The West Australian Federal Court has found a liquidator is entitled to remuneration and related expenses from the proceeds of a claim under a professional indemnity policy before the claimants.

Russell Harry Morgan, liquidator of Brighton Hall Securities Pty Ltd (in liquidation), sought advice from the court on how to deal with proceeds from the policy.

Allianz Australia Insurance Ltd had paid $2 million to Brighton Hall to settle the company’s liability to third parties. Third parties are competing for access to the funds, held by Mr Morgan as liquidator.

Brighton Hall had provided financial services to investors. Between 2001 and 2005 it advised at least 171 clients to invest in property development schemes developed and marketed by the Westpoint Group of companies, but the group later collapsed.

Investors in two separate class actions sought $20 million in compensation.

The liquidator agreed to deal with the $2 million proceeds by first, paying all his costs and expenses, and second, paying the third parties’ claims.

The Australian Securities and Investment Commission (ASIC) and the State of WA, representing claimants, opposed the liquidator’s actions.

But Justice Neil McKerracher ruled in his favour. “Despite the detailed and careful arguments for ASIC, I favour the arguments expressed for Mr Morgan. In particular, as a matter of general law, in my view he would be entitled to fair remuneration in the circumstances of this case,” he said.

“There is no further capacity for the insurer to be prejudiced. It has paid the amount equivalent to its maximum exposure under the policy to Mr Morgan. It is clear the totality of the claims will very substantially exceed the amount paid by the insurer. The payment by the insurer meant it was not exposed to defence costs in defending the proceedings. 

“The insurance proceeds, of course, are the only asset of the company, so that is the only source for payment of Mr Morgan’s costs in relation to this application in respect of which he is entitled to be indemnified.”

Justice McKerracher said a central question of the case was whether there was one claim or many claims for the purposes of the insurance policy.

Clayton Utz insurance law expert Fred Hawke, reviewing the judgement, said the court held that the class actions should be treated as multiple claims.

“The argument these individual claims should be aggregated under the policy foundered because the test for whether multiple claims can be brought together in a class action was a lot looser than the insurance policy's requirement the claims ‘arise from any one act, error or omission, or series of related acts, errors or omissions’,” Mr Hawke said.

He said although Brighton Hall’s recommendation of products on a consistent basis amounted to a common feature, there were different products, different clients, different times of investment, different circumstances of taking advice, different levels of investment and, perhaps most importantly, different circumstances and times and amounts of sustaining loss.

“While the operation of any insurance term will depend in some part on the facts of the case, clearly this formula offers a much better prospect of applying only one excess to accumulated class action claims. Policyholders who may be at risk of class actions should review their liability insurances and, if in doubt, obtain advice on the aggregation language used,” Mr Hawke said.

He said decision had “potentially major significance for class action claimants, litigation funders and insurers”.

Corrs Chambers Westgarth Lawyers, is its review of the case, said the court’s finding on the issues of the liquidators’ entitlement to remuneration “follows the principle that the community is best served by the efficient administration of insolvent companies”.

“Part of this process requires liquidators to be able to actively pursue the entitlements of the company. Any departure from that principle should only be made where there are express legislative terms to that effect,” the firm said. 

(Morgan, in the matter of Brighton Hall Securities Pty Ltd (in liq) [2013] FCA 970, 27/09/2013)

 

• Back to top