FEDERAL COURT OF AUSTRALIA

CGU Insurance Limited v Watson (Trustee) in the matter of Greaves [2008] FCA 1104

Bankruptcy Act 1966 (Cth) Part X

Federal Court of Australia Act 1976 (Cth) s 21

Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth)s 5(4)

CGU INSURANCE LIMITED (ACN 004 478 371) v DAVID PATRICK WATSON AS TRUSTEE OF THE DEED OF ARRANGEMENT IN RESPECT OF JOHN HUYSHE GREAVES

NSD 1111 of 2008

BRANSON J

28 JULY 2008

SYDNEY

THE COURT ORDERS THAT:

1.                  The application be dismissed.

2.                  The applicant pay the respondent’s costs.

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

REASONS FOR JUDGMENT

Introduction

1                     On 18 October 2006 the present respondent, as trustee of the Deed of Arrangement in respect of John Huyshe Greaves, (“the Trustee”) filed an application and a statement of claim in this Court.  He claimed an order that the present applicant (“CGU”) pay to him the sum of $20 million plus interest pursuant to the Federal Court of Australia Act 1976 (Cth) and the Insurance Contracts Act 1988 (Cth).

2                     CGU applied to this Court by motion for an order pursuant to s 5(4) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) transferring the above proceeding to the Supreme Court of New South Wales.  The Trustee opposed the transfer of the proceeding to the Supreme Court of New South Wales.

3                     Sackville J was persuaded that it would be in the interests of justice for the proceeding to be transferred to the Supreme Court of New South Wales and on 28 November 2006 made orders to that effect (Watson v CGU Insurance Limited [2006] FCA 1630).  The transferred proceeding became Supreme Court of New South Wales proceedings No 50198 of 2006 (“the transferred proceedings”).  Numerous interlocutory steps have been taken in the transferred proceedings but there has as yet been no final hearing.

4                     Somewhat surprisingly, since it was CGU which successfully applied to this Court to have the transferred proceedings transferred to the Supreme Court of New South Wales, CGU has now applied to this Court for orders that include a permanent injunction restraining the Trustee from taking or continuing to take any steps in the transferred proceedings other than to bring them to an end.

Background

5                     As Sackville J noted in Watson v CGU the transferred proceedings arise out of the collapse of One-Tel Limited (“On-Tel”) in 2001. 

6                     Mr Greaves was a director of One-Tel.  CGU issued a policy of Professional Risks Insurance, Directors and Officers Liability Insurance (“the Policy”) by which it agreed to indemnify Mr Greaves in respect of certain losses.  The Australian Securities and Investments Commission instituted proceedings against Mr Greaves in the Supreme Court of New South Wales which were eventually settled by consent.  Mr Greaves was ordered to pay compensation to One-Tel in the amount of $20 million (“the compensation order”).  Mr Greaves sought to be indemnified by CGU under the Policy. 

7                     On 30 November 2004 a Deed of Arrangement pursuant to Part X of the Bankruptcy Act 1966 (Cth) was made between Mr Greaves, as the Debtor, and the Trustee (“the Deed”).  Clause 2 of the Deed is in the following terms:

The Debtor covenants to convey, transfer or assign or cause to be conveyed, transferred or assigned to the Trustee all the property more particularly described in Schedule A hereto on trust to be dealt with by the Trustee in accordance with this Deed of Arrangement.

Included in Schedule A to the Deed were Mr Greaves’ rights under the Policy including any rights to damages in respect thereof.  The claim made by the Trustee in the transferred proceedings is for an indemnity in respect of the $20 million that Mr Greaves was ordered by consent to pay to One-Tel.

Relief Sought

8                     The substantive orders sought by CGU in this proceeding are as follows:

1.                  A declaration that the deed of arrangement in respect of John Huyshe Greaves in accordance with section 235 of the Bankruptcy Act 1966 (Cth) (as then applicable to the deed of arrangement) has terminated pursuant to clause 17(c).

2.                  A declaration that by reason of the termination pursuant to clause 17(c) of the deed of arrangement in respect of John Huyshe Greaves the respondent has no continuing power, authority or rights under the deed of arrangement to take any steps in the Supreme Court of New South Wales in proceeding number 500198 of 2006 of the Commercial List in respect of the alleged property in Schedule A(v) pursuant to the deed of arrangement.

3.                  A final injunction restraining the respondent from taking or continuing to take any steps in Supreme Court of New South Wales in proceeding number 50198 of 2006 of the Commercial List pursuant to or purportedly pursuant to the deed of arrangement in respect of John Huyshe Greaves other than in respect of the discontinuance of those proceedings and any issue as to costs in respect of the discontinuance.

Consideration

9                     CGU contends that the Deed was terminated pursuant to clause 17(c) thereof three years from the date of its execution, namely on 30 November 2007.  The accuracy of this contention is accepted by the Trustee.

10                  The Trustee contends that the termination of the Deed has not affected his entitlement to continue the transferred proceedings.  He relies upon the assignment to him by Mr Greaves of Mr Greaves’ cause of action under the policy. 

11                  Paragraph 8 of the Defence filed by CGU in the transferred proceedings reveals that in those proceedings CGU has denied that Mr Greaves has any rights pursuant to the Policy to assign to the Trustee.  CGU has by the same paragraph also denied that any rights of Mr Greaves in respect of the Policy were validly or effectively assigned to the Trustee.  The entitlement of the Trustee to commence and to continue the transferred proceedings is thus in issue in the transferred proceedings.

12                  CGU now wishes to contend, as I understand it, that assuming, contrary to its denial, that Mr Greaves had rights pursuant to the Policy to assign to the Trustee and assuming, again contrary to its denial, that those rights were validly assigned to the Trustee, the Trustee’s entitlement to prosecute the transferred proceedings came to an end on 30 November 2007 upon the termination of the Deed.

13                  CGU has not identified any impediment in the way of its seeking leave to amend its defence in the transferred proceedings to raise as an issue for resolution in those proceedings the significance of the termination of the Deed for either or both of the Trustee’s entitlement to continue to prosecute the transferred proceedings and his entitlement to relief in those proceedings.  It is not in dispute that CGU has taken steps in the transferred proceedings after 30 November 2007 including in relation to discovery and the prosecution by CGU of an application for special leave to appeal to the High Court from a decision of the New South Wales Court of Appeal.  Yet it appears that it has not sought to ventilate in those proceedings its contention based upon the termination of the Deed.

14                  In my view the appropriate forum for the determination of the issue as to the significance of the termination of the Deed to the claim made by the Trustee in the transferred proceedings is the Supreme Court of New South Wales.  This is the more clearly the case, in my view, as a judge of this Court has previously formed the view that it was in the interests of justice that the proceeding in this Court that became the transferred proceeding be transferred to the Supreme Court of New South Wales.

15                  A further relevant factor is the undesirability of proceedings being conducted in two courts in respect of a single dispute.  The Trustee has foreshadowed an intention to move this Court for an order that the proceeding be transferred to the Supreme Court of New South Wales or alternatively for leave to file a cross‑claim for a declaration that he holds all of the rights formerly held by Mr Greaves under the Policy.  As mentioned above, this latter issue is already the subject of the transferred proceedings.

16                  CGU frankly admits that it is seeking relief in this Court to prevent the continuation of the transferred proceedings.  It is not necessary for me on this application to give consideration to the circumstances in which it might be appropriate for this Court, in the interests of justice, to issue an injunction to restrain a litigant from taking steps in Supreme Court proceedings.  Considerations of comity between Australian superior courts suggest that an injunction of that kind will not lightly be made.  I am certainly not persuaded that it should be done in this case where the Trustee became a litigant in the Supreme Court of New South Wales, rather than in this Court, by reason of a motion for transfer made by CGU.

17                  I decline to make the injunction sought by CGU.

18                  I turn to the declaratory relief sought by CGU.  The Court’s power to make a declaration is discretionary (s 21 of the Federal Court of Australia Act 1976 (Cth)).  The Trustee does not dispute that the Deed has terminated.  No controversy between the parties would be resolved by the making of the first declaration sought by CGU.  I am not persuaded that it would be appropriate to make the declaration.

19                  The second declaration sought by CGU concerns the significance of the termination of the Deed for the Trustee’s right to prosecute the transferred proceedings.  It is appropriate, in my view, for this issue to be determined in the transferred proceedings.  I am not persuaded that it would be an appropriate exercise of the Court’s discretion to grant declaratory relief to make the second of the declarations sought by CGU.

20                  For the above reasons the application will be dismissed.

Associate:

Dated:         31 July 2008