Bailey v New South Wales Medical Defence Union Ltd

JUDGMENT OF: Giles JA at 1; Hodgson JA at 9; Tobias JA at 38

DECISION: 1. Leave to appeal granted. 2. Notice of Appeal to be filed within 14 days. 3. Appeal dismissed with costs.

CATCHWORDS: PROCEDURE - INSURANCE - Construction and effect of s.6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) - Circumstances in which a plaintiff can proceed directly against insurer of party alleged to be liable to pay damages to the plaintiff - Claims-made policy - Whether s.6 procedure available when event giving rise to the liability to the plaintiff occurs before entry into the contract of insurance.

LEGISLATION CITED: Corporations Act 2001 (Cth) s.562 Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s.6

Bailey v New South Wales Medical Defence Union Ltd (1995) 183 CLR 399 Carnie v. Richmond (Dowd J NSWSC 9/9/97) FAI General Insurance Co Ltd v McSweeney (1997) 154 ALR 229 CASES CITED: Manettas v. Underwriters at Lloyds (1993) ANZ Ins. Cas. 61-180 National Mutual Property Services (Australia) Pty. Limited v. Citibank Savings Limited (No.4) (1996) 138 ALR 409 New South Wales Aboriginal Land Council v. Ace Global Markets Limited [2005] NSWSC 39 Schipp v Cameron [1999] NSWSC 997

The Owners - Strata Plan No.50530 - applicant Walter Construction Group Limited (In Liquidation) - 1st opponent PARTIES: Sydney City Council - 2nd opponent Straesser Poli Little & Associates Pty. Limited - 3rd opponent QBE Insurance Australia Limited - 4th opponent

Mr. J. Sexton SC with Mr. D. Kelly for claimant COUNSEL: Mr. D.F. Jackson QC with Mr. G. Curtin for 4th opponent 1st-3rd opponents submitting

Mills Oakley, Sydney for claimant C/- Liquidator, Walter Construction Group Ltd. for 1st opponent SOLICITORS: Ebsworth & Ebsworth, Sydney for 2nd opponent Kennedys, Sydney for 3rd opponent DLA Phillips Fox, Sydney for 4th opponent

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT MEDIUM NEUTRAL CITATION: [2006] NSWSC 552

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40389/06 SC 55004/01

GILES JA HODGSON JA TOBIAS JA

Monday 4 June 2007 THE OWNERS - STRATA PLAN NO.50530 v. WALTER CONSTRUCTION GROUP LIMITED (IN LIQUIDATION) & ORS. Headnote

FACTS The applicant, an owners' corporation, sued the first opponent over design and construction work, alleging that it was done in a manner that was both in breach of contract and negligent. The first opponent is liquidation.

The first opponent had an insurance policy with QBE, which contained an "unlimited retroactive cover" provision which extended cover to claims made during the period of insurance, irrespective of when the acts from which the claims arise were committed. However, this policy was entered into after the alleged causes of action against the first opponent had arisen.

In proceedings below, the applicant sought to join QBE as fourth defendant pursuant to s.6 of the Law Reform (Miscellaneous) Provisions Act 1946 (the Act). The primary judge rejected the application for joinder, holding that the case did not fall within s.6(1) of the Act. The applicant sought leave to appeal.

HELD (granting leave to appeal but dismissing the appeal) (per Hodgson JA, Giles JA and Tobias JA agreeing) (1) A charge under s.6(1) of the Act arises and only arises on the happening of the event that gives rise to a claim against the insured. This charge is not an equitable or legal right but a statutory one.

Bailey v New South Wales Medical Defence Union Ltd (1995) 183 CLR 399, followed.

(2) Where the insurance contract does not yet exist at the time of the happening of the event, a charge is not created by s.6(1) even if the insurance policy is of a claims-made or claims-made-and-notified type. The words "may become payable" refers to cases where the amount payable under an existing insurance policy has not been determined and/or depends on future circumstances. Thus in this case, no charge was created under s.6(1) that would give the applicant sufficient legal interest to join QBE as a party against whom it could claim directly.

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, followed.

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, not followed.

(3) (Obiter) If however, at the time of the event giving rise to the claim, a contract for claims-made insurance for some future period existed, then a charge could arise by operation of s.6(1).

ORDERS 1. Leave to appeal granted. 2. Notice of Appeal to be filed within 14 days. 3. Appeal dismissed with costs. **********

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40389/06 SC 55004/01

GILES JA HODGSON JA TOBIAS JA

Monday 4 June 2007 THE OWNERS - STRATA PLAN NO.50530 V. WALTER CONSTRUCTION GROUP LIMITED (IN LIQUIDATION) & ORS. Judgment

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.

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.

CIRCUMSTANCES 11 The application was brought in proceedings in which the Owners Corporation sued the first opponent (Walter, a company in liquidation) and the other opponents in respect of alleged defects in the strata title development of which the Owners Corporation is the owners' corporation. It appears that the construction took place between about January 1994 and July 1995, and the strata plan was registered (so that the Owners Corporation came into existence) on about 11 August 1995. 12 The relevant policy of insurance and the relevant terms of that policy are identified in pars.[6]-[8] of the primary judge's judgment: 6 The relevant policy was current from 31 December 1999 to 31 December 2001. As I have said, it is what is commonly called a "claims made and notified" policy. That is apparent from the insuring clause at 1.1, which provides as follows: "1.1 QBE agrees to indemnify the Insured against legal liability for any Claim for compensation first made against the Insured during the Period of Cover and which is notified to QBE during the Period of Cover, in respect of any civil liability whatsoever and howsoever incurred in the conduct of the Professional Business Practice and arising out of the performance of the Insured's professional activities and duties." 7 At this point, it is convenient to note also cl 1.4(a) on which the Owners Corporation placed reliance. It provides: "1.4(a) 'Unlimited Retroactive Cover' - unless a Retroactive Date is specified in the Schedule, this Policy shall provide cover in respect of acts, errors or omissions, committed (or alleged to have been committed) irrespective of when such acts, errors or omissions were committed (or were alleged to have been committed)." 8 The schedule to the policy made it plain that the Retroactive Date was unlimited.

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.

RELEVANCE OF AUTHORITY 20 The primary judge expressed the view that, given that the decisions of Cole J in Manettas and in another case had been followed on three occasions, on each occasion after lengthy argument and with extensive consideration of principle, he would not think it appropriate to depart from them unless he was persuaded they were clearly wrong. That approach was appropriate for the primary judge, but in my opinion would not be appropriate for this Court. This Court is not in any way bound by the authority of decisions of first instance judges, and it has a duty to give effect to the statute on its true construction; so that while this Court will pay careful attention to the reasoning of first instance judges, it cannot on a question of statutory interpretation give weight to their decisions as a matter of authority. 21 On the other hand, there is a decision of the High Court of Australia relevant to the construction of s.6; and although the High Court did not address the question raised by this case, this Court must respect and give weight to views of the High Court which may bear on how s.6 applies in the circumstances of this case.

BAILEY V. NEW SOUTH WALES MEDICAL DEFENCE UNION LIMITED 22 The relevant High Court decision is Bailey v. New South Wales Medical Defence Union Limited (1995) 183 CLR 399. The headnote relevantly states the following: A patient claimed damages against a doctor for injuries received as a result of treatment in 1973 and 1974. The doctor was a member of a company limited by guarantee, whose objects included the indemnification of its members against professional negligence claims. The doctor paid an annual subscription to renew the insurance provided by the company in accordance with the terms of its articles of association. The company initially undertook the defence of the action but after the doctor died it terminated its assistance. The company relied upon a provision in its articles of association introduced in 1982 which allowed it to terminate any grant of assistance or indemnity in its sole and absolute discretion. …

The patient brought separate proceedings against the company seeking leave to make a claim against it under s.6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) to enforce a statutory charge on insurance moneys that were or might become payable by the company to the doctor's estate. The patient's claim against the doctor succeeded.

Held, that a charge under s 6 was created on the happening of the event giving rise to the claim for damages. After that point, no mutual or unilateral action of the insurer or the insured taken other than under the contract or the general law as it operated on the contract could vary, discharge or otherwise qualify or abrogate the contract of insurance so as to deny to the claimant the fruits of enforcement of the charge. 23 The interpretation of s.6 of the Act is discussed in the joint judgment of McHugh and Gummow JJ, with whom on this aspect the other judges (Brennan CJ, Deane and Dawson JJ) agreed (p.415). The relevant part of the discussion is as follows: That which is created by s 6(1) is given the name "charge". This invokes an institution of the general law and suggests the creation by force of the statute of a security for the payment of a debt or the performance of some other obligation. In such cases, the obligation secured may be that of the party giving the charge or a third party. The assignment of a presently existing legal chose in action by way of charge rather than an absolute assignment by way of legal mortgage is well recognised. However, in New South Wales, this cannot be effected under s 12 of the Conveyancing Act 1919 (NSW). Accordingly, the assignment by way of charge of a presently existing chose in action is effective only in equity. Likewise, an assignment of part of a presently existing chose in action. Where the subject matter of the assignment is the future "fruit" rather than the whole or part of the presently existing "tree", value is necessary to render the "future assignment" effective in equity. The distinction is illustrated in a number of decisions of this court, most strikingly in Shepherd v FCT (1965) 113 CLR 385.

Section 6 is to be read against the background of these distinctions in property law. However, what s 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.

That the charge arises on the happening of the event giving rise to the claim for damages or compensation is apparent not only from s 6(1) itself, but from subss (2) and (3). If, on the happening of that event, the insured is being wound up, the charge arises and applies notwithstanding the currency of the winding up; likewise, if a later winding up is deemed to have commenced not later than the happening of that event, the charge nevertheless applies (s 6(2)). These provisions protect and advance the interests of the claimant. So also does the conferring by s 6(3) of priority over all other charges affecting the insurance moneys. …

The reference in s 6(7) to the contract of insurance is, in our view, that contract referred to in s 6(1) by which the insured is indemnified on the happening of the event giving rise to the claim for damages or compensation. It is not that contract identified in s 6(1) as varied or replaced by unilateral or mutual action of the insurer and insured in the interval between the happening of the event giving rise to the claim for damages or compensation (and thus to the charge) and some later date, such as the recovery of judgment in the action by the claimant to enforce the charge against the insurer.

That is not to say that the contract may not, at the time the charge arises, contain provisions conferring rights which, in the events which have already happened or which later happen, are exercisable by the insurer against the insured. But those rights, whenever exercised, draw their life from the contract at the time when the charge descended, not from any subsequent variation or replacement of that contract.

It is now possible to come to the central issue of construction of s 6 which arises on this appeal. It is necessary first to turn to the text of the last sentence in s 6(4). This states: 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. This provision is not directing the court that leave be denied only in a case where it is satisfied both of entitlement to disclaim liability and that necessary steps have been taken to establish entitlement to do so. Leave may be refused in other cases but must be refused in these cases. What the sentence does suggest is that, if there is an entitlement to disclaim, there may be no moneys which are or may become payable in respect of the liability of the insurer to the insured and thus nothing upon which the charge specified in s 6(1) can operate.

The phrase in s 6(4) is "the insurer is entitled under the terms of the contract of insurance to disclaim liability". A clear example of such entitlement would be a disclaimer under the general law right to rescind for non-disclosure. Another instance would be the exercise of the right to avoid the contract of insurance given the insurer in certain cases of non-disclosure and misrepresentation by s 28 of the Insurance Contracts Act 1984 (Cth).

However, the terms of s 6(4) of the Law Reform Act are apt to include more than avoidance by reason of some vitiating factor in the formation of the contract of insurance. For example, in McMillan v Mannix (1993) 31 NSWLR 538 , a provision of the policy of insurance required the cooperation of the insured in the event of a claim; such cooperation was a condition precedent to liability and breach of it was a basis for disclaiming liability. It was true that the relevant event, failure to cooperate in the event of a claim, occurred only after, in the terms of s 6(1), "the happening of the event giving rise to the claim for damages or compensation". Nevertheless, the entitlement to disclaim liability was conferred by the contract as it stood at the earlier date, albeit the entitlement became exercisable only after the happening of a later event. In McMillan v Mannix, the New South Wales Court of Appeal, by majority, held, correctly in our view, that there were no insurance moneys which were or might become payable in the sense of s 6(1) of the Law Reform Act.

It is necessary now to return to the text of s 6(1). As we have indicated, the charge is created, by force of the legislation, on the happening of the event giving rise to the claim for damages. It is expressed to be a charge on all insurance moneys that are payable in respect of that liability. That clearly would cover the case where the terms of the policy and the events that had happened were such that it could be said that a particular sum was payable by the insurer to the insured. In that state of affairs, the charge has an immediate operation upon an existing and quantified obligation of the insurer to make payment to the insured. However, even though all other necessary facts and circumstances for the insured to have a present right to receive payment may exist, the contract of insurance may be liable to avoidance for non-disclosure or misrepresentation. Then there can be no moneys payable and thus nothing upon which the charge may operate at any time. Thus, in substance, it may be accurate to say that the charge mentioned in s 6(1) never comes into existence.

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 presently payable by the insurer to the insured. In such a case, the statutory charge operates, by loose analogy to an agreement for a charge on after-acquired property, upon such moneys as and when they do become payable. However, there will be nothing in respect of which the charge may be enforced if the moneys never become payable by reason of the exercise by the insurer of rights to avoid the contract or of a vitiating factor in its formation. So also in the case of a breach which, pursuant to the terms of the contract or the general law, entitles the insurer to disclaim liability and this state of affairs exists when action is brought by the claimant under s 6(4) or, as necessary, leave is sought to commence that action. In all these cases, there were no insurance moneys which were payable when the charge arose and none have become payable.

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.

OWNERS CORPORATION'S CONTENTIONS 26 The Owners Corporation relied particularly on the reasoning of Lindgren J in McSweeney at pp.288-290. Lindgren J set out what he conceived to be the two competing constructions between which a choice had to be made: First Construction Sub-section 6(1) speaks as at the moment after the contract of insurance is entered into, and, for that matter, at subsequent moments throughout the period of the contract of insurance down to time of the happening of the event. At that moment, and at those moments, the insured is indemnified' against liability to pay any damages or compensation. The happening of the Event is, at that moment, and at those moments, a future event, as is indicated by the words 'shall on the happening [event] … be a charge'. The alternatives posed by the expression 'all insurance moneys that become payable in respect of that liability' encompass the possibility that the insurance moneys will become payable upon the happening of the event and the possibility that they will become payable subsequently, in either case, pursuant to the contract of insurance by which the insured is already indemnified. In the latter case, the charge may be conveniently described as a 'floating' charge.

Second Construction Sub-section 6(1) speaks at the time of adjudication. As at that time, the insured entered into a contract of insurance by which the insured 'is indemnified [at the time of adjudication] against any liability to pay damages or compensation.' The expression, 'shall be a charge' does not convey a future tense but is prescriptive of the legal result to which the courts must give effect. The charge which the section creates exists on and from the event. The charge is a fixed charge in the case where insurance moneys are payable at the time of the event and a floating charge in respect of insurance moneys that may become payable, and do in fact become payable, at a later date. In relation to the latter, it is immaterial that the insurance moneys become payable pursuant to an insurance contract entered into after the event: once insurance moneys have in fact become payable in respect of the liability, the charge fixes upon them. 27 He then gave the following reasons for preferring the second construction: 1. … I do not think that the expression 'is indemnified' speaks at the time of the Event, and therefore requires a contract of insurance be in existence at that time. The construction that that expression speaks at the time of adjudication by the Court is at least equally open and, in my view, it is the construction suggested by the natural and unforced reading of sub-s 6(1).

The charge is expressed to be on, relevantly, "insurance moneys that may become payable" in respect of the insured's liability to pay damages or compensation. … the expression … "moneys that may become payable" is apt to also accommodate moneys that may become payable after the subsequent entry by the wrongdoer into a claims made and notified contract of insurance.

The terms of sub-s 6(1) do not expressly restrict the charge to, relevantly, moneys that may become payable under a contract of insurance in existence at the time of the event. Nor should such a limitation be held to be implied unless this is plainly required. It should not be readily implied because it is inconsistent with the policy objective which underlies the provision, namely, that of achieving the result that the moneys which in fact become payable under a liability indemnity policy are made available to a claimant. It would have been a simple matter for Parliament to add such words as "under the contract of insurance in existence at the time of the event giving rise to the insured's liability" at the end of sub-s.6(1) if the provision had been intended to have the restricted operation suggested.

No reason of policy has been suggested, and I can think of none, why the provision should not apply to a claims made and notified policy which comes into existence after the event. According to either of the two constructions described earlier, the charge is a 'windfall' for the claimant. It is no part of the policy which underlies the provision, that the claimant should have been aware of the existence of the contract of insurance, bargained for its existence, or dealt with the insured in reliance on its existence. The legislative policy of ensuring that the claimant will have the benefit of the moneys payable under a contract of liability indemnity insurance is better served by the second construction than by the first. The two constructions referred to earlier are both arguable, and the second should be preferred as better conforming to the purpose of the provision.

Sub-section 6(7) presents no difficulty for either construction: according to the first, "the contract of insurance" to which that sub-section refers is that which was in existence at the time of the event; according to the second, it is that which existed during the period in which the relevant claim was made and notified.

Once it is accepted that the expression "moneys may become payable" encompasses the situation where moneys become payable pursuant to a claims made and notified policy entered into after the event, it is clear that the language of sub-s 6(1) is always satisfied at the time of the event, since it is always the case that the wrongdoer may, after the event, enter into a claims made and notified policy under which the relevant moneys will become payable.

It seems to me, with respect, that the reasoning in Manettas gives an undue significance to the words 'on the happening of the [event]. Indeed, it is reasonable to think that in most cases, including non 'claims made and notified cases', it is insurance moneys that 'may become payable' after the event rather than those that 'are payable' at the time of the Event, on which the statutory charge can be expected to operate. This is because in most cases (as sub-ss 6(2) and (3) contemplate) the amount of the insured's and the insurer's liability will not be known on the happening of the event, and because the making of a claim by the insured upon the insurer for indemnity will be a condition precedent to the arising of the insurer's liability to indemnify. If sub-s 6(1) had made explicit that which is implicit, by saying '… on and from the happening of the event …' rather than simply '… on the happening of the event …', the capacity of the provision to encompass claims made and notified policies subsequently entered into would, perhaps, have been clear. 28 Mr. Sexton SC for the Owners Corporation adopted that analysis. He submitted that, where two constructions were open, the Court should prefer the beneficial construction of beneficial legislation, and should avoid distinctions which have no rational justification. He also submitted that since the "charge" under s.6(1) was a statutory right and was not limited to known categories under general law, there was no reason why it could not extend to potential charges which crystalised when there was something to which they could attach, once an insurance contract was entered into.

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.

CONCLUSION 36 The question involved in this application was an important one, on which there were conflicting decisions; so the granting of leave to appeal is justified. 37 For the reasons I have given, I propose the following orders: 1. Leave to appeal granted. 2. Notice of Appeal to be filed within 14 days. 3. Appeal dismissed with costs. 38 TOBIAS JA: I agree with Hodgson JA and with the additional remarks of Giles JA. **********

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.