BNY Trust Company of Australia Limited v MMJ Real Estate

Background

1. In September 2010, Leigh John Kennedy made an application to the plaintiff to fund the acquisition of 35 individually-titled self-storage unit facilities that formed part of a strata plan situated at 14A Hurrell Way, Rockingham, Perth, Western Australia. The amount of the finance sought was in the sum of $1,650,000. In October 2010, Wayne Allen Houghton made an application to the plaintiff to fund the acquisition of 30 individually-titled self-storage units in the same strata plan. Mr Houghton sought finance in the amount of $1,450,000.
2. On 29 November 2010, the plaintiff instructed the first defendant to value the lots in each of the applications. On 30 November 2010, the first defendant provided a valuation of the Kennedy lots on the basis that each strata lot was valued individually, the aggregate sum of which totalled $2,237,500, and provided a valuation of the Houghton lots on the basis that each strata lot was valued individually, the aggregate sum of which totalled $1,942,500. The valuations were carried out by the third defendant and were counter-signed by the second defendant.
3. On the basis of those valuations, on or about 11 January 2011 the plaintiff advanced to Mr Kennedy the sum of $1,650,000 and to Mr Houghton the sum of $1,450,000.
4. Mr Kennedy defaulted by failing to pay an instalment on 11 February 2011 and Mr Houghton defaulted by failing to pay an instalment on 11 March 2011.
5. On or about 22 December 2015 the plaintiff commenced proceedings in this court against Mr Houghton claiming the sum of $2,549,247.33 plus interest pursuant to his loan facility. No defence was filed to that claim, and on 12 August 2016 the plaintiff obtained default judgment in the sum of $2,787,386.19. Subsequently, Mr Houghton was served with a bankruptcy notice with which he did not comply.
6. On or about 21 December 2015 the plaintiff commenced proceedings in this court against Mr Kennedy seeking judgment in the sum of $2,953,348.84. The plaintiff was unable to serve Mr Kennedy personally with the statement of claim and on 24 June 2016 those proceedings were discontinued.
7. Neither of the borrowers has paid what is owing to the plaintiff.
8. In August 2015 the plaintiff attempted to sell the whole of the property comprising the Kennedy lots and the Houghton lots. On 19 November 2015 contracts were exchanged for the sale of the property for a purchase price of $675,000. On 29 February 2016 the solicitor acting on behalf of the purchaser informed the plaintiff's solicitors that the purchaser would be unable to complete the contract. The plaintiff accepted the purchaser's repudiation and terminated the contract. Despite further attempts to sell the property, the property has not sold.
9. On 20 October 2016 the plaintiff commenced the present proceedings against MMJ Real Estate (WA) Pty Ltd, and the two valuers responsible for the valuations provided to the plaintiff. The plaintiff claims the first defendant, MMJ, breached its retainer and that all of the defendants breached their duty of care owed to the plaintiff. The plaintiff further claims that the defendants made various representations in trade and commerce which were misleading and deceptive. The plaintiff claims damages in reliance on s 51A of the Trade Practices Act 1974 (Cth), s 41 of the Fair Trading Act 1987 (NSW) and s 9 of the Fair Trading Act 1987 (WA).
10. The defendants collectively filed a defence to the original statement of claim and an amended defence to the amended statement of claim. Subsequently, following the filing of notices of motion on 28 March 2018, each of the defendants was given leave on 13 April 2018 to file a cross-claim against XL Insurance Company SE. The first defendant, MMJ, seeks the following relief against the cross-defendant: 1. a declaration that the cross-defendant is liable to indemnify the first defendant in respect of any liability to the plaintiff under the policy; 2. that the cross-defendant indemnify the first defendant against any amount found due by the defendant to the plaintiff and indemnify the defendant against all of the plaintiff's cost of the claim (if awarded to the plaintiff against the first defendant); 3. pay (sic) the first defendant's costs of defending the principal action and the costs of this cross-claim.
11. The second defendant, Dennis John Volk, seeks the same relief against the cross-defendant.
12. The third defendant, Brett Hosking, seeks the following relief: (a) a declaration that the cross-defendant is liable under Insurance Policy No. AU000006350E016A to indemnify the third defendant in respect of any liability the third defendant has to the plaintiff in respect of the plaintiff's claim and to advance defence costs to the third defendant; (b) the cross-defendant indemnify the third defendant against any amount found due by the third defendant to the plaintiff and indemnify the third defendant against the plaintiff's costs of the plaintiff's claim (if awarded to the plaintiff against the third defendant); (c) the cross-defendant pay the third defendant's costs of defending the plaintiff's claim and the costs of this cross-claim.
13. The cross-defendant's principal defence to the claim for indemnity by the defendants is pleaded as follows in its defence to each cross-claim: 13. Further, and in answer to the whole of the Cross-claim, the cross-defendant says that: (a) it was a term of the Policy that (the Non-Bank Lender Exclusion) the cross-defendant would not be liable to indemnify the Insured for any Loss, settlement or other payment or pay any Defence Costs directly or indirectly arising out of, based upon or attributable to or in consequence of any valuation undertaken by or on behalf of the Insured for any lender, financier or any other provider of financial security that is not an Authorised Deposit-Taking Institution (ADI) supervised by the Australian Prudential Regulation Authority (APRA) unless the following "Prudent Lender Clause" was included in any such valuation report (the Prudent Lender Clause): "This valuation is prepared on the assumption that the lender as referred to in the valuation report (and no other) may rely on the valuation for mortgage finance purposes and the lender has complied with its own lending guidelines as well as prudent finance industry lending practices, and has considered all prudent aspects of credit risk for any potential borrower, including the borrower's ability to service and repay any mortgage loan. Further, the valuation is prepared on the assumption that the lender is providing mortgage financing at a conservative and prudent loan to value ratio". Particulars (1) Endorsement 1, Clause (ix). (b) the Valuations comprised valuations undertaken by or on behalf of the Insured for the plaintiff in its capacity as a lender or financier; Particulars (1) The cross-defendant repeats and relies upon paragraphs 5 - 9 and 14 -19 of the Amended Statement of Claim. (c) the plaintiff is not, and was not at any material time, an ADI supervised by APRA; Particulars (1) Register of Authorised Deposit-Taking Institutions maintained by the Australian Prudential Regulation Authority. (d) further, the Valuations did not include the Prudent Lender Clause; and (e) in the circumstances referred to in sub-paragraphs (b) and (c) above, or alternatively sub-paragraphs (b), (c) and (d) above, any liability which the cross-defendant may have otherwise had to indemnify the cross-claimant for Loss incurred in respect of, or to pay Defence Costs in relation to, the plaintiffs claim against the cross-claimant in the proceedings, is excluded in accordance with the Non-Bank Lender Exclusion.

The present motions

1. In their motions filed 28 March 2018 the first defendant and the third defendant sought leave to file a further defence which pleaded proportionate liability. The notice of motion filed by MMJ did not specify the basis for the proportionate liability pleading. The third defendant's notice of motion sought to plead proportionate liability under s 5AK(1) of the Civil Liability Act 2002 (WA).
2. In the consent orders made on 11 April 2018 provision was made for amended draft defences to be circulated and for the plaintiff to indicate whether or not it consented to the filing of those defences. The plaintiff has now indicated that it does so consent.
3. New solicitors for the first defendant have raised issues with the form of the amended statement of claim filed on 15 September 2017. The plaintiff has indicated that, whilst it does not accept the criticisms made, to avoid dispute, delay and expense, it seeks leave to file a further amended statement of claim. The defendants consent to that course.
4. The principal matter for determination is whether the court should direct pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) for the decision as a preliminary question, prior to the determination of the plaintiff's claim, whether the cross-defendant is liable under the policy to indemnify the defendants against the plaintiff's claim. The cross-defendant agrees that there should be an order for a hearing of the separate questions
5. The plaintiff opposes that application on the basis that it is not possible to determine all the issues arising in the indemnity dispute without trespassing on issues which will arise in the main proceedings. The plaintiff submits that there is an overlap of issues. The plaintiff also submits that the proceedings will be unnecessarily delayed with no certainty that the outcome of the separate hearing will shorten the length of the final hearing.

The proposed questions

1. The proposed questions for separate determination are as follows: 1. Whether the cross-defendant (XL) is entitled to decline to: (a) indemnify the First Defendant/Cross-claimant on the First Cross-claim (MMJ) under Professional Indemnity Insurance Policy No. AU00006350EO16A (the Policy) for any "Loss" (as defined in the Policy) (Loss) incurred by the cross-claimant in respect of the Plaintiffs claim against it in the proceedings; and (b) to pay "Defence Costs" (as defined in the Policy) (Defence Costs) in relation to that claim, by reason of the operation of clause (ix) of Endorsement 1 to the Policy? 2. Whether XL is entitled to decline to: (a) indemnify the Second Defendant/Cross-claimant on the Third Cross-claim (Volk) under the Policy for any Loss incurred by Volk in respect of the Plaintiffs claim against him in the proceedings; and (b) to pay Defence Costs in relation to that claim, by reason of the operation of clause (ix) of Endorsement 1 to the Policy? 3. Whether XL is entitled to decline to: (a) indemnify the Third Defendant/Cross-claimant on the Second Cross-claim (Hosking) under the Policy for any Loss incurred by the cross-claimant in respect of the Plaintiffs claim against the cross-claimant in the proceedings; and (b) to pay Defence Costs in relation to that claim, by reason of the operation of clause (ix) of Endorsement 1 to the Policy?

The agreed facts

1. The defendants and the cross-defendant have agreed the facts for the purpose of the separate questions as follows: 1. True copies of the documents referred to in this Statement of Agreed Facts are included behind the corresponding Tab in the Bundle marked "Exhibit AF-1", accompanying this statement. 2. The First Defendant/Cross-claimant on the First Cross-claim (MMJ) was at all material times registered as a company for the purposes of the Corporations Act 2001 (Cth) and carried on business as a realtor and property valuer. 3. The Second Defendant/Cross-claimant on the Third Cross-claim (Volk) was at all material times a director of MMJ and a certified practicing property valuer. 4. The Third Defendant/Cross-claimant on the Second Cross-claim (Hosking) was at all material times an employee of MMJ and a certified practising property valuer. 5. The Cross-defendant to each cross-claim (XL) issued a professional indemnity insurance policy, being Policy No. AU00006350EO16A (the Policy), to MMJ for the "Period of Insurance", being the period between 30 June 2016 and 30 June 2017. 6. The Policy consisted of the following documents: (a) a "policy wording", being the document described as "XL Catlin Professional Indemnity Insurance Misc PI 0515 Policy No. AU00006350EO16A" (the Policy Wording) behind Tab 1 of Exhibit AF-1; (b) a Policy "Schedule" included with the Policy Wording behind Tab 1 (the Schedule); (c) various endorsements to the Policy, included with the Policy Wording behind Tab 1, including: (i) an endorsement to the Policy described as "Endorsement No. 1 Valuers Endorsement 0515 (Modified)" (Endorsement No. 1); and (ii) a further endorsement to the Policy described as "Endorsement 2 Valuers Definition of Claim Endorsement 0515" (Endorsement No. 2); and (d) a "Proposal for insurance" completed and signed on behalf of MMJ on 9 June 2016 and submitted to XL on or about that date (the Proposal), a copy of which is behind Tab 2 of Exhibit AF-1. 7. On or about 29 November 2010, the Plaintiff (the Lender) by its agent the Think Tank Group Pty Ltd (the Manager) retained MMJ to provide valuations on the terms set out in the Manager's letters to MMJ dated 29 November 2010 behind Tab 3 of Exhibit AF-1. 8. The Lender entered into two loan agreements, as lender, as follows: (a) for a facility of up to $1,650,000 in accordance with the terms of an offer made on its behalf and set out in a letter sent by the Manager to Leigh John Kennedy (Kennedy) dated 30 November 2010, a copy of which, together with the "Facility Terms" enclosed with it, is behind Tab 4 of Exhibit AF-1; and (b) for a facility of up to $1,450,000 in accordance with the terms of an offer made on its behalf and set out in a letter sent by the Manager to Wayne Allan Houghton (Houghton) dated 1 December 2010, together with the "Facility Terms" enclosed with it, is behind Tab 5 of Exhibit AF-1. 9. The Lender is not and has never been, an Authorised Deposit Taking Institution (ADI) supervised by the Australian Prudential Regulation Authority (APRA). 10. On or about 9 December 2010, MMJ produced a valuation report for the Lender, addressed to the Manager in its capacity as agent for the Lender in relation to certain strata lots located at 14A Hurrell Way, Rockingham in Western Australia (the Kennedy Valuation) a copy of which is behind Tab 6 of Exhibit AF-1. 11. On or about 9 December 2010, MMJ produced a further valuation report for the Lender addressed to the Manager in its capacity as agent for the Lender in relation to certain other strata lots located at 14A Hurrell Way, Rockingham in Western Australia (the Houghton Valuation) a copy of which is behind Tab 7 of Exhibit AF-1. 12. On 10 December 2010, MMJ produced a further version of the Houghton Valuation for the Lender and provided it to the Manager in its capacity as agent for the Lender, described as an "updated" version (the Updated Houghton Valuation) a copy of which is behind Tab 8 of Exhibit AF-1. 13. The Kennedy Valuation, the Houghton Valuation and the Updated Houghton Valuation were all prepared and signed on behalf of MMJ by Hosking and reviewed and countersigned by Volk. 14. The Lender commenced the proceedings against MMJ, Volk and Hosking by a Statement of Claim filed on 20 October 2016, a copy of which is behind Tab 9 of Exhibit AF-1. 15. MMJ gave notice of the proceedings to XL in about early November 2016. 16. The loss the subject of the Lender's claim against MMJ, Volk and Hosking was not caused by their failure to incorporate in the valuation reports the subject of the Lender's claim a "Prudent Lender Clause" in the terms set out in Endorsement l(ix) of the Policy.

Legal principles

1. In Southwell v Bennett [2010] NSWSC 1372, Hallen ASJ (as his Honour then was) said at [15]: I take the principles that apply in determining whether to make an order for the separate determination of a question under the rule to be: (a) The rule speaks of "questions" and not "issues" and does not differentiate between questions of fact, or law, or partly of fact and partly of law. (b) The judicial determination of a "question" must involve a conclusive, or final, decision based on concrete and established, or agreed, facts, for the purpose of quelling a controversy between the parties: Bass v Permanent Trustee Co Ltd [1999] HCA 9; (1999) 198 CLR 334, at [45] and [51]. (c) The rule permits the Court to hear and determine the separate question at any point before, at, or after, any trial or further trial in the proceedings, rather than only as a preliminary question. (d) Whether such an order should be made is a matter for the court's discretion, which discretion must be exercised judicially, but cannot otherwise be fettered: Dunstan v Simmie & Co Pty Ltd [1978] VR 669, at 670; Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7]. (e) As a general rule, the discretionary power to order separate determination of a question should be approached with caution: Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 at [436], per Callinan J; Tepko Pty Limited v The Water Board [2001] HCA 19; (2001) 206 CLR 1, at [168]-[170] per Kirby and Callinan JJ: Commonwealth Bank v Clune [2008] NSWSC 1125 at [6], per Johnson J; Bailey and Bailey v Director-General Department of Energy Climate Change and Water and Ors [2010] NSWSC 979 at [4] per Studdert AJ. (f) In exercising its discretion, the overriding purpose of the Civil Procedure Act 2005, namely the just, quick and cheap resolution of the real issues in the proceedings (s 56) must be given effect. (g) Generally, all questions of fact and law should be determined at the one time: Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-42; SPI Spirits (Cyprus) Ltd v Diageo Australia Ltd [2006] FCA 14. If the Court is to depart from that position, the party seeking the separate determination of a question must satisfy the Court that it would be 'just and convenient' for that order to be made: Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 at [8]-[9], see also Energy Australia v Australian Energy Limited [2001] FCA 1049. (h) While it may appear attractive, superficially, to order the trial of a separate question, experience often shows that it will not be so, for example, because of the complications that can arise in relation to appeals, or to overlapping factual issues, or to questions of credit, if the same witnesses have to give evidence in relation to a question that is separated and those questions that are not: Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7(6)] per Einstein J.; Owners Corporation Sp 70672 v Trustees of Roman Catholic Church [2010] NSWSC 946 at [16] per Ball J. (i) The experience of courts suggests that the separation of proceedings often does not result in the quicker and cheaper resolution of proceedings, but often has the reverse effect. It sometimes happens that it turns out to be productive of the disadvantages of delay, extra expense, appeals and uncertainty of outcome which it is intended to avoid: Idoport Pty Ltd v National Australia Bank Ltd; Tepko Pty Limited v The Water Board at [168]. (j) Before a question is to be separately determined, it must be possible to clearly see that it will facilitate the quicker and cheaper resolution of the proceedings: Tallglen v Pay TV Pty Ltd at 142, per Giles CJ in Comm D; Parramatta Stadium Trust v Civil and Civic Pty Ltd; Century Medical v THLD (NSWSC, 27 August 1996, unreported). (k) Where findings as to the credit of a witness is, or of witnesses are, or may be, involved in the consideration of the evidence relevant to the question, it is inappropriate to order a separate trial: ABB v Freight Rail [1999] NSWSC 1037. (l) Often, a separate question is heard on the basis of: (i) agreed statements of fact; (ii) a narrow point to be determined; and (iii) a hearing that is able to be conducted within a short time (or a short time relative to the total length if the hearing of the separate question were not to be dealt with). (m) Factors that tend to support the making of an order, include that the separate determination of the question may: (i) contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the proceedings: Tallglen v Pay TV Holdings; (ii) contribute to the settlement of the litigation (CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 602 per Kirby P at 607). (n) It may be appropriate to determine a separate question, even if it will not resolve all the issues, provided that there is a strong prospect that the parties will agree upon the result when the core of the dispute has been decided, or if the decision will obviate unnecessary and expensive hearings of other questions: City of Swan v Lehman Brothers Australia Ltd [2009] FCA 784; (2009) 73 ACSR 86 at [27] per Rares J. The determination of the one question should enable a sensible reassessment of litigation risks, which is generally likely to encourage some form of settlement discussions. (o) Relevantly, one factor that may tell against the making of an order would be where there is likely to be a significant overlap between the evidence adduced on the hearing of the separate question and at trial - possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding: Reading Australia Pty Ltd v Australian Mutual Provident Society at [8]. There is always a risk of inconsistent findings arising from determination of separate questions. (p) Whilst the decision is ultimately one for the court to determine, it will have regard to the attitude of the parties: TVW Enterprises Limited v Duffy (Federal Court of Australia, 28 March 1985, unreported) Toohey J. (q) It is a relevant consideration to weigh the time likely to be taken in the hearing of a separate question and the availability of hearing dates for that purpose, against the time and expense of a substantive hearing and the length of time likely to elapse before such a hearing will take place: TVW Enterprises Limited v Duffy at pp 4-5. (r) Each case will have its own dynamics that dictate the relative importance of various factors to be considered in exercising the discretion conferred. (s) It is necessary that there be precision, both in formulating the question, and in specifying the facts upon which it is to be decided: Jacobson v Ross [1995] 1 VR 337 at 341
2. In Crawley v Vero Insurance Ltd & Ors [2012] NSWSC 593, Beech-Jones J adopted those principles and made five further points as follows: [16] First it is trite to observe that the power conferred by rule 28.2 is to be exercised by reference to the overriding purpose of the Civil Procedure Act 2005 "to facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings" (s 56). One aspect of that command which my analysis below seeks to emphasise is the desirability of the proceedings being "cheap". I am under no illusion that these proceedings will be anything other than expensive for the parties, but that is not an excuse to let considerations of cost fall away. The system of litigation in this State expects that counsel appearing will be across all issues in the case and that the legal representatives will marshall all relevant evidence concerning those issues. Experience demonstrates that those steps in turn require a much larger body of material to be considered. All of this effort involves cost. Sometimes it is rendered futile because the focus of all this attention is rendered otiose by the Courts' determination of some other issue. [17] Second, an interlocutory order for the separate determination of issues is an exceptional measure, distinct from the ordinary course taken of determining the issues in their totality: Street v Luna Park Sydney Pty Ltd [2007] NSWSC 697 at [5]. Consequently, the applicant bears the burden of demonstrating the appropriateness of the order, but it may be appropriate for the judge to take a more "interventionist role" in crafting the precise scope of the question: Intergral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 per Brereton J at [6]; Commonwealth Bank of Australia v Clune [2008] NSWSC 1125. The counter to the observations in [16] is that sometimes issues are separated in the expectation that their resolution will determine the balance of the proceedings but that proves illusory. On other occasions a matter determinative of, and fatal to, the proceedings is decided but then appealed and overturned with the outcome that the parties find themselves back in the same position they were prior to a trial but with years having passed. Kirby and Callinan JJ noted in Tepko Pty Ltd v The Water Board [2001] HCA 19; (2001) 206 CLR 1 at [168] that the benefits of a separate question order "are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory..." . [18] Third, one real problem with ordering separate hearings is the potential for credibility findings to be made in one hearing in respect of a witness who may have to give evidence at the second hearing. This can create significant difficulties including, but not restricted to, the potential for the trial judge to disqualify themselves (see Warragamba Winery Pty Ltd v New South Wales [2010] NSWSC 66 at [10] to [14] per Harrison J). [19] Fourth, the power conferred by rule 28.2 is not one that enables the severing of "issues" but instead the isolation of "questions". The question needs to be identified with precision. One advantage of doing that in advance of hearing a motion such as this one is that the various considerations for and against exercising the power can be considered against the precise question that is proposed to be determined separately. Many of the cases involving applications of this kind involve attempts to undertake a Solomon style severing of all issues of liability and quantum without any precise identification of what the "question" to be determined separately is. For the reasons discussed below I reject that approach here although I consider it appropriate to sever a relatively narrow question of quantum which might occupy a disproportionately large portion of the litigation battlefield. [20] Fifth, one aspect of rule 28.2 that is not discussed in many of the cases is that it includes the power to order a question be decided after all other issues in the proceedings. Many of the cases where severance is sought involve an attempt to isolate some preliminary question which one of the parties hopes will give them a Hail Mary pass to the end zone of success. This approach runs the risk of promoting delay because of the potential for appeals from any adverse preliminary determination and the difficulties in isolating some discrete facts that enable the preliminary question to be resolved without overlapping with the balance of the proceedings. These adverse consequences are less likely where the separate question is relatively narrow and will be decided after all other issues in the proceedings. In addition it is always to be borne in mind that an order under rule 28.2 can be revoked if appropriate (see Warragamba). Thus if it appears to a trial judge who is completely cognisant of all the issues and the material that a hearing of the separate question is not warranted they may revoke it or, if appropriate, hear and determine it immediately. There is far less scope to change course for a trial judge who embarks upon a hearing of a question posed prior to the hearing of all other issues in the proceedings.

Consideration

1. The plaintiff submitted that the issues raised by the Prudent Lender clause are issues that will have to be determined at the final hearing in the sense that matters of causation, contributory negligence and reliance are issues raised by the defences in any event. The plaintiff submitted that for the defendants and the insurer to agree on paragraph 16 of the agreed facts for the purpose only of the separate hearing means that the separate hearing will be decided on a hypothetical.
2. In my opinion, the agreement contained in paragraph 16 of the agreed facts is significant for two reasons. First, it means that there will be no factual issues to be determined at the separate hearing, and that the separate hearing will, as the defendants and the cross-defendant submit, be determined on the question of construction only. That question of construction is, as Mr Watson SC for the defendants said, whether the clause can operate in the absence of causation to entitle the insurer to decline indemnity.
3. The second reason it is significant is that, although questions of causation, contributory negligence and reliance will be live issues at the final hearing, they will be issues unattended by any complexity from the Prudent Lender clause if, on the separate hearing, the insurer is found liable to indemnify the defendants. The insurer accepts that if it is found liable to indemnify the defendants, it is locked in to defending the proceedings and cannot subsequently deny indemnity for issues that relate to the Prudent Lender clause. The end result is that the issues that will be between the plaintiff and the defendants represented by the insurer will be no different from the issues between the plaintiff and the defendants unrepresented by the insurer.
4. Two beneficial things will flow if the separate hearing is decided in favour of the insurer being required to indemnify. The first is that the final proceedings will be more confined because there will be only two parties involved without the side issues between the defendants and the insurer. The second matter is that it is likely settlement of the proceedings will be easier to achieve if the insurer is conducting the defence of the proceedings. One of the variables, whether the insurer is bound to indemnify, will have been removed from consideration when settlement is discussed. I accept the submissions of the defendants and the cross-defendant in that regard.
5. The plaintiff quite legitimately raises the prospect of delay. One aspect of that delay can be fairly easily put aside. There are hearing dates available for single day or short matters in the relatively near future. There are no hearing days, probably this year at all, for three day or more matters. In those circumstances, the final hearing is unlikely to take place prior to 2019. By that time the separate hearing will have been determined.
6. The second aspect of delay raised by the plaintiff concerns an appeal from the result in the separate hearing. An appeal can never be put out of consideration but, if the possibility of an appeal was thought to be a barrier to this separate hearing, the possibility of an appeal would always be a barrier to any separate hearing. There is perhaps some irony in the fact that the one party in the present matter that considers it most likely that there would be an appeal from any separate question determination is the one party not directly involved in that separate hearing. Both the defendants and the cross-defendant have submitted that an appeal is unlikely whichever way the matter is determined.
7. Furthermore, an appeal from a decision on a separate question requires leave of the Court of Appeal: s 103 Supreme Court Act 1970 (NSW). That carries with it the result that any such appeal could probably be brought at the conclusion of the final hearing.
8. All the parties agree that it is difficult to see precisely how the Prudent Lender clause operates; particularly how the causation question is relevant to its operation. Having to determine that question with the ordinary causation, contributory negligence and reliance questions that are in issue between the plaintiff and the defendants would unnecessarily complicate the final hearing. The agreement contained in paragraph 16 of the facts obviates the need for that. That is a significant advantage and justifies an order for a separate hearing.
9. In my opinion, a proper application of the matters in Southwell v Bennett and Crawley v Vero Insurance Ltd makes it appropriate to order a separate hearing in the present case in the terms sought.
10. I make the following orders: (1) I order pursuant to r 28.2 Uniform Civil Procedure Rules 2005 that the following matters should be determined separately from, and prior to, the final hearing of the proceedings: (a) Whether the cross-defendant (XL) is entitled to decline to: (i) indemnify the First Defendant/Cross-claimant on the First Cross-claim (MMJ) under Professional Indemnity Insurance Policy No. AU00006350EO16A (the Policy) for any "Loss" (as defined in the Policy) (Loss) incurred by the cross-claimant in respect of the Plaintiffs claim against it in the proceedings; and (ii) to pay "Defence Costs" (as defined in the Policy) (Defence Costs) in relation to that claim, by reason of the operation of clause (ix) of Endorsement 1 to the Policy? (b) Whether XL is entitled to decline to: (i) indemnify the Second Defendant/Cross-claimant on the Third Cross-claim (Volk) under the Policy for any Loss incurred by Volk in respect of the Plaintiffs claim against him in the proceedings; and (ii) to pay Defence Costs in relation to that claim, by reason of the operation of clause (ix) of Endorsement 1 to the Policy? (c) Whether XL is entitled to decline to: (i) indemnify the Third Defendant/Cross-claimant on the Second Cross-claim (Hosking) under the Policy for any Loss incurred by the cross-claimant in respect of the Plaintiffs claim against the cross-claimant in the proceedings; and (ii) to pay Defence Costs in relation to that claim, by reason of the operation of clause (ix) of Endorsement 1 to the Policy? (2) The costs of the application for a separate hearing be each of the party's costs in the cause.

Amendments 13 July 2018 - Title page amended 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. Decision last updated: 13 July 2018