Hanover Group Holdings Limited v QBE Insurance (International) Limited

[2012] NZHC 1770

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-7448 [2012] NZHC 1770

BETWEEN  HANOVER GROUP HOLDINGS LIMITED

Plaintiff

ANDQBE INSURANCE (INTERNATIONAL) LIMITED

Defendant

Hearing:         18 July 2012 (Commercial List)

Counsel:         N Gedye for Plaintiff

M Ring QC and A Challis for Defendant

Judgment:      18 July 2012

ORAL JUDGMENT OF MILLER J

[1]    Before me is an application for leave to amend a statement of defence after the setting down date and an associated application to adjourn the September fixture for this proceeding.

[2]    In 2007 the plaintiff, Hanover Group Holdings, renewed a statutory liability policy with the defendant, QBE.  The policy had been in place for some years.  It covered among other things civil defence legal costs including costs incurred in relation to investigations by regulatory bodies.  I am told that the company also had a D and O policy with Chartis, which covered substantially the same costs and in respect of which separate proceedings have been issued and are for trial in October.

[3]    In July 2008 the Securities Commission and the Commerce Commission began an investigation into the affairs of Hanover.  QBE was notified of this.  A claim was

HANOVER GROUP HOLDINGS LIMITED V QBE INSURANCE (INTERNATIONAL) LIMITED HC AK CIV-2011-404-7448 [18 July 2012]

made for legal costs associated with the investigation and it is not in dispute that such costs have been incurred.

[4]    QBE has not met the claim.   Its existing statement of defence, filed on 21

December 2011, admits the policy and the claim but says that QBE is not liable to pay because two directors of the plaintiff, Mr Hotchin and Mr Finnigan, failed to disclose that they personally had been duped by fraudsters who ran a Ponzi scheme. This is known as the Papple defence.  It is said that this incident ought to have been disclosed when it happened in 2004.   The issue is said to taint subsequent annual policy renewals.

[5]    On 9 March this year this proceeding was set down for a four-day trial on 17

September, counsel having agreed that it was ready for hearing.   Venning J noted that senior counsel for QBE, Mr Ring, was not available at that time, but observed that the matter should be heard before next year.  In making those remarks the Judge doubtless had in mind that the FMA, as successor to the Securities Commission, has brought proceedings against the plaintiff and those proceedings are likely to be tried in 2014.  I am prepared to accept for present purposes that it matters to the plaintiff to have the benefit of the policy as soon as possible, and in any event before the FMA proceeding is tried.  I am told that QBE’s liability is limited to what appears to be $2M, being costs associated with the regulatory investigation, and that QBE is not liable to pay ongoing costs of the litigation.  Nonetheless the availability of that sum must be material to Hanover in the future conduct of its litigation.  In that regard I have noted with some concern that Mr Ring suggested that this proceeding could be tried after the FMA proceeding.

[6]    The setting down date in terms of the High Court Rules was 9 July.  Until that date QBE could amend its pleading without leave.  It has done so in response to the FMA’s statement of claim, which was issued after the hearing before Venning J on 9

March.  QBE advised Hanover of its intention to file an amended defence on 6 July but because the document was entrusted to DX it did not reach the Court until just after the setting down date.

[7]    Manifestly Hanover suffers no prejudice by the very brief period of delay which has resulted, and I would not deny QBE the ability to amend its defence on grounds of delay.  The real question is whether, the amended defence having been filed, the trial should be adjourned.

[8]    It is common ground that an adjournment is necessary if the allegations made in the amended defence are to be tried at the same time.  QBE now alleges material non-disclosure about the financial position of Hanover itself.  It is a very different and much more extensive defence.  It is said that Hanover was required to disclose at the time of the policy renewal that it was about to issue a materially false prospectus and that it was in financial difficulties.   These allegations are said to mirror those made  by  the  FMA  in  its  proceeding.    The  trial  of  these  allegations  will  take materially more than a week.  It was suggested that a trial of the entire proceeding would require four weeks. Such a fixture could not be held before July 2013.

[9]    QBE says there is no prejudice to the plaintiff from an adjournment, for it will not pay until the case is finally determined.  Hanover responds it is in the interests of justice to proceed on the existing statement of defence.  It says that QBE’s defence is wholly without merit and the sooner that is exposed the better.  It is said, too that it is in Hanover’s interest to know whether the Papple defence will succeed.

[10]  I have reached the following conclusions:  QBE’s application for leave to file the amended statement of defence will be granted;  specifically, it will have leave to file the amended defence dated 6 July;  the leave thus granted does not extend to any further amendment, as to which I direct that, the proceeding having been set down, QBE must seek leave.   I make this last direction because there is sometimes ambiguity about the setting down date in trials that have been split.

[11]  I  am  not  prepared  however  to  adjourn  the  September  fixture,  for  several reasons.  I do accept Mr Ring’s submission that the Court does not lightly order a split trial, but I am satisfied that there is justification in this case.  First, the Court should make every effort to ensure that the plaintiff’s claim for cover is resolved as soon as possible.  In the ordinary way an insured is entitled to expect that a policy such as this would respond before liability to third parties is finally determined.

[12]  Second, I accept that the resolution of the Papple defence, while not finally disposing of the proceeding, may advance the position of both parties somewhat.  If QBE succeeds Hanover will know that it must engage the FMA without benefit of the $2M which I am assuming is otherwise payable under this policy.  In saying that I do not overlook that Hanover has a parallel claim against Chartis for the same money.   If on the other hand Hanover wins, one substantial source of uncertainty over its cover under the QBE policy will have been removed.   I express no view about  Mr Gedye’s  submission  that  in  those  circumstances  some  accommodation might be reached between the parties.

[13]  Third, the new allegations are discrete and capable of separate trial.  I accept that there is some overlap but it is limited.  This is not a split trial in the normal sense of separating liability from quantum.   Mr Ring properly accepted that there is no factual overlap in the alleged non-disclosures.  The Papple issue arose in 2004 while the financial issues relating to Hanover relate to the 2007-2008 period.  It is true that some  witnesses  may  be  required  twice,  notably  the  underwriter  and  insurance experts, but cases generally turn on their facts and I have no doubt that this will fall into that category.  It may also be true that cumulative non-disclosure may warrant cancellation of cover, but it remains the case that the Court can deliver a separate judgment on whether the Papple defence alone justifies QBE’s actions.

[14]  Fourth,  it  is  easier  for  the  Court  to  accommodation  shorter  trials  if  the September fixture proceeds and the balance of the case requires a three-week trial.  It is possible, although I cannot be definite about this, that the second part of the case could be scheduled early next year.  As I have indicated the four-week fixture would not be held until July.

[15]  Finally, there is something in Mr Gedye’s submission that it has taken QBE too long to raise these matters.  I wish to make it clear that I am not here accepting any suggestion that QBE has acted improperly, or any allegations against its lawyers. But the question of what is a reasonable time must be determined in context.  The FMA proceedings are well underway and the plaintiff has incurred substantial costs already.   It is important that it know as soon as possible what its position is with respect to insurance cover.   In these circumstances it was incumbent on QBE to

ensure that all issues were raised as soon as possible.  The fact of the matter is that this proceeding was set down as of 9 March for a one-week fixture, and the integrity of that fixture is important.

[16]  For these reasons I am not prepared to adjourn the fixture.   There will be a direction that the existing trial based on the existing statement of defence will continue  on  the  date  assigned,  leaving  the  new  issues  raised  in  the  amended statement of defence to be tried at a separate date.  Steps will need to be taken to timetable that proceeding.  It is not appropriate to do so today.  Counsel should liaise about that, and the case should be called in a list late in August.

[17]  Mr Gedye has sought costs in any event.  I am not prepared to award costs at this  time.    To  do  so  might  be  to  send  an  inappropriate  signal  about  QBE’s application.  I do not want to be taken as having found that QBE was unjustified in seeking to amend the defence.

Miller J

Solicitors:

Tompkins Wake, Hamilton for Plaintiff

McElroys, Auckland for Defendant