UNDERWRITERS at LLOYDS and ORS v ELLIS and ORS [1998] NSWCA 242

UNDERWRITERS at LLOYDS and ORS v ELLIS and ORS [1998] NSWCA 242

The insurer's exclusion clause covers all loss, including legal costs, arising from claims brought about by the dishonest or fraudulent acts of a partner; therefore, the policy does not entitle indemnity for legal costs incurred by the innocent partner in defending such claims. Further, nominal damages cannot be awarded for deceit or negligent misstatement where damage is not proven. The cross-claims for increased costs did not satisfy the requirement for proof of actual loss, and any awards or orders for costs or nominal damages in their favour were set aside.

Parties
Appellant/first Cross Respondent: Underwriters at Lloyds; First Respondent/cross Appellant: Peter Ellis; Second Cross Respondent: Farrow Mortgage Services Pty Ltd (in Liquidation); Plaintiff/third Cross Respondent: Nikolai Mecak; Fourth Cross Respondent: Craig Mecak; Fifth Cross Respondent: Kimberley McDonald; Sixth Cross Respondent: Geoffrey Plowes
Jurisdiction
Australia
Judgment Date
25 February 1998
Procedural Posture
Appeal and Cross Appeal / Judgment (court of Appeal)
Outcome
Appeal allowed in part; cross-appeal allowed in part. Judgments and orders for nominal damages and costs against Ellis set aside; cross-claims dismissed; costs orders adjusted as per detailed judgment.
Legal Topics
Professional Indemnity Insurance, Exclusion Clauses in Insurance, Solicitors’ Certificates and Professional Responsibility, Damages—costs as Damages, Deceit and Negligence by Solicitors
Insurance Law Civil Procedure Professional Negligence Professional Indemnity Insurance Exclusion Clauses in Insurance Solicitors’ Certificates and Professional Responsibility Damages—costs as Damages Deceit and Negligence by Solicitors

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Parties

Underwriters at Lloyds

Appellant/first Cross Respondent

Peter Ellis

First Respondent/cross Appellant

Farrow Mortgage Services Pty Ltd (in Liquidation)

Second Cross Respondent

Nikolai Mecak

Plaintiff/third Cross Respondent

Craig Mecak

Fourth Cross Respondent

Kimberley McDonald

Fifth Cross Respondent

Geoffrey Plowes

Sixth Cross Respondent

Procedural Posture

Appeal and Cross Appeal / Judgment (court of Appeal)

Legal Issues

  1. 1 Whether the professional indemnity insurer is liable to indemnify an innocent partner for the costs incurred in defending claims arising out of the fraudulent or dishonest acts of another partner under the policy's exclusion clause.
  2. 2 Whether nominal damages can be awarded for torts of deceit and negligent misstatement where actual loss is not proved.
  3. 3 Whether costs increased due to a co-defendant’s misconduct can be recovered as damages.

Ratio Decidendi

The insurer's exclusion clause covers all loss, including legal costs, arising from claims brought about by the dishonest or fraudulent acts of a partner; therefore, the policy does not entitle indemnity for legal costs incurred by the innocent partner in defending such claims. Further, nominal damages cannot be awarded for deceit or negligent misstatement where damage is not proven. The cross-claims for increased costs did not satisfy the requirement for proof of actual loss, and any awards or orders for costs or nominal damages in their favour were set aside.

Court Disposition

Appeal allowed in part; cross-appeal allowed in part. Judgments and orders for nominal damages and costs against Ellis set aside; cross-claims dismissed; costs orders adjusted as per detailed judgment.

Orders

  • Each of the Declarations and Orders made on the Cross-Claim by Ellis against the Underwriters set aside.
  • Declaration that Ellis is entitled to be indemnified only to the extent of costs not recovered from Ms McDonald in the relevant cross-claim; otherwise, Ellis not entitled to indemnity under the policy.