Count Financial Limited v Pillay

The plaintiff, Count Financial Limited (“Count”), brings these proceedings against Mr Inderasan Pillay alleging that:

Now, by notice of motion filed on 28 October 2020, Count seeks to join Mr Pillay’s insurers (“the Underwriters”) to the proceedings under his professional indemnity policy (“the Policy”), pursuant to s 5(1) of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (“the Act”).

The Act replaces the now repealed Law Reform (Miscellaneous Provisions) Act 1946 (NSW).

Section 4 of the Act provides:

Section 5 of the Act provides:

In order to be granted leave to proceed against the Underwriters, Count must demonstrate that:

Even if these matters are established, there is a residual discretion to refuse leave. The purpose of that discretion is to “insulate insurers from exposure to untenable claims” [15] and to “ensure that insurers are not exposed unnecessarily to claims against them”. [16]

By reason of s 5(4) of the Act, leave must be refused if the insurer can establish an entitlement to disclaim liability under the policy.

The Underwriters have denied liability to indemnify Mr Pillay under the Policy and on 20 July 2020 formally declined indemnity.

The Underwriters accept that Mr Pillay would likely not be able to meet a judgment were it to be obtained against him and did not contest the proposition that Count had an arguable case against Mr Pillay.

The argument before me focused on the question of whether the Policy would respond to Count’s claim against Mr Pillay, assuming it was successful.

The Policy included the following terms:

Argument before me focused on exclusion 4.12(e) and, in particular, the second limb of that exclusion, namely any liability arising directly or indirectly or in any way involving [17] a circumstance:

It is clear from the wording of exclusion 4.12(e) that the second limb extends beyond advice actually to make the investment in question; such advice is excluded in terms by the first limb of the exclusion which is directed to liability arising (indirectly and so on) from “any investment introduced or recommended by the Insured”.

The simple point advanced before me by Mr Muston SC and Ms Thrift for the Underwriters was that if Count makes out its pleaded case it must follow that the exclusion in the second limb of exclusion 4.12(e) was engaged because:

I think this is correct.

The point is emphasised by Count’s description in its List Statement of “The Nature of the Dispute”:

The words used here replicate the words of the second limb of exclusion 4.12(e).

And in their reply submissions, Mr Archibald QC and Ms Bathurst who appeared for Count said:

Those words also echo, albeit not precisely (“in relation to” rather than “in respect of”) the words of the exclusion.

Mr Archibald and Ms Bathurst also drew attention to Mr Pillay’s List Response in which he states that he provided:

Thus, Mr Pillay’s description of his conduct also replicates the words of the exclusion.

The point is also emphasised by Count’s plea that the Clients entered the products “in reliance on” the accounting services and tax advice given by Mr Pillay. [21] This plea, essential for Count’s case, is that Mr Pillay’s conduct was the cause, or an effective cause, of the Clients entering the Products. If Count proves this is so, it will have proved that Mr Pillay gave the Clients advice “in respect of” the Products.

Hence, I think Mr Muston’s and Ms Thrift’s submission set out at [16] above is correct. It follows that I must refuse Count the leave it seeks [22] .

Alternatively, Mr Muston and Ms Thrift pointed to exclusion 4.12(c) [23] which excludes Underwriters’ liability arising (indirectly and so on) from:

As I have said, Count pleads that ss 917A and 917B of the Corporations Act imposed on it responsibility, as between it and the Clients, for Mr Pillay’s conduct (whether or not within authority) relating to the provision of financial services. [24]

Sections 917A and 917B only apply to the conduct of a representative of a financial services licensee “that relates to the provision of a financial service”. [25]

Mr Muston and Ms Thrift submitted that to make out its claim against Mr Pillay, Count must prove that it was obliged to pay the $15.3 million to the Clients and that:

Mr Archibald submitted that this submission misapprehended Count’s case which was, in fact, that Count was not liable to the Clients.

Evidently, Count’s case will be that it made the $15.3 million payment that it now seeks to recover from Mr Pillay without admission of liability and, to adopt Mr Archibald’s words, because “it was put in [the] circumstance of confronting a multitude of claims and incurring the significant costs of defending them” and by reason of Mr Pillay not “ring-fencing” his tax practice, Count was “vulnerable to suffering unmeritorious claims”. [26]

Thus, Count makes the allegations of duty and breach of duty set out above [27] and will seek to prove it has suffered damage by reason of Mr Pillay’s breach of that alleged duty, notwithstanding that it was not liable to make payments to the Clients.

It is not appropriate that I make any comment about the prospects of that claim succeeding, save to say that I accept that, if it succeeds, it raises some doubt as to whether exclusion 4.12(c) would be enlivened.

However, it follows from my conclusion concerning exclusion 4.12(e) that the Underwriters have established an “entitlement to disclaim liability” under the policy and that leave must be refused on that basis.

Alternatively, my conclusion is that the Underwriters’ arguments in that respect are so strong that, as a matter of discretion, leave should be refused.

For these reasons, I order that the plaintiff’s notice of motion of 28 October 2020 be dismissed with costs.

I stand the proceedings over for further directions on 26 February 2021.