CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd

Federal Court of Australia (Full Court)|2008-07-01|Before: Jessup JJ

FEDERAL COURT OF AUSTRALIA CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 INSURANCE - Professional risks policy - Claims made policy - Policy covered claims notified to insurer within month subsequent to policy period if insureds, during policy period, aware of any fact, situation or circumstance that might give rise to claim - Whether required insureds to be aware of fact etc and aware that it might give rise to claim - Whether insureds were aware that fact etc might give rise to claim - Quality of awareness required - Whether insurer notified within month subsequent to policy period - Whether insurer could rely on absence of notification - Whether insurer refused to pay under policy "by reason only" of absence of notification - Insurance Contracts Act 1984 (Cth), s 54(1). INSURANCE - Professional risks policy - Insureds and a non-insured sued for damages - Proceeding settled on basis that insureds pay applicants' costs, including costs attributable to claims against non-insured - Insureds sought indemnity under policy - Whether settlement reasonable to the extent that it involved the insureds paying so much of the applicants' costs as related to claims against non-insured. INSURANCE - Professional risks policy - Insureds and a non-insured sued for damages - Indemnity for defence costs sought under policy of insurer and under policy of another insurer - Other insurer paid out under its policy - Whether non-insured was covered under other policy - Whether permissible for insureds and non-insured to agree between themselves for payout received from other insured to be allocated first to defence costs of non-insured - Effect on size of defence costs claims by insureds under policy. COSTS - Claim for indemnity costs - Calderbank letter sent by cross-claimants who ultimately succeeded - Criterion for award of indemnity costs in such circumstances - Whether rejection of offer unreasonable.

Corporations Law, ss 79, 180, 181, 182 Insurance Contracts Act 1984 (Cth), ss 54(1), 57(1) Superannuation Industry (Supervision) Act 1993 (Cth), ss 17, 34(1), 52(1), (2) & (8), 194

Black v Lipovac (1998) 217 ALR 386 Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42 Dearman v Dearman (1908) 7 CLR 549 Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 Ho v Akai Pty Limited (in liq) [2006] FCAFC 159 Maniotis v JH Lever & Co Pty Ltd (No 2) [2006] FCAFC 28 Minister for Immigration & Multicultural Affairs v Jia Legeng (2001) 205 CLR 507 Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 WSA Online Ltd v Arms (No 2) [2006] FCAFC 108

CGU INSURANCE LIMITED ACN 004 478 371 v CORRECTIONS CORPORATION OF AUSTRALIA STAFF SUPERANNUATION PTY LTD ACN 065 347 186, TERENCE ARTHUR LAWSON, JOHN KENNETH TWOMEY and AUSTRALIAN INTEGRATION MANAGEMENT SERVICES PTY LTD (FORMERLY CORRECTIONS CORPORATION OF AUSTRALIA PTY LTD) ACN 010 921 641

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: CGU INSURANCE LIMITED ACN 004 478 371

AND: CORRECTIONS CORPORATION OF AUSTRALIA STAFF SUPERANNUATION PTY LTD ACN 065 347 186

First Respondent AND BETWEEN: TERENCE ARTHUR LAWSON

JOHN KENNETH TWOMEY and: Third Respondent

AUSTRALIAN INTEGRATION MANAGEMENT SERVICES PTY LTD (FORMERLY CORRECTIONS CORPORATION OF AUSTRALIA PTY LTD) ACN 010 921 641

CORRECTIONS CORPORATION OF AUSTRALIA STAFF SUPERANNUATION PTY LTD ACN 065 347 186

AUSTRALIAN INTEGRATION MANAGEMENT SERVICES PTY LTD (FORMERLY CORRECTIONS CORPORATION OF AUSTRALIA PTY LTD) ACN 010 921 641

JUDGES: MOORE, FINN & JESSUP JJ DATE OF ORDER: 21 OCTOBER 2008

The appeal be dismissed with costs.
The cross-respondent indemnify the first, second and third cross-appellants for their defence costs of the proceeding at first instance after bringing into account any balance of the moneys paid by Chubb Insurance Company of Australia Pty Ltd after the application of such moneys first in satisfaction of the fourth cross-appellant's defence costs of the proceeding, secondly in satisfaction of the second and third cross-appellants' defence costs of the proceeding and thirdly in satisfaction of the first cross-appellant's defence costs of the proceeding.
The cross-appeal otherwise be dismissed.
The cross-appellants pay the cross-respondent's costs of the cross-appellants' application to have the costs of the trial ordered in their favour by the primary Judge taxed on an indemnity basis.
Save as aforesaid, there be no order as to the costs of the cross-appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: CGU INSURANCE LIMITED ACN 004 478 371

AND: CORRECTIONS CORPORATION OF AUSTRALIA STAFF SUPERANNUATION PTY LTD ACN 065 347 186

First Respondent AND BETWEEN: TERENCE ARTHUR LAWSON

AUSTRALIAN INTEGRATION MANAGEMENT SERVICES PTY LTD (FORMERLY CORRECTIONS CORPORATION OF AUSTRALIA PTY LTD) ACN 010 921 641

CORRECTIONS CORPORATION OF AUSTRALIA STAFF SUPERANNUATION PTY LTD ACN 065 347 186

AUSTRALIAN INTEGRATION MANAGEMENT SERVICES PTY LTD (FORMERLY CORRECTIONS CORPORATION OF AUSTRALIA PTY LTD) ACN 010 921 641

THE COURT 1 This matter involves an appeal and a cross-appeal from orders made on 16 October 2007 in a proceeding that concerned the obligations of an insurer under a professional risks insurance policy. The appeal is brought by the insurer, CGU Insurance Ltd. The cross-appeal is brought by the insured and another who are all respondents to the appeal. The insured are Corrections Corporation of Australia Staff Superannuation Pty Ltd (CCAS) and its directors, Mr Lawson and Mr Twomey. The other cross-appellant is Australian Integration Management Services Pty Ltd (AIMS). The respondents in the appeal also rely on a notice of contention to uphold certain aspects of the judgment on grounds other than those given by the primary Judge.

THE FACTS IN OUTLINE 2 AIMS operated a number of prisons under contracts with State governments. A superannuation fund, the Corrections Corporation of Australia Pty Ltd Staff Superannuation Fund ("the fund") was maintained for employees of AIMS. It was an accumulation fund. The trustee of the fund was CCAS. 3 In 2000, the assets of the fund were held in a way that, according to professional advice CCAS received in that year, involved insufficient diversification. As at the end of the previous year, some 82% of those assets were held in real estate related investments. In July 2000, AIMS was informed that its contract for the operation of the Borallon Correction Centre in Queensland, which was due to expire on 31 December that year, would not be renewed. This presented the prospect of a large number of employees of AIMS being made redundant who would, on termination of their employment, be entitled to payments from the fund. A concern arose as to whether sufficient assets of the fund could be appropriately liquidated to enable such payments to be made. Valuations obtained by CCAS indicated that none of the three properties in which, or in relation to which, the assets were held could, in all likelihood, be sold for the value at which it stood in the books of the fund. 4 Another facility that was, at the time, under the control of AIMS was the Melbourne Women's Correctional Centre ("MWCC"). In October 2000, the Department of Justice in Victoria assumed control of the MWCC, notwithstanding that the AIMS contract (to operate the MWCC) was not due to end until 2001. As a result of a settlement negotiated with the Department, the AIMS contract was terminated on 7 November 2000. This made it probable that further employees would be made redundant by AIMS, likely resulting in consequential demands upon the fund for superannuation payments. It exacerbated what the primary Judge described as "the liquidity crisis of the fund". 5 Although no findings were made on the subject by the primary Judge (and nothing turns on it for present purposes), it seems that many of those who lost their jobs with AIMS did not receive the superannuation benefits they regarded as their due given that, on 29 April 2002, 63 applicants of the fund commenced a proceeding against CCAS, Lawson and Twomey claiming damages for alleged breaches of duty. Claims for damages were also made against AIMS. On 6 June 2003, additional applicants were joined, bringing the number of applicants in the proceeding to 73. We shall refer to them as "the applicants". This was the proceeding from which the present appeal arises. We shall refer later in greater detail to these claims, and to the events that gave rise to them. 6 There were three policies of insurance covering (at least) CCAS and its directors in relation to liabilities which they may have incurred in respect of third persons. One policy was issued by CGU, and covered the period from 12 November 1999 to 12 November 2000. The other two policies were issued by Chubb Insurance Company of Australia Pty Ltd ("Chubb"), and covered the periods, respectively, from 12 January 2001 to 12 January 2002 and from 12 January 2002 to, it appears, 12 January 2005. It would seem that CCAS, Lawson, Twomey and AIMS made claims for indemnity under their polices with CGU and Chubb, and it appears that such claims for indemnity were rejected, given that, on 11 July 2003, CCAS, Lawson, Twomey and AIMS brought cross-claims against CGU and Chubb by which they sought to establish their rights to indemnity under the relevant policies. 7 The applicants' claims in the proceeding, and the cross-claims against Chubb, were settled in November 2003. CCAS, Lawson, Twomey and AIMS (to whom we will refer collectively as "the respondents") agreed to pay the applicants $275,000 plus their taxed costs. The applicants' claim for costs went to taxation, and the respondents filed a notice of objection to the Registrar's estimate. Further proceedings under that notice were settled by an agreement that the respondents pay $450,000 in costs. The applicants then claimed their costs of contesting the notice of objection, and a further agreement was reached with the respondents that the latter would pay $89,009 in that regard. As between the respondents and Chubb, the proceeding was settled on the basis that Chubb would agree to pay the respondents $500,000, with the cross-claim against it being dismissed with no order as to costs. 8 The respondents entered into an agreement as between themselves (which the primary Judge described as "the apportionment agreement") concerning the application of the money paid by Chubb. It was agreed that it would be applied to the respondents' costs of defending the proceeding brought by the applicants in the following way: first in payment of 100% of AIMS' costs, then in payment of 100% of Lawson's and Twomey's costs, and finally in payment of CCAS's costs. It was implicit that the sum paid by Chubb would not be sufficient to meet the whole of the costs of CCAS in the proceeding brought by the applicants. 9 The respondents then sought to recover the following amounts pursuant to the policy issued by CGU: (a) $275,000 paid, as agreed, to the applicants; (b) $539,009 (ie $450,000 plus $89,009) paid to the applicants by way of costs; and (c) the balance of CCAS's costs of defending the applicants' proceeding, after making allowance for the $500,000 paid by Chubb and the operation of the apportionment agreement.

THE JUDGMENT AT FIRST INSTANCE 10 The CGU policy was a claims made policy. Under its terms, CGU agreed to provide indemnity to "the trustees" (defined to include both CCAS and its directors, officers, secretary and employees) for any "loss payment" they were obliged to pay "arising out of any claim … first made against the trustees during the period of insurance and notified to the insurer during the indemnity period …". The "indemnity period" was the period of insurance plus 30 days thereafter (in the present case, from 12 November 1999 to 12 December 2000). In the circumstances of the case, the respondents made no claim upon CCAS during the period of insurance (12 November 1999 to 12 November 2000). However, the respondents relied upon Clause 4.9 of the policy, which provided as follows: Notification of Claims Circumstances If during the Period of Insurance, the Trustees become aware of any fact, situation or circumstance that might give rise to a Claim under this Policy and elect during the Indemnity Period to give notice in writing to the Insurer of such fact, situation or circumstance then any Claim which may subsequently arise out of such fact, situation or circumstance shall be deemed for the purpose of this Policy to be a Claim made during the Indemnity Period. "Trustee/Trustees" was defined in Clause 5.10 as "[a]ny person who was or now is or may hereafter become a Trustee or Trustees of the Trust and includes the director, officer, secretary, and employees of the Trustees …" As the primary Judge correctly concluded (at [42]), the definition of trustee/trustees in Clause 5.10 has the effect that the awareness of one director will satisfy Clause 4.9, notwithstanding that other directors do not have the same awareness, and the clause did not require the board of directors as a body to have a corporate awareness. 11 Three aspects of the operation of Clause 4.9 of the CGU policy were controversial in the proceeding before the primary Judge. The first was whether the trustees (effectively CCAS or its directors) were, during the period of insurance, aware of any fact, situation or circumstance that might give rise to a claim. The second was whether the claims ultimately made by the applicants arose out of the fact, situation or circumstance of which the trustees were aware. The third was whether the trustees had given notice to CGU of that fact, situation or circumstance during the indemnity period and, if they had not, whether they should be excused that omission by the operation of s 54(1) of the Insurance Contracts Act 1984 (Cth) ("Insurance Contracts Act"). 12 As to the first aspect, the question arose as to whether the requirement of awareness under Clause 4.9 was what the primary Judge described as "objective awareness" on the one hand, or "subjective awareness" on the other. If it were the former, the trustees would be held to be relevantly aware if they were in fact aware of the fact, situation or circumstance and if, objectively, that fact situation or circumstance had the capacity to give rise to a claim under the policy. If it were the latter, it was necessary both for the trustees to be actually aware of the fact situation or circumstances and to be subjectively conscious of the capacity of the fact situation or circumstance to give rise to such a claim. His Honour did not decide this point of construction, given that he held that, under either the objective or the subjective approach, the trustees, or at least one of them, had the awareness required by Clause 4.9 during the period of the insurance. 13 As to the second aspect, his Honour examined the applicants' claims and allegations in the proceeding, and held that the claims were of the type that a reasonable person, knowing all the relevant facts, would conclude might be brought against CCAS, Lawson and Twomey; and further, that those claims were the same as those that one director of CCAS, during the period of insurance, thought might be so brought. 14 As to the third aspect, his Honour said that, should it be necessary to do so, he would hold that the terms of a letter attached to a proposal for a new policy completed by CCAS, and forwarded to CGU, within the indemnity period constituted a notification sufficient for the purposes of Clause 4.9. However, the actual basis of his Honour's decision on the point was that s 54 of the Insurance Contracts Act operated in the circumstances, with the result that a claim otherwise available to CCAS under the policy could not be defeated by CCAS's failure to provide notification as required by Clause 4.9. 15 In all the circumstances, the primary Judge held that CCAS, Lawson and Twomey were entitled to the benefit of Clause 4.9 of the CGU policy. 16 The primary Judge then turned to the question whether the respondents had established their loss for the purposes of making a claim under the CGU policy. His Honour held, uncontroversially, that they should be regarded as having done so if they proved that the settlement which they reached with the applicants was reasonable. That question had two elements. The first was whether the settlement was reasonable at a general level; and his Honour held that it was. No issue here arises on appeal. The second element concerned the inclusion in the settlement sum of a component that compensated the applicants for their costs of suing AIMS. Here it was relevant that AIMS was not an insured under the policy. His Honour accepted the proposition, put on behalf of CGU, that it should not be required to pay for this (notional) portion of the settlement sum. Initially, the respondents led no evidence to establish what that portion was, but at a subsequent hearing, his Honour permitted them to re-open their evidentiary case. In the result, his Honour held that the sum that CCAS, Lawson and Twomey should recover under the policy as representing so much of the settlement sum as related to the applicants' costs of suing them (but not AIMS) was $300,000. It seems that no similar controversy arose with respect to the respondents' obligation to pay the applicants the sum of $89,009 by way of costs in relation to the notice of objection to the Registrar's estimate. 17 Finally, there was an issue as to the proper calculation of the balance of the costs incurred by CCAS, Lawson and Twomey in defending the applicants' proceeding, after making allowance for the $500,000 paid by Chubb and the operation of the apportionment agreement. CGU contended, and his Honour accepted, that AIMS was not covered by the Chubb policy, and that the allocation of a share of the $500,000 paid by Chubb to the costs of AIMS could not operate to require CGU to make payments under its own policy greater than those which would have been otherwise payable. Accordingly, his Honour held that the agreement to pay AIMS' costs could not operate to reduce the amount of the Chubb monies to be brought into account against the amount of the indemnity to be paid by CGU.

THE APPEAL 18 Although CGU advanced a number of grounds in its notice of appeal, the submissions made on its behalf substantially concentrated upon the proposition that the primary Judge had been in error in holding that the claim ultimately made by the applicants against CCAS, Lawson and Twomey arose out of a fact, situation or occurrence of which they were, or one of them was, aware during the period of insurance. It was submitted that, although those parties may have been aware of a fact, situation or circumstance that might have given rise to a claim, they were not aware of the fact, situation or circumstance that gave rise to the claim that was eventually made. As developed, the submission was, effectively, that CCAS was not conscious of the potential for the facts, situations and circumstances which existed during the period of insurance to give rise to the claims which the applicants in fact made, or to claims of that kind. To approach the matter in this way, however, presupposes an answer favourable to CGU on the question of whether Clause 4.9 required not only that the trustees be aware of the fact, situation or circumstance, but also that they be aware that it might give rise to a claim of the kind ultimately made. The first question, therefore, is whether Clause 4.9 should be so construed. 19 In our view it should not. The natural language of Clause 4.9 provides no support for the position advanced by CGU. What is deemed to be a claim during the indemnity period is "any claim which may subsequently arise out of such fact, situation or circumstance". That is to say, the claim that is in fact made does not have to correspond with a claim which, in the view of the trustees during the period of insurance, might possibly have been made; and if there is no need for such correspondence, there is no reason why the trustees need have had any particular claim in mind when they were aware, during the period of insurance, of the fact, situation or circumstance in question. 20 The apparent purpose of Clause 4.9 also speaks against the construction for which CGU contends. The sources of the law under which trustees of the kind contemplated by Clause 4.9 might from time to time be held to account for what some third party asserts is a "wrongful act" within the broad definition in the policy are wide and varied. The substance of that law has the potential, to say the least, to be complex. It is well within the bounds of everyday commercial experience (as revealed in litigation which regularly comes before the courts) that facts and circumstances may not, at the time that they occur, appear to carry the potential to give rise to claims of particular kinds, at least in the eyes of those who later find themselves being held to account in various ways. It would defeat the apparent purpose of Clause 4.9 if it were necessary not only for the trustees to be aware of the relevant fact, situation or circumstance, but also to be conscious of the legal basis upon which they might be held to account which is later found to correspond with a claim actually made. 21 Additionally, the bifurcation of the two periods that is implicit in Clause 4.9 is significant in the construction of the provision. The trustees must be aware of the fact, claim or circumstance within the period of insurance, but are required to notify CGU of it only within a period which runs 30 days beyond the period of insurance. This clearly contemplates a situation, for example, in which, after the end of the period of insurance but within the 30 days, the trustees take stock of the facts, situations and circumstances of which they had been aware during the period of insurance, and decide which of them is or are worthy of notification. A construction which would permit CGU to decline cover upon the basis that the trustees had not, during the period of insurance, been aware of the potential for the fact, situation or circumstance in question to give rise to a claim under the policy would seem to be manifestly at odds with that aspect of the purpose of the provision referred to in this paragraph. 22 However, notwithstanding our conclusion as to the proper construction of Clause 4.9, we proceed to consider CGU's challenge to the findings of the primary Judge about the subjective awareness of the trustee. We do so for two reasons: first, as an alternative to our conclusion on the matter of construction (and in deference to the detailed submissions which we received on the subject), and secondly because a finding about the subjective awareness of the trustee has consequences for our disposition of so much of CGU's appeal as concerns s 54 of the Insurance Contracts Act. Central to the challenge was a letter of 17 November 2000. This letter was the focal point of the oral submissions made by CGU during the hearing of the appeal. However, it is necessary to emphasise at the outset that this letter is but one part of the entire factual matrix considered by the primary Judge which led to the conclusion (at [62]): [I am] satisfied that Mr Conde was aware of the circumstances of the fund set out in the previous section of these reasons, and, by 12 November 2000, believed that they might have given rise to a claim against CCAS and its directors by members for the losses caused to them as a result of the inadequate investment strategy of the fund, and the failure to make proper provision for the chance of payouts to the members employed at Borallon and the MWCC. 23 Before considering the letter of 17 November 2000, it is convenient to review the primary Judge's findings which sustained this conclusion. Of central importance was the evidence given my Mr Conde, who was, as noted earlier, a "trustee" by virtue of the definition set out in Clause 5.10 of the policy of insurance. Mr Conde filed a witness statement in the proceedings. 24 The primary Judge found that Mr Conde's concern that CCAS or its directors might be sued first surfaced in August 2000 when he learned that AIMS had lost the contract to operate the Borallon Corrections Centre facility in Queensland, which meant that the fund would require liquid funds to pay out those Borallon members who would leave the fund when their employment terminated. It was necessary for the fund to investigate the possibility of selling Gardner Close (a property owned by the fund) to address the liquidity crisis. In early August 2008, Mr Conde and Mr Lawson met with Pat Jennings of Ray White Real Estate to discuss the possible sale of Gardner Close. According to the primary Judge, at this meeting: Pat Jennings estimated that Gardner Close would sell in the range of $5,200,000 to $5,400,000 if the leases could be extended. These prices would mean that the fund would have a significant loss for the year against the carrying value of Gardner Close. Mr Conde thought that even these prices may not be achieved and the loss would not be offset by any increases in the value of Fleet Street and Tottenham Parade given their relative size in the portfolio. According to Mr Conde: In light of these matters I became concerned at that time that if the CCA Fund were to suffer a loss, as I expected, a legal case could be brought by members against CCAS and its directors in respect of the manner in which the CCA Fund's property investments were sold. While that was my primary concern I did have some concern that a legal case could be brought by members against CCAS and its directors regarding the structure of the CCA Fund, by which I mean the lack of diversification and liquidity of fund investments. 25 The primary Judge gave the following further examples of evidence that, in his Honour's view, demonstrated Mr Conde's awareness, during the period of insurance, that CCAS or its officers might be exposed to litigation: · In September 2000, Mr Conde received marketing submissions from Chesterton International showing a sharp drop in the value of Tottenham Parade and Fleet Street properties. Based on the Chesterton International material, Mr Conde calculated that the fund faced a potential loss of 10% for the year. In relation to this issue, Mr Conde stated he was "mindful that if the members lost money, particularly if the losses were in excess of 10%, they may seek to recover any loss they incurred from CCAS and its directors". · In October 2000, Mr Conde received news that the Victorian government was intending to assume control of the MWCC, notwithstanding that AIM's contract to operate the MWCC was not due to expire until late 2001. A directors' meeting was held on 12 October 2000, at which a decision was made to revalue the assets of the fund. Of the directors' meeting, Mr Conde said the following: In light of the matters discussed at that meeting on 12 October 2000, my earlier concerns with lack of diversification and liquidity of the CCA Fund investments, and the issue regarding the Gardiner Place property being poorly structured to enable its book value to be realised … were magnified. Following the directors' meeting, Mr Conde asked Mr Kidd from Aon (Aon being the manager of the fund) to arrange a meeting with APRA. He explained his reasons for wanting a meeting with APRA thus: I suggested that APRA be informed as I viewed the situation being faced by the CCA Fund as having the potential to have a "significant adverse effect" on the financial position of the CCA Fund and may therefore be required to be notified to APRA under the Superannuation Industry (Supervision) Act 1993 (Cth). · On 18 October 2000, Mr Conde met Mr Lawson for lunch in Brisbane. At the conclusion of the lunch, Mr Conde indicated that CCAS intended to "freeze" the fund and withhold member payments until there was a realisation of the fund's assets. In relation to the "freezing" of the fund, Mr Conde also said the following: I cannot remember precisely who first suggested the "freezing" of the CCA Fund. I did, however, consider that it was necessary for damage control and was the only way to treat all fund members equitably given there was likelihood the fund would suffer a substantial loss after realisation of its assets. If the fund was not "frozen", members who left the fund before the end of the year would have been paid out at a preferential rate, even with an interim crediting rate of 0%, compared with the remaining members who would bear the full extent of the loss when quantified, and incoming members and further member contributions would have faced an immediate loss. 26 Also relevant to the conclusion of the primary Judge was the evidence of Ms Hodges. On 16 November 2000, Mr Conde and another CCAS director, Mr Green, attended a meeting with Ms Glenys Hodges and other representatives of the law firm Allens Arthur Robinson ("Allens"). Ms Hodges gave evidence that there was a discussion at this meeting that the expected large negative returns of the fund made it highly likely that there would be complaints from unhappy members and that the matter could end up in court. On 23 November 2000, in what the primary Judge described as "strong confirmatory evidence", Allens provided a follow-up letter of advice to CCAS "about the various issues the trustee ha[d] raised". In its letter of advice, Allens advised that: The trustee is potentially liable to members and the directors are potentially liable to the trustee and/or to members for losses they may respectively suffer as a result of the investment strategy and decisions of the trustee. This is a complex issue about which we cannot give further advice at this stage. (and later) We have not considered whether there have been any past breaches of duty by the trustee or directors and we do not have sufficient information about the background and circumstances to advise what those breaches and the potential liability of the trustee and directors might be. This would involve examining in depth the complete history of the fund and the trustee's decisions. The primary Judge ultimately concluded that Ms Hodges' evidence strongly supported Mr Conde's evidence that he was aware that CCAS or its officers might be exposed to litigation as a result of losses incurred by the fund. As his Honour said: Ms Hodge's [sic] evidence is significant. She is independent of the parties. She had no personal interest in giving her evidence. Her recollection was clear, firm and consistent. It was supported by contemporaneous written material. I found her an impressive and convincing witness. I am satisfied from her evidence that the issue of liability of CCAS and the directors for losses resulting from past investment decisions concerning the diversity of the assets of the fund were raised as matters of concern by Mr Conde in mid November 2000. Ms Hodge's evidence supports Mr Conde's evidence that he was aware before the end of the period of insurance that CCAS and the directors might be sued by members who felt that CCAS and the directors were responsible for the losses incurred by the fund. 27 One of CGU's grounds of appeal is that the primary Judge erred in finding that Mr Conde believed, by 12 November 2000, that the circumstances of the fund were such that they might give rise to a claim against CCAS and its directors by members for losses caused to them as a result of an inadequate investment strategy of the fund. His Honour's finding, according to CGU, was inconsistent with facts incontrovertibly established by the evidence. 28 It is apparent that, by framing its notice of appeal in this way, CGU has raised the issue of the proper approach of an appellate court to challenges to factual findings made by the primary Judge. An appeal (such as this) under s 24 of the Federal Court of Australia Act 1976 (Cth) is a rehearing of fact and law: Minister for Immigration & Multicultural Affairs v Jia Legeng (2001) 205 CLR 507, and this Full Court is not excused from the task of "weighing conflicting evidence and drawing [our] own inferences and conclusions, though [we] should always bear in mind that [we have] neither seen nor heard the witnesses, and should make due allowance in this respect": Dearman v Dearman (1908) 7 CLR 549 at 564. 29 In its submissions, CGU contends that the best guide to the Mr Conde's state of awareness regarding the existence of a fact, situation or circumstance that might give rise to a claim against it is the response on 17 November to question 7(c) in a proposal for insurance for the forthcoming year. The proposal posed the following question: "Have there been any claims made or claims circumstances that have not been reported to CGU professional risks insurance?"

The evidence before the primary Judge was that Mr Conde indicated an affirmative answer to question 7(c), and wrote "refer attached" next to the question. Attached was a letter signed by Mr Conde which included the following answer: Item 7(c) Whilst the fund is in a position to meet current claims from current liquid funds available it is aware that there will be additional large amounts of member withdrawals from the fund within a short time period. These have occurred as a result of the loss of the employer company's operating contracts and the resignation of a number of employees. The fund has taken the following action: 1. It entered into a program of realisation of its property investments. (i) Two properties in Victoria are now under contract, and (ii) A commercial property held by the fund in Queensland is currently being marketed to go to auction on 14 December. It is expected to be sold on a 30 day contract. 2. Fund payments are currently being held pending realisation of the above property to ensure that the fund is able to meet all member obligations. 3. APRA have been advised of the current situation being faced by the fund and are being kept informed on developments. Attached is a cash flow schedule covering the period to March 2001 showing how the fund is expecting to meet the member obligations. The fund has received one demand letter from a former employee's solicitor that has been referred to the fund's solicitor. Given that Mr Conde's answercontained no reference to potential claims against CCAS or the directors arising out of the losses caused by investment decisions made in breach of duty, CGU contends the inference should be drawn that Mr Conde had no awareness of such potential claims at this time. Mr Conde explained that the answer contained no reference to the potential claims made against CCAS or the directors, that he did not have a complete understanding on the meaning of "claims circumstances", and that his answer to question 7(c) was made in a hurried fashion. 30 It is important to note that Mr Conde was subjected to cross-examination on the issue of his answer to question 7(c) of the insurance policy proposal. The primary Judge's conclusion on the cross-examination of Mr Conde was cast in the following terms: [Mr Conde's] response was frank and compelling. He said that in retrospect he would have added more details, and if he had had a fuller appreciation of the meaning of claims circumstances he may have been more expansive. He said that the answer was 'done under the pressure of the work at the time … there was a lot of things on at the time'. Mr Conde is no longer employed by AIMS and does not hold any position in CCAS. He had no reason to give false evidence. He was strongly pressed in cross examination. His evidence was careful and considered. He impressed me as a conscientious and professional person. I regard his evidence as honestly given and I accept his explanations as to why there was no reference in the answer to question 7(c) on the proposal to the possibility that CCAS or the directors might be sued for breach of duty. In part, the absence of such reference was a result of Mr Conde's lack of familiarity with the requirements of such policies, but, primarily, it was the result of the pressure of the circumstances existing at the time and the need to address immediately pressing issues including selling the real estate assets of the fund and implementing a freeze on the entitlements of members. The fact that these were the overriding concerns explains why they figure in the answer to the question. The potential liability of CCAS and its directors for past conduct was a matter of concern, but did not call for any immediate action. 31 The primary Judge had the advantage of witnessing Mr Conde in court, and in particular, hearing his responses to questions in cross-examination. In our view, it was entirely open to his Honour to accept Mr Conde's explanation regarding his written response to question 7(c) of the insurance proposal form. Moreover, in our opinion, Mr Conde's response accords with the considerable body of other evidence (and in particular the evidence of Ms Hodges, who was described by the primary Judge as an "impressive and convincing witness") that suggests that Mr Conde was well aware, as at 12 November 2000, of the risk of claims being made against the CCAS or its directors as a result of losses incurred by the fund. 32 In our view, the primary Judge did not err in finding that Mr Conde believed, by 12 November 2000, that the circumstances of the fund were such that they might give rise to a claim against CCAS and its directors by members for losses caused by an inadequate investment strategy. This ground of appeal therefore fails. 33 In its appeal, CGU also challenged his Honour's reliance upon s 54 of the Insurance Contracts Act, subs (1) of which provided as follows: Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act. 34 Under subs (6), the reference to an "act" includes a reference to an omission. As noted earlier in these reasons, his Honour held that, if CCAS had not duly notified CGU under Clause 4.9 of the policy, s 54(1) of the Insurance Contracts Act prevented CGU from relying upon that omission as a basis for refusing to pay the claim. 35 On appeal, it was submitted on behalf of CGU that s 54(1) went no further than to prevent it from refusing to pay CCAS's claim "by reason only" of the latter's omission to notify. It was submitted that, in the present case, CGU had refused to pay the claim substantially because it had not been established that CCAS (the trustee) had become aware of a fact, situation or circumstance that might give rise to a claim under the policy, within the meaning of Clause 4.9. In respects relevant to the point arising under s 54(1), CGU's submission was linked to its earlier one that Clause 4.9 required the trustee not only to be aware of the facts, situations or circumstances out of which a claim later arises, but also to be (subjectively) aware of the potential for those facts, situations or circumstances to give rise to the claim that was ultimately made. The problem facing CCAS, in the submission of CGU, was thus more fundamental than merely an omission to give notice. 36 Since we have dismissed so much of CGU's appeal as consists of a challenge to the primary Judge's finding that Mr Conde was aware of the potential for the facts which arose during the period of insurance to give rise to claims broadly of the kind that were ultimately made, it follows that we should also reject CGU's challenge to his Honour's reliance upon s 54(1). In doing so, we say nothing about the operation of s 54(1) in a situation in which, under a policy in terms similar to Clause 4.9, the insured simply has no notion of the potential for facts which have arisen to give rise to claims under the policy, and for that reason does not give the notification which such a clause requires. We reject CGU's point in this respect because the factual basis for it is contradicted by the findings of the primary Judge, and we see no reason to disturb those findings. 37 For the above reasons, we propose to dismiss the appeal.

THE CROSS-APPEAL 38 The respondents' cross-appeal has two elements. First, the respondents contend that the primary Judge was in error in not finding that it was reasonable for CCAS to settle the applicants' proceeding in a way which involved it paying them a sum which represented the whole of their costs, including so much as were attributable to their action against AIMS. Secondly, the respondents contend that the primary Judge was in error in not giving effect to the apportionment agreement, that is, in not declaring that the extent of CGU's obligation to indemnify CCAS should take account of the operation of that agreement, including the participation of AIMS in the distribution of the proceeds of the Chubb policies. 39 As to the first element, it was submitted on behalf of the respondents that their settlement with the applicants was a single undifferentiated deal, as it were, and that it was not appropriate to seek to discern within it elements which might, if taken in isolation, have been unreasonable. Further, it was submitted that, if the applicants' proceeding had gone to judgment, the prospect that CCAS might have ended up paying the whole of their costs was conceivable and, therefore, that a settlement which was structured in accordance with that prospect should be regarded as reasonable. 40 It is convenient to commence our consideration of this element of the cross-appeal by returning to the Further Amended Statement of Claim upon which the applicants relied in their proceeding against the respondents. The applicants sued CCAS as trustee of the fund, and Lawson and Twomey as, and in relation to their duties as, directors of CCAS. They referred to four categories of duty which were said to lie upon CCAS, namely, the general fiduciary duties arising by reason of the circumstance that CCAS was a trustee; secondly, duties as trustee of the fund said to arise under the Superannuation Industry (Supervision) Act 1993 (Cth) ("the SIS Act"); thirdly, duties as trustee said to arise under covenants taken to have been set out in the trust deed by reason of s 52 of the SIS Act; and fourthly, duties as trustee said to arise under state legislation, namely, the Trustee Act 1958 (Vic), alternatively the Trusts Act 1973 (Qld). The pleading then referred to the investments, specifically the real property investments, made by CCAS, and to the sums for which those investments had been realised subsequent to about October 2000. The pleading then alleged that the acts and, perhaps more pointedly, the omissions of CCAS in relation to its management and investment of the assets of the fund involved breaches of the duties referred to. The range of breaches alleged was wide, and included allegations of lack of good faith, of ulterior purpose, of conflict of interest, of negligence, and the like. 41 As to the position of AIMS, the applicants alleged that AIMS was "involved in" the contraventions of the SIS Act alleged against CCAS (within the meaning of s 17 of that Act), and thus liable under s 194 of that Act. They alleged that AIMS was vicariously liable (as employer) for the breaches by Lawson and Twomey of various provisions of the SIS Act. They alleged that AIMS was "involved in" breaches of ss 180, 181 and 182 of the Corporations Law on the part of Lawson and Twomey. They alleged that AIMS was in breach of a duty of care, and of a fiduciary duty, which it owed to them as their employer. They alleged that AIMS had breached their contracts of employment in a number of respects. And finally, they alleged that false, misleading and deceptive representations had been made by or with the authority of AIMS, in trade or commerce, contrary to ss 52 and 53 (and, in some formulations, relying also upon s 51A) of the Trade Practices Act 1974 (Cth). We shall have to return to the applicant's allegations against AIMS in more detail later, but the above summary will suffice for the purposes of our consideration of the first element of the cross-appeal. 42 The applicants' allegations of wrongdoing by each of CCAS and AIMS were denied by the respondent concerned, and were in issue until settled by an agreement between the parties made on or about 17 November 2003. However, the only pleading which CCAS made in relation to all of the paragraphs of the Statement of Claim which made allegations against AIMS was not to admit those allegations "because no allegations are made against it in those paragraphs". That pleading in CCAS's Defence seems to reflect the reality that there were many allegations made by the applicants against AIMS which did not concern CCAS. 43 Turning next to the Third Further Amended Cross-claim of CCAS against CGU, CCAS alleged that there were terms of the settlement agreement of November 2003 that - (a) CCAS would pay to the applicants the sum of $275,000 in respect of claims made by them; (b) upon payment of the settlement sum, the applicants' claim would be dismissed; and (c) CCAS was to pay the applicants' costs. That allegation was admitted by CGU. CCAS then alleged that the settlement contemplated by the settlement agreement was reasonable, an allegation which was not admitted by CGU. CCAS then recited the course of steps taken by the applicants to have their costs taxed. It referred to a settlement of the applicants' claims for costs made in or about July 2004, under which CCAS was to pay the sum of $450,000 for those costs. CCAS further alleged that that settlement was reasonable, an allegation which CGU did not admit. 44 The terms of settlement of November 2003 were in evidence before the primary Judge. They contained the following provisions: 1. Upon the signing of these terms of settlement [CCAS] shall pay to the Applicants the sum of $275,000 (the Settlement Sum) in respect of claims made in the Proceeding by way of bank cheque payable to Brand Partners, solicitors for the Applicants. 2. Upon payment in accordance with clause 1 the parties shall sign and file with the Court minutes of proposed consent orders (pursuant to order 35 rule 10 of the Federal Court Rules) seeking orders as follows: (a) the Proceeding between the Applicants and the Respondents be dismissed with a right of reinstatement pursuant to clause 6(a); and (b) [CCAS] pay the Applicants' costs of the Proceeding including reserved costs and costs of the amendments to the statement of claim, to be taxed on a party/party basis in default of agreement such costs to be paid forthwith. 3. Upon payment in accordance with clause 1 the Applicants each release and forever discharge the Respondents and each of them from all claims (of whatever nature, whether or not involving legal proceedings and whether or not currently contemplated): (a) made in the Proceeding; (b) arising out of or in any way connected with their membership of the CCA Fund; (c) relating to the claims made in the Proceeding; (d) relating to wages; (e) arising out of or in any way connected with the termination of their employment with [AIMS]. It should be noted that these terms provided for CCAS to pay the sum of $275,000 to settle the applicants' claims, and also to pay their costs of the proceeding. The terms provided for the proceeding as between the applicants and all of the respondents to be dismissed, and for a discharge of all of the respondents from further claims by the applicants. 45 As we have pointed out, the primary Judge held that, apart from the matters now raised by CCAS on its cross-appeal, the settlement of November 2003 was reasonable. CGU does not appeal against that holding. It must be accepted, therefore, that it was reasonable for CCAS to have agreed to pay the sum of $275,000 in consideration of the proceedings against all respondents, including AIMS, being dismissed. At least on appeal, and, so far as appears from the reasons of the primary Judge and the submissions made on appeal, also at first instance, CGU raises, and then raised, no issue as to the reasonableness of CCAS settling the applicants' claims on this basis. 46 We turn next to the way in which counsel for CCAS opened the relevant part of his outline of submissions with respect to the present question. He said: The trial judge found that "CCAS should not have agreed to pay the Applicants their separate costs of suing AIMS because the policy did not cover AIMS for its own wrongdoing, but only for the wrongdoing of the trustee as defined". It is submitted it is not clear why the mere fact that the policy did not cover AIMS for its own wrongdoing provides a proper foundation for His Honour's conclusion. It may be that the inarticulate premise underlying the finding is that there were no circumstances in which CCAS could be properly ordered to pay "the Applicants' costs of the proceeding, including reserved costs and costs of the amendments to the statement of claim", so that it could be said that by the settlement agreement, CCAS assumed an obligation that was inevitably not its own, but that of another, AIMS. Counsel proceeded to point out that the primary Judge had made no finding that there were no circumstances in which CCAS might be ordered to pay the whole of the applicants' costs, including those referable to the action against AIMS. It was submitted that no such finding would have been open to his Honour. It was further submitted that such a finding would have required his Honour "to come to a conclusion as to the manner in which the general discretion as to costs would be likely to be exercised by the court, in circumstances which were not and could not be known at the trial of this action." Having thus dealt with a premise which was said to be "inarticulate", counsel submitted that it was "quite conceivable" that CCAS could have been required to pay the whole of the applicants' costs. 47 In dealing with the matter this way, counsel was, in our view, proceeding on the assumption that it did not lie upon CCAS to establish the facts, including the probabilities as to future events which never occurred, with respect to the reasonableness of its agreement to pay the whole of the applicants' costs. This assumption was, in our view, unwarranted. In his reasons published on 11 July 2007, the primary Judge held that the onus of proof with respect to the matter of reasonableness lay upon CCAS, the insured. There has been no appeal against that holding. Indeed, an allegation that the settlement was reasonable in relevant respects was part of CCAS's pleading on the Cross-claim. That pleading was not admitted and, in the relevant part of CCAS's case below, it was attempting to make good the allegation. It did not do so, and it should not be held to have done so on appeal merely by having pointed out that his Honour's reasons involved an inarticulate premise that CCAS would never have been ordered to pay the whole of the costs of the applicants, or that it was "quite conceivable" that such an order might have been made. 48 For our own part, we can read no inarticulate premise between the lines of his Honour's reasons. The two propositions upon which his Honour decided this part of the case appear clearly from those reasons. The first is that the settlement agreement involved CCAS, as an insured, paying so much of the costs of the applicants as were attributable to their action against AIMS. The second is that it had not been shown that it was reasonable for CCAS so to proceed. That brings us to the other aspect of CCAS's submissions on this point, namely, that the settlement should, in relevant respects, be viewed as reasonable because, absent CCAS's agreement to pay the whole of the applicants' costs, there might well have been no settlement at all. 49 The difficulty with this submission is that it is made on behalf of a party which was in a position to lead, but which did not lead, any evidence which would have raised the matter beyond the realm of conjecture. Had there been evidence before the primary Judge that CCAS had attempted to prevail upon the applicants to accept a settlement in which it did not pay that part of their costs which represented their action against AIMS, or evidence that CCAS had attempted unsuccessfully to prevail upon AIMS to contribute to the costs settlement proportionately to its involvement in the proceeding brought by the applicants, the question might well have presented very differently. However, his Honour was being asked to accept, without an evidentiary basis, that there was no reasonable alternative to CCAS paying the whole of the costs of the applicants, if the loss of the settlement as a whole was to be avoided. In our view, it is as clear as may be that his Honour was under no obligation to accept such a proposition, and was not in error for having refused to do so. 50 It is, in our view, significant that CCAS and AIMS were not at arm's-length. There was no evidence before the primary Judge, and no submission on appeal, which explained why, as between CCAS and AIMS, the whole of the applicants' costs were to be paid by the former. In this state of things, we are not prepared to accept, as though it were self-evident, the proposition which silently lies beneath CCAS's submission that, if it had not agreed to pay the whole of those costs, the settlement would have been lost. That proposition, of course, is that there was no reasonable prospect that CCAS might have prevailed upon AIMS to make an appropriate contribution to those costs. 51 For the reasons set out above, we take the view that the primary Judge was not in error not to have held that the settlement, in so far as it related to the payment by CCAS of the whole of the applicants' costs, including those referable to their action against AIMS, was reasonable. 52 As to the second element in the respondents' cross-appeal, it is convenient to commence by setting out paragraphs B, C, D and E of the prayer for relief in their Cross-claim against CGU: A declaration that CGU is obliged to pay CCAS its legal costs and expenses incurred in the investigation, defence and settlement of the Applicants' Claim and/or the Initial Claim alternatively to pay such costs and expenses to the extent that they are reasonable. An order that CGU pay CCAS its legal costs and expenses alternatively its reasonable legal costs and expenses incurred in the investigation, defence and settlement of the Applicants' Claim and/or the Initial Claim. A declaration that CGU is obliged to pay to CCAS, all reasonable costs, charges and expenses that it has incurred in defending, investigating, attending to or monitoring this proceeding and the claims that are the subject matter of this proceeding. An order that CGU pay to CCAS all reasonable costs, charges and expenses that it has incurred in defending, investigating, attending to or monitoring this proceeding and the claims that are the subject matter of this proceeding. In the orders made by the primary Judge on 16 October 2007, his Honour granted no part of this relief. Relevantly to the present question, his Honour dismissed the cross-claim. 53 In their Notice of Cross-appeal, the respondents have, relevantly to the present question, sought the following orders: The first cross-respondent indemnify the cross-claimants for their defence costs of the Proceeding after bringing to account any balance of the Chubb monies after the application of such monies first in satisfaction of the fourth cross-claimant's defence costs of the Proceeding, secondly in satisfaction of the second and third cross-claimants' defence costs of the Proceeding and thirdly in satisfaction of the first cross-claimant's defence costs of the Proceeding. The proposition which would sustain the making of orders along these lines is that the amount of CCAS's own defence costs incurred in the proceeding brought by the applicants should be that which remains outstanding after the allocation of the monies received from Chubb in accordance with the apportionment agreement. CGU contends that, as between itself and CCAS, no part of the Chubb monies may be allocated to the costs of AIMS. 54 The basis of the contention by CGU is that AIMS was not covered by the Chubb policy. That proposition was accepted by the primary Judge, and is in issue again on appeal. It is the only proposition which arises under this second element of the cross-appeal. A consideration of the proposition requires reference to the insuring clauses of the Chubb policy, and to the definitions contained therein. 55 The following provisions of the Chubb policy appear to be relevant: 2.1 The Company shall pay on behalf of the Insureds all Loss for which the Insured is not indemnified by the Participating Employer or the Trustees of the Superannuation Fund and which the Insured becomes legally obligated to pay on account of any Claim first made against the Insured during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act committed, attempted, or allegedly committed or attempted, by such Insured before or during the Policy Period. 2.2 The Company shall pay: (a) on behalf of any Participating Employer, all Loss for which an Insured is indemnified by the Participating Employer, as permitted or required by law; (b) on behalf of the Superannuation Fund, all Loss for which an Insured (other than the Superannuation Fund) is indemnified by or out of the assets of the Superannuation Fund, as permitted or required by law; (c) on behalf of the Trustee which is a body corporate, all Loss for which an Insured is indemnified by such Trustee, as permitted or required by law; and for which the Insured becomes legally obligated to pay on account of any Claim first made against the Insured during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act committed, attempted, or allegedly committed or attempted, by such Insured before or during the Policy Period. … Claim means: (a) a written demand for monetary damages, (b) a civil proceeding commenced by the service of a complaint, summons, statement of claim or similar pleading, (c) a criminal proceeding commenced by the service of a summons or charge, (d) a proceeding commenced by the service of a notice of receipt of a complaint by the Superannuation Complaints Tribunal; or (e) a formal administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigative order or similar document, against any Insured for a Wrongful Act, including any appeal therefrom. Defence Costs means that part of Loss consisting of reasonable costs, charges, fees (including but not limited to legal counsels' fees and experts' fees) and expenses (other than regular or overtime wages, salaries or fees of the directors, officers or employees of the Participating Employer or of the Trustees) incurred in defending or investigating Claims and the premium for appeal, attachment or similar bonds. … Insured, either in the singular or plural, means: (a) any Trustee; … (e) any past, present or future Participating Employer; … Loss means the total amount which any Insured becomes legally obligated to pay on account of each Claim and for all Claims in each Policy Period and the Extended Reporting Period, if exercised, made against them for Wrongful Acts for which coverage applies, including, but not limited to damages, judgments, settlements, costs and Defence Costs…. Participating Employer means the organisation named in Item 2(a) of the Schedule of this coverage section and any Subsidiary. … Trustee, either in the singular or plural, means any past, present or future person or body corporate, duly appointed as a trustee of the Superannuation Fund in accordance with the governing rules of the Superannuation Fund or by a court or pursuant to a statute. Wrongful Act means any error, misstatement, misleading statement, act, omission, neglect, breach of trust or breach of duty committed, attempted, or allegedly committed or attempted, by an Insured, individually or otherwise, in the management of a Superannuation Fund. 56 Under Item 2(a) of the schedule to the policy, the "participating employer" was AIMS. However, the primary Judge held that AIMS did not fall within the term "participating employer", where that term was used in Clause 2.2(a) of the policy. His Honour pointed out that, although AIMS was a "participating employer" within the meaning of the policy, and although "any … participating employer" was within the definition of "insured" in the policy, the different entities that might be regarded as within the definition of "insured" were listed disjunctively, such that, where the term was used in a particular place in the policy, it bore one of its defined meanings, not all of them. His Honour held that Clause 2.2(a) would make no sense if the term "participating employer" were read into that provision in place of the word "insured". 57 On appeal, it was submitted on behalf of CCAS that Clause 2.2(a) was not the provision under which AIMS's entitlement to indemnity from Chubb arose. It was submitted that Clause 2.1 was the relevant provision, and that to read "participating employer" for "insured" therein did not lead to an absurd or unlikely result. In the facts of the present case, it meant no more than that Chubb would pay on behalf of AIMS all loss (here, defence costs) for which AIMS was not indemnified by AIMS or CCAS. It is true that there is a certain inelegance in wording which refers to a loss by AIMS for which AIMS is not indemnified by itself, but that was no more than the result of the use of a single verbal formula to cover a multiplicity of potential situations in which both superannuation trustees, and relevant participating employers, fell within the definition of "insured". 58 In his submissions on this point, counsel for CGU did not, as we understand him, seek to defend the particular basis upon which the primary Judge had held that AIMS was not, in relevant circumstances, within the definition of "participating employer" in the Chubb policy. Rather, counsel relied upon so much of the definition of "wrongful act" in the policy as confined such an act to one which occurred "in the management of a superannuation fund". He submitted that, although AIMS was sued for the same losses as those for which CCAS was sued, the wrongful acts for which AIMS might have been liable could not have been committed (etc) in the management of the fund, since AIMS was not concerned with the management of the fund. 59 We are not here concerned with the question whether the applicants would have succeeded in their case against AIMS; nor are we concerned to identify which of the applicants' allegations, if any, would have been upheld as against AIMS. The definition of "wrongful act" in the Chubb policy included any act, omission, neglect etc "allegedly committed … by an insured … in the management of a superannuation fund". AIMS was within the definition of "an insured" under the policy, and a "wrongful act", therefore, included any act, omission, neglect etc which was alleged to have been committed by AIMS in the management of the fund. A resolution of the present question, therefore, requires us to return, in more detail than above, to the allegations made against AIMS by the applicants. 60 The applicants alleged that AIMS was a person in accordance with whose instructions or wishes the directors of CCAS were accustomed to act and was, therefore, an "officer" of CCAS within the meaning of the Corporations Law. They did not, however, make use of that allegation thereafter. Rather, they alleged that, as a "director" of CCAS, AIMS was taken by s 52(8) of the SIS Act to have covenanted to exercise a reasonable degree of care and diligence for the purpose of ensuring that CCAS carried out the covenants deemed to be contained in the rules of the fund by subs (1) and (2) of s 52. For the purposes of the SIS Act at the time, the word "director" had the same meaning as in the Corporations Law, and in that Law the word included a person in accordance with whose instructions or wishes the directors of the company in question were accustomed to act. Such a person could be a corporation: Ho v Akai Pty Limited (in liq) [2006] FCAFC 159, [21]. It is tolerably clear that the applicants intended to allege that AIMS was a director of CCAS within the meaning of the Corporations Law, and thus covered by s 52(8) of the SIS Act. AIMS would have understood this group of allegations in this sense. 61 The applicants then alleged that AIMS did not exercise a reasonable degree of care and diligence for the purpose of ensuring that CCAS carried out the covenants referred to. A perusal of s 52(2) of the SIS Act as it existed at the time makes it clear that the management of the fund was at least potentially involved in the covenants on which the applications indirectly sued. In their particulars to this allegation, the applicants put the matter beyond doubt: they relied upon many acts and omissions of CCAS and its board that were, beyond any question, in the management of the fund. Here the applicants were going further than merely seeking to attach liability to AIMS for the transgressions of CCAS by reference to the statutory deeming provision as to what constituted a director. They were alleging that that provision gave rise to the legal obligation on which they sued, but also that AIMS had in fact failed to exercise a reasonable degree of care and diligence in circumstances in which the directors of CCAS were accustomed to act in accordance with its instructions or wishes. This was, in our view, an allegation of an act, omission, neglect or breach of duty in the management of the fund. 62 The next group of allegations made by the applicants against AIMS was based upon earlier allegations made by them against CCAS, namely, failure to comply with operating standards prescribed by reg 4.09 of the Superannuation Industry (Supervision) Regulations 1994 (Cth), thereby contravening s 34(1) of the SIS Act. The applicants alleged that CCAS had failed to formulate and to give effect to an investment strategy that had regard to all the circumstances of the fund, including the risk involved in making, holding and realising, and the likely return from, investments (having regard to its objectives and expected cash flow requirements), the composition of the fund's investments as a whole (including the extent to which they were diverse or involved exposure of the fund to risks from inadequate diversification), the liquidity of the fund's investments (having regard to its expected cash flow requirements), and the ability of the fund to discharge its existing and prospective liabilities. Although the provisions of the regulation were effectively used as a template for these allegations, the allegations were particularized by reference to the facts of the case, and appear to have been quite relevant to the situation in which CCAS found itself in the second half of 2000. 63 The applicants relied on ss 17 and 194 of the SIS Act to allege that AIMS was "involved in" the contraventions of the SIS Act referred to in the previous paragraph, and had itself, therefore, contravened s 34(1) of the SIS Act. It was alleged that AIMS had aided, abetted, counseled or procured the contraventions by CCAS, had induced those contraventions and had been knowingly concerned in or party to those contraventions. These allegations against AIMS are to be characterized as allegations of acts, omissions, neglects or breaches of duty in the management of the fund. 64 The next group of allegations made by the applicants against AIMS was based upon earlier allegations against Lawson and Twomey. Those allegations, in turn, were of three kinds. First, the same allegations as had been made in respect of AIMS itself, referred to in par 61 above, were made against Lawson and Twomey; that is to say, it was alleged that they (who were in fact directors of CCAS) were taken by s 52(8) of the SIS Act to have covenanted to exercise a reasonable degree of care and diligence for the purpose of ensuring that CCAS carried out the covenants deemed to be contained in the rules of the fund by subs (1) and (2) of s 52 of the SIS Act, and that they had failed to do so. Secondly, it was alleged that they "knew of and participated in" the purchases of various properties by CCAS and that, by reason of that circumstance, they "knowingly participated in and assisted" the breaches of duty by CCAS that the applicants had alleged in that behalf (ie, fiduciary duties as trustee, duties under the SIS Act, and duties under the Trustee Acts). Thirdly, the same allegations as had been made in respect of AIMS itself, referred to in pars 63 above, were made against Lawson and Twomey; that is to say, it was alleged that they were "involved in" the contraventions of the SIS Act referred to in par 63 above, and had themselves, therefore, contravened s 34(1) of the SIS Act. It was alleged that they had aided, abetted, counselled or procured the contraventions by CCAS, had induced those contraventions and had been knowingly concerned in or party to those contraventions. 65 Having made those allegations against Lawson and Twomey, the applicants next alleged that Lawson and Twomey had been acting in relevant respects in the course of their employment with AIMS, and that AIMS was vicariously liable in respect of the breaches of duty, and contraventions of statute, referred to. Although this does not appear to have been amongst the applicants' strongest points, at face value it involved the proposition that what Lawson and Twomey had done as directors of CCAS could be sheeted home to AIMS, their employer. The allegations made directly against those individuals, of course, were on any view allegations of acts, omissions, neglects or breaches of duty in the management of the fund. According to the applicants, AIMS was answerable for those things. 66 The next group of allegations made by the applicants against AIMS was also based upon earlier allegations against Lawson and Twomey. The applicants called up the duties of the directors of CCAS arising under ss 180, 181 and 182 of the Corporations Law. They alleged that Lawson and Twomey had contravened those sections by reason of having known of, and participated in, the property purchases by CCAS of which the applicants were critical and which, as they alleged, were detrimental to the fund. The applicants then alleged that AIMS was "involved in" the breaches of ss 180, 181 and 182, in that it was knowingly concerned in or party to those breaches. Particularising this allegation, the applicants referred to s 1324 of the Corporations Act 2001 (Cth), but that Act was not in force at the relevant time. The corresponding provision of the Corporations Law was s 79, and AIMS would no doubt have understood the pleading in that sense. The breaches in which AIMS was alleged to be involved were, on any view, in the management of the fund. 67 It may be accepted that the remaining allegations made by the applicants against AIMS did not involve acts, omissions etc in the management of the fund. They related, rather, to AIMS's position as employer of the applicants. However, the survey of significant aspects of the applicants' allegations which we have undertaken above reveals many respects in which the acts and omissions of AIMS of which complaint was made could readily be characterised as having been "in the management" of the fund. We should, therefore, reject the contention made on behalf of CGU that AIMS could not legitimately have shared in the proceeds of the Chubb policy by reason only of the circumstance that it was not involved in the management of the fund. It is not necessary for us to make a definitive ruling on that question, and perhaps it would be undesirable for us to tread further down that path than we have, since Chubb was not a party to the appeal, and we had not had the benefit of what it might say on the matter of the construction of its own policy. It is sufficient that we conclude that the proposition that AIMS was covered by the Chubb policy in relation to the particular allegations made by the applicants was reasonably open to AIMS and Chubb, as the direct parties to the policy. 68 The respondents' claims under the Chubb policy were settled by Chubb making a single payment, in return for which it was agreed that the claims of the respondents, including AIMS, would be dismissed. The respondents, including AIMS, provided Chubb with a release from claims for indemnity under the policy in relation to the applicants' claims in the proceeding, and from claims with respect to their own costs of defending the proceeding. 69 The position, then, was that AIMS was faced with allegations by the applicants of various breaches of duty, and of unlawful conduct, in the management of the fund, that AIMS claimed upon the Chubb policy in relation to those allegations and that Chubb settled those claims by making a single payment referable to AIMS no less than to the other respondents. It was not suggested on appeal that, if AIMS was relevantly covered by the Chubb policy, the court should not in effect allow the apportionment agreement to operate according to its terms. The only basis upon which that agreement was attacked by CGU was that it included AIMS at all. Since AIMS was an insured as defined in the Chubb policy, and since we take the view that many of the transgressions alleged by the applicants against AIMS were done (as so alleged) in the management of the fund, it follows that the extent of CGU's obligation to indemnify CCAS must be determined on the basis that the apportionment agreement was effective according to its terms. 70 For the above reasons, we propose to dismiss the first element of the cross-appeal, and to allow the second. In relation to the second, we shall make a declaration along the lines sought by CCAS.

COSTS OF THE TRIAL 71 In his orders made on 16 October 2007, the primary Judge required CGU to pay the costs of CCAS, Lawson and Twomey, in relation to their cross-claim against CGU, up to and including 6 January 2006. His Honour required CGU to pay only 70% of those parties' costs after 6 January 2006. The reason for this distinction was that CCAS, Lawson and Twomey had applied to re-open their evidentiary case, and had thus been responsible for the further hearing at which they established the amount of the settlement sum that related to the applicant's costs of suing them, as distinct from AIMS (as to which see par 16 above). Because we have upheld his Honour's decision in these respects, there is no present issue as to this aspect of his Honour's costs orders. 72 However, CCAS, Lawson and Twomey now seek to have all of the costs ordered in their favour by his Honour, including the 70% component referable to the period after 6 January 2006, taxed on an indemnity basis. Their reasons for pressing us to take this course are based upon two circumstances. The first is a letter which was sent by their solicitors to the solicitors for CGU on 7 May 2004. According to them, this letter contained an offer of settlement made in accordance with the principle for which Calderbank v Calderbank [1976] Fam 93 is authority. The second circumstance is that, if the court upholds, as we have, what we have described as the second element of the cross-appeal, they (CCAS, Lawson and Twomey) will receive a money result in the proceeding more beneficial to them, and less beneficial to CGU, than that offered in the letter of 7 May 2004. In other words, by reference to the final outcome of the proceeding on appeal, they have "bettered" what they described as their Calderbank offer. 73 The letter to CGU dated 7 May 2004, which was marked "without prejudice save as to costs", contained an offer that the respondents (ie then including AIMS) would settle their claim against CGU upon terms that - (a) CGU would indemnify them against any liability to pay the applicants' costs of the proceeding; and (b) CGU would pay them the sum of $425,000, including interest and costs. The offer remained open until close of business on 21 May 2004. The letter contained no explanation as to the calculation of the figure of $425,000, nor as to how much of that figure represented interest, and/or costs. 74 In their submission seeking indemnity costs, CCAS, Lawson and Twomey appear to have allowed for the circumstance that, because they were denied indemnity in relation to their liability to pay so much of the applicants' costs as related to AIMS, they have fallen short by the amount of $150,000 of that which they claimed under par (a) in their letter. They have then added up the remaining sums which the primary Judge ordered CGU to pay, including interest, and have continued the interest calculations through to 19 May 2008 (about a fortnight after we reserved judgment on the appeal). They arrived at a figure of about $570,000. They point out that this figure is well in excess of the $425,000 for which they offered to settle under par (b) in their letter of 7 May 2004. How these calculations relate to the particular respect in which we have upheld the cross-appeal is not made clear. It is simply asserted that "the offer contained in the Calderbank letter was bettered in a monetary sense, even if the settlement [is] held to be unreasonable as to $150,000.00 of the applicants' costs". They say that it is "immaterial" that the Calderbank letter proposed a settlement with all of the respondents (ie including AIMS). 75 From the tenor of claims which have come before the court in recent years, there appears to be a view abroad that the failure of a party who has rejected a Calderbank offer ultimately to achieve a better outcome than provided for in the offer leads to a presumptive entitlement to indemnity costs with respect to the period subsequent to the offer. Such a view would be mistaken. Where a moving party (including a cross-claimant) offers to settle for a sum which is less than he or she eventually achieves at trial, there is a presumptive entitlement to indemnity costs under O 23 r 11(4) of the Federal Court Rules. However, where recourse is not had to the O 23, but reliance is placed upon the court's general discretion, it is necessary for the party seeking indemnity costs to demonstrate that the other party's refusal of the Calderbank offer was unreasonable: Black v Lipovac (1998) 217 ALR 386, 432; Maniotis v JH Lever & Co Pty Ltd (No 2) [2006] FCAFC 28. It is not sufficient that the offer was a reasonable one: Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121, 128 [35]; Dais Studio Pty Ltd v Bullet Creative Pty Ltd [2008] FCA 42, [11]. In considering this question in a particular case, the matter of unreasonableness will be judged by reference to the circumstances facing the offeree at the time of the offer. While the eventual outcome in the case may go part of the way in this regard, there is no presumption that ultimate success in the proceeding for the offeror necessarily renders the offeree's rejection unreasonable. 76 What were the circumstances facing CGU as at 21 May 2004? Here we assume, in favour of CCAS, Lawson and Twomey, that they had kept CGU informed of everything that occurred as between themselves and the applicants. We also assume that the facts alleged in the Third Further Amended Cross-Claim of CCAS are correct. On 21 May 2004, CGU would have been aware - (a) that the applicants' claim had been settled for $275,000; (b) that the applicants had filed a bill of costs in the amount of $566,629.96; (c) that a Registrar had made an estimate of $440,906 under O 62 r 46(3) of the Rules of Court; and (d) that CCAS had objected to the estimate. CGU might then reasonably have inferred, if it did not know as a fact, that contested proceedings would take place with respect to the bill of costs, and might also have anticipated it to be within the range of likely outcomes that CCAS would be obliged to pay the applicants' costs of those proceedings. 77 In the light of the outcome of the case, both at first instance and on appeal, CGU could not be said to have acted unreasonably in taking the view that it would not ultimately be ordered to indemnify the respondents for their liability (or for the liability of any of them) to pay so much of the applicants' costs as were referrable to their claims against AIMS. That is to say, CGU would not have been acting unreasonably to suppose that under par (a) of the offer, the respondents were seeking payment of a sum that they probably would not achieve in court. 78 Turning to par (b) of the offer, it is necessary here to note that the respondents' case against CGU was for indemnity under an insurance policy. The amount in question was known in May 2004. CGU resisted the respondents' cross-claim on the ground that the policy did not entitle them to be indemnified in respect of the $275,000 paid on settlement with the applicants. The respondents' letter of 7 May 2004 did not make it clear whether, and if so to what extent, the offer involved some degree of compromise on their claim to be indemnified for the payment of $275,000. Although in most respects the question of the respondents' entitlement would present in a black and white way - in the sense that either they were entitled to an indemnity under the policy or they were not - to the extent that the respondents were required to establish that the settlement figure was reasonable, there might have been scope for them to anticipate achieving, at trial, a judgment for a sum less than $275,000. If so, they might have factored some element of compromise into par (b) of the offer. The letter of 7 May 2004 did not, however, make clear whether some element of compromise was so involved, nor how much of the $425,000 was constituted by each of interest and costs. 79 CCAS's entitlement to interest arose under s 57 of the Insurance Contracts Act. Under s 57(2), an insurer is liable to pay interest for the period - … commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days: (a) the day on which the payment is made; (b) the day on which the payment is sent by post to the person to whom it is payable. In an affidavit affirmed by Nicholas Edward Roberts on 25 July 2007 and filed in the proceeding below, the respondents took 17 November 2003 as the date from which it was unreasonable for CGU to have withheld payment of the $275,000 sum for which the respondents settled with the applicants. Mr Roberts said that the interest rate prescribed by the Insurance Contracts Regulations 1985 (Cth) for the period between 17 November 2003 and 7 May 2004 (taken by Mr Roberts to be relevant because it was the date of the Calderbank letter) was 8.6% p.a. Mr Roberts calculated that $11,144.65 was due as interest in respect of this period. Viewing the matter from the viewpoint of CGU as the recipient of the Calderbank letter, we think that a further 14 days' interest should be added to that figure, on the basis that the offer remained open until 21 May 2004. This would bring the total to $12,051.78. 80 As at 21 May 2004, CGU could not reasonably have supposed that CCAS's interest claim had any other element. At that time, the amount of the applicants' primary costs had not been resolved, and CGU came under no obligation to indemnify CCAS in respect thereof. Much less in the case of the applicants' costs of the taxation. Indeed, in his affidavit, Mr Roberts takes 2 August 2004 and 28 September 2004 as the dates upon which it was said to be unreasonable for CGU to have withheld those payments, respectively. 81 If CGU were making the notional calculations to which we have referred, it would have reckoned that about $413,000 of the sum mentioned in par (b) of the offer was the figure for which the respondents would settle on their cross-claim, including costs. This circumstance brings into play the judgment of Spender J in Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97, 101-102. His Honour held that an offer to settle for a global sum which was inclusive of costs should not be regarded as an appropriate foundation for a more generous costs order in favour of the offeror than would otherwise be made. In WSA Online Ltd v Arms (No 2) [2006] FCAFC 108, [18], the Full Court referred to the judgment in Smallacombe with apparent approval and added that, although not a decisive consideration, they were influenced by the fact that the offer in the case before them did not separate out the costs and interest components. 82 Whatever difficulties of this kind confronted CGU when it considered the respondents' letter of 7 May 2004, the situation here is more complicated than in the authorities to which we have referred, since the "costs" to which that letter referred presumably included both the respondents' defence costs in relation to the applicants' claim as well as their costs on the cross-claim. It is now submitted on behalf of the respondents (conditionally on us holding, as we have, that they can take advantage of the apportionment agreement) that the effect of allocating the $500,000 paid by Chubb first to the costs of AIMS is such as to increase CGU's liability under its own policy to pay the defence costs of CCAS, Lawson and Twomey to such an extent that that liability exceeds the component of the $425,000 mentioned in the letter which was notionally allocated to those defence costs. There is a theoretical basis for this submission. However, the facts necessary to make it good have not been established. 83 In their written submissions on costs, it was put on behalf of CCAS, Lawson and Twomey as follows: If the Apportionment Agreement prevails then the Chubb $500,000 will be applied first in reduction of AIMS' defence costs, which would need to be quantified. CGU would then bring to account any balance of the Chubb $500,000 remaining after such application in reduction of the amount in which it would be obliged to indemnify Lawson, Twomey and CCAS for their defence costs. CCAS, Lawson and Twomey's defence costs have been estimated at $546,499.73. Such expressions as "would need to be quantified" and "any balance of the Chubb $500,000" demonstrate that it is not known how much more our upholding of the second element of the cross-appeal will require CGU to pay under the policy by way of defence costs, by comparison with the situation which obtained under the judgment of the primary Judge. Without knowing that fact, it is not possible to assert that the offer of 7 May 2004 should now be regarded as having been "bettered", whereas previously it would not have been. 84 In his affidavit, Mr Roberts set out his estimate of the defence costs of CCAS, Lawson and Twomey. Exclusive of GST, this was $546,499.73. However, this figure includes the sum of $73,644.77 rendered by the solicitors for CCAS after 21 May 2004. There was, therefore, $473,454.96 paid or payable by CCAS, Lawson and Twomey by way of defence costs down to that date. Without knowing the costs incurred by AIMS in the defence of the applicants' claim, there is no way of knowing how much, if any, of the Chubb $500,000 would be, in effect, left over to pay this sum. 85 Mr Roberts also estimated the costs of CCAS, Lawson and Twomey of suing CGU. Up to 30 November 2003, his estimate was $85,453.30. From then until 22 July 2007, his estimate was $725,934.61, although the latter figure includes "a portion" of AIMS' costs. There is no estimate of the costs situation down to 21 May 2004. The only figure for the costs of CCAS, Lawson and Twomey (suing CGU) which has been established as a matter of fact is, therefore, $85,453.30. 86 Had all the facts now known to the court been known to CGU on 21 May 2004, the position would have been more or less as follows. Out of what was left of the Chubb $500,000 after payment of AIMS' defence costs, some part of the defence costs of CCAS, Lawson and Twomey would have been paid. This would have left the other part of those costs - presumably something less than $473,454.96 - payable from the $413,000 notionally allocated to the cross-claim and to costs in the letter of 21 May 2004. Additionally, a sum in excess of $85,453.30 - but how much in excess is not known - would also have had to come from that $413,000 by way of payment of the costs of CCAS, Lawson and Twomey on the cross-claim; but subject to some further (unknown) reductions because of the inclusion of AIMS's costs. 87 When the imponderables and unknowns to which we have referred are added to the fact that the letter of 7 May 2004 did not reveal how much, if any, of their nominal claim of $275,000 CCAS, Lawson and Twomey were prepared to compromise, it is, in our view, nigh impossible to say that CGU acted unreasonably in not accepting the offer in that letter. We are reinforced in this conclusion by the circumstance that the material before us was prepared much later than the date upon which CGU had to make its decision. There is no suggestion that CGU had the advantage of the kind of analysis that has been relied upon before us. 88 We take the view, therefore, that the respondents have fallen some distance short of showing that CGU acted unreasonably in not accepting their offer of 7 May 2004. We take that view both with respect to par (a) and with respect to par (b) of the offer, although, since an acceptance of both paragraphs was required, it would be sufficient if we took that view with respect to either. It follows that we reject the application of CCAS, Lawson and Twomey for CGU to be required to pay their costs on an indemnity basis.

COSTS OF THE APPEAL AND THE CROSS-APPEAL 89 The respondents have succeeded in resisting CGU's appeal, and should have their costs thereof. 90 On the cross-appeal, each of the respondents and CGU have succeeded on one element. Our appreciation of the case leads us to the view that each element was about as weighty as the other in the conduct of the cross-appeal by these parties. We could order that each pay the other's costs of the element on which it failed, but we suspect that the end result would be little different, on balance, from that achieved in the absence of any costs order. Subject to the matter addressed in the next paragraph, we propose, therefore, to make no order as to the costs of the cross-appeal. 91 The only respect in which we propose to order costs on the cross-appeal relates to the respondents' submission that they should have their costs on an indemnity basis. At the conclusion of the hearing, we invited the parties to address us on costs. They were not prepared to do so, preferring to await the outcome of the appeal/cross-appeal. We did not think that the matter justified the cost and inconvenience of re-convening the Full Court for the purpose only of hearing the parties on costs. We required the parties to file written submissions on the subject, which they did. The only submission of any substance was the respondents' claim for indemnity costs. That claim required CGU to respond with its own written submission. The claim was unsuccessful. We consider that CGU should have its costs of that claim. I certify that the preceding ninety-one (91) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Moore, Finn & Jessup.

Counsel for the Appellant/Cross-respondent: Mr PB Murdoch QC and Ms E Brimer

Solicitor for the Appellant/Cross-respondent: Deacons

Counsel for the Respondents/Cross-appellants: Mr JB Davis

Solicitor for the Respondents/Cross-appellants: Norton Gledhill

Trade Practices Act 1974(Cth)

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