Power v. Markel Capital Ltd

[2007] QCA 284

SUPREME COURT OF QUEENSLAND

CITATION:

Power v Markel Capital Ltd [2007] QCA 284

PARTIES:

DAVID LESLIE POWER
(Appellant/Applicant)
v
MARKEL CAPITAL LIMITED AS DULY AUTHORISED REPRESENTATIVE OF MARKEL SYNDICATE 3000 AT LLOYDS
(Respondent)

FILE NO/S:

Appeal No 10671 of 2006
SC No 6482 of 2006

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal   

ORIGINATING COURT:

Supreme Court at Queensland

DELIVERED ON:

31 August 2007

DELIVERED AT:

Brisbane

HEARING DATE:

11 May 2007

JUDGES:

Jerrard JA, Fryberg and Philippides JJ
Separate reasons for judgment of each member of the Court
Jerrard JA and Fryberg J concurring as to the orders made
Philippides J dissenting

ORDER:

1.   Appeal allowed

2.   Set aside the orders of the trial judge made herein on 13 November 2006

3.   In lieu thereof:

a. Declare that upon the true construction of policy No. B0621PGOL00405 underwritten by Markel Syndicate 3000 at Lloyds, the applicant is entitled to payment by the underwriters on an ongoing basis of all of his reasonable legal fees, costs and expenses incurred in being legally represented with respect to proceedings against him instituted by the complaint of Detective Inspector John Edward Lewis sworn on 11 April 2006;

b. Order that the respondent pay the applicant’s costs of the application to be assessed

4.  Order that the respondent pay the appellant’s costs of the appeal to be assessed

CATCHWORDS:

Insurance – Other indemnity insurance – Advancement of defence costs – Prosecution by Crime and Misconduct Commission – Proviso that prosecution “relates to matters which may give rise to a Claim” – Causal or sequential – Act “in the course of duties” of insured – Duties of city councillor

Kavanagh v The Commonwealth (1960) 103 CLR 547, cited
Power v ACE Insurance Ltd[2005] QSC 327, referred to
Power v Markel Capital Ltd[2006] QSC 341, referred to
R v Rogerson (1991-92) 174 CLR 268, cited
Willkie v Gordian Run-off Ltd (2005) 221 CLR 522, referred to

Crime and Misconduct Act 2001 (Qld) s218
Criminal Code 1899 (Qld) s140
Justices Act 1886 (Qld) s42
Local Government Act 1993 (Qld) s229

COUNSEL:

Appellant: P Dunning SC with P McCafferty
Respondent: R Ashton

SOLICITORS:

Appellant: Nyst Lawyers
Respondent: Ebsworth & Ebsworth

1. JERRARD JA: In this appeal I have read the reasons for judgment and orders proposed by each of Fryberg J and Philippides J, and respectfully agree with the reasons and orders suggested by Fryberg J.  On the two critical matters the subject of argument on the appeal, I agree with both Philip McMurdo J at first instance and Fryberg J in this appeal, for the reasons each gives, that Mr Power’s statement or statements, in a document provided by him to the CMC, was provided in the course of his duties as a Councillor.  It was accordingly a “Wrongful Act”, as defined in the policy. 

1. On the second matter, I agree with Fryberg J that the summary hearing or “Investigation” related to matters which “may give rise to a Claim”, that being the language of the first part of the proviso in extension (b).  I agree with Fryberg J in his construction of “Claim” as defined in the policy, and I consider that proceedings on indictment against an Insured would satisfy the definition of “Claim”.  If the letter dated 30 May 2006 was a claim for an indemnity, as is now accepted, it was a claim made when proceedings in the Magistrates Court were on foot against Mr Power, based on allegedly misleading statements made by him in documents he provided to the Crime and Misconduct Commission.  Provision of misleading documents – if proven – would establish the simple offence[1] with which he was charged, a breach of s 218 of the Crime and Misconduct Act 2001 (Qld).

   [1]Section 3 of the Criminal Code defines criminal offences as indictable offences (crimes and misdemeanours) or simple offences.

1. But the provision of misleading information to an investigative body is also capable of supporting a charge of, for example, the indictable offence of attempting to pervert the course of justice, an offence against s 140 of the Criminal Code.  In R v Rogerson (1991-92) 174 CLR 268 Mason CJ agreed with the joint judgment of Brennan and Toohey JJ, that an act which has a tendency to deflect the police from prosecuting a criminal offence, or instituting disciplinary proceedings before a judicial tribunal, or from adducing evidence of the true facts, in an act which tends to pervert the course of justice and, if done with intent to achieve that result, amounts to an attempt to pervert the course of justice.[2]  The possibility, before the summary hearing was conducted in the Magistrates Court – in which the charges then laid of simple offences were dismissed – that there might be a prosecution instead for an indictable offence, was enough to satisfy the requirement in the first proviso that the “Investigation” related to matters which “may give rise to a Claim”.  At the time Mr Power sought his indemnity, it was possible that proceedings on indictment instead might be taken, which derived from the same matters (the alleged false statements), which were the subject of the intended summary hearing, which was later held.

   [2]At CLR 278 and 284.

1. I accordingly agree that the commonsense argument of counsel for the respondent must yield to the specific terms of this policy, which Mr Power satisfied.

1. FRYBERG J: This appeal is about the construction of an insurance policy at Lloyds.  The facts were uncontroversial; most were recorded by the trial judge:

“[1]The applicant is a councillor of the Gold Coast City Council.  The respondent is the representative of Markel Syndicate 3000 at Lloyd’s which has underwritten a policy which insures the Council, its councillors, employees and certain others.  The applicant seeks a declaration that he is entitled to be indemnified for his legal expenses in successfully defending certain criminal proceedings.

[2]In July through December 2005, the Crime and Misconduct Commission conducted an inquiry into suspected official misconduct by councillors of the Gold Coast City Council concerning the election of councillors in March 2004 and other matters.  The applicant was one of those whose conduct was being investigated.  He was required by the CMC to give a written statement to the inquiry and to produce documents and he gave oral evidence.

[3]

In April 2006 the applicant was charged with breaches of

s 218(1) of the Crime and Misconduct Act 2001 (Qld) in that he gave the CMC a document containing information which he knew to be false or misleading in material particulars. The applicant engaged his own solicitors and counsel to defend the prosecution.”

1. The solicitors engaged by Mr Power were Nyst Lawyers.  On 30 May 2006 they wrote to the council's insurance broker:

“We take the view that the circumstances faced by our client trigger the operation of the directors and officers liability section of the Policy.  In these circumstances our client requests:

a.confirmation of indemnity under the policy for his ongoing legal fees, costs and expenses in meeting the CMC charge;[3] and

b.written consent for him to incur legal fees, costs and expenses in meeting the prosecution.

At this juncture, it is anticipated that now Mr Nyst will instruct Mr Temby QC in respect of the hearing of the CMC charge which has been set down for hearing in the Queensland Magistrates Court (in Brisbane) to commence on 21 August 2006 and anticipated to run for three days.”

The present respondent (“the syndicate”) now accepts that letter as a claim for indemnity[4] and no point is taken in relation to the absence of written consent for fees to be incurred.

[3]Mr Power recovered the costs which he incurred in relation to his participation in the CMC inquiry from another insurer: Power v ACE Insurance Ltd [2005] QSC 327.

[4]AR 81.

1. Not having received any response on behalf of the syndicate, and faced with mounting costs, Mr Power commenced the present proceedings by originating application filed on 4 August 2006.  In that application he sought:

“1.A declaration that upon the true construction of a Policy of Insurance issued by Lloyds Australia Limited (being policy number B0621PGOL00405), the Applicant is entitled to payment by the Respondent on an ongoing basis of all of the Applicant’s reasonable legal fees, costs and expenses incurred with regard to defending the complaint of Detective Inspector John Edward Lewis of the Crime and Misconduct Commission (‘the Complaint’) dated 11 April 2006.”

The syndicate was subsequently substituted for Lloyds Australia Limited as respondent.

1. The syndicate initially denied liability on a number of grounds.[5]  By the time the matter came to be argued in the applications jurisdiction, a magistrate had found that Mr Power had no case to answer on one charge and acquitted him on the other charge.  Mr Power's application for costs against the CMC was pending.  At first instance the respondent submitted that the application in this court was premature and otiose, but those submissions were not pursued in the appeal.  It also submitted that upon the proper construction of the policy, the claim did not fall under it.

   [5]AR 83-4.

The policy

1. The policy in question fell into two distinct parts. The first, Sections 1 and 2 of the document, dealt with different aspects of professional indemnity insurance. The second, Section 3 of the document, the part with which this appeal is concerned, dealt with directors’ and officers’ liability insurance. With few exceptions it was drafted as a stand-alone policy, and I shall refer to it as “the policy”. The period of insurance was 1 November 2005 to 1 November 2006. By the policy the Insurers agreed with the Insured(s)[6] (who were councillors, employees and committee members) and the council on terms which were set out under five numbered headings:

   [6]There does not appear to have been any evidence that the councillors, employees or committee members were parties to the contract of insurance, but nothing turns on that.

1.          Insuring agreement

2.          Definitions

3.          Extensions

4.          Exclusions

5.          Conditions.

1. The primary cover provided by the policy was under the first heading and was framed in these terms (omitting irrelevant provisions):

“(a)Insurers shall pay on behalf of the Insured(s) all Loss which they are legally obligated to pay … for any Claim against the Insured(s) for a Wrongful Act … .”

(b)…

(c)Insurers shall indemnify the Insured(s) for all such reasonable legal fees, costs and expenses incurred and paid by the Insured(s) in the defence of any demand, Claim, suit or legal proceeding with respect to which the Insured(s) established that the act or acts which were committed would entitle the Insured(s) to recovery under this Section if any Loss resulted therefrom.”

“This Section” was a reference to the policy.  It is common ground that “Insurers” referred to the syndicate and that Mr Power was an “Insured” under those clauses. 

1. Certain extensions of liability under the third heading were automatically included in the policy.  Two of them are relevant in this appeal:

“(a)Advancement of Defence Costs

Insurers shall pay Defence Costs on behalf of the Insured(s) on an ongoing basis as they are incurred prior to the final payment or settlement of any Claim PROVIDED THAT

(1)such Defence Costs are incurred with the written consent of Insurers, such consent not to be unreasonably withheld;

(2)such advance payments by Insurers shall be repaid to Insurers in the event that the Insured(s) shall not be entitled to payment of any Loss or receipt of any benefit under this Policy.

(b)Investigations, Inquiries, Prosecutions (Criminal or Otherwise)

Insurers shall pay on behalf of the Insured(s) on an ongoing basis all reasonable legal fees, costs and expenses incurred in being legally represented with respect to any legally compellable attendance at any Investigation PROVIDED THAT

(1)the Investigation relates to matters which may give rise to a Claim

…

(4)such advanced payments by Insurers shall be repaid to Insurers in the event that the Insured(s) shall not be entitled to payment of any Loss or receipt of any benefit under this Section.”

There was a further proviso numbered (7) in identical terms to proviso (4).

The proceedings at first instance

1. At first instance Mr Power relied only on extension (b).  It is not surprising that there was no reliance on the terms of the primary cover, since the declaration sought referred to payment on an ongoing basis; the application was filed before the hearing of the criminal proceeding.  The respondent accepted that the criminal proceeding was an “Investigation” and that the applicant's legal representation was with respect to a legally compellable attendance in that proceeding.  It submitted that the first proviso to extension (b) was not satisfied because there was no “Claim” to which that proceeding might give rise; that was because there was no “Wrongful Act” within the meaning of that term in the definition of “Claim”; that in turn was because the relevant conduct did not occur in the course of Mr Power’s duties as a councillor.

1. Philip McMurdo J rejected that submission.  He wrote:

“[T]he CMC was investigating official misconduct relating to the Council, and whatever some participants in the inquiry may have thought at the time, it was in the ultimate interest of the Council that the CMC uncover the truth of the matters which were under investigation.  It was surely in the Council’s interest as a public authority that any official misconduct be uncovered, or the absence of it be the subject of a public finding.  In turn, whether or not the applicant adverted to this at the time, his participation in the inquiry was somewhat different from someone who was not in any respect serving the Council. … But just as it was in the Council’s interest that the CMC discover the truth, so it was related to the applicant’s duties as a councillor that the information he provided to the CMC was truthful.  The point is not so much that he owed a particular duty as a councillor to provide truthful evidence; rather it is that the Council’s interest in the CMC’s successful discovery of the truth made his participation more closely related to his duties as a councillor than the respondent’s argument would suggest.

[15]   His provision of a statement to the CMC, for its investigation of the propriety of his performance as a councillor, was in consequence of what he had done or was suspected of having done in the course of his work at the Council.  And the process in which he was then participating was one which was for the ultimate benefit of the Council as well as being in the wider public interest.  In my conclusion the applicant’s argument should be accepted on this particular question.”[7]

[7][2006] QSC 341.

1. However that did not resolve the application.  During the hearing his Honour raised with counsel for Mr Power whether it could be shown that the investigation (ie the criminal proceeding) might have given rise to a claim as defined.  Counsel submitted that it could have done so, and counsel for the syndicate not only rejected the opportunity to be “the serendipitous beneficiary of your Honour's superior wisdom on this matter”, but also conceded that it was difficult to see the benefit of extension (b) so far as prosecutions were concerned unless the argument on behalf of Mr Power on this point was accepted.  In dealing with this point, his Honour wrote:

“The next question is whether the Investigation related to matters which may give rise to a “Claim”.  At this point the suggested application of the policy becomes awkward.  A “Claim” is defined as a “notice received by … the Insured … of the intention of a person or entity to hold the Insured responsible for the results of any Wrongful Act”.  The subject matter of the Investigation must be “matters which may give rise to a Claim”.  This indicates that the relevant Investigation must occur in advance of a potential Claim.  But the respondent does not argue that this point provides an answer to the present application.  Still, because the Court is being asked to declare the effect of this contract, it will be necessary to consider the point.

…
[17] I have already set out the definition of “Claim”.  Within that definition there is no express reference to a Loss.  But the connection between a Claim and Loss is clear enough from the insuring clause 1(a).  A Claim is some process by which a person seeks from the Insured some money of the kind which is a Loss.  The primary insurance is an indemnity against the insured’s legal liability to pay that money.  It follows that the process by which a criminal prosecution against an Insured is commenced is not a Claim as defined.
…

[19] It is no doubt with those difficulties in mind that the applicant seeks indemnity not under the primary insuring clauses but under the specific extension in relation to the costs of legal representation at an Investigation.  Returning then to that provision, the difficulty for him is that the investigation constituted by the criminal proceedings did not relate to matters which had the potential to give rise to a Claim. Counsel for the applicant was unable to explain what might constitute a Claim which could arise from the conduct the subject of the criminal proceedings.  The evident purpose of limiting the cover for legal costs of an Investigation to a context where there could be a Claim is that, in essence, this is insurance against liability for a loss which is the subject of a Claim.  It is possible to conceive of circumstances where a criminal prosecution would investigate matters which have a potential for a Claim; for example a prosecution for dangerous driving causing bodily harm.  In the present case, the matters to which the criminal proceedings related did not have the potential to give rise to a Claim.  It follows that this was not an Investigation of the relevant kind for the extension and the applicant is not entitled to be reimbursed for these costs.”[8]

[8]Ibid.

Consequently his Honour dismissed the application with costs.  The present appeal has been brought against those orders.

The appeal

1. In the appeal Mr Power challenged the ground upon which he lost at first instance.  He also raised a new argument: that he was entitled to indemnity in respect of the costs under cl (a) of the primary cover.  Notwithstanding its original coolness toward it, the syndicate supported the point on which it won below.  It also filed a notice of contention in which it challenged his Honour's finding on the question of whether the relevant conduct occurred in the course of Mr Power’s duties as a councillor.

Extension (b)

1. The terms of extension (b) have been set out above.  “Investigation” was defined to mean “any investigation, inquiry, public examination, commission, hearing or prosecution, criminal or otherwise”.  As already noted, the syndicate accepted that the criminal proceeding was an “Investigation” and that the applicant's legal representation was with respect to a legally compellable attendance in the criminal proceeding.  It was also accepted that Mr Power had incurred legal fees, costs and expenses in being represented.  The issue is whether the terms of proviso (1) were satisfied.

“… in the course of the duties of that Insured(s) …”

1. The proviso required that the criminal proceeding relate to matters which might have given rise to a “Claim” within the meaning of the proviso to the extension.  “Claim” was defined this way:

“‘Claim’ means any notice received by … the Insured(s) alleged to have committed a Wrongful Act, of the intention of a person or entity to hold the Insured(s) responsible for the results of any Wrongful Act, including any demand received by the Insured(s) for money or services naming the Insured(s) as defendants, or the institution of legal, arbitration or administrative proceedings against the Insured(s).”

1. The term “Wrongful Act” was used twice in the definition of “Claim”.  It too was a defined term:

“‘Wrongful Act’ means any act, error, misstatement, misleading statement, misleading conduct, omission, neglect or breach of duty made, committed, attempted or allegedly made, committed or attempted by an Insured individually or otherwise, in the course of the duties of that Insured(s) … .”

1. The allegation in the complaint was that on or about 8 September 2005 Mr Power gave the Crime and Misconduct Commission a document containing information he knew was false or misleading in a material particular, contrary to s 218(1) of the Crime and Misconduct Act 2001.  That was undoubtedly an act, and it probably constituted misleading conduct and making a misleading statement.  The question is, was the act done in the course of Mr Power’s duties as a councillor.

1. Section 229 of the Local Government Act 1993 provided:

“(1)A local government councillor:

(a)represents the overall public interest of the local government’s area … .

(2)In performing the role, a councillor:

(a)must serve the overall public interest in the area … .”

1. The model code of conduct for councillors published by the Department of Local Government under the Act provided:

“2.3    Additional ethical and behavioural obligations

The additional ethical and behavioural obligations imposed by this code of conduct are based on the ethics principles which are contained in schedule 1 of the Act.

2.3.1Principles for imposing additional obligations

The principles that must be met by additional obligations set out in this code are stated in schedule 1 of the Act and as follows:

Integrity of local government
It is vital that the public has confidence in a local government's ability to ensure the good rule and the government of its area.  Councillors must conduct themselves in a way that promotes and maintains the public's trust and confidence in the integrity of the local government and the good rule and government of its area.
…

2.3.2Additional obligations imposed by this code

The additional ethical and behavioural obligations imposed by this code are set out below.  These obligations are in addition to any statutory obligation.
…

2.3.2.4Standards of personal behaviour

a)Councillors must conduct themselves in a manner which will maintain and strengthen the public's trust and confidence in the integrity of the Council, ensuring that their actions do not detract from the integrity of the Council and avoiding any action which may diminish its standing, authority or dignity.

…

d)Councillors must show respect for the law and the system of government in general.”

1. The syndicate submitted that a distinction must be drawn between these obligations and a councillor’s duties within the meaning of the policy.  It submitted that Mr Power was alleged to have given untruthful information, but that did not occur in the course of his engagement or continuing activity as a councillor.  Rather, the statement was given to the CMC in Mr Power’s capacity as a citizen, obliged to obey the law.

1. I would reject this distinction.  Once he was elected, Mr Power’s public actions necessarily reflected on the council.  By taking office he impliedly came under a duty not to bring the council improperly into public disrepute.  That is precisely what he would have done had he refused to make a statement to the CMC.  The investigation being conducted by the CMC was centrally concerned with alleged misconduct by councillors.  The existence of this duty is reinforced by the obligations imposed under the model code.  Mr Power had a legal duty under the Crime and Misconduct Act 2001 to provide a statement[9] and should he have failed to do so, he would have been in breach of the code by not showing respect for the law.  Such conduct would hardly have maintained or strengthened the public's trust and confidence in the integrity of the council.

   [9]Section 75(3).

1. I also agree with what was written by Philip McMurdo J on this point.[10]

   [10]Paragraph [13].

1. Whatever the level of connection required between the making of the statement and the duties which Mr Power was under as a councillor, it was more than adequately demonstrated in this case.[11]

   [11]Kavanagh v The Commonwealth (1960) 103 CLR 547; [1960] HCA 25.

1. The syndicate also submitted that whatever “duties” might comprehend in the Local Government Act 1993 and documents prepared under it, in the policy it was restricted to duties as a councillor as opposed to obligations of ethics, propriety and behaviour as a councillor.  I am not sure that I completely understand the distinction, but in any event I am satisfied that duties imposed by and under that Act, including ethical duties, are among those to which the policy refers.

“… matters which may give rise to …”

1. The second question is whether the Investigation related to “matters which may give rise to” a Claim.  Two themes seem to underlie the reasoning which led Philip McMurdo J to the conclusion that it did not.  The first was that a claim had to be something capable of giving rise to a loss.  The second, related to the first, was that the criminal proceeding had to relate to matters which had the potential to give rise to a claim.  His Honour derived the first theme from cl (a) of the primary cover, which predicated the existence of a loss.  I disagree.  I see no basis for implying such a limitation into the definition of “Claim”.

1. It is unclear whether his Honour considered that an insured claiming under the extension could only succeed if able to show an entitlement to primary cover.[12]  However unless one reads the policy in that way, there is no justification for importing the notion of loss into proviso (1).  In my judgment the policy should not be so construed.  The whole point of the extension is to provide for payment of legal expenses as they arise, at a time when it may not be clear whether some ground exists to deny the primary cover.  The cover provided by the extension is distinct from the primary cover.[13]

   [12]The syndicate expressly disavowed such a submission on the hearing of the appeal.

   [13]Compare Willkie v Gordian Run-off Ltd (2005) 221 CLR 522 at p 533; [2005] HCA 17.  It is to be regretted that at first instance, this case was not cited to the judge.

1. That is not to say that the question of loss is irrelevant in relation to the extension.  Proviso (4) clearly dealt with the position where the insured was not entitled to payment of any loss or receipt of any benefit under the policy.  However it was concerned with the question of repayment.  It did not limit the ambit of the extension but provided for future actions in certain circumstances.  By its very existence it demonstrates that the policy contemplates the possibility of indemnity being provided under extension (b) in circumstances not falling under the primary cover.  Even if it may yet be invoked in the present case, it is not material to the precise declaration sought in the proceedings.  By the date of the application, the syndicate had chosen to deny an obligation to make payments under extension (b) only on the ground that Mr Power was not acting in the course of his duties as a councillor at the relevant time.  The declaration sought was designed to test that question at a time when ongoing payments mattered.  It did not address the possibility of repayment.  That had not been in issue between the parties.

1. The second theme underlying the reasoning of Philip McMurdo J was founded upon the inability of counsel for Mr Power “to explain what might constitute a claim which could arise from the conduct the subject of the criminal proceedings”. Relevantly the policy required that the criminal proceeding (the Investigation) relate to matters, and that those matters be ones which may give rise to a “Claim”. In the present case the matters in question were the elements of the offence under s 218 of the Crime and Misconduct Act 2001 – put shortly, making a misleading statement. The criminal proceeding undoubtedly related to those matters. Those matters were undoubtedly capable of giving rise to the institution of legal proceedings under s 42 of the Justices Act 1886 for such an offence; indeed they had done so.

1. Subject to the point about the definition of “Claim” discussed below,[14] the terms of the proviso are therefore satisfied unless the words “which may give rise to” are construed to require not only a capacity for the matters to give rise to a complaint, but also to require that the complaint (the Claim) be later in time than the criminal proceeding (the Investigation).  In my judgment they should not be so construed.  Extension (b) is plainly intended to apply to criminal prosecutions; the heading reinforces the definition of “Investigation”.  Such a construction would confine the operation of the extension to the narrow range of cases where, as Philip McMurdo J put it, “a criminal prosecution would investigate matters which have a potential for a Claim.”[15]  Even in such cases the extension would operate irrationally if construed in the manner suggested, since it would apply only to cases where the prosecution preceded a civil claim, a chance event not affecting the risk.  That would be a most unbusinesslike construction to apply to an insurance policy.

   [14]Paragraph [34] ff.

   [15]His Honour cited as an example a prosecution for dangerous driving causing bodily harm.  As Mr Ashton pointed out, that was an inapt example because claims connected with bodily injury were excluded under the policy.  Mr Ashton suggested in lieu the example of a prosecution under the Trade Practices Act 1974.

1. One criticism which can be made of this interpretation is that in a case such as the present, it turns the proviso into a truism.  That is not an outcome which one would expect in a well drafted policy.  However this is not a well drafted policy.  It is not possible to devise a meaning which measures up to the standards of good drafting.  The considerations to which I have referred above outweigh the potentiality for truism in certain circumstances.

1. For the syndicate Mr Ashton also drew attention to the fact that the wording of proviso (1) was the result of retrospective amendments made to the policy in March 2006.  Previously the proviso read, “(1) the Investigation involves an allegation that the Insured(s) committed a Wrongful Act”.  In effect he submitted that a purpose of the change was to introduce the concept of loss to the extension.  However he did not canvass all of the possible consequences of the amendment, nor did he identify the other amendments made to the policy at the same time and relate them to this one.  No list of amendments is available and they could be identified only by the most laborious comparison of the two documents.  I see little prospect of benefit at the end of that task, particularly as the amendment process seems to have been carried out carelessly.[16]  In the absence of such an overview I am not prepared to draw inferences as to the purpose of the amendments.

   [16]As evidenced at least by the repetition of proviso (4) in proviso (7).

“… including … the institution of legal … proceedings against the Insured(s)”

1. The third question, which is associated with the second, is whether the institution of the criminal proceedings against Mr Power amounted to a “Claim”.  The question depends upon whether “including” and the words which follow it relate to the whole of what precede them or only to the word “notice”.  In other words is it intended to deem the institution of proceedings to amount to notice having the qualities spelled out in the definition or only to notice simpliciter, with the result that the proceedings must somehow indicate an intention to hold the insured responsible for the results of a “Wrongful Act”.

1. In my judgment the former is the more natural meaning of the words used.  The latter meaning in effect restructures the definition to read as though the words of inclusion occurred immediately after “notice” rather than at the end of the definition.  That does unnecessary violence to the syntax.  There is of course something odd in the idea that a complaint of the nature of that in the present case could indicate an intention to hold someone responsible for the results of a wrongful act.  But that very oddity is precisely the reason for the inclusion: without it, the terms of the definition would not be satisfied.  The use of inclusions to deem one thing to be what ordinarily it would not be is a common drafting device.  It causes no alarm in the present context.

1. For the syndicate it was submitted that such an interpretation struck at the very nature of the policy, whose “underwriting purpose” was to indemnify the council and its officers against civil liability by way of money claims.  That, it was submitted, was a matter of notoriety.  I do not accept that submission.  The nature of the policy must be determined by its terms, not by a label or class to which the insurer assigns it.  That is particularly so when one is dealing with an extension under the policy.  To construe the policy by reference to some presumption about what it is intended to cover rather than by reference to its terms would be an error.

1. The suggested construction would also produce some odd consequences.  It would seem to leave the word “services” in the definition with no work to do.  Indeed it would be inconsistent with the presence of that word.  Mr Ashton sought to overcome that difficulty by submitting that a demand for services was in effect a claim for money’s worth; but that would allow an exception the effect of which would defeat the rule.  It is also very difficult to conceive of a situation in which administrative proceedings against an insured officer could have a compensatory connotation, a quality which would be necessary if the submission were accepted.

1. The institution of the prosecution constituted a “Claim” as defined.

Miscellaneous

1. It was not suggested that the possibility of overlap between extension (a) and extension (b) provided any enlightenment in the construction of the policy.

1. In my judgment the applicant was entitled to payment of his reasonable legal fees on an ongoing basis under extension (b).  It is therefore unnecessary to consider Mr Power’s alternative argument under cl (a) of the primary cover.  I observe in passing, however, that nothing in that clause refers to payment on an ongoing basis, and there are considerable difficulties in attempting to imply such an obligation.

Making a declaration

1. The court will not make a declaration if there is no utility in its so doing.  In the present case the declaration sought might be refused if it were demonstrated that any payments made pursuant to extension (b) would inevitably have to be repaid under proviso (4).  Some aspects of the submissions relating to the primary cover hinted at this possibility eventuating; but the question was not expressly raised nor squarely addressed either on appeal or at first instance, and conceivably it might be the subject of evidence.  Moreover the declaration might be used to found a claim in damages rather than a claim under the policy, with possible consequences to the operation of the proviso.  In the circumstances I see no reason for refusing a declaration on discretionary grounds.

Order

1. The order of the court should be:

1.          Appeal allowed.

2.          Set aside the orders of the trial judge made herein on 13 November 2006.

3.          In lieu thereof:

(a)        Declare that upon the true construction of policy No. B0621PGOL00405 underwritten by Markel Syndicate 3000 at Lloyds, the applicant is entitled to payment by the underwriters on an ongoing basis of all of his reasonable legal fees, costs and expenses incurred in being legally represented with respect to proceedings against him instituted by the complaint of Detective Inspector John Edward Lewis sworn on 11 April 2006;

(b)        Order that the respondent pay the applicant's costs of the application to be assessed.

4.          Order that the respondent pay the appellant's costs of the appeal to be assessed.

1. PHILIPPIDES J: I have had the advantage of reading the reasons for judgment of Fryberg J which set out fully the factual background to the appeal and the provisions of the insurance policy in question. I need refer only briefly to those matters. Mr Power, a councillor of the Gold Coast City Council, appeals against the primary judge’s finding that he was not entitled to be paid ongoing expenses pursuant to extension 3(b) of the policy in defending charges brought against him pursuant to s 218(1) of the Crime and Misconduct Act 2001 (Qld). The charges brought by complaint sworn on 11 April 2006 alleged that the appellant had provided a written statement provided to the Crime and Misconduct Commission (“CMC”) containing information which he knew to be false or misleading.

1. By extension 3(b) to the policy, cover was extended to ongoing expenses incurred in being legally represented with respect to any legally compellable attendance at any “Investigation”, defined to include a criminal prosecution.  The criminal proceedings brought against the appellant satisfied the definition of an “Investigation”. 

1. However, proviso (1) of extension 3(b) specified the requirement that the Investigation “relates to matters which may give rise to a Claim”.   The term “Claim” was defined as follows:

“Claim means any notice received by … the Insured(s) alleged to have committed a Wrongful Act, of the intention of a person or entity to hold the Insured(s) responsible for the results of any Wrongful Act, including any demand received by the Insured(s) for money or services naming the Insured(s) as defendants, or the institution of legal, arbitration or administrative proceedings against the Insured(s).”

1. “Wrongful Act”, a term referred to in the definition of “Claim” was itself defined to mean, inter alia, any “misstatement, misleading statement [or] misleading conduct” committed “in the course of the insured’s duties”.

1. The issue raised before the learned primary judge was whether the criminal proceedings constituting the Investigation related to matters “which may give rise to a Claim”, focusing on whether those proceedings could be said to investigate conduct which satisfied the definition of “Wrongful Act”.  The respondent’s contention was that the provision of the statement to the CMC was not made in the course of the appellant’s duties as a councillor.  The learned primary judge was clearly correct to reject that submission.  In this regard I agree with his Honour’s reasons that the document provided to the CMC for its investigation into the propriety of the appellant’s performance as a councillor was “in consequence of what he had done or was suspected of having done in the course of his work at the council” and that in providing the document the appellant was furthering the interests of the Council of which he was a member in ensuring that any official misconduct was uncovered or its absence was publicly declared.   I also agree with the additional observations of Fryberg J on this matter concerning the appellant’s duties arising under the Local Government Act 1993 (Qld).

1. However, the learned primary judge raised a further issue in respect of the question of whether the Investigation related to matters “which may give rise to a Claim”.  The difficulty for the appellant as the learned primary judge saw it was that the Investigation constituted by the criminal proceedings did not relate to matters which had the potential to give rise to a “Claim” as defined.  As his Honour put it:

“At this point the suggested application of the policy becomes awkward.  A “Claim” is defined as a “notice received by … the Insured … of the intention of a person or entity to hold the Insured responsible for the results of any Wrongful Act”.  The subject matter of the Investigation must be “matters which may give rise to a Claim. This indicates that the relevant Investigation must occur in advance of a potential Claim. 

…
… the investigation constituted by the criminal proceedings did not relate to matters which had the potential to give rise to a Claim.  Counsel for [the appellant] was unable to explain what might constitute a Claim which could arise from the conduct the subject of the criminal proceedings.  The evident purpose of limiting the cover for legal costs of an Investigation to a context where there could be a Claim is that, in essence, this is insurance against liability for a loss which is the subject of a Claim.  It is possible to conceive of circumstances where a criminal prosecution would investigate matters which have a potential for a Claim; for example a prosecution for dangerous driving causing bodily harm.  In the present case, the matters to which the criminal proceedings related did not have the potential to give rise to a Claim.  It follows that this was not an Investigation of the relevant kind for the extension and the applicant is not entitled to be reimbursed for these costs.”

1. On the interpretation of the proviso favoured by Philip McMurdo J, the matters the subject of investigation were required to have the potential to give rise to a Claim, and a temporal relationship was connoted with the Claim having the potential to arise from the Investigation.  On the view of Fryberg J, a temporal connection was not required; it was sufficient that the Investigation related to matters which had the capacity to give rise to a Claim.  The conclusion reached by Fryberg J is that the matters the subject of investigation (the provision of the allegedly misleading information to the CMC) were capable of and did give rise to a Claim, which is identified as the complaint.  The difficulty with the conclusion that the complaint constituted a Claim is in understanding the complaint “as a notice … of the intention of a person or entity to hold the Insured responsible for the results of any Wrongful Act”.  In my view it is not possible to regard the complaint as a notice of an intention to hold the appellant responsible for the results of the allegedly misleading information, as opposed to holding him responsible for the alleged Wrongful Act itself.  The same problem is encountered in seeing proceedings on indictment as satisfying the definition of “Claim”.

1. Furthermore, the difficulty cannot be overcome by reading the definition of “Claim” as deeming the institution of “legal proceedings” to be a notice of an intention to hold the insured responsible for the results of a Wrongful Act. In my view, the words following the word “including” in the definition of “Claim” are simply given as illustrations of the notices that may be given. Thus notice may be given by demand or the institution of legal, arbitration or administrative proceedings. 

1. Moreover, to hold that the proviso that an Investigation “relates to matters that may give rise to a Claim” is satisfied, in a situation where the Investigation proceeds by way of a criminal proceeding, because the actual complaint initiating the criminal proceedings constitutes a Claim, results in circuitous reasoning which leaves no room for the operation of the proviso. 

1. I accept what Fryberg J has said, that it may be accepted that extension 3(b) provided cover which was distinct from the primary cover and in respect of a period during which the insurer’s liability under the primary cover remained uncertain (see Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at 533). However, I do not consider that the obstacle identified by the primary judge is circumvented simply by regarding the extension as distinct from the primary cover and thus not importing the definition of Loss into the term “Claim”.

1. Accordingly, I would uphold the primary judge’s decision and dismiss the appeal.