Steigrad v Bfsl 2007 Ltd and Others Coa
Jurisdiction | New Zealand |
Judge | Arnold,Harrison JJ |
Judgment Date | 20 September 2012 |
Neutral Citation | [2012] NZCA 604 |
Docket Number | CA674/2011 |
Court | Court of Appeal |
Date | 20 September 2012 |
and
and
[2012] NZCA 604
O'Regan P, Arnold and Harrison JJ
CA674/2011
CA842/2011
IN THE COURT OF APPEAL OF NEW ZEALAND
Appeal from a High Court decision which held the appellant was not entitled to insurance funds under s9 Law Reform Act 1936 (charges on insurance money payable as indemnity for liability to pay damages or compensation) in order to pay his defence costs — appellant was a former director of failed finance company Bridgecorp — appellant was facing claims from Bridgecorp for breach of directors duties — insurance policy with QBE Insurance (International) Ltd provided cover for the costs of defending any claim based on breach of their statutory obligations — heard together with Chartis Insurance New Zealand Ltd v Houghton (respondent sought insurance monies to meet defence costs of claims brought by shareholders of Feltex Carpets Ltd) — whether insurance monies should be retained to meet any civil claims.
B P Keene QC and J Anderson for Appellant in CA674/2011
M J Tingey and D J Friar for First and Second Respondents in CA674/2011
M G Ring QC and DB J Burt for First Appellant in CA842/2011
A R Galbraith QC and A E Ferguson for Second Appellants in CA842/2011
A J Forbes QC and P A B Mills for Respondent in CA842/2011
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A The appeal is allowed. The declaration made by the High Court is quashed.
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B Bridgecorp's application for leave to adduce further evidence is dismissed.
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C Bridgecorp must pay costs to Mr Steigrad for a standard appeal on a band B basis together with an increase of 50 per cent to reflect the result of its application for leave and usual disbursements. We certify for two counsel.
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A The following declaration is made:
Mr Houghton is not presently entitled pursuant to s 9 of the Law Reform Act 1936 to charge money payable by Chartis to Mr Saunders and his co-insured pursuant to a prospectus liability insurance policy in reimbursement of their defence costs incurred in defending a claim or claims brought against them by Mr Houghton and others.
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B Mr Houghton must pay costs to Mr Saunders for a standard appeal on a band B basis together with usual disbursements. We certify for two counsel.
(Given by Arnold and Harrison JJ)
Table of Contents
Para No | |
Introduction | [1] |
Background | [2] |
(i) CA674/2011 | [3] |
(ii) CA842/2011 | [7] |
Section 9 | [13] |
Analysis | [18] |
(a) Defence costs | [20] |
(b) Interference with contractual rights | [36] |
(c) Conclusion | [43] |
Application to adduce further evidence | [46] |
Result | [54] |
These cases concern s 9 of the Law Reform Act 1936. Section 9(1) creates what it describes as a “charge” in favour of a third party on insurance monies paid or to be paid to indemnify an insured in respect of the insured's liability to that third party. The two insurance policies in issue provide cover for liability incurred by the insured to third parties in specified circumstances and also provide for the reimbursement of the costs of defending any such third party claim. Both policies contain a single limit of liability covering both liability and defence costs claims. Broadly, the question for the Court is how the charge created by s 9(1) operates on such policies, in particular in relation to the payment of defence costs after the charge has arisen and been notified.
We set out the background to each case in turn.
The appellant, Peter Steigrad, was a director of Bridgecorp Ltd and Bridgecorp Management Services Ltd (both now in receivership and liquidation), which were part of the Bridgecorp group of companies that collapsed in 2006. We will refer to them collectively as Bridgecorp. The Bridgecorp companies were finance companies that borrowed money from the public to on-lend to property developers. Following the collapse, Mr Steigrad and several of his fellow directors were convicted of offences under the Securities Act 1978. They now face claims brought against them by Bridgecorp, on the basis that they breached duties which they owed to the companies as directors. The claims are for damages of around $450 million.
Bridgecorp held two relevant insurance policies, both with QBE Insurance (International) Ltd (QBE):
(a) The first was a directors and officers liability policy (the D&O policy). It indemnified the directors against any liability they might incur as a result of their acts or omissions as directors and provided for the payment of defence costs incurred either by the insurer directly or with its consent in relation to any claim to which the policy applied. The policy was subject to a limit of indemnity of $20 million.
(b) The second was a statutory liability policy, which provided cover for the costs of defending any claim against the directors based on breach of their statutory obligations (the SL policy). It had a limit of liability of $2 million. The monies available under this policy were exhausted by the directors in the course of defending the proceedings under the Securities Act.
Mr Steigrad and his fellow directors made claims under the D&O policy for reimbursement of their further defence costs in the civil and criminal proceedings against them. On 12 June 2009, Bridgecorp had given QBE notice of a charge under s 9(1) over the proceeds of the D&O policy in respect of their claims against the directors. The insurer advised the directors that it would not make any payments on account of defence costs until the directors had reached some agreement with Bridgecorp about the allocation of funds under the D&O policy. When no agreement was reached, Mr Steigrad and two of his fellow directors applied to the High Court for a declaration that s 9(1) did not prevent the insurer from meeting its obligation under the D&O policy of reimbursing them for their defence costs.
In the High Court, Lang J held that the charge created by s 9(1) applied to the whole of the amount available under the policy at the date the charge was created (assuming notification). 1 Accordingly, the charge prevented the directors of Bridgecorp from having access to the insurance money to meet their defence costs. Mr Steigrad now appeals against that ruling.
The first appellant in this appeal, Chartis Insurance New Zealand Ltd (Chartis), issued a prospectus liability insurance policy to Feltex Carpets Ltd (Feltex) in 2004. 2 It provided cover for “losses” incurred in respect of “securities claims” against the company's directors, up to a specified limit of liability. The term “losses” was defined to include reasonable defence costs incurred in relation to any securities claim.
Feltex issued a prospectus and investment statement in 2004. The second appellants, Timothy Saunders and others, were then the directors. The respondent, Eric Houghton, bought shares in Feltex at that time. The float raised around $250 million in public share subscriptions. In 2006, Feltex was placed into receivership and then liquidation. Mr Houghton, acting in a representative capacity, issued proceedings against the Feltex directors, alleging that the prospectus included untrue statements. Mr Houghton currently represents some 3,100 shareholders claiming approximately $150 million in damages. 3
Following the delivery of Lang J's judgment in Steigrad, Mr Houghton gave Chartis notice of a charge over the proceeds of the prospectus liability insurance
Chartis and the Feltex directors then issued a proceeding against Mr Houghton, claiming a declaration to the effect that the charge did not operate to prevent Chartis from paying the directors' reasonable defence costs under the policy. They applied to the High Court to have their proceeding transferred to this Court and heard at the same time as the Steigrad appeal. Rodney Hansen J granted this application. 5
There were a number of preliminary issues between the various parties to these cases, but all have been resolved except one. That is an application by Bridgecorp to adduce further evidence of an updating nature, which Mr Steigrad opposes. We will address this application later.
Both appeals were argued together on the premise that there were no material differences between the QBE and Chartis policies and that our judgment on the Steigrad appeal would dictate the same result on the Chartis appeal. Accordingly, we will focus on the QBE policy without further reference to the Chartis policy.
We begin by setting out s 9 in full. 6 It provides:
(Emphasis added.)
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(1) If any person (hereinafter in this Part of this Act 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
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liability to pay any damages or compensation, the amount of his liability shall, on the happening of the event...
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