Concrete Supply's books and records complied with s 286 of the Corporations Act when they did not (at [1374]) (5) a failure to explain in the Second Report to Creditors any possibility of an earlier date of insolvency, and the consequences for insolvent trading and other potential claims against the directors (at [1374]); (6) incorrectly stated in the Second Report to Creditors that the deed administrators were currently seeking legal advice from counsel (at [1376]); (7) a failure to qualify the opinion about recoverability of the Mantina Earthmovers debt in the Second Report to Creditors (at [1375]); (8) the flaws in Mr Cantone's exercise of his casting vote (at [1412]); and (9) other failures in the administration (at [1358]-[1362]). 31 Thus, although the refusal to permit indemnification of the costs order was based on the nature and the extent of their participation in the proceedings, it is clear that there was another possible basis for the order (being the matters set out at [169]) of which many were made out: see the last sentence of [168]. 32 On 22 July 2020, Messrs Cantone and Cooper filed a notice of appeal from SAD12/2018. However, on 3 February 2021, Messrs Cantone and Cooper entered into a settlement with ABCL and Concrete Supply in which a compromise was reached as to the costs of SAD12/2018. This was recorded in a settlement deed dated 3 February 2021. On 20 May 2021, the appeal from SAD12/2018 was discontinued. 33 Before leaving this chronology, it is relevant to note that the parties agree that apart from the originating application, the 28 November 2018 letter, the 29 April 2019 letter and ABCL's Costs Submissions, there was no written or verbal communication from 18 January 2018 to 22 November 2019 in which ABCL stated any intention or foreshadowed any claim that Mr Cantone or Mr Cooper should pay the costs of the entire action personally, without recourse to the assets of Concrete Supply. 34 On 22 December 2020, CGU formally declined to indemnify Messrs Cantone and Cooper.

The policies 35 As noted above, there are three relevant professional indemnity policies which may provide a right to indemnity for Messrs Cantone and Cooper: Policy 1 (policy number C2MIS1408846 in force from 1 March 2017 to 1 March 2018); Policy 1A (policy number C2MIS1537248 in force for the period 1 March 2018 to 1 April 2019) and Policy 2 (policy number 02MIS1696069 in force for the period 1 April 2019 to 1 May 2020). Whilst there are slight differences in wording, such as the definition of "Civil Liability", both parties accept that those differences are of no relevance to the applicants' claim in this proceeding. It is therefore sufficient to summarise relevant parts of Policy 2. 36 The primary insuring clause is found in section 3 of Policy 2. Clause 3.1 provides civil liability cover in the following terms (bold denoting defined terms): 3.1 Civil liability cover We Cover the Insured up to the Policy Limit (see Section 6) in respect of Claims for Civil Liability to any third party incurred in the provision of Professional Services and which: (a) are first made against the Insured during the Period of Insurance; and (b) We are told about in writing as soon as reasonably possible during the Period of Insurance; and (c) arise from an act, error or omission on or after the 'Retroactive Date' as stated in the Schedule. 37 The definitions of "Civil Liability" and a "Claim", which are central to the preliminary questions, are contained in Section 9 of Policy 2: 9.1 Civil liability The compensatory damages, costs and expenses in respect of a Claim which includes the legal costs of the person making the Claim, for which an Insured becomes liable. 9.2 Claim The receipt by an Insured of: (a) any originating process (in a legal proceeding or arbitration), cross claim or counter claim or third party or similar notice claiming compensation against an Insured; or (b) any written or verbal demand from a third party claiming compensation against an Insured. 38 Clause 3.2 provides a non-exhaustive list of examples of what is covered under clause 3.1 as follows: By way of example, the Civil Liability We Cover in Section 3.1 includes (but is not limited to) the following types of Civil Liability Claims: a) breach of duty (including a fiduciary duty). b) breach of privacy or confidentiality. c) defamation. d) loss of or damage to Documents which were in the lnsured's physical custody or control or for which the Insured is legally responsible for, at the time of loss or damage (to the full Policy limit). e) infringement of Intellectual Property. 39 Section 4 of Policy 2 contains "Policy extensions" (to clause 4.3 of which I will return), Section 5 contains "Optional extensions" and Section 6 provides for the limits of cover. 40 Section 7 of Policy 2 then provides for exclusions. Relevantly to this proceeding, the policy provides that the respondent insurer does not provide cover for known claims and known circumstances in the following circumstances: We do not provide Cover for any of the following Claims or Covered Claims: 7.1 Known claims and known circumstances a) known at the inception date of this Policy; or b) based upon, directly or indirectly arising from or attributable to any Known Circumstance or known Claims or Covered Claims; or c) disclosed in the Proposal or arising from facts or circumstances which may give rise to a Claim or Covered Claim disclosed in the Proposal; or d) if this Policy is endorsed or amended midterm, for any Claim or Covered Claim that arose from a Known Circumstance (as at the effective date of the amendment / endorsement) to the extent that the Claim or Covered Claim would not have been Covered by the Policy before such amendment / endorsement. 41 "Known Circumstance" is defined in clause 9.16: 9.16 Known circumstance Any fact, situation or circumstance which: (a) an Insured was aware of at any time before the Period of Insurance or any relevant amendment or endorsement of the Policy; or (b) a reasonable person in the Insured's professional position would have thought, at any time before the Period of Insurance or before any relevant amendment or endorsement of the Policy, might result in someone making an allegation against an Insured in respect of a liability, loss or costs, that might be Covered by this Policy or the amendment / endorsement to this Policy. 42 The operation of clause 7.1 is circumscribed clause 4.3 which provides for "Continuous cover" in certain circumstances: a) We Cover the Insured, for any Claim or Enquiry otherwise Covered by this Policy, arising from a Known Circumstance (notwithstanding Section 7.1 of this Policy) if: i. there has been no fraudulent non-disclosure or fraudulent misrepresentation in respect of such Known Circumstance; and ii. We were the professional liability insurer of the Policyholder when an Insured first knew of such Known Circumstance; and iii. We continued without interruption to be the Policyholder's professional liability insurer until this Policy came into effect; and iv. had We been notified of the Known Circumstance when the Insured first knew of it, the Insured would have been covered in respect of the policy in force at that time and the Insured would (but for Section 7.1 of this Policy) otherwise be Covered under this Policy; and v. the Known Circumstance has not previously been notified to Us or to any other insurer. b) If the Insured was entitled to have given notice of the Known Circumstance under any other policy of insurance with any other insurer, then this Extension does not apply to provide Cover under this Policy. c) Our liability under this Extension is reduced to the extent of any prejudice We suffer as a result of any delayed notification of the Known Circumstance to Us. d) The Policy Limit of the Cover We provide under this Extension is the lesser available under the terms of the policy in force at the earlier time referred to in paragraph a) iv. above, or under this Policy. The terms of this Policy otherwise apply. 43 Section 8 of Policy 2 provides for "General terms and conditions", which require the policyholder to tell the respondent insurer about a Claim as soon as possible during the period of insurance, failing which the right to cover may be affected. Further, clause 8.2 provides: 8.2 Claims co-operation Each Insured must: (a) diligently do, and allow to be done, everything reasonably practicable to avoid or lessen an Insured's liability in relation to a Claim or Covered Claim, Covered by this Policy; (b) immediately give Us all the help and information that We reasonably require to: (i) investigate and defend a Claim or Covered Claim; and (ii) determine Our liability under this Policy. 44 No evidence was led as to the context of the entry into the policies, or any of them. Importantly, no evidence was led of the parties (and as to the applicants, whether from their own knowledge or that of their insurance broker) being aware of the availability of different types of insurance contracts. In particular, there was no evidence of the existence in the professional indemnity market for Australian insolvency practitioners of different policies for, on the one hand substantive liability for compensating damages and ancillary costs, and, on the other, costs liability insurance. 45 Thus the scope of the cover from the policies is to be determined without reference to any context found by reference to available policies.

Question 1: Was there a "Claim" for "Civil Liability"? 46 The applicants' submissions acknowledged that the concepts of a "Claim" and "Civil Liability" are central to the operation of the policies and their claim for indemnity with respect to the Without Recourse Costs Application arising from the ABCL's Costs Submissions on 22 November 2019. 47 The two-limbed definition of "Claim" was said to encompass either some kind of process or notice, or the making of an unequivocal crystallised demand for compensation, in contradistinction to an intimation, contingent or otherwise, of a future demand or process. Further, the substance of the claim must be brought home to the person. 48 As to "Civil Liability", as defined, the applicants submitted that a third party's claim for costs is plainly capable of being a claim for "compensatory damages, costs and expenses". As the purpose of an order for costs is to compensate the person in whose favour it is made, a claim for costs was said to be a claim for compensation: Latoudis v Casey [1990] HCA 59; 170 CLR 534 at 543, 563 and 567 and Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at 97 [67]. The phrase "compensatory damages, expenses and costs" should be read disjunctively, such that a claim for costs can be made separately and independently from a liability for damages. The fact that the insuring clause is said to include the legal costs of the person making the Claim does not warrant a narrower construction. 49 As to the phrase "in respect of a Claim" in the definition of "Civil Liability", this was said to mean "the subject of or in connection with the Claim". The phrase does not connote that the costs must be the costs of the claim which otherwise independently qualifies as a "Claim" as defined in clause 9.2 of Policy 2. 50 The composite expression was therefore submitted to mean that an Insured is covered for a relevant demand for compensatory damages, costs and expenses with respect to the damages, costs and expenses the subject of the demand. In determining whether the ultimate liability incurred by the insured was in respect of the demand which preceded it, the focus should be on the underlying facts, not the legal form in which the matter is constructed or pleaded. 51 Therefore, the Without Recourse Costs Application was said to be the receipt by the relevant Insured of a "similar notice claiming compensation against an Insured" within the meaning of Claim in clause 9.2 of Policy 2. It sought compensatory "damages, costs and expenses" within the meaning of "Civil Liability" in clause 9.1 of Policy 2.

Questions 2.1-2.5: When was the "Claim first made"? 52 As to questions 2.1-2.5, if question 1 is answered yes, the key issues are when the "Claim was first made" within the meaning of clause 3.1, and if the application of the "Known Circumstances" exclusion in clause 7.1 arises. 53 The applicants' primary position was that the "Claim was first made" within the Period of Insurance of Policy 2, on receipt by them of ABCL's Costs Submissions on 22 November 2019, and not before. Therefore, question 2.1 should be answered "yes". To explain this position, it is first necessary to understand the applicants' submissions as to why the originating application and 28 November 2018 letter were insufficient to constitute when the Claim was first made. 54 As to the originating application, the applicants submitted that it did not contain allegations of fact sufficient to identify it as a claim for compensation by a third party against an Insured. Messrs Cantone and Cooper were named as defendants in their capacity as Deed Administrators of Concrete Supply only. As was noted above at [10]-[11], the originating process and Points of Claim did not seek relief in the nature of compensation against Messrs Cantone and Cooper: they were named as defendants as the relief sought affected the DOCA, and ABCL sought their removal as Deed Administrators. This accords with ordinary practice. Furthermore, at the time the originating process was served, the conduct giving rise to the Adverse Costs Orders had not yet occurred. It did not identify the parties against whom costs would be sought, and merely foreshadowed an intention to seek invocation of an exercise of the Court's discretion in a particular way in the future in respect of costs that may not yet have been incurred. The ordinary position, which was not displaced by anything in the originating application or Points of Claim, would be that the applicants would have an express right of indemnity under the DOCA or an equitable right to an indemnity from the company's assets for "costs, charges and expenses properly incurred for the benefit of the trust": Re Beddoe; Downes v Cottam [1893] 1 Ch 574 at 562; Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; 44 ACSR 21 at 84 [259] per Giles JA; Cresvale Far East v Cresvale Securities (No 2) [2001] NSWSC 791; 39 ACSR 622 at 636 [71]-[73]. Therefore, the Claim was not first made on 18 January 2018 within the Period of Insurance of Policy 1, and question 2.3 should be answered "no". 55 As to the 28 November 2018 letter, the applicants submitted that while there was a reference to a type of compensation, that being ABCL's intention to seek costs on an indemnity basis personally against all defendants (including Messrs Cantone and Cooper), it was not a demand or claim. It did not refer to the conduct of Messrs Cantone and Cooper other than in respect of the use of funds the subject of the DOCA. The relevant conduct leading to the Adverse Costs Order occurring during the trial had not yet arisen. Thus, the 28 November 2018 letter was at most in the nature of an intimation of a future demand or process rather than the making of a crystallised demand for compensation against an Insured. It was contingent upon ABCL's success in SAD12/2018. Therefore, the Claim was not first made on 28 November 2018 with the Period of Insurance of Policy 1A, and question 2.2 should be answered "no". 56 Given the above, the applicants submitted that the Claim was first made on receipt by it of ABCL's Costs Submissions. The critical conduct which led Besanko J to make the Adverse Costs Orders against the applicants was their conduct in actively defending the proceeding during the course of the trial. This is confirmed by the 29 April 2019 letter, where the prospect of ABCL making the Without Recourse Costs Application was first raised as a possibility: a letter sent after the hearing of the proceeding.

The first respondent's submissions 57 As to whether the Without Recourse Costs Application was a "Claim" for "Civil Liability", the first respondent's primary contention was that general legal expenses cover providing indemnity for a liquidator's own costs and/or for liability for other parties' costs in any proceeding, represents a very different scope of cover to that confined to costs associated with proceedings in which damages or compensation are sought against an insolvency practitioner. This is particularly so when regard is had to the myriad of proceedings in which liquidators and administrators may be joined as parties but in which no claim for compensation is made, such as applications for discovery, injunctive relief in relation to creditors' meetings or sale of assets, declaratory relief in relation to a liquidator's adjudication on a proof of debt claim or applications to remove a liquidator or administrator. The first respondent submitted that the wording of the insuring clause understood in its commercial context clearly demonstrated that it was the latter scope of risk which was covered, not the former, and therefore the Without Recourse Costs Application was not a "Claim" for "Civil Liability". While the first respondent accepted that an award of costs is compensatory rather than punitive, it was submitted that the characterisation of the relevant "Claim" independent of the ancillary relief sought for costs was necessary. The words "claiming compensation" in the definition of "Claim" were purposively incorporated so that the first respondent would not assume the risk of providing general legal expenses cover. 58 If the Without Recourse Costs Application was a "Claim" for "Civil Liability", the first respondent noted that when the Claim was first made would be relevant for identification of the policy under which indemnity was available, and thus the availability of defences based upon alleged breaches of policy conditions. 59 The first respondent's primary position was that it was a Claim first made on service of the originating application. Noting that whether the Claim was first made during the Period of Cover of Policy 1 turns upon the construction of Policy 1, the first respondent submitted that the fact the originating application did not specify the respondent against whom costs were sought is irrelevant. Nothing in the originating application or Points of Claim filed in SAD12/2018 limited the claim for costs to defendants other than the applicants. The service of the originating application brought home to the applicants that ABCL was claiming the costs of the proceedings from the applicants. The fact that ABCL did not give notice of an intention to seek an order that the applicants could not have recourse to the assets of Concrete Supply is irrelevant. The costs orders sought was always a "personal order", and the fact that applicants ultimately did not have an entitlement to an indemnity from the assets of Concrete Supply does not provide a basis for suggesting that the Claim was not first made when the originating process seeking relief was served. 60 The first respondent also submitted that the applicants' assertion that the Claim was not first made upon service of the originating process because the claim-generative conduct did not arise until a later time would give the policy an impractical and unbusinesslike construction. Claims under liability policies commonly evolve between the time when the claim is first made and when it is determined, and the fact that additional circumstances arose does not dissociate the claim as first made from the ultimate costs liability: see McCarthy v St Paul International Insurance Co Ltd [2007] FCAFC 28; 157 FCR 402 at 427 [76]. If the applicants are correct in such an assertion, it simply serves to demonstrate the inappropriateness of treating a liability for costs as a claim for compensation under the policies.

Relevant principles 61 The principles that apply to the interpretation and construction of insurance polices were not in dispute. For present purposes, it is sufficient to repeat what I said in MOS Beverages Pty Ltd v Insurance Australia Ltd t/as CGU Insurance [2020] FCA 1716 at [18]: The principles to apply in relation to the interpretation and construction of insurance policies as commercial contracts were not in dispute. Such principles can be found in authorities dealing with the construction of commercial contracts, such as Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at 656-657 [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 256 CLR 104 at 116-117 [48]-[52]; Simic v New South Wales Land and Housing Corporation [2016] HCA 47; 260 CLR 85 at 111 [78]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; 261 CLR 544 at 551 [16] and also in authorities dealing specifically with contracts of insurance: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; 203 CLR 579 at 589 [22], 600-603 [73]-[74]; Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 at 528-529 [15]-[16]; Johnson v American Home Assurance Company [1998] HCA 14; 192 CLR 266 at 272-276 [19] (Kirby J, albeit in dissent); and Australian Casualty Co Limited v Federico [1986] HCA 32; 160 CLR 513 at 520-521. See also Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 at 405 and the cases referred to thereat, which emphasise the importance of commercial purpose in the interpretation and construction of a policy. The principles need not be restated fully here, but it is important to note that the Policy is to be given a businesslike interpretation, paying attention to the language used by the parties in its ordinary meaning, and to the commercial purpose and object of the contract, in the context of the surrounding circumstances, including the market or commercial context in which the parties are operating, by assessing how a reasonable person in the position of the parties would have understood the language: Todd v Alterra at Lloyds Ltd (on behalf of the underwriting members of Syndicate 1400) [2016] FCAFC 15; 239 FCR 12 at 22-23 [42]. As Lord Halsbury LC said in Glynn v Margetson & Co [1893] AC 351 at 359: "a business sense will be given to business documents". Lord Bingham of Cornhill's explication of that phrase of Lord Halsbury in Homburg Houtimport BV v Agrosin Private Ltd (The 'Starsin') [2004] 1 AC 715 at 737 [10] bears repetition: "The business sense is that which businessmen, in the course of their ordinary dealings, would give the document." His Lordship reinforced the powerful sense of that expression of the matter by reference to the famous observation of Lord Mansfield in Hamilton v Mendes (1761) 2 Burr 1198 at 1214; 97 ER 787 at 795: "The daily negociations and property of merchants ought not to depend upon subtleties and niceties; but upon rules, easily learned and easily retained, because they are the dictates of common sense, drawn from the truth of the case." Cardozo J expressed the matter similarly in the context of considering causal connections in the words of a contract of insurance in Bird v St Paul Fire and Marine Insurance Company 224 NY 47 at 51 (1918): "General definitions of a proximate cause give little aid. Our guide is the reasonable expectation and purpose of the ordinary business man when making an ordinary business contract." Preference is to be given to a construction supplying a congruent operation to the various components of the whole: Wilkie 221 CLR at 529 [16]. See also Liberty Mutual Insurance Company Australia Branch trading as Liberty Speciality Markets v Icon Co (NSW) Pty Ltd [2021] FCAFC 126; 154 ASCR 126 at [151]-[152].

Disposition 62 At the outset, I would reject the submission of CGU that the relevant policy wording be set against general legal expenses cover that could have been and was not taken out by the applicants. No contextual evidence was led upon which it could be concluded that the wording at hand should be read as a form of policy dealing with substantive claims for compensatory damages and only attendant ancillary costs, as opposed to "general legal expenses cover". Nor was there any evidence that the parties (and their intermediaries, if used) negotiated the policies on the basis of any such distinction. If the first respondent is to succeed on its submission as to the relevant scope of cover, it must do so from the words of the policy, shorn of any particular context, in particular one that posits a more suitable form of policy wording. 63 By reference to clause 3.1, 9.1 and 9.2, and reading those clauses together (and not without some difficulty) the civil liability cover can be seen to be, relevantly: [Indemnity up to the policy limit] in respect of the receipt by the applicants, of (a) any originating process in a legal proceeding claiming compensation against the applicants; or (b) any written or verbal demand from a third party claiming compensation against the applicants; for compensatory damages, costs and expenses in respect of the receipt by the applicants of the things in (a) or (b), which includes the legal costs of the person making the claim, for which the applicants become liable. 64 Some difficulty with this insertion and knitting together of definition is evident. A claim is defined as the receipt of certain types of demand. What appears to be intended is a type of demand that is received. A claim is a demand of the character of (a) and (b). The demand or claim must arise from acts, errors or omission on or after the retroactive date; and the (liability for) compensatory damages, costs and expenses must be incurred in the provision of professional services. 65 It is undoubtedly the case that civil liability claims will often be for compensatory damages and attendant or ancillary costs and expenses. The policy was one for insolvency practitioners. Such practitioners may involve themselves in the putting in place and administration of DOCAs. It is easily foreseeable, indeed it is a not unusual feature of such circumstances, that one or more creditors may be dissatisfied with an entered DOCA. The conduct of insolvency practitioners may be called into question (as it was here). It may be alleged (as it was here) that the conduct of the practitioners fell below a reasonable and appropriate standard. It may be alleged (as in effect it was here) that without such conduct falling short of professional standards the DOCA would not have come into existence, and that it should be set aside. In such circumstances, it may be claimed (as in effect it was here) that the creditor should be compensated for the costs of the legal suit to set aside the DOCA (being the substance of its only necessary compensation). In such circumstances, all of which are plainly foreseeable to the reasonable professional and business parties negotiating and entering into this policy, there is no reason not to construe the phrase "damages, costs and expenses" as covering a claim for compensation for the costs incurred in rectifying the position of the creditor caused by errors and omissions in and about acting as an insolvency practitioner in connection with the execution of a DOCA. 66 Thus is my view the originating application together with its supporting pleading was a claim for civil liability. In many cases, persons in the position of the applicants would be entitled to indemnify themselves by way of exoneration or recoupment out of the assets of the company: see the authorities referred to at [54] above. Here, however, the seriousness of the allegations pleaded against the applicants gave rise, and would have been appreciated by any competent insolvency practitioner, as giving rise, to the real possibility of a proposition being put by the creditor, that the applicants be denied the usual indemnity. The originating application, supported by the pleadings, was a claim for costs by way of compensation, and not merely some intimation as to the possible future request for the Court to exercise its discretion. 67 The 28 November 2018 letter was a clarification of the nature of the existing claim: that it was for indemnity costs, to be paid personally, impliedly, in the context of the serious allegations in the pleading, and the discussion in the earlier paragraphs of the letter to the applicants being denied access to the company's assets for their own costs, without entitlement to recourse to the indemnity. The futurity in the expression of the matter ("if…successful…we put you on notice that we will seek…") does not detract from the substance of the matter that this is the expression of an existing claim for the costs that have been incurred to rectify the creditor's position. 68 The 29 April 2019 letter made what was already impliedly clear, expressly clear. 69 ABCL's Costs Submissions sought costs against the applicants on two bases: see [24] above. These different bases were put forward in support of the original claim for costs against the applicants as clarified in the 28 November 2018 letter and 29 April 2019 letter. One basis of the reason for the denial of the indemnity was how the case had been run; the other was the unreasonable conduct of the applicants in and about the making of the DOCA. 70 Looking at the matter thus the answers to the question should be as follows:

Was the service by ABCL on or about 22 November 2019 of written submissions in SAD 12 of 2018, seeking an order that the Applicants in this action pay the costs of action in SAD 12 of 2018 without recourse to the assets of Concrete Supply Pty Limited ('Without Recourse Costs Application') a Claim for Civil Liability within the meaning of those expressions in the insuring clause in Professional Indemnity policy of insurance number 02MIS1696069 for the period 1 April 2019 to 1 May 2020 ('Policy 2')? Answer: Yes, the submissions were the then embodiment of the form of the claim for civil liability made earlier in the original application read with the underlying pleadings in the Points of Claim and Statement of Claim, as elaborated and clarified in the 28 November 2018 and the 29 April 2019 letters.
If yes to 1: 2.1 Was the Without Recourse Costs Application a 'Claim first made' during the Period of Insurance of Policy 2 within the meaning of clause 3.1 of Policy 2? Answer: No. 2.2 Was the Without Recourse Costs Application a 'Claim first made' on 28 November 2018, within the meaning of clause 3.1 of Policy 2, and if so, was it a Claim for Civil Liability within the meaning of those expressions in Professional Indemnity policy of insurance number C2MIS1537248 for the period 1 March 2018 to 1 April 2019 ('Policy 1A'). Answer: No. 2.3 Was the Without Recourse Costs Application a 'Claim first made' in the Originating Process dated 12 January 2018 in SAD 12 of 2018 ('Originating Process') within the meaning of clause 3.1 of Professional Indemnity policy of insurance number 02MIS1696069 C2MIS1408846 for the period 1 April 2017 to 1 May 2018 ('Policy 1')?? Answer: Yes, when understood by reference to the terms of the Points of Claim and Statement of Claim. 2.4 Did the Without Recourse Costs Application arise out of a 'Known Circumstance' as alleged in paragraph 25.4(b) and (c) of the Defence to Points of Claim, within the meaning of clause 4.3 of Policy 2? Answer: Yes and no: it arose out generally of the circumstances of the claim for costs made in 2018 and for costs to be paid without recourse to the indemnity made in 2018 and 2019. However, the precise basis on which the primary judge made the order (the way the case was run by the applicants) was not referable to any circumstance that could be known at least prior to the preparation and hearing of the substantive matter. 2.5 If yes to question 2.3, was it a 'Known Circumstance…previously…notified' to the Respondent within the meaning of clause 4.3(v) of Policy 2? Answer: Aspects of the known circumstances were notified, being the claim for costs based on the conduct of the applicants in connection with the making of the DOCA as set out in the originating application and Points of Claim.
Was the claim by ABCL in the Originating Process for an order for costs a Claim for Civil Liability within the meaning of those expressions in the insuring clause in Policy 1? Answer: Yes. 71 I will hear the parties on the form of orders, costs, and on the future conduct of the proceeding. I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop.

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