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Federal Court of Australia |
Last Updated: 10 February 2003
Reinsurance Australia Corporation Limited v HIH Casualty and General Insurance Ltd (in liquidation) [2003] FCA 56
PRACTICE & PROCEDURE - Misleading and deceptive conduct alleged to have occurred during negotiations in respect of insurance and reinsurance contracts for the financing of film productions - four notice of motions seeking permanent or temporary stay of proceedings, dismiss or strike out of proceedings in part or in whole and/or seeking to set aside service of the originating process - connecting factors between Australian proceedings and proceedings currently on foot in the UK and USA - Loss or damage or "likely to suffer loss or damage" - forum non conveniens - whether clearly inappropriate forum.
Trade Practices Act 1974 (Cth) ss 4(1), 5, 6, 51A, 52, 80, 82, 84 and 87
Australian Securities and Investments Commission Act 1989 (Cth) ss 12AC, 12DA, 12GD, 12GF and 12GM
Insurance Act 1973 (Cth) s 3(1)
Corporations Act 2001 (Cth) s 471B
Federal Court Rules O 8 r 2, O 9 r 7, O 11 r 16 and O 20 r 2 (1)
Fair Trading Act 1987 (NSW) ss 42, 65, 68 and 72
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2001] EWCA Civ 1250; [2001] 2 Lloyd's Rep 483 referred to
Leda Holding Pty Ltd v Oraka Pty Ltd (1998) ATPR 41-601 followed
Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 referred to
Voth v Manildra Flour Mills Pty Ltd [1990] HCA 55; (1990) 171 CLR 538 applied
Sterling Pharmaceuticals Pty Ltd v The Boots Company (Australia) Pty Ltd (1992) 34 FCR 287 applied
Meyer Heine Limited v China Navigation Co Pty Ltd [1966] HCA 11; (1966) 115 CLR 10 referred to
Trade Practices Commission v Australian Iron and Steel Pty Ltd (1990) 22 FCR 305 referred to
Hunter Grain Pty Ltd v Hyundai Merchant Marine Co Ltd (1993) 117 ALR 507 referred to
Bray v F Hoffman-La Roche Ltd and Ors [2002] FCA 243; (2002) 190 ALR 1 applied
Bright v Femcare Ltd (2000) 175 ALR 50 considered
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 followed
Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 followed
Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 followed
March v E & M H Stramare Pty Ltd & Anor [1991] HCA 12; (1991) 171 CLR 506 referred to
Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 approved
Wells v John R Lewis (International) Pty Ltd (1975) 25 FLR 194 referred to
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 considered
General Accident Fire & Life Assurance Corporation v Tanter (the "Zephyr") (1985) 3 ANZ Ins Cas 60-682 referred to
Societe Anonyme D'Intermediaries Luxembourgeois v Farex [1995] LRLR 116 referred to
Wickstead v Browne (1992) 30 NSWLR 1 approved
Henry v Henry [1995] HCA 64; (1996) 185 CLR 571 followed
CSR Ltd v Cigna Insurance Australia Ltd [1997] HCA 33; (1997) 189 CLR 345 applied
Regie National Des Usines Renault SA v Zhang [2002] HCA 10; (2002) 76 ALJR 551 followed
Agnew v Lansforsakringsbolagens AB [2000] UKHL 7; [2001] 1 AC 223 considered
Source Ltd v T.U.V. Rheinland Holding AG [1998] QB 54 referred to
Fonderie Officine Tacconi SpA v Heinrich Wagner Sinto Maschinenfabrik GmbH (HWS) [2002] ECR 0 referred to
Alfred Dunhill Ltd v Diffusion Internationale de Maroquinerie de Prestige SARL [2002] 1 All ER (Comm) 950 considered
Domicrest Ltd v Swiss Bank Corporation [1999] QB 548 considered
Raiffeisen Zentralbank Osterreich Ag v Alexander Tranos [2001] I.L Pr 9 considered
Base Metal Trading Limited v Ruslan Borisovich Shamurin [2002] CLC 322 considered
Commonwealth Bank of Australia v White (No 1) [1999] VSC 262; [1999] 2 VR 681 approved
Commonwealth Bank v White (No 3) [2000] VSC 259 referred to
Australian Commercial Research & Development Ltd v ANZ McCaughan Merchant Bank Ltd [1989] 3 All ER 65 applied
Williams v The Society of Lloyds [2000] VSCA 38; [1994] 1 VR 274 considered
Gan Insurance Co Ltd v Tai Ping [1999] Lloyds Rep IR 472 referred to
AIG Europe (UK) Ltd v Anonymous Greek Insurance [2000] Lloyds Rep IR 343 referred to
Akai Pty Ltd v People's Insurance Co Ltd [1998] 1 Lloyds Rep 90 referred to
Akai Pty Ltd v People's Insurance Company Ltd [1996] HCA 39; (1996) 188 CLR 418 referred to
AIG Europe (UK) Limited & Ors v The Ethniki [2000] 2 All ER 566 referred to
State of Western Australia v Wardley Australia Limited (1991) 30 FCR 245 referred to
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 referred to
FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association (1997) 41 NSWLR 116 applied
McGuid v Office de Commercialisation et D'Exportation [1999] NSWSC 931 approved
Wool International v Sedgwick Ltd (No 4) (Beaumont J, 2 October 1997, unreported) applied
Continental Bank NA v Aeokos Cia Naviera SA [1994] 2 All ER 540 referred to
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1 applied
Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd (1993) 43 FCR 439 referred to
Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541 followed
Sutton Insurance Law in Australia 3rd Ed 1999
Dicey and Morris The Conflict of Laws 13th Ed 2000
REINSURANCE AUSTRALIA CORPORATION LIMITED (ACN 061 215 601) & MONEGASQUE DE REASSURANCES S.A.M. v HIH CASUALTY AND GENERAL INSURANCE (IN LIQUIDATION) (ACN 47 008 482 291), AIG EUROPE (UK) LTD AND NEW HAMPSHIRE INSURANCE COMPANY, HEATH GROUP LIMITED (FORMERLY CE HEALTH PLC), HEATH INSURANCE BROKING LTD FORMERLY CE HEATH (INSURANCE BROKING) LTD AND HEATH NORTH AMERICA AND SPECIAL RISKS LTD, ICE MEDIA LIMITED AND PREMIER MEDIA LIMITED & J P MORGAN CHASE BANK (FORMERLY KNOWN AS THE CHASE MANHATTAN BANK, FORMERLY KNOWN AS CHEMICAL SECURITIES INC)
N827 of 2002
JACOBSON J
SYDNEY
7 FEBRUARY 2003
IN THE FEDERAL COURT OF AUSTRALIA |
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NEW SOUTH WALES DISTRICT REGISTRY |
|
1. The Notices of Motion filed by the first respondent, on 29 November 2002; the second respondents, on 23 September 2002; the third respondents, on 21 November 2002, and the fifth respondent, on 10 September 2002, be dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
|
BETWEEN: |
REINSURANCE AUSTRALIA CORPORATION LIMITED ACN 061 215 601 MONEGASQUE DE REASSURANCES S.A.M. SECOND APPLICANT |
AND: |
HIH CASUALTY AND GENERAL INSURANCE (IN LIQUIDATION) ACN 47 008 482 291 FIRST RESPONDENT AIG EUROPE (UK) LTD and NEW HAMPSHIRE INSURANCE COMPANY SECOND RESPONDENTS HEATH GROUP LIMITED (formerly CE HEATH plc), HEATH INSURANCE BROKING LTD formerly C.E. HEATH (INSURANCE BROKING) LTD and HEATH NORTH AMERICA AND SPECIAL RISKS LTD THIRD RESPONDENTS ICE MEDIA LIMITED and PREMIER MEDIA LIMITED JP MORGAN CHASE BANK (formerly known as THE CHASE MANHATTAN BANK, formerly known as CHEMICAL SECURITIES INC) FIFTH RESPONDENT |
JUDGE: |
JACOBSON J |
DATE: |
7 FEBRUARY 2003 |
PLACE: |
SYDNEY |
1 Four of the five respondents in these proceedings have filed notices of motion seeking to set aside service of the originating process on them or, alternatively, seeking to strike out in whole or in part the applicants' statement of claim, or in the further alternative, seeking a permanent or a temporary stay pending the determination of related litigation which is presently on foot in the United Kingdom and the United States of America.
2 In the principal proceedings in this Court, the applicants claim that they were induced to enter into a large number of contracts of, or for, insurance and reinsurance by the misleading and deceptive conduct of the respondents. The respondents' conduct is said to have contravened s 52 of the Trade Practices Act 1974 (Cth) and corresponding provisions of the Australian Securities and Investments Commission Act 1989 (Cth) and the Fair Trading Act 1987 (NSW). Relief is sought under ss 80, 82 and 87 of the Trade Practices Act and the corresponding provisions of the other legislation. The relief includes orders setting aside the reinsurance contracts and insurance contracts.
3 The first applicant ("ReAc") is an Australian corporation which has its principal place of business in New South Wales. It is licenced as an insurer under the Insurance Act 1973 (Cth) ("the Insurance Act"). ReAc's principal area of business was, at all material times, reinsurance. It is currently in run off under the supervision of the Australian Prudential Regulatory Authority ("APRA") which has appointed an inspector to ReAc.
4 The second applicant ("Monde Re") is a wholly owned subsidiary of ReAc and is incorporated in Monaco.
5 The first respondent ("HIH") is an Australian corporation incorporated in the Australian Capital Territory. At all material times it was licensed under the Insurance Act. It is currently in liquidation under the supervision of the Supreme Court of New South Wales.
6 The first named second respondent ("AIGUK") is incorporated in the UK. The second named second respondent ("NHIC") is incorporated in Pennsylvania in the USA. I will refer to these companies collectively as "AIG". They carry on business as insurers and reinsurers in the United Kingdom and the United States of America.
7 The third respondents (collectively "Heath") consist of three companies all of which are incorporated in the UK. They carry on business as insurance brokers in the UK and, apparently also, in the USA.
8 The fourth respondents consist of two companies ("PML") and ("ICE"), both of which are incorporated in the UK. At all material times they carried on business as risk managers specialising in the placement of insurance for the financing of film productions.
9 The fifth respondent ("Chase") is a corporation incorporated in the USA and registered in Australia as a foreign company. It is, of course, a well-known international banking institution.
10 The proceedings arise out of insurance and reinsurance contracts for the financing of film productions. The essence of the insurance was described by Rix LJ in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2001] EWCA Civ 1250; [2001] 2 Lloyd's Rep 483 ("HIH v Chase") at [1] to [3]. The insurance was provided as part of syndicated finance for the production of films. Chase provided the finance. The insurance, usually for up to 35% of the costs of production, was subscribed by insurers including HIH and AIG.
11 The insurance was provided to Chase as part of its security for loans to finance the production of the films. Insurance of the type which is the subject of these proceedings was developed, in part, by Heath and had been placed, though with some differences in the form of the policies, in the London market and in the USA from about 1992.
12 Mr Graham Bradstreet, through PML or ICE provided risk management which was intended to be for the protection of the insurers. His role was, inter alia, to see that the projected revenues for the films made them a suitable risk for the insurers to underwrite.
13 The insurance cover was provided on a line slip policy which, in some cases, was limited to a single film. In others it covered a "slate" of films, that is to say, a number of films not initially identified by name but to be declared during the period specified in the line slip.
14 Because Chase was a lender rather than a producer of the films and because the insurance policies were not marketed directly by Chase but were brokered by Heath, Chase sought to distance itself from the statements made to insurers about the film making and marketing. It did so under a clause known as the Truth of Statements clause which was a term of all of the underlying contracts of or for insurance which are the subject of these proceedings.
15 The purpose of the Truth of Statements clause was to limit, or perhaps to exclude entirely, any liability which Chase may have to the insurers for misrepresentation or non-disclosure.
16 The courts of the UK and the USA have considered the effect of the Truth of Statements clause. In the UK, the Court of Appeal has held that the clause precludes an insurer from avoiding the contract or claiming damages for negligence or non-disclosure and that to avoid the contract or claim damages the insurers would have to prove a positive case in fraud such as would entitle them to rescind for fraudulent misrepresentation or to recover damages for deceit; see HIH v Chase.
17 The decision of the Court of Appeal in HIH v Chase is under appeal to the House of Lords. Judgment has been reserved and is expected to be handed down shortly.
18 In the USA, Justice Gammerman of the Supreme Court of New York, has held that the Truth of Statements clause is a complete bar to any claim of misrepresentation or non-disclosure against Chase (other than in certain respects not material to these proceedings) including any claim in fraud. His Honour's judgment has been affirmed on appeal.
19 Thus, the position in the United Kingdom is that the ability of insurers (including reinsurers whose contracts follow the terms of the underlying insurance contracts) to seek to avoid the contracts of or for insurance or to claim damages is heavily qualified by the Truth of Statements clause. In the USA, the Truth of Statements clause provides a complete answer to a claim for misrepresentation or non-disclosure. It is well established that such a clause does not preclude a claim under the Trade Practices Act if the agreement itself was induced by misleading conduct; see eg Leda Holding Pty Ltd v Oraka Pty Ltd (1998) ATPR 41-601.
20 In these proceedings ReAc and Monde Re have made claims consisting of two separate categories of representations which are said to constitute contraventions of s 52 of the Trade Practices Act. The first category comprises eight representations ("the Phoenix Representations") which are said to have been made, initially, in Australia toward the end of 1996 by Mr Dixon of the third named Heath respondent ("HNASR") to Mr Kelly, the Managing Director of ReAc.
21 The Phoenix Representations were to the effect that a particular line of film finance insurance known as Contingency Extra Expense ("CEE") Insurance was a suitable line of business for ReAc to reinsure. The Statement of Claim also alleges non-disclosures of material facts as to the suitability of CEE insurance. These non-disclosures ("the Phoenix Non-Disclosures") are alleged to have constituted misleading conduct under s 52.
22 The second category of misrepresentations consists of specific representations about the prospects of particular films.
23 The Phoenix Representations are said to have been made by Heath as agent for HIH, AIG and Chase. The agency for HIH and AIG is said to arise from the fact that HIH and AIG were the underlying insurers in the contracts and Heath is said to have placed the reinsurance contracts with ReAc and/or Monde Re as agent for them as reinsureds. Heath's agency on behalf of Chase is said to be founded under the common law of agency or under s 84 of the Trade Practices Act. Chase disputes that any claim of agency is disclosed on the pleadings or in the evidence.
24 The specific representations are said to have been made by PML and/or ICE. However, the documents in which these representations are said to be found were forwarded by Heath to ReAc or Monde Re. Heath is said to have done so in its role as broker and as agent for HIH, AIG and/or Chase.
25 The Phoenix Representations were made in the course of a presentation to ReAc to reinsure a facility for a slate of films known as the Phoenix slate. ReAc did not agree to underwrite this risk. However, the representations are said to have been continuing representations and to have led ReAc and Monde Re to write the risks which are the subject of the Australian proceedings.
26 HIH was an insurer of the Phoenix risks. In the proceedings to which I have referred, HIH v Chase, claims of misrepresentation and non-disclosure have been made by HIH in similar terms to the Phoenix Representations and the Phoenix Non-Disclosures. Those proceedings, which I will refer to as the Phoenix action, are listed for hearing in the High Court of Justice, Queens Bench Division, Commercial Court on 1 October 2003. The estimated length of the trial is three months.
27 There are eleven sets of proceedings in the Commercial Court apart from the Phoenix action. Those proceedings relate to other films or other slates of films but the allegations made in the Phoenix action are repeated in most of the later proceedings. ReAc is not a party to the UK proceedings but Monde Re is a defendant as a direct insurer of two films, namely "Complicity" and "Forever Mine". Chase was not the financier of those films. The finance was provided by Societé Generale ("SGAL") which is a party to the UK proceedings.
28 The proceedings in the UK are being case managed by Mr Justice Langley. On 20 December 2001, Mr Justice Langley made a case management order which provides for the trials of the various UK proceedings to be listed for hearing in chronological order in accordance with the date on which the insurer underwrote the risk.
29 No order for trials has been set in the USA. Monde Re has been joined in the proceedings in respect of two of the films. ReAc has recently been joined in proceedings in New York in respect of four films.
30 There are four categories of film contracts which are the subject of the Australian proceedings. The first category consists of films or slates of films insured by HIH and for which ReAc or Monde Re was the reinsurer. The second category consists of two slates of films insured by AIG and reinsured by ReAc. The third category consists of one slate of films and three individual films which were part of two other slates for which Monde Re was the direct insurer. The fourth category consists of "Complicity" and "Forever Mine" in respect of which Monde Re was the direct insurer.
31 One of the slates of films in the first category, namely the Franchise slate, is not the subject of any proceedings in the UK or the USA. All of the other films are the subject of existing proceedings in the UK or the USA.
32 All of the films in the second category, with the exception of "Complicity" and "Forever Mine", which is referred to in both the second and fourth categories, are the subject of proceedings in the USA. As I have already said, "Complicity" and "Forever Mine" are the subject of proceedings in the Commercial Court.
33 All of the films in the third category are the subject of proceedings in the USA.
34 The fourth category, as I have said, consists of "Complicity" and "Forever Mine" in which Monde Re is a defendant in the UK proceedings.
35 The Australian proceedings were commenced on 9 August 2002. On that date Hely J gave leave to the applicants to file in court an application and Statement of Claim. His Honour gave leave under s 471B of the Corporations Act 2001 (Cth) to commence and continue the proceedings against HIH. His Honour also gave leave under O 8 r 2 of the Federal Court Rules to serve the application and Statement of Claim outside Australian on the overseas respondents, AIG, Heath and PML and ICE. His Honour gave a direction for service of the originating process on Chase's proper officer in New South Wales.
36 On 9 August 2002 Hely J also granted an anti-suit injunction restraining the respondents, until further order, from taking any step in any court, whether in Australia or overseas, to restrain or to seek to restrain the commencement of, or the continuation of, these proceedings, whether directly or indirectly, either on their own behalf or on behalf of any of the other respondents.
37 An unsuccessful notice of motion was heard by me on 2 September 2002 to vary the terms of the anti-suit injunction. No party has sought to disturb the injunction in the present applications.
The Notices of Motion
38 HIH, AIG, Heath and Chase have filed notices of motion. PML and ICE have been served but they have not filed an appearance or a motion.
39 AIG, Heath and Chase were the principal protagonists on the side of the moving parties on the hearing of the motions. HIH's motion of 29 November 2002 seeks a stay of the proceedings, either permanent or temporary. However, at the hearing, the primary position adopted by HIH's counsel, Mr N C Hutley SC and Mr M R Speakman was that if there is to be a stay, either permanent or temporary, it ought to be upon the basis of "one in all in, one out all out". Mr Hutley also said that the terms of the stay should preserve the ability of the respondents to cross-claim without any bar resulting from the expiration of limitation periods or estoppels under Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589.
40 HIH's motion also seeks security for costs and an order that the leave granted under
s 471B of the Corporations Act 2001 (Cth) be rescinded but neither of those orders was pursued at the hearing. All of the motions (except Chase) seek security but this claim was not pursued.
41 AIG's motion of 23 September 2002 seeks an order pursuant to O 9 r 7 that the leave granted by Hely J to serve the second respondents outside Australia be set aside. AIG's motion also seeks an order that the proceedings be dismissed or stayed permanently and a declaration that AIG has not been properly served.
42 Dr I J Hardingham QC and Mr M W Thompson, who appeared for AIG submitted that this Court is a "clearly inappropriate forum" for the hearing of the claims against their clients in accordance with the test stated by the High Court in Voth v Manildra Flour Mills Pty Ltd [1990] HCA 55; (1990) 171 CLR 538 ("Voth") and reiterated in later authorities. They argued, in the alternative, that a temporary stay ought to be granted pending the determination of the UK and USA proceedings in accordance with the decision of Lockhart J in Sterling Pharmaceuticals Pty Ltd v The Boots Company (Australia) Pty Ltd (1992) 34 FCR 287 ("Sterling").
43 Heath's motion of 21 November 2002 seeks an order that those paragraphs of the Statement of Claim which plead the second category of representations, that is, the specific representations in relation to particular films or slates of films, be struck out. Mr F M Douglas QC and Mr G K Rich who appeared for Heath argued that those paragraphs of the Statement of Claim were concerned entirely with conduct which took place outside Australia. They submitted that the conduct was not within the extended territorial reach of s 52 of the Trade Practices Act given by s 5 of the Trade Practices Act.
44 Heath claims in the alternative an order that those paragraphs be struck out upon the ground that Ministerial consent has not been granted as required by ss 5(3) or 5(4) of the Trade Practices Act.
45 Heath's motion also seeks an order that the whole of the Statement of Claim insofar as it is brought by Monde Re be struck out. This is because, Heath's counsel argued, even if ReAc was misled by the misrepresentations (which Heath did not admit) Monde Re could not be said to have suffered any loss since the representations were made to ReAc at a time when Monde Re was not even incorporated.
46 In addition, Heath's motion seeks an order for a stay. The gravamen of Mr Douglas' submissions at the hearing was not that there should be a permanent stay under Voth. Rather, his submission was there should be a temporary stay in accordance with Sterling.
47 Chase's motion of 10 September 2002 seeks an order that service of the originating process be set aside pursuant to O 9 r 7 and an order under O 11 r 16 that the claims made against Chase in the Statement of Claim be struck out. Mr T F Bathurst QC and Mr A J Payne, who appeared for Chase, submitted that the pleading should be struck out because it did not disclose, either as a matter of fact or law, any arguable claim that Heath was Chase's agent.
48 In the alternative, Chase's motion seeks an order that the proceedings against it be stayed permanently or temporarily under Voth or Sterling.
49 Chase also seeks to strike out of the claim the reference to a number of films set out in Schedule 3 to the Statement of Claim. Chase submits that, in the contracts of insurance referred to in that Schedule, Monde Re agreed to submit to the exclusive jurisdiction of the New York courts.
50 Mr J Gleeson SC who appeared with Dr A S Bell and Mr J K Kirk resisted all of the claims for relief sought in the various notices of motion.
The Relevant Background Facts
51 The findings which I make are of course not final. They are based in part upon unsworn statements including a preliminary statement of Mr MC Kelly.
52 Mr Kelly was the Managing Director of ReAc from 1993 until October 1999. He held the position of Chief Underwriter of ReAc from 1993 to 31 March 2000. He was assisted for much of that period by Ms Julie Batch.
53 ReAc is incorporated in Australia but from late 1995 it began to establish offices overseas. It had offices in Nice, Miami, Hong Kong, Paris and Monaco. Mr Kelly spent a substantial amount of his time overseas, particularly in Europe and the USA. In about May 1997, he became domiciled in Monaco.
54 In late 1996 ReAc decided to establish a wholly owned subsidiary in Monaco. That company was Monde Re. It was incorporated on 23 December 1996 and commenced trading on 15 January 1997.
55 The purpose for which Monde Re was established in Monaco was the advantage which was thought to have flowed from having a presence close to major northern hemisphere "broker" markets and to use its presence to increase the ReAc Group's exposure to what were then considered to be preferred classes of business.
56 During 1997 and 1998 Monde Re's board of directors comprised two ReAc nominees, Mr Kelly and Mr PC Cadwallader and three independent directors, all of whom appear to have been European residents with many years of experience in the European reinsurance industry.
57 Ms Batch became Mr Kelly's underwriting assistant at ReAc in 1996. She was initially based in Sydney but spent some time in ReAc's Nice office in early 1997. In about May 1997 she was transferred to Monde Re's office in Monaco. She remained there until her resignation in about May 1999.
58 Mr Kelly became aware in about the early 1990's that film finance insurance was a developing class of insurance business. He was first introduced to this type of business in 1996 when ReAc agreed to reinsure an upper layer of risk for the production of a film which was to be insured by GIO.
59 On a date presently unspecified but which I assume to be in about October 1996, Mr Dixon, of HNASR telephoned Mr Kelly and arranged to meet him in Sydney to discuss reinsurance arrangements for the film which the GIO had agreed to underwrite.
60 During the period relevant to these proceedings, that is from about 1992 to approximately late 2000, HNASR carried on the business of an insurance and reinsurance broker. It apparently specialised in the placement of insurance and reinsurance for the financing of film productions. It was a subsidiary of the second named Heath respondent ("HIB") which was itself a subsidiary of the first named Heath company ("HGL"). According to Mr Kelly, HGL was a Lloyds broker and one of the major international insurance broking houses.
61 Mr Dixon met Mr Kelly in Sydney in early November 1996. The film which was the subject of the proposed GIO underwriting did not proceed but there was general discussion about film finance.
62 It was at this meeting (and in two facsimiles referred to below) that Mr Dixon is alleged to have first made the Phoenix Representations. They are set out in Mr Kelly's statement and are pleaded as the first to eighth Phoenix Representations in the Statement of Claim.
63 According to Mr Kelly, Mr Dixon told him that HGL (or Heath) had been involved in the development and placement of CEE Insurance for a number of years and was the exclusive broker of such insurance ("the First Phoenix Representation").
64 Mr Dixon also said that CEE Insurance had been a profitable line of business for insurers who included a number of Lloyds syndicates and London market companies including CNA and HIH ("the Second Phoenix Representation").
65 Mr Dixon said that there had been no claims on any CEE insurance policies placed by Heath ("the Third Phoenix Representation").
66 By implication from the First, Second and Third Phoenix Representations, Mr Dixon represented that CEE Insurance was an established, tested and successful product ("the Fourth Phoenix representation").
67 In Mr Kelly's statement, he says that Mr Dixon told him that Heath had appointed an independent risk Manager to protect the interests of the insurers. This is pleaded as the Fifth Phoenix Representation. Mr Bradstreet of PML is said to have been the nominee and the Statement of Claim pleads a representation by Heath that Mr Bradstreet would protect the interests of insurers.
68 The Sixth Phoenix Representation is that Mr Bradstreet was an experienced risk manager and would be appropriate to act in the sole interests of insurers; Mr Bradstreet is said to have been a person in respect of whom Heath had an established professional relationship in regard to CEE Insurance. According to Mr Kelly's statement, the risk manager was to be paid a fee out of the premium.
69 The Seventh Phoenix representation is that Mr Dixon represented that Chase was intending to review a slate of films which Mr Dixon described as "the Phoenix Facility" in respect of which additional capacity was required.
70 Mr Kelly also says that Mr Dixon told him that the Phoenix Facility and CEE Insurance were likely to be profitable business for ReAc. This is pleaded as the Eighth Phoenix Representation and is alleged to have included a representation that CEE Insurance was a concept which was, and would be, appropriate to be placed as insurance business.
71 On 14 November 1996 Mr Dixon sent a facsimile to Mr Kelly on HNASR letterhead. The letter refers to Mr Dixon's discussion with Mr Kelly in Australia. The letter states that a renewal presentation for the Phoenix Facility would be forwarded shortly with a view to final placement in the first week of December 1996 when Mr Dixon hoped to be in Sydney with Mr Bradstreet.
72 The letter continues as follows:-
"At the moment we would be grateful if you could fax a reply to us to the effect that, in principal, (sic) and subject to the presentation, you will be interested in writing a line (please advise what you think you might be able to commit with a GIO front) on the programme. In addition to Phoenix we will have further projects for you to consider."
73 The reference to "a GIO front" was important. This was because ReAc did not have the credit rating necessary to write this type of business as a direct insurer. It appears that Chase and the other financiers required as a minimum an "A" Bests rating which ReAc did not hold at that time. Thus, Mr Dixon proposed at the meeting in early November that an appropriately rated company act as the "front" insurer ceding all of its risk to ReAc, and perhaps other companies, as reinsurers.
74 Mr Dixon initially proposed GIO as the cedant but arrangements could not be reached for GIO to participate. Arrangements were therefore made for HIH to be the "fronting" insurer.
75 On 28 November 1996 Mr Kelly attended a meeting at Heath's London office with Mr Dixon. Mr Roger Bassett, who was the head of HNASR, and Mr Michael Biddle, a broker employed by HNASR, also attended the meeting. Mr Bradstreet was also present. He was introduced to Mr Kelly as the independent risk manager.
76 The Phoenix Representations are said to have been repeated and corroborated at the London meeting. Mr Bassett is said to have informed Mr Kelly that Heath only proposed films with good prospects. Mr Bassett is also said to have informed Mr Kelly that films could be underwritten individually or as part of a slate. The advantage of the slate was said to be that it covered a number of different films and therefore gave insurers the benefit of "cross collateralisation".
77 On 13 December 1996 Mr Dixon faxed Mr Kelly on HNASR letterhead. He referred to the London meeting and said that a full presentation including copy insurance slips would be sent to ReAc. Mr Dixon also said that Mr Bradstreet would be in Sydney from 2 January 1997 to 5 January 1997 and would like to visit Mr Kelly to answer any questions he might have.
78 Mr Dixon's fax was followed by an exchange of emails between Ms Batch, who was in ReAc's Sydney office, and Mr Kelly who was overseas. Mr Kelly informed Ms Batch on 18 December 1996 that he would be in Nice during the period of Mr Bradstreet's proposed visit but that Mr Dixon had telephoned him on the previous day and said that he would send the presentation to Nice.
79 On 8 January 1997 Mr Dixon wrote on HNASR letterhead to Mr Kelly at ReAc's Nice offices. The letter referred to the meeting in London on 28 November 1996 and enclosed the "renewal presentation" for the Phoenix Facility together with the original reinsurance slips. The letter also stated that HNASR had not yet confirmed the identity of the fronting company but that if GIO declined HIH would fill that role.
80 In addition, the letter of 8 January 1997 asked Mr Kelly to confirm how much reinsurance he wanted to write subject to agreement as to the identity of the reinsured and the fronting fee to be paid to that company.
81 The slip described the original insured as Chase (which was then known as Chemical Bank). The period was described as being for the second slate of film productions undertaken by Phoenix Pictures Inc declared by Chase and attaching during the period of 12 months from 1 January 1997 or to be agreed by HIH.
82 The slip provided for the reinsurer to indemnify the reinsured in respect of its participation in the original line slip. That document provided for the reinsured to indemnify Chase for its ascertained net loss in respect of film production declared, up to the sum insured in consequence of Chase incurring Time Variable or Contingent Expenses as defined. The sum insured was 35% of the Total Production Cost plus 35% of enhancements, as defined, up to a specified maximum sum.
83 The conditions included a term which is very common in reinsurance slips binding the reinsurer to follow the full wording, terms, clauses and conditions of the underlying insurance insofar as applicable. The policy wording of the underlying insurance was to be agreed by HIH and was to be binding on all insurers.
84 The presentation which was enclosed with the letter of 8 January 1997 bore the names of Chase, Phoenix Pictures Inc ("Phoenix Pictures") and Sony Pictures Entertainment Inc ("Sony Pictures") on the cover. The presentation was described as a report by HNASR on a $US 100m facility for the part financing of a portfolio of films. It was dated 2 December 1996.
85 Chase was defined in the report as the lead bank and agent in the loan syndicate as well as the insured under the CEE line slip. HNASR was defined as the broker to Chase on the CEE line slip. Phoenix Pictures and Sony Pictures were defined respectively as the production company receiving the loan from Chase and the distribution company, part financier and equity investor in the production company.
86 The report stated that its intention was to provide insurers with information covering the proposed second year line slip being placed by HNASR covering the risks associated with part financing of a number of film productions by Phoenix Pictures.
87 The report also stated that the CEE line slip was subscribed to by a number of high quality insurers all of whom were subject to bank approval and that the CEE line slip covered approximately 35% of the bank loan. The CEE line slip was, according to the report, only to be called upon to the extent that the revenue from the films was insufficient to repay the loans 39 months after delivery of the movie.
88 The report contained information about the film producer, the equity investors, the management, the film industry including production and financing as well as the structure under which the banks were to recoup their loan funds from film receipts.
89 There was a section in the report headed "risk management" which stated that risk management on behalf of insurers was performed by Mr Bradstreet of PML. Mr Bradstreet's Curriculum Vitae was set out and the report stated that he had negotiated an agreement between Phoenix Pictures and PML. The report also stated that ongoing services for the second slate of films would be supplied by Mr Bradstreet and two named officers of a subsidiary of HGL. The duties of the risk manager were set out in this section of the report.
90 The form of the policy wording for the underlying CEE Insurance was set out in the report. The full text of the "Truth of Statements" clause was set out in the report. The clause included the following:-
"The Production Company has truthfully completed Section 1 of the Questionnaire to the best of its knowledge. ....Provided that the Production Company and/or Phoenix Pictures Inc complete the sections of the Questionnaire required to be completed by them and deliver the same to the Lead Insurers, it being acknowledged that any misstatement in any part of the Questionnaire (other than Section I thereof) by any party (other than the Insured) providing information for the purpose of completing the Questionnaire shall not be the responsibility of the Insured or constitute a ground for avoidance of the insurers' obligations under the Policy or the cancellation thereof. In addition, the failure of the Production Company and/or Phoenix Pictures Inc to update Section I of the Questionnaire shall not be the responsibility of the Insured or constitute a ground for avoidance of the Insurers' obligations under the Policy or the cancellation thereof. Subject to the obligation of the Insured under "General Conditions - Due Diligence Clause" after acceptance by the Lead Insurers of the Declaration with regard to the declared Film Production, the Insured will not have any duty or obligation to make any representation, warranty or disclosure of any nature, express or implied (such duty and obligation being expressly waived by the insurers) and shall have no liability of any nature to the insurers for any information provided by any other parties and any such information provided by or nondisclosure by other parties including, but not limited to, Heath North America and Special Risks Ltd (other than Section I of the Questionnaire) shall not be a ground for avoidance of the insurers' obligations under the Policy or the cancellation thereof."
91 On 15 January 1997 Mr Kelly sent a fax on ReAc letterhead to Mr Dixon. The facsimile was sent from France. It referred to the presentation of 8 January 1997, that is, to the report sent under cover of Mr Dixon's letter of that date, and stated that as advised verbally, ReAc's preference was to see each offer or group of offers on an offer and acceptance basis. Reference was made to the visit to Heath's offices and the fax then stated that:-
"... we are interested in participating up to an acceptance of US$ 2,500,000 per picture."
92 The statement made by Mr Kelly in the fax of 15 January 1997 is described in the Statement of Claim as a decision in principle made by Mr Kelly in reliance upon the Phoenix Representations that ReAc was prepared to provide reinsurance for transactions similar to the Phoenix Facility up to a limit of $US 2,500,000 per picture subject to receipt of certain information specified in the facsimile.
93 Although ReAc did not agree to underwrite the Phoenix Facility, its case as pleaded in the Statement of Claim and as supported by Mr Kelly's statement is that it remained prepared to write subsequent reinsurance for similar facilities upon the basis of the in principle decision made in reliance on the Phoenix Representations. ReAc did not agree to underwrite the Phoenix Facility because the information supplied to Mr Kelly did not include detailed information about each film to be included in the proposed slate.
94 The Statement of Claim pleads that the Phoenix Representations were false, misleading, deceptive or likely to mislead or deceive. The particulars of falsity of the Phoenix Representations as set out in the Statement of Claim rely extensively on preliminary witness statements of Mr KL Walwin and Ms CJ Hamilton dated 7 August 2002. Mr Walwin is a director of Screen Partners Ltd ("SPL") and Ms Hamilton is head of business affairs of that company.
95 Mr Walwin and Ms Hamilton have provided fuller and more extensive witness statements to the applicants and have stated that they are prepared to give evidence at the hearing of these proceedings.
96 The Statement of Claim also pleads that the failure by Heath to disclose the matters which comprise the Phoenix Non-Disclosures constituted misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act. The evidence of Mr Walwin and Ms Hamilton supports the Phoenix Non-Disclosures.
97 In summary, the preliminary statements of Mr Walwin and Ms Hamilton establish the following:-
* SPL was the risk manager for a form of film production finance insurance known as Time Variable Contingency ("TVC") insurance.
* SPL had worked with HGL and HNASR in the development and placements of TVC insurance from the early 1990s.
* TVC insurance was a different product from the insurance proposed for the Phoenix Facility, that is, CEE insurance.
* CEE insurance was an untested product (and it was therefore not possible to state whether it was profitable).
* The Lloyds syndicates and CNA had withdrawn from the Phoenix Facility upon the grounds of alleged misrepresentations and non-disclosures of material facts on the part of Heath and Chase.
* There had been a number of substantial claims made in respect of TVC insurance before November 1996.
* Mr Bradstreet was not an independent risk manager but, instead, received or proposed to receive various incentive fees in conflict with his duty to act in the interests of insurers.
* Mr Bradstreet was not an appropriate risk manager. He had no previous working relationship with Heath and his company, Bradstreet Media Ltd, was in liquidation.
* SPL had advised Heath that insurers should not enter into the Phoenix Facility. Advice obtained by SPL from an English media lawyer that the Phoenix Facility was unacceptably risky for insurers had been communicated to Heath.
98 But for the Phoenix Representations and the Phoenix Non-Disclosures, Mr Kelly, on behalf of ReAc would not have made the in principle decision to participate in post-Phoenix underwriting as set out in Mr Kelly's facsimile of 15 January 1997.
99 During the period from February 1997 to about December 1999, Heath or HNASR provided ReAc and/or Monde Re with a series of reinsurance proposals for individual films or slates of films. The documentation which was provided in each case consisted of reports as to the prospects of the films prepared by PML and/or ICE.
100 The documentation was considered by Mr Kelly but, as the business grew, he did so in consultation with Ms Batch. As I presently understand Mr Kelly's evidence, he made the final underwriting decision in each case. His evidence is that the Phoenix Representations made in Australia and confirmed in London remained important to him in his decision to accept the slips.
101 If Mr Kelly had known of the falsity of the Phoenix Representations or if he had known of the matters which comprise the Phoenix Non-Disclosures, he would not have permitted ReAc or Monde Re to write the contracts which are the subject of these proceedings.
102 On 16 November 2000, ReAc and Monde Re wrote to HIH and AIG purporting to avoid the reinsurance policies on the basis of material non-disclosures and misrepresentations. In early 2001, HIH rejected the purported avoidance of the policies.
103 There are four categories of contracts which are set out in the Statement of Claim. The first category comprises one film in the Paramount 1 slate, namely "The Truman Show", the Paramount 2, 3 and 4 slates, the Franchise slate, one film which was apparently not the subject of an identified slate namely "Red Corner" and four films in the J & M slate namely "Bruno", "A Texas Funeral", "History is Made at Night" and "Letters from a Killer".
104 Chase was the original insured for each slip except for the Franchise slate on which Imperial was the underlying insured. ReAc and/or Monde Re was the reinsurer on each slip. HIH was the reinsured on each slip.
105 The second category consists of the Paramount 4 slate and some of the films in the J & M slate. Chase was the original insured for all of the films except for "Forever Mine" and "Complicity" which were part of the J & M slate. De Nationale Investerings and SGAL were the underlying insured for those films. AIG was the reinsured on each slip. The reason for this seems to be that ReAc and Monde Re each have specified portions of the risk for these films. I assume that this is why the Paramount 4 and J & M slates are included in both the first and second categories in the Statement of Claim.
106 The third category consists of the Paramount 5 and Artisan slates and a film entitled "The Guilty" which was declared under the J & M slip. Monde Re was the direct insurer and Chase was the insured for each of the films.
107 The fourth category consists of "Complicity" and "Forever Mine" which formed part of the J & M slate and were included in the second category referred to above. These films are listed again in the fourth category because the insurance contracts are the subject of existing proceedings in the UK.
The Statement of Claim
108 The Phoenix Representations and the Phoenix Non-Disclosures are pleaded in paragraphs 30 to 49. They are said to have been first made in Australia by reason of the meeting between Mr Dixon and Mr Kelly in Sydney in early November 1996 and the facsimiles from HNASR to ReAc dated 14 November 1996 and 13 December 1996; (see Statement of Claim, paragraph 31.)
109 The Phoenix Representations are alleged to have been repeated and corroborated at the meeting which Mr Kelly attended in London on 28 November 1996 with Messrs Dixon, Bassett and others on behalf of Heath; (see Statement of Claim para 36). They are said to have been further repeated and corroborated by a presentation forwarded to ReAc in Nice under cover of HNASR's letter of 8 January 1997; (see Statement of Claim para 37.)
110 The Phoenix Representations as first made and then repeated are said to have been made in trade or commerce or in the course of trade or commerce between Australia and places outside Australia. They are also said to have been made, with the knowledge of Heath, that they would be relied upon by ReAc in writing Australian insurance business pursuant to ReAc's licence issued under the Insurance Act (see Statement of Claim paragraphs 32 & 38).
111 Reliance on the Phoenix Representations is pleaded in paragraphs 34, 35, 39 and 41. The reliance is said to be Mr Kelly's agreement to attend the meeting in London on 28 November 1996 and the in principle decision to participate in transactions similar to the Phoenix Facility up to a limit of US $2.5m. This decision was communicated to HNASR in ReAc's letter of 15 January 1997. But for the Phoenix Representations it is said that Mr Kelly would not have permitted ReAc to enter into any contract of reinsurance for CEE insurance presented by Heath (see Statement of Claim para 41.3). The specific contracts which ReAc and Monde Re are said to have entered into in reliance on the Phoenix Representations are pleaded in para 80.
112 The Phoenix Representations, as pleaded, were partly representations as to future matters. The element of futurity is found in the 5th, 6th and 8th Phoenix Representations. It is said that Mr Bradstreet "would" protect the interests of the insurers and that he "would be appropriate" to act in their sole interests. It is also said that CEE insurance "would be appropriate" to be placed and "was likely to be" profitable (see Statement of Claim paragraphs 30.5, 30.6 and 30.8).
113 Heath is said to have had no reasonable grounds for making the representations as to future matters. ReAc therefore invokes s 51A of the Trade Practices Act under which Heath bears the burden of proof (see Statement of Claim para 43).
114 The falsity of the Phoenix Representations is pleaded in paragraphs 44 and 45.
115 In para 47 it is alleged that in making the Phoenix Representations Heath failed to disclose to ReAc the Phoenix Non-Disclosures.
116 The Phoenix Non-Disclosures are, as Dr Hardingham submitted, redolent of the Phoenix Representations. It seems to me that the only non-disclosure which is not pleaded as a representation is the allegation made in para 47.10. The effect of this is that Heath is alleged to have promised Phoenix that it would obtain full underwriting and was therefore promoting the Phoenix Facility "at all costs".
117 The Phoenix Non-Disclosures are said to have been conduct in trade or commerce between Australia and places outside Australia. They are said to have taken place in Australia because they ought to have been disclosed at the November meeting in Sydney or in the facsimile of 14 December 1996. They are also said to have been conduct under which Heath intended to induce ReAc to write Australian insurance business (see Statement of Claim para 48).
118 The matters which Heath allegedly failed to disclose are said to have been material and to have contravened s 52 of the Trade Practices Act.
119 The roles of Chase and Heath are pleaded in paragraphs 50 to 57. In paragraphs 54 and 55 it is said that:
"54 In about April and May 1996, the Lloyds syndicates and CNA withdrew from the Phoenix facility. Thereafter Heath, acting as broker for Chase, was charged with the task of finding and soliciting persons who would act as replacement insurers for the Phoenix facility and would write CEE insurance business in respect of films where Chase would be the lending bank.55 In the course of performing that task and acting as the representative of Chase, Heath made the Phoenix Representations to ReAc and failed to disclose the subject matter of the Phoenix Non-Disclosures."
120 Heath's Common Law Agency is pleaded in para 56. Heath is said to have acted with actual or apparent authority. Section 84 of the Trade Practices Act is invoked in para 57.
121 There are further allegations of agency in paragraphs 63, 68 and 72. In those paragraphs it is said that HIH, AIG and Chase conferred authority on Heath to solicit ReAc or Monde Re, to act as reinsurer for CEE insurance business.
122 Monde Re's reliance is pleaded in paragraphs 64-68. It is said that from about November 1997 Mr Kelly made a decision that ReAc's controlled entity Monde Re would enter into CEE reinsurance contracts in reliance on the Phoenix Representations and without knowledge of the Phoenix Non-Disclosures.
123 Mr Kelly, as chief underwriter for both ReAc and Monde Re, is also said to have relied upon the Phoenix Representations and to have had no knowledge of the Phoenix Non-Disclosures in causing Monde Re to enter into the contracts of direct insurance including the contracts for "Complicity" and "Forever Mine" (see Statement of Claim paragraphs 74-79).
124 In paragraph 80 it is alleged that in reliance on the Phoenix Representations and without knowledge of the Phoenix Non-Disclosures, ReAc either entered into or caused Monde Re to enter into the four classes of contracts referred to at [30] above.
125 Loss and damages are pleaded in paragraphs 83 to 91. Claims for indemnity totalling $US 34m are said to have been made on ReAc and Monde Re by Heath as agent for HIH, AIG, Chase, De Nationale Investerings and SGAL. Schedule 5 to the Statement of Claim sets out a summary of the claims.
126 Although not specifically pleaded it is apparent from schedule 5 and from the letters of 16 November 2000 by which ReAc and Monde Re purported to avoid the contracts, that ReAc has paid claims of $US 1.72m for the film "Letters from a Killer".
127 Paragraph 87 alleges that by reason of the claims for indemnity made against them ReAc and Monde Re have suffered and are likely to suffer loss or damage by reason of the Phoenix Representations and the Phoenix Non-Disclosures.
128 ReAc's loss or likely loss is said to include liabilities and legal fees incurred in defending actions brought against it and Monde Re outside Australia (see Statement of Claim para 88).
129 The applicants seek damages under s 82 of the Trade Practices Act and orders under ss 80, 82 and 87 of the Trade Practices Act including orders setting aside the contracts and requiring Heath and Chase to indemnify them against any liability they may be found to have in proceedings brought in other jurisdictions.
130 The specific representations are pleaded in paragraphs 92 to 111 of the Statement of Claim. They refer to two individual films, "Letters from a Killer", "Red Corner" and six slates of films. The slates are Paramount 2, Paramount 3, Paramount 4, Paramount 5, the J & M slate and the Franchise slate.
131 The specific representations are said to be that the prospects for the film or slate made it appropriate for placement, that the projected revenue would be the amount described in the Statement of Claim and that by implication from the Phoenix Representations, which were continuing representations, there would be minimal risk of loss.
132 The representations are said to have been made in trade or commerce between Australia and places outside Australia and with the knowledge of PML and/or ICE that ReAc would rely on them in writing Australian insurance business.
133 The representations as pleaded are representations as to future matters and the applicants invoke s 51A of the Trade Practices Act.
134 ReAc is said to have relied on the representations by entering into the contracts of reinsurance itself or causing Monde Re to enter into insurance or reinsurance contracts.
135 The specific representations are said to have been made in the reports prepared by PML and/or ICE but the Statement of Claim pleads that Heath made the representations by delivering the reports to the applicants under covering letters or faxes to ReAc or Monde Re (see Statement of Claim paragraphs 113 and 114).
136 With the exception of the film "A Texas Funeral", all of the letters in relation to the films in the Paramount 3, 4 and 5 slates, the J & M Slate and the Franchise slate were sent from Heath's London offices to Ms Batch in Monaco.
137 The report for "A Texas Funeral" was delivered to Ms Batch in Sydney on 17 September 1998 but it would appear that the risk was re-presented to Ms Batch in Monaco in October 1998.
138 Heath is said to have delivered the reports in trade or commerce and with knowledge of intended reliance as set out in [110] above (see Statement of Claim para 115).
139 Heath is also said to have made the representations as agent for HIH, AIG or Chase as part of its task of soliciting ReAc or Monde Re to reinsure or insure the film contracts which are the subject of these proceedings. HIH, AIG and Chase are therefore said to be liable for Heath's misrepresentations (see Statement of Claim paragraphs 118 and 119).
140 Loss and damage as well as relief in respect of the specific representations are pleaded in similar terms to the claims made for the Phoenix Representations and the Phoenix Non-Disclosures.
The UK proceedings
141 The Phoenix action was commenced in the High Court of Justice, Queensland Bench Division Commercial Court in London in late 1999. There are now eleven further related sets of proceedings which are to be tried in that Court. Those proceedings were commenced in 2000 and 2001 with the last of the proceedings having been instituted in 2002.
142 Six of the London proceedings are concerned with films or slates of films which are the subject of the Australian action. They are Paramount 1, Paramount 2, Paramount 3, "Red Corner", "Complicity" and "Forever Mine". All of the underlying insurance contracts for those films or slates of films are subject to jurisdiction clauses which provide that disputes under the policy shall be subject to the jurisdiction of the High Court of Justice which shall apply the law of England as the proper law.
143 HIH, Chase and two of the Heath companies, namely HIB and HNASR are parties to the Phoenix action. There are six other parties to the action, all of whom appear to be insurers of Chase.
144 AIG, HIB, HNASR and Chase are parties to Paramount 1, Paramount 2, Paramount 3, "Red Corner" and "Complicity". HIH is a party to all of those proceedings except, apparently, for Paramount 3.
145 AIG is a party to "Forever Mine" but HIH, Heath and Chase are not parties to that action.
146 Neither HIH nor AIG has sought to join ReAc or Monde Re in the UK proceedings. If HIH or AIG wish to join ReAc or Monde Re in the Commercial Court proceedings, it will be necessary for them to seek leave to file a "Part 20 claim" under the Civil Procedures Rules of the United Kingdom. A Part 20 claim is similar to a cross-claim and the application would have to be supported by evidence explaining the delay in bringing the claim.
147 Companies in the PML Group and Mr Bradstreet are parties to Paramount 3, "Red Corner", "Complicity" and "Forever Mine".
148 ReAc is not a party to any of the London proceedings. Monde Re is a party to "Complicity" and "Forever Mine" in which it has been joined as a defendant insurer. Monde Re has not made any claim against Heath in either of those proceedings.
149 There are a large number of other parties to all of the London proceedings. They include financiers other than Chase and insurers other than HIH and AIG.
150 HGL is not a party to any of the UK proceedings.
151 In the Phoenix action the insurers including HIH claim a declaration that they are entitled to avoid or rescind the insurance contracts for fraudulent or negligent misrepresentations or non-disclosures. HIH also claims, in the alternative, damages from HIB, HNASR and Chase for deceit or negligence.
152 There are claims by Chase in the Phoenix action for monies said to be due under HIH's insurance contracts. Those claims were stayed on the liquidation of HIH but orders have been made permitting Chase to continue its claims against HIH in the Phoenix action and certain other proceedings with effect from 1 December 2002.
153 Chase has also cross-claimed against HIB and HNASR in the Phoenix action seeking an indemnity from those companies in the event that the insurers are entitled to avoid the policies.
154 The insurers' particulars of claim in the Phoenix action is a very lengthy document. It runs to approximately 400 pages. The document sets out the insurers' claims on the alleged misrepresentations and non-disclosures said to have been made by HIB and HNASR.
155 It is unnecessary to set out the detailed allegations made by the insurers in the pleadings in the Phoenix action. The pleadings have been analysed by Mr M Allen who is a partner in the London firm of Eversheds and the solicitor who is responsible to the Heath Group of Companies for the conduct of the Phoenix action and the related proceedings in the Commercial Court.
156 On Mr Allen's unchallenged evidence it is plain that the trial of the Phoenix action in the Commercial Court will involve an examination of evidence and findings of fact on matters which are critical to each of the eight Phoenix Representations alleged in the Statement of Claim in the Australian proceedings.
157 Mr Allen's evidence is that it is very likely that findings of fact will be made in the London proceedings as to whether each of the Phoenix Representations and the "associated non-disclosures", that is to say those Phoenix Non-Disclosures which repeat the substance of the Phoenix Representations, occurred. It is also likely that findings will be made as to whether they were accurate, whether they were material and whether they were relied upon by the underwriters.
158 The only "unassociated" non-disclosure is the allegation that Heath was promoting the Phoenix Facility "at all costs". Similar allegations have been made in the Phoenix action not only against HIB and HNASR but also against Mr Bassett personally.
159 It is therefore likely that findings of fact will be made in the Commercial Court as to whether this unassociated non-disclosure occurred, whether it was material and whether it was relied upon.
160 In the pleadings for Paramount 1 and Paramount 3 the insurers adopt the Phoenix allegations wholesale. In Paramount 2 the insurers adopt certain of the allegations which they have made in the Phoenix action.
161 The Phoenix allegations are also made by the insurers in the pleadings filed in "Red Corner", "Complicity" and "Forever Mine". Indeed, the Phoenix allegations seem to have been repeated by the insurers in all of the Commercial Court proceedings.
162 In Paramount 2, Paramount 3 and "Red Corner" the insurers have pleaded misrepresentations in the Commercial Court proceedings in similar terms to the specific representations pleaded by the applicants in paragraphs 93, 94 and 99 of the Statement of Claim.
163 The pleadings have closed in the Phoenix action and discovery has been given. Discovery was provided pursuant to an order made by Mr Justice Aikens on 23 February 2001 in which he directed that disclosure in Phoenix, Paramount 1 and Paramount 2 should proceed contemporaneously. Mr Justice Aikens also directed that disclosure should be linked to discovery given by Chase in proceedings in New York known as the Litto proceedings.
164 850 files of documents have been discovered in connection with the Phoenix transactions. It is possible that further discovery will be required. A very substantial number of files have been discovered in the Paramount 1 and Paramount 2 proceedings.
165 Witness statements in the Phoenix action were due to be exchanged on 10 January 2003.
166 When I heard the present applications no order had been made in the Commercial Court for the filing of expert evidence. However, the parties have identified five categories of evidence in which experts' reports are likely. They are in the areas of broking, underwriting, banking, risk management and audit.
167 The Phoenix action has been fixed for hearing on 1 October 2003 with a time estimate of 3 months. Mr Allen's evidence is that the action will be ready to proceed on that date.
168 The trials of the other proceedings will follow the Phoenix action in accordance with Mr Justice Langley's case management order made on 20 December 2001.
Overlap of factual issues and witnesses
169 It is plain from what I have said about the pleading of the Phoenix allegations and the specific representations in the Commercial Court proceedings that there is a substantial overlap between the factual issues which arise in the UK proceedings and in the Australian proceedings.
170 In particular, the Phoenix action and the UK proceedings in which the Phoenix allegations are made will raise for consideration the question of whether representations in similar terms to the Phoenix Representations and the Phoenix Non-Disclosures were made. They also raise the issues of whether the representations were true, whether they were material and whether the insurers relied on them.
171 Although it is not yet known which witnesses will give evidence to the Commercial Court, every person identified in paragraphs 26 to 29 of the Statement of Claim in the Australian proceedings is named in the pleadings in one or more of the actions in the Commercial Court.
172 Those witnesses include Mr Kelly and Ms Batch, who have been named as likely witnesses in the "Complicity" proceedings, as well as Mr Dixon and Mr Bassett who were the principal participants for Heath in all of the transactions.
173 The witnesses also include Mr Walwin and Ms Hamilton. Their involvement in the Phoenix financing and their views as to whether the CEE insurance was an appropriate line of business for insurers will be central to the Phoenix action and the other Commercial Court proceedings in which the Phoenix allegations are made. The insurers have given discovery of 12 files of documents obtained from SPL.
174 Neither Mr Walwin nor Ms Hamilton has received a formal request to sign a witness statement or to swear an affidavit to be used in the UK proceedings. Nor, to Mr Allen's knowledge, have Mr Walwin or Ms Hamilton been retained by any of the parties to give evidence in those proceedings.
175 There are only two possibilities. Either they will be called to give evidence in the Phoenix action or they will not. If they are, findings will be made as to their credit. If they are not, then the parties who seek to prove the Phoenix allegations (ie the falsity of the representations) will have to try to prove the Phoenix allegations through documentary evidence. In that event they may have to take the risk of adverse inferences being drawn as a result of the failure to call Mt Walwin and/or Ms Hamilton. Either way, the Commercial Court will have to make findings as to whether the representations were made and as to their truth or falsity. The question of whether the representations, if made, were false seems to me to be at the heart of the claim made in the Phoenix action and in the Australian proceedings.
Mr Justice Langley's case management order
176 All of the film finance litigation in the UK is being case managed by Mr Justice Langley. This includes litigation in respect of risks brokered by Heath and other insurance brokers.
177 Mr Justice Langley held a case management conference on 20 December 2001 for the Heath actions. The films or slates of films which were dealt with included Phoenix, Paramount 1, 2 and 3, "Red Corner", "Complicity" and "Forever Mine".
178 Prior to the conference the insurers prepared an agreed position paper which was filed and served. The insurers who subscribed to this included Monde Re as a party to "Complicity" and "Forever Mine".
179 The position of the insurers including Monde Re was as follows:
* The Phoenix action, tried on its own, should be heard first.
* Other trials should be staggered and should take place after Phoenix in chronological order according to date of underwriting.
* There is a large degree of overlap in issues or themes pleaded in all the Heath actions.
* In each of the Heath actions arising out of contracts entered into after the Phoenix placement, one or more of the insurers have pleaded that the insured and/or its broker failed to disclose and/or misrepresented matters relating to the Phoenix risk.
* The evidence in the proceedings will be "chronologically cumulative"; that is because the broker (ie Heath) acquired knowledge progressively in the course of the transactions.
* Thus, the Monde Re insured "Complicity" action should not be tried until after Phoenix, Paramount 1 and "Red Corner"; to do otherwise would be to allow "the tail to wag the dog".
180 In accordance with the insurers' submissions, Mr Justice Langley ordered that the trial of the Phoenix action is to take place first and that the other actions are to be tried subsequently in the order in which the insurance contracts were placed.
181 The principal reason why his Lordship made this order is that all of the actions share common issues with those which are raised in the Phoenix action.
182 Mr Justice Langley also made an order to facilitate discovery between the various Heath actions and for the production of documents obtained by insurers in the US litigation.
The Costs of the UK Proceedings
183 In view of the complexity of the proceedings, it is not surprising that the costs are heavy. There are 15 firms of commercial solicitors involved in the London proceedings. They have instructed 16 QCs and 23 junior barristers.
184 Heath has incurred almost £5.1m of legal expenses and disbursements. Approximately 75% of this has been spent on the Phoenix action.
185 Mr Allen estimates that Heath will incur a further £4m on the other UK proceedings. He estimates the total cost of the proceedings for all parties may exceed £42m.
186 Clearly enough, HIH, AIG and Chase have incurred and will incur very substantial costs in the proceedings.
187 Monde Re must also have incurred costs by reason of its involvement. These costs will continue to grow although at a slow rate because it is not involved in the lead action, ie Phoenix.
The US Proceedings
188 Three slates of films are being litigated in New York. They are Paramount 4, Paramount 5 and four films in the J & M slate, namely "A Texas Funeral", "History is Made at Night", "Bruno" and "The Guilty".
189 All of these films are subject to jurisdiction and choice of law clauses in the underlying contracts of or for insurance in favour of New York courts and New York law.
190 A further slate of films known as the Artisan slate is being litigated in California.
191 There have been two other sets of proceedings in the USA in connection with films which are not the subject of the Australian proceedings. They are the "Borisow" action and the "Litto" proceedings.
192 The Borisow action was commenced in California in 1997. The plaintiff claimed that Heath had appropriated his intellectual property in relation to the concept of multi-slate film financing. The action was dismissed in 1999.
193 The only possible relevance of the Borisow action to the Australian proceedings is that the Phoenix allegations seem to have emerged in the course of the California action. Also, Ms Hamilton was deposed in the course of the litigation but her evidence and the Phoenix allegations were found to be irrelevant to the plaintiff's claim.
194 The Litto action was commenced in New York in October 1999. Heath was not a party but it participated in the taking of certain depositions in the course of the proceedings.
195 The insurers who participated in the Litto action were NHIC and AXA Reassurance SA. The case was tried before Justice Gammerman with a jury in late 2001. The jury found in favour of Chase.
196 In the course of the trial Justice Gammerman ruled on a number of issues including the effect of the Truth of Statements clause. At the outset of the trial, his Honour ruled that the effect of the clause was to bar the insurers' claim of fraud against Chase.
197 On 23 May 2002, Gammerman J delivered a judgment in which he set out his detailed reasons on the effect of the Truth of Statements clause.
198 His Honour said (at p 39) that the effect of the clause is to shield Chase from any claim of fraud or misrepresentation whether by affirmative statement or omission. His Honour said that this was so whether the statement or omission was by Chase or another party.
199 Justice Gammerman expressed the same view as to the effect of the Truth of Statements clause in judgments delivered on 9 September 2002 in relation to "History is Made at Night". His Honour's views as to the effect of the clause have been affirmed on appeal.
200 Chase's claim in "A Texas Funeral" was filed on 10 March 2000. NHIC is one of the defendant insurers. An application was made by the lead insurer to join Heath as a third party but the application was dismissed. An appeal has been filed.
201 In December 2000 NHIC sought to join ReAc as a third party in the "Texas Funeral" proceedings. ReAc successfully opposed the application arguing that the reinsurance slip was governed by UK law and not by the law of New York. The judgment of the primary judge was recently affirmed on appeal; see [350] below.
202 Chase's claim in "History is Made at Night" was filed on 19 July 2000. HIH and NHIC are defendant insurers. As in "Texas Funeral", a third party complaint was filed against Heath and dismissed.
203 Chase's complaint in "Bruno" was filed on 26 October 2000. Again, the defendants include HIH and NHIC. Third party claims against Heath have been placed on hold pending resolution of the motion to join Heath in "Texas Funeral" and "History is Made at Night". NHIC served a third party claim against ReAc but this seems to have suffered the same fate as the claim in "A Texas Funeral".
204 Chase's complaint in "The Guilty" was filed on 18 January 2001. The defendants include Monde Re and NHIC. Monde Re was a direct insurer of this film.
205 NHIC has recently issued proceedings in New York against ReAc seeking declaratory relief as to its right to indemnity under the reinsurance contracts for "A Texas Funeral", "History is Made at Night", "Bruno" and "The Guilty". I deal with this in paras [350] to [351] below.
206 Chase's complaints in Paramount 4 and 5 were filed in December 2001. The defendant insurers include Monde Re and NHIC. Third party claims have been made against Heath and ICE.
207 Chase has moved to dismiss the insurers' claims of fraud in Paramount 4 and 5 apparently upon the basis of Justice Gammerman's views as to the effect of the Truth of Statements clause.
208 Monde Re has not filed a defence in "The Guilty" or Paramount 4 or Paramount 5. In September 2002 Chase moved for default judgment against Monde Re in Paramount 4 and 5. The motion does not appear to have been determined.
Overlap between the US proceedings and the Australian proceedings
209 Similar allegations to the Phoenix Representations and the Phoenix Non-Disclosures have been made by the insurers in Paramount 4, Paramount 5, "A Texas Funeral", "History is Made at Night", "Bruno" and "The Guilty".
210 However, as I said at [199] on 9 September 2002 Justice Gammerman dismissed the insurers' claims of fraud in "History is Made at Night" upon the ground that those claims were barred by the Truth of Statements clause.
211 Justice Freedman took the same approach on a motion brought by Chase to strike out the claims of fraud in "A Texas Funeral".
212 As matters presently stand in the USA, there is unlikely to be a trial on the merits of any claim against Chase of misrepresentation or non-disclosure in similar terms to the Phoenix Representations or the Phoenix Non-Disclosures.
213 In my view, the same position applies to the specific representations about the prospects of particular films because the effect of Justice Gammerman's decision is that claims of misrepresentation based on those matters would also be excluded by the Truth of Statements clause.
214 It follows that there is no overlap between the US proceedings and the Australian proceedings.
No possibility of bringing the Trade Practices Claim in the USA
215 All of the policies sued upon in the US proceedings contain the Truth of Statements clause. The reinsurance policies which are the subject of the Australian proceedings contain a clause incorporating the wording, clauses and conditions of the original policy so far as applicable. AIG's position is that, despite English authority to the contrary to which I refer at [328] below, the choice of law clause in the underlying insurance policy also applies to the reinsurance contract.
216 The effect of the evidence of the American lawyers for AIG, Heath and Chase is that it is likely that if ReAc or Monde Re seek to agitate claims in the USA for misrepresentation or non-disclosure, their clients will seek to rely upon the Truth of Statements clause and upon the interpretation given to it by Justice Gammerman. I make this finding notwithstanding that AIG's New York attorney, Mr Cotton, said in cross-examination that he had no instructions on this issue.
217 In my view, it is likely on the evidence before me that AIG, Heath and Chase would contend in any proceedings in New York that New York law applies to the contracts of reinsurance and that it is therefore not open to ReAc or Monde Re to bring a claim under the Trade Practices Act.
218 AIG, Heath and Chase did not seek to establish in their evidence that the claim brought by ReAc and Monde Re under the Trade Practices Act would be characterised as a claim which could be conducted in New York under applicable choice of law rules. There is no basis for me to make a finding that it would be open to ReAc or Monde Re to run the Trade Practices Act claim in the USA.
Extraterritoriality
219 Heath accepts, for the purposes of this application, that insofar as the Phoenix Representations are alleged to have been made at the meeting in Sydney in November 1996 and in Mr Dixon's facsimiles of 14 November 1996 and 13 December 1996, they were made in Australia.
220 Heath also accepts, on the same basis, that the Phoenix Non-Disclosures as pleaded in the Statement of Claim ought to have been disclosed in Australia.
221 I note that Heath reserves the right to contend at a later stage of the proceedings that the applicants did not take any underwriting decision in reliance upon the Sydney meeting or the facsimiles of November and December 1996.
222 In the present application Heath submits that, with one possible exception, on the unchallenged evidence of Mr Allen, all of the specific representations pleaded in paragraphs 92 to 111 of the Statement of Claim were made outside Australia.
223 The exception is "A Texas Funeral". By chance, Mr Bassett was in Australia when he presented the risk to Monde Re. However, the risk was re-presented in Monaco and accepted there. Thus, Heath submits that the relevant representation was made outside Australia.
224 Counsel for Heath submitted that the law is clear. They said that the question of whether a statutory provision has extraterritorial effect is a matter of construction of the legislation. Here, the Legislature has made express provision in s 5(1) of the Trade Practices Act and s 12AC of the ASIC Act for the extraterritorial operation of s 52 and s 12DA respectively.
225 A number of authorities were cited in support of this proposition including Meyer Heine Limited v China Navigation Co Pty Ltd [1966] HCA 11; (1966) 115 CLR 10; Trade Practices Commission v Australian Iron and Steel Pty Ltd (1990) 22 FCR 305 ("TPC v Australian Iron & Steel"); Hunter Grain Pty Ltd v Hyundai Merchant Marine Co Ltd (1993) 117 ALR 507; Bray v F Hoffman-La Roche Ltd and Ors [2002] FCA 243; (2002) 190 ALR 1 ("Bray v F Hoffman-La Roche").
226 The gravamen of the submissions made by Heath's counsel was that the specific representations did not fall within the extended operation of s 52 of the Trade Practices Act because the Heath companies were not incorporated in Australia and did not carry on business here. It was insufficient that Heath's conduct was in trade or commerce between Australia and places outside Australia because as Lehane J said in Bright v Femcare Ltd (2000) 175 ALR 50 at [78] :-
"Conduct, then gives rise to a liability under, for example, s 52 if two conditions are met: first, it is engaged in within Australia (by a corporation) or outside Australia (by a body referred to in s 5(1)); secondly, it is conduct in trade or commerce between Australia and a place outside Australia)."
227 The effect of the submissions made by counsel for the applicants was that the source of the extraterritorial operation of s 52 is not confined by the provisions of s 5(1). They submitted that there is a degree of extraterritorial operation within s 52 itself, when read with the definition of "trade or commerce" in s4(1) of the Trade Practices Act and that it is necessary to have regard to the Constitutional source of the section. Even if this not correct, the applicants submitted that the necessary extension of s 52 is found in s 6 of the Trade Practices Act.
228 Counsel for the applicants also submitted that, in any event, I ought not to decide the jurisdictional question now. As Merkel J said in Bray v F Hoffman-La Roche at [187], it is for the Court to determine, in the interests of justice, the time at which the jurisdictional issue is to be decided.
229 There are two reasons why I consider it is appropriate to reserve this question for the final hearing.
230 First, Heath has not yet raised any jurisdictional challenge to the Phoenix Representations and the Phoenix Non-Disclosures. I have come to the view, for reasons set out below, that this Court is not a clearly inappropriate forum and, accordingly, there will be trial on the merits of that part of the applicants' claim.
231 Second, each of the specific representations pleaded in paragraphs 92, 93, 94, 99, 104 and 108 of the Statement of Claim incorporate, by implication from the continuing Phoenix Representations, a representation that there will be minimal risk of loss. It follows that the question of whether the specific representations were made will depend, in part, upon an examination of the evidence to be given at the trial as to the Phoenix Representations as to which there is presently no jurisdictional challenge.
232 Thus, it seems to me that on the case as pleaded, the question of whether the specific representations were made is inextricably bound up with the claims made in relation to the Phoenix Representations. In light of this, there will be a question of fact as to where, in substance, the specific representations were made; see Voth at 568-569 per Mason CJ, Deane, Dawson and Gaudron JJ. There the relevant conduct took place in Missouri. Here, the letters were written and received overseas but the specific misrepresentations, as I have said, are alleged in the pleading to incorporate the Phoenix Representations.
233 In his opening, Mr Douglas QC contended that the Statement of Claim was "tendentious". I understood him to mean by this that the Phoenix Representations, which did not lead Mr Kelly to underwrite the Phoenix risk, were alleged to have been made in Australia for the sole purpose of attracting the jurisdiction of the Federal Court.
234 Mr Douglas put this proposition in cross-examination to the applicants' solicitor, Mr Price, who rejected it. In my opinion, it follows from this, and in particular from the connection between the Phoenix Representations and the specific representations, that the jurisdictional question should be reserved for the final hearing. This will extend the length of the trial but that is unavoidable. It merely illustrates the difficulties of seeking to strike out a complex claim on the pleadings.
235 Heath's submission that Ministerial consent is required under ss 5(3) and/or 5(4) of the Trade Practice Act turns upon whether s 52 extends by virtue of s 5(1) to the conduct of which the applicants complain. It is appropriate that these questions also be dealt with at the final hearing.
The Claim by Monde Re
236 Heath and Chase submit that the claim brought by Monde Re should be dismissed summarily because the Phoenix Representations were made (if at all) to ReAc and not to Monde Re which was not incorporated when the Phoenix Representations are alleged to have been made.
237 It is well established that relief under s 82 of the Trade Practices Act is not confined to persons who suffer injury by representations made directly to them; see Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 (`Janssen-Cilag v Pfizer") at 528-531; Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 ("Marks v GIO") at [99] to [102].
238 The question which arises here is whether the Phoenix Representations can be said to have caused any loss to Monde Re; see Janssen-Cilag v Pfizer at 530-531; Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525.
239 It is now trite to say that causation is a question of fact to be determined by considerations of common sense; see March v E & M H Stramare Pty Ltd & Anor [1991] HCA 12; (1991) 171 CLR 506. In my view, it is not appropriate to consider the question summarily. In particular, as the applicants have submitted, there is likely to be an issue of fact to be determined at the final hearing as to what Heath knew about the relationship or proposed relationship between ReAc and Monde Re when the Phoenix Representations were allegedly made and acted upon.
240 It would be wrong to take a narrow view of the scope of s 82 of the Trade Practices Act; see Marks v GIO at [100]; Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 ("Akron Securities v Iliffe"); Janssen-Cilag v Pfizer at 529, 531.
241 The question of whether Monde Re can be said to have relied on representations made, not to it, but to Mr Kelly, who of course later became its managing director, is a matter to be determined at the final hearing. So too is the question of whether that conduct was in trade or commerce under s 52.
242 Chase advanced a further argument against Monde Re's claim, namely that Monde Re cannot bring a claim under ss 82 or 87 of the Trade Practices Act because it is a foreign corporation which, at the relevant time, carried on business in Monaco. To permit it to bring such a claim would, according to Chase's submissions, give the word "person" in ss 82 and 87 extraterritorial operation without regard to the provisions of s 5(1); see TPC v Australian Iron & Steel at 319-320.
243 In my view, this submission does not provide a basis for summary dismissal of the claim. First, s 4(1) of the Trade Practices Act provides that "corporation" includes a foreign corporation. Second, there is authority for the proposition that s 52 of the Trade Practices Act extends to conduct which may be detrimental to overseas consumers; see Wells v John R Lewis (International) Pty Ltd (1975) 25 FLR 194 at 208-209.
244 Thirdly, as I have already said, the Phoenix Representations and the Phoenix Non-Disclosures are alleged to have occurred, at least initially, in Australia. Thus, it seems to me that the claim pleaded by Monde Re does not involve any element of extraterritorial operation. Whether it will be found to involve any such operation is a matter to be determined at the final hearing.
Agency
245 Chase submitted that, accepting for present purposes the truth of the allegations made in the Statement of Claim, the allegation made by ReAc and Monde Re that Heath was Chase's agent for the purposes of soliciting the applicants to act as reinsurers of the relevant risks is hopeless within the well-known test stated in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125. There were two essential planks to Chase's argument which I will set out below.
246 Chase's first proposition was that the true nature of the applicants' claim on the issue of agency is to be found in the following submission made by counsel for ReAc and Monde Re:-
"If an insurer's subscription to a line slip could only be secured if full reinsurance were in place such that the insurer merely acted as a `front', it is at least arguable that Heath's authority from Chase extended to securing the necessary reinsurance."
247 The second proposition is that the applicants' case as stated above is contrary to English and Australian law.
248 The law in England and Australia is clear. A broker acting on behalf of an insurer to place a contract of reinsurance is the agent of the insurer and not the agent of the underlying insured; see General Accident Fire & Life Assurance Corporation v Tanter (the "Zephyr") (1985) 3 ANZ Ins Cas 60-682; Societe Anonyme D'Intermediaries Luxembourgeois v Farex [1995] LRLR 116 ("S A I L v Farex"); Sutton Insurance Law in Australia 3rd Ed 1999 at p. 2.26 and 5.43.
249 Chase called evidence from a leading English silk, Mr Michael Crane QC, as to the law of the United Kingdom. I accept his evidence without reservation. The effect of Mr Crane's evidence was that an underlying insured could be liable for a statement made by a broker to a reinsurer where the insured has given express actual authority to arrange reinsurance.
250 He referred to S A I L v Farex for the proposition that a broker does not have usual or apparent authority to arrange reinsurance even where that is necessary to better accomplish the broker's task of placing insurance for the risk.
251 Nevertheless, Mr Crane did not rule out the possibility that "an insured can so conduct himself, as to represent to the world in general that this broker is visiting reinsurers on his behalf". Thus, Mr Crane conceded that in following this route to liability a question of fact would arise as to whether there was conduct on the part of the insured which might clothe the broker with authority to speak to potential reinsurers.
252 As to this, Mr Crane's evidence was that knowledge on the part of the insured would be the first step and that it would be necessary to find some conduct of the insured specifically authorising the broker to approach the reinsurer.
253 Counsel for ReAc submitted that the claim of agency pleaded in paragraphs 54 and 55 of the Statement of Claim was a conventional pleading of agency which accommodated the principles stated by Mr Crane.
254 They submitted that although paragraph 54 refers to the "task" of finding "replacement insurers", the reference in this paragraph to finding persons who would write CEE insurance business was broad enough to cover reinsurance. The definition of "insurance business", as including "reinsurance", in s 3(1) of the Insurance Act, was said to support this submission.
255 In my view, a fair reading of paragraph 54 of the Statement of Claim does not give rise to this meaning. A reader of the pleading cannot be expected to parse and analyse the plain wording of the paragraph in light of a statutory definition not set out in the Statement of Claim. There are numerous references to "insurance" and "reinsurance" risks in the Statement of Claim. It is clear that the draft person distinguished between insurance and reinsurance risks. There is nothing in paragraph 54 to indicate that the task extended to finding or soliciting reinsurers.
256 Paragraph 55 of the Statement of Claim goes on to state that in performing "that task" and acting as Chase's representative, Heath made the Phoenix Representations and failed to disclose the subject matter of the Phoenix Non-Disclosures. The task referred to in this paragraph must be the task of obtaining replacement insurers without any suggestion that Heath was also charged with the responsibility of obtaining reinsurance.
257 But for certain other paragraphs of the Statement of Claim to which I will refer below, I would have found that the agency claim has not been pleaded and that it is contrary to the evidence of Mr Kelly in his preliminary statement and to evidence given by Ms Batch in proceedings in the USA.
258 The effect of the evidence of Mr Kelly and Ms Batch is that Heath informed ReAc at the outset that Chase would not approve ReAc as an insurer. It was therefore necessary to establish fronting arrangements and ReAc understood that, notwithstanding those arrangements, the substance of the relationship with ReAc was that it was the reinsurer rather than an insurer of the risks which were underwritten.
259 However, it seems to me that the applicants' position is saved by other paragraphs of the Statement of Claim which contain allegations that Chase conferred on Heath the task of soliciting ReAc and Monde Re to act as reinsurers. Those paragraphs are 63.2 and 68.2.
260 It follows in my view that the Statement of Claim discloses a triable issue of fact and law on the question of agency. The question of fact will be whether there was conduct and knowledge of the type referred to by Mr Crane. It would be wrong to dismiss the claim without giving the applicants the opportunity to have discovery and to agitate the issue at the final hearing. Any gaps in the applicant's claim may be filled if Chase and/or Heath give evidence in the proceedings; see Wickstead v Browne (1992) 30 NSWLR 1 at 11-12.
261 I do not consider that the apparent rebuttal of the claim of authority contained in the full text of Mr Chapnick's evidence, to which Chase referred in its submissions, is a sufficient basis for dismissing the claim at an interlocutory stage.
262 Chase made further submissions about the business written by Monde Re as a direct insurer of the films set out in Schedule 3 to the Statement of Claim.
263 There is evidence in an affidavit of Mr Gordan, one of Chase's New York attorneys, that Chase is not the underlying insurer in a number of those films. However, Chase is described as the insured in Schedule 3 and I will therefore proceed on that basis. I do not suggest any criticism of Mr Gordan. Nor do I make any adverse finding against him.
264 One of the films referred to in Schedule 3 is "Runaway Bride". It was part of the Paramount 5 slate. Mr Gordan's evidence is that no claim has or will be made by Chase in respect of this film.
265 In my view, it follows from Mr Gordan's evidence that "Runaway Bride" should be deleted from the Schedule. In the unlikely event of any future changed circumstances, the film can be reincorporated into Schedule 3.
266 Finally, Chase submitted that it could not be responsible in law, either under the common law of agency or under s 84 of the Trade Practices Act, for the conduct of Heath in placing the risks referred to in Schedule 3. This was because the slips were signed between December 1998 and November 1999 and the only conduct relied upon by Monde Re to support the allegations is Heath's conduct in making representations and non-disclosures in late 1996.
267 However, it seems to me that what I said above about reinsurance is equally applicable to the direct claim. That is to say, the question of whether Heath was Chase's agent and whether it is responsible for representations made at least two years before the risks were underwritten is, in part, a question of fact which must be allowed to go to trial.
Permanent Stay - General Principles
268 The power to grant a stay is found in O 20 r 2 (1) of the Federal Court Rules under which the Court may stay proceedings which are vexatious and/or an abuse of process.
269 It is clear, as the applicants submit, that the Court is invested with the judicial power of the Commonwealth and that it is seized in these proceedings with a federal matter in respect of which it has jurisdiction. A permanent stay will therefore be granted only if the moving parties discharge the onus of establishing that the Court is a clearly inappropriate forum within the principles states by the High Court in Voth; see also Henry v Henry [1995] HCA 64; (1996) 185 CLR 571; CSR Ltd v Cigna Insurance Australia Ltd [1997] HCA 33; (1997) 189 CLR 345 ("CSR v Cigna") and Regie National Des Usines Renault SA v Zhang [2002] HCA 10; (2002) 76 ALJR 551 ("Renault v Zhang").
270 In Renault v Zhang, Gleeson CJ, Gaudron, Gummow and Hayne JJ at [25] accepted, quoting from Henry v Henry at 587 that:-
"In Voth, this Court adopted for Australia the test ...that a stay should be granted if the local court is a clearly inappropriate forum, which will be the case if continuation of the proceedings in that court would be oppressive, in the sense of "seriously and unfairly burdensome, prejudicial or damaging", or, vexatious, in the sense of "productive of serious and unjustified trouble and harassment". It was also held in Voth that, in determining whether the local court is a clearly inappropriate forum, "the discussion by Lord Goff in Spiliada of relevant `connecting factors' and `a legitimate personal or juridical advantage' provides valuable assistance". In this last regard, Lord Goff of Chieveley expressed the view that legitimate personal or juridical advantage is a relevant but not decisive consideration, the fundamental question being "where the case may be tried `suitably for the interests of all the parties and for the ends of justice'".
271 In Henry v Henry at 591, Dawson, Gaudron, McHugh and Gummow JJ observed that:-
"...the fact that there are or, even, that there may be simultaneous proceedings in different countries with respect to the same controversy, is highly relevant to the question whether the local proceedings are oppressive in the sense of "seriously and unfairly burdensome, prejudicial or damaging", or vexatious, in the sense of "productive of serious and unjustified trouble and harassment". And it also follows that courts should strive, to the extent that Voth permits, to avoid that situation."
272 Their Honours also observed in Henry v Henry at 592 that other considerations to be taken into account include the order in which the proceedings were instituted, the stage which the proceedings have reached and the costs which have been incurred.
Permanent Stay - Connecting Factors
273 In Voth, Mason CJ, Deane, Dawson and Gaudron JJ said at 565 that in some cases the primary judge hearing a stay application may conclude that it is desirable to give detailed reasons weighing the various factors and explaining why the local forum is or is not an inappropriate one. Ordinarily, however, their Honours said it will be unnecessary for the judge to give lengthy reasons.
274 This is not an ordinary case but since in my view the outcome of the stay application turns upon the issue of "juridical advantage", I propose to deal relatively briefly with the factors which connect the subject matter of the proceedings to the competing forums.
275 I will deal separately with one of the connecting factors, namely choice of law and submission to jurisdiction clauses, later in my judgment.
276 It seems to me to be clear that subject to the decision of the House of Lords in HIH v Chase, there is a very substantial overlap between the UK proceedings and the Australian proceedings.
277 There was the same degree of overlap with the United States proceedings but the effect of the decision of Gammerman J is that the insurers are barred from raising the claims of misrepresentation and non-disclosure.
278 The observations which I make as to connecting factors are therefore limited to the proceedings on foot in the United Kingdom.
279 The case pleaded by the applicants in the Australian proceedings raises virtually all of the critical issues which arise in the UK proceedings. The Phoenix Representations have their genesis in the claims made in the Phoenix proceedings. The Phoenix Non-Disclosures, with the exception of those pleaded in paragraph 47.10, are based upon the Phoenix Representations. Both sets of proceedings arise out of a common factual substratum.
280 It is true, as the applicants said at [161] of their initial written submissions, that there are issues raised in the Australian proceedings which do not arise overseas. However, it is evident from an examination of the applicant's list of solely Australian issues that they are limited to the precise elements of the cause of action pleaded in the Statement of Claim.
281 Examples of these are the content of the representations made by Heath to ReAc as opposed to the content of the representations made by Heath to HIH or AIG and the question of Mr Kelly's reliance.
282 Although it appears that there are questions raised in relation to some of the specific representations pleaded in the second part of the Statement of Claim which may have no equivalent in the UK proceedings, those representations were made by PML or ICE and it is plain that the role and abilities of Mr Bradstreet are critical to the issues in the Australian and UK proceedings.
283 A most striking feature of the overlap between the UK and Australian proceedings is that the truth or otherwise of the claims of misrepresentation and non-disclosure turns in large part on the evidence of Mr Walwin and Ms Hamilton. The issues of fact raised by their evidence of the falsity of the misrepresentations and the failure to disclose material facts seem to be identical here and in the UK.
284 I accept that they are willing to give evidence in Australia but it would be extraordinary if two UK resident witnesses whose evidence gave rise to the Phoenix allegations were prepared to give evidence in Australia but not in the United Kingdom.
285 The appellants made much of the fact that the respondents in the Australian proceedings have not filed defences. Thus they said it is unclear what the real issues will be and who will give evidence for the respondents in Australia.
286 It seems to me that if the claims of misrepresentation are to be pursued in the Phoenix action, it is likely that the insurers will call Mr Walwin and Ms Hamilton. Accordingly, there must be a real prospect of inconsistent findings of fact between the Federal Court and the Commercial Court in relation to their evidence.
287 The claims against Heath and Chase in the Phoenix action are for fraud and it is possible that central parties such as Mr Dixon and Mr Bassett will not be called to give evidence. Nevertheless, on the issues raised by the pleadings in the UK proceedings and the Australian proceedings, it is my view that there is a real prospect of inconsistent findings of fact between the evidence of those witnesses in the UK and Australian proceedings.
288 The proceedings in the United Kingdom have been on foot for over 3 years. Vast documentary discovery has been given there. Much of it would have to be repeated here although as Chase's solicitor, Mr L'Estrange, said in his evidence it would be necessary to consider all of the documents to determine their precise relevance to the Australian proceedings.
289 In summary, it seems to me that, but for the legitimate juridical advantage arising from the Trade Practices Act claim, the controversy considered as a whole would be vexatious or oppressive in the Voth sense, namely that the Australian proceedings would be productive of serious and unjustifiable trouble or seriously and unfairly burdensome; see CSR v Cigna at 400-401.
290 This would be so even though ReAc is not a party to any of the UK proceedings. The position is therefore different from Henry v Henry where the parties to both sets of proceedings were identical.
291 What would have made the Australian proceedings vexatious in the absence of the Trade Practices Act claims is the fragmentation which arises from the commencement of proceedings in this Court in which the applicants seek to agitate questions which are already in issue overseas. I do not think it is vexatious to commence other proceedings upon the hypotheses that the insurers will lose in the UK. There is no reason why ReAc and Monde Re cannot seek to protect their own positions in case of that eventuality. However, but for the Trade Practices Act cause of action the appropriate course would have been for them to do so in the jurisdiction where proceedings are already on foot.
292 Indeed, Monde Re is already a party to the Commercial Court proceedings in "Complicity" and "Forever Mine". Again, if it were not for the Trade Practices Act claim, the proceedings here would be plainly oppressive in the Voth sense.
Permanent Stay - Trade Practices Act Claim
293 The Federal Court cannot be a clearly inappropriate forum if it is the only forum in which the cause of action pleaded in the Statement of Claim can be fully and properly entertained.
294 This proposition also holds true in my opinion if there is a significant risk that the Federal Court is the only such forum because, in that event, the moving parties will not have discharged their onus of establishing that no injustice will be occasioned by a stay.
295 Chase sought to deal with this by adducing evidence that, under applicable English choice of law rules, the relief which the applicants seek under the Trade Practices Act would be available in the UK. This evidence was given by Mr Crane.
296 The effect of Mr Crane's evidence is that insofar as the applicants claim damages under the Trade Practices Act, their claim would be characterised under English Conflict of Laws Rules as a claim in tort. He did not deal with the claim for an indemnity as part of the "smorgasbord" of relief available under s 87 but he assumed that this would be treated in the same way as a claim for damages for conflict of laws purposes.
297 The English Conflict of Laws Rules which an English court would apply in order to determine which system of law governs a claim in tort are found in the Private International Law (Miscellaneous Provisions) Act 1995 ("the PIL Act"). The relevant provisions came into force on 1 May 1996, that is prior to the commission of the alleged "torts" in the present proceedings.
298 Section 11(1) of the PIL Act provides that the applicable law is the law of the country in which the events constituting the tort or delict in question occur.
299 Section 12 of the PIL Act spells out circumstances in which the general rule is displaced. In deciding the "displacement" question, the Court weighs the significance of the facts which connect the tort to the place where the events occurred against other factors connecting the tort to another country. Those factors include "factors relating to the parties, to any of the events --- or to any of the circumstances or consequences of those events."
300 English choice of law rules on contractual obligations are now governed by the Rome Convention which was adopted as part of the law of the UK by the Contracts (Applicable Law) Act 1990. The Rome Convention contains uniform rules which apply throughout the European community where there is a conflict of laws in relation to contractual obligations. The Act came into force on 1 April 1996.
301 Article 1 of the Rome Convention provides that the rules of the Convention apply to "contractual obligations" in any situation involving a choice of law between the laws of different countries.
302 It is unnecessary to set out the rules in any detail. Article 3 provides, subject to certain exceptions, for freedom of choice of the governing law. Article 4 provides for the law applicable in the absence of choice. There, the contract is to be governed by the law of the country with which it is most closely connected.
303 Article 8 provides that the existence and validity of a contract are to be determined by the law which would govern it. Article 10 provides that the law applicable to a contract governs its interpretation, performance, consequences of breach including damages and the extinguishment of obligations.
304 Mr Crane divided the applicants' claims for relief into two heads, namely damages on the one hand and avoidance of the contracts on the other.
305 Upon the facts on which he was asked to assume as to the making of the Phoenix Representations and the specific representations and the failure to disclose the Phoenix Non-Disclosures, Mr Crane's opinion is that an English court would apply the general rule under s 11 of the PIL Act so that the Trade Practices Act claim for damages could be maintained in the UK courts.
306 The applicants sought to meet this evidence by calling Mr Briggs who is a practicing barrister, a co-editor of the current edition of Dicey and Morris The Conflict of Laws 13th Ed 2000 ("Dicey and Morris") and a prolific author in the area of English private international law.
307 Mr Briggs' evidence was that the applicants' claim for damages and indemnity would be characterised as tortious for English conflict of laws purposes. He said that this characterisation would apply to claims for damages in respect of conduct which induced entry into a contract with the person responsible for the conduct and, possibly, in respect of claims for damages for conduct which induced entry into a contract with a third party.
308 Mr Briggs agreed with Mr Crane that the question of avoidance of the contracts would be characterised for English conflict of laws purposes as contractual and this would be determined according to the proper law of the contract.
309 Mr Briggs and Mr Crane disagreed on the characterisation of the Trade Practices Act claims. In Mr Crane's view, an English court would be most unlikely to accept Mr Briggs' argument that the claim for damages is to be characterised as contractual for English choice of law purposes.
310 Mr Briggs' argument called in aid the provisions of Article 5 of the Brussels Convention which was adopted by the Civil Jurisdiction and Judgments Act 1982. That Convention deals with jurisdiction of the contracting States. It is referred to in the preamble to the Rome Convention and Mr Briggs said that a UK court would seek to interpret the Rome Convention in a manner which was harmonious with the Brussels Convention.
311 Article 5(1) of the Brussels Convention provides that a person domiciled in a contracting State may be sued "in matters relating to a contract" in the courts of the place for performance of the obligation. Article 5(3) provides that in matters relating to tort or delict the person may be sued in the courts of the place where the harmful event occurred.
312 In Mr Briggs' opinion, an analogy is to be drawn between the meaning of "contractual obligations" in the Rome Convention and matters relating to a contract "in the Brussels Convention". Thus, in Mr Briggs' view, a claim under the Trade Practices Act in respect of conduct which induced entry into the contract would be a matter relating to a contract and hence a contractual obligation.
313 Mr Briggs also called in aid the European rule against cumulation of causes of action. Thus, if a claim could be brought under English law in the alternative in either contract or tort, European law would permit only one head of liability. It follows according to Mr Briggs' evidence that if the subject matter of these proceedings is litigated in the UK an alternative claim in either contract or tort would not be recognised for English choice of law purposes and the claim would be treated as a contractual obligation.
314 Mr Crane dealt with all of the existing authorities on this question. The relevant authorities are Agnew v Lansforsakringsbolagens AB [2000] UKHL 7; [2001] 1 AC 223 ("Agnew"); Source Ltd v T.U.V. Rheinland Holding AG [1998] QB 54; Fonderie Officine Tacconi SpA v Heinrich Wagner Sinto Maschinenfabrik GmbH (HWS) [2002] ECR 0; Alfred Dunhill Ltd v Diffusion Internationale de Maroquinerie de Prestige SARL [2002] 1 All ER (Comm) 950 ("Alfred Dunhill"); Domicrest Ltd v Swiss Bank Corporation [1999] QB 548 ("Domicrest"); Raiffeisen Zentralbank Osterreich Ag v Alexander Tranos [2001] I.L Pr 9 ("Raiffeisen"); Base Metal Trading Limited v Ruslan Borisovich Shamurin [2002] CLC 322 ("Base Metal Trading") and Dicey and Morris at [32-025].
315 None of these authorities support Mr Briggs. He acknowledged under cross-examination by Mr Bathurst that his views were not supported by Dicey and Morris (although he is not an author of this chapter) and that his views were rejected by Mr Justice Moore-Bick in Base Metal Trading.
316 Moreover, although Mr Briggs did not concede the point, the authorities referred to by Mr Crane, most notably Agnew, Alfred Dunhill and Domicrest are not consistent with the view that the expression "contractual obligations" is to be interpreted as widely as "matters relating to a contract".
317 Mr Briggs conceded under cross-examination that there is no case in which the ratio supports his views. Nor does the dicta to which he referred in cases such as Raiffeisen support his thesis.
318 It seems to me that, on the existing authorities, Mr Crane's opinion is correct. However, even if it is, the question which would arise in the UK is whether, for the purposes of s 11 of the PIL Act, Australia is the country in which the events constituting the tort occurred. That will depend upon evidence to be considered by an English court. As Mr Hutley submitted, there would be a range of factors which would bear on the question. I am not in a position to second-guess the ultimate decision of the English court as to what law would be the proper law for English choice of law purposes.
319 In any event, I cannot, on the evidence before me, exclude the real possibility that the general choice of law rule for tort laid down in s 11 of the PIL Act will not be displaced by the provisions of s 12.
320 One of the circumstances which an English court may be able to take into account in order to displace the general rule is that the parties to the underlying contracts were bound by the Truth of Statements clause. It would no doubt be said by Chase that the reinsurance arrangements also attracted this provision and that the Truth of Statements clause excludes claims in tort other than for deceit. If so, it would follow that even though the misrepresentations are alleged to have occurred in Australia, the Trade Practices Act claim would be excluded under English choice of law rules. It is well established that exclusion clauses do not have that effect under the Trade Practices Act; see [19] above.
321 Thus, in my view there is a real risk that the Trade Practices Act claim for damages or relief under s 87 could not be conducted in the UK. The decision would therefore be akin to that which was dealt by Byrne J in Commonwealth Bank of Australia v White (No 1) [1999] VSC 262; [1999] 2 VR 681 at 705-706 (cited by her Honour Warren J in Commonwealth Bank v White (No 3) [2000] VSC 259). In those proceedings Lloyds sought a permanent stay of the action in Melbourne upon the ground that similar issues were raised in the proceedings in London. Mr White was a party to both sets of proceedings. There was a claim in London for negligent misrepresentation and a claim in Victoria under the Trade Practices Act and the Corporations Law. Byrne J refused the stay and said at 705-706:-
"The claims of Mr White based on misleading and deceptive conduct and breaches of the companies legislation have no counterparts in the London litigation ---Accepting that there will be trouble and expense for Lloyds to conduct both proceedings, it can hardly be said that is unjustified for Mr White to bring the claim in a jurisdiction in which this is permitted rather than one where it is not."
322 The effect of the evidence of Professor Burrows, Norton Rose Professor of Commercial Law at Oxford University and the author of leading English texts, is that there are substantial differences between English law relating to misrepresentation and non-disclosure and the law which applies in Australia under the Trade Practices Act. The principal differences for present purposes are that, under the Trade Practices Act, a representation may be as to a future matter, innocent misrepresentation may sound in damages, there is a reversal of onus with respect to future matters and it is not possible to contract out of liability. Accordingly, under English law the remedies which would be open to ReAc and Monde Re are more restricted than in a claim under the Trade Practices Act.
323 In my view, the following observations of Lord Browne-Wilkinson in Australian Commercial Research & Development Ltd v ANZ McCaughan Merchant Bank Ltd [1989] 3 All ER 65 at 72-73 apply with equal force to the present proceedings:-
"I think when one does take the Act into account it becomes clear that Australia is the appropriate forum. The Australian Act provides a statutory remedy in addition to common law remedies in relation to the provision of services to Australians both in relation to acts done in Australia and apparently in certain circumstances to acts done outside Australia by non-Australians but having an impact within Australia. I have considerable doubts whether the English court if called on to adjudicate on this matter would apply the Australian Trade Practices Act 1974 as part of the applicable law in this action. It may be that it would do, but it seems to me unlikely. Even if the English court did apply the Trade Practices Act in deciding this case, it is manifest that the Australian courts are very much better qualified to deal with that Act than any English court would be. The proper law of the contract is the law of Queensland. The claim in tort will include a claim for a statutory tort under the Trade Practices Act. Therefore Australian law is the only possible law applicable in relation to the dispute, which is between what are two essentially Australian parties. In a case where the defendants are not Australian, or not in essence Australian, I would find it very difficult to know to what extent it was necessary or desirable that one should give effect to the Australian Trade Practices Act 1974. But it seems to me, where you have an Australian plaintiff claiming breach of duties in relation to the provision of financial services by an Australian group of companies, it is plainly more appropriate that that case should be decided where the protection of the Australian Trade Practices Act is made available and enforceable."
324 Dr Hardingham relied upon the decision in Williams v The Society of Lloyds [2000] VSCA 38; [1994] 1 VR 274 as authority for the proposition that the Trade Practices Act claim should not of itself operate as a bar to a permanent stay. However, in my view, it is evident that the Court granted a stay in those proceedings because the case turned upon allegations which went to the very foundation of the conduct of Lloyds' insurance market in London. This was, quintessentially an issue connected with the UK and the Trade Practices Act claim did not provide a sufficient countervailing factor; see at 324-325.
325 For reasons set out above at [218] it would not be open to the applicants to run the Trade Practices Act claim in the USA.
326 I accept the submission of counsel for the applicants that the present proceedings are in effect the converse of CSR v Cigna. The co-existence of local and foreign proceedings is not vexatious or oppressive where relief is available in one forum which is not available in the other; see CSR v Cigna at 395.
Permanent Stay - Governing Law on the question of the right to avoid the contracts
327 The terms of the contracts of insurance provide for the contracts to be governed by English law and for the parties to submit to the jurisdiction of the English courts.
328 Although the reinsurance slips provide for the contracts to follow the wording, terms and conditions of the original policies, the English courts have held that these general words do not incorporate the terms of choice of law clauses in the underlying contracts; see Gan Insurance Co Ltd v Tai Ping [1999] Lloyds Rep IR 472; AIG Europe (UK) Ltd v Anonymous Greek Insurance [2000] Lloyds Rep IR 343.
329 In considering the factors which will determine the country with which the contracts are most closely connected, the factors will include the activities of the broker and the market in which the broker operates; see Dicey and Morris at [33-208].
330 There is accordingly a real possibility that an English court would find that English law governed the various policies of reinsurance brokered by Heath in the London market.
331 Thus, if ReAc and Monde Re were to seek to bring their claims in the UK under the Trade Practices Act, it is likely that an English court would hold that the question of avoidance was governed by English law without any occasion for the application of Australian law; see Akai Pty Ltd v People's Insurance Co Ltd [1998] 1 Lloyds Rep 90; cf Akai Pty Ltd v People's Insurance Company Ltd [1996] HCA 39; (1996) 188 CLR 418.
332 This is a further reason why the Federal Court is not a clearly inappropriate forum.
Loss or damage or "likely to suffer loss or damage"
333 Dr Hardingham and Mr Douglas submitted that the proceedings are hypothetical and premature because no question of ReAc and Monde Re's liability can arise on the contracts of reinsurance until the liability of the primary insurers is determined in the overseas proceedings.
334 In my view, the proceedings are not hypothetical because the primary insurers have not accepted the purported avoidance of the reinsurance policies by ReAc and Monde Re. Moreover, the recent proceedings instituted in New York, as to which see [350] to [353] below, make it clear that the proceedings are not hypothetical.
335 It seems to me that ordinarily a reinsurer can seek to have its dispute with the reinsured determined without waiting for any questions of liability to be determined in proceedings in respect of the underlying policy; the decision of the English Court of Appeal in AIG Europe (UK) Limited & Ors v The Ethniki [2000] 2 All ER 566 is an example of this. However, here the question which arises is whether the applicants have suffered or are likely to suffer loss so that a cause of action under s 82 or s 87 of the Trade Practices Act has accrued.
336 The applicants submitted that they have suffered loss because ReAc has paid $1.72m under the policy for the film "Letters from a Killer". Although there is a reference to this payment in Schedule 5 to the Statement of Claim, the cause of action for recovery of those moneys would lie in restitution and no such cause of action has been pleaded.
337 It is unnecessary for me to give further consideration to the question of whether loss has been suffered because in my opinion it is sufficient for the purposes of this application that loss is "likely" to be suffered. It is now well established that the Court does not take a narrow view of s 87. An entitlement to damages under s 82 is not a prerequisite to relief. It is sufficient that there is a real possibility of loss under the existing policies of reinsurance; see State of Western Australia v Wardley Australia Limited (1991) 30 FCR 245 at 261 (per Spender, Gummow and Lee JJ); Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 (per Black CJ, Gummow and Cooper JJ); see also the discussion of the authorities in Akron Securities v Iliffe at 364 per Mason P. However, that is a matter for the final hearing.
338 It is true that, assuming a contravention of s 52 is established, the Court will need to consider all the circumstances before the range of arguably appropriate remedies is selected from the "remedial smorgasbord"; see the discussion of the authorities in Akron Securities v Iliffe at 366-367 per Mason P. That too is a matter for the final hearing.
Submission to jurisdiction clauses in primary policies of insurance written by Monde Re in the USA
339 Each of the policies referred to in Schedule 3 to the Statement of Claim contained a choice of law clause in the following terms:-
"Each of the insurers hereby irrevocably submits itself to the jurisdiction of the United States District Court for the Southern District of New York (or in the event the District Court does not have jurisdiction or does not exercise jurisdiction for any reason whatsoever, to the State courts of the State of New York), for the purposes of any suit, action or other proceeding arising out of or based upon this policy or the subject matter hereof brought by the insured or any of its successors or assigns in either of the above-referenced forums. Each of the insurers, to the extent permitted by applicable law, (A) hereby waives, and agrees not to assert, by way of motion, as a defense, (sic) or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this policy or the subject matter hereof may not be enforced in or by such court and (B) hereby waives the right to assert in any such action, suit or proceeding any offsets or counterclaims except counterclaims that are compulsory. Each of the insurers hereby consents to service of process by mail at the address to which notices are to be given. Each of the insurers agrees that its submission to jurisdiction and consent to service of process by mail is made for the express benefit of the insured and final judgment against the insurers in any such action, suit or proceeding shall be conclusive, and may be enforced in any other jurisdiction (A) by suit, action or proceeding on the judgment, a certified or true copy of which shall be conclusive evidence of the fact and of the amount of the claim or liability of the insurers therein described or (B) in any other manner provided by or pursuant to the laws of such other jurisdiction, provided, however, that the insured may at its option bring suit, or institute other judicial proceedings against the insurers or any of their respective assets in any State or Federal Court of the United States or of any country or place where such insurer or such assets may be found.This policy has been delivered in the State of New York and shall in all respects be construed in accordance with and governed by the laws of such State applicable to contracts made and to be performed wholly within such State (without giving effect to its choice of law rules)."
340 All of the policies are direct policies written by Monde Re for Chase. No question arises of whether the jurisdiction clause in an underlying contract is incorporated into a reinsurance contract.
341 The only question which arises is whether the clause is an exclusive jurisdiction clause. This is a question of construction to be decided in the light of any relevant surrounding circumstances; see FAI General Insurance Co Ltd v Ocean Marine Mutual Protection and Indemnity Association (1997) 41 NSWLR 116 at 126.
342 The factors which are taken into account on an application for a stay on "clearly inappropriate forum" grounds do not apply where there is a submission to the exclusive jurisdiction of the courts of another country. There is abundant authority that, in those circumstances, the parties should be held to their bargain but the Court has a discretion whether or not to grant a stay. The Court should do so unless a strong case for not granting a stay is made out; see McGuid v Office de Commercialisation et D'Exportation [1999] NSWSC 931 at [51] per Einstein J; see also Wool International v Sedgwick Ltd (No 4) (Beaumont J, 2 October 1997, unreported).
343 In my view, the jurisdiction clause set out at [339] above provides for Monde Re to submit to the exclusive jurisdiction of the New York courts. I accept the submission made by Chase that the clause is directly parallel to the clause which was dealt with by the English Court of Appeal in Continental Bank NA v Aeokos Cia Naviera SA [1994] 2 All ER 540.
344 In that case a loan contract provided that the borrowers submitted to the jurisdiction of the English courts. The concluding words of the clause provided that the Bank reserved the right to proceed under the agreement in the courts of any other country having jurisdiction.
345 Steyn LJ (as he then was), delivering the judgment of the Court said at 547:-
"The juxtaposition of a submission by the appellants to the jurisdiction of the English courts and the option reserved in favour of the bank to sue elsewhere brings into play the expressio unius exclusio alterius canon of construction. It suggests that a similar option in favour of the appellants was deliberately omitted."
346 It seems to me that in the present case the proviso to the jurisdiction clause which reserves to Chase the option to sue in courts other than the United States must also bring into play the canon of construction to which his Lordship referred.
347 However, it is then necessary to consider whether the present action is a proceeding "arising out of or based upon" the policies "or the subject matter thereof".
348 In Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1, ("Hi-Fert") at 18-22, Emmett J reviewed the authorities dealing with similar expressions in arbitration clauses. The authorities included the decision of French J in Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd (1993) 43 FCR 439. His Honour there said that where the parties had agreed upon a form of words which limited the reference to matters arising ex contractu, the words in question did not extend to disputes arising out of matters antecedent to the agreement.
349 In my opinion, the claim that Monde Re was induced to enter into the policies by misleading conduct, which of course preceded the writing of the policies, cannot be said to "arise out of" the policies for the reasons referred to by French J. Nor can it be said to be based upon the policies or the subject matter of the policies. Moreover, as a matter of determining the intentions of the parties, it seems to me to be most unlikely that the parties intended a New York court to have jurisdiction in relation to an Australian statute which has no equivalent in that jurisdiction; See Hi-Fert per Emmett J at 23-24.
NHIC's appeal on the third party complaint against ReAc in New York and the commencement of fresh proceedings in the USA
350 On 3 December 2002, after I reserved my judgment in these proceedings, the New York Supreme Court Appellate Division, First Department, handed down its decision in NHIC's appeal from the decision of Justice Gammerman in which his Honour dismissed the third party complaint by NHIC against ReAc. I was provided with a copy of the judgment of the Appellate Division by AIG on 6 December 2002. His Honours judgment was affirmed on appeal. ReAc did not object to my receipt of this evidence subject to two provisos. The first proviso was that I receive in evidence a copy of a fresh complaint filed by NHIC on 5 December 2002 in the US District Court for the Southern District of New York. The second was that I receive further written submissions from ReAc. Both of those conditions have been satisfied.
351 In the new proceedings NHIC contends that if it is liable to Chase in respect of the underlying insurance for the films "A Texas Funeral", "History is Made at Night", "Bruno" and "The Guilty", then ReAc is liable to indemnify NHIC for 40% of its losses incurred in connection with the underlying insurance. NHIC seeks declarations to that effect.
352 ReAc submitted that NHIC's conduct in commencing the fresh proceedings in the District Court is vexatious and oppressive within the meaning of CSR v Cigna and that this is a further ground for dismissing AIG's motion for a permanent stay. AIG rejected this contention.
353 On 31 January 2003, I received a letter from the solicitors for the applicants seeking to adduce fresh evidence and to make further brief submissions. The fresh evidence is the commencement by Chase of proceedings in the Supreme Court of New York against Monde Re and others (including NHIC) on 26 December 2002 for indemnity in respect of certain films in the Paramount 4 and Paramount 5 slates. The films are "The General's Daughter", which was part of the Paramount 4 slate and "Bringing Out the Dead" and "Angela's Ashes", which were part of the Paramount 5 slate. Chase claims damages and other orders including costs arising from the failure to indemnify Chase under the respective policies.
354 I have decided to admit the fresh evidence and to receive the submissions. No objection was received to this course. The submissions state that the new proceedings indicate further fragmentation of the dispute and an apparent election by Chase to encourage that course.
355 As I have said above, I do not propose to order a permanent stay. It is therefore unnecessary to consider the submissions made by ReAc and AIG on this issue. .
Temporary Stay
356 The power to grant a temporary stay arises from the Court's power to control its own proceedings. This enables the Court to grant a stay in circumstances including those where proceedings are pending in another court and it is desirable that the other proceedings should go to trial first; see Sterling per Lockhart J at 290-291.
357 The discretion is not confined to cases where the other proceedings will determine all of the issues which arise locally. The considerations which are to be taken into account on a temporary stay are different from those which are to be dealt with in an application for a permanent stay; Sterling at 294.
358 The factors to be taken into account were enumerated by Lockhart J at 291. The relevant passage has been cited on many occasions and it is unnecessary to repeat it.
359 Counsel for Chase submitted that I should order a stay in the first instance until after judgment is delivered by the Commercial Court in the Phoenix action. The effect of the submissions of AIG and Heath was that I should stay the proceedings until the determination of all of the overseas actions in which the films which are the subject of the Australian proceedings are dealt with.
360 There is some force in Chase's submissions because it would enable the factors enumerated by Lockhart J to be accommodated in an orderly fashion.
361 In particular, it would enable the proceedings which were started first and in which there are critical issues of fact in common with the Australian proceedings to be heard and determined first. The most critical of those issues are the truth or falsity of the Phoenix Representations. It seems to me that although the Phoenix action cannot eliminate all of the issues which arise here and of course cannot bind ReAc and Monde Re or indeed the other parties to the Australian proceedings, the judgment of the trial judge in Phoenix will substantially reduce the issues which can be said to be genuinely in dispute in the Australian action.
362 The same logic applies to the Australian proceedings as was put to Mr Justice Langley by the insurers, including Monde Re, as follows:-
"Although the issues and facts involved in the Heath actions are not identical, the disposal of issues arising in earlier cases would be of great assistance to, even if not determinative of, later cases. The Court would no doubt encourage parties to take a pragmatic view of their chances if they sought to relitigate such issues."
363 The estimated length of trial of the Phoenix action in the Commercial Court is 10 to 14 weeks. It has been fixed for 3 months. The insurers, including Monde Re, estimated that the length of a joint trial of Phoenix and Paramount 1 and 2 would be 24 weeks. It is hard to imagine why, if the Australian proceedings were heard first, they would take much less. Mr Gleeson submitted that they would but it seems to me that the trial would have to occupy some months of hearing time.
364 There is a substantial public interest in avoiding a trial of that length if, as appears to me to be plain, the hearing time will be very much reduced by awaiting the outcome of the trial judge's judgment in the Phoenix action.
365 I have come to the view that I can achieve that objective by delaying the trial date of the Australian proceedings until after the judgment in Phoenix but without the need to order a stay. The reasons I have decided not to order a stay are set out in the following paragraphs.
366 There are two principal reasons why I do not think it is appropriate to grant a stay. The first is that the trial of the Phoenix action will not be completed until late December 2003 and, in the ordinary course of things, it would seem unlikely that a judgment will be delivered until perhaps March 2004. A stay until then would put the Australian proceedings "to sleep" for a lengthy period. That was not the course the insurers proposed to Mr Justice Langley for the balance of the Heath proceedings.
367 A delay in the preparation of the Australian proceedings for trial is likely to result in a corresponding delay in the trial date. McHugh J has spoken of the undesirability of this: see Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541 at 552. It is true that the applicants have delayed in the commencement of this action. However, now that it is on foot, it is desirable that it be brought to a hearing as soon as possible.
368 The second reason why I have decided to refuse a stay is that it is necessary to take into account the existence not only of the UK proceedings but also the proceedings in the USA.
369 Subject to the outcome of any further appeals, the position in New York is that ReAc and Monde Re have no answer to the Truth of Statements clause. If they do have an answer, it is to be found in the claim in these proceedings under the Trade Practices Act. It is desirable that this be determined in a final hearing of these proceedings sooner rather than later.
370 I am conscious of the fact that to refuse a stay will result in some duplication of efforts and costs, in particular between the UK and Australia. However, I have balanced that against the alternative of delay. It seems to me that the parties most affected, namely AIG, Heath and Chase have sufficient resources to deal with this.
371 I have also taken into account the possibility that costs will be wasted and that costs orders will only partially compensate for this. Again, it seems to me that this consideration must give way to the interests of faster, if not, at least in these proceedings, speedy justice.
372 The approach which I have taken enables me to extend a degree of comity to Mr Justice Langely's case management order. The Australian proceedings will not be heard before the Phoenix action but it appears likely that they will be heard before the Commercial Court proceedings which will follow the trial of that action. To await the outcome of all of those proceedings would be contrary to the interests of justice because it would seem that the Australian action would not be heard until near the end of this decade.
373 The deferral of a trial in the Australian proceedings until after delivery of judgment in the Phoenix action will reduce the risk of conflicting factual findings between the UK and Australia.
374 It will also prevent Monde Re from departing altogether from the course it proposed to Mr Justice Langley. That is to say, the Trade Practices Act aspects of "Complicity" and "Forever Mine" will not be heard before the trial of the Phoenix action.
375 It will be necessary for me to case manage these proceedings in a manner which, so far as possible, ensures that the preparation for trial in Australia does not place an unfair burden on the parties in light of directions made now or in the future by Mr Justice Langley. I will endeavour to fix a timetable which enables the preparation here to take place in tandem with, but at a suitable distance behind, the UK proceedings.
376 The likelihood of a clash with deadlines in the USA seems less likely than in the UK because, as I have said, there will not be a trial on the merits in the USA of claims of misrepresentation or non-disclosure.
Orders
377 I propose to order that the Notices of Motion filed by HIH, AIG, Heath and Chase be dismissed.
378 My preliminary view is that AIG, Heath and Chase should pay the costs of ReAc and Monde Re of the motions but that there should be no order as to HIH's costs.
379 I will list the matter for directions at a date convenient to the parties. I will hear any argument on costs on that occasion.
380 I note that at the hearing the moving parties reserved the right to agitate the issue of security for costs in the event that a stay is refused. I assume that they will seek to deal with this issue on the next occasion.
I certify that the preceding three hundred and eighty (380) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. |
Associate:
Date: 7 February 2003
Counsel for the Applicants: |
Mr J Gleeson SC, Dr A S Bell and Mr J K Kirk |
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Solicitor for the Applicants: |
Phillips Fox |
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Counsel for the First Respondent: |
Mr N C Hutley SC and Mr M R Speakman |
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Solicitor for the First Respondent: |
Blake Dawson Waldron |
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Counsel for the Second Respondents: |
Dr I J Hardingham QC and Mr M W Thompson |
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Solicitor for the Second Respondents: |
Herbert Geer & Rundle Lawyers |
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Counsel for the Third Respondents: |
Mr F M Douglas QC and Mr G K Rich |
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Solicitor for the Third Respondents: |
Clayton Utz |
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Counsel for the Fourth Respondents: |
No appearance |
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Solicitor for the Fourth Respondents: |
No appearance |
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Counsel for the Fifth Respondent: |
Mr T F Bathurst QC and Mr A J Payne |
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Solicitor for the Fifth Respondent: |
Allens Arthur Robinson |
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Date of Hearing: |
25 - 29 November 2002 |
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Date of Judgment: |
7 February 2003 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/2003/56.html