Bridgecorp Limited (in receivership and in liquidation) v Certain Lloyd's Underwriters Under Policy No.888/50404V04A [2014] NZHC 842 (28 April 2014)

Last Updated: 20 May 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-003595 [2014] NZHC 842

BETWEEN

BRIDGECORP LIMITED (In Receivership & In Liquidation) Plaintiff

AND

CERTAIN LLOYD'S UNDERWRITERS UNDER POLICY NO. 888/50405V04A First Defendants CERTAIN LLOYD'S UNDERWRITERS UNDER POLICY NO. 888/51296V04A Second Defendants CERTAIN LLOYD'S UNDERWRITERS UNDER POLICY NO. 888/51296V05A Third Defendants CERTAIN LLOYD'S UNDERWRITERS UNDER POLICY NO. 888/51296V06A Fourth Defendants CERTAIN LLOYD'S UNDERWRITERS UNDER POLICY NO. 888/51296V07A Fifth Defendants CERTAIN LLOYD'S UNDERWRITERS UNDER POLICY NO. B0701LS05809 Sixth Defendants

Hearing:	21 March 2014
Appearances:	M J Tingey and W D Hofer for the Plaintiff M G Ring QC and M J Francis for the Sixth Defendants
Judgment:	28 April 2014

_{JUDGMENT OF GILBERT J}

This judgment is delivered by me on 28 April 2014 at 5pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

BRIDGECORP LIMITED (In R’ship & In Liq) v CERTAIN LLOYD'S UNDERWRITERS UNDER POLICY NO. 888/50405V04A & ORS [2014] NZHC 842 [28 April 2014]

Introduction

[1] This judgment deals with the plaintiff ’s application to set aside the sixth defendants’ appearance under protest to jurisdiction. The principal issue is whether s 9 of the Law Reform Act 1936 enables a New Zealand plaintiff with a claim against a New Zealand insolvent insured for negligence occurring in New Zealand to claim monies payable by a London insurer under the insured’s professional indemnity insurance policy where the policy is governed by New Zealand law and provides that any disputes as to its interpretation are subject to the exclusive jurisdiction of the New Zealand courts.

[2] Section 9 of the Act creates a statutory charge in favour of a third party claimant on monies payable by an insurer in respect of the insured’s liability to the claimant. It was enacted to overcome the unfairness of insurance proceeds being paid to the general pool of creditors of an insolvent insured defendant rather than to the claimant who had suffered the injury or loss covered by the policy.

[3] The London underwriters, the sixth defendants, argue that s 9 does not have extra-territorial reach and cannot be invoked to require them to pay any monies due under the policy to the plaintiff rather than their insured. They further contend that any debt arising under the policy is situated in England and can only be recovered there and the New Zealand courts lack subject matter jurisdiction over the debt. The receivers of Bridgecorp counter that, because of the exclusive jurisdiction clause in the policy, the New Zealand courts have sole jurisdiction over the debt. They argue that the debt can only be enforced in New Zealand and it is therefore situated here.

[4] In any event, the underwriters contend that s 9 cannot apply because it creates a fixed charge which crystallises upon the happening of the event giving rise to the claim and there was nothing to which the charge could attach because the relevant professional indemnity policy did not exist at that time. The receivers disagree. They argue that the statutory charge created by s 9 arises on the happening of the event giving rise to the claim, or the insurance policy covering the insured’s liability coming into existence, whichever is later.

Background

[5] Bridgecorp was a finance company that provided bridging and project finance to developers of residential and commercial properties in New Zealand and Fiji. Bridgecorp’s funding was raised from the public. As at the date of its last prospectus in December 2006, Bridgecorp had approximately $523 million of term investments on issue to some 18,000 investors.

[6] Bridgecorp engaged Herbert Insurance Group Limited (Herbert) to procure mortgage indemnity insurance to cover loans it made to property developers. These Lenders Mortgage Insurance policies, entered into between May 2004 and July 2007, were underwritten by Lloyds’ syndicates, the first to fifth defendants (the Bridgecorp insurers).

[7] Following default by many of its borrowers, Bridgecorp suffered losses in the hundreds of millions of dollars. It was placed in receivership on 2 July 2007. To date, the receivers have only been able to distribute eight cents in the dollar to the investors.

[8] The receivers seek recovery under the Lenders Mortgage Insurance policies. The Bridgecorp insurers have declined cover on the basis that Bridgecorp breached certain policy conditions. The receivers claim that if the Bridgecorp insurers are not liable under the policies, then Herbert is liable for the losses Bridgecorp will suffer as a result because it was negligent in carrying out its duties as Bridgecorp’s insurance broker.

[9] Herbert was placed in liquidation on 4 March 2011. The receivers accordingly seek to pursue Herbert’s insurers directly for $20 million, being the limit of indemnity under Herbert’s professional indemnity policy, relying on s 9 of the Act. Section 9(1) of the Act provides:

9 Amount of liability to be charge on insurance moneys payable against that liability

(1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the passing of this Act, entered into a contract of insurance by which he is indemnified against liability to

pay any damages or compensation, the amount of his liability shall, on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability.

[10] Section 9(4) enables the claimants to enforce the charge by an action against the insurer in the same way as if the action had been brought against the insured directly:

(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured:

provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the

leave of that court.

[11] As noted, Herbert’s professional indemnity policy provides that it shall be governed by New Zealand law and all disputes concerning its interpretation shall be determined by the New Zealand courts. Clause 1 of the schedule to the policy, which amends the standard wording, provides:

Notwithstanding any provision to the contrary within this insurance the proper law for the interpretation of this insurance is New Zealand Law and the Courts of New Zealand alone shall have jurisdiction for hearing and determining any litigation arising out of or in connection with any dispute regarding the interpretation of this insurance.

Do the New Zealand courts have subject matter jurisdiction over monies payable under Herbert’s insurance policy?

[12] The Supreme Court held in Ludgater Holdings Limited v Gerling Australia Insurance Pro Pty Limited¹ that s 9 does not have extra-territorial effect and does not apply unless the New Zealand court has personal jurisdiction, in the sense that the insurer can be brought before the court, and subject matter jurisdiction in respect of the indemnity payment or debt. The Court held that it did not have subject matter

_{jurisdiction in respect of Ludgater’s s 9 application claiming monies payable under a}

¹ Ludgater Holdings Limited v Gerling Australia Insurance Pro Property Limited [2010] NZSC

49, [2010] 3 NZLR 713.

policy issued by an Australian insurer to an Australian insolvent defendant in respect of negligence causing damage in New Zealand to a New Zealand plaintiff. Blanchard J, giving the judgment of the Court, stated:²

The insurance policy in this case was issued to Atco by Gerling in New South Wales. Gerling’s obligation to pay Atco’s claim is an obligation to pay in Australia, for that is naturally where Gerling could expect to be able to make payment and therefore where Atco could expect to receive it. Both had their principal places of businesses there and the insurance arrangements were transacted there. The policy says nothing to the contrary. Atco was given no express right to demand that payment be made anywhere other than in Australia, and none is implicit. It could not require payment in New Zealand on the basis that the insurance claim related to an event occurring in this country. If Gerling did elect to comply with a request for payment here, that would be a voluntary act on the part of Gerling. Mr Hunt, for Ludgater, endeavoured to make something of the fact that the policy contemplated the making of a payment by Gerling “on behalf of” Atco. But neither that, nor the fact that as a practical matter Gerling might choose to conduct the defence of a proceeding brought against Atco in another country, could affect Gerling’s right to insist on making payment in Australia. For all of these reasons, the situs of any obligation on the part of Gerling under Atco’s insurance policy must be Australia.

[13] The receivers seek to distinguish Ludgater on the following grounds. First, in Ludgater, the insured was in liquidation in Australia giving rise to the prospect that the application of s 9 could conflict with priority rules applicable in an Australian liquidation. This is not an issue in the present case because Herbert is in liquidation in New Zealand and there is therefore no prospect of any such conflict arising. Second, the insurer’s obligations in Ludgater were governed by Australian law whereas New Zealand law applies to Herbert’s policy. Third, in Ludgater, the debt was situated in Australia because the insurer was located there and there was no contrary indication in the policy. By contrast, any claim under Herbert’s policy must be pursued in New Zealand because of the exclusive jurisdiction clause and the receivers argue that it is therefore situated here.

[14] The receivers submit that the general rule that a debt is situated where the debtor resides is based on the fact that this is where a debt is generally enforceable. They submit that the debt under the policy is not enforceable in England because the

_{policy confers exclusive jurisdiction on the New Zealand courts. They contend that}

² At [28] (footnotes omitted).

the debt is therefore situated in New Zealand and the New Zealand courts have subject matter jurisdiction in respect of it.

[15] There is no doubt that the New Zealand courts have jurisdiction to determine any dispute between Herbert and its insurers as to the interpretation of the policy. Any judgment obtained by Herbert could then be enforced against the insurer’s assets in England. However, it does not follow that Bridgecorp can sue the insurers in New Zealand relying on s 9.

[16] It is a general principle of international law that one sovereign state shall not trespass on the authority of another. This principle was outlined by Lord Hoffman in Société Eram Shipping Co Ltd v Cie Internationale de Navigation:³

The execution of a judgment is an exercise of sovereign authority. It is a seizure by the state of an asset of the judgment debtor to satisfy the creditor’s claim. And it is a general principle of international law that one sovereign state should not trespass upon the authority of another, by attempting to seize assets situated within the jurisdiction of the foreign state or compelling its citizens to do acts within its boundaries.

[17] This is why the analysis must commence by identifying the location of any debt payable under the policy.

[18] It has long been established that a debt is situated in the country where the debtor resides. This rule was confirmed by Warrington LJ in New York Life Insurance Co. v Public Trustee:⁴

The rule of law with regard to the locality of simple contract debts is that it is determined by the residence of the debtor at the material moment. That has been well settled for a long time, and I think the reason for that is that it is the residence of the debtor which determines the place where he may be sued, prima facie at all events, and is in general the place where the means of satisfying any judgment may be discovered, but whatever the reason is, there is no doubt that that is the rule.

[19] Similarly, in F. & K. Jabbour v Custodian of Israeli Absentee Property, Pearson J stated:⁵

³ Société Eram Shipping Co Limited v Cie Internationale de Navigation [2004] 1 AC 260 (HL)

_{at [54].}

⁴ _{New York Life Insurance Co. v Public Trustee [1924] 2 Ch. 101 (CA) at 114.}

⁵ F. & K. Jabbour v Custodian of Israeli Absentee Property [1954] 1 WLR 139 at 145.

It is established by the decided cases that not only debts, but also other choses in action, are for legal purposes localized and are situated where they are properly recoverable and are properly recoverable where the debtor resides.

[20] The Privy Council reached the same conclusion in Kwok v Estate Duty Commissioner citing with approval from the 11th edition of Dicey and Morris on The Conflict of Laws.⁶

[21] The learned authors of the current edition of Dicey and Morris explain that although a debt may be enforced in a particular country, this does not necessarily mean that the debt is located in that country. Subject to exceptions, which do not apply here, the rule is that the debt is located where the debtor resides:⁷

Subject to the exceptions set out below, a debt is situate in the country where the debtor resides. The reason usually given is that the country of the debtor’s residence is normally the place where the creditor can enforce payment. It may not, however, be the only place: English courts may take jurisdiction against non-residents on the basis of temporary presence, or under [applicable civil procedure rules and relevant articles of the Brussels I Regulation]; foreign courts have similar rules for extended jurisdiction. Nevertheless, the possibility that an English court may take jurisdiction against a non resident defendant under [such rules and articles] does not make a debt situate in England if the debtor is not resident here; the same is no doubt true with regard to a foreign court. The result is that enforceability and situs do not fully coincide: a debt will not normally be situate in a country if it is not enforceable there, but the fact that it is enforceable in a particular country does not necessarily mean that it is situate there.

[22] Difficulties can arise where the debtor is a corporation with multiple places of business. However, there is no such difficulty in the present case because the underwriters’ sole residence and place of business is in London.

[23] In Ludgater, the Supreme Court followed New York Life Insurance, Jabbour and Kwok in determining that the situs of the debt in that case was Australia. The Court explained why this conclusion was inevitable on the facts of that case and the practical difficulties that would arise if a New Zealand court were to assume jurisdiction over the debt. However, the Court did not suggest that a debt could be

_{located at a place where the debtor does not reside or have any place of business.}

⁶ _{Kwok v Estate Duty Commissioner [1989] 1 WLR 1035 (PC) at 1040.}

⁷ Dicey, Morris and Collins on The Conflict of Laws 15^th ed, at 22-026 (footnotes omitted).

[24] I conclude that any debt payable by the London underwriters under Herbert’s professional indemnity policy is located in England as that is where the underwriters are located and they have no place of business anywhere else. It follows that this court lacks subject matter jurisdiction over this debt and cannot make any order pursuant to s 9 to require the underwriters to pay the plaintiff rather than their insured.

[25] This conclusion is sufficient to dispose of Bridgecorp’s application and it is not necessary for me to consider the underwriters’ alternative argument as to whether there is any room for the operation of s 9 because the event giving rise to Bridgecorp’s claim occurred prior to the policy coming into existence. In any event, in my view, this question does not bear on the issue of jurisdiction. It could be relevant in the context of an application to strike out the claim or for summary judgment but does not assist the underwriters on the present application.

Result

[26] The plaintiff’s application to set aside the sixth defendants’ appearance under protest to jurisdiction is dismissed.

[27] The parties agree that the proceeding should be categorised as a category 3 proceeding and I make a direction accordingly.

[28] The sixth defendants are entitled to costs on this application assessed on a category 3B basis.

M. A Gilbert J