Casey v AIG Australia Limited

Federal Court of Australia|2021-05-24|Before: Mr P, Mr J, Allsop CJ

Until further order, the respondent advance to the applicants all defence costs in Supreme Court proceedings number 2019/00287075 brought by Community Work Pty Ltd (in liquidation) and its liquidators (within the meaning of the phrase Defence Costs in clause 8 of the definitions of the General Terms and Conditions of the PrivateEdge for Not-for-Profits Management Liability Insurance policy number 9609122PVE) of the applicants under clause 8 of the Claims Conditions of the General Terms and Conditions of the said Policy and in so doing reimburse them for the 30% of their defence costs hitherto withheld, together with interest under s 57 of the Insurance Contracts Act 1984 (Cth).
The balance of the proceedings be otherwise adjourned pending the resolution of the Supreme Court proceedings.
The respondent pay the applicants' costs of the proceedings to date.
The parties have seven days to put submissions on the form of any variation to these orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ALLSOP CJ: 1 The applicants, Mr Casey and Mr Clarke, are the sixth and seventh defendants in proceedings brought in the Commercial List of the Supreme Court of New South Wales by Community Work Pty Ltd (in liquidation) and its liquidators. 2 Mr Casey and Mr Clarke claim indemnity from the respondent (AIG Australia Limited) under a policy of insurance entitled "PrivateEdge for Not-for-Profit - Management Liability". Mr Casey and Mr Clarke were directors of Community Work, which traded as Guardian Youth Care, was a registered charity and not-for-profit organisation, and provided out-of-home care services to at risk Indigenous youths. 3 In the Supreme Court proceedings, it is alleged that Mr Casey and Mr Clarke breached their duty to act with relevant care and diligence and also the fiduciary duties referred to in the pleading as the "no conflict duty" and the "no profit duty". It is to be noted at the outset that there is no allegation of dishonesty or impropriety in the pleading, and no suggestion of such by AIG in the argument before me. 4 AIG has taken a position that the policy responds, but not to the whole of the claims made. It says that there are matters covered and uncovered by the policy. As a consequence, it invokes an allocation clause in the policy that provides for the division of responsibility between insurer and insured. The context at the present time is the responsibility for defence costs. AIG has proposed a 70 (AIG) : 30 (insureds) split of costs. Mr Casey and Mr Clarke say that all defence costs should be paid by AIG. 5 The resolution of the question rests on the proper construction of a policy in the context of the claims made in the Supreme Court proceedings by the liquidators. 6 The applicants sought declaratory relief on 31 March 2021 in this Court in the Insurance List. The declarations and orders sought were relevantly as follows: 1. A declaration that in the events that have occurred the Respondent is liable to fully indemnify the First Applicant and the Second Applicant under PrivateEdge for Not-for-Profits Management Liability Insurance policy number 9609122PVE (Policy) for all of their defence costs in defending claims by Community Work Pty Limited (in liquidation) CAN [sic] 098501752 and the liquidators of that company brought in the proceedings in the Supreme Court of NSW referred to in the concise statement. 2. A declaration that in the events that have occurred the Respondent is liable to fully indemnify the First Applicant and the Second Applicant under the Policy for any amounts they become legally liable to pay resulting from claims by Community Work Pty Limited (in liquidation) CAN [sic] 098501752 and the liquidators of that company brought in the proceedings in the Supreme Court of NSW referred to in the concise statement. 3. A declaration that the Respondent is not entitled to rely upon the Allocation Clause in the Policy on a proper construction and application of the Policy or on the basis that reliance on the provision is a breach of the Respondent's duty of utmost good faith pursuant to s 14 of the Insurance Contracts Act 1984 (Cth). 4. An order that the Respondent indemnify the First Applicant and the Second Applicant under PrivateEdge for Not-for-Profits Management Liability Insurance policy number 9609122PVE by reimbursing them for the 30% of their defence costs withheld by the Respondent and for any other unpaid defence costs. 5. Further, or in the alternative to the order in the preceding paragraph, an order for damages against the Respondent in favour of the First Applicant and the Second Applicant. 6. Interest on unpaid defence costs pursuant to s. 57 of the Insurance Contracts Act 1984 (Cth). 7 As can be seen from prayer 2 above, the declaration went beyond the present issue of defence costs. 8 The parties jointly requested an urgent hearing to resolve their differences to the extent possible in order to facilitate their participation in a mediation of the Supreme Court proceedings due to commence on 27 May 2021, that is, this Thursday. The parties cooperated to have the matter ready for hearing on Friday 21 May 2021. 9 Central, of course, is the policy. The claims in a long and detailed Further Amended Commercial List Statement (CLS) filed in the Supreme Court proceedings must be examined in a little detail. AIG summarised the claims against Mr Casey and Mr Clarke in [6] to [10] of its outline of submissions, as follows: 6. By way of summary, the Liquidators contend in the Supreme Court Proceedings that, in breach of duty: a. the first Applicant, Mr Casey, facilitated the entry by Community Work on 1 July 2008 into a sub-contracting agreement (the Alpha Agreement) with Alpha Support Services Pty Ltd atf the Alpha Trust (Alpha). The Alpha Agreement enabled the bulk of the supply of the Care Services to be provided by Alpha and are pleaded to be in breach of the FACS Agreement. Significantly, the Alpha Agreement required Community Work to transfer all of its funds to Alpha after it had met its obligations to pay the wages of direct care staff and other overheads. b. made substantial payments to Alpha in breach of the Applicants' fiduciary duties; c. breached their duty of care by not stopping the payments. 7. Specifically, it is pleaded in the Supreme Court Proceedings that Mr Casey: a. was a director of Community Work from 30 June 2008 to 16 April 2009 and from 13 October 2009; b. was a director of Alpha from 20 November 2003 to 15 December 2003 and from 1 July 2005 to 14 April 2009; c. was an "indirect beneficiary" of Alpha; d. co-signed on behalf of Community Work the Alpha Agreement. Relevantly, it is pleaded: i. the Alpha Agreement could not be terminated by Community Work without Alpha's consent or unless Community Work did not have any agreement with FACS (then known as the Department of Community Services); ii. that, under the Alpha Agreement, Alpha was to carry out on behalf of Community Work all of Community Work's functions except for employee remuneration; iii. that the Alpha Agreement was not considered or approved by the board of Community Work prior to it being entered into on 1 July 2008; e. was a beneficiary of the Casbul Unit Trust, an entity which held units in Alpha; f. was a beneficiary of the Casey Family Trust, an entity which held some of the units in both the Greenacre Trust and the Burwood Trust (the fourth and fifth defendants respectively in the Supreme Court Proceedings) along with the Bijkerk Family Trust and the Balmoral Corporate Investment Trust (the BCI Trust); g. breached his fiduciary duties (duty not to act in a position of conflict or potential conflict (No Conflict Duty), and a duty not to profit as a director) (No Profit Duty)) owed to Community Work by among other things: i. signing the Alpha Agreement; ii. receiving benefits and advantages as a beneficiary of the Casbul Unit Trust from Community Work's entry into the Alpha Agreement; iii. receiving benefits and advantages as a beneficiary of the Greenacre Trust and the Burwood Trust through the payments received from Alpha; iv. causing or approving each payment made by Community Work to Alpha between 1 March 2012 and 23 June 2017. This is allegedly to be inferred from, among other things, Mr Casey's directorship in Community Work, being a beneficiary of the Casey Family Trust, being chair of the Community Work Board, his signing of the Alpha Agreement, because of his understanding, discussions and involvement with Roy Bijkerk and distribution of money from Alpha; (the Casey Fiduciary Duty Allegations); and h. breached his duty of care to Community Work by failing to stop each payment made by Community Work to Alpha under the Alpha Agreement (the Casey Duty of Care Allegations). 8. In the Supreme Court Proceedings, it is alleged that the Second Applicant, Mr Clarke: a. was involved in the preparation of the annual financial reports for Alpha, the Bijerk Family Trust, Burwood Trust, Greenacre Trust and Cynergy Support Services Pty Ltd atf Cynergy Support Services Trust (another entity which received payments from Alpha) for at least the financial years ending 30 June 2014 to FY 30 June 2016. It is also alleged that he was the tax agent involved in the preparation of the tax returns for Alpha, the Bijkerk Family Trust and Cynergy. b. was a director of Alpha from 26 January 2011 to 27 February 2015. Mr Clarke was a beneficiary of the BCI Trust, an entity (along with the Casey Family Trust and the Bijkerk Family Trust) which held units in both the Greenacre Trust and the Burwood Trust; c. breached his fiduciary duties (No Conflict Duty and No Profit Duty) owed to Community Work by among other things: i. receiving benefits and advantages as a beneficiary of the Greenacre Trust and the Burwood Trust through the payments received from Alpha; ii. causing or approving each payment made by Community Work to Alpha between 1 March 2012 and 23 June 2017. This is allegedly to be inferred from, among other things, Mr Clarke's directorships in both Alpha and Community Work, being a beneficiary of the BCI Trust, because he was aware of the various trust structures in place for Alpha, Cynergy, the Burwood Trust, Greenwood Trust and the Bijkerk Trust, his preparation of the trust deed for Cynergy, because he was the accountant who prepared the financial statements for the relevant entities and was also their tax agent; (the Clarke Fiduciary Duty Allegations); and 9. [sic] breached his duty of care to Community Work by failing to stop each payment made by Community Work to Alpha under the Alpha Agreement (the Clarke Duty of Care Allegations). 10. It is also pleaded that during the relevant period, Alpha allegedly paid significant sums to both the Greenacre Trust and the Burwood Trust. (Footnotes omitted.) 10 AIG says that the policy does not cover the claims based on breach of fiduciary obligation (in both their manifestations - the no conflict duty and the no profit duty) but accepts that there is cover for the breach of the duty of care.

The policy 11 The policy has a number of sections: Section 1: Management Liability; Section 2: Corporate Liability; Section 3: Employment Practices Liability; Section 4: Crime Protection; and Section 6: Statutory Liability (Section 5: Superannuation Trustees Liability was not taken out in cover). The dispute concerns Section 1. 12 Section 1 is constructed as follows: Cover (cll 1-4); various Extensions (cll 1-9); Exclusions (cll 1-3); and Definitions (cll 1-6). After Section 6 there appear General Terms and Conditions which apply to all sections and such are divided into: Extensions (cll 1-6); Exclusions (cl 1); Definitions (cll 1-44); Claims (cll 1-10); Limit and Retention (cll 1-2); and General Provisions (cll 1-12). 13 The aggregate limit of liability is $10 million with a small retention in Section 1 of $5,000. 14 There was no debate about the proper approach to the interpretation and construction of the policy. I repeat, in that regard, what I said in MOS Beverages Pty Ltd v Insurance Australia Ltd trading 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 Limited v Wright Prospecting Pty Limited [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 Limited [2000] HCA 65; 203 CLR 579 at 589 [22], 600-603 [73]-[74]; Wilkie v Gordian Runoff Limited [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]. 15 The cover for individuals is set out in cl 1 of the Coverage section as follows: 1. Individuals The Insurer shall pay the Loss of each Manager arising from Management Liability, except to the extent that the Manager has been indemnified by the Company for such Loss. 16 The emboldened terms are defined and so the Coverage clause must be built up or reconstructed using the relevant definitions. 17 "Loss" is defined in the General Terms and Conditions Definitions at cl 21 as: 21. Loss any amount which the Insured is legally liable to pay resulting from a Claim made against an Insured, including Defence Costs, Investigation Costs and all other costs and expenses payable under this policy, awards of damages (including punitive and exemplary damages), awards of costs or settlements (including claimant's legal costs and expenses), pre- and post- judgment interest on a covered judgment or award, and the multiplied portion of multiple damages. Loss includes any amount covered under any Extension applicable to the Insurance Cover purchased. Loss shall not include: (i) any fines and penalties except to the extent covered under Policy Section 1 Extension 2 'Insured Person Statutory Liability' or Policy Section 6 - Statutory Liability; (ii) taxes; (iii) remuneration, cost of the time of any Insured Person, or costs or overheads of any Insured Entity, except with respect to General Terms & Conditions Extension 1 'Court Attendance'; or (iv) amounts which are uninsurable under the applicable law of the Claim. 18 Once again, definitions need to be inserted into the meaning of the word "Loss" to understand the cover for individuals. 19 "Claim" is defined in the General Terms and Conditions Definitions at cl 3 as relevantly: (i) (a) a written demand; (b) a civil … proceeding … seeking compensation or other legal remedy; … for a specified act, error or omission; … 20 "Insured" is defined in the General Terms and Conditions Definitions at cl 13 and cl 15 as a "Manager". 21 "Manager" is defined in the General Terms and Conditions Definitions at cl 22 as: 22. Manager any natural person who was, is or during the Policy Period becomes: (i) a director, officer or committee member of any Company, but not an external auditor or insolvency office-holder of any Company; (ii) an Employee of any Company; (iii) a shadow director or de facto director; or (iv) an Outside Entity Director; but only when and to the extent that such Manager is acting for and on behalf of the Company in any of the capacities referred to in (i) to (iv) above. Manager is extended to include: (a) the spouse or domestic partner (including same sex relationship civil partnerships, if applicable); and (b) the administrator, heirs, legal representatives, or executor of a deceased, incompetent insolvent or bankrupt estate; of the Manager referred to in (i) to (v) above with respect to the acts, errors or omissions of such Manager. 22 Crucial to the resolution of the controversy between the parties is the concluding clause to the first part of the definition of Manager: "but only when … (i) to (iv) above". 23 "Defence Costs" are defined in the General Terms and Conditions Definitions (cl 8) as: 8. Defence Costs (i) reasonable fees, costs and expenses incurred by or on behalf of an Insured either as emergency costs under General Terms & Conditions Extension 4 'Emergency Costs', or with the Insurer's prior written consent, after a Claim is made in the investigation, defence, settlement or appeal of such Claim; or (ii) reasonable fees, costs and expenses of accredited experts retained through defence counsel to prepare an evaluation, report, assessment, diagnosis or rebuttal of evidence in respect of a Claim specified in (i) above. 24 Returning to the coverage clause for individuals, "Management Liability" is defined in the Section 1 Definitions at cl 4 as: 4. Management Liability (i) any liability arising from any actual or alleged act, error or omission of any Manager or arising solely because of any person's status as a Manager; (ii) Employment Practices Liability or Third Party Liability of any Manager; or (iii) with respect to Policy Section 1 - Management Liability Cover 3 'Company Reimbursement' any liability arising from any Investigation, Occupational Health and Safety Incident or extradition proceedings. Management Liability also means with respect to shareholder derivative actions only, any liability arising from any proposed act, error or omission. 25 Using the above interlocking definitions and removing any unnecessary repetition, the coverage clause for Mr Casey and Mr Clarke can be teased out by reconstruction. 26 There is a degree of ungainliness, however, arising from the inclusion in the definition of "Manager" of aspects of identity or capacity: "director, officer, or committee member", for instance, together with a notion of performance or activity: "but only when and to the extent". In order to make the coverage clause, as reconstructed, read coherently, some textual rephrasing is necessary. This is how an ordinary businessperson would read the policy: AIG shall pay any amount a director is legally liable to pay resulting from civil proceedings seeking compensation or other legal remedy for a specified act, error, or omission, including defence costs, damages, awards of costs or settlements, pre- and post-judgment interest on a covered judgment or award (but not the matters in (i) - (iv) of the definition of Loss: that is, fines and penalties, taxes, remuneration etc and uninsurable amounts) but only when and to the extent that the director was acting for and on behalf of Community Work in the capacity of director, except to the extent that the director has been indemnified by Community Work. 27 A number of other provisions of the policy need to be noted. First, in Section 1, the exclusions extend (in cl 2) to certain types of conduct: 2. Conduct arising out of, based upon or attributable to: (i) any conduct or contravention in respect of which a liability is the subject of a prohibition in section 199B(1) of the Corporations Act 2001 (Commonwealth); or (ii) the committing of any deliberately dishonest or deliberately fraudulent act, in the event that any of the above is established by final adjudication by a judicial or arbitral tribunal or any formal written admission by the Insured Person. For the purposes of determining the applicability of this Exclusion, the conduct of any Insured shall not be imputed to any other Insured Person. With respect to Policy Section 1 - Management Liability Extension 2 'Insured Person Statutory Liability' only, the Insurer shall not be liable for any Statutory Liability: 28 Importantly, no dishonest conduct is asserted against either Mr Casey or Mr Clarke by the liquidators and thus para (ii) of the conduct exclusion is not applicable. 29 Section 199B(1) of the Corporations Act 2001 (Cth) is in the following terms: 199B Insurance premiums for certain liabilities of director, secretary, other officer or auditor (1) A company or a related body corporate must not pay, or agree to pay, a premium for a contract insuring a person who is or has been an officer or auditor of the company against a liability (other than one for legal costs) arising out of: (a) conduct involving a wilful breach of duty in relation to the company; or (b) a contravention of section 182 or 183. This section applies to a premium whether it is paid directly or through an interposed entity. 30 Sections 180-185 of the Corporations Act are in the following terms: 180 Care and diligence - civil obligation only Care and diligence - directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. Note: This subsection is a civil penalty provision (see section 1317E). Business judgment rule (2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they: (a) make the judgment in good faith for a proper purpose; and (b) do not have a material personal interest in the subject matter of the judgment; and (c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and (d) rationally believe that the judgment is in the best interests of the corporation. The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold. Note: This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence) - it does not operate in relation to duties under any other provision of this Act or under any other laws. (3) In this section: business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation. 181 Good faith - civil obligations Good faith - directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. Note 1: This subsection is a civil penalty provision (see section 1317E). Note 2: Section 187 deals with the situation of directors of wholly-owned subsidiaries. (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. Note 1: Section 79 defines involved. Note 2: This subsection is a civil penalty provision (see section 1317E). 182 Use of position - civil obligations Use of position - directors, other officers and employees (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. Note: This subsection is a civil penalty provision (see section 1317E). (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. Note 1: Section 79 defines involved. Note 2: This subsection is a civil penalty provision (see section 1317E). 183 Use of information - civil obligations Use of information - directors, other officers and employees (1) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. Note 1: This duty continues after the person stops being an officer or employee of the corporation. Note 2: This subsection is a civil penalty provision (see section 1317E). (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. Note 1: Section 79 defines involved. Note 2: This subsection is a civil penalty provision (see section 1317E). 184 Good faith, use of position and use of information - criminal offences Good faith - directors and other officers (1) A director or other officer of a corporation commits an offence if they: (a) are reckless; or (b) are dishonest; and fail to exercise their powers and discharge their duties: (c) in good faith in the best interests of the corporation; or (d) for a proper purpose. Note: Section 187 deals with the situation of directors of wholly-owned subsidiaries. Use of position - directors, other officers and employees (2) A director, other officer or employee of a corporation commits an offence if they use their position dishonestly: (a) with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or (b) recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation. (2A) To avoid doubt, it is not a defence in a proceeding for an offence against subsection (2) that the director, other officer or employee of the corporation uses their position dishonestly: (a) with the intention of directly or indirectly gaining an advantage for the corporation; or (b) with the result that the corporation directly or indirectly gained an advantage. Use of information - directors, other officers and employees (3) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation commits an offence if they use the information dishonestly: (a) with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or (b) recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation. (4) To avoid doubt, it is not a defence in a proceeding for an offence against subsection (3) that the person uses the information dishonestly: (a) with the intention of directly or indirectly gaining an advantage for the corporation; or (b) with the result that the corporation directly or indirectly gained an advantage. 185 Interaction of sections 180 to 184 with other laws etc. Sections 180 to 184: (a) have effect in addition to, and not in derogation of, any rule of law relating to the duty or liability of a person because of their office or employment in relation to a corporation; and (b) do not prevent the commencement of civil proceedings for a breach of a duty or in respect of a liability referred to in paragraph (a). This section does not apply to subsections 180(2) and (3) to the extent to which they operate on the duties at common law and in equity that are equivalent to the requirements of subsection 180(1). 31 As can be seen when examination of the CLS is undertaken, the duties breached are said to be fiduciary - in equity, from which there is no derogation by ss 180-184. Relevantly, here, there is no allegation in the CLS that either Mr Casey or Mr Clarke improperly used their position or improperly used information to gain an advantage for themselves or cause detriment to Community Work and so contravened s 182 or s 183. Thus para (i) of the Conduct Exclusion (cl 2) is not engaged. No submission was put by AIG that the substance of the pleading in fact engaged s 182 or s 183 of the Corporations Act, and thereby raised the Conduct Exclusion (cl 2) in Section 1. 32 In Section 2: Corporate Liability, the analogous exclusion (cl 4) to the Conduct Exclusion in Section 1 (cl 2) is also entitled "Conduct" and is as follows: 4. Conduct arising out of, based upon or attributable to: (i) the gaining of profit or advantage to which the Company was not legally entitled; or (ii) the committing of any deliberately dishonest or deliberately fraudulent act, in the event that any of the above is established by final adjudication by a judicial or arbitral tribunal or any formal written admission by the Company. 33 It is to be noted that the conduct excluded is referable to the gaining of profit or advantage to which the company was not legally entitled, whereas the individual conduct within s 182 and s 183 of the Corporations Act, through s 199B(1) in para (i) of the Conduct Exclusion in Section 1, is "improperly using" position or information to gain a personal advantage. As I have said, AIG does not put the submission that Mr Casey or Mr Clarke contravened s 182 or s 183. It will, however, be necessary to turn to these provisions in discussing the question of relief. 34 In the Claims section of the General Terms and Conditions, there are a number of relevant provisions: cl 5 Defence and Settlement; cl 7 Allocation; and cl 8 Advance Payment of Costs. Those clauses are as follows: 5. Defence and Settlement The Insured shall have the obligation to defend and contest any Claim made against them. The Insurer shall be entitled to participate fully in the defence and in the negotiation of any settlement that involves or appears reasonably likely to involve the Insurer. In the event of any Claim, each Insured shall take reasonable steps to reduce or diminish any Loss. Notwithstanding the foregoing, the Insured shall have the right to tender the defence of the Claim to the Insurer, which right shall be exercised in writing solely by the Policyholder on behalf of all Insureds. This right shall terminate if not exercised within 30 days of the date the Claim is first made against an Insured. The Insurer shall confirm the assumption of the defence of such Claim to the Policyholder in writing. Pending such acceptance by the Insurer, the Insureds shall take no action, or fail to take any required action, that prejudices the rights of any Insured or Insurer with respect to such Claim. The Insurer shall be obligated to assume the defence of such Claim provided the Insureds have complied with the foregoing. The Insurer shall have no obligation to continue to defend such Claim once the Limit of Liability has been exhausted. The Insurer consents to the appointment of any BusinessGuard Advisory Panel member firm to act on behalf of the Insured in respect of any Claim defended in accordance with this policy. All Insureds shall at their own cost, render all reasonable assistance to and cooperate with the Insurer in the investigation, defence, settlement or appeal of a Claim or circumstance, and provide the Insurer with all relevant information pertaining to any Claim or circumstance, as the Insurer may reasonably require. The Insurer will accept as necessary the retention of separate legal representation to the extent required by a material conflict of interest between any Insureds. If a Claim is made against an Insured Person by the Company or Outside Entity, the Insurer shall have no duty or obligation to communicate with any other Insured Person or the Company in relation to that Claim. The applicable Insured or Policyholder shall reimburse the Insurer for any payments which are ultimately determined not to be covered by this policy. … 7. Allocation The Insurer will be liable only for Loss to the extent it arises from a covered Claim. If a Claim involves both covered and uncovered matters or persons under this policy, then the Insured Entity or Insured Person, and the Insurer shall use commercially reasonable efforts to determine a fair and equitable allocation of Loss covered under this policy, on the basis of established judicial allocation principles which take into account the legal and financial exposures, and the relative benefits obtained by the relevant parties. If the Insurer and the Insured Entity or Insured Person cannot agree on allocation in accordance with this clause within 14 days of any allocation issue first notified in writing to the Insured by the Insurer, then they agree to refer the determination to a Senior Counsel, whose decision shall be final and binding on all parties. The Senior Counsel is to determine the fair and equitable allocation as an expert, not as an arbitrator. The relevant Insured and the Insurer shall be entitled to make written submissions to Senior Counsel. The Senior Counsel is to take account of the parties' submissions, but the Senior Counsel is not to be fettered by such submissions and is to determine the fair and equitable allocation in accordance with his or her own judgment and opinion. The Senior Counsel's expenses in providing such determination will be paid by the Insurer and any such payments will not erode the Limit of Liability. 8. Advance Payment of Costs Where the Insurer has not assumed the defence of a Claim in accordance with General Terms & Conditions Claims Condition 5 'Defence and Settlement', the Insurer shall advance all Defence Costs and all other costs and expenses payable under this policy, within 21 days after sufficiently detailed invoices for those costs are received and accepted for payment by the Insurer. The Insurer may not refuse to advance Defence Costs or other costs and expenses payable under this policy by reason only that the Insurer considers that conduct specified in the 'Conduct' Exclusion in Policy Sections 1, 2, 3, 5 or 6 has occurred, until such time as the condition to that Exclusion is satisfied. 35 It is necessary to say something at this stage about each. First, the last paragraph of cl 5 contains a freestanding right of reimbursement of payments that are ultimately determined not to have been covered by the policy. This may, at least in present circumstances, be particularly relevant to defence costs. As litigation progresses, it can change and mutate. Here, for instance, as the matter is developed through pleading, preparation and hearing, the focus or emphasis of the liquidators and their case may change requiring a re-evaluation of the insureds' entitlement to coverage in full, including as to defence costs. The last paragraph of cl 5 reinforces that. 36 Secondly, allocation under cl 8 only becomes relevant if there are "both covered and uncovered matters or persons". Those phrases are not defined. Relevantly for present purposes, the phrases can be taken to mean claims against insureds to which the policy responds and claims against insureds to which the policy does not respond. AIG says that there are both types of claims against the insureds here; Mr Casey and Mr Clarke say that all claims made against them are covered by the policy. This is the dispute that the parties seek to be resolved by this Court. There is no usurpation of the dispute resolution mechanism for resolving allocation issues set out in cl 7 in this regard. 37 Clause 8 (Advance Payment of Costs) is said to require AIG to advance all defence costs even if there are uncovered matters. I indicated at the hearing that I would reject that argument. "Loss" includes "Defence Costs". On the way the matter was argued, I maintain that view. If the Defence Costs are for uncovered matters in the way it was argued by AIG - that there was no cover under the coverage clause for the breach of fiduciary duty claims (as opposed to falling within the Conduct Exclusion in Section 1 - as to which the last sentence of cl 8 applies to disentitle the defence costs being withheld until its application is established or admitted) defence costs would not be payable. 38 On the view I take of the construction of the policy, the form of the claims made and the approach of AIG not to rely on the conduct exclusion, the point does not arise.

The claims made by the plaintiffs in the CLS 39 It is necessary to examine the claims against Mr Casey and Mr Clarke in a little more detail.

Mr Casey 40 Mr Casey was a director of Community Work from June 2008 until April 2009 and from October 2009 onwards. Briefly in 2003 and then again in July 2005 until April 2009, he was a director of Alpha Support Services Pty Ltd. Alpha became the trustee of the Alpha Support Unit Trust (Alpha Trust) in May 2007. At [40] of the CLS it is stated that on or about 1 July 2008 Mr Casey on behalf of Community Work signed an agreement between Community Work and Alpha as trustee of the Alpha Trust (the Alpha Agreement). By this Agreement, Community Work subcontracted its work to Alpha and in so doing made payments to Alpha. It is alleged that Mr Casey was an indirect beneficiary of the Alpha Trust at the time he signed the Alpha Agreement. From 2012 onwards during what is described as the "Alpha Payments Period", it is alleged that Alpha made payments to other trusts in which Mr Casey was a beneficiary. 41 The CLS pleads that Mr Casey breached his fiduciary duty in entering the Alpha Agreement on behalf of Community Work. It is alleged that he obtained a benefit from it and breached the "no profit rule" and the "no conflict rule". It is further alleged that while a director of Community Work, he received (indirectly) payments from Alpha. The CLS pleads that the breach of fiduciary duty caused Community Work loss. Breach of duty of care is then pleaded, curiously, in the alternative. 42 The relief sought is a claim for over $22 million for loss and damage as a result of the breach of fiduciary duties and of the duty of care.

Mr Clarke 43 Mr Clarke was an accountant and was a director of Community Work from January 2011 to September 2013 and from September 2015 onwards. He was a director of Alpha from January 2011 to February 2015. It is alleged that he was an indirect beneficiary of payments made by Alpha, which payments he caused. 44 It is alleged that through the breaches of the same fiduciary duties and duty of care he caused loss to Community Work. The relief sought against him for such breaches is over $15 million.

The submissions and consideration 45 AIG accepted, at least in oral address, that the Allocation Clause is not engaged until there are both uncovered and covered matters. That was plainly correct. Clause 7 (the Allocation Clause) in terms is directed to the evaluative questions of a fair percentage of costs for covered and uncovered claims. It is not concerned with the legal question of construction of a policy as to whether any part of the claim is or is not covered by the policy terms. One can see this from the terms of the remit of the senior counsel. AIG does not assert that the Conduct Exclusion in Section 1 applies. Of course, if it did so assert, it would be obliged to make advance payment of all defence costs "until such time as the condition to [the] Exclusion is satisfied" (cl 8), that condition being "in the event that ... [such] is established by final adjudication by a judicial or arbitral tribunal or any formal written admission" (Conduct Exclusion in Section 1). 46 AIG emphasises the words "but only when and to the extent that" in the definition of Manager. It submits that in the position of conflict in which Mr Casey and Mr Clarke found themselves, they were not only acting for and on behalf of Community Work but also for or on behalf of themselves or Alpha or the Alpha Trust. Thus, they were not, it was submitted, only acting for Community Work but also for another or for others. 47 I would reject this submission at a number of levels. First, it gives an overly refined interpretation of the definition of Manager. The words of the provision and the insuring clause, as I have stated them earlier, require one to ask whether the director was acting for and on behalf of the company as a director in the acts he or she was doing. The CLS states they were; the liability of Mr Casey and Mr Clarke for breach of fiduciary duty depends upon their acting in their capacity as directors of Community Work. To the extent that they may have caused loss to the company by so acting in the circumstances in which they acted, the policy prima facie responds. 48 The nature of the allegations of lack of care broadly conform with the common law duty and the duty in s 180. The allegations of breach of fiduciary duty in equity can be seen to be encompassed in s 181. The statute does not derogate from either a common law duty or an equitable duty: s 185. Though the allegation is not made by the pleader in the CLS, nor by AIG in these proceedings, the underlying facts asserted in the CLS concerning breach of fiduciary duty might conceivably, depending on their factual content and context as developed in the litigation, amount to a contravention of s 182 or s 183 of the Corporations Act. No dishonesty is pleaded and AIG do not assert that, but actual dishonesty is not a required element of impropriety or "improperly" for the purposes of those sections: R v Byrnes [1995] HCA 1; 183 CLR 501 at 513-515 and 521-522; Chew v The Queen [1992] HCA 18; 173 CLR 626 at 640 and 647; Grove v Flavel (1986) 43 SASR 410 at 420; Angas Law Services Pty Ltd (in liquidation) v Carabelas [2005] HCA 23; 226 CLR 507 at 531-532. 49 Nevertheless, the conduct in s 182 and s 183 can be seen to be serious: the breach of "standards of conduct that would be expected of a person in the position of the [director] by reasonable persons with the knowledge of the duties, powers and authority of the position and the circumstances of the case": Byrnes 183 CLR at 515. That is why a company is required not to pay for insurance for such contraventions: s 199B(1) of the Corporations Act, and why such conduct is carved out of the policy as an exclusion through the reference to s 199B(1). 50 A breach of fiduciary duty in equity may not be accompanied by an overlay of inhering impropriety. Cases such as Boardman v Phipps [1967] 2 AC 46, Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378; [1967] 2 AC 134 and the expression of the duty by Cardozo CJ in Meinhard v Salmon 249 NY 458; 164 NE 545 (1928) at 546 [2]: "Not honesty alone, but the punctilio of an honour the most sensitive, is then the standard of behaviour" make it clear that fiduciary duties can be breached in circumstances of no particular personal criticism. 51 Further, para (i) of the Conduct Exclusion in Section 1 does not focus, as para (i) of the Conduct Exclusion to Section 2 does, on "the gaining of profit or advantage to which [the company] was not legally entitled". Rather, it focuses on s 182 and s 183 (through s 199B(1)) thereby leaving conduct that might be a breach of s 180 and s 181 (and equivalent legal and equitable duties) that is not done "improperly" (para (i) of the Conduct Exclusion) or dishonestly or fraudulently (para (ii) of the Conduct Exclusion) within cover as long as the director was acting for or on behalf of the company. 52 This gives an harmonious construction to the whole of the policy: impropriety, dishonesty and fraud are excluded, but must be proved before defence costs can be withheld. If proved, defence costs may be clawed back. If there is no basis to assert impropriety or dishonesty or fraud and the director was acting for or on behalf of the company, cover attaches. 53 It would make no sense to construe an asserted innocent breach of fiduciary duty as an uncovered matter to deny legal costs and any cover, in circumstances where an asserted improper, dishonest or fraudulent breach is construed as being potentially outside the cover (by the Conduct Exclusion) but is the subject of an obligation to advance legal costs until such serious allegations were found or admitted. 54 The applicants asserted a breach of s 14 of the Insurance Contracts Act 1984 (Cth) in relying on the Allocation Clause. Whilst not colourable, the allegation is without foundation.

Relief 55 The above are reasons why there should be an order requiring AIG to pay the reasonable defence costs of the applicants. There is no basis to consider that the Allocation Clause was engaged in the present circumstances. But it is not appropriate and it is premature to make any declaration about coverage for substantive liability. Without expressing any view on it, and without in any way impugning the integrity of Mr Casey or Mr Clarke, it is at least legally possible for s 182 or s 183 to be engaged without there being any conscious dishonesty of either applicant. The case will or may take its course. But there is no basis, presently, for AIG to invoke the allocation clause or to withhold any of the reasonable defence costs of the applicants. Nor is there any basis to make a declaration of right as to the substantive cover of the policy in a case that has only reached the stage it has. 56 In those circumstances, subject to giving the parties an opportunity to make submissions to vary the order, I would make the following orders: (1) Until further order, the respondent advance to the applicants all defence costs in Supreme Court proceedings number 2019/00287075 brought by Community Work Pty Ltd (in liquidation) and its liquidators (within the meaning of the phrase Defence Costs in clause 8 of the definitions of the General Terms and Conditions of the PrivateEdge for Not-for-Profits Management Liability Insurance policy number 9609122PVE) of the applicants under cl 8 of the Claims Conditions of the General Terms and Conditions of the said Policy and in so doing reimburse them for the 30% of their defence costs hitherto withheld, together with interest under s 57 of the Insurance Contracts Act 1984 (Cth). (2) The balance of the proceedings be otherwise adjourned pending the resolution of the Supreme Court proceedings. (3) The respondent pay the applicants' costs of the proceedings to date. (4) The parties have seven days to put submissions on the form of any variation to these orders. I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop.

Corporations Act 2001(Cth)ss 180-185, 199B

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