CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd

• Jurisdiction: Australia Federal only
• Judgment Date: 21 October 2008
• Neutral Citation: [2008] FCAFC 173
• Court: Full Federal Court (Australia)

FEDERAL COURT OF AUSTRALIA

CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173

INSURANCE – Professional risks policy – Claims made policy – Policy covered claims notified to insurer within month subsequent to policy period if insureds, during policy period, aware of any fact, situation or circumstance that might give rise to claim – Whether required insureds to be aware of fact etc and aware that it might give rise to claim – Whether insureds were aware that fact etc might give rise to claim – Quality of awareness required – Whether insurer notified within month subsequent to policy period – Whether insurer could rely on absence of notification – Whether insurer refused to pay under policy “by reason only” of absence of notification – Insurance Contracts Act 1984 (Cth), s 54(1).

INSURANCE – Professional risks policy – Insureds and a non-insured sued for damages – Proceeding settled on basis that insureds pay applicants’ costs, including costs attributable to claims against non-insured – Insureds sought indemnity under policy – Whether settlement reasonable to the extent that it involved the insureds paying so much of the applicants’ costs as related to claims against non-insured.

INSURANCE – Professional risks policy – Insureds and a non-insured sued for damages – Indemnity for defence costs sought under policy of insurer and under policy of another insurer – Other insurer paid out under its policy – Whether non-insured was covered under other policy – Whether permissible for insureds and non-insured to agree between themselves for payout received from other insured to be allocated first to defence costs of non-insured – Effect on size of defence costs claims by insureds under policy.

COSTS – Claim for indemnity costs – Calderbank letter sent by cross-claimants who ultimately succeeded – Criterion for award of indemnity costs in such circumstances – Whether rejection of offer unreasonable.



Corporations Law, ss 79, 180, 181, 182
Insurance Contracts Act 1984 (Cth), ss 54(1), 57(1)
Superannuation Industry (Supervision) Act 1993 (Cth), ss 17, 34(1), 52(1), (2) & (8), 194



Black v Lipovac (1998) 217 ALR 386
Dais Studio Pty Ltd v Bullet Creative Pty Ltd[2008] FCA 42
Dearman v Dearman (1908) 7 CLR 549
Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2)(2002) 190 ALR 121
Ho v Akai Pty Limited (in liq) [2006] FCAFC 159
Maniotis v JH Lever & Co Pty Ltd(No 2) [2006] FCAFC 28
Minister for Immigration & Multicultural Affairs v Jia Legeng(2001) 205 CLR 507
Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97
WSA Online Ltd v Arms (No 2)[2006] FCAFC 108

CGU INSURANCE LIMITED ACN 004 478 371 v CORRECTIONS CORPORATION OF AUSTRALIA STAFF SUPERANNUATION PTY LTD ACN 065 347 186, TERENCE ARTHUR LAWSON, JOHN KENNETH TWOMEY and AUSTRALIAN INTEGRATION MANAGEMENT SERVICES PTY LTD (FORMERLY CORRECTIONS CORPORATION OF AUSTRALIA PTY LTD) ACN 010 921 641

VID 996 of 2007

MOORE, FINN & JESSUP JJ

21 OCTOBER 2008

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 996 of 2007

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

CGU INSURANCE LIMITED ACN 004 478 371 Appellant

AND: AND BETWEEN: and:

CORRECTIONS CORPORATION OF AUSTRALIA STAFF SUPERANNUATION PTY LTD ACN 065 347 186 First Respondent TERENCE ARTHUR LAWSON Second Respondent JOHN KENNETH TWOMEY Third Respondent AUSTRALIAN INTEGRATION MANAGEMENT SERVICES PTY LTD (FORMERLY CORRECTIONS CORPORATION OF AUSTRALIA PTY LTD) ACN 010 921 641 Fourth Respondent CORRECTIONS CORPORATION OF AUSTRALIA STAFF SUPERANNUATION PTY LTD ACN 065 347 186 First Cross-Appellant TERENCE ARTHUR LAWSON Second Cross-Appellant JOHN KENNETH TWOMEY Third Cross-Appellant AUSTRALIAN INTEGRATION MANAGEMENT SERVICES PTY LTD (FORMERLY CORRECTIONS CORPORATION OF AUSTRALIA PTY LTD) ACN 010 921 641 Fourth Cross-Appellant CGU INSURANCE LIMITED ACN 004 478 371 Cross-Respondent

JUDGES:	MOORE, FINN & JESSUP JJ
DATE OF ORDER:	21 OCTOBER 2008
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The appeal be dismissed with costs.

2.The cross-respondent indemnify the first, second and third cross-appellants for their defence costs of the proceeding at first instance after bringing into account any balance of the moneys paid by Chubb Insurance Company of Australia Pty Ltd after the application of such moneys first in satisfaction of the fourth cross-appellant’s defence costs of the proceeding, secondly in satisfaction of the second and third cross-appellants’ defence costs of the proceeding and thirdly in satisfaction of the first cross-appellant’s defence costs of the proceeding.

3.The cross-appeal otherwise be dismissed.

4.The cross-appellants pay the cross-respondent’s costs of the cross-appellants’ application to have the costs of the trial ordered in their favour by the primary Judge taxed on an indemnity basis.

5.Save as aforesaid, there be no order as to the costs of the cross-appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 996 of 2007

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

CGU INSURANCE LIMITED ACN 004 478 371 Appellant

AND: AND BETWEEN: and:

CORRECTIONS CORPORATION OF AUSTRALIA STAFF SUPERANNUATION PTY LTD ACN 065 347 186 First Respondent TERENCE ARTHUR LAWSON Second Respondent JOHN KENNETH TWOMEY Third Respondent AUSTRALIAN INTEGRATION MANAGEMENT SERVICES PTY LTD (FORMERLY CORRECTIONS CORPORATION OF AUSTRALIA PTY LTD) ACN 010 921 641 Fourth Respondent CORRECTIONS CORPORATION OF AUSTRALIA STAFF SUPERANNUATION PTY LTD ACN 065 347 186 First Cross-Appellant TERENCE ARTHUR LAWSON Second Cross-Appellant JOHN KENNETH TWOMEY Third Cross-Appellant AUSTRALIAN INTEGRATION MANAGEMENT SERVICES PTY LTD (FORMERLY CORRECTIONS CORPORATION OF AUSTRALIA PTY LTD) ACN 010 921 641 Fourth Cross-Appellant CGU INSURANCE LIMITED ACN 004 478 371 Cross-Respondent

JUDGES:	MOORE, FINN & JESSUP JJ
DATE:	21 OCTOBER 2008
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

THE COURT

1This matter involves an appeal and a cross-appeal from orders made on 16 October 2007 in a proceeding that concerned the obligations of an insurer under a professional risks insurance policy. The appeal is brought by the insurer, CGU Insurance Ltd. The cross-appeal is brought by the insured and another who are all respondents to the appeal. The insured are Corrections Corporation of Australia Staff Superannuation Pty Ltd (CCAS) and its directors, Mr Lawson and Mr Twomey. The other cross-appellant is Australian Integration Management Services Pty Ltd (AIMS). The respondents in the appeal also rely on a notice of contention to uphold certain aspects of the judgment on grounds other than those given by the primary Judge.

THE FACTS IN OUTLINE

2AIMS operated a number of prisons under contracts with State governments. A superannuation fund, the Corrections Corporation of Australia Pty Ltd Staff Superannuation Fund (“the fund”) was maintained for employees of AIMS. It was an accumulation fund. The trustee of the fund was CCAS.

3In 2000, the assets of the fund were held in a way that, according to professional advice CCAS received in that year, involved insufficient diversification. As at the end of the previous year, some 82% of those assets were held in real estate related investments. In July 2000, AIMS was informed that its contract for the operation of the Borallon Correction Centre in Queensland, which was due to expire on 31 December that year, would not be renewed. This presented the prospect of a large number of employees of AIMS being made redundant who would, on termination of their employment, be entitled to payments from the fund. A concern arose as to whether sufficient assets of the fund could be appropriately liquidated to enable such payments to be made. Valuations obtained by CCAS indicated that none of the three properties in which, or in relation to which, the assets were held could, in all likelihood, be sold for the value at which it stood in the books of the fund.

4Another facility that was, at the time, under the control of AIMS was the Melbourne Women’s Correctional Centre (“MWCC”). In October 2000, the Department of Justice in Victoria assumed control of the MWCC, notwithstanding that the AIMS contract (to operate the MWCC) was not due to end until 2001. As a result of a settlement negotiated with the Department, the AIMS contract was terminated on 7 November 2000. This made it probable that further employees would be made redundant by AIMS, likely resulting in consequential demands upon the fund for superannuation payments. It exacerbated what the primary Judge described as “the liquidity crisis of the fund”.

5Although no findings were made on the subject by the primary Judge (and nothing turns on it for present purposes), it seems that many of those who lost their jobs with AIMS did not receive the superannuation benefits they regarded as their due given that, on 29 April 2002, 63 applicants of the fund commenced a proceeding against CCAS, Lawson and Twomey claiming damages for alleged breaches of duty. Claims for damages were also made against AIMS. On 6 June 2003, additional applicants were joined, bringing the number of applicants in the proceeding to 73. We shall refer to them as “the applicants”. This was the proceeding from which the present appeal arises. We shall refer later in greater detail to these claims, and to the events that gave rise to them.

6There were three policies of insurance covering (at least) CCAS and its directors in relation to liabilities which they may have incurred in respect of third persons. One policy was issued by CGU, and covered the period from...