AIG has been ordered to cover a multimillion-dollar settlement after losing a corporate liability appeal in Victoria.
The dispute traces back to February 13, 2017, when Sayers Property Holdings Pty Ltd sued Di Dio Nominees Pty Ltd in the Supreme Court of Victoria, seeking specific performance of a contract to buy land in Tarneit. Sayers operated a gaming venue on the site under a lease and, by July 31, 2013, had spent $5,350,140 on construction. It had an option to buy the land, including the venue, for $8,925,140.
Sayers exercised that option on 9 September 2015 and signed a contract of sale on November 25, 2015. But on March 9, 2016, Di Dio informed Sayers’ adviser that it did not want to sell the property. On February 13, 2017, Sayers commenced proceedings against Di Dio in the Supreme Court of Victoria.
Di Dio responded with a broad counterclaim. It alleged that its accountant and adviser, Ori Salvalaggio, had failed to disclose that he was also a director and 20% shareholder of Sayers, and that this non-disclosure was a breach of fiduciary duty and unconscionable conduct for which Sayers was responsible. The counterclaim sought to set aside the agreement for lease, the land option and any contract of sale, and also pleaded a Barnes v Addy claim and statutory claims under s 51AC(1) of the Trade Practices Act 1974 (Cth) and s 21(1) of Schedule 2 of the Competition and Consumer Act 2010 (Australian Consumer Law), together with an alternative claim for equitable compensation.
The risks for Sayers were significant. The trial judge later accepted that, if the counterclaim were made out, the most likely outcome was that the land option and transaction documents would be set aside, leaving Sayers with a large investment in the property which it could not recover.
At a court-ordered mediation on November 25, 2019, the parties reached a global settlement. Sayers agreed to purchase the property, including all improvements and fixtures, from Di Dio for $11,000,000 instead of the previously agreed $8,925,140. The share option granted to Di Dio was cancelled, timing for settlement and subdivision obligations was set, and wide mutual releases were exchanged.
Sayers then turned to its insurer, AIG Australia Ltd. On January 20, 2020, it claimed $1,971,604, representing the difference between the $11,000,000 settlement price and the original purchase price, after tax and other adjustments. Sayers said this was “Loss” under its insurance policy. On March 1, 2020, AIG’s solicitors rejected the claim, arguing that the settlement had “no real connection” with the pleaded claims against Sayers and instead reflected a commercial renegotiation of the land price.
The policy’s corporate liability section required AIG to pay the “Loss” of any company arising from “Corporate Liability”. “Claim” was defined to include a civil proceeding, including a counterclaim, “seeking compensation or other legal remedy”. “Loss” was defined as any amount the insured is legally liable to pay “resulting from a Claim”, expressly including “settlements”.
At first instance, the trial judge held that only the equitable compensation component of the counterclaim fell within the definition of “Claim” and that the increased purchase price could not be said to have “resulted from” that claim. The judge also found it was not possible to apportion the increased price to the equitable compensation claim and that the settlement was not a reasonable settlement of that monetary claim.
The Court of Appeal took a different approach. It held that the phrase “compensation or other legal remedy” meant that “Claim” extended to non-monetary relief, so the whole counterclaim was a “Claim” under the policy. It also rejected AIG’s argument that “Loss” required proof of an underlying liability independent of the settlement, pointing to the express reference to “settlements” in the definition.
The court found that Sayers’ obligation to pay the settlement amount resulted from the counterclaim and that the settlement was reasonable, given the real risks the counterclaim posed to Sayers’ position and investment. The Court of Appeal granted leave to appeal, allowed the appeal, set aside the trial judge’s orders and directed that judgment be entered for Sayers.
In this case, the Court of Appeal held that the broad definitions of ‘Claim’ and ‘Loss’ were wide enough to treat the entire global settlement, including non-monetary relief claims, as covered under the policy.
