Royal Guardian Mortgage Managers v Australian Mortgage Securities

The application fails 48In my view, there three reasons why the application should fail. The first is that the proposed case (based on conspiracy etcetera) is weak. The second is that Guardian had the chance to use the documents without restriction in these proceedings, but chose not to do so. The third is that Genworth opposes the relief sought and that the grant of relief would have a significant adverse impact on it. The proposed case is weak 49To show a cause of action in conspiracy, Guardian must show loss. They proposed to do that, in so far as one can make out from the draft commercial list statement, by showing that the alleged conspiracy and fraudulent agreement meant that loans in default which should have been indemnified pursuant to Genworth's LMI policies were not indemnified simply because AMS/AFIG so directed. The result, they wish to assert, is that the AMS/AFIG then sought to recover the losses, in these proceedings, from Guardian. 50That is a debatable proposition at best. There are, perhaps, some four categories of possible claim as between AMS/AFIG and Guardian. 51The first category would include defaulting loans written in circumstances where Guardian did not comply with their obligations to follow the operations manual. In those circumstances, the LMI policies would not respond. AMS/AFIG would have no entitlement to indemnity under any Genworth policy. 52The second category would include defaulting loans written in circumstances where Guardian did follow the operations manual and did not breach any other obligation under the Correspondent Deed (or, to the extent that it may be relevant, the Standstill Agreement). 53The third category would include loans written where Guardian did follow the operations manual, but breached some other obligation under the Correspondent Deed, as a result of which they are liable AMS/AFIG. 54The fourth category is similar to the third category, with the variation that the breach of the correspondent deed did not cause any insured or insurable loss. 55Mr Young submitted that there was a fifth category arising out of the chapeau to clause 13.2 of the correspondent deed. By that clause, Guardian accepted an obligation to indemnify AMS for all costs and expenses as defined "which AMS may suffer or incur as a result of, or in connection with" negligence, fraud, breach of duty, breach of contract, etc. Mr Young submitted that the test "in connection with" was far wider than the test of causation, so that Guardian could be liable to indemnify AMS "in connection with" a loss, even though the breach of contract or other breach of duty had not "caused" that loss. 56In addition, Mr Young postulated a an even wider (and ill-defined) category of loss arising "by" the misleading or deceptive conduct complained of. 57Sticking with the four categories that I have proposed, it seems to me that none of them could result in recoverable loss to Guardian. In the first category, by definition, AMS/AFIG would have no entitlement to indemnity from Genworth (because Genworth was not bound to indemnify them in respect of loans where the operations manual had not been followed). It follows that there was no manipulation of insurance cover, because there was no cover to be manipulated. 58For the second category, if there were neither breach of the operations manual nor breach of any other obligation under the correspondent deed, by definition Guardian could have no liability to AMS/AFIG and there could be no loss for the purposes of the proposed proceedings. 59The third category postulates that, although the operations manual was followed, there was some other breach of obligation which led to an insured loss which was paid out. In those circumstances, in my view, Guardian would be in the position of a wrongdoer in respect of whose wrongdoing an insured claims and receives indemnity from its insurer. It is clear law that, in those circumstances, the fact that the insured has recovered indemnity from its insurer affords the wrongdoer no defence. That was either established or confirmed by the Court of Kings Bench in Mason v Sainsbury (1782) 3 Doug KB 61. That this remains the law was confirmed by the decision of Campbell J in Le v Williams [2004] NSWSC 645 at [65] to [72]. In my view, that principle is directly applicable in the postulated third category. 60The fourth category assumes that although there was some breach of an obligation under the correspondent deed, that breach did not cause loss. If it did not, then there was no loss for which recovery might be effected under the relevant LMI policy, again no possibility of manipulation of cover, and again no category of loss for the purposes of the proposed proceedings. 61Mr Young's postulated fifth category may perhaps, or theoretically, be arguable. But there is no evidence to suggest that there are any potential claims that would fall within it, and not also within the third category. Thus, it does not seem to me that there is any real possibility that AMS/AFIG might have suffered loss by reason of manipulation of the insurance cover, pursuant to the alleged conspiracy, in respect of loans in this suggested category. 62Nor is it likely that there would be claims in this category. On the face of the deed (in view of the confidentiality order, I will refer to clause 4 but not go into more detail), claims in Mr Young's fifth category would be covered by the LMI policy, subject only to the capping arrangements (again, I will not go into detail), and should have been paid. Thus, unless the capping agreement had some impact that is not presently discernible, it is, as I have said, unlikely that there were any losses within the proposed fifth category. 63Mr Young's submissions based on alternative possible sources of loss were pitched at such a level of generality as to be unpersuasive. 64Thus, in my view, it is unlikely that Guardian suffered (or would have suffered) loss as a result of the alleged conspiracy. On that basis, it is highly likely that the proposed proceedings are not maintainable. Guardian chose not to press the claim 65As I have said, the documents were produced in these very proceedings. Guardian had the opportunity to use them in these proceedings by making a claim against Genworth. The evidence is clear that it not only gave consideration to doing so, but went so far as to have a proposed cross-claim drafted. Its solicitors "served" that draft cross-claim, unfiled, on AMS/AFIG and Genworth. 66There is no doubt that the documents could have been used in these proceedings for that purpose without there being any need for a variation of the express or implied undertakings as to confidentiality. 67However, Guardian did not proceed. They made a deliberate decision not to use the documents to make the claims in these proceedings. They did so for the purpose of settling with AMS/AFIG. As I have said, that settlement was achieved. 68There is no doubt that the decision was made and that it was deliberate. This is apparent from the affidavit evidence and cross-examination of Guardian's solicitor, Ms Cooper. The decision was made although Guardian was advised, and appears to have accepted, that the matters proposed to be raised by the cross-claim against Genworth lay at the heart of the issues in the proceedings as they were then constituted and that it would be convenient for all those issues to be dealt with at the one time. 69It seems that the draft cross-claim was notified to AMS/AFIG and Genworth with a view to get getting Genworth to the negotiating table (a mediation was to take place about a month after the draft document was served). That purpose was not achieved, because Genworth did not turn up at the mediation. Nonetheless, it is clear that Guardian hoped that it would achieve a resolution of its dispute with AMS/AFIG at the very least. It is also clear that Guardian thought that its prospects of doing so would be enhanced if the proposed cross-claim were not filed at the time. 70Guardian did not tell AMS/AFIG that, if a settlement were reached, it would thereafter proceed to file a claim against Genworth. To be fair, neither did Guardian indicate that it would not do so. Nonetheless, I think it is fair to assume that AMS/AFIG attended the mediation, and participated in the extensive settlement negotiations thereafter with a view to ending their involvement in the litigation. 71It is clear from Ms Cooper's evidence, and I find, that Guardian knew that they could sue Genworth, using the material produced by it, in these proceedings without requiring leave. Further, I find, Guardian knew that they would need leave to use the material for the purpose of suing Genworth in fresh proceedings. 72Guardian knew that the proposed claim was "one and the same" as its existing claim against AMS/AFIG (this phrase had been used by a solicitor in an email) and should be merged with these proceedings. Nonetheless, it decided to press on with its settlement negotiations without commencing a separate cross-claim against Genworth. 73In those circumstances, it seems to me, Guardian, acting on legal advice, made a deliberate and considered decision to take a course whereby, if it wished later to sue Genworth, it would need leave to do so. To the extent that the present need for the orders sought raises some "special circumstances", those circumstances are of Guardian's making. The impact on Genworth 74This is, I think, self-evident. If the orders sought are made, proceedings will be commenced against Genworth. It is likely that those proceedings will be lengthy and expensive. The impact on Genworth is obvious and adverse. Balancing the factors 75I accept that the Deed in particular is vital; and I accept too, that most of the other documents will be necessary if Guardian is to prove its case, including as to loss. However, as I have said, Guardian had the opportunity to pursue that case. It chose, for tactical reasons, not to do so. 76As Mr Young submitted, it may have been reasonable for Guardian to take that course. But the inference from the evidence is that it decided not to press its claim against Genworth in these proceedings because it envisaged that to do so might derail the settlement negotiation, or prospects of settlement, with AMS/AFIG. 77That decision has had a serious impact on AMS/AFIG. Had they known that, after settlement, they would be dragged into a conspiracy case between Guardian and Genworth, they might have taken a different view. Even accepting that they have no liability to Guardian because of the settlement, it remains the fact that their names and reputations will be heavily involved if the case against Genworth proceeds. And, because they will not be parties, they will not be able to defend themselves. Of course, if by some means they are joined as parties, they will be able to defend themselves but will do so at no doubt substantial cost. 78Guardian knew that it could sue Genworth in these proceedings without needing any variation of its undertakings. It knew too, as I have said, that it would need a variation if it were to sue in separate and later proceedings. I see no reason now to allow it to escape from the consequences of its informed and deliberate choice. 79There were other matters argued. It is not necessary to express an opinion. However, I will note that the "pleading" of the alleged conspiracy is deficient in material facts, and that the "pleading" of the involvement of the individual defendants is even more so. 80I accept that one of the purposes of requiring the documents is (in Mr Young's words) to "polish" the draft. But the defects to which I have referred briefly are more than cosmetic, and require more than some polishing to eliminate.