FRENCH CJ, KIEFEL, BELL AND KEANE JJ.
Introduction
The question on this appeal is whether federal jurisdiction invested in the Supreme Court of Victoria authorises that Court to entertain a claim for a declaration, by a plaintiff against a defendant's insurer, that the insurer is liable to indemnify the defendant.
On 9 April 2013, the liquidators of Akron Roads Pty Ltd (In Liq) ("Akron") commenced proceedings in the Supreme Court against three former directors of the company including Mr Trevor Crewe. Also named as a defendant was Crewe Sharp Pty Ltd (In Liq) ("Crewe Sharp"), a company of which Mr Crewe was a director and which provided consultancy services to Akron. The liquidators allege that Crewe Sharp was a director of Akron within the extended meaning of "director" in s 9 of the Corporations Act 2001 (Cth) ("the Act").
The liquidators sought an order under s 588M(2) of the Act that the directors and Crewe Sharp pay to them, as a debt due to Akron, an amount equal to the amount of loss or damage suffered by creditors of Akron in relation to debts owed by Akron because of its insolvency. The cause of action created by s 588M is enlivened by a breach on the part of a company director of the duties imposed by s 588G of the Act to prevent the company incurring debts when it is insolvent or if it would become insolvent by incurring the debts and where there are reasonable grounds for suspecting that the company is or would become insolvent. The liquidators alleged that Mr Crewe and Crewe Sharp breached that duty by failing to prevent Akron from incurring debts when it was insolvent.
On 4 December 2013, Crewe Sharp made a claim on a professional indemnity policy with the appellant, CGU Insurance Ltd ("CGU"), for indemnity in relation to the claim brought against it by the liquidators. Mr Crewe, as a director of Crewe Sharp, was also insured under that policy.
CGU sent a letter to Crewe Sharp on 6 March 2014 denying that the insurance policy covered the liability asserted by the liquidators. CGU said that the claims against Crewe Sharp and Mr Crewe were expressly formulated as arising from breaches of their duties as directors. It cited an exclusion in the policy for the liability of directors or officers of an incorporated body "arising from any act, error or omission of a director or officer of that incorporated body while acting in that capacity." It also relied upon an exclusion of claims "[a]rising from a liability to pay trading debts, trade debts, or the repayment of any loan."
On 20 June 2014, Crewe Sharp entered into a creditors' voluntary liquidation and its liquidators informed Akron's liquidators that it was unlikely that the company would defend the proceeding against it. As at 31 July 2011, Mr Crewe's net assets were about $1 million. Mr Crewe is not a bankrupt but the undisputed evidence is that his limited assets would be insufficient to cover the claim brought against him by the Akron liquidators in this proceeding.
On 20 August 2014, Akron's liquidators filed an interlocutory process in the proceedings in the Supreme Court seeking an order that CGU be joined as a defendant and for leave to file and serve amended points of claim seeking a declaration that CGU was liable to indemnify Mr Crewe and Crewe Sharp under the insurance policy in respect of any judgment and costs order obtained by the Akron liquidators against them.
On 2 October 2014, Mr Crewe's solicitors informed the Akron liquidators that he consented to the joinder of CGU and that he disagreed with CGU's decision to deny indemnity to Crewe Sharp. The liquidators of Crewe Sharp informed the Akron liquidators that Crewe Sharp was unfunded, was not in a position to investigate CGU's denial of indemnity, and took no position in relation to the joinder application. The other defendant directors did not participate in the application.
On 13 February 2015, Judd J made the orders sought by the Akron liquidators. CGU made an application for leave to appeal against those orders. That application was heard by the Court of Appeal on 15 June 2015 and on 19 June 2015 that Court ordered that the application for leave to appeal be granted but that the appeal be dismissed. On 11 September 2015, this Court granted CGU special leave to appeal against the judgment and order of the Court of Appeal on the grounds that the Supreme Court lacked jurisdiction to entertain the claim by the Akron liquidators for declaratory relief against CGU. For the reasons that follow, the Supreme Court had federal jurisdiction which authorised it to entertain the claim and had the power to grant the relief sought.
The statutory framework
Sections 588G and 588M of the Act, which create the duties, and the remedies for their breach, underpinning the Akron liquidators' action against the former directors, have been sufficiently described.
The liquidators relied upon s 562 of the Act as a sufficient basis for the joinder of CGU. That section provides:
"(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."
There is an analogous provision in s 117 of the Bankruptcy Act 1966 (Cth) which vests, in the trustee in bankruptcy, the right of a bankrupt to indemnity, under a contract of insurance, against liabilities to third parties. It imposes a similar obligation on the trustee to pay over to such third parties amounts recovered under the insurance contract in respect of the bankrupt's liability to them.
The liquidators' application to join CGU was made under r 9.06 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) which relevantly provided:
"At any stage of a proceeding the Court may order that -
...
(b) any of the following persons be added as a party, namely -
(i) a person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all questions in the proceeding are effectually and completely determined and adjudicated upon; or
(ii) a person between whom and any party to the proceeding there may exist a question arising out of, or relating to, or connected with, any claim in the proceeding which it is just and convenient to determine as between that person and that party as well as between the parties to the proceeding".
The power conferred by that rule is to be exercised on the premise that the Court has jurisdiction with respect to the proceedings so far as they relate to the party to be joined. It is not itself a source of jurisdiction. If, as in this case, the Court is exercising federal jurisdiction, then the rule is applicable by operation of s 79 of the Judiciary Act 1903 (Cth). That section relevantly provides, in subs (1):
"The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable."
It is not suggested that there was any other law of the Commonwealth that "otherwise provided" so as to prevent the joinder rule being picked up by s 79.
The Supreme Court of Victoria, like all superior courts, has inherent power to grant declaratory relief. Section 36 of the Supreme Court Act 1986 (Vic) in terms common to Australian superior courts and based upon O 25 r 5 of the English Rules of the Supreme Court 1883 and s 50 of the Chancery Procedure Act 1852 provides:
"A proceeding is not open to objection on the ground that a merely declaratory judgment is sought, and the Court may make binding declarations of right without granting consequential relief."
In the exercise of federal jurisdiction by the Supreme Court, s 36 would be picked up by s 79 of the Judiciary Act and be applicable to the grant of declaratory relief in federal jurisdiction.
The pleading
The question before this Court being framed as one of jurisdiction, it is necessary to refer to the liquidators' Second Further Amended Points of Claim, which set out the claims both against the directors and against CGU.
The Akron liquidators alleged that the company incurred debts totalling $14,657,189.05 between 1 August 2009 and 1 February 2010, a period defined in the pleading as the "Relevant Period". Each of the defendants was said to have been a director of the company within the meaning of s 9 of the Act for the whole of the Relevant Period. Mr Crewe had been appointed as a director on 19 July 2001 and had continued to be a director since that date. Crewe Sharp, having acted in the position of a director, was thereby a de facto director within the meaning of s 9 of the Act. Alternatively, because the directors of the company were accustomed to act in accordance with its instructions or wishes, it was a "director" within the extended definition of that term in s 9 of the Act.
Akron was said to be insolvent during the Relevant Period and further, or alternatively, throughout lesser periods within the Relevant Period. There were reasonable grounds for suspecting that the company was insolvent or, alternatively, would so become insolvent at the time the debts were incurred. Each of the directors was said to have failed to prevent the company from incurring the debts and to have been aware that there were reasonable grounds for suspecting that the company was insolvent or would become insolvent by incurring the debts. A reasonable person in a like position would have been so aware. The directors were said, thereby, to have contravened s 588G(2) of the Act. The creditors to whom the debts were owed had suffered loss and damage in relation to the debts because of the company's insolvency. Then it was said:
"By reason of the matters set out in paragraphs 13 to 16 above, the Liquidators may recover under s 588M(2) of the Act from the First to Fourth Defendants, as a debt due to the Company, an amount equal to the loss and damage set out in paragraph 14 above."
The amount was $14,657,189.05.
The relief claimed against the directors was in the following terms:
"An order under s 588M(2) of the Corporations Act 2001 (Cth) that the Defendants pay to the First Plaintiffs, as a debt due to the Second Plaintiff, an amount equal to the amount of the loss or damage suffered by the Creditors (the details of which are set out in the particulars subjoined to paragraph 6 of the Points of Claim) in relation to the debts owed to them by the Second Plaintiff, because of the insolvency of the Second Plaintiff."
As to CGU, the liquidators alleged that it had issued an insurance policy, for the period 30 June 2009 to 30 June 2010, described as a Civil Liability Professional Indemnity policy in favour of Crewe Sharp and extending to its director, Mr Crewe. Express terms of the policy were pleaded, including that CGU would indemnify the insured "up to the Policy Limit for any Civil Liability to any third party which is incurred by the Insured in the conduct of the Professional Services" where the claims were made against the insured while the policy was in force, where CGU was given notice and where the claim arose from an act, error or omission on or after a date specified as the retroactive date. The limit of the cover provided under the policy was $5 million. The policy defined "Professional Services" as "the business of provision by the Insured of personnel, HR consultancy, management consultancy, business coaching, training and development consultancy, and debt recovery services". Exclusions relied upon by CGU in rejecting the claim for indemnity were pleaded and were said not to apply. CGU's denial of liability was pleaded.
CGU's liability under the policy and the operation of s 562 of the Act were pleaded:
"25. By reason of the matters set out in paragraphs 18 to 24 above, CGU is liable to indemnify Crewe Sharp and Trevor Crewe under the Policy in respect of the amounts claimed by the Plaintiffs from Crewe Sharp and Trevor Crewe in this proceeding up to $5,000,000.
26. By reason of s 562 of the Act, any amount received by Crewe Sharp or its liquidator from CGU in respect of the Plaintiffs' claims must be paid to the Plaintiffs."
A plea in similar terms was set up in relation to a policy issued by CGU for the period from 30 June 2012 to 30 June 2013.
The declaration sought against CGU was as follows:
"A declaration that the Fifth Defendant is liable to indemnify the First and Fourth Defendants in respect of any judgment herein obtained by the Plaintiffs against the First and Fourth Defendants and in respect of any sums (including legal costs) which the Court may order the First and Fourth Defendants to pay to the Plaintiffs."
Mr Crewe and Crewe Sharp filed an amended defence asserting, inter alia, that they had reasonable grounds to expect, and did expect, that Akron was solvent during the Relevant Period and would remain solvent even if it incurred the debts or any of them.
CGU filed a defence. It relied upon the exclusion clauses and contended that the liquidators' claims against the directors did not constitute a "civil liability" or any liability incurred in the conduct of "professional services" within the meaning of the policy. It further alleged that Mr Crewe and Crewe Sharp had breached their duties of disclosure under s 21(1) of the Insurance Contracts Act 1984 (Cth) in failing to disclose that they provided company director and officer services. By reason of that non-disclosure any entitlement they had to indemnity was reduced to zero pursuant to s 28(3) of the Insurance Contracts Act. A similar plea was made in respect of the 2012/2013 policy.
In light of the pleadings, and as explained below, the jurisdiction invoked by the liquidators in the Supreme Court was federal jurisdiction.
The nature of the jurisdiction invoked by the Akron liquidators
"State jurisdiction is the authority which State Courts possess to adjudicate under the State Constitution and laws; federal jurisdiction is the authority to adjudicate derived from the Commonwealth Constitution and laws." Jurisdiction with respect to a particular subject matter is authority to adjudicate upon a class of questions concerning that subject matter. The existence before a court of a question of the relevant subject matter class is necessary to the court's authority to adjudicate. It is not, however, sufficient to enliven the judicial power. As Griffith CJ said in Ah Yick v Lehmert, the term "federal jurisdiction" in s 71 of the Constitution means "authority to exercise the judicial power of the Commonwealth ... within limits prescribed." Later in the same judgment the Chief Justice spoke of Parliament, under s 77(i), giving to a federal court created by it "jurisdiction to exercise any judicial power of the Commonwealth, which the Parliament may think fit to confer upon it". The identification of the subject matter of the proceeding is necessary to determine whether judicial power is invoked within its prescribed limits.
Other limits on "judicial power" are encompassed by such terms as "justiciability", "standing" and "incompatibility". "Jurisdiction" in the sense of authority to adjudicate and "judicial power" are different concepts. There is also a distinction to be made, discussed below, between jurisdiction and specific powers to grant particular remedies. Observations about such distinctions may be made with an acceptance that there are other usages of the term "jurisdiction" which are not material for present purposes and which it is not necessary to explore.
It is a necessary condition of federal jurisdiction, in the sense of authority to exercise the judicial power of the Commonwealth, that the matter in which the jurisdiction of the court is invoked is "capable of judicial determination" or "justiciable". That concept of justiciability does not embrace a purely advisory opinion. In holding invalid Commonwealth legislation purporting to confer an advisory jurisdiction this Court in In re Judiciary and Navigation Acts said that:
"there can be no matter within the meaning of [s 76] unless there is some immediate right, duty or liability to be established by the determination of the Court."
An entitlement to claim declaratory relief may be created by statute even though the subject matter of the relief is not an immediate right, duty or liability to be established. The declaration itself may assume that description where it concerns a real controversy susceptible of judicial determination. Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd may be cited as an example. Any member of the public was given standing by s 163A of the Trade Practices Act 1974 (Cth) to seek a declaration in relation to the operation or effect of any provision of that Act other than certain excluded provisions. Gleeson CJ and McHugh J said:
"The fact that no private right, or special interest, of the applicant is at stake in the present case does not deny to its disputed assertion that the respondent has violated s 52 of the Act and its claim for remedies of the kind provided by the Act the character of a justiciable controversy."
The subject matter and justiciability requirements were summarised by Burmester:
"'Matter', therefore, has two elements: the subject matter itself as defined by reference to the heads of jurisdiction set out in Chapter III, and the concrete or adequate adversarial nature of the dispute sufficient to give rise to a justiciable controversy."
The constitutional requirements for the existence of a matter were not in issue in this appeal. What was in issue was the existence of a justiciable controversy between the Akron liquidators and CGU.
Section 39(2) of the Judiciary Act invests the Supreme Court with federal jurisdiction "in all matters in which the High Court has original jurisdiction or in which original jurisdiction can be conferred upon [the High Court]", save for certain immaterial exceptions. By virtue of s 76(ii) of the Constitution the matters in respect of which jurisdiction may be conferred upon the High Court include "any matter ... arising under any laws made by the Parliament". In addition to the general jurisdiction conferred by s 39(2) of the Judiciary Act, s 1337B of the Act invests the Supreme Courts of the States with jurisdiction "with respect to civil matters arising under the Corporations legislation." The term "civil matter" is defined in s 9 of the Act as "a matter other than a criminal matter." The term "criminal matter" is not defined. The use of the constitutional term "matter" in the statutory investing of Supreme Courts with general and specific federal jurisdiction directs attention to the frequently quoted observation of Latham CJ in R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett:
"a matter may properly be said to arise under a Federal law if the right or duty in question in the matter owes its existence to Federal law or depends upon Federal law for its enforcement, whether or not the determination of the controversy involves the interpretation (or validity) of the law."
It is a particular application of that general statement to say that a matter will arise under a federal law if it involves a claim at common law or equity or under a law of a State where the claim is "in respect of a right or property which is the creation of federal law". If the source of a defence to a claim at common law or equity or under a law of a State is a law of the Commonwealth, then on that account also the matter may be said to arise under federal law. The existence of such a claim in a proceeding will meet the subject matter condition necessary to enliven the federal jurisdiction invested in a court of a State pursuant to s 77(iii) of the Constitution, read with s 76(ii). However, before federal jurisdiction can be enlivened, the claims in the proceeding must not only satisfy the subject matter requirements, but involve a justiciable controversy or otherwise fall within an established category of judicial power.
The justiciability requirement encompassed in the concept of "matter" appears in the description of that term by the majority in Fencott v Muller as "a justiciable controversy, identifiable independently of the proceedings which are brought for its determination and encompassing all claims made within the scope of the controversy". It has an evaluative element as also appears from the majority judgment in Fencott:
"What is and what is not part of the one controversy depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships. The scope of a controversy which constitutes a matter is not ascertained merely by reference to the proceedings which a party may institute, but may be illuminated by the conduct of those proceedings and especially by the pleadings in which the issues in controversy are defined and the claims for relief are set out."
The evaluative element is illustrated by, but not confined to, the delineation of the so called "accrued jurisdiction" to entertain non‑federal claims in federal jurisdiction, by their Honours' observation that it is:
"a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter."
The existence of jurisdiction is anterior to the existence of the power to grant particular relief. As Gleeson CJ and McHugh J said in Minister for Immigration and Multicultural and Indigenous Affairs v B:
"In a legal context the primary meaning of jurisdiction is 'authority to decide'. It is to be distinguished from the powers that a court may use in the exercise of its jurisdiction." (footnotes omitted)
The distinction has been made frequently in this Court.
The Akron liquidators' proceeding against the directors involved a matter arising under a law made by the Commonwealth Parliament, namely ss 588G and 588M of the Act. If Mr Crewe and Crewe Sharp had instituted third party proceedings against CGU claiming indemnity under the insurance policy, an indemnity which depended for its existence upon the existence of a liability to pay damages pursuant to s 588M of the Act, then their claim would have involved a matter arising under federal law. And if CGU chose to invoke s 21 of the Insurance Contracts Act, as it did in its pleadings before the Supreme Court, the matter would, on that account, also have been a matter arising under federal law. The third party proceedings would properly have been characterised as part of the matter defined by the Akron liquidators' claim against the directors. The matter, defined by reference to the Akron liquidators' claims against the directors and a third party claim by the directors against CGU, would have met the subject matter requirement for the existence of federal jurisdiction and involved claims enlivening the judicial power of the Commonwealth.
The question for this appeal is whether the Akron liquidators' claim for declaratory relief against CGU involved a matter arising under a law of the Commonwealth in which the Supreme Court had federal jurisdiction, invested by statute, to exercise the judicial power of the Commonwealth in the sense described above. Alternatively, the question may be asked whether the claim was part of the matter in which the liquidators claimed against the directors.
The Akron liquidators' claim for declaratory relief against CGU answered the subject matter requirement for the exercise of federal jurisdiction by the Supreme Court. It depended upon the existence of a liability under s 588M of the Act said to enliven the indemnity obligation under the CGU insurance policy. The question whether the judicial power of the Commonwealth invested in the Supreme Court was enlivened by the claim for declaratory relief against CGU depends upon whether that claim involved a justiciable controversy.
The reasoning of the primary judge and the Court of Appeal focused on the availability of the declaratory relief sought. The written submissions filed by counsel followed a similar path. The reasoning appears to have proceeded on the basis that non-federal rather than federal jurisdiction was engaged. Nevertheless, much of what was said may be treated as a surrogate for argument on the question whether the Akron liquidators' claim against CGU involved a controversy cognisable in the exercise of federal jurisdiction. There was reference in the Supreme Court and in argument before this Court to differences of view expressed in intermediate courts of appeal concerning the availability of the relief.
The decisions of intermediate courts of appeal
Intermediate courts of appeal have not always drawn a clear distinction between jurisdiction and power in this class of case. That is not least because argument before those courts has focused on matters such as utility going to discretion to grant the declaratory relief, which overlaps with issues of standing and justiciability relevant to the availability of the remedy.
In JN Taylor Holdings Ltd (In liq) v Bond, King CJ, with whom Prior and Perry JJ agreed, considered whether the Supreme Court of South Australia had "jurisdiction" to grant a declaration sought by the liquidators of the appellant companies against the directors' insurer. The Chief Justice said that the Court's power to grant declaratory relief was limited only by its own discretion and the boundaries of judicial power. In so saying, he acknowledged a distinction between the jurisdiction to entertain the action at all and a settled practice of the Court to exercise its discretion by withholding the relief in certain factual situations. The reference to "jurisdiction" may be understood as a reference to the limits of the Court's jurisdiction. It was not suggested that a "settled practice" going to discretion defined the limits of jurisdiction or of the Court's power. Nevertheless, the discretionary considerations to which the Chief Justice referred would be relevant to the existence of a "matter" in federal jurisdiction.
King CJ required that the plaintiff have a real interest in the determination of the question raised by the declaration - a purely theoretical question would weigh against the grant of relief. On the other hand, a plaintiff could have a real interest in the question even though its impact on the plaintiff might be no more than a possibility. The liquidators' interest in obtaining a declaration of the insurer's liability concurrently with that of the directors was "undeniable". In that case the Full Court was concerned with proceedings under the Companies Code of South Australia. It was not thereby concerned with the exercise of federal jurisdiction.
A different result was reached by the Court of Appeal of Queensland in Interchase Corporation Ltd (in liq) v FAI General Insurance Co Ltd. The insurer of valuers who were sued for professional negligence had denied liability and that denial was not contested by the valuers. The plaintiff sought joinder of the insurer to claim a declaration that the insurer was liable to indemnify the valuers in respect of their asserted liability. Joinder was ordered by a Judge in Chambers but an appeal was allowed by McPherson JA and Byrne J over the dissent of Davies JA.
Byrne J based his reasons upon the terms of the joinder rule, which authorised the joinder of persons whose "presence before the Court may be necessary in order to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter". His Honour held that the joinder served no useful purpose. The declaration sought could not directly affect any property, legal right or obligation of the plaintiff. Nor could it effectively determine the insurer's rights or duties. A judicial determination of the issues pertaining to the plaintiff's claim for declaratory relief could not shut out the insurer from litigating about them again in proceedings under s 562 of the Act or s 117 of the Bankruptcy Act. More fundamentally, he held that as between insurer and insured there was no controversy and there could be no res judicata. Nor could a defence by the insurer to an indemnity claim in later proceedings constitute an abuse of process. The declaratory relief sought would have the character of an advisory opinion. McPherson JA agreed with Byrne J and added that the presence of the insurer was not "necessary" in the sense required by the joinder rule.
Davies JA, in dissent, identified the question before the Court as a question of "power under the Rules of Court to order the joinder sought" and whether the primary judge had erred in exercising his discretion to permit the joinder. A grant of declaratory relief would have utility as it would be an abuse of process for the insurer or the insured to litigate the question determined by the declaration in later proceedings. The declaration sought could therefore "effectively determine the question of [the insurer's] liability to the valuers as between those parties." The question was not hypothetical:
"the insolvency of the valuers, their failure to seek an indemnity from [the insurer] and the ineffectuality of any judgment by [the plaintiff] against the valuers unless [the insurer] is liable to indemnify them - together combine, in my view, to give [the plaintiff] a real interest in the relief which it seeks."
The difference between his Honour's approach and that of the majority reflected not so much a difference in principle as a different evaluation of the interest of the plaintiff in bringing the claim against the insurer and the utility of the declaratory relief sought. For the purposes of determining whether there is a "matter" attracting federal jurisdiction in such claims, the approach adopted by Davies JA is to be preferred. It reflected a recognition of the reality of the plaintiff's interest which was not to be confined by a requirement that the plaintiff demonstrate a claim for vindication of an existing legal right against the insurer.
In Employers Reinsurance Corporation v Ashmere Cove Pty Ltd a Full Court of the Federal Court rejected an argument that declaratory relief sought by plaintiffs against a defendant's insurers was beyond the judicial power of the Commonwealth.
Their Honours referred to the distinction between a "matter" and the legal proceeding in which the matter is determined, reiterating that the two are not synonymous. They observed that the "justiciable controversy" before the Federal Court, and thereby the matter before that Court, was not defined by the contractual relationship between the insurers and the insured. In that case the insured maintained but did not pursue its entitlement to indemnity. The plaintiff investors had a real interest in establishing that the insurers were liable to indemnify the insured with respect to the liability the subject of the claim against it. That analysis is equally applicable to the scope of the relevant statutory jurisdiction conferred on the Supreme Court by s 1337B of the Act and by s 39(2) of the Judiciary Act in so far as each grant refers to "matters".
The preceding analysis would bring the claim against CGU in this case within the scope of a "justiciable controversy" capable of constituting a "matter" for the purposes of federal jurisdiction where the subject matter falls within the grant of jurisdiction.
There was no dispute in the Full Court in Ashmere Cove that the Federal Court had power to grant declaratory relief against the insurers. The remaining debate in that case went to discretion by reference to practical utility. In that connection the Court held that the principle enunciated by this Court in Port of Melbourne Authority v Anshun Pty Ltd would probably preclude the insurers, in subsequent proceedings involving the same parties, from agitating any defence they could have invoked against the plaintiffs' claim. In that way the proposed proceedings could effectively finally determine the question of the insurers' liability. This Court refused an application for special leave to appeal against the decision of the Full Court.
A similar approach, focused on the availability of the remedy rather than jurisdiction, was taken in QBE Insurance (Australia) Ltd v Lois Nominees Pty Ltd. In that case, the plaintiff claimed equitable compensation against a solicitor who became a bankrupt and, being refused joinder of a claim for declaratory relief against the solicitor's insurer, commenced separate proceedings seeking such relief which were consolidated with the primary action. An appeal by the insurer against dismissal of a motion for summary judgment against the plaintiff was dismissed by a majority in the Court of Appeal of Western Australia.
The appeal was dismissed on the basis that the availability of declaratory relief was arguable albeit the question remained whether the insured should be joined in the proceedings against the insurer. The focus of the majority reasoning was on the utility of the proceedings by reference to the limits imposed on relitigation by abuse of process considerations. McLure P, in dissent, held that the real controversy in the case was between the insured and his insurer and the plaintiff was not a proper contradictor. On that basis there was no utility in the claim. Her Honour expressed doubt about the correctness of the decision of the Full Court of the Federal Court in Ashmere Cove.
Only in one of the preceding decisions has the court held the relief not to be available, that being the decision of the Court of Appeal of Queensland. That decision involved an application of a joinder rule and no direct consideration of jurisdiction. The application of the majority judgment in that case and the dissent of McLure P in the Court of Appeal of Western Australia to federal jurisdiction is at best indirect and, in any event, not to be preferred in evaluating the concreteness of the controversy between the liquidators and CGU in this case.
The primary judge's decision
The Akron liquidators contended before Judd J that they had a sufficient interest in the determination of CGU's liability to support their claim for a declaration and thus for joinder. They relied upon s 562 of the Act. They also contended that if they were successful in their claim against Mr Crewe he would become a bankrupt, in which case his trustee in bankruptcy would have similar rights by operation of s 117 of the Bankruptcy Act.
CGU opposed joinder on the basis that, there being no claim against it by its insured, there was no justiciable controversy. It made the obvious point that s 562 does not confer on a liquidator a right of action against an insurer to enforce insurance policies. The liquidator's interest would be hypothetical and contingent upon an insured successfully enforcing a right. The possible bankruptcy of Mr Crewe was also hypothetical and contingent. Further it was said that the Court had no jurisdiction under s 36 of the Supreme Court Act 1986 (Vic) to grant the declaratory relief sought and, if it did have jurisdiction, should decline to do so in the exercise of discretion. Section 36, however, goes to power rather than to jurisdiction in the sense relevant for present purposes. The submissions from CGU, to the extent that they were reflected in his Honour's reasons, focused on the power to award declaratory relief.
The key finding by his Honour appeared at [48] of his reasons for judgment, in which he said:
"The claim by the plaintiffs, that CGU is bound to indemnify the insured, arises out of, or relates to, or is connected with their claim against the insured as defendants. The plaintiffs have a sufficient interest in the proceeds of insurance to provide them with standing to apply for declaratory relief. Furthermore, by reason of s 562 of the Act, and the duty of liquidators to creditors of Akron Roads, there is a justiciable dispute consequent upon CGU's denial of liability under the policy."
He referred to factors rendering it "just and convenient that the dispute between the plaintiffs and CGU be resolved at the same time, and in the same proceeding, as the dispute between the plaintiffs and the insured." That approach was said to be consistent with the overarching purpose under the Civil Procedure Act 2010 (Vic). There was no express reference to jurisdiction or federal jurisdiction.
The decision of the Court of Appeal of the Supreme Court of Victoria
CGU sought leave to appeal to the Court of Appeal on the single proposed ground that Judd J had erred in law in joining it as a defendant to the proceeding:
"because courts have no jurisdiction at the suit of a stranger to grant declaratory relief as to the meaning and effect of a private contract between parties who will not pursue any claim relating to rights or duties under that contact."
In support of the application for leave, the proposed appeal was said to involve "principles of law about which intermediate courts of appeal in Australia have expressed divergent views".
The Court of Appeal referred to the limits of declaratory relief discussed by this Court in Ainsworth v Criminal Justice Commission. While that discussion was not framed by reference to jurisdiction, the Court of Appeal regarded as significant this Court's identification of the need for a "real interest" on the part of the person seeking declaratory relief coupled with foreseeable consequences for the parties if a declaration were to be made. In a passage which suggested that their Honours' attention had not been directed to the nature of the jurisdiction which had been invoked in the proceedings before them, they said:
"The position is of course different in the context of federal jurisdiction, where there must be a 'matter' sufficient to attract the exercise of judicial power. For that reason, observations about limits on the power of courts exercising federal jurisdiction to grant declarations do not necessarily assist CGU's jurisdictional argument." (footnote omitted)
The Court acknowledged that "even in that context" (ie a court exercising federal jurisdiction) authority was against the view that the Court lacked jurisdiction. It referred to Ashmere Cove. It held on the basis of the reasoning in that case that it would be an abuse of process to permit either the insured or CGU to relitigate the question determined by the declaratory proceedings. It was not necessary to decide whether those proceedings would give rise to a res judicata between the insured and CGU.
Their Honours noted that the dissent of McLure P in QBE Insurance and her Honour's doubt about the correctness of Ashmere Cove expressed in that dissent depended in part upon an observation by Gaudron J in Truth About Motorways:
"There may be cases where, absent standing, there is no justiciable controversy. That may be because the court is not able to make a final and binding adjudication. To take a simple example, a court could not make a final and binding adjudication with respect to private rights other than at the suit of a person who claimed that his or her right was infringed. Or there may be no justiciable controversy because there is no relief that the court can give to enforce the right, duty or obligation in question." (emphasis added by McLure P; footnote omitted)
In noting this influence on McLure P's reasoning, the Court of Appeal observed that Truth About Motorways "was a case in federal jurisdiction." That observation tends to reinforce the conclusion that the Court of Appeal and counsel before it did not appreciate that the case with which it was concerned was one of federal jurisdiction.
Their Honours also referred to the Court of Appeal's earlier decision in CE Heath Casualty & General Insurance Ltd v Pyramid Building Society (In liq) in which joinder of an insurer was refused on discretionary grounds. In that case Ormiston JA (Tadgell JA agreeing) observed that absent authority he would have had the "gravest doubt whether it was ordinarily appropriate to permit an outsider to seek from the court declaratory relief as to the meaning and effect of a contract between two parties who had not themselves raised any issue as to its meaning and effect and at least one of whom objected to the court's interfering in its private affairs." As the Court of Appeal in the present case observed, what was said in CE Heath was not directed to jurisdiction. It may be added that the reference to interference in the "private affairs" of insurer and insured involved a reductionist approach to the significance for creditors of the insurer's liability, a fortiori in the light of s 562 of the Act and s 117 of the Bankruptcy Act.
The Court of Appeal concluded that:
"For present purposes, all that matters is that the first and second respondents have a sound basis for seeking declaratory relief, on the basis that there may be practical utility in having an issue in which they have a real interest resolved in this manner."
The grounds of appeal
The grounds of appeal in this Court were:
"2. The Court erred in dismissing the appeal because the Court does not have jurisdiction at the suit of the first and second respondents to grant declaratory relief as to the meaning and effect of a contract to which they are not parties and when the parties to the contract, being the appellant and the third and sixth respondents, are not themselves in dispute.
3. The Court ought to have held that the learned primary judge erred in law in joining the appellant as a defendant to the proceeding because courts have no jurisdiction at the suit of a stranger to grant declaratory relief as to the meaning and effect of a private contract between parties who will not pursue any claim relating to rights or duties under that contract."
The grounds thus expressed focused solely on jurisdiction albeit, having regard to the written submissions filed in this Court, they did not draw a clear distinction between jurisdiction, power and discretion. The conceptual distinctions are important even though, in the context of federal jurisdiction, factors relevant to the power to grant the remedy and discretionary refusal may go to the existence of a "matter".
Contentions and conclusions
CGU, in its written submissions, argued that the Court of Appeal erred in:
(i) dismissing cases in federal jurisdiction as irrelevant;
(ii) holding that the insurer would be precluded by the Anshun doctrine from seeking to relitigate issues decided adversely to it in the declaratory proceedings;
(iii) failing to find that the declaration, if made, would not bind the parties; and
(iv) finding that s 562 of the Act and s 117 of the Bankruptcy Act "operate as an exception to the privity rule and provide the basis upon which an outsider may seek declaratory relief about the meaning and effect of a contract."
The parties to the appeal in their written submissions did not put argument on whether the Supreme Court was being asked to exercise federal jurisdiction in the claim for declaratory relief. This Court sent the parties a letter prior to the hearing of the appeal asking that they consider:
"Whether the joinder of the appellant in the proceedings in the Supreme Court of Victoria invoked the jurisdiction of that Court in a matter arising under a law of the Commonwealth pursuant to s39(2) of the Judiciary Act 1903 and/or s1337B of the Corporations Act 2001."
The CGU argument, to the extent that it engaged with the question of federal jurisdiction, reduced to the proposition that there was no justiciable controversy between the liquidators and CGU, and therefore no "matter". The Akron liquidators on the other hand contended that the claim did involve the invocation of federal jurisdiction.
For the reasons already given, the claims which the Akron liquidators seek to bring against CGU involve a question arising under a law of the Commonwealth. It is a necessary condition of the liability of CGU to indemnify Mr Crewe and Crewe Sharp that they be liable to the liquidators pursuant to s 588M of the Act. That is, of course, not a sufficient condition of CGU's liability under the policy. That liability will also depend upon the scope of the cover provided by the policy, properly construed, and, if they become relevant, the merits of the specific defences which have been raised to the Akron liquidators' claims.
The question raised by the Akron liquidators' claim is one within the subject matter area of federal jurisdiction. The next inquiry is whether it reflects a justiciable controversy between the Akron liquidators and CGU. It is in that area that the parties essentially joined issue on this appeal.
In light of the foregoing reasons, that question can be answered quite shortly. Crewe Sharp had made a claim against CGU under the policy and CGU had declined that claim. Neither Crewe Sharp nor its liquidators nor Mr Crewe accepted the denial of liability. Mr Crewe, who was also an insured person under the policy, disagreed with the decision and consented to the joinder of CGU. The liquidators of Crewe Sharp were not in a position to investigate CGU's denial of liability and took no position on the joinder.
If the Akron liquidators made good their claim against Crewe Sharp and Mr Crewe, and established the liability of CGU to indemnify its insured, the proceeds of the policy so far as they related to Crewe Sharp would have been payable by the liquidators of Crewe Sharp to the Akron liquidators subject to the deductions mentioned in s 562 of the Act. If Mr Crewe himself became a bankrupt then s 117 of the Bankruptcy Act could apply to similar effect with respect to his trustee in bankruptcy.
As the Akron liquidators have submitted, their claim does not depend upon any incursion upon principles of contract law or privity of contract. They are not claiming as a party to the insurance contract nor as persons otherwise entitled to the benefit of that contract. Their claim is based upon the legal consequence created by s 562 of the Act in the event that CGU is liable to indemnify Crewe Sharp and, more contingently, s 117 of the Bankruptcy Act in the event that CGU is liable to indemnify Mr Crewe and he becomes a bankrupt. That legal consequence would be the bringing into existence, in favour of the Akron liquidators, of a right to the proceeds of the insurance policy payable to Crewe Sharp in respect of its liability to Akron. The interest upon which the claim for declaratory relief is based and CGU's denial of liability under the policy are sufficient to constitute a justiciable controversy between the Akron liquidators and CGU involving a question arising under a law of the Commonwealth. Because of these statutory provisions, it is the Akron liquidators who stand to benefit (to the exclusion of Crewe Sharp and Mr Crewe) from the making of the declaration sought. It would be distinctly to ignore this reality if the liquidators' interest in this regard could be defeated by reason of inaction on the part of Crewe Sharp and Mr Crewe against CGU given that the statutory provisions themselves deprive Crewe Sharp and Mr Crewe of all incentive to pursue a claim under the policy.
The declaration sought by the Akron liquidators would be binding as between them and CGU. In the circumstance in which the insured are also parties, albeit not conceding CGU's position nor claiming relief against it, it is unlikely that they or CGU would be permitted to relitigate, in subsequent proceedings, issues which had been determined or which could properly, and should, have been agitated in the proceedings against CGU.
The application of preclusive doctrines against relitigation, which would support the utility of declaratory relief, is in the circumstances of this case theoretical. Given the position of the parties there would seem to be little or no prospect of any relitigation being embarked upon which would require consideration of those doctrines. For all practical purposes the declaratory claim brought by the Akron liquidators will be the only occasion on which CGU's denial of liability is contested.
This is a case in which the Supreme Court has federal jurisdiction to entertain the claim by the Akron liquidators against CGU and power to grant the declaratory relief sought. The appeal should be dismissed. The appellant is to pay the respondents' costs of the appeal.