Australia, Sept. 19 -- New South Wales Land and Environment Court issued text of the following judgement on Sept. 18:
On 30 March 2010 Leighton Offshore Pte Ltd ("Leighton Offshore"), a subsidiary of Leighton Holdings Limited ("Leighton", now known as CIMIC Group Limited ("CIMIC")), submitted a bid for a large infrastructure project known as the Iraq Phase 1 Project. On 7 April 2010 Russell Waugh (Chief Executive Officer ("CEO") of Leighton Offshore) met Peter Willimont of Unaoil Ltd ("Unaoil"). Mr Willimont wanted to know if Leighton Offshore was interested in a "package proposal" for the Iraq Phase 1 Project onshore works. Mr Waugh told Mr Willimont that Leighton Offshore was interested but that it "had to be commercially attractive".
On 26 May 2010 Mr Waugh met with Mr Willimont in Perth. Later that day, Mr Waugh asked an employee of Leighton Offshore to urgently prepare an updated green sheet outlining a proposed bid. The green sheet was updated, with the bid price increased by a little over US$65 million. A division of Leighton Offshore and Unaoil entered into a Memorandum of Understanding ("MOU") dated 31 May 2010, by which Leighton and Unaoil agreed a subcontract concerning "Onshore Works" as defined in the MOU for an "all inclusive" price of US$65 million. The MOU also included a term that Leighton pay liquidated damages to Unaoil, in the event Leighton was awarded the contract for the Iraq Phase 1 Project but did not award a subcontract to Unaoil. On 22 June 2010 Leighton Offshore submitted its revised fixed sum bid price for the Iraq Phase 1 Project. Thereafter, Leighton and Unaoil signed a Memorandum of Agreement ("MOA") and a Supplementary Agreement increasing both the subcontract and liquidated damages amounts.
Emails indicated that Unaoil had some kind of relationship with Oday Al Quoraishi ("Mr Oday"). Mr Oday was the Project Manager for the Iraq Phase 1 Project, working for the Iraqi entity which invited Leighton to bid for that project. There is some material which may suggest that Unaoil was paying money to Mr Oday to act in Unaoil's interests.
On 23 October 2010 Leighton Offshore entered into a US$733 million contract with Southern Oil Company ("SOC") for the Iraq Phase 1 Project ("Iraq Phase 1 Contract"). SOC was a subsidiary of the Iraq National Oil Company. Leighton Offshore entered into a subcontract agreement with Unaoil on 8 December 2010 in respect of the Iraq Phase 1 Project. On 1 November 2010 invitations were issued to bid for the Iraq Phase 3 Project.
On 23 November 2010 David Stewart (a Chief Operating Officer ("COO") of Leighton and later CEO of Leighton) had two conversations with David Savage (a COO of Leighton). Mr Stewart made a file note during and shortly following these conversations which recorded that Mr Savage had advised that he had an opportunity to negotiate an extension/variation to the current contract in Iraq but that it would require a payment to a third party nominated subcontractor who would do all onshore works, that that payment was $50-$60 million but the real value of the work was less than 50% of the payment, and that the current $720 million contract was won by an $87 million payment to a nominated subcontractor "on the same terms" ("Iraq File Note"). The Iraq File Note also recorded that Mr Stewart said that this was "exactly what got the [Australian Wheat Board] into trouble", and that Mr Stewart said he would talk to Wallace King (then Leighton CEO) and Mr Savage said "no". The Iraq File Note recorded that Mr Stewart, having discussed with matter with William Wild (a COO and later deputy CEO of Leighton), told Mr Savage that he was not comfortable with the arrangements and that if he couldn't win without them then Leighton didn't want the work. On 18 April 2011 Leighton Offshore submitted its bid for the Iraq Phase 3 Project. On 13 October 2011 it was awarded the contract ("Iraq Phase 3 Contract").
In the financial year commencing 30 June 2010 ("2010 year") Leighton had a primary layer of Directors' and Officers' Liability and Company Security ("D&O") Insurance with AIG ("2010 Primary Policy") and excess layers with, relevantly Chubb, Liberty, Berkley, Swiss Re, Zurich and Arch/Dual ("2010 Excess Policies", together "2010 Policies" and "2010 Insurers"). Leighton did not make any notification of the matters identified in the Iraq File Note, or of a possible loss, to the 2010 Insurers, nor make any claim under the 2010 Policies.
In May 2011 Leighton submitted a proposal form ("2011 Proposal") for D&O Insurance for the financial year commencing 30 June 2011 ("2011 year"). Leighton did not disclose the existence of the Iraq File Note, or any of its contents, in the 2011 Proposal. Leighton subsequently entered into a primary layer of D&O Insurance, insured as to 50% by each of AIG and Chubb ("2011 Primary Policy"), and excess layers with Catlin and Liberty ("2011 Excess Policies", together "2011 Policies" and "2011 Insurers") for the 2011 year.
In early-November 2011 the Iraq File Note was discovered by Leighton's external solicitors. On 7 November 2011 Leighton referred the Iraq File Note to the Australian Federal Police ("AFP"). On 13 February 2012, Leighton issued an ASX Media Release. On 22 February 2012 Leighton notified the 2011 Insurers of a possible loss under the 2011 Policies ("2012 Notification"). CIMIC subsequently claimed various losses under the 2011 Policies, including in relation to the AFP investigation, separate ASIC investigations, and costs incurred in connection with the investigation, defence and settlement of various representative proceedings arising out of an alleged failure to disclose the Iraq File Note ("Companies Securities Claims").
CIMIC brought proceedings against both the 2010 and 2011 Insurers. Only declaratory relief was sought against the 2010 Insurers, but the 2011 Insurers were sued under the 2011 Policies. The 2011 Insurers sought equitable contribution from the 2010 Insurers. By orders made on 12 October 2022 (the "Orders") the primary judge dismissed claims made by CIMIC against Catlin and Liberty, upheld a cross-claim for equitable contribution by AIG against Berkley and dismissed a cross-claim for equitable contribution by AIG against Swiss Re.
The primary judge also made several declarations including that the 2011 Insurers were not liable to indemnify CIMIC for the Company Securities Claims and that the 2011 Primary Insurers were each severally liable to indemnify CIMIC in accordance with the terms and conditions of the 2011 Primary Policy in respect of the AFP Investigation Costs and the ASIC Iraq Investigation Costs ("Investigation Costs"). The primary judge also granted declaratory relief against the 2010 Insurers, albeit not in the form originally sought by CIMIC ("2010 Declaration").
Zurich, Berkley, Arch/Dual and Chubb appeal and CIMIC and AIG cross-appeal against various aspects of the Orders. By way of notices of contention filed in these various appeals, AIG, Catlin, Liberty and Chubb seek to affirm various of the Orders on further grounds.
*Rest of the document and Footnotes can be viewed at: (https://www.caselaw.nsw.gov.au/decision/19202ff2247616afe67a594c)
Disclaimer: Curated by HT Syndication.
