Kyriackou v Ace Insurance
[2012] VSC 214
•18 May 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. S CI 6953 of 2009
| MICHAEL KYRIACKOU | Plaintiff |
| v | |
| ACE INSURANCE LIMITED (ACN 001 642 020) | Defendant |
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JUDGE: | Vickery J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 17 May 2012 - 18 May 2012 | |
DATE OF JUDGMENT: | 18 May 2012 | |
CASE MAY BE CITED AS: | Kyriackou v ACE Insurance | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 214 | |
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INSURANCE – Professional indemnity insurance policy – Claim for legal costs incurred – Whether within the insuring clause – ASIC proceeding in respect of which legal costs incurred –Damages or compensation not sought – Section s.1324(10) Corporations Act 2001 considered - No claim made by ASIC in respect of the insured in a ‘Professional Capacity’ – Construction of the phrase ‘Professional Capacity’ considered.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr. J. D. Wilson SC with Ms. C. L. Welsh | Pinto Law |
| For the Defendant | Mr. M. W. Thompson SC with Ms. C. M. Harris | Moray & Agnew |
TABLE OF CONTENTS
| Introduction…………………………………………………………………………………………..1 |
| The ASIC Proceeding……………………………………………………………………………….1 |
| Claim for Indemnification under the Policy…………………………………………………….2 |
| The Policy…………………………………………………………………………………………….3 |
| Was the ASIC Proceeding a Claim as Defined in the Policy…………………………………..4 |
| Orders………………………………………………………………………………………………..11 |
HIS HONOUR:
Introduction
The Plaintiff, Mr Kyriackou, sues for a declaration that the Defendant, ACE Insurance Limited, (“ACE”), is liable to indemnify him in respect of certain legal costs incurred by him under a policy of professional indemnity insurance provided by ACE.
Mr Kyriackou also seeks damages.
ACE has admitted that it issued an insurance policy providing professional indemnity insurance by policy No.01P1532747 (the “Policy”) to Mr Kyriackou and Others (the “Insured”), for the period of 6 September 2006 to 6 September 2007.
Pursuant to clause 1.1 of the Policy it was provided that ACE would indemnify the Insured
[A]gainst Loss arising and Claim in respect of civil liability for breach of a duty owed in a professional capacity first made against an Insured during the Period of Insurance.
The ASIC Proceeding
On 28 May 2007, during the period of insurance, the Australian Securities and Investment Commission (“ASIC”), commenced Federal Court proceeding number VID448207 against Mr Kyriackou and Others seeking interlocutory and final relief, including declarations and other orders (the “ASIC Proceeding”).[1]
[1] Australian Securities & Investments Commission v Kyriackou [2010] FCA 9
In the ASIC Proceeding, ASIC alleged that Mr Kyriackou and Others were involved in an unregistered managed investment scheme.
ASIC sought interlocutory and final relief against Mr Kyriackou.
Mr Kyriackou engaged solicitors and counsel to defend the ASIC Proceeding and in doing so incurred substantial costs, legal costs and expenses.
On 22 July 2008 ASIC sought leave to discontinue the ASIC Proceeding and on 20 January 2010 leave to discontinue was granted.
Accordingly there was no determination on the merits of the ASIC Proceeding.
Claim for Indemnification under the Policy
On 20 March 2009 Mr Kyriackou lodged a claim under the Policy for indemnification.
ACE refused to indemnify Mr Kyriackou under the Policy thus giving rise to these proceedings.
In broad terms the case of ACE for denying indemnity focused on two central elements: First, it denied that Mr Kyriackou's claim fell within the insuring clause 1.1 of the Policy as that clause was further defined in the Policy. Second, it alleged that Mr Kyriackou's claim was the subject of a number of exclusions under the Policy which ACE said applied.
As to the claim made by Mr Kyriackou, this was comprised in a letter dated 20 March 2009 together with a completed claim form of the same date. The letter relevantly stated:
As discussed earlier between myself and yourself earlier this morning I am attaching to my fax letter a completed form as to the best of my ability. I am also attaching a copy of ASIC's Originating Process outlining the allegations made against me and the Australvic Finance, Australvic Homes Loans and Australvic Construction of which I am a director. I am also attaching a copy of the Defendant's outline of facts and contentions at law. I am also attaching a copy of all the orders that were made in this proceeding. The matter is urgent.
Attached to that letter was the claim form provided by ACE in standard form which was completed by Mr Kyriackou. Relevantly he wrote in paragraph 3 in answer to the question: “When did the Insured perform the work out of which the claim arises or may arise” – “August 2005 to May 2007”. Then in paragraph 11 of the form, by way of providing information in support of the claim Mr Kyriackou wrote, "(1) A copy of notice of motion issued by ASIC dated 25 May 2007. (2) Copy of orders. (3) Copy of our facts and contentions at law."
The Policy
The Policy contained a number of definitional clauses which qualified the general insurance indemnification provision in paragraph 1.1 of the Policy.
The concept of ‘Loss’ was defined at clause 5.13 in the following terms:
Loss means the aggregate of all amounts payable by the Insured or ACE as civil compensation or civil damages in respect of a Claim, including judgements, settlements, legal costs and expenses awarded against an Insured and payments for Defence Costs.
For the purposes of automatic extension 6.5 Mortgage Industry Ombudsman Service Complaints only 'Loss' means the aggregate of all amounts payable by the Insured in respect of a claim, including determinations, legal costs, expenses awarded against an insured by the Mortgage Industry Ombudsman, and also includes defence costs.
‘Claim’ was then defined by clause 5.4 in the following terms:
Claim is a written demand for, or an assertion of rights to, civil compensation or civil damages arising out of the Firm’s Business or a written intimation of an intention to seek such compensation or damages.
‘Defence Costs’ were defined by clause 5.5 as follows:
Defence Costs are legal costs and disbursements and related expenses reasonably incurred in:
(a) defending any proceedings;
(b) conducting any proceedings for contribution or recovery; or
(c) investigating, avoiding, reducing or settling any Claim:
incurred by –
(i)the Insured with the written consent of ACE after reporting the Claim to Ace; or
(ii) ACE after it has assumed conduct of any such proceedings.”
‘The firm’ was defined in the schedule which accompanied the Policy to include Australvic Home Loans Pty Ltd, Mr Kyriackou and Brian Fisher.
The Policy contained exclusions which were relied upon by ACE, including clause 3.17 which, when read together with the lead in clause 3.1, provided:
ACE will not be liable under the Policy to make any payment for Loss directly or indirectly caused by, arising out of or in any way connected with …any breach by an Insured of a duty owed in the capacity of a director, secretary of officer of a body corporate.
Central to determining whether Mr Kyriackou was exposed to any loss as defined in the Policy by reason of the ASIC Proceeding is the concept of ‘Claim’ as defined. This is because it is only in respect of a claim as defined that the loss claimed by Mr Kyriackou, being his defence costs incurred in defending the ASIC Proceeding, may be the subject of indemnity.
‘Claim’ as defined means a claim by a third party to civil compensation or civil damages arising out of the Insured's business, which as I have mentioned by the schedule to the Policy included Mr Kyriackou. The central question which arises is whether the ASIC Proceeding was a ‘Claim’ as defined.
In approaching this issue I adopt the methodology applied by Pagone J in Major Engineering Pty Ltd v CGU Insurance Limited, where His Honour said in a like situation:
Whether CGU was obliged to pay Major’s legal costs in defending Timelink’s claim against Major depends upon the character of the claim which Timelink had made and, in particular whether, if successful, CGU would have been obliged to indemnify Major for any liability. The obligation to provide legal costs for a defence must be judged in this policy upon the assumption that the claim brought would succeed.[2]
[2] Major Engineering Pty Limited v CGU Insurance Limited [2009] VSC 504 at [9].
I will apply a like approach in determining this case and asses the obligation of ACE to indemnify Mr Kyriackou for the costs incurred by him in defending the ASIC Proceeding upon the assumption that the claims brought by it would succeed.
Was the ASIC Proceeding a Claim as Defined in the Policy
Here there was no payment of any damages by way of any settlement or other liability arising from the discontinuance of the ASIC Proceeding.
Whether the ASIC Proceeding was a claim as defined in the Policy. This in turn depends on whether it amounted to a claim against Mr Kyriackou for civil compensation or civil damages. I take the meaning of ‘Civil Compensation’ or ‘Civil Damages’ as intended by the Policy to mean a claim for pecuniary redress for some actionable wrong, as described by Byrne J in Kantfield Pty Ltd v Lockwood[3].
[3]Kantfield Pty Ltd v. Lockwood [2003] VSC 420 at [12].
The analysis must necessarily commence with a consideration of the Originating Process instituted by ASIC. It was dated 28 May 2007 and was supported by affidavits, principally that of Glen Cook, sworn 28 May 2007 (the “Cook Affidavit”).
In the ‘Details of the Application’ recited in the Originating Process the following appears:
This Application is made under s.459B, 461(1)(k), 464, 472(2), 473(1), 601EE, 1323 and 1324 of the Corporations Act 2001 (Commonwealth) (the “Act”). Section 12G(d) of the Australian Securities and Investment Commission Act 2001 (the “ASIC Act”) and s.21, 22 and 23 of the Federal Court of Australia Act 1976.
The Originating Process sought final relief by way of a declaration that the Defendants, who included Mr Kyriackou as the first named Defendant, by engaging in conduct as referred to in accompanying affidavits, contravened sections of the Corporations Act 2001 (Cth) (the “Corporations Act’). ASIC sought an order pursuant to s.1324(1) of the Corporations Act restraining the Defendants, including Mr Kyriackou, from further operating or promoting the scheme which was in contention.
It also sought the following orders:
(a) the winding up of the scheme;
(b) other nominated companies be wound up;
(c) a liquidator of each of the nominated companies be appointed; and
(d) the liquidator's costs and expenses be paid by the Defendants referred to in the schedule;
(e) pursuant to s.1324(1) of the Corporations Act that the Defendants themselves, their servants, agents or employees be restrained from promoting or advancing the scheme any further, and other injunctive relief; and
(f) the existing liquidator of the companies be removed and replaced by another, a provisional liquidator be appointed and specified powers be given to the provisional liquidator.
A number of orders sought in the Originating Process were directed to Mr Kyriackou personally, including that:
(a) he be restrained from transferring or otherwise dealing with moneys in a nominated account;
(b) he provide information to ASIC by way of an affidavit and provide other information;
(c) books of account and other such documents and records be delivered up;
(d) pursuant to s.1323(1)(k) of the Corporations Act, he be restrained from leaving Australia, and
(e) time for the service of the process be abridged.
The affidavits of Mr Cook and Ms Kohari, which were provided in support of the Originating Process, were well summarised by Goldberg J in his reasons for judgment in the ASIC Proceeding dated 20 January 2010. The summary provided by Goldberg J commences at paragraph 8 of his Honour’s reasons and is in the following terms, which I accept:
In support of its Originating Process and application for interim injunctions ASIC relied on two affidavits sworn 28 May 2007 by Mr Glen Joshua Cook, an ASIC investigator, and Ms Sonya Natalie Kohari, an ASIC financial investigator. In summary those affidavits set out the following evidence:
(A)Mr Cook explained the reasons why ASIC suspected that; (1) an unregistered managed investment scheme had been operated by Mr Kyriackou and the Australvic Group, (2) the companies had been trading whilst insolvent, (3) proper books and records had not been kept by the companies, and, (4) Mr Kyriackou had diverted scheme funds to his use.
(B)The Australvic Group had obtained loans from investors totalling approximately $6m and had defaulted on those loans.
(C)The records available to ASIC were inadequate to enable payments, receipts and bank accounts to be reconciled.
(D)The promotion and operation of the unregistered managed investment scheme in respect of which ASIC suspected Mr Kyriackou and the Australvic Group had been involved and the financing and redevelopment of residential construction projects, the scheme appeared to involve at least 29 investors who had contributed money or moneys worth in excess of $6m.
(E)Based on his investigations Mr Cook believed that Mr Kyriackou was the directing mind of the Australvic Group.
(F)The scheme was partially constituted by a deed of agreement between APM and various companies connected with Mr Rocco Antonio Colderone and various investors.
(G)The scheme was partially constituted by a series of promissory notes given or issued by APM to a number of investors.
(H)Approximately $2.9m had been loaned to APM in exchange for promissory notes issued by that company but Mr Kohari[sic] had been unable to reconcile all of the financial records of APM in relation to the amount of investor funds deposited into APM's bank account.[4]
[4]Australian Securities & Investments Commission v Kyriackou [2010] FCA 9 at [8].
Nowhere in the Originating Process is there a specific claim for civil compensation or civil damages.
Mr Kyriackou, through his counsel, placed reliance on the claim in the Originating Process made under s.1324 of the Corporations Act. Section 1324 provides power for a court to make orders by way of an injunction in the appropriate case. This is specifically provided for in s.1324(1) where the power is set out as follows:
1324 Injunctions
(1) Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:
(a) a contravention of this Act; or
(b) attempting to contravene this Act; or
(c) aiding, abetting, counselling or procuring a person to contravene this Act; or
(d) inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or
(e) being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or
(f) conspiring with others to contravene this Act;
the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first‑mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.[5]
[5]The Corporations Act 2001 (Cth) s. 1324.(1)
However Mr Kyriackou placed reliance on s.1324(10) of the Corporations Act which provides a power to award damages. Section 1324(10) is a statutory enactment which finds its origin in Lord Cairns' Act, being the Chancery Amendment Act of 1838. This enactment for the first time gave the court power to award damages in a chancery matter, that is, matters arising in equity. Section 3124(10) of the Corporations Act provides:
(10) Where the Court has power under this section to grant an injunction restraining a person from engaging in particular conduct, or requiring a person to do a particular act or thing, the Court may, either in addition to or in substitution for the grant of the injunction, order that person to pay damages to any other person.[6]
[6]The Corporations Act 2001 (Cth) s. 1324(10).
The power is also reflected in s.38 of the Supreme Court Act 1986 (Vic) (the “Supreme Court Act”). The effect of s.1324(10), as with s.38 of the Supreme Court Act, is to confer a discretion on the court to award damages where otherwise it has the power to grant an injunction. But it is quite clear from both s.1324(10), and its mirror provision in s.38 in the Supreme Court Act, that the power to award damages under those sections is only enlivened where there is power to grant an injunction. Reference is made to Giller v Procopets[7] where the Court of Appeal considered the issue. In the present case the Originating Process did not specifically seek orders by way of compensation or damages. Indeed, even s.1324(10) was not referred to.
[7]Giller v. Procopets [2008] VSCA 236 at [137], [232] and [407].
Further by way of final relief, although s.1324 of the Corporations Act was referred to generally in the introductory ‘Details of the Application’ recited in the Originating Process, the only subsection that was referred to specifically was s.1324(1), and that was in support the injunctions that were sought.
As counsel for ACE submitted, had compensation been sought under the Corporations Act then s.1325(1) would have been expected to have been pleaded, but it was not.
As to the supporting affidavits, likewise they did not allude to any claim for loss or damage or compensation.
The Cook Affidavit, at paragraph 14, was referred to. This was the high water mark of the submission, that the ASIC Proceeding involved a claim for compensation or damages. Paragraph 14 of the Cook Affidavit dealt with directors' and officers' duties. It provided as follows:
ASIC also suspects that the directors and officers of the Australvic Group may have engaged in multiple contraventions of the Act including; (A) Allowing the Australvic Group to trade whilst insolvent, and, (B) Breaching their duties to the Australvic Group by using their position to appropriate the group's assets for their own benefit and thereby cause detriment to the group.
By way of example, paragraphs 39 and 43 are then referred to in paragraph 14 of the Cook Affidavit. This was a reference to a detriment that was alleged to have been caused. However this was a claim made against Mr Kyriackou arising from his position as a director or officer of the relevant companies within the Australvic Group. In my opinion such a claim is comfortably excluded by clause 3.17 of the Policy, to which I have earlier referred.
I find therefore that Mr Kyriackou's claim must fail because no claim was made against him in the ASIC Proceeding for civil compensation or civil damages. There was no claim made against him by ASIC as defined in the Policy.
In my opinion, too, Mr Kyriackou's claim must fail on a second ground, and that is that clause 1.1 confines the indemnity to be provided under the Policy, which is a professional indemnity policy, to that arising from a breach of duty owed in a “Professional Capacity”. In my opinion "Professional Capacity" as it is used in clause 1.1 of the Policy is intended to have a meaning which takes it beyond the concept of mere pursuit of a calling or other employment.
Every case of this kind must be determined and resolved by an examination of the totality of the circumstances and each case must be examined separately.
However, I am not satisfied on the evidence that any claim was made against Mr Kyriackou in respect of civil liability for breach of a duty owed in a professional capacity in the ASIC Proceeding.
In Toomey v Scolaro's Concrete Constructions, Eames J cited with approval the observations of Kirby Pin GIO General Limited v Newcastle Council[8] in the following passage:
Kirby P (with whom Sheller and Powell JJA agreed as to this) held that services provided by Council employees in examining building proposals and granting approval did constitute "professional advice or service" by the insured Council so as to be indemnified under a professional liability policy clause. Kirby P focussed on "the relevant activities" of the council employees which were said to be negligent and to have caused the liability to arise. His Honour held that the relevant question was whether those activities were properly characterised as professional. In reaching that decision it was relevant, but not determinative, whether the officers had professional qualifications, such as engineering degrees. [9]
[8]GIO General t/as GIO Australia v Newcastle City Council (1996) 38 NSWLR 558 at 568 - 569.
[9]Toomey v Scolaro's Concrete Constructions and Ors (No 5) [2002] VSC 48 at [60].
His Honour held in Toomey that the term 'Professional' in the context of professional indemnity insurance was today very broad and that in the context of a policy written for a local government authority the term involved no more than advice and services of a skilled character according to an established discipline. That is generally regarded as a wide description of “Professional Capacity”, but nevertheless, I do adopt the observations of Kirby P as recited by Eames J in Toomey, I take the view that even on the broad view of professional capacity the evidence does not demonstrate in this case that Mr Kyriackou was acting at relevant times in such a capacity.
It was put on his behalf that Mr Kyriackou acted as a broker, and in that sense acted in a professional capacity, however, I am not satisfied that was in fact the case on the evidence advanced by ASIC in support of its Originating Process.
The Cook Affidavit in support of the Originating Process supports the position that the basis of the ASIC Proceeding was the seeking of orders against Mr Kyriackou and others, not for breach of a duty owed in a professional capacity, but rather as in his capacity as an entrepreneur in the management of the Australvic Group of Companies and the scheme managed or promoted. It was in this capacity that ASIC sought orders against Mr Kyriackou. It involved activity in a commercial sphere, not in a professional one. In my view this is the true characterisation of Mr Kyriackou's activities which gave rise to the ASIC Proceeding. I refer in this regard by way of example to the findings made in Solicitors' Liability Committee v. Gray & Others[10].
[10]Solicitors' Liability Committee v. Gray & Others 147 A.L.R. 154 at 167.
It follows that there was no claim made against him by ASIC in respect of any civil liability for breach of a duty owed in a professional capacity and for that reason, too, Mr Kyriackou's claim against ACE does not fall within clause 1.1 of the Policy.
Mr Kyriackou's claim against ACE has not succeeded and his proceeding must be dismissed.
Orders
I make the following orders:
1 The proceeding be dismissed.
2 The Plaintiff is ordered to pay the Defendant's costs of the proceeding up to and including 28 June 2011 on a party and party basis, and from 29 June 2011 on a solicitor/client basis to be taxed in default of agreement.
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