Murray Goulburn Co-operative Co. Limited v AIG Australia Limited

Murray Goulburn Co-operative Co. Limited v AIG Australia Limited - [2021] FCA 288 - FCA 2021 case summary — Zoe

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BEACH J: 1 The first applicant, Murray Goulburn Co-Operative Co. Limited (MGCL), and the second applicant, MG Responsible Entity Limited (MGRE), seek declaratory relief with respect to the availability of indemnity under a commercial insurance policy issued by the respondent, AIG Australia Ltd (AIG). MGCL is the policyholder, and both MGCL and MGRE, which is a wholly owned subsidiary of MGCL, are insureds. 2 In essence, the applicants (the MG entities) seek: (a) a declaration that on the proper construction of the definition of "Securities Claim" in the policy of insurance issued to MGCL by AIG titled "Gold Complete" and numbered 300018514 (the ABC policy), each of the claims made in representative proceedings numbered VID 508 of 2017 and VID 1010 of 2018 (the class action claims) satisfies the definition of "Securities Claim" in the ABC policy; and (b) a declaration that on the proper construction of endorsements 7, 8, 10 and 11 of the ABC policy and the exclusion headed "Professional Financial Services" in the ABC policy, those endorsements and the exclusion do not apply to the subset of class action claims that relate to the purchase in the secondary market of units in the MG Unit Trust (MGUT) between 3 July 2015 (alternatively 31 August 2015) and 26 April 2016. 3 The ABC policy contains two indemnifying sections, being the "Directors' & Officers' Liability Section" and the "Company Securities Section". The former is commonly referred to as sides A and B cover and provides cover for liabilities in respect of claims against directors and officers. The latter is known as side C cover and, in general terms, covers liabilities in respect of securities claims made against the corporate insured(s). 4 I should note that the policy that immediately preceded the ABC policy was a directors' and officers' liability insurance policy that provided sides A and B cover only (the former AB policy). 5 The policy period for the ABC policy was 29 July 2015 to 30 September 2016, but this was extended by endorsement to 14 October 2016. I should also note that endorsement 10 contained a retroactive date exclusion in relation to certain matters occurring or arising before 3 July 2015. As will become apparent, this retroactive date, which is the date on which units in the MGUT were listed for quotation on the Australian Securities Exchange, has some significance for the construction of the ABC policy. 6 Now the MG entities procured the additional side C cover under the ABC policy in the context of a capital restructure in mid-2015. 7 In general terms, this capital restructure involved three steps. First, the creation of a unit trust, namely, the MGUT, as a vehicle for raising funds from external investors. Second, the creation of a new wholly owned subsidiary of MGCL, which was then appointed the responsible entity of the MGUT. This subsidiary is MGRE, which has at all relevant times been the responsible entity for the MGUT. Third, and as I have said, the listing for quotation of units in the MGUT on the ASX, which occurred on 3 July 2015. 8 I should note at this point that units in the MGUT were first made available for acquisition by eligible members of the public off-market prior to the listing of the MGUT pursuant to a product disclosure statement dated 29 May 2015 (the PDS) by which MGRE invited certain investors to acquire fully paid units in the MGUT. Later, units were available to be purchased on-market after listing on 3 July 2015, which were of course secondary market transactions. 9 Let me return to the ABC policy. The key insuring clause of relevance is contained in the "Company Securities Section" and states under the heading "Company Securities": The Insurer shall pay the Loss for, or on behalf of, any Insured Entity for any Securities Claim. 10 Each of the MG entities is an "Insured Entity" and AIG is an "Insurer". But by endorsement 1, in addition to AIG, each of Zurich Australian Insurance Ltd and Allianz Australia Insurance Ltd is also an "Insurer", each with a one-third share of the limit of liability of $30 million. Accordingly, AIG's maximum liability under the ABC policy is $10 million. I should note that Zurich and Allianz are not parties to the present proceeding as there is no dispute between them and the MG entities as to the proper construction of the ABC policy. Further, apparently their liabilities under the ABC policy have now been discharged. 11 The MG entities' claims for indemnification under the ABC policy arise from claims made in representative proceedings commenced by Endeavour River Pty Ltd (the Endeavour River class action) and by John Webster (the Webster class action). The class action claims involved allegations of misrepresentation and non-disclosure of material information to the ASX and the market which caused loss to the applicants and group members in each proceeding. Both proceedings have now been settled with settlement approval given under s 33V of the Federal Court of Australia Act 1976 (Cth) on 20 December 2019 and 7 April 2020 respectively. 12 AIG says that it is not liable under the ABC policy to indemnify the MG entities in respect of the class action claims. It asserts that the class action claims do not fall within the definition of "Securities Claim". Further, it says that one or more exclusions apply, in particular the exclusions in endorsements 7, 8, 10 and 11, and the exclusion headed "Professional Financial Services" in the body of the ABC policy (the professional services exclusion). 13 Now the MG entities accept that certain exclusions apply to distinct matters included in the class action claims, specifically, claims with respect to units in the MGUT purchased or otherwise acquired by unitholders in the primary market pursuant to the PDS prior to the date of listing of the MGUT. But they say that given that units in the MGUT could not be acquired pursuant to or issued under the PDS post-listing but could only be acquired on the secondary market, and also given that the MG entities procured side C cover in the context of the listing of the MGUT and the trading of units on the ASX, the side C cover in the ABC policy covers claims made concerning units purchased from the date of listing. 14 At this point I should note that the Webster class members were relevantly those persons who purchased units in the MGUT between 29 May 2015 and 2 May 2017. And the Endeavour River class members were relevantly those persons who purchased units in the MGUT between 29 May 2015 and 26 April 2016. Accordingly, it follows from what I have said that the MG entities only seek indemnity in relation to a subset of class action claims concerning the acquisition of units in the MGUT on and after 3 July 2015. 15 Now according to AIG, the question of whether the ABC policy responds to any of the class action claims and, accordingly, whether the MG entities are entitled to the declaratory relief sought involves a consideration of: (a) the proper construction of the ABC policy including: (i) the meaning of "Security" in the context of side C cover; (ii) the meaning of "Securities Claim"; (iii) the construction of endorsements 7, 8, 10 and 11; and (iv) the proper construction of the professional services exclusion; and (b) the form and substance of the pleaded class action claims. 16 In summary, AIG contends that: (a) the units in the MGUT do not fall within the definition of "Security" and therefore none of the class action claims made are a "Securities Claim"; (b) even if the claims fall within the definition of "Securities Claim", endorsements 7, 8, 10 and/or 11 and the professional services exclusion apply and therefore disentitle the MG entities to the declaratory relief sought; and (c) in the context of (b) many of the class action claims are matters arising out of, are based on, or are attributable to the PDS and the prospectus, which I will identify later, as well as to events occurring or arising before 3 July 2015. 17 For the following reasons, I would reject AIG's contentions. 18 Let me then turn to the terms of the ABC policy.

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The ABC policy - insuring clause and exclusions 19 Let me first address the insuring clause and then I will identify the exclusions on which AIG relies. As the ABC policy stipulates, where words are bolded they indicate defined terms in the policy. 20 The indemnifying clause provides that "[t]he Insurer shall pay the Loss, for or on behalf of, any Insured Entity for any Securities Claim". 21 "Insured Entity" is defined as "the Policyholder, any Subsidiary and any Plan". MGCL is the "Policyholder". MGRE is a "Subsidiary". Therefore, each of MGCL and MGRE is an "Insured Entity". 22 Now an "Insured Entity" also includes a "Trust". This is provided for under the heading "Additional General Extensions", where reference is made to "Trust Liability". It is stated that "Insured Entity shall also include any Trust". "Trust" is in turn defined as "any trust other than a Plan that an Insured Entity is the responsible entity or trustee of". As I have said, MGRE is an "Insured Entity" and is also the responsible entity for the MGUT. 23 Accordingly, on the face of the ABC policy, the MGUT falls within the definition of "Trust" and, by reason of the extension of the definition of "Insured Entity", also falls within that definition. 24 Let me turn to another aspect. 25 "Securities Claim" is defined as follows: a Claim alleging a violation of any laws (statutory or common), rules or regulations concerning Securities, the purchase or sale or offer or solicitation of an offer to purchase or sell Securities, or any registration relating to such Securities: (i) brought by any person alleging, arising out of, based upon or attributable to the purchase or sale, or offer or solicitation of an offer to purchase or sell any Securities; or (ii) brought by any holder of Securities with respect to such Security-holder's interest in Securities; or (iii) brought derivatively on behalf of any Insured Entity by a Security-holder, seeking compensation or other legal remedy for a Wrongful Act of an Insured Entity or Manager… 26 "Security" is in turn defined as "any security representing debt of or equity interest in any Insured Entity". 27 The terms "security" with a lowercase "s", "debt of" and "equity interest" in the definition of "Security" are not defined in the ABC policy. I will return to these aspects later, although I would say now that in my view, a unit in the MGUT is a "security" being a form of "equity interest" in the MGUT. And as I have said, the MGUT is a "Trust" and therefore falls within the extended definition of "Insured Entity". I will return to these matters later. 28 "Claim" is defined as: a (i) written demand; (ii) civil, regulatory, mediation, administrative or arbitration proceeding, including a counter-claim, seeking compensation or other legal or equitable remedy; or (iii) criminal proceeding, for a Wrongful Act. 29 "Wrongful Act" is defined as "any actual, alleged or proposed act, error or omission, breach of duty, breach of trust, misstatement, misleading statement or breach of warranty of authority by an Insured". 30 "Loss" is defined as: any amount which the Insured is legally liable to pay, including Defence Costs, awards of damages (including punitive and exemplary damages), awards of costs or settlements (including plaintiff's legal costs and expenses), Compensation Orders, pre- and post- judgment interest on a covered judgment or award, and the multiplied portion of multiple damages. 31 It is not in issue that the MG entities have suffered "Loss" by reason of the settlements reached in the Endeavour River class action and Webster class action for the amounts of the settlements reached and any defence costs. 32 Let me then turn to the exclusions. 33 The ABC policy contains exclusions in the main body of the policy, and also exclusions in endorsements that appear on separate pages after the main body. 34 There are twelve endorsements which were made at the time of the inception date of the ABC policy, being on 29 July 2015. Ten of the endorsements operate as exclusions. Some endorsements apply to either the sides A and B cover in the "Directors' and Officers' Liability Section" or to the side C cover in the "Company Securities Section"; other endorsements apply to both policy sections. I should note for completeness that a thirteenth endorsement was made following the inception of the ABC policy concerning the extension to the policy period that I have already mentioned. 35 Relevantly to the present proceeding, six of the endorsements apply to the "Company Securities Section". In the present context, AIG relies on four of these endorsements to refuse indemnity, being the exclusions in endorsements 7, 8, 10 and 11. AIG also relies on the professional services exclusion that appears in the main body of the ABC policy. 36 Endorsement 7 is titled "Debt or Equity Offerings Exclusion 10-14". It is in general terms. It states that: Debt or Equity Offerings The Insurer shall not be liable under the applicable Section(s) for any matter arising out of, based upon, attributable to an offer made for the issue, sale, or transfer of any Securities in: (i) a Disclosure Document; or (ii) any written or verbal representations in connection with such Disclosure Document. Definitions: The following Definition is added to the Policy for the purpose of this endorsement only: Disclosure Document any prospectus, information memorandum, registration statement or similar document whether or not it has been or is required to be filed or registered with the Australian Securities and Investments Commission or the United States of America Securities and Exchange Commission or any other similar authority in any other jurisdiction. 37 Endorsement 11 titled "Specific Matters Exclusion 10-14" is expressed to specifically relate to the PDS, as well as a prospectus issued by MGCL dated 1 May 2015 (the prospectus) in respect of the issue of shares in MGCL. It states under the heading "Specific Matters": The Insurer shall not be liable under the applicable Section(s) for any matter arising out of, based upon, attributable to: 1. MG Unit Trust Product Disclosure statement dated 29 May 2015 lodged with the Australian Securities and Investments Commission on that date; or 2. The Murray Goulburn Prospectus dated 1 May 2015 lodged with the Australian Securities and Investments Commission on that date. 38 It appears that endorsement 11 was specially drafted to deal with the MG entities' circumstances, whilst endorsement 7 is apparently a standard exclusion in AIG's side C policies. 39 Endorsements 7 and 11 cover over-lapping subject matter and I will discuss their significance later. The question is the scope of the words "any matter arising out of, based upon, attributable to" in each endorsement. 40 Endorsement 10 is titled "Retroactive Date Exclusion 10-14". It excludes liability for "Wrongful Acts" occurring or arising before 3 July 2015, which as I have said is the date on which the MGUT was listed on the ASX. Now on a "claims made" policy, the retroactive date is the date from which coverage extends back to provide cover for liability arising from wrongful acts of an insured occurring prior to the inception of the policy. I should say that in the present case, both the direct operation of this endorsement and its relevance to the construction of "Security" and "Securities Claim" have significance. 41 Endorsement 8 titled "Professional Services Exclusion 10-14" excludes liability arising out of the provision of third party professional services. It states that "The Insurer shall not be liable under the applicable Section(s) for any matter arising out of, based upon, attributable to the provision of third party professional services of any kind…". 42 The professional services exclusion in the main body of the ABC policy is in similar terms, but does not contain the words "third party". In the section "General Policy Exclusions", under the heading "Professional Financial Services" what is excluded is said to be liability for: any matter arising out of, based upon or attributable to the performance of or failure to perform professional services or related back-office supporting services, or any act, error, or omission relating thereto in the capacity of an Insured. 43 Before addressing the competing construction arguments directly, it is necessary to address some contextual matters and facts known to both the MG entities and AIG at and prior to the inception of the ABC policy.

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The capital restructure 45 MGCL was registered in 1950 as an unlisted public company. MGRE was registered on 29 August 2014 as an unlisted public company. 46 The MGUT was established on 1 May 2015 and registered as a managed investment scheme under s 601EB of the Corporations Act 2001 (Cth) on 28 May 2015. MGRE was appointed trustee of the MGUT and it was the responsible entity for the purposes of Pt 5C.2. 47 Now shareholders of MGCL had to be dairy farmer suppliers. Accordingly, the MGUT was the only opportunity for non-dairy farmer investors to participate in the underlying performance of MGCL. 48 In May 2015, MGCL and MGRE embarked on a strategy to raise funds to invest in capital projects via equity offers made to different classes of investors. 49 Eligible suppliers were able to purchase shares in MGCL pursuant to a supplier share offer or a supplier priority offer pursuant to the prospectus. 50 Further, eligible investors could purchase units in the MGUT pursuant to the PDS. Two offers were made in this context, namely, a retail offer and an institutional offer. The retail offer opened on 9 June 2015 and closed on 24 June 2015. The institutional offer took place by way of a book build, which opened on 29 June 2015 and closed the next day. It was expected that $445.4 million would be raised under the PDS with a further $5 million expected to be raised through the issue of shares in MGCL to suppliers under what was described as the "supplier priority offer", with at that point $49.6 million having already been raised by MGCL under the "supplier share offer". 51 To be clear, by the time the offers under the PDS were opened, the supplier share offer pursuant to the prospectus had closed. 52 Once the offers under the PDS closed, eligible persons could no longer apply for units under the PDS. 53 Now the number of units that were to be on issue immediately following the listing of the MGUT on the ASX depended on the take up of the offers pursuant to the PDS prior to listing. Further, the price of units to be paid by eligible investors who applied pursuant to the PDS was to be determined by reference to the institutional book build. The price was to be announced to the market on 3 July 2015. 54 At this point, let me say something further about the PDS. The PDS: (a) contained forward-looking statements including various financial forecasts; (b) stated that MGRE would have obligations under the ASX Listing Rules and the Corporations Act, including continuous disclosure obligations; (c) stated that MGCL would be responsible for the administration costs of the MGUT including all costs properly incurred by MGRE in relation to its operations and the operation of the MGUT, including accounting, audit, legal and regulatory costs, rental costs and fees and expenses of directors, responsible managers and compliance committee members of the MGRE; (d) stated that MGCL would provide MGRE with staff and with premises, computer systems and other equipment, software, know-how and other tangible and intangible property used by staff; (e) stated that MGUT held two categories of assets in MGCL, being perpetual, redeemable, unsecured, subordinated and non-cumulative notes (the notes) and convertible preference shares, which instruments gave MGUT rights to distributions or dividend equivalents from MGCL; (f) stated that MGRE was required to pass through to unitholders any distributions it received from MGCL on the notes and convertible preference shares; (g) stated that unitholders would obtain an economic exposure to MGCL and were provided with an opportunity to participate in MGCL's earnings pool that was linked to the farmgate milk price (FMP), which was MGCL's key performance indicator; (h) stated that the economic exposure entitled unitholders to receive distributions equivalent to shareholders in MGCL; (i) stated that the unitholders did not have any voting rights in respect of MGCL and did not have control over the strategic and operational decisions of MGCL; and (j) stated that whilst units had the same economic characteristics as a share, they were not a direct interest in MGCL and did not entitle unitholders to vote at a general meeting of MGCL. 55 It was also noted in the PDS that MGRE and MGCL had entered into a relationship deed and a profit sharing mechanism deed. In addition, MGCL had entered into a continuous disclosure deed poll. 56 In summary, because of MGRE's interest in MGCL through the notes and convertible preference shares issued to MGRE in its capacity as the responsible entity of the MGUT, once the MGUT was listed on the ASX and units issued by the MGUT, unitholders in the MGUT had an economic exposure to the performance of MGCL that was similar to the economic exposure of holders of shares in MGCL. 57 On 3 July 2015, MGRE announced on the ASX the allocation of units under the PDS in respect of each group of investors, at a price of $2.10 per unit. On 7 July 2015, MGRE announced on the ASX that the total number of units issued pursuant to the PDS was 209,198,581. Thereafter, of course, units in the MGUT could only be purchased or sold on the secondary market. 58 So, from listing, members of the public could acquire units on-market regardless of whether they were eligible to apply for units pursuant to the PDS. 59 Finally on this aspect I should note for completeness that acquisitions of units pursuant to transactions on-market or off-market prior to 7 July 2015 were conditional and settled following the issue of the units on 7 July 2015.

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The chronology of dealings between the MG entities and AIG 74 It is necessary to discuss some aspects of the chronology of the dealings between the parties, including the involvement of Marsh Pty Ltd, the placement insurance broker for MGCL. Such dealings provide important context for the construction questions including demonstrating what was commonly known to all. But first, let me say something about the two witnesses. 75 Mr Simon King was a senior underwriter at AIG. AIG tendered his affidavit. He was not cross-examined. 76 He said that in or around April 2015, AIG declined the opportunity to provide a quote in response to Marsh's request for investment managers insurance (IMI) and public offering of securities insurance (POSI) cover for the MG entities. 77 He gave evidence that after reviewing all the information provided by Marsh and the MG entities, AIG maintained its stance of not wishing to participate in the offering of POSI cover. 78 He gave evidence concerning his dealings with Mr Jacques Moritz of Marsh concerning the procurement of side C cover. His evidence is reflected in the chronology that I will come to in a moment. 79 Mr Moritz was an insurance broker and was employed by Marsh at the relevant time. He was the senior vice president & managing principal of the financial and professional liability division of Marsh who had assisted MGCL to procure the former AB policy. The MG entities tendered his affidavit. He was not cross-examined. 80 He gave evidence concerning the procurement of various types of cover for the MG entities and his dealings with Mr King. 81 Mr Moritz, who was assisted by Mr Will Cameron, Marsh senior account executive, procured three types of insurance cover for the MG entities in the context of the capital restructure being: (a) POSI, to cover claims against MGCL and its subsidiaries for acts or omissions arising from the public offering documents; (b) side C cover, because the MGUT was to be listed on the ASX; and (c) IMI cover, which was an ASIC requirement that MGRE needed to meet because it was to be the holder of an Australian Financial Services Licence (AFSL). 82 IMI cover generally includes sides A, B and/or C cover. But in light of the former AB policy, which was to be extended to include side C, it was not necessary for the new IMI cover to initially include ABC cover. Accordingly, two IMI policies were procured for the MG entities. The first IMI policy, for the period 1 May 2016 to 30 September 2017, provided professional liability and crime cover (the IMI policy). The second IMI policy, for the period 30 September 2017 to 30 September 2018 was to incept after the POSI cover and the new ABC policy (the 2017 IMI policy). It covered conduct relating to the provision of "professional financial services" by MGRE and loss to MGRE arising from criminal acts by employees or third parties such as theft, forgery or fraud. 83 I should note that Marsh communicated with AIG and other insurers for the purpose of gauging their interest in providing POSI cover and IMI cover. AIG declined to do so. In the end, Zurich, Allianz and Catlin Australia Pty Ltd provided POSI cover (the POSI policy). And Zurich provided the IMI policies. 84 Let me now delve into some detail concerning the dealings between the parties. 85 On 24 April 2015, AIG was notified by Marsh that MGCL was requesting a quotation for IMI cover for an AFSL and requested that AIG provide proposed terms which did not include directors' and officers' cover. Attached to the email sent by Marsh notifying AIG of such a request was a Zurich proposal form and a draft PDS for the MGUT. 86 Mr Cameron provided copies of the draft PDS to Mr King on 24, 27 and 29 April 2015 in the context of a request for quote for IMI cover. 87 Separately, on 27 April 2015, Mr Moritz sent the draft PDS to Mr King's manager, Mr Dan Collinson, requesting premium estimates for POSI cover. 88 On 30 April 2015, AIG underwriters discussed internally within AIG whether to offer the requested quote for IMI and POSI cover. Ms Roslyn Samuel, senior underwriter, financial lines at AIG advised underwriting staff of AIG against providing the requested cover as AIG was already offering a $30 million primary limit of liability and, should AIG also provide the requested additional cover, it could result in it being exposed to all of its policies for the same claim. 89 On 5 May 2015, Marsh, on behalf of MGCL, contacted Mr King indicating that MGCL wished to include side C cover into its AB policy. 90 On 7 May 2015, Mr King had a telephone conversation with Mr Cameron and Mr Moritz during which the possibility of restructuring the former AB policy to include side C was further discussed. On that day he also sent an email to Mr Cameron requesting further information concerning the restructure of the former AB policy. Mr King confirmed to Mr Cameron that AIG was requested to "consider side C from the date of the listing of the trust units". Mr King also requested a substantial amount of information concerning the governance of the MGUT and MGRE which was provided on 26 May 2015. 91 On 26 May 2015, Mr King received the following from MGCL: (a) a compliance plan for the MGUT; (b) a public disclosure policy dated 23 April 2014; and (c) a related party and conflicts of interest policy dated 23 April 2014. 92 On 1 June 2015, Mr King attended a presentation at MGCL's offices in Melbourne at which the capital restructure and listing were discussed. He also had a conversation with Mr Cameron in which Mr Cameron advised that MGCL had taken out the POSI policy. Mr King asked Mr Cameron to send him the terms of the POSI policy. He also advised Mr Cameron that AIG would consider whether AIG could participate in the offering of POSI cover. 93 Mr King's attention was also drawn to the draft PDS during the presentation. He also says of that meeting in his affidavit: I recall that at the meeting on 1 June 2015 I was concerned that the ASX listing of MGUT would give rise to reporting obligations pursuant to the ASX Rules. I do not recall the exact words used but recall that I had a brief exchange with Ms Smith during which I asked questions around the continuous disclosure obligations which would arise following the listing of MGUT on the ASX. 94 On 2 June 2015 AIG received and reviewed the POSI policy terms and wording. 95 At this point, I should say something further about the prospectus as distinct from the PDS. There is no evidence that AIG received the prospectus on or around 2 June 2015 or at all. Mr King does not give any evidence that he received or reviewed or even requested the prospectus. Rather, his communications with Marsh focused on the PDS issued by MGRE and the listing of units in the MGUT on the ASX. Further, the analysis undertaken by Ms Melanie Schulties, senior underwriter, financial lines at AIG, which was provided to Mr King on 4 May 2015, was of only the PDS. It did not mention the prospectus. The objective facts demonstrate that AIG's focus in determining whether and, if so, on what terms to provide side C cover was on the listing of the units in the MGUT. 96 Let me return to the chronology. Now apparently, Mr King after reviewing the POSI policy: (a) formed the view that the units in the MGUT were not shares but were instead akin to bank loans; (b) believed the units in the MGUT did not provide a unitholder with any direct interest in the MG entities; (c) understood that the units in the MGUT were not a "Security" for the purpose of the ABC policy wording; (d) decided that the terms of the POSI policy did not enable AIG to participate in offering POSI cover; and (e) subsequently became aware that AIG decided not to participate in the offer of POSI cover to MGCL. 97 I should say now that Mr King's subjective understanding of the matters in (a) to (c) had little if any relevance to the matters that I must decide. As was said in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]: This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction. [Citations omitted.] 98 And in any event his subjective views for the most part were misconceived. Let me continue. 99 In or around June 2015, Mr King had a discussion with Mr Moritz in relation to the following matters: (a) the terms and the pricing of a new ABC policy that included side C cover; (b) that AIG was not willing to offer $30 million of primary cover; and (c) that AIG was only able to offer side C cover with co-insurers. 100 As at June 2015, and based upon information that had been provided to Mr King, including the PDS and the knowledge that Marsh was putting in place IMI and POSI cover with other insurers, Mr King proceeded on the basis that: (a) MGRE's third party professional services were to be covered by the IMI policies; and (b) any representations contained in the prospectus and the PDS giving rise to liability concerning the issue of shares or units respectively were to be covered by the POSI policy. 101 On 24 June 2015, Mr King sent to Mr Moritz AIG's indicative terms to replace the former AB policy with an ABC policy, which was in direct response to "the request for C to be included with the listed trust". Mr King attached policy wording for AIG's "Gold Complete for Financial Institutions (10/14)" policy, endorsement samples, and a quotation for financial institutions policy wording. 102 The quotation attached to his email contained a premium amount for sides A, B and C, which was around double the premium of $53,400 paid by MGCL under the former AB policy. The retention amount was stipulated as $100,000 for sides A/B, and $250,000 for side C. The retention amount under the former AB policy was $50,000. 103 Now according to the MG entities, it was important that MGRE and MGCL had side C cover with effect from the listing date of the MGUT. Accordingly, on the morning of listing, being 3 July 2015, Mr Moritz urged Mr King to provide terms for moving to an ABC policy. Later in the afternoon, Mr King told Mr Moritz by email that AIG was prepared to cancel the former AB policy and replace it with ABC cover. The premium to be payable was $105,000 (excluding GST and stamp duty). Financial institutions policy wording and a quotation were attached. 104 On 24 July 2015, Mr Cameron instructed Mr King to proceed in accordance with the terms he provided on 3 July 2015. Attached to his email was a proposal form signed by Mr Richard O'Connor, MGCL's risk & assurance manager, which specified a listing date of 3 July 2015. 105 On 29 July 2015, AIG confirmed sides A, B and C coverage for MGCL under its ABC policy, with a retroactive date of 3 July 2015. Mr Cameron wrote to Mr King: "Retroactive on Side C will be 3 July 2015". Mr King responded to Mr Cameron approximately two hours later confirming his expectation that side C would take effect from the date of listing: "Had expected this to be the case with the placement whether it be on IPO date or whenever change would be requested." 106 About an hour later, Mr King confirmed that cover was bound (AIG's stamp was applied as the insurer on Marsh's D&O placement slip). Significantly he said: Thank you for the instructions and I confirm cover bound for the new ABC policy as quoted and have completed the placing slip as requested. Note retro will be 3/7/15 maintaining the original intention to have the cover in place from the listing date and the slight delay in getting the instructions confirmed and through. 107 The listing referred to by Mr King was, of course, the listing of the units in the MGUT. 108 Now as I have said, the annual premium payable to add side C cover was approximately double what was paid under the former AB policy. 109 The placement slip states that MGCL paid an annual premium of $105,000 (excluding GST and stamp duty) in respect of the new ABC policy. But the placement slip records that the actual premium paid ($123,123.29) was increased on a pro-rata basis to account for the fact that the policy period for the new ABC policy was longer than a year, being 29 July 2015 to 30 September 2016, with side C cover to apply from 3 July 2015. 110 Further, under endorsement 1 of the new ABC policy, AIG reduced its capacity from $30 million to $10 million, which reflected the increase in exposure to AIG in issuing side C cover. The other insurers who participated in the primary ABC policy were Zurich and Allianz, but with AIG as the lead insurer.

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General 111 Let me make some general points and draw some threads together from the above chronology. 112 The correspondence between Marsh and AIG in April to July 2015 reveals that AIG knew that the MG entities sought side C cover from AIG as part of the ABC policy in the context of the MGUT being listed on the ASX. In this context, the MG entities sought and obtained the back-dating of side C cover to the date of listing by specifying a retroactive date of 3 July 2015. 113 Further, communications between AIG and Marsh focused on the PDS and the listing of the MGUT on the ASX. The correspondence did not refer to the foreshadowed issue of new shares by MGCL and the prospectus. 114 Further, between April and July 2015, Mr Moritz had a number of discussions with Mr King during which Mr Moritz told Mr King about the necessity for AIG to provide side C cover for acts or omissions with effect from the date of listing. Indeed, Mr King says in his affidavit: I believe that I had a telephone conversation with Mr Moritz on 5 May 2015. I do not recall the specific details of the conversation. I recall that Mr Moritz asked AIG to include side C into the C D&O policy for MGCL. … I recall that I had discussions with both Mr Moritz and Mr Cameron about the retroactive date on 29 July 2015. Marsh wanted to back date the retroactive date to 3 July 2015. Initially this was not acceptable to AIG. However, following further discussions a retroactive date of 3 July 2015 was agreed. … I note that in the event AIG eventually agreed to provide ABC cover from the date of listing of MGUT. 115 And as I have indicated, these discussions were accompanied by emails indicating that side C cover was to apply from listing. 116 More generally, the ABC policy is to be understood in a context where the MG entities had not previously been listed on the ASX, and sought protection from claims made in respect of units in the MGUT that were to trade on the ASX. 117 AIG was to provide for the first time side C cover to the MG entities with respect to claims that might be made against them consequent upon the listing of the MGUT on the ASX. 118 Further, the correspondence between Marsh and AIG proceeded at all times on the basis that the trading of units on the ASX was covered by side C cover. That was the purpose for which side C cover was procured and resulted in the doubling of insurance premiums payable by the MG entities to AIG. 119 Further, the former AB policy did not have side C cover. Side C cover was procured specifically to insure the MG entities against risks arising from the trading of units on the ASX. 120 Further, the relationship between the inception of trading of the units on the ASX and the side C cover is reflected in the selection of the retroactive date as the date of listing. 121 Further, the increased risk from side C cover resulted in a doubling of premiums payable by the MG entities, and AIG's reduction in coverage from $30 million to $10 million. 122 Further, there is a distinction between the acquisition of units pursuant to the PDS, which is not covered by the side C cover in the ABC policy but was covered by separate POSI policy procured at the same time as the side C cover, and the acquisition of units on-market on and from the listing of the MGUT on the ASX. 123 I will say something more about the other policies in a moment. But let me at this point say something about the class actions.

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The Webster class action 124 On 13 May 2016, MGCL gave AIG notification of circumstances that might give rise to a claim under the ABC policy (the initial notification). 125 On 16 May 2016, Mr John Webster commenced in the Supreme Court of Victoria a group proceeding against the MG entities and eleven directors of the MG entities. Mr Webster commenced the proceeding on his own behalf and on behalf of persons who purchased units between 29 May 2015 and 27 April 2016, which was subsequently extended to 2 May 2017 by way of an amended pleading. Group members therefore included both unitholders who had purchased units pursuant to the PDS, and those who had acquired units on-market. On 9 May 2017, the Webster class action was transferred to this Court. 126 On 17 and 20 May 2016, MGCL notified AIG of the Webster class action on behalf of the MG entities and other insureds under the ABC policy. 127 In the Webster class action it was alleged that the MG entities made certain representations and failed to disclose material information. 128 The allegations made by Mr Webster against the MG entities in his second further amended statement of claim (the Webster pleading) may be summarised as follows. 129 First, it was alleged that forecasts in the PDS were misleading or deceptive and that they rendered the PDS "defective". 130 Second, it was alleged that by silence in failing to correct the forecasts in the PDS, MGRE repeated those allegedly misleading and deceptive forecasts upon listing on 3 July 2015, and that failure to correct the forecasts was also a breach of MGRE's continuous disclosure obligation. 131 Third, it was alleged that updated forecasts were prepared on 21 July 2015 which significantly reduced the forecasts in the PDS; the failure to make corrective forecasts from that date resulted in breaches of continuous disclosure and misleading or deceptive conduct statutory provisions. 132 Fourth, it was alleged that forecasts in the 31 August 2015 announcement was misleading or deceptive. 133 Fifth, it was alleged that by the 29 February 2016 announcement, MGRE published forecasts that resulted in breaches of continuous disclosure and misleading or deceptive conduct statutory provisions. 134 Sixth, it was alleged that by reason of certain governance documents and ASX announcements, MGRE represented that it was in compliance with its continuous disclosure obligations, which was said to have been misleading or deceptive conduct. 135 Seventh, it was alleged that representations in an ASX announcement dated 27 April 2016 concerning a milk supply support package that MGCL would introduce were misleading or deceptive. 136 It was also alleged that in its 27 April 2016 ASX release, MGRE disclosed that MGCL's adult milk power sales in China would be lower than expected in the fourth quarter of 2016 and prices in China were declining which would result in significant lower forecast revenue for MGCL in FY16. It was alleged that the failure to disclose this information earlier constituted a contravention of MGRE's continuous disclosure obligations. 137 On 1 November 2019, the parties in the Webster class action entered into a settlement agreement. 138 On 9 April 2020, the Court approved the terms of settlement. The Webster class action was settled for $37.5 million inclusive of costs. No admission was made in regard to liability.

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The Endeavour River class action 139 On 17 August 2018, Endeavour River Pty Ltd commenced in this Court a group proceeding brought on its behalf and on behalf of certain persons who purchased units between 29 May 2015 and 26 April 2016 against both MG entities. Group members therefore included unitholders who had purchased pursuant to the PDS, and also those who had acquired units on-market. 140 On 3 September 2018, MGCL notified AIG of the Endeavour River class action on behalf of the MG entities under the ABC policy. 141 In the Endeavour River class action, the MG entities were alleged to have engaged in misleading and/or deceptive conduct when MGRE issued a PDS on 29 May 2015, in particular as concerned the financial forecast for FY16 and breached their obligations of continuous disclosure after the MGUT was listed on the ASX on 3 July 2015 and in the period to 27 April 2016. 142 More particularly, the amended statement of claim (the Endeavour River pleading) contained the following allegations. 143 First, it was alleged that certain forecasts for FY16 made in the PDS were inaccurate or not reliable estimates and thereby resulted in breaches of continuous disclosure and misleading or deceptive conduct statutory provisions. It was also alleged that MGRE should have corrected those forecasts on and from 3 July 2015. 144 Second, it was alleged that by the 31 August 2015 announcement, MGRE published forecasts that were misleading or deceptive or likely to mislead or deceive. In particular, it was alleged that MGRE represented that MGCL either maintained the FY16 forecast or, if certain assumptions did not materialise, it would be more likely that NPAT would be between $66 million to $79 million, and FMP would be in the range of $5.60 to $5.90/kgms in FY16. 145 Third, it was alleged that by the 29 February 2016 announcement, MGRE published forecasts that resulted in breaches of continuous disclosure and misleading or deceptive conduct statutory provisions. 146 Fourth, it was alleged that by reason of certain governance documents published by MGCL or MGRE, MGRE represented that it was in compliance with its continuous disclosure obligations, which was said to have been misleading or deceptive conduct. 147 The substance of most of the allegations in the Endeavour River class action are similar to those in the Webster class action. Both proceeded on the basis that fresh announcements were made on 31 August 2015, and that many of the alleged contraventions on the part of the MG entities from 3 July 2015 onwards arose from omissions to issue corrective forecasts for FY16. 148 On 24 June 2019, the parties in the Endeavour River class action entered into a settlement agreement. 149 The Endeavour River class action was settled for $42 million. On 20 December 2019, the Court approved the terms of settlement.

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Other policies 150 As I have mentioned, the MG entities were also the policyholders of other insurance policies, including relevantly: (a) an Investments Structures Insurance Solution policy issued by Zurich.; this policy provided professional liability and crime cover from 1 May 2015; (b) the IMI policy issued by Zurich for the policy period 1 May 2016 to 30 September 2017 and the 2017 IMI policy issued by Zurich for the period 30 September 2017 to 30 September 2018; and (c) the POSI policy issued by Zurich, Allianz and Catlin Australia Pty Limited for the policy period 12 June 2015 to 12 June 2022. 151 AIG submits that the IMI policy and/or the 2017 IMI policy cover professional financial services, including investment management services, responsible entity, and trustee services. It says that the IMI policy and/or the 2017 IMI policy would respond to the type of risks which were the subject of the Webster and Endeavour River class actions. 152 It also says that the initial notification given by MGCL set out circumstances that were also relevant to notifying Zurich pursuant to the IMI policy. But the content of the initial notification would deny that suggestion. 153 In any event, AIG's contentions with respect to the IMI policy and the 2017 IMI policy go nowhere. If the IMI policy and/or the 2017 IMI policy were able to be used in the construction of the ABC policy, the suite of insurance has to be viewed at the time it was taken out, as the MG entities rightly contended. So if the IMI policy and/or the 2017 IMI policy were supposed to cover claims of the kind advanced in the class actions, they were ineffective to do so because neither policy incepted until May 2016 onwards. This was after the listing of the MGUT on the ASX. 154 Further, and in any event, on 18 September 2018, MGCL notified Zurich of a claim said to be made against the 2017 IMI policy in relation to the Webster class action and advised that MGRE was entitled to receive coverage under insuring clause 4 of that policy. But on 24 June 2019, Zurich advised Marsh that as the Webster class action did not arise out of the provision of a professional financial service as defined in the 2017 IMI policy, coverage was declined. 155 In my view, reference to the form of the IMI policies and whether they could be or how they were triggered are of marginal relevance to the issues that I need to decide. 156 Further, as to the POSI policy, the MG entities notified each of the insurers of the POSI policy of the existence of the class action proceedings. Subsequently, the POSI policy insurers granted indemnity to the MG entities for the subset of class action claims covered by the POSI policy. But this grant of indemnity only extended to claims by those group members who acquired their units in the primary market pursuant to the PDS. So, there is no duplication between the declarations sought in this proceeding and the indemnity granted under the POSI policy. This reflects the fact that the POSI policy and the side C cover under the ABC policy in substance sat "back to back", to use the phrase of the MG entities.

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Principles of construction 157 The applicable principles concerning the construction of the ABC policy are straight-forward. 158 The policy must be read and construed as a whole as at the date it was entered into. Textual analysis is to be given primacy, but words and phrases must be construed in context and not in a vacuum. Further, a policy of commercial insurance is to be given a businesslike interpretation, that is, a construction that a reasonable business person would give to it. So, attention must be given to the language used by the parties, objectively construed, the commercial circumstances which the document addresses, and the object which it is intended to secure. 159 Moreover, regard may be had to the contextual framework in which a contract is formed, to the extent to which it is known by both parties, to assist in identifying its purpose and commercial objective; see Onley v Catlin Syndicate Ltd as the Underwriting Member of Lloyd's Syndicate 2003 (2018) 360 ALR 92 at [33] per Allsop CJ, Lee and Derrington JJ. 160 In Todd v Alterra at Lloyd's Ltd (2016) 239 FCR 12 at [42] and [44] Allsop CJ and Gleeson J said: The principles, otherwise, to apply in relation to the interpretation and construction of insurance policies as commercial contracts were not in dispute. Such principles can be found in authorities dealing with the construction of commercial contracts, to some of which reference was made in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at [19]-[23]; and also in authorities dealing specifically with contracts of insurance ... The principles need not be restated here beyond some essential considerations, which for present purposes can be taken to be that the policy is to be given a businesslike interpretation, paying attention to the language used by the parties in its ordinary meaning, and to the commercial, and where relevant, the social purpose and object of the contract, in the context of the surrounding circumstances, including the market or commercial context in which the parties are operating, by assessing how a reasonable person in the position of the parties would have understood the language. Preference is to be given to a construction supplying a congruent operation to the various components of the whole. … To refer to "social" purpose (where relevant) is not to detach the process of interpretation and construction from the objective enquiry as to the meaning of a document regulating the private rights of the parties. It is to identify the reality that in some circumstances a policy of insurance as a commercial document will find its place in some aspect of the organisation of society through the rights and obligations thereby created by it. That place or purpose will have its weight in the description of meaning to the words in question. 161 At [71] to [76], I also expressed my own views, which with some modification I should set out. 162 First, a policy of commercial insurance is to be read and construed as a whole. It should not be construed narrowly or pedantically. Moreover, a construction that gives a congruent operation to its applicable provisions is to be preferred to another construction that does not. 163 Second and generally, textual analysis is to be given primacy. Nevertheless, words cannot be construed in a vacuum. The meaning of words cannot be divorced from their context. To proceed by only analysing the text with the aid of dictionary meanings, as distinct from defined terms in the policy itself which must be used, is sterile and productive of error. Moreover, uncertainty or ambiguity in the words used may only be ascertainable once context is first appreciated. Extra-textual context may reveal uncertainty or ambiguity that is not otherwise apparent from the text. 164 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 recognises, at least implicitly, that the approach of Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352 may not rule out an approach which first uses context to ascertain otherwise latent textual uncertainty or ambiguity. Mason J's approach is not inconsistent with the notion that it may first be necessary to consider context. Mason J stated that: The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. [My emphasis.] 165 But "plain meaning" is a conclusion (Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 310 ALR 113 at [79] per Leeming JA). How is such a conclusion to be reached? Mason J's approach would not deny the proposition that before reaching such a conclusion you can consider context. By first considering context, you may conclude that there is no one plain meaning. Context can therefore be used to perform two functions. It can enable you to assess whether there is a plain meaning. And if one concludes that there is no plain meaning, it can assist in resolving the latent textual imprecision. 166 Third, in construing the policy, the commercial purpose or object to be secured by the policy is to be considered. To say as much also demonstrates why exogenous factors need to be considered. If text, considered in context, permits of more than one meaning, the commerciality of a particular construction consistent with such a purpose or object is preferable where it is implausible that the parties could be taken to have intended otherwise, such intention to be ascertained in accordance with objective contractual theory. I would prefer to use the language of commercial purpose rather than social purpose where one is dealing with a private instrument regulating the rights and obligations of parties to a commercial relationship or transaction. But in any event, the utilisation of commercial purpose ought not to be taken too far. A balanced approach that is "neither uncompromisingly literal nor unswervingly purposive" (Charter Reinsurance Company Ltd v Fagan [1997] AC 313 at 350 per Mance J adopting the language of Sir Thomas Bingham MR in Arbuthnott v Fagan [1996] LRLR 135 at 139) is to be preferred. 167 Let me say something further about Mason J's "true rule". It will be apparent that I read it more liberally than other exegetical commentary. But I accept that I am not able to go so far as to apply, wholesale, the unitary process of construction formulated by Lord Clarke in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at [21] and adopted by Lord Hodge in Arnold v Britton [2015] AC 1619 at [76] and [77]. Nevertheless I reject an approach which takes Mason J's "true rule", constricts it with a sclerotic form of textualism, and then seeks to preserve such an unchanging form like a desiccated flower pressed within the leaves of a dusty tome of Elizabethan poetry. Rather, it is to be given the commercial vitality that the authorities binding upon me have indicated. 168 Further, a construction that avoids capricious or unreasonable consequences is to be preferred where the words of the policy permit (Onley at [33]). Moreover, in some circumstances the court may decline to give effect to the apparent literal meaning of words used where to do so would result in an absurd construction or one devoid of commercial common sense. But there is a note of caution. As Lord Neuberger said in Arnold at [17] to [20]: First, the reliance placed in some cases on commercial common sense and surrounding circumstances … should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision. Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve. The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. … Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party. [Citations omitted.] 169 Let me turn to the principles which apply to the construction of exclusion clauses. 170 An exclusion must be read in light of the policy as a whole, thereby giving due weight to the context in which the clause appears, including the fact that the policy is designed to cover a specific risk(s). One should not willingly adopt an interpretation of an exclusion clause that would have the effect of circumscribing inappropriately the cover provided by the policy (Chubb Insurance Company of Australia Ltd v Robinson (2016) 239 FCR 300 at [149] per Foster, Robertson and Davies JJ) or which would have the effect of substantially defeating the indemnity granted by the policy. 171 Further, the onus of proof concerning the application of the exclusion rests with the insurer (AIG Australia Limited v Kaboko Mining Limited (2019) 20 ANZ Insurance Cases ¶62-205 at [42] per Allsop CJ, Derrington and Colvin JJ). 172 Let me make one other point. 173 One needs to be careful about applying any contra proferentem rule. As was said in Dalby Bio-Refinery Ltd v Allianz Australia Insurance Limited [2019] FCAFC 85 at [32] by Allsop CJ, Beach and Anastassiou JJ: … though one needs to be careful with reliance on the contra proferentem rule, especially when there has been an evident degree of negotiation of the policy, if there are two genuinely available alternatives preference should be given to one that limits rather than expands the exclusion. … 174 The true position is as stated in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510: … the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. …

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Were each of the class action claims a "Securities Claim"? 175 The MG entities must first satisfy the "Company Securities Section" insuring clause. So, there must be a "Securities Claim". 176 Now whilst the ABC policy does not define "Securities", it does define as I have indicated "Security" as "any security representing a debt of or equity interest in any Insured Entity". But the use of the singular includes the plural. The "Headings and Titles and Other References" provision in the "General Provisions" states: …Words and expressions in the singular shall include the plural and vice versa … Words that are not specifically defined in this Policy shall have the meaning normally attributed to them. 177 In terms of the definition of "Security", "debt of" is not defined. AIG says that a "debt of" an "Insured Entity" must take its ordinary meaning, namely, that which is owed, that which one person is bound to pay or to perform for another, or a liability or obligation to pay or render something. I agree. But the "debt of" limb can be put to one side in the present context as it has no relevance. 178 The ABC policy does not define "equity interest" either. AIG points out that various dictionaries typically define an equity interest to be "the amount of equity that a person holds in a business". It says that it generally encompasses an ownership interest in that business. I accept this of course, although this is not exhaustive of the possibilities. 179 AIG also says that Div 974 of the Income Tax Assessment Act 1997 (Cth) assists construction. It is said that that division prescribes for the purposes of the Tax Act that an equity interest is: (a) a membership interest (such as a share); (b) an interest providing returns that depend on the issuer's economic performance; (c) an interest providing returns at the discretion of the issuer; or (d) an interest that may or will convert into such an interest or share. 180 AIG says that the units in the MGUT: (a) did not provide unitholders with a membership interest in MGUT since unitholders only received a beneficial interest in the assets held by MGUT; (b) were not an interest providing returns that depended on the issuer's economic performance since their returns were dependent on the performance of MGCL not MGUT; (c) were not an interest providing returns at the discretion of the issuer since MGUT had no discretion on whether to provide returns to unitholders; MGUT was obliged to pass through any returns it received on the notes and convertible preference shares; and (d) were not an interest that may or will convert into such an interest. 181 I disagree with AIG's contention that a unit is not an equity interest and therefore is not a security. Further, I disagree with AIG's contention that a unit is not a security in an "Insured Entity" and is therefore not a "Security". I will return to these questions in a moment. 182 Further, AIG also says that it is apparent from the PDS that although the units provided an economic exposure to MGCL, they did not otherwise provide any ownership interest in MGCL. Accordingly, it is said that for the purpose of the ABC policy, the units were not a "Security" of MGCL. Now I agree with this last proposition. 183 Further, it is said that the units were not a "Security" of MGRE. I also agree with this proposition. 184 But as I have indicated, I would reject AIG's contentions that units in the MGUT are not securities. Moreover, as the MGUT is an "Insured Entity", the units are "Securities". Therefore, the class action claims are "Securities Claims". 185 As I have set out earlier, "Security" is defined as "any security representing debt of or equity interest in any Insured Entity." And as I have said earlier, the MGUT is itself an "Insured Entity" as it is a "Trust" as defined. 186 In my view, units in the MGUT represent equity interests therein within the ordinary meaning of that term. As is commonly understood, an "equity" means a beneficial interest in an asset, including relevantly a company or trust. Each unit in the MGUT gave the unitholder a beneficial interest in the assets of the trust entitling them to the payment of distributions. 187 In Elecnet (Aust) Pty Ltd (as trustee for Electrical Industry Severance Scheme) v Commissioner of Taxation of Commonwealth of Australia (2016) 259 CLR 73, the plurality at [34] endorsed the insight of Jessup J that using the term "unit trust" in its ordinary meaning required the trust to be "be divided into units - or 'unitized'". So, a unit trust is that "in which the beneficial interest in the trust fund is divided into units as discrete parcels of rights themselves capable of being dealt with, like shares in a company, as items of commerce" (at [55]); see also Nettle J at [85] and [87]. But although such a unit comprises a beneficial interest in the trust estate, a share does not confer a beneficial interest in a company's assets although it is itself an asset. 188 Further and consistently with the ordinary meaning, the units in the MGUT were "securities" within the meaning of the Corporations Act. Section 92(1)(c) of the Corporations Act defines "securities" as including "interests in a managed investment scheme" (cf even more broadly the definition of "security" in s 2(1) of the Securities Act of 1933 (US)). The MGUT was registered as a managed investment scheme under s 601EB of the Corporations Act on 28 May 2015. Further, Ch 19 of the ASX Listing Rules defines "security" to include "a security within the meaning given to that expression by s 92(1) of the Corporations Act". 189 Since the units were listed, and trading in them commenced on the ASX, the units have been "ED securities" by operation of ss 111AE(1A) and 111AFA(1) respectively of the Corporations Act. They are also "quoted ED securities" by force of s 111AM. 190 It is not in doubt that that legislative framework is important context and informs the meaning of "security" and "Security" given the context of the MGUT and the risks sought to be indemnified. 191 Accordingly, within the ordinary meaning of the words, units in the MGUT fall within the meaning of "security" and the definition of "Security". They are an equity interest in an "Insured Entity". 192 Further, in my view the terms of the ABC policy also assume that units in the MGUT are "Securities". Endorsement 11 assumes that units in the MGUT are "Securities". It excludes "any matter arising out of, based upon, attributable to … MG Unit Trust Product Disclosure statement dated 29 May 2015 lodged with the Australian Securities and Investments Commission on that date". As I have indicated, the PDS was an invitation to certain types of investors to acquire units in the MGUT. If the term "Security" did not include fully paid units in the MGUT, this aspect of the endorsement would be otiose. In my view, the endorsement can only have sensible operation if units in the MGUT are "Securities" which would otherwise attract the operation of the policy. 193 Further, the stipulation of the retroactive date of 3 July 2015 by endorsement 10, being the date of listing of the units of the MGUT, and the justification for that stipulation is more supportive of the MG entities' construction. 194 Further, although AIG contends that an "equity interest" should be treated as being "the amount of equity that a person holds in a business", there is no valid reason for unduly restricting the meaning of "equity interest" in that fashion. An "equity" means a beneficial interest in an asset. And an "asset" in turn has been defined in the Oxford Dictionary of Finance and Banking (6th edition, 2018), as including "any object, tangible or intangible, that is of value to its possessor" and in the Oxford English Dictionary (online) as including "an item of value owned; spec. an item on a balance sheet representing the value of a resource, right, item of property, etc., placed under an appropriate heading…". 195 Is it seriously to be doubted that a unit in the MGUT is of value? It gave a unitholder an interest in the assets of the MGUT and entitlements to distributions (cll 2.3, 3.1(a) and 9 of the MGUT constitution). 196 Further, I have grave doubts about gleaning intellectual inspiration from revenue statutes, particularly in the present context. AIG contends that the term "equity interest" in the ABC policy should bear the same meaning as the term defined in Div 974 of the Tax Act. But AIG's reliance on Div 974 of the Tax Act is misplaced. The Tax Act is concerned with tax purposes, which are alien to the subject matter of the ABC policy. Section 974-1 states that Div 974 "tells you whether an interest is a debt interest, or an equity interest, for tax purposes". Further, the Tax Act was not referred to in the ABC policy, and nor is there any evidence that it was referred to during negotiations. Further, the limitations AIG seeks to impose by reference to Div 974 are not supported by the terms or context of the ABC policy. But in any event, AIG's resort to the Tax Act goes nowhere. AIG contends that unitholders did not have "a membership interest" or "ownership" interest in the MGUT because they only received a beneficial interest in the assets held by the MGUT. But unitholders who hold units in a unit trust have a membership interest in the unit trust. This is specifically stated in s 960-130(1) which contains a table that "sets out who is a member of various entities", which in the case of a trust (except a public trading trust) is said to be a beneficiary, unitholder or object of the trust, and in the case of a public trading trust is said to be a unitholder of the trust, and s 960-140 which states that: "A membership interest in a corporate tax entity is an ordinary membership interest if … (c) in the case of a membership in a public trading trust it is a unit in the trust." I need not linger on other references to "corporate unit trust". 197 Further, AIG has other difficulties with its position. 198 As I have already said, the MGUT is an "Insured Entity". Accordingly, AIG's focus on MGCL being an "Insured Entity" is not to the point. It ignores MGUT's status. 199 Further, as I have set out at length earlier in my reasons, the mutually known context in which side C cover was procured was the listing of the MGUT on the ASX. And denying the description "Securities" to the units would effectively denude the side C aspect of any application. The MG entities would have received no value and AIG would have taken no substantive risk for the premium paid and obtained. AIG's construction would deprive the MG entities of a significant portion of valuable cover under the ABC policy, contrary to the commercial purpose and object of its placement. 200 There is, however, one point made by the MG entities that I did not think much of. 201 The MG entities say that the position that AIG now takes, namely, that the class action claims are not "Securities Claims", is inconsistent with the position it took in Federal Court proceeding VID 1244 of 2017 commenced by ASIC against MGRE. In that proceeding, ASIC alleged that MGRE contravened its continuous disclosure obligations with respect to the financial forecasts published by MGRE. MGRE admitted to contraventions of its continuous disclosure obligations by its failure to notify the ASX in the period 22 March 2016 to 27 April 2016 that it was unlikely to achieve these forecasts, and agreed to pay a penalty of $650,000 and ASIC's investigation and legal costs. In the course of the ASIC proceeding, so the MG entities assert, AIG admitted that units were "Securities" within the meaning of the ABC policy. 202 But even if it was so admitted, so what? I am construing the ABC policy at its inception and then determining whether it applies in accordance with its terms. In the absence of any plea of estoppel, of which there is none, the point made by the MG entities goes nowhere, save to say that as an admission it might have some slight evidentiary status. 203 In summary, I have little doubt that each of the class action claims are a "Securities Claim" within the indemnifying clause of the ABC policy. 204 Let me now turn to the endorsements and exclusions.

[25]

Endorsement 7 206 As I have already set out, though it is convenient to do so again, endorsement 7 which applies to the "Company Securities Section", provides that: Debt or Equity Offerings The Insurer shall not be liable under the applicable Section(s) for any matter arising out of, based upon, attributable to an offer made for the issue, sales, or transfer of any Securities in: (i) a Disclosure Document; or (ii) any written or verbal representations in connection with such a Disclosure Document. Definitions: The following Definition is added to the Policy for the purpose of this endorsement only: Disclosure Document any prospectus, information memorandum, registration statement or similar document whether or not it has been or is required to be filed or registered with the Australian Securities and Investments Commission or the United States of America Securities and Exchange Commission or any other similar authority in any other jurisdiction. 207 AIG submits that if I determine that each of the class action claims are a "Securities Claim" for the purpose of the ABC policy, endorsement 7 applies. 208 It says that AIG is not liable for any matter "arising out of, based upon, attributable to" an offer made for the issue, sale, or transfer of such "Securities" in a "Disclosure Document" (as defined in endorsement 7) or in any written or verbal representations in connection with such "Disclosure Document". 209 And as to the expression "arising out of, based upon, attributable to", it prays in aid what was said by Gleeson JA in XL Insurance Co SE v BNY Trust Company of Australia Limited (2019) 20 ANZ Insurance Cases ¶62-211 at [62] that: The introductory words "directly or indirectly arising out of, based upon, attributable to or in consequence of" postulate a causal relationship between the subject matter of the clauses that follow and the "Loss" the subject of the claim for indemnity. The words require that there be some causal connection between the "Loss" the subject of the claim for indemnity and the specified matters, but the required nexus is less than a direct or proximate relationship as required by the words "caused by"… [Citations omitted.] 210 It says that the PDS was a "Disclosure Document" in the defined sense. Moreover, it says that the PDS made specific reference to continuous disclosure obligations. 211 More generally, AIG says that the pleadings of the class action claims made reference to representations in the PDS and which were expressed to be continuing throughout the relevant period. It says that the class action claims were either matters directly arising from the contents of the PDS or were matters arising out of, based upon, attributable to an offer made for the issue, sale, or transfer of any "Security" in a "Disclosure Document", or any written or verbal representations in connection with such "Disclosure Document". 212 Relevantly, AIG also notes the following in relation to each of the class action claims: (a) the matters referred to in [1] to [24] of the Webster pleading are matters arising out of, based upon or attributable to the PDS; (b) the matters arising in [25] to [42] of the Webster pleading are matters which post-date the issue of the PDS but are all matters arising out of, based upon, attributable to the PDS; (c) the allegations made and the claims derived therefrom as identified in the paragraphs of the Webster pleading detailed in the table set out in [21(b)(iii)] of AIG's defence in the present proceeding, are all matters arising out of, based upon or attributable to the PDS; and (d) the allegations made and the claims derived therefrom as identified in the paragraphs of the Endeavour River pleading detailed in the table set out in [21(b)(iv)] of AIG's defence, are all matters arising out of, based upon or attributable to the PDS. 213 Accordingly, AIG says that the class action claims are therefore excluded by the operation of endorsement 7. 214 I will address these arguments shortly, but first I should mention endorsement 11 and then endorsement 10.

[28]

The exclusions in endorsements 7, 10 and 11 do not relevantly apply 221 I agree with the MG entities that endorsements 7, 10 and 11 do not apply to the subset of class action claims where the relevant acquisition(s) of units occurred in the secondary market on or after 3 July 2015. The objective intention and effect of those exclusions is relevantly to exclude claims of people who purchased their units off-market pursuant to the offer in the PDS. 222 Now as I have indicated, the MG entities procured two types of complementary insurance cover for the purposes of the capital restructure, which were to apply to the period the subject of the class action claims. 223 Endorsements 7, 10 and 11 reflect the drawing of a line between claims arising from the acquisition of units pursuant to the offer in the PDS, which claims were the subject of the separate POSI policy, and claims arising from trading in the units on-market. 224 Moreover, the criterion of application of the exclusion in endorsement 7 is that the relevant matter arises out of, is based upon or attributable to an offer made for the issue, sale or transfer of any "Security" in a "Disclosure Document" or representations in connection with such a document. Clearly, this exclusion deals with offers made in offer documents. 225 Now endorsement 11 is more specific, albeit that it doesn't refer to "an offer". It specifically excludes claims arising out of, based upon or attributable to the PDS and the prospectus. In my view, for present purposes it can be treated in a similar fashion to endorsement 7. 226 Further, as the MG entities correctly point out, the drawing of the line between off-market pre-listing acquisitions pursuant to the PDS and subsequent trading in the units is also reflected in endorsement 10, which specifies the retroactive date of 3 July 2015, being the date of listing. 227 Clearly, any acquisition of units on and after 3 July 2015 occurred other than pursuant to the offer in the PDS. 228 Now group members represented in the class actions comprised two sub-groups (I do not use that term in the technical sense). First, there were unitholders who acquired units pursuant to the PDS pre-listing who were allegedly misled by the financial forecasts in the PDS. Second, there were unitholders who acquired units in the MGUT after its listing who allegedly suffered loss because MGRE had failed to disclose information concerning its forecasts to the market. 229 In my view, it is only the claims of the first sub-group which fall within the exclusions, namely, those who accepted the offer set out in the PDS and were issued with units as a result. 230 This is also consistent with the context and purpose of the side C cover procured by the MG entities. Side C indemnifies against losses arising from trading in securities. The side C cover was designed to cover specifically defined business risks known to AIG. The defined risk known to AIG was potential loss arising out of the trading of units on the ASX. 231 Now AIG says with respect to endorsements 7, 10 and 11 that the PDS made specific reference to continuous disclosure obligations. But none of those exclusions states that claims for breaches of continuous disclosure obligations are excluded from coverage. Indeed, if the exclusions had done so, there would have been little point in the side C cover. 232 Now it may be accepted that the use of the phrase "arising out of, based upon, attributable to" necessitates the establishment of a causal connection between the subject matter of the clauses and the loss in respect of which indemnity is sought (see XL Insurance at [62] per Gleeson JA, with whom Bell P and Emmett AJA agreed, and see also AIG Australia at [56] per Allsop CJ, Derrington and Colvin JJ upholding the decision of McKerracher J in Kaboko Mining Limited v Van Heerden (No 3) (2018) 20 ANZ Insurance Cases ¶62-191 at [49] and [50]). But AIG has not established the relevant causal nexus to trigger the exclusions concerning the acquisition of units on and after 3 July 2015. 233 Now AIG says that one must consider the actual pleading of the class actions claims. Of course this is so, but in considering the pleaded claims, it is important to look at the underlying facts that give rise to the claims. The focus must be on the subject matter and substance of the claims, rather than the form of the pleader's prose or construct. 234 The underlying facts as alleged which led to the class action claims are not in doubt. 235 FY16 forecasts were made in the PDS. Some unitholders acquired units pursuant to the PDS, when the offer under it was open. The offer closed before the listing of the MGUT on the ASX. 236 Now MGRE had continuous disclosure obligations from the date of listing of the MGUT on the ASX, but failed to correct the forecasts in the PDS until 31 August 2015. And it is this ongoing post-PDS omission which gives rise to the claims for continuous disclosure breaches. 237 Further, upon listing, MGRE repeated the financial forecast information in the PDS to the market. By that conduct it engaged in new misleading or deceptive conduct. 238 Further, following the listing, MGRE published ASX announcements which contained new forecasts or otherwise published information unrelated to the PDS. It was alleged that forecasts in those publications, which were not the PDS, were not accurate. 239 Further, various governance documents and annual reports contained statements about the MG entities' compliance with continuous disclosure obligations which were said to be inaccurate. The documents comprised the public disclosure policy adopted by MGCL on 23 April 2014, the MG entities' market disclosure and communications policy adopted on 24 June 2015, the MG entities' market disclosure and communications policy adopted on 1 October 2015, a 2014 annual report, a 2015 annual report, the PDS and the prospectus. 240 Now the publication of information that post-dated the PDS was alleged to contain inaccurate information so as to give rise to the causes of action pleaded against the MG entities. But the PDS and the prospectus were only two of the governance documents said to contain misleading or deceptive statements. 241 Further, it was the omission of MGRE to issue corrective forecasts from the date of listing that was said to have given rise to liability. This is the lens through which the class action claims are to be analysed. And when so viewed, any connection with the PDS was severed from the date of listing. 242 But if I am wrong in my view that the endorsements draw a line between acquisitions made pursuant to the offer in the PDS and those made on-market, then in any event the exclusions can have no application to losses arising out of the acquisition of units on and from 31 August 2015 as I have intimated earlier. On this date, fresh FY16 forecasts for FMP and NPAT were published to the market by MGRE in the 31 August 2015 announcement. When those announcements were published, any relevant connection between the PDS and a subsequent purchase of units was severed. Losses arising out of purchases of units thereafter did not arise out of, and were not based upon or attributable to, the PDS. 243 Let me now turn to the professional services exclusions.

[29]

Endorsement 8 244 As I have said, endorsement 8 provides that: Professional Services The Insurer shall not be liable under the applicable Section(s) for any matter arising out of, based upon, attributable to the provision of third party professional services of any kind. This Exclusion shall not apply to any Claim alleging that a Manager has failed to supervise an Employee. 245 This endorsement applies to the provision of third party professional services and in that context excludes liability for any matter "arising out of", "based upon", "attributable to" such services. 246 AIG says that the services provided to unitholders by MGRE and MGCL were third party professional services in the sense that they involved the carrying out of a business activity involving specialised knowledge, labour, or skill and which was predominantly mental or intellectual as opposed to physical or manual in nature using the special acumen and training of professionals when engaged in their activities. Accordingly, AIG says that the relevant exclusion has been triggered concerning the class action claims. 247 AIG says that in the case of MGRE, it was contemplated that that company provide third party professional services to unitholders. 248 Further, it says that the structure involved in the operation of the MGUT and the units meant that MGCL was also to provide and did provide those third party professional services. 249 I will return later to the question of who provided the so called "professional services" and to whom. 250 AIG says that the allegations made and the claims derived therefrom as identified in the paragraphs of the Webster pleading detailed in the table set out in AIG's defence, are all matters arising out of, based upon or attributable to the performance of, or failure to perform professional services or related back-office supporting services, or any act, error, or omission relating thereto in the capacity of an Insured Entity. 251 Further, it says that the allegations made and the claims derived therefrom as identified in the paragraphs of the Endeavour River pleading detailed in the table set out in AIG's defence, are all are matters arising out of, based upon or attributable to the performance of, or failure to perform professional services or related back-office supporting services, or any act, error, or omission relating thereto in the capacity of an Insured Entity. 252 Further, it says that the allegations in [46] to [58] of the Webster pleading and [75] and [135] to [149] of the Endeavour River pleading are all are matters arising out of, based upon or attributable to the performance of, or failure to perform professional services or related back-office supporting services, or any act, error, or omission relating thereto in the capacity of an Insured Entity. 253 So, it concludes that the class action claims are not covered by the ABC policy. 254 I will address these points in a moment. But let me first mention the other analogous exclusion.

[31]

Endorsement 8 and the professional services exclusion do not apply 258 I would reject AIG's arguments concerning endorsement 8 and the professional services exclusion. 259 AIG has failed to properly identify what specific services it says comprised the relevant "professional services", who was to provide them and to whom. 260 Further, it has failed to identify what "profession" is involved and who in particular provided the "professional" services in its capacity as a "third party". 261 Further, its construction, which depends on characterising MGRE and MGCL as the providers of unspecified professional services to unitholders, strains the language of the policy. 262 In Chubb Insurance, Foster, Robertson and Davies JJ held that a professional services exclusion clause in a directors and officers policy did not apply. The insurer contended that the making of a statutory declaration by the chief operating officer of the insured company by which he verified a progress claim as part of a construction project fell within the scope of the exclusion. The Full Court disagreed. It said the following: (a) the relevant services must "… fall within the scope of a vocational discipline which is generally regarded as a profession" (at [150]); (b) "… the obvious purpose of the exclusion was to exclude activities that are truly professional in nature, such as architectural design, engineering, surveying and quantity surveying", rather than routine activities of the insured and its executives (at [152]); and (c) to attract the exclusion, it was necessary for the "professional services" to be rendered to a third party (as is the case with endorsement 8 in the ABC policy). 263 In my view, MGCL was not providing "third party professional services". It was not providing "professional services", let alone to a third party. If anything, it was providing a form of services to and assisting MGRE. But these were not "professional services". 264 And as for MGRE, it may have been providing services to unitholders in the form of discharging its obligations as the trustee and responsible entity for the MGUT. But I do not consider that this is what is precisely embraced by the conduct of "professional services". 265 But in any event, the class action claims in question concerning misleading or deceptive conduct or a breach of the continuous disclosure provisions that I am considering are not relevantly causally connected to any failure to perform such trustee or back-office services, and therefore do not satisfy the causal phraseology embodied in endorsement 8 or the professional services exclusion. 266 Further, I should note that I am not construing the term "professional" in the insuring clause of a professional indemnity policy. I am construing and applying an exclusion. In that context, AIG's high, wide but not handsome submission is to be rejected. 267 Finally, AIG's contention to the effect that the class action claims were covered by the IMI policies depends on an erroneous characterisation of the claims as concerning the delivery of professional services and in any event does not assist in the construction of the exclusions that I am considering.

At a glance

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Judgment (32 paragraphs)

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Legislation Cited (3)

Cases Cited (11)

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