Watson v CGU Insurance [2007] NSWSC 450 | Case summary

50198/06 DAVID PATRICK WATSON v CGU INSURANCE LIMITED JUDGMENT 1 HIS HONOUR: By notice of motion dated 23 February 2007, the defendant ("CGU") seeks an order that the present proceedings be stayed under Pt 12 r 12.4 of the Uniform Civil Procedure Rules 2005 (NSW)("UCPR")pending payment of the costs in proceedings number 50096 of 2002 ("the prior proceedings"). 2 The prior proceedings were commenced by way of summons in the Commercial List of this Court. Mr J H Greaves ("Mr Greaves") sued CGU for relief in connection with a Directors' and Officers' liability insurance policy ("the policy") 01D00298798. The causes of action relied upon and pleaded appear in his further amended summons dated 30 September 2002. The prior proceedings were terminated on 24 September 2004, when this Court granted Mr Greaves leave to discontinue them and ordered that CGU's costs be paid by him. 3 All of the orders sought in the prior proceedings were directed to enforcing his rights under the policy to claim under an automatic extension of it "defence costs", being costs incurred in the defence or settlement of any claim made against him in his capacity as a director or officer. Proceedings had been instituted against Mr Greaves by the Australian Securities and Investments Commission ("ASIC")on or about 12 December 2001. ASIC alleged against him breaches of duties in his capacity as chairman of a company known as One.Tel Limited ("One.Tel"). 4 Each of the prayers for substantive relief in the prior proceedings was directed towards the enforcement of the indemnity for sums incurred by him as defence costs. 5 It is common ground that a bill of costs, reflecting as it presently stands an amount of $774,155, being the costs incurred by CGU in the prior proceedings, has been prepared and served at least on Mr Greaves. 6 The ASIC proceedings resulted in a settlement under which this Court made final orders and declarations against Mr Greaves by consent, including an order pursuant to s 1317(H) of the Corporations Act 2001 (Cth) that he pay compensation to One.Tel in the amount of $20 million. 7 On 30 November 2004 Mr Greaves made a deed of arrangement under the provisions of Pt X of the Bankruptcy Act 1966 (Cth), with a registered trustee, Mr David Patrick Watson ("the trustee"), the plaintiff in the present proceedings. Under the deed of arrangement Mr Greaves, defined in it as the debtor, covenanted to convey, transfer or assign or cause to be conveyed, transferred or assigned to the trustee all the property more particularly described in Sch A to the deed, on trust to be dealt with by the trustee in accordance with the deed of arrangement. Schedule A to the deed in the form originally executed contains a number of subparagraphs, of which the one numbered (IV) reads as follows: "Mr Greaves has possible rights under or in relation to the CGU Directors and Officers Liability Insurance policy number 01DO0298798 and the Gerling Excess Directors and Officers Liability policy O012.001, including any rights to damages in respect thereof". 8 The proposed arrangement reflected in that deed was challenged in proceedings brought by CGU in the Federal Court of Australia, which proceedings were also resolved by consent orders which resulted in amendments to the Schedule to the deed including the addition of a new cl 18 which reads as follows: "18. Notwithstanding any other item of this Deed CGU Insurance Limited will not be entitled to receive any dividend under this Deed in respect of the CGU Costs Order, however: (a) section 86 of the Bankruptcy Act will apply in respect of the CGU Costs Order,the costs orders referred to in schedule A(vi) and the property rights referred to in schedule A(v);and

(b) the transfer to the Trustee of the property rights referred to in schedule A(v) is subject to the entitlement of CGU Insurance Limited to seek relief under pt 21 rule 8 Supreme Court Rules." 9 The CGU Costs Order is the costs order made in the prior proceedings. 10 I interpolate that Pt 21 r 8 Supreme Court Rules is the predecessor to UCPR Pt 12 r 12.4 which is sought to be invoked here. 11 By the present proceedings in which this motion is brought the trustee sues CGU for an order that it pay to him the sum of $20 million together with interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth). The summons in the present proceedings recites the existence of the deed of arrangement, the policy, the commencement of the ASIC proceedings against Mr Greaves and the final order and declarations made against him in them, including the $20 million compensation order. It avers that he is entitled to be indemnified by CGU in respect of his liability to comply with the compensation order, that in breach of the policy CGU has refused to indemnify him in respect of the compensation order and that it has purported to avoid the policy. 12 At this point it is appropriate to mention that in the further amended summons in the prior proceedings there were allegations concerning the existence and form of the ASIC proceedings and the allegations which were being made against Mr Greaves in them. It recounted the relief which ASIC had sought against Mr Greaves which included an order pursuant to s 1317H(1) of the Corporations Act that Mr Greaves pay compensation to One.Tel together with interest pursuant to s 94 of the Supreme Court Act 1970 (NSW). 13 The allegations in the prior proceedings concerning the form of the ASIC proceedings and the relief sought against Mr Greaves culminated in par 21 which alleged that: "In the circumstances the plaintiff is entitled to be indemnified by the defendant in respect of any loss he suffers as a result of the ASIC proceedings." 14 There were further allegations that CGU had refused to indemnify Mr Greaves in respect of the costs and disbursements which he had incurred in his defence of the ASIC proceedings and that CGU had advised that it did not intend to indemnify him in respect of any losses, including costs and disbursements incurred by him in respect of the ASIC proceedings. 15 Mr A.W. Street of Senior Counsel, with whom Mr Romaniuk appeared for CGU, informed me, and I accept, that the defence in the prior proceedings included an allegation on the part of CGU of an entitlement to avoid the policy pursuant to the provisions of s 28(2) of the Insurance Contracts Act 1984 (Cth) on the basis of fraudulent misrepresentation or non-disclosure. He also informed me, and I accept, that a defence has been filed in the present proceedings which raises, in effect, the same entitlement to avoid the policy. 16 It is against that background that the motion is brought. UCPR Pt 12 r 12.4 provides as follows: "If, (a) as a consequence of the discontinuance of proceedings, a plaintiff is liable to pay the costs of another party in relation to those proceedings, and (b) before payment of the costs, the plaintiff commences further proceedings against that other party on the same or substantially the same cause of action as that on which the former proceedings were commenced the court may stay the further proceedings until those costs are paid and may make such consequential orders as it thinks fit." 17 The requirements of subrule (a) are met. A plaintiff, that is, Mr Greaves, is liable to pay CGU's costs in relation to the earlier proceedings as a consequence of their discontinuance. 18 Under subrule (b), there are two requirements. Firstly, that the plaintiff in the earlier proceedings commences further proceedings against the original defendant, and secondly, that the further proceedings be on the same, or substantially the same cause of action as that on which the earlier proceedings were commenced. 19 The present proceedings are brought by the trustee as trustee of the deed of arrangement in respect of Mr Greaves and not in the name of Mr Greaves himself. 20 The first point which is taken by the trustee for whom Ms CE Adamson of Senior Counsel, together with Ms VE Whittaker, appeared in resisting the motion, is that the rule does not apply because there is an incongruity of plaintiffs. The plaintiff in the earlier proceedings was Mr Greaves. The plaintiff here is the trustee under the deed of arrangement between the two of them. In my view, that submission is of no substance. The rule is directed to protecting a defendant who is sued on the same, or substantially the same cause of action by a party whose proceedings were discontinued rather than dismissed. If they had been dismissed they would, if the same or substantially the same cause of action was sought to be relied upon in subsequent proceedings by the party or his privy, be precluded by res judicata or issue estoppel. The rights which the trustee asserts are rights which he holds as trustee for Mr Greaves. The substance of the matter, rather than the form, is that Mr Greaves is the party with the claim against the insurer which is being prosecuted on his behalf by his trustee. 21 Part 12 Rule 12.4 is a reflection of the inherent jurisdiction of the court to prevent abuse of its process. Such an abuse would result if the same or substantially the same claim were brought here leaving the prior proceedings' order unsatisfied. Thus, even if I took the view that the circumstances presently before me did not strictly come within the rule, I would have no difficulty, if the other requirements of the rule were satisfied, in finding that the prior proceedings bear sufficient nexus so far as the present parties are concerned so as to place the trustee in at least no better position by reason of the assignment, than his assignor had been in before it. Also, and equally importantly, the amendments to the deed of arrangement which resulted after the Federal Court proceedings, contemplated precisely, in my view, the difficulty which the trustee now seeks to place in the way CGU in bringing this motion, namely, incongruity of the parties. 22 Ms Adamson put a submission that cl 18(b) of the deed as amended is meaningless and has no effect and that all it is intended to reflect is that an application which could otherwise have been brought can still be brought. That submission, in my view, likewise has no substance. Firstly, it would mean that the parties included a particularly drafted provision in circumstances where it was to have no effect at all. Secondly, although there are juridical difficulties with the nature of what was provided in the clause it was clearly intended to preserve the right of CGU to say that the trustee stood in no better position than Mr Greaves in relation to a foreshadowed application under the then applicable Pt 21 r 8 of the rules of this Court. 23 In my view, were CGU otherwise entitled to the relief sought in the motion, I would have no difficulty in finding that it has standing to bring the proceedings and that the trustee is susceptible to the jurisdiction of the court to grant the relief sought. 24 There is, however, a second requirement to be satisfied under the rule, namely that the further proceedings must be on the same, or substantially the same cause of action as the earlier ones. Mr Street put eloquently and forcefully that there was a great deal of congruity between the two sets of proceedings and that at the kernel of both was the issue whether CGU had or was entitled properly to avoid the policy. He drew attention to the averments in the prior proceedings setting out the nature and form of the proceedings brought by ASIC and the culminating averments that Mr Greaves was entitled to be indemnified by CGU in respect of any loss he suffered as a result of the ASIC proceedings. This, he put, is precisely what is being sought in the present proceedings, that is, the compensation order represents a loss which Mr Greaves has suffered as a result of the ASIC proceedings. 25 He also, in this regard, placed heavy reliance on the further amended summons in the prior proceedings having made specific reference to s 1317H(1) of the Corporations Act, a fact which I have referred to above. There is, it seems to me, little room for doubt that the operation whether or not CGU is entitled to avoid the policy is one which will, as it did in the prior proceedings, loom large in the present ones. However, in my view, that is not pertinent to the test in subrule (b) which must be satisfied. The test is that the proceedings must be on the same, or substantially the same cause of action. The same defence may be raised in relation to different causes of action and, in my view, that is the position here. 26 In the further amended summons in the prior proceedings the only relief sought was directed towards the payment of defence costs. That was at a time before the ASIC proceedings had come to an end by the making of the compensation order which is the subject of the second proceedings. The claim presently being made is made under section 1 of the policy under which the insurer will pay on behalf of the directors and officers any loss for which the directors and officers may not be legally indemnified by the court, arising out of any claim by reason of any wrongful act committed by them in their capacity as a director or officer, whereas the claim under the earlier proceedings was brought under the section of the policy entitled, "Extensions" and, in particular, the one in paragraph 2.1 of the policy entitled, "Advancements of defence costs". 27 The claims being made by the trustee relate to a different response under the policy to a different risk. An essential element of the present cause of action is the making of the compensation order. That had not occurred at the time that the prior proceedings came to an end. It played no role in them. Further, the alleged breach by the insured is different. The cause of action in the prior proceedings had as its elements the incurring of defence costs and the failure of the defendant in breach of the policy to respond to the coming home of that risk. The breach was the failure to pay particular amounts incurred as a consequence of the coming home of that particular risk. The breach asserted here is a breach of an obligation that CGU is obliged to respond to a different risk depending on a different factual foundation. 28 I was taken to the judgment of Clarke JA in Macquarie Bank Ltd v National Mutual Life Association of Australia Limited (1996) 40 NSWLR 543, at 561, where the distinction was drawn between the case where there are a number of claims arising out of the same breach of a contractual obligation and the case where there are a number of failures each of which is a separate breach of contract. The final sentences of the passage on page 561 are, in my view, apposite to the present case. There his Honour said: "Conversely, separate breaches of the same term may be litigated in a second proceeding, although I would agree with O'Brien J when he said in Van Amstel a party cannot bring separate actions to recover different losses for the breach of the same clause in a contract arising from the same act or omission'". 29 In my view, the present case is an example of the former rather than the latter category. It follows, therefore, I consider, that CGU has not established that Pt 12 r 12.4(b) has been satisfied. 30 In the circumstances I decline to make the order sought. The notice of motion is dismissed with costs.

Watson v CGU Insurance

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