CGU Insurance Limited v One.Tel Limited

CGU Insurance Limited v One.Tel Limited - [2010] HCA 26 - HCA 2010 case summary — Zoe

[52]

CGU argued that although the Trustee was entitled to commence the Trustee proceedings, it lost any entitlement to continue them once the Deed terminated. The Deed was to be construed subject to Pt X of the Act (cl 1(e)). The powers which the Deed conferred on the Trustee ceased once cl 17(c) came into effect by reason of s 235(d) of the Act. And the duties which the Deed created - to apply the monies to One.Tel and ASIC under cl 5 and to issue a certificate under cl 9 - also ceased. While the Deed was still on foot, the Trustee held the assigned chose in action (Mr Greaves's right to sue CGU) on trust in the manner specified in cll 2 and 3 of the Deed, and validly commenced the Trustee proceedings. But once the Deed ceased to be on foot, the Trustee lost any capacity to continue those proceedings, for the standing of the Trustee to do so depended on the Deed. This conclusion was said, in detailed arguments, to be supported by s 224(b) (which preserved the validity of acts done under a deed of arrangement before it was terminated), by par (c) of the definition of "trustee" in s 5, and by ss 187, 188, 194, 195, 204, 206, 213, 214, 218, 219(1), 223, 224A, 226(4), 229, 231(2), 233, 234, 234A, 234B, 236, 237(2) and 237AA. Very great stress was placed on a provision to which the Court of Appeal was not referred, and which was only raised in this Court in oral argument: s 276, rendering criminal the conduct of a person who acted as a trustee under a deed of arrangement that had been terminated.
One.Tel argued at some length that the trust in favour of itself created by the Deed survived the termination of the Deed because nothing in the Act or the Deed had any contrary effect.
It is not necessary to deal with these arguments. Indeed, in view of the fact that the form of Pt X now is very different from the form to which the parties' arguments were addressed, it is undesirable to do so.
The primary judge considered that the termination of the Deed did not divest the Trustee of any property held as "Trustee" pursuant to the Deed, but that it did affect the identification of those entitled to the beneficial interest. He thought that after termination of the Deed, the Trustee ceased to hold the chose in action under the trusts of the Deed, but held it as "bare trustee" for Mr Greaves beneficially. This approach was in substance defended and adopted by counsel for CGU in the Court of Appeal, although it was criticised by counsel for One.Tel. The primary judge's approach was also adhered to by CGU in this Court in substance.
In the pleadings CGU alleged that the termination of the Deed meant that the Trustee had ceased to be a trustee of any kind. It did not contend that before this Court. CGU instead contended that once the Deed had ended, while the Trustee had ceased to hold the equitable title to the chose in action created by the Policy on the trusts in the Deed, it had commenced to hold it as trustee in favour of Mr Greaves.
This is a concession by CGU that the termination of the Deed did not cause the Trustee to cease holding the equitable interest in the chose in action on trust. The concession was correct. Even if CGU's submission that the Trustee was prevented from acting as trustee of the Deed after it was terminated is assumed to be correct, nothing in the Deed or the Act either caused the Deed to unwind on termination, or returned the parties to the status quo just before the execution of the Deed. The title on which the Trustee had held the benefit of the equitable interest in the chose in action did not vanish into thin air or return to Mr Greaves or go anywhere else: it remained with the Trustee. Nor was it open to the Trustee to enjoy the property beneficially: the Trustee continued to hold it on trust. Thus the Trustee continued to have the duties of a trustee, but, on CGU's assumptions, on trusts other than those created by the Deed, because on those assumptions the beneficial interests under those trusts and the powers to continue the Trustee proceedings had come to an end.
Even if the termination of the Deed is assumed to have deprived the Trustee of any power in the Deed or the Act to continue the Trustee proceedings, it does not follow that there was not some other power to do so.
The primary judge described the trust on which the Trustee held the rights under the Policy which Mr Greaves assigned to it as a "bare trust" after the termination of the Deed. Let that be assumed. The trustee of a bare trust has no interests in the trust assets other than those which exist by reason of the office of trustee and the holding of legal title. Further, the trustee of a bare trust has no active duties to perform other than those which exist by virtue of the office of the trustee, with the result that the property awaits transfer to the beneficiaries or awaits some other disposition at their direction. One obligation of a trustee which exists by virtue of the very office is the obligation to get the trust property in, protect it, and vindicate the rights attaching to it. That obligation exists even if no provision of any statute or trust instrument creates it. It exists unless it is negated by a provision of any statute or trust instrument. Here no provision of the Act or the Deed negates it. Mr Greaves's equitable assignment of his right to sue CGU under the Policy gave the Trustee the duty to vindicate that right. After the Deed terminated, the Trustee continued to comply with the duty to vindicate that right by prosecuting the Trustee proceedings against CGU in order to crystallise its advantages by reducing them to a judgment in damages. Even assuming in favour of CGU that, after termination of the Deed, the Trustee no longer held the chose in action on the trusts of the Deed, the Trustee did remain a trustee, and did have an obligation to continue the process of complying with the duty to vindicate the rights associated with the trust property.
It does not follow from CGU's contention that the Trustee had no entitlement to continue the proceedings which could be derived from the Deed once it had terminated that the Trustee did not have an entitlement to continue the proceedings after the Deed terminated which derives from a source other than the Deed. The latter entitlement derives from the duty and power of trusteeship. The Deed created a trusteeship with express duties. The termination of the Deed caused the Trustee to have duties and powers outside the Deed. Here the duty of the Trustee to vindicate the rights connected with the trust property related to a chose in action being enforced in the Trustee proceedings. The hoped-for fruits of those proceedings lay in an order for damages. Discontinuance by the Trustee with a view to letting some other person enforce the chose in action by starting a new action may have run the risk that the new action might be statute-barred, and would certainly have involved a waste of costs. In these circumstances the only way of protecting the chose in action, vindicating the rights attached to it and getting in its fruits was for the Trustee to continue the proceedings.
As One.Tel submitted, the only interest of CGU is in denying or qualifying the right asserted against it in an action by the Trustee as equitable owner of the chose in action created by the Policy. All that matters is that the Trustee is equitable owner of the chose in action. Provided the suit is otherwise properly constituted, in general it is of no concern to defendants whether the plaintiff suing on a chose in action is suing as assignee or not; or is suing under an equitable assignment, not a legal assignment; or is holding the right sued on in trust for a beneficiary. A person who is a trustee as a result of an equitable assignment of the benefit of a contractual right on trust can maintain the same actions on the right as that person could maintain if the contractual right were held by that person free of trust. Whether the Trustee is holding the chose in action for beneficiaries, and which beneficiaries, then, are not matters that are material to CGU. CGU has no right to seek the due administration of the trust or complain about any maladministration of it: that is a matter for the beneficiary or beneficiaries. If Mr Greaves is the beneficiary, as the primary judge found and as CGU contends, and if he has reason to suppose that the Trustee is about to do or continue to do an act prohibited by the terms of the trust or any statute, he is at liberty to apply for an injunction to restrain it. And if he has reason to suppose that the Trustee is failing to perform trust duties, he may institute proceedings to compel performance.
The Trustee is not disentitled from continuing the Trustee proceedings.

[53]

The starting point of CGU's second central argument is that cl 11 survived the termination of the Deed. CGU put this even though for the purpose of its first central argument it contended that the Deed ceased to have any operation once it was terminated by effluxion of time. It contended that once the Deed was terminated, no certificate could be issued under cl 9, for the Trustee no longer had any powers under the Deed. It followed that the prohibition on enforcement of the $20 million compensation order remained permanently in operation. Clause 11 was an accrued and continuing protection for Mr Greaves despite the termination of the Deed.
Position if cl 11 continued in force. The submission to this point corresponds with the reasoning of the primary judge[8]. Even if the submission to this point is assumed to be correct, it fails at the next stage. The Policy defined "Loss" as meaning "the amount payable in respect of a Claim made against the Directors and Officers for a Wrongful Act and shall include damages, judgements, settlements, interest, costs and Defence Costs." CGU argued that since cl 11 prevented the Trustee and the creditors taking any steps to enforce the $20 million compensation order, there was no "amount payable" in respect of a claim against Mr Greaves. It supported that argument by submitting that the Policy was one of indemnity. It relied on the primary judge's statement: "If and for so long as the orders are not enforceable against Mr Greaves, there is nothing in respect of which he has any entitlement to be indemnified."[9]
The Court of Appeal rejected that argument by saying that cl 11 "does not discharge or release [Mr Greaves] from the judgment debts." It said: "That occurs only on the execution of the certificate by the Trustee in accordance with cl 10 of the Deed"[10].
The Court of Appeal's reasoning is correct. Its conclusion may also be supported for the following additional reasons.
First, "Loss" is defined to include "judgments" and "settlements". The judgment of 6 September 2004, which was consented to as part of a settlement, remains on foot.
Secondly, the $20 million compensation order is an order which was made in respect of a claim made against Mr Greaves in the ASIC proceedings. It created a judgment debt. That debt remains an "amount payable" even though, on the assumption in favour of CGU that cl 11 survives the termination of the Deed, the Trustee and the creditors are debarred from taking any steps to enforce the $20 million compensation order against Mr Greaves. An "amount payable in respect of a Claim made against" Mr Greaves includes an amount which Mr Greaves is legally liable to pay. The $20 million compensation order created in him a legal liability to pay $20 million. If by some happy chance Mr Greaves became sufficiently wealthy to pay the $20 million, and chose to do so, it could not validly be contended that the Policy did not respond. Mr Greaves would have paid an amount which he was liable to pay under a judgment debt. That demonstrates that the status of the $20 million as an "amount payable", which rests on Mr Greaves's legal liability to pay it, is not affected by any bars which may prevent particular people from enforcing the judgment debt, because the creation of those bars does not affect his legal liability. There is a distinction between Mr Greaves's duty to pay, and the capacity of others to enforce that duty.
Thirdly, at least during the lifetime of the Deed, cl 11 did not prevent an assignee of Mr Greaves, namely the Trustee, from enforcing the Policy. The assigned rights of Mr Greaves against CGU arose because of a judgment debt that came into existence against him. Clause 11 did not set aside the judgment. It did not extinguish the judgment debt. It did not release Mr Greaves from the duty to pay that debt.
Fourthly, CGU's submission produces an absurd result, because it creates a conflict between cl 9 and cl 11. The point of the Deed was to enable the Trustee to enforce Mr Greaves's rights under the Policy in favour of One.Tel. Clause 9 assumes that the successful completion or settlement of the claim against CGU will produce a payment from CGU which can be used by the Trustee in effect to fund compliance by Mr Greaves with his duty to satisfy the $20 million compensation order by paying the money to One.Tel. Yet on CGU's construction of cl 11 and assuming it continued in force, Mr Greaves has suffered no "Loss" because of the ban on the Trustee and creditors enforcing the $20 million compensation order, and hence nothing can be recovered from CGU to fund payment of it. If CGU's argument about "Loss" were correct, it could have struck out, demurred to or obtained summary dismissal of the Trustee proceedings soon after their inception on 18 October 2006. It would not have been necessary for CGU to have waited until the Deed came to an end on 30 November 2007.
Clause 11 did not continue in force. In any case the conclusion urged by CGU must fail. That is because the assumption that cl 11 survived the termination of the Deed is not correct.
The termination of the Deed on 30 November 2007 did not invalidate any steps taken by the Trustee to realise assets and employ them in making payments required by the Deed (for example, under cl 6). The termination of the Deed did prevent the Trustee from taking steps required by the Deed which were uncompleted before the time of its termination. That meant that no further steps could be taken under cl 9 (issue of a certificate in relation to the realisation of assets, for example, rights under the Policy), which meant that the absolute release of Mr Greaves from liability in relation to the $20 million compensation order referred to in cl 10 could not take place. As the Court of Appeal said, the "opening words of cl 11 ('Prior to the execution of the certificate referred to in clause 9') imply that the stay provided by cl 11 continues only while it is still possible that the Trustee can execute a certificate under cl 9."[11] However, the Court of Appeal preferred to accept CGU's contention that the cl 11 stay continued beyond the date of termination of the Deed, and inferred that cl 9 authorised the issue of a certificate after the date of termination of the Deed.
The Court of Appeal was certainly correct to see cll 9-11 as marching in tandem: either cl 9 ceased to have potential operation when the Deed terminated (in which case cll 10 and 11 did as well), or cl 11 continued to have potential operation when the Deed terminated (in which case cll 9 and 10 did as well). However, there is no reason why some clauses in the Deed should remain operative after its termination while others do not. The preferable conclusion is that once the Deed terminated, while acts carried out under it remained effective, the whole of its future potential operation ceased. That outcome is not unfair to Mr Greaves. Before 30 November 2007 he had no entitlement to recover on the Policy because he had assigned it to the Trustee, holding for One.Tel in particular as beneficiary, and he had the cl 11 protection. After 30 November 2007, while he lost his cl 11 protection, he became beneficiary under a resulting trust of the Policy on the assumptions underlying other parts of CGU's submissions[12]: in that respect he had in substance returned to the pre-Deed position.
Clause 11 was a covenant by the Trustee and creditors not to take any step against Mr Greaves until whatever recovery from CGU on the Policy that could be achieved had been achieved. If no recovery against CGU had been achieved, or if what was recovered was less than what Mr Greaves owed to ASIC and One.Tel, and the cl 9 certificate was issued, it would then have been open to ASIC and One.Tel to pursue their rights against Mr Greaves to the extent to which their claims had fallen short of full satisfaction after the relevant amounts had been paid under cl 5. Once the Deed terminated, the cl 5 duty ceased. So did the cl 9 duty. That left no room for cl 11 to continue: it did not operate perpetually, but only in an interim period "[p]rior to the execution of the certificate referred to in clause 9". Once it became impossible for any cl 9 certificate to be executed, the basis on which cl 11 could operate collapsed. As CGU submitted for the purpose of other arguments, the Deed established only a short-term regime to hold the position while the Trustee made attempts to bring in assets for the benefit of creditors. It was only to last three years, unless extended by a meeting of the creditors. It did not have the function of giving permanent protection to Mr Greaves.
It is true that by taking one step in performing the Deed - assigning the Policy to the Trustee - Mr Greaves had provided "all the consideration required from him"[13]. But that step was part of a series of interconnected steps. Clause 8 released him from all but a limited number of liabilities (one of which was liability under the $20 million compensation order). Clause 9 contemplated a decision to commence proceedings in respect of the Policy, or settle or not pursue a claim under the Policy. The decision was made to commence the Trustee proceedings, but they had not been completed when the Deed came to an end. The future steps of prosecuting them and issuing a cl 9 certificate could not be carried out under the Deed because it had ended.
CGU's submissions allege that, in place of the trust created by the Deed, under which the Trustee held the Policy for One.Tel and ASIC, there sprang up a resulting trust in favour of Mr Greaves. Assuming that to be correct, to construe cl 11 as continuing in these circumstances would be unjust: it would leave One.Tel stripped of its beneficial interest under the trust created by the Deed, while simultaneously remaining unable to exploit its original right to enforce the $20 million compensation order, which it had given up in return for gaining its beneficial interest. And if, contrary to what is said above about CGU's argument in relation to "Loss"[14], cl 11 operated not merely to prevent One.Tel enforcing the $20 million compensation order but also to wipe out Mr Greaves's legal liability to pay that sum, there would be injustice to One.Tel in losing its capacity to compel the Trustee to proceed with the Trustee proceedings against CGU.
The construction of the Deed propounded by CGU - that cl 11 survives the termination of the Deed - is a construction which produces absurdity because of the harsh consequences for One.Tel. Further, CGU's primary position was that the Deed came to an end on 30 November 2007: it would be an unexplained anomaly if cl 11 survived, but nothing else.
CGU's argument that cl 11 continued in force must be rejected.

[63]

Thus the position is that the only party in this Court (or the Court of Appeal) to advance the proposition that Mr Greaves is the beneficiary, namely CGU, was a party who could not profit from establishing that proposition. That is because, for reasons given above[20], the identity of the beneficiary for whom the Trustee was holding the trust property after the Deed terminated is not a concern of CGU and CGU cannot rely on any particular answer to questions 3A, 3B and 4 as a means of supporting the primary judge's judgment in its favour. The only parties potentially interested in the proposition that Mr Greaves is the beneficiary are Mr Greaves on the one hand and One.Tel or ASIC on the other. The proposition is not at present a live issue as between Mr Greaves and One.Tel or ASIC. Those three parties are defendants in the Trustee proceedings, but there are no cross-claims between them. One.Tel has an interest in the Trustee proceedings succeeding. There is nothing to suggest that Mr Greaves opposes the Trustee proceedings succeeding. Indeed he has an interest in them succeeding, because to the extent that there is any shortfall in recovery against CGU, Mr Greaves will remain exposed to enforcement of the $20 million compensation order in view of the conclusion reached above that the protection afforded to Mr Greaves by cl 11 no longer exists[21]. And it is unlikely that Mr Greaves will make a claim to the beneficial enjoyment of any damages produced by the Trustee proceedings: that claim would be rendered nugatory by the capacity of One.Tel to enforce against him the $20 million compensation order. Thus the issues underlying questions 3A, 3B and 4 are moot. The application to the primary judge was not an application for judicial advice to a trustee; it was a separate trial of issues in controversy. To answer the questions would be to give a merely advisory opinion, not quell a controversy between parties entitled to participate in the controversy. Hence those three questions need not be answered. In the event that they become live issues if the Trustee proceedings succeed, they can be agitated in separate proceedings. That event is unlikely for the reasons just given.

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