Principal Finance Limited v Halse [2013] NZHC 1723 (10 July 2013)

Last Updated: 16 April 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-001752 [2013] NZHC 1723

BETWEEN	PRINCIPAL FINANCE LIMITED Plaintiff
AND	GRAEME WILLIAM HALSE First Defendant
AND	GRAEME WILLIAM HALSE Second Defendant
AND	QBE INSURANCE (INTERNATIONAL) LIMITED First Third Party

Hearing:	4 February 2013
Appearances:	DJ Heaney QC and DJ Clark for Plaintiff P Dale for Defendants A Challis and P McKinnon for Third Party
Judgment:	10 July 2013

_{JUDGMENT OF TOOGOOD J ON PRELIMINARY ISSUES}

This judgment was delivered by me on Wednesday 10 July 2013 at 4.00 pm

Pursuant to Rule 11.5 High Court Rules

_{Registrar/Deputy Registrar}

PRINCIPAL FINANCE LIMITED v HALSE [2013] NZHC 1723 [10 July 2013]

_CONTENTS

Paragraph Introduction [1] The relevant provisions of the policy [3] The issues to be decided [6] Result [8] Factual background [9] Submissions [14]

Defendants’ submissions [15] Plaintiff ’s submissions [19] Third party’s submissions [21]

Are the alleged breaches of a director’s duties within the

definition of “Professional Services” in cl 2.2.4 and covered

by the policy accordingly? [24]

Conclusions on definition of “Professional

Services” [27] Interpretation of cl 7.11, the exclusion clause [31]

The natural and ordinary meaning of the words in

question [35] The context of the clause [36] The context of the policy as a whole [40] The contra proferentem rule [45] Conclusion on meaning of clause 7.11 [49]

Decision [51]

Costs [52]

Introduction

[1] The plaintiff, Principal Finance Limited (“PFL”), is a private finance company which lends funds to various entities secured against property. It has issued proceedings against Mr Graeme Halse, a solicitor, who was the sole shareholder and director of PFL, his shareholding being in his capacity as sole trustee of the Waikato Trust. PFL's proceeding alleges four causes of action. The first three are against Mr Halse as the first defendant being sued as the law firm Foy

& Halse for breaches of a solicitor’s duties. The fourth is against Mr Halse as the second defendant in his personal capacity and alleges breach of a director’s duties as the sole director of PFL. The third party, QBE Insurance (International) Ltd (“QBE”), is the insurer which issued a professional indemnity insurance policy in favour of the defendants (“the insurance policy”).

[2] This judgment concerns two preliminary questions regarding the interpretation of the insurance policy. The defendants seek to claim against QBE that PFL’s causes of action are covered under the insurance policy. QBE says the insurance policy does not apply.

The relevant provisions of the policy

[3] The operative clause of the insurance policy is cl 1, which relevantly provides:

1.1 The Underwriters will indemnify the Insured in accordance with the terms of this policy against any Claim, first made against the Insured during the Period of Insurance and notified as soon as practicable to the Underwriters during the Period of Insurance, alleging civil liability in connection with the provision of Professional Services.

1.2 In addition, the Underwriters will indemnify the Insured for costs incurred by the Underwriters or with their written consent in the investigation, defence or settlement of any such Claim. If payment greater than the available Limit of Indemnity is required to dispose of a Claim, the Underwriters liability for costs will be such proportion of the costs as the Limit of Indemnity bears to the amount of that payment.

[4] So far as is relevant, cl 2.2 defines “Professional Services” as:

2.2.1 advice given or services performed in the conduct of the Profession named in the Schedule by or on behalf of the Insured;

...

2.2.4 advice given or services performed as a director or officer of a company, but in respect only of liability arising from professional advice given in the capacity of a solicitor or barrister, and then only if any fees earned from that advice are payable to the Practice and are included in the total annual income declared to the Underwriters;

2.2.5 any duties undertaken as a trustee including any joint and several exposures arising, from the Insured’s appointment as trustee but only if any fees earned from those duties are payable to the Practice and are included in the total annual income declared to the Underwriters;

2.2.6 advice given or services performed in connection with financial planning activities, and then only if any fees earned from that advice are payable to the Practice and are included in the total annual income declared to the Underwriters;

2.2.7 advice given or services performed in connection with the operation of any nominee company falling within 2.1.9 above.

[5] Clause 7 provides for the general and specific exclusions from the insurance policy. Clause 7.11 is important for present purposes; it reads:

This insurance does not apply to loss or liability arising directly or indirectly out of Professional Services performed personally by any partner of the Practice for any body corporate, partnership, trust or other legal entity in which that partner, or any member of his or her immediate family, or any of them together, have a beneficial interest or share holding that exceeds 30% of the equity or total share holding.

The issues to be decided

[6] The preliminary questions I have been asked to decide are:

(a) with regard to PFL’s first three causes of action, whether cover is

excluded by cl 7.11; and

(b) with regard to the fourth cause of action, whether the alleged breaches of a director’s duties fall within the definition of “Professional Services” and are covered by the policy accordingly.

[7] These questions raise the following two issues:

(a) on the assumption Mr Halse had no beneficial interest in the shares, whether “beneficial” in cl 7.11 qualifies not only the word “interest” but also the words “share holding”; and

(b) whether the services performed by Mr Halse as the second defendant

_{constitute “Professional Services” within cl 2.2.}

Result

[8] For the reasons which follow, I have determined that:

(a) on a proper reading of cl 7.11, in the context of the policy as a whole but particularly the definition of professional services in cl 2.2, the expression “beneficial interest or shareholding” should be taken to mean “beneficial interest or beneficial shareholding”.

(b) the result is that, because Mr Halse did not have a beneficial shareholding exceeding 30 percent of the total shares of PFL, his alleged conduct in the exercise of his duties as a trustee in relation to PFL is covered by the policy.

(c) the first defendant is covered by the policy in relation to any loss or liability arising under the first three causes of action in the statement of claim (breaches of solicitor’s duties).

(d) cover under the policy so far as director's duties are concerned does not extend to all advice or services as a director. In terms of the definition in cl 2.2.4, cover as a director is limited to "liability arising from professional advice given in the capacity of a solicitor or barrister".

(e) it is clear that what is alleged in the fourth cause of action falls outside the definition of Professional Services in cl 2.2.4 of the policy. The defendant is not covered by the policy in respect of that part of the plaintiff's claim.

Factual background

[9] In around 1997 Mr Halse was introduced to Mr Delbert Kenneth Mayhew. Mr Mayhew said there were issues in the United States with a former wife and that he wished to establish a trust to protect his assets. This led to the formation of the Waikato Trust in September 1997, of which Mr Halse was the sole trustee. PFL was incorporated in 1997 to act as a vehicle for investment purposes and the ultimate beneficiaries of those investments were the beneficiaries of the Waikato Trust, one of whom was Mr Mayhew. Mr Halse was the sole director and shareholder of PFL but held the shares on behalf of the Waikato Trust.

[10] Between 1997 and 2009, the defendants made financial advances to assorted companies on behalf of PFL. It is common ground, for the purposes of considering the present issues at least, that Mr Halse did more than merely give advice to PFL about the advances. He identified potential borrowers, assessed the lending risk, and arranged the advances. It is alleged that between 2001 and 2007 Mr Mayhew instructed the first and second defendants not to make any further financial advances through PFL. However, Mr Halse continued to advance some 160 loans through PFL. All of the loans have been recovered except for one, which has caused a total loss of $1.8 million.

[11] PFL alleges that Mr Halse and it were parties to a contract under which the first defendant would provide legal services as PFL’s solicitor. Of the four causes of action against the defendants, the first three relate to Mr Halse as the first defendant for breach of his duties as a solicitor. They allege a breach of the express and implied terms of his contract of retainer, breach of fiduciary duty, and breach of his duty of care as a solicitor in a number of respects including negligence and acting contrary to express instructions.

[12] The fourth cause of action is against Mr Halse as the second defendant and alleges he breached his statutory obligations as a director. This allegation essentially mirrors the allegations of breach as a solicitor.

[13] Since 1981, Foy & Halse received professional indemnity insurance from insurance brokers Marsh. Marsh arranged such insurance with QBE for the periods

1 October 2008 to 1 October 2009 and from 1 October 2009 to 1 October 2010. It is

accepted that during the relevant period Mr Halse and the firm were indemnified by QBE, but the extent of cover is disputed. Mr Halse now claims against QBE that all of the conduct which is the subject of PFL’s claim falls within the express provisions of the insurance policy, and that there are no grounds for the operation of any of the exclusion clauses within it. If Mr Halse is found to be indemnified, then the cost and conduct of the trial will be assumed by QBE.

Submissions

[14] The plaintiff and the defendants argue in favour of full cover under the policy.

Defendants’ submissions

[15] On behalf of the defendants, Mr Dale carried the principal arguments that the conduct subject to PFL’s claim falls within the insurance policy. In respect of the exclusion in cl 7.11, he submitted that on the plain meaning of the words "beneficial interest and share holding", the word “beneficial” clearly applies to both an interest and a shareholding. An interest includes a shareholding just as the 30 percent threshold qualifies both "equity or total share holding" in the line that follows in cl 7.11.

[16] Although not arguing that QBE's contended interpretation of cl 7.11 would deprive the policy of all commercial effect, Mr Dale pointed to provisions in the policy which would be contradicted by it. He noted that the definition of "The Insured" in cl 2.1 extended to each nominee company currently or previously operated by the Insured, and that cl 2.2.7 expressly included advice given or services performed in connection with the operation of a nominee company. It would be nonsensical, in Mr Dale's submission, to interpret cl 7.11 as then exempting coverage on the basis that Mr Halse, as the sole partner in the firm, would hold 100 percent of the shares. Mr Dale referred also to the express inclusion of other activities in the definition of Professional Services in cl 2.2, notably "any duties undertaken as a trustee" in cl 2.2.5.

[17] Mr Dale submitted that the context of the policy suggests there is no logical reason why there should be a distinction in cl 7.11 between shareholding in a body

corporate and interests in other legal entities, and that to find a distinction would defeat the commercial purpose of the policy in respect of the actions of a trustee/solicitor, as Mr Halse was. Counsel regarded QBE's evidence concerning the origins of the exclusion clause as neutral, in terms of an application of the contra proferentem rule, because it is unclear who actually drafted the policy.

[18] As to the second question (director’s duties), Mr Dale said that the fact that the advice involved lending services or financial advice cannot be a basis for excluding liability due to the effect of cl 2.2.6, which expressly includes financial planning activities. He also said that because of the express reference to nominee companies in cl 2.2.7, it cannot matter that the defendant was a director of an incorporated company. Mr Dale submitted that the advice and conduct underpinning the causes of action are entirely consistent with what could be expected of a solicitor exercising reasonable skill and care and advising his or her client. Mr Dale also argued that Mr Halse is only a director because of his connection with the Waikato Trust and Mr Mayhew, which is why the primary basis of PFL’s claims is in respect of the professional advice which was given. He argued that that same advice would have been given even if Mr Halse had chosen to invest solely through a nominee company, or had acted as a trustee in his personal capacity.

Plaintiff’s submissions

[19] For PFL, Mr Heaney QC supported Mr Dale's submissions that “beneficial” in cl 7.11 qualifies both “interest” and “shareholding” and that, in order to be excluded, the shareholder needs to have a beneficial shareholding which exceeds 30 percent of the shares in the company. Mr Heaney submitted that a number of principles of interpretation support this conclusion. First, he said that to apply “beneficial” to “interest” but not to “share holding” would create a result contrary to the commercial purpose of the insurance policy. Second, he said that applying “beneficial” to just “interest” but not “share holding” advantages QBE. Therefore, applying the contra proferentem principle that any ambiguity in a contract is construed against the party who offers the contract, the interpretation construing the contract against QBE is to apply “beneficial” to both “interest” and “share holding”. Third, he submitted that this conclusion is supported by considering the document as a whole and giving the words their natural and ordinary meaning.

[20] As to the second question, Mr Heaney submitted that the defendants’ services arose from professional advice as a barrister and solicitor. He said the services performed by the defendants for PFL fall within the definition of “Professional Services” under cls 2.2.1 and 2.2.4.

Third party’s submissions

[21] For QBE, Ms Challis argued the claims are excluded under cl 7.11. She submitted the words used should be given their natural and ordinary meaning, read against the relevant evidence and background circumstances. Ms Challis submitted that “beneficial” only qualifies “interest” because “beneficial interest” and “share holding” are separate and disjunctive terms; while you would commonly refer to someone having a beneficial interest in a partnership or trust, “beneficial share holding” is not a common expression. If “beneficial” was intended to cover “share holding” then clause 7.11 would say so expressly.

[22] Ms Challis also argued that, even if the Court holds that cl 7.11 is ambiguous, QBE did not draft the insurance policy so the Court cannot have recourse to the contra proferentem rule against the insurer. As a result, Ms Challis submitted that the insurance policy did not apply because Mr Halse performed work for PFL in which he had a shareholding which exceeded 30 percent of the total shareholding.

[23] Ms Challis submitted that the issue about the definition of “Professional Services” related only to the fourth cause of action, with the most important definition being in cl 2.2.4. She submitted that the basis for denying cover for this cause of action against Mr Halse as a director was that the investments were made precisely in that capacity: as a director of PFL, not as a solicitor. Any civil liability against Mr Halse arises because he did not fulfil his statutory obligations to the company as a director, not because he gave negligent advice to a client in his capacity as a barrister or solicitor as required by cl 2.2.4.

Are the alleged breaches of a director’s duties within the definition of

“Professional Services” in cl 2.2.4 and covered by the policy accordingly?

[24] Although QBE contends that the effect of cl 7.11 is to exclude all four causes of action from coverage under the policy, it also runs a threshold argument in respect of the fourth cause of action, asserting that the conduct which is the subject of the

fourth cause of action does not come within the definition of “Professional Services”

as particularly defined in cl 2.2.4. It is convenient to deal with that argument first.

[25] Mr Heaney QC and Mr Dale argued that it is clear that Mr Halse was a director of the plaintiff solely in his capacity as solicitor to Mr Mayhew and that the allegations that he breached his statutory duties as a director mirror the allegations of breach of his duties as a solicitor. They say that in those circumstances the definition of “Professional Services” in cl 2.2.4 must apply.

[26] Mr Dale also emphasised that in acting as a director of the company Mr Halse’s only benefit was in the form of professional fees charged for his services and declared as such, thereby meeting the requirements of the definition.

Conclusions on definition of “Professional Services”

[27] While there is no doubt that Mr Halse would not have been appointed a director of the company in the absence of the solicitor/client relationship with Mr Mayhew, the arguments advanced on behalf of the defendants and the plaintiff on this point do not address the particular wording of the relevant clause. Clause 2.2.4 provides that the definition of “Professional Services” shall include:

... advice given or services performed as a director or officer of a company, but in respect only of liability arising from professional advice given in the capacity of a solicitor or barrister, and then only if any fees earned from that advice are payable to the Practice and are included in the total annual income declared to the Underwriters ....

[emphasis added]

[28] Thus, cover under the policy so far as director's duties are concerned does not extend to all advice or services as a director. This was not a directors and officers policy but a professional indemnity policy; cover is limited to liability arising from advice given.

[29] It is apparent from the pleadings that the basis upon which the company sues Mr Halse as a director goes well beyond the provision of professional advice given in the capacity of a solicitor. Among other things, it is alleged in paragraph 29 of the

statement of claim that Mr Halse breached his statutory obligations to the plaintiff in a number of respects which include the following:

(a) advancing the relevant loans contrary to the plaintiff’s express written

instructions;

(b) failing to adequately investigate and ascertain the value of the assets over which the plaintiff was taking security for the loans;

(c) failing to make an informed reasonable decision assessing the quality of security offered for the loans; and failing, therefore, to ensure that the loans were prudent and reasonable in all the circumstances;

(d) agreeing to allow the securities which had been obtained in respect of

the loans to become subordinate to a finance company’s security;

(e) failing to take steps to protect the plaintiff by seeking to recover outstanding amounts due in relation to the loans as soon as repayments were in default; and

(f) authorising advances to the borrowing parties to the loans before adequate and necessary documentation was executed.

[30] It is alleged and, as I understand it, not disputed that, in effect, Mr Halse was running the company and making all of the relevant decisions in respect of the loans; such conduct goes further than giving professional advice. It is clear, in my view, that what is alleged in the fourth cause of action falls outside the definition of Professional Services in cl 2.2.4 of the policy and that the defendant is not covered by the policy in respect of that claim.

Interpretation of cl 7.11, the exclusion clause

[31] In interpreting cl 7.11, and the contract as a whole, I have had regard to the general approach to the interpretation of contracts in New Zealand.¹ The rules of construction of general contracts are equally applicable to the rule for interpreting insurance contracts.² The overall objective in the interpretation of exclusion clauses in insurance contracts is to ascertain the presumed mutual intention of the parties.³

[32] Turning to the question of whether the exemption clause applies to the first three causes of action, it is convenient to restate cl 7.11. So far as is relevant, it reads:

This insurance does not apply to loss or liability arising directly or indirectly out of Professional Services performed personally by any partner of the Practice for any body corporate, partnership, trust or other legal entity in which that partner ... [has] a beneficial interest or shareholding that exceeds

30% of the equity or total shareholding.

[33] It is not disputed that, for the purposes of the first three causes of action alleging breach of the terms of his contract of retainer, breach of his fiduciary duty and breach of his duty of care as a solicitor, Mr Halse’s potential loss or liability arises directly or indirectly out of Professional Services as defined in cls 2.2.1, 2.2.5 and, arguably, 2.2.6. It is not disputed either that Mr Halse was the sole (and therefore 100 percent) shareholder in the plaintiff in his capacity as a trustee and that he had no beneficial entitlement to the shares.

[34] Whether the exclusion in cl 7.11 applies, therefore, turns solely on whether

Mr Halse is caught by the exclusion because he had "a beneficial interest or share holding that [exceeded] 30% of the equity or total share holding" in the plaintiff.

¹ Investors Compensation Scheme Ltd v West Bromich Building Society [1998] 1 WLR 896 (HL) at 912-913; Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA); Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.

² Trustees Executors Ltd v QBE Insurance (International) Ld [2010] NZCA 608, (2010) 16

_{ANZ Ins Cas 61-874 at [38].}

³ Lumley General Insurance (NZ) Ltd v Body Corporate No. 205963 [2010] NZCA 316 at

[27].

The natural and ordinary meaning of the words in question

[35] I accept Ms Challis’s submission that, without reference to context, adopting a natural and ordinary meaning approach to the words “beneficial interest or share holding” would lead to a conclusion that the words describe two separate concepts: “beneficial interest” in relation to a partnership, trust or other legal entity, and “share holding” in a body corporate. I accept that whereas the expression “beneficial interest” is commonly used as a generic description of the involvement or interest of a person in a legal entity such as a trust or partnership, “beneficial share holding” is not a common expression and is likely to be used only in limited circumstances, and then only to expressly exclude circumstances where shares are held as a trustee.

The context of the clause

[36] I agree also that the context of the clause as a whole tends to support Ms Challis’s submission that “share holding” is apt to describe the nature of an interest in a body corporate and the words “beneficial interest” are apt to describe generically the nature of an interest in a partnership, trust or other legal entity, particularly in relation to a trust.

[37] I do not need to resort to the subjective evidence tendered by QBE about the reasons for the exclusion and for permitting an insured to have a beneficial interest or shareholding of up to and including 30 percent of the equity or total shareholding in the entity. Where a company sues a shareholder/director, there is the prospect of an insured suing himself in a different capacity, at the expense and risk of an insurer. In these circumstances, it can be inferred that QBE considered that an interest above

30 percent is more likely to create a risk of conflict of interest between the insured’s capacity as a provider of professional services and his capacity as a beneficiary alleging a breach of duty by himself. While allowing cover up to 30 percent may be a generous allowance, as Mr Heaney QC suggested, it is difficult to determine any other reason for the 31 percent threshold for the application of the exclusion.

[38] There is also support for not applying "beneficial" to both “interest” and “share holding” in the wording which applies the 31 percent threshold. A plain reading of the phrase “a beneficial interest or share holding that exceeds 30% of the

equity or total share holding” suggests that “beneficial interest” and “equity” are apt to describe the nature of the interest in a partnership, trust or other legal entity and that “share holding” and “total share holding” are used to describe the nature of an interest in a body corporate.

[39] But considering that point, it is difficult to understand why the insurer would have intended to offer, and the insured to accept, an arrangement whereby the insured would be entitled to cover in respect of loss or liability arising in circumstances where the insured had a beneficial interest in a trust of up to 30 percent of the total equity in the entity, but not in any case where the insured held 31 percent of the shares in a company as a trustee and had no beneficial interest in them. The answer cannot be that a shareholding as a trustee of shares in any quantity is likely to give rise to a conflict of interest where none is seen to exist where the insured is a 30 percent beneficiary in a trust.

The context of the policy as a whole

[40] Turning then to the context of the policy as a whole, there are, in my view, decisive arguments that what might seem to be the proper interpretation of the expression “beneficial interest or share holding”, when considered without context or in a narrower context, cannot have been intended by the parties.

[41] Clause 2.2.5 includes in the definition of Professional Services “any duties undertaken as a trustee including any joint and several exposures arising from the Insured’s appointment as trustee”. The application of the definition is limited to circumstances where any fees earned from those duties are payable to the insured's practice and are included in the total annual income declared to the underwriters. There is no dispute that those criteria were met in the present case.

[42] It is equally not disputed that the duties undertaken by Mr Halse as sole trustee of the Waikato Trust, including his roles as sole director and shareholder of PFL on behalf of the Waikato Trust, were duties undertaken as a trustee in terms of the definition. It is not argued by QBE that Mr Halse had not disclosed his involvement.

[43] In those circumstances, it would be entirely inconsistent with the express inclusion of conduct occurring pursuant to “any duties undertaken as a trustee” in cl 2.2.5 to exclude it by cl 7.11 because those duties included a non-beneficial shareholding, as a trustee, in a body corporate. The parties cannot be taken to have intended a nonsensical result. The exclusion must have been intended to apply only to “beneficial share holding”.

[44] For the purposes of this case, it is not necessary to decide whether Mr Dale is right that a similar inconsistency arises between cl 7.11 as QBE would wish it to be interpreted and cl 2.2.7 which expressly includes in the definition of Professional Services “advice given or services performed in connection with the operation of any nominee company”. Nevertheless, I am inclined to think that the apparent inconsistency between cl 2.2.7 and cl 7.11 also supports the interpretation of cl 7.11 for which the defendant and the plaintiff contend.

The contra proferentem rule

[45] Having reached a clear view of the true meaning of the exemption clause when read in context, notwithstanding the lack of clarity in the wording taken by itself, it is unnecessary for me to consider the arguments advanced about the application of the contra proferentem rule.⁴ Unlike the Court of Appeal in D A Constable Syndicate 386 v ADLS,⁵ I am not left in the position, after an analysis of the wording in context, of finding a genuine ambiguity to exist.

[46] Further, I have not thought it necessary to take a view which adopts a liberal interpretation in favour of the insured or, conversely, to construe an exemption clause narrowly. My reasoning is simply that the exemption clause should not be given a meaning which is directly inconsistent with, and negates express wording

_{which defines the scope of cover under the policy.}

⁴ In Trustees Executors Ltd v QBE Insurance (International) Ltd, above n 2, the Court of Appeal said at [39] that the contra proferentum rule will only be applied in cases involving insurance contracts where there is genuine ambiguity. For example, in Lumley General (NZ) Ltd v Body Corporate No. 205963, above n 3 at [31], the Court of Appeal declined to consider the rule because the meaning of the clause was clear when it was read as a whole.

⁵ D A Constable Syndicate 386 v ADLS [2010] 3 NZLR 23 (CA).

[47] If it was necessary to do so, however, I would be inclined to take the view that QBE should be regarded as the profferor of the policy. While it may be, as QBE’s witness Ms Proudfoot suggests, that the wording of the exemption clause was broker-generated, the evidence indicates that the policy as a whole, incorporating that clause, was prepared by QBE and offered to the insured for acceptance. It is likely that many of the other provisions in the policy, which was no doubt prepared to meet the needs of the particular proposal for cover, were created at different times and came from different sources.

[48] The application of the contra proferentem rule, if it is appropriate in this case, would be against QBE and it would favour the construction which I have reached applying ordinary interpretive principles.

Conclusion on meaning of clause 7.11

[49] I am satisfied on a proper reading of cl 7.11, in the context of the definition of “Professional Services” in cl 2.2, that the expression “beneficial interest or share holding” should be taken to mean “beneficial interest or beneficial share holding”.

[50] The result is that, because Mr Halse did not have a beneficial shareholding exceeding 30 percent of the total shares of PFL, his alleged conduct in the exercise of his duties as a trustee in relation to PFL is covered by the policy. Accordingly, the defendants are covered in relation to any loss or liability arising under the first three causes of action in the statement of claim.

Decision

[51] For the reasons given, I rule that:

(a) the defendants’ insurance cover under the policy with QBE indemnifies them in respect of the first three causes of action in the statement of claim dated 25 March 2011; and

(b) the second defendant is not covered by the policy in respect of the fourth cause of action alleging breaches of duty as a director.

Costs

[52] Each of the parties has had a measure of success and each may feel entitled to apply for costs. Taking a broad view, without the benefit of submissions from counsel, I estimate that around 80 percent of the argument and hearing time were directed to the issues arising in respect of cl 7.11 on which the plaintiff and the defendants have been successful, and that about 20 percent of the argument related to the fourth cause of action on which the third party QBE has succeeded.

[53] Any party wishing to apply for costs shall do so by memorandum filed and served on the other parties no later than Friday, 9 August 2013. Any memorandum in opposition to such an application shall be filed and served on the other parties by Monday, 26 August 2013. Costs shall then be dealt with on the papers unless otherwise ordered.

...........................................

Toogood J