FEDERAL COURT OF AUSTRALIA

Global Constructions Australia Pty Ltd (in liq) v AIG Australia Limited (No 3) [2018] FCA 432

ORDERS

THE COURT ORDERS THAT:

1.    The separate questions the subject of order 1 in the orders of 18 December 2017, be answered as follows:

Question 1: A claim under cover 1 of Section 4 of the Private Edge policy issued by the respondent to the applicant (“the policy”) is, in the case where the person who engaged in the acts of fraud and dishonesty is both an Employee and a Shareholder (within the meaning of the policy), subject to the set-off for which cover 6 of Section 4 provides.

Question 2: For the purpose of Section 4 of the policy, the set-off of the amount stated in cover 6, paragraphs (i) and (ii), is to be made against the Direct Financial Loss (within the meaning of the policy) prior to the application of any Limit of liability under the policy.

2.    The respondent pay the applicant’s costs of the hearing of the separate questions, in the sum of $25,000.

3.    Leave be granted to the respondent to issue a subpoena to 4C Consulting Pty Limited of Unit 5, 145 Walcott Street, Mount Lawley, Western Australia in the form initialled and dated today

4.    Leave be granted to the respondent to issue a subpoena to Insight Business Partners Pty Limited, trading as ROCG Perth of Level 1, 109 Hay Street, Perth, Western Australia in the form initialled and dated today.

5.    Such subpoenas be returnable before a Registrar in Perth on 18 April 2018, with any issues regarding the subpoenas to first be raised with the Registrar in Perth.

6.    Leave be granted to file the affidavit of Peter O’Brien sworn 28 March 2018.

7.    On or before 13 April 2018, the senior claims manager of the respondent responsible for this claim file and serve an affidavit setting out:

(a)    whether or not there is an amount presently payable under the policy in the light of the construction of the policy and the communications between the parties;

(b)    if it is said that there is not, the reason or reasons for that position;

(c)    if it is said that there is, whether the money had been paid; and

(d)    if it has not been paid, why it has not been paid.

8.    The matter be transferred to Justice Banks-Smith.

9.    The matter stood over to a date to be fixed in the week commencing 30 April 2018 or such other date as arranged with the chambers of Justice Banks-Smith for further case management.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(Revised from the transcript)

ALLSOP CJ:

1    The purpose of these reasons is to explain the orders that I made on 28 March 2018, particularly the affidavit I ordered the respondent file and serve, as well as to say something about how this List operates. Some of the remarks in these reasons elaborate upon what I said extempore.

2    Some two years ago, this List was established after consultation with brokers, insurers and experienced solicitors in a number of cities in this country and in London for the purpose of making available to insured commercial parties, brokers and insurers a tolerably swift and focused list to deal with insurance matters, in particular short matters of law and construction. The importance of insurance in the community cannot be gainsaid. The swift and just payment of proper claims is a central aspect of commercial life. The opposition to, and defeat of, wrongful or misconceived claims, by insurers is also important. The List requires parties to co-operate to achieve the aim of solving a mutual problem at the least possible cost. This requires good faith co-operation in the litigation process. Whilst this approach lies at the heart of litigation in this Court: ss 37M and 37N of the Federal Court of Australia 1976 (Cth), it is particularly important in a specialised list that is designed to provide swift and cost effective resolution of potentially complex disputes. Not only is the co-operation of the legal profession required (as in my observation is generally given) but also parties should co-operate fully, even if this means (as it may turn out in any given case) that they “lose” in a swift and cost-effective way. They have their answer to the mutual problem.

3    In early February, at the request of the parties and in accordance with the above aim, a question of construction of this insurance policy was decided: see Global Constructions Australia Pty Ltd (in liq) v AIG Australia Limited [2018] FCA 98. Since then, the parties have been attempting to reach some resolution as to the quantum in this case: see Global Constructions Australia Pty Ltd (in liq) v AIG Australia Limited (No 2) [2018] FCA 100. This matter was set down for a further case management hearing today after the hearing earlier in the year. Some twenty minutes or so prior to coming on the bench, I received an affidavit electronically filed, which I will grant leave to file to the extent it is necessary, from Mr O’Brien, the solicitor for the applicant.

4    As I understood the case prior to the matter being heard, my decision on the question of the operation of the terms of the policy would lead to the need for a hearing on quantum likely before a referee to deal with accounting issues, but, in all likelihood, there was some sum likely to be owing to the insured depending upon the answers that I gave to the two questions.

5    The first question was answered by a concession of the applicant in favour of the view of the insurer. The second question was answered, in effect, in favour of the applicant. It is convenient for me today to make orders answering the questions and making an order for costs, of the kind that I identified in my earlier reasons, to cover the costs of the separate hearing: see [2018] FCA 98 at [36].

6    It appears that the parties have been in correspondence and have been meeting. The applicant says that a sum of money must necessarily be presently owing to it on the basis of my judgment and the communications between the parties. Ms Thornton says that she and her client have not had the opportunity to deal with the affidavit filed today. The important question that has now arisen is that the applicant now does not wish a referee to be appointed and says that another course is to be recommended. It does this partly because it has lost confidence in the resasonableness of the attitude of the insurer. It appears that there has been some breakdown in the ability of the parties to resolve matters that should be resolved. I draw no conclusion as to whether anyone is to be blame.

7    I want, however, to make a couple of things very clear to the parties. I expect parties in this List to behave in a way reflected by reasonable commercial behaviour, marked by good faith co-operation to achieve the mutual goal of cost-effective dispute resolution. If there is an issue about whether or not any sum is owing, I want to understand, with precision, what that issue is. If it is accepted that there is some sum owing, I wish to understand what that sum is and why it has not been paid to date.

8    In the affidavit of Mr O’Brien, the solicitor for the applicant, there is a discussion as to what the applicant now claims to be the irreducible minimum sum that must be owing. He says that it is a sum of $115,826. The affidavit was filed electronically shortly prior to the case management hearing today. Ms Thornton indicates that she is not in a position to deal with that sum at the moment, which I accept. There have been, however, a number of communications between the parties, some open and some without prejudice. Some of the open correspondence has been annexed to the affidavit of Mr O’Brien. I have difficulty understanding why the respondent is not in a position to give instructions for a clear answer as to whether there is a sum necessarily owing now.

9    Mr Castle has submitted that all aspects of this dispute which have, to this point, been raised between the parties, have been set to one side as needing to be resolved and prior to the calculation of that irreducible minimum sum payable. There is a dispute, for instance, as to the reduction of a loan account by a sum of nearly $400,000 that was made by the applicant company, based on a reversal by accountants in 2013 for the earlier 2012 financial year. The insurer wishes to investigate this through examination of the documents produced by those accountants. That is understandable, and I will give leave for the issue of subpoenas to enable that to occur.

10    I hope I am not being unfair and I hope I am not doing a disservice to anyone in the conduct of the matter, but I do not understand and I have not been able to understand to date why there is not an irreducible minimum amount in this case that needs to be paid, given the way we approached the matter late last year and early this year and given my judgment in February. To that end, I propose to order that the senior claims manager of the respondent responsible for this claim file and serve within 14 days an affidavit setting out (1)    whether or not there is an amount presently payable under the policy in the light of the construction of the policy and the communications between the parties; (2) if it is said that there is not, the reason or reasons for that position; (3) if it is said that there is, whether the money has been paid; and (4) if it has not been paid, why it has not been paid.

11    There is now an issue as to the best way to dispose of this case. I had thought that the question of quantum could be best dealt with by a referee in an accounting exercise. The content of Mr O’Brien’s affidavit, in particular, paragraph [17] and following, throws that into significant doubt. I tend to the view at the moment that the submissions of Mr Castle are probably correct to the effect that in the long run, the best way to deal with the issues in dispute, albeit containing accounting issues, will be to have the matter heard by a judge of the Court. That will take some days, by the look of it.

12    Those issues will involve construction issues as well as legal issues, together with some accounting issues. The purpose of this List was to allow short issues, in particular construction and legal questions, to be heard. That has occurred by my judgment in February. Given the locus of the dispute in Perth, I will transfer the matter to Perth.

13    At the moment, I am not prepared to order a referee. I think the better course is probably that this matter be heard by a judge of the Court. That is not to hamstring any other judge of the Court who may come to the view that some or all of the issues should be heard by a referee.

14    I will make an order transferring the matter to the Western Australian District Registry, and I think it is appropriate that that judge deals with the case management of these proceedings. But lest anything be misunderstood, this matter should not devolve into a piece of unreasonable trench warfare.

15    I will make the following orders, the first two being, I think, uncontroversial and having heard the parties as to the other orders:

1.    The separate questions the subject of order 1 in the orders of 18 December 2017, be answered as follows:

Question 1: A claim under cover 1 of Section 4 of the Private Edge policy issued by the respondent to the applicant (“the policy”) is, in the case where the person who engaged in the acts of fraud and dishonesty is both an Employee and a Shareholder (within the meaning of the policy), subject to the set-off for which cover 6 of Section 4 provides.

Question 2: For the purpose of Section 4 of the policy, the set-off of the amount stated in cover 6, paragraphs (i) and (ii), is to be made against the Direct Financial Loss (within the meaning of the policy) prior to the application of any Limit of liability under the policy.

2.    The respondent pay the applicant’s costs of the hearing of the separate questions, in the sum of $25,000.

3.    Leave be granted to the respondent to issue a subpoena to 4C Consulting Pty Limited of Unit 5, 145 Walcott Street, Mount Lawley, Western Australia in the form initialled and dated today

4.    Leave be granted to the respondent to issue a subpoena to Insight Business Partners Pty Limited, trading as ROCG Perth of Level 1, 109 Hay Street, Perth, Western Australia in the form initialled and dated today.

5.    Such subpoenas be returnable before a Registrar in Perth on 18 April 2018, with any issues regarding the subpoenas to first be raised with the Registrar in Perth.

6.    Leave be granted to file the affidavit of Peter O’Brien sworn 28 March 2018.

7.    On or before 13 April 2018, the senior claims manager of the respondent responsible for this claim file and serve an affidavit setting out:

(a)    whether or not there is an amount presently payable under the policy in the light of the construction of the policy and the communications between the parties;

(b)    if it is said that there is not, the reason or reasons for that position;

(c)    if it is said that there is, whether the money had been paid; and

(d)    if it has not been paid, why it has not been paid.

8.    The matter be transferred to Justice Banks-Smith.

9.    The matter stood over to a date to be fixed in the week commencing 30 April 2018 or such other date as arranged with the chambers of Justice Banks-Smith for further case management.

Associate:

Dated:    29 March 2018