FEDERAL COURT OF AUSTRALIA
Casey v AIG Australia Limited [2021] FCA 553
File number: NSD 277 of 2021 Judgment of: ALLSOP CJ Date of judgment: 24 May 2021 Catchwords: INSURANCE – where applicants are former directors of company insured by respondent pursuant to not-for-profit management liability policy – where applicants sued by company and its liquidators in proceedings in Supreme Court of New South Wales for breach of fiduciary duties and breach of duty of care – where policy included obligation to advance defence costs – where respondent accepted obligation to pay defence costs incurred by applicants in defending allegations of breach of duty of care – where respondents paid 70 per cent of defence costs pursuant to allocation clause – whether respondent liable under policy to pay costs incurred in defending alleged breach of fiduciary duties – whether applicants were acting for or on behalf of the insured company – respondent liable to pay the whole of the costs of the defence until further order – allocation clause not engaged Legislation: Corporations Act 2001 (Cth) ss 180–185, 199B
Insurance Contracts Act 1984 (Cth) ss 14, 57
Cases cited: Angas Law Services Pty Ltd (in liquidation) v Carabelas [2005] HCA 23; 226 CLR 507
Boardman v Phipps [1967] 2 AC 46
Chew v The Queen [1992] HCA 18; 173 CLR 626
Grove v Flavel (1986) 43 SASR 410
Meinhard v Salmon 249 NY 458; 164 NE 545 (1928)
MOS Beverages Pty Ltd v Insurance Australia Ltd trading as CGU Insurance [2020] FCA 1716
R v Byrnes [1995] HCA 1; 183 CLR 501
Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378; [1967] 2 AC 134
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance – Insurance List Number of paragraphs: 56 Date of hearing: 21 May 2021 Counsel for the Applicants: Mr P Mann Solicitor for the Applicants: Pure Legal Counsel for the Respondent: Mr J Gooley Solicitor for the Respondent: HWL Ebsworth Lawyers ORDERS
NSD 277 of 2021 BETWEEN: KEVIN JAMES CASEY
First Applicant
PAUL DOUGLAS CLARKE
Second Applicant
AND: AIG AUSTRALIA LIMITED (ABN 93 004 727 753)
Respondent
ORDER MADE BY:
ALLSOP CJ
DATE OF ORDER:
24 MAY 2021
THE COURT ORDERS THAT:
1.Until further order, the respondent advance to the applicants all defence costs in Supreme Court proceedings number 2019/00287075 brought by Community Work Pty Ltd (in liquidation) and its liquidators (within the meaning of the phrase Defence Costs in clause 8 of the definitions of the General Terms and Conditions of the PrivateEdge for Not-for-Profits Management Liability Insurance policy number 9609122PVE) of the applicants under clause 8 of the Claims Conditions of the General Terms and Conditions of the said Policy and in so doing reimburse them for the 30% of their defence costs hitherto withheld, together with interest under s 57 of the Insurance Contracts Act 1984 (Cth).
2.The balance of the proceedings be otherwise adjourned pending the resolution of…
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- Case
- [2021] FCA 553
- Decision Date
CaseChat Overview and Summary
The central legal issues in the case were whether the respondent was liable under the policy to pay the costs incurred in defending the alleged breach of fiduciary duties and whether the applicants were acting for or on behalf of the insured company when the alleged breaches occurred. The court had to determine whether the allocation clause in the policy was applicable and whether the former directors were acting exclusively for the company during the alleged breaches.
The court found that the allocation clause was not engaged because it applied only when there were both uncovered and covered matters, which was not the case here. The court rejected the respondent's argument that the former directors were acting for or on behalf of themselves or other entities, holding that the definition of "Manager" in the policy required the court to consider whether the directors were acting for and on behalf of the company in their capacity as directors. Since the allegations of breach of fiduciary duty depended on the directors acting in their capacity as directors, the policy responded to the claims. Consequently, the court held that the respondent was liable to pay the full defence costs until further order.
The final orders of the court were that the respondent was to advance all defence costs to the applicants, reimburse them for the 30% of costs previously withheld, and pay interest under the Insurance Contracts Act 1984 (Cth). The court also ordered that the respondent pay the applicants' costs of the proceedings to date and that the parties submit on the form of any variation to these orders within seven days.
Orders
Orders of the court
1. Until further order, the respondent advance to the applicants all defence costs in Supreme Court proceedings number 2019/00287075 brought by Community Work Pty Ltd (in liquidation) and its liquidators (within the meaning of the phrase Defence Costs in clause 8 of the definitions of the General Terms and Conditions of the PrivateEdge for Not-for-Profits Management Liability Insurance policy number 9609122PVE) of the applicants under clause 8 of the Claims Conditions of the General Terms and Conditions of the said Policy and in so doing reimburse them for the 30% of their defence costs hitherto withheld, together with interest under s 57 of the Insurance Contracts Act 1984 (Cth).
2. The balance of the proceedings be otherwise adjourned pending the resolution of the Supreme Court proceedings.
3. The respondent pay the applicants’ costs of the proceedings to date.
4. The parties have seven days to put submissions on the form of any variation to these orders.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
It is alleged that through the breaches of the same fiduciary duties and duty of care he caused loss to Community Work. The relief sought against him for such breaches is over $15 million. The submissions and consideration AIG accepted, at least in oral address, that the Allocation Clause is not engaged until there are both uncovered and covered matters. That was plainly correct. Clause 7 (the Allocation Clause) in terms is directed to the evaluative questions of a fair percentage of costs for covered and uncovered claims. It is not concerned with the legal question of construction of a policy as to whether any part of the claim is or is not covered by the policy terms. One can see this from the terms of the remit of the senior counsel. AIG does not assert that the Conduct Exclusion in Section 1 applies. Of course, if it did so assert, it would be obliged to make advance payment of all defence costs “until such time as the condition to [the] Exclusion is satisfied” (cl 8), that condition being “in the event that ... [such] is established by final adjudication by a judicial or arbitral tribunal or any formal written admission” (Conduct Exclusion in Section 1). AIG emphasises the words “but only when and to the extent that” in the definition of Manager. It submits that in the position of conflict in which Mr Casey and Mr Clarke found themselves, they were not only acting for and on behalf of Community Work but also for or on behalf of themselves or Alpha or the Alpha Trust. Thus, they were not, it was submitted, only acting for Community Work but also for another or for others. I would reject this submission at a number of levels. First, it gives an overly refined interpretation of the definition of Manager. The words of the provision and the insuring clause, as I have stated them earlier, require one to ask whether the director was acting for and on behalf of the company as a director in the acts he or she was doing. The CLS states they were; the liability of Mr Casey and Mr Clarke for breach of fiduciary duty depends upon their acting in their capacity as directors of Community Work. To the extent that they may have caused loss to the company by so acting in the circumstances in which they acted, the policy prima facie responds. The nature of the allegations of lack of care broadly conform with the common law duty and the duty in s 180. The allegations of breach of fiduciary duty in equity can be seen to be encompassed in s 181. The statute does not derogate from either a common law duty or an equitable duty: s 185. Though the allegation is not made by the pleader in the CLS, nor by AIG in these proceedings, the underlying facts asserted in the CLS concerning breach of fiduciary duty might conceivably, depending on their factual content and context as developed in the litigation, amount to a contravention of s 182 or s 183 of the Corporations Act. No dishonesty is pleaded and AIG do not assert that, but actual dishonesty is not a required element of impropriety or “improperly” for the purposes of those sections: R v Byrnes [1995] HCA 1; 183 CLR 501 at 513–515 and 521–522; Chew v The Queen [1992] HCA 18; 173 CLR 626 at 640 and 647; Grove v Flavel (1986) 43 SASR 410 at 420; Angas Law Services Pty Ltd (in liquidation) v Carabelas [2005] HCA 23; 226 CLR 507 at 531–532.