Kantfield Pty Ltd v Lockwood

[2003] VSC 420

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 4614 of 2003

F5560

KANTFIELD PTY LTD (ACN 006 073 418)
trading as MARTOGG & COMPANY

Plaintiff

v

DAVID NEIL LOCKWOOD
and
ALLIANZ AUSTRALIA INSURANCE LIMITED (ACN 000 122 850)

Defendant

Third Party

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JUDGE:	BYRNE J
WHERE HELD:	Melbourne
DATE OF HEARING:	12 and 25 September 2003
DATE OF JUDGMENT:	7 November 2003
CASE MAY BE CITED AS:	Kantfield Pty Ltd v Lockwood
MEDIUM NEUTRAL CITATION:	[2003] VSC 420

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Insurance – professional indemnity insurance – insured appointed Receiver over assets of company – insured liable for debts of company incurred during receivership – whether insurer liable to indemnify receiver for these debts – whether “civil liability arising out of any claim” – whether claim for compensation or damages – whether trading debt.

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APPEARANCES:	Counsel	Solicitors
For the Defendant	Mr Garry Bigmore QC with Mr J.P. Gorton	Minter Ellison
For the Third Party	Mr S.W. Kaye QC with Mr J.B. Davis	Tress Cocks & Maddox

HIS HONOUR:

1. On 25 June 2001, the defendant, David Neil Lockwood, was appointed receiver and manager of the assets and undertaking of F & T Industries Pty Ltd (“F&T”).  This appointment was made by a mortgagee pursuant to the powers in that behalf contained in a registered debenture mortgage granted by F&T.  Under the terms of the mortgage, the receiver and manager was appointed to act as the agent of F&T.  The receiver determined that F&T should continue trading and this was done for some two years.  The business of F&T was the manufacture of wheelie bins.  These were made from a plastic resin which was provided by the plaintiff, Kantfield Pty Ltd trading as Martogg & Company (“Kantfield”).  Kantfield, as its trading name suggests, was part of the Martogg & Company Group of which another company was Engineering Compounds & Resins Pty Ltd trading as Encor (“Encor”). 

1. During the receivership, each of Kantfield and Encor sold and delivered on credit, resin to F&T for use in its manufacturing processes.  Upon the termination of the receivership at the end of 2002, the amounts said to be due and payable to these companies were $562,500.79 in respect of sales by Kantfield and $6,380.97 in respect of sales by Encor.  By deed of assignment dated 20 February 2003, Encor assigned its debt to Kantfield.[1]  F&T was placed in liquidation on 20 March 2003. 

   [1]The debt assigned included debts for interest and storage charges with which I am not presently concerned.

1. By writ filed on 24 February 2003, Kantfield sued Lockwood for the unpaid price of the resins supplied to F&T.  The receiver contended that the goods were purchased by him acting as agent for a disclosed principal, namely, F&T.  Nevertheless, having regard to s. 419 of the Corporations Act, he did not oppose the giving of final judgment against him for most of the claim.  Accordingly, on 28 May 2003, Kantfield obtained summary judgment against the receiver for $492,317.94 plus interest in the sum of $13,743.88, a total of $506,061.82.  Leave to defend was granted as to the balance.

1. The receiver duly gave notice to its professional indemnity insurer, the third party, Allianz Australia Insurance Ltd (“Allianz”), of the claim made by Kantfield against him for payment for the resin supplied.  Allianz resists this claim on the basis that it is not covered by the policy.  The hearing before me was of preliminary questions ordered to be tried pursuant to R. 47.04.  For the purpose of this hearing, the receiver and Allianz agreed a statement of eleven facts and provided me with an agreed book of documents.  No oral evidence was led. 

1. It was common ground before me that the receiver might personally be liable for the debt claimed by Kantfield either on the basis that he purchased the resin as a principal or otherwise assumed responsibility for it at common law, or on the basis that liability for the debt was imposed upon him by s. 419.  It was not suggested that Allianz was liable under its policy for debts on the first basis.  The receiver, then, had to characterise the Kantfield claim for which judgment had been obtained as a claim for which he was liable under s. 419(1).  This sub-section is in the following terms:

“419 (1)[Liability for debts incurred]  A receiver, or any other authorised person, who, whether as agent for the corporation concerned or not, enters into possession or assumes control of any property of a corporation for the purpose of enforcing any charge is, notwithstanding any agreement to the contrary, but without prejudice to the person’s rights against the corporation or any other person, liable for debts incurred by the person in the course of the receivership, possession or control for services rendered, goods purchased or property hired, leased, used or occupied.”

1. A minor difficulty, then, arose from the form of the judgment given against the receiver.  It simply provided that there be judgment in a particular sum.  The statement of claim, for which neither party before me was, of course, responsible, was not altogether unambiguous.  Two claims were pleaded in respect of the debt for which judgment was given.  First, in paragraphs 3 to 7 of the statement of claim it was said that the claim was for goods sold and delivered at the request of the receiver.  On its face this is a common law claim brought against him as a principal.  The alternative claim, made in paragraph 8 of the statement of claim, was one which asserted a liability under s. 419.  An examination of the affidavits filed in support and in opposition to the summary judgment application shows that the non-contested claim was for the amount of the judgment on the basis of a liability under s. 419.  And so the minor difficulty disappeared.

1. Nevertheless, the questions for preliminary trial reflect this uncertainty.  They are as follows:

“Questions

1.     Is the claim of the Plaintiff against the Defendant:

A.In paragraphs 3 to 7 of the Statement of Claim;

B.In paragraph 8 of the Statement of Claim:

(a)A written or verbal demand by a third party for compensation or damages; or

(b)A civil proceeding brought by a third party for the recovery of compensation or damages

pursuant to clause 45(a) of Professional Indemnity Insurance Policy numbered 740017013 PLP dated 7 May 2002 (‘the Policy’)?

2.     Is the claim of the Plaintiff against the Defendant:

A.       In paragraphs 3 to 7 of the Statement of Claim;

B.        In paragraph 8 of the Statement of Claim;

based upon, attributable to, or in consequence of a trading debt that the Defendant incurred within the meaning of clause 27 of the Policy?”

1. It was an agreed fact that the policy was on foot at the time the claim was made against the receiver.  He was a partner in the firm of accountants, Sims Lockwood, in whose name the policy was issued.  The insuring clause 1.1 provides:

“We agree to indemnify you against all civil liability arising from any claim that is first made against you during the period of cover in respect of your conduct of the professional business.[2]

[2]In the policy the highlighted words are said to be the subject of definition. 

1. The first question, then, is whether the liability which the receiver suffers by reason of the judgment in this proceeding was “civil liability arising from any claim”.  Claim is defined in cl. 45(a): 

“Claim means: 

(i)[3]    a written or verbal demand by a third party for compensation or damages;  or

(ii)a civil proceeding brought by a third party for compensation or damages.”

[3]In the policy this appears to be erroneously numbered as (iv).

1. It was argued on behalf of Allianz that the claim of Kantfield in the present case pursuant to s. 419 could not properly be characterised as a claim for compensation or damages.  It was put that it was a claim for a sum certain, a debt.  The contrary submission, put on behalf of the receiver, was that his liability under s. 419 is neither contractual nor tortious;  it arises under statute.  So much may be accepted.  The next step in the argument is more problematic.  It is as follows.

1. Absent the statutory provision, the supplier to a company in receivership of goods upon credit would normally look to the principal for payment where the receiver had ordered the goods on behalf of a disclosed principal.  In the usual case, this principal would be the company itself, so that the supplier would rank as an unsecured creditor.  In such a case, the supplier would incur a loss, for the company would normally be insolvent.  By s. 419, Parliament came to the rescue of such a supplier by creating a liability in a presumably solvent person, the receiver, by way of compensation for this loss.  It follows from this that the claim under s. 419 is a claim for this compensation and, accordingly, falls within the definition of claim in the policy. 

1. Such an ingenious argument must fail for any of a number of reasons.  I list those that come readily to mind.  First, s. 419 does not depend for its operation upon the fact that the mortgagor company is insolvent.  Where it operates, it creates a co-extensive right to payment from the receiver as well as from the principal for whom the receiver was acting as agent.  It may suit the supplier to seek payment from either.  In short, it does not operate only where there may otherwise be a loss for the supplier.  Second, the fact that Parliament may have had in mind that the section created a liability in a solvent person to compensate the supplier for the prospect of a loss, does not characterise the claim under the section as a claim for compensation.  Third, the expression in the definition of claim, “compensation or damages”, shows that what is there intended is a claim for pecuniary redress for some actionable wrong.  An obligation in contract or otherwise to pay a sum in a certain event is not properly to be seen as an obligation to compensate;  it is an obligation to perform the contract.  Finally, s. 419 imposes upon the receiver personal liability for certain debts.  A claim to enforce this liability for debt is not in normal parlance to be characterised as a claim for compensation or damages.[4] 

   [4]See Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64 at 68 per Young J.

1. It was further contended on behalf of the receiver that support for this submission is to be had from exclusion cl. 27 in the policy.  This provides:

“We are not liable to indemnify you in respect of a claim based upon, attributable to, or in consequence of any trading debt that you incur or any guarantee that you give for a debt. 

The argument was that, if a claim was to be construed as not including a claim for a debt, this exclusion clause would not be required. 

1. Again, this argument does not survive a close analysis.  The exclusion is not for a claim for a debt, it is a claim, as defined, which is “based upon, attributable to, or in consequence of” any trading debt which the insured may incur.  These conjunctive expressions are found in a number of the exclusions in Part 4 of the policy[5].  It appears from these that the drafting is intended to cast a wide causal relationship between the excluded risk and the loss.  Moreover, in this policy, the exclusion may operate notwithstanding that the cover itself specifically deals with the event specified, such as prior claims which are not within the insuring cl. 1.1 and fraud and dishonesty claims which are covered by cl. 6.1.  It may be that cl. 27 is intended to make abundantly clear that the cover does not extend, not only to claims for trading debts, but also to claims consequent upon trading debts.

   [5]See cl. 23 (prior claims);  cl. 24.1 (pollution and nuclear risk);  cl. 25 (fraud and dishonesty);  cl. 28.1 (associates and relatives);  cl. 28.3 (investment advice);  cl. 29 (obligations to employees) and cl. 32 (bodily injury or property damage). 

1. Finally, an argument was put on behalf of the receiver which laid emphasis upon the use in cl. 1.1 and in exclusion cl. 27 of the word “you”.  “You” is defined in cl. 45(o) to include, not only the firm insured, namely, Sims Lockwood, but also a person who at the time of the cover was a “principal, partner, director or employee” of the firm insured.  The receiver, Mr Lockwood, who is a partner in the firm, might be thought to fall within this definition so that he is covered by the word “you” where it appears in exclusion cl. 27 and elsewhere in the policy.  Counsel then pointed to the use in the policy of the expression “you individually” in extension cl. 13.  This expression extends the cover beyond the normal meaning of “you” in cl. 1.1 to Mr Lockwood as an individual, holding the office of receiver.  This means that he, in this capacity, is not covered by the simple word “you” notwithstanding its definition.  The argument then concludes that the exclusion cl. 27, which speaks of Allianz not indemnifying “you” in the circumstances specified, does not apply to Mr Lockwood in his capacity as receiver.  The drafter intending to achieve this objective should have used the expression “you individually”.  It follows, therefore, that his liability for s. 419 debts is not excluded by the operation of cl. 27. 

1. I am not at all attracted by this argument, which would have the remarkable consequence that a member of the firm would be insured by cl. 1 subject to the various exclusions, since he or she fell within the definition of “you” in cl. 45(o), but the same person acting as a receiver and therefore described as “you individually” for the purposes of extension cl. 13, would be insured but without the various exclusions.  An examination of the terminology used in the policy generally shows that it has been drafted, not in traditional legal language, but in a style which is intended to be read by the layperson.  In order to make the meaning clear in this way, the drafter has been content to highlight the extent of the cover and the exclusions with scant regard for consistency.  And so, expressions such as “you” and “you personally” and “you individually” have been adopted without regard to traditional legal analysis.  Reading the document in this way, it would be erroneous to place too much emphasis on particular phrases to erode the width given to the defined word “you”. 

1. It follows from this that the words “any trading debt that you incur” in cl. 27 of the policy refer to a trading debt to which any person falling within the definition of “you” in cl. 45(o) has incurred.  Nor is there any warrant for giving to the words “trading debt that you incur” a meaning narrower than “a trading debt for which you personally are liable” whether this liability arises under contract or statute. 

1. My conclusion from all of this is that the claim of the receiver against Allianz must fail.  His liability to Kantfield pursuant to s. 419 is not covered by the insuring cl. 1.1 in the policy.

1. I propose, therefore, to answer the questions submitted for preliminary trial as follows:

Question:      1A(a)(b)         No
   B(a)(b)        No
  2A                  Yes
   B                 Yes

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