Downie and Anor v Jantom Company Pty Ltd and Ors [2011] ACTSC 135

2. On 17 September 2010, I ordered that a previous application by the plaintiffs for leave to amend their statement of claim be dismissed. I shall repeat some of the background which I set out in my reasons for that decision.

3. The first plaintiff was injured in the course of her employment by the second plaintiff on 11 October 2002 when an office chair manufactured by the first defendant and sold by the second defendant to the second plaintiff collapsed under her. The first defendant had supplied the chair to the second defendant in kit form. The second defendant assembled the chair before sale. The workers' compensation insurer of the second plaintiff redeemed the first plaintiff's claim and seeks to recover, in the name of its insured, the total amount it has paid out. The solicitors instructed by the workers' compensation insurer to act for the second plaintiff also act for the first plaintiff; I infer that it was the workers' compensation insurer which took the initiative in commencing the proceedings, and that the first plaintiff might otherwise have been content to rely upon her settlement with that insurer and would probably not have commenced proceedings under the general law had that insurer not done so.

4. The action was commenced in September 2005. The first plaintiff's claim against the first defendant was in negligence in the manufacture and supply of the chair, specifically in "manufacturing and supplying a chair with inadequate support in that the spokes that supported the chair were prone to snap".

5. The second plaintiff's claim against the first defendant contained three counts, one under ss 74B and 74D of the Trade Practices Act 1974 (Cth); another in negligence, in similar terms to the first plaintiff's claim; a third for indemnity pursuant to s 183(1)(d) of the Workers Compensation Act 1951 (ACT); and a fourth claim for breach of an implied contractual term that the chair was of merchantable quality.

6. In October 2009 the solicitors for each of the parties certified the action as ready for trial, with an estimate of four to five days. A hearing date, 6 September 2010, was fixed.

7. On that date I was informed that the first defendant company had been deregistered on 29 February 2008. Its solicitors, acting on instructions from an insurer, were unaware of the deregistration. Senior counsel for the plaintiff made an oral application for an order that the Australian Securities and Investment Commission reinstate the company's registration.

8. On the same date I was informed that the second defendant company had been wound up by court order in August 2010. That company's solicitors and counsel were also instructed by an insurer, and I granted leave pursuant to s 471B of the Corporations Act 2001 (Cth) for the plaintiffs to proceed with the action against the second defendant.

9. Also on the same day, senior counsel for the plaintiff applied for leave to amend the statement of claim to add a count for the first plaintiff against the second defendant in negligence. Senior counsel also sought leave to add counts on behalf of the second plaintiff against the second defendant in negligence and under the Trade Practices Act. For reasons published on 2 December 2010, I refused those applications.

10. On 1 October 2010 the plaintiffs filed an application asking that GIO General Limited be joined as third defendant, on the basis that its inclusion as a party was necessary to enable the court to adjudicate effectively and completely on all issues in dispute in the proceedings. This application came before me for hearing on 26 November 2010.

11. Mr P M Morris of counsel had previously appeared to assist the court, instructed by the solicitors on the record for the first defendant but making it clear that he did not appear for that defendant. He was in fact instructed, through its solicitors by GIO General Limited, the insurer now sought to be joined as third defendant. By the time the matter returned to my list on 26 November, GIO General Limited had been served with the application for joinder, as required by rule 223 of the Court Procedures Rules (2006). Mr Morris announced an appearance for GIO General Limited, properly in those circumstances.

12. Senior counsel for the plaintiff at that time orally renewed the application for reinstatement of the first plaintiff company. This was not opposed by other counsel present and I made an order pursuant to s 601AH of the Corporations Act that ASIC reinstate the registration of the first defendant Jantom Company Pty Ltd.

13. On the same day I granted leave to the solicitors on the record for the first defendant to withdraw from the record.

14. There was evidence before me that the first defendant company was no longer functioning and that its former directors and shareholders could not be located. I assumed that notwithstanding the reinstatement of its registration, the company itself would not be represented or seek to participate in the proceedings, and that in the absence of insurance cover any judgment against the company would be unproductive and not worth pursuing.

15. I also assumed that the reinstatement order would be taken out by the solicitors for the plaintiffs and served reasonably promptly on ASIC. The solicitors did not do so because they realised that reinstatement would probably deprive the plaintiffs of their statutory entitlement to relief under s 601AG. That section is in the following terms;

601 AG Claims Against Insurers of Deregistered Company

A person may recover from an insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if:

(b) the insurance contract covered that liability immediately before deregistration.

16. This was one of the causes of action which the plaintiffs now wish to pursue against GIO General Limited as insurer at the relevant time of the first defendant. Their concern was that their attempt to do so might fail if the first defendant was no longer deregistered by the time the plaintiffs commenced the proceedings against the insurer. For that reason they elected not to inform ASIC of the making of the order on 26 November 2010, and to ask the court to stay the operation of the order until the application for joinder had been determined.

17. After I had made the order that ASIC reinstate the registration of the first defendant on 26 November 2010, I proceeded to hear the application by the plaintiffs for leave to join GIO General Limited as a third defendant. Senior counsel for the plaintiffs relied on two documents. The first was a premium notice and policy summary issued by GIO General Limited in favour of the first defendant. The details showed that a premium of $673.08 was due on 25 July 2002, the policy having issued on 25 June 2002, with a handwritten note that the premium was paid on 5 August 2002, some two months before the first plaintiff suffered her injuries. The policy number was SBB2409700. The document described the policy as a trade insurance policy, the cover including public and products liability. The business of the insured was described as "dry wall plasterboard contractor". Two addresses for premises of the company were listed, one in Sydney and the other on the outskirts of Melbourne. A limit of cover for each of products liability and public liability was set out as $10m.

18. The other document tendered on behalf of the plaintiffs is subject to an objection by counsel for GIO General Limited, which I did not immediately deal with. That is a letter from GIO General Limited dated 7 November 2008, over the hand of a signatory described as "Claims Advisor, Liability Claims" addressed to "Jantom Companies attention Rebecca Zhai". The letter is headed with the policy number quoted above and a claim number, with the first plaintiff listed as claimant and the date of her injury. The letter includes;

The investigations required in order to enable us to make a decision on indemnity have now been completed.

We have decided that your Business Insurance covers this claim. Therefore, we grant indemnity to you in respect of the above claim under the policy covering the period 16 January 2002 - 16 January 2003. Indemnity is granted pursuant to the terms and conditions of the policy and on the basis of facts and circumstances known to us to date.

We confirm that we will keep you updated on the progress of the claim by mail every 3 months from the date of the initial notification of your claim.

I have previously sent you letters to keep you in [sic] informed of the progress of the claim however, they have been returned to me.

I advise that we have appointed Moray & Agnew Lawyers to take over the legal proceedings in this matter. David Howarth will be in contact with you and I would appreciate that you offer your full cooperation in the litigation of this matter.

19. The objection was that at the time of the letter the first defendant was deregistered and hence did not exist. Additionally, it was apparent from the file that the letter had not been received by the addressee and had been returned to the sender.

20. I regard the letter as admissible on the ground of relevance, notwithstanding that it was not received. It is evidence of the fact that at 7 November 2008, GIO General Limited had made a decision to extend indemnity to its insured in respect of the first plaintiff's claim, admittedly without knowledge that the first defendant had been deregistered. I bear in mind that whilst the first defendant company and those behind it are not participating in the litigation, the plaintiffs are seeking to take advantage of the statutory rights conferred by the Corporations Act and the Civil Law (Wrongs) Act, designed to apply in precisely this situation, where an alleged tortfeasor had insurance cover at the date the cause of action arose and the insurer represents the claimant's only likelihood of practical recovery.

21. Counsel for GIO General Limited tendered another document which I infer had been extracted from its records. Counsel was unable to explain the status of the document, or its inconsistency with the policy summary document just described. This document was headed "Trade Insurance - Policy Details" and quoted the same policy number, but showed the insured as Wen Jun Lu and Sutao Zhai. The Bank of Western Australia Limited was listed as an interested party. The period of insurance was 5 May 2002 - 5 May 2003, and the business of the insured was described as "occupied as new furniture warehouse and dry wall plasterboard contractor". The risks insured again included public liability and products liability, each with a $10m limit.

22. Counsel for GIO General Limited relied on an affidavit by its Sydney solicitor, Mr Howarth. He deposed that his firm took over the conduct of the matter on behalf of the first defendant from another firm. He was unaware that the company had been deregistered. He noted from the previous solicitors' file that they had been in contact with one Rebecca Zhai, who he believed to be the same person as Sutao Zhai, at one time a director of the first defendant. He assumed that she remained a director and the appropriate contact person for the company.

23. Mr Howarth's evidence was that the company was first registered in August 1996. It was then a plastering business. This evolved into commercial office fitout work, which itself later evolved into the supply of office furniture. As the business grew a number of other companies were incorporated by the same people. Some continue to trade and Ms Zhai remains involved with them.

24. As to the insurance documents, Mr Howarth says that he is familiar with the record-keeping arrangements of GIO General Limited. He identifies the documents in evidence as printouts from its computer system.

25. Mr Howarth annexed to his affidavit a copy of a trade insurance policy which he says was in effect at the relevant date. He draws attention to a clause in the following terms;

This policy Section does not insure liability arising directly or indirectly out of or in connection with, or for;

(a) damage to your products, if that damage is due to any defect in or the harmful nature or unsuitability of your products;

(b) the harmful nature from a condition or quality of your products when that harmful nature, condition or quality has resulted from the application of any design, formula specification, plan or pattern;

(c) any defect or deficiency in warnings or instruction prepared by you and relating to the characteristics, use, or storage of your products;

(d) any error, omission in design, plan or specification or failure in design; or

(e) the failure of your products to meet the level of performance, quality, fitness or durability expressly warranted or represented by you or warranted by implication of law.

26. Counsel for GIO General Limited submits that the injuries in respect of which the plaintiff claims can only have arisen from a harmful condition or quality of the chair which resulted from the application of a design, formula specification, plan or pattern. Counsel in this regard relies on a report by Dr L N Green, a mechanical engineer with a doctorate in industrial design employed as a senior lecturer at the University of New South Wales teaching product design and design for manufacturing. Dr Green concluded that the chair collapsed because its base was of a moulded plastic material unsuited to the purpose. The base should have been of steel, aluminium, or of a stronger engineering plastic reinforced with glass fibres. Counsel submits that this amounts to a design fault and that the exclusion clause set out above applies so that the insurer is not obliged to indemnify the insured in respect of the first plaintiff's claim.

27. I am far from satisfied that the plaintiffs would inevitably fail against GIO General Limited on the statutory causes of action under the Corporations Act and the Civil Wrongs Act if I acceded to the joinder application. A joinder application would fail if the claim against the defendant proposed to be joined had no prospects of success. The principles to be applied on that issue are parallel with those to be applied on an application for summary judgment: see General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125. This is not to say that the plaintiffs will succeed against GIO General Limited, but rather that the arguments raised by counsel on its behalf are for the trial rather than for the present application.

28. The power to add a party is conferred by rule 220. The court may order that a person be included as a party if including the person as a party is necessary to enable the court to adjudicate effectively and completely on all issues in dispute in the proceeding. The court may make such an order at any stage of a proceeding.

29. The present application inevitably involves amendment to the statement of claim. The court has power under rule 502 to give leave for a party to amend a pleading at any stage of a proceeding.

30. Rule 503 applies where an amendment is sought and a limitation period current at the date the proceeding was started has ended. Leave may be given to amend so as to include a new cause of action in those circumstances only if the new cause of action arises out of substantially the same facts as a cause of action for which relief has already been claimed in the proceeding.

31. The first plaintiff's claim is for damages for personal injury. Although the proposed causes of action under the Corporations Act and the Civil Law (Wrongs) Act are statutory causes of action rather than actions in tort, it seems to me that in each case the cause of action relates to a personal injury for the purposes of the Limitation Act 1985. The claim by the second plaintiff also relates to a personal injury.

32. The injury for which the first plaintiff claims damages was a compensable injury under the Workers Compensation Act 1951, and the limitation period is accordingly three years: Limitation Act, s 16A. The court would have power on application to extend the limitation period under s 36 of that Act. No extension has been formally sought, and an extension would be necessary only if a limitation defence is pleaded by GIO General Limited. Without prejudging the outcome of such an application, it can be said that that insurer has been aware of, legally represented and involved in the action for some five years at least. A grant of leave would not preclude GIO General Limited from pleading the limitation issue if so advised.

33. I have given careful consideration to the decision of the High Court of Australia in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175, The Court Procedures Rules, and specifically rule 502, must be interpreted in light of rule 21, which states the purpose of the rules and their application to civil proceedings. That purpose is to facilitate the just resolution of the real issues in civil proceedings with minimal delay and expense. Part of the objective is achieving timely disposal of the proceedings under consideration, but also of all other proceedings in the court. It is no longer the case, as was widely assumed in the light of the earlier decision in Queensland v JL Holding Pty Limited [1997] HCA 1; (1997) 189 CLR 146, that amendments ought generally to be allowed subject to appropriate orders as to costs. That assumption, if it was ever justified, no longer applies. Leave to amend in Aon Risk Services, the High Court said, should not have been granted by the trial judge. The application was made at the commencement of a lengthy period set aside for the trial of the action, and raised new claims that had not been previously agitated, apparently because of a deliberate tactical decision. Case management considerations should have outweighed the arguability of the amendment sought.

34. I am satisfied that in the present matter, the just resolution of the real issues in the proceeding outweighs the considerations militating against the grant of leave. Rule 503 does not prevent a grant of leave if the court is otherwise satisfied that leave is appropriate. I accordingly propose to grant leave to the plaintiffs to amend the statement of claim as sought.

35. The claim under Part 15.3 of the Civil Law (Wrongs) Act can itself only be made if the plaintiffs are given leave under s 207 of that Act to do so. Counsel for GIO General Limited, whilst generally opposing the application for leave to amend, did not suggest that if the court was otherwise disposed to grant leave under rule 502, there was any further argument against the grant of leave under s 207 of the Act. I propose to grant leave under s 207 also.

36. I shall hear the parties as to costs and any other orders which may need to be made.

I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

Counsel for the proposed third defendant: Mr PM Morris SC (26 November 2010)

Solicitors for the proposed third defendant: Moray & Agnew

Date of hearing: 26 November 2010, 25 February 2011