In the matter of Banksia Securities Limited (in liquidation) (receivers and managers appointed)

[2018] NSWSC 629

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Banksia Securities Limited (in liquidation) (receivers and managers appointed) [2018] NSWSC 629
Hearing dates:	28 March 2018
Decision date:	08 May 2018
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Special Purpose Receivers of Banksia Securities Ltd (in liq) (recs and mgrs apptd) (“BSL”) have the power to settle the claims made by BSL against The Channel Syndicate and AmTrust Syndicates Ltd for and on behalf of the underwriting members of Syndicate 1206 at Lloyd’s of London in Supreme Court of Victoria proceedings No S Cl 2012 7185. The Special Purpose Receivers are justified in causing BSL to settle its claims in those proceedings.
Catchwords:	CORPORATIONS – application by special purpose receivers under s 283HB of the Corporations Act 2001 (Cth) for direction that they have power to settle claims made by company – where applicants were previously appointed by Court as special purpose receivers under s 283HB of the Corporations Act – whether Court has jurisdiction under s 283HB of the Corporations Act or s 67 of the Supreme Court Act 1970 (NSW) to give such direction to the special purpose receivers – whether proposed settlement is within the class of questions on which the special purpose receivers may legitimately seek directions – whether directions sought by the special purpose receivers should be given
Legislation Cited:	- Banking Act 1959 (Cth) - Corporations Act 2001 (Cth) ss 283BB, 283F, 283HB, 424, 479, 511 - Supreme Court Act 1970 (NSW) s 67
Cases Cited:	- Australian Executor Trustees Ltd v Provident Capital Ltd [2012] FCA 728; (2012) 90 ACSR 650 - Australian Securities and Investments Commission v Bridgecorp Finance Ltd [2006] NSWSC 836; (2006) 58 ACSR 499 - Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2015] NSWSC 1378 - Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2016] NSWSC 357 - Re Banksia Securities Ltd (recs and mgrs apptd) [2017] VSC 148 - Re Metal Storm Ltd (subject to Deed of Company Arrangement) [2014] NSWSC 813; (2014) 100 ACSR 637 - Re One.Tel Ltd (2014) 99 ACSR 246 - Trust Company (Nominees) Ltd v Angas Securities Ltd [2015] FCA 772; (2015) 107 ACSR 464 - Trust Co (Nominees) Ltd v Southern Finance Ltd, Re Southern Finance Ltd [2012] FCA 1339 - Unity Insurance Brokers Pty Ltd v Rocco Pezaano Pty Ltd (1998) 192 CLR 603
Category:	Procedural and other rulings
Parties:	The Trust Company (Nominees) Limited (Plaintiff) John Ross Lindholm and Peter Damien McCluskey (Special Purpose Receivers)
Representation:	Counsel: J Redwood/P Bindon (Applicants - Special Purpose Receivers)   Solicitors: Maddocks (Applicants - Special Purpose Receivers)
File Number(s):	2015/252832

Judgment

1. By Interlocutory Application filed on 2 March 2018, the Applicants, Mr John Lindholm and Mr Peter McCluskey (“Special Purpose Receivers”) in their capacity as special purpose receivers appointed by the Court to Banksia Securities Ltd (in liq) (recs and mgrs apptd) (“BSL”), seek directions under s 283HB of the Corporations Act 2001 (Cth), s 67 of the Supreme Court Act 1970 (NSW) and in the Court’s inherent jurisdiction. Those directions are to the effect that they have the power to settle, and that they are justified in causing BSL to settle, claims made by BSL against The Channel Syndicate (“Channel”) and AmTrust Syndicates Ltd for and on behalf of the underwriting members of Syndicate 1206 at Lloyd’s of London (“AmTrust”) (together, “Underwriters”) in proceedings No S Cl 2012 7185 in the Supreme Court of Victoria (“Bolitho proceedings”) on specified terms.

Background and affidavit evidence

2. By way of background, BSL operated as a non-bank lender and raised monies from the public by issuing debentures to investors pursuant to prospectuses and product disclosure statements, and in turn advancing funds raised from debenture holders to third party borrowers for property investment and development purposes. BSL also invested some of the funds raised by it in other activities. BSL was not a bank or an authorised deposit-taking institution authorised to conduct banking services within the meaning of the Banking Act 1959 (Cth) and it was a condition of the Australian financial licence held by BSL that it must comply with ASIC Regulatory Guide 126, which requires the holder of an Australian financial services licence to maintain specified insurance arrangements. In March 2009, BSL merged with a larger debenture issuer, Statewide Secured Investments Ltd, and it is alleged that that merger undermined its financial position.

3. The Bolitho proceedings were commenced by Mr Laurence Bolitho against, inter alia, BSL, and other proceedings were commenced by the receivers (as distinct from the Special Purpose Receivers) of BSL (“BSL proceedings”). The Bolitho parties bring claims against BSL for damages, in respect of misleading statements and omissions in various prospectuses issued by BSL, and also claim damages under s 283F of the Corporations Act for breach of BSL’s obligation, under s 283BB of the Corporations Act, to conduct its business in a proper and efficient manner in accordance with the trust deed.

4. The Special Purpose Receivers were appointed as joint and several special purpose receivers of specified property of BSL, including BSL’s rights and entitlements in the Bolitho proceedings, by orders made on 30 September 2015 and varied on 29 February 2016. Those orders were made pursuant to s 283HB of the Corporations Act, in the circumstances summarised in the judgments in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2015] NSWSC 1378 and Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2016] NSWSC 357.

5. The Underwriters are on risk for cover of $15 million under a policy of insurance held by BSL (“Policy”) but deny liability on the basis that the Policy does not respond to the relevant claims. Insuring clause 1B of the Policy provided cover for an Insured Loss, defined as an amount which BSL became obligated to pay on account of any “Professional Services Claim” (as defined) for a Wrongful Act (as defined) occurring before or during the Policy Period (as defined). The term “professional services” was defined as extending to investment managerial services performed or required to be performed by an organisation in respect of a fund, and expressly included formation, capitalisation, operation and management of the fund or the marketing of the fund and solicitation of potential investors in the fund. The PI Coverage section of the Policy was, however, subject to a “specific matters endorsement” which deleted the definition of “professional services” in its entirety and replaced it with a definition which, in effect, limited that concept to services performed or required to be performed by BSL for or on behalf of a customer of BSL, pursuant to an agreement between that customer and BSL for a fee, commission or other monetary consideration or other remuneration which inured to the benefit of BSL, subject to specific exclusions. The Underwriters denied cover for the claims brought against BSL in the Bolitho proceedings on the basis that a debenture holder to which BSL issued debentures was not a client or customer receiving services from BSL for a fee, commission or other monetary consideration, and the management of BSL’s loan portfolio was part of BSL’s business activities and not a service provided to a customer.

6. By its Second Further Amended Third Party Notice and Statement of Claim filed in the Bolitho proceedings, BSL initially brought a claim for negligence against its insurance brokers, Insurance House Pty Ltd (“Insurance House”), on the basis that the insuring clause contained in the Policy, obtained by BSL with Insurance House’s assistance, was unsuitable to the nature of BSL’s business. The premise of that claim is that the Underwriters have correctly denied cover in respect of the claims made against BSL in the Bolitho proceedings, on the basis that the Policy does not respond to those claims. BSL also relies in that respect, on regulatory requirements that required BSL to have in place professional indemnity insurance that responded to claims of the relevant character. Specifically, BSL pleads in the Second Further Amended Third Party Notice (Ex A1, pp 90ff, [26]) that the standard terms of the PI Coverage Section, as set out in the Policy from which those standard terms were then excluded, were appropriately adapted to the nature of BSL’s business and would have extended to the type of claims now brought against BSL in the Bolitho proceedings. BSL pleads that the scope of that cover was amended by a specific matters endorsement contained in that policy so that it did not cover claims of the type made against BSL in the Bolitho proceedings and consequently excluded the most potentially damaging type of claim that was likely to be made against BSL in the ordinary course of the conduct of its business. BSL also brings a further claim as to the level of cover held by BSL, to which it is not necessary to have regard for the purposes of this application. Insurance House in turn contends, in its defence to the claims against it, that the insuring clause in the Policy does respond to the claims made against BSL in the Bolitho proceedings. When Insurance House contended by way of defence that the Policy responded to the relevant claims, BSL brought a claim against the Underwriters to similar effect.

7. In August 2017, I made orders approving a settlement between BSL and another underwriter to the Policy, Chaucer Syndicates (“Chaucer”), which was one of the excess layer insurers and was on risk for $5 million of the policy limit under the Policy. That settlement was supported by other matters and did not depend upon an assessment of the ultimate prospects of the claims against the Underwriters. BSL has also now obtained approval from the Supreme Court of Victoria for the settlement of its claims against another party to the proceedings, The Trust Company (Nominees) Limited (“TrustCo”), although an appeal has been brought against the approval of that settlement. Following the settlement of the claims brought by BSL against TrustCo, and subject to the appeal brought against the approval of that settlement, the only remaining claims in the relevant proceedings are the claims brought by Mr Bolitho against BSL, as a class action, and the third party claim brought by BSL against the Underwriters and Insurance House. BSL’s claims against the Underwriters (subject to the proposed settlement) and against Insurance House are listed for hearing in late 2018.

8. The Special Purpose Receivers rely, in support of the application for directions concerning the proposed settlement with the Underwriters, on the affidavit dated 15 February 2018 of Mr Lindholm. That affidavit sets out the history of Mr Lindholm’s and Mr McCluskey’s appointment as joint and several special purpose receivers of BSL, a matter which I have addressed in several earlier judgments, and the nature of the claims in the Bolitho proceedings, to which I have referred above. The Special Purpose Receivers also rely on a second confidential affidavit of Mr Lindholm dated 15 February 2018, which refers to the terms of the settlement with the Underwriters, reached following mediations and significant negotiation. Mr Lindholm refers to an offer of $500,000 made by the Underwriters to settle the proceedings brought BSL against them, in December 2015, which could fairly be described as a settlement for a nominal payment given the scale of the relevant claims. That offer was then rejected by BSL. Mr Lindholm also refers to a revised offer made by the Underwriters, following mediations in 2017, to settle the claims against them for $1 million and the provision of certain additional benefits, which may or may not be of significance, to BSL.

9. Mr Lindholm refers to advices obtained by the Special Purpose Receivers from junior counsel, and then from senior and junior counsel, in March 2016, May 2017 and November 2017, and to discussions with counsel and the solicitors acting for the Special Purpose Receivers as to the advantages and disadvantages of a settlement with the Underwriters on the terms of their revised offer. I have had regard to the content of those advices. The advices point, most importantly, to a view formed by the Special Purpose Receivers’ legal advisers that the Underwriters are correct in their view that the Policy does not respond to the claim against BSL in the Bolitho proceedings and that the claim brought by BSL against the Underwriters in the Bolitho proceedings will fail. In forming that view, senior and junior counsel retained by the Special Purpose Receivers have also had regard to advice obtained by the Underwriters from senior and junior counsel, and made available to the Special Purpose Receivers, although their view does not depend on that advice. Counsel have also referred to the modest increase in the amount of the Underwriters’ offer, which is still minimal having regard to the size of the claim against them, and certain forensic and strategic advantages which may be obtained from the settlement with the Underwriters, although it seems to me that those advantages are also modest and possibly uncertain.

10. Mr Lindholm also refers to the logical structure of the proceedings initially brought against Insurance House and then against the Underwriters, which sought to create a “hedge” against the failure of either claim, on the basis that the likely results of the claims were perceived as being either that the Policy responded to the claim brought against BSL in the Bolitho proceedings, and the claim against the Underwriters should succeed, or the Policy did not respond and the claim against Insurance House should succeed. It is not necessary or appropriate for me to express any final view as to the logic of that analysis, beyond recognising that it is a plausible analysis of the possible outcomes, with a third possible outcome being that both claims could fail. As I will note below, the Special Purpose Receivers and their legal advisers have now come to the view that the claim against the Underwriters would likely fail, and that has reduced the value of any such “hedge” to BSL, and increased the risk of that hedge, since a lengthy hearing which would expose BSL to significant costs if the claim against the Underwriters fails will take place later this year. Mr Lindholm also refers to the fact that the committee of debenture holders has provided its unanimous support to the proposed settlement with the Underwriters.

11. By a further confidential affidavit dated 13 March 2018, Mr Lindholm refers to an additional confidential opinion obtained from senior and junior counsel in relation to the proposed settlement with the Underwriters. Mr Lindholm indicates that the view expressed in that opinion accords with the view that counsel had previously explained to him orally and is consistent with the advice on which he relied when deciding to enter into a deed of settlement with the Underwriters. I have had regard to that opinion.

12. In broad summary, both the advice provided to the Special Purpose Receivers by senior and junior counsel and, possibly less relevantly, the advice provided to the Underwriters by senior and junior counsel have confirmed their opinion that the Policy does not respond to the relevant events, and that a proper reading of the Policy, having regard to the relevant circumstances, would not construe it as responding to those claims. By their advice provided in March 2018, senior and junior counsel retained by the Special Purpose Receivers also address Insurance House’s reasoning which is, in effect, that “services performed” by BSL embraces all the activities of a financial services group that operated like a bank, and that BSL had two types of customers, namely customers who lent money to it and customers who borrowed money from it, and that the service provided on behalf of Mr Bolitho and others was to receive deposits from Mr Bolitho, provide an interest return on it and repay it, which was provided for monetary consideration, including interest paid to the customer by BSL. Counsel retained by the Special Purpose Receivers express the view, for reasons that they record but which I need not set out in detail, that that reasoning is unpersuasive and does not have sufficient regard to the text of the Policy. Counsel also review, at some length, the evidence filed in the relevant proceedings, although they rightly recognise that the Underwriters’ liability turns on the meaning of the Policy, and the specific matters endorsement, and that is a matter of legal interpretation that will not be determined by expert or lay opinion or belief. I do not comment further upon that evidence, both because the relevant witness statements are not in evidence before me and because it will ultimately be a matter for the Supreme Court of Victoria to assess the persuasiveness or otherwise of that evidence.

13. Counsel retained by the Special Purpose Receivers in turn draw attention to their assessment that there is a high probability that the claims brought by BSL against the Underwriters will fail at trial, having regard to the proper construction of the special matters endorsement and the lack of satisfaction of the elements of that endorsement by the manner in which BSL conducted its business. Counsel have also noted that there are potential forensic and strategic advantages to BSL in settling the claim against the Underwriters, so far as proof of their damages in the Victorian proceedings and the conduct of the Victorian proceedings are concerned.

14. The Special Purpose Receivers also rely on a confidential affidavit of their solicitor, Mr Newman, dated 14 March 2018, which refers to my judgment approving the settlement between BSL and Chaucer in the Bolitho proceedings and to evidence led by Insurance House in the BSL proceedings. Mr Newman’s evidence is that he has been involved in all communications exchanged between counsel and the Special Purpose Receivers, and has reviewed all advices prepared by counsel including prospects and settlement advice, and counsel’s opinion referred to in Mr Lindholm’s affidavit dated 13 March 2018, and:

“The views expressed by Counsel in the Advices and Opinion are consistent with the advice I have personally provided to the Special Purpose Receivers and are also consistent with the discussions I have had with Counsel regarding the settlement of [BSL’s] claims with the Underwriters.”

15. A further, non-confidential, affidavit of Mr Newman dated 14 March 2018 provided an update as to the status of the relevant proceedings, identified documents relevant to the claims, and also identified the evidence led by BSL relating to the suitability and adequacy of the Policy in the relevant proceedings, and addressed the judgment of the Supreme Court of Victoria approving settlement of the claims made by BSL and Mr Bolitho against TrustCo in the relevant proceedings. The Special Purpose Receivers also relied on an affidavit of Mr Newman sworn 22 December 2017, in support of an earlier application by the Special Purpose Receivers for approval of remuneration, which estimated the length of the hearing on the assumption that the settlement with TrustCo was approved and that only the claims against the Underwriters and Insurance House proceeded to trial. That estimate is useful for identifying the costs and costs exposures that have been taken into account by the Special Purposes Receivers, in settling the claims against the Underwriters.

The Court’s jurisdiction to give the directions and determination

16. As I noted above, the Special Purpose Receivers seek directions under s 283HB of the Corporations Act, s 67 of the Supreme Court Act and in the Court’s inherent jurisdiction. In submissions, Mr Redwood, who appears with Ms Bindon for the Special Purpose Receivers, identifies several issues that must be addressed in this application. The first is the source of the Court’s jurisdiction to make the orders sought by the Special Purpose Receivers. Mr Redwood submits that the Special Purpose Receivers were appointed by the Court pursuant to the statutory regime created by Ch 2L of the Corporations Act, that the Court has jurisdiction to make a direction approving the proposed settlement under s 283HB of the Corporations Act, and the Court has exercised that jurisdiction in respect of previous applications by the Special Purpose Receivers.

16. I reviewed the scope of the Court’s power to give such directions in Re Banksia Securities Limited (in liq) (recs and mgrs apptd) [2016] NSWSC 357 on which I have drawn for the account of the relevant principles that follows. I am satisfied that the Court has jurisdiction under s 283HB of the Corporations Act, where the initial application was brought for the appointment of the Special Purpose Receivers under that section. The Court has wide powers under that section which relevantly provides:

“(1)   If the trustee or ASIC applies to the Court, the Court may make any or all of the following orders:

…

(d)   an order appointing a receiver of any property constituting security for the debentures;

…

(g)   any other order that the Court considers appropriate to protect the interests of existing or prospective debenture holders.

(2)   In deciding whether to make an order under subsection (1), the Court must have regard to:

(a)   the ability of the borrower and each guarantor to repay the amount deposited or lent as and when it becomes due; and

(b)   any contravention of section 283GA by the borrower; and

(c)   the interests of the borrower’s members and creditors; and

(d)   the interests of the members of each of the guarantors.”

18. That section confers a broad remedial and protective jurisdiction on the Court, which extends (in s 283HB(1)(g)) to making any order that the Court considers appropriate to protect the interests of debenture holders and is to be exercised having regard to the matters set out in s 283HB(2): see Australian Securities and Investments Commission v Bridgecorp Finance Ltd [2006] NSWSC 836; (2006) 58 ACSR 499 at [18]; Australian Executor Trustees Ltd v Provident Capital Ltd [2012] FCA 728; (2012) 90 ACSR 650 at [77]-[78]; Trust Co (Nominees) Ltd v Southern Finance Ltd, Re Southern Finance Ltd [2012] FCA 1339 at [16]; Re Metal Storm Ltd (subject to Deed of Company Arrangement) [2014] NSWSC 813; (2014) 100 ACSR 637 at [83]; Trust Company (Nominees) Ltd v Angas Securities Ltd [2015] FCA 772; (2015) 107 ACSR 464 at [82]–[83]. In my unreported judgment in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) (21 August 2017), I also expressed the view that, where the Court had jurisdiction to appoint the Special Purpose Receivers under s 283HB of the Corporations Act, as it previously did, and to confer the power to prosecute and defend the proceedings on them, then it had jurisdiction to confer the power to settle the proceedings upon them, whether as incidental to its power to appoint the Special Purpose Receivers under s 283HB of the Corporations Act or in its inherent jurisdiction. The Court’s jurisdiction to give a direction of this kind was also recognised by Robson J in Re Banksia Securities Ltd (recs and mgrs apptd) [2017] VSC 148. I am satisfied that the Court has jurisdiction to give such a direction in this application.

19. Mr Redwood identifies a second question whether the proposed settlement is within the class of questions on which the Special Purpose Receivers may legitimately seek directions. Mr Redwood submits that the Special Purpose Receivers may properly seek such a direction, and would arguably be exposed to criticism if they did not do so, where they propose to settle a substantial claim against the Underwriters for a relatively modest payment, and the consequences of error in their assessment of the merits of that settlement would be significant.

20. The desirability of receivers seeking, and the Court giving, directions in such a setting is supported by authority, including the Court’s decision, in respect of a receiver, in Re Metal Storm Ltd (subject to Deed of Company Arrangement) above, and the earlier decisions in which the Supreme Court of Victoria and this Court have given directions to the Special Purpose Receivers in this matter. In my unreported judgment in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) (21 August 2017), I expressed the view that a direction of this kind was within the class of questions as to which the Special Purpose Receivers may legitimately seek directions. I there observed that the circumstances in which the Court would exercise its directions power would be determined, by way of analogy, with its exercise of powers under s 424 of the Corporations Act, in respect of a controller, and former ss 479(3) and 511 of the Corporations Act in respect of court-appointed liquidators and liquidators in a voluntary winding up. I also observed, by reference to authority that:

“While the Court will not ordinarily make a direction as to a matter which involves a commercial decision of an insolvency practitioner, it may give directions as to the reasonableness of a contemplated exercise of discretion, particularly where a receiver represents numerous interests and that exercise of discretion might otherwise expose the receiver to criticism.”

I am satisfied that this application is within the class of matters where such a direction may be given.

21. The third question identified by Mr Redwood is, on the basis that the Special Purpose Receivers may (as I have held) properly seek directions in respect of the proposed settlement, the standard that the Court should apply in determining whether they are justified in entering into the proposed settlement. Mr Redwood draws attention to the fact that the Special Purpose Receivers were appointed by the Court and are subject to the Court’s supervision as its officers; that they would be expected to act in the interests of debenture holders; and the subject matter of the special purpose receivership’s legal causes of action for substantial amounts in complex proceedings, where numerous debenture holders will be affected by the outcome of the proceedings. Mr Redwood also draws attention to authority that the Court’s function, in giving a direction of this kind, does not require it to reconsider all of the factors that the Special Purpose Receivers have considered but, as Brereton J observed in Re One.Tel Ltd (2014) 99 ACSR 247 at [36], the Court should:

“… be satisfied, before making a direction, that the decision is proper and reasonable; at least usually, this will necessitate consideration of the liquidator’s reasons, and the process by which the decision has been reached.”

22. Mr Redwood submits that the Court should approve the proposed settlement because, first, the conscientious view of the Special Purpose Receivers and counsel is that the terms of the settlement are in the interests of BSL and its debenture holders, for the reasons set out in the several affidavits and counsels’ opinions to which I have referred above. Mr Redwood submits that that view reflects a considered assessment of the merits and risks associated with the claims against the Underwriters, and the significant adverse cost orders to which the Special Purpose Receivers (and debenture holders, so far as the Special Purpose Receivers are funded from monies that would otherwise be distributed to them) would be subject if the claims against the Underwriters fail. It seems to me that that submission rightly recognises that the most significant aspect of the settlement is not the benefit obtained by the Special Purpose Receivers in respect of a modest payment, but the avoidance of a substantial liability for costs incurred by the Underwriters to date in preparation of the proceedings for hearing and the additional liability that would arise if the proceedings went to hearing against the Underwriters and were unsuccessful. Mr Redwood also submits that the Court need not decide whether the Special Purpose Receivers and the Underwriters on the one hand, or Insurance House on the other, are correct in the interpretation of the specific matters endorsement or the Policy, but only whether the judgment made by the Special Purpose Receivers and their legal advisers in respect of the settlement decision is a reasonable one, based on sufficient and relevant information, and is otherwise the product of a proper process.

23. Mr Redwood fairly recognised, in oral submissions, that the limited recovery against the substantial claim against the Underwriters would provoke a degree of scrutiny of the terms of the settlement (T11). That issue is mitigated, to a substantial extent, by the fact that the Special Purpose Receivers had brought two claims, which were binary alternatives, so that one must fail if the other succeeded, although (as I noted above) it is also possible that both could fail. There is therefore nothing particularly surprising about settling one of those claims, once an assessment is reached that it is likely to fail, for a minimal recovery. In oral submissions, Mr Redwood also noted that the most significant consideration in support of the settlement was BSL’s assessment, on advice from its legal representatives, that the better view is that the specific matters endorsement did not cover claims of the kind that had been brought by debenture holders against it and was not appropriately tailored to or fit for its business activities (T12). Mr Redwood accepted that, unless I was persuaded that that view had a proper, or at least a reasonable, basis, then I would not give the direction that is sought. In oral submissions, Mr Redwood also emphasised, as the key feature of counsels’ advice to the Special Purpose Receivers, their view that there is a very high degree of risk that the claims against the Underwriters would fail, and risk of an adverse costs order against BSL significantly exceeding the settlement sum offered by the Underwriters, and those matters are the essential justification for the settlement and for the directions sought (T14). Mr Redwood also placed weight on the seniority and strong reputation of the Senior Counsel who had provided the opinion on which the Underwriters relied (T15) although, for myself, I would prefer to give less weight to the experience and reputation of that counsel and greater weight to the apparent cogency of his reasoning.

24. It seems to me that the Court can be satisfied that the directions sought by the Special Purpose Receivers should be given. I am comfortably satisfied that the judgment made by the Special Purpose Receivers and their legal advisers in respect of the settlement decision is a reasonable one, based on sufficient and relevant information and is otherwise the product of a proper process. The Special Purpose Receivers’ reasons for the view they have formed seem to me properly to recognise relevant considerations, including their assessment of the likely result of the claims against the Underwriters and Insurance House, which has developed over time, and with the benefit of further advice from counsel and the evidence now led in the relevant proceedings; the exposure of BSL to a substantial adverse costs order, if it pursues proceedings against the Underwriters which the Special Purpose Receivers now believe are likely to fail; the fact that settlement of the proceedings against the Underwriters will give up any “hedge” that was obtained from pursing proceedings against two parties, one of which is likely to succeed if the other fails, where the value of that hedge must depend upon whether one of those alternatives is a realistic alternative; and proper strategic considerations, including the effect of a settlement on the conduct of the proceedings and BSL’s ability to establish its loss in those proceedings. The process adopted by the Special Purpose Receivers in reaching the decision to settle the claims against the Underwriters seems to me to have been a careful and thorough one, involving extended analyses by senior and junior counsel, and a careful assessment of the benefits and detriments of reaching the relevant decision. It is relevant, although not necessary to that conclusion, that it appears the committee of debenture holders has formed the same view in supporting the proposed settlement.

25. I do not consider that it is necessary, or desirable, for me to set out any detailed analysis of the matters that go to the construction of the relevant policy in determining this application, where that matter has been addressed by senior and junior counsel retained by the Special Purpose Receivers and will be in issue in the proceedings in the Supreme Court of Victoria in due course. It is important that I do not express any view which might cause any embarrassment for a Judge who determines the substantive proceedings. I particularly take that view where Insurance House, after briefly appearing in the matter, then withdrew and did not seek to be heard on the substantive determination of the matter, although the Special Purpose Receivers have identified correspondence and evidence which articulates Insurance House’s position as to the construction of the relevant policy. It is sufficient to say, for present purposes, that I can see no reason why the Special Purpose Receivers ought not to accept and rely upon the views expressed by their senior and junior counsel after a comprehensive and detailed analysis.

26. I also referred above to the evidence as to the likely costs of the relevant proceedings. In my judgment approving the Special Purpose Receivers’ claim for remuneration ([2018] NSWSC 228) at [11], I noted the possibility that the costs of the proceedings would be reduced if the proposed settlement with the Underwriters was approved, and also noted that the costs exposure of the Special Purpose Receivers was a substantial amount, which was not surprising in complex proceedings with a long history and anticipating a trial of between 12 and 16 days, or, I should add, likely longer if TrustCo was still party to the proceedings. I recognise that the costs of the proceedings would increase, and likely substantially increase, if the settlement with TrustCo is overturned by the Court of Appeal of the Supreme Court of Victoria. It seems to me that those matters emphasise the benefit to BSL, and its creditors, in avoiding a substantial risk, or probability, that they will be required to pay the Underwriters’ costs of the proceedings on a failure of the claim against them.

27. I also recognise that, as I observed in approving the Special Purpose Receivers’ settlement with Chaucer, the course which they adopted has some risks, but any course which is taken in complex litigation ordinarily has some risks, and I have observed above that the Special Purpose Receivers have sensibly and thoughtfully addressed the advantages of the course that is proposed to be taken against its disadvantages.

28. I note, for completeness, that the Special Purpose Receivers have identified, and their counsels’ opinion addresses, a possible application of the High Court’s reasoning in Unity Insurance Brokers Pty Ltd v Rocco Pezaano Pty Ltd (1998) 192 CLR 603. They refer to that decision as authority for the proposition that, in assessing damages against an insurance broker for negligence where there has been a prior settlement with an insurer relating to the same loss, the plaintiff’s damages are to be calculated as the difference between what it would have recovered had the broker arranged the insurance that he should have arranged, and the amount it recovered under the settlement, so long as the settlement was objectively reasonable. The Special Purpose Receivers anticipate that an issue to be determined, at the trial at the Supreme Court of Victoria following a settlement with the Underwriters, will be whether that settlement was a reasonable one, rather than the objective correctness of the Underwriters’ construction of the Policy which the Special Purpose Receivers have now accepted.

29. It appears that the Special Purpose Receivers will rely on the fact that they obtained advice from counsel and sought appropriate directions from this Court in order to support the proposition that it was reasonable for them to settle their claims against the Underwriters, having regard to the information then available to them and placed before the Court in this application. I have had regard to the fact that the direction made by this Court may become relevant in the proceedings in the Supreme Court of Victoria on that basis. It seems to me that this Court must nonetheless be prepared to give a direction to the Special Purpose Receivers, which it appointed, in respect of the significant decision whether to settle the claims against the Underwriters, where it would ordinarily be prepared to do so. Whether that direction is of any forensic or other advantage to the Special Purpose Receivers in the proceedings in the Supreme Court of Victoria will be a matter to be determined by that Court. If such an advantage exists, then it is a proper consequence of the exercise of this Court’s directions power in circumstances where such a direction is properly sought and made.

Orders

30. Accordingly, I make the following directions:

1.   The Special Purpose Receivers have the power to settle the claims made by Banksia Securities Ltd (in liq) (recs and mgrs apptd) (“BSL”) against The Channel Syndicate (“Channel”) and AmTrust Syndicates Ltd for and on behalf of the underwriting members of Syndicate 1206 at Lloyd’s of London (“AmTrust”) in Supreme Court of Victoria proceedings No S Cl 2012 7185 (Bolitho proceedings) on the terms set out in the terms of settlement found at Confidential Exhibit JRL-2 to the confidential affidavit of John Ross Lindholm sworn 15 February 2018 (Settlement Deed).

2.   Direct that the Special Purpose Receivers are justified in causing BSL to settle its claims against Channel and AmTrust in the Bolitho proceedings on the terms set out in the Settlement Deed.

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Decision last updated: 16 May 2018