Cantone v Insurance Australia Limited

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FEDERAL COURT OF AUSTRALIA

Cantone v Insurance Australia Limited [2022] FCA 1009

File number: SAD 46 of 2021
Judgment of: ALLSOP CJ
Date of judgment: 31 August 2022
Catchwords: INSURANCE – construction of three successive professional indemnity insurance policies – adverse cost orders made against deed administrators of deed of company arrangement (DOCA) due to conduct in defending proceedings instituted by a creditor to set aside DOCA  – costs orders required payment by deed administrators of percentage of costs of applicant creditor without recourse to the assets of company subject to the DOCA – whether applicant creditor’s application for cost orders a “Claim” for “Civil Liability” within the meaning of the policies – if yes, when was the “Claim” first made and do “Known Circumstances” provisions arise
Legislation: Corporations Act 2001 (Cth)
Cases cited:

Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 4) [2019] FCA 1846

Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 6) [2020] FCA 928

Cresvale Far East v Cresvale Securities (No 2) [2001] NSWSC 791; 39 ACSR 622

Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; 44 ACSR 21

Latoudis v Casey [1990] HCA 59; 170 CLR 534

Liberty Mutual Insurance Company Australia Branch trading as Liberty Speciality Markets v Icon Co (NSW) Pty Ltd [2021] FCAFC 126; 154 ASCR 126

McCarthy v St Paul International Insurance Co Ltd [2007] FCAFC 28; 157 FCR 402

MOS Beverages Pty Ltd v Insurance Australia Ltd t/as CGU Insurance [2020] FCA 1716

Oshlack v Richmond River Council [1998] HCA 11;  193 CLR 72

Re Beddoe; Downes v Cottam [1893] 1 Ch 574
Division: General Division
Registry: South Australia
National Practice Area: Commercial and Corporations
Sub-area:

Commercial Contracts, Banking, Finance and Insurance – Insurance List
Number of paragraphs: 71
Date of last submission/s: 24 September 2021
Date of hearing: 6 December 2021
Counsel for the Applicants: Mr B Doyle QC with Mr E Belpiero
Solicitor for the Applicants: CCK Lawyers
Counsel for the First Respondent: Mr S Donaldson SC with Ms C Coventry
Solicitor for the First Respondent: MinterEllison

ORDERS

SAD 46 of 2021
BETWEEN:

DOMINIC CHARLES CANTONE

First Applicant

NICHOLAS DAVID COOPER

Second Applicant
AND:

INSURANCE AUSTRALIA LIMITED ACN 000 016 722 TRADING AS CGU INSURANCE

First Respondent

AUSTRALIAN INDEMNITY PTY LIMITED TRADING AS EAGLE INSURANCE BROKERS

Second Respondent

ORDER MADE BY:

ALLSOP CJ

DATE OF ORDER:

31 AUGUST 2022

THE COURT ORDERS THAT:

1.Within 28 days,  the parties  file agreed draft short minutes of orders to reflect these reasons and in particular the answers to the separate questions at paragraph 70, and failing agreement the parties should file and serve their competing proposed minutes of order together with brief submissions.

2.The matter be stood over to a date to be fixed after consultation with the…

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Details
Case
[2022] FCA 1009
Decision Date

CaseChat Overview and Summary

Cantone v Insurance Australia Limited involved a dispute between the administrators of a company under a deed of company arrangement and the insurance company regarding the interpretation and application of three successive professional indemnity insurance policies. The administrators, Cantone and Cooper, sought indemnity from the insurer for costs ordered against them by the court for their conduct in defending proceedings initiated by a creditor to set aside the deed of company arrangement. The court was required to determine whether the administrators' application for cost orders constituted a "Claim" for "Civil Liability" under the policies, and if so, when the "Claim" was first made and whether the "Known Circumstances" provisions applied.

The court considered the definitions of "Claim" and "Civil Liability" under the policies and found that the administrators' application for cost orders did not constitute a "Claim" for "Civil Liability" as it did not involve a process or notice, or an unequivocal crystallised demand for compensation. The court held that a claim for costs is not a claim for compensation but rather a remedy to compensate the person in whose favour it is made. The court further held that the phrase "in respect of a Claim" in the definition of "Civil Liability" did not mean that the costs must be the costs of the claim which otherwise independently qualified as a "Claim".

The court also held that the "Claim" was first made when the creditor served the administrators with the originating application for costs, and not when the administrators first became aware of the potential for a costs order. The court found that the "Known Circumstances" provisions did not apply as the administrators did not have actual knowledge or recklessly disregarded the possibility of a claim for costs.

The court ordered the parties to file agreed draft short minutes of orders within 28 days and stood over the matter for further case management. The applicants had filed a notice of discontinuance against the second respondent, and no orders were made against them.

Orders

Orders of the court

1. Within 28 days, the parties file agreed draft short minutes of orders to reflect these reasons and in particular the answers to the separate questions at paragraph 70, and failing agreement the parties should file and serve their competing proposed minutes of order together with brief submissions.

2. The matter be stood over to a date to be fixed after consultation with the associate to the Chief Justice for the making of orders or argument as to orders and any necessary further case management.

The Court notes that a notice of discontinuance was filed by the Applicants on 28 June 2021 to discontinue proceedings against the Second Respondent. No orders are made against the Second Respondent.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The parties were in agreement that if questions 1 and 3 were answered in the negative, this would be determinative of the proceedings. Written submissions were filed in September 2021, and oral argument occurred on 6 December 2021.Relevant background and chronology Before turning to the policies in question, it is necessary to provide a chronology of relevant events leading up to the making of the Adverse Costs Orders. Some of this factual background is critical to the determination of preliminary questions 2.1–2.5 (if they arise), including which policy would respond to the Adverse Costs Orders if question 1 is answered in the affirmative. On 14 November 2017, the directors of Concrete Supply resolved to put Concrete Supply into voluntary administration on the basis that, in the directors’ opinion, the company was insolvent (or was likely to become insolvent). The directors resolved to appoint Messrs Cantone and Cooper as joint and several administrators of the company, which they accepted. On 17 November 2017, Mr Cantone issued an initial advice to creditors. ABCL claimed that Concrete Supply was indebted to ABCL in the amount of $12,447,842.58. At a second meeting of creditors on 19 December 2017, the proof of debt of ABCL was admitted for voting purposes. A DOCA was proposed by the directors of Concrete Supply with Messrs Cantone and Cooper as deed administrators. Mr Cantone exercised a casting vote in favour of the DOCA and it was approved. ABCL voted against the approval of the DOCA. On 16 January 2018, ABCL commenced proceeding SAD12/2018 in this Court against Concrete Supply. Messrs Cantone and Cooper were named as the second and third defendants respectively in their capacity as deed administrators and were served with the originating application on or about 18 January 2018. Messrs Cantone and Cooper engaged separate legal representation to Concrete Supply and its directors. It is relevant to set out the relief sought in the originating process, in particular prayer 18 for “costs”, which is a source of contention between the parties:1. Pursuant to section 440D of the Corporations Act the plaintiff have leave to begin and proceed with this proceeding against the Company. 2.Pursuant to section 75-42 of sch 2 of the Corporations Act that the resolution that the Company execute a deed of company arrangement, passed on the casting vote of second defendant, be set aside.3.In the alternative to paragraph 2, pursuant to section 90-15 of sch 2 of the Corporations Act setting aside the second defendant’s decision to exercise his casting vote in favour of the resolution that the Company execute the deed of company arrangement. 4.In the further alternative to paragraph 2, pursuant to section 445D or 447A of the Corporations Act that the deed of company arrangement executed by the Company be terminated. 5.Pursuant to section 75-43 or 90-15 of sch 2 of the Corporations Act that the proposed resolution that Company be wound up, defeated on the casting vote of the second defendant, be taken to have been passed and that Messrs Martin Lewis and David Kidman be appointed as joint liquidators. 6.In the alternative to paragraph 5, pursuant to section 447A of the Corporations Act that the Company [be] wound up and Messrs Martin Lewis and David Kidman be appointed as joint liquidators. 7.In the further alternative to paragraph 5, pursuant to section 90-15 of sch 2 of the Corporations Act that the second and third defendants be removed as external administrators of the Company and Messrs Martin Lewis and David Kidman be appointed as external administrators. 8.Pursuant to section 483 of the Corporations Act, that the second to sixth defendants deliver, convey or surrender the Company’s books to the liquidators of the Company as soon as practicable. 9.A declaration that the Company owes the plaintiff $12,457,472.22; 10.A declaration that the Company failed to maintain adequate books and records in contravention of section 286 of the Corporations Act. 11.A declaration that the Company engaged in misleading or deceptive conduct or unconscionable conduct in contravention of sections 18 and 20 of the Australian Consumer Law or unconscionable conduct under the general law. 12.A declaration that the fourth to sixth defendants were involved in conduct by the Company which contravened Chapter 2 of the Australian Consumer Law within the meaning of sections 2, 236 and 237 of the Australian Consumer Law. 13.A declaration that the Company held cement which was received but not paid for, and any income generated using that cement, on trust for the plaintiff. 14.A declaration that (a) the Company breached its fiduciary duty to the plaintiff by disposing of property held on trust for the plaintiff; and (ii) [sic] the fourth to sixth defendants procured or knowingly assisted or benefited from that breach of trust by the Company. 15.Damages. 16.Equitable compensation. 17.Interest. 18.Costs. 19.Such further or other order as the Court thinks fit.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

On 12 November 2019, Besanko J delivered judgment on the substantive claim: Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 4) [2019] FCA 1846 (the primary judgment). ABCL was partially successful on the relief sought. Importantly, Besanko J found that Concrete Supply was indebted to ABCL in the amount of $12,457,472.22, that the DOCA executed on 21 December 2017 must be terminated pursuant to s 445D of the Corporations Act 2001 (Cth), and that the resolution passed at the second meeting of creditors on 19 December 2017 resolving that Concrete Supply enter into the proposed DOCA should be set aside. On or about 13 November 2019, Mr Cooper provided a copy of the primary judgment to Eagle, which was then provided by Eagle to CGU on 14 November 2019. On 15 November 2019, CGU asked Eagle, which was relayed to Mr Cooper, whether there had been a formal claim against Mr Cooper or Mr Cantone for a monetary sum. The essence of Mr Cooper’s response was that there had been a claim for costs made by ABCL. On 21 November 2019, Eagle informed CGU that there may be in the future a claim for costs in SAD12/2018 against Messrs Cooper and Cantone by ABCL. On 22 November 2019, ABCL filed and served submissions (ABCL’s Costs Submissions), which sought orders that the defendants in SAD12/2018 pay ABCL’s costs of the action. In those submissions, ABCL submitted, in broad terms, that Messrs Cantone and Cooper inappropriately defended the proceedings and pressed a case that was aligned with Concrete Supply. It was submitted that a competent administrator acting in Concrete Supply’s interests would have left it to the directors of Concrete Supply to defend the proceedings and would have disclaimed an active role. ABCL sought orders that Messrs Cantone and Cooper pay any costs order without recourse to the assets of Concrete Supply. A reading of ABCL’s Costs Submissions reveal, however, another basis for payment of ABCL’s costs by the applicants without access to the indemnity: the conduct of the applicants in the execution of the DOCA was said to be unreasonable, and disentitling of the indemnity: see in particular paragraphs 22 – 25 of ABCL’s Costs Submissions. On or about 27 November 2019, Mr Cooper provided a copy of ABCL’s Costs Submissions to Eagle, which were then provided to CGU on 28 November 2019. The copy communicated to CGU attached an affidavit of Mr Patrick Leader-Elliot affirmed 22 November 2019 in support of the costs application by ABCL. On 17 December 2019, by operation of orders made on 19 November 2019, Concrete Supply was placed into liquidation. On that day, Messrs Cantone and Cooper ceased to be either administrators or deed administrators of Concrete Supply. On 6 July 2020, Besanko J delivered the Costs Judgment. Of particular relevance to this proceeding, Besanko J found that Messrs Cantone and Cooper did not act appropriately in defending the action brought by ABCL. Their involvement “went well beyond what could be considered reasonable assistance on any view” (at [166]) and it was not a proper purpose to defend the proceedings to refute what they claimed were serious and unsupported allegations with respect to their conduct (at [167]). This was the basis of his Honour’s order that the applicant should be denied access to the company’s funds by the indemnity to recoup and exonerate themselves. Justice Besanko did not find it necessary to found the costs orders that his Honour made against the applicants on the basis of their conduct before and at the time of execution of the DOCA.

Ratio Decidendi

Legal Principle Established

Section 8 of Policy 2 provides for “General terms and conditions”, which require the policyholder to tell the respondent insurer about a Claim as soon as possible during the period of insurance, failing which the right to cover may be affected. Further, clause 8.2 provides:8.2 Claims co-operation Each Insured must: (a)diligently do, and allow to be done, everything reasonably practicable to avoid or lessen an Insured’s liability in relation to a Claim or Covered Claim, Covered by this Policy; (b)immediately give Us all the help and information that We reasonably require to: (i) investigate and defend a Claim or Covered Claim; and (ii) determine Our liability under this Policy. No evidence was led as to the context of the entry into the policies, or any of them. Importantly, no evidence was led of the parties (and as to the applicants, whether from their own knowledge or that of their insurance broker) being aware of the availability of different types of insurance contracts. In particular, there was no evidence of the existence in the professional indemnity market for Australian insolvency practitioners of different policies for, on the one hand substantive liability for compensating damages and ancillary costs, and, on the other, costs liability insurance. Thus the scope of the cover from the policies is to be determined without reference to any context found by reference to available policies. The parties’ submissionsThe applicants’ submissions Question 1: Was there a “Claim” for “Civil Liability”? The applicants’ submissions acknowledged that the concepts of a “Claim” and “Civil Liability” are central to the operation of the policies and their claim for indemnity with respect to the Without Recourse Costs Application arising from the ABCL’s Costs Submissions on 22 November 2019. The two-limbed definition of “Claim” was said to encompass either some kind of process or notice, or the making of an unequivocal crystallised demand for compensation, in contradistinction to an intimation, contingent or otherwise, of a future demand or process. Further, the substance of the claim must be brought home to the person. As to “Civil Liability”, as defined, the applicants submitted that a third party’s claim for costs is plainly capable of being a claim for “compensatory damages, costs and expenses”. As the purpose of an order for costs is to compensate the person in whose favour it is made, a claim for costs was said to be a claim for compensation: Latoudis v Casey [1990] HCA 59; 170 CLR 534 at 543, 563 and 567 and Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at 97 [67]. The phrase “compensatory damages, expenses and costs” should be read disjunctively, such that a claim for costs can be made separately and independently from a liability for damages. The fact that the insuring clause is said to include the legal costs of the person making the Claim does not warrant a narrower construction. As to the phrase “in respect of a Claim” in the definition of “Civil Liability”, this was said to mean “the subject of or in connection with the Claim”. The phrase does not connote that the costs must be the costs of the claim which otherwise independently qualifies as a “Claim” as defined in clause 9.2 of Policy 2.