Carter v Chubb Insurance Australia Ltd

[2024] FCA 1312

FEDERAL COURT OF AUSTRALIA

Carter v Chubb Insurance Australia Ltd [2024] FCA 1312

File number(s):

NSD 437 of 2022
NSD 448 of 2022

Judgment of:

HALLEY J

Date of judgment:

14 November 2024

Catchwords:

INSURANCE – claims for indemnity by a chief executive officer and managing director (Director) under a directors and officers liability policy for defence costs incurred in defending criminal charges and civil proceedings – where insurer denied liability on the basis of fraudulent misrepresentations and fraudulent non-disclosures – where insurer also seeks recovery of sums previously advanced – where insurer alleges Director was aware of a course of conduct, that involved payment of bribes and illegal inducements to procurement managers of customers of company – consideration of the nature of the arrangements which allegedly constituted the payment of bribes and illegal inducements – where Director signed proposal for renewal of directors and officers liability policy, made declaration and allegedly failed to disclose payment of bribes and illegal inducements – whether procurement managers had apparent authority to give instructions for distribution of funds for personal benefits – consideration of extent of knowledge of insured – whether Director was aware of potential claims at the time of policy renewal – whether insurer was entitled to deny indemnity – consideration of 28(3) of the Insurance Contracts Act 1984 (Cth) (ICA) and duty of disclosure under s 21(1) of the ICA – where satisfied Director knew, or was recklessly indifferent as to, whether bribes and illegal inducements could give rise to potential claims – Director failed to disclose bribes and illegal inducements to the insurer and thereby engaged in fraud – insurer entitled to deny indemnity – insurer entitled to repayment of sums already advanced

EVIDENCE – Briginshaw considerations and s 140(2) of the Evidence Act 1995 (Cth) – knowledge of the insured – drawing of inferences – whether an inference is more probable than not – where Director gives evidence of absence of knowledge – knowledge can be readily inferred from objective evidence – denials of knowledge unreliable

EVIDENCE – where insurer did not adduce evidence from witnesses to establish absence of knowledge by principal of alleged payment of bribes and provision of illegal inducements to its agent – Jones v Dunkel inferences – whether absence of knowledge can be inferred – whether Jones v Dunkel inferences should be drawn for failure to call on subpoena

PRACTICE AND PROCEDURE – pleadings – whether various contentions of insurer are open on pleadings

Legislation:

Corporations Act 2001 (Cth) ss 180, 181, 182, 1317H

Competition and Consumer Act 2010 (Cth) Sch 2

Fair Work Act 2009 (Cth)

Evidence Act 1995 (Cth) s 140

Insurance Contracts Act 1984 (Cth) ss 21, 26, 28

Crimes Act 1900 (NSW) s 193B, 249B, 249F

Cases cited:

ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65

AL Underwood Ltd v Bank of Liverpool [1924] 1 KB 775

All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Limited (No 2) (2021) 154 ACSR 78; [2021] FCA 782

Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73

Bale v Mills (2011) 81 NSWLR 498; [2011] NSWCA 226

BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 348 ALR 227; [2016] FCA 1351

Briginshaw v Briginshaw (1938) 60 CLR 336

CGU Insurance Ltd v Porthouse (2008) 235 CLR 103; [2008] HCA 30

CIC Insurance Ltd v Midaz Pty Ltd [1999] 1 Qd R 279; (1998) 10 ANZ Ins Cas 61-394

Combulk Pty Ltd v TNT Management Pty Ltd (1993) 41 FCR 59

Commercial Union Assurance Co of Australia Ltd v Beard (1999) 47 NSWLR 735

Daraydan Holdings Ltd v Solland International Ltd [2005] Ch 119

Deloitte Touche Tohmatsu v Cridlands Pty Ltd (2003) 134 FCR 474; [2003] FCA 1413

Derry v Peek (1889) 14 App Cas 337

Eden v Risdale’s Railway Lamp & Lighting Co (1889) 23 QBD 368

FAI Insurance Co Ltd v McSweeney (1999) 10 ANZ Ins Cas 61-443

Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480

Funk Coffee and Food Pty Ltd v Hype Investments Pty Ltd [2021] SASCFC 28

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6

Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266

Holloway v McFeeters (1956) 94 CLR 470

Hovendon & Sons v Milhoff (1900) 83 L.T. 41

Hung v Warner, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (in liq) [2013] FCAFC 48

Industries & General Mortgage Company Ltd v Lewis [1949] 2 All ER 573

Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421

Manchester Unity Total Care Building Society v MGICA Ltd (1991) 6 ANZ Ins Cas 61-062

Masters Home Improvement Australia Pty Ltd v North East Solution Pty Ltd (2017) 372 ALR 440; [2017] VSCA 88

Mehajer v R [2014] NSWCCA 167

Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146

P&S Kauter Investments Pty Ltd v Arch Underwriting at Lloyd’s Ltd (2021) 105 NSWLR 110; [2021] NSWCA 136

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35

Payne v Parker [1976] 1 NSWLR 191

Permanent Trustee Australia Limited v FAI General Insurance Company Limited (in liquidation) (2003) 214 CLR 514; [2003] HCA 25

Prepaid Services Pty Ltd v Atradius Credit Insurance NV (2013) 302 ALR 732; [2013] NSWCA 252

Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; [2002] NSWSC 171

Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd; Carelli v FS Architects Pty Ltd [2008] NSWCA 39

Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18

Secured Lending 1 Pty Ltd v Mahmassani [2021] NSWSC 811

Simply Irresistible Pty Ltd v Couper [2012] VSCA 128

Smith v New South Wales Bar Association (No 2) (1992) 176 CLR 256; [1992] HCA 36

Division:

General Division

Registry:

New South Wales

National Practice Area:

Commercial and Corporations

Sub-area:

Commercial Contracts, Banking, Finance and Insurance

Number of paragraphs:

900

Date of last submissions:

3 July 2023

Date of hearing:

13-14, 18-19, 21, 26-28 April, 1-2, 4-5, 16-17, 25 May 2023

Counsel for the Plaintiff:

Mr M Ashhurst SC with Mr D Mackay and Ms S Scott

Solicitor for the Plaintiff:

Diamond Conway Lawyers

Counsel for the Second Defendant:

Mr M Jones SC with Ms A Zheng

Solicitor for the Second Defendant:

Gilchrist Connell

ORDERS

NSD 437 of 2022

BETWEEN:

JOHN JOSEPH CARTER

Plaintiff

AND:

CHUBB INSURANCE AUSTRALIA LTD

Second Defendant

ORDER MADE BY:	HALLEY J
DATE OF ORDER:	14 NOVEMBER 2024

THE COURT ORDERS THAT:

1.The parties are to confer and submit draft orders giving effect to these reasons for judgment by 4.00 pm on Thursday, 28 November 2024.

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

ORDERS

NSD 448 of 2022

BETWEEN:

JOHN JOSEPH CARTER

Cross-Claimant

AND:

CHUBB INSURANCE AUSTRALIA LTD

Second Cross-Defendant

ORDER MADE BY:	HALLEY J
DATE OF ORDER:	14 NOVEMBER 2024

THE COURT ORDERS THAT:

1.The second cross claim filed on 28 September 2020 be dismissed.

2.The cross-claimant is to pay the costs of the second cross-defendant, as taxed if not agreed.

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

REASONS FOR JUDGMENT

A.       INTRODUCTION	[1]
A.1. Overview	[1]
A.2. Claims made under the Policy	[6]
A.3. Overview of the two proceedings	[16]
A.3.1.      Carter proceedings (NSD 437 of 2022)	[17]
A.3.2.      Orix proceedings (NSD 448 of 2022)	[22]
A.4. Issues for determination	[30]
A.5. Overview of Mr Carter’s case	[34]
B.       DRAMATIS PERSONAE	[45]
B.1. Orix	[45]
John Carter	[46]
George Georgiou	[47]
William McCulloch	[48]
Gary Dundas	[50]
Other Orix personnel	[51]
B.2. CCA	[63]
Bryan Pereira	[65]
Bill Mossati	[66]
Raymond (Ray) Ward	[67]
B.3. GrainCorp	[69]
B.4. Other	[71]
C.       EVIDENTIARY ISSUES	[73]
C.1. Overview	[73]
C.2. The evidence of Mr Carter	[77]
C.3. Mr Carter’s lay witnesses	[86]
Christopher Briggs	[87]
David Lyons	[89]
C.4. Chubb’s lay witnesses	[90]
C.4.1.      The evidence of Mr Dundas	[90]
C.4.2.      The evidence of Ms Scott and Mr McCulloch	[92]
Kim Scott	[92]
William McCulloch	[94]
C.4.3.      The evidence of Mr Brown and Mr Madell	[97]
Christopher Brown	[97]
Christopher Madell	[100]
C.4.4.      Other lay witnesses	[103]
C.5. The absence of Mr Georgiou and Mr Pereira	[104]
C.6. Expert witnesses	[110]
C.6.1.      Overview	[110]
C.6.2.      Forensic expert evidence	[112]
C.6.3.      Accounting expert evidence	[113]
C.6.4.      Email time stamp and metadata expert evidence	[116]
D.       OVERARCHING ISSUES	[120]
D.1. Overview	[120]
D.2. Drawing of inferences	[123]
D.3. Apparent Authority	[127]
D.4. Bribery	[134]
D.5. Potential directors and officers liability insurance claims	[148]
D.5.1.      Overview	[148]
D.5.2.      Breaches of statutory duties	[150]
D.5.3.      Related accessorial responsibility for conduct	[152]
D.5.4.      Exposure to investigations	[156]
E.       THE CCA MARKETING ACCOUNT	[157]
E.1. Introduction	[157]
E.1.1.      CCA Fleet Agreement and the First Fleet Flip	[158]
E.1.2.      The origin of the introducer fee	[166]
E.1.3.      Second Fleet Flip	[175]
E.1.4.      Third Fleet Flip	[187]
E.1.5.      Accrual Spreadsheet	[203]
E.1.6.      Negotiations in 2013 leading up to the Fourth Fleet Flip	[211]
E.2. Pleading issue (Issues 14 and 15)	[213]
E.2.1.      Overview	[213]
E.2.2.      Submissions	[216]
E.2.3.      Consideration	[219]
E.3. Toyota rebates (Issues 16 and 17)	[223]
E.3.1.      Overview	[223]
E.3.2.      Submissions	[224]
Issue 16	[224]
Issue 17	[231]
E.3.3.      Consideration	[234]
E.4. Transfers of Rebate Money to Ray Ward accounts (Issues 18 to 20)	[237]
E.4.1.      Overview	[237]
E.4.2.      Submissions	[238]
Issue 18	[238]
Issue 19	[240]
Issue 20	[242]
E.4.3.      Consideration	[244]
Issue 18	[244]
Issue 19	[245]
Issue 20	[250]
E.5. Inspection fee (Issues 21 to 23)	[251]
E.5.1.      Overview	[251]
E.5.2.      Submissions	[253]
Issue 21	[253]
Issue 22	[259]
Issue 23	[262]
E.5.3.      Consideration	[269]
E.6. $70,000 transfer to the CCA Marketing Account (Issue 24)	[297]
E.6.1.      Overview	[297]
E.6.2.      Submissions	[307]
E.6.3.      Consideration	[310]
E.7. Payments made at the direction of Mr Pereira (Issues 25 to 27)	[311]
E.7.1.      Overview	[311]
E.7.2.      Submissions	[313]
Issues 25 and 26	[313]
Issue 27	[320]
E.7.3.      Consideration	[325]
Issues 25 and 26	[325]
Purchase of Mercedes	[340]
Proposed Cyril Rodrigo transfer	[353]
Issue 27	[363]
E.8. Payment to Gary Chua (Issues 28 and 29)	[378]
E.8.1.      Overview	[378]
E.8.2.      Submissions	[380]
Issue 28	[380]
Issue 29	[383]
E.8.3.      Consideration	[385]
E.9. Mr Carter’s knowledge of the Slush Fund arrangements (Issues 30 to 35)	[404]
E.9.1.      Overview	[404]
E.9.2.      Submissions	[407]
Chubb	[407]
Mr Carter	[415]
E.9.3.      Consideration	[424]
Issues 30 to 32	[424]
Mercedes transaction	[448]
Expense Reimbursement Forms	[455]
Adult entertainment	[467]
Golf trips and personal expenditure	[471]
Issues 33 and 34	[480]
Issue 35	[481]
E.10.          Mr Carter’s knowledge of the payment to Mr Chua (Issues 36 and 37)	[482]
E.10.1. Overview	[482]
E.10.2. Submissions	[483]
Issue 36	[483]
Issue 37	[489]
E.10.3. Consideration	[493]
F.        PAYMENTS TO SRS	[502]
F.1. Overview	[502]
F.2. The SRS arrangements (Issues 1 to 7)	[503]
F.2.1.      Issues	[503]
F.2.2.      Submissions	[504]
Issues 1 to 6	[504]
Issue 7	[508]
F.2.3.      Consideration	[512]
F.3. Mr Carter’s knowledge of the SRS arrangements (Issues 8 to 13)	[518]
F.3.1.      Issues	[518]
F.3.2.      Submissions	[519]
Chubb	[519]
Mr Carter	[525]
F.3.3.      Consideration	[533]
G.       GRAINCORP TRANSACTIONS	[639]
G.1.            Overview	[639]
G.2.            Pleading issue (Issue 38)	[642]
G.3.            Mazda 3 Transaction (Issues 39 and 40)	[646]
G.3.1.      Overview	[646]
G.3.2.      Submissions	[651]
Chubb	[651]
Mr Carter	[657]
G.3.3.      Consideration	[659]
G.4.            Subaru Liberty (Issues 41 and 42)	[663]
G.4.1.      Overview	[663]
G.4.2.      Submissions	[672]
Chubb	[672]
Mr Carter	[675]
G.4.3.      Consideration	[679]
G.5.            Mr Carter’s knowledge of the GrainCorp Transactions (Issues 43 and 44)	[686]
G.5.1.      Overview	[686]
G.5.2.      Submissions	[687]
Chubb	[687]
Mr Carter	[693]
G.5.3.      Consideration	[697]
H.       INSURANCE ISSUES	[707]
H.1.            Overview	[707]
H.2.            Fraudulent Misrepresentations (Issues 45 to 48)	[714]
H.2.1.      Overview	[714]
H.2.2.      Statutory provisions and legal principles	[717]
Fraudulent Misrepresentation	[717]
“May give rise to a claim”	[721]
H.2.3.      The Declaration (Issue 45(b))	[725]
Overview	[725]
Submissions	[729]
Consideration	[732]
H.2.4.      Answer to the Facts and Circumstances Question (Issue 45(a) and Issues 46 to 48)	[741]
Overview	[741]
Submissions	[744]
Consideration	[753]
H.3.            Fraudulent Non-Disclosure (Issue 49)	[806]
H.3.1.      Overview	[806]
H.3.2.      Statutory provisions and legal principles	[808]
H.3.3.      Submissions	[817]
H.3.4.      Consideration	[825]
H.4.            Chubb’s remedy (Issue 50)	[847]
H.4.1.      Overview	[847]
H.4.2.      Submissions	[849]
H.4.3.      Consideration	[851]
H.5. ICA Defence (Issue 51)	[852]
H.5.1.      Overview	[852]
H.5.2.      Submissions	[860]
H.5.3.      Consideration	[869]
H.6.            Fraud Exclusion Defence (Issue 52)	[883]
H.6 1.      Overview	[883]
H.6.2.      Submissions	[886]
H.6.3.      Consideration	[888]
I.         QUANTUM OF COSTS CLAIMS (ISSUES 53 AND 54)	[889]
I.1.   Overview	[889]
I.2.   Agreed Position	[891]
J.        CHUBB’S CLAIM FOR REPAYMENT OF THE SUMS ADVANCED (ISSUE 55)	[893]
J.1. Overview	[893]
J.2. Submissions	[895]
J.3. Consideration	[899]
K.       DISPOSITION	[900]

HALLEY J:

A.       INTRODUCTION

A.1.     Overview

1. These proceedings are concerned with claims for indemnity by John Carter under a directors and officers liability policy that Orix Australia Corporation Limited (Orix) had obtained from Chubb Insurance Australia Limited (Chubb).

2. Mr Carter was at all relevant times the Managing Director and Chief Executive Officer of Orix.

3. Chubb was previously called ACE Insurance Limited but changed its name to Chubb Insurance Australia Limited with effect from 1 November 2016. In order to avoid unnecessary confusion, in these reasons for judgment the single defined term Chubb has been used to refer to the company without distinguishing between periods when it was called ACE Insurance Limited and periods when it was called Chubb Insurance Australia Limited.

4. The claims made by Mr Carter under the directors and officers liability policy issued by Chubb are with respect to defence costs incurred by him in defending (a) criminal charges that were brought against him by the Director of Public Prosecutions, and (b) civil proceedings brought against him by Orix.

5. Chubb has denied liability on the basis that Mr Carter was engaged in, and aware of alleged fraudulent misrepresentations and fraudulent non-disclosures at the time that he signed a renewal proposal for Orix’s directors and officers liability policy with Chubb (Proposal) on 30 October 2014. In addition, Chubb cross claims against Mr Carter seeking recovery of money that it had paid for defence costs in defending the criminal charges prior to advising Mr Carter that his claims for indemnity had been denied.

   A.2.     Claims made under the Policy

6. Following the submission of the Proposal, Chubb issued Orix with a Directors & Officers Liability Insurance Policy No. 01CH534086 (Policy) for the period 31 December 2014 to 31 December 2015. Mr Carter is an “Insured” within the meaning of the Policy.

7. On 25 March 2015, the New South Wales Police executed a search warrant at Orix’s offices in Macquarie Park.

8. On 2 April 2015, Mr Carter was arrested.

9. On 2 April 2015, Mr Carter was charged by the New South Wales Police with four counts of corruptly receiving or soliciting a benefit pursuant to s 249B(1) of the Crimes Act 1900 (NSW) (Crimes Act) and one count of knowingly dealing with proceeds of crime pursuant to s 193B(1) of the Crimes Act (together, Criminal Charges).

10. On 4 June 2015, Mr Carter notified Chubb of the Criminal Charges.

11. Mr Carter claimed an indemnity under cl 1.1 of the Policy and sought payment of “Emergency Defence Costs” under cl 2.3 of the Policy.

12. Chubb initially accepted that Defence Costs, as defined in cl 3.5 of the Policy, were payable, but reserved its rights under the Policy and at law as further information came to light. Pursuant to that acceptance and reservation, Chubb advanced an amount of $657,277.38 (excluding GST) to Mr Carter (Sums Advanced).

13. Following its review, however, of the material served by the New South Wales Police in the Local Court criminal proceedings no. 2015/00098199 brought against Mr Carter (Criminal proceedings), Chubb notified Mr Carter on 13 April 2017 that:

    (a)it believed that Mr Carter was engaged in, and aware of, fraudulent non-disclosure by Orix to Chubb at the time the Policy was entered into;

    (b)the advancement of Defence Costs under the Policy was suspended; and

    (c)it sought repayment of the Sums Advanced.

14. Mr Carter has not repaid the Sums Advanced.

15. In September 2019, the Criminal proceedings were discontinued.

    A.3.     Overview of the two proceedings

16. These reasons for judgment concern two proceedings, NSD 437 of 2022 and NSD 448 of 2022, which were case managed and heard together.

    A.3.1. Carter proceedings (NSD 437 of 2022)

17. On 7 October 2020, Mr Carter commenced proceedings against Orix and Chubb, initially in the New South Wales Supreme Court (proceeding no. 2020/00283307), later transferred to the Federal Court of Australia on 7 June 2022 (proceeding NSD 437 of 2022) (Carter proceedings). Mr Carter claims pursuant to the Policy an amount of $3,230,369.95 which he contends to have expended in defending the Criminal Charges.

18. On 16 November 2022, Mr Carter’s claim against Orix in the Carter proceedings was dismissed.

1. In its further amended defence filed on 30 March 2023, Chubb contends:

   (a)during Mr Carter’s tenure as Chief Executive Officer and Managing Director of Orix, he was aware of a course of conduct that involved, in broad terms:

   (i)the payment of bribes and provision of illegal inducements to Bryan Pereira, the procurement manager of Coca-Cola Amatil Ltd (CCA), a fleet customer of Orix; and

   (ii)two transactions (GrainCorp Transactions) which amounted to the payment of bribes and provision of illegal inducements to Tony Chidiac, the procurement manager for GrainCorp Ltd (GrainCorp), also a fleet customer of Orix; and

   (b)Mr Carter did not disclose this knowledge and thereby gave a false declaration, and thereby caused Orix to make fraudulent misrepresentations and fraudulent non-disclosures when he signed the Proposal on behalf of Orix.

2. In its further amended cross claim filed on 4 April 2023, Chubb repeats the matters pleaded in its further amended defence and contends that Mr Carter was and is not entitled to his defence costs advanced by Chubb and Mr Carter was in breach of the recoupment term by not repaying the Sums Advanced to Chubb after Chubb sought repayment of them on 13 April 2017.

3. By way of a defence to the further amended cross claim filed on 11 April 2023, Mr Carter contends, in broad terms, that (a) he was and is entitled to indemnification, (b) he is not liable to repay the Sums Advanced, (c) Chubb has no entitlement to recover the Sums Advanced until final adjudication, and (d) Chubb waived any rights it has under s 28(3) of the Insurance Contracts Act 1984 (Cth) (Insurance Contracts Act) by renewing the Policy on 29 January 2016.

   A.3.2. Orix proceedings (NSD 448 of 2022)

4. On 12 June 2020, Orix commenced proceedings, initially in the Supreme Court of New South Wales (proceeding no. 2020/00174863), that were subsequently transferred to the Federal Court of Australia on 7 June 2022 (proceeding NSD 448 of 2022) (Orix proceedings). In those proceedings, Orix sought compensation pursuant to s 1317H of the Corporations Act 2001 (Cth) (Corporations Act) from Mr Carter for contraventions of s 180, s 181 and s 182(1), certain declarations, equitable compensation for breach of fiduciary duties, damages for breach of contractual duties, damages in tort, and damages and/or compensation pursuant to s 236 or s 237 of the Australian Consumer Law in Sch 2 to the Competition and Consumer Act 2010 (Cth) with respect to Mr Carter’s conduct in relation to the transactions with CCA and GrainCorp. Orix also brought claims against George Georgiou, an Orix employee, for breaches of s 181 and s 182(1) of the Corporations Act, declarations, equitable compensation, and damages for breach of contractual duties.

5. By an amended cross claim filed on 22 July 2021 pursuant to leave granted by Black J, Mr Carter sought damages for breach of an executive services agreement and deed of Indemnity, Insurance and Access (first cross claim).

6. By a second cross claim filed on 28 September 2020, Mr Carter seeks a declaration that Chubb must indemnify him under the Policy and indemnify him for the costs incurred in defending the Orix proceedings (second cross claim).

7. On 16 November 2022, Orix’s claim against Mr Carter, and the first cross claim, were dismissed.

8. On 18 January 2023, the claims brought by Orix against Mr Georgiou, and Mr Georgiou’s cross claim filed on 4 November 2020, were also dismissed.

9. By a further amended defence in response to the second cross claim, filed on 4 April 2023, Chubb claims that at the time Mr Carter signed the Proposal, he (a) knew the relevant facts regarding the CCA and GrainCorp transactions, (b) did not disclose the information he knew, (c) declared that the information in the Proposal was true and correct in every detail, and (d) caused Orix to make fraudulent representations and engage in fraudulent non-disclosure. Chubb contends that Mr Carter is therefore not entitled to indemnification under the Policy. Chubb’s further amended defence to the second-cross claim in the Orix proceedings was largely pleaded in identical terms (including as to paragraph numbers) to Chubb’s further amended defence in the Carter proceedings.

10. On 15 June 2021, Mr Carter also commenced proceedings against Orix (proceeding NSD 559 of 2021) regarding claims under the Fair Work Act 2009 (Cth). This proceeding was dismissed on 16 November 2022.

11. Pursuant to an order made on 30 September 2022, proceedings NSD 437 of 2022, NSD 448 of 2022 and NSD 559 of 2021 (prior to its dismissal), were case managed together and evidence in one case was to be evidence in the other.

    A.4.     Issues for determination

12. In order to facilitate the efficient resolution of these proceedings, the parties have agreed a list of 55 issues to be determined. By way of summary, these issues are:

    (a)the nature of the arrangements that Orix entered into with Systems Reporting Services Pty Ltd (SRS) under which SRS invoiced Orix for “management inspection fees” (SRS arrangements) (Issues 1 to 7);

    (b)the extent of Mr Carter’s knowledge of the SRS arrangements (Issues 8 to 13);

    (c)whether it is open on the pleadings for Chubb to contend that CCA (other than Mr Pereira) was not aware of the alleged use by Orix of a ledger account and subsequently an income account to act as a “slush fund” for the benefit of Mr Pereira (Slush Fund arrangements) and Mr Pereira was directing Orix to implement the Slush Fund arrangements without any authorisation from CCA (Issues 14 to 15);

    (d)the sources of the funds that were the subject of the Slush Fund arrangements and the extent of the knowledge of, and authorisation by, CCA of the Slush Fund arrangements (Issues 16 to 25);

    (e)the extent of any payments to, or on behalf of Mr Pereira, pursuant to the Slush Fund arrangements (Issues 26 to 29);

    (f)the extent of Mr Carter’s knowledge of the Slush Fund arrangements (Issues 30 to 37);

    (g)whether it was open on the pleadings for Chubb to contend that GrainCorp was not aware of the funds advanced to Mr Chidiac to facilitate his daughter’s purchase of a motor vehicle (Issue 38);

    (h)the circumstances in which the funds were advanced by Orix to Mr Chidiac to facilitate his daughter’s purchase of a Mazda 3 motor vehicle and a purchase by Mr Chidiac of a Subaru Liberty motor vehicle (together, GrainCorp Transactions) (Issues 39 to 42);

    (i)Mr Carter’s knowledge of the circumstances in which the funds were advanced by Orix to Mr Chidiac to facilitate the purchase of the Mazda 3 and Subaru Liberty motor vehicles (Issues 43 to 44);

    (j)whether Mr Carter made fraudulent representations to Chubb in connection with the renewal of the Policy (Issues 45 to 48);

    (k)whether Mr Carter fraudulently failed to disclose to Chubb the SRS arrangements, the Slush Fund arrangements and the GrainCorp Transactions (Issue 49);

    (l)whether Chubb was entitled to deny indemnity to Mr Carter under cl 7 of the Policy by reason of findings made that Mr Carter had made fraudulent representations and fraudulently failed to disclose matters to Chubb (Issue 50);

    (m)whether Chubb would have offered any policy to Orix if Mr Carter had disclosed to Chubb the SRS arrangements, the Slush Fund arrangements and the GrainCorp Transactions (Issue 51);

    (n)whether the claims made by Mr Carter for defence costs with respect to the Orix proceedings and the Criminal proceedings would be excluded by reason of cl 4.1 of the Policy (Issue 52);

    (o)whether the legal costs claimed by Mr Carter in these proceedings referrable for work done are claims that are covered by the Policy (if he was otherwise entitled to be indemnified under the Policy) and in what amount (Issues 53 to 54); and

    (p)whether any requirement to repay the Sums Advanced only arises if the exclusion under cl 4.1 of the Policy applies or whether the exclusion also operates where the insured is not entitled to indemnity for any other reason (Issue 55).

13. Chronologically, the events addressed in Issues 1 to 13 occurred after the events addressed in Issues 14 to 37 with respect to CCA and have therefore been addressed after those issues in these reasons.

14. Although the issues are discrete, the matters relevant to each issue at times substantially overlap. Many matters are equally relevant to establishing (a) the nature of the impugned conduct, (b) whether the impugned conduct could constitute the payment of a bribe or provision of an illegal inducement, and (c) Mr Carter’s knowledge of the impugned conduct and whether it could constitute the payment of a bribe or the provision of an illegal inducement. Where necessary, matters might be repeated for particular emphasis but to the extent possible I have sought to limit any repetition of matters, in particular matters that are plainly relevant to questions of whether the impugned arrangements could constitute bribes or illegal inducements and Mr Carter’s knowledge of whether they could.

15. The issues agreed between the parties used the description “slush fund” to refer to the alleged scheme or course of conduct in which payments of bribes and provision of illegal inducements were alleged to have been made to Mr Pereira from a fund maintained by Orix, that was referred to in contemporaneous documents by various names, including “slush fund”, but more generally by the more neutral term “CCA Marketing Account”. For the sake of clarity, the term “CCA Marketing Account” rather than “slush fund”, is used to refer to the fund, except to the extent that different names are used in extracts from documents included in the reasons. Further, the parties interchangeably referred in their pleadings and submissions to “secret commissions”, “secret benefits” as well as “illegal inducements”. Again, for the sake of clarity except to the extent the reference is context specific, the term “illegal inducements” is used in the reasons.

    A.5.     Overview of Mr Carter’s case

16. As submitted by Mr Carter, the fundamental issue for determination in the proceedings is whether Mr Carter had actual knowledge of illegal or dishonest activity that he failed to inform Orix’s insurer of at the time that he completed the Proposal for the renewal of the Policy.

17. Mr Carter’s closing written submissions included a 9 page submission entitled “Mr Carter’s statement of critical facts and concepts”. It provided a useful summary of the case that Mr Carter seeks to advance. Mr Carter’s case is founded on the following critical propositions.

18. First, the manner in which the funds for the CCA Marketing Account were provided to Orix by Mr Pereira meant that Mr Pereira had apparent authority to give instructions for the distribution of the funds, even if those directions seemed to a third party observer to be for the personal benefit of Mr Pereira.

19. Second, given Mr Pereira had apparent authority to give such directions, Orix had no discretion to refuse them and therefore the question of alleged bribes or illegal inducements cannot arise.

20. Third, the evidence of Mr Carter’s involvement in the impugned transactions is distorted by the emails he received from Mr Georgiou. Mr Georgiou would appear to have been deliberately seeking to implicate Mr Carter in those transactions.

21. Fourth, Chubb cannot contend that Mr Carter had actual knowledge that Mr Pereira was not authorised by CCA to direct payments from the CCA Marketing Account because Chubb has not adduced any direct evidence or pleaded such a claim.

22. Fifth, properly understood, Chubb’s complaint is a criticism of Mr Carter’s failure to take effective action in response to a “possible misuse” by Mr Pereira of his apparent authority to deal with the CCA Marketing Account. Such a complaint might give rise to a claim in negligence but no such claim has been pleaded by Chubb.

23. Sixth, there was simply no reason for Mr Carter to have risked his entire career and even liberty by participating in any fraud involving Mr Pereira in circumstances where he gained no direct or indirect personal benefit from the alleged dishonesty or illegal acts.

24. Seventh, the proposition that Mr Carter in approving the SRS invoices was deliberately approving fraudulent and fictitious invoices as some form of inducement to Mr Pereira is entirely illogical because at the time that the SRS invoices were paid Mr Carter understood that Mr Pereira was about to be removed from CCA and agreement on the terms of a fourth fleet flip had been finalised more than six months prior to the SRS payments being made.

25. Eighth, there is no evidence that Mr Carter had any actual knowledge of the extent of Mr Chidiac’s authority to deal with the GrainCorp profit share account and Chubb has not adduced any evidence that Mr Chidiac did not have such authority.

26. For the reasons that follow, I have concluded that none of the critical propositions advanced by Mr Carter have substance or otherwise preclude Chubb from denying indemnity to Mr Carter and recovering the Sums Advanced. As I explain below, Mr Carter’s various denials of his knowledge of the payment of bribes and provision of illegal inducements are implausible given the extent of his involvement in the impugned transactions as demonstrated by the contemporaneous documents and the inherent logic of events. There is little, if any, ambiguity in the emails passing between Mr Georgiou and Mr Carter concerning the impugned transactions both as to their content and their purpose in promoting the commercial interests of Orix in its commercial dealings with CCA. The contention that Mr Georgiou was seeking to deliberately implicate Mr Carter in the emails he sent to Mr Carter is fanciful. On no plausible view was Mr Carter a peripheral observer who did not have any real or substantive appreciation of the payment of bribes and provision of illegal inducements to Mr Pereira and Mr Chidiac. Further, it can readily be inferred from the nature of the payments made in response to the requests made by Mr Pereira that Mr Carter knew that the payments had not been authorised by CCA.

    B.       DRAMATIS PERSONAE

    B.1.     Orix

27. At all relevant times, Orix carried on a business specialising in the acquisition, financing and management of motor vehicles. On the “fleet” side of its business, its services included fleet management and leasing of passenger, light commercial and heavy commercial vehicles to small and large businesses, as well as vehicle rentals.

    John Carter

28. Mr Carter was an employee of Orix from October 1986 until June 2015. Mr Carter was a director of Orix from March 2001 to June 2015, and was the Chief Executive Officer and Managing Director of Orix from 1 April 2005 until the termination of his employment in June 2015.

    George Georgiou

29. Mr Georgiou was the General Manager for Fleet Services for Orix in the period from August 2005 until the termination of his employment in June 2015. From about 2002, Mr Georgiou oversaw Orix’s commercial relationship with CCA. In the period 2003 to August 2005, Mr Georgiou had been the Corporate & Public Relations Director of Orix.

    William McCulloch

30. Mr McCulloch was employed by Orix from February 1999 to June 2015. He was the National Operations Manager at Orix between April 2007 and March 2015.

31. Mr McCulloch was responsible for overseeing all departments of an operational nature, including the purchasing of vehicles, repairs and maintenance, disposing of vehicles (end of lease), revising lease pricing, and managing Orix’s short term rental fleet.

    Gary Dundas

32. Mr Dundas was the Group Financial Controller of Orix between 27 November 2006 and 20 July 2015. Mr Dundas was responsible for overseeing Orix’s balance sheet, profit and loss reporting, setting budgets, forecasting profits and taxation compliance. Mr Dundas was also involved in reporting Orix’s results to its parent company and its auditors.

    Other Orix personnel

33. Narelle Manley worked on the CCA account exclusively, and had the day to day management of the account from 2002 or 2003 to March 2009 (except for a period of maternity leave between December 2006 and May 2007).

34. Kim Scott was a Relationship Manager of Orix who worked on the CCA account between March 2009 and December 2012.

35. Hayley Tunnicliff was a Relationship Executive of Orix who worked on the CCA account from approximately 2009. In July 2012 she was promoted to Senior Relationship Executive. In the period up to December 2012 she reported to Ms Scott. In December 2012, she took over all of Ms Scott’s existing responsibilities on the CCA account, other than meetings with Ray Ward, a former procurement manager at CCA.

36. Christopher Briggs held various roles with Orix from 2000 to 2019. From 2005 to 2014, Mr Briggs held the title “General Manager Fleet Operations and New Zealand”, and during this time, reported to Mr Carter.

37. Peter Forster is the company secretary of Orix. Mr Forster commenced employment with Orix in 1996, and reported directly to Mr Carter from 2007 until Mr Carter was suspended in April 2015.

38. David Lyons was the National Credit Accounts Manager at Orix from 2008. He did not have specific responsibilities relating to the CCA account, but oversaw the issuing of invoices, allocation of receipts and credit, and collection of invoices, including from the CCA account.

39. Phillip Davie was the National Legal and Compliance Manager at Orix from February 2009 to November 2011, before becoming the National Manager Credit and Legal in November 2011, and then the National Credit Manager in July 2015.

40. Kerri Ryan was Mr Carter’s Executive Assistant. Ms Ryan was the only Executive Assistant at Orix and also performed work for other senior managers including Mr Georgiou.

41. Mark Goldstein is the Vehicle Remarketing Manager at Orix. He commenced employment with Orix in 1996.

42. Una Hughes commenced employment with Orix in November 1998, initially as an Accounts Payable Clerk. Ms Hughes then became the Accounts Payable Supervisor from 2005 or 2006, initially reporting to Mark Levy and Leanne Aitken before reporting to Mr Dundas until May 2015.

43. Greg Roberts commenced employment with Orix in 1997 and has worked in several different roles. Mr Roberts is responsible for managing various corporate business applications, including Orix’s fleet management and leasing system known as “Willow”. Prior to Mr Carter’s suspension, Mr Roberts reported to Mr Briggs, who in turn reported to Mr Carter.

44. Raymond Beddie is the General Manager of Finance at Orix. Mr Beddie has held various positions with Orix since October 2000, including Group Management Accountant, Project Manager, Resources Manager, Infrastructure Manager, Fleet Accounting Manager and Group Financial Controller.

    B.2.     CCA

45. CCA was one of Orix’s customers. In the period between March 1998 and June 2003, Orix supplied some vehicles to CCA but Orix was not its principal fleet provider.

46. Between 2011 and 2016, the CCA account was the second largest account for Orix in terms of exposure (amortised value of funded leases) and vehicle numbers on a Trans-Tasman basis.

    Bryan Pereira

47. Mr Pereira was the Procurement Manager for CCA from 2003 until March 2015. Mr Pereira dealt with whoever of Ms Manley, Ms Scott or Ms Tunnicliff had the day-to-day management of the CCA account in that period on a daily basis. Mr Pereira also dealt with Mr Georgiou.

    Bill Mossati

48. Mr Mossati was the National Manager, Capital Projects and Procurement of CCA. Mr Pereira reported to Mr Mossati.

    Raymond (Ray) Ward

49. Prior to early 2002, Mr Ward was the Senior Purchasing Manager and responsible for the ongoing management of CCA’s fleet contract with Orix. In early 2003, Mr Ward departed CCA and provided consulting services to Clintons Motor Group (Clintons).

50. Mr Ward was the relevant “introducer” for vehicles which Orix procured from Clintons to lease to CCA.

    B.3.     GrainCorp

51. GrainCorp was a fleet client of Orix since at least 2008.

52. Anthony (Tony) Chidiac was the Procurement Manager Procurement and Shared Services for GrainCorp.

    B.4.     Other

1. Gary Chua was an associate of Mr Pereira. Mr Chua was not employed by Orix, CCA or GrainCorp.

2. Cyril Rodrigo Jr was an associate of Mr Pereira based in Singapore. Mr Rodrigo was not employed by Orix, CCA or GrainCorp.   

   C.       EVIDENTIARY ISSUES

   C.1.     Overview

3. Each party relied upon evidence of lay and expert witnesses.

4. In addition to his own evidence, Mr Carter relied upon the lay evidence of Mr Briggs and Mr Lyons.

5. Chubb relied upon the lay evidence of two of its former employees, Christopher Madell and Christopher Brown.

6. Chubb also subpoenaed the following current and former employees of Orix to give evidence: Mr Dundas, Mr McCulloch, Ms Manley, Ms Ryan, Ms Hughes, Ms Scott, Ms Tunnicliff, Mr Davie, Mr Forster, Mr Roberts, Mr Beddie, Mr Goldstein and Timothy Clarke.

   C.2.     The evidence of Mr Carter

7. The critical issue in these proceedings is the extent of Mr Carter’s actual knowledge, at the time he signed the Proposal, of the alleged bribes or provision of illegal inducements, the likelihood of claims being made against him with respect to those matters and whether those matters might give rise to a claim under the Policy.

8. Mr Carter swore three affidavits in the proceedings and was extensively cross examined over four and a half hearing days. He found the exercise confronting and all too often adopted an adversarial approach to his cross examiner. I accept that the elapse of time since the events he was being cross examined on may well have made it difficult for him to distinguish between recollection and reconstruction, particularly when confronted with allegations of actual knowledge of alleged bribery or illegal inducements of procurement managers of customers of Orix. Nevertheless, it was clear that much of his evidence was informed by a keen appreciation of the case that had been advanced against him rather than genuine recollection. This appreciation was particularly evident at the conclusion of his cross examination when he was being challenged on his understanding of whether matters might give rise to a claim against him and whether claims in respect of such matters might give rise to a claim under the Policy.

9. The adversarial and at times evasive approach adopted by Mr Carter in the course of his cross examination was exemplified in the following exchange about his understanding of the use of the word “penguin”, informed no doubt by his knowledge that his cross examiner would at some stage take him to an email that he received from Mr Georgiou in February 2013 with the heading “Another penguin caught in our nets !!”:

   MR JONES: Thank you. Now, Mr Carter, at the time that you worked at ORIX, did you ever hear the word “penguin” used to describe a person?---Yes.

   And did you ever read the word “penguin” being used to describe a person?---Sorry, what was that?

   Did you ever read the word “penguin” being used to describe a person?---I can’t recall that.

   No. Have you ever used the word “penguin” to describe someone yourself?---Yes.

   All right. Are you able to tell his Honour what you understood, if anything, the word “penguin” may have meant if used to describe a person?---My – I described a penguin is that, if anyone was – got any – was invited to a lunch or anything, I would regard them – I would say that everyone is a penguin.

   Would you agree that that is someone - - -

   HIS HONOUR: So, sorry, could you – I don’t follow that. So, if someone was invited to a lunch, they were a penguin?---Yes. I would say anyone who was taken a benefit of anything, if you invite someone to a lunch or you – or anything there, a function - - -

   You mean in a business context?---Yes.

   You don’t ask penguins to lunch at home?---No.

   All right.

   MR JONES: And what you’re saying there, is it, that that is – that a person that accepts a benefit that they have no entitlement to?---No.

   You agree with that?---No, I don’t.

   So when someone comes to a business lunch, you say that they have an entitlement to go to that business lunch?---Yes.

   I see. And do you say you had that understanding in 2013/2014?---Yes.

10. Much of Mr Carter’s affidavit evidence and evidence in cross examination was directed at seeking to refute or otherwise put in context email communications that, at least on their face, were starkly inconsistent with his professed denials of any knowledge of bribery or illegal inducements.

11. Mr Carter sought to address these emails by claiming that he had no recollection of reading them, denied reading them, denied or did not recall reading particular parts of them, read but did not believe their contents or did not understand the potential significance of them. He claimed that as a busy chief executive officer of a large company he was “time poor” and had a practice of not opening all emails and for emails that he opened he would glance at them and only read the important parts closely. He also stated that he expected senior executives to speak to him directly about significant matters that required his attention rather than sending him emails.

12. Mr Carter also submits that admissions he made against interest and concessions that he made in cross examination demonstrated that his denials of knowledge could be accepted. I do not accept that the alleged admissions against interest or concessions rose above concessions that almost incontrovertibly arose from contemporaneous documents, the objective logic of events or otherwise supported the case that Mr Carter was seeking to advance in the proceedings.

13. I accept that it was likely that Mr Carter was not able to read all emails in detail that were sent to him and that senior executives would seek to speak to him directly, rather than sending an email, about significant matters requiring his attention. I do not accept, however, given the extent of the emails that he exchanged with Mr Georgiou about Mr Pereira’s requests for the disbursement of funds out of accounts held by Orix and the implementation of the SRS arrangements that it is plausible that he did not read and understand the significance of emails that he received from Mr Georgiou on these issues.

14. Ultimately, however, the question of whether it was more probable than not, that Mr Carter opened an email and read and understood its significance, rather than simply glancing at the email, falls to be determined by the identity of the sender, the email’s objective content, the context in which it was sent and any subsequent response by Mr Carter. It is those matters, not generalised claims made by Mr Carter many years after emails were received that he did not read them, did not understand their potential implications or did not believe them, that I found to be more probative.

15. In giving limited weight or rejecting Mr Carter’s denials of knowledge I do not make any finding that Mr Carter has deliberately given false evidence. Such a finding should only be made, as Deane J observed in Smith v New South Wales Bar Association (No 2) (1992) 176 CLR 256; [1992] HCA 36 at 271, when it is “truly necessary for the purpose of disposing of the particular case”. Here the contemporaneous emails sent and received by Mr Carter provide a compelling, almost inescapable, basis from which Mr Carter’s actual knowledge of alleged bribery or illegal inducements of procurement managers of customers of Orix can readily be inferred, notwithstanding his testimonial denials. Mr Carter’s denials have to be carefully scrutinised against the inherent logic of events given the risk that they were self-serving and unreliable because they were advanced with the benefit of hindsight and under significant personal pressure given the seriousness of the case advanced by Chubb and the adverse financial consequences for Mr Carter if the denials were not accepted.

    C.3.     Mr Carter’s lay witnesses

16. Mr Carter relied on evidence from Mr Briggs and Mr Lyons, neither of whom was cross examined.

    Christopher Briggs

17. Mr Briggs gave evidence on the relationship between CCA and Orix, the introducer fees payable to Mr Ward, and the accounts maintained by Orix with respect to CCA variously referred to as the slush fund, the CCA profit share account and the accrual account.

18. Mr Briggs also responded to the evidence of (a) Mr McCulloch, with respect to the purchase of the Mercedes for Mr Pereira, the 2013 fleet flip (known as the “Fourth Fleet Flip”), and the introducer fees, and (b) Mr Roberts, with respect to the CCA inspection fees.

    David Lyons

19. Mr Lyons gave evidence on (a) the CCA account, (b) dealings with Mr Pereira, (c) meetings of the “Collections Committee”, (d) the various CCA accounts maintained by Orix, and (e) a company search for Systems Management Services Pty Ltd, and later for SRS, that Mr Carter requested.

    C.4.     Chubb’s lay witnesses

    C.4.1. The evidence of Mr Dundas

20. Mr Dundas was subpoenaed to give evidence and gave evidence on (a) Orix’s processes for paying and verifying payments made to external parties, (b) Orix’s processes for reimbursing expenses incurred personally by employees, (c) the CCA account and accounts related to Mr Ward, (d) the introducer fees paid to an entity related to Mr Ward and other payments made to SRS, (e) the various payments including with respect to the purchase of the Mercedes for Mr Pereira, (f) the Fourth Fleet Flip, and (g) internal Orix communications regarding GrainCorp.

21. Mr Dundas was cross examined. He answered questions directly, without hesitation and did not act as an advocate. He made appropriate concessions, particularly when confronted with contemporaneous documents that were inconsistent with his evidence. In resolving factual issues where the evidence of Mr Dundas and Mr Carter conflicted, I accepted the evidence of Mr Dundas except to the extent that it was not consistent with the apparent logic of events.  

    C.4.2. The evidence of Ms Scott and Mr McCulloch

    Kim Scott

22. Ms Scott was subpoenaed to give evidence. In her affidavit she gave evidence as to (a) her role and specific responsibilities in managing the CCA Marketing Account including payment of the introducer fee, managing the “Ray Ward R1107766 Account”, (b) changes to the “Ray Ward R1107766 Account” and (c) her involvement with the accounts after 2012.

23. Ms Scott was excused from attending to give evidence on the ground that she had pressing personal family matters and Chubb had therefore indicated it was not going to call on her subpoena to give evidence. By consent, various paragraphs of her affidavit were admitted into evidence notwithstanding that she was not available for cross examination.

    William McCulloch

24. Mr McCulloch was subpoenaed to give evidence.

25. Mr McCulloch affirmed two affidavits in the proceedings. He gave evidence of (a) vehicle inspection services conducted by Pickles Auctions (Pickles), (b) communications regarding pre-end of lease inspections, (c) Orix’s leasing arrangements, including disposal of vehicles and residual values, (d) fleet flips conducted by CCA and Orix between 2003 and 2015 and early termination fees, (e) the closure of the “Ray Ward AR Account” in 2012, (f) monitoring of the accrual account, and (g) the “GrainCorp Profit Share Account” between 2012 and 2015.

26. Mr McCulloch was excused from attending to give evidence on the ground that he was the subject of a tragic family event in the days preceding the hearing, and in light of those events, Chubb indicated it was not going to call on his subpoena to give evidence. By consent, various paragraphs of his affidavits were admitted into evidence notwithstanding that he was not available for cross examination.

    C.4.3. The evidence of Mr Brown and Mr Madell

    Christopher Brown

27. From October 2010, Mr Brown was employed by Chubb as a Senior Finance Lines Underwriter. Mr Brown was responsible for new financial lines business and had a book of renewals for existing insureds. In March 2016, Mr Brown was promoted to New South Wales Financial Lines Distribution Manager, Independent Broker Unit.

28. Mr Brown was subpoenaed to give evidence, and gave evidence on (a) his role and responsibilities as a Senior Financial Lines Underwriter, (b) his underwriting process for directors and officers financial institutions business, (c) notification of claims and circumstances, and (d) the policy provided to Orix and the notification of a possible claim on 10 April 2015.

29. Mr Brown was cross examined. Mr Brown answered questions put to him directly and without hesitation. Although much of his evidence was directed at what he would have done had certain disclosures been made to him and therefore by its nature was hypothetical and subject to hindsight bias, I generally accepted it because it was consistent with the apparent logic of events.

    Christopher Madell

30. Mr Madell commenced employment with Chubb in March 2013, as the New South Wales Financial Lines Manager and Australia and New Zealand Head of Financial Institutions. From March 2016 to October 2017, Mr Madell was the Global Broking Unit Manager.

31. Mr Madell gave evidence on (a) his responsibilities as Australia and New Zealand Head of Financial Institutions, (b) his underwriting process for directors and officers financial institutions business, (c) his process for claims and circumstances notified, (d) Orix’s policy and the notification of a possible claim on 10 April 2015, and (e) his awareness of the allegations and alleged lack of disclosure.

32. Mr Madell was cross examined. Mr Madell also answered questions put to him directly and without hesitation. Again, although much of his evidence was directed at what he would have done had certain disclosures been made to him and therefore by its nature was hypothetical and subject to hindsight bias, I generally accepted it because it was consistent with the apparent logic of events.

    C.4.4. Other lay witnesses

33. As noted above, Chubb subpoenaed several current and former employees of Orix to give evidence. Some were cross examined but their evidence was largely uncontroversial. I accept that to the extent they were cross examined each gave evidence to the best of their recollection and answered questions put to them directly and without prevarication. It is not necessary to make any further comments about their evidence at this stage.

    C.5.     The absence of Mr Georgiou and Mr Pereira

34. Neither Mr Georgiou nor Mr Pereira gave evidence. Both were central characters in the alleged bribery and provision of fraudulent inducements. The absence of Mr Pereira was not the subject of any Jones v Dunkel submissions by either Mr Carter or Chubb.

35. As noted above, Mr Georgiou had been the second defendant in the Orix proceedings but the proceedings against him were dismissed, by consent, on 18 January 2023.

36. The candour, familiarity and language in the contemporaneous emails passing between Mr Carter and Mr Georgiou demonstrate the extent of the close relationship between them. Notwithstanding the closeness of that relationship, Chubb did not invite the Court to draw any Jones v Dunkel inference against Mr Carter for his decision not to seek to rely on any evidence of Mr Georgiou.

37. Mr Carter submits that Jones v Dunkel inferences should be drawn against Chubb because of its failure to provide any explanation for why it chose not to call on the subpoena it had issued to Mr Georgiou to give evidence.

38. I do not accept that any Jones v Dunkel inferences should be drawn against Chubb with respect to Mr Georgiou. Mr Georgiou had filed affidavit evidence in the proceedings as a defendant sued by Orix but he ceased to be a party after the proceedings against him were dismissed. The mere issue of a subpoena to Mr Georgiou, a former defendant, cannot give rise to findings that it would have been natural for Chubb to have called Mr Georgiou, he was in Chubb’s camp, or he could be expected to be available to give evidence for Chubb: Payne v Parker [1976] 1 NSWLR 191 at 201-202 (Glass JA); Hung v Warner, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (in liq) [2013] FCAFC 48 at [55]-[56] (Jacobson, Gordon and Robertson JJ); Secured Lending 1 Pty Ltd v Mahmassani [2021] NSWSC 811 at [60] (Davies J).

39. Moreover, I would in any event decline to draw any Jones v Dunkel inference with respect to the absence of Mr Georgiou given the following unequivocal statement made by senior counsel for Mr Carter in his oral opening submissions:

    I think it’s fair to say that Mr Georgio[u] is not in anybody’s camp and I’m not going to claim that he is in Chubb’s camp. He’s certainly not in our camp.

    C.6.     Expert witnesses

    C.6.1. Overview

40. Mr Carter relied on the expert evidence of Stephen Dubedat, Dawna Wright and Rodney McKemmish. Chubb relied upon the expert evidence of John Temple-Cole and Owen Bourke.

41. Ultimately, with the exception of the evidence given by Mr Dubedat which is addressed at [464] to [465] below, there was no material controversy raised by the expert evidence.

    C.6.2. Forensic expert evidence

42. Mr Dubedat is a forensic document examiner. Mr Dubedat gave evidence as to the authenticity of signatures on three expense reimbursement claim forms purported to have been signed by Mr Carter. Mr Dubedat concluded, based on an examination of 15 sample signatures provided by Mr Carter, that one of the signatures was probably, or very probably genuine, one of the signatures was “probably not genuine”, and the third signature was “not genuine”.

    C.6.3. Accounting expert evidence

43. Ms Wright is a qualified chartered accountant and forensic accounting specialist. Ms Wright gave evidence on:

    (a)the source of credits recorded in certain accounts and ledgers of Orix from the date each ledger was opened until March 2015;

    (b)how those credits were recorded in Orix’s fleet management system, Willow, and whether such treatment was in accordance with accepted accounting standards;

    (c)how debits from the specified accounts were recorded in Willow and whether such treatment was in accordance with accepted accounting standards;

    (d)in particular, how “introducer fees” and “inspection fees” paid or payable in relation to the CCA account were accounted for in Orix’s books and records from 2003 to 2015; and

    (e)what the total level of income received by Orix from CCA was during the period from March 2003 to June 2016.

44. Mr Temple-Cole is an experienced forensic accounting specialist. Mr Temple-Cole gave evidence on:

    (a)whether records provided substantiated, from an accounting perspective:

    (i)payments listed as “Introducer Fees”;

    (ii)payments listed as “Management Service Inspection Fees”;

    (iii)payments listed on the “Accounts Receivable account: Ray Ward AR R1107766” and “McCulloch Spreadsheet”;

    (iv)a payment described as “Payment to Gary Chua”; and

    (v)payments described as “GrainCorp Transactions involving Tony Chidiac”; and

    (b)identifying, explaining and describing, based on the records provided, the accounting processes by which the fees identified above were entered and recorded in Orix’s internal systems.

45. Both Ms Wright and Mr Temple-Cole were briefly cross examined.

    C.6.4. Email time stamp and metadata expert evidence

46. Mr Bourke is a partner of Forensic and Technology Services at Clayton Utz. Mr Bourke gave evidence on the various steps taken to identify, categorise and resolve time stamp and metadata issues in various emails.

47. Mr McKemmish is a qualified digital and cyber forensic specialist. Mr McKemmish responds to evidence given by Mr Bourke in relation to ascertaining the correct dates and times of email communications produced in the proceeding.

48. A joint expert report was prepared by Mr McKemmish and Mr Bourke. Mr McKemmish and Mr Bourke agreed that (a) email communications examined contained a mixture of emails that had reliable date and time stamps as well as emails that had anomalous dates and times, (b) the anomalous dates and times were a result of the migration of emails from a Group Wise email server to a Microsoft Exchange server, (c) there are alternative sources with accurate date and time stamps, such as the message header, (d) emails were backed up regularly from the Group Wise server using a dedicated backup software, (e) the dedicated backup software contains a contemporaneous record of email dates and times as at the time of backup and (f) the approaches taken by both Mr Bourke and Mr McKemmish have resulted in identical date and time properties for the emails examined, or within a small variance of seconds.

1. Neither Mr Bourke nor Mr McKemmish was cross examined.

   D.       OVERARCHING ISSUES

   D.1.     Overview

2. Chubb’s core contention is that Orix failed to disclose the Slush Fund arrangements, GrainCorp Transactions and SRS arrangements at the time it submitted the Proposal, which affected the presentation of risk to Chubb. Chubb contends, as pleaded, that had those matters been disclosed it would have brought to Chubb’s attention that officers of Orix were facilitating the payment of bribes or provision of illegal inducements to senior employees of two of Orix’s customers, CCA and GrainCorp.

3. Mr Carter’s core contention with respect to the Slush Fund arrangements is that Orix held the funds in the various iterations of the CCA Marketing Account beneficially for CCA on the condition that they be released in accordance with directions given by Mr Pereira. Mr Carter contends that Mr Pereira had the apparent authority of CCA to give such directions. Mr Carter therefore submits that Orix was not providing Mr Pereira with any benefit and therefore the disbursement of funds could not be a bribe as the funds were CCA’s money and Orix had no discretion “to refuse to deliver up” to Mr Pereira the funds he had placed with Orix.

4. These core contentions raise for consideration, (a) the drawing of inferences as to Mr Carter’s knowledge, (b) in what circumstances can a party rely on the doctrine of apparent authority, (c) what constitutes a bribe or provision of an illegal inducement, and (d) how might the payment of a bribe or provision of an illegal inducement give rise to a claim under a directors and officers liability insurance policy.

   D.2.     Drawing of inferences

5. The principles regarding the drawing of inferences are well established. For present purposes the following summary of those principles is sufficient.

6. First, any inference must be based on facts established by admissible evidence and be drawn by a process of reasoning, not speculation or guesswork: Masters Home Improvement Australia Pty Ltd v North East Solution Pty Ltd (2017) 372 ALR 440; [2017] VSCA 88 at [101] (Santamaria, Ferguson and Kaye JJA).

7. Second, where direct proof is not available to a party seeking to establish that an inference ought to be drawn it must demonstrate that that inference is the more probable one. Its task is to demonstrate that on the balance of probabilities the inference for which it contends has a greater degree of likelihood than any competing inference: Holloway v McFeeters (1956) 94 CLR 470 at 480-481 (Williams, Webb and Taylor JJ).

8. Third, in determining whether an inference is to be drawn as a matter of probability, the Court is not required to consider each primary fact, established by the evidence, in isolation. Rather, the totality of those facts are to be considered together, giving effect to their united and combined force: Masters Home Improvement at [101].

   D.3.     Apparent Authority

9. The principles concerning whether an agent has the “apparent” or “ostensible” authority of a principal to engage in transactions on behalf of the principal are well established. The principles can relevantly be distilled as follows.

10. First, the onus of establishing that an agent had ostensible authority to act on behalf of a principal is on the party seeking to establish the existence of the authority: Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421 at 428 (Griffiths CJ).

11. Second, apparent or ostensible authority is a legal relationship established between a principal and a contractor created by a representation that is made by the principal to the contractor that an agent has the authority to enter into a contract of a kind within the scope of the “apparent” authority that operates as an estoppel preventing the principal from asserting that they were not bound by the contract: Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503 (Diplock LJ).

12. Third, the representation must come from the principal, not the agent. The conduct of the agent is not irrelevant to the representation, but the principal’s conduct must be the source of the representation: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 at [36] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

13. Fourth, the representation by the principal giving rise to the apparent authority may be conveyed in a variety of ways of which the most common is a representation by conduct, namely by permitting an agent to act in a particular manner in the conduct of the principal’s business: Freeman & Lockyer at 503.

14. Fifth, a party dealing with a company cannot rely on any doctrine of apparent authority if they are put on inquiry as to whether the authority exists by reason of the nature of the transaction or other matters and no further inquiry is made or the principal fails to satisfy the inquiry: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 154-155 (Mason CJ), 180-182 (Brennan J), 212 (Gaudron J).

15. Sixth, a party cannot rely on the doctrine of apparent authority if they know that the agent of the principal is acting in their own interests and not for the benefit of their principal: Lysaght Bros at 429-431; Combulk Pty Ltd v TNT Management Pty Ltd (1993) 41 FCR 59 at 66 (Neaves, Beaumont and Burchett JJ); AL Underwood Ltd v Bank of Liverpool [1924] 1 KB 775 at 791-792 (Scrutton LJ).

    D.4.     Bribery

16. Bribery can be the basis of a civil claim brought by a principal against the agent being bribed, or a criminal offence.

17. In Industries & General Mortgage Company Ltd v Lewis [1949] 2 All ER 573, Slade J at 575-576 defined the meaning of bribe in the context of a civil claim as the payment of a secret commission, which contains three elements:

    …. (i) that the person making the payment makes it to the agent of the other person with whom he is dealing; (ii) that he makes it to that person knowing that the person is acting as the agent of the other person with whom he is dealing; and (iii) that he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person’s agent. Those three are the only elements necessary to constitute the payment of a secret commission or bribe for civil purposes. I emphasise “civil purposes” because the Prevention of Corruption Act, 1906, s 1(1), introduced the adverb “corruptly”, and, except in the case provided for in s 2 of the amending Act of 1916, the onus is put on the prosecution of showing that the payment has been made corruptly. I hold that proof of corruptness or corrupt motive is unnecessary in a civil action and my authority is the decision of the Court of Appeal in Hovenden and Sons v Milhoff where the plaintiffs carried on business as hairdressers’ sundrymen and the defendant was a member of a firm of wholesale tobacconists.

18. The Full Court of this Court cited the definition of bribe provided by Slade J in Lewis with approval, as one of “the better known descriptions of bribes and secret commissions”: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [190] (Finn, Stone and Perram JJ). Secret commissions need not necessarily take the form of a payment of money and could be in other forms such as a gift of shares: Grimaldi at [191] citing Eden v Risdale’s Railway Lamp & Lighting Co (1889) 23 QBD 368.

19. The Full Court in Grimaldi also cited at [192] with approval the following observations of Lawrence Collins J in Daraydan Holdings Ltd v Solland International Ltd [2005] Ch 119 at [53]:

    In proceedings against the payer of the bribe there is no need for the principal to prove (a) that the payer of the bribe acted with a corrupt motive; (b) that the agent’s mind was actually affected by the bribe; (c) that the payer knew or suspected that the agent would conceal the payment from the principal; (d) that the principal suffered any loss or that the transaction was in some way unfair; the law is intended to operate as a deterrent against the giving of bribes.

20. After citing the above passages from Lewis and Daraydan, the Full Court in Grimaldi then concluded at [193]:

    Finally, as both of the above quotations make plain, the payer of a secret commission to a person known to be acting in the matter on behalf of another, is taken to have assumed the risk of the payee having not obtained his or her principal’s informed consent to receipt of the payment: Grant v Gold Exploration and Development Syndicate [1900] 1 QB 233 at 249. Knowing that the payee is acting on another’s behalf is sufficient of itself to attract liability, unless full disclosure is made by the payer or “agent” and consent is given by the principal to the payment. Importantly, the payer’s liability does not turn on his or her knowing or suspecting that the agent has not received the principal’s informed consent to the payment: Daraydan Holdings at [53]; Bartram & Sons Ltd (1904) 90 LT 357 at 359-60.

21. Mr Carter submits that the characteristics of a bribe are definitively stated in Paul Finn, Fiduciary Obligations (The Federation Press, 2016) at [496] in the following terms:

    i.        The payment of money or money’s worth to a person in a fiduciary position;

    ii.In circumstances in which the payment could possibly induce the fiduciary, as fiduciary, to show favour towards or to exert influence on behalf of, the donor in the donor’s dealings with the fiduciary or with the fiduciary’s beneficiary; and

    iii.      The payment being undisclosed to the beneficiary.

22. Mr Carter seeks to rely on the third stated characteristic to contend that Chubb must establish that the alleged bribes were not disclosed to CCA. The profound difficulty with that contention is that this description of the characteristics of a bribe must be read subject to the Full Court’s statements in Grimaldi that (a) the payer of a bribe is taken to have assumed the risk that the agent (as payee) had not obtained their principal’s informed consent and (b) the liability of a payer does not turn on them knowing or suspecting that the agent (as payee) had not obtained their principal’s consent. A difficulty compounded by the fact that Finn J was the presiding Judge in Grimaldi and in a footnote to the paragraph that Mr Carter seeks rely upon in Fiduciary Obligations, the two best known definitions of a bribe in the context of a principal and agent relationship, are stated to be that provided by Slade J in Lewis at 575 and by Romer LJ in Hovendon & Sons v Milhoff (1900) 83 L.T. 41 at 43.

23. Moreover, it is stated in Fiduciary Obligations (at [495]), quoting from the decision of Romer LJ in Hovendon at 43:

    Thus, once it is established that a bribe has been given -

    … the court will not inquire into the donor’s motive in giving the bribe, now allow evidence to be gone into as to the motive. Secondly the courts will presume in favour of the [beneficiary] and as against the briber and the [fiduciary] bribed, that the [fiduciary] was influenced by the bribe; and this presumption is irrebuttable.

24. Bribery is a criminal offence by reason of s 249B of the Crimes Act. Section 249B relevantly states:

    (1)If any agent corruptly receives or solicits (or corruptly agrees to receive or solicit) from another person for the agent or for anyone else any benefit—

    (a)as an inducement or reward for or otherwise on account of—

    (i)doing or not doing something, or having done or not having done something, or

    (ii)showing or not showing, or having shown or not having shown, favour or disfavour to any person,

    in relation to the affairs or business of the agent’s principal, or

    (b)the receipt of any expectation of which would in any way tend to influence the agent to show, or not to show, favour or disfavour to any person in relation to the affairs or business of the agent’s principal, the agent is liable to imprisonment for seven years.

    (2)If any person corruptly gives or offers to give to any agent, or to any other person with the consent or at the request of any agent, any benefit—

    (a)as an inducement or reward for or otherwise on account of the agent’s—

    (i)doing or not doing something, or having done or not having done something, or

    (ii)showing or not showing, or having shown or not having shown, favour or disfavour to any person,

    in relation to the affairs or business of the agent’s principal, or

    (b)the receipt or any expectation of which would in any way tend to influence the agent to show, or not to show, favour or disfavour to any person in relation to the affairs or business of the agent’s principal,

    the firstmentioned person is liable to imprisonment for 7 years.

    (3)For the purposes of subsection (1), where a benefit is received or solicited by anyone with the consent or at the request of an agent, the agent shall be deemed to have received or solicited the benefit.

25. Section 249B(2) of the Crimes Act is the key provision relevant to this case. Section 249B(2) and s 249B(1) are symmetrical in operation. Section 249B(2) creates the offence for the provision of an illegitimate benefit by any person to the agent of a principal. In contrast, s 249B(1) creates the offence for the receipt of an illegitimate benefit by an agent from another person.

26. As explained in Mehajer v R [2014] NSWCCA 167 at [67] (Bathurst CJ, Johnson and Hulme JJ agreeing), in order to constitute a criminal offence pursuant to s 249B(2)(b) (where the accused is the payer or provider of the benefit to the agent) it would be necessary for the Crown to prove:

    (a)the payee was the agent of a principal;

    (b)the accused gave or offered to give to the agent a benefit;

    (c)the given or offered benefit was one which, objectively, would tend to influence the agent to show favour or disfavour to any person in relation to the affairs or business of the agent’s principal;

    (d)the given or offered benefit was made with the payer intending, knowing or believing that it would tend to influence the agent to show favour or disfavour to any person in relation to the affairs or business of the agent’s principal; and

    (e)the payment was corrupt according to normally received standards of conduct.

27. For the last of these elements, a payment to an agent without the knowledge or consent of the principal and having the purpose described on s 249B(2)(a) (the matter in (c) above) or the tendency to have the effect described in s 249B(2)(b) (the matter in (d) above) would generally satisfy the “corrupt” element: Mehajer at [63].

28. In Mehajer, Bathurst CJ referred to the distinction between s 249B(1) and s 249B(2) in the following terms at [68]-[70]:

    The differences in the elements of each offence can be summarised as follows. For a benefit or offer of a benefit to constitute an offence under s 249B(2)(a)(i) of the Act, it is necessary to establish that the donor of the benefit intended the benefit or offer as an inducement to the agent to do or refrain from doing a particular act in relation to the principal’s affairs (or as a reward for doing or refraining from doing such an act).

    By contrast, s 249B(2)(a)(ii) of the Act does not require the payment to be an inducement or reward for doing or not doing a particular act. Rather it requires that the payment was intended by the donor as an inducement or reward for showing or not showing favour to a particular person in relation to the affairs of the principal.

    The difference between the elements of s 249B(2)(a)(i) and (ii) of the Act with s 249B(2)(b) is that, for the purposes of the latter section, the donor, whilst not offering the payment or benefit as an inducement or reward, must make the payment or offer to make the payment knowing, believing or intending that the payment was one which would tend to influence the agent to show favour or disfavour in relation to the affairs or business of the principal of the agent.

29. As stated above, s 2489B(1) provides reflective provisions directed at the recipient agent of the benefit. The elements of the criminal offence (where the accused is the agent) are:

    (a)the accused was the agent of a principal;

    (b)the accused received or solicited receipt from another person a benefit for the accused or another person;

    (c)the received benefit or expectation would, objectively, tend to influence the accused to show favour or disfavour to any person in relation to the affairs or business of the accused’s principal; and

    (d)the payment was corrupt according to normally received standards of conduct.

    D.5.     Potential directors and officers liability insurance claims

    D.5.1. Overview

30. For the purposes of a directors and officers liability policy, there are principally three types of claims identified by the parties relevant to these proceedings that could fall within coverage where a person is a director or officer of a company engaged in the payment of a bribe or provision of an illegal inducement:

    (a)a claim by the Australian Securities and Investments Commission (ASIC) for breaches of statutory duties under the Corporations Act;

    (b)a claim by a corporation for breaches of statutory and equitable duties owed to it causing it harm; and

    (c)investigations by ASIC into the conduct.

31. The critical issue in these proceedings is the extent of Mr Carter’s knowledge, at the time he signed the Proposal, of matters which may give rise to the above claims, and the failure to disclose those matters to Chubb.

    D.5.2. Breaches of statutory duties

32. The statutory duties owed by a director or officer of a corporation include the duties to act with care and diligence in s 180(1) of the Corporations Act, duties to act in good faith and for a proper purpose in s 181(1) of the Corporations Act, and duties not to improperly use their position to gain an advantage for themselves or cause harm to the corporation in s 182 of the Corporations Act.

33. The statutory duties imposed on directors pursuant to s 180(1) reflect the common law and equitable duties owed by a director to their corporation: Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; [2002] NSWSC 171 at [372] (Santow J). The principles relevant to each of the statutory directors’ duties in s 180(1), s 181(1) and s 182 of the Corporations Act and at common law and in equity are well established and were not in dispute. For present purposes, it is not necessary to make any further reference to them. The relevant question here is whether Mr Carter knew at the time he signed the Proposal of matters that might give rise to a claim that he breached his duties to Orix, not whether he had breached those duties.

    D.5.3. Related accessorial responsibility for conduct

34. There are three sources of liability as an accessory for a party who is not a principal contravener with respect to civil and criminal actions for bribery.

35. First, in respect of the criminal offence of bribery, pursuant to s 249F of the Crimes Act, a person who aids, abets, counsels, procures, solicits or incites the commission of an offence under Pt 4A of the Crimes Act, in which s 249B is located, is also guilty of an offence. Such an action would be brought by the Crown, as it enforces the Crimes Act.

36. Second, s 79 of the Corporations Act provides:

    A person is involved in a contravention if, and only if, the person:

    (a)       has aided, abetted, counselled or procured the contravention; or

    (b) has induced, whether by threats or promises or otherwise, the contravention; or

    (c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or

    (d)      has conspired with others to effect the contravention.

37. Third, equity also invites responsibility for a fiduciary breach upon a non-fiduciary where the non-fiduciary assists, that is, participates without inducing or procuring a dishonest and fraudulent design on the part of the fiduciary: Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [78] (Leeming JA, Barrett and Gleeson JJA agreeing).

    D.5.4. Exposure to investigations

1. Nor do I accept Mr Carter’s contentions that his reliance on Mr Forster to fill out “the forms” accurately was sufficient to preclude a finding that because he was reckless, that is “sufficient to establish dishonesty” in signing the Proposal. This is not least because he accepted that he knew Mr Forster had no involvement in any commercial dealings between Orix and CCA or GrainCorp in 2014 and Mr Carter did not make any other enquiries.

2. For these reasons, I am satisfied that Mr Carter knew as at 30 October 2014, or was recklessly indifferent as to whether, each of the facts surrounding each of the Slush Fund arrangements, the SRS arrangements and the Mazda 3 Transaction that I have identified in section H.2.4. above, were matters relevant to the decision of the insurer whether to accept the risk and, if so, on what terms.

   H.4.     Chubb’s remedy (Issue 50)

   H.4.1. Overview

3. Issue 50 is whether, by reason of the answers to Issues 45 or 49, Chubb was entitled to deny indemnity to Mr Carter under cl 7 of the Policy.

4. As noted above, even where fraudulent misrepresentation or non-disclosure is established, Chubb has waived its rights to avoid the Policy and instead, is confined to the narrower remedy under cl 7 of the Policy to deny coverage to a person who engaged in, or was aware of, the fraudulent misrepresentation or non-disclosure.

   H.4.2. Submissions

5. Chubb submits that it is entitled to deny indemnity to Mr Carter on the basis that by failing to disclose any of the matters to Chubb at the time that he signed the Proposal containing the Facts and Circumstances Question and made the Declaration, he engaged in fraud.

6. Mr Carter denies that he engaged in fraud in signing the Proposal but accepts that if he is found to have engaged in and was aware of the fraud at the time he signed the Proposal, Chubb is entitled to deny indemnity under the Policy.

   H.4.3. Consideration

7. It follows, given my findings above that Mr Carter engaged in and was aware of fraud at the time he signed the Proposal, that Chubb is entitled to deny Mr Carter indemnity under the Policy.

   H.5. ICA Defence (Issue 51)

   H.5.1. Overview

8. Chubb relies upon the ICA Defence pursuant to s 28(3) of the Insurance Contracts Act in the alternative to the Fraud Term Defence, discussed above.

9. Issue 51 is whether, if Mr Carter is found to have known about the SRS arrangements, the Slush Fund arrangements and/or the GrainCorp Transactions, had Mr Carter made full disclosure to the insurer of those facts, the insurer would have offered any policy to Orix, and if so, on what terms?

10. Section 28 of the Insurance Contracts Act, in the form that applied to the Policy, provided:

    (1)This section applies where the person who became the insured under a contract of general insurance upon the contract being entered into:

    (a)failed to comply with the duty of disclosure; or

    (b)made a misrepresentation to the insurer before the contract was entered into;

    but does not apply where the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into.

    (2)If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

    (3)If the insurer is not entitled to avoid the contract or, being entitled to avoid the contract (whether under subsection (2) or otherwise) has not done so, the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made.

11. Therefore, there are two remedies provided by s 28:

    (a)avoidance, if the making of the misrepresentation or the non-disclosure was fraudulent; and

    (b)a reduction to the amount in the liability of the insurer in respect of the claim that would place the insurer in the position it would have been in if the misrepresentation not been made or the failure to disclose not incurred.

12. The availability of those remedies in this case must be read subject to cl 7 of the Policy, which affects entitlement to rely on the remedies available under s 28 of the Insurance Contracts Act.

13. As set out above, cl 7 of the Policy provides:

    The Proposal shall be construed as a separate proposal by each Insured and with respect to statements and particulars in the Proposal no statements made or information possessed by any Insured shall be imputed to any other Insured to determine whether cover is available for that other Insured.

    Where there is any fraudulent non-disclosure or misrepresentation to the Insurer, the Insurer irrevocably waives any right to rescind, avoid or cancel the Policy but the person or persons who engaged in, or was or were aware of, the fraudulent non- disclosure or misrepresentation shall not be entitled to any indemnity under this Policy. Where there is any non-disclosure or misrepresentation which is not fraudulent, the Insurer irrevocably waives any right to cancel the Policy or to reduce its liability under the Policy in respect of any Claim or Investigation arising from the matter not disclosed or misrepresented.

    Only statements made in the Proposal and knowledge possessed by an Insured who is the subject of a claim under this Policy shall be imputed to the Company for the sole purposes of determining if cover is available for indemnifiable Loss with respect to such Insured.

    (Bolding in original.)

14. The effect of cl 7 is that Chubb waived its right to avoidance if the conditions of ss 28(1) and (2) of the Insurance Contracts Act were otherwise satisfied in consideration for a lesser right to deny indemnity under the Policy to the person or persons who engaged in, or was or were aware of, the fraudulent non-disclosure or misrepresentation.

15. Further, the last sentence of the second paragraph of cl 7 has the effect of waiving Chubb’s rights in relation to a claim arising from non-fraudulent non-disclosure or non-fraudulent misrepresentation where the claim or investigation causally relates to matters not disclosed or misrepresented. The waiver does not extend to circumstances where:

    (a)the non-disclosure or misrepresentation is fraudulent; or

    (b)the non-disclosure or misrepresentation is not causally related to the claim made or investigation arising.

    H.5.2. Submissions

16. Chubb submits that had the fraudulent misrepresentations and fraudulent non-disclosure not been made, it would not have offered any policy on any terms to Orix, and in those circumstances, it submits that it is entitled under s 28(3) of the Insurance Contracts Act to reduce its liability to nil in respect of the claims now made by Mr Carter.

17. In establishing what Chubb would have done, Chubb relies on the evidence given by two of its former employees, Mr Madell (who was the Australia and New Zealand Head of Financial Institutions at the relevant time), and Mr Brown (who reported to Mr Madell at the relevant time).

18. Chubb submits that nothing in the cross examination of Mr Madell or Mr Brown relevantly detracted from their evidence that, had the following matters been disclosed to them, they would not have offered any policy on any terms to Chubb:

    (a) that Mr Carter was party to an agreement that if Mr Pereira, set up a company and caused that company to invoice Orix for certain fees, that Orix would pay that company’s invoices, and that to Mr Carter’s knowledge a company associated with Mr Pereira then did invoice Orix for over $300,000 in fees for services that Mr Carter knew the company had not provided to Orix, and Mr Carter authorised the payment of those invoices and any future invoices rendered by that company for the same fees;

    (b)that Mr Carter knew, and authorised Mr Pereira’s use of funds held by Orix for personal expenditure between 2009 to 2015 that in total was in vicinity of hundreds of thousands of dollars, including $145,000 to purchase a Mercedes Benz in 2011;

    (c)that Mr Carter knew that on at least two occasions, money held in customer profit share accounts by Orix, which he believed belonged to the customer, had been used to pay for vehicles at the request of procurement managers of those respective customers being in circumstances where he either knew that these transfers were not authorised by the relevant customer or he had no reason to believe that they were so authorised. The two occasions being:

    (i)a payment made from the profit share for GrainCorp in March 2013 toward the purchase a vehicle for the daughter of Mr Chidiac; and

    (ii)a payment made from the profit share account for CCA in July 2013 to purchase a vehicle for Mr Chua.

    (together, Assumed Matters.)

19. Mr Carter advances the following submissions in response to Chubb’s ICA Defence.

20. First, Chubb’s ICA Defence has not been made out because Mr Carter had no actual knowledge of dishonest or fraudulent behaviour.

21. Second, the Court should bear in mind the general judicial warnings about the unreliability of counterfactual evidence, and in the present case, the weight to be given to the evidence of Mr Madell and Mr Brown as to what they would have done had the Assumed Matters been disclosed to them.

22. Third, the cross examination of Mr Madell establishes that Chubb would still have offered the Policy unless there had been dishonesty. Mr Carter submits that Mr Madell accepted in cross examination that if a company associated with Mr Pereira, of which Mr Pereira was not a director or shareholder, received payments for services actually provided to CCA, while Mr Pereira was employed by CCA, there was “nothing of concern”. Next, he submits that Mr Madell accepted that he was not sure what he would have done had he been told that the payment of the invoice for services occurred when Mr Pereira was about to leave CCA. Further, he submits that Mr Madell agreed that he would want to know if Mr Pereira was going to benefit financially before he would make any decision to refuse cover.

23. Fourth, in the absence of any evidence from Mr Madell’s superior, Demetra Day, who was the Financial Institutions Underwriting Manager, Asia Pacific, or Nick Small, the Chief Underwriting Officer – Financial Lines, the Court should infer that the renewal decision was a joint decision by Mr Madell and Ms Day, and therefore the Court should not accept the counterfactual evidence of Mr Madell. Mr Carter submits that Mr Madell could not recall in cross examination if he made the renewal decision alone or in consultation with Ms Day. Mr Carter submits that as Ms Day still works for Chubb, the Court can readily draw a Jones v Dunkel inference that her evidence would not have assisted Chubb.

24. Fifth, Chubb’s decision to renew the Policy in 2015 constituted a waiver or election not to pursue its rights to deny cover. Mr Carter submits that the best proof of what would have happened is not the counterfactual evidence but the fact that the Policy was renewed in 2015.

    H.5.3. Consideration

25. I am satisfied that Chubb has established its ICA Defence and is entitled to reduce its liability to nil under the Policy.

26. First, I have determined that Mr Carter had actual knowledge of dishonest or fraudulent conduct as at the date that he answered the Facts and Circumstances Question in the negative and made the Declaration and appreciated that it was necessary to disclose that conduct to Chubb or was recklessly indifferent to what Orix was required to disclose. More specifically, I am satisfied that Mr Carter has actual knowledge at that time of each of the Assumed Matters (other than (c)(ii), the Subaru Liberty transaction). The Assumed Matters broadly aligned with the facts giving rise to the SRS arrangements, the Slush Fund arrangements and the GrainCorp Transactions.  

27. Second, I accept the counterfactual evidence given by Mr Madell and Mr Brown that if the Assumed Matters had been disclosed to them that Mr Brown would not have recommended renewal and Mr Madell would not have agreed to enter into the Policy. I accept that all counter factual evidence must be carefully scrutinised. It may well be infected by hindsight and be self serving: Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73 at 76 (Lindgren J); Rosenberg v Percival (2001) 205 CLR 434 at [156] (Kirby J). It must be weighed against the surrounding objective circumstances: Deloitte Touche Tohmatsu v Cridlands Pty Ltd (2003) 134 FCR 474; [2003] FCA 1413 at [161] (Selway J); Simply Irresistible Pty Ltd v Couper [2012] VSCA 128 at [89] (Neave JA, Buchanan JA and Hollingworth AJA agreeing); Funk Coffee and Food Pty Ltd v Hype Investments Pty Ltd [2021] SASCFC 28 at [154] (Kelly and Livesey JJ, Kourakis CJ agreeing).

28. Here, I am satisfied given the content of the Assumed Matters that the counterfactual evidence given by Mr Madell and Mr Brown is inherently plausible and persuasive.

29. Both Mr Brown and Mr Madell were asked to assume that the Assumed Matters were disclosed to them at or prior to their consideration of the Proposal.

30. Mr Brown gave evidence that if the Assumed Matters had been disclosed to him before the Policy was entered into, consistent with his practice, he would have referred the matter to Mr Madell with a recommendation that Chubb not offer any renewal terms to Orix. Mr Brown stated that in referring the matter to Mr Madell he would have (a) told him that he did not have confidence that Orix had sufficient measures in place to prevent further instances of bribery and corruption and (b) expressed concern that if this conduct was permitted by the managing director, he could not see how Chubb could have any comfort that there was not more going on at Orix that could give rise to a significant claim under any renewed policy.

31. Mr Madell gave evidence that if the Assumed Matters had been disclosed to him he would have formed the view that Orix likely had a poor governance culture and lacked the necessary internal protocols, controls and procedures to prevent bribery and corruption. He stated that if Mr Carter had remained the Chief Executive Officer of Orix, he would have refused to offer any financial lines insurance to Orix on any terms as it was simply untenable to put the capital of Chubb behind a company whose Chief Executive Officer had disclosed conduct, that in Mr Madell’s view, could amount to bribery or other related criminal conduct, or was otherwise serious dishonest or unethical conduct.

32. Third, no alleged concession made by Mr Madell or Mr Brown relevantly detracted from the force of their counterfactual evidence. Rather than challenging their likely response had the Assumed Matters been disclosed to them, Mr Carter sought to test their evidence by qualifying or recasting the Assumed Matters. The fundamental difficulty with that approach is that these qualifications or recasting did not reflect the evidence or the factual findings that I have made. I do not accept that SRS provided any actual services to CCA, Mr Pereira was about to leave CCA nor that Mr Pereira did not expect to benefit financially from payments made to SRS.

33. Fourth, I do not accept that any alleged concession made by Mr Madell in the course of his cross examination casts any material doubt on his evidence that he was the relevant decision maker. The decision whether or not to offer terms to renew Orix’s directors and officers liability policy in 2014 with Chubb was within the authority of Mr Madell. He had authority for Financial Institution matters up to the limit of $20 million. The Policy was for $15 million.

34. Mr Madell gave evidence that in exceptional cases, such as when Chubb was being asked to provide a much higher than usual limit of liability or proposing to deny renewing a risk to a longstanding global client of Chubb, he might discuss the matter with Ms Day, or Mr Small.

35. Mr Madell also gave evidence that, before formally refusing to offer terms to Orix, he would likely have spoken to Ms Day to ensure the relevant internal stakeholders were made aware of his decision, but noted that Ms Day had never overruled any decision he had made to refuse renewal of terms.

36. The alleged concession relied upon by Mr Carter was made in the following exchange in Mr Madell’s cross examination:

    Now, the approval that you’ve referred to in paragraph 99, do you recall whether other persons, apart from yourself, were involved in that approval being given. That is, involved in this?---I - - -

    In the decision-making process for that approval to be given?---I do not – I do not recall any other persons being involved in the decision-making process.

    Do you recall making that decision by yourself without the involvement of any other  persons?---Truthfully, I can’t recall.

    So is it fair to say that you don’t know, today, whether that decision was made solely by you or was made by you in conjunction with somebody else?---The – the decision, I recall, certainly sat within my authority. But I truthfully, cannot today, say whether the decision-making process involved another member.

    If it had involved another member, is the – I withdraw that. On previous occasions, where you had questions about extending cover, would you have raised that issue with Ms Denetra [sic] Day?---There – there would be – certainly, I – I can certainly recall there would have been occasions when a discussion would have been had over extension of a – of a risk or not.

37. The alleged concession was only that he could not recall whether another person may have “been involved” in the decision making process and that on some occasions he had a discussion with Ms Day “over the extension” of risks. It does not detract from his evidence that he was the relevant decision maker, nor is it sufficient to raise an issue that Chubb was required to explain or contradict facts requiring an answer: BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 348 ALR 227; [2016] FCA 1351 at [129] (Gleeson J). The absence of Ms Day does not therefore permit the drawing of any Jones v Dunkel inference that her evidence, had it been given, would not have assisted Chubb and could bolster the drawing of an inference that it was a joint decision of Mr Madell and Ms Day.

38. Fifth, I do not accept that any decision by Chubb to renew the directors and officers liability insurance for Orix in 2015 gave rise to any waiver or election not to pursue its rights against Orix under s 28(3) of the Insurance Contracts Act. Nor do I accept that it is the best evidence, rather than the counterfactual evidence, given by Mr Madell and Mr Brown of what Chubb would have done had the Assumed Matters been disclosed prior to the renewal decision being made in 2014. These contentions were not otherwise developed by Mr Carter in his closing submissions and were not addressed by Chubb. In any event, the decision by Chubb in December 2015 to provide directors and officers liability insurance to Orix for the period 31 January 2016 to 31 January 2017 was made in the knowledge, and on the basis, that Orix had dismissed Mr Carter in June 2015, Orix had appointed an independent auditor and was obtaining legal advice.

    H.6.     Fraud Exclusion Defence (Issue 52)

    H.6 1. Overview

39. Issue 52 is if Chubb were to establish each of the Slush Fund arrangements, the SRS arrangements and the GrainCorp Transactions as pleaded, to what extent would the legal costs for which Mr Carter claims coverage in the Criminal proceedings and the Orix proceedings be excluded by operation of cl 4.1 of the Policy.

40. Chubb relies on cl 4.1 of the Policy, which provides:

    4.        EXCLUSIONS

    For the purposes of determining the applicability of any Exclusion the Wrongful Act or other conduct of an Insured shall not be imputed to any other Insured.

    The Insurer shall not be liable to make any payment under this Policy:

    4.1      based on, arising from or attributable to:

    (a)any dishonest or fraudulent act or omission of the Insured or an intentional breach of the law by the Insured; or

    (b)any personal profit or advantage gained by the Insured to which such Insured was not legally entitled;

    provided that this Exclusion shall only apply if it is established through a judgment or any other final adjudication (including any appeal thereof) or any written admission by such Insured that the relevant conduct occurred.

    For the avoidance of doubt, this Exclusion includes any conduct or contravention in respect of which a prohibition in section 199B of the Corporations Act 2001 (Cth) applies. No fact pertaining to, conduct of or knowledge possessed by an Insured will be imputed to any other Insured to determine whether this Exclusion applies.

    (Bolding in original.)

1. Chubb has not presently relied on cl 4.1 of the Policy to deny coverage to Mr Carter, as it accepts that the exclusion does not apply until there is a “judgment or any other final adjudication (including any appeal hereof) or any written admission by such Insured that the relevant conduct occurred”.

   H.6.2. Submissions

2. Chubb submits that if there is a judgment in these proceedings finding that Mr Carter engaged in the conduct alleged with respect to the Slush Fund arrangements, the SRS arrangements and the GrainCorp Transactions then there will be such a “judgment” for the purposes of cl 4.1. Further, Chubb submits that conduct amounts to bribery or the provision of an illegal inducement, and there is conduct that is “dishonest or a fraudulent act or omission of the Insured or an intentional breach of the law”.

3. Mr Carter submits that it is not necessary to consider cl 4.1 because if Chubb succeeds in establishing either fraudulent misrepresentation or fraudulent non-disclosure then Chubb’s claims would succeed independently of cl 4.1.

   H.6.3. Consideration

4. Given my findings that Chubb has succeeded in establishing both fraudulent misrepresentation and fraudulent non-disclosure and there is now to be a judgment in its favour, cl 4.1 would now be engaged. I also accept, however, that both the fraudulent misrepresentation and fraudulent non-disclosure claims have succeeded independently of any reliance by Chubb on cl 4.1 of the Policy.

   I.         QUANTUM OF COSTS CLAIMS (ISSUES 53 AND 54)

   I.1.      Overview

5. Issues 53 and 54 are concerned with the quantification of the legal costs claimed by Mr Carter. They are:

   (a)if Mr Carter is entitled to be indemnified under the Policy, are the legal costs claimed by Mr Carter in these proceedings referrable for work done claims that are covered by the policy? (Issue 53); and

   (b)to the extent that they are, what is the quantum of those costs? (Issue 54).

6. Following the conclusion of the hearing, on 3 July 2023, the parties provided an agreed position with respect to whether legal costs claimed by Mr Carter are referrable to work done for claims covered by the Policy and the quantum of costs claimed.

   I.2.      Agreed Position

7. The table below sets out the amounts that Chubb and Mr Carter agree:

   (a)Mr Carter is entitled to recover if it is found he is entitled to indemnity under the Policy; and

   (b)the amount Mr Carter is required to repay Chubb if he is ordered to repay the amounts previously advanced to him under the Policy.

Item	Amount (all including GST)
Proceeding Costs (NSD 448 of 2023; NSD 437 of 2023; NSD 59 of 2021 and former NSW Supreme Court Proceedings 2020/00174863 and 2020/00283307)
Proceeding costs claimed by Mr Carter	$1,390,989.57
Amounts Mr Carter and Chubb agree do not constitute Defence Costs under the Policy	$34,686.3
Sub-total of Proceeding costs claimed by Mr Carter	$1,356,303.27
Criminal Proceeding Costs (No. 2015/00098199)
Total Criminal Proceeding costs	$3,956,612.94
Amounts Mr Carter and Chubb agree do not constitute Defence Costs under the Policy	$87,417
Amount already advanced by Chubb as Defence Costs under the Policy	($723,005.12)
Sub-total Criminal Proceeding costs claimed by Mr Carter	$3,146,190.82
Total
Total claimed costs agreed as Defence Costs under the Policy if Mr Carter is found to be entitled to indemnity under the Policy (not including interest and costs)	$4,502,494.09
Total amount agreed to be repaid to Chubb if Mr Carter is ordered to repay Chubb the amount it advanced previously (not including interest and costs)	$723,005.12

1. Given my findings that Mr Carter is not entitled to indemnity under the Policy, it is the figure for the total amount to be repaid of $723.005.12 by Mr Carter to Chubb, not the total claimed costs by Mr Carter of $4,502,494.09, that is relevant.

   J.        CHUBB’S CLAIM FOR REPAYMENT OF THE SUMS ADVANCED (ISSUE 55)

   J.1.      Overview

2. Issue 55 is whether the requirement to repay the Sums Advanced under cl 5.5(a) of the Policy is only enlivened where the exclusion under cl 4.1 of the Policy applies, or whether it also operates where the insured is not entitled to indemnity for any other reason.

3. Chubb relies on cl 5.5(a) of the Policy to seek repayment of the sums it had advanced to Mr Carter for defence costs. Clause 5.5(a) provides:

   The Insurer shall advance Defence Costs on an ongoing basis prior to the final payment or settlement of any Claim and shall advance Legal Representation Expenses provided that any payment shall be repaid to the Insurer in the event that the Insured or the Company (as applicable) is or are not entitled to such payment. For the avoidance of doubt,

   Exclusion 4.1 only applies where the conduct in question has been established to have occurred by written admission or any final adjudication.

   (Bolding in original.)

   J.2.      Submissions

4. Chubb submits that is entitled to repayment of the Sums Advanced on two bases.

5. First, Chubb relies upon a contractual term to that effect. Chubb’s primary submission is that cl 5.5(a), properly construed, provides that any costs advanced under it “shall be repaid to the Insurer in the event that the Insured … is … not entitled to such payment”.

6. Second, if there is a judgment in these proceedings finding that Mr Carter engaged in the conduct alleged in the Slush Fund arrangements, the SRS arrangements and the GrainCorp Transactions, then such a judgment would engage the operation of cl 4.1. In those circumstances, Chubb submits that Mr Carter appears to accept that cl 5.5(a) would require him to repay the Sums Advanced.

7. Mr Carter accepts that cl 5.5 of the Policy allows Chubb to recover the Sums Advanced and there is no need to consider cl 4.1.

   J.3.      Consideration

8. Mr Carter concedes, and I accept, that cl 5.5(a) is engaged if for any reason an “Insured” or the “Company” is not entitled to such payment. The inclusion of a specific reference to “Exclusion 4.1”, textually and in context, is to make clear that if cl 4.1 is relied upon to establish an absence of entitlement to payment then it can only be relied upon if the conduct in question has been the subject of a written admission or a final adjudication. It does not carry with it any necessary inference that cl 4.1 provides an exclusive pathway to the recovery under cl 5.5 of sums advanced to an insured.  

   K.       DISPOSITION

9. For the foregoing reasons, Chubb is entitled to decline Mr Carter’s claims for indemnity under the Policy and Chubb has established that it is entitled to recover from Mr Carter the sums that it has already paid to Mr Carter pursuant to the Policy by way of defence costs. Mr Carter’s second cross claim filed on 28 September 2020 against Chubb in proceeding NSD 448 of 2022 is to be dismissed with costs. The parties are now to confer and provide consent, or competing, draft orders to give effect to these reasons for judgment in proceeding NSD 437 of 2022.

I certify that the preceding nine hundred (900) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.

Associate:

Dated:       14 November 2024