Crawley v Vero Insurance Ltd

Insurance arrangements 6One matter that has dogged the progress of these proceedings for a considerable period has been a disputation about the nature of the arrangements governing Mr Crawley's alleged right to indemnity with respect to some or all of the amounts that he was ordered be paid. 7I briefly described the statutory provisions governing so-called "approved insurance policies" and the operation of the Solicitors Mutual Indemnity Fund ("SMIF") in Crawley v Vero Insurance Ltd (No 2) [2012] NSWSC 1053 at [9] to [21] ("Crawley (No 2)"). One aspect of the arrangements governing Mr Crawley's alleged right to indemnity was that he had obtained an "approved insurance policy" providing cover from the first to the fifth defendants in these proceedings, who are all insurers. However, that policy had an extremely large aggregate deductible. It is not necessary to explain the precise amount of that deductible as it altered during the relevant period of cover, but it was well in excess of $100 million. The aggregate deductible was calculated by a reference to the amounts paid "in respect of all certificates of insurance" issued under a master policy between the Law Society and the relevant insurers. In effect, whether or not the aggregate deductible was exceeded was determined by calculating the amounts paid out in respect of all claims made during the relevant period against, not just Mr Crawley, but all the other solicitors covered by the scheme. 8If circumstances were such that the deductible was not reached or only partly reached, then solicitors such as Mr Crawley only had recourse to SMIF, which was operated by LawCover. Absent a resolution by LawCover in a particular solicitor's favour, it seems that the only legal entitlement a solicitor has in respect of SMIF is to compel the proper consideration of the exercise of the power currently found in s 409 of the Legal Profession Act 2004 (NSW) ("LPA 2004") and formerly found in s 44 of the Legal Profession Act 1987 (NSW) ("LPA 1987"). In Crawley (No 2) at [15], I touched upon the question of whether, in circumstances where a resolution in favour of a solicitor had in fact been made, a legal obligation to pay arose.

The pleaded issues 9In Crawley v Vero Insurance Ltd [2012] NSWSC 593 at [6] to [12] I summarised the state of the pleadings in these proceedings as at June 2012. One aspect of Mr Crawley's pleading, as at that time, was that irrespective of whether the terms of the approved insurance policy responded to his claim, he said that LawCover as the manager of SMIF was obliged, but had failed, to make a determination under s 409 of LPA 2004 in his favour. 10In answer to the contention that it had failed to make such a determination, the defendants, and in particular LawCover, pleaded various facts that included SMIF's status as a mutual fund in which premiums and other contributions were collected by LawCover from insurable solicitors and which were used for the purpose of funding, inter alia, indemnity and defence costs "to the extent that the insurance arrangements put in place by LawCover for any particular policy year required such payments to come from SMIF". It was also pleaded in this part of the defence that, in May 2012, LawCover had determined that, if Mr Crawley did not satisfy the conditions for recovery under the approved insurance policy, he would not recover any amount from SMIF. 11In my view, it was or should have been apparent to the parties that the defendants' position at that time was that either the insurers or SMIF would meet the plaintiff's claim, but only if he satisfied the conditions for recovery in the approved insurance policy other than the aggregate deductible. Mr Crawley's position was, inter alia, that he met the conditions for recovery under the policy but, if he did not, he was nevertheless entitled to a payment from SMIF. 12Further, in Crawley (No 2) I allowed Mr Crawley leave to amend to add a cause of action claiming that LawCover had in fact made a determination under s 44 of the Legal Profession Act 1987 in his favour in February 2003 which was said to give him an entitlement to retain amounts that had been paid by LawCover on his behalf in defending the Equity Division proceedings. Subsequent to a pleading being filed containing that allegation, LawCover filed its defence, which responded by denying it had made any such determination and otherwise referring to the facts and circumstances surrounding SMIF that I have already described.

Events leading to the amendment application 13To describe the events leading to the application by the plaintiff to amend, it is necessary to outline certain events which also relate to a foreshadowed application by the defendants to amend their defence. The plaintiff contends that the service of material relating to that foreshadowed application, at least in part, explains the lateness of his application to amend. 14It seems that as at February 2013 the solicitors for the defendants were continuing to make enquiries about events concerning the arrangements put in place by LawCover in 1997 and 1998. 15In February 2013 the Secretary of the Law Society provided to the defendants' solicitors a memorandum bearing the date February 1997 which enclosed what appeared to be a resolution by LawCover which included the following (the "1997 determination"): "The benefit to be provided by the SMIF shall be the difference between the indemnity provided by the Master Policies and the indemnity that would have been provided if such policies had not been subject to aggregate deductibles and to aggregate limits of liability in respect of all certificates issued to all assured under the Master Policies and had been placed 100% with insurers." 16On its face, this resolution appears to make explicit what otherwise might be seen to have been implicit in the resolution said to have been made by LawCover in 2012, namely that it was LawCover's position that if solicitors could bring themselves within the conditions for recovery set out in the relevant approved insurance policy, but the aggregate deductible had not been reached, then they would obtain a payment from SMIF but not otherwise. 17In any event, on 7 March 2013, the solicitors for the defendant provided this document to the solicitors for the plaintiff. It was also around this time that the matter was set down for hearing with an estimate of ten days. 18On or about 16 September 2013 there was a mention of the proceedings before a Judge of this Court, at which time directions were made to have the matter ready for hearing. 19On 23 October 2013 the solicitors for the defendants sent to the solicitor for the plaintiff a proposed amended defence to the amended statement of claim. It is only necessary to note one part of that proposed amended defence. The proposed new paragraph 4 pleaded in detail the operation of SMIF, including the effect of the 1997 resolution that I have just noted. Proposed sub-paragraph 4(k) of the proposed amended defence pleaded: "... that the claims experienced for the 1997-1998 Policy Year has been such that by reason of the aggregate deductibles and aggregate limits of indemnity the insurers have not become liable for claims in the 1997-1998 Policy Year and SMIF remains liable for the indemnity". 20The most likely consequence of this statement being correct is that Mr Crawley's case for indemnity is confined to one against LawCover only as the manager of SMIF, in that it is unlikely that the insurers will ever have any exposure to Mr Crawley's claim because the aggregate deductible has not been and is not likely to be reached. 21On 8 November 2003 the solicitors for the defendants wrote to the plaintiff's solicitor seeking consent to the filing of the proposed amended defence. They wrote again on 25 November 2013 and 4 December 2013. They received no response at that time. A telephone call was made on 10 December 2013 and emails following up that conversation were sent before the end of term. 22Eventually, on 17 December 2013, the defendants filed a notice of motion seeking leave to amend their defence. This motion was somehow referred to my chambers and fell onto my desk during the vacation period. Eventually, on 29 January 2014, the plaintiff's solicitor advised that the motion was opposed. He provided reasons in support of his client's opposition by letter sent on or about 2 February 2014. It is unnecessary to consider them at this point as I am only dealing with the plaintiff's application to amend, and not the defendants'. 23Upon being apprised of dispute about the proposed amendment to the defence, I ordered brief submissions on this question and listed the matter for directions on Thursday 6 February 2014. As noted previously, it emerged on that day that the plaintiff wished to amend his statement of claim. 24The solicitor for the plaintiffs has provided an affidavit explaining the action he was taking during the period October 2013 to February 2014. He explained that at the time he received the proposed amended defence he did not have instructions to retain counsel. He said that he did not receive those instructions until mid-January 2014. At the time he received the defence, he also received seven volumes of documents from the defendants. The solicitor explained that he was under a heavy case load in November and December 2013. He says that when he reviewed the defence he considered that the proposed changes were of such significance that counsel's advice was required. 25This explanation does not of itself address the lateness of the plaintiff's application to amend, but as I will explain, it was contended that the need for the amendments arose out of the information that was provided by the defendants in the material they provided in support of their application to amend their defence.

Approach to amendments 26Both parties addressed the application by reference to the principles governing the consideration of an amendment application discussed in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; 239 CLR 175 ("Aon"). Further, I was referred to the following passage from the judgment of Barrett JA in Kelly v Mina [2014] NSWCA 9 at [47] and [48], which I gratefully adopt: "47 Particularly in light of the opening words of s 64(2), it is not controversial that the provisions in Part 6 Division 1 of the Civil Procedure Act were binding on the primary judge and that, in accordance with s 58, his Honour was bound to seek to act in accordance with the dictates of justice and, in so doing, to have regard to s 56 concerning the 'overriding purpose' of the Act and rules of court in their application to civil proceedings; also that, in addressing the amendment application in the particular statutory context, his Honour was required to take into account a combination of factors identified by the High Court in Aon Risk Services Pty Ltd v Australian National University [2009] HCA 27: (2009) 239 CLR 175 and usefully summarised by Vickery J in Namberry Craft Pty Ltd v Watson [2011] VSC 136 (at [38]) as follows: '(a) Whether there will be substantial delay caused by the amendment; (b) The extent of wasted costs that will be incurred; (c) Whether there is an irreparable element of unfair prejudice caused by the amendment, arising, for example, by inconvenience and stress caused to individuals or inordinate pressures placed upon corporations, which cannot be adequately compensated for, whatever costs may be awarded; (d) Concerns of case management arising from the stage in the proceeding when the amendment is sought, including the fact that the time of the court is a publicly funded resource, and whether the grant of the amendment will result in inefficiencies arising from the vacation or adjournment of trials; (e) Whether the grant of the amendment will lessen public confidence in the judicial system; and (f) Whether a satisfactory explanation has been given for seeking the amendment at the stage when it is sought.' 48 As this Court has emphasised more than once, Part 6 Division 1 of the Civil Procedure Act made substantive and important changes to the law so that considerations of promptness and efficiency in the conduct of civil litigation are afforded a new and special importance which may sometimes provoke a sense of injustice in a party who has failed to proceed with despatch: see, for example, Dennis v Australian Broadcasting Corporation [2008] NSWCA 37; Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 at [160]-[161]; Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230; Halpin v Lumley General Insurance Ltd [2009] NSWCA 372; Bi v Mourad [2010] NSWCA 17; Richards v Cornford (No 3) [2010] NSWCA 134."

The proposed amendments 27The proposed amendments can be conveniently divided into two categories. The first category is not opposed, but it is still necessary to describe them. Proposed paragraphs 32 to 48 and 62 to 68 all seek to mount various administrative law challenges to what is pleaded to be various decisions made by LawCover between 2002 and 2012. The first decision is said to have been made on or about November 2002 to pay from SMIF a certain percentage of the plaintiff's costs of the Equity Division proceedings, but at the same time to include certain reservations by reference to the terms of the approved insurance policy. 28The second decision is said to be one made on about 26 October 2005, by which LawCover advised that it was not making a final determination on indemnity, but was otherwise advising that it maintained its reservation of rights in relation to providing indemnity to the plaintiff in respect of the Equity Division proceedings. 29The third identified decision is one said to have been made on or about 20 December 2007 to refuse to pay any further costs and to not otherwise indemnify the plaintiff. This appears to be a reference to the events immediately following the publishing of Short v Crawley (No 30). 30The fourth identified decision is the resolution made on or about 16 May 2012, which I have already described. 31In relation to these categories of amendments, Mr Green stated that he did not rely on any further evidence to that which had been filed. On that basis, Mr Williams SC indicated that his clients did not oppose the amendments. He stated that at some point his clients would need some relatively brief allowance by way of time to respond, but he accepted that the issues raised by these amendments could still be litigated within the two weeks allocated for the hearing. 32The second category of amendments was opposed. They also relate to the various alleged decisions or resolutions that I have described. They are to be found in proposed paragraphs 49 to 58 and 70 to 76 of the proposed pleading. Further, proposed paragraphs 59 to 61 appear to in part fall into this category and in part fall into the first category. 33Underpinning all the opposed amendments is an allegation that LawCover's actions in dealing with Mr Crawley's claim for indemnity involved it carrying on an insurance business contrary to former s 21(2) of the Insurance Act 1973 (Cth). 34Subsection 21(2) of the Insurance Act prohibits a body corporate that is not authorised under the Act from "carrying on insurance business" and provides that it is an offence each day upon which it does so. The phrase "insurance business" is defined in s 3(1) of the Insurance Act as follows: "insurance business means the business of undertaking liability, by way of insurance (including reinsurance), in respect of any loss or damage, including liability to pay damages or compensation, contingent upon the happening of a specified event, and includes any business incidental to insurance business as so defined, but does not include ..." The balance of the definition of "insurance business" then sets out various exceptions, none of which appear to be presently relevant. 35Both the proposed pleading and the submissions in support of the amendment accepted that the performance by LawCover of its functions as the company responsible for SMIF under the LPA 1987 and then the LPA 2004 did not necessarily involve it contravening s 21(2) of the Insurance Act. Instead, the pleading contends that the manner in which it dealt with Mr Crawley's claim means that it contravened that provision. In particular, it pleads as follows, "54. In the premises, to the extent to which LawCover purported to rely upon the terms and conditions of the Certificate of Insurance to govern its legal relationship with the Plaintiff, it conducted a business of undertaking liability by way of insurance in respect of the loss or damage, including liability to pay damages or compensation including upon the happening of a specified event. ... 56. To the extent to which s 44(1)(b) and s 44(1)(c) of the 1987 Act and s 409(1)(c) and s 409(1)(d) of the 2004 Act empowered LawCover to impose terms and conditions from the Certificate of Insurance when making a determination of the payment of an amount, or to otherwise rely upon those terms and conditions in its dealings with the Plaintiff, those provisions were inconsistent with s 21(2) of the Insurance Act 1973 and were not otherwise lawful." 36Thus proposed paragraph 54 contends that the actions of LawCover in invoking and relying upon terms and conditions of the approved insurance policy led to it conducting an "insurance business". This is a reference to those aspects of the impugned decisions which I have described in which at various points LawCover either reserved its position by reference to the terms and conditions of the approved insurance policy, or purported to deny indemnity by relying on those terms and conditions. 37Proposed paragraph 56 raises a contention that if, on their proper construction, the relevant provisions of the LPA 1987 and the LPA 2004 enabled LawCover to so act, then there was an inconsistency between those provisions and s 21(2) of the Insurance Act, with the consequence that the former would either be read down or would have their operation suspended by s 109 of the Constitution. To that end, proposed paragraphs 70 to 76 develop the suggestion of an inconsistency between these provisions and s 21(2) of the Insurance Act. 38It is inevitable that, if these claims were to be pursued, then s 78B(1) of the Judiciary Act 1903 (Cth) would require the Court to cease determining at least that aspect of the matter until the requisite notices were given. Although s 78B(2) allows some severance of such constitutional issues, it is far from obvious as to how wide or narrow that severance would need to be. Thus, the inevitable result of allowing these amendments in this form must be some further fragmentation of the hearing of these proceedings. That is a matter to which I will return. 39One further matter should be noted at this point about these category of amendments. Proposed paragraph 69 states: "By reason of the matters pleaded in paragraphs 30-68, in accordance with the 2002 Decision and the 2005 Decision, the Plaintiff is entitled to receive payment from LawCover with respect to defence costs and payment with respect to such of the liability which he was ordered to pay in the orders made on 19 December 2007." 40The effect of this part of the proposed pleading, as I understand it, is that the plaintiff will contend that with the 2002 decision, that part of it which indicated to the plaintiff that indemnity was being provided, or at least costs would be paid, was not rendered unlawful by s 21(2) of the Insurance Act, but that that part of the decision which involved a purported reservation of LawCover's position by reference to the terms of the approved insurance policy was rendered unlawful.

Whether the amendment should be allowed 41One potentially critical issue relevant to whether the amendment should be allowed is the reason advanced as to why it was made so late (see Aon at [106] per Gummow, Hayne, Crennan, Kiefel and Bell JJ). Mr Green contends that the need for the amendment only arose because of the information that was conveyed to his client in 2013, firstly as to the existence of the 1997 determination and, secondly and most importantly, that the aggregate deductible in the master policy had not been exceeded, with the likely consequence that his client's rights were solely against LawCover as the manager of SMIF. 42In relation to the first matter, as I have stated, his client was aware of the 1997 determination as at March 2013. Further, it is notable that nowhere in the proposed amended pleading is there any reference whatsoever to that determination. Otherwise I accept that it was not until the plaintiff was served with the proposed amended defence was he advised that, in effect, the arrangements with SMIF did, or most likely did, exclusively govern his client's rights. However, it should be apparent from what I have already stated that the plaintiff was aware, or should have been aware, that the arrangements with SMIF at least partially governed his rights well before then. In that respect, I do not see how this category of amendments arises from what the plaintiff was told in 2013. 43As noted, the proposed amendment does not seek to attack or rely upon the 1997 determination at all. Further, the evidence said to prove the existence of the relevant determinations in the period 2002 to 2012 that I have referred were all in the plaintiff's possession at least no later than the end of 2012. If there is at this point utility in attacking those determinations, then that utility has always existed since at least 2012. 44There is otherwise the period of further delay between being advised of the fact that the aggregate deductibles had not been exceeded in October 2013 and the making of this application. I have recounted those events and the plaintiff's solicitor's explanation. In the end result, what that explanation amounts to is the proposition that the plaintiff was simply under-resourced and his solicitor was overwhelmed by other work so that attention simply could not be given to this at an earlier time. In a sense that is an explanation, and its weight is a matter to be considered as against all the other factors. It is certainly not a factor that allows any blame to be attributed to the defendants. 45A further important factor in relation to the application to amend is the potential prejudice to the plaintiff if this category of amendments is not allowed. 46Mr Williams SC took me to the source material which was said to evidence the existence of the making of the 2002 decision and 2005 decision that I have already referred to. Mr Williams SC submitted that the material that he understands the plaintiff will rely on is simply incapable of proving that those decisions or resolutions were made. At this point I decline to address the application to amend on this basis. As I have stated, the first category of amendments which are not opposed also involve an attack on those alleged decisions. I do not consider it necessary to consider Mr Williams SC's contentions on this point when it is a matter that I will have to decide on a final basis. 47Nevertheless, at this point I am satisfied that the matters sought to be raised by this category of amendment are very weak such that if they are refused, it is unlikely that the plaintiff will in the end result suffer any real prejudice. 48I have described the manner in which the proposed amendments allege that LawCover breached s 21(2) of the Insurance Act. 49There is apparently little authority on what it means to carry on insurance business. In Hancock Family Memorial Foundation Ltd v Fieldhouse (No 5) [2013] WASC 121 at [57], Le Miere J cited an extract from MacGillivray & Parkington on Insurance Law (8th edition) for the general proposition that the usual meaning of "insurer" is a person who promises, in return for a monetary consideration, to pay to the insured a sum of money or to provide that person with a corresponding benefit upon the occurrence of one or more specified events. It is to be remembered that one aspect of the definition of "insurance business" is that the relevant insurer is said to be in the business of undertaking liability "by way of insurance". 50The allegation in proposed paragraph 54 is that somehow in dealing with Mr Crawley's claim, LawCover started carrying on insurance business. No part of that paragraph alleges that, in dealing with Mr Crawley's claim, LawCover at that point accepted any premium or reward or any benefit for doing so. It seems to me very unlikely that the definition of insurance business could be satisfied in circumstances where LawCover itself did not enter into any form of contract of insurance with Mr Crawley, nor was said to have done anything which involved it accepting any form of reward that could answer the definition of premium as consideration for taking any step. The bare allegation that by allegedly making determinations under s 44 of the LPA 1987 or s 409 of the LPA 2004, which incorporated terms and conditions of a contract of insurance that had been written years earlier, it thereby engaged in carrying on insurance business, seems to me to be tenuous. 51Further, I have already described the allegation made in the proposed pleading that somehow the effect of s 21(2) of the Insurance Act in this context is to preserve an allegedly favourable decision made in favour of Mr Crawley to provide indemnity, while at the same time rendering unlawful and therefore presumably void the reservations expressed by reference to the terms of the approved insurance policy. Again, it seems to me that it is a very tenuous proposition that s 21(2) would operate upon the parties' rights in that manner. 52In those circumstances, I regard the prospects of these parts of the pleading leading to any useful relief in favour of Mr Crawley as very unlikely. 53A further consideration relevant to the discretion to allow the amendments is whether, if made, they have the potential to prejudice LawCover. At the outset, it must be accepted that the proposed amendments are capable of raising a very serious matter concerning the operation of LawCover. It would have to follow that, if they were allowed, LawCover would have to be given a reasonable amount of time to consider the contentions closely. 54Further, I have already referred to the operation of s 78B of the Judiciary Act. It is inevitable that if these amendments are allowed there will be fragmentation of the hearing. It would make it impossible to conclude the matter within the next two weeks and, in my view, would make it more likely that a substantial part of the hearing would have to occur at a later time. That consideration also has the consequence that the granting of these sets of amendments also has the potential to adversely affect the interests of other litigants.

Conclusion 55In the end result, I consider that the amendments are being made too late and that they are too weak to warrant their being granted, especially bearing in mind the likely fragmentation of the hearing that would occur if they are allowed and the potential prejudice to the defendants if they are made. [The parties addressed as to appropriate orders.] 56Accordingly, I order that: (1)the plaintiff have leave to file a Second Further Amended Statement of Claim in the form initialled by me other than the proposed amendments to paragraphs 49 to 58 and 70 to 76, and claims for relief 3(f) and 3(g); (2)the plaintiff's application to amend the Further Amended Statement of Claim be otherwise refused.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 February 2014