Bridgecorp Ltd v Certain Lloyd'S Underwriters
| Jurisdiction | New Zealand |
| Judge | Harrison J |
| Judgment Date | 27 November 2014 |
| Neutral Citation | [2014] NZCA 571 |
| Docket Number | CA244/2014 |
| Court | Court of Appeal |
| Date | 27 November 2014 |
[2014] NZCA 571
Harrison, French and Goddard JJ
CA244/2014
IN THE COURT OF APPEAL OF NEW ZEALAND
Appeal against a decision that the High Court (HC) lacked jurisdiction to determine a New Zealand company's application for an order under s9 Law Reform Act 1936 (LRA) (Amount of liability to be charge on insurance moneys payable against that liability) charging moneys payable under a policy issued by London underwriters — company had arranged its indemnity insurance through a broker which was now in liquidation — insurers declined liability — company filed proceeding against broker which had an indemnity policy — company sought leave to charge proceeds of insurance policy in the event its claim against the broker succeeded — underwriters were based in London — underwriters filed an appearance under protest to the HC's jurisdiction to hear the proceeding on the ground that s9 LRA did not have extraterritorial effect — whether s9 charged the insured party's right of action or claim for indemnity against its underwriters, and not the debt — whether the situ of the debt was determined by where the underwriter resided or by the factors in the policy — whether the broker's insolvency, which required all its rights and obligations be settled under the New Zealand insolvency regime, incorporated s9 LRA because it affected the assets available for distribution.
M J Tingey and W D Hofer for Appellant
M G Ring QC and M J Francis for Respondent
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A The appeal is dismissed.
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B The appellant is ordered to pay the respondent costs for a standard appeal on a band A basis together with usual disbursements.
(Given by Harrison J)
Section 9 of the Law Reform Act 1936 introduced a significant statutory modification of contractual rights of indemnity and of priorities on insolvency by allowing a third party to claim a charge against insurance moneys payable by an insurer to an insured but insolvent party. On this appeal the question is whether a New Zealand court has jurisdiction to determine a New Zealand company's application for an order under s 9 charging moneys payable under a policy issued by London underwriters.
Bridgecorp was a New Zealand finance company which raised funds from the public. The company in turn loaned moneys to various property development entities. Bridgecorp failed in 2008 owing large sums of money. Through its New Zealand broker, Herbert Insurance Group Limited (HIGL), the company had arranged insurance against losses suffered on realisation of securities given by borrowers over various properties. Its insurers have declined liability on Bridgecorp's claims for indemnity on a number of grounds.
Bridgecorp's receivers have since issued a proceeding against the insurers in the High Court at Auckland and joined HIGL as well, alleging that, if the insurers' defences are upheld, the broker is liable for breach of its professional duties to arrange suitable insurance.
HIGL, which is itself now in liquidation, has entered into a policy of professional indemnity insurance against its liability for breaches of duty with a syndicate of Lloyd's Underwriters in London. MSI Corporate Capital Ltd is the syndicate's only member. The policy's terms are the centrepiece of Mr Tingey's argument on appeal for Bridgecorp and we shall return more fully to them. It is sufficient to note now that, in reliance principally on the facts of HIGL's insolvency and the existence and terms of its policy, Bridgecorp has applied for leave under s 9 to charge the proceeds against the contingency that its claim against HIGL succeeds.
HIGL's underwriters (which we will refer to as the Underwriters) filed an appearance under protest to the Court's jurisdiction to hear Bridgecorp's proceeding on the ground that s 9 does not have extraterritorial effect. In reliance on the Supreme Court's decision in Ludgater Holdings Ltd v Gerling Australia Insurance Co Pty Ltd, 1 Gilbert J dismissed Bridgecorp's application to set aside Underwriters' protest. 2 He was satisfied that any debt payable by HIGL's insurers under the professional indemnity policy is located in England. As a result, the High Court has no jurisdiction to order Underwriters to pay the insurance proceeds to Bridgecorp rather than HIGL. Bridgecorp appeals.
Section 9 relevantly provides:
(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 moneys that are or may become payable in respect of that liability.
(2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured has died insolvent or is bankrupt or, in the case of a corporation, is being wound up, or if any subsequent bankruptcy or winding up of the insured is deemed to have commenced not later than the happening of that event, the provisions of the last preceding subsection shall apply notwithstanding the insolvency, bankruptcy, or winding up of the insured.
…
(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:
provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court.
It is common ground between counsel that Ludgater stands as authority for three foundation principles: (1) s 9 does not have extraterritorial application; (2) s 9 will only apply if the New Zealand courts have subject matter jurisdiction over any debt payable by underwriters under a policy; and (3) subject matter jurisdiction will not be conferred if the debt is situated or located outside New Zealand (called the situs or situation of the debt).
Counsel accept that these three principles set the framework for argument on Bridgecorp's appeal. In support, Mr Tingey submitted that there was no single controlling factor in fixing the debt's location and conferring subject matter jurisdiction. In this case, he submitted, the policy itself was the most useful indicator of situs, in particular its provision for payment of the amount insured in New Zealand and that any disputes are governed by New Zealand law and New Zealand courts have exclusive jurisdiction. Mr Ring QC for Underwriters countered that the controlling factor is that the insurer resides in London. This statement of the parties' competing positions has assisted in identifying the scope of the issue for our determination.
Before evaluating Bridgecorp's primary ground of appeal we must deal with two submissions which assumed particular prominence in Mr Tingey's argument before us. First, he submitted that what is charged under s 9 is the insured party's right of action or claim for indemnity against its underwriters, not the debt represented by the amount payable. He relied on Lord Pollock MR's statement of principle in New York Life Insurance Co v Public Trustee that a debt or chose in action is situated in a country where it can be properly recoverable or enforced. 3
We do not read that authoritative statement of the law as referring to enforcement of a cause of action but of the debt itself. In New York Life Insurance the Master of the Rolls was using the phrase “debts or choses in action” synonymously. His reference to enforcement was in that particular context, as is reinforced by his reference to where the debts or choses in action are properly recoverable or can be enforced. A cause of action is not of itself recoverable.
In any event, Mr Tingey's submission is contrary to the plain words of s 9(1) and Bridgecorp's own pleading that it “has a charge over the insurance monies payable”. The charge is “on all insurance money that is or may become payable in respect of [its] liability” under “a contract of insurance by which [it] is indemnified against liability to pay any damages or compensation”. The statute creates, on the contingency of an event giving rise to a claim for damages, “a charge on all insurance moneys which are then payable in respect of the liability against which the insured is indemnified and on all such insurance money that may become payable in respect of that liability”. 4 It is a charge created by Parliament “over an asset of the (now insolvent) insured”. 5
The statutory charge attaches to the debt which is itself, by s 9(4), “enforceable by way of an action against the insurer”: that is, the charge or debt is enforceable by an action or claim. As noted in Ludgater, it is the insured party's liability that is charged on the amount payable by the insurer. 6 And as s 9(3) provides, the statutory charge has priority “over all other charges affecting the said insurance moneys”.
Second, as noted, it was common ground that because s 9 does not have extraterritorial effect Bridgecorp must satisfy a New Zealand court that it has subject matter jurisdiction to make an order — that is, the Court is entitled to regulate the
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