Elders Ltd v Swinbank

ELDERS LIMITED, DEREL ERF LIMITED AND FOSTERS BREWING GROUP LIMITED v CHRISTOPHER MARK SWINBANK, GREAT LAKES REINSURANCE (UK) PLC, THE GAN INCEDIE ACCIDENTS COMPAGNIE, FRANCAISE D'ASSURANCES ET DE, REASSURANCES INCENDIE ACCIDENTS ET RISQUE DIVERS, ROYAL INSURANCE (UK) LIMITED, LIBERTY MUTUAL INSURANCE COMPANY (MASSACHUSETTS) LIMITED, SCOTTISH LION INSURANCE COMPANY LIMITED, SPHERE DRAKE UNDERWRITING MANAGEMENT LIMITED, LONDON ASSURANCE AND TRINITY INSURANCE COMPANY LTD SG 79 OF 1997

DEREL ERF LIMITED and FOSTERS BREWING GROUP LIMITED

liberty mutual insurance company (massachusetts) limited,

THE COURT DECLARES THAT: 1. Having regard to the terms of the policies of insurance between the applicants as the insured and the respondents as the underwriters and the insurers, the respondents are liable to indemnify the applicants in respect of the claim for indemnity made under clause 2.2 of the policies of insurance limited to the costs and disbursements incurred by the applicants in responding to the allegations made by the plaintiffs and counterclaimants against them as defendants and cross respondents in proceedings numbered Action No 3 of 1992 in the Supreme Court of the Northern Territory of Australia in the defences and counterclaims from time to time in so far as those allegations in substance constituted allegations that the applicants or one or other of them had failed to act with proper care in relation to the advancing of funds to Charles William Tapp and in relation to the advice given to him by them or by one or other of them and in relation to the actions taken on his behalf by them or by one or other of them from time to time. 2. Having regard to the terms of the said policies of insurance, the respondents are liable to indemnify the applicants in respect of the claim for indemnity made under clause 2.1 of the said policies of insurance in respect of the amounts agreed to be paid and the loss suffered by the applicants or by one or other of them by reason of the liability accepted by the applicants under the terms of a certain Deed of Settlement bearing date 9 November 1993 between the applicants of the one part and the plaintiffs and cross claimants in the said proceedings in the Supreme Court of the Northern Territory of Australia of the other part.

1. The respondents pay to the applicants 75 per cent of the costs of the applicants to the date hereof to be taxed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DEREL ERF LIMITED and FOSTERS BREWING GROUP LIMITED

the gan incendie accidents compagnie, francaise d'assurances et de,

liberty mutual insurance company (massachusetts) limited,

scottish lion insurANCE COMPANY LIMITED, SPHERE DRAKE UNDERWRITING MANAGEMENT LIMITED,

REASONS FOR JUDGMENT 1 The issue in this matter is whether the applicants are entitled to indemnity from the respondents under a policy of insurance. 2 The applicants bought proceedings in the Supreme Court of the Northern Territory in Action No 3 of 1992 against Charles William Tapp as the first defendant ("Mr Tapp") and William Rex Tapp, Joe Tapp, Ben Tapp, William Tapp, and Daniel Tapp ("the Tapp boys") as second defendants for possession of certain properties ("the Northern Territory proceedings"). Those proceedings were defended, and Mr Tapp (and later his estate) and the Tapp boys counterclaimed against the applicants. The Northern Territory proceedings were ultimately settled, including by the payment of a sum of money by the applicants to Mr Tapp's estate. 3 The claim for indemnity is in respect of the sum paid by the applicants in settlement of the Northern Territory proceedings, their costs in defending the counterclaim against them, and the costs and expenses incurred by them in maintaining and protecting the properties the subject of those proceedings.

4 The respondent Christopher Mark Swinbank is a member of the Lloyd's underwriting syndicate providing insurance for a certain lead insurance policy known as a "Lloyd's Policy". He is sued as the nominal respondent on behalf of various Lloyd's underwriting syndicates which provide primary layer insurance of $5,000,000 under and in respect of the policy. The other respondents, other than Sphere Drake Underwriting Management Ltd ("Sphere"), are collectively insurers who have variously provided insurance in respect of the primary layer insurance cover for the insured risk. Sphere asserts that it is an underwriter which, as the disclosed agent of two other insurers, also provided insurance under the primary layer insurance cover under the policy.

5 The insurance policy in fact comprises three policies. There is first Lloyd's Policy No 509/QF 234091 which involves the Lloyd's underwriters insuring against loss or expense, in the manner and to the extent provided in that policy for 69.03 per cent of the loss and associated costs arising from the insured risk ("the Lloyd's policy"). Secondly, there is a London Insurance & Reinsurance Market Association policy with the same number, and which involves all respondent insurers other than the respondent London Assurance insuring against loss or expenses as defined in that policy for 26.54 per cent of the loss and associated costs arising from the insured risk ("the LIRMA policy"). Thirdly, there is a London Assurance policy also with the same number and which involves the respondent London Assurance insuring against loss or expenses as defined in that policy for 4.43 per cent of the loss and associated costs arising from the insured risk ("the London policy"). It is not necessary to note the percentage proportions contributed by the various Lloyd's syndicates under the Lloyd's policy or by the other respondents under the LIRMA policy to the total amount of the primary layer cover. 6 Each of the LIRMA policy and the London policy are expressed to be insuring policies complementary to the Lloyd's policy, and to run concurrently with and be subject to the same terms, provisions and limitations as are contained in the Lloyd's policy. 7 I shall call the three policies together "the Insurance Policy", and where referring to the terms of the Insurance Policy generally those terms will be taken from the Lloyd's policy. It is a claims made policy. I shall call the respondents collectively "the underwriters" as that expression conveniently ties to the wording in the Lloyd's policy. 8 The term of the Insurance Policy was from 30 June 1991 to 30 June 1992. 9 It is accepted that, subject to the issues arising in this proceeding, each of the applicants is an insured person under the Insurance Policy and, for present purposes, no issue arises as to notice having been duly given in accordance with it and during its currency. 10 The risk insured is described as "PRIMARY PROFESSIONAL INDEMNITY INSURANCE IN ACCORDANCE WITH THE ATTACHED WORDING". 11 Section 2 of the Insurance Policy contains the insuring clauses and extensions. It is in the following terms:

"2.1 Insuring Clause The Underwriters shall indemnify the Assured up to the Limit of Indemnity against all sums which the Assured shall become legally liable to pay as a result of claims made against the Assured and notified to Underwriters within the policy year or within 30 days thereafter arising out of any negligent act, error or omission committed or alleged to have been committed by or on behalf of the Assured in connection with the Business. 2.2 Costs Inclusive of any limit of indemnity provided hereunder, the Underwriters will pay all legal costs and disbursements incurred by the Assured with the written consent of the Underwriters, provided that such costs and disbursements as aforesaid relate to claims made against the Assured during the Policy year which exceed the excess specified in the Schedule hereto. 2.3 Cost of avoiding a claim This Policy shall extend to indemnify the Assured against any costs or expenses incurred with the Underwriters' consent in avoiding or reducing the amount of any potential claim (notwithstanding that ultimately a claim may not be made against the Assured) but this clause shall not in any way relieve the Assured from its duty to act at all times in a prudent manner. 2.4 … 2.5 … 2.6 Breach of Warranty and Breach of Trust This Policy shall extend to indemnify the Assured in respect of claims for breach of warranty or authority and breach of trust committed in good faith. 2.7 … … 2.17 Trustee and Custodian Companies and Superannuation Funds This Policy shall automatically extend to cover the Assured's Trustee and Custodian Companies and Superannuation Funds as additional Assureds hereunder with effect from the date of acquisition or incorporation. The schedule of such to be agreed by the Leading Underwriter only and to be updated annually. In respect of Additional Assureds acquired on or after 30th June, 1987 it is understood and agreed that, notwithstanding anything contained herein to the contrary, this Policy shall not indemnify the Assured in respect of any claim made against the Assured by reason of any negligent act, error or omission committed, or alleged to have been committed prior to the date of acquisition unless agreed by the Leading Underwriter." 12 Section 1 of the Insurance Policy contains a series of definitions. Those of present moment in the light of submissions are the following: " "Circumstance" shall mean (a) where a third party expressly or by implication holds the Assured liable in the event of that party having sustained or sustaining a loss resulting from a negligent act, error or omission, or such other event covered by this Policy. (b) where the Assured, by adopting the standard of a competent person or persons in the same business as that of the Assured, knows of any conduct which may reasonably constitute a negligent act, error or omission, or such other event covered by this Policy. "Claim" shall mean any one claim or series of claims arising out of one occurrence or circumstance or series of occurrences or circumstances consequent upon or attributable to one originating source in respect of a negligent act, error or omission and the limit of indemnity and the excess shall only apply once in respect of such claim or series of claims consequent upon or attributable to one originating source. … "Excess" means the amount in accordance with Clause 4.1 whether insured or uninsured and as specified in the Schedule and shall be inclusive of any legal costs and disbursements incurred by the Assured with the written consent of the Underwriters. "Extension of Cover" means where such extension of the Policy is given and is not necessarily limited to a negligent act, error or omission, a notification under such section will where appropriate be treated as a circumstance. … "Negligent Act, Error or Omission" means a negligent act, negligent error or negligent omission. … "Sum which the Assured shall become legally liable to pay" includes a disability to recover money which, but for a negligent act, error or omission by the Assured, would otherwise be recoverable, however, such recovery shall not include any profit or pure financial loss and is limited to the cost of reinstating or rectifying the negligent act, error or omission." 13 Section 3 of the Insurance Policy deals with exclusions. None are directly relevant for present purposes. Section 4 contains general conditions. That which, it was contended, may have significance to the issues now to be decided is clause 4.3 which is in the following terms: "Conduct of a Claim The Assured shall not admit liability for, settle, make or promise any payment in respect of any claim or circumstance which may be the subject of indemnity hereunder or incur any costs or expenses in connection therewith without the written consent of the Underwriters. Underwriters, if they so wish, shall be entitled to take over and conduct in the name of the Assured, the defence and or settlement of any such claim and the Assured shall give all information and assistance as the Underwriters may reasonably require." 14 By letter dated 1 October 1993, the applicants by their solicitors formally required the underwriters to assume the conduct of the Northern Territory proceedings pursuant to clause 4.3 of the Insurance Policy. That letter also constituted notice pursuant to s 41 of the Insurance Contracts Act 1984 (Cth) requiring the underwriters to inform the applicants whether they admitted that the Insurance Policy applied to the claims made by Mr Tapp in the Northern Territory proceedings, and if so whether the underwriters proposed to conduct the defence of the counterclaims against the applicants in those proceedings and to conduct any negotiations with Mr Tapp or the Tapp boys concerning settlement of those proceedings. By letter of 4 October 1993, the underwriters by their solicitors responded that the underwriters were not prepared to assume the conduct of the Northern Territory proceedings, nor to admit that the Insurance Policy applied to the claims made by Mr Tapp in those proceedings, nor to conduct or participate in any settlement negotiations. 15 In those circumstances, the breach of the Insurance Policy by the applicants in settling the Northern Territory proceedings without the written consent of the underwriters does not entitle the underwriters to refuse payment of the claim by reason only of that breach: s 41, Insurance Contracts Act 1984 (Cth).

16 The applicant Elders Limited ("Elders") was until 27 November 1990 called Goldsbrough Mort and Company Limited. It is a subsidiary of the applicant Fosters Brewing Group Ltd ("Fosters"), a public company. Until 3 February 1982, Fosters was called Elder Smith Goldsbrough Mort Limited, and then until 29 November 1990 Elders IXL Limited. The applicant Derel ERF Limited ("ERF") is also a subsidiary of Fosters. At material times until 11 April 1983 it was called Younghusband Ltd, and then until 28 March 1994 Elders Rural Finance Limited. When referring to Elders, Fosters and ERF together, I shall call them "the applicants".

17 At the time the Northern Territory proceedings were commenced, Mr Tapp was the pastoral lessee of three cattle stations in the Northern Territory of Australia known as Killarney Station, Maryfield Station and Roper Valley Station. Over a number of years, Mr Tapp had granted certain securities variously to the applicants in respect of those three properties, some of which were still current, and which secured substantial indebtedness of Mr Tapp to the applicants, which had built up progressively since about 1969. 18 Mr Tapp was substantially in default in respect of the monies owing. On 6 September 1991, Fosters and ERF issued notices of default and gave notice of intention to sell the properties and stock under the powers contained in the several securities. On 3 January 1992, Fosters and ERF issued notices of entry into possession of the three stations. On 7 January 1992, they gave notice of the appointment of Mr Trevor as their agent, again under the several securities. On 8 January 1992, they effectively took possession of the three stations. Mr Tapp and the Tapp boys (together "the Tapp family") resisted that action. They caused Mr Trevor to relinquish possession of each of the three stations. 19 As a result, on 13 January 1992 the applicants commenced the Northern Territory proceedings. They claimed declarations that they were entitled to possession of the three stations, and injunctions restraining the Tapp family from interfering with that possession. They also sought interlocutory orders restoring to them possession of the three stations. The Tapp family resisted those claims, including the interlocutory claims. 20 On 28 February 1992, the Northern Territory Supreme Court appointed Mr Frank Johnston ("Mr Johnston") to be receiver and manager of the three stations until resolution of the issues in the Northern Territory proceedings. On 22 October 1992, Mr Johnston was discharged as receiver and manager. He was unable to continue his duties because of injuries received in a car accident. Mr Robert William Cowling was appointed by the Court to take over as the receiver and manager of the three stations. 21 At an early stage in the conduct of the Northern Territory proceedings, the Tapp family signalled that the applicants' claim was not simply resisted on technical grounds. As the precise nature of their defences is critical to the resolution of these proceedings, it will be necessary to refer to the pleadings in the Northern Territory proceedings in some detail. At present, I shall endeavour to note the allegations made by them in a neutral way. 22 From about 1969, Fosters had acted as stock and station agent for Mr Tapp in relation to his running of Killarney Station. In about June 1981, Mr Tapp acquired Maryfield Station. At the time of its purchase, ERF provided him with funds to effect that purchase and thereafter ERF and later Fosters acted as stock and station agent in relation to his running of Maryfield Station. In about May 1988, Mr Tapp acquired Roper Valley Station. At the time of that purchase, ERF provided him with funds to effect that purchase and thereafter Fosters acted as stock and station agents in relation to his running of Roper Valley Station. Also, in its capacity as stock and station agent of Mr Tapp, from about 1969, Fosters provided financial accommodation to Mr Tapp from time to time in the nature of an overdraft facility for the three stations' trading purposes. From 1 July 1991, those overdraft facilities were provided by Elders, and from that period further credit facilities were provided by Elders to Mr Tapp and to the Tapp family. Those various advances were secured. The action of the applicants, including the Northern Territory proceedings, was taken pursuant to the securities. As I understand the allegations, the amount outstanding in total as at 3 January 1992 was in excess of $11,000,000. 23 The various securities granted by Mr Tapp to secure those advances included a property mortgage over Killarney Station granted to Fosters on 20 May 1986, a stock mortgage over the stock on Killarney Station granted to Fosters on 1 December 1969, a property mortgage over Roper Valley Station granted to ERF on 11 May 1998, a stock mortgage over the stock on Roper Valley Station granted to ERF on 11 October 1998, a property mortgage over Maryfield Station granted to ERF on 24 June 1981, and a stock mortgage over the stock on Maryfield Station and Killarney Station granted to Fosters on 26 November 1985. 24 The Tapp family alleged, by way of defences and counterclaims in the Northern Territory proceedings, that at material times the applicants because of their relationship with Mr Tapp owed a duty to look after Mr Tapp's interests. They claimed that, by reason of illness, from about 1969 he was unable properly to attend to his own affairs and to make proper judgments concerning them. They claimed that it was the duty of the various applicants to have done so. They claimed that the applicants failed to attend properly to Mr Tapp's affairs, and so induced or enabled him to purchase Maryfield Station and later Roper Valley Station and to incur the indebtedness to them as a result. They also claimed that a similar failure resulted in the overdraft and current account facilities provided by them to Mr Tapp being very much greater than they should have been. Thus, they claimed that Mr Tapp (and the Tapp boys) had a set off or counterclaim equal to or greater than the indebtedness of Mr Tapp to the applicants. The defences and counterclaims of Mr Tapp and of the Tapp boys were amended from time to time in the course of the proceedings. In their express terms, there were significant differences between the causes of action identified in the defences and the counterclaims as amended from time to time. It is the proper characterisation of the defences and counterclaims from time to time in the context of the material facts, in particular whether they give rise to a right to indemnity under the Insurance Policy, which presently falls to be determined. 25 The course of the Northern Territory proceedings was not routine. 26 On 23 May 1992, Mr Tapp died. On 7 July 1992, William Tapp was appointed as litigation representative of the estate of Mr Tapp. I will nevertheless refer to Mr Tapp to encompass both his personal response and the response of his estate in the Northern Territory proceedings. 27 The applicants contend that the allegations against them were to the effect that the Tapp family had suffered compensable loss and damage because of a negligent failure by the applicants to determine where Mr Tapp's interests lay, and to act in protection of those interests in the management of Mr Tapp's account with them, and a failure by the applicants to manage Mr Tapp's account with reasonable skill, care and prudence. Thus they contend that allegations of compensable loss and damage made by Mr Tapp and by the Tapp boys concern claims said to arise out of negligent acts, errors or omissions committed or alleged to have been committed by or on behalf of the applicants in connection with their business, within the meaning of s 2.1 of the Insurance Policy, and alternatively to constitute claims for breach of trust committed in good faith, within the meaning of s 2.6 of the Insurance Policy. 28 The underwriters deny that characterisation. Although they acknowledge that initially the claims by the Tapp family were based on allegations that the applicants owed both Mr Tapp and the Tapp boys duties of care, those defences and counterclaims were struck out and were never re-instated in those terms. They contend that the defences and counterclaims upon which the matter was settled did not involve claims to which, in any respect, the entitlement to indemnity arises under the Insurance Policy. 29 The hearing of the Northern Territory proceedings commenced on 3 August 1993. After some weeks' hearing it was adjourned. 30 On 9 November 1993, those proceedings were settled. The terms of settlement were incorporated in a Deed of Settlement executed on that date ("the Deed"). On 12 November 1993, judgment was entered in the Northern Territory proceedings in favour of the applicants upon the terms and conditions in the Deed.

31 The applicants, in the course of conducting the Northern Territory proceedings,

· incurred legal costs and disbursements in responding to the Tapp family allegations in their defences and counterclaims (the claim for legal costs indemnity)

· incurred a legal liability to pay Mr Tapp a settlement amount as a consequence of the settlement of the Northern Territory proceedings, and waived their claimed entitlement to Roper Valley Station, as recorded in the Deed (the claim for settlement indemnity), and

· incurred costs and expenses in protecting and maintaining the three stations in the control of the receiver (the claim for property protection indemnity).

32 The first issue which arises on the pleadings in the present action is whether, in the circumstances, and in particular having regard to the claims or allegations made by Mr Tapp and by the Tapp boys, any of the claim for legal costs indemnity, the claim for settlement indemnity, or the claim for property protection indemnity, are claims in respect of which the applicants are entitled to indemnity under the Insurance Policy. 33 The applicants claim for legal costs indemnity is for 85 per cent of their costs incurred the Northern Territory proceedings. They recognise that some part (which they assert to be 15 per cent) is attributable to the technical defences of the Tapp family to their own claim, and to the proof of their claim for debt. The total legal costs are said to be $1,545,000, of which 85 per cent is said to be $1,313,700. 34 The applicants claim further that, under the Deed, they agreed to pay to the Tapp family $1,860,000. In the course of submissions, the applicants asserted that the claim for settlement indemnity included both the cash sum payable under the Deed and an amount to represent the value of the Roper Valley Station. They relinquished their claim to Roper Valley Station by the Deed. The underwriters acknowledged in submissions that the value of Roper Valley Station may represent an aspect of the claim for settlement indemnity. 35 The applicants further claim that they incurred legal costs and disbursements of $363,000 in connection with the appointment of the receiver over the three stations, and further costs in connection with the protection and maintenance of the three stations during the period of the receivership, totalling $1,282,000. They claim that total sum of $1,645,000 under the claim for property protection indemnity. 36 The applicants gave notice of their claim to the underwriters on 1 March 1992, during the currency of the Insurance Policy. The underwriters have denied liability. The Issues before the Court

37 The parties prior to the trial had sought orders for the separate trial of certain issues arising in these proceedings. The present hearing proceeded on agreed documentary material. The parties asked that the Court hear and determine only the questions:

1. Whether, having regard to the terms of the Insurance Policy, the underwriters are liable to indemnify the applicants in respect of the claim for legal costs indemnity; and

2. Whether, having regard to the terms of the Insurance Policy, the underwriters are liable to indemnify the applicants in respect of the claim for settlement indemnity.

38 If those two questions are answered in favour of the underwriters, then effectively the applicants will have failed in their claim and it will be dismissed. In that event, a much more prolonged trial will have been avoided. 39 The parties also agreed that, if those questions were answered in favour of the applicants, further evidence would be necessary before the Court could determine whether, under the terms of the Insurance Policy, the underwriters are liable to indemnify the applicants in respect of the claim for property protection costs. In the course of submissions, the applicants asserted that the entitlement to indemnity for the claim for property protection costs also arose under clause 2.2 of the Insurance Policy. In the statement of claim it is said to arise by virtue of the "Claim Reduction Indemnity". 40 There are a number of other, but subsidiary, issues which would also then need to be resolved in the proceedings if the applicants are entitled to affirmative answers to questions 1 or 2 above. They include the quantification of each of the claims, the excess which should be deducted from any amount which the underwriters may be liable to pay, and the claim for damages by the applicants for the failure of the underwriters to accept the obligation to indemnify the applicants under the Insurance Policy. In turn, those issues may involve the need to consider separately the position of each of Fosters, Elders, and ERF to determine their respective losses, and to consider for the purpose of the entitlement to indemnity whether there is one claim, or one claim for each applicant, or one claim in respect of each security instrument and each finance facility granted by each applicant, so as to determine the appropriate level of excess. 41 The parties are hopeful that, in the event that questions 1 and 2 above are answered in favour of the applicants, they will be able to resolve by negotiations a number of those issues and to refine the remaining issues to be determined by the court. 42 In those circumstances, I consider that the proposal of the parties is a sensible one. I vary any orders previously made to direct that the questions:

1. Whether, having regard to the terms of the Insurance Policy, the underwriters are liable to indemnify the applicants in respect of the claim for legal costs indemnity; and

2. Whether, having regard to the terms of the Insurance Policy, the underwriters are liable to indemnify the applicants in respect of the claim for settlement indemnity;

be heard and determined separately from, and prior to, the other issues in these proceedings. I will grant declaratory orders as appropriate in respect of those two issues. Any such orders will not quantify any entitlement to indemnity.

43 The defences to the applicants' claim included "technical" defences, that is defences to the effect that there were flaws in the various securities, in the notices of default and demand, and in the notices of entry into possession. It is not necessary to refer to them further. It is not contended that they gave rise to any entitlement to indemnity under the Insurance Policy.

44 The important allegations are those relating to the relationships and dealings between Mr Tapp and the applicants. 45 In response to the notices of entry into possession, on 10 January 1992 solicitors for the Tapp boys wrote in the following terms:

"Take notice that our clients deny that C W Tapp is in default under the securities acted upon. Our clients assert that the transaction upon which the securities are based have [sic] been vitiated by the infirmity of C W Tapp which has prevailed for the past 8 years with the full knowledge of your organisation and its officers. The mortgagees have engaged in a course of conduct the effect of which has failed to properly recognise the infirmity of the mortgagor in such a manner and circumstances as render the securities avoidable and the alleged debts a nullity. 46 The first defence and counterclaim in the Northern Territory proceedings was filed on 24 January 1992. It was filed on behalf of Mr Tapp and the Tapp boys. Relevantly for present purposes, that defence and counterclaim alleged that: · in about 1974, Fosters agreed to act as the stock and station agent for Mr Tapp, and that the agency agreement included implied terms that Fosters would act in the best interests of Mr Tapp in relation to the sale and purchase of stock, plant and equipment relating to Mr Tapp's pastoral business and would duly account to him; and · by reason of the agency agreement, Fosters owed to Mr Tapp the duty to act in his best interests in relation to the sale and purchase of stock, plant and equipment, and not to act as his agent where its interests and duties conflicted with its duties and obligations to Mr Tapp. It is then alleged that from about 1977, Fosters began to "exert control" over how Mr Tapp expended income from his pastoral business and funds lent to him for the operation of that business, and to give him financial advice in relation to that business and continued to do so until 1991. By reason of those matters it is alleged in par 32 that Fosters, or alternatively the applicants:

"… were under a duty to exercise all reasonable care, skill and diligence in the provision of financial advice and guidance to [Mr Tapp] in relation to the pastoral business." 47 It is then alleged that the monies advanced to Mr Tapp were to be applied for the purposes of the pastoral business in accordance with annual budgets agreed between Mr Tapp and the applicants or one of them, that Mr Tapp was subject to serious physical and mental infirmities in the period when he received significant advances so that he could not properly manage his affairs, that the applicants knew or ought to have known of those infirmities, and that in the circumstances they "unfairly and unconscientiously" advanced the money to Mr Tapp from time to time and procured the securities, including monies advanced to meet his personal debts. Thus it is asserted that the applicants were under a duty to counsel Mr Tapp to seek independent legal advice in relation to the advances and the securities, but that in breach of their duty, they failed to do so. The end result of those allegations is pleaded in the following terms:

"41. By reason of the matters set forth in paragraphs 35 to 38 hereof the second named plaintiff [Fosters]: (a) has acted in breach of the duties set forth in paragraph 32 hereof and has failed to exercise all reasonable care, skill and diligence in the provision of financial advice and guidance to the first named defendant [Mr Tapp] … (b) [h]as acted in breach of the duties set forth in paragraph 29(b) hereof by placing itself in position as the agent of the first named defendant which conflicted with its financial interests in deriving income by way of commission, handling charges interest and other fees from the firstnamed Defendant." 48 There were then separate allegations of breaches of the terms upon which the applicants were to arrange payment of monies on behalf of Mr Tapp, namely that they paid various private accounts on his behalf not related to the pastoral business, and further failed to act in the best interests of Mr Tapp in relation to the sale and purchase of stock, plant and equipment relating to the pastoral business. Particulars were provided. They therefore claimed that the securities were unenforceable, and should be set aside, or that it was unconscionable for the plaintiffs to seek the relief which they sought. 49 The pleading then contains a counterclaim, relying on the matters already asserted. It is said that from about 1984 the Tapp boys managed the day to day operations of the pastoral business, and from the beginning of 1988 that Mr Tapp intended to confer beneficial ownership of the assets upon them during his lifetime to the knowledge of the plaintiffs. From about 1988 the applicants counselled the Tapp boys to seek control and ownership of the assets from Mr Tapp. They then allege that:

"70. By reason of the matters set forth in paragraphs 64 to 69 of their counterclaim herein and further by reason of the matters set forth in paragraphs 36 to 38 of their defence herein the Plaintiffs owed the second to fifthnamed Defendants: (a) a duty of care to act with all reasonable care skill and diligence in the making of loans to the firstnamed defendant. (b) A duty of care in relation to the collection of BTEP subsidies and the application thereof to the reduction of amount outstanding under the Tapp advances. (c) A duty of care in relation to the collection of diesel fuel subsidies and the application thereof in reduction of the amount outstanding under the Tapp advances. (d) A duty of care in relation to the payment of personal accounts of the firstnamed defendant not related to the proper conduct of the pastoral business. (e) A duty of care in relation to the purchase of stock in relation to the pastoral business. 71. In breach of the duties set forth in paragraph 70 hereof the Plaintiffs: (a) Made improvident loans which formed part of the Tapp advances to the firstnamed Defendant which they knew or ought to have known would diminish the interest of the second to fifthnamed Defendants in the assets. (b) Failed to collect BTEP subsidies from the firstnamed Defendant which ought properly have been applied for the purposes of the pastoral business. (c) Failed to collect diesel fuel subsidies which ought properly have been applied for the purposes of the pastoral business. (d) Paid various personal creditors of the firstnamed Defendant in relation to debts incurred which did not relate to the pastoral business. (e) Advised and encouraged the firstnamed Defendant to make purchases of livestock for the pastoral business when they knew or ought to have known that the firstnamed defendant had no proper appreciation of his own interests or those of the pastoral business. (f) Advised the firstnamed Defendant to make sales of stock which were damaging to the pastoral business." 50 The Tapp boys claimed to have suffered loss and damage, including loss of their asserted equity of redemption, as a result. The reference to BTEP subsidies is to the subsidies available under the Brucellosis and Tuberculosis Eradication Programme in operation from 1988. 51 On 21 May 1992, the applicants applied (inter alia) to have that defence and counterclaim struck out. On 23 May 1992, Mr Tapp died. On 29 May 1992, the defence and counterclaim so far as it related to the Tapp boys was struck out. Mr Tapp's position was left in abeyance whilst administration of his estate was sorted out. 52 On 12 June 1992, the Tapp boys filed and served a completely fresh defence. It did not contain any allegations of the nature discussed above, and in respect of which the claim under the Insurance Policy is pursued. It contained essentially "technical" defences to the plaintiff's claim or to dealings with the applicants during 1991, and so attacked the validity and enforceability of the loans and securities. The allegations concerning dealings with the applicants during 1991 appear in later pleadings also, but ultimately they were not pursued. I shall not refer to them further when referring to the course of the pleadings. There was no counterclaim to accompany that defence. It is not necessary to refer to its detailed allegations. The applicants applied promptly for summary judgment, and for that defence to be struck out. It was struck out by order made on 25 June 1992. 53 On 2 July 1992, the Tapp boys filed a further defence. It was of the same general character as the defence of 12 June 1992. There was no counterclaim. It prompted the same response from the applicants. It appears also to have been struck out. 54 On 7 July 1992, William Tapp was appointed to represent the interests of Mr Tapp's estate, and his defence and counterclaim of 24 January 1992 (which had survived only on his behalf following the order of 29 May 1992) was struck out by consent. 55 On 17 July 1992, Mr Tapp filed an amended defence and counterclaim pursuant to leave given on 7 July 1992. It revived issues concerning the applicants' conduct in relation to Mr Tapp from about 1969. From then, Fosters (and at later stages ERF and Elders) are said to have been intimately involved in the affairs of Mr Tapp and in the management of the pastoral business of Mr Tapp. It alleged that since 1977 Mr Tapp had suffered from impaired mental processes and infirmities, so that he was incapable of managing his own affairs, that that was known to the applicants, and that from about 1985 they assumed responsibility and control of his "complete financial affairs". The consequence of those matters is alleged to be that the applicants owed a fiduciary duty to Mr Tapp from 1969, or from 1985, and that he was in a position of special disadvantage in relation to them, and that they held a position of undue influence over him. The defence complained that the applicants advanced funds to Mr Tapp, including for the acquisition of the Roper Valley Station, when they were aware that it was not in the best interests of Mr Tapp, and without advising him to seek independent legal advice. It asserted therefore that the loans and mortgages be set aside, and alternatively asserted that it would be "harsh and unconscionable" for the applicants to enjoy the benefit of them. 56 There was a counterclaim. It alleged that from about 1974 Fosters agreed to act as the stock and station agent for Mr Tapp, and so under contract was obliged to act in his best interests in relation to the sale and purchase of stock, plant and equipment relating to the pastoral business, the collection and payment of income and expenditure in relation to it, and the accounting to Mr Tapp. It was pleaded alternatively:

"53. Further and in the alternative it was the duty of the Second Plaintiff arising from the Agency Agreement: (a) to advise the First Defendant with due care and skill and to act in the best interests of, the First Defendant in relation to the sale and purchase of stock, plant and equipment; (b) not to act as agent of the First Defendant where its interest and its duties and obligations to the First Defendant conflicted; (c) to properly advise the First Defendant in relation to the sale and purchase of stock." 57 The counterclaim alleged that, in breach of the implied terms of the agency agreement, and in breach of the duties in par 53, Fosters failed to advise Mr Tapp "with due care and skill", and failed to act in his best interests in relation to the sale and purchase of stock, plant and equipment relating to the pastoral business. The particulars of those failures may be significant to the resolution of this action. They were:

"(a) failing to collect and apply in reduction of the First Defendant's indebtedness (if any) to the Plaintiffs, moneys due to the First Defendant pursuant to the Brucellosis and Tuberculosis Eradication Programme ("BTEC") from 1985 to 1990 onwards; (b) failing to collect and apply a reduction of the First Defendant's indebtedness (if any) to the Plaintiffs diesel fuel subsidies due to the First Defendant; (c) advising the First Defendant in relation to stock purchases which it knew or ought to have known were ill advised and improvident; (d) making payments which form part of the First Defendant's indebtedness (if any) to the Plaintiffs, in relation to private expenses of the First Defendant particulars of which are contained in Annexure "A" hereto then charging and receiving interest thereon; (e) negligently advising the First Defendant in relation to the purchase and sale of certain stock which purchase and sales were damaging and caused loss to the First Defendant." 58 The counterclaim sought declaratory and other relief, including damages for breach of contract and "breach of duty of care". 59 Again, the applicants applied for summary judgment on that defence and counterclaim or for it to be struck out. On 10 August 1992, leave was given to Mr Tapp and to the Tapp boys, to file and serve further amended defences and counterclaims. 60 On 17 August 1992, a further amended defence and counterclaim of Mr Tapp was filed pursuant to leave granted on 10 August 1992. The relevant allegations for present purposes comprise those concerning Fosters, and later ERF and Elders, as financiers for Mr Tapp and involved in the management of his affairs, and from 1985 being responsible for and in control of Mr Tapp's financial affairs. Again it alleged that Mr Tapp, to the knowledge of the applicants, was unable to attend properly to his own affairs and that the applicants did not advise him to procure independent advice in relation to any of his financial transactions. By virtue of that relationship, Mr Tapp is said to have been in a position of special disadvantage in relation to the plaintiffs, and it is said that they "unconscientiously took advantage" of the several financial transactions to make excessive profits, to obtain security, and to permit him to enter into disadvantageous financial transactions. It was therefore claimed that it would be harsh and unconscionable for the applicants to enforce or retain the benefit of the loan agreements and the securities, and the Tapp interests sought to have them set aside. Alternatively, it was claimed, the applicants held a position of influence over Mr Tapp, which they exercised unduly in procuring from him the various securities. The counterclaim adopted those allegations. It also repeated the allegations earlier made that Fosters acted as stock and station agent for Mr Tapp from 1974, and that there were implied terms in that contract that it would act in his best interests in relation to the sale and purchase of stock, plant and equipment, would collect and pay income and expenditure in relation to the pastoral business, would apply that income where possible to reduce indebtedness, and would duly account to him. It also repeated the allegation noted above as par 53 of the defence and counterclaim of 17 July 1992, with the additional particular that it was the duty of Fosters:

(d) to collect and apply the income of the pastoral business in the most beneficial manner to the First Defendant." 61 It pleaded breaches of the terms of the agency agreement and of "the duty of care" with particulars which are partly in the same terms as in the preceding defence and counterclaim, but with greater particularity, including the allegation that advice concerning stock purchases was given negligently. Particulars of the breaches of contract and duty included that advice about stock purchases was given in circumstances where Fosters obtained financial advantage from Mr Tapp accepting and acting on that advice, and that there was a failure to account properly to Mr Tapp for receipts and payments. It then asserted that "as a result of such breaches and negligence" Mr Tapp suffered loss and damage, including damages for breach of duty of care. 62 Mr Tapp was asked to provide further and better particulars of various allegations in that defence and counterclaim, including those concerning his relationship with the applicants and their taking control of his affairs. By document dated 17 December 1992, certain further information was provided. In respect of some inquiries, the response was "no longer necessary". The particulars sought also concerned the allegations about the terms of the agency agreement and the duty of care, and their breaches, referred to above. In respect of those requests, the response was "no longer necessary". 63 On 17 August 1992, the Tapp boys also filed and served a further amended defence. It did not include a counterclaim. It did not make allegations concerning the existence of any relationship between Mr Tapp and any of the applicants, or any obligations imposed upon any of the applicants to Mr Tapp as a result, or any allegations as to the breach of any such obligations. I suspect the view had been taken that the Tapp boys could not claim derivatively for the breach of any legal obligations owed by the applicants to Mr Tapp. 64 On 21 August 1992, the applicants applied for a number of paragraphs of Mr Tapp's then current defence and counterclaim to be struck out. Those paragraphs included those concerning the relationship of the applicants with Mr Tapp and the breach of the obligations it imposed, but not those concerning the terms of the agency agreement and the duty of care and their breaches. That application came on for hearing on 11 January 1993, together with applications by the Tapp family for leave to further amend their defences and counterclaims filed on 17 August 1992. 65 The proposed further amended defences and counterclaims were presented to the Court. The argument on the application concerned the terms of those proposed further amended defences and counterclaims. 66 The proposed further amended defence and counterclaim of Mr Tapp, relevantly for present purposes, repeated the allegations about Mr Tapp's inability to manage his affairs, the knowledge of the applicants about that inability, and the control the applicants exercised over Mr Tapp's financial affairs in the circumstances. It alleged that each of the loans and securities were procured by the relevant applicant "unconscientiously" and by exercising undue influence over Mr Tapp, and so were each invalid or void. As noted below, those claims were "struck out" or disallowed in the anticipatory pleading by Martin CJ but later restored by the Full Court. Under the heading 'Breach of Fiduciary Duty', there were again repeated allegations about Mr Tapp's inability to manage his affairs, the knowledge of the applicants about that inability, that the applicants in the circumstances exercised effective control over his affairs (now said to be) from 1979, and that therefore the applicants were "fiduciaries of" Mr Tapp. The fiduciary duty was alleged to be:

"… to act in the Deceased's interests, and not exclusively in the Plaintiffs' interests, whilst exercising the aforesaid power they had over the Deceased's financial affairs, in order to protect the Deceased from loss and damage by reason of the Deceased's inability to properly manage or make rational decisions in respect of his financial affairs or to properly protect his own interests that was caused by and arose out of his aforesaid incapacities."

67 The breaches of that fiduciary duty alleged, included the making of the various advances, the taking of the various securities, the permitting of the application of subsidies towards Mr Tapp's personal expenditure rather than reducing the indebtedness to the applicants, and the giving of advice on "ill-advised and improvident" stock purchases and sales. The alleged breaches of fiduciary duty led to counterclaims to set aside the loans and securities, for an account of profits, and for equitable damages. 68 The proposed further amended defence and counterclaim of the Tapp boys was, for present purposes, based upon similar allegations. It alleged the applicants were also fiduciaries of the Tapp boys because of their knowledge of the role the Tapp boys played in working on the stations, and the trust and reliance the Tapp boys placed in the applicants' control over Mr Tapp's affairs, and by representations made by the applicants to the Tapp boys that they would properly exercise their control over Mr Tapp's affairs. It then alleged a fiduciary duty to act in the Tapp boys' interests and the breaches of that duty in much the same terms as that alleged by Mr Tapp. In addition, it alleged that, on the same facts as gave rise to the fiduciary duty, the applicants:

"… owed the Second Defendants a duty to properly exercise the aforesaid control they had over the Deceased and the Second Defendants in order to protect the Second Defendants from loss and damage by reason of the Deceased's inability to properly manage or make rational decisions in respect of his financial affairs or to properly protect his own interests that was caused by and arose out of his aforesaid incapacity." It alleged that that "duty of care" was breached in the same way as the fiduciary duty had been breached. They claimed loss and damage, being the loss of the value of their inheritance, which they called "equitable damages for breach of duty of care". 69 Martin CJ in ruling upon the applications concerning those proposed pleadings observed:

"The factual substratum sought to be relied upon remains much as it did previously. The manner in which the facts alleged are sought to be applied for the benefit of the defendants may well be different and expanded, but that goes largely to the legal results which the defendants say flow from those facts. They also seek additional and alternative forms of relief, and although it might be argued that some of the relief sought is extreme and unlikely to be granted, nevertheless, in so far as the relief sought by the defendants relies upon the exercise of discretion on equitable grounds, then there can be no objection to the pleading just because what is sought is more than what would be likely to be granted."

70 By order formally made on 19 March 1993, his Honour struck out the pleas alleging unconscientious conduct and the exercise of undue influence by the applicants over Mr Tapp, together with the pleas alleging a fiduciary relationship and breaches of it. He directed the Tapp boys to give particulars of the alleged duty of care and its breach. In very general terms, the Tapp boys' allegations of breach of duty of care were allowed to stand, subject to further particulars being provided, but the allegations of unconscientious conduct and exercise of undue influence and breach of fiduciary duty made by Mr Tapp and by the Tapp boys were struck out. 71 Mr Tapp and the applicants sought, and were granted, leave to appeal from that decision. The Full Court of the Supreme Court of the Northern Territory on 4 June 1993 allowed the appeal of Mr Tapp, and restored his pleas alleging unconscientious conduct and the exercise of undue influence by the applicants over him. It also allowed the cross-appeal of the applicants, and struck out the plea by the Tapp boys that a duty of care was owed to them by the applicants. On that aspect, Angel J who delivered the judgment of the Full Court (Angel, Mildren and Morling JJ) said:

"We would respectfully agree with the Chief Justice that the matters alleged in the pleading could arguably give rise to the requisite relationship of proximity between the parties. However, on the hearing before us Mr Maurice was unable to persuade us that even if it were established at the trial that there was a duty owed to the second appellants by the plaintiffs, and a breach thereof, they have suffered any damage. The events in question happened in the lifetime of the deceased and any damage suffered must necessarily have been that of the estate of the deceased alone. In these circumstances, we think the paragraph ought to have been struck out."

72 The Tapp boys were refused leave to appeal from the striking out of their allegations that the applicants separately owed them a fiduciary duty which had been breached. As the Full Court pointed out, if Mr Tapp through his estate were to succeed in the claims made against the applicants, then his estate would be recompensed to a level which would mean that the Tapp boys' claim to their inheritance would not have been diminished. Their claim for damages was, in that sense, purely derivative. 73 At this point then, the issues between the parties so far as they concern the present proceeding, are identified really by reference to Mr Tapp's defence and counterclaim handed to the Court on 11 January 1993. They were the allegations based upon causes of action for unconscientious conduct, exercise of undue influence by the applicants and breach of fiduciary duty. Mr Tapp's defence and counterclaim, unlike that of the Tapp boys, did not expressly allege the breach of any duty of care. 74 On 18 June 1993, solicitors for Mr Tapp's estate applied for leave to amend the counterclaim to allege a breach of the common law duty of care and negligence on the part of the applicants and for damages for negligence. It was sought to allege that duty, and its breaches, upon the same factual foundation as those giving rise to the existing allegation of fiduciary duty and its breaches. It was clearly made as a consequence of the Full Court's decision that any loss was in reality that of Mr Tapp or his estate. That application was refused on 25 June 1993. Martin CJ gave reasons for that decision in the following terms:

"The elements going to make up a cause of action in negligence are not sufficiently made out in the proposed amended pleading. The value of the property at risk in these proceedings and the relief sought by the first defendant is such that a mere general statement as to the basis of a counterclaim without proper regard to material facts and necessary particulars at this stage of the proceedings. These are not good enough. Consideration such as those that have been stressed time and again throughout the pleadings, arguments and decisions in this case." … Furthermore, regard must be had to the possible consequences of the plea if it is permitted. There are questions arising under the Limitations Act which would almost certainly be taken and have to be dealt with prior to trial. The plaintiffs would have to give consideration as to whether they or any of them should claim contribution from the first defendant, or by way of contribution from any of the other defendants. They should not be called upon to divert their energies to considerations such as those unless confronted with a clear necessity to do so at this stage of the proceedings upon properly pleaded counterclaims." 75 The applicants submitted that that ruling was based partly upon the conclusion that the proposed pleading was defective and inadequate, and partly upon case flow management considerations having regard to the proximity of the trial. 76 Effectively, that is where the relevant allegations stood when the matter proceeded to trial. 77 The material before me contains a further amended defence and counterclaim of Mr Tapp dated 19 July 1993, and one dated 24 July 1993 in effectively the same terms. Those documents maintained the allegations that the applicants had unconscientiously taken advantage of Mr Tapp and had exerted undue influence over him, and the allegations of breach of fiduciary duty including the claim for equitable damages for breach of fiduciary duty, as expressed in the document handed to the Court on 11 January 1993, which had been permitted by the Full Court. There was no allegation of a breach of a common law duty of care. 78 The Tapp boys also apparently filed further amended defences dated 19 and 24 July 1993. Apart from a slight renumbering, those documents also appear to be identical. There was no allegation concerning a duty of care at common law. The defences raised generally reflect those pleaded by Mr Tapp. As would be expected following the decision of the Full Court, there was no counterclaim. 79 On 31 July 1993 a further amended defence and counterclaim of Mr Tapp, and a further amended defence of the Tapp boys was filed. Those pleadings contained further particulars of certain paragraphs of the earlier documents, apparently pursuant to an order of 16 July 1993. There were no additions which are material for present purposes. 80 As noted earlier, the hearing then commenced on 3 August 1993. On 12 November 1993, orders were made in the Northern Territory proceedings by consent giving judgment for the applicants on their claims against Mr Tapp in total for $15,125,991.99, and declaring that the applicants were entitled on 7 or 8 January 1992 to enter into possession of Roper Valley Station, Killarney Station and Maryfield Station, and that the Tapp boys had wrongfully interfered with that possession. The Deed

81 The Deed was between the applicants, Mr Tapp by the administrator of his estate, the Tapp boys, and other members of the family of Mr Tapp who were beneficiaries under his will. Its recitals referred to the history of the Northern Territory proceedings and the issues in those proceedings. Those recitals included:

"The first defendant also alleged that he had available to him a set off and counterclaim against the plaintiffs' claims. The first defendant alleged, in substance and effect, that the plaintiffs had negligently and recklessly advanced monies to the first defendant during the period from at least 1979 until late 1991 and that such reckless and negligent [sic] by the plaintiffs resulted in a breach of a fiduciary duty allegedly owed by the plaintiffs to the first defendant arising from the first defendant's alleged incapacity to manage his own affairs by reason of alcoholism or the intake of alcohol. The plaintiffs denied all these allegations made by the first defendant."

82 It recorded that the parties to the Deed had settled all issues between them. 83 The operative clauses of the Deed included the parties' express acknowledgment and warranty to each other that the recitals are true and accurate. They provided for consent judgment to be entered in the Northern Territory proceedings in the terms recorded above. The Tapp family agreed that Killarney Station and Maryfield Station would be the property of the applicants unconditionally and relinquished and abandoned "any claims or entitlements they may have to dispute" the applicants' right to possession of those stations. The applicants agreed to relinquish any claim to Roper Valley Station, and to discharge both the mortgages over that station and the stock mortgage over the stock on that station; it was to become an unencumbered asset of Mr Tapp's estate. The applicants also agreed to pay to the Tapp family $1,100,000 upon terms set out in the Deed. There are further provisions which it is not necessary to refer to. The Contentions

84 The applicants accept that the onus is upon them to establish the right to indemnity under the Insurance Policy.

85 The claim for legal costs indemnity is said to arise under clause 2.2 of the Insurance Policy. It is argued that the expression "relate to claims made against the Assured" in that clause encompasses possibly indemnifiable claims made against them within another substantive provision of the Insurance Policy. That is, if the claims made, if proved, would attract an entitlement to indemnity under the Insurance Policy, then the costs incurred in responding to them will attract indemnity under clause 2.2 provided that the claims are made during the relevant policy year, and provided the costs and disbursements are incurred with the written consent of the underwriters. That approach is consistent with the decisions in Karenlee Nominees Pty Ltd v ACN 004 312 234 Ltd (1994) 8 ANZInsCas 61-236 and in Dwyer v Long (1992) 58 SASR 102 at 108. The underwriters accept that construction of clause 2.2 of the Insurance Policy. 86 It is then contended that the costs and disbursements the subject of the claim for legal costs indemnity relate to claims made "arising out of [a] negligent act, error or omission alleged to have been committed by or on behalf of" the applicants within clause 2.1 of the Insurance Policy, or relate to claims for "… breach of trust committed in good faith." within clause 2.6 of the Insurance Policy. It is at this point that the real issue is joined. The underwriters contend that the claim or claims made against the applicants in the Northern Territory proceedings, if they had succeeded, would not have entitled the applicants to indemnity under the substantive indemnifying clauses of the Insurance Policy, and in particular clauses 2.1 and 2.6. 87 For present purposes, the question of the consent of the underwriters to solicitors for the applicants acting generally in the Northern Territory proceedings, including defending the counterclaim, is not in issue. The applicants by their insurance brokers notified the underwriters of the terms of the then allegations by the Tapp family on 2 April 1992. The underwriters recognised that at least some of those allegations gave rise to matters in support of which the applicants might be entitled to indemnity if they were made out, and on 14 April 1992 they authorised in writing the solicitors then acting for the applicants in the Northern Territory proceedings to act generally including in relation to those allegations. Issues as to quantum, and as to the applicable excess or excesses, do not presently arise. 88 In relation to the assertion that the costs were incurred in responding to a claim made which fell under the aegis of clause 2.1 (had it succeeded), the applicants submit that that claim was explicitly so expressed initially and for much of the period during the conduct of the Northern Territory proceedings, that it was explicitly so expressed in the Deed, and that in substance the detailed allegations of the Tapp family at all times during the conduct of the Northern Territory proceedings constituted allegations of conduct which would fall within the indemnity shield of clause 2.1. They maintain that submission notwithstanding that the labels used at various stages in the history of the pleading, and as used in the pleadings upon which the matter went to trial, were those of unconscionable conduct, undue influence, and breach of fiduciary duty. They refer to the point, pithily made in Breen v Williams (1995-1996) 186 CLR 71 by Gaudron and McHugh JJ at 113 that Australian courts do not recognise prescriptive fiduciary duties, but only proscriptive fiduciary duties. Their Honours said:

"In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interest. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed."

89 In Breen (above, at 93), Dawson and Toohey JJ noted the contrast in the following passage:

"It has been observed that what the law exacts in a fiduciary relationship is loyalty, often of an uncompromising kind, but no more than that. The concern of the law in a fiduciary relationship is not negligence or breach of contract."

90 The applicants categorise the claims as being, in reality, claims for negligence in approving certain lending, for giving inadequate advice and for poor management of the account, with respect to Mr Tapp's running of the properties. They alternatively claim that the allegations fall within the protection of clause 2.6 of the Insurance Policies. 91 It is also contended by the applicants that the claim for legal costs indemnity is, or may be, a claim distinct from the claim for settlement indemnity. That latter claim is also posited upon clauses 2.1 and 2.6 of the Insurance Policy, based upon the payment made by reason of the Deed and upon the other terms agreed in the Deed. It is contended that the claim for legal costs indemnity may be covered by clause 2.2 of the Insurance Policy, even though the Court finds that the claim for settlement indemnity ultimately does not fall within the cover provided by clauses 2.1 or 2.6 of the Insurance Policy. 92 Similarly, the applicants allege that the claim for property protection indemnity also is, or may be, a claim distinct from the claim for settlement indemnity. It is said to be based primarily upon clauses 2.2 or 2.3 of the policy, but again it is contended that it does not necessarily fail if the claim for settlement indemnity fails. In the circumstances outlined earlier, it is unnecessary to address that issue presently. 93 Simply to dispose of one additional issue which was argued, but not seriously contested, I conclude that the claim for settlement indemnity may succeed, provided it falls within one of the insuring clauses relied upon, even though no judgment after trial was entered. Judgment by consent was entered in favour of the applicants against the Tapp family, but as the Deed indicates, there were also agreements made by consent involving payment of sums of money by the applicants to the Tapp family and the acknowledgment that they could retain the Roper Valley Station. In Post Office v Norwich Union Fire Insurance Society Limited (1967) 2 QB 363 at 378 Salmon LJ expressed agreement with the statement of Devlin J in West Wake Price & Co v Ching [1957] 1 WLR 45 at 49 that:

"The assured cannot recover anything under the main indemnity clause or make any claim against the underwriters until they have been found liable and so sustained a loss."

Salmon LJ made the qualification or rider that that observation does not:

"expressly point out that liability and quantum can be ascertained not only by action but also by arbitration or agreement." 94 The authorities in support of the proposition that legal liability to pay under an insurance policy can arise only when that liability is determined by way of action, arbitration or agreement are conveniently collected in the judgment of Chilwell J in Broadlands Properties Ltd v Guardian Assurance Co Ltd (1984) 3 ANZInsCas 60-552 at 78,304. It is not contended in the present matter that the agreement arrived at, as recorded in the Deed, was an inappropriate one, or that there are other circumstances which make its consequence not binding upon the underwriters (cp Broadlands above). Consideration of Submissions

95 It is trite to say that the question whether the applicants are entitled to the indemnity which they claim depends upon the proper construction of the Insurance Policy.

96 The principal issue is whether the claim for settlement indemnity is in respect of a legal liability "arising out of any negligent act, error or omission committed or alleged to have been committed" by the applicants. If it is of that character, then the applicants will be entitled to indemnity in respect of the claim for settlement indemnity, and generally (subject to one reservation to indemnity in respect of the claim for legal costs indemnity). It is the common position that the pleadings in the Northern Territory proceedings in large measure define and articulate the claims alleged against the applicants in respect of which they seek indemnity. 97 The underwriters submit that those claims are properly determined by reference to the nominal causes of action alleged against the applicants in the counterclaim. I do not accept that submission. It is appropriate to refer to the pleadings in the Northern Territory proceedings to define and articulate the "claims" made against the applicants and notified to the underwriters to determine whether they arise out of any negligent act or omission committed or alleged to have been committed by the applicants. In my judgment, however, the appropriate consideration in addressing that question is to look at the substantive nature of the claims made, rather than the name or names of the causes of action ascribed to the conduct complained of. In Rigby v Sun Alliance & London Insurance Ltd (1980) 1 LLR 359, per Mustill J at 363, his Lordship applied West Wake (above) in the following terms:

"In order to decide whether the putative liability of the plaintiffs to the claimants was a liability which [fell within the policy cover], it is necessary to ascertain the legal basis of the claim in the main action. For this purpose it is common ground that one must look at the true nature of the cause of action and not at the way in which the claimants happen to have expressed it."

98 Thorman v New Hampshire Insurance Co (UK) Ltd (1988) 1 LLR 7 adopted the same approach, per Sir John Donaldson, MR, Stocker and Russell LJJ. Stocker LJ at 16 said:

"Plainly, a claim can only be enforced by legal proceedings where the appropriate cause of action is pleaded and proved, but the cause of action is not, itself, a claim but the necessary vehicle for its legal enforcement …"

"I think that the primary meaning of the word "claim" - whether used in a popular sense or in a strict legal sense - is such as to attach it to the object that is claimed; and is not the same thing as the cause of action by which the claim may be supported or as the grounds on which it may be based. … … If the word is to be used with any precision, it must be defined in relation to the object claimed. The grounds for the claim or the causes of action which support it can give it colour and character, but cannot give it its entity. (at 57)

"It follows, I think, that if there is only one object claimed by one person, then there is only one claim, however many may be the grounds or the causes of action which can be raised in support of it: likewise, where several claims are each dependent on the same cause of action (as, for example, where one cause of action leads to alternative claims for an injunction, damages or an account or other different forms of relief), there remains only one cause of action, however many claims it may give rise to. In my judgment there is in each of these actions against the insured only one claim and I have therefore to consider whether this "mixed" claim is a claim in respect of negligence within the meaning of the policy."

100 The approach of looking at the substance of the matter, has also been adopted by the Court of Appeal of New South Wales (Kerr CJ, Hardie and Bowen JJA) in Walton v National Employers' Mutual General Insurance Association Ltd (1973) 2 NSWLR 73. Bowen JA at 83 said in respect of an insurance clause entitlement to indemnity which arose "out of negligence in the conduct of the insured business as stockbrokers":

"Negligence in this context I take to mean a want of care or skill. I do not read it as referring in a technical sense to the tort of negligence. The policy is designed to protect the insured against the consequences of negligence in the conduct of the business of stockbrokers. The condition is met if the claim arise from a want of care or skill in the conduct of the business, whether the cause of action happens to be based on contract or tort. The words "arising out of" I take to mean originating in or springing from."

101 Kerr CJ at 79 noted the same point in the following terms:

"If the breach occurred because of negligence in the conduct of the insured's business as stockbroker, the claim in respect of the breach could be said to arise out of that negligence, even though the negligence was not the basis of the third party's claim against the insured. The negligence in the conduct of the business has caused the contractual breach, though it is not the basis of legal liability. A policy of the kind involved here would, in my opinion, extend to claims of this kind arising out of negligence in the conduct of the business."

102 I turn to consider the nature of the claim (or claims) made by Mr Tapp and the Tapp boys against the applicants. It was not suggested that I should treat the claim or claims separately by reason of any variations in the nature of the conduct alleged over the period of time that the conduct took place. Nor was it suggested that any point of discrimination existed between the conduct of any one of the applicants compared to the conduct of any of the others of the applicants. 103 The question I address is whether the claim, or any of the claims, made in the Northern Territory proceedings was in substance a claim "arising out of the negligent act, error or omission committed or alleged to have been committed" by any of the applicants in connection with their business, and alternatively whether the claim or any of the claims made in the Northern Territory proceedings is a claim for breach of trust committed in good faith. I am using the term "claim" to refer generally to the affirmative responses of Mr Tapp and the Tapp boys in their defences and counterclaims in the Northern Territory proceedings. 104 I have set out in some detail the nature of the allegations over the period of time from the first defence and counterclaim on 24 January 1992 until the action was settled and the Deed entered into on 12 November 1993. 105 In my judgment, there were at least two "claims" made by Mr Tapp and the Tapp boys in the Northern Territory proceedings, and maintained by them throughout. The first of those claims is a claim that by virtue of the relationship between the applicants and Mr Tapp, the applicants owed to him a duty to take care in the conduct of his affairs on his behalf, and failed to do so. That failure, as alleged, includes failing to give advice or take other steps concerning the nature and timing of the sale and purchase of stock plant and equipment, and concerning the appropriate application of resources, giving inadequate advice as to the acquisition of Roper Valley Station, giving inadequate advice about the borrowing levels appropriate to Mr Tapp's businesses, giving inadequate advice about the eligibility and means of applying for various subsidies, and the quality of stock purchased, and giving inadequate advice about and making inappropriate arrangements for the payment of creditors. The second claim involves the allegation that, by reason of Mr Tapp's infirmity as known to the applicants, in the contractual dealings between the applicants and Mr Tapp, they had a position of influence or superiority over him which obliged them, by reason of that relationship, not to act in their own interests but to act in his interests, and that they failed to accord to Mr Tapp's interests the primacy which that relationship imposed upon them as a matter of law. That allegation generally falls under the description of unconscionable behaviour. 106 In Walton (above), the policy insured stockbrokers against any claim for which the firm was legally liable arising out of negligence in the conduct by the firm of its business of stockbroking. The firm, having received specific purchase orders from two clients, and having acquired shares to meet those orders, failed to apply all the shares to the orders of the client and partly applied the shares purchased to another person. That was done through an error on the part of an employee of the firm. The clients then instructed the firm to sell those shares, and it duly did so, including the shares wrongly allocated to another client, so that it had oversold those particular shares. It accordingly purchased the over sold shares on the open market so that the clients were not at loss, and then claimed the cost of buying those over sold shares less their then value from the insurer. The insurer denied liability simply because there was no amount for which the firm was legally liable to pay to the clients arising out of negligence, and it succeeded in that defence. For present purposes, the significance of the decision involves consideration of the question whether that which occurred was a "negligent act, error or omission". The expression in the policy incorporating "negligence" was described as determining the type of claim and not the type of legal liability. As Kerr CJ said at 78-79, that section of the policy defined the claim as being one which must arise out of negligence and one for which the insured is legally liable. A claim may arise out of negligence even though the basis of legal liability will not be tortious negligence, but (for example) breach of contract. 107 Whether the cause of action which gives rise to the claim first mentioned is called a cause of action in tort for negligence, for breach of contract, or breach of fiduciary duty, in my judgment, does not matter to the question of whether the conduct giving rise to that claim falls within clause 2.1 of the Insurance Policy. The gravamen of the complaint is that, by reason of the relationship between the applicants and Mr Tapp, they owed certain obligations to him, including obligations that they should not conduct his affairs in a careless or irresponsible manner, and that they failed to meet those obligations. That claim, in my judgment, on the proper construction of clause 2.1, constitutes a claim arising out of a negligent act, error or omission committed or alleged to have been committed by them. It does not matter to that claim that ultimately the only foundation for it as an identified cause of action was as part of a claim entitled "breach of fiduciary duty". 108 There was an hiatus between 18 June 1993 and the date of the Deed 12 November 1993 during which no express allegation of breach of a common law duty of care existed in the pleadings. It was during that period that the trial commenced and ran for some time. The factual matters alleged, upon which the claim based upon the cause of action for breach of fiduciary duty went to trial, nevertheless included in substance alleged conduct amounting to negligent acts, errors or omissions. 109 The first defence and counterclaim on behalf of Mr Tapp and the Tapp boys together, dated 24 January 1992, asserts an agency agreement by virtue of which the applicants are alleged to have undertaken the obligation to act in the best interests of Mr Tapp in operating as his stock and station agent. The conduct giving rise to the breach of that obligation specifically include the conduct of failing properly to fulfil it. It included allegations that the applicants, by reason of their relationship with Mr Tapp, were obliged to give him proper advice but gave inadequate or careless advice. I have referred in some detail to the facts alleged in the pleadings above. That defence and counterclaim was struck out. There was a short period during which the defences did not include any offensive claims but simply technical defences. When the matter was repleaded on 17 July 1992, Mr Tapp (but not the Tapp boys) maintained allegations of the general nature, that the applicants had a duty to act with due care and skill and to act in Mr Tapp's best interests, and to properly advise him, and that they failed to do so in a number of specified respects. So too did Mr Tapp's next amended defence and counterclaim of 17 August 1992. A further attack on those pleadings led to the proposed amended defences and counterclaims being presented on 11 January 1993. That proposed defence and counterclaim asserted that the relationship between the applicants and Mr Tapp obliged them to act in Mr Tapp's interests and that they failed to do so, including by giving inappropriate advice. It did not allege conduct constituting negligent acts, errors or omissions in as much detail as his earlier pleadings, but it did contain allegations of that general nature. As noted earlier, the proposed amended defence and counterclaim of the Tapp boys also presented on 11 January 1993 made such allegations in greater detail. The Full Court of the Supreme Court of the Northern Territory on 4 June 1993 disallowed the Tapp boys' allegations as any loss of which they complained was in reality loss sustained by Mr Tapp. Mr Tapp then promptly applied to introduce explicit allegations of negligence and breach of duty, but was not permitted to do so by Martin CJ for reasons referred to earlier in these reasons. It was submitted by counsel for Mr Tapp that the proposed amendments really only identified fresh causes of action based on facts already pleaded. Martin CJ regarded the proposed amendment as insufficiently particular, and also said that case flow considerations did not warrant the grant of that application. It was then only six weeks to the trial. It was in those circumstances that the hiatus occurred in there being a cause of action expressly within the terms of clause 2.1 of the Insurance Policy. Even in that circumstance, par 43 of the allegations of Mr Tapp upon which the matter proceeded to trial included that, by reason of the relationship between the applicants and Mr Tapp, the applicants owed him a fiduciary duty

"to act in [Mr Tapp's] interests and not exclusively in [their own] interests … in order to protect [Mr Tapp] from loss and damage …"

110 Those breaches are said to have enabled the applicants to make profits which they were not entitled to make, and to have caused Mr Tapp to incur debt which he would not otherwise have incurred. The particulars of those breaches, and the particulars of the applicants acting in their own interests and not in Mr Tapp's interests are the same. Those particulars assert that the applicants acted wrongfully in: · making advances to Mr Tapp which they knew were not reasonably required for the operation of the stations, and would be irrationally applied by him · permitting and allowing him to purchase Roper Valley Station when the decision was not rational, not in his best interests, and when he was unable to manage the station either in a general sense or because of his indebtedness level, so that profit from operating the station would not account for the increased outgoings on finance and so that his financial position would worsen · failing to apply various subsidies to which Mr Tapp became entitled between 1988 and 1991 to reduce indebtedness to them, and permitting Mr Tapp to expend those subsidies for purposes not reasonably required for the proper operation of the stations, unrelated to them and irrationally · between 1979 and November 1991 charging Mr Tapp interest on his indebtedness at rates in excess of those reasonable for the type of finance being provided · in December 1989 permitting him to purchase Western Creek Station when it was not rational and in his best interests to do so, when he was unable to manage it properly, and when the increased indebtedness costs would be in excess of the likely profit · between 1988 and 1991, failing to "require" him to sell one of the three stations to reduce his indebtedness so that his financial position would not deteriorate and · between 1988 and 1991 advising him to purchase and sell stock at times when and in circumstances in which it was ill-advised and improvident and would cause him loss (particulars of those sales are given, and it is alleged that certain sales for purchases were in the applicants' interests because of the commission and because of the benefit to the applicants in creating a buoyant market or a perception of a buoyant market). 111 The counterclaim is for orders that the loan agreements and the various security documents be set aside and not be enforced, for declarations that the notice of default was invalid and that there was no default under the security documents, for an account of profits made by reason of breach of fiduciary duty or restitution for unjust enrichment, for "equitable damages for breach of statutory duty", and for such "further or other orders as to the Court seem just and equitable". 112 The claim as it went to trial included a claim for damages by Mr Tapp, which the Tapp boys could not themselves pursue for the reasons given by the Full Court of the Supreme Court of the Northern Territory, that the relationship between the applicants and Mr Tapp imposed upon the applicants an obligation to act with care in their role in the conduct of his affairs and that they failed to do so, as a result of which he suffered loss. It was not solely a claim for an accounting for profits. It was a claim which required an assessment to be made of the quality of their conduct to determine whether they should be made liable for all, or some, of the economic detriment of which he complained. In substance, in my judgment, to that extent the action even from 4 June 1993 after the decision of the Full Court included a claim which fell within clause 2.1 of the Insurance Policy. 113 In my view, the fact that such a claim remained as a substantive part of Mr Tapp's claim and the Tapp boys' claim against the applicants is also evidenced by the Deed. The recitals in the Deed record (as the parties acknowledge) that the substance and effect of the allegations by Mr Tapp and the Tapp boys against the applicants was that they had negligently and recklessly advanced monies to Mr Tapp over many years in breach of a fiduciary duty allegedly owed to him. Although the expression "fiduciary duty" is contained in the recitals, the nature of the conduct of which complaint is made is in substance said to be the negligent and reckless advance of monies to Mr Tapp. The recitals do not specifically refer to the claims made in the Northern Territory proceedings based upon causes of action for unconscientious conduct or for undue influence. 114 The claim for unconscientious exploitation of Mr Tapp is, in my judgment, a claim separate from the claim for damages for conducting his affairs incompetently or inadequately. In Commercial Bank of Australia v Amadio (1983) 151 CLR 447, that point emerges for example in the judgment of Mason J at 461. His Honour said:

"Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interests."

"The equitable principles relating to relief against unconscionable dealing and the principles relating to undue influence are closely related. The two doctrines are, however, distinct. Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party [references]. Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogued."

116 His Honour referred to the decision of Fullagar J in Blomley v Ryan (1956) 99 CLR 362 at 405 where there was listed some examples including infirmity of body or mind, drunkenness and the like. Deane J added at 480-481:

"Relief against unconscionable dealing is a purely equitable remedy. The concept underlying the jurisdiction to grant the relief is that equity intervenes to prevent the stronger party to an unconscionable dealing acting against equity and good conscience by attempting to enforce, or retain the benefit of, that dealing. Equity will not, however, "restrain a defendant from asserting a claim save to the extent that it would be unconscionable for him to do so. If this limitation on the power of equity results in giving to a plaintiff less than what on some general idea of fairness he might be considered entitled to, that cannot be helped" (per Lord Green MR, Wrottesley and Evershed LJJ, in Re Diplock [1948] 1 Ch 465 at 532. Where appropriate, an order will be made which only partly nullifies a transaction liable to be set aside in equity pursuant to the principles of unconscionable dealing [references]. Where an order is made setting aside the whole of the transaction on the ground of unconscionable dealing, the order will, in an appropriate case, be made conditional upon the party obtaining relief doing equity."

117 That is distinct to some degree from the existence of a fiduciary duty, although it is correct to say that the underlying obligation and basis for a fiduciary duty lies in the requirement that the fiduciary act in the best interests of the party to whom that duty is owed, and that the fiduciary not make a profit at the expense of that party. In Hospital Products Ltd v United States Surgical Corporation (1984-1985) 156 CLR 41, that emerges clearly from the observations of Gibbs CJ at 96-97where his Honour said:

"The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of", and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal."

118 Mason J at 102-104 discussed the scope of the fiduciary duty. 119 It is convenient to treat the claims of unconscionable conduct and undue influence and the related factual allegations as one claim. The facts alleged relate to the unconscientious exploitation of Mr Tapp by the applicants. In my judgment, the substance of the allegations underlying that claim indicates that it does not fall within the cover which clause 2.1 of the Insurance Policy provides. It does not assert that the foundation for the relief claimed is any "negligent act error or omission" by the applicants or any of them. It is not based on any want of care on their part, but upon them deliberately procuring Mr Tapp to undertake certain liabilities to them when, by reason of their awareness of his condition and their relationship with him, they should not have done so. Their obligation of loyalty to him was not fulfilled. 120 The applicants contend, alternatively, that that claim falls within clause 2.6 of the Insurance Policy, as being a claim for "breach of trust committed in good faith". I do not accept that contention. The normal legal meaning of "breach of trust" is a breach by a trustee of duties under a trust. Clause 1.1 of the Insurance Policy contains the definition of the "business" of the applicants. It includes activities in the nature of "trustee services". That type of business is well known, and has an ordinary meaning to encompass the provision of the professional services of acting as trustee of a trust. That meaning does not encompass unconscientious exploitation of the nature alleged. The additional wording in clause 2.6 that the breach of trust be committed in good faith, in my view, is particularly applicable to breach of a specific trust. It does not comfortably accommodate conduct of the nature alleged in relation to this claim. A trustee, in the exercise of a discretionary power, must act honestly and in good faith: R v Holl (1881) 7 QBD 575 at 580-581. Mere carelessness on the part of a trustee will not constitute a breach of that obligation: Jones v Gordon [1876] 2 AC 616 at 628-629. In the conduct of the business of providing trustee services, the applicants as trustees may be called upon to make many discretionary decisions, including as to the investments of the trust from time to time. If it transpires that an investment decision was made unwisely or perhaps in an unauthorised way, and that decision was made through carelessness on the part of one of the applicants, it is clear that clause 2.6 of the Insurance Policy would respond to provide cover. That clause, therefore, has an appropriate function in the Insurance Policy consistent with the application for which the respondent contends. There are, as counsel for the underwriters pointed out, many categories of fiduciaries who are not trustees: Hospital Products (above), per Gibbs CJ at 69, per Mason J at 96-97, and per Dawson J at 141-142; Jenyns v Public Curator (Queensland) (1953) 90 CLR 113 per Dixon CJ, McTiernan and Kitto JJ at 132-133. The use of the term "breach of trust" in clause 2.6 of the Insurance Policy was, I find, not used by the parties to provide insurance protection beyond conduct involving a breach of trust by the applicants in the conduct of their business in providing trustee services. Counsel for the applicants referred to clause 2.17 of the Insurance Policy as indicating that clause 2.6 should not carry its ordinary and limited meaning. I do not think that clause 2.17 has that effect. In my view, it is simply a provision to extend the operation of the Insurance Policy to further entities related to the applicants upon their acquisition or registration. 121 In addition, I note that the specific events in respect of which clauses 2.4, 2.5, 2.7 and 2.8 of the Insurance Policy refer indicate that the protection which the Insurance Policy is intended to provide has been carefully addressed. The fact that those clauses so specifically address the detailed circumstances in which they may operate to provide indemnity under the Insurance Policy also, in my view, indicates that the wording of clause 2.6 was intended to address only the specific circumstances it refers to and not to describe some wider set of circumstances for which insurance cover is intended beyond that which the normal legal use of the words would convey. 122 The applicants also sought to derive support for their construction of clause 2.6 of the Insurance Policy from certain authorities under provisions of the Bankruptcy Act 1869 (UK) and its legislative counterparts. The starting point was Emma Silver Mining Company v Grant (1881) 17 Ch D 122. 123 In that case, a financial agent for, and promoter of, a company took a secret commission from the vendor of a mine which was sold to the company. The company obtained a finding against its agent for that sum, but judgment was not entered until after his bankruptcy. The issue was whether that judgment could be proved in the agent's bankruptcy. One contention for the company was that the liability of the agent was a "liability by means of fraud or breach of trust" within the meaning of s 49 of that Act. Jessel MR at 127-128 categorised the agent's conduct as fraudulent so as to entitle the company to prove in his bankruptcy. His Lordship also addressed the claim that the conduct of the agent constituted a breach of trust under s 49, and concluded at 129-130 that the section encompassed breach of a constructive trust as well as breach of an express trust. He said:

"There does not appear to me any reason in the world for not giving the words "breach of trust" in the Bankruptcy Act their proper technical legal meaning. If an agent, either buying or selling, misuses or abuses the confidence reposed in him with a view to retaining the profits for himself, he commits a breach of trust. If you entrust an agent with Ł100 to buy a bale of goods, and he lays out Ł90 and pockets Ł10, and tells you he has laid out the Ł100, that is a breach of trust as regards the Ł10 which he has not applied according to the trust. If, on the other hand, he sells a bale of goods for you for Ł100, and tells you he has sold it for Ł90 and pockets the Ł10, he is guilty of a breach of trust as regards the Ł10. Why a Judge should be asked to exercise his ingenuity to allow a man to escape the consequences of such acts I do not know. The right mode of reading the section is the literal mode of reading it; and I so read it. Consequently I hold that Mr. Albert Grant has, in the present case, not only been guilty of fraud, but has also been guilty of a breach of trust."

124 Jessel MR made clear at 130 that he regarded the liability as arising from a contract, whether called a contract of trusteeship, to account for the secret commission. That foundation for the liability being provable in bankruptcy was recognised also in Re MacFadyen; ex parte The Vizianagaram Mining Co Ltd [1908] 2 KB 817 at 822-823 per Farwell L.J., and in Barewa Oil and Mining NL (In Liq) v Isim Mineral Development Pty Ltd (1981) 38 ALR 288 at 292 per Brinsden J. 125 In Fuller v Beach Petroleum NL (1993) 43 FCR 60, Gummow and Whitlam JJ at 62 concluded that a judgment debt founded in breach of fiduciary duty as directors was not excluded from proof in Bankruptcy by s 82(2) of the Bankruptcy Act 1966 (Cth) as the phrase "by reason of a contract, promise or breach of trust" is wide enough to include demands arising by reason of breach of fiduciary duty. That view also seems to be reflected in the approach of Young J in Chittick v Maxwell (1993) 118 ALR 728, esp. at 738-740, when his Honour held that the liability for the particular breach of fiduciary duty in that case was incurred by fraud so as to be provable in bankruptcy. 126 I do not derive assistance in the construction of the Insurance Policy from the Court's approach to the question of the circumstances in which a liability by reason of breach of fiduciary duty is provable in bankruptcy, even though a liability in tort may not be provable although it may arise out of much the same facts. As those cases illustrate, the response to that issue has been determined by reference to the particular terms of the legislation and the policy underlying those provisions. The approach in those cases has been to categorise the nature of the claim by reference to the cause of action. That is because the legislation has directed attention to that consideration. I have concluded earlier in these reasons that it is the substance of the claim, rather than the legal tag which may be attached to it to signify the cause of action, which is the measure of whether liability for particular conduct attracts the entitlement to indemnity under the Insurance Policy. 127 Accordingly, in my judgment the claim against the applicants based upon unconscientious exploitation dealing in relation to Mr Tapp is not one which, if successful, would entitle the applicants to indemnity under the Insurance Policy. 128 The result thus far is that the claims made by Mr Tapp and by the Tapp boys against the applicants in the Northern Territory proceedings involved two separate and distinct claims. 129 The first of those claims, whether expressed in terms of negligence, or breach of contract, or breach of fiduciary duty, was in substance a claim which (if successful) would give rise to a liability arising out of negligent acts, errors or omissions committed by the applicants within the meaning of clause 2.1 of the Insurance Policy. In respect of that claim, in my judgment, the applicants are entitled to succeed under clause 2.2 of the Insurance Policy to be indemnified for the legal costs and disbursements incurred in responding to those allegations. To that extent, I consider that the claim for legal costs indemnity succeeds. 130 The second of those claims, whether expressed in terms of undue influence, or unconscionable conduct, or breach of fiduciary duty, was in substance a claim which (if successful) would not give rise to a liability to which any provision of the Insurance Policy would respond by providing indemnity. It is a claim for unconscientious exploitation of Mr Tapp. In respect of that claim, I do not consider that the applicants are entitled to indemnity under the Insurance Policy for the legal costs and disbursements incurred in responding to those allegations. To that extent, I consider that the claim for legal costs indemnity fails. 131 I do not think that there is any reason in law why I should not give effect to that conclusion. In West Wake (above), Devlin J ruled at 53-54 that in the particular circumstances there was only one substantive claim being pursued and that the "true nature of the claim" was for liability arising from an employee's dishonesty. The policy in consideration did not provide indemnity in respect of that liability. I do not regard his Lordship as ruling that in every case, and no matter the breath and complexity of the facts alleged or the period of time over which the offending conduct is alleged, the Court must in every case identify one only substantial claim as that being pursued. There will be cases where that would clearly not be sensible. 132 My attention was also drawn, in this regard, to the decision of Giles J in Council of the Shire of Mudgee v Government Insurance Office of NSW (Supreme Court of New South Wales, 1 July 1988, unreported). In that case, indemnity was being sought for the costs incurred in successfully defending proceedings in a claim by a property owner arising from the Council's conduct in entering certain property and destroying trees growing there. The claim against the Council was expressed by reference to alternative causes of action in trespass, negligence, breach of statutory duty, and in nuisance, although the same essential factual allegations underpinned each clause of action. The insurer acknowledged its liability to indemnify the Counsel for certain of those costs incurred. The issue was whether that obligation extended to all the costs, or only those somehow apportioned to the claim expressed to be in "negligence". Giles J characterised the claim as being one for damages for negligence, however the causes of action were expressed. The Council was therefore entitled to indemnity for the full amount of its costs. It was not necessary to consider the apportionment of costs. His Honour did not indicate that, in an appropriate case, the entitlement to indemnity might be in respect of that part only of the costs which were incurred in respect of the claim to which the policy would respond, but not a claim to which the policy would not respond. 133 In Rohan Construction Ltd v Insurance Corporation of Ireland Plc [1988] 1 ILRM 373, the Supreme Court of Ireland (Finlay CJ, Griffin and Hederman JJ) was confronted with a claim alleging negligence against a sub-contractor and a claim for negligence and alternatively for breach of contract against the principal contractor. The insurer declined to indemnify the principal contractor. Their Lordships held that the essence of the claim was in negligence, so the policy operated to provide indemnity in any event. They added (at 379):

"In any event, I find it difficult to see how the fact that the same act amounted to both a tort and a breach of contract could enable insurers to avoid liability under a Professional Indemnity Policy on the basis that it was a mixed claim - if that were the true legal position, such a policy would be of little avail to a professional man, such as a solicitor, accountant, architect, engineer, doctor, dentist etc., as the same act of negligence causing damage to the client is almost invariably a breach of contract also …"

134 I respectfully agree with those observations. They seem to me to recognise that there will be occasions where there are two distinct substantial foundations for a loss in respect of which indemnity has been claimed, and that there is no reason in law why the insurance policy should not provide indemnity in respect of that loss to the extent that the insured event has caused that loss. That approach in the end is no more than applying the policy of insurance according to its terms. 135 The defences and counterclaims of Mr Tapp and the Tapp boys involved the maintaining of two separate and distinct claims up to the trial of the Northern Territory proceedings. However, as noted earlier, those proceedings were resolved during the course of the trial. Judgment was entered by consent in favour of the applicants on their claims. The counterclaim of Mr Tapp was also compromised. On the evidence before me, that compromise involved a substantial payment by the applicants to Mr Tapp, or more correctly his estate, and the relinquishment of any claims they had over Roper Valley Station. Further, the recitals to the Deed record the basis upon which that payment and concession were made by the applicants. The terms of the relevant recital are set out earlier in these reasons. In "substance and effect" the conduct in respect of which that payment and concession were made was negligent and reckless conduct by the applicants in advancing money to Mr Tapp from 1979 to 1991, which is said to constitute a breach of fiduciary duty owed by them to Mr Tapp. 136 There is no suggestion that the terms of the Deed, including the recitals, were not reached in genuine and arms length negotiations between the parties to the Northern Territory proceedings. In the light of the terms of the Deed, in my judgment, the amount which the applicants agreed to pay to Mr Tapp or his estate, and the relinquishment of their claims in respect of Roper Valley Station, were made in respect of that claim by Mr Tapp which in substance arose out of negligent acts, errors, or omissions committed or alleged to have been committed by them. I conclude that clause 2.1 of the Insurance Policy, on its proper construction, entitles the applicants to indemnity against the underwriters. 137 In Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, concerning the claims by various members of Lloyd's syndicates against the underwriting agents for those syndicates, one issue concerned the nature of the duty owed by the underwriting agents and the consequence if that duty were a fiduciary one. Lord Browne-Wilkinson said at 205:

"The liability of a fiduciary for the negligent transaction of his duties is not a separate head of liability but the paradigm of the general duty to act with care imposed by law on those who take it upon themselves to act for or advise others. Although the historical development of the rules of law and equity have, in the past, caused different labels to be stuck on different manifestations of the duty, in truth the duty of care imposed on bailees, carriers, trustees, directors, agents and others is the same duty: it arises from the circumstances in which the defendants were acting, not from their status or description. It is the fact that they have all assumed responsibility for the property or affairs of others which renders them liable for the careless performance of what they have undertaken to do, not the description of the trade or position which they hold. In my judgment, the duties which the managing agents have assumed to undertake in managing the insurance business of the Names brings them clearly into the category of those who are liable, whether fiduciaries or not, for any lack of care in the conduct of that management."

138 Wilcox and Lindgren JJ in Australian Breeders Cooperative Society Ltd v Jones (1997) 150 ALR 488 made observations to much the same effect at 517. 139 On the evidence, I have characterised the substance of the allegations upon which the claim for settlement indemnity is made as being one to which clause 2.1 of the Insurance Policy responds. In my judgment the claim for settlement indemnity succeeds. Orders

140 I make the following determinations in response to the questions to be determined at this stage of these proceedings.

Question: Whether having, regard to the terms of the Insurance Policy, the underwriters are liable to indemnify the applicants in respect of the claim for legal costs indemnity. Answer: Having regard to the terms of the Insurance Policy, the underwriters are liable to indemnify the applicants in respect of the claim for legal costs indemnity, but limited to such costs and disbursements as were incurred in responding to the allegations made by Mr Tapp and the Tapp boys in the Northern Territory proceedings in their defences and counterclaims from time to time in so far as those allegations in substance constituted allegations that the applicants or one or other of them had failed to act with proper care in relation to the advancing of funds to Mr Tapp and the advice given to him and the actions taken on his behalf from time to time. Question: Whether, having regard to the terms of the Insurance Policy, the underwriters are liable to indemnify the applicants in respect of the claim for settlement indemnity. Answer: Having regard to the terms of the Insurance Policy, the underwriters are liable to indemnify the applicants in respect of the claim for settlement indemnity. 141 I propose to adjourn the action to enable the parties to explore the extent to which the other issues between them can now be resolved in the light of those determinations. I give leave to the parties on seven days' notice to restore the matter to the list for directions as to the further progress of the action. 142 In my view, the applicants have substantially succeeded on their claims so far as they have been litigated. The claim for legal costs indemnity is a substantial one, and they have only partly succeeded in that regard. I think justice would be done if I order that 75 per cent of the costs of the applicants to date be taxed and paid by the respondents. I certify that the preceding one hundred and forty-two (142) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.

Associate: Dated: 16 June 1999 Counsel for the Applicants: Mr J Wells QC with him Mr P McNamara

Solicitors for the Applicants: Johnson, Winter & Slattery

Counsel for the Respondents: Mr S Kaye QC with him Mr P Howden

Dates of Hearing: 22, 23 & 24 June 1998