CBL Insurance Limited (in liquidation) v Harris
[2021] NZHC 1393
•11 June 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2792
[2021] NZHC 1393
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of CBL Insurance Limited (in liquidation)
BETWEEN
CBL INSURANCE LIMITED (IN LIQUIDATION)
First Plaintiff
KARE JOHNSTONE and ANDREW JOHN
GRENFELL as liquidators of CBL INSURANCE LIMITED (IN LIQUIDATION)
Second Plaintiffs
AND
PETER ALAN HARRIS
First Defendant
Continued …
Hearing: 14 and 15 December 2020 Appearances:
M J Tingey and L M Van for the Plaintiffs No appearance by or for the First Defendant
No appearance by or for the Second Defendant
S McNae for the Third, Fourth, Fifth and Sixth Defendants (watching brief)M D O’Brien QC, I Rosic and H McQueen for the Seventh, Eighth and Ninth Defendants
Judgment:
11 June 2021
JUDGMENT OF GAULT J
(Seventh to ninth defendants’ strike out application)
This judgment was delivered by me on 11 June 2021 at 5:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
CBL INSURANCE LTD (IN LIQUIDATION) v HARRIS [2021] NZHC 1393 [11 June 2021]
Continued …
AND ALISTAIR LEIGHTON HUTCHISON
Second Defendant
SIR JOHN WELLS
Third DefendantANTHONY CHARLES RUSSELL HANNON
Fourth Defendant
NORMAN GERALD PAUL DONALDSON
Fifth DefendantIAN KELVIN MARSH
Sixth DefendantPRICEWATERHOUSECOOPERS
Seventh DefendantGRANT EDMUND MACKAY
Eighth DefendantPAUL MICHAEL RHODES
Ninth Defendant
TABLE OF CONTENTS
Factual background [2]
Statement of claim [12]
Strike out application [21]
Issues [23]
Approach on strike out applications [24]
Breach of statutory duty claim
Legal principles [28]
Susceptibility to strike out [36]
Statutory scheme [41]
Regulatory Impact Statement [42]
IPSA [46]
Solvency Standard for Non-life Insurance Business [57]
Solvency Standards – Regulatory Impact Assessment [58]
Did Parliament intend a private right of action for breach of IPSA? [59]
Whether IPSA precludes appointed actuaries from excluding or limiting liability [82]
Whether the contractual terms of engagement preclude claims against Mr Mackay and Mr Rhodes (clause 9 of the terms of business)
Approach to interpretation of exclusion and limitation clauses [88]
Ordinary and natural meaning of clause 9 [93] Liability cap (clause 6 of the terms of business) [104]
Susceptibility to strike out [105]
Scope of clause 6 [113]
Result [120]
Costs [121]
[1] The seventh to ninth defendants (the actuary defendants) apply to strike out claims by the plaintiffs based on exclusion and limitation of liability clauses in their terms of engagement.
Factual background
[2] The first plaintiff (CBLI) traded as a provider of insurance and reinsurance in New Zealand and in jurisdictions around the world. CBLI was granted a provisional insurance licence on 14 February 2012 and a full insurance licence on 4 September 2013. These licences allowed CBLI to carry on insurance business in New Zealand under the Insurance (Prudential Supervision) Act 2010 (IPSA) under the supervision of the Reserve Bank of New Zealand (RBNZ). IPSA includes an obligation on insurers to appoint an actuary.1 It is common ground that the actuary must be a natural person, not a firm.2 Mr Davies was CBLI’s appointed actuary from 2012 until he resigned in July/August 2014.
[3] From about 4 September 2014 CBLI’s appointed actuary was the eighth defendant (Mr Mackay). He was a director (employee) in the Actuarial Services group of the seventh defendant (PwC), a firm of chartered accountants, actuaries and advisers operating in New Zealand, and part of a worldwide network of firms operating under the name PwC. The ninth defendant (Mr Rhodes) was a partner of PwC who performed a peer review role and acted as engagement partner.
[4] Following Mr Mackay’s resignation from PwC, from about 1 December 2015 Mr Rhodes was CBLI’s appointed actuary. He remained so until January 2019.
[5] Pursuant to terms of engagement dated 4 September 2014 and 1 December 2015 respectively, PwC was engaged by CBLI to perform the services necessary to fulfil all the required duties of the appointed actuary, as required by IPSA and related regulations. PwC was also engaged to provide additional services.
1 Insurance (Prudential Supervision) Act 2010, s 76.
2 Section 6(1) definition of actuary: a person who is a Fellow of the New Zealand Society of Actuaries Incorporated or holding an equivalent professional qualification approved by RBNZ by notice to an insurer.
[6] The terms of engagement dated 4 September 2014 and 1 December 2015 each comprised a letter of engagement and terms of business attached.
[7] PwC’s terms of engagement dated 4 September 2014 included the following clauses in the attached terms of business:
6.Liability limitation
6.1Our liability for any loss or damage that you suffer caused by our breach of contract, tort (including negligence), breach of fiduciary duty or other actionable wrong of any kind shall be limited as follows:
…
(iv)notwithstanding the foregoing, our liability for loss shall in no circumstances exceed the amount of 5 times the total fees paid in the case of non-recurring work or 5 times the annual fees paid in the case of recurring work (the liability cap) or such other amount specified as the liability cap in the engagement letter.
…
9.Contract solely with PwC
9.1You agree that in relation to the services and the Contract the client relationship is solely with PwC. Accordingly, you agree not to bring a claim of any nature against any partner, employee, contractor or sub- contractor of PwC or against any other member firm of the global network of PricewaterhouseCoopers firms.
9.2This clause is for the benefit of the third parties referred to herein and they may enforce this clause under the Contracts (Privity) Act 1982.
[8] PwC’s terms of engagement dated 1 December 2015 included the same clauses as the earlier terms of engagement except that clause 9.2 provided:
9.2 Clause 9.1 is for the benefit of PwC’s partners, employees, contractors, sub-contractors, and other PricewaterhouseCoopers firms and their employees, contractors and sub-contractors who may enforce this clause under the Contracts (Privity) Act 1982.
[9] In February 2018 RBNZ applied to the Court for the appointment of interim and permanent liquidators of CBLI. The Court appointed the second plaintiffs as interim liquidators on 23 February 2018 and CBLI ceased writing business following their appointment.
[10] In March 2018 the interim liquidators confirmed to Mr Rhodes that they would ensure PwC was paid for continued actuarial services, the 2015 engagement letter remained in place and the restrictions set out would continue to apply.
[11] On 12 November 2018 CBLI was placed into liquidation with the second plaintiffs appointed as liquidators.
Statement of claim
[12] In December 2019 the plaintiffs commenced proceedings against six directors of CBLI seeking to recover losses of $316 million and against the actuary defendants seeking to recover $278 million.
[13]Relevantly, the statement of claim pleads:
(a)specific transactions and their implications for the calculation of CBLI’s Catastrophe Risk Capital Charge (CRCC) and CBLI’s solvency margin/ratios;
(b)that CBLI has been in breach of the solvency requirements of its insurance license since 2013;
(c)in relation to CBLI’s reserve strengthening in 2017 for prior underwriting years, that the determination by CBLI’s directors of its net ultimate loss ratios between 2014 and 2017 was unreasonably optimistic and implied that the business was extremely profitable, when in fact it was balance sheet insolvent during that entire period due to systematic under-pricing of premia in its French construction business, under-reserving and payment of dividends in circumstances when no profits had been earned;
(d)that the properly assessed net ultimate loss ratios for those same lines of the French construction business were between 29.4 per cent and 108 per cent at 31 December 2017;
(e)that as the appointed actuary of CBLI, Messrs Mackay and Rhodes were responsible for advising the company on the valuation of insurance liabilities, comprising outstanding claims liabilities and premium liabilities between August 2014 and November 2018;
(f)that the upwards restatement of prior year reserves as at 31 December 2018 implied that CBLI’s previous reserves had been too low and that future claim payments would be higher than expected at the last valuation; and the upwards restatements within the reserves across the valuations at 31 December 2016, 30 June 2017 and 31 December 2017 indicate that reserves had previously been systematically too low;
(g)that one of the consequences of CBLI’s past under-reserving from at least 2013 to 2017 was that CBLI had reported inflated profits between 2013 and 2016, because the reality was that no profits had been earned in any of those years;
(h)that the CRCC for non-life insurers is intended to protect the licensed insurer’s solvency position from the potential exposure of the licensed insurer to extreme events; and
(i)that the CRCC was understated in each of the years to 31 December 2013 to 2015.
[14] In relation to the actuary defendants, the statement of claim pleads their role, including performing or reviewing all aspects of the solvency ratio calculations to ensure that the calculations are complete and accurate, and terms of engagement.
[15]The three causes of action pleaded against the actuary defendants are:
(a)breach of contract by PwC (seventh cause of action);
(b)duty of care (negligence) by PwC, Mr Mackay and Mr Rhodes (eighth cause of action); and
(c)breach of statutory duty by Mr Mackay and Mr Rhodes (ninth cause of action).
[16]I set out the pleaded breach of contract in the seventh cause of action in full:
In breach of its duties to CBLI between September 2014 and February 2018 PwC, including through its employees (the eighth and ninth defendant):
a.Submitted Grant Mackay for the role of Appointed Actuary either knowing that he had insufficient relevant experience for that role, or being reckless as to the risks to CBLI arising from him taking that role;
b.Failed adequately to supervise and provide guidance to Mr Mackay as Appointed Actuary, having regard to his lack of relevant experience;
c.Represented to CBLI that Mr Mackay had sufficient relevant experience to perform his duties as Appointed Actuary for CBLI, when each of the seventh to ninth defendants knew that Mr Mackay lacked the relevant experience to do so, or were reckless as to the accuracy of that representation.
d.Failed to characterise CBLI as a high risk client and therefore to take appropriate steps to mitigate against the risks set out in sub- paragraphs (e) to (r) below;
e.Failed to recognise that CBLI had failed to:
i.address all of the issues raised in the KPMG report [prepared for RBNZ in August 2013], specifically with regard to reserving, inter alia;
ii.follow Mr Davies’ recommendations made in the context of the 2013 [Financial Condition Report]; or
iii.comply with the Reserve Bank’s invitation to revisit the issue of solvency following the latter’s letter of 23 September 2014, in which the Reserve Bank noted that it was “not convinced that the 31 December 2013 solvency return for CBL, appropriately applied the Solvency Standard.”.
and those matters remained unresolved issues which had still to be addressed and remained fundamental concerns in relation to the continued and current operation of CBLI and its reserving.
f.Failed to take account of the fact that over 90% of the business written by CBLI was in jurisdictions other than New Zealand and consequently required insight from actuarial and other professionals in the respective jurisdictions in which that business was written. This is despite that [sic] PwC made specific reference in its pitch to CBLI to its international network of firms on which it could call for any assistance required.
g.Adopted valuation assumptions and results advised to them by CBLI’s directors and Mr Mulholland, without adequate investigation and without making it clear that they were not the findings of the Appointed Actuary;
h.Accepted what PwC personnel were told by CBLI’s directors and Mr Mulholland, without sufficient investigation or challenge;
i.Continued to use inadequate and inaccurate data over an extended period, while continuing to say that the data was adequate.
j.Failed to question apparent anomalies and changes in the data they were given during their tenures;
k.Established reserves for the French Construction business without adequate knowledge of the French market and without taking adequate steps to gain the benefit of relevant expertise, despite the availability of public domain information on that market and relevant expertise elsewhere in the PwC network on which they could have called for assistance, advice and guidance. This led to systematic under-reserving by CBLI over several years, which was then corrected at 31 December 2017 by a $174 million reserve strengthening, representing an 88% increase in the reserve from the immediate prior period claims, in circumstances in which a restatement of anything more than 10% would ordinarily raise concerns about the adequacy of that insurer’s prior reserving.
l.Failed to carry out adequate analysis of the available claims experience.
m.Presented sensitivity analysis that did not present reasonable stress testing of key valuation assumptions;
n.Accepted interpretations of aspects of the Solvency Standard made by CBLI’s directors and Mr Mulholland that could not be justified based on the wording of the standard and the application of professional judgement.
o.Failed to consider the large Premium Debtor asset in the solvency calculations and the FCRs;
p.Failed to advise CBLI in terms of paragraph 125(f) of the Solvency Standard in relation to business with risk characteristics not adequately covered by the standard;
q.Failed to avail themselves of the Appointed Actuary’s statutory power to require CBLI’s directors and Mr Mulholland to provide them with such information and explanations as they thought necessary for the performance of the duties as an Appointed Actuary;
r.Failed to draw attention to the fact that in meeting the Appointed Actuary’s obligations under section 77 of IPSA, each of Messrs Mackay and Rhodes carried out a review of information prepared by CBLI rather than either of them carrying out a valuation that was then recommended to CBLI for adoption by it. This was in circumstances
in which PwC’s engagement terms with CBLI stated that PwC would prepare valuations (paragraphs 260.a and 262.a above).
s.Following his appointment as Appointed Actuary, Mr Rhodes failed to devote sufficient time and attention to the requirements of the role;
i.Delegating most work to Ben Coulter over the period of Mr Rhodes’ tenure as Appointed Actuary, leading to the failings listed above and resulting in Mr Coulter acting more as an advocate for CBLI than complying with the duties and professional obligations of an Appointed Actuary;
ii.Also delegating work to junior and highly inexperienced members of the PwC team, and failing adequately to supervise and support them in the carrying out of their work, including their communications with CBLI;
iii.Attending only one of the six Audit and Risk committee meetings in person and four others by telephone, and failing adequately to contribute when attending.
[17] This seventh cause of action relates to both actuarial services and additional services.
[18] The eighth cause of action pleads a duty of care owed by the actuary defendants. The existence of the duty is not in issue for present purposes.
[19] The ninth cause of action pleads that Mr Mackay and Mr Rhodes owed to CBLI a statutory duty pursuant to IPSA to:
a.Review the actuarial information contained in, or used in the preparation of, the financial statements of group financial statements of CBLI;
b.Ensure that the review is in accordance with the applicable solvency standards published by the Reserve Bank pursuant to IPSA;
c.Prepare a report in accordance with section 78 IPSA opining on whether:
i.The actuary has obtained all information and explanations required;
ii.In the actuary’s opinion, the information contained in the financial statements has been appropriately included in the financial statements, and the actual information used in the preparation of the financial statements has been appropriately used;
iii.In the actuary’s opinion, the insurer is maintaining its solvency margin.
[20] The particulars of the pleaded breaches of duty in both the eighth and ninth causes of action simply cross-refer back to the pleading in the seventh cause of action set out above.
Strike out application
[21] In August 2020 the actuary defendants filed their strike out application. In the alternative, they seek to have the application of the liability cap determined as a separate question. The relevant orders sought are:
a.striking out or staying the eighth and ninth causes of action in the plaintiffs’ statement of claim dated 20 December 2019 against Messrs Mackay and Rhodes;
b.striking out or requiring the plaintiffs to re-plead those parts of the seventh, eighth and ninth causes of action seeking damages against the [actuary] defendants in excess of the liability cap in clause 6.1(iv) of the parties’ terms of engagement, or, in the alternative, an order granting leave to determine as a separate question the application of the said liability cap;
[22] Thus, the focus of the application is on the claims against Messrs Mackay and Rhodes individually and on the liability cap. There is no attempt to strike out the seventh or eighth causes of action against PwC other than in relation to the cap. The applicants also do not seek to strike out the eighth cause of action (negligence) on the basis it is unarguable that Messrs Mackay and Rhodes owe a (common law) duty of care to CBLI; their focus is on contractual exclusion of liability.
Issues
[23] The parties framed the issues somewhat differently. Mr O’Brien QC, for the actuary defendants, relied first on the contractual exclusion and in the alternative submitted that there is no breach of statutory duty cause of action (that is, a duty enforceable by private action) whereas Mr Tingey, for the plaintiffs, addressed the statutory duty first. As Mr Tingey’s argument extends to saying the statutory scheme precludes contractual exclusion or limitation of liability for breach of statutory duty and negligence, I consider the issues are best reconciled and addressed as follows:
(a)whether the breach of statutory duty claim against Mr Mackay and Mr Rhodes (the ninth cause of action) is reasonably arguable;
(b)whether the statutory scheme precludes appointed actuaries from excluding or limiting their liability;
(c)whether the terms of engagement preclude claims against Mr Mackay and Mr Rhodes (clause 9 of the terms of business);
(d)whether the terms of engagement limit the liability of PwC, Mr Mackay and Mr Rhodes such that claims against them in excess of the cap are not reasonably arguable, or are vexatious or an abuse of process, and should be struck out (clause 6 of the terms of business); and
(e)alternatively, whether the liability cap issue should be determined as a separate question.
Approach on strike out applications
Rule 15.1(1) of the High Court Rules 2016 provides:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
[25] The approach on applications to strike out on the ground of no reasonably arguable cause of action is well established.3 The Court proceeds on the assumption that the facts pleaded in the statement of claim are true. Before the Court may strike out proceedings, the causes of action must be so clearly untenable that they cannot
3 Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267, approved in Carter Holt Harvey Ltd v Ministry of Education [2016] NZSC 95, [2017] 1 NZLR 78 at [10].
possibly succeed. The jurisdiction is to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material, but the jurisdiction is not excluded by the need to decide difficult questions of law requiring extensive argument.
[26] The other grounds for strike out are somewhat interrelated. In Commissioner of Inland Revenue v Chesterfields Preschools Ltd, the Court of Appeal said:4
The grounds of strike out listed in r 15.1(1)(b)–(d) concern the misuse of the court’s processes. Rule 15.1(1)(b), which deals with pleadings that are likely to cause prejudice or delay, requires an element of impropriety and abuse of the court’s processes.5 Pleadings which can cause delay include those that are prolix; are scandalous and irrelevant; plead purely evidential matters; or are unintelligible. In regards to r 15.1(1)(c), a “frivolous” pleading is one which trifles with the court’s processes, while a vexatious one contains an element of impropriety.6 Rule 15.1(1)(d) – “otherwise an abuse of process of the court”
– extends beyond the other grounds and captures all other instances of misuse of the court’s processes, such as a proceedings that has been brought with an improper motive or are an attempt to obtain a collateral benefit.7 An important qualification to the grounds of strike out listed in r 15.1(1) is that the jurisdiction to dismiss the proceeding is only used sparingly. The powers of the court must be used properly and for bona fide purposes. If the defect in the pleadings can be cured, then the court would normally order an amendment of the statement of claim.
[27] Partial strike out is contemplated by r 15.1, and available with caution where it would promote the efficient resolution of the proceeding.8
Breach of statutory duty claim
Legal principles
[28] It is common ground that to succeed in an action for breach of statutory duty, a plaintiff must establish that the statute in question creates a duty enforceable by private action.9 Whether an enactment gives rise to a cause of action for breach of
4 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679 at [89].
5 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR15.1.03].
6 At [HR15.1.04].
7 At [HR15.1.05(1)].
8 Body Corporate 360683 v Auckland Council [2017] NZHC 1785 at [31]-[37]; and Auckland City Council v Effuzi (International) Ltd HC Auckland CIV-2009-404-6044, 19 October 2011 at [103].
9 See Stephen Todd and others Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at 460.
statutory duty is a question of construction.10 As Lord Simonds put it in Cutler v Wandsworth Stadium Ltd:11
The only rule which in all circumstances is valid is that the answer must depend on a consideration of the whole Act and the circumstances, including the pre-existing law, in which it was enacted.
[29] In R v Deputy Governor of Parkhurst Prison, ex parte Hague, Lord Bridge said “the question whether an enactment gives rise to a cause of action for breach of statutory duty is a question of ascertaining the intention of the legislature”.12
[30] So, it is also common ground that, in the absence of an express statement in the statute, the intention of Parliament must be inferred, adopting the usual principles of statutory interpretation; that is, the wording of the relevant provisions, their purpose and scope, the circumstances in which the statute was passed and the scheme of the statute as a whole. Extrinsic materials may assist.13
[31] Although a number of the leading cases refer to statutes, breach of a regulation can also give rise to a cause of action for breach of statutory duty.14 The duty, although imposed by regulation, must be treated as imposed by the statute under the authority of which the regulation was made.15
[32] In Select 2000 Ltd v ENZA Ltd, the Court of Appeal agreed with the learned authors of Todd, The Law of Torts in New Zealand, that while the two so-called tests of statutory intention (“identifiable class” and “alternative modes of enforcement”) may be helpful, they are not necessarily determinative and “it cannot realistically be said that any presumptions exist one way or the other…”.16 With that important
10 Select 2000 Ltd v ENZA Ltd [2002] 2 NZLR 367 (CA) at [40].
11 Cutler v Wandsworth Stadium Ltd [1949] AC 398 (HL) at 407.
12 R v Deputy Governor of Parkhurst Prison, ex parte Hague [1992] 1 AC 58 (HL) at 159; and similarly at 170 per Lord Jauncey. See also X (Minors) v Bedfordshire County Council [1995] 2 AC 633 (HL) at 731 per Lord Browne-Wilkinson; and State of South Australia v Peat Marwick Mitchell & Co (1997) 24 ACSR 231 (SASC) at 260. See generally Stephen Todd and others Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [8.2.02].
13 Todd on Torts (8th ed) at [8.2.02].
14 Dominion Air Lines Ltd (in liq) v Strand [1933] NZLR 1 (SC) at 35 per Myers CJ, at 46 per Ostler J and at 73 per Kennedy J. Select 2000 Ltd v ENZA Ltd [2002] 2 NZLR 367 (CA) also involved consideration of regulations without suggesting otherwise.
15 Dominion Air Lines at 73 per Kennedy J.
16 Select 2000 at [43] citing Stephen Todd The Law of Torts in New Zealand (3rd ed, Brookers, Wellington, 2001) at [7.2.3]. See now Todd on Torts (8th ed) at [8.2.03].
caveat, the identifiable class test is whether the statute was passed for the benefit of an ascertainable class of persons; if so, it is more likely to be actionable by members of that class.17 The alternative modes of enforcement test is that, if the statute does not provide expressly for any penalty or remedy for breach of it, there is a greater likelihood of a damages action having been intended.18
[33] For example, in Select 2000, it was held that it was not intended that breach of the terms of a statutory export licence gave a civil right of action for damages to ENZA even though the statutory scheme continued its preeminent role in the export of apples and pears.19 Specific attention was given to compensation in the regulations. The regulations did not address the export ban or remedies for its breach but indicated that matters of compensation and enforcement were considered and provided for, leading to the inference that express provision would have been made for compensation or damages if it had been intended that a breach would give rise to a civil remedy. There was provision for a criminal penalty and breach would be relevant to obtaining further permits and arguably could lead to revocation.
[34] While there are no presumptions as indicated, in the Court of Appeal in Wool Board Disestablishment Co Ltd v Saxmere Co Ltd, Hammond J said that:20
… a court will not lightly imply such a right, for it requires the court to read the statute as if such a private law right should exist, and in a sense is obvious. As was I think made plain enough in X (Minors) v Bedfordshire County Council the reviewing Judge must be driven to the view that something is necessary to achieve the purpose of the statute, and therefore, objectively within the intention of the legislature, yet was not provided for.
[35] It is also common ground that if a statutory duty gives rise to a private right of action, breach of that duty does not require negligence. There is no such cause of action as negligent breach of statutory duty.21 Any question of an implied duty to take care is to be assessed in the context of whether a common law duty of care exists.22
17 See for example, X (Minors) v Bedfordshire County Council [1995] 2 AC 633 (HL) at 731.
18 At 731.
19 Select 2000 Ltd v ENZA Ltd [2002] 2 NZLR 367 (CA).
20 Wool Board Disestablishment Co Ltd v Saxmere Co Ltd [2011] 2 NZLR 442 (CA) at [188] (footnotes omitted).
21 Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [41]-[43], citing X (Minors) at 730-731.
22 Carter at [44].
Susceptibility to strike out
[36] Although Mr Tingey accepted that whether IPSA gives rise to a private right of action is a question of statutory construction, he submitted this is a novel duty case involving a complex and unreviewed statutory scheme, and the Court should be careful not to strike out the breach of statutory duty cause of action without a trial. He emphasised that the Court is reluctant to strike out where the facts are complicated and there is limited evidence available to the parties. He also submitted that given the policy considerations, third parties such as RBNZ may wish to intervene.
[37] I accept the claim is novel. I have not been referred to a case considering whether any duties in IPSA give rise to a private right of action. In Attorney-General v Prince and Gardner, the Court of Appeal addressed the submission that the courts should be very slow to rule on novel categories of duty at the striking out stage.23 The Court drew a distinction between cases where the policy considerations require the kind of analysis and testing of expert evidence that is available only at trial, and cases where the policy considerations are explicit or implicit in the relevant legislation. The Court struck out some causes of action but held that the negligence cause of action raised factual and policy considerations and it would be premature to rule out any possibility of a duty of care before trial.
[38] The novel claim here is one of breach of statutory duty (not common law duty of care). As indicated, the existence of such a private right of action is a question of statutory construction – that is, a question of law. Attorney-General v Carter, X (Minors) v Bedfordshire County Council and State of South Australia v Peat Marwick Mitchell & Co are strike out cases involving breach of statutory duty claims.24 Given the applicable legal principles in the context of this breach of statutory duty claim, I consider the relevant policy considerations are those that are explicit or implicit in IPSA, including by reference to the legislative background.
23 Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267.
24 Attorney-General v Carter [2003] 2 NZLR 160 (CA), X (Minors) v Bedfordshire County Council [1995] 2 AC 633 (HL); and State of South Australia v Peat Marwick Mitchell & Co (1997) 24 ACSR 231 (SASC). Select 2000 Ltd v ENZA Ltd [2002] 2 NZLR 367 (CA) was a summary judgment case.
[39] Further, for the same reason I do not consider the factual setting requires elucidation of the factual matrix by way of evidence at trial before the question of construction can be addressed. Finally, RBNZ has not sought to intervene and I see no basis to decline to address the question of statutory construction at this stage on the basis of possible interveners.
[40] For these reasons, I consider the question of statutory construction may be determined on a strike out application.
Statutory scheme
[41] It is common ground that IPSA provided a new and comprehensive regulatory system for insurance providers in New Zealand. Given the nature of the assessment of legislative intention referred to, and the parties’ submissions, it is necessary to refer to IPSA and the related legislative material in some detail.
Regulatory Impact Statement
[42] To explain IPSA in the context prevailing before it was enacted in 2010, Mr Tingey referred to the 2009 RBNZ Regulatory Impact Statement (RIS).25 This indicated that the previous prudential regulatory scheme overseen by the Insurance and Superannuation Unit in the Ministry of Economic Development was minimal in scope and the arrangements were inadequate in several respects: inconsistency of regulatory requirements and supervision across different sectors, the absence of minimum entry requirements and insufficient monitoring and enforcement powers for the regulator.26 The reasons why the status quo was not viable included that failure of a major insurer could be catastrophic for (some) policyholders, the existing regulatory arrangements did not adequately meet the proposed policy objective of encouraging the maintenance of a sound and efficient insurance sector that promotes policyholder confidence; and the lack of sufficient supervision, including an absence of prudential requirements relating to solvency and capital
25 Reserve Bank of New Zealand Regulatory Impact Statement, Review of Financial Products and Providers: Prudential Regulation of Insurance (29 October 2009).
26 At [3].
adequacy, meant that there was little capacity to promote a minimum level of prudential soundness in the insurance sector.27
[43] The RIS said that a relatively light-handed, risk-based approach to regulation and supervision was considered to be the most appropriate approach to regulatory intervention.28 Features would include that all insurers would be required to be licensed by RBNZ. Only entities that meet the required standards would be licensed, including standards relating to solvency and capital adequacy and compliance with prudential standards.29 The financial strength of insurers would be measured using minimum solvency and capital adequacy requirements, together with any additional calibration that may be required to recognise institution or sector risks. Insurers would be required to comply with minimum standards in relation to solvency and capital adequacy designed to promote a relatively low probability of default. These requirements would be modelled on appropriate international and industry standards, and developed in liaison with the insurance industry. The detailed requirements would be set out in regulations which would give legal backing to New Zealand actuarial standards and provide a sound basis for ensuring the financial strength of the sector.30
[44] Relevantly, the RIS stated that each insurer must use a qualified actuary to arrive at the valuation of insurance liabilities and any other asset or liability required by New Zealand actuarial standards (i.e. those standards adopted by RBNZ for its prudential requirements), included within an insurer’s financial accounts. RBNZ must have no objection to the actuary and auditor of the insurer. RBNZ has the power, at licensing of an insurer and on an ongoing basis, to disapprove either the insurer’s auditor or the insurer’s actuary where RBNZ has serious concerns about their professional competence or integrity.31
27 At [22].
28 Reserve Bank of New Zealand Regulatory Impact Statement Review of Financial Products and Providers: Prudential Regulation of Insurance (29 October 2009) at [5] and [43].
29 At [5] and [43].
30 At [5] and [52].
31 At [66] and see [58]-[59].
[45] There was also a short executive summary regulatory impact statement in the Explanatory note to the Insurance (Prudential Supervision) Bill.32 This did not refer specifically to the role of the appointed actuary.
IPSA
[46] Part 1 of IPSA contains preliminary provisions, including IPSA’s purposes and principles:
3Purposes
(1)The purposes of this Act are to—
(a)promote the maintenance of a sound and efficient insurance sector; and
(b)promote public confidence in the insurance sector.
(2)Those purposes are achieved by—
(a)establishing a system for licensing insurers; and
(b)imposing prudential requirements on insurers; and
(c)providing for the supervision by the Reserve Bank of New Zealand (the Bank) of compliance with those requirements; and
(d)conferring certain powers on the Bank to act in respect of insurers in financial distress or other difficulties.
4Principles to be taken into account under this Act
In achieving the purposes of this Act, the Bank must take into account the following principles that are relevant to the performance of functions or duties imposed, or the exercise of powers conferred, on the Bank by this Act:
(a)the importance of insurance to members of the public in terms of their personal or business risk management:
(b)the importance of maintaining the sustainability of the New Zealand insurance market:
(c)the importance of dealing with an insurer in financial distress or other difficulties in a manner that aims to—
32 Insurance (Prudential Supervision) Bill 2010 (95-1) (explanatory note) at 32.
(i)adequately protect the interests of its policyholders and the public interest; and
(ii)ensure that any failure, or possible failure, of the insurer does not have the potential to significantly damage the financial system or the economy of New Zealand:
(d)the importance of recognising—
(i)that it is not a purpose of this Act to eliminate all risk of insurer failure; and
(ii)that members of the public are responsible for their own decisions relating to insurance:
(e)the desirability of providing to the public adequate information to enable members of the public to make those decisions:
(f)the desirability of consistency in the treatment of similar institutions (while recognising that the New Zealand insurance market comprises a diversity of institutions):
(g)the need to maintain competition within the insurance sector:
(h)the need to avoid unnecessary compliance costs:
(i)the desirability of sound governance of insurers:
(j)the desirability of effective risk management by insurers.
[47] In Part 2, IPSA deals with licensing and prudential regulation of insurers. Subpart 1 deals with licensing of insurers. The licensing process includes requirements to ensure that directors and relevant officers, including the appointed actuary, are fit and proper persons.33 Subpart 2 deals with prudential regulation of insurers, including provision for RBNZ to issue solvency standards.34 Section 56 sets out the matters that may be contained in solvency standards. As well as the minimum amount of capital and the method for calculating a solvency margin, solvency standards may relevantly prescribe:
(d)requirements relating to reports about the financial condition of a licensed insurer and other reports relating to the solvency of the licensed insurer (including requirements relating to the information that must be contained in the reports, who must prepare the reports, how often the reports must be prepared, other matters concerning the preparation of reports, to whom
33 Section 18. See also ss 34-37.
34 Section 55.
the reports must be provided, and when the reports must be provided):
…
(h) matters relating to the manner in which a review of actuarial information under section 77 is to be carried out (including specifying information as being actuarial information for the purposes of that section).
[48] The appointment of an actuary and actuarial review are dealt with in ss 76 to 78. Section 76 prescribes appointment:
76Requirement for licensed insurers to have appointed actuary
(1)A licensed insurer must have an actuary appointed by the insurer.
(2)A licensed insurer may, at any time, appoint an alternate actuary to act as the insurer’s appointed actuary if the person appointed under subsection (1) is unable to act (whether by reason of absence or illness or otherwise).
(3)The licensed insurer must, within 6 weeks after a person stops being the appointed actuary under subsection (1) or within any longer period allowed by the Bank, appoint another person to be an appointed actuary (unless the person is replaced under section 149 or 192).
(4)A licensed insurer must not appoint a person under subsection
(1) or (2) unless the person is an actuary and is, in accordance with the insurer’s fit and proper policy, a fit and proper person to hold the position.
(5)A person appointed under subsection (1) or (2) may be an employee of the licensed insurer or engaged under a contract for services.
[49]Section 77 provides for the actuary’s review:
77Review of actuarial information in, or used in the preparation of, financial statements
(1)A licensed insurer must ensure that the actuarial information contained in, or used in the preparation of, the financial statements or group financial statements of the insurer referred to in section 81(1) is reviewed by the appointed actuary.
(2)The licensed insurer must take all practicable steps to ensure that the review is completed, and the report referred to in section 78 in respect of the review is prepared, before the date
on which the financial statements or group financial statements are required to be given to the Bank under section 81.
(3)The review must be carried out in accordance with an applicable solvency standard.
(4)For the purposes of this section and section 78, actuarial information means—
(a)information relating to an insurer’s calculations of premiums, claims, reserves, dividends, insurance and annuity rates, and technical provisions; and
(b)information relating to assessments of the probability of uncertain future events occurring and the financial implications for the insurer if those events do occur; and
(c)information specified in an applicable solvency standard as being actuarial information for the purposes of this section.
(5)A licensed insurer commits an offence if it fails to comply with this section and is liable, on conviction, to a fine not exceeding $500,000.
[50]Section 78 deals with the requirements of an appointed actuary’s report:
78Appointed actuary’s report
The appointed actuary’s report in respect of a review under section 77 must state—
(a)the actuary’s name; and
(b)the work done by the actuary; and
(c)the scope and limitations of the review; and
(d)the existence of any relationship (other than that of actuary) that the actuary has with, or any interests that the actuary has in, the licensed insurer or any of its subsidiaries; and
(e)whether the actuary has obtained all information and explanations that he or she has required; and
(f)whether, in the actuary’s opinion and from an actuarial perspective,—
(i)the actuarial information contained in the financial statements and any group financial statements has been appropriately included in those statements (and if not, the respects in which it has been inappropriately included); and
(ii)the actuarial information used in the preparation of the financial statements and any group financial statements has been used appropriately (and if not, the respects in which it has been used inappropriately); and
(g)whether, in the actuary’s opinion and from an actuarial perspective, the licensed insurer is maintaining the solvency margin that applies under a condition imposed under section 21(2)(b) (as at the balance date of the insurer); and
(h)in the case of a life insurer, whether, in the actuary’s opinion and from an actuarial perspective, the life insurer is maintaining the solvency margins that apply in respect of its statutory funds under a condition imposed under section 21(2)(c) (as at the balance date of the insurer).
[51] Section 80 provides for any specified actuary to have reasonable access to information from the licensed insurer.
[52]A copy of the appointed actuary’s s 78 report is to be provided to RBNZ.35
[53] Part 3 of IPSA deals with prudential supervision of licensed insurers, including provisions relating to the supply of information. Sections 127 to 129 provide:
127Disclosure of information to Bank by auditors and actuaries
Every person who holds, or at any time has held, office as required by any enactment, as an auditor of a licensed insurer or of an associated person of a licensed insurer or as an appointed actuary, must disclose to the Bank information relating to the affairs of the insurer or associated person obtained in the course of holding that office if, in the opinion of that person,—
(a)the licensed insurer or associated person—
(i)is failing to maintain a solvency margin or is likely to fail to maintain a solvency margin at any time within the next 3 years; or
(ii)is in serious financial difficulties; or
(iii)is, or has been, operating fraudulently or recklessly; and
(b)the disclosure of that information is likely to assist, or be relevant to, the exercise by the Bank of its powers under this Act.
35 Section 81(1)(b).
128Auditor or actuary to inform of intention to disclose
Every auditor or actuary must, before disclosing any information to the Bank under section 127, take reasonable steps to inform the licensed insurer or associated person of the intention to disclose the information and the nature of the information.
129Protection of auditors and actuaries
(1)No civil, criminal, or disciplinary proceedings lie against any auditor or actuary arising from the disclosure in good faith of information to the Bank under section 127.
(2)No tribunal, body, or authority having jurisdiction in respect of the professional conduct of any auditor or actuary may make any order against, or do any act in relation to, that person in respect of the disclosure referred to in subsection (1).
(3)No information received by the Bank under section 127 is admissible in evidence in any proceedings against the auditor or actuary concerned.
(4)Nothing in subsection (3) limits the admissibility of any information obtained in any other way.
[54] Part 4 of IPSA deals with distress management. Part 5 contains miscellaneous provisions, including offences, protection from liability and indemnity, and the status of solvency standards. The primary offence provision is section 215:
215 False declarations and representations
(1)Every person commits an offence who, for any purpose relating to this Act, either on the person’s own behalf or on behalf of any other person,—
(a)either orally or in writing, makes any declaration or representation to the Bank or an investigator that, to the person’s knowledge, is false or misleading in any material particular; or
(b)supplies to the Bank or an investigator any document knowing it to contain any declaration or representation of that kind; or
(c)supplies to the Bank or an investigator a document knowing that it is not genuine.
(2)Every person who commits an offence under this section is liable on conviction,—
(a)in the case of an individual, to a fine not exceeding $200,000:
(b)in the case of a body corporate, to a fine not exceeding
$500,000.
(3)This section does not apply in the case of section 17(4) or 201(4).
[55] Protection from liability and indemnity provisions are in ss 230 and 231, which state:
230Protection from liability
(1)This section applies to—
(a)the Bank; and
(b)every statutory manager of a licensed insurer or of an associated person or of a subsidiary of a licensed insurer; and
(c)every officer or employee of the Bank; and
(d)every investigator; and
(e)every director of the Bank.
(2)No person to whom this section applies is liable for an act done or omitted to be done in the performance or exercise in good faith of the person's functions, duties, or powers under this Act.
(3)This section and section 231 are subject to subpart 7 of Part 4 of the Search and Surveillance Act 2012.
231Indemnity
(1)The Crown indemnifies the persons listed in subsection (2) for any liability that arises from the exercise or purported exercise of, or omission to exercise, any power conferred by this Act unless it is shown that the exercise or purported exercise of, or omission to exercise, the power was in bad faith.
(2)The persons are—
(a)the Bank; and
(b)every statutory manager of a licensed insurer or of an associated person or of a subsidiary of a licensed insurer; and
(c)every officer or employee of the Bank; and
(d)every investigator; and
(e)every director of the Bank.
(3)Any money required for the purposes of this section must be paid out of a Crown Bank Account without further authority than this section.
(4)The indemnity conferred by subsection (1) extends to legal costs incurred in defending a proceeding.
(5)Within 12 sitting days of the making of any payment under this section, the Minister must present to the House of Representatives a report that contains details of the circumstances giving rise to the liability of the Crown, the amount of the payment, the person to whom the payment was made, and any other relevant matters.
[56] Section 233 provides that solvency standards are disallowable instruments, but not legislative instruments, for the purposes of the Legislation Act 2012, and must be presented to the House of Representatives in accordance with s 41 of that Act.
Solvency Standard for Non-life Insurance Business
[57] RBNZ issued a Solvency Standard for Non-life Insurance Business in 2011, which was revoked and replaced by the Solvency Standard for Non-life Insurance Business 2014 (Solvency Standard). Submissions focused on the 2014 version, with reference made to the following relevant provisions:
10.The appointed actuary of the licensed insurer must be responsible to the board of the licensed insurer for performing or reviewing all aspects of the Solvency Margin calculations to ensure the calculations are complete and accurate. Under the Act, the licensed insurer is responsible for compliance with all conditions of licence, including a condition to maintain a Solvency Margin, and is responsible for compliance with the reporting and disclosure requirements of the solvency standard.
…
Actuarial Review
54.The appointed actuary of the licensed insurer must review the basis on which the Catastrophe Risk Capital Charge has been calculated. In carrying out this review, the appointed actuary must consider all relevant factors. If the appointed actuary has any concerns with respect to the Catastrophe Risk Capital Charge, the appointed actuary must report them to the licensed insurer’s board as soon as reasonably possible and report those matters to the Reserve Bank along with the licensed insurer’s solvency calculation.
55.If the appointed actuary is of the opinion that the Extreme Event Exposure of the licensed insurer or other form of catastrophe risk (in
the case of non- property exposure) is not adequately reflected in the Catastrophe Risk Capital Charge, the appointed actuary must recommend an alternative method of calculation for determining the Catastrophe Risk Capital Charge for the licensed insurer. Any alternative method of calculation must be agreed by the Reserve Bank. The licensed insurer must use that alternative method.
…
4.4. Financial Condition Report by the Appointed Actuary
103. A licensed insurer must engage its appointed actuary to prepare a Financial Condition Report for the licensed insurer and must do everything necessary to enable the appointed actuary to undertake this function.
…
5.Obligations of the appointed actuary
5.1Financial Statements
111.Section 77 of the Act requires that the licensed insurer ensure that actuarial information contained in, or used in the preparation of, the financial statements or group financial statements is reviewed by the appointed actuary. …
112.If it is the licensed insurer’s established policy to seek the advice of the appointed actuary in respect of part or all of this actuarial information and to always adopt that advice in its financial statements or group financial statements, then the advice from the appointed actuary to the licensed insurer satisfies the review requirements.
113.In other circumstances the appointed actuary must undertake whatever additional work is necessary in order to complete the review.
114.In completing the review the appointed actuary may need to utilise the skills and experience of other experts in accordance with paragraph 126.
115.The appointed actuary’s review must cover the following actuarial information:
(a)net outstanding claims calculated in accordance with NZ IFRS 4 including:
i.central estimate of expected claims and recoveries;
ii.discounting at a risk free rate;
iii.allowance for claim handling expenses; and
iv.a risk margin intended to provide the specified probability of sufficiency;
(b)application of the liability adequacy test; and
(c)the level of deferred acquisition cost in the financial statements or Alternative Financial Information after the application of the liability adequacy test as detailed in Section 2.7.
…
117. The appointed actuary must use professional judgement to determine the extent of work required regarding the liability adequacy test, considering the nature and size of the licensed insurer’s business and the Materiality of the risks involved. …
…
120. The appointed actuary must calculate or review all aspects of the Solvency Margin calculations. The results of the calculation or review must be documented in the Financial Condition Report.
…
122. In preparing the Financial Condition Report, the appointed actuary must make due enquiries in order to determine whether the licensed insurer is exposed to any Contingent Liabilities that have not been disclosed in the licensed insurer’s financial statements. …
…
5.3Financial Condition Report
125. The Financial Condition Report prepared by the appointed actuary
must:
(a)identify and describe the Material risks (of which it is reasonable to expect the appointed actuary to be aware) facing the licensed insurer, that in the appointed actuary’s opinion pose a threat to the licensed insurer’s ability to maintain the required Solvency Margin now or in the future, and where practicable quantify such risks;
(b)comment on the steps taken or proposed to be taken by the
licensed insurer to address the risks identified in (a);
(c)identify and describe any Contingent Liabilities, identified in accordance with paragraph 122, that have not been disclosed in the financial statements, comment on the potential size and probability of occurrence of those Contingent Liabilities and the level of uncertainty around these estimates, and describe any steps taken by the licensed insurer to manage the risk associated with those Contingent Liabilities;
…
(f) advise the licensed insurer on the appropriate treatment, for solvency purposes, of any insurance business with long term risk characteristics or any product, activity or insurance business with risk characteristics not adequately covered by this solvency standard.
…
5.4New Zealand Society of Actuaries’ Professional Standards
127. The appointed actuary must ensure that all actuarial work carried out for the purposes of, or supporting, this solvency standard is carried out in accordance with the New Zealand Society of Actuaries’ Professional Standards.
Appendix A: Materiality
…
5.The appointed actuary must consider Materiality relative to the amount of both:
(a)the major individual components of the calculation; and
(b)the overall cumulative effect of those individual components.
Solvency Standards – Regulatory Impact Assessment
[58] Mr Tingey also referred to RBNZ’s Regulatory Impact Assessment, Prudential Regulation of Insurance: Solvency Standards, emphasising the following provisions:36
Executive Summary
1.The case for regulatory intervention within the insurance sector using solvency standards is justified by several market failures and other reasons including the existence of information asymmetry, negative externalities and moral hazard and a need to improve solvency measurement, disclosure and supervisory discipline.
2.The status quo does not allow the Reserve Bank (“Bank”) to adequately measure the financial strength of all insurers to ensure the purposes of the Insurance (Prudential Supervision) Act 2010 (“IPSA”) are met.
…
8. Going forward, the Bank will maintain an ongoing review of the solvency standards to assess whether refinements are necessary in order to improve the measurement of solvency across the New Zealand insurance sector.
36 These standards are available at < asymmetry
13.Policyholders need to know the likelihood that their insurer will be able to pay claims, but currently have insufficient information to assess this. … This market failure is acute in the insurance sector because the complexity of the actuarial valuation and accounting of policyholder liabilities makes insurers’ financial statements difficult to interpret. Solvency measurement directly addresses this market failure by providing relevant information to measure insurers’ financial strength.
…
Solvency measurement and disclosure need to be improved
…
18.Solvency standards allow the Bank to measure the financial strength of insurers in an effective risk-based context. …
Stakeholders
23. The stakeholders who are most affected by the solvency standards are New Zealand policyholders, insurers and their shareholders, the Bank and wider government (particularly Treasury) and the general New Zealand public. The Appointed Actuary of each licensed insurer must prepare or review the calculations prescribed by the solvency standards, so work performed by the New Zealand actuarial profession is also affected by the solvency standards. …
…
Implications of problem
…
26. Failure of a major insurer could be catastrophic for some policyholders, especially those with significant claims outstanding at the time of the insurer failure. …
…
Use of actuaries
98. The insurance prudential regime in New Zealand relies heavily on the important industry role which actuaries perform. A key part of actuaries’ responsibilities is the calculation of their insurer’s solvency position. The solvency standards utilise this reliance on actuaries by requiring that the solvency margin calculations are either prepared or reviewed by the insurer’s appointed actuary.
…
102. The insurer’s Appointed Actuary is responsible for all solvency calculations and the insurer’s board is responsible for all requirements of the solvency standard being met. Implicit within the board’s role is consideration of the assumptions made by the Appointed Actuary. Closely related to these responsibilities, the Appointed Actuary must also review all policy liability information included within the insurer’s financial statements and prepare a separate Financial Condition Report.
…
Actuarial input
157.Actuaries play an important industry role and each insurer is required to appoint an actuary under section 76 of IPSA. The solvency standards echo this tenet by placing significant reliance on the work of the appointed actuary in the calculation of an insurers’ [sic] solvency.
Did Parliament intend a private right of action for breach of IPSA?
[59] IPSA’s dual purposes of promoting the maintenance of a sound and efficient insurance sector and promoting public confidence in the insurance sector are clearly stated. They have a public dimension. As Mr Tingey submitted, appointed actuaries have an important statutory role under IPSA and the Solvency Standard.
[60] Mr O’Brien submitted that IPSA imposes no duty on appointed actuaries themselves and does not confer a private right of action. He submitted the obligations in s 77 are imposed on the licensed insurer rather than the appointed actuary. I accept that is so in relation to subss (1), (2) and (5) and that in general terms the section is aimed at causing the insurer to ensure that the review of actuarial information happens, which tells against a private right of action. But s 77(3) states that the review must be carried out in accordance with an applicable solvency standard, which is also aimed at the appointed actuary. In addition, s 78 imposes obligations on appointed actuaries in relation to their reporting in respect of a review under s 77.
[61] The Solvency Standard contains more specific requirements, including obligations placed on the appointed actuary in Part 5, as Mr O’Brien accepted. Also, as Mr Tingey emphasised, paragraph 10 of the Solvency Standard (in Part 1 – Introduction) states:
The appointed actuary must be responsible to the board of the licensed insurer for performing or reviewing all aspects of the Solvency Margin calculations to ensure the calculations are complete and accurate. …
[62] I therefore accept that IPSA and the Solvency Standard impose duties on appointed actuaries in relation to their reviews and reports,37 albeit that some of the duties are contingent on forming a particular view (to which I return below). The real issue is whether Parliament intended that breach of these duties gives rise to a cause of action for breach of statutory duty.
[63]Mr Tingey submitted it is central to the IPSA regime that there is civil liability
– otherwise there is a lacuna with no one responsible, which would be inconsistent with the legislative framework.
[64] I consider there is nothing specific in ss 76 to 78 relating to appointed actuaries or in ss 55 to 56 relating to the issue of solvency standards that indicates a private right of action was intended. This may be contrasted with the position of a director of a life insurer addressed in s 105. Section 105(1) provides that directors of a life insurer have a duty to the policyholders of life policies referable to a statutory fund of the life insurer to take reasonable care, and use due diligence, to see that, in the investment, administration, and management of the assets of the fund, the life insurer complies with subpart 3 of IPSA (dealing with statutory funds of life insurers) and gives priority to the interests of policyholders of life policies referable to the fund. Moreover, s 105(5) provides that in the event of a loss to a statutory fund of the life insurer, the director is liable to pay to the life insurer an amount equal to the amount of the loss. Subsection (7) provides that an action under subs (5) may be brought by the life insurer or, with the written approval of RBNZ, by the policyholder of a life policy referable to the statutory fund involved. As in Select 2000, this indicates that matters of compensation and enforcement were considered and provided for in the case of directors of life insurers, leading to the inference that express provision would have been made for compensation or damages in the case of appointed actuaries if it had been intended that a breach would give rise to a civil remedy.38
37 IPSA also imposes duties on appointed actuaries to disclose information to RBNZ in certain circumstances: s 127.
38 Select 2000 Ltd v ENZA Ltd [2002] 2 NZLR 367 (CA) at [50].
[65] I also do not consider that the protection for appointed actuaries in s 129 indicates a private right of action was intended, as that protection relates specifically to claims in respect of disclosure to RBNZ. Without such protection, an appointed actuary may have conflicting contractual obligations to the insurer.
[66] As Mr Tingey submitted, s 230 does not provide appointed actuaries with protection from liability. But s 230 applies to RBNZ, its officers, statutory managers and investigators, protecting them from liability. It says nothing about liability of others. I do not consider its lack of reference to appointed actuaries indicates an intention that there be a private right of action against them for breach of statutory duty.
[67] Looking at the statutory scheme more generally, IPSA was enacted for relatively broad public benefit – for the benefit of consumers of insurance services (policyholders) as well as the sustainability of the insurance market. In terms of the “class test”, there is no single ascertainable class of persons. The words of Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council seem apposite in this case:39
Although regulatory or welfare legislation affecting a particular area of activity does in fact provide protection to those individuals particularly affected by that activity, the legislation is not to be treated as being passed for the benefit of those individuals but for the benefit of society in general.
[68] Indeed, Mr Tingey did not suggest that policyholders would have a right of action. He submitted it is the licensed insurer who should benefit from a private right of action. I cannot see anything in Parliament’s intention to support such a distinction. I do not consider that IPSA was passed for the benefit of licensed insurers as an ascertainable class. That also points against a private right of action by CBLI against appointed actuaries for breach of statutory duty.
[69] Further, there is no reference in the RIS or other legislative materials to actuaries having civil liability for breach of statutory duty.
39 X (Minors) v Bedfordshire County Council [1995] 2 AC 633 (HL) at 731-732.
[70] Nor do I consider there is a lacuna in relation to potential civil liability given the contractual relationship between a licensed insurer and its appointed actuary – whether an employee or independent contractor. The insurer appointing the actuary is better placed than policyholders to guard against the risk of an actuary’s non- performance. The appointed actuary will owe the insurer contractual obligations – under a contract for services if not an employee – including a contractual duty of care, whereas policyholders will have no contractual relationship with the actuary. Also, the actuary defendants do not suggest a common law duty of care is untenable.
[71] Mr Tingey also relied on the absence of alternative modes of enforcement, submitting this means there is a greater likelihood of a damages action having been intended. On the other hand, Mr O’Brien submitted the enforcement regime under IPSA points against a private right of action against appointed actuaries. He submitted the primary enforcement mechanisms are administrative law tools and regulatory offences, and in relation to appointed actuaries the primary oversight mechanism is appointment and removal.
[72] As Mr Tingey submitted, s 77(5) provides only for an offence by the insurer for failure to comply with that section, and IPSA does not provide expressly for any penalty or remedy for breach of duty by appointed actuaries except in relation to dealings with RBNZ.40 But I do not consider this particularly points towards an intended private right of action. IPSA provides for enforcement of appointed actuary performance by way of appointment and removal and indirectly by making insurers responsible for the outcome.
[73] The words “must be responsible” in paragraph 10 of the Solvency Standard may imply that the duties must be enforceable in the sense that the appointed actuary is contractually bound to perform the role – whether as an employee or under a contract for services. That is also a mode of enforcement, and I do not consider that paragraph 10 indicates a private right of action for breach of statutory duty was intended.
[74] Turning to other cases relied on, Mr Tingey referred to the Court of Appeal decision in Dominion Air Lines Ltd (in liq) v Strand, where the majority held that civil
40 Section 215.
aviation regulations, made under the Aviation Act 1918, dealing with conditions of carriage of passengers imposed a duty for the benefit of that class which conferred a right of action on a passenger injured by a breach of duty.41 In the result, a different majority found that there was no nexus between the breach and the injury. Myers CJ and Ostler J each acknowledged that the regulation provided for a criminal penalty but considered that was not conclusive,42 and concluded the legislative intention was to create a duty owed to individuals.43 Ostler J said that when the Act was passed, “commercial flying was a new thing” and the purpose of the legislation was not only to provide for the public safety but also for the protection of passengers and goods carried for profit, having in mind the extra risk involved.44 Kennedy J also considered that transport by air was new, the consequences of neglect may well be fatal and a passenger has no effective opportunity of guarding against the dangers arising.45
[75] I consider the combination of factors that led the majority in that case to find the regulations imposed a duty which conferred a right of action is very different from this case. Passengers were an ascertainable class, commercial flying was novel and passengers had no real opportunity to guard against such serious risk. Here, IPSA was not enacted for the benefit of licensed insurers as an ascertainable class; IPSA is (relatively) new but the work of actuaries is not novel; and licensed insurers are better placed to guard against the risk.
[76] As Mr O’Brien submitted, the statutory auditor case of State of South Australia v Peat Marwick Mitchell & Co is more similar to the present case.46 The State of South Australia and its State Bank brought claims, including for breach of statutory duty, against the State Bank’s auditors after the State Bank incurred huge losses. The State Bank was created by legislation, which required the board to cause true and fair accounts to be prepared and appoint auditors who had certain duties to form opinions and report. Addressing the breach of statutory duty claim on a strike out application, Olsson J said:47
41 Dominion Air Lines Ltd (in liq) v Strand [1933] NZLR 1 (SC).
42 At 35 and 43.
43 At 36 and 46-47.
44 At 46.
45 Dominion Air Lines Ltd (in liq) v Strand [1933] NZLR 1 (SC) at 72-73.
46 State of South Australia v Peat Marwick Mitchell & Co (1997) 24 ACSR 231 (SASC).
47 At 261-262.
… Further, the public aim of the statute is, on the face of it, no more than a requirement which ensures that proper audit procedures, according to prescribed standards, are duly commissioned by the bank on a year by year basis. No doubt these are necessarily reflected in any annual or other contractual audit engagement, but it is entirely a different proposition to suggest that the statutory provisions are intended to confer a right of civil action, on breach, on the bank, let alone the Crown. There is nothing in the statute itself which directly infers such an intention. There is not even any penal sanction in the event of breach. The audit provisions appear to be for the benefit of the public at large and not for the protection of a limited class of persons: cf X (minors) v Bedfordshire County Council, supra, at 734.
…
It is to be noted that the primary duty of maintaining true and fair accounts is that of the bank itself and the audit provisions do not purport to impose any specific standard of audit – they merely define its scope. There can be no doubt that the bank, as the primary entity involved, has a clear remedy in both contract and tort in respect of any breach by an auditor of its duties.
…
Further, as authorities such as R v Deputy Governor of Parkhurst Prison; Ex parte Hague [1992] 1 AC 146 at 170-1, readily illustrate, the fact that legislative provisions are intended to confer protection on a specific class of persons, is, of itself, not sufficient to indicate an intention to confer private rights of civil action. Something more is required. As Lord Jauncey of Tullichettle commented, one relevant consideration might be that, “if a statutory duty is prescribed but no remedy by way of penalty or otherwise for its breach is imposed, it can be assumed that a right of civil action accrues to the person who is damnified by the breach. For, if it were not so, the statute would be but a pious aspiration”. The same reasoning is reflected in X (Minors) v Bedfordshire County Council, supra, at 734.
In the case at bar there is simply a general duty to audit according to a specified scope, which in no sense confines the Bank in contracting for an even more extensive scope and nature of audit, which, in fact, it says that it did. The statute itself says nothing of specific “rights” being conferred on either the bank or the Crown. It plainly infers that these are matters to be left to ordinary contractual arrangements, giving rise to normal civil rights, based on, or arising from those contracts. I do not see anything in s 29 of the Bank Act (which limits potential personal liability of directors) which can possibly be taken as “a powerful indication that Parliament intended the auditors to be liable in damages for breach of statutory duty”, as asserted by the plaintiffs. There is no basis in logic for such an assertion.
In short there is nothing in the statute, or the circumstances of its enactment, which remotely gives rise to an indication of intention that statutory rights of civil action are to be conferred on the Bank or the Crown in the event of breach of contractual or other duty by an auditor. On the contrary, the statutory provision in question is for the benefit of the public generally…
It would be odd if, having imposed the primary duty of proper accounting on the Bank, it was to be held that, nevertheless, in the event of its failure to do so, it could sue its auditors for breach of statutory duty in respect of its own
failure. This is the more so as those auditors cannot change those accounts – they may only comment adversely in their report.
Having considered all that has been put to me I am left in no doubt that the plaintiffs’ asserted causes of action based on breach of statutory duty are not reasonably arguable on the face of the legislation and the pleadings. The relevant pleas must be struck out.
[77] That analysis also has some application here – particularly in relation to the class of intended beneficiaries and the fact that the primary duty of maintaining solvency standards is on the licensed insurer.
[78] In Fletcher v National Mutual Life Nominees Ltd, a claim against Deloitte was pleaded as owing duties by statute or at common law.48 Henry J said that the tort of breach of statutory duty did not arise. The statutory duty (a breach of which constituted an offence under the Securities Act 1978) was to report when an opinion on certain matters had been reached. It was not contended that Deloitte did in fact form the relevant opinion and having done so deliberately refrained from reporting, but rather that it was negligent in not reaching the requisite opinion at a certain time. Henry J said the claimed duty arises if at all at common law.49 In the Privy Council, breach of statutory duty was not pursued.50 The statutory duty was relevant to whether a common law duty of greater scope should be superimposed. The Privy Council said the statutory duty under the Securities Act was very different from the prevailing Companies Act duty where the auditors were under a positive duty to make a report to members of the company in which they express an opinion, from which it followed that a failure to form an opinion could constitute a breach of common law duty owed to the members.51 In the case of the Securities Act duty to report, the only omission by the auditor which could at common law give rise to a breach of duty was the failure to exercise reasonable care in the preparation of such a report when the circumstances requiring its making had arisen.
[79] A similar distinction can be made here. The pleaded statutory duties of the appointed actuaries are to review the actuarial information, ensure the review is in
48 Fletcher v National Mutual Life Nominees Ltd [1990] 3 NZLR 641 (HC).
49 Fletcher v National Mutual Life Nominees Ltd [1990] 3 NZLR 641 (HC) at 673.
50 Deloitte Haskins and Sells v National Mutual Life Nominees Ltd [1993] 3 NZLR 1 at 6.
51 At 7-8.
accordance with the applicable solvency standards, and prepare a report in accordance with s 78.52 As Mr Tingey acknowledged, many of the allegations of breach (which are identical for the three different causes of action so that some relate to PwC rather than the appointed actuaries) are that they failed to review properly or with due care rather than that they failed to review or report at all. As already mentioned, there is no such cause of action as negligent breach of statutory duty.53 Even if Parliament intended that IPSA gives rise to a cause of action for breach of statutory duty, such a breach could only arise insofar as the statutory duty specifies the requirements of the review.
[80] In any event, IPSA is a modern form of statute, including express purposes and principles, specific provisions for the prudential regulation of insurers including the requirement to appoint an actuary, and specific liability and enforcement provisions. Parliament could be expected to provide for statutory liability of appointed actuaries if it intended that. The new regime was also subject to regulatory impact assessments. The RIS referred to a relatively light-handed, risk-based approach to regulation and supervision. There was no reference to private actions for breach of statutory duty in the RIS or the regulatory impact assessment relating to the Solvency Standards. As I have detailed, in the absence of a clear indication of an intention to create a private right of action against appointed actuaries for breach of statutory duty, I consider that IPSA does not do so. Even the Solvency Standard, which imposes more specific duties on appointed actuaries, does not evidence an intention to create a private right of action. I conclude that the IPSA statutory scheme does not indicate a legislative intention that a licensed insurer has a private action for breach of statutory duty against its appointed actuary. The IPSA regime does not create a cause of action for breach of statutory duty by a licensed insurer against its appointed actuary.
[81] I therefore consider the ninth cause of action for breach of statutory duty is not reasonably arguable and should be struck out.
52 At [19] above.
53 At [35] above.
Whether IPSA precludes appointed actuaries from excluding or limiting liability
[82] The next question is whether IPSA precludes appointed actuaries from contracting to exclude or limit liability. Just as IPSA does not explicitly provide for a civil right of action for damages for breach of an appointed actuary’s statutory duty (and I have decided one is not implied), IPSA does not explicitly preclude exclusion or limitation of civil liability. It is common ground that whether it is possible to limit or contract out of civil liability for breach of that duty also depends on construction of the statute.54
[83] Mr Tingey submitted this was also a policy issue involving a big claim and the Court should be reluctant to deal with it on a strike out. The case against the directors is proceeding in any event. However, for the same reasons as I expressed in relation to the issue of statutory construction relating to the existence of a private right of action, I consider this issue of statutory construction is suitable for determination on a strike out. It is a question of law where the considerations are those that are explicit or implicit in IPSA.
[84] Mr Tingey acknowledged that PwC could contract out of or limit its liability in relation to the additional services. He also acknowledged that PwC could contractually assume responsibility for the services provided by the appointed actuary. But he submitted that PwC could not release the appointed actuaries from their statutory obligations, nor limit their liability to five times fees. He submitted that Parliament intended unlimited liability (but he pulled back from saying the individuals could not be indemnified). He said that if appointed actuaries could contract out of liability, IPSA would need to be amended.
[85] I agree that PwC could not release the appointed actuaries from their statutory duties under IPSA and the Solvency Standard. Nor could the licensed insurer. The insurer has its own statutory responsibility to ensure the appointed actuary role is carried out. The statutory scheme is not for the insurer’s sole benefit. But the question
i-Health Ltd v iSoft NZ Ltd [2011] NZCA 575, [2012] 1 NZLR 379 at [34]-[39]. See also
Invercargill City Council v Southland Indoor Leisure Centre Charitable Trust [2017] NZCA 68 at
[145] per Miller J.
is not whether the duties apply but rather whether the insurer can agree to limit its right to recover civil damages for breach of the duties.
[86] As Mr Tingey highlighted, the words “must be responsible” in paragraph 10 of the Solvency Standard confirm that the appointed actuary’s duties are mandatory. As indicated above, those words may imply that the duties must be enforceable in the sense that the appointed actuary is contractually bound to perform the role – whether as an employee or under a contract for services. But I do not consider they imply that the appointed actuary must agree to unlimited personal liability. IPSA envisages that the appointed actuary may be engaged under a contract for services.55 As Mr O’Brien submitted, parties are free to contract as they see fit in the absence of clear statutory words or necessary implication.56 Statutes that prohibit or constrain contracting out or limitation of liability use express language to do so.57 There is no such prohibition or constraint in relation to the engagement of actuaries expressed in IPSA. IPSA also envisages that the appointed actuary may be an employee of the licensed insurer. It is even more unlikely that the statutory scheme intended that an employee of the licensed insurer must agree to unlimited personal liability, effectively underwriting his or her employer’s compliance.
[87] I consider there is no necessary implication in IPSA or the Solvency Standard that appointed actuaries are prohibited from agreeing with the licensed insurer to limit their civil liability to the insurer – whether for breach of contract or negligence (having already determined there is no right of action for breach of statutory duty).
Whether the contractual terms of engagement preclude claims against Mr Mackay and Mr Rhodes (clause 9 of the terms of business)
Approach to interpretation of exclusion and limitation clauses
[88] As a preliminary issue (relevant to both clause 9 and clause 6), there was a difference between the parties as to the interpretation of exclusion and limitation
55 Section 76(5).
56 Vector Ltd v Electricity Authority [2018] NZCA 543, [2019] NZAR 60 at [53].
57 For example, Fair Trading Act 1986, ss 5C and 5D; Consumer Guarantees Act 1993, s 43; Credit Contracts and Consumer Finance Act 2003, s 135; and Financial Markets Conduct Act 2013, s 529.
clauses. Mr O’Brien submitted that such clauses are now interpreted and applied like any other contractual term, particularly where the contract is between commercial parties rather than consumers, whereas Mr Tingey submitted that any ambiguity must be resolved against the party seeking to exclude or limit liability.
[89] The approach to contractual interpretation was set out by the Supreme Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd,58 and recently summarised in Savvy Vineyards 4334 Ltd v Weta Estate Ltd:59
[24] There is no dispute as to the approach to interpretation applicable. The approach is that set out by this Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd. The Court in that case said the approach was an objective one. The Court went on to accept that “in interpreting commercial contracts the courts should have regard to their commercial purpose and to the structure of the parties’ bargain, to the extent that they can reliably be identified”. The Court also said:
[63] While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
[90] This approach to contractual interpretation applies to exclusion and limitation clauses,60 but in Dairy Containers Ltd v Tasman Orient Line CV the Privy Council said that any ambiguity or lack of clarity must be resolved against the party seeking to exclude or limit liability, which Mr Tingey submitted was binding on this Court.61 Lord Bingham of Cornhill delivering the judgment of the Privy Council said:62
The general rule should be applied that if a party, otherwise liable, is to exclude or limit his liability or to rely on an exemption, he must do so in clear words; unclear words do not suffice; any ambiguity or lack of clarity must be resolved against that party…
58 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147; [2015] 1 NZLR 432.
59 Savvy Vineyards 4334 Ltd v Weta Estate Ltd [2020] NZSC 115 (footnotes omitted).
60 i-Health Ltd v iSoft NZ Ltd [2011] NZCA 575, [2012] 1 NZLR 379 at [44].
61 Dairy Containers Ltd v Tasman Orient Line CV [2004] UKPC 22, [2005] 1 NZLR 433 at [12], citing Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12, [2003] 2 WLR 711 at
[144] per Lord Hobhouse of Woodborough. See also Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608 at [39]-[40], and Ferrer-Aza v Damon Leitch Motorsport Ltd [2016] NZHC 885 at [37]-[38].
62 Dairy Containers at [12].
[91] However, in i-Health Ltd v iSoft NZ Ltd, the Court of Appeal commented on this aspect of Dairy Containers:63
While we are in general agreement with Lord Bingham’s remarks, we have reservations about his comment that, in the case of ambiguity, a clause such as this is to be construed against the party seeking to rely on it. Rather, general principles of contractual interpretation should apply to establish what the parties intended. However, we do agree that where one party seeks to argue that the other has agreed to waive or limit a right of significance to that party, the Court would ordinarily look for clear language or necessary implication before reaching that conclusion. In particular, the Court should not lightly attribute to the parties an intention to waive a statutory right such as the right to seek statutory interest. … However, sight must not be lost of the ultimate objective of ascertaining the meaning the parties intended their words to bear in the factual context in which the contract was made.
[92] In any event, as the Court of Appeal said in Trustees Executors Ltd v QBE Insurance (International) Ltd, there is need for a genuine ambiguity to exist before the contra proferentem rule is applied by a court.64 As Tipping J said in Vector Gas Ltd v Bay of Plenty Energy Ltd, words can never be construed as having a meaning they cannot reasonably bear.65
Ordinary and natural meaning of clause 9
[93] Mr O’Brien submitted that as a matter of contract between CBLI and PwC, PwC agreed to provide an appointed actuary and to provide general actuarial services. Clause 9 states that CBLI agreed that “in relation to the services and the Contract the client relationship is solely with PwC”, and CBLI agreed “not to bring a claim of any nature against any partner [or] employee … of PwC …”. The services are defined as the “services described in the engagement letter”. Both engagement letters refer to “actuarial and related services”, including the “services necessary to fulfil all the required duties of the Appointed Actuary, as required by [IPSA] and related regulations”. Mr O’Brien submitted the natural and ordinary meaning of clause 9.1 aligns with its commercial purpose: it protects the personnel who provide services on PwC’s behalf. He submitted the claims against Mr Mackay and Mr Rhodes are brought in breach of the agreement and should be struck out. Mr O’Brien submitted that Mr Mackay and Mr Rhodes can directly enforce the benefit of the agreement not
63 i-Health Ltd at [45] (footnote omitted).
64 Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608 at [39].
65 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [23].
to sue under the Contract and Commercial Law Act 2017 (the CCLA), which has superseded the Contracts (Privity) Act 1982, and, in any event, PwC could do so.
[94] Mr Tingey submitted the engagement of PwC was not a contract for services with the appointed actuary in terms of s 76(5) of IPSA. Indeed, he submitted there was no contract with the appointed actuaries and there did not need to be as the obligations are set out in the statutory framework. He submitted the appointed actuaries’ liability arose independently of the contract and was not a PwC liability other than in the sense that PwC has assumed it contractually, and the meaning of “client relationship” in the first sentence of clause 9 and the agreement not to bring a claim against any partner or employee in the next sentence needed to be understood in that context. He also submitted (potentially in the alternative as well) that although PwC’s terms of engagement covered both the actuarial services and additional services, the attached terms of business applied only to additional services, not to the actuarial services provided by the appointed actuary. Together, these submissions as to the interpretation of clause 9 were aligned with Mr Tingey’s earlier submissions that the terms of business were inconsistent with the statutory scheme which imposed a statutory duty on appointed actuaries that could not be excluded or limited by contract. I have already addressed those submissions.
[95] Mr Tingey also submitted that the interpretation of clause 9 required consideration of the factual matrix and the issue should not be determined before trial. Although one of the liquidators had filed an affidavit opining on the intention of the parties, rather than suggesting that opinion was admissible Mr Tingey emphasised that the liquidators came along later and, as the directors of CBLI were also defendants in the proceeding, it would be necessary to cross-examine them at trial in order to ascertain the factual matrix. As an example, he referred to the covering engagement letter’s express exclusion of clause 1.3(x) of the terms of business (which incorporated the meaning of certain words such as “review” contained in professional accounting standards).
[96] I accept that the liquidators have no personal knowledge of the terms of engagement, but as Mr O’Brien submitted the liquidators have access to the CBLI server and have adduced contemporaneous correspondence in evidence. I also accept
Mr Tingey’s submission that where there is a relevant contractual ambiguity requiring evidence of the factual matrix, strike out will not be appropriate. The question is whether there is any such ambiguity.
[97] I consider there is no such ambiguity. As indicated, the terms of engagement dated 4 September 2014 and 1 December 2015 each comprised a letter of engagement and terms of business attached. I consider the ordinary and natural meaning of those terms of engagement is that CBLI and PwC agreed that CBLI would not bring a claim of any nature against any partner or employee of PwC. I also consider the scope of those terms of engagement covered the actuarial services carried out by the appointed actuary as well as the additional services referred to in the letters (to be provided by the appointed actuary or other partners and staff of PwC). Under the heading scope, each letter of engagement expressly stated that “[t]his letter covers actuarial and related services” that were then detailed, beginning with “the services necessary to fulfil all the required duties of the Appointed Actuary, as required by [IPSA] and related regulations”. Therefore, CBLI’s promise not to bring a claim of any nature against any partner or employee of PwC applied to the actuarial services carried out by the two appointed actuaries. I make four further points.
[98] First, as to Mr Tingey’s submissions on contracts for services and s 76(5), although Mr Rhodes signed the letter of engagement as a partner of PwC and Mr Mackay did not personally sign, I consider they were each engaged under a contract for services. The September 2014 letter of engagement was the written contract dealing with Mr Mackay’s appointment, the services to be provided and PwC’s fees and other terms (there is no suggestion of any other contract nor that the appointed actuary would be separately remunerated). Mr Mackay was a director/employee of PwC. For the purposes of s 76(5), I consider the letter of engagement was signed on his behalf. In relation to the 2015 terms of engagement, I consider that Mr Rhodes, who signed the letter as a PwC partner, was also engaged under a contract for services. Similarly, that letter of engagement was the written contract dealing with Mr Rhodes’ appointment, the services to be provided and PwC’s fees and other terms (with no suggestion of any other contract nor of separate remuneration). Unless those terms of engagement were the contracts for services, I consider that CBLI’s appointments would not comply with s 76(5). I say that because
s 76(1) states that a licensed insurer must have an actuary appointed by the insurer, and subs (5) states the appointee may be an employee or engaged under a contract for services. Reading the section as a whole, I consider subs (5) requires the appointee to be an employee or engaged under a contract for services. In that sense, the options in subs (5) are alternatives in a finite list and “may” means “must”. But even if that were not so, I consider the terms of engagement in this case covered the actuarial services carried out by the appointed actuaries as already stated.
[99] Secondly, I consider the claimed inconsistencies between the terms of business and an appointed actuary’s duties can easily be reconciled and do not create any material ambiguity. In particular, the standard terms in clause 1.3 apply “[u]nless specifically stated to the contrary in the engagement letter”. PwC was therefore not purporting to be able to allocate a different appointed actuary merely because its terms of business stated that it may allocate and replace personnel. The engagement letter specifically stated the appointed actuary. Nor was PwC purporting to contract out of the duties of the appointed actuary as required by IPSA and related regulations, which were specifically stated in the engagement letter. I acknowledge that PwC’s statement in the 2015 letter that “we designated Paul Rhodes as Appointed Actuary” is inapt since the appointment is by CBLI but the paragraph also refers to CBLI having notified RBNZ. In circumstances where CBLI has signed its agreement to and acceptance of the terms of engagement, I do not consider this statement purports to control CBLI’s appointment. I also acknowledge that in other respects the standard terms of business do not specifically address the role of the appointed actuary and the need for disclosure in certain circumstances to RBNZ. But I have no doubt that disclosure required by law would be permitted irrespective of the lack of reference to RBNZ in the standard terms of business. I do not consider any such infelicities in the terms of business indicate that the terms of business in their entirety, and clause 9 in particular, were not intended to apply to the actuarial services.
[100] Thirdly, even resorting to the pre-contractual correspondence adduced in evidence, I was not referred to anything giving rise to an ambiguity. I also note that each letter of engagement stated that “[t]his letter and the terms of business attached comprise the entire agreement (“the contract”) for the engagement…”.
[101] Fourthly, Mr Tingey also submitted that clause 9 must be read subject to the liability provisions in the Partnership Act 1908. He submitted that partners have unlimited liability for the obligations of the firm and attempts to avoid unlimited liability by contract are unlikely to succeed.66 I do not consider the Partnership Act affects the clear meaning of clause 9. The letters of engagement do not purport to limit the liability of partners for the obligations of the firm, but rather to limit other direct liability.
[102] Having concluded that in the terms of engagement covering the actuarial and additional services CBLI agreed not to bring claims of any nature against any partner or employee of PwC, that is exactly what CBLI is seeking to do in the eighth and ninth causes of action. Each version of clause 9.2 is clear that clause 9 contains a promise for the benefit of partners and employees of PwC, and may be enforced by them.
[103] Where part of a claim is clearly subject to a contractual exclusion, that part can be struck out on the basis it is not reasonably arguable. I consider the claims against Mr Mackay and Mr Rhodes in the eighth cause of action are not reasonably arguable and should be struck out.
Liability cap (clause 6 of the terms of business)
[104] The issues here are whether the terms of engagement – in particular the liability cap in clause 6.1(iv) of the terms of business – limit the liability of PwC, Mr Mackay and Mr Rhodes to five times the total fees paid in the case of non-recurring work or five times the annual fees paid in the case of recurring work, such that claims against them in excess of the cap are not reasonably arguable, or are vexatious or an abuse of process, and should be struck out.
Susceptibility to strike out
[105] Mr O’Brien acknowledged that the cap is a defence and its application is an issue of quantum but submitted that does not prevent it being struck out. He submitted the cap is clear on its face. He also did not abandon his alternative argument that a
66 Roderick l’Anson Banks Lindley & Banks on Partnership (20th ed, Thomson Reuters, London, 2017) at [13-14] and [13-15].
claim above the liability cap is vexatious or an abuse of process, but he acknowledged Commissioner of Inland Revenue v Chesterfields Preschools Ltd and did not argue that point fully.67
[106] Mr Tingey submitted that any liability cap is a matter for the defendants to raise in their defence and should not be the subject of a strike out. He submitted that, at least in the context of this case, the approach in R Cameron and Shortts Engineering and Plumbing Supplies Ltd (formerly GSE Group Ltd) v Telecom New Zealand Ltd (RC&S) is inappropriate.68 He submitted the case needs to go to trial unless PwC accepts liability first.
[107] A defence may give rise to a strike out. It can occur, for example, in the limitation context. In that context, the Supreme Court has said that on a strike out application, the defendant must demonstrate that the plaintiff’s case is so clearly statute-barred that the plaintiff’s claim can properly be regarded as frivolous, vexatious or an abuse of process.69 Where the defence requires a factual foundation not evident in the statement of claim and the facts are contested, the matter will not be suitable for strike out.
[108] In RC&S, Telecom applied to strike out breach of contract and negligence claims in excess of the sums stated in limitation clauses in its contract. The plaintiff resisted strike out on the basis that whether the clause was properly construed as an exclusion or limitation clause should be determined at trial with the benefit of findings of fact, citing Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd, where the Court of Appeal on a strike out declined to address the proper interpretation of a clause excluding liability for indirect and consequential damages.70 After referring also to SGS (NZ) Ltd v Quirke Export Ltd,71 which involved a clause limiting liability to 10 times fees or commission, Associate Judge Abbott said that he did not see any
67 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679.
68 R Cameron and Shortts Engineering and Plumbing Supplies Ltd (formerly GSE Group Ltd) v Telecom New Zealand Ltd [2013] NZHC 2203.
69 Commerce Commission v Carter Holt Harvey Ltd [2009] NZSC 120, [2010] 1 NZLR 379 at [39], citing Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33].
70 Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [154].
71 SGS (NZ) Ltd v Quirke Export Ltd [1988] 1 NZLR 52 (CA).
uncertainty or ambiguity in the clause in that case.72 He concluded that the clause was effective to cap the plaintiff’s claims and the higher pleaded claims were untenable, but allowed the plaintiff an opportunity to replead taking into account the two caps.73
[109] I consider a defence can be addressed by way of strike out where the position is clear and not subject to contested facts such that the claim can properly be regarded as frivolous, vexatious or an abuse of process. As mentioned above at [27], partial strike out is contemplated by r 15.1 and available with caution where it would promote the efficient resolution of the proceeding. Where part of a claim is clearly subject to a contractual limitation, I consider that part can be struck out on the same basis. So where a claim is clearly subject to a contractual liability cap, a claim exceeding the cap can be struck out, subject to an opportunity to replead taking into account the cap.
[110] Here, the quantum of PwC’s fees is not in dispute. It is common ground that the total fees paid to PwC for work in the relevant years was:
Year Fees paid (excl GST) 2014 $77,555.00 2015 $294,934.00 2016 $259,922.00 2017 $478,884.00 2018 $124,385.97
[111] Mr O’Brien accepted it did not matter whether the work was recurring or non-recurring work – that is, whether the fees paid are calculated annually or not – as PwC accepts the cap applies to the higher amount. Mr Tingey suggested there is an issue as to whether the liquidators engaged PwC on the same terms,74 but in any event the post liquidation actions of PwC or the appointed actuaries are not in issue.
72 R Cameron and Shortts Engineering and Plumbing Supplies Ltd (formerly GSE Group Ltd) v Telecom New Zealand Ltd [2013] NZHC 2203 at [57]-[64].
73 At [65].
74 Despite an email from one of the interim liquidators to Mr Rhodes on 3 March 2018 stating that the engagement letter with CBLI “remains in place” and “the restrictions set out in your letter will continue to apply”.
[112] Accordingly, and having already concluded that IPSA does not preclude contractual limitation of civil liability, the availability of strike out in relation to the liability cap in this case depends on whether clause 6 clearly applies to limit liability.
Scope of clause 6
[113] Mr O’Brien submitted that clause 6.1(iv) is clear in limiting PwC’s liability to five times fees paid. He also submitted that, if the agreement not to sue in clause 9 does not prohibit claims against Mr Mackay and Mr Rhodes, they seek to enforce the benefit of the cap under the CCLA or alternatively in reliance on common law principles permitting agents to rely on their principal’s terms of engagement.75 Mr O’Brien acknowledged that if clause 6.1(iv) applies, CBLI should be given an opportunity to replead.
[114] Mr Tingey submitted that clause 6.1 does not apply to limit the liability of Mr Mackay and Mr Rhodes individually. He submitted their liability arose independently of the contract and is not a PwC liability other than in the sense that PwC has assumed it contractually.
[115] Dealing first with the liability of Mr Mackay and Mr Rhodes, I have already concluded that the letters of engagement covered the actuarial services carried out by the appointed actuary as well as the additional services. However, clause 6.1 refers to “our liability”, meaning PwC’s liability. As Mr Tingey submitted, the cap in clause 6.1 does not apply to limit the liability of Mr Mackay and Mr Rhodes individually. But that is consistent with my earlier conclusion that clause 9 contains a promise not to sue the individuals. Reading the terms as a whole, there is no need for the cap to apply to the individuals. Similarly, unlike clause 9, clause 6 contains no reference to the Contracts Privity Act (now the CCLA). Clause 6 does not purport to confer a benefit on the individuals. There is no need for that given clause 9.
75 See Sheehan v Watson [2010] NZCA 454, [2011] 1 NZLR 314; and Adventurer Hobson Ltd v Cockery [2020] NZHC 675 at [101]-[107], citing London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299 and Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd (1999) 176 DLR (4th) (SCC).
[116] Also, even though the contractual privity provisions in the CCLA do not limit or affect the law of agency,76 if I had concluded that clause 9 did not preclude claims against Mr Mackay and Mr Rhodes because their liability arose entirely independently of the contractual terms of engagement, it follows that I would not have been able to conclude that the parties to the contract intended to extend the benefit of the cap in clause 6 to the individuals in terms of the CCLA. It would have been different insofar as CBLI were relying on the terms of engagement to establish contractual liability against Mr Mackay and Mr Rhodes, applying the principle that permits agents to rely on their principal’s terms of engagement.77 In those circumstances, the agreed cap should also apply to them as agents (whether employee or partner) of PwC who performed the very activities contemplated within the scope of the contract.78
[117] I turn to the liability of PwC (including contractual assumption of liability of the appointed actuaries). I consider the ordinary and natural meaning of the contracts, that is the letters of engagement and terms of business attached, is that PwC’s liability in contract, tort or otherwise is limited to five times the amount paid. That is clear from the letters of engagement themselves and clause 6.1(iv) of the attached terms of business. Having already concluded that the letters of engagement covered the actuarial services carried out by the appointed actuary as well as the additional services, I consider the liability cap applies to PwC’s contractual assumption of liability in respect of the appointed actuary’s actuarial services as well as PwC’s liability for additional services. There is no basis for inconsistently treating the letters of engagement as constituting a contractual assumption of liability by PwC for the appointed actuary’s actuarial services but without the limitation of liability in respect of those same services.
[118] As clause 6.1 clearly caps PwC’s liability to five times fees paid,79 the claims against PwC in the seventh and eighth causes of action as pleaded seeking damages of
$278 million go far beyond the liability cap and are not reasonably arguable and indeed
76 Section 20.
77 At n 75 above.
78 In London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299 the beneficiary was an employee; and in Adventurer Hobson Ltd v Cockery [2020] NZHC 675 he was a director.
79 As indicated, PwC accepts that whether the work was recurring or non-recurring, the cap is the higher amount.
can properly be regarded as frivolous, vexatious or an abuse of process. However, CBLI should have an opportunity to replead, taking into account the liability cap.
[119] It is unnecessary to consider in the alternative whether the application of the liability cap should be determined as a separate question.
Result
[120]I make the following orders:
(a)the ninth cause of action for breach of statutory duty is struck out;
(b)the claims against Mr Mackay and Mr Rhodes in the eighth cause of action are struck out;
(c)the claims against PwC in the seventh and eighth causes of action are limited by the liability cap in clause 6.1(iv) of the terms of business, but CBLI has leave to replead taking into account the liability cap.
Costs
[121] The actuary defendants are entitled to costs. If costs cannot be agreed, the actuary defendants are to file and serve a memorandum within 20 working days, and CBLI is to file and serve a memorandum in response within a further 10 working days (memoranda not to exceed five pages). I will determine costs on the papers unless I need further assistance from counsel.
Gault J
Solicitors / Counsel:
CIV-2019-404-2792
Mr D Chisholm QC and Mr M J Tingey (for the 1st plaintiff CBL Insurance Ltd (in liq) and 2nd plaintiffs Johnstone and Grenfell as liquidators of CBL Insurance Ltd (in liq)), Barristers, Auckland Mr D M Hughes, Ms L M Van and Mr J James (plaintiffs’ instructing solicitor), Anthony Harper, Auckland
Mr D M Salmon (for the 1st defendant Peter Alan Harris), Barrister, Auckland
Mr T Mullins and Mr J Cundy (1st defendant’s instructing solicitor), LeeSalmonLong, Auckland Mr J Billington QC and Ms C M Meechan QC (for the 2nd defendant Alistair Leighton Hutchison), Barristers, Auckland
Mr G Turner and Ms T Wood (2nd defendant’s instructing counsel), Duncan Cotterill, Auckland
Mr M Corlett QC (for the 3rd defendant Sir John Wells, the 4th defendant Anthony Charles Russell, the 5th defendant Norman Gerald Paul Donaldson and the 6th defendant Ian Kelvin Marsh), Barrister, Auckland
Mr T J Lindsay and Mr S McNae (1st, 4th, 5th and 6th third parties instructing solicitor), Lindsay, Auckland Mr M D O’Brien QC (for the 7th defendant PricewaterhouseCoopers, the 8th defendant Grant Edmund MacKay and the 9th defendant Paul Michael Rhodes), Barrister, Auckland
Ms I Rosic, Mr H McQueen and Mr A Bradley (7th, 8th and 9th defendants instructing solicitor), Gilbert Walker, Auckland
Copy to:
CIV-2019-404-2727
Mr P Skelton QC, Mr S Jeffs, and Mr C Pearce (for the plaintiff Basil Ian Livingstone), Barristers, Auckland
Mr J Porus and Mr M Singh (plaintiff’s instructing solicitor), Glaister Ennor, Auckland Mr J Goodall (for the defendant CBL Corporation Ltd (in liq)), Barrister, Auckland
Ms A Challis and Mr A Colgan (defendant’s instructing solicitor), McElroys, Auckland
Mr M Corlett QC (for the 1st third party Sir John Wells, the 4th third party Anthony Charles Russel Hannon, the 5th third party Ian Kelvin Marsh and the 6th third party Norman Gerald Paul Donaldson), Barrister, Auckland
Mr T J Lindsay, Mr K Francis and Mr S McNae (1st, 4th, 5th and 6th third parties instructing solicitor), Lindsay & Francis, Auckland
Mr D M Salmon (for the 2nd third party Peter Alan Harris), Barrister, Auckland
Mr T Mullins and Mr J Cundy (2nd third party’s instructing solicitor), LeeSalmonLong, Auckland Mr J Billington QC and Ms C M Meechan QC (for the 3rd third party Alistair Leighton Hutchison), Barristers, Auckland
Mr G Turner and Ms T Wood (3rd third party’s instructing counsel), Duncan Cotterill, Auckland
CIV-2019-404-2739
Mr J A Farmer QC and Mr JCL Dixon QC (for the plaintiff Financial Markets Authority), Barristers, Auckland
Ms A Callinan, Mr J Caird and Ms N Blomfield (plaintiff’s instructing solicitors), Simpson Grierson, Auckland
Mr J Goodall (for the 1st defendant CBL Corporation Ltd (in liq)), Barrister, Auckland Ms A Challis and Mr A Colgan (1st defendant’s instructing solicitor), McElroys, Auckland Mr D M Salmon (for the 2nd defendant Peter Alan Harris), Barrister, Auckland
Mr T Mullins and Mr J Cundy (2nd defendant’s instructing solicitor), LeeSalmonLong, Auckland Mr J Billington QC and Ms C M Meechan QC (for the 3rd defendant Alistair Leighton Hutchison), Barristers, Auckland
Mr G Turner and Ms T Wood (3rd defendant’s instructing counsel), Duncan Cotterill, Auckland Mr DPH Jones QC (for the 4th defendant Carden James Mullholland), Barrister, Auckland
Mr CDSC Morris (4th defendant’s instructing solicitor), CMQ Law, Auckland
CIV-2019-404-2745
Mr J A Farmer QC and Mr JCL Dixon QC (for the plaintiff Financial Markets Authority), Barristers, Auckland
Ms A Callinan, Mr J Caird and Ms N Blomfield (plaintiff’s instructing solicitors), Simpson Grierson, Auckland
Mr J Goodall (for the 1st defendant CBL Corporation Ltd (in liq)), Barrister, Auckland Ms A Challis and Mr A Colgan (1st defendant’s instructing solicitor), McElroys, Auckland
Mr M Corlett QC (for the 2nd defendant Sir John Wells, the 4th defendant Anthony Charles Russell Hannon, the 6th defendant Norman Gerald Paul Donaldson and the 7th defendant Ian Kelvin Marsh), Barrister, Auckland
Mr T J Lindsay, Mr K Francis and Mr S McNae (1st, 4th, 5th and 6th third parties instructing solicitor), Lindsay & Francis, Auckland Mr D M Salmon (for the 3rd defendant Peter Alan Harris), Barrister, AucklandMr T Mullins and Mr J Cundy (3rd defendant’s instructing solicitor), LeeSalmonLong, Auckland Mr J Billington QC and Ms C M Meechan QC (for the 5th defendant Alistair Leighton Hutchison), Barristers, Auckland
Mr G Turner and Ms T Wood (5th defendant’s instructing counsel), Duncan Cotterill, Auckland Mr DPH Jones QC (for the 8th defendant Carden James Mullholland), Barrister, Auckland
Mr CDSC Morris (8th defendant’s instructing solicitor), CMQ Law, Auckland
CIV-2019-485-642
Mr J Smith QC, Mr M Colson and Mr J Orpin-Dowell, Barristers, Auckland (for the first representative plaintiff T.E.A. Custodians Ltd and the second representative plaintiff Argo Investments Ltd)
Ms F Cuncannon and Mr S O’Connor (representative plaintiffs’ instructing solicitors), Meredith Connell, Auckland
Mr M Corlett QC (for the 1st defendant Sir John Wells, the 4th defendant Anthony Charles Russell Hannon, the 5th defendant Ian Kelvin Marsh and the 6th defendant Norman Gerald Paul Donaldson), Barrister, Auckland
Mr T J Lindsay, Mr K Francis and Mr S McNae (1st, 4th, 5th and 6th third parties instructing solicitor), Lindsay & Francis, Auckland Mr D M Salmon (for the 2nd defendant Peter Alan Harris), Barrister, AucklandMr T Mullins and Mr J Cundy (2nd defendant’s instructing solicitor), LeeSalmonLong, Auckland
Mr J Billington QC and Ms C M Meechan QC (for the 3rd defendant Alistair Leighton Hutchison and 10th defendant Federal Pacific Group Ltd), Barristers, Auckland
Mr G Turner and Ms T Wood (3rd and 10th defendants’ instructing counsel), Duncan Cotterill, Auckland Mr J Goodall (for the 13th defendant CBL Corporation Ltd (in liq)), Barrister, Auckland
Ms A Challis and Mr A Colgan (13th defendants’ instructing solicitor), McElroys, Auckland Mr DPH Jones QC (for the 11th defendant Carden James Mullholland and the 12th defendant CM Trustee Services Ltd), Barrister, Auckland
Mr CDSC Morris (11th and 12th defendant’s instructing solicitor), CMQ Law, Auckland
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