Opes Prime Stockbroking Ltd (in liq) (Scheme Administrators Appointed) v Stevens

[2014] NSWSC 659

Supreme Court

New South Wales

Medium Neutral Citation:

Opes Prime Stockbroking Ltd (In Liq) (Scheme Administrators Appointed) v Stevens [2014] NSWSC 659

Hearing dates:

16 May 2014

Decision date:

27 May 2014

Before:

Ball J

Decision:

(1)The plaintiffs' motion filed on 27 March 2014 be dismissed.

(2)Pursuant to s 5(2) of the Jurisdiction of Courts (Crossvesting) Act 1987 (NSW) this proceeding be transferred to the Supreme Court of Victoria.

(3)The plaintiffs pay the defendants' and QBE's costs of both motions.

Catchwords:

PROCEDURE - civil - parties - joinder - whether leave should be granted to join insurer under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) - discretion of court - whether satisfaction of 3 conditions in Bede Polding College v Limit (No 3) Limited [2008] NSWSC 887 sufficient for grant of leave
PROCEDURE - civil - jurisdiction - transfer of proceedings - whether in the interests of justice that proceedings be determined by Supreme Court of Victoria - whether procedural or substantive advantages to one party relevant to the interests of justice in application to transfer

Legislation Cited:

Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW)
Law Reform (Miscellaneous Provisions) Act 1946 (NSW)

Cases Cited:

Bailey v NSW Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399
Bede Polding College v Limit (No 3) Ltd [2008] NSWSC 887
BHP Billiton Ltd v Schultz [2004] HCA 61; (2004) 221 CLR 400
Chubb Insurance Company of Australia Ltd v Moore [2013] NSWCA 212; (2013) 302 ALR 101
Eastern Creek Holdings Pty Limited v Axis Speciality Europe Limited [2010] NSWSC 840
Gorczynski v W & FT Osmo Pty Ltd [2009] NSWSC 693; (2009) 258 ALR 189
Keeble v Murray [2014] NSWSC 151
Oswald v Bailey (1987) 11 NSWLR 715
Tzaidas v Child [2004] NSWCA 252; (2004) 61 NSWLR 18
TPFL Limited (in liq) v SB Group Property Valuers and Consultants Pty Ltd (in liq) 2012] NSWSC 853

Category:

Principal judgment

Parties:

Opes Prime Stockbroking Ltd (In Liq) (Scheme Administrators Appointed) (ACN 086 294 028) (First Plaintiff)
Opes Prime Group Limited (In Liq) (Scheme Administrators Appointed) (ACN 120 372 223) (Second Plaintiff)
Alun Peter Stevens (First Defendant)
Peter Joseph Gillooly (Second Defendant)

Representation:

Counsel:
J A Redwood with Ms N Zerial (Plaintiffs)
PE Anastassiou QC with P Silver (First Defendant)
Ms A Migliorino, Solicitor (Second Defendant)
G McArthur QC (QBE Insurance (Australia) Pty Ltd ACN 003 191 035)
Solicitors:
King & Wood Mallesons (Plaintiffs)
Norton Gledhill (First Defendant)
K&L Gates LLP (Second Defendant)
Wotton+Kearney (QBE Insurance (Australia) Pty Ltd ACN 003 191 035)

File Number(s):

2013/323187

Publication restriction:

Nil

Judgment

Introduction

1. Before the court are 2 notices of motion. The first, filed on 19 March 2014 by the first defendant, Mr Stevens, seeks an order under s 5(2) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) (the Cross-vesting Act) transferring the proceeding to the Supreme Court of Victoria. The second, filed on 27 March 2014 by the plaintiffs, Opes Prime Stockbroking Ltd (In Liq) (Scheme Administrators Appointed) (OPSL) and Opes Prime Group Limited (In Liq) (Scheme Administrators Appointed) (OPGL) (together, Opes Prime), seeks leave under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Reform Act) to enforce the charge created by s 6(1) of that Act against QBE, which provided directors and officers liability cover to Mr Stevens and the second defendant, Mr Gillooly, and to join QBE as a third defendant to the proceeding for that purpose.

Background

1. The proceeding arises out of the collapse of the Opes Prime group. Mr Stevens and Mr Gillooly were 2 of 5 directors of OPSL. It is alleged that, in breach of their duties as directors, they failed to ensure that OPSL had in place adequate risk management policies, practices and procedures and that, as a result of those breaches, OPSL suffered loss in connection with a securities lending business engaged in by OPSL. The losses are said to have arisen because the staff engaged in the securities lending business lent cash and collateral to certain clients well in excess of predetermined loan to value ratios. It is alleged that those losses could have been avoided if OPSL had had in place an adequate risk management system. In all, OPSL is alleged to have lost approximately $200 million as a result of Mr Stevens and Mr Gillooly's alleged breaches of duty.

1. Mr Stevens and Mr Gillooly were covered under a directors and officers liability insurance policy issued by QBE. The limit of liability under that policy is $10 million any one claim inclusive of defence costs. QBE has, subject to a number of reservations, admitted liability to indemnify Mr Stevens and Mr Gillooly and is currently paying their legal costs. It is obvious, however, that any amount recoverable from QBE will fall far short of the amount for which Mr Stevens and Mr Gillooly are alleged to be liable. The evidence is that Mr Stevens and Mr Gillooly themselves have significant assets, but again, the amount of the claim against them is far greater than the value of those assets.

1. Mr Redwood, who appeared for Opes Prime, candidly and properly conceded that the proceeding had been brought in New South Wales so that Opes Prime could obtain the benefits of s 6 of the Reform Act. As a result of the decision of the Court of Appeal in Chubb Insurance Company of Australia Ltd v Moore [2013] NSWCA 212; (2013) 302 ALR 101, that section only applies to claims brought in a court in New South Wales: at [204]. Mr Redwood also conceded that, but for those benefits, it would be appropriate to transfer the proceeding to the Supreme Court of Victoria. Mr Redwood submitted that there were some connecting factors with New South Wales. In particular, OPSL maintained an office in Sydney and conducted substantial business operations from that office; one of the directors of Opes Prime, Mr Smith, resided in New South Wales; and more than 24 per cent of OPSL's 1500 or so clients resided in New South Wales, as did a substantial proportion of OPSL's creditor clients.

1. Nonetheless, leaving aside the benefits of s 6 of the Reform Act, it is obvious that the proceeding has a far greater connection with Victoria. Victoria is Opes Prime's principal place of business. Mr Stevens and Mr Gillooly are residents of Victoria. That is the place where the alleged wrongs occurred. All relevant witnesses are located in Victoria and the legal advisers of each of the parties are based in Victoria.

1. It is also submitted on behalf of Mr Stevens that there is a related proceeding in the Supreme Court of Victoria and it may be appropriate for the two proceedings to be case managed and heard together. The related proceeding concerns a claim brought by OPSL against the guarantors of one of OPSL's clients, Niako Investments Pty Ltd. In this proceeding Opes Prime claims $6 million in damages in respect of amounts owed by that client. In the proceeding commenced in the Supreme Court of Victoria, Opes Prime claims $41 million against the guarantors in respect of amounts owed by that client. It is said that the $6 million claimed in this proceeding forms part of the $41 million claimed from the guarantors in the Victorian proceeding.

1. Two issues, therefore, are raised by the 2 motions. The first is whether, leaving aside the crossvesting application, an order ought to be made under s 6 of the Reform Act. The second issue is what regard, if any, should the court have to Opes Prime's application under s 6 of the Reform Act in determining the application under the Cross-vesting Act.

Leave under s 6 of the Reform Act

1. By cl 1.1 of a Financial Institutions Directors & Officers Liability Insurance Policy issued by QBE to OPGL (the Policy), QBE agreed to pay "on behalf of each Director or Officer all Loss for which the Director or Officer is not indemnified by the Financial Institution, arising from a Claim by reason of any Wrongful Act first made against such Director or Officer, individually or collectively, during the Indemnity Period and notified to QBE during the Reporting Period". The "Indemnity Period" is the period from 4 July 2007 to 31 October 2008. The meaning of "Loss", "Claim" and "Wrongful Act" are not significant for present purposes.

1. Clause 4.7 of the Policy provides that QBE shall not be liable under the Policy to make any payment for or in connection with any Loss or any part thereof:

[A]rising directly or indirectly from or in consequence of:

(A) any dishonest, fraudulent, criminal, or malicious conduct of any Director or Officer;

(B) any conduct of any Director or Officer committed with a reckless disregard for the consequences thereof;

(C) any wilful breach of any statute, contract or duty by any Director or Officer.

Provided always that this exclusion shall only apply if there is an admission, judgment or other final adjudication adverse to a Director or Officer, which establishes that the excluded conduct did, in fact, occur.

1. QBE has agreed to pay on behalf of Mr Stevens and Mr Gillooly all the Loss (as that term is defined in the Policy) arising from the allegations made against them in this proceeding in accordance with cl 1.1 of the Policy subject to:

(a) the terms of the Policy (including section 4.7 in the event any admission or final adjudication is made which attracts the operation of that exclusion clause); and

(b) facts currently known to QBE (with QBE reserving its rights to revisit its indemnity decision if further information comes to light relevant to the Directors' entitlement to cover under the Policy).

1. It appears from the evidence that there are no other current claims on the Policy, there are no other proceedings in respect of which a competing charge may arise and take precedence over Opes Prime's claim on the Policy and there are no other claims which have eroded the limit of indemnity available under the Policy. Having regard to the time at which Opes Prime collapsed, the likelihood is that any further claims would be statute barred.

1. Section 6(1) of the Reform Act provides:

If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.

1. Section 6(4) of the Act provides:

Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:

Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken.

1. Opes Prime submits that leave should be granted under s 6(4) if it establishes that:

(a)   It has an arguable case against Mr Stevens and Mr Gillooly;

(b)   It has an arguable case that the QBE Policy responds to the claims made against Mr Stevens and Mr Gillooly;

(c)   There is a real possibility that, if judgment is obtained, Mr Stevens and Mr Gillooly would not be able to meet it.

1. Opes Prime submits that each of those conditions is satisfied in this case. So much is conceded by QBE in relation to the second and third conditions. Mr McArthur QC, who appeared for QBE, was not prepared to concede that Opes Prime had an arguable case against Mr Stevens and Mr Gillooly. However, he made no submission to the effect that there was no arguable case and Opes Prime filed extensive evidence which, in my opinion, establishes that there is an arguable case against each of them.

1. The real question is whether satisfaction of the 3 conditions is sufficient for the grant of leave. In submitting that it was, Opes Prime relies on the decision of Grove J in Bede Polding College v Limit (No 3) Limited [2008] NSWSC 887 at [6]. There, Grove J said:

I approach the question of leave on the basis that the plaintiff must show three things. First, that there is an arguable case against WDS; second, that there is an arguable case that the policy responds and, third, that there is a real possibility that, if judgment is obtained, WDS would not be able to meet it: Oswald v Bailey (1987) 11 NSWLR 715; Zhang v Minox Securities [2008] NSWSC 689.

That statement has been cited with approval in a number of subsequent cases: see, for example, Eastern Creek Holdings Pty Limited v Axis Speciality Europe Limited [2010] NSWSC 840 at [20] per Hammerschlag J; Keeble v Murray [2014] NSWSC 151 at [33] per Harrison AsJ; TPFL Limited (in liq) v SB Group Property Valuers and Consultants Pty Ltd (in liq) [2012] NSWSC 853 at [53] per Bellew J.

1. However, the decision in Bede Polding College and cases that have followed it should not be read as holding that satisfaction of the 3 conditions gives rise to an entitlement to join the insurer. Section 6(4) confers a discretion: Oswald v Bailey (1987) 11 NSWLR 715 at 724-5 per Kirby P; Tzaidas v Child [2004] NSWCA 252; (2004) 61 NSWLR 18 at [22]-[23] per Giles JA (with whom Campbell AJA agreed); at [116] per Santow JA. See also Bailey v NSW Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399 at 448 per McHugh and Gummow JJ. There are no restrictions imposed by the legislation on the exercise of that discretion except of, course, the requirement that leave not be granted where the Court is satisfied that the insurer is entitled to disclaim liability. However, the discretion must be exercised for the purpose for which it is has been granted. That purpose has been put in various ways, but it is generally accepted that the purpose of the discretion is to ensure that insurers are not exposed unnecessarily to claims against them: see Oswald v Bailey (1987) 11 NSWLR 715 at 725 per Kirby P; Tzaidas v Child [2004] NSWCA 252; (2004) 61 NSWLR 18 at [17] per Giles JA.

1. Generally, where leave is sought, that is because there are difficulties in pursuing the claim against the insured or the insurer has denied liability. In those cases, the question whether the insurer should be exposed to proceedings against it will usually be answered by considering whether the 3 matters identified by Grove J are satisfied. For example, in Bede Polding College itself, the defendant had entered into administration, the business no longer traded and the former principals of the business were deceased. In those circumstances, it was not unreasonable to expose the insurer to proceedings against it if the plaintiff had an arguable claim and it was arguable that the insurer was liable to indemnify the defendants in respect of it.

1. The question, however, in each case must be whether it is reasonable for the insurer to be joined, and that question will not always be answered by the 3 conditions identified by Grove J. As Simpson J said in Gorczynski v W & FT Osmo Pty Ltd [2009] NSWSC 693; (2009) 258 ALR 189 at [60]:

...the grant of leave under s 6(4) nevertheless remains discretionary, and may be refused for other proper reasons. Ordinarily, for example, leave would not be granted where it could clearly be seen that a claim was, by reason of limitation of actions legislation, statute-barred. It may not be granted where the insurer was able to demonstrate irreparable prejudice.

1. In my opinion, there is no utility in joining QBE to the proceeding. It has admitted liability to indemnify Mr Stevens and Mr Gillooly in respect of the claim brought by Opes Prime. That admission is qualified, but not in a way that suggests that, for the purposes of determining its liability under the Policy, QBE will not be bound by the outcome of the proceeding. There is a real possibility that, if judgment is obtained, Mr Stevens and Mr Gillooly will not be able to meet it. But that possibility is not affected if QBE is joined. There is no suggestion that, if Opes Prime is not permitted to enforce its charge, some other claimant will obtain priority in respect of the moneys payable by QBE. The evidence suggests that there is no other such claimant. At most, all that could be said is that the advantage of giving leave to Opes Prime to proceed against QBE now is that it may protect Opes Prime's position in the event circumstances change. However, in my opinion, that does not provide an adequate ground to give that leave now.

The Cross-vesting Act

1. Section 5(2) of the Crossvesting Act provides:

Where:

(a) a proceeding (in this subsection referred to as the "relevant proceeding") is pending in the Supreme Court (in this subsection referred to as the "first court"), and

(b) it appears to the first court that:

(i) the relevant proceeding arises out of, or is related to, another proceeding pending in the Supreme Court of another State or of a Territory and it is more appropriate that the relevant proceeding be determined by that other Supreme Court,

(ii) having regard to:

(A) whether, in the opinion of the first court, apart from this Act and any law of the Commonwealth or another State relating to cross-vesting of jurisdiction, the relevant proceeding or a substantial part of the relevant proceeding would have been incapable of being instituted in the first court and capable of being instituted in the Supreme Court of another State or Territory,

(B) the extent to which, in the opinion of the first court, the matters for determination in the relevant proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the State or Territory referred to in sub-subparagraph (A) and not within the jurisdiction of the first court apart from this Act and any law of the Commonwealth or another State relating to cross-vesting of jurisdiction, and

it is more appropriate that the relevant proceeding be determined by that other Supreme Court, or

(iii) it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of another State or of a Territory,

the first court shall transfer the relevant proceeding to that other Supreme Court.

1. Section 5(2) does not confer a discretion. Where, relevantly, "it appears" to the court that "it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of another State or of a Territory", then the court must transfer the relevant proceeding to the other Supreme Court: see BHP Billiton Ltd v Schultz [2004] HCA 61; (2004) 221 CLR 400 at [14] per Gleeson CJ, McHugh and Heydon JJ, [62][63] per Gummow J. The "interests of justice" are wider than the interests of the parties, but they include matters that are relevant to the parties, such as the efficient and cost effective management of the proceedings: see Schultz at [13], [15] per Gleeson CJ, McHugh and Heydon JJ. However, the fact that the plaintiff would enjoy some procedural or substantive advantage in the first court and not the second one is not a relevant consideration to be taken into account in the "interests of justice": Schultz [16], [26] per Gleeson CJ, McHugh and Heydon JJ, [167]-[169] per Kirby J.

1. In the present case, the question is whether the court can take into account the fact that Opes Prime may have a claim under s 6 of the Reform Act in determining what the interests of justice are. I have already concluded that that claim must fail at this stage of the proceeding. However, Opes Prime submitted that circumstances may change and if, for example, QBE subsequently denies liability, its rights under s 6 remain relevant. It submits that it has a charge by virtue of s 6 of the Reform Act. The only way that it can enforce that charge is if the proceeding remains in New South Wales. This is not a case where the plaintiff is seeking to take advantage of some substantive or procedural right attaching to the proceedings, but rather a case where it is seeking to retain an independent right that would or may be lost if the proceeding is transferred. That provides a strong reason why, in the interests of justice, the proceeding should remain in this court.

1. In my opinion, there are 2 difficulties with Opes Prime's submission.

1. First, the interests of justice are not concerned with the procedural or substantive advantages that one party may enjoy in one jurisdiction rather than another, whether those advantages operate to the detriment of the other party or not. Rather, the interests of justice are concerned with the question of which jurisdiction is better placed to determine a dispute between the parties from a practical point of view. The applicable law may be relevant because it may be expected that the court of the jurisdiction whose laws apply will be more familiar with those laws. But the selection of the jurisdiction should not be made in order to achieve the application of any particular law. From the point of view of where the interests of justice lie, the laws of one jurisdiction are as good as those of another. In the present case, the New South Wales legislature has passed s 6 of the Reform Act believing, no doubt, that it provides an appropriate mechanism for enforcing judgments that are obtained in courts in New South Wales. There is no equivalent provision in Victoria. In determining whether the proceeding should be cross-vested, it is not for the court to determine which approach is better or more desirable, which is effectively what Opes Prime would have the court do.

1. Second, even if regard can be had to the advantages that s 6 offers Opes Prime in this case, in my opinion, those advantages are outweighed by the disadvantages of the proceeding remaining in this court. Having regard to the location of the parties, their legal advisers and the potential witnesses, it will place considerable additional burdens in terms of costs and convenience on the parties if the proceeding remains in New South Wales. QBE has admitted liability and there is no reason to think that it will withdraw that admission. Opes Prime would have the defendants bear substantial additional costs in the proceeding simply to guard against the possibility that, some time in the future, QBE may seek to deny liability and Mr Stevens and Mr Gillooly would not at that time be in a position or be prepared to pursue a claim against it in that event, even though the evidence suggests that they have significant assets themselves to fund such a claim. In my opinion, it would not be in the interests of justice to put Mr Stevens and Mr Gillooly to the costs and inconvenience of a proceeding in New South Wales so that Opes Prime can retain that benefit.

Orders

1. The orders of the court are:

(1)   The plaintiffs' motion filed on 27 March 2014 be dismissed.

(2) Pursuant to s 5(2) of the Jurisdiction of Courts (Crossvesting) Act 1987 (NSW), this proceeding be transferred to the Supreme Court of Victoria.

(3)   The plaintiffs pay the defendants' and QBE's costs of both motions.

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Decision last updated: 28 May 2014