Power v ACE Insurance Ltd [2005] QSC 327

Supreme Court of Queensland|2005-11-11|Before: Douglas J

Gold Coast City Solicitors for the applicant Shepherd

David Montgomery for the Gold Coast City Council and the Chief Executive Officer of the Gold Coast City Council

[1] DOUGLAS J: On 23 December 2004 the Gold Coast City Council entered into a directors and officers insurance policy with ACE Insurance Limited. Two councillors of the Gold Coast City Council, Councillor Power and Councillor Shepherd, have brought applications seeking declarations that upon the true construction of that insurance policy an investigation currently in progress by the Crime and Misconduct Commission is an investigation which involves an allegation that those councillors committed wrongful acts as that term is defined within the policy of insurance. They also seek declarations that they are entitled to payment by ACE on an ongoing basis of all their reasonable legal fees, costs and expenses incurred in being legally represented in relation to the investigation by the Crime and Misconduct Commission.

[2] The councillors fall within the definition of "insured" under the policy particularly because of endorsement number 7. Clause 3(b) provides that:

"ACE shall pay on behalf of the Insured(s) on an ongoing basis all reasonable legal fees, costs and expenses incurred in being legally represented with respect to any legally compellable attendance at any investigation PROVIDED THAT:

(1) the Investigation involves an allegation that the Insured(s) committed a Wrongful Act".

[3] "Wrongful Act" is defined in cl 2(r) to mean "any actual or alleged act, error, omission, breach of duty, breach of trust, breach of authority, misstatement or misleading statement by the Insured(s) while acting in their capacity as Insured(s) ....". This combination of the definition of "Wrongful Act" with the cover provided by cl 3(b), therefore, requires the wrongful act to be done while the councillor was acting in his capacity as a councillor of the Gold Coast City Council.

[4] An investigation within the meaning of that word in cl 2(h) of the policy is underway. It seems likely to have been precipitated by a letter from another councillor of the Gold Coast City Council, Councillor Peter Young, to the Minister for Local Government, Planning and Women dated 8 July 2005 calling for an inquiry into the conduct of Gold Coast City councillors.

[5] The Crime and Misconduct Commission has prepared terms of reference for the investigatory hearing which it is conducting. They include its resolution to hold hearings to investigate:

"(i) cases of alleged or suspected official misconduct by councillors of the Gold Coast City Council concerning:-

(a) false or misleading statements of candidates for the Gold Coast City Council election in March 2004 with respect to details of any association with other candidates or entities

(b) electoral bribery with respect to the Gold Coast City Council election in March 2004

(d) declaring and dealing with conflicts of interest or material personal interests since the Gold Coast City Council election in March 2004

(e) any criminal offence involving the performance of their functions since the Gold Coast City Council election in March 2004"

[6] Section 15 of the Crime and Misconduct Act 2001 defines "official misconduct" as conduct that could, if proved, be a criminal offence or a disciplinary breach providing reasonable grounds for terminating the person's services, if the person is or was the holder of an appointment.

[7] ACE's attitude to the request for indemnity on behalf of Councillor Power and Councillor Shepherd has been that, under the policy's terms, its liability to advance defence costs for the inquiry will only be triggered from the date on which an allegation is notified which falls within cl 3(b). The attitude it has taken is that, so far, on the information available to it, the information sought by the Crime and Misconduct Commission's "notice to discover" in respect of Councillor Power seeks only documents and information that relate to his conduct as a candidate for election on 27 March 2004 to the Gold Coast City Council. It also argues that the "attendance notice" from the Crime and Misconduct Commission requires Councillor Power to attend to give evidence about his knowledge of conduct by councillors. Its counsel argue that this carries no implication of an allegation and makes no allegation of wrongdoing by him as a councillor.

[8] ACE also submits, in respect of Councillor Shepherd, that he is seeking an indemnity for legal representation costs at the inquiry in respect of his conduct as a candidate for election. The consequence, it submits, is that none of the matters notified to it as an insurer evidence an allegation of a "wrongful act" because they concern conduct relating to the applicant's candidacy for election and not their conduct in their capacity as councillors.

[9] The submission to the contrary focuses on the language of the policy, particularly the proviso that the investigation "involves" an allegation that the insured committed a wrongful act. Counsel for the councillors and for the Gold Coast City Council submitted that the word "involves" is broad in its effect and is properly defined to mean "imply; entail ... to include". The Macquarie Dictionary also includes meanings such as "to include, contain, or comprehend within itself or its scope" and "to implicate, as in guilt or crime, or in any matter or affair". The effect of the submission is that the language of cl 3(b) is met if the investigation includes or, perhaps, comprehends within itself, an allegation that a councillor committed an alleged act, error, omission, breach of authority, misstatement or misleading statement while acting in his capacity as a councillor.

[10] For these reasons it is necessary to state briefly what is being investigated. The letter from Councillor Young appears to have significant relevance in that exercise when its terms are compared with the opening comments of counsel assisting the investigation at pp. 21-28 of the investigation transcript. An expurgated version of Councillor Young's letter of 8 July 2005 included a submission by him as follows:-

● A highly organised and well-supported team of candidates was established to wrest control of Council;

● The candidates professed to be independent but were not. Those who were successfully elected won their places by deception;

● Funding was principally sourced from developers. The developers were duped into believing their interests would be best served by the 'Common Sense' team;

● A de-facto policitical organisation existed. The policitical organisation did not announce itself or its purposes to the electorate, nor did it indicate its role in the election. Those involved in the organisation operated in secret and the participants denied its existence;

● Implicit and explicit benefits are provided by pro-development Councillors to developers to keep them 'on side', in order to ensure financial support at election time;

● What has transpired is a distortion of the political process and as a direct result the integrity of councillors and of this Council is severely undermined."

[11] These allegations were fleshed out by him in some detail in a fuller version of the letter and include allegations linking councillors' votes to matters since the 2004 election that involved developers who had contributed to their election campaigns. One that was drawn to my attention, in particular in respect of Councillor Power but also in respect of Councillor Shepherd, dealt with the provision of a rates discount to a subsidiary company of another company described as "Sunland" associated with a Mr Abedian. That episode has been the subject of some investigation at the inquiry already; see the investigation transcript, exhibit AJT1 to the affidavit of Ashley John Tiplady filed 26 October 2005 at pp.130-143, 167 and 327-328.

[12] Exhibit 1 in these proceedings establishes that Councillors Power and Shepherd supported the motion that a discount allowance be provided to that company. Discounts were permitted pursuant to s 1021 of the Local Government Act 1993 if a local government was satisfied that a person liable to pay a rate has been prevented, by circumstances beyond the person's control, from paying the rate in time. It seems clear from the transcript to which I have referred that counsel assisting the Commission was focussing, in his examination of the relevant witness, a Councillor Molhoek, on whether the specific statutory criteria which needed to be satisfied for "Sunland" to obtain the relevant discount had been satisfied; see at p. 134 of that exhibit. One inference that appears to be available from the line of questioning is that Sunland's status as a land development company might have been associated with the grant of the discount to it by the councillors who voted in favour of that course.

[13] The terms of reference set out earlier, particularly in cll. 1(i)(d) and (e) also focus on potential conflicts of interest since the election in March 2004 and any criminal offences involving the performance of councillors' functions since that election.

[14] The conclusion sought to be drawn by Councillor Young's letter of 8 July 2005 are much more wide ranging than the particular allegation about Sunland to which I have referred. It is clear that those allegations in his letter are included in the complaints which have led to the investigation but it is not clear yet which of these particular allegations, apart from the Sunland allegation to which I have referred, will be canvassed during the public hearings.

[15] In dealing with the insurer's submissions, therefore, the terms of reference in cll. 1(i)(d) and (e) which are, relevantly, to investigate cases of alleged or suspected official misconduct by councillors concerning their declaring and dealing with conflicts of interest or material personal interests since the March 2004 election and in respect of any criminal offence involving the performance of their function since that election, assume most importance. In my view it is difficult to treat the allegations of electoral misconduct facing the relevant councillors from the terms of reference in cll. 1(a), (b) and (c) as disconnected from their actions in their capacity as councillors more particularly the subject of cll. 1(d) and (e). The clear inference from a fair reading of the terms of reference and the conduct of the investigation so far is that there are potential connections between the alleged electoral misconduct and possible failures to declare conflicts of interest or material personal interests. It does not seem to me that the absence of a direct allegation against an individual councillor prevents this investigation from "involving" an allegation that the applicant councillors committed wrongful acts as councillors.

[16] There have been allegations of the commission of such wrongful acts leading to the establishment of the investigation. The "Sunland" questions are one example where the investigation has led to conduct of the applicants as councillors. Other lines of inquiry about their electoral activities are also being pursued; see, e.g., in respect of Councillor Shepherd, at pp. 978-980 of the investigation transcript. That all the links in the chain may not have been fully laid out yet in the inquiry does not prevent it from "involving" allegations of misconduct.

[17] Mr Hugh Fraser QC for the respondent submitted that the submissions by Mr Temby QC for Councillor Power would lead to the conclusion that his client was bound to pay for any councillors who were compelled to attend at the hearing whether there were allegations made against them or not. I am not sure that the submission goes that far but the terms of reference and the conduct of the investigation so far support the view that there are allegations against these two councillors that are being investigated and that comprehend their electoral conduct as well as their later conduct as councillors.

[18] This has occurred in a context where an investigation is on foot generally into councillors' failure to declare and deal with conflicts of interest or material personal interests and possible criminal offences. It seems to me that the correct conclusion is, therefore, that the investigation involves allegations that they committed wrongful acts as councillors with the consequence, that, in my view, the policy does respond to the claims made on it by the applicants.

[19] As Mr Donald Fraser QC for the Gold Coast City Council submitted, the commercial objective of the policy of providing for the cost of legal representation "can hardly be met if payment by the insurer is not required until a general inquiry into matters which affect all councillors finally reaches the stage where specific allegations are particularised against any individual councillor. After all one of the tasks of those representing the councillors will be to test the evidence adduced to seek to limit of prospect of such allegations being formulated by the Commissioner."

[20] Accordingly, subject to any further submissions about the form of the declaration sought I propose to make orders of the nature claimed. I shall hear further submissions as to costs.

Crime and Misconduct Act 2001

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