Globe Church Incorporated v Allianz Australia Insurance Ltd [2018] NSWSC 1367 | Case summary

Referral to the Court of Appeal

Rule 1.21 of the UCPR provides: 1.21 Removal to Court of Appeal (cf SCR Part 12, rule 2) (1) The Supreme Court in a Division may, in relation to proceedings commenced in the Division, make an order that the proceedings be removed into the Court of Appeal: (a) if it makes an order under rule 28.2 for the decision of a question of law, or (b) if, having stated the question to be decided or determined, it is satisfied that special circumstances exist that render it desirable to make an order for their removal into the Court of Appeal. (2) If an order is made under subrule (1): (a) the Court of Appeal may order that the whole or any part of the proceedings be remitted to a Division for the determination, by trial or otherwise, of the proceedings or of any question arising in the proceedings, or (b) the proceedings may be continued and disposed of in the Court of Appeal. (3) Proceedings may be removed into the Court of Appeal under subrule (1) even if any decision or determination in the proceedings is expressed by any Act or law to be final or without appeal. (4) In this rule, question includes any question or issue in any proceedings, whether of fact or law or partly of fact and partly of law, and whether raised by pleadings, agreement of parties or otherwise.
Mr Herzfeld of counsel for the first defendant submitted that the following principles applied when considering whether it was appropriate to make an order for removal under r 1.21: (a) If removal is to be ordered following the statement of separate questions of law, it is not necessary to show that there are "special circumstances''' which make it "desirable" that such an order be made. However, it is necessary for the Court to be satisfied that there are at least sufficiently unusual circumstances to warrant removal; (b) The fact that a separate question involves a matter of public importance militates in favour of removal; (c) The fact that the separate question involves significant and difficult questions of law militates in favour of removal; (d) The absence or conflict of previous authority militates in favour of removal; and (e) The fact that the separate question may require findings of fact militates against removal. Conversely, the fact that it may be decided on the basis of agreed or uncontroversial facts and documents militates in favour of removal.
I accept that those principles, which are derived from Stewart v Ronalds [2009] NSWSC 455, AVS Group of Companies v Commissioner of Police [2010] NSWSC 659, and Kang v Bishop [2018] NSWSC 46, are the relevant principles to consider.
In my opinion, the existence of a conflict in legal authority in relation to the determination of the separate questions in this case is a sufficient basis to justify removal of the proceedings into the Court of Appeal. The circumstances in the present matter arise in this way.
In The Commonwealth v Vero Insurance Ltd the Commonwealth sought indemnity under the terms of a policy with Vero for remediation and related costs of damage to land caused by an oil spill on or about 20 July 1999. The facts are complicated from an insurance point of view but the Commonwealth's claim was notionally one against a reinsurer in respect of an indemnity it had provided to a particular Commonwealth instrumentality. The proceedings brought by the Commonwealth were commenced on 14 June 2011. The insurer argued that the cause of action accrued on the date of the oil spill, which resulted in the claim being statute barred.
The Commonwealth relied on two later dates, both of which were within the limitation period, being the date on which the Commonwealth notified its instrumentality that indemnity would be provided, or a later date on which the Commonwealth had made a payment to its instrumentality. Although the Commonwealth relied at [87] on what Giles J had said in Penrith City Council, that there is no breach of the contract of insurance until there is a refusal to pay, the date of that refusal was not relied upon: see at [91].
Justice Yates held at [93] that time did not commence to run from 20 July 1999 (the date of suffering the damage), but rather from the date on which the Commonwealth accepted the suffering of the damage as an insured event (at [98]), with the result that the Commonwealth's claim under the policy was not statute barred.
In the course of the judgment, his Honour noted that the Commonwealth's reliance on the decision of Giles J in Penrith City Council, and its submission that what Giles J had said at pp 568-569 had been quoted with approval by the NSW Court of Appeal in CGU Insurance Ltd v Watson (as trustee of the deed of arrangement in respect of Greaves) [2007] NSWCA 301 at [59] and [61]. His Honour noted that the same passage had been cited with approval by the Victorian Court of Appeal in Kone Elevators Pty Ltd v Popa [2006] VSCA 26 at [21].
Justice Yates said at [87] that he did not read the passage from the judgment of Giles J as supporting the submission the Commonwealth made. His Honour then went on to say at [88]: It is true that in later passages of his reasons his Honour seems to suggest that there will be no breach by the insurer until the insurer has been required to pay under the policy and has refused to do so: see at 571F-G. This part of his Honour's reasons was not quoted in CGU or cited in Kone. It seems to me that his Honour's observations in this regard were made purely by way of obiter dicta in the context of his Honour discussing other possible accrual dates in respect of which it was not necessary for his Honour to choose because none resulted in any violation of the limitation period.
His Honour then went on to discuss the decision of the Full Court of the Supreme Court of Western Australia in Cigna Insurance Asia Pacific Ltd v Packer (2000) 23 WAR 159. In that case Pidgeon J considered that Penrith City Council should not be followed because it was contrary to earlier Western Australian authority.
On the appeal by the Commonwealth, the Full Court of the Federal Court in Commonwealth of Australia v Vero Insurance Ltd [2013] FCAFC 152 held, when considering Vero's Notice of Contention relating to limitation issues, per Jagot J (Dowsett and Logan JJ agreeing) at [115]-[116], that Yates J's analysis concerning whether the action accrued in 1999 was correct. However, the Full Court said nothing about that part of the judgment of Yates J that discussed the correctness of Penrith City Council. Special leave to appeal was refused by the High Court, but the application did not concern the limitation determination: Commonwealth of Australia v Vero Insurance Limited [2014] HCATrans 136.
A different view of the correctness of Penrith City Council was reached by Stevenson J in Carillion Construction Ltd. The policy under consideration in that case was one for indemnity for property damage. Justice Stevenson held at [126] that the insured's cause of action arose when the insurer refused indemnity under the policy. His Honour noted that there was much English authority for the proposition that under an indemnity policy the insured's cause of action accrued, and time began to run, on the occurrence of the peril the subject of the indemnity. His Honour made reference to a number of texts that relied on the judgment of Sir Peter Webster in Callaghan v Dominion Insurance Co Ltd [1997] 2 Lloyd's Rep 541 at 544.
The different view adopted by Stevenson J from that of Yates J is best demonstrated by setting out the following portion of Stevenson J's judgment: [134] There is Australian authority consistent with the English authority. [135] Thus in Cigna Insurance Asia Pacific v Packer Ltd [2000] WASCA 415, the Full Court of the Supreme Court of Western Australia held that the insured's cause of action under a "Permanent Total Disablement" policy accrued, and time began to run, on the happening of the relevant event (disablement lasting 12 months): per Pidgeon J at [96] with whom Malcolm CJ and Kennedy J agreed (at [32] and [56]). [136] In Commonwealth v Vero Insurance Ltd [2012] FCA 826, Yates J seemingly accepted, albeit in obiter, the insurer's submission (advanced, as it happens, by Mr McArthur) that the position stated in Callaghan is correct (at [82] to [90]). Contrary to Mr McArthur's submissions before me, I do not read the judgment of the Full Court of the Federal Court in that case as endorsing that point of view: cf Commonwealth v Vero Insurance Ltd [2013] FCAFC 152 at [19] per Dowsett J at [19], Logan J at [53] and Jagot J at [115] to [116]. [137] In Associated Forest Holdings Pty Ltd v Gordian Runoff Limited [2015] TASFC 6, the Full Court of the Supreme Court of Tasmania endorsed the conclusions in Cigna and reached a corresponding conclusion concerning a policy in which the insurer provided cover for losses exceeding a stated sum in relation to work place accidents (per Blow CJ at [94] to [97], Porter and Wood JJ agreeing at [101] and [102]). [138] This state of the law appears to be born of a judicial apprehension that, were the accrual of an insured's cause of action against an insurer to occur only when the insured had made a claim and the insurer failed to pay (or refused) that claim, "an insured could postpone the beginning of the relevant limitation period by delaying giving notice" (Sir Peter Webster in Callaghan at 546). [139] I am not sure how well placed such apprehension is. Most indemnity policies impose on an insured an express obligation to make claims in a timely manner. If an insured delayed unduly in making a claim, the insurer may well be able to resist the claim on that basis (subject, of course, to showing prejudice for the purposes of s 54 of the Insurance Contracts Act 1983 (Cth)). [140] On the other hand, the conclusion that a cause of action under an indemnity policy occurs at the time of the peril may lead to the conclusion that, where an insured does not become aware of the occurrence of the insured peril until after the expiry of the applicable limitation period, the cause of action would arise and become barred before either the insured or the insurer became aware of it. Thus, to take the example of a fidelity policy referred to in the extract from Colinvaux referred to above, a fraudster might cover his or her tracks so effectively that the insured peril (the fraud) did not come to light until after the passage of the limitation period; measured from the date of the fraud. No doubt, the object of many fraudsters is to conceal the fraud they have committed. [141] A different opinion was expressed by Giles J (as his Honour then was) in Penrith City Council v Government Insurance Office of New South Wales (1991) 24 NSWLR 564. [142] In that case, his Honour was dealing with a professional negligence policy, that is, a liability policy. [143] However, his Honour's observations appear to me to have been intended to be of general application, and have since been endorsed by the New South Wales Court of Appeal (constituted by himself, as Giles JA, together with Spigelman CJ and Basten JA, both of whom agreed with his Honour) in a case that did concern an indemnity policy: CGU Insurance Ltd v Watson [2007] NSWCA 301. [144] In Penrith, the council had settled a claim from a third party, and sought indemnity under the relevant policy. Relevantly, the question was whether the council's cause of action against the insurer accrued when it settled with the third party or when the insurer later denied liability to indemnify. [145] Gilles J said (at 568F-G and 571F): "It is not in question that the [council] was entitled to indemnity when the [claim by the third party] was made against it, or when it gave notice of the claim to the [insurer], in the sense that it was then entitled to the benefit of the [insurer's] promise to indemnify it against the claim. But the [council's] cause of action was for unliquidated damages for breach of contract: [his Honour set out a number of authorities]. It had to establish a contract (the policy) by which the [insurer] promised to do something (indemnify it against [the third party's] claim), and breach of that contract (failure to indemnify it against [that] claim). It could then recover the loss suffered as a consequence of that breach. The plaintiff's cause of action accrued upon breach. Thus it must be asked what the [insurer] was required to do in performance of its promise, and when it failed to do what was required of it. Only when the [insurer] failed to do what was required of it could a cause of action for damages for breach of contract accrue to the [council]. There was no cause of action simply because [the third party] made its claim or the claim was notified to the [insurer] - the [insurer] could have thereafter fully performed its promise… Unliquidated or not, the damages [that an insured can claim] are damages for breach of contract, and there will be no breach until the insurer has been required to pay or do some other act in performance of its promise and has failed or refused to do so." [146] Thus, his Honour's conclusion was that an insured's cause of action for damages for breach of contract only accrues when the insurer "failed to do what was required of it". [147] On the facts, his Honour concluded that the insured council's cause of action accrued, and time began to run, either when the council's liability to the third party was established (by a settlement) or, alternatively, by reason of there being a "continuing refusal to provide indemnity so that the [insurer] was in breach when liability was established", or, alternatively, when the insurer confirmed its refusal of indemnify after the settlement (at 571B-C). The fact that his Honour contemplated that the insured council's cause of action accrued at any one of these times makes clear that his Honour's conclusions did not depend on the policy under consideration being a liability policy, rather than an indemnity policy. [148] His Honour was thus drawing a distinction between the chose in action of the insured council, namely the right of indemnity provided by the policy (to indemnify the council against the third party's claim) and any cause of action open to the council to "then and there claim damages from the insurer for breach of contract in failing to provide indemnity" (see 570E). [149] Giles J's statements were referred to in each of Cigna, Vero and Associated Forest. [150] In Cigna, Pidgeon J held that if Giles J's statements were intended to be a "principle of general application" they were inconsistent with an earlier Western Australian decision in Tillotson v ANZ Life Assurance Co Ltd (1997) 9 ANZ Ins Cas 77,131 and should not be followed (at [70] and [90]). [151] In Vero, Yates J discounted the weight of Giles J's remarks (without actually rejecting them) because they were obiter and not "quoted in CGU" (see [88]). I do not read Giles J's conclusions as obiter. It was also not correct for Yates J to say that Giles J's statements were not "quoted in CGU" (see [61] of CGU). [152] In Associated Forest, Blow CJ held that Penrith was distinguishable on the facts (at [94]). [153] As I have said, the Court of Appeal has now endorsed Giles J's statements. [154] I have held that the proper law of the Policy is that of the Northern Territory. My attention has not been drawn to any authority relevant to this question from the Northern Territory. Neither counsel suggested, and I see no reason to conclude, that the law of the Northern Territory is or should be different from the law of another state or territory on this question. [155] In those circumstances, faced with what I see to be conflicting intermediate appellate authority on the question, and for the reasons I have set out at [138] to [140] above, I prefer to follow the decision of Giles J in Penrith, as endorsed in the New South Wales Court of Appeal in CGU. [156] As Giles J pointed out, a distinction is to be drawn between the time when an insured's entitlement to indemnity arises and the time when its entitlement to sue for damages for breach of contract arises (see [148] above). It may well be that an insured under an indemnity policy would be entitled, immediately on the occurrence of the peril, to seek a declaration of its entitlement to indemnity. But its entitlement to sue for damages for breach of the promise of indemnity only arises only when the insurer has not done "what was required of it" under the policy. (emphasis added)
In 2015 the Full Court of the Supreme Court of Tasmania in Associated Forest Holdings Pty Ltd v Gordian Runoff Ltd [2015] TASFC 6 at [94]-[96] followed Cigna and distinguished Penrith City Council.
The position is, therefore, that two intermediate appellate courts (the Full Court of the Supreme Court of Western Australia and the Full Court of the Supreme Court of Tasmania) lend support to the view of Yates J in the Federal Court, whereas Stevenson J calls in aid of his decision the approval of the New South Wales Court of Appeal. In addition, although it was not referred to by Stevenson J, the decision of the Victorian Court of Appeal in Kone Elevators at [21] accepts the correctness of the judgment of Giles J in Penrith City Council in saying that the right of action for breach of contract accrued at the time of the breach and not at the time of suffering the damage. It should be noted also that the New South Wales Court of Appeal in CGU v Watson made express reference at [60] to the judgment in Kone Elevators.
This is not simply a dispute between the NSW and Victorian Courts of Appeal on the one hand and the Tasmanian and Western Australian Full Courts on the other. If that were so, no occasion would arise to refer the present matter to the Court of Appeal because any single judge of this Court would be bound by what was decided in CGU. The focus of the submission of the first defendant in the present case is the extent to which the Court of Appeal in CGU endorsed the conclusion of Giles J in Penrith where his Honour said (at 571E-G): In looking to breach of contract, my approach is in accord with that of Nathan J in Hunter v Stronghold Insurance (Aust) Ltd (Supreme Court of Victoria, 18 January 1991, unreported), where his Honour held that the cause of action of the insured under a burglary policy arose only upon the insurer refusing indemnity and not when the burglary occurred or when the insured gave notice of his loss. In Chandris v Argo Insurance Co Ltd (at 74), Megaw J said that because the proceedings were for unliquidated damages the insured could bring proceedings "without alleging that demand for payment has been made on the insurer". His Lordship went on to say that this produced the curious result that "the insurer may technically be in breach of his contract before any demand is made of him and before it is possible for him, or the assured, to compute the amount which he ought to pay". For my part, I do not see why the nature of the insured's proceedings has these consequences. Unliquidated or not, the damages are damages for breach of contract, and there will be no breach until the insurer has been required to pay or do some other act in performance of its promise and has failed or refused to do so. It is true that many cases concerning liability policies seem to equate the establishing of liability to the third party with the accrual of the cause of action, including some of the cases to which I next refer. But it is not often that the difference is material, and in principle it seems to me that proceedings on a liability policy for damages (with declaratory proceedings there are different considerations) require regard to breach of contract.
The first defendant submitted that this passage was not referred to by the Court of Appeal in CGU and that it, therefore, does not follow that Stevenson J was correct in following it on the supposed basis that it had been endorsed by the Court of Appeal. The first defendant submitted that the passage at 571E-G was obiter dicta, and that only the ratio only of Giles J's decision (at 568-569) was endorsed by CGU at [59] and [61].
The first defendant submitted that a judge of this Court at first instance would be in an invidious position if called upon to determine the separate questions. That judge would feel bound to follow Stevenson J unless clearly persuaded that his Honour was in error, but would also be expected to follow interstate intermediate appellate courts. The first defendant submitted that, if the matter was referred to the Court of Appeal, that Court could authoritatively rule on the correctness of Penrith City Council and clarify what had been endorsed in CGU. The first defendant submitted that it would seek leave to argue that, to the extent that CGU had endorsed Penrith City Council at 571, the Court of Appeal should review its decision in CGU.
The first defendant submitted that, if the question was decided by a single judge adversely to the defendants, an appeal was very likely with the added costs and time involved in that process.
The second defendant submitted that the cases, when examined, did not disclose any inconsistency. The second defendant submitted that although it was "not wedded either way", it considered that a single judge would be able to reach a correct decision notwithstanding what appears to be a façade of inconsistency in the cases. The second defendant submitted that the Court of Appeal may consider it would be assisted by having a judgment from a judge at first instance if it came to consider the matter on an appeal. The second defendant submitted that the inevitability of an appeal from one or other party was not a sufficient justification for sending the proceedings directly to the Court of Appeal.
The plaintiff indicated that its position was simply that it would rather have one hearing. In that way if the matter was referred to the Court of Appeal, that would eliminate the risk of two hearings, with a single judge reaching a decision on the basis of the authorities followed by an appeal to the Court of Appeal. The plaintiff's concern was principally, however, about the risk that it might bear the costs of two other parties if it was unsuccessful on the hearing of the separate question. For that reason, the plaintiff sought an order that if the matter was referred directly to the Court of Appeal any costs that the plaintiff would have to pay should be limited to one set of defendant's costs.
In reply, the first defendant said that any argument before a single judge of the separate questions would mean that the first defendant would be hamstrung in that it could not suggest that the Court of Appeal was wrong in the view it took in CGU. It might be able to argue that Stevenson J's decision was wrong in the way he saw the endorsement of CGU for Penrith City Council, but a direct hearing in the Court of Appeal would remove that as an issue. The Court of Appeal could simply be asked to determine the correctness or otherwise of the other intermediate appellate courts.
Following the expression of concern by the plaintiff about being liable for two sets of defendant's costs, I enquired of counsel for both defendants what their positions were as far as agreeing that the plaintiff would only be liable for one set of defendant's costs at the hearing of any separate question. The solicitors for the defendants subsequently forwarded emails to my Associate saying that, if I was minded to make an order for the determination of the separate questions, their clients would not oppose such a limitation on any costs order.
On an application to remove the proceedings into the Court of Appeal following a decision for the separate determination of questions, it is not part of the function of the Court to do other than consider whether or not there is a sound basis for the Court of Appeal to determine the questions in the first instance. Where the basis for doing so is a conflict between decisions of intermediate appellate courts and a conflict between single judges in this Court and the Federal Court, it is sufficient to see that there is at least a serious argument that such a conflict exists. It is not for me to determine, for example, if Stevenson J was correct in the view he reached that the Court of Appeal in CGU had endorsed the totality of what was said in Penrith City Council.
I am satisfied that on the face of the decisions in Carillion Construction on the one hand and Commonwealth v Vero Insurance on the other there is a conflict inasmuch as the single judges deciding those cases have relied on authority from intermediate appellate courts that have taken a different view of the particular issue. The parties before me made no reference to the decision of the Victorian Court of Appeal in Kone Elevators, and that decision serves only to highlight the difference amongst the intermediate appellate courts of the country.
I accept the submissions of Mr Herzfeld that clarification is needed at an appellate level of the principle or principles referred to by Giles J in Penrith City Council. I accept his submission that an argument before a single judge of the Court would be hamstrung by various principles of stare decisis concerning judgments of other single judges of this Court and obligations with regard to appellate courts of other States. I accept also that if the first defendant intends to argue that CGU was wrongly decided, that argument can only be put to the Court of Appeal. This is also not a case where the Court of Appeal is likely to be further assisted by having a judgment of a single judge. It will have available not only the judgments of Stevenson J and Yates J but also the other judgments of intermediate appellate courts.
I accept also that the insurance point is a significant one for insurers and that there is a very strong likelihood of an appeal from a single judge if the questions were determined adversely to the defendants. I consider also that, bearing in mind the value of the claim (well in excess of $500,000), there is a reasonable likelihood that the plaintiff would appeal if the questions were decided adversely to it. Ordinarily, the likelihood of an appeal is not a strong reason to refer a matter to the Court of Appeal. In the present circumstances, however, where the principal reason for referral is an apparent conflict in decisions of various courts, the issue of a likely appeal from a single judge assumes greater significance.
I consider, however, that the plaintiff should be protected from having to pay two sets of defendants' costs in the event that the plaintiff is unsuccessful. The plaintiff was forced to join both defendants because of the arrangement of the policy, with each defendant bearing a proportion of any indemnity that has to be paid. It would be inappropriate for the plaintiff to pay two sets of costs where the same arguments were put by the defendants. Further, if different arguments are put to maximise the chances of success of the defendants, the plaintiff should not be required to pay for that. It will be for the Court of Appeal to determine how the defendants will be required to pay any costs ordered in the plaintiff's favour.

Globe Church Incorporated v Allianz Australia Insurance Ltd

At a glance

Court

Decision date

Before

Source

Judgment (7 paragraphs)

Parties

Legislation Cited (7)

Cases Cited (20)

Cited By (1)