Buckee v Commonwealth of Australia

Solicitor for the First Respondent: Minter Ellison

Counsel for the Second Respondent: Mr JA Thomson SC

Solicitor for the Third Respondent: Morgan Alteruthemeyer

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 433 of 2013

QBE INSURANCE (AUSTRALIA) LIMITED ABN 78 003 191 035

JUDGE: BARKER J DATE OF ORDER: 18 MARCH 2014 WHERE MADE: PERTH

1. The proceeding be dismissed on the ground that the Court does not have jurisdiction to hear and determine the proceeding. 2. Costs be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 433 of 2013

QBE INSURANCE (AUSTRALIA) LIMITED ABN 78 003 191 035

JUDGE: BARKER J DATE: 18 MARCH 2014 PLACE: PERTH

REASONS FOR JUDGMENT 1 On 6 February 2011, a bushfire in Kelmscott and Roleystone, near Perth, Western Australia caused significant property damage. 2 Mr and Mrs Buckee (the applicants) allege that the bushfire commenced as a result of angle grinding work carried out by Mr Stevens (the third respondent) at premises in Brookton Highway, Roleystone. 3 The Buckees allege that Mr Stevens was insured under two policies, namely a building policy issued by the Commonwealth of Australia, pursuant to the Defence Service Homes Insurance Scheme (DSHIS) and a contents policy underwritten by the Commonwealth and/or QBE Insurance (Australia) Limited (QBE). 4 The Buckees allege that Mr Stevens failed to exercise reasonable care to avoid the risk of fire being caused by his angle grinding work and claim that his negligence caused property damage to them and other people. 5 The Buckees allege that Mr Stevens' liability arose by reason of the residency and occupancy of his home in Brookton Highway. However, a factual issue has arisen whether this is so and whether any liability which may attach to Mr Stevens is based upon his legal status as a resident or occupier. 6 Based on the allegation that Mr Stevens is liable to them and other persons by reason of his residency and occupancy, the Buckees allege that the Commonwealth and QBE are liable to indemnity Mr Stevens against his liability to them and other persons. The liability of QBE is alleged to arise because Mr Stevens' liability was not related to the ownership of his home. This appears to involve an implicit allegation that a relevant exclusion does not apply to exclude QBE's liability. 7 The Buckees now bring this proceeding in the Federal Court of Australia as a representative action under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act) both on their own behalf and as representatives for other persons affected (group members). 8 In substance, the Buckees seek relief in the form of declarations to the effect that the Commonwealth and QBE are liable to indemnify Mr Stevens against his liability to them and group members. 9 Having regard to the definition of group members employed in the originating application, which requires that such affected persons must hold policies issued by either of two insurers, the proceeding may be seen effectively as a dispute between insurers of those whose property was damaged and Mr Stevens' insurers. There is no suggestion that the insured whose property was damaged have not been paid by their insurers. 10 It is in these circumstances that the Commonwealth and QBE question whether this Court has jurisdiction to deal with the representative proceeding that the Buckees, by their insurer under its right of subrogation under the relevant policy, have commenced. 11 They say that the causes of action upon which the Buckees rely are essentially tortious (insofar as Mr Stevens is concerned) and contractual (insofar as the declarations as to the liability of Mr Stevens' insurers are concerned). 12 The Commonwealth and QBE contend there is no allegation contained in the fast track statement filed with the originating application to commence the proceeding, of any federal statute or constitutional issue relating to the substantive matters in dispute between the parties. 13 They also say the fact that the Commonwealth is a respondent to the claim made is not a basis for invoking the Federal Court's jurisdiction. 14 They submit, therefore, that because the Court does not have jurisdiction to hear and determine the proceeding, it should be dismissed with costs. 15 In the event the Court were to find it has jurisdiction, these respondents submit the proceeding should be transferred to the Supreme Court of Western Australia, pursuant to s 5(4) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), having regard to the fact that five sets of related bushfire proceedings are currently proceeding in that Court and have been for some years. 16 In these circumstances, two primary issues arise for consideration: (1) Whether this Court has jurisdiction to deal with the proceeding. (2) If the Court has jurisdiction, whether the proceeding should be transferred to the Supreme Court of Western Australia.

Does the Court have jurisdiction to deal with the proceeding? 17 Section 39B of the Judiciary Act 1903 (Cth) identifies the original jurisdiction of the Federal Court of Australia. Relevantly, s 39B(1) and (1A) provide as follows: (1) Subject to subsections (1B), (1C) and (1EA), the original jurisdiction of the Federal Court of Australia includes jurisdiction with respect to any matter in which a writ of mandamus or prohibition or an injunction is sought against an officer or officers of the Commonwealth. (1A) The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter: (a) in which the Commonwealth is seeking an injunction or a declaration; or (b) arising under the Constitution, or involving its interpretation; or (c) arising under any laws made by the Parliament, other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter. Note: Paragraph (c) does not prevent other laws of the Commonwealth conferring criminal jurisdiction on the Federal Court of Australia. 18 Subsections (1B), (1C), (1D), (1E), (1EA) and (1F) are not presently relevant. 19 Sections 39B(1) is also not presently relevant as the proceeding commenced in this Court by the Buckees is not one in which a writ of mandamus or prohibition or an injunction is sought against an officer or officers of the Commonwealth. 20 Nor is the matter raised by the proceeding one in which the Commonwealth is seeking an injunction or a declaration, or one arising under the Constitution, or involving its interpretation, with the result that subs (1A)(a) and (b) are also not presently relevantly. 21 The primary issue is whether the proceeding involves a "matter…arising under any laws made by the Parliament" for the purposes of subs (1A)(c). Plainly enough the qualification to para (c) is not relevant here as, on any view, there is no matter in respect of which a criminal prosecution is instituted or any other criminal matter. 22 The Buckees submit that the proceeding involves a matter arising under laws made by the Commonwealth Parliament, the relevant laws being the Insurance Contracts Act 1984 (Cth) and the Insurance Contracts Regulations 1985 (Cth); or possibly s 64 of the Judiciary Act itself. 23 The Buckees rely primarily on a matter arising under the Insurance Contracts Act, accepting that the argument pressed in relation to s 64 of the Judiciary Act is not supported by authority. 24 I should deal with the s 64 argument first, and briefly. It is an intriguing argument but not one, in the circumstances, I would accede to. 25 Section 64 appears in Pt IX of the Judiciary Act under the heading "Suits by and against the Commonwealth and the States". Section 64 makes provision for the "Rights of parties" in the following terms: In any suit to which the Commonwealth or a State is a party, the rights of parties shall as nearly as possible be the same, and judgment may be given and costs awarded on either side, as in a suit between subject and subject. 26 Senior counsel for the Buckees submits that s 64 has application in this proceeding and thus, this proceeding involves a matter arising under a law made by the Parliament. The argument is developed in the following way: Section 64 of the Judiciary Act provides that in any suit in which the Commonwealth or a State is a party "the rights of parties shall as nearly as possible be the same, and judgment may be given and costs awarded on either side, as in a suit between subject and subject". This proceeding is a "suit" for the purposes of the Judiciary Act, as it is an "action or original proceeding between parties" as defined in s 2 of the Judiciary Act. As explained in Bass v Permanent Trustee Company Limited [1999] HCA 9; (1999) 198 CLR 334, s 64 is of fundamental importance to understanding the juridical basis of an action maintained against the Crown. There it was said by the plurality that s 64 has an ambulatory operation so that it may extend rights in proceedings in which the Commonwealth or a State is a party by reference to subsequent legislation. It was also held that s 64 operates to apply substantive as well as procedural laws. It was accepted that it follows that s 64 may operate to confer a cause of action against the Commonwealth which would not have existed if s 64 had not equated the substantive rights of the parties to those in a suit between subject and subject. Without s 64, Mr and Mrs Buckee and group members would have no right to agitate a cause against the Commonwealth. However, Commonwealth v Evans Deakin Industries Limited [1986] HCA 51; (1986) 161 CLR 254 rejected an argument that s 64 did not create a right and it is clear from that case that in every suit to which the Commonwealth is a party, s 64 requires the rights of the parties to be ascertained as nearly as possible by the same rules of the law, substantive and procedural, statutory and otherwise as would apply if the Commonwealth were a subject instead of being the Crown. The position prior to the enactment of s 64 was explained in Baume v The Commonwealth (1906) 4 CLR 97 by O'Connor J by reference to the "temporary" statute that was replaced by s 64. In British American Tobacco Australia Limited v Western Australia [2003] HCA 47; (2003) 217 CLR 30 at [72], McHugh, Gummow and Hayne JJ (with whom Callinan J concurred) observed that the remark of O'Connor J in Baume emphasised the importance of s 64 in the structure of federal jurisdiction "which provided for species of litigation unknown at common law and in the Colonies before federation". Without s 64, any subject would need to call in aid the ancient procedure of the petition of right. It follows that this action against the Commonwealth, being a species of litigation unknown at common law, arises under a law made by the Parliament, namely, s 64. 27 In my view, the analysis seriously falters at the last point. 28 I consider s 64 is intended to have application in a matter in which the Court has jurisdiction independently of s 64. In such circumstances s 64 by its terms then makes the rights of the parties as nearly as possible the same. This may mean that other legislation, including of a State, may operate to enable a party to sue the Commonwealth when at common law such a suit was unknown. 29 Thus, as senior counsel for QBE put it, s 64 is a provision which facilitates the making of a claim. It provides the procedure for claiming against the Commonwealth. It supplants the petition of right but it does not give any substantive rights. 30 I note that in China Ocean Shipping Co v South Australia (1979) 145 CLR 172 at 223, Stephen J observed that, although not accepted as common ground during argument on the appeal in that case, he thought it was clear that the operation of s 64 is confined to suits in federal jurisdiction. His Honour expressly stated that s 64 is only applicable "in proceedings in which a court is exercising federal jurisdiction". 31 Such an outcome is also consistent with the observations of the Court in Re Australian Securities and Investments Commission; ex parte Edensor Nominees Pty Limited [2001] HCA 1; (2001) 204 CLR 559 (ASIC v Edensor), where Gleeson CJ, Gaudron and Gummow JJ at [40] observed that s 39B(1A)(a) of the Judiciary Act is a law supported by s 77(i) of the Constitution in that it defines the jurisdiction of the Federal Court with respect to a limited class of the matters mentioned in s 75(iii). Their Honours noted that the limitation is expressed in two ways. First, by identifying matters where the Commonwealth sues but not those where it is sued and, secondly, by the nature of the relief sought. 32 In a similar vein, when discussing the phrase "accrued jurisdiction" at [53], their Honours indicated that the expression may be likely to mislead where federal jurisdiction is attracted, not by the existence of federal law as a source of substantive rights and liabilities, but by the identity of the parties or a party. Their Honours said the identity of a party as the Commonwealth, within the sense of s 75(iii) of the Constitution, may be a sufficient animating circumstance without any federal law supplying the substantive rights and liabilities which are tendered for adjudication. Litigation between residents of different States, within the meaning of s 75(iv), would be another. 33 These observations all lend support for the view, pressed by the Commonwealth and QBE in this case, that the s 64 argument developed on behalf of the Buckees, if accepted, would, in effect, outflank the jurisdictional observations made in ASIC v Edensor. 34 I turn then to the primary contention of the Buckees that federal law operates here because the present case involves rights and liabilities arising under a contract of insurance, the terms of which were both regulated and governed by a federal law, namely the Insurance Contracts Act. 35 In considering the Buckees' contentions concerning the Insurance Contracts Act, I accept the proposition that a matter may arise under federal law without the form of relief sought in the proceeding or the relief itself depending on federal law. As was said in LNC Industries Limited v BMW (Australia) Limited [1983] HCA 31; (1983) 151 CLR 575 (LNC Industries Ltd v BMW), at 581, in the context of a claim for damages available under State law, if the contract under which the claim is made is in respect of a right or property which is the creation of federal law, then the claim is one arising under federal law. The subject matter of the contract in such a case exists as a result of the federal law. 36 Thus, the Court there held that a contract for the sale of a licence to import motor vehicles granted under a Commonwealth regulation owed its existence to federal law. So an action arising out of a contract for sale, where the only federal aspect was that the property the subject of the contract was created by federal law was held to be a matter arising under a law made by the Commonwealth Parliament. 37 These principles were the subject of observations made by Allsop J (as the Chief Justice then was) writing extra-judicially in 2002, which are now relied on by the Buckees: Justice Allsop "Federal jurisdiction and the jurisdiction of the Federal Court of Australia in 2002" (2002) 23 Aust Bar Rev 1. His Honour, at p 9, observed of the expression "arising under" as follows: It is important to appreciate the relationship between a controversy (which the Court's job is to quell) and the question of arising under a Commonwealth law. A controversy may be evident between parties well before either party decides to go to court. An assessment may well be able to be made at that point about whether there is a federal matter. For example, an insured might make a claim upon its insurer, seeking vindication of its contractual rights. The insurer may deny liability and say nothing, or it may explain its position. It may say there was a non-disclosure or misrepresentation, thereby raising in the controversy ss 21 and 28 of the Insurance Contracts Act…It may say that the claim is fraudulent, making s 56 of the ICA relevant. It may say that a breach of condition occurred so as to make s 54 of the ICA relevant. In these circumstances the matter (the controversy) arises under a law of the parliament because of the existence of the federal issue embedded within the matter. The federal nature of the controversy does not depend upon whether the federal issue is in the first or second pleading. It does not depend upon whether the insurer strikes first by seeking a declaration of right based on the ICA or the applicant strikes first with a claim under the policy. Difficult questions might arise if a defendant, before action, asserts a federal right, but before any assertion in court or before suit the defendant genuinely abandons the previously asserted federal right or immunity. However, it is plain that a 'matter' or controversy may exist prior to the institution of proceedings and that it may, at that point, bear a federal character. 38 His Honour, at p 10, added that there need not even be a disputed federal issue in issue and that the phrase "arising under" is wide enough to encompass a claim for common law or equitable relief in respect of, or over, a right which owes its existence to federal law; citing LNC Industries v BMW in this regard. 39 In Agtrack (NT) Pty Ltd v Hatfield [2005] HCA 38; (2005) 223 CLR 251 (Agtrack), when dealing with Pt IV of the Civil Aviation (Carriers' Liability) Act 1959 (Cth), the plurality (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ) considered precisely these issues and, at [29], said that it is well settled that a "matter" means more than a legal proceeding and that an important aspect of federal judicial power is that, by its exercise, a controversy between parties about some "immediate right, duty or liability is quelled". Further, that federal jurisdiction may be attracted at any stage of a legal proceeding. For example it may be raised for the first time in a defence. 40 The plurality added, at [32], that whether federal jurisdiction with respect to one or more of the matters listed in ss 75 and 76 of the Constitution has been engaged in a legal proceeding (which was a question in that case) is a question of objective assessment. If a party on either side of the record relies upon a right, immunity or defence derived from a federal law, there is a matter arising under s 76(ii) of the Constitution. Their Honours said it is not a question of establishing an intention to engage federal jurisdiction or an awareness that this has occurred. Immediate ascertainment of the factual basis of a justiciable controversy and of the attraction of federal jurisdiction in the proceeding will not always be possible by regard simply to allegations pleaded. 41 Their Honours added that, if the attraction of federal jurisdiction itself is disputed, it may require evidence of the factual basis of the controversy to permit an answer to that question. 42 The observations of the plurality about federal jurisdiction being attracted with respect to one or more of the matters listed in ss 75 and 76 of the Constitution are relevant in relation to the question whether this Court has jurisdiction with respect to any matter arising under any laws made by the Parliament for the purposes of s 39B(1A)(c). 43 Here, the Buckees put three propositions as to why federal law is attracted in this proceeding: (1) The first proposition put is that in construing the policies the regulatory regime imposed by the Insurance Contracts Act and the Insurance Contracts Regulations are a necessary foundation. Sections 14 and 13 concerning utmost good faith are mentioned in this regard. (2) The second is that the cover provided by the policies derogates from the standard cover provisions of the Insurance Contracts Act and Insurance Contracts Regulations and that, if the insurer seeks to rely upon the relevant exclusions, it can only do so if it proves that before the policies were entered into, it clearly informed the insured in writing that the policy would not provide cover in these events, as provided for by s 35(2). (3) The third is that, "as is made plain in the evidence", the claims of the Buckees and the group members will include insured and non-insured losses, and to the extent claims are advanced with regard to insured losses, such losses are no longer suffered by the Buckees or group members at common law and the only way they can be recovered is by operation of the principle of subrogation; and that s 67 of the Insurance Contracts Act governs the rights with respect to monies recovered under subrogation rights. 44 To the extent that the Buckees advance a proposition that the Insurance Contracts Act is the source of substantive law governing the proper construction of all insurance contracts, I would reject the submission. It is far too wide. 45 There are many circumstances in which federal law affects contracts or conduct in respect of which rights and liabilities are distributed by private law and not by a law of the Parliament. Where a law of the Parliament affects such laws or creates rights or imposes liabilities, then a matter of federal law may arise. 46 Thus, in Austral Pacific Group Limited (in liquidation) v Airservices Australia [2000] HCA 39; (2000) 203 CLR 136 (Austral) the plurality (Gleeson CJ, Gummow and Hayne JJ) observed, at [9], that the claim in contract for damages for breach of obligations imposed by provisions such as s 71 and s 74 of the Trade Practices Act 1974 (Cth) (as it then applied) involved obligations that are statutorily created and take effect by a legal fiction, namely that the parties made a contract including the relevant obligations. That is how Brennan J analysed the matter in Arturi v Zupps Motors Pty Ltd [1980] FCA 164; (1980) 49 FLR 283 at 285-286. Their Honours added that it follows that a party claiming damages for breach of such an obligation asserts a right which owes its existence to federal law thereby attracting the exercise of federal jurisdiction invested in that case under s 39(2) of the Judiciary Act. 47 While there may possibly be cases where a federal law wholly governs the assertion of rights that were once wholly governed by private or common law, the observations of the plurality in Austral suggest that contractual obligations that are otherwise unregulated do not generally owe their existence to a federal law simply because particular obligations are statutorily created by a federal law. 48 I consider, therefore, that the fact that the policies here in question are insurance contracts and there is a Commonwealth Insurance Contracts Act does not mean that each and every issue in relation to the policies, for example, the proper construction of the policies, is necessarily a matter arising under the federal law. 49 Indeed, what was said by their Honours in Agtrack strongly suggests that it is where the controversy between the parties is about some immediate right, duty or liability that the federal jurisdiction of the Court is attracted in order to quell that particular controversy. This is confirmed by the point made that federal jurisdiction may be attracted at any stage of a legal proceeding, for example, on the filing of a defence. 50 I would accept, for the sake of argument, however, that the relevant federal matter in dispute may already be clear by other communications between the parties. The exchange of correspondence before legal action may well have crystallised the issue and be sufficient to provide the federal character of the matter in controversy, as suggested by Allsop J (as his Honour then was) in the passage set out above. 51 That gives rise to the question whether the three propositions advanced on behalf of the Buckees in this case have relevantly crystallised a federal matter in controversy. 52 As to the first proposition, that ss 14 and 13 of the Insurance Contracts Act dealing with utmost good faith are put in issue, I am of the opinion that such a controversy does not presently arise and does not appear to have been put in dispute in any relevant way. Utmost good faith is not a pleaded issue. I do not see on the evidence before the Court that it is raised in any form save by the Buckees now raising it in argument in prospect. If the Buckees are to be taken to suggest that it "may" become an issue, then in my view that is not sufficient for present purposes to enable the identification of an existing controversy that has a federal character. 53 As to the second proposition concerning the reliance or possible reliance of an insurer upon a relevant exclusion in a policy, again there is no pleaded issue to that effect and, apart from the matter being raised in argument, it is not apparent that any such controversy has otherwise been crystallised between the parties. It is an issue that may arise, but has not yet arisen. To put that issue in terms of Agtrack, there does not appear to be any immediate right, defence or immunity raised that depends for its existence on the Insurance Contracts Act in this regard. 54 The third proposition, concerning rights with respect to monies recovered under subrogation rights provided for by s 67 of the Insurance Contracts Act, also presently does not appear as a crystallised issue of present concern. If there is recovery then a question of subrogation may arise. But until the issue can be shown to have some immediate relevance, it is insufficient, in my view, to attract a federal character to the proceeding. 55 In summary, I do not accept that the Insurance Contracts Act should be taken as the source of all rights, liabilities and obligations under an insurance contract and, in particular, the policies in question here. To be fair to the argument advanced on behalf of the Buckees, I do not think that such a proposition is really pressed. What is pressed is that by reason of one or other of the three propositions put, crystallised issues can be sufficiently identified to supply a federal character to the proceeding. For the reasons given, however, it seems to me that these propositions relate to matters that are not presently in issue and that there is no immediate right, defence or immunity either pleaded or otherwise apparent. 56 That is not to deny that at some point, perhaps, the matter might acquire a federal character. But in my view that potential position does not presently exist and to say that is will arise is speculative. There is no present controversy in such terms that requires quelling by this Court. 57 In that regard, the present case may be contrasted with those that were presented to the Court in LNC Industries Ltd v BMW and the subject of observations by Rares J in Sagacious Legal Pty Ltd v Wesfarmers General Insurance Limited (No 4) [2010] FCA 482; (2010) 268 ALR 108 at [5]. 58 I find, therefore, that the Court does not have jurisdiction to hear and determine this proceeding and accordingly the interlocutory applications of the Commonwealth and QBE to dismiss the proceeding should be granted with costs.

should the proceeding be transferred to the Supreme Court of western Australia? 59 I accept the submissions made on behalf of QBE that unless the Court were to find that it has jurisdiction in the matter, it has no jurisdiction or power to make a cross-vesting order under the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth). 60 In circumstances where I have found that the Court does not have jurisdiction to entertain this proceeding there is no need further to consider the transfer application.

conclusion and order 61 By reason of the Court's finding that it does not have jurisdiction to hear and determine this proceeding, the appropriate order is that the proceeding be dismissed on the ground that the Court does not have jurisdiction to hear and determine the proceeding with costs. I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.