CGU Insurance Ltd v AMP Financial Planning Pty Ltd

[2007] HCATrans 28

[2007] HCATrans 028

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  Nos M127 of 2006 and M128 of 2006

B e t w e e n -

CGU INSURANCE LIMITED

Appellant

and

AMP FINANCIAL PLANNING PTY LTD

Respondent

GLEESON CJ
KIRBY J
CALLINAN J
HEYDON J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 7 FEBRUARY 2007, AT 11.05 AM

Copyright in the High Court of Australia

MR A.J. MYERS, QC:   May it please the Court, I appear with MR P. ZAPPIA on behalf of the appellant in each appeal.  (instructed by Deacons)

MR N.J. O’BRYAN, SC:   May it please the Court, I appear with MR P.D. CRUTCHFIELD for the respondent in both appeals.  (instructed by Minter Ellison)

GLEESON CJ:   Yes, Mr Myers.

MR MYERS:   Thank you, your Honour.  May I say something briefly, first of all, about the second appeal, that is, M128 of 2006.  Your Honours would have observed, no doubt, that the gist of the appeal in that matter is that the Full Court erred in refusing to determine some issues concerning the construction of the policies of insurance that are in question here.  Those issues are questions 7, 8 and 9 in the questions that Justice Heerey posed for himself at first instance.  The respondent has not filed any written submissions in opposition to the appellant’s appeal in M128.  The appellant has filed written submissions.  They are at paragraphs 49 to 56 and I have nothing to add to those written submissions.

KIRBY J:   The Full Court took the unanimous view, I think, that it was an academic question having regard to the determination of the majority in matter that is the subject of M127.

MR MYERS:   With respect, your Honour, that is not quite right.  After the subject matter of M127 had been decided, the appellant, CGU, asked the Full Court to reconsider two matters or to consider two matters before orders were entered.  The first was that CGU was under the apprehension, apparently misapprehension, that the judges of the Full Court had misunderstood the status of the evidence that was led before Justice Heerey.  That is a matter to which I will return, but broadly speaking a great deal of the evidence, the documents that were tendered – there were folders and folders of them, 20 or 30 – were not tendered for the truth of any statements contained in the documents.  They were tendered to show that a certain process had occurred, that this document had been brought into existence and it had passed from one person to another and so forth.

CALLINAN J:   Mr Myers, I am sorry, I suppose I should have mentioned, I have some shares in AMP.

MR MYERS:   We have no objection, your Honour.

GLEESON CJ:   Yes, I asked the Registrar to communicate to the parties that I am in the same position.

MR MYERS:   I did not know that, but we have no objection.  The second matter that was raised before orders are entered is whether the Full Court had been correct in not determining the issues of construction.  The Full Court decided that it was not necessary for it to determine the issues of construction.  With respect to the Full Court we said that that was wrong.  There had been a cross‑appeal on the question of costs which turned on the issues of construction, but quite apart from that the parties wished the issues of construction to be determined and that was said to the Full Court by both parties before it. 

KIRBY J:   But if it is not necessary then that would not be an appropriate thing for the Full Court to do in a Federal Court.

MR MYERS:   But it was necessary at least to determine the question of costs.

GLEESON CJ:   Were those construction questions questions that could have been determined on the evidence that was before Justice Heerey?

MR MYERS:   Yes, your Honour.  When the Full Court was asked to determine those questions the Full Court said, “You’ve used the wrong procedure.  It shouldn’t have been a cross‑appeal, it should have been a notice of contention”, and on that basis, putting it shortly, refused to consider the issues of construction.  We say, with respect, the Full Court was wrong.

KIRBY J:   It is never very congenial to determine questions that do not otherwise have to be determined simply to resolve a costs question.  I am not saying that it is not appropriate on some occasions but to have great issues determined for the purpose of resolving costs issues is ‑ ‑ ‑

MR MYERS:   We certainly wanted the issues of construction determined.  We wanted to overturn the decision of Justice Heerey on those issues, independently of a question of costs, but it came forward as a cross‑appeal because the question of costs depended upon the determination of those issues not as a notice of contention.  The orders that were made on the question of costs were affected by the determination of the questions of construction, but aside from that, if CGU had taken the view that a notice of cross‑appeal was not the appropriate mechanism to get the issues before the Full Court there would have been a notice of contention.  Both parties said that to the Full Court.

Your Honours, if I could just go on for one moment and perhaps some things will become clear that are not yet clear.  I hope that is so in any event.  In relation to the other appeal, M127 of 2006, if this Court concludes that the Full Court erred in not determining the policy construction issues, then we ask that this Court should determine those issues rather than remit them to the Full Court to do so.  They are short issues.  They are raised in a proposed amended notice of appeal, which is in the appeal book at page 963 and we seek leave to file that amended notice of appeal.  The respondent consents to that course, as appears from paragraph 60 of its written submissions.  Our written submissions deal with the issues of construction of the policy at paragraphs 57 and following and we do not wish to add anything to those written submissions.

KIRBY J:   That is all very well, but the net result of that has two downsides.  The first is that a matter that has not been determined by the primary judge and rebuffed by the Full Court is then determined by the final court of the country and that is not really something that one normally does.

MR MYERS:   No.  With respect, your Honour, Justice Heerey did determine the issues of construction.  He decided in favour of CGU on other grounds but decided the issues of construction adversely to CGU.  So the issues of construction, questions 7, 8 and 9 before Justice Heerey are decided by him.  The parties asked the Court of Appeal to decide them.  It, we say erroneously, takes the view that it did not have to and declined to reopen to consider that issue.

KIRBY J:   I take that point but it still leaves the second concern and that is that you then deprive a party, whoever is unsuccessful, of the opportunity of further consideration of the matter by this Court in the event that they are discontented with the decision.  It has leapfrogged from Justice Heerey to this Court.

MR MYERS:   Your Honour, I would suggest the parties are so weary of this litigation that neither of them asks for the opportunity to be heard yet again.

KIRBY J:   What if the Court is weary of the litigation?

MR MYERS:   Of course it is a matter for your Honours but it may turn out, according to what your Honours decide, that it is unnecessary to decide the issues of construction.  What I am putting, of course, is on the basis that your Honours decide certain things certain ways and it becomes necessary to determine them.

KIRBY J:   If you succeed in your appeal in M127 of 2006 is it your submission then that it is still necessary to decide the matters of ‑ ‑ ‑

MR MYERS:   Then it would only be for the question of costs.

KIRBY J:   You are not going to get the High Court of Australia deciding a matter for the purpose of deciding the question of costs.  It is just not seemly and not our proper province. That is, at least, my opinion.

MR MYERS:   Your Honour, if it is necessary to do so, the appellant desires that the issues of construction be decided by this Court and not remit it to another court.  They are short - the submissions are in writing and the parties do not want more of the litigation, in my respectful submission, if that is the only thing that is unresolved.

KIRBY J:   How does it then fall out for orders on the costs?  That normally involves discretionary considerations.  Is that something that could be remitted then to the Full Court to, as it were, follow through the logic of any determination of the construction issue?

MR MYERS:   It could be if your Honours wished to do that, yes.

KIRBY J:   Is it your understanding that what you have just said is also said for Mr O’Bryan?

MR MYERS:   That is my understanding.

MR O’BRYAN:   Should I respond, your Honour?

GLEESON CJ:   No, not yet.  Go ahead with your argument, Mr Myers.

MR MYERS:   Your Honours, may I take you to the judgment of the Full Court.  It is in volume 3 of the appeal book.  It begins at page 830 but I wish to take your Honours to paragraph 154 on page 889.  The conclusion expressed by Justice Emmett with whom Justice Moore agreed – Justice Gyles dissented – is set out there. 

The appeal should be upheld and the orders made by the primary judge should be set aside.  The matter should be remitted to the primary judge for further consideration, in the light of these reasons, of the following questions in relation to each of the investor demands referred to in the S.C. schedule:

·whether AMP was induced by CGU’s conduct to assume that, if it settled that demand on reasonable terms, it would not be required to establish by admissible evidence that it was legally liable to that investor in order to be reimbursed by CGU for the amount paid pursuant to such settlement;

·if so, whether AMP settled that demand in reliance upon that assumption;

·whether, in the light of the answer to those questions, CGU is estopped from asserting that, or it would be a want of utmost good faith for CGU to assert that, AMP is required to establish by admissible evidence that it was legally liable to that investor;

·whether AMP settled that demand on reasonable terms.

Your Honours might go now to page 902.  The actual order made by the Full Court is simply, so far as material, that “The matter be remitted to the primary judge.”  It is not in terms limited to those four matters though one apprehends that that may have been the understanding of the court that made the order.

GLEESON CJ:   Mr Myers, can I ask you about that first issue referred to in paragraph 154:

whether AMP was induced by CGU’s conduct to assume –

et cetera.  That, I presume, is an inducement said to have been operating at the time of, and to have regulated the conduct of, the proceedings before Justice Heerey.

MR MYERS:   Yes, that is so.

GLEESON CJ:   That seems to be a representation or an inducement that would have its practical operation on counsel’s decision as to how to conduct the trial.

MR MYERS:   Absolutely, your Honour.  Quite so.  I am going to come, as I must, to take your Honours to some portions of the pleadings and the transcript below to show how the trial was conducted, because our primary submission is that the case that was conducted on appeal was not within the pleadings and it was inconsistent and certainly different from the case that was conducted below.

GLEESON CJ:   If you look at the verb “to establish” in the second line of that, to establish where – it would have to be, relevantly, in court.

MR MYERS:   In court, yes.  Your Honour, I may as well come to it straight away because it really touches our first submission.  Just before I do so, could I just mention a couple of matters to clear the decks perhaps about the reasoning of Justice Emmett.  The essence of Justice Emmett’s reasoning was twofold:  first, that Justice Heerey erred in that he had not addressed an estoppel under related claim for breach of utmost good faith which was open on the pleadings and that appears in relation to the estoppel, especially from paragraphs  84 and 95 of Justice Emmett’s judgment in the appeal book at 868 and 871.

In relation to good faith the conclusions are primarily expressed, as we understand it, in paragraphs 92 and 93 of his Honour’s reasoning at appeal book references 870 and 871.  At 868, in paragraph 84, his Honour says this:

However, that answer by CGU clearly puts in issue the question of whether AMP would be required to prove its liability to investors.  CGU says that AMP has no right to indemnity under the Insurance Policies in respect of an amount paid to an investor unless it proves, by admissible evidence, that it had a liability to that investor.  It is no longer possible for AMP to wait for service of a Claim (as defined) and call upon CGU to defend it.  Its right to indemnity has clearly been affected by each settlement.  The contention advanced by AMP is within the pleadings.

And then, at paragraph 95, his Honour says this:

His Honour [Justice Heerey] erred in failing to make a finding as to whether AMP was induced, by CGU’s conduct, to assume that it would not be required to establish, by admissible evidence, that it had a liability to the investors whose demands it settled and, if so, whether it settled the investor demands in reliance upon that assumption.  His Honour did not address the relevant questions of reliance and detriment and was in error in failing to make a finding as to those matters.

They are the conclusions that we contest.

GLEESON CJ:   But the occasion for establishing anything was in the proceedings before Justice Heerey.

MR MYERS:   Yes, that is right, that is the way that representation of estoppel is expressed, your Honour.

CRENNAN J:   Is his Honour saying that those claims are subsumed under the claim in the pleadings which he seems to have identified in paragraph 83:

The Statement of Claim simply says that AMP assumed that, by settling demands by investors, it would not adversely affect its rights to obtain indemnity.

Is that the way the reasoning works?

MR MYERS:   That is the way his Honour’s reasoning works, I believe.  The second matter that I mentioned was the “utmost good faith” and paragraphs 92 and 93 are where his Honour’s reasons are expressed.  His Honour said:

There does not appear to be any doubt that those witnesses who gave evidence for CGU were cross examined as to the failure to respond to AMP’s requests for instructions, pursuant to the Protocol, as to whether it should defend or settle demands made by investors.  The Statement of Claim made quite clear that AMP asserted that there was a failure on the part of CGU to act with the utmost good faith.  Its case as to what constituted such a failure was quite clear.  There does not appear to have been unfairness to any CGU witness.  Notwithstanding AMP’s failure to assert dishonesty as against a particular witness in the course of cross examination, it was open to his Honour to make a judgment as to whether the conduct of CGU over many months exhibited a failure to act with the utmost good faith in relation to AMP’s claim to be entitled to indemnity under the Insurance Policies.  Having regard to the way in which the want of utmost good faith is put in this aspect of AMP’s case, there was nothing more to put to witnesses.

The second respect in which AMP calls in aid the implied provision is CGU’s approach in the conduct of the proceeding.  AMP says that CGU’s stance, that it was incumbent upon AMP to establish, by admissible evidence, that AMP was liable to each investor with whom it settled, was a failure to act with the utmost good faith.  That stance would involve a failure to act with the utmost good faith in relation to the Insurance Policies if it were established that the alleged assumption on the part of AMP was induced by the conduct of CGU.  As indicated above, his Honour made no finding on that question.  If there were a finding to that effect, it would be a failure to act with the utmost good faith to depart from that assumption by taking the stance that CGU took at the hearing of the proceeding, of requiring AMP to prove by admissible evidence that it was liable to the investors with whom it reached a settlement.

GLEESON CJ:   Mr Myers, was there some suggestion that the procedure that was followed pursuant to the protocol meant that for some reason it was necessarily going to be impossible in the proceedings before Justice Heerey to establish liability to the investors?

MR MYERS:   No, your Honour, no.  That seems to be the way it is put on the appeal.  There was a hint of that in a complaint that my learned friend made about having to conduct 63 separate trials that Justice Heerey deals with in his reasons for decision in one of the early paragraphs.  I think it is paragraph 7, but be that as it may. 

KIRBY J:   I may have misunderstood it, but I did not understand the suggestion to be impossibility.  I understood it to be that it was unnecessary in the light of the fact that there was the protocol, that you had accepted the protocol in principle, that you had this new obligation under the Insurance Contracts Act and you sat quietly by and did not do things that you could have done.

MR MYERS:   His Honour the Chief Justice did not use the word “impossible”, that is why I gave the unequivocal answer, but I added the gloss, as it were, that there was some hint of complaint that it was very difficult to prove the claims by admissible evidence in court, but that is as far as it went.

GLEESON CJ:   If at the trial when the pleadings were in and counsel were telling Justice Heerey what their respective positions were, CGU made it clear that rightly or wrongly they were contending that it was going to be necessary for AMP to establish its liability by admissible evidence, then presumably AMP at the trial had every opportunity to do so.

MR MYERS:   Quite so, your Honour, absolutely.  I am going to take your Honour - I keep promising to do it, but if I could just clear the decks with just referring to one other part of Justice Emmett’s judgment and your Honour will see very clearly then how the trial began.  If I might just say one further thing in response to what ‑ ‑ ‑

KIRBY J:   Do not say I provoked you, Mr Myers.  It would not be the first time.

MR MYERS:   AMP made it quite clear throughout the protocol process, and the concurrent findings of fact are to this effect, that it was not admitting liability under the policies.  It was considering its position.

GLEESON CJ:   CGU you mean.

MR MYERS:   CGU.  I am sorry, CGU.  It was considering its position.  There was never any doubt about that.  The second thing is, the evidence establishes, and the findings of Justice Heerey were to the effect, that CGU did not sit on its hands or do nothing, although there is a hint of that in the decision of Justice Emmett.  It required ‑ ‑ ‑

KIRBY J:   You ignored a few letters.

MR MYERS:   There were certainly letters, but there were two meetings that were very important.  There was a meeting of 26 July and CGU said we are not happy with the way this protocol is operating and we are not admitting liability at the moment and we need lots of other information and we need to consider our position.  That was before any claims were settled.  There was a second meeting on 5 October when four claims had been settled and CGU said again “We are not happy with the protocol, we have not got the information that we want, we are considering liability and we are not going to be put upon by saying that we have two weeks in which to make up our minds”. 

Immediately after 5 October, as the evidence and the findings show, AMP decided that it would quickly put all the settlements through and by the end of the next month, November, it had settled every claim.  There was an apprehension on the part of AMP at that time that CGU might step in and take over the conduct of the claims and that would prejudice its position with ASIC and so it quickly pushed them all through in the October/November period.

There were two claims outstanding after the end of November and upon Ms Solomon’s retirement from practice and my present instructing solicitor being engaged, the solicitor for CGU said “We want to take over those two claims”, but AMP just ignored it and settled them anyhow.

GLEESON CJ:   Mr Myers, pretty early on, as I understand it, CGU got an opinion from Mr Archibald to the effect that AMP was not liable.

MR MYERS:   Yes.

GLEESON CJ:   Was that opinion communicated by CGU to AMP?

MR MYERS:   The effect of the opinion was communicated but the opinion itself – it was in writing – the writing that embodied the opinion I believe was not provided but the effect of the opinion was.

KIRBY J:   This is a very fact rich case and you are dealing with a lot of facts and we have to get them into our mind.

MR MYERS:   I am going to take your Honour to them, I am sorry to say.

KIRBY J:   But is it not fair to say that the ingredient that makes this case different is the ingredient that came in 1984 with the Insurance Contracts Act of the obligation on you to act in relation to the insured with the utmost good faith and that it is that ingredient that adds to the power of Justice Emmett’s analysis?  It is not just the estoppel alone but that plus that added ingredient that just does not permit you to sit there and say, “Well, we agree with this protocol in principle but we are just not going to tell you.  We are not going to tell you bluntly and fairly and candidly that you cannot assume we are going to pay the claim.”

MR MYERS:   But they did.  They said it repeatedly.  There are concurrent findings of fact which I will take your Honours to to that effect.  It said so repeatedly.  These two meetings were just sort of points where the parties had an opportunity to meet and exchange views face to face but the correspondence was to the same effect.  No one had any doubt on AMP’s side that CGU was reserving liability.

CRENNAN J:   When did AMP first start sending documentary evidence in relation to individual claimants to CGU?

MR MYERS:   About April 2001 and it sent documents in relation to a few – I think it was four – before July.

CRENNAN J:   Before the July meeting?

MR MYERS:   Yes.  All CGU was doing, if I can put it bluntly, was helping AMP out.  They recognised that they had a problem with ASIC and said, “We’ll agree with the protocol in principle but we’re reserving liability.”

KIRBY J:   I do not think that is the way AMP looks on their conduct, at least retrospectively, helping them out.

MR MYERS:   It did help them out.  It could have just said, “When there’s a claim and it is established in court please come to us.”

KIRBY J:   If it had done that it would have been a very different ball game and you did not do that.

MR MYERS:   No.  Of course it helped them out.

KIRBY J:   Well, helped them out.  We are here because it did not in the event help them out.

MR MYERS:   No, we are here because of a misapprehension on the part of AMP about what it had to do to establish its case.

GLEESON CJ:   Did the insurance policies with CGU contain a provision that stipulated that the insured would not admit liability?

MR MYERS:   Yes.

GLEESON CJ:   Did not your client help AMP out by, in effect, waiving reliance on that stipulation?

MR MYERS:   Quite so.  There were three particular clauses that had that effect or something akin to it and it waived those clauses.  That is what it did and that is all it did.

CRENNAN J:   That is in your pleadings?

MR MYERS:   Yes, it is.

GLEESON CJ:   That, I would have thought would be the obvious reason why somebody in AMP’s position would have wanted to protect itself against the possibility that this protocol would put it in breach of its obligations under the insurance policy because of the admissions of liability that were involved in the settlement procedure.

MR MYERS:   That is so.  That was the position at the commencement of the trial.  Can I just identify the second matter that is at the essence of Justice Emmett’s reasons and then take your Honours to the pleadings and the addresses on the opening of the trial.

The second basic proposition that underlies Justice Emmett’s decision is this; that Justice Heerey misdirected himself as to the correct legal test to be applied in determining whether the settlements were reasonable and he had also failed to consider the evidence before him in relation to this matter.  That is set out – I will not take your Honours to particular paragraphs – at paragraphs 116 to 145.  We say that the trial judge was correct except on the issues of construction and except as to costs.  Now, may I ask your Honours to go to the first volume of the court book to look at the pleadings first of all?  The further amended statement of claim is at page 13.  It pleads out the contract of insurance, page 15, paragraph 5.  It then refers to Pal and Howarth, the two authorised representatives.

GLEESON CJ:   Where do we most conveniently find the contract of insurance?

MR MYERS:   It is in volume 1, your Honour, page 195. 

GLEESON CJ:   Thank you.

MR MYERS:   It may be that your Honour is looking in particular at condition 7.6 on page 205.  It is the sort of condition that your Honour just asked me about.

GLEESON CJ:   Yes, that is the one I had in mind.  Thank you.

MR MYERS:   Then the notifications under the policy are pleaded, the provision of information.  Then paragraph 11, the protocol is pleaded.  Paragraphs 12, 13, paragraph 14, acts “in accordance with the protocol” are pleaded.  Paragraph 15; further acts in accordance with the protocol.  Then:

16.Contrary to the protocol representation, the respondent did not respond to the request for instructions or otherwise communicate to the applicant its instructions whether to settle or to defend any of the claims. 

17.On each occasion on which the applicant sent the respondent a request for instructions, the applicant informed the respondent that, if the respondent did not communicate its instructions in accordance with the protocol, the applicant would be obliged to settle the claim and it thereafter did so in relation to the investor claims . . . 

18.The respondent is liable to indemnify the applicant in respect of each investor claim pursuant to the contracts of insurance. 

So a claim for indemnity.

19.The respondent has wrongfully and in breach of the contracts of insurance denied indemnity under the contracts of insurance to the applicant in relation to the investor claims set out in Schedules 1 and 2 . . . 

20.By reason of the respondent’s denial of indemnity in breach of the contracts of insurance, the applicant has suffered and will continue to suffer loss and damage. 

All conventional.  Then:

21.Further or in the alternative, as a result of the making of the protocol representation alleged in paragraph 13 and as a result of the actions of the applicant and the respondent alleged in paragraphs 16 and 17 above, the applicant was induced by the respondent to believe that:

(a)the respondent was aware of and accepted the applicant’s obligations and intention to deal with the investor claims prudently and in an efficient, honest and fair manner;

(b)the respondent would provide its instructions either to settle or to defend the investor claims within 14 days of the provision by the applicant to the respondent of each liability report in accordance with the protocol;

(c)if the respondent failed to respond to the applicant’s request for instructions, the applicant might reasonably proceed to settle the investor claims notified to the respondent under the protocol as it was legally and commercially compelled to do ‑ ‑ ‑

CALLINAN J:   Mr Myers, is it right to say that Justice Gyles in his dissenting judgment, in effect, found 21(a)?

MR MYERS:   I am not sure.

CALLINAN J:   It reads as if he came at least fairly close to it.

MR MYERS:   Fairly close to it, I accept.  He certainly did not put it in those terms, in my recollection.

CALLINAN J:   It is certainly not favourable to your case, rather the contrary, but it rather looks as if he did.

MR MYERS:   He came close to it, but he did not put it as a finding in terms of 21(a).

GLEESON CJ:   Paragraph 21, on the face of it, looks like an allegation that is put in there to deflect clause 7.6 of the policy.

MR MYERS:   Yes, it is, your Honour, and I am going to make it clear that that is what the parties understood.  It might be convenient just at this point to jump forward to ‑ ‑ ‑

CALLINAN J:   Just before you do that, Mr Myers, I want to be clear about that.  Certainly Justice Gyles went so far as to hold that you accepted that AMP had to deal with the investor claims prudently.  I think his Honour used the word “prudent”.

MR MYERS:   Yes.

CRENNAN J:   “As a prudent uninsured”

MR MYERS:   “As a prudent uninsured” was the expression that tossed back and forth between the parties.

CALLINAN J:   And “efficient, honest and fair” really do not add anything much anyway, do they?

MR MYERS:   No, they do not.  I said I would go forward to the defence.  If your Honours could look at page 42, and your Honours can see how paragraph 21 was dealt with in the defence, there is a denial of the allegations, certain allegations are repeated.  It further says that:

(i)the handling of investor claims pursuant to the protocol was unconnected with the question of entitlement to indemnity under the contracts of insurance;

(ii)by settling the claims of investors identified in Schedule 1 without receiving from CGU instructions either to settle or defend those claims, AMPFP has not adversely affected its rights (if any) to obtain indemnity under the contracts of insurance insofar as CGU does not resist the claim for indemnity on the grounds that:

(A)none of the investors had instituted proceedings of any kind against AMPFP and, therefore, there was no “claim” (as defined) for “civil liability” (as defined) such as would enliven the cover provided by the contract of insurance;

(B)contrary to clause 7.6 of each of the contracts of insurance, AMPFP has settled the claims by the investors identified in Schedule 1 without first obtaining the written consent of CGU.

GLEESON CJ:   That would have been a breach of the duty of good faith if you had said, “Because you have settled these claims you are in breach of clause 7.6 and we are not going to indemnify you”.

MR MYERS:   Absolutely.

KIRBY J:   Yes, but the duty of good faith is now in the Act.  We are in a new realm here.  It is not just that you do not do nasty things under your contract.  It is a much more pervasive obligation on you just as it used to be exclusively on the insured.  You have to live with the new obligation.  It is imposed by the Parliament of the Commonwealth.

MR MYERS:   Your Honour, you will not hear a breath of suggestion from me that we do not have to live with it ‑ ‑ ‑

KIRBY J:   I thought I could hear ‑ ‑ ‑

MR MYERS:   ‑ ‑ ‑ and, indeed, we fulfilled it above and beyond what was required.

KIRBY J:   No, I am not yet convinced.

CALLINAN J:   These policies do not contain a QC provision like professional indemnity?

MR MYERS:   No, they do not.  I beg your pardon.  I am told I am wrong, I am sorry.  Clause 7.8.

CALLINAN J:   Clause 7.8.  Was there no attempt by anybody to invoke that?

MR MYERS:   No, it was not invoked.  It does not appear anywhere in the litigation.  It is certainly not pleaded.  Can I go back to the statement of claim before going to some other matters:

Acting upon the beliefs alleged in paragraph 21 above, in reliance on the protocol representation, and in reliance on the absence of any objection, or suggestion by the respondent that the beliefs alleged in paragraph 21 were unreasonable, unjustified or wrong, the applicant settled the investor claims in Schedule 1 as alleged –

Then 22A was added after a directions hearing in the April before the trial and it simply says, “The settlements were reasonable.”  Then 23 and 24 become important:

In the premises of the preceding paragraphs, and in particular of paragraphs 16, 17, 21, 22 and 22A above, it would be unconscionable now and therefore the respondent is unable to deny indemnity to the applicant under the contracts of insurance in respect of the investor claims.

24.Further or alternatively, in the premises of the preceding paragraphs, and in particular of paragraphs 16, 17, 21, 22 and 22A above, the respondent is estopped from denying indemnity to the applicant under the contracts of insurance in respect of investor claims.

Then your Honours will see there are some statutory claims, so called, for misleading and deceptive conduct. On page 26, section 41(2) of the Insurance Contracts Act is pleaded and then section 13 of the Insurance Contracts Act is pleaded:

Pursuant to section 13 of the Insurance Contracts Act the respondent owed to the applicant a duty to act towards it with the utmost good faith in respect of any matter arising under or in relation to the contracts of insurance.

34.By its conduct as alleged in paragraphs 13, 16, 19 and 22 above, the respondent has acted in breach of its duty of utmost good faith owed to the applicant . . . 

(a)Failing to comply with the protocol . . . 

(b)failing to make or to communicate to the applicant its decision . . . within 14 days . . . 

(c)failing to make or to communicate . . . in relation to indemnity . . . within a reasonable time;

(d)wrongfully denying indemnity in relation to the investor claims after having behaved as is alleged herein -

It is not suggested by the way that that particular is drawn that the insurer is not entitled properly to deny indemnity but it would be wrongful for it to do so in the context of what has happened.

CALLINAN J:   Mr Myers, I am sorry to bring you back to this and I may misunderstand something, but could I ask you to go back to page 205, the “Senior Counsel” clause:

Unless a Senior Counsel . . . advises that the Claim proceedings should be contested, then neither We nor the Insured can require the other to contest any legal proceedings -

I understand that no investor had started legal proceedings, is that right?

MR MYERS:   That is correct.

CALLINAN J:   Had that happened, had actual proceedings been started, then the insured would not have been obliged to defend them?  Would that have been absent a senior counsel’s opinion?

MR MYERS:   In the event of a senior counsel opinion being obtained, yes.

CALLINAN J:   Unless the opinions were obtained, unless the opinions…..that the proceedings should be contested, then they do not have to be contested.  Is that not right?

MR MYERS:   Yes, that is what it says.

CALLINAN J:   So that if any legal proceedings had been started at all and unless there were an opinion by senior counsel that they should be contested then you would have been obliged to allow AMP to settle the claims.  Is that right?  I just want to be clear about it.

MR MYERS:   Whether one would be obliged to allow AMP, we would be able to take ‑ ‑ ‑

CALLINAN J:   Or participate with you, perhaps.

MR MYERS:   The insurer would be able to take over the second one.

CALLINAN J:   Yes.

GLEESON CJ:   This is all subject to clause 7.5, is it not?

MR MYERS:   Yes, it is.  That is what I am adverting to, your Honour.

CALLINAN J:   Quite, rights of subrogation, you could run the whole thing but, nonetheless, that tenet would remain that, contest or no, would be entirely dependent upon senior counsel’s opinion.  The words are unmistakeable, are they not?

MR MYERS:   Yes, they are.

CALLINAN J:   So the whole position would have been different had actual legal proceedings started.

MR MYERS:   That is so.

CALLINAN J:   Where are legal proceedings defined in the policy?  Are they defined?

MR MYERS:   The claims?

CALLINAN J:   Yes, a claim.  Is it not any legal proceeding about a claim?

MR MYERS:   Yes.

CALLINAN J:   Where is claim?

MR MYERS:   The definition is on page 209, clause 12.2.  The claim is “Any originating process” et cetera.

CALLINAN J:   I see, yes, or other similar notice – any originating process.  It seems a bit odd the claim cannot begin until somebody starts a legal proceeding or arbitration; is that right?

MR MYERS:   Yes.  That is what the policy contemplates.

GLEESON CJ:   That is why there was reference in Justice Heerey’s judgment to the fact that the actual cover of the policy was in relation to legal proceedings.

MR MYERS:   We accept that.  That is correct, your Honour, yes.

GLEESON CJ:   But the point that Justice Callinan makes is reflected in clause 7.8(a), is it not, by the fact that they talk there of requiring “the other to contest any legal proceedings”?

MR MYERS:   That is so, yes, it is.

CALLINAN J:   But, of course, you do not have to take over the management of the claim.

MR MYERS:   No, we do not.

CALLINAN J:   It is optional.  It is in your discretion.  It would have been within your power, if you had wished, to waive the requirement that actual proceedings be started as opposed to a claim falling short of legal proceedings having been ‑ ‑ ‑

MR MYERS:   We did waive that requirement.  That was by agreeing to the protocol.

CALLINAN J:   So you have waived that.  I am just wondering what then happens.  Assume a waiver of the requirement that actual legal proceedings be started, substitute, therefore, “claim” for “legal proceedings”.  What, if any, is the significance then of the absence of a senior counsel’s opinion and your abstention from management of the claims?

MR MYERS:   We abstained from seeking to manage the claims to a certain point.

CALLINAN J:   Does that have a consequence against you?  That is what I am really ‑ ‑ ‑

MR MYERS:   In my respectful submission, no, because of the way things worked out.  Whatever else we waived, we made it clear that we were not admitting an obligation to indemnify.

CALLINAN J:   That is a different matter perhaps, or may be a different matter, and I am thinking aloud, I am sorry, Mr Myers – it may be a different matter from not waiving an obligation to indemnify but it may be a different matter from waiving a requirement and the consequence of a waiver of a requirement of actual legal proceedings.

MR MYERS:   We did waive that requirement and we accepted that in our defence.

CALLINAN J:   You might give some thought to it and help me out with that later perhaps because at the moment it is troubling me.

MR MYERS:   If I am able to, I certainly shall.

CALLINAN J:   I am not too sure where it leads, Mr Myers, but I am troubled by it.

MR MYERS:   With respect, we would say it does not lead anywhere because in fact there was never any reference in any of the communications of which I am conscious and certainly not in any part of the proceedings to this clause.

CALLINAN J:   You would expect it really if it were going to be brought into play.  I mean, suppose we can take judicial notice of the fact that the respondent is certainly an insurance‑related corporation.

MR MYERS:   Indeed.  Going back to the statement of claim, before leaving it, at least pro tem, may I point out two things.  In relation to the estoppel plea there is no detriment pleaded at all and in relation to the breach of the duty of good faith there is no claim for any loss or damage as a result.

GLEESON CJ:   But it might have been thought as a matter of pleading that the estoppel or breach of the duty of good faith that Justice Emmett has in mind would have been a matter for reply, not a matter for the statement of claim.

MR MYERS:   And there was no reply.

GLEESON CJ:   Well, I am looking at page 59.  It is an argument that really says, “You are not entitled to rely on certain paragraphs of your defence”.

MR MYERS:   We agree with that, your Honour, and what I am pointing out is that it is not raised in any reply.

CALLINAN J:   There would be no doubt about detriment, would there, in fact?

MR MYERS:   Well, we would say there would be a lot of doubt about detriment because ‑ ‑ ‑

CALLINAN J:   It does not have to be very much, does it?  You do not have to ‑ ‑ ‑

MR MYERS:   But all we are doing is saying, “You do not have to require the institution of proceedings and you can settle without our consent, but we are not admitting that we are liable to indemnify.  We will let you do all that to satisfy ASIC but we want the question of whether we are liable to indemnify to be dealt with afterwards.”

CALLINAN J:   I suppose you say there cannot be any detriment because they are in exactly the position that they should have been and if they are not in that position ‑ ‑ ‑

MR MYERS:   Exactly.  They are in a better position because ‑ ‑ ‑

CALLINAN J:   ‑ ‑ ‑ they are the authors of whatever problems ‑ ‑ ‑

MR MYERS:   Quite so.

KIRBY J:   Yes, but that is not how they advance it.  They say that they plead – they plead at the top of 24:

(d)by so settling, the applicant would not adversely affect its rights to obtain indemnity under the insurance contracts.

They say by sitting quietly on your hands you let them, by inference, adversely affect their rights to obtain indemnity as you are now claiming.

MR MYERS:   Your Honour, we did not ‑ ‑ ‑

KIRBY J:   Well, you deny indemnity now.

MR MYERS:   Yes, but that is not a plea that we are not entitled to deny indemnity.  That is simply that their rights to obtain indemnity, if they are entitled to it, will not be adversely affected.

KIRBY J:   Well, all I can say is that to read 21(d) without the inference that the allegation is that they did in the premises adversely affect their rights, according to what you are now asserting, is to read this statement of claim with Dickensian precision.

MR MYERS:   Would your Honour just allow me to draw some further things to your Honour’s attention on that subject.  We do point out now compare that plea of estoppel, whatever it may mean, with the estoppel that Justice Emmett refers to at paragraph 154.  That is a completely different estoppel, whatever it means.

KIRBY J:   “Completely” is putting it a bit high, is it not?

MR MYERS:   No.

KIRBY J:   I must admit I read your assertion that there was no proper pleading of this estoppel and then I read the paragraph and it seemed to me a pretty good pleading of the estoppel.

MR MYERS:   But it is a pleading of estoppel ‑ ‑ ‑

KIRBY J:   Your suggestion of being shocked and surprised did not seem to ring true.

MR MYERS:   There is nothing in this pleading which constitutes an estoppel against CGU contending that AMP has to establish that it is entitled to indemnity under the policies.  The defence deals directly with the estoppel.

KIRBY J:   But it jumps in at a stage earlier. It says that if they propound the protocol, you agree in principle to the protocol, they send you the information on the particular cases and all of it, and then you later seek to renege, as it is put, then you have really led them by the way you conducted yourself, contrary to the way you conducted yourself and contrary to section 13 of the Act, to affect their position.

MR MYERS:   I am going to go to the findings of fact and some of the facts which show that that is not what happened.  Could I draw attention to some correspondence which is reproduced in the court book for the period before the action was commenced?  The first is a letter of 25 May 2005 which is at court book page 125.  It is reproduced in a statement of Mr Tudjman and the letter begins on page 124.  On page 125 in the second and third paragraphs one can see what is being debated between the solicitors at this time, that is to say, whether CGU is entitled to rely upon clause 7.6.  This is before commencement of action.  Then if your Honours go to appeal book page 130, again in the same statement, there are further letters referred to and at pages 130 and 131 this issue is raised by the solicitors for AMP and they say at page 131, paragraph (c):

Further, we repeat the comments made in paragraph 2.1(d) that CGU is estopped from denying liability on this basis.

The basis being clause 7.6, or that there was no claim as defined.

KIRBY J:   Now, where is that?  I am sorry, I have lost you.

MR MYERS:   I am looking now at 130 and 131.  I referred to 131 first because it deals with clause 7.6 and at the bottom of 130 it is said:

(d)Further, AMPFP contends that CGU is estopped from denying indemnity on the basis that only no ‘Claim” as defined in clause 12.2 has been received.  A protocol –

et cetera.

GLEESON CJ:   I understand that to be a contention that you accept.

MR MYERS:   Yes.  That is the background before the proceedings are commenced.

CALLINAN J:   Mr Myers, there is just one other question I wanted to ask you.  Could I take you back to the amended statement of claim?

MR MYERS:   Yes.

CALLINAN J:   I am not sure which is the correct number, 1009 or – anyway, it is paragraph 12, the pleading of the protocol.

MR MYERS:   Yes.

CALLINAN J:   It is just paragraph (b)(iv).  The protocol stated, among things, that the applicant would obtain instructions from the respondent.  Is that a literal transcription of what the protocol says?

CRENNAN J:   It is at 326, the protocol.  That is 3(e).

MR MYERS:   Yes, it is.

CALLINAN J:   Well, 3(e), “obtain instructions from CGU in relation to settling or defending the claim”, what does that mean?  I mean, does it not imply some active role?  You are going to instruct them whether they should or should not settle?

MR MYERS:   There is no obligation upon us to do that.  In fact, we did not.  We did not give any instructions at all of that kind.

CALLINAN J:   But if you have agreed to the protocol, you have agreed arguably that you would instruct.

KIRBY J:   You are an insurer under the good faith obligations now.

CALLINAN J:   You did not in fact instruct.

MR MYERS:   We did not in fact do that, not at any time.  Everyone knew from the beginning.  The first time we did not do it, it was known that we were not doing it.  Having agreed in principle, we then said that two weeks was too short and we did not have enough information and we were not doing it.

CALLINAN J:   Were you in breach of the protocol though?

MR MYERS:   We were in breach of the protocol ‑ ‑ ‑

CALLINAN J:   Which is a separate contract, I suppose.

MR MYERS:   No, the protocol was not a contract.  It was not pleaded as a contract and Mr O’Bryan said it did not create contractual rights.

KIRBY J:   Good faith rights.

GLEESON CJ:   At what point was Mr Archibald’s opinion given?

MR MYERS:   It was in March 2002, I believe, so it is after settlements have been made.  It is 714 of the appeal book, paragraph 38 of Justice Heerey’s judgment on 20 March 2002. 

CRENNAN J:   And when was the protocol agreed?

MR MYERS:   The protocol was agreed in principle in May 2001.

CRENNAN J:   I thought it was a bit earlier, Mr Myers, because I thought you had received four sets of documents about April pursuant to ‑ ‑ ‑

MR MYERS:   Yes, we did, but the protocol was ‑ ‑ ‑

CRENNAN J:   An evolving document, was it?

MR MYERS:   Some documents were sent to us following the notification of the claims before the protocol was put in place, agreed in principle. 

GLEESON CJ:   On page 131, right in the middle of the page, there is an assertion of its position by AMPFP.  It is said “It is not now open to CGU to challenge the reasonableness of those settlements” and “AMPFP believes that CGU should review its decision regarding indemnity”.  There is an ambiguity in that statement, I should have thought.  Does that mean it is not now open to CGU to deny liability to indemnify or does it mean, if you are liable to indemnify, it is not now open for you to argue about the amount for which you are going to indemnify us?

MR MYERS:   I am not sure what was being asserted because the contention that was advanced at trial was this your Honour.  It was contended that where an insurer neither accepts nor denies liability, an insured is entitled to settle the claim insured and if the amount of the settlement is reasonable to require the insurer to pay that amount either under the indemnity of the policy or as loss and damages for breach.  Probably the latter is how it was put at trial.  So that it is a completely different case or way of approaching the matter that underlies that portion of the letter to which your Honour has referred.

GLEESON CJ:   But they are two different questions, are they not, the question whether the insurer is liable to indemnify the insured and the question, in what amount?

MR MYERS:   That is so.

GLEESON CJ:   Because if there has been no litigation and no judicial decision, or arbitral decision, about the amount of the insured’s liability to the third party, then what would normally be an issue would be both the question of the entitlement to indemnity and the question of the amount to be paid by way of indemnity.

MR MYERS:   I accept that, but – and I hope I am grappling with your Honour’s question ‑ ‑ ‑

GLEESON CJ:   My question is really, is that sentence intended to cover both of those issues or only one of them?

MR MYERS:   I think it is probably intended to cover both, your Honour, because of the way in which the case was run.  If I can now come to that, to the opening, can I take your Honours to page 137 of the book.

Mr O’Bryan opened and his opening occupied about 70 or 80 pages of transcript.  This page is early on in it.  If I could take your Honours to line 29, my learned friend says:

But for whatever reason the insurer simply can’t make up its mind or couldn’t make up its mind before some time in late 2002 when it first indicated that it would reject the indemnity, refuse to give cover under the policy, as it did in November 2002 and then subsequently in 2003 denied any liability under the policy whatsoever, in those circumstances where the insured is confident that it will incur liability in respect of such claims and manages those claims and settles them on reasonable terms, the insurer is liable, and that’s why paragraph 22A pleads the settlements were reasonable.

That passage is contemplating the state of affairs where the insurer has neither accepted nor denied liability.  So the policy is on foot.  The insurer has not accepted liability.  The insurer has not denied liability.  But in those circumstances, our friends are saying, where the insured is confident that it will incur liability in respect of the claims and manages the claims and settles them on reasonable terms, the insurer is liable.

CALLINAN J:   But does he not accept that he has to put in issue and he has put in issue by pleading that the settlements were reasonable?

MR MYERS:   Yes, he does, but the policy is on foot.  This is not a case where there has been a denial of liability and there is a breach alleged.  This is the policy on foot and the insurer has not done anything wrong; it simply has not accepted or denied liability.

CALLINAN J:   But I do not see that that opening is prejudicial to you in any way.

MR MYERS:   No, it is not.

CALLINAN J:   Because it assumes issues that AMP have to succeed on.

MR MYERS:   It does, but it is important, in my respectful submission, for your Honours to understand how the case was conducted and how we got into all this mess with estoppels.  Could I go over the page to page 138 at line 29:

Now, just pausing for a moment on 18A, your Honour, to get home on 18A, CGU has to go a step beyond all of this because the law says plainly, a prudent uninsured who has not had his indemnity confirmed by an insurer is entitled to settle claims assuming that the policy is a valid policy and that its terms would respond to a claim of the sort which has been made.  His indemnity is unavailable to him only if the settlement is not reasonable.

The contention was that before there is a denial of liability the insured can settle and if the insured can establish that the settlement is reasonable then the insurer has to pay either on the policy or loss and damages of the amount of the settlement.  It is complete heresy.

KIRBY J:   It is said in the context of this case; it is not said in the context of insurance policies generally.  It is said in the context of this case with multiple claims, with solicitors getting together with a protocol arranged, with an agreement by you in principle and then you suddenly fall into a tongue‑tied silence, Trappist‑like.

MR MYERS:   No, your Honour, we did not.

KIRBY J:   Well, there were a lot of letters that were not answered.

MR MYERS:   If your Honour pleases, may I come to that in due course.  I shall, I promise.

CALLINAN J:   But you have put that in very absolute terms saying it is a heresy.  Say that the insurer is non‑responsive or just not doing anything, then why should not an insurer treat that as a constructive rejection?

MR MYERS:   If the insured does treat it as a constructive rejection and the insured is right in doing so, then it is different.  Then the insured accepts the repudiation, the policy is not on foot and under principles of mitigation the insured settles for a reasonable amount and recovers it as damages.

CALLINAN J:   No, the insured cannot be left in no man’s land.

MR MYERS:   But, your Honour, the question nonetheless is, is the policy on foot or is it not on foot?  If the policy is on foot, it is on foot and governs the relations between the parties.  If there has been a breach of the policy, a repudiation, which is accepted and so on ‑ ‑ ‑

CALLINAN J:   It is subject to the implication at least – and, indeed, it is probably more than that – implication in every contract that each party will do what is reasonable, its utmost, reasonably to see that the contract is carried into effect.

MR MYERS:   Your Honour, I accept all that.  I accept all that, but nonetheless the question in each case is whether the policy is on foot or it is not.  There is no middle ground.  In any event, that is the way it was being put.  That is all I am wanting to demonstrate at the moment.  That case was not maintained in the Full Court and it is not maintained here.  Then over the page, 139, at line 19:

HIS HONOUR:   Do you put your case on one basis as on the footing that the protocol became a binding and contractual arrangement which in effect superseded the policy, so that if claims were submitted in accordance with the protocol and not answered within the specified time that liability ensued?

MR O’BRYAN:   No, we don’t put it that high, your Honour.  We simply say that the protocol is a step in the reasonableness of our management of these claims, because of course it would be unreasonable.  Assume for a minute that liability did subsist . . . it would be arguably unreasonable for an insured to settle a claim a day after it was made for an amount, if it hadn’t given the insurer a reasonable opportunity to look at the circumstances and assess them and make its own mind up about them.

So the protocol is just something that is to be taken into account in this issue of reasonableness.  It does not found an estoppel.  That is how the protocol has been put.  Then if we go down further, line 36:

But we certainly don’t go as far as your Honour suggests.  We don’t say that there was a contractual right, as it were, to settle simply because the protocol had not been complied with, but we do – or at least formally –

I think that might be “formerly” rather than “formally”, but perhaps both make sense –

we pleaded the protocol gave rise to an estoppel, but the estoppel would only be relevant in the circumstances that your Honour postulated earlier if CGU was now suggesting that the arrangements that were made were a breach of the policy for some reason, but that’s all disappeared, your Honour.

GLEESON CJ:   The most obvious possible reason being clause 7.6.

MR MYERS:   Exactly.  That is what it was about, your Honour.  My learned friend says in opening that the estoppel has gone because we have delivered a defence that does not put it in issue.

GLEESON CJ:   You have delivered a defence that does not rely on clause 7.6.

MR MYERS:   Yes, that is so. 

KIRBY J:   That is all.

MR MYERS:   Line 42:

The case has resolved itself down to a case of reasonableness, but the protocol is submitted to be highly relevant in any assessment of reasonableness, your Honour, because based upon legal and other advice of course –

I am sorry, I beg your pardon.  I am going to go to the next page anyhow.  Then at page 68 my learned friend had finished his opening and I was invited to give a brief outline of the respondent’s case and I said:

Certainly, your Honour.  Before I do so, could I ask my learned friend to clarify one matter.  He hasn’t adverted to the various claims under the Trade Practices Act and the Fair Trading Act and so on in his opening.  He’s told us that the estoppel is not pursued and I wondered whether those claims are not pursued.

My learned friend did not contradict me about the estoppel and he then said, “Well, we will have a think about those claims.”  He hedged, as no doubt he was entitled to.

GLEESON CJ:   Something must have revived estoppel because when Justice Heerey came to give his reasons for judgment he dealt with estoppel as an issue.

MR MYERS:   Estoppel was revived in the submissions made in closing by counsel on behalf of AMP.  When your Honours look at our written submissions in closing we do not refer to estoppel.  I can take your Honours to the pages.

GLEESON CJ:   Justice Heerey on pages 720 and 721 states what he says or what he understood to be AMP’s case on estoppel.

MR MYERS:   That is so, but that case was not articulated until the close of evidence and we had addressed.

GLEESON CJ:   Even so, is what appears on pages 720 and 721 of Justice Heerey’s judgment an accurate statement of AMP’s case on estoppel as made at trial?

MR MYERS:   Yes, it is.  It is taken almost verbatim from the written submissions of AMP and I will give your Honours some references to those in a moment.  On pages 642 to 643 there is what is described as the “APPLICANT’S AMENDED LIST OF DISPUTED ISSUES OF FACT AND LAW’.  It is dated 30 September 2004.  Addresses began on 1 October 2004 and this document was handed forward by my learned friend when he began his address.  I addressed first in the ordinary way in such a case and at the conclusion of my address this was handed forward.  On page 643, question 5:

Is CGU prevented by any principle of law (estoppel, waiver, unconscionable conduct, misleading or deceptive conduct or a breach of its obligation of utmost good faith) from relying upon its argument (first articulated –

and that argument was that the way in which the case was being put by AMP was bad in law because they could not avoid establishing liability by simply saying, “The policy being on foot, we settled for a reasonable amount.”

GLEESON CJ:   So by that stage in the trial estoppel had taken on a significance that goes beyond clause 7.6?

MR MYERS:   Certainly.

GLEESON CJ:   But if it is common ground that Justice Heerey at pages 720 and 721 has accurately summarised AMP’s case on estoppel then we do not need to look behind that, do we? 

MR MYERS:   No.

GLEESON CJ:   Was there any different case made in relation to good faith?

MR MYERS:   No, there was not.

KIRBY J:   Is that not inconsistent with your written submissions complaining that this is really an invention in the Full Court?

MR MYERS:   Yes, the estoppel that is relied upon in the Full Court is quite a different estoppel.

KIRBY J:   You had better try to establish that because certainly the adjective completely leaves me a bit unpersuaded at the moment. 

MR MYERS:   It was a different estoppel.

GLEESON CJ:   It must be different because the Full Court’s criticism of Justice Heerey was that he did not consider it.

MR MYERS:   Quite.  May I just point out, the respondent’s outline of submissions is at page 644 and following, no reference to estoppel.  The closing submissions on behalf of the applicant, page 672 and following and that is where Justice Heerey takes what he has set out in his judgment, as the learned Chief Justice has said, as to the estoppel case. 

KIRBY J:   The question is what was before Justice Heerey in a sort of procedural fairness complaint, which is what I take you to be trying to advance, that this matter was not really the subject of the trial.

MR MYERS:   It was not at all.

KIRBY J:   That is the issue.

MR MYERS:   That is one issue, certainly.  But the estoppel that the Full Court dealt with was a different estoppel because the case that was maintained in the Full Court was quite a different case and I will come to that.  I am sorry it is taking a while but I will do it.  At page 692, the respondent’s submissions in reply are filed and on page 696 we say two things:  the estoppel argument is misconceived, secondly, “it is plain that the estoppel claim was abandoned in opening”.  When we say it is misconceived we are saying it is not within the pleading and, in any event, any estoppel claim was “abandoned in opening”.  Then we go on to say there is no evidence of reliance and so on.  Justice Heerey, nonetheless, in his reasons for decision dealt with that estoppel case and dismissed it.

KIRBY J:   How would you identify precisely the difference between the estoppel which you say was pleaded and advanced so far as any was advanced at trial, and the estoppel that Justice Emmett has found?

MR MYERS:   The estopped that was pleaded related to reliance on clause 7.6 and the absence of a claim.  The estoppel that was put before Justice Heerey was that we were not entitled to raise the argument that the AMP could not prove its case simply by showing that it had gone through a reasonable process to settle claims.

KIRBY J:   But there is no mention in the estoppel as pleaded and I am looking at page 23 of the reliance on clause 7.6 of the policy.

MR MYERS:   No, there is not.  It does not say so in terms but that was the ‑ ‑ ‑

KIRBY J:   On the contrary, the mention is that they must not be adversely affected in their rights by your failure to respond and so it is addressed to your conduct.

MR MYERS:   Your Honour, that is the context in which it was pleaded.  It is badly pleaded, if I may say so, but that is the context ‑ ‑ ‑

KIRBY J:   Yes, but it is not a different estoppel from the one that – it is exactly the estoppel that Justice Emmett has found and said has not been addressed.

MR MYERS:   Your Honour, the estoppel that was pleaded or opened or both was an estoppel that related to clause 7.6 or something and Mr O’Bryan said in the clearest possible terms, “We have the defence now.  We do not need to worry about estoppel.”  Then in closing submissions an estoppel was raised which was an estoppel against the applicant conducting the trial in a particular way.

Then when it came to the Full Court the way in which the case was put was different.  Instead of it being contended by our friends that the basis of their claim was to recover the amount of a reasonable settlement as loss and damages they said that they were entitled to recover the amount of the reasonable settlement under the indemnity clause of the policy and a different sort of estoppel was required then and that is the estoppel which was put to the appeal court and which Justice Emmett refers to in paragraph 154.

KIRBY J:   What page is that?

MR MYERS:   That is page 889, and that is:

whether AMP was induced by CGU’s conduct to assume that, if it settled that demand on reasonable terms, it would not be required to establish by admissible evidence that it was legally liable to that investor in order to be reimbursed ‑ ‑ ‑

GLEESON CJ:   Now, what was the area or possible area of doubt about liability?

MR MYERS:   First, perhaps, issues arising under section 819, particularly 819(4) because ultimately that was how the investor – that is how AMP could be held liable to the investor, not ‑ ‑ ‑

GLEESON CJ:   It was an issue concerning whether or not these two representatives who had a company called MAG were representing AMP or representing MAG?

MR MYERS:   Both, because under section 819 if they are holders of an authorised whatever it is called – an authority from AMP, even if they are acting for MAG, AMP may be liable unless MAG is brought into the proceedings and an order is made that AMP is not liable.  But there is a means of avoiding the liability under section 819 by pointing to the fact that in fact the authorised representative was acting on someone else’s behalf.

GLEESON CJ:   In this case MAG?

MR MYERS:   In this case MAG.

GLEESON CJ:   That was the foundation of Mr Archibald’s opinion, was it?

MR MYERS:   Mr Archibald took another point regarding section 819 but his opinion did refer to section 819 – it concerned section 819.  The second question was this, when advice was given, did these gentlemen hold authorities from AMP or from Hillross.  Another AMP company had given authorities to them and for a certain period they held authorities from AMP and for a certain period they held it from Hillross, an AMP subsidiary.  So if the advice that is complained of was given during the period of the Hillross authority, if anyone was liable it would be Hillross not AMP.

Hillross was insured with a different insurer, HIH, and so to put it bluntly, there was a bit of shuffling to ensure that if possible the advice was found to have been given during the time of the AMP authority, not the Hillross authority.

CALLINAN J:   There was a third shuffle, too, was there not, and did that not relate to an assertion by your solicitors that AMP should look to the directors’ and officers’ insurance policies with GIO?

MR MYERS:   That is the next question.  There was a question of the relationship between the various policies of insurance.  The next issue was whether the amount of the loss – if indeed there was a loss – was correctly computed because the way in which it proceeded, as best CGU could determine, was AMP asked the investors, “Well, did you lose on any investments?” and they said, “Yes, we lost on investment 1, investment 3 and investment 9”.  “We will pay you for your losses on those”, AMP said, “plus interest.  You do not have to take into account the profits on all the other investments”, and that was an issue.

CALLINAN J:   Mr Myers, relating to the question of liability of AMP, your notice of appeal, ground 2(d) at 964 says that “the primary judge had erred” - you are contesting the Full Court’s holding that the primary judge erred:

in holding that the settlements were unreasonable because AMPFP had failed to take into account the possible –

defences to which you have just referred.

MR MYERS:   Yes.

CALLINAN J:   Those possible defences may have had this effect, reasonably, not perhaps of inducing a reasonable insurer and a reasonable insured to deny a claim absolutely but perhaps to discount it by either some substantial amount or because of the uncertainties of litigation.  You would accept the possibility of that proposition?

MR MYERS:   Obviously.  That happens in the world every day.

CALLINAN J:   Yes.  I am not saying that Justice Heerey should have said that the defences would have succeeded absolutely.  They just should have been taken into account in assessing the reasonableness of any settlements.

MR MYERS: Certainly, though it must be said that in relation to, for example, section 819(4) it is a bit hard to see why it did not provide an absolute defence as Justice Gyles found.

CALLINAN J:   That would be a matter for argument.  Yes.  Did he find it in absolute terms ‑ ‑ ‑

MR MYERS:   Yes, I believe so.

CALLINAN J:   He did.  All right.

MR MYERS:   I believe Justice Heerey did, too.  It is very difficult to see why it would not be so given that these gentlemen have ‑ ‑ ‑

CALLINAN J:   At any rate, that is a later argument if you succeed, is that not right?

MR MYERS:   No, if we ‑ ‑ ‑

CALLINAN J:   I am sorry.

KIRBY J:   If you succeed, that is it.

CALLINAN J:   That is it.

MR MYERS:   If we succeed ‑ ‑ ‑

KIRBY J:   You would even want your costs in the other proceeding, too.

GLEESON CJ:   That is because the trial before Justice Heerey was conducted on the basis that it was possible for AMP to walk around all those issues.  AMP did not call evidence to address those issues, did it?

MR MYERS:   No, it did not.

GLEESON CJ:   So the trial was conducted, rightly or wrongly is the matter that remains to be determined, upon the basis that AMP could pursue its claim for indemnity against CGU without addressing any of those issues by evidence.

MR MYERS:   That is so.  All it had to have is a reasonable process.  That is what it said.

CALLINAN J:   To follow up what the Chief Justice has just asked you, it could, for example, have called a senior counsel who might have been able to say – it might be arguable whether he could have said this but I think he probably could have said, “I think it would have been reasonable to give a discount of, say, no more than 10 per cent”, and then you would have addressed that issue perhaps by calling counsel about that and then having an ultimate argument.  It may have been a matter upon which evidence could have been called, or do you say it was a matter that only the judge could decide?

MR MYERS:   It may have been a matter on which evidence could be called.

CALLINAN J:   Expert evidence may have been ‑ ‑ ‑

MR MYERS:   I am reluctant to give a ‑ ‑ ‑

CALLINAN J:   No, but it may be relevant because, if what the Chief Justice has just put to you, the response that it elicited, this matter was not even addressed by AMP, as it could and should have been, and you never had an opportunity to address it either.

MR MYERS:   No, it was not.  What AMP said is that, “Before you’ve admitted liability, we’re entitled to settle – not because of the protocol.  The protocol’s just something that tends to show we’re acting reasonably.  As long as we act reasonably”, and reasonableness was in the process, not in the result.  That is the case they ran and therefore, they did not tender any of this vast body of documentary evidence that was assembled by them for proof of any of the facts contained in it but just proof that that is what happened:  a report was prepared and it was sent to someone.

KIRBY J:   The logical flaw that you assert is that that fails to take into account that there were issues of whether there was a liability at all, so the question then becomes:  did the conduct that you engaged in by, as it were, not being upfront and saying, “Look, we’re not going to pay these claims.  There are these issues.  We’re entitled to protect our rights under these issues”, does that mean that you are estopped forever from having the opportunity of saying, “This isn’t just a quantification matter.  This is a question of liability at all”.

MR MYERS:   That is so, your Honour.  Obviously I do not accept the sort of factual assumption that your Honour made in framing that question but certainly otherwise I accept what your Honour says.

KIRBY J:   It has turned into a quantum matter when there is lurking in the background a real issue of indemnity, liability and no account has been made for that, even on the basis Justice Callinan was saying that the question of indemnity obligation would be a matter on reasonableness that you would take into account in deciding the amount of what would be reasonable.

MR MYERS:   It may be, yes.

GLEESON CJ:   Did anybody ever address the possibility of running one of these cases as a test case, that is, take the case of – there were 63 investors or something, I know, but a possible way of dealing with it might have been to take the case of one investor proved to be typical ‑ ‑ ‑

MR MYERS:   No, AMP said, your Honour, “We do not have do that.  All we have to prove that we engage in a reasonable process”.

CALLINAN J:   They did not want to be ‑ ‑ ‑

KIRBY J:   Well, Mr O’Bryan before this Court has said that you failed to suggest that, that you failed to agree with that process.  That is a specific complaint against you.  The Chief Justice’s idea which is a practical way to deal with it ‑ ‑ ‑

MR MYERS:   Well, I am not sure what the evidence of that is ‑ ‑ ‑

CALLINAN J:   In fact there is a contrary inference though, the contrary inference being that AMP did not want to do this because of the ASIC pressure and the bad publicity and the risk to its licence that that might involve.

MR MYERS:   When Mr O’Bryan sort of complained about running 63 cases, Justice Heerey engaged him in debate about that and Justice Heerey deals with that in paragraph 44 of his reasons for decision at page 715.  He said:

Senior counsel for AMPFP complained that requiring such proof meant that it would have to conduct 63 separate trials within the present trial.  I do not agree with this gloomy scenario.  It would have been open to AMPFP to sue for a declaration as to its right of indemnity . . . AMPFP could call, say, three or four Investors chosen as typical examples.  CGU might well have agreed on a selection of test cases.  Even if it did not, if AMPFP proved its liability to three or four Investors, and overcame the various defences of CGU based on terms of the Policies, then it is hard to believe the remaining claims would not be resolved by negotiation or mediation.

At another point of his reasons for decision Justice Heerey points out that in the end counsel for AMP did not make any claim of forensic disadvantage.

KIRBY J:   The reference that I made to the respondent’s argument is in paragraph 45 of the written submission where it specifically said:

CGU could have instruction AMPFP to defend a claim by way of a ‘test case’ or otherwise, but it did not do so.  It is too late for CGU now to complain.

MR MYERS:   Yes, it could have and so too could ‑ ‑ ‑

KIRBY J:   But there is this added ingredient, Mr Myers.  You do not like to face up to this, but there is the added ingredient which we who were brought up in the old days where the insurer could just sit there, sit on its hands, do nothing, that is out.  Parliament has said that is out.  You have to act in the utmost good faith to your insured.

MR MYERS:   I accept all that, your Honour, but AMP came along to the court and said “We do not have to prove liability in a single case”.  That is what they said.  All we have to do is show that we have engaged in a reasonable process and effected a settlement as a result of the reasonable process and we are entitled to claim as loss and damage the amount of the settlement.

CALLINAN J:   Mr Myers, I am looking at your chronology and on page 3 there is a reference to 12 July 2001 and there your solicitors make it unmistakably clear that, “it has not yet determined to confer indemnity”.

MR MYERS:   Your Honour, I am going to go to this evidence.  It was unmistakably clear.  There was ‑ ‑ ‑

CALLINAN J:   By then, how many had been settled, do you know, approximately?

MR MYERS:   On 12 July, I do not know.

CALLINAN J:   Yes, 12 July.

MR MYERS:   None.

CALLINAN J:   But there are still a lot of claims outstanding?

MR MYERS:   None had been settled by then.  There were four settled by 26 July and all but two settled by the end of November, but all the settlements occurred after the meeting of 5 October and in the next sort of six weeks or so.

CALLINAN J:   If you look at the chronology there are reiterations of that, and ultimately, I think, on 14 November you say liability is denied?

MR MYERS:   Yes.

CALLINAN J:   But until then you have made it clear that you are certainly not admitting liability?

MR MYERS:   But nor were we denying liability, and we were asking for information ‑ ‑ ‑

CALLINAN J:   No, you were reserving your position.

CRENNAN J:   You had reserved your position.

MR MYERS:   Reserved our position and we were not merely sitting on our hands.

CALLINAN J:   And saying, in effect, that the matter for compliance with the protocol is a matter for you.  They are your internal management procedures and they do not affect our liability.  That is your position?

MR MYERS:   Precisely, that is what we said.  Could I take your Honours to just another couple of pages of transcript?

GLEESON CJ:   Is it convenient to come to this at 2.15?

MR MYERS:   Yes, of course, your Honour.

GLEESON CJ:   We will adjourn until 2.15.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

GLEESON CJ:   Yes, Mr Myers.

MR MYERS:   Could I ask your Honours to go to page 140 in the first volume.  At the bottom of page 139, I read to your Honours the statement of my learned friend concerning the estoppel and the matter “has resolved itself down to a case of reasonableness” and the protocol is relevant to that.  Then, more or less, my learned friend’s opening concluded and his Honour invited me to open briefly, which I did, and said in substance, as is set out in the next couple of pages, that the claim as framed as one for damages is bound to fail because the policies were on foot and it is not contended that the policies had come to an end, so there was no entitlement to settle on a basis, reasonable or otherwise.  Alternatively, if AMP wanted to run a case based on the policies, they would have to establish that there was a liability under the policy.  Then, your Honours, at page 145, line 8, my learned friend said:

I’ll read with care what my learned friend has put from the bar table a moment ago, not all of which made sense, to me at least, in deciding whether those unconscionability and estoppel principles should go forward.

And the matter was left there.

KIRBY J:   Now, where was that, I am sorry?

MR MYERS:   Page 145, line 8 to 9.

KIRBY J:   Yes, thank you.

MR MYERS:   Then my learned friend continued below on page 145 and he said at line 24:

Those are the claims that are made in paragraphs 25, 26, 27, 28 and 29 of the statement of claim because the submission in response to the fundamental proposition which Mr Myers has put is that it’s wrong as a matter of law, that if an insurer does what CGU did here and simply stands by, refusing to deny or confirm indemnity until the point is reached whereby it, in a practical sense, forces the insured to deal reasonably and realistically with the underlying claims, then it is entitled to a claim for damages in respect of the amount which it has expended and entitled, as it does in this case, to claim an indemnity in respect of any later amounts which will become due in the event that those claims which have been deferred or are not as yet resolved do mature into actual claims, your Honour.

HIS HONOUR:   Does that mean that your case is really in two parts; damages for the claims you’ve already paid and indemnity for the balance?

MR O’BRYAN:   That’s right, your Honour.  It has always been that way.

GLEESON CJ:   Damages for breach of contract?

MR MYERS:   Yes.

GLEESON CJ:   The breach being?

MR MYERS:   The breach being standing by and not – your Honour, there is no breach alleged.  That is the problem.  My friend asserted that even while the contract is on foot there is a claim available for damages.

CALLINAN J:   What about a constructive failure to respond reasonably to claims made?

MR MYERS:   On the basis that the constructive failure amounts to a repudiation of the contract or repudiation of the obligation to indemnify and an action for damages.

CALLINAN J:   It might not have to be a repudiation but just doing nothing.  I mean, you cannot keep your insured in limbo forever.  I mean, that is plain, is it not?  You would not assert that, would you?

MR MYERS:   I do not assert that.  In this case all that is asserted is that where an insurer has neither admitted or denied liability an insured is entitled to settle for a reasonable amount.  We said that that is wrong in point of law, because in this case it is always alleged that the policy is on foot.  There is no contention that the policy has been terminated by acceptance of a repudiation or anything of that kind.

CALLINAN J:   If it is on foot, is there not a continuing obligation to deal responsibly with claims made under it?

MR MYERS:   Of course there is, your Honour.

CALLINAN J:   Now, is there not a case against you that you did not deal responsibly, that you held off and you deferred saying yes or no.  You said you go ahead and deal with them as a prudent uninsured person would.  I am not saying it necessarily is, but is that not arguably not enough?  Should you not be saying, “Look, we will look at it reasonably, diligently and promptly and we will decide whether we are going to indemnify you or not”?  What is wrong with that as, I would have thought, an implied term of any policy?

MR MYERS:   That is not pleaded.  It may be that much of what your Honour says is true, although I would contest that, but it is not pleaded.  That is not how the case is run.  Your Honour, if an insured is considering whether to indemnify or not, a question will arise whether a failure to notify that one indemnifies is a constructive denial or repudiation of the obligations under the contract.  If that happens, then the insured is free, having terminated the contract, to go out and mitigate its loss by settling a claim on reasonable terms.

CALLINAN J:   Not free, bound to.

MR MYERS:   Well, not bound to because ‑ ‑ ‑

CALLINAN J:   Well, in its own interests.

MR MYERS:   They may decide not to proceed against the insured, but if they do want to get anything then they have to settle it on reasonable terms, but that is not the case here.  It was clear at all times that the policy was on foot and the parties recognised that the policy was on foot and, for example, there is a passage in Justice Heerey’s reasons for decision which illustrates – it is at page 722.  Justice Heerey uses it for another purpose in relation to the estoppel, but the attack that was made by CGU on the evidence of the witnesses of AMP was twofold.

First of all, the process of settling was not followed in a reasonable way.  Now, we said that reasonableness is irrelevant but in case we are wrong, of course, we contested it.  There was quite a lot of cross‑examination directed towards that and evidence directed towards that.  But the other point was whether AMP acknowledged that the policy remained on foot and I asked Mr Tudjman, who was the most senior man called and a legal practitioner, this:

Q… Until receipt of that letter of 14 November [2002], whenever that occurred at the earliest, there was no denial of liability?

A        That’s my recollection.

QSo you were acting on the basis that the policy was on foot.  Leave aside the question of whether it ceased to be on foot after that date, but you were acting on the basis that the policy was on foot?

A        Yes.

Everything is settled by that stage and ‑ ‑ ‑

CALLINAN J:   When you say the policy is on foot, the respective rights and obligations under it subsist.

MR MYERS:   Exactly.

CALLINAN J:   One of those obligations is, whether it is on foot or not, for you to deal responsibly with your insured.  I know what you say about pleading and case being conducted, but at this stage I do not know enough about the case to know whether what I have just put to you is irrelevant or not.

MR MYERS:   But an insured who claims that there has been a repudiation by the insurer, whether explicit or constructive or however it is described adjectively, has to either decide whether to accept the repudiation or not.

CALLINAN J:   Well, you have to look at the whole of the circumstances though and there is a great deal of uncertainty in the mind of the insured.  Now, is it not the fact that you got notice of the claim, I think – I am just looking at your chronology – you were actually notified on 5 September 2000, I think, is that not right?  That is on page ‑ ‑ ‑

MR MYERS:   The possibility of claims, yes.

CALLINAN J:   No, it gives notification that it – yes, that it has ‑ ‑ ‑

MR MYERS:   But here was no information provided except of the sketchiest kind.

CALLINAN J:   I know.

MR MYERS:   It was not until the next year that some information was provided.  In March some information was provided concerning the Bajada claim, which you will have seen mentioned, and at the same time a letter was sent saying, “We suggest this protocol and we are going to settle in 14 days unless you tell us otherwise”.

CALLINAN J:   But the actual denial of liability did not occur until 14 November 2002.  Is that right?

MR MYERS:   Yes, that is correct.

CALLINAN J:   Does the evidence explain why it took so long?

MR MYERS:   To some degree it does but ‑ ‑ ‑

CALLINAN J:   I know what you say.  I know you say it is irrelevant and you are probably right, but I do not know that yet.  I do not know enough about the case, Mr Myers.  Just bear with me for a little bit.

MR MYERS:   Does the evidence explain that?  Yes, it does.  Not completely though, because it was not an issue that was squarely in point.  What the evidence does establish was that all these claims were settled by November 2001.  So AMP went ahead and settled everything between July and November 2001.

CALLINAN J:   So that was within how many months of what you would describe as a notification?

MR MYERS:   The first information that came was the Bajada information.  That was in March 2001. 

CALLINAN J:   So they settled within about eight months?

MR MYERS:   Yes, they settled sooner than that probably, but everything was settled by then. 

CALLINAN J:   I would be interested in including that in your chronology, Mr Myers, when the last of the claims was settled.  I mean, do not worry about it now but perhaps ‑ ‑ ‑

MR MYERS:   There is an appendix to the statement of claim which sets out when everything was settled and that is on page 29.

CALLINAN J:   Yes, what date is it?  What is the last claim?  If it is not convenient now, do it later.

MR MYERS:   My learned junior will find out what the last date is.  It is all set out there in tabular form on page 29 of the court book.  Your Honours, could I then go across the page onto page 146 of the court book.  That is the passage where Mr O’Bryan talks about conducting 63 separate trials at about line 27 and then he said this at line 30 ‑ ‑ ‑

KIRBY J:   That would soften a judge up.

MR MYERS:   Yes, I am sure it was said for a purpose.

KIRBY J:   That is when I would sit up and start to pay attention.

MR MYERS:   He said:

We say that that is absolutely, flatly contrary to lots of authority in this country, but I won’t debate that point here and now, your Honour.  It is unnecessary to do so, it is only necessary to prove that the settlements were objectively reasonable.  That is why nothing in those volumes –

these are all the volumes of material –

other than the witness statements themselves, is relied upon testimonially, because one can make the absurd assumption, it is an absurd assumption, that all of those documents were lies told by everyone who said these things to AMPFP, including Mr  Mullaly saying it on oath.

KIRBY J:   Is that authority that is referred to, is that that line of authority that includes Justice Hayne in this Court?  Is that what he is referring to, unity or whatever it is called?

MR MYERS:   Rocco Pezzano, yes.

KIRBY J:   Yes.

MR MYERS:   Then if I can go to the bottom of page 147, there is a debate about the way the settlement has occurred:

MR O’BRYAN:   No, you don’t, your Honour, because they form a pattern of the sort that I was trying to indicate to your Honour yesterday by reference to the specific (indistinct) of O’Connor and Spargo, and the pattern goes as is described in paragraph 50.  As soon as your Honour observes the pattern and makes one assumption, namely that it was reasonable for those who were doing the interviews and investigations to assume, on the basis of what they were given, that people were telling them the truth, and that the things that they were being told were things that were likely to be capable of judicial proof [if] proceedings had commenced at the suit of the investor, then it is submitted your Honour can conclude it was reasonable to settle on that basis. 

So it is a matter of being satisfied about the procedures that were adopted by AMPFP to reach that level of satisfaction, and then provided your Honour is satisfied that that procedure was adopted and those documents evidenced the adoption of that procedure in every case, your Honour does not have to read everything in those volumes at all, but it is important that the material is there, both so that the other side can test any part of it that they wish to test with the people who actually have formed the work, who were producing, like Mr Heyworth and Mr Tudjman and so forth.

KIRBY J:   It is a bit like a forensic onus of proof point that he is putting.  He is saying that, given the background, given the protocol, given your agreement in principle, given the fact that you are getting all this information, the forensic obligation if you wanted to was to call for a particular person or witness or to test it but that you cannot just sit on your hands and do nothing and then later say we are ‑ ‑ ‑

MR MYERS:   With respect, your Honour, my learned friend was not saying given any of those things.  What he was saying is that he was entitled to settle if the settlement was reasonable and to judge whether it is reasonable or not, you do not look at the facts which determine whether there was an actual liability, but you simply look at the procedures that have been gone through by the insured.

CRENNAN J:   Was section 819 dealt with in this context at all?

MR MYERS:   Section 819 is referred to in some of the documents that AMP brought into existence and the documents, so far as they were provided to us, suggest that AMP thought that section 819 did not deny them an entitlement to claim.  However, it was unclear, as appears from the cross‑examination of Mr Tudjman, to what extent Mr Tudjman actually changed some of the draft advices of Minter Ellison. 

The way it went was that Minter Ellison prepared a draft advice on liability, sent it to Mr Tudjman and Mr Tudjman made lots of alterations to it if it contained things that he did not like, and then he said, when it was in the form that he liked, “Well, I rely upon that”.  The cross‑examination which is set out from page 162 and following in the court book is directed to that and it shows that Mr Tudjman made many alterations to documents.  I can take your Honours to it, I think.  I hope my memory serves me correctly about 162.  Yes, it begins about line 21.

KIRBY J:   What is the point of this?  I am not quite following this.

MR MYERS:   The point is, what was the procedure that was adopted in relation to the liability reports.  Justice Crennan asked me whether 819 was mentioned in the liability report and what I said was that the liability reports that we received suggested that AMP considered that section 819 was not a problem to it.  However, the liability reports that Mr Tudjman received may have been different.  I do not want to read this and burden the Court, but page 167 catches my eye.  I said something this morning about Hillross and ‑ ‑ ‑

KIRBY J:   I am beginning to get a feeling I am back in the New South Wales Court of Appeal.  Where is the point of principle?  Where is the point of fundamental practice?  Where is the point of significance for the law?

MR MYERS:   The point of principle is that the Full Court determined the case on a basis that was not put to the trial judge.  It was not open on the pleadings ‑ ‑ ‑

KIRBY J:   As I understand it, you have two points.  First, a sort of procedural fairness point that the Full Court has really cut a swathe through the way the case was run and the way it proceeded, and that requires a close analysis of how things were done and the pleadings and the statements by counsel and so on, and then secondly, that it is simply not the law that if you conform to a protocol and that you follow through procedures that a plaintiff who is suing an insurer on an insurance contract where the insurer has not accepted liability but has relied on its rights can just say, “Well, we followed the protocol and don’t you worry about the problems that existed in liability of the insurer.  You just cast them to one side.”

MR MYERS:   Absolutely, but that is the case – the reasonable settlement case was run before Justice Heerey.  Before the Full Court, the reasonable settlement case was not run.  It just was not mentioned at all, indeed ‑ ‑ ‑

CALLINAN J:   You say it is clear from that opening that those bundles of documents were not tendered to prove that the settlements were reasonable, but were simply tendered to prove that the process had been adhered to?

MR MYERS:   Quite clearly.  There can be no dispute about that, in my respectful submission.

CALLINAN J:   So, therefore, you did not need to explore and did not explore the reasonableness or otherwise of any of the settlements?

MR MYERS:   No, but I did explore in cross‑examination of Mr Heyworth and Mr Tudjman the reasonableness of the process.  Now, we contended that that did not matter but nonetheless one had to deal with it.

CALLINAN J:   You say the process was flawed anyway because, for example, the alterations were made by Mr Tudjman?

MR MYERS:   He changed them completely.  In one case here, senior counsel said that we are not going to succeed and he changed it to say senior counsel said that we will succeed.

GLEESON CJ:   Mr Myers, insofar as it was complained that CGU sat on its hands and did not come straight out and deny liability, what it is said AMP would have done differently if CGU had not sat on its hands and had come straight out and denied liability?

MR MYERS:   Nothing, your Honour.  It was not pleaded and the only hint of it was some forensic disadvantage:  we would have to run 63 trials.

GLEESON CJ:   Where is the element of reliance and change of position?

MR MYERS:   There is not.  May I come to it in a moment?

KIRBY J:   If you had been upfront and candid as an insurer owing a duty of good faith arguably has to and conducted your case in a more open way, then at least arguably everyone would have known where they stood, but you did not really say, “Well, we have got real problems about this, that and the other and we are just not going to meet these claims.  You are on your own proof.”  I mean that happens all the time, but you seem to have sort of messed them around and the solicitors ‑ ‑ ‑

MR MYERS:   Your Honour, can I come to that.  I do seem to be proceeding terribly slowly and I apologise for that, but I do want to draw the Court’s attention to some things about the conduct of the trial and then I will come to the questions of evidence, because these are crucial.

What I began with this morning was pointing out that Justice Emmett had criticised Justice Heerey for conducting the trial in a particular way, but Justice Heerey conducted the trial exactly as he was asked to conduct it.  One of the things that was said against him is that he did not assess the evidence to see whether there was a case of liability.  He was asked not to and he did not have the evidence to do it because it was not tendered for that purpose.

CALLINAN J:   Mr Myers, I suppose, if they had wanted to, the respondents could have invoked clause 7.8 of the policy.

MR MYERS:   They could have done.

CALLINAN J:   That might have been the solution to all the problems if there were problems.

MR MYERS:   It might have been but for whatever reason it was not and ‑ ‑ ‑

CALLINAN J:   I do not think that is against you; rather, to the contrary.

CRENNAN J:   Does the evidence show there was pressure to agree to the protocol?  Let me explain why I ask that.  There is a kind of tension between agreeing to the protocol and wholly reserving your position.  I completely understand your argument about how about AMP’s approach did not fit within the cases because the cases are generally in this area about wrongful denial of liability and then an insured person being able to make a reasonable settlement.  Your point, as I understand it, is it was all premature what happened. 

So I am just asking whether there was pressure in relation to agreeing to the protocol because there is a kind of tension between agreeing to the protocol but wholly reserving the position on liability.  In one way agreeing with the protocol in those circumstances is like saying, “Well, we agree in principle to the protocol but it can’t start yet because we’re wholly reserving the position.”

MR MYERS:   But all the protocol enabled AMP to do was to settle if we did not say do not settle without being in breach of clause 7.6.

KIRBY J:   But why did you agree with the protocol in principle and not just say, “Look, prove your case”?  That would be the honourable thing to do.

MR MYERS:   But we were being an insurer, acting in good faith and asking them for information to show us that they had a good case, and we asked repeatedly.

CRENNAN J:   Well, 14 days to give an answer is probably ‑ ‑ ‑

MR MYERS:   Ms Solomon said, “That is nonsense.  I am not going to deal with things in 14 days”, and, indeed, there was never a reply within 14 days, but at least AMP was protected under clause 7.6.

CALLINAN J:   I would still like to be satisfied that there was not temporising on the part of your client.  I know what you say about it and on any view it may be irrelevant if, in fact, the claims were settled by ‑ ‑ ‑

MR MYERS:   Bu the case ‑ ‑ ‑

CALLINAN J:   Let me finish, please, Mr Myers.

MR MYERS:   I am sorry.  I beg your pardon, your Honour.

CALLINAN J:   What is concerning me – and it may not be concerning you but ultimately it may.

MR MYERS:   I beg your Honour’s pardon.

CALLINAN J:   I would like to know when the last of the claims was settled in relation to the clear denial of any liability by your client.  I know you say it is in the schedule somewhere, but can I be given a date?

MR MYERS:   The last claim was settled on 23 January 2004 but that was long after the great bulk of the claims were settled.

CALLINAN J:   When do you say the great bulk of them were settled?

MR MYERS:   November 2001.

CALLINAN J:   I would just like to know how many were settled by then out of, what, 63.

MR MYERS:   My learned junior will ‑ ‑ ‑

CALLINAN J:   All right, thank you.  I mean, by temporising you could do enormous harm to an insured and the fact that insureds may have a good name in a marketplace, that is one of the reasons for a senior counsel clause, as you know, so that it is not hard to imply a term – in fact, I think it is inevitable – of a requirement of reasonable diligence and expedition on the part of the insurer.

MR MYERS:   Your Honour, but ultimately – and I am sorry I interrupted you before – my answer to your Honour’s observation is that that was not the case that was put.  It simply was not put.  The case that was put below before Justice Heerey, as I hope I have demonstrated, was that we are simply entitled to settle on reasonable grounds because you have not denied liability.  It was not because you are in breach of the policy; it is just that you have not denied liability so we can settle.

KIRBY J:   But would not it therefore be a beneficial consequence of this Court’s dismissing the appeal that the message would go out that insurers do not temporise, they come to their decisions with great promptness and in their acting in good faith they tell their insured, “You’re on your own”? Would that not be a very useful consequence of section 13 that let the insurance industry know that that is the rule in this country?

MR MYERS:   If your Honour pleases, if your Honour were to say that that is the rule in this country and my client did not temporise or improperly delay, then I would be perfectly content because that is the fact.

KIRBY J:   On Justice Emmett’s solution it goes back to have that question considered, whether you are estopped by your conduct and, in the light of section 13, by reason of what you did and what you did not do and that is then explored against a principle that insurers cannot mess their insured around because they have solutions in their own hands.

MR MYERS:   But Justice Emmett, with respect, failed to consider how the case was conducted below, failed to consider the limited way in which the evidence was put and has remitted particular questions, if one interprets the general remitter in that way, in such a way that there is going to be new evidence and a new trial of a different kind than the trial that was originally conducted.

KIRBY J:   We had this out in the special leave and I think Mr O’Bryan accepted that there may be some additional evidence provided but that essentially it would be on the basis of the record.

MR MYERS:   If it is on the basis of the record, then Mr O’Bryan’s client will, with respect, fail.

CALLINAN J:   It would not matter what Mr O’Bryan says, there would have to be further evidence because there would have to be a lot more cross‑examination anyway.  Is that not right?

MR MYERS:   Absolutely, your Honour.  The way in which this remitter would actually work is far from clear because whether or not you ‑ ‑ ‑

CALLINAN J:   It would require you to test in your own interest a great deal of the material that you did not have to test before?

MR MYERS:   I would have to test different material in a different way.  I was concerned with only two things, were the policies on foot, did the other party acknowledge that the policies were on foot, and secondly, just in case we are wrong about the law, was this procedure reasonable, was the process reasonable, and that was it, and it was particularly through Mr Heyworth and Mr Tudjman, and extracts of their evidence are in the book.

Could I deal with this matter, your Honour?  Your Honours will recall at paragraph 95, which I read this morning, appeal book 871, Justice Emmett criticised Justice Heerey for failing to deal with the estoppel case, and if I could ask your Honours to look at appeal book pages 720 to 721 ‑ your Honour the Chief Justice has already drawn attention to this, I must say.

Justice Heerey dealt with the estoppel case that was put before him.  He did not deal precisely with the estoppel case that was put before the Full Court because it was a different estoppel case, and he dealt with it directly.  There is no question but that he understood the case.  He sets out verbatim a large amount of the submissions that were put to him and he deals with them.

The estoppel case was also framed orally in argument by Mr O’Bryan at appeal book 643 and 816.  I do not want to read those passages unless your Honours would be assisted by it.  Justice Heerey actually addressed what Justice Emmett said that he did not address.  At page 704 of the book at the bottom Justice Heerey set out question 3:

If yes to 1 and no to 2 can AMPFP avoid that result –

the result being whether CGU is liable for damages when the settlements were made before any breach of the policies –

by reason of its having, with CGU’s knowledge, paid Investors under the Settlements pursuant to the Protocol and on the basis of –

estoppel.  So that he has dealt with it directly.  At page 715 ‑ ‑ ‑

KIRBY J:   But he does not really - with respect to his Honour on pages 722 to 723, it is a rather short treatment of estoppel.  He does not really go through and explore the issues of, as it were, lulling the respondent into a false sense by the way in which you would not come to your conclusion.

MR MYERS:   With respect, your Honour, having set out what the estoppel is at paragraph 60 he says:

For a start, I am not satisfied there was any relevant reliance by AMPFP.

So he makes the point.

Up until the receipt of the letter of 14 November 2002 it recognised, as was the fact, that CGU had neither admitted nor denied liability to indemnify under the Policies.

Then at paragraph 61:

AMPFP had no belief that CGU had accepted liability.  On the contrary, it was apparent to it that CGU had not yet made up its mind.

It was sitting on the fence, a metaphor we do not exactly embrace. 

It was equally possible that CGU might, at some future time, deny liability.  AMPFP entered into the Settlements and paid the Investors not in reliance of any commitment or promise or representation by CGU but because AMPFP considered the Settlements were desirable in its own interests, especially having regard to the attitude of ASIC.

KIRBY J:   Why do you not like the metaphor of sitting on the fence?

MR MYERS:   It was not sitting on the fence.  It was asking ‑ ‑ ‑

KIRBY J:   You know what happens to people who sit on the fence.

MR MYERS:   Sitting on the fence appears to be a state of inactivity and this was not a state of inactivity.  It was, as your Honours will see, a state of considerable activity.

KIRBY J:   But not activity directed at the critical action.  There was a time when insurers acted very honourably to their customers and they said, “Look, I am sorry.  You are on your own.”

MR MYERS:   My client acted completely honourably.

KIRBY J:   I share the anxiety that led to Justice Emmett’s conclusion.  We have to look at this in the real world of business dealings.

MR MYERS:   The trial judge did it.  He dealt with the estoppel ‑ ‑ ‑

KIRBY J:   The Court of Appeal majority came to a different conclusion

MR MYERS:   But the Court of ‑ ‑ ‑

KIRBY J:    ‑ ‑ ‑ written by Justice Emmett who is a very experienced commercial judge.

MR MYERS:   Your Honours, could I draw attention to then what follows from paragraph 62 through to paragraph 66, especially paragraph 66:

The present case arises out of dealings between a large insurer and a member of one of the country’s largest financial groups, each advised by experienced insurance lawyers.  CGU made it plain that it reserved liability under the Policies.

Now, these are findings that were not contested before the Full Court.

I fail to see how CGU ought to have known that AMPFP would think its (CGU’S) attitude was any different.  Still less is there any basis for a finding that CGU intended AMPFP should so think.  No such suggestion was put to CGU’s witnesses -

That was not contested on appeal.  The only part of that paragraph – I should not be listening – that was contested is the final words “whose evidence, particularly that of Ms Solomon was quite to the contrary.”  The rest of it was omitted from a description of the errors that the judge was said to have made.  The evidence supports the findings of Justice Heerey in any event.  If I could ask your Honours to go to appeal book page 98.  This is the evidence of Mr McRae who was an officer of AMP, specialist legal counsel.  At paragraph 24 he said this, and this is in relation to the meeting of 26 July.  Mr Abbey was the senior man from CGU:

Abbey said that, even though CGU would act in accordance with its obligations of utmost good faith, AMPFP should accept that CGU may reach a different conclusion to AMPFP on the question of liability to compensate individual clients.  I took this to mean that even if AMPFP settled claims on a basis we considered appropriate and without delay, acting as a prudent uninsured, and acting consistently with the protocol for managing claims (“the claims protocol”) which we had submitted to CGU in March 2001, CGU may reach a different conclusion on whether compensation was payable.

There was no doubt about it.  The problem about the estoppel case that was run is it was made up on the run before Justice Heerey and without regard to the evidence.  Could I invite your Honours to look at appeal book page 151.  This is in the cross‑examination of Mr McRae.  Right at the top of the page, this is relation to the July meeting, this is my question:

By the conclusion of that meeting, is it the case that you weren’t at all confident that there would be any grant of indemnity by CGU in respect of the claims made against AMPFP?‑‑‑No, by the end of the meeting in July my recollection is that CGU were still considering the position, and I certainly felt it hadn’t moved, but I hadn’t lost hope.

Page 336 of the court book - this is a file note that was prepared by Minter Ellison after the meeting of 26 July.  It is dated 26 July.  Second paragraph:

However, CGU has still made no decision on indemnity.  Phillip Battye advised that AMPFP should continue to act as a prudent uninsured.

Then there are some comforting noises from Abbey and then they conclude:

Given David Abbey’s comments, we cannot be confident that CGU will agree to indemnify AMPFP.

GLEESON CJ:   Was there any evidence about any reinsurance arrangements that CGU has made?

MR MYERS:   No, there was not.  Mr Tudjman, at page 152, had something to say about this.  At line 10, I begin, “On 23 January 2001” and then I continue to ask questions down that page and Mr Tudjman answers a number of the questions.  He understood that CGU were still making up their mind.  Line 30:

We’re still in that situation where they haven’t made up their mind?‑‑‑I agree with that.

So you understood the policy of insurance to be . . . on foot?‑‑‑Yes.

There was a question as to whether the insurer would indemnify or not?---Yes.

When, in your recollection, did the insurer . . . say that they wouldn’t indemnify . . . November 2002.

Across the page, it was not received, it turned out, by the insured until January 2003.  That, to my mind, was the first time that we were on notice that CGU had decided not to indemnify under the policy so that there was no doubt in their minds that CGU were considering whether or not to indemnify.

If your Honours could look at appeal book page 89.  This is a statement Mr Battye, who was a solicitor engaged by CGU.  He begins his discussion at the meeting of 26 July at paragraph 21 and he then points out that he had “forwarded an email” to a person on the other side requesting certain information - it is pretty detailed information:

The meeting lasted about an hour.  Early in the meeting, there was an exchange between McRae and Abbey in relation to the question of indemnity.  McRae said that he wanted a decision by CGU on indemnity very soon.  I do not recall that he mentioned any particular date.  Abbey told him that CGU was conscious of its obligation to deal promptly with the claim for indemnity but stated that there would not be any decision until CGU was satisfied that it had received all relevant documentation.  Abbey also said that there would be no grant of indemnity on a “blanket” basis because the claim for indemnity could only be considered on an investor by investor basis.

Then, in the next two paragraphs he goes on to elaborate.  At appeal book 71 Grice’s account of the meeting, paragraph 12, line 40:

On 26 July 2001, I attended a meeting at the offices of Minter Ellison.  Also in attendance were Mr David Abbey . . . At that time, CGU still had little understanding of the extent of any demands made by investors.  By letter dated 12 July 2001, Minter Ellison had provided some basic information about the potential extent of the demands made by investors, while nevertheless observing that an assessment of the demands would ultimately require “an investigation of each claim to determine the extent of liability”.  Sufficient details of such an investigation had not been provided to CGU.  By the time of the meeting, CGU had been provided with liability reports in respect of approximately six investors and had otherwise received only a formal notification of demands made by many more investors, unaccompanied by any documentation.

Despite the lack of information available to CGU, McRae pressed CGU for a decision on indemnity . . . and indicated that he wished to put a time limit on the period available for CGU to make that decision.  I do not recall whether he mentioned a specific date.  Abbey informed McRae, in blunt terms, that indemnity was reserved and that there continued to be a “dearth of information” about the demands made by investors.

There is no question that CGU were sitting on its hands.  It is asking for information.  It is asserting at least that it is acting properly and I have already referred your Honours to Mr McRae’s evidence.  If I could then go to appeal book 846 which is in the judgment of Justice Emmett at paragraph 36.  Justice Emmett deals with this meeting.  He says:

In August, the retainer of Ebsworth & Ebsworth was terminated because of a conflict of interest.  Solomon & Associates were appointed in their stead.  On 19 September 2001, Minter Ellison wrote to Solomon & Associates.  After referring to a meeting between Ebsworth & Ebsworth and Minter Ellison on 26 July 2001, at which an issue was raised concerning the liability of AMP to an investor in circumstances where the investor was not aware of the connection between Pal or Howarth and AMP, the letter to Solomon & Associates said -

and the letter is set out pressing no doubt for a decision, but the point of it is that Justice Emmett refers to the meeting of 26 July and it is clear at that meeting that there has been no admission of liability or indemnity.  Your Honour Justice Crennan will see in that letter there is the issue ‑ ‑ ‑

CRENNAN J:   Yes, I have noticed it.

MR MYERS:   May I refer your Honours now to paragraphs 30 to 36 of Justice Heerey’s judgment where he deals with the 5 October meeting.

Before the Full Court the findings in these paragraphs were not challenged.  Mr O’Bryan was expressly asked whether they were challenged and he said no.

KIRBY J:   What page are you on, 714?

MR MYERS:   Page 712, I am sorry, your Honour.  Perhaps I will start at 32:

At this stage the matter had been proceeding for over two years.  Ms Solomon had the advantage of a fresh mind.  My impression is that she took an incisive and hardheaded approach in the interests of her client.  In an initial conversation with Mr Freeman she expressed her view that she doubted that AMPFP would have any liability to any of the investors by reason of s 819.  Mr Freeman said that Minter Ellison had a different view, as set out in the liability reports.  Ms Solomon referred to the standard form letters . . . From early October in letters acknowledging receipt of the liability reports she responded that “the time frame for resolution of this matter as stipulated by you –

that is, the two weeks –

is unrealistic”.

On 5 October 2001 a meeting was held at the offices of Minter Ellison at the suggestion of Mr Freeman.  The meeting was said by Mr Freeman to be an “educational session’ for the benefit of CGU and Ms Solomon.  She attended with an employee solicitor and Mr Mark Settle of counsel . . . Mr Freeman gave a Powerpoint presentation . . . Mr Freeman discussed the obligations of AMPFP to ASIC and stated that the securities dealers licence held by AMPFP was under review.

He made an assertion about the section 819.

Ms Solomon raised the following points at the meeting:

•She repeated her view, previously expressed to Mr Freeman, that she did not share Minter Ellison’s interpretation of s 819 and was not satisfied that AMPFP had any liability to investors;

•She was concerned that non-lawyers had carried out the interviews with investors and that they may have been asked in a leading way whether they believed Pal and Howarth were acting on behalf, or had some connection, with AMPFP or some other, and if so which, entities;

•Little attention seemed to have been given to potential defences available to AMPFP in its liability under s 819.  Specifically she referred to the requirement of “reasonable belief” under s 819 and the possibility of collusion between investors;

•She queried the basis upon which settlement was being made, and in particular the full return of capital invested without any consideration of any factors such as tax benefits already received;

•She said that CGU did not have documentation for many of the claims being considered by AMPFP and noted she did not have copies of any records [of interviews] conducted with investors.  There were no transcripts of these interviews and not even notes of what had been asked of investors.

Ms Solomon also said that CGU was not going to be forced by AMPFP into making decisions on indemnity within 14 days of receiving liability reports.

KIRBY J:   Sounds as though Ms Solomon was wielding a new broom.

MR MYERS:   No, with respect, your Honour, not so.  She may have been more forceful in the views that she expressed but it is along the same lines as 26 July and no doubt views are being clarified about section 819, but there can be no doubt that at this meeting CGU is not admitting liability.  It has not denied liability but it is not admitting it and, in doing so, there can be no suggestion that it is not acting properly.

CALLINAN J:   Mr Myers, could I just ask you something.  I draw your attention to page 859 in the judgment of Justice Emmett.  In paragraph 64 he deals with the sort of claim that might have been made and it is the sort of claim that I suggested to you as a possibility I think.  Then he says that the statement of claim made no allegation to that effect.  Do you see that?

MR MYERS:   Yes.

CALLINAN J:   His Honour says, and I take this to be for the first time, such a case was sought to be made in written submissions by the respondent.  Do you accept that that was so, for the first time?  That was in closing submissions.

MR MYERS:   I am just trying to pick up the line.

CALLINAN J:   Read the whole of 64.

MR MYERS:   Paragraph 65 it is I think.

CALLINAN J:   Yes, and then 65.

MR MYERS:   Yes.

CALLINAN J:   You accept that is what happened, because there is another question ‑ ‑ ‑

MR MYERS:   I accept that that is what happened.  A case was made of estoppel and there was reference to unconscionable conduct in the written submission.

CALLINAN J:   What his Honour is talking about there is the possibility of a claim for breach of contract and he deals with it in paragraph 64.

MR MYERS:   But no such claim ‑ ‑ ‑

CALLINAN J:   No, you are ahead of me all the time, Mr Myers.  Then his Honour points out – and I just want to know whether you agree with this narrative or not – that notwithstanding that that was not a case that was made in the statement of claim, it was sought to be made in the written submissions to the primary judge, as his Honour says, “AMP outlined such a case.”  Do you see that, first sentence of paragraph 65?

MR MYERS:   No, I do not accept that that is what occurred.

CALLINAN J:   You do not?

MR MYERS:   No, it did not outline such a case.  It outlined the case that Justice Heerey has set out.

CALLINAN J:   That is what I needed to know.

MR MYERS:   The written submissions are in evidence before your Honour and I referred to them this morning.

CALLINAN J:   Any rate, you say that if one goes to them that really, in effect, falsifies that statement there?

MR MYERS:   Yes, it does.

CALLINAN J:   Then his Honour says in the last sentence of the paragraph on page 860 “CGU countered those submissions by saying that the Statement of Claim simply does not make any such allegations.”  You did not have to make a counter of that kind if what you have just said is correct.

MR MYERS:   That is correct.

CALLINAN J:   Is that right?

MR MYERS:   Yes, it is.

CALLINAN J:   In any event, I suppose, we do know, do we not, that there was no attempt by Mr O’Bryan to apply to reopen his case and to try to prove a case based upon anything like what Justice Emmett says was sought to be made for the first time in written submissions.

MR MYERS:   That is correct.

CALLINAN J:   Which would have been a possibility, yes, if you had felt ‑ ‑ ‑

MR MYERS:   Yes, I agree with what ‑ ‑ ‑

CALLINAN J:   There may have been cost impositions and things like that, but it could have been done.

MR MYERS:   I agree with what has been put by your Honour.  It would have been a completely different and new trial, but it could have been done.  The application could have been made.  Its prospects of success would be another thing.

CALLINAN J:   I understand what you say about that but, in any event, there was no attempt made either, you say, in written submissions at the end or by any attempt to reopen.

MR MYERS:   That is correct.  Your Honours, in the light of those findings by Justice Heerey in paragraph 66 and in paragraphs 30 to 36 ‑ ‑ ‑

KIRBY J:   It is a horrendous prospect, is it not?

MR MYERS:   ‑ ‑ ‑ which are not challenged, any remitter is hopeless because it does not matter how one frames an estoppel it is going to be defeated by that unchallenged ‑ ‑ ‑

KIRBY J:   Your theory of the law – and it may be correct – is a pretty horrible theory that you then have to, as it were, deal with each and every one of the claims and so it would not take a lot to, as it were, push a judge over into a view that that is not what was the process that was agreed between the parties in the protocol.  That is essentially what you say should have happened before Justice Heerey:  the poor judge should have sat there day after day, month after month, hearing all these individual claims.  It is a horrendous thing.  No wonder the courts are becoming irrelevant to commercial disputes.

MR MYERS:   I do not say that that is what should have happened, but if our learned friends wanted to establish a claim based upon a right of indemnity in respect of individual claims, they may have had to do that.  I cannot imagine that that would have happened but if the insurer had insisted upon their establishing liability in respect ‑ ‑ ‑

KIRBY J:   But the problem was the insurer was not insisting, it just was not saying anything. 

MR MYERS:   No, the insurer was saying at every opportunity – and I have just, with respect ‑ ‑ ‑

KIRBY J:   You act as a prudent uninsured.  That is what it was saying, the mantra.

MR MYERS:   Your Honour, the passages of evidence which I have just read to you and the uncontested findings of Justice Heerey both establish that at all material times CGU was saying that it did not have sufficient information to make a decision on indemnity and it had not made such a decision.

CALLINAN J:   Mr Myers, it is not irrelevant that you were insuring an insured who was obliged under section 826 of the law to perform efficiently, honestly and fairly, and that would surely embrace the notion of reasonably expeditiously too.

MR MYERS:   I think your Honour is referring to the obligations on security dealers.

CALLINAN J:   Yes.

MR MYERS:   That was an obligation on security dealers under the Corporations Law.  That is not an obligation that applied to ‑ ‑ ‑

CALLINAN J:   AMP?

MR MYERS:   No, it applied to AMP in its conduct of its advice.  I may have misunderstood your Honour.

CALLINAN J:   According to Justice Emmett’s narration of the facts, there was evidence that ASIC said part of your duty in acting efficiently and honestly is to respond quickly to these claims and not to discount them inappropriately.

MR MYERS:   I misunderstood your Honour.  Yes, that is correct.

CALLINAN J:   And was ASIC wrong?  Is that not an aspect of section 826, being a dealer involved not only giving accurate and honest advice but also, if you have not given it, making amends for it in a reasonably prompt way?

MR MYERS:   I do not contest that, no.

CALLINAN J:   That is the insured whom you insured.

MR MYERS:   That is correct.

CALLINAN J:   An insured who was under that obligation and would render itself liable to lose its licence if it did not act that way.  Does that not cast an obligation upon you to act properly in responding to claims?

MR MYERS:   But, your Honour, what we said is, “By all means go out, if you think it is in your interest, and settle the claims and we will not hold it against you under the policy.  We are not going to take a point under the definition of ‘claim’ or clause 7.6, but on the other hand, when the day comes, we want to get down to tintacks and find out whether we have a liability or not.”

CALLINAN J:   Assuming loss could have been shown, that provision might have helped Mr O’Bryan if he had relied upon it and pleaded the sort of case that Justice Emmett said he sought to make in written submissions but you say he did not make even then?

MR MYERS:   If your Honour pleases, in the end our answer is simply that we helped AMP to discharge its obligations under the law by not taking any points about notification or consent to settlement, but we reserved our right to say, if it be the case, we are not liable because circumstances did not give rise to an indemnity.

CALLINAN J:   I suppose they could have pleaded the case in the alternative if they had wanted to ‑ ‑ ‑

MR MYERS:   They could have done.

CALLINAN J:   ‑ ‑ ‑ that Justice Emmett refers to in paragraph 64.  Whether they would have succeeded or not is another question, but that was something that they perhaps could have done in the alternative if they had wanted to.

MR MYERS:   Could I ask your Honours now to look at ‑ ‑ ‑

CALLINAN J:   Is that right, Mr Myers, what I asked you?

MR MYERS:   They could have, yes, but they did not.  May I take your Honours to appeal book page 720.  In paragraph 58 Justice Heerey says this:

An important element of the setting in which this issue arises is that AMPFP has never suggested that the Protocol effected a variation of the contracts of insurance constituted by the Policies.  CGU never became contractually liable to pay AMPFP amounts that AMPFP had agreed to pay under the settlements 14 days after (or a reasonable time after) provision of liability reports by AMPFP.

Now, in our respectful submission, that is a very telling point and it is not adverted to by the Full Court.  The sort of estoppel that has been suggested is perilously close to creating some sort of contractual obligation, and that was expressly eschewed on behalf of AMP.  Could I next ask your Honours to go to appeal book 857 to 858.

I am referring to these passages which I will advert to in a moment in support of this proposition, that the case remitted is hopeless by reason of findings made by Justice Emmett himself.  If I could direct your Honours’ attention to paragraph 59:

CGU, quite properly, conceded that it was not open to it to rely upon the strict terms of clauses 7.6, 12.1 and 12.2 of the Insurance Policies.  However, whatever criticism might be directed to CGU and its solicitors for dilatoriness in giving a response to AMP’s claim to be indemnified in respect of the demands made against it by investors, there could be never be any doubt that CGU had not admitted that the Insurance Policies responded to any of the demands made against AMP.  Rather, it repeatedly exhorted AMP to act as a prudent uninsured.

We ask, how can there be an estoppel in the face of that finding? 

That is to say, CGU made it unequivocally clear to AMP that it was not accepting liability to reimburse AMP for any demands from investors that AMP might choose to settle, either in full or by way of compromise.  It was clear that CGU did not concede that AMP had a liability to such investors and did not concede that, if AMP did have a liability to the investors, it was a liability to which the Insurance Policies responded.  CGU expressly pleaded the bases upon which it said that AMP had no liability to investors and that, if AMP had any such liability, it was a liability to which the Insurance Policies did not respond.

Again, we ask, in the face of that finding how could there be an utility in the remitter?

In its conduct of the proceeding before the primary judge, AMP simply made no attempt to prove that it had a liability in respect of the demands by investors described in the S.C. Schedule.  It expressly eschewed any attempt to demonstrate that it actually had a liability to any of the investors described in the S.C. Schedule.  Rather, AMP sought simply to establish that, acting as a prudent uninsured, its settlement of the demands by investors was reasonable in all the circumstances.

That is a correct statement of the way the case was run below.  Again, in the light of that we ask, how is it that the remitter could have been made?

GLEESON CJ:   If you look at paragraph 95, Justice Emmett identifies what he says is the error of Justice Heerey:

His Honour erred in failing to make a finding as to whether AMP was induced, by CGU’s conduct, to assume that it would not be required to establish, by admissible evidence, that it had a liability to the investors whose demands it settled –

It might be thought that to make out a case based on such inducement, the principal witness in the case would have to be trial counsel for AMP.

MR MYERS:   Or at least its lawyers, yes.

GLEESON CJ:   Well, it is an inducement about an assumption that it would not be required, presumably before Justice Heerey, to establish by admissible evidence, because questions of admissible evidence only come up in court proceedings.

MR MYERS:   Your Honour, respectfully I agree with that and your Honour mentioned it this morning.  I also say in relation to this paragraph 95, it is in substance inconsistent with those passages that I have read, paragraphs 59 to 61.  It really is inconsistent.  It is very hard to see how they can stand together.  Could I leave estoppel and say ‑ ‑ ‑

GLEESON CJ:   I am sorry, just before you leave that paragraph 95, what were the relevant questions of reliance and detriment that Justice Heerey, in Justice Emmett’s view, failed to address?

MR MYERS:   Not identified, but we know what elements of reliance and detriment Justice Heerey dealt with.  With respect to Justice Emmett, it is very difficult to see what he means because he does not identify them.  Yet Justice Heerey’s findings are broad enough really to deal with any estoppel, however it is framed.  Certainly they were sufficient to deal with the estoppel that was argued before him.

HEYDON J:   So there is nothing more in Justice Emmett’s judgment on this point except what is in 84 and 95?  There is no further analysis?

MR MYERS:   There are some other portions, 82, but they are the paragraphs that epitomise it, your Honour.

KIRBY J:   Paragraph 154, by the specification of the matters remitted, indicates what Justice Emmett thought had to be addressed.

MR MYERS:   Yes.  In paragraph 82, in particular – perhaps I ought to point this out – Justice Emmett said:

His Honour did not make a finding in relation to the assumption and detriment for which AMP contends.  That is to say, his Honour made no finding as to whether, in reliance upon the assumption referred to above –

that is a different assumption actually from the one that was before Justice Heerey –

AMP entered into any settlement with an investor and made no finding as to whether, from a practical point of view, AMP put it beyond its power to establish by admissible evidence that it was legally liable to that investor.

GLEESON CJ:   Now, that concept of putting it beyond its power to establish by admissible evidence seems to suggest that the result of following the protocol was that AMP was disabled from establishing by admissible evidence that it had a liability to investors and that was the harm, that was the detriment it suffered.

MR MYERS:   It does, but that is wrong.  One merely needs to state it to understand that it is wrong because following the protocol did not alter its ability to establish by admissible evidence that there was a liability at all.

KIRBY J:   Except that it went ahead and settled with people who thereupon would have lost much interest in assisting in the disposition of the claim.

MR MYERS:   They may or may not have.  In the settlement deeds – there is a settlement deed in the court book; I will just give your Honours a reference to it – there is no express obligation, as I recall, to assist AMP, but that would be implied, but there are provisions of the settlement deed which oblige AMP to pay for the costs and expenses of the investors in helping AMP with any claim.

CALLINAN J:   The Court has regard in these situations to the capacity of parties to adduce evidence, we have said that several times, and the Court has regard to the events that have happened and sometimes the proof is not as good as it could otherwise be.

MR MYERS:   Yes, but there was no investigation of this below.

CALLINAN J:   No, but I do not see that there would necessarily be any problem about the Court deciding those matters if the question of reasonableness of each settlement came into issue.

MR MYERS:   An example deed of settlement is at page 511 and on page 513 AMP agreed to indemnify – they are called the trustees, but they were the investors in this case – for costs they may incur.  Paragraph 6:

In the event that AMPFP requires any assistance . . . AMPFP agrees to pay to the Trustees their reasonable:

(a)      costs . . . 

of so assisting.

So it was certainly contemplated there may be something required.  May I say something now, your Honours, about utmost good faith.  In paragraph 154 the obligation of good faith, or the remitter in relation to good faith, is put this way.  Justice Heerey is asked to determine on the remitter whether, if AMP was induced by CGU to assume, it would not have to prove its liability and if it did rely upon that assumption, it is a breach of the duty of utmost good faith for CGU to assert, presumably in the proceeding, that AMP is required to prove its liability to investors.

There is another reference to obligations of good faith in paragraph 114 of the reasons of Justice Heerey, but that is not a matter that was remitted.  No claim as mentioned in paragraph 114 was pleaded or advanced at the trial.  What we say is that no allegation of good faith such as is the basis of the remitter appears in the statement of claim.  I have read that to your Honours and I do not want to do any more than assert that at the moment.

KIRBY J: It is a pretty strong statement in the statement of claim. I mean, I read first your assertion that it was not in issue and then I looked at the statement of claim and I do not really see how it could have been a more emphatic statement of reliance on section 13.

MR MYERS: It is an express reliance on section 13.

KIRBY J:   You, who would not give any information out, are demanding a great deal of information for yourself.

MR MYERS:   We were the insurers.

KIRBY J:   Exactly, owing an obligation of good faith.

MR MYERS:   We were entitled to be satisfied that there were facts that gave rise to an indemnity.

KIRBY J:   One gets a bit of an impression from what you have read us today that, or passages in it, with respect, that Justice Heerey was not all that anxious to get into all the detail.  I think we were told on the special leave hearing that there were 32 volumes and he was rebuffing this.

MR MYERS:   Your Honour, he was told by my learned friend in that passage I read before the luncheon adjournment that he did not need to.  All that material was tendered for a limited purpose of showing a process and he was told expressly in that passage that I read that he did not need to look at it all.

KIRBY J:   Where is the clear passage where you said, “Yes, you do need to look at it”?

MR MYERS:   I never asserted that. 

KIRBY J:   Quite.

MR MYERS:   Our contention was that the case about reasonableness was just simply misconceived and then on the basis that ‑ ‑ ‑

KIRBY J:   The duty of good faith runs into the proceedings.

MR MYERS:   The argument about good faith was not advanced until the written submissions after we had addressed.

KIRBY J:   It is on the pleading.  It is in the opening statement of claim.

MR MYERS:   It is on the pleading but my learned friend did not open it.

KIRBY J:   You see, there is a certain unfairness in the outcome that you argue for that $3 million, not a small amount, not a huge amount as between these big parties but a substantial amount, where arguably there is a liability because of the failure to go into those 32 volumes is not proved and it just fails – technical knockout.  It is not a very happy conclusion.

MR MYERS:   That was the case that was run.  It was explained in opening that our contention was that that was not the way to go about it and at the end of my learned friend’s opening I expressly asked whether he relied upon the other claims and there was an equivocal answer which said that he would think about it and that is where it was.  The case, as he said, was a case about reasonableness and the protocol was an element of the question of reasonableness, nothing more, and that is what the case was run on.

Your Honours, we say that the case on utmost good faith that is at the basis of the remitter was not a case that was run at the trial.  Some sort of case concerning utmost good faith was advanced in final submissions, but that is the extent of it, and it was not that case that is at the basis of the remitter.  The case which is at the basis of the remitter depends upon, as the first dot point of paragraph 154 says:

whether AMP was induced by CGU’s conduct to assume that, if it settled that demand on reasonable terms, it would be required to establish by admissible evidence that it was legally liable to that investor –

So everything that is said about estoppel applies equally to that and if the estoppel is bad, that way of framing the remitter is also bad and, we respectfully say, for the reasons advanced by Justice Gyles at paragraph 162 of his reasons for decision, the good faith case must fail.

The last matter which is remitted is this issue of reasonableness.  Now, this should not be remitted because it does not arise on the case that was put to the Full Court and the case that is put here.  The estoppel and bad faith arguments, that are now the only arguments advanced, do not depend on any question of reasonableness.  This is merely a hangover from the case that was originally put at trial.  In the written submissions to the Full Court our learned friends said as much.  They said – I will get the passage, if I may.  It is in volume 3 at page 785, paragraph 31 - this is the fifth issue:

Heerey J erroneously concluded that s.819(4) of the Corporations Law would have applied to relieve AMPFP of any potential liability to the investors under s.819. AMPFP submits that this finding is irrelevant in this proceeding since, by agreeing to the Protocol, CGU is bound by the settlements provided they were entered into in accordance with the Protocol, and provided also that the events giving rise to the claims fell within the insuring clauses in the policies. For the reasons explained in connection with issue 1 above, CGU is estopped from complaining that AMPFP failed to take a step which was open to it prior to the settlements, but is not open to it now. It is irrelevant to CGU’s liability in respect of settled claims that AMPFP might have had a defence under s.819(4) had the investor claims been litigated. The reasonableness of the settlements must be considered at the time they were made, having regard to the Protocol, CGU’s steadfast refusal to advise AMPFP of its attitude and the real likelihood that AMPFP would be found liable for the activities of a person whom it had clothed with a property authority.

I am sorry, your Honours.  That is not the passage.  Could I go back to page 781?  I do apologise for that.  Paragraph 16:

AMPFP’s principal submission is that, because of the application in this case of the doctrines of estoppel and utmost good faith set out in paras 1 – 11 above, it does not need to prove that its settlements were reasonable.  CGU is prevented by both principles from complaining that the settlements were unreasonable.

So there is a complete shift from the case that was put to the trial judge to the case that was put to the Court of Appeal.

GLEESON CJ:   Coming back to the remitted matters on page 889, the matters being remitted to the primary judge for further consideration of those questions, did Justice Emmett identify any evidence that would support a finding that AMP settled in reliance upon the assumption referred to in the first dot point?

MR MYERS:   No, your Honour, I believe not.

GLEESON CJ:   This gets back to a question I think you discussed earlier about what is in contemplation as to the way the remitted hearing will proceed, but was Justice Emmett suggesting that Justice Heerey overlooked some evidence that AMP settled in reliance upon that assumption?

MR MYERS:   Justice Emmett said – I am sorry, I do not know whether I am answering your Honour’s question.

GLEESON CJ:   He said in paragraphs 82 and 94 Justice Heerey did not consider this question.

MR MYERS:   Yes.

GLEESON CJ:   Is he suggesting – did he explain that if Justice Heerey had considered the question there would have been evidence to support such a finding?

MR MYERS:   No, certainly not.

GLEESON CJ:   Why should Justice Heerey have considered the question if there was no evidence to support an answer to the question favourable to AMP?

MR MYERS:   Justice Heerey did consider it and found the evidence to the contrary of what would be favourable to AMP.  I think I am answering your Honour’s question.  He did deal with reliance and detriment.

GLEESON CJ:   Whoever the witness was, presumably somebody would have to say, AMP settled in reliance on that assumption?

MR MYERS:   No, there was no such evidence, and before Justice Heerey no evidence was referred to – before the Full Court no evidence was referred to, your Honour.  Before the Full Court there were two passages of evidence that were referred to and I should like to take your Honour to them.  First of all, in Tudjman’s evidence at page 135 of the appeal book at paragraphs 107 and 108 - paragraph 107 starts on page 134:

As CGU had represented to AMPFP:

(a)by its letter of 6 April 2001 that it understood that the requirements of AMPFP’s internal and external complaints resolution procedures and ASIC’s expectations required AMPFP to continue to act as a prudent uninsured; and

(b)by its letter of 11 May 2001 that it agreed in principle to the protocol, and in accordance with the protocol CGU would consider AMPFP’s claim for indemnity on an investor by investor basis consequent on receipt of the summary document, and would arrange to inspect relevant documents and would provide its instructions in respect of individual claims within 14 days of receipt of the liability report,

I believed and I acted on the basis that any settlement offer made by AMPFP:

(i)after the liability report or draft settlement deed and supporting documents had been sent to CGU with a request for instructions; and

(ii)after the ensuing 14 day period had expired without receipt of an objection from CGU regarding the proposed settlement terms, would be made –

that is a settlement offer –

in accordance with the protocol and AMPFP’s obligations under its complaints resolution procedures and would accordingly satisfy the obligation to act as a prudent uninsured pending a decision by CGU on indemnity.

So, far from supporting what it is put forward to, it establishes in truth the opposite.  Paragraph 108 is also referred to, your Honour:

I believed that settlements of client claims made in such circumstances would not later be the subject of challenge by CGU on the basis that the settlements were not made:

(a)      reasonably;

(b)      as a prudent uninsured;

(c)      in accordance with the terms of the policy.

Now, in the context, “in accordance with the terms of the policy” is not a reference to admission of indemnity.  It is just clause 7.6 and so forth.  That is the first bit of evidence that is relied upon in the Full Court and before your Honours and it supports, in our respectful submission, the opposite of what it is tendered for.  The other is Mr McRae’s evidence at appeal book page 98.  I have taken your Honours to one of these paragraphs.  I took your Honours to paragraph 24 for the contention that it showed no reliance, but paragraph 23 was also referred to by our friends.  It begins on page 97:

In response, we were told that Ebsworth & Ebsworth had been conflicted out of the matter and that it would be a couple of weeks before new lawyers were appointed.  Abbey said that CGU accepted its obligation to act with utmost good faith towards AMPFP on a commercial and legal basis and that there should not be too much difficulty with indemnity under the policy.  He said that CGU would not be taking technical points and would only take substantive matters into account in deciding whether to indemnify, saying that Ebsworth & Ebsworth, notwithstanding being ‘conflicted out’, would still be providing CGU with advice on the question of indemnity under the policy.

So, again it is plain that there is no evidence that supports the contention for which it is advanced.  They are the only two passages that were relied upon by the Full Court and I understand are relied upon here by our learned friends and they were not referred to Justice Heerey because, frankly, a case was being made up on the run before Justice Heerey to overcome a deep difficulty in the way in which AMP had decided to litigate the matter.  Your Honours, the question of reasonableness, in any event, strictly does not arise because of that passage that I have adverted to in the submissions of our friends to the Full Court.

Justice Emmett said in substance of Justice Heerey’s dealing with reasonableness that he applied the wrong test and he did not take into account the evidence he should have taken into account.  Can I take your Honours to paragraphs 118 and 126 in Justice Emmett’s reasons for decision.  Paragraph 118 is on page 878:

As his Honour said, the question of whether a settlement was reasonable is to be determined according to an objective standard.  CGU’s position was irrelevant, since the question must be assessed from the point of view of an uninsured recipient of the relevant demand.  Further, the circumstances of that recipient are relevant to the question of reasonableness.  The harm to a defendant that is likely to be suffered by reason of adverse publicity attaching to the defence of a good demand is relevant from an objective point of view.

KIRBY J:   Do you accept that statement?

MR MYERS:   No, I do not.  We say that it is wrong.  Then at paragraph 126, his Honour says this ‑ ‑ ‑

KIRBY J:   The statement “CGU’s position was irrelevant”.

MR MYERS:   CGU’s position is not irrelevant because it is the insurer, obviously.  What one has to determine is whether, on the facts, there is a basis of liability under the policy.

CRENNAN J:   His Honour may have been referring to the conduct of a prudent uninsured in that context.  That may have been what he meant in saying “CGU’s position was irrelevant”.

MR MYERS:   It is possible, your Honour.  Could I just point out, if your Honours are still on page 878, the preceding paragraph:

His Honour began by observing that reasonableness is to be judged by an objective standard.  The fact that legal advice was received, which recommended settlement, while relevant, is not conclusive and the onus of proving reasonableness was on AMP.  However, his Honour also considered that the settlements must be reasonable from the point of view of CGU‑

Then the next words are important -

in the sense that they must be based on a reasonable assessment of the risk faced by AMP if the investors demands were to proceed to trial and judgment and CGU were liable to provide indemnity.

We say that is correct.

Thus, his Honour observed that factors personal to AMP, such as fear of the adverse publicity . . . were not proper to be taken into account -

Paragraph 126, his Honour returned to the matter and said something of significance:

His Honour considered that the reasoning that led AMP to make the settlements in the way that it did was not to reach a compromise based on an assessment of the prospects of success of the demands by investors, but to satisfy the demands of the Commission.  His Honour considered that AMP was told explicitly by the Commission to ignore the interests of CGU and it did so.  His Honour considered that AMP failed to give proper weight to the interests of CGU.  For the reasons already give above, that was an erroneous approach.  CGU’s position was irrelevant.

Again we say that his Honour is wrong there as he has framed it.  Justice Gyles put it very clearly in paragraph 158 of his judgment at page 894.  He said that, in effect, an insurer in the position of CGU did not insure against bad publicity or the loss of a securities licence.  It insured against the loss suffered by claims being made of the kind to which the policy referred. 

CALLINAN J:   But claims which have to be paid quickly.

MR MYERS:   Of course and we did not prevent them paying them quickly.

CALLINAN J:   In fact, you say you facilitated that.

MR MYERS:   We facilitated, yes.

KIRBY J:   But you offered the insurance to this particular insured in a particular industry knowing that they are subject to other disciplines, including statutory disciplines and in the commercial reality of the obligations that fall on them.

MR MYERS:   That is why, perhaps, CGU did not insist upon the notification provision when ASIC were putting pressure on the insured, but it did say, “We are not going to pay out if we do not have a liability.  Go ahead if you think that it is in your interest to pay out these amounts but we reserve the question of liability”.

At paragraph 127, if your Honours have page 881, Justice Emmett says, in effect, the mere fact that there was pressure from the Commission does not mean that a settlement might have been made incorrectly or for too large an amount, but we certainly accept that that may be so, which is why one has to look at the matter on the basis of objective facts and make a reasonable assessment of the risk faced by the insured in relation to the investors making successful claims.

CALLINAN J:   Mr Myers, leaving aside any question of an Anshun estoppel, would the respondent be statute barred from starting another case?

MR MYERS:   I do not think so, your Honour.  What your Honour asks to be left aside, though, is quite a big leave aside.

CALLINAN J:   I understand that, quite.  That is not a matter for us whether the ‑ ‑ ‑

MR MYERS:   Yes, but leaving that aside, no.  The other thing about this passage in paragraph 127, as your Honours realise from what I read to your Honours this morning or before the luncheon adjournment, my learned friend asked the judge to simply look at the process.  Now, when the judge, Justice Heerey did look at the process he is criticised by Justice Emmett for looking at the process and one aspect of the process which gives rise to concern is the pressure that ASIC was putting on.

Now, the question, was there objective evidence to support a contention that the settlements are reasonable was not one that Justice Heerey could answer except in relation to that section 819 point because he did not have the evidence before him.  All this voluminous documentation was not tendered as the truth of the contents.  The judge was told, “Do not look at it.  All you have to do is to look at the process and see whether it is reasonable”.

CALLINAN J:   This case is a little unusual, Mr Myers, in the sense that there was, as you have put it to us, a real definition of the use to which voluminous material might be put.

MR MYERS:   Absolutely.

CALLINAN J:   More often than not we get a situation in which there have been volumes of documents not referred to, but nobody has ever said what the purpose of them was, the so‑called agreed bundle of documents, but this was different.

MR MYERS:   Your Honour, counsel for the insurer were very concerned about this and that is why it was raised when it was at the beginning of the opening.  My learned friend said from time to time that all this material was in for that limited purpose.  Can I just give your Honours some transcript references?  Appeal book page 148.  That was, “You can assume it is all lies”.  I have read that to you.  Appeal book 907, appeal book 922 to 924, appeal book 927 to 928, and appeal book 932.  These were issues that arose from time to time when there was an objection, the evidence was supplemented and there was an objection taken to it generally and the question was raised, “What is it in for?” and the same thing was repeated.

We say, in short, that even if this issue of reasonableness is relevant on the case that was put to the Full Court, the criticism of Justice Heerey is misplaced because he did what he was asked and he did not have the material in order to make a decision about whether the claim was well based or not.

CALLINAN J:   The Evidence Act (Cth) applies to this case, does it not?

MR MYERS:   Yes, it does.

CALLINAN J:   There may have been provisions that could have been relied upon there but were not.

MR MYERS:   They were not.  There could have been some difficult issues raised about, I think it is section 60 and so on, but they were not raised.  It was dealt with just on the basis that I have put to you.  I have now a list of the dates when the settlements occurred.  Would it be convenient to get that typed up ‑ ‑ ‑

CALLINAN J:   Thank you, Mr Myers.

MR MYERS:   If I can just say this so that your Honour has it in his head, by November or December 2001 there were 31 settlements and January 2002 there were three and then after that there were about another dozen settlements over a period of a year, but I will give your Honours them.

CALLINAN J:   You argued that the AMP was trying to settle before you expressed your view on liability – on obligation to indemnify.

MR MYERS:   There is no question about that in the evidence.  That was the finding of the trial judge and it was not disturbed.

KIRBY J:   Can one infer from the settlements that a third were paid, a third were disputed and a third were rejected, that AMP has acted as a prudent insured in disposing of the claims?  Is there any measure of comfort that can be taken from that?

MR MYERS:   Not from those raw figures because each of them depends upon its own circumstances, your Honour.

CALLINAN J:   Again, the case was not put that way.  The case was put on the basis of compliance with process was enough.

KIRBY J:   So your theory is there was just no escaping this case, 63 little trials?

MR MYERS:   No, that is not so, but ‑ ‑ ‑

KIRBY J:   It sounds awfully like it.  It is not very congenial.

MR MYERS:   No, with respect, it is not, but if that were so that is because of the nature of the policy and the fact that there are many claims against an insured does not mean that the insurer has a different sort of obligation to the insured.  The insurer’s rights and obligations are exactly the same, whether there is one claim or 100 claims under the policy of the insurance.

KIRBY J:   Presumably, those points raised or not raised under the Corporations Act could have been isolated and dealt with as points of law on agreed facts?

MR MYERS:   They could have been.

KIRBY J:   And they would have been common to all or many of the claims and as is said in the respondent’s submission, and as the Chief Justice mentioned this morning, it would have been possible to have a sample case, a test case.

MR MYERS:   Of course, your Honour, but AMP did not want that.  They proceeded on an entirely different basis and that is why we have this action.  There is no point in AMP saying to us ‑ ‑ ‑

KIRBY J:   Yes, but you were not as an insured acting with the utmost good faith.  You were not saying “That’s what you’ve got to do”.

MR MYERS:   No, because what was put to ‑ ‑ ‑

KIRBY J:   You were just waiting there, waiting for error to occur that you hoped ultimately would ‑ ‑ ‑

MR MYERS:   No, not at all, your Honour.

CALLINAN J:   They had Senior Counsel advising them and ‑ ‑ ‑

MR MYERS:   We do say that an error occurred. We do say that an error occurred and it was pointed out at a directions hearing five months before the trial, it was not heeded.  It was pointed out at the end of our friend’s opening and it was not heeded.

KIRBY J:   Where is this directions hearing where it was raised?

MR MYERS:   It is referred to by Justice Heerey in his reasons.

KIRBY J:   Where do we find the reference to that?  Was it recorded?

MR MYERS:   Yes, it is in the court book.  It is in Justice Heerey’s reasons.

KIRBY J:   Anyway, you can give us that later.

MR MYERS:   I will give you that later.  Your Honour Justice Callinan raised the question about wanting to settle before ASIC did something.  There is cross‑examination of Mr Tudjman about it in a few pages up to page 160 and on page 160, if I can refer ‑ ‑ ‑

CALLINAN J:   What I put to you was that you were urging – I could see why you could say this – that AMP was trying to settle before CGU declared its position.  It was in AMP’s interests, so AMP thought, to get them all out of the way before you admitted or denied ‑ ‑ ‑

MR MYERS:   That is right.  There is correspondence which shows that that was the strategy, it was called, of AMP and Mr Tudjman was cross‑examined about it on page 160 at line 25.  It is the end:

So you wanted to settle as many as you could before they did something which had the potential to conflict with ASIC’s views?‑‑‑Yes.

CALLINAN J:   No, I was not talking about ASIC.  I was talking about your views, your client’s views.  That was one of the cases you put, according to Justice Emmett, that AMP was trying to settle the cases, as many cases as it could, before CGU said whether it would ‑ ‑ ‑

MR MYERS:   Yes, yes, but that is related to the same point.  AMP was concerned that CGU would take over the conduct of the claims and that would conflict with the ASIC obligations.  That is what they wanted to avoid and that is what the strategy paper said that they should avoid and that is what Mr Tudjman ‑ ‑ ‑

GLEESON CJ:   AMP’s licence is worth a great deal more than $3 million.

MR MYERS:   Certainly. 

KIRBY J:   It is not an amount to be sneezed at, though.

MR MYERS:   At 720, at paragraph 57 of Justice Heerey’s reasons, he said this:

It is not correct to say, as AMPFP asserted in final submissions, that the significance of the Settlements being made before the alleged breach was raised for the first time in CGU’s opening at the commencement of the trial.  The argument I have upheld was clearly foreshadowed by Mr Caleo, junior counsel for CGU, at a directions hearing on 5 April 2004.  In any event AMPFP has not alleged any forensic prejudice arising from the way CGU has conducted its defence.

Unchallenged findings.  If your Honours please, they are the submissions on behalf of the appellant.

GLEESON CJ:   Thank you, Mr Myers.  Yes, Mr O’Bryan.

MR O’BRYAN:  If the Court pleases. Your Honours, this appeal, it is submitted, raises several important issues in the modern Australian law of liability insurance. Apart from the issues raised by CGU concerning the conduct of the proceedings below, which I will address substantively first, the appeal also raises a number of novel and significant questions of insurance law, in particular in its regulation of the relations between insurers and insureds, and some of these questions, particularly those that arise under section 13 of the Insurance Contracts Act have not been addressed directly by any intermediate appellate court or by this Court before.

Most important amongst those questions, it is submitted, is the meaning and the effect of section 13 of the Act and the content of the duty of utmost good faith which it implies into the insurance contracts in issue in these proceedings.

KIRBY J:   Do we have available the extract from the Australian Law Reform Commission report which deals with what became section 13?

MR O’BRYAN:   Yes, your Honour, you do.  They are referred to in our list of authorities ‑ ‑ ‑

KIRBY J:   But I am thinking of the pages of the report, the actual pages?

MR O’BRYAN:   Yes, the references were given, your Honour.

KIRBY J:   Yes, I think we have them.  They are being handed to us now.

MR O’BRYAN:   As item 19.

KIRBY J:   And this report was the subject of a subsequent follow‑up report, I think by the Treasury?

MR O’BRYAN:   That is true, your Honour, within the last ‑ ‑ ‑

KIRBY J:   Was that section examined?

MR O’BRYAN:   It was examined.  There was some discussion about amendment but in the end, my recollection is – and we can find these references for your Honour as well.

KIRBY J:   If we could have a copy.  These are published public documents of the Commonwealth?

MR O’BRYAN:   Yes, they are.

KIRBY J:   If we could have a copy of those that would be helpful to me.

MR O’BRYAN:   Yes, we will obtain those, your Honour.  The review was completed from memory ‑ ‑ ‑

KIRBY J:   It would be important to know what the Law Reform Commission and the Parliament, which refers to its report in the Act, were getting at in adopting section 13.

MR O’BRYAN:   Yes.  We will do that overnight, your Honour, and supplement that in the morning if that is convenient.

KIRBY J:   And any commentaries by the texts or learned writers that have dealt with the section would be helpful, because I would be looking at them, anyway.  It might be best to have them on the table.

MR O’BRYAN:   Yes.  There are a number of cases in lower courts that have considered the effect of the section, your Honour, and we have brought together the most significant of those comments in the cases that we have referred to.  If you look at our list of authorities, you will see reference to a number of cases.  One of them, the Distillers Case, of course predates the Act.  It does contain some useful discussion of the duty of utmost good faith, particularly in the judgment of Justice Stephen at the page 31 reference that is contained there.  Subsequent to the legislation ‑ ‑ ‑

KIRBY J:   Was that in the context of the insured’s duty of good faith, was it?

MR O’BRYAN:   Yes, it was.  You will recall the Distillers Case was the case in which Distillers sought a declaration from this Court about its right to settle thalidomide claims in the 1970s.  The case was decided on a very narrow basis because Distillers brought forward only a question of the interpretation of the specific contract of insurance that it had with Ajax, which was a public liability or products liability policy.  The answer was given that it would be a breach of that policy for Distillers to settle thalidomide claims.

KIRBY J:   I have taken you off your track.  I think it is better if these few minutes that you have before we adjourn that you ‑ ‑ ‑

GLEESON CJ:   I have another question to ask you about the matter that Justice Kirby raised before you go anywhere else.  What is the remedy provided by the Insurance Contracts Act for a breach of the duty contained in section 13?

MR O’BRYAN:   There is no reference to a remedy in the Act, your Honour.  However, our submission is that because the Act makes it expressly clear that the duty is implied into the contract and becomes thereby an implied term of the contract, all of the contractual remedies that would be available in respect of any breach of contract would be available in respect of breach of the duty.

GLEESON CJ:   I notice that the Law Reform Commission report referred to assessing damages for a breach of the duty.  There was no claim in this case for damages for breach of a duty of good faith, was there.

MR O’BRYAN:   Your Honour, there was a claim for damages in this case and there was a claim for indemnity in this case and a claim for declaration in this case.  This was a case in the Federal Court, your Honour, so that the claims for relief, of course, were all stated in the application which is in the court book.  Pages 1 to 3 is the application that was issued when the matter commenced in the Federal Court, pages 1 to 3 of the amended application and in the usual way in a proceeding in the Federal Court, the application sought the relief and the statement of claim sought the basis for.

GLEESON CJ:   I understand that but I was just asking was there, in this case, a claim for damages or breach of the duty imposed by section 13 of the Act?

MR O’BRYAN:   Yes, your Honour, because all of the causes of action which were articulated in the statement of claim were said to found the basis of all of the relief sought in the application.

GLEESON CJ:   Is that the subject of the remitter by Justice Emmett, a claim for damages for breach of the duty of good faith?

MR O’BRYAN:   It must necessarily be the subject of the remitter in a sense that presumably what the Full Federal Court anticipated was that once those questions had been answered, it would be possible then to deal with the underlying subject matter of the claim which was ‑ ‑ ‑

GLEESON CJ:   Then could you at 10.15 tomorrow morning let us have particulars of the damages that you want to claim for breach of the duty of good faith?

CALLINAN J:   In the meantime, can you show me the prayer for relief in terms of damages?

MR O’BRYAN:   Yes.  On page 1 of the appeal book, your Honour, there were seven prayers for relief.  First, an order for the indemnity; second, a claim for damages ‑ ‑ ‑

CALLINAN J:   Where is the claim for damages, I am sorry?

MR O’BRYAN:   Paragraph 2 on page 1.

CALLINAN J:   But damages for what?

MR O’BRYAN:   Damages in respect of all of the causes of action that were articulated in the statement of claim, your Honour.

GLEESON CJ:   But insofar as you say there was a cause of action for damages for breach of the duty of good faith, what we need to know is what are the particulars of the damages and what is the conduct alleged to constitute the breach of the duty of good faith giving rise to those damages so that we can look, for example, at issues of causation.

MR O’BRYAN:   Yes, I understand.

GLEESON CJ:   We will adjourn until 10 o’clock tomorrow morning.

AT 4.15 PM THE MATTERS WERE ADJOURNED
UNTIL THURSDAY, 8 FEBRUARY 2007