WALTERS (TRADING AS WALTERS LAW) v AIG INSURANCE NEW ZEALAND LIMITED [2015] NZHC 2701

WALTERS (TRADING AS WALTERS LAW) v AIG INSURANCE NEW ZEALAND LIMITED [2015] NZHC 2701 [3 November 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-1344[2015] NZHC 2701BETWEEN JOHN MURU WALTERS TRADING ASWALTERS LAWPlaintiffAND AIG INSURANCE NEW ZEALANDLIMITEDDefendantHearing: 22 September 2015Appearances: I M Hutcheson for the PlaintiffA Challis and P McKinnon for the DefendantJudgment: 3 November 2015JUDGMENT OF WOODHOUSE JThis judgment was delivered by me on 3 November 2015 at 2:30 p.m. pursuant to r 11.5 of the High Court Rules 1985.Registrar/Deputy RegistrarSolicitors / Counsel: Mr I M Hutcheson, Barrister, Auckland Mr J M Walters, Walters Law, Auckland Ms A Challis and Mr P McKinnon, McElroys, Solicitors, AucklandIntroduction[1] Mr Walters seeks summary judgment on a claim against AIG under a professional indemnity insurance policy. AIG's opposition is directed to two matters: whether advance notification by Mr Walters of circumstances which might give rise to a claim was sufficient notice of a claim subsequently made; and whether Mr Walters has established on this application that AIG cannot advance affirmative defences based on exclusion clauses in the policy.[2] Mr Walters' claim against AIG arises out of judgment entered against him on a claim by K J and L C Hyde and Kevynne Investments Ltd (the Hydes). TheHydes' claim related to their purchase of a unit in a residential development from Blue Sky Holdings Ltd (Blue Sky), a company in the Blue Chip group. On the settlement Mr Walters' firm, Walters Law, acted for Blue Sky and for the Hydes. Settlement occurred in May 2004. In July 2009 the Hydes commenced proceedings against Mr Walters seeking damages for alleged breach of fiduciary duties, breach of contract, and negligence, in respect of matters relating to settlement. The damages sought by the Hydes were for their share of costs to remedy building defects and lost income over the anticipated period for the repairs. Following a hearing in the District Court on liability, and an appeal, and a further hearing in the District Court on quantum, and an appeal, judgment was entered against Mr Walters on 7 October 2013 in a sum of $164,259.63.1[3] Mr Walters seeks summary judgment against AIG under the policy in a total sum of $270,004.46, being the judgment against him plus his costs in defending theHydes' claim.Summary judgment principles[4] To succeed on this application Mr Walters must satisfy an onus on him under r 12.2 of the High Court Rules, which relevantly provides:1 Hyde v Walters (t/as Walters Law) DC Auckland CIV-2009-004-1746, 27 May 2011 (Judge M-E Sharp, judgment on liability); Walters (t/a Walters Law) v Hyde (2011) 12 NZCPR 940 (HC) (appeal against liability judgment, allowed in part); Hyde v Walters (t/a Walters Law) DC Auckland CIV-2009-004-1746, 12 February 2013 (Judge David J Harvey, quantum and costs judgment); Walters (t/a Walters Law) v Hyde [2013] NZHC 2596 (Gilbert J, 7 October 2013, appeal on costs by Mr Walters and cross-appeal on quantum of damages, both allowed).(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action inthe statement of claim or to a particular part of any such cause of action. [5] The principles applying to applications for summary judgment were summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd as follows:2The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).[6] Mr Hutcheson cited that passage from Krukziener without elaboration. Ms Challis, for AIG, expanded on the general statement of principle from Krukzienerwith three further points of established principle (and which Mr Hutcheson did notchallenge):(a) The threshold for the onus to be met by Mr Walters is high. Evidence that is vague and/or equivocal does not meet the threshold required.3(b) The Court's assessment is "not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial".4(c) Summary judgment is inappropriate where material facts have to be ascertained by the Court and/or cannot confidently be concluded from affidavits. It would be unusual for a Judge to attempt to resolve a2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].3 ASB Bank Ltd v Stevens HC Auckland CIV-2011-404-1621, 11 November 2011 at [33].4 Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [64].conflict in evidence apparent from affidavits or to assess the credibility or plausibility of averments in them.5 Nor is it appropriate if the ultimate determination turns on a matter of judgment which is only able to be properly arrived at after a full hearing of the evidence.6Provisions of the policy[7] The most relevant provisions of the policy are set out in the following paragraphs. Words in bold are terms defined in the policy.[8] The operative clause is as follows:The Insurer agrees to pay on behalf of the Insured all sums which theInsured shall become legally obliged to pay as Damages, resulting from anyClaim first made against the Insured during the Period of Insurance and which is reported to the Insurer during such period for any Breach of Dutyor other loss as indemnified by the policy which arises solely in the performance of the Professional Business of the Insured.[9] The relevant defined terms are as follows:"Breach of Duty" means:(a) any actual or alleged act, error, omission, misstatement, misleading or deceptive conduct (including any breach of the Fair Trading Act 1986); or(b) the publication of any defamatory or actionable material, orpublication in violation of an individual's right of privacy."Claim" means:(a) any suit or proceeding brought by any person or organisation against an Insured for monetary damages or other relief, including non- pecuniary relief;(b) any written or verbal demand from a person or organisation stating that it is the intention of such person or organisation to hold one or more Insured's responsible for the results of any specified Breach of Duty."Damages" means:(a) sums payable pursuant to judgments against the Insured includingthe other party's costs where applicable, and includes interest on any5 Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) at 14.6 Westpac Banking Corporation v M M Kembla New Zealand Ltd above n 4, at [62]-[64].judgment which accrues after entry of the judgment and before theInsurer has paid, tendered or deposited in court that part of the judgment which does not exceed the Limit of Liability;(b) Settlements negotiated by or with the consent of the Insurer and consented to by the Insured;(c) Defence Costs"Professional Business" means all advice given or services performed in the conduct of a solicitor or barrister, as a Trustee, or duties undertaken by the firm as agents of other practitioners.[10] The policy was written on a claims made basis: the operative clause refers to claims made during the Period of Insurance which is defined as meaning, in effect, the period of cover, which in this case expired in October 2008. This, however, is extended by condition 1(b)(iii) which relevantly provides as follows, under a sub-heading "Claims":The Insured shall as a condition precedent to their right to be indemnified under this Policy give to the Insurer notice in writing as soon as practicable but in any event prior to the expiry date of this policy: of any circumstances of which they shall become aware during the Period of Insurance which may give rise to a Claim against the Insured or any of them; and any Claim which may subsequently be made against theInsured shall for the purpose of this Policy be treated as a Claim madeduring the period of this Policy. The advance notification of circumstances was given by Mr Walters pursuant to this provision.[11] Provisions relied on by AIG for an affirmative defence, founded on exclusion provisions, are noted later.The factual background[12] This outline of the factual background is chronological in large measure.Some facts (which may also be in dispute) were not necessarily known to MrWalters, or to AIG, when they occurred (or allegedly occurred). This applies, inparticular, to knowledge Mr Walters had or did not have in respect of theconveyancing for the Hydes. Mr Walters did not personally act for the Hydes on thesettlement. The transaction was handled by a staff solicitor.Completion of the Hydes' purchase from Blue Sky[13] The agreement for sale and purchase between the Hydes and Blue Sky wasentered into in July 2003. In the liability proceeding in the District Court JudgeSharp found, contrary to Mr Hyde's evidence, that Walters Law was instructed to actfor the Hydes some time after they entered into the agreement.7 The agreement wasunconditional at that point and the Hydes had paid a deposit. In essence, it seems,the instructions from the Hydes to Walters Law were to act for them to complete theagreement through to settlement.[14] The distinction between Walters Law advising a client entering into a contract with Blue Chip, and acting solely as a conveyancer for the purchaser to complete an existing contract, is of relevance on the present application.[15] When Walters Law accepted instructions to act for the Hydes, Mr Walters was also acting for Blue Chip companies. Particulars in that regard are provided in the judgments in the proceedings brought by the Hydes.[16] Settlement of the agreement between the Hydes and Blue Chip was completed in May 2004. The liability judgments (District Court and High Court) record findings that, at the time of settlement, the Hydes were unaware that the building in which they bought a unit suffered from significant defects, and were unaware that a notice to rectify had been issued by the local council in October 2003 but had not been complied with. Walters Law was also unaware of the notice torectify. However, on the day of settlement, Mr Walters, as Blue Sky's attorney, signed an unconditional undertaking to Kevynne Investments (the Hydes' companycompleting the purchase) to obtain a code compliance certificate within four months of the settlement date. This undertaking was not drawn to the attention of the Hydes, or discussed with them, by Mr Walters or any Walters Law employee.February 2008: Mr Walters' notification of circumstances: clause 1(b)(iii)[17] Mr Walters gave the advance notification of circumstances in February 2008. The terms of the notice are recorded below. The first matter to note in this context is7 Hyde v Walters (t/as Walters Law) DC Auckland CIV-2009-004-1746, 27 May 2011 at [7]-[12].the state of knowledge at that time – before the notice was given – about the problems with investments made in transactions with Blue Chip companies. Mr Hutcheson accepted that problems with the Blue Chip companies had begun to become reasonably widely known by February 2008. The essential aspects of this, for present purposes, were contained in an affidavit for AIG from John Cousins. Mr Cousins, at the time, was a senior commercial claims examiner at AIG. Afterreferring to receipt of Mr Walters' notification, Mr Cousins said:At this point in time I considered that the nature of the claims which could arise were from the failure of Walters Law to advise adequately on the problems associated with purchasing a Blue Chip product and that this existed notwithstanding that conflict of interest waivers might have been signed for each file. By this point in time the fallout from the collapse of the Blue Chip Group was becoming apparent. The most likely claims envisagedagainst lawyers were those arising from Blue Chip's use of a flawed modelwhich was being sold to often elderly or unsophisticated investors without the effect and implications being fully explained to them.There was no challenge to this evidence.[18] Mr Cousins' evidence was reinforced by evidence from Ashok Lal. Mr Lalhas been a claims examiner for AIG since 2012. He has had responsibility for dealing with a number of ongoing claims arising from the collapse of Blue Chip and,as a result, has knowledge derived from AIG's files going back a number of years.On the present application there was no challenge to Mr Lal's evidence. Mr Lal said,in reference to Blue Chip notifications from insured law firms other than Walters Law, with the earliest notification appearing to have been in February 2008:From my review of this documentation and also based on personalrecollection through my handling of a large number of the relevant files, it isclear to me that the Blue Chip claims which AIG accepted on behalf ofnumerous law firms exhibited a number of characteristics in common, theoverwhelming majority of which related to the flawed and highly riskynature of the Blue Chip investment structure and the failure of the variouslawyers involved to give proper (if any) advice to their clients as to thoserisks. The clients almost invariably alleged that, if they had been properlyadvised, they would never have entered into the relevant transaction.[19] Mr Lal elaborated on these aspects. He also provided particulars from files held for various claimant law firms, without disclosing confidential information, and all of this supports the general proposition, or at the very least provides a seriously arguable basis for supporting the general proposition.[20] Mr Walters' clause 1(b)(iii) notification was given at a time when it may be inferred that he would have been aware of the concerns with what Mr Cousinsdescribed as the "Blue Chip product". As already noted, Mr Walters in fact acted forBlue Chip companies and for a period, albeit short, he was a director of one of the main Blue Chip companies.[21] Mr Walters explained in his affidavit the reasons why he gave the clause 1(b)(iii) notice. The notice was given to and through Willis New Zealand Ltd,described by Mr Walters as AIG's agent (Willis). The person at Willis handling thematters was Tanya Washer. Mr Walters said:In early 2008 I was planning a partnership merger and I advised Willis that I would not be renewing my existing professional indemnity policy in October 2008, but that I would be taking out a new professional indemnity insurance policy in the name of the new partnership.Willis advised that it would be prudent to make a precautionary notification to AIG of all existing or recent client matters that could potentially result in a claim after the expiry date of the existing policy.Accordingly, I asked the Walters Law General Manager (Nita Walker) toprepare a client list to submit to Willis by way of blanket notification ofall existing and recent clients where a claim could potentially arise after theexpiry of the existing policy. [22] Ms Walker compiled a spreadsheet. This is a list of current and recent Walters Law files relating solely to transactions between a Blue Chip company as"Vendor" and a Walters Law client as what is described as "BC Investor". "BC" isobviously an acronym for Blue Chip. A reasonably large number of files or transactions is recorded.[23] The entry relating to the Hydes contained the following information under five column headings which are recorded first:Address: Unit 2, 11 The AvenueVendor: The Avenue TrustBC Investor: HydeWho acted: Walters LawNotes: settled – 1205.1Ms Walker sent the spreadsheet by email to Ms Washer at Willis without any relevant comment. The email simply records, as the subject: "Scanned image from Walters Law" and has the notation "FYI".[24] Ms Washer sent the spreadsheet to AIG by email on 19 February 2008, directed to Mr Cousins. Ms Washer's covering advice to AIG was as follows:We have been advised by Walters Law that they acted for both Blue Chip and investors on a number of property settlements. Attached is a list of all the files handled, together with their notes on each one (as you will see a number of these have already settled). Walters Law have also informed us that conflict of interest waivers were signed for each file. Whilst no claims have been brought against them, they wish to notify this matter under their Professional Indemnity policy out of caution.Therefore, could you please register this matter and advise your comments by return.[25] Mr Cousins' understanding as to the nature of possible claims being notified was recorded above. There does not appear to be evidence of further communications until April 2008.[26] Mr Walters said in his affidavit that a further notification was made to AIG in April 2008, but he had been unable to find a copy of the further notification. It appears from Mr Cousins' affidavit that what Mr Walters may have been referring to is notice given by Willis to AIG on 17 April 2008 of a new claim – that is to say, an actual claim notification – "in respect of work performed for two Blue Chip Investors". Particulars of the claim are not provided, but it seems reasonably clearfrom the present evidence that it was a claim of a nature coming within Mr Cousins'description of the type of claim he anticipated when Mr Walter's clause 1(b)(iii)notice was received in February. From further emails between Mr Cousins and MsWasher, it may be that the actual claim notification was the "Sender & van Raat"claim. This claim, on the basis of Mr Cousins' evidence, fell within the type of claimhe said was anticipated; that is to say, in essence, breach of lawyer's obligationsrelating to a client's entry into an agreement to purchase from a Blue Chip company.[27] In the course of these communications between AIG and Willis in April and early May 2008 Mr Cousins asked for, and Ms Washer sent, another copy of the spreadsheet. Mr Cousins said to Ms Washer in an email of 5 May:Thank you for the further information. We have registered these circumstances under file number to keep them separate from the Sender & van Raat claim under file number We are unable to consider indemnityat this early stage and reserve our rights accordingly.[28] The Hyde proceedings were filed in the District Court in July 2009. A copy of the statement of claim was sent to AIG on 20 July 2009. There was an exchange of emails. The detail is not relevant on this application. The essence is that AIG declined liability.Evaluation: the scope of the notification of circumstances[29] The heart of Mr Hutcheson's submissions for Mr Walters on this questionwas beguilingly simple and contained two parts: (1) The notification through Willis of 19 February records that it related to possible claims arising out of transactionswhere Mr Walters acted "for both Blue Chip and investors" and one of the clientsrecorded was the Hydes: (2) The Hydes subsequently brought a successful claim against Mr Walters in respect of the handling of the settlement of the agreement for the Hydes by Walters Law.[30] That submission, however, proceeds on a necessary assumption that there is no arguable ambiguity in the notification itself, that it is clear beyond reasonable argument that the circumstances of which Mr Walters was aware when he gave the clause 1(b)(iii) notification included circumstances at least similar to those leading to the Hydes' judgment, and that other circumstances at the time the notice was given, known to Mr Walters or known to AIG, or both, could have no relevance. I am satisfied that those assumptions cannot be made having regard to principles from thecases dealing with notifications of circumstances pursuant to provisions identical to,or essentially the same as, clause 1(b)(iii), and having regard to the evidencepresently before the Court, including the vague terms of the notification itself.Applicable legal principles[31] Ms Challis, in her written submissions, summarised principles from the casesdealing with notification of circumstances. Mr Hutcheson did not take issue with thesummary of principles. Ms Challis' summary includes a note of matters supportiveof the plaintiff's case in a broad way, as well as principles of particular relevance ona summary judgment application. I accept the summary as being accurate andsufficient for present purposes.[32] The more general principles were summarised as follows:There is no restriction on the type of circumstances that may be notified under [a clause such as clause 1(b)(iii)]. They may be specific or general and might relate to actual, potential or perceived liabilities. The test for materiality is a weak one. It is not necessary that any particular claim has been intimated or specific claimant identified.8[33] Points derived from the cases bearing on a summary judgment application are the following:[There] is a need for more than just some fanciful or speculative chance of a claim.9 There must be "a substratum of underlying external fact, over and above [the insured's] mere concerns".10 Further, and critically in this case, the insured must be aware of the circumstances that it is notifying. It is only circumstances of which the insured is actually aware which can be the subject matter of a notification.11(emphasis added)[34] The specific points given emphasis by Ms Challis in that second extract from her submissions are fully borne out by the fuller discussions in the cases cited, and in the Rothschild case cited above. It is unnecessary to expand on this for the purposes of a summary judgment application.128 J Rothschild Assurance plc v Collyear [1999] Lloyd's Rep IR 6 (Comm).9 CGU Insurance Ltd v Porthouse [2008] HCA 30, (2008) 235 CLR 103 at [64].10 HLB Kidsons v Lloyd's Underwriters [2008] EWCA Civ 1206, [2009] 1 Lloyd's Rep 8 at [74].11 Kajima UK Engineering Ltd v The Underwriter Insurance Co Ltd [2008] EWHC 83 (TCC),[2008] Lloyd's Rep IR 391 at [99](d).12 The fuller discussion in the Kidsons case, in the principal judgment of Rix LJ, is at [67]-[74]under a heading "The awareness point". The judgment in the High Court of Akenhead J in theKajima case contains a particularly helpful summary of principles at [99].Areas of factual uncertainty[35] The principles from the cases summarised at [33] mean that, unless an advance notification contains detailed particulars of circumstances, and it is beyond reasonable argument that those particularised circumstances cover the claim made at a later date, a claimant will not be able to get summary judgment. The proposition just put requires that there is no reasonably arguable ambiguity, but in this case there is. Even without the evidence from Mr Cousins and Mr Lal, there is insufficient information contained in Mr Walters' notification to establish the substantial link between the notification and the claim actually made. Further evidence is required.The notification, by itself, does not provide "a substratum of underlying external fact"; it simply lists all of the clients. What is more, it does not list these clients as purchasers, which might at least suggest potential liability for a solicitor acting negligently when settling a conveyancing transaction. It refers to the clients as Blue Chip investors; this points to the matters Mr Cousins had in mind.[36] The evidence of Mr Cousins and Mr Lal substantially reinforces the conclusion that Mr Walters has not met the onus on him. This evidence is in fact the best evidence presently before the Court as to what the notification actually covered in substance, and on the basis of this evidence it was not notification of a claim of the sort now made by the Hydes. There is also an absence of evidence from MrWalters as to the "substratum of underlying external fact" known to him at the time.There is some evidence indicating the possibility of an argument that Mr Walters was unaware of any circumstances, at the time the notification was given, which might have given rise to a claim of the sort subsequently made by the Hydes.[37] Mr Walters has not met the onus on him of establishing that AIG could not succeed with a defence to the effect that the advance notification does not cover theHydes' claim.Evaluation: Is AIG entitled to advance affirmative defences?[38] Given the conclusion reached in the preceding section it is unnecessary to consider this question at any length. It is also a question barely addressed by Mr Hutcheson in his submissions.[39] The affirmative defences arise from exclusion clauses in the policy. Because of the conclusion in the preceding section I consider it unnecessary to outline the nature of the exclusion clauses AIG contends it should be entitled to explore and, if there is sufficient evidential foundation, to advance by way of defence.[40] Mr Hutcheson did submit that AIG was simply wanting to embark on a fishing expedition and this did not constitute an arguable defence. I do not agree.There is sufficient information in the liability judgments in the Hydes' claim againstMr Walters to indicate that AIG may have reasonably arguable defences in reliance on the exclusion clauses in question.Result[41] The application for summary judgment is dismissed.Costs[42] If the costs can be agreed that agreement should be recorded in a joint memorandum submitted to the Registrar for sealing of a costs judgment. If the parties can agree on the appropriate categorisation under Schedules 2 and 3 of the Rules, but there are issues of quantification, those issues should be referred to the Registrar. If there is any issue of principle the issue should be referred to me. Ifthere is disagreement, a memorandum for the defendant, directed to the Registrar orto me as appropriate, should be filed and served within three weeks of the date ofthis judgment, and a memorandum for the plaintiff should be filed and served withina further two weeks.__________________________________Woodhouse J