Dopudj v FDC Construction and Fitout Pty Limited & Ors

Background

1. By way of the third amended statement of claim filed on 8 December 2021, the plaintiff seeks damages from a number of defendants arising out of injuries he sustained at a construction site on 13 June 2013.
2. As set out in paragraph 7 of the third amended statement of claim, the plaintiff says that whilst he was at the site, he walked across timber decking covering completed formwork. A section of the decking and formwork collapsed, causing the plaintiff to fall through the decking a distance of about 2.4 metres onto a concrete slab floor below. The plaintiff says that he sustained significant injuries.
3. He pursued six defendants, albeit he has removed from the proceedings (in some way) the second defendant known as Goodman Limited and the fourth defendant, being Stephen James Shaxon.
4. He thus pursues only: 1. the first defendant, SEC Constructions, as the head contractor; 2. the third defendant, SRG Building (Northern) Pty Limited, as the party said to be responsible for the formwork; 3. the fifth defendant, the Workers Compensation Nominal Insurer on behalf of a company known as Formtec, being the plaintiff's employer (being a company seemingly related to the sixth defendant); and 4. the sixth defendant, Form International Pty Ltd trading as Formtec Formwork Contractors, which is said to be the contractor who was in some way required to inspect the work at the building site.
5. There are issues between the parties as to the circumstances of the plaintiff's accident and the particular the cause of the collapse of the decking or formwork, as well as who might be responsible for the accident.
6. There is competing expert evidence and I understand some competing factual evidence.
7. It is not necessary to comment further on the circumstances of the accident at this time. Suffice to say that this is a personal injury claim being pursued against a number of parties arising out of a construction site accident.
8. Importantly, there has been some confusion or uncertainty as to who should be involved in these proceedings. That is evident from the fact that the plaintiff has already discontinued claims against two of the named defendants.
9. Further, the company known as Formtec (being the plaintiff's employer) originally admitted that it was the party responsible for the work, which the plaintiff now asserts was the responsibility of the sixth defendant, Form International.
10. Those companies are in some way related. It is perhaps not unusual in these types of matters that there is some uncertainty on the part of a plaintiff as to which company in a group of companies was performing what work.
11. It was not until the fifth defendant made an application to withdraw an admission in its defence that it was responsible for the work, that an issue arose as to which company in the Form International Group was responsible for the 'inspection work'.
12. The significance of this is that the fifth defendant, Formtec, is sued as the employer and there are restrictions on damages as against the employer, whereas the sixth defendant is not sued as the employer but is sued as a contractor responsible for some of the work which is said to have led to the collapse of the decking and formwork.
13. GIO is said to have insured the sixth defendant at the time of the accident under terms of a GIO trade insurance policy, which included public and products liability.

GIO's position

1. When the sixth defendant, Form International, was joined to the proceedings, it must have made a claim under the GIO policy, as the solicitors for GIO (Mills Oakley) originally appeared.
2. Mills Oakley have subsequently ceased to act, GIO having determined that it has no liability because its insured, being the sixth defendant, was guilty of non-disclosure.
3. GIO originally wrote to the sixth defendant on 15 August 2022 informing it that the policy did not cover the claim.
4. GIO informed the sixth defendant that it did not consider that the claim was covered by virtue of s 28(3) of the ICA. GIO sought to disclaim that liability under s 28(3). That is, GIO maintained that its insured, the sixth defendant, had failed to comply with its obligations under s 21 of the ICA in respect of proper disclosure of financial information. Further, GIO said that it was entitled to reduce the amount that it had to pay to nil on the basis that it would not have been on risk at all, had proper disclosure been made.
5. According to GIO, the sixth defendant had grossly underestimated the amount of its turnover and expenditure on subcontractor and labour hire workers.
6. Specifically, GIO observed that the sixth defendant's tax returns for 2012 and 2013 indicated turnovers of $11,564,021 and $11,495,191 respectively, and that the expenditure on subcontractors and labour hire workers was $8,507,230 and $7,855,363 respectively.
7. According to GIO, at the time of inception of the policy, the sixth defendant had disclosed that its turnover was only between $250,000 and $500,000 and that the value of trade contracts and labour hire contracts was less than $50,000.
8. As would seem obvious, there is a significant discrepancy between the amounts that GIO maintain were disclosed to it and the amounts that GIO says were recorded in the tax returns.
9. In its August correspondence, GIO sought to disclaim liability on the basis of s 28(3) of the ICA. However, in subsequent correspondence (that is, its letters of 29 August 2022 and 19 September 2022), GIO purported to avoid the policy under s 28(2) of the ICA.
10. I observe at this stage that the remedy available to GIO under s 28(3) (that is, innocent non-disclosure or misrepresentation) is different to the remedy available under s 28(2) (that is, fraudulent non-disclosure or misrepresentation). Only if the insurer establishes that the non-disclosure was fraudulent is the insurer entitled to avoid the policy under s 28(2) of the ICA. Otherwise, the remedy available to the insurer is only to reduce its liability in respect of the claim, to an amount that would place the insurer in a position in which it would have been if the relevant non-disclosure had not occurred.
11. In this case, GIO says that it would never have entered into the policy if it had known of the said to be true amounts and thus it is said to reduce its liability to nil under s 28(3) of the ICA.
12. However, as I have just observed, the final position adopted by GIO is that it has avoided the policy pursuant to s 28(2).
13. As such, GIO is asserting that the non-disclosure or misrepresentation of its insured, the sixth defendant, was fraudulent.
14. As such, in order to rely on s 28(2) of the ICA, GIO must establish that the non-disclosure or misrepresentation was fraudulent.

The Civil Liability (third party claims against insurers) Act 2017

1. Both the plaintiff and the third defendant seek to join GIO in accordance with s 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (the Act). As set out in s 4 of the Act: (1) If an insured person has an insured liability to a person (the claimant), the claimant may, subject to this Act, recover the amount of the insured liability from the insurer in proceedings before a court. (2) The amount of the insured liability is the amount of indemnity (if any) payable pursuant to the terms of the contract of insurance in respect of the insured person's liability to the claimant. (3) In proceedings brought by a claimant against an insurer under this section, the insurer stands in the place of the insured person as if the proceedings were proceedings to recover damages, compensation or costs from the insured person. Accordingly (but subject to this Act), the parties have the same rights and liabilities, and the court has the same powers, as if the proceedings were proceedings brought against the insured person. (4) This section does not entitle a claimant to recover any amount from a re-insurer under a contract or arrangement for re-insurance.
2. As set out in s 5 of the Act, proceedings may not be brought or continued against the insurer under s 4 except by leave of the Court.
3. An application for leave may be made before or after proceedings have been commenced pursuant to s 4 of the Act (s 5(2)).
4. The court has a discretion whether to grant leave. However, importantly, s 5(4) is in the following terms: (4) Leave must be refused if the insurer can establish that it is entitled to disclaim liability under the Contract of Insurance Act or under any Act or law.
5. The requirement for leave is so that the court may filter applications against insurers. There is no statutory prescription as to when leave should be granted but leave must be refused if the court is satisfied that the insurer is entitled to disclaim liability.
6. As is evident, there will be cases in which it will be clear that the insurer will not be liable to indemnify the insured because of the application of an exclusion, because of the insurer's reliance on a condition or, as GIO says in this case, because the insurer has purported to avoid its policy.

GIO's submissions

1. The obligation is on a claimant to establish that leave should be granted but, in circumstances where an insurer seeks to rely on a defence of non-disclosure or breach of policy condition or an exclusion, it would be incumbent upon the insurer to put before the court evidence that it is entitled to rely upon regarding the exclusion, condition or non-disclosure.
2. That approach is evident from s 5(4), which makes it plain that leave must be refused if the insurer can establish that it is entitled to disclaim liability.
3. GIO identified a number of reasons why leave must or should be refused, as follows: 1. As the insured has not challenged its decision to disclaim liability, there is no right on the claimant to recover under the policy. There could be no higher or greater right on the claimant in circumstances whereby the insured has not sought to challenge the decision. 2. The policy no longer exists, as GIO has avoided the policy ab initio. There is nothing for the claimant to claim on at this point because of that avoidance. 3. In any event, GIO has established that it is entitled to disclaim liability and the court must refuse leave. 4. Both the plaintiff and third defendant are out of time to join GIO; that is, GIO says that the joinder at this point would be futile because it has a limitation defence. In this regard, the parties agree that ss 50C and 50D of the Limitation Act 1969 (NSW) applies, in the sense that the test is whether proceedings have been commenced within three years of the date of discoverability as that term is defined in the Limitation Act. 5. There has already been a consent judgment in favour of GIO's insured, the sixth defendant. That judgment was entered by consent on 21 August 2019. Having already obtained judgment in its favour, GIO says that the principles of issue and Anshun estoppel apply.
4. The positions of the plaintiff and third defendant are identical. Both provided helpful submissions and both Mr Curran and Mr Gray provided more detailed oral submissions. Both the plaintiff and third defendant submit that: 1. GIO's submissions on points 1 and 2, to which I have already referred, are without merit and are misplaced. 2. GIO has not established that joinder against it would be futile because of its limitation defence because, on the evidence before me, I could not be satisfied that any limitation defence is available. 3. on the evidence on the application, I would not be satisfied that GIO is entitled to disclaim liability, such that the plaintiff and the third defendant submit that s 5(4) of the Act does not apply. 4. GIO's submission in respect of Anshun or issue estoppel is misplaced because neither the plaintiff nor the third defendant were parties to the cross-claim which was the subject of consent orders.

Determination

1. I will now deal with the issues as they were presented.
2. I do not accept GIO's submissions in respect of the effect of its purported avoidance of the policy and its significance under the Act.
3. I do not agree that a purported avoidance of the policy under s 28(2) removes the case from the ambit of the Act.
4. The very purpose of this legislation is to enable claimants to recover directly from insurers in certain circumstances. Prior to the Act, the right to sue an insurer directly arose under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). Whilst there are some differences in the provisions, there are some similarities and the legislation seeks to achieve the same aim. It would seem surprising that an insurer could remove itself from the ambit of the Act by purporting to avoid the policy of insurance under s 28(2) of the ICA, thereby maintaining that there is no policy on foot at the time of the application to join it. Such an approach would tend to defeat the very purpose of the legislation.
5. I adopt the observations of Leeming JA in Reed Constructions Australia Pty Limited (in Liquidation) - Walley v Chubb Insurance Australia Ltd [2019] NSWSC 1007 at [11] as follows: "Section 4 speaks in terms of an 'insured liability' which is defined to mean 'a liability in respect of which an insured person is entitled to be indemnified by the insurer'. That, of course, cannot presently be determined, in light of the exclusions in Chubb's policy, and will turn on what is ultimately found at trial. However, it must be the case that 'insured liability' includes an insured liability which has not yet been established, or one which is claimed by a plaintiff, or one which is subject to the possibility of a finding of dishonesty or non-disclosure or some other basis entitling an insurer to avoid."
6. As his Honour observes, insured liability in s 4 must include a liability that has not yet been established, or one which might be subject to a defence of non-disclosure or even relief which would otherwise entitle the insurer to avoid.
7. Further, it would also seem contrary to the purpose of the legislation for an insurer to be entitled to avoid the effect of the Act through post-notification conduct. That is, I do not accept that an arrangement entered into by an insured with another party prior to an application under s 4 would necessarily prevent or preclude such an application. There may be examples where it is in the interests of an insured to enter into an arrangement after being sued (perhaps prior to liquidation or when entering into a deal with a claimant for some small amount). Such arrangements or conduct could have the effect of defeating a claim which was otherwise available under s 4.
8. Further, I do not accept that the case against the insurer is doomed to fail based on Issue or Anshun estoppel. Of course, it is not necessary that I actually decide that point at this time, provided that I am satisfied there is a reasonable argument available to the claimants.
9. Mr Ronzani points to the principles set out in James Hardie & Co Pty Ltd v Seltsam Pty Ltd, [1] as well as Port of Melbourne Authority v Anshun Pty Limited [2] and Tomlinson v Ramsey Food Processing Pty Limited. [3]
10. Mr Ronzani submits that the position in this case is merely an extension of the Anshun estoppel or issue estoppel principles. I do not agree. I do not accept that the plaintiff, who was not a party to any consent judgment, could be precluded from pursuing a claim against the insurer by virtue of issue estoppel. There was no issue between the plaintiff and the insurer or the sixth defendant which was resolved. The fact that another party has agreed to a judgment in favour of GIO's insured, being the sixth defendant, does not give rise to issue or Anshun estoppel.
11. Again, this is not a case in which the plaintiff has chosen at some earlier time not to pursue the sixth defendant or has entered into an agreement with the sixth defendant and now seeks to go behind that decision. Indeed, in Bowcliff Pty Ltd v QBE Insurance (Aust) Limited; Orcher v QBE Insurance (Australia) Ltd, [4] Handley AJA (with whom Allsop P and Tobias JA agreed) when dealing with an earlier judgment, observed that, as the plaintiff was not a party to a cross-claim against QBE, the plaintiff was not bound by the consent judgment and was not affected by any issue estoppels it may have created.
12. As his Honour observed, the consent judgment could not create any cause of action estoppel against the plaintiff.
13. Statute apart, a consent judgment only affects the parties who consent.
14. It is not necessary that I say anything further about the issue estoppel and Anshun estoppel position adopted by GIO.
15. GIO submits that the joinder of it to these proceedings would be futile, because the proceedings are statute barred having regard to the Limitation Act.
16. The parties agree that the relevant provision is s 50C of the Limitation Act. That is because, under s 6 of the Act, proceedings to recover an amount from an insurer under s 4 must be commenced within the same limitation period that applies under the Limitation Act, where the claimant's cause of action is against the insured person.
17. Further, as set out in s 6(2) of the Act, sub-section (1) does not apply if the claimant has brought proceedings against the insured person in respect of an insured liability before the expiry of the limitation period applying to those proceedings.
18. As the plaintiff's action against the sixth defendant is an action for personal injury, s 50C of the Limitation Act applies.
19. As set out in s 50C, an action on a cause of action to which the division applies is not maintainable if brought after the expiration of the limitation period of whichever of the following periods is the first to expire: 1. the 3-year post-discoverability limitation period, which is the period of 3 years from and including the date on which the cause of action is discoverable by the plaintiff; and 2. the 12-year long-stop limitation period.
20. In this case, the 3 year post discoverability limitation period is said to have expired.
21. Section 50D of the Limitation Act specifies a date on which an action is discoverable. The cause of action is discoverable by a person on the first date that the person knows or ought to know of each of the following facts: 1. the fact that the injury or death concerned has occurred; 2. the fact that the injury or death was caused by the fault of the defendant; 3. in the case of injury, the fact that the injury was sufficiently serious to justify the bringing of an action on the cause of action.
22. The plaintiff's accident occurred on 13 June 2013. It does not appear to be in dispute that he would have known at that date that the injury had occurred and that he would have known many years ago that his injury was sufficiently serious to justify the bringing of an action on the cause of action. The question is whether the plaintiff knew or ought to have known of the fact that the injury or death was caused by the fault of the defendant more than 3 years ago.
23. Specifically, GIO relies on the fact that, although the proceedings which were commenced on 23 May 2016 did not initially include the sixth defendant, a cross-claim was first filed against the sixth defendant on 29 January 2018. GIO submits that the plaintiff ought to have known as of that date that his injury was caused by the fault of the sixth defendant.
24. As submitted by Mr Gray, there is no direct evidence as to what the plaintiff knew or ought to have known at any particular time. It must be that GIO is asking me to draw an inference having regard to the pleadings.
25. The difficulty with GIO's position is that I am unable to infer that the plaintiff knew or ought to have known or, indeed, the third defendant knew or ought to have known that the injury was caused by the fault of the sixth defendant as of 2018, because the defence filed by Formtec (that is, the employer) originally admitted that it was responsible for the work that the sixth defendant is now said to be responsible.
26. At least on the evidence before me, only in November 2021 when the fifth defendant sought to withdraw that admission, ought the third defendant or plaintiff to have known that it was the fault of the sixth defendant (not the fifth defendant) that caused his injury.
27. Put simply, I am not satisfied on the evidence on this application that GIO has established that it would be an exercise in futility for it to be joined because it has a limitation defence. I am not making any final determination of that issue, because no doubt if GIO wishes to pursue that defence there will be further evidence and there may be cross-examination of the plaintiff at the hearing.
28. There may be arguments available that the defence does not apply and, in those circumstances, I reject GIO's submission that it should not be joined because of a possible limitation defence.
29. The final point raised by GIO is that leave should not be granted because it is entitled to disclaim liability. It says that I must refuse to grant leave. Although there is no affidavit from any underwriter, GIO has adduced significant evidence as to why it has adopted the position in terms of non-disclosure.
30. Whilst Mr Gray points to a number of deficiencies in the position of GIO on this issue, there remains quite a deal of evidence which tends to suggest that, when applying for the policy in 2012, the sixth defendant did not disclose its true financial position; specifically, the amount of its turnover and the amount that it paid labour hire/contractors during the year.
31. On the face of the correspondence from GIO and accepting for the purposes of this application the accuracy of the summary provided in GIO's correspondence, it seems that when seeking insurance, the sixth defendant specifically stated that its turnover was less than $250,000 and it did not spend more than $50,000 on contractors. If GIO's summary of the sixth defendant's tax returns is accurate, it is perhaps difficult to understand the discrepancy of some $8 million in the disclosure provided by the sixth defendant.
32. Further, in the correspondence provided by GIO (including emails from persons employed by GIO whose precise work function is not identified), there is reference to underwriting guidelines which tend to suggest that GIO would not accept an application for insurance when a proposed insured spent the amount of money on labour hire or subcontractors suggested by the sixth defendant's tax returns.
33. However, as suggested by Mr Gray, at least some of the information contained in the underwriting guidelines is not entirely clear or certain and, at least on one view, it may be that the underwriters still had some discretion.
34. It is not necessary that I say anything further about the underwriting guidelines and the issues arising as to the insured sixth defendant's disclosure because, in the end, there is another reason why I am not satisfied that GIO has established that it is entitled to disclaim liability, at least for the purposes of this application.
35. Importantly, the position adopted by GIO is that it has avoided the policy under s 28(2) of the ICA. GIO may only avoid the policy under s 28(2) of the ICA if the non-disclosure was fraudulent. No doubt, GIO will seek to establish that in the end. However, on this application, no oral evidence was called and no-one sought to cross-examine any person who might be an author of any correspondence.
36. Specifically, the sixth defendant responded to GIO's avoidance of the policy and disputed that the value of trade contracts and labour hire contracts referred at the time of the purchasing of the policy was underestimated, either intentionally or without due disregard of the fact. Further, it suggested that, at the time of the application for insurance, it had little or no work on its books and there was no anticipated future work.
37. The sixth defendant said it had no outstanding tenders at the time of the application.
38. It suggested that the reason it completed the application or declaration (which is not before me) in the way that it did was because it had not been awarded any contract, it had been rejected for all tenders, and it had no work planned for the future.
39. The sixth defendant denied that it was guilty of fraud and put forward an explanation as to why it believed that the information it provided as part of the declaration was correct.
40. Whether there is any merit in what was said in the correspondence from the sixth defendant will no doubt be the subject of vigorous debate in due course but, on the evidence presented on this application, there is a response from the insured which, if accepted, would tend to suggest that it was not guilty of fraudulent non-disclosure.
41. In circumstances in which all of the evidence before me was in documentary form, I must give that evidence some weight. The position of GIO is really to the effect that, because of the discrepancy between the tax returns and the amount declared, the non-disclosure must have been intentional and fraudulent. However, the sixth defendant provides an explanation which may suggest to the contrary (if correct).
42. It is not for me to determine at this stage whether that explanation will be accepted. I am not satisfied on the application today that GIO has established that which it needs to establish to rely on s 28(2) of the ICA, that is, that the non-disclosures were fraudulent. It not having established on this application that the non-disclosures were fraudulent, then I am not satisfied that GIO is entitled to disclaim liability within the meaning of s 5(4) of the Act, and s 5(4) thus does not apply.
43. As s 5(4) of the Act does not apply, the question remains whether I should exercise the general discretion to grant leave to the plaintiff and third defendant to join GIO under s 4.
44. As I have identified, there are a number of issues between the parties in this litigation. It is not clear at this point as to which party might have been responsible for what work. There appear to be some uncertainty between members of the Formtec Group as to which member of the group performed what work.
45. GIO may have a limitation defence, although it may not have. However, in circumstances in which I am not satisfied that GIO is entitled to disclaim liability and where, having regard to the expert evidence and in particular the evidence of Mr Vorbach (Mr Vorbach being the solicitor for the fifth defendant) as to the different roles performed by the members of the group, I am satisfied that leave to join GIO should be granted and the issues raised by GIO can await further determination.
46. In the circumstances, I make the following orders: 1. The third defendant is granted leave to rely on the report of John McFarlane dated 6 December 2022. 2. The plaintiff is entitled to rely on the report served in response of Mr Kevin Heathcote. 3. Each party pay their own costs of the Motion. 4. Mr McFarlane, Dr Keven Heathcote and Mr George Dahrie participate in a conclave and prepare a joint report by 23 February 2023 subject to any party making application to the effect that the plaintiff can rely on only one expert. 5. I grant leave to the plaintiff to file a further amended Statement of Claim joining GIO to proceedings as seventh defendant. 6. I grant leave to the third defendant to file a cross-claim joining GIO to the proceedings as a cross-defendant on the third defendant's cross-claim. 7. I order that the amended claim and cross-claim be filed and served within 7 days. 8. I order that GIO file a defence to the further amended Statement of Claim and cross-claim. 9. The parties file and serve any updated pleadings by 7 February 2023. 10. I grant liberty to parties to approach my chambers should there be any further issues in relation to preparation of the matter for hearing. 11. I list the matter before me on 17 February 2023 at 9.30am. 12. I order that GIO pay the third defendant's costs of the Notice of Motion dated 10 December 2022. 13. I order that GIO pay the plaintiff's costs of the Notice of Motion dated 29 August 2022. 14. I stand the issue of GIO's application to strike out the subpoena or notice to produce before me on 17 February 2023.

Endnotes

1. (1998) 196 CLR 53; [1998] HCA 78.
2. (1981) 147 CLR 589; [1981] HCA 45.
3. (2015) 256 CLR 507; [2015] HCA 28.
4. [2011] NSWCA 18. 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: 27 February 2023