Amlin Corporate Member Ltd v Austcorp Project No 20 Pty Limited [2014] FCAFC 78

A recent decision of the Full Court of the Federal Court of Australia considered whether allegations of wrongdoing by the insured raised in a Commercial List Response in related New South Wales Supreme Court proceedings constituted a “Claim” within the meaning of the policy wording. The insurers contended that the policies of insurance did not respond because the alleged liability of the insured arose from a claim made before the policies incepted.

Facts

The proceedings arose out of the acquisition in 2003 by Bellpac Pty Ltd (Bellpac) of the assets of a coalmine in New South Wales. Those assets included land (the Bellambi Land) which was subject to a first mortgage in favour of a company known as The Trust Co (PTAL) Limited (PTAL). Austcorp Project No 20 Pty Ltd (Austcorp) and Compromise Creditors Management Pty Limited (Compromise) held securities over the Bellambi Land which ranked behind the mortgage held by PTAL.

LM Investment Management (the Insured) was Insured under layered professional indemnity policies with Amlin Corporate Member Ltd and Markel Capital Limited (the Insurers). The Insured lent money to Bellpac and a Mr Wong had guaranteed the loan from the Insured to Bellpac (the Guarantee).

Bellpac had dealings with Gujarat NRE Coking Coal Limited (Gujarat) in connection with the colliery and disputes arose between various parties including Bellpac and Gujarat which resulted in litigation in the Supreme Court of New South Wales (the Bellpac proceedings).

In May 2009, the Insured appointed receivers and managers to Bellpac and subsequently Bellpac went into liquidation.

The Insured brought proceedings in the Supreme Court Commercial List in New South Wales in 2010 seeking to recover from Mr Wong pursuant to the Guarantee (the Guarantee proceedings).

In June 2011, the Insured, PTAL, the Receivers and other creditors of Bellpac (but not Austcorp and Compromise) participated in a settlement of the Bellpac proceedings. The settlement provided for the sale of the Bellambi Land to Gujarat for $10 million, which reduced but did not extinguish Bellpac’s liability to PTAL.

In December 2011, Mr Wong filed the Commercial List Response (the Response) in the Guarantee proceedings alleging amongst other things that the sale of the Bellambi Land was at a “gross undervalue” and that the Insured had breached certain duties that it owed to Bellpac in connection with the sale.

Mr Wong alleged that his obligations pursuant to the Guarantee were discharged by reason of the matters alleged in the Response or alternatively that any liability under the Guarantee should be reduced on the basis that the Insured was knowingly concerned or involved in breaches of duty committed by PTAL and the Receivers in connection with the sale of the Bellambi Land.

The Insurers’ policies incepted on 31 July 2012, after the Response was filed and served by Mr Wong in the Guarantee proceedings.

Austcorp and Compromise commenced proceedings against the Insured in the Federal Court of Australia in February 2013 seeking equitable compensation or damages as against the Insured in relation to the alleged knowing involvement of the Insured in breaches of duty committed by PTAL and the Receivers and the alleged sale of the Bellambi Land at an undervalue (the Federal proceedings).

As the Insured was  in liquidation, Austcorp and Compromise sought to join its Insurers to the Federal proceedings and sought a declaration that the Insurers were liable to Indemnify the Insured for the breaches alleged against it. The Insurers contended that the policies did not respond to the claim made by Austcorp and Compromise because if the Insured was liable, that liability arose from the issues set out in the Response which should be construed as a “Claim” (within the meaning of the relevant policy wording).  As the Claim was first made prior to the inception of the policies on 31 July 2012 it was not covered.

The policy wording

In order to understand the issues, it is necessary to consider the wording of the specific insuring clause, pursuant to which the Insured was entitled to indemnity for:

any amount up to the Limit of Liability stated in Item 3 of the Schedule in respect of Loss and Defence Costs and Expenses arising from any Claim for any civil liability first made against You during the Period of Insurance and arising out of or in connection with a Wrongful Act.”

“Claim” meant:

“(a) any written demand or civil, regulatory or arbitration proceedings (including proceedings before the Financial Ombudsman Service Limited) or Investigation made against You for compensation or damages alleging a Wrongful Act and/or;

(b) any suit, civil or third party proceedings, counter-claim or arbitration proceeding brought against You alleging a Wrongful Act.”

The first instance decision

The Insurers argued that the Response was a “counter-claim” pursuant to paragraph (b) above and consequently fell within the ambit of the definition of “Claim” in the policies. The Insurers contended that if Austcorp and Compromise succeeded against the Insured then the loss would arise from the claim made against the Insured in the Response in the Guarantee proceedings.

Jacobson J determined at first instance that the Response did not constitute a “Claim” for the purpose of the insuring clause as:

  1. It did not claim damages or compensation and so did not meet the definition of “Loss”.
  2. It was not brought against the Insured; and
  3. It did not give rise to “Defence Costs and Expenses”.