AUCKLAND TROTTING CLUB INC v LANE NEAVE [2022] NZHC 2208

AUCKLAND TROTTING CLUB INC v LANE NEAVE [2022] NZHC 2208 [31 August 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-002011[2022] NZHC 2208BETWEEN AUCKLAND TROTTING CLUBINCORPORATEDPlaintiffAND LANE NEAVEFirst DefendantVERO LIABILITY INSURANCELIMITED as insurer of N-Compass Limited(in liquidation)Second DefendantVERO LIABILITY INSURANCELIMITED as insurer of Max RussellConsultancy LimitedThird DefendantHearing: 17 May 2022Appearances: M Black and L M Wallace for the PlaintiffJ Stafford for the First Defendant (observing)J Bierre and L G Cox for the Second DefendantN Kim for the Third Defendant (observing)Judgment: 31 August 2022JUDGMENT OF ASSOCIATE JUDGE GARDINERThis judgment was delivered by me on 31 August 2022 at 4.00 p.m.pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate.......................................Introduction[1] Auckland Trotting Club Incorporated (ATC) entered into a constructioncontract with Canam Construction Limited (Canam) to build a major development atAlexandra Park. N-Compass Ltd (N-Compass) was project manager. Constructiondisputes arose, culminating in N-Compass leaving the project and ATC cancelling theconstruction contract. In the ensuing arbitration between ATC and Canam, thearbitrator awarded ATC over $85 million. Before the final award was made, Canamwas placed into voluntary liquidation.[2] One of N-Compass's responsibilities was to administer the constructioncontract. The contract required Canam's parent company to provide a guarantee andindemnity. N-Compass failed to secure the guarantee or inform ATC of that fact beforeit left the project.[3] ATC now applies for leave to join Vero Liability Insurance Ltd (Vero) as theinsurer of N-Compass (removed from the Companies Register following itsliquidation). ATC claims that N-Compass breached the terms of its contract and wasnegligent. Vero objects to being joined as it says that N-Compass did not have a claimunder the insurance policy for any liability arising out of ATC's claim. That is becausethe policy contained an exclusion for claims arising directly, indirectly, or inconnection with the insolvency of any party involved in the project.[4] The critical issue to be determined is whether N-Compass had a prima facieclaim under the insurance policy for any liability under ATC's claim.[5] There is also an issue between the parties as to which policy period applies,and therefore whether Vero has established that the relevant policy contained theexclusion. As it turns out, I do not need to decide this issue and it can be left for thetrial.Background[6] ATC owns and operates a venue for horse racing in Alexandra Park in Epsom,Auckland. ATC decided to develop a large apartment complex on its land, involvingapproximately 22,600m² of residential apartments, 5,600m² of retail space and9,000m² of basement carparking.[7] Under a written consultancy agreement entered into in early 2014, ATCengaged N-Compass to provide, in broad terms, project management services for thedesign, construction and commissioning of the development. ATC entered intoagreements with Max Russell Consultancy Ltd (Max Russell) and White Associatesfor engineering and quantity surveying services respectively.[8] On 16 October 2015, ATC accepted a tender submitted by Canam for theconstruction of the complex. On 23 October 2015, ATC and Canam signed aconstruction contract (the Contract) prepared by ATC's construction solicitors LaneNeave.[9] The Contract was in the standard form NZS 3910:2013, as amended by specialconditions. The special conditions included cl 11.6 (under Schedule 2 — SpecialConditions of Contract — Other Conditions of Contract). Clause 11.6 required thatCanam provide ATC with a guarantee (the Guarantee) from its parent company,Canam Group Ltd (Canam Group), in the form prescribed in Schedule 4 to theContract within five working days of the date of acceptance of tender.[10] The project was fraught with difficulties. Canam's relationship with ATC andN-Compass broke down. N-Compass departed the project in August 2016. As noted,Canam Group did not provide the Guarantee required under the Contract prior toN-Compass' departure.[11] On 19 July 2018, ATC terminated the Contract.[12] The dispute between ATC and Canam resulted in a lengthy arbitration, withRodney Hansen QC awarding ATC over $85 million across three awards issuedbetween May 2021 and March 2022.[13] In his interim award of 18 May 2021, the arbitrator held that Canam wasobliged to procure the Guarantee from Canam Group. He declined however to orderspecific performance on the basis of a statement from Canam/Canam Group directorMr Petrou that Canam Group would provide the Guarantee if the arbitrator found thatCanam was obliged to procure the same. Canam Group still did not provide theGuarantee and so on 10 August 2021 the arbitrator made an order for specificperformance against Canam, requiring it to procure the Guarantee from Canam Group.Canam was placed into liquidation on the same day by resolution of shareholders,leaving outstanding the debt owing to ATC pursuant to the arbitration. Canam Groupremains a registered company.[14] On or about 20 October 2021, ATC issued these proceedings alleging that LaneNeave, N-Compass (in liquidation), Max Russell and White Associates wereresponsible for the Contract proceeding without the Guarantee being obtained fromCanam Group.[15] On 30 November 2021, ATC brought this application seeking leave tocommence proceedings against Vero (as the insurer of N-Compass), N-Compasshaving held a professional indemnity insurance policy issued by Vero. The policy hada renewal date of 31 August each year and, as with most professional indemnitypolicies, was a 'claims made and notified' policy. This meant that the policy wastriggered when a claim which met the requirements of the operative clause was madeagainst N-Compass and notified to Vero. ATC had formally put N-Compass on noticeof a potential claim on 12 February 2019.Legal principles — leave to commence proceedings[16] Section 9(1) and (4) of the Law Reform Act 1936 provides:9 Amount of liability to be charge on insurance moneys payable againstthat 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 ofinsurance by which he is indemnified against liability to pay any damages orcompensation, the amount of his liability shall, on the happening of the eventgiving rise to the claim for damages or compensation, and notwithstandingthat the amount of such liability may not then have been determined, be acharge on all insurance moneys that are or may become payable in respect ofthat liability.(4) Every such charge as aforesaid shall be enforceable by way of an actionagainst the insurer in the same way and in the same court as if the action werean action to recover damages or compensation from the insured; and in respectof any such action and of the judgment given therein the parties shall, to theextent of the charge, have the same rights and liabilities, and the court shallhave 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 becommenced in any court except with the leave of that court.[17] In Ludgater Holdings Ltd v Gerling Australia Insurance Company Pty Ltd, theSupreme Court considered the rationale behind s 9 and the development of thesection.1 It observed that s 9 and its predecessor responded to "the obvious unfairnessin the denial by the common law of priority for an injured plaintiff's claim to insuranceproceeds received by or payable to an insolvent insured defendant."2[18] Section 9(4) is concerned with how the charge created by s 9(1) is to beenforced against the insurer. The provision requires a party seeking to enforce thecharge to obtain the leave of the Court to commence proceedings. The purpose of theleave requirement is to prevent a plaintiff from taking unnecessary or inappropriateproceedings against the insurer. If the insured is insolvent before the happening of theevent giving rise to the claim for damages or compensation, leave is not required.3[19] It is common ground between the parties that the Court must be satisfied ofthree matters before it will grant leave under s 9(4):4(a) there is a prima facie claim against the insured;1 Ludgater Holdings Ltd v Gerling Australia Insurance Company Pty Ltd [2010] NZSC 49 at [14]–[26]. See also Law Commission Some Insurance Law Problems (NZLC R46, 1998) at ch 9.2 At [14].3 Law Reform Act 1936, s 9(2).4 Chow v Thomson HC Auckland CIV-2009-404-4765, 15 March 2012 at [13]; as cited recently bythis Court in Minister of Education v McKee Fehl Constructors Ltd [2018] NZHC 1177 at [24];Heale v IAG New Zealand Ltd [2019] NZHC 2829 at [54].(b) the insured has a prima facie claim under the insurance policy; and(c) the insured is not "a perfectly good common law defendant".[20] The onus is on the plaintiff to make out a reasonably arguable case; but this isnot a high threshold.5[21] Associate Judge Faire in Clark's Pacific Ltd v Trucks & Trailers Ltd expressedthe view that an application under s 9(4) should be dealt with in a similar way to anapplication for strike-out. That is, facts pleaded against the proposed defendant shouldgenerally be taken as true and the claim should not be rejected unless it is clearlyuntenable, or frivolous, vexatious and an abuse of process. 6[22] The Court has a general discretion to grant or refuse leave. However, if theinsurer clearly has a "cast-iron" defence to the proposed claim under the insurancepolicy, the Court may decline to grant leave.7 Where there is any doubt as to whetherthe defence will succeed, leave to proceed against the insurer should be granted andthe issue can be argued at trial.8Did N-Compass have a prima facie claim under the insurance policy?[23] The only issue in this application is the requirement at [19](b) above, namelywhether N-Compass had a prima facie claim under the insurance policy.5 Plastic Recoveries & Manufacturing Ltd v Wright Machinery Ltd HC Auckland CP1131/86, 30April 1991 at 6–7; and FAI (NZ) General Insurance Company Ltd v Blundell and Brown Ltd [1994]1 NZLR 11 (CA) at 2.6 Clark's Pacific Ltd v Trucks & Trailers Ltd HC Auckland CIV-2016-404-3033, 20 April 2007 at[19] –[21]; and Chang v Lumley General Insurance (NZ) Ltd HC Auckland CIV-2009-404-7820,23 August 2010.7 Registered Securities Ltd (in liq) v Brockett HC Christchurch CP293/87, 17 October 1991 at 8;Body Corporate 195843 v North Shore City Council [2011] 2 NZLR 222 (HC) at [34], as citedrecently in Body Corporate 368533 v Napier City Council [2016] NZHC 1470 at [48].8 AFG Insurances Ltd v Andjelkovic (1981) 1 ANZ Insurance Cases 60-443 (FCA). The NewZealand Court of Appeal took the same view in State Insurance General Manager v Maaka(1989) 5 ANZ Insurance Cases 76,161 (CA).[24] Vero says that N-Compass did not have such a claim because ATC's claimagainst N-Compass falls within the Project Manager's endorsement in the policyschedule which provides:In respect of the Insured's project management activities, it is agreed that thepolicy is amended to include the following additional exclusion:The Company will not indemnify the Insured for any claim arising directly orindirectly or in connection with:6. the insolvency of any party involved in any project; [25] The parties disagree as to which period ATC's claim falls to be dealt with under.ATC contends that the relevant policy period runs from 2 November 2015; the last dayby which the Guarantee was to be provided. Further, it says that Vero has not adducedevidence of the policy for that period showing that it contained the Project Managerendorsement. Vero contends that the relevant policy period is 2017-2018 or 2018-2019, when ATC first made inquiries about the Guarantee; and then put N-Compasson formal notice of a claim. Vero has adduced in evidence the policies for theseperiods. They contain the Project Manager endorsement.[26] I will first examine whether N-Compass would have had a prima facie claimagainst the insurance policy, assuming the policy contains the endorsement. If theanswer to that is yes, nothing turns on the issue raised by ATC about the policy periodfor the purposes of this leave hearing.[27] Vero's position is that the requisite nexus exists between ATC's pleaded claimagainst N-Compass and the insolvency of Canam, and therefore the insolvencyexclusion applies and there is no prima facie claim under the policy.[28] In support of this position, Vero advances three principal submissions. First, itsays that while the words "arising directly or indirectly" or "in connection with"require a "real and substantial connection" between the excluded matter and theclaim/loss, it is not necessary that the excluded matter be the direct or proximate causeof the claim/loss.[29] Vero relies on the leading decision of the Court of Appeal in AMI InsuranceLtd v Legg.9 That case concerned the application of an exclusion in a public liabilitypolicy which stated that there was no cover for liability "arising out of or in connectionwith any profession, business or trade not directly connected with your farming".The Court prefaced its analysis of the phrase "in connection with" by observing thatthe phrase is one of intrinsically indefinite meaning, which must take its meaning fromthe context supplied by a given policy and set of circumstances.10 It went on to statethat while "arising from" plainly signifies causation, "in connection with" may have a"different and less direct" meaning.11[30] The Court referred to its earlier decision in IAG New Zealand Ltd v Jackson onwhich the trial Judge had relied, in which it held that the phrase "in connection with"demands "some causal or consequential relationship between the two things in thissetting".12 It also referred to the elaboration of this statement by Miller J (who haddelivered the Court of Appeal's judgment in Jackson) in JCS Cost Management v QBEInsurance (International) Ltd:13 On reflection, 'consequential' may mislead. The term is apt if it is taken tomean, as we did, a connection that need not be causal but which the courtdecides is of sufficient consequence or significance in the circumstances ofthe case. Not every temporal or other connection will do. Derrington andAshton describe the necessary connection as a "discernible and rational link,"and greater precision may not be possible in the abstract.[31] Although Miller J's judgment in JCS was a dissenting one, the Court in Leggheld that his comments on the meaning of "in connection with" were consistent withthe majority judgment.14[32] However, the Court said that it does not follow that the trial Judge was wrongto find causation was required by that policy and the circumstances of the case. Itquoted its earlier statement in Jackson:159 AMI Insurance Ltd v Legg [2017] NZCA 321, [2017] 3 NZLR 629.10 At [22].11 At [24].12 At [25].13 At [26].14 At [29].15 At [30].The phrase "in connection with" plainly requires a nexus between one thingand another, but the nature and closeness of the required connection alwaysdepends on context and purpose.[33] Second, Vero relies on three authorities concerning the application ofinsolvency exclusions in liability policies. In Hall v FP North Ltd (in liq), a companyof financial advisors who had been instructed to select a conservative investmentportfolio for their client had invested in fixed interest securities offered by10 companies, all of which subsequently went into receivership or had moratoriaplaced on invested deposits.16 The client commenced proceedings alleging negligenceby the financial adviser. The financial adviser's professional indemnity claim wasdeclined by its insurer based on a policy exclusion which removed cover for claims"relating directly or indirectly, attributable to or in consequence of the insolvency ofany financial institution or fund manager".[34] In considering whether s 11 of the Insurance Law Reform Act 1977 would savethe claim, the Associate Judge rejected the client's submission that the broker'sliability arose out of its failure to act on the client's instruction and its loss was causedby that failure rather than the insolvency of the financial institutions or depreciationof the investment. The Associate Judge held that the loss in value of the investmentswas integral to the client's claim and would determine the amount for which the brokerwas liable on a finding of breach of contract or negligence. As a result, the loss forwhich the insurer would be obliged to indemnify the insured was necessarily causedor contributed to by the insolvency of the financial institutions or depreciation of theinvestments.[35] Next, Vero relies on a decision of the Supreme Court of New South Wales,Quintano v BW Rose Pty Ltd.17 The defendant had, through its insurance broker,placed public liability insurance with International Unity, an insurer registered in theSolomon Islands. International Unity subsequently went into liquidation, leaving avalid claim by the defendant unpaid. The defendant brought a third party claim againstits broker alleging that it had negligently placed the insurance with an unregisteredoverseas insurer and failed to advise on the associated risks. The broker's professional16 Hall v FP North Ltd (in liq) (2010) 16 ANZ Insurance Cases 77,946.17 Quintano v BW Rose Pty Ltd [2008] NSWSC 793.indemnity policy included a provision excluding cover for claims arising out of theinsolvency of any insurer, or any breach of the insured's duty to advise on thesuitability (including financial standing) of any insurer. The insurer declined the claimon the basis that it arose out of International Unity's insolvency.[36] The Supreme Court upheld the insurer's decision to decline, finding that thewords "arising from" required some causal connection between the claim and thespecified matter, but the requisite nexus was satisfied by a less proximate relationshipthan that required by the phrase "caused by". The Court said that "a claim can be saidto arise from a matter — at least — if it has a foundation in that matter, so that thematter is one of the underlying facts that, if they exist, together justify the claim".18The Court concluded:19Damage is the gist of an action in negligence. Plainly, the damage asserted byBWR was that it was left without indemnity of value . . . [The] reason BWRwas left without indemnity of value was that International Unity wasinsolvent. In substance BWR's claim against [the broker] was for loss it wouldsuffer, if judgment on Mr Quintana's claim went against it, because it waspractically uninsured - which situation was attributable to International Unity'sinsolvency. ... The Loss that was the gist of BWR's claim was, as a matter offact, attributable to International Unity's insolvency BWR's claimoriginated in, sprang from, or had its foundation in, the insolvency ofInternational Unity.[37] Finally, Vero relies on the decision of High Court of England and Wales inCrowden v QBE Insurance (Europe) Ltd.20 The plaintiffs ran a self-administeredpension scheme and had engaged the services of a financial adviser to provideinvestment advice. They claimed that the advice provided in respect of two financialinvestments was negligent. As to the first, the issuer of the bond had defaulted andthen went into administration six days later. As to the second, the issuer of the securitywas Lehman Brothers Inc which went into Chapter 11 protection.[38] The financial adviser's insurance policy contained a provision excluding coverfor "any claim, liability, loss, costs or expenses ... arising out of or relating directly orindirectly to the insolvency or bankruptcy of ... any other business, firm or company18 At [8].19 At [10].20 Crowden v QBE Insurance (Europe) Ltd [2017] EWHC 2597 (Comm).with whom the Insured has arranged directly or indirectly any insurances, investmentsor deposits."[39] The Court rejected the submission that the exclusion did not apply on the basisthat the cause of the claim, liability or loss was the financial adviser's negligence:21Of course, any such negligence ... giving rise to a liability must exist for theInsolvency Exclusion even to be considered, because without such liability ...there would be no prima facie cover under [the operative clause] Thequestion is, for the purposes of the Insolvency Exclusion, whether the relevantinsolvency was a cause of the claim, liability or loss, even if it operates incombination with [the financial adviser's] own negligent liability.[40] The Court held that the exclusion plainly applied as the insolvency of therespective issuers was the only cause of the loss. In each case, it was the inability ofthe issuer to pay their debts as they fell due which gave rise to the relevant claim, lossor liability.[41] Third, Vero applies the principles from these authorities. It says that ATC'sposition that its claim is not connected with the insolvency of Canam because the causeof the claim was N-Compass's negligence falls into the same trap as the plaintiffs inCrowden.[42] Vero says that to the contrary, the requisite connection between Canam'sinsolvency and the claim can be established because the loss which is the subject ofthe claim would not have been incurred if Canam had remained solvent. Vero saysthat if Canam had remained solvent, the obvious next step for ATC after the finalarbitration award would have been to enforce the judgment against Canam and recoverthe monies owed. In that event, Vero says, although the allegedly negligent act byN-Compass would still have occurred, no loss would have resulted from it.[43] I will now set out my assessment of Vero's arguments. In doing so, I emphasisethat it is only necessary for ATC to establish that it has a reasonable argument thatN-Compass would have had a valid claim under the policy; that is, that such a claimwas not excluded by the insolvency exclusion in the Project Manager endorsement.21 At [88]–[90].Unless Vero has a "cast-iron" defence, I should grant ATC leave to join Vero, and theapplicability of the exclusion will be resolved at trial.[44] In terms of Vero's essential submission at [42], I do not agree that there is nota reasonable counter-argument that ATC suffered loss as a result of N-Compass'snegligence independently of Canam's insolvency.[45] Consider the terms of the intended Guarantee:2.2 Primary obligationsThe Guarantor:(a) as primary obligor and not merely as a surety or guarantee only,guarantees to the Principal the due and performance by the Contractor ofeach and all of the obligations, warranties, duties and undertakings of theContractor under the Contract when and if such obligations, warranties,duties and undertakings become due and performable pursuant to the terms ofthe Contract; and(b) as a primary obligation, agrees in addition to its obligations set out inclause 2.2(a) to indemnify the Principal on demand against any loss, damage,cost, expense and/or liability suffered or incurred by the Principal byreason of:(i) any breach by the Contractor of any of its obligations,warranties, duties and/or undertakings under the Contract;(ii) an obligation the Guarantor would otherwise have underclause 2.2(a) of this deed being found to be void, voidable orunenforceable; and(iii) the Contractor becoming subject to an Insolvency Event..2.5 LiabilityThis deed is a primary obligation of the Guarantor. The Principal is notobliged to enforce any other security held by it in respect of the obligations,warranties, duties and/or undertakings of the Contractor under the Contract orto exercise or enforce any distress, diligence or other process of executionagainst the Contractor. In the event that the Principal brings proceedingsagainst the Contractor, the Guarantor will be bound by any findings of factas well as any interim or final award or judgment made by an arbitratoror the court in such proceedings. For the avoidance of any doubt, thePrincipal will not be entitled to double recovery in respect of the same portionof claim and any payments made by the Guarantor under this deed will(subject to clause 2.14) automatically release the Contractor to the extent ofsuch recovery by the Principal from the Guarantor.2.6 Continuing guaranteeThis deed is a continuing guarantee and accordingly this deed:(a) will remain in full force and effect (notwithstanding any immediatesatisfaction by the Contractor, the Guarantor or any other Person) untilall obligations, warranties, duties and undertakings of the Contractorunder the Contract have been satisfied and performed in full; and(b) is not recoverable and is in addition to and not in substitution for andwill not merge with any other right, remedy, guarantee or securitywhich the Principal may at any time hold for the performance of suchobligations, warranties, duties and/or undertakings, and may beenforced without first having recourse to any such security.(emphasis added)[46] The following features are particularly relevant. First, the parent companyguaranteed the performance by Canam of all its obligations; and indemnified ATC forany losses by reason of any breach of the Contract by Canam. This indemnity existedseparately to the indemnity against losses caused by Canam's insolvency; and itapplied irrespective of Canam's solvency. Second, the parent was a primary obligor,meaning that ATC would have been entitled to have direct recourse to Canam Groupwithout having to take action against Canam first or at all. Third, it was a continuingguarantee and indemnity that would have remained in force until all Canam'sobligations were performed in full.[47] Thus, had the Guarantee been secured, ATC could have called on thisGuarantee as soon as Canam was in breach of its obligations under the Contract for alllosses caused by those breaches. The Guarantee enabled ATC to access the greaterassets of the parent, even if Canam was solvent. ATC's right to call on the Guaranteewould have continued until all losses caused by Canam's breaches had been recovered.[48] Had the Guarantee been in place, ATC could have joined Canam Group to thearbitration. Even if it had not, pursuant to cl 2.5, Canam Group would have beenbound by the arbitrator's findings of fact as well as any interim or final award,including the final award of $85 million. This would have been the case even if Canamwas solvent.[49] The proposition that ATC sustained loss independently of Canam'sinsolvency is perhaps illustrated by considering the arbitrator's first interim award.This award was made on 18 May 2021, some three months before Canam was placedinto voluntary liquidation on 10 August 2021. The award included a finding that ATCwas lawfully entitled to terminate the Contract because of Canam's defaults. Thearbitrator also found under the second cause of action that Canam was liable for lossand damage arising from defective workmanship. He awarded damages for remedyingmisaligned columns of $906,426 and for remedying defective application ofintumescent paint of $1,589,681, and reserved quantification of remaining issues.Had the Guarantee been in place, Canam Group would have been bound by this awardand ATC could have sought to recover the damages awarded from it. It could not; andit is difficult to see how this lost opportunity can be attributed to the insolvency ofCanam, which had not yet occurred.[50] There is a further point. The Contract provided that no payment otherwise dueunder the Contract would become payable until the Guarantee was executed anddelivered to ATC.22 Further, if Canam failed to provide the Guarantee within therequired timeframe, ATC was entitled to treat the failure as an act of default.23 Thearbitrator found that ATC was lawfully entitled to terminate the Contract based on thedefaults pleaded in ATC's fourth cause of action against Canam, including Canam'sfailure to provide the Guarantee. Thus, by not informing ATC at the outset that theGuarantee was not in place (a fact that ATC did not realise until after it terminated theContract), N-Compass denied ATC the opportunity to withhold payment, give noticeto terminate the Contract and resume possession of the site. Viewed this way, ATC'sloss could be described as the lost opportunity to terminate the Contract before it hadpaid substantial amounts to Canam and incurred significant costs, including thoseassociated with the arbitration. There is a credible argument that this 'loss' did notarise out of or in connection with the later insolvency of Canam.[51] Further, the timing of ATC's notification of its claim against N-Compassarguably lends some support to the proposition that the claim arose independently ofthe insolvency of Canam. ATC put N-Compass on notice of a claim against it, and22 Clauses 11.6.2 and 12.1.7(a)(ii).23 Clauses 11.6.3 and 14.2.1(b).asked Canam to notify its professional indemnity insurer, on 12 February 2019. Thiswas well before the insolvency of Canam in August 2021.[52] Care must be taken when applying the insolvency exclusion cases relied on byVero because they concern different factual scenarios. In Hall and Crowden, the thirdparty's losses were indisputably caused by the insolvency of the investments. Withoutthe insolvency of the investments, the third party would not have sustained any loss.The court was explicit about this in Crowden, finding that the exclusion plainly appliedas the insolvency of the respective issuers was the only cause of the loss. Further,these events of insolvency precipitated the claimant's losses.[53] That was also the case in Hall. It was the insolvency of the financialinstitutions or depreciation of the investments that precipitated the client's claim. Butfor the loss in value of the investments, the client would not have had any claim asthey would not have sustained any loss.[54] In the present situation, the catalyst for the claim was ATC becoming awarethat an essential element of N-Compass's contracted services had not been performed,exposing ATC to loss and denying it the opportunity to mitigate its exposure bydemanding a guarantee from Canam Group and/or terminating the Contract withCanam and engaging an alternative contractor. Unlike the failed investment situation,there is an argument that irrespective of, and well before, Canam's insolvency ATCwas deprived of something of value by N-Compass's omission.[55] Quintano is perhaps closer to the current situation. The insured claimed their'damage' was being left with an indemnity with no value. Similarly, it could be arguedthat ATC's 'loss' was being left without the intended guarantee or indemnity fromCanam Group. Yet in Quintano, the court concluded that the insolvency exclusionapplied because the reason the indemnity had no value was the insolvency of theinsurer. The same cannot be said here. The lack of the intended contractual right tocall on the parent company was not caused by the insolvency of Canam.[56] I acknowledge that some of these points depart from the claim as currentlypleaded by ATC. I also do not overlook that ATC pleads its loss as "loss and damagesfor the sum ofand resulting from Canam now being in liquidation, as referred to inits proof of debt, and further loss and damages". However, as noted by the court inQuintano:24 the craftiness or clumsiness of a claimant's pleading is not determinativeof the characterisation of the claim for the purposes of the professionalindemnity policy. Both parties accept that whether a claim falls within anexclusion depends on the facts that give rise to the claim, and not itsformulation by the claimant.[57] Furthermore, the purpose of this decision is only to determine whether ATChas a credible argument such that it should be granted leave to proceed against Vero.I conclude that it has. Inevitably, the parties will develop and refine their respectivepleadings for the purposes of trial.Result[58] I grant Auckland Trotting Club Incorporated leave to commence proceedingsagainst Vero Liability Insurance Limited as insurer of N-Compass.[59] In accordance with the usual principle that costs follow the event, Vero willpay ATC's costs on a 2B basis and reasonable disbursements. I expect that counselwill be able to agree the amount. If they are unable to agree, ATC should file amemorandum of no more than three pages within 20 working days. Vero should fileany memorandum within a further 10 working days._____________________Associate Judge GardinerSolicitors:Gilbert Walker, AucklandMcElroys, AucklandMorgan Coakle, Auckland24 Quintano v BW Rose Pty Ltd [2008] NSWSC 793 at [9].