Bridgecorp Ltd (in R'Ship & in Liq) v Certain Lloyd'S Underwriters Under Policy No. 888/50405V04A and Others

JurisdictionNew Zealand
CourtHigh Court
Judgment Date28 April 2014
Neutral Citation[2014] NZHC 842
Docket NumberCIV 2013-404-003595

[2014] NZHC 842

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-003595

Between
Bridgecorp Limited (In Receivership & In Liquidation)
Plaintiff
and
Certain Lloyd'S Underwriters Under Policy No. 888/50405V04A
First Defendants
Certain Lloyd'S Underwriters Under Policy No. 888/51296V04A
Second Defendants
Certain Lloyd'S Underwriters Under Policy No. 888/51296V05A
Third Defendants
Certain Lloyd'S Underwriters Under Policy No. 888/51296V06A
Fourth Defendants
Certain Lloyd'S Underwriters Under Policy No. 888/51296V07A
Fifth Defendants
Certain Lloyd'S Underwriters Under Policy No. B0701Ls05809
Sixth Defendants
Appearances:

M J Tingey and W D Hofer for the Plaintiff

M G Ring QC and M J Francis for the Sixth Defendants

Plaintiff's application to set aside the sixth defendants' appearance under protest to jurisdiction — plaintiff was the receivers of a failed finance company — sixth defendant was the London based underwriters of a professional indemnity policy issued by an insolvent company and against which company the receivers alleged they had a claim in negligence — receivers relied on s9 Law Reform Act 1936 (LRA) (Amount of liability to be charge on insurance moneys payable against that liability) — Supreme Court had previously held that s9 LRA did not have extraterritorial effect — whether the receivers could claim monies payable by a London insurer under the insured's professional indemnity insurance policy by virtue of s9 LRA where the claim involved a New Zealand plaintiff, a New Zealand insolvent insured, negligence occurring in New Zealand, a policy governed by New Zealand law and the policy was subject to the jurisdiction of the New Zealand courts.

The issue was: whether the receivers could claim monies payable by a London insurer under the insured's professional indemnity insurance policy by virtue of s9 LRF where the claim involved a New Zealand plaintiff, a New Zealand insolvent insured, negligence occurring in New Zealand, a policy governed by New Zealand law and the policy was subject to the jurisdiction of the New Zealand courts.

Held: There was no doubt that the New Zealand courts had jurisdiction to determine any dispute between Herbert and its insurers as to the interpretation of the policy. Any judgment obtained by Herbert could then be enforced against the insurer's assets in England. However, it did not follow that Bridgecorp could sue the insurers in New Zealand relying on s9 LRF.

The analysis had to commence by identifying the location of any debt payable under the policy. The debt was situated in the country where the debtor resided. Although a debt could be enforced in a particular country, this did not necessarily mean that the debt was located in that country.

The underwriters' sole residence and place of business was in London. Any debt payable by the London underwriters under Herbert's professional indemnity policy was located in England as that was where the underwriters were located and they had no place of business anywhere else. It followed that the court lacked subject matter jurisdiction over this debt and could not make any order pursuant to s9 to require the underwriters to pay the plaintiff rather than their insured.

Plaintiff's application to set aside the sixth defendants' appearance under protest to jurisdiction dismissed.

JUDGMENT OF GILBERT J

This judgment is delivered by me on 28 April 2014 at 5pm pursuant to r 11.5 of the High Court Rules.

……………………………………………..

Registrar / Deputy Registrar

Introduction
1

This judgment deals with the plaintiff's application to set aside the sixth defendants' appearance under protest to jurisdiction. The principal issue is whether s 9 of the Law Reform Act 1936 enables a New Zealand plaintiff with a claim against a New Zealand insolvent insured for negligence occurring in New Zealand to claim monies payable by a London insurer under the insured's professional indemnity insurance policy where the policy is governed by New Zealand law and provides that any disputes as to its interpretation are subject to the exclusive jurisdiction of the New Zealand courts.

2

Section 9 of the Act creates a statutory charge in favour of a third party claimant on monies payable by an insurer in respect of the insured's liability to the claimant. It was enacted to overcome the unfairness of insurance proceeds being paid to the general pool of creditors of an insolvent insured defendant rather than to the claimant who had suffered the injury or loss covered by the policy.

3

The London underwriters, the sixth defendants, argue that s 9 does not have extra-territorial reach and cannot be invoked to require them to pay any monies due under the policy to the plaintiff rather than their insured. They further contend that any debt arising under the policy is situated in England and can only be recovered there and the New Zealand courts lack subject matter jurisdiction over the debt. The receivers of Bridgecorp counter that, because of the exclusive jurisdiction clause in the policy, the New Zealand courts have sole jurisdiction over the debt. They argue that the debt can only be enforced in New Zealand and it is therefore situated here.

4

In any event, the underwriters contend that s 9 cannot apply because it creates a fixed charge which crystallises upon the happening of the event giving rise to the claim and there was nothing to which the charge could attach because the relevant professional indemnity policy did not exist at that time. The receivers disagree. They argue that the statutory charge created by s 9 arises on the happening of the event giving rise to the claim, or the insurance policy covering the insured's liability coming into existence, whichever is later.

Background
5

Bridgecorp was a finance company that provided bridging and project finance to developers of residential and commercial properties in New Zealand and Fiji. Bridgecorp's funding was raised from the public. As at the date of its last prospectus in December 2006, Bridgecorp had approximately $523 million of term investments on issue to some 18,000 investors.

6

Bridgecorp engaged Herbert Insurance Group Limited (Herbert) to procure mortgage indemnity insurance to cover loans it made to property developers. These Lenders Mortgage Insurance policies, entered into between May 2004 and July 2007, were underwritten by Lloyds' syndicates, the first to fifth defendants (the Bridgecorp insurers).

7

Following default by many of its borrowers, Bridgecorp suffered losses in the hundreds of millions of dollars. It was placed in receivership on 2 July 2007. To date, the receivers have only been able to distribute eight cents in the dollar to the investors.

8

The receivers seek recovery under the Lenders Mortgage Insurance policies. The Bridgecorp insurers have declined cover on the basis that Bridgecorp breached certain policy conditions. The receivers claim that if the Bridgecorp insurers are not liable under the policies, then Herbert is liable for the losses Bridgecorp will suffer as a result because it was negligent in carrying out its duties as Bridgecorp's insurance broker.

9

Herbert was placed in liquidation on 4 March 2011. The receivers accordingly seek to pursue Herbert's insurers directly for $20 million, being the limit of indemnity under Herbert's professional indemnity policy, relying on s 9 of the Act. Section 9(1) of the Act provides:

9 Amount of liability to be charge on insurance moneys payable against that liability

  • (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the passing of this Act, entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his liability shall, on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance...

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