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CBL Insurance and section 9 claims against foreign insurers

By Jack Wass (Stout Street Chambers)

CBL Insurance collapsed in 2018 after intervention by the Serious Fraud Office, the Reserve Bank and the Financial Markets Authority owing very substantial sums. Class actions have since been launched against the company and directors.

An important source of recovery may be public offering and directors’ and officers’ liability policies held by CBL that respond to the plaintiffs’ losses. Under section 9 of the Law Reform Act 1936, the victim of a tort can assert a charge over the proceeds of policies held by the tortfeasor, so that the funds are used to satisfy the plaintiffs’ claims instead of being applied to the company’s general pool of creditors. The latter outcome is seen as unfair in circumstances where the funds are only available because of the plaintiffs’ claim.

In Ludgater v Gerling [2010] NZSC 49, [2010] 3 NZLR 713, the Supreme Court found that in a case with international dimensions, whether section 9 was available depended on whether the debt (representing the proceeds under the policy) was situated in New Zealand. In Bridgecorp Ltd (in rec and liq) v Certain Lloyd’s Underwriters [2014] NZCA 571, [2015] 2 NZLR 285, the Court of Appeal held that a debt could only ever be situated in a place where the insurance company was incorporated or had a physical place of business.

The latest decision in the CBL saga – an application to strike out the representative plaintiffs’ reliance on section 9 (Livingstone v CBL Corporation Ltd [2021] NZHC 753) – is yet another case illustrating the unjust results from that approach: policies that are held in the name of a New Zealand company in liquidation in New Zealand, and in one case are subject to a New Zealand choice of law clause, cannot support a statutory charge because the insurer is based in the United Kingdom. The result is that even where the insurer sought out business in New Zealand section 9 does not apply, as long as the insurer did not have a place of business in New Zealand (the plaintiffs do argue that the insurers were present through an agent in New Zealand).

I have previously argued that the Court of Appeal’s approach derives from a false turn taken by English law in the mid-20th century and is wrong in principle: Jack Wass “The Situs of Insurance Debts” (2014) 20 NZBLQ 221. Indeed more recent English cases have held that a debt can be situate in a country where the debtor is not resident: Hardy Exploration & Production (India) Inc v Government of India [2018] EWHC 1916 (Comm), [2019] QB 544; SAS Institute Inc v World Programming Ltd [2020] EWCA Civ 599 (an exception to the residence rule where suit can or must be brought in another jurisdiction, for example under an exclusive jurisdiction clause).

In the latest CBL decision, the plaintiffs’ claim narrowly survived a strike-out application and it is hard to resist the impression that Lang J went out of his way to keep the proceedings alive despite the apparently clear effect of Bridgecorp. While section 9 deserves comprehensive legislative reform, in the meantime it is open to the appellate courts to correct the wrong direction taken in Bridgecorp and restore the law to a more just position that recognises that a debt may be situate where payment is to be made.

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