CE HEATH CASUALTY and GENERAL INSURANCE LTD v GREY and ORS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, CLARKE and MEAGHER JJA 25 October 1993, 17 December 1993 [1993] NSWCA 52 Mahoney AP On 7 October 1993 this Court delivered its reasons for judgment in this matter. It directed that the parties bring in short minutes of the orders to be made consequent upon the views expressed by the court. The parties have not agreed as to the orders to be made. Accordingly, on 25 October 1993, the parties addressed the court upon the question. It is necessary for the court, in the light of the submissions then made, to determine what order should be made. In my opinion, the court should: (a) declare that the first cross defendants ("the Directors") were parties to the Directors and Officers Policy referred to in the proceeding; (b) order that the order that the eight questions directed by Rogers CJ of CommD be tried separately pursuant to Pt31 be set aside; (c) order that the order made by Rogers CJ of CommD (as contemplated in his judgment of 16 March 1993) insofar as it directed that two further questions be tried separately, be set aside; (d) declare that order (c) above is made for the reason that the two further questions there referred to are in form not appropriate to be dealt with separately and is made without prejudice to the right of the parties to apply for or to oppose the amendments to the pleadings as contemplated in relation to them or otherwise; (e) direct that the proceedings be returned to the Commercial Division to be dealt with; (f) order that the costs of the proceedings in the Court of Appeal be paid by the respondents and that the respondents, if entitled, have certificates under the Suitors' Fund Act. The orders now made by this Court may be the subject of appeal. Alternatively, it will be necessary for a judge of the Commercial Division to deal further with the proceedings. I shall therefore indicate - with no more elaboration than is necessary - the main reasons why such orders should be made. I shall do so in general terms and without all of the exceptions and qualifications necessary to a full statement of what has occurred. 1. THE BACKGROUND: (I shall treat the proceedings before this Court as a single proceeding, as the parties before the court have done). The Directors are directors in proceedings brought by the Australian Securities Commission in the name of Compass Holdings Ltd in the Federal Court of Australia. The Directors claim that they are entitled to be indemnified against their costs in such proceedings by CE Heath Casualty and General Insurance Limited ("Heath"). They rely for this purpose upon insurance policies - the Directors and Officers Policy and the Company Reimbursement Policy - effected for that purpose. Heath has disclaimed liability under the policies because of alleged non-disclosure. The Directors brought 2 UNREPORTED JUDGMENTS proceedings in the Commercial Division to determine whether Heath was liable to indemnify them in relation to the costs of the Federal Court proceedings. The Directors, in those proceedings, claimed that they (or some of them) were under no duty of disclosure; and that (if they were) they (or some of them) did not fail to make the relevant disclosure. In order to determine the validity of the disclaimer by Heath in the ordinary way it would be necessary to determine both of these two matters. In an attempt to shorten the proceedings, Rogers CJ of CommD directed that, pursuant to Pt31, eight questions be posed "for decision as separate issues". His Honour considered those questions and concluded that the Directors were not parties to the Directors and Officers Policy. He answered the questions accordingly. On 16 March 1993, Heath sought an amendment to its defence and cross-claims in the proceedings. The judge gave leave to amend but on special detailed and contingent terms. The proceedings have been brought on appeal to this Court. On 7 October 1993, this Court unanimously held that the judge had erred in holding that the Directors were not parties to the Directors and Officers insurance. In my judgment, I expressed the view that the answers to the questions given in accordance with this Court's conclusions might not determine the relevant aspects of the proceedings. It therefore directed that the parties bring in short minutes of the orders appropriate to be made. On 25 October 1993 the parties, in making submissions to the court in that regard, pressed the court to answer the questions posed according to their terms. 2. THE PROCEDURE DIRECTED UNDER PT31: In these proceedings, Rogers CJ of CommD sought to avoid delay and cost by isolating and deciding questions of law in advance of, or in substitution for, a full hearing of the proceedings. His Honour is, in my respectful opinion, not to be condemned for attempting to avoid delay and cost. They are the twin cancers that eat at the heart of the justice system. However, long experience has demonstrated the dangers of attempting to decide complex cases by isolating questions of law in advance in this way. In Tilling v Whiteman (1980) AC 1 at 17-18, Lord Wilberforce, with the agreement of at least the majority of their Lordships, said: "I, with others of your Lordships, have often protested against the practice of allowing preliminary points to be taken, since this course frequently adds to the difficulties of courts of appeal and tends to increase the cost and time of legal proceedings. If this practice cannot be confined to cases where the facts are complicated and the legal issue short and easily decided, cases outside this guiding principle should at least be exceptional." Lord Scarman: at 25; added: "Preliminary points of law are too often treacherous short cuts. Their price can be, as here, delay, anxiety, and expense." In this case, if the conclusions of this Court be correct, his Honour's attempt has failed. The validity of the avoidance of the policies by Heath will require to be determined following a further and more detailed hearing of the two main issues involved and perhaps others. The conclusion at which this Court has unanimously arrived, viz, that the Directors were parties to the relevant policies of insurance, requires that, in any event, the proceedings must - subject of course to appeal - be returned to the Commercial Division for further hearing. This is central to any consideration of the orders which this Court should now make. WABJHEATH CASUALTY and GENERAL INSURANCE LTD v GREY and ORS (Mahoney APB 3. SHOULD THE COURT ATTEMPT TO ANSWER THE EIGHT QUESTIONS AND (IF SO) IN WHAT WAY: The eight questions posed for separate decision cover a number of matters. (For convenience, a copy of them is annexed to this judgment). In the event, they have been reduced in number. Because of what has occurred, it is agreed that the court need not consider questions 3, 4 and 8 and, as I understand the effect of the submissions, question 7. It is agreed that, if the Directors are parties to the Directors and Officers Policy, questions 2 and 4 do not arise. Accordingly, as this Court has held that the Directors are parties to that policy, only questions 1 and 6 formally arise for decision. It is necessary to consider whether the court should answer these questions and do so according to their terms. It is desirable that the disputes involved in the present proceedings and associated with it be disposed of without unnecessary delay and cost. If the parties propose a means by which their disputes can be legitimately and effectively determined, the court will favourably consider doing what they propose. In the present proceedings, it will endeavour to frame its judgment in a way which will effectively determine the issues which can properly be determined and will do so in a way which will enable the parties to exercise such rights, by way of appeal or otherwise, as will result in a final determination of them. However, as this Court has indicated in its reasons for judgment, there are real difficulties in doing this according to the procedure which has been followed. The basic question between the Directors and Heath is whether Heath validly and properly terminated the insurance policies. The answer to this question depends on - or at least is affected by - the two matters to which I have referred: whether the Directors (or some of them) were under a duty to disclose facts to Heath; and (if they were) whether they were in breach of that duty. It is the first of these to which the present procedure has been essentially directed. The parties apparently saw two bases on which such a duty of disclosure could be imposed on the Directors: because they were parties to the relevant insurance policies; and because (if not parties) s48(1) of the Insurance Contracts Act imposed such a duty on them. It was apparently on this basis that the eight questions were framed. When this Court came to consider the questions on appeal, it appeared to me that the purposes sought to be achieved by the present procedure would not be achieved by, or merely by, answering the relevant questions as framed. In order to assist the parties, I proposed, and the court agreed, that the parties be given the opportunity to reconsider the procedure adopted and the effects of it. It was in my contemplation that, if it appeared that the procedure adopted did not produce the effects which it was intended to produce or determine "the relevant aspects of the two proceedings", then the parties might desire to submit that other alternative questions or procedures should be adopted or, if they thought fit, revise or refine the questions placed before the court. I shall refer to some of the reasons why I considered that such an opportunity should be afforded to the parties. The main purpose for adopting the Pt31 procedure was to determine whether the Directors (or some of them) had the relevant duty of disclosure. There are a number of reasons why that purpose would not be achieved merely by answering the questions as posed. I shall refer to three of them. These are: (a) because the two bases for imposing the duty of disclosure referred to were not the only bases on which that duty existed or might exist; (b) because the factual basis on which the court was asked to decide 4 UNREPORTED JUDGMENTS whether one of these bases existed - that the Directors were parties to the relevant contract of insurance - was or might be deficient; and (c) because the form of the questions was defective. (a) The procedure, and the questions framed, assumed that the only bases on which the Directors could be or were under the duty of disclosure were that the Directors were parties to the insurance contract and that s48 imposed that duty. There is, in my opinion, at least a third basis, viz, that the circumstances of the insurance imposed such a duty on the Directors (or some of them). (Clarke JA and Meagher JA did not form any conclusion on this matter). This third basis could and, I think, would be affected by the facts surrounding the insurance contracts. As far as appeared, those facts were not investigated before the judge; at least, no detailed findings of fact were made. But if the facts were merely as they were stated in argument to have been accepted before the judge and nothing new appeared, such a duty would in my opinion arise even if the Directors were not parties to the contracts of insurance and even if s48 had no relevant operation. In my opinion, merely to declare that the Directors were parties to the contracts of insurance - and a fortiori merely to answer question | as framed - would leave open the further basis for Heath's claim, that the Directors were under the relevant duty to make disclosure. Merely to answer the questions according to their terms would not deal effectively with the problems to which the procedure was directed. When the proceedings came before the court to consider the form of the orders, this matter was not pursued by the parties in any significant way. It was not suggested that the questions, and in particular question 1, should be amended to deal with the problems which might arise if, eg, on appeal, the basis of the existence of the duty of disclosure arose for consideration. If the questions be answered according to their terms or if appropriate amendments to the procedure be not made, it is not clear what (if anything) will be the effect of the conclusion that, on this third basis, there was a duty of disclosure. That position is, in my opinion, less than satisfactory. (b) There were, in my opinion, several matters on which the factual basis on which this Court was asked to deal with the matter on appeal was not clear. These were matters which, in my opinion, might well affect, for example, the decision of the High Court of Australia whether to grant leave to appeal, the effectiveness of any decision of that Court on appeal in ending the present litigation, and the way in which the outstanding issues remaining for determination by the Commercial Division would fall to be decided. I shall refer by way of example to two of these. The first is the basis on which this Court should hold that the Directors were parties to the Directors and Officers Policy. There were at least two possible bases on which the Directors might be held parties to that policy: because of the terms of the proposal and the policy, without more; and because the proposal, though not signed by the Directors, was made by them through their agents or was made by arrangement with them. It appears at least possible that what was done in proposing and effecting the insurance and the payment of the premium for the policies was done by or by arrangement with the Directors. Nothing - at least, nothing determinative - was placed before the court in relation to this aspect. The basis on which the Directors are to be held parties to the policy is, in my opinion, significant: at least it may be so. If the High Court came to deal with the question whether the Directors were parties, it might feel that the case was deficient in this regard and the issues not able to be determined: at least, the court WRBJHEATH CASUALTY and GENERAL INSURANCE LTD v GREY and ORS (Mahoney APB might think that determination of them without knowing the factual position was inappropriate. Accordingly, for this and other reasons the parties were given the opportunity to consider whether, inter alia, the material before the court for decision should be put in a more satisfactory form. However, the parties did not indicate that they desired to take any further steps in that regard. The second matter related to the relationship of the Directors to the transaction by which the insurance was effected. At first sight it appears strange that the insurance transaction was not one initiated by the defendants (or some of them) or at least carried out by arrangement with them. If it was, that would be - at the least, it might be - an important matter in determining whether the defendants owed a duty of disclosure to Heath. As appears from what I said in my reasons for judgment, if the transaction was arranged or promoted by the defendants or for them, that would have an important effect upon the question. If they arrange for others to effect insurance from which they were to benefit and/or pay the premiums, it would be strange if they could yet refrain from disclosing to Heath matters known to them which were relevant to the insurance. To decide, as a separate issue, whether the defendants had a duty of disclosure without reference to such matters may be thought to deal with the issue on an artificial basis. I am loath to deal in that way with matters of this moment, particularly in a procedure such as the present. However, in this regard also the parties did not indicate any desire other than that the court answer the relevant questions as framed. Counsel referred to the factual basis on which, as they suggested, the judge had dealt with the matter. Mr Werksman, as he was entitled to do, stressed that "the only evidence on which any of the parties sought to rely was put before the court" and that his clients had been "put to considerable expense" in the proceedings. In these circumstances, I do not think that it is appropriate that the court press upon the parties suggestions which they do not desire to pursue. It is appropriate that the court consider the questions in the terms in which they have been framed and make, or decline to make, the orders which the court thinks are appropriate to them. (c) [come now to the form of the questions. Questions 1 and 6 are the relevant questions. These questions are, in my opinion, defective in form for at least two reasons: first, to answer them according to their terms would not deal with the issues which the present procedure was designed to deal with; and, second, to answer them according to their terms would be apt to be misleading. These questions are as follows: "Q.1. Are the first cross-defendants or any of them 'a person who is not a party to [the Directors and Officers Policy] specified or referred to in the [Policy], whether by name or otherwise, as a person to whom the insurance cover provided by the [Policy] extends' within the meaning of subs48(1) of the Insurance Contracts Act?; Q.6. Are the first cross-defendants or any of them 'a person who is not a party to [the Company Reimbursement Policy] specified or referred to in the [Policy], whether by name or otherwise, as a person to whom the insurance cover provided by the [Policy] extends' within the meaning of subs48(1) of the Act?" The issues which the present procedure seeks to have determined are whether the Directors were under the relevant duty of disclosure either because they were parties to the relevant contract of insurance or because of s48. Question 1 does not, in terms, raise these issues. Upon its strict construction, I am inclined to think that it does not raise them at all. If it raises them at all, it does so only obliquely and by means of the inferences which the question, and the answer to it, are 6 UNREPORTED JUDGMENTS thought to suggest. Thus, to answer Question 1 "No" would merely be to deny that the defendants were persons "not a party to" the relevant contract of insurance "within the meaning of subs48(1) of the Insurance Contracts Act". The answer would not, in terms, have affirmed that the Directors were not parties to the contract of insurance; it would affirm merely that they were not parties to it within such meaning of "not parties to..." as is to be assigned to that phrase by s48(1). But the basic issue to be determined, viz, whether the Directors were parties to the contract of insurance at all, is raised only if and insofar as one ignores the words "within the meaning of subs48(1)..." or infers that they have no relevant operation. As to the alternative question, viz, whether the Directors, if not parties to the contract of insurance, fall within the operation of s48(1), the question does not raise what is the true issue in this regard. The affirmation that the Directors were not parties to the contract within s48(1) would, properly understood, affirm - if it affirms anything - that the Directors have "a right to recover the amount of (their) loss from the insurer in accordance with the contract notwithstanding that (they are) not a party to the contract": s48(1). But that, of course, does not deal with the true issue. That is whether, if s48(1) so operates, the Directors had an obligation of disclosure which might be relied upon by the insurer under s48(3). In my reasons for judgment, I dealt with both of these issues: I held that the Directors were parties to the contract of insurance in question; and I construed s48(1), s48(2) and s48(3) and concluded that, if not parties to the contract, the Directors would be, by force of s48 and otherwise, under such a duty of disclosure. I took the view that the parties might desire to amend, inter alia, Question 1 so that the appropriate questions could be answered and so that these two issues could be definitively determined. As [have indicated, to answer Question | in its terms would give a misleading impression of what the courts ratio decidendi was: it would leave open for argument what effect the answer had upon the true issues raised by the parties. To suggest that such a declaration would determine that the insurer was entitled to raise and rely upon a duty of non-disclosure would be misleading. In principle the purpose of isolating questions for answer under Pt31 is to obtain a determination, binding as an estoppel res judicata or otherwise, of the issue which the question poses. Estoppels are not created by adding facts to a ratio decidendi to achieve a conclusion. Accordingly, to attempt to determine the true issue raised in relation to s48 by answering the present question would be to provide a misleading answer. As I have said, in my reasons for judgment I dealt not merely with the issue under s48(1) posed by the terms of the question but also with the relevant issues under subs(2) and subs(3). It is the answer to the construction of these two subsections which determines whether, in respect of directors not parties to the contract of insurance, a duty of disclosure may arise. But, as the answer proposed by Phillips Fox in the submissions made indicates, the answer: Yes; to Question 1 as drawn will not deal with this issue. It is, as the draft answer suggests, necessary to add other words. Ihave referred principally to the terms of Question 1. What I have said applies also in principle to Question 6. Read alone and apart from the suggestions and submissions made to the court, Question 6 appears to be directed to whether, in respect of the Company Reimbursement Policy, the Directors had or might have a similar duty of disclosure. But, whatever be the purpose of the question, an answer affirming that the Directors were not a person specified in the policy \WRBRJHEATH CASUALTY and GENERAL INSURANCE LTD v GREY and ORS (Mahoney APY within s48(1) would answer nothing. It would provide, if anything, only a basis for inference or further argument as to the effect which that might have in relation to the duty of disclosure which is in issue. In dealing with the form of the questions in this way, I do not intend criticism of Rogers CJ of CommD and the adoption by him of this procedure. The court may, I think, take notice of the pressures under which he then operated. His Honour may have seen Questions | and 6 as introductory to the real questions, at least if they were answered in the way in which his Honour answered them. But if the answers to the questions be other than those that his Honour adopted, then the inadequacy of the questions to determine the real issues becomes apparent. In argument before the court as to the form of the answers to be given, the parties pressed upon the court the desirability of answering Question 6. I shall therefore add one further observation in that regard. If Question 6 were answered according to its terms, the answer would convey nothing which would finally determine the issues between the parties in this regard. Whether or not the Directors were parties to the Company Reimbursement Policy would, as far as s48 was concerned, do little if anything to answer the true questions between the parties; as far as s48 is concerned, it would, as I have indicated, provide not a determination but a first step in an argument towards a determination of the relevant issues. I do not see a question or an answer in these circumstances as properly carrying out the purposes of Pt31. For these reasons, I am of opinion that it is not appropriate to answer these questions according to their terms. 4. SHOULD THE COURT ATTEMPT TO ANSWER THE TWO ADDITIONAL QUESTIONS AND (IF SO) IN WHAT WAY?: After the eight questions had been stated by Rogers CJ of CommD, Heath sought leave to amend its defences and cross claims by adding "very substantial new grounds of defence and cross claims". It made application to Rogers CJ of CommD for that purpose. By a judgment of 16 March 1993 his Honour granted leave to amend but subject to conditions to which I shall refer. His Honour summarised the amendments as follows: "By paral7-30 of the amendment sought it is alleged that one of the Beneficiaries Mr Charles Bryan Grey and Compass Holdings Ltd ('Holdings') fraudulently misrepresented and/or fraudulently failed to disclose to the Insurer the true financial position of Holdings and of Compass Airlines Pty Ltd ('Airlines'). In other words, the Insurer wishes to mount a case that the alleged fraud of Mr Grey and of Holdings provides a basis for avoiding the policies of insurance issued by it and that the innocent third party Beneficiaries are thereby disqualified from claiming under them. In the next group of paragraphs it is asserted that, in acting as they are said to have done, Mr Grey and Holdings were acting as agents of the Beneficiaries. It is next claimed that, if notwithstanding the alleged non disclosures and misrepresentations, the Insurer is nonetheless liable to indemnify the Beneficiaries pursuant to s48 of the Insurance Contracts Act ('the Act'), each is liable in damages in respect of the misrepresentation to the Insurer and the Insurer is entitled, in equity, to set off such damages against the monies which might otherwise be payable to the Beneficiaries. Finally, by way of defence it is asserted that, in all the circumstances alleged, it would be unjust and unconscionable for the Beneficiaries to be permitted to enforce their rights and they are accordingly estopped from doing so. On the same basis, by way of Cross Claim, the Insurer seeks damages." 8 UNREPORTED JUDGMENTS His Honour considered that the circumstances of the application for amendment were "unusual in the extreme and displaced the automatic application of the considerations which usually govern applications of this kind in the Commercial Division". His Honour said: "They are also unusual because the Court of Appeal will shortly be hearing the appeal from the decision on the separate issue, and it may be possible to include in the hearing of the appeal any further question of law arising from the conjoint operation of s48 and s28(2). In other words, there would be no loss of time involved, if leave to amend were given to (sic) on that limited point and there would be a limit on the additional costs which may be involved. This approach of course presupposes that a separate issue of law may be isolated, that the issue is referred to the Court of Appeal and that the Court of Appeal agrees to hear it in conjunction with the hearing of the appeal from the earlier separate issue. If these conditions cannot be fulfilled then, in my opinion, there would be prejudice to the Beneficiaries by the grant of the amendment which is incurable in costs. Similarly, in relation to the other amendments sought there is prejudice incurable in costs." His Honour referred, inter alia, to the representations made by Mr Werksman as to the "time, energy and money which have been expended by the plaintiffs and on their behalf' and the prejudice which would result to them. Notwithstanding this, his Honour said: "The proper order to make is to grant the amendment to the limited extent I have indicated, on the terms outlined, and to adjourn the rest of the motion until after the determination of the Court of Appeal is known. If the terms cannot be met the grant of leave will lapse. The motion by the Beneficiaries will be stood over until seven days after delivery by the Court of Appeal of its judgment. Leave is reserved to any party to restore any motion on three days notice." The questions which, as I assume, were subsequently formulated were, I think, unusual in their terms and it is necessary to set them out: "Further separate questions under Pt3 1. If the matters of fact alleged in paral7-29 of the Amended Defence and the Cross-Claim are proved, was the Insurer thereby entitled and does it remain entitled to avoid the D and O policy and the CR policy under and pursuant to subs28(2) of the Insurance Contracts Act ('the Act') as it will purport to do at the time the Amended Defence containing the said para30 is filed and served ('the time of exercise of the s28(2) right'). 2. If the answer to | is in the affirmative, and subject to any answer which the cross-defendants may have to the purported avoidance including waiver, estoppel, election, ratification or affirmation, is any such avoidance pursuant to s28(2) available to be relied upon by the Insurer as a defence against the right to recover from the Insurer (pursuant to s48(1) of the Act of: (a) Charles Bryan Grey; (b) David Lincoln Reynolds; (c) the plaintiffs and first cross-defendants other than Grey and Reynolds (it being accepted that the plaintiffs and first cross-defendants other than Grey and Reynolds are innocent of any fraud or other matter alleged in the said paral7-29) and, if so in respect of (a), (b) or (c), with what effect on the rights of the claimant(s) pursuant to s48(1): (i) accrued prior to the time of exercise of the s28(2) right; or (ii) otherwise." WRBJHEATH CASUALTY and GENERAL INSURANCE LTD v GREY and ORS (Mahoney APP What was said by Rogers CJ of CommD in his judgment appears to have been complied with in that: a separate issue of law was isolated, in the sense that the two questions were formulated; that issue was referred to the Court of Appeal; and the Court of Appeal heard argument on it in conjunction with the hearing of the appeal on the other eight questions. Accordingly, in my opinion, insofar as the judge imposed conditions upon the grant of the amendment which, if not satisfied, would retrospectively disallow the amendment, those conditions have in my opinion been satisfied and the amendment stands. This is so even if, as is the case, the court does not think that the questions are questions which should be answered. If the result of that be that inappropriate prejudice is suffered by the Directors or any other parties, no doubt application may be made to the judge of the Commercial Division dealing with the proceedings to make such order, by way of further amendment of the pleadings or otherwise, as justice may require. I come therefore to consider these two questions. Over-simplified, question 1 asks whether, if the matters of fact alleged in paral7-29 of the amended documents be proved, "was the Insurer thereby entitled and does it remain entitled to avoid" both policies "under and pursuant to s28(2) of the Insurance Contracts Act...". The question, in terms, poses at least two questions: whether Heath was entitled at some time, and whether "it remained entitled" to avoid not one but both policies. And the entitlement is limited to an entitlement "under and pursuant to s28(2)". Paral7-29 contain a number of allegations and assertions some of which might be proved and others not. But putting aside their complications, they lead, in one sense, to CL29 which alleges that "by reason of the matters pleaded above" Mr Grey and Compass Holdings Ltd fraudulently misrepresented some of the matters referred to and/or "fraudulently failed to disclose" other matters. The terms of question 1, literally construed, raise difficulties. To take but one example, CL29(b) of the amended document alleges that "by reason of the matters pleaded above" the persons concerned "fraudulently failed to disclose the matters referred to in para25 above". CL25 is a clause which alleges that "as at the date of the sending of the proposal" the persons concerned were each "aware that" a specified letter and representations "were matters relevant to the decision of the defendant whether to accept the risk and on what terms". It is, by CL29(b), presumably intended that there was a failure to disclose the letter and the representations rather than that they were relevant to the decision of the defendant there specified. The letter and the representations contained in it are not set out in the pleadings though its contents or some of them are alleged elsewhere in the pleadings. The concluding words of question 1, "... as it will purport to do... the s28(2) right', are not clear: it is not clear whether they are intended to be merely surplusage or are intended to record, eg, by way of estoppel or the like, a fact or intention to bind one or other of the parties. But these matters apart, the question asks whether, by virtue of proof of the facts in paras17-29, Heath was "thereby entitled" and "remain(s) entitled" to avoid both policies under s28(2). The first part of the question, the initial entitlement to avoid, must, of course, depend upon the circumstances. Thus, if the facts in CL17-29 were proved but it was established by the Directors or otherwise that, at the time of the proposal, those or other facts were known to Heath or that there were other reasons affecting prima facie the right to have them disclosed and disclosed accurately, differing considerations might arise. Formally, it is not clear whether the 10 UNREPORTED JUDGMENTS conditions of s28(1) have been complied with, specified by the words "... but does not apply where... entered into" and it is not clear why the right to terminate is limited to s28: the assumption appears to be that s28, in stating or codifying the law, excludes all other rights relevant to the question. More difficult problems arise in relation to the second aspect of this question, viz, whether Heath remains entitled to avoid each policy because of the postulated facts. That, I think, cannot be answered: at least, in the present context it cannot be answered in a way which will provide an authoritative determination of that issue. Whether Heath, at the present time, would remain entitled to avoid those contracts or whether it would remain entitled at some other time, must, of course, depend upon what happened between the making of the contracts of insurance and that time. That, of course, is not posited. Reference is made, in the second of these questions to matters such as "waiver, estoppel, election, ratification or affirmation" but no such reference is made in the first question. I do not think that the first question is in a form which can or, if it can, should be answered as it is posed. The second question is, in my opinion, even more unsatisfactory. It combines, in its terms, a number of distinct and separate questions. It assumes an answer or a state of facts in relation to the first question and it assumes that there is no other "answer" "to the purported avoidance". It then asks whether the avoidance postulated in question | is "available to be relied upon by the insurer as a defence against the right to recover from the insurer pursuant to s48(1) of the Act of...". As I have pointed out above, the "right to recover" available under s48 depends upon or is affected by not merely subs(1) of that section but the subsequent subsections and what appears in consequence of them. But the question then proceeds to apply its interrogation successively to Mr Grey, Mr Reynolds and the Directors other than them. The position in respect of each of them is, of course, not necessarily the same. This is asked upon the assumption in parenthesis in para(c) of the question, viz, that the other Directors "are innocent of any fraud or other matter in the said paras17-29". To this point, any answers to be given would necessarily be both contingent and conditional and would be separate in respect of at least each of the three classes of Directors referred to in sub-questions (a), (b) and (c). Then, if it can be paraphrased, the question then proceeds to ask, in respect of each of the groups of Directors so specified, that the courts specify "what effect on the rights of the claimant(s) pursuant to s48(1)" such an avoidance has and is "available to be relied upon" by Heath as a defence. I do not think that a question such as this can or should be answered by the court in litigation of this kind. I am conscious that it is of advantage to parties in litigation to have an indication, even if not in precise terms, of what a ruling on law or fact may be as and when the matter is pursued at a trial. Cases before the courts, including this Court, have demonstrated the delay and cost which may be involved where attempts are made to achieve this in circumstances where the questions and/or the answers are necessarily contingent or conditional. Cases are or have been before this Court which illustrate these difficulties: cf Challenge Bank Ltd v Mailman (Court of Appeal, 14 May 1993, not yet reported). Iam conscious that in the present case it may be of assistance for the parties to know in advance how this Court would rule if the fraudulent defaults or deliberate non-disclosures in question were proved only against, eg, Mr Grey or Mr Reynolds. But unfortunately there are, in my opinion, possibilities or WRBJHEATH CASUALTY and GENERAL INSURANCE LTD v GREY and ORS (Mahoney AR)I contingencies outstanding which make the answering of such questions difficult or impossible. For example, the court is asked to assume that the other Directors "are innocent of any fraud or other matter alleged...". But it is at least possible that they did not themselves positively misrepresent or fail to disclose but that they left the conduct of the matter to Mr Grey or Mr Reynolds. The effect upon them of the insurer's right of avoidance would or might be affected by such circumstances. In that context, it is not possible to give effective assistance to the determination of disputes. For these reasons, I am of opinion that the orders that the court should make are those to which I have referred. As I have indicated, the matter must in any event be returned to the Commercial Division to be dealt with. In dealing with it, the court will necessarily consider a number of separate issues, including some of those to which I have referred. It should, in my opinion, be left to the judge to determine what course should be followed in relation to such matters. ANNEXURE TO JUDGEMENT CE HEATH CASUALTY AND GENERAL INSURANCE LTD v GREY and ORS QUESTIONS POSED FOR SEPARATE DECISION 1. Are the First Cross-Defendants or any of them "a person who is not a party to [the DandO Policy], specified or referred to in the [Policy], whether by name or otherwise, as a person to whom the insurance cover provided by the [Policy] extends" within the meaning of subs48(1) of the Insurance Contracts Act ("Non-Party")? 2. If any or all of the First Cross-Defendants was a Non- Party, did those Cross-Defendants have a duty of disclosure under S21 of the Insurance Contracts Act? 3. Can the Cross-Claimant prior to the determination of its liability to indemnity the Second Cross-Defendant under the Company Reimbursement Policy: (a) be liable under the DandO Policy to pay, on condition of giving its written consent, the reasonable defence costs incurred by any of the First Cross-Defendants in defence of the ASC proceedings as and when those costs fall due for payment; and if so (b) in respect of which First Cross-Defendants? 4. If the Second Cross-Defendant is a party to the DandO Policy, does subs241(1) of the corporations Law operate to render void CL1.1 and/or CL7.1 of the DandO Policy? 5. In respect of any First Cross-Defendant who is a Non-Party, is the Cross-Claimant entitled, in the event that the DandO Policy responds to any liability arising out of the ASC proceedings, to rely on as a defence to the claim: (a) any act or omission of that First Cross-Defendant which if done or omitted by a Cross-Defendant (being a contracting party) would constitute a failure by that Cross-Defendant to comply with his duty of disclosure to the Cross-Claimant; (b) a failure by any Cross-Defendant (being a contracting party) to comply with the duty of disclosure to the Cross-Claimant, to reduce the liability to some lesser amount or nil? 6. Are the First-Cross-Defendants or any of them "a person who is not a party to [the Company Reimbursement Policy], specified or referred to in the [Policy], whether by name or otherwise, as a person to whom the insurance cover provided by the [Policy] extends" within the meaning of subs48(1) of the Act? 12 UNREPORTED JUDGMENTS 7. If the answer to 6 is "yes" is the Cross-Claimant prior to the determination of its liability to indemnify the Second Cross-Defendant under the Company Reimbursement Policy: (a) liable under the Company Reimbursement Policy to pay to the First Cross-Defendants or some other person the amount of their defence costs as and when those costs fall due for payment; and if so (b) in respect of which First Cross-Defendants? 8. If the answer to 7 is "yes" is the Cross-Claimant entitled to rely on as a defence to a claim made by any First Cross-Defendant pursuant to subs48(1) of the Act: (a) any failure by the Second Cross-Defendant (Compass Holdings) to comply with the duty of disclosure in connection with the Company Reimbursement Policy; (b) any act or omission of that First Cross-Defendant which if done or omitted by the Second Cross-Defendant would constitute a failure by the Second Cross-Defendant to comply with its duty of disclosure to the Cross-Claimant in connection with the Company Reimbursement Policy, to reduce the liability to some lesser amount or nil? Clarke JA I agree with the orders proposed by Mahoney AP. However, as the reasons which lead me to that result are slightly different from those given by his Honour I will shortly state them. In my reasons for judgment I expressed my concurrence with Mahoney AP's conclusion that the directors were parties to the D and O Policy. I also considered question 5, although it was strictly unnecessary to do so, and said that the insurer would be entitled to rely on non-disclosure by the insured in any claim brought by a person under s48(1) of the Insurance Contracts Act 1984 ("the Act"). In conclusion, I pointed out that there may be outstanding matters which dictated a need for the preparation of short minutes of orders. The parties were not able to agree on appropriate short minutes and the matter was relisted before the Court. On this occasion the parties pointed out that the Court had not considered a number of other questions including question 6 and two additional questions which were framed by his Honour when granting conditional leave to the insurer to amend its defences. I make specific mention of these questions because at the further hearing of the matter the parties requested that the Court answer them. Question 6 reads: "Are the First Cross-Defendants or any of them 'a person who is not a party to (the Company Reimbursement Policy), specified or referred to in the (Policy), whether by name or otherwise, as a person to whom the insurance cover provided by the (Policy) extends' within the meaning of s48(1) of the Act?" I will return to that question shortly. The other two questions were not answered by Rogers CJ of the CommD. On the contrary they were formulated by his Honour when granting conditional leave to the insurer to amend its defences. The relevant passage from the decision of Rogers CJ of the CommD in granting the amendments is set out in the judgment of Mahoney AP and I will not repeat it. Its precise meaning is, however, not readily apparent to me and I find it difficult to understand what needed to be done to ensure compliance with the conditions. One view is that the conditions would be satisfied if the Court entertained argument on the additional questions at the same time as it heard the appeal from the answers given by Rogers CJ of the CommD to the eight questions originally posed. \WREJHEATH CASUALTY and GENERAL INSURANCE LTD v GREY and ORS (Clarke JAB Upon this view the grant of leave to amend would stand whether or not this Court provided answers to the questions. Another view is that the grant of leave would stand only if the Court did provide answers. I appreciate that his Honour did not say that in terms but it may be thought to be implied in what his Honour otherwise said. Obviously enough the lack of clarity in the expression of the conditions creates difficulties in determining whether they have been complied with. Quite apart from that aspect of his Honour's order the questions asked are, for a number of reasons, including those given by Mahoney AP, quite inappropriate for reference to this Court for determination prior to the trial of the action. The Court was advised that the insurer had sought leave to appeal from the order but during argument I suggested that if the Court deferred consideration of the correctness of the order to the hearing of the leave application it would unnecessarily increase the costs incurred by the parties. It seemed to me then, and it still seems to me, that the order made by his Honour was, with respect, inappropriate and wrong and that, having heard argument on the two questions, this Court should set it aside. Otherwise there would be doubt whether the conditions had been complied with in view of the fact that answers had not been provided to the questions. The setting aside of his Honour's conditional grant of leave may be considered unusual but, as I have sought to point out, the order itself was a remarkable one and this course provides the most efficient manner of restoring the status quo between the parties. In this way the insurer will be able to make application for leave to amend and have it determined by a judge in the Commercial Division and the problems arising from the terms of the conditional grant of leave will disappear. I should add that I have no doubt that his Honour was endeavouring to achieve a speedy and efficient resolution of questions of law which he perceived were capable of early determination. The aim was a desirable one but, upon closer analysis, the course proposed by his Honour was, as it seems to me, more likely to delay the ultimate determination of the issues between the parties than to advance it. Let me now return to question 6. Mahoney AP has referred to the unsatisfactory nature of questions | and 6. Clearly the answer 'No' to question 1 conceals the actual determination of the Court. Question 6 is, however, in a different situation for there is no issue between the parties as to whether the directors were parties to the CR Policy. They were not. The question that is then posed is whether they are persons who are entitled to sue to recover indemnity under the policy pursuant to the provisions of s48(1) of the Act. Mahoney AP regards it as inappropriate that the Court answer that question for two reasons. One, the question is not clearly expressed and, secondly, it raises a preliminary issue to the following question which is at the heart of the proceedings and, in Mahoney APIs view, the Court is in no position to answer the following question because there has been no consideration, either in the leading of evidence or in argument, of a possible obligation of disclosure imposed on the directors, as persons who are not parties to the contract, under the common law. This was a matter which had been adverted to by his Honour in his earlier judgment but I refrained from expressing any opinion on the question whether there was the obligation to disclose to which his Honour referred. It seems to me that the parties have at all times proceeded upon the basis that the only relevant obligation of disclosure was to be found in s21 of the Act. Certainly there have been no submissions put by any of the parties as to a wider duty of disclosure and 14 UNREPORTED JUDGMENTS in those circumstances I would again refrain from expressing any opinion on the issue. The question appears to me to be a difficult one and, in the absence of argument, I would not be prepared to express any conclusions on it. Although the possibility adverted to by Mahoney AP does not appear to have been expressly raised by the parties - nor ventilated before Rogers CJ of the CommD - the defence relied upon by the insurer is cast in terms wide enough to permit of its being raised. In these circumstances Mahoney AP has pointed out that any answer to questions 6 and 7 may be of academic interest only in the ultimate analysis. Because of this I am disposed to agree with his Honour that the Court should decline to answer the two questions. Furthermore, although written submissions were provided on the issues raised by question 6 there was very little reference to that question in the oral argument. The insurer's written submissions contained two paragraphs dealing with the issue. They read: "S48(1) and the CR Policy In any event, the Directors are not within s48 of the Act in relation to the CR Policy. The Directors are not specified or referred to in the CR Policy as persons to whom any insurance cover extends. The cover is afforded to the relevant Company in respect of any liability which the relevant Company has to the directors to indemnify them, namely, under the articles of association of the relevant Company. It may be that the Directors would be entitled to bring proceedings under s6 of the Law Reform (Miscellaneous Provisions) Act 1946 in circumstances where the insurers were not otherwise entitled to disclaim the CR Policy. Be that as it may, the directors simply do not fall within s48 in relation to the CR Policy. " Written submissions lodged on behalf of Carden, Wright, Walker and Rice contained the following paragraphs: "26. It is clear, it is submitted, that the directors are persons 'specified' or 'referred to' in the policy. See: (a number of clauses are referred to). 27. The provisions referred to in para26 also support the view that the directors are persons 'to whom the insurance cover provided by the contract extends. That conclusion is further supported by the fundamental obligation of the insurer under the policy. In that regard: (a) By CL1.1 the insurer 'agrees to pay... all Loss'. (b) 'Loss' is defined by CL16.1 to mean the total amount which 'the Insured is obliged to pay on account of each claim... made against any officer... including... damages, judgments, settlements, costs and Defence Costs.' (c) In its context the obligation is to pay for the Officer the amounts which the Officer would otherwise have to pay. See also CL1.1 ('which such Officer(s) has become legally obligated to pay...'). 28. Further, there is no reason for reading down the ambit of the words 'to whom the insurance cover provided by the contract extends' in s38(1). Ex hypothesi those words operate in circumstances where the person specified or referred to is not a party to the contract of insurance. " The relevant portion of paral.1 of the policy reads: "The company agrees to pay on behalf of the insured all loss, for which the insured may grant indemnification to each officer(s) as permitted by law, which such officer(s) has become legally obligated to pay... For purposes of this policy indemnification shall be deemed to be granted unless prohibited by law" In CL16.1 of the policy "loss" is defined to mean 'the total amount which the insured becomes legally obligated to pay on account of each claim... made against any officer(s) etc' In oral argument Mr Jackson QC summed up the argument contained in the written submissions by saying that, although the policy \WRBRJHEATH CASUALTY and GENERAL INSURANCE LTD v GREY and ORS (Meagher JAB was described as a Company Reimbursement Policy, the obligation of the insurer under it was to stand in the shoes of the company and to take over the indemnity granted by the company. In his judgment Rogers J did not deal specifically with this question but at the end his Honour did say that the questions posed should be answered conformably to the submissions made and answers to questions proffered on behalf of the directors. Presumably the submissions which were made to this Court mirrored those made before Rogers CJ of the CommD. I tend to think that Mr Jackson's submissions are correct, particularly as the policy was part of a package which included the D and O Policy. However, because this question is, in a sense, preliminary only to the critical question which cannot, for the reasons given by Mahoney AP, be conveniently answered at this stage I am disposed to agree with the orders proposed by Mahoney AP. Meagher JA I agree with Clarke JA. (a) The Court declares that the first cross defendants ("the Directors') were parties to the Directors and Officers Policy referred to in the proceeding. (b) The Court orders that the order that the eight questions directed by Rogers CJ of CommD be tried separately pursuant to Pt31 be set aside. (c) The Court orders that the order made by Rogers CJ of CommD (as contemplated in his judgment of 16 March 1993), insofar as it directed that two further questions be tried separately, be set aside. (d) The Court declares that O.(c) above is made for the reason that the two further questions there referred to are in form not appropriate to be dealt with separately and is made without prejudice to the right of the parties to apply for or to oppose the amendments to the pleadings as contemplated in relation to them or otherwise. (e) The Court directs that the proceedings be returned to the Commercial Division to be dealt with. (f) The Court orders that the costs of the proceedings in the Court of Appeal be paid by the respondents and that the respondents, if entitled, have certificates under the Suitors' Fund Act. Counsel for the Appellant: AR EMMETT QC/JL ALLSOP/HR SORENSEN Counsel for the 1st Respondents (1, 2, 3, 4, 5, 6, 7): - Counsel for the 1st Respondent (8): PM JACOBSON Counsel for the 1st Respondent (9): G INATEY COunsel for the 3rd and 4th Respondents: - Solicitors for the Appellant: PHILLIPS FOX Solicitors for the 1st Respondents (1, 2, 3): - Solicitors for the 1st Respondents (4, 5, 6, 7): H WERKSMAN, DUNHILL MADDEN BUTLER Solicitors for the 1st Respondent (8): EBSWORTH and EBSWORTH Solicitors for the 1st Respondent (9): COLIN BIGGERS and PAISLEY 16 UNREPORTED JUDGMENTS Solicitors for the 3rd and 4th Respondents: GT CONNELLAN, MORAY and AGNEW