Citation: Watson v CGU Insurance [2007] NSWSC 450
Court: Supreme Court of New South Wales, Equity Division
Date: 4 May 2007
Judge(s): Hammerschlag J
Background
The prior proceedings involved a company director (Mr Greaves) who sued CGU under a Directors' and Officers' (D&O) liability insurance policy seeking indemnity for defence costs incurred in resisting ASIC proceedings arising from his role as chairman of One.Tel Limited. Those prior proceedings were discontinued in September 2004, with Mr Greaves ordered to pay CGU's costs, which stood at approximately $774,155.
Following the discontinuance, Mr Greaves entered into a deed of arrangement under Part X of the Bankruptcy Act 1966 (Cth), transferring his rights under the D&O policy to a registered trustee (Mr Watson), who became the plaintiff in the current proceedings. The ASIC proceedings had meanwhile concluded by consent, resulting in a court order requiring Mr Greaves to pay $20 million in compensation to One.Tel under s 1317H of the Corporations Act 2001 (Cth).
The trustee then sued CGU seeking payment of the $20 million compensation amount under the same D&O policy. CGU moved to stay the current proceedings until its costs from the prior discontinued proceedings were paid, relying on Part 12 r 12.4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).
Legal Issues
- Whether the trustee (as plaintiff in the current proceedings) was sufficiently the same plaintiff as Mr Greaves (plaintiff in the prior proceedings) to satisfy the "congruity of plaintiff" requirement under UCPR Pt 12 r 12.4
- Whether the current claim was the same or substantially the same cause of action as that pursued in the prior discontinued proceedings, as required under UCPR Pt 12 r 12.4(b)
Decision
Hammerschlag J dismissed CGU's motion, finding that the requirements of UCPR Pt 12 r 12.4(b) were not satisfied. While the court accepted that the threshold condition in r 12.4(a) was met (Mr Greaves was liable for CGU's costs from the prior proceedings), the motion ultimately failed on the cause of action question.
The prior proceedings concerned the "Advancement of Defence Costs" extension in the policy. That claim required proof that defence costs had been incurred and that CGU had refused to pay them. The present proceedings, by contrast, concerned the core insuring clause of the policy, which responds to compensation orders made against directors for wrongful acts. The compensation order of $20 million was made after the prior proceedings ended and played no part in them.
Hammerschlag J drew on the Court of Appeal's analysis in Macquarie Bank Ltd v National Mutual Life Association of Australia Limited (1996) 40 NSWLR 543, which distinguishes between multiple claims arising from a single breach of a contractual obligation and separate claims arising from distinct breaches of separate obligations. His Honour found the present case fell into the latter category: each claim arose from a separate alleged breach of a different policy obligation responding to a different risk.
Because the two causes of action were not the same or substantially the same, the power to stay under Pt 12 r 12.4 was not enlivened, and the motion was dismissed with costs.
Orders Made
- CGU's notice of motion dismissed with costs
Key Takeaways
- UCPR Pt 12 r 12.4 permits a court to stay fresh proceedings pending payment of costs from prior discontinued proceedings, but only where the new claim is the same or substantially the same cause of action as the discontinued one.
- A claim under a D&O policy's defence costs extension and a claim under the same policy's core compensation indemnity clause were held to be distinct causes of action, not the same or substantially the same, because they respond to different risks and require proof of different elements.
- The test from Macquarie Bank Ltd v National Mutual Life Association of Australia Limited (1996) 40 NSWLR 543 was applied: separate breaches of separate contractual obligations can be litigated in successive proceedings, even where the same underlying contract is in issue.
- The court accepted that the transfer of policy rights from an insured to a trustee under a Part X deed of arrangement did not, on its own, defeat the stay application, because the "congruity of plaintiff" question was not the basis on which the motion ultimately failed.
- Absence of the compensation order at the time the prior proceedings concluded was a material factor: an essential element of the current cause of action simply did not exist when the prior proceedings were on foot.
Legislation and Cases Referenced
Legislation
- Uniform Civil Procedure Rules 2005 (NSW), Pt 12 r 12.4
- Bankruptcy Act 1966 (Cth), Pt X; s 86
- Corporations Act 2001 (Cth), s 1317H
- Insurance Contracts Act 1984 (Cth), s 28(2)
- Federal Court of Australia Act 1976 (Cth), s 51A
- Supreme Court Act 1970 (NSW), s 94
Cases
- Macquarie Bank Ltd v National Mutual Life Association of Australia Limited (1996) 40 NSWLR 543