Azmin Firoz Daya v CNA Reinsurance Co Ltd

[2004] NSWSC 795

CITATION:	Azmin Firoz Daya v CNA Reinsurance Co Ltd & Ors [2004] NSWSC 795
HEARING DATE(S):	23/8/04
JUDGMENT DATE:	27 August 2004
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Order made for compulsory mediation.
CATCHWORDS:	Mediation of civil proceedings - party not consenting to order - compulsory order for mediation - Principles - meaning of obligation to mediate in good faith - Overriding purpose of Supreme Court Rules - Just, quick and cheap resolution of issues in civil proceedings - Consideration of advantages of mediation in terms of forcing parties to hear one anothers viewpoint
LEGISLATION CITED:	Supreme Court Act (1970) (NSW) Supreme Court Rules (NSW)
CASES CITED:	Aiton v Transfield (1999) 153 FLR 236 Amalgamated Television Services Pty Ltd v Marsden (No 2) [2003] NSWCA 186 Arab Bank Plc v Zurich Insurance Co [1999] 1 Lloyd's Rep 262 Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 427 Idoport v National Australia Bank Ltd [2000] NSWSC 1141 John Fairfax and Sons Pty Ltd v Police Tribunal (NSW)(1986) 5 NSWLR 465 Morrow v chinadotcom Corp [2001] NSWSC 209 Remuneration Planning Corp Pty Limited v Fitton [2001] NSWSC 1208 Singh v Singh [2002] NSWSC 852
PARTIES :	Azmin Firoz Daya (Plaintiff) CNA Reinsurance Company Ltd (First Defendant) Eagle Star Reinsurance Company Limited (Second Defendant) General Accident Fire & Life Assurance Corporation PLC (Third Defendant) Encon Underwriting Ltd as underwriting agent for underwriters at Lloyd's evidenced by Contract No.ENCDORPR98 (Fourth Defendant) Royal & Sun Alliance PLC (Fifth Defendant)
FILE NUMBER(S):	SC 50081/04
COUNSEL:	Mr M Lee (Plaintiff) Mr M Jones (Defendants)
SOLICITORS:	Sparke Helmore (Plaintiff) Hunt & Hunt (Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Friday 27 August 2004 ex tempore
Revised 1 September 2004

50081/04 Azmin Firoz Daya v CNA Reinsurance & Ors

JUDGMENT

1 There is before the Court an amended notice of motion pursuant to which the plaintiff seeks an order pursuant to section 110K of the Supreme Court Act that the present proceedings be referred to mediation and that such mediation occur concurrently with the mediation already ordered to occur in Supreme Court proceedings number 50169 of 2001 on 7 to 9 September 2004.

2 There is an extensive background to proceedings number 50169 of 2001 which is necessary to be understood in terms of adjudicating as to what is the proper exercise of the Court's relevant discretion on the application in proceedings 50081 of 2004. The background has been carefully set out in the plaintiff's written submissions of 26 August 2004 which is a convenient vehicle for commencing the judgment.

“Background

3. The Court has ordered mediation in proceedings number 50169 of 2001 commenced by Ingot Capital Investments Pty Ltd & Ors (“Ingot Group”) against Macquarie Equity Capital Markets & Ors (“the Ingot proceedings”). That mediation is to take place on 7 to 9 September 2004 before the Honourable G E Fitzgerald QC. The plaintiff in this matter is the sixth defendant in the Ingot proceedings.

4. The proceedings are inextricably linked to the Ingot proceedings in that the plaintiff brings this proceeding for indemnity arising out of the claim made against him in the Ingot proceedings against the defendants, all of whom are London based insurers (“the Insurers”).
…

History of the Ingot Proceedings

6. The history and dimension of the Ingot proceedings can be gleaned from a number of interlocutory judgments of the Court and it is not anticipated that its chronology or size would be in dispute.

7. The Ingot proceedings were commenced on 16 November 2001. It is a complex multi party commercial dispute. In addition to the substantive claim that involves six plaintiff companies and thirteen defendants, there are now thirty-six cross claims before the Court. The dispute arose out of the investment made by the Ingot Group in a convertible note offering issued by New Cap Reinsurance Corporation Holdings Limited (“ NCRH ”) on 18 November 1998. The converting notes were allotted on 12 January 1999, with the Ingot Group taking up $41,466,374 in rights, shares and converting notes of NCRH. Shortly thereafter, a provisional liquidator was appointed to NCRH.

8. At all material times, the plaintiff in this proceeding was the Managing Director of NCRH. It is pleaded (Amended Summons [10]) he gave the Insurers notice of a potential claim under the relevant policy of insurance that had been issued to NCRH on or about 18 February 1999. The circumstances that had been notified to the Insurers subsequently resulted in the commencement of the Ingot proceedings.

9. The Ingot proceeding is now in its third year. Prior to the mediation being ordered in that matter, the interlocutory steps that had taken place included:


(a) The Court had granted the Ingot Group liberty to amend its Summons on a number of occasions, which culminated in the filing of a Fifth Further Amended Summons (“ 5FAS ”) on 1 December 2004;

(b) Prior to the filing of the 5FAS, all parties were ordered to provide discovery lists by 9 May 2003 with inspection to take place thereafter;

(c) The discovery in the matter was voluminous, with the parties producing in excess of 30,000 documents; and

(d) The Ingot Group had filed and served all of its lay and expert evidence in July and August 2003.


The Defendants Access to Information regarding the Ingot proceedings

10. Barlow Lyde & Gilbert (“BLG”), London based solicitors, had been advising the Insurers in respect of the claim made against the plaintiff in the Ingot proceedings since at least April 2002 (JMC1 p26). It is not anticipated that there will be any dispute that during the course of the Ingot proceedings they were provided with, inter alia, the following:


(a) the Summons in all of its incarnations, including the 5FAS;

(b) the defence of the plaintiff in his capacity as sixth defendant;

(c) all of the Ingot Group’s lay and expert evidence (which Insurers have had since on or about 23 September 2003);

(d) all of the documents that had been discovered in the Ingot proceedings by means of access to an electronic database (which Insurers have had since on or about 23 October 2003);

(e) all of the transcripts of the examinations conducted by the liquidator of NCRH pursuant to Section 596A of the Corporations Law that were included in a draft tender bundle served by the Ingot Group (which Insurers have had since on or about 16 December 2003); and

(f) all documents produced by Dresdner Kleinwort Wasserstein under subpoena in the Ingot Proceedings as BLG had entered into a confidentiality regime in order to be able to access those documents (which Insurers were provided with between 5 and 9 February 2004). “

3 Reasonably recently, in Idoport Pty Limited v National Australia Bank Limited [2001] NSWSC 427, the Court dealt with many of the parameters appropriate to be taken into account in determining the proper exercise of the Court's relevant discretion on an application for a compulsory mediation. It is unnecessary for present purposes to repeat what was there said save perhaps to make the following observations:

· in paragraph 9 the Court made clear that a basal consideration was that the proceedings then before the Court were commercial proceedings and that commercial proceedings differ in many ways from other categories of proceedings. It was said that there can be no issue but that commercial proceedings before the Commercial List are regularly settled for all sorts of reasons and by utilising a myriad of approaches taken by businessmen and corporations to contested commercial litigation;

· the genesis of the 1994 amendments was referred to in paragraphs 15 to 20 of the Idoport judgment;

· the 2000 mandatory amendments were the subject of paragraphs 21 to 24 of the Idoport judgment;

· the proper approach to be taken [in terms of the consideration of the overriding purpose rule, the provisions of Part 7B of the Supreme Court Act and Practice Note 118] was set out in paragraph 33;

· the paragraphs which followed paragraph 33 then dealt in more detail with each of those parameters.

· in terms of judicial consideration of Part 7B, paragraph 44 set out anterior case law.

4 To my mind the application presently before the Court should be acceded to, this being a relatively clear case for that as the proper exercise of the Court's discretion. Here again the plaintiff in its written submissions appears to me to have squarely and with substance identified particular reasons why the Court should presently order compulsory mediation. They are adopted in what follows:

“Reasons why mediation is appropriate
11. There are a number of reasons why this is a clear case for the Court to order compulsory mediation. They are as follows:


a) The Ingot proceedings and this case are inextricably linked as the plaintiff’s action for indemnity arises out of allegations made in the Ingot proceedings. Insurers have kept fully apprised of the Ingot proceedings since at least April 2002.

b) The Ingot proceeding is a substantive multi-party commercial dispute. To a large extent the sheer scope of the Ingot proceedings and the demands it has placed on the resources of the Court make the appropriatedness of the order self evident. The plaintiff is the sixth defendant in that matter is sued as a result of his alleged conduct as former managing director of NCRH; it requires no impermissible speculation for the Court to infer that the availability of director and officer insurance is a factor that is likely to affect or at the very least have relevance to the outcome of the mediation in the Ingot proceedings.

c) The evidence of Mr Coorey in his affidavit of 25 August 2004 demonstrates that the approach of all other parties in the Ingot proceedings is to support or not oppose the proposed order that these proceedings be mediated concurrently with the Ingot proceedings.

d) Insurers have been aware of the mediation in the Ingot proceedings for many months (see JMC1 p75).

e) Insurers suffer no prejudice if they are ordered to mediate this claim at the same time as the Ingot proceedings. Insurers are still funding three former non-executive directors of NCRH in the Ingot proceedings, all of whom are represented by Colin Biggers & Paisley. Since Insurers’ purported avoidance of the Policy that is the subject of dispute in July 2004, the Court would infer that the Insurers have kept apprised of developments in the Ingot proceedings through Colin Biggers & Paisley.

f) Between 31 March 2004 and 1 June 2004 the plaintiff and Insurers exchanged detailed correspondence setting out their respective positions on the avoidance of the Policy (JMC1 pp28-72). Although these proceedings were not commenced until 25 June 2004, it is disingenuous to contend that the “dispute” is at a premature stage. The relevant contentions have been joined and the forensic landscape is clear. It is plain the parties are fully aware of their respective positions on the purported avoidance. In the correspondence that has passed between the parties, Insurers have:

· indicated that they have given careful consideration over some months to avoidance of the Policy; and

· took advice from Leading Counsel in London on the avoidance and their rights under the Policy (JMC p29.6).

g) Insurers say that discovery is yet to take place in this matter. Insurers have had access to the discovery in the Ingot proceedings since October 2003. There is no additional discovery that is relevant to these proceedings. Indeed, Insurers based the avoidance, inter alia, on the discovered documents in the Ingot proceedings.
h) The insurance policy that is the subject of this dispute is a co-insurance policy (JMC1 p3). Four of the Defendants are insurance companies and the other Defendant is a Lloyd’s syndicate in which the lead underwriter is David Marshall.
i) It will not be necessary to serve mediation position papers due to the exchange of correspondence that has passed between the parties prior to commencement of this litigation. Any other party in the Ingot proceedings that needs to be informed of the substance of the avoidance dispute could easily be so informed by the provision of the correspondence, which would be subject to the confidentiality regime in applicable to the mediation.

The position of the Insurers

5 Mr Jones, in his written submissions, included the following matters by way of suggested background:

“(a) in the avoidance proceedings, the applicant as plaintiff seeks, inter alia, a declaration that he be indemnified against his exposure to the claim brought against him in the Ingot proceedings;

(b) the first, second, third and fifth defendants to the avoidance proceedings are corporations, all of whom are companies incorporated in England;

(c) the fourth defendant to the avoidance proceedings is an individual, resident of England, against whom an order is sought in the Amended Summons that he be appointed representative of the underwriters at Lloyd’s evidenced by a particular contract of insurance;

(d) the defendants to the avoidance proceedings are insurers to the directors’ and officers’ indemnity insurance policy described in the Amended Summons (“insurers”);

(e) there is no “lead underwriter” clause in the contract of insurance, so that each of the company insurers identified in the Amended Summons and each of the Lloyd’s syndicates that have subscribed to the relevant contract of insurance has a contractual right to reach its own decision, independent of all other insurers, on avoidance and indemnity;

(f) Section X of the contract of insurance is to the effect that the contract is of a composite kind, of the nature described in Arab Bank Plc v Zurich Insurance Co [1999] 1 Lloyd’s Rep 262, whereby the position of each potential insured is to be considered separately on issues of non-disclosure and avoidance;

(g) the insurers have avoided the contract of insurance as against the applicant on the grounds of fraudulent non-disclosure. That has been done following careful consideration of all arguments put by the applicant. It is not suggested by the applicant on this application that he has any further matters that he has not put on the question of avoidance;

(h) there are other directors against whom the insurers have not avoided the contract of insurance, and who are thereby indemnified against the potential exposure in the Ingot proceedings;

(i) the insurers have nominated Mr McGrath, solicitor, who has carriage of the avoidance proceedings, to attend the mediation of the Ingot proceedings in support of those directors in respect of whom the insurers have not avoided coverage. None of those parties have objected to Mr McGrath’s nomination as attendee as representative of the insurers. None have suggested it necessary that other representatives of the insurers be forced to attend;

(j) the applicant will be represented at the mediation by the solicitor with carriage of the defence of the Ingot proceedings on his behalf and the prosecution of the avoidance proceedings. The insurers do not propose to provide support at the mediation to those directors against whom they have avoided coverage, including the applicant;

(k) despite the fact that the insurers do not intend to provide support to Mt Daya, the insurers have advised his solicitors that:


Further, we will have a direct line of communications through Barlow Lyde & Gilbert (the underwriters’ London lawyers) over 3 days of the mediation should it prove necessary to obtain additional instructions from the underwriters.

(McGrath, annexure A)

(l) that fact is of considerable significance, in circumstances where the mediation of the Ingot proceedings is set down for 3 days. Due to the length of the mediation there will be available opportunities to seek instructions from the insurers during their business hours if an appropriate occasion arises;…”

6 The particular and more pointed submissions in terms of the contention that in these proceedings the Court ought not, at least at this stage, order a compulsory mediation included the following:

“(a) the proceedings have just commenced;

(b) serious allegations of a lack of good faith on the part of the insurers are identified in the contentions, yet no facts are pleaded in support of those contentions;

(c) there has not been a joinder of issue, although it is accepted that the position of insurers, avoidance for fraudulent non-disclosure, has been clearly articulated;

(d) there has been no discovery;

(e) no opportunity has arisen for the administration of interrogatories;

(f) no other process of the Court (including the issue of subpoena) has been available to the parties;

(g) even if the insurers were minded to mediate the dispute, which they are not, it is far too early in the proceedings for the Court to be satisfied that mediation at this stage would be likely be beneficial. Indeed, it does not appear to be suggested that, apart from the impending mediation of the Ingot proceedings, this case is in any fit state to be comfortably sent to mediation;

(h) the insurers, by the very nature of their profession, are sophisticated commercial persons, well familiar with the litigation process: Morrow v chinadotcom Corp [2001] NSWSC 209 at [45]. They are not agreeable to participating in a mediation with the applicant insofar as it concerns the dispute between them. It would be an unusual result for the Court to order, against the will of one of the parties, a mediation where such serious allegations are made on both sides;

(i) it is implicit from the fact that certain insureds are indemnified and others the subject of avoidance that careful consideration of the respective positions of the directors, including the applicant, has taken place;

(j) one can safely infer that if Mr Daya’s legal representatives had any further point that he considered had not been properly conveyed to the insurers in respect of their decision to avoid, he could communicate it to the insurers for their consideration without the need for their attendance – he could even do so prior to the Ingot mediation if he considered it appropriate;

(k) having regard to the serious view already taken by insurers, the involvement of a “representative” will not change things as a matter of practice. It is clear that if any change were to take place in any insurer’s position, it could only happen following further consultation. That is a practical matter that could only happen whilst the London market is open for business.

9. If Mr Daya has an offer he wishes the insurers to consider, there is no reason why the regime proposed by the defendant, designed to avoid significant expense and dislocation to the defendants, is not an appropriate.”

7 That the proper exercise of the Court's discretion is to make the order includes a consideration as it seems to me of, inter alia, the following matters:

· first and foremost, the Ingot claim is said to presently be valued at around $AU65 million inclusive of interest;

· I accept that it appears that the defendants are all in the business of writing international insurance policies and that to suggest that there is manifest and unnecessary inconvenience in location in requiring insurers to attend a mediation is simply incorrect. To my mind the background suggests that such arrangements as require to be made will be made;

· insofar as the situation of the pleadings in the present proceedings is concerned, the pleadings are apparently to close today and the evidence satisfies me that the parties have a sufficiently full knowledge of the ambit and substance of the dispute to be in a position to meaningfully participate in a mediation.

8 Returning to Part 1 of the Supreme Court Rules and the overall objective in terms of the just, quick and cheap resolution of the real issues in civil proceedings, the judgment of McHugh J in John Fairfax and Sons Pty Ltd v Police Tribunal(NSW) (1986) 5 NSWLR 465 at 476 furnishes support for the now proposition that what was then the inherent jurisdiction to make such orders so as to enable the Court to uphold, protect and fulfil the judicial function by ensuring that justice is administered according to law and in an effective manner, can now be seen to be complemented by the overriding purpose rule.

9 The plaintiff has conveniently referred also to statements by Hamilton J in Singh v Singh [2002] NSWSC 852 where his Honour said:

“3 The culture of the Court in relation to the perceived usefulness of compulsory arbitrations has shifted radically in the comparatively short period since s 110K was introduced. In Morrow v chinadotcom Corp [2001] NSWSC 209, Barrett J refused to order a reluctant party to engage in mediation on the basis that, if mediation were not engaged upon willingly, the process would be pointless and likely to be a waste of money. However, in Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 427, a very large commercial case, Einstein J made orders for mediation over opposition, as did I in Remuneration Planning Corp Pty Ltd v Fitton [2001] NSWSC 1208. In that case I made the following comment on the change in the perceived wisdom relating to this subject matter at [3]:

“This is an area in which the received wisdom has in my experience changed radically in a period of a few months. A short time ago there was general acceptance of the view adopted by Barrett J in the decision to which I have referred, that there was no point in a mediation engaged in by a reluctant party. Of course, there may be situations where the Court will, in the exercise of its discretion, take the view that mediation is pointless in a particular case because of the attitudes of the parties or other circumstances and decline to order a mediation. However, since the power was conferred upon the Court, there have been a number of instances in which mediations have succeeded, which have been ordered over opposition, or consented to by the parties only where it is plain that the Court will order the mediation in the absence of consent. It has become plain that there are circumstances in which parties insist on taking the stance that they will not go to mediation, perhaps from a fear that to show willingness to do so may appear a sign of weakness, yet engage in successful mediation when mediation is ordered.”

10 More recently, and again as the plaintiff has observed, the Court of Appeal in Amalgamated Television Services Pty Ltd v Marsden (No 2) [2003] NSWCA 186 in a context in which the Court [Beazley, Giles and Santow JJA] was dealing with the Court of Appeal electing to entertain a section 110K application said as follows:

“[62] In proceedings which have already been of unprecedented length and enormous cost, the overriding purpose of the Rules, to facilitate the “just, quick and cheap resolution of the real issues” must be borne constantly in mind. That overriding purpose is a matter which the Court is not merely entitled to take into account, it is required to do so; Idoport v National Australia Bank Ltd [2000] NSWSC 1141 at [45]. Nor is it a stricture which the parties themselves are free to disregard. That is why, in considering the threshold question whether this Court should consider whether or not to order mediation, as sought by the respondent and opposed by the appellant (who submits this should be determined by a single judge), we give weight to the fact that, were an order for mediation not to be made by consent, it would not be just, quick and cheap to remit such a matter to a judge in the Common Law Division.”

11 As the plaintiff has submitted, those very same observations are of equal importance and significance when one set of proceedings in the Court raises cognate or similar issues to those canvassed in proceedings of great potential length and cost, a fortiori, where those cognate proceedings are already subject to an extant order for compulsory mediation.

12 Where one has a very clear stand taken by a respondent to an application for compulsory mediation plainly enough the Court must pay particular care to the reasons for that position being taken. On the other hand, the clear imperative is for the Court to stand back from the position taken by both parties on such applications and, in exercising the discretion to order or to refuse to order the section 110K compulsory mediation, to look at the situation in perspective. Experience in the area of mediation throws up the fact that the process of mediation may even in major commercial litigation lead to quite unexpected results. From time to time the parties can find some form of unexpected way in which to achieve a compromise. From time to time the very circumstance that the compulsory mediation will cause the major players to have to listen to one another may have a cathartic effect. Particularly is this so when, as so very often will occur, hearing in person, the other side's point of view may change even an entrenched point of view. [cf Aiton v Transfield (1999) 153 FLR 236 where the requirements of mediation in good faith were examined]

13 In any event, the Ingot Capital proceedings 50169 of 2001, are so massive in terms of the numbers of parties, estimated time of hearing and almost every parameter in terms of litigation, that if and to the extent that a mediation of the proceedings presently before the Court can take place at the same time as the mediation already ordered, this must be a positive consideration of dimensional significance in terms of the current application.

14 It is further to be noted that on the affidavit evidence before the Court, a series of communications have passed between the plaintiff's solicitors and the solicitors for parties to the main Ingot Capital proceedings with a view to eliciting what the attitude of those other parties would be to a proposal for a concurrent mediation of these proceedings. Those communications are generally certainly not unfavourable to and, to my mind, particularly important in their terms in confirming, to the extent one needs to confirm, that the proper exercise of the Court's discretion is to make the orders now sought.

15 For those reasons the Court now orders as follows:

“Order pursuant to section 110 of the Supreme Court Act that these proceedings be referred to mediation and that such mediation occur concurrently with the mediation to take place before the Honourable G E Fitzgerald QC on 7 to 9 September 2004 in proceedings 50169 of 2001.

Order that the defendants pay the plaintiff's costs of and incidental to the notice of motion and the amended notice of motion.”

I certify that paragraphs 1 -15
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 27 August 2004ex tempore
and revised 1 September 2004

___________________
Susan Piggott
Associate

Last Modified: 09/08/2004