CIMIC Group Limited v AIG Group Limited

[2022] NSWSC 999

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

CIMIC Group Limited v AIG Group Limited [2022] NSWSC 999

Hearing dates:

16 May 2022 – 3 June 2022

Decision date:

27 July 2022

Jurisdiction:

Equity

Before:

Peden J

Decision:

1. The parties are to confer and provide agreed short minutes of order to give effect to these reasons and appropriate costs orders within 7 days of the publication of this judgment.

2. Should the parties not be able to agree, the parties are to provide their competing short minutes together with submissions of no more than 10 pages, and any necessary evidence, within 10 days of the publication of this judgment.

3. Liberty to apply on 24 hours’ notice.

Catchwords:

INSURANCE — Liability insurance — Directors and Officers — Claim for indemnity and declaratory relief against two consecutive insurance towers — Claim for declaratory relief sought in the alternative against later insurance tower — Costs incurred by insured for securities litigation, investigations and a settlement arising from a file note — Whether costs caught under policy— Whether settlement reasonable — Retention — Statutory interest

INSURANCE — Insurance Contracts Act 1984 (Cth) — Duty of disclosure — Non-disclosure and misrepresentation — Construction of insurance policy — Whether parties contracted out of statutory remedies — Whether continuity clause allowed a claim against the later insurance tower — Relationship between liability limits in policies — Whether but for relevant failure insurer would have entered into contract — Whether cover should be reduced to nil

INSURANCE — Cross-claim in relation to one insurance policy — Contract — Formation — Rectification — Intention — Common intention — Signed placing slips

INSURANCE — Cross-claim by one insurer against two other insurers — Equitable contribution — Double insurance — Coordinate liabilities — Proper measure of contribution

INSURANCE — Whether insured barred from its alternative case — Election, waiver and estoppel — Futility — Whether declaratory relief hypothetical — Construction of notification clause — Whether late notification possible under the policy

LIMITATION OF ACTIONS — Equity — Application of limitation periods by analogy — Indemnities and insurance — Analogies in Contract and contribution between joint tortfeasors — Whether some claims for costs out of time

Legislation Cited:

ASX Listing Rules r 3.1

Australian Securities and Investments Commission Act 2001 (Cth) ss 13, 19, 30, 33

Corporations Act 2001 (Cth) ss 674, 1307(1)

Criminal CodeAct 1995 (Cth) div 70

Evidence Act1995 (NSW) ss 69, 97, 128, 135, 140(2)

Federal Court of Australia Act 1976 (Cth) ss 33V, 33ZF

Insurance Contracts Act 1984 (Cth) ss 7, 21, 22, 28, 40(3) 54, 57

Insurance Contracts Amendment Act 2013 (Cth)

Insurance Contracts Regulations 2017 (Cth) r 10

Law Reform (Miscellaneous Provisions) Act1946 (NSW)

Limitation Act 1969 (NSW) ss 14(1)(a), 23, 26

Migration Act 1958 (Cth)

Practice Note SC Eq 3

Supreme Court Act 1970 (NSW) ss 63, 75

Uniform Civil Procedure Rules 2005 (NSW) r 28.2

Cases Cited:

ACN 161 046 304 Pty Ltd (Formerly known as Melbourne City Investments) v CIMIC Group Limited [2019] VSC 48

Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 239 CLR 570

AIG Australia Ltd v Kaboko Mining Ltd [2019] FCAFC 96

Ainsworth v Criminal Justice Commission (1992) 175 CLR 564

Albion Insurance v Government Insurance Office (1969) 121 CLR 342

All Class Insurance Brokers (in liq) v Chubb Insurance (No 2) [2021] FCA 782

Allianz Australia Insurance Limited v General Cologne Re Australia Limited [2004] NSWCA 433

AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185

AMP Workers Compensation Services (NSW) Ltd v QBE Insurance Ltd (2001) 53 NSWLR 35

Antico v Heath Fielding Australia Pty Ltd (1997) 188 CLR 652

ASIC v Hellicar (2012) 247 CLR 345

Australian Casualty Co Ltd v Federico (1986) 160 CLR 513

Australian Securities and Investments Commission v Sigalla (No 2) [2010] NSWSC 792

Bankstown Football Club v CIC Insurance Ltd (unreported, Sup Ct, NSW, 17 December 1993)

Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334

Baycorp Advantage Ltd v Royal and Sun Alliance Insurance Australia Limited [2003] NSWSC 941

BNP Paribas v Pacific Carriers Limited [2005] NSWCA 72

BP Petroleum Development Ltd v Esso Petroleum Co Ltd [1987] SLT 345

Brighton Ceiling Pty Ltd v Pocrnja [2005] NSWCA 175

Briginshaw v Briginshaw (1938) 60 CLR 336

Brotherton v Aseguradora Colseguros [2003] EWCA Civ 705

Burke v LFOT Pty Ltd (2002) 209 CLR 282

Caledonian Railway Co v Colt (1860) 3 Macq 833

Carr v Finance Corporation of Australia Ltd (No 1) (1981) 147 CLR 246

CGU Insurance Limited v AMP Financial Planning Pty Ltd (2007) 235 CLR 1

CGU Insurance v Blakeley (2016) 259 CLR 339

CGU Insurance v Porthouse (2008) 235 CLR 103

Chief Commissioner of State Revenue v Paspaley [2008] NSWCA 184

Ciavarella v Balmer (1983) 153 CLR 438

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384

Claremont Petroleum NL v Cummings (1992) 110 ALR 239

Cohen v Cohen (1929) 42 CLR 91

Commonwealth v Verwayen (1990) 170 CLR 394

Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305

Delor Vue Apartments v Allianz Australia Insurance Ltd (No 2) [2020] FCA 588

Delta Pty Limited v Mechanical and Construction Insurance Pty Limited [2019] QCA 62

DIF III – Global Co-Investment Fund LP v DIF Capital Partners Ltd [2020] NSWCA 124

DIF III – Global Co-Investment Fund v Babcock & Brown International Pty Limited [2019] NSWSC 527

DIF III – Global Co-Investment Fund v Babcock & Brown International Pty Limited [2020] NSWCA 124

Edwards v Santos (2011) 242 CLR 421

Elilade Pty Ltd v Nonpareil Pty Ltd (2002) 124 FCR 1

Euro Pools Plc v Royal & Sun Alliance Insurance Plc [2019] EWCA Civ 808

FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (2001) 204 CLR 641

Ferrcom v Commercial Union Assurance (1993) 176 CLR 332

Fitzgerald v CBL Insurance Ltd [2014] VSC 493

Forster v Jododex (1972) 127 CLR 421

Fruehauf Finance Corp Ltd v Zurich Australian Insurance Ltd (1993) 32 NSWLR 735

Galaxy Communications Pty Ltd v Paramount Films of Australia Inc (Unreported, NSW Court of Appeal, 24 February 1998)

General Reinsurance Corporation v Forsakringsaktiebolaget Fennia Patria [1982] QB 1022

General Reinsurance Corp v Forsakringsaktiebolaget Fennia Patria [1983] 1 QB 856

GIO General Limited v Wallace [2001] NSWCA 299

Globe Church Incorporated v Allianz Australia Insurance Ltd (2019) 99 NSWLR 470

Gordon v Ross [2006] NSWCA 157

Gosford City Council v GIO General Ltd (2003) 56 NSWLR 542

Gregg v R [2020] NSWCCA 245

HDI Global Specialty SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634

HIH Casualty & General Insurance Ltd (in liq) v Insurance Australia Limited (No 2) [2006] VSC 128

HIH Casualty and General Insurance Ltd v Riunione Adriatica Di Sicurta SpA [1999] VSC 336

HLB Kidsons (a firm) v Lloyd’s Underwriters [2008] EWCA Civ 1206

Hobart International Airport Pty Ltd v Clarence City Council [2022] HCA 5

Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26

Inabu Pty Ltd as trustee for the Alidas Superannuation Fund v CIMIC Group Limited [2020] FCA 510

Inabu Pty Ltd as trustee for the Alidas Superannuation Fund v CIMIC Group Ltd [2019] FCA 1480

Jamison v The Queen (1993) 177 CLR 574

Jones v Dunkel (1959) 101 CLR 298

Kajima UK Engineering Ltd v The Underwriter Insurance Co Ltd [2008] Lloyd’s Reports 391

Kammins Ballroom Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850

Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622

La Trobe Capital & Mortgage Corp v Hay Property Consultants (2011) 190 FCR 299

Lawrence Edward Stewart v Australia and New Zealand Banking Group Limited [2020] NSWSC 1787

LCA Marrickville Pty Ltd v Swiss Re International Se [2022] FCAFC 17

Lohar Corp Pty Ltd v Dibu Pty Ltd (1975) 1 BPR 9177

Lynch v Hamilton (1810) 128 ER 15

McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579

Melbourne City Investments Pty Ltd v Leighton Holdings Limited [2015] VSCA 235

Melin v Mutual Community General Insurance Pty Ltd (1991) 6 ANZ Ins Cas 61-057

Minister for Immigration v Ozmanian (1996) 71 FCR 1

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104

National Australia Bank Limited v Nautilus Insurance Pte Ltd (No 2) [2019] FCA 1543

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] 67 ALJR 170

Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723

Nicholls v Michael Wilson and Partners [2010] NSWCA 222

Nigel Watts Fashion Agencies Pty Ltd v GIO General Ltd (1994) 8 ANZ Ins Cas 61-235

NRMA Insurance Ltd v Tatt (1989) 92 ALR 299

O’Connor v SP Bray Ltd (1936) 36 SR (NSW) 248

O’Neill v FSS Trustee Corporation as Trustee of the First State Superannuation Scheme [2015] NSWSC 1248

Onley v Catlin Syndicate [2018] FCAFC 119

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

Paymer v Ayres (2017) 259 CLR 478

Payne v Parker (1976) 1 NSWLR 191

Permanent Trustee v FAI General (2001) 50 NSWLR 679

Permanent Trustee v FAI General (2003) 214 CLR 514

Prepaid Services Pty Ltd v Atradius Credit InsuranceNV [2013] NSWCA 252

Protec Pacific v Steuler Services [2014] VSCA 338

Pullen v Gutteridge Haskins & Davey Pty Ltd (1993) 1 VR 27

QBE Insurance (Australia) Ltd v Lumley General Insurance Ltd (2009) 24 VR 326

Quintis Ltd (Subject to a Deed of Company Arrangement) v Certain Underwriters at Lloyd’s London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19

Quintis Ltd (Subject to Deed of Company Arrangement) v Certain Underwriters at Lloyd’s London Subscribing to Policy Number B0507N16FA15350 (No 2) [2021] FCA 327

RHG Mortgage Ltd v Ianni [2015] NSWCA 56

Ruby Steam Ship Co Ltd v Commercial Union Assurance Co Ltd (1933) 150 LT 38

Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603

Sanderson Computers Pty Ltd v Urica Library Systems BV (1998) 44 NSWLR 73

Sandersons Eastern Suburbs v Mercedez-Benz Australia/Pacific [2018] NSWSC 52

Sargent v ASL Developments (1974) 131 CLR 634

Sayseng v Kellogg Superannuation Pty Ltd [2007] NSWSC 857

Schlaepfer v Australian Securities and Investments Commission [2017] FCA 1122

Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85

Stealth Enterprises v Calliden Insurance [2017] NSWCA 71

Sydney Turf Club v Crowley (1971) 1 NSWLR 729

Sydney Turf Club v Crowley (1972) 126 CLR 420

Taylor v The Queen [2020] NSWCCA 355

Tokio Marine & Nichido Fire Insurance Co Ltd v Holgersson [2019] WASCA 114

Trans Realties Pty Ltd v Grbac (1975) 1 NSWLR 170

Tropical Traders Ltd v Goonan (1964) 111 CLR 41

Tszyu v Fightvision Pty Ltd; Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473

UBS AG v Tyne (2018) 265 CLR 77

Ucak v Avante Developments [2007] NSWSC 367

United Australia Ltd v Barclays Bank Ltd [1941] AC 1

Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603

Vero Insurance v Baycorp Advantage [2004] NSWCA 390

Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226

Walton v Gardiner (1993) 177 CLR 378

Watkins Syndicate v Pantaenius (2016) 244 FCR 5

Weir Services Australia Pty Limited v AXA Corporate Solutions Assurance [2018] NSWCA 100

White Industries Qld Pty Ltd v Hennessey Glass and Aluminium Systems Pty Ltd [1999] 1 Qd R 210

Wilkie v Gordian Runoff (2005) 221 CLR 522

Zhang v ROC Services (NSW) (2016) 93 NSWLR 561

Texts Cited:

D K Derrington and R S Ashton, The Law of Liability Insurance (3rd ed, 2013, LexisNexis Butterworths)

Handley, Estoppel by Conduct and Election (1st ed, 2006, Lawbook Co)

I C F Spry, The Principles of Equitable Remedies (9th ed, Lawbook Co, 2014)

JJ Spigelman, ‘Knowledge of a Corporate Insured’ (1994) 6 Insurance Law Journal 1

Kirsty Sutherland, ‘An Uneasy Compromise: An Analysis of the Effect of a Settlement Reached by an Insurer with a Third Party Claimant vis-à-vis his or her Insurer’ (1998) 9 Insurance Law Journal 257

Nigel Rein, ‘Liability Policies: The Relationship of the Claim against the Insured and the Insured’s Claim on the Insurer’ (1994) 6 Insurance Law Journal 193

Peter Handford, Limitation of Actions (2nd ed, Lawbook Co, 2007)

Peter Mann, Mann’s Annotated Insurance Contracts Act (7th ed, 2016, Lawbook Co)

P W Young, Declaratory Orders (2nd ed, Butterworths, 1984)

Spencer Bower and Turner, The Law Relating to Estoppel by Representation (3rd ed, 1977, Butterworths)

WIB Enright and RM Merkin, Sutton on Insurance Law (4th ed, Lawbook Co, 2015)

Category:

Principal judgment

Parties:

CIMIC Group Ltd (Plaintiff)
AIG Australia Ltd (First Defendant)
Chubb Insurance Australia Ltd (Second Defendant)
Catlin Syndicate Ltd (Third Defendant)
Catlin Australia Ltd (Fourth Defendant)
Liberty Mutual Insurance Company (Fifth Defendant)
Berkley Insurance Company (Sixth Defendant)
Swiss Re International SE (Seventh Defendant)
Zurich Australian Insurance Ltd (Eighth Defendant)
Arch Underwriting at Lloyd’s Limited on behalf of Syndicate 2012 (Ninth Defendant)
Dual Australia Pty Ltd (Tenth Defendant)

Representation:

Counsel:
M A Jones SC and B Ryde (Plaintiff)
G Rich SC and J Taylor (First Defendant)
S R Donaldson SC and N D Oreb (Second Defendant)
I R Pike SC and M Newton (Third and Fourth Defendants)
M R Elliott SC and L Hulmes (Fifth Defendant)
M A Friedgut and A Lim (Sixth Defendant)
E Muston SC and H Mann (Seventh Defendant)
R Dick SC and S Fitzpatrick (Eighth Defendant)
A Horvath SC and M Caristo (Ninth and Tenth Defendants)

Solicitors:
Allens (Plaintiff)
Wotton + Kearney (First Defendant)
Lander & Rogers (Second Defendant)
DLA Piper (Third and Fourth Defendants)
Colin, Biggers & Paisley (Fifth Defendant)
Mills Oakley (Sixth Defendant)
Kennedys (Seventh Defendant)
YPOL Lawyers (Eighth Defendant)
Moray & Agnew (Ninth and Tenth Defendants)

File Number(s):

2020/00172061

Publication restriction:

Nil

Judgment

Background

Procedural history

Factual background

Leighton’s Operational Structure

Key Leighton Policies

Key Individuals

Leighton’s Operations in Iraq

Iraq Phase 1 Project

Iraq Phase 3 Project

Creation of the Iraq File Note on 23 November 2010

Leighton after 23 November 2010

Restructure of Leighton International

Profit downgrade

“Discovery” of the Iraq File Note

2012 Notification

Categories of Payments/Costs Claimed

AFP Investigation costs

ASIC Investigation(s) costs

MCI Class Actions costs

Inabu Class Action (Defence Costs and Settlement Amount)

Gregg Prosecution

Overview of the Policies

2010 Policies

2011 Policies

2013 Primary Policy

Construction of Insurance Contracts

2011 Primary Policy

Construction of cl 7.1

Construction of cl 5.3 “Continuity Clause”

Construction of cl 5.3(ii) – meaning of “limitations”

Should Leighton have disclosed the Iraq File Note before 30 June 2011?

What facts were known by Leighton pre-inception?

Unaoil

Conclusion

Mr Savage

Ocean King

What did Mr Stewart believe?

Section 21(1)(b) IC Act – a reasonable person

Pre-inception misrepresentation

Effect of Leighton’s breach of the duty of disclosure and misrepresentation

AIG

Chubb

Catlin

Liberty

Conclusion

Do the payments made by CIMIC fall within the meaning of cl 4.21 “Loss”?

AFP Investigation Costs

ASIC Investigation Costs

Iraq Investigation

Non-Iraq Investigation(s)

MCI Class Action Defence Costs

Inabu Settlement Sum

Is reasonableness required?

What amount is reasonable?

Inabu Class Action Defence Costs

Gregg Prosecution Costs

Limitation Defence

Interest

AFP Costs and Iraq ASIC Costs

Non-Iraq ASIC Investigation Costs

Gregg Defence and Witness Costs

MCI Class Action Costs

Inabu Settlement Amount

Inabu Defence Costs

Retention under 2011 Policy

Catlin’s Cross Claim

When was the Catlin Policy formed?

Rectification

AIG’s Cross Claim

2010 Primary Policy

Is CIMIC prevented from bringing its alternative claim against the 2010 Insurers?

CIMIC’s Pleadings

Election, Waiver and Estoppel

Election

Consideration

Estoppel and Waiver

CIMIC’s claim for declaratory relief against the 2010 Insurers

Principles

Determination - First Declaration

Determination - Alternative Declaration

Limitation Defence to Declaration

Abuse of Process Defence

Orders

APPENDIX - Clauses from the 2011 Policy

Company Securities Cover

Investigation Costs Cover

General Clauses

Judgment

Background

1. The plaintiff CIMIC (previously Leighton Holdings Limited) has sued its towers of Director and Officers’ Insurers for the years 2010/2011 and 2011/2012.

2. In this judgment, I refer to the plaintiff company:

1. by its previous name, Leighton Holdings Limited (LHL or Leighton), when considering the factual matters when it bore that name, as the documents do so; and

2. as CIMIC, when referring to submissions and the running of the litigation.

3. On 23 November 2010, Leighton’s incoming Chief Executive Officer (CEO) made a handwritten file note, which recorded representations made to him by a co-Chief Operating Officer (COO), that might suggest Leighton officers engaged in bribery of, or made improper payments to, foreign officials to secure construction contracts for Leighton in Iraq (Iraq File Note). About a year after it was created, Leighton disclosed the Iraq File Note to the Australian Federal Police, which resulted in various investigations and criminal and civil proceedings against Leighton and some of its officers, some of which remain ongoing. At the commencement of the litigation, CIMIC had spent $45,769,509.08 in relation to those criminal and civil proceedings.

4. At a general level against the first to fifth defendants (AIG, Chubb, Catlin Syndicate, Catlin Australia, and Liberty respectively, and collectively 2011 Insurers), CIMIC has sought:

1. a declaration that those 2011 Insurers are severally liable (according to their respective layers) to indemnify it for the costs expended; and

2. damages for the 2011 Insurers’ failure to indemnify and interest under Insurance Contracts Act 1984 (Cth) (IC Act) s 57.

5. CIMIC’s claim against the 2011 Insurers is based on a primary policy and several excess policies of the five defendants for the period from 30 June 2011 to 30 June 2012 (2011 Policy). CIMIC has an alternative claim against Chubb for some costs pursuant to a policy in place between 30 June 2013 and 30 June 2014 (2013 Primary Policy).

6. This claim requires a determination of the proper construction of various clauses of the 2011 Policy, and, in particular, whether the 2011 Insurers remain entitled to exercise an insurer’s rights under s 28 IC Act to avoid or reduce their liability for pre-inception non-disclosure of the allegations recorded in the Iraq File Note. Various other defences have been raised.

7. At a general level, CIMIC’s alternative claim against the sixth to tenth defendants (Berkley, Swiss Re, Zurich, Arch and Dual respectively, and collectively 2010 Insurers) is based on a primary policy and several excess policies in place between 30 June 2010 and 30 June 2011 (2010 Policy). This claim arises only if CIMIC’s claim against the 2011 Insurers fails.

8. This claim seeks a declaration as to Leighton’s relevant state of mind during the 2010/11 Policy Period concerning the allegations in the Iraq File Note, so that CIMIC can seek an indemnity from the 2010 Insurers in future proceedings. To date, CIMIC has not made any claim under the 2010 Policy. The 2010 Insurers resist any declaration on various bases, including that CIMIC elected to sue the 2011 Insurers instead, and that the declaration sought is hypothetical, futile, or out of time.

9. At a pre-trial motion heard on 4 May 2022, CIMIC explained the structure of its case, including that no formal notification under the 2010 Policy had been made to the 2010 Insurers for fear of triggering “an express exclusion for claims that have a relationship to a circumstance that has been notified under an earlier policy” in cl 3.2(i) of the 2011 Policy. Counsel for CIMIC noted:

to genuinely bring forward a notification against the 2010 insurers late, we would have to at least have awareness of that circumstance that we are going to notify during the period of the 2010 cover. And there's a fundamental problem with us bringing that forward now in circumstances where our principal case is that we didn't have that awareness.

10. At the hearing, CIMIC emphasised that declaratory relief was sought against the 2010 Insurers:

[T]o avoid an outcome where in the present proceedings, the 2011/12 insurers succeed in establishing that CIMIC had relevant awareness of relevant notifiable circumstances in 2010/11, but in any subsequent proceeding, the 2010/11 insurers are able to satisfy a differently constituted Court, perhaps, that it was not aware of relevant notifiable circumstances in 10/11.

11. These proceedings also involve two cross claims:

1. A cross claim by the 2011 primary co-insurer (AIG) against two of the 2010 Insurers (Berkley and Swiss Re) for equitable contribution totalling 50% of any amount, for which AIG is found liable to pay CIMIC (AIG Cross Claim).

2. A cross claim by Catlin against CIMIC seeking a declaration that the terms of its contract for excess insurance contained a continuity date of 30 June 2011, not 30 June 2005. In the alternative, Catlin sought an order for rectification to reflect that 2011 continuity date (Catlin Cross Claim). If successful, and the continuity date ought to be 30 June 2011, Catlin has a complete defence to CIMIC’s claim.

12. A diagram taken from CIMIC’s submissions illustrating the two towers of CIMIC’s D&O insurers in 2010/11 and 2011/12, and existing erosion and exposure is set out below.

13. As identified in the diagram:

1. the 2010 Insurers have paid about $75.5 million for other claims not relevant to these proceedings. These payments exhausted the layers of AIG, Chubb and Liberty under the 2010 Primary Policy and eroded all but about $4.53 million in Berkley’s excess layer.

2. the 2011 Insurers have paid about $921,000 in relation to early Iraq File Note investigation costs incurred by CIMIC (the 2013/14 Payments), however, in June 2014 the 2011 Insurers stopped paying as they had formed the view that they were not in fact liable.

3. The various insurers in either tower that would be liable to pay CIMIC’s costs if it is successful in relation to all costs are shaded in grey.

Procedural history

14. On 8 June 2020, CIMIC commenced these proceedings. It amended its claim in October 2020, and then again on 4 February 2022 to insert additional claims in respect of payments made in what has been called the “Gregg Prosecution Costs”.

15. On 28 June 2021, the matter was set down for a three-week hearing.

16. On 4 May 2022, I ordered separate determination of the liability relief and damages relief questions (Separate Hearing), pursuant to Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 28.2 and the Commercial List and Technology and Construction List Practice Note SC Eq 3 (Commercial List Practice Note), subject to the parties providing the following undertakings:

(a) the relevant party will not appeal the judgment of Peden J on Liability Relief, once published, until the issue of Damages Relief and Interest Relief is determined.

(b) the relevant party will not after the judgment on Liability Relief has been published until the judgment on Damages Relief and Interest Relief is published, raise an argument that Peden J:

(i) is part heard in the matter, or, is for any reason, the only judicial officer who can hear any issue concerning the Damages Relief and Interest Relief; or

(ii) is in any way precluded from determining the proceedings in the context of the reference contemplated.

All the parties proffered these undertakings by 5 May 2022. Some of those parties gave the undertaking on a stated assumption that time would not start to run for the purposes of any appeal until after the Separate Hearing was completed.

17. The liability relief questions determined in this judgment concern the following prayers for relief in the Further Amended Summons against the 2011 Insurers:

3. A declaration that AIG and Chubb are each severally liable (according to their respective proportions) to indemnify the plaintiff (CIMIC) in accordance with the terms and conditions of a “Directors and Officers Liability and Company Securities Insurance Policy” being Policy No. 113690 for the “Policy Period” between 4 PM on 30 June 2011 and 4 PM on 30 June 2012 (the 2011 Primary Policy), subject to its “Limit of Liability” and “Retention” for:

(a) “Investigation Costs” (the AFP Investigation Costs) incurred in connection with an investigation by the Australian Federal Police (AFP) into matters which were the subject of a referral by CIMIC to the AFP on or about 7 November 2011 (the AFP Investigation);

(b) “Investigation Costs” (the ASIC Investigation Costs) incurred in connection with an investigation by the Australian Securities and Investments Commission (ASIC) into suspected contraventions of ss. 181, 184, and/or 1307 of various sections of the Corporations Act 2001 (Cth) (the Corporations Act) by the directors, officers and/or employees of CIMIC and/or its subsidiaries in about 2009 – 2011 including:

(i) ss. 181, 184, and/or 1307 in relation to payments made to third parties during 2009 – 2011 to secure certain contracts concerning the development of offshore loading facilities for Iraq’s crude oil exports;

(ii) ss. 180, 182, 184 and/or 1307 in connection with payments made to a Dubai based company, Asian Global and Trading FZE, in or around August 2011; and

(iii) ss. 1308, 1309 and/or 1041H by virtue of the extent of disclosure made to the ASX relating to the sale by Leighton International of a 35% portion of its Indian operations to Welspun Infra Projects Pty Ltd in or around April 2011.

(c) “Defence Costs” (the MCI Class Action Defence Costs) incurred in connection with the investigation and defence of representative proceedings commenced by Melbourne City Investments Pty Ltd (MCI) on its own behalf and on behalf of “Group Members” who acquired ordinary shares in CIMIC between 23 November 2010 and 3 October 2013, in the Supreme Court of Victoria, being:

(i) Proceedings No. S CI 2013 05159 (the First MCI Class Action); and

(ii) Proceedings No. S CI 2015 0163 (the Second MCI Class Action);

(d) “Defence Costs” (the Inabu Class Action Defence Costs) incurred in connection with the investigation and defence of representative proceedings commenced by Inabu Pty Ltd “as trustee for the Alidas Superannuation Fund” (Inabu) on its own behalf and on behalf of “Group Members” who acquired ordinary shares in CIMIC between 23 November 2010 and 3 October 2013 in the Australian Capital Territory District Registry of the Federal Court of Australia, being Proceedings No. ACD93 of 2016 (the Inabu Class Action); and

(e) “Loss” being CIMIC’s liability to pay the “Settlement Amount” under a Settlement Deed dated 20 December 2019 entered into by CIMIC to settle the Inabu Class Action (the Inabu Settlement Amount); and

(f) “Defence Costs” and “Loss” (the Gregg Prosecution Costs) incurred in connection with the investigation and defence of the prosecution of Mr Peter Alan Gregg for offences under s. 1307 of the Corporations Act in relation to the falsification of books affecting or relating to affairs of CIMIC, being Proceeding No. 2017/22547 in (at trial) the District Court of New South Wales and (on appeal) the New South Wales Court of Criminal Appeal (the Gregg Prosecution).

4. A declaration that Catlin is liable to indemnify CIMIC in accordance with the terms and conditions of an “Excess Layer Insurance” policy, being Policy No. 891014 for the “Policy Period” between 4 PM on 30 June 2011 and 4 PM on 30 June 2012 (the First 2011 Excess Policy), subject to its “Limit of Liability” and “excess” for:

(a) the AFP Investigation Costs;

(b) the ASIC Investigation Costs;

(c) the MCI Class Action Defence Costs;

(d) the Inabu Class Action Defence Costs; and

(e) the Inabu Settlement Amount; and

(f) the Gregg Prosecution Costs.

5. A declaration that Liberty is liable to indemnify CIMIC in accordance with the terms and conditions of an “Excess Layer Insurance” policy, being Policy No. DO-SY-SPC-11- 500075 for the “Policy Period” between 4 PM on 30 June 2011 and 4 PM on 30 June 2012 (the Second 2011 Excess Policy), subject to its “Limit of Liability” and “excess” for:

(a) the AFP Investigation Costs;

(b) the ASIC Investigation Costs;

(c) the MCI Class Action Defence Costs;

(d) the Inabu Class Action Defence Costs; and

(e) the Inabu Settlement Amount; and

(f) the Gregg Prosecution Costs.

…

6A. Further or alternatively to paragraphs 1-6 above, if the Court finds that part (or parts) of the ASIC Investigation and/or the Gregg Prosecution were not (and are not) deemed to have been made during the period of the 2011 Primary Policy (the Non-Iraq Investigation), then, as against Chubb:

(a) a declaration that Chubb is liable to indemnify CIMIC in accordance with the terms and conditions of a “Directors and Officers Liability Insurance” policy, being Policy No. 01CH5633023 for the “Policy Period” between 4 PM on 30 June 2013 and 4 PM on 30 June 2014, subject to its “Limit of Liability” and “Retention” for:

(i) “Legal Representation Expenses” incurred in connection with the Non-Iraq Investigation; and

(ii) the Gregg Prosecution Costs.”

18. The damages relief and interest relief to be determined at the Separate Hearing concerns the quantification and reasonableness of the same categories of costs and interest payable on those costs..

19. In determining the application for the Separate Hearing, I was also persuaded that the following quantum issue should be determined in these proceedings:

The quantification of the amount of the “Inabu Settlement Amount” (as defined in paragraph 156(a) of the FACLS) for which the First to Fifth Defendants are liable, including whether the Inabu Settlement Amount, or some other lower amount, is “Loss” (as defined in clause 4.21 of the 2011 Policies).

20. There were more than 14,000 pages of documents tendered in evidence, however, I informed the parties that I would not have regard to any material that was not referred to in oral or written submissions. Written submissions totalled almost 1000 pages and oral submissions went for 7 days. The Court was ably assisted by counsel in ensuring the conclusion of the hearing within the allocated time.

Factual background

Leighton’s Operational Structure

21. At the time of the events in issue in these proceedings, Leighton conducted a construction contracting, services and project development business with more than 40,000 employees in over 20 countries. Its revenue in the 12 months to June 2011 was approximately $15.6 billion.

22. In 2009, Leighton was the sole shareholder of six subsidiaries, which together formed the “Leighton Group”. The subsidiaries were referred to within the Group as “operating companies” and each had its own board, managing director (who attended the board meetings of Leighton Group), chief operating officer, corporate identity, and code of ethics.

23. The governance structure between Leighton and its operating companies involved a combination of lines of delegation and autonomy for the operating companies. That framework was described in various terms by Leighton’s senior executives as “flexible and decentralised” and promoting “adequate freedom … to operate”. The framework included the following features:

1. Each operating company was managed by a Chief Operating Officer (COO), who was the principal executive with responsibility for the operations and performance of his respective operating companies. The COOs, in turn, reported directly to the Group CEO.

2. The operating companies operated under business plans approved by Leighton and were subject to 33 governance guidelines, which comprised Leighton’s Governance and Risk Management Roadmap for Leighton Group Operating Companies, or as it was called internally at Leighton, the “Rules of Racing”.

3. The Leighton Board maintained oversight of and supervision over the operations of the operating companies in relation to them meeting the targets set in its annual objectives and strategic agenda.

4. Each operating company provided a quarterly “Compliance Report” to Leighton’s Ethics and Compliance Committee. As part of the report, the managing director and COO certified that the operating company had policies and procedures in place, which were consistent with the Leighton Code of Ethics and compliant with the operating company’s own code of ethics.

5. It was the role of the Leighton Audit Committee to ensure that Leighton’s corporate governance policies and systems were consistent across the Leighton Group. The Audit Committee also received reports from the operating companies on matters such as project reviews and audits.

24. One operating company was Leighton International Limited (LIL). It appears from documents that LIL housed various divisions, including some that are relevant to this dispute:

1. Leighton Offshore (Oil and Gas) Pte Ltd, which had different departments, such as Leighton Offshore Middle East;

2. Leighton Contractors Singapore Private Limited; and

3. Leighton Contractors India Pvt Ltd.

25. Some of these divisions were affected by a restructure to LIL in 2011 for reasons which will be detailed later.

Key Leighton Policies

26. There was no specific policy at Leighton addressing the risk of bribery and corruption until its introduction, at the request of the Ethics and Compliance Committee, in June 2011. Several of Leighton’s guidelines were said to be relevant to the prevention and detection of bribery and corruption:

1. The Project Risk Management Guidelines required operating companies to undertake project audits and carry out annual reviews of tendering processes as well as of project execution.

2. The Tendering Processes and Practices Review Guideline required Leighton’s Risk Management Group to review each operating company’s processes for preparing and approving tenders.

3. The Corporate Ethics Guidelines contained the Leighton Code of Ethics, which was approved by the Board. The Code required, amongst other things, that directors and employees comply with the law and act honestly and with integrity.

27. The Group Work Procurement Guidelines were also relevant and had the following features:

1. They allowed operating companies to conduct their own assessment of the terms of their bids/tenders for work, but within parameters established by the Leighton Board.

2. Under cl 7.4, the Group CEO, or as delegated, the relevant Group COO, was required to approve the submission of tenders of “greater than A$500m or where the project involves high risks or complexities” and less than A$1 billion. In his evidence, Mr King, Leighton’s CEO at all relevant times until 31 December 2010, described the delegation as a “standing delegation”, which “didn’t work on the hour by the minute”, and COOs, like Mr David Savage (who features large in this litigation), did not necessarily discuss jobs with him before submitting tenders, even though a strict reading of the policy might have required that.

3. A proposed tender by an operating company was also required to be compliant with all applicable laws and the code of ethics of the relevant operating company and the Leighton Group.

Key Individuals

28. Around the date of the creation of the Iraq File Note in November 2010, the following individuals were involved in the management of Leighton:

1. Mr Wallace (or Wal) King was the CEO of Leighton from January 1987 until his resignation, taking effect on 31 December 2010. Mr King remained employed by Leighton until 31 January 2011 but ceased involvement with Leighton’s committees and Board after 3 November 2010. As CEO, Mr King did not sit on the committees of the operating companies. He did, however, chair the Leighton Executive Committee until November 2010. That Executive Committee comprised the senior executives of Leighton, including Mr Savage. Mr King accepted that he gave the COOs considerable autonomy and discretion to run the operating companies within the Rules of Racing. Mr King gave evidence for CIMIC.

2. In July 2009, Mr David Stewart was appointed as one of the COOs of Leighton. The other COO at that time was William Wild. In his role as COO, Mr Stewart had oversight of LIL, including Leighton Offshore. As COO, he also attended some board meetings of the operating companies and approved authorities to prepare offers and submit tenders and quarterly project reviews. He also monitored management performance, policy compliance and major issues as appropriate. On 24 August 2010, a board meeting confirmed he was CEO-elect, and that was announced to the market via a media release on 13 September 2010. Mr Stewart was the CEO from 1 January 2011 until his resignation took effect on 19 November 2011, although his last day in the office was 25 August 2011. Mr King’s evidence was that, after the public announcement of Mr Stewart as the incoming CEO in September 2010, Mr King was serving as a “caretaker CEO” and took a step back from executive decision-making, and encouraged Mr Stewart to assume control. On 2 June 2022, I issued Mr Stewart a section 128 certificate under the Evidence Act 1995 (NSW) (Evidence Act) in relation to his evidence concerning the Iraq File Note matters.

3. From about December 2009 to 31 March 2011 (when he left Leighton), Mr David Savage was a Leighton COO, Managing Director of LIL, and Associate Director of Al Habtoor Leighton Group (AHLG). He reported directly to Mr King. Mr Stewart recorded conversations with Mr Savage in the Iraq File Note suggesting bribery. Mr Savage did not give evidence.

4. Mr William (or Bill) Wild was the only COO of Leighton between January 2006 and July 2009, when Mr Stewart was appointed as another COO. While he was the only COO, he had oversight of LIL, including Leighton Offshore. From early 2011, he was the Deputy CEO and COO of Leighton, and in that capacity supervised Mr Savage and was responsible for approving any tenders proposed by Mr Savage. Mr Wild investigated improper conduct of LIL (and therefore Mr Savage) in relation to a Malaysia dams project also. In early April 2011, Mr Wild announced his intention to resign from Leighton and, on 30 June 2011, he left Leighton. Mr Wild gave evidence for CIMIC.

5. Mr Peter Gregg was the Chief Financial Officer (CFO) of Leighton. Mr Gregg was not called to give evidence. He was prosecuted for offences under s 1307(1) of the Corporations Act 2001 (Cth) (Corporations Act) for engaging in conduct that resulted in the falsification of company books and records, but was acquitted on appeal in 2020. The legal costs involved in his defence are known in this matter as the “Gregg Prosecution Costs” and are one category of costs sought by CIMIC.

6. Mr Stephen Johns was a non-executive director of Leighton and the Chairman of the Remuneration and Nominations Committee. He was appointed Chairman of Leighton on 24 August 2011, replacing Mr Stewart. He gave evidence for CIMIC.

7. On 20 June 2011, Mr Craig van der Laan was appointed as the General Counsel, Chief Risk Officer, and Chair of the Audit Committee at Leighton. He was not aware of the Iraq File Note until 3 November 2011. He did not give evidence.

8. Mr Stephen Sasse was the General Manager of Organisational Strategy, who, at Mr Stewart’s request, gave a presentation to a meeting of Leighton’s Ethics and Compliance Committee in 2011 in relation to an investigation into allegations of improper conduct by LIL (and therefore Mr Savage) between 2008 and 2011 concerning the construction of a pipe laying barge called “Leighton Eclipse”. Mr Savage was working for LIL during that period. He did not give evidence.

9. Mr Hamish Tyrwhitt was Managing Director of Leighton Asia and, in Mr King’s evidence, one of the possible choices for the CEO position to replace him. In fact, he replaced Mr Stewart as CEO in late 2011. He did not give evidence.

10. Mr Fergus Eley was an employee at Leighton Offshore involved in the Iraq Tender documentation and internal working documentation. He reported to Mr Russell Waugh and Mr Savage. He did not give evidence.

11. Mr Russell Waugh was the CEO of Leighton Offshore. He reported to Mr Savage. He was also the Managing Director of Leighton Contractors India Pvt Ltd. He was the primary negotiator of the Iraq contracts. He did not give evidence.

1. Mr Peter Cox commenced with Leighton Offshore in about late 2010 and reported to Mr Waugh, and, by May 2011, was the CEO of Leighton Offshore. He did not give evidence.

Leighton’s Operations in Iraq

29. As noted above, Mr Savage was the COO of LIL and responsible for its tenders in 2010 and until early 2011.

30. Prior to July 2009, Leighton did not have operations in Iraq. Entry into a new market was subject to Leighton’s requirement in the Group Work Procurement Guidelines that a “New Country Approval” be submitted to, and approved by, the Leighton Board. For that purpose, in July 2009, LIL (under Mr Savage) prepared a document entitled “Proposal to Enter New Geographic Market”. The Proposal contained a “New country risk checklist”, which noted (amongst other things):

1. Local agents were not required for LIL to operate in Iraq.

2. Iraq’s score on the “Corruption Perception Index” was 1.3 out of 10, which placed Iraq as the second most corrupt country out of the 180 countries included in the survey.

3. The security situation in Iraq was highly dangerous and LIL did not plan to “have [its own employees] onshore in Iraq”.

31. At all times material to this case, the Leighton Board and senior executives took a consistent view of not being prepared to risk the safety of its own employees working onshore in Iraq.

Iraq Phase 1 Project

32. The South Oil Company of Iraq (SOC) was owned by the Iraqi government.

33. In 2009, SOC retained Foster Wheeler Energy Limited, an international engineering company, as the “Front End Engineering Design Contractor” (FEED contractor) to devise, conduct and make recommendations as to a competitive tender process for what was known as Iraq Phase 1 Project.

34. The project was one part of the broader Iraq Crude Oil Export Expansion Project (ICOEEP), which involved offshore pipeline and marine construction projects in Iraq, and which were to be funded by the US Government as part of the post-war reconstruction of Iraq.

35. Mr King’s evidence was that the Iraq Project “was an unusual and complex job.” However, I was not taken to evidence of the detail of the project, including the necessary equipment and components to be supplied and built by Leighton.

36. Leighton Offshore was one of four invitees chosen on 18 December 2009 by Foster Wheeler and SOC to bid for the Phase 1 Project. The other three international invitees were the National Petroleum Construction Company (NPCC), Saipem, and J Ray McDermott.

37. The bidding process worked in two stages. First, there was to be a simultaneous priced commercial bid and technical unpriced bid. Second, there was to be a priced bid evaluation. Each stage was subject to detailed evaluation by Foster Wheeler. Foster Wheeler required fixed, lump sum prices in US dollars be used in tenders, so that they included all contingency, uncertainties and risk costs; there was no allowance for variations in cost.

38. On 25 March 2010, Mr Savage provided Mr King with a copy of the Iraq tender “Green Sheet” (internal document summarising the elements and their cost for the proposed tender) and had a phone call with Mr King to discuss it. Mr King’s unchallenged evidence was that he expressed some concern for the safety of employees in Iraq, but was content for the bid to proceed, subject to the ordinary Leighton tender processes being followed.

39. On 26 March 2010, Leighton Offshore’s tender was approved by Leighton’s then COO, Mr Stewart. Although there were concerns about the Iraq market due to its scores on international corruption assessments, Mr Stewart’s evidence was that his concerns were assuaged because there was a competitive tender process arranged by Foster Wheeler, which involved well-known American, English and European construction companies.

40. By 30 March 2010, two of the invited tenderers, J Ray McDermott and NPCC, had declined to bid for the Phase 1 Works. The only tenderers remaining were Leighton Offshore and Saipem.

41. On 30 March 2010, Leighton Offshore, along with a joint venture partner known as Habtoor Leighton Holdings (HLG), a company in which Leighton held a substantial interest, submitted an initial commercial priced bid at US$633,470 and unpriced technical bid. Mr Savage signed the Approval to Submit Tender.

42. As between Leighton Offshore and Saipem, a 22 May 2010 summary of Foster Wheeler’s evaluation of the technical bid indicated that Leighton received a slightly higher total bid evaluation score.

43. Foster Wheeler asked Leighton and Saipem to submit revised bid prices to take into account some changes in the scope of works by 28 May 2010.

44. In the meantime, in April 2010, Leighton Offshore first encountered Unaoil Limited (Unaoil), an onshore contractor. Unaoil’s involvement in Leighton Offshore’s tender is a matter critical to this litigation, because it is said to involve corrupt payments in relation to all the Iraq Project contracts won by Leighton.

45. Unaoil had originally been the proposed agent and contractor of J Ray McDermott, however, as J Ray McDermott’s bid did not proceed, Unaoil sought to join a new bidder as a provider of onshore work. As detailed further below, from May 2010, various LIL entities entered into MOUs and Agreements with Unaoil to provide subcontract works as part of the Leighton Offshore tenders.

46. On 28 May 2010, Leighton Offshore submitted its revised bid at a fixed sum of US$688.725 million. The 2011 Insurers submitted this price increase was the result of a meeting between LIL’s Mr Waugh and Unaoil’s Mr Willimont in Perth, where Mr Waugh agreed to pay bribes.

47. On 15 June 2010, SOC issued an invitation to Leighton Offshore and Saipem to provide further updated tenders that included another change in scope of works; “Addendum 4” required additional works for supply of linepipe, amongst other things.

48. On 22 June 2010, Leighton Offshore submitted a revised fixed sum bid price of US$763.2 million, taking account of Addendum 4. This tender price was much lower than that of its competitor, Saipem, whose tender price was US$977.8 million.

49. On 13 October 2010, after further negotiations with SOC, Leighton Offshore gave its “best and final offer” of US$733 million for the Phase 1 works.

50. On 23 October 2010, Leighton Offshore entered into a US$733 million contract (Phase 1 Contract) with SOC. On that same day, Leighton announced the contract to the ASX in a media release, quoting Mr Savage:

This project is a fantastic opportunity for Leighton, and coming closely behind the recent SPM [single point mooring] project win in Tanzania, provides strong recognition of Leighton’s strength and experience in SPM installations… In recent years, Leighton has built an enviable track record on SPM’s and large diameter pipelines, having worked on some 13 SPM’s around the Asia region. Being awarded the Middle East’s largest and most prominent SPM contract is a great honour for us and great reflection of the strength of our capabilities.

Iraq Phase 3 Project

51. Leighton Offshore did not win the Phase 2 Project and nothing turns on that in this litigation.

52. On 1 November 2010, SOC’s FEED contractors, Iraq Sealine and Japan Oil, issued an invitation to bid for the Iraq Phase 3 Project (or “JICA” Phase), with bids due on 4 February 2011. I was not taken to any of the technical detail of what was involved in this project.

53. Mr Stewart was aware of the opportunity to bid at the time, but was not involved in the tender.

54. Around this time, Mr Waugh, on behalf of Leighton Offshore, was seeking to have the invitation to bid withdrawn and for Leighton Offshore to instead obtain the Iraq Phase 3 Project as an extension or variation of the Iraq Phase 1 Contract. These attempts proved unsuccessful.

55. On 18 April 2011 (after Mr Savage had left Leighton), Leighton Offshore submitted its bid for Phase 3 and, on 13 October 2011 (after Mr Stewart had been replaced), it was awarded a US$518.157 million contract (Phase 3 Contract).

Creation of the Iraq File Note on 23 November 2010

56. The Iraq File Note was handwritten by Mr Stewart on 23 November 2010, during, and shortly after, an in-person conversation with Mr Savage, and also shortly after a telephone call with Mr Savage on the same day. At the time, it was Mr Stewart’s practice to keep a notebook, in which he made notes during and after meetings. There are no other contemporaneous file notes of these conversations.

57. Mr Stewart’s recollection was that the in-person meeting with Mr Savage ran for around 20 minutes in total, of which, 10 minutes was spent discussing the Iraq Project. At that time, Mr Stewart was aware that Leighton Offshore had won the Phase 1 Contract and a possible extension to the Iraq Phase 1 Project was being negotiated, because it had been discussed at various Leighton Board meetings.

58. Given the centrality of the Iraq File Note in these proceedings, it is set out in full below. Mr Stewart accepted the below words were handwritten by him, and he agreed that the definitions in square brackets were an accurate explanation of the shorthand he had used:

Iraq Project Discussion

File Note 23/11/10

Meet D.G. Savage

Advised me that he has an opportunity to negotiate a US$500 extension/variation to the current contract in Iraq but it will require a payment to a 3^rd Party N.S.C. [nominated sub contractor] who will do all onshore works.

The payment for the N.S.C [nominated sub contractor] for onshore work is $50-$60 Mill. D. Stewart asked what is the real value of the work & he said < 50% of the payment.

I asked him how we won the current $720 contract & he says it was won by a $87 Mill payment to a N.S.C [nominated sub contractor] on the same terms.

I asked did WMK [Mr King] approve this & he said yes. I said I will talk to WMK & he said that WMK will now deny it or have ‘forgotten it’.

I said I understand the concept & it is exactly what got the AWB [Australian Wheat Board] into trouble with their trucking contract at 2 – 3 x Market Rate. I asked what Foster Wheeler think about it?

I asked who negotiated it? He said Russell Waugh.

I said I will talk to Wal [Mr King] and he said No.

I said I will think about it & that I am not comfortable but understand the plan.

I asked how we pay & he said proportional to our payments.

_______

Thought about it, talked to WJW [Mr Wild] & we agreed to tell David [Savage] we do not agree & if we can’t win without this, we don’t want the job.

Tried to call @ 6.05. Left a message to call me about Iraq.

Call again @ 6.25pm.

Spoke to DGS [Mr Savage] and made it clear that I was not comfortable with the arrangements & that if he can’t win without this, then we don’t want the work. WMK [Mr King] is still the CEO & if he is O.K. with it, then go for it, but be aware I will not support it.

I told him I fully understand the concept & the fact we have been introduced to this ‘N.S.C’ [nominated sub contractor] by the client but it is too much money & a clear lack of value of money & we should not do it.

_______

D.G.S. [Savage] said that R.W. [Russell Waugh] was in Bagdad now and meeting with the Minister PTO to try to negotiate this job. DGS [Savage] says he will ring Russell [Waugh] & talk to him.

D Stewart says that WMK [King] is still CEO & if he is O.K. with it go for it but he has to approve it & I will not ask Wal [King] about the current job.

59. While not recorded in the File Note, in the days afterwards, Mr Stewart also described his conversations with Mr Savage to Mr Gregg and Mr Sasse, neither of whom gave evidence. Mr Savage also did not give evidence.

Leighton after 23 November 2010

Restructure of Leighton International

60. As the new CEO from 1 January 2011, Mr Stewart had decided to restructure LIL. The effect of the restructure was to reallocate most parts of LIL’s existing business to other entities including Leighton Asia. The plan was put into effect following a review of LIL conducted in January 2011 by Mr Wild, Mr Sasse, and Mr Savage.

61. From January 2011, Leighton also introduced a new process whereby Leighton executives would be nominated as directors of each operating company board. Mr Wild was appointed the nominated executive of LIL. In this role, Mr Wild was to attend board meetings of LIL and conduct financial reviews as he saw fit. An internal memorandum recorded that he was to be responsible for:

… ensuring that the OpCos [operating companies] and LIL meet LHL’s performance expectations, with a particular emphasis on project performance, operational risk management, tender and pre-contract disciplines, approval of all new geographies, project execution and project review processes. All tenders over $500 million in value require sign off by LHL and should be directed to [Mr Wild].

62. Because Mr Wild was responsible for approving LIL tenders and the submission of completed LIL tenders, Mr Savage lost his authority to have the final say in relation to the Phase 3 tender. That tender was submitted after Mr Savage had left Leighton.

Profit downgrade

63. On 11 April 2011, Leighton, through Mr Stewart, announced to the ASX that it expected to report a loss of $427 million for the 2010/11 financial year, short of its previous expectation of a profit of $480 million after tax. According to the ASX release, the approximate $900 million downgrade was:

…primarily due to write-backs of expected profit on the Airport Link project in Queensland and the Victorian Desalination Project, and an impairment of Leighton’s investment in the Habtoor Leighton Group (HLG).

“Discovery” of the Iraq File Note

64. As noted above at [28(7)], in June 2011, Mr van der Laan was appointed to the newly created positions of Chief Risk Officer and Group General Counsel for the Leighton Group.

65. In August 2011, there were a number of other personnel changes at Leighton which were announced to the market:

1. Mr Johns replaced the previous Chairman, Mr David Mortimer; and

2. Mr Stewart was replaced as CEO by Mr Tyrwhitt, with immediate effect.

66. The Iraq File Note first came to the attention of Leighton’s external solicitors in November 2011 during a document review, which was conducted in order to respond to a notice issued under Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) s 33 as part an ASIC investigation concerning the April 2011 profit downgrade. In response to that request, Mr Stewart supplied documents, including his notebooks, which contained the Iraq File Note. Prior to that time, Mr Stewart had not disclosed the existence of the Iraq File Note to any person and had not discussed any matters recorded in it with anyone other than Mr Wild, Mr Sasse, and Mr Gregg.

67. In November 2011, Leighton’s solicitors informed Mr van der Laan of the Iraq File Note, who, in turn, informed Mr Johns. A meeting then took place between Mr van der Laan and Mr Johns, followed by a second meeting with Mr Tyrwhitt and Mr Wayne Osborn, then Chairman of the Ethics and Compliance Committee. Leighton then engaged external solicitors, Allens, for legal advice.

68. Mr Johns’ evidence was that, at the time, he was shocked and did not consider the allegations in the Iraq File Note to be true based on his experience on the board and his knowledge of Leighton as a company.

69. Shortly thereafter, a unanimous decision was made by the Leighton Board to conduct an internal investigation to determine the veracity of the allegations contained in the Iraq File Note, and also to refer the Iraq File Note to the Australian Federal Police (AFP). Mr Johns gave evidence that the decision to refer the Iraq File Note was reached very quickly. The outcome of the internal investigation was not in evidence.

70. On 7 November 2011, Leighton’s solicitors wrote to the AFP and enclosed the following materials (together, the AFP Referral):

1. A copy of the Iraq File Note.

2. A document setting out Leighton’s understanding as to individuals identified by initials or abbreviations in the Iraq File Note, the roles of those individuals as at 23 November 2010, and whether the individuals were still employed by the Company. Consistent with the transcription of the File Note above, those individuals were Messrs Savage, Stewart, King, Wild and Waugh. As at 7 November 2011, of those persons, only Mr Waugh remained employed at any Leighton company.

3. An ASX media release issued on 25 October 2010 entitled “Leighton Offshore awarded US$733m Iraq Crude Oil Export Facility Project”, which referred to the signing of the Phase 1 Contract.

4. An ASX media release issued on 25 October 2011 entitled “Leighton awarded US$518m Iraq Crude Oil Project” which referred to the award of the Phase 3 Contract.

5. A draft ASX media release “to be issued by the Company in the event that aspects of any investigation by the AFP become public”.

71. The covering letter noted:

At this stage, it is unclear whether the contract announced on 14 October 2011 is the “US$500m extension/variation to the current contract” referred to in the Notebook Entry, an alternative version thereof or a completely separate contract.

We confirm that the Company will cooperate with any investigation undertaken by the AFP into issues referred to in the Notebook Entry.

72. On 9 November 2011, the AFP responded to the Referral and indicated that “[t]he information contained in the referral indicates foreign bribery offences may have been committed by Leighton Offshore employees” and commenced an investigation.

73. Initially, the AFP allowed Leighton to collect information and report to the AFP for the AFP’s evaluation. Subsequently, the AFP obtained a search warrant dated 12 December 2012, authorising the AFP to enter and search the premises of Leighton’s external solicitors. The suspected offence was identified in the search warrant as follows:

That between 2009 and 2011, in Iraq and Australia, David Stewart, David Savage, Russell Waugh, Peter Cox, Wallace King, William Wild and divers other employees of Leighton Offshore Private Limited, Leighton International Limited and Leighton Holdings Limited, caused a benefit to be paid to a foreign public official contrary to Section 70.2(1)(ii) of the Criminal Code Act 1995 (Cth).

74. In early 2012, the AFP charged Mr Waugh with alleged foreign bribery and Mr Savage with allegedly misleading the Leighton’s Board in an October 2010 presentation about the Iraq tender. As at the hearing, those trials had not commenced.

75. On 13 February 2012, Leighton issued a media release to the ASX, which stated that Leighton Holdings:

… had reported to the [AFP] a possible breach of its Code of Ethics that, if substantiated, may contravene Australian laws.

The possible breach related to payments that may have been made by Leighton’s subsidiary company, Leighton Offshore Pte Limited, in connection with work to expand offshore loading facilities for Iraq’s crude oil exports.

…

At this stage it is not known whether there has been any wrongful or illegal conduct, or whether there will be any adverse financial consequences for Leighton. The AFP investigation is at an early stage …

2012 Notification

76. On 23 February 2012, Leighton, through its broker Marsh, notified the 2011 Insurers by email referring to “attached information notifying circumstances that may give rise to a claim” and relying upon the Notification Clause in the 2011 Primary Policy and incorporated in the 2011 First and Second Excess Policies (2012 Notification). The 2012 Notification was subsequently copied to Catlin and Liberty.

77. The 2012 Notification indicated that Leighton had reported a possible breach of its Code of Ethics to the AFP which, if substantiated, might contravene Australian laws.

78. The 2012 Notification contained the following material:

1. A cover letter to Marsh;

2. An ASX announcement issued on 13 February 2012;

3. The AFP Referral made on 7 November 2011.

The 2012 Notification did not make any reference to any ASIC investigation nor attach a copy of the Iraq File Note.

79. By the time of the 2012 Notification, the AFP Investigation had already involved five voluntary interviews and a review of a substantial number of documents.

79. In February 2012, Leighton also indicated to the broker Marsh that “the Company’s internal investigation has focussed on the collection of electronic data. At the request of the AFP, only one interview has been undertaken by the Company at this stage.”

80. In March 2012, ASIC commenced an investigation in relation to the 13 February 2012 media release and issued a s 33 notice under the ASIC Act seeking documents.

Categories of Payments/Costs Claimed

82. All the defendants accept that CIMIC has incurred costs, in relation to which it seeks remedies. The costs have been identified as:

1. AFP Investigation Costs;

2. ASIC Investigation Costs;

3. MCI Class Actions Defence Costs;

4. Inabu Class Action Defence Costs;

5. Inabu Class Action Settlement Sum; and

6. Gregg Prosecution Costs (Defence and Witness Costs)

Each type of loss is briefly described below.

83. CIMIC relies upon the 2011 Deeming Clause (as incorporated into the 2011 Excess Policies) to deem notification of all the investigations, class actions and prosecutions as having been made with the 2012 Notification, because they arose out of, were based upon and/or were attributable to the same or similar originating cause — that is, the facts or contraventions of Australian law alleged or described in the AFP Referral and circumstances the subject of the 2012 Notification. Accordingly, CIMIC submitted the 2011 Insurers are liable for a single “Claim” including all categories of loss.

84. Since 2012, CIMIC has sought confirmation from the 2011 Insurers that they would indemnify it for these costs. The 2011 Insurers made the 2013/14 Payments, but then changed their view of their legal liability, and thereafter have refused to indemnify CIMIC for all categories of costs.

AFP Investigation costs

85. Since the AFP Referral in November 2011, certain Leighton officers (Messrs Cox, Savage, Stewart and Wild) have been subject to an AFP investigation, which was still on foot at the time of the hearing. Various fees, costs and expenses have been paid by Leighton.

86. There is no dispute that the 2011 Insurers are liable for these costs (before the limitation defence). Quantum will be determined at the Separate Hearing.

ASIC Investigation(s) costs

87. From March 2014 ASIC commenced an investigation into matters concerning the Iraq File Note and the 2012 ASX announcement (ASIC Iraq Investigation). There is no dispute that the 2011 Insurers are liable for the Iraq Investigation costs (before the limitation defence), and quantum will be determined at the Separate Hearing.

88. However, in May 2014, the ASIC investigation expanded into other suspected contraventions of the Corporations Act not related to the Iraq File Note, and the issue is whether the investigation remained one, for which the 2011 Insurers are liable, or whether the Non-Iraq Investigation costs ought to be borne by the later 2013/14 Primary Insurer, Chubb, as a new Claim notified in that policy year.

MCI Class Actions costs

89. On 4 October 2013 and then on 14 April 2015, Melbourne City Investments (MCI) commenced representative proceedings in the Supreme Court of Victoria against Leighton. Both actions alleged various contraventions of the Corporations Act, including misleading and deceptive conduct and breaches of continuous disclosure obligations under the ASX Listing Rules (e.g. r 3.1), concerning the failure to disclose the Iraq File Note. The October 2013 MCI Class Action was permanently stayed, and the April 2015 MCI Class Action was discontinued.

90. The issue is whether the 2011 Insurers are entitled to rely upon s 28(3) IC Act rights in relation to “Company Securities Claims” and reduce their liability for these costs to nil. The contest is the same as for the Inabu Class Action costs.

Inabu Class Action (Defence Costs and Settlement Amount)

91. On 23 November 2016, Inabu Pty Ltd (Inabu) commenced representative proceedings, by a closed class, against CIMIC in the Federal Court of Australia. Inabu alleged contraventions of the Corporations Act and ASX Listing Rules in similar terms to that of the MCI Class Actions.

92. On 20 December 2019, the Inabu Class Action was settled by confidential deed. On 28 April 2020, Jagot J approved the lump sum of $32.4 million (Inabu Settlement Amount) pursuant to sections 33V and 33ZF of the Federal Court of Australia Act 1976 (Cth): Inabu Pty Ltd as trustee for the Alidas Superannuation Fund v CIMIC Group Limited [2020] FCA 510.

93. In these proceedings, CIMIC seeks to recover costs incurred in defending the class action, as well as the Inabu Settlement Amount paid. This is the largest category of costs. The 2011 Insurers seek to rely on s 28(3) IC Act to reduce their liability to nil.

94. Unlike the quantum of the other cost categories and interest payable, which are to be resolved in the Separate Hearing, the quantum and reasonableness of the Inabu Settlement was retained as part of these proceedings.

Gregg Prosecution

95. The ASIC investigation into matters concerning Mr Gregg’s conduct commenced in March 2014 with the service of s 33 ASIC Act notices in relation to suspected contraventions of insider trading provisions in s 1034A of the Corporations Act. The scope of that investigation was subsequently expanded with the service of further s 30 ASIC Act notices in May 2014.

96. The only issue here is whether the Gregg Prosecution arose out of the same originating cause as that described in the AFP Referral and the 2012 Notification, meaning the 2011 Insurers are liable, or whether Chubb is liable under the 2013/14 Policy. Again, quantum will be determined at the Separate Hearing.

Overview of the Policies

97. This case turns on the proper construction of provisions in the relevant insurance policies. There are three primary policies and eight excess policies relevant to this case.

98. The key terms of the 2011 Primary Policy are reproduced in the Appendix to this Judgment. Terms are capitalised in this Judgment where they reflect defined terms in the policies.

2010 Policies

99. The 2010 Primary Policy was between CIMIC and, initially, AHA and subsequently, AIG as lead insurer.

100. The 2010 Primary Policy provided cover to CIMIC for “Loss” arising out of “Claims”, including for “Defence Costs” incurred in connection with a “Securities Claim” and “Investigation Costs” paid on behalf of “Insured Persons”.

101. The 2010 Primary Policy relevantly contained clauses in the same terms as the 2011 Primary Policy, such as the Notification Clause and Deeming Clause, which are reproduced in the Appendix, save for the following:

1. The “Policy Period” for the 2010 Primary Policy was between 30 June 2010 and 30 June 2011 (Schedule, Item 2).

2. The “Limit of Liability” was $20 million (cl 4.20 and Schedule, Item 5) rather than $30 million in 2011.

3. AIG was the sole primary insurer in 2010, unlike in 2011 where it had an underlying co-insurance arrangement with Chubb in the proportions of 50% or $15 million each.

4. The “Retention” was specified as $250,000 from a Securities Claim and $100,000 for any other Claim (cl 4.30 and Schedule, Item 8), unlike the increased retention of $1 million in 2011. A single Retention applies to all Loss arising from any Claim (cl 6.2).

5. The “Premium” was $132,000 (Schedule, Item 9), which was increased to $345,000 in 2011.

102. There were six excess policies in total between CIMIC and, in numerically ascending order, Chubb, Liberty, Berkley (formerly WRB), Swiss Re (formerly AXIS, Zurich (subject to a coinsurance arrangement with Chubb covering 50% each) and Arch and Dual (formerly Lloyd’s Syndicate).

103. Each 2010 Excess Policy follows the same approximate structure: first, the relevant excess insurer agreed to provide insurance to the Insureds (as defined under the 2010 Primary Policy); then the excess insurer provides insurance in excess of applicable “Underlying Limits” for the “Underlying Policies”.

104. Underlying Limit is defined to mean “an amount equal to the aggregate of all [underlying] limits of liability … plus the uninsured retention, if any, applicable to the Primary Policy” (see, eg, First 2010 Excess Policy cl 6.6).

105. The Excess Policies substantially incorporate the terms relating to cover for “Loss” arising out of “Claims” in the 2010 Primary Policy as well as the 2010 Notification Clause and 2010 Deeming Clause.

106. There are also slight variations between the Excess Policies in the definition of “Insured”. For instance, the Second 2010 Excess Policy defined “Insured” to include “each person or entity insured under the Primary Policy” (cl 10). The Fourth 2010 Excess Policy defined “Insured” to include “any person(s) or entity(ies) that may be entitled to coverage under the Primary Policy at its inception” (cl IIC). Nothing is said to turn on these differences.

107. Each of the 2010 Excess Policies provides for a liability limit of $20 million.

108. Under the Fifth 2010 Excess Policy, the insurers, CIC and Zurich, agree to be liable as the Insurer severally and not jointly in the proportions of 50% each.

2011 Policies

109. The 2011 Primary Policy was between CIMIC, AIG (then known as Chartis), and Chubb, (then known as ACE). There is no material difference between the terms of the 2010 and 2011 Primary Policies.

110. However, I note the following features of the 2011 Primary Policy:

1. The “Policy Period” for the 2011 Primary Policy was between 30 June 2011 and 30 June 2012 (Schedule, Item 2).

2. The “Limit of Liability” was $30 million (cl 4.20 and Schedule, Item 5).

3. AIG had an underlying co-insurance arrangement with Chubb in the proportions of 50% or $15 million each.

4. The “Retention” was specified as $1,000,000 for a Securities Claim and $100,000 for any other Claim (cll 4.30, 6.2 and Schedule, Item 8)

5. The “Premium” was $345,000 plus charges (Schedule, Item 9)

111. There were two excess policies:

1. The First 2011 Excess Policy was between CIMIC, Catlin Syndicate 2003 and Catlin Australia (together Catlin Defendants). CIMIC sues Catlin Syndicate as a member of SJ Catlin and others, and Catlin Australia as an agent for members of Syndicate 2003 at Lloyd’s.

2. The Second 2011 Excess Policy was between CIMIC and Liberty.

112. The 2011 Excess Policies were all brokered by Marsh and on the Marsh standard excess wording.

113. Clause 1.1 of the 2011 Excess Policies contained an insuring clause in the following terms:

We agree to insure on the same terms as the primary policy except as specifically set out in this excess layer policy and any attached endorsements.

114. Clause 5.1 provided:

The obligations of the Insured in relation to notifications or claims under this Excess Layer Policy are the same as its obligations under the Primary Policy. We are entitled to the same rights and benefits as the Primary Policy Insurer in relation to notifications or claims under the Primary Policy.

115. Accordingly, the 2011 Excess Policies substantially incorporated provisions in the 2011 Primary Policy, including the definitions of “Loss” and “Investigation Costs”, as well as the 2011 Notification Clause, 2011 Deeming Clause, Aggregation Clause, Advance Payment Clause, Prior Claims and Circumstances Exclusion, and the Continuity Clause (including the Primary Continuity Date).

116. The only issue which arose in relation to the 2011 Excess Policies was Catlin’s cross claim about the continuity date in the First 2011 Excess Policy, as detailed below at paragraphs [498]ff.

117. Under the First 2011 Excess Policy, Catlin agreed to indemnify CIMIC on the same terms as the 2011 Primary Policy. This was expressly made subject to a liability limit of $10 million (cl 1.1), and “the other terms of this Excess Layer Policy, as excess insurance over the Underlying Insurance” (cl 1.2). The Second 2011 Excess Policy was the same except for a liability limit of $20 million (cl 1.2).

2013 Primary Policy

118. The 2013 Primary Policy is only relevant to these proceedings if I do not find the 2011 Policy indemnifies CIMIC for the Non-Iraq ASIC Investigation Costs and Gregg Prosecution Costs. Counsel for Chubb accepted that if the Gregg Prosecution Costs were not caught by the earlier policies, then they must be caught by its 2013 Primary Policy. Chubb did not expressly accept that if the Non-Iraq related ASIC Investigation Costs were not caught by the earlier policies, then they must be caught by the 2013 Primary Policy. However, they must be, given the relevant Non-Iraq aspects of the ASIC Investigation were the subject of a notification by Leighton in May 2014 within the 2013/14 Policy Period.

119. CIMIC submitted that if the relevant Loss falls within the 2013 Primary Policy, then there is no positive case maintained by Chubb as to the operation of continuity provisions or breach of disclosure obligations under that policy, so there is no need for CIMIC to seek coverage for that Loss against the 2010 Insurers.

120. The relevant clauses in the 2013 Primary Policy differ from the 2010 and 2011 Primary Policies, but need not be considered in any detail in light of the conditional concession of liability under that policy by Chubb.

121. None of the 2013 Excess Policies are relevant, because it was not in dispute that these costs are not likely to exceed the liability limit in the 2013 Primary Policy of $20 million (cl 5.1(a); Schedule, Item 3), even with a retention figure of $1,000,000 (cl 5.2; Schedule, Item 4).

Construction of Insurance Contracts

122. Central to this case is the proper construction of various clauses of the policies. The relevant principles of construction are not in doubt, and it is sufficient to note that:

1. It is trite that the process of construing insurance contracts is governed by ordinary principles of contractual interpretation: Australian Casualty Co Ltd v Federico [1986] HCA 32; (1986) 160 CLR 513 at 520 (Gibbs CJ); McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at 589 [22] per Gleeson CJ. A clause in an insurance policy must be considered in the context of the policy as a whole, and the policy must be set in its surrounding circumstances or factual matrix, including, if excess policies are involved, the broad scheme of insurance cover intended to provide layers of insurance against the same risk: D K Derrington and R S Ashton, The Law of Liability Insurance (3^rd ed, 2013, LexisNexis Butterworths) at 422 [3–64]; Quintis Ltd (Subject to a Deed of Company Arrangement) v Certain Underwriters at Lloyd’s London Subscribing to Policy Number B0507N16FA15350 [2021] FCA 19 at [35] (Lee J).

2. The court seeks to give effect to the intention of the parties based on the meaning of the words used and based on what a reasonable person would have understood the language to convey. Further, where words are unambiguous, they cannot be ignored simply to reach a result that is apparently more commercially convenient. Preference is given to a construction supplying a congruent operation to the various components of the whole and to avoid making commercial nonsense: HDI Global Specialty SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296, 104 NSWLR 634 at 639-641 [18]-[31] (Meagher JA and Ball J) 655 [114] (Hammerschlag J).

3. Regard may be had to the “genesis, aim and purpose” of the contract and a commercially sensible construction is to be preferred: see eg Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at 116 [46]-[52] (French CJ, Nettle and Gordon JJ).

4. An objective approach is taken to the construction process. Subjective intention of the parties is only relevant to rectification: Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85 at 95 [18] (French CJ); Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at 655 [261] (Campbell JA, with whom Tobias JA agreed).

2011 Primary Policy

123. There was no contest that the 2012 Notification satisfied the requirements of cl 5.1 of the 2011 Policy in terms of notifying a “Claim”. As noted above, the terms of the 2010 and 2011 Polices are identical (while the commercial schedules are different).

124. The 2011 Insurers’ primary concern was the Company Securities Claims (MCI Class Action and Inabu Class Action), because they amounted to the largest component of CIMIC’s costs. Their primary defence was that Leighton breached s 21 IC Act by failing to disclose the fact and contents of the Iraq File Note prior to the inception of the 2011 Policy, such that, pursuant to s 28(3) IC Act, the 2011 Insurers are entitled to reduce their liability for Company Securities Claims to nil.

125. CIMIC’s position was that the 2011 Insurers have expressly excluded those s 28 IC Act rights in the Policy terms – in particular cll 5.3 and 7.1. CIMIC submitted that cl 7.1 means that the 2011 Insurers only retain a s 28(3) IC Act right where there was fraudulent failure to disclose a relevant matter in relation to a Company Securities (cl 1.2) claim.. As fraud is not alleged, CIMIC said the 2011 Insurers have no right to reduce their liability to indemnify CIMIC based on the 2012 Notification.

126. Before construing cl 7.1, it is necessary to consider sections 21 and 28 IC Act which concern an insured’s obligation to disclose and the insurer’s possible rights.

127. Section 21 of the IC Act relevantly provides:

The insured's duty of disclosure

(1)  Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:

(a)  the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

(b)  a reasonable person in the circumstances could be expected to know to be a matter so relevant, having regard to factors including, but not limited to:

(i)  the nature and extent of the insurance cover to be provided under the relevant contract of insurance; and

(ii)  the class of persons who would ordinarily be expected to apply for insurance cover of that kind.

(2)  The duty of disclosure does not require the disclosure of a matter:

(a)  that diminishes the risk;

(b)  that is of common knowledge;

(c)  that the insurer knows or in the ordinary course of the insurer's business as an insurer ought to know; or

(d)  as to which compliance with the duty of disclosure is waived by the insurer.

128. Section 28 provides:

General insurance

(1)  This section applies if a relevant failure occurs in relation to a contract of general insurance, but does not apply if the insurer would have entered into the contract, for the same premium and on the same terms and conditions, even if the failure had not occurred.

(2)  If the relevant failure was fraudulent, the insurer may avoid the contract.

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

129. Section 27AA defines “relevant failure” to mean:

Meaning of relevant failure

(1)  In this Act, a relevant failure in relation to a contract of insurance is:

(a)  if the contract is, or would be, a consumer insurance contract--a misrepresentation made by the insured in breach of the duty to take reasonable care not to make a misrepresentation; or

(b)  otherwise:

(i)  a failure by the insured to comply with the duty of disclosure; or

(ii)  a misrepresentation made by the insured to the insurer before the contract was entered into.

(2)  Without limiting subsection (1), if, in relation to a contract of life insurance under which a person other than the insured would become a life insured:

(a)  the life insured made a misrepresentation during the negotiations for the contract but before it was entered into; and

(b)  the misrepresentation would have been a breach of the duty to take reasonable care not to make a misrepresentation if that duty had applied to the life insured in relation to the contract;

656. Berkley’s submissions on limitation are blurred with questions of construction of cl 5.1. Berkley denied CIMIC had a cause of action at the outset, because of its preferred construction of cl 5.1 and factual findings. However, Berkley’s alternative submission, should CIMIC have a cause of action based on the proper construction of cl 5.1, was (as far as I can discern) that CIMIC was seeking a declaration as to a right to notify pursuant to a contract and such right accrued on the last day that CIMIC could have notified a circumstance under the 2010/2011 Policy Period, which would have been 29 August 2011 (this is without reliance upon s 54 IC Act). Alternatively, Berkley placed the accrual date as of the first day that CIMIC incurred, paid and/or accepted liability for sums it now seeks to be indemnified. Berkley suggested the date would have been “December 2011” or by the time of the notification to the 2011 Insurers in February 2012. Berkley submitted that on any view the limitation period of 6 years would have expired before CIMIC commenced these proceedings on 8 June 2020.

657. Arch and Dual adopted AIG’s position on the limitation period, specifically that the insurer’s obligation to indemnify arose “promptly after sufficiently detailed invoices for those costs are received by the Insurer” (cl 5.8). Accordingly, it was submitted that where costs were incurred and invoices provided to AIG prior to 8 June 2014, those amounts were said to be not recoverable. I understand this submission to be premised on the date of accrual being the date on which it was unreasonable for the 2010 Insurers to refuse indemnity.

658. CIMIC submitted:

1. The limitation period began to run from the date of the “justiciable controversy” which is sought to be quelled by the declaration, which was when CIMIC sought confirmation from the 2010 Insurers of their position on 27 August 2019 and did not receive any response. Alternatively, the limitations defence cannot apply where “the relief sought is a declaration”.

2. Even if the accrual date was before 8 June 2014, CIMIC would only be statute-barred in respect of the relatively insubstantial sum of costs incurred before 8 June 2014. Nothing turns on this and the similar submission made by Arch and Dual regarding amounts captured by the declarations, because no monetary relief is sought by CIMIC against the 2010 Insurers.

659. I consider the limitation defences fail because the insurers failed to discharge their burden of proof: Pullen v Gutteridge Haskins & Davey Pty Ltd (1993) 1 VR 27 at 71-76 (Brooking, Tadgell and Hayne JJ); Peter Handford, Limitation of Actions (2^nd ed, Lawbook Co, 2007) at 295-297. None of Berkley, Arch and Dual actually submitted that CIMIC’s declaratory relief constituted “other equitable relief” within the meaning of s 23. I was not taken to any authorities which suggest that declaratory relief is “other equitable relief”. Further, beyond the assertion that s 14 should apply as the relevant limitation period, none of Berkley, Arch and Dual actually drew an analogy between the Alternative Declaration and a claim founded on contract for s 14.

660. I am not satisfied that CIMIC’s Alternative Declaration is sufficiently analogous to a common law action founded on contract and it is not out of time.

Abuse of Process Defence

661. Berkley and Zurich submitted CIMIC’s claim was an abuse of process.

662. It appears that Zurich’s position on abuse of process is reserved as against CIMIC in any later proceedings.

663. Berkley’s position was based on its submissions that CIMIC adopted a factual position on knowledge (namely that it had the requisite awareness in the 2010/2011 Policy Period), which it affirmatively denied in its primary claim against the 2011 Insurers, as the basis for the declaratory relief sought against the 2010 Insurers. Berkley submitted that to allow CIMIC to adopt that position would amount to an abuse of process “of the kind that was addressed by the High Court in UBS AG v Tyne (2018) 265 CLR 77” (UBS v Tyne).

664. UBS v Tyne concerned proceedings against UBS in respect of alleged negligent advice. The original trustee of a family trust (ACN), an investment company (Telesto) and Scott Tyne commenced proceedings in this Court. Tyne was the controlling mind of both ACN and Telesto. Those proceedings were subsequently discontinued and permanently stayed on the basis of issue estoppel and res judicata in light of the determination of other proceedings in the High Court of Singapore. Two years later, Tyne, in his capacity as the new trustee of the family trust, commenced proceedings in the Federal Court making essentially the same claims as those in the proceedings in this Court. The plurality (Kiefel CJ, Bell, Gageler and Keane JJ) found the proceedings should be permanently stayed for abuse of process. Placing particular emphasis on the “timely, cost effective and efficient conduct of modern civil litigation”, the plurality concluded (at 100 [59]):

For the Federal Court to lend its procedures to the staged conduct of what is factually the one dispute prosecuted by related parties under common control with the attendant duplication of court resources, delay, expense and vexation … is likely to give rise to the perception that the administration of justice is inefficient, careless of costs and profligate in its application of public moneys.

665. A superior court can stay proceedings to prevent a misuse of its procedure: Walton v Gardiner (1993) 177 CLR 378 at 392-393 (Mason CJ, Deane and Dawson JJ).

666. However, Berkley did not seek any permanent stay of these proceedings. Further, it is not clear how a permanent stay of these proceedings would assist Berkley. Berkley’s concern is more likely in relation to CIMIC’s future case against the 2010 Insurers (as for Zurich), but I was not taken to any authority suggesting the principles from UBS v Tyne could be relied upon to permanently stay proceedings that had not yet commenced.

667. It was also not clear from any of Berkley’s submissions what the impugned conduct of CIMIC had been to justify a stay. These proceedings will necessarily share a similar factual substratum with any subsequent proceedings against the 2010 Insurers, because the question concerning CIMIC’s awareness will necessarily revolve around the Iraq File Note of November 2010. However, CIMIC’s claim against the 2010 Insurers in these proceedings was confined to declaratory relief. Re-litigation alone does not conclusively establish any abuse of process.

668. I do not consider CIMIC’s case against the 2010 Insurers to be “staged conduct” of the type described by the High Court in UBS v Tyne. CIMIC’s case against the two towers of insurers is not factually one dispute. Failing in its claim against the 2011 Insurers can lead consecutively to CIMIC fully notifying and claiming against the 2010 Insurers. Although that is part of the same broad controversy (namely who will indemnify CIMIC for its losses arising from the Iraq File Note), it cannot be said that these proceedings have resolved, in a final way, a claim against the 2010 Insurers, which has not yet been made.

669. I do not consider CIMIC has abused the Court’s processes, such that these proceedings should be stayed or dismissed. The 2010 Insurers could agitate abuse of process in future litigation, should it be appropriate in the circumstances.

Orders

670. I make the following orders:

1. The parties are to confer and provide agreed short minutes of order to give effect to these reasons and appropriate costs orders within 7 days of the publication of this judgment.

2. Should the parties not be able to agree, the parties are to provide their competing short minutes together with submissions of no more than 10 pages, and any necessary evidence, within 10 days of the publication of this judgment.

3. Liberty to apply on 24 hours’ notice.

**********

APPENDIX - Clauses from the 2011 Policy

Company Securities Cover

671. Clause 1.2 provided that “the Insurer will pay the Loss of each Company arising from a Securities Claim”.

672. Clause 4.15 defined “Insured” to mean “Any Company and any Insured Person”. Clause 4.6 defined “Company” as “The Policyholder or any Subsidiary”. There was no dispute that CIMIC and its subsidiaries were the relevant policyholders of the 2011 Primary Policy.

673. Clause 4.16 relevantly defined “Insured Person” to mean “any natural person who was, is or during the Policy Period becomes … a director or officer … [and/or] an employee of a Company … in connection with an Investigation … but only when and to the extent that such Insured Person is acting in such Insured Person capacity”.

674. Clause 4.21 defined ‘Loss’ in the following terms:

any amount which an Insured is legally liable to pay resulting from a Claim, Defence Costs, and any other awards of damages (including any court order to pay compensation for damage resulting from a contravention of any statute or legislative provision and punitive and exemplary damages), awards of costs or settlements (including claimant's legal costs and expenses). pre- and post judgment interest on a covered judgment or award, fines and pecuniary penalties and the multiplied portion of multiple damages.

"Loss" in the case of an Insured Person, shall also include Investigation Costs, Asset and Liberty Expenses, Bail Bond and Civil Bond Premium, Prosecution Costs and Extradition Costs.

"Loss" shalt not include, taxes other than an amount of GST for which an Insured is not entitled to an input tax credit, remuneration or employment-related benefits, any sum payable pursuant to a financial support direction or contribution notice issued in respect of any pension scheme, fines and pecuniary penalties for a deliberate or intentional act, nor amounts which the Insurer is prohibited from paying by law.

675. Clause 2 of Endorsement No. 6 defined “Loss” to include “Defence Costs … settlements (including claimant’s legal costs and expenses) … [and] Investigation Costs”.

676. Clause 4.10 defined “Defence Costs” to include:

(i) reasonable fees, costs and expenses incurred with the Insurer’s prior written consent, by or on behalf of an Insured after a Claim is made in the investigation, defence, settlement or appeal of such Claim”.

(ii) reasonable fees, costs and expenses incurred with the Insurer’s prior written consent, by or on behalf of an Insured of accredited experts, retained through defence counsel to prepare an evaluation, report, assessment, diagnosis or rebuttal of evidence in connection with the defence of a covered Claim

677. Clause 4.5 defined “Claim” to include:

(i)         …

(b) a criminal proceeding;

(c) any Securities Claim;

Made or brought against an Insured alleging a Wrongful Act;

(ii) an Investigation

678. Clause 4.32 defined “Securities Claim” to include “any written demand or civil, criminal or arbitration proceedings … alleging a violation of any laws (statutory or common), rules or regulations regulating Securities, the purchase or sale or offer or solicitation of an offer to purchase or sell Securities or any registration relating to such Securities”.

679. Clause 4.31 defined “Securities” to mean “any security representing debt of or equity interests in a Company”.

680. Clause 4.37 defined “Wrongful Act” to mean:

(i) With respect to any Insured Person: any actual or alleged, act, error or omission, breach of duty, breach of trust, misstatement, misleading statement or breach of warranty of authority by an Insured Person in any of the capacities listed in Definition 4.15 (“Insured Person”); or any matter claimed against an Insured Person solely because of such listed capacity; and an Employment Practices Breach; and

(ii) With respect to any Company: any actual or alleged act, error or omission by the Company, but solely with respect to Securities.

Investigation Costs Cover

681. Clause 1.3 provided that “the Insurer will pay the Investigation Costs of each Insured Person arising from an Investigation”.

682. Clause 4.19(i) defined “Investigation Costs” to include “reasonable fees, costs and expenses, incurred with the Insurer’s prior written consent, by or on behalf of an Insured Person of any legal advisor retained in such events”.

683. Defence Costs and Investigation Costs are to be advanced “promptly” by the Insurer after sufficiently detailed invoices for these costs are received by the Insurer: Endorsement No. 6 clause 3. The parties referred to this clause as the “Advance Payment Clause”.

684. Clause 4.18 defined “Investigation” to include:

1. Any formal written notification to an Official Body of a suspected material breach of an Insured Person’s legal or regulatory duty: cl 4.18(iii);

2. Any hearing, examination, investigation or inquiry by an Official Body into the affairs of a Company … or an Insured Person of such Company, once an Insured Person is required to attend or produce documents to, or answer questions or attend interviews with that Official Body; or is identified in writing by an investigating Official Body as a target of the hearing, examination or inquiry: cl 4.18(iv)

685. “Official Body” means “any regulator, government body, government agency, official trade body, or any other person or body having legal authority to conduct an Investigation”: cl 4.22.

General Clauses

686. The starting point for any claim is the “Notification Clause” found in clause 5.1. That clause sets out the temporal limit to Claims made in the following terms:

Notification of Claims and Circumstances

The Covers provided under this policy are granted solely with respect to Claims first made against or by an Insured during the Policy Period, or applicable Discovery Period, or accepted as such in accordance with Section 5.4 (“Related Claims or Circumstances”), only if such Claims have been notified to the Insurer as soon as practicable, after the Policyholder’s Risk Manager or General Counsel (or equivalent position) first becomes aware of such Claim, but in all events no later than either:

(i) during the Policy Period or applicable Discovery Period; or

(ii) within 60 days after the end of the Policy Period or the applicable Discovery Period, as long as notice is given to the Insurer within 60 days after such Claim was first made against an Insured.

Any Insured may, during the Policy Period or applicable Discovery Period, notify the Insurer of any circumstance reasonably expected to give rise to a Claim. The notice must include the reasons for anticipating that Claim, and full relevant particulars with respect to dates, the Wrongful Act (if applicable) and the potential Insured and claimant concerned.

The details of any other insurance policy which may apply to any Loss covered under this policy shall be reported to the Insurer within a reasonable time of any Claim notification.

All notifications relating to Claims or circumstances must be in writing or sent by facsimile to the address in Item 13 of the Schedule.

687. Clause 5.4 of the 2011 Primary Policy includes a “2011 Deeming Clause” and “Aggregation Clause” which had the effect of deeming related claims as being made at the time of the Claim and aggregating them as part of a single claim, being the Claim first made. It provides:

If a Claim or circumstance is notified under this policy, then any subsequent Claim, alleging, arising out of, based upon or attributable to the facts or Wrongful Act alleged in that Claim, or described in that circumstance, shall be deemed to have first been made at the same time as that Claim was first made or that circumstance notified, and notified to the Insurer on the date the notices were first provided.

Any Claim arising out of, based upon or attributable to (i) the same or similar originating cause or Wrongful Act, (ii) a single Wrongful Act, (iii) one matter or transaction, or a number of matters or transactions involving the same or similar underlying source, (iv) a series of continuous, repeated, related or connected Wrongful Acts, or (v) the same or similar originating causes or Wrongful Acts involving a number of matters or transactions; whether or not committed by more than one Insured Person and whether directed to or affecting one or more person or entity; shall be considered a single Claim for the purposes of this policy.

688. Clause 3.2(i) is a “Prior Claims and Circumstances Exclusion” which provides:

The Insurer shall not be liable under any Cover or Extension for any Loss … subject to section 5.3 (“Continuity”), arising out of, based upon or attributable to: facts alleged or the same or related Wrongful Act(s) alleged or contained in any Claim which has been or could have been reported or in any circumstances of which notice has been or could have been given under any policy of which this policy is a renewal or replacement or which it may succeed in time

689. An exception to ameliorate the harsh consequences of cl 3.2(i) is found in the cl 5.3 “Continuity Clause” which provided that cover shall still be provided subject to two provisos in the following terms:

Notwithstanding Exclusion 3.2 (“Prior Claims and Circumstances”), cover is provided under this policy for any Claim, or circumstance, which could or should have been notified under any earlier policy, provided always:

(i) the Claim, or circumstance, could and should have been notified after the Continuity Date; and

(ii) the Claim shall be dealt with in accordance with all the terms, conditions, exclusions and limitations of the policy under which the Claim, or circumstance, could and should have been notified.

690. The Continuity Date was defined as 30 June 2005: cl 4.7 and Item 10 of the Schedule.

691. Clause 7.1 (“Non-Rescindability”) provides:

This policy is not avoidable or rescindable in whole or in part and the Insurer shall have no other remedy with respect to any pre-inception misrepresentation or pre-inception non-disclosure by any Insured in connection with this policy, except with respect to Insurance Cover 1.2 ('Company Securities').

If the Insurer has a right to reduce its liability under Section 28(3) of the Insurance Contracts Act 1984 (Commonwealth) for any fraudulent misrepresentation or fraudulent non-disclosure of a matter or fact established by final adjudication of a judicial or arbitral tribunal, or any formal written admission by or on behalf of any Insured, the Insurer will only exercise such right against that Insured.

692. Clause 7.3 operates to impute knowledge of “only” a defined list of individuals to that of CIMIC itself:

This policy covers each Insured for its own individual interest.

No statements made by or on behalf of an Insured or breach of any term of this policy, or any information or knowledge possessed by an Insured, shall be imputed to any Insured for the purpose of determining whether any individual Insured is covered under this policy.

With respect to Cover 1.2 ('Company Securities'), only the statements and knowledge of any Chief Executive Officer, Chief Operating Officer, Chief Financial Officer or Chief Legal Officer/General Counsel (or equivalent positions) of a Company will be imputed to that Company, and the knowledge of the same officeholders of the Policyholder will be imputed to all Companies.

693. Endorsement No. 6 provides that the Insurer will “pay the Investigation Costs of each Insured Person arising from an Investigation except to the extent that the Insured Person has been indemnified by the Company for the Investigation Costs” and “reimburse the Company for any Investigation Costs” for which it has indemnified an Insured Person”.

694. Endorsement No. 7 provides that AIG and Chubb would each be liable as the Insurer, including to pay “Loss” or reimburse “Investigation Costs”, severally and not jointly in the proportions of 50% each.

695. The 2011 Primary Policy contained a liability limit of $30 million and the insurers’ liability was only in respect of loss in excess of the Retention sum of $100,000 per claim and $1,000,000 per securities claim.

Amendments

01 September 2022 - 01/09/2022 – Amendments made to [391], [461], [462(1)], [467(2)], [471], [472(1)], [474(1)], [478], [479] and [480] in relation to the relevant dates of first payment and when interest begins to run for the following costs categories: AFP Investigation Costs, Gregg Defence Costs, First MCI Class Action Costs and Inabu Defence Costs. Changes made to reflect updated figures inadvertently omitted from Court Book and provided on 17 August 2022. "that" in second sentence of [390] changed to "each".

08 May 2023 - 08/05/2023 - Amendment made to [376] to correct typographical error.

Decision last updated: 08 May 2023