Employers Reinsurance Corporation v Ashmere Cove Pty Ltd

BETWEEN: EMPLOYERS REINSURANCE CORPORATION (ARBN 072 715 738) AND SUNCORP METWAY INSURANCE LIMITED (ACN 075 695 966)

AND: ASHMERE COVE PTY LTD, CG SUPER PTY LTD, CHORAL PTY LTD, PULLINGTON INVESTMENTS PTY LTD, GERALDINE GRAY IN HER CAPACITY AS EXECUTOR FOR THE LATE CONSTANCE PHYLLIS JAMES, MANTLE BREWING SERVICES PTY LTD, CATHERINE EMMA HUSK, MIKAYLA KIM DUNNE & JENNIFER ANNE ALLEN, BLYTH NOMINEES PTY LTD, JOHN ANDREW MASLEN & JOAN CARMEL MASLEN AND CREATON PTY LTD

PETER CORNELIUS BEEKINK, HERSH SOLOMON MAJTELES AND GREGORY PHILLIP GAUNT

KNIGHTSBRIDGE MANAGED FUNDS LIMITED (IN LIQUIDATION)

The application for Leave to Appeal 1 This is an application for leave to appeal against interlocutory orders made by a Judge of this Court. His Honour granted leave to the applicants in the proceedings before him ('Investors') to join two insurers ('Insurers') as respondents: Ashmere Cove Pty Ltd v Beekink (No 2) [2007] FCA 1421. 2 Since his Honour's orders were interlocutory in character, an appeal does not lie to the Full Court unless the Court or a Judge grants leave: Federal Court of Australia Act 1976 (Cth) ('Federal Court Act'), s 24(1A). The usual criteria applied in considering applications for leave is whether the decision is attended by sufficient doubt and whether substantial injustice would result if leave were refused, supposing the decision to be wrong: Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397, at 398-399, per curiam. 3 The Investors invested in a registered management scheme known as the Clifton Partners Finance Mortgage Scheme ('Scheme'). They claim to have suffered losses arising out of the operation of the Scheme. They seek relief against the responsible entity for the scheme ('KMF') and the former directors of KMF ('Directors'). KMF is now in liquidation, but the primary Judge has granted leave to the Investors, pursuant to s 471B of the Corporations Act 2000 (Cth) ('Corporations Act'), to proceed with the action against KMF. Each of the Directors is defending the proceedings. 4 The Insurers issued a Professional Indemnity Policy ('Policy') indemnifying KMF, up to a limit of $5 million, against claims made by third parties in respect of alleged breaches of KMF's professional duty as a responsible entity. No issue was raised by the Investors, in the case initially pleaded by them, as to the indemnity provided by the Policy. However, the Investors now seek a declaration that the Insurers: 'are liable and obliged to indemnify [KMF] against the "Claim Costs" (as defined in the Policy) with respect to the claims of [the Investors] herein up to the limit of $5 million in consequence of judgment being entered against [KMF]'. 5 The Insurers contend that the primary Judge erred in granting leave to join them as respondents in the proceedings. The Insurers rely, in substance, on two grounds: · First, the joinder of the Insurers does not involve an exercise of the judicial power of the Commonwealth, since any declaration would not be binding as between the Insurers and KMF. In the absence of the Court having the power to make a binding declaration, there is no 'matter' (or justiciable controversy) for the purposes of Chapter III of the Constitution. A non-binding declaration would be no more than an advisory opinion and therefore not within the powers of the Court to grant. · Secondly, his Honour failed to take into account fundamental considerations that should have informed the exercise of any discretion available to him under Federal Court Rules ('FCR') O 6 r 2. Even if there was a 'matter', his Honour had failed to take into account the fact that any declaration made by the Court could not authoritatively determine the rights and duties of the parties to the contract of insurance constituted by the Policy. 6 The constitutional argument was not raised before the primary Judge. A notice pursuant to s 78B of the Judiciary Act 1903 (Cth) was given to the Attorneys-General of the Commonwealth, States and Territories that the application for leave to appeal raised a constitutional issue. None of the Attorneys-General sought to intervene in the proceedings. 7 Although the constitutional argument was not raised before his Honour, it goes to the jurisdiction of the Court and must therefore be addressed. Both the constitutional issue and the other grounds raised in the draft notice of appeal were argued before us as if on an appeal. We have therefore heard full argument on the substantive issues raised by the Insurers. In our view, leave to appeal should be granted, but the appeal should be dismissed.

Federal Court Act and Rules 8 Sections 21 to 23 of the Federal Court Act provide as follows: '21 (1) The Court may, in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is or could be claimed. (2) A suit is not open to objection on the ground that a declaratory order only is sought. 22 The Court shall, in every matter before the Court, grant, either absolutely or on such terms and conditions as the Court thinks just, all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him or her in the matter, so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of proceedings concerning any of those matters avoided. 23 The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.' 9 FCR, O 6 relevantly provides for joinder of parties as follows: '2 Two or more persons may be joined as applicants or respondents in any proceeding - (a) where - (i) if a separate proceeding were brought by or against each of them, as the case may be, some common question of law or of fact would arise in all the proceedings; and (ii) all rights to relief claimed in the proceeding (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or (b) where the Court gives leave so to do. … 4 (1) The Court may grant leave under rule 2 before or after the joinder and may grant leave under subrule 3(2) before or after the non-joinder. (2) An applicant may apply for leave under rule 2 or subrule 3(2) either before or after the filing of his originating process and may apply without serving notice of the motion on any person on whom the application has not been served. … 8 (1) Where a person who is not a party - (a) ought to have been joined as a party; or (b) is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceeding may be effectually and completely determined and adjudicated upon; the Court may order that the person be added as a party and make orders for the further conduct of the proceeding.'

Corporations Act 10 Section 562 of the Corporations Act deals with the situation where a company or its liquidator receives the proceeds of a contract of insurance: '(1) Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556. (2) If the liability of the insurer to the company is less than the liability of the company to the third party, subsection (1) does not limit the rights of the third party in respect of the balance. (3) This section has effect notwithstanding any agreement to the contrary.' 11 Section 601AG of the Corporations Act is concerned with claims against the insurers of a deregistered company. It provides as follows: '601AG A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if: (a) the company had a liability to the person; and (b) the insurance contract covered that liability immediately before deregistration.'

Facts 12 Certain facts are not in dispute for the purposes of the application for leave to appeal and of the appeal. 13 KMF's business essentially comprised managing registered and unregistered investment schemes. The schemes involved attracting funds from multiple investors. The funds would then be pooled and lent to borrowers who would grant mortgages as security for repayment of the loans and payment of interest. 14 On 18 February 2000, KMF entered into the Policy with the Insurers. The Insurers agreed to indemnify KMF up to the 'Limit of Liability' ($5 million) for claims notified during the period from 4 pm on 17 December 1999 to 4 pm on 17 December 2001. The coverage was in respect of KMF's civil liability: 'for breach of professional duty arising from any act, error or omission … alleged committed by [KMF] in the conduct of the Professional Business'. The expression 'Professional Business' was defined to mean the business of 'Responsible entity'. 15 Section 3 of the Policy provided that there was no indemnity under the Policy, among other things, for: '3.3 Dishonest or reckless acts directly or indirectly arising from any actual or alleged; (a) dishonest, fraudulent, criminal or malicious act; (b) wilful breach of any statute, contract or duty; or (c) conduct with a reckless disregard for the consequences thereof' The endorsements to the Policy provided for a further exclusion, as follows: ' There is no indemnity for any Claim made against [KMF], or any claim by KMF] for indemnity under this Policy directly or indirectly arising out of: … (2) the non repayment of any loan which was originated or managed by [KMF]' 16 By letters dated 16 and 18 December 2000, KMF notified the Insurers that loans under the Scheme to particular borrowers were in default and that any shortfall in repayment of those loans might give rise to claims against KMF by affected investors. The Investors (the applicants in the proceedings before the primary Judge) had invested in one of the loans in default. 17 On 20 February 2001, an administrator was appointed to KMF. On 15 June 2001, KMF entered into a deed of company arrangement, with the administrator acting as the deed administrator. 18 On 13 December 2001, the Supreme Court of Western Australia appointed the administrator to wind up the scheme. On 8 October 2002, following termination of the deed of company arrangement, the administrator was appointed as liquidator of KMF. 19 There are no funds available in the liquidation of KMF to meet any claims for compensation or damages against it.

Pleaded Allegations 20 The Investors commenced the proceedings in this Court on 27 October 2006. They alleged, among other things, that KMF: · was required to operate the Scheme and perform the functions conferred on it by the constitution of the Scheme and by the Corporation Law; · was required to exercise the care and diligence of a reasonable person, to act in the best interests of members of the Scheme and to comply with the 'Compliance Plan'; · failed to lodge a prospectus, contrary to the requirements of the Corporations Law (as then in force), in relation to the rollover of a loan in February 2000; · engaged in misleading or deceptive conduct in connection with a dealing in securities, contrary to s 995(2) of the Corporations Law, and issued a prospectus containing a false or misleading material statement, contrary to s 1006(1)(a) of the Corporations Law; · failed to comply with the duties imposed on it by s 601FC(1) of the Corporations Law; and · breached its common law duty of care to the Investors. 21 The Investors claimed that by reason of the failure of the borrowers to repay moneys advanced, the Investors had suffered loss and damage. They sought compensation or damages pursuant to the Corporations Law or the Corporations Act, or under the general law.

Request for Indemnity 22 On 8 December 2006, KMF's liquidator asked the Insurers' agent ('Dexta') whether the Insurers would indemnify KMF under the Policy in relation to the Investors' claims in the proceedings. 23 On 20 February 2007, the Insurers' solicitors conveyed Dexta's 'preliminary review (sic)' that KMF was not entitled to an indemnity under the Policy. The letter noted that the Schedule to the Policy excluded any claim arising out of the non-repayment of a loan managed by KMF. Dexta considered that the claims made by the Investors in the proceedings were covered by this exclusion. The solicitors also reserved the Insurers' right to rely on other exclusions in the Policy. However, they invited further submissions from the liquidator. 24 On 27 February 2007, the liquidator, through his solicitors, requested the Insurers to reconsider their denial of liability on the ground that the parties could not have intended that the exclusion should apply so as to deprive the Policy of any effect. The solicitors argued that it was difficult to envisage how a claimant could suffer a loss independently of non-repayment of a loan. 25 The solicitors for Dexta replied on 6 March 2007. They contended that the words of the exclusion in the Policy were clear and had to be given effect. Contrary to the liquidator's contention, there were circumstances in which the indemnity would apply notwithstanding the exclusion, for example where moneys were negligently paid to a third party. It was not open to the liquidator to argue that the Policy should be rewritten merely on the ground of unfairness. 26 The solicitors also referred to the exclusion contained in cl 3.3(c) of the Policy concerning dishonest or reckless acts. They claimed that an officer of KMF had authorised the custodian to sign documents that KMF had not reviewed. The solicitors continued as follows: 'If the insured acted in a similar manner in respect of the loan which is the subject of this claim (which may be a reasonable inference), the exclusion contained in clause 3.3(c) of the Policy would apply. If necessary, further investigations would need to be made. However, as indemnity is denied on other grounds, the insurer is not currently relying on this clause, but reserves its rights to do so.'

Proposed Pleading 27 Prior to the hearing of the joinder application, the primary Judge directed the Investors to file a minute of their proposed amended statement of claim ('Proposed Pleading'). That document, which, in view of his Honour's orders, now stands as the Investors' pleading, sets out the Investors case against the Insurers. 28 The Proposed Pleading pleads the relevant terms of the Policy and alleges that the Investors' claims are deemed to be 'Claims' made during the 'Period of Insurance'. The Investors allege (par 155) that the Investors' claims: 'arose from KMF's civil liability for breach of professional duty arising from acts, errors or omissions committed by KMF in the conduct of its business of responsible entity …' In the alternative, they allege (par 156) that the Investors' claims: 'arose from KMF's legal liability for acts, errors or omissions committed by KMF in the conduct of its business of responsible entity, being unintentional misleading or deceptive conduct contrary to sections 728(1)(a) and 995(2) of the former Corporations Law … within the meaning of clause 1.2.3 of the Policy.' 29 The Investors seek a declaration in the terms set out earlier: see [4] above.

Liquidator's Offer 30 The hearing of the joinder motion took place before the primary Judge on 28 August 2007. After the hearing, the Investors' solicitors asked the liquidator's solicitors whether the liquidator would agree to file a cross-claim against the Insurers. The Investors offered to give an unconditional undertaking to indemnify the liquidator against any order for costs made against him or KMF on the cross-claim. The offer of indemnity, which did not extend to the liquidator's costs of bringing the cross-claim, was rejected by him. We were told from the bar table that the limited nature of the offer of indemnity reflected the terms on which the Investors had been granted legal aid.

The primary judgment 31 The primary Judge noted that counsel for the Insurers accepted at the hearing of the joinder application that the Court had power to join her clients for the purposes of the relief sought against them by the Investors. The opposition to the joinder was therefore only on discretionary grounds. 32 His Honour acknowledged the Investors asserted no legal right or cause of action against the Insurers. But: 'the want of a legal right or a cause of action is not a bar to the grant of declaratory relief. It is, nevertheless, necessary that declaratory relief be sought in respect of a real question that is not abstract or hypothetical. It must be directed to the determination of a legal controversy. Moreover the party seeking the relief must have a real interest in raising it.' 33 The primary Judge referred to a number of authorities dealing with the joinder of a third party in circumstances similar to the present. The cases include JN Taylor Holdings Ltd (In Liquidation) v Bond (1993) 59 SASR 432; CE Heath Casualty and General Insurance Ltd v Pyramid Building Society (In Liquidation) (1997) 2 VR 256; Beneficial Finance Corporation Ltd v Price Waterhouse (1996) 68 SASR 19; and Interchase Corporation (in liq) v FAI General Insurance Co Ltd [2000] 2 Qd R 301. 34 The primary Judge expressed what appeared to be tentative agreement with the view of Byrne J in Interchase that an insurer joined as a co-defendant with the insured at the suit of the claimant would not be 'bound', as between itself and the insured, by a declaration that it was liable to provide indemnity to the insured. However, he thought it unnecessary to decide whether a res judicata or issue estoppel would apply in such a case. 35 The primary Judge adopted the approach taken in the dissenting judgment of Davies JA in Interchase. Davies JA accepted that there would be no point in making an order for joinder if the declaration did not, in practice, effectively determine the insurer's liability to the insured. But Davies JA also thought that it was sufficient if the joinder had the 'practical effect' of binding insurer and insured. In this respect the wider concept of estoppel, enunciated in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, was significant. The Anshun principle meant that if the insurer had a full opportunity to contest the question the subject of the declaration, it would be an abuse of process for it to attempt to relitigate in subsequent proceedings involving insurer and insured. The primary Judge considered, for similar reasons, that there was utility in making a declaration against an insurer in the circumstances of the present case. 36 The primary Judge noted that the utility of a declaration did not exhaust the discretionary considerations peculiar to this case. His Honour analysed these considerations as follows: 'There is a dispute between KMF and its insurers in this case. KMF notified a claim and the Insurers denied liability. They had not offered to conduct any defence on behalf of KMF. The liquidator of KMF is unwilling to proceed against them. Although s 562 [of the Corporations Act] confers no legal right on the [Investors] as against the Insurers, it creates a priority right in the proceeds of any successful claim against the Insurers which gives them a very real interest in having the Insurers' obligations to KMF determined. The basis upon which the Insurers have denied liability raises a discrete issue about the application of an exclusion clause in the policy. On the face of it that question may be susceptible of resolution within a short compass … The Insurers reserve as a fallback position the possibility that they may rely upon an exclusion clause relating to reckless conduct on the part of the directors. In that event it is likely that the factual issues they raise will overlap with some of the issues raised in the pleading against the directors. … The overlap of factual issues in that event would militate in favour of, rather than against, joinder. At the moment, however, that is hypothetical. … The joinder of the Insurers is sought primarily under O 6 r 2. Their refusal of indemnity is presently based upon the nature of the claim brought against KMF. They contend that a relevant exclusion clause applies. The correctness of that position necessarily involves a question common with that arising in the substantive proceedings and that question is the nature of the case made against KMF. In the event that the Insurers invoke the exclusion clause based upon reckless conduct on the part of KMF's directors, then there are likely to be overlapping questions of fact. Joinder is within the power of the Court under O 6 r 2(a). For the reasons which I have already given, this is a case in which, in my opinion, it is convenient and useful to direct the joinder of the Insurers as respondents and I will so order.' 37 His Honour accordingly granted leave to the Investors to join the Insurers as the sixth and seventh respondents in the proceedings. He also granted leave to the Investors to amend the statement of claim in terms of the Proposed Pleading.

Insurers' Submissions 38 The Insurers submit that the issue is not whether the Investors' claim falls within the accrued jurisdiction of the Court, but whether the prosecution of the Investors' claim for relief against the Insurers is 'incapable of characterisation as an exercise of judicial power'. They contend that it is central to the concept of judicial power that the Court should have power to make authoritative and binding determinations as to some immediate right, duty or obligation, in order to quell a subsisting controversy. 39 According to Mr Donaldson SC, who appeared with Mr Garas for the Insurers, the declaration sought by the Investors is 'non-binding'. The relief is sought against the Insurers and any declaration cannot be a judgment in rem. In essence, so Mr Donaldson argued, the Court is being asked to give an advisory opinion on the meaning of the Policy. To avoid this conclusion, it would be necessary for the Investors to have an enforceable remedy against the Insurers, but they have no such remedy available to them. Consequently, the joinder of the Insurers cannot involve a 'matter' for the purposes of Chapter III of the Constitution. It follows the primary Judge erred in making the orders he did. 40 In his oral submissions, Mr Donaldson repeatedly emphasised that the declaration against the Insurers is sought by persons (the Investors) who have no contractual rights under the Policy. Moreover, so he argued, there is no current dispute between KMF and the Insurers. Mr Donaldson acknowledged that the liquidator had requested the Insurers to afford indemnity to KMF and that the Insurers had declined to do so. However, he relied on the fact that the liquidator's counsel, in opposing at first instance the grant of leave to the Investors to proceed against KMF, had adopted the arguments advanced by the Insurers in opposition to the joinder application. On this basis, he contended that there is no dispute between the parties to the contract and that the Court cannot make a binding determination in respect of any liability arising under that contract.

Reasoning 41 The constitutional significance of the concept of a 'matter' was conveniently summarised by the Full Federal Court in Hooper v Kirella (1999) 96 FCR 1, at 12 [41]-[44], as follows: 'Section 71 of the Constitution vests the judicial power of the Commonwealth in the High Court of Australia, such other federal courts as the Parliament creates and such other courts as it invests with federal jurisdiction. Section 75 specifies the constitutionally conferred original jurisdiction of the High Court. Section 76 provides that the Parliament may make laws conferring original jurisdiction on the High Court, inter alia, in any matter: "(ii) Arising under any laws made by Parliament." Section 77, provides, relevantly, as follows: "With respect to any of the matters mentioned in the last two sections the Parliament may make laws - (i) Defining the jurisdiction of any federal court other than the High Court." The Federal Court of Australia is created by s 5(1) of the Federal Court Act. The Court is a superior court of record and is a court of law and equity: s 5(2). Section 19(1) … provides as follows: "19(1) The Court has such original jurisdiction as is vested in it by laws made by the Parliament." The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders as the Court thinks appropriate: s 23. … The Judiciary Act confers original jurisdiction on the Federal Court. Section 39B(1A) … provides as follows: "(1A) The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter: … (c) arising under any laws made by the Parliament."' (Emphasis added.) 42 Section 21 of the Federal Court Act, to which reference has already been made, empowers the Court, in relation to a matter in which it has original jurisdiction, to make binding declarations of right, whether or not any consequential relief is claimed. 43 It is important in the present context to appreciate that there is a distinction between a 'matter' and the legal proceedings in which the matter is determined. The principal authorities are referred to in Hooper v Kirella, at 14-16 [50]-[55]. It is sufficient for present purposes to quote from the joint judgment of Mason, Wilson, Brennan, Deane and Dawson JJin Crouch v Commissioner for Railways (Queensland) (1985) 159 CLR 22, at 37: 'It is now established that the word "matter" in s. 75 of the Constitution is not synonymous with a legal proceeding. It was said by Knox C.J., Gavan Duffy, Powers, Rich and Starke JJ. in In re Judiciary and Navigation Acts [(1921) 29 CLR 257, at 266, 265] (respectively) that the "word 'matter' is used several times in Ch. III of the Constitution (ss. 73, 74, 75, 76, 77), and always … with the same meaning" and that the word, as so used, means not a legal proceeding "but rather the subject-matter for determination in a legal proceeding". That general meaning of the word "matter" has been accepted in subsequent cases … It should, in our view, be accepted as the settled prima facie meaning of the word in Ch. III of the Constitution. … [H]owever, it has been recognized that the meaning of the word "matter" within Ch. III, particularly as used with reference to the various paragraphs of s. 75, "must be affected by the context in each case where it is used" … When the word "matter" is used in Ch. III of the Constitution in its ordinary prima facie sense of the subject matter for determination in a legal proceeding rather than the legal proceeding itself, it focuses attention upon the substance of the dispute. As so used, the word is a word of wide connotation: it is, and was in 1900, "the widest term to denote controversies which might come before a Court of Justice" per Griffith CJ, South Australia v Victoria [(1911) 12 CLR 667, at 675].' (Some citations omitted.) 44 The distinction between a 'matter' and legal proceedings is illustrated by the decision of the High Court in Re Wakim; Ex parte McNally (1999) 198 CLR 511. A creditor of a bankrupt brought proceedings in the Federal Court against the Official Trustee. The creditor sought compensation, pursuant to provisions of the Bankruptcy Act 1966 (Cth), by reason of the Official Trustee's alleged breaches of duty. The creditor then brought two separate proceedings in the Federal Court against, respectively, a barrister and a firm of solicitors. Each of these proceedings was founded on alleged breaches of duty, but neither involved a claim arising under a law made by the Commonwealth Parliament. Viewed in isolation, therefore, neither claim involved the exercise of federal jurisdiction. 45 The question before the High Court was whether the two separate proceedings against the legal representatives fell within the accrued jurisdiction of the Federal Court. Gummow and Hayne JJ (with whom Gleeson CJ and Gaudron J agreed) accepted (at 584) that the bringing of three separate proceedings would ordinarily suggest that there was more than one matter. If that were so, the question of jurisdiction would have to be resolved separately in each proceeding. However, their Honours considered (at 585 [138]-[139]) that the authorities had established that: 'the identification of the justiciable controversy between parties is not determined only by the considerations of there being separate proceedings and different parties in the one court. And in some circumstances a single matter can proceed through more than one court. That follows from the Court's decision in R v Murphy [(1985) 158 CLR 596 at 614, 617-618, per Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ]. There, committal proceedings in one court and the trial of indictable offence in another court (there having been an order for committal and the presentation of an indictment) were held to be the curial process for determination of a single matter: the matter which the trial would ultimately determine. The central task is to identify the justiciable controversy. In civil proceedings that will ordinarily require close attention to the pleadings (if any) and to the factual basis of each claim.' 46 Gummow and Hayne JJ noted (at 585 [140]) that the joint judgment in Fencott v Muller (1983) 152 CLR 570, had observed (at 608) that, in the end, it was a matter of: 'impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter.' 47 Gummow and Hayne JJ pointed out (at 585-586 [140]) that: 'the references to "impression" and "practical judgment" cannot be understood, however, as stating a test that is to be applied. Considerations of impression and practical judgment are relevant because the question of jurisdiction usually arises before evidence is adduced and often before the pleadings are complete. Necessarily, then, the question will have to be decided on limited information. But the question is not at large. What is a single controversy "depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships". There is but a single matter if different claims arise out of "common transactions and facts" or "a common substratum of facts", notwithstanding that the facts upon which the claims depend "do not wholly coincide". So, too, there is but one matter where different claims are so related that the determination of one is essential to the determination of the other, as, for example, in the case of third party proceedings or where there are alternative claims for the same damage and the determination of one will either render the other otiose or necessitate its determination. Conversely, claims which are "completely disparate", "completely separate and distinct" or "distinct and unrelated" are not part of the same matter.' (Citations omitted.) (Emphasis added.) 48 Their Honours held (at 586 [142]) that the fact that the creditor had been advised to issue separate proceedings did not mean that: 'the scope of the controversy is limited to the matters raised in the first proceeding. Had the Official Trustee brought a cross-claim against both the solicitors and [the barrister] immediately after [the creditor] commenced his proceeding against it and if [the creditor] had then joined the cross-respondents as respondents to his principal claim, the existence of a single controversy involving several parties would be more apparent than it may be in the present circumstances. But neither the differences in the present procedural history nor the absence of any claim by the Official Trustee against the solicitors and [the barrister] determines the question whether there is a single controversy.' 49 The flaw in the Insurers' approach to the constitutional issue is that it assumes that the boundaries of the 'justiciable controversy' in the present case are determined by the contractual relationship between KMF and the Insurers. Mr Donaldson's emphasis on the contractual relationship arising out of the Policy tends to obscure the fact that a single controversy is capable of embracing far more than a dispute between the parties to a particular contract. It is to be remembered that the word 'matter' is a term of wide connotation. As was said by Griffith CJ in South Australia v Victoria, and repeated on many occasions, the word 'is the widest term to denote controversies which might come before a Court of Justice'.

50 There is an issue in the present case as to whether it can be said (as the Insurers maintain) that there is no longer any dispute between KMF and the Insurers. Even if it is correct that the parties to the Policy are no longer in dispute, there may still be a single justiciable controversy involving one of the contracting parties (the Insurers) and a third party (the Investors). In this case, the Investors are seeking to ensure that any indemnity available to KMF under the Policy in respect of the Investors' claims is available to the Investors themselves, should they succeed in establishing their claims against KMF. 51 The core of the justiciable controversy is the dispute between the Investors and KMF. The nature of that dispute is outlined in the Investors' pleaded case and, as explained earlier, involves allegations of breaches of duty and contraventions of the Corporations Law. Whatever the current position between KMF and the Insurers (an issue to which we shall return), there has been a controversy between them as to whether the Insurers are obliged to indemnify KMF against the claims made against it by the Investors. On any view, the controversy constituted by the exchange of correspondence between the liquidator of KMF and the Investors formed part of the single controversy arising out of the Investors' claims against KMF. The success of the Investors' claims is an essential pre-requisite to the determination of any claim by KMF for indemnity (although the Insurers wish to raise other defences). Moreover, the liquidator's request that the Insurers agree to indemnify KMF arises out of the same substratum of facts as the Investors' claims. 52 The Investors plainly have a real interest in establishing, if they can, that the Insurers are liable to indemnify KMF against the claims made against it by the Investors. Certainly they have standing to claim declaratory relief against the Insurers: Aussie Airlines Ltd v Australian Airlines Ltd (1996) 139 ALR 663. Even though the Investors are not at this point seeking orders directly against the Insurers (other than a declaration), they have a variety of steps open to them to secure the benefits of any indemnity available to KMF. 53 One possibility is that the Investors could take advantage of s 562 of the Corporations Act, should the liquidator receive an amount from the Insurer pursuant to the Policy. A second is that the Investors may invoke s 601AG of the Corporations Act in the event that KMF is deregistered. That provision allows a person to recover directly from the insurer of a deregistered company if KMF had a liability to that person and the insurance contract covered the liability immediately before the deregistration. A third option is for the Investors to appeal to the Court, pursuant to s 1321 of the Corporations Act, against the liquidator's refusal to file a cross-claim or otherwise proceed against the Insurers. 54 As we have explained, a cross-claim by KMF against the Insurers would form part of the same justiciable controversy as the Investors' claims against KMF. For much the same reasons, the Investors' claims against the Insurers form part of the same single justiciable controversy. The fact that the Investors have not yet exhausted all possible options to obtain remedies against the Insurers does not alter that conclusion. 55 In his oral submissions, Mr Donaldson contended that the joinder of the Insurers in the present case would result in a divorce between the questions sought to be raised and the administration of the law. This submission drew on language used in the judgments of the High Court in Re McBain; Ex parte Catholic Bishops Conference (2002) 209 CLR 372. 56 In Re McBain, the applicants brought proceedings in the original jurisdiction of the High Court against Sundberg J, a Judge of the Federal Court. Sundberg J had made orders in previous proceedings declaring certain provisions of the Infertility Treatment Act 1995 (Vic) to be inconsistent with Commonwealth law and therefore inoperative. The applicant in the earlier proceedings was also joined as a respondent in the High Court proceedings. The applicants in the High Court, who were not parties to the earlier proceedings, sought a writ of certiorari quashing the orders made by Sundberg J. 57 The High Court held that the attempt to challenge Sundberg J's orders was not a 'matter' and thus the Court lacked jurisdiction to hear and determine it. As Gleeson CJ observed (at 395 [22]), the fact that somebody, not a party to proceedings, is unhappy with the reasoning of the Judge deciding the case, does not give rise to a justiciable controversy between that person and the Judge. There was simply no controversy between the applicants in the High Court and the parties they had joined (at 406 [63], per Gaudron and Gummow JJ). 58 Re McBain was a different case to the present. The Investors have a real interest in establishing that the Company is entitled to be indemnified by the Insurers in relation to the Investors' claims against it. There is a justiciable controversy which is the subject of the litigation. The Investors' claims against the Insurers form part of that controversy. 59 Two additional points should be noted. First, the Insurers' submission that the Investors' claim against the Insurers could not result in a binding determination overlooks the fact that, regardless of whether or not any such declaration would effectively bind KMF in any future proceedings, a declaration would be binding as between the Investors and the Insurers. If the Investors succeed in obtaining the declaration they seek, it would not be open to the Insurers as against the Investors to dispute that they are liable to indemnify KMF against the claims made by the Investors against KMF. In this respect, no challenge is made to the validity of s 21 of the Federal Court Act, which empowers the Court to make a declaration even if no consequential relief is sought by the applicant. 60 Secondly, the Insurers' argument assumed that there is no current dispute between KMF and the Insurers. This assumption is apparently based on the liquidator's support for the Insurers' submissions made to the primary Judge. His Honour did not make a finding on the correctness of the assumption because the constitutional argument was not put to him. 61 In our view, the proper inference from the stance taken by the liquidator at the hearing before the primary Judge is not that there is no longer any dispute between KMF and the Insurers. It is clear enough from the transcript of argument before his Honour that the liquidator resisted the Investors' application for leave to proceed against KMF because he had no funds to conduct or defend any litigation. As counsel for the liquidator put to his Honour: 'The reason we oppose the grant of leave is that once we become a party to the action we become subject to the orders of the Court regarding things like discovery and so forth and we don't have the resources to deal with that.' The submissions made by the liquidator's counsel were designed to bolster the liquidator's case that the Investors should not be given leave to proceed against KMF. The submissions do not support the inference that the liquidator has accepted that KMF cannot claim indemnity under the Policy. 62 In our view, the Insurers' contention that prosecution of the Investors' claim for a declaration against the Insurers falls outside the judicial power of the Commonwealth fails.

Joinder Order 63 Since the order appealed from was a discretionary order made on a matter of practice and procedure, an appellate court should exercise particular caution before intervening. In Adam P Brown Mail Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170, at 177, a majority of the High Court cited with express approval what was said by Jordan CJ in Re The Will of F B Gilbert (1946) 46 SR (NSW) 318, at 323: 'I am of opinion that, … there is material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal.' Their Honours went on to say that the question of injustice flowing from the order appealed from will generally be a relevant and necessary consideration. 64 In the present case, the most that can be said is that the Insurers will be required to defend their decision not to afford indemnity to KMF under the Policy in the proceedings brought by the Investors against KMF and the Directors (unless the Insurers choose the risky course of not presenting any defence to the Investors' claim for a declaration). If the Insurers fail, they will be bound by the declaration in the sense we have explained, with the consequences that have already been referred to. This does not strike us as involving any substantial injustice to them. 65 As we have noted, apart from the constitutional issue, the power of the Court to order the joinder of the Insurers was not in dispute. 66 The primary Judge found that the joinder of the Insurers in the proceedings would have practical utility. In our view, there was no error in that finding. As we have discussed in dealing with the constitutional issue, if the Investors succeed in obtaining a declaration the fact that it would bind the Insurers (as between them and the Investors) would be likely to lead to the Investors being able to take advantage of the indemnity available to KMF under the Policy. 67 If the view expressed by King CJ, with whom Prior and Perry JJ agreed, in J N Taylor Holdings Ltd v Bond, were followed in the present case, the declaration sought by the Investors would be binding as a matter of res judicata between the Insurers and KMF. This approach may be correct. However, it is not necessary to decide whether it is, or whether the contrary view of the Queensland Court of Appeal in Interchase,is to be preferred. 68 Assuming the view of the Queensland Court of Appeal in Interchase is indeed to be preferred, any attempt by the Insurers to relitigate their liability under the Policy in subsequent proceedings would give rise to an issue concerning the application of the Anshun principle. The outcome cannot be predicted with certainty, since it may be influenced by the course the trial takes. Nonetheless, the likelihood is that the Insurers would face formidable obstacles if they choose not to put forward all their defences in the current proceedings, or if they seek to reagitate issues that are the subject of adverse findings or holdings by the primary Judge. 69 The Anshun principle rests on the approval by the High Court (at 598) of the proposition stated in Henderson v Henderson (1843) 3 Hare 100, at 115; 67 ER 313, at 319: 'where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.' 70 The joint judgment in Anshun (Gibbs CJ, Mason and Aickin JJ) explained (at 602-603) that in the case of a failure to rely on a particular defence in the earlier proceedings: 'there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few.' (Emphasis added.) However, their Honours considered (at 603-604) that the: 'likelihood that the omission to plead a defence will contribute to the existence of conflicting judgments is obviously an important factor to be taken into account in deciding whether the omission to plead can found an estoppel against the assertion of the same matter as a foundation for a cause of action in a second proceeding. By "conflicting" judgments we include judgments which are contradictory, though they may not be pronounced on the same cause of action. It is enough that they appear to declare rights which are inconsistent in respect of the same transaction.' (Emphasis added.) 71 If the Insurers have a full opportunity to agitate any defence they wish to raise in answer to the Investors' claim for declaratory relief (presumably they will have such an opportunity), it is difficult to see why the Anshun principle would not preclude them from relying on any such defence in subsequent proceedings involving the same parties. Among other things, relying on such a defence would create the risk of conflicting judgments. That the Anshun principle would apply was in substance the view taken by Davies JA in his dissenting judgment in Interchase (at 310-311) and was adopted by the primary Judge. We see no error in it. In particular, in our view the primary Judge did not overlook the precise legal effect of any declaration that might be made against the Insurers. 72 Mr Donaldson suggested that it would be unfair for the Insurers to be put in the position, assuming them to be joined as respondents, of not knowing whether to contest the Investors' claims and facing the risk that an Anshun estoppel would apply to prevent them raising a defence in subsequent proceedings. In our view, any supposed dilemma would be entirely of the Insurers' own making. As we have indicated, a court hearing the hypothetical second proceedings would be unlikely to view with sympathy a decision by the Insurers not to play an active part in the first proceedings. 73 The reality is that the joinder of the Insurers, as directed by the primary Judge, will prove to be of practical utility. There are good reasons, explained by his Honour, for all the issues to be litigated in the one proceeding. The directions that have been made will facilitate the orderly, expeditious and just resolution of the justiciable controversy. 74 In substance, the effect of the joinder orders made by the primary Judge is no different to the situation involved in the everyday case of an insured joining its insurer as a third party (by whatever procedural means may be appropriate in the particular court). This enables issues of liability and assessment of damages or compensation, both as between claimant and insured and as between insured and insurer, to be heard and determined in the one proceeding. There are obvious benefits in terms of efficiency and economy. There is no reason in modern times why form should trump substance, where the interests of justice suggest that all related issues should be resolved in a single proceeding.

Conclusion 75 The application for leave to appeal should be granted, but the appeal should be dismissed. The Insurers should pay the costs of the Investors. I certify that the preceding seventy‑five (75) numbered Paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey, Sackville and Siopis.

Associate: Dated: 7 March 2008 Counsel for the Applicants: Mr G R Donaldson SC, with Mr J Garas Solicitors for the Applicants: Allens Arthur Robinson Counsel for the First Respondents: Mr J D Allanson, with Mr M Cuerden Solicitors for the First Respondents: Fiocco's Lawyers Date of Hearing: 12 February 2008 Date of Judgment: 7 March 2008