CGU Insurance Ltd v Bazem Pty Ltd

The judgment at first instance 8Gzell J heard the Client's application for leave to file this further draft Amended Statement of Claim. The application was opposed by the Insurer but not by the Architect. His Honour granted, under the Uniform Civil Procedure Rules 2005 ("UCPR") Part 6 r 6.19, the leave that the Client sought. That rule is in the following terms: "(1) Two or more persons may be joined as plaintiffs or defendants in any originating process if: (a) separate proceedings by or against each of them would give rise to a common question of law or fact, and (b) all rights of relief claimed in the origin a ting process are in respect of, or arise out of, the same transaction or series of transactions, or if the court gives leave for them to be joined. (2) Leave under subrule (1) may be granted before or after the originating proces s is filed". 9The primary judge noted the following concerning the declaration that the Client proposed to seek that the Insurer is liable under the Policy to indemnify the Architect: "14 CGU does not say that declaratory relief is inappropriate. It accepts that if Bazem establishes an entitlement to amend its statement of claim and the Court exercises its discretion in its favour CGU would not regard a declaration as inappropriate relief". 10As to the applicability of UCPR Part 6 r 6.19(1)(a), the judge said the following: "29 It was submitted that there was no commonality because the representations were with respect to different contexts at different times and in different ways. CGU's claim was with respect to a proposal for insurance whereas Bazem's claim was with respect to a contract for services. But in both cases the gravamen is that Mr Huxley failed to inform CGU of his personal insolvency agreement and the consequent inability of Bureau, lawfully, to provide architectural services. In both cases the allegations appear to be of misrepresentations by silence, that is, the failure of Mr Huxley to reveal his inability to practise as an architect and, in consequence, the misrepresentation that Bureau could provide architectural services. 30 In my judgment there is sufficient commonality to satisfy the requirement of a common question of law or fact for the purposes of the Uniform Civil Procedure Rules , Pt 6 r 6.19". 11His Honour then referred to various authorities that he said supported his view "that joinder is available against an insurer of a defendant that has a utility and avoids multiplicity of proceedings" (Judgment [31]). These authorities included the decision of French J (as his Honour then was) in Ashmere Cove Pty Ltd v Beekink (No 2) [2007] FCA 1421; (2007) 244 ALR 534 and the decision of the Full Federal Court on appeal in the same matter in Employers Reinsurance Corporation v Ashmere Cove Pty Ltd [2008] FCAFC 28; [2008] 166 FCR 398. He also referred to the decision of Vickery J in Anjin No 13 Pty Ltd v Allianz Australia Insurance Ltd [2009] VSC 371.

The Insurer's contention on appeal 12The Insurer contended before this Court that the primary judge did not have any power under UCPR r 6.19 to grant the leave that he professed to grant pursuant to that provision. During oral argument the Insurer made it clear that its case was limited to a contention that the primary judge did not have the power to make the relevant order and that it did not contend that if the power existed, the judge's exercise of discretion miscarried (see for example Appeal Transcript pp 3 and 26-27). 13The first aspect of the Insurer's contention was a submission that relevant power was not conferred by UCPR r 6.19(1)(a) and (b). It submitted that the condition in sub-paragraph (a) was not satisfied because if the Client had claimed separately against the Architect and the Insurer, there would have been no "common question of law or fact" in the two sets of proceedings. Further, it submitted that the condition in sub-paragraph (b) (which is an additional and not an alternative condition) was not satisfied because the "rights of relief" claimed in the draft Amended Statement of Claim were not in respect of, and did not arise out of, "the same transaction or series of transactions". 14The second aspect of the Insurer's contention related to the final words of UCPR r 6.19(1) (that is, "or if the court gives leave for them to be joined"). The Insurer submitted that these words did not confer the relevant power because for the power to be conferred it was necessary that the court find "as an essential jurisdictional fact ... that there is some probable likelihood of [an insurance] policy being invoked and that arises by reason of issues like a probability of financial inability to pay or because of a priority issue. Absent such a fact [the] mere existence of what will be said is utility or avoidance of multiplicity is not a jurisdictional fact that would support the exercise of the power" (Appeal Transcript p 27). 15The reference in this submission to "a probability of financial inability to pay" was to the probability of the insured (here the Architect) being unable to satisfy the third party's (here the Client's) claim for damages. The reference in the submission to "a priority issue" was to the possibility of the Corporations Act 2001 (Cth) s 562 applying to entitle the third party to claim insurance proceeds received by an insured or a liquidator of an insured in relation to the third party's claim. 16The Insurer supported its submission by contending that if the relevant power were not so limited "one would have a position where every insurer could be brought into any proceeding because it would follow, like night and day, utility and multiplicity of proceedings would arise in every instance" (Appeal Transcript p 26). It submitted that the Law Reform (Miscellaneous Provisions) Act 1946 s 6 (permitting the joinder of an insurer in certain circumstances) "would be rendered superfluous if joinder were to be ordered in the present case" (Written Submissions [5]). 17The Insurer adhered to the concession that it had made at first instance, and which was noted by the primary judge, that if the Client established "an entitlement to amend its Statement of Claim and the Court exercise[d] its discretion in its favour [the Insurer] would not regard a declaration as inappropriate relief" (Judgment [14]). On appeal the Insurer however emphasised the conditional nature of this concession and vigorously maintained that the concession was not inconsistent with the Insurer's submission as to the absence of power to which I have earlier referred. Nevertheless the concession does obviate the need for this Court to consider the correctness of the view expressed in Anjin (and elsewhere) that so long as a bona fide legal controversy exists as to an insurer's liability, the Court may at the instance of a third party make a declaration concerning the liability of the insurer to indemnify its insured in relation to the third party's claim. The concession made at first instance led to the section of the Insurer's Written Submissions dealing with the circumstances in which declarations may be made, not being pressed at first instance (Transcript p 8 (11-22)).

Whether a common question of law or fact 18In its draft Defence to the proposed Amended Statement of Claim, the Insurer alleges that it was entitled, pursuant to the Insurance Contracts Act 1984 (Cth) s 28(2) and by reason of the fraudulent non-disclosure and/or misrepresentation of the Architect, to avoid the policy that it issued to the Architect. Alternatively it alleges that pursuant to s 28(3) of that Act it is entitled, by reason of the Architect's non-disclosure and/or misrepresentation, to reduce its liability to nil. The latter allegation relates to non-fraudulent, that is innocent, non-disclosure and misrepresentation. 19The presently relevant part of this draft Defence alleges that Mr Huxley signed the proposal for insurance as "the Executive Principal(s)/Director(s)/Partner(s)" and was described in the proposal as a Director of the Architect at a time when he was prohibited by the Corporations Act s 206B(a) from being involved in the management of a corporation (such as the Architect), as a result of having earlier signed a PIA. 20In its draft Amended Statement of Claim the Client alleges against the Architect that the Architect represented to the Client that "it was legally practising as an architect and in accordance with s 10 of the Architects Act 2003 (NSW)" at a time when under s 10 of that Act it was required to have at least one nominated architect responsible for the provision of architectural services and the person purportedly nominated was Mr Huxley who, because of his entry into the PIA, was prohibited by the Corporations Act s 206B from being involved in the management of the Architect. The Client alleges that by reason of these circumstances, the Architect engaged in misleading and deceptive conduct in contravention of the Trade Practices Act 1974 (Cth) s 52 and is liable to pay damages to it. 21At first instance, the Insurer accepted that at least to some extent there were common allegations of fact in the two pleadings (see for example the first instance transcript at p 4.14 where the Insurer accepted that the draft Amended Statement of Claim "picks up" a number of allegations in the draft defence of the Insurer, at least "at the factually basic level"). However, as reflected in the primary judge's conclusions (see [29] quoted in [10] above), the Insurer submitted that "there was no commonality because the representations [relied upon in the two pleadings] were with respect to different contexts at different times and in different ways". His Honour rejected this submission by referring, at a high level of generality, to the nature of the two pleadings (again see [29] quoted in [10] above). 22There is no issue on appeal as to whether his Honour erred in the exercise of his discretion by failing either to consider the nature of the claims in greater detail or to consider the importance to the claims of the common aspects. To dispose of the submission that the court lacked power because sub-paragraph (a) of r 6.19 was not satisfied, it is in my view sufficient to note that both sets of allegations relate to Mr Huxley's entry into the PIA and require consideration of the impact of this on his ability to be involved in the management of the Architect and of whether he was in fact involved in that management. In these circumstances, there was in my view a sufficient basis for his Honour to conclude that the condition stated in UCPR r 6.19(1)(a) was satisfied. 23Whether the relevant common questions of law or fact were such as ought, as a matter of discretion, to have led to the making of the order in question is not in issue on the appeal. Accordingly whether there are likely to be real contests of law or fact as to any of the particular assertions in the pleadings was not explored on appeal. Nor it seems, was that question explored at first instance.

Whether the same transaction or series of transactions 24The primary judge did not expressly state whether in his view the condition stated in UCPR r 6.19(b) had been satisfied. However on appeal the Insurer submitted that this condition had not been satisfied. The Client did not object to this submission being put. 25In my view this submission should be rejected because all rights of relief that the Client asserts against the Architect arise out of the Client's retainer of the Architect to perform architectural services and the Insurer's alleged liability under the Policy arises out of that same retainer and the Architect's alleged breach of it. 26In these circumstances the condition stated in UCPR r 6.19(b) was satisfied. As a result, it would have been open to the Client to join the Architect and the Insurer as defendants when it first issued its Statement of Claim. On this basis the concluding words of UCPR r 6.19(1) at least conferred power to permit joinder to occur at a later point in time.

"Or if the Court gives leave" 27The power given by these concluding words of UCPR r 6.19(1) is not in my view available only where the conditions stated in r 6.19(1)(a) and (b) are satisfied. These conditions are applicable where a party commences proceedings: the party may join more than one defendant as of right if the conditions are satisfied. There is no reason however why the Court's discretion to grant leave for the joinder of defendants should be so limited when the power granted to the Court is expressed in unqualified terms. 28Nor in my view should it be regarded as otherwise limited in the manner that the Insurer contends it should. As the High Court said in Owners of the Ship "Shin Kobe Maru" v Empire Shipping Co Inc [1994] HCA 54; (1994) 181 CLR 404, "[i]t is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words" (at 421). 29As the power here is expressed in unqualified terms, I do not consider that there is any sound basis for the Insurer's submission that at least one of a limited number of factors must be present before the Court's power to grant leave under this provision arises. Contrary to the Insurer's submissions, it is not necessary that there be a factor "along the lines of ... a Corporations Act priority issue" or "an issue of insolvency or potential insolvency" of the Insured (Appeal Transcript p 8), as there was in the Ashmere decisions. It is quite possible that in any particular case considerations other than these might move the Court to grant leave under this provision. For example, the facts in the present case that the Insurer had denied liability, that the Architect had not itself commenced proceedings to enforce the Policy and that the Insurer did not contend that there was no reasonable basis for an allegation that it was liable to grant indemnity under the Policy might have provided the basis for a proper exercise of discretion. Certainly the power to grant leave existed in such circumstances. The development of guidelines (of the type to which Mason CJ referred in Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 at 541) for the exercise of the discretion conferred by the rule might encourage or discourage the exercise, in the circumstances that I have described, of the power to grant leave. But that is a different issue from one of whether the power to grant leave exists. 30The only matter of any substance that the Insurer appeared to rely upon to support a reading down of the rule related to the provisions of the Law Reform (Miscellaneous Provisions) Act 1946, s 6. That section provides that in certain circumstances the liability of an insured to a third party is a charge on insurance proceeds payable by an insurer to the insured in respect of that liability and that that charge may be enforced by the third party directly against the insurer. 31Neither party contended that s 6 was applicable in the present case but the Insurer submitted that s 6 evidenced a public policy that insurers should not be "brought into court simply because they are an insurer" (Appeal Transcript p 10). However the fact that s 6 exists and confers only limited rights is not in my view a basis for reading down r 6.19, especially when s 6 has often been treated as an unsatisfactory provision (see for example Giles JA in The Owners - Strata Plan No 50530 v Walter Construction Group Ltd (in liq) [2007] NSWCA 124 at [7]) and does not in any event deal directly with the topic with which r 6.19 is concerned, namely the circumstances in which claims against two or more entities may be joined in the one proceeding. Rather, s 6 is concerned with the circumstances in which a third party may have a right to bring proceedings against an insurer. This is a matter that is not presently in issue because of the concession to which I have referred in [17] above.

Conclusion on Insurer's application 32For these reasons I do not consider that if leave to appeal were granted, the appeal would succeed. In these circumstances my view is that the application for leave to appeal should be dismissed with costs. I accordingly propose that that order be made. 33I add in conclusion the following observations concerning the practical consequences of the primary judge's grant of leave to join the Insurer. 34The Client's request to join the Insurer was not based, as it is in many cases, upon a need to ensure that the Insurer is bound by the findings as to the Insured's liability to the Client. The Insurer accepted that this was unnecessary, no doubt because of the manner in which the present Policy is framed. 35It may however be that the Court's findings on particular issues will be relevant to the Insurer's position - for instance, as to whether Mr Huxley knew that the alleged representations were false (see [5] and [18] above). If the Insurer considers this to be the case, it will presumably wish to participate in the determination of the issues arising between the Client and the Insured. If it does not, the Insurer's costs can be minimised by ordering that the determination of those issues occur before the determination of those arising between the Client and the Architect on the one hand and the Insurer on the other.

The Client's application for leave to cross-appeal 36The Client's application for leave to amend its Statement of Claim was heard by the primary judge on 27 July 2010. On that day his Honour granted the leave sought and ordered the Client to pay the Insurer's costs of the application. He indicated that he would publish his reasons in due course. Before the reasons were published on 2 September 2010, the Insurer sought leave to appeal from his Honour's order granting leave to the Client to amend its Statement of Claim. As subsequently published, the reasons did not deal with the costs order that his Honour had made but the argument upon the Client's application for leave to cross-appeal proceeded, I consider correctly, on the basis that comments made by the primary judge on 27 July 2010, as recorded in the Transcript, sufficiently indicate the basis upon which he made the order. 37It is apparent that the primary judge made the costs order on the basis that there had been delay by the Client in making its application to join the Insurer and that by the time it did make the application the hearing was imminent. The disruption caused by this delay was a proper basis for making a compensatory costs order in favour of the existing party to the proceedings, that is, the Architect, and this Court was informed that such an order was made. However it was not a proper basis for a costs order to be made in favour of the new party to the proceedings, the Insurer, which had not been disrupted in its preparation for any hearing. So far as the new party was concerned, there was no apparent prejudice in the Client making a later, rather than an earlier, application. Accordingly, by taking the Client's delay into account, the primary judge was in my view in error, resulting in the exercise of his discretion miscarrying. There was no reason why the ordinary rule that costs follow the event should not have been applied. True it is that the Client was seeking an indulgence from the Court but consent by the Insurer to the Client's application would have avoided any significant costs being incurred. 38For these reasons I propose the following orders in relation to the Cross-Summons: (1)Grant leave to Bazem Pty Ltd (referred to as "the Client") to cross-appeal. (2)Allow the cross-appeal. (3)Set aside the order made at first instance that the Client pay the costs of CGU Insurance Ltd ("the Insurer") of the Client's application for leave to amend its Statement of Claim. (4)Order the Insurer to pay the Client's costs of that application. (5)Order the Insurer to pay the Client's costs of the Cross-Summons for leave to appeal and of the cross-appeal. (6)The Insurer to have a certificate under the Suitors' Fund Act , if qualified. 39In addition the Court should, as indicated earlier, make an order that the application for leave to appeal be dismissed with costs.

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: 07 April 2011