Vero Insurance v Baycorp Advantage

CATCHWORDS : INSURANCE - Directors and officers insurance policy - Claim against officers - Deed of settlement - Whether any loss to officers - Whether any legal liability under deed of settlement - Joint and several liability - "On behalf of itself and each of the other defendants in the proceedings" - INSURANCE - Loss by judgment or settlement - Reasonableness of settlement figure - INSURANCE - Defence costs indemnified - Another party besides insured benefited from defence - Whether all defence costs can be claimed Insurance Contracts Act 1984 (Cth) LEGISLATION CITED : Supreme Court Rules 1970 New South Wales Barristers' Rules New Zealand Forest Products Limited v New Zealand Insurance Co Limited (1997) 1 WLR 1237 Legal & General Insurance Australia Limited v Eather (1986) 6 NSWLR 390 at 394C CASES CITED : McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 at 601 Idoport Pty Limited & Anor v National Australian Bank Ltd & Ors [2001] NSWSC 328 Root Quality Pty Limited v Root Control Technologies Pty Limited (2000) 177 ALR 231 The Distillers Company Bio-Chemicals (Australia) Pty Limited v Ajax Insurance Company Limited (1974) 130 CLR 1 PARTIES : Vero Insurance Limited Baycorp Advantage Limited FILE NUMBER(S) : CA 41068/03 COUNSEL : A: Mr D Davies SC / B McManus R: Mr M A Pembroke SC / T M Faulkner SOLICITORS : A: Hunt & Hunt, Sydney R: Allens Arthur Robinson, Sydney

LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT SC 50035 FILE NUMBER(S) : LOWER COURT Einstein J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41068/03 CL 50035/03

GILES JA TOBIAS JA McCOLL JA

Monday 6 December 2004 VERO INSURANCE LIMITED v BAYCORP ADVANTAGE LIMITED Judgment 1 GILES JA: I agree with Tobias JA. 2 TOBIAS JA: On 28 October 2003 Einstein J answered in favour of the respondent four separate questions which had been ordered to be decided in advance of all other issues in the proceedings between the parties. Those proceedings concerned a claim by the respondent for indemnity under Directors and Officers Insurance Policy No. F1000082ZF8 (the policy) issued by the appellant then known as Royal & Sun Alliance Insurance Australia Limited. 3 The appellant had refused to indemnify the respondent with respect to the settlement for the sum of $10 million relating to three sets of proceedings in the Supreme Court of Victoria (collectively, the proceedings) to which the respondent and a number of its officers were defendants and with respect to an amount in respect of Defence Costs (as defined in the policy) incurred by the defendants in defending and settling those proceedings.

The agreed facts 4 The hearing of the separate questions proceeded upon a Statement of Agreed Facts which, for present purposes, may be summarised as follows:

(a) On or about 24 December 1999, the appellant issued the policy for the period 26 October 1999 to 26 October 2002. At all material times each of the respondent, Credit Advantage Limited and Design Advantage Pty Limited was an Insured Entity within the definition of that term in the policy.

(b) At all material times each of David Grafton, Brian Gatfield, John Martin, Bruce Bargon, Angela Blair and Geoffrey Kimpton (collectively, the officers) was an Insured Person within the definition of that term in the policy.

(c) The respondent indemnified the officers pursuant to the terms of a Deed of Indemnity and Defence Costs entered into with each.

(d) In or about May 2000 a Claim (as defined in the policy) arising from an actual or alleged Wrongful Act (as defined in the policy) was first made against the officers other than Geoffrey Kimpton.

(e) On or about 1 June 2000 the Claim was notified in writing to the appellant.

(f) As a result of the allegations the subject of the Claim, the following proceedings were commenced in the Supreme Court of Victoria: (i) Commercial List Proceedings No. 2086 of 2000 instituted by Killorgan Investments Pty Limited (Killorgan) against David Grafton, Brian Gatfield, John Martin, Bruce Bargon and others (the modification proceedings); (ii) Commercial List Proceedings No. 6833 of 2000 instituted by Marcus Price (Price) against David Grafton, Brian Gatfield and others (the wrongful dismissal proceedings); and (iii) Commercial List Proceedings No. 6887 of 2000 instituted by Price against David Grafton, Angela Blair and others (the defamation proceedings)

(g) On 21 December 2000, the appellant wrote to the respondent's broker. I interpolate here that by that letter the appellant advised that indemnity under the policy was available to each of the officers (other than Mr Kimpton) in respect of the allegations made against each of them jointly and severally in the claim brought by Killorgan and in the two claims brought by Price

(h) On or about 7 November 2001 a Claim arising from an actual or alleged Wrongful Act (as defined in the policy) was first made against Geoffrey Kimpton. Price then added Mr Kimpton as a further defendant to the statement of claim in the defamation proceedings.

(i) In or about November 2001 the matters set out in the preceding paragraph were notified in writing to the appellant who, on 16 January 2002, through their solicitors informed (I interpolate) the respondent's solicitors that the claim now made against Mr Kimpton in the defamation proceedings would be subject to the indemnity previously granted pursuant to the appellant's letter of 21 December 2000.

(j) At all material times the appellant elected not to exercise its entitlement to take over and conduct the defence or settlement of the Claims as provided for in Claims Condition 2 under the heading "Conduct of the Claim" in the policy or at all.

(k) In or around June 2000, the defendants to the proceedings retained Malleson Stephen Jaques (Mallesons) as their joint representative to defend, investigate, monitor and settle the proceedings. As and from that time legal and expert fees, costs, charges and expenses in defending, investigating, monitoring and settling the proceedings were incurred by Mallesons on behalf of the respondent and the officers in the sum of approximately $7 million. The respondent paid this sum.

(l) On or about 4 October 2002 the defendants (including the respondent and the officers) entered into a Deed of Settlement (the Deed) pursuant to the terms of which the respondent paid a total of $10 million to Killorgan and Price in settlement of the proceedings.

Separate questions for determination 5 The separate questions (other than Question 4) ordered to be determined in advance of all other issues in the proceedings were as follows: "Settlement Sum 1. Whether, by reason of the execution of the Deed of Settlement dated 4 October 2002, and on the proper construction of Clause 2.1 thereof, the sum of $10 million is an amount (whether determined by judgment or settlement) which an Insured Person (as defined in the Policy) is legally liable to pay in respect of a Claim (as defined in the Policy). 2. If the answer to question 1 is "Yes", whether, subject to the answer to question 3, the defendant is thereby liable under the Policy to indemnify the plaintiff for the said amount of $10 million. Unconscionability 3. If the answers to questions 1 and 2 are "Yes", whether it is unconscionable for the plaintiff to rely on the construction of Clause 2.1 of the Deed of Settlement as establishing a Loss (as defined in the Policy) for the said amount of $10 million. … 5. The issues raised by paragraphs 13(b) and (c) of the Defence and Reply." 6 The issues raised by [13(b)] and [13(c)] of the Defence and [2] of the Reply were:

(a) whether the appellant's obligation to pay Defence Costs (as defined) extended to costs etc incurred by or on behalf of an Insured Person but which were also incurred by or on behalf of, or were of benefit to, an Insured Entity; and

(b) whether the appellant could rely on Claims Condition 6 of the policy and/or whether that provision was unenforceable as an agreement to agree and/or was void for uncertainty. 7 The primary judge answered those questions as follows: Q1 Yes

Q5 (a) On the proper construction of automatic extension 1(a), insuring clause B and the definitions of 'Loss' and 'Defence Costs', the defendant is obliged to pay all reasonable legal and experts' fees, costs, charges and expenses (other than wages, salaries or fees of the Insured Entity or any Insured Person) incurred with the prior written consent of the defendant in defending, investigating, monitoring or settling the Claim (as that term is defined in the Statement of Agreed Facts) against the Officers (as that term is defined in the Statement of Agreed Facts), whether or not uninsured corporate defendants also receive a benefit from those costs being incurred; and (b) Claims Condition 6 is unenforceable as an agreement to agree and void for uncertainty. 8 The primary judge was not required to answer Question 4, which had been referred to a Referee pursuant to Part 72 r 2 of the Supreme Court Rules 1970 for enquiry and report. By order made on 28 October 2003 the primary judge varied Question 4 with the result, so far as presently relevant, that the Referee (in a report dated 24 May 2004) concluded that the reasonable costs, charges and expenses paid to Mallesons in connection with the proceedings but excluding those costs, charges and expenses related wholly and exclusively to the defence of the respondent and the other corporate defendants (the common costs) were $5,251,950.32; whereas the costs, charges and expenses relating solely and exclusively to the defendant officers were $40,509.74. Bergin J duly adopted this report on 11 June 2004 by consent. The Referee's answers are relevant to Question 5 because the common costs benefited the corporate defendants (including the respondent) who, under the policy, were Insured Entities and thus outside the cover provided thereby as well as the officers who, as Insured Persons, were within that cover. 9 The appellant appeals to this Court against the answers given by the primary judge to Questions 1, 2, 3 and 5 pursuant to leave granted by Giles and Hodgson JJA on 15 April 2004.

The relevant terms of the policy 10 The relevant insuring clause of the policy is Insuring Clause B Reimbursement of the Insured Entity, which provides as follows: "The Insurer will pay on behalf of the Insured Entity Loss for which the Insured Entity is lawfully permitted or required to indemnify an Insured Person arising out of any Claim… arising from any actual or an alleged Wrongful Act." 11 I have already noted that each of the respondent and the other corporate defendants in the proceedings is an Insured Entity as defined and that each of the officers is an Insured Person as defined. Further, it is common ground that each of the proceedings constitutes a Claim as defined. The definition of "Claim" need not be set out, but relevantly meant a civil proceeding against an Insured Person alleging facts or circumstances constituting a "Wrongful Act". The latter term is defined to mean: "(a) any breach of duty, breach of trust, neglect, error, omission, misstatement, misleading statement or conduct, breach of warranty of authority or any other act committed or attempted by an Insured Person; or (b) any other liability asserted against an Insured Person solely whilst acting in their capacity as an Insured Person of the Insured Entity." 12 Of critical relevance to a consideration of Question 2 is the definition of "Loss" which is defined in the policy relevantly to mean: "1. the amount (whether determined by judgment or settlement) which an Insured Person is legally liable to pay in respect of a Claim and includes damages, interest and claimant's costs and expenses; 2. Defence Costs" 13 Relevant to Question 5 is the term "Defence Costs" which, relevantly, is defined in the policy to mean "all reasonable legal and experts' fees, costs, charges and expenses (other than wages, salaries or fees of the Insured Entity or any insured Person) incurred by the Insurer or with its prior written consent in defending, investigating, monitoring or settling any Claim …." 14 Claims Conditions 2 and 6 are also relevant. The former is under the heading "Conduct of Claim" and provides as follows: "No admission, offer, promise, payment or indemnity may be made or given by or on behalf of the insured without the written consent of the Insurer. The Insureds must use due diligence and do and concur in doing all things reasonably practicable to avoid or diminish any Loss… The Insurer may take over and conduct in the name of an Insured Person the defence or settlement of any Claim and will have full discretion in the conduct of any proceedings and in the settlement of any Claim." 15 Claims Condition 6 is under the heading "Allocation" and relevantly provides: "In the event that … (b) both an Insured Person and others (including the Insured Entity) are a party to the proceedings or demand to which a Claim relates, then the Insureds and the Insurer will agree on a fair and proper allocation of damages, interest, claimant's costs and expenses and Defence Costs between Loss covered by this Policy and Loss not covered by this Policy." 16 Claims Condition 2 is relevant to the determination of Question 2 whereas Claims Condition 6 is relevant only to the determination of Question 5 as it is relied upon by the appellant in defence of the respondent's claim for Defence Costs only.

The relevant provisions of the Deed of Settlement 17 Question 1 is in the following terms: "Whether, by reason of the execution of the Deed of Settlement dated 4 October 2002, and on the proper construction of Clause 2.1 thereof, the sum of $10 million is an amount (whether determined by judgment or settlement) which an Insured Person (as defined in the Policy) is legally liable to pay in respect of a Claim (as defined in the Policy)." 18 The answer to this question obviously involves the proper construction of the Deed and, relevantly clause 2.1 thereof. More particularly, the issue raised by this question is whether on the proper construction of Clause 2.1 the sum of $10 million referred to therein is (within the meaning of the definition of "Loss" in the policy) an amount determined by settlement which each of the officers as an Insured Person (as defined in the policy) is legally liable to pay in respect of a Claim (as defined). 19 There is an immediate difficulty. If each of the officers as an Insured Person undertook a liability pursuant to clause 2.1 to pay $10 million, as to at least some of them, it could not be said that the liability was in respect of a Claim. The contended liability of Mr Kimpton and Mr Blair for example, who were sued only in the defamation proceedings, would be significantly greater in scope and amount than their liability in the defamation proceedings. The question did not cope with the multiplicity of Insured Persons and proceedings, and was therefore not entirely appropriate to be determined in the manner the parties adopted. 20 In the manner the argument proceeded, the question was refined. It was whether any of the officers as an Insured Person undertook a liability to pay $10 million or some part of the $10 million referrable to the claim against the officer. The issue was whether Clause 2.1 of the Deed contained not only a promise by the respondent to pay the sum of $10 million, but also a promise by each of the officers. The primary judge decided the issue in favour of the respondent and answered the question in the affirmative whereas the appellant now, as then, contends that it should be answered in the negative. Even if this issue were decided in favour of the respondent, it does not follow that the question should be answered in the affirmative. 21 For the purpose of determining this issue it is necessary to refer to a number of provisions of the Deed upon which the parties relied. I will summarise those provisions where appropriate, although it will be necessary to record some of them in full. 22 Recital A of the Deed refers to a modification agreement entered into between two of the corporate defendants and Killorgan which involved the sale of shares. Recital B refers to an employment agreement between Price and one of the corporate defendants pursuant to which the former was employed as chief executive officer of the latter. Recital C refers to the dismissal of Price as chief executive officer of the corporate defendant and the institution of the wrongful dismissal proceedings by Price against, inter alia, the respondent and Messrs Grafton and Gatfield. Recital D refers to the issue by the corporate defendants (including the respondent) of statements relating to the dismissal of Price and which he alleged to be defamatory as a consequence whereof he had instituted the defamation proceedings against the respondent, one of the other corporate defendants as well as Mrs Blair, Mr Grafton, Mr Gatfield and Mr Kimpton. Finally, Recital E refers to an allegation by Killorgan that one of the corporate defendants had repudiated the modification agreement and that the respondent and certain of its officers had caused Killorgan loss in respect of which it had instituted the modification proceedings to recover damages from, inter alia, the respondent and Messrs. Grafton, Gatfield and Bargon. 23 Clause 1.1 of the Deed provides that it has been made without admission by any of the parties as to any liability whatsoever. Clause 2.1 is critical and I set it out in full: "Baycorp Advantage, on behalf of itself and each of the other defendants in the proceedings ("the defendants") will pay Killorgan and Mr Price ("the plaintiffs"): (a) $6,900,000 in respect of the claims under the Modification Agreement; (b) $300,000 in respect of the dismissal action; (c) $600,000 in respect of the defamation action; and (d) $2,200,000 in respect of the costs including reserved costs and costs orders, in full and final settlement of the proceedings and the disputes, inclusive of costs ('payments')." 24 Clause 2.2 provides for payment of the amounts referred to in clause 2.1 within 28 days of the date of the Deed. Clause 2.3 provides for the respondent group to cause a statement to be released to the Australian Stock Exchange and others concerning the defamation proceedings. The statement refers to the commencement of those proceedings by Price against companies within the group and the officers. It then contains the following: "Data Advantage Limited and Decision Solutions Pty Limited withdraw any communication made by them at the time of the departure of Mr Price as Chief Executive Officer in May 2000 and apologise for any imputation adverse to him arising from those communications.

I interpolate that the appellant submitted that it was noteworthy that whereas the above statement contains an apology by the corporate defendants, it did not contain an apology by the relevant officers. 25 Clause 3.1 provides that as soon as practicable after the Deed takes effect, the plaintiffs to the proceedings are to file notices of discontinuance in respect of each upon the basis that the proceedings would be discontinued with no order as to costs. Clause 3.2 was relied upon by the appellant and is in the following terms: "The plaintiffs consent to the defendants using the lay and expert statements served by the plaintiffs in the proceedings for the purpose of the defendants pursuing indemnification from their insurers." 26 Clause 4.2(a) provides that immediately upon the Deed taking effect, each of Killorgan and Price releases and discharges each of the defendants to the proceedings, their current and former officers, employees and agents. Those releases and discharges were defined by clause 4.1 in extremely wide terms going beyond each of the wrongful dismissal, defamation and modification proceedings. 27 Although not referred to by the primary judge, clause 5.1 is in my opinion of significance and was heavily relied upon by the appellant. It is, so far as is relevant, in the following terms: "Subject only to paragraph 2.3 above, [which relates to the publication of the statement to the Australian Stock Exchange and other bodies], each of the parties to this deed agree for themselves, their servants and agents that the terms and substance of this deed are and shall remain strictly confidential as between the parties to this deed and shall not be communicated to any other person under any circumstances whatsoever [subject to certain exceptions not presently relevant]." 28 Finally, clause 6.1 of the Deed provides that it will take effect upon exchange of all counterparts being duly executed. The Court was informed that this occurred on 7 October 2002 in that each of the officers executed a counterpart of the Deed, which was then duly exchanged. 29 It is common ground that each of the counterparts executed by each officer had annexed to it as forming part of the Deed the following statement signed by each officer: "I agree that, in consideration for Baycorp Advantage Limited agreeing to pay on my behalf the sums referred to in clause 2.1 of the Deed of Settlement between myself, Marcus Price and others dated about 4 October 2002, I will provide all assistance and cooperation which Baycorp Advantage Limited may reasonably require in order to pursue indemnification from its insurer, Royal & Sun Alliance, in relation to the amount paid by it."

The primary judge's decision on the issue within Question 1 30 The primary judge considered (at [24]) that the proper approach to the construction of the Deed was to ascertain the parties' objective intent. In particular, he said, it was necessary to pay attention to the context of clause 2.1. That context, as set out in the recitals to the Deed, was the settlement of the proceedings brought by the plaintiffs against not only the respondent but also the officers. His Honour noted that the Deed provided for the discontinuance of the proceedings against the officers and for their release and discharge. Accordingly, they were to receive valuable benefits under the Deed. It would be surprising, according to his Honour, that in a context where the plaintiffs were negotiating settlement of the proceedings, they would have been prepared to accept the promise only by the respondent to pay the settlement sum but not the promise of each of the officers who were also going to benefit from the settlement. 31 The primary judge accepted the respondent's submissions with respect to the proper construction of clause 2.1 of the Deed. He considered that that construction had the advantage that the words in clause 2.1 - "on behalf of itself and each of the other defendants" - had work to do. The appellant's construction, his Honour found (at [26]), had the clear disadvantage that this phase would be unnecessary. In other words, if the promise to pay was confined to the respondent alone then there was no necessity to insert the words in question. 32 The primary judge also relied upon the agreement of each director to which I referred in [25] above. He considered (at [27]) that the words "to pay on my behalf" in that agreement clearly denoted the acceptance of a liability on the part of the officer on whose behalf the payment was being made. On the other hand, his Honour did not (at [28]) consider that clause 3.2 of the Deed, which contemplated the respondent and the officers pursuing indemnification from the appellant, as requiring a contrary construction. Further, at [30] he rejected a submission by the appellant that the difficulty of accepting that clause 2.1 created a joint and several liability of the officers to pay $10 million was that officers, such as Messrs. Kimpton and Blair, who had only been sued in the defamation proceedings which had been settled for only $600,000, would have been liable in relation to the whole $10 million. 33 The primary judge's response to this last mentioned submission was as follows: "As the plaintiffs have submitted and as I accept, the short answer to the submission is that for each individual officer the amount which he or she is jointly and severally liable to pay is the specified amount for each of the Victorian proceedings in which that person was a defendant. The phrase 'to pay on my behalf the sums referred to in clause 2.1 of the Deed of Settlement ' appearing on the last page of Exhibit PX Tab 13 (see [25] above) refers to the sums identified in clause 2.1 of the deed. Properly construed there is a joint and several liability of each of the parties who were the defendants in the relevant proceedings to pay the amounts specified in clause 2.1. In the exercise of construing the deed to ascertain the objective intent of the parties in relation thereto, the court is plainly entitled to take into account the terms of the acknowledgement/agreement to be found on the last page of the above exhibit. Albeit that the construction issue is always to be determined in the particular context, the language of clause 2.1 of the deed of settlement: 'on behalf of itself and each of the other defendants' is certainly open to be construed as the language of joint and several obligation (compare: 'we bind ourselves and each of us by himself' and 'for themselves and for each of them': Glanville Williams, Joint Obligations , 1949, page 38)."

Was the primary judge correct in his decision? 34 The parties' submissions on this issue essentially covered the same ground as their submissions before the primary judge as recorded in his judgment (at [19] and [20]). The respondent submitted that the critical words upon which it relied, namely, "on behalf of … each of the other defendants in the proceedings" would be otiose if the appellant's construction of clause 2.1 was accepted. On the other hand the appellant submitted that if the respondent's construction were correct, then the words "on behalf of itself" would be otiose. 35 The matter would have been clear if the opening words of clause 2.1 had read "Baycorp Advantage and each of the other defendants in the proceedings will pay Killorgan …". The omission of the words "on behalf of itself" would have put the matter beyond doubt. The fact that the critical words are included points in the opposite direction. The words have work to do as they acknowledge that the payment by the respondent will discharge the liabilities in the proceedings of the various defendants. As the appellant submitted, the form of the critical words was intended to signal that although the respondent was promising to pay $10 million not only on behalf of itself but also on behalf of the other defendants (including the officers), that promise to pay was confined to it although it was intended that the other defendants would benefit from it. The fact that the respondent was conferring such a benefit on the officers does not lead to the conclusion that the words in question were ones of promise by those persons. Their form is to be contrasted with the form of words in clause 5.1 and the agreement annexed to the Deed: see later in these reasons. 36 In [30] of his judgment extracted above, the primary judge drew attention to the reference in Glanville Williams, Treatise on Joint Obligations, 1949, p. 38 to the expressions "we bind ourselves and each of us by himself" and "for themselves and for each of them" as being words of joint and several obligation, although the author also referred to the "usual modern formula" being a promise expressed to be joint and several. If that was so in 1949, it must also be so in 2002 when the Deed was executed. Importantly, the expressions referred to by the primary judge are clearly words of covenant by the parties to the agreement in which they appear, as is evident from the use of the first person plural pronouns in the first example and the third person plural pronouns in the second example. 37 With respect, I am not impressed by the respondent's submission, accepted by his Honour, that commercial considerations make it more likely that Killorgan and Price would have sought to bind the officers to pay the settlement sum in the event that the respondent did not do so. The difficulty with this proposition is that it is speculative given that there was no suggestion that the respondent, which was obliged to pay the settlement sum within 28 days of the Deed taking effect and which, so we are informed to the knowledge of all parties, was a company of substance, would be likely to default. In my opinion, there is greater force in the appellant's submission that only Messrs. Grafton and Gatfield were sued in all proceedings whereas Mr Kimpton and Ms Blair were sued only in the defamation proceedings. Why, one asks rhetorically, would each of the latter agree to pay $10 million in respect of a settlement for $600,000 in the only proceedings in which they were defendants? Further, Messrs. Martin and Bargon were sued only in the modification proceeding, which were settled for $6,900,000. A like question must, therefore, be asked. 38 The primary judge (at [30]) answered this objection by limiting the liability of each officer to the amount for which he or she could have been held legally liable. Thus, for example, Mr Kimpton only ever stood to be severally liable for $600,000 of the settlement sum. The rationale for limiting the officer's exposure in this way was based on the fact that clause 2.1 lists the amounts owing in respect of each proceeding. Accordingly, this was said to be indicative of each officers' exposure. In my opinion this construction cannot be sustained. There is nothing in the wording of clause 2.1 to support it. If clause 2.1 made the officers jointly and severally liable, then it did so to the full extent of the settlement sum. This is supported by the terms of the agreement extracted in [27] above upon which the appellant relied in imposing upon the officers, jointly and severally, an obligation to pay the whole of the settlement sum. 39 A further reason why clause 2.1 did not contain a promise to pay the settlement sum by the officers is that such a promise, at least from their perspective, was unnecessary. Each of them was entitled to be indemnified by the respondent in respect of both the settlement sum and Defence Costs pursuant to the Deed of Indemnity and Defence Costs referred to in [4(c)] above. There was therefore no occasion for the officers to pay the settlement sum or any part thereof directly. On the contrary, it was appropriate that clause 2.1 should provide for the respondent to pay the settlement sum "on behalf" of the officers, the insertion of these words in clause 2.1 being explained by the terms of the Deeds of Indemnity and Defence Costs. That is why the parties were content, given that there was no suggestion that the respondent would be unable to pay on the due date, to impose the sole obligation to pay upon the respondent. 40 True it is that the respondent might have been expected to desire a clear statement that the officers were liable for the settlement sum or at least for their respective parts of the settlement sum, so that it could point to their legal liability to pay in respect of a Claim when pursuing indemnity from the appellant. That points up the fact that there was no such clear statement and that it was not intended that the officers would also be under a legal liability to pay the settlement sum or any part thereof. 41 The respondent further relied on the reference in the second line of clause 2.1 to "the defendants" as suggesting that that constituted a promise by "the defendants" to pay the settlement sum. However, it is clear that those words, being in brackets, were not intended to identify the promisors but were merely for identification of the defendants collectively for the purpose of the succeeding provisions of the Deed. 42 In my opinion, clause 5.1 of the Deed is of critical importance. That provision contains an express promise by each of the parties to the Deed, including the officers. If it were intended that each of the officers should be jointly and severally liable with the respondent to pay the settlement sum, then it would have been quite simple to have directly so provided in the opening words of clause 2.1 in the same manner as in clause 5.1. The words "on behalf of itself and each of the other defendants in the proceedings" are, to say the least, both a remote and highly indirect way of imposing a promise to pay $10 million on the parties, other than the respondent, to the Deed. 43 Nor, in my respectful opinion, does the respondent gain comfort from the agreement of each officer annexed to the Deed which I have set out in [27] above and which is relied upon by the primary judge in [30] of his judgment. Rather, that agreement supports the appellant's construction of clause 2.1. The respondent has concentrated its submission only upon the words "to pay on my behalf the sums referred to in clause 2.1 of the deed of settlement". But those words simply refer to the respondent agreeing to pay those sums on the particular officer's behalf. The agreement itself contains an express promise by the officer to provide assistance and co-operation etc. In other words, where the parties have intended that the officers should expressly promise to do something, they have said so in express terms. This is counter-indicative of a construction of the words "to pay on my behalf" in the agreement annexed to the Deed and the words "on behalf of itself and each of the other defendants" in clause 2.1 as containing or acknowledging a promise on the part of each officer to pay the whole of the settlement sum. 44 Accordingly, for the foregoing reasons I am unable with respect, to adopt the primary judge's construction of clause 2.1 of the Deed. In my opinion, the first question should have been answered, No.

Was the primary judge correct in answering Question 2 in the affirmative? 45 Question 2 is in the following terms: "2. If the answer to question 1 is "Yes", whether, subject to the answer to question 3, the defendant is thereby liable under the Policy to indemnify the plaintiff for the said amount of $10 million." 46 Given that in my opinion, Question 1 should be answered No, Question 2 does not strictly arise for determination. Nevertheless, I propose to deal with it upon the assumption that I am wrong in what I consider to be the correct answer to Question 1. 47 On one view, the way Question 1 is framed leaves no room for Question 2. Question 1 follows the definition of "Loss". If it is answered in the affirmative, there was Loss. The assumption is that the officers as Insured Persons undertook a liability to pay the $10 million or parts thereof without going further into whether the definition of "Loss" was satisfied. Question 2 asks whether the appellant is "thereby" liable to indemnify the respondent for the $10 million and arises out of [21] of the Defence which alleges that the appellant is not liable to reimburse the respondent the sum of $10 million because there is no "Loss" as defined in the policy. Putting aside any impact of the answer to Question 3, the question poses the issue as to whether the respondent is entitled to be indemnified without more; that is, simply in reliance on the settlement recorded in the Deed. 48 The definition of "Loss" is such that, even if the words "whether determined by judgment or settlement" were not used, the expression "legally liable" refers to a legal liability established by judgment, arbitral award or settlement: see The Distillers Co Bio-Chemicals (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 at 25-6; Cacciola v Fire & All Risk's Insurance Co Ltd (1971) 1 NSWLR 691 at 695; Costi v Rodwell (1985) VR 287 at 289. There are divergent lines of authority as to what, in such cases, the insured must prove where there has been a settlement without the insurer's consent. One line of authority favours the insured and establishes that provided the settlement is reasonable, the insurer is liable to pay the settlement sum: eg, Edwards v Insurance Office of Australia (1933) 34 SR (NSW) 88; General Omnibus Company v London General Insurance Company Ltd [1936] IR 596; Distillers at 9, 25. However the cases, which favour this approach, would seem to do so on the basis that the insurer has wrongfully repudiated liability. 49 The other line of authority favours the insurer and requires the liability of the insured to be established before the insurer is liable to indemnify. It holds that the insured's liability cannot arise by any compromise reached between the insured and the claimant without the insurer's consent. Actual liability of the insured must be established: see, for example, Royal Insurance Fire & General (NZ) Limited v Mainfreight Transport Limited (1993) 7 ANZ Insurance Cases 61-172 at 77, 976; Drayton v Martin (1996) 137 ALR 145 at 157. 50 The authorities on both approaches are collected and analysed in an illuminating and helpful article by Ms Kirsty Sutherland in (1998) 9 Insurance Law Journal 257. The author notes at 272-274 the situation of the "fence sitter" insurer who has not wrongfully repudiated liability under the policy but who has also not consented to the settlement. This would appear to be the case in this matter in that the thrust of paragraph 21 of the appellant's Amended Defence is that no "Loss" as defined has been incurred, as the Insured Persons have not established that they are legally liable to pay any amount in respect of the claim. In other words, the appellant has not denied liability under the policy if "Loss" be established. 51 No doubt the appellant's admission that the policy applied to the claims against each of the officers (see [4(g) and (i) above] but its denial that there had been a "Loss" was as a consequence of s 41 of the Insurance Contracts Act 1984 (Cth) (the Act). That provision only applies where the insurer has not wrongfully repudiated its obligation to indemnify the insured: Drayton v Martin (1996) 137 ALR 145 at 177. However, according to Sutherland, omitting citations at 275: "[t]he advent of s 41 does not address the issue of the effect and status of any settlement reached by the insured. It gives an insured faced with a fence-sitting insurer no solace save for the fact that the mere fact that he or she entered into the settlement agreement will in itself not deprive him or her of cover. It does not address the issue of whether the insurer will be bound by the settlement." 52 Relevantly to the present case, Sutherland, omitting citations at 277-278, concludes that where an insurer does not admit (but does not deny) liability - that is, has not wrongfully repudiated liability - and declines to take over the defence of the claim:

(a) the insured may be required to establish that he or she was actually liable to the claimant;

(b) if liability is established, the insurer is probably bound by the quantum of the settlement so long as it was reasonable and bona fide;

(c) provided proper notice is given by the insured, by virtue of s 41(3) of the Act the insured is not permitted to rely upon a " no compromise " clause to deny liability. Claims Condition 2 is such a clause. 53 The resolution of Question 2 is thus dependant upon the correct construction of paragraph 1 of the definition of "Loss" against the background of these principles. In particular, the question becomes: does the insertion of the words "whether determined by judgment or settlement" after the word "amount" in the definition obviate whatever necessity would otherwise exist for the officers as Insured Persons to establish his or her legal liability to pay in respect of the Claim against them or that the settlement was reasonable and arrived at bona fide? 54 It is appropriate at this point to consider the primary judge's approach to this issue. His Honour's findings with respect to Question 2 are, with respect, somewhat difficult to discern, at least in express terms. In [32] of his judgment he notes that the words "whether determined by judgment or settlement" in the definition of "Loss" were intended by the parties to encompass the amount which an insured person would be legally liable to pay whether determined by settlement as well as by judgment. Consistent with the principle that the meaning to be given to an insurance policy must take into account the commercial and social purposes for which it was written (Legal & General Insurance Australia Limited v Eather (1986) 6 NSWLR 390 at 394C; McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 at 601 [74]), his Honour considered that the parties' agreement that the amount for which an Insured Person could be legally liable could be determined either by judgment or settlement revealed "a sensible, practical and commercial purpose". His Honour thus rejected (at [22]) the appellant's submission that the parties to the deed (to which the appellant was not a party) could not agree upon a liability greater than that which might have been achieved in the proceedings, which, he said, overlooked the commercial purpose of the definition of "Loss" which "in the policy presently under consideration, unlike some others, specifically picks up liability established by settlement and not merely a liability established by judgment." 55 Accordingly, as I understand his Honour's reasoning, the express reference in the definition of "Loss" to the amount thereof being determined by settlement, resulted in the officers being legally liable to pay (under the Deed) the amount of the settlement without the necessity of the Insured Person being required to establish either that he or she was actually liable for the claim or that the settlement was reasonable. His Honour accepted (at [22]) the submission of the respondent that the appellant was protected from any form of sham or unreasonable settlement by firstly the Insured Person's statutory duty of utmost good faith implied by s 13 of the Act; secondly the contractual obligation of the Insured Person pursuant to Claims Condition 2 to use due diligence and do all things reasonably practical to "diminish any Loss"; and thirdly the right under the same condition for the insurer to take over and conduct any settlement of any Claim and to have full discretion in any such settlement. 56 In argument, the respondent submitted that the word "settlement" in the definition of "Loss" has its ordinary natural meaning of a negotiated compromise of a claim. It was submitted that there was no reason to add any gloss to the word to require such settlement to be "reasonable". This was because any such protection to the insurer was unnecessary given the protections to which his Honour referred in [22] of his judgment. 57 The appellant submitted that the parties to the Deed could not impose on the insurer (who was not a party thereto) a liability that it did not otherwise have under the policy, including liability for a greater sum than the insurer would have had if the matter had proceeded to judgment. It was further submitted that clause 3.2 of the Deed pointed strongly to the fact that the policy contemplated the necessity for the officers to prove what their liability was likely to have been so that indemnity could be claimed from the insurer for that liability. I can see no validity in this further submission: the terms of the Deed cannot be utilised to construe the terms of the policy. 58 After referring to Insuring Clause B and the definitions in the policy of "Loss", "Claim" and "Wrongful Act", the appellant submitted that in light of the definition of those terms, the insuring clause made it clear that it was necessary for the court to determine what liability the Insured Persons (i.e. the officers) had to the relevant claimant because the insurer was only bound to indemnify the respondent for that liability. 59 The appellant further submitted that an examination of the statements of claim in the proceedings revealed that, apart from the defamation proceedings, none of the causes of action pleaded against the officers was likely to be proved upon the basis that where the officers were acting in the course of their responsibilities, they could not be independently liable for any tort or breach of contract by the corporations by which they were employed. Reference was made to the primary judge's decision in Idoport Pty Limited & Anor v National Australian Bank Ltd & Ors [2001] NSWSC 328 where, at [22], his Honour said that he took it as clear law that so long as a director was acting within the scope of his authority, the company was responsible for his acts being those of the company. In other words, the director could not be independently liable. It was only where the director actually committed the tort himself by, for example, driving a company car and causing an accident, or accepted or assumed personal responsibility, that the director could be independently liable. Unlike the position in the United Kingdom where a director may be liable notwithstanding that he does not carry out the tortious act himself nor assumes liability for it but induces another, being the company, to commit the tort, that is not the law in Australia: see Root Quality Pty Limited v Root Control Technologies Pty Limited (2000) 177 ALR 231 at [115]-[116], [125]-[146]. 60 His Honour responded (at [40]) to this last-mentioned submission by recalling [5] and [9] of the agreed facts, each of which accepted that the plaintiff's claim arose from an actual or alleged Wrongful Act. The appellant before this Court accepted as much. However, it questioned whether, within the meaning of the definition of "Loss", there was a legal liability for that Wrongful Act. Whether there was or not, so it was submitted, required a consideration of whether the settlement embodied in the Deed was reasonable in light of the nature of the claims made against the Insured Persons and the chances of their being "legally liable" for the alleged Wrongful Act. 61 Finally, reliance was placed by the appellant before this Court (but not before the primary judge) on the "no compromise" first paragraph of Claims Condition 2. In the present case, it was common ground that the appellant did not consent to the settlement. It was submitted that, at the very least, the reference in the definition of "Loss" to the amount which an Insured Person is legally liable to pay being determined by settlement should be read as subject to there being no breach of the conditions of the policy including Claims Condition 2. 62 In my opinion, it is sufficient answer to Question 2 that the settlement leaves alive the issue of whether it is reasonable and bona fide. It is not easy to see how repudiation of liability by the insurer can affect the scope of cover, but that does not presently arise. Unless the words "whether determined by judgment or settlement" render legally irrelevant any question of the reasonableness and bona fides of the settlement between the appellant and the respondent, an affirmative answer to Question 1 (understood as I have earlier explained), does not "thereby" mean that the liability of the appellant to indemnity to the respondent for the $10 million has been established. 63 In the context of the first paragraph of Claims Condition 2, the appellant referred to the decision of the High Court in Distillers. In that case, the contract of insurance contained a provision similar to Claims Condition 2. The relevant proceedings had been settled without the consent in writing of the insurer. The trial judge made a declaration to the effect that entering into a settlement of the actions without the consent in writing of the insurer constituted a breach of the relevant condition of the policy notwithstanding that the insurer had elected not to take over and conduct the defence or settlement of the proceedings. 64 As to this declaration, Stephen J said (at 32) that it produced "a result a little less favourable to the assured than would a declaration that the consent of the insurer to any settlement was unnecessary; in the latter event the insured would nevertheless be required to have regard to the proper interests of the insurer and could not claim indemnity under the policy in respect of amounts payable under a settlement which did not reflect, by its terms, a reasonable evaluation of the prospects of a successful defence to a third party's claim. Such a settlement might also be attacked upon the distinct ground that the amount payable under it by the insured was not within the cover of the policy, not being an amount for which the insured became legally liable within the terms of the endorsement of the policy but being rather, at least to a significant extent, monies paid for reasons extraneous to the risk insured against. Thus, by way of illustration only, the facts might justify a conclusion that the monies had been paid to avoid adverse publicity or to relieve the insured's parent company of part of its liability to manufacture a dangerous product, neither of which would be within the risks insured against." 65 The respondent sought to distinguish Distillers and the other cases referred to above upon the basis (foreshadowed in [50] above) that the insuring clause in those cases provided for indemnity of the insured in respect of all sums for which he or she should become legally liable arising out of death, illness or bodily injury to any person and did not, as in the present case, expressly contemplate that the amount of that legal liability could be determined either by judgment or settlement. 66 Were it not for the inclusion in the definition of "Loss" of the words "whether determined by judgment or settlement", it would be necessary for the respondent to establish that the compromise recorded in the Deed was reasonable, and to deal with any attack upon its bona fides. Is it still required to do so given that the definition of "Loss" includes an amount determined by settlement? 67 On one view, the words "whether determined by judgment or settlement" in the definition of "Loss" were not intended to add anything to what would otherwise be the case if those words were missing: namely, that the insured could claim indemnity where the claim has been settled provided it established that the settlement was reasonable or the insured had acted reasonably in reaching it. On the other hand, the respondent submits that those words have been expressly included in order to avoid the necessity for the insured to establish such a matter. Thus, so it is submitted, it was recognised by the appellant, and accepted by the primary judge, that it was unnecessary to incorporate a requirement of reasonableness given the contractual duty of the insured to do all things reasonably practicable to diminish any Loss on the one hand and the Insured Person's statutory duty to act towards the insurer with the utmost good faith. The latter, so it is submitted, would prevent the insured entering into a settlement just to avoid adverse publicity as exemplified by Stephen J in Distillers. 68 The authorities such as Distillers (at 32) recognise the duty of good faith that rests upon the insured. It is reflected in the requirement that the settlement must not only be reasonable but also bona fide. The obligation upon the Insured Persons imposed by the second paragraph of Claims Condition 2 to use due diligence to diminish any Loss has effect as a way of seeking to ensure that any settlement is reasonable. Accordingly I would, with respect, disagree with the primary judge's reliance (in [22]) upon those obligations of the Insured Persons as in effect relieving the respondent of the necessity to establish that the subject settlement was reasonable. 69 I find it difficult to accept that the parties intended the reference to the amount which an Insured Person is legally liable to pay in respect of a Claim being determined by judgment or settlement, to relieve the insured of his or her usual obligations when a settlement has been effected without the consent of the insurer and the latter has not otherwise wrongfully repudiated liability under the policy. I consider that the words in question were inserted to make clear that the amount of the loss could be an amount determined in either way. It still had to be an amount for which the insured was legally liable, meaning (at the very least) in the case of settlement that the legal liability of the insured was established by a reasonable and bona fide settlement. 70 For the foregoing reasons, I am of the opinion that the primary judge erred in answering Question 2 in the affirmative. Upon the basis that Question 1 was so answered, Question 2 should have been answered in the negative.

Was the primary judge correct in answering of Question 3 in the negative? 71 Question 3 is in the following terms: "3. If the answers to questions 1 and 2 are "Yes", whether it is unconscionable for the plaintiff to rely on the construction of Clause 2.1 of the Deed of Settlement as establishing a Loss (as defined in the Policy) for the said amount of $10 million."

His Honour answered the question in the negative. Because of my negative answers to Questions 1 and 2, it is unnecessary to consider the issue raised by this question. Nevertheless, I will deal with it. 72 The primary judge dealt with the issue in [42]-[49] of his judgment. In its written submissions, the appellant's contentions with respect to the issue of unconscionability comprised two paragraphs which I reproduce: "31. The Respondent undertook in drafting the wording of clause 2.1 of the Deed of Settlement that it would not be asserted by the Respondent in any subsequent proceedings for indemnity that the wording of the Deed could be used to bind the position of the Appellant in respect of its responsibilities to indemnify under the Policy. 32. In the circumstances, it is unconscionable for the Respondent to rely on the wording in the Deed of Settlement to suggest that the insurer is bound by the wording to indemnify without the establishment of anything more in relation to the liability of the directors." 73 In oral argument, senior counsel for the appellant did not wish to elaborate upon these submissions. When asked whether the appellant wished to press Ground 6 of the Grounds of Appeal which deals with this question, senior counsel merely answered that the "ground is not abandoned". I do not find that response satisfactory. The fact is that Ground 6 is hopeless. The primary judge found that there was no substance in the appellant's argument and I agree both with his Honour's conclusion and his reasons. 74 As Part 1 rule 3(1) of the Supreme Court Rules 1970 makes clear, the overriding purpose of the rules and their application to civil proceedings is to facilitate, inter alia, the just resolution of the real issues in the proceedings. By Part 1 rule 3(3), a party to civil proceedings is under a duty to assist the court to further that overriding purpose and by sub-rule (4) a barrister is enjoined from causing his or her client to be put in breach of that duty. I also draw attention to rule 36(b) of the New South Wales Barristers' Rules. In the present case, the factual material available to the appellant contained nothing which could suggest a finding that it was unconscionable for the respondent to rely on the Deed to establish a Loss under the policy in the settlement sum of $10 million. In my opinion, Ground 6 should have been abandoned and not left floating in the manner adopted by senior counsel for the appellant.

Was the primary judge correct in his answering of Question 5? 75 The issues which arose under Question 5 were stated by the primary judge (in [50]) in the following terms: " . where legal and experts' fees, costs, charges and expenses are incurred in defending, investigating, monitoring or settling a claim, whether RSA is relieved of its obligation to pay those defence costs simply because another person (i.e. Baycorp) receives a benefit from those defence costs being incurred (amended defence para 13(b)); . whether, assuming it is valid, claims condition 6 has the effect that RSA is entitled to apportion defence costs which it is otherwise liable to pay (amended defence para 13(c)); and . whether claims condition 6 is invalid because it is unenforceable as an agreement to agree and/or void for uncertainty (reply para 2)." 76 His Honour answered these questions as recorded in [7] above. In essence, it is implicit that he answered the question raised by the first issue in the negative; it is not clear that he answered the question raised by the second issue; and he expressly answered that raised by the third issue in the affirmative. 77 As far as the first issue under Question 5 is concerned, the essence of the primary judge's reasoning (at [57]) was that the definition of "Defence Costs" does not refer to costs incurred solely in defending, investigating, monitoring or settling a claim; nor does it contain an exclusion for costs from which an Insured Entity benefits. Such words could have been added if that had been intended. 78 His Honour (at [58]) considered the language of the policy as expansive and inclusive: the appellant was obliged to pay "all" reasonable legal and expert fees, costs, charges and expenses. It was submitted, and his Honour accepted, that the appellant's construction of the definition of "Defence Costs" would require the court to read into the definition the words "solely and exclusively" before the words "incurred by the Insurer or with its prior written consent". His Honour considered that there was nothing to warrant the court doing so. In my opinion he was correct in so concluding. 79 Reliance was placed by the respondent upon the decision of the Judicial Committee of the Privy Council in New Zealand Forest Products Limited v New Zealand Insurance Co Limited (1997) 1 WLR 1237. In that case, the relevant policy covered the insured in respect of "all loss" for which the insured had granted indemnification. "Loss" was defined as meaning the total amount of defence costs. The Judicial Committee held that on a proper construction of the policy, any item of cost which reasonably related to the director's defence of the claim against him was covered by the policy even if it also related to the defence of another defendant whose costs did not fall within the scope of the policy and thus was of use and benefit to that defendant. It was further held that no allocation of such common costs was required. 80 The advice of their Lordships was delivered by Lord Clyde who, at 1242-1243, said: "So the issue in the present appeal comes to be one of construction of the policy without regard to the extent of Mr Taylor's actual legal obligation. At this stage the insurers can only point to the phrase 'on account of any claim made against him' and argue that that somehow limits the extent of the costs intended to be covered. But the words by themselves fall far short of expressing the substance of what the insurers seek to establish and it seems to their Lordships that the insurers could only succeed in showing that an allocation of common costs was to be made by reading in to the clause words which could have been but are not there. On the other hand there are strong arguments to support the insured's contention that no allocation is intended. On the ordinary meaning of the words which have been used it is reasonable to understand that the cover would extend to the whole costs incurred in the defence where the officer was the sole defendant. Why then should the meaning of the words change simply because there is another defendant who is not covered by the policy? Moreover if an uninsured co-defendant was bankrupt or otherwise without means it would seem an odd result of the insurance that it should not cover the whole of the officer's costs even although (sic) some of them related also to the defence of the co-defendant. Once it is accepted that the costs are not confined to those which relate solely and exclusively to the officer it is hard to find anything in the language which prevents the cover extending to all the costs which also relate to another defendant. On the contrary the language points to the conclusion that all such costs are covered. The clause expressly refers to 'all' loss. And 'loss' means 'the total amount of defence costs'. In contrast to such general terms there is no provision generally requiring the kind of allocation to be made for which the insurers contend. It cannot be assumed that the insurers would not have anticipated the likelihood of the company being joined as a defendant along with one of its officers and if provision of the kind contended for was intended that could readily have been included." [At 1242-1243] 81 The appellant submitted that this case was distinguishable from the present. It was submitted that the definition of "Defence Costs" in the policy was confined to "all reasonable" costs incurred with the prior written consent of the insurer whereas in the New Zealand Forest Products case, the policy referred to "all" loss and to "loss" meaning "the total amount of defence costs". The primary judge considered (at [62]) that there was no basis for distinguishing the Privy Council's decision. I agree. Furthermore, like his Honour, I see no warrant for reading into the definition of "Defence Costs" words which are not there in order to confine those costs to those solely and exclusively incurred in defending etc the Claim on behalf of the insured. 82 As I have indicated, the primary judge considered that Claims Condition 6 was unenforceable. The appellant's written and oral submissions did not contest this finding. However, it was submitted that even if Claims Condition 6 was unenforceable as being void for uncertainty, nonetheless it was not void for all purposes in that it provided a clear indication by the parties to the policy that they had agreed that allocation on a fair and proper basis was necessary where Defence Costs were incurred both on behalf of an uncovered party such as an Insured Entity as well as the covered parties, being the officers. 83 In my opinion, the primary judge's reasons for holding Claims Condition 6 unenforceable set out in [64]-[77] of his judgment are cogent. I see no reason to depart from his conclusions for the reasons he has given. 84 The effect, however, of his Honour's findings is that implicitly (although not expressly) he has answered the second issue recorded in [72] above in the negative. The appellant in its written submissions submitted that notwithstanding that Claims Condition 6 was unenforceable as being void for uncertainty, nonetheless it was indicative of the fact that the parties had agreed to a reallocation on a fair and proper basis of Defence Costs in the manner referred to therein. In oral argument, that submission was refined to the contention that the Court could rely on Special Condition 6 in construing the definition of "Defence Costs" and that the intent of the condition was such as to justify a construction of that definition which confined the reasonable costs to those solely and exclusively incurred in the defence of the Claim against the Insured Person. Such a construction would have the effect of excluding what has been referred to as the common costs, namely, those incurred in the defence of the Claim against each of the officers but which benefited and assisted in the defence of the Claim against the respondent. 85 In my opinion, there is no substance in this argument. It should be rejected upon the basis that Claims Condition 6 does not require the definition of "Defence Costs" to be construed as excluding costs incurred with the prior written consent of the Insurer in defending, investigating, monitoring or settling any Claim against an Insured Person notwithstanding that the incurring of those costs may also benefit the investigation and defence by an Insured Entity such as the respondent of any Claim made against it. 86 It was not suggested that the common costs would not have been incurred in the defence etc of the Claim against the officers had they been the only defendants to the proceedings. Accordingly, in my opinion the whole of the costs so incurred constitute part of the Loss covered by the policy within the meaning of Claims Condition 6 in any event.

Costs 87 In the result, the appellant has succeeded in respect of Question 1 as a result of which it is unnecessary to formally answer Questions 2 and 3. Nonetheless, if those questions had been answered, Questions 2 and 3 would have been answered in favour of the appellant and Question 3 in favour of the respondent. With respect to Question 5, the appellant has lost. In these circumstances, the appellant has been both successful and unsuccessful. In my opinion, the appropriate order with respect to the costs of the appeal is that each party should pay its own.

Conclusion 88 I therefore propose the following orders:

(2) Set aside the answers to separate Questions 1, 2 and 3 in Order 1 made by Einstein J on 28 October 2003 and substitute therefor the following: Separate Question 1: No Separate Question 2: Does not arise Separate Question 3: Does not arise

(3) Order that each party pay its own costs of the appeal. 89 McCOLL JA: I agree with Tobias JA.

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