In brief - Recent NSW and Victoria decisions address consequences of Chubb v Moore

Two recent decisions in the long running Opes Prime litigation, a decision of the NSW Supreme Court in Opes Prime Stockbroking Ltd (In Liq) (Scheme Administrators Appointed) v Stevens [2014] NSWSC 659 in May 2014, and of the Victorian Supreme Court in Opes Prime Stockbroking Pty Ltd (In Liq) (Scheme Administrators Appointed) v Stevens [2014] VSC 322 in June 2014, address some of the consequences of the 2013 decision of the NSW Court of Appeal in Chubb v Moore.

Section 6 of the Law Reform (Miscellaneous Provisions) Act

In July 2013, in our earlier article Australia's Bridgecorp handed down, we reported on the decision of the Court of Appeal of the Supreme Court of NSW in Chubb Insurance Company of Australia v Moore [2013] NSWCA 212. We noted that the decision brought welcome clarity to the operation of section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). Central to the decision in Chubb v Moore was the finding that "the preferable approach" is to treat section 6 as only applying to claims brought in a court of New South Wales.

Former directors of Opes Prime sued by administrators following company's collapse

Following the collapse of the Opes Prime Group, two of its former directors, Mr Stevens and Mr Gillooly, were sued by the administrators of Opes Prime Stockbroking Ltd, alleging breach of their duties as directors and seeking recovery of losses of some $200 million. The directors sought cover under a D&O liability insurance policy issued by QBE and QBE had, subject to certain reservations, admitted liability to indemnify the directors.

NSW proceeding: an attempt to obtain the benefits of section 6

An application was made by Opes Prime for leave to enforce against QBE the charge over the QBE policy created by Section 6. The directors applied to cross-vest the proceeding to the Supreme Court of Victoria, given what they asserted was a greater connection with Victoria, as regards (amongst other things) the location of the defendants, their legal advisers and witnesses. Opes Prime asserted that a factor to be taken into account in determining whether to transfer the proceeding was Opes Prime's Section 6 application.

Justice Ball (who was one of the bench who determined Chubb v Moore) noted that counsel for Opes Prime had conceded to the court that the proceeding was brought in NSW so that Opes Prime could obtain the benefits of section 6, following the decision in Chubb v Moore.

Applications for leave under section 6 subject to the court's discretion

Opes Prime argued, in reliance on Bede Polding College v Limit (No 3) Limited and anor [2008] NSWSC 887, that as long as the following three conditions were satisfied, leave pursuant to section 6(4) to enforce the charge created under section 6(1) should be granted:

  • an arguable case against the defendants
  • an arguable case that the policy responds to the claim made against the defendants
  • a real possibility that, if judgment is obtained, the defendants would not be able to meet it

Justice Ball held that, even if those three factors are established, that does not give rise to an entitlement to join the insurer. Rather, section 6(4) confers on the court an unfettered discretion, the purpose of which is to ensure that insurers are not exposed unnecessarily to claims.

The question in each case must be whether it is reasonable for the insurer to be joined, and that question will not always be answered by satisfaction of those three conditions.

No utility in joining insurer to the proceeding

In the present case, his Honour decided, there was no utility in joining QBE to the proceeding, as it had admitted liability to indemnify the directors. There was also no suggestion that, if Opes Prime was not able to enforce its charge, some other claimant would obtain priority.

Further, allowing Opes Prime to join QBE now so that it may protect its position in the event circumstances changed, did not provide an adequate ground for the court to exercise its discretion and grant leave under section 6(4).

Is the inability of one party to obtain the benefits of section 6 grounds for resisting a cross vesting application?

Justice Ball noted that an application to transfer a matter pursuant to section 5(2) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) does not confer a discretion. If it appears to the court that it is otherwise in the interests of justice that the proceeding be determined by the Supreme Court of another state or territory, then the court must transfer the proceeding.

His Honour further noted that the interests of justice are not concerned with the procedural or substantive advantages a party may enjoy in one jurisdiction rather than another. In determining whether the proceeding should be cross-vested, it is not for the court to determine whether the approach of one state is better or more desirable and the selection of the jurisdiction should not be made in order to achieve the application of any law.

Even if regard could be had to the advantages that section 6 offers, those advantages were outweighed by the disadvantages of the proceeding remaining in NSW (having regard to the location of the parties, their legal advisers and potential witnesses).

The court ordered that the proceeding be transferred to the Supreme Court of Victoria.

The Victorian proceeding: another route sought to pursue a section 6 charge

After the proceeding had been transferred to the Supreme Court of Victoria, Opes Prime sought urgent declaratory relief from that court, that section 6 applied in respect of claims for damages and compensation made by it against the directors in the Victorian proceeding.

Justice Robson noted that Opes Prime had informed the court that, if the Supreme Court of Victoria were to hold that the statutory charge would not be recognised in that court, Opes Prime would then seek special leave to appeal to the High Court the decision of Justice Ball in the Supreme Court of NSW, discussed above.

The directors asserted that, according to Chubb v Moore, the charge under section 6 may only be enlivened if proceedings against the insurer are instituted in the Supreme Court of NSW. Further, it was asserted that the declarations sought by Opes Prime in the Victorian proceeding were a backdoor way of appealing the decision in the NSW proceeding.

Victorian Supreme Court rejects Opes Prime's application for declaratory relief

Justice Robson declined Opes Prime's application for declaratory relief, holding that such a decision would be in the nature of advice, rather than resolving an issue between the parties, where no application had been made in the Victorian court for leave to join QBE as a party.

Further, his Honour would be reluctant to decide the matter on jurisdictional grounds, in view of the decision in Chubb v Moore. His Honour commented that Opes Prime appeared to be seeking the declaratory relief to assist in its application for special leave to appeal to the High Court and/or to decide whether to pursue that application for special leave.

Opes Prime's application for a declaration was therefore rejected.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.

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