FAI v Interchase Corp Ltd [1998] QCA 180

Court of Appeal (Qld)|1998-07-14|Before: Before Davies J, McPherson J, Byrne J, Davies JA, Mr P

I have had the advantage of reading the reasons for judgment of McPherson J.A. and of Byrne J. The facts relevant to this appeal appear from the reasons of Byrne J. Accordingly I shall refrain from re-stating relevant facts except to the extent that it is necessary to explain these reasons. It is sufficient to say of them at this stage that, if the appellant, to whom I shall hereafter refer as FAI, had continued to conduct, on behalf of the first and second defendants, whom I shall call the valuers, the action instituted by the respondent, whom I shall call Interchase, this application for joinder may have been unnecessary. And it would also have been unnecessary if, FAI having declined indemnity and refused to continue to so conduct it, the valuers had, as they could have and ordinarily would have, instituted third party proceedings in the action against FAI claiming such indemnity. It may be assumed that they did not do so because of their insolvency or because they accept FAI's contentions referred to in footnote 3 to the reasons of Byrne J. or both.

1. whether the Court has power under the Rules of Court to order the joinder sought; that is whether the application came within the relevant provisions of O.3 of the Rules of the Supreme Court; and

2. whether the learned primary judge was wrong in exercising his discretion to permit the joinder. In this respect, I would accept, as their Honours have, that if the declaration, if made, would have no utility, in the sense that it would not effectively determine FAI's liability to indemnify the valuers as between those parties, the discretion was wrongly exercised. FAI also contended that the declaration sought was directed to determination of a hypothetical question and for that reason also the discretion was wrongly exercised; and also pointed to other discretionary matters in respect of which it contended his Honour had erred. I shall discuss these questions in that order.

The relevant rules of O.3 are r.1, r.5, r.5A and r.11. They are in the following terms:

"1 (1) All persons in whom any right to relief in respect of or arising out of the same transaction or series of transactions is alleged to exist, whether jointly, severally, or in the alternative, may be joined in an action as plaintiffs, provided that the case is such that if such persons brought separate actions some common question of law or fact would arise.

(2) However, the Court or a Judge may, in any case in which separate and distinct questions arise, order that separate pleadings be delivered, or separate trials had, or may make such other order as may be just.

(3) When several plaintiffs are joined in an action, judgment may be given for such 1 or more of them as is or are entitled to relief for such relief as he, she or they may be entitled to, without any amendment.

(4) But the defendant shall be entitled to the defendant's costs occasioned by joining as a plaintiff any person who is not entitled to relief, unless the Court or a Judge in disposing of the costs otherwise directs."

"5 (1) All persons may be joined as defendants against whom the right to any relief is alleged to exist, whether jointly, severally, or in the alternative.

(2) And judgment may be given against such 1 or more of the defendants as may be found to be liable, according to their respective liabilities, without any amendment.

5A Notwithstanding rules 1 and 5, but without prejudice to any of the powers of the Court or a Judge under this order, 2 or more persons may be joined together in 1 action as plaintiffs or as defendants with the leave of the Court or a Judge."

"11 (1) The Court shall not refuse to determine a cause or matter by reason only of the misjoinder or nonjoinder of parties, and the Court may in every cause or matter deal with the matter in controversy so far as regards the rights and interests of the parties actually before it.

(2) The Court or a Judge may, at any stage of the proceedings, either upon or without the application of either party, and on such terms as may appear to the Court or Judge to be just, order that the names of any persons improperly joined, whether as plaintiffs or as defendants, be struck out, or that the names of any persons who ought to have been joined, or whose presence before the Court may be necessary in order to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter, be added, either as plaintiffs or defendants.

(3) But no person shall be added as a plaintiff suing without a next friend, or as the next friend of a plaintiff under any disability, without the person's own consent in writing thereto."

The argument of the parties in this Court concentrated on the operation of O.3 r.11. Because I think that the Court has power under that rule to make the joinder sought I do not find it necessary to go beyond that rule except to explain the scope of its operation. It has been said on more than one occasion that O.3 in general and O.3 r.11 in particular should be construed liberally or beneficially or generously.[1] Nevertheless I am prepared to accept, for the purposes of this case, as the other members of this Court have, that FAI was not a person who "ought to have been joined"[2] within the meaning of r.11(2).

Whether it was a person "whose presence before the Court may be necessary in order to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the cause" is, however, another matter. It may be that, where a person is sought to be joined as a defendant in an action over the opposition of the plaintiff, what is necessary for the purposes of this phrase should be viewed strictly so as to prevent a plaintiff from being compelled to sue someone whom he or she does not wish to sue.[3] But it has been held that the phrase should be construed more liberally where the plaintiff is seeking to join a defendant.[4] I would adopt that view and accordingly construe the phrase as empowering the joinder of FAI by Interchase where, as has occurred here, FAI has declined to indemnify the valuers, the valuers have failed to join FAI and Interchase cannot obtain an effective judgment against the valuers.

2. Whether a declaration, if made, would have any utility.

I accept that there would be no point in making the order for joinder if the declaration did not, in practice, effectively determine the issue of FAI's liability to the valuers as between those parties. But I do not think it is sufficient, for the joinder to lack utility, that it is not binding between those parties at law if, in its practical effect, it is.

There is no doubt that the question which will be decided in the proceedings for a declaration is the same question which would be decided in proceedings between the valuers and FAI either in a claim for indemnity by the former or in declaratory proceedings by the latter. But the parties are different and both res judicata and issue estoppel require for their operation mutuality of parties or their privies. Consequently, as I agree with Byrne J. that Interchase and the valuers are not privies, I also agree that neither doctrine will operate to bind FAI and the valuers inter se in respect of this question.

But that is not the end of the matter. In extending the doctrine of estoppel to a case where an issue had not been but could have been determined in an earlier action, Gibbs C.J., Mason and Aickin JJ. in Port of Melbourne Authority v. Anshun Pty. Ltd.[5] based their conclusion on the inconsistency between the judgment obtained in the earlier action and that sought to be obtained in the later one. There will be an estoppel, in this wider sense, where "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."[6]

"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."[7]

There was mutuality in Anshun and their Honours in the joint judgment to which I have referred did not find the abuse of process test, as elucidated in some of the English cases, of great utility.[8] However abuse of process is a similar mechanism designed "to protect against 'the scandal of conflicting decisions'"[9] which can achieve that protection where mutuality is absent as it is here. Reichel v. Magrath[10] is an old example of this. Hunter v. Chief Constable of the West Midlands Police[11] and N.W. Water Ltd. v. Binnie & Partners[12] are more recent examples.[13]

There can be no doubt that, in the present case, both FAI and the valuers will have full opportunity of contesting the question in respect of which the declaration is sought.[14] It would therefore, in my view, be an abuse of process to permit either to litigate that question in subsequent proceedings.[15] It follows therefore that the declaration sought would effectively determine the question of FAI's liability to the valuers as between those parties.

The appellant relied on the statement in the majority judgment in Ainsworth v. Criminal Justice Commission[16] that a person seeking relief must have a "real interest" and that relief will not be granted if the question "is purely hypothetical";[17] and pointed to the contingencies that Interchase may not succeed against the valuers, that the valuers and FAI may resolve their differences, that the valuers may never go bankrupt or into liquidation and, if they did, that their trustee or liquidator may not proceed against FAI. It is unnecessary to consider the likelihood of any of these contingencies. There can be no doubt that, notwithstanding contingencies of a similar kind, the valuers could obtain a declaration as to FAI's liability to them before they are held liable to Interchase.[18] Moreover, the factors I have mentioned - the insolvency of the valuers, their failure to seek an indemnity from FAI and the ineffectuality of any judgment by Interchase against the valuers unless FAI is liable to indemnify them - together combine, in my view, to give Interchase a real interest in the relief which it seeks.

Two other discretionary matters were said in FAI's notice of appeal to be ones in respect of which his Honour has erred. First it was said that he paid insufficient regard to the effect which the joinder would have on the length and cost of the trial. He plainly adverted to this question and to the possibility of trials of separate questions. No doubt also, appropriate orders for costs could be made which would allow for the fact that FAI may not need to be involved in all issues. Moreover in considering that matter the court must also consider the additional cost to Interchase of two trials. There is no basis for concluding that his Honour erred in his consideration of this matter and, although raised in the notice of appeal, it was not pursued in the written outline of argument.

There is even less basis for so concluding with respect to the other matter which related to prejudice to the valuers by reason of the joinder. The assertion was made, not on behalf of the valuers, who did not appear, but on behalf of FAI. There is no substance in it. It, too, was not pursued in the written outline.

In considering all of the discretionary considerations it is important to bear in mind that, in this respect, the appeal is one against the exercise of a discretion, a matter of practice and procedure. This Court is especially reluctant to interfere in the exercise of a discretion in such matters.

I have read the reasons of Byrne J. for allowing this appeal. I agree with them so completely that there is no real justification for adding to them. Nevertheless there are some matters as to which I wish to address some further specific remarks.

This is not a case of a person who was joined as a defendant to the action in the first instance, but one in which the joinder is or must be sought under O.3, r.11. That rule enables persons to be added as defendants "who ought to have been joined", as well as those "whose presence before the Court may be necessary in order to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter". The first of these categories covers persons who must be included in the action, unless there is a valid excuse for their nonjoinder; the second covers those whose joinder is so important to a just resolution of the case that, if they cannot be joined, the action should not be allowed to proceed. In the language of courts and text writers of America on this topic (from which or whom this classification is taken) the first are described as "necessary", the second as "indispensable", parties. See James, Hazard and Leubsdorf, Civil Procedure, 4th ed., s 10.11, at 524-525.

It is clear that the professional indemnity insurer, FAI General Insurance Co. Ltd. of the two defendants already sued, who are Colliers Jardine (Qld) Pty. Ltd. and its employee Michael Tidbold, is not a necessary party to the action no. 520 of 1994 brought against them by Interchase Corporation Limited as plaintiff. Order 3, r.11 uses the expression "cause", defined in s.1 of the Judicature Act 1876 and now in s. 241 of the Supreme Court Act 1995, as including "any suit, action or other original proceeding between a plaintiff and a defendant", which is the meaning assigned by O.1, r.1 of the Rules of the Supreme Court. The cause instituted by Interchase against those two defendants is for damages for negligence or breach of contract arising out of what is alleged to have been a negligent valuation by Tidbold. To such an action, the defendant's professional indemnity insurer is plainly not a "necessary" party in terms of O.3, r.11.

The first criterion for joinder is therefore not satisfied. The question then is whether FAI is, in the American terminology, an "indispensable" party to the action. Byrne J. is rightly cautious about expressing an opinion on this question; but I must say I am disposed to think, and to hold, that FAI does not fulfil this criterion for joinder under O.3, r.11. Whether or not a party is indispensable and should be joined (as distinct from severed and struck out as a party) does not under O.3, r.11 fall to be determined by considerations of convenience. See In re Vandervell's Trusts [1971] A.C. 912, 930, 931, 935-936, 940, applied in White v. London Transport [1971] 2 Q.B. 721, 728-729; and see Qantas Airways v. A.F. Little Pty. Ltd [1981] 2 N.S.W.L.R. 34, 53-54. The case of White v. London Transport is in some respects not dissimilar to this. It involved an action by an injured passenger against London Transport, whose bus driver had swerved, or so it was claimed, to avoid a collision with a carelessly driven unidentified van. The Motor Insurers' Bureau, which had an agreement with the Ministry of Transport to pay compensation in circumstances like those, applied to be joined as a defendant. Its application failed. The plaintiff's action against London Transport was capable of being determined or adjudicated upon quite adequately, effectually or completely without the Bureau joining as a party.

In circumstances such as those, the place of the Motor Insurers' Bureau in England is in Australia taken by the Nominal Defendant, which is a corporation constituted by statute for the specific purpose of sustaining or contesting liability for negligence on the part of unidentified or uninsured motor vehicles or their drivers who cause personal injuries to others. A plaintiff in this State would, in circumstances like those in White v. London Transport, almost certainly have sued the Nominal Defendant in the first place; but that is because by statute a direct liability is imposed on that corporation. Some jurisdictions in the United States now permit a direct action by the insured person against a liability insurer without the need for first obtaining judgment against the insured. See James et al, Civil Procedure, s 10.9, at 520-522; and note in (1960) 74 Harvard L. Rev. 357; but, in general, that is so only where there is either what is called a "direct action statute" or compulsory insurance legislation of some kind. That is not the case here. Reliance was placed by the respondent before us on the South African decision of Reinecke v. Incorporated General Insurances Limited 1974 (2) S.A. 84 (A.D.), where a defendant driver was held entitled to claim a declaration of indemnity against an insurer of his liability to others in driving his car; but the decision in his favour turned on the specific terms of a provision in the South African rules of procedure authorising the making of declarations. In Reinecke v. Inc. General Insurances Limited 1974 (2) S.A. 84, 99, that provision was said to be wider than the former English rule O.25, r.15, which was in the same terms as O.4, r.11 (Qld.) is now.

In any event, in Reinecke's case it was the insured who was seeking a declaration of liability against his own insurer, and not, as here, a stranger who is seeking a declaration of liability against the insurer of some other person who is a defendant to the action. Subject to one qualification to be mentioned, the plaintiff in this action has and can have no direct legal or equitable, as distinct from possible financial, interest in obtaining a declaration that, as indemnity insurer, FAI is liable to either of the two insured defendants. If such a declaration were obtained, it would do nothing to satisfy or discharge any liability of either of the defendants to compensate Interchase for the damage alleged to have been caused to the plaintiff. Byrne J. has given compelling reasons for holding that FAI would not be bound by such a declaration if it were made; but, even if the contrary were to be assumed, a declaration as such would of itself not produce a judgment in a money sum in favour of Interchase or, for that matter, of either of the defendants against FAI. It would still be necessary for the defendants or one of them to make and enforce a claim against FAI for indemnity under the policy of insurance as to which liability was established in their favour.

In the absence of statute or contract to that effect, there is no procedure for compelling an insured person to make a claim under a policy of insurance issued for his or her benefit, or for requiring that the proceeds of a successful claim made by the insured be applied in satisfaction of a liability incurred to some other party. If a claim under a policy is made against, and paid by, an insurer, the insured who receives the proceeds does not hold them on trust for the party to whom the liability has been incurred. Nor do they form a common fund in which the party injured may be entitled to share, as in John Cooke & Co. Pty Ltd. v. The Commonwealth [1922] HCA 60; (1922) 31 C.L.R. 394, discussed by Mahoney J.A. in Qantas Airways Ltd. v. A.F. Little Pty Ltd. [1981] 2 N.S.W.L.R. 34, 50. The insured, if solvent, is at liberty to apply insurance proceeds in any way he pleases. That was the very point at issue in Harrington Motor Co. Ltd, ex p. Chaplin [1928] 1 Ch. 105 and In re Southern Cross Coaches Ltd. (1932) 49 W.N. (N.S.W.) 230, where the insurer paid the insurance money after judgment had been given against the insured. The rather tragic outcome of those two decisions resulted in the enactment of what is now s.562(1) of the Corporations Law, requiring that insurance proceeds received from an insurer by a company or its liquidator are, in accordance with the section, to be paid "by the liquidator" to the third party in respect of whom the liability insured was incurred. It operates to impose on the liquidator a statutory duty to pay. Section 562 does not, in express terms, say that it is concerned only with companies in liquidation; but it is clearly so confined. It appears in Part 5.6 of the Corporations Law, of which the provisions apply to winding up: see s.513; it is concerned with priorities in the payment of claims against a company in a liquidation: see s.555; and s.562(1) is in terms a statutory direction addressed only to a liquidator to pay the insurance proceeds. Section 562 is concerned essentially only with companies that are insolvent; but there is a corresponding provision in s.117 of the Bankruptcy Act 1966 concerning insurance proceeds received by the trustee of a bankrupt individual.

It follows that it is only if the plaintiff were to succeed in obtaining judgment in the action against either of the two defendants, whose liquidator or trustee in bankruptcy were then to demand and to receive from FAI an amount in respect of its liability as professional indemnity insurer, that s.562 of the Corporations Law or s.117 of the Bankruptcy Act would operate to require that the amount, less expenses of recovering it, be paid to the plaintiff. But that state of affairs does not exist now, and, before it does, several contingencies will need to be fulfilled. FAI now disputes its liability under the insurance policy, and the two defendants are it seems not intending to pursue or enforce it. As matters stand, there is no means of compelling them to do so. The insurance is not of a kind permitting a direct action or proceeding by the plaintiff to enforce it against the insurer. For s.562 or s.117 to apply, a liquidator or trustee would first have to be appointed in a winding up or bankruptcy of the two defendants, or of at least of one of them.

The presence before the Court of FAI is not, in terms of O.3, r.11, "necessary in order to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter" constituted by action no. 520 of 1994 in the Supreme Court. The "cause or matter" in this context has been held to mean the action as it stands between the existing parties: see Amon v. Raphael Tuck & Sons Ltd. [1956] 1 Q.B. 357, 369; The Result [1958] P. 174, 184; which is to say, as it stands before the proposed further defendant is added. The authority of those decisions has since been displaced in England by the addition in 1971 of a further paragraph in the relevant rule, now O.15, r.6(2)(b), authorising the joinder of any person between whom and any party to the cause or matter there may exist a question or issue "arising out of or relating to or connected with any relief claimed in the cause or matter" which the court considers it would be just and convenient to determine as between him and that party, as well as between the parties to the cause or matter. The 1971 addition to the relevant English rule has not been adopted in Queensland, although in Rule 27.05(b) it has been in South Australia, where the rules for joining parties are considerably wider than those in this State: see J.N. Taylor Holdings Ltd. v. Bond (1993) 59 S.A.S.R. 432, 438-439. In New South Wales the relevant provision in O.8, r.8 of the Supreme Court Rules, which was adopted in O.6, r.8(1)(b) of the Federal Rules, has also been broadly construed: see Qantas Airways Ltd. v. A.F. Little Pty. Ltd [1981] 2 N.S.W.L.R. 34.

The expansive provisions of those rules may help to explain the decisions in J.N. Taylor Holdings Ltd v. Bond (1993) 59 S.A.S.R. 432 and Dorrough v. Bank of Melbourne Ltd (1995) ANZ Insurance Cases 76-233, where joinder of an indemnity insurer was allowed in circumstances resembling those being considered here. Plainly, a rule enabling a court to determine a question because it is "related to or connected with" any relief claimed in the existing cause or matter may be capable of justifying a joinder like that sought in this instance. It is, however, difficult to see how it would effectively solve the problem discussed by Byrne J. in his reasons on this appeal of the binding effect (or lack of it) of the declaration which the plaintiff now wishes to claim against FAI, which is a question that was not explored in J.N. Taylor Holdings Ltd. v. Bond. The only justification for bringing a person before the court as a co-defendant is to ensure that that person is bound by the result of the action and adjudication: see Warner v. Twining (1876) 24 W.R. 536; Amon v. Raphael Tuck & Sons Ltd. [1956] 1 Q.B. 357, 380; The Result [1958] P. 174, 182; and Watkins Limited v. Plancorp No. 6 Pty. Ltd [1983] 2 Qd. R. 501, 504. But joining FAI as a defendant will not create between it and the other defendants any issue with respect to which, it if is determined on the plaintiff's proposed claim for a declaration, the defendants will all be bound. To achieve that, a counterclaim between defendants or a notice under O.17, r.9 would be needed: see The Normar [1968] P. 362, 372. There is no reason to suppose that any of them have it in mind to take such a step. Since under the O.3, r.11 that building effect will, as the reasons of Byrne J. demonstrate, not be something that flows from adding FAI as co-defendant to the plaintiff's proposed claim, I am not persuaded that the order made by the primary judge in this instance was correct.

I would only add that experience suggests that, far from serving the demands of convenience, the old Chancery practice of insisting on the joinder of all parties having any conceivable present, future or contingent interest in the outcome of litigation is not one that should be encouraged: cf. The Normar [1968] P. 362, 371, 373. Any lingering doubts on the topic may be removed by reading Stephen N. Subrin's paper, "How Equity Conquered the Common Law", in (1987) 135 U. Pennsylvania L. Rev 909, 979-1002. The question here is, however, not one of convenience, but of law; and, as to that, the application by the respondent plaintiff ought in my opinion not to have succeeded below.

In 1994 Interchase Corporation Limited (in liquidation) ("Interchase") commenced proceedings against Colliers Jardine (Qld) Pty Ltd ("Colliers") and its employee, Michael Tidbold. Interchase had retained Colliers as its valuer in connection with the development of retail and commercial premises in Brisbane. Interchase claims to have lost about $60 M through Mr Tidbold's negligent valuation of the complex.

FAI General Insurance Company Ltd ("FAI") is the insurer under a policy of insurance which in terms indemnifies Colliers and Tidbold against claims made during the currency of the policy in respect of civil liability incurred in the course of any "professional business", an expression defined so as to comprehend any advice given or services performed on behalf of Colliers. The limit of indemnity for each "claim" is $10 M, subject to a $100,000 excess. FAI conducted the defence of the litigation against Colliers and Tidbold for some time. Then, by letter dated 4 October 1996, FAI declined indemnity. Colliers and Tidbold have neither objected to this decision nor foreshadowed a possibility of contesting it.

Interchase sought to join FAI as an additional defendant to obtain a declaration that FAI is "liable to indemnify" Colliers and Tidbold[19] in respect of their liability to Interchase. The Chamber Judge acceded to the application. Appeal is brought from that decision.[20]

The Judge was influenced by matters of convenience, especially the prospect of savings in public and private resources. Unless Colliers and Tidbold gain recourse to professional indemnity policies, they do not have assets sufficient to justify Interchase's proceeding to trial. Interchase prefers not to incur the expense of obtaining judgments against them only to discover (in subsequent litigation instigated by Collier's liquidator or Tidbold's trustee in bankruptcy) that FAI is not liable under its policy. The Judge also mentioned that the factual questions concerning the method of valuation which may be expected to arise in the case against Colliers and Tidbold are much the same as some which mattered to FAI's decision to decline indemnity.[21]

RSC O.3 r.11 authorizes the joinder in an existing action of those "who ought to have been joined" initially "or whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter". The rule and its analogues elsewhere have often been judicially considered, and the modern authorities establish that convenience alone cannot justify joinder.[22] FAI is not a party which "ought to have been joined" when the action commenced, for the claims made against Colliers and Tidbold are not also "alleged to exist, whether jointly, severally or in the alternative"[23] against FAI. And though it seems unlikely that the joinder of FAI - only a potential indemnitor of a defendant[24] after all - is "necessary" to ensure that all questions involved in Interchase's damages claims may be "effectually and completely" determined, it is unnecessary to decide that question. For the joinder serves no useful purpose.

Interchase's object in joining FAI is to obtain a declaration concerning FAI's obligations to parties[25] other than Interchase. What utility could attend such an adjudication? Interchase is not a party to the policy. The policy was procured for the protection of the insured, not for claimants against them like Interchase. Although Colliers and Tidbold may sue on the policy, Interchase has no entitlement under the general law[26] or statute[27] to enforce it. Of course, like every prospective judgment creditor, Interchase has a commercial interest in the capacity of judgment debtors to satisfy a money judgment. But the declaration sought - relief that relates exclusively to FAI's liability to Colliers and Tidbold - could not directly affect any property, legal right or obligation of Interchase.[28] Nor could it effectively determine FAI's rights or duties. A judicial determination of the issues pertaining to Interchase's claim for declaratory relief cannot shut out FAI from litigating about them again, as, for example, should Interchase's damages claims succeed, in proceedings instigated by the liquidator or by Tidbold's trustee claiming indemnity. The order for joinder does proceed on a contrary assumption: viz that a question as to the rights and duties of insurer and insured is concluded by a judgment on such issues between Interchase and one or other of the insured. This, however, is not the law.

As a result of the joinder, FAI, Colliers and Tidbold are co-defendants. But they are not adversaries. The insurer asserts, and both insured appear content to accept, that FAI was entitled to decline indemnity. Among them, there is no controversy. No procedural manoeuvre by Interchase can alter that state of affairs. Interchase's different claims against FAI and the insured - one for declaratory relief concerning the policy; the other for monetary compensation - do not involve competition for a fund or other property[29]. And it has not been suggested that the prosecution of the action against insurer and insured could provoke one to try to prove a matter of fact or law adverse to the other in relation to Interchase's claims. So even if FAI remains, the litigation is destined to conclude without making adversaries of the defendants among themselves. In short, the rights of the co-defendants inter se will not be determined in Interchase's action.

In Munni Bibi v Tirloki Nath, a case concerned with the law of India, the Privy Council said[30]

"That there may be res judicata as between co-defendants has been recognized by the English Courts and by a long course of Indian decisions. The conditions under which this branch of the doctrine should be applied are thus stated by Wigram V.-C. in Cottingham v. Earl of Shrewsbury [1843] EngR 487; 3 Ha. 627,638:

`If a plaintiff cannot get at his right without trying and deciding a case between co-defendants, the Court will try and decide that case, and the co-defendants will be bound; but if the relief given to the plaintiff does not require or involve a decision of any case between co-defendants, the co-defendants will not be bound as between each other by any proceeding which may be necessary only to the decree the plaintiff obtains.'

In such a case, therefore three conditions are requisite: (1). There must be a conflict of interest between the defendants concerned; (2.) it must be necessary to decide this conflict in order to give the plaintiff the relief he claims; and (3.) the question between the defendants must have been finally decided."

An American treatise, A.C. Freeman, The Law of Judgments,[31] concludes:

"Parties to a judgment are not bound by it, in a subsequent controversy between each other, unless there were adversary parties in the original action. There must have been an issue or controversy between them ... ordinarily ... co-defendants are not adversary parties, since usually no issues are made between them, and a judgment, therefore, cannot generally be used by one against the other as an estoppel ..."[32]

Although there is scope for debate about the boundaries of operation of the rule,[33] its preclusionary effect certainly depends upon the adjudication of a controversy between, not just against, co-defendants.[34] Interchase, however, relies on J.N. Taylor Holdings Ltd (In Liq) v Bond,[35] where the South Australian Full Court joined an insurer as an additional defendant. An action for monetary compensation had been brought against company directors who were insured under a claims made policy against loss by reason of any wrongful act committed as directors. King CJ, with whom Prior J substantially agreed, and Perry J agreed, said:[36]

"The circumstances in which the principle of res judicata operates as between co-defendants is stated in Halsbury's Laws of England (4th ed), Vol 16, par 1547, p 1044 as follows:

`In order to create a res judicata as between co-defendants, three conditions are requisite: (1) there must be a conflict of interest between the defendants concerned; (2) it must be necessary to decide this conflict in order to give the plaintiff the relief he claims; and (3) the question between the defendants must have been finally decided.'

The existence of an actual lis, in the sense of proceedings, between the defendants concerned is not one of the requisites. That was clearly the view of Jacobs J in Re Multi-tech Services Pty Ltd (In liq); Heard v Commonwealth Trading Bank of Australasia (1982) 30 SASR 218. That case concerned an application by a liquidator of a company for a declaration that certain payments to the respondent bank were void as undue preferences. Jacobs J allowed the joinder, on the application of the bank, as a respondent, of a guarantor of the company's indebtedness to the bank. The judge directed that no issue be joined in the proceedings between the respondents inter se but nevertheless based his decision upon the desirability of the surety being bound, in any subsequent proceedings by the bank, by any determination that the payments to the bank were void. In my opinion, the insurer, if joined as a defendant, would be bound, in subsequent proceedings by the defendant directors or their trustee in bankruptcy, by a declaration of liability and also by any findings of fact made in the present proceedings."

But in Multi-tech Services Jacobs J assumed, rather than decided, that the additional party would be bound, and his Honour did not consider whether the determination of an existing controversy between co-defendants was essential to a binding adjudication. The case is therefore no authority upon that question.[37] And both principle and such authority as there is reveal that the proposed declaration will not have the effect Interchase wishes to attribute to it. Instead, the declaration, if made, is incapable of affecting FAI's rights and obligations.

Interchase nonetheless contends that the declaration would have some utility because, it is said, in later proceedings initiated by the liquidator or Tidbold's trustee to enforce the policy, were FAI to deliver a defence containing allegations inconsistent with the tenor of the declaration, that pleading would be struck out as an abuse of process. However, several considerations combine to show that there is no appreciable prospect that a defence denying liability to indemnify would be treated as such an abuse. In the later proceedings, FAI would not be resisting an obligation to indemnify for any ulterior or collateral purpose; and in deciding whether a pleading that raises fairly arguable grounds of claim or defence constitutes an abuse of process, the propriety of the litigant's motives is commonly a significant factor.[38] Secondly, the plaintiff(s) in the later case will have elected not to bring third party proceedings in this litigation and instead will have waited to see the outcome of Interchase's action against FAI, which is not an immaterial consideration.[39] Next, what would then be challenged as an abuse of process is not the prosecution of a claim but the defence of one.[40] Finally, the subsequent proceedings would probably afford FAI procedural advantages that are not available to it in defending Interchase's action;[41] and the issues so far raised to justify the refusal to indemnify suggest that those advantages - in particular, a capacity to interrogate - [42] could affect the result in a second contest.

As it may be taken that FAI would not accept a determination adverse to it in the present litigation,[43] the declaration would be in the nature of an advisory opinion, without beneficial effects. It cannot produce useful, "foreseeable consequences for the parties"[44] and would be refused at trial. The joinder was therefore erroneous.[45]

The appeal should be allowed with costs, the orders appealed from set aside, and in lieu thereof it should be ordered that the summons, so far as it relates to FAI, be dismissed with costs.

[1] Bailey v. Curzon [1932] 2 K.B. 392 at 398. See also Birtles v. Commonwealth [1960] VicRp 39; [1960] V.R. 247 at 251; Black v. Houghton [1968] Qd.R. 179 at 187; Qantas Airways v. A. F. Little Pty. Ltd. [1981] 2 N.S.W.L.R. 34 at 54, 56; In re Vandervell's Trusts [1971] A.C. 912 at 940.

[2] However it does not follow that it could not have been joined as a defendant in the first place: see r.5A.

[3] That is the way in which it and the whole phrase was viewed in Amon v. Raphael, Tuck and Sons Ltd. [1956] 1 Q.B. 357, 369 and The Result [1958] P. 174, 184 both of which were cases of that kind. See also Australian Tape Manufacturers Association Ltd. v. Cth [1990] HCA 38; (1990) 64 A.L.J.R. 530 at 532.

[4] Qantas Airways supra at 37-8, 43; see also Birtles supra at 252. This appears to have been recognized by Devlin J. in Amon at 386.

[8] At 602. But Murphy J, who agreed in the result in that case, characterized what was sought to be done as an abuse of process: at 605.

[9] See Rogers v. The Queen [1994] HCA 42; (1994) 181 C.L.R. 251 at 273-4.

[10] (1889) 14 App.Cas. 665; although mutuality may have existed there if, as seems likely, the respondent and the Bishop were privies.

[11] [1981] UKHL 13; [1982] A.C. 529. The criticism of that decision by McHugh J. (diss.) in Rogers, supra at 287-9 does not diminish the applicability of the statements of general principle in that case to this one.

[12] [1990] 3 All E.R. 547. Drake J. also decided that case on the alternative basis of issue estoppel but, like this case, there was no issue in the first case between the parties to the second. See at 554h.

[13] See also Haines v. Australian Broadcasting Corporation, Supreme Court of New South Wales - Common Law Division, Hunt C.J. at CL, unreported 21 July 1995.

[14] Byrne J. has expressed the view that FAI will have procedural advantages in proceedings by the valuers against it, in particular a capacity to interrogate the valuers, which it does not have in the existing proceedings. If that is so it can be readily overcome, at little cost to FAI, by its seeking a declaration in these proceedings against the valuers in respect of the existing issue. So in practical terms there is no real disadvantage to FAI in having all issues resolved in these proceedings.

[15] In reaching that conclusion I have taken a broader view of abuse of process than Byrne J. In particular, assuming that Interchase may obtain the declaration of the kind which it has sought against FAI, that is, that it is not hypothetical, as to which see below, I have accorded greater importance than he has to the avoidance of conflicting decisions where that can be achieved without unfairness to any of the parties.

[17] As to the meaning of "hypothetical" in this context see C. E. Heath Casualty & General Insurance Ltd. & Anor. v. Pyramid Building Society (1997) 9 ANZ Insurance Cases 61-345 at 76,783.

[19] The amended statement of claim sought "payment" by FAI of the amount FAI is obliged to pay by way of indemnity. Since that pleading, Interchase has accepted that it has no right to such an order, whether the "payment" be understood to refer to payment to the insured or to Interchase. This concession was recorded by the Judge. There has been no resiling from it.

[20] The writ named two other defendants, another valuer and his employer. Their professional indemnity insurer was also joined as a defendant. That decision has not been appealed.

[21] The Judge had information that FAI's decision was based, at least in part, on a view that Tidbold's valuation contained deliberate misrepresentations as to the methodology used to arrive at it and was not a true expression of the author's opinion about the value of the property, as well as that FAI contended that false statements had knowingly been made in support of the claim for indemnity. FAI's contentions have been amplified by the defence delivered in consequence of the order for joinder. The grounds on which FAI resists Interchase's claim to a declaration broadly accord with the Judge's understanding of the reasons for refusing indemnity.

[22] see, e.g., Walker v Commonwealth Trading Bank of Australia (1985) 3 NSWLR 496; Australian Tape Manufacturers Association Ltd v The Commonwealth [1990] HCA 38; (1990) 64 ALJR 530, 531-532; News Ltd v The Australian Rugby Football League Ltd [1996] FCA 870; (1996) 64 FCR 410, 523-525; Wood v Perfection Travel Ltd [1996] LRLR 233, 235-236_;_ cf Qantas Airways Ltd v AF Little Pty Ltd [1981] 2 NSWLR 34, 38.

[23] RSC O.3 r.5, which, as the marginal note puts it, concerns "persons to be joined as defendants".

[24] In Barclays Bank v Tom [1923] 1 KB 221, Scrutton LJ, explaining third party procedure, said (at pp.223-224) "A plaintiff has a claim against a defendant. The defendant thinks if he is liable he has a claim over against a third party. With that matter between the defendant and the third party the plaintiff has obviously nothing to do. He is not concerned with the question whether the defendant has a remedy against somebody else. His remedy is against the defendant." This passage is cited approvingly in Crowe v Wheeler & Reynolds [1986] 2 Qd R 84, 87; Vosten v The Commonwealth [1989] 1 Qd R 693, 700; and in Sandtara Pty Ltd v Abigroup Ltd [1997] NSWSC 294; (1997) 42 NSWLR 5, 8.

[25] At the moment, the declaration is sought only against FAI. An application to amend the prayer for relief to seek the declaration against the two insured has been foreshadowed.

[26] cf Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107.

[27] contrast Foxe v Brown [1984] HCA 69; (1984) 59 ALJR 186.

[28] In the event of the liquidation of Colliers or upon Tidbold's bankruptcy, s.562 of the Corporations Law and s.117 of the Bankruptcy Act 1966 accord preference to Interchase in respect of moneys paid under the policy to the liquidator or trustee. Apparently content to accept that the rights contingently conferred by those provisions could not accord standing to Interchase to maintain proceedings against FAI were the liquidator or trustee in bankruptcy unwilling to sue, Interchase has not contended that it might ever become entitled to sue in its own name to recover proceeds of the policy.

[29] the kind of dispute that can create binding adjudications between co-defendants without the raising of cross-claims: e.g. through interpleader, or where the determination involves deciding upon adverse interests as between co-defendants: cf Graham v Railroad Company 70 US [1865] USSC 44; (3 Wall.) 704, 711-712 (1865); Corcoran v Chesapeake and Ohio Canal Company [1876] USSC 53; 94 US 741, 744-745 (1876).

[31] 5th ed, (1925),Vol. 1 s422 at p.918, s424 at p.923; referred to with approval in Ohio Casualty Ins. Co. v Gordon 95 F 2d 605, 609 (10th Cir, 1938).

[32] cf 47 American Jurisprudence 2d Judgments s 674 at p.121: "The general rule is that parties to an action are not bound in subsequent controversies between themselves where they were not adversaries in the action in which the judgment was rendered and their rights and liabilities inter se were not put in issue and determined in that action" ; Restatement, Judgments 2d, s38 pp.378-381 (1982); J. H Friedenthal, M.K. Kane, A.R. Miller, Civil Procedure, 2nd ed. (1993), pp.684-686; and H. Chand, The Law of Res Judicata, (1894), pp.171-176.

[33] For American variants, see "Res Judicata: Codefendants" 24 ALR 3d 318, 323-326 (1969); and Steen v John Hancock Mutual Life Insurance Company [1997] USCA9 413; 106 F 3d 904, 911 (9th Cir, 1997).

[34] cf G.S. Spencer Bower, A.K. Turner, & K.R. Handley, The Doctrine of Res Judicata, 3rd ed. (1996), p. 217. Incidentally, Interchase and the insured plainly are not "privies" as that concept is understood in the law of res judicata and issue estoppel: see, generally, Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd [1993] FCA 342; (1993) 43 FCR 510, 516, 521, 526, 539, 541.

[37] In Walker v Commonwealth Trading Bank of Australia, Needham J adverted to this issue (at pp.501-502) in declining to follow the decision.

[38] Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, 529, 553; Walton v Gardiner (1993) 177 CLR 378, 395; Rogers v The Queen [1994] HCA 42; (1994) 181 CLR 251, 287-290; Ridgeway v The Queen [1995] HCA 66; (1995) 184 CLR 19, 59-60, 74-75; Jameson v Central Electricity Generating Board [1998] QB 323, 344H; Nicholas v Bantick [1993] TASSC 68; (1993) 3 Tas R 47; J.D. Heydon, Cross on Evidence (Aust ed), para 5175.

[39] cf Parklane Hosiery Co v Shore [1979] USSC 8; 439 US 322, 329-331 (1979); Restatement, Judgments 2d, s29(3) and Reporter's Note on Comment e at p.301 (1982).

[40] See Meates v Taylor [1992] 2 NZLR 36, 41-42; X v Y [1996] 2 NZLR 196, 216; Bragg v. Oceanus Mutual Underwriting Association (Bermuda) Ltd and C.E. Heath & Co (Marine) Ltd [1982] 2 Lloyd's Rep 132, 138; Ashmore v British Coal Corporation [1990] 2 QB 338, 351-352.

[41] See, generally, G.D. Watson, "Duplicative Litigation: Issue Estoppel, Abuse of Process and the Death of Mutuality", (1990) 69 Can Bar Rev 623, 641, 647.

[42] RSC O. 35 r. 24(1)(a) would permit the insured to object to answering interrogatories by FAI on the ground that they do not relate to a matter in question between the insured and FAI. There is also a chance that the insured would avoid discovery: RSC O. 35 r. 15(2). Moreover, in the subsequent litigation, additional evidence, not presently available, might be adduced: cf State Bank of New South Wales Ltd v Stenhouse Ltd (1997) Aust Torts Reports s81-423 at p.64,089.

[43] The decisive point was not pleaded in FAI's defence to the amended statement of claim. It is, however, apparent from FAI's submissions on the appeal that the insurer wishes to raise it.

[44] Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564, 581-582.

[45] FAI also contends that the consequences of the joinder are otherwise so unattractive as to justify interfering with the Judge's exercise of discretion on a matter of practice and procedure. In particular, it was pointed out that the order provokes a dispute, creating conflict concerning the policy which, as between insured and insurer, does not exist: cf. Beneficial Finance Corporation Limited v Price Waterhouse (1996) 68 SASR 19, 24, 38, 56; C.E. Heath Casualty & General Insurance Ltd v Pyramid Building Society (in Liquidation) [1997] 2 VR 256, 258, 290 ff. It is unnecessary to discuss this, the idea that the Court should declare the rights of parties to the policy at the behest of a stranger who makes no claim on or under it (cf. North Thames Regional Authority v Shepherd Robson (a firm) (1995) 50 Con LR 79, 88-92), or the other contentions raised for FAI.

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