David Watson v CGU Insurance Limited - [2008] NSWSC 1409

No judgment structure available for this case.

CITATION: David Watson v CGU Insurance Limited [2008] NSWSC 1409
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 19 November 2008

JUDGMENT OF: McDougall J at 1

EX TEMPORE JUDGMENT DATE: 19 November 2008

DECISION: See para [62] of the judgment.

CATCHWORDS: BANKRUPTCY - termination of deed of arrangement - trustee unable after termination to exercise powers authorised by a deed of arrangement - whether upon termination of a deed of arrangement, trustee retains interest in asset comprising the trust property - who holds beneficial interest in trust property.

LEGISLATION CITED: Bankruptcy Act 1966
Bankruptcy Act 1989

PARTIES: David Watson (Plaintiff)
CGU Insurance Limited (First Defendant)
Australian Securities & Investment Commission (Second Defendant)
One Tel Ltd (In Liquidation) (Third Defendant)

FILE NUMBER(S): SC 50198/06

COUNSEL: C E Adamson SC / R C Scruby / A R Lang (Plaintiff)
A W Street SC / P Silver / W A D Edwards (First Defendant)
D L Cook (Second Defendant)
B A J Coles QC / S A Kerr (Third Defendant)

SOLICITORS: Kemp Strang (Plaintiff)
Colin Biggers & Paisley (First Defendant)
Self represented (Second Defendant)
Clayton Utz (Third Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

19 November 2008 ex tempore (revised 19 November 2008)

50198/06 DAVID PATRICK WATSON AS TRUSTEE FOR JOHN HUYSHE GREAVES v CGU INSURANCE LIMITED & 2 ORS

JUDGMENT

1 HIS HONOUR: The essential question for decision is whether the plaintiff (Mr Watson) can enforce a policy of insurance. That policy was underwritten by the first defendant (CGU). It afforded cover to, among others, the fourth defendant (Mr Greaves). The question arises against the following background.

Background

2 Mr Greaves was a director of the third defendant (One.Tel, which is now in liquidation) and the chairman of its board of directors. The second defendant (ASIC) obtained orders that Mr Greaves pay compensation of $20 million to One.Tel and ASIC's costs of the proceedings in which that order and others were made. Mr Greaves has claimed that CGU is bound to indemnify him under the policy for those liabilities.

3 On 30 November 2004, Mr Greaves made a deed of arrangement under Pt X of the Bankruptcy Act 1966. Mr Watson was the trustee of, and the other party to, that deed. The property assigned to Mr Watson as trustee included Mr Greaves’ rights under the policy. The deed terminated according to its terms on 30 November 2007.

4 Mr Watson says that he continues to hold, and is entitled to enforce, Mr Greaves' rights under the policy. CGU denies those propositions. It says, in any event, that it has rescinded the policy for non-disclosure. Further, CGU, says, the effect of the deed is that Mr Greaves has no ongoing liability to which the policy (if on foot) would respond.

The separate questions

5 The parties (not including Mr Greaves, who took no active party in the hearing before me) postulated the following questions for separate and prior determination:

…

Upon:

a. the proper construction of the Bankruptcy Act 1966 (Cth); and
b. the proper construction of the deed; and
c. the termination of the deed; and
d. in the events that have happened:

1. Can the plaintiff named in the amended summons maintain these proceedings to seek recovery from the first defendant of the alleged property identified in paragraph v of Schedule A to the deed (“the Property”)?

2. Upon the termination of the Deed, did any alleged interests or rights of Greaves in respect of the alleged Property cease to be held by the plaintiff as trustee or otherwise identifying the same?

a. In what capacity does the plaintiff hold any alleged interests or rights of Greaves in respect of the alleged Property?

b. In what capacity would the plaintiff hold any proceeds of the realization of any interests or rights of Greaves in respect of the alleged Property?

4. Which of the parties (including Greaves), if any, hold any alleged interests or rights of Greaves in respect of the alleged Property, and in what capacity?

a. was Greaves released and discharged from all liability at law and/or in equity in respect of the orders made on 6 September 2004? and/ or

b. did Greaves obtain the accrued benefit of a covenant not to enforce in respect of the compensation and costs order made on 6 September 2004 in the ASIC proceedings?

6. Does CGU have accrued or binding rights under the Deed such that the plaintiff and/or Greaves have no further rights to seek recovery of the alleged Property?

(a) There being no relevant “Loss” (at the time of entry into the Deed or upon termination of the Deed) within the meaning of the Policy;

(b) Greaves having no existing Loss within the meaning of the Policy for which he may be legally indemnified arising out of any Claim by reason of any Wrongful Act for the purpose of Insuring Agreement A of the Policy in relation to the compensation and costs order made on 6 September 2004 in the ASIC proceedings?

(c) There being no subject matter for indemnity as provided in the opening words of the Policy?

8. Is the covenant in the deed to assign to the plaintiff effective in the events that have occurred?

6 For reasons that are unclear, the parties stipulated that the questions for separate and prior determination did not include:

(a) Whether Greaves has the benefit of an independent release by reason of facts and matters occurring between parties including Greaves and Watson (as pleaded in paragraph 5 of CGU’s Defence to the Amended Summons filed 7 October 2008); and

(c) Whether the compensation and costs order was a settlement or a reasonable settlement with the meaning of the Policy so as to be within any obligation to indemnify and/or make payment pursuant to the Policy.

Agreed facts

7 The parties agreed on the following facts:

10. The first defendant (“CGU”) issued a directors and officers liability policy of insurance No 01DO0298798 (“the policy”).

11. Greaves was a director of One.Tel for the following periods:

a. 28 February 1995 and 31 December 1995 (inclusive); and

b. 25 July 1997 and 31 March 2001 (inclusive).

12. On 12 December 2001 ASIC commenced proceedings against Greaves in the Supreme Court of New South Wales (“ASIC proceedings”).

13. On 6 September 2004 the Supreme Court of New South Wales made orders and declarations against Greaves in the ASIC proceedings by consent of the parties to the ASIC proceedings (to which CGU was not a party and which CGU alleges does not bind it) which included:

a. An order that Greaves to pay compensation to One.Tel in the sum of $20million pursuant to section 1317H of the Corporations Act 2001 ; and

b. An order that Greaves pay ASIC $350,000.

(“the Compensation Order”)

14. Greaves notified CGU of the ASIC proceedings.

15. CGU has refused to indemnify Greaves pursuant to the Policy and/or make payment pursuant to the Policy and by letter dated 21 May 2002 purported to avoid the Policy.
16. On 5 July 2002 Greaves commenced proceedings against CGU in the Supreme Court of New South Wales (“Greaves proceedings”).

17. The Greaves proceedings were discontinued with leave of the Court on 24 September 2004.

18. On or about 30 November 2004 the plaintiff and Greaves executed a deed of arrangement pursuant to Part X of the Bankruptcy Act 1966 (Cth), which deed was subsequently varied by deed of variation made on 13 April 2005 (“Deed”).

18A. On 2 March 2006, the plaintiff issued a certificate of compliance to Greaves pursuant to clause 7 of the Deed.

18B. By notice dated 16 October 2006, the plaintiff gave notice to CGU of the purported assignment to him of the rights of Greaves under the Policy.

19. On 18 October 2006 proceedings 50198 of 2006 were commenced (“Watson trustee proceedings”).
20. As at 30 November 2007:

a. the events specified in clause 17(a) of the Deed had not occurred; and
b. the events specified in clause 17(b) of the Deed had not occurred in that the David Patrick Watson as Trustee of the Deed of Arrangement in respect of John Huyshe Greaves had not:

i. completed or settled any claim for the realization of assets being rights under the Policy; or
ii. made a decision not to pursue a claim under the Policy;

iii. issued a certificate under clause 9 of the Deed; or

iv. received any amount under the Policy or applied such amount pursuant to clause 5 of the Deed.

c. the events in clause 17(c) of the Deed had not occurred, in that no meeting of creditors was convened for the purposes of considering whether to extend the operation of the Deed pursuant to clause 17(c), and no resolution passed by creditors to that effect.

21. As a result of the matters in the paragraph immediately above, and pursuant to s 235(d) of the Bankruptcy Act 1966 (Cth), the Deed terminated on or about 30 November 2007.

22. On 11 August 2008 an amended summons in proceedings 50198 of 2006 was filed and the amendments take effect from the date of the order granting leave to amend (8 August 2008).
23. On 7 October 2008 the first defendant filed its Amended Defence to Amended Summons and Commercial List Response in Court.

Relevant provisions of the deed

8 As I have said, the parties to the deed were Mr Greaves, (as "Debtor") and Mr Watson (as "Trustee").

9 The following provisions of the deed are relevant to the questions for decision:

1. In the interpretation of this Deed unless inconsistent with the context or subject matter:

a. “The Trustee” means the said David Patrick Watson and every other person appointed to the office of Trustee by this Deed or appointed to act as such Trustee for the time being.
…
e. This Deed and any provisions or provision hereof shall be construed subject to the provisions of the Act and in particular to Part X hereof and the provisions of the Act incorporated hereby or by reference thereto and insofar as this Deed or any provision or provisions hereof does or do not comply with the Act or any provision or provisions thereof which does or do not comply as aforesaid shall be void and of no effect.

2. The Debtor covenants to convey, transfer or assign or cause to be conveyed, transferred or assigned to the Trustee all the property more particularly described in Schedule A hereto on trust to be dealt with by the Trustee in accordance with this Deed of Arrangement.

3. The Trustee accepts appointment as Trustee of this Deed and the conveyance and assignment of the said property upon the trusts hereinafter set out.

4. The Trustee shall get in and realise the assets set out in the said paragraph 2 hereto as soon as reasonably practicable provided that he shall have the power to postpone the sale of any part thereof as he in his discretion considers expedient.

5. The Trustee shall apply any amount received by him under the CGU Directors and Officers Liability Insurance Policy No. 01 DO 0298798 and the Gerling Excess Directors & Officers Liability Policy O012.001 in payment of any liability that Mr Greaves may have to the Australian Securities & Investments Commission and One.Tel Limited (In Liquidation).

6. Subject to clauses 5 and 18, the Trustee shall apply any moneys received by him pursuant to this Deed in making payments in the order described by Section 108 to 114 inclusive of the Act as modified by Section 237(2) thereof.
7. Immediately after the Debtor has in all respects complied with his obligations under this Deed and the Act the Trustee shall certify that the Debtor has complied with the Deed. Notice that such certificate has been executed shall be given by the Trustee to the Debtor and the Creditors.

8. The Debtor shall on the execution of the said certificate be absolutely released and discharged from all provable debts owed by him to each of is creditors respectively and from all claims, actions, suits, demands and other proceedings by each of the Creditors in respect of or on account of those debts except from any liability in respect of the compensation order and costs order made on 6 September 2004 in proceedings 5934 of 2001 in the New South Wales Supreme Court Equity Division (“the ASIC proceedings”) and the costs order made on the 24 September 2004 in proceedings 50096 of 2002 in the Equity Division of the Supreme Court of NSW in favour of CGU Insurance Ltd (“the CGU costs order”).
9. Immediately after the Trustee:

I. completes or settles any claim for the realisation of assets being rights under the CGU Directors and Officers Liability Insurance Policy No. 01 DO 0298798 and/or the Gerling Excess Directors & Officers Liability Policy O012.001 including the pursuit to judgment or settlement of any claim under these policies; or

II. makes a decision not to pursue a claim under the CGU Directors and Officers Liability Insurance Policy No. 01 DO 0298798 and/or the Gerling Excess Directors & Officers Liability Policy O012.001,

the Trustee will issue a certificate to the effect that he has completed the realisation of assets being rights under the CGU Directors and Officers Liability Insurance Policy No. 01 DO 0298798 and/or the Gerling Excess Directors & Officers Liability Policy O012.001 or to the effect that the Trustee does not intend to pursue a claim against CGU Insurance Limited and/or Gerling Australia Insurance Pty Ltd under those two policies. Notice that such certificate has been executed shall be given by the Trustee to the Debtor and the Creditors.

10. The Debtor shall upon execution of the said certificate by the Trustee be absolutely released and discharged from all liability in respect of the compensation and costs order made on 6 September 2004 in the ASIC Proceedings and the CGU Costs Order.

11. Prior to the execution of the certificate referred to in clause 9, neither the Trustee nor any creditor will take any steps to enforce against the Debtor the compensation order and the costs order made on 6 September 2004 in the ASIC Proceedings other than to seek recovery pursuant to the arrangement constituted by this Deed and the CGU costs order.

…

13. This Deed shall bind the secured creditors of the Debtor as well as the unsecured creditors PROVIDED HOWEVER that nothing herein contained shall affect the right of secured creditors to realise or otherwise deal with their security.

…
17. This Deed shall terminate on the earliest date on which any of the following events occur:

a. one of the events specified in Section 235(c) or (d) of the Act; or
b. the execution [sic] of by the Trustee of a certificate pursuant to clause 9 hereof and compliance by the Trustee with his obligations in clause 5 hereof; or
c. three years from the date of execution of this Deed of Arrangement by the Debtor unless the Creditors resolve to extend the operation of this Deed of Arrangement beyond three years for the purposes of the Trustees finalising any claim for the realisation of rights under the CGU Directors and Officers Liability Insurance Policy No. 01 DO 0298798 and/or the Gerling Excess Directors & Officers Liability Policy O012.001.

…
Schedule A

(i) Payment of $600,000 by Mr Greaves or others;

(ii) 41 shares in The WAM Communications Group Pty Limited (ACN 050 100 920);

(iii) 450 shares in Inteq Limited (ACN 055 971 232);

The policy

10 I set out relevant sections of the policy:

Directors and Officers Liability Insuring Agreement A

The insurer will pay on behalf of the Directors and Officers any Loss for which the Directors and Officers may not be legally indemnified by the Corporation arising out of any Claim, by reason of any Wrongful Act committed by them in their capacity as a Director or Officer, first made against them jointly or severally during the Period of Insurance and notified to the Insurer during the indemnity Period.

...

5.8 Loss

“Loss” shall mean:

Insured vs Insured Cover

Entity Cover for Employment Practices Liability

“Loss” excludes a Claim arising from or by reason of or directly or indirectly caused by or arising from fines and penalties imposed by law, punitive, exemplary or aggravated or multiple damages, income tax, customs duties, excise duty, stamp duty, sales tax or any other State or Federal tax or duty.

Approach to the questions

11 The parties put substantial written submissions, and spoke to them at length. In particular, Mr A W Street SC, who appeared with Mr P C Silver and Mr W A D Edwards of counsel for CGU, went in exhaustive detail to the Bankruptcy Act 1989 in support of his submission that Pt X constitutes a code. I was referred (by all counsel) to a large number of cases, none of which were directly in point for the proposition in support of which they were cited.

12 The questions are capable of resolution without reference to all the provisions of the Bankruptcy Act to which I was referred and without reference to authority. I propose to deal with them in that fashion. Further, since the parties' extensive written submissions will remain with the file, and their oral submissions were (to the extent possible) recorded, I do not propose to set out the competing arguments.

First question

13 Section 219(1) of the Bankruptcy Act refers, among other things, to the right of a trustee of a deed of arrangement to sue. I set out that sub-section (whenever I quote or refer to a provision of the Bankruptcy Act, I do so by reference to what the parties propounded as being the Act as it stood at the relevant time: 30 November 2004):

219 Trustee may sue, be sued etc. by official name

14 Section 219 is directed to equipping a trustee with powers that are necessary or desirable for the execution of the trusts created by a deed of arrangement. Once those trusts have terminated (because the deed has terminated) there is no reason for the statutory powers to continue to be available to such a trustee. It follows that, on its proper construction, s 219 did not authorise someone who was a trustee of a deed of arrangement to exercise the powers set out in the sub-section once that deed of arrangement has terminated.

15 If Mr Watson were to be able to maintain these proceedings notwithstanding termination of the deed of arrangement, it would amount to the execution of some private arrangement outside the scheme authorised by Pt X. That would be inconsistent with the clear underlying purpose of Pt 10 - that arrangements and the like should be public, not private - and would be avoided by s 213. So far as it is relevant, s 213 provides:

213 Arrangements by debtor with creditors otherwise than in accordance with this Part etc. to be void

(1) Subject to this Part, a deed of assignment or a deed of arrangement executed by a debtor after the commencement of this Act is void unless:

(2) An instrument not under seal executed by a debtor after the commencement of this Act which, if it had been under seal, would have been a deed of assignment or a deed of arrangement is void.

16 That is not necessarily the end of the matter. Clause 4 of the deed authorised Mr Watson (in his capacity as "Trustee") to get in and realise the assigned property. That is an independent source of power to institute and maintain these proceedings. But that power, being one given by the deed, does not survive its termination.

17 Termination of the deed did not (for reasons I give later) divest Mr Watson of any property held by him as "Trustee" pursuant to the deed. But it may, and in my view does, affect both the identification of those entitled to the beneficial interest in any such property (or in the fruits of its realisation) and Mr Watson's powers as a "trustee" after termination. There is then (after termination) no trust instrument authorising a continuation of proceedings, and no other source of power to do so (s 219 being unavailable for the reasons that I have given).

18 For those reasons, Question 1 should be answered "no".

Second question

19 On the assumption that property assigned to Mr Watson pursuant to the deed remained vested in him on termination of the deed, he would hold it as a trustee. However, he would hold it in substance as a bare trustee for the benefit of whomsoever would be entitled to it in that circumstance, not as a trustee having the powers conferred by Pt X or for that matter the powers conferred by the deed.

20 Question 2 should be answered accordingly.

Third question

21 Question 3(a) should be answered conformably with what I have said as to Question 2.

22 Question 3(b) does not arise having regard to my answer to Question 1 and should be answered "does not arise".

Fourth question

23 According to the parties, the competing claimants are ASIC, One.Tel, Mr Greaves and (Mr Street submitted) the Official Trustee. ASIC, One.Tel and the Official Trustee can be eliminated.

24 As to ASIC and One.Tel: the deed gives them no beneficial interest in the asset that comprises the trust property (assuming for the moment there is any). Mr Watson's position was akin to that of an executor of a will, and the positions of ASIC and One.Tel were akin to that of a beneficiary under a will. Mr Watson was bound to get in and realise the assets (cl 4). He was to deal with the proceeds of realisation in accordance with clauses 5 and 6. To the extent that the deed created any beneficial interest in property in ASIC or One.Tel, it was a beneficial interest in the proceeds of realisation of Mr Greaves' rights under the policy. ASIC and One.Tel had a right to have Mr Watson's obligations properly performed, and to receive the fruits of realisation of the relevant property. That does not equate to a right to or beneficial interest in the asset to be realised.

25 The Official Trustee comes in, according to Mr Street, through s 237(4) of the Bankruptcy Act. That sub-section reads as follows:

S237(4) Part VIII applies, with any modifications prescribed by the regulations, in relation to a trustee of a deed of arrangement as if the debtor by whom the deed was executed were a bankrupt and the trustee of the deed were the trustee in his or her bankruptcy.

26 Part VIII of the Bankruptcy Act includes s 160. It was common ground that s 160 had been modified (as permitted by s 237(4)) to read as follows:

Official Trustee to be trustee when no registered trustee is trustee [see Table B]

27 In my view, the reference to a "period when that position [of trustee] would otherwise be vacant" necessarily refers to a period when there is a deed of arrangement that is in force and when, for other reasons, there is no trustee of that deed. Once the deed has terminated, the trustee may remain as trustee, but cannot be described as a trustee under Pt X.

28 Thus, I think, on its proper construction, s 160 is intended to operate only during the currency of a deed of arrangement, and has no operation once such a deed has been terminated.

29 It follows that if Mr Watson holds, as property assigned to him pursuant to the deed, Mr Greaves' rights under the policy, then in the events that have happened he holds those rights on trust for Mr Greaves.

30 There is nothing irrational or absurd in this. The parties used the mechanism of a deed of arrangement, not that of a deed of assignment. The creditors - specifically, ASIC and One.Tel (between them creditors for $20,350,000) - did not extend the operation of the deed as permitted by clause 17(c)). Why should Mr Watson be able to hold on to the residue (if any) of the property assigned following termination of the deed? I see no reason why he should.

31 Mr Street submitted that, on termination of the deed, any vesting of the property in Mr Watson pursuant to clause 2 of the deed likewise terminated. He referred to clause 1(e) of the deed and s 213 of the Bankruptcy Act.

32 Any vesting that has occurred, occurred by reason of the making of the deed. This is so whether property vested at law or in equity (subject, in the case of assignment at law, to the giving of notice to perfect the assignment; in this case such a notice was given). Vesting was not a continuous process. Termination of the deed did not operate to divest Mr Watson of the property that had vested in him. At most, termination of the deed is relevant to the identification of those for whom, thereafter, he holds any remaining property on trust.

33 Question 4 should be answered: "For Mr Greaves beneficially".

Fifth question

34 This question turns on the construction of clauses 10 and 11 of the deed (in context) and on their operation in the events that have occurred.

35 The release for which clause 10 provides is conditional upon the execution by Mr Watson of a certificate under clause 9. He has not executed any such certificate; nor (given the termination of the deed) will he do so. Thus, at no time before the termination of the deed was the condition of the release satisfied.

36 It follows that question 5(a) should be answered "no".

37 It is clear that the parties to the deed intended that the possibilities set out in clause 9 (pursuit of the litigation against CGU to finality, or alternatively the making of a decision not to pursue it) between them constituted the entire universe of available possibilities. To put it another way, it is clear that the parties contemplated that one or other of those courses would be taken: supplemented if necessary (for the first course) by an extension of time under clause 17(c).

38 The clear purpose of clause 11 was to protect Mr Greaves from enforcement action (subject to the qualification introduced by the concluding words "other than to seek recovery pursuant to the arrangement constituted by this Deed") pending the grant of a release under clause 10. As I have said, the parties contemplated that one or other of the conditions for the execution of a clause 9 certificate, and thus the condition for the operation of the clause 10 release, would occur either within the three year period following the execution of the deed or within an extension thereafter to finalise the proceedings against CGU.

39 On the proper construction of clause 11, the "stay" (a convenient although not entirely accurate word) for which it provides must inure until, through the execution of a clause 9 certificate, the release granted by clause 10 becomes operative.

40 Ms C E Adamson, SC, who appeared with Mr R C Scruby and Mr A R Lang of counsel, for Mr Watson, submitted that clause 11 was not intended to survive termination of the deed. I do not agree. The effect of that construction would be to deprive Mr Greaves of the protection which, clearly enough, was the consideration for his entry into the deed and his promises contained in it. If clause 11 were so limited, it would have been open to Mr Watson, at the direction of ASIC and One.Tel, by inaction to deprive Mr Greaves of that protection.

41 Clearly, the clause 10 release was intended to survive termination. The clause 11 stay was intended to provide protection to Mr Greaves until the clause 10 release became effective. Why should the clause 11 stay be limited to the lifetime of the deed? I do not think that it should, particularly in circumstances where it was open to Mr Watson, supported by ASIC and One.Tel, to seek to extend the operation of the deed to enable him to finalise recovery action.

42 Ms Adamson submitted that to give clause 11 operation beyond termination of the deed might deprive creditors of the effective benefit of the assignment of the rights under the policy. But that situation arises only (if it does arise at all) because Mr Watson and the creditors did not extend the operation of the deed. At all times during the term of the deed, they had it in their power to do so, and thereby to preserve the benefit of the assignment. Thus, the possible loss of that benefit is not a commercial absurdity flowing from the construction of clause 11 that gives it continuing operation after termination of the deed. The parties (by which I mean Mr Watson, ASIC and One.Tel) had the power and the means to avoid that consequence.

43 I should note once more that the "stay" for which clause 11 provides is limited in its terms: "otherwise than to seek recovery pursuant to the arrangement constituted by this Deed". The answer that I propose to give to question 5(b) necessarily encompasses that limitation.

44 Clause 5(b) should be answered "yes".

Sixth question

45 I did not understand this question when first I read it, and my incomprehension has not been dispelled by the submissions put in support of it.

46 The deed confers no rights on CGU. CGU was not a party to the deed.

47 The variations effected on 13 April 2005 had the effect of making it clear that the releases granted to Mr Greaves by clauses 8 and 10 of the deed extended to costs orders made against Mr Greaves in favour of CGU in certain proceedings brought by Mr Greaves against CGU, and made other provisions in relation to those costs. They conferred no right on CGU.

48 The circumstances in which rights may accrue under a contract (whether or not under seal) in favour of strangers to the contract are limited. None of them was said to apply here.

49 The "right" identified was, I think, the "right" to be free of liability to Mr Greaves under the policy because, by reason of the execution of the deed, Mr Greaves had no liability to which the policy could respond.

50 It is unnecessary to pursue this interesting concept. I think the simplest and certainly the appropriate course, having regard to my answers to questions 4 and 5(b), is to answer question 6: "Does not arise".

Seventh question

51 This turns on the relevant terms of the policy, in light of my answers to questions 1-5.

52 Undoubtedly, the orders for compensation and for costs made against Mr Greaves are each capable of being a "loss" as defined. But the policy is one of indemnity. If and for so long as the orders are not enforceable against Mr Greaves, there is nothing in respect of which he has any entitlement to be indemnified.

53 Question 7 should be answered accordingly.

Eighth question

54 Mr Street submitted that clause 2 of the deed was not an effective assignment at law, because it was a future and not a present assignment.

55 Ms Adamson submitted to the contrary. She submitted further that if the assignment were ineffective at law, it was effective in equity because it was given for value.

56 Mr Street submitted that there was no valuable consideration, in particular for the assignment of rights under the policy, and hence no equitable assignment (or specifically enforceable agreement to assign). He submitted that the consideration was severable and that the consideration for the assignment of the rights under the policy was the clause 10 release.

57 It is unnecessary to resolve the question of whether clause 2 effects a present assignment. My tentative view is that it should be construed as effecting a present assignment of such of the property described in the schedule to the deed as was capable of assignment without any formality, and an agreement to assign (or equitable assignment), of the other property. On that tentative view, Mr Greaves' rights under the policy would have been assigned at law given, as I have said, that notice of the assignment has been given.

58 But if this were not so, clause 2 would be construed to effect an equitable assignment of the whole of the property in question. It is clear that the consideration for Mr Greaves' promise to assign (clause 2) was the releases (clauses 8 and 10) the stay (clause 11) and Mr Watson's promises as Trustee. That is all good, or valuable, consideration. Even if Mr Greaves does not obtain the benefit of the clause 10 release, still he received valuable consideration for his promise in clause 2. In this context, I see nothing in the construction of the deed to warrant the proposition that the various items of consideration should be apportioned to individual elements of the promise to assign.

59 Thus, there being no issue as to the identity of the subject property, the assignment of it by clause 2 would be effective in equity if for any reason it were not effective at law.

60 For that reason, question 8 should be answered "yes ".

Ninth question

61 This question raises the point referred to at [31] and [32] above in relation to the fourth question. For the reasons that I there gave (in relation to Mr Street's submission based on clause 1(e) of the deed and s 213 of the Bankruptcy Act) termination of the deed does not render void, or undo, any vesting of property that had occurred pursuant to clause 2 of the deed.

62 Question 9 should be answered "no".

(1) I direct that my answers to the separate questions be recorded.

(2) I direct the parties to bring in draft short minutes of order to give effect to these reasons. That is to be done within 14 days. I stand the proceedings over to 9.30am on Wednesday 10 December 2008.

(3) I will then deal with any dispute as to the orders to be made (including as to the fate of these proceedings and as to costs).

**********

09/03/2009 - Counsel added to first defendant - Paragraph(s) Coverpage

Citations

David Watson v CGU Insurance Limited [2008] NSWSC 1409

Most Recent Citation

Cases Citing This Decision

3

CGU Insurance Ltd v One.Tel Ltd (In Liq) [2010] HCA 26

One.Tel Limited (In liq) v David Watson (No 2) [2009] NSWCA 396

One.Tel (in liq) v Watson [2009] NSWCA 282

Cases Cited

0

Statutory Material Cited

2

Actions

Download as PDF Download as Word Document

CITATION:	David Watson v CGU Insurance Limited [2008] NSWSC 1409 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	19 November 2008
JUDGMENT OF:	McDougall J at 1
EX TEMPORE JUDGMENT DATE:	19 November 2008
DECISION:	See para [62] of the judgment.
CATCHWORDS:	BANKRUPTCY - termination of deed of arrangement - trustee unable after termination to exercise powers authorised by a deed of arrangement - whether upon termination of a deed of arrangement, trustee retains interest in asset comprising the trust property - who holds beneficial interest in trust property.
LEGISLATION CITED:	Bankruptcy Act 1966 Bankruptcy Act 1989
PARTIES:	David Watson (Plaintiff) CGU Insurance Limited (First Defendant) Australian Securities & Investment Commission (Second Defendant) One Tel Ltd (In Liquidation) (Third Defendant)
FILE NUMBER(S):	SC 50198/06
COUNSEL:	C E Adamson SC / R C Scruby / A R Lang (Plaintiff) A W Street SC / P Silver / W A D Edwards (First Defendant) D L Cook (Second Defendant) B A J Coles QC / S A Kerr (Third Defendant)
SOLICITORS:	Kemp Strang (Plaintiff) Colin Biggers & Paisley (First Defendant) Self represented (Second Defendant) Clayton Utz (Third Defendant)