Forge Group Ltd (in liq) (receivers and managers appointed) v Hutchinson [2018] NSWSC 467 | Case summary

Judgment

The plaintiff, Forge Group Ltd (in liquidation) (receivers and managers appointed), commenced these proceedings on 4 August 2017 against a number of its former directors and their D&O insurer, ACE Insurance Ltd (now known as Chubb Insurance Australia Ltd) and three excess layer insurers.
Forge sought, as interlocutory relief, leave under s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) ("the Act") to proceed against the insurers. Forge sought to have that matter determined as a preliminary question.
Forge has now withdrawn that application.
On 6 April 2018 I heard argument as to what costs order should be made in relation to the withdrawn application.
On 6 April 2018 I ordered that the insurers pay Forge's costs of the application from and including 25 October 2017 and that the application otherwise be dismissed.
I deferred giving my reasons because I wished to afford the insurers' solicitor, Ms Avryl Lattin, a partner of Clyde & Co, an opportunity to respond to concerns I had as to some aspects of the matter.
That has now occurred. Ms Lattin affirmed an affidavit that responds with candour and propriety to the concerns I expressed.

What happened

On 7 September 2017, Clyde & Co accepted service of the Summons and Commercial List Statement on behalf of its insurer clients.
The solicitors for Forge, Squire Patton Boggs, had not hitherto asked Clyde & Co, or the insurers themselves, whether indemnity of the directors was in question.
On 22 September 2018, I made directions by consent that aimed to ensure Forge's application for leave would be determined (if possible) on 8 December 2018.
Pending determination of its application for leave, Forge did not serve the directors themselves. It is common ground that had Forge obtained leave under the Act it would not have needed to serve the directors.
I discussed the circumstances in which leave would be granted in circumstances like this - albeit by reference to the statutory predecessor to the Act, the Law Reform (Miscellaneous) Provisions Act 1946 (NSW) - in DSHE Holdings (receivers and managers appointed) (in liq) v Abboud; National Australia Bank v Abboud [2017] NSWSC 579. I mention that judgment not because it is memorable but because it contains a convenient summary of the relevant principles.
A factor relevant to whether leave should be granted under the Act is the utility of granting leave. A factor relevant to utility is whether the insurers in question have confirmed to their insureds that the policies will respond to the claim made. Such confirmation is often made subject to reservations; for example, that the confirmation is made on the basis of information presently known, is subject to the terms of the policy, and is without prejudice to the right of the insurers to revisit the question of indemnity should further material facts emerge. I will refer to these as "the customary reservations".
On 9 October 2017, Squire Patton Boggs, for Forge, wrote to Clyde & Co, for the insurers: "Whether your clients contest their liability under the insurance policies 5 We expect that for Forge to obtain the leave sought in the Application, the Court will need to be satisfied that it is at least arguable that your clients' insurance policies (as pleaded in the Statement of Claim) (the Policies) respond to the liability that is alleged against the former directors and officers of Forge in the Statement of Claim. The [notice to produce] is directed to establishing the strength of that proposition. 6 The extent to which the documents sought by the [notice to produce] are necessary will be informed, at least in part, by the position adopted by your clients with respect to the Policies. If your clients accept that the Policies respond to the liabilities alleged in the Statement of Claim, it will not be necessary for our client to call on the [notice to produce] at all. 7 The balance of this letter proceeds on the basis that your clients will, or may, dispute that the Policies respond to the liabilities alleged in the Statement of Claim. Please let us know if that assumption is wrong."
In effect, Squire Patton Boggs asked Clyde & Co whether indemnity was contested.
On 9 November 2017, Ms Banton from Squire Patton Boggs had a conversation with Ms Lattin as follows: "Ms Banton: 'We need some further time to finalise the evidence in relation to the leave to proceed application, however, we have asked you previously whether your clients are indemnifying and I don't know if you know yet, but it would be helpful to know, as, if they are that will impact whether we proceed with the application or the nature of the evidence we will be putting on.' Ms Lattin: 'Our clients have not made a decision on indemnity yet.' Ms Banton: 'Do you know when they are likely to?' Ms Lattin: 'I anticipate that we will not confirm the position until we put on our evidence.' Ms Banton: 'We may all not need to go to do evidence though if you tell us the position.' Ms Lattin: 'We will not be confirming the position until we put on our evidence so you should assume that and do your evidence.' Ms Banton: 'Ok.'
Ms Lattin accepts that when she said that "[o]ur clients have not yet made a decision on indemnity yet", she knew that, several weeks earlier on 25 October 2017, Chubb had notified three of the former directors of Forge (Messrs Gallagher, Siford and Smith - each of whom is a defendant) that it accepted liability to indemnify subject to the customary reservations.
In her affidavit, Ms Lattin said: "I genuinely believed that Ms Banton's question regarding my client's decision on indemnity related to the collective position of the Insurers and, when I responded that my clients had not made a decision on indemnity yet, I was referring to the collective position of the Insurers.
Ms Lattin went on to say that, at the date of her conversation with Ms Banton, she did not believe that a decision made by Chubb in respect of Messrs Gallagher, Siford and Smith would necessarily be determinative of Chubb's indemnity decision in relation to other insured directors.
Accordingly Ms Lattin said: "Accordingly, as at this date, I did not consider that I was in a position to confirm the collective indemnity position of the Insurers."
I accept that this was Ms Lattin's state of mind at the time.
In her affidavit Ms Lattin continued: "My failure to inform Ms Banton of the indemnity decisions made by [Chubb] in this conversation was not intended to secure a forensic advantage for the Insurers or to cause [Forge] to incur costs. To the contrary, if I had thought that providing Ms Banton with this information would have resulted in [Forge] withdrawing its Application against [Chubb] or other Insurers, I would have advised her of the indemnity decisions that had been made. With the benefit of hindsight, I accept that I should have advised Ms Banton of the indemnity decisions that had already been made by [Chubb]. I apologise to the Court for not providing this information to Ms Banton at the time and am mortified by the suggestion that my failure to disclose this information may have resulted in additional costs being incurred or otherwise affected the course of the Application."
On 14 November 2017, Chubb notified another former director, Mr Ellison, that its policy responded to Forge's claim, subject to the customary reservations.
On 17 November 2017, Ms Lattin herself sent similar notifications to the legal representatives of five other former directors; Messrs Hutchinson, Craig, Simpson, Cardaci and O'Connor.
Thus by 17 November 2017, Chubb either by itself or by Ms Lattin had confirmed indemnity on the customary basis to 9 of the 13 former directors of Forge named in the Summons.
None of this was revealed to Squire Patton Boggs.
In her affidavit, Ms Lattin said that she did not believe that the decisions made by Chubb thus far necessarily were determinative of the decisions it might make in relation to the remaining director insureds.
Again she said: "My decision not to communicate the indemnity decisions made by [Chubb] to [Forge] at the time the indemnity decisions were made was not intended to achieve a forensic advantage for the Insurers or to cause [Forge] to incur costs. I accept that I should have informed [Forge] as, and when, each indemnity decision was made by [Chubb]. I apologise to the Court for not taking this course and am very remorseful that my failure to disclose this information may have resulted in additional costs being incurred or otherwise affected the course of the Application."
In her affidavit, Ms Lattin also pointed out that, on 24 November 2017, at a directions hearing, senior counsel for Chubb, dealing with a notice to produce that Forge had served on Chubb, informed the Court that "there is some likelihood that it will be my client's collectively ultimate position…that there is, subject to the usual reservations, grant of indemnity".
On 12 December 2017, Squire Patton Boggs wrote to Ms Lattin stating that, as they understood it, the insurers were "still confirming their position as to whether the policies they have issued respond to the claims brought in the Proceedings".
On 11 January 2018, Clyde & Co confirmed that that understanding was correct.
By now, as I have mentioned, Chubb had confirmed indemnity, subject to the customary reservations, to 9 of the 13 directors named in the Summons.
In that regard Ms Lattin said in her affidavit: "Clyde & Co's failure to refer to indemnity decisions made by [Chubb] in its response of 11 January 2018 was not intended to secure a forensic advantage for the Insurers or to cause [Forge] to incur costs. To the contrary, if I had thought that providing [Squire Patton Boggs] with this information would have resulted in [Forge] withdrawing its Application against [Chubb] or the other Insurers, I would have provided this information. I take full responsibility for the fact that Clyde & Co did not advise [Squire Patton Boggs] of the indemnity decisions that had already been made by [Chubb] at this time and I apologise to the Court. I did not intend to cause [Forge] to incur additional costs or affect the course of the Application."
On 30 January 2018 Ms Lattin swore an affidavit in which she revealed, for the first time, the October and November confirmations of indemnity to the nine former directors to whom I have referred.
On 12 February 2018 Squire Patton Boggs stated that, on that basis, Forge did not seek to proceed with its application for leave against the nine former directors. They also enquired as to the position in relation to the other former directors.
Once Chubb confirmed that indemnity would also be afforded to those other directors, and that the excess insurers intended to follow suit, Forge withdrew its application for leave.
Chubb contends that Squire Patton Boggs' letter of 12 December 2017 contains an indication that Forge would have proceeded with its application for leave whether or not Clyde & Co revealed the confirmations of indemnity. In response to a proposal from Clyde & Co that Squire Patton Boggs not call on a notice to produce, Squire Patton Boggs wrote: "First, it is a condition of our client agreeing to defer [calling for] production [of the documents sought in the notice to produce] that, if your clients do indicate that (subject to the usual reservations) they accept that the policies respond to the claims brought in the Proceedings, then if our client presses production at that point, your clients would bring any application to set aside the [notice to produce] very promptly thereafter, so that it can be heard comfortably prior to 22 February 2018."
The letter is directed to the question of what Forge would do about a notice to produce it had served if the insurers confirmed that the policies responded. The letter does seem to imply that the application for leave would nonetheless be pressed.
However, a more reliable guide as to what Forge would have done is its conduct once confirmation of indemnity was revealed in February 2018; namely, promptly to withdraw the application.
Ms Lattin's failure to reveal in November 2017 that indemnity had been confirmed to the nine former directors appears to be consistent with her statement to Ms Banton on 9 November 2017 that "we will not be confirming the position until we put on our evidence" and her understanding as to the insurers' "collective position" (see [18] and [20] above).
It was not, however, consistent with Chubb's obligation under s 56(3) of the Civil Procedure Act 2005 (NSW) to assist the Court to further the overriding purposes of that Act to facilitate the just, quick and cheap resolution of the real issues in the proceedings. Nor is it consistent with Ms Lattin's own duty under s 56(4) to not cause Chubb to be in breach of that duty.
It should have been obvious to Chubb and to Ms Lattin that if Chubb had revealed confirmation of indemnity in November for 9 of the 13 directors, Forge would likely not have pressed its application for leave until the insurers' final "collective" position had been revealed.
Ms Lattin appears now to accept this is so, and has to her credit made the acknowledgments and offered the apologies to which I have referred. In those circumstances, I see no reason to take matters further so far as concerns Ms Lattin.
However, the fact remains that earlier revelation of Chubb's indemnity decisions would likely have resulted in Forge's application to be disposed of in November 2017, rather than in February 2018, and for the costs incurred since then to have been saved.
It was in those circumstances I was persuaded to make the costs order.

Forge Group Ltd (in liq) (receivers and managers appointed) v Hutchinson

At a glance

Court

Decision date

Before

Source

Judgment (4 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (1)