All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited

• Jurisdiction: Australia Federal only
• Judge: ALLSOP CJ
• Judgment Date: 19 June 2020
• Neutral Citation: [2020] FCA 840
• Date: 19 June 2020
• Court: Federal Court

FEDERAL COURT OF AUSTRALIA

All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840

File number:	NSD 714 of 2019
Judge:	ALLSOP CJ
Date of judgment:	19 June 2020
Catchwords:	PRACTICE AND PROCEDURE – security for costs – general principles – applicant in liquidation – respondent insurer – litigation arising under the contract of insurance – whether duty of utmost good faith precludes security for costs application – whether the litigation will be stifled if order for security made – whether there was delay in bringing application – whether applicant’s impecuniosity arises out of respondent’s conduct – security for costs ordered
Legislation:	Corporations Act 2001 (Cth) s 1335 Federal Court of Australia Act 1976 (Cth) s 56 Insurance Contracts Act 1984 (Cth) s 13
Cases cited:	Advance Innovative Solutions Pty Ltd (in liq) v X-Dem Group (Aust) Pty Ltd [2012] NSWSC 1112 Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Ltd [2012] FCAFC 57 Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCAFC 29; 2 FCR 1 BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 CGU Insurance Limited v AMP Financial Planning Pty Ltd [2007] HCA 36; 235 CLR 1 Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; 98 ACSR 301 Ensham Resources Pty Limited v Aioi Insurance Company Limited [2012] FCAFC 191 Equity Access Ltd v Westpac Banking Corporation [1989] FCA 520; ATPR 40-972 Green in his capacity as liquidator of Arimco Mining Pty Limited (in liquidation) v CGU Insurance Limited [2008] NSWSC 449; 26 ACLC 323 Green v CGU Insurance Ltd [2008] NSWCA 148; 67 ACSR 105 Imaging Applications Pty Ltd v Vero Insurance Ltd [2008] VSC 178 Irwin Alsop Services v Mercantile Mutual Insurance Co Ltd [1986] VR 61; 10 ACLR 176 Jianshe Southern Pty Ltd v Get Motor Cycles Pty Ltd (No 3) [2007] FCA 1078 KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; 56 FCR 189 Madgwick v Kelly [2013] FCAFC 61; 212 FCR 1 Manifest Shipping [2001] 1 Lloyd’s Rep 389 Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] HCA 41; 193 CLR 502 Nonox Australia v Certain Underwriters at Lloyds Subscribing to Contract No CVO263CFGL [2014] NSWSC 221; 18 ANZ Insurance Cases 62-009 Re Strand Wood Co Limited [1904] 2 Ch 1 Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 Silbermann v CGU Insurance Ltd [2003] NSWCA 203; 57 NSWLR 469 Statewide Developments Realty Pty Ltd v The Owners, SP 77457 [2013] NSWSC 1750 Tenth Anemot Pty Ltd v Colonial Mutual General Insurance Co Ltd [1993] 2 VR 48; 7 ANZ Insurance Cases 61-154 UDP Holdings Pty Ltd v Ironshore Corporate Capital Ltd (No 2) [2019] VSC 645
Date of hearing:	12 March 2020
Date of last submissions:	21 April 2020
Registry:	New South Wales
Division:	General Division
National Practice Area:	Commercial and Corporations
Sub-area:	Commercial Contracts, Banking, Finance and Insurance – Insurance List
Category:	Catchwords
Number of paragraphs:	81
Counsel for the Applicant:	Ms I King
Solicitor for the Applicant:	MCW Lawyers
Counsel for the Respondent:	Mr S Keizer
Solicitor for the Respondent:	YPOL Lawyers

ORDERS

		NSD 714 of 2019
BETWEEN:	ALL CLASS INSURANCE BROKERS PTY LTD (IN LIQUIDATION) ACN 095 825 513 Applicant
AND:	CHUBB INSURANCE AUSTRALIA LIMITED Respondent

JUDGE:	ALLSOP CJ
DATE OF ORDER:	19 June 2020

THE COURT ORDERS THAT:

1. Within 28 days of the date of these orders, the applicant provide the respondent with security for its costs in the proceedings in the sum of $50,000.

2. The security referred to in Order 1 be provided by payment into Court or the provision of an irrevocable bank guarantee from an Australian trading bank.

3. The proceedings be stayed until the amount referred to in Order 1 above is paid into Court.

4. In the event that the amount in Order 1 is not paid into Court within the time stipulated in Order 1, the proceedings be dismissed with costs.

5. The costs of the respondent’s interlocutory application filed on 8 October 2019 be reserved.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

ALLSOP CJ:

1. By interlocutory application lodged with the Court on 8 October 2019, the respondent Chubb Insurance Australia Ltd seeks an order pursuant to s 1335(1) of the Corporations Act 2001 (Cth) or, alternatively, s 56(1) of the Federal Court of Australia Act 1976 (Cth) and r 19.01 of the Federal Court Rules 2011 (Cth), that the applicant, All Class Insurance Brokers, provide security for Chubb’s costs of these proceedings in the amount of $380,826.91 or such other amount as may be determined by the Court. The amount sought by Chubb was later revised in its supplementary written submissions to $117,800, calculated on the basis of a 1–2 day hearing going only to questions of liability.

2. This Application is in the context of proceedings in which All Class seeks an order that Chubb indemnify it under an insurance policy issued by Chubb in relation to theft by employees (the Policy).

3. All Class was in the business of insurance broking until it was the subject of a winding up order and a liquidator was appointed on 17 April 2013. Mr Bowmaker was the sole director and secretary of All Class at all relevant times. On 27 March 2013, Chubb was notified of a claim on the Policy, made by Mr Bowmaker’s wife, arising from unauthorised withdrawals made by Mr Bowmaker from All Class’ trust account. The money in that account was taken to be held on trust by All Class for the benefit of its clients: see ss 981A, 981B and 981H of the Corporations Act. All Class alleges that these unauthorised withdrawals commenced in the late 2000s and, by 2013, amounted to some $2,031,000. All Class contends that Mr Bowmaker was an employee for the purpose of the Policy and that it is therefore entitled to be indemnified under the Policy by Chubb for Mr Bowmaker’s theft, fraud and dishonesty. Chubb denies liability on three bases. First, it says that the improper transfers out of the trust account were not theft, fraud or dishonesty by an employee, but instead were acts of All Class itself (through its director). That is, Mr Bowmaker as sole director and company secretary does not constitute an employee for the purpose of the Policy. Secondly, it says that there was no direct loss to All Class as the funds were applied to All Class’ benefit. Thirdly, it says the claim is statute-barred.

4. Chubb relies on an affidavit sworn by its solicitor, Mr O’Brien, on 8 October 2019 in support of the Application. Mr O’Brien gives evidence about the correspondence between the parties leading up to the making of the Application;...