Peter David Steigrad, Bruce Nelson Davidson and Gary Kenneth Urwin v Bfs1.2007Limited, Bnl2007 Ltd B2b Brokers Ltd and Others Hc Ak

• Jurisdiction: New Zealand
• Judge: Lang J
• Judgment Date: 15 September 2011
• Neutral Citation: [2011] NZHC 1037
• Docket Number: CIV-2011-404-611
• Court: High Court
• Date: 15 September 2011

Between

Peter David Steigrad, Bruce Nelson Davidson And Gary Kenneth Urivln

Plaintiffs

and

BFSL 2007 Limited, BNL 2007 Limited, B2B Brokers Limited And Others

First Defendants

and

Bridgecorp Limited And Bridgecorp Management Services Limited (Both In Receivership And Liquidation)

Second Defendants

and

Qre Insurance (International)Liblited

Third Defendant

[2011] NZHC 1037

CIV-2011-404-611

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Application for a direction that s9 Law Reform Act 1936 (amount of liability to be charge on insurance-moneys payable against liability) did not prevent the third defendant insurer from reimbursing the plaintiffs for defence costs — plaintiffs directors of Bridgecorp and faced criminal and civil claims — charge asserted by civil claimants — whether money had to be retained to meet any civil liability.

Appearances:

B Keene QC and J Little for plaintiffs

M Tingey and D S Friar for first tiefellclants and receivers of second defendants

A Challis for third defentlant

Counsel:

B Keene QC, Auckland

JUDGMENT OF Lang J

1 The Bridgecorp group was comprised of finance companies that borrowed money from the investing public to fund property developments in New Zealand, Australia and Fiji. The group collapsed and was placed in receivership from 2 July 2007, owing investors nearly $500 million.

2 The plaintiffs, Mr Steigrad, Mr Davidson and Mr Urwin (“the directors”), are three of six former directors of companies within the Bridgecorp group. The other directors are Mr Roest, Mr Petricevic and Mr O'Sullivan. The first and second defendants (“the Bridgecorp defendants”) are companies within the Bridgecorp group that are all in receivership and/or liquidation.

3 Although Mr Urwin is named as a plaintiff, his counsel has received no instructions from him for some time. At the commencement of the trial I granted Mr Keene leave to withdraw as counsel for Mr Urwin. As a consequence, only Mr Steigrad and Mr Davidson proceeded to trial.

4 The directors face numerous criminal and civil claims following the collapse of the Bridgecorp group. These include civil and criminal proceedings that the Securities Commission has instituted. The criminal proceedings are based on allegations that the directors made false statements in prospectuses, extension certificates and investment statements that the Bridgecorp companies issued to prospective investors. The trial was due to commence in this Court on 5 September 2011, but has now been delayed until 10 October 2011 because of difficulties encountered by some of the accused in obtaining legal representation. The civil proceedings have been stayed pending disposition of the criminal proceedings.

5 In addition, the Bridgecorp defendants have advised the directors that they intend to institute civil proceedings against them. The proceedings will allege that the directors managed the Bridgecorp defendants in a manner that breached their statutory and common law duties to the companies. The Bridgecorp defendants will seek orders requiring the directors to pay the Bridgecorp defendants more than $450 million.

6 Bridgecorp companies incorporated in Australia have also indicated that they intend to issue civil proceedings against the directors seeking compensation for breach of common law and statutory duties under the Australian companies legislation.

7 The Bridgecorp companies have held a directors and officers insurance policy (the “D & O” policy) with QBE, the third defendant, since 1996. The current limit of indemnity under the D & O policy is $20 million. In broad terms, the policy indemnifies the directors in respect of any civil and criminal liability that they might incur as a result of their acts or omissions as directors. It also provides cover in respect of any costs that they might incur in defending civil and criminal proceedings seeking to establish such liability (“defence costs”).

8 In addition to the D & O policy, the directors took out insurance in 2000 providing them with cover for defence costs incurred in respect of claims based on breach of their statutory obligations (“the SL policy”). Thereafter, the directors renewed and received quotes from QBE in respect of the two policies simultaneously. When the Bridgecorp group collapsed, the directors held SL cover up to a limit of $2 million. This, and the D & O policy cover, was for “any one claim and in the aggregate”.

9 When the criminal proceedings commenced, QBE and the directors agreed that they would resort first to the SL policy to pay the associated defence costs. They also agreed that the $2 million indemnity limit under the SL policy would be divided equally between the five directors. By 1 August 2011, all of the directors other than Mr Urwin had exhausted their entitlement under the SL policy. For that reason they now need to resort to the D & O policy in order to meet ongoing defence costs in relation to all proceedings.

10 The directors estimate that further defence costs through to the end of the trial will amount to approximately $3 million. This does not include the costs of any appeals that may follow the criminal trial, nor does it include future costs and/or liability arising out of the civil proceedings.

11 On 12 June 2009, the Bridgecorp defendants advised QBE that they assert a charge over monies payable under the D & O insurance policy for amounts they intended to claim from the directors in civil proceedings. They claimed that the charge arose by virtue of s 9 of the Law Reform Act 1936 (“the Act), which creates a charge in favour of a claimant over monies that may be payable under any insurance policy held by the person against whom the claim is made. This prompted QBE to advise the directors that it would not make any payments under the D & O policy in respect of defence costs until the directors and Bridgecorp defendants agreed on the allocation of funds under the D & O policy.

12 Given that the parties cannot reach such an agreement, the directors now seek a declaration that s 9 of the Act does not prevent QBE from meeting its contractual obligation under the D & O policy to reimburse them for defence costs. By way of counter-claim, the Bridgecorp defendants contend that, if s 9 does not prevent QBE from reimbursing the directors for defence costs, the policy nevertheless limits the amount that QBE is liable to pay for defence costs to $500,000. 1

13 QBE was not originally a party to the proceeding. It was content to leave the issue of the charge to be litigated between the directors and the Bridgecorp defendants. It was subsequently added as a party because it had a direct interest in the Bridgecorp defendants’ counterclaim.

The terms of the D & O policy

14 Relevantly, cl 1.0 of the D & O policy provides:

[S]ubject to the terms of this Policy QBE agrees to pay on behalf of:

• a) Each Insured Person any loss for which they do not receive payment by way of indemnity from the Insured Company; and

• b) The Insured Company any loss for which it grants indemnity to any Insured Person as permitted or required by law

• On account of any claim of a Wrongful Act first made against any Insured Person individually or otherwise during the Period of Insurance and notified to QBE during the Period of Insurance or within 60 days after its expiry or, if exercised, during the Extended Reporting Period.

15 Clause 2.0 of the policy defines a “Wrongful Act” as:

Made, committed, attempted or allegedly made, committed or attempted by any Insured Person, individually or otherwise, in the course of his or her duties to the Insured Company. A Wrongful Act also includes any matter claimed against any Insured Person solely by reason of his or her serving the Insured Company.

All causally connected Wrongful Acts shall be deemed one Wrongful Act.

• (a) any actual or alleged:

  • • Breach of duty;

  • • Breach of trust;

  • • Neglect;

  • • Act, error or omission;

  • • Mis-statement or misleading statement;

  • • Breach of warranty or expressed authority;

16 “Loss” is defined in cl 2.0 of the policy as:

All sums that the Insured Person becomes legally liable to pay on account of all claims made against the Insured Person for any Wrongful Act to which this insurance applies, including but not limited to Defence Costs.

17 Clause 2.0 also defines “Defence Costs” as meaning:

Defence Costs include the cost of any appeal, attachment or similar bond but do not include the regular or overtime wages, salaries or fees of any director or employee of the Insured Company.

• Costs incurred by QBE or with its consent (which will not be unreasonably withheld) in:

  • a) The investigation and defence or settlement of any claim to which this insurance applies, including the threat or intimation of any such claim;

  • b) The Insured Persons’ attendance and representation (including preparation) at any investigation, prosecution, inquiry, commission, examination, administrative proceeding or regulatory proceeding in connection with any claim to which this insurance applies;

  • c) The investigation and defence or settlement of an civil or criminal action in connection with any claim to which this insurance applies;

  • d) The investigation of any circumstances from which a claim to which this insurance applies may arise.

18 Clause 4.17 permits QBE to make progress payments of defence costs. It provides:

PROGRESS PAYMENT OF DEFENCE COSTS

If cover has not been confirmed in writing by QBE, QBE will advance all reasonable Defence Costs as and when they are incurred provided that:

• (a) the amount so advanced will be limited to 20% of the Limit of Indemnity of $500,000, whichever is the less, unless QBE agrees in writing to advance a greater amount; and

• (b) no Defence...