Bailey v New South Wales Medical Defence Union Ltd

Bailey v New South Wales Medical Defence Union Ltd - [2007] NSWCA 124 - NSWCA 2007 case summary — Zoe

[29]

1 GILES JA: The question raised in the application for leave to appeal has been debated over a number of years, in the cases to which Hodgson JA refers and in learned articles and other writings. Full expositions of the competing approaches are found in Schipp v Cameron [1999] NSWSC 997 (Einstein J) and FAI General Insurance Co Ltd v McSweeney (1997) 154 ALR 229 (Lindgren J). 2 Accepting that s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 was enacted prior to the present prominence of claims made and claims made and notified policies of insurance, there is no reason of principle to withhold in the case of such policies the statutory means of direct enforcement, in circumstances within the provision, against an insurer. But that benefit is only available if the terms of s 6 apply, and they and in particular the concept of a charge which they express in s 6(1) must not be strained beyond their meaning. I have concluded, in agreement with Hodgson JA, that despite the force of the reasons for the approach taken by Lindgren J, the terms of s 6 constrain its adoption. 3 As explained in the joint judgment of McHugh and Gummow JJ in Bailey v New South Wales Medical Defence Union Ltd (1995) 183 CLR 399 at 415 - " …what section 6 achieves is the creation of a new right with an associated remedy to enforce it. The section does so by sweeping up distinctions in the general law between legal and equitable assignments of whole or part of presently existing or future choses in action and between cases where value is required or inessential. By its own force, the statute, in circumstances where it applies, creates, on the happening of the event giving rise to the claim for damages or compensation, a charge on all insurance moneys which are then payable in respect of the liability against which the insured is indemnified and on all such insurance moneys that may become payable in respect of that liability." 4 The charge so created takes its nature from the section creating it, and so there can be circularity in using features of the charge to determine what has been created. That said, a charge pursuant to s 6(1) when, on the happening of the event giving rise to the claim for damages or compensation, there was no contract of insurance with the insurer and conceivably the insurer did not exist, stretches very far the postulation of an inchoate charge. It is one thing to create a charge over insurance moneys that may become payable where the futurity is because (for example) there may be dispute over the insurer's obligation to indemnify. It is a further step to create a charge over insurance moneys that may become payable where the futurity is because on the happening of the event no contract of insurance is in existence. It is a further step again to create a charge on insurance moneys that may become payable when the futurity requires that the insurer, as well as the contract of insurance, come into existence. 5 It is possible to conceive of such a charge, but its novelty and extreme inchoateness (if there is such a word) bring attention to the combination in s 6(1) of "[i]f any person … has … entered into a contract of insurance by which the person is indemnified against liability to pay damages or compensation" as an opening condition, and "on the happening of the event giving rise to the claim for damages or compensation" as the occasion on which the charge arises. The combination suggests that for s 6(1) the contract of insurance is in existence at the time the event happens, whereupon the charge arises. Like Hodgson JA, I see no reason why that should not occur if the contract of insurance is an existing claims made or claims made and notified policy, but it must exist. 6 The foregoing is in accord with the reasons of Hodgson JA, which I have had the advantage of reading in draft and with which I agree. The preferable view is that, in the circumstances before McDougall J, s 6 was not available to the Owners Corporation. 7 Some years ago I had occasion to suggest, writing extra-judicially, that s 6 is an unsatisfactory provision and should be reconsidered: (1996) 7 ILJ 152. Many others have expressed similar views. This is one respect in which it is unsatisfactory. The attention of the legislature, preferably in a wide-ranging re-consideration and with regard to the availability of direct enforcement against an insurer under other legislation, is highly desirable. 8 I agree with the orders proposed by Hodgson JA. 9 HODGSON JA: On 25 May 2006, McDougall J dismissed an application brought by the claimant (the Owners Corporation) pursuant to s.6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (the Act) for leave to commence proceedings against the fourth opponent (QBE). 10 The Owners Corporation has applied for leave to appeal from that decision. The application for leave has been heard on the basis that, if leave is granted, the appeal will be disposed of without further argument.

[30]

STATUTORY PROVISION The relevant statutory provision is s.6 of the Act, which is in the following terms: 6 Amount of liability to be charge on insurance moneys payable against that liability (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability. (2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding-up. (3) Every charge created by this section shall have priority over all other charges affecting the said insurance moneys, and where the same insurance moneys are subject to two or more charges by virtue of this Part those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves. (4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken. (5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter. (6) Any payment made by the insurer under the contract of insurance without actual notice of the existence of any such charge shall to the extent of that payment be a valid discharge to the insurer, notwithstanding anything in this Part contained. (7) No insurer shall be liable under this Part for any greater sum than that fixed by the contract of insurance between the insurer and the insured. (8) Nothing in this section shall affect the operation of any of the provisions of the Workers Compensation Act 1987 or the Motor Vehicles (Third Party Insurance) Act 1942. (9) Despite subsection (8), this section applies in relation to a policy of workers compensation insurance entered into by an employer (whether entered into before or after the commencement of this subsection), where the employer: (a) being a natural person, has died, or is permanently resident outside the Commonwealth and its Territories, or cannot after due inquiry and search be found, or (b) being a corporation (other than a company that has commenced to be wound up), has ceased to exist, or (c) being a company, corporation, society, association or other body (other than a company that has commenced to be wound up), was at the time when it commenced to employ workers to which the policy relates incorporated outside the Commonwealth and its Territories and registered as a foreign company under the laws of any State or Territory and is not so registered under any such law, or (d) being a company, is in the course of being wound up.

[32]

DECISION OF PRIMARY JUDGE 13 The primary judge noted that the Owners Corporation's claim was for pure economic loss, that damage in respect of which the claim was made had become manifest by the date on which the Owners Corporation came into existence (about 11 August 1995), and that if the Owners Corporation had a claim it was complete no later than that date. 14 The primary judge noted QBE's contention that, in those circumstances, the facts did not fall within s.6(1) of the Act on its true construction as expounded in a number of cases including Manettas v. Underwriters at Lloyds (1993) ANZ Ins. Cas. 61-180, Carnie v. Richmond (Dowd J NSWSC 9/9/97), Schipp v. Cameron [1999] NSWSC 997 and New South Wales Aboriginal Land Council v. Ace Global Markets Limited [2005] NSWSC 39. 15 The primary judge also referred to contrary decisions, notably those of Lindgren J in National Mutual Property Services (Australia) Pty. Limited v. Citibank Savings Limited (No.4) (1996) 138 ALR 409 and FAI General Insurance Co. Limited v. McSweeney (1997) 154 ALR 229. 16 The primary judge held that it was appropriate to decide this question of law in the interlocutory application before him, and he decided it adversely to the Owners Corporation. On that basis, he dismissed the application without deciding other grounds raised by QBE in opposition to it. 17 The primary judge also dealt with an application by the Owners Corporation for leave to proceed against Walter, and granted such leave on terms that no judgment recovered against it be enforced without the further leave of the Court. 18 I note that no application was made to join QBE pursuant to s.562 of the Corporations Act 2001 (Cth), which is in the following terms: (1) Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556. (2) If the liability of the insurer to the company is less than the liability of the company to the third party, subsection (1) does not limit the rights of the third party in respect of the balance. (3) This section has effect notwithstanding any agreement to the contrary. 19 It is possible that, if the application to this Court fails, the Owners Corporation could bring an application in these proceedings seeking to join QBE to seek a declaration that Walter has incurred a liability against which it is insured with QBE and that QBE is liable to pay to Walter or its liquidator an amount in respect of that liability, within the meaning of s.562, and possibly an order that such amount be paid to Walter or its liquidator. I express no view as to whether such an application would succeed.

[46]

However, once the charge has descended on the happening of the event giving rise to the claim for damages or compensation, no mutual or unilateral action of insurer or insured which is taken otherwise than under or pursuant to the contract of insurance or the general law as it operates upon the contract may vary, discharge or otherwise qualify or abrogate the contract of insurance so as to deny to the claimant what otherwise would be the fruits of enforcement of the charge by action taken under s 6(4) against the insurer. The contract of insurance is that as it stood when the charge descended. Nor, after the charge has descended, is it open to the insurer to rely upon a payment made under the contract to the insured, unless the payment was made without actual notice of the existence of the claimant's charge (s 6(6)). In these ways the position of the claimant is protected. 24 This discussion supports the following propositions, relevant to the present case: (1) Although s.6 uses the term "charge", what it creates is a statutory right which does not fall neatly into existing legal or equitable categories. (2) The charge arises (or descends) on the happening of the "event" referred to in s.6(1) (and it is clear, and common ground, that this event is whatever completes the relevant cause of action). (3) The relevant contract of insurance is that as it stood when the charge descended, unaffected by subsequent mutual or unilateral action otherwise than pursuant to that contract or the general law as it operates on that contract. (4) The phrase in s.6(1) "insurance moneys that … may become payable" is apt to deal with the situation where, whilst the charge has descended, there is as yet no sum which could be identified as payable by the insurer to the insured. 25 These propositions weigh against the following propositions bearing on the present case: (1) The charge can in some circumstances arise for the first time at some time later than the happening of the event. (2) There can be a charge arising where there is as yet no contract pursuant to which insurance moneys may become payable, and no insurer identified which may become liable to make such payments.

[55]

DECISION 29 There is force in the reasoning of Lindgren J, and the points relied by Mr. Sexton. However, on balance, I think the contrary view is preferable. 30 It is common ground, as well as being asserted by the High Court in Bailey, that under s.6(1) the "charge" must arise, if at all, on the happening of the "event" giving rise to the claim against the insured, and not at some later time. That being so, if there is to be any charge in any cases where that event (whatever completes the cause of action against the insured) occurs before any contract of insurance is made, it would have to be a "charge" arising where there is no property or even potential property to which it could apply, and not even any identifiable insurer with whom such property, if and when it came into existence, might be associated. It would thus be a "charge" without having even as much substance as a contract to give a charge on after-acquired property, where there is at least a person against whom a contractual right exists pursuant to which (assuming the contract is specifically enforceable) an equitable charge can arise if and when the property is acquired. 31 It is true that the charge under s.6(1) is something created by statute, which does not have to conform to pre-existing general law categories; but it is difficult in the extreme to read s.6(1) as disclosing a legislative intention that there be something called a charge in existence at a time when there is no property to which it could attach, and no person against whom any rights could be asserted to have a charge attached to property if and when the property comes into existence. (It would be otherwise if there were, at the time of the event, a contract between the insured and the insurer for claims-made insurance to be given for some future period: in those circumstances, I think a charge would arise.) 32 It is also true that the charge extends to "moneys that … may become payable"; but in the situation under discussion, there would not be in existence any circumstance giving rise to a possibility that moneys may become payable, apart from the possibility that the person against whom the cause of action has arisen might, in the future, make a contract with some as-yet unidentified insurer, which covers liability under that cause of action. The words "may become payable" are apt to refer to cases where the amount payable under an existing insurance policy has not been determined and/or depends on future circumstances, and also cases where there are conditions of the insurance policy which may or may not be satisfied. 33 The other main difficulty I see with the view adopted by Lindgren J is the indication of temporal order strongly given by the language of s.6(1). It is true, as asserted by Lindgren J, that the question of whether a person "has … entered into a contract of insurance" is to be considered at the date of adjudication; but the link between that expression and the words "shall upon the happening of the event" cannot be disregarded, and this, as a matter of language, is a strong indication that s.6(1) is directed to those cases where the "event" happens after the entry into the contract. 34 I would add that I agree with the careful discussion of the problem by Einstein J in Schipp. 35 So although there is force in the considerations that a beneficial construction should be given to beneficial legislation, and that distinctions should be generally avoided where there is no rationale for them, I think the opposing considerations are stronger, and that the primary judge's conclusion was correct.

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