NEWS

Morgan, Re Brighton Hall Securities Pty Ltd: class actions – indemnity clause

Summary

On 27 September 2013, the Federal Court of Australia handed down a decision in a multiple class actions claim, Morgan, Re Brighton Hall Securities Pty Ltd (in liq) [2013] FCA 970, brought against Brighton Hall. The Federal Court found that the two class actions constituted separate claims for each plaintiff (or group member) pursuant to a professional indemnity insurance policy (“Policy”). As a consequence, each claim was subject to the claim excess under the Policy. As Brighton Hall was placed under administration, this meant that the potential for each plaintiff (or group member) to recover its loss and damage was negligible.

Background

Brighton Hall was a company that provided financial services to investors. Between 2001 and 2005, Brighton Hall advised a number of its clients to invest in property developments by the Westpoint Group.

In late 2005, a number of the companies in the Westpoint Group were placed under administration. A number of Brighton Hall clients that had invested in the Westpoint Group made claims against Brighton Hall for loss and damage suffered as a result of negligent or misleading advice. In September 2007, Brighton Hall went into liquidation.

In response to the claims made by its clients, Brighton Hall claimed indemnity from its insurer pursuant to the Policy. Brighton Hall and its insurer then entered into an agreement whereby the insurer paid Brighton Hall the sum of $2 million (being the full amount payable to Brighton Hall under the Policy), which acted as a reserve for any claim by Brighton Hall for indemnity pursuant to the Policy.

There were two representative proceedings. They were known as the Lawrence Proceeding and the Casey Proceeding. The claim amount in the Lawrence Proceeding alone exceeded $14.7 million.

Pursuant to the Policy, there was a deductible (or excess) of $25,000.00 applicable to each claim. The Policy also provided that a class action could be brought if the claims arose from “any one act, error or omission”. The insurer argued that in both of the class actions, there were multiple claims within the meaning of the Policy and each was subject to the claim excess under the Policy.

Court finding

The Court held that “the whole essence of the representative claim is that there are multiple claims before the court. The character of each claim is not changed by the proceedings that embraces it. The representative proceeding is simply designed to facilitate an efficient and cost-effective way to resolve multiple individual claims”1. The Court also found that although Brighton Hall may have orally recommended Westpoint Group property developments consistently to its clients, they nevertheless involved “different products, different clients, different times of investment, different circumstances and times and amounts of sustaining loss”2 and for that reason, the Court did not consider that the multiple claims of the group members arose out of any one act, error or omission3.


Morgan, Re Brighton Hall Securities Pty Ltd (in liq) [2013] FCA 970 at 74
Morgan, Re Brighton Hall Securities Pty Ltd (in liq) (No 2) [2013] FCA 1228 at 77
Morgan, Re Brighton Hall Securities Pty Ltd (in liq) (No 2) [2013] FCA 1228 at 78

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