Reinsurance Australia Corporation Limited v HIH Casualty and General Insurance Ltd (in liquidation)

[2003] FCA 256

FEDERAL COURT OF AUSTRALIA

Reinsurance Australia Corporation Limited v HIH Casualty and General Insurance Ltd (in liquidation) [2003] FCA 256

REINSURANCE AUSTRALIA CORPORATION LIMITED (ACN 061 215 601) & MONEGASQUE DE REASSURANCES S.A.M. v HIH CASUALTY AND GENERAL INSURANCE (IN LIQUIDATION) (ACN 47 008 482 291), AIG EUROPE (UK) LTD AND NEW HAMPSHIRE INSURANCE COMPANY, HEATH GROUP LIMITED (FORMERLY CE HEALTH PLC), HEATH INSURANCE BROKING LTD FORMERLY CE HEATH (INSURANCE BROKING) LTD AND HEATH NORTH AMERICA AND SPECIAL RISKS LTD, ICE MEDIA LIMITED AND PREMIER MEDIA LIMITED & J P MORGAN CHASE BANK (FORMERLY KNOWN AS THE CHASE MANHATTAN BANK, FORMERLY KNOWN AS CHEMICAL SECURITIES INC)
N827 of 2002

JACOBSON J
SYDNEY
26 MARCH 2003

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N827 of 2002

BETWEEN:

REINSURANCE AUSTRALIA CORPORATION LIMITED ACN 061 215 601
FIRST APPLICANT

MONEGASQUE DE REASSURANCES S.A.M.
SECOND APPLICANT

AND:

HIH CASUALTY AND GENERAL INSURANCE (IN LIQUIDATION) ACN 47 008 482 291
FIRST RESPONDENT

AIG EUROPE (UK) LTD and NEW HAMPSHIRE INSURANCE COMPANY
SECOND RESPONDENTS

HEATH GROUP LIMITED (formerly CE HEATH plc), HEATH INSURANCE BROKING LTD formerly C.E. HEATH (INSURANCE BROKING) LTD and HEATH NORTH AMERICA AND SPECIAL RISKS LTD
THIRD RESPONDENTS

ICE MEDIA LIMITED and PREMIER MEDIA LIMITED
FOURTH RESPONDENTS

JP MORGAN CHASE BANK (formerly known as THE CHASE MANHATTAN BANK, formerly known as CHEMICAL SECURITIES INC)
FIFTH RESPONDENT

JUDGE:

JACOBSON J

DATE:

WHERE MADE:

26 MARCH 2003

SYDNEY

THE COURT ORDERS THAT:

1.   The argument in relation to paragraphs 92 to 111 is stood over to a date to be fixed.

2.   Leave to the applicants to replead paragraphs 62.2, 62D, 92.3, 93.3, 94.2, 99.3, 104.3, 108.3, 118.2, 118.3, 118.4 and 118.5 within 5 days of today.

3.   The notice of motion of the third respondent filed on 19 March 2003 and notice of motion of fifth respondent filed on 21 March 2003 are otherwise dismissed.

Note:  Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N827 of 2002

BETWEEN:

REINSURANCE AUSTRALIA CORPORATION LIMITED ACN 061 215 601
FIRST APPLICANT

MONEGASQUE DE REASSURANCES S.A.M.
SECOND APPLICANT

AND:

HIH CASUALTY AND GENERAL INSURANCE (IN LIQUIDATION) ACN 47 008 482 291
FIRST RESPONDENT

AIG EUROPE (UK) LTD and NEW HAMPSHIRE INSURANCE COMPANY
SECOND RESPONDENTS

HEATH GROUP LIMITED (formerly CE HEATH plc), HEATH INSURANCE BROKING LTD formerly C.E. HEATH (INSURANCE BROKING) LTD and HEATH NORTH AMERICA AND SPECIAL RISKS LTD
THIRD RESPONDENTS

ICE MEDIA LIMITED and PREMIER MEDIA LIMITED
FOURTH RESPONDENTS

JP MORGAN CHASE BANK (formerly known as THE CHASE MANHATTAN BANK, formerly known as CHEMICAL SECURITIES INC)
FIFTH RESPONDENT

JUDGE:	JACOBSON J
DATE:	26 MARCH  2003
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. After I delivered my judgment on 7 February 2003, the applicants amended the Statement of Claim.  In so doing, they abandoned a significant part of their claim against the third respondents (“Heath”) and thereby against the first respondent (“HIH”), the second respondents (“AIG”) and the fifth respondent (“Chase”).

2. There was correspondence between the parties’ solicitors about the Amended Statement of Claim.  As a result of the amendments and also as a consequence of certain concessions made in the correspondence by the solicitors for the applicants, Heath and Chase have filed notices of motion seeking to strike out certain paragraphs of the Amended Statement of Claim.

3. AIG has not filed a motion but it supports the contentions made by Heath and Chase.

4. Nor has HIH filed a motion but it does not seek to strike out any of the allegedly offending paragraphs of the Statement of Claim.

5. The portion of the claim which has been abandoned is the claim that the representations referred to in paragraphs 92 to 111 of the Statement of Claim (“the specific representations”) were made by the fourth respondents (“PML/ICE”) as agents for Heath.  The specific representations are now said to be made solely by PML/ICE as principals.

6. At the hearing of the motion for a stay, Heath sought to strike out the claim in relation to the specific representations on the ground that the claims were beyond the extended territorial operation of s 52 of the Trade Practices Act 1974 (Cth). I declined to strike out this part of the claim because I considered it was appropriate to reserve the question for the final hearing. I stated my reasons at [230] to [232].

7. My reasons were, in summary, first, that there was no jurisdictional challenge to the Phoenix Representations and the Phoenix Non-Disclosures and, second, the specific representations incorporated what was said to be the continuing operation of the Phoenix Representations.

8. In view of the amendments, the second reason no longer holds good because it depended upon the claim that the Phoenix Representations and the specific representations were made by Heath.  It is simply not possible for the specific representations, which are now said to have been made by PML/ICE, to incorporate the Phoenix representations which were allegedly made by Heath and not by PML/ICE.

9. Thus, the first claim in the motions is that paragraphs 92 to 111 of the Amended Statement of Claim be struck out on the extraterritoriality ground.  However, a question now arises as to whether Heath has standing to seek to strike out allegations not made against it in the pleading.

10. These motions have been heard urgently and the locus question was raised only on the evening of the hearing.  Senior counsel for Heath and the other moving parties therefore wish to defer argument on the extraterritoriality issue in order to consider the authorities on the question of standing.  This seems to me to be an appropriate course.

11. The second issue which arises on both of the motions is whether specific paragraphs of the Statement of Claim should be struck out either on the ground that they are contrary to concessions made by the solicitors for the applicants in correspondence with the solicitors for Heath as to the way in which the Amended Statement of Claim is to be read or, alternatively, that the paragraphs are otherwise embarrassing. 

12. The paragraphs of the Amended Statement of Claim which fall for consideration are 21.7, 23.5, 62.2, 62D, 92.3, 93.3, 94.2, 99.3, 104.3, 108.3, 113.2, 113.3, 113.4, 118.2, 118.3, 118.4 and 118.5.

13. The third issue raised by both of the notices of motion is whether I ought to order the applicants to respond to a letter from Heath’s solicitors dated 13 March 2003.  All of the respondents (other than PML/ICE which has not been served) urged this course upon me.  They indicated that, depending upon what is said in the letter, the pleadings may be clarified and it will then be unnecessary to proceed with the strike out motion.

14. In my opinion, the preferable course is to deal with so much of the notices of motion as was pursued before me on 21 March 2003.  I have come to the view that it would be inappropriate to strike out any of the paragraphs which were attacked but a number of paragraphs have to be repleaded.  The applicants should have a short opportunity to do this.  It follows that it is unnecessary for me to order that the applicants’ solicitors reply to the letter of 13 March 2003.

15. Nevertheless, in order to deal with the claims to strike out particular paragraphs of the pleading, it is necessary for me to refer to the correspondence between the solicitors following upon the last directions hearing.

16. The directions hearing took place on 27 February 2003.  On that occasion, I granted leave to the applicants to file an Amended Statement of Claim.  I also made directions which included the supply by the applicant of particulars to the Amended Statement of Claim on or before 21 March 2003.

17. Prior to the directions hearing, the solicitors for the parties held a conference with a view to seeking agreement as to what could be achieved at the meeting.  Apparently, some discussion took place at the meeting in relation to the nature of the case against the respondents.

18. On 7 March 2003, Heath’s solicitors wrote to the solicitors for the applicants.  The letter refers to the meeting held between the parties’ legal representatives on 25 February 2002.

19. The letter states that, during the course of the meeting, the legal representatives of the applicants made comments which suggested that the applicants did not allege that Heath made the specific representations contained in the reports prepared by PML/ICE as set out in paragraphs 92, 93, 94, 99, 104 and 108 of the Amended Statement of Claim. 

20. Both the original Statement of Claim and the Amended Statement of Claim included (at [21.8]) an allegation made against one of the Heath respondents, namely HNASR, that:-

    “by virtue of common law principles of agency and s84 of the TPA,
    s 12GH of the ASIC Act, and s 70 of the FTA, is liable for the conduct engaged in on its behalf by PML and/or ICE in securing the said contracts of insurance and reinsurance as more specifically pleaded below.”

21. Moreover, paragraphs 99.1 to 99.5 of the Amended Statement of Claim referred to Heath by name and alleged that it made the specific representations set out in those paragraphs.

22. Thus, the suggestion that the specific representations were not made against Heath was contrary to the terms of the pleading.

23. Not surprisingly, Heath’s solicitors asked a number of questions in a letter of 7 March 2003 arising from the applicants’ departure from the pleading.

24. The applicants’ solicitors replied on 11 March 2003.  The letter stated that [21.8] should be deleted from the Amended Statement of Claim.  The letter also said that the reference to Heath in [99] was an error and that it should be deleted.  The letter stated that with these “corrections” it is plain that the allegations pleaded in [92] to [111] of the Amended Statement of Claim are made only against PML/ICE. 

25. There are a number of other matters in the letter to which I will refer later.

26. On 13 March 2003, Heath’s solicitors wrote to the applicants’ solicitors.  The letter stated that the proposed deletion of [21.8] and the deletion of the reference to Heath in [99] materially altered the case against Heath.  The letter went on to request a response to a lengthy list of questions designed to seek clarification of matters arising from the letter of 11 March 2003.

27. On 17 March 2003, the applicants’ solicitors declined to respond to the letter.  They stated that it was not useful or necessary to further debate the pleading in the correspondence. 

28. The applicants’ position is that any issue which is properly the subject of a request for particulars can be dealt with by making such a request.

    Whether the particular allegations in the Amended Statement of Claim should be struck out

29. [21.7] of the Amended Statement of Claim alleges that HNASR “caused, directed, and permitted PML and subsequently ICE to prepare and dispatch to ReAC risk management reports as more specifically referred to below”.

30. Heath and Chase submit that this paragraph contains an allegation that Heath was responsible for losses flowing from the reports prepared by PML/ICE.  They submit that the allegation is inconsistent with the withdrawal of the claim that PML/ICE were agents of Heath.

31. In my opinion, [21.7] does not plead that Heath was responsible for the content of the reports.  I accept the applicants’ submission that [21.7] merely pleads background facts which are relevant to the claim pleaded in [113] to which I will refer below.

32. Accordingly, I do not propose to strike out [21.7] of the Amended Statement of Claim.

33. [23.5] of the Amended Statement of Claim alleges that PML/ICE:-

    “were engaged by Heath to act on behalf of and advise the insurers and ReAC and Monde Re in respect of the transactions for film productions the subject of these proceedings.”

34. Heath and Chase make a similar attack on this paragraph to the complaint which they made about [21.7].  They say that it is inconsistent with the amended pleading which no longer alleges that PML/ICE were Heath’s agents.  They also submit that the paragraph is “unnecessary”.

35. It seems to me that [23.5] alleges background facts and that it does not contain any allegation that Heath was responsible for the content of the reports.  I do not think it is inconsistent with the amended claim.

36. To say that it is “unnecessary” to the pleading is not to say that [23.5] is embarrassing or that it is liable to be struck out under O 11 r 16.

37. [62.2] of the Amended Statement of Claim alleges that the Phoenix Representations:-

    “were renewed and given fresh force at each presentation for each subsequent contract by reason either of the terms of the presentation documentation provided to ReAC and/or by reason of the failure of Heath to correct the Phoenix Representations, or disclose any of the matters the subject of the Phoenix Non-Disclosures”

38. Heath says that this allegation is contrary to the new case made by the applicants because the Phoenix Representations could not be “renewed” by PML/ICE which did not make the Phoenix Representations.  Indeed, as senior counsel for Heath observed, PML/ICE are not even alleged to have had knowledge of the Phoenix Representations.  They cannot therefore be said to have renewed them.

39. In my view, Heath is correct.  However, counsel for the applicants indicated that he may wish to amend the pleading to deal with this objection.

40. Heath’s other complaints about [62.2] are premature.  The question of who made “each presentation” and what were “the terms of the presentation documentation” are the subject of outstanding requests for particulars.  It seems to me that Heath’s submissions cannot be dealt with until such time as the requests for particulars are answered.

41. [62A] to [62C] plead a number of communications made in Sydney by Heath to ReAC in relation to specific films.  [62D] of the Amended Statement of Claim is as follows:-

    “Each of the communications pleaded in paragraphs 62A to 62C above were made to ReAC in Australia with the intention of inducing ReAC to provide capacity for the contracts the subject of those communications in reliance on those communications and the Phoenix Representations and with the knowledge that the subject matter of the Phoenix Non-Disclosures was not known to ReAC.”

42. Heath’s first complaint about this paragraph is that it is contrary to a statement made in the letter of 11 March from the applicants’ solicitors.  There, the solicitors said that the only “non-Phoenix” claim against Heath, Chase, HIH and AIG is contained in [112] to [119] of the Amended Statement of Claim.

43. It is true that [62D] is a “non-Phoenix” claim but I do not see why the statement made in the solicitors’ letter requires me to strike out the paragraph. 

44. However, Heath’s second complaint is more substantial.  Heath submits that [62D] is contrary to the amended case and that it does not make clear how it is alleged that Heath is liable for representations contained in documents prepared by PML/ICE.

45. In my view, Heath’s submission is correct and if [62D] is to be pursued the paragraph will have to be repleaded to accommodate Heath’s complaint.

46. [92.3] of the Amended Statement of Claim is as follows:-

    “By implication from the continuing representations set out in paragraphs 30 above and these specific representations, there would be a minimal risk of loss to ReAC in respect of the contract of reinsurance for this film.

    Particulars

    Letter dated 5 February 1997 from Heath (Dixon) to ReAC (Kelly) and enclosures, and implications arising therefrom.

    The Applicants rely upon paragraphs 30 to 34 above in respect of the continuing representations.”

47. For reasons stated earlier, this allegation cannot be made against PML/ICE because those companies are not alleged to have made, or indeed to have had knowledge of or to have participated in the making of the Phoenix Representations pleaded in [30] of the Amended Statement of Claim.

48. Counsel for the applicants informed me that he wishes to consider his position in relation to [92.3].  It is possible that Heath’s complaint will be met by a further amendment to the pleading.  I do not think it is unreasonable to allow the applicants a short time to consider their position on this issue.

49. The same comments apply to [93.3], [94.2], [99.3]. [104.3] and [108.3].

50. [113] of the Amended Statement of Claim commences by alleging that in providing each film report by PML/ICE to the applicants, Heath made various representations.  The representation pleaded in [113.2] is as follows:-

    “by reason of the independence, experience and competence of Bradstreet and his acting in the sole interest of insurers, the opinions expressed in the reports of ICE were soundly based and safe for ReAC or Monde Re to rely on”

51. In their letter of 11 March 2003, the applicants’ solicitors commented on this paragraph as follows:-

    “What your clients will be required to demonstrate (summarising paragraph 113 of the Amended Statement of Claim) is simply that they had a reasonable basis at the time of providing each of the reports of PML/ICE to ReAC or Monde Re for believing that Bradstreet:

    ·    was a person who at all material times was an independent risk manager appointed to protect and act in the sole interests of insurers and would do so;

    ·    was an experienced and competent risk manager;

    and that, by reason of the above, the opinions expressed in his reports were soundly based and safe for ReAC and Monde Re to rely upon.”

52. Thus, the applicants submit that the case against Heath on this issue is narrow. They say that Heath can rebut the onus flowing from s 51A of the Trade Practices Act by proving that Heath had reasonable grounds for believing that Mr Bradstreet was independent, experienced and competent.

53. However, this approach depends upon whether Heath accepts that the reports were not soundly based.  If Heath proceeds only upon the applicants’ narrow approach, it will be taken to have represented that the reports were not soundly based.

54. In my view, this is a forensic question for Heath.  If it does not wish to confine the case in the manner proposed by the applicants, it can do so by pleading that the reports were soundly based and safe for the applicants to rely upon.

55. I do not see that this gives rise to any entitlement to strike out the pleading.  There is nothing in paragraph 113.2 which offends O 11 r 16 of the Federal Court Rules.

56. It is true, as the parties accept, that the forensic decision taken by Heath will have consequences for the quantum of security for costs to be supplied by the applicants but that issue does not yet arise.

57. The same comments apply in relation to [113.3] of the Amended Statement of Claim.

58. [118] of the Amended Statement of Claim alleges that HIH, Chase and AIG gave Heath the task of soliciting the applicants to sign the film contracts and, as part of that task, Heath was expected to, and did, carry out certain functions.  The functions are set out in [118.1] to [118.5]. 

59. Heath submits that these allegations are contrary to the amended claim under which Heath is not responsible for the content of the reports of PML/ICE which are no longer said to be Heath’s agents. 

60. I do not think that there is any necessary inconsistency.  However, I do not understand how it is said that the conduct set out in these paragraphs is misleading or deceptive.  The applicants submitted that this was made clear by [119] but, in my opinion, it is not.

61. [118.2] and [118.5] are in very wide terms.  This seems to me to add to the difficulties of the pleading.

62. In my opinion, [118] is unclear and ought to be repleaded.

I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. 

Associate:

Date:               26 March 2003

Counsel for the Applicants:	Dr A S Bell
Solicitor for the Applicants:	Phillips Fox
Counsel for the First Respondent:	Mr M R Speakman
Solicitor for the First Respondent:	Blake Dawson Waldron
Counsel for the Second Respondents:	Mr M W Thompson
Solicitor for the Second Respondents:	Herbert Geer & Rundle Lawyers
Counsel for the Third Respondents:	Mr F M Douglas QC and Mr G K Rich
Solicitor for the Third Respondents:	Clayton Utz
Counsel for the Fourth Respondents:	no appearance
Solicitor for the Fourth Respondents:	no appearance
Counsel for the Fifth Respondent:	Mr A J Payne
Solicitor for the Fifth Respondent:	Allens Arthur Robinson
Date of Hearing:	21 March 2003
Date of Judgment:	26 March 2003